MAIGALOMANIA!

Citizens and the Environment
Sacrificed to Corporate Investment Agenda

A BRIEFING BY CORPORATE EUROPE OBSERVATORY (CEO)

February 1998

Secrecy, haste and intrigue have characterized the negotiations around the Multilateral Agreement on Investment (MAI) — the latest plan of the economic globalization elite for dismantling barriers to investment all over the world in the quest for a progressively more open global economy. All of the regional and global economic liberalization pacts born in the past decade — the World Trade Organization, NAFTA, the European Union, Mercosur and so forth — will pale in the face of the mighty MAI.

official MAI text 24 April 1998 - pdf 0,5 MB

"Investment is a desirable and desired thing... Nonetheless, governments still sometimes find it threatening, because free direct investment limits administrations' ability to control and shape their countries' economic destiny. This is a small price to pay for allowing private sector decision-makers to generate economic benefits worldwide. But it is a price that some governments in some sectors still find difficult to pay. That is a tragedy." [1]

(European Commissioner Sir Leon Brittan)
 

"The preponderance of restrictions on foreign investment lie outside the OECD area ... Business needs the benefits of an international regime to include the fast-growing counties of Asia, Central and Eastern Europe and Latin America." [2]

(The International Chamber of Commerce on the MAI)

Corporate Empowerment

An analysis of the forces behind any of the recent trade and investment regimes reveals that transnational corporations (TNCs) — working both nationally and in international coalitions — are active proponents of the prying open of markets and the removal of barriers to trade and investment. That is certainly the case in the ongoing OECD negotiations on the MAI. A total of 477 of the world's 500 largest TNCs are based in OECD countries and most of these are organized in groupings like the International Chamber of Commerce (ICC), the US Council for International Business (USCIB) and the European Roundtable of Industrialists (ERT). All of these corporate lobby groups have been directly or indirectly involved in the shaping of the MAI. The reason for their interest in a global investment treaty, intended as much for Third World countries as for the OECD states negotiating the agreement, can be found in the increasing percentage of corporate investment that flows in a southerly direction.

Furthermore, TNCs are tightly allied with the neoliberal politicians governing most of their home countries, and generally play a considerable role in both national — and increasingly international — policy-making. The 1994 completion of the Uruguay Round and the creation of the World Trade Organization (WTO) was a great victory for TNCs, which together with their governments lobbied for the removal of national barriers to the flow of goods and services. The next logical corporate challenge has been the creation of a treaty which, by dismantling barriers to investment, would provide investors with a so-called "level playing field" across the globe. The various provisions of this Multilateral Agreement on Investment would ensure the most ideal investment conditions for TNCs — including homogeneous and transparent legal and regulatory frameworks, the standardization of diverse local and national conditions, and best of all, the right to recourse when corporate profits or reputations are damaged.

The Losers

The agreement will grant TNCs with extensive new powers while at the same time denying governments the right to control foreign direct investment in their countries. The rules and regulations which hinder foreign investment and will be dismantled under the MAI are often those that protect workers and jobs, public welfare, domestic businesses, the environment and culture. By subverting national and local priorities to the needs of foreign investors, the MAI poses a dangerous threat to democratic political processes. The impacts would be the most devastating on poorer countries, which would have no chance to build up a balanced economy or break their reliance upon commodity export and resource extraction in the service of industrialized countries and their corporations. Consequences within OECD countries will be different but also dramatic.

Third World Under Siege

Third World Opposition against the MAI and other attempts to impose MAI-style policies has been considerable. Simultaneous to the launching of OECD MAI negotiations, the EU-led attempt at a flying start for a MAI-clone treaty, called MIA, within the World Trade Organisation was obstructed by countries like India and Malaysia. They could not, however, prevent the creation of a WTO working group on investment — in which the EU and others continue to push for the commencement of MIA negotiations. The OECD countries have adopted a multifaceted strategy to reach their aim of investment deregulation in the South, including tempting Third World countries to sign on to the MAI, keeping an investment treaty on the burner in the WTO, and using other international institutions like UNCTAD and the IMF to further their objectives.

