Journal of Contemporary Law Vol. 02

TABLE OF CONTENTS: Controlling Multi-National Corporations; The Presumption of Innocence and the American Juror; Presentencing Reports - The Right of Disclosure; The Lawyer's Role: Watergate as Regularity Rather Than Aberration; Making NEPA work: Recommendations for Improving the Use of Environmental Impact Statements in the Decision-Making Process; Sierra Club v. Morton: Does NEPA Require Preparation of Comprehensive Impact Statements for Related Federal Projects; Jury Size and the Limitations of Probability Theory: A Rejoinder to Saks and Ostrom; Utah's Equal Credit Opportunity; A Windfall for a Bankrupt Spendthrift Trust Beneficiary; Dramatic Comedy and the Law; Book Review: The Monkey Wrench Gangl; Helter Skelter

vol. 2 no. 1 winter 197 University of Utah College of Law OURNAL >F CONTEMPORARY LAW Journal of Contemporary Law Please enter my subscription to the Journal for: • 1 year - $5.00 • Student rate - $3.00 School n Automatic renewal on an annual basis. • Subscription for 1 year only. • Payment enclosed (make checks payable to the Journal of Contemporary Law) • Bill me N a m e - - Date Address . CitV State- Zip. Journal of Contemporary Law PLACE STAMP HERE Subscription & Circulation Editor Journal of Contemporary Law University of Utah College of Law Salt Lake City, Utah 84112 JOURNAL OF CONTEMPORARY LAW VOLUME 2 WINTER 1975 NUMBER 1 ACKNOWLEDGEMENTS We give our sincere thanks to the Associated Students of the University of Utah and to the College of Law for their continued support. We also express our appreciation for the efforts of Jill Ottosen, Bruce Zimmer, Bernice Dean, Tina Allred, Clarice Kauffman, Vicki Parrish, and the other members of the Law School Staff and Faculty who aided in providing the tech­nical support to make the Journal possible. The Journal of Contemporary Law is published semiannually at the University of Utah College of Law, Salt Lake City, Utah 84112. Subscriptions: United States and Possessions, $5.00 per year; Foreign, $6.50, (postage included). If a subscription is to be discontinued at expiration, notice should be sent; otherwise, it will be renewed on an annual basis. Single issues may be obtained for $3.00 per copy. All communications should be sent to the Journal offices. The Editors will consider all manuscripts submitted. Copyright © 1975 by the Journal of Contemporary Law. Authors of copyrighted material contained in tins volume have the permission of the Journal to make any use of that material without further authorization. Views expressed herein are to be attributed to their authors and not to the Journal, its editors, or the University of Utah, unless otherwise indicated. Printed in the United States of America by the University of Utah Printing Service. JOURNAL OF CONTEMPORARY LAW VOLUME 2 WINTER 1975 NUMBER 1 WINTER 1975 EDITORIAL BOARD Brian C. Rabe Editor-in-Chief J. Steven Eklund Managing Editor Thomas T. Billings Executive Editor Steven Alder, H.D. Brest van Kempen and Michael J. Wilkins Associate Editors Gary G. Sackett and Alan Eccles Matthies Technical Editors Kathryn A. Sticklen Book Review Editor Denise A. Dragoo and William C. McGregor Production Editors Peter E. Braveman Business Manager Craig W. Anderson Milton Allan Barlow Ralph E. Becker, Jr. William G. Bissell ARTICLE EDITORS Stephen G. Homer Jacob J. Hoogland Paul H. Landes Lynda Lawrence John F. Legris Cadierine C. Meyer William H. Rutter Kathryn L. Schuler Robert Scott Wynn Professor Jefferson B. Fordham and Professor Lionel H. Frankel Faculty Advisors JOURNAL OF CONTEMPORARY LAW VOLUME 2 WINTER 1975 NUMBER 1 CONTENTS ARTICLES Controlling Multi-national Corporations The Presumption of Innocence and The American Juror Presentencing Reports - The Right of Disclosure The Lawyer's Role: Watergate as Regularity Rather Than Aberration Brian Walton 1 Michael J. Saks, Carol M. Werner and Thomas M. Ostrom 46 Christine S. Decker and Ronald J. Yengich 55 Daryl R. Fair and David H. Moskowitz 75 Focus on the Environment Making NEPA Work: Recommendations for Improving the Use of Environmental Impact Statements in the Decision-Making Process Sierra Club v. Morton: Does NEPA Require Preparation of Comprehensive Impact Statements for Related Federal Projects Book Review: The Monkey Wrench Gang Jury Size and the Limitations of Probability Theory: A Rejoinder to Saks and Ostrom Lee Kapaloski 83 Barbara Polich 99 Bruce Plenk 110 Robert P. Charrow 114 Utah's Equal Credit Opportunity Denise A. Dragoo 121 A Windfall for a Bankrupt Spendthrift Trust Beneficiary? Luke H. Ong 139 Dramatic Comedy and the Law Raymond L. Hogler 144 Book Review: Helter Skelter Suzan Pixton and Catherine C. Meyer 158 Book Received 159 In creating a journal which is readable and interesting as well as scholarly, several changes have been made from traditional law review format. Heavy reliance has been placed upon The MLA Style Sheet for matters of punctuation and style. In addition, student contributions have not been pigeonholed under headings of "Comments", "Notes", "Recent Cases", "Recent Statutes", "Case Notes", "Recent Developments" and "Abstracts". This may cause some consterna­tion to students trying to cite the Journal in accordance with A Uniform System of Citation. We have found that the content we wish to present does not lend itself to such arbitrary categorization. Nor are all the "Book Reviews" banished to the rear of the Journal. Book reviews are located elsewhere as appropriate. The Editors 19751 MULTI-NATIONAL CORPORATIONS 1 CONTROLLING MULT-NATIONAL CORPORATIONS* Brian Walton** At least four assumptions are implied in a discussion of control of multi-national corporations. First, that we know what multi-national corporations are; second, that we know what they are doing; third, that we perceive effects of their existence and conduct which we are not prepared to accept without exerting some form of control; and fourth, that multi-national corporations can be controlled. Unfortu­nately, it is not yet clear whether any of these assumptions is accurate in any but a very general way.1 As discussed below, this is partly because of a lack of specific information. Suggestions of control thus based on inaccurate assumptions and inadequate information have obvious limitations. But they also have the benefit of placing the burden on others to challenge those assumptions and provide cor­rective information. PART ONE: AN OVERVIEW I. STATE OF KNOWLEDGE Multi-national corporations are rapidly finding themselves famous.2 There has recently been an explosion of literature on the subject/' and it will likely continue.4 However, the quality of information is still not very good, especially regarding the inner workings of the multi-national corporations and their decision-making processes/' Most of the existing information, particularly the statistical data, is American,6 described as forty years in advance of that of Continental Europe/ The differences have been attributed to the Anglo-American disclosure laws, primarily the 1933 * This article was written in 1974 using the data then available. It should be stressed that the facts and developments in the area are in a constant state of flux and that this article attempts only a compilation of the major factors relating to the operation and control of multi-national corporations. ** Member of the California Bar and associate in the firm of Keatinge, Libott, Bates, and Pastor, Los Angeles. B.A. 1969, Brigham Young University; J.D. 1974, University of Utah. As will be apparent throughout this paper, many observations made herein are applicable to corporations in general. In that sense, much of the literature in this area parallels a burgeoning literature calling for redefinition and new controls of U.S. corporations. I suggest that any talk of controlling U.S. corporations rests on similar assumptions as those here suggested, and likewise they are only partially accurate. 2 Rose, The Rewarding Strategies of Multi-nationalism, FORTUNE, Sept. 15, 1968, at 104. 3 See, R. EELLS, GLOBAL CORPORATIONS: THE EMERGING SYSTEM OF WORLD ECONOMIC POWER 151 (1972) [herinafter cited as EELLS]. See generally, R. VERNON, SOVREIGNTY AT BAY (1971) [here­inafter cited as VERNON]. 4 Vagts, The United States of America and the Multinational Enterprise, in NATIONALISM AND THE MULTINATIONAL ENTERPRISE (H. Hahlo, J. Smith & R. Wright eds. 1973). 5See L. TURNER, INVISIBLE EMPIRES 190-91 (1970) [hereinafter cited as TURNER]. "Id. at 1-2. 7 H. STEPHENSON, THE COMING CLASH 133 (1972) [hereinafter cited as STEPHENSON]. 2 JOURNAL OF CONTEMPORARY LAW [Vo1- 2 and 1934 Securities and Exchange Acts.8 The relative abundance of American information possibly explains a lopsided emphasis on American-based multi­national corporations in the literature,9 but the cry for more information is wide­spread. 1" II. STRUCTURE AND CHARACTERISTICS A surprising amount of the literature is concerned with defining what are variously referred to as global, world-wide, multi-, trans-, inter-, or super-national corporations.11 Some of the definitions are merely descriptive (structural and quantitative), although some use definitions to relate the institution to the socio­political background in which it operates (functional and qualitative).12 This section will attempt a definition of the first kind, but will only hint at the second by listing characteristics. A more qualitative definition seems better placed later. STRUCTURE Structurally, there are three general types of enterprises to which the term multi-national corporation could attach: (1) Public International Companies; (2) Multi-National Joint Ventures or Partnerships, and (3) Nationally-Based Multi- National Corporations. 1) Public International Company. This type of institution is a conception of public international law, usually created by a treaty between two or more national governments. It is often, although not invariably, created to promote a governmental purpose of some kind. Examples are the Bank of International Settlements, the International Finance Corporation, the Societe Europeene pour le Financement de Material Ferroviaire (EURO-FINA), the Societe d'Energie Nucleaire Franco-Beige des Ardennes (SENA), the Societe Internationale de la Mosselle (SIM), the Union Charbonniere Sarro- Lorraine (SAARLOR) and the Societe Europeene pour le Traitment Chimique des Combustibles Irradies (EUROCHEMIC). Most of these companies are European,13 and serve development functions often performed in the United States by private industry under contract to federal agencies such as the Atomic Energy Commission. 8 15 U.S.C. §§ 77 et seq. & 78 ct seq. 0 Rolfe, The International Corporation in Perspective, in THE MULTINATIONAL CORPORATION IN THE WORLD ECONOMY 9 (S. Rolfe & W. Damm eds. 1970); TURNER, supra note 5, at 1-2. "E.g., TURNER, supra note 5, at 175, 86-87, 102-103; G. BANNOCK, THE JUGGERNAUTS: THE AGE OF Tin: BIG CORPORATIONS 324 (1971); Goldie, Development of an International Environmental Law- An Appraisal, in LAW, INSTITUTIONS AND THE GLOBAL ENVIRONMENT 211, 217-18 (J. Hargrove ed. 1972); cf. Mueller, Corporate Secrecy v. Corporate Disclosure, in CORPORATE POWER IN AMERICA 1 11-29 (R. Nader & M. Green eds. 1973). 11 E.g., VERNON, supra note 3, at 4; Feltham & Rauenbusch, Canada and the Multinational Enter­prise, in NATIONALISM AND THE MULTINATIONAL ENTERPRISE, supra note 4, at 46-47; Coing Germany and the Multinational Enterprise, in NATIONALISM AND THE MULTINATIONAL ENTERPRISE supra note 4 at 87-88; TURNER, supra note 6, at 2-6; EELLS, supra note 3, at 21-42. 12 E.g., EELLS, supra note 3, at 11, 45-55; cf. N. CHAMBERLAIN, THE LIMITS OI CORPORATE RE­SPONSIBILITY 3-10, 139-50 (1973) [hereinafter cited as CHAMBERLAIN]; Flynn, Corporate Democracy in CORPORATE POWER IN AMERICA, supra note 10, at 94-110. n See W. BISHOP, INTERNATIONAL LAW, 291 (3d ed. 1971) and sources cited therein. 1975 ] MULTI-NATIONAL CORPORATIONS 3 Public International Companies are not a concern of this paper because they are, for the most part, accountable to the governments of those on whom they have an effect, and their functions do not cause the type of problems associated with the second and third general types. 2) Multi-National Joint Ventures or Partnerships. This institution shares many of the functional attributes of a nationally-based multi-national corporation and will be treated as identical for many purposes in the analysis to follow. However, it is not dominated by a parent corporation in any one country; it is rather a union, a partnership, or a heavily integrated joint venture that draws its multi-national character, apart from its implantation in more than one country, from the multi-national origin of its capital resources and personnel. It usually occurred when two companies which desired to merge for economic reasons had their efforts frustrated by legal and/or national bound­aries. The union serves as a substitute. This type of multi-national enterprise is less widespread than the nationally-based, multi-national variety and tends to receive less attention in the literature. Unilever, a union between Unilever N. V. (Netherlands) and Unilever Ltd. (U. K.) consummated in 1937/' and Royal Dutch Shell, a union of Royal Dutch (Netherlands) and "Shell" Transport and Trading Co. Ltd. (U. K.) consummated in 1907, are the two largest examples. Others are Dunlop Holdings Ltd. (U. K.) and Pirelli s.p.a. (Italy) in 1970; Agfa A. G. (Germany) and Gevaert Photo Production N. V. (Belgium) in 1964; V.F.W. (Germany) and Fokker N. V. (Netherlands) in 1969; and Saviem, Renault's truck-producing subsidiary, (French) and Man, a German truck manufacturer.1"' As is readily obvious, they are predominantly European based, although their operations will often stretch across the Atlantic and into the less developed countries. 3) The Nationally-Based Multi-National Corporation. This institution has a parent corporation in one country and wholly- or majority-owned and parent-controlled subsidiaries in others. Examples are legion: International Business Machines (IBM)/6 General Motors, Ford, and International Telephone and Telegraph (ITT) are probably the most prominent American-based multi-nationals; British Petroleum17 and Volkswagen are British and Eu­ropean examples; Mitsubishi, Toshiba and Sumitomo are Japanese. Most of the parent corporations of these types of multi-nationals are based in the United 14See EELLS, supra note 3, at 53-58 for a history of the development of Unilever since 1927. 15 Schmitthoff, The Multinational Enterprise in the United Kingdom, in NATIONALISM AND THE MULTINATIONAL ENTERPRISE, supra note 4, at 30-31; Leleux, France, Belgium, European Economic Community and the Multinational Enterprise, in NATIONALISM AND THE MULTINATIONAL ENTERPRISE, supra note 4, at 101-102. For a discussion of IBM's world-wide strategy, see Flavin & Parisot, The IBM World Trade Planning System, in MULTINATIONAL CORPORATE PLANNING, 81-98 (G. Steiner & W. Cannon eds. 1966). ' For a discussion of ICI's organization, see Edwards, Organizing for Planning in Imperial Chemical Industries, in MULTINATIONAL CORPORATE PLANNING, supra note 16, at 61-80. 