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Multilateral Agreement on Investment (MAI):
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Released by the Bureau of Economic and Business Affairs, March 23, 1998
The Multilateral Agreement on Investment (MAI), being negotiated under the auspices of the Organization for Economic Cooperation and Development (OECD), would provide a broad high-standards multilateral framework for international investment. A principal aim of the Agreement is to ensure non-discriminatory treatment for all investors, regardless of nationality. In addition to eliminating discrimination affecting the establishment, expansion and operation of investments, the Agreement also provides freedom to transfer investment-related payments, disciplines market-distorting measures such as certain performance requirements, and ensures application of international law standards to governmental expropriation, including compensation, consistent with U.S. law and practice.
The MAI would not undermine a government's authority to regulate generally, including for the protection of health, worker safety, and the environment. In addition, the MAI would contain a strong commitment not to lower health, safety, environment, or core labor standards in order to attract investment.
The MAI would establish a comprehensive framework for treatment of foreign investment. It would allow countries to take exceptions to some MAI obligations (such as national treatment and most favored nation (MFN) treatment) in areas of particular political or economic sensitivity. For example, the United States is working to ensure that U.S. obligations under the MAI do not extend beyond those that we already have in the North America Free Trade Agreement (NAFTA) or the 31 Bilateral Investment Treaties (BITs) currently in force to which the United States is a party. In fact, many elements of the MAI are modeled after provisions already included in these agreements, which were developed with U.S. investment policy and regulatory practice in mind.
The 29 OECD member countries and the European Union are negotiating the MAI. In addition, the World Trade Organization (WTO) and a number of other countries (Argentina, Brazil, Chile, Hong Kong, and Slovakia) are observing the negotiations, some of whom have indicated they eventually want to sign the agreement.
Foreign Direct Investment (FDI) Facts
Investment in an economy (whether from domestic or foreign sources) is an essential element for strengthening growth, improving living standards, and promoting political and economic reforms.
Increases in world foreign direct investment stem from competitive pressures, new technologies, privatization of state-owned enterprises, and a more open-door policy toward investments by many countries.
Industrialized countries absorbed 60% of all foreign direct investment in 1996, and were the source of 85% of all foreign direct investment worldwide.
Question: Is the MAI being negotiated in secret?
Response: No. U.S. negotiators have regularly briefed Congress and environmental, labor, business and state groups on the progress of the negotiations. In fact, over the course of the negotiations, the U.S. negotiating team, including the U.S. Trade Representative's Office, the Department of State and the Department of Treasury, has held periodic consultations with the following Congressional committees of jurisdiction: Senate Finance, Senate Banking, Senate Foreign Relations, Senate Commerce, House Ways and Means, House International Relations, House Banking, and House Commerce Committees. U.S. negotiators have also briefed labor, business, and environmental groups and representatives from state government associations such as the National Conference of State Legislators, National Governors Association, National Association of State Development Agencies, and National Association of State Attorney Generals. In addition to government briefings, the OECD secretariat has also regularly briefed non-members and business and labor advisory groups on the negotiations.
Question: Why are Developing or Less-Developed Countries (LDCs) not participating in the MAI negotiations?
Response: Since OECD members share a common objective and time frame for achieving a high-standards, state-of-the-art agreement on investment, the OECD is currently the forum in which all members are willing to negotiate a multilateral agreement. So as not to keep the negotiations limited in participation to OECD members, the MAI negotiating group has an active outreach program to inform interested countries of the status and content of the negotiations.
The agreement will not be limited to acceptance by only OECD members; the MAI will be open to all other countries willing and able to undertake its obligations. Many non-OECD members actively follow developments in the MAI negotiations, since they expect the MAI to set the standard for future investment agreements. In fact, five countries/economies (Argentina, Brazil, Chile, Hong Kong, and Slovakia) have been participating as observers in the MAI negotiations and may become signatories of the agreement. In addition, Latvia, Lithuania and Estonia have indicated a strong desire to join the agreement.
As background, efforts to negotiate broad, high standards investment
agreements have been undertaken in various other arenas as well.
There are now more than 1,100 bilateral investment treaties (BITs)
in force around the world. In most cases, these agreements have
been entered into between a developed (most often an OECD member)
and a developing country. The United States, for example, has
signed 40 BITS to date, and 31 have entered into force. Multilaterally,
the World Bank, Asia-Pacific Economic Cooperation (APEC) forum,
and the WTO each have investment-related instruments, most without
dispute settlement mechanisms. Participants in the negotiations
of each of these instruments have included developing countries.
However, there is no high-standards agreement like the MAI among
OECD members--the principal recipients and providers of foreign
direct investment in the world - which is, in part, why the United
States is currently involved in the negotiations.
Question: Will the MAI prevent a country from limiting foreign ownership of key assets and resources? Will the MAI force countries to lift foreign ownership restrictions in sensitive sectors such as real estate, farmland, mineral resources and other strategic industries?
