[Documents menu] Multilaterial Agreement on Investment (MAI)
Message-ID: <199712060034.QAA03193@fraser.sfu.ca>
Date: Fri, 5 Dec 1997 16:34:02 -0800
Sender: Forum on Labor in the Global Economy <LABOR-L@YORKU.CA>
Subject: MAI Primer (fwd)

Subject: MAI Primer
Date: Tue, 25 Nov 1997
From: John Scully <ecoforum@users.africaonline.co.ke>

Ten Reasons to be Concerned About The Multilateral Agreement on Investment

By Andrea Durbin, Friends of the Earth

with introductory excerpts from The Preamble Collaborative. 25 November 1997

The world's richest industrialized countries are negotiating a treaty on foreign investment that will give more power to big corporations. It's called the Multilateral Agreement on Investment (MAI).

The MAI is a new international economic agreement being negotiated within the Organization for Economic Cooperation and Development (OECD), an international body comprised of 29 rich countries. The MAI consists of a set of rules restricting what governments can do to regulate international investment and corporate behavior. These rules are designed to protect and expand the power of corporations and other large international investors guaranteeing them a stable investment climate, easy repatriation of profits, open market access, and freedom from any obligation to serve local economic needs wherever they choose to invest. The United States and the European Union, who are the primary backers of the agreement, intend to extend the agreement to developing countries after it is approved by the OECD.

Confidential negotiations have been underway since May 1995 within the OECD. Business and industry groups represented by the US Council for International Business (USCIB), among other lobbies, convinced the Office of the US Trade Representative (USTR) and the State Department to initiate negotiations. Industry groups have an ongoing role in crafting the agreement, and unlike other interest groups, are regularly briefed by U.S. negotiators. Until recently, the target date for the completion of negotiations was May 1997; in late March 1997, the OECD announced the MAI deadline would be pushed back several months. Upon completion, the agreement will be introduced in the U.S. Congress in one of two ways: as a treaty, requiring two-thirds Senate ratification, or as an executive agreement, requiring a simple majority vote in the House and Senate. Other OECD countries, and ultimately developing nations, will be asked to sign.

The MAI would give new rights to multinational corporations (MNCs) and rich foreigners. If you look around the world today, are they the ones that need help from governments? By going out of its way to knock down barriers to foreign investment, the MAI would put up new barriers to our democratic right to regulate our local affairs in ways that make good economic and environmental sense.

You don't have to take our word for it -- let the MAI speak for itself.

Here are ten direct quotes from confidential drafts of the agreement. We'll translate the legalese to explain what the MAI would do in the real world.


The MAI says: "Investment means: Every kind of asset owned or directly controlled by an investor."

TRANSLATION: When you think of foreign investment, what comes to mind? Probably some big deal where a foreign corporation takes over a company, or sets up a new factory. The MAI, as the definition indicates, covers this -- and more-- stocks, bonds, intellectual property rights, concessions, etc. So anything a government does that affects any of these assets could be challenged under the MAI.

Environmental controls on foreign-owned factories, restrictions on international financial speculation, and many other kinds of regulations all have to submit to the agreement's standards.


The MAI says: a country that signs the MAI has to give foreign investors "treatment no less favorable than the treatment it accords [in like circumstances] to its own investors"

TRANSLATION: One of the main standards of the MAI is national treatment, technical language that means countries promise to treat foreign investors the same as their own investors. What's wrong with that? Nothing, if we freely choose to do so. There is also nothing wrong with treating foreign corporations differently when it seems appropriate. For example, if foreign owners are less concerned about the needs of a local community, governments will often place requirements on them. The MAI would take away our ability to make this choice, and force 'treatment no less favorable' as a uniform, inflexible standard. Because the standard is 'no less favorable,' governments are barred from treating foreign companies worse than local firms, but they could treat foreign interests better. This raises the danger that countries will come up with special deals to compete for foreign investment. Also, since the standard is vague, we have to look to the rest of the MAI to see what Ono less favorable' means. As we go further down the list, you'll see that foreign investors are actually given special rights.