4 JOURNAL OF CONTEMPORARY LAW [V o L 2 States, and the United States multi-nationals are generally bigger than t ose ase in Japan and Europe.18 CHARACTERISTICS The multi-national corporation (hereinafter MNC) with which this article deals may be structurally defined as follows: A combination of companies of different nationalities, connected by means of shareholdings, managerial control or contract, constituting an economic unit, and controlled by a central mechanism of some kind, usually a parent corpora­tion. 19 MNC's seem to have three main characteristics: (1) large size, including massive research and development capabilities; (2) a global scope; and (3) a rationalization capability made possible by centralized control of decentralized extraction or pro­duction, distribution and marketing. Estimates are that the foreign sales of MNC's in 1970 amounted to $350 billion and will rise to $900 billion (in 1970 dollars) by 1980; i.e., from 10% to 16% of the gross world product.2" Another estimate predicts diat by 1988, the top 200 or so MNC's will be comparable in economic size to nation-states. For example, IBM, which is the fastest growing MNC, will almost certainly, antitrust authorities willing, have a turnover in excess of $100 billion and could well have a turnover larger than the GNP of any nation except the United States.21 IBM illustrates the giantism of the MNC's. In 1974, it was die sixth largest in the world, with 17 plants in 13 nations and marketing subsidiaries in most non-communist countries. Its physical assets were then worth approximately $7 billion, and at its peak Wall Street sources have valued it as high as $40 billion, approxi­mately double the GNP of nations such as Sweden, the Netherlands, Belgium or Spain. It currently employs some 250,000 persons world-wide and controls at least 65% of the non-communist world's computer market (an atypical monopoly position) which is expanding at the rate of 20% per year. Light-hearted executive projections of the company's growth are rumored to suggest a turnover in the year 2000 equal to that of all other industrial combines togedier.22 General Motor's turnover of $24 billion per year is greater than the GNP of Belgium or Switzerland. Its world-wide payroll bill of $7 billion approximates the GNP of Greece.23 Similarly, Unilever and British Petroleum each have turnovers in excess of the GNP of Spain or Australia.24 Figure 1 compares the M Hymer fit Rowthorn, Multinational Corporations and International Oligopoly, in THE INTER­NATIONAL CORPORATION 59-71 (C. Kindleberger ed. 1970). 10 This definition is the writer's; for other definitions, see note 10, supra. 20 Kicrans, The Cosmocorporations: An Unsympathetic View, in NATIONALISM AND THE MULTI­NATIONAL ENTERPRISE, supra note 4, at 171. For statistics on rates of return of investments and earn­ings, see XXII Congress of the International Chamber of Commerce, in THE INTERNATIONAL CORPORATION, supra note 18, at 20-26. " TURNER, supra note 5, at 191. 23 Id. at 19; see STEPHENSON, supra note 7, at 136-38. 23 STEPHENSON, supra note 7, at 5-7. 24 Id. 1975] MULTI-NATIONAL CORPORATIONS GNP of various countries with the sales turnover of some large MNC's, in billions of dollars, for 1967. FIGURE 1 The Gross National Products of various countries compared with the sales turnover of some larger multi-nationals, measured in billions of dollars (1967).25 Countries Multi-nationals Spain Sweden Netherlands Belgium Switzerland Denmark Austria Turkey Norway Greece 26.6 23.9 22.8 20.0 19.7 15.9 13.3 12.2 10.6 10.6 10.5 8.4 8.3 7.7 7.1 6.2 5.7 5.6 5.3 5.1 4.6 General Motors Standard Oil (New J Ford Royal Dutch Shell General Electric Chrysler Mobil Oil Unilever International Business Machines Texaco Portugal The research and development capabilities of MNC's, especially those based in the United States,26 are very high.27 IBM, for example, spent between $4.5 and $5 billion on research and development for its third generation, System 360 Series computers. Such an amount was twice that spent on the Manhatten Project, which developed the American atomic bomb in World War II,28 and was equal to the amount budgeted by France for expenditure on its nuclear force from 25 TURNER, supra note 5, at 135-36. 24 VERNON, supra note 3, at 66-69. 27 Id. at 8-13; Vagts, supra note 4, at 3-4. 28 STEPHENSON, supra note 7, at 5-7. 6 JOURNAL OF CONTEMPORARY LAW [Vol. 2 1965 to 1970.28 It is possible that in the inflated world economy, combined with the particular politics of the several nations, these figures exaggerate the importance of MNC's.3" They do, however, leave a correct impression of bigness. 2) Global Scope MNC's sit outside national boundaries linking the assets and activities of many national jurisdictions.31 The world is their playpen. They increasingly downplay nationalities, avoid the word "foreign" in their public relations,32 and think inter­nationally in their business strategies. Robert Stevenson, Ford Motor Company's Executive Vice-President in 1970 for international automotive operations, summed up his company's global strategy: It is our goal to be in every single country there is, Iron Curtain countries, Russia, China. We at Ford Motor Company look at a world map without bound­aries. ******* We don't consider ourselves basically an American company. We are a multi­national company. And when we approach a government that doesn't like the U.S. we always say, "Who do you like? Britain? Germany? We carry a lot of flags. We export from every country." 33 There now exists a growing number of companies whose foreign investment and manufacturing are an equal or more important part of their total operation than domestic activity.34 Most of them are American. In 1969, the foreign direct investment of American corporations totalled $71 billion according to a Department of Commerce study, but it has been persuasively suggested that they probably control assets worth nearly twice that amount.35 In 1970, at least 3,400 American corporations had over 8,000 subsidiaries throughout the world,36 and foreign subsidiaries accounted for over one-fourth of the sales, earnings, and assets or employees of 80 of the 200 largest American firms.37 Britain 29 Waltz, The Myth of National Interdependence, in THE INTERNATIONAL CORPORATION, supra note 18, at 217. 30 Maurice Zimkin, Economic Advisor to Unilever, has said: The Chairman of General Motors does not have the power of a local councillor who can compulsorily acquire our house, or of a bishop who can tell us not to family plan, or even of die star in the Michelin Guide who tells us where to eat and drink. As for the politicians who tell us what taxes we will pay, how much fruit Uiere will be in our jam and what hours we may buy our drink - the mere comparison of a businessmen widi them is ridiculous. STEPHENSON, supra note 7, at 7. 11 See VERNON, supra note 3, at 5. 12 See Rose, supra note 2, at 10. 3J A Rougher Road For Multinationals, BUSINESS WEEK, Dec. 19, 1970, at 58-59 [hereinafter cited as A Rougher Road], iM STEPHENSON, supra note 7, at 9-10. :'5 VERNON, supra note 3, at 18; see CHAMBERLAIN, supra note 12, at 157, and STEPHENSON, supra note 7, at 4-5. ™A Rougher Road supra note 35, at 58; CHAMBERLAIN supra note 12, at 157. Other estimates have placed the number of U.S. overseas subsidiaries as high as 18,000. See EELLS, supra note 3, at 37 CHAMBERLAIN, supra note 12, at 157. Examples of American companies nr^ s.t^A J rvi c KT Jersey (ESSO), ITT, Singer, Colgate-Palmolive, Mobile Oil, Nat.onT S R e | S « . ^ N C R ) Srn 1975 ] MULTI-NATIONAL CORPORATIONS 7 is distant second with approximately one-fourth the number of American holdings.38 Together, British and American corporations owned eighty percent of all foreign investment at the end of the 1960's,39 and the foreign assets of British corporations were still more than those of the Japanese, French, German and Swedish corporations combined.40 However, non-American multi-nationals are not insignificant, and they are growing.41 The American lead has been cut down recently, which, it has been argued, . . . simply underscores that the multi-national corporation is not an American invention or an American property. Three out of every ten workers employed by Swedish firms now work outside Sweden, for example, and Japanese and German firms now have the highest growth rate in the world for foreign direct invest­ment. 42 Unilever has 136 foreign subsidiaries in 44 countries; British Petroleum, includ­ing Sohio in the U.S.A., has 147 foreign subsidiaries in 48 countries, and Imperial Chemical Industries has 24 subsidiaries in 13 countries.43 In some respects, major European firms are more international than their American counterparts. For example, DuPont has only 11% of its sales abroad, General Electric only 18%, General Motors only 14%; Ford had only 36% in 1967-68 when it was hurt badly in the United States by strikes. In comparison, Volkswagen sells 67% outside Germany, Imperial Chemical Industries 50%, and British Leyland 42% outside Britain. Hoechst, the German chemical producer, sells 46% outside Germany,44 and Nestle, Swiss-based, makes 97.5% of its sales outside Switzerland.45 Japanese MNC's present a unique situation. Since World War II Japan has exported mass-produced and highly technical products at a relatively low cost. As a result, however, many nations have established import restrictions on these goods. To overcome this trade barrier, many Japanese firms are now establishing manu­facturing subsidiaries in other countries.46 Devaluation of the dollar and the expansion of the Japanese industrial capacity has led to a notable increase in foreign investment in the United States. However, American dominance is still significant. In 1972, foreign investment in the United States totalled around $15 billion while overseas investment was a a round $90 billion.47 Vernon finds no case for "transatlantic" symmetry: Products, Goodyear and Sperry Rand, where foreign investment and manufacturing are an equal or greater part of total operations. Nestle, Bayer, Dutch Phillips, and British Oxygen are lesser known European examples. STEPHENSON, supra note 7, at 9-10. 38 CHAMBERLAIN, supra note 12, at 157; STEPHENSON, supra note 7, at 24. 39 STEPHENSON, supra note 7, at 4-5. 40 Id. at 24. 41 Rolfe, supra note 9, at 6. 42 CHAMBERLAIN, supra note 12, at 157. 43 Schmitthoff, supra note 15, at 28. 44 TURNER, supra note 5, at 38. 4SId. at 2. 48 Chudson, Africa and Multinationals, in NATIONALISM AND THE MULTINATIONAL ENTERPRISE, supra note 4, at 145. 47 The Foreign Invasion, TIME, April 2, 1973, at 85-86. 8 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 In the future, as in the decades past, the world may have to view the multi-i • • i L mor,nn in which the American national enterprise as an asymmetrical phenomenon u» ™ version is thought of as distinctive in scope and in strength. 3) Rationalization Capabilities The terms "global strategy," "rationalization,"40 "commonization," "coordina­tion," "integration" and "centralization" recur in the literature which attempts to define MNC's.™ They refer to the capability of MNC's to act as one cohesive economic unit, directed usually by a central brain, and able to unify the processes of management, capital flow, and the production and distribution of goods and services. From this capability stem many of the problems associated with the MNC's, as well as the benefits. Rationalization depends upon the size and global scope of the MNC's and more specifically on centralized management power and decentralized operating units. Most studies conclude that major MNC decisions are centrally made by the parent corporation while the minor daily decisions are made by the foreign subsidiary, the operating unit;51 i.e., an international "management by telex."52 The degree of strictness of control varies from company to company. Vernon's analogy to the rule of St. Augustine - "Love God, then do what you like" - possibly sums up the parent-subsidiary relationship.53 Although there are examples of successful subsidiaries becoming the dominant force in an MNC because of growth or productivity,54 the rationalization does not diminish - it is just controlled from another location. Because of the dominance of American-based MNC's, most of die rationaliza­tion decision-making is in the hands of Americans.55 Some argue that this is changing, pointing, for example, to Jacques Maison-Rouge, die French President of IBM World Trade Corporation and a few other non-Americans climbing the American-based MNC management ladders.56 Such examples are currendy few, probably because it takes a long time for anyone to climb tiiose ladders - 15 to 30 years 57 - and the growth of MNC's has occurred most dramatically in the last 20 years. The nationality of management is not of overriding importance, 48 VERNON, supra note 3, at 122. 40 The writer believes this term is useful in capsulizing the characteristic under discussion. Accord­ing to NUTTALS' STANDARD DICTIONARY (1929), "rationalization" means: The application of scientific organization to industry, by the unification of the process of production and distribution with the object of approximating supply and demand. STEPHENSON, supra note 7, at 149. 00 E.g., STEPHENSON, supra note 7, at 149; Chudson, supra note 46, at 137; Schmitthoff, supra note 15, at 24; Johnson, Economic Benefits of the Multinational Enterprise, in NATIONALISM AND THE MULTINATIONAL ENTERPRISE, supra note 4, at 167, 169-70; Kierans, supra note 20, at 174. See generally MULTINATIONAL CORPORATE PLANNING, supra note 16. M Rose, supra note 2, at 104; Chudson, supra note 46, at 138-41. 112 TURNER, supra note 5, at 55. 1,3 VERNON, supra note 3, at 130-33. 1,1 Rose, supra note 2, at 102. »5 VERNON, supra note 3, at 145-50; Rose, supra note 2, at 180-82. See CHAMBERLAIN, supra note 12, at 162. ' r ME.g., A Rougher Road, supra note 33, at 58-59. 57 Rose, supra note 2, at 180-83. 1975 ] MULTI-NATIONAL CORPORATIONS 9 however, because in reaching the top echelons of an MNC, the individual will have usually become a company person above all.58 Massey-Ferguson provides an example of rationalization. It combines French-made parts with a British-made engine, a Mexican-made axle and American sheet metal to produce a tractor in Detroit, which will be sold in Canada.59 General Motors' production of the Opel is another: The car is assembled in South Africa from components shiped from West Germany, England, Canada, the United States and Australia. It is then sold in various foreign markets.™ The careful control and coordination required to achieve orderly flow and to avoid delays and excessive inventory stockpiling along the way is obvious. "Rationalization" does not end with mere production. In some respects, the rationalization of financial matters is probably even more advanced. Illustrative is the case of U.S.M. Corporation (formerly United Shoe Machinery). U.S.M. has a European headquarters in Lausanne, Switzerland, which supervises all of the corporation's subsidiaries with the goal of maximizing cash flow. In one situation in the 1960's, U.S.M. found that one of its Danish subsidiaries had excess cash at a time when the Danish currency was weak. That Danish subsidiary loaned the excess money to a second Danish subsidiary, which used it to purchase goods from the Swedish subsidiary. The second Danish subsidiary prepaid the Swedish subsidiary, which then used the money to finance the movement of goods to the Finnish subsidiary. In so doing, U.S.M. accomplished a hedge against devaluation of its Danish currency and saved money. If the Finnish subsidiary had borrowed the money to finance the shipment of goods from Sweden, it would have had to pay 15% interest, and the Swedish subsidiary would have had to pay 9% interest on money borrowed to finance the shipment of goods to Denmark; however, in Denmark, the interest rate was only 5 or 6%. By such maneuvers, U.S.M. maximized its financial condition."1 Exchange rate planning is becoming a fine art. Ford, for example, has an economist working to predict devaluation by, among other things, comparing inflation rates and studying the profiles of government decision-makers. In 1968, he had reportedly been correct in 67 of 75 crisis situations.62 Unlike the huge trading companies of past centuries, the economic activities rationalized by today's MNC's are not primarily exports of finished goods, but are rather the flow of all factors of production, except labor.63 And although exports remain a significant part of international economic activity, they increas­ingly consist of intra-MNC transfer of components and finished products.64 5SVERNON, supra note 3, at 133-34; A. SAMPSON, THE SOVEREIGN STATE OF ITT 7-13 (1973). ™Rose, supra note 2, at 104. 