TUESDAY 17 NOVEMBER 1998

MR BRIAN WILSON, MR CHARLES BRIDGE AND MR TOM SMITH

  122. Good afternoon, Minister. Perhaps you would like to introduce your colleagues with you and then we can start.
  (Mr Wilson) Thank you very much, Chairman. On my left is Charles Bridge who is one of the DTI's Trade Policy Directors and he was also the Head of the UK's MAI negotiating team. On my right is Tom Smith, who is the Head of the DTI's International Investment Policy Unit.

  123. We have already taken some evidence on this subject this morning. We had in people from some of the NGOs, we also had the International Chamber of Commerce and we had a representative from the local authorities who have an interest obviously in inward investment and that dimension to it. I suppose in some ways we set up this inquiry prior to the French statement, but we nevertheless felt that it was important to proceed because we felt that even although the present round has got stuck in the mire that there will be sons and daughters of MAI in the future. So what we thought we would start with today was the negotiations at the OECD and we were wondering if you could share your thoughts on why the Multilateral Agreement on Investment at the OECD actually failed. What were your views on the reasons why it collapsed after several years of fairly intensive work from what we can understand?
  (Mr Wilson) On a purely factual basis we have reached the point we are at because the French decided that the MAI was unreformable and therefore they withdrew from the negotiations. Since substantial elements of the MAI required unanimity within the European Union the effect of that was pretty terminal. In a sense this creates an opportunity as well as the end to a process and I think we can now go forward with a clean sheet of paper and draw on the positive aspects of the negotiations which have taken place. Maybe the first thing to do would be to drop the letters "MAI" from the lexicon and make clear that we are really starting again. I very much hope that the United Kingdom can take a leading role in setting the agenda which can produce a consensus round a rules-based approach to international investment. As to why the French reached the position and why many people opposed the MAI, both in principle and in detail, I suspect there are others in this room who have longer experience of that than I do and everyone would have their own detailed opinion on it, but I think that clearly what happened was that particularly after the return of the Labour Government in this country there was a far greater emphasis on the social/environmental criteria to be attached to an MAI. The more the fundamental initial principles were altered or were amended and the more opt-outs there were the more difficult it became to reach something that could be achieved.

  124. With the MAI, or whatever we call it, and I traced a hint of relief in your voice at the fact that the French pulled the rug from the proceedings, you attributed that to the fact that a Labour Government had been concerned about the absence of the social dimension to the negotiations, but I think it is fair to say that the evidence we received this morning tended to suggest that in terms of the susceptibility of the new Labour Government to approaches by the NGOs who might well have wished to have these they did not find very much of an indication of that having taken place. It was very much business as usual after 1 May 1997. I understand from your point of view like the man asking the way to Cork you might not have started from here, but do you not think that the past administration and indeed your own has not been as forthcoming with the NGOs as they might have been because our understanding is that there has not been a great deal of intercourse between yourselves and the NGOs who might have been more critical and cautious about embracing the concept of the liberalising of world trade without any social conditions being attached to it?
  (Mr Wilson) I cited a change of government in the UK as one of the factors, but clearly that was not the only contributor to the change in climate, the increasing doubts and the pressures from the NGOs and the whole range of concerns which eventually weighed particularly heavily on the French Government and I do not think I would characterise it as relief. I think what I have done is accept the reality and taken the view very strongly that there is no point in clinging to the unreality of pursuing an MAI which clearly is not now going to happen. As I said, I see that as an opportunity to start with a fresh set of criteria and objectives and I hope a lot will have been learned from the negotiations which have gone on so far. Britain remains committed to a liberal rules-based system of international investment and that will be at the heart of what we seek to obtain—but with all the other criteria there from the outset. I hope that part of the lessons that will have been learned will include involvement of the NGOs and other interested parties and a very genuine spirit of inclusiveness in negotiations and agenda-setting from the outset. I am not in a position to criticise what has gone before. I believe that there has been a lot of contact with the NGOs and I know there have been numerous parliamentary debates and indeed scrutiny by select committees. There has been a lot of dialogue. Whether there has been enough and whether it has been precisely in the correct forms is another question, but as an indication of the way that I want to approach this we are holding a seminar on the 26th of this month about the way forward from here, about the terms of a new set of negotiations which we should pursue initially through the European Union and then in other bodies and the invitation list to that gathering includes NGOs, trade unions, employers' organisations and it therefore represents a very real attempt to set an inclusive agenda from the outset.

