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    The threat to sovreignty
    from The Jobs Letter No.64 / 7 August 1997

    Corso National Officer and spokesperson for the fair trade coalition GATT Watchdog, AZIZ CHOUDRY, believes that the Multilateral Agreement on Investment (MAI) could be one of the greatest corporate "steals" of all time. He calls for the NZ coalition government to front up to some important questions as to its position on this treaty.

    In this special feature, the Jobs Letter presents an essential summary of Choudry's research and views.

    Put simply, the Multilateral Agreement on Investment (MAI) is a binding international agreement which would remove nearly all restrictions on foreign investment. Critics have dubbed it a "charter of rights and freedoms" for the transnational corporations which already dominate the global economy. William Witherell, Director, Financial, Fiscal and Enterprise Affairs at the OECD told a conference in Washington last November that the MAI would "set a new internationally recognised standard of market access and legal security for potential investors". US trade attorney Lori Wallach of Public Citizen warns that "the MAI represents a quantum expansion of corporate power" beyond NAFTA and GATT.

    What is at issue is the fundamental right for people to determine their own futures: the right to set limits on the level and type of investment in the interest of social and environmental outcomes, not just a narrow blinkered set of financial and economic motives.

    The MAI aims to reduce barriers to foreign investment and prevent discrimination in favour of local investors and investments. However, there is nothing to prevent foreign investors and investments being treated better than locals. This will apply to privatisations, probably including contracting out.

    The agreement will create binding obligations on existing and future governments. Governments will be required to alter existing legislation to bring it into line with the agreement and restrain future governments from acting in a manner that contravenes the agreement.

  • Each country could make exceptions to the basic commitments. But given successive New Zealand governments' zealous embrace of the free market, it seems unlikely that it will opt for many.

  • As drafted, the MAI could prevent governments from limiting what foreign investors can own (whether strategic assets or rural land) or from imposing obligations on them to use local content, hire local managers or staff, or share technological knowhow. It would facilitate easier access for investors to be able to move assets - financial instruments or production facilities - across borders - regardless of social and environmental considerations. It would guarantee the free transfer of all payments relating to an investment in and out of a country. Moreover it could allow investors the right to challenge, and even sue governments to overturn laws which they view as violating their "rights". These could include laws to protect the environment or those designed to support local businesses and develop economically deprived areas. It could override the Crown's fundamental obligations to tangata whenua as guaranteed in the Treaty of Waitangi.

  • The rights of overseas investors would apply to all privatisations. The agreement could stop signatory countries from affording any preference to local businesses or investors, guaranteeing national treatment for investors, and requiring that all foreign investors and investments be given most favoured nation status - that is, they are to be treated no less favourably than other investors and investments.

    The MAI has immigration implications, too. If an investor has committed or is committing "a substantial amount of capital" in a signatory country, they or their senior managers, and their spouse and families could have automatic rights to enter and reside there for one to three years.

    Once a government signs the MAI, it will effectively apply for a minimum of 20 years. Government commitments at the MAI, would, under "standstill and rollback" provisions, be subject to conditions preventing the imposition of stricter restrictions upon foreign investors and ultimately eliminating existing ones over time so that they cannot be "rescinded or nullified over time". The aim is to lock in and ratchet up new liberalisation measures. Although a government can withdraw from the agreement after a period of five years, the MAI's provisions "shall continue to apply for a period of fifteen years from the date of the notification of the withdrawal to an investment existing at that date".

    Effectively this means locking in an open investment regime which cannot be changed even if national or local bodies vote for policies which seek to place some controls on foreign investment.

    The MAI is not just a central government issue. In 1995, Cabinet identified as one of its objectives in MAI negotiations the binding of "sub-national authorities on a similar basis as the commitments national governments have made".

    Most OECD countries involved in the negotiations seem to agree that the MAI should apply to all levels of government, and the MAI as currently drafted has that effect. Its enforcement strictures would also apply to local government.

  • Already in the United States, some US state authorities are writing papers on the impact of the MAI for state and municipal governments, and have taken the issue up with the federal government.