00 STEPHENSON, supra note 7, at 100. 1,1 Rose, supra note 2, at 104. mId. at 105. 03 A Rougher Road, supra note 33, at 57; STEPHENSON, supra note 7, at 4-5; TURNER, supra note 5, at 3-4; Maier, The International Free Trade Union Movement and International Corporation, in AMERICAN LABOR AND THE MULTINATIONAL CORPORATION 10 (D. Kujama ed. 1973). 1,1 TURNER, supra note 5, at 69-71. 10 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 The types of industry in which MNC's operate are hugely diverse,65 but the • •• i L • • p;rCr pcneciallv for the American-major activities seem to have two characteristics, First, a>y^^ 1 based MNC's, they are research-based capital intensive industries producing such things as cars, heavy equipment, computers, pharmaceuticals, chemicals, micro­electronics, and petroleum.66 Second, the goods generated tend to be those capable of being mass-produced and serve identical needs in different national markets.67 III. HISTORY AND DEVELOPMENT The literature on the history and development of MNC's is considerable.68 A number of theories have been developed and although they diverge, most seem to give credence primarily to the general corporate desire for profits.69 Facilitated by, and in turn encouraging, a growth in international communications and transportation,7" the search for profits took the enterprise abroad to exploit foreign markets, by initially exporting finished products. Overseas production facilities were built or acquired when it became clear that higher profits could be made by exporting components for assembly abroad rather than exporting finished products, often because of protectionist measures on die part of the importing countries.71 Cheaper foreign labor and capital were and are additional reasons for locating production facilities overseas, especially for American-based MNC's.72 As a result, when some MNC's shifted production overseas, others felt compelled to follow in order to remain competitive in the world market.73 In Europe, and to a lesser extent in Japan, a conscious public policy of increasing the size of firms to encourage international expansion and world-wide competition has been followed.74 The dominance of American-based MNC's is usually explained by die size of the American market,75 the huge American research and development expendi­tures76 (which are heavily subsidized by the United States government),77 and the many innovative spin-off products and firms which have followed as a matter of course.78 In addition, United States government policy after World War II gave 05 See VERNON, supra note 3, at 12-17. 88 TURNER, supra note 5, at 9. For a detailed analysis of MNC's in the raw materials industries and the manufacturing industries, see VERNON, supra note 3, at 26-59, 60-112. 117 STEPHENSON, supra note 7, at 14. "E.g., VERNON, supra note 3, at 71-73; CHAMBERLAIN, supra note 12, at 155-60; A Rougher Road, supra note 33, at 57-58; STEPHENSON, supra note 7, at 28-50; TURNER, supra note 5, at 2-7; EELLS, supra note 3, at 1-10; M. WILKINS, THE EMERGENCE OF MULTINATIONAL ENTERPRISE: AMERI- < AN BUSINESS ABROAD FROM THE COLONIAL ERA TO 1914 (1970). '"CHAMBERLAIN, supra note 12, at 159; EELLS, supra note 3, at 32, where attention is given to the Marxist-Leninist explanation for international expansion of capitalism. 7,1 VERNON, supra note 3, at 96-97; TURNER, supra note 5, at 6-7. 71 The Foreign Invasion, supra note 47, at 85-86; Stobaugh, U.S. Multinational Enterprises and the U.S. Economy, in AMERICAN LABOR AND THE MULTINATIONAL CORPORATION, supra note 63, at 114-17. 73 VERNON, supra note 3, at 74-76. 7 : lHartke, A Foreign Trade and Investment Policy for the 1970's, in AMERICAN LABOR AND THE MULTINATIONAL CORPORATION, supra note 63, at 65; Stobaugh, supra note 71. 71 See VERNON, supra note 3, at 33; Schmitthoff, supra note 15, at 35-36. '" VERNON, supra note 3, at 10-20; TURNER, supra note 5, at 10-11. '" TURNER, supra note 5, at 33. " VERNON supra note 3, at 98; STEPHENSON, supra note 7, at 28. '"TURNER, supra note 5, at 9, 10-13. 1975] MULTI-NATIONAL CORPORATIONS 11 incentive for overseas investment as part of the Marshall Plan and other plans to rebuild Europe.79 Chamberlain's description of the growth of General Motors overseas is prob­ably generally illustrative of many firms and industries: Prior to 1920, foreign producers of automobiles built a low volume at high unit costs. U.S. producers, already achieving economies through mass production, could ship fully assembled cars abroad and undersell the home-based competitor. In this period GM concentrated on building a marketing network. As the Eu­ropean market expanded and domestic producers could increase their output, tailored to the somewhat different needs of European drivers, GM found itself under increasing competitive pressure. Duties on parts were lower than duties on assembled cars: nine disassembled Chevrolets could be shipped to Europe at the same cost as two assembled. So between 1923 and 1928 GM opened nineteen assembly facilities in fifteen countries outside the United States, and 70 percent of its overseas sales were assembled abroad. In the late 1920's it took the next step by purchasing two European based automobile manufacturing corporations, one in England, one in Germany. By 1935 these plants were accounting for one-half of GM's foreign sales. It was only after World War II, however, that a major expansion in the establishment of manufacturing operations took place worldwide; by 1965 these operations accounted for more than $1 billion of GM's assets and 1.2 million units of its sales.80* IV. BENEFITS AND COSTS Effects can be measured accurately only by comparing a state of being with some explicit alternative. Therefore, in order to completely understand what benefits and costs MNC's have brought, we would have to evaluate what would have happened without them,81 and that is difficult to gauge. Appraising costs and benefits in a modern international and political economy is made more difficult because of the systemic, multi-faceted nature of causes of similarly multi-faceted results. BENEFITS The benefits of the MNC are those associated with its primary characteristics of size, global scope and rationalization. It is generally thought that the resources mobilized by the MNC's increase overall world productivity,82 benefitting both the MNC's home base and the host countries in which its subsidiaries operate.83 A number of writers refer to a package of benefits brought by the MNC into each host country in which it operates. They consist of a general increase in economic output from both the operation of the subsidiaries and the operation 79 Harrke, supra note 73, at 69. 80 CHAMBERLAIN, supra note 12, at 155-56. For a discussion of the theory of product cycle which suggests that MNC development and activities are related to the lives of products developed in the U.S. for a high per capita market, exported abroad, and then produced abroad, see VERNON, supra note 3, at 54, 66; STEPHENSON, supra note 7, at 28; and Stobaugh, supra note 71. 1,1 VERNON, supra note 3, at 156-58. 1(2 Id. at 248-49. For a discussion of the subsidiary as a resource mobilized, see id. at 153-56. S! TURNER, supra note 5, at 68-69. 12 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 of spill-over and auxiliary industries;84 increased employment; increased wages; broadened tax bases at the individual and corporate level; increased exports at both finished products and components parts; the introduction of cheaper capital; a general increase in the availability of consumer and other goods within the host country; a general increase in the managerial and labor skills available in the host country,85 including improved labor relations; and a general savings in foreign reserves brought about by import substitution, i.e., the MNC's produce in the host country what the host country would otherwise have had to import.86 Thus the European growth rate since World War II has been attributed, among other things, to the resource mobilization functions of MNC's.87 It has been estimated that in less developed countries, even though MNC direct investment has not been as high as in more developed countries, four dollars are mobilized inside the country by the MNC subsidiaries for every one dollar invested from outside.88 It is unclear exactly how much parent countries, especially the United States, benefit from repatriation of profits from the operations of their MNC's subsidiaries abroad. It has been argued that the repatriation rate is very high,89 but on the other hand, so is capital outflow.*" It seems likely that, for American-based MNC's at least, government pressure to improve balance of payments will cause higher repatriation rates.91 MNC's provide employment, both at home and abroad, for citizens of the parent country. One estimate is that in the United States 600,000 persons are employed in positions directly related to the international aspects of MNC's.92 These jobs tend to involve white collar or highly skilled positions.93 Although it is uncertain what would have happened without their growth, it has been suggested that MNC's have performed functions which other institutions could not have performed: [T]he productive instrumentalities required at this stage in man's reach for a better life on this earth necessarily include the multi-national corporation, and the international system bends to this necessity. National economies - whether capitalist, socialist or mixed - probably could not shoulder the world's produc­tion and distribution tasks through state trading and other forms of public-sector economic organization at national and supra-national levels, without heavy reliance on private-sector organizations of the multi-national corporate type.94 84 Id. at 43. It is suggested therein that MNC's can invigorate infant and old industries by acquisi­tions, influx of new capital, spin-offs, licensing, partnerships and contractual arrangements of various kinds. M TURNER, supra note 5, at 44-45. M CHAMBERLAIN, supra note 12, at 165-67; Johnson, supra note 50. 87 See generally Flavin & Parisot, supra note 16. 88 VERNON, supra note 3, at 170-71. "• Kicrans, supra note 20, at 175-77. "" VERNON, supra note 3, at 17. "TURNER, supra note 5, at 56-58. M Stobaugh, supra note 71. 1,3 Torre, U.S. Multinational Enterprises and Changes in the Sk.Hl Composition of U S Employment, in AMERICAN LABOR AND THE MULTINATIONAL CORPORATION, supra note 63 at 127-43 "'EELLS, supra note 3, at 15-16, 225, 230-31. 1975 ] MULTI-NATIONAL CORPORATIONS 13 The "reach for a better life" is of course largely defined by the MNC's them­selves as their massive advertising programs create needs that they then fill with their products. Nevertheless, the increase in the "standard of living" is probably a benefit, and the rationalization capabilities of the MNC's have contributed greatly to it in a way that government and purely national businesses probably could not.95 This is particularly true in the transfer of technology. To re-invent the wheel 130 or more times would not be economically efficient. The operation of MNC's has brought technology to many countries96 which could never hope to amass the capital needed for original research and development.97 Some see the MNC as a political tool of a host government, especially in regional development. Various governments - Britain and Italy are prime ex­amples - have lured foreign-based MNC's to depressed areas in order to bolster both a lagging regional economy and faltering support for the government among the work force. MNC's apparently tend to be less locked into customary industrial location patterns and, with proper government incentives, are willing to take risks by locating in depressed areas.98 Finally, there are those who see the MNC as the harbinger of a new world order where international economic coopera­tion forces cooperation in other areas, leading to one peaceful world civilization.99 In this context, MNC's are also viewed as levellers of the world society: A case can be made that the development of the large international corpora­tion in the 20th century will prove in the long run to be a more effective device for equalizing wages, rents, and interest rates throughout the world than trade conducted in competitive markets by small merchants. The analogy is with the national corporation which in the United States after about 1890 helped to equalize wages, interest rates and rents within the country's borders by borrow­ing in the cheapest market (New York) and investing where it was most pro­ductive in terms of costs and markets. The resultant movement of capital and shift in demand for labor was probably more effective in, say, raising wages in the South and lowering interest rates there than either trade by local companies or the limited direct movement of factors.1™ COSTS Even those who laud the achievements and benefits of MNC's naturally recognize that they bring certain disadvantagesm which spring from the same source as the benefits - their size, global scope and rationalization capabilities. Although MNC's operate from an international economic perspective, the world is still divided into sovereign nation-states upon which the international political ™See Rose, supra note 2, at 102. This would not seem to hold true for the United States, where a partnership of government money and private industry exploited a mass market to raise U.S. pro­ductivity and standards of living. 06 Rolfe, supra note 9, at 26-27. 07 TURNER, supra note 5, at 44; Johnson, supra note 50, at 169-70. 08 TURNER, supra note 5, at 38-40. 09 EELLS, supra note 3, at 225; Johnson, supra note 50, at 166-67. in" KINDLEBERGER, INTERNATIONAL ECONOMICS 400 (1968). 101 Johnson, supra note 50, at 167. 14 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 system is based. Many of the supposed and actual costs attribute to s s em directly or indirectly from the threat they pose to both that system and its component parts. The literature abounds with descriptions and analysis of MNC domination of host nation economies, much directed, not unnaturally, at the alleged economic dominance of Europe UKi and other areas by American-based MNC's. However, American-based MNC's do not generally dominate large sectors of a host nation's whole economy,103 except in Canada, as Figure 2 illustrates.104 FIGURE 2 Approximate Percentages of American Ownership and Production in Given Economies CANADA Industrial Capital 43% Manufacturing Industries 59% Mining and Smelting Industries 59% Petroleum Industry 69% AUSTRALIA Industrial Capital 25% UNITED KINGDOM Industrial Capital 7% Manufacturing Production 10% Visible Exports 17.5% Manufacturing Sales 10-14% WEST GERMANY Manufacturing Production 4% Visible Exports 5% WESTERN EUROPE Sales 6% Figure 2 indicates the extent of American investment and control in advanced countries. Britain was said to have 15% of its manufacturing industries owned by foreigners at the end of the 1960's; and 70% of diat ownership was American, a ratio probably only a little higher than in most European countries except for France, where most of the 13% of foreign-owned industrial assets are owned by MNC's based in other European Economic Community105 (E.E.C.) countries. Canada is an atypical situation. Prime Minister Trudeau once explained to the United States that "Living next to you is in some ways like sleeping with an J. SERVAN-SCHREIBER, THE AMERICAN CHALLENGE (19frt\ p^.. ., J I • • c .w thesis, see Hymer fc Rowthorn, j»pr« note 18, at 57-59 )- * g(X>d c a P s u h z a t l o n of thls 1(13 VERNON, supra note 3, at 20. 