What is the MAI?
The Multilateral Agreement on Investment (MAI) which is currently being drawn up by the OECD countries has engendered a growing storm of protest from citizen groups around the world and expressions of grave concern from developing countries. Martin Khor explains the real implications of this treaty and the threat it poses.
AN international treaty giving foreign investors unprecedented rights to enter countries in almost all sectors, freely bring funds in and out of these countries, and to be treated better than local companies, is being negotiated by governments of the rich countries behind closed doors, largely unknown to their Parliaments and the general public.
Scheduled to be concluded this April, the Multilateral Agreement on Investment (MAI) is giving rise to a growing storm of protests from citizen groups around the world, and to grave concerns from countries of the developing world.
The MAI is being drawn up by the 29 rich nations that form the powerful OECD (Organisation for Economic Cooperation and Development). But they have made it clear that the treaty is also (indeed primarily) meant for the other countries to sign on to.
A coalition of environmental, anti-poverty and labour groups has launched a global campaign to oppose the MAI unless it is fundamentally altered. At the least, they say, the treaty's 1998 deadline should be postponed to allow more time for public input, since the issues involved are so far-reaching in implications.
On 28 October, leaders of non-governmental organisations with representation in over 70 countries voiced a wide range of concerns at a one-day meeting in Paris with the OECD Secretary-General, his staff and key MAI negotiators from several countries.
'The draft MAI is completely unbalanced,' said the NGOs in a joint statement they presented to the OECD. 'It elevates the rights of investors far above those of governments, local communities, citizens, workers and the environment.'
The NGOs agreed there is an obvious need for multilateral regulation of investments in view of the scale of social and environmental disruption created by the increasing mobility of capital. 'However, the intention of the MAI is not to regulate investments but to regulate governments (so that they are prevented from regulating investments). As such, the MAI is unacceptable.'
The NGOs included the Friends of the Earth International, WWF International, the Third World Network, Public Citizen (led by US consumerist Ralph Nader), World Development Movement (UK), as well as groups in Canada, Germany, France, Holland, Central Europe, Mexico, Ghana, India, Bangladesh and Nepal.
Among the joint NGO demands are that OECD and its member governments undertake an independent assessment of the social, environmental and development impacts of the MAI with full public participation, and that they suspend the negotiations during this assessment.
Full steam ahead
During the Paris meeting, the OECD staff and the individual countries' diplomats tried unsuccessfully to convince the NGOs that their concerns were already reflected in the MAI text, and also indicated they were going to go full steam ahead to finish the treaty on time.
Perhaps the main reason for the rush is to finish the job before increasing public awareness were to put the brakes on it.
The MAI talks started after an OECD Ministerial decision in May 1995. The negotiations have been shrouded for the most part in secrecy, without the knowledge of Parliaments or the media (or even many of the non-economics Ministers) in the OECD countries.
As for developing countries, their representatives are not even invited to be present during the negotiations, even though they are expected to also sign on, once the 29 OECD countries have finalised the treaty.
'This is why we are calling it a multilateral agreement, and not an OECD agreement, as we are negotiating a treaty for the world,' an OECD official explained at a seminar held in Hong Kong last year for Asian governments in an attempt to attract them to join the MAI.
The response was cool. Many Asian delegates expressed outrage at the audacity of the rich nations' attempt to draft a global treaty of such great significance, without first consulting the majority of countries nor inviting them to participate in the negotiations.
They felt further insulted when the OECD officials explained, without batting an eyelid, that developing countries had to be kept out of the talks as the aim was to have a treaty with 'high standards', and taking on board the concerns of the Third World would 'dilute' these standards.
Earlier this year, the Council of Canadians obtained a copy of the highly-confidential draft of the full MAI text, and placed it on the Internet. This enabled groups across the world to see for themselves and to do their own analysis of the treaty.
What they found, in terms of the treaty's features and its potential effects, was so serious and shocking, that the MAI has now emerged as a top or high priority campaign issue for many citizen organisations.
The MAI's main objectives are to attain high standards of 'liberalisation' for foreign investments, to give maximum protection to the property of foreign investors, and to set up a strong enforcement system to ensure that these first two goals are met.
Under the liberalisation sections, the MAI would give foreign investors the right to enter and establish enterprises with 100% equity ownership in all member countries.
Broad definition of 'investors'
This is particularly significant since a very broad definition is given to the term 'investors' (to include any person or legal entity, whether or not for profit, whether private or government-owned, including a corporation, sole proprietorship, trust, and association), and to 'investments' (every kind of asset, including an enterprise, shares and equity, bonds and debts, intellectual property rights, contracts and concessions).
Thus, governments would no longer have the authority to screen the entry of foreign investors (or even of non-commercial societies), nor to place limits on the degree of their participation in the national economy and society.
Foreign investors must also be given 'national treatment', defined as treatment no less favourable than that accorded to local investors with respect to the establishment, operation, use and enjoyment of investments. In other words, foreigners and their firms can be treated better than locals, but not less favourably.
This implies that policies that favour local businesses, farmers or even consumers (for example in house and land purchases and ownership) would be prohibited. Small and medium-sized local firms and farms would not be able to enjoy 'positive affirmation' policies as these would be considered illegitimate acts of discrimination against foreign companies.
Key foreign personnel (defined as executives, managers and specialists) of foreign firms must be given the right of entry and work authorisation (denial will be forbidden even on the ground that local professionals require employment), and their numbers cannot be restricted.
