Multilateral Agreement on Investment
Tas Luttrell
Foreign Affairs, Defence and Trade Group
27 October 1997
In May 1995, on the basis of preliminary work begun in 1991, the Council
of Ministers of the Organisation for Economic Co-operation and Development
(OECD) initiated negotiations on a Multilateral Agreement on Investment
(MAI). The aim was to complete the Agreement by the 1997 Ministerial Meeting.
Although that aim was not achieved, the organisation now hopes to finalise
the agreement for consideration at the 1998 Ministerial Meeting.
Objectives
The OECD is seeking to achieve a broad and comprehensive agreement which
will be a free-standing international treaty open initially to all OECD
member countries and allowing for accession by any other countries prepared
to comply with its rules.
It is intended that the coverage of the Agreement extend beyond foreign
direct investment to include areas such as intellectual property rights,
portfolio investment, indirect investment, public debt and real estate.
In general terms the Agreement will be designed to:
- set high standards for the treatment and protection of investment
- achieve a high level of liberalisation, beyond existing commitments
- be legally binding and enforceable
- apply the commitments in the agreement to all signatories and all
levels of government, and
- encourage conciliation and provide for effective resolution of disputes,
taking existing mechanisms into account.
Main Features
The scope of the terms 'investor' and 'investment' are central to any
investment agreement. In the draft MAI the terms have been given a very
comprehensive coverage.
In the case of 'investment' the definition will cover both physical assets
(such as land, buildings and equipment) and intangible assets (which include
patents, trademarks, copyrights and goodwill) and will have application
both before and after a foreign investor has established itself in the
host country.
In committing funds to an investment, the investor is naturally concerned
that the investment regime will not deteriorate over the life of the investment.
Consequently, the provisions for investment protection have been a major
concern.
The draft article on investment protection therefore requires that:
- investments receive fair and equitable treatment in the host country,
as well as full protection and security
- expropriation would be permitted only if it is in the public interest,
on a non-discriminatory basis, backed by payment of prompt, adequate
and effective compensation, and in accordance with due process of law
- where an investor suffers loss from armed conflict, state of emergency
or similar events, the host country would not be under obligation to
pay compensation. If, despite this provision, compensation is
paid, it should be on a non-discriminatory basis
- all payments into and out of the host country related to an investment
should be freely transferable, without delay, at the exchange rate prevailing
on the date of transfer.
A question still under discussion is whether any breach of an individual
investment agreement would be considered a direct violation of the MAI.
Proposed conditions for treatment of investors and their investments
are to be based on:
- National treatment: foreign investors must not be accorded
treatment less favourable than the host country's own investors and
investments, and
- Most favoured nation (MFN) treatment: applying the above principle
to investors and investments whether from another Contracting Party
or a country which is not a Contracting Party to the MAI.
The draft MAI also includes a number of 'Special Topics'. These have
been included to clarify some issues or to enhance the liberalisation
of investment:
Key Personnel: draft provisions regarding the right of the investor
to freely transfer and hire personnel to carry out key functions; including
the right of temporary entry, stay and work in the host country for key
personnel;
Performance Requirements: there is general agreement that the
use of the National/MFN Treatment provisions alone will not avoid the
distortions and inefficiencies created by performance requirements (such
as specified export levels, employment restrictions or limitation of access
to investment advantages based on specified local sales, local content
or production requirements). It is likely that the MAI will prohibit some
performance requirements and that the prohibitions will go beyond the
established provisions in the World Trade Organization Agreement on Trade
Related Investment Measures (TRIMS). For example, TRIMS bans the use of
investment measures which restrict imported inputs to a proportion of
the volume or value of products exported; or which require the purchase
or use of domestic products to some specified level related to the volume
or value of the investors local production.
Privatisation: The consensus is that National/MFN Treatment provisions
should apply to all phases of the privatisation process, i.e. the total
or partial transfer of control of publicly owned assets to the private
sector.
Monopolies and State Enterprises: There is general agreement that
any government monopoly should act in accord with National/MFN Treatment
provisions.
Investment Incentives: There is also agreement that National/MFN
Treatment should apply to Investment Incentives. Some delegations would
like to prohibit 'positive discrimination' in favour of foreign investors
and put limits on the level of these incentives.
Corporate practices: It is not thought to be feasible to prohibit
private companies from including discriminatory provisions in company
statutes, etc. Consideration is being given to a clause requiring consultations
and full and sympathetic consideration of requests to eliminate particular
practices.
Exceptions
The OECD would prefer an Agreement with no general exceptions, derogations
or reservations from the general principals of the MAI. This situation
is unlikely to be achieved but the object is to keep exceptions to a minimum.
Measures not conforming to the MAI principles would only be acceptable
if covered by country-specific reservations when the MAI is signed. No
additional reservations could be added. The reservations would also be
subject to 'rollback', i.e. removal after a specified period of time or
after fulfilment of conditions.
The Agreement is likely to include general exceptions for protection
of essential national security interests, and for fulfilment of obligations
to the United Nations for the maintenance of international peace and security.
An exception to cover 'public order' is being considered.
Dispute Settlement
The system will be designed to encourage amicable solutions to disputes,
through consultation, but procedures will also be developed for arbitration
of disputes between States or between an investor and a State. The process
will also include a Parties Committee, made up of representatives of all
Contracting Parties to the MAI.
For disputes between investors and States it has not yet been decided
whether arbitration will cover all the MAI disciplines.
The investor will be able to choose whether to refer disputes to the
legal system of the Contracting Party involved, settled by a previously
agreed procedure or decided by the MAI arbitration procedures. A time
limit will apply to the lodgement of such claims.
Contracting Parties will be required to carry out final and binding arbitral
awards and to provide for judicial enforcement of any pecuniary awards.
Other Matters
Other matters still being considered include: measures to allow Contracting
Parties to protect the integrity of their financial systems; the best
approach to treatment of taxation measures and the integration of environmental
considerations into the MAI.
Support for MAI
The MAI has considerable support among OECD governments and investors
but there is also a strong current of opinion that it will allow too much
latitude to multinational companies (MNCs) which may be able to ignore
the wishes of host country governments.(1) To ensure that this does not
happen, negotiators will have to be alert to the problem and preparation
of the final text will require very skilful drafting.
The Australian Government has expressed support for a non-discriminatory
and transparent investment regime. The Government does have reservations
about some apects of the MAI proposals, however, and has indicated that
negotiations in the OECD will be undertaken with both the domestic economic
environment and the established Australian investment regime in mind.
Note: This information is drawn from OECD documents, particularly:
'Main Features of the Multilateral Agreement on Investment'
http://www.oecd.org/daf/cmis/maifeat.htm
Some examples illustrating these views can be found in:
'Canada: Defending the "New" MAI-The Multilateral Agreement
on Investment Has Been Given a Bad Rap' by Alan Rugman, Reuters Business
Briefing, 4 October 1997.
'The OECD Multilateral Agreement on Investment', Oxfam UK and Ireland,
Briefing Paper, October 1997.
'The Multilateral Agreement Investment' by Dr Jane Kelsey, Pacific
World, Issue 48, August 1997, 00. 3-11
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