Corporate Europe Observatory on Thu, 12 Feb 1998 10:52:36 +0100 (MET)

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[this is part one out of a series of five postings... shall we put the
other parts as well on nettime? geert]


                      Citizens and the Environment
               Sacrificed to Corporate Investment Agenda

                           February 1998

           (see copyright notice at the bottom of this file)

   This CEO briefing on the corporate agenda behind negotiations
   over an international investment treaty was brough to you by
   Belen Balanya, Ann Doherty, Olivier Hoedeman, Adam Ma'anit and
   Erik Wesselius.

   A web edition of MAIGALOMANIA (including direct links to
   information sources) is available on the ceo web site.
   Point your browser to



   Secrecy, haste and intrigue have characterized the negotiations
   around the Multilateral Agreement on Investment (MAI) -- the
   latest plan of the economic globalization elite for dismantling
   barriers to investment all over the world in the quest for a
   progressively more open global economy. All of the regional and
   global economic liberalization pacts born in the past decade --
   the World Trade Organization, NAFTA, the European Union, Mercosur
   and so forth -- will pale in the face of the mighty MAI.

        "Investment is a desirable and desired thing...
        Nonetheless, governments still sometimes find it
        threatening, because free direct investment limits
        administrations' ability to control and shape their
        countries' economic destiny. This is a small price to
        pay for allowing private sector decision-makers to
        generate economic benefits worldwide. But it is a
        price that some governments in some sectors still find
        difficult to pay. That is a tragedy." [1]

        (European Commissioner Sir Leon Brittan)

        "The preponderance of restrictions on foreign investment
        lie outside the OECD area ... Business needs
        the benefits of an international regime to include the
        fast-growing counties of Asia, Central and Eastern
        Europe and Latin America." [2]

        (The International Chamber of Commerce on the MAI)

   Corporate Empowerment

   An analysis of the forces behind any of the recent trade and
   investment regimes reveals that transnational corporations (TNCs)
   -- working both nationally and in international coalitions -- are
   active proponents of the prying open of markets and the removal
   of barriers to trade and investment. That is certainly the case
   in the ongoing OECD negotiations on the MAI. A total of 477 of
   the world's 500 largest TNCs are based in OECD countries and most
   of these are organized in groupings like the International
   Chamber of Commerce (ICC), the US Council for International
   Business (USCIB) and the European Roundtable of Industrialists
   (ERT). All of these corporate lobby groups have been directly or
   indirectly involved in the shaping of the MAI. The reason for
   their interest in a global investment treaty, intended as much
   for Third World countries as for the OECD states negotiating the
   agreement, can be found in the increasing percentage of corporate
   investment that flows in a southerly direction.

   Furthermore, TNCs are tightly allied with the neoliberal
   politicians governing most of their home countries, and generally
   play a considerable role in both national -- and increasingly
   international -- policy-making. The 1994 completion of the
   Uruguay Round and the creation of the World Trade Organization
   (WTO) was a great victory for TNCs, which together with their
   governments lobbied for the removal of national barriers to the
   flow of goods and services. The next logical corporate challenge
   has been the creation of a treaty which, by dismantling barriers
   to investment, would provide investors with a so-called "level
   playing field" across the globe. The various provisions of this
   Multilateral Agreement on Investment would ensure the most ideal
   investment conditions for TNCs -- including homogeneous and
   transparent legal and regulatory frameworks, the standardization
   of diverse local and national conditions, and best of all, the
   right to recourse when corporate profits or reputations are

   The Losers

   The agreement will grant TNCs with extensive new powers while at
   the same time denying governments the right to control foreign
   direct investment in their countries. The rules and regulations
   which hinder foreign investment and will be dismantled under the
   MAI are often those that protect workers and jobs, public
   welfare, domestic businesses, the environment and culture. By
   subverting national and local priorities to the needs of foreign
   investors, the MAI poses a dangerous threat to democratic
   political processes. The impacts would be the most devastating on
   poorer countries, which would have no chance to build up a
   balanced economy or break their reliance upon commodity export
   and resource extraction in the service of industrialized
   countries and their corporations. Consequences within OECD
   countries will be different but also dramatic.

