What is the Multilateral Agreement On Investment?
The Multilateral Agreement on Investment (MAI), which is currently being negotiated under the auspices and guidance of the Organization for Economic Cooperation and Development (OECD), is expected to offer a comprehensive, high-standards multilateral system for investing internationally. One of the main goals of this agreement is to guarantee that investors are treated equally regardless of the country of origin.
Alongside removing discrimination that affects the establishment or expansion of investment and investments, the agreement gives investors the right to transfer payments related to investments, regulates market-distorting measures, like certain performance requirements, and ensures compliance with international law standards for government expropriation, which includes compensation, which is in line to U.S. law and practice.
The multilateral agreement on investment does not limit the authority of a government to regulate broadly, including to protect worker safety, health, or the protection of our environment. Furthermore, the Multilateral Agreement On Investment should include a firm pledge not to reduce environmental, safety, health, or labor standards to draw investors.
The MAI would create an extensive framework for the treatment of foreign investments. It would permit nations to make exceptions to certain MAI commitments (such as the national treaty and most preferred country (MFN) treaties) in certain areas of economic or political sensitivity.
For instance, there is a need for the United States to work to ensure that U.S. obligations under the MAI don’t extend beyond what we already possess in the North American Free Trade Agreement (NAFTA) or the 31 Bilateral Investment Treaties (BITs) that are in effect and that we as the United States is a party. Actually, many aspects of the MAI are modeled on provisions already contained within these treaties, which were drafted with U.S. investment policy and practices in mind.
Who is responsible for negotiation?
The 28 OECD member countries, as well as those of the European Union, are negotiating the MAI. Additionally, the World Trade Organization (WTO), along with a few additional nations (Argentina, Brazil, Chile, Hong Kong, and Slovakia), are monitoring the talks, a few of which have stated that they may join the Multilateral Agreement On Investment.
Common Misunderstandings
Participation in Negotiations
Do you think the Multilateral Agreement On Investment is being discussed in secret?
No. U.S. negotiators have regularly briefed Congress, as well as environmental, business, labor, and state groups, about the progress of negotiations. In actuality, during the course of negotiations, negotiators from the U.S. negotiating team, comprising those from the U.S. The Trade Representative’s Office and in conjunction with the Department of State and the Department of Treasury, have regular meetings in these Congressional committees: Senate Finance, Senate Banking, Senate Foreign Relations, Senate Commerce, House Ways and Means, House International Relations, House Banking as well as House Commerce Committees.
U.S. negotiators have also briefed business, labor, and environmental groups as well as representatives of state government associations and state government associations like the National Conference of State Legislators, National Governors Association, National Association of State Development Agencies, and the National Association of State Attorney Generals. In addition to government briefings and briefings for business, the OECD secretariat has regularly briefed non-members as well as organizations representing labor and business regarding the negotiations.
What is the reason Developing or less-developed Countries (LDCs) aren’t taking part in the MAI discussions?
Since OECD members have a common goal and timeline to achieve a high-quality, modern, high-tech investment agreement and investment, the OECD is currently the only forum where all members are prepared to reach a multilateral deal. To ensure that the discussions are limited to OECD members, The MAI negotiations group is running an extensive outreach program that aims to inform interested countries about the state and nature of the talks.
The agreement won’t be restricted to the acceptance of only OECD members. Instead, the multilateral agreement on investment is open to any other country that is willing and capable of fulfilling its obligations. Many countries outside of the OECD are actively following developments during the MAI negotiations because they believe that the MAI will establish the norm in future agreements on investment. Five countries/economies (Argentina, Brazil, Chile, Hong Kong, and Slovakia) have participated as observers in MAI negotiations and are likely to become signatories to the agreement.
Additionally, Latvia, Lithuania, and Estonia have expressed a clear desire to sign the agreement.
