"Everything You Wanted to Know about the MAI - But Didn't Know to Ask..."

Imagine an international commercial treaty empowering corporations and investors to sue governments directly for cash compensation in retaliation for almost any government policy or action that undermines profits.

This is not the plot of a science fiction novel of future corporate totalitarian rule. Rather, it is just one provision of a profound but largely unknown international commercial treaty called the Multilateral Agreement on Investment (MAI.)

The director general of the World Trade Organization, Renato Ruggerio, has described the MAI rather honestly: "We are writing the constitution for a single global economy."

Others have described the powerful treaty as a slow motion coup d' etat against democratic governance.


The goal of the MAI is to apply the extreme deregulatory agenda of the GATT-WTO to the few vital economic sectors not already covered by GATT-WTO rules. This would include: where and under what terms investment in manufacturing and services could be done, trade in currency and other financial instruments such as stocks and bonds, and ownership of land and natural resources.

Even as massive shifts in investment and currency flows have reshaped our world in the past decades, investment issues have achieved less public, press and policy attention than trade flows. However, many multinational corporations, including major financial interests, have focused on investment issues. They have quietly but aggressively pursued global investment rules to suit their narrow interests.

The OECD, where MAI negotiations are housed, is the Paris-based invitation-only secretariat that includes 29 countries, including all of the world's wealthiest nations. In the past, the OECD has not conducted binding treaty negotiations. However, with the MAI, the plan is for the rich countries to set the rules and then offer the treaty on a take-it-or-tough-luck basis to developing nations.

Given that the MAI would represent an audacious expansion and consolidation of the power of investors and international corporations relative to the nation state, one wonders how such a treaty, now targeted for completion April 1998, could come close to realization? Indeed, the MAI's original completion date was May 1997, a time when literally a handful of legislators in any of the involved countries even knew what the initial MAI meant.


Few people even know that the MAI has been under negotiation since 1995 at the Organization for Economic Development and Cooperation (OECD) in Paris. Around the world, legislators, scholars, citizens, activists, and indeed almost everyone outside the narrow cadre of representatives of government commerce agencies and industry negotiating the treaty have been unaware of the very negotiations, much less the 170 page text the OECD reports is 90 percent complete.

Indeed, it was only in the context of the recent citizens' victory in the United States against fast track trade authority (a special presidential power to go around Congress in trade negotiations) that most Member of Congress became aware of the MAI negotiations. Not even the U.S. congressional committees with direct jurisdiction over international commerce or investment had been briefed, although the U.S. State and Treasury Departments have spearheaded the MAI talks for three years.

This wall of silence is not unique to the United States. In France, a leading politician of the governing party who chairs the committee responsible for investment policy only recently learned of his government's MAI actions.

U.S. government officials denied the existence of an MAI text until an embarrassing day in late January 1997, when a coalition of international citizens groups managed to liberate a copy of the text. When a Member of the U.S. Congress demanded to know why he had not been informed of the negotiations, the U.S. government claimed numerous briefings had been conducted and sent a list of meetings no invitee could recall. When a different Member of Congress asked the same question to a different official, he was given a totally different "list" of alleged briefings.

To the U.S. State Department's chagrin, the text is now posted in full on Public Citizen's website at www.citizen.org.


A review of the text shows that like most international treaties, the MAI establishes a series of rights and responsibilities. Unlike other treaties, the rights granted in the treaty go only to foreign investors and corporations, while the responsibilities go only to governments. Additionally, in contrast to all existing treaties, once governments enter into the MAI, they are irrevocably bound to its terms for 20 years.

The core chapter of the MAI actually is entitled "Investor Rights." These include the absolute right to establish an investment (this includes purchase of land, natural resources, telecommunications and other services, and currency) under deregulated terms set forth in the treaty. Governments are given the obligation to ensure "effective enjoyment" of such investments.


To guarantee this, the MAI contains broad provisions providing that foreign investors and corporations will be compensated for actions a government takes that undermine their ability to profit from their investment. Labeled "expropriation and compensation" in the MAI text, these provisions are nothing like the common law notion found in the U.S. constitution of compensation through due process when the government, for instance, takes your property to build a road.

