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Why we should be concerned about the Multilateral Agreement on Investment

By Matthew Townsend,
18 February 1998

While debate about Australia's symbolic sovereignty has been occupying the headlines, debate over Australia's actual sovereignty has been taking place in the boardrooms of Paris.

The discussion centres around a treaty known as the Multilateral Agreement on Investment (MAI) being developed by the 29 nations of the Organisation for Cooperation and Economic Development (OECD).

The Director General of the World Trade Organisation, Renato Ruggerio, says that the OECD is doing nothing less than "writing the constitution of a single global economy."

The confidential negotiations have been underway since May 1995. Attempts are being made to complete the negotiations by April.

Presently, under the MAI, signatory nations such as Australia agree to:

1. Open all economic sectors, including real estate, broadcasting, and natural resources to foreign ownership;

2. Treat foreign investors no less favourably than domestic firms; and

3. Remove requirements that investors behave in a certain way in exchange for market access, among other things.

Proponents of the treaty claim it will provide needed protection for international investors, open new markets and improve the efficiency of the global economy.

For example, the Assistant Treasurer Rod Kemp argues "the MAI would provide investors with greater certainty as to the 'rules of the game' when investing in foreign countries.

"Investment helps to stimulate the economy, bringing benefits from the creation of jobs, higher incomes and new technology."

Opponents, however, say the agreement will accelerate an industrial and environmental "race to the bottom" as countries compete for increasingly mobile capital.

For example, an initiative which links fishing licences or quotas to local job creation could be banned under the MAI, as could a moratorium on the issuing of tuna fishing licences to overseas companies.

Importantly, nations are permitted to make 'reservations' to the agreement and the Australian Government intends to use this procedure to exclude certain laws from the treaty's operation.

Examples are believed to include those Acts that protect majority Australian ownership of QANTAS, Telstra and certain media.

However, parties will not be entitled to add non-conforming measures once the agreement has been signed and reservations should be rolled back over time.

Backing out of the MAI will take time. The treaty cannot be revoked for five years after implementation and investments commenced under the MAI would remain protected for a further fifteen years.

Australia's judicial system is also being bypassed. Corporations challenging Australian laws under the MAI would go before an international panel of industry experts, not judges, who would interpret the treaty and issue binding rulings. The parties have the right to declare evidence confidential.

This mechanism is similar to that used under the North American Free Trade Agreement (NAFTA) in which corporations are permitted to sue governments for the "expropriation" of property.

For example, Canada recently banned a manganese-based petroleum additive MMT arguing that it posed a health and environmental risk.

However, its manufacturer, Ethyl Corporation, countered that because it was the only company manufacturing and exporting MMT into Canada, the government effectively expropriated the firm's business without payment. It is now seeking $US251m in compensation under the NAFTA rules.

Under such a system, even changes to town planning controls could generate claims of expropriation.

A Canadian trade lawyer, Barry Appleton argues that under the MAI if someone changes the zoning in your neighbourhood "That would affect your ability to sell your property for more money. If you're a Canadian and the government does that, you can get nothing. But if you're a foreign investor, you could be compensated."

Needless to say, concern is growing amongst provincial legislators in Canada. Saskatchewan Premier Roy Romanow has said "what is developing on the MAI is a set of rules that will put Canada into a straight jacket... We do not sign international agreements that lower our standards ... and we will not exploit the poor."

Romanow is referring to the fact that the biggest loser from the MAI will be the developing world.

Although the agreement is being drafted by the members of the OECD, the intention is to extend the MAI to developing nations.

As the United States Council of Business acknowledged "[g]iven the current competition for capital, accession to MAI, particularly for developing countries, will serve as a 'seal of approval'."

Signing the agreement may become a precondition to International Monetary Fund assistance or for overseas aid.

Developing nations now fear the MAI will become the new face of colonialism.

Perhaps the most concerning aspect of the treaty, however, is the silence surrounding its negotiation.

Arguably, the Australian Government should distribute the latest draft of the MAI and set out which reservations it is seeking.

Better still, it should attempt to move the negotiations to the UN where all nations can be involved and where the principles agreed to at the UN Conference on Environment and Development can be integrated into the treaty.

Ultimately Senator Kemp may be correct that the MAI will help grease the wheels of investment and create wealth for some.

But whether it assists in the equitable and sustainable distribution of the world's resources is another matter entirely.