Previous Section Back to Table of Contents Lords Hansard Home Page

8.8 p.m.

Lord Judd: My Lords, the noble Lord, Lord Razzall, is to be thanked for giving us the opportunity to debate this issue, although briefly. He referred to opportune timing. Another reason that the timing is opportune is that yesterday we had the Budget. For anyone considering the implications of the MAI, the agreement may be historically considerably more far reaching than anything that was said yesterday in that significant Budget.

The noble Lord also referred to NGOs. He was right to do so. They are an increasingly important part of the total political life of our society, speaking as they do with the experience of engagement. Among some of the NGOs with which I have been privileged to work in my life, and with which I am still closely involved, there is deep anxiety about some aspects of this agreement.

It is highly significant for our own economy, but it is pivotal to the economic and social development of the third world. Of course the agreement has been introduced as an essential cornerstone of the new world economic system, based as it is on the principles of liberal economics and the ascendancy of the market. But equally essential in the responsibility of government are the specific arrangements designed to ensure that all nations have a real opportunity to reach the point at

18 Mar 1998 : Column 791

which they can gain access to participation in the market and also the arrangements to meet the needs of those who will probably always be at a disadvantage.

The limitations of the market, to which the noble Lord referred very sensibly, in relation to environmental strategy--and indeed few people know more about this than my noble friend who will reply--which is fundamental to the survival of the species, also have to be recognised. The market will not deal adequately with those.

For all those reasons, it is therefore very encouraging to note the Government's positive position on the environmental clauses of the agreement, and on the relationship of the MAI to the OECD guidelines on multilateral enterprises--although I must say I share the anxiety of the noble Lord, and shall need to be convinced that these guidelines will be more than pious aspirations unless given some real muscle.

At the same time, it is good to hear of the Government's apparent commitment on labour issues. The effective application of the ILO convention should surely be a condition for membership of the MAI. There is a good deal of evidence that increased capital mobility and the threat of relocation are exerting downward pressure on labour and environmental standards as governments compete to attract foreign investment. The growth of free trade zones, labour market deregulation and the spread of flexible working practices, which often deny workers the rights enjoyed by full-time or permanent workers, are all examples of that.

Could my noble friend therefore enlighten the House as to why a top-down set of general obligations, inevitably with numerous individual country exceptions and disagreements, has been the basis for the negotiations, rather than a sector by sector bottom-up approach, which was followed in the General Agreement on Trade and Services? Will my noble friend the Minister agree that, as many developing countries still have economies dependent upon agriculture or natural resource extraction, powers need to be retained by them to ensure that those sectors are managed for the good of local people and not just for short-term profit?

Have the Government, for example, examined the evidence from countries like Tanzania, Uganda and Zambia, where, already, game parks, theme parks and private lodges for the very rich are springing up, with directly adverse consequences for pastoralist communities as huge areas of once common grazing land are fenced off? Would one of the ways of containing that danger be to have a broad list of general exceptions to the MAI to be drawn up in consultation with the developing countries, covering natural resources, utilities and, for example, social services?

On debt--on which I am glad to note the Chancellor of the Exchequer is giving such a strong lead--will my noble friend assure the House that the MAI will not be allowed to undermine debt relief initiatives for public, Paris Club, commercial or multilateral debt?

On expropriation, does my noble friend agree that there is some ground for concern about the words, "measures having equivalent effect"? Could that not allow companies to challenge legitimate national

18 Mar 1998 : Column 792

policies on taxation, health and safety, and environmental or labour laws as creeping expropriation? What can be done to tighten up the definition of "expropriation"?

As I understand it, the proposals will permit investors to sue governments for breach of the MAI. But what of the corresponding right for citizens to claim for any damages caused by investors? What of the right of citizens as stakeholders to be able to present evidence to tribunals, and to bring cases relating to the lowering of standards, provisions or compliance with the OECD guidelines?

Of course, as the noble Lord explained in introducing his Question, the anxieties also centre on our own society. We need to know a good deal more about how the MAI will affect the role of foreign investment in meeting national, regional or local development goals in OECD countries like our own when they are reliant on such foreign investment. What, for example, will be its precise impact on regional development authorities, on best value as distinct from compulsory competitive tendering, or on the new deal for regeneration? What are the Government doing to guarantee protection of these under the MAI? I am sure that my noble friend the Minister will correct me if I am wrong, but how can the need for such exceptions be reconciled with what I understand has been the Government's position so far in the negotiations; namely, to achieve the smallest possible number of country specific exemptions from the MAI?

I should like to underline what the noble Lord, Lord Razzall, said in his introduction. This agreement is almost certainly necessary in some form. Nobody questions that. There are plenty of indications that the Government are taking very seriously its wide ramifications. All that is reassuring. But I ask the Government to take very seriously the issue of consultation. It is one thing occasionally to meet briefly with representative bodies and explain what is happening and ask for comments. It is quite another--and I believe that this is central to the health of an open, democratic society--to recognise that many of these bodies have unrivalled insight into the practical implications of what will result from measures of this kind. Therefore, it would be remiss not to see as a high priority the need to consult with them in the fullest sense about what can be done to make sure not only that the objectives of the agreement are in broad terms laudable, but that the detail--the detail is what is often so crucially significant--is sound too.

