Towards a Citizen's MAI: An Alternative Approach to Developing a Global Investment Treaty Based on Citizens' rights and Democratic Control

Working Instruments

Prepared by:  Polaris Institute
(Canada) 1998
 

Introduction

For the past year or so, we have been organizing campaigns in our respective countries around the goal of stopping the Multilateral Agreement on Investment [MAI] being negotiated at the Organization for Economic Cooperation and Development [OECD] in Paris. Throughout, our common position has been that we can say "no" to this MAI. We have argued there is nothing inevitable about the MAI. Nor will the sky fall in if it is defeated. By saying "no", however, did not mean that there should never be a global investment treaty. What we have said is that the OECD model and the process for developing a global investment treaty have been totally wrong and must be rejected.

The question then arises as to what is our alternative. In campaigning against the MAI, many people have told us that saying "no" is not enough. We must also be able to say "yes" ---to some kind of alternative model of a global investment treaty. Given the recent exponential growth in world-wide foreign direct investment, coupled with the expanding size and scope of transnational corporations, the need for a global set of investment rules is certainly arguable. The proponents of the OECD's MAI, of course, tell us repeatedly that "there is no alternative". Yet, to accept this propaganda is simply to give into intellectual terrorism.

But is it really desirable and possible for us to design an alternative MAI? Is it the responsibility of citizen movements to come up with the alternative, or should we simply be demanding that our governments do this? If we have little faith that our governments will or can do so, then how could we develop an alternative MAI in such a way as to respond to the multitude of objections that we have already raised in our campaigns about the OECD's MAI? What would be a common set of principles upon which we could develop an alternative? How could we redefine and re-orient the basic components that would go into an investment treaty? What kind of process would be necessary for both developing and implementing an alternative MAI?

If nothing else, the timing may be right for advocating an alternative MAI. After all, the OECD's MAI has been wounded in no small measure because of the public opposition that we have been able to mount over the past year. Internal disagreements over some of the key components of the MAI, coupled with a backlog of reservations and lingering ambiguity about the political will of some major players, have conspired to raise doubts about whether the OECD model is workable. Despite the face-lift given to the MAI negotiations at the April 27-28 ministerial meeting, the OECD's model and process for developing a global investment treaty have been largely discredited. It is in moments like this that political space begins to open up for alternatives. The question now is whether we are prepared to seize the political moment to develop and promote an alternative MAI.

What follows here is a working instrument designed to assist citizen movements in developing an alternative MAI. It is divided into three parts: [1] Principles; [2] Components; [3] Process. Each of these three parts contains a set of propositions. The task here is for citizen activists in each country to study these propositions, modify them if necessary, and from this develop an agenda for negotiating an alternative MAI.

In making use of these working instruments, it is important to keep in mind that this tool is based on a couple of operating assumptions. First, the citizen movements engaged in campaign work on the MAI in each country are composed of people from different sectors [eg. labour unions, environmental groups, food producers etc.]. The instruments are designed for best use by multi-sectoral movements or groups. It is, of course, possible for single sector groups to use this tool but, in doing so, the interests of other sectors in your society must also be taken into consideration. Second, it is hoped that citizen movements from both the North and the South will be engaged in developing an alternative MAI. As the MAI proponents themselves acknowledge, the ultimate goal is to impose this new global investment treaty on the South, eventually under the auspices of the World Trade Organization. It is therefore imperative that these working instruments be useful for citizen movements in the South as well a the North.
 

1. Principles

In building public opposition to the MAI, our campaigns have often emphasized how this global investment treaty constitutes a power grab for transnational corporations that would end up hijacking the fundamental democratic rights and freedoms of peoples all over the world. To combat the OECD's MAI, appeals have been made in several countries to the Universal Declaration of Human Rights which marks its 50th anniversary this year. At the heart of the Universal Declaration is the dignity of the human person which, in turn, forms the foundation stone for basic democratic rights and freedoms. But the Universal Declaration not only provides a platform for saying "no" to the MAI. It could also provide a base for developing an alternative MAI to which we can say "yes".

