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TUAC Briefing Note for Affiliates - September 1997

(This is the third TUAC briefing note on the MAI following those of July 1996 and February 1997.)


The deadline for negotiating the MAI, originally May 1997, has been postponed until April 1998. The delay is potentially positive giving TUAC and our affiliates the opportunity to seek stronger protection of labour and environmental standards in the Agreement. At the same time there are wider trade union concerns over the extent to which legitimate national or regional government policy objectives could be hindered by the MAI. The extent to which these concerns are borne out will depend in part on the extent to which exemptions are negotiated in the Agreement. A wider political debate has now begun in some countries on the MAI - particularly in North America. Again this is positive, as more informed public debate on issues surrounding the MAI can reduce the impression of secrecy which has surrounded the MAI Negotiating Group work up to now.

This (third) TUAC briefing note updates and reproduces some of the background information from earlier notes on the likely scope of the MAI. It sets out the positions taken by governments, business and NGO's on the current negotiating issues. It gives TUAC's views on the key issues of the integration of the Guidelines on Multinationals, Labour and Environmental Standards, together with recommendations for action by TUAC and its affiliates. It also sets out some of the aspects of the MAI on which there are wider trade union concerns.


The May 1995 OECD Ministerial Council authorised negotiations to begin on a Multilateral Agreement on Investment (MAI). Although the negotiations are taking place within the framework of the OECD, it is envisaged that the Agreement will be a free-standing one open to accession by non-OECD member countries. It is reported that Argentina, Brazil, Chile (in principle), Hong Kong and Slovakia have been granted observer status in the Negotiating Group - a sign of their interest in early accession to the Agreement. The outcome of the MAI is also likely to set the framework for eventual negotiations on investment liberalisation within the World Trade Organisation (WTO), although this remains controversial and has been opposed by many developing countries. In line with the Communiqué of the December 1996 WTO Ministerial Conference, however, a working group has been set up to examine the relationship between trade and investment.

The first draft of the Agreement appeared in January 1997 and a second draft followed in May. Whilst these contained many unresolved issues, they allow an initial assessment of the scope of the MAI. The MAI will bring together the current patchwork of bilateral and regional investment treaties that exist in the OECD area into a single agreement protecting foreign investors rights. Under the MAI governments will be obliged to treat multinational enterprises and foreign investors not less favourably than they would domestic firms (the National Treatment principle) (1). They must also extend any favourable treatment offered to one investor to all (the Most Favoured Nation principle). Expropriation of an investment without compensation is prohibited. Discriminatory regulations governing issues such as domestic content, export requirements, profit repatriation (so-called performance requirements) and the like will be restricted to varying degrees.

The definition of investment will be very wide and go beyond the narrow concept of foreign direct investment as physical investments to include banking, insurance, financial and other services viz portfolio investments in general. The Agreement will go beyond manufacturing to also cover the services sector. It will be backed up by a binding disputes settlement procedure, in which investors and not just governments will be able to take complaints to an arbitration process.

A central issue of debate is the extent and scope of general and national exemptions to the Agreement. The U.S. government, as one of the original proponents of the MAI, originally sought an inclusive agreement with very few exceptions. This view has to some extent prevailed. Unlike the WTO where only declared sectors are covered by an agreement (bottom-up approach), the MAI will be more restrictive, in that only those sectors that are explicitly excluded will be exempted from National Treatment. Moreover, on the basis of "standstill" and "rollback" principles, governments, once they have signed the agreement, will not be able to add non-conforming measures . In short, they will only be allowed to liberalise in the future.

In line with this approach, general exemptions are few and cover reasons of national security, public law and order and the maintenance of international peace. Temporary exemptions will be allowed for the imposition of foreign exchange restrictions and capital controls in the event of balance of payment problems, or for monetary policy reasons. Another exception to the coverage of the MAI is taxation which has been "carved out" of the agreement. In addition, governments will be allowed to take "prudential measures" to ensure the stability of financial systems, but only in respect to financial services. Of key importance therefore, will be the extent to which governments seek national level exemptions to the MAI. To-date some 600 of these have been filed. But, whatever the final list, they will be subjected to future liberalisation negotiations.

As would be expected, business groups have been strongly supporting the MAI. The BIAC statement to the 1997 OECD Ministerial Council praised governments "for their exceptional efforts to negotiate a high-standard agreement" but expressed concern at the taxation "carve-out" and the proposal to associate the OECD Guidelines for Multinational Enterprises with the MAI.

