Commission discusses role of transnational corporations in world development.

Discussions on the role of transnational corporations (TNCs) in the current international economic situation and on the modern phenomenon of transborder data flows highlighted the work of the Commission on Transnational Corporations at its tenth regular session, held from 17 to 27 April in New York.

After reviewing the activities of TNCs in South Africa and Namibia and the responsibilities of home countries towards TNCs operating there, the Commission recommended a resolution for adoption by the Economic and Social Council calling upon the home countries to prevent further new investments and reinvestments and bring about an immediate withdrawal of existing investments in southern Africa by TNCs.

During the debate on the proposed code of conduct on TNCs -- a Commission priority since 1977 -- its multilateral character was emphasized and it was said that other instruments, bilateral or regional, could not serve as a substitute for it. The body urged that every effort be made at its second reconvened special session for 1984 (held from 11 to 29 June in New York) to complete the code (see accompanying story).

The Commission reaffirmed the importance of work by the Centre on TNCs on transborder data flows and noted its intention to focus in the coming year on research related to the rise in trade in data services.

During its two-week session, the Commission also considered international standards of accounting and reporting, other international arrangements relating to TNCs than the code of conduct, policy analysis and research, a comprehensive information system on TNCs, technical co-operation projects, and work related to the definition of TNCs.

The 48-member Commission postponed action on a draft resolution that would have had the United Nations Centre on Transnational Corporations prepare a study on the activities, both qualitative and quantitative, of State-owned enterprises from both market and centrally-planned economies conducting transnational operations. The postponement, under a procedural motion of the German Democratic Republic, was approved by a roll-call vote of 30 in favour to 11 against, with no abstentions. The proposal for a study on State-owned TNCs had been submitted by Canada, the Federal Republic of Germany, Italy, Japan and Sweden.

The Commission selected 16 expert advisers--eight from developing countries, seven from developed market-economy countries and one from the socialist countries of Eastern Europe. Five experts are businessmen, five are from trade unions, and six have academic or other backgrounds. Advisers are elected for two-year terms and are eligible for re-election for one additional two-year term only.

Other texts recommended for action by the Economic and Social Council dealt with preparatory work for public hearings on TNC activity in southern Africa and a draft provisional agenda for the Commission's 1985 session.

Newly-elected Chairman Philippe Levy (Switzerland) said the internationalization of economies was characterized by growing parts of gross national product earned abroad, an increase in the number of TNCs -- some "new-comers" being small and medium-sized corporations and others coming from new home countries -- and a continuing unequal overall distribution of host countries of TNCs.

Outgoing Chairman Hassan Gadel Hak (Egypt) said TNCs could provide a link between developed and developing countries and could help to build an infastructure in developing countries, in addition to training personnel. However, TNCs were not investing enough in developing countries to assure these much-needed objectives. TNCs claimed the atmosphere in developing countries was not conducive to investment. The international community must intensify attempts to deal with that situation and must support developing countries' needs.

Sidney Dell, Executive Director of the Centre on Transnational Corporations, said many host countries were in the process of adopting specific regimes for dealing with TNCs, due in part to greater confidence in the management of their relations with these corporations. Also many TNCs have to respond to the need to orient their activities in host countries to comply with national regulations and to take into account their development policies. Finally, acute balance-of-payments pressures had prompted many countries to look to TNCs as a potential additional source of funds at a time when the flow of resources, both from public instutions and commercial banks, was lagging. Most host countries were, however, concerned about the impact on balance of payments, the potential for flight of capital, and transfer pricing.

Commission members for 1984 are: Algeria, Bahamas, Bangladesh, Brazil, Canada, Central African Republic, China, Colombia, Congo, Costa Rica, Cuba, Cyprus, Czechoslovakia, Egypt, France, German Democratic Republic, Federal Republic of Germany, Ghana, Guinea, India, Indonesia, Iran, Italy, Jamaica, Japan, Kenya, mexico, Morocco, Netherlands, Nigeria, Norway, Pakistan, Peru, Philippines, Republic of Korea, Swaziland, Switzerland, Thailand, Togo, Trinidad and Tobago, Turkey, Uganda, Ukrainian SSR, USSR, United Kingdom, United States, Venezuela and Yugoslavia.

