[Congressional Record Volume 143, Number 124 (Wednesday, September 17, 1997)]
[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

                                 ______
                                 

                          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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