Some countries screen foreign investment to make sure that new investments are in the national interest, or restrict foreign ownership of the media and other economic sectors. Because this is 'less favorable' than how local investors are treated, it would be illegal under the MAI. Meanwhile, countries that set up special tax breaks and export zones for foreign corporations would be permitted to keep on luring businesses away from their present locations.


The MAI says: a country that joins can't "impose, enforce or maintain any of the following requirements, or enforce any commitment or undertaking in connection with the establishment, acquisition, expansion, management, operation, or conduct" of a foreign investment.

TRANSLATION: This is an example of how the MAI gives foreign companies better than equal treatment. Governments can't require foreign corporations to meet certain performance requirements, or conditions, even if these conditions are imposed on local companies. Examples of forbidden conditions include requirements to use local suppliers, to take on local partners, or to hire a minimum number of local employees.


The MAI says: "A contracting Party shall not expropriate or nationalize directly or indirectly an investment ... or take any measure or measures having equivalent effect... except for a purpose which is in the public interest... accompanied by payment of prompt, adequate and effective compensation"

TRANSLATION: Under the MAI, governments that 'expropriate' (take over) an investor's property will have to pay the market price. From an environmental point of view, problems arise from the inclusion of indirect' expropriation and measures having the equivalent effect' of expropriation. In the United States, there has been a controversy over 'takings', which is the domestic legal term for expropriations, and whether environmental regulations that restrict the use of property amount to a full-fledged takings that the government has to pay for. By defining expropriation to include indirect expropriations, the MAI opens a new door for foreign investors to extend the battle over takings outside normal political and legal processes, where at least both sides have the right to be heard, into the one-sided MAI system.

The NAFTA trade agreement between Canada, Mexico and the United States has investment rules on expropriation similar to those in the MAI. To give an idea of how foreign corporations can claim that environmental regulations expropriate their investments, a US company has sued Canada for $251 million restrictions for banning the import and transfer of MMT, a potentially toxic fuel additive the company mixes and sells in Canada.


The MAI says: "Each Contracting Party shall ensure that all payments relating to an investment in its territory of an investor of another Contracting Party may be freely transferred into and out of its territory without delay."

TRANSLATION: Most countries want to attract long-term foreign investment that can contribute to stable economic growth. This part of the MAI guarantees much riskier, speculative investment, where foreign money can pour into a Ohot' market, then quickly pull out if the economy cools down. The MAI bars countries from putting restrictions on excessive flows of money into or out of their economies.

Remember the economic crisis in Mexico, where the value of the Peso crashed, eradicating savings and lowering wages almost instantaneously? One of the main causes of this financial crisis was big rapid and unstable inflows and outflows of foreign investment. To avoid this problem, some countries, like Chile, require foreign investors to keep new investments in the country for at least one year. The MAI would outlaw this kind of safety measure, raising the risk that the Mexican economic crash could be repeated around the world.


The MAI says:
RUNNING TO BIG BROTHER: GOVERNMENT TO GOVERNMENT CHALLENGES "Any dispute between Contracting Parties concerning ... this agreement shall, at the request of any Contracting Party that is party to the dispute ... be submitted to an arbitral tribunal for binding decision."

SPECIAL CORPORATE COURTS: INVESTOR TO GOVERNMENT CHALLENGES "the investor may choose to submit ... [a dispute with a government] for resolution: a. to the competent courts or administrative tribunals of the Contracting Party to the dispute ... c. by arbitration in accordance with this article."

TRANSLATION: 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. It can complain to its own government, who can take the other country to binding international arbitration. Or the investor can directly challenge the host country. In either case, arbitration consists of a few trade experts getting together as judges and hearing the dispute in a closed panel, without opportunity for citizens of either country to comment. The panel will decide whether governments are violating the agreement, and if so, can advise them to change laws and award damages-- possibly hundreds of millions of dollars or more-- to the country or investor that brought the complaint.