Environmental NGO's, most notably from the U.S., Canada and the U.K. but also including international groups such as the World Wildlife Fund, have strongly criticised the MAI. In the words of Friends of the Earth, it "... gives new rights to multinational corporations and rich foreigners ..." and "... would put up new barriers to our democratic right to regulate our local affairs ..." (2). Environmental groups have argued that public authorities should maintain and enact discriminatory regulations on multinationals, and that therefore the agreement, as currently drafted, is fundamentally flawed.

In the United States and Canada, many NGO's have also expressed deep concern at the potential loss of sovereignty by State and Provincial governments. The "Western Governors' Association" in the U.S. has set out a wide range of areas where many US states do have discriminating policy such as ownership or residency requirements, fishing fleet restrictions, banking, land use, oil shipments, public procurement (3). As a result, the U.S. has filed a general exemption clause for existing state and local laws, although this would imply a standstill on future laws.

Developing countries and NGO's concerned with development issues have also been strongly suspicious of the MAI, feeling that its terms will subsequently be imposed on them in possible future WTO negotiations. Developing countries opposed unsuccessfully the decision at the 1996 Singapore WTO Council to establish a WTO working group on investment. Even without negotiations in the WTO, however, they feel that the mere existence of the OECD MAI may coerce developing countries to accept its terms if they are to continue to receive investment. Development groups are concerned in particular that the MAI will restrict the ability of developing countries to protect their domestic markets while developing their own emerging industries.(4) 

It was originally expected that the MAI negotiations would be completed and presented for approval to the OECD Ministerial Council meeting of 26-27 May 1997. However, Ministers agreed to extend the negotiating period with the aim of concluding the negotiations in time for the April 1998 Ministerial Council. With the whole agreement now in the public arena, the next few months are likely to witness a highly contentious debate on the MAI, particularly in North America, where it may be closely associated with debate over the granting of "fast track" negotiating authority on trade agreements to the Administration by Congress.

TUAC's Position on Labour Issues in the MAI

Throughout the negotiations on the MAI, TUAC has argued that the development of a simple investment liberalisation agreement, which guarantees investors' rights but does nothing to protect workers' rights and set out the corresponding obligations on multinational companies, would be unfair and unbalanced and would be opposed by trade unions.

Four mutually supportive elements were proposed for treating labour issues:-

(i) the incorporation of the OECD Guidelines for Multinational Enterprises into the MAI through an extended reference in the Agreement's Preamble and the annexing of the full text of the Guidelines to the MAI;

(ii) the incorporation into the MAI of the legal obligations on all the parties (OECD Members and non-Members alike) to set up National Contact Points to implement the Guidelines;

(iii) a commitment in the Preamble of the MAI by governments to protect, enhance and enforce basic workers' rights;

(iv) a specific provision in the MAI by which governments would undertake in a binding commitment not to seek to attract foreign investment by suppressing domestic labour standards or violating internationally recognised core workers' rights.

Incorporation of the Guidelines

At the beginning of negotiations, there was little support from Member governments for the association of the Guidelines (propositions (i)-(iii)), which would remain voluntary, with a binding MAI. There now appears to be a consensus emerging on integration, in part due to representations which several TUAC affiliates have made to their governments.

Some critics of the MAI have dismissed the association of Guidelines to the MAI as worthless as they would be non-binding. TUAC has not shared this view.

Although voluntary, the Guidelines have moral weight as they express OECD governments' collective expectations concerning the behaviour and activities of multinational enterprises. Written over twenty years ago the Chapter in the Guidelines on Employment and Industrial Relations represents a clear statement of good industrial relations practice which is of relevance today. Against a background of globalisation the potential importance of the Guidelines is greater now even than it was at the time of their adoption twenty years ago.

TUAC's main criticism of the Guidelines has been the lack of attention paid over the years by governments and business to their implementation. This is recognised by the OECD itself in its Report on Trade, Employment and Labour Standards (5) which stated "The OECD Guidelines on Multinational Enterprises have a role to play as a voluntary instrument to promote reasonable behaviour by MNE's. This role would be enhanced if home and host countries make it known that they expect foreign investors to follow the Guidelines world-wide and if non-Member countries were encouraged to endorse the Guidelines. ... This would send a clear message of the importance OECD governments attach to the respect of these standards." There is therefore a clear need to give a renewed impetus to the implementation and promotion of the Guidelines.