Instead, the MAI language obligates governments to compensate for actions having the "equivalent effect" of even an "indirect expropriation." What does that mean? " ...[A] lost opportunity to profit from a planned investment would be a type of loss sufficient to give an investor standing...," according to the text.

The "expropriation and compensation" rules are the MAI's most dangerous provisions. They arm every foreign investor or corporation with the power to challenge nearly any government action or policy -- from taxes to environmental or labor rules to consumer protections as a potential threat to their profits. In the U.S., there was a push to pass similar language guaranteeing compensation for U.S. property owners for an array of government actions and regulations not now considered "takings." The U.S. Congress perceived that such a policy would foster endless anti-government, anti-public interest attacks that would effectively paralyze government action. Some conservatives rejected the idea as exposing the government to dangerous financial liabilities. Environmentalists and state and local governments rejected the idea as undercutting even the most basic land use and health policies. Now the U.S. Congress is facing the news that the MAI would give every foreign investor and corporation even greater rights than the Congress denied US property owners. As the U.S. Congress cuts the welfare programs supporting poor families, politically how can it approve a new global corporate welfare program even if it so desired.


If MAI's expropriation notion seems too extreme to believe, consider the case of Ethyl Corporation. That U.S.-based company is using the much more limited NAFTA expropriation provisions to sue the federal government of Canada for US$ 251 million. In April 1997, the Canadian government banned a particular gasoline additive called MMT - a suspected neurotoxin that damages pollution systems in automobiles. Ethyl is the world's only manufacturer of MMT, which is banned in some U.S. states. The U.S. Trade Representative's office refused to pursue the case using the governmental dispute resolution system of NAFTA. So, Ethyl Corporation filed its own direct expropriation action against the Canadian government claiming that the very act of the Canadian parliament debating an MMT ban constituted an expropriation of the company's assets.

Unbelievably, the case is proceeding towards a ruling. If Ethyl wins, the taxpayers of Canada will owe the private corporation the US $251 million. Barry Appleton, the New York-based lawyer who initiated the Ethyl case, now calls this expropriation concept the "paying the polluter" provision, a cruel twist on the "polluter pays" principle. The ability of such a mechanism to chill government action to protect the environment, conserve natural resources, ensure fair treatment and safe conditions for workers or shape investment to suit community interests is overwhelming.

Indeed, another of the enumerated investor right that could trigger an expropriation action is "protection from strife." Under this provision, governments are liable to investors if there is "civil disturbance" to say nothing of "revolution, states of emergency or any other similar events." This means that governments owe an obligation to foreign investors to ensure there is no "strife" that could undermine their profitability. Of course, in the United States we still call "civil disturbances" protests, boycotts and labor strikes. Under MAI rules, however, these tools of social justice would just be additional opportunities for investor to seek payment by our governments of our tax dollars for their "lost" profits. And then there are the unpleasant new incentives for governments such MAI rules would present to squelch such freedoms of expression.


Meanwhile, MAI does not include an attendant set of obligations or accountability for investor conduct or even for the prohibition of anti-competitive business practices under which citizen could sue for compensation from corporations. The MAI lacks binding provisions on corporate responsibilities vis-a-vis labor practices, local communities, or ethics. Indeed, vague language on environmental concerns that the U.S. promised to offer in an attempt to quiet environmentalists, has never been tabled. Observers speculate that the U.S. trade and commerce officials hope that by waiting until the last moment, even such non-binding language can be minimized.


Another specific MAI investor right is the strict application of the principle of "national treatment" meaning governments would be prohibited from treating foreign investors differently from domestic investors. Whatever your opinion of the concept that foreign and domestic investors must always been treated the same, the MAI goes one step beyond.