In addition to the Chairman, other officers elected were: Vice-Chairmen -- Vladimir Philippov (Ukrainian SSR); Ahmed Rhazaoui (Morocco); and Ransford Smith (Jamaica) and Rapporteur -- Irtiza Husain (Pakistan).

International Economic Situation

The Commission reviewed reports relating to transnational corporations in world development and the role of TNCs in implementing the International Development Strategy for the Third United Nations Development Decade.

TNCs in World Development

The report on TNCs in world development (E/C.10/1984/2) deals with the changing nature of the world economy, with emphasis on its increasing interdependence, both among countries and between the public and private sectors.

Foreign direct investment flows into developing countries, the report concludes, are adversely affected by the present crisis and the structural changes taking place in both the developed and the developing world. For this reason, many host developing countries are liberalizing their policies towards foreign direct investment in an effort to substitute equity for debt financing.

At the same time, many of these countries are imposing certain performance requirements on foreign firms -- requirements that frequently relate to the trading activities of such firms, for example, by requiring them to export a specific percentage of their production, by linking permission to import quantitatively to the firm's capacity to export, or by obliging the firm to purchase a given percentage of inputs from the domestic economy. These factors, among others, are likely to change the overall role played by the TNCs in the foreign sector of host and home countries and give the foreign investment-finance-trade link a new dimension during the 1980s.

The recovery of developing countries' growth has been impaired by two major factors, the report states. One is the increase in protectionist measures taken by developed market economy countries to limit unemployment. World trade in 1983 was, according to the report, virtually the same as in 1979, and its projected real growth for 1984 is still below the average annual rate for 1974-1979. A second factor is the sharp post-1982 reduction in voluntary commercial bank lending to developing countries. Major adjustments are needed to compensate for this decline, the report states.

The increasing indebtedness of the developing countries in the post-1973 period, the report goes on, is directly related to their worsening trade-balance position. The estimated deficit for the developing countries, including oil-producing States, was $91 billion in 1983.

Employment: Regarding the extent of employment by TNCs, the report states that an estimated 44 million people were employed by TNCs in the mid-1970s, of whom 4 million were in developing countries. Projections suggest that these figures remained valid at the beginning of the 1980s.

Other estimates indicate that in developed market economy countries, employment by TNCs is equivalent to more than 10 per cent of the labour force and accounts for a third of total employment in the manufacturing sector. In developing countries, on the other hand, employment by TNCs is small in comparison with the size of their labour forces and in relation to levels of unemployment and under-employment. Nevertheless, employment by TNCs in the manufacturing sector in developing countries is frequently important, both in quantitative and qualitative terms.

Investment: With regard to direct investment by TNCs in developing countries, the report states that, by the end of 1981, the stock of direct investment in developing countries was $118 billion, of which almost 40 per cent was in the so-called newly industrialized countries and more than two fifths in the middle-income countries. Four low-income countries identified as developing countries with a per capita income of less than $600 in 1981 with large economies (Egypt, India, Indonesia and Pakistan) accounted for about a tenth of the total, while only 4 per cent was accounted for by other low-income countries. The stock of foreign direct investment in the latter group was almost $8 billion.

Poor economic conditions and prospects make low-income countries relatively unattractive to TNCs for investment, the report goes on. A questionnaire on factors responsible for limited foreign investment in these nations was sent to more than 50 major TNCs representing all major home countries and most economic sectors. Replies from more than 20 corporations indicated that suitable soil and climatic conditions are essential for export-oriented investment by TNCs in the production of agricultural commodities. The proved presence of raw materials is a prerequisite for investment in non-agricultural raw materials. Many low-income countries do not have the necessary geophysical characteristics for investment in export-oriented agriculture, the report states. Very often the obstacle to foreign investment in raw materials is the lack of adequate surveys of mineral resources in low-income countries.

