China’s new international economic order

This is a familiar scene during the Cold War: Two persons stand several meters apart from the boundary of two nations. At a signal, they walk toward the boundary and pass each other into friendly arms. An exchange of spies has been completed.

The swap of Chinese Huawei executive Meng Wanzhou for Canadian businessmen Michael Kovrig and Michael Spavor is analogous to the exchange of spies during the Cold War. However, this could be the first time that such an exchange has been done on a business issue.

Traditionally, governments seldom intervene in strictly business transactions. Businessmen are out to make profits, and if they make enormous sums of money through risky investments that transgress foreign law, the home government does not intervene. They let their businessmen work their way out of trouble. Imprisonment in a foreign country for breaking a country’s law is an accepted risk of doing business abroad.

China’s action of holding two Canadian citizens hostage to protect Meng adds a new dimension to international economic relations. The prompt release of the two Canadians following the release of Meng by US authorities links these two cases. Beijing did not even bother to defer the release of the Canadians to obscure the link between these two cases.

One must note that the US, Canada, and China are economic powerhouses. China’s action will be regarded with dread by developing countries that have limited clout in world affairs. China’s action will also set back the ongoing North/South Dialogue on the New International Economic Order.

In the UN Second Committee (Economics), a dialogue has been going on to curb the power of transnational corporations (TNCs or multinational corporations). The less developed countries (LDCs) have been pressing for the adoption of rules to make TNCs “good corporate citizens” (read: a code of conduct for TNCs). This initiative asks the TNCs not to take advantage of LDCs and apply the same rules they observe in their home countries in their overseas operations.

Environmental rules are the most commonly violated laws by TNCs operating in Third World countries, as they exploit the weak anti-pollution laws of LDCs. One can argue that TNCs seek countries with the weakest environmental laws in which to invest.

The Marcopper Mining Corp. case in Marinduque Island is a prime example of this violation. The company was owned by Placer Dome Inc. in Canada. The storage of the mining waste of the company was defective, and the waste spilled into the Boac River. The local fishing industry was wiped out, with additional damage to agriculture. Placer Dome only partly compensated the locals. Marcopper conveniently declared bankruptcy.

The LDCs advocate “lifting the corporate veil” so that the mother company will be fully liable for losses inflicted by its subsidiaries in other countries when it is proven that the losses were incurred in violation of the laws of the capital-exporting country. In the Marcopper case, it was shown that although the company was given clearance by the Department of Environment and Natural Resources to operate in Marinduque, the standards of the company were not compliant with Canadian laws.

The Huawei case undermined the Third World initiative to make “good corporate citizens” of TNCs. Under this doctrine, a TNC is duty-bound not only to observe the laws of the LDCs, but also its own national laws where the laws of the LDCs set a lower standard. Beijing’s action states otherwise: China can exact retribution from countries that prosecute its nationals for violations of local laws. This reversed China’s position on TNCs: In the 1980s, China was still a developing country and supported the LDC position.

Thus, a foreign businessman can scrupulously observe Chinese laws. However, he could still end up in jail because a Chinese businessman has violated the foreigner’s local law. Whipping boys have disappeared with dynastic rule, but China has revived it.

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Hermenegildo C. Cruz is a retired career officer who served as ambassador to the United Nations, the Soviet Union, Chile, and Bolivia. During his assignment in the UN, he was elected vice chairman for Asia and the Pacific of the committee on transnational corporations.