Multilateral Agreement on Investment

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The Multilateral Agreement on Investment (MAI) was negotiated between members of the Organisation for Economic Co-operation and Development (OECD) between 1995 and 1998. Its purpose was to develop multilateral rules that would ensure international investment was governed in a more systematic and uniform way between states. When the first draft was leaked to the public in 1997, it drew widespread criticism from civil society groups and developing countries, particularly over the possibility that the agreement would make it difficult to regulate foreign investors. After an intense campaign against the MAI, France announced in October 1998 that it would not support the agreement, effectively killing it due to the OECD's consensus procedures.

Contents 1 Background 2 Purposes and Provisions 3 Secret negotiations 4 Protests 4.1 Active Opposition 4.2 Canada 4.3 United States 4.4 Australia 4.5 France 5 Failure 6 Subsequent Developments 7 References 8 External links

[edit] Background

International direct investment has been taking place in various forms and to different degrees for over a century. There have always been rules in place,^[1] most recently through the development of bilateral investment treaties (BITs), which are signed between two countries and which state the desired conditions under which investment can take place between them. The first BIT, between West Germany and Pakistan, was signed in 1959^[2] and their numbers have grown steadily since then, although research suggests that BITs do little to increase foreign investment.^[3]

The failure of the Uruguay Round's Agreement on Trade Related Investment Measures (TRIMS) to provide strong controls on host governments' power to regulate multinational corporations provided continuing impetus for major home country governments to seek to enter into further BITs, and their number exploded during the 1990s as countries and investors sought more regulation for security, certainty and mobility for their investments. In 1994 the Energy Charter Treaty provided an example of a multilateral investment agreement, though limited to the energy sector. Arguing that more consistent, secure and stable investment conditions were needed, in 1995 the then 26-member OECD began negotiation on the MAI between its member states, which planned to regulate investment between themselves and eventually between themselves and poorer non-members in a more uniform, transparent and enforceable manner.

Many critics argued that the OECD, as an organization made up solely of rich countries, was more susceptible to direct influence by transnational corporate forces than alternative fora with more universal membership such as UNCTAD and the WTO. This view was finally accepted by governments and turned out to be a crucial factor in the MAI's defeat.

[edit] Purposes and Provisions

According to MAI supporter Sergio Marchi, one of the main purposes of the agreement was to eliminate the "patchwork" of investment rules enshrined in the then-1300+ bilateral investment treaties. Contrary to many critics, he argued that the MAI would help prevent "races to the bottom" that would undermine high standards of Canadian regulation.^[4] More specifically, the agreement would:

• Minimise diverse state regulations in governing the conditions under which investments by foreign corporations could take place. (In this connection, the agreement embodied acceptance of a compliance régime under which 'liberalization' must proceed forward with no ability to be wound back — the so-called ratchet effect. This would be enforced by so-called roll-back and standstill provisions, to ensure that transnational investors would have unhindered access to new markets as they emerged. These provisions required nations to eliminate laws that violated MAI rules — either immediately or over a set period of time — and to refrain from passing any such laws in the future.)
• Compensate corporations for unfair or discriminatory investment conditions.
• Allow states and corporations recourse to international arbitration (for instance, through the International Centre for Settlement of Investment Disputes or ICSID) to settle any disputes arising under the agreement,^[5] instead of national courts in the host state.

[edit] Secret negotiations

In May 1995, the OECD began negotiations on a Multilateral Agreement on Investment (MAI).^[6] While the negotiations' existence was well known, there was little public awareness of the details until a draft of the agreement was leaked in March 1997. ^[7] The leaked material prompted criticism that the MAI appeared to establish a new body of universal investment laws to guarantee corporations excessive powers to buy, sell and undertake financial operations all over the world, severely diluting national laws, e.g., on environmental protection, regulation of labour standards and human rights established in developed countries. The draft proposed a NAFTA-style offshore dispute-resolution tribunal in which corporations could sue governments if legislation, e.g., for national health, labor or environment, threatened their interests or were considered to "expropriate" actual or potential assets and/or profits.

