This evolution is doubtless irreversible.
Furthermore, the development of the Internet has shaken up the environment of the negotiations. It allows the instant diffusion of the texts under discussion, whose confidentiality becomes more and more theoretical. It permits, beyond national boundaries, the sharing of knowledge and expertise. On a subject which is highly technical, the representatives of civil society seemed to us perfectly well informed, and their criticisms well argued on a legal level.
Date: Tue, 1 Dec 1998 15:22:12 -0500 (EST)
This is an english translation of the so-called Lalumiere report written
for the French government on the MAI. It is very instructive on what a credible
review of the MAI would look like and offers a wealth of information and
valuable insight as to how to address these issues. It would be interesting
if such rigour were brought to bear in Canada.
I hope we can use this as a good base for discussion of our own next moves
re Trade Issues writ large.
Catherine LALUMIERE
Intermediary Report – Sept 1998.
SUMMARY
DIAGNOSTIC
PROPOSITIONS
What should be avoided
The elements of a new agreement
REMARKS ON PROCEDURE AND METHODS OF WORK
The mission entrusted to us concerns all multilateral economic negotiations
France is party to.
In the context of this mission, the Government's priority was to have at
its disposal an interim report specifically dedicated to the MAI. This agreement
aims to liberalise investments (all investments) and to improve investor
protection. The negotiations began in April 1995 at the OECD. They were suspended
in April 1998 because of the strong opposition raised by the project in its
actual form.
The interim report presents the results of consultations we have undertaken.
It also formulates propositions on the future of the negotiation and its
organisation. DIAGNOSTIC
More than any other international agreement of an economic nature, the MAI
has raised objections and tensions at the heart of civil society. The opposition
to it was surprising in its scale, strength and the speed with which it appeared
and developed. The consultations enabled us to clarify this phenomenon and
to understand better the positions and expectations of diverse sectors of
opinion and the professions.
Four points should be particularly underlined.
The opposition presents new characteristics
- it appeared simultaneously in several countries. The French Government
is not alone on confronting challenges to the MAI. The same opposition has
emerged with equal force in the United States, in Canada and in certain European
Union countries. Objections have also been expressed in the European Parliament
and in Community circles, including the very heart of the Commission.
- it goes beyond merely sectoral or technical concerns. As in all negotiations,
these preoccupations concern the balance of concessions or the treatment
reserved for certain activities. In France, the cultural and audiovisual
sector is naturally at the heart of the opposition. But the resonance of
the discourse hostile to the MAI bears witness to far wider and more fundamental
concerns.
- it puts the interests of new actors at stake. Beyond the traditional
representatives of the professions, the trade unions and the economic sector,
one should note the activism of the non-governmental organisations. In the
Anglo-Saxon countries, the NGOs with considerable means (Greenpeace, WWF,
Friends of the Earth…) are at the origin of this challenge to the MAI.
These organisations have refined and diffused to all countries an anti-MAI
position which is now expressed in similar terms throughout the diverse countries
of the OECD.
- the way the negotiation is carried out is challenged as much as its outcome.
More or less legitimately, the secrecy which covered the negotiations and
the deep motivations of the participants are questioned.
The MAI thus marks a stage in international economic negotiations. For the
first time, one is seeing the emergence of a "global civil society" represented
by NGOs which are often based in several states and communicate beyond their
frontiers. This evolution is doubtless irreversible.
On one hand, organisations representing civil society have become aware of
the consequences of international economic negotiations. They are determined
to leave their mark on them.
Furthermore, the development of the Internet has shaken up the environment
of the negotiations. It allows the instant diffusion of the texts under
discussion, whose confidentiality becomes more and more theoretical. It permits,
beyond national boundaries, the sharing of knowledge and expertise. On a
subject which is highly technical, the representatives of civil society seemed
to us perfectly well informed, and their criticisms well argued on a legal
level.
Opposition to it concerns the very structure of the agreement
The agreement has become a symbol. It crystallises the claims and frustrations
of civil society in the face of globalisation. This is for one main reason:
the agreement is perceived as a serious threat to the sovereignty of national
states. It is important to understand why.