Responses also confirmed that, in the case of production directed towards the local market, the existence of adequate demand is by far the most important factor influencing TNC decisions to invest. In most low-income countries, domestic markets are relatively small and not sufficient to attract a substantial inflow of direct investment aimed at meeting local demand.

Finally, responses indicated that new investment appears to be more likely in low-income countries in which there are existing ties with TNCs and in which there is a stable investment climate. Little importance seems to be attached by TNCs to the new incentives being provided by some low-income countries. The survey suggests that firms appear to be more interested in the elimination of disincentives and the adoption of consistent policies by host Governments towards their activities in the long run, the report concludes.

Report on TNCs and IDS

The second report, reviewing the role of TNCs in implementing the International Development Strategy (IDS) (E/C.10/1984/3), says these corporations play a large part in international economic transactions and in the domestic economies of many countries, and thus are in a position to influence the attainment of IDS objectives, both positively and negatively.

The Strategy's economic, social and environmental goals, expressed in both quantitative targets and in broad qualitative terms, include: an increase in the flow of foreign direct investment and other non-concessional resources to developing countries; acceleration of industrialization and growth in manufactured exports of developing countries; generation of employment opportunities; and the transfer of technology and strengthening of scientific and technological capabilities of the developing countries.

The trend towards creating legal and institutional frameworks for dealing with foreign investments and indicating priority areas for foreign involvement is firmly established in developing countries and is likely to continue, the report states. However, the effects of the world economic recession have had their effects on national policy.

Certain trends emerged in the late 1970s towards liberalizing treatment of foreign direct investment and the activities of TNCs within domestic economies, as well as heightening the emphasis on policies to attract foreign direct investment. At the same time, countries experiencing severe and unexpected balance-of-payments difficulties, such as those arising out of debt-servicing problems and capital flight, have in many instances been impelled to impose restrictions on the repatriation capital, profits and dividends on foreign investment in the economy. Some countries have also strengthened performance requirements for the operations of TNCs within the economy, aimed at reducing import costs and earning additional foreign exchange from exports.

In some countries, it was felt, liberalization of treatment accompanied by greater flexibility and selectivity in the administration of policies, could result in better adaptation of the operation of TNCs to domestic economic objectives. In others, however, it might result in greater concessions and accommodation to the strategies of TNCs, at the expense of the interests of host countries. While the judicious application of incentives can be a useful and effective tool of economic policy, the widespread granting of incentives by many developing countries may have become a competitive process, reducing the benefits each country derives from existing operations of TNCs without necessarily accelerating the inflow of capital it receives.

Net foreign direct investment flows, the report states, are estimated to have declined from $13.4 billion in 1979 to $10.4 billion in 1980, increased substantially to $16.2 billion in 1981, and then fallen again in 1982 to about $14.6 billion. Another decline in those flows in 1983 was thought to be possible. For the United States alone, net outflows of foreign direct investment to developing countries fell from $7 billion in 1979 to $1.2 billion in 1980s, recovered slightly to $3.2 billion in 1981, and became negative in 1982.

Lending in 1983 was at or below the diminished levels of 1982. The international private capital market is experiencing a crisis of confidence as far as lending to developing countries is concerned, largely as a result of the acute debt-servicing difficulties affecting some of the largest borrowing countries. Since late 1982, many of the new loans extended to developing countries have been made as part of comprehensive financial packages, which include an agreement with the International Monetary Fund, financial assistance from Governments of some developed countries, and rescheduling and refinancing arrangements with the private commercial banks.

