Executive Summary
The negotiations to conclude a Multilateral Agreement on Investment
(MAI) by OECD governments are approaching the deadline of April 1998. Designed
to deepen and broaden international investment through its core concept
of non-discrimination between domestic and foreign investors, the MAI would
if agreed extend economic globalisation through the inclusion of developed
and developing countries. Simultaneously, multinational enterprises (MNEs)
would have the right to force governments to change non-MAI conforming
laws or face punitive damages. Pressure by trade unions, and NGOs alongside
a growing realisation among some governments of the dangers posed by the
original draft MAI have forced changes to the text. In tandem, there is
a more concrete possibility that binding rules to protect labour and environment
standards will be included in the Agreement.
The aim of this discussion paper is to extend the debate, shed some
light on and demystify the MAI by pointing to its controversial aspects,
and to highlight the work that has been done by trade unions and others
to ensure that labour and environment issues are adequately addressed in
the Agreement. Following a brief review of the impact of globalisation
on workers, the paper discusses the emergence of the MAI, and then identifies
its key concepts plus the controversies surrounding them. The trade union
response is then set out, followed by a summary of new developments. Lastly,
the paper looks at the issues that could make or break the MAI, and the
mechanisms for implementation and ratification.
Background - Globalisation and Labour Standards
Globalisation - the accelerated integration of economic activity across
national or regional boundaries - has become the catchword dominating economic
and social policy debate at the end of the 20th century. Whilst international
trade continues to play a major role in the globalisation process, it is
foreign direct investment (FDI) driven by multinational enterprises (MNEs)
that has now become the main engine of globalisation. Over the last decade,
FDI has grown four times as fast as GDP, and three times as fast as trade.
The number of MNEs has risen from 7,000 in the early 1990s to around 40,000
today. Within this, MNEs are heterogeneous in nature, both in terms of size, and sectoral orientation. As to the former point, while the number
of small and medium size enterprises has increased in the total number
of MNEs operating, there has been an increasing concentration and monopolisation
taking place, with just one per cent of enterprises accounting for fifty
per cent of global FDI. On the latter point, FDI in services now outstrips
that in manufacturing.
Such is the complex nature of trade and investment relations, however,
that MNEs are also now the main players in trade development. For example,
around one third of trade is intra-MNE trade, while a further third is
between multinationals.
MNEs therefore, reach into the lives of virtually every worker today
- even if not directly employed - through complex webs of sub-contracting,
and outsourcing. Privatisation today often brings with it the transfer
of ownership into foreign hands. At the pinnacle stand the multinational
institutions that control the financial markets, and which set or influence
interest rates that ultimately decide the direction that economies take.
It is true that MNEs can bring economic and social gains - that is not
in dispute. But it is equally true that they can negatively impact on workers'
terms and conditions, and can affect a country's development path both
positively and negatively. The last edition of International Union Rights
rightly drew attention to the impact of MNEs on workers. It can be summarised
in terms of the proposition that capital mobility (and more importantly
its potential mobility) has dramatically shifted the balance of power away
from states and workers to that of the owners of capital, leading to pressure
on governments for further cuts in capital taxation, greater market liberalisation
including the marketisation of public services, labour market deregulation,
and privatisation.
For workers and unions this potential to 'exit' and re-locate operations
has influenced the bargaining process. As the head of Germany's largest
employers' federation for the engineering and electrical sectors succinctly
put it when referring to the power of employers: "Today they say I
don't care about the agreement any more, because I have four or five excellent
exit routes. I may simply relocate 10, 000 jobs to the Czech Republic or
I may outsource."(2) This was reinforced by a 1996 TUAC survey of
its affiliates views on the working of the OECD Guidelines for Multinational
Enterprises. The survey found that MNEs are increasingly using the threat
of de-localisation to influence the outcome of collective bargaining, withholding
information from trade unions to disadvantage them during negotiations,
and in some cases blatantly disregarding trade union rights, including
derecognising them, while undermining environmental, and health and safety
standards.(3)
Entering The Globalisation Debate: The Multilateral Agreement on
Investment (MAI)
Now entering centre stage into the globalisation debate is the MAI being
negotiated by the OECD. The basic concept of the Agreement is a simple one, namely that through the principles of National Treatment and Most
Favoured Nation, member governments would treat foreign investors no less
favourably than domestic ones. Thus, governments would still be able to
implement policies to strengthen social and environmental regulation, provided
those policies were not more stringent for foreign investors than for domestic
ones. However, foreign investors would have the right to legal redress
if a government or sub-national government were to breach these principles
of non-discrimination. As will become clear though, these principles plus
other elements of the proposed MAI could have far reaching consequences
in some countries, where the MAI has become a controversial issue.