  125. I appreciate what you are saying and this may well meet some of the concerns expressed to us this morning. Where do you see it going from here? Do you think further discussions should be held within the WTO or would UNCTAD be the appropriate forum? Where will the British Government be going to put forward the case for a liberalised international trade policy? Which forum do you think you will be using?
  (Mr Wilson) Well, I would say that the probability must be that the WTO is the appropriate forum and it should be remembered that there is already an investment liberalisation agenda within the WTO and one way forward would be to seek to ensure that when the next trade round is defined within the WTO, investment is one of the major areas of discussion, and that there is a committee of the WTO discussing investment rules at the present time, which does not have any power to negotiate, but its activities do run in parallel with the transition towards a new set of negotiations. What I am very anxious to stress is that it is not a case of transferring the MAI to the WTO; it is a case of saying that the MAI has not been brought to a successful conclusion, but there is still a general desire, which includes within the UK Government and also the French Government, to have such a rules-based system for investment and, therefore, we start again in the WTO and before we get to that, we have an agenda-setting process which is as inclusive as possible.

  Chairman: That is helpful because it gives us an idea of where you are wanting to move from here.

  126. Minister, as far as the UK is concerned, do we actually need an MAI because we are the world's second largest outward investor? Are there other examples of UK firms losing out on investment opportunities because of barriers that the MAI would have brought down or may in the future or are there improvements that the MAI can offer about the current bilateral agreements that are patchy?
  (Mr Wilson) Yes, I think there are improvements that it can offer for both developed countries, including the UK, and also for developing countries. As to whether there is a demand from UK companies for some such agreement, I can assure you that is a subject that is raised with us very regularly by UK companies which invest abroad. Quite coincidentally, it was raised with me as recently as today by the Chemical Industries Association whom I was meeting. The kind of example I can give is in Colombia a couple of weeks ago where it was a source of great concern to British companies and other potential foreign investors that there was still a law on the statute books which allows for expropriation without compensation and the Colombians are now taking steps to remove that from the statute book in response to these concerns. So I think it is something that troubles companies, but I would stress, and I think it is important to stress this, at the point of setting a new agenda that if the perception is that this is something that developed countries are trying to put across on less developed countries, then it would run into the same difficulties as MAI, and from the outset, therefore, it has to be clear that there is something in this, a lot in this for less developed countries which are just as anxious to attract development and investment as we are.

  127. You said it was aimed at developed countries as well as developing ones, but was the primary aim not at developing countries or was it actually aimed at the protectionist markets in the US and Japan?
  (Mr Wilson) I think it is difficult to go back into the mists of time, that even the MAI was not the start of the process, but there was a previous failed attempt to get this sort of treaty written down in 1991, so I cannot assess precisely what motives underlay what clearly became an evolving process, but I think the fact that the negotiations took place within OECD, I think the characterisation of MAI made it very easy to present us something which has been driven by the developed world, and no matter how you try to ameliorate that perception, then it is very difficult to reverse. I think, I am sure that latterly very significant progress was being made, for instance, on environmental issues as a result of the agenda evolving and that is one of the reasons why I do not think this should be seen as something to be in any way triumphalist about on anybody's part because there were good things coming through on the environmental side which it might be difficult to recreate, certainly within a short timescale, in another treaty process.

  128. Minister, would it be possible to get a list of examples where rich firms actually are being prevented from investing in reasonable circumstances? I think one of the problems is we have had lots of general statements, but no specific examples, except the one you gave about Colombia which I think we would all accept as fairly reasonable, but lacking examples, there has to be suspicion that it is just going to allow companies to rip off developing countries that cannot stand up to them.
  (Mr Wilson) Well, that is a suspicion and I think it is a caricature as well as a characterisation and it certainly has not been the objective of the people who are negotiating on behalf of the United Kingdom. I think that the more you look into this, the more complex the patchwork has been, that there are people in developing countries, there are people in some pressure groups who see beneficial aspects of what was being aimed for and what was being negotiated, but certainly the benefit of setting a new agenda is to wipe clear perceptions as well as realities and I hope that that is what will happen and that by getting an agenda which clearly is even handed, then we can start again and make progress. The reality is that the under-developed countries need inward investment. They are as anxious to have it as we are, and that is we whether it is in the UK or in the Scottish context, but we need inward investment as well, and we have to safeguard against the perception from their point of view that high-minded, well-intentioned attempts to create conditions on investment are not seen from their point of view simply as protectionism, so it is not an exact mirror image, but what we think of as doing a good turn for less developed countries might well be seen by less developed countries as an interference in their affairs which they do not particularly want, and there is a sophisticated balance to be struck there.

