SPECIAL COMMITTEE ON THE MULTILATERAL AGREEMENT ON
INVESTMENT
SECOND REPORT
Third Session, Thirty-sixth Parliament
June 29, 1999
Witnesses typically did not regard the demise of the MAI in Paris as its final defeat. Instead, they viewed the setback to the MAI as a much-needed opportunity for the general public, non-governmental organizations, legislators and others to engage in substantive debate on developing rules for international investment. The many witnesses who took the time to make thoughtful presentations to this committee were determined to grasp that opportunity. Jim Gouk, Member of Parliament for Kootenay-Boundary-Okanagan, for example, observed: "My initial reaction when I heard you [the committee] were coming around, frankly, was: 'Why are you doing this now?' The MAI, for now at least, is dead.... But the way the negotiations went on last time, we don't necessarily have the kind of lead time that is necessary when it does come up. In retrospect, I think it is appropriate that something is put together so that if this thing is resurrected -- and I suspect it will be -- then we have something ready." (J. Gouk, Nelson, Feb. 23, 1999, p. 508)
Presenters before the committee knew that MAI negotiations had halted at the OECD in
late 1998. But they were also conscious that MAI-style provisions remained on the table in
a variety of international negotiating fora. Characteristically, one witness described
that MAI as "a sleeping giant, waiting to roll over in another forum." (E.
Parker, Surrey, Mar. 4, 1999, p. 660)
Another well-placed observer, Noel Schacter, director of the International branch of the B.C. Ministry of Employment and Investment, disputed media reports stating that the MAI is dead. Instead, Mr. Schacter argued: "The current evidence suggests a contrary conclusion, because of negotiations already taking place on the free trade agreement of the Americas...and because of proposals to have negotiations occur in the WTO." (N. Schacter, Victoria, Mar. 3, 1999, p. 586)
Despite the many concerns raised by Canadians about the proposed MAI, MAI-style
provisions remain firmly on the international agenda, and the Canadian government is still
one of their chief proponents. MAI rules and proposals are alive in the proliferation of
bilateral investment treaties, in the Free Trade Area of the Americas (FTAA) negotiations,
and in the intensive preparatory work for the next phase of WTO negotiations. Within North
America, the profound effects of the little-understood NAFTA investment chapter rules --
the model for the MAI -- are also making themselves felt through a growing number of
investor-state challenges to public policy. As the expert witnesses had made clear
earlier, a setback for the OECD talks would not be the end of efforts to attain a
multilateral agreement on investment. 
As of September 1998, Canada has signed or initialled 24 bilateral investment treaties, known as Foreign Investment Promotion and Protection Agreements or (FIPAs).2 Following NAFTA's entry into force in 1994, the federal government adopted a new model FIPA based on the controversial features of NAFTA's investment chapter, including: a broad definition of investment, a top-down approach, investor-state dispute settlement and the priority of international over domestic law in controversial matters such as defining the meaning of expropriation.
While the details of individual FIPAs vary somewhat, since 1994 the federal government has signed 20 FIPAs with developing countries. This concerted push to sign bilateral treaties based on the NAFTA continues, despite the absence of any significant public scrutiny or debate. While the scope of the FIPAs is more limited than the MAI, their proliferation demands serious public debate. This is especially crucial now that the public debate over the MAI has exposed very serious problems with using the NAFTA investment chapter as a model.
Investment is one of nine areas under negotiations in the FTAA. Canada's negotiating position on investment issues in the FTAA is basically identical to that it took throughout the MAI talks -- that is, to replicate NAFTA, including chapter 11's most objectionable elements. In fact, Canada has been one of the most determined proponents of expanding NAFTA, including its investment rules, to all the Americas.3
Canada has been a key U.S. collaborator by keeping the FTAA agenda moving ahead until the American administration can navigate Congressional opposition to granting fast-track authority. Canada currently chairs the FTAA negotiating committee. Until U.S. fast-track negotiating authority is granted, these talks will likely move slowly. But if the U.S. administration gains fast-track approval from Congress, then a hemispheric agreement could begin to develop more rapidly.
Instead of proceeding with the flawed NAFTA model, Canada could be using its influence and the current slow pace of negotiations to explain the problems it has encountered with the NAFTA investment chapter and to build support among Latin American countries for addressing these issues. There are no signs, however, that the Canadian government has altered its commitment to spreading NAFTA-style investment rules throughout the hemisphere.