We understand that there may be delays in the negotiations, that target dates will not be met. Indeed, it is intriguing to find that apparently even the United States has profound second thoughts about quite how far it wants to go or enthusiastic it wants to be about the agreement in its present form. Some people may be frustrated by that delay. I hope that the Government will take it as a great opportunity. They inherited this situation. They took over a baton in a race that was already under way. It would provide the Government with a great opportunity. I hope the Minister will be able to reassure us that they will, in the fullest sense of consultation, take the opportunity to speak to those who

18 Mar 1998 : Column 793

are working on the ground. And let us remember that only yesterday the Chancellor of the Exchequer gave a great vote of confidence to those organisations working on the ground by making special provision to support them in their battle against world poverty so far as the international work is concerned.

It is therefore most important that the Government consult fully not only with the agencies working overseas, but also with the local authorities, the regional and professional bodies in this country, and indeed the non-governmental organisations central to the fight against poverty in our own society.

8.18 p.m.

Lord Ponsonby of Shulbrede: My Lords, I, too, wish to thank the noble Lord, Lord Razzall, for introducing this debate. I have to say that it is a poor reflection on this House that this is a short debate with only five Back-Bench speakers when this has been a live issue for a number of weeks now at the other end of the Palace and has been far more fully debated than we are managing to do in this House.

I rise to support my noble friend the Minister. I, like every noble Lord, I suspect, have been flooded with briefing material from concerned groups. I have read the articles, notably in the Guardian newspaper, which have so criticised both the MAI and the Government's response to it.

I thought it might be useful to the House to describe my own experience of working for a multinational company in the third world and in the former Soviet Union. My example is where the American company for which I worked made an investment in excess of 100 million US dollars in two oilfields. After the investment was made, an additional tax was imposed on us by the host country's government. It took us two years of intensive lobbying, through the American Government, to get the tax lifted. In the meantime we had paid 30 million dollars in this tax alone, money which could have been put back into the business. In addition to this, we found that we were continually having to defend our environmental record and our employment practices in the local courts and to local regulators and institutions. It was our experience that other local companies did not have to defend their activities in this way. One should not underestimate the crippling effect on a business of its managers spending all their time writing reports and attending hearings rather than getting on with managing the business.

For us the issue was not the standards to which we were forced to comply but the non-compliance of our competitors. It was this which continually undermined our business. This is in direct contradiction to the point made by my noble friend Lord Judd about international investors always seeking a downward pressure on environmental standards. That is not my experience.

The net effect was that the business with which I was associated failed, with ill-will on all sides. The host government, in particular, is disappointed as it had expected to receive substantial benefit as a result of the company's investment through additional taxation revenue, which will now not be forthcoming.

18 Mar 1998 : Column 794

The question is whether an MAI would have helped us. In this example, the answer is probably no, as we already had the US Government lobbying for us, and I suspect that they had a greater political leverage than any multilateral treaty would ever have. Nevertheless, in general terms, some form of legally binding level playing field for investors will encourage investment internationally, which will, in turn, I believe, increase prosperity for all. In particular, it should encourage companies from smaller, less influential countries to invest in the third world. This is a goal worth striving for, and the Government are right to attach a high priority to it.

Some of the articles, particularly in the Guardian newspaper, have been totally over the top in their criticisms of international business; they have also been totally over the top in their criticisms of my noble friend. Nevertheless, the briefings I have received from the NGOs seem to me to raise a number of valid issues, which I believe deserve to be responded to in detail, and I am sure that my noble friend will do that.

Both my noble friend Lord Judd and the noble Lord, Lord Razzall, raised a number of issues on environmental standards, social protection, national sovereignty, the extent to which exclusions can be applied and--the central point made by my noble friend Lord Judd--extending consultation during the period of delay.

In conclusion, from my perspective the MAI should be about one thing: aiding third world development. The MAI will do that through encouraging investment. I urge my noble friend to resist going down the blind alleys of trying to codify investment rules between currently rich countries. The countries within the OECD already have mature investment climates and I am not sure how much is to be gained by trying to codify them. I understand that the devil is in the detail, but I ask my noble friend the Minister to measure each detail by the yardstick of how it will aid third world development. I look forward to my noble friend's reply, particularly regarding the issue of consultation.

8.24 p.m.

The Earl of Sandwich: My Lords, anyone who remembers the Ethiopian famine will be startled, and perhaps delighted, by the trade and investment taking place in Addis today. This morning I read an upbeat report describing massive new investment in the Ethiopian economy--more than 4,000 projects proposed, with combined capital of 4.9 billion dollars, one-fifth of the projects from overseas, rapid privatisation, deregulation of energy and banking sectors, huge investment in roads and communications, decentralisation and a budget surplus to go with all that.

Such a transformation of three decades of civil war and Marxist-Leninism into an African Wirtschaftswunder seems scarcely credible, and yet this is the current African dream. According to the Prime Minister, Mr. Meles Zenawi, economic development is

18 Mar 1998 : Column 795

items one, two and three on his agenda. President Museveni of Uganda and a number of other African leaders share his vision. They no longer want to be held up by outsiders who may have alternative straitjackets, whether from a socialist, liberal, child labour, environmental or any other perspective. They are, in short, the ideal partners for the MAI on an ideal level playing field, if such exists.

Why is this vision too much to swallow for the NGOs, whose ultimate objective is the same--prosperity for the people of Ethiopia? To some extent, NGOs, many of which are still active in Ethiopia, seem left behind in the newly reborn, liberalised state, which in theory should benefit greatly from freed-up foreign direct investment.

Yet, as the noble Lord, Lord Judd, said, the NGOs have legitimate fears about the MAI. They see a new entrepreneurial class taking advantage of globalisation at the expense of the poorest sections of society. Their concern is to strengthen marginal groups such as small farmers, coastal fishermen, the landless and the urban poor, who will continue to need--as indeed do groups in this country--regional aid, concessional loans, subsidised agriculture and trade protection, the opposite of what most investors want and the kind of soggy, unlevel playing field which the MAI and the WTO would like to avoid.