The most recent offensive for investment deregulation was announced by EU Commissioner Sir Leon Brittan, who in early February of this year informed the world that negotiations on a Trans-Atlantic free trade zone, involving the EU and the US, might be launched already in May 1998. [3]

Race Against Time

After a smooth first year and a half of negotiations, the MAI entered a far rockier phase in early 1997. Problems arose due to demands by OECD countries for an increasing number of reservations and sectoral carve-outs, and also with the high speed emergence of anti-MAI campaigns in one OECD country after another. Although serious preparations for the MAI had already begun in 1991, non-governmental organizations representing environment, development, women and other sectors sure to be impacted by the MAI were not consulted until October 1997. The negotiators are now embroiled in a race against time in order to avoid another postponement of negotiation deadlines, a delay that might mean the kiss of death for the MAI. That would be a happy ending indeed for a treaty that would tie its signatory countries to the unfettered "free" global market economic model for 20 years. There would be every reason to celebrate the failure of a treaty that would increase competitive pressure on wages and policies, facilitate relocations, and ban many of the policies desperately needed to strengthen local economies and reduce general dependency on transnational corporations.

The OECD

 

The Organization for Economic Cooperation and Development (OECD) is an intergovernmental organization with 29 member countries. More than simply a regional body, the OECD defines itself as "a homogeneous entity" within which member countries share similar economic and political ideologies. [4] Members include all EU states plus Switzerland, Norway, Iceland, the Czech Republic, Hungary, Poland, Turkey, Australia, the United States, Canada, Japan, South Korea, Mexico and New Zealand.

OECD decision-making happens within a "system of consensus building through peer pressure." [5] Essentially, this means that member countries ensure that other members stay in line with current OECD policy and direction. Much of this policy and direction is the product of various committees, which seek to "knit a web of compatible policies and practices across countries that are part of an ever more globalized world."

Although often described as an intergovernmental think tank, the OECD is in fact more than that. Member countries send experts and policy makers to join specialized groups and committees on approximately 200 subject areas. Such committee discussions often result in formal treaties and agreements in areas such as international investment, capital movements and environmental policy.

What's in the MAI?

In sum, the MAI would require countries to open their economies wide to any interested investor, and TNC complaints about unfavourable treatment by the host country would be judged in unaccountable international courts. The main elements of the agreement are as follows:

• The MAI would encompass an extremely broad range of investments. Not only direct corporate investment, but stocks, bonds, loans, debt shares, intellectual property rights, leases, mortgages and concessions on land and natural resources would be covered. The health, education, communications, cultural, banking and construction sectors would all be fair game for foreign investors; in fact, the only exempted sectors would be defense and police.
• The MAI is based on the principles of national treatment and most favoured nation (MFN). In plain language, this would require governments to treat foreign investors as well or better than domestic investors, and thus would automatically favour transnational investment over that of smaller, domestic companies. Restrictions placed by countries on foreign investment in sensitive sectors — for example publishing in Malaysia, Indonesia and Venezuela, forestry, fishing, mining and agriculture in a number of countries, as well as toxic waste in Colombia and highly polluting industry in Taiwan — would be prohibited.
• The MAI would do away with so-called performance requirements, measures designed to protect workers and communities. For example, government requirements for a minimum number of local people being employed in a foreign firm, the use of a certain percentage of domestic products, technology transfer and so forth would become illegal under the MAI.
• By banning restrictions on the excessive flow of capital in and out of countries, the MAI would increase speculative short-term investments of the type that caused the 1994 Mexican peso crisis and recent stock market crashes in Southeast Asia.
• Unlike other multilateral treaties, the MAI would include a dispute settlement mechanism to allow investors to sue national and local governments for expropriation. This mechanism, which grants powerful TNCs the right to challenge local and national legislation emerging from democratic political processes, is an extremely dangerous political precedent. A ruling of expropriation, which the MAI defines not only as loss of income but also of reputation, requires states to financially compensate the investor and/or to reform laws. The arbitration panel would consist of a few trade experts working behind closed doors, beyond public scrutiny. The ramifications of this provision upon national environmental, health and safety regulations are enormous, as exhibited by an ongoing case under the NAFTA in which the US Ethyl company is suing the Canadian government for US$ 250 million, claiming lost profits and reputation due to the banning of a toxic gasoline additive.
• The MAI would in effect lock signatory countries into the agreement for a 20 year period. A country can withdraw from the MAI only after five years, and companies investing in that country are covered under treaty provisions for an additional 15 years.
• The MAI also includes the dangerous provisions of standstill and roll-back. Standstill prohibits signatory countries from introducing new laws or policies which contradict the MAI — this would have a crippling effect on national environmental and social policy. Roll-back is the procedure by which countries will be forced to open up protected areas and remove laws considered in violation of the MAI. OECD countries have identified 1000 pages of exemptions which would eventually have to be rolled back — ranging from Austria's exemption of its chimney sweeping industry to social services in the United States.
• The provisions of the MAI would contradict several international agreements signed by governments, including the Climate Convention and its Kyoto Protocol and the Convention on Biological Diversity.
• The MAI will be a freestanding international treaty, open to accession by non-OECD countries, which means that countries can sign on a take-it-or-leave-it basis, only allowing time-limited reservations. At least 10 non-OECD countries have expressed interest in joining the MAI from the beginning, including Argentina, Brazil, Chile and most likely Hong Kong, Colombia and the three Baltic States: Estonia, Latvia and Lithuania. Also Egypt is expected to join. [6]

