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Democratic Deficit NZ Listener 27 Dec 97, Jan 10 98

It is an "innocuous" document, says Trade Minister Lockwood Smith. A vehicle by which countries, "by mutual consent, accept a conunitment to openness and stability in their respective foreign investment regimes", says the Ministry of Foreign Affairs. No worries? Hang on, can this be the same document that the Toronto Globe and Mail (November 29) says is a deal that hands multinational corporations "greater protection from government interference"? Critics of the MAI within Canada and these now include the entire government of British Columbia believe that this document will diminish Canada's national sovereignty, by restricting the ability of goverdments to enforce environmental laws, promote job creation or protect Canada's cultural industries. Moreover, the MAI provides fresh avenues for global corporations to sue governments or intimidate them by threatening to sue if national policies happen to affect their bottom lines. "With MAI," trade specialist Robert Howse of the University of Toronto law school told the Globe and Mail, "we are opening ourselves up to the ... risks [of claims] from countries that view changes in public policy as expropriation".

"These agreements do cover the ability of govemments to deal with the envimnment, and they dont exempt their abilities to do so. - Barry Appleton

Can we be talking about the same docurnent? Yes, we can. Welcome to the Multilateral Agreement on Investment (MAI). Harmless or heinous? The public has some reason to feel suspicious. Here, our commitment to the MM right up to the plans for its signing in May 1998 has been at Cabinet level, with no scrutiny by Parliament. In the US and Germany, treaties that the govemment wishes to enter must be ratified by Congress or the Bundestag. Not so here. in Canada, federal select committee hearings are being held on the MAI, and provincial govemments (and others) have made submissions on it. That hasn't happened here. The New Zealand public could be forgiven for thinking what, exactly is there to hide? And what, precisely, is New Zealand getting itself into? Some basic points. The MAI is an OECD treaty, not something devised within the wider World Trade Organisation. Deliberately so. Once consensus has been reached among the OECD "rich nations" club, the MAI can be put before the more fractious Third World members of the WTO, as the basis for investment in their economies. The MAI is about investment, not trade. The key element is the notion of "National Treatment" which grants foreign investors the same rights as domestic companies. People can invest here, and we can invest elsewhere. Foreign investors gain access to a country's assets without facing any duty say, to create jobs, or restrict their takeover activity, or locate to regions that require development, or any other regulations that does not apply equally to local firms. In fact, the MAI gives foreign investors one important advantage. They will be able, under stated procedures, to sue govemments for compensation if the govemment enacts policies that the foreign investor feels will affect it unfairly. Under almost all international treaties the North American Free Trade Agreement (Nafta) is the other exception only states can sue each other. Under the MAI however, multinationals can bring actions against governments. Even the threat of litigation from a multinational with deep pockets, as the British Columbia submission points out, may be enough to deter some governments or local bodies. Such disputes then go to a panel of unelected experts, for binding arbitration. Unless New Zealand fimis engage in joint ventures with foreigners, they cannot avail themselves of these compensations. In Canada, this avenue is being widely seen as a threat to national sovereignty. Once New Zealand signs the MAI, it will be unable to withdraw from it for five years. Even if it then left, the provisions would stay in place for a further 15 years. Investors need such "certainty", Smith explains. Before signing, govenunents can nominate exceptions called "reservations" that they wish to exclude from the ambit of the MAI. This list of reservations is expected to be brief, and to be subject to "standstill" (no future govemment can add to them without making a compensating concession) and to "rollback", whereby governments agree to remove or reduce the reservations over time. Although New Zealand is signing up (supposedly in good faith) to standstill and rollback, Foreign Affairs Secretary Richard Nottage believes that, no worries, we can't be held to it. It isn't a legal obligation, he wrote recently in the New Zealand Herald. "And as New Zealand already has a very liberal investment environment, we would not expect to see any changes to our reservations in the foreseeable ftiture. " On the reservation for the Treaty of Waitangi issues, for instance, Nottage says, it is "just about inconceivable" that we would roll this back. Inconceivable? Well, could a future Act/National government conceivably desire to limit some rights currently enjoyed under the Treaty of Waitangi? If so, the MAI rollback provison gives an excellent rationale because it amounts to a promise to the world that we will do so. Could a future Labour/Alliance government conceivably wish to add to our Treaty of Waitangi, environment or labour policies? Maybe. Yet the NMI stops us adding to our list of reservations or changing policies in ways that favour local firms or organisations for the next 20 years. All signatory nations are compiling their own list of reservations. What is New Zealand doing? Tacked onto the Jenny Shipley/Winston Peters communique of November 18 was a list (including ECNZ, Television One, RNZ, National Programma, Concert FM, ports, airports, electricity and gas utilities) that the coalition "is committed to reserving New Zealand's position on..." So, are tholse assets reserved? No. On closer inspection of the communique, Shipley and Peters were only agreeing to reserve thei@ "position" whatever that means and not the assets themselves. The most recent list of official draft reservations is far more limited. They seek to protect favourable treatment options with respect to the Treaty of Waitangi, producer boards, existing overseas investment procedures, the Kiwi share in Telecom (but not in future SOE sales) a pledge to reserve six percent of Broadcasting Commission rinds for Maori broadcasting and a plan to entice Japanese interpreters here for the tourism industry, and so on. Fourteen items in all. Canada, by contrast, has about 40 reservations. These according to the local Canadian High Commission are based on what it also excluded under Nata. This would mean that, under the NMI, Canada is keeping its options open on foreign investment in law enforcement, correctional services, income security and insurance, social security and insurance, social welfare, public education, public training, health and childcare provision, airline investment, and culture industries including the placing of limits on ovmership and levels of foreign content in broadcasting. Much more sweeping than us. Moreover, as I pointed out to Smith, the govemment already says it is not going to sell ECNZ, Television One, etc, to anyone. So why reserve them from foreign investors when the coalition agreement says we are not going to sell them at all? "Because a future government might [sell them]. We don't want to have them constrained," Smith says, "in any way." Classic MAI logic. Our current open investment regime can be happily cemented in place for 20 years, but care must be taken not to constrain the ability of any future govemment to sell more state assets.

