Building the Global Economy

the Multilateral Agreement on Investment (MIA)

by Joel Bleifuss

In These Times magazine, January 1997

With fast track down, though perhaps not out, the next battle in the pell-mell rush into a globalized economy will be fought over the Multilateral Agreement on Investment (MAI). This proposed treaty extends the free trade provisions of the General Agreement on Tariffs and Trade (GATT) by prohibiting signatory nations from impeding the flow of money and production facilities from one country to another. The treaty, in effect, subordinates the right of elected governments to set national economic policy to the right of transnational corporations and investors to conduct business-investing and divesting-however they see fit.

Since 1995, the Organization for Economic Cooperation and Development (OECD), an alliance of 29 of the world's richest nations, has been quietly negotiating the treaty in Paris. The treaty's strongest supporters, which include the United States, the European Union and transnational corporations, argue that government regulations that prevent the free movement of money and production facilities are inefficient and costly. Removing these barriers, the treaty's preamble states, "will contribute to the efficient utilization of economic resources, the creation of employment opportunities and the improvement of living standards."

Renato Ruggerio, director general of the World Trade Organization, describes the treaty as "the constitution for a new glob al economy." But according to Public Citizen's Chantell Taylor, that constitution grants rights only to corporations. "This treaty takes the strongest provisions of GATT, NAFTA and bilateral trade agreements and expands them in a way that is revolutionary," she says. "This is on the largest scale that these rights for corporations have ever been applied."

Negotiations on the treaty continue, with the final draft due to be released in May. If President Clinton and the other 28 countries agree on a pact, the treaty is likely to reach the Senate for ratification sometime in 1999. Once the 29 OECD countries have ratified MAI, the 157 non-OECD nations will be invited to join. Most will have no choice but to do so. As the State Department explains in a published summary of the treaty's intent, the MAI would serve as "a benchmark for emerging economies wishing to continue to attract foreign investment."

Public interest groups in the United States are beginning to fight the treaty, arguing that, in the name of international fairness, it erodes the prerogative of governments to intervene in the market for the public good. In particular, they point to the section entitled "National Treatment" in the May 1997 draft of the treaty, which was leaked to Public Citizen. This part of the bill would require signatory nations to treat foreign investors exactly the same way that they treat their domestic counterparts. That provision, they say, could undermine a slew of regulations. For example, a European corporation that wants to do business in the United States could contest local statutes that provide set-aside programs for minorities and women, since such laws put foreign corporations at a disadvantage. Ditto for any government policy that grants preferences to small business owners. And in developing countries, the provision could be used to overturn programs that limit foreign ownership in order to keep farmland under peasant control and to stabilize the domestic food supply.

Nor does the treaty allow governments to discriminate between foreign investors based on their country of origin. While this foreign treatment provision of the treaty may seem fair, it would prevent democratically elected governments from imposing sanctions against countries that are gross abusers of human rights or wanton despoilers of the environment. If MAI had been in place in the '80s, for example, the U.S. sanctions against investment in South Africa, which helped bring down the apartheid regime, could have been prohibited. (The bill does contain exemptions for issues of "national security," so that much of the Helms-Burton Act, which puts teeth in the U.S. embargo against Cuba by penalizing corporations that do business there, would remain intact.)

"Performance Requirements"-laws that require that corporations transfer technological knowledge to host countries or achieve a certain level of domestic content-get their own section of the treaty. MAI would ban nearly all of them, threatening community development programs such as the 1977 Community Reinvestment Act, which requires banks to make loans in poor neighborhoods if they open a branch there.

Meanwhile, environmentalists worry about MAI provisions on "uncompensated expropriation." As drafted, MAI could be interpreted to imply that environmental regulations are an expropriation of property, since the regulations limit how a corporation can use its investment. "The expropriation provision is a huge problem because it blurs the legal distinction between the outright seizure of property and regulations that set limitations on the use of property," says Michelle Sforza of the Preamble Center for Public Policy, a Washington, D.C.-based public interest group. "MAI is quite explicit about expanding the definition of expropriation to cover 'regulatory takings' or 'creeping expropriation.' " The Clinton administration, realizing that this section threatens the environment, recently reopened the topic for further discussion.

To enforce its new economic rules, MAI sets up a dispute resolution process using the North American Free Trade Agreement (NAFTA) as a blueprint. The MAI legal framework would permit both corporate and individual investors to sue sovereign nations for any failure to follow MAI rules "which causes [or is likely to cause] loss or damage to the investor or his investment." (The brackets denote language in the treaty on which there is disagreement among negotiators.) Traditionally, international agreements have only allowed nations to sue other sovereign nations for treaty violations.

