Memorandum submitted by Friends of the
1.1 Friends of the Earth (FOE) approves
of the curtailment of the OECD's MAI negotiations. The MAI focused
solely on liberalisation and had the potential to harm the recipients
of foreign investment, by removing their sovereign rights to direct
the development of their economies and control the use of their
natural resources. The MAI also threatened to undermine international
environmental law and initiatives designed to promote local economies
1.2 FOE recommends that the UK Government
oppose the introduction of any new negotiations to liberalise
foreign investments, in the World Trade Organisation (WTO) or
in any other forum, on the basis that no further multilateral
liberalisation of investments is necessary at present; because
multisector negotiations within the WTO could put many economies
under a great deal of pressure to sign up an inappropriate agreement;
and because the WTO is even less likely than the OECD to take
account of environmental and social concerns.
1.3 FOE believes that the UK Government
should take a lead in initiating alternative negotiations on a
Multilateral Agreement to Regulate Investment and Investors (MARII).
FOE believes that there are sound economic reasons for doing this;
and that such a move would generate worldwide support from civil
1.4 Finally, FOE believes that the UK's
Government and Parliament should review their respective procedures
concerning notification, monitoring and ratification of multilateral
economic agreements, with a view to improving the transparency
of negotiations and the validity of final agreements.
2. FRIENDS OF
2.1 Friends of the Earth International (FOEI)
is a campaigning organisation dedicated to the protection of the
environment and the promotion of sustainable societies, FOEI is
a federation of 58 autonomous FOE member groups, based in developed,
developing and transitional economies around the world. FOEI's
Trade, Environment and Sustainability (TES) Programme was established
in 1992 to examine the impact of trade policy on peoples' environment
and quality of life and to develop genuinely international policies
in response. To this end the TES Programme is jointly co-ordinated
by FOE groups in England, Wales and Northern Ireland; Ghana; the
Philippines; the United States and Uruguay.
2.2 As part of the TES Programme's activities,
FOE England, Wales and Northen Ireland, FOE United States and
the FOE International Secretariat have co-ordinated FOEI's anti-MAI
campaign over the last two years. This has involved frequent lobbying
of both participating and non-participating governments and the
OECD Secretariat; and the production and world-wide distribution
of analytical and lobbying materials. FOE has also been at the
heart of the global anti-MAI coalition, co-hosting the meeting
at which the coalition was established and helping to establish
the internet list-servers used by the coalition.
3. THE COLLAPSE
3.1 In May 1995, members of the Organisation
for Economic Cooperation and Development (OECD) proposed the establishment
of a treaty, the Multilateral Agreement on Investment (MAI), to
liberalise international investments in and between member states
and other signatories. However, due to political differences between
negotiating parties and vehement opposition from citizens around
the world, the MAI negotiations ground to a halt in October 1998,
when the French Government withdrew its support for the treaty.
On the basis of a number of statements from
different parties, including the UK's Department of Trade and
Industry, FOE believes that the OECD's MAI negotiations have finally
"The Minister for Trade, Brian Wilson,
today said that a successful conclusion to the MAI negotiation
is most unlikely in the near future" (Brian Wilson Voices
Support for New Rules on Investment, Department of Trade and Industry
press release, 21 October 1998).
"The Government signalled its withdrawal
of support for a controversial global treaty on foreign investment
yesterday. Trade minister Brian Wilson said the draft Multilateral
Agreement on Investment, designed to protect business investing
abroad, should be abandoned." (The Guardian, 30 October
3.2 FOE recognises the potential value of
a binding international agreement governing foreign investment.
The OECD's MAI proposal, however, focused solely on liberalisation
and had the potential to harm the recipients of foreign investment,
by curtailing their sovereign rights to direct the development
and promote the stability of their economies; and control the
use of their natural resources. The MAI also threatened to undermine
international environmental law and initiatives designed to promote
local economies and culture (see Section 4 below for details).
3.3 FOE consistently opposed the continuation
of OECD negotiations to establish an MAI, on the basis that the
MAI could not be reformed to address FOE's concerns. The MAI text
focused on maximising liberalisation and minimising regulation,
for the purpose of short-term financial gain; and the extremely
weak Chairman's Proposals on Environment and Related Matters and
on Labour (Annex 2 of the MAI negotiating text, dated 24 April
1998) served only to demonstrate that the political will necessary
for radical reform was almost entirely absent. Consequently, FOE
fully supports the curtailment of the OECD's MAI negotiations.
