AOH :: 9702_POL.TXT|
A related document to MAI
No.2-1997 Other Issues
MAI home page
The Multilateral Agreement on Investment
This Policy Brief deals with the Multilateral Agreement on Investment
(MAI) which is currently being negotiated in the OECD. The MAI is to
be a free-standing international treaty open to all OECD Members and
the European Community, and to non-members willing and able to meet
By providing a comprehensive and stable framework for international
investment, the MAI will give new impetus to growth, employment and
higher living standards. It will also provide an effective means for
settling investment disputes between states and between investors and
This Policy Brief describes the main features of the MAI, explains the
background to the negotiations and addresses the concerns that have
* Why is foreign direct investment so important?
* Why do we need a multilateral agreement on investment?
* Why is the MAI being developed at the OECD?
* Scope of the MAI
* How are investments and investors protected by the Multilateral
Agreement on Investment?
* National treatment
* Exceptions, Safeguards and Reservations
* Most favoured nation treatment
* What happens to environmental standards?
* What are the implications for national sovereignty?
* How will the Mai contribute to responsible behaviour by
* And labour standards?
* Will the MAI be compatible with the World Trade Organisation
* Why are non-OECD countries interested in the MAI?
* How much is publicly available about the MAI negotiations?
* For further reading
* Where to contact us?
Why is foreign direct investment so important?
Foreign Direct Investment (FDI), together with international trade in
goods and services, promotes economic growth, jobs and rising living
standards world-wide. From 1973-96, FDI flows multiplied fourteen
times from $ 25 billion to $ 350 billion per annum, outstripping
growth in international trade.
Governments welcome FDI as a source of capital and innovation and as a
means to promote competition and economic efficiency. Businesses of
all sizes expand across national boundaries in search of new markets
and creative partnerships. Consumers benefit from increased quality,
wider choice and lower prices on the goods and services they buy.
A recent Government of Canada study shows that for every C$1billion of
foreign investment in that country, 45 000 new jobs are created
overfive years. According to the New Zealand Government, foreign
investors in New Zealand reinvest 90% of their profits, employ New
Zealanders in over 99% of the positions they create and pay New
Zealanders on average 28% more than domestic firms.
A World Trade Organisation's study reports that "low levels of trade
and inflows of Foreign Direct Investment (FDI) are symptoms rather
than causes of the plight of many of the poorest countries. Without an
increased inflow of FDI in these countries and increased trade, it is
difficult to imagine how a major improvement in their economic
prospects can be achieved. FDI brings with it resources that are in
critically short supply in poor countries, including capital,
technology and such intangible resources as organisational, managerial
and marketing skills".
Why do we need a multilateral agreement on investment?
The importance of the existing multi-lateral agreements on trade in
goods (GATT) and trade in services (GATS) is widely recognized. The
time has come for similar rules on investment in the form of a
multilateral agreement on investment.
While markets are, of course, the main reason for investment
decisions, the investment climate is also a major factor
indecision-making. Investors need long-term stability of rules and
procedures. They need open markets and equal competitive opportunities
with domestic investors. They also need protection of existing
investments and an international mechanism for settling disputes with
Governments recognize that a liberal investment regime is critical to
attracting foreign investment. They also appreciate that restrictions
and discriminatory measures distort investment flows with detrimental
effects on economic development and efficiency, and create a potential
source of international friction.
To date, international cooperation has relied mainly on a growing
network of some 1630 bilateral investment treaties, regional
agreements such as NAFTA and the investment co-operation instruments
However, the bilateral approach is less than ideal in a rapidly
integrating world economy and bilateral investment agreements do not
exist between many of the OECD countries. The scope of the
Multilateral Agreement on Investment (MAI) will be larger than that of
bilateral treaties. For example, most BITs are limited to the
protection of investments after they are made. The MAI will also cover
the pre-establishment phase, that is the making of the investment.
Regional agreements are necessarily partial in their
geographiccoverage. The OECD instruments - the Codes of Liberalisation
and the Declaration and Decisions on International Investment and
Multinational Enterprises - offer a systematic multilateral approach
to investment, but these instruments are not all binding or
comprehensive and they lack effective dispute settlement procedures.
Globalisation is increasing every day. It calls for enhanced
international co-operation for the world economy to be better
organised and the efficiency and equity of the markets to be
protected. The usefulness of the GATT is now generally recognised. The
time has come for a multilateral agreement on investment.
Why is the MAI being developed at the OECD?