Every international agreement by definition limits the sovereignty of the
signatory states. It lays obligations on them which restrict their freedom
of action. But till now, in economic matters, these obligations have always
been formulated in relative terms: states agree not to discriminate on their
own territory between the products, investments and even the people according
to whether they are nationals or foreigners. Given this, states preserve
all their freedom to define and carry out their economic and social policies.
This principal has guided the whole drive towards the liberalisation of economic
and commercial exchanges for fifty years.
The MAI goes further. For the first time, in a multilateral agreement with
universal application, it places absolute obligations on states.
-
Considered in isolation, each one of these innovations might appear technically
justified. In particular, one can understand the concern of negotiators to
provide security to overseas investors in the countries where the judicial
and legal systems does not present all the necessary guarantees of impartiality.
But their combination is explosive. It creates the feeling of a double
dis-symmetry : between the rights of States and those of investors: between
national and overseas investors (only the latter benefit form the guarantees
offered by the agreement).
For all the opponents of the agreement, this objection is fundamental. It
must be dealt with and responded to, since all the other objections flow
from it.
The OECD was unsuitable for these negotiations.
The OECD was not created to serve as a location for major international economic
agreements. Its experience in this domain is limited to highly technical
agreements on credits for export and for naval construction, to different
non-binding codes and more recently, to the international convention against
corruption. Its procedures are designed to favour informal agreements and
exchanges of viewpoints, not to formalise binding agreements or to work out
the strategic choices which mark the evolution of a negotiation.
In the case of the MAI, this method did not allow governments to exercise
their political responsibilities over matters which are however essential.
All the work on it took place within the negotiating group which was itself
split up into technical sub-groups. Its communiqués on the MAI submitted
for ministerial approval are limited to the annual repetition of the same
generalisations. At no time were the questions mentioned above brought to
the attention of ministers, even less made the subject of debates.
Yet, other than the principles already mentioned, the agreement also incorporates
fundamental innovations in the methods of liberalisation undertaken. Thus
the MAI does not function, as do the other agreements concluded within the
GATT or the WTO, on the principle of positive lists or "offers" but on the
principle of reservations (the method called "top down"): all economic sectors
are liberalised apart from the exceptions which figure in the lists set out
by each state. Further, the MAI contains a device called the "ratchet effect"
which allows all liberalisation measures to be automatically consolidated,
i.e. made irreversible. On these two points, no clear political choice has
been submitted to the judgement of ministers: the ratchet effect was never
mentioned in ministerial communiqués, nor was the dispute resolution
procedure. As for the "top down" approach, it was only mentioned in a technical
report annexed to the ministerial declaration in 1995.
It is a great mistake to have treated the MAI negotiations as a purely technical
operation. Many of the consequent difficulties spring from this: the widely
spread feeling of a secret, or even clandestine negotiation, the incapacity
of the organisation to see these difficulties in advance and put them right,
the surprise felt in several countries when faced with the scale of the
opposition.
On the contrary, the treatment reserved by the OECD for union organisation
demonstrates the advantages of a strong and formalised joint approach. Union
organisations have always been closely associated with the work of the OECD
through the specialised group, the TUAC. It is not by chance that, in France,
as in other countries, and despite a certain diversity of opinion, the unions
which form part of the TUAC are globally less hostile to the MAI than other
organisation representative of civil society.
The result of the consultations reveals a certain diversity of opinions,
but support for the MAI in its present form is limited and when it does exist,
is conditional.
It should be emphasised that we have not encountered any hostility to the
principle of overseas investment. The interest of foreign direct investment
for the French economy, notably in terms of its effects on employment, was
mentioned by numerous participants. The word "delocalise" with one exception,
was never mentioned. The main aim of establishing international rules for
foreign investment is not contested by anyone. The principle of
non-discrimination seems fairly generally, (but not unanimously), accepted.
Less than the principle of an agreement, it is the structure and the terms
of the actual MAI project which are the subject of diverse views.
