Multinational Companies

1
Multinational Companies

• Research
• Pollution Havens
• Exporting Environmentalism
• Natural Resources and Firms Timber in
  Asia-Pacific

2
Little research on trade and MNCs Why?

• 1. History of MNC/TNC Research in IR
• 2. Opaque corporate structures
• 3. Difficult of generalize

3
Pollution Havens?

• Argument involves 5 broad parts
• 1. MNCs seek out states with lower environmental
  social standards, creating pollution havens
• 2. Pollution havens are generally in developing
  countries

4
Pollution Havens?

• 3. Trade liberalization and global deregulation
  (as pushed by the WTO) encourages even more
  pollution havens
• 4. To entice or keep investors, states may lower
  standards (or resist raising standards), creating
  a race to the bottom in Third World
• 5. The env. conditions within pollution havens
  deteriorates over time

5
Do Pollution Havens Exist?

• Common argument, especially among activists
• Seems logical, but studies of manufacturing firm
  shows a weak correlation (stronger links may
  exist to natural resource firms)
• While dirty industries are common in the
  developing world, but not attributable to MNCs

6
If Havens Dont Exist, Why?

• Answer is unclear but reasons include
• 1. Fear of liability
• 2. Risk to MNC reputation
• 3. Consumer demand for reasonable environmental
  production
• 4. Cost of different technologies in different
  areas
• 5. Fear of future environmental restrictions

7
Exporting Environmentalism

• Argument of market liberals and institutionalists
• That, even though MNCS are not legally required
  to follow home environment laws overseas (only
  local laws) some MNCs, esp big ones, export
  environmentalism
• two aspects technology ideas, management
  practices

8
Exporting Environmentalism

• Why does this happen?
• 5 Interconnected reasons
• 1. MNCs are under pressure to comply (by NGOs,
  IOs, Govts, consumers)
• 2. Some firms develop internal codes above host
  country standards
• 3. Some follow higher standards accidentally,
  because of better technology management
  practices

9
Exporting Environmentalism

• 4. Some follow better practices to gain a
  competitive advantage
• (because better env technology can be more
  efficient, produce a higher quality product)
• 5. Some follow higher standards for risk
  management
• (so threat of intervention does not disrupt
  corporate activity)

10
Timber Firms in Asia-Pacific

• Gained experience in Sarawak, Malaysia some in
  Indonesia
• Often under private, family control
• Many are ethnic Chinese families with close ties
  to indigenous politicians
• Moved overseas as logs became scarcer
• Now in S. America, Africa, Melanesia

11
Timber Firms

• SEA firms dominate timber in PNG and SIs
  (especially Malaysian firms)
• e.g. Rimbunan Hijau, controls about 50 of log
  exports in PNG
• Difficult, however, to determine extent of
  control complex networks of subsidiaries,
  affiliates, partners
• Sometimes hard even to determine the true owner

12
Timber Firms and Illegalities

• Illegal logging in parks and nature reserves
• Illegally log outside concessions
• Routinely ignore management rules
• Illegally set fires to clear land for plantations
  (especially oil palm)
• Bribe enforcement officers, landowners, and
  politicians

13
Timber Firms Tax Evasion

• Shift profits to home company, e.g., over-paying
  for services and products
• (evades corporate taxes)
• Shift profits to tax havens offshore
• (evades corporate taxes)
• Simply under-declare profits in the books
• (evades corporate taxes)

14
Timber Firms Tax Evasion

• Under-declare export volumes
• (evade export taxes on volumes)
• Mis-declare species and grades
• (evades higher taxes on valuable high-grade
  species)
• Smuggle logs out
• (evades both export taxes corporate taxes)

15
Why are Timber Firms Able?

• 1. Firms are pursuing quick, large profits,
  partly responding to high levels of uncertainty
• 2. Business executives have more skills than
  landowners
• 3. Governments lack the political will to enforce
  rules
• 4. Governments lack the technical capacity to
  enforce rules

16
Conclusion

• Need to stress complexity of MNC effects on Third
  World
• Evidence MNCs sometimes raise standards (US
  chemical MNCs, see Garcia-Johnson)
• Evidence MNCs sometimes slash and run (e.g.
  tropical forests, minerals, fishing)