104 Constructed from figures available in CHAMBERLAIN, supra note 12 ar l*« - i T note 5 at 7-9. ' "> a n " TURNER, supra "", STEPHENSON, supra note 7, at 24-25. 1975 ] MULTI-NATIONAL CORPORATIONS 15 elephant. No matter how friendly or even-tempered is the beast . . . one is affected by every twitch and grunt."1018 Not surprisingly, Canadians are very sensitive about this relationship and their expressions are often not as benign as the Prime Minister's. A Canadian government-sponsored report recently highlighted the condition, and although Parliament did not accept its proposals completely, the issue will continue to be important in Canadian politics.1"7 Canada excepted, the U.S. involvement in the economics of advanced countries, in percentage terms, is not high; Vernon suggests 6% for Europe.1*8 Even so, the aggregate totals suggest that this involvement comprises a significant proportion of domestic economic activity, and the fact that MNC's tend to be concenrated in advanced technology industries makes it strategic.109 The computer industry is an obvious example. National computer industries are overwhelmingly controlled by American-based MNC's, a fact which, especially from the point of view of the host nation, is much more significant than a bland figure of 6%.11" The story is similar in other strategic industries. A 1970 E.E.C. study alleged that American MNC's owned between 7 and 25% of total capital stock (a high estimate) and also held 95% of European production of integrated circuits, 80% of computer production (65% by IBM), 40% of titanium dioxide, and 30% of cars and vehicles. In France, where American investment is low, 100% production of photographic equipment, over 90% of carbon fiber and synthetic rubber, over 70% of ball bear­ings and agricultural machinery, and over 50% of telecommunications, gasoline marketing and production of elevators, electric lamps, office machines and car tires was foreign-owned.111 Furthermore, many of these industries are heavily concentrated in a relatively small group of firms.112 Accurate statistics for under-developed countries tend to be less available. Vernon suggests that, in the late sixties, the annual sales of American-based MNC's in Latin America accounted for 6% of that area's gross domestic product but that in manufacturing and in the extractive industries, the percentage was closer to 20%.113 Chamberlain suggests that American-owned firms account for 41% of foreign exports of manufactured products.114 Some find Latin America almost totally economically dependent upon American extraction and manufacturing industries.115 Less developed countries everywhere seem more likely than Europe to fall under MNC domination if they allow continued penetration.116 The problems stemming from these situation are capsulized by a British observer: Rolfe, supra note 9, at 29-30; TURNER, supra note 5, at 166. M. WATKINS, FOREIGN OWNERSHIP AND THE STRUCTURE OF CANADIAN INDUSTRY (1968). 1,18 VERNON, supra note 3, at 20-21. 109 Id.; CHAMBERLAIN, supra note 12, at 165. 110 VERNON, supra note 3, at 24. 1.1 STEPHENSON, supra note 7, at 27-28. 7.2 Id. ' VERNON, supra note 3, at 24. 114 CHAMBERLAIN, supra note 12, at 165. Kierans, supra note 20, at 177. "" Hymcr & Rowthorn, supra note 18, at 91. 16 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 If it is arguable whether what is good for General Motors is good for America, it is even more arguable whether what is good for General Motors^is simul­taneously good for France, Germany, the United Kingdom and America. There are four general areas of costs associated with MNC's. First, the domin­ance previously discussed couples with the MNC's independence of conduct to limit in varying degrees the independence or sovereignty of host governments. Second, the activities of MNC's tend to bring the policies of different national governments into conflict. Third, the size of the MNC's tends to promote oligopoly with its attendant phenomena, and to cause other market distortions. Fourth, it has various other political-socio-cultural impacts, ranging from the '"coca-coloniza­tion" of countries to outright direct political interference with host governments. 1) Limits National Independence "How can a national government," asks George Ball, "make an economic plan with any confidence when a board of directors meeting 5,000 miles away can by altering its patterns of purchasing and production affect in a major way the country's economic life?"118 Being able to choose different courses of action with great flexibility, MNC's can make life very difficult for a nation's economic planners. For example, through practices of transfer pricing, deferred or accelerated intra-company payment, and currency speculation ("taking positions") MNC's can have substantial impacts upon currency stability and balance of payments situations, making it virtually impossible for a nation to operate an independent monetary policy.119 Transfer pricing involves shifting the prices of components and finished prod­ucts from one subsidiary to another to maximize interest rates, minimize tax liability, or increase currency exchange rate advantages. George Thayler explained how International Armament Corporation, an American company and the world's largest private weapons dealer, was able quite legally to channel substantial sums of untaxed money from American operations to a purchasing fund in Geneva: Interarm (U. K.) might buy a large quantity of surplus Lee-Enfield No. 4 Mark 1 rifles from the British Government, for, say, $1.50 a piece. It would then resell them to Interarms (Canada), a company domiciled in Monaco (to take advantage of the corporation tax), for $1.65, a 10% profit added. To take advantage of a low rate of import duty, the rifles had to be invoiced into the U.S. at a value below $5.00, so Interarms (Canada) would resell them to the parent company for $4.95. The Monaco-based company would thus make a profit of $3.30 on each weapon ($4.95 less $1.65) purely by a paper transaction. The money was paid into a purchasing fund in Geneva. No American taxes would be paid on the outgoing $4.95 because it was picked up by a foreign company as gross income which was not taxed.120 ' Winsbury, The Shape of America's Challenge, MANAGEMENT TODAY, Feb. 1967 at 48 'CHAMBERLAIN, supra note 12, at 164. ' STEPHENSON, supra note 7, at 113; Rose, supra note 2, at 101. 1 TURNER, supra note 5, at 76. 1975 ] MULTI-NATIONAL CORPORATIONS 17 This transaction is a relatively simple import-export trading transaction. The opportunity for transfer pricing for private advantage is multiplied with the com­ponent- production type of transaction conducted by many modern MNC's. Typically, transfer-pricing practices are not included in advertisements in the Wall Street Journal as examples of efficient MNC's "serving people and nations everywhere." The transactions are hard to see and there are very few statistics on the practice and its effects.121 There is, however, some evidence that American-based MNC's charge foreign subsidiaries high prices for component parts, thus assuring that the parent's profits will be high while the subsidiary's profits for the sale of the finished product will be limited.122 Accelerated or deferred payments allow MNC's to benefit from, or at least not share in, the advantages of currency revaluation.123 This hypothetical illustrates the process: An MNC has a German subsidiary and a British subsidiary. The German subsidiary purchases a large order of components from the British sub­sidiary. The MNC economists, along with others knowledgeable in currency matters, expect that the pound will soon be devalued. The British subsidiary agrees to defer payments for an indefinite period until the devaluation occurs. The German subsidiary then pays after the devaluation with a much smaller amount of Deutsche marks, realizing a net savings for the MNC. If the situation were reversed and the British subsidiary were buying from the German subsidiary, the MNC could rush through payment of the money to beat the devaluation date. Of course, it will manipulate the situation to its advantage as best it can and this generally means doing what it can to dump the devaluation-prone currencies and obtain stronger ones. With several MNC's playing the same game, it becomes difficult for national governments to control the stability of their currencies when they most need to.124 Furthermore, MNC's engage in straight speculation. If an MNC subsidiary has cash in a currency soon to be devalued, it will dump it on the exchange markets and purchase a stronger currency. If several MNC's do this, it simply exacerbates the problem by further weakening the currency and making the feared devaluation almost certain. Many U.S. subsidiaries are reported to have sold sterling in 1964-65, and again in 1967, as a hedge against the effects of a devalua­tion of the pound.125 Disastrous as the effects of such speculation may be for a given country's cur­rency, from a strict business view point MNC's have little choice but to speculate. In the events surrounding the British and Finnish devaluations, several MNC's, as depicted in Figure 3, took losses because they did not take the most advantage­ous position soon enough.126 121 STEPHENSON, supra note 7, at 114. 122 See Rose, supra note 2, at 104. 123 CHAMBERLAIN, supra note 12, at 164-65. 124 Id. 123 Constructed from figures in STEPHENSON, supra note 7, at 134-37. 120 See note 62 supra and accompanying text, and TURNER, supra note 5, at 82. 18 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 FIGURE 3 Firestone lost $10.7 million (1966 and 1967) Eastman Kodak lost $9.5 million (including $2.5 million in 1968) Hoover lost $6.9 million ITT lost $3.7 million IBM broken even International Harvester broken even Xerox gained $4 million In order to minimize such losses, some MNC's now have economists and others working to predict devaluations, revaluations, and other financial moves.127 While all of the speculation of the late 1960's probably cannot be attributed to MNC's, it is noteworthy that between 1967 and 1968, four of the world's most important currency parities were toppled, arguably by speculative pressures. In November 1967, the pound was devalued. In one day, the Bank of England lost $1 billion fighting the dumping of sterling, which illustrates the massive amount of speculation involved. Four months later, the dollar was devalued against gold when there was a similar dumping of dollars. Fifteen months later, speculation against the franc, behind which De Gaulle had built a $7 billion reserve, brought another devaluation in August 1969. In October of that year, a more complex situation forced the Deutsche mark into a revaluation when a steady flow of money into Frankfurt became a torrent. Such examples illustrate the uncertainty of the present international currency parities.128 Directly related to the currency instability is a balance of payments problem. MNC's move massive amounts of money around the world,129 affecting the bal­ance of payments of several countries.130 Less-developed countries need foreign exchange in order to purchase needed items from abroad. To the extent diat heavy repatriation of profits lessens their foreign reserves, these countries are hurt. Also, there is evidence that MNC's "de-capitalize" less-developed countries. For example, from 1960 to 1968, American-based MNC's fed $1 billion per annum into less-developed countries but withdrew $2.5 billion in income alone. If royalties and the overpricing of some intermediate goods is added, the real figure would be larger.131 However, Vernon claims that these figures are misleading because, among other things, they do not account for the impact of import substitution upon a less-developed country's balance of payments. By producing in a less-developed coun­try items which might otherwise be imported, the need for foreign exchange is diminished.132 Vernon therefore concludes that one can only equivocate on the '-' TURNER, supra note 5, at 83-85. See also VERNON, supra note 3, at 168-69 iai VERNON, supra note 3, at 17. ™See id. at 163 for balance of pa>ment effects m advanced countries, and id. at 172 for the effect in developing countries. 190 VERNON, supra note 3, at 172. 131 Id. at 172-73. va Id. at 178. 1975 ] MULTI-NATIONAL CORPORATIONS 19 matter.133 Other authorities have concluded that less-developed countries get mixed blessings by accepting the benefits of MNC's because of the attendant drop in their foreign exchange,134 while another view represents the costs of repatriation and de-capitalization as being excessively high.135 In more advanced nations the problem seems to be less bothersome. The need for foreign exchange is not so acute, and the practices of component-production and intra-corporate importing and exporting tend to even things out.136 Generally, an advanced country's balance of payments difficulties will depend on a number of causes, of which MNC's may be only one. Interestingly, Vernon believes that it has "begun to appear that the main balance of payments impact lies in the trade accounts of the host country - that is, in its imports and exports." 137 This has had some odd results for the United States. American-based MNC's control a large pool of capital whose movement could gready affect the position of the dollar. The practice of producing abroad for foreign consumption those items which would otherwise have been exported from the United States, has recendy evolved into a practice of importing from foreign subsidiaries certain goods which other­wise would have been produced here. From 1955 to 1964, American exports of finished goods dropped by 29% while the export of component parts increased by 326%.138 Between 1966 and 1969, years of rapid increase in the consumption of electrical and electronic goods, the United States imports of electronic consumer goods rose approximately 300%. In 1960, the United States exported 380% more electronic and electrical goods than it imported; that surplus dropped by 1969 to only 30%. Part of this decline is attributable to competition by the Japanese and odiers, but there is evidence that the greatest factor was the transfer of technology production from United States to overseas plants. There are predictions that the United States, the most advanced industrial nation in the world, will be a net importer of sophisticated electronic and electrical equipment in the next few years. The regularly recorded $5 billion per annum trade surpluses of the early 1960's have disappeared.139 In the late 1960's, the United States was already a net importer of steel, automobiles, trucks, miscellaneous parts, clothing, textiles, footwear and glass.140 The effect of American-based MNC's on this process can be gauged by com­paring the United States and Britain with West Germany. The latter has very few MNC's manufacturing abroad through subsidiaries, while the former two, as discussed above, account for about 80% of all direct foreign investment, including 133 Chudson, supra note 46, at 144-45. 134 Kierans, supra note 20, at 177-78. 135 VERNON, supra note 3, at 164-66. 138 Id. at 163. 137 Id. at 18. 138 STEPHENSON, supra note 7, at 109. 139 Id. at 110-11. 140 Goldfinger, An American Trade Union View of International Trade and Investment, in AMERI­CAN LABOR AND THE MULTINATIONAL CORPORATION, supra note 63. 