OXFAM GB - UPDATE ON THE MAI

December 1998
This update provides information on recent developments on the draft Multilateral
Agreement on Investment (MAI) and Oxfam GBs position on it. A more detailed
Oxfam policy briefing on the post-MAI investment agenda will be available in January
1999.

1. WHAT WAS THE MAI

The MAI was a free-standing investment treaty being negotiated at the

Organisation for Economic Co-operation and Development (OECD). The MAI
was to be a comprehensive, high-standards agreement establishing a legally-
binding multilateral framework for investment liberalisation and investor
protection, and providing a benchmark against which potential investors
would assess the openness and legal security offered by countries as
investment locations. 1 Negotiations on the treaty had begun in 1995 among
the 29 OECD member states and the European Communities, pursuant to a
mandate granted by the OECD Ministerial in June 1994. The treaty was to be
open to accession by non-OECD Member countries and eight non-OECD
states 2 were invited as observers at varying stages of the negotiations. The
intended completion date was the 1997 OECD Ministerial. This target date
was never met due to growing internal dissent and widespread civil society
opposition to the draft MAI. In April 1997, OECD Ministers called for a six-
month halt in negotiations to allow for a period of assessment and national
consultation with civil society. When OECD governments returned to Paris to
resume negotiations in October 1997, the new French government
announced its withdrawal from the MAI talks citing conflicts with national
sovereignty and protection of Frances culture industries. Negotiations never
recovered, and on December 3, 1998, the OECD announced that
Negotiations on the MAI are no longer taking place. An official
pronouncement on the MAI, and the role of the OECD in any future
investment negotiations, is expected at the next OECD Ministerial in May
1999.

2. WHAT WAS WRONG WITH THE MAI

The draft MAI, referred to by many critics as the Corporate Charter, attracted
widespread public opposition due to concerns about its implications for
sustainable development (particularly poverty eradication and environmental
sustainability goals) and national sovereignty. At the time of its defeat,
internationally co-ordinated anti-MAI campaigns were known to be active in
more than half of all OECD countries and numerous developing countries.
Opponents ranged from environment and development NGOs, to consumer
organisations, human rights bodies, trades unions, local governments,
parliamentarians and church groups.

1
OECD report on the MAI. OECD/GD(95)65, 1995
2
Argentina, Brazil, Chile, Hong Kong (China), and the Slovak Republic; later Latvia, Lithuania and
Singapore.

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 Oxfam had fundamental concerns with the draft MAI relating to its scope,
process, principles and provisions. Our analysis led us to conclude that the
draft MAI was a seriously unbalanced agreement that would be likely to
exacerbate inequality and social tensions, thereby reducing business
confidence and the prospect of environmentally-sound, pro-poor development
in the long run.

Oxfams objections to the draft MAI can be summarised as follows:

Scope
Coverage of every economic sector and an expansive interpretation
of investment.
Coverage of every tier of government (local, provincial and national)
without due consideration to subsidiarity or informed consent of local
and provincial governments.

Process
Lack of transparency and involvement of all relevant actors
(including NGOs) and agencies at intergovernmental and
governmental levels.
Exclusion of developing countries from the negotiations even though
they were key targets of the eventual treaty.
Top-down negotiating model, instead of a bottom-up sector-by-
sector (positive list) approach.
Lack of adequate, timely and transparent independent reviews of the
social and environmental implications of the draft MAI for OECD and
developing countries.
Absence of policy co-ordination at OECD and governmental level to
ensure that the draft MAI promoted, and in no way impeded, national
obligations under international social, environmental and human
rights treaties.

Principles
Exclusive emphasis on investor protection and private property
rights, without comparable attention to establishing legally-binding
investor obligations and accountability.
Rigid interpretation of the non-discrimination (national treatment)
principle that could lead to foreign investors being treated not only
as favourable as, but better than, domestic investors.
Blanket prohibition of foreign investment controls and screening
by governments unless exceptions were specifically negotiated.

Provisions
The unprecedented inclusion of national treatment and market
access provisions in the pre-establishment phase, not just in the
post-establishment stage common to bilateral investment treaties.
Prohibition of compulsory performance requirements (e.g. local
content and employment stipulations).

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 Inadequacy of proposed Non Lowering of Standards clause to
prevent downward pressure on environmental and labour provisions
in order to attract foreign investment.
Wide definition of expropriation which could be abused by foreign
investors (precedents under the North American Free Trade
Agreement) and threaten legitimate national legislation on the
environment, taxation, health and safety, consumer and labour
rights.
Foreign investor bias of the investor-state dispute settlement
mechanism. This would enable foreign investors to sue
governments for alleged breach of MAI rules in secret tribunals, but
provide no corresponding legal standing for citizens to bring
evidence before such courts.
Undemocratic nature of the standstill and roll-back clauses. These
would force progressive conformity of national laws to MAI
disciplines and be irreversible, even if national governments and
priorities change, unless countries withdraw from the MAI.
Absence of any provisions to regulate investment incentives (fiscal
and regulatory), or strengthen laws on competition policy and
combat restrictive business practices.