In the background, attempts to negotiate large high-standard agreements for investment have been undertaken in other areas, too. There are currently more than 1100 bilateral investment agreements (BITs) in force across the globe. In the majority of cases, they have been concluded between an advanced (most typically one that is an OECD participant) with a developing nation. The United States, for example, has signed forty BITS up to date, while 31 have come into effect. Multilaterally, there is the World Bank, the Asia-Pacific Economic Cooperation (APEC) forum, and the WTO.
All have instruments related to investment; however, most do not have arbitration mechanisms for disputes. The participants in the negotiations of the three instruments include emerging countries. But there isn’t a high-standard agreement similar to the MAI among the OECD members, who are the primary beneficiaries and suppliers of foreign direct investments around the world. This is one reason it is that the United States is currently involved in the talks.
Exceptions to the Agreement
Does the MAI stop a country from restricting foreign ownership of important resources and assets? Can the MAI require countries to remove the restrictions on foreign ownership in sectors like agricultural land, real estate minerals, and other important industries?
No, the MAI will not compel its members to permit unlimited foreign investment in all sectors of the economy. The MAI will be able to reflect the fact that certain sectors are particularly sensitive economically and politically for specific countries and will, therefore, be exempt from obligations. The multilateral agreement on investment recognizes the fact that the zones of sensitivity differ across countries.
The agreement is flexible enough to allow for the specific priorities of each country. It will include Annexes in each country that will indicate (by the reference to specific economic sectors and particular laws or regulations) its country-specific exemptions from specific MAI obligations-e.g., the national treatment, most-favored-nation treatment, or performance conditions. The agreement will also include an exception general to national security.
By virtue of our Annex exemptions Through our Annex exceptions, by annexing our exceptions to Annex, the United States will reserve the right to continue to enforce existing laws and other regulations that treat foreign investors differently from investors in the United States or violate specific Multilateral Agreement on Investment’s obligations. We will also define specific sectors where we have the right to adopt laws and regulations that don’t meet the specific MAI commitments. For instance, we in the United States, like many other nations, insist on Annex exceptions for areas like atomic energy as well as maritime and civil aviation, among others.
In close collaboration with local and state officials Working closely with State and local officials, in close collaboration with local and state officials, the United States has put forward an exception to exempt existing measures that are non-conforming with sub-federal law from some MAI obligations. Additionally, The United States has put forward Annex exceptions that will cover any future action at state, federal, and local levels for areas like subsidies and grants.
Sovereignty Issues
What impact does the Multilateral Agreement on Investment have on the federal, state, or municipal laws within the United States promoting social, environmental, and economic objectives? Are all existing and upcoming U.S. federal, state, and local laws required to conform with the MAI?
We are working to make sure that the final version of the Multilateral Agreement on Investment is in full compliance with U.S. Federal, State, and local laws that promote social, economic, environmental, and other goals and don’t inadvertently affect environmental or other enforcement or regulatory provisions of our laws in the U.S. Contrary to other nations in the world. The United States has an open investment environment and generally encourages investment from domestic as well as foreign sources. Very few U.S. laws differentiate among investors on the basis of nationality or are in any way inconsistent and incompatible with multilateral agreement on investment’s obligations.
For instance, laws that are designed to protect workers’ health, safety, and the environment are typically designed to control actions instead of discriminating on the basis of the nationality of the shareholders of an organization. (A company that pollutes the river has to stop causing pollution, regardless of the owner of the business.) However, our capacity to continue to enforce the current laws, including state and federal laws, regardless of whether they conform to MAI provisions, is secured under the MAI by the MAI’s Annex “exceptions” to the agreement.
Performance Requirements
What exactly are “performance requirements”? How do they fall under the Multilateral Agreement on Investment?
In general terms, the term “performance requirement” is an obligation imposed by the host country as a result of the making of investments in its area of operation. The multilateral agreement on investment will not penalize only obligations that governments consider to be causing distortions in investment and trade flows or that affect one nation’s economic performance so that a different country might benefit in the short term.