20 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 many manufacturing subsidiaries, and both have balance of payment difficulties."1 Concomitant with the concern over balance of payments troubles isjhe concern for unemployment in the United States caused by runaway industries. Naturally, this poses a real threat for labor unions, which must face a flexible MNC across a bargaining table and weigh carefully its threat of relocation.143 It is argued that there has been a loss of 30 plants and 40,000 jobs to Mexico alone in the last few years, and a net loss of 500,000 job opportunities because of an increase in foreign imports between 1966 and 1969,144 An intriguing phenomenon is the growth in Europe of vast amounts of capital not effectively controlled by any one nation. These floating sums, often referred to as Eurodollars or Eurocurrency, are available for use by MNC's for capital investment and speculation. This is better analyzed elsewhere,145 but it is not difficult to see that huge sums of floating money increase die dependence of any given national economy upon matters largelybeyond its control.146 National governments might feel equally annoyed about the ease with which MNC's avoid taxes. There is evidence that MNC's arrange their books so that profits are highest where taxes are lowest,147 and that they delay the appearance of profits by similar methods. Of course taxes delayed is money earned, especially in large amounts.148 Flexibility gives the MNC's another advantage: they can play one country or region against another.149 For example, Mr. and Mrs. Henry Ford III were wined and dined at the presidential palace in France, while Mr. Ford tried to decide where to place Ford's third major plant in Europe for the 1970's.150 Further­more, labor unions have charged that MNC's have wrung promises to "control" unionization from the governments of developing countries as a condition for locating in diose countries.151 Host countries are not oblivious to the boost that MNC's can bring to their economies, and they are aware that the flexibility of the MNC's limits their power to curb the costs. This shifts the balance of power in favor of die MNC's. They can increasingly make demands of nations in return for investment. Franz Ulrich, chief executive of West Germany's largest commercial bank, the Deutsche Bank, said : A prime necessity, as I see it, is the importance of the investment climate in the developing countries themselves, as well as an improvement in the whole M1 STEPHENSON, supra note 7, at 109. 1,1 See, e.g., TURNER, supra note 5, at 73-75. 143 Id. at 90-95. 144 Goldfinger, supra note 140, at 32-35. 144 See, e.g., Shapiro & Deasdov, The Supply of Funds for U.S. Direct Investment, in THE INTER­NATIONAL CORPORATION, supra note 18, at 121-39; STEPHENSON, supra 7, at 113; TURNER, supra note 5, at 36-37; R. VERNON, THE ECONOMIC AND POLITICAL CONSEQUENCES OF MULTINATIONAL ENTERPRISES: AN ANTHOLOGY 7 (1972). ""Shapiro & Deastlov, supra note 145. 14T TURNER, supra note 5, at 75. 148 Id. at 76-78. 148 Kierans, supra note 20, at 174. 150 CHAMBERLAIN, supra note 12, at 164. 151 TURNER, supra note 5, at 86. 1975 ] MULTI-NATIONAL CORPORATIONS 21 attitude towards private property and in particular towards foreign business .activity. . . In the longer term the necessary investment climate will be created by sheer force of circumstance, because automatically investment capital will flow to countries providing the necessary conditions - and there are already a number of them. The others will undoubtedly learn the lesson and follow suit in their own interest. After all, if the countries now inviting investment capital were acting as investors themselves, they would insist on exactly the conditions we are asking for now.152 The phenomenon is not restricted to less-developed countries. With a remarkable display of candor a British Conservative Party spokesman, Nicholas Ridley, made the following statement just before the 1970 general election in Britain: Of course, some types of international industry go to those countries which offer them the biggest bribes and it will be necessary for the next Conservative Government to match those inducements.153 Examples of countries being "advised" by firms of pending investment decisions to locate elsewhere abound, as do the resultant examples of government changing or modifying regulations.154 Similarly, the fate of non-complying governments is documented.155 Several nations have learned the lesson well. Formosa, for example, offers a tax holiday to attract industry - five years with no taxes followed by low taxes, freedom to repatriate profits, and guarantees against nationalization.156 Switzerland, the Bahamas, Luxemburg, Panama, Curacao (Netherlands Antilles), Liechtenstein and, to some extent, Greece, have deliberately set themselves up as tax havens,157 similar to the role played by Delaware in the United States during the early 1900's. It would not be surprising if other countries were to feel the pressure to compete 158 and, indeed, a 1970 study by the E.E.C. Commission found that member countries negotiate tax liabilities of American-based MNC's and of their employees in an effort to compete to attract "dynamic foreign com­panies." 159 2) The Clash of Governments' Policies Notwithstanding the flexibility with which they are able to operate, MNC's are subject to national laws. Thus a potential conflict exists for MNC's when the laws of different jurisdictions in which they operate require different business conduct, or the law of one offends the ideologies or policies of another. Some have therefore referred to MNC's as "Trojan Horses" or undercover agents of other governments.1"0 Indeed, some have gone to the extent of calling the Marshall Plan a capitalist plot - a scheme of the United States Government and American 152 STEPHENSON, supra note 7, at 11-12. 185 Id. at 49. 151 Id. at 49-54. 153 VERNON, supra note 145, at 111. STEPHENSON, supra note 7, at 112. 157 TURNER, supra note 5, at 77-78. 158 Id. at 88-89. 159 STEPHENSON, supra note 7, at 50-51. 160 VERNON, supra note 145, at 113. 22 JOURNAL OF CONTEMPORARY LAW [Vol. 2 industry collaborating to spread capitalist and imperialist influence throughout the Continent.161 . UXTP , . Vernon argues that subsidiaries of a British- or American-based MNC located abroad are less tied to the policies of the British or American governments than are the foreign subsidiaries of an MNC whose home base is in a country other than Britain or the United States.102 He further states that American-based MNC's much prefer to remain at arm's length with the United States Government and go out of their way to avoid both the substance and appearance of collaboration.163 But there are examples to the contrary, and foreign governments could understand­ably find Vernon's argument not persuasive in the light of statements from United States Government officials advocating more support by the government for foreign-based American-owned businesses. For example, former Treasury Secretary Connally, referring to foreign governmental expropriation of American-owned businesses, has stated that Washington's stance should be: "You don't negotiate just with American business enterprise. You negotiate with the United States Government."164 Expropriation is and will likely remain a sore spot between MNC's and host country governments, particularly in less developed countries, and especially in Latin America. Detailed analysis of this complex problem is documented else­where. 105 As for the United States, it has been argued diat in adopting the Hicken-looper Amendment,166 which cuts off foreign aid to countries expropriating with­out giving compensation, Congress has demonstrated that it is more willing to exert itself for business interests than is the State Department.167 The United States and other advanced countries have continually insisted that international law requires "adequate, effective and prompt compensation" when appropriations are made for governmental purposes,168 while Latin-American nations, for example, have declared that international law requires no such com­pensation. The United Nations, with an ambiguity probably favoring the Latin American positions, has called for "appropriate compensation, in accordance with the rules in force in the State taking such measures in the exercise of its sovereignty and in accordance with international law." 169 Some believe that less-developed host countries will increasingly feel the need to expropriate,170 and the potential for clashes of government policies will increase. MI VERNON, supra note 3, at 87-88. 182Id. at 234-35. ""Id. at 262. '"' CHAMBERLAIN, supra note 12, at 159. ""•BISHOP, supra note 13, at 851-59; Vagts, The Multinational Enterprise: A New Challenge for Transnational Law, 83 HARV. L. REV. 739 (1970). ,w,22 U.S.C. § 2370 (c)(1) (1970). ""Vapts, supra note 165, at 776. For a discussion of the Hickenlooper Amendment, see Brown, The Use of Foreign Aid as an Instrument to Secure Compliance with International Obligations, 58 PROC. AM. Soc. INT'L. L. 210 (1964); Lillich, Protection of Foreign Investment and the Hickenlooper Amendment, 112 U. PA. L. REV. 1116 (1964). ""See BISHOP, supra note 13; RESTATEMENT OF FOREIGN RELATIONS LAW §§ 171-77 (1962). ", 0G.A. Res. 1803, 17 U. N. GAOR Supp. 17, at 15, U. N. Doc. A/5217 (1962). 17,1 Kieran.s, supra note 20, at 179. 1975 ] MULTI-NATIONAL CORPORATIONS 23 In the past, the United States has applied its Trading with the Enemy Act171 in ways which have exasperated other nations.172 Since Secretary of State Kissinger's first trips to Peking, these clashes are now possibly historical aberra­tions, but they illustrate the potential for conflicts engendered by the global scope of MNC's. For example, in 1957, a time when Canada was consciously attempting an improvement of its relationships with the People's Republic of China, the United States Government blocked Ford of Canada's sale of trucks to China by exerting pressure on the parent in the United States; the United States attempted to abort British sales of Viscount aircraft to China because they were equipped with American navigational equipment; the United States Gov­ernment effectively blocked President De Gaulle's gift of three Caravelle air­craft to Chairman Mao for similar reasons; in 1964 the United States Govern­ment refused to allow IBM to ship specialized computer equipment to its French subsidiary because diey would be used to aid France's nuclear weapon develop­ment in violation of the nuclear non-proliferation treaty to which the United States was a party. Finally, a $1.2 million dollar rice-harvesting contract between Cuba and a Sperry Rand subsidiary in Belgium was blocked by the United States, causing the equivalent of 40 days unemployment at the Belgian plant, a matter heatedly raised in that nation's Parliament.173 The extra-territorial application of United States antitrust laws is another source of potential and actual clashes of policy and the limiting of national indepen­dence. 174 In United States v. Aluminum Co. of America?'3 Judge Learned Hand declared that acts done outside the United States but having an effect therein are subject to the American antitrust laws. Since then, courts in the United States have issued orders affecting business arrangements outside the United States involving foreign companies.176 Many of these cases came at a time when Eu­ropeans were consciously promoting mergers,177 as permitted and envisioned by the Treaty of Rome.178 However, the antitrust policies of the E.E.C. and the United States seem now, to be coming closer together.179 17150 App. U.S.C. §§ 1-44 (1970). 172See generally Vagts, supra note 4, at 6-14; VERNON, supra note 145, at 113-17; notes 173-84, infra. mSee CHAMBERLAIN, supra note 12, at 161-62; TURNER, supra note 5, at 45-49; VERNON, supra note 3, 235-36. 174BISHOP, supra note 13, at 567-72 and sources cited therein; TURNER, supra note 5, at 49-55; 6 M. WHITEMAN, INTERNATIONAL LAW, 118-60 (1968); Bloch, Extraterritorial Jurisdiction of U.S. Courts in Sherman Act Cases, 54 A.B.A.J. 781 (1968); Fortenberry, Jurisdiction Over Extraterritorial Anti­trust Violations, 32 OHIO ST. L.J. 519 (1971); Vagts, supra note 4, at 9-12; Note, Extraterritorial Application of Antitrust Laws: A Conflict of Laws Approach, 70 YALE L.J. 259 (1960). ™148 F.2d 416 (2d Cir. 1945); cf. American Banana Co. v. United Fruit Co., 213 U.S. 347, 355-57 (1909). 176 E.g., United States v. The Watchmakers of Switzerland Information Center, 1963 Trade Cas. H 70,600 (S.D.N.Y. 1963); United States v. Imperial Chemical Industries Ltd., 105 F. Supp. 215 (S.D.N.Y. 1952). 177 BANNOCK, supra note 10, at 325-26; EELLS, supra note 3, at 96; TURNER, supra note 5, at 175-76. 178Leleux, supra note 15, at 127-28, and Schmittoff, supra note 15, at 35. 179 Rubin, The International Firm and the National Jurisdiction, in THE INTERNATIONAL CORPORA­TION, supra note 18; see Daerr, International Law - Competition Law of the EEC, 6 TEX. INT'L L.J. 148 (1970); Fugate, The Common Market and U.S. Antitrust Laws, 8 ANTITRUST BULL. 919 (1963); Kelleher, The Common Market Antitrust Laws: The First Ten Years, 12 ANTITRUST BULL. 1219 (1967). 24 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 Government attempts to curb balance of payments P " * ^ ^ ^ ^ other nation, The United States Mandatory Controls on Capital^ Oudbw of 1968, by which the United States Government hoped to cut back capital outflow and the reinvestment of American earnings, effectively required the repatriation of greater amounts of profits from overseas subsidiaries and cut back American overseas investment, at least with capital raised inside the United States. Canada, Australia and Japan all registered official complaints181 and, while the effects of the program are uncertain, it is clear that this action by one government, directly related to MNC's, had an impact on many others.182 The potential for international conflict exists in numerous other areas: industrial re-organization within one country or a change in industrial priorities, securities regulations, taxation, trademark regulation, and others.183 While these types of problems may be unavoidable in the international system, it can be argued that the global scope of MNC's makes them more probable. 3) Oligopoly and other Market Distortions IBM, which controls 65% of the non-Communist world computer market, is approaching or is now effectively in the position of a world monopoly. In other industries, especially the capital intensive and/or high technology industries, oligopolistic patterns are present, signified by the power of a few corporations to set price levels for the entire market.184 By the end of 1972, the 200 largest industrial corporations in the United States held 60% of the nation's manufacturing plants and equipment, a share greater than that held by the 1000 largest U.S. companies in 1962.185 The role of MNC's in the increase is apparent. In Europe, 40% of all American direct investment in France, West Germany and the United Kingdom is owned by Standard Oil, Ford and General Motors. Over one-half of the foreign investment in the United States is in the hands of a small group of E.E.C.-based MNC's, especially Dutch-based firms like Unilever and Shell.186 There is evidence that mergers and acquisitions are increasing world-wide along with industry concentration.18' The problems associated with bigness in domestic industry - productivity below potential, circumvention of competition with consequences for prices, quality of products, government dominance 18s - are clearly amplified when present on a global scale. It has been charged, for example, that American-based MNC's produce goods in low-wage areas, such as Mexico, which they then ship back to the United States and sell under American brand names at American prices, pocketing extra 180 TURNER, supra note 5, at 57-58. 