TUAC has accepted that, in current circumstances, it would not be realistic to make the Guidelines into a legal instrument at OECD level. It would be unlikely that all governments would be prepared to rewrite their industrial relations legislation to bring it completely into line with the substance of the Guidelines, without weakening the contents.

However, incorporation in the MAI would make a difference. Incorporating the Guidelines into the MAI, and the follow-up procedures would highlight them in such a way as to assist their implementation. Without their incorporation the Guidelines risk being forgotten in the OECD machinery. Making the Decision on National Contact Points part of the MAI could reinforce their role as a monitoring and enforcement mechanism of the Guidelines and a monitoring body on international investment more generally. But OECD governments and business must realize that they must take the Guidelines seriously.

The issue remains of how "strong" this association will be and whether the parties to the MAI will be required to set up National Contact Points to administer the Guidelines - a current obligation on OECD Members which TUAC believes is essential. TUAC would caution against complacency and urge affiliates to maintain close contact with their government negotiators on this issue.

The need for a labour clause in the MAI

The OECD Guidelines are a parallel instrument to the ILO Tripartite Declaration on Multinational Enterprises and Social Policy which are also not legally binding, and contain elements that are included in several ILO "core" Conventions on fundamental workers' rights. However, the Guidelines are addressed to multinational enterprises, not governments.

It is therefore proposed that governments in the Preamble of the MAI should commit themselves to protecting, enhancing and enforcing basic workers' rights. Moreover a specific labour clause must be added whereby governments would undertake not to seek to attract foreign investment by lowering domestic labour standards or by violating internationally recognised core workers' rights. This is akin to Article 1114 in NAFTA on environmental standards although including international as well as domestic standards.

Such a clause would help in combatting violation of core labour standards and balance the protection of the rights of investors with those of workers.

Alternative texts for clauses on not lowering labour standards have been discussed by the MAI Negotiating Group at their June/July 1997 meeting, along with a parallel approach on environmental standards. Only four countries (Australia, Korea, Mexico and New Zealand) are believed to be opposing any text at all. The others are evenly split between those favouring a binding clause and those who would only support non-binding language. However, the latter is thought to include several key countries including the United States, Japan and Germany. One past opponent of labour clauses - the United Kingdom - has now under a new government stated its commitment to seek "strong binding" labour and environmental clauses (6).

The evolution in government attitudes to the MAI and labour issues is significant. However, TUAC would caution against complacency. Further pressure on governments is required ahead of the September and October meetings of the Negotiating Group, both on the Guidelines and on a clause on not lowering standards.

TUAC Affiliates' Views on the Wider Aspects of the MAI

Debates are now taking place in some TUAC affiliates around the question of whether to support or oppose the MAI at the national level, and whether to press governments to lodge national reservations/exemptions to certain provisions of the treaty.

The May 1997 TUAC Plenary Session re-affirmed its position that the TUAC Secretariat should continue to focus its efforts on securing the best possible treatment for labour issues within the Agreement, whilst recognising that affiliates would decide upon their own positions vis-à-vis their government and the MAI as a whole in the light of national exemptions negotiated. It was further agreed that the TUAC Secretariat would act as a "clearing house" for affiliates' concerns on the MAI.

In Canada, the CLC has prepared general analyses of the MAI as well as more specific assessments of potential implications for public and social services (7). There is wider concern at the restrictions that the MAI will put on the ability of State and Provincial governments in particular to regulate multinationals in areas such as environmental protection, human rights abuses in Third countries and local employment creation.

Outside of North America, few unions have taken formal positions on the non-labour aspects of the MAI. However, the fact that all OECD countries have been able to progress so far in the negotiations indicates that very few Member countries any longer view discriminatory national controls against multinationals or foreign investors in general as major policy tools. Trade unions in Europe have rather sought more multilateral or regional controls for example through European Union legislation.