Typically, the requirement is made the condition for buying or operating an investment within the country, but it can also be required on other aspects of the investment (as when it comes to an offer to sell a company). The multilateral agreement on investment does not prohibit the imposing of obligations on businesses to, for instance, adhere to regulations on environmental standards, zoning law, or community reinvestment programs.
In a typical instance, the country that requires investors to seek approval from the government prior to placing an order (the United States does not have this type of investor “screening” process) might have its approval contingent on the investor’s willingness to purchase all the raw material locally or export all of or specific portion of its final products. Sometimes, governments will impose “performance requirements” as a condition for the investor to receive aid from the government or other benefits provided by the state.
“Performance requirements” generally distort investment and trade decisions that investors would normally take in a free market. This is the reason why a clause that restricts the use of listed performance requirements is being discussed through the Multilateral Agreement on Investment. This kind of clause is not unheard of. The text that is being debated is very similar to the NAFTA language. Limitations on the use of performance requirements are common for U.S. bilateral investment treaties. They are also included within the Agreement on Trade-Related Investment Measures that was negotiated in the Uruguay Round agreements that established the WTO.
Regarding U.S. laws that give certain rights or privileges to economically or socially disadvantaged people, the programs will not violate the performance requirement clauses. Actually, the MAI stipulates that any government subsidy or benefits that are offered, for instance, for training or assisting workers or building or expanding facilities, aren’t prohibited. It is the United States that will ensure that the Multilateral Agreement on Investment doesn’t interfere with these programs.
Environmental/Labor Regulations
The MAI can be a beneficial factor in promoting the protection of workers and the environment. In the past, the United States has proposed a variety of measures to encourage environmental protection as well as respect for basic labor standards. These rules are intended to ensure states’ rights to create and enforce laws and regulations to accomplish these objectives.
The Multilateral Agreement on Investment does not limit the power of the government to regulate broadly, which includes the interest of protecting workers’ safety, health, or the protection of environmental health. We are also looking for specific language to allow any Contracting Party, which includes those from the United States, to request consultations with any other MAI Contracting Party that is thought to be degrading fundamental environmental, labor health, or safety standards to draw investors.
What happens if the MAI eliminates the need for workers to receive a daily wage or the minimum wage?
There are no clauses in the Multilateral Agreement on Investment that would eliminate the minimum wage as well as “living” wage requirements.
What happens if the Multilateral Agreement on Investment repeal laws are enacted to safeguard against environmental damage?
No. We, along with our negotiating partners, will ensure that the MAI does not violate the rights of the government, whether federal, state, or local, in enforcing or passing measures that protect health, safety, or the environment.
Does the MAI incite investors to relocate to countries with fewer workers, consumer safety, and standards for the environment?
No; while certain investors may want “regime hop” to find the lowest standards of regulation, research on investment suggests that it’s not a major influencer on investors’ choices. The industrialized nations have competed to invest for many years in their respective markets, and in these countries, we’ve witnessed an increase, not a reduction, in the quality of life, safety for consumers, and environmental and labor standards.
A major goal of Multilateral Agreement on Investment’s main objectives is to prevent the government from discriminating towards foreign investment based on the basis of nationality (subject obviously in accordance with the Annex exceptions each nation decides to use to discriminate by nationality in most areas of concern). It won’t affect their ability to keep, create, or enforce environmental or labor standards – no matter how high they choose to establish the standards.
Indeed, the countries that are negotiating for the Multilateral Agreement on Investment are currently looking at the possibility of introducing provisions to strengthen their commitment to ensuring strong environmental and labor standards and to stop a country from lowering standards in order to attract investment.
Job Flight
Do you think the Multilateral Agreement on Investment results in the relocation of jobs and firms overseas?
