INTRODUCTION

  CAFOD is concerned about the impact of the MAI on countries in the developing world. Although currently in the forum of the OECD, developing countries are likely to acede to any MAI in the future. CAFOD is concerned that if the current draft MAI forms the basis of some future international agreement, it will severely limit developing countries ability to regulate foreign investment in order to acheive long-term and sustainable national development. CAFOD is a member of the UK MAI Coalition which has carried out valuable work in raising awareness both among opinion formers and the public of the pitfalls contained in the current MAI process.

WHAT IS THE MAI?

  The MAI aims to do for investment what the World Trade Organisation (WTO) is doing for international trade. In its effort to protect investors, the MAI takes important developmental decisions concerning investment out of the hands of local and national governments. While its supporters hail the MAI as a means to maximise global productivity and encourage development, in its current form the MAI dramatically strengthens the position of large corporations vis-a"-vis governments. CAFOD sees the MAI as little more than a charter permitting foreign investors to operate—should they so wish—without regard to the needs or wishes of the communities in which they are sited. The top 500 multinational corporations (MNCs), which make 80 per cent of international investments, will be the primary beneficiaries.

  If agreed, the MAI will be an international treaty, initially signed by OECD members, but then by other poorer nations eager for foreign investment. It:

—  protects investors and provides them with open investor regimes;

—  accords foreign investors the same rights as local investors under the principle of non-discrimination (national treatment);

—  gives investors the power to override decisions made by elected governments by allowing them to challenge governments at a special court;

—  prohibits "performance requirements" whereby governments can demand certain assurances from foreign investors;

—  prevents local and national governments from passing new laws relating to investment which conflict with the MAI, even if they are in the public interest (the principle of "standstill");

—  the MAI is about much more than Foreign Direct Investment (FDI) in factories, banks and farms. Investment is defined very broadly as any kind of asset owned or controlled, directly or indirectly, by an investor. This includes shares, stocks and equity participation; bonds, loans and forms of debt; intellectual property rights and financial derivatives. The MAI therefore liberalises investment-related capital flows;

—  signatories will be locked into the agreement for a minimum of twenty years.

THE MAI, DEVELOPMENT AND DEMOCRACY

  Under the MAI, communities and governments will find it increasingly difficult to define development on their own terms under the MAI. Many of the economic policies which fostered the East Asian "miracle", such as channelling foreign investment to suit national policy objectives, would not be permitted under the MAI.

  Investors' Rights to sue Governments: Should a government wish to protect domestic producers from being driven out of business by foreign competitors in a vital economic sector, or if a government provides a subsidy to a rice-producing enterprise to bolster food security or boost exports without extending the same benefits to corporations like Del Monte and Unilever, then the government can be taken to court by the investor. This has serious implications for development and democracy, as it transfers economic powers from elected governments to unelected corporations.

  Performance Requirements: Worldwide, FDI has risen from $25 billion in 1973 to $350 billion in 1996, making it one of the most important factors in international development. The British government believes FDI boosts employment, exports, new skills and technology, but the MAI will prevent host governments from ensuring that investments provide many such advantages. Governments will be unable to impose performance requirements on investors, meaning that MNCs will be able to:

—  repatriate profits freely;

—  provide no employment for local people;

—  invest without transferring technology or skills;

—  buy out nationally-owned operations completely;

—  invest only in mergers and acquisitions rather than in developing new productive operations;

—  export nothing while importing expensive capital goods, thereby worsening a country's trade deficit and weakening its economic independence;

—  invest without providing productive links to the national economy, such as using locally-produced inputs or providing goods for domestic industries;

—  Examples of previous national laws which would be challenged by the MAI include the Philippines' insistence on 60 per cent domestic ownership of public utilities and Mexico's prohibition of foreign ownership of development banking institutions.

  The MAI and Financial Liberalisation: The MAI's excessively broad definition of what constitutes investment could make economic crashes such as those in Asia and Mexico more likely in the future. The MAI's liberalisation of investment-related financial transfers will impair governments' ability to control "hot" capital—large amounts of money that enter and leave countries rapidly. Sudden withdrawals can undermine confidence in an economy, precipitating a currency collapse. The resulting downward spiral has severe social consequences as governments seek to close deficits by cutting social spending.

  The MAI will remove barriers to the speculative short-term investments which contribute to the Mexican and Asian crises, while measures to encourage stable long-term investments (such as those adopted by Chile and Colombia which require that a fixed proportion of incoming capital is deposited at the central bank) would be threatened.

  Corporate responsibilities versus rights: The MAI increases corporate rights without enforcing corporate responsibilities. While corporations have a right to expect a reasonable return on their investments, they should meet minimum social, economic and environmental standards. Investments should provide clear benefits for local communities and should meet the development needs of host countries. For this end, it is vital that governments have the right to enforce performance requirements, and that local people are involved in investment decisions.

THE MAI: WHAT HAPPENS NEXT?

  CAFOD welcomes the leadership shown by the French government in withdrawing from the MAI talks in early October, leading to their effective abandonment at the OECD. We are concerned, however, that both the OECD and the British government appear to favour taking the existing draft agreement to the WTO and embarking upon a new set of negotiations. CAFOD does not believe that the WTO's record to date gives any assurance that it will be transparent or accountable to the interests of developing country governments or civil society. Negotiations at the WTO are carried out at EU level, rather than by individual governments, further diluting the involvement of both parliament and British civil society in the process.

  Furthermore the WTO has already said that labour conditions should not be included in the MAI, but should be referred to the ILO, which has no powers of enforcement unlike the WTO. CAFOD believes this limits the value of any MAI likely to emerge from the WTO.

THE NEED FOR A PEOPLE'S MAI

  CAFOD does not believe the current MAI should form the basis for future negotiations. The Asian crash and subsequent global financial instability have demonstrated the folly of the kind of blanket liberalisation prescribed by the MAI. Instead, the time has come to stand back and design a more people-centred approach to global economic governance. A rules-based system of international investment is undoubtedly preferable to the prevailing market anarchy, but it must have the potential to protect poor and fragile economies from abuse. Unless such a new approach is adopted, initiatives like the MAI are likely to hinder, rather than help, international efforts to half world poverty by the year 2015, targets which the British Government adopted in its Development White Paper of November 1997.

  Governments seeking to regulate global investment should learn a number of lessons from the failings of the MAI process and begin again. The shape of an alternative approach is already clear:

—  It must balance rights and responsibilities for large international corporations, setting rules for their behaviour by incorporating the OECD guidelines on multinational companies;

—  It must be rules-based;

—  It must include labour rights;

—  Negotiations must be transparent and open to developing countries;

—  The forum should be one trusted by developing countries, such as UNCTAD, which has already done valuable research on the shape of a development-friendly MAI;

—  It must find a way to reconcile developing countries' need for foreign investment with their need to establish prudent regulation of foreign investment in the interest of their national development goals.

29 October 1998