Select Committee on Trade and Industry Third Report


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

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 5 January 1999