3.4 However, FOE is concerned that various
participating countries now wish to move the MAI negotiations
to the World Trade Organisation and to push for MAI-type clauses
in other international agreements (bilateral and plurilateral
trade agreements, for example). Brian Wilson of the Department
of Trade and Industry, Lionel Jospin, the French Prime Minister,
and Sir Leon Brittan, the EU's Trade Commissioner have all voiced
their support for the transfer of talks to the WTO.
3.4.1 FOE believes that such a development
would be a serious error. Superficially, the WTO would appear
to be more a inclusive forum and one that might take account of
developing country concerns. However, based on past experience
(particularly during the GATT's Uruguay Round of negotiations),
it seems highly likely that weaker members of the WTO will be
put under a great deal of pressure to (a) agree reluctantly to
negotiations on investment that are either free-standing or part
of a multisector Millennium Round agenda; and (b) then sign up
to an investment agreement that is not in their interests.
3.4.2 Pressure to sign up to an investment
agreement would probably be intense for two reasons. Firstly,
negotiations on foreign investment would probably be presented
as a quid pro quo for increased access to developed country
markets (the European agricultural market for example). Secondly,
it is likely that any such agreement would have to be agreed to
by the entire WTO membership as is normal practice. As a result,
those countries least likely to benefit from opening their markets
(ie the smallest and weakest) would find themselves under great
pressure from those countries likely to benefit substantially
(countries with considerable political clout).
4. THE MAIA
4.1 This section analyses the MAI as was.
This analysis has been retained in our evidence in order to:
fulfil the explicit requirements
of this inquiry (which was established prior to the collapse of
identify those features that would
define any proposed investment treaty as an "MAI-type"
establish what should not be
in any future investment agreement.
4.2 We have deliberately included evidence
relating to both the environmental and developmental aspects of
the MAI, even though the Environmental Audit Committee is also
examining the MAI. This is because a healthy environment, a stable
and sustainable economy; and equity are all critical elements
of a sustainable society. They should not be looked at in isolation;
and FOE does not campaign on them in isolation.
4.3 The MAI proposal was based on an assumption
that FOE disagrees with: that extensive liberalisation, based
on the theory of comparative advantage, is compatible with the
development of heathly, sustainable economies. In our experience
it is not. Many members of FOE international spend the majority
of their time dealing with the environmental and social impacts
of overconsumption and increased imports and exports (deteriorating
commodity prices; devastated ecosystems; farming, fishing and
newly developed domestic sectors unable to compete with foreign
4.4 Furthermore, the theory of comparative
advantage has been debunked because it assumes, incorrectly,
that capital does not cross borders. Capital is in fact highly
mobile and is not necessarily invested in the most efficient domestic
sector. Rather, it moves across borders to more efficient sectors
in other countries as it seeks out the highest returns. As a result
countries actually compete on the basis of absolute advantage
and some may lose out altogether, creating great economic uncertainty
and instability all round. Since the MAI would have increased
capital mobility it would also have increased this instability.
4.5 The MAI and economic stability. Economic
stability is an inherent feature of sustainable development. However,
whilst the MAI might have increased stability and predictability
for foreign investors, it could have decreased economic stability
from the nation states' point of view, by increasing the quantity
and speed of international capital transactions; worsening host
countries' balance of payments; reducing the range and effect
of tools traditionally used to control and develop national economies;
and reducing levels of natural capital. The knock-on effects of
such destabilising forces would be felt most severely in developing
economies. FOE believes that this approach is unnecessary: increased
investor confidence and subsequent investment in sustainable development
in developing countries could be achieved without the level of
liberalisation and deregulation proposed in the MAI.
4.6 Investors' rights and responsibilities.
The MAI's principal flaw was that it sought to boost investor
confidence by increasing foreign investors' rights without imposing
commensurate responsibilities. This could have seriously undermined
national efforts to promote environmentally and economically sound
development. For example, a government might have been obliged
to offer unprecedented access to scarce natural resources to a
foreign investor, yet not have been able to require that investor
to operate to its own highest standards. The proposal to annex
the currently weak and non-binding OECD Guidelines on Multinational
Enterprises would have done little to redress this fundamental
imbalance. The current review of the Guidelines would not have
improved matters since no radical changes to the Guidelines have
been proposed by governments.
