No.2-1997 [1]Other Issues
   [2][LINK]
   
   [3]MAI home page
   
                                      MAI
                   The Multilateral Agreement on Investment
                                       
Summary

   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
   its obligations
   
   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
   states.
   
   This Policy Brief describes the main features of the MAI, explains the
   background to the negotiations and addresses the concerns that have
   been raised.
   
     * [4]Why is foreign direct investment so important?
     * [5]Why do we need a multilateral agreement on investment?
     * [6]Why is the MAI being developed at the OECD?
     * [7]Scope of the MAI
     * [8]How are investments and investors protected by the Multilateral
       Agreement on Investment?
     * [9]National treatment
     * [10]Exceptions, Safeguards and Reservations
     * [11]Most favoured nation treatment
     * [12]What happens to environmental standards?
     * [13]What are the implications for national sovereignty?
     * [14]How will the Mai contribute to responsible behaviour by
       foreign investors?
     * [15]And labour standards?
     * [16]Will the MAI be compatible with the World Trade Organisation
       agreements?
     * [17]Why are non-OECD countries interested in the MAI?
     * [18]How much is publicly available about the MAI negotiations?
     * [19]For further reading
     * [20]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
   host governments.
   
   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
   at OECD.
   
   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
   rules.
   
   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
   negotiations.
   
   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
   under contract.
   
   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
                                  Investment?
                                       
   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
       Treatment").
       
   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
       host country.
     * 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
       investments.
     * 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.
       
                              National treatment
                                       
   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
   bodies.
   
   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
       investments abroad;
     * 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:
   
              [21]http://www.oecd.org/daf/cmis/mai/maindex.htm
                                      
   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:
   [22]http://www.oecd.org/dsti/sti/stat-ana/stats /eas_afa.htm
   
   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
   Investment
   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
   Multinational Enterprises
   Free on Internet:
   [23]www.oecd.org/daf/cmis/cime/mneguide.htm
   [24]www.oecd.org/daf/cmis/codes/declarat.htm
   
   The OECD Observer Nos. 202 and 206
   and Special Issue on International Trade and Investment,
   December 1996.
   Free on Internet:
   [25]www.oecd.org/publications/observer
   
   OECD Recommandation on Combating Bribery in International Business
   Transactions
   Free on Internet:
   [26]www.oecd.org/daf/cmis/bribery/bribrecm.htm
   
   Reconciling Trade, Environment and Development Policies
   ISBN 92-64-15362-4 US$20 pp. 150
   
   Sustainable Development
   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
   
WHERE TO CONTACT US?

   FRANCE
   OECD Headquarters
   2, rue André-Pascal
   75775 PARIS Cedex 16
   Fax:
   33 (0) 1 45 24 19 50
   Tel:
   33 (0) 1 45 24 81 81
   E-mail: [27]sales@oecd.org
   Internet: [28]www.oecd.org
   GERMANY
   OECD BONN Centre
   August-Bebel-
   Allee 6,
   D-53175 BONN
   Fax: (49-228) 959 1218
   Tel: (49-228) 959 12 15
   Internet: [29]www.oecd.org/bonn JAPAN
   OECD TOKYO
   Centre
   Landic Akasaka Bldg
   2-3-4 Akasaka, Minato-Ku
   TOKYO 107
   Fax: (81-3) 3584 7929
   Tel: (81-3) 3586 2016
   E-mail: [30]tokyo.contact@oecd.org
   Internet: [31]www.oecdtokyo.org MEXICO
   OECD MEXICO Centre
   Edificio Infotec,
   Av. San Fernando No. 37
   Col. Toriello Guerra
   Tlalpan C.P.
   14050 MEXICO D.F.
   Fax: (525) 606 13 07
   Tel: (525) 528 10 38
   E-mail: [32]ocde@rtn.net.mx
   Internet: [33]www.rtn.net.mx/ocde UNITED STATES
   OECD WASHINGTON Center
   2001 L Street N.W., Suite 650
   WASHINGTON D.C. 20036-4922
   Fax: (1-202) 785 0350
   Tel: (1-202) 785 6323
   E-mail: [34]washcont@oecd.org
   Internet: [35]www.oecdwash.org
   Toll free: (1-800) 456 6323
   
   The OECD Policy Briefs are prepared by the Public Affairs Division,
   Public Affairs and Communications Directorate. They are published
   under the responsibility of the Secretary-General of the OECD.

References

   1. http://www.oecd.org/publications/Pol_brief/index.htm
   2. http://www.oecd.org/publications/Pol_brief/9702f_pol.htm
   3. http://www.oecd.org/daf/cmis/mai/maindex.htm
   4. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#1
   5. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#2
   6. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#3
   7. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#4
   8. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#5
   9. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#6
  10. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#7
  11. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#8
  12. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#9
  13. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#10
  14. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#11
  15. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#12
  16. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#13
  17. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#14
  18. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#15
  19. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#16
  20. http://www.oecd.org/publications/Pol_brief/9702_Pol.htm#17
  21. http://www.oecd.org/daf/cmis/mai/maindex.htm
  22. http://www.oecd.org/dsti/sti/stat-ana/stats/eas_afa.htm
  23. http://www.oecd.org/daf/cmis/cime/mneguide.htm
  24. http://www.oecd.org/daf/cmis/codes/declarat.htm
  25. http://www.oecd.org/publications/observer
  26. http://www.oecd.org/daf/cmis/bribery/bribrecm.htm
  27. mailto:sales@oecd.org
  28. http://www.oecd.org/
  29. http://www.oecd.org/bonn
  30. mailto:tokyo.contact@oecd.org
  31. http://www.oecdtokyo.org/
  32. mailto:ocde@rtn.net.mx
  33. http://www.rtn.net.mx/ocde
  34. mailto:washcont@oecd.org
  35. http://www.oecdwash.org/