Nationality changes for US producers?

Unocal situation may be watershed for expat companies

William Furlow
Contributing Editor

In a global market place, multi-national organizations (MNO) must ask themselves a tough question: Why stay in a dysfunctional relationship with a host country? Some degree of departure may be considered by the US-based producer Unocal, which has apparently considered switching as a possible alternative to continuing a sanctions dispute with the US government.

Have other multinational producers actively debated this dilemma, or is the stability and attachment to major downstream markets offered by the US more than they can afford to gamble? The decision is difficult, when substantial investments have already been made.

Unocal spokesman David Garcia denies that establishment of an office in Kuala Lumpur, Malaysia means the company is pulling out of the US. "Those reports are wishful conclusions by journalists who don't know what they are talking about," he said. Garcia declined comment on the possible advantages of such a move.

Though it appears nothing has been decided by Unocal, one can picture the corporate baggage packed and sitting by the US front door. At the center of this family feud is US President Bill Clinton's decision to block further investment by US countries in Myanmar. The president's goal is to put economic pressure on the military government, considered by the US and UN to be responsible for a host of human rights violations from illegal arrests to slave labor.

Adding to what many see as Unocal's wanderlust is a recent decision by US District Judge Richard Paez that Unocal may be held responsible for human rights violations perpetrated by the Burmese government. Though no ruling has yet been made in that civil action, it is another signal that this may be a good time to get out of town.

Attorney Dan Stormer, who represented the people allegedly exploited by the Burmese government in the case, said even this decision is precedent setting, because it gives attorneys a way to go after companies that abuse human rights overseas". Stormer said he does not think Unocal would gain anything by going overseas because of the negative publicity the move would generate.

US or multinational?

In press reports, quotes from Unocal have stopped short of announcing the company's departure, but has dropped many a hint, including the much-quoted statement that the company "no longer considers itself as a US company."

Garcia said these quotes are drawn out of context from the company's 1994 annual report (page 3, paragraph 3). He said there is nothing new about this attitude because Unocal is a global energy company.

In any case, best bets say Unocal will not completely leave the US. After all, despite recent sales of its gas stations and US refining interests to Tosco, Unocal still looks to US operations for more than 60% of its revenue. The most likely scenario is that the headquarters of the company will be taken abroad, probably to Malaysia, which would follow the establishment of a "twin-headquarters" in that country. Garcia said there are no plans to make this move.

In the meantime, the money tap feeding the $1.2 billion Yadana pipeline project has been shut off. Unocal, whose current commitment is around $340 million, has expressed disinterest, saying the bulk of its investment is already in place for the 254-mi pipeline between the Yadana gas field in the Andaman Sea and power plants in Ratchaburi Thailand.

Still, the deadline for completion is less than a year away and Thai Industry Minister Korn Dabaransi reports that the project is currently three months behind schedule. The source of these delays is said to be ecological and safety questions, but regardless of the cause, delays equal increased costs, and with no new money coming in the slowdowns will only increase.

So the question becomes, continue business as usual and lose out on a potential 5.7 tcf field, and a second pipeline deal to Rangoon that has not even been finalized yet, or pack the bags, wave good-bye, and open offices in a country needy enough to accept a number of serious problems."

Unocal reports its current operations in Myanmar account for as many as 2,000 jobs. While many of these workers may be underage by US standards, assuming these are not slaves, the project is having a positive economic impact, not just on the corrupt junta, but on workers that would otherwise go unemployed.

If it is true, as Unocal Chairman Roger Beach says: "Sanctions hurt people not regimes," then this blocking of investment threatens workers on both sides of the globe. While human rights must be a top priority of any civilized nation, is it the US's place to impose specific sanctions on a country outside of other trade partners, who did not join in this blockade? Isn't that the job of the United Nations? The UN Human Rights Commission has passed a resolution condemning the executions, tortures, and child labor attributed to the regime.

Dan O'Flaherty, vice president of the industry lobbying group, National Foreign Trade Council, said his organization does not condone the activities of the Myanmar junta, but sees broad sanctions as not a solution, but a mistake. Without the support of Myanmar's other more influential trade partners, these sanction can't hope to influence the government, or even block the project. What they can do is hurt Unocal and give an advantage to foreign companies not hampered by government intervention.

Regardless of where Unocal ends up, this will remain a closely watched situation.

As Unocal continues to be battered in the press, other major Myanmar investors including Texaco, which has seen its share of employee-related controversy in the US, and Arco, are quietly sitting on the sidelines waiting to see how Unocal fares.

If indeed the company grabs the next freight train out of town, will others follow? It's no secret that leaders in the oil industry are reluctant to be the first to try something new, but once a commitment is made, everyone might just get on board.

What does this mean for the US government? Obviously there will be a loss of revenue, but maybe too confronting a new reality. Does the world need the US to be a global policeman for all situations? Shouldn't this be UN business? And, if the US chooses unilateral sanctions and invites additional civil litigation as it's business, shouldn't it also expect that companies might emigrate?