181 VERNON, supra note 3, at 236-37. 182 See Rchbinder, The Foreign Direct Investment Regulations: A European Legal Point of View, 34 LAW &C CONTEMP. PROB. 95 (1969); Vagts, supra note 4, at 13-14. msSee, e.g., Vagts, supra note 4, at 6-14; VERNON, supra note 3, at 236; G. STEINER & D. VAGTS, TRANSNATIONAL LECAL PROBLEMS (1968). 181 See STEPHENSON, supra note 7, at 16-17, 149-54. 1NS J. WINSLOW, CONGLOMERATES UNLIMITED: THE FAILURE OF REGULATION 1 (1973). 1M STEPHENSON, supra note 7, at 27. 187 BANNOCK, supra note 10. 188 See WINSLOW, supra note 185, at 266-70. 1975 ] MULTI-NATIONAL CORPORATIONS 25 profits rather than passing savings on to the consumer in the form of lower prices. Intra-company or transfer pricing allows prices to be set at higher levels. Naturally such practices are not publicized and public disclosure is made all the more difficult by both the size and diverse national locations of the companies, and by differing national reporting systems. For example, British authorities referred a British subsidiary of a Swiss company to the British Monopolies Commission for over-pricing two brands of tranquilizers in its sales to the National Health Service (Britain's "socialized medicine" administration). The prima facie case was that, while the retail price for one thousand tablets was £ 10.00, the manu­facturing, packaging and marketing costs were only £1.70.189 Uncovering such practices has not been easy. International oil companies - and all oil companies seem to be international - introduced the now infamous "Gulf-plus" pricing system between the two world wars whereby oil was sold at the price it would have cost if it were shipped from the American ports in the Gulf of Mexico no matter where it was in fact produced and shipped from.190 No one knows exactly what the effects of these and other recent practices are, mainly because the oil companies rarely disclose facts sufficient to allow proper analysis. Similarly MNC's in other industries charge intra-company prices to their subsidiaries, but little or no information is available to see the basis for the practices and how they serve the international public interest.191 A 1970 Organization for Economic Cooperation and Development report192 documented the trend towards oligopoly, noted its probable impact on what is now seen as a galloping world inflation, and detailed specific examples of agree­ments and conscious parallelism affecting prices in Canada and Europe. The Canadian Royal Commission on Prices of Farm Machinery in 1969 found that international companies were entering into restrictive agreements about the prices at which they would sell to the Canadian market. It concluded, however, that since the agreements were being reached outside of Canada the matter was be­yond their jurisdiction 193 (a conclusion which justifies considerably the American viewpoint on extra-territoriality!). In 1969 the E.E.C. Commission fined ten leading European dyestuffs producers for simultaneously raising their prices by identical amounts on three occasions between 1964 and 1967. The ten companies, constituting a classic oligopoly, had effectively suspended competition in the market. Included were MNC's such as ICI, DuPont, CIBA and Geigy. Many other oligopolistic combinations which depress competition are present.194 One of the advantages of the MNC discussed above is the transfer of tech­nology it creates. However, there is evidence that this has the effect of destroying 189 STEPHENSON, supra note 7, at 141. 190 Id. at 151. mli. at 138-45. U2The Organization for Economic Cooperation and Development, based in Paris, with a 1971 membership of 22 nations, is a forum for the discussion by industrial nations of their respective economic policies. Membership appears to carry with it some obligation to adhere to free trade and expanionistic policies. The OECO conducts research in areas of economic, industrial and scientific policy. See STEPHENSON, supra note 7, at 169. 193 Id. at 170. M Id. 26 JOURNAL OF CONTEMPORARY LAW [Vol. 2 research capabilities in the host country and concentrating research capabilities in the hands of a few. In addition, there is some evidence that a parent corporation will delay the transfer of technology into a subsidiary of a foreign market to suit its own economic position, and when a newly-acquired company has developed a significant research item, both the item and the personnel responsible for its development will be transferred to the parent company for use diere first.195 As beneficiaries of international free trade, MNC's could clearly become a force for certain types of protectionism. Once manufacturing facilities are under­taken in a given country, a MNC's interest in free trade in finished products will diminish. For example, a MNC with mancfacturing facilities in Scandinavian countries will prefer to protect its product from competition with goods imported into Scandinavia from Japan or England.196 Thus, the benefits of international competition may well be threatened. Another tangential form of market distortion arising from the structure and function of MNC's occurs in lesf-developed countries. The transfer of advanced technology and mass production to less-developed countries is an ambiguous step. Its obvious advantages may well be outweighed by its effect on growth patterns. In one instance, the transfer of a high technology baking facility to West Africa resulted in employment of 60 persons at wages high in comparison to the surrounding economy, but displaced 500 or more workers. The burden for support of these unemployed 500 fell on the host economy, and the cost of bread actually rose while the real income of labor declined.197 MNC's have had their origins in countries whose technology is based on cheap capital and relatively expensive labor. Because the reverse is true in less-developed countries, the introduction of MNC-type operations into such countries - as in the bakery example - is bad economics, given the relative price and supply of resources, because too much of a scarce resource (capital) and too little of an abundant resource (labor) is used.198 Other examples of distortions in less-developed economies occur when an MNC insists upon developing certain branches of an industry but not others. Illustra­tive is the case of Nigerian crude oil production. Catapulted into the top ten producers of crude oil in the late 1960's, Nigeria was frustrated by the reluctance of the international oil companies to develop the natural gas which is simply flared off as useless in the process of refining crude oil. For Nigeria, crude oil revenue alone is no guarantee of social and economic development, but die use of natural gas as a feedstock for a petrochemical industry would be very help­ful for the internal Nigerian economy and a diversified export program. But for various reasons, among them their existing sources of petrochemicals, the oil companies have shown no interest in such a program. Thus, although the presence of MNC's in Nigeria might be a plus, it is a limited plus defined by the interests of the MNC's and not necessarily by the interests of the Nigerian government.199 m TURNER, supra note 5, at 58-60. m STEPHENSON, supra note 7, at 16-17. 797 Kierans, supra note 20, at 178-79. 198 See VERNON, supra note 3, at 181. 109 STEPHENSON, supra note 7, at 108-09. 1975 ] MULTI-NATIONAL CORPORATIONS 27 As usual, accurate data are rare on the degree of adaptation to local conditions of less-developed nations by MNC's. A long debate by economists and others on "factor reversals" has left no definitive answers. Information from individual MNC's - always suspect for its propaganda content - suggests that in some cases at least considerable attempts at adaptation have been made,20,0 but again, the potential for distortion clearly exists. 4) Environmental, Cultural, and Political Costs The quality of the physical environment as effected by the operations of industry raises complex and enormous problems within one nation. These problems increase in all dimensions when approached from an international perspective in which the operations of MNC's play an integral part. For example, the development and use of giant oil tankers, submarine trains and pipelines greatly increase the hazards of pollution. In 1967, the tanker Torrey Canyon broke up at sea when she was impaled on off-shore rocks and caused widespread oil pollution of the French and English coasts. Until the time of the disaster, the Torrey Canyon, at 120,890 deadweight tons, was the third largest tanker afloat, but is dwarfed by the new generation of giant tankers. Shell's 207,000 ton Marpessa broke in half on December 15,1969 but was fortunately not carrying any oil at the time.201 Vernon has noted that the tension and concern generated by MNC's can hardly be all explained in economic analysis, which he views as "far too ambiguous to explain the observed reactions."2*2 Another possible explanation is offered: The Cosmocorp sells mass production techniques, even in their branch-plant version. Profitable mass production, however, requires mass consumption, i.e., the homogenization of the tastes, needs, values and priorities of all nations within which the firm and its subsidiaries operate. In the name of technical efficiency, we erase the differences among persons, the style and art of their living. People of different cultures and nations in varying stages of develop­ment are forced, through enormous selling and advertising pressures, to want the same things. The freedom of the individual to choose, to maintain his own preferences, and to search for satisfaction is reduced.203 Jean-Jacques Servan-Schreiber, the French author of The American Challenge and the leading European critic of the economic consequences of American-based MNC's in Europe, told a United States Congressional Subcommittee on Foreign Economic Policy that he had "both admiration for your economic dynamism and anxiety lest its vitality and our passivity engulf the European way of life." 204 The impact of economic and industrial change, often introduced by MNC's, illustrates an important issue: the inability of a country to undergo such change and still retain its societal and cultural values.205 It may be true that the battle 200 VERNON, supra note 3, at 182. Goldie, supra note 10, at 126. For a discussion of international environmental problems, see Hargrove, supra note 10. For a discussion of the role of an MNC in the international environment, see e.g., CHAMBERLAIN, supra note 12, at 40. 3 VERNON, supra note 3, at 192. 203 Kierans, supra note 20, at 179. 204 EELLS, supra note 3, at 38. 205 STEPHENSON, supra note 7, at 55-64. 28 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 for cultural identity was lost to Hollywood in the 1930% and that it is trivial to worry about who made the car you drive or the breakfast food you eat but such matters will depend upon personal value preferences very deep in the human psyche, and probably cannot summarily be dismissed. More volatile is the direct or indirect interference with internal politics by MNC's. Management probably feels safer in right-wing countries and threatened by the advent of leftists to government power. Thus the 1969 pressure on Deutsche marks was increased when it became clear that Willy Brandt's Social Democrats might win the elections, and the 1964 run on the pound occurred widi the election victory of Harold Wilson's Labor Party.207 Much more disturbing are episodes such as the 1954 coup in Guatemala, which was thought to have been engineered by the United Fruit Company and the C.I.A.,208 and the relationship between ITT operations ("serving people and nations everywhere") and the demise of the government of Salvadore Allende in Chile. In 1973, in testimony before the Senate Foreign Relations Committee, ITT claimed that a projected 1970 $1 million expenditure in Chile was to aid that nation's economy. However, documents revealed that the actual purpose was to induce economic collapse in Chile to prevent the Chilean government from retaining control of expropriated ITT operations.209 5) Costs and Benefits - An Analysis In 1901, a British writer decried the American invasion of his country's economy with its gadgetries and monopolistic tendencies and stated his fear of dire con­sequences for the future.210" Balancing costs and benefits and predicting trends with regards to MNC's is as difficult now as then. The following attempts only a brief and general overview.211 The economic benefits of MNC's generally outweigh their costs212 and the dominance of American-based MNC's will probably continue,213 although there is evidence that it will not increase as rapidly as in the past.214 Furthermore, a significant gap will no longer continue to exist between American investment in Europe and European investment in the United States.215 It is difficult to measure the impact that MNC's have on the balance of pay­ments in their host and base countries.216 Indications are that they do not have the detrimental impact on that area that has been suspected in the past.217 Many MNC's now make conscious and coordinated efforts to equalize their imports 200 TURNER, supra note 5, at 62-66. 207 Id. at 85. 208 Id. at 139-40. 209 WINSLOW, supra note 185, at 273. 210 WILKINS, supra note 68, at 217; Rose, supra note 2, at 100. 211 See VERNON, supra note 3, at 248; VERNON, supra note 145, at 205. 212 VERNON, supra note 145, at 151. 213 VERNON, supra note 3, at 110-12. 2,4 Id. at 96-98. 215 Damm, The Economic Aspects of European Direct Investment in the United States, in THE MULTINATIONAL CORPORATION IN THE WORLD ECONOMY, supra note 9, at 42. 210 TURNER, supra note 5, at 67-68. 21T VERNON, supra note 145, at 80. 1975 ] MULTI-NATIONAL CORPORATIONS 29 with exports for a given country in an attempt to avoid any unfavorable reactions to an unbalanced import/export ratio. Governments would obviously prefer that MNC's within their borders have trade surpluses, and in this sense a conflict exists. But the MNC has to deal with similar wishes on the part of many governments and would usually rather have them all slightly frustrated about the balance than have some hopping mad about a large deficit.218 However, data is hard to obtain in this area and so it is not possible to weigh the effect of what MNC's are doing. For less-developed countries, as previously suggested, the problem is much more confusing. The balance of payments problem is more serious because of the need for foreign exchange, which is but part of the juggling problem the governments of less-developed countries must face. Confronted with rising population growth and increasing frustration, these governments must struggle to attain rapid economic growth and an equitable distribution of income in their attempts to control their internal affairs. No doubt the rationalization capabilities of MNC's could help with these problems, but solutions would be formulated by both the governments involved and the decisions of profit-seeking MNC's. The responses to such involvement by MNC's in the internal affairs of foreign countries are increased manifestations of militancy and independence on the part of developing countries. Governments in such countries increasingly feel the need to assert themselves notwithstanding an often high degree of economic dependence upon MNC's.219 The oil rich countries are the most dramatic example, but countries with other extractive industries are, to a lesser degree, becoming more assertive.220 Furthermore, as newer MNC's attempt to enter extractive industries, especially oil, they will have to be more willing to strike fair bargains with host governments concerning taxation, repatriation of profits and profit sharing in order to bridge existing barriers to entry.221 However, those developing countries with less essential wares to sell are not likely to share in this trend by asserting their political independence at a risk to their economic well being. As militancy increases, foreign investment will leave or refuse to enter such nations, preferring the safer shores of Europe, Canada and the United States. If this tendency becomes widespread, the already grave political problem of the relative deprivation of people in the less developed countries vis-a-vis Europe and North America will be exacerbated. The gap between rich and poor nations widened in the 1960's as did the per capita income therein. As these trends become more apparent, developing countries look upon exploitative MNC's as the cause of their economic woes. Although the presence of MNCs in advanced countries creates less controversy, probably because any tensions created are seen as minor costs in the growth of the international economy, their impact has not been ignored. Unquestionably, MNCs are generating much concern in the United States regarding their impact 218 STEPHENSON, supra note 7, at 101-04. m VERNON, supra note 3, at 51-52; TURNER, supra note 5, at 145-57. 