Noble Lords may remember the shrimp-turtle syndrome, the dispute between US environmental laws insisting on escape holes for turtles in giant shrimp nets and the four major Asian shrimp exporters, India, Malaysia, Pakistan and Thailand, who want to sell more shrimps to the US. There is something symbolic about the thrusting shrimp of privatisation outswimming the poor old turtle of protection. Again, the NGOs take the side not only of the turtles but of the local fishermen and farmers whose livelihood has been swamped by the demands of fish farms and trawlers all along the coasts of Asia.

Our supermarkets, which have recently become interested in ethical trade and investment, do not want--at least under this Government--to be seen by their consumers as exploiters of the poor. This moral dilemma is, again, not good for the prospects of the MAI.

It seems that, following their Paris meeting with the OECD, the NGOs, having vehemently opposed the MAI, are now at least reconciled to its existence. The DfID is about to publish its own report recognising the safeguards which must be put in place to meet the concerns of NGOs and of the least developed countries in particular. I wish them well. I applaud the efforts of this Government to take on board such NGO concerns and to involve the NGOs in policy discussion.

However, having attended a DfID presentation today, I am left wondering what that department can do to alleviate the undeniably adverse effects of the MAI on the least developed countries as well as explaining the benefits. I understand the new thinking which uses academic terms like "pro-poor" or "fair and sustainable trade and investment"; and I see the positive value of freer and fairer trade. But no one should expect too

18 Mar 1998 : Column 796

much of the DfID as honest broker among the seven government departments involved in the MAI. A lot of money is about to go into capacity building at a fairly high level to try and support the negotiating stance of the LDCs in the OECD meetings or--by proxy--of the DfID when it has to face the six other government departments. I will be grateful to hear from the Minister which of those departments are represented here today.

The LCD's worst fear must be that the DfID will turn round and persuade them what stance to take or, more likely, what changes they should be implementing. I hope the Cabinet Office, the Treasury and others will not leave DfID on its own or automatically expect it to play second fiddle to the DTI. It cannot lose sight of its principal objective of poverty alleviation, as the noble Lord, Lord Ponsonby, said. It may have to depart from the free market orthodoxy, as will be the case in the post-Lome negotiations.

Going back to the situation in Ethiopia, we are still far from a genuinely level playing field and the game is already messy. Procurement in Addis can be a nightmare with bureaucracy, regulation and all the old problems of getting from A to B. It is still a fragile society in the process of reconstruction. The MAI is never going to be a cure, nor even a rapid means to growth. As the DfID knows, it will only help as an agreement if a domestic regulatory framework is already in place alongside all the other prescriptions with which it has to deal from the IMF, the World Bank and even the NGOs with which the Government have to deal. If the negotiating pattern becomes too complicated, who can blame the Ethiopians for refusing to go to meetings when they have the urgent business of development to attend to?

The distillation of the NGOs' fears is the loss of the authority of central government to the whims of the international market. Of course, we know that there are good companies so that is inevitably a general statement. Such concerns were only half met by the World Bank President, James Wolfensohn, when he published last year's world development report. He said,

    "For many the lesson of recent years has been that the state could not deliver on its promise. Many have felt that the logical end point of all this was a minimalist state. Such a state would do no harm, but neither could it do much good".

I hope the Minister in his reply will confirm that the creation of a minimalist state which is not in any position to protect its weaker citizens is not part of the objective of this Government's trade policy.

8.33 p.m.

Lord Rea: My Lords, I too thank the noble Lord, Lord Razzall, for the timely choice of tonight for asking this Question. Noble Lords may be interested to hear that a report in that scurrilous newspaper the Guardian of 18th February quoted a source close to the talks on the MAI in Paris as saying that the MAI was "dead in the water for now." That was because of a failure to reach agreement on the agenda for a ministerial meeting in April by the negotiating team. As the noble Lord, Lord Razzall, said, the United States is one of the chief objectors to the form that the agreement has so far reached. It may be therefore that my noble friend will

18 Mar 1998 : Column 797

have plenty of time, as other noble Lords have said, to propose changes while the agenda is being worked out. There is also the chance that the impasse is so great that the agreement is truly drowned and cannot be resuscitated. I am sure that my noble friend will have something to say about that.

Before discussing the MAI, it is worth looking at the economic setting in which it is being negotiated. Although it will mainly be applied in the OECD countries where 85 per cent. of foreign investment takes place, like other noble Lords I want to concentrate on its impact on less developed countries. For the same reason as many NGOs with an interest in the developing world, I am in general wary of the effects of globalisation on the people of the poorest countries--and the poorest people in countries which are not so poor. Like those NGOs, I am concerned about the exploitation of the generally lower environmental regulatory standards of LDCs--I hope it is all right to use these acronyms in this select company--by both foreign and local investors, and the failure or inability of some countries to enforce even those lower standards. The rape rather than sustainable harvesting of the world's remaining rainforest is the best known, but by no means the only example.

Globalisation and GATT give transnational corporations a big head start because of their ability to undercut and out-perform small enterprises and farmers in all countries, not just LDCs. It is difficult, though not impossible, for independent small firms and farmers to build up their strength without some degree of protection, whether it be through tariffs, special regional grants, tax breaks, low interest loans or other assistance. The tiger economies and Japan all used those methods while building up their economic strength.

I am aware that globalisation is a fact and that sniping at it will have no effect. Of course, it enables a huge increase in trade and, to a lesser extent, wealth creation to take place which probably benefits the majority of us. But it is very much a system which follows the parable of the rich man and his three servants:

    "Unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath".

