A Call to Oppose the Transfer of the MAI Process to the WTO

By Martin Khor, Third World Network, 10 May 1998

Dear friends,

Now that the MAI in the OECD is encountering problems, there is a real possibility and threat that efforts will be intensified to push for negotiations on a MAI-like investment treaty in the WTO.

The EC and other countries are likely to go on the offensive to persuade parliamentarians, NGOs and the media that the WTO is a more friendly arena, that the developing countries will have a greater say, and that environmental and labour concerns will be better taken care of in the WTO. The European Parliament in its resolution had in fact called for the talks to shift from OECD to WTO.

This is a false and dangerous argument that should be vigorously opposed. I have written the following paper on why this is so. Action should be taken urgently, as the moves to intensify a parallel process in the WTO are likely to be stepped up decisively in the run-up to the WTO Ministerial Conference on 18-20 May in Geneva, and at the Conference itself.

I would be grateful if you could read this paper and consider what can be done. Please also CIRCULATE this paper through your own network to as many persons and groups as possible.

Could the points in this paper also be included in any future joint or individual NGO statements on the MAI? Also, do you think it worthwhile to have a joint statement on this specific issue?

Do let me know any feedback you may have.

Thanks for your cooperation,

Martin Khor (Director, Third World Network) 5 May 1998 (E-Mail address: twn@igc.apc.org)

The MAI is facing serious difficulties in the OECD. Many OECD countries have submitted long reservation lists. Many issues also

remain unresolved. Citizen groups in many OECD countries have launched strong protests against their governments entering an MAI.

Due to these difficulties, the OECD ministerial meeting in Paris at the end of April 1998 decided to suspend the negotiations for six months.

Whilst even mainstream newspapers like Financial Times and the Globe and Mail (Canada) have acknowledged the role played by NGOs in contributing to the derailing (temporarily at least) of the OECD-MAI, there are no grounds for relaxing the campaign.

Indeed, there is now a real possibility and danger that the centre of negotiations will shift to the World Trade Organisation, a move that seems to be favoured by the European Union (and especially by the European Commission). The European Parliament, in their critical resolution on the OECD-MAI, had also called for the negotiations to shift to the WTO.

The OECD ministerial declaration of April 98 states that OECD governments "support the current work programme on investment in the WTO and once the work programme has been completed will seek support of all their partners for the next steps towards the creation of investment rules in the WTO."

More recently, a meeting of the trade ministers of the "Quads" (US, Canada, EU and Japan) on 30 Apr-1 May in Versailles, concluded with a chairman's statement that the WTO ministerial meeting (in May 19- 20) should set in motion a process enabling decisions to be taken in 1999 on the scope and modalities of further global trade liberalisation.

The EU is championing a new comprehensive "Millennium Round" in the WTO, which presumably would include upgrading the investment issue from the present working group (whose mandate is to "study the relation between trade and investment") to a group negotiating an MAI-like agreement. Japan has also come out in favour of such a new Round.

In recent statements, as the OECD-MAI encountered more problems, the EC and Canada, have been saying that the MAI should now be negotiated in the WTO. To boost this move, the EC has also claimed that at the WTO the developing countries can also participate, and this is thus more participatory. Proponents of an MAI in the WTO can also be expected to claim that labour and environmental issues will be taken care of, and also that suggestions to balance the rights and obligations of corporations can be considered.

NGOs not be taken in by such an argument and should reject any move to get the WTO to negotiate an investment treaty. Getting the MAI or a similar investment treaty in the WTO would be even worse for developing countries. This is because:

(1) Most developing countries are members in WTO and if a treaty is concluded there they would have to join it. If the MAI is at the OECD, each developing country can decide whether or not to join.

(2) The WTO is not democractic or transparent. Developing countries in reality won't have much say in determining the final outcome. Nor will most of them be able to participate in the real negotiations, that often take place in "informal meetings" to which a few key countries may be invited. For example, during the

Uruguay Round, although many developing countries opposed many aspects of the TRIPS treaty, in the end the US had its way. Although some developing countries may oppose a MAI-type proposal in the WTO, eventually it is likely they could be isolated and in the end an MAI will emerge.

(3) The WTO's dispute settlement system will be effective in tying down developing countries to implement an MAI there. Countries that don't comply with some parts could face trade sanctions or at least the threat of being taken to a WTO panel. Thus the WTO is popular with the rich countries as they can use it to enforce the rules on the South.

(4) WTO is supposed to be a TRADE organisation. Its mandate should not be expanded to INVESTMENT policies and rules. If an MAI-type treaty is negotiated in WTO, then the existing principles of the WTO such as NATIONAL TREATMENT could quite easily be extended to INVESTMENT (it applies now to goods).