3. SOME LESSONS FROM THE MAI

The defeat of the MAI has been a shock to the system for the OECD and the
treatys governmental and business proponents. After its exposure by NGOs
in 1996, the draft treaty failed to stand up to the light of public scrutiny and
became an impossible political sell for governments. Internal complications
and divisions, inherent to negotiations of such a wide-ranging nature among
parties with often competing economic interests, became politicised and
bogged the talks down further. Two additional factors were crucial to the final
unravelling of the MAI: political changes in several OECD governments during
the negotiations, which saw a reversal (e.g. France) or re-thinking (e.g. UK) of
governmental positions; and the international financial turmoil which
heightened sensitivities in OECD treasuries of the need for regulation of
international capital flows instead of further ill-considered liberalisation. With
governmental confidence (many though not all) in the MAI shaken, the
negotiations stood little chance of success. Their eventual failure has
important wider implications for how international economic agreements will
be negotiated in the future. The lessons to be learnt are manifold and need to
be institutionalised at the governmental and intergovernmental level.

Oxfams initial analysis suggests that some key lessons are:

The rationale for multilateral investment rules, including attention to the

beneficiaries of such rules, must be more clearly conveyed to build popular
consensus on the need for an international investment regime.

Foreign investment liberalisation must not be pursued as a goal in itself but

as a means of promoting sustainable development and poverty eradication
goals. This calls for greater attention to the quality and distribution of

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 foreign investment, as well as national re-distribution policies to ensure that
the poor gain as a result of liberalised foreign investment.

As transnational corporations (TNCs) dominate foreign investment,

corporate market access rights (and other privileges), must be balanced by
clear and enforceable rules on corporate responsibility.

International investment rules cannot be standalone rules, divorced from

social and environmental policies (and related rules on competition and
taxation), but integrated as part of a coherent macro-economic policy
package.

Timely and independent social and environmental assessments of

investment rules must be conducted, a priori, to identify areas of potential
conflict with government policies and international treaty obligations.

International investment rules must not act as a barrier to the progressive

upgrading of social or environmental policies.

Any future negotiating forum for a multilateral framework on investment

must be truly multilateral, democratic, transparent and have the full
confidence of all negotiating parties (e.g. not the OECD or WTO).

The negotiating process must be transparent, multidisciplinary and

inclusive at both the intergovernmental and national level.

Areas which are beyond the competence of investment negotiators (e.g.

social and environmental dimensions) should be entrusted to the relevant
expert bodies (governmental and inter-governmental levels).

Mechanisms to ensure public participation must be developed and widely

communicated to interested constituencies.

4. LATEST DEVELOPMENTS

There have been a number of recent developments at the national and inter-
governmental level that could hold new opportunities for broadening and
democratising the policy debate on international investment. These
developments will have to be carefully assessed to see whether they reflect a
truly changed landscape and offer new openings, or are mere mirages born of
wishful thinking.

United Kingdom (UK)

The new UK Minister of Trade responsible for international investment,
Brian Wilson (who replaced Lord Stanley Clinton-Davis in mid-1998),
has announced a fresh approach to negotiating any future international
investment treaty. This new approach is to begin with a blank sheet of
paper and the inclusive drawing up of new objectives. On 26

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 November, Minister Wilson, hosted a joint meeting 3 with Ministers from
the Department for International Development (DFID) and the
Environment Agency for a small group of NGOs (including Oxfam),
business and trades union representatives. The exchange was frank
and fruitful with a follow-up meeting in three months promised by
Minister Wilson, as well as a commitment to broader and deeper
dialogue with civil society on the Governments international investment
policy.

The Parliamentary Environment Audit Committee (EAC) has conducted

an inquiry into the environmental aspects of the MAI, with evidence
provided by DTI, DFID and the Environment Agency, as well as
business, NGOs and others. The committee is expected to release its
Report on December 15, 1998.

The Parliamentary Trade and Industry Committee has conducted a

brief inquiry into the draft MAI covering all aspects of the Agreement
except environmental ones (considered simultaneously by the EAC).
(Oxfam submitted written evidence to the Committee. 4 ) The Report will
be published before Christmas.

OECD
On December 2, 1998, the OECD held an Informal Seminar on a
Possible Multilateral Framework on Investment with OECD and non-
OECD MAI observer governments, business, trade unions, NGOs
(WWF-International and Oxfam GB 5 ) and others. The meeting proved
to be a challenging encounter for those on both sides of the MAI
argument, and suggested a new willingness by governments for
deeper debate with civil society groups. It was an implicit
acknowledgement by the OECD that the MAI was history (the explicit
acknowledgement followed a day later), that lessons were being learnt
and a new attempt to craft rules for international investment in a
different manner was being considered. The OECD emphasised it was
considering institutional changes to make the organisation more
receptive to civil society concerns and welcomed external input to this
process.

