Compare: THE MULTILATERAL AGREEMENT ON INVESTMENT
Posted: Tue Nov 07, 2006 11:32 amTHE MULTILATERAL AGREEMENT ON INVESTMENT
http://www.oxfam.org.au/campaigns/submissions/MAI.pdf
Submission to the Joint Standing Committee on Treaties -
Oxfam Community Aid Abroad May 1988
The Multilateral Agreement on Investment, May 1988
Oxfam Community Aid Abroad
Contents
1. Executive Summary
2. Introduction
3. The MAI and developing countries
4. General concerns
5. Conclusion
6. Summary of Recommendations
The Multilateral Agreement on Investment, May 1988
Oxfam Community Aid Abroad
Executive Summary
This submission outlines Community Aid Abroad's (Community Aid Abroad) concerns
with the draft MAI1. In particular we focus on the implications of the MAI for developing countries as this is our area of expertise. In broad terms we have the following concerns if the MAI is agreed in it current form:
· The MAI will greatly increase the rights of investors vis-a-vis states and citizens without a parallel transfer of social and environmental responsibilities. The strongest provisions in the agreement are those which protect investors rights. These are legally binding and are backed by a right of direct access to international arbitration. This represents a far-reaching more to bring international law into the service of the powerful and economically strong, while neglecting the interests of the economically weak. As such it fails to balance the granting of rights with any acknowledgment of responsibilities for social improvement, human rights or protection of the environment.
· The MAI will also seriously limit the ability of governments to regulate investment
in the public interest and transfer control over investment decisions from governments to unaccountable companies. This will particularly affect developing countries, preventing them from pursuing the kind of policies which involve a significant degree of state intervention and which were adopted by the successful OECD and East Asian economies in their early stages of development,
· The MAI will contribute to growing job insecurity and downward pressure on labour, environmental and consumer standards by increasing the freedom of investors to buy, sell, and move their operations wherever and whenever they want without government restriction. Community Aid Abroad acknowledges the importance of foreign investment to developing countries. Indeed given the increasing significance of foreign investment it is imperative that investment rules do not weaken the possibility of it contributing to
environmentally and socially sustainable development. There is an increasing recognition that the rapid changes involved in globalisation for developing countries clearly have both negative and positive effects. It is the role of international regulation to ensure that the economic benefits are maximised while social and environmental standards are not sacrificed.
_______________________
1Community Aid Abroad's Submission is based on the February 1998 MAI draft
----------------------------------------------------
Community Aid Abroad believes that in the MAI needs to be amended so that it promotes forms of international investment which are truly beneficial to communities and the environment. This requires:
· greater transparency and consultation in the negotiation process including meaningful consultation with developing countries and citizens at an early stage.
· a comprehensive and independent review of the social and environmental implications of any proposed agreement for developing countries.
· accountability in investment decisions by allowing citizens, workers and communities the right to bring claims directly against investors and to present their views to any tribunal considering a sate-state or investor-state dispute, either as affected persons or through representative organisations.
· balancing investors rights with their obligations to comply with international standards relating to the rights of workers, affected communities and consumer and environmental protection by the addition of a binding code of conduct for TNCs. Given the MAI's internal flaws and omissions and the political opposition which it is generating, Community Aid Abroad believes there is a strong case for the Australian government and other negotiators not to sign up to the MAI and to make a fresh start in discussing multilateral investment rules in an international forum which includes developing countries. This would ensure the interests of developing countries become integral to any future agreement. It would also allow more time for better consultation with international development institutions such as the UNCTAD, non-government organisations and other stakeholders. And it would enable development, environmental and social concerns to become integral to the agreement, rather than tacked on as in the current MAI.
1. Introduction
Community Aid Abroad is an independent community-based Australian organisation
which promotes social justice and the alleviation of poverty through the funding of
innovative development projects overseas in the regions of Asia, Africa, the Pacific,
Central America and in Aboriginal Australia. Community Aid Abroad also undertakes
advocacy work which aims to challenge attitudes and policies that inhibit the realisation
of human rights. CAA is a member of Oxfam International and ACFID, the peak body for over ninety non-government organisations (NGOs) in the field of development
assistance.
1.1 International Investment and Developing Countries
Community Aid Abroad notes that in recent years the global scale of trade and
investment has increased dramatically. Foreign Direct Investment has grown more than
twice as fast as world trade and four times as fast as domestic production to become the
main driver of globalisation2. FDI has been fuelled by a small number of transnational
corporations (TNCs) and the top 500 TNCs now account for 80 percent of international
investment and 70 percent of global trade.
Inflows of FDI into developing countries have surged from $31 billion in 1990 to $80
billion in 1993. However this increase has been very uneven and FDI has been
concentrated in around 10 developing countries3. The 1996 UNCTAD World Investment
Report notes that South, East and South-East Asia has become the largest host
developing region accounting for two-thirds of developing-country FDI. The situation for
Africa and Latin America is far less promising. In 1995 Latin America saw a 5% increase
in FDI but most inflows were concentrated in individual industries, making them susceptible to special circumstances in those industries. The net share of Africa in
developing country FDI inflows actually fell to 4.7 percent in 1995 (from 5.8 percent in
1994). Despite the increase to certain developing countries, OECD countries continue to
be still the main source and destination of foreign investment: 75 percent of the total
accumulated stock of foreign investment and 60 percent of the flow are located in North
America, Europe and Japan.
Community Aid Abroad believes that international investment has the potential to
generate wealth and jobs. We acknowledge the significant gains to some countries and
workers, especially to the East Asian economies who experienced an improvement in
modern sector jobs and wages in the 1980s. However, we note that without an adequate
regulatory framework investment can equally undermine the livelihoods, welfare and
rights of vulnerable people and do substantial environmental harm.
While trade and investment liberalisation is not the main cause of poor employment
conditions prevailing in some countries, it does reduce workers' bargaining power. The
growing mobility of capital means that companies can relocate or use the threat of
relocation to reduce labour and production costs. This in turn has lead to a competitive
lowering of labour and environmental standards as governments seek to attract foreign
investment by offering the most favourable conditions. The effects of this can be seen
most obviously in the growth of Free Trade Zones, the spread of flexible working
practices and deregulation of labour markets which are undermining labour rights and
preventing the equitable distribution of the benefits of trade and investment.
_________________________
2By globalisation we refer to the integration of economic activities across national boundaries
3There has been an increase in total net flows to developing countries over the past decade however, market (or private) flows have
risen from one-third to two thirds of the total while non-market (or aid) flows have fallen in real terms.
---------------------------------------
Whether or not investment is beneficial to developing countries depends on a number of
factors including the distribution of wealth, the control of production and distribution, the
terms on which countries receive foreign investment and the nature of the regulatory
framework. It is essential therefore, that international arrangements governing FDI are
sensitive to the needs of developing countries.
The 1996 UNCTAD World Investment Report concludes that international arrangements
governing FDI must be:
· Safeguarded by allowing developing countries in need of a transition period the
time to adjust to more stringent standards of investment liberalisation.