  129. Minister, I think you will agree that one of the issues is obviously how one views liberalisation, like what does it mean. You have referred yourself to environmental considerations that do not easily and automatically fit into a sort of unfettered liberalisation approach. My first question would really be do you accept, therefore, that the days of unrestrained liberalisation are over and that any future negotiations about a rules-based system for foreign investment really should pay attention to some of the concerns raised, for example, by the NGOs? You are firmly of the view that environmental considerations, labour standards, consumer protection rights and these things need to be part of that package and in a sense this is a different agenda from that of just unfettered liberalisation?
  (Mr Wilson) Well, again we have to be careful that we do not, for the reason I have just given, try to put every piece of baggage on the shoulders of a treaty dealing with investment, but I am greatly in favour of raising international levels of employment standards, I am greatly in favour of better environmental controls, I am greatly in favour of all these beneficial outcomes, but I am acutely conscious that if you try to tie them all up in trade and investment, then there will not be very much trade and investment happening in the world, so they have to be pursued through various forms as objectives in themselves and at their own pace, but they cannot become conditions against which every piece of trade and investment is measured.

  130. I was not suggesting that that should be the case. It is just that the debates on the MAI, for example, have really focused on the extent to which the MAI would require compensation to companies that had to face new environmental standards or whatever and this has actually been part of the debate perhaps historically arising from the fact that the MAI was born of the rich countries, the OECD countries and, as one witness this morning kindly said, perhaps we should have had an outreach programme for developing countries. I think perhaps more than an outreach programme would have been desirable. You have rightly said that that was a failing. Because of that history and because there were provisions in the MAI that some felt would amount to having to compensate companies if environmental standards were changed or labour standards were changed, some have argued that you cannot talk about a liberalised investment regime without taking these concerns on board. I am not saying that as someone wishing to restrict investment. Is there a package there? What direction does the Government want us to go? Is there a package that takes on board the concerns of the NGOs and others or do we go for a liberal investment regime and leave these other things to be sorted out separately?
  (Mr Wilson) The preponderance of the answer must be the latter, that these things are sorted out separately. There are very valuable organisations which address each and every one of them. On the other hand, there are responsibilities on the part of the investors and I suppose the rule of thumb that you would apply would be nothing which is bound up in an international treaty should drive down standards or open the door to the driving down of standards in countries where there is enough difficulty already in enforcing or obtaining them and therefore it is very important to establish the responsibilities of foreign investors. They have to obey the laws of the host country, they should not have special favours, but they should have fair and equitable treatment and this is something without waiting for a new treaty that is being pursued through OECD to review the guidelines on multi-national enterprises to try to ensure that companies do maintain certain standards in their investment programmes but at the same time avoiding what might well be seen as a paternalistic or a protectionist approach.

  131. I do not think, Minister, we are disagreeing. I think I am having some difficulty, if I am blunt about it, in getting you to say what I would like you to say.
  (Mr Wilson) I am sorry.

  132. You may feel the same about me, I do not know! I absolutely agree with your last answer. It does seem to me that you are saying that any discussions on a new MAI, to coin a phrase, must take into account the need to preserve existing standards relating to the environment or whatever and it therefore must take into account policy mechanisms for changing it in the future. Am I right in saying that you cannot really have an agreement like this without some mechanism for dealing with environmental standards, labour standards, consumer protection? I am not suggesting one should shackle these standards up from the roof; I am simply saying does not an agreement on international investment have to take this into account and that was a major criticism of the original MAI?
  (Mr Wilson) It has to take into account the standards which are applied within the host country and the ambitions of the host country to improve their standards and nothing which is agreed internationally should supersede the right of the host country to do that. But of course what MAI envisaged and presumably what a future treaty would envisage is that discrimination does not take place on the grounds of nationality and therefore a pushing up of standards which is across the board is the objective and I think that marries the two points, one, we want investment, two, we want improved standards and the two can go hand in hand.

  133. Minister, if the liberalisation process were to be fettered, to use Dr Berry's phrase in the way Dr Berry was suggesting as being possibly desirable in the future there may be two possible outcomes. One is that there could be a benefit to British firms in that technical standards amongst British companies tend to be higher than those which prevail amongst some of our competitor countries. The other is that it would lead to a disadvantage because we would be more likely to uphold those standards in practice whereas others might not do so and thereby we would be put at a disadvantage. Where would you stand on that sort of equation?
  (Mr Wilson) I do not have the evidence which supports that premise and I am not going to criticise other countries on a universal basis without seeking examples.