- the CNPF states that it is favourable to the agreement, as also are most
of the professional federations (except those for insurance). The necessity
of obtaining a balance of the concessions between Europe and the United States
was however underlined by all the interlocutors, who were struck by the sheer
scale of the American reservations. Our interlocutors did not recommend signing
an unbalanced agreement to the profit of the US, and paid great attention
to the federal structure of the States, not only because of the difficulties
met within the US, but also because of the risk of the precedent represented
by the MAI vis-à-vis the large emerging countries with federal structures.
This attitude was also noted in the very large firms for whom the legal security
of overseas investment is essential, because of the nature of their activity
(concessions for public services, oil exploitation, setting up industries).
Furthermore, for these firms as for employer organisations, this positive
appreciation is qualified by the appreciation of the geographical spread
of the agreement: beyond the principles, the representatives of French firms
estimate that the MAI is only really interesting if the emerging countries
are signatories.
- on the other hand, certain non-governmental organisations (notably Observatoire
de la Mondialisation, Greenpeace) reject the agreement in a fundamental way
for the reasons of national sovereignty mentioned above.
- the cultural sector deserves a particular comment. The profession is split
between two attitudes. One strand of thinking is aimed essentially at sectoral
aims: it demands the writing into the MAI of the reserve concerning the
audiovisual sector incorporated in the GATT agreements at the end of the
Uruguay round. The other demands the writing into the MAI of a clause excluding
the cultural sector and its thinking links up with the fundamental opposition
of the NGOs: it is this fraction who organised the strong media coverage
of the polemic against the MAI last February. These two tendencies meet however
on one claim: the exclusion of authors rights from the application of the
MAI.
- the unions have diverse positions.
· the CGT is hostile the whole exercise, for reasons of sovereignty,
and advocates beginning the negotiations again from zero.
· the FO is sensitive to the question of social norms, but considers
that the essential progress should be expected at the ILO. This organisation
declares itself interested in an agreement which integrates strong social
norms, while nevertheless doubting the will of certain EU partners within
the OECD – among which the US – to reach such a outcome. It underlines
the dangers of certain clauses in the agreement for union freedoms and the
right to demonstrate (notably, the "protection against civil strife").
· the CFDT is attached to the inclusion of terms controlling social
norms, but, even more, that the unions should be allowed to participate actively
in the management and application of the agreement. It sees in it the instrument
of a dynamic which favours awareness of the social impact of international
investments.
THE PROPOSITIONS
The MAI sheds light on an essential problem which governments should pay
attention to in managing their relations between open, but sovereign economies:
how to balance the obligations of States with the necessity of interdependence,
without imposing useless constraints on them which would lead, in the opinion
of the public, to a rejection of openness.
Within the EU, this question is at the centre of the debate on subsidiarity.
But it is also a problem at a higher level. Concerning international investment,
on should ask oneself whether one can attain the objectives of liberalisation
by an agreement which is simpler and less destructive of national sovereignty,
as founded on only the principles of free access and non-discrimination.
To our way of thinking, the reply is positive. But this choice is demanding.
Simply continuing and carrying out a limited reorganisation of the present
text are both excluded. The negotiation should start again – if possible
– but from new positions in order to end with a different agreement.
What should be avoided
- Leaving the negotiation to start again on the present basis.
- This would be the natural tendency of the OECD Secretariat and certain
delegations.
It is clear that French public opinion would not accept this. On the one
hand, under these conditions it would be impossible to achieve the balancing
of the concessions demanded by the firms, and on the other, the objections
of the opponents would be just as fierce. To continue with the actual negotiation
does not therefore seem either possible or desirable.
Amend the present text without changing its structure
Improvements are certainly indispensable on the social and environmental
clauses and on culture:
- social and environmental norms: on these subjects, it should be possible
to obtain projections of which some, like the reference to basic social norms,
would constitute a reference for future work. However, one must be aware
of the reticence of certain participants (Mexico, Japan) and the ambiguous
attitude of the US (leaning on the ability of the federal States to refuse
any binding obligations).
- Cultural questions: a satisfactory regulation of cultural questions is
indispensable for any agreement. This came via the replies to two questions
during discussions: cultural exception and literary and artistic property.
