APPENDIX 8
Memorandum submitted by The Save The Children
Fund
CONTEXT
Save the Children's origins 79 years ago lay
in a deeply felt protest against the high price children pay for
being ignored by decision-makers worldwide. The founder of Save
the Children Fund laid out a vision of "child-centred internationalism"
where greater equity between North and South is central to addressing
root causes of child suffering and poverty.
"our economic interests are so intertwined
that the prosperity of one nation makes for the prosperity of
all, while the poverty of one impoverishes the others. It should
be plain to us that we cannot close our frontiers against ideas,
even when we close them against men".
Decades on and Save the Children remains committed
to these principles. The MAI will have a significant negative
impact on children. Save the Children believes that the MAI presents
another example of "child blind" policy making—that
is, policies which are designed and implemented without any consideration
of the impact, negative or otherwise, on children. The ultimate
goals of the MAI are clear. The MAI is designed to establish a
broad multilateral framework for international investment with
"high standards" for the liberalisation of investment
regimes, investment protection, and effective dispute settlement
procedures. The MAI is supposed to provide a "level playing
field" for international investors, with uniform rules on
both market access and legal security. The rules will be legally
enforceable, allowing recourse to international arbitration to
settle disputes rules. However, in reality the MAI will accord
investors rights rather than responsibilities towards communities
and their children in host countries. The MAI will restrict the
ability of governments to regulate investment towards their own
development needs, primarily their responsibilities towards children.
While simultaneously giving unaccountable corporations legal power
over sovereign nations and their electorates.
Save the Children acknowledges that the global
economy is a reality, but there is a need for equitable, just
and inclusive rules which would allow the poorest countries to
participate in the global economy on an equal and fair basis.
By contrast, the MAI has global ramifications but formally excludes
developing countries from the negotiations. Any global investment
treaty therefore needs to create a framework within which business
in developing countries becomes an equal partner, rather than
a predator in development.
IMPLICATIONS OF
THE MAI FOR
CHILDREN
Save the Children's evidence suggests that children
across the world already suffer increasing and disproportionate
poverty. Children in developing countries would be the ultimate
"losers" of further investment liberalisation under
the MAI. Our experience suggests that a development model exclusively
driven by foreign direct investment (FDI), which the MAI would
codify, impacts most severely on the poorest. Save the Children's
programme experience in Mongolia for example, demonstrates the
costs of a fully liberalised investment regime. Mongolia is undergoing
a rapid and dramatic transition to a minimalist, laissez faire
market economy. Mongolia has embraced full financial liberalisation
and capital account convertibility, more than fulfilling the requirements
of the MAI.
A recent Save the Children study of Mongolia's
economy[89]
describes how:
"Mongolia must certainly qualify as one
of the most pro-market, laissez-faire economies in the world today,
having already fulfilled the requirements of the WTO and the MAI
. . . [but its] very narrow export revenue base and its increased
vulnerability to indiscriminate consumer and other imports make
it almost impossible for Mongolia to build up its own domestic
manufacturing and processing business sector . . . [This] makes
it anything but a `level playing field' for domestic business
compared to foreign producers. Mongolia might actually need an
MAI in reverse!"
Liberalisation of investment has attracted an
average of $40 million over the last three years, compared to
$3.7 million in 1993. But this investment
"is narrowly concentrated in mainly the
extractive mining sector and in construction activity which supports
that sector. The terms of these FDI contracts are for essentially
`enclave' projects [with] very few backward, vertical and horizontal
linkages which will produce lasting and broad-based benefits for
the real Mongolian economy and the average Mongol . . . Of the
433 companies which are either joint ventures or 100 per cent
foreign, only about 60 per cent are involved in either the production
or service sectors of the economy.
While this new external investment barely touched
the average citizen, Mongolia's domestic industrial and manufacturing
sector "has not just been neglected but has all but died".
As a result of this FDI-driven development policy, the World Bank
estimated in 1995 that 36 per cent of the population lived in
poverty. Street children are the most visible and poignant symbols
of growing poverty in post-transition Mongolia.