Ahead of the launch of the MAI negotiations at the May 1995 Ministerial
Council meeting, a four year feasibility study to determine the possible
contents of any emerging Agreement was conducted by the OECD Committee
on International Investments and Multinational Enterprises (CIME). At the
same time a political debate took place as to whether the WTO or the OECD
should have competence in this area. In the event developed countries chose
the OECD on the grounds that non-OECD WTO Members would probably oppose
the liberalisation agenda proposed for the MAI by key G7 governments, in
much the same way as they had during the Uruguay Round of negotiations
over trade liberalisation. And, once agreed at the OECD, non-OECD countries
would in any case be free to negotiate their accession to the MAI. This
strategy would then deliver a benchmark treaty for later negotiations at
the WTO.
The May 1995 Ministerial Council meeting accepted the findings of the
feasibility study, which gave negotiators a largely complete agenda, and
on the basis of this were given two years in which to complete the MAI. However, the completion date of May 1997 was overly
optimistic, and negotiations
were extended for a further twelve months by OECD Ministers. Indeed as
will become clear there may yet be no MAI. To understand why this is so,
it is necessary to review the contents of the draft text, and summarise
the state of play of negotiations.
The OECD MAI: Key Concepts
The negotiators original aim was to agree a stringent top down treaty
that would cover all economic sectors, and go far beyond the scope of the
existing 1630 bilateral investment treaties (BITs) in existence today.
The concept of a top down agreement is important here, as in effect all
sectors not specifically excluded or subject to a national level exemption
would be covered by the Agreement. This contrasts starkly with the WTO process, where only those sectors listed in an agreement would be covered
by WTO provisions.
There appears to be no dispute over the definition of investment with
the broadest ever agreed, including stocks and bonds (plus derivatives),
real estate, in addition to direct investment. The MAI will also provide
legal guarantees for both the investment itself and the making of an investment.
This goes beyond most BITs, which are limited to protection of investments
once they are made. Critics fear that this would increase the pressure
on governments to liberalise domestic rules and regulations in key areas
to head off the threat of legal action by MNEs trying to break into domestic
markets. As to coverage, the "measures" which include laws, regulations
and administrative practices, aim to cover all levels of government: central,
federal, state, provincial and local. This is controversial, and some governments
are under pressure to exempt sub-national levels of government. Indeed,
the fact that Canada is a federal state where many policies are implemented
at the sub-national level governing, for example, social, environmental,
health and social services, has prompted the government of British Columbia
to formally state its opposition to the MAI.
As noted the core concept of the MAI is non-discrimination between domestic
investors and their investments, and foreign investors. This is the so
called National Treatment principle. In tandem, the Most Favoured Nation
principle means that once a country has accorded a given treatment to a
foreign investor, or investment it must not grant less favourable treatment
to any other investor or investment. These two principles will apply before
and after an investment is made, that is to the "establishment, acquisition,
expansion operation, management, maintenance, use, enjoyment and sale and
disposition of investments." Supporters of the MAI argue that this
will only create a level playing field between domestic and foreign investors.
Critics argue that these measures combined with the legal guarantees for
investors and their investments would in effect give MNEs considerable
leverage over domestic governments. Moreover, while governments would be
under no obligation to grant foreign investors more favourable treatment,
this would not in effect be outlawed, as incentives to foreign investors
would not be covered by the MAI. Another controversial aspect of the MAI
relates to the fact that countries would also be bound by National Treatment
in terms of so called performance requirements. As originally drafted this
would have meant that governments could not require that foreign investors,
for example, employ a minimum number of local employees, use local suppliers
and their goods, take on local partners, transfer technology or achieve
a given level of research and development. Responding to pressure, negotiators
have now excluded from the performance requirements provisions, those relating
to levels of employment, production, investment and sales. The other side
of the performance requirements coin relates to discrimination in favour
of domestic enterprises, whereby the National Treatment principle would
prohibit the granting of government subsidies solely to domestic investors
for job creation, training, research and development, regional development,
and so on. Again this has proved controversial, and as a consequence it
is thought (but not confirmed) that the MAI may not prohibit non trade-related
performance requirements in return for government support.