The possibilities of a positive contribution on the part of TNCs to Strategy objectives, the report states, are overshadowed by the consequences of the current world economic recession. In the 1970s, the report states, after the first substantial oil-price increase, transnational banks and TNCs were instrumental in cushioning the impact on middle-income oil-importers and in sustaining their rates of growth through international lending and export expansion. That kind of role was not possible in the 1980s, however.

Strong and sustained world economic recovery is needed for a resumption of the tempo of foreign direct investment and international lending characteristic of the 1970s, the report states. Middle-income, newly industrializing countries will continue to attract this type of investment and lending. For most low-income developing countries, TNCs may not be able to make a substantial contribution to achieving Strategy objectives that relate to resource flows, redeployment and industrialization. These developing countries will probably have to continue to rely mainly on official development assistance for most of their resource flows.

Continued national and international action is needed to strengthen the bargaining position and negotiating capabilities of developing countries. In that connection, the report says, early adoption and implementation of a United Nations code of conduct on TNCs remains as pressing as it was at the time of the formulations of the IDS.

Also, further refinement of policies of host country Governments towards TNCs and, where feasible, co-operation among developing countries, could improve the bargaining power of developing countries, thereby enhancing the possibilities of reducing the negative effects of these corporations and promoting a positive contribution on their part towards achieving Strategy objectives.

Debate

Most countries expressed regret that the recovery taking place in developed market economies had not, as at early 1984, had any beneficial impact on developing countries.

Some delegations expressed the view that TNCs had detrimental effects on the development process. In their view, the negative effects of the uncontrolled activities of such corporations remained a major obstacle to progress in developing countries and to implementing IDS objectives. They cited balance-of-payments problems, the debt situation, the role of TNCs in the outflow of capital, the brain drain, the reverse transfer of technology and the role of TNCs in the arms race and in military technology transfers, as examples of the negative effects of TNCs.

Other States said that foreign direct investment by TNCs was helping to solve the problems of developing countries and offered an effective conduit for flows of capital, technology and management skills to these countries. Several countries said excessive regulation of TNCs woudl discourage investment. With the decline in commercial bank lending, TNCs could play an important complementary role as providers of capital.

Another view (China) was that TNCs could help import substitutes, and that developed countries should export manufactured goods to developing countries at favourable prices. Some countries stressed that excessive protectionist policies were harmful to developing countries' economies.

Some countries regretted that the Commission was not provided with reports on the foreign activities of State-owned enterprises based in socialist countries, while both public and private sector enterprises from developed market economies were covered in Commission reports. Other States said the attempt to include State-owned enterprises from socialist countries in the Commission's deliberations was a deviation from the Commission's mandate and an attempt to divert the Commission from its primary purpose. Enterprises from socialist States, they said, were different from TNCs in their aims, nature, content, form, scope and the implications of their activities.

During the debate, the Commission made a number of proposals for future studies to be undertaken by the Centre, including subjects such as the impact of TNC affiliates on exports of developing countries; the role of TNCs in transfer of technology; the effect of TNCs on international trade and the balance of payments situation; the management, performance and regulation of TNCs in developing countries, including legal trends and disputes; the changing nature of foreign investment; and TNC employment practices.

The Centre reported it was currently working with the International Labour Organization on a study on women and employment and was considering a study of export zones in Latin America.

Transborder Data Flows

Transborder data flows (TDF), as defined by a 1981 Secretariat report (E/C.10/87), are movements across national boundaries of machine-readable data for processing, storage or retrieval, including data transmitted electronically through transnational computer-communications systems.

This year's report on the role of TNCs in transborder data flows (E/C.10/1984/14) states that information activities account for a substantial and increasing share of gross domestic product (GDP). For TDF to occur, an informatics and telecommunication infrastructure for data transmission is required. Most of this infrastructure is currently located in the developed economies. National and international policies regarding TDF are, however, still rudimentary or non-existent, the report states. The focus of the Centre on TNCs on research in this area should help create a broad basis of knowledge that can assist countries, particularly developing ones, in understanding TDF and in formulating policies through which the positive effects of these flows can be maximized and their negative ones minimized.