Under the MAI, it is the impact of a policy -- not its intent or a law's textual meaning -- that is considered. Thus, facially neutral laws that can be shown to have an unintended discriminatory impact on foreign capital would be forbidden. This means neutral laws placing limits on the expansion of extractive industries such as mining or forestry, would be vulnerable on the grounds that they discriminate in effect against foreign investors trying to gain new access to resources relative to domestic investors who already have access. Similarly, policies worldwide benefitting small business or preferential treatment aimed at fostering development of certain categories of investors or investments, such as the European Union's (EU) program promoting development in economically stressed regions, could be attacked if a disparate impact can be shown. This would not be difficult give it is not large multinational investors, but local entrepreneurs generally who obtain the tax breaks or other favorable government treatment.

As well, the MAI could provide the U.S. tobacco giants a new way to get rid of Thailand's public health laws, and similar laws in other countries. In response to a public health law in Thailand aimed at limiting smoking, in the early 1980s the U.S. Trade Representative took Thailand to the GATT. GATT struck down the Thai ban of all cigarette imports but let stand the 100% ban on advertising and public vending machines. The GATT dispute resolution panel noted that advertising bans would have a stronger impact on new foreign brands trying to establish a market share against established local brands. However, GATT ruled that it would allow this disparate impact because the narrow public health exception in GATT provided limited flexibility for a law whose intention was not discrimination, even if that was its effect. The MAI does not have even such narrow public health exceptions and specifically targets such unintended secondary effects.


Even a narrow notion of national treatment would restrict laws that limit foreign ownership of certain land. For example, many countries and U.S. states have laws requiring domestic ownership of farm land. Indeed, the very basis of land redistribution programs in developing countries is to get farmland into the hands of local residents. Yet, under the North American Free Trade Agreement (NAFTA,) on which MAI is modeled, Mexico was required to change the land reform provisions of its national constitution. These reforms, created after the Mexican revolution, were eliminated to allow U.S. and Canadian investors to buy up large tracts of land. In four years of NAFTA, this change has resulted in massive dislocation of peasant farmers as agribusiness companies have accumulated large plantations.

Similarly, the national treatment rules cover privatization. Thus, if the California state government decides to sell off your water utility, bidders worldwide must be given the same access as Californian or any U.S. investors, including for instance a local democratically-controlled cooperative. Ready to call Indonesia when your water is cut off? How about privatization of your kids schools to an Algerian investor?


The MAI also includes a broad ban on "performance requirements." These are measures many countries use to shape investment to benefit broad public interests. The MAI would forbid maintenance of even such requirements that treat foreign and domestic investors and corporations precisely the same. What is at risk? Many governments require investors to hire some local employees or minority employees. Similarly, laws such as the Community Reinvestment Act, which was designed to promote investment by banks -- domestic and foreign -- in impoverished areas, would run afoul of these restrictions. The law conditions regulatory approval for new bank branches on a bank's record with regard to making loans and other investments in under-served locales. Such conditions are precisely what the MAI aims to eliminate.


Ironically, the MAI's ban on performance requirements would also abolish the very policy tools that countries need more than ever to counter currency attacks and stabilize national stock markets. With currently over $1.3 trillion in non-productive trade occur daily (such as currency, ) the MAI would impede much-needed efforts to stabilize and reduce the role of speculation in the global financial system. For instance, the MAI would undercut countries' authority to regulate capital flow. This would prevent countries from imposing conditions on portfolio investment such as "speed bumps" which are requirements that investors hold onto financial instruments for a certain length of time. Such mechanisms have helped some countries to avert disasters like the Mexican peso crisis. Indeed, when the Mexican currency collapsed in 1995, it was Chile with its investment "speed bumps" that alone avoided the so-called "tequila effect" of regional economic turmoil.

Also, many environmental laws and standards could be challenged under the MAI as conditions to investment. Indeed, the MAI has generated unified outrage among environmentalists worldwide because the ban on performance requirements is a slippery slope of environmental deregulation for foreign investors and companies. Many U.S. states have unique laws that are designed to protect natural resources. For example, several states require that glass or plastic containers are made from a minimum percentage of recycled content, and some practice preferential purchasing of materials made with recycled content. Not only do laws that restrict land ownership and use seemingly violate MAI's national treatment rules, they risk violation of the ban on performance requirements. For instance, the U.S. states of Oregon and Idaho prohibit unprocessed timber sales to foreign companies and several European countries plan to adopt bans on tropical timber.