The principles of National Treatment and Most Favoured Nation would
explicitly apply (as currently drafted) to privatisation and subsequent
transactions involving privatised assets. Equally controversial, the language
at present would either prohibit special share holding arrangements, such
as 'golden shares' or employee only buy outs - or would alternatively allow
governments some control over privatisation arrangements. In terms of continuing
public enterprises, proposed text (not agreed) provides that monopolies
should not be allowed to cross-subsidise so as to artificially support
services that compete with other providers, and should act "solely
in accordance with commercial considerations" in the purchase or sale
of monopoly goods or services.
Another core element of the MAI is the proposed dispute settlement procedure
to resolve any problems that arise for investors. The MAI will allow for
binding dispute settlement, not only between host and home states, but
crucially (and this goes beyond the WTO) between the investor and the host
state. By contrast, there is no reciprocal right for governments, or civil
society in general to take investors to a dispute settlement (see below
for issues related to labour and the environment). Also of concern is the
process by which this will operate. In practice this means that if an investor
believes that the "measures" (as set out above) of a country
where it has invested, even in the pre-investment phase, are violating
the provisions of the MAI, it will have the right to request that the home
and host countries resolve the dispute, either through consultation or
by recourse to a domestic court or tribunal, or to a free standing dispute
settlement panel. The panel would consist of representatives from MAI Member
countries. Alternatively, the investor itself would have the right to take
a government to the free standing dispute settlement panel. Moreover, should
a country be found to be in violation of the provisions of the MAI, it
could be bound to change its domestic laws, regulations or administrative
procedures or be subject to a non-specified fine.
OECD governments should have recognised from the outset that the provisions
of the MAI would prove controversial. But, the public debate that should
have accompanied the negotiations has been muted, outside of a few countries,
trade unions and NGOs. Much of the blame for this lies with OECD governments
themselves, who believed that a small clique of investment experts could
conclude a far reaching liberalisation instrument away from the public
gaze, and then communicate it to the outside world. In many respects this
strategy has backfired, resulting in a growing opposition in several countries
to the MAI, witness: "the intention of the MAI is not to regulate
investments but to regulate governments. As such the MAI is unacceptable."(4)
The OECD itself has finally admitted that: "As with all binding international
agreements, this will moderate the exercise of national authority to a
degree...."(5)
Responding to the MAI: TUAC And Its Affiliates
From the outset TUAC has argued that for the MAI to be a balanced multilateral
agreement it must extend the same rights, including binding rights for
the protection of workers and the environment, as that extended to investors
and their investments. Anything less could provoke a popular backlash against
globalisation, and in particular the MAI. The campaign to get meaningful
labour and environmental standards into the MAI has been a long one, which
is yet to be resolved to the satisfaction of both trade unions and environmental
groups.
TUAC has taken a twin-track approach to the MAI during the negotiation
process. The Secretariat has been mandated to achieve a 'satisfactory treatment'
for labour and environment issues. Among other things this includes a binding
clause, such that any government seeking to attract investment by suppressing
domestic labour standards or by violating internationally recognised core
workers' rights would be taken to dispute settlement. The full list of
TUAC demands is as follows:
1. a forceful reference in the Preamble of the MAI in which governments
affirm their support for both core labour standards and the OECD Guidelines
for Multinational Enterprises;
2. the annexing of the full Guidelines to the MAI itself, and not the
Final Act;
3. the establishment of National Contact Points to enforce the Guidelines,
which should be a legally binding element of the Agreement for all Parties
without exception;
4. the wording of the text so that non-Members acceding to the MAI would
automatically adopt the Guidelines;
5. the inclusion of a binding clause in the MAI, subject to dispute
settlement, such that governments would not seek to attract investment
by suppressing domestic labour standards or by violating internationally
recognised core workers' rights. This clause would also encompass environmental
standards.
Currently governments are thought to have accepted points 1 and 2. A
majority exists for accepting points 3 and 4, but Australia, Korea, Mexico
and New Zealand are fiercely resisting this. The optimists within the Negotiating
Group think it likely that their opposition will ultimately be overcome.
That leaves point 5 concerning the binding clause. Here progress has been
made and a majority of governments now favour its inclusion in the Agreement.
There are however complications, and a positive settlement is thought to
ultimately hinge on the US position, for the following reason. Outside
of the majority in favour of a binding clause, Australia, Korea, Mexico
and New Zealand have formed a blocking minority because key players, including
Germany, Japan and the US currently favour a voluntary clause. But, if
the US were to swing behind the binding clause then Japan and Germany would
it is thought follow suit. As to the US position now, following President
Clinton's inability to gain Congressional authority for the renewal of
presidential Fast Track authority, a broad debate has now opened up across
the government departments with an interest in this issue that could produce
a shift in the Administration's position whereby the negotiators swing
behind a binding clause.