The history of MAI-type investment rules in the WTO is that the rich countries, especially the US, tried to introduce in as part of the TRIMS (trade-related investment measures) negotiations during the Uruguay Round. This attempt failed as there was strong opposition from many developing countries to introduce investment policies and rules per se in the negotiations.

Therefore the TRIMS agreement is now limited only to preventing trade-related investment measures, such as requiring investors to follow a requirement to have a minimum level of local content in their product. (It is argued that local content policy would adversely affect imports and thus distorts trade). Investment policies per se (such as a country's policy on foreign investment, such as criteria for entry of firms, the conditions for their establishment, whether or not to grant national treatment) are thus excluded from TRIMS. Most developing countries thus maintain their regulatory control over foreign investment.

In 1995-96 the EC led a campaign within the WTO to get a negotiation process going for a MIA (multilateral investment agreement). Many developing countries (including India, Indonesia, Malaysia, Tanzania, Uganda) opposed it. Investment became the biggest and most controversial issue in the run-up to the WTO's first Ministerial Conference in 1996. In the face of the strong opposition from developing countries, the rich countries (including Japan and Canada) then downgraded their demand to creating a working group to STUDY the relation between trade and investment.

This working group for a study process was agreed to at the WTO Ministerial Conference (Singapore - December 1996). There was an explicit agreement that the working group on trade and investment would only STUDY the relation, and WOULD NOT BE ENGAGED IN NEGOTIATIONS for an investment agreement.

Any decision, if any, to start a negotiation process has to be EXPLICITLY taken by consensus. After 2 years (Dec 1998) the working group will decide how to proceed. The group has been meeting in Geneva for discussion but not for any negotiation.

Now that the OECD process has slowed down, it is likely that the EC (led by Sir Leon Brittan), Canada, the WTO Director General (Renato

Ruggiero) will now PUSH VERY HARD to intensify the WTO process. They will push to intensify the discussion in the working group on trade & investment and will propose that this be upgraded to a NEGOTIATION for an investment treaty.

The treaty they have in mind is THE SAME AS THE MAI. This is clear from the EC paper "A Level Playing Field for Foreign Investment Worldwide" (1995) which describes the EC strategy of pushing for an MIA/MAI at both the WTO and the OECD. The main features (including the right to establishment, national treatment, banning of performance requirements, right of entry and exit of funds, etc) are similar to what emerged in the OECD-MAI.

Therefore NGOs should not be swayed or taken in by arguments from the EC, Canada or other countries, that public concerns (such as labour or environmental issues) and the South's interests would be better taken care of by initiating an agreement at the WTO.

In reality, it would be WORSE for developing countries and for the world because an MAI in the WTO would have over 130 countries involved.

PROPOSALS:

1. Therefore NGOs should OPPOSE strongly now any proposal or pressure to upgrade the present STUDY GROUP in the WTO into a NEGOTIATING GROUP.

2. This opposition should be made clear during the Second WTO Ministerial Conference in Geneva on 18-20 May 1998. There is a possibility the EC and others could use this occasion to PUSH for negotiations on new issues including INVESTMENT, perhaps through a Millennium Round to start in 1999 or 2000.

3. NGOs involved in the MAI issue should take this up as their main issue in the WTO Conference. They could press their Trade Ministers before the meeting to commit that they would not press for the investment issue.

4. NGOS can also contact members of the media covering the event to brief them on the issue and make clear to them that NGOs oppose shifting the MAI to the WTO.

5. Moreover, NGOs should also campaign that the existing working group on trade and investment conclude their discussions with a decision that the WTO should not take up investment policy or rules as part of their mandate, and that the working group itself should be wound up.

6. The European Parliament members should be persuaded to withdraw from their stand (in their resolution on the MAI) that the MAI negotiations should shift to the WTO. In fact, Parliamentarians, citizen groups, municipalities etc should be informed of the greater dangers of an MAI in the WTO and asked to also oppose such a development from taking place.

P.S. BEWARE ALSO OF THE IMF

The IMF Secretariat and some G7 want to amend the IMF Articles of Association to introduce "CAPITAL ACCOUNT LIBERALISATION" as part of the IMF's objectives or operations. This would allow IMF to discipline and pressurise developing countries to increasingly open their doors to capital flows such as portfolio investment, FDI, loans, bonds and the outflow capital funds. This is another route for MAI-type rules on investments. This proposal will continue to be discussed at IMF meetings this year. THIS AMENDMENT SHOULD ALSO BE OPPOSED. (Such an amendment would among other things enable the

IMF to have a much stronger hand to discipline developing countries to deregulate financial flows and open up their financial markets, a process that was largely responsible for the East Asian financial crisis. There will be more Mexican and Asian type crises if the IMF amendment is carried).