In fact, all signs are that the Canadian government is intent on ensuring NAFTA's investment rules are adopted around the world. There are intensive preparations now underway to ensure that investment rules are put on the negotiating agenda at the World Trade Organization. WTO ministers will meet in late November in Seattle and officials are working now to prepare for the next round of WTO negotiations. Canada, along with the European Commission and Japan, strongly supports the inclusion of investment on the WTO negotiating agenda. Many influential developing countries are firmly opposed to including investment issues, expressing some of the same doubts as were raised by the Canadian public during the MAI debate.4 But rather than working with these countries, Canada has allied with other rich countries to try to force the investment issue on to the WTO's agenda over the objections of developing countries.
The developed countries' vision of what a WTO investment agreement should look like was perhaps most clearly revealed in a European Commission document prepared shortly after the collapse of the MAI negotiations in Paris. The leaked document described elements of its ideal agreement in terms highly suggestive of the MAI.
"The elements of an ideal result that at the same time opens markets to new investments and then protects those that are made would include:
- A broad definition of investment;
- National treatment/MFN;
- Investment protection (expropriation, compensation);
- Free transfer rights;
- Disciplines of performance requirements;
- Free entry of key personnel;
- Effective enforcement mechanisms;
- Last but not least, opening commitments for foreign investment at the admission stage."5
It went on to acknowledge that because of developing country concerns, the EC might have to settle for less than the ideal, but that "even if a perfect result is not achieved in a first agreement, the main point is to get investment rules firmly implanted in the WTO. Further improvements of these rules and additional liberalization can be part of future agendas, once we have basis from which to work."6
The United States administration, for its part, remains wary of investment negotiations at the WTO because it fears that a "high standards" agreement such as NAFTA or the MAI would be difficult or impossible to achieve in the face of developing country opposition. U.S. international business lobbies, in particular, are concerned about engaging at the WTO and support it only as a second-best option. They continue to push the U.S. government to attain elements of an MAI-style agreement wherever the U.S. wields influence, including the IMF, OECD, NAFTA expansion and through bilateral investment treaties.
The only firm evidence that the Canadian government appears to have learned from the MAI debate and Canada's arduous NAFTA investor-state experience is Minister of International Trade Sergio Marchi's initiative with its NAFTA partners to clarify the meaning of expropriation and to bring greater transparency to the NAFTA investor-state process. In an August 31, 1998, letter to his NAFTA counterparts, the minister stated: "[W]e need to reaffirm that the rights of investors do not inhibit the sovereign responsibility of governments to legislate and regulate in the public interest." He pointed out that "Mexico and the United States supported Canadian efforts to narrow the interpretation of expropriation in the MAI at the April OECD ministerial meeting to ensure that those powers are preserved," and stated: "I firmly believe that NAFTA should be interpreted the same way."7
To date, however, it is not at all clear that the Canadian government's public position is reflective of detailed proposals it has made to other jurisdictions. In any event, Minister Marchi's initiative has been firmly rebuffed. Mexico has rejected any changes or interpretive clarifications to NAFTA, fearing that any reopening might lead to demands for further changes to an agreement that remains very highly politically charged in that country. There is also little support within the United Sates administration for narrowing NAFTA's broad meaning of expropriation -- the Environmental Protection Agency and the U.S. Department of Justice are reportedly open to Canada's suggestion, but the powerful departments of State, Treasury and the United States Trade Representative oppose making any changes.
Minister Marchi's difficulties demonstrate how hard it is to change an international investment treaty once it has been signed. Canada will need to be much firmer in insisting on these necessary changes. As a logical first step, it could reconsider its resolute support for expanding investment disciplines in the FTAA and the WTO until it is completely satisfied that the NAFTA rules will be interpreted narrowly. Otherwise, the depth of its commitment to meaningful change will be suspect. The current inaction of NAFTA governments also casts doubt on their very vocal denials that the MAI would have interfered with governments' legitimate right to regulate.
While the work of the B.C. legislative committee is the most extensive by any subnational government, it is not the only legislature to explore the implications and lessons of the MAI negotiations. The MAI has been the subject of serious legislative inquiry and public hearings in several OECD countries. Wherever they have occurred, such consultations have uncovered widespread public concerns and unease about the effects of MAI-style investment provisions.
One extensive set of consultations undertaken by a national government led directly to France's decision to withdraw from the MAI negotiations. In the summer of 1998 the French government directed Catherine Lalumière, European Member of Parliament, and Jean-Pierre Landau, a senior finance official, to investigate the MAI. Between July and October 1998, Lalumière and Landau consulted a broad range of French government, business, labour and non-governmental organizations. The resulting analysis was a damning critique of the MAI which was followed shortly by Prime Minister's Lionel Jospin's announcement of France's withdrawal in the French Parliament on October 15, 1998.
