TUESDAY 17 NOVEMBER 1998

MS MARIA ELENA HURTADO, MS JAYANTI DURAI AND MS JILL JOHNSTONE

  20. I have to say that the one case you have quoted was the Canadian Ethyl case, which is at best a bit on the balance, would you not agree? Have you any better examples than that?
  (Ms Durai) The Ethyl case, I would agree that it is on the balance, but if that was a possibility—and given what we have seen as the terms of these particular elements—what we have seen certainly happening in the dispute settlement mechanism of the WTO, where countries cannot afford to go through this process, and given the size of some of these companies, it is quite a costly undertaking. If they cannot afford it they are likely to favour maybe the corporate interest rather than other interests in order to avoid going through the whole of that investor-state dispute mechanism. It is the inclusion of that: that the unbalanced nature of the investor-state dispute mechanism would lead to that balance of power within different stakeholders within that society.

  21. Can you identify any types of investment whose effects on the host country are intrinsically negative. Moreover, do you think that for each country there is an optimum level of investment which government should seek to reach and maintain?
  (Ms Durai) I think the interaction between investment and local economies and local communities is very complex. It is very difficult to separate the benefits from the cost and indeed to measure them in some cases. The types of investment that can bring harm to a local economy is where there are greater outflows, (for example, of foreign exchange), than inflow; maybe due to the importing of parts, through transfer pricing, etcetera. You can end up in a situation where a government is effectively losing foreign exchange as a result of a company operating. You have examples, where as I have mentioned, if foreign investment comes in where there is weak domestic capacity within a country, weak domestic companies, you can often end up in a situation where you have one large company dominating one sector of the particular industry. This then leads to a situation where you have very little competition and does not bring benefits to consumers in terms of choice and price.

  22. If there is no local capacity prior to the decision of that very large multinational to invest, it is not entirely fair, (forgive me, but from what you have said so far), as to what is being lost. It is not a case of losing an advantage or a benefit which was previously applied locally.
  (Ms Durai) I think the advantage, where you have a mixture of companies operating, is that in time those companies can build up capacity. If they have not been given that time and space then you do end up with one company—through various means that are open to specifically foreign investors rather than to domestic investors—slowly to increase market share to the extent where they dominate and, therefore, take over the domestic sector. The disadvantage to the domestic capacity at large is not going to decrease through that mechanism, is not going to improve, nor also to consumers.

  23. Does this not constitute an argument for the prohibition of the investment or does it merely argue for the need for a proper competition regime?
  (Ms Durai) It does argue for the need for a competition regime. One of our recommendations was the fact that countries should have a proper competition regime in place prior to the liberalising of investment.

  24. I notice in your evidence you state: "Nations must retain the ability to choose their investment strategy, manage their economy and accord differential treatment to investors if necessary to produce balanced, equitable and sustainable development." All very good. Then I wonder in what circumstances would it be in the interests of consumers for governments to discriminate against foreign investment? That is the worry which comes out of what you have stated.
  (Ms Durai) Again it comes down to the nature of the national regulation; the ability of governments to regulate on a national basis; the differences between domestic and foreign capacity within those countries. In the United Kingdom you have quite a strong regulatory system. The industrial sector is quite advanced, which therefore means they can compete in those cases on a relatively more equal basis than in other countries. The impact on consumers is where you have regulatory systems which are weaker; which are more susceptible to influence by business and private sector, again with different balances of power; and where local practices can be undermined by the use of new foreign practices. We have seen this very much in the marketing and advertising side, where some of the international tobacco companies are using practices which (a) would not use at home but (b) are much more aggressive and much more aimed at children than the local companies would use. There is just a different standard of practice.

  25. So this is when you would stop that foreign investment because they may not operate in the same way? Would it not be that better rules or laws ought to be imposed on companies, rather than discriminate on investment, to ensure that they work in the proper practice?
  (Ms Johnstone) I do not think Jayanti is saying that we want to stop investment. It is getting the balance of rights and responsibilities. One has responsibilities towards consumers. Marketing is a very good example but also environmental protection and competition policies have already been raised. As both Jayanti and I have said, in the United Kingdom we already have a fairly strong regulatory system on all these fronts. A lot of the countries we are talking about are developing these things and they are, in a sense, weak partners in negotiating with big companies, some of which have resources much bigger than the country concerned. What you have is a dubbing down: a discouragement to improving standards across the board and making the improvement of domestic regulation happen. It can just slow things down.
  (Ms Hurtado) I would add to that. One of the things which we thought the MAI was particularly bad at is that it really places straitjackets on governments. It did not allow any flexibility in developing countries. We are saying here that it is important to have the ability to say, for example, that we want to channel or attract more foreign involvement to this sector because we need to develop telecommunications or we need to develop roads, etcetera, etcetera. The agreement, as it was, meant that the government did not have that capacity for discriminating. That, we think, should be retained.