Response: No, the MAI will not compel its members to allow unrestricted foreign investment in all economic sectors. The MAI will reflect the reality that some sectors are sensitive, politically and/or economically, for individual countries and thus will be excepted from the obligations. The MAI also recognizes that these areas of sensitivity vary from country to country.
The agreement, therefore, will be flexible to accommodate individual country's priorities and include Annexes in which each country will identify (by reference to economic sectors and to specific laws and regulations) its own country-specific exceptions from certain MAI obligations--e.g., national treatment, most-favored-nation treatment and performance requirements. It will also contain a general exception for national security.
Through our Annex exceptions, the United States will reserve the right to continue to apply existing laws and other measures that treat foreign investors differently from domestic investors or that are otherwise inconsistent with particular MAI obligations. We will also specify particular sectors in which we reserve the right to enact new laws and regulations that do not comply with specified MAI undertakings. For example, the United States, like many other countries, will insist on Annex exceptions in areas such as atomic energy, maritime, and civil aviation--among others.
Working closely with State and local officials, the United States
has put forward an exception which would exempt existing non-conforming
sub-federal measures from certain MAI obligations. In addition,
the United States has put forward Annex exceptions that cover
future actions at the federal, state, and local level in areas
such as subsidies and grants.
Question: What effect will the MAI have on federal, state, or local laws in the United States promoting social, economic and environmental goals? Would every existing and future U.S. federal, state and local law have to be consistent with the MAI?
Response: We are working to ensure that the final text
of the MAI is fully compatible with U.S. federal, state, and local
laws promoting social, economic, and environmental goals and does
not inadvertently interfere with environmental and other regulatory
or enforcement provisions of our domestic laws. Unlike many countries,
the United States has an open investment climate, which generally
welcomes investment from both domestic and foreign sources. Few
U.S. laws differentiate among investors based on nationality or
are otherwise inconsistent with MAI obligations. For example,
laws designed for the protection of worker safety, health and
the environment typically are aimed at disciplining actions rather
than discriminating on the basis of the nationality of the owners
of a company. (A company that pollutes a river needs to stop polluting,
regardless of who owns the company.) That said, our ability to
continue to apply current federal, state and local laws, whether
or not they are consistent with MAI provisions, will be protected
under the MAI through our Annex "exceptions" to the
agreement.
Question: What are "performance requirements"? Why will they be covered by the MAI?
Response: In general terms, a "performance requirement" is an obligation imposed by a host country in connection with an investment in its territory. The MAI would discipline only those requirements that governments view as distorting trade and investment flows--those that harm one country's economic performance so that another may benefit in the short-run. Most often, the obligation is imposed as a condition for establishing, acquiring, operating, or expanding an investment in the country--but it may also be imposed in connection with other aspects of an investment (as in connection with the sale of a business). The MAI would not prohibit requirements on companies to, for example, obey environmental standards, zoning laws, or community reinvestment programs.
As a typical example, a country that requires an investor to obtain governmental approval before investing (the United States does not have such an investment "screening" process) might condition its approval on the investor's agreement to buy all of its raw materials locally, or to export all or a certain percentage of its finished goods. Sometimes governments impose such "performance requirements" as a condition for the investor receiving a government subsidy or some other advantage offered by the government.
"Performance requirements" generally distort trade and investment decisions that an investor would otherwise make in a free market. That is why a provision restricting the use of certain listed performance requirements is being negotiated in the MAI. Such provisions are not unusual. In fact, the text that is being negotiated is similar to NAFTA language. Restrictions on the use of performance requirements are standard in U.S. bilateral investment treaties. They are also contained in the Agreement on Trade-Related Investment Measures negotiated as part of the Uruguay Round Agreements establishing the WTO.
With respect to U.S. laws that give special rights or preferences
to socially or economically disadvantaged minorities, these programs
would not violate the performance requirements provisions. In
fact, the MAI specifies that government subsidies or advantages
offered, for example, for training or employing workers or for
constructing or expanding facilities are not barred. The United
States will ensure that the MAI does not interfere with programs
such as these.
The MAI can be a positive force for environmental and labor protection. The United States has proposed a number of provisions to promote the protection of the environment and the observance of core labor standards. These provisions are intended to protect the states' ability to adopt and implement laws and regulations to achieve these goals. The MAI would not undermine a government's authority to regulate generally, including for the protection of health, worker safety, and the environment. We are also seeking specific language that would permit any contracting Party, including the United States, to request consultations with any other MAI Contracting Party that is believed to be lowering core labor, environment, health or safety standards in order to attract investment.
Question: Will the MAI strike down requirements to pay workers a living or minimum wage?
Response: There are no provisions in the MAI that would strike down minimum or "living" wage requirements.