Electronic data-processing devices, the report continues, have become versatile instruments which are being used in a rapidly increasing range of applications, both in service and manufacturing industries.

Rapid advances have made possible a whole range of new data services, including remote data processing, access to data bases, telesoftware, electronic mail, telebanking and videotex, as well as the remote execution of computer-aided design, computer-aided manufacturing, computer-aided engineering, inventory control, industrial diagnois and maintenance and other industrial activities.

The report estimates that more than 1,000 transnational computer-communication systems are currently in operation, the overwhelming majority of them established by TNCs from developed market economies to service their world-wide affiliate network. TNCs play a key role in both commercial and corporate flows; in commercial flows, they are the principal suppliers and users of data and data services as well as producers of the equipment used.

Remote sensing -- the examination, study, exploration and monitoring of the earth and its resources from satellites -- is a unique form of TDF because it not only allows transmission of data between countries, but also involves the creation of new data about particular countries and dissemination to other countries, the report states. Large TNCs in oil, natural gas and minerals have been the most important users of remote-sensing data, and employ these data routinely as one input into their decision-making processes.

The use of TDF may facilitate the transfer of information resources to developing countries, especially data bases and software, but also hardware and information skills. It may permit the establishment of new industries and help prevent widening of the gap between the "information rich" and the "information poor". However, in some cases, the competitive position of enterprises in developing countries may suffer, if firms from those countries are not linked to international networks. Other potential problem areas relate to privacy, intellectual property rights and liability questions, sovereignty issues, cultural identity, vulnerability, and barriers to the flow of data and data services.

Inadequate national information resources and limited participation in TDF are regarded as of strategic economic importance, especially for the future development and competitiveness of the national economy. The growing importance of trade in data and data services suggests that such trade will be an increasingly important determinant of countries' balance-of-payments positions in the future. Lack of information resources may increase the dependence, and thus vulnerability, of domestic industries in general. Certain corporate activities may increasing be undertaken remotely via transborder data flows and hence not be transferred to the host country.

"Transborder data flows thus may affect the ability of developing countries, especially those that lack an adequate telematic infrastructure, to industrialize successfully and remain competitive in work markets", the report concludes.

Debate

Countries stressed the growing importance of TDF as a subject of work for the Commission and the Centre, and of the role of TNCs in TDF and the number of TNCs using TDF. The implications of that new phenomenon for all countries, especially developing ones, could be expected to be far-reaching. All delegations agreed that further work on the subject was required.

Suggestions were made that the Centre's future work on TDF, pay more attention to the political, economic and legal issues; the contributions TNCs could make to the information infrastructure in developing countries; and the larger context of microelectronomics, telecommunications and informatics, of which TDF were an outgrowth.

Mexico, on behalf of the Group of 77, introduced and subsequently withdrew a draft decision calling for the establishment of an ad hoc working group on TNCs and TDF.

The Commission noted the Centre's intention to concentrate its immediate work in this area on country case studies on TDF, the role of TNCs in international trade and investment in data and data services and selected industry studies.

TNC in Southern Africa

The Commission reviewed two reports relating to the activities of TNCs in southern Africa; one on the general trend of foreign investment in southern Africa and of some recent sectoral activities of TNCs (E/C.10/1984/10); the other on responsibilities of home countries with respect to TNCs operating in South Africa and Namibia in violation of relevant United Nations resolutions (E/C.10/1984/19).

TNC Investments in Southern Africa

The report concludes that on the basis of available information, it would seem that the overall involvement of TNCs in South Africa has not decreased. Foreign liabilities of South Africa have continued to increase, with the largest percentage increase registered by forms other than direct investment.

