OECD push on investment deal

Date: 12/02/1998

By Mark Turner

FAR-reaching plans drawn up by the Organisation for Economic Cooperation and Development to create a single investment zone among industrialised countries hang in the balance ahead of a key meeting of senior policy-makers in Paris next week.

US Under-Secretary of State Stuart Eizenstat will lock horns with European Commission Director-General Hans-Friedrich Beseler and others over controversial rules which would give companies the right to sue governments over unfair investment conditions.

The Multilateral Agreement on Investment (MAI) would force the 29 OECD members to grant foreign firms the same rights as domestic companies to market access and state subsidies.

This is seen as an important step which could help to stimulate investor confidence within the EU, North America and the major Asian economies.

Other signatories would include Poland, Australia, Norway and Switzerland, with non-OECD members such as Brazil, Argentina and Hong Kong also expressing an interest.

Many officials see the MAI as a precursor to new World Trade Organisation rules.

"We think that it is extremely important to get multinational investment rules on the books," explained a Commission official, adding: "There is a huge gap in international rule-making here, something we are noticing more and more."

Few observers disagree in principle, but the details of an agreement are proving rather more difficult to draft.

There are deep divisions, for example, over exactly how the MAI's dispute settlement system should work.

Under the accord, a company would have the right to take a government to court for expropriating its property. But in a current court case brought under the auspices of the North American Free Trade Agreement, a US company has extended a similar principle to sue the Canadian government for banning petrol additives that it alone makes.

Non-governmental activists are increasingly concerned that the MAI could, in practice, give foreign corporations control over environmental and social policy, thereby undermining national sovereignty in these areas.

OECD officials insist these dangers are grossly overstated, since national law would always have supremacy and multinational companies already have similar rights under bilateral agreements.

But policy-makers will nevertheless attempt to tighten the MAI's wording next week to ensure that a firm's option to take court action is limited strictly to the spirit of the agreement.

In addition, they must decide whether dispute settlement procedures should be open to first-time investors rather than only to established companies, as is more usual under standard investment agreements.

Also contentious is the large number of exemptions OECD countries are demanding from the accord. The US, for example, is keen to exclude oil subsidies and public procurement rules from the deal, a move which Commission officials view "with concern".

The EU is causing difficulties of its own with demands that regional blocs within the OECD should retain the right to adopt more ambitious investment rules without applying them to other members of the organisation.

It is also calling for culture to be exempted from the MAI, amid growing fears that European countries would have to grant film subsidies to US as well as EU companies.

"It is becoming clear that the MAI will have many exceptions, but we have chosen to draft an agreement that aims for as much as possible," said an OECD official. "We would encourage signatories to liberalise progressively and sign up to more advanced rules later. We are now discussing whether there should be a timetable to all of this."

Eizenstat and Beseler may also come under pressure to signal some advance towards settling the dispute over the US' Helms-Burton and Iran-Libya sanctions acts.

Both sides hope to resolve the impasse in the margins of the MAI, with the Union offering promises not to invest in expropriated property in the countries concerned in return for an end to American extra-territorial legislation. Eizenstat and Trade Commissioner Sir Leon Brittan met last week, but made little progress on this issue - which many commentators regard as a pre-condition for completing the MAI.

OECD officials still hope that the accord will be ready for signature at a ministerial meeting in late April, but no one is willing to bet on the outcome. "There are too many variables left in the mix," said an official.

Feature on the OECD's proposed Multilateral Agreement on Investment (MAI).