In addition to the 29 OECD countries, the European Commission has been represented as the 30th negotiator throughout the MAI negotiations. Although the legal status of the Commission's role is unclear, the MAI is being treated as a matter of shared responsibility between the European Commission and the member states. [35] In contrast, the Commission negotiates on behalf of the 15 member states in the World Trade Organization, a result of paragraph 113 in the Maastricht Treaty which gives the EU competence over a major part of the external trade policies of its member states. Although shared responsibility allows the Commission to play an influential role in the negotiations, it also means that the MAI will have to be ratified by the Council of Ministers. Overall, the Commission has played an increasingly important role in coordinating EU member state positions as the MAI negotiations have proceeded. This might be attributed to the ambitious leadership in the negotiations by Sir Leon Brittan of Directorate General 1 (External Economic Relations), a man well known for his aggressive, competitive approach to trade and investment matters.
The EU is simultaneously pushing for a mechanism for investment liberalization both within the OECD negotiations and in the World Trade Organization (see Part 3). As Sir Leon Brittan explains: "We need to tear down existing obstacles to investment and stop new hurdles being thrown up in its way. Nothing short of a comprehensive set of binding international rules will create the level playing field which is so vital for the European economy." [36]
Critical, Powerless Parliament
To date, the European Parliament has been granted no formal role in the MAI negotiations nor does it have the legal right to ratify or reject the agreement. However, on its own initiative, the Parliament has brought out a resolution on the MAI which will be discussed in February and most likely voted on in March 1998. The first draft of the resolution, written by German Green MEP Kreissl-Doerfler, is highly critical of both the MAI and the negotiating process, and stresses "the fact that the negotiations have hitherto been conducted in utmost secrecy, with even the parliaments being excluded". [37]
The draft resolution states that the MAI "reflects an imbalance between the rights and obligations of investors, guaranteeing the latter full rights and protection, while the signatory states are taking on burdensome obligations which might leave their populations unprotected". The resolution demands that binding social and environmental standards be included in the MAI, as well as a guarantee that the MAI will not lead to competition on rules in order to attract foreign investment. [38] In addition, the so-called Regional Economic Integration Organization (REIO) clause is a high priority for the European Parliament, which fears that the enlargement of the EU to Central and Eastern Europe, which will involve changes in legislation and future social and environmental policies at the EU level, are threatened by the MAI. These fears are mostly based on the most favoured nation and standstill clauses in the MAI.
The Parliament's draft resolution on the MAI ends by calling on "the parliaments and the governments of the Member States not to sign the MAI until a thorough analysis, accessible to the public, has been carried out of the impact of this agreement on legislation within the EU". The Commission, however, is under no obligation to fulfil this request. The European Parliament has demanded the right to ratify the agreement, but it remains unclear whether or not the Council of Ministers will heed this request.
Multifaceted Attack for Investment Deregulation
As has already been indicated throughout this briefing, the MAI is not the only ambitious attempt to deregulate investment rules. Since 1995, governments all over the world have made some 600 changes in national investment legislation, 95 percent of which have resulted in greater liberalization. Over the past five years, the number of bilateral investment treaties has tripled to reach a current grand total of 1330 agreements involving 162 countries. [39]
The following is an overview of the multifaceted attack for investment deregulation that has been launched by OECD countries. Over and above the MAI, the EU, the United States and Japan dream of a global investment treaty within the WTO. A first offensive to initiate negotiations on such a treaty — stimulated by the euphoria that followed the signing of the GATT — took place in 1995 and 1996. Fierce Third World resistance to the so-called MIA (Multilateral Investment Agreement) resulted in a compromise: the creation of a WTO working group on investment, within which the struggle continues. Another increasingly outspoken proponent of deregulation, UNCTAD (the United Nations Conference on Trade and Development) plays a crucial role in moving Third World countries towards more neoliberal positions on investment, for instance by providing consensus-building conferences. And with its far less subtle approach, the International Monetary Fund (IMF) continues to use every opportunity to impose MAI-like rules on countries in financial crisis.