Despite increased pressures on TNCs to disinvest from South Africa, the report states, the country has continued to attract capital of a more permanent nature at least in the case of TNCs based in two principal home countries -- the United Kingdom and the Federal Republic of Germany. The stock of foreign direct investment from TNCs based in the United Kingdom increased by 18 per cent in 1981 and that of TNCs from the Federal Republic of Germany, by 8 per cent in 1982.

Commercial rather than political factors have prompted the few instances of disinvestment in recent years, the report goes on. Exchange controls on non-residents were relaxed and the financial rand, by which foreign corporations could invest in South Africa at a substantial amount from the official (commercial) rand, was abolished in February 1983. There was a net capital outflow in the amount of 477 million rand in the first quarter of 1983 and of 258 million rand in the second quarter of 1983.

In Namibia, the trend towards capital outflows appears to continue, in reponse to the prevailing political uncertainty. Where divestments have occurred, as in the mining sector, they seem to be accompanied by a corresponding increase in South African ownership.

Some 400 United States TNCs are estimated to have subsidiaries in South Africa, the report states, including more than 60 of the top 100 corporations listed in Fortune magazine. Numerous other United States firms do business in South Africa through agency networks.

Investments by TNCs in the mining sector are today less significant than those in the manufacturing sector, in which the supply of technology is still a crucial aspect of TNC involvement. In the nuclear sector, an application for a 10-year $50 million agreement by Westinghouse to train and service South Africa's atomic installations at Koeberg has been submitted to the United States Government for approval. In the banking sector, transnational banks have in recent years been diversifying their traditional emphasis on commercial banking to include merchant banking, discounting and leasing, insurance pension funds and mutual funds.

Home country responsibility

The report on home country responsibility stresses the strong disapproval expressed by the United Nations of the continuing activities of TNCs in South Africa and Namibia, particularly in strategic areas such as military and energy sectors. It also emphasizes that South Africa's continued presence in Namibia is illegal, and that the United Nations Council for Namibia is the legal authority for Namibia. It recalls that Member States, in particular the main trading partners of South Africa, have been called on to end economic relations and co-operation with South Africa.

Recommendations calling for the cessation of economic activities have generally been opposed by TNC home countries, although they were supported by an overwhelming number of other countries. In the negotiations on the draft code of conduct on TNCs, there is tentative agreement on a text for a provision on non-collaboration by TNCs with the racist regime in southern Africa.

Measures taken so far by home countries to regulate private capital flows to South Africa and other business transactions with South Africa have been limited, the report states. These cover mostly the withdrawal of official guarantees or support for credits to comapnies intending to invest in or trade with South Africa, and the termination of official export on trade promotions with South Africa. Governments of most home countries consider themselves under no legal obligation, with the exception of the mandatory arms embargo of 1977, to take any action against companies based in their territories and operating in South Africa, it points out.

Furthermore, some home Governments have said they lack the requisite jurisdiction to influence the activities of affiliates established and operating under South African law, even though the parent companies of these entities are based in these countries. The adoption of measures not related to the mandatory arms embargo of 1977 indicates, however, that the home countries in question accept some responsibilities, based on moral and political considerations, for activities of companies within their national jurisdiction and having operations in South Africa.

Debate

All States that spoke stressed that their Governments condemned the policies and practices of the racist regimes in southern Africa. Many said TNCs pursued activities in the most strategic sectors of the southern Africa economy, including the military sector, thus providing continuing support to that regime. Activities of TNCs in strategic sectors, such as electronics, computers, chemicals and energy, helped that Government to build its economic and military strength. They said foreign investment in South Africa continued to expand and measures by home countries to restrict it had been limited, if not non-existent.

Some other States said that TNCs could make a contribution to improving the situation of the non-white population of South Africa. Their Governments did not feel a policy of divestment would contribute to the welfare of the population and would only help the white minority in south Africa.