Global foreign investment was at an all time peak in both 1994 and 1995, and the 10 percent worldwide growth in foreign investment in 1996 was also remarkable. Overall, foreign investment growth rates exceed global GNP growth rates (6.6 percent per year) as well as increases in international trade levels (4.5 percent per year). But even the breathtaking US$ 349 billion total for foreign direct investment in 1996 does not capture the breadth and depth of economic globalization. In the same year, TNCs invested a staggering US$ 1,400 billion in countries in which they are already represented. This development — the increased presence of TNCs in local economies as a strategy to ensure market control — has been labelled "glocalization". [7]

TNCs Taking Over

There are in total some 44,000 TNCs in the world, with 280,000 subsidiaries and an annual turnover of US$ 7,000 billion. Two-thirds of world trade results from TNC production networks. The share of world GDP controlled by TNCs has grown from 17 percent in the mid-60s to 24 percent in 1984 and almost 33 percent in 1995. [8]

In a parallel and related process, the largest TNCs are steadily increasing their global market shares. According to UNCTAD's 1997 World Investment Report, the ten largest TNCs now have an annual turnover of more than US$ 1,000 billion. Fifty-one of the world's largest economies are in fact TNCs. Continuous mergers and take-overs have created a situation in which almost every sector of the global economy is controlled by a handful of TNCs, the most recent being the service and pharmaceutical sectors. In January 1998, for example, the largest business merger in history took place in a US$ 70 billion deal in which Glaxo Wellcome and SmithKline Beecham became the largest pharmaceutical company on earth.

Moving On

The European Union, the US and Japan are responsible for 85 percent of all outgoing foreign direct investment (FDI - 1996 figure). Apart from Korean-based Daewoo, all of the 100 largest TNCs are based in this wealthy triad. To date, this triad has also received the bulk of FDI — nearly 3/4 in 1996. But the new trend is clear: TNCs based in the triad plan to step up their investments abroad and particularly in the Third World. More than half of all TNCs anticipate that the share of their turnover earned abroad will exceed 60 percent before the year 2000. In 1997 only 28% of the TNCs were that globally oriented. TNCs have already indicated their favourite targets for investment: in 1996, China received 1/3 of all FDI in the developing world and the remaining Asian countries received approximately the same. In Latin America, Brazil led with US$ 9.5 billion FDI in 1996, followed by Mexico and Argentina. Africa (minus South Africa) received only US$ 5.3 billion that year, of which the oil producing countries raked in 70 percent.