   Third World Under Siege

   Third World Opposition against the MAI and other attempts to
   impose MAI-style policies has been considerable. Simultaneous to
   the launching of OECD MAI negotiations, the EU-led attempt at a
   flying start for a MAI-clone treaty, called MIA, within the World
   Trade Organisation was obstructed by countries like India and
   Malaysia. They could not, however, prevent the creation of a WTO
   working group on investment -- in which the EU and others
   continue to push for the commencement of MIA negotiations. The
   OECD countries have adopted a multifaceted strategy to reach
   their aim of investment deregulation in the South, including
   tempting Third World countries to sign on to the MAI, keeping an
   investment treaty on the burner in the WTO, and using other
   international institutions like UNCTAD and the IMF to further
   their objectives.

   The most recent offensive for investment deregulation was
   announced by EU Commissioner Sir Leon Brittan, who in early
   February of this year informed the world that negotiations on
   a Trans-Atlantic free trade zone, involving the EU and the US,
   might be launched already in May 1998. [3]

   Race Against Time

   After a smooth first year and a half of negotiations, the MAI
   entered a far rockier phase in early 1997. Problems arose due to
   demands by OECD countries for an increasing number of
   reservations and sectoral carve-outs, and also with the high
   speed emergence of anti-MAI campaigns in one OECD country after
   another. Although serious preparations for the MAI had already
   begun in 1991, non-governmental organizations representing
   environment, development, women and other sectors sure to be
   impacted by the MAI were not consulted until October 1997. The
   negotiators are now embroiled in a race against time in order to
   avoid another postponement of negotiation deadlines, a delay that
   might mean the kiss of death for the MAI. That would be a happy
   ending indeed for a treaty that would tie its signatory countries
   to the unfettered "free" global market economic model for 20
   years. There would be every reason to celebrate the failure of a
   treaty that would increase competitive pressure on wages and
   policies, facilitate relocations, and ban many of the policies
   desperately needed to strengthen local economies and reduce
   general dependency on transnational corporations.
    ________________________________________________________________   |                                                                |
   |  The OECD                                                      |
   |                                                                |
   |  The Organization for Economic Cooperation and Development     |
   |  (OECD) is an intergovernmental organization with 29 member    |
   |  countries. More than simply a regional body, the OECD         |
   |  defines itself as "a homogeneous entity" within which member  |
   |  countries share similar economic and political ideologies.    |
   |  [4] Members include all EU states plus Switzerland, Norway,   |
   |  Iceland, the Czech Republic, Hungary, Poland, Turkey,         |
   |  Australia, the United States, Canada, Japan, South Korea,     |
   |  Mexico and New Zealand.                                       |
   |                                                                |
   |  OECD decision-making happens within a "system of consensus    |
   |  building through peer pressure." [5] Essentially, this means  |
   |  that member countries ensure that other members stay in line  |
   |  with current OECD policy and direction. Much of this policy   |
   |  and direction is the product of various committees, which     |
   |  seek to "knit a web of compatible policies and practices      |
   |  across countries that are part of an ever more globalized     |
   |  world."                                                       |
   |                                                                |
   |  Although often described as an intergovernmental think tank,  |
   |  the OECD is in fact more than that. Member countries send     |
   |  experts and policy makers to join specialized groups and      |
   |  committees on approximately 200 subject areas. Such           |
   |  committee discussions often result in formal treaties and     |
   |  agreements in areas such as international investment,         |
   |  capital movements and environmental policy.                   |

   What's in the MAI?

   In sum, the MAI would require countries to open their economies
   wide to any interested investor, and TNC complaints about
   unfavourable treatment by the host country would be judged in
   unaccountable international courts. The main elements of the
   agreement are as follows:

    * The MAI would encompass an extremely broad range of
      investments. Not only direct corporate investment, but stocks,
      bonds, loans, debt shares, intellectual property rights,
      leases, mortgages and concessions on land and natural
      resources would be covered. The health, education,
      communications, cultural, banking and construction sectors
      would all be fair game for foreign investors; in fact, the
      only exempted sectors would be defense and police.

    * The MAI is based on the principles of national treatment and
      most favoured nation (MFN). In plain language, this would
      require governments to treat foreign investors as well or
      better than domestic investors, and thus would automatically
      favour transnational investment over that of smaller, domestic
      companies. Restrictions placed by countries on foreign
      investment in sensitive sectors -- for example publishing in
      Malaysia, Indonesia and Venezuela, forestry, fishing, mining
      and agriculture in a number of countries, as well as toxic
      waste in Colombia and highly polluting industry in Taiwan --
      would be prohibited.

    * The MAI would do away with so-called performance requirements,
      measures designed to protect workers and communities. For
      example, government requirements for a minimum number of local
      people being employed in a foreign firm, the use of a certain
      percentage of domestic products, technology transfer and so
      forth would become illegal under the MAI.

