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Magazine Issue 5&6 - Winter 1997

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Researching this article was a sobering experience. I rapidly discovered just how little I knew about the regulation of international trade and investment. Neither I nor most of the people I knew could string together more than a couple of coherent meaningful sentences about the World Trade Organisation (WTO) or the North American Free Trade Agreement (NAFTA), and yet these institutions wield enormous power over the global economy and thus over the lives of every living thing on the planet.

Somehow these new centres of power have come into being without attracting the attention of the general public. It all appears so innocent and so boring - hardly worth a couple of column inches on p.17 of the Daily Lies. Free trade after all sounds like a fairly noble aim and the public doesn’t need to be bothered with the technicalities. In this article we shall not be examining the symptoms of the corporate world, with the abuses of humanity and ecology it entails. Instead we shall be be looking at the evolving system that allows them.

The proposed Multilateral Agreement on Investment (MAI) is the latest step in the globalisation of the world economy. It is the invention of the OECD. Originally a club for the western European countries, the OECD operates as an economic think-tank for its member countries, which also include the USA, Japan, and other wealthy Asian countries. It provides research and analysis on economic conditions in order to assist its members’ development. It is less well known for its role in setting rules and regulations.

The MAI will be a treaty between signatory nations that will signal a further opening up of markets. There are obvious advantages to such a treaty. It brings freedom for business from the unwanted and fickle attentions of government. It provides a single predictable set of rules to replace the myriad bi-lateral agreements between countries.

The MAI is a long and technical document. Aiming to provide a single new framework for the regulation of international investments, it will replace all previous agreements that have been made between signatory states and over-rule all laws that conflict with it. Investments have been defined widely to cover almost anything that can be bought or sold. Stocks and shares, buildings and equipment, and companies are all covered by the agreement. It enshrines the right to own or acquire any asset, related rights such as the ability to operate a business, and the freedom to transfer funds and capital as and when desired. The only economic sector exempted from the scope of the agreement is defence.

The stated intention is innocent-sounding enough: to level the playing field for all investors so that all parties be they small local companies or giant transnationals will be treated equally regardless of nationality. This equality is summed up in two key principles - National Treatment and Most Favoured Nation Status. The former commits governments to treat foreign investors no less favourably than investors of its own country. The latter commits them to treat foreign investors no less favourably than it does investors of any other signatory nation. Together these two principles sum up the stated intentions of the agreement, to ensure that investors are treated as well as possible regardless of their nationality.

The bulk of the MAI is devoted to specific ways of preventing discrimination. Any and all performance requirements on investors will be banned. Under the terms of the agreement the following kinds of obligations on investors (amongst others) are specifically outlawed : Prescribed levels of export of goods even though a nation’s balance of payments may suffer. Setting required levels of domestic content in the products of an enterprise. The transfer of technology or other proprietary knowledge to the local community Requiring that enterprises must be joint ventures with local partners. To achieve a given level or value of production, investment, manufacturing, sales, employment or R&D within a nation’s territory

In short, none of the obligations that are traditionally used to protect and manage local economies may be placed on an investor. Apart from paying its taxes and obeying the laws of the land (where they do not conflict with the MAI) TNCs will be free to act as they wish. Furthermore governments will be barred from interfering with companies because of the nature of their operations elsewhere in the world. If a company exploits slave labour in Burma no government may take this as grounds to hinder or in any way interfere with their free entry into a market. Had this part of the agreement been in force during the apartheid era, trade sanctions against South Africa would have been impossible except through UN resolutions which are notoriously easy to scupper.

TNCs will be free to bring into a country the personnel they choose. For national governments to sign away their own power seems, at first, unlikely. On the other hand, perhaps it betrays the true nature of of the relationship between government and industry in the rich nations.

No requirements can be made that companies employ nationals of the countries in which they operate. Obligations will also be included that will require the remuneration of investors in the event of their assets being expropriated or interfered with.
Much of the document comprises a long list of prohibitions, imposing limitations on the power of central and regional government to regulate the actions of business. With just those provisions the MAI goes a great deal further than previous treaties which have maintained the sovereignty of national governments to manage their own economies in line with their development objectives. Yet there are further provisions giving even greater power to investors.