Activities on another front are likely to be stepped up in the next few months: a trans-atlantic free trade zone, including full scale investment deregulation, between the EU and the US. Preparations have been underway for several years between the US government, the European Commission and corporate leaders in the Trans-Atlantic Business Dialogue (TABD). In early February EU Commission Vice-President Brittan announced that the aim is to start negotiations at the EU-US Summit in May 1998. Another path leading to the same goal and with the same fundamental lack of public consultation, let alone a public mandate. [40]
The MIA Track
1995 was a big year for investment negotiations: not only did MAI negotiations officially begin, but the OECD Ministerial meeting in June of that year also agreed to simultaneously push for a MIA within the WTO. [41] Although there was general consensus on the desirability of a two-track strategy, the European Union was probably the strongest proponent of taking the fast track approach with the WTO treaty. [42] As European Commissioner Sir Leon Brittan put it: "I believe that developing countries have never been as receptive as they are today to the message that foreign direct investment is not a threat but a positive tool for economic growth ... At a time when over half of new investment flows go to the developing world, this is a global issue that OECD countries cannot resolve alone ... We must get the issue into WTO..." [43]
The original idea was to launch negotiations on MIA at the December 1996 WTO Ministerial Conference in Singapore. The proposal for a MIA outlined in the 1995 European Commission paper "A Level Playing Field for Direct Investment Worldwide" closely resembled the MAI. [44] This MIA would grant foreign investors the rights of entry, establishment and national treatment in all sectors in all WTO member countries, would guarantee unrestricted capital and profit flows, and would restructure tax and company laws. What makes an investment treaty within the WTO attractive to Northern governments is that it would allow access to the WTO's dispute settlement mechanism — and in particular to its cross-retaliation provisions, which are a very powerful juridical instrument involving trade sanctions against non-compliant countries. Influential corporate lobby groups, in particular the European Roundtable of Industrialists (ERT, see appendix), had pressured for such a "GATT for investment" since the early 1990s. [45]
Third World Resistance
Third World countries revolted against the MIA from the beginning. In January 1996, for example, Malaysian Prime Minister Dr. Mahathir Mohamad commented that his country was "aware of such moves and we will take steps to ensure that such an unfair trade treaty will not be pushed through". [46] Soon afterwards, eight Third World countries, including India and Indonesia, issued a statement declaring "their objection to the bringing up of the trade and investment issue in the World Trade Organization". [47] Couching their displeasure in diplomatic terms, these countries expressed their concern that a MIA would impact "the ability of national governments to regulate FDI flows so as to support national development objectives and priorities". "Equally unclear", the eight governments stated, "is the nature of the potential benefits and costs of FDI and its relationship to the globalization process and the accompanying phenomenon of marginalization". [48] Instead, they demanded that the investment issue be discussed within the framework of the UN Conference on Trade and Development (UNCTAD), which lacks binding juridical powers and in which developing countries are at a less glaring disadvantage as in the WTO. These resistant Third World countries had learned a lesson from the Uruguay Round of the GATT — that the initiation of negotiations generates enormous pressure for the completion of far-reaching treaties.
Manipulations in Singapore
Despite these clear signals from Third World governments, WTO Director-General Ruggiero nevertheless placed investment on the agenda for the WTO's December 1996 Singapore conference. The EU and other proponents of the MIA had by that time adapted their proposal into a "study process" on the relations between trade and investment. [49] During the course of the Singapore conference, those countries who resisted bringing investment onto the WTO agenda were one after another prodded to change their position. Some countries lobbied with some success to limit the scope of the working group. The last country to give in was India, which ultimately joined the last-ditch efforts to prevent the proposed working group from preparing the elements of a MIA negotiation process. In an utterly undemocratic procedure, a final draft declaration was negotiated by an informal group of 30 countries. It was presented to the conference plenary at the very last moment accompanied by a plea from the chairman, Singapore's Yeo Cheow Tong, to countries to refrain from reopening discussions. [50] And so the WTO working group on trade and investment was born.
Whose Victory?
Following the Singapore WTO Ministerial, EU Commissioner Brittan envisioned the door to a multilateral "framework of binding rules" on investment wide open, and declared that "on investment ... we have at least put WTO on the map. Investment indeed seems to me to be the top priority for WTO in the years ahead." [51]. Third World negotiators, on the other hand, emphasized that they had managed to stop negotiations on a MIA from being launched. India's Commerce Secretary Tejendra Kanna said that: "We made it clear that no mandate can be given for a study of a MIA. This is not permissible even with the two-year period. If it ever comes to that stage, even then, we will block it." [52]
Cold War in Investment Working Group
The tension between OECD countries and MIA opponents has been tangible at the three meetings of the working group in 1997, at which the OECD, UNCTAD, the World Bank, the IMF and other international institutions were observers. Whereas the EU has continued to urge for the commencement of negotiations, countries like Malaysia, India, Indonesia and Pakistan remain outspoken against even the smallest steps towards a global investment treaty. [53] The working group has been discussing trade, investment, development and economic growth on an abstract level, but in 1998 will also take on "multilateral agreements and initiatives". [54] Its report to the WTO Ministerial Conference in May 1998 is not likely to contain any controversial recommendations, and it is not expected that any decisions on investment will be taken at this meeting.