4.7 Participation and accession of developing
countries. The exclusion of developing countries from negotiations;
suggestions that the MAI might have become a must-have "seal
of approval" for investment; the suspicion that non-OECD
countries could have found it difficult to negotiate exemptions;
and the provision for any founding member to reject the "application"
of any acceding party (the provision on non-applicability, Article
XII), all indicated that the MAI could have worked to the advantage
of "founding" OECD countries and the disadvantage of
non-OECD countries. This suspicion was bolstered by the fact that
the few non-OECD countries that had been present during the MAI
negotiations as observers had their request to join as founding
members turned down. The Department for International Development
(DFID)'s report on "The Development Implications of the
Multilateral Agreement on Investment" (also known as
the Fitzgerald Report) completely failed to acknowledge the above
concerns and FOE still believes that it should be withdrawn.
4.8 Environmental standards and performance
requirements. The MAI proposal prohibited the use of a range
of performance requirements that can be used to promote the sustainable
development of economies, particularly in developing countries
(local employment, domestic content and certain technology transfer
requirements, for example). It also threatened to undermine any
environmental, health or other standards that could be deemed
to be discriminatory. Experience with the North American Free
Trade Agreement (NAFTA) has shown that genuine environmental standards
have already been challenged and discarded in response to similar
pressures (see 4.9.1 Expropriation).
4.9 Expropriation. The broad definition
of expropriation in the MAI could have allowed challenges to environmental
and other regulations on the grounds of lost profit (or even potential
lost profit). The MAI's definition of expropriation was based
on similar usage in the NAFTA agreement, which has since given
rise to a number of challenges to environmental legislation in
Canada and Mexico. Such challenges include ths US-based Ethyl
Corporation's claim that Ottawa's restrictions on a fuel additive,
MMT, caused them to lose profits and reputation valued at US$251
million (Ottawa eventually agreed to pay US$13 million and removed
the restrictions). More recently, another American company that
specialises in the clean-up of hazardous waste, S D Myers, has
claimed losses of C$10 million due to Ottawa's ban on the export
of polychlorinated biphenyls (PCBs). This case is still pending,
although the export ban has already been lifted.
4.10 A proposal to amend the MAI negotiating
text to prevent contries from lowering standards fell short
of what was required, since it appeared only to apply to specific
investments. It is unlikely that it would have prevented a general
lowering of environmental and other standards to attract investments.
4.11 Local Authorities. It seems
likely that local authorities could have found their ability to
use discriminatory measures to promote local economies and protect
local environments severely constrained by the MAI. Additional
problems could have arisen if a local authority's action was not
supported at the national level since its national government
would have been required to defend the local authority's action.
This has already happened in Mexico, with a US company, Metalclad,
challenging the Mexican Government over waste-disposal restrictions
imposed by a Mexican local authority (case still pending). In
the UK, where foreign multinationals already wield considerable
influence as providers of services and employment, this issue
has caused considerable concern. As of August 1998, the Local
Government Association and more than 20 local authorities, alerted
by NGOs, had investigated and published reports or passed resolutions
expressing their concerns about the MAI (these included Birmingham
City Council, Oxfordshire County Council and Bournemouth Borough
Council). A similar number had investigations under way.
4.12 Multilateral Environmental Agreements.
The potential conflict between the MAI and various hard-won
multilateral environmental agreements (MEAs) has been a major
concern. The MAI's National Treatment, Most Favoured Nation and
Performance Requirement clauses could have come into conflict
with MEAs that are specifically designed to restrict access to
resources and/or are likely to rely on discrimination between
nations in order to achieve their ends.
4.12.1 The Convention on Biological Diversity
(CBD), for example, gives "countries of origin"
the right to control access to genetic resources and requires
the benefits of such access to be shared "in a fair and
equitable way" (Article 15). Since levels of access are
determined in a manner that discriminates between countries (that
is, they are based on levels of transfer of biotechnology by various
governments), the CBD would probably have been in direct conflict
with the MAI.
4.12.2 Similarly, the Climate Change
Convention's Kyoto Protocol would have been at risk, since
its Clean Development Mechanism (which allows resource transfer
funds to be allocated to local but not transnational companies)
and the provision for a system of tradeable permits, which excludes
non-signatories, could be considered discriminatory measures.
