Since the juridical personality of a company determines the degree of legal personality the company will enjoy within a territory, including the right to engage in various types of commercial activity and the ability to appear before the local courts as plaintiffs or defendants, the non-recognition of foreign companies severely restricts their ability to engage in commercial activity and compete with the local companies.
There are undoubted economic effects of foreign ownership of companies for which discrimination may be necessary. Export markets are frequently allocated by the parent company. The subsidiaries are prevented from competing against the parent in other countries. Development of new product lines cannot always be undertaken freely. Within the foreign controlled corporation, the price charged to its subsidiaries for goods or services and the profits trasnferred many no be a true relection of the market. This gives the multinational company the opoortunity to declare its profits in the country it chooses and in this way opt for more favourable tax rates.