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INDIA: Government Seeks Accountability From Foreign Corporations

by Mamata SinghBusiness Standard
December 12th, 2002

In a significant development, India and China have joined hands to demand a legally enforceable code of conduct for foreign investors to check their abuse of economic power in host countries.

They have also asked for greater transparency in accounting disclosures by multinational corporations, besides obligations from home countries like prohibiting corrupt foreign practices by their corporations.

A paper on investor and home country obligations drafted by India and submitted to the World Trade Organisation's (WTO's) working group on trade and investment has called upon the group to consider incorporating legally binding measures to ensure corporate responsibility and accountability on the part of multinational corporations.

Co-sponsored by Pakistan, Cuba, Kenya and Zimbabwe, besides China, the paper has encountered stiff opposition from developed countries.

The US, the European Union and Japan have warned that such measures would put a brake on investments in developing countries.

Buttressing its case for a global code of conduct, the paper has highlighted the recent spate of corporate frauds involving multinationals like Enron and WorldCom.

India has cited the Bhopal gas tragedy as an instance of the double standard on the part of multinationals with respect to consumer protection, environmental and employment practices in their home and host countries.

While legitimate rights and interests of multinationals must be recognised, host governments should have the freedom to regulate foreign investors, the paper has stated.

It also points out that foreign investors need to undertake obligations in line with the host countries' interests, development policies and objectives.

Not only that, the paper has called upon the home governments to undertake obligations for ensuring responsible behaviour by their corporations.

While acknowledging the benefits of foreign direct investment, the paper has pointed to its downside, which come bundled in the form of restrictive business practices, manipulation of transfer pricing norms and the like.

The principles to be kept in mind while drawing up investor obligations should include respecting member governments' rights to regulate and monitor investors, non-interference in the internal affairs of the host countries and adherence to their economic goals and development objectives.

It has also demanded greater transparency in accounting, especially with regard to transactions that have a speculative effect on the currency or financial markets of the host countries.

The home governments, on their part, should enact legislation prohibiting corrupt practices abroad and also undertake to provide information regarding the involvement of multinationals in any questionable dealings that may be useful for the host government at the time of investment approval.

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