    * By banning restrictions on the excessive flow of capital in
      and out of countries, the MAI would increase speculative
      short-term investments of the type that caused the 1994
      Mexican peso crisis and recent stock market crashes in
      Southeast Asia.

    * Unlike other multilateral treaties, the MAI would include a
      dispute settlement mechanism to allow investors to sue
      national and local governments for expropriation. This
      mechanism, which grants powerful TNCs the right to challenge
      local and national legislation emerging from democratic
      political processes, is an extremely dangerous political
      precedent. A ruling of expropriation, which the MAI defines
      not only as loss of income but also of reputation, requires
      states to financially compensate the investor and/or to reform
      laws. The arbitration panel would consist of a few trade
      experts working behind closed doors, beyond public scrutiny.
      The ramifications of this provision upon national
      environmental, health and safety regulations are enormous, as
      exhibited by an ongoing case under the NAFTA in which the US
      Ethyl company is suing the Canadian government for US$ 250
      million, claiming lost profits and reputation due to the
      banning of a toxic gasoline additive.

    * The MAI would in effect lock signatory countries into the
      agreement for a 20 year period. A country can withdraw from
      the MAI only after five years, and companies investing in that
      country are covered under treaty provisions for an additional
      15 years.

    * The MAI also includes the dangerous provisions of standstill
      and roll-back. Standstill prohibits signatory countries from
      introducing new laws or policies which contradict the MAI --
      this would have a crippling effect on national environmental
      and social policy. Roll-back is the procedure by which
      countries will be forced to open up protected areas and remove
      laws considered in violation of the MAI. OECD countries have
      identified 1000 pages of exemptions which would eventually
      have to be rolled back -- ranging from Austria's exemption of
      its chimney sweeping industry to social services in the United

    * The provisions of the MAI would contradict several
      international agreements signed by governments, including the
      Climate Convention and its Kyoto Protocol and the Convention
      on Biological Diversity.

    * The MAI will be a freestanding international treaty, open to
      accession by non-OECD countries, which means that countries
      can sign on a take-it-or-leave-it basis, only allowing
      time-limited reservations. At least 10 non-OECD countries have
      expressed interest in joining the MAI from the beginning,
      including Argentina, Brazil, Chile and most likely Hong Kong,
      Colombia and the three Baltic States: Estonia, Latvia and
      Lithuania. Also Egypt is expected to join. [6]

                      Some Background Information                   

   Global foreign investment was at an all time peak in both 1994
   and 1995, and the 10 percent worldwide growth in foreign
   investment in 1996 was also remarkable. Overall, foreign
   investment growth rates exceed global GNP growth rates (6.6
   percent per year) as well as increases in international trade
   levels (4.5 percent per year). But even the breathtaking US$ 349
   billion total for foreign direct investment in 1996 does not
   capture the breadth and depth of economic globalization. In the
   same year, TNCs invested a staggering US$ 1,400 billion in
   countries in which they are already represented. This development
   -- the increased presence of TNCs in local economies as a
   strategy to ensure market control -- has been labelled
   "glocalization". [7]

   TNCs Taking Over

   There are in total some 44,000 TNCs in the world, with 280,000
   subsidiaries and an annual turnover of US$ 7,000 billion.
   Two-thirds of world trade results from TNC production networks.
   The share of world GDP controlled by TNCs has grown from 17
   percent in the mid-60s to 24 percent in 1984 and almost 33
   percent in 1995. [8]

   In a parallel and related process, the largest TNCs are steadily
   increasing their global market shares. According to UNCTAD's 1997
   World Investment Report, the ten largest TNCs now have an annual
   turnover of more than US$ 1,000 billion. Fifty-one of the world's
   largest economies are in fact TNCs. Continuous mergers and
   take-overs have created a situation in which almost every sector
   of the global economy is controlled by a handful of TNCs, the
   most recent being the service and pharmaceutical sectors. In
   January 1998, for example, the largest business merger in history
   took place in a US$ 70 billion deal in which Glaxo Wellcome and
   SmithKline Beecham became the largest pharmaceutical company on

   Moving On

   The European Union, the US and Japan are responsible for 85
   percent of all outgoing foreign direct investment (FDI - 1996
   figure). Apart from Korean-based Daewoo, all of the 100 largest
   TNCs are based in this wealthy triad. To date, this triad has
   also received the bulk of FDI -- nearly 3/4 in 1996. But the new
   trend is clear: TNCs based in the triad plan to step up their
   investments abroad and particularly in the Third World. More than
   half of all TNCs anticipate that the share of their turnover
   earned abroad will exceed 60 percent before the year 2000. In
   1997 only 28% of the TNCs were that globally oriented. TNCs have
   already indicated their favourite targets for investment: in
   1996, China received 1/3 of all FDI in the developing world and
   the remaining Asian countries received approximately the same. In
   Latin America, Brazil led with US$ 9.5 billion FDI in 1996,
   followed by Mexico and Argentina. Africa (minus South Africa)
   received only US$ 5.3 billion that year, of which the oil
   producing countries raked in 70 percent.