At the same time TUAC has urged its affiliates to decide upon their
own positions vis-à-vis their government and the MAI as a whole
in the light of discussions over national exemptions being negotiated.
Attitudes between North American and European trade unions differ as regards
the Agreement, which can in part be explained by the different debates
within these regions as regards economic integration and globalisation.
The North American debate has been framed by the experiences of trade
unions with the North American Free Trade Agreement (NAFTA), and the Free
Trade Agreement of the Americas (FTA). Trade unions in the United States
and Canada have been highly critical of the effects that these agreements
have had on economic integration, social welfare systems and labour standards.
This experience has shaped the decision by the Canadian Labour Congress
to oppose the MAI as currently drafted, on the grounds that, among other
things it would challenge Canada's ability to maintain its not for profit
and social services, along with measures to support Canadian culture. A
debate is also currently taking place within the AFL-CIO as regards the
Agreement.
On the other hand, the moves to a European Single European Market have
been accompanied by a social action programme, and as importantly a social
dialogue covering a broad range of economic and social measures that involves
the trade unions. Through this process European unions have sought more
multilateral or regional controls for example through EU legislation. The
systems to deliver an inclusive dialogue and debate over the direction
of European economic integration have, therefore, been put in place.
New Developments: Narrowing Liberalisation?
A new development in the MAI surrounds the national level reservations
or exemptions(6) to the Agreement. It was originally proposed that the
MAI would have few exemptions, either at the general level (so called carve
outs) or at the national level. General exemptions would be limited to
the following measures: to preserve national security including public
order, to implement monetary and exchange rate policies (including IMF
approved temporary measures for balance of payments problems), and prudential
measures with respect to financial services. However, a general exemption
now applies to taxation and social security, and a fierce debate continues
on a French proposal for a general exemption covering cultural industries.
It is however the new developments over national level exemptions covering
specific economic sectors and activities that could halt the liberalisation
tendencies of the MAI. In line with a top down MAI, it was originally planned
that national level exemptions would be few and subject to "standstill"
and "rollback" procedures. The former would mean that, once a
government had signed the agreement it would not be able to add further
exemptions to those already lodged, nor to implement new non-conforming
laws, and regulations. The latter would lock in liberalisation, as the
exemptions would then be negotiated away over time.
This highly restrictive concept resulted in governments lodging in February
1997 a total of 600 pages of national level exemptions. As well as covering
major sectors of economic activity, several countries lodged exemptions
covering all state and provincial level activities. One government sought
an exemption from the investor to state dispute settlement procedure! In
response the Chair of the Negotiating Group requested new lists. But rather
than submitting shorter lists, key governments requested that a new type
of open-ended exemption be created. This would create two types of national
exemptions. On the one hand some would be subject to "standstill and
"rollback. On the other hand, governments would be free for all time
to lodge exemptions covering any existing and future economic sector and
activity that would not be covered by "standstill" and "rollback".
Although some governments are resisting this move a debate is now taking
place on how to create a limiting mechanism, such that all exemptions are
not listed under the latter category. The importance of this development
should not be underestimated, as it could end the MAI as a rigid top down
Agreement.
Next Steps: Deal Breakers, Ratification and Implementation
The MAI negotiators will now work to conclude the Agreement ahead of
the 27-28 April 1998 deadline of the OECD Ministerial Council meeting.
In addition to normal Negotiating Group meetings, informal bi-lateral discussions
will take place across capitals. The focus will be on whether enough of
a consensus can be forged to conclude an Agreement that Ministers can agree
to, or whether a framework package will be all that emerges, or that the
deal breakers are so major that the MAI is either further postponed or
shelved at the OECD and brought forward at a later date at the WTO. The
issues that could make or break the MAI are as follows.
First and foremost would be the proposed clause on secondary boycotts.
The current draft text was prepared by the European Union following an
initial Canadian proposal. The intention would be to ban Parties to the
Agreement (at any level of government) from imposing liabilities on investors;
or to prohibit or impose sanctions on foreign investors, because of their
investments in a third country. If included this would in effect outlaw
measures such as the US Helms Burton Act, which allows the government to
ban investors from other countries dealing with Cuba to enter the US, and
to confiscate their assets. The clause would, however, also prohibit legislation
along the lines of that introduced by the State of Massacheussets, where
enterprises that invest in Burma have been banned from bidding for State
contracts. This issue has become so contentious that discussions to resolve
it have been moved away from the Negotiating Group, and a political dialogue
has instead been initiated between the EU and the US Administration.