Human-centred development depends on the capacity
of developing countries' governments to maintain and improve the
social and economic infrastructure on which children depend, and
to safeguard their environment. The MAI will undermine this capacity
and therefore will worsen the plight of the poorest children in
three core areas:
ECONOMIC IMPACT
ON CHILDREN
The MAI is likely to reduce the livelihood security
of families. As in Mongolia, the lifting of investment controls
encourages multinational investment into "quick profit"
extractive sectors such as logging or mining, at the expense of
long-term productive sectors which spread their benefits through
the host country.
Because governments will be unable to target
investment at disadvantaged areas, regional inequalities will
increase, leading to further urbanisation and pushing families
into the informal economy. The concentrated and relatively unproductive
nature of FDI in Mongolia is highlighted by the fact that 90 per
cent of the businesses with foreign capital are located in the
capital, Ulaanbataar.
By restricting the extent to which government
can regulate their financial markets by using capital controls
for example, the MAI will increase a country's exposure to the
volatility of global financial and investment markets. The MAI
would expose children to the short-term speculative interests
of financial traders who will have the right to repatriate profits
and to withdraw investment without any corresponding obligations.
Such volatile economic conditions are detrimental
to children who need secure and predictable conditions in which
to develop. For example, the current East Asian financial crisis
has meant that suddenly many families can no longer afford to
send their children to school. Our preliminary experience in Northern
Thailand shows how the family is bearing the burden of the crisis
through increased indebtedness and unemployment. [90]
ENVIRONMENTAL IMPACT
ON CHILDREN
By liberalising investment controls the MAI
will encourage unsustainable resource use. The MAI does not at
present include binding environmental standards and may encourage
governments to lower standards in competition for investments.
Alternatively, the "roll-back" and "standstill"
provisions will prevent countries from enacting new environmental
regulation in industries such as logging, fishing and farming,
for fear of investor challenge. Already, the environment in poor
countries is being actively degraded by unregulated investment—for
example, the absence of controls on logging companies has allowed
the virtual destruction of South East Asia's forests, with disastrous
consequences as shown by the mass forest fires in Indonesia and
elsewhere in December 1997.
Children are especially vulnerable to the effects
of environmental degradation because of their nutritional needs,
their greater physical vulnerability, and their lack of awareness
of and control over environmental hazards.
Moreover, present methods of resource use and
management will ensure that today's children will inherit future
environmental problems and the responsibility of coping with them.
Save the Children believes that children have the right to inherit
a planet comparable to that which today's adult generation inherited.
This is the basis of inter-generational equity.
SOCIAL IMPACT
ON CHILDREN
The MAI will destabilise community and family
structures. In countries where controls on investment and capital
have been liberalised, family security has decreased and family
structures have broken up. Reduction in family incomes has pushed
children into the market place in search of revenue. Poverty increases
the risks of child abandonment, more children living on the streets
and ultimately to the children themselves becoming commodities.
In Asia, where financial liberalisation has moved most rapidly,
the UN estimates that there are one million children involved
in the sex trade, and the UK government believes this to be an
underestimate. [91]
In Mongolia, there were no street children before
1990. Now there are around 4,000 in Ulaanbataar alone. They are
the most visible and embarrassing sign that most things cannot
be left to the laissez-faire market. Save the Children concludes,
that by not investing in children today, Mongolia's current economic
policies run the risk of jeopardising the country's future economic
growth.
Save the Children's research in Vietnam shows
that since the liberalisation of the market, children's labour
has become a commodity with a clear market return[92].
Children are being driven into hazardous work such as gold mining
and coffee cultivation. Changes in the adult labour market will
also impact on children if in the drive for cheap labour women
are forced into the lowest paid work.
Poverty and social exclusion also greatly increase
the likelihood of ethnic and political conflict. In countries
where the State does not provide an adequate social, legal, and
security infrastructure, competition and part of trade and investment
liberalisation can lead to a growing black economy, political
violence and internal conflict. Some of the root causes of conflict
are economic inequalities. SCF estimates that 12 million children
have lost their homes through conflict[93].
RECOMMENDATIONS
1.1 The recent withdrawal of the French
government from talks to continue negotiation of the MAI signals
a fundamental shift in opinion away from this flawed agreement.