A Bill of Rights for Transnationals
Under WTO and NAFTA when disputes arise they must be resolved at a governmental level. The MAI however grants investors the right to directly challenge national and local laws when they are deemed to be in breach of MAI provisions, and cause or are likely to cause loss or damage to an investor or investment. This may lead to absurd situations of cash-strapped local government being vulnerable to legal action directly from TNCs which have far greater resources. If such a situation comes about it is likely to dissuade government from enacting any new legislation that might conflict with MAI.

Rules are provided for settling government-to-government disputes and for investor-to-government disputes. No reciprocal mechanism is provided for taking legal action against transnationals, a point that has been made much of by campaigners against the agreement. The reason for this is very simple. There is nothing in the agreement that an investor could be found in breach of. The MAI constitutes a bill of rights for transnational investors, but whilst it bestows new rights and freedoms on investors there are no responsibilities or obligations placed upon them.

Further sections of the agreement provide for a ‘rollback’ of existing legislation that conflicts with the MAI. Acting in combination with these is the ‘standstill’ mechanism which will prevent the enactment of new legislation in this area. Together these will amount to a ‘ratchet effect’ reducing and eliminating laws that do not conform.

The MAI also includes rules that will lock it in place for at least twenty years. Under the terms no nation will be allowed to withdraw from the agreement for at least five years after it is signed. Furthermore all existing investments will be covered by the full range of protections for a further fifteen years after withdrawal. Failure to comply with these requirements is likely to result in trade sanctions and maybe worse.

How the MAI will work out cannot be precisely predicted. The world has never had such a far reaching agreement before. However, the history of previous agreements is instructive.

In every one of the hundred or so cases brought before it in its three years, the WTO has ruled in favour of corporate interests. The structure of the WTO ensures this. When a complaint is lodged against a nation it must prove on narrow scientific grounds that it has good cause to restrict trade. The precautionary principle does not apply and the wishes of a country’s populace are simply irrelevant. Air pollution legislation, resistance to genetically modified crops and hormone treated beef, and dolphin friendly tuna fishing regulations have all been struck down. The fate of the Windward Islands currently hangs in the balance, its principle export to the EC, bananas, having been found to be based on ‘unfair’ subsidies (see page 17).

Hearings are held in absolute secrecy before a panel of unelected trade experts whose identities are kept secret. These experts are usually lawyers who have made careers working for corporations on international trade issues1. There is little reason to imagine that MAI procedures will be any less partisan.

Opposition Grows
Thankfully the MAI negotiations were not concluded by the deadline of May ‘97. Ironically this is because of governments’ desire to protect particular sectors of their economies. So many special exemptions from the scope of the MAI have been filed that the negotiations have been dramatically slowed. Few governments, except it seems the UK’s, are actually daft enough to believe their own rhetoric about free markets. No successful economy has been created without careful management and selective protection from the destructive tendencies of the free market. America, the most vocal champion of free trade and yet traditionally the most protectionist of capitalist economies, has produced the longest list of exemptions and has the muscle to insist on them. Included is an exemption of all state and local government, and most of its natural resource base. The UK delegation, by contrast, has now dropped its one proposed exemption of fishing rights. British fishermen will soon discover that foreign fishing fleets will be able to buy up British fishing blocks whilst the converse freedom to bid for Eu ropean fishing blocks will be denied as most countries have lodged exemptions for this sector.

Meanwhile the extra time has enabled opposition to mobilise against the agreement. Worldwide, a coalition of NGOs has formed to try to stop the negotiations. In the UK the World Development Movement, Friends of the Earth, Oxfam and the WWF, have begun a dialogue with the DTI and the OECD. Focussing on environmental and labour issues, they are highlighting the dangers of deregulation. One of the chief concerns is that as capital is given greater mobility countries are put under pressure to provide the most favourable conditions to investors. The phenomenon, dubbed a “race to the bottom” is not new. Across Europe countries have been dropping corporation tax, and deregulating the labour market for years in an effort to attract foreign investment. At the same time there is a tendency for the most polluting and labour intensive industries to shift to countries with lower standards and costs. Exactly the same phenomenon has been occuring within the NAFTA area2. In spite of these fears the business community reacts with breathtaking arrogance - the President of the United States Council for International Business had this to say “We will oppose any and all measures to create or even imply binding obligations for governments or business related to environment or labour”3.