For our discussion tonight I should add "relatively speaking" because some of "those who have not" may actually obtain a job as a result of inward investment. However, in LDCs it will usually be a poorly paid job even if conditions in some transnational corporation projects are better than in local sweat shops.

In contrast, the TNC usually repatriates as high a proportion of its profits as it can; after all, that is why it is in business, though I am aware that some forward-looking firms contribute to social projects and causes in the countries where they operate and plough back their investments into them. However, it is large companies mainly based in the United States and Europe which gain most from the enormous economic activity that globalisation and GATT permits.

Karl Marx got it wrong in predicting the inevitable demise of capitalism through its internal contradictions. In fact, it has proved capable of survival and expansion

18 Mar 1998 : Column 798

because it has been much more adaptable than Marx thought. It has, usually reluctantly, agreed to the necessity of regulation, taxation to support a complex infrastructure, and conceded some hard won rights to workers. It has reached the mature phase of capitalism described as "imperialism" by Marx. But it is a far more subtle form of imperialism than the gunboat imperialism of the 19th century. It is much cheaper and more profitable to dominate other countries economically, with debt playing a big part, than to rule and police them ourselves, even indirectly. All European powers sooner or later realised that in the two or three decades after the 1939-45 war. I could develop that theme further, but in view of the limited time I will refrain.

The main question in my mind is whether the MAI can be categorised as a measure which increases the ability of capital, usually through the activities of the transnational corporations, to make profits and shift wealth from poorer countries to richer countries. Or is it a measure which can ameliorate the social and environmental impact of often extremely large foreign investments?

I know that my noble friend is working hard to achieve that latter purpose. But I am concerned that the MAI may be used to undermine the economic assistance and support that some countries, or local authorities in this country, may be giving to indigenous enterprises. In order to get some industrial or commercial projects up and running, they need a sheltered environment, just as a young tree needs a shelter to protect it from grazing animals until its trunk is strong and its bark is thick enough to withstand nibbling. My noble friend Lord Judd knows from my personal experience of this why I say that with some feeling.

I am concerned that this agreement may hinder the growth of indigenous enterprises as its rules will not allow countries to provide the economic sheltering measures which are needed to help them to take off because they will be regarded as discrimination against foreign investors. I hope my noble friend will be able to reassure me on this; that is, of course, if he thinks that the agreement can be revived at all.

8.40 p.m.

Lord Newby: My Lords, the MAI is a hugely important initiative for the UK, for the other OECD countries and for the developing world. It will, as the OECD's own documentation admits, limit national sovereignty to a degree. I am therefore very surprised that noble Lords who are usually extremely vigilant on the subject of UK sovereignty have not participated in the debate. It is to be hoped that they will return to it when they have learnt more about the subject. But the fact that they have not done so is itself evidence of the need for this debate.

Here we have in the MAI a major measure which will constrain the freedom of action of signatory countries. Yet despite the noble efforts of the NGOs and the activities of the Guardian, the extent of the debate so far in this country has been worryingly narrow. If the draft agreement were at an early stage of its consideration, this might not matter, but in theory at

18 Mar 1998 : Column 799

least the deadline for the completion of the negotiations and the completion of the agreement is extremely tight. That gives a number of causes for considerable concern.

First, as has been said by many speakers, the process to date has neither been as broad nor as open as it should have been. Only the world's most developed countries have been involved in the detailed negotiations even though the agreement is clearly intended to be extended to developing countries, and even though, to quote the European Parliament resolution adopted recently,

    "the draft ... reflects an imbalance between the rights and obligations of investors, guaranteeing the latter full rights and protection, while the signatory states are taking on burdensome obligations which might leave their populations unprotected".

The fact that many of the potential signatory states had not been involved in those negotiations casts a significant cloud over the negotiations themselves.

It is also clear that the NGOs have not been adequately consulted. In this respect it is instructive to compare the process during which the Kyoto convention was drawn up with the negotiations on MAI. At Kyoto, despite the chaos, or apparent chaos, of the negotiations in the last days and hours, every country had a say and the NGOs played a major role in brokering an agreement. It seems to me self-evident that such an agreement is much more likely to be durable, and to be applied and to work. The secrecy and exclusiveness of the MAI negotiations are therefore extremely worrying and it is hardly surprising that the developing countries and the NGOs smell a rat.

The second area of concern is that the likely impact of the agreement is still in some areas vague and in others the subject of serious dispute. It is instructive to hear the Government's response to specific issues which have been raised over recent months. My noble friend Lord Razzall referred to some of these. For example, on environmental standards, the Government in February, in the shape of the Minister, Barbara Roche, said:

    "we will continue to press for a binding commitment not to derogate from environmental and labour standards in order to attract specific investments".

Yet it is by no means clear today at least that on the environment and on other matters the Government's requirements have been met. Indeed, in the performance requirements section of Chapter 3 of the latest draft, paragraph 4--which confirms that contracting parties can continue to pursue environmental policies which protect human, animal and plant life and health--is in square brackets with the rather alarming footnote stating:

    "A majority of delegates see no need for paragraph 4".

It is also noticeable that the EU has called for an impact assessment of MAI to look at its social, environmental and development consequences. So far as I am aware, no such audit has been completed by any of the negotiating countries or any of the potentially contracting parties. At this stage of the negotiations, that seems to be a fairly major problem.

