Turf battles slow investment pact Agreement: Just as there is a treaty governing international trade, 29 of the world's richest nations believe there should be one on foreign investments. But negotiations have not gone smoothly.

THE BALTIMORE SUN

For the past three years, 29 of the world's richest countries have been at the negotiating table cajoling, coaxing and arguing with one another to create a set of common rules governing foreign investment.

It is a major undertaking. The goal is to hammer out a treaty, called the Multilateral Agreement on Investment (MAI), that would make it easier for an investor to buy or invest in a business in another country. Negotiations, held in Paris at the Organization for Economic Cooperation and Development, have not gone smoothly.

Canada, France and Belgium, fearful of losing cultural identity, are fighting to bar foreign ownership of radio and television stations and publishing companies. Countries in the European Union want the treaty to provide their members preferential treatment in some instances. The United States wants exemptions for state laws, such as statutes in Kentucky, Massachusetts and Alaska setting residency requirements for hair-dressing school operators, greyhound breeders and owners of coin-operated equipment.

These turf battles have slowed the progress of the MAI, but the participants keep coming back to the negotiating table. In a world of discordant laws, customs and language governing investing, they want to bring a harmonious regime that would put national and foreign investors on the same footing in every country. Just as there is a treaty governing international trade -- the General Agreement on Tariffs and Trade -- the group of 29 believes that there should be one governing investments.

If and when the treaty is signed, foreign investors, whether the H. J. Heinz Co. or Honda Motor Co., will be reading from the same rule book and all will be treated equally. So far, however, two deadlines have sailed by without signatures on the 145-page document.

Why is the MAI so important? Why not simply let it die?

Some critics would like that, but MAI backers note that investment across national lines has swollen to $8 trillion. As of 1996, it was growing at a rate of $350 billion a year, more than 14 times greater than in 1973.

Imagine if each U.S. state had its own set of rules for trade and commerce -- business might grind to a halt. But long ago, the 50 states adopted the Uniform Commercial Code to cut through the tangle. The MAI could function analogously in the world, replacing the 1,630 bilateral treaties that govern international investment with a single set of rules.

What will the MAI do?

Its goal is threefold. It would create international investing rules that would treat investors from Turkey to Texas equally. Second, it would have a mechanism for resolving disputes. Finally, it would expand foreign ownership of businesses ranging from advertising firms to automaking companies, from real-estate operations to financial-services companies. Relaxing the rules on foreign ownership has been one of the treaty's biggest hang-ups.

Who backs the MAI and why?

Groups such as the U.S. Council for International Business, which represents about 300 large U.S. companies, and the National Association of Manufacturers argue that the world needs this agreement because international investment is booming. Clear and consistent rules for international investing will benefit U.S. companies, they contend. Companies will become more efficient, profits will grow, exports will increase and employment will expand.

Countries that put restrictions on the operations of U.S. companies within their borders would no longer be able to treat them differently than indigenous companies. No longer could they require a U.S. company to export a certain percentage of its goods, for example, or prevent it from selling goods within the country.

"U.S. firms have to go global to compete today," says Stephen Canner, vice president for investment policy at the U.S. Council for International Business. "If there are barriers to their investing, it makes it much more difficult and expensive to compete."

The benefit runs both ways, supporters say. The treaty should make the United States an attractive market for foreign investment, creating more jobs.

If disputes arise between states and investors, the MAI would put in place rules for resolution, with the last stage being binding arbitration. But the treaty makes national governments vulnerable to lawsuits from investors.

Who doesn't like the treaty?

Global Trade Watch, an arm of Ralph Nader's Public Citizen consumer advocacy group, and the California Fair Trade Campaign say that the MAI will result in "corporate colonialism" by letting foreign corporations run roughshod over state laws and skirt environmental regulations. It could also bar states from embargoing business with countries known for human-rights abuses, they say.

Treaty backers, of course, deny these allegations.

Critics have other concerns, too. They say the treaty will threaten "performance requirements" -- state and federal laws that require investors to meet certain conditions if they want to operate in a city or state. Banks, for example, must comply with the Community Reinvestment Act, which requires them to make loans in poorer, underserved communities.

Several states require companies to use a certain percentage of recycled material in their production, and some cities require businesses to pay employees a "living wage," one above minimum wage that would allow an individual to support a family.

"The MAI has been a total breach of democracy," says Juliette Beck, coordinator for the California Fair Trade Campaign. "It has been negotiated in secret. Even members of Congress, up until last summer, were completely unaware of MAI negotiations, and yet this treaty is about giving transnational corporations more rights without responsibility."

Critics see jobs fleeing the United States for cheap labor in developing countries. They also expect a raft of lawsuits because the MAI allows investors to sue foreign governments for treaty breaches. The Richmond, Va.-based Ethyl Corp., for example, recently sued the Canadian government for $251 million in damages because the country banned, for health concerns, a gasoline additive that the company produces.

Who is behind the negotiations?

The Organization for Economic Cooperation and Development (OECD) was created after World War II and charged with administering the Marshall Plan to rebuild war-torn Europe. Now it functions as a forum for the world's largest economic powers to discuss problems, share experiences and find ways to improve their economies.

Negotiations on behalf of the United States are being conducted by the State Department and the U.S. trade representative's office.

Third World countries are not members of the OECD, but they will be encouraged to join the MAI because they, too, can benefit from foreign investments. Brazil, Chile and Lithuania are among a few of the non-OECD countries that have been invited to observe the negotiations.

When will the treaty be signed?

It was to have been signed in 1997 and then last month. No new deadline has been set, but negotiations resume in October. About 80 percent to 90 percent of the basic document has been written, but that is less than half the battle. The truly contentious issues -- loopholes demanded by various countries to protect indigenous businesses -- remain to be negotiated.

Pub Date: 6/04/98

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