  26. Could you clarify. I understand why all of us should be concerned about environmental standards, breaches of those, or tax avoidance: all these activities by multinational companies with which legislators everywhere should be concerned. But why should you, as a consumers organisation, whose primary interest must be delivery of goods and services at reasonable prices to consumers, concern yourselves with these particular issues?
  (Ms Hurtado) Obviously the way the goods are produced, marketed and distributed, are essential to consumers. If you look at safety of products, for example, what is contained in food marketing, advertising—

  27. I can understand product safety but why should you be concerned if companies engage in tax avoidance, for example? How does that impact on consumers? It actually makes prices cheaper.
  (Ms Hurtado) We take a broader perspective of the consumer.

  28. That is what I am probing.
  (Ms Hurtado) Most of our members are in developing countries. We will look at what is the impact of measures on the economy and the relationship to that. If it is a flourishing economy this will create more demand, more consumers, and will provide more goods.

  29. So you are going way beyond consumer interest and looking at general social issues, in fact? I am not saying you should not be, they should be the concern of anyone, but I am just wondering why you, as a consumers' organisation, should put your resources into those issues.
  (Ms Johnstone) In this country, again because we have very well developed democratic structures and ways of reaching different interests—which individuals have as a consumer, as a worker, as a citizen—we have been able to define narrowly what consumer interest is and what the role of the consumer organisation is. That is different in other countries. In fact, we, the National Consumer Council, produced a paper (I think it was in 1990) called Growing out of Poverty, which pointed out that as you go down the development chain it is very much harder to separate consumer and producer interests. If you are a subsistence economy you cannot separate them at all. We have always accepted and fully supported the fact that CI does take a broader view, as do many of its member organisations.

  30. Paid for by the British taxpayer. You take an interest in socio-economic affairs in other countries, even though there are other agencies who have that responsibility.
  (Ms Johnstone) We see it as a legitimate role of CI. We are a member of CI—and have not felt any reason why we should not be a member of CI—and they need, quite legitimately, to take a wider role. Another point I would like to make—and it is a challenge for the National Consumer Council and for many consumer organisations in the developed world. As we become more developed and have a more educated population, consumers are beginning to become much more demanding. They do not just care about the price. They never did. What they care about is value for money. We are beginning to see—and, as I said, this is a challenge for us—the development of ethical investment funds. This is because consumers of investment products want to make decisions which are not just about the return they are going to get. The development of fair trade products: some consumers want to pay more for something they think is produced more ethically.

  31. That is their choice, is it not?
  (Ms Johnstone) Yes, and we, as a representative organisation, need to be sure that they are able to make those choices. The same comes with animal welfare and environmental concerns. We are a very heterogenous bunch: 50 million in this country with all sorts of ideas and views about what is value for money.

  32. You see it as your role to lead them in their choices?
  (Ms Johnstone) No, we definitely do not. Our role is to enable and to make sure they have the information that they need to make those choices. Those are their choices. What we in our activity must do, is to make sure that they are in a position to make those choices. Consumers, even in the developed world, are becoming much less easy to put in a little box that they only care about the price of the product. I do not think that has ever been true. If it was true, why do large companies spend huge amounts advertising branded goods which cost more than other alternatives? It is not just the lowest price that consumers are after. It is value for money and that means different things to different people.

  33. I think, Ms Johnstone, that this was a very indirect justification for an involvement by the National Consumer Council. I have had a couple of letters on the MAI, but in the 18 months in this House I have not had a single letter from a constituent or anybody else complaining about possible tax avoidance by foreign investors, or even about the possible practice of taking or giving bribes. Indeed, I doubt whether my colleague, Mr Butterfill, in the course of his 15 years in the House has had any representations either. I do not see it as your responsibility to lead but simply to represent. Would you accept that in order to do so on this matter, and for it to be clear that it is not being activated simply because it is what matters to you and your senior colleagues in Council, you have to be able to invoke some statistical evidence to suggest that a substantial proportion of British consumers want you to engage in activity of this kind, on behalf of an organisation which is publicly funded?
  (Ms Johnstone) There are two parts to that. As I said earlier, we are not doing very much work on the MAI. I said it would not make a great deal of difference to British consumers. We have left the work to Consumers International but we support them doing it. We are not putting in resources. The other point you make about spending a lot. We need to do market research. Yes, we do. We are doing more and more of it as our resources allow because it is becoming much more complicated, for the reasons I outlined, to make sure that you know about the interests you are representing. So we do do market research. There are limits to what you can do with market research. One area we have been terribly concerned about is competition policy. This is because we can understand, through economic analysis, that monopolies are abusing market dominance or you have cartels. We know consumers will be adversely affected by it so we at the Council think this is an area we should be involved in and we are putting a lot of effort into the Competition Bill. However, clearly if I was to set up a market research exercise and ask consumers what they thought about the Competition Bill and what they thought they were going to get out of it, the "don't know" box would get an awful lot of ticks. The Council does have to make judgments.

