The Multilateral Agreement on Investment has been under secret negotiation by the Organisation for Economic Co-operation and Development — representing the world’s 29 richest countries — for over two years. The MAI is basically a set of rules restricting what governments can do to regulate international investment and corporate behaviour. They are designed to protect and expand the power of corporations and other large international investors, guaranteeing them a stable investment climate, easy repatriation of profits and freedom from any obligation to serve local economic needs wherever they invest. The European Union and the USA, the primary backers of the agreement, aim to extend it to developing countries, inviting them to sign up on a “take it or leave it” basis.
The MAI would give new rights to multinational corporations and limit people’s democratic right to regulate their local affairs in ways that make good economic and environmental sense. Every kind of investment is covered. So environmental controls on foreign-owned factories, restrictions on international financial speculation and many other kinds of regulations will all have to submit to the agreement’s standards. The MAI says that signatories have to give foreign investors “treatment no less favourable” than that given to their own investors. Currently some countries screen foreign investment to ensure it’s in the national interest, or restrict foreign ownership of the media and other sectors. Since this is “less favourable” than how local investors are treated, it would be illegal under the MAI.
Equally, governments can’t make foreign companies meet certain performance requirements, even if these are imposed on local companies. Examples of forbidden conditions include requirements to use local suppliers, take on local partners or hire a minimum number of local employees. For example, when Pepsi Cola wanted to invest in the Punjab in the early 1990s, the Indian Government imposed strict conditions: local companies would have a majority shareholding in the Indian subsidiary; three-quarters of the total investment would be in agriculture; 50,000 local jobs would be created; 25% of the fruit and vegetable crop of the Punjab would be processed by the project and 50% of the company’s production would be exported. These measures, designed to ensure that Pepsi Cola’s investment had some benefit for the Indian economy, would all be illegal under the MAI.
The MAI further bans expropriation — widely defined to include even environmental controls. To show how foreign corporations can claim that environmental regulations “expropriate” their investments, a US company has sued Canada for $250 million for banning the import of MMT, a potentially toxic fuel additive.
Free capital mobility is also upheld at the expense of financial stability. The recent economic crisis in Mexico, for example, where the currency crashed, savings were wiped out and wages plummeted, was largely caused by unstable inflows and outflows of foreign investment. To avoid this problem, some countries make foreign investors keep new investments in the country for at least a year. The MAI would outlaw this kind of safety measure, raising the risk that the Mexican economic crash could be repeated around the world.
All of this matters because these rules will be enforced in special international corporate courts. Arbitration will consist of a few trade experts getting together as judges and hearing the dispute in a closed panel, without opportunity for affected citizens to comment. The panel will decide whether governments are violating the agreement, and if so, can advise them to change laws and award damages — possibly hundreds of millions of pounds.
This is a dangerous idea, undermining national sovereignty but more importantly the democratic rights of ordinary citizens who will not have access to these corporate courts.
Any country that signs up to the MAI will find it difficult to extricate itself, despite a change of government. While most international treaties require six months’ notice for withdrawal, the MAI won’t release a country for five years after it signs and even then existing investment is still governed by the MAI for fifteen more years! Again, the MAI puts investor confidence over a country’s right to change its laws.
Where does Britain stand on all this? Clare Short’s recent White Paper on international development didn’t even mention the MAI. In fact Margaret Beckett’s DTI is fully behind it, with a few reservations. Many OECD countries have applied to exempt sensitive or vulnerable sectors of the economy, such as mining, fishing and natural resources — Britain has not. The US, for example, has exempted all state and local government from the MAI, while in Britain local councils will be bound by the agreement.
Here one sees the double standards involved. Despite their apparent conviction that the total liberalisation of investment is a desirable aim, the developed nations have asked for extensive exemptions for themselves. The US also wants its power, mining and water industries exempted, for example. Poorer countries will lack the clout to argue for anything like this number of exemptions, even though their fragile economies need far greater protection.
The MAI is therefore a recipe for greater corporate profit and deeper poverty in the Third World. It disempowers elected governments and undermines democracy. A mass campaign of international proportions is needed to oppose it.