1.  The Confederation of British Industry (CBI) represents 250,000 businesses, embracing all sectors from manufacturing, retail, service and the utilities. Its membership ranges from large multinational organisations with a number of subsidiaries, to small and medium sized enterprises with fewer than 200 staff.

  2.  The CBI welcomes the opportunity to respond to the House of Common's Trade and Industry Committee's inquiry into the proposed Multilateral Agreement on Investment (MAI) and has already submitted written evidence to the House of Common's Environmental Audit Committee specifically giving consideration to the potential implications of the proposed MAI on environmental protection and sustainable development.

  3.  The CBI is in close consultation with the Department of Trade and Industry (DTI) and is a member of the Union of Industrial and Employers Confederations of Europe (UNICE). The CBI is also the UK representative to the Business and Industry Advisory Committee (BIAC) to the Organisation for Economic Co-operation and Development (OECD).

  4.  For European, as well as British business the establishment of a global regime for the liberalisation and protection of foreign direct investment (FDI) is one of the highest priorities on the international trade policy agenda: such a global regime should be non-discriminatory, transparent, stable and liberal.

  5.  It is important to note that negotiations for an MAI launched in 1995 are incomplete and the draft text has not yet crystallised at many crucial points. It will apply only between those states that become parties to it whether OECD members or not.

THE IMPORTANCE OF INVESTMENT

  6.  FDI is widely recognised as an essential means to raise living standards, and to combat social, economic and environmental ills. Investment is actively sought by virtually all countries: FDI offers all countries, both developed and developing, the opportunity to upgrade productivity and competitiveness, to benefit from the transfer of technical and managerial expertise, to promote their integration into the global economy, and to create employment together with opportunities for import substitution or export opportunities. Over the past three years the global stock of FDI has doubled. The flow of FDI world-wide reached almost $350 billion in 1996 with the OECD countries collectively accounting for some 85 per cent of outflows and 60 per cent of inflows.

  7.  Market factors are the primary determinants of investment decisions but the investment climate is also a major factor. Investors need long-term stability of rules and procedures, guarantees for entry and establishment, equal competitive opportunities, protection of existing investment and economic activity, and avoidance of distortions which might have a detrimental effect on economic growth and development.

  8.  The almost universal adoption of liberal trade and investment policies as a result of the agreements of the Uruguay Round and the collapse of command economies has increased the choices for business in both import-export trade and the location of manufacturing, service or distribution facilities. The parallel globalisation of business has led to a re-evaluation of the methods of accessing markets, which now more frequently involves investment in various forms. Thus, increasing numbers of countries now find themselves not only hosts to foreign investment, but also the source of FDI.

THE ROLE OF AN INVESTMENT AGREEMENT

  9.  Business attaches overriding importance to the establishment of a non-discriminatory, transparent, stable and liberal global regime for investment, to complement that which exists in the WTO for goods and services, and which it believes will be beneficial to the whole of society in all countries by increasing the flow of FDI. The CBI welcomed the Trade Related Investment Measures (TRIMs) agreement concluded during the Uruguay Round as a step in the right direction, and as making it clear, together with coverage of rights of establishment in the General Agreement on Trade in Services (GATS), that international investment issues come within the remit of the WTO.

  10.  Previous attempts to produce a multilateral investment agreement were not successful, leading to the proliferation of bilateral investment protection agreements. These bilateral agreements aim at high quality protection of investment. This fact combined with increasing investment liberalisation means that any multilateral investment agreement must also be of at least equivalent quality, and cover the widest possible number of countries if it is to be of additional value to international business.

  11.  The primary objective of an investment agreement is to raise investor confidence by providing transparency, predictability, clear and strong obligations on non-discrimination, investment protection, and dispute settlement. Provisions of an investment agreement should relate to issues essential for investment and no encroach on areas of policy such as labour standards for environmental concerns which should be tackled on their own merits in appropriate fora.

UK BUSINESS OBJECTIVES FOR THE MAI

  12.  The MAI should 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. The principles of most favoured nation and national treatment which are to be enshrined in an MAI should, in our view, ensure that standards are not lowered to attract investments and that undesirable conflicting requirements are not placed on investors.

  13.  Any exceptions to MAI rules should be transparent, kept to an absolute minimum, and included under the auspices of the MAI so that they can be examined at a future date with a view toward further liberalisation. The MAI should not contain language to inhibit accession by non-OECD countries, or the establishment of an eventual WTO agreement.

  14.  As the OECD negotiations have proceeded there appears to be a real risk that the negotiating governments may not reach agreement to provide the value-added business is seeking from an MAI—liberalisation of investment regimes, non-discrimination, state of the art protection of investments, and dispute provisions. Not only would such an outcome be to the detriment of UK companies, especially smaller companies which rely more on transparent and predictable conditions for investment than larger, more experienced investors, but it risks sending a damaging negative signal to non-OECD countries. Nothing should be done which has the effect of making it harder for governments to become parties to the MAI or of discouraging the eventual negotiation of global rules in the WTO.

  15.  The CBI will continue to support an MAI that seeks to increase investor confidence.

THE NEED FOR A GLOBAL INVESTMENT AGREEMENT

  16.  Intra-OECD flows of direct investment are only marginally inhibited by the absence of an international investment regime: this is not the case elsewhere. OECD members are those countries most able to meet the high standards required by the agreement. If the WTO were to negotiate an agreement, it is likely that a modified approach would be required to achieve global endorsement. In making a high quality agreement the OECD can set a standard which would become a reference for other agreements. An OECD wide MAI can be viewed as a necessary step on the road to a global investment agreement.

  17.  As OECD Ministers recognised in 1995, the WTO also has an important role to play. Given compatible objectives, a dual-track approach should not be ruled out; but we await the report of the WTO Working Party on Trade and Investment due in December 1998, which we believe should confirm that the WTO membership as a whole have common interests and are prepared to negotiate.

  18.  It is important that initiatives in this priority area of investment are mutually supportive and avoid reduplication. They should not add to the risk of conflicting requirements arising from the present situation of bilateral and regional arrangements and should avoid placing unnecessary costs on business and diverting scarce government resources.

  19.  The CBI supports the negotiation of an MAI by OECD governments as a potentially valuable contribution to the objective of a global regime for foreign direct investment (such as exists for trade in goods and services): the absence of which hinders potential investment and global economic development. An MAI, negotiated between OECD members, however, would be a complementary exercise not a substitute for eventual negotiations in the WTO which the CBI has placed very high in its priorities for the next multilateral trade negotiation.

26 October 1998