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April 2, 1998
From: Mark Vallianatos, Friends of the Earth US

Update on MAI Negotiations

I. MINISTERIAL STATEMENT ON THE MULTILATERAL AGREEMENT ON INVESTMENT (MAI)

1. Ministers regard investment, like trade, as an engine of economic growth, employment, sustainable development and rising living standards in both developed and developing countries. They re-affirm the importance they attach to achieving a comprehensive multilateral framework for investment with high standards of liberalisation and investment protection with effective dispute settlement procedures, and open to non-member countries. They also recognise the importance of the public debate on the implications of globalisation.

2. Ministers welcome the Report by the Chairman of the Negotiating Group on the progress made since the Ministerial meeting of May 1997 in developing a Multilateral Agreement on Investment (MAI).

3. Taking into account the positive results produced by the Negotiating Group, as well as the remaining difficulties and the concerns that have been expressed, Ministers decide on a period of assessment and further consultation between the negotiating parties and with interested parts of their societies, and invite the Secretary-General to assist this process. Ministers note that the next meeting of the Negotiating Group will be held in October 1998. Ministers direct the negotiators to continue their work with the aim of reaching a successful and timely conclusion of the MAI and seeking broad participation in it. In the same spirit, they support the current work programme on investment in the WTO and once the work programme has been completed will seek the support of all their partners for next steps towards the creation of investment rules in the WTO.

4. Ministers recognise the need to complete work on MAI disciplines and exceptions with a view to achieving a high standard of liberalisation and a satisfactory balance of commitments, which takes full account of economic concerns and political, social and cultural sensitivities. A solution is also needed for particular issues relating to extraterritoriality.

5. Ministers confirm that the MAI must be consistent with the sovereign responsibility of governments to conduct domestic policies. The MAI would establish mutually beneficial international rules which would not inhibit the normal non-discriminatory exercise of regulatory powers by governments and such exercise of regulatory powers would not amount to expropriation.

6. Ministers note the increased convergence of views on the need for the MAI to address environmental protection and labour issues, and the broad support for including a strong commitment by governments not to lower environmental or labour standards in order to attract or retain an investment.

7. Ministers are committed to a transparent negotiating process and to active public discussion on the issues at stake in the negotiations.

8. Ministers welcome the full participation as Observers of Argentina; Brazil; Chile; Estonia; Hong Kong, China; Latvia; Lithuania and the Slovak Republic with a view to their becoming founding members of the MAI. Ministers are committed to pursue an active dialogue with non-members, including on their development interests, particularly with those non-members willing and able to meet the obligations of the agreement.

II. Update on future of MAI negotiations

The MAI was one of the items on the agenda of the 1998 ministerial meeting of the Organization for Economic Cooperation and Development (OECD), held in Paris on the 27th and 28th of April. The agreement was scheduled to have been finished earlier this year in time to be signed at the ministerial meeting. It has been increasingly clear for the past few months that disagreements between governments and public opposition would prevent OECD governments from completing the MAI on time. The most likely option was some kind of extension of negotiations.

The ministers did issue a declaration on the MAI that extended negotiations, but in a tentative manner, with a pause in negotiations and no set deadline. This makes the future of negotiations even more uncertain that they had been. Governments are still publically committed to finishing the MAI but their failure to meet the April deadline and widespread public opposition have drained momentum from negotiations.

Below are some questions the answers to which could determine what ultimately happens in negotiations over the medium to long term. I have started to try and address them and lay out various possibilities. It would be great to read what others think/ have heard.

To editorialize a little: MAI critics are in a good position, with time to extend outreach, press home our positions at OECD negotiations and in other forums where investment liberalization talks are underway or planned, and use some of the momentum of the stalling/ crippling of the MAI to advocate alternative rules for regulating foreign investment/ capital flows. There is always the risk of a behind-the -scenes breakthrough in negotiations, but at least in eyes of the media, governments and corporations, we're winning by a large margin. Everyone involved in international and national campaigns against the MAI can take credit and feel good about the work that's been done.

What is the plan for future negotiations?

Negotiations were extended without a deadline. This is in contrast to last year's ministerial meeting, when negotiators received a one year extension. Negotiations will slow down from the current 1-2 weeks per month negotiating schedule. There will be a pause in negotiations, what the ministerial statement calls "a period of assessment and further consultation" The next negotiating group meeting will be in October. This is a pleasant surprise. As recently as March US officials were stressing the importance of holding a negotiating meeting in May to avoid giving the appearance of a stall. Last week US negotiators told us that there would be negotiations in July.

What are the chances that negotiations will be completed within a year?

The question is whether despite the slow-down of formal negotiating sessions governments still hope to complete the MAI in time for next year's ministerial meeting. This would require finishing negotiations in December 1998 or in the spring of 1999. With less negotiating meetings, progress would have to be made

  1. at smaller, more informal meetings between some of the key countries; and
  2. at home in capitals, by narrowing lists of reservations, refining the MAI's environmental and labor rules in an effort to mute domestic opposition, etc. Momentum is clearly running against this option.

How strongly are governments committed to finishing the MAI?