With the appearance of revised draft text of the MAI in May 1997, the general lines of the MAI is now clear. However, key issues remain to be resolved, particularly with regard to exemptions to be negotiated. It is understood that the most contentious differences that have to be resolved include the following:-

Culture:- France, Canada and Belgium support a general exception from the National Treatment principle for sectors such as media, film, and publishing, whilst a general exception is strongly opposed by the United States;

Regional economic integration zones:- the European Union wants an exception from the MFN principle for such zones allowing it to give preferential treatment to investors from other E.U. states;

State and local laws:- the U.S. are seeking to exempt ("grandfather") existing state and local laws;

Secondary investment boycotts:- the E.U., Canada and others seek a prohibition on boycotts of investors because of their activities in Third countries in the light of the Helms-Burton Act in the U.S., and also the WTO case of the E.U. and Japan against the State of Massachusetts, against companies investing in Burma. The U.S. are opposing this;

Public services and privatisation:- a dispute exists over whether privatisation share offers which are limited to national citizens should be exempted from the MAI. Hungary is proposing this and the U.S. is opposed. On a broader point, whilst public monopolies and state enterprises are explicitly permitted under the MAI, the CLC fears that some non-profit associations operating in sectors such as health and social services could be regarded as discriminatory and have called for broad exemption for social services under the MAI (an exemption clause exists in NAFTA although this may not prove to be watertight) (8);

Environment provisions:- up to now the MAI Negotiating Group has been working on the basis of a parallel treatment of labour and environmental issues as indicated above. Under pressure from environmental groups the U.S. have, however, been working on additional proposals which are thought to include a range of ideas such as qualifying the scope of National Treatment by adding language on "in like circumstances" and adding elements from the NAFTA's environmental side-agreement. These are due to be discussed at some of the forthcoming Negotiating Group sessions.

Aside from these general issues, it is reported that some 600 reservations to the Agreement have been filed by OECD Members. The numbers vary across countries, including Denmark (4), Belgium (9), Japan and the U.K. (12 each), the U.S. (24), the Czech Republic (27), Australia (29), and Canada (48) reservations (9). The number of reservations lodged by a country does not, however, give a clear picture of the situation, as some are narrow exceptions, while others carve out broad areas from the Agreement.

Conclusion: the continuing need for action

It is essential that affiliates maintain pressure on their governments to urge them to support a "strong" treatment of labour issues in the MAI. (A list of key officials was sent to affiliates with the TUAC circular of 10 January 1997). Without a satisfactory treatment of labour issues, TUAC affiliates may well oppose ratification by parliaments of any eventual MAI.

A satisfactory treatment must involve:-

- a forceful reference in the Preamble of the MAI in which governments affirm their support for both core labour standards and the Guidelines;

- the annexing of the full Guidelines to the MAI itself;

- the establishment of National Contact Points to enforce the Guidelines which should be a legally binding element of the Agreement;

- the wording of the text so that non-Members acceding to the MAI would automatically adopt the Guidelines;

- the inclusion of a binding "labour clause" as part of the MAI which makes explicit reference to universal core labour standards and domestic standards;

- the transfer of the follow-up process for labour issues to the "Parties Group" that will handle the MAI, with the same consultative procedures that currently exist for TUAC in the OECD CIME process.

In addition to focusing on members of the Negotiating Group, TUAC will work with environmental and other NGO's to examine potentially new environmental proposals and seek to maintain parallel treatment for labour issues.

Over and above labour and environmental issues, TUAC affiliates are urged to raise with their governments desired exemptions where they feel that legitimate public policy will be hampered by the MAI. TUAC will continue to act as a clearing house for affiliates' views on this and will seek consultations with the Negotiating Group on some of the key exemption issues to reinforce, where possible the positions of affiliates.

TUAC will continue to work closely with the ICFTU in particular to ensure that the concerns of developing country trade unions are taken account of in the negotiations.


(1) Adopted as part of the 1976 Declaration and Decisions on International Investment and Multinational Enterprises.

(2) Ten Reasons To Be Concerned About The Multilateral Agreement on Investment, Friends of the Earth, 1997.

(3) Multilateral Agreement on Investment: Potential Effects on State and Local Government, Western Governors' Association, 1997.

(4) "Pulling up the Drawbridge", World Development Movement, June 1997.

(5) Trade, Employment and Labour Standards, OECD 1996.

(6) House of Commons Debate on MAI, Hansard, 23 July 1997.

(7) The MAI - A Preliminary Critical Analysis, CLC, July 1997; and,

A Note on the MAI and Public and Social Services, Andrew Jackson, CLC, August 1997.

(8) NAFTA Annex II-C-9.

(9) Internet up-date on the MAI. Friends of the Earth, U.S., August 1997.

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