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Multinationals must take care in Third World, says UN

THE WORLD's largest multinational companies, who between them have poured $4 trillion into overseas investment, must clean up their act or face a backlash from the developing world, the United Nations said yesterday.

Foreign direct investment - companies set up operations in another country - surged by 40 per cent in 1998 to hit a new record of $644bn (pounds 402bn), according to the UN's Conference on Trade and Development (Unctad).

It said investment flows would hit another record this year according to early investment. But Unctad said it was concerned about growing disquiet among Third World countries about the impact on local workforces, the environment and the lack of investment.

"A failure by transnational corporations to be constructive ... could exacerbate a backlash already seen against liberalisation policies in some quarters," it said in its World Investment Report.

It contrasted the multinationals' active lobbying for local governments to respect international laws protecting their foreign investments with their "aversion to binding international legal standards regarding corporate operations".

Lynn Mytelka, the Unctad investment director, said: "Transnational corporations have to be told that they have to be responsible corporate citizens and increase their social responsibility. You have to balance rights and responsibilities."

But she said it was up to the host countries to toughen up their legislation to ensure that corporate investors knew what rules they had to obey. "If you don't have traffic lights then people will think they can come in and ride everywhere - even on the sidewalk," she said.

Unctad's concerns included the failure of transnationals to invest in hi-tech facilities, the focus on non-tradable sectors such as financials which did not benefit the host countries' current account, and the export of polluting industries to the Third World.

ChristianAid, the charity, said the report showed that "premature" liberalisation could harm the economies of the host countries. "Investment in host countries will not work without special circumstances and the message of this report is that these circumstances do not exist but have to be created."

The Unctad report also showed that the UK is the sixth most globalised country in the developed world with foreign direct investment making up to 15 per cent of GDP.