Second, many non-European governments remain opposed to the inclusion
in the MAI of a Regional Economic Integration Organisation Clause (REIO).
Proposed by the EU, the REIO clause would in effect exempt EU Parties to
the Agreement from applying the principle of Most favoured Nation to multinationals
from and operating within the EU. This would be analogous to the EU's clause
in the GATT agreement that allows EU countries to set higher tariffs for
non EU countries, than that afforded to EU countries trading amongst themselves.
Non-EU countries are opposed to this on the grounds that it would allow
EU countries to discriminate against MNEs from outside the EU.
Third, for many governments, the exclusion from the MAI of the open
ended list of national level exemptions (as set out above) would be a deal
breaker. Domestic pressure, including that from sub-national governments
for the inclusion of such precautionary measures would make it difficult
to ratify in domestic parliaments. On the other hand those governments
seeking to ensure that the MAI remains a "pure" liberalisation
Agreement are opposed to any weakening of its provisions.
Fourth, the issue of whether matters related to culture and cultural
industries, for example domestic film industries should have a general
carve out from the Agreement has become a deal breaker for some countries.
Canada and France are said to be the leading proponents for such a clause
in order to protect their domestic audio and visual industries as well
as their language from domination by predominantly anglo saxon influences.
Compromises in these areas have been proposed, and some have been linked.
Whatever the outcome of negotiations over the rest of the deal breakers,
the clause on secondary boycotts remains the major stumbling block to the
completion of negotiations.
Should a deal be struck to conclude the negotiations, then attention
will turn to ratification and implementation. It has been envisaged that
Ministers from the OECD countries plus those from non-OECD countries wishing
to become initial Parties to the Agreement would sign the Final Act in
Paris during the April 1998 meeting of the OECD Council of Ministers. That
would not bind those governments to the Agreement, and neither would it
mean that the MAI would enter into force on that day. That would only take
place following the ratification of the MAI in a sufficient number of countries
to make it workable, and when those Parties had met to agree a date of
entry into force.
It is certain that governments would not be able to amend the MAI during
its passage through domestic legislatures. It would be on a take it or
leave it basis. That is why it is vital that trade unions and other progressive
groups lobby for the inclusion of their demands ahead of the April 1998
OECD Council meeting. Amendments would only be allowed once the MAI has
come into force and when all Parties agree to the amendment. That is why
transparency would be needed on the type of national level exemptions that
a government would lodge as these would be the only negotiable factor.
It is also the reason why many governments have argued for the inclusion
of an open ended list of such exemptions.
It is also vital that a full and frank public debate be held on the
MAI within countries during the ratification process. Because, once a country
has ratified the Agreement, and it is in force any investment existing
at that time would be covered by the MAI for 15 years, even if the country
were to withdraw from the Agreement. Furthermore, as a Party may only give
notice of its withdrawal after five years, it would in effect be locked
into the MAI for a total of 20 years.
Endnotes:
(1) TUAC is the Trade Union Advisory Committee to the OECD. It has consultative
status with the OECD and represents 70 million workers in 55 affiliated
trade union national centres in the 29 OECD Countries. Further information
on TUAC and its work, including the MAI can be found by visiting its website
at "http:/www.tuac.org".
(2) Werner Stumpfe, head of Gesamtmetall, Financial Times, 21 August
1996.
(3) TUAC Submission to the OECD Review (1996) of National Contact Points
(NCPs). OECD Members are obliged to set up National Contact Points to deal
with matters arising with the OECD Guidelines for Multinational Enterprises.
For the most part national trade union centres were highly critical of
the NCPs, and the non-implementation by governments, and non-adherence
by MNEs to the OECD Guidelines for Multinational Enterprises.
(4) Joint NGO statement following the 27 0ctober 1997 informal consultations
between the MAI Negotiating Group and 22 NGO groups. It should be pointed
out that differences do exist among the NGO community as regards the MAI.
Whilst many implacably oppose the MAI some have accepted the principle,
subject to a balance being struck between the rights of investors, communities,
workers, and the environment.
(5) OECD Policy Brief on the MAI. Number 2 - 1997.
(6) The terms reservations and exemptions are used interchangeably by
the Negotiating Group to mean the same thing. For the purposes of this
paper the term exemption will be used to denote the sectors/activities
to be excluded from the MAI.
