Global Policy Forum

MAI: Foreign Affairs in Annapolis


by Fred Hiatt

The Washington Post
Monday, March 30, 1998

Rushern L. Baker III, a Maryland state legislator from Cheverly in Prince George's County, was "a little taken aback" when a former ambassador and a deputy assistant secretary of state showed up in Annapolis to lobby him last week. Their mission: to block a Baker proposal to impose sanctions against companies that do business in Nigeria, a wanton human-rights abuser in Africa.

State Department officials, like those from the U.S. Trade Representative's office, increasingly are finding that they have to negotiate with Americans as well as their foreign counterparts. From Massachusetts to California to New York City, local initiative and foreign policy are coming into conflict.

One reason is America's thickening connections with the world. "You have to go back to George Washington's day to find a time when the United States was as dependent on foreign trade and investment as it is today," says Alan Larson, assistant secretary of state for economic and business affairs and the boss of last week's emissaries to Annapolis. In 1970 imports and exports were equivalent to 13 percent of the U.S. gross domestic product; today they're up to 30 percent. U.S. investments overseas, and foreign investments here, also have soared.

But it's not just a question of volume. As ties grow, the United States increasingly is trying to shape other countries' societies. Trade talks used to focus on tariffs, duties, anti-dumping provisions and other matters that only trade lawyers understood.

Now U.S. officials focus on what they call "non-tariff barriers": corruption, inadequate antitrust law, even zoning-like regulations that may work against U.S. products. In Europe, the United States is fighting health laws that keep out U.S. beef. In Japan, the United States attacks laws that help preserve neighborhoods by shielding small shops from competition -- but also make life difficult for U.S. exporters. U.S. labor unions want the administration to pressure other nations to allow collective bargaining.

Not surprisingly, other nations don't always welcome these initiatives. Even less surprisingly, they have their own ideas about how the United States should organize itself. To win the to challenge foreign barriers before international judges, America has had to subject itself to the same rules. Baker says he modeled his anti-Nigeria law on state laws that helped bring down apartheid in South Africa. But in the intervening years, the United States has signed on to treaties that preclude such laws -- and that give other nations the right to demand compensation from Washington if their firms are barred in Maryland.

There's no question, the State Department's Larson says, that the stuff of international negotiation today tends tend to "get into your living room" more than in the past. He should know; he's point man for a treaty-in-progress known as the Multilateral Agreement on Investments. Under negotiation for 2 1/2 years, this far-reaching pact would in most cases bind nations to treat foreign companies as they do their own, so that firms can invest across borders without fear of expropriation or unfair favoritism.

The MAI hasn't yet attracted much attention in Washington. But it's the object of fevered opposition on talk radio and in some corners of the Internet. In the preface to a recently published tract, "MAI and the Threat to American Freedom," Lori Wallach and Ralph Nader describe the proposed treaty as "enormously secretive and powerful" and "a slow-motion coup d'etat against democratic governance in the United States, Canada and abroad. . . . "

As to being secretive, the entire soporific text is available on the Web site of the Organization for Economic Cooperation and Development, under whose auspices the negotiations are taking place ( But opponents are more persuasive when they list decisions they say could be taken out of Americans' hands. Since MAI would forbid countries from demanding a certain level of investment, wouldn't the Community Reinvestment Act -- which says banks must invest in low-income neighborhoods -- be thrown out? Since the treaty bans anything "tantamount" to expropriation, couldn't a foreign tobacco company challenge advertising restrictions that reduce the value of its investment? What about state laws that limit hunting licenses or farmland ownership to locals, minority contractor set-asides, affirmative action, right-to-work laws?

U.S. officials say none of these would be affected. Government procurement would be exempted, all state and local laws would be grandfathered, the "tantamount" language would be amended to underscore the inviolability of legitimate health, environmental and safety regulation. Moreover, they argue that MAI would help American workers, because U.S. firms in today's economy need to operate effectively abroad to remain healthy at home.

But the Clinton administration, still smarting from the defeat of fast-track trade legislation, isn't pushing MAI too hard. The original plan was to wrap up talks by May; now U.S. officials say they need at least another year, and they'll oppose any firm deadline.

More to the point, they have learned from fast-track that they have to consult, while treaties are still being shaped, more than ever before -- with unions, local officials, environmentalists and others. The more the scope of trade talks goes beyond tariffs, the less they can be left exclusively to trade officials.