In June 1998, the OECD began its periodic review of the OECD
Guidelines for Multinational Enterprises. (OECD governments had
offered these as a non-binding annex to the MAI.) The review is
expected to last from one to two years and provides a useful
opportunity to assess the effectiveness of non-binding multilateral
frameworks for corporate behaviour. The process is open to NGO input
for the first time (first NGO consultation was held in November 1998,
the next meeting is scheduled for February 1999). Oxfam will be

3
Meeting report available from Oxfam.
4
Copy available from Oxfam.
5
Meeting report available from Oxfam.

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 involved in this process and intends to test the effectiveness of the
Guidelines by bringing cases at the national level.

UN Conference on Trade and Development (UNCTAD)

UNCTAD, commonly perceived by NGOs to be more sympathetic to
development concerns given its explicit mandate to assist developing
countries, has undertaken a two-year work programme on the
development implications of a possible multilateral framework on
investment. This will involve research and analysis, including
consultations with other relevant agencies and civil society groups (one
such was held in June 1998). The eventual output will be a Report to
be released at the organisations tenth quadrennial conference
(UNCTAD X) in February 2000 in Bangkok. (Oxfam will remain involved
in this effort, as well as UNCTADs parallel Rethinking Development
process, and encourage it to become a more independent educational
process on trade, investment and sustainable development, including
gender and human rights dimensions.)

World Trade Organisation (WTO)

The WTO has now become the focus of many following the collapse of
the MAI at the OECD. Several OECD governments, and powerful
others such as the European Commission and the International
Chamber of Commerce, are known to support investment being added
to the WTOs negotiating mandate 6 as part of their efforts to push for a
new round of trade negotiations in 1999 (the so-called Millennium
Round). Many developing countries, and a sizeable number of NGOs
active on the MAI campaign, are vigorously opposed to such a move.

The recently released report of the WTO Working Group on the

Relationship between Trade and Investment (following a two-year
study period instigated by proponents of a multilateral investment
agreement at the WTO) is deliberately modest on this subject. It
recommends that the WTO General Council allow the Working Group
to continue its educational work on issues specified by WTO members.
On December 9, 1998 the General Council authorised this but, in view
of the highly politicised context of this discussion and inferences that
could be drawn from any set dates, decided not to specify the length of
time.

5. NEXT STEPS

Oxfam commends the abandonment of the MAI negotiations at the OECD.

We are encouraged by the new, more reflective attitude adopted by the
OECD, and welcome the openness and willingness for dialogue demonstrated
by the UK government. However we recognise that the defeat of the MAI at
the OECD has not meant an end to the investment liberalisation agenda
6
In addition to its existing responsibilities covering international trade in goods, services and
intellectual property. Investment issues are currently already on the WTOs built-in agenda in a limited
way as part of the TRIMS (Trade-Related Investment Measures) and GATS (General Agreement on
Trade in Services) reviews.

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symbolised by the MAI, either at the regional (e.g. investment chapters in the
EU/ACP Lom agreement, the proposed Free Trade Area of the Americas,
and the Asian Free Trade Area) or even the national and bilateral level. In this
context, we are concerned at apparent moves to transfer investment
discussions to a multilateral negotiation forum such as the WTO, such that the
WTO will complete what the OECD started. We believe this to be a
precipitate and politically unwise move that could repeat the failings of the
MAI, and distract attention from more pressing trade problems (especially the
implementation of existing WTO obligations) faced by the poorest countries
and communities.

In the coming months, Oxfam will engage with the UK government, relevant
national and international agencies to press for a more cautious, integrated
and balanced approach to trade and investment. This must, above all, be pro-
poor and focussed on meeting the challenges of social and environmental
goals in the coming decades, in particular the OECDs own target of a 50%
reduction in poverty by 2015. We will draw on our own field experience and
research, and that of national and regional partners, to bring the realities of
the poor and the marginalised to the debate and foster new thinking on
globalisation and liberalisation. In the immediate term, our advocacy work will
include calls for:

institutionalising the lessons learnt from the MAI (especially open process,
policy co-ordination and multidisciplinary approach) through formal national
evaluations;

closer collaboration between the OECD and UNCTAD, with inter-agency

and NGO involvement, on trade, investment and sustainable development;

systematic attention to resource and capital flows (not just FDI but also
short-term capital flows) with a focus on regulation, quality and distribution
issues rather than merely volume;

far greater efforts on capacity-building to enable developing countries

(including their civil society groups) to participate fully, and in an
unprejudiced environment, in trade and investment discussions, and;

a more coherent, democratically determined international regulatory

framework for the global economy, joining up issues such as investment
with competition policy and corporate accountability.

Malini Mehra
Policy Adviser, Oxfam GB

First published by Oxfam GB in December 1998.

Published by Oxfam GB under ISBN 978-1-84814-161-2 in October 2010.