Economic statistics show that the corporate decision to relocate is predominantly based on the prospect of being nearer to markets in the area than the exploitation of low-wage labor. In the majority of developing countries, 60% of the products created through foreign investments are destined for local markets. Many businesses choose not to move to low-wage nations since these countries are known to be less productive.
U.S. workers are paid more than those in countries that are less developed because U.S. workers are among the most productive workers in the world. Their greater productivity usually is a way to compensate for the higher wages earned. In analyzing the numbers, it’s apparent that the primary motive for U.S. foreign investors is to increase market access and not pay lower wages. Actually, the growth in the amount of U.S. foreign direct investment overseas (15 percent in 1995) is focused on industrialized, high-pay countries rather than low-income countries in the developing world.
Investment Boycotts
Does the Multilateral Agreement on Investment contain provisions that stop grass-root boycotts or any other form of investment boycott that aims to punish foreign investors in the United States that engage in actions in third-country nations that we believe are not in line with our concerns?
In response to U.S. sanctions legislation targeting their businesses and their businesses, the Europeans, as well as others, have suggested that the Multilateral Agreement on Investment restrict a government of a foreign investor from imposing sanctions on an individual belonging to another party or its investments in light of the investment’s activities in third-party nations.
We are not going to accept any of the provisions that will hinder us from taking the actions essential to protect our national security as well as our foreign policy interests when responding in the face of threats to our primary values and interests.
The Multilateral Agreement on Investment could not prevent grass-roots boycotts.
Dispute Settlement
The MAI draft text is a reflection of U.S. investment laws, regulations, and policies. The success of the MAI will help other countries to meet the standards that the United States already applies to all investors, foreign and domestic. Actually, the Multilateral Agreement on Investment’s proposed dispute resolution procedures are similar to those typically found as part of U.S. bilateral investment treaties (as well as the majority of the nearly 1100 BITs that are in force across the globe).
In particular, our investment treaties — like the Multilateral Agreement on Investment proposed–give every country that is a party to them the ability to start arbitration proceedings against a different party and seek financial compensation in the event that a country fails to adhere to the treaty obligations.
Will the Multilateral Agreement on Investment allow international investors from the United States the right to bring claims against any level of government, federal or state–based on allegations of infractions of MAI? Does the MAI limit the power of a state to pursue claims on foreign investment?
The dispute settlement procedures of the Multilateral Agreement on Investment are being crafted so that, for the United States, the burden of defending claims will fall with the federal government and not localities or states. We don’t expect foreign investors to bring a large number of claims in this United States under the MAI due to the fact that we don’t anticipate that the states, the federal government, or localities will face difficulties in observing MAI regulations, as existing policies are in accordance with MAI obligations or mentioned as exceptions in the United States Annex of exceptions.
Furthermore, since NAFTA came into effect and was signed, not one investment claim has ever been filed in this country. The United States, under its dispute settlement procedures and NAFTA, has many of the same types of investment obligations that are currently being negotiated under the Multilateral Agreement on Investment.
The Multilateral Agreement On Investment does not contain any provisions that MAI will hinder or limit the capacity of any state or locality in the United States or any state or locality to bring lawsuits against overseas investors through our courts if the federal, state, or local statute has been infringed.
Would U.S. firms be disadvantaged due to MAI dispute settlement processes?
U.S.-owned companies operating in the United States will not be disadvantaged in comparison to their foreign counterparts because they provide their counterparts with the possibility to seek arbitration between international investors. As we have already mentioned, we don’t expect international investors to file a large number of claims in this country, the United States, under the Multilateral Agreement on Investment.
Additionally, foreign companies that are based in, more importantly, foreign companies in the United States are unlikely to consider any advantage in seeking to enforce their investment claims via MAI procedures. Many companies resort to arbitration processes for investor-state disputes, which are usually costly when they are faced with grave concerns about the legitimacy of U.S. courts or the accessibility of suitable resources. We expect companies who are from OECD partners or other potential MAI signatories to find that they are able to get an impartial trial before U.S. courts.