Inadequate negotiation of entrance terms for transnational corporations

The terms on which transnational corporations gain entry into a host country are obviously a matter of considerable importance. Many countries have felt that their bargaining position in dealing with multinational corporations is weak. There has been the assumption that transnational corporations, with the exception of certain resource-based industries, can choose their location for production according to the country offering them the most attractive environment and most favourable terms.

The initial agreement concluded with transnational corporations thus tends to include a large number of special concessions. Later, as circumstances change, the concessions appear to be too onerous and the host country may deem it necessary to redress the situation. In such cases foreign affiliates could be treated in a discriminatory fashion or could even be expropriated. Such treatment, though it may be directed towards particular transnational corporations, inevitably creates an atmosphere of mistrust which operates against the long-term interests of both host countries and corporations. Moreover, concern about future unfavourable treatment may lead transnational corporations to attempt to extract the most out of their investment in the least possible time. These, and other uncertainties, make transnational corporations reluctant to invest in some developing countries unless their prospects are distinctly more attractive than those expected in developed countries.

Developing countries tend to have limited capacity to negotiate appropriately to protect their interests in the face of an array of complex international financial mechanisms, especially with respect to debt contracting and renegotiation. Negotiations tend to be one-sided because of the developing country's lack of information, technical unpreparedness, and political and institutional weaknesses. Influenced by the once widely view held that developing countries should open their doors to foreign capital to enhance their development, the result has been that many of the entrance terms were not sufficiently carefully negotiated and subsequently resulted in undue economic power being in the hands of private corporations.