· Advanced by agreeing that developing countries can take appropriate measures
to increase the benefits that they can reap from FDI, without infringing on the
essential interest of foreign investors.
· Supported by home country governments committing themselves to helping
developing countries to attract FDI, in particular FDI that is most consonant with
their development needs
2. The MAI and developing countries
As it currently stands, the MAI is far from a balanced agreement. Community Aid Abroad
believes that if MAI negotiations are to continue, the following concerns need to be
addressed as a matter of urgency.
2.1 Lack of Consultation
Community Aid Abroad believes the exclusion of developing countries from the MAI
negotiation process is unacceptable. Developing countries have different needs and
conditions to those of OECD countries and it is likely that the current MAI may be
inappropriate and damaging to developing countries.
For example, the presumption in international investment agreements between
developed countries is that foreign investors are at an initial disadvantage to established
domestic firms and regulatory authorities. In the case of developing countries the
reverse is often the case and foreign firms may be extremely powerful relative to
domestic firms. Developing countries may also be particularly vulnerable to sudden
changes in the world economy or to pressures from large TNCs. Furthermore, the
economies of developing countries are often dominated by particular sectors, such as
natural resources (eg energy, mining), manufacturing or services and governments often
to retain a high level of control and regulation of these key sectors.
There is significant evidence that investment liberalisation can have a negative as well
as positive implications for developing countries. For example, unless developing
countries have built up a level of domestic capacity so that local companies can
The Multilateral Agreement on Investment, May 1988
Oxfam Community Aid Abroad
withstand competition from foreign industries greater investment liberalisation is likely to
lead to the displacement of local companies, higher unemployment and lower prospects
for growth.
Community Aid Abroad is concerned that the unique conditions of developing countries
have not been taken into consideration in the MAI. However, the delays in the
negotiation process have created an opportunity to undertake a broad consultative
process on the MAI and international investment agreements generally. Ideally,
negotiations on the MAI should begin again in a forum inclusive of developing countries.
At the very least, broad consultations should be organised with all affected parties;
including developing country governments, multinational firms and non-government
organisations.
2.2 Need for More Research
In addition, the delays in negotiation provide time to commission further research on the
impact of the MAI for developing countries. It is essential that before the MAI is signed,
an independent assessment and full discussion of its implications for developing
countries at OECD level is undertaken. The UK's Department for International
Development (DFID) study which looks at the Development Implications of the
Multilateral Agreement on Investment is a first step in this direction, although its
influence may be restricted by its lateness and the short time available for the research
and discussion4.
The DFID study notes that further research is required on the broader relationship
between poor countries and international capital markets, including the consequences
for poverty reduction. Community Aid Abroad believes an independent study should also
examine the implications of the MAI for debt relief initiatives for government debt,
commercial or multilateral debt, the possible implications of the MAI for a country's
balance of payments, the impact of greater investment liberalisation on domestic
industries in developing countries, and the likelihood of greater unemployment and the
lowering of environmental and labour standards. Such an assessment however, cannot
substitute for the full participation of developing countries in the negotiations.
Recommendation 1:
Ideally, negotiations on the MAI should begin again in a forum inclusive of
developing countries. At the very least, the MAI process should be broadened in
order to include meaningful consultation with developing country governments
and relevant non-government actors at an early stage.
_________________________
4The Development Implications of the Multilateral Agreement on Investment, a report commissioned by the Department for
International Development, E.V.K Fitzgerald and R. Cubero-Brealey and A. Lehmann, Finance and Trade Policy Research Centre,
Queen Elizabeth House, University of Oxford, March 1998
-----------------------------------------------
Recommendation 2:
That an independent Review and Discussion of the Development Implications of
the MAI is undertaken at the OECD level, considering the implications of the MAI
and international investment agreements generally, for developing countries.
2.3 National Treatment/Most Favoured Nation
The MAI will seriously restrict the ability of governments to regulate foreign investment
for the common good. Unlike the GATT, the MAI does not allow general exemption from national treatment if imports can be shown to endanger life or health of people, animals or the environment.
The MAI's main objective is to ensure that governments treat foreign-owned and
nationally-owned investors equally. The text starts with a general obligation on states to
treat TNCs no less favourable than national firms (National Treatment) and to extend
any favourable treatment offered to one investor to all (Most Favoured Nation). These
principles will apply to the acquisition, establishment and operational activities of all
investors.
While this sounds fair in principle, investors are not in practice alike nor equal, nor are
their host countries. The DFID study notes that in the case of poorer developing
countries:
"Foreign firms may be very large relative to domestic firms, making 'national treatment'
an ambiguous concept and even requiring special protection for small firms."
Poorer countries are often weak vis-a-vis powerful TNCs. Their ability to impose controls is vital to prevent TNCs expropriating excessive economic benefits from investments in these countries. Furthermore, many developing countries have economies dominated by a few important sectors such as mining or agriculture. As a result, governments continue to retain powers to control how these sectors are owned and managed. This is especially true for land and natural resources, which needs to be carefully managed for long term benefit.
The MAI provisions will prevent developing countries from pursuing the kind of policies adopted by East Asian economies in their early stages of development, which involved a significant degree of state intervention including regulation of foreign investment and export subsidies.
Wealthier countries including Australia will also be affected by this loss of control. Many
governments have restrictions on foreign ownership of key industries or sensitive
sectors, or require approvals for such acquisitions, or insist that they be carried out as
joint ventures with local investors or government bodies. Australia requires that
investments over a certain value are submitted to a screening test based on national
interest.
Australia also has laws which limit or regulate levels of foreign investment in real estate
and in the media. Foreign ownership is limited in privatised bodies like Qantas or
Telstra. All of these contradict the fundamental principle of the MAI. While Treasury
documents list privatisation, the airline industry and telecommunications as exemptions
there is no detail and it is not clear whether the exemptions are permanent or temporary.
Similarly, concentration of ownership in the broadcast media can have far reaching
political and social consequences, which many consider requires controls to restrict
monopoly control by global giants such as Murdoch's News International. The UK has
requested an exemption from the MAI on broadcast media. Both the French and
Canadian governments are concerned that the MAI ignores the need to retain
indigenous languages and cultures. While the Australian government has listed media
and "audio-visual" as exemptions, no detail is given and it is not clear whether they
would be permanent or temporary.
The MAI's 'top-down' approach to liberalisation of investment rules, which has been
developed without the participation of developing countries, will require them to sign up
to the whole agreement and negotiate individual exemptions for particular sectors.
Given the different needs of developing countries outlined above, Community Aid
Abroad believes a more appropriate model would be the approach taken by the Uruguay
Round negotiators when designing the General Agreement on Trade in Services
(GATS). GATS is designed from the "bottom up" allowing members to opt-in to GATS
rules specific sectors of their economies one by one through rolling negotiations. This
approach, known as the "positive list" approach assumes that no sector is covered
unless it is listed as being excluded, differs from the usual "negative list" approach being
proposed for the MAI, which assumes that every relevant sector is covered unless it is
listed as being excluded. A "positive list" approach would enable developing economies
to liberalise if and when they think it appropriate to do so. They retain control and some
choice over which sectors to liberalise.