Competitive Deregulation

The surge in investment in the Third World can be attributed to a few key factors:

• trade liberalization and low transport costs which make it possible to supply any market from anywhere in the world;
• the low wages and access to cheap raw materials available in the Third World and former communist countries;
• the need to win new markets after the North has been "saturated" (resulting in "low" growth);
• the removal of barriers to foreign investment in many Third World countries, in part through bilateral and regional investment agreements;
• and the increased competition to attract FDI which leads some countries to lower or freeze labour and environmental standards and to offer corporate subsidies and tax holidays.

This competitive deregulation and increase in corporate welfare is also visible in the North. According to UNCTAD, corporate taxes within the OECD have decreased from 43 percent in 1986 to 33 percent today, and many EU countries are caught in a downward spiral.

Lifting All Boats?

The OECD claims that economic globalization in general and increased foreign investment in particular will improve living standards all over the world. However, the experiences of countries which have removed all barriers to foreign investment by joining free trade agreements are quite different. For example, since Mexico signed the NAFTA, real wages in the country have dropped 45 percent, two million people have become unemployed, and the percentage of the population considered "extremely poor" has risen from 31 percent in 1993 to 50 percent today. [9] It has been demonstrated that those who suffer most from the conditions created with these free trade agreements and the consequent emergence of free trade zones are women and children.

UNCTAD's 1997 Trade and Development report concludes that globalization in its current shape is responsible for a dramatic increase in global inequality. In 1965, the average personal income in G-7 countries was 20 times that in the seven poorest countries in the world. In 1995, the gap was 39 times as large. Polarization and income inequalities are also growing within countries: the share of income going to the top 20 percent of the population has increased almost everywhere since the early 1980s. UNCTAD blames the liberalization of market forces for these developments, and considers the current situation inevitable until regulation of the economy is put back on the agenda.

The Art of Job Killing

Although TNCs present themselves as creators of wealth and employment, the figures reveal something different. In fact, one of the main characteristics of a competitive and successful TNC is the "shedding" of jobs. Between 1993 and 1995, global turnover of the top-100 TNCs increased by more than 25 percent, but during this same period the same companies cut 4 percent of their global workforce of 5.8 million — over 225,000 people. [10] TNC tendencies towards mergers, relocations, automatization and centralization of production and distribution are recipes for job losses. A part of the obsolete workforce might be employed by subcontractors, a "trouble-free" source of labour which TNCs increasingly make use of. Subcontractors are often skilfully played off against each other, resulting in lower prices as well as reduced wages and worsened working conditions. Another unfortunate fact about FDI is that it very often leads to the buying up and restructuring of local companies so that they can produce more with fewer employees. Around 2/3 of all FDI in the period 1986-92 consisted of mergers and take-overs. [11]

The sad truth about TNCs is that the increased growth, investment, monopolization and concentration upon which they rely — as well as the resulting job losses and environmental degradation — are a structural characteristic of the current neoliberal economic model. However, the voices calling for a halt to this endless pursuit of deregulation are growing louder, and are more often coming from unexpected sources. UNCTAD's World Investment Report 1997 ends with a warning to world leaders that the activities of TNCs and their market powers can in fact undermine the health of the global economy.

Laying the Groundwork

Although preparations for the MAI have been underway for close to a decade, official negotiations started only in 1995 and the first draft treaty was not ready until January 1997. Whereas negotiations had until this time been a relatively harmonious process involving negotiators from the most neoliberal branches of national governments and corporate lobby groups, the past year has been full of unexpected pitfalls. The combined impacts of conflicts between OECD countries and increasing environmental and trade union opposition have turned the negotiations into a high speed race towards the finish line.

The Early Days

Talks about something resembling a MAI within the OECD were launched as long ago as in 1988, when its investment committee began working to convert existing non-binding OECD agreements — particularly the rules concerning national treatment for foreign investors — into binding ones. Negotiations lasted for two years, but then came to a halt. The formal reason for the discontinuation was the US refusal to give Canada an exemption on national treatment for culture; the underlying motive, however was the ambition of some negotiating parties — particularly the United States — to start negotiations on a more comprehensive agreement on liberalizing investment flows. [12]

Feasibility?