However, the negotiations failed in 1998 when first France and then other countries successively withdrew after pressure from a global movement of NGOs, citizens' groups and governments of poor countries. MAI opponents pointed to a perceived threat to national sovereignty and democracy and argued that it would involve participating nations in a "race to the bottom" in environmental and labor standards. The unified global campaign relied heavily on internet communications--the first time that the new technology had been deployed on a large scale both to coordinate information and to channel protest communications to devastating effect.

[edit] Protests

MAI critic Mark Vallianatos (Friends of the Earth) argued that:

• The MAI would restrict governments' ability to limit the participation of foreign multinationals in sectors they deemed critical, whether for developmental, environmental or other reasons. "For example," he wrote, "the Philippines currently bans foreign investment in rural banking, and Honduras limits foreign investors in forestry to a minority stake. Such protective measures would not be allowed under the MAI as it is currently written."

• The agreement would establish the principle of "national treatment" (in which government must treat foreign companies as favorably as domestic companies) as the norm for international investment. Indeed, in some cases, foreign corporations might have stronger protections that domestic investors. "The MAI bars many types of performance requirements, or conditions, even if those conditions are imposed on local companies. Examples of forbidden conditions include requiring investors to form a partnership with a local company and requiring a minimum number of local employees — the types of policies governments use to help ensure that local people benefit from foreign investment."

• "The MAI matters because its rules can be enforced. If a foreign investor thinks a country where it has invested is violating the MAI, the investor has a choice: to complain to its own government, which can take the host country to binding international arbitration, or to directly challenge the host country. In either case, the arbitration process is closed — citizens cannot participate — and one-sided, as neither governments nor affected communities can challenge the behavior of investors. This imbalance points out the MAI’s fundamental flaw: despite the need for corporate accountability in the international economy, current versions of the MAI contain no binding obligations on corporate investors." ^[8]

[edit] Active Opposition

According to Theodore H Cohn in Global Political Economy Theory and Practice (2005), "[t]he most effective opposition to the MAI was launched by a wide-ranging coalition of civil society NGOs. These NGOs argued that the MAI would threaten protection of human rights, labor and environmental standards, and Least Developed Countries. A particular concern was that the MAI would result in a 'race to the bottom' among countries willing to lower their labor and environmental standards to attract foreign investment. A crucial turning point occurred when, in February 1997, Ralph Nader's Public Citizen acquired a copy of an OECD draft MAI agreement and put it on the internet. Using a variety of websites, NGOs mobilized a strong and diverse opposition composed of human rights groups, labor and environmental groups, and consumer advocates."^[9][10]

[edit] Canada

A strong campaign was mounted by contributors to the MAI-NOT newsgroup^[11] with the active backing of the Council of Canadians

[edit] United States

A strong campaign was led by Lori Wallach of Public Citizen's Global Trade Watch

[edit] Australia

In November 1997, the Australian Broadcasting Corporation's radio programme 'Background Briefing' presented the Quiet Debate—a report about the silence of the Australian government and media on an issue which was arousing fierce controversy in the USA, Britain, Canada and New Zealand. However, Australian activists were already studying the leaked MAI draft and corresponding with the Canadian email discussion group MAI-NOT while deciding how to organise a national campaign to link with those of other countries. In January 1998 a national 'STOP MAI' coalition was formed to research issues, lobby parliamentarians and conduct public meetings.^[12] In November 1998, prior to the opening of OECD negotiations in Paris, the coalition delivered to the meeting's chairman and to the Australian prime minister a protest letter endorsed by over 500 organisations and individuals. The letter was reinforced by a prominent advertisement in The Australian newspaper on 11 November^[13]

[edit] France

France's withdrawal followed consideration of a report on the negotiations drawn up by a French MEP, Catherine Lalumière. After receiving this report, prime minister Lionel Jospin addressed the Assemblée Nationale on 10 October 1998 and announced his decision to withdraw. He said the Lalumière Report had identified a number of fundamental problems with the agreement, particularly relating to matters of national sovereignty. Madame Lalumière had also concluded that so many reservations were being incorporated into the agreement that any value for French investors would be limited. M. Jospin noted that, in February 1998, the French government had identified respect for cultural differences as a requirement for French support for the agreement^[14].

Of equal or greater significance was the importance accorded by Mme. Lalumière to the global protest movement which at that time she attributed to the work and influence of NGOs: "For the first time, one is seeing the emergence of a global civil society represented by NGOs which are often based in several states and communicate beyond their frontiers. This evolution is doubtless irreversible. On one hand, organisations representing civil society have become aware of the consequences of international economic negotiations. They are determined to leave their mark on them.

