MULTIFACETED ATTACK FOR INVESTMENT DEREGULATION

As has already been indicated throughout this briefing, the MAI is not the only ambitious attempt to deregulate investment rules. Since 1995, governments all over the world have made some 600 changes in national investment legislation, 95 percent of which have resulted in greater liberalization. Over the past five years, the number of bilateral investment treaties has tripled to reach a current grand total of 1330 agreements involving 162 countries.³⁹

The following is an overview of the multifaceted attack for investment deregulation that has been launched by OECD countries. Over and above the MAI, the EU, the United States and Japan dream of a global investment treaty within the WTO. A first offensive to initiate negotiations on such a treaty -- stimulated by the euphoria that followed the signing of the GATT -- took place in 1995 and 1996. Fierce Third World resistance to the so-called MIA (Multilateral Investment Agreement) resulted in a compromise: the creation of a WTO working group on investment, within which the struggle continues. Another increasingly outspoken proponent of deregulation, UNCTAD (the United Nations Conference on Trade and Development) plays a crucial role in moving Third World countries towards more neoliberal positions on investment, for instance by providing consensus-building conferences. And with its far less subtle approach, the International Monetary Fund (IMF) continues to use every opportunity to impose MAI-like rules on countries in financial crisis.

Activities on another front are likely to be stepped up in the next few months: a trans-atlantic free trade zone, including full scale investment deregulation, between the EU and the US. Preparations have been underway for several years between the US government, the European Commission and corporate leaders in the Trans-Atlantic Business Dialogue (TABD). In early February EU Commission Vice-President Brittan announced that the aim is to start negotiations at the EU-US Summit in May 1998. Another path leading to the same goal and with the same fundamental lack of public consultation, let alone a public mandate.⁴⁰

The MIA Track

1995 was a big year for investment negotiations: not only did MAI negotiations officially begin, but the OECD Ministerial meeting in June of that year also agreed to simultaneously push for a MIA within the WTO.⁴¹ Although there was general consensus on the desirability of a two-track strategy, the European Union was probably the strongest proponent of taking the fast track approach with the WTO treaty.⁴² As European Commissioner Sir Leon Brittan put it: "I believe that developing countries have never been as receptive as they are today to the message that foreign direct investment is not a threat but a positive tool for economic growth ... At a time when over half of new investment flows go to the developing world, this is a global issue that OECD countries cannot resolve alone ... We must get the issue into WTO..."⁴³

The original idea was to launch negotiations on MIA at the December 1996 WTO Ministerial Conference in Singapore. The proposal for a MIA outlined in the 1995 European Commission paper "A Level Playing Field for Direct Investment Worldwide" closely resembled the MAI.⁴⁴ This MIA would grant foreign investors the rights of entry, establishment and national treatment in all sectors in all WTO member countries, would guarantee unrestricted capital and profit flows, and would restructure tax and company laws. What makes an investment treaty within the WTO attractive to Northern governments is that it would allow access to the WTO's dispute settlement mechanism -- and in particular to its cross-retaliation provisions, which are a very powerful juridical instrument involving trade sanctions against non-compliant countries. Influential corporate lobby groups, in particular the European Roundtable of Industrialists (ERT), had pressured for such a "GATT for investment" since the early 1990s.⁴⁵

Third World Resistance

Third World countries revolted against the MIA from the beginning. In January 1996, for example, Malaysian Prime Minister Dr. Mahathir Mohamad commented that his country was "aware of such moves and we will take steps to ensure that such an unfair trade treaty will not be pushed through".⁴⁶ Soon afterwards, eight Third World countries, including India and Indonesia, issued a statement declaring "their objection to the bringing up of the trade and investment issue in the World Trade Organization".⁴⁷ Couching their displeasure in diplomatic terms, these countries expressed their concern that a MIA would impact "the ability of national governments to regulate FDI flows so as to support national development objectives and priorities". "Equally unclear", the eight governments stated, "is the nature of the potential benefits and costs of FDI and its relationship to the globalization process and the accompanying phenomenon of marginalization".⁴⁸ Instead, they demanded that the investment issue be discussed within the framework of the UN Conference on Trade and Development (UNCTAD), which lacks binding juridical powers and in which developing countries are at a less glaring disadvantage as in the WTO. These resistant Third World countries had learned a lesson from the Uruguay Round of the GATT -- that the initiation of negotiations generates enormous pressure for the completion of far-reaching treaties.

Manipulations in Singapore

Despite these clear signals from Third World governments, WTO Director-General Ruggiero nevertheless placed investment on the agenda for the WTO's December 1996 Singapore conference. The EU and other proponents of the MIA had by that time adapted their proposal into a "study process" on the relations between trade and investment.⁴⁹ During the course of the Singapore conference, those countries who resisted bringing investment onto the WTO agenda were one after another prodded to change their position. Some countries lobbied with some success to limit the scope of the working group. The last country to give in was India, which ultimately joined the last-ditch efforts to prevent the proposed working group from preparing the elements of a MIA negotiation process. In an utterly undemocratic procedure, a final draft declaration was negotiated by an informal group of 30 countries. It was presented to the conference plenary at the very last moment accompanied by a plea from the chairman, Singapore's Yeo Cheow Tong, to countries to refrain from reopening discussions.⁵⁰ And so the WTO working group on trade and investment was born.

Whose Victory?

Following the Singapore WTO Ministerial, EU Commissioner Brittan envisioned the door to a multilateral "framework of binding rules" on investment wide open, and declared that "on investment ... we have at least put WTO on the map. Investment indeed seems to me to be the top priority for WTO in the years ahead."⁵¹. Third World negotiators, on the other hand, emphasized that they had managed to stop negotiations on a MIA from being launched. India's Commerce Secretary Tejendra Kanna said that: "We made it clear that no mandate can be given for a study of a MIA. This is not permissible even with the two-year period. If it ever comes to that stage, even then, we will block it."⁵²

Cold War in Investment Working Group

The tension between OECD countries and MIA opponents has been tangible at the three meetings of the working group in 1997, at which the OECD, UNCTAD, the World Bank, the IMF and other international institutions were observers. Whereas the EU has continued to urge for the commencement of negotiations, countries like Malaysia, India, Indonesia and Pakistan remain outspoken against even the smallest steps towards a global investment treaty.⁵³ The working group has been discussing trade, investment, development and economic growth on an abstract level, but in 1998 will also take on "multilateral agreements and initiatives".⁵⁴ Its report to the WTO Ministerial Conference in May 1998 is not likely to contain any controversial recommendations, and it is not expected that any decisions on investment will be taken at this meeting.

Hotting Up

Over the summer and fall, however, debates in the working group will heat up in anticipation of the December 1998 deadline for the final report to the WTO General Council. Proponents of a WTO treaty on investment will attempt to rally support for the preparation of negotiations; their success largely hinges upon the fate of the MAI negotiations. Observers expect that the EU and others aim to revitalize MIA so that negotiations could begin by 1999 or the year 2000. According to some sources, the most likely strategy is the initiation of new general round of negotiations to include worldwide liberalization of agriculture, investment and several other issues at the beginning of the new millennium.