[Extensions of Remarks]
[Pages E1777-E1778]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

UPDATE ON MULTILATERAL AGREEMENT ON INVESTMENT

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HON. RICHARD E. NEAL

of massachusetts

in the house of representatives

Wednesday, September 17, 1997

Mr. NEAL of Massachusetts. Mr. Speaker, over the last several years,
the United States has led an effort in the Organization for Economic
Cooperation and Development [OECD] to develop a binding and
comprehensive agreement on investment. In May 1995, the OECD Ministers
launched the negotiation of a Multilateral Agreement on Investment
[MAI]. At the OECD ministerial meeting in May 1997, the OECD Ministers
agreed to extend the negotiations until May 1998. Negotiating sessions
are scheduled every 6 weeks beginning the week of September 15.
Recently, Dr. Witherell, Director for Financial Fiscal and Enterprise
Affairs of the OECD gave a speech entitled ``The Multilateral Agreement
Investment (MAI) Negotiations: The State of Play and Implications for
the Asia Pacific Region.'' Issues involved in the agreement are complex
and time consuming. Dr. Witherell's speech presented a clear and
objective analysis of the issues.
I suggest that interested Members review extracts from Dr.
Witherell's speech. His speech presented the issues of the MAI and
discussed which issues need to be resolved in order to conclude a
successful MAI.
I request that a copy of extracts from Dr. Witherell's speech dated
September 1, 1997, be printed in the Congressional Record.

Extracts From MAI Speech by William Witherell, Sydney, September 1,
1997

One of the central objectives of the OECD since its
creation in 1961 has been the development of a liberal
environment for international investment. A very important
step was taken at the OECD Ministerial meeting of May '95
when the governments of the 29 OECD Member countries' decided
to commence negotiations on a Multilateral Agreement on
Investment (the MAI). The private business sector was a
strong advocate for developing a comprehensive legal
framework for foreign direct investment which would
consolidate and extend the present system of bilateral,
regional and sectoral agreements. While the negotiations are
between the OECD Member countries and the European
Commission, the resulting agreement is to be a free standing
treaty, open to any country willing and able to assume the
obligations of the agreement.*
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*Footnotes appear at end of speech.
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The OECD Ministers initially targeted the completion of the
negotiations for May of this year; but that proved to be too
optimistic despite the strong commitment and political will
of our Member countries and a very intensive schedule. The
issues are complex and time-consuming; and some, especially
those of a more ``political nature,'' might not be resolved
until the liberalization commitments among the participating
countries are fully agreed. So a modest extension of the
timetable until next April has been set. This extra time will
ensure that the result is indeed a high standard agreement
with a satisfactory balance of commitments by all parties.
Extra time also has opened up the possibility for non-OECD
countries to be involved more closely. Indeed, some may even
become founding members of the Agreement.
We now have--in almost final form--the main building blocks
of this Agreement. Of course, there remain a number of
outstanding issues--the inclusion of a special clause for
regional economic integration agreements such as the EU, the
coverage of sub-national measures, the treatment of cultural
measures, the issue of conflicting jurisdiction and the
treatment of labor and environment matters, to name some.
Some, especially the more politically sensitive ones, are
likely to remain unsettled until the last minute. This is to
be expected in such a negotiation. But the ground has been
prepared for a successful outcome in the coming months. A
satisfactory agreement for all concerned--including
interested non-OECD countries--is clearly within our reach.

What will the MAI look like?

The MAI will be the first multilateral agreement to include
disciplines in three key areas of investment rule-making:
investment protection, investment liberalization and binding
dispute settlement. As such, it is undoubtedly the most
complex multilateral negotiation on investment ever
undertaken.
The MAI aims to provide a ``level playing field`` for
international investors by eliminating distortions to
investment flows and facilitating a more efficient allocation
of capital. This will contribute to the ultimate objectives
of economic growth and development. In the MAI contracting
parties will undertake obligations aimed at reducing barriers
and discriminatory treatment of FDI (investment
liberalization) and increasing legal security for
international investment and investors (investment
protection). These obligations will be legally enforceable
through provisions for settling disputes--including investor-
to-state as well as state-to-state disputes. In all of these
areas, the negotiators are seeking to incorporate high
standards.
The MAI will bind the Contracting Parties to a set of
fundamental rules governing the treatment of MAI investors
and investments. The non-discrimination principles of
National Treatment and most-favored nation treatment (MFN)
will be the norms for all phases of investment from the entry
of the investor and its investments to the treatment of the
investor and its investments after they are established.
These central principles will assure foreign investors non-
discriminatory access to a sector and equitable treatment
after they are established.
Some who are not familiar with the negotiations have
misunderstood these provisions as requiring a wholesale
dismantling of governmental regulations. The clearly is not
the case. The MAI will not deprive national authorities of
their sovereign right to promote