Acting by a roll-call vote of 33 in Favour to 4 against (Federal Republic of Germany, Switzerland, United Kingdom, United States), with 6 abstentions (Canada, France, Italy, Japan, Netherlands, Norway), the Commission asked the Council to adopt a resolution by which all countries concerned would be asked to re-examine their relations with TNCs operating in their territories which collaborated with South Africa.

The text called upon all home countries of TNCs to take effective measures "to terminate the collaboration of their TNCs with the racist minority regime in South Africa, to prevent further new investments and reinvestments and to bring about an immediate withdrawal of all existing investments in South Africa and Namibia".

TNCs would also be urged to comply fully with the relevant United Nations resolutions by terminating all further investments in South Africa and Namibia and by ending their collaboration with the racist minority regime.

The Council was to call upon all anti-apartheid movements, religious institutions and bodies, trade unions, universities and other institutions that are shareholders of TNCs operating in South Africa and Namibia to contribute to the efforts of the international community to eradicate apartheid by withdrawing their shareholdings in such TNCs.

It should, the Commission recommended, condemn the racist minority regime in South Africa for its perpetuation of the inhuman system of apartheid and the illegal occupation of Namibia and those TNCs which collaborated with the regime.

All States Members and all TNCs operating in South Africa and Namibia should co-operate with the Secretary-General and the Commission on TNCs in organizing public hearings on the activities of TNCs in South Africa and Namibia, the Commission further recommended.

Also, the Economic and Social Council should decide that the Ad Hoc Committee on the Preparations for Public Hearings on the Activities of TNCs in South Africa begin work no later than 1 August 1984. It would ask regional groups that had not yet done so to nominate their representatives to the Ad Hoc Committee. The text, submitted by Mexico on behalf of the Group of 77, was approved by a roll-call vote of 31 in favour to none against, with 10 abstentions.

Accounting and Reporting Standards

Work on international harmonization of accounting and reporting was begun in the Commission in 1976. This year the Commission reviewed a report from the third expert group mandated by the Economic and Social Council to report on further steps to be taken in pursuit of the long-term objective of the international harmonization of accounting and reporting.

The Intergovernmental Working Group, established in 1982, at its second session held in March 1984, considered four studies on: the work of standard-setting bodies in home and host countries; accounting and reporting policies and practices of TNCs; issues of accounting and reporting identified in the course of developing the Centre's comprehensive information system; and specific accounting and reporting issues. Its report (E/C.10/1984/9) was noted by the Commission. A third session will be held in 1985.

The studies reviewed by the Group indicate that corporate accounting and reporting requirements have been established by legislation in a number of countries, each of which has developed a legal framework of corporate laws and regulations.

The standard-setting process has been undertaken for a variety of purposes, including promoting harmonization of divergent accounting and reporting practices, improving the transparency of business enterprise activities, protecting the interests of shareholders and creditors and regulating accounting and reporting activities of business enterprises.

While most standards are applicable to all business enterprises, the studies indicate, the scope of applicability of some standards is defined by one or more of the following criteria: the concept of corporate limited liability, public ownership of shares, foreign ownership and/or control, and size of the entity in terms of turnover, total assets and number of employees.

A number of countries have established legal requirements and/or standards dealing with disclosure of financial and non-financial information and accounting for related party transactions, business combinations, joint ventures, segmentation, inflation and changing prices and effects of changes in foreign exchange rates.

The studies indicate that divergent account and reporting practices continue to give rise to doubts about the comparability of information disclosed by business enterprises in different countries. Such a situation suggests that action is needed to reduce and eliminate divergent practices and promote the predominant practices among more countries.

In debate, speakers recognized that accounting and reporting activities of TNCs were of concern to home and host countries and stressed that the Group should continue to examine issues related to that subject falling within the Commission's mandate. It was considered important that attention should be given interalia to important current developments in the field of accounting and reporting by TNCs; harmonization of divergent accounting and reporting practices; adequate disclosure of comparable information, financial as well as non-financial; and development of accounting education, training and research in Member States.