While the wording may seem awkward a half century later, the Universal Declaration entrenched many of the basic democratic rights and freedoms of citizens including --- the right to food, clothing and shelter; the right to employment, education and health care; the right to clean environment, cultural integrity and quality public services; the right to fair wages, collective bargaining and the formation of unions; and the right to participate in decisions affecting these rights. Coupled with the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights, this Declaration asserted the supremacy of human and citizen rights over political and economic tyranny.

Labeled as the Magna Carta of the 20th century, the Universal Declaration and its related Covenants have been reinforced by subsequent declarations such as the Earth Charter from the Rio Summit and the Social Charter from the Copenhagen Summit. Yet, the principles embodied in these documents depend on the political will of nation states to implement them through laws, policies and programs in their own countries. Indeed, to realize many of the basic democratic rights and freedoms in the Declaration requires that certain economic and social conditions are created. The only way this could be done in democratic societies was to recognize that the state itself has both the right and the responsibility to intervene in the market in order to ensure that the economy serves the needs of people and the earth.

The United Nations' Charter on the Economic Rights and Duties of States established this cornerstone. Passed in 1974, the Charter recognized among other things, the political sovereignty of nation states to protect the public interest by regulating foreign investment. It granted member nations the authority to supervise the operations of transnational corporations in their territories by establishing performance requirements to ensure that foreign investment served the economic, social and environmental priorities of national development. While granting nation states the powers to "nationalize, expropriate or transfer ownership of private property", the Charter also called for the payment of fair compensation for expropriation.

The Charter's operating principle was that transnational corporations have social obligations. This is based on the fact that capital formation itself is a social process. Simply put, it depends on the labour of others. All capital has a social dimension because it is the product of present and previous generations of labour. Moreover, society through the state makes it possible for the accumulation and use of capital by providing economic [eg. roads, bridges etc.] and social [eg. education] infrastructure. This is why some ethicists insist that "there is a social mortgage on all capital". In other words, corporations have a debt to society. They have social obligations.

What this means, in effect, is that capital must be deployed in ways that serve the basic needs of people and the earth itself. Although the investment of capital is obviously a strategic tool or instrument for development, it must not be solely used for the maximization of economic growth or corporate profits. Instead, capital should be invested in ways that serve not only economic priorities, but the environmental, social and cultural needs of society as well. By regulating foreign investment in terms of this operating principle, governments would be able to establish the economic and social conditions required to realize the basic rights of citizens embodied in the Universal Declaration and its related Covenants and Charters.

At this point, a distinction needs to be made between foreign and domestic investors based on the formation of capital. Implicitly, domestic investors participate in a social contract by staying in production, hiring local workers, paying taxes and retaining profits in the country. In doing so, they contribute to, as well as benefit from, the socialized valued of capital. But foreign investors which suddenly appear on the scene have made no contribution to the build-up of social wealth in the host country. In many cases, foreign firms buying an existing domestic company intend to stay only a short time, yet want to be able to take full advantage of the stored social value of capital built-up by previous generations of labour. This is why nation states should have the right to require foreign investors to meet certain social obligations.

During the last quarter of this century since the UN's Economic Charter was ratified, however, there have been substantial changes in both the global economy and the nation state. Today, transnational corporations are able to move their operations from one country to another at a moments notice, outflanking governments, workers and their communities. In most countries, governments have surrendered many of the key policy tools they once had to supervise and regulate foreign investment. Moreover, it is increasingly evident that economic planning needs to become more decentralized by ensuring that local communities as well as national governments have the power and tools to control foreign investment in relation to local development needs.

Nevertheless, the Charter could be modified to serve as a framework for developing an alternative MAI. In exchange for access to the markets or resources of a given society, transnational corporations should be required to meet certain social obligations that have to do with ensuring basic democratic rights and freedoms. At this point, the social obligations of capital can be spelled out in terms of three operating principles.
 
