History of Aotearoa - New Zealand

New Zealand runs big risks by accepting the Multilateral Agreement on Investment (MAI) on trust

By Gordon Campbell, NZ Listener
27 December 1997

It is an "innocuous" document, says Trade Minister Lockwood Smith. A vehicle by which countries, "by mutual consent, accept a commitment to openness and stability in their respective foreign investment regimes", says the Ministry of Foreign Affairs.

No worries'? Hang on, can this be the same document that the Toronto Globe and Mail (November 29) says is a deal that hands multinational corporations "greater protection from government interference"? Critics of the MAI within Canada - and these now include the entire government of British Columbia - believe that this document will diminish Canada's national sovereignty, by restricting the ability of governments to enforce environmental laws, promote job creation or protect Canada's cultural industries.

Moreover, the MAI provides fresh avenues for global corporations to sue governments - or intimidate them by threatening to sue - if national policies happen to affect their bottom lines. "With MAI," trade specialist Robert Howse of the University of. Toronto law School told the Globe and Mail, "we are opening ourselves up to the ... risks [of claims] from countries that view changes in public policy as expropriation".

Can we be talking about the same document'? Yes, we can. Welcome to the Multilateral Agreement on Investment (MAI). Harmless or heinous? The public has some reason to feel suspicious. Here, our commitment to the MAI - right up to the plans for its signing in May 1998 - has been at Cabinet level, with no scrutiny by Parliament. In the US and Germany, treaties that the government wishes to enter must be ratified by Congress or the Bundestag. Not so here. In Canada, federal select committee hearings are being held on the MAI, and provincial governments (and others) have made submissions on it. That hasn't happened here. The New Zealand public could be forgiven for thinking - what, exactly, is there to hide? And what, precisely, is New Zealand getting itself into?

Some basic points. The MAI is an OECD treaty, not something devised within the wider World Trade Organisation. Deliberately so. Once consensus has been reached among the OECD "rich nations" club, the MAI can be put before the more fractious Third World members of the WTO, as the basis for investment in their economies. The MAI is about investment, not trade. The key element is the notion of "National Treatment" which grants foreign investors the same rights as domestic forgiven for thinking - what, exactly, is there to hide'? And what, precisely, is New Zealand getting itself into?

Some basic points. The MAI is an OECD treaty, not something devised within the wider World Trade Organisation. Deliberately so. Once consensus has been reached among the OECD "rich nations" club, the MAI can be put before the more fractious Third World members of the WTO, as the basis for investment in their economies.

The MAI is about investment, not trade. The key element is the notion of "National Treatment" which grants foreign investors the same rights as domestic companies. People can invest here, and we can invest elsewhere. Foreign investors gain access to a country's assets without facing any duty - say, to create jobs, or restrict their takeover activity, or locate to regions that require development, or any other regulations - that does not apply equally to local firms.

In fact, the MAI gives foreign investors one important advantage. They will be able, under stated procedures, to sue governments for compensation if the government enacts policies that the foreign investor feels will affect it unfairly. Under almost all international treaties - the North American Free Trade Agreement (Nafta) is the other exception - only states can sue each other. Under the MAI, however, multinationals can bring actions against governments. Even the threat of litigation from a multinational with deep pockets, as the British Columbia submission points out, may be enough to deter some governments or local bodies.

Such disputes then go to a panel of unelected experts, for binding arbitration. Unless New Zealand firms engage in joint ventures with foreigners, they cannot avail themselves of these compensations. In Canada, this avenue is being widely seen as a threat to national sovereignty.

Once New Zealand signs the MAI, it will be unable to withdraw from it for five years. Even if it then left, the provisions would stay in place for a further 15 years. Investors need such "certainty", Smith explains. Before signing, governments can nominate exceptions - called "reservations" - that they wish to exclude from the ambit of the MAI. This list of reservations is expected to be brief, and to be subject to "standstill" (no future government can add to them without making a compensating concession) and to "rollback", whereby governments agree to remove or reduce the reservations over time.

Although New Zealand is signing up (supposedly in good faith) to standstill and rollback, Foreign Affairs Secretary Richard Nottage believes that, no worries, we can't be held to it. It isn't a legal obligation, he wrote recently in the New Zealand Herald. "And as New Zealand already has a very liberal investment environment, we would not expect to see any changes to our reservations in the foreseeable future." On the reservation for the Treaty of Waitangi issues, for instance, Nottage says, it is "just about inconceivable" that we would roll this back.

Inconceivable? Well, could a future Act/National government conceivably desire to limit some rights currently enjoyed under the Treaty of Waitangi? If so, the MAI rollback proviso gives an excellent rationale - because it amounts to a promise to the world that we will do so. Could a future Labour/Alliance government conceivably wish to add to our Treaty of Waitangi, environment or labour policies? Maybe. Yet the MAI stops us adding to our list of reservations - or changing policies in ways that favour local firms or organisations - for the next 20 years.

All signatory nations are compiling their own list of reservations. What is New Zealand doing'? Tacked onto the Jenny Shipley/Winston Peters communiqué of November 18 was a list (including ECNZ, Television One, RNZ, National Programme, Concert FM, ports, airports, electricity and gas utilities) that the coalition "is committed to reserving New Zealand's position on ..."

So, are those assets reserved No. On closer inspection of the communiqué, Shipley and Peters were only agreeing to " reserve their "position" - whatever that means - and not the assets themselves. The most recent list of official draft reservations is far more limited. They seek to protect favourable treatment options with respect to the Treaty of Waitangi, producer boards, existing overseas investment procedures, the Kiwi share in Telecom (but not in future SOE sales) a pledge to reserve six percent of Broadcasting Commission funds for Maori broadcasting and a plan to entice Japanese interpreters here for the tourism industry, and so on. Fourteen items in all.

Canada, by contrast, has about 40 reservations. These - according to the local Canadian High Commission - are based on what it also excluded under Nafta. This would mean that, under the MAI, Canada is keeping its options open on foreign investment in law enforcement, correctional services, income security and insurance, social security and insurance, social welfare, public education, public training, health and childcare provision, airline investment, and culture industries - including the placing of limits on ownership and levels of foreign content in broadcasting.

Much more sweeping than us. Moreover, as I pointed out to Smith, the government already says it is not going to sell ECNZ, Television One, etc, to anyone. So why reserve them from foreign investors when the coalition agreement says we are not going to sell them at all?

"Because a future government might [sell them]. We don't want to have them constrained," Smith says, "in any way." Classic MAI logic. Our current open investment regime can be happily cemented in place for 20 years, but care must be taken not to constrain the ability of any future government to sell more state assets.