U.S. Corporations Mobilize To Protect Secrets

At issue is whether the Bank's International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) should open complaint departments to investigate communities' claims of damages under their projects.

This has been a demand of activists and officials here and in developing countries for some years. The World Bank bowed to their pressure, and in 1993 set up its independent inspection panel. But there is no equivalent at the IFC and MIGA, and the agencies face pressure to set up similar procedures or to bring themselves under the Bank panel's jurisdiction.

Spearheading the corporate opposition to these proposals is the National Foreign Trade Council (NFTC), an association whose members claim credit for "at least" 60 percent of U.S. non-agricultural exports and 60 percent of U.S. private investment overseas.

"The very existence of a forum for complaints such as the inspection panel would invite its use as a commercial weapon," the companies fret in a position paper sent to World Bank and U.S. officials here.

"It is not unlikely that questionable practices, such as competitors inducing local groups to initiate complaints with the inspection panel, would flourish were there an opportunity for an entity to further their interests at the expense of others," they add.

The companies, which include such household names as Citibank, IBM, and Mobil Oil, also say they must operate within the laws of host countries. In their position paper, they argue that the IFC and MIGA already have "strict environmental and other policy standards." Thus, they conclude, there is no need to improve public accountability at the Bank's private-sector affiliates.

But their five-page paper highlights the danger that corporations would use an inspection process to delay or derail competitors' projects. And because inspections would require companies to reveal details of their operations, the NFTC's members say they are worried the process could be used to pry business secrets out of them.

Indeed, they insist, "there is no feasible means to establish an inspection panel consistent with the potential financial risks, confidentiality needs, and reasonable business expectations of private project sponsors."

"Moreover," they warn, should the agencies set up inspection procedures, this would have "the unintended and unfortunate consequence of marginalizing World Bank standards for projects as project sponsors either abandon projects or turn to other institutions that in many cases do not use those standards."

For the agencies, this is no empty threat. Over the past year, each has lost a high-profile client amid pressure to bring those companies to book for alleged policy violations. Freeport McMoRan, the U.S.-based mining giant, canceled a MIGA political risk insurance policy last year, just as the agency seemed set to investigate environmental and human-rights complaints at the world's largest gold mine, which Freeport operates in Indonesia's Irian Jaya province.

Earlier this year, Empresa Eletrica Pangue S.A., a wholly owned subsidiary of the Chilean power company Endesa, prepaid a 150- million-dollar IFC loan after IFC and World Bank president James Wolfensohn threatened the company with default for violating the environmental and social terms of an investment agreement under which the IFC financed construction of the Pangue dam.

Freeport and Pangue claimed that their decisions were financial, not political. But in both cases, officials concede privately, the Bank affiliates were dumped by clients who found dealing with the agencies too troublesome.

Like the current debate, the Freeport and Pangue cases pitted the agencies' corporate clients, who saw the investment and insurance agreements strictly as business deals, against activists and officials, who saw the contracts as part and parcel of development projects underwritten by public institutions.

From the perspective of these activists, as well as environmental and social officials at the Bank itself, IFC and MIGA environmental and social policies are weaker than those at the World Bank, and their enforcement remains wanting. To some extent, analysts say, this is because the agencies have only a handful of experts, and these are unable to keep up with their workload of around 300 projects each year.

But there are suspicions that the IFC, which finances private- sector projects, and MIGA, which provides political risk insurance to companies investing in developing countries, are themselves seeking to stymie efforts to improve their accountability as public agencies.

These suspicions have been reinforced by the NFTC position paper which was written in response to a "concept paper," or questionnaire, sent by the agencies to their clients. In it, IFC and MIGA alert their clients to the potential pitfalls of the inspection process, and welcome their clients' views.

"The concept paper in fact reveals the overwhelming obstacles to establishing a mechanism which would preserve the utility for the private sector of IFC and MIGA programs," the NFTC says.

For their part, the companies "do not argue that complaints from affected parties should not be heard." However, they add in their paper, the purpose of complaints "should be to advise local governments, the IFC and MIGA on regulatory frameworks and the overall investment climate, not to revisit specific investment decisions for which investors and others have already made significant financial and other resource commitments."

The NFTC now is airing its views with senior officials in the World Bank, IFC, MIGA, and the U.S. government, as well as with legislators on Capitol Hill. There, the association is lobbying against U.S. foreign policy sanctions, which it says "constrain competitiveness," and for export finance schemes, which it says represent "a positive government role."