   Competitive Deregulation

   The surge in investment in the Third World can be attributed to a
   few key factors:

    * trade liberalization and low transport costs which make it
      possible to supply any market from anywhere in the world;
    * the low wages and access to cheap raw materials available in
      the Third World and former communist countries;
    * the need to win new markets after the North has been
      "saturated" (resulting in "low" growth);
    * the removal of barriers to foreign investment in many Third
      World countries, in part through bilateral and regional
      investment agreements;
    * and the increased competition to attract FDI which leads some
      countries to lower or freeze labour and environmental
      standards and to offer corporate subsidies and tax holidays.

   This competitive deregulation and increase in corporate welfare
   is also visible in the North. According to UNCTAD, corporate
   taxes within the OECD have decreased from 43 percent in 1986 to
   33 percent today, and many EU countries are caught in a downward

   Lifting All Boats?

   The OECD claims that economic globalization in general and
   increased foreign investment in particular will improve living
   standards all over the world. However, the experiences of
   countries which have removed all barriers to foreign investment
   by joining free trade agreements are quite different. For
   example, since Mexico signed the NAFTA, real wages in the country
   have dropped 45 percent, two million people have become
   unemployed, and the percentage of the population considered
   "extremely poor" has risen from 31 percent in 1993 to 50 percent
   today. [9] It has been demonstrated that those who suffer most
   from the conditions created with these free trade agreements and
   the consequent emergence of free trade zones are women and

   UNCTAD's 1997 Trade and Development report concludes that
   globalization in its current shape is responsible for a dramatic
   increase in global inequality. In 1965, the average personal
   income in G-7 countries was 20 times that in the seven poorest
   countries in the world. In 1995, the gap was 39 times as large.
   Polarization and income inequalities are also growing within
   countries: the share of income going to the top 20 percent of the
   population has increased almost everywhere since the early 1980s.
   UNCTAD blames the liberalization of market forces for these
   developments, and considers the current situation inevitable
   until regulation of the economy is put back on the agenda.

   The Art of Job Killing

   Although TNCs present themselves as creators of wealth and
   employment, the figures reveal something different. In fact, one
   of the main characteristics of a competitive and successful TNC
   is the "shedding" of jobs. Between 1993 and 1995, global turnover
   of the top-100 TNCs increased by more than 25 percent, but during
   this same period the same companies cut 4 percent of their global
   workforce of 5.8 million -- over 225,000 people. [10] TNC
   tendencies towards mergers, relocations, automatization and
   centralization of production and distribution are recipes for job
   losses. A part of the obsolete workforce might be employed by
   subcontractors, a "trouble-free" source of labour which TNCs
   increasingly make use of. Subcontractors are often skilfully
   played off against each other, resulting in lower prices as well
   as reduced wages and worsened working conditions. Another
   unfortunate fact about FDI is that it very often leads to the
   buying up and restructuring of local companies so that they can
   produce more with fewer employees. Around 2/3 of all FDI in the
   period 1986-92 consisted of mergers and take-overs. [11]

   The sad truth about TNCs is that the increased growth,
   investment, monopolization and concentration upon which they rely
   -- as well as the resulting job losses and environmental
   degradation -- are a structural characteristic of the current
   neoliberal economic model. However, the voices calling for a halt
   to this endless pursuit of deregulation are growing louder, and
   are more often coming from unexpected sources. UNCTAD's World
   Investment Report 1997 ends with a warning to world leaders that
   the activities of TNCs and their market powers can in fact
   undermine the health of the global economy.


   [End of Part 1]

   Copyright: Corporate Europe Observatory, February 1998

   We encourage you to spread this briefing or to use the information
   contained in it. In the latter case we would very much appreciate
   if you could send us a copy of your article or publication.

   If you have any questions and/or remarks regarding this briefing,
   please contact Corporate Europe Observatory
   c/o Prinseneiland 329, 1013 LP  Amsterdam, Netherlands
   Tel/fax: +31-30-2364422, E-mail: ceo@xs4all

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