The transfer of the results gained in 1993 for the audiovisual sector would
satisfy one part of the cultural milieu. It could be a good compromise, if
the question of literary and artistic proprietorship is also regulated in
a way which protects the integrity of existing conventions.
But these adjustments would, in themselves, be insufficient to reduce the
fundamental objections to the MAI:
- in the social and environmental domain, in the actual state of the discussion,
gaining clauses which are binding and subject to the dispute resolution procedure
seems far from being assured.
- a result which might be satisfactory on the questions of social and
environmental norms would not settle the public debate in France on culture,
nor on putting national sovereignty in question. The union leaders we met
underlined that the inclusion of social clauses in the MAI would not constitute
a response to the threats to State sovereignty which the projected agreement
contains.
- one should note that the inclusion of social and environmental norms in
the text of the MAI risks to eliminate – or at least strongly reduce
the interest of emerging countries for this agreement.
Renounce any international agreement on investment is not desirable.
Under the present disorder in globalisation, every country has an interest
in the establishment of stable and fair rules. An agreement can provide the
opportunity of advancing towards better regulation of the global economy
by stabilising investment regimes and by achieving progress on social and
environmental norms.
On the other hand failure could render international cooperation more fragile
at a moment when the freedom of movement of capital is challenged and under
question. As much for the sake of public opinion as for regulation, one must
avoid confusion between financial flows of a speculative nature and direct
investment, which is much more stable. An agreement would allow this distinction
to be clearly established.
Furthermore, an agreement is in the interest of France and our firms:
- France is a major player in the development of foreign direct investment.
As the fourth largest investor in the world, she has a particular interest
in an open multilateral regime, which is non-discriminatory and universal.
She is also ranks third in the world for foreign investments.
- France has no defensive interests in the matter of direct investments.
Due to the suppression of the authorisation regime valid in 1995, French
territory is already totally open to foreign investment, with the reservation
of competition rules. Every investor in France also benefits from the protection
offered by the European treaties, including access to the European Community
Court of Justice. This point is not always clearly understood by the opponents
of the MAI.
- from a proactive point of view, French interests are not threatened in
the OECD countries where 80% of the stock of French foreign investments are
located. There are potentially some legal uncertainties, notably in states
with federal structures, but except for the question of US extra-territorial
legislation, there is no real conflict. One must also remember that a legal
framework which is transparent and non-discriminatory within the European
Union, whose application is guaranteed by the Court of Justice. The EU
constitutes a major destination for French investments: it represented, between
1993 and 1997m 52% to 63% of French investment flows, and 52% of French overseas
investment stocks in 1997.
- the situation is less satisfactory in emerging economies, towards which
17% of French investment was directed in 1997. The protection accorded by
bilateral agreements is theoretical but effective. It does not eliminate
all possibilities of discrimination and the investment regimes remain unequal
in their degree of openness.
- in economic terms, therefore, an agreement is positive if it assures the
opening up of emerging countries under non-discriminatory conditions. But
it is neither urgent not indispensable in the territories covered by the
OECD.
There are certainly good reasons to seek an agreement. But not to conclude
one at any price. It is a new agreement that should be negotiated, which
both conforms to France's interests and is acceptable by public opinion.
The elements of a new agreement
The structure of a new agreement
The aim is to put in place a non-discriminatory international framework for
international investment without jeopardising national sovereignty. This
new agreement would be centred on the two traditional principles of national
treatment and non-discrimination.
National treatment imposes on each country the obligation not to discriminate,
in its own territory, between national and foreign economic agents. Within
this framework, the State remains free to define and put into action in every
domain, the public policies of its choice.
Non-discrimination obliges countries to accord identical treatment to all
foreign economic agents, whatever their nationality. The principle is expressed,
in treaties, by the most favoured nation clause.
These two principles naturally suffer from exception. Regional assemblies
– such as the EU – are constituted on the basis of preferential
treatment between member countries, and therefore constitute an exception
to the principle of non-discrimination. The cultural policies set up in France
and in the EU provide a dispensation from the principle of national treatment.
Technically, a new agreement could perhaps be concluded if the political
will existed, by suppressing all provisions which limit the sovereignty of
states and by imposing "absolute" obligations on them, beyond simply forbidding
non-discrimination.