4.12.3 The UN Convention on the Law of
the Sea (UNCLOS). The MAI would also have conflicted with
the rights of states under UNCLOS, which deals with the highly
charged issue of access to fish stocks. MAI negotiators knew that
this was a particularly sensitive issue and some countries, including
the UK, were negotiating exemptions for their fishing industries.
4.13 Transparency. The secretive
manner in which MAI negotiations took place rightly fuelled mistrust
in the MAI. Whilst national-level consultations in the UK improved
over the course of the negotiations, more could have been done
(see 5.4, Recommendations).
4.14 Dispute settlement. As with
NAFTA, the dispute settlement process envisaged in the MAI proposal
would have allowed investors to sue governments. There was no
corresponding process for citizens' organisations or local authorities;
and national governments would have had to defend any restrictions
imposed by local authorities. The threat of costly legal action
by powerful, well-resourced multinationals could have been enough
to deter both local and national authorities from introducing
any MAI-inconsistent legislation.
5. FRIENDS OF
5.1 The UK Government should oppose the
introduction of any new negotiations to liberalise foreign investments,
in the World Trade Organisation or in any other forum.
5.1.1 FOE knows of no convincing evidence
to suggest that further multilateral liberalisation of foreign
investments is either necessary or likely to be beneficial to
host countries. In fact, capital mobility has played such a significant
part in bringing about a global economic crisis that reregulation
rather than deregulation now seems to be called for. In addition,
reaction to the MAI has shown that a broad cross-section of civil
society is adamantly opposed to further liberalisation; there
is no public support for further negotiations.
5.1.2 WTO negotiations to liberalise foreign
investment might be more democratic and inclusive than OECD negotiations:
but they will not be sufficiently democraticand they may
be too inclusive. FOE believes that there is a significant likelihood
that many poorer and less developed countries (who would never
have considered acceding to the OECD's MAI) and even some of the
larger developing nations could be put under intense pressure
to negotiate and sign a WTO agreement on investments that could
be damaging to their economies.
5.1.3 The WTO has an appalling record on
the inclusion of social and environmental concerns and is most
unlikely to be able to address many of the criticisms that were
levelled at the MAI.
5.2 The UK Government should review the
extent to which MAI-type trade and investment liberalisation clauses
are being incorporated into other trade and aid agreements; and
reverse this trend. For example, the European Union's review
of the Lome Convention and the International Monetary Fund's recent
attempts to change its Articles of Association have both been
linked to attempts by rich countries to open up new investment
5.3 The UK Government should initiate
a Multilateral Agreement to Regulate Investors and Investments
5.3.1 FOE believes that the time is right
to take a new tack and begin negotiations to regulate the activities
of both foreign investment and investors. There is an economic
need for it; and widespread public support.
5.3.2 Such an agreement should:
have as its objective the promotion
of sustainable societies with stable economies;
be based on and explicitly refer
to internationally agreed principles on equity, the environment,
development, human rights, labour and health and safety;
safeguard locally important small-scale
prevent inward investment that could
undermine national development needs and control speculative short-term
flows of capital in and out of countries;
contain mechanisms that permit governments
to control the activities of transnational corporations;
be binding and have an effective
and inclusive enforcement mechanism; and
be negotiated in a transparent manner,
with the involvement of all stakeholders.
Such an agreement would be a valuable contribution
to the development of sustainable and equitable societies, since
it would help to put people before profits; promote subsidiarity;
and restore sovereignty and democratic control.
5.3.3 FOE notes with interest that Peter
Mandelson, the Secretary of State for Trade and Industry, has
"We [the British Government] are firmly
committed to the principle of regulating businesses locally, nationally
and, where necessary, internationally in order to protect the
environment, promote improved labour standards and encourage sustainable
development." (letter to the Rt Hon David Curry MP, 31
5.4 The UK Government should review its
procedures for dealing with multilateral economic agreements.
In particular, all such agreements should be automatically
subject to independent reviews on environment, development, consumer
and corporate issues, human rights and labour standards; ongoing
scrutiny by a Cabinet-level committee; and consultation, not only
with citizens' organisations, but with Regional Assemblies, Regional
Development Agencies and local authorities.
5.5 The UK Parliament should review Parliamentary
procedures for monitoring multilateral negotiations and ratifying
subsequent agreements. Procedures should be introduced that
allow early notification and monitoring to take place; and to
ensure that all multilateral environmental agreements, even those
negotiated by the European Commission, are subject to Parliamentary
26 October 1998