  34. It does have to lead then?
  (Ms Johnstone) It does have to lead in some areas. As I say, we are not doing much on the MAI because it is being done by CI and we are perfectly happy, as members of that organisation, for them to do that. We are doing a lot of work on similar issues with the competition policy at European and domestic and international levels.

  Chairman: I must say, Ms Johnstone, that bitter experience has taught me in the House of Commons that if you say you have not had letters on something, then that is the trigger mechanism. My colleague may live to regret that line of questioning!

  35. You suggest that there should be minimum standards on things like environment, labour laws, health and safety, etcetera, not just applying to investors but applying to countries as well. Now how realistic is it that all countries, especially the developing countries, are going to sign up to these particular standards as part of signing up to MAI? Are you not really putting up an impossible hurdle in the process of reaching any such agreement? Do you think such an agreement would be practical and could be reached: to get all these countries to sign up to these minimum standards?
  (Ms Hurtado) First of all, many of these agreements which we mentioned should be incorporated, are international voluntary guidelines that are already existing, so we would want them to be incorporated into national legislation. One of the things we say is that countries who acceded to such an agreement should have in place some consumer protection legislation. As I say, several of the instruments that we mentioned are already in existence. For that reason I do not think it would detract or would stop countries signing the agreement. On the other hand, we say we want a balanced agreement, so if the agreement did not have those elements in it, it would be not be worth pursuing.

  36. How many countries of the world would you say do not have the requisite minimum level of consumer protection legislation?
  (Ms Hurtado) In Africa very few have. In Latin America it is growing. There have been about 20-something countries which have introduced consumer legislation. In Asia it varies but I would say Africa is the worst off.

  37. So the implication of that is that the MAI cannot be signed until all these countries in Africa, which do not have any consumer protection legislation, actually have it in place. That is going to take a long time, is it not?
  (Ms Hurtado) It should not take a long time if they have the political will to do it. In Latin America, in one or two years, several countries have already put legislation in place.

  38. Yes, but you are talking about the necessity for 40 or 50 countries individually to put legislation in place before this agreement can be signed; so really you are saying we are putting this in the cupboard for a certain period of time.
  (Ms Hurtado) That is exactly what we are saying. We think that this agreement has to have this protection in place for consumers, for workers, for the environment, before it becomes operational.
  (Ms Durai) I would reiterate the point that you need to have a balanced agreement. If you are not going to have a balanced agreement, maybe you are not ready for that level of investment liberalisation if you do not have those regulations or the ability to regulate in place. But also, if you look at why we and presumably the others would support investment liberalisation, which is to improve the allocation of resources on a more economic basis and have more economic efficiency, it seems that to cover that area which the MAI has to cover is by tackling government barriers to those investment flows, whereas what they are tackling is the corporate barriers to those investment flows. Those are through competitive practices, the use of transfer pricing etc. If you want to improve the flow of investment world-wide you need to tackle maybe government barriers but also the corporate barriers at the same time. If we look, at the moment, investment often flows to areas where you have lower standards. We have seen that with labour standards. Investment does flow where standards have been lowered. That cannot be seen to improve economic efficiency or the use of investment.

  39. As a practical point, to get countries and not the companies to sign up to these minimum standards, that is going to be an incredibly difficult and long-winded process. What would be your estimate of reaching an MAI which met your criteria? How long do you think it would take to achieve that?
  (Ms Hurtado) A long time. It is impossible to say. What I would say is that it is a fact that much more foreign investment and countries are wanting it basically, and this has led to a rapid development, for example, in the area of competition law. Many countries in the developing world are either reforming their competition legislation or introducing new competition legislation because of the need to do so; and this is because of the influx of foreign investment.