Multilateral Agreement on Investments (MAI)

Corporations as nation-states

by Cheryl Bishop

Z magazine, March 1998

The American public is more incensed by corporate greed and lack of accountability than government interference or corruption, according to a recent study by the Preamble Center for Public Policy. Unfortunately, they haven't seen anything yet. As the media obsess on alleged presidential debauchery, a secret pact is being negotiated by 29 of the world's wealthiest countries that threatens to give multinational corporations the same standing as nation-states, including the power to sue national governments in retaliation for passing legislation thwarting the corporate bottom line.

Renato Ruggerio, Director General of the World Trade Organization nakedly boasts, "We are writing the constitution of a single global economy." But according to Lori Wallach, director of Public Citizen's Global Trade Watch, this international investment treaty is the next step toward one large global market where people are merely laborers or consumers, the environment is for production or sale, and governmental regulations are market inefficiencies. It's called the Multilateral Agreement on Investments (MAI) and if you haven't heard of it, you're not alone. The majority of Congress hasn't been briefed even though the U. S. State and Treasury Departments have spearheaded negotiations since 1995.

Before a 1 70-page draft copy of the text was leaked by French activists in January 1997, Public Citizen tried for a year and a half to confirm that negotiations were even happening. According to Wallach, when asked directly about the agreement, the Clinton administration claimed it was only a "general discussion" with no text or rules. It was shortly after this conversation that the text materialized. When a member of Congress demanded to know why he had not been informed, he was sent a list of meetings on the MAI that supposedly occurred. When another member asked the same question, he was sent an entirely different list. None of these alleged briefings could be verified. This secrecy is not limited to the U.S. Recently, Wallach was asked to brief the Foreign Relations Committee of the French Senate on the MAI because they couldn't get information from their own government.

Why all the secrecy for an agreement that proponents claim will "give new impetus to growth, employment and higher living standards?" In a Catch-22 statement a Clinton aide rebuked, "It just isn't something we get a lot of questions on. There isn't a huge public interest in this." But Public Citizen's Chantell Taylor says, "This agreement is so far reaching and intrusive into local, state, and federal governments that the minute people start to hear and read about it, there will be opposition." Even the traditionally conservative Western Governor's Association issued a report expressing grave concern on the effect of state sovereignty under the MAI.

The MAI is being negotiated in a basement room of the private invitation-only Paris-based Organization for Economic Cooperation and Development (OECD), an economics club for the rich whose member countries house 477 of the Global Fortune 500 corporations. In the past, the OECD has been more of a think tank than a venue for binding treaty negotiations but when the idea of a far-reaching global investment treaty was presented to members of the World Trade Organization, developing countries were adamantly opposed. According to Amy Holman, one of the U.S. negotiators who spoke in January at the MAI Treaty Conference in Dallas, when some members of the WTO were opposed, negotiations were moved to the OECD where "like-minded" countries could come together.

Essentially, the MAI is an investor's rights agreement designed to remove obstacles to the increasing globalization of the world economy. Its goal is to open all markets and ensure protection of foreign investments. By seriously limiting governments' ability to restrict foreign investment or even pass laws that unintentionally do the same, the flow of capital will be unimpeded. The MAI gives investors and corporations the right to directly challenge national laws as well as sue governments for cash compensation. In terms of its effect, "the MAI would operate as a virtual amendment to the United States Constitution," said Professor of Law at Georgetown University Law Center Robert Strumburg at the MAI Conference.

The main chapter of the MAI, entitled "Investor Rights," includes the absolute right to establish an investment and also stipulates that no government can "impair... the operation, management, maintenance, use, enjoyment or disposal of investment in its territory" that is foreign-based. Essentially, this obligates governments to be the protectors of foreign investment. The key provision in MAI, "National Treatment," ensures foreign investors will not be "discriminated" against. Under this provision, nations are required to treat foreign investor or investments no less favorably than they treat their own. Not only does national treatment ensure foreign investors are treated the same (or better) than domestic investors, it also ensures they have assess to local markets. For example, restrictions cannot be placed on what a foreign investor can own.

Proponents of the MAI point out that national treatment is a standard provision in most trade agreements, including NAFTA, but what they fail to note is the MAI also includes those laws that may have the unintended effect of discrimination. For example, a city that places a freeze on all development because their sewer system is at capacity could be considered a "lock-out" to foreign investment.

Most Favored Nation (MFN), another non-discrimination provision, requires nations to give each other the most favorable treatment they give any trading partner (regardless of their labor, human rights, or environmental practices). In other international trade agreements, MFN is given to the country itself but the MAI accords this privilege to the corporations of that country as well. All countries and their corporations must be treated equally with respect to regulatory law. This provision could seriously jeopardize the use of economic sanctions as a tool in fighting human rights abuses. One example is the Massachuset/Burma Law, which forbids corporations with investments in Burma from bidding on state contracts. Wallach predicts "if the MAI had been in effect, and South Africa, the KU, and the U.S. had been parties, Nelson Mandela would still be in jail."

The MAI also includes a broad ban on performance requirements, even those that have no discriminatory effect. Performance requirements are standards many countries use to shape investment to benefit the public interest. Many are concerned that performance requirements in laws like the 1977 Community Reinvestment Act, which requires banks opening a branch in a low-income community to also lend there, could be banned. Other examples are laws requiring foreign corporations to maintain a certain percentage of local labor in their workforce or use local resources in their production.