Recommendation 3:
That a provision should be introduced allowing developing countries to sign up to
the MAI on a sector by sector basis rather signing the whole agreement and then
negotiating individual country-exemptions.
2.4 Dispute mechanism
If agreed in its current form, the MAI will greatly increase the rights of investors vis-a-vis
states and citizens. The strongest provisions in the agreement are those which protect
the rights of investors. These are legally binding, and are backed by a right of direct
access to international arbitration. This represents a far-reaching move to bring
international law into the service of the powerful and economically strong, while entirely
neglecting the interests of the poor and economically weak. As such, it fails to balance
the granting of rights with any acknowledgment of responsibilities for social
improvement, human rights or the protection of the natural environment.
The MAI's dispute settlement mechanism not only provides for state to state disputes,
but also grants corporations the right to sue governments over any breach of MAI
provision which causes loss or damage to the investor or investment. No corresponding
right is provided for governments, communities, or citizens to counter-claim for damages
caused by the investor. In effect this gives the investor a status not just equal but
superior to governments and the people they are supposed to represent. Laws and
policies validly established by legally accountable governments will be overridden by the
rights created by the MAI.
Just as the MAI creates rights for investors enforceable both under local law and by
international arbitration, citizens must be given the right to bring claims directly against
the investor.
Concerns have also been raised by the DFID study about the potential cost of the
dispute settlement mechanism for developing countries . The proposed procedures are
involved and lengthy. Moreover they may become endless (eg. there is no explicit limit
to the number of times an arbitration award may be challenged.) The costs of
representation and (most likely) the costs of the tribunal (s) have to be borne by each
party. These costs are usually very high, and barely affordable for the poorer developing
countries. Additionally most poorer countries may lack highly skilled litigants with
expertise in international investment and arbitration procedures. The combination of high
costs and unpredictable length of the procedures, will create an incentive to negotiate
off-tribunals, where developing countries will be at a disadvantage.
Recommendation 4:
That if a dispute settlement mechanism is established, citizens and other
stakeholders must have the right to present evidence to the tribunals and bring
claims for damages caused by an investor.
Recommendation 5:
That internationally funded arbitration tribunals and pools of experts be provided
to assist developing countries, citizens and other stakeholders with
representation on claims for damages caused by an investor.
2.5 Performance Requirements
Many states, including OECD members commonly impose performance requirements
designed to achieve minimum levels of local employment and proportions of locally-sourced materials, or insist on joint ventures and technology transfer. Plants and
subsidiaries sometimes do not bring any substantial economic benefits to the host
country. They may be set up as marginal activities of global integrated businesses in
order to get access to a local market, avoid tariffs and obtain tax and other advantages.
They may be limited to assembly of "screwdriver" operations with marginal impact on the local economy as they employ only a few unskilled workers, export solely to the
parent's other plants, and may be prevented from using local suppliers.
This provision is likely to particularly effect developing countries which need to be able
to apply performance requirements in order to prevent TNCs expropriating excessive
benefits and to ensure that foreign investment contributes to development objectives.
Poorer countries may also be vulnerable to being used as "screwdriver" operations by
foreign investors with marginal benefits for the local economy.
Yet, the MAI draft includes an article prohibiting performance requirements, although the
limits are still under negotiation by OECD governments. The current text prohibits the
following performance requirements: a) trade related: ratio of exports to total sales
domestic content, purchases, ratio of imports to exports, ratio of local sales to exports,
b) transfer of technology, c) location of headquarters, d) research and development, e)
employment of locals, f) minimum or maximum level of equity participation. However,
any contracting party may impose performance requirements listed from b) to f) above if
linked to the granting of an "advantage" which significantly weakens this restriction.
The term advantage is not defined in the MAI text and therefore must be understood in a
broad sense ( including all forms of tax and financial benefits/breaks/subsidies, access
to resources, technical cooperation.) Countries will also be allowed to exempt sectors however it is not clear as yet what guidelines will be developed for acceptable exemptions and it is likely that developing countries may be put under pressure to
minimise exemptions.
Recommendation 6:
That prohibitions on performance requirements be removed from the MAI, or
reduced significantly in scope
2.6 Standstill, rollback and withdrawal clauses.
The MAI allows some exemptions from these provisions, for example relating to
international and domestic security. However, all exemptions will be temporary. The
early drafts of the MAI text contain roll back measures which will commit governments to reduce and eventually eliminate existing regulation which does not conform with the
MAI. Standstill measures will prevent the introduction of any new non-conforming laws.
Most concerning is the withdrawal clause which ensures that once a country has ratified
the agreement it is virtually locked in for a 20 year period.
Community Aid Abroad understands that in recent MAI drafts these clauses are
weakened . Each signatory country will be allowed to list any "non-conforming
measures" which the country wishes to maintain and not subject to rollback.
Commitments towards the gradual elimination of existing non-conforming measures
would be voluntarily made in the exeptions schedule. But although rollback will be
voluntary, the periodic revision of the country schedules would exert strong "peer
pressure" to dismantle non-conforming measures. Furthermore, whether or not countries
can obtain an exemption to the standstill and introduce non-conforming measures at a
later date is still subject to negotiation.
Recommendation 7:
That the requirements for governments to commit to broad standstill, rollback and
withdrawal clauses be removed
2.7 Investor Protection and Compensation
States will be obliged to provide "full and constant protection and security" to foreign
owned assets as well as to provide compensation in the event of nationalisation of any
kind of expropriation affecting property rights. This is given a wide meaning by the
inclusion of "measures having an equivalent effect" such as taxation or possibly some
environmental regulations. We are concerned by the wide definition of expropriation
which may allow companies to challenge legitimate national policies, such as taxation,
health and safety, environmental or labour laws, as creeping expropriation.
For example if a investor builds a plant to produce a chemical or agricultural product and
the host government subsequently bans it for environmental or health reasons, the
company could claim this as an equivalent of expropriation. This would be a powerful
motivation for the government not to ban the product.
The agreement will provide for compensation to be at full market value plus interest in
convertible currency even though the assets may have been bought at below market
price.
Recommendation 8:
That the definition of expropriation in the MAI be narrowed by the inclusion of a
general exception for legitimate national policies.
2.8 Transfer of funds
The MAI contains a general provision requiring states to ensure that investors can make
financial transfers into and out of the host country freely, which covers dividends,
interest, and all types of payments. Recourse to balance-of-payments (BOP)
consideration as a justification for restriction of such repatriation will not be permitted.