Hotting Up
Over the summer and fall, however, debates in the working group will heat up in anticipation of the December 1998 deadline for the final report to the WTO General Council. Proponents of a WTO treaty on investment will attempt to rally support for the preparation of negotiations; their success largely hinges upon the fate of the MAI negotiations. Observers expect that the EU and others aim to revitalize MIA so that negotiations could begin by 1999 or the year 2000. According to some sources, the most likely strategy is the initiation of new general round of negotiations to include worldwide liberalization of agriculture, investment and several other issues at the beginning of the new millennium.
World Trade Organization
The World Trade Organization came into being on January 1st 1995, following the signing of the global free trade agreement GATT in 1994. The WTO's mandate is to remove obstacles to trade, and governments can ask its dispute settlement body to investigate whether another country's legislation might in fact be a trade barrier. WTO decisions are binding, and can be enforced through the implementation of trade sanctions against the disobedient government by all WTO member countries.
The most recent WTO judgement that a consumer protection law acted as a trade barrier concerns the EU's ban on growth hormones in beef — but many more cases are on the way. Just as the US raises cases on behalf of its corporations, the EU questions US food safety and environmental legislation on behalf of European-based TNCs. The US, the EU and Japan are continuously seeking the expansion of the WTO's mandate, as their industries crave access to the last remaining unprotected sectors of Third World economies. Since 1995, steps have been taken to liberalize telecommunications and financial services. Despite fierce Third World opposition, a WTO investment liberalization treaty is still a high priority for OECD countries, and in for particular the European Union.
UNCTAD
The UN Conference on Trade And Development (UNCTAD) is increasingly used by OECD countries and business groupings as a forum for moving Third World countries in the direction of a friendlier position on investment deregulation.
At its May 1996 conference in Witrand, South Africa, UNCTAD received a mandate to study the development implications of existing investment arrangements like bilateral investment treaties (BITs) and to discuss the necessity of a multilateral framework for investment.
In the final conclusions of their June 1996 meeting in Lyon, G-7 leaders described the results of the Witrand Conference as "a major milestone in the renewal of UNCTAD" and applauded the refocusing of UNCTAD's work on "a small number of priorities to promote development through trade and investment with the aim of facilitating the integration of developing countries in the international trade system."
Although consensus building on investment rules within UNCTAD is informal, developing countries didn't join without nudges from their industrialized neighbours. As EU Commissioner Sir Leon Brittan put it in a speech to a business audience in Cologne, "Informal discussions have already begun in Geneva, largely thanks to European and Canadian pressure. We have been trying not to bludgeon developing countries into submission, but to share with them the fruits of our latest analysis, in order to show that investment liberalization is a winning strategy for all players." [55]
And not only G-7 governments are trying to lure developing countries into the UNCTAD massage parlour — major industry lobby groups like the European Roundtable of Industrialists (ERT) and the International Chamber of Commerce (ICC) have also discovered the usefulness of this institution.
In December of 1997, the ERT and the UNCTAD secretariat co-organized a high-level meeting of 25 Geneva-based ambassadors from developing countries and some 16 CEOs of ERT companies to discuss a June 1997 ERT working paper on investment. The meeting was chaired by UNCTAD Secretary General Rubens Ricupero and ICC and ERT Chairman Helmut Maucher of Nestle. Maria Livanos Cattaui, Secretary General of the ICC, was also present.
And at UNCTAD's 1996 World Investment Forum conference, the ICC spoke on behalf of world business, outlining what Third World countries should do to attract foreign direct investment. Asking investors to fulfil special obligations, for example, was strongly discouraged. [56]
IMF: Declawing the Tigers
The International Monetary Fund (IMF), traditionally responsible for helping countries to meet their balance of payments requirements and setting currency standards, has been a key instrument in prying open markets for foreign investors and bailing them out in the case of a financial crisis. The IMF's crowbar is a set of investment liberalization measures which rob countries of their economic sovereignty.