Many other areas of contention remain and many of them have been touched on this evening. For example, I agree with the noble Lord, Lord Rea, about the need to look at derogations to allow for support for fledgling

18 Mar 1998 : Column 800

industries. Those have been used to such good effect in Japan, South Korea and other countries in south east Asia. The effect of the agreement on the freedom of action of local government to pursue its social goals has also been raised by many organisations both here and internationally. Again, one feels that the draft does not deal adequately with this.

One particular area of concern for me is the unequal position in which the multinationals and the small developing states which might become contracting parties--the "vulnerable states" to use the Commonwealth jargon--will find themselves when disputes arise. In those circumstances, the multinationals have access to top quality, hugely expensive legal advice. A small, vulnerable developing country simply does not. It does not have the advice immediately at hand within its domestic bureaucracy and it is often constrained in terms of budget regarding the advice it can procure. The disputes panels themselves will almost certainly be drawn from a group of experts who come from the developed rather than the developing world and may indeed consist principally of experts from the country of origin of the multinational which is making the complaint. This disparity, when one gets to the dispute settlement stage, is already seen within the disputes settlement procedures of the WTO. It is causing significant concern there. If the MAI was to be introduced without some kind of equalisation measure, its credibility could be significantly undermined.

Like the principle of free trade, the principle of increased free flow of investment capital is one which we support and one which is highly desirable. We accept that there need to be anti-discrimination rules to deal with the problems set out by the noble Lord, Lord Ponsonby. Anyone who has done business in many countries of the third world and the former Soviet Union knows that arbitrary action by government--discriminatory action almost at a whim, depending on the view of the current minister in charge--can have a devastating effect on the ability of companies to protect their investment and to get a decent return.

Clearly, to the extent that the MAI protects investment flows from that kind of discriminatory action, we will support it. However, as with the principle of free trade, any lasting framework must be carefully put together and must contain derogations to deal with difficult cases. Some of those have been dealt with this evening. It may well be that an MAI can be produced which eases the free flow of capital while allowing countries adequate safeguards over legitimate areas of domestic policy making. It is, however, clear that the present draft is not such an MAI. More time is needed for a more inclusive debate.

I therefore ask the Minister to give us an assurance that the concerns expressed by the developing countries and the NGOs about the current draft will be addressed even at this late stage in partnership with them by drawing them into the further negotiations on the draft agreement. Will he further give an assurance that the UK Government will not sign the MAI until such further negotiations have been satisfactorily concluded?

18 Mar 1998 : Column 801

8.50 p.m.

Lord Mackay of Ardbrecknish: My Lords, this has been an interesting debate. I am sure that we are all grateful to the noble Lord, Lord Razzall, for raising it. It is an issue which has been aired on the Floor of the other place on a number of occasions since last summer, both in debate and at Question Time.

I am going to approach it from a slightly different point of view from most noble Lords who have already spoken. I start off by looking at the importance of foreign investment, not only for under-developed or developing countries, but also for developed countries. In this country we have huge inward investment which is especially important in areas of high unemployment. For example, the North-East of England has had considerable improvement in its economy and employment, thanks to inward investment. In Scotland, since 1981 over 100,000 jobs have been created or safeguarded, thanks to inward investment. The electronics industry, especially in Scotland, is of very considerable importance. In other parts of the country inward investment has recreated the motor industry and that is of considerable importance.

Some noble Lords who have taken part in debates on economics in the previous Parliament know the reasons why this country is attractive to inward investors. They are very important. Perhaps the Minister can remind us of the extent of inward investment into this country. My recollection is that we have a greater share of inward investment into the European Union than any other European Union country. Indeed, we get a fair share of inward investment from other parts of the European Union.

We are also--and this is important--large outward investors. We invest in many parts of the world beyond these shores. I understand that we may well be second only to the United States as outward investors. If that is the case I suspect that the European Union may be a greater outward investor than the United States. Perhaps the Minister can help me about that.

During the speeches this evening I occasionally wondered if all the words that we have exchanged in this House and the other place about the advantages of free and open trading and markets, were a little bit of throw-back to people who perhaps thought that free and open markets were not really the best way to proceed. Whether it be in the European Union or through GATT or GATS, which is trade and services, I believe that they were all important for the people who took part.

Perhaps the most important thing that many of us can do to help under-developed countries is not so much to put our hands in our pockets and give charity, as to put our hands in our pockets and buy their goods. I sometimes think that that is much more important. If they are to have goods for us to buy, not only must they have investment which is generated locally, but they also require foreign investment and expertise. That is a point which the noble Lord, Lord Ponsonby, made very dramatically about the countries emerging from the former Soviet empire.

18 Mar 1998 : Column 802

Therefore, what we are looking at tonight is a sort of GATT for inward investment. I cannot see anything wrong with the broad principles. When I first read them I wondered why anybody was arguing about them especially as, like other noble Lords, I became deluged by material from the NGOs and from the Guardian. Your Lordships will not be surprised to know that I am not too impressed about being bombarded with material from the Guardian, but I appreciate that some of your Lordships may consider that fairly close to Holy Writ and therefore one has to take account of it.

Distilling it all down, it seems to me the principles are that a country should treat foreign investors in the same way as it treats its own investors. I am sure that the noble Lord, Lord Clinton-Davis, will confirm that they should be treated neither less nor more favourably. As noble Lords have heard me say before, I do not believe in the level playing field otherwise the teams would not change ends at half time. We have to get as near to the proverbial level playing field as we can. So it is important that foreign investors are not treated less favourably or more favourably.

The other principle is that there should be no discrimination between countries as regards inward investment. There are a number of others. If a company invests in a country it must be able to take profits and dividends out of that country. I believe I detected that one of your Lordships was perhaps a little uneasy about that.