[[Page E1778]]

economic development, a cleaner environment and other public
policy goals. What the MAI will require is the provision of
fair and non-discriminatory treatment of foreign investors,
not deregulation.
Aside from general exceptions or derogations, any measures
of participating countries that do not conform to the MAI
obligations will need to be notified as country-specific
reservations when the countries adhere to the MAI. Early this
year, the negotiators tabled their initial lists of country-
specific reservations. The scope of these reservations is
subject to negotiation with other parties to the agreement.
Thus another crucial aspect of the negotiations, the
liberalization of existing investment restrictions, has
begun. In the end, the overall assessment that each country
will make of the results of the negotiations will likely take
account of both the rules of the Agreement and the
liberalization commitments as reflected in the reservation
lists.
The OECD has made important contributions towards the
policy objectives of protection and conservation of the
environment and promoting sustainable development. Questions
have been raised as to how the MAI will relate to these
objectives. As noted above, the important positive role of
foreign investment in promoting development is now widely
recognized. Several approaches to addressing environmental
policy concerns in the MAI are being examined and further
proposals are likely as the debate continues. For examples,
one provision under consideration would call upon governments
not to lower environmental standards in an effort to attract
foreign investment. Similar approaches are being considered
for labor standards. It should be emphasized that nothing in
the agreement would prevent participating countries from
developing of maintaining effective measures for the
protection of the environment or promoting sustainable
development or improving labor standards. There is no
convincing case, however, why such measures would need to
discriminate against foreign investors.
There is strong support for a provision that would
associate with the agreement OECD's Guidelines for
Multinational Enterprises, without changing their voluntary
character. These Guidelines set international standards,
which are non-binding, to encourage multinational enterprises
to behave responsibly as good corporate citizens in the
countries in which they operate. The cover corporate
activities in a wide range of areas, including, inter alla,
environment and employment and industrial relations.
Most investment disputes that might arise under the MAI
should be settled without recourse to formal procedures.
Accordingly, the agreement provides for consultation
arrangements to encourage amicable solutions. Nevertheless,
the credibility of the MAI will require the binding
arbitration of disputes between states, or between an
investor and a participating government, be available to
ensure effective recourse in the event of breach of the
agreement. These provisions will be the ``teeth'' of the MAI.
They will be one of the major innovations of the agreement
because they go further than GATS (which has only state-to-
state dispute settlement) and further than most bilateral
treaties, which, unlike the MAI, deal only with established
investment and not the conditions for entry and
establishment.

Why the MAI?

