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Making profit the world’s highest law

Special to the National Catholic Reporter

A new global treaty would virtually eliminate governments’ ability to regulate banking, currency speculation and transnational corporate activity, according to critics who claim to have slowed its progress.

Despite the treaty’s potentially sweeping impact, the negotiations have drawn little public interest in the United States.

Negotiators from the 29-member nations of the Organization for Economic Cooperation and Development failed to complete an acceptable draft of the Multilateral Agreement on Investment -- called MAI -- on April 27. Further talks are scheduled for October. The Organization for Economic Cooperation and Development was established in 1960 by the United States, Canada and Europe as a successor organization to the Organization for European Economic Development, which oversaw the distribution of mostly American capital to rebuild the war-torn economies of post-World War II Europe.

Governments would lose virtually all effective authority to buffer citizens from the worst excesses of transnational corporate behavior, such as ecological damage, the devastation of local industries and poor wages and working conditions.

The organization’s primary function is the promotion of open-market economics around the world.

An international coalition of grassroots political organizations sees the Multilateral Agreement on Investment as the final stage in erecting the legal scaffolding to support economic globalization, capping off a process that began with past multilateral trade agreements, such as the General Agreement on Tariffs and Trade and the North American Free Trade Agreement.

Under the new treaty, opponents contend in a joint statement signed by 600 organizations, governments would lose virtually all effective authority to buffer citizens from the worst excesses of transnational corporate behavior, such as ecological damage, the devastation of local industries and poor wages and working conditions.

‘With the MAI, foreign corporations and investors get all the rights, and governments get all the obligations. I’m not exaggerating, it is singularly lopsided.’

International arbitration tribunals could force governments to fork over billions of taxpayers’ dollars should their governments attempt to buck the laissez-faire tide, argues Lori Wallach, director of Washington-based Public Citizen’s Global Trade Watch and a trade lawyer.

“Like any other treaty [the MAI] sets up rights and obligations. Now in a normal treaty, rights and obligations are shared, you take one, you have to take the other,” Wallach said. “But with the MAI, foreign corporations and investors get all the rights, and governments get all the obligations. I’m not exaggerating, it is singularly lopsided.”

Proponents, however, see the proposed treaty as “the constitution for a single global economy,” interlinked and nourished by unrestrained international flow of capital, according to World Trade Organization director general Renato Ruggerio.

In a Financial Times of London piece titled “The Case for MAI,” Donald Johnston, secretary general of the Organization for Economic Cooperation and Development, wrote, “For years, international investment has made an important contribution to economic growth. Multinational investment is the lifeblood of global commerce.”

The new treaty makes unrestricted capital investment the federal law of any nation that signs on.

As Johnston noted in the article, the core of the MAI is its “nondiscrimination” provision, which grants transnational corporations the same rights to do business in a given country as that nation’s domestic businesses.

Though Johnston conceded this is obviously already happening, as nations must compete to provide hospitable markets for both domestic as well as increasingly foreign investors, the new treaty makes unrestricted capital investment the federal law of any nation that signs on.

According to critics, the nondiscrimination provision is the most alarming element of the Multilateral Agreement on Investment. It would give foreign investors broad rights of redress against governments they feel have discriminated against them by favoring domestic competitors with subsidies and other incentives.

‘The MAI is a takers’ agreement, not an investors’ agreement.’

For instance, said Margrete Strand, treaty project coordinator for Public Citizen’s Global Trade Watch, even local zoning laws meant to protect the environment could be challenged for violating the treaty. “In California there are laws that protect the coastal areas by requiring new developments near sensitive habitat areas be designed to avoid adverse impacts. Important as these laws may be to the environment, they may reduce the value of the land, and corporations can therefore challenge such laws under the national treatment, expropriation or performance requirement provisions of the MAI,” she said.

Maude Barlow, chair of the Council of Canadians, a public interest group opposed to the treaty, said “The MAI is a takers’ agreement, not an investors’ agreement. What it takes away are the powers of democratically elected governments to protect and promote the public interest. From the start, this deal has employed the wrong set of principles and values. It’s time for an alternative.”

If the new treaty has not been able to cut through the Clinton-Lewinsky dominated news agendas in the United States, it has become a familiar headline in Canada. Barlow’s 100,000-member organization has promoted public awareness throughout Canada and has pressured government negotiators.

Groups around the world have followed Barlow’s approach, an effort Wallach called an “example of brilliant organizing.” In Canada “they have more or less armed struggle over the MAI in the streets.” A book on the MAI coauthored by Barlow, that is being released in the United States, is on the bestseller list in Canada, said Wallach. “Their 60 minutes news program has done two one-hour exposés on the MAI. That’s the level we need to bring it to.”

Treaty advocate Johnston dismisses the gloomy scenario, saying the treaty will establish a “wider framework” of international investment rules providing “predictable and transparent laws and regulations.” Such a hands-off policy would lead to “greater investment flows, lower risk premiums and higher returns to investors.”

Ensure open markets

Johnston explained the treaty’s “aim is to ensure open markets and a sound legal environment based on the principle of nondiscrimination between domestic and foreign investors. Equally important, the MAI will provide an enforceable mechanism for settling disputes between states and between investors and states.”

“At the moment,” wrote Johnston, “rules of investment are set by a complex network of bilateral and regional treaties.” These treaties “lack many of the disciplines contained in the MAI, [and] their coverage is far from complete, especially among the [Organization for Economic Cooperation and Development] countries.”

Testifying before the House Subcommittee on International Economic Policy and Trade in March, Alan P. Larson, U.S. State Department Assistant Secretary and vice-chairman of the group of MAI negotiators, said, “The main features of the MAI are expected to include nondiscrimination” against foreign investors across the board.