 

1. Citizens' Rights:There are several categories of citizen rights and freedoms which are recognized and enshrined in the Universal Declaration and related Covenants and Declarations. They include: Labour Rights such as the right to employment, fair wages, and basic labour standards like health and safety, freedom to organize unions and collective bargaining; Social Rights such as quality health care, public education, social assistance, unemployment insurance, retirement pensions and special services to meet the needs of women, children, seniors and people with disabilities; Environmental Rights such as the preservation of the natural resources, species and bio-diversity of the planet for future generations through measures designed prevent the destruction of the air, waters, forests, fish, wildlife, and non-renewable resources; Cultural Rights such as the preservation and enhancement of peoples' distinct identity, language, values, customs and heritage. Any global set of investment rules should be designed to strengthen rather than to undermine these basic citizen rights.
 
 

2. State Obligations: As outlined in the UN Charter on the Economic Rights and Duties of States, governments are obligated to intervene in the market when necessary to ensure that economic development meets standards designed to enhance these basic citizens' rights. To do so, states have the right to maintain control over their fiscal and monetary policies as well as to enact laws, policies and programs designed to regulate the economy in the public interest. In particular, states have the right and responsibility to protect (a) strategic areas of their economies [eg. finance, energy, communications] by establishing public enterprises and (b) sensitive areas known as the 'commons' [eg. environment, culture, health care] through government-run public services. In this way, governments are able to fulfil their social obligations by ensuring that the capital raised through taxes for public revenues is used to serve the basic rights and needs of citizens. By doing so, however, states must also ensure that their public enterprises and public services are operated in an efficient manner.
 
 

3. Corporate Responsibilities: In the global economy, foreign based corporations do have the right to invest their capital and expect a reasonable return on their investment. And when their assets are expropriated for a public purpose, they can expect to be given fair compensation in exchange. But, in doing so, foreign based corporations have certain social obligations to maintain. First, they must ensure that their investment is designed to serve the public interest, primarily the basic rights of citizens, by meeting performance requirements such as labour and environmental standards. Second, they must recognize the right and responsibilities of states to protect, preserve or enhance strategic areas of their economies and the commons. Third, they must contribute to public revenues by paying their fair share of taxes so that a portion of this capital can be used to serve the 'commons' through social programs, environmental projects, cultural initiatives and a variety of public services. Any global body of investment rules must be designed in such a way as to bind corporations to the fulfillment of these basic social obligations.

The application of these operating principles will likely vary from country to country and region to region. Differences exist in the nature, role and capacities of the state around the world today. Small, less developed nations, for example, are often much more vulnerable than larger states when it comes to dealing with the power wielded by transnational corporations. What's more, the fact that the nation state is also caught in a dynamic tension between localism and globalism is also sparking demands for a re-invention of the state. As a result, there are bound to be diverse approaches to economic, social, environmental and cultural priorities for development. This pluralism needs to be recognized along with the various asymmetries of power between nation states when it comes to developing an alternative, citizens'- based MAI.

This is why these three operating principles regarding the social obligations of capital are proposed as the cornerstones for developing a Citizens' MAI. In applying them, it should be kept in mind that the second two are meant to be subordinate to the first, namely, the basic democratic rights and freedoms of citizens. This, in turn, points to the political rights of citizens in democratic societies to participate in decisions affecting their lives. In developing an alternative MAI, it is crucial that processes be devised for effective citizen participation and democratic control. When it comes to fulfilling the social obligations of capital, citizens must have the means for holding both corporations and governments accountable. Before taking up this task [see section 3 on Process], we need to turn our attention to what could be some of the main components of a Citizens' MAI based on these operating principles.
 
 

2. Components

The following is a draft outline of some of the main components of a Citizens' MAI based on the operating principles discussed in Part 1.

Guiding Principles:

* Investment by foreign based corporations is welcome provided that it adheres to regulations designed to enhance the economic, social and environmental rights of citizens.

* The stored social value of capital provides a basis for making distinctions between foreign and domestic investment.

* Regulations on investment must be democratically determined by governments in consultation with their people.

* International agreements must take into account the asymmetries of power and different levels of development that exist between countries.

* Agreements must also respect the diversity of political jurisdictions [eg. states, provinces, municipalities, aboriginal governments] that exist within some countries.

 * In the case of conflicts, internationally recognized citizens' rights [eg. Universal Declaration of Human Rights and its Covenants] take precedence over the rights of corporations or investors.

Regulatory Objectives:

* To enable governments to implement national economic policies[eg.including fiscal and monetary] along with social, environmental and cultural policies appropriate to each country.