Absolute freedom for investors and speculators to move funds can cause major
problems for individual countries and can also be destabilising regionally or globally, as
seen by the recent crisis in Thailand and East Asia. It will allow a right for investors to
transfer all money, even if a country is in a financially critical situation. Unlike the WTO,
which accepts that countries have a right to temporarily limit the outflow of profits if there is a balance of payments (BOP) deficit problem or any other type of financial problems, the MAI will not grant concessions to countries with BOP problems and will continue to allow companies unrestricted outflow of finances.
This provision may also outlaw measures taken by the Chilean government, for
example, to discourage destabilising and unproductive short term capital flows. The
Chilean government has brought in a measure requiring portfolio investors to make an
interest-free deposit of an amount equal to 30 percent of their investment that they are
not able to withdraw for one or more years.
Recommendation 9:
That governments should retain the right to regulate investors moving capital in
and out of a country in order to reduce destabilising and unproductive short term
capital flows. At the very least a provision should be introduced allowing
countries with BOP deficit problems to place temporary restrictions on financial
transfers by investors.
3.0 General Concerns
3.1 Eroding Labour and Environmental Standards
By increasing the rights and freedoms of investors to buy, sell, and move their
operations wherever and whenever they want without government restrictions, the MAI
is likely to exacerbate downward pressure on labour and environmental standards in
both richer and poorer countries.
Government deregulation of investment has already prompted an increase in company
relocation with companies seeking out the most favourable production sites and lowest
labour costs. (This is occurring despite evidence from the OECD that the lowering of
labour standards does not confer any long term competitive advantage7). The threat of
plant closure is normally enough to undermine claims for better conditions. It also
increases job insecurity.
This is not just a problem between the developing and developed world, but increasingly
occurs within the developing world as well. Unskilled workers in newly industrialised
countries such as South Korea, Taiwan, Singapore, and Hong Kong have lost jobs to
workers in countries such as Thailand, Malaysia, Indonesia and the Philippines, which in
turn are beginning to lose jobs to even cheaper labour forces in China, Vietnam and
Indonesia.
Increased competitive pressures are causing governments to lower labour and
environmental standards in an effort to attract foreign investment and win export
markets. This is creating a situation where investors are free to conduct their activities
without regulation. While some foreign investors improve labour and environmental
standards, others exploit labour and damage the environment. Developing countries
with weak legislation and enforcement mechanisms are particularly vulnerable to the
latter.
________________________
7See OECD Trade, Employment and Labour Standards: a study of core workers' rights and international trade, 1996
----------------------------------------
The MAI will exacerbate the downward pressure on labour and environmental standards
if it removes government controls on foreign investment without simultaneously
strengthening national or international labour and environmental standards, and without
placing binding responsibilities on investors in these areas.
Community Aid Abroad understands that there is now a majority of governments in
favour of binding clauses aimed at preventing governments from lowering environmental
and labour standards in order to attract investment. Unfortunately the Australian
Government has only supported "non-mandatory" guidelines on environment in the MAI
and similarly has opposed legal enforceability of labour rights in the agreement. The
inclusion of binding clauses is essential. It is also important that the wording on binding
clauses makes it clear that governments and citizens would be able to present cases of
non-compliance to the dispute settlement mechanism.
Community Aid Abroad welcomes the proposal to annex the OECD guidelines on
Multinational Enterprises to the MAI as a voluntary measure. This is welcome as an
aspirational measure, however we argue that this will not on its own make the MAI a fair
or balanced agreement. The history of the OECD voluntary guidelines suggests that
they have not been effective in monitoring or conditioning company behaviour. Elements
of these guidelines, for example, relating to environmental, labour and consumer
standards, should be made binding on investors. This could be achieved by making the
benefits that investors receive from the MAI (such as their access to dispute settlement)
conditional on their compliance with these standards. In the long term this would be in
the interests of investors. By working for a level playing field in labour and environmental standards and thereby reducing social tensions in the country of investment, it would reduce business uncertainty.
Recommendation 10:
That the Australian Government work towards the introduction of binding
obligations within the MAI on investors covering labour and environmental
standards, and consumer protection. These obligations should be drawn from
internationally agreed guidelines for TNCs including the OECD guidelines, the
1980 UN set of principles on Restrictive Business Principles, the 1977 ILO
Tripartite Declaration of Principles concerning Multinational Enterprises and
Social Policy. Governments and citizens should have the right to present cases of
companies’ non-compliance with these guidelines to the dispute settlement
mechanism.
Conclusion
Community Aid Abroad believes there is a need for the regulation of investment to
ensure that economic benefits to developing countries are maximised while the social
and environmental costs are minimised. However, the current MAI is far from a balanced
agreement. It increases the rights of foreign investors and limits the ability of governments to regulate them. It fails to balance the rights of investors with corresponding responsibilities to protect the rights of workers, communities and the
environment.
Moreover, the MAI will work to weaken existing regulatory mechanisms and undermine
any future efforts towards balanced national and international regulation of investment.
Indeed, given the MAI’s internal flaws and omissions and the widespread public
opposition it has generated, Community Aid Abroad believes there is a strong case for
the Australian government and other negotiators to withdraw from the negotiations and
make a fresh start in discussing multilateral investment rules which incorporate social
and environmental responsibilities in international forum which includes developing
countries.
Summary of Recommendations
Recommendation 1:
Ideally, negotiations on the MAI should begin again in a forum inclusive of developing countries. At the very least, the MAI process should be broadened in order to include meaningful consultation with developing country governments and relevant non-government actors at an early stage.
Recommendation 2:
That an independent Review and Discussion of the Development Implications of
the MAI is undertaken at the OECD level, considering the implications of the MAI
and international investment agreements generally, for developing countries.
Recommendation 3:
That a provision should be introduced allowing developing countries to sign up to
the MAI on a sector by sector basis rather signing the whole agreement and then
negotiating individual country-exemptions.
Recommendation 4:
That if a dispute settlement mechanism is established, citizens and other stakeholders must have the right to present evidence to the tribunals and bring claims for damages caused by an investor.
Recommendation 5:
That internationally funded arbitration tribunals and pools of experts be provided
to assist developing countries, citizens and other stakeholders with representation on claims for damages caused by an investor.
Recommendation 6:
That prohibitions on performance requirements be removed from the MAI, or reduced significantly in scope.
Recommendation 7:
That the requirements for governments to commit to broad standstill, rollback and withdrawal clauses be removed.
Recommendation 8:
That the definition of expropriation in the MAI be narrowed by the inclusion of a
general exception for legitimate national policies
Recommendation 9:
That governments should retain the right to regulate investors moving capital in
and out of a country in order to reduce destabilising and unproductive short term capital flows. At the very least a provision should be introduced allowing countries with BOP deficit problems to place temporary restrictions on financial transfers by investors.