The government claims U.S. federal, state, and local laws will be grandfathered under the agreement or protected under exemptions also know as "carveouts." Holman argued in the same breath that exemptions will be made for U.S. Iaws but we are fighting tooth and nail against France and Canada's request to protect their cultural industries from U.S. domination through exemptions. Because they can be challenged under the dispute mechanism, they essentially offer no guarantees. Under the MAI "standstill" and "rollback" provisions, grandfathering also offers no protections. Rollback requires the offending laws be eliminated over time and standstill halts the implementations of similar laws.

Perhaps one of the more disturbing aspects of the MAI is its protection of foreign investors from "expropriation" or "any other measure having equivalent effect." According to the text, a "lost opportunity to profit from a planned investment would be a type of loss aufficient to give an investor standing." This language gives foreign corporations the power to challenge nearly any governmental action or policy that could undermine their profit and demand cash compensation for those losses. On top of that, these corporations can also sue in the case of "strife," civil war," "insurrection," or "public disorder" if any of these events hurt their profit. It can easily be imagined that boycotts, protests, or even strikes could fall under one of these categories.

This language is far broader than the U.S. constitutional "takings" rule requiring compensation when the government takes your property for a common good, like building a road. About two years ago, the U.S. Congress fought over "regulatory takings" when U.S. Iandowners pushed to receive compensation for any government action undermining their property values. The Congress voted against this because it would be far too costly and difficult to create limits. But according to Sierra Club's Mike McCloskey, this provision in the MAI would essentially enshrine "regulatory takings" in international law. In a recent issue of Inside U.S. Trade, the Clinton administration admitted that the MAI expropriation provision could be broader than under the U.S. Constitution

To enforce these provisions, the MAI set up an investor to state dispute mechanism which gives corporations the right to sue nations directly, essentially waiving sovereign immunity, a constitutional protection preventing the government from being sued. The investor gets to choose from six different venues for hearing the case, the International Chamber of Commerce being one of them. Not only is there no appeal process but citizens, communities, or governments have no corresponding right to challenge corporations or investors.

Currently the U.S.-based Ethyl corporation is suing the government of Canada for $250 million under NAFTA's similar but more limited dispute mechanism. Canada banned the sale of Ethyl's gasoline additive, MMT, known to damage anti-pollution systems in cars. The suit claims that the very act of debating MMT's possible ills in the Canadian parliament constituted expropriation because their name was sullied. Under this provision, just the threat of a suit could be enough to create a "chilling effect" on lawmakers ability to pass laws in the public interest.

The MAI was originally slated for completion last May but major disagreements between negotiators forced them to push the deadline to this April. Clinton wanted to use fast track authority to ram the MAI through Congress but now that he's lost that option the MAI will most likely go to the Senate as a treaty requiring a two-thirds vote for approval. Although growing opposition to the MAI in Congress has prompted some administration officials to suggest relabeling the MAI as an "international executive agreement," skirting Congress altogether, according to Public Citizen.

Although the MAI is being negotiated by the world's wealthiest countries, it is generally understood that developing countries will be pressured to sign. Because the MAI gives investors so many rights and protections, developing countries will be at a disadvantage to attract investments if they don't. Some developing countries claim they are already feeling pressure and fear signing the MAI will become a stipulation for receiving loans from the WTO and the International Monetary Fund. Unlike any other treaty, once a country signs the MAI they are locked in for 20 years. They can opt out in 5 years but all provisions remain in effect for the next 15 years.

Fortunately, sign)ficant opposition to the MAI is gaining momentum. Last October the OECD was pressured to invite Non-Governmental Organizations (NGO) to the negotiating table. Over 150 organizations representing 70 countries and a multitude of differing opinions met in Paris. In less than a day they came up with a joint consensus statement to present to negotiators. "We put the OECD on notice," said Henry Holmes of Sustainable Alternatives to the Global Economy, one of the NGOs represented, "We were organized and prepared and I think that surprised the hell out of them."

The NGO statement issued a set of demands on the OECD, including undertaking an independent assessment of the social, environmental, and developmental impacts of the MAI; suspending negotiations to allow for meaningful public consultation and input; negotiate an enforceable international agreement on the responsibilities of multinational corporations. Although none of these demands were met, the meeting of NGOs did facilitate the creation of an international coalition unified against the MAI. The coalition is currently working on an international week of action as well as helping organizations in countries just learning about the MAI to set up education and opposition campaigns. Organizations from various African nations started an electronic networking system, Canadian activists have already put the MAI on the front page of most Canadian newspapers, and the labor movement in France is committed to defeating it.

Here in the U.S. the Alliance for Democracy, a national populist movement, has made fighting the MAI their first priority. They have already sponsored a number of forums and teachins. The Preamble Center, in collaboration with Public Citizen, is organizing a 20-city speaking tour. On the floor of Congress, the MAI is already being attacked and groups of representatives have sent around letters of opposition. "The good news is something this extreme will have a hard time passing the Dracula test, Wallach mused. "Can it stand the light of day?

I think not.

Multilateral Agreement on Investments