Reference:

The Preamble Center for Public Policy, June 1997

For more information on the MAI, please contact Antonia Juhasz,
MAI Coordinator, at the Preamble Center for Public Policy.
E-mail: juhasza@rtk.net

The Multilateral Agreement on Investment

The New York Times' Thomas Friedman calls economic globalization "the next great foreign policy debate." The world economy is changing with amazing speed, and with profound implications for the social, economic and political life of nations. With the end of the superpower conflict, the key foreign policy questions facing the United States are increasingly economic, not political. Instead of arms pacts, the most contentious debates in Washington today are over international economic agreements like the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA).

What is the Multilateral Agreement on Investment (MAI)?

The MAI is a new international economic agreement currently being negotiated at the Organization for Economic Cooperation and Development (OECD), an international body comprised of the world's 29 wealthiest nations. The MAI is designed to ease the movement of capital - both money and production facilities - across international borders by limiting the power of governments to restrict and regulate foreign investment. The MAI is based on the investment provisions of the North American Free Trade Agreement (NAFTA) but the MAI amplifies these provisions and, unlike NAFTA, which only applies to the U.S., Mexico and Canada, would apply them worldwide.

The MAI's Provisions

The key provisions of the agreement include:

• National Treatment, which requires countries to treat foreign investors at least as well as domestic firms. While governments would be prohibited from discriminating against foreign investors, there would be nothing to stop governments from treating foreign corporations more favorably than domestic ones.
• Most Favored Nation (MFN), which requires governments to treat all foreign countries and all foreign investors the same with respect to regulatory laws.
• A limitation on Performance Requirements, which are any laws that require investors to invest in the local economy or to meet social or environmental goals in exchange for market access.
• Banning restrictions on the Repatriation of Profits and the Movement of Capital, thus ensuring that corporations and individuals can move their assets more easily.
• A ban on Uncompensated Expropriation of assets. The MAI would require governments, when they deprive foreign investors of any portion of their property, to compensate the investors immediately and in full. Expropriation would be defined not just as the outright seizure of a property but would also include governmental actions "tantamount to expropriation." Thus, certain forms of regulation could be argued to be expropriation, potentially requiring governments to compensate investors for lost revenue.
• The MAI includes "Roll-back" and "Standstill" Provisions that require nations to eliminate laws that violate MAI rules (either immediately or over a set period of time) and to refrain from passing any such laws in the future. State and local, as well as federal laws, would likely be affected. Some existing laws will be exempted.
• In its current form, the MAI does not contain language on the Responsibilities of Corporations regarding treatment of employees, environmental protection, fair competition or other issues. There is discussion of including an existing OECD code of corporate responsibility in the MAI, but these provisions would be non-binding.
• Investor-to-State Dispute Resolution. The MAI would enable private investors and corporations to sue national governments, and seek monetary compensation, when they believe a law, practice or policy in a country violates investors' rights as established in the agreement.

Proponents of the MAI argue that a set of global rules governing investment is needed to lock in the deregulation that has already taken place over the last two decades; protect the rights of investors to free, equal and safe access to markets; and resolve the conflicts that are inevitable between governments and transnational corporations (TNCs). The primary purpose of such an agreement would be to reduce the "distorting" effects of policies that require TNCs to respond to a discipline other than that of market forces. Such changes, proponents assert, will ultimately lead to increased investment and economic growth.

Critics of the MAI, including many community, environmental, labor and human rights groups, fear that the MAI could have serious negative consequences. They contend that the MAI could:

• Hasten a world-wide "race to the bottom" by making it easier for investors to move production facilities from one country to another. This could hasten job flight from industrialized countries and increase the pressure on all nations to compete for investment capital by lowering wages and labor, environmental and consumer-safety standards.
• Restrict the ability of federal, state and local legislators to regulate business in the public interest. In order to comply with MAI rules, federal, state and local governments in the U.S. could be required to forego laws and policies in a number of areas - including environmental protection, economic development and human rights. While the U.S. will likely seek exemptions for many existing statues, time limits would be applied to some of these exemptions and governments would be constrained from enacting new laws that contradict the agreement. Further, corporations will play a direct role in enforcing the agreement's terms since they will have the right to sue governments and seek damages when, in their opinion, a law is in violation of the agreement. This could invite widespread challenges to existing and future regulations and could allow investors to use the mere threat of potentially costly lawsuits to intimidate governments that are considering the passage of new regulatory laws.

• Threaten important laws that protect the environment and public health -- which could be found to be discriminatory against foreign investors, to constitute expropriation of investor assets, or to be illegal performance requirements. Examples of laws that could be banned include: Bans on the production or sale of dangerous products; and Laws designed to conserve valuable natural resources or land.
• Restrict the ability of governments to encourage local economic development because such laws may put foreign investors at a competitive disadvantage. Examples of laws that could be subject to challenge under the MAI include: Community reinvestment laws requiring banks to invest in economically deprived areas; Programs earmarking economic development funds for local businesses; and Bidding preferences for local and/or domestic firms when public services are privatized.
• Prevent governments from imposing investment sanctions against human rights violators, which would be violations of the agreements MFN provision.
• Deprive developing countries of some of the tools necessary to promote equitable economic growth. MAI signatories would not be able to impose obligations on foreign investors such as requirements to form partnerships with local firms, hire local managers or transfer technology.
• Contribute to global financial instability by restricting the use of investment controls, such as "speed bumps," which some countries use to avoid rapid disinvestment and disasters like the Mexican peso meltdown.

In May 1995, formal discussions on the MAI were initiated at the OECD and by January 1997, consensus had been reached on approximately 90 percent of the agreement (the OECD had originally planned to complete negotiations by May 1997 but they have since extended the timeline another year to May 1998.) The United States is represented at MAI negotiations by the State Department and the office of the United States Trade Representative (USTR), which are, in turn, advised by 36 Advisory Committees. Of these 36 committees, only one is formally charged with assessing the impacts of multilateral agreements on the environment. By the same token, there are only a handful of labor representatives on the advisory committees while there are more than 500 business representatives.

Despite the agreement's potentially profound implications, few outside of expert circles are even aware of the MAI's existence. The past two years of MAI negotiations have been conducted in secret and the Clinton Administration has not made efforts to inform the general public about the agreement and its potential impact. Congressional briefings did not begin until quite recently and have been very limited, even though negotiations are at an advanced stage.

The Need for a Vigorous Public Debate

Given the scope and importance of the MAI, this situation must be rectified. The decisions we make about the nation's future in the global economy should derive from the views and interests of an informed and engaged American public. The widespread dissemination of information about the MAI, full consultation with all sectors of society, a thorough consideration of all of the agreement's potential impacts, positive and negative, and a vigorous public debate are essential.

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