Chapter 8: Public Policy - University of Cyberjaya PDF

Chapter 8:Public Policy © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  8.1 Multinational and government The relationship between firms and governments has been central to the history of multinat...

Chapter 8:Public Policy © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  8.1 Multinational and government The relationship between firms and governments has been central to the history of multinationals. The tensions in this relationship derive from the fact that the borders of multinationals and nation states are not, by definition, identical. As a result, governments are confronted by economic entities whose ultimate control and ownership lies beyond their borders, while firms face multiple jurisdictions rooted in different political systems. The problem of jurisdictional asymmetry lies at the heart of the tensions between multinationals and governments © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  8.2 Governments as hosts During the second half of the nineteenth century there was a striking divergence between the trade 8.2.1 Developed economies and investment policies of many governments. During 18th Century and 19th centuries European United States Nation states countries founded by their colonists such Adopted one of the highest levels of protection in as the United States, grew in their capability to regulate, the world, but foreign firms could enter and operate tax, and monitor individuals and firms within their borders. there almost without restriction. The major However, the national ownership of firms was rarely EXCEPTION was banking. identified as an issue of importance by policy-makers. During the nineteenth century there were few barriers Historically it was politically sensitive industry for to the entry of foreign firms either by greenfield or American. After the American Revolution two attempts to create natiowide banks acquisition; virtually no controls over the behavior of ❖ Banks of the United States(1791-1811) foreign firms; and only selected cases of official ❖ Second Banks of the United States(1866-1941) discrimination in favor of locally-owned firms against Attract foreign invest but strong political opposition to the concentration of the power resulted in the foreign firms cancellation of their charters. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  United States Banking Industry Within this context, foreign ownership of banks was From the late nineteenth century US state made progressively more difficult. Banks operated governments introduced wide-ranging restrictions on under either federal or state regulation. foreign participation in insurance companies and mortgage lenders. At federal level, the National Bank Act of 1864 : restricted national banks from branching and There were also laws restricting foreign land specified that bank directors had to be US citizens ownership, and foreign investors were barred from resident in the area in which the bank did business coastal shipping. In 1920 the Mineral Leasing Law excluded from leases Foreign banks were also subject to state regulations on public land the citizens of any country whose laws, which became increasingly restrictive. New York regulations or customs similarly denied such privileges prevented foreign banks from receiving deposits or to US citizens or corporations. This was used to threaten European governments which blocked US issuing bank notes. entry to oilfields in their colonies By 1914 Illinois was almost alone among states in permitting foreign banks to operate. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  European market London In nineteenth-century Europe, there were few Although London was wholly exceptional in the restrictions on foreign companies. London flourished as degree of cosmopolitanism in the nineteenth the world's largest financial and trading center in which century, the lack of concern about the nationality foreign bankers and firms could locate and operate of ownership was general. without restrictions. This policy stance did not shift with the Almost all of the merchant banks were founded by intensification of nationalistic rivalries within foreign emigrants. Europe before World War I. The Baring family were of Dutch origins During the French Revolution and Napoleonic Wars between The uniforms of British and French soldiers were 1792 and 1815 German merchants such as the Schröders, dyed by the products made by the local affiliates Hambros and Rothschilds moved to London, establishing in of the German dyestuffs companies. time large international banking houses. Indeed, patent legislation requiring local production to secure patent rights was one factor Rothschilds, which became one of the biggest, functioned throughout the century in association with other branches of the in the establishment of these subsidiaries before Rothschild family living elsewhere in Europe 1914 © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Petroleum Industry before War World I (United States vs British) It was only in the petroleum industry that nationality had This trend culminated in the British government's acquisition of 51 percent of the equity of the Anglo- emerged as an issue before 1914. Persian Oil Company in 1914. In the nineteenth century the use of petroleum for heating and lighting meant that it was regarded like any other Word War 1 World War I represented a major discontinuity in policy commodity, but the use of the product in internal towards foreign ownership of companies on both sides combustion engines and, especially, in warships, made it a of the Atlantic: strategic commodity. The location of most of the world's oil production in the Governments investigated the national ownership United States and Russia, and the presence in the industry of of firms, and the giant Standard Oil Company, was sufficient to alarm even expropriated without compensation the assets owned by enemy countries British governments, the most laissez-faire in Europe. This was a radical departure from the policy A policy of preventing Standard Oil and other foreign companies environment of the nineteenth century (see Box 8.1). from searching for oil in British colonies was combined with There has yet to be a restoration of the laissez-faire policy towards foreign multinationals support for British-owned oil companies searching for oil overseas. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Interwar ,European and foreign multinationals During the interwar years foreign ownership of companies was far more of an issue than previously. Several European countries, including France, Italy, and Spain, followed the British precedent of creating national oil companies.. Nevertheless, European governments had relatively few restrictions against foreign firms In Britain, there was no formal legislation, although in practice, public policy excluded foreign ownership of banks and defense-related industries © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  German and foreign multinational In Germany there was much discussion about foreign influence over German business, but this did not translate into policy. GM was allowed to acquire Opel, Germany's leading automobile manufacturer in 1929, and GE purchased one-third of the equity of AEG, one of Germany's largest electrical companies. The tolerance of foreign firms continued even in Nazi Germany, provided they followed government policies, including the dismissal of Jewish employees. Several US business leaders, including IBM's Thomas J. Watson, developed a close relationship with Nazi leaders Poster: "He is guilty for the war" 1943 anti-Jewish poster by the artist "Mjolnir" intended to persuade Germans that Jews were responsible for starting the war. "Mjolnir" was the pen name of the artist Hans Schweitzer who created many of the most popular Nazi propaganda posters. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Key German and Foreign Multinational ted to the topic During World War II both sides again sequestrated without compensation the business assets of the enemy. In Nazi Germany, all enemy-owned companies were taken under control. In some cases, local managers continued to retain the firm's autonomy even though relations with the parent were cut off. After 1933, for example, the German subsidiary of US-owned Norton Company, a manufacturer of the bonded abrasives used in machine tool manufacture, had cooperated with the industrial policy of the Nazi regime, and was able to blunt hostility by appointing German nationals to the senior management. This management protected Norton's interests even after the United States entered the war against Germany, and even worked to protect Norton's assets in occupied France. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  United States and multinationals United States which saw the sharpest policy shift towards restricting foreign firms. Although the United States shifted from being the world's largest debtor nation to being a net creditor over the course of World War I, this was accompanied by a growing nationalism which resulted in major restrictions in a range of industries © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  War World II and Afterwards The conclusion of World War II restored democratic, liberal regimes in most of Western Europe, but not in other parts of that continent : The extension of Soviet(Russia) influence in central and eastern Europe led to the nationalization of all foreign-owned businesses in these countries by the end of the 1940s In Spain and Portugal, fascist regimes remained in place which disliked large firms, and especially foreign ones. These regimes imposed tight restrictions on multinationals, and sought a high level of focal participation in the equity of subsidiaries. As a result, telephone utility ITT, the mining company Rio Tinto and the automobile manufacturer Ford all divested Francisco Franco “Caudillo”ruled over Spain from from Spain between 1944 and 1954 1939-1975 ,lead the nationalist forces in Spains as dictator.In the pic Francisco with Adolft Hitler. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  War World II and Afterwards European Market Elsewhere in Europe, there was more intervention in business in general, and this included relations with multinationals In France, Britain and elsewhere, nationalization closed most utilities and some other industries to private enterprise altogether. During the 1960s policies became morebecame more restrictive. ❖ Exchange controls and import controls prompted US firms to establish local manufacturing, but were also used to ‘screen’ inward FDI proposals so they met desired policy goals regarding the balance of payments, ❖ and they were also used to prompt foreign companies to locate factories in regions of high unemployment. Although some US firms were blocked by such ‘screening’ in Britain and elsewhere, the actual number was not great (Jones 1990a; Rooth and Scott 2002) © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  European Market France In France, growing alarm at foreign control over high technology industries was crystallized by a bid by GE to take over Machines Bull, France's largest computer firm. During 1965 the government virtually banned all foreign takeovers of French firms, and for a time blocked all applications for approval of new investments..Over the following decade the government screened inward investments, a process often involving lengthy delays When foreign takeovers of French firms were proposed, such delays were used to find French purchasers instead French national champions were also promoted in industries including electronics and computers, but with little long-term success However, French policy was constrained by membership of the EU: a foreign investor barred from France could build a plant in another member country, and have unrestricted access to the French market. Moreover, the importance attached to attracting foreign technology led the government to acquiesce in takeovers of local firms which had been technologically outpaced by foreign competitor © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  European Market United Kingdom (Britain) In Britain, the Labour government between 1964 and 1970 sought ‘assurances’ from new foreign investors about their employment, capital investment and exports strategies, though little attempt was made to monitor the outcome (Jones 1990a). National champions were promoted in strategic industries including ball bearings, automobiles, and computers, but again with no sustained success. In computers the government encouraged a merger of British firms to form ICL, and acquired 10 percent of the equity, but despite heavy R&D spending, it proved impossible to create a British competitor to IBM. ICL became dependent on the technology of Fujitsu during the 1980s, and was acquired by that Japanese company in 1990. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  European Market West German West German government policies were among the most liberal in Europe. There was no authorization or screening of firms on entry, or of foreign takeovers, except insofar as they affected antitrust policies. This tolerance only waned when it seemed that the governments of OPEC countries might use their oil wealth to buy up German companies. Iran's acquisition of 25 percent of Krupp, and the Kuwaiti government's purchase of a 14 percent interest in DaimlerBenz, led the government to ask banks and major companies to report impending sales of companies or large blocks of shares to foreigners, especially OPEC governments. In a few cases the government encouraged German investors to buy equity being offered for sale. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. War World II and Afterwards J Japan and United States Market Japan and the United States represented different ends of the policy spectrum between the 1940s and 1980s. In Japan, government policies were highly restrictive (see Box 8.3). Even the largest foreign companies faced formidable obstruction. In 1956 IBM applied for the permission required to import the technology and other assets necessary to manufacture computers at its existing subsidiary in Japan, and to remit earnings from this activity. It was only four years later, after a threat to abandon any plan to manufacture in Japan, that IBM was finally given the permission it required. In return the US company had to license its basic computer patents to Japanese companies, including all seven major domestic computer manufacturers © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  In the United States, there were no limits on percentage ownership by foreign firms, nor on methods of market entry. The US regulations on foreign firms were virtually identical to the rules facing domestic US firms, but all the restrictions put in place in the interwar years remained. Federal law barred or limited foreign ownership in coastal shipping, radio and television broadcasting, operation of nuclear power facilities, and domestic air travel. Foreign controlled firms were also not eligible for the facility security clearance required to bid on US defense contracts. At the state level, there were widespread restrictions on foreign companies in banking and insurance, and limitations on land use and ownership Some states discriminated against foreign-owned firms in their public procurement Although antitrust laws did not discriminate against foreign firms, they were sometimes employed as a protectionist device. Domestic firms threatened by foreign predators were able to use litigation—or else direct appeals to Federal or state agencies—to create lengthy delays and difficulties for foreign investors © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  War World II and Afterwards(Liberalization) During the 1980s there was a worldwide public policy shift away from monitoring and restricting foreign firms. The globalization of the capital and money markets systematically undermined national controls over banking and financial systems, and over the ability of governments to influence the financial strategies of multinationals. The case for restrictions was undermined by their ineffectiveness. Governments proved unable to monitor multinational behavior effectively. I In Europe, the national champion strategy accumulated a record of costly failures (Moran 1993). © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  War World II and Afterwards Margaret Thatcher.Prime Minister of the United –Liberalization- Kingdom from 1979-1990.She was the first woman to hold The Reagan administration in the United States and that office. Furthermore, she the Thatcher government in Britain led the trend was dubbed as ”iron lady” a nickname that become towards economic liberalism. associated with her uncompromising politics and In Britain, the election of Thatcher in 1979 was leadership style. followed by the suspension of exchange controls,. the progressive privatization of the state-owned sector, and the abandonment of the national champion strategy..Ronald Reagan was a American politician In the United States, the general trend towards who served as the removing restrictions, deregulation, and a much 40th President of the laxer enforcement of antitrust laws was usually United States from only tempered by security concerns. 1981-1989 © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  War World II and Afterwards –Liberalization- In general, however, the most striking trend in all developed countries was the progressive dismantling of restrictions on entry, ownership, and dividend transfers. Manufacturing became fully open to FDI, although restrictions lasted longer in natural resources and services such as telecommunications, transportation, and media activities. An important element in this process was regional integration. In the European Union in particular, the Single Market program launched in 1986 was designed in part to facilitate regional integration by European companies by harmonizing national legislation and removing regulatory barriers to trade and factor flows. During the 1990s the liberalization process intensified. The attraction rather than restriction of inward investment emerged as the primary policy concern. This reflected the rapid growth of unemployment following the oil shocks of the 1970s. A number of European countries and regions, particularly ones with high unemployment, had already sought to attract foreign firms during the 1950s and 1960s, including the Republic of Ireland which developed an extensive range of incentives for new industries. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  War World II and Afterwards –Liberalization- Subsequently most European governments began to offer incentives to inward investors. Canada and many states of the United States followed with tax concessions, subsidized sites and other infrastructure facilitation. By the 1990s even the Japanese government was providing incentives for foreign investors. The level of subsidy was sometimes high. In both developed and developing countries, governments offered tax incentives and capital grants, infrastructure investment, and much else to attract multinationals. There was no return to the ‘free markets’ seen in the first global economy. The relationships between companies and governments also became more complex. The sovereignty of national governments, especially in Europe, passed in part to regional jurisdictions and regional blocks. This meant that companies, which were themselves often active in a range of strategic alliances or other cooperative arrangements with other companies, had to negotiate with several different layers of government. In Belgium, the authority of the national government was devolved to regional governments representing the two main language groups. Even FDI statistics were no longer collected nationally. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  War World II and Afterwards –Liberalization- Although national governments in Europe retained their own competition regulators, there was a striking growth in the power of EU competition regulators. EU competition regulators seemed stricter than their counterparts in the United States. In 2001 EU regulators blocked a proposed merger between General Electric and Honeywell, both US-based firms, which had been provisionally approved by US regulators. Three years later they sought to impose a $600 million fine on Microsoft for competition violations. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  8.2.2 Developing Economies Imperialism and colonization era In the 1900s Standard Oil (US) found its attempt to There were few restrictions on multinational in the obtain oil concessions in both the Dutch East Indies and developing world before the interwar years. British-controlled Burma blocked by their colonial The colonial governments which controlled much of governments. Asia and Africa generally followed the same open There were major tensions again at the end of the policies towards inward FDI as their home 1920s when the British government sought to block governments. In some instances, colonial US companies securing concessions in the British governments discriminated against the firms of ‘protected’ Gulf sheikhdoms of Bahrain and Kuwait, other nationalities, especially in strategic sectors. both suspected of possessing rich oil resources. However, Standard Oil of California was eventually able to secure a concession in Bahrain by forming a Canadian subsidiary, which was regarded as ‘British’, while Gulf Oil formed a 50/50 joint venture in Kuwait with the Anglo-Persian Oil Company © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  8.2.2 Developing Economies Imperialism and colonization era In general, colonial governments did not restrict inward FDI. There were US manufacturing and distribution investments in India and other parts of the British Empire which operated without restriction (Wilkins 1970, 1974a). Swedish Match established a multiplant business in India which, by 1932, accounted for half of all Indian match production. British-owned Lever Brothers was awarded some amount of land in the Belgian Congo, which it managed using a Belgian-registered, but wholly owned, subsidiary © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Countries which remained outside Western imperial control, including China, Thailand, and Iran, had more autonomy in dealing with foreign companies. Yet their acceptance of international property law, a perceived need for foreign entrepreneurship and technology, the weaknesses of state structures, and the diplomatic and military hegemony of the West seldom left their governments with much room for maneuver. Thailand, surrounded by either French or British colonies, sought to retain some autonomy by awarding concessions to firms of different nationalities. In Latin America during the second half of the nineteenth century, there was a widespread belief in liberal economic policies, including free trade, and a strong conviction that economic modernization would be facilitated by foreign business. Insofar as government restrictions against FDI existed, they were largely found in the financial sector. In Argentina between the mid-1880s and the mid-1890s, there was an attempt to develop a state-owned venture as a quasi state or development bank, and to subject the British banks to taxation. This strategy faltered when it and other local banks collapsed during the Baring Crisis of 1890, and from the mid-1890s there were few government attempts to restrict the activities of the British bank. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Developing economies Restriction in Oil industry- The interwar years witnessed a reaction against foreign firms, especially in the petroleum industry, and in a number of countries in the Middle East and Latin America. In Iran there was the cancellation and subsequent renegotiation of the Anglo-Persian Oil Company's concession in 1932 (see Box 10.6). In Argentina, a state oil company—YPF—had coexisted with foreign companies since 1907, but in the mid-1930s the government reserved for YPF the areas most likely to have petroleum deposits. Subsequently the government forbade both oil imports and exports, and placed oil distribution under strict government regulation. In Venezuela, which had been a haven for foreign oil companies until the death of the dictator Gómez in 1935, legislation obliged the companies to provide a wide range of social benefits for their workers, and in 1938 a new law authorized the Venezuelan government to enter the oil industry © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Developing economies - Restriction on Oil industry- Latin America Continents In 1937 Latin American policies towards foreign oil companies took a new turn when the Bolivian government expropriated Jersey Standard's properties in that country. The US company had found oil in Bolivia in the 1920s, but relations with the government had deteriorated at the end of the decade, when Jersey had cut production and stopped exporting in response to an increase in tax rates and the lack of a cheap means of oil transportation. The most noted Latin American nationalization occurred a year later in 1938, in Mexico. There had been continuing tension between the foreign oil companies and the Mexican government since the adoption of the 1917 constitution, which had vested direct ownership of all subsoil rights in the Mexican nation. A serious area of contention was the Mexican insistence that foreign oil companies obey Mexican labor laws. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Developing economies - Restriction on Oil industry- Latin America Continents Finally, in 1938 the government expropriated most of the foreign oil industry, which was dominated by Shell and Jersey Standard. This assertion of national sovereignty over natural resources was of enormous significance, as was the fact that the Mexicans succeeded in their goals without retaliation from Western governments, thanks in part to the fortuitous outbreak of World War II © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  World War II and aftermath Developing country intensified pressures against foreign firms. The Communist Revolution in China in 1949 was followed by the withdrawal of all privileges from foreign enterprises and the establishment of total state control over Communism foreign trade. Over the following few years the government took control of all foreign companies in China The spread of Communism to North Korea and North Vietnam, and to Cuba after 1961, further closed countries to foreign companies. The end of colonial empires usually moved policy in a more restrictive direction. During the last years of colonial role in countries such as Nigeria and Kenya, British colonial administrators preferred to promote political tranquility rather than support Colonial British or other foreign firms. In Nigeria, the colonial government created marketing boards in the late 1940s which undermined the international trading business of the incumbent large European trading companies, including Unilever's United Africa Company. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  World War II and aftermath Developing country – Middle East The Middle East became a particular focus of hostility to Western business in the early 1950s Iran In 1951 Iran nationalized its oil industry. The subsequent boycott of Iranian oil by Western oil companies and a British- and American-inspired coup which overthrew the government in 1953 secured the reversal of this policy, though at a cost. The monopoly of the Anglo-Persian Oil Company (renamed British Petroleum in 1954) was broken and it returned to Iran with only a 40 percent stake in a new oil consortium, with the residual shared between other major oil companies. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  World War II and aftermath Developing country – Middle East Egypt In Egypt, the overthrow of the former monarchy in 1952 and the advent the more nationalist government of Colonel Nasser led in 1956 to the nationalization of the Suez Canal Company, a French concessionary company which operated the Suez Canal. The nationalization led to a violent reaction by France and Britain, whose armies invaded Egypt in collusion with Israel. Colonel Nasser were the 2nd Their subsequent withdrawal, under US pressure, was followed by the President of Egypt from 1954 nationalization of all British and French FDI in 1957. Subsequently until his death in 1970.Nasser led the 1952 overthrow the Egyptian-style ‘Arab socialism’ exercised a strong influence on a number of monarchy and nationalization neighboring countries, especially Syria and Iraq, which nationalized foreign of Suez Canal Company. assets in the early 1960s. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  8.2.3 Factor long term national differences in policies Correlation between Policies towards The industrial open policies and the foreign firms reflected distribution of inward extent of a country’s the wider industrial FDI outward policies policy background of each country Large economies have Cultural and historical The nationality of often been more influence on host investing firm restrictive than small government policies © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Factor long term national differences in policies ▪ Countries with large amounts of multinational investment, including the 1. Correlation between open policies and United States and Britain, had to consider the extent of a country’s outward policies the danger of retaliation against their own firms if restrictive policies were pursued against other nation's companies. Conversely, countries with low outward FDI have been more often found with restrictive policy stances. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Factor long term national differences in policies Governments which followed liberal, market-oriented economic policies have generally NOT sought to restrict or 2. Policies towards foreign firms reflected the wider industrial policy background of each tightly control foreign business. country Governments which had more active industrial policies were more inclined to regulate foreign companies, as they threatened their control over the economy. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Factor long term national differences in policies Foreign control over politically sensitive or strategic industries such as resources, banks 3. The industrial distribution of inward FDI and airlines aroused considerable concern in many countries. Inward investment in manufacturing industries has tended to be less controversial, although certain sectors, including defense, computers and automobiles, were often seen as sensitive for prestige or security reasons. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Factor long term national differences in policies In developing economies, governments were often hostile to multinationals from former imperial powers. 4. The nationality of In contrast, linguistic and cultural similarities investing firm between home and host countries tended to 4. reduce tensions. During the 1970s and 1980s public opinion in the United States was far more alarmed by Japanese multinational investment than by the much larger amount of FDI from Britain. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Factor long term national differences in policies The list of the most restrictive countries in the twentieth century included Russia, China, and India. 5. Large economies have In contrast, Switzerland, Belgium, and the often been more restrictive Netherlands, and, in more recent decades than small Singapore and Hong Kong, have been consistently liberal. These countries had small national markets, and a high degree of trade dependency. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Factor long term national differences in policies Japan's self-imposed isolation from the rest of the world during the Edo period from the seventeenth to the nineteenth century both reflected a strong resistance to foreign 6. Cultural and historical influence on host cultural influence, and re-enforced such government policies sentiments. Conversely, countries with a long tradition of being open trading economies were usually less concerned about foreign participation in their economies © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Multilateral regulation Introduction The expropriation of foreign property by the Soviet Union in 1917, stimulated the first attempts by home countries to establish an international code regulating the conduct of host countries. In the 1930 Hague Conference on the Codification of International Law, an attempt was made to include the subject of the responsibility of states for damage caused in their territory to foreign persons and their property. However, many developing countries refused to accept the international minimum standards of treatment which Western nations insisted upon. The Latin American countries asserted the Calvo Doctrine, proposed by an Argentine diplomat in the 1860s, which asserted that an investor's home country should not intervene to support its investor abroad ( © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  International Trade Organization (ITO) However, developing countries insisted on During and after World War II the issue was numerous qualifying raised again in proposals to form the Primary provisions. The whole International Trade Organization (ITO), which proposal floundered when was intended to function as a third leg to the Purpose the US Congress refused to ratify the ITO Charter International Monetary Fund and the World Bank in an attempt to manage the international economy. Facilitate trade However, one piece of the ITO proposal survived, the GATT(The General Agreement on Tariff and Sought to promote FDI by encouraging Trade), which over the following decades drove the “the international flow of capital for liberalization of world trade through successive productive investment” multilateral negotiations.. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Organisation for Economic Cooperation and Development (OECD) In the 1970s the wave of nationalizations of multinationals by developing countries led the Organisation for Economic Cooperation and Development (OECD) to establish guidelines for the behavior of international firms. These committed firms to uphold good corporate governance principles in host economies, to contribute to development by training employees, to avoid improper involvement in local politics, to abstain from bribery, and a range of other general principles © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Organisation for Economic Cooperation and Development (OECD) However, there was no consensus on the enforcement of these guidelines. While some member countries sought legally binding codes of conduct, the business community lobbied for a voluntary code, as well as stressing the need for the removal of obstacles to FDI. The OECD Guidelines did NOT become a legally binding law © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. Multilateral regulation (Others) Considerably expanded the role of GATT ,and World Trade many of its provision directly affected multinationals. Organization(WTO) It's included on American insistence, new provision on intellectual property and services established a variety of obligations such as Trade Related Aspects transparency and nondiscrimination for both of Intellectual trade and investment in services. Property (TRIPs) The General included new rules on protection standards across countries, and obliged governments to Agreement on Trade provide transparent processes to enforce in Services(GATS) them. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Multilateral regulation (WTO) The contrast between the regulation of multinationals (or the lack of it) and that of trade was highlighted by the transformation of the GATT into the World Trade Organization (WTO) in 1995. The WTO also had greatly strengthened dispute settlement mechanisms. This power in turn highlighted the primary influence of developed countries in WTO decisions, and the lack of transparency in the governance structure. This provided a powerful stimulus for the growth of the anti globalization movement, and the public protests which often accompanied WTO meetings, most notoriously in Seattle in 1999 © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Thank you Address Telephone Website University of Cyberjaya 03 - 8313 7000 www.cyberjaya.edu.my Persiaran Bestari, Cyber 11, 63000 Cyberjaya, Facsimile Email Selangor Darul Ehsan, Malaysia. 03 – 8313 7001 [email protected]