Foreign investment has always played a major role in the development of New Zealand. Last year, Peters was more vocal about the perils it can pose. "New Zealanders are in grave danger," Peters said then, "of losing economic control of their own country." Partly, he railed, because of "the view that prevails in some quarters, that the concept of ovmership is actually irrelevant". That was then. The MAI hinges on the notion that ownership is irrelevant. Within the MAI negotiations in Paris, New Zealand has opposed the inclusion in the main text of any binding clauses to protect the environment or labour standards. Our negotiators also oppose the inclusion of any stand alone "Not Lowering Standards" provisions, which aim to stop countries from creating "pollution havens" or exploiting tabour in a "race to the bottom" to attract foreign investment. On C)ctober 27, New Zealand's stance was criticised in Paris at a meeting between OECD officials and non-government groups. Within the MAI negotiations, we do not seem to be doing our "clean and green" image a whole lot of good. Our bureaucrats have also been tetchy with each other. The MAI negotiations began in late 1995. Even though our negotiating stance has always opposed the inclusion of binding commitments on the environment, Foreign Affairs did not bother to consult the Ministry for the Environment (MfE) about the MAI until late July 1997. Since then, the MfE has mounted a rearguard action to include safeguards on the environment and sustainable development. As of early November, Foreign Affairs wanted these included if at all in the non-legally binding preamble. Yet even Nata has labour and envirom-nent riders. So why not have them in the MAI? "Nata is not exactly the model for liberalising trade," Smith replies. "It is far too prescriptive." The MAI aims to be freer. Issues such as labour standards and the environment, he believes, belong elsewhere. "Once you start getting trade [sic] bogged dovrn in these other issues, you'll never make progress." To Foreign Affairs, the MAI is purely an instrument for fostering investment. That argument cuts no ice with international law expert Barry Appleton. Appleton wrote a key text on Nata, and is the lawyer for Ethyl Corporation, a US multinational that is currently suing the Canadian government for $US350 million under Nata, in a landmark test of the "National Treatment" principle also central to the MAI. So the MAI is no place to set labour and envirorunental standards? "Someone who says that," Appleton tells me from his Toronto office, "doesn't kdow what is going on. The problem is, these agreements do cover the ability of governments to deal with the environment, and they don't exempt their abilities to do so. In other words, there is no symmetry h(,.re. What these people [the New Zealand officials] are saying is: 'We should have [in the MAI] the ability to compensate businesses. But, on the other side, we shouldn't allow governments to be able to regulate [on the environmedtl WithOUt paying compensation.'That's not an even argument. " The only safe way to remove environment and labour issues from the MAI, he says, is explicitly to restrict the powers of multinationals in those areas. The problem for governments, Appleton continues, is that the MAI obligations are very broad, and they are not constrained. Governments can say that the MAI won't apply to policies on services and the environment and global warming and the like. "Well, it will."