As James Tobin, the Nobel Laureate economist who proposed a tax on all international currency transactions puts it: "It is hard to escape the conclusion that the countries' currency distress is serving as the opportunity for an unrelated agenda — including the obtaining of trade concessions for US corporations and expansion of investment possibilities." [57]
And indeed, the recent IMF "recovery packages" for the shattered economies of South Korea, Thailand, and Indonesia included a number of provisions that might have been taken straight from the text of the MAI. These included requirements that the indebted governments guarantee the following: the right for all foreign investors to establish investments in every sector of the economy; the weakening of labour and environmental standards to attract investment; the removal of safeguards in stock markets that limit flash sell-offs and capital flight; and prevention against the adoption of regulations which would restrict or control foreign investment in their countries. Today, with the Asian economies more exposed, TNCs are buying out local companies at bargain prices, and at the same time gaining new market territory for themselves.
Turning the Tide
The next few months will be decisive for the future of the MAI. OECD negotiators appear determined not to extend the deadline for the negotiations a second time. They are racing against the clock to resolve conflicts between various countries, and are busily decorating the agreement with non-binding wording on social and environmental standards in an attempt to neutralize the critique and improve the chances of getting the MAI through national parliaments.
Any further delay would leave MAI's future extremely uncertain. Experience has shown that additional time serves only to multiply problems for the negotiators, as more and more negative impacts of the MAI come to light. Most recently, the European Parliament's queries about how the MAI would affect future possibilities for improving social and environmental policies within the European Union has brought problems with the MAI to the surface. The multiplying number of pages of reservations demanded by national delegations have placed the OECD's rosy picture of a "win-win" treaty in a more realistic light. That the negotiating governments are at last becoming wary of the impacts that the MAI will have on their societies is a clear indication of the fundamentally flawed character of the treaty.
MAI negotiators are likely to announce a political agreement on the MAI at the OECD's Ministerial Conference in May. Over the next months, they will focus on adding the finishing touches so that the treaty can be officially signed in November 1998. This is obviously a highly undemocratic procedure, and is symptomatic of the entire process to date. Although the rigid economic model that MAI signatory countries will be forced into may enjoy strong governmental support today, it will likely attract growing critique over coming years as its social, environmental and political impacts become increasingly visible. Joining the MAI involves a 20-year lock-in to a deregulated system in which countries are completely dependent upon the global economy, foreign investments and foreign investors: in other words, upon TNCs. Countries facing economic problems or other challenges will be barred from seeking new solutions. This is not only undemocratic, but also extremely dangerous.
Citizen's campaigns against the MAI are increasing in strength day by day and in country after country, and the media is at last taking notice of the treaty. The NGO plot to kill the MAI has been termed the "Dracula strategy": simply bringing public attention to a treaty that cannot stand up against the light. Thus far, the response from OECD governments to the increasing pressure has been the addition of non-binding language to the treaty's preamble and elsewhere, but most NGOs recognize these as pseudo-solutions that do not change the fundamentally flawed character of the MAI.
The OECD's haste in pushing the MAI through can also be attributed to the fear that the deregulation wave might be losing momentum. MAI negotiations started in 1995 at a time when OECD countries were intoxicated by the signing of the GATT and the birth of the World Trade Organization (WTO). Since then, although many more steps have been taken on the path towards a deregulated world market without borders for goods or capital flows, there are also increasing signs of a backlash arising from Southern governments and from people all over the world. The financial crisis in Asia was a painful lesson for the many Third World countries which had been forced to scrap the very regulations that could have prevented such a crash. Some governments, including Thailand, have now started talking about the need to reintroduce regulation. Critique of the deregulation model has also recently come from surprising corners: financial speculators George Soros and the late Sir James Goldsmith, for example, have both repeatedly warned against the social and environmental dangers of unbridled economic globalization.
The next step includes voicing clearer alternatives, and advocating policies which reduce the current dangerous dependency upon transnational investment. Economic globalization and deregulation have created a vicious circle in which investment dependency forces workers, communities and governments into increasingly harsh competition on wages, taxes, environmental protection and anything else that might influence investment conditions. That international competitiveness is becoming the single most important factor determining the health of a society is a scenario for disaster, and will unavoidably lead to a downwards spiral in social and environmental standards and delay or freeze desperately needed progress in these areas. It is in reaction to this economic dependency upon TNCs that OECD governments have developed the MAI in close cooperation with business lobby groups, and why they are now desperately trying to push it through before the public is clued in to what is happening. Finally, TNC dependency is what is stimulating an increasing number of Third World countries to queue up to sign the MAI, so that they can receive a stamp of approval for having a first class investment climate.