The Lalumière report is full of acute observations and incisive analysis. It noted that the opposition to the MAI concerned the fundamental structure of the agreement and that this opposition had taken on new forms -- that it was global, Internet-savvy and well-informed. The report acknowledged that "on a subject that is very technical, representatives of civil society appear to be fully informed, with critiques that are legally well-argued."8 Tellingly, Lalumière observed that this emergence of a global civil society was likely an "irreversible change" with important implications for any new international trade and investment negotiations.
The Joint Standing Committee on Treaties of the Australian parliament also conducted extensive hearings. The committee began its work in March 1998 and issued an interim report in May recommending that Australia not sign the draft MAI. In November 1998 the Australian government announced that it had pulled out of MAI talks at the OECD. Following this decision, however, the thirty-ninth parliament met and directed the committee to continue its work in examining the issues raised by the draft MAI. The committee produced its final report in March 1999.
The final report recognized that the draft MAI, if implemented, would have had substantial implications for Australian policy, stating, for example: "If Australia had acceded to this agreement, there would have been substantial changes to the operation of the Commonwealth government. It is alarming that departments seem only to have made cursory assessments of the likely impacts of the provisions of the draft MAI against their programs, rather than making detailed assessments of its likely impact on each policy and program."9
The final report confined itself to procedural recommendations for any future multilateral investment talks. It recommends that Australia participate in such talks but that the department of the prime minister and the cabinet take the lead role in the talks, that they ensure that all departments and agencies were closely involved and that the Australian parliament and public be fully informed and consulted. The committee stated: "We support the view, taken by many of those who participated in this inquiry, that the consultation process was inadequate. Too little information was made available publicly until too late in the negotiation process...."10 The committee also chastized the Australian Treasury department, the lead agency responsible for MAI negotiations, for being blinded by a cause, stating: "We have had to concentrate a good deal of attention in this report on Treasury's role and actions, not to accuse it of wrongdoing but to draw attention to how excessive zeal for a cause in which it believes can sometimes blind an organization...."11
Australians appearing before the committee were overwhelmingly opposed to the draft MAI. The committee received more than 900 submissions from around Australia. Of those appearing, 86 percent rejected the proposition that Australia should ratify the draft MAI, while just 7 percent indicated support, with qualifications, for the draft agreement.12
Two U.K. parliamentary committees have also conducted inquiries into the draft MAI. The Trade and Industry committee began an inquiry into "ethical trade policies" in July 1998, later deciding to examine the draft MAI as one aspect of their mandate. The committee considered, among other matters, "the reasons why OECD members have failed to conclude the negotiations of the draft agreement and the lessons which can be learnt from the present initiative if negotiations of a multilateral investment agreement commence in an alternative forum in the future."13 The committee concluded that "a persuasive case has by no means been made for a new multilateral investment agreement," and expressed its dissatisfaction with the treatment of "environmental, labour, health, safety and other standards by negotiators of the draft MAI at the OECD."14
A second U.K. parliamentary committee, the Environmental Audit committee, looked specifically at the implications of the draft MAI for environmental protection and sustainable development. The Environmental Audit committee began its work in June 1998. Following the cessation of negotiations in Paris, the committee focused its inquiry "on the lessons to be learned from the OECD experience and the light this sheds on a way forward."15 The committee's first report of February 1999 concluded: "OECD governments, including the previous U.K. administration, failed to ensure that the MAI process reflected commitments on sustainable development and the integration of the environment in policy-making made in 1992 at Rio, and thereafter." It further observed that the "draft MAI posed a serious risk to the conduct of environmental regulation" and that "the MAI appears to us to stand as a prime example of the bolt-on approach to addressing the economic, environmental, and social impacts of policy." With regard to future negotiations it cautioned: "We believe that the negotiation of any MAI by the WTO should not, at this state, be regarded as a foregone conclusion. We regard the proper sequence to be ... the identification of the appropriate scope for any new negotiation and its general aims and objectives, and then the identification of the most appropriate forum -- rather than the other way around."16
The Canadian federal government held public hearings on the MAI for three weeks in November 1997. British Columbians appearing before the provincial committee expressed their disappointment at the abbreviated term of the federal hearings and especially at the fact that the federal committee did not travel outside Ottawa.