OECD Members have a major stake in investment rules, accounting for 85
per cent of FDI outflows and 60 per cent of inflows.
OECD Members share a common view of the benefits of free investment
flows and the need for more comprehensive and effective investment
Experience with the existing OECD investment instruments the Codes of
Liberalisation and Declaration and Decisions on International
Investment and Multinational Enterprises provided a solid starting
point for negotiation of the MAI.
The broad range of OECD activities, including labour and the
environment, offered important additional sources of support for the
Development of the MAI by the OECD complements the work of other major
rule-making bodies for international trade and finance: the World
Trade Organisation and the International Monetary Fund.
Scope of the MAI
The MAI will be a comprehensive investment agreement, aiming to cover
all economic sectors.
"Investment" in the MAI will be defined broadly to include direct
investments, portfolio investments, real estate investments and rights
The MAI will provide legal guarantees for both the investment itself
and the making of an investment while most bilateral treaties are
limited to the protection of investments after they are made.
The MAI aims to cover "measures" taken at all levels of government:
central, federal, state, provincial and local. "Measures" will include
laws, regulations and administrative practices.
How are investments and investors protected by the Multilateral Agreement on
The core concept of the MAI is non-discrimination:
* The MAI Parties will commit themselves to treat foreign investors
and their investments no less favourably than they treat their own
investors ("National Treatment").
* They will also agree not to discriminate among the investors or
investments of different MAI Parties ("Most-Favoured-Nation
Other important provisions include:
* Transparency: Laws, regulations and procedures of general
application must be made publicly available.
* Transfer of Funds: Investment-related payments, including capital,
profits and dividends, must be freely permitted to and from the
* Entry and Stay of Key Personnel: Investors and key personnel, such
as senior managers or specialised technicians, should be granted
permission to enter and stay temporarily to work in support of MAI
* Performance Requirements: Certain requirements imposed on
investors, such as a minimum export target for goods or services,
would be prohibited.
* Expropriation: May only be undertaken for a public purpose and
subject to prompt, adequate and effective compensation.
* Dispute Resolution: While the agreement has provisions for
resolving disputes through consultations, the agreement will
provide for binding arbitration of disputes, between host and home
states or between the investor and the host state.
In accepting this principle, countries agree to treat to foreign
investors no less favourably than they treat their own investors. This
also means that they have no obligation to grant foreign investors
more favourable treatment.
These two principles apply both to investors and to the establishment,
acquisition, expansion, oper ation, management, maintenance, use,
enjoyment and sale and other disposition of investments.
Exceptions, Safeguards and Reservations
MAI disciplines will not apply in situations addressed by "general
exceptions" or "temporary safeguards" or where individual countries
have taken specific exceptions or reservations.
Under general exception provisions, any country will be able to take
measures necessary to protect its national security or to ensure the
integrity and stability of its financial system.
Under temporary safeguard provisions, any country will be able to take
measures necessary to respond to a balance of payments crisis.
By virtue of country-specific exceptions or reservations, negotiated
among the Parties to the MAI, each country will be able to maintain
laws and regulations that do not conform to MAI disciplines.
Other outstanding issues which need to be addressed include exceptions
for culture and regional economic integration organisations.
Most favoured nation treatment
According to this principle, once a country has accorded a given
treatment to a foreign investor or a foreign investment, it cannot
grant less favourable treatment to any other investor or investment. l
What happens to environmental standards?
MAI negotiators have recognised the importance of environmental
concerns and will ensure that governments keep their freedom to
implement policies to protect the environment, provided those policies
are not more stringent for foreign investors than for domestic ones.
A range of specific proposals is being considered. For example, the
MAI preamble will likely recognize the importance of sustainable
development. MAI negotiators are examining provisions modeled on the
North American Free Trade Agreement (NAFTA) to make explicit the right
of governments to maintain environmental requirements consistent with
national treatment and most-favoured nation treatment, and to provide
that MAI parties should not lower their environmental standards to
attract foreign investment.
Most negotiators support association of the OECD Guidelines for
Multinational Enterprises, with its chapter on environmental matters,
with the MAI. Other environmental proposals may be considered.
What are the implications for national sovereignty?
The MAI will bind countries to a set of rules governing the treatment
of foreign investors and investments. As with all binding
international agreements, this will moderate the exercise of national
authority to a degree. But in return for the commitment to meet the
rules of the agreement, including the undertaking not to discriminate
against foreign investors, parties to the MAI will enjoy the benefits
of a better investment environment. This will act as an attraction for
new investment from abroad and provide protection for their own
investors doing business in other MAI countries.
