Multilaterial Agreement on Investment (MAI)|
Date: Mon, 9 Mar 98 17:54:54 CST
From: email@example.com (Rich Winkel)
Subject: MAI: Insult + Injury to Southern Hemisphere
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** Topic: MAI: Insult + Injury to Southern Hemisphere **
** Written 6:09 PM Mar 6, 1998 by newsdesk in cdp:headlines **
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/* ---------- "MAI-Insult plus injury to South" ---------- */
The MAI - insult plus injury to developing nations
By Martin Khor,
Director of the Third World Network
4 March 1998
In February 1998, a meeting was organised in Paris to continue
negotiations for a Multilateral Agreement on Investment. Although
only the rich countries of the OECD were at the discussions, the
treaty is also meant for developing countries. The MAI would
however have serious and even devastating effects on the economies
and societies of the South. Martin Khor analyses the MAI's
provisions in the first of two articles.
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 the public.
Scheduled to be concluded in 1998, the Multilateral Agreement
on Investment (MAI) is giving rise to protests from citizen groups
around the world, and to grave concerns from developing countries.
The MAI is being drawn up by the 29 rich nations that form the
powerful Organisation for Economic Cooperation and Development
(OECD). But it is also (indeed primarily) meant for the other
countries to sign on to.
In February 1998 the OECD held another round of talks, which
concluded indecisively. But the countries are still trying to
finalise the treaty before the year's end. They want to finish the
job before increasing public awareness puts the brakes on it.
Developing countries are not even invited to the negotiations,
even though they are expected to also sign on, once the 29 OECD
nations 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 in Hong Kong in
1996 for Asian governments in an attempt to attract them to join
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 or inviting them to participate in the
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.
In 1997, a Canadian group, the Council of Canadians, got hold
of the highly confidential draft of the MAI text and placed it on
the Internet. The treaty's features and its effects are so serious
and shocking that the non-governmental organisations launched a
global anti-MAI campaign.
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
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.
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), or 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. 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 'affirmative action'
policies as these would be considered illegitimate acts of
discrimination against foreign companies.
Key foreign personnel 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
Many items on this list are seen by governments 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
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
To 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 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
an investor can also sue a state, making it the first multilateral
treaty providing such a privilege to a private investor.
The only precedent is in one narrow provision of the North
American Free Trade Agreement (NAFTA). Under this, in April 1997,
a US company, Ethyl Corporation, sued the Canadian government for
banning the import of a gasoline additive MMT, which is a dangerous
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 is an example of suits governments could face
under the MAI. Such court cases would make governments fearful of
having any policy that displeases the corporations. Even the fear
of the threat of a suit could put brakes on health, safety,
environmental and social policies.
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.
The OECD is already persuading developing countries to join
the MAI and some could be subjected to pressures. The implications
will be serious for those who join.
Most developing countries welcome foreign investment. But many
countries also have sophisticated regulatory frameworks that govern
the entry and conditions of establishment and operations of foreign
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 who
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
adopting the policy instruments and options they require to attain
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 countries.
To facilitate this debate, governments should provide detailed
information on the MAI to Parliaments, the media and the public.
For we can afford to ignore what these MAI negotiators are secretly
rushing to conclude only at our own peril. - Third World Network
About the writer: Martin Khor is Director of the Third World
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