Recommendation 10:
That the Australian Government work towards the introduction of binding obligations within the MAI on investors covering labour and environmental standards, and consumer protection. These obligations should be drawn from internationally agreed guidelines for TNCs including the OECD guidelines, the 1980 UN set of principles on Restrictive Business Principles, the 1977 ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. Governments and citizens should have the right to present cases of companies’ non-compliance with these guidelines to the dispute settlement mechanism.
http://www.oxfam.org.au/campaigns/submissions/MAI.pdf
Submission to the Joint Standing Committee on Treaties -
Oxfam Community Aid Abroad May 1988
The Multilateral Agreement on Investment, May 1988
Oxfam Community Aid Abroad
Contents
1. Executive Summary
2. Introduction
3. The MAI and developing countries
4. General concerns
5. Conclusion
6. Summary of Recommendations
The Multilateral Agreement on Investment, May 1988
Oxfam Community Aid Abroad
Executive Summary
This submission outlines Community Aid Abroad's (Community Aid Abroad) concerns
with the draft MAI1. In particular we focus on the implications of the MAI for developing countries as this is our area of expertise. In broad terms we have the following concerns if the MAI is agreed in it current form:
· The MAI will greatly increase the rights of investors vis-a-vis states and citizens without a parallel transfer of social and environmental responsibilities. The strongest provisions in the agreement are those which protect investors rights. These are legally binding and are backed by a right of direct access to international arbitration. This represents a far-reaching more to bring international law into the service of the powerful and economically strong, while neglecting the interests of the economically weak. As such it fails to balance the granting of rights with any acknowledgment of responsibilities for social improvement, human rights or protection of the environment.
· The MAI will also seriously limit the ability of governments to regulate investment
in the public interest and transfer control over investment decisions from governments to unaccountable companies. This will particularly affect developing countries, preventing them from pursuing the kind of policies which involve a significant degree of state intervention and which were adopted by the successful OECD and East Asian economies in their early stages of development,
· The MAI will contribute to growing job insecurity and downward pressure on labour, environmental and consumer standards by increasing the freedom of investors to buy, sell, and move their operations wherever and whenever they want without government restriction. Community Aid Abroad acknowledges the importance of foreign investment to developing countries. Indeed given the increasing significance of foreign investment it is imperative that investment rules do not weaken the possibility of it contributing to
environmentally and socially sustainable development. There is an increasing recognition that the rapid changes involved in globalisation for developing countries clearly have both negative and positive effects. It is the role of international regulation to ensure that the economic benefits are maximised while social and environmental standards are not sacrificed.
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1Community Aid Abroad's Submission is based on the February 1998 MAI draft
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Community Aid Abroad believes that in the MAI needs to be amended so that it promotes forms of international investment which are truly beneficial to communities and the environment. This requires:
· greater transparency and consultation in the negotiation process including meaningful consultation with developing countries and citizens at an early stage.
· a comprehensive and independent review of the social and environmental implications of any proposed agreement for developing countries.
· accountability in investment decisions by allowing citizens, workers and communities the right to bring claims directly against investors and to present their views to any tribunal considering a sate-state or investor-state dispute, either as affected persons or through representative organisations.
· balancing investors rights with their obligations to comply with international standards relating to the rights of workers, affected communities and consumer and environmental protection by the addition of a binding code of conduct for TNCs. Given the MAI's internal flaws and omissions and the political opposition which it is generating, Community Aid Abroad believes there is a strong case for the Australian government and other negotiators not to sign up to the MAI and to make a fresh start in discussing multilateral investment rules in an international forum which includes developing countries. This would ensure the interests of developing countries become integral to any future agreement. It would also allow more time for better consultation with international development institutions such as the UNCTAD, non-government organisations and other stakeholders. And it would enable development, environmental and social concerns to become integral to the agreement, rather than tacked on as in the current MAI.
1. Introduction
Community Aid Abroad is an independent community-based Australian organisation
which promotes social justice and the alleviation of poverty through the funding of
innovative development projects overseas in the regions of Asia, Africa, the Pacific,
Central America and in Aboriginal Australia. Community Aid Abroad also undertakes
advocacy work which aims to challenge attitudes and policies that inhibit the realisation
of human rights. CAA is a member of Oxfam International and ACFID, the peak body for over ninety non-government organisations (NGOs) in the field of development
assistance.
1.1 International Investment and Developing Countries
Community Aid Abroad notes that in recent years the global scale of trade and
investment has increased dramatically. Foreign Direct Investment has grown more than
twice as fast as world trade and four times as fast as domestic production to become the
main driver of globalisation2. FDI has been fuelled by a small number of transnational
corporations (TNCs) and the top 500 TNCs now account for 80 percent of international
investment and 70 percent of global trade.
Inflows of FDI into developing countries have surged from $31 billion in 1990 to $80
billion in 1993. However this increase has been very uneven and FDI has been
concentrated in around 10 developing countries3. The 1996 UNCTAD World Investment
Report notes that South, East and South-East Asia has become the largest host
developing region accounting for two-thirds of developing-country FDI. The situation for
Africa and Latin America is far less promising. In 1995 Latin America saw a 5% increase
in FDI but most inflows were concentrated in individual industries, making them susceptible to special circumstances in those industries. The net share of Africa in
developing country FDI inflows actually fell to 4.7 percent in 1995 (from 5.8 percent in
1994). Despite the increase to certain developing countries, OECD countries continue to
be still the main source and destination of foreign investment: 75 percent of the total
accumulated stock of foreign investment and 60 percent of the flow are located in North
America, Europe and Japan.
Community Aid Abroad believes that international investment has the potential to
generate wealth and jobs. We acknowledge the significant gains to some countries and
workers, especially to the East Asian economies who experienced an improvement in
modern sector jobs and wages in the 1980s. However, we note that without an adequate
regulatory framework investment can equally undermine the livelihoods, welfare and
rights of vulnerable people and do substantial environmental harm.
While trade and investment liberalisation is not the main cause of poor employment
conditions prevailing in some countries, it does reduce workers' bargaining power. The
growing mobility of capital means that companies can relocate or use the threat of
relocation to reduce labour and production costs. This in turn has lead to a competitive
lowering of labour and environmental standards as governments seek to attract foreign
investment by offering the most favourable conditions. The effects of this can be seen
most obviously in the growth of Free Trade Zones, the spread of flexible working
practices and deregulation of labour markets which are undermining labour rights and
preventing the equitable distribution of the benefits of trade and investment.
_________________________
2By globalisation we refer to the integration of economic activities across national boundaries
3There has been an increase in total net flows to developing countries over the past decade however, market (or private) flows have
risen from one-third to two thirds of the total while non-market (or aid) flows have fallen in real terms.
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Whether or not investment is beneficial to developing countries depends on a number of
factors including the distribution of wealth, the control of production and distribution, the
terms on which countries receive foreign investment and the nature of the regulatory
framework. It is essential therefore, that international arrangements governing FDI are
sensitive to the needs of developing countries.
The 1996 UNCTAD World Investment Report concludes that international arrangements
governing FDI must be:
· Safeguarded by allowing developing countries in need of a transition period the
time to adjust to more stringent standards of investment liberalisation.