There are no lack of policy options for reducing TNC dependency and putting economic diversity and prosperity of local communities first. These include community reinvestment rules, limits on company size to avoid unfair competition, subsidies for local production for local use, efficient taxation of TNC profits to ensure that the local economy benefits from their presence, regulation of capital flows, and numerous other currently unfashionable policy options. Of course, these are the type of measures which would be banned if the MAI survives. MAI entails the institutionalization of neoliberalism as the only option — the creation of a global economic constitution that is the equivalent of economic monoculture.
The struggle against the MAI has demonstrated the enormous necessity and potential for grassroots globalization on these complex, far-reaching issues. Information and strategies are being shared among a increasingly strong network of citizens, NGOs, workers, development organizations, women's movements and church groups. Although effective resistance to the MAI has arisen late for a variety of reasons, there is no doubt that NGOs are now catching up. With an increasingly clear common analysis of the dangers of corporate-led globalization, civil society is getting prepared to defend our local economies, our democratic systems and the common good.
The Main Corporate Players
The preceding parts have given ample examples of how corporate lobby groups have been involved in the shaping of the MAI. The following is a more detailed overview of the main corporate groupings and the manifold strategies they have used in their crusade for investment deregulation in various international fora.
International Chamber of Commerce (ICC)
One of the most heavyweight corporate players behind the MAI is without doubt the International Chamber of Commerce (ICC). The ICC, which promotes itself as "the world business organization" with members in over 130 countries, is not primarily an umbrella for chambers of commerce from around the world as the name might suggest. [58] Its membership includes some of the world's wealthiest transnational corporations: Asea Brown Boveri, Bayer, British Petroleum, Dow Chemical, General Motors, Hyundai, Nestle, Novartis, Shell, Toshiba, Zeneca and so forth. Quite a few national business associations are also part of the ICC.
The ICC — which clearly has ambitions to become a major player in global politics — shares its chairman, Nestle president Helmut Maucher, with the influential European Roundtable of Industrialists. The ICC's secretary-general is Maria Livanos Cattaui, who over a period of nearly two decades developed the World Economic Forum and its annual meeting in Davos into a hugely influential global summit of corporate leaders and top politicians.
ICC involvement in the MAI negotiations has partly been through the Business and Industry Advisory Council (BIAC), the official business delegation to the OECD negotiations. The Chamber itself has left a number of fingerprints on the draft treaty, for instance regarding arbitration. In the current draft, the ICC's Court of Arbitration is included as one of the main mechanisms for dispute settlement. Vincent J. O'Brien of the ICC says: "We definitely helped with the parts regarding arbitration. The ICC clearly has expertise in that area, and so it was natural that we had a hand in there." [59] One of the most controversial aspects of the MAI, the investor-state dispute mechanism which will allow corporations to sue governments in an international court, has been developed with the assistance of ICC "experts". The role of the ICC in this mechanism will be to oversee disputes and facilitate the settlement process.
The MAI allows its signatories to declare certain laws exempt from the treaty for national security reasons. However, it is up to the MAI dispute settlement panel — overseen by the ICC — to determine whether such a claim is valid. No one is entirely sure how the MAI would affect national law, as interpretation of the treaty will be left to an independent panel appointed by defendants and the corporations bringing the dispute. Under the proposed MAI, state courts will have no jurisdiction in this area of law.
The ICC has also made use of its access and consultative status at major international summits to push for the MAI. During the Denver Summit of the G-7 in 1997, the ICC met with the heads of state of the Group of Seven most industrialized countries and presented its viewpoints. The ICC urged, among other things, the leaders to work harder to ensure that the MAI negotiations are concluded quickly and that there be a complete rejection of environmental and labour standards. [60]
The OECD treaty on investment is a major goal for the ICC, but it is only the first step. In the spring of 1996, the ICC published the report "Multilateral Rules for Investment" [61] in which it expressed its support for all of the major elements in the MAI: the broad definition of investment, national treatment, most-favoured nation treatment, investment protection, and binding investor-state arbitration. The report strongly supports the MAI negotiations, but ends by calling for the December 1996 WTO Ministerial Conference to "begin within the WTO to establish a comprehensive and truly global framework of rules and disciplines to govern cross-border direct investment". [62]