In the case of a lawsuit, MAI requires that nations defend their policies before a tribunal chosen from a list of OECD-approved arbitrators. The tribunal would base its findings on the treaty itself, and will be empowered to provide "compensatory monetary damages," restitution or "any other form of relief." The judgment of the tribunal would be "binding," and a nation that loses a case would be required to enforce the judgment "as if it were a final judgment of its courts."

While MAI permits corporations to sue governments for violating the agreement, the treaty contains no provisions for governments to sue corporations. In fact, the treaty puts almost no demands on corporations. MAI contains no measures to counter anti-competitive business practices (like price fixing) that a treaty actually designed to improve economic efficiency should include.

In Paris, delegates are currently hammering out a number of specific exemptions. Many regulations currently in place are likely to be grandfathered, giving nations time to adjust their policies accordingly. Several nations are also seeking language to protect their country's cultural traditions. France, for example, has asked that "literary and artistic works" be exempted from MAI. The United States adamantly opposes such a blanket exemption, which is designed to prevent Disney or Warner Brothers from buying up the film industries of France or Spain. As it is currently drawn, MAI would prohibit nations from subsidizing their culture industries through tax credits, which would put a major crimp in the Australian and Canadian film industries. Countries, like Canada, that try to insulate their media outlets from U.S. competition could also be affected.

Most Americans (and even many policy-makers) have never heard of MAI. But U.S.-based transnational corporations are in the loop, thanks to the United States Council for International Business (USCIB), the principal U.S. supporter of the treaty. The USCIB, the American affiliate of the International Chamber of Commerce, is comprised of 600 U.S.-based corporations. The group officially opposes the use of economic sanctions as an instrument of foreign policy, codes of conduct on child labor and a cap on greenhouse gas emissions. USCIB's "Working Group on MAI" reports that it has "helped shape U.S. negotiating positions by providing business views and technical advice on specific policy issues at regular meetings with U.S. negotiators immediately before and after each MAI negotiating session." In addition, the group provides USCIB-affiliated corporations with "direct access to Ambassador Franz Engering, chairman of the OECD's MAI negotiating group."

Last spring, the Clinton administration, apparently trying to head off opposition from labor and environmental groups, asked its negotiators to include language in the treaty that addressed the critics' concerns. As a result, the agreement will include statements on the environment and labor. Whether those statements will actually be binding, like the NAFTA side agreements, remains to be seen. The State Department's Assistant Secretary for Economic and Business Affairs, Alan Larson, says that members of the Clinton administration are still undecided about whether or not the United States should support binding side agreements.

For its part, the business community is opposed to environmental or labor standards of any kind. In a July 11 letter, USCIB President Abraham Katz cautioned U.S. Trade Representative Charlene Barshefsky against doing anything that "would turn this agreement into a vehicle for achieving environmental and labor objectives." The Working Group on MAI has also vowed to "strongly resist efforts to impose new guide lines of codes of conduct on multinational corporations," even voluntary ones.

The national media have been slow to pick up the story. Since treaty negotiations began in 1995, the New York Times has only mentioned the treaty once, and that was in a letter to the editor. The Washington Post has not covered it at all. One exception has been the Chicago Tribune, which ran a story in December. With funding from the Ford Foundation, the Preamble Center plans to educate the public about the treaty. The group, which does not take an official position for or against the agreement, is sponsoring debates in 20 cities between MAI partisans, either from the USCIB or the Clinton Administration, and MAI opponents such as Public Citizen. Public Citizen is planning to campaign against the treaty in 25 states, and has already joined organizations from 23 other countries in an international anti MAI coalition. "MAI is an unbalanced agreement that gives rights to corporations and at the same time burdens governments with new obligations to investors," says Public Citizen's Taylor. "It ties the hands of governments to choose their own social and economic policies.

Richard Grossman, the co-founder of the Program on Corporations, Law and Democracy in Provincetown, Mass., believes that the opposition to MAI is operating within too limited a context. "MAI should be resisted in ways that challenge existing corporate privileges, such as their claims to First Amendment protections, that define corporate operations as beyond the sovereignty of the American people," he says. "We are always on the defensive. We are, in effect, saying that the most important factors in our lives are only worthy of being dealt with in side agreements." Grossman has a point. Yet Washington-based groups are in the nation's capital in order to influence legislation. And with the Republicans in control of Congress, the work of public interest groups is naturally going to be more reactive than proactive. But none of that stops citizens, political parties and public interest groups outside the Beltway from filling in the broader picture. By putting MAI in context, these groups could push real alternatives to corporate power.

Multilateral Agreement on Investments