Question: Will the MAI strike down laws designed to protect the environment?
Response: No. We and our negotiating partners are committed to ensuring that the MAI will not infringe on the right of government - be it local, state or federal - to pass or enforce measures designed to protect health, safety, and environment.
Question: Will the MAI encourage investors to move to countries with lower labor, consumer safety and environmental standards?
Response: No; while a few investors may seek to "regime hop" to find the lowest regulatory standards, studies on investment suggest that it is not a significant factor affecting investors' decisions. Industrialized countries have been competing for investment successfully for years in each other's markets and in these countries we have seen an increase, not a decrease, in environmental, consumer-safety, and labor standards.
One of the MAI's principal aims is to prevent governments from
discriminating against foreign investors on the basis of their
nationality (subject, of course, to the Annex exceptions that
each country takes to enable it to differentiate based on nationality
in sensitive sectors). It will not interfere with their ability
to maintain, establish or enforce labor or environment standards--however
high a country chooses to set them. In fact, the countries negotiating
the MAI are currently considering provisions to reinforce their
commitment to maintaining strong labor and environmental standards
and to prevent a party from lowering its standards to attract
an investment.
Question: Will the MAI lead to the movement of firms and jobs overseas?
Response: Economic data show that corporate decisions to
relocate are primarily based on getting closer to local markets
rather than on exploiting low wage labor. Even in developing countries,
on average 60% of what is produced there by foreign investors
is intended for local markets. Many companies decide not to relocate
to low-wage countries because these countries tend to have lower
levels of productivity. U.S. workers are paid higher wages than
their counterparts in less developed countries because U.S. workers
are among the most productive in the world. Their higher productivity
generally compensates for the higher wages earned. Looking at
the statistics, it is relatively clear that the primary motivation
of U.S. investors overseas is to gain market access, not to pay
lower wages. In fact, the increase in U.S. foreign direct investment
abroad (15% in 1995) has been concentrated in industrialized,
high wage countries rather than in developing, low wage countries.
Question: Will the MAI contain provisions that will prevent grass roots boycotts or any kind of boycott of investment intended to penalize foreign investors in the United States that engage in activities in third countries that we deem to be inconsistent with our interests?
Response: In response to U.S. sanctions legislation targeting their firms, the Europeans and others have proposed that the MAI prohibit a party from penalizing an investor of another party, or its investments, on the basis of the investor's activities in third countries. We will not accept provisions that would prevent us from taking actions necessary to protect our national security and foreign policy interests when responding to threats to our core interests and values.
The MAI would not prevent grass roots boycotts.
The MAI draft text reflects U.S. investment laws, regulations and practices. Its achievement will be in bringing other countries up to the standards the United States already applies to all investors--domestic and foreign. In fact, the MAI's proposed dispute settlement procedures are very much like those traditionally included in U.S. bilateral investment treaties (as well as in the overwhelming majority of the approximately 1,100 BITs in force worldwide). For example, our investment treaties--like the proposed MAI--give each country that is a party to them the right to initiate arbitration proceedings against another party and to seek monetary compensation if that country fails to comply with its treaty obligations.
Question: Will the MAI grant foreign investors in the United States the right to pursue claims against any level of government--federal, state, or local--based on alleged violations of the MAI? Will the MAI impede the ability of a government to bring claims against foreign investors?
Response: The dispute settlement procedures of the MAI are being carefully drafted so that, for the United States, the burden of defending claims will rest with the federal government, not with the states or localities. We do not expect foreign investors to bring any significant number of cases against the United States under the MAI, for the simple reason that we do not anticipate that the federal government, states, or localities will have any difficulty abiding by MAI provisions, since current policies are already consistent with the MAI obligations or will be listed in the United States Annex of exceptions. Moreover, since the NAFTA entered into force, not a single investment claim has been filed against the United States under its dispute settlement procedures, and the NAFTA contains largely the same type of investment obligations as are being negotiated in the MAI.
Nothing in the MAI will impair or impede the ability of the United States or any state or locality to sue foreign investors in our courts when a federal, state, or local law has been violated.
Question: Will U.S. firms be disadvantaged by MAI dispute settlement procedures?
Response: U.S.-owned companies operating in the United States will not be disadvantaged by comparison to their foreign counterparts by providing the latter with an option to pursue international investor-state arbitration. First, as noted above, we do not expect foreign investors to bring any significant number of cases against the United States under the MAI.
More importantly, foreign firms in the United States are unlikely to see any great advantage in pursuing their investment claims through MAI procedures. Companies tend to turn to investor-state arbitration procedures, which typically are quite expensive, when they have serious questions about the fairness of domestic courts or the availability of adequate remedies. We expect firms from our OECD partners, or from other likely MAI signatories, to conclude that they can obtain a fair hearing in U.S. courts.
1. The OECD Member countries are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.
[end document]
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