By Hilarion M. Henares Jr.
ACCORDING to Robert N. MacVicar in a paper issued by the United Nations Development Program, the U.N. found that “more than 25 percent of the value of all international trade appears to be of intra-group character,” id est, intra-company transfers between multinational companies (MNCs) and their subsidiaries. Most involve transfer pricing.
Transfer pricing, an open secret among MNCs operating here, is a ruthless act of exploitation of the poor nations who suffer on two counts:
1) They lose needed tax revenues owing to understated income; and
2) They lose valuable foreign exchange through undervalued exports and overvalued imports.
The effect of transfer pricing shows up in the ever widening gap between imports and exports by poor nations. Prices for raw material exports, especially minerals and agricultural products, decline or are frozen; prices of finished goods imports are ever spiraling.
Balance of trade statistics of poor nations are perpetually in chronic deficit. Many factors contribute to this, but it is almost impossible to quantify the amount of transfer pricing. One can only pinpoint specific examples.
It is hoped that United Nations agencies or such association of nations as the ASEAN will eventually set up exchange-of-information facilities and computerized programs for collation and analysis to deal with this pernicious practice of transfer pricing.
Or perhaps one may take a cue from the government regulations now in force in India, where MNCs are required to raise their own foreign exchange with which to finance imports. In this way, Union Carbide was inveigled into earning its foreign exchange by exporting shrimps from India.
If transfer pricing is hard to quantify, one can at least measure the effects of “investment income” of foreign corporations on the balance-of-payments position of the host country.
A global balance-of-payments table for all Third World countries, compiled by Angus Madison, shows that for 1963, payments for foreign investments represented the largest individual deficit item amounting to $5.4 billion.
In this study we shall attempt to quantify the effect of 31 foreign corporations on the Balance of Payments of the Philippines by considering
1) the Outflow of Funds through profit remittances, payments of principal and interest on loans and royalty payments, and
2) the Inflow of Funds through new investments, trade credit, and foreign loans.
At the same time we shall try to reconcile these figures with the overall statistics on Invisible Payments and Disbursements available at the Central Bank on
1) the Outflow of Funds through profit remittances, amortization of loans, and withdrawal of investments by the private sector, and
2) the Inflow of Funds through direct investments and foreign loans of the private sector.
It is unfortunate that “Interests” as categorized in the Central Bank statistics include interests paid by both the public and the private sectors and cannot be added to the Outflow of Funds or eliminated without distorting the result.
We decided to err on the side of the MNCs by eliminating it altogether.
We find that the 31 foreign companies under study during the five years from 1971 to 1976 sent out P 588.50 million as profit, payments on loans, royalties, and interests; and brought in P664 million in new investments and new inflow of loans; or P0.89 sent out for each dollar brought in.
We find however that setting aside Caltex Philippines as a special case, the 30 companies then sent out P560.49 million, and brought in only P1.77 million, or $316.66 sent out for every dollar brought in.
We find that in overall nationwide statistics, for the same five years 1972-1976 inclusive, $1,631.38 million was sent out and $1,603.75 million was brought in or $1.02 sent out for every dollar brought in.
Our study also shows that in a previous period, 1964 to 1971 inclusive, at the time of the Decontrol period, the overall statistics likewise show that $3.017.58 million was sent out, and $549.32 million was brought in, or $5.49 sent out for every dollar brought in.
The Bantegui study covering 108 American companies during the years 1956 to 1965, covering mostly the Import-Control period and partly the Decontrol period, shows $386.2 million was sent out and $58.6 million was brought in, or $6.50 sent out for every dollar brought in.
Central Bank sources covering 1949 to 1960, during the period of Import Control, shows that $223 million was sent out and $16.2 million brought in, or $14 sent out for every dollar brought in.
Multinational send out more dollars than they bring in. Inviting them in indiscriminately only makes us poorer.
Hernares, Hilarion Jr. Beggar and King – Make My Day Book 19.
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