"Why would you think a govemment would want to go into something that was not good for New Zealand?" - Lockwood Smith

Take another example that has been raised here. Plunket provides certain health services. For all sorts of warm fuzzy and practical reasons, our government wants Plunket to continue to do so. Under the MAI, a mega-US health provider may want to invest and challenge Plunket for the "Well Child" business action on an equal footing. Could it? Yes, says Alliance leader Jim Anderton. If the mi-iltinational invests in the bricks and mortar of a hospital, he argues, it must be able to invest in the services that the hospital provides. No, says Lockwood Smith. Plunket could still be favoured just because it was local, or for any other reason. "The [MAI] agreement has nothing to do with that process. Because that is not investment. That is provision of a service. The government, in procuring a service that we want, is at liberty to procii-re those services from wherever it chooses. This agreement has nothing to do with that." Correct? "He's wrong," Appleton says flatly. "This underscores one of the most interesting issues about the MAI. That is, governments don't fully appreciate the meaning of the terms that they are agreeing to. Inveshnent is exceptionally broadly defined under the MAI." In Canada, American for - profit health proividers want access to the services within Canada's non-profit health system. Nafta explicitly excluded them. The MAI doesn't. Why? "Because there was no intention to make the MAI as narrow as Nafta." With the MAI, Appleton continues, eveirhing falls within its ambit unless it is excluded. "It doesn't work the other way. You can't say, 'Well, we didn't intend this to happen.' Wishful thinking won't be able to protect us." (This concern, that the MAI may threaten Canada's health services, is also raised within the eloquent British Columbia submission.) In New Zoaland, coidd some of our normal processes such as the reviews of the consents to use resources under section 128 of the Resource Management Act lay the govemment open to being sued in future for "expropriation"? In documents released under the Official Information Act, MfE officials have expressed concern about this. Expropriation dangers - and whether New Zealand is opening itself to litigation by the multinationals of its 28 fellow signatories will be discussed in the second part of this article next week. That prospect (and other MAI issues) should be being scrutinised in Parliament. Labour would certainly like a debate in Parliament, if only to legitimise our signing up to the MAI. So why not bring this treaty into the House? Smith offers an extraordinary defence. Look what happened in the US recently, he replies, when the President's power to negotiate trade pacts was put before Congress. All sorts of trade-offs were sought, including, he says, one on abortion. "That's the kind of nonsense you got into." Democracy is always messy, I suggest and, anyway, abortion is unlikely to be tacked on as a rider (to the MAI) here. Smith is not so sure. "Once we start the process the US has, don't you belie'ke it." This seems to be a classic FPP response. LJnder MIVIP, isn't he supposed to embrace debate, consensus and cooperation? "I'm not naive," Smith replies. "That would be the last thing we would need to do as a nation, to do that." Why isn't it the first thing? "Because you immediately start getting bad decision-making..." So, it is better to have a treaty in which people don't have a voice, because the process is then clean? Smith frowns, a puzzled look on his brow. "Of course, if this is not a good thing, [the] govemment can actually get itself out of it. lvhy would you think a government wotfld want to go into something that was not good for New Zealand?"