Under the treaty, the United States, for instance, would have the “freedom to make any investment-related transfers, such as profits, capital, royalties and fees, whether into or out of the country where the investment takes place” and would also have “access to international arbitration for disputes” between countries or between individual investors.

‘International investment is not the ‘lifeblood of global commerce,’ as Donald Johnston puts it.’

Johnston acknowledged that the present trend in most countries is toward greater economic liberalization, “But that does not mean there is no point in global rules. The Asian crisis has brutally reminded us that we cannot afford to assume favorable conditions will continue indefinitely.” David Andrus, University of Southern California professor of international relations, disagrees with Johnston’s positive interpretation. Andrus claims the MAI treaty will have a negative impact on the global economy, as liberalized investment has facilitated economic crises like the ongoing Asian collapse and the 1995 Mexican peso crisis.

“International investment is not the ‘lifeblood of global commerce,’ as Donald Johnston puts it,” said Andrus. “Ninety-some percent of it is speculative portfolio investment, which doesn’t create jobs and promote real economic growth and development. Speculative investment is not real investment, it’s purely gambling,” he said.

A nation that signs onto the treaty is bound to the agreement for at least five years. Further, the treaty states “the provisions of this agreement shall continue to apply for a period of 15 years from the date of notification of withdrawal to an investment existing at that date.”

A country’s policies must also remain true to the treaty for a minimum of 20 years.

The most recent draft text of the treaty states, “A lost opportunity to profit from a planned investment is the type of loss sufficient to give an investor standing.” Critics say taxpayers could end up compensating a corporation for an investment that was never actually made, if an international tribunal finds a government guilty of imposing trade barriers or restricting investment.

Wallach of Ralph Nader’s Public Citizen said the framework of legal rules established under the treaty is inherently biased toward investors. “The investor gets to decide if, where and when this treaty is going to be enforced,” she said. Investors “get to pick where the suit will go -- they can set up a tribunal internationally off a roster of investment experts. They can go into domestic courts without the regular standing requirements. Or they can take it to the [global investment advocate] International Chamber of Commerce in Paris for nice fair adjudication.”

Treaty rules are paramount

Regardless of the forum hearing a dispute, “When the ruling comes down, it can be enforced in U.S. courts to actually get the payment out of the government,” said Wallach. Under the treaty, governments “waive all federal court protections, due process, sovereign immunity,” and subject themselves “without condition to submission of any disputes brought by an investor under [the MAI’s] rules.” Rules cover municipal and state policies and courts as well, according to the agreement’s draft text.

To date, the negotiations have escaped public scrutiny in the United States largely because of scant attention from the mainstream media and politicians. Most people have never heard of the MAI treaty. Very little has been written in the mainstream media in the United States.

While financial publications, such as Business Week, The Economist, and Financial Times, have reported substantially on the treaty negotiations, discussion of the treaty has yet to become a significant public debate in the United States and many other nations.

‘The American people and members of Congress know to oppose it, so this stealth strategy to keep the MAI secret is their best shot at getting it approved.’

Critics say that if the treaty were given a lot of media attention it would face even fiercer popular and political opposition, significantly hindering its chance of ratification when it comes before Congress and other nations’ legislatures for approval.

“The negotiators and the Clinton administration are silent about the MAI because that’s their best strategy. The American people and members of Congress know to oppose it, so this stealth strategy to keep the MAI secret is their best shot at getting it approved,” said Chantell Taylor, MAI project coordinator for Public Citizen’s Global Trade Watch. The watch group hopes to neutralize the strategy by revealing it.

A team of government agencies has been involved in the negotiations since late 1995. The major participants from the Executive Branch include the Office of the United States Trade Representative headed by Charlene Barchefsky, Department of State, Treasury Department, Department of Justice and Commerce Department.

“Despite what the critics say to the contrary, [U.S. negotiators] have been reaching out for over a year to labor and to a wide range of environmental groups to ensure that anything that goes into the MAI promotes best labor standards and does nothing to encourage an erosion of environmental standards,” said a State Department spokesman close to the negotiations speaking on the condition of anonymity.

“There is a lot of bad, incorrect information out there about a secret agreement and a grand corporate conspiracy, and all this kind of fringe talk that displays a woeful ignorance about what’s actually in the agreement. This agreement, that’s alleged to be secret, is also on the [Organization for Economic Cooperation and Development’s] Web page. That’s not very secret.”

Activists first received a draft of the treaty in 1996 and promptly posted it on the Internet. The treaty proposal is, indeed, now a part of the MAI section of the OECD’s Web site, http://www.oecd.org/daf/investment/index.htm Information about the agreement, both supportive and critical, can be found online at the Web sites of critics and government negotiators.

The State Department source called the break in talks a “summer recess” so negotiators could go to their home countries and talk to labor and environment constituencies. “Obviously there are a lot of people who are concerned about the agreement, who have issues they want to present.”

The treaty’s “Country Specific Exceptions” section indicates negotiators have qualms about specific details in the treaty’s current draft that will conflict with existing policies or special concerns.

But while head Donald Johnston told the Associated Press in April that he is “sure these small, parochial issues will be able to be worked out,” the treaty’s future seems uncertain given the noncommittal nature of international politics and growing pressure on negotiators from public interest and labor groups.

Just what will be on the table when the talks continue is definitely open to speculation. U.S. negotiators “don’t want to negotiate in the press,” offering little on the record, according to a spokeswoman for the U.S. trade representative.

National Catholic Reporter, October 9, 1998