7:45 PM Apr 1, 1996


Hong Kong 30 Mar (TWN) -- The moves of the industrialized countries in the OECD to write a "global" set of rules (a Multilateral Agreement on Investment, MAI) on the rights of foreign investors and attract developing countries to sign on appears to have received a cool and generally unfavourable reactions from key Asian countries.

The reactions came at a Workshop on Foreign Direct Investment that the secretariat of the Paris-based 28-Member Organization for Economic Cooperation and Development (OECD) had organized in Hong Kong (27-28 March) to acquaint the invited non-OECD countries with the OECD process now under way and which the OECD hopes to complete and get ready for signature by May 1997.

The Workshop was attended by representatives of 12 "dynamic non-member economies" and other developing countries, as well as OECD staff and OECD member governments.

However, according to reports out of that meeting, the initial reaction of participants from key Asian countries was cool and generally unfavourable. Participants from these countries expressed several concerns and objections on the substance, procedures and institutional context of the proposed rules.

The 12 invited economies were Malaysia, Thailand, Indonesia, India, China, Hong Kong, Taiwan, Brazil, Argentina, Korea, Singapore and Chile. They were represented by senior economic officials, diplomats, and research institutes. All participants took part in their personal capacity.

The OECD began these MAI negotiations among its member states in September 1995. The decision to initiate the MAI was made by the OECD Council at Ministerial level in May 1995.

From OECD documents and papers to the Hong Kong meeting, the MAI's main goals are to:

* Liberalise the terms of foreign investment even further than in existing OECD rules and guidelines, in particular to grant freedom to foreign firms wishing to enter a country and undertake investments; to give foreign investors "full national treatment" i.e. be treated no less favourably than local firms; and give most-favoured-nation treatment for all foreign investors;

* Introduce "new disciplines", not presently covered by OECD rules, including the liberalisation of movement of key corporate personnel, remove performance requirements imposed by governments on firms, tighten rules on behaviour of state enterprises, and allow foreign firms to participate in privatisation exercises;

* Protect foreign investors' rights -- covering national treatment and non-discrimination, ability to invest without having to secure host country government approval which can be denied only on very limited grounds of security, in intellectual property, safeguards against expropriation and compensation, protection from strife, transfer of funds and taxation;

* Establish a dispute settlement system which makes the agreement legally-binding and enforceable, so that effective penalties are placed on members that do not meet their commitments. This system would cover disputes between states, as well as disputes between investors and a state.

Working at high speed, since the May decision of the Ministers to launch these negotiations, the OECD has set up a coordinating Negotiating Group as well as five working groups covering the above issues. Only OECD member countries participate in the negotiations.

The target is to finalise the MAI by May 1997. If this dateline is met, the negotiations would have been done in record time, for a topic as complex as this.

The OECD proposal is separate from the campaign by the European Commission to introduce a similar agreement in the World Trade Organization.

The OECD on the other hand wants a self-standing agreement and its officials say they have no intention, at least for now, of injecting it into the WTO.

At the Workshop, the OECD officials kept stressing that the MAI was aiming at "high standards" -- meaning means levels of investment liberalisation and investor protection that are far higher than what exists even in OECD countries.

A most interesting feature is that whilst the MAI is initiated by and negotiated amongst OECD countries, it is actually intended to be not for the OECD alone but rather to be an international treaty of a global nature, open to all countries to join.

The OECD Secretary-General Jean Claude-Paye has been quoted in press interviews last week as saying that once the treaty is in place, the OECD members and the secretariat would use it as a kind of "good conduct of certificate" to non-OECD countries joining it which would give confidence to foreign investors to invest in these countries.

"When it launched the negotiations, the OECD Council emphasised the open character of the MAI," said OECD deputy secretary-general Makoto Taniguchi, at the Hong Kong workshop.

"It should become a free-standing instrument, open to all OECD member countries and the European Communities.

"It would also be open to accession by those non-OECD economies willing and able to meet its requirements. Indeed, non-OECD economies will be most welcome to join.

"The MAI's free-standing character means that it is not intended as an OECD instrument. Nor is it the intention to incorporate the Agreement in any other multilateral body."

Mr Taniguchi and other OECD officials said that non-OECD countries were not being asked to sign the MAI on a "take it or leave it basis."