Canada and MAI

The MAI making the world safe for transnational corporations is coming soon to a country near you. The second of two articles.


Imagine you've invested in let's keep it simple a cup of coffee. It's yours, you are a multinational corporation, you want it. If a government confiscates your coffee, that's "expropriation" in international law, so you can sue. Suppose the government just spills your cup. That's expropriation, too. And if the govemment takes away your cup for a while and returns it later, but yotir coffee got a bit cold ... that, too, is expropriation and you can sue for all your lost enjoyment. Because you, as the boss of Transglobal Takeovers, want foreign investment always to be just the way you like it. The perils of expropriation are part and parcel of the Multilateral Agreement on Investment (MAI). This treaty will set the rules for foreign investment in this country, and lock them in place for the next 20 years. Under the MAI, New Zealand is laying itself open to being sued if its ordinary domestic policies are seen in the view of multinationals as expropriation, or something like it. Anything that unfairly (in the eyes of transnationals) infringes on the enjoyment of investing here can be treated as "tantamount to expropriation". Even the threat of legal action may suffice in future to deter any government or local body that sought, sav, to improve the environment in ways that encroach on a foreign investment. The money at stake can be huge. Recently, for instance, the Canadian government tried to stop the US Ethyl Corporation from selling (inside Canada) imports of an anti-knock gasoline additive called @T, which the Canadians believe is a toxic substance. In April 1997, Ethvl filed a $US250 million ($NZ420 million) law suit, claiming "expropriation" by the Canadian Government under the terms of the North American Free Trade Agreement (Nata). New Zealand should worry. Under international law, corporations cannot normally sue nation states. Usually, nations sue other nations, on behalf of their aggrieved citizens. At best, a small protocol gives a bit of room for citizens to take action. Nafta was the first major intemational treaty to empower transnationals to sue nation states directly over trade disputes. The MAI provides transnationals with the same power, on investment. In signing the MAI, New Zealand would therefore move into what are relatively uncharted waters for us. Global corporations will be able to sue ii,,;, and got binding intemational arbitration before a disputes panel. To help them, the MAI introduces fresh, American-based notions about the right to property and compensation that have been hitherto foreign to our tradition. "The US has rights to property in the Constitution," says international treaty law expert Barry Appleton, from his offices in Toronto. "We [Canada and New Zealand] do not. In fact, our govemments can do pretty much what they wish, and need not pay [unduly] for the privilege of doing so. That's been part of the rule of law in British jurisdictions. In the US, they do have an enshrined right to property, and they talk a lot about whether certain govemment actions constitute the takings, or not.' The MAI, Appleton says, will take these "highwater mark" definitions of property rights-, expropriation and compensation, and bind us to them. (Auckland University constitutional law expert Bill Hodge confims this.) The relevant cases, Appleton says, are emerging from the US/Iran Claims Tribunal in the Hague. "They make, it clear that you don't have to have a taking to be expropriafion. You just have to have a deprivation." Dangerous ground? "I can't understand why a government wouldn't want to look very carefully [before entering] this type of obligation." . Appleton knows his subject. He is author of q key text on Nata, and is Ethyl Corporation's lawyer in its case against Canada. The. avenues for compensation under the MAI, he continues, are open only to multinationals. "And that is completely absiLrd. You have the bizarre situation that domestic companies may not be compensated, but foreign companies can be, and at a higher amount. Anyone who is smart will do a joint venture with a foreign company j iist to get these benefits The point, Appleton concludes, is this do you want gover=ents to be able to regulate? "Or are you going to force them to rent back their jurisdiction? Because that's what you're doing with the MAI. You're forcing governments to rent back their jurisdiction, if they want to act in the public interest."