French Prime Minister Lionel Jospin questioned the validity of
proceeding with an agreement to liberalise capital flows during
a financial crisis. In the light of this, Save the Children considers
that the UK government should heed such calls and formally abandon
its commitment to a multilateral framework on investment within
the OECD.
1.2 Save the Children believes that the
MAI's inclusion of foreign direct investment and portfolio equity
investments in the same agreement is flawed. Continued support
for an agreement seeking to further lift controls on portfolio
capital flows is not tenable given today's financial turmoil.
The current financial crisis demonstrates the need for policy
flexibility. Many of the financial safeguards being discussed
in debates on the "global financial architecture" would
be prevented under the MAI. Developed and Developing countries
must keep the maximum degree of autonomy in this area. Many commentators
including the United Nations Economic Commission on Latin America
and the Caribbean (ECLAC) rightly argue that "in the absence
of appropriate financial regulation at the international level,
the adoption of prudential measures by the developing countries
to reduce the most volatile capital flows is fully justified"[94].
Furthermore the MAI cannot be concluded without taking into account
the proposed international financial reforms being discussed by
the G7 and G22 group of countries.
1.3 The experiences of Russia and many other
countries raise questions about prescribing a single economic
model for the economy despite different realities on the ground.
The MAI advocates a universal model for regulating the relationship
between foreign investors and host countries. A model which reflects
an unyielding faith in liberalisation, unregulated markets and
minimalist state which many observers popularly term "free
market fundamentalism". The UK government's White Paper on
International Development rightly rejects this "historically
flawed" model of development along with its alternative where
the state controls all economic activities at the cost of allocating
resources is a less efficient way. Instead, the UK government
proposes a "third way":
" . . . a new synthesis which builds
on the role of the State in facilitating economic growth and benefiting
the poor . . . the virtuous State has a key role to play in supporting
economic arrangements which encourage human development, stimulate
enterprise and saving and create the environment necessary to
mobilise domestic resources and to attract foreign investment"
The MAI ensures that this third model can never
exist. By restricting the extent to which countries can direct
FDI to meet development, economic, social and political goals,
the MAI weakens the sovereignty of governments and undermines
their ability to meet the long-term needs of their citizens. Therefore
it would appear that the government's commitment to a developmentally
"virtuous" state is incompatible with its continued
support of the MAI within the OECD. It would also question the
government's commitment to "policy consistency" across
all areas Whitehall policy-making.
1.4 At the time of writing, the Government
has affirmed its long-term commitment to promoting negotiations
on investments through the World Trade Organisation. We would
urge caution. The WTO's Singapore Ministerial Conference established
a working group with a mandate specifically to examine the relationship
between trade and investment, and not to negotiate an agreement.
The working group's agenda includes several issues such as the
implications of the relation between trade and investment and
macroeconomic stability, balance of payments, employment, and
the experiences of different countries with foreign investment.
It should not be assumed that the World Trade Organisation is
the natural successor for the discussion of multilateral investment
issues. The World Trade Organisation is a trade body and liberalisation
orientated. Full consideration should be given to the UN system,
drawing upon UNCTAD's mandate as a forum for international dialogue
on FDI issues.
October 1998
89 Mongolia: Rapid Economic Assessment-A Child
Focused Perspective. A report commissioned by Save the Children
UK Mongolia. Kamal Malhotra, May 1998. Back
90
The draft report: Social Impact of the Economic Crisis in
Thailand on Vulnerable Children-Field Study in Khon Kaen and Nongkai,
was based on a field study in June-July 1998 by Muangpong Juntopas,
consultant to SCFUK-South East Asia and Pacific Office in Thailand,
in collaboration with local partners and international agencies. Back
91
Interview with foreign minister Derek Fatchett, Radio 4 "Today"
programme, 5 October 1998, regarding the ASEM meeting on child
sexual exploitation. Back
92
From Housework to Gold Mining: Child Labour Rural Vietnam.
Save the Children 1997. Back
93
Children at War. Save the Children UK. 1994. Back
94
Communique of the Economic Commission for Latin America and the
Caribbean (ECLAC) On The International Financial Crisis, delivered
by ECLAC's Executive Secretary, Mr. Jos Antonio Ocampo. September
1998. The electronic version can be found on the web page (http://www.eclac.cl). Back
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