* To ensure that corporations fulfill their social obligations by meeting economic, social and environmental standards and priorities.

* To provide a clear set of rules that will serve to stimulate rather than to stifle economic initiative and dynamism.

* To encourage productive forms of investment that will increase links between the local and the national economy and screen out investments that make no contribution to development priorities.

* To allow for development strategies that involve exclusive public ownership in strategic sectors, exclusive national ownership in other key sectors, along with those sectors where a mix of national and foreign participation would be complementary.

* To curb volatile, short-term, speculative forms of investment that lead to rapid capital outflows and cause economic collapse.

Non-Discrimination

* The concept on "National Treatment" would be redefined in such a way as to reflect the operating principle regarding the social obligations of capital.

 * Based on the principle of the stored social value of capital, governments could apply different rules for domestic and foreign investment.

* All foreign based corporations can be required to meet basic performance standards [see below] in order to fulfill their social obligations.

* The principle of non discrimination would apply among all foreign based corporations provided that they adequately meet their social obligations.

Performance Standards:

To ensure that corporations fulfill their social obligations, states may impose performance requirements such as the following:

+ Job Creation: require a certain percentage of domestic content or of local input as part of the investment; provide employment opportunities for their citizens and immigrants; balance imports and exports; transfer and make use of appropriate technology to create and maintain jobs.

+ Labour Standards: respect labour standards that are at least as high, but never lower, than those set by the International Labour Organization conventions On trade union freedom, collective bargaining, child labour and forced labour, as well as minimum wage, health and safety laws of countries.

+ Environmental Safeguards: adhere to standards and targets that are at least as high, but never lower, than international treaties like the Montreal protocol on ozone depletion or the Kyoto agreements on greenhouse emissions; plus regulations or restrictions pertaining to toxic waste disposal, clear-cut logging, food safety, and quotas on fishing or the export of non-renewable energy.

+ Sustainable Communities: require local permission for the exploitation of natural resources, such as fish or forestry products, for purposes of ecological conservation; give adequate notice to local communities of intent to shut down or move operations; plus provide adequate compensation to the local community, including payment for any environmental clean-up required.

+ Social Security: contribute to the social wage plans of workers such as pensions, health and unemployment insurance benefits; pay fair share of taxes to ensure that there are sufficient public revenues for education, health care, and social services, as well as various cultural support programs provided by government.

Investment Incentives:

In order to stimulate corporations to fulfil these and related social obligations, governments may make use of a variety of policy tools including:

* subsidies, grants or loans to both domestic and foreign based corporations;

* procurement practices [i.e. purchasing goods and services from companies that adequately adhere to performance standards]

* various kinds of tax incentives as well as limits on the annual remittance of profits [for those foreign-based corporations that fail to adhere to their social obligations].

Public Enterprises:

Governments also have a responsibility to use tax revenues for protecting the commons by making public investments such as:

+exercising public ownership over key sectors of the economy that affect all citizen [eg. electricity, communications, transport etc.]

+establishing social programs and public services to ensure delivery of adequate education, health care, and social services;

+protecting cultural heritage by supporting local artists and entertainers, legislating content rules, and by maintaining public broadcasting systems;

+safeguarding ecologically sensitive areas through national parks and preserves.

It is the responsibility of the state to ensure that these public enterprises are operated on a sound and efficient basis. Corporate takeovers of social programs or public services without majority citizen consent should be firmly resisted by governments. Decisions to privatize a public enterprise should be made with citizen participation. In selling a public asset, priority should be put on seeking options for community ownership.

Expropriation Measures:

* Expropriation of corporate assets to serve vital public purposes or community needs shall be permitted. In turn, fair compensation shall be paid to those corporations which have had their assets expropropriated.

* Compensation shall be determined by national law with due regard to the value of the initial investment; the valuation of the properties for tax purposes and the amount of wealth taken out out of the country during the period of investment. Investors would have the right of appeal to national courts when they consider the compensation to be inadequate; appeal to international tribunals may only occur after all national procedures have been exhausted.