220 TURNER, supra note 5, at 141. 221 Id. at 147. 30 JOURNAL OF CONTEMPORARY LAW [Vol. 2 ever, more data is needed on this.223 It is possible that the problem will be short term only as foreign investment in the United States tends to increase, and that the "runaway" American industries will have an overall equalizing effect on real on the United States domestic economy, especially among labor unions.222 How-income world-wide, which should at least balance out the detriment to the level of real personal income in the United States. In the final analysis, the particular problems caused by MNC's, though im­portant, are not the basic reasons for concern is host countries. Though activities of MNC's are often objectionable, the most compelling objection to them is the threat that they present to a nation's sovereignty. This is accomplished by eroding power away from a government, which is accountable to an electorate, and trans­ferring such power to those accountable only to the growth and perpetuation of the corporate enterprise.224 Furthermore, as corporations cross national borders, this lack of accountability to others can be magnified.225 At the core of the objections to MNC's is the disturbing phenomenon of giants, free from effective control, run by men whose goal is to maximize the benefit for the enterprise, rather than for the international public. When its interests are contrary to those of its host government, an MNC often prevails by either avoiding controls completely or translating its massive economic strength into coercive political muscle. This phenomenon expresses itself in inflated prices, goods below potential quality, tax avoidance, bribery and other forms of undue influence, resulting in the pursuit of long-range goals with varying degrees of indifference toward any detrimental effects on economic, social, or political development of the nations involved. 22:1 See AMERICAN LABOR AND THE MULTINATIONAL CORPORATION (D. Kujama ed. 1973). 223Jedel & Stamm, The Battle Over Jobs, in AMERICAN LABOR AND THE MULTINATIONAL CORPORA­TION, supra note 222, at 189. 224 For example, Fred Catherwood, the Director-General of the National Economic Development Organization in Britain, has stated the need for maintaining portions of key industries in national hands: This is not an emotional condition although it could of course become one. It is simply that the British citizen does not have votes in the U.S. Congress and does not like decisions which affect his desdny to be completely removed from his control. No U.S. senator represents Dagenham [Ford's main plant in Britain] and no British member of Parliament can hope to have the same influence on Detroit as the U.S. senator and congressman representing Michigan or the administration of the United States. TURNER, supra note 5, at 55. 225 Kierans, supra note 20, at 173 1975 ] MULTI-NATIONAL CORPORATIONS 31 PART TWO: CONTROL-A PROPOSAL There are those who argue for no control or very limited regulation of MNC's, believing that "mature" corporations run by "enlightened" businessmen, cooperat­ing with government to a limited extent where necessary, will produce better results if they are left alone.226 Thus, it is argued that the remarkable recovery of capitalism in Europe and Japan since World War II was a result of governmental non­intervention in international businesses,227 a practice which should be continued. And there are even political scientists who argue against internationalized con­trols because American business will be regulated by a mature United States government whose stabilizing influence negates the need, and the possibility, for multi-lateral regulation.228 It is precisely because MNC's bring so many benefits to the modern world that we are dependent upon them.229 They dominate our lives, and, as experience has shown, we therefore cannot leave them alone to mature and act in their self-defined enlightenment. Corporations, including MNC's, are important economic, social, and political institutions and should be defined and treated as such. How­ever, corporations, especially MNC's, should justify dieir existence, awesome powers, and prerogatives only to the extent that they are used for the benefit of the public and, in the case of MNC's, for the international public. The structure of a corporation gives it a uniqueness among social and political institutions as regards accountability: In a democracy, governments and all political and social institutions are regularly called upon to justify their stewardship. The corporation alone looms larger than life, controlled by and responsible to no one but itself, carefully adapting, to be sure, to its environment, but possessed of its own inner dynamic and supremely conscious that it can outlast, with occasional setbacks, the time bound institutions with which it must deal.23fl It has been thought that a corporation is legally accountable to its shareholders, a theory which has persisted in the face of an opposite reality since 1932 when Berle and Means demonstrated that control of the corporation was divorced from ownership,231 a phenomenon which more recent studies have shown to be in the ascendency.232 Rather, corporations are mainly "accountable'' to their profit and loss statements 233 and their perpetuation in size and growth pattern.234 So 226 Rubin, supra note 179, at 203-04; Waltz, supra note 29, at 220-23. 227 Fowler, National Interests and Multinational Business, in MULTINATIONAL CORPORATE PLANNING, supra note 16, at 120. Of course, this argument ignores the U.S. government's incentives for American-based MNC's to invest in Europe after World War II. 228 Waltz, supra note 29, at 205-23. 29 CHAMBERLAIN, supra note 12, at 10. ™ Kierans, supra note 20, at 171. 281 A. BERLE & G. MEANS, CORPORATE POWER (1932). 232 CHAMBERLAIN, supra note 12, at 179-83. See also VERNON, supra note 3, at 145. ^CHAMBERLAIN, supia note 12, at 3-10, 95-96; Kierans, supra note 20, at 173-74; VERNON, supra note 3, at 113-14. * J. K. GALBRAITH, THE N EW INDUSTRIAL STATE (1966). 32 JOURNAL OF CONTEMPORARY LAW [Vol. 2 strong is the inertia created by these forces that the corporation is trapped, power­less to transcend the system it has created,235 as several prominent executives have noted. T. V. Learson, former president of IBM, illustrates the point: Business usually profits best when it serves the public interest within its ability to do so. But we can never loosen ourselves from the iron law of profit which necessarily limits our freedom of action and puts bounds on what we can do. . . . If a corporation so diverts its energies and resources as to go broke, there is nothing it can do - nothing at all - even if it claims to have a heart and conscience as big as the world.z3fl Sherman Adams, as senior vice president of First City National Bank of New York, supports that view: In a competitive, market economy, profit-oriented companies simply cannot devote a really sizable portion of their resources to unprofitable, or even rela­tively low profit, activities.237 Although there is clear evidence that positive social actions by corporations have increased,238 market competition necessarily sets limits. As Henry Ford II has noted, regarding automotive air pollution in the United States: Business lives and dies in the market, and no company can survive if it voluntarily assumes pollution control costs far out of line with those of its competitors.239 Much of what is characterized as corporate responsibility and enlightened busi­ness conduct, supposedly meeting social needs, is only substantial for its use in a public relations context.240 For example, elaborate advertisements relate that oil companies are keeping the United States moving in a crisis situation, while their giant profits are downplayed. ITT, we are told, is serving people and nations everywhere, not gobbling up companies to sustain its growth or interfering with Latin American governments in order to cut its losses. In similar fashion, powerful industries are able to tolerate regulations by utilizing their vast power to make sure that it is only incremental and of a type and nature that does not integrally inter­fere with their primary functions and objectives.241 Also, large corporations are very adept at deciding what is good for the company and then fitting the explanation of what they are doing to the expressed objective of the government widi which it is dealing. Chamberlain calls this "business realpolitik."242 This writer finds it unacceptable to leave to "mature" corporations, "enlightened businessmen", or some international reincarnation of Adam Smith's long-gone "invisible hand" the making of decisions as to how and what MNC's will do. 235 CHAMBERLAIN, supra note 12, at 6-7. VM Id. ""Id. 238 TURNER, supra note 5, at 192. 239 CHAMBERLAIN, supra note 12, at 79. 140 Id. at 9; STEPHENSON, supra note 7, at 77. 141 CHAMBERLAIN, supra note 12, at 40-53; A Rougher Road, supra note 3i at 59. 142 CHAMBERLAIN, supra note 12, at 159. 1975 ] MULTI-NATIONAL CORPORATIONS 33 Inevitably, MNC's use their immense power to serve their own goals which are, in some important ways, at variance with broader public needs and policies. International social responsibility must be imposed upon MNC's in a forceful way, and that must mean political accountability. However, it must be understood that: [t]here can be no universal creed or doctrine as to what business managers must do in order to be regarded as socially responsible, any more than there can be for a public office holder. What is the social responsibility of the mayor of New York, or the governor of Missouri, or the president of the United States? It depends on the point of view of various segments of the public and the circumstances of the times. We can only expect that each of these office holders will try to fill the functions of his office to the satisfaction of his multiple constituencies, some of which are more important than others. Similarly, the "social" responsibility of a corporation executive runs to the numerous groups which he affects and with whom he interacts, some of which (the stockholders, perhaps) are more important than others, but all of which must be recognized. Not all corporations have identical constituencies nor face similar circumstances. Their social responsibilities cannot be subsumed under some common catalogue of desirable behavior but measured only in terms of satisfactory political per­formance. The social responsibility of the president of General Motors is no more definable than the social responsibility of the mayor of Detroit. It is - at the moment - simply less accountable.243 The idea of unbridled power has been abhorrent since its realization became possible. Although the power of MNC's is not unlimited, it is immense and, as recent events in the oil industry illustrate, those who wield it are not accountable. As Vernon says: . . . In dealing with large concentrations of economic power, it is well to remember Lord Acton's maxim: Power corrupts. Men with power have an extraordinary capacity to convince themselves that what they want to do coincides with what society needs done for its good. This comfortable illusion is shared as much by strong leaders of enterprise as by strong leaders of government. The challenge in social organization is to insure that the basic units on which our future societies are likely to be based act as countervailing political powers, not as mutually reinforcing ones.244 Of course, this does not mean that those who are in positions of MNC respon­sibility are evil, indifferent or incompetent.245 However, to paraphrase Alexander Hamilton, if MNC managers were angels there would be no need of controls. But to be an angel in today's world political economy would require more in way of judgment, knowledge and skill than can reasonably be expected of any human. For this reason countervailing power is needed. The President of the United States, the mayor of Detroit, and other governmental power holders are, or should be, subject to check by institutions with countervailing power. Similarly, large concentrations of economic power in MNC's should be countered and checked to insure that power does not corrupt. ™ Id. at 204. 244 VERNON, supra note 145, at 155-56; cf. VERNON, supra note 3, at 272-73. 345 Cf. BANNOCK, supra note 10, at xii; Flynn, supra note 12, at 99-100. 34 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 The whimpering response in business circles to such proposals for control has been heard before: Government regulation will "destroy initiative," "decrease flexibility" and "suffocate corporate action in a sea of red tape." Such complaints are not without merit. As regards MNC's, it must be remembered that their costs stem from the same source as their benefits - size, global scope and rational­ization capabilities. Care must therefore be taken not to throw a valuable baby out with the bath water.246 Appended to this article is a suggested remedy to check the power of MNC's without destroying their flexibility. It is a draft convention or multi-lateral treaty to which nation-states can subscribe voluntarily. It should be expected that if em­ployed at all, such a treaty would first be accepted by the more advanced countries. The less developed countries would probably wish to wait and see, observing the disparity between rhetoric and reality before becoming parties to such an agree­ment. The convention does not attempt sophistication. It is drawn with broad strokes and is deliberately simplistic because our state of knowledge compels such an approach; indeed, it is justified by the lack of alternatives. For better or for worse, this writer has now been persuaded that: It is perhaps time to return to the process of studying problems through remedies rather than the common practice of exhaustive empirical and theoretical research of the problem first and remedies never. Testing specific remedies against existing reality and dieory often does more to illuminate a problem than all the commissions, wringing of hands, and academic navel speculation put together. To do so requires that one have little pride of authorship in the suggested remedy and a willingness to re-examine all assumptions. Action in the face of ignorance can be a virtue, if it gets us off the dime.247 The reader and others can no doubt explain what is wrong with this suggested remedy. Thus the following purports to describe what is right with it. First, a remedy for the excessess of MNC's needs to be international in scope,248 because the flexibility of MNC's allows them to largely escape national control and play one nation off against another. In that sense, nation-states tend to be­come anachronisms. Proposals for the creation of a world government have been presented in the past, but such schemes don't offer a present solution, even if a rational inevitability. However, an international convention is more appropriate because its scope is more limited. It is based on the assumptions that international federalism is more advantageous than a huge, centralized world government and that an attempt to internationalize regulation of MNC's is needed. Article I provides that MNC's (or multi-national business enterprises - MNBE's - a change of terminology which seems less specific and more widely applicable with "corporation" deleted) shall be, in effect, subjects of international law, bound by the provisions of the conventions, regulations promulgated there­under, and the laws of nations and regional entities in which MNBE's operate. M See EELLS, supra note 3, at 13-17. 