Sadly, the U.S. has already unilaterally given up many of the mechanisms most effectively used to shape investment for the public interest. However, rather than demanding the rest of the world join us shivering naked, we should ensure that an MAI does not foreclose the future ability of the U.S. to "reclothe" itself.


The MAI also would apply the principle of "Most Favored Nation" (MFN) treatment to investment rules, requiring equal treatment among all foreign investor and target countries. This would prevent governments from distinguishing between foreign investors or foreign investment targets based on countries' human rights, labor or other criteria.

It has been said that if the MAI had been law in the 1980s, Nelson Mandela would still be in jail. This is the case because the MAI would require revocation of investment boycotts or restrictions except those defensible under a narrow "essential security" exception. A paper now being prepared at the Harvard Law School describes in detail how the MAI would contradict many existing human rights treaties and ravage the enforceability of those rights.


The MAI stands to transform governance around the world by literally replacing many roles now performed by governments with direct corporate rule. Included is enforcement of international treaties.

Unbelievably, the MAI would confer on private investors and corporation the same rights and legal standing as national governments to enforce the MAI's terms. The MAI empowers private investors to initiate MAI enforcement actions when they choose at the tribunals of their choice against governments. Among the listed fora to which investors and corporations can drag national governments is the arbitral panel of the International Chamber of Commerce! Before such inherently biased arbiters, investors are granted the power to claim compensation because they have not obtained all the benefits promised under the treaty.

This dispute resolution system, called "investor to state" in the MAI text, would be binding on governments with enforcement through monetary fines. How could governments be brought to such fora or made to pay up? The MAI text includes a provision that binds governments to "unconditional consent to the submission of a dispute to international arbitration."

Such a system would newly expose governments to untold legal and financial liabilities from which they are now shielded through the concept of sovereign immunity in domestic legal systems.

Interestingly, the language in this section makes clear that only investors and corporation, not citizens or communities have such private rights of action.

To underscore the significance of this MAI proposal, consider that such private legal rights against governments for international enforcement proceeding do not exist in the powerful and far-reaching WTO. The WTO secretariat, fifty years of GATT history and a vast majority of WTO members steadfastly adhere to the principle that only national governments should have rights in international agreements.

The MAI also provides state-to-state dispute resolution through international tribunals modeled on the WTO. With no conflict-of-interest or transparency rules, due process guarantees or other basic judicial safeguards, one would expect the MAI's internal tribunal to show equal wisdom to recent WTO panels. In the past month WTO tribunals have sacked the EU's ban on hormone-tainted beef (a law consumers in the US envy while our government attacks it) and dodged a major case on market access in Japan.


If all of this were not outrageous enough, the MAI's crowning provision denies countries the right to give notice that they want out of the treaty until after five years of membership. Then, a country remains bound to all of its obligations to foreign investors and corporations for an additional 15 years!


Given the details of the MAI, government and industry proponents have resorted to broad generalities in describing the MAI. 'Don't worry,' they argue, 'there's nothing new in this treaty. It is just about "rationalizing" existing investment practices."

Yet, the MAI, like a political Dracula, simply cannot survive sunlight. The sudden revelation of the MAI text in Canada has ignited political turmoil greater than that of the decade old fight against free trade with the U.S. In New Zealand, the parliament exploded into fury against the government when word leaked out. In the US, the MAI was attacked on the floor of the Congress, groups of Representatives sent around letters opposing the treaty and the conservative association of western states governors commissioned a major study listing their laws that would be undermined.

The recent attention has forced negotiators to attempt to convey the impression that potentially effected interests are finally being consulted. unfortunately, this activity has been a public relations charade. Indeed, after one fruitless session, named an "informal consultation" by OECD and a waste of time by non-governmental organization attendees from around the world who hauled to Paris, the OECD has totally ignored the NGOs' specific set of demands and questions. Thus, the citizens groups have unanimously rejected further invitations to meaningless dog-and-pony shows.

