Investment agreement hurts democracy

Published: Tuesday, December 1, 1998

Tuesday, December 1, 1998

CORPORATIONS: Proposed treaty gives business excessive power, threatens environment, freedom

By Ellie Cijvat

Imagine a world where the Clinton administration, the House of Representatives, the Senate, the government of California, the Los Angeles City Council and every other elected body is subject to the whims of any corporation - by law. It might be hard to imagine, but it is actually not that far away; a worldwide treaty is being negotiated at the moment to take care of that - namely the Multilateral Agreement on Investments (MAI).

The MAI is a NAFTA-like agreement, but is even broader in scope and is to be applied worldwide. It is based on the principle that one company (investor) cannot be favored above others. If a company feels discriminated against, it has the right to sue the body it feels is discriminating against it (mostly federal or local governments, since they decide about allowances and possibly apply restrictions to the settlement of companies). The consequences of this principle are enormous.

But first let me give a historical overview of the MAI negotiations.

A couple of years ago, the 29 wealthiest countries in the world, united in the Organization for Economic Cooperation and Development (OECD) and started to secretly discuss a trade treaty that would give investors the right to freely move assets from one country to another. Predictably, the negotiators agreed on having a broad definition of "investors," "assets" and "freely".

After this treaty would be ratified by the 29 developed nations, other (developing) countries would be asked to sign up, so that their markets would open to investors, and everybody would profit (according to the negotiators).

But it didn't go as smoothly as they expected. About a year before the supposed completion date (set to be in April of 1997), a draft version of the treaty accidentally became public and caught the attention of some non-governmental organizations concerned about free-trade agreements. These organizations started to raise objections to the implications of such a treaty (although not formally counseled, of course) and gained just enough momentum to delay the completion of the MAI. At the same time the 29 negotiators started disagreeing about details more and more.

This is where we are now:

The MAI negotiations have not been completed yet, and a decision will be made soon whether to continue with the MAI within the OECD, or move it to another organization such as the World Trade Organization - or stop the negotiations altogether. This last option is not very likely; most probably, the second option will be chosen. In this way, a fresh start can be made and the developing nations will have the illusion of being involved in the negotiations.

Now, back to the consequences of the MAI. First, the implications of having broad definitions of "investors," "assets" and "freely" are that basically any kind of organization (from transnational corporations to single-person companies to pseudo-governmental institutions) can start a branch in another country without any restrictions - such as having to hire local people, use a part of the local profit to invest in the local community, or having to stay for at least a certain amount of time on the same spot. This opens the road to large-scale speculations, similar to the ones that have caused the economic crisis that is making a trip around the world at the moment. So it is very unlikely that every country will profit from the MAI, to say the least.

A second implication has to do with the "settling of disputes" between investors and governments. A dispute can occur if an investor claims that his profit has decreased as a result of governmental legislation. The investor can then ask for compensation for the loss and for the withdrawal of the legislation, even if this legislation has been established long before the ratification of the MAI. The committee that is supposed to judge the dispute will not be democratically elected, will not have responsibility to a democratically elected body nor be subject to "openness of government."

The two mechanisms described above are likely to create conflicts in an ethical sense. Take, for instance, labor rights: if it is very easy for a company to move abroad, the management might be tempted to put pressure on employees or unions in order to lower the labor standards, keep the wages low or de-unionize the company.

In addition, institutional boycotts would not be possible anymore under the MAI. Remember the boycott of companies doing business with South Africa in the 1980s; maybe apartheid would still rule now had the MAI existed then.

Then there's the environmental issue. If a company loses money as the result of an environmental law (because they have to make new investments, change their product or even withdraw a product from the market), they will have the right to sue the government that issued the law.

This situation is likely to occur when two countries have disagreeing environmental standards - a company already established in one country will claim that another country is blocking its expansion. The result of the dispute-settling mechanism will be that (worldwide) the environmental standards will be lowered to the smallest common denominator. Needless to say that this would mean a giant leap backwards for the environment.

This environmental backlash of the MAI is exemplified by the case of Ethyl Corp. versus. the Government of Canada. Ethyl Corp. is a U.S.-based company which makes methylcyclopentadienyl manganese tricarbonyl, an additive for gasoline that is forbidden in most states. The Canadian government issued a law prohibiting the use of this toxin in gasoline, but with NAFTA provisions on their side Ethyl Corp. sued the Canadian government, asking for 340 million Canadian dollars in compensation. The Canadian government didn't dare to take the risk and decided to settle for 20 million Canadian dollars, withdrawing the law and writing an apology to Ethyl Corp.

This is just one outrageous example of corporations having more power than democratic governments. In addition to the MAI being undemocratic and a threat to the environment and labor rights, there are some other nasty details. Once a country signs the MAI, it is bound to the treaty for at least 20 years. Third World countries could be forced to join the MAI if they want to receive support from the International Monetary Fund, even though they have had no voice in the MAI negotiations.

In summary, it is clear that the MAI is a huge threat to democracy. The consequences of the MAI for the environment and labor rights will be disastrous, both in developing nations and developed nations. As a result of the MAI, economic crises such as the one going on right now will be even more likely to occur. The MAI must be stopped, and fair trade should be considered, instead of the unlimited free trade as proposed in the MAI.

UCLA's Environmental Coalition believes it is important to inform people about the MAI and other globalization issues, and about their potentially disastrous consequences. Therefore, we are organizing a forum debate with Lori Wallach, Mark Weisbrot and Deepak Lal, on Thursday at 7 p.m. in Kerckhoff Hall.

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Investment agreement hurts democracy

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