Multilaterial Agreement on Investment (MAI)

Treaty would give big business more influence

By R.C. Longworth, the Chicago Tribune
4 December 1997

For the last two years, negotiators from the U.S. and the other wealthy nations have been meeting in a basement room in Paris, writing the next chapter in the rule book of the global economy.

Virtually unknown to the public, the negotiators' work is likely to become America's next great globalization battle by the time it goes to the Senate for ratification.

Working in obscurity, the negotiators are framing a treaty intended to liberalize investment by multinational corporations around the globe. If completed by next April as scheduled, the treaty could do for investment what years of world trade talks did to speed the growth of commerce.

Foreign investment already is huge--$8.3 trillion around the globe and growing by at least $350 billion a year. Considering the money involved, any treaty that speeds up this flow would be immensely important--especially to the U.S., which invests more abroad and gets more foreign investment than any other country.

Its proponents and its opponents say an accord will make investment faster and safer, mostly by forcing nations to treat foreign corporations as favorably as their own. The goal is a code that would protect the rights of corporations and other investors and make it easier for them to move money and manufacturing from one country to another.

Opponents criticize the prospective pact as "a bill of rights for multinational corporations" and warn that any accord will override local laws protecting the environment and minorities, and will keep national governments from shaping their own economies. The treaty will be called the Multilateral Agreement on Investment, or MAI. Coming after the successful General Agreement on Tariffs and Trade (GATT) talks and the formation of the World Trade Organization, it means that the major nations "are writing the constitution of a single global economy," according to WTO Secretary General Renato Ruggerio.

The investment agreement is being negotiated by the U.S. and the other 28 wealthy nations belonging to the Paris-based Organization for Economic Cooperation and Development.

These nations assume that many, if not all, developing nations will join it later, because much of the Third World relies on foreign investment for economic development and this investment goes where it feels safest.

"These are the most comprehensive and complex negotiations on investment that have ever taken place," said William Witherell, the head of the MAI secretariat at the OECD, where the talks are being held. But the talks have received virtually no public attention or political debate. Only in Canada, where it has become a political issue, has it attracted any attention.

This obscurity seems deliberate.

Clinton administration officials will talk about the negotiations if asked, but have done nothing to promote public interest.

Government sources say the administration, bruised by battles over the North American Free Trade Agreement, fast-track and other trade issues, is not anxious to stir up more debate about the global economy.

Any Multilateral Agreement on Investment treaty will include these principles:

• "National treatment," which means governments must treat all investors--foreign or local--the same. A country that wanted to give its own companies a break, for example, on access to government contracts could not do so. Nor could it limit what foreigners could own, nor forbid their access to federal irrigation water or to government- sponsored research and development programs.
• Most-favored-nation treatment. Any favorable treatment given to investors from one foreign country has to be given to all foreign investors.
• No performance requirements. Countries couldn't insist that foreign investors export a certain percentage of their output or hire only local managers or use only local suppliers.
• No uncompensated expropriation. If a country seizes a foreign company's property, it must compensate it promptly and in full.
• No limit on capital movements. A foreign investor could ship its profits home, without having to reinvest them locally, and could move its stock and money from country to country without impediments.
• Dispute settlement. All disputes would bypass national courts and go before special tribunals. More controversial, not only could nations sue nations but corporations could sue nations. A foreign investor upset by, say, an environmental law in an American state could take the case directly to the tribunal, avoiding U.S. courts. Investment already ranks with trade as one of the engines of the global economy, and it is growing even faster than trade. In recent years, as the global economy has grown by 3 percent to 4 percent a year, trade has grown by 6 to 8 percent and foreign investment has grown by more than 10 percent.

"The multinational corporations are really happy with the developments in the world of the past 20 years," said Scott Nova, director of the Preamble Center, a small Washington think tank opposed to the accord. "They want MAI to lock these developments into place."

The U.S. government originally wanted the new investment rules to be negotiated within the World Trade Organization. But Third World nations, fearing the power of the big corporations, refused, so the negotiations were moved to the OECD.

Since mid-1995, negotiators from the 29 nations have been meeting for one week a month in Room Two, a basement conference room at the OECD headquarters in Paris' elegant 16th District.

The negotiators hope to have a treaty ready for the annual OECD ministerial meeting in May. It would then have to be ratified by the Senate--no foregone conclusion, considering that President Clinton withdrew his request for fast-track authority for trade talks in the face of certain defeat in the House of Representatives.

For the most part, U.S. corporations already face minimal problems in investing in Europe, Japan and the other OECD nations. The accord would lock in these good relations.

The real prize would be similar liberal rules governing investment in China, India, Southeast Asia and other developing areas. MAI, although negotiated within the rich nations' club at OECD, would be open to any other nation. Given the intense competition among them for Western investment, most Third World countries would be under great pressure to join.

Opponents of the treaty say it could block any government attempt to help local businesses, could undercut local environmental laws or could overrule set-aside policies aimed at giving preference to minority businesses. Its backers pooh-pooh these fears.

U.S. officials say any environmental law will be permitted, so long as it treats all investors the same. In addition, they say, any MAI treaty will be loaded with exceptions, as the 29 nations make existing laws exempt from the treaty's rules.

Thus, they say, any existing set-aside law giving preference to a minority-owned firm will be "grandfathered."

Opponents remain suspicious.

"If MAI is subject to a give-and-take negotiation with other countries, then we obviously want them to change some of their laws to benefit us, and it stands to reason that we're going to have to change some of our own laws," Nova said. "We can ask for any exemptions that we want, but unless other nations agree, it's no go."

Other opponents have noted that, while existing laws will be protected, the treaty could prevent states or cities from passing future laws that benefit local businesses, including those owned by minorities or women.

China gets more foreign investment than any other nation except the U.S. But its insistence that almost all foreign investors export their output, instead of selling it locally in competition with Chinese companies, means Beijing probably won't fit into MAI soon.

About 1,600 bilateral investment treaties exist between the nations of the world, but most of these provide for fair treatment for foreign investors after they have invested.

This treaty would be different. It would set rules on the investment itself, giving foreigners more right to invest and reducing the power of governments to guide their own economies or favor local businesses.

Two major barriers to agreement are cultural activities and the U.S. Helms-Burton Act.

Led by France and Canada, several countries want to exempt culture--movies, TV, video, books, magazines and the like--from MAI, to protect them from American media giants and to shelter their national culture. The U.S. opposes this exemption.

Helms-Burton lets U.S. claimants sue non-American investors who bought Cuban property that had been confiscated by the Castro government. In this way, the law tries to control investment not only within the U.S. but abroad, and is hotly opposed by Canada and the Europeans.