1.  THE ICC

  The ICC is the world business organisation. It is the only representative body that speaks with authority on behalf of enterprises from all sectors in every part of the world. It groups thousands of member companies and associations from over 130 countries; ICC (UK) is one of the most active National Committees with a membership spanning British business from the largest multinationals to many smaller companies. ICC (UK) has followed the negotiations at OECD for the MAI closely by means of the participation of members in the working of the Business and Advisory Committee of OECD and by the appointment of experts to its working groups. A close liaison has been maintained with the Department of Trade and Industry and with the Confederation of British Industry. ICC (UK) is pleased to take this opportunity to put its views to the Trade and Industy Committee.

2.  GENERAL

  We strongly support MAI. It has the potential to be a major step forward in the process of liberalisation of trade and investment which has already brought enormous benefit to the world community in general. We believe that the MAI, although it is initially being negotiated amongst the OECD countries, should be capable of wide extension to other countries, perhaps under the aegis of the WTO. The focus and primary concern of the MAI is the security and growth of international investment. It has been drafted to bring together all the best features of existing international agreements in that field and to reflect customary international law on the subject as it has developed in, and for, the modern world. It is a long and complicated agreement—the current negotiation text has 105 pages—and it is not possible here to give a detailed commentary. Instead we would like to bring to the attention of the Committee some explanatory points and some issues which, in our view, are important. But first, we would like to give a warning.

  The MAI is under threat. The dangers come from the possibility of too great a series of reservations by individual countries and from attacks by some sections of organised opinion which seek to introduce into the MAI, provisions touching upon a vast range of social, environmental, cultural, competition and even commercial issues which are the province of other international agreements and of individual national government policies. If these influences were to affect the MAI to too great a degree, business would no longer be able to support it. Investors would have to rely, as now, on the existing network of hundreds of bilateral investment treaties which do not contain reference to extraneous matters and in which limited national reservations have been negotiated bilaterally.

  Strategically, were the MAI to fail, a message might be read that the tide of liberalisation and increase in world prosperity, which has flowed since the end of the second world war, was beginning to ebb.

3.  RELATIONSHIP WITH OTHER AGREEMENTS AND MATTERS OTHER THAN INVESTMENT

  The primary object of the MAI is the regulation and protection of investment. That is already a very large field and its structure would collapse if it were burdened with other matters. This has been recognised by the negotiators who have, with the support of investors, adopted what has become known as the "three pillars approach". This seeks to allow the conclusion of a workable MAI while paying due regard to the many other concerns to which international economic activity gives rise. The pillars are:

—  First, it is recognised that there should be some binding provision in the MAI which would forbid governments from lowering environmental standards with the objective of attracting foreign investment.

—  Second, the OECD Guidelines for Multinational Enterprises are to be mentioned as one of the background international understandings which support the MAI. The Guidelines set out a series of standards in social, environmental, technical, taxation and other areas which the OECD governments recognise as appropriate for the conduct of multinationals. They are not legally binding because of the very large range of topics covered and because they are meant to be of positive assistance to the management of international business rather than to be a list of prohibitions. However, National Contact Points established in each OECD country are available for question, complaint or explanation and there is a central review mechanism which examines issues as they arise and which may publish general guidance and explanation arising out of the issues. The Guidelines have the confidence of business and its representatives are participating in a review of them which is now current.

—  Third, it is proposed that there be reference in the preamble to the MAI to other international agreements and understandings in social and environmental fields which recognise their validity in the areas with which they deal.

  It is also appropriate to note that certain countries have requested that there be specific exceptions from the MAI in respect of cultural or linguistic matters and it has even been suggested that intellectual property should be excluded from the definition of investment for these reasons. We believe that intellectual property is far too important in business today to be excluded. It is the mainstay of many important and growing industries. But, we would accept that countries which wish to protect their national cultural heritage in a special way should be free to negotiate with their partners in the OECD the appropriate national exceptions which would be subject to periodic review as the working of the agreement develops.

4.  THE BASIC OBLIGATIONS—NATIONAL TREATMENT AND MOST FAVOURED NATION

  These obligations are fundamental to the MAI. National Treatment means that a country must treat a foreign investor in the same way as it treats its own national investors—there must be no discrimination against the foreigner. Most Favoured Nation means that a country must extend to any foreign investor treatment not less favourable than it accords to any other foreign investor. There are two important points to note:

—  First, these standards are relative and not absolute. There is no attempt to impose upon a government objective requirements as to how investors are to be treated, there is merely an obligation not to discriminate and to accord equal treatment.

—  Second, the obligations apply at, and after, the establishment stage. This means that a foreign investor would have a valid complaint if it suffered discrimination in the matter of setting up business in a country and that it would not solely be limited to action in respect of investments already made. This protection of the right of establishment is an advance over the provisions of many of the bilateral investment treaties which may apply to investment only after it has been made.

5.  EXPROPRIATION

  Expropriation is not forbidden by the MAI. However, the Investment Protection Article does require that governments observe the standards of international law in respect of foreign investments and the negotiating text on expropriation is, effectively, a restatement of international law on the subject as it is generally recognised today. Thus, a government may not expropriate or take any measure having equivalent effect, except in the public interest, on a non-discriminatory basis, in accordance with law and accompanied by the payment of prompt, adequate and effective compensation. Similar provisions are to be found in the North American Free Trade Area Agreement, "NAFTA" (between Canada, the United States and Mexico), in the Energy Charter Treaty and in many bilateral treaties.

  In the last year much attention has been focused on a case brought under NAFTA by a United States private investor against Canada under the equivalent provisions. Canada has recently withdrawn the legislation alleged by the investor to have been offending, but for reasons more connected with doubtful or invalid restraint upon inter-provincial trade, rather than because of the allegations of improper expropriation. Some opinion groups have stated, because of this case, that the expropriation provisions in the MAI could mean that governments would no longer be able to regulate, for instance in the environmental field, because of the possibility of actions from investors alleging that regulations were tantamount to expropriation by lowering or destroying the value of an investment. They therefore suggest that wording be inserted in the MAI to make it clear that governments retain the freedom to regulate in a non-discriminatory way. We have no objection to such language provided it is clear that there must be a complete lack of discrimination, that any regulations be fully justified by compelling scientific evidence and that the entitlement to full compensation be maintained. That proviso is no more than a statement of international law as it has come to be understood and if the MAI, a major international treaty, were to permit a loosening of its requirements, there would be a danger that standards already established would be prejudiced.

6.  DISPUTE SETTLEMENT

  The MAI permits a foreign investor to bring arbitration proceedings against a host government for breach of the agreement. The case may, at the investor's choice, be before the International Centre for the Settlement of Investment Disputes "ICSID" (an organ of the World Bank), the International Chamber of Commerce or an ad hoc tribunal constituted under United Nations (UNCITRAL) rules. This requirement for objective, impartial and binding arbitration to be available to the investor is fundamental for the support of the MAI by the international business community. It is well recognised that it is not sufficient for an investor to rely on the support of its own government which may well have political or diplomatic motives for not wishing to be associated with a claim and which, in any event, may not have the expert legal and technical resources available to conduct a complicated case.

  Two points are especially worthy of note:

—  First, the ability of an investor to demand arbitration is already contained in many of the bilateral treaties which already exist and is part of the machinery of contracts under ICSID rules, which are made under the Washington Convention, to which the UK is a party.

—  Second, very large companies are sometimes able to negotiate with governments without the need for arbitration; the provisions in the MAI will be useful to smaller enterprises which do not have the same potential influence.