Governments commit in the ministerial statement to a "successful and timely conclusion of the MAI." But there are varying levels of support from governments. A few weeks ago sources were saying that all countries favored completion with the possible exception of the US which was not revealing its ultimate intentions. At the ministerial meeting, though, there was more open dissent. Canada pushed for investment negotiations to be halted at the OECD but accelerated in the WTO. France reportedly favored ending MAI negotiations all together. Germany and some of the smaller EU countries still favored completion.

What participation will there be by non-OECD countries?

Estonia, Lithuania and Latvia are joining Argentina, Brazil, Chile, Hong Kong and the Slovak Republic as official non-OECD observers of negotiations. We had heard that non-OECD countries might be allowed to participate in negotiations rather than just being observers, but there is nothing in the ministerial statement that suggests this will happen. It is important to keep in mind that the countries observing negotiations will not automatically join the MAI if the agreement is finished. Argentina and Brazil, for example, reportedly have some problems with the MAI's rules.

The pause in negotiations will give OECD countries the opportunity to increase outreach to developing countries. This may be a key factor in the fate of the MAI— the possibility of a large sign-on by developing countries could be the one incentive that would drive countries to persevere in the face of the difficulties of negotiations.

Who will be the new chairperson of negotiations?

Franz Engering of the Netherlands plans to step down as chair of negotiations following the ministerial meeting. The choice of a new chairperson could signal where negotiations are heading. (For example, the Netherlands is one of the most pro-MAI of European countries). The US and Japan are vice chairs of negotiations but will not necessarily take over the chair. US negotiators do not want the US to be chair, probably because the main disputes in negotiations are between the US and EU and the US would not be seen as a neutral arbiter.

What is the relationship between MAI negotiations and possible investment negotiations at the WTO?

The ministerial declaration states that OECD governments "support the current work programme on investment in the WTO and once the work programme has been completed will seek support of all their partners for the next steps towards the creation of investment rules in the WTO." This reflects a balance between European countries, which want to start negotiations for WTO investment rules as soon as possible, and the US, which has long believed that the OECD countries could negotiate a more pro-investors agreement than ever could be reached at the WTO.

The WTO's current work programme referred to in the declaration is a working group established at the 1996 WTO ministerial after developing countries blocked attempts by Europe and Canada to initiate negotiations on investment rules. The working group extends until December 1998. At the May 1998 WTO ministerial meeting countries will decide which issues should be included in the next round of trade negotiations scheduled to start in 1999-2000. Investment is one option for these "millennial round" of negotiations. The OECD calling for the acceleration of investment talks at the WTO AFTER the work group ends makes it somewhat less likely that investment will make it into the millennial round, but this is worth keeping a close eye on.

Whether or not the MAI is completed in the OECD and no matter how quickly investment discussions proceed at the WTO, MAI negotiations are a testing ground for the wealthy countries to attempt to reach a consensus that can be transplanted to WTO negotiations as a joint position of the developed world.

What are the remaining difficult issues that are holding up negotiations?

The main unresolved issues have not changed much in the past years, with the exception that governments have started to pay more attention to environmental and labor rules.

  1. the large number of reservations that governments plan to take from the MAI's rules, especially:

  2. Environmental / Labor Provisions

    Governments are discussing a number of old and new environmental and labor provisions. They are already claiming that these provisions would ensure that the MAI does not threaten domestic regulatory capacity. Three of the potential changes are:

  3. Extraterritorial investment restrictions.

    There is specific reference to extraterritoriality in the ministerial declaration, which a polite way of saying that the dispute over US sanctions on foreign companies that invest in Cuba and Iran still must be resolved, and MAI negotiations is one of the forums where governments are trying to resolve it. Hopefully, what a US negotiator said a few months ago still is true: there can be a solution to the Helms-Burton law without an MAI, but there can't be an MAI without a solution to Helms-Burton.

Are the other provisions of the MAI "locked-in"?

There was some interest among governments to "lock in" parts of the MAI that had been agreed upon, so as to signal the progress made and to focus future negotiations solely on unfinished provisions. There was not consensus for there to be a declaration at the ministerial meeting that parts of the MAI were complete. US government rhetoric on this, for example, is that "nothing is finished until it's all finished." The main principles of the agreement are unlikely to change much. For example, there have been indications that some governments are concerned with the investor to state dispute resolution rules and we heard that there could be room for a kind of "screening" mechanism (for example, home governments having to approve lawsuits brought by their investors against host countries.) But the only proposal on the table is an undefined French proposal for some kind of appellate body.

What is the position of Business interests?

The level of continuing support for the MAI from multinationals will help determine if governments think they can win support for the agreement. For months corporate lobbying groups have argued that the MAI's environmental and labor provisions are getting too strong and that the MAI will not force enough up front liberalization (because there are so many reservations). As it stands, much of this is posturing and business organization still support the MAI. It is unclear if any of the environmental/ labor provisions being discussed would cause business groups to oppose the agreement. There are a few things they want that would cement this support. US representatives of multinationals in particular would like to see many developing countries sign the MAI and want full application of the agreement's rules to privatizations. There is word of mouth evidence that some individual corporations are less enthusiastic about the MAI because the agreement has attracted such negative publicity that could spill over and damage other parts of the corporate agenda internationally.


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