Also, governments are prohibited from imposing 'performance requirements' on any foreign or local investor. The prohibition list includes requirements on firms to use locally-made goods and services, to export a percentage of goods and services, to transfer technology, to relate the firm's value of imports or local sales to its export value; to establish a joint venture or achieve a minimum level of local equity participation, to hire local personnel, and to achieve a level of production, sales or employment in the country.
Many items on this list are seen by governments (especially in developing countries) as social obligations that foreign corporations should meet as a contribution to the host country's development goals. The MAI would ban governments from requiring any corporation (local as well as foreign) to meet these obligations.
Governments must also give 'national treatment' to foreign investors in all kinds of privatisation schemes. Preference shown to local firms, or reservation of shares for local enterprises or citizens, during privatisation exercises would be illegal. Special share arrangements (for example, retention of golden shares by a state in order to maintain policy control of the privatised entity) may also be banned.
Under the MAI's 'investment protection' section, states cannot expropriate or nationalise a foreign investor's assets (or take any measures having equivalent effect) except for a public purpose and accompanied by prompt and adequate compensation.
Since the definitions of expropriation and equivalent measures cover broad areas, compensation claims can be made against a state not only for clear instances (such as acquisition of land or factory) but also by an investor who feels he has been unfairly taxed, that his intellectual property rights are not adequately protected, or that his rights to resources or business opportunities have not been respected.
In another clause on 'transfers', the MAI states that all payments relating to an investment may be freely transferred into and out of the host country without delay. This obliges host countries to have the most liberal policy towards capital inflows (including the entry of funds for stock-market speculation) and outflows (including profits, proceeds for sale of shares or assets).
With this clause, countries would be prevented from having measures which they believe are needed to prevent the kind of hot-money flows that have recently caused financial havoc to the South-East Asian countries, and led eventually to balance-of-payments difficulties.
In order to effectively enforce the investors' rights spelled out above, the MAI will have a 'dispute settlement' system in which a state can take another state to an international arbitration court for not meeting its obligations, and an investor can also likewise sue a state.
If found guilty, the offending state will have to pay financial compensation for the damage, or undertake restitution in kind, and other forms of relief.
State-to-state disputes are also heard in other fora, such as the World Trade Organisation. The MAI is, however, unique in that under its system, an investor can also sue a state. This would make it the first multilateral treaty providing such a privilege and legal standing to a private investor.
The only precedent in international commercial law is in one narrow provision of NAFTA (the North American Free Trade Agreement). Under this, in April, a US company, Ethyl Corporation, sued the Canadian government for banning the import of a gasoline additive MMT, which is a dangerous toxin.
Ethyl claims the ban violates NAFTA provisions and is seeking restitution of US$251 million to cover losses from the 'expropriation' of its MMT production plant and its good reputation. Ethyl claims the ban will reduce the value of its plant, hurt future sales and harm its reputation.
The Ethyl case in NAFTA is an example of the kind of suits governments could face before international tribunals under the MAI. It would create a condition in which governments would be fearful of having any policy or measure that displeases the corporations, for they could resort to the MAI enforcement system. Even the fear of the threat of a suit could put brakes on health, safety, environmental and social policies.
Recognising difficulties that countries will have in meeting all the rules at once, the MAI negotiators have allowed for countries to submit a list of 'reservations' for some of the obligations, such as national treatment.
Thus, initially, MAI members can ask that certain sectors and activities be exempted from having to follow certain obligations. However, these exemptions are to be only temporary, must be stated in the country's reservations list, and must be phased out.
All OECD members are expected to be initial members of the MAI, but it will also be open to any other countries willing and able to undertake the MAI's obligations.
The OECD and some of its members are already trying to persuade developing countries to join the MAI. It is possible that when the MAI is ready for signature, this persuasion exercise will intensify, to the form of pressures being put on selected countries.
Whilst the implementation of the MAI will have serious implications for any country joining it, the developing nations will be particularly seriously affected.
Most countries of the South welcome foreign investments for their role in fostering economic growth. However, many countries also have sophisticated regulatory frameworks that govern the entry and conditions of establishment and operations of foreign firms.
No protection for locals
Restrictions are placed on foreign investments in certain sectors or in some ways (for example, requiring that a percentage of equity be reserved for locals). These are aimed at attaining a minimum level of participation of local people in the economy; at protecting and strengthening local firms and small farmers that would otherwise not be able to face the onslaught of giant multinationals; and at protecting the balance of payments from too much financial outflows due to profit repatriation and high import bills of foreign companies.
The proposed MAI would prevent developing countries from the policy instruments and options they require to attain economic and social development.
By removing much of the regulatory authority of governments, and by allowing investors to sue governments in international courts, the MAI would also create the conditions where it would be difficult for member states to strengthen or even maintain environmental, safety, health and social standards.
As the MAI will have such an important effect on so many aspects of our social and economic lives, and on the environment, there must be an open debate on it in all our countries.
To facilitate this debate, governments should provide detailed information on the MAI to Parliaments, the media and the public. And we should all analyse its implications in our own area of work or interest, as well as generally. For we can afford to ignore what these MAI negotiators are secretly rushing to conclude only at our own peril. - (Third World Resurgence No. 90/91, Feb-March 1998)
Martin Khor is the Director of the Third World Network.