THE MULTILATERAL AGREEMENT ON INVESTMENT
THE TREATMENT OF LABOUR ISSUES
TUAC Briefing Note - February 1997
Over the past decade Foreign Direct Investment (FDI) has grown more
than twice as fast as world trade and four times as fast as domestic production.
It is driving the process of globalisation of production. This growth has
been encouraged by technological change, government policies to encourage
and attract FDI, regional economic integration through the European Union,
and agreements such as NAFTA and the conclusion of many bilateral investment
The bulk of FDI takes place within the OECD area - some 85 per
cent of outflows and 65 per cent of inflows. For the past two years OECD
countries have been negotiating a Multilateral Agreement on Investment
(MAI). It is now likely that the May 1997 OECD Ministerial Council meeting
will endorse the outcome of these negotiations. When subsequently ratified
by national parliaments, it will be open to accession by non-OECD member
countries whose share in global FDI is growing. The MAI is also likely
to set the framework for negotiations on investment liberalisation within
the World Trade Organisation.
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 not less favourably than they
would domestic firms (the National Treatment principle). They must also
extend any favourable treatment offered to one investor to all (the Most
Favoured Nation principle). Discriminatory regulations governing issues
such as domestic context, export requirements, profit repatriation and
the like will be forbidden. In cases of privatisation governments will
have to offer shares to foreign investors on the same terms as to domestic
The Agreement will go beyond manufacturing to also cover the services
sector, which is currently not covered by the WTO. 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.
Investment related to "national security" will be excluded from
the MAI. Financial flows will be included but there will be exception clauses
allowing governments to take temporary action to restrict foreign investments
for balance of payments or monetary policy reasons. Another exception to
the coverage of the MAI is taxation which has been "carved out"
of the Agreement.
As would be expected, business groups and BIAC have been strongly supporting
the MAI. Environmental NGO's have strongly opposed it on the grounds that
it would make it harder to control multinational enterprises, who they
argue are destroying the environment. Developing countries and development
NGO's have also been strongly suspicious of the MAI, feeling that its terms
will subsequently be imposed on them in possible future WTO negotiations.
The fact that all OECD countries have been able to progress so far with
the negotiations indicates that very few member countries any longer view
discriminatory controls against multinationals or foreign investors as
a practical policy tool in general. On the contrary, countries and regions
appear to be competing with each other to try to attract foreign investment
through a range of incentives.
Against this background TUAC has been campaigning for the agreement
not just to protect investors rights but to include the protection of the
rights of labour and working conditions. Indeed this has been our position
since before the current negotiations began, when discussions were still
focused on a "wider investment instrument" in the OECD.
To achieve this we have called for the incorporation of the OECD Guidelines
for Multinational Enterprises into the MAI so that the increased rights
of investors are counterbalanced by obligations on their behaviour towards
their workforce and host countries. We have also supported the inclusion
of a labour clause in the MAI and a similar approach to environmental issues.
This is a key part of the broader international trade union campaign
to include the protection of core labour standards in international trade
and investment agreements and the WTO.
Negotiations on the treatment of labour issues in the MAI are now at
a crucial stage. Between now and May 1997 OECD governments must make political
choices on whether there is a strong linkage between the MAI and the OECD
Guidelines for Multinational Enterprises as well as on a "labour clause"
in the MAI itself. This briefing note sets out what TUAC believes would
be a positive treatment of labour issues. National pressure from affiliates
on their governments is crucially important to achieve this at the present
What does TUAC want ?
Throughout the negotiations on the MAI TUAC has argued that the conclusion
of a simple liberalisation agreement which guarantees investors' rights
but does nothing to protect workers' rights or working conditions will
be perceived as unfair and imbalanced. Four mutually supportive elements
have therefore been proposed for treating labour issues :
The OECD Guidelines for Multinational Enterprises(1)
What is their role ?
The OECD Guidelines are one part of the 1976 Declaration of the OECD
on International Investment and Multinational Enterprises. They are addressed
to multinational enterprises operating in OECD countries. Other parts of
the Declaration were addressed to governments and covered national treatment
by governments of foreign investors, conflicting requirements on investors
by different countries and international investment incentives and disincentives.
These latter parts from the Declaration form the core of the MAI.
Although voluntary, the Guidelines have moral weight as they express
OECD governments' collective expectations concerning the behaviour and
activities of multinational enterprises. They have also been supported
by the employers' organisations affiliated to the Business and Industry
Advisory Committee (BIAC) to the OECD as well as by TUAC. Although 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.
When adopted the Guidelines were seen as an essential part of a balanced
package of measures to facilitate direct investment among OECD Members
and beyond. Their rationale was that "internationally agreed guidelines
can help to prevent misunderstandings and build an atmosphere of confidence
and predictability among business, labour and governments(2)."
The 1981 OECD Council Decision (restated in the 1991 Second Revision Council
Decision) obliging Members to set up a National Contact Point to deal with
matters relating to the Guidelines was a move to create an implementation
and promotion mechanism. TUAC's main criticism of the Guidelines has been
the lack of attention paid in recent years by governments to the follow-up.
The Guidelines are unique among the international instruments governing
the activities of MNEs, in that they cover the full range of enterprise
operations, separate chapters deal with: general policies, information
disclosure, competition, financing taxation, employment and industrial
relations, environment and science and technology.