There is a suggestion from the NGOs' material and from the Guardian that somehow or other foreign companies can use MAI to go into another country and even a developed country such as ourselves. I have read letters in the Scottish press, clearly generated by the NGOs, suggesting that the new Scottish Parliament would have no power to say to foreign investing companies, of which we have many in Scotland, "You must abide by our regulations on environmental protection. You must abide by our health and safety laws and labour laws".

Nothing that I have read leads me to the conclusion that they could do anything other than that. I do not believe that they could take a Scottish Government, the United Kingdom Government or any government, to court if a government insisted that a company obeyed the rules and regulations which were common in that country for all companies operating in it. I do not believe that a multinational company could disgorge effluent into the Clyde, which would be illegal if it were a local company. I am sure that that is the case. Therefore, I have some difficulty with the attitude of the NGOs. The noble Earl, Lord Sandwich, knows a great deal more about these matters than I do. I was interested to hear that he also was a little puzzled about their attitude.

As I mentioned, the Guardian seemed to be running a bit of a campaign. I was particularly interested because it did not involve an under-developed country, but a developed one. It concerned a case in Canada involving the Ethyl Corporation of Canada and a product known as MMT. I hope that the noble Lord will help me because it is a good example of what was being said in

18 Mar 1998 : Column 803

the Guardian or the NGOs--I cannot quite remember where I saw the material. It said that the company was taking the Canadian Government to court because the company wanted to do things which the Canadian Government did not allow anyone else to do. It transpired that that is not quite true. The Canadian Government have not banned the material MMT, but its importation, which is slightly different. If MMT had been banned and no Canadian company could manufacture it or sell it, that appears to me to be perfectly sensible. The Government have every right to say to an inward investor, "You cannot do it either". But if in fact they are not doing that to their own indigenous companies, then it seems to me to be discrimination if they are doing that to incoming companies.

One thing that worried me--and it is slightly topical for your Lordships--is that in one of the Guardian articles was the suggestion that as regards predatory newspaper pricing, Mr. Murdoch had claimed that an amendment placed by your Lordships in the Competition Bill might in fact fall foul of any MAI. I suspect that it would not, because the law would affect an indigenous company if it decided to predatory price, just as much as an inward investing company.

I noticed that Clare Short said that there was no chance of signing by the end of April. I believe that she said that in the Commons just recently. From all that I have read I am pretty certain that that is the case; namely, that there will be no conclusion.

Can the Minister help me on a number of things? I am puzzled about the fishing question. I have a considerable background interest in the fishing industry. I certainly would be concerned if anything was to prevent us from coming to some sort of agreement with our European Union friends about the licensing of what are called "quota hoppers" in the future. I am also concerned about the position of the United States. I am always suspicious of them in trade matters. That comes from my experience, for a very short spell, as the aviation and shipping Minister. I have that in common with the noble Lord, Lord Clinton-Davis, who is to reply.

The United States runs a pretty extensive protection regime in these matters. Indeed, in aviation one of the great disputes between us is that foreign airlines just cannot get into the United States at all. One of the reasons why European airlines, like British Airways, want partnership agreements of one kind or another with American airlines is in order to get round the discrimination practised by the United States. Of course, that does not apply only to aviation; it is the same in merchant marine. No non-American shipping line can pick up cargo in one US port and take it to another. That seems to me to fall foul of any MAI that may be written. It will be an interesting test of the United States' determination and dedication to free markets to see whether it will abandon those two policies.

I understand that France has said that it will not sign if the US is given an exemption from the Helms-Burton law which enforces a boycott on Cuba also on non-US citizens and companies. I wonder whether the Minister can tell me whether the British Government agree with the French and whether they too will be digging in their heels on Helms-Burton.

18 Mar 1998 : Column 804

Noble Lords will not be surprised to hear me say that I am very much in favour of free markets. Some of your Lordships will have heard me speak previously on the European Union and the like. However, I am nervous--and not only on behalf of the weakest countries in the world; that nervousness springs also from the fact that very powerful players will be looking for exemptions for themselves when they should not be doing that. If they are seeking exemptions, they should be doing so for the least powerful countries in order to allow them the opportunity to develop.

We in this country run a pretty open system when it comes to trade policy--we have done so for generations--and to investment. Ensuring such an open system world wide should be our aim. I believe that the stronger we can make world trade, the better world trade will be and the more opportunities the poorer countries will have to catch up with the kind of economic development that we take for granted.

9.1 p.m.

Lord Clinton-Davis: My Lords, first, I congratulate the noble Lord, Lord Razzall, on raising this important subject which, in my view, has not been sufficiently debated in Parliament, but that is not the fault of the Government. It is a pity that these issues are often shrouded with a degree of generality which tends to spoil some of the arguments.

I assure the noble Earl, Lord Sandwich, that I speak on behalf of the Government. Although I happen to be a Minister at the DTI I assure him that we are totally ad idem with the Department for International Development on this. I say at once that there has been an undoubted change between the negotiating posture adopted by this Government and that of our predecessors.

A number of noble Lords have referred to issues of social abuse and to the environment. We have pursued those matters vigorously and we intend to continue so to do because we have to be satisfied that those issues are being appropriately addressed in the further discussions and negotiations that are to take place.

Although I have engaged in, I think, quite fruitful discussions with a number of non-governmental organisations, I am disturbed by the sort of generality to which I have just alluded where, somehow, some perceive every multinational organisation as something tremendously malign. I have even heard it suggested that the apartheid regime in South Africa could not have been destroyed if MAI had been in existence. Such arguments cause the mind to boggle somewhat. The fact is that the importance of what was done by American multinationals in particular probably did almost as much as anything else to destroy that corrupt regime. We must get this matter into some reasonable perspective.

