AFL-CIO Executive Council
October 14, 1998
MULTILATERAL AGREEMENT ON INVESTMENT (MAI)
Since 1995, the U.S. government has been leading an effort by 29 of the world’s richest nations to negotiate a Multilateral Agreement on Investment (MAI). Negotiated under the auspices of the Organization for Economic Cooperation and Development, the MAI was scheduled to be completed in April of 1998. Growing popular opposition forced a temporary suspension of negotiations, which are scheduled to resume in October 1998.
The principle objective of the MAI is to strengthen and expand international rules that elevate the mobility of capital and the rights of investors above all other considerations. In this system, worker rights, environmental protection, and necessary government regulation of the economy take a back seat to the interests of private capital. The AFL-CIO rejects this model as irredeemably flawed, harming workers across the globe, while enriching the financial sector. At a time when the current system is increasingly being questioned, it is folly to lock in rules that only serve to perpetuate this system.
Unpredictable and uncontrollable capital flows have created turmoil in the global economy. The sudden outflow of investment funds has undone years of growth in a matter of moments, leading to economic meltdowns in Mexico in 1994-95, in Thailand, South Korea, Indonesia, and Malaysia in 1997-98, and in Russia this year. The conventional wisdom that countries should respond to such crisis with austerity and export-led growth exacerbates the problem of weak global demand. The U.S. economy suffers the impact of the international crisis in import-competing markets like steel, auto, apparel and electronics; in the loss of export markets; and in all the industries and activities that support these sectors.
We are at an important historic turning point. The expert wisdom of a few years ago — that a deregulated world market would create prosperity for all — is now discredited. We have an opportunity to rethink and reshape the rules of the global economy. We should ensure that the global economy of the future is one built on a solid foundation of democratic, sustainable, and egalitarian growth, not unlimited profit for a few corporate giants.
The model of globalization promoted by the MAI underlies many of the problems in the world economy. The AFL-CIO rejects the MAI as flawed in both model and design. We will oppose this and any similar set of rules in the OECD, the World Trade Organization, the International Monetary Fund, or any other forum.
The problems with the draft of the MAI include:
Labor Rights – The labor rights provisions in the MAI are unacceptable, consisting only of weak hortatory language that imposes no effective penalties for violation of internationally recognized labor rights and no meaningful obligation to enforce existing laws.
Expropriation and Compensation – The MAI grants extraordinary rights to corporations, protecting them from government action that might reduce the value of their investments. Using broad definitions of investor rights, these rules would empower corporations and investors to demand cash damages for any government action that has the “equivalent effect” of an “indirect expropriation.”
National Treatment – The MAI requires governments to treat foreign investors “no less favorably” than domestic investors. This principle is at odds with some legitimate domestic political and economic objectives, such as preserving jobs or protecting natural resources.
Performance Requirements – The MAI restricts governments’ ability to impose restrictions on foreign investors. For example, governments may not require foreign investors to give preference to domestic inputs, achieve a given level of domestic content, or hire local citizens. These measures are important tools for local economic development, and the decision whether or not to use them should be one made by democratic process, not an international agreement.
Most Favored Nation – The MAI requires governments to give the same favorable treatment to all investors. That means that federal, state and local governments cannot differentiate between companies from countries that don’t comply with international labor or human rights standards and those that do.
Investor-to State Dispute Resolution – The MAI grants individual corporations the right to sue governments when they believe their rights under the agreement have been violated. This opens the possibility of exposing governments to potentially large liabilities, forcing governments to defend public health or environmental regulations against charges that they unfairly discriminate against foreign investors or constitute “indirect” expropriation.
Capital Controls – The MAI prohibits countries from regulating capital flows except in times of crisis. This provision restricts the tools governments may need to shield their economies from the destabilizing impact of speculative capital.
Immigration – The MAI allows unrestricted “temporary entry” for employees of multinational corporations. This particular type of immigration allowance has been subject to misuse in the past.
Long Lasting Impact – The MAI locks in most of its provisions for twenty years. Countries may not exit for five years after ratifying the agreement, and the investment provisions will continue to apply to existing investments for an additional fifteen years.
For all of these reasons, the MAI is irredeemably flawed, and the U.S. government should reject any attempt to lock in these rules. The AFL-CIO calls instead for a restructuring of the world’s international financial institutions to promote sustainable, egalitarian economic development around the globe. We support global rules that create strong enforceable rights for labor, communities, and the environment; that enunciate clear responsibilities for investors; and that create democratic accountability over capital.
Such rules should be negotiated in a forum that allows for an open, inclusive, and democratic process. Labor rights and environmental standards, with the same enforcement mechanisms that apply to investment, must be an integral component of any agreement. Governments should retain the right to restrict inflows and outflows of speculative capital, and set health, safety, environmental and worker protection standards that corporations cannot challenge as barriers to investment. All investment should be subject to public disclosure including the site, wage rates, benefits, and environmental performance of facilities.