Whatever the location of the next negotiation, at least the following seven
conditions must be respected:
Exclude portfolio investments and operations on the financial markets from
the definition of investment. The application of the agreement would be limited
to foreign direct investment. Two arguments give weight to such a modification.
From an institutional point of view: the IMF is better equipped to deal with
these questions. The other opportunity: in the actual context, to include
financial flows would increase opposition and the difficulties.
A mechanism of dispute resolution open only to states and not to investors.
This would allow a response to the criticism that the MAI serves the interests
of some large enterprises who have the financial means to carry out legal
battles.
The suppression of the article on the "general treatment" of foreign investors
aimed at guaranteeing them "integral and constant" protection. This article
is a prime example of an absolute obligation the extent of whose reach would
be left totally to the interpretation of an international judge.
The suppression of the notion of a "measure of equivalent effect" to a
nationalisation of expropriation, of which the interpretation by the same
international judge could lead to declare all regulation or public legislation
that reduces the economic value of economic foreign investment as not in
conformity with the agreement.
In the matter of "performance requirements", reduction of the list of forbidden
measures. It should be restricted to transposing the corresponding agreement
already set up within the WTO, eventually extended to services.
Abandoning of the "ratchet effect" clause which renders irreversible all
measures of liberalisation decided on by a government. It could be replaced
by a mechanism of "deconsolidation" which would permit a State, as is the
casein the WTO, to go back on an agreement, averaging out the provision of
compensation to its commercial partners.
France should underline its interest in the effective participation of emerging
countries. We do not propose to make this a condition for continuing the
negotiations, but to subordinate signing an agreement to a sufficient number
of these countries joining in.
The question of the location of the negotiation: OECD or WTO?
On could envisage two approaches to organise the negotiation of a new agreement.
Try a new approach at the OECD. This solution would obviously imply a fundamental
reorientation of the MAI negotiation.
In this context, one could preserve the "top down" approach. Technically
this permits starting from the actual text and proceeding by subtracting
the most litigious passages.
If this solution was chosen, one should indicate very rapidly to our partners
that without putting the usefulness of international rules for investment
into question, France wishes to explore the possibility of a fundamental
reorientation of the negotiation. But, without this reorientation, it would
withdraw from the negotiations.
b) Demand the opening of a negotiation at the WTO.
An agreement on investment at the WTO would hit certain obstacles:
- No consensus exists today at the heart of the organisation. Certain developing
countries remain very reticent about the opening of a negotiation.
- Launching negotiations in the WTO, if it arises, could not be decided at
the next Ministerial Conference in December 1999. An agreement at the WTO
cannot therefore reasonably be envisaged except at the start of the next
decade.
- In this location, it is more difficult to progress on social and environmental
norms.
But the WTO presents several advantages:
- Emerging countries are present and participating.
- The WTO method is, a priori, less problematic from the point of view of
sovereignty. On the one hand, the "top down" approach is not used there:
negotiations take place according to the principle of positive lists or "offers".
On the other hand, only the states and not private enterprises have access
to the dispute settlement procedures.
- French firms are fairly favourable to the WTO since they consider that
they have real proactive interests vis-à-vis emerging countries.
- This position is consistent with our multilateral approach in favour of
wide agenda for future multilateral negotiations. We propose to return to
the subject in the second part of our work.
In all, therefore, two possibilities exist:
- Either to re-start the negotiations at the OECD, with the aim of a fundamental
reorientation, in conformity with the principles set out above. The negotiation
process has already begun, but the result is uncertain. It is not sure that
all the conditions we desire can be satisfied. Also, the difficulties raised
by the scale of US reservations remain. This route can lead to finding again.
After a certain amount of time, the same difficulties met in spring 1998.
- Or to demand the opening of a negotiation at the WTO, with the OECD preserving
a role of expertise and support. However, in the absence of consensus. An
effort of persuasion in emerging countries seems necessary. They can find
it in their interest to agree to this opening in exchange for advantages
obtained within the framework of a global cycle of negotiation.