Several noble Lords, not least the noble Lord, Lord Mackay, have referred to the importance of the flow of investment across national borders. It is important; it is an integral part of economic reality globally and, usually, it is a very welcome prospect. As noble Lords have said, the United Kingdom is a significant source and recipient of investment. The noble

18 Mar 1998 : Column 805

Lord, Lord Razzall, said that at the beginning. Our economy would certainly be much weaker, and it would be very different, if we had not received the contributions made by companies the world over. We are the second largest source of outward direct investment to developed and developing countries alike. That is a fact that we must not overlook. In fact, only the United States invests more overseas than we do, so we have a strong interest in being able to create a framework in which foreign investment can prosper and make its full contribution to the global economy.

It must never be forgotten that for developing countries attracting foreign investment is absolutely crucial if they are to achieve greater stability, be able to diversify their often fragile economies, provide jobs and improve the welfare of their people. I believe that they look at this somewhat differently from some NGOs and from the attitude taken in some of the articles in, for example, the Guardian recently.

As my noble friend Lord Ponsonby said, what is essential for stimulating and maintaining overseas investment is the assurance that it will not be subject to discriminatory and unreasonable treatment which can only have an unsettling and adverse effect. Therefore, I say absolutely unequivocally that for us and, I think, for many others involved in the negotiations, non-discrimination has to be the essential underlying point about MAI. My noble friend Lord Ponsonby described most graphically some of the problems that can arise. He did so from his own experience of the activities of a multinational for which he was working. As the noble Lord, Lord Mackay, put it, the principle about non-discrimination is that foreign investors should be treated no less well than domestic investors or each other.

Of course, multinationals must have respect for the domestic law. They are answerable to the courts in the countries in which they are operating. A noble Lord referred to the inequality of representation. Some people had the misfortune to instruct me, in my previous incarnation, as their solicitor while others went to more powerful firms. Curiously, sometimes I won. I am afraid that that is a fact of life that cannot be avoided. It happens in this country and all over the world. I believe that the argument about expropriation to which my noble friend has referred is absolutely right.

An interesting point was made by my noble friend Lord Judd who has enormous experience in this field in view of his work with Oxfam and as a former Opposition Front Bencher in this House, whose work I enormously respect. He and I have been involved in a number of campaigns. He referred to a form of creeping expropriation. I have not heard it put in quite that way. None of the NGOs with which I have had dealings has put it in those terms; but it is an interesting prospect that must be looked at carefully.

The repatriation of profits is extremely important. I vividly remember when dealing with transport matters that British Caledonian was virtually brought to its knees because it could not repatriate profits from West Africa. Do we want to have that kind of situation? Should there not be some framework to ensure that a

18 Mar 1998 : Column 806

company which takes the trouble to invest in poverty-stricken countries has recourse to the moneys that it has built up? Of course, it cannot behave in an excessive manner, but I do not believe in that particular case that was the situation. We support these basic principles; but there are some important issues on which we seek greater satisfaction. I shall return to those in a moment.

If an agreement can be reached which increases confidence and security for foreign investors, if our specific concerns are properly addressed and if the detailed terms are right, we shall sign it. It is quite clear that there is some way to go. At the present time there is something of an impasse. I am not convinced that if all of this is adjourned generally with liberty to restore (if I may put it that way) we shall return to a better state of affairs. It will give us more time to negotiate, but sometimes delays can have an adverse affect. In many instances, the best results can be achieved when minds are concentrated on the essential issues.

It is true that the time limit for the OECD ministerial meeting was extended until April 1998; but at a high level meeting which took place last month to prepare for that event the United States said that it was not ready to reach an agreement. But all of the OECD countries accepted that they should intensify their efforts to resolve outstanding issues with a view to making as much progress as possible at the April meeting, and that OECD Ministers should then decide what to do next in the light of that progress. For us in the United Kingdom the most important outstanding issues are: the treatment of environmental and other regulatory issues; the question of labour standards; and the listing of exceptions by which countries may reserve the right not to accept MAI non-discrimination obligations in full in particular sectors or in relation to categories of governmental activity.

I should like to make it plain that we have moved a great deal since May. We have taken the lead in the discussions that have taken place in ensuring that the MAI will not undermine regulation in these areas. That is essential and attainable. Since all participants in the negotiations now recognise this need, it is a most encouraging sign. First, we have pressed hard that unambiguous affirmation in the MAI of commitments to sustainable development and core labour standards, as dealt with by the ILO, is a matter of great importance to us. Secondly, the close association between the MAI and the OECD guidelines for multi-national enterprises--collective recommendations by OECD governments to multinationals on good corporate behaviour--is no less significant. Thirdly, there must be a strong and binding provision to avoid the waiving of environmental or labour standards as an inducement to attract particular investments. The majority now share our strong line on these points, but a minority remains to be persuaded. If we are successful I believe that the MAI will become the first trade or investment agreement with such substantive provisions. However, all negotiating parties agree that it must be clear in the MAI that normal government regulation of environmental, labour, health, safety and all other fields will be unaffected and unimpeded by the agreement.

18 Mar 1998 : Column 807

I should also mention that it was this Government who proposed a review of the MAI and environmental policy. It is not correct to say that all that is shrouded in secrecy. Five of the developing countries have been there as observers, and eight have been closely involved. The other factor that is important is that internally at least I and my officials have been at great pains to consult the NGOs, companies, commercial interests and trade unions to keep them fully abreast of what is happening. I have had several meetings. I propose to have another one before the discussions take place in April. We will also review the position with them after that. Can I do any more about that? They have been kept abreast of the situation, and it is my intention that that should continue.