Financial Transactions:

* All governments have a right to maintain responsibility for fiscal and monetary policy in their countries by using policy tools to regulate the inflows and outflows of capital.

* To limit the current trends toward volatile, short term speculative forms of investment [hot money], governments could require that foreign investment be used for productive purposes rather than speculation;

* To avoid the destabilizing effects of fly-by-night portfolio investments, corporations could be required to deposit a percentage of their investment in local banks for a specified minimum period.

* To slow down currency speculation, a tax on foreign exchange transactions [eg. the Tobin Tax] could be instituted [preferably by several countries acting in concert].

Dispute Settlement:

+ In addition to the right of corporations and governments [both national and sub-national] to sue each other for violations of this investment agreement, citizen groups would have the right to sue both corporations and governments for breach of their social obligations under these investment rules.

+ Disputes filed by citizen groups would be heard by national courts which have the power to invoke injunctions as well as award monetary compensation for damages; international tribunals could provide subsequent avenues for appeal;

+ All proceedings, either through national courts or international tribunals, shall be fully transparent and open to public observation.

+ All proceedings, either through national courts or international tribunals, shall be fully transparent and open to public observation.

+ National and international funds should be established by governments to provide certain groups[eg.native communities, environmental and women's' groups] with intervenor funding for these legal proceedings.
 
 

3. Process

Developing an alternative model, however, is by no means the only task we face today. If we were able to overhaul the model without, at the same time, changing the process for developing and negotiating the MAI, little would be accomplished. After all, the process that gave rise to the MAI is perhaps the most elitist and authoritarian examples of policy making that many of us have seen in recent years. Not only were the basic components of the treaty crafted in secrecy over a two year period in the basement conference room of the OECD headquarters in Paris before they saw the light of day, but the negotiators from the 29 countries at the table worked hand-in-glove with big business associations and leading corporate executives. No authentic citizen movements --- composed of workers, environmentalists, farmers, educators, health care professionals, artists or entertainers, and a host of other constituencies directly affected by the proposed investment rules --- were even consulted, let alone involved, in the negotiations.

Indeed, many activists involved in the anti-MAI campaign believe that the secrecy surrounding the developmental stages of the negotiations was deliberate and that the original plan was to move the final text back to the member country legislatures with little or no fanfare. As a result, there is a deeply felt concern among most citizen activists involved in this campaign that the task of developing an alternative MAI cannot be left to governments alone. On the contrary, policy making on trade and investment, as well as a significant number of domestic issues, has been largely hijacked by the special interests of transnational corporations. Increasingly, people feel they are no longer governed by democratically elected legislatures but by transnational corporations that are unelected, unaccountable and seemingly uncontrollable. More than anything else, the MAI symbolizes this new political era of corporate rule.

If we are committed to developing a Citizens' MAI, therefore, we must be prepared to take up the task of devising and promoting an alternative process. All the more so, if our struggle is grounded in a fight for democratic rights and freedoms. What is needed are alternative processes for developing, negotiating, ratifying and implementing a global investment treaty based on increasing citizen participation and democratic control. To be effective, this needs to be done in most if not all of our countries. Obviously, this is much easier said than done. Generally speaking, citizen movements do not have the time and resources required to develop, let alone the political clout to bring about, an alternative process along these lines. Moreover, this kind of work is not without its built-in traps. All too often, citizen participation is cast in terms of consultation, with little or no involvement in defining and deciding on the priorities to be negotiated.

This challenge, of course, is not unique to campaign work around the MAI alone. It is part of the much larger struggle against the forces and institutions of economic globalization itself.

That's why it may be strategically important for us to take a more in-depth, longer term approach to the task of developing alternative processes for effective citizen participation and democratic control. If it is true that the OECD process is facing a major log jam and that the negotiations could take another couple of years, then perhaps we should seize the moment to demand an alternative process. And if our citizen movements decided to move in this direction on the MAI, whatever we do could end up making a significant contribution towards building new citizen tools and strategies for challenging economic globalization on other fronts. For the moment, however, it might be worthwhile taking a look at five strategic issues that need to be addressed in developing alternative processes for moving towards a Citizens' MAI.

