OECD's Multilateral Agreement on Investment
and Its Work on Trade and Competition Policy
Mr. William Witherell
Director, Financial, Fiscal, and Enterprise Affairs, OECD
for the "Shaping the Trading System for Global Growth and Employment"
Overseas Development Council conference on
"Shaping the Trading System for Global Growth and Employment"
Thursday, November 12, 1996
The views expressed in these remarks in no way commit the OECD or its Member countries. The OECD Member countries are the following: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Norway, New Zealand, Netherlands, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States. In October of 1996, Korea was invited to be the 29th Member.
While the OECD is perhaps best known for its research, analysis, and statistics, it is also a rule-making forum for its Member countries and an incubator for international rules of a more global character. Examples of the latter are the OECD's path-breaking work on agricultural trade and on trade-in-services which contributed significantly to the Uruguay Round negotiations. I have been asked today to comment briefly on two of our activities--currently in the incubator--which have the potential, when they mature, to have effects extending well beyond the OECD region: these are the negotiations on a Multilateral Agreement on Investment (the MAI) and our trade and competition policies project.
The MAI Negotiations
OECD Member countries consider that the time is ripe to develop multilateral rules for international investment. Investment is a central feature of globalisation, and cross-border investments have been growing faster than trade in goods and services in recent years. Accordingly, negotiations on the Multilateral Agreement on Investment were launched by the OECD Member countries at the May 1995 Ministerial Meeting, with the objective of concluding by the Ministerial Meeting to be held in May 1997.
The MAI will establish a broad multilateral framework for international investment with high standards for the liberalisation of investment regimes and investment protection, with effective dispute settlement procedures. Thus it is intended that the MAI will provide a "level playing field" for international investors, with uniform rules on both market access and legal security. The rules will be legally enforceable, allowing recourse to international arbitration to settle disputes.
It will be a free-standing international treaty open to all OECD Members and the European Communities, and to accession by non-Member countries.
The decision to launch the MAI negotiation was a logical step to consolidate and complete the existing OECD instruments that have helped promote international investment and economic cooperation for many years. The OECD Codes of Liberalisation have been in place since the birth of OECD in 1961 and the Declaration and Decisions on International Investment and Multinational Enterprises since 1976. The MAI will have a stronger legal status and will introduce new disciplines (e.g., on movement of key personnel, monopolies, privatisation, and performance requirements). Also new for the OECD will be the state-of-the-art chapter on investment protection and the legally binding procedures for the settlement of investment disputes.
The MAI is intended to lock in the benefits of the substantial investment regime liberalisation that has been achieved in recent years and to roll back measures that still discriminate against foreign investors. Our governments have set for themselves the objective of negotiating an agreement based on "high standards," which refers primarily to the quality of the investment environment. We are seeking rules that will provide the highest degree of market access and legal security for investors and their investments. This objective applies to each of the main aspects of the rules under discussion--liberalisation of investment regimes for new investment (establishment), national treatment and most-favoured-nation (MFN) treatment for established foreign-controlled enterprises, and full transparency; investment protection (in particular, compensation in the event of expropriation, free transfer of profits and dividends and other returns on investment); and dispute settlement (state-to-state and investor-to-state).
This approach does not imply any relaxation of corporate responsibility, nor will it undermine the capacity of host countries to regulate their domestic economies, so long as they do not discriminate against foreign investors. Moreover, the MAI is likely to contain specific safeguards against the lowering of domestic standards (e.g., for the environment) as a device for attracting additional investment. It is also likely that the OECD Guidelines for Multinational Enterprises, which are a comprehensive (non-binding) code of conduct for international companies, will be associated with the MAI.
Successful conclusion of the MAI next year will mean that much of the world's investment flows will be covered by a comprehensive framework of international rules of the game. While foreign direct investment (FDI) flows to developing countries have made a welcome recovery in recent years, OECD countries still account for the lion's share: around 85 percent of all outflows and 68 percent of inflows.
But even though it is the OECD Member countries that are negotiating the agreement, the MAI is to be a free-standing treaty, open to accession by any country willing and able to assume the obligations. The MAI is not being offered on a "take it or leave it" basis to such countries. Of course, all signatories will be expected to meet the core obligations of the Agreement, but country-specific reservations to the various provisions will be negotiable. Transition periods before expecting full compliance with certain obligations may also be allowed to accommodate specific concerns of developing countries.
The reasons that some non-OECD countries may wish to sign the MAI would likely be quite similar to those motivating OECD countries.
The OECD countries have stressed that the MAI rules should operate harmoniously with those of World Trade Organization (WTO). The agreement is being designed to be compatible with, and complement, WTO rules. There are several areas where the concepts and obligations overlap, but there is no reason to assume that conflicts will arise. Careful examination in cooperation with trade experts and the WTO will help resolve these questions. The WTO Secretariat has been given permanent observer status in the Negotiating Group.
