GIANT SERVICE COMPANIES PUSHING INTO THIRD WORLD.

Jun 27, 1986

GIANT SERVICE COMPANIES PUSHING INTO THIRD WORLD.

A THIRD WORLD NETWORK FEATURE.

PENANG JUN (TWN/HALINAH TOOD) – Indonesia, like most third world states, is under pressure to open its economy to American Banks and insurance companies.

In a parting message last December, retiring U.S. Ambassador, John Holdridge, reminded the Indonesian government that President Reagan has vetoed the Thurmond-Jenkin Bill which would have cost the Indonesian textile industry 30.000 jobs.

"But if we resist protectionism in the U.S., we also want a fair degree of access to other countries" he argued in an interview with the Asian Wall Street Journal.

What he means is that the U.S. will raise barriers on goods, where there are already an array of non-tariff barriers, if Indonesia does not lower hers on services.

The United States will push hard at the September GATT Ministerial Meeting for the inclusion of services in the new round of GATT talks. That round will take several years, but the U.S. is already using its economic muscle (it is Indonesia’s second largest trading partner) to break into the service sector, as this implicit blackmail threat to Indonesia shows.

The U.S. desire to see the world open its doors to American Banks, Hotel Chains, airlines, advertising men and insurance companies (which all belong to the service sector) does not arise from a disinterested passion for free trade.

U.S. services are its fastest growing sector: it is amalgamating into huge transnational conglomerates and thrusting aggressively into the international arena. Right now it is the surplus from service exports that offsets the huge merchandise deficit and keeps the U.S. economy in the black.

A tiny handful of industrial states dominate the world trade in services.

"Out of an estimated recorded total of 585 billion dollars of service exports world-wide in 1981, over half was accounted for by five countries, with the U.S. alone accounting for one-fifth", wrote Frederick Clairmont of UNCTAD and John Cavanagh of the Institute for Policy Studies, Washington DC, in a paper presented at the November 1984 Third World Conference in Penang, Malaysia.

The other four countries are France, Germany, Britain and Belgium.

The third world, in spite of attempts to nationalise areas such as banking and shipping, is already paying out enormous amounts each year to purchase services from the North.

An UNCTAD study shows that the net deficit of developing countries trade in services climbed from 14 billion dollars in 1967 to 80 billion in 1980, an annual rise of 25 percent.

"There appears no reason why this unbroken upward climb should not continue", Clairmonte and Cavanagh commented.

In countries like Malaysia, a healthy surplus on the merchandise account is more than wiped out by the funds drained abroad on shipping, insurance, professional fees and interest payments.

When a TNC straddles many services, it is able to manipulate costs through transfer pricing to the detriment of both producers and third world treasuries. Take the case of a corporation owning commodity trading houses, shipping lines and banks, described by Robert Ramsay in Canberra in 1983.

"These TNCS can easily inflate freight rates and pretend that they have negotiated rates at arms length with "independent ship-owners". By doing this the TNCS can use high shipping costs as an argument for depressing the FOB prices which they pay to exporting countries and reduce the level of tax which they pay at both ends of a trade ...

"The ultimate in tax avoidance sophistication is reached when a TNC operates so close to bankruptcy that it has to borrow working capital overseas at a high rate of interest – omitting, of course, to disclose that the money it is borrowing happens to be its own, and that the recipient of the high rate of interest is itself".

TNCS in media and communications have a pervasive cultural as well as economic influence in "projecting corporate images and western elitist ideology world-wide..." Clairmonte and Cavanagh said.

"Since knowledge and information constitute a major facet of power, those able to harness these technologies and to disseminate them on a large scale become even more powerful".

Perhaps the most pernicious aspect of the services trade is the proliferation of offshore banking facilities, protected by a breathless hush of confidentiality. These tax havens have become the silent receptacles of billions of dollars, legal and illegal, which third world elites have extracted from their own faltering economies.