Letting foreign corporations directly challenge our laws in special international corporate courts' is a dangerous new idea. Consider a new law that environmentalists support and some businesses-- national and foreign-- oppose. Up until now, the two sides could fight it out in the political process, and in national courts. If the MAI is signed, the foreign corporations would have a new weapon that no other group could use. They could challenge the law under the special, one-sided rules of the MAI, or just threaten to challenge it, holding the risk of multi-million dollar damages over lawmakers' heads.


The MAI says: " "

TRANSLATION: The reason there is a big blank here is that the MAI doesn't give citizens any rights. Put another way, there are no binding obligations on foreign investors that citizens, or even governments, can enforce through the MAI's dispute resolution rules.

Real world implications: Anytime a corporation invests in a project overseas, there are a number of groups who are affected. The corporation, certainly; but also residents of the community where the company invests, including the company's workers; and the host and home government. If a conflict arises, there needs to open, balanced forums where all voices can be heard. Instead, the MAI creates a system that is one-sided (it can only be used to enforce investor's interests) and exclusionary (citizens can't participate).


The MAI says: governments can't impose sanctions or deny benefits "because of investments an investor of another Contracting Party makes, owns or controls, directly or indirectly, in a third country."

TRANSLATION: Foreign investment in non-democratic countries can help prop up dictators. For this reason, some nations, states and cities use their laws as carrots or sticks to discourage businesses from investing in dictatorial regimes. But the MAI says that foreign companies can't be punished for investments they make in other countries. This means that we have to close our eyes to how a foreign investor acts outside of our borders, so when it comes to foreign corporations, our laws can't reflect our values.


The MAI says: Countries that sign the MAI will "conduct negotiations with interested non-signatories to the Final Act and make decisions on their eligibility to become a Contracting party"

TRANSLATION: The plan all along has been to finalize the agreement inside the OECD, then invite developing countries to sign on. Many developing countries put more regulations on foreign investment. One of the main purposes of the agreement is to reach a consensus among industrialized countries, and use the MAI to pressure developing nations to open their economies' and change their foreign investment laws.

An increasing amount of foreign investment goes to developing nations. If developing countries sign the MAI, people in rich and poor countries could both lose. The MAI will give corporations more rights and confidence to leave the US and other high wage countries, speeding up their move overseas in search of cheap labor. And developing countries will have signed an agreement they did not help draft, and lose the ability to attach conditions to new foreign investment.


The MAI says: "At any time after five years from the date on which this Agreement has entered into force for a Contracting party, that Contracting Party may give written notice... of its withdrawal ... The provisions of this agreement shall continue to apply for a period of [15] years from the date of notification of withdrawal"

TRANSLATION: Most international treaties require six months notice if a country wants to drop out. The MAI goes farther. A country that signs the agreement can't escape until at least five years have passed from the time the country ratified the MAI. Then, the MAI's rules stop covering new foreign investment, but existing foreign investment still get to use the MAI for fifteen more years. This is because the MAI is more concerned with promoting long-term investor confidence than it is with our democratic right to change our minds, and change our laws.

FOR MORE INFORMATION: CONTACT: Mark Vallianatos or Andrea Durbin

Friends of the Earth 1025 Vermont Ave, NW 3rd Floor
Washington DC 20005
Phone: 202-783-7400b Fax: 202-783-0444
E-mail: MValli@aol.com

Go to http://www.essential.org/monitor/mai/contents.html
Internet: adurbin@essential.org(2300 words)

Reprinted by permission from EcoForum, a magazine published in Kenya by ELCI, which is a global network of NGOs working on environmental issues that affect grassroots communities, specifically biodiversity, desertification, urban issues and trade. Subscriptions to Ecoforum are $US 15.00, payable to the Environment Liaison Centre International, P.O. Box 72461 Nairobi, Kenya.