1. Political Venue: The question of what is the appropriate venue for negotiating a global investment treaty needs the be confronted. Clearly the OECD, as the "rich nations' club" and the home of the Global Fortune 500, is hardly neutral grounds for negotiating such a treaty. Nor would the World Trade Organization be a more appropriate venue. Indeed, despite that fact that most developing countries of the South are included in the WTO, the Third World Network maintains that the WTO's narrow trade bias coupled with its exclusive power structure mitigates against negotiating alternatives through this venue. While the United Nations' Conference on Trade and Development may be more inclusive, it has been marginalized to the point where it is unlikely to be taken seriously as a venue for constructive negotiations. As long as the negotiations remain at the OECD, we must hammer a way at its credibility. We must also monitor the likely transition to the WTO and challenge its credibility as a venue for negotiations. At the same time, we need to be able to identify an appropriate locus for alternative negotiations somewhere within the United Nations system itself.

2. Constituent Assemblies: To develop an alternative MAI, the question arises as to what democratic means do citizens have in their own countries for discussing, debating and formulating positions for negotiation. What is needed is a forum in which representatives from a variety of sectors and organizations of civil society can meet and formulate their positions on key issues. One option would be to organize constituent assemblies in each country composed of representatives elected from diverse sectors and regions. Through these assemblies, major issues could be researched and discussed with a view to forming positions on a Citizens' MAI to be taken to the negotiating table(s). Would it be possible to organize a constituent assembly for such purposes in each country? What resources would be required? What relation would it have with government?

3. Citizen Participation: Once there is a way for democratically formulating positions to take to the negotiating table, then there is the question of how positions taken by a constituent assembly or its equivalent can be delivered through the negotiating process. There are at least three fronts where mechanisms for effective citizen representation need to be devised: (a) in the forming of positions to be taken by one's own government; (b) in the multilateral negotiations taking place between the participating countries; (c) in the process used by each country to submit the final draft of the treaty for parliamentary discussion, debate and ratification. On each one of these fronts, effective strategies for citizen intervention and participation would have to be developed within each country.

4. Community Control: In order to deepen commitments to increasing citizen participation and democratic control, special attention needs to be given to local community strategies. The task here is to enable local communities to take back control over their own economies and particularly investment decisions. In several of our countries, the MAI battle has sparked a resurgence of movements for local economic control. One way of doing so is to promote community economic development projects that are designed to strengthen local control over investment. Another is to set up community investment boards, composed of citizens elected from the region, to monitor the operations of existing corporations and to screen new investments based on the criteria developed for the Citizens' MAI [eg. performance requirements etc.]. Local community initiatives like this could greatly strengthen the work done at other levels [eg. the constituent assembly or the work with ones' national government] as well as instill a sense of confidence in citizen activists.

5. Strategic Links: At the same time, we could find ourselves being outflanked by corporate investment plans being pursued in other trade regimes and institutions of globalization. Hemispheric trade regimes like the Free Trade Area of the Americas and the New Transatlantic Market are putting a major emphasis on incorporating an investment code along lines similar to the MAI. The International Monetary Fund is currently amending its mandate to cover capital flows and the World Trade Organization fully intends to institutionalize an MAI-like investment treaty as the cornerstone of its operation. In devising alternative mechanisms for developing a Citizens' MAI, it would be strategically important to forge links with like-minded social movements which are working on issues around the FTAA or the NTM, the IMF or the WTO. Through these linkages, we could share strategic analysis and intelligence as well as identify some common priorities such as alternative mechanisms for increasing citizen participation and democratic control.

The MAI could prove to be a useful place to begin. The elitist and authoritarian methods used by the OECD has already been a major flashpoint for mobilizing resistance against the MAI. If the negotiations at the OECD are extended for an indefinite period, then this could provide the time and space that is necessary for reorganizing our campaign priorities. By focusing energies in each of our countries on developing an alternative Citizens' MAI, we have a chance to go on the offensive and to put the proponents of the OECD's MAI on the defensive. And if attempts are made to take the public spotlight off the OECD and move the negotiations underground over the next year in the hopes of surfacing later with a done deal [as happened recently with the WTO's financial services agreement], then we must seize the moment to intensify public demands for a radically different process along the lines discussed above.