One
British Columbian who traveled on short notice to appear before the federal committee,
Powell River-Sunshine Coast MLA Gordon Wilson, objected. "The average British
Columbian cannot afford $2,500 to get before the Commons committee. The Commons committee
did not come to the people; it did not travel to British Columbia. It did not exercise
open discussion and hearings; neither did it provide any opportunity for average citizens
to be able to make representation. It certainly did, by invitation, provide an avenue for
people who had concerns to make representation, but there was no broad-based consultative
process." (G. Wilson, Victoria, Oct. 9, 1998, p. 313)
The federal Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade quickly produced its report, which was tabled in the House of Commons on December 11, 1997.17 The majority of presentations to the federal committee were critical of the proposed MAI, many highly so. The subcommittee's report itself was very critical of lack of publicity and consultation on the MAI and recommended that "in future negotiations regarding matters of such importance as the MAI, the government should undertake an open and transparent process...."18
The committee's report also reflected some substantive criticisms, for example calling
on the federal government to ensure a narrow definition of expropriation (recommendation
10), effectively exempt Canadian culture (recommendation 14) and ensure that the proposed
MAI would not infringe upon non-discriminatory measures to protect the environment and
promote sustainable development (recommendation 13).
A serious limitation of the committee report, however, was that it accepted the federal
government's goal of replicating NAFTA in the MAI, failing to acknowledge that many of the
issues raised by the MAI were inherent in the approach adopted in NAFTA's investment
chapter. For example, the federal committee recommended that the definition of
expropriation in the MAI should "accord with Canadian and NAFTA practice" and
that the definition of investment "should replicate the approach `used in the NAFTA
and in Canada's bilateral investment treaties."19
Accordingly, the federal government, in its official response to the report, was able to
accept all the subcommittee's recommendations -- but with no apparent change in its
negotiating position.
While there was clearly not enough official encouragement of public debate about the
MAI in most OECD countries, the MAI has been an important subject for legislative and
public inquiry in a number of them. The B.C. process, however, is unique in that it is the
only such full-scale inquiry at the subnational level. It is perhaps also unmatched in the
breadth of the opportunity presented both expert witnesses and citizens to make their
views known. The exceptionally high degree of public participation in the work of the
committee illustrates the need for and importance of providing vehicles for thorough
public debate and examination of the important issues raised by the proposed MAI and the
gamut of concerns and interests related to the development of future international
investment rules. 
2 Canada has signed or initialled FIPAs with Ukraine (1995), Latvia (1995), Philippines (1996), Trinidad and Tobago (1996), Barbados (1997), Ecuador (1997), Thailand (1998), Poland (1990), USSR/Russia (1991), Czechoslovakia (1992), Argentina (1993), Hungary (1993), South Africa (1995), Venezuela (1996), Panama (1996), Egypt (1996), Croatia (1997), Lebanon (1997), Armenia (1997), Uruguay (1997), Costa Rica (1998), Romania (1996), Peru (1994), El Salvador (1997) and Guatemala (1998). Source: Department of Foreign Affairs and International Trade, September 29, 1998.
3 During bilateral negotiations with Chile, for example, Canada unsuccessfully pressed that country to eliminate its "speed bumps" on short-term capital flows. These provisions, although now suspended by Chile, have been widely praised as a potential policy tool to reduce financial instability in the aftermath of the Asian financial crisis.
4 At least five developing countries -- India, Egypt, Indonesia, Malaysia and Pakistan -- have spoken out against the inclusion of new sectors such as investment in future World Trade Organization negotiations unless industrialized countries address problems with the implementation of existing agreements. "Developing Countries May Block Expanded WTO Trade Agenda," Inside U.S. Trade, April 16, 1999.
5 European Commission Directorate General I, "WTO New Round: Trade and Investment," memorandum, December 15, 1998. p. 3.
6 Ibid., p. 4.
7 "Canada Seeks to Limit Investor-State Provisions in
NAFTA Review," Inside U.S. Trade,
December 18, 1998.
8 "Report on the Multilateral Agreement on Investment (MAI) Interim Report -- September 1998," Catherine Lalumière, Member of the European Parliament, and Jean-Pierre Landau, Inspector-General, Finance, p. 4.
9 "Multilateral Agreement on Investment: Final Report," Joint Standing Committee on Treaties, Parliament of Australia, March 1999, section 8.24.
10 Ibid., section 8.16.
11 Ibid., section 8.30.
12 Ibid., Appendix 5.
13 "Third Report: The Multilateral Agreement on Investment," United Kingdom House of Commons Trade and Industry Committee, December 15, 1998.
14 Ibid., Summary of Recommendations and Conclusions.
15 United Kingdom Environmental Audit Committee First Report, February 1999, section 11.
16 Ibid., Summary of Recommendations and Conclusions.
17 "Canada and the Multilateral Agreement on Investment," Third Report of the Standing Committee on Foreign Affairs and International Trade, December 1997. The opposition Reform and New Democratic parties each produced their own dissenting reports.
18 Ibid., recommendation 5.
19 Ibid., recommendations 6 and 10.
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