Of course, as State Department officials know from their work in foreign capitals, consultation doesn't guarantee agreement. "The State Department testimony only helped me more," says Baker. "They admitted that what's going on in Nigeria is terrible -- and they couldn't point to much that they are doing about it." Before it's over for U.S. diplomats, Annapolis may make Pyongyang look easy. "Last month the Japan Environment Monitor's home page carried a piece by Don E. McAllister of the Canadian Center for Biodiversity, criticizing the Multilateral Agreement on Investment. The article, "MAI: Global power swinging to transnationals?" stopped me cold.

"An immense swing in the balance of global power is quietly taking Place," McAllister writes. "The Multilateral Agreement on Investment (MAI) threatens to turn over powers held by democratically elected governments and their citizens to international corporations."

The piece was startling for several reasons. First, I had never heard of MAI. Second, McAllister suggests that the agreement is effectively a given, and yet, as he notes, MAI portends such significant impacts on international trade and the environment that one wonders why it has received so little attention.

According to McAllister of the Canadian Center for Biodiversity, a conspiracy of sorts is at work. "The main principles of MAI," he writes, "have been drawn up and agreed to behind closed doors at the OECD." Under MAI, governments would be less able to use investment policy to pursue social, economic or environmental objectives. Corporations would acquire new powers including the freedom to move capital and profits unhindered by policies to which domestic companies have to adhere.

The United States and the European Commission originally planned to introduce MAI as the centerpiece of the World Trade Organization (WTO), explains McAllister. Since it was feared that developing countries would "water down" MAI principles, however, a confidential draft was circulated among government and corporate officials at the OECD headquarters in Paris. The OECD, he points out, comprises nations that are home to 95 percent of the 500 largest transnational corporations.

Ever wary of conspiracy hyperbole, I clicked over to Keidanren's home page for a different take on MAI. The Japan Federation of Economic Organizations presents a much more benign view. The Multilateral Agreement on Investment, which is under negotiation in the Organization for Economic Cooperation and Development, is the first comprehensive and binding multilateral framework on investment liberalization and protection, the page explains. It is expected to contribute to the sound development of the global economy by facilitating international flows of investment.

McAllister, however, sees danger. Under MAI, corporations are to be given equal rights with contracting parties, he explains; in short, corporations will be on equal footing with sovereign nations. MAI will also guarantee that an investor is compensated for an expropriated investment (broadly defined, according to McAllister) and corporations may sue for non-compliance with MAI, yet governments are not given reciprocal rights. Thus MAI re-writes not only corporation-government relationships and rights, placing corporations on an equal of greater footing, but constitutional power relationships within national governments as well.

McAllister notes that the proposed changes may seem innocuous, but he call for caution, citing a lawsuit by Ethyl Corporation against the Canadian Governmentunder NAFTA clauses which will be included under MAI. Ethyl is suing for $251 million, claiming that when the Canadian Parliament banned MMT (a toxic fuel additive), Ethyl's rights were infringed. The government, McAllister explains, is concerned over the effects of MMT on health, and the environment. Ethyl argues that such measures are tantamount to expropriation.

By strengthening and globalizing corporate powers, he argues, governments will have limited capacity to guard the health of their environment and citizens.

If MAI is as threatening as McAllister claims, no wonder the negotiation process has been so secretive. A look at Keidanren's position statement suggest that McAllister's worries may be justified. Here is just a sampling:

- "MAI will enhance investment protection. Keidanren acknowledges that clearcut provisions guarantee general protection of investment, payment of prompt, adequate and effective compensation in case of expropriation, and free, prompt transfers of profit, dividends, etc. in a freely convertible currency." Corporations apparently want even more freedom to dine and dash, while taking less local-community responsibility.

- "Production, investment, sales, employment and R&D requirements, native employment requirements, joint venture requirements and local equity requirements have a great investment-distorting effect and therefore should be abolished." Again, corporations seek to exploit resources and markets without answering to the needs of local communities.

- "Exceptions for 'public order" and 'preservation of culture" should not be permitted in principle, for their definitions are too ambiguous. If these exceptions should be permitted, they should be strictly limited to avoid arbitrary application." Corporate culture in; social, political and cultural diversity out?...

...Conspiracy, it seems is too naive a term. Perhaps dogged corporate lobbyists have simply convinced tired politicians to abdicate sovereignty over the rights and property of citizens in exchange for the panacea of free markets.

So the world ends, with neither a scream or a whimper, but with a well-intended corporate taking."

Japan Environmental Monitor home page

More on MAI at:
OECD's home page

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.