The next year, in 1991, the OECD Ministerial Conference ordered a study into the feasibility of a multilateral framework for investment. The work was initially carried out by two OECD working groups: the aforementioned Committee on International Investment and Multinational Enterprises (CIME) and the Committee on Capital Movements and Invisible Transactions (CMIT). [13] This work was accelerated in 1994, when five working groups, "composed of independent governmental experts, were set up to prepare the major elements in the MAI". [14] During this preparatory phase, business interests were systematically consulted. Collaboration existed not only with the OECD's Business and Industry Advisory Council (BIAC), which unites numerous business associations and has formal consultative status at the OECD (see box below), but also with individual corporate lobby groups such as the International Chamber of Commerce (ICC: see Part 4).

Pre-cooked MAI

At their May 1995 conference, the OECD country ministers decided to initiate negotiations on a MAI, with the goal of completing an agreement by May 1997. The OECD countries made no secret of their intentions to negotiate a treaty with the "highest standards" of protections and rights for foreign investors, only afterwards inviting non-OECD countries, mainly in the Third World, to join. The process of soliciting non-EU members started soon afterwards, in the first of a series of ongoing negotiations with interested countries. [15] NGO observers following the negotiations between the EU and the ACP countries (African, Caribbean and Pacific) about a revised Lome Convention [16] report that the EU is pressuring these former European colonies to accept the MAI as part of a new Convention. [17] From the outset, the MAI was also intended to prepare the ground for a global investment treaty within the World Trade Organization (see Part 3). [18]

The main building blocks of the MAI as we know it — including its all-encompassing definition of investment and the principles of national treatment, roll-back, standstill and so forth — were in place from the start of the negotiations thanks to the four year feasibility study. Official negotiations kicked off in September 1995 in a negotiating group, chaired by Dutchman F.A. Engering, with representatives of all OECD states as well as the European Commission. The WTO was invited as an observer. Since that time, this negotiating group has met every four to six weeks, and working or drafting groups convene more frequently. Between meetings, delegates circulate texts and positions through electronic mail. [19]

Informal Encounters

Business had direct input throughout the entire negotiation process. Apart from the formal consultations carried out by the negotiating group with both the business and industry and trade union advisory councils (BIAC and TUAC, respectively: see boxes below], an "ad hoc group of BIAC experts ... meets with and advises OECD negotiators prior to each negotiation session". [20] The negotiators made extensive use of the "expertise" of the International Chamber of Commerce (ICC), for instance in shaping the dispute settlement mechanism. In fact the ICC's own court of arbitration is one of the three possible bodies that corporations can turn to for dispute settlement purposes. [22]

And no less important than these direct injections into the OECD process is the lobbying done by industry on the national level. The US Council for International Business, for example, has "regular meetings with US negotiators immediately before and after each MAI negotiating session". [22] Similar close cooperation between industrialists and national negotiators has taken place in many other OECD countries, including Canada and the Netherlands. The pressure by the Dutch negotiators on the US to withdraw its reservation on research and development (R&D) subsidies was a direct result of lobbying from Dutch based TNC Philips. Philips wanted to ensure its access to R&D subsidies in the US. [23]

Corporate lobby groups like the ICC and the European Roundtable of Industrialists (ERT: see Part 4) have used their political access at the highest political levels, including summits of global importance like the G-7, to stress the need for a speedy completion of the MAI and for keeping the agenda clear of labour and environmental demands.

Shared Agenda

The basis for the cosy consultations between governments and corporate lobby groups throughout the MAI drafting process is that the business agenda is wholeheartedly embraced by several of the most influential negotiating delegations. The ICC's April 1996 "Multilateral Rules for Investment" report leaves no doubt about the almost complete consensus between the MAI negotiators and industry. [24] The rules proposed in the report are basically identical to the first MAI draft that was completed 9 months later.

Generally, economic or trade ministry officials represent their countries in the MAI negotiations in the OECD. In the Netherlands, the traditionally close connections between industry and economic and trade ministries were exploited to their full potential. The Dutch negotiators sided with industry in their mutual aim to get "as many obstacles as possible to foreign investment removed". [25] Dutch Secretary of State for Economic Affairs van Dok-van Weelen reported to the Dutch Parliament in November 1995 that national treatment should also apply to "issues like public procurement and the granting of all kinds of subsidies and guarantees". [26] In many countries, the MAI went largely unnoticed by other ministries — for instance those of environment, social affairs and culture — until a very late stage.