    The current MAI proposal would make national and local governments and their equivalents elsewhere automatically bound by the MAI once their national governments have signed on. Under the MAI's proposed enforcement provisions, national governments would be required to compel compliance from local governments.

    A significant new aspect of this proposed agreement is that it would allow investors to initiate action against governments if they believe that they have been disadvantaged in actual or proposed investments. The draft MAI suggests that an investor could seek to enforce the agreement in the New Zealand courts, although it is not clear how the New Zealand government would comply with that requirement given the current standing of international agreements in New Zealand law. It would also have the option to sue a government before an international tribunal which would have the power to make legally binding rulings.

  • But the MAI sets down no rules of behaviour for investors. Governments - national or local - would have no rights under the MAI to take action against investors for how they behave, other than through their domestic laws. Complex transnational enterprises are notorious for their ability to evade liability under local laws.

    The government claims the right to enter this agreement as an `act of state' without any mandate or ratification from Parliament, or any participation by its Treaty of Waitangi partner. Likewise, local governments will be bound by this far-reaching agreement without any consultation.

  • Critics of trade and investment liberalisation like GATT Watchdog and Corso have long called for an end to the secrecy surrounding negotiations on free trade agreements and for open debate on the benefits or otherwise of successive New Zealand governments' ideological commitments to globalisation. Last year, Clerk of the House of Representatives, David McGee, criticised the way that New Zealand enters into international treaties as "fundamentally undemocratic" - without Parliamentary approval or a formal mandate to negotiate. Public participation in treaty-making, formal Parliamentary approval before ratification, select committee oversight and publishing reports on the effects and values of treaties for New Zealanders were all recommended in a Ministry of Justice 1996 post-election briefing paper. While investors demand "stable, transparent economic policies", ordinary people are excluded from having any input into the MAI negotiations. So much for transparency. If the government signs the concluded MAI, it will bind future governments without debate or Parliamentary approval, let alone consultation with Maori.

    A binding global treaty on investment is not a new idea. The USA, the European Union and Japan all pushed for such a deal during the GATT Uruguay Round, and had subsequently sought to secure an investment agreement under the aegis of the WTO. But many countries, especially in the Third World, opposed the idea or voiced serious reservations about it and so this bid was not successful from the point of view of those governments seeking to impose a global, uniform and binding "open door" regime on investment.

    Once concluded among OECD nations, it is likely that other countries will be invited to sign, with the possibility of transferring the role of maintaining and enforcing the agreement to the World Trade Organisation (WTO). Subtle coercion and the fear of being "left out", as well as the likelihood that accession to the MAI would be made a condition of receiving loans from international financial institutions like the World Bank and the IMF are likely to pressure developing nations into signing the MAI.

    It would be inaccurate to suggest that opponents of free trade and investment agreements like GATT and the MAI are "anti-trade" or opposed to all forms of foreign investment. What is at issue is the fundamental right for people to determine their own futures: the right to set limits on the level and type of investment in the interest of social and environmental outcomes, not just a narrow blinkered set of financial and economic motives. National governments are becoming increasingly subordinated to the role of filing clerks for transnational capital as investors demand the inalienable right to decide for themselves when, where and how to set up or expand their operations in a host country, backed up by legally enforceable rules.

  • The right of national governments to regulate foreign investment is fundamental to ensuring that investment brings benefits to local communities. MAI signatory countries will be denied the freedom to choose which particular mix of policies and conditions on foreign investment they will adopt. Foreign investment was a major election issue last year, especially for the Alliance and New Zealand First. Locally and internationally, the merits or otherwise of unrestricted investment remain a hot topic of debate.
    Source Aziz Choudry, May 1997, "Investment Treaty Rotten to the Core", and open letter to District and Regional Councils, "Re: Local Authorities and the Multilateral Agreement on Investment" 14 July 1997 Contact: GATT Watchdog, PO Box 1905, Otautahi/Christchurch, phone 03-366-2803 fax 03-366-8035 email

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