Firstly, their views are being sought on the agreement's contents through workshops such as the one in Hong Kong and through other briefing sessions at future stages of the negotiations.

Secondly, non-OECD members could negotiate the conditions of their entry and include reservations against certain obligations and possibly transition periods to meet all standards.

Thirdly, once they join MAI, non-OECD countries would participate on an equal footing with OECD countries.

However, participants from the majority of non-OECD developing countries at the Workshop seemed far from convinced that they would have a fair share of participation in the establishment of the MAI or in the claimed benefits derived from it.

They raised several questions on the OECD's procedure of establishing the MAI, as well as on the MAI's contents and implications.

The chairman of the Malaysian Industrial Development Authority, Tan Sri Zainal Abidin Sulong, speaking in his personal capacity, seemed to voice the feelings of many countries when he reportedly told the workshop that there was a distinct impression that the OECD had put in a lot of work and energy on the MAI, and "whatever we say won't affect the process much."

Asians, Zainal is reported to have said, are sensitive to how they are drawn into a process and there is a considerable amount of discomfort when they are asked to accede to a treaty without being given an opportunity to get directly involved.

This, he added, could even be seen as objectionable, as the process seemed to ask non-OECD countries to accede without representation. "If this MAI is intended for global accession, then it has to be a global process and all countries need to be more directly involved."

Another objectionable point, said Zainal, was that the MAI is supposed to achieve a "high standard" and this had been cited as a reason why negotiations were confined to OECD countries. This seemed to imply that if non-member countries are involved the standard would be compromised or minimised. This assumption too was worrisome.

Zainal stressed that everyone agreed with the goal of creating global growth and a more open opportunity for all. However there were two sides to the issue of investment, as the entry of foreign firms could also have an effect on domestic firms in a country and there was thus a domestic dimension to foreign investment.

Both aspects had therefore to be considered.

The issue, said Zainal, "is not investment liberalisation per se but the effective and mutually beneficial management of this liberalisation."

On a more general level, Zainal perceived problems arising from the contrasting Western and Asian approaches to negotiations. The OECD approach to the MAI, he said, was top-down, and this might be expected given the Western approach to global negotiations. However, what is clear from various fora is that the Asia-Pacific region prefers a bottom-up approach.

The dynamic growth of the Asia-Pacific region is based on a highly pragmatic approach towards resolving problems and proceeding to the next stage.

Regarding the OECD proposal, Zainal believed the Asia-Pacific response would be for a more evolutionary and not a regulatory approach. The regional response could thus be expected in general to be negative.

Participants from several other Asian countries also raised similar concerns about the OECD's MAI process. In addition, they also questioned whether the contents of the proposed MAI would be advantageous to developing countries.

A participant from China commented that the MAI stressed the rights and interests of foreign investors but had nothing to say on the rights of host countries nor the obligation of investors to observe the laws of host countries.

The participant pointed out that without observance of domestic laws, foreign investors would not be encouraged as it would be against the host country's interests. Thus, the protection of the host country's interests and rights should be a crucial part of an investment agreement.

It was generally agreed that foreign investment plays a positive role. However, each country faced a different situation, and countries were also at different stages of development. Each country has the right to set up its own investment regime based on its own social and economic conditions, as well as the right to make its own judgement.

Although a lot had been said about the need for a MAI with "high standards", the participant stressed that what was more important was a balanced, successful agreement, acceptable to most countries, especially developing countries receiving investments. "If an agreement is of high standard but is not acceptable," the Chinese participant said, "then it would not be a good or successful one. The MAI should thus look at the rights of both sides, investors and host countries. If only one aspect is stressed, things will go wrong."

A participant from India is also reported to have raised substantive and procedural questions. What features in the MAI, for instance, would be beneficial for developing countries? How would accession to an MAI affect the WTO commitments of developing countries, for instance in TRIPS, TRIMS and services?

He also raised concerns about a proposal made in one of the workshop papers that labour standards and other social issues be part of the MAI, as these issues are likely to become non-tariff barriers.

Participants from two other ASEAN countries added to the views that the MAI seemed one-sided. One of them said that it was unclear what the relationship would be between commitments under MAI and those in the WTO that included investment elements