Troubled Waters

The first draft of the MAI saw the light of day in early 1997. Until this time, the agreement had been sailing along quite smoothly, with the general public and even most elected public officials oblivious to its very existence. But both the complicated reservation process and the discovery of the MAI process by the non-governmental organization (NGO) community have served to slow down, and perhaps even fundamentally disrupt the charted course of the planned agreement.

Crippling Reservations

Governments submitted their "reservations" to the MAI in February 1997, and in addition to the sheer volume of national exceptions, governments had chosen to exempt some core, open-ended areas of the agreement. In some countries, the exemption process probably involved governmental actors which had previously been uninformed about the MAI, and who were now reacting with cold feet to the far-reaching provisions of the agreement. Some of the major core exemptions proposed by member states are:

• The US demanded an exemption for sub-federal law, which would provide states and localities with immunity from the MAI.
• The EU asked for positive discrimination for investment within regional economic integration organizations (REIOs) like itself. The aim of this clause would be to ensure that the MAI would not prevent countries from changing their laws to match EU legislation. This could be of crucial importance for Central and Eastern European countries waiting for EU membership as well as for the future possibilities of harmonizing EU legislation.
• France and Canada requested that culture be carved out of the agreement entirely.
• The EU made noise about the need to ban secondary boycotts, such as the US Helms-Burton Act which penalizes companies doing business with Cuba.
• Many governments discouraged the proposed ban on the use of tax measures (which could, for example, favour domestic or smaller enterprises).

To add insult to injury, country-specific exemptions to the MAI now total a hefty 1000 pages, with some governments exempting page after page of the key sectors of their economies. [27]

The serious impacts upon the treaty of these far-reaching reservations, such as culture, and the daunting volume of the specific exemptions have served to unsettle the previously trouble-free MAI negotiations. A decision to postpone the deadline for the negotiations until May 1998 was taken at the May 1997 OECD Ministerial Conference, with ministers arguing that a "high standard" MAI required more time.

Public Explosion

The second, and simultaneous spanner in the MAI's works was the explosive reaction of the international NGO community after a draft text of the MAI was leaked at the beginning of 1997. Canadian and US NGOs were quick to put the draft text on their web sites, and campaigning spread like wildfire to other parts of the world. NGO strategies have included public education, lobbying of government officials and parliamentarians (many of whom first heard about the MAI from the NGO community), and in October 1997, the organization of a global NGO strategy meeting on the MAI and a simultaneous informal consultation with the OECD. The consultation/strategy session brought together representatives of development, environmental and consumer groups from over 70 countries, and resulted in a call for a major overhaul of the agreement. [28]

NGOs and trade unions have successfully injected two new demands into MAI negotiations — the integration of labour and environmental standards into the agreement. For industry, these demands — taken in conjunction with the cumbersome reservation process — are intolerable. Recently, the OECD's Business and Industry Advisory Council (BIAC: see box below) began a new offensive after realizing that its dream MAI was on the verge of being derailed. At an official consultation between BIAC and the OECD MAI negotiating group in January this year, industrialists expressed their concerns about the direction the discussions were taking. Herman van Karnebeek, chairman of BIAC's Committee on Multinational Enterprises (as well as of chemical giant AKZO Nobel and the Dutch branch of the International Chamber of Commerce), complained that: "We now hear of disturbing signs that many of the elements we were hoping for may not be possible. What then, we are beginning to ask ourselves, is in the MAI for us?" [29].

Some BIAC members, particularly annoyed at the carve-out of taxation and the introduction of labour and environment standards, went so far as to threaten that business might withdraw its support for a sub-standard MAI, which would make ratification difficult in many countries. OECD negotiators calmed BIAC members fears by asserting that liberalization remained at the top of their agenda, but that compromises were necessary in order to complete the MAI by April 1998. "Remember, this is only the first step — like the GATT in 1947", BIAC was consoled by an OECD official. "We are entering a process of historic dimensions." [30]