APPENDIX 2
Memorandum submitted by the International
Business Regulation Forum
1. The International Business Regulation
Forum is a group of academic specialists in international business
and economic regulation, which holds meetings and discussions
with staff of non-governmental organisations concerned with international
development, environmental protection and social issues. This
Memorandum is addressed to the strand of the above Inquiry concerned
with the proposed Multilateral Agreement on Investment (MAI).
2. We consider that the United Kingdom should
take the lead in calling a halt to the MAI negotiations, for which
there is in any case now little enthusiasm among other governments
of the Organisation for Economic Cooperation and Development (OECD),
while strong opposition to them has grown in many sectors of society.
The OECD negotiators have failed to meet deadlines to reach an
acceptable text in 1997 and 1998. In May 1998 they were given
a further reprieve, subject to a six-month suspension for "consultation
between the negotiating parties and with interested parts of their
societies". The Negotiating Group is due to meet on 20 October.
3. Suspension of these negotiations would
allow priority to be given to proposals for strengthening of the
regulation of international capital flows, some of which have
been put forward in the International Monetary Fund (IMF) and
the Group of Seven industrialised countries (G7). The MAI's emphasis
on liberalisation is inappropriate, especially in the context
of the more urgent concerns brought to the fore since the Asian
crisis. There is a danger of putting in place a framework for
international investment liberalisation and protection which could
be inconsistent with new regulatory arrangements found to be necessary
as a result of this continuing crisis.
4. The MAI aims to restrict national governments'
rights to regulate international capital flows, and to grant companies
and speculators legally-entrenched rights, without any corresponding
responsibilities. The MAI negotiation is a hangover from the 1980s
agenda when neo-liberal ideologies assumed that deregulated markets
and free international capital movements would be sufficient to
secure optimal allocation of capital and hence economic efficiency
and growth. It is now clear that predictability and security for
investors depends rather on a sound regulatory foundation which
can ensure popular support for business based on confidence that
it is complying with appropriate standards. There are still many
doubts about the appropriateness of the MAI even between the OECD
countries, which generally have strong domestic regulatory arrangements,
and a significant and developing experience of regulatory cooperation
in areas such as international taxation, competition policy, financial
market regulation, environmental protection, and anti-bribery
and corporate governance standards. The establishment of a level
playing-field for international investment would be better facilitated
by improving regulatory coordination and cooperation in such specific
areas. The MAI's broad non-discrimination obligations would create
uncertainty as to the validity of many national regulations, and
could mean that policies adopted by either national or regional
democratically-elected bodies would be challenged legally, as
has happened under the similar provisions of the NAFTA. Some of
the assurances provided by Government Ministers that the MAI would
not have these effects are based on an under-estimation of the
often unpredictable impact of broad legal provisions and of the
ingenuity of highly-paid lawyers.
5. Although the MAI is being negotiated
at the OECD, it is intended to be a free-standing multilateral
agreement, which would establish a "gold standard" for
investment protection. Developing countries are being encouraged
to join and, given the competition to attract investment, few
could afford to be excluded, whether or not their real economic
and social interests would benefit from membership. We consider
that a global agreement encouraging further liberalisation of
international capital flows, without provision for strengthening
regulatory arrangements, would encourage unsequenced liberalisation
against which the IMF has warned, and create additional dangers
for the world economy. Whatever one's views about this, it is
not appropriate for these negotiations to take place in the OECD.
Sooner or later the issues must be considered in a truly global
forum. Indeed there are already agreements within the World Trade
Organisation (WTO) that overlap considerably, and in some respects
are at odds, with the MAI. Continuation of the OECD negotiation
would be inimical to the prospects of a truly global agreement,
which is the main priority for UK business.
6. The MAI essentially establishes a presumption
that economic regulatory arrangements should not discriminate
against foreign investors either de jure or de facto, and should
not entail expropriation of their contractual or property rights,
defined very widely. However, even among the OECD countries, the
negotiators have found that when these "disciplines"
on government action have been considered in relation to specific
regulatory areas (such as taxation, intellecutal property, and
financial market supervision) their effects are uncertain or unpredictable.
This has resulted in large exceptions or carve-outs from the basic
principles in the agreement. In addition, understandable concerns
to safeguard various national policies have led to the tabling
of many country exceptions, making it hard to achieve a satisfactory
balance of commitments. The outcome is a gruyere cheese of an
agreement, with more holes than cheese, and one which will satisfy
nobody.
7. In place of the MAI, a new initiative
should be launched in a more global forum, either the WTO or the
United Nations, which would aim at a broader and more inclusive
Multilateral Framework for Investment. The new approach should
begin from a new perspective, different from both the laissez-faire
neo-liberalism of the MAI, and the state-interventionist assumptions
of the 1970s. Its aim should be to strengthen the international
regulatory framework for global economic activities. It should
balance investors' rights with responsibilities, protect the special
interests of developing and transitional countries, and should
not merely restrict national government powers but establish internationally
agreed minimum regulatory standards which they should meet or
to which they should aspire. A number of ways could be found to
link rights with responsibilities, as has already been done in
the WTO by conditioning market access via trade on compliance
with standards, such as technical and food safety standards and
intellectual property protection. Similar links could condition
investors' rights of entry and protection to compliance by them
or their home countries with relevant international standards.
These could include rules which are important in safeguarding
the security and integrity of the international financial system,
such as the anti-money laundering standards of the Financial Action
Task Force, the core prudential supervision standards of the Basle
Committee on Banking Supervision, and the OECD's own multilateral
treaty for co-operation in tax enforcement.
8. The approach we propose would recognise
that globalisation is not merely a matter of unrestricted market
forces. It requires a strengthening of international standards
and co-operative arrangements, to provide a strong basis of mutual
confidence. Without such a strong foundation of positive standards,
paper guarantees against discrimination or expropriation by sovereign
states are likely to be ineffectual or illusory.
14 October 1998
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