"Furthermore, the development of the internet has shaken up the environment of the negotiations. It allows the instant diffusion of the texts under discussion, whose confidentiality becomes more and more theoretical. It permits, beyond national boundaries, the sharing of knowledge and expertise. On a subject which is highly technical, the representatives of civil society seemed to us perfectly well informed, and their criticisms well argued on a legal level."

Mme. Lalumière argued, however, that France should continue to pursue further liberalisation of investment régimes though not in the OECD. "On the one hand, under these conditions it would be impossible to achieve the balancing of the concessions demanded by the firms and, on the other, the objections of the opponents would be just as fierce."^[15]

Withdrawal of the host nation was a devastating blow. However, France was followed by a succession of other nations including Canada and Australia whose governments had been under relentless pressure from civil society to abandon or radically revamp the MAI.

[edit] Failure

After three years of intense negotiations, members of the OECD refused to sign an agreement they felt was too radical a change in the governance of international investment. Despite similar developments in the area of trade, states were unwilling to make their governance of investment more uniform. Public protests against the agreement were influential upon the member states' reluctance to sign and, by the end of 1998, the OECD decided to cease pursuing negotiation of the MAI. Instead, on the initiative of industry advisers to Sir Leon Brittan, the outgoing European Commission vice-president, an attempt would be made to insert the investment agenda into a new "Millennium Round" of trade liberalisation talks to be hosted by the World Trade Organization(WTO)^[16]. This change in strategy was to lead to the historic 'Battle of Seattle' protest actions in November 1999 and the controversial Doha Development Round.

A senior treasury officer, cited in a 1999 Australian parliamentary report, stated that "any future work on the matter known as the MAI needed to address the OECD Ministers’ requirement to protect the sovereign right to regulate and to ensure citizens were not harmed by efforts to liberalise foreign investment. There was also a need to continue to engage ‘civil society’, and to expand participation in the process by countries that were not members of the OECD".^[17]

Some countries were disappointed with the MAI's failure and sought to introduce a similar agreement for discussion at the World Trade Organisation (WTO), to be incorporated into the General Agreement on Trade in Services (GATS), but these efforts, too, have met significant protest. One basis of such opposition is outlined in a critical analysis prepared for Canadian universities^[18].

Before the end of 1998, the UK trade minister Brian Wilson began to announce that investment negotiations could be shifted to the WTO.

[edit] Subsequent Developments

The failure of the MAI negotiations proved a success for the global movement against the MAI. However, many capital-exporting countries (such as the U.S., Canada, and several EU members) continue to push for similar investment provisions through regional trade agreements, bilateral investment treaties, bilateral free-trade agreements and the World Trade Organization (WTO). Beginning with the WTO's Singapore Ministerial in 1996, developed-country WTO members pressed for investment rules similar to the MAI. Investment rules, along with competition policy, government procurement policy and trade facilitation, came to be known collectively as the "Singapore issues." At the WTO Ministerial in Cancún in September, 2003, a group of more than twenty developing countries united to block the inclusion of the Singapore issues in the Doha Round of trade talks.^[19]

In addition, from May 2006, the OECD has promoted a non-binding set of "good practices" for attracting investment, known as the 'Policy Framework for Investment' (PFI)^[20].

[edit] References

[edit] External links

• Multilateral Agreement on Investment: Draft Texts and Commentary.Official drafts at various stages of the final year's negotiations

• How the net killed the MAI.The role of the Internet in destroying the MAI

• The web page that destroyed the MAI in Australia.The role of the Internet in destroying the MAI in Australia

• Official OECD MAI document database.In February 2002, the OECD released a large quantity of documents relating to the negotiations

• Multilateral Agreement on Investment. Retrieved on 2006-10-27. Nine media articles on the MAI.

• The Lalumière Report in English.Non-official online translation of the report which advised the withdrawal of France from the OECD negotiations it was hosting in Paris

• A civil-society perspective.from UK independent journal Red Pepper

• MAI–The Quiet Debate.Australian Broadcasting Corporation's excellent 1997 introductory radio presentation