Between these two possibilities, the consultations we have conducted do not
allow us to make a decision in a decisive way. But it seems important that,
whatever the solution chosen by the government, France continues to work
actively in favour of a multilateral framework of rules covering international
investment. Such an attitude conforms to both its role and its interests.
REMARKS ON PROCEDURE AND METHODS OF WORK
Besides the remarks made above about the organisation of the negotiation
by the OECD, one could add the following observations:
The under-estimation of the political consequences contained in the MAI in
addition to the habit of secrecy has left outside the negotiations most of
the representatives of civil society. This resulted in a double inconvenience:
on the one hand, sharp protests coming from those who felt excluded, on the
other, a discrepancy between the negotiation and public opinion. This discrepancy
is often due to a lack of diffusion of documents. It is even less well founded
since, as has been said, ideas of secrecy and confidentiality have become
very relative.
In the future, and for negotiations over sensitive texts, il will doubtless
be indispensable to organise consultations systematically:
- ad hoc consultations with the milieux concerned before and during certain
negotiations. One should never forget that certain foreign delegations often
comprise representatives of business, unions and, increasingly, NGOs.
- Permanent consultation for all the negotiations on economic agreements
(for example: for the next round of WTO negotiations) which could take the
form of a "consultative council on multilateral economic negotiations", placed
within the Minister of the Economy, Finance and Industry.
- Regular contacts with the press, by mechanisms to be invented, with the
aim, not only of keeping them informed, but also of gathering their reactions
and questions during the negotiations.
Also, as is usual in our country concerning international relations, Parliament
has not been associated with the matter. MPs have not been able to take
cognisance of the consequences of the agreement except after being contacted
by the NGOs, the unions or the press. In the future, it would doubtless be
useful that the two Assemblies provide a structure responsible for following
the most important economic negotiations with a view to regularly drawing
it to the attention of MPs when political problems appear. One could even
envisage that, according to their respective prerogatives, one could organise
information of civil servants and the Assemblies by those in the ministries
responsible for the negotiations.
On procedure, the rules were respected. There were meetings and exchange
of memos. But the MAI is both a technically and politically complex dossier.
It was only possible to diagnose certain political problems after the
negotiations. This therefore seems to have suffered from a lack of political
control.
The inter-ministerial team charged with this very heavy negotiation, under
the direction of the Finance Ministry, the [DREE] and the Ministry of Foreign
Affairs, is a very competent team but of few people. For this kind of dossier,
this should reinforced, if only to be a match for the teams of negotiators
from other countries, often more numerous. Furthermore, if one wants to proceed
to consultations, one needs a sufficient number of people.
The consultations we conducted show the importance of the capacity for legal
analysis of all the parties. The NGOs, in particular, have been able to develop
very deep analyses of the text of the MAI, as also have the unions. The
professional organisations do not seem to have always disposed of the same
sources of information or the same means.
The MAI raises real legal problems over the rights and obligations of States.
Also, using this agreement, in particular in the dispute resolution procedure,
necessitates real legal knowledge.
It seems indispensable for our country, its Administration, its professional
and union organisations to draw on the knowledge of specialised lawyers if
they have not already done so.
It seems equally necessary that the universities produce more lawyers
knowledgeable in international law which is still largely anglo-saxon.
The meetings of the negotiations themselves do not always permit the examination
of fundamental questions, and even less to get agreement between points of
view. In order to do this, bilateral contacts are indispensable before
negotiation meetings. Now we have not always sufficiently developed at a
political level the exchange of viewpoints with our equivalents in other
countries, even within the EU.
While the arguments (for example on the "cultural exception", and on social
and environmental norms) are strong and should find greater support, France
has not been able to gather together round her all the potential support
which exists in our partners, in their Parliaments, their unions, their
associations and in the European Parliament.
It is important that sufficient contacts and explanations permit an active
and open presentation of our positions, even more so since these choices
can be better understood and be more convincing if they are clearly presented.
To: bobolsen@tao.ca
From: Ken Traynor
European MP
Jean-Pierre LANDAU
Inspector General of Finances
REPORT ON THE MULTILATERAL AGREEMENT ON INVESTMENT.
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