· Advanced by agreeing that developing countries can take appropriate measures
to increase the benefits that they can reap from FDI, without infringing on the
essential interest of foreign investors.
· Supported by home country governments committing themselves to helping
developing countries to attract FDI, in particular FDI that is most consonant with
their development needs
2. The MAI and developing countries
As it currently stands, the MAI is far from a balanced agreement. Community Aid Abroad
believes that if MAI negotiations are to continue, the following concerns need to be
addressed as a matter of urgency.
2.1 Lack of Consultation
Community Aid Abroad believes the exclusion of developing countries from the MAI
negotiation process is unacceptable. Developing countries have different needs and
conditions to those of OECD countries and it is likely that the current MAI may be
inappropriate and damaging to developing countries.
For example, the presumption in international investment agreements between
developed countries is that foreign investors are at an initial disadvantage to established
domestic firms and regulatory authorities. In the case of developing countries the
reverse is often the case and foreign firms may be extremely powerful relative to
domestic firms. Developing countries may also be particularly vulnerable to sudden
changes in the world economy or to pressures from large TNCs. Furthermore, the
economies of developing countries are often dominated by particular sectors, such as
natural resources (eg energy, mining), manufacturing or services and governments often
to retain a high level of control and regulation of these key sectors.
There is significant evidence that investment liberalisation can have a negative as well
as positive implications for developing countries. For example, unless developing
countries have built up a level of domestic capacity so that local companies can
The Multilateral Agreement on Investment, May 1988
Oxfam Community Aid Abroad
withstand competition from foreign industries greater investment liberalisation is likely to
lead to the displacement of local companies, higher unemployment and lower prospects
for growth.
Community Aid Abroad is concerned that the unique conditions of developing countries
have not been taken into consideration in the MAI. However, the delays in the
negotiation process have created an opportunity to undertake a broad consultative
process on the MAI and international investment agreements generally. Ideally,
negotiations on the MAI should begin again in a forum inclusive of developing countries.
At the very least, broad consultations should be organised with all affected parties;
including developing country governments, multinational firms and non-government
organisations.
2.2 Need for More Research
In addition, the delays in negotiation provide time to commission further research on the
impact of the MAI for developing countries. It is essential that before the MAI is signed,
an independent assessment and full discussion of its implications for developing
countries at OECD level is undertaken. The UK's Department for International
Development (DFID) study which looks at the Development Implications of the
Multilateral Agreement on Investment is a first step in this direction, although its
influence may be restricted by its lateness and the short time available for the research
and discussion4.
The DFID study notes that further research is required on the broader relationship
between poor countries and international capital markets, including the consequences
for poverty reduction. Community Aid Abroad believes an independent study should also
examine the implications of the MAI for debt relief initiatives for government debt,
commercial or multilateral debt, the possible implications of the MAI for a country's
balance of payments, the impact of greater investment liberalisation on domestic
industries in developing countries, and the likelihood of greater unemployment and the
lowering of environmental and labour standards. Such an assessment however, cannot
substitute for the full participation of developing countries in the negotiations.
Recommendation 1:
Ideally, negotiations on the MAI should begin again in a forum inclusive of
developing countries. At the very least, the MAI process should be broadened in
order to include meaningful consultation with developing country governments
and relevant non-government actors at an early stage.
_________________________
4The Development Implications of the Multilateral Agreement on Investment, a report commissioned by the Department for
International Development, E.V.K Fitzgerald and R. Cubero-Brealey and A. Lehmann, Finance and Trade Policy Research Centre,
Queen Elizabeth House, University of Oxford, March 1998
-----------------------------------------------
Recommendation 2:
That an independent Review and Discussion of the Development Implications of
the MAI is undertaken at the OECD level, considering the implications of the MAI
and international investment agreements generally, for developing countries.
2.3 National Treatment/Most Favoured Nation
The MAI will seriously restrict the ability of governments to regulate foreign investment
for the common good. Unlike the GATT, the MAI does not allow general exemption from national treatment if imports can be shown to endanger life or health of people, animals or the environment.
The MAI's main objective is to ensure that governments treat foreign-owned and
nationally-owned investors equally. The text starts with a general obligation on states to
treat TNCs no less favourable than national firms (National Treatment) and to extend
any favourable treatment offered to one investor to all (Most Favoured Nation). These
principles will apply to the acquisition, establishment and operational activities of all
investors.
While this sounds fair in principle, investors are not in practice alike nor equal, nor are
their host countries. The DFID study notes that in the case of poorer developing
countries:
"Foreign firms may be very large relative to domestic firms, making 'national treatment'
an ambiguous concept and even requiring special protection for small firms."
Poorer countries are often weak vis-a-vis powerful TNCs. Their ability to impose controls is vital to prevent TNCs expropriating excessive economic benefits from investments in these countries. Furthermore, many developing countries have economies dominated by a few important sectors such as mining or agriculture. As a result, governments continue to retain powers to control how these sectors are owned and managed. This is especially true for land and natural resources, which needs to be carefully managed for long term benefit.
The MAI provisions will prevent developing countries from pursuing the kind of policies adopted by East Asian economies in their early stages of development, which involved a significant degree of state intervention including regulation of foreign investment and export subsidies.
Wealthier countries including Australia will also be affected by this loss of control. Many
governments have restrictions on foreign ownership of key industries or sensitive
sectors, or require approvals for such acquisitions, or insist that they be carried out as
joint ventures with local investors or government bodies. Australia requires that
investments over a certain value are submitted to a screening test based on national
interest.
Australia also has laws which limit or regulate levels of foreign investment in real estate
and in the media. Foreign ownership is limited in privatised bodies like Qantas or
Telstra. All of these contradict the fundamental principle of the MAI. While Treasury
documents list privatisation, the airline industry and telecommunications as exemptions
there is no detail and it is not clear whether the exemptions are permanent or temporary.
Similarly, concentration of ownership in the broadcast media can have far reaching
political and social consequences, which many consider requires controls to restrict
monopoly control by global giants such as Murdoch's News International. The UK has
requested an exemption from the MAI on broadcast media. Both the French and
Canadian governments are concerned that the MAI ignores the need to retain
indigenous languages and cultures. While the Australian government has listed media
and "audio-visual" as exemptions, no detail is given and it is not clear whether they
would be permanent or temporary.
The MAI's 'top-down' approach to liberalisation of investment rules, which has been
developed without the participation of developing countries, will require them to sign up
to the whole agreement and negotiate individual exemptions for particular sectors.
Given the different needs of developing countries outlined above, Community Aid
Abroad believes a more appropriate model would be the approach taken by the Uruguay
Round negotiators when designing the General Agreement on Trade in Services
(GATS). GATS is designed from the "bottom up" allowing members to opt-in to GATS
rules specific sectors of their economies one by one through rolling negotiations. This
approach, known as the "positive list" approach assumes that no sector is covered
unless it is listed as being excluded, differs from the usual "negative list" approach being
proposed for the MAI, which assumes that every relevant sector is covered unless it is
listed as being excluded. A "positive list" approach would enable developing economies
to liberalise if and when they think it appropriate to do so. They retain control and some
choice over which sectors to liberalise.
