by Pradeep S Mehta*
The hydra-headed monster of the Multilateral Agreement for Investment (MAI) being crafted at the OECD, the 29-rich country club, popped up simultaneously in New Delhi, in London and in Washington in mid-July. Scheduled to be completed in the summer of 1997, the MAI is now postponed to sometime in 1999, though that is also an uncertainty. But what the negotiations did was to spur rest of the world to start talking about rules on investment.
When the USA did not succeed in bringing in rules on investment liberalisation during the Uruguay Round of the GATT, it pushed for `rapid' negotiations on the MAI in the OECD. These were launched in the summer of 1995 for completion in a record two years. It proposed high standard rules for investment protection and liberalisation replacing the existing 1600 plus bilateral investment treaties signed between governments. But that was not to be. For, the USA itself became the major stumbling block by piling up half the reservations, some of which would alter the basic character of the MAI.
Secondly, a huge protest against it has been launched by the civil society in the rich countries, which is increasing day by day in its crescendo. Besides this, there were several other problem areas, which proved too difficult to resolve.
Targeting developing countries
The main target of the MAI was and is the developing countries. Ostensibly this reflects from the old fear of
businesses losing their investments to expropriation and nationalisation. But, the rich nations decided cleverly to
negotiate it among themselves and then put a gun on the heads of countries who they wanted into the framework, sign on or else! If they had wanted negotiations at the WTO, it could not have been done as fast as they planned at the smaller OECD.
To begin with the OECD roped in few key developing countries (Argentina, Chile, Hong Kong, Slovenia etc) as observers in its MAI negotiating group, and targeted the rest through `outreach' workshops. These were mainly large developing countries such as China, India and Indonesia in Asia, and South Africa, Egypt and Nigeria in Africa.
In response to this dynamic situation the IXth meeting of the United Nations Conference on Trade & Development (UNCTAD) at Midrand, South Africa held in April-May 1996 resolved that UNCTAD is the appropriate forum for examining issues relating to international investment arrangements as well as to analyse the development implications of the proposed framework for investment, which was being pushed by the rich countries. The purpose was two fold. One was to create a parallel forum to the negotiations at OECD without acknowledging their work, while also
pre-empting the looming discussions at the forthcoming Singapore ministerial meeting of the WTO in December 1996. They did not exactly succeed here, but scored a few brownie points.
"Developing countries should not be caught unprepared as they were when the Uruguay Round of the GATT was negotiated", said Rubens Ricupero, the venerable and wise chief of the UNCTAD. Indeed he was very right. Developing countries opposed the introduction of TRIPs but at the end succumbed to pressures and trade-offs, and then in a hurry signed onto a horrendous accord. They were unable to influence the negotiations. One
ridiculous aspect of the TRIPs is the 20-year patent protection, which is too long for any economist to agree with.
Ricupero was speaking at one of the two events organised by the UNCTAD in New Delhi on 15/17 July to discuss "international investment arrangements and their implications for developing countries/development dimension". The first event was a 2-day symposium for civil servants from Asian countries organised in association with the Government of India. Few NGOs and research institutions were also invited. The second event was a half-day panel discussion with NGOs and media in India organised in association with the CUTS Centre for International Trade, Economics and Environment and the Rajiv Gandhi Institute for Contemporary Studies.
Don’t mention the MAI!
At both meetings, experts drawn from various parts of the world dwelt at length on various aspects of the subject, hoping to avoid specific references to the MAI. But that was impossible, because the 3-year's discussions at the OECD have thrown up the necessary knowledge, while an international NGO campaign launched against it in mid-1997 has thrown up more mud. The MAI has travelled a long way to become the bugbear of the civil society, and the big developing countries as it has been negotiated secretly over time since 1995 with the latter as their prime target. The accord is all about regulating countries and not businesses as investors, therefore the huge uproar all over the world.
Speaking at the regional symposium, Ricupero said that UNCTAD is pursuing a demand-driven programme of preparing developing countries on a possible multilateral framework for investment, so that should multilateral negotiations be launched for such an instrument they are ready. Defining the OECD MAI as a `plurilateral' agreement with mild scorn, he said that he did not have much hope of its succeeding, but cautioned that the work already done will be taken to the WTO. Pursuant to the Singapore ministerial declaration, discussions have already been launched on the relationship between trade and investment at the WTO and it could lead to negotiations sometime in future.
Indeed that is the design of the rich countries. The European Commission is already on record, stating that once the
OECD MAI is done, it should be taken to the WTO so that it is subject to its dispute settlement machinery. However the USA is not singing the same tune.
On 15th July, in Washington, DC, USA, the US trade and state department officials organised their first meeting with US NGOs, after much pleading. It was apparent that while the OECD negotiating group discussions are halted, bilateral parleys are continuing, to save the accord as it were. The US officials appeared to have threatened that if the MAI cannot be achieved at the OECD, they will vigorously pursue investment liberalisation agenda at the WTO, the Free Trade Agreement of the Americas etc.
However, reportedly, the USA still thinks that the OECD is a better place, and that the protections at the WTO would be less comprehensive. One wonders how, as the `single undertaking' nature of the WTO is another Damsels sword hanging over the heads of the poor countries. Any dispute raised over the violation of an agreement and won by the disputant, gives it the right to retaliate in another sector. Therefore the fear by the developing world.
The noted trade economist, Jadish Bhagwati, delivering the keynote address at the New Delhi symposium in fact argued for the MAI to be a voluntary code because of the single undertaking nature of the WTO, assuming that it will be lodge ultimately there. "The MAI as presently conceived and pursued (at the OECD) is fundamentally flawed. It has therefore predictably run into difficulties, making the efforts of UNCTAD and developing countries at reforming it worthwhile", he added.
Will an investment agreement help developing countries?
The agenda at the UNCTAD New Delhi symposium was to discuss the development implications of international investment arrangements. All economic agreements at the global level have some adverse implications for the poor countries. The challenge is to see how they can be controlled. If one examines the impact of the GATT 1994 on the poor nations, several studies point out that they are losers. Even if the GATT provide for special and differential treatment, transition periods etc for poor countries, they mean little when translated into dollars and cents. But in the case of the rich nations where they have been provided transition protection such as in textiles & clothing and agriculture, it is the poor countries who are the worse affected.
The consensus which emerged from the symposium was that poor countries should examine their national priorities when allowing FDI into the country. While developing countries will continue to be the yoyo, some further questions still remain. For example, the FDI flows from 1985 to 1996 has broken all records. It has jumped from US$60bn to US$350bn, while the total FDI stock is now over US$3000bn. Therefore, why is a multilateral framework for investment (MFI) necessary if foreign investment can move in and out smoothly without rules.
Secondly, the existing FDI flows to developing countries is also skewed. While 35% of the FDI flows is going to developing countries, most of it is limited to 10 countries only. The smaller developing and the least developed countries hardly get anything at all. Hence will an MFI guarantee FDI to all its signatories. Lastly, who is behind this push for an MFI?
The answer to the last question is quite simple, ie. global businesses are behind the push, so that they can multiply their
investments easily under a set of rules, which are predictable, transparent and favourable. No prizes also for guessing about the answer to the second question. A commitment to an MFI can only be one minuscule factor of several others which would determine FDI flows into the signatory country.
It is the first question which remained unanswered at both the New Delhi events, as to why is an MFI needed when FDI is flowing in leaps and bounds without the existence of such an instrument.
* Pradeep S. Mehta works with the CUTS Centre for International Trade, Economics & Environment, an international NGO based in Jaipur, India.