The OECD countries have long recognized that foreign direct
investments is central to the process of international
economic integration--or globalisation--fueling development
of advanced economies and developing countries alike. Foreign
direct investment offers recipient countries the opportunity
to upgrade productivity and competitiveness, benefit from the
transfer of technical and managerial expertise, and promote
integration into the international economy. And increased
investment very often leads to increased trade, creating a
powerful engine of prosperity.
In recent years the critical role played by foreign direct
investment has become more widely appreciated. In the new
environment characterized by liberalization of trade and
investment regimes and by privatization, regulatory reform
and demonopolisation of domestic industries, the potential
gains from inward investment are more likely to be realized
than ever before.
Foreign direct investment has been growing rapidly: over
the past three years the global stock of foreign direct
investment has doubled. Particularly welcome in 1996 was the
dramatic increase by one third in the inflows to developing
countries.\2\
The multilateral system lacks a comprehensive and coherent
framework--or ``rules of the game''--for investment. We have
come to the stage where international investment rules can
begin to be multilateralised. From the perspective of
international firms, fixed investment commitments are long
term, and firms seek assurances that the investment regimes
will not become more adverse over the period of these
commitments. While market factors are the primary
determinants of investment decisions, investors are seeking
long term stability of rules and procedures, guarantees for
entry and establishments, equal competitive opportunities and
protection of existing investments. To become irreversible,
commitments need to be locked in through binding
international obligations enforceable by dispute settlement.
From the perspective of governments, the global competition
for capital in the coming years will be intense. Countries
not providing sufficient assurances to investors will likely
be charged higher risk premiums by the market. Moreover,
governments recognize that the remaining investment
restrictions and discriminatory treatment of foreign firms
are a potential source of international friction, not the
least because these are often barriers to market access. Such
restrictive or discriminatory measures distort market-
determined flows of capital and have a detrimental effect on
economic growth and development. The greater the role of
investment in the global economy, the more important it
becomes to avoid, or have a framework to address such
frictions.
Such considerations led the governments of the OECD
countries to conclude in 1995 that the time was ripe for
establishing a system of rules to safeguard the future of
international investment and to provide the legal protection
that would encourage more investment between countries. After
some sixteen meetings of the high level Negotiating Group
over the past two years, the main elements of the MAI are now
in place, and draft text or options for text are available
for most outstanding issues.

Some Implications for the Asia-Pacific Region

Since the MAI negotiations are taking place between the
twenty-nine OECD Member countries and the European
Commission, successful conclusion of the MAI negotiations
will mean that a major portion of the world's investment
flows will be covered by a comprehensive framework of
international rules of the game. Indeed, the vast bulk of FDI
originates within OECD countries and is destined for other
markets within the OECD area--some 85% of all outflows and
almost 70% of inflows in recent years.
But, a number of non-OECD countries are important hosts,
and in some cases also home countries, for foreign
investment. Among the top thirty host countries for foreign
direct investment in the 1990's. \3\ are ranked seven of the
non-OECD members of APEC: China, Malaysia, Singapore,
Indonesia, Thailand, Hong Kong (China), and Chinese Taipei.
While other regions are also significant, the role the MAI
will come to play in the Asia-Pacific will be of critical
importance. The member countries of APEC, for example, have
accounted for about 50% of global foreign direct investment
inflows thus far in the present decade. The non-OECD Asian
economies as a group have also become an important source of
outward investment. The share of these economies in world
outflows has increased from almost nothing in 1981 to 12 per
cent today. A striking fact is that, as a group, these
economies invest more abroad than any single OECD economy
except the United States.
In view of this situation, it was decided that the MAI
should be a free standing treaty, open to accession by
interested non-OECD countries and on equal footing with OECD
Members. Each country will be able to negotiate its terms of
accession, i.e. its own schedule of reservations. Adhesion of
all parties to the basic rules of the agreement will be
essential, but different levels of economic development can
be reflected in individual country reservations, which might,
in some cases, include transition periods.
The OECD is undertaking an unprecedented dialogue with non-
OECD countries as the negotiations progress, focusing, in
particular, on the growing number who appear to be interested
in acceding to the MAI. The next meeting of the Negotiating
Group in mid-September will represent a new stage in this
respect. Four non-OECD economies--Argentina, Brazil, Hong
Kong(China), and the Slovak Republic--will join the
Negotiating Group as ``Observers'' for the first time. During
the same week, a special session of the MAI Negotiating Group
will bring together the negotiators from the OECD countries
and senior investment policy officials from a number of
interested non-OECD countries. This meeting could lead to
further consultations at this level. It is hoped that these
processes will facilitate some of these countries joining the
MAI as founding Members, or soon after the agreement is put
in place.

\1\ The OECD Member countries are the following: Australia,
Austria, Belgium, Canada, Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy,
Japan, Korea, Luxembourg, Mexico, Norway, New Zealand,
Netherlands, Poland, Portugal, Spain, Sweden, Switzerland,
Turkey, United Kingdom, United States.
\2\ UNCTAD Press Release: TAD/INF/2710, 10 July, 1997.
\3\ ``Special Feature: Recent Trends in Foreign Direct
Investment'' in Financial Market Trends. Vol. 76, OECD,
Paris, June 1997.

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