The question of an investment agreement in WTO is for consideration by the Contracting Parties of the WTO. There can be no question of the MAI being transferred to the WTO for adoption on a take-it-or-leave-it basis. Should WTO negotiations on investment be undertaken, the MAI would, no doubt, be an important reference (as would other investment agreements such as NAFTA, the Energy Charter, bilateral investment agreements among developing countries such as MERCOSUR). But any WTO agreement would have to be designed for the WTO membership and in the framework of WTO disciplines and institutional agreements.
Trade and Competition Policy Issues
The second area of OECD's current work for discussion today--trade and competition policy issues and their interaction--is based on activities begun in the early 1980s. OECD's experience on the interaction between trade and competition polices since the early eighties shows that international trade policy cannot be separated from competition policy as both policies are closely interlinked and partly reinforcing. Both seek to enhance welfare through economic efficiency and encourage competitive, market-oriented results. For that reason the OECD decided to respond positively to calls both from governmental and business circles for a more internationalised and concerted approach to trade and competition policy interaction. In Spring 1996, OECD Ministers reaffirmed the need to deepen further the analysis of the impact of trade policy measures which can impede the competitive process and of the trade effects of anticompetitive practices. It was also stressed that various regulations can frustrate both market access and the competitive process.
Ministers agreed to seek a more effective application of competition laws through a number of complementary approaches. First, an improvement of international co-operation among competition authorities should be encouraged. For example, further work on developing principles on the exchange of confidential information would likely contribute to more effective enforcement of cases with an international dimension. Second, an increased convergence of competition laws and policies should be promoted. Differences between countries in this respect could give rise to trade frictions. Third, the numerous exceptions to the scope and coverage of competition law should be constantly reviewed. Conceivably, this could lead to suggestions recommending a standstill on increasing the scope of exclusions which create trade barriers, or even a rollback exercise. Fourth, efforts should be devoted to assess actual enforcement of competition laws. To what extent do differences in the vigour of enforcement in different countries constitute trade barriers? Fifth, trade and competition authorities should continue to discuss jointly particular cases to improve their mutual understanding of the issues at stake. A Joint Working Group on Trade and Competition was established last May, with delegates coming from OECD's Trade Committee and its Competition Law and Policy Committee.
This work clearly is still in an exploratory and developmental stage. At the international level, efforts should be undertaken to build agreements on what types of behaviour really matter for both trade and competition. This could involve establishing a set of core principles or minimum standards for competition law in connection with international trade and investment. For example, OECD countries' competition agencies find that they have the greatest policy convergence in the area of "hard core" horizontal international cartel prohibitions (such as those relating to price fixing, market allocation, or bid rigging). These practices, properly defined, are most likely to affect negatively both trade and competition. Accordingly our Committee on Competition Law and Policy has decided to work collectively toward improved law enforcement against such practices, including an agreement to prohibit hard core cartels and to cooperate in their prosecution.
As we approach the Singapore WTO Ministerial, many are asking about the possible role for WTO in the competition policy arena. Trade and competition interactions do affect a growing number of countries outside the OECD area. Hence, it may appear appropriate that an economic organisation with a global membership take up this matter. The WTO would naturally be the first candidate. The assumption of most OECD countries seems to be that such an activity would, necessarily have to be of an exploratory nature. The WTO might or might not pick up this topic after Singapore; this is for the contracting parties to decide. If it does--and there are indications that this will be the case--I would expect the result to be that on this subject the WTO and OECD would be two complementary fora, acting at different levels and with a different geographical coverage and with close co-operation between the two Secretariats. The OECD has a tremendous amount of experience on competition issues which can be drawn upon. I would expect the OECD to remain at the forefront of reflection on these issues and play a forward-looking role.
Of course, there remain many developing countries with no, or only very undeveloped competition laws. This situation should be rectified wherever possible. Economic efficiency achieved through competition policy enforcement and a daily exposure to domestic and foreign competitors can be expected to contribute to more rapid and soundly based economic development. Effective competition laws and polices also facilitate trade liberalisation and put trade partners on the same level playing field. The OECD, along with other international organisations, in particular, UNCTAD and the World Bank, offers technical assistance in drafting competition laws and designing enforcement institutions, bearing in mind the need for a convergent approach with existing laws and enforcement systems in other countries. It is welcome news that a growing number of developing countries and transition economies have adopted competition laws recently.
The trading and investment system will undoubtedly open and
expand further in the coming years, implying a dramatically
growing number of economic actors and emerging economies. Never
before have so many firms from so many industries invested in so
many countries. International competition is pervasive. Given
these global market trends, borders will not protect national
economies nor their markets--be they developed, developing, or in
transition. Should governments fail to reform obsolete
regulations, to open up markets to foreign competition and to
take advantage of further trade and investment liberalisation to
penetrate export markets, they will likely condemn their
enterprises to become second rank actors, even in their own
markets. This is a challenge we are seeking to help our Member