Recommendation 3:
That a provision should be introduced allowing developing countries to sign up to
the MAI on a sector by sector basis rather signing the whole agreement and then
negotiating individual country-exemptions.
2.4 Dispute mechanism
If agreed in its current form, the MAI will greatly increase the rights of investors vis-a-vis
states and citizens. The strongest provisions in the agreement are those which protect
the rights of investors. These are legally binding, and are backed by a right of direct
access to international arbitration. This represents a far-reaching move to bring
international law into the service of the powerful and economically strong, while entirely
neglecting the interests of the poor and economically weak. As such, it fails to balance
the granting of rights with any acknowledgment of responsibilities for social
improvement, human rights or the protection of the natural environment.
The MAI's dispute settlement mechanism not only provides for state to state disputes,
but also grants corporations the right to sue governments over any breach of MAI
provision which causes loss or damage to the investor or investment. No corresponding
right is provided for governments, communities, or citizens to counter-claim for damages
caused by the investor. In effect this gives the investor a status not just equal but
superior to governments and the people they are supposed to represent. Laws and
policies validly established by legally accountable governments will be overridden by the
rights created by the MAI.
Just as the MAI creates rights for investors enforceable both under local law and by
international arbitration, citizens must be given the right to bring claims directly against
the investor.
Concerns have also been raised by the DFID study about the potential cost of the
dispute settlement mechanism for developing countries . The proposed procedures are
involved and lengthy. Moreover they may become endless (eg. there is no explicit limit
to the number of times an arbitration award may be challenged.) The costs of
representation and (most likely) the costs of the tribunal (s) have to be borne by each
party. These costs are usually very high, and barely affordable for the poorer developing
countries. Additionally most poorer countries may lack highly skilled litigants with
expertise in international investment and arbitration procedures. The combination of high
costs and unpredictable length of the procedures, will create an incentive to negotiate
off-tribunals, where developing countries will be at a disadvantage.
Recommendation 4:
That if a dispute settlement mechanism is established, citizens and other
stakeholders must have the right to present evidence to the tribunals and bring
claims for damages caused by an investor.
Recommendation 5:
That internationally funded arbitration tribunals and pools of experts be provided
to assist developing countries, citizens and other stakeholders with
representation on claims for damages caused by an investor.
2.5 Performance Requirements
Many states, including OECD members commonly impose performance requirements
designed to achieve minimum levels of local employment and proportions of locally-sourced materials, or insist on joint ventures and technology transfer. Plants and
subsidiaries sometimes do not bring any substantial economic benefits to the host
country. They may be set up as marginal activities of global integrated businesses in
order to get access to a local market, avoid tariffs and obtain tax and other advantages.
They may be limited to assembly of "screwdriver" operations with marginal impact on the local economy as they employ only a few unskilled workers, export solely to the
parent's other plants, and may be prevented from using local suppliers.
This provision is likely to particularly effect developing countries which need to be able
to apply performance requirements in order to prevent TNCs expropriating excessive
benefits and to ensure that foreign investment contributes to development objectives.
Poorer countries may also be vulnerable to being used as "screwdriver" operations by
foreign investors with marginal benefits for the local economy.
Yet, the MAI draft includes an article prohibiting performance requirements, although the
limits are still under negotiation by OECD governments. The current text prohibits the
following performance requirements: a) trade related: ratio of exports to total sales
domestic content, purchases, ratio of imports to exports, ratio of local sales to exports,
b) transfer of technology, c) location of headquarters, d) research and development, e)
employment of locals, f) minimum or maximum level of equity participation. However,
any contracting party may impose performance requirements listed from b) to f) above if
linked to the granting of an "advantage" which significantly weakens this restriction.
The term advantage is not defined in the MAI text and therefore must be understood in a
broad sense ( including all forms of tax and financial benefits/breaks/subsidies, access
to resources, technical cooperation.) Countries will also be allowed to exempt sectors however it is not clear as yet what guidelines will be developed for acceptable exemptions and it is likely that developing countries may be put under pressure to
minimise exemptions.
Recommendation 6:
That prohibitions on performance requirements be removed from the MAI, or
reduced significantly in scope
2.6 Standstill, rollback and withdrawal clauses.
The MAI allows some exemptions from these provisions, for example relating to
international and domestic security. However, all exemptions will be temporary. The
early drafts of the MAI text contain roll back measures which will commit governments to reduce and eventually eliminate existing regulation which does not conform with the
MAI. Standstill measures will prevent the introduction of any new non-conforming laws.
Most concerning is the withdrawal clause which ensures that once a country has ratified
the agreement it is virtually locked in for a 20 year period.
Community Aid Abroad understands that in recent MAI drafts these clauses are
weakened . Each signatory country will be allowed to list any "non-conforming
measures" which the country wishes to maintain and not subject to rollback.
Commitments towards the gradual elimination of existing non-conforming measures
would be voluntarily made in the exeptions schedule. But although rollback will be
voluntary, the periodic revision of the country schedules would exert strong "peer
pressure" to dismantle non-conforming measures. Furthermore, whether or not countries
can obtain an exemption to the standstill and introduce non-conforming measures at a
later date is still subject to negotiation.
Recommendation 7:
That the requirements for governments to commit to broad standstill, rollback and
withdrawal clauses be removed
2.7 Investor Protection and Compensation
States will be obliged to provide "full and constant protection and security" to foreign
owned assets as well as to provide compensation in the event of nationalisation of any
kind of expropriation affecting property rights. This is given a wide meaning by the
inclusion of "measures having an equivalent effect" such as taxation or possibly some
environmental regulations. We are concerned by the wide definition of expropriation
which may allow companies to challenge legitimate national policies, such as taxation,
health and safety, environmental or labour laws, as creeping expropriation.
For example if a investor builds a plant to produce a chemical or agricultural product and
the host government subsequently bans it for environmental or health reasons, the
company could claim this as an equivalent of expropriation. This would be a powerful
motivation for the government not to ban the product.
The agreement will provide for compensation to be at full market value plus interest in
convertible currency even though the assets may have been bought at below market
price.
Recommendation 8:
That the definition of expropriation in the MAI be narrowed by the inclusion of a
general exception for legitimate national policies.
2.8 Transfer of funds
The MAI contains a general provision requiring states to ensure that investors can make
financial transfers into and out of the host country freely, which covers dividends,
interest, and all types of payments. Recourse to balance-of-payments (BOP)
consideration as a justification for restriction of such repatriation will not be permitted.
Absolute freedom for investors and speculators to move funds can cause major
problems for individual countries and can also be destabilising regionally or globally, as
seen by the recent crisis in Thailand and East Asia. It will allow a right for investors to
transfer all money, even if a country is in a financially critical situation. Unlike the WTO,
which accepts that countries have a right to temporarily limit the outflow of profits if there is a balance of payments (BOP) deficit problem or any other type of financial problems, the MAI will not grant concessions to countries with BOP problems and will continue to allow companies unrestricted outflow of finances.