Governments will remain free to regulate in most fields provided the
non-discrimination rule is respected, and MAI rules can be set aside
for reasons of overriding public policy such as national security. In
addition, non-conforming measures can be maintained if specific
reservations or exceptions are lodged.
How will the Mai contribute to responsible behaviour by foreign investors?
The purpose of the MAI is to provide a framework for international
investment. It will not immunise foreign investors from domestic laws
governing corporate and individual behaviour.
The MAI will not remove the authority of domestic courts, tribunals
and regulatory authorities over foreign investors and their
enterprises. Nor will it deny access of private citizens to these
Furthermore, the association of the OECD Guidelines for Multinational
Enterprises will remind parties to the MAI and foreign investors of
appropriate standards of behaviour in the conduct of business in a
foreign country. Although voluntary, the OECD Guidelines with their
follow-up mechanisms, have proven effective.
And labour standards?
Governments will be free to implement their own policies concerning
labour standards, as long as these standards are not more stringent
for foreign than domestic investors.
MAI negotiators are discussing a provision that would specifically
call on MAI countries not to lower labour standards in order to
attract foreign investment. They are also considering recognition of
the importance of core labour standards in the preamble.
The OECD Guidelines for Multinational Enterprises has an extensive
chapter on employment and industrial relations.
Will the MAI be compatible with the World Trade Organisation agreements?
Yes. The MAI will be drafted to avoid conflicts with WTO agreements.
The objective is not to impose the MAI blueprint of investment rules
on the WTO. It will be for the WTO membership as a whole to decide
what sort of disciplines it will develop in the investment area. The
WTO Secretariat participates in the MAI negotiations as an observer.
Why are non-OECD countries interested in the MAI?
Non-OECD countries have already declared their interest in the MAI.
Five non-OECD countries - Argentina, Brazil, Chile, Hong Kong (China),
and the Slovak Republic - have joined the negotiations as "observers".
OECD outreach activities, including conferences in Brazil and Korea
and briefings by the OECD and its Members, have received a positive
response. OECD Members hope that non-OECD countries will join the MAI
as founding members, or soon after the agreement is put in place.
Non-OECD countries will wish to adhere to the Agreement for the same
reasons as OECD countries, namely:
* greater attractiveness for potential investors by providing a
sound environment and a positive policy signal;
* better market access opportunities and legal protection for their
* access to the dispute settlement procedures; and
* full partnership in implementing the agreement, through membership
in the "Parties Group", and in any future negotiations.
The MAI will be a free-standing treaty, open to accession by non-OECD
economies with the same rights and obligations as OECD Members. Each
country will be able to negotiate its terms of accession, including
its own schedule of reservations.
How much is publicly available about the MAI negotiations?
The progress of the negotiations can be easily followed through the
MAI page of OECD Internet site:
This page provides information on the history of the negotiations, the
status of current negotiations and the issues under discussion.
Information is also available in printed form: free documents,
information letters and articles in The OECD Observer. Some of the
more important OECD studies and reports are listed below. Please
contact us by Internet or directly at one of our centres in the world.
FOR FURTHER READING:
Activities of Foreign Affiliates in OECD Countries 1985/1994
ISBN 92-64-05522-3 US$69 pp. 520.
Also available on Diskette : 92-64-05078-7 US$207
Free on Internet:
Foreign Direct Investment, Trade and Employment
ISBN 92-64-14406-4 US$52 pp. 152
International Direct Investment,
Policies and Trends in the 1980s
ISBN 92-64-13799-8 US$44 pp. 146
Introduction to OECD Codes of Liberalisation
ISBN 92-64-14386-6 US$29 pp. 106
Investment Policies in Latin America and Multilateral Rules on
ISBN 92-64-15446-9 US$27 pp. 192
The OECD Guidelines for Multinational Enterprises and The OECD
Declaration and Decisions on International Investment and
Free on Internet:
The OECD Observer Nos. 202 and 206
and Special Issue on International Trade and Investment,
Free on Internet:
OECD Recommandation on Combating Bribery in International Business
Free on Internet:
Reconciling Trade, Environment and Development Policies
ISBN 92-64-15362-4 US$20 pp. 150
OECD Policy Approaches for the 21st Century
ISBN 92-64-15487-6 US$20 pp. 190
Towards Multilateral Investment Rules
ISBN 92-64-14784-5 US$31 pp. 166
Trade and Investment, Transplants
ISBN 92-64-14156-1 US$44 pp. 152
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