  134. I would not want you to quote examples. I think that would be invidious.
  (Mr Wilson) I am very happy to state the positive that the vast majority of British companies who invest overseas do so to extremely high standards and as a generalisation most of them would invest to standards which are well above those which prevail within many host countries.

  135. That is the point I was making.
  (Mr Wilson) That is welcome and as it should be and I would certainly resist anything which encouraged a driving down to a lowest common denominator and I am sure British companies would join me in doing so.

  136. On the type of investment that MAI was going to look at, okay it started in the early/mid-1990s before the Asian financial crisis and at that time weight was given to Asian generated portfolio investment including "hot money". Do you think now with the benefit of hindsight that that would be part of any filling of the clean sheet you envisage you could start writing on next year or whenever the interested parties get together?
  (Mr Wilson) You mean the distinction between short-term and long-term investment?

  137. Yes.
  (Mr Wilson) Again the issue is whether there is discrimination on grounds of nationality rather than whether governments have the power or the right to protect themselves against speculation. It is important to make that distinction. I understand that there was a great deal of discussion. I might ask Charles Bridge to say a bit more about trying to make the distinction between long-term and short-term investment and in practice it proved extremely difficult to do so. Discussions about that were on-going when the MAI broke down.
  (Mr Bridge) Thank you, Minister. I am not sure whether discussions were quite on-going. I think the firm majority view was that there should be a very wide definition of "investment" including short term not because there was any desire within the MAI negotiations to create difficulties for countries suffering from capital flight or anything like that, but more than anything else because when you started looking at how to define investment and started trying to take out particular elements of a comprehensive definition it became very very difficult and you ended up with all sorts of awkward boundary problems. So the only proposal that could command any general support in the OECD at least was this rather comprehensive definition. It was immediately realised that that would have some consequences. In particular there was a need to provide for some exemptions to the usual MAI rules in case of balance of payments difficulties, for example, or in case of emergency conditions arising from capital flight where the normal MAI rule would be that you would not require an investor to keep his money in the country if he wished to take it out. So the problem was recognised and there was a solution offered. I suspect we will have a debate all over again in relation to the WTO if we have a negotiation there and I would not like to say where it might end up. It may well be that because of a heightened consciousness at the moment of turbulence in financial markets people might perhaps attach more weight to keeping out of that kind of one and sticking to foreign direct investment which has always been at the core.

  138. Could I ask you, Minister, how close, if we are close at all, are we to establishing any form of multilateral agreements on minimum labour standards? It perhaps goes back a little bit to what Mr Berry was saying, but I think we are well aware that there is quite a degree of pressure for establishing minimum standards and although in some of the international agreements around, there are footnotes, if you like, around which make reference to various minimum standards on labour, environment, et cetera, but how close are we or how close are you at the DTI to establishing anything along those lines?
  (Mr Wilson) I honestly cannot give you a straight answer to that because it is not really my territory, but I can just say that on the timescale for the MAI successor, insofar as that will embrace these standards, then we are a long way away because it will be the end of next year before the agenda for the next round of WTO talks is agreed and then we are looking at probably three years minimum before these are completed, so I say that to make the point that this is not the solution to the problem which you want to address presumably on a more urgent basis.
  (Mr Bridge) If I could just add, it is not really for us, it is primarily a matter for DfEE, but there has been a lot of activity over the last few months in the ILO to take forward the fairly well established and internationally recognised so-called core labour standards which have to do with non-discrimination and non-use of child labour and slave labour and so on, and to try and make the ILO's systems for keeping countries with their promises on such matters up to scratch with an important declaration in July this year, a declaration of principles, for implementing the core labour standards which have for some while been very widely agreed.

  139. So notwithstanding the possibly four-year, or thereabouts, timescale, and these things are very much up in the air which I appreciate, are you reasonably confident that we are likely to have in a successor to MAI some minimum standards specifically written in rather than just some footnote, if I can describe it that way? Have you got a reasonable degree of confidence that they will be achieved?
  (Mr Wilson) Well, I am not sure that a code of practice on employment standards is appropriate to a treaty on investment as opposed to negotiations in the ILO, but what I am saying is that in the agenda which is set for the treaty on investment, then I would hope and expect that issues of environment and employment are moving through it and that the treaty which emerges certainly complements what is agreed in the ILO and other international organisations.