Publicly, New Zealand has barely begun to consider these issues. A major worry. In May this year, we are due to sign this binding agreement on foreign investment that ties us (and 28 other countries) for the next 20 years. Parliament has not even debated the MAI, nor is it likely to in future. Its role, at best, will be to change our domestic law downstream as necessary, once the treaty is signed. Given what is at. stake and the ignorance of ordinary &Ws about intemational law a token debate could be useless. It would probably tum into a slanging match about who is or isn't keen on foreign investment. Better than nothing, though. Canada is, by contrast, acting responsibly. It is holding select committee hearings on the MAI thus enabling MPs to hear expert testimony and become informed, while allowing citizens and organisations to have their say. In New Zealand, even the bureaucrats advising the politicians are having big problems with the basic information. On December 2, for instance, the Conunerce Conunission wrote to reassure Alliance NW Laila Harre about expropriation. As evidence, the letter cited a British Columbia case called Tener, in which the Crown "argued" a distinction between "expropriation" (where the Crown had to pay) and "injurious affectation"-, where it did not. True, the Crown did argue that way: what the Commerce Commission doesn't seem to realise (or mention) is that the Crown lost the Tener case!

Similarly, Foreign Affairs, in a briefing for this article, sought to dispel concerns about the MAI. Unless something was explicitly included within the treaty, officials told me, it was not covered by it. It was out. This is the exact opposite to what experts overseas are saying. "The obligations under the MAI are very broad," Appleton says, "and are not constrained ..." If something is not excluded, he explains, it is in. Moving right along, take the notion of "national treatment" that is central to the MAI. To me, Lockwood Smith and the Foreign Affairs officials depicted this as a level playing-field. Multinational firms and domestic firms get treated the same. Not so, Appleton says. "Most people think'national treatment'means you treat foreign companies like you treat your own. It does not mean that. What is required is called a quality of competitive opportunity. That means you must treat the foreign company better than the domestic one, if there is some hardship." The relevant precedent: a 1989 Gatt case called Re: Section 337. Obviously, not every gove=ent is able to spot these traps for young players. Negotiators, Appleton finds, are so eager to get the deal done, they don't explain it frilly to ministers, who then don't know the implications of what they are signing. It matters. Ministers making informed judgments is democracy in action, Appleton says. Fine. "But when ministers agree to one thing, and then find it limits their ability for future years and there has been no consultation, then that really is something else."

How might a government in future tread on the toes of multinationals? Suppose it wants to prefer local suppliers of health services, because they are local. Suppose it wishes to change the rules on land ownership by foreigners. Suppose it wants to insert a "Kiwi Share" clause in a future state asset sale. Suppose a future government decides a multinational is not meeting the conditions of a resource consent (granted under section 128 of the Resource Management Act) and moves to revoke it. In these situations (and others) the government could find that the MAI lands it in the cactus, or gives it serious pause. The MAI is not supposed to make governing easy. It has been devised to help multinationals switch their investments around the globe as easily as possible. No problem there, provided govemments recognise that there are tensions between the needs of transnationals and those of nation states. Yet Smith, when invited, could not envisage that there could be a downside to foreign investment. In New Zealand, the idea that foreign investment needs to be managed to protect our interests seems utterly novel. Politically, the concems about the MAI are being raised by the Alliance. It is expressing the concems about foreign investment that were championed in 1996 by New Zealand First, to great effect at the time. As Bill Hodge points out, treaties such as the MAI are part of a trend of further empowering "non state entities" that are engaged in "global corporate activities". Nice terms, he says, for transnationals. Usually, Hodge adds, it is the left that instinctively jumps on countries not obeying international conventions on human rights and the like, while it is the right that bemoans the loss of sovereignty, the tentacles of world govemment and the loss of freedoms involved. Hodge: "This time, though, it is the left that is jumping on the sovereignty bandwagon, and the global tentacles argument." To fight Nafta, this instinct made Ross Perot and Ralph Nader into allies. Leaving aside the merits of the case, Hodge indicates, treaties such as the MAI can create peculiar bedfellows, and have the potential to unite voters from the left and right of the political spectrum.