This provision may also outlaw measures taken by the Chilean government, for
example, to discourage destabilising and unproductive short term capital flows. The
Chilean government has brought in a measure requiring portfolio investors to make an
interest-free deposit of an amount equal to 30 percent of their investment that they are
not able to withdraw for one or more years.
Recommendation 9:
That governments should retain the right to regulate investors moving capital in
and out of a country in order to reduce destabilising and unproductive short term
capital flows. At the very least a provision should be introduced allowing
countries with BOP deficit problems to place temporary restrictions on financial
transfers by investors.
3.0 General Concerns
3.1 Eroding Labour and Environmental Standards
By increasing the rights and freedoms of investors to buy, sell, and move their
operations wherever and whenever they want without government restrictions, the MAI
is likely to exacerbate downward pressure on labour and environmental standards in
both richer and poorer countries.
Government deregulation of investment has already prompted an increase in company
relocation with companies seeking out the most favourable production sites and lowest
labour costs. (This is occurring despite evidence from the OECD that the lowering of
labour standards does not confer any long term competitive advantage7). The threat of
plant closure is normally enough to undermine claims for better conditions. It also
increases job insecurity.
This is not just a problem between the developing and developed world, but increasingly
occurs within the developing world as well. Unskilled workers in newly industrialised
countries such as South Korea, Taiwan, Singapore, and Hong Kong have lost jobs to
workers in countries such as Thailand, Malaysia, Indonesia and the Philippines, which in
turn are beginning to lose jobs to even cheaper labour forces in China, Vietnam and
Indonesia.
Increased competitive pressures are causing governments to lower labour and
environmental standards in an effort to attract foreign investment and win export
markets. This is creating a situation where investors are free to conduct their activities
without regulation. While some foreign investors improve labour and environmental
standards, others exploit labour and damage the environment. Developing countries
with weak legislation and enforcement mechanisms are particularly vulnerable to the
latter.
________________________
7See OECD Trade, Employment and Labour Standards: a study of core workers' rights and international trade, 1996
----------------------------------------
The MAI will exacerbate the downward pressure on labour and environmental standards
if it removes government controls on foreign investment without simultaneously
strengthening national or international labour and environmental standards, and without
placing binding responsibilities on investors in these areas.
Community Aid Abroad understands that there is now a majority of governments in
favour of binding clauses aimed at preventing governments from lowering environmental
and labour standards in order to attract investment. Unfortunately the Australian
Government has only supported "non-mandatory" guidelines on environment in the MAI
and similarly has opposed legal enforceability of labour rights in the agreement. The
inclusion of binding clauses is essential. It is also important that the wording on binding
clauses makes it clear that governments and citizens would be able to present cases of
non-compliance to the dispute settlement mechanism.
Community Aid Abroad welcomes the proposal to annex the OECD guidelines on
Multinational Enterprises to the MAI as a voluntary measure. This is welcome as an
aspirational measure, however we argue that this will not on its own make the MAI a fair
or balanced agreement. The history of the OECD voluntary guidelines suggests that
they have not been effective in monitoring or conditioning company behaviour. Elements
of these guidelines, for example, relating to environmental, labour and consumer
standards, should be made binding on investors. This could be achieved by making the
benefits that investors receive from the MAI (such as their access to dispute settlement)
conditional on their compliance with these standards. In the long term this would be in
the interests of investors. By working for a level playing field in labour and environmental standards and thereby reducing social tensions in the country of investment, it would reduce business uncertainty.
Recommendation 10:
That the Australian Government work towards the introduction of binding
obligations within the MAI on investors covering labour and environmental
standards, and consumer protection. These obligations should be drawn from
internationally agreed guidelines for TNCs including the OECD guidelines, the
1980 UN set of principles on Restrictive Business Principles, the 1977 ILO
Tripartite Declaration of Principles concerning Multinational Enterprises and
Social Policy. Governments and citizens should have the right to present cases of
companies’ non-compliance with these guidelines to the dispute settlement
mechanism.
Conclusion
Community Aid Abroad believes there is a need for the regulation of investment to
ensure that economic benefits to developing countries are maximised while the social
and environmental costs are minimised. However, the current MAI is far from a balanced
agreement. It increases the rights of foreign investors and limits the ability of governments to regulate them. It fails to balance the rights of investors with corresponding responsibilities to protect the rights of workers, communities and the
environment.
Moreover, the MAI will work to weaken existing regulatory mechanisms and undermine
any future efforts towards balanced national and international regulation of investment.
Indeed, given the MAI’s internal flaws and omissions and the widespread public
opposition it has generated, Community Aid Abroad believes there is a strong case for
the Australian government and other negotiators to withdraw from the negotiations and
make a fresh start in discussing multilateral investment rules which incorporate social
and environmental responsibilities in international forum which includes developing
countries.
Summary of Recommendations
Recommendation 1:
Ideally, negotiations on the MAI should begin again in a forum inclusive of developing countries. At the very least, the MAI process should be broadened in order to include meaningful consultation with developing country governments and relevant non-government actors at an early stage.
Recommendation 2:
That an independent Review and Discussion of the Development Implications of
the MAI is undertaken at the OECD level, considering the implications of the MAI
and international investment agreements generally, for developing countries.
Recommendation 3:
That a provision should be introduced allowing developing countries to sign up to
the MAI on a sector by sector basis rather signing the whole agreement and then
negotiating individual country-exemptions.
Recommendation 4:
That if a dispute settlement mechanism is established, citizens and other stakeholders must have the right to present evidence to the tribunals and bring claims for damages caused by an investor.
Recommendation 5:
That internationally funded arbitration tribunals and pools of experts be provided
to assist developing countries, citizens and other stakeholders with representation on claims for damages caused by an investor.
Recommendation 6:
That prohibitions on performance requirements be removed from the MAI, or reduced significantly in scope.
Recommendation 7:
That the requirements for governments to commit to broad standstill, rollback and withdrawal clauses be removed.
Recommendation 8:
That the definition of expropriation in the MAI be narrowed by the inclusion of a
general exception for legitimate national policies
Recommendation 9:
That governments should retain the right to regulate investors moving capital in
and out of a country in order to reduce destabilising and unproductive short term capital flows. At the very least a provision should be introduced allowing countries with BOP deficit problems to place temporary restrictions on financial transfers by investors.
Recommendation 10:
That the Australian Government work towards the introduction of binding obligations within the MAI on investors covering labour and environmental standards, and consumer protection. These obligations should be drawn from internationally agreed guidelines for TNCs including the OECD guidelines, the 1980 UN set of principles on Restrictive Business Principles, the 1977 ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. Governments and citizens should have the right to present cases of companies’ non-compliance with these guidelines to the dispute settlement mechanism.