Much of the ‘developing’ world is expressing deep concern about the OECD’s plans. The worst impacts of globalisation have always been borne by the poorest countries. Their fear is that the MAI will not stay within the OECD nations, but will form the basis for a global agreement. Also developing nations, desparate for investment, will be under pressure to sign up to the MAI on a take it or leave it basis, without having had any input into its design. If they do not sign up investment can simply go elsewhere. At the same time there are plans for a similar agreement to be applied globally through the WTO.

The Campaign
In October this year the NGO coalition returned to Paris to consult with the OECD. Disillusioned with previous efforts to communicate, the group of NGOs, 29 strong, issued an ultimatum to the OECD. If their list of eight demands was not met in full they would devote their combined resources to campaigning against the MAI. Their demands included the immediate halting of negotiations, independent assessments of likely environmental and social impacts, and the incorporation of binding regulations on multinational investors. They were ignored. The stage is now set for a battle that may see, for the first time active public participation in the shaping of international relations.

Ways must now be found to take action against the OECD’s plans. Industrial sectors can be informed of the threat they face as can local government and ways must be found of informing the wider public. We must show them just how this treaty might affect their lives. Perhaps there are forms of direct action that can be applied.

Failure of Global Regulation
After intense lobbying by the NGOs the British government is now pushing to have the OECD’s ‘Guidelines For Multinational Enterprises’ closely associated with the MAI. Unfortunately the guidelines are purely voluntary and non-binding. There are no binding international regulations in effect today that impose obligations or responsibilities on the multinationals. Efforts in the past to impose regulation on them have all met with failure.

After the uproar created in the ‘60s by the US-based International Telegraphs & Telephones (ITT) interference with the politics of Chile the United Nations set up two intergovernmental groups to address such problems associated with investment. The result was the UN Code of Conduct for TNCs, which would have provided an internationally recognised minimum standard, had it been successfully concluded. Since then the UN Centre on TNCs has been shut down and the UN Commission on TNCs divested of its mandate to develop regulation. Instead it is now focussing on how foreign direct investment can benefit countries4.
At a global level there are still no guidelines, even voluntary ones, regarding the conduct of TNCs.

The Post Democratic World
If enacted, this agreement will inevitably spell further degradation of environments and societies, by further deregulating the activities of TNCs. It will also increase the power of the corporations at the expense of elected governments. For national governments to sign away their own power seems, at first, highly unlikely. On the other hand, perhaps it betrays the true nature of the relationship between government and industry in the rich nations. Could this be why there has been no public consultation?

Negotiations at the OECD began in 1995 and were intended to conclude in May 1997. Throughout they were conducted in absolute secrecy with minimal media coverage. The DTI, which is leading the UK’s delegation to the OECD, was unable to give any reasonable explanation for this. Neither do the most recent party manifestos make any reference to the MAI.

It was only in late 1996 after leaked drafts of the report were published on the internet that the NGOs were allowed consultations with the OECD.

The CBI however, which is affiliated to the Business and Industry Advisory Council - the OECD’s business lobby - reports that industry groups have been actively involved in lobbying for such an agreement since the early ‘90s.

It seems reasonable to conclude that in the quest to create what one OECD spokesperson describes as “the constitution of a single global economy” democracy has become an expendable notion. Leading western dissident, Noam Chomsky, describes the various international quangos controlling trade and investment as “a de facto world government”5. It doesn’t look much like a government, unconcerned as it is with social, labour, and environmental issues, but increasingly it is where the real power to effect global change is wielded, unaccountable to the masses who will have to endure its tyranny.