I should like to put on record, because I was particularly attacked in what I thought was a somewhat malicious article in the Guardian, that I have some credentials in this field. I was European Commissioner with responsibility for the environment for four years. I have been involved with NGOs, including environmental ones. Those are causes which I hold close to my heart today. The Government are determined to ensure that there is no risk that there will be an undermining of environmental protection and labour standards. I have said that again and again.

Far from being a threat to those matters, I believe that the MAI provides a useful opportunity to encourage all participants to raise their standards. We do not believe that it would be right or practicable to make the MAI a mandatory instrument whereby particular environmental or labour standards would be imposed on other countries. The developing countries would not want that to happen, because there would then be a real risk that potential members would be deterred from joining, without achieving any improvement in standards. So the Government are working hard to raise international labour and environmental standards in the appropriate fora.

I shall deal now with some of the other questions which were raised. One noble Lord mentioned lowering standards to attract investment--a downward spiral of deregulation. I have already dealt with that. The noble Lord, Lord Mackay, raised a concern about the Ethyl case. I do not want to become involved in what is an extremely complicated matter. I cannot easily summarise the position, but if the noble Lord wishes me to write, I shall do so. He can tell me about that later.

On the subject of fisheries, there is no question of our current policies being affected by the MAI. On the subject of air services and the Jones Act on maritime services to coastal ports in the US, I rather share the noble Lord's view. We have discussed those matters privately on many occasions. I find them offensive. The claims made in relation to Helms Burton and the ISLA for extra-territorial jurisdiction are unacceptable to us, and we have made that clear to the US through the EU. There is complete agreement on that matter so far as concerns the EU.

One of the questions that arose related to exceptions. The Americans have asked for a large number of exceptions, including a sweeping exception for all

18 Mar 1998 : Column 808

subsidy programmes, present and future, retaining the freedom to deny to non-US-owned companies subsidies which they offer to US-owned companies. That could represent serious damage to our interests. So the EU, under our presidency, has been pressing the US hard on that point. In fairness, the US has complaints against some proposed European exceptions. Although we have been able to make some progress, there is still a significant gap. At the end of the day we will all need to be satisfied about the balance of commitments. A package has to be reached, of course. If that is not achieved, there will be no agreement.

I should deal also with the issue of investors being allowed to challenge the state. Some people have viewed that with great horror. I cannot understand it myself. It is not a threat to democracy. Private interests can and do mount legal challenges to state decisions in this country, as both governments know only too well. They do it in other democracies, and binding international arbitration for investor-to-state disputes has existed for many years in the UK's numerous bilateral investment treaties. What is new in the MAI is binding international arbitration for investor-to-state disputes in a multilateral agreement over a range of issues wider than in existing bilateral treaties. There is some advantage in that.

A point was raised about local government or regional development agencies. We have consulted local authorities and they have raised no problems about the issue. No developing country will be required to enter into the MAI against its will. Many of the more advanced developing countries found it to be an attractive opportunity. Argentina, Brazil, Chile, Hong Kong China and Slovakia already have observers at the negotiations and are keen to join at the earliest possible stage. They do so because they understand that inward investment is critically important to them.

We do not want to see the interests of the poorest countries damaged. We are not in the game for that purpose. We want to see opportunities opening out to the developing world as a whole. We are placing in the Libraries of both Houses copies of a document showing that, at the suggestion of the United Kingdom in the negotiating group of the MAI last year, all OECD members are reviewing the compatibility of national laws relating to the environment with the MAI. The result of our review--that there is no incompatibility--will be placed in the Library tonight. There is general agreement among negotiators that there should be language in the MAI to clarify that normal, legitimate government regulations, including that on the environment, are not adversely affected by the MAI. The next major stage in the process will be the meeting in April when OECD Ministers collectively can have the opportunity to review progress and the prospects of achieving a satisfactory agreement.

I welcome what has been a balanced debate and I thank the noble Lord for initiating it. I hope that I have done some justice to most of the points that were raised. In a debate of this kind--and I recognise that I must sit down in a moment--it is not easy to answer every point. However, we will consult more widely. I take on board that there may well be room for improvement in the

18 Mar 1998 : Column 809

whole structure of consultation. I am delighted that many of your Lordships took the view that I should apply that concept, and I will do so.

In our presidency role, we will be co-ordinating our plans with our European partners. As regards the domestic side, next week I shall meet the main NGOs following previous meetings. It is my desire that Parliament should be kept thoroughly informed. The best way to achieve that is for Questions to be tabled about the issue. I shall not do so; that is for others. I wish to underline our view that this is a potentially useful agreement. We must get it right and we will support it so long as it is in the right terms.

Lord Rea: My Lords, before the noble Lord sits down--we have about one minute--can he amplify his answer to a question raised by the noble Lord,

18 Mar 1998 : Column 810

Lord Newby, and I about derogation for fledgling industries? Will it be handled through exceptions or in a general way?

Lord Clinton-Davis: My Lords, in the European Union in negotiations which take place with countries seeking accession, we are used to recognising that they cannot all immediately take on board the obligations which fall on them in accepting the acquis communautaire. The same principle will arise in this case. We recognise that we must be practical about such matters. There is no use in introducing legislation which can have no real effect because countries and organisations are not ready to implement it. One needs training programmes to help in that respect. However, derogations are commonly recognised and I see no reasons why that should not be the case in this respect.

        House adjourned at twenty-four minutes past nine o'clock.

Next Section Back to Table of Contents Lords Hansard Home Page