The consensus of these groups -- representing numerous countries and interests -- was that the draft MAI text was so fundamentally flawed that it needed to be entirely replaced with a balanced set of international investment rules. A proposal to add a "social charter" onto the MAI, rather than replacing its underlying rules, was thoroughly dismissed by environmental, human rights, and consumer experts who consider the suggestion to be similar to putting sweet frosting on a cake laced with strychnine.

Not that government or industry representatives have any intention of putting binding labor, environmental, or human rights provisions in the MAI. The suggestion of adding non-binding language on environment in the preamble of the treaty caused the US business coalition pushing MAI, the U.S. Council on International Business, to fire off a acidic letter of opposition. Ironically, all that the U.S. MAI team would even consider proposing on these matters is non-binding feel-good preambular language and several unenforceable clauses asking investor to voluntarily avoid intentionally undercutting environmental standards.

Government MAI boosters have no answers when challenged with the MAI's specific terms. Thus, their latest tactic is to promise to take numerous exceptions and reservations to the treaty. Of course, by admitting that they must take numerous exceptions to safeguard their laws, the governments have provided the latest evidence of precisely how much of our existing domestic law and policy the MAI puts at risk. Yet, it is not comforting that our governments are promising to wrap our valuables in paper while adding more fuel to the fire consuming our house.


Now admitting that the MAI could have drastic effects on existing laws, governments are falling all over themselves to promise that while other countries will be bound to tough investment rules, all U.S. domestic laws will somehow be set safely aside through proposed exceptions and grandfather clauses. The panic to lull growing legislative opposition to MAI until the treaty can be finished is beginning in many countries.

For instance, right now governments in Canada and France are publicly committed to ensuring broad MAI exceptions for culture, while U.S. negotiators have their strict marching orders from Hollywood to use the MAI to pry open these very sectors.

State Department officials are trying to calm the Senators who would both control the treaty's U.S. ratification process and support the Helms-Burton Act by promising to get a broad exception on such unilateral actions. Yet, the same European countries who would have to accept this proposal are at this moment are poised to challenge Helms-Burton at the WTO because the US Congress refuses to change the law.

But more pointedly, years of experience with the GATT and now WTO, as well as other international commercial agreements has shown that even the so-called full "carve out" exceptions often prove meaningless. Just ask the banana growers in the Caribbean who were savaged in a U.S.-initiated WTO challenge of European banana trade policy. The EU had a full reservation in the WTO for the Lome Convention which sets banana trade terms. Like the WTO, at the MAI there would be no outside appeals when such exceptions are simply disregarded.

MAI RULES REQUIRE ELIMINATION OVER TIME OF EVEN GRANDFATHERED LAWS: Additionally, the MAI contains provisions called "standstill" and "rollback" which bind governments to take no further actions in areas covered by the treaty and to systematically eliminate non-conforming laws that do exist. The French-language text of the MAI is the most descriptive as to why reservations and exceptions are meaningless; that text uses the more accurate word "dismantlement" instead of the sanitized term "rollback."


Interestingly, the WTO was not ratified as a treaty in the United States. Under the US constitution, treaties must be approved by two-thirds of the upper chamber of Congress --- no easy feat. However, in the heat of the recent fast track debate, the Clinton Administration was pressured into committed to Congress that the MAI would be considered as a treaty.

As a political matter, administration officials, noting the growing congressional opposition, have started saying maybe the U.S. can enter the MAI without any congressional approval. These officials would like to get around Congress' participation by relabelling the MAI an "international executive agreement," even though it is clearly a treaty with major lasting implications.

As a policy matter, one must question further investment deregulation and government disempowerment at the very moment the results of the status quo model of globalization are proving most unacceptable. Already today, any nation wanting to respond to public demands to address widespread economic and social problems -- such as the Asian economic crisis -- must do so in the context of massive international investment flows and increasingly uprooted capital and corporations and attendant economic instability worldwide. This is a situation that needs to be remedied. Certainly it is in the interest of few to escalate it worldwide with the MAI. Definitely it is not in the U.S. public interest to intensify these problems in the United States.