47 Flynn, supra note 12, at 102. M Sec Vagts, supra note 165, at 739. 1975 ] MULTI-NATIONAL CORPORATIONS 35 This article also provides that no nation shall intervene on behalf of an MNBE in the affairs of another, a modified but revitalized Calvo clause. Articles II and III would establish an international business commission under the general control of a politically appointed international council and the day- -to-day guidance of a quite powerful commissioner who has broad powers to issue stop orders and promulgate regulations. Adequate staff, funding and facilities are proposed. Article IV strikes at a crucial problem, the lack of information, by declaring that information on the operation of MNBE's is public property, and requiring intensive disclosure. In some respects, this constitutes the heart of the convention. From it will stem, hopefully, the regulations and the new and invigorating means for control. This article also calls for a significant profit tax payable directly to the commission. Article V combines the wording and thrusts of Articles 85 and 86 of the Treaty of Rome and the Sherman and Clayton Acts in enunciating an international antitrust law which is, in places, deliberately vague. Its wording, however, is designed to allow more prosecutorial emphasis on behavior rather than struc­ture. Some have argued "break-up" of MNBE's. I have rejected that as a sole remedy because I believe it will diminish the real genius from which so many benefits flow - the rationalization capabilities of MNBE's. However, dissolution and divestiture are possible remedies for given violations. Private treble damage remedies are available upon a showing of injury or ag-grievement and the damage need not be pecuniary, thus opening the way for common law development of remedies for environmental and other non-fiancial harm. Allowing for a federalist approach such as that within the United States, the convention does not do away with the right of national or regional antitrust laws and enforcement. Article VI allows for a rather simple procedure for a nation-state to stop an MNBE course of action upon a showing of a possibility of harm to the national welfare. It also provides for arbitration panels composed of government and labor representatives to settle disputes over such things as capital flow. Article VII is an adventurous attemp to utilize MNBE capabilities to alleviate recurrent problems such as droughts and food shortages. MNBE's are possibly the only non-military institutions capable of undertaking such problems, but they lack the profit incentive to do so. Article VII allows for a carrot and stick ap­proach to the resolution of this type of crisis. Article VIII calls for studies in anticipation of amendments to the convention in the areas of taxes, intra-corporate financing and speculation, all very complex areas. The information called for in Article IV will make such studies meaningful. Article IX vests a judicial power in a newly created international business court and Article X provides generally harsh penalties for failure to obey the require­ments of the convention. Article XI defines an MNBE in such a way that every entity is included unless specifically excluded by regulation and Article XII provides for financing the commission by a profit tax and pro rata governmental contri­butions. 36 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 The suggestions, if taken seriously, force one to come to grips with what can and must be done in this area. It has been said that it takes twenty years from the first governmental awareness of a problem until solutions are attempted. If MNC's are left unchecked for that long, the whole question may be moot. DRAFT CONVENTION FOR THE CONTROL AND REGULATION OF MULTI-NATIONAL BUSINESS ENTERPRISES (MNBE'S) Contents of Convention PREAMBLE ARTICLE I Section 1: MNBE, Law subject to Section 2: No state intervention ARTICLE II Section 1: International Business Commission (IBC) established, Office of Commissioner, Divisions Section 2: Enforce laws, enforce and promulgate regulations Section 3 (a): Office of Commissioners, appointment, staff (b): Division directors (c): Commissioner is chief executive, responsible to Council, not to seek or receive instructions from any government ARTICLE III Section 1: Council, membership Section 2: Regular and necessary meetings, duties Section 3: Staff, internal procedures Section 4: Two-thirds vote for appointments and ratifications, majority vote ARTICLE IV Section 1: Initial and annual registration Section 2: Registration filing tax Section 3: MNBE information is international public property, full disclosure of specified items Section 4: Commission's investigation and subpoena power ARTICLE V Section 1: Arrangements in restraint of international trade or commerce illegal Section 2: Conduct likely to monopolize illegal Section 3: IBC to adopt regulations Section 4 (a): Sanctions for individuals 1975 ] MULTI-NATIONAL CORPORATIONS 37 (b): Sanctions for MNBE's (c): Private suits, class actions, states as parens patriae Section 5: National suits or prosecutions not excluded ARTICLE VI Section 1: Petitions for intervention from party states Section 2: Stop-orders Section 3: Publication of proposed MNBE action, arbration'panel Section 4: Duty to negotiate ARTICLE VII Function of Division of International Development ARTICLE VIII Studies commissioned in taxes, pricing and speculation, amendments to con­vention anticipated ARTICLE IX Section 1: Judicial power in international business court, qualifications of judges Section 2: Membership of international business court Section 3: Elections of judges Section 4: Courts of first instance and courts of appeal Section 5: Private suits in national courts Section 6: Staff and facilities ARTICLE X Section 1 (a): Sanctions for failure of individuals to comply with information requirements (b): Sanctions for failure of MNBE's to comply with information requirements Section 2 (a): Sanctions for failure of individual to comply generally (b): Sanctions for failure of MNBE to comply generally Section 3: Sanctions for political interference Section 4: Commission to contract for jail space Section 5: Due process to apply ARTICLE XI Section 1: MNBE defined Section 2: "Operating within" defined Section 3: Other definitions in Commission regulations ARTICLE XII Financing 38 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 PREAMBLE The States Parties to this treaty, Acknowledging the benefits of promotion of international economic well-being attributable to MNBE's, Recognizing that many such MNBE's have enormous economic and there­fore, social and political power, Convinced that such power must be utilized in a socially responsible manner to equitably maximize benefits and minimize costs to the international public, and Convinced that left unchecked on an international level such private enter­prises cannot guarantee the maximization of benefits nor the minimization of costs, Have agreed as follows: ARTICLE I §1 MNBE's shall be subject to (a) the provisions of this convention, (b) the laws of the states in which they operate which are not inconsistent with flu's convention and which this convention does not modify, (c) regulations here­after issued by the International Business Commission, (d) the laws, rules or regulations of bi-lateral treaties or regional affiliations of party states which are not inconsistent with this convention and (e) the rules of international law not inconsistent with this convention and which this covention does not modify. §2 Except to the extent provided for in procedures established herein, no party state shall intervene, intercede or in any other way act on behalf of an MNBE in its relations with a government of another party state. ARTICLE II §1 There shall be established an International Business Commission (hereafter IBC) which shall be composed of a Council, an office of the Commissioner, and divisions of Information, Oligopoly, Arbitration, International Devel­opment, and Capital Control. §2 The IBC shall enforce the provisions of this convention and promulgate and enforce regulations as provided herein. §3 (a) The Office of the Commissioner shall comprise a Commissioner and such staff as he may require. He shall be appointed by the council and shall be the chief executive and administrative officer of the IBC for a period of no longer than seven years. (b) Each division of the Commission shall consist of a director appointed by the Commissioner subject to the approval of the council and such staff as may be required. 1975 ] MULTI-NATIONAL CORPORATIONS 39 (c) The Commissioner shall be the chief executive officer of the IBC with the responsibility for the functioning of the divisions and the office of the Commissioner. The Commissioner shall issue orders and regulations on behalf of the IBC, shall be directly responsible only to the Council, and in the performance of his duties neither he nor the directors, nor their respective staff, shall seek or receive instruction from any government or from any authority external to the IBC, except that information and opinions may be requested and received from the governments of nation states and international organizations and the specialized agencies of the United Nations. ARTICLE III §1 There shall be established a Council of the IBC which shall consist of one person from each party state appointed by and to serve at the pleasure of the government of such state, but in no instance for a period of less than one year. §2 The Council shall meet regularly and as necessary to discuss and adopt policy and procedure statements for the IBC; to approve regulations submitted by the Commissioner or his representative, which when approved, shall have the force of law; to appoint a Commissioner or ratify the Commissioner's nominees for directorships. §3 The Council shall have such staff as many be required, elect a chairperson from its membership who shall administer such policies and procedures as the Council shall adopt. §4 All appointments and ratifications shall be by an affirmative vote of two-thirds of the membership of the Council present, and all other matters shall be decided by an affirmative vote of a majority of the membership present. ARTICLE IV §1 MNBE's shall, within one year from the adoption or ratification of this con­vention by any party state in which they are incorporated, licensed to do business or operate, submit to the Director of die Information Division a registration statement, in a form and containing such information as may be required by the Commissioner, and shall thereafter submit a registration statement on or by the last day of December of each calendar year, in a form and containing such information as may be required by the Commissioner. §2 The initial and annual registration statements shall be accompanied by a registration filing tax of 1% of the worldwide net profit of the MNBE for the last calendar year preceding the filing, such net profit to be determined in accordance with regulations to be issued by the Commissioner. §3 The states parties hereto declare that it is their belief and the policy of this convention that information as to the operations of MNBE's is inernational public property. 40 JOURNAL OF CONTEMPORARY LAW [ Vol. 2 Annual registration statements shall be designed and executed to provide full disclosure of the operations of MNBE's and, in a form specified by the Com­missioner, shall contain at least the following information and such other information as the Commissioner shall require: (a) Names, addresses, positions, titles, functions, salaries, incomes and other benefits of top management personnel in each country in which the MNBE operates, and in each regional or international headquarters; (b) Revenue, gross and net profits for the MNBE and for each of its divisions or subdivisions in each region and nation; (c) Revenue, gross and net profits for each industry and product line in which the MNBE operates; (d) All tax payments by world, region, and nation state (including, separately, any taxes paid to political subdivisions of nation states) and the information upon which such taxes were based; (e) All holdings of MNBE's including those held by divisions and/or sub­sidiaries, and contractual relationships; (f) All investments, indicating capital source by country, institution and/or nation state; (g) Details of all purchases and sales of money resulting in an exchange of one national currency for another; and (h) All intra-MNBE sales and the basis for the prices charged therein. ARTICLE V §1 Each and every arrangement between enterprises or individuals which is likely to affect trade or commerce among party states and which is likely to result or results in the restraint, prevention, restriction, or distortion of trade or commerce among party states is illegal, unless a course of conduct is fully reported to the director of the Oligopoly Division and approved in advance by the Commissioner. §2 Any improper exploitation of a dominant market position, price fixing, mono­polization or attempts to monopolize on the part of any MNBE or individual is illegal. §3 The IBC shall adopt such rules and regulations and guidelines as are necessary to the enforcement of Sections 1 and 2 of this article. §4 (a) Every individual who engages in any conduct which is likely to result or results in a violation of Sections 1 and 2 of this article shall be im­prisoned for a period of not less than six months nor more than five years, and, at the discretion of the court, fined not more than an amount equivalent to $200,000 United States dollars and shall never again hold a corporate or governmental office. 1975 ] MULTI-NATIONAL CORPORATIONS 41 (b) Any MNBE which engages in any conduct which is likely to result or results in a violation of Sections 1 and 2 of this article shall be subject to sanction at the discretion of the court, which in deciding upon the sanction shall give great weight to the recommendation of the Commissioner or his representative. The court may, in the exercise of discretion, consider recommendations of national governments claiming an interest in the effect of the sanction. In imposing a sanction, the court will be guided by this convention's policies of: checking undue concentrations of power and influence; increasing MNBE accountability; promoting international economic welfare; and discouraging retribution and punitive actions likely to decrease overall economic social benefits from MNBE's to the international public. Sanctions may include fines, divestitures, divorce­ments, dissolution, reorganizations, injunctions, mandates for positive action, rescission or revision of contracts or agreements. (c) (1) Any pers