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Xstrata, competition and a new form of xenophobia

Foreign mining giant Xstrata declined to cooperate with Treasury in an investigation of its contracts with part-owner Glencore, with which it has an array of contracts that have never been subject to competitive tender.

In October 2010, the CFMEU lodged a complaint about Xstrata Coal’s industrial relations policies and the anti-competitive nature of its contracts with Glencore under the OECD Guidelines for Multinational Enterprises. Treasury’s International Finance and Development Division acts as the Australian national contact point for the guidelines.

Last week, Crikey raised the problem of multinational companies using forms of transfer pricing to legally avoid tax. Both Xstrata and Glencore are headquartered in the Swiss tax haven of Zug, and Glencore has been found to have used transfer pricing to siphon off over US$100m in tax revenue from Zambia.

Under the OECD guidelines, multinational companies must adhere to competitions laws in all the jurisdictions within which they operate, and

Refrain from entering into or carrying out anti-competitive agreements among competitors, including agreements to:

a) fix prices;
b) make rigged bids (collusive tenders);
c) establish output restrictions or quotas; or
d) share or divide markets by allocating customers, suppliers, territories or lines of commerce.”

with the intent of ensuring “the nature, quality, and price of goods and services are determined by competitive market forces.”

The CFMEU singled out Glencore’s 2010 contract with Xstrata Coal to provide fuel to the company’s NSW and Queensland operations, similar to a deal to provide fuel for its Colombian coal operations. The NSW/Qld deal is worth US$147m over five years. The company’s 2009 annual report referred to a “global fuel tender” but not whether the NSW/Qld deal was competitive.

Xstrata refused to respond to Crikey’s request for clarification on whether the contract was the result of a competitive tender.

In response to the complaint, Xstrata Coal refused to cooperate with Treasury’s attempts to resolve it. Treasury, in a statement via the National Contact Point website in June, “expressed disappointment with XTRATA’s [sic] refusal to enter into face to face discussions with the CFMEU about this matter. The ANCP has been unable to bring the parties together to address the alleged breaches raised by the CFMEU and therefore the ANCP is unable to fulfil its key role of seeking to resolve possible issues arising from the Guidelines through mediation.”

In its defence, Xstrata Coal justified its refusal by saying it had no case to answer, had provided a full justification to the ANCP, and that the CFMEU was acting in bad faith. The company specifically addressed the CFMEU’s complaint about breaches of the OECD guidelines in relation to industrial relations.

But significantly, the statement was entirely silent on the CFMEU complaint about its relation with Glencore. In its statement to the ANCP, the company limited itself to saying:

XSTRATA on behalf of Xstrata Plc noted that in its original prospectus issued in 2002 prior to its listing on the London Stock Exchange the marketing and sales arrangements for its commodities through its principal shareholder were clearly made public and that these arrangements meet the requirements of the UK Listings Authority. XSTRATA advised that all related party transactions between Xstrata plc and its principal shareholder are reported in Xstrata plc’s accounts in accord with appropriate reporting principles. XSTRATA rejected that these arrangements were anti competitive within the scope of Part IX [now part X in the 2011 version of the guidelines] of the OECD Guidelines for Multinational enterprises.”

Part of Xstrata’s justification for not participating was that the CFMEU had engaged in racial vilification and threats of violence toward the company, about which Xstrata had complained to the Human Rights Commission. The complaints stemmed from racist and anti-semitic material critical of Xstrata posted on the CFMEU’s xstratafacts.com website, in the comments section of blog articles.

Xstrata was correct to complain about a number of offensive comments on the site (one employee was sacked over several highly offensive anti-semitic comments posted on the site). The comments were removed by the CFMEU when they became aware of them, and eventually the union decided to moderate comments on the site.

But Xstrata went further and accused CFMEU officials themselves of xenophobia. On one page of its complaint to the Human Rights Commission, Xstrata claimed the statement from CFMEU official Wayne McAndrew that Xstrata CEO Mick Davis “spends a bit of time in his native South Africa… a bit of time in London where the company was listed, and a bit of time Switzerland [sic] where the company is headquartered” amounted to “comments by CFMEU officials that have incited or encouraged a xenophobic response.”

Later in the complaint, Xstrata tries to claim that McAndrew pointing out that Xstrata is a “rich, Swiss-based multi-national” and “a Swiss-headquartered multinational corporation” is another example of trying to encourage a xenophobic response.

While pointing out the origins of a company hardly amounts to xenophobia, the complaint reveals the real sensitivity of Xstrata. The problem, of course, is not that the company is Swiss, but the reason why it chooses to be Swiss, because it could choose to be headquartered anywhere in the world.

Xstrata and Glencore are Swiss because Switzerland is a key centre for corporate tax dodging. If it’s xenophobic to point that out, then there’s a whole new form of political correctness in town.

4
  • 1
    michael crook
    Posted Tuesday, 5 July 2011 at 2:41 pm | Permalink

    So, tell me again, exactly who does run this cesspit of a country?

  • 2
    gregb
    Posted Tuesday, 5 July 2011 at 4:50 pm | Permalink

    Perhaps the question should be who runs that cesspit, Switzerland?

  • 3
    jungarrayi
    Posted Tuesday, 5 July 2011 at 6:52 pm | Permalink

    Wasn’t Xtrata the company which was exposed in a 4-corners programme as having been alleged to have sabotaged the development of a significant cobalt deposit in Western Australia?
    From memory the multimillion dollar loss incurred by Xstrata in Australia was dwarfed by the extra profits made by Glencore as a result of the cobalt price staying high.
    Of course it was purely coincidental that Glencore controls a very large cobalt deposit in South Africa as well as the world trade of several commodities, including cobalt.

    The Australian Government is very keen to exclude and demonize “boat people” and prevent them from arriving in this country. Their main beef is that those evil people smugglers are profiting from people’s misery.
    Foreign capital on the other hand is welcomed with open arms, and woe any Government that dares to suggest that mining giants should pay a super-tax, or that multinational mining companies are anywhere profiting from people’s misery.

    Xenophobia in action:
    “We will decide what foreign companies come to this country and the manner in which they come”

    As for Switzerland, isn’t it the happy country famous for its watches and army knives and its yodelers?

  • 4
    Peter Bayley
    Posted Tuesday, 5 July 2011 at 7:26 pm | Permalink

    The defining challenge of our time is rapidly becoming the need to reel in large corporations. They have become way too powerful, buying power, influence and legislation (or the removal if it) throughout the Western world - and then using that influence to control the other global spheres. They act internationally with impudence - in the realm across and between nation states, where they divide and conquer national governments which have all demonstrated how ineptly they act together (UN, Kyoto, Copenhagen…). Western Banks, in particular, have become particularly bold. They are now totally controlled by a criminal element that buys financial influence and control through debt created without collateral backup, safe in the knowledge that they can cash in their lobbying efforts for interest-free government bailouts whenever necessary - but I’m beginning to rave! - excellent article and a wake-up call.

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