Multinationals Pack Up in Search of New Subsidies

Inter Press Service ^ | 2/19/2003 | Mario de Queiroz

[Willie Green]

For education and discussion only. Not for commercial use.

LISBON, Feb 19 (IPS) - Several transnational corporations that opened plants in Portugal with European Union (EU) subsidies have recently closed up shop to move to countries offering more advantageous conditions, triggering a heated debate on the use of the bloc's development funds.

Trade unionists, economists and local politicians have issued warnings of the need to prevent a repeat of episodes like the closure of factories by German and British companies that simply decided to ''pack up their tent, like in some Bedouin camp, in search of cheaper labour,'' in the words of Manuel Carvalho da Silva, the head of Portugal's CGTP trade union confederation.

The German companies Gerry Weber and Bawo, and British shoe retailer Clarks closed their plants in northern Portugal last month, despite commitments they had assumed to keep their doors open at least until 2007.

The companies decided to pull out of this southern European nation without even informing their employees, who had been placed on forced leave due to an alleged ''lack of purchase orders from abroad.''

The case of the Gerry Weber fashion company, which had a factory in the town of Figueiró dos Vinhos, shook public opinion in Portugal on Jan. 6, when its local employees returned after two weeks of forced leave to find a notice taped next to the time- clock stating that the factory had been closed ''due to economic- financial circumstances of the market.''

''These companies received significant financial support to install themselves in Portugal, and now they are closing up and heading to the EU candidate nations in search of the same subsidies,'' Fernando Manata, the mayor of Figueiró dos Vinhos, told IPS.

When Gerry Weber opened its plant in the town in 1991, it not only received EU subsidies but support from the municipal government as well, which offered it public land at a nominal cost, carried out public works on access roads and embankments, and granted it subsidies for the creation of jobs, he pointed out.

Even more dramatic was the case of Clarks, which provided one- quarter of all jobs in Castelo do Paiva, one of the least developed municipalities in northern Portugal.

The mayor of Castelo do Paiva, Paulo Teixeira, told journalists Tuesday that the case ''should serve as an alert to the EU on the problem of multinationals that take advantage of subsidies to install themselves in one country, and later move from one place to another, to gain more EU and national supports, while causing extremely serious social damages.''

Teixeira told IPS that he had brought the problem up at the Jan. 29 meeting of the EU Committee of Regions in Brussels, where he and several mayors from Portugal, Spain and Greece asked for the adoption of ''rules to prevent similar situations'' in the future.

Manuel Graça, the coordinator of Portugal's Footwear Union, said the complaints voiced in Brussels might help ''to prevent a repeat of this kind of situation in the European nations (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia) that will join the EU in 2004.''

Portugal attracted firms like Clarks because ''labour is nothing but cheap merchandise here,'' but it is getting more and more easy ''to find a place where employees work as much or more for much lower wages,'' economist Carlos Romero stated in an analysis of the case published Monday.

''What costs 10 in Castelo do Paiva can be made for five in eastern Europe, under social, legal and fiscal conditions that are easy to guess,'' he said.

The EU's expansion towards central and eastern Europe ''may be globally beneficial,'' but ''there are regions and economic sectors that will be hurt,'' argued a team of European academics coordinated by Portuguese researcher Francisco Torres, in a book presented Tuesday in Lisbon.

''There is concern that foreign direct investment initially drawn to Spain, Greece and Portugal'' will be diverted to the former socialist countries of Europe set to be admitted to the EU in May 2004, wrote the authors in the book ''Economic and Monetary Union: Theory and Politics''.

Torres, however, said such fears ''do not appear to be based on any substantive evidence,'' since the EU candidates' capacity to attract investment is limited by the size of their economies, which are small in relation to the wealth generated by the bloc.

Global statistics on foreign investment led the group of researchers to conclude that ''low labour costs do not appear to be a decisive factor in capital flows.''

In the central and eastern European countries about to join the EU, ''production continues to be dominated by low-value goods, even in the specific case of Hungary, which accounts for the greatest share of high-tech exports in that region,'' said the authors.

But the sudden and unexpected migration of companies from Portugal over the past month contradicts the book's conclusions regarding the behaviour of international investors, and has fuelled the worries of ordinary citizens troubled over the growing job insecurity.

The case of Bawo had perhaps the greatest impact on the public. Employees set up camp outside the doors to the local plant on Feb. 1 after they were informed that the firm planned to remove its equipment in the first weekend in February, apparently with plans to move to Egypt.

What economists call ''free market mobility'' but local trade unionists referred to as a ''freebooting pullout'' was averted at the last minute by a court order handed down in Oliveira de Azeméis, the capital of the region where Bawo opened its local factory.

The court order prohibited the company from removing its machinery until the Portuguese government's labour inspection office reached a decision on legal aspects of the closure of the plant and on the severance pay that the workers were due.

Portuguese companies are also migrating in search of better profit margins, because the globalisation process has exposed them to stiffer competition and reduced their share of the market, with the consequent shrinking of the profits they earned in a protected economy.

Many firms have decided to undertake major investment projects in Brazil, or are operating out of the Netherlands to serve the entire EU, due to red tape that is enervating for the modern economy, and the heavy burden of revenue taxes that virtually annul profit margins and can convert local investments into fiascos.

For a Portuguese entrepreneur interested in doing business in his country and in the EU as a whole, it is much easier, cheaper and faster to set up and register a company in Amsterdam than in Lisbon. The Netherlands also offers additional advantages due to its extremely efficient and well-organised tax system.

After the presentation of Torres' book, economy professor Alvaro de Sousa told IPS that the closing of the so-called ''bedouin factories'' was not surprising at all.

Under the current rules of the market, he said, ''capital has neither feelings nor fatherland, breaks any promise that has been made, and moves to whereever it can find the best conditions.''