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. There is a clear need to give a renewed impetus to the
implementation and promotion of the Guidelines. This is recognised by the
OECD itself in its Report on Trade, Employment and Labour Standards which
stated "The OECD Guidelines on Multinational Enterprises have a role
to play as a voluntary instrument to promote reasonable behaviour by MNEs.
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."
What is the link to the Multilateral Agreement on Investment ?
The MAI will effectively transform the national treatment instrument
within the 1976 Declaration into a legally binding multilateral agreement,
guaranteeing the rights of foreign investors. Its follow-up procedures
will move from the OECD to a new "Parties Group".
The incorporation of the Guidelines would be necessary to maintain the
balance of approach to FDI. Moreover, opening up the MAI to non-OECD countries
who would take part in the "Parties Group" reinforces this requirement.
The coverage of the Guidelines goes much further than industrial relations,
to include environmental protection, competition policy, science and technology,
taxation, etc.. These agreed common standards are complementary to investment
rules and help equalise competitive opportunities for foreign owned and
domestic firms alike. Again these are complementary to the corporate policies
pursued by some leading multinational enterprises. In this sense adherence
to the provisions of the Guidelines by MNEs would act as a "quality
label", and at the same time could complement the individual codes
of conduct which an increasing number of MNEs have started to introduce
following pressure from trade unions and NGO's.
Would this change the legal nature of the Guidelines ?
No. TUAC accepts that in current circumstances it would not be realistic
to make the Guidelines into a legal instrument at OECD level. The preamble
and annex to a treaty are not legal parts of the treaty. The Council Decision
to establish National Contact Points already is a legal commitment and
should be part of the Agreement.
Would "incorporation" make a difference ?
Yes. The MAI will become the focal point of the treatment of international
investment. Incorporating the Guidelines into the MAI and its 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
Would incorporation of the Guidelines deter non-Member countries
from becoming signatories to the MAI ?
No. The Guidelines put obligations on foreign investors to behave as
good "corporate citizens". The Guidelines cover environmental
protection, competition policy, science and technology, and taxation as
well as industrial relations. Their incorporation in the MAI should increase
its attractiveness to non-Member countries. It would also help developing
countries achieve balance in the eventual discussions in the WTO.
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.
Moreover, whilst covering the core standards of freedom of association
and collective bargaining, they do not cover explicitly the other core
labour standards identified by the ILO.
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 should be added whereby governments
would undertake not to seek to attract foreign investment by violating
internationally recognised core workers' rights. This is akin to Article
1114 in NAFTA on environmental standards although referring to international
as opposed to domestic standards.
TUAC has proposed the following language to the Negotiating Group for
an MAI clause: "The Parties recognise that it is inappropriate
to encourage inward investment by domestic practice or legislation that
violates internationally recognised core labour standards covering:- freedom
of association, right to collective bargaining, non-discrimination in employment,
forced and prison labour and exploitation of child labour. Accordingly
a Party shall not waive or derogate from, or offer to waive or derogate
from such core standards as an encouragement for the establishment, acquisition,
expansion, or retention in its territory of an investment or an investor."
Such a clause would help in combatting violation of core labour standards
in, for example, export processing zones.
Current state of the negotiations (February 1997)
Over the course of the MAI negotiations TUAC has had a series of informal
consultations with Negotiating Group members and formal consultations with
the CIME. Labour issues began to be addressed by the Negotiating Group
in the period since September 1996. At the December 1996 meeting of the
Group, the Chair (the Netherlands) "concluded that a clear majority
was in favour of addressing labour matters in the MAI through a package
of provisions", based on "three pillars" namely:- a preamble
statement; a provision stating that "Parties should not weaken domestic
core labour standards in an effort to encourage foreign investment";
and association of the Guidelines. However, several delegations argued
against including any provisions on labour standards in the MAI as these
were dealt with by the ILO.
Negotiations on these issues are now at a crucial point. As at the Singapore
WTO Ministerial discussion on labour standards, OECD countries represent
a spectrum of views with the United States, France and Belgium arguing
in favour of a "strong" treatment of labour issues, and New Zealand,
Australia, the UK, Korea, and Japan at the other end of the spectrum arguing
against the inclusion of a labour clause and only a weak reference to the
The United States and Netherlands have been asked to produce draft text
on the labour clause. The Negotiating Group will discuss this, the exact
text for the preamble, and the exact form of "association" with
the Guidelines at their meetings in the last week of February and again
in the last week of March, although negotiations may go beyond this.
Whilst there are signs that the Chairman's "three pillars"
approach does have considerable support, there remains great uncertainty
as to how strongly the issues will be treated.
Conclusion : the need for action
It is essential that affiliates contact or recontact their governments
as soon as possible to urge them to support a "strong" treatment
of labour issues in the MAI. (A list of key officials was sent to you with
the TUAC circular of 10 January 1997). Without a satisfactory treatment
of labour issues, many working people will feel that a further protection
of investors rights without obligations on investors to be "good corporate
citizens" will be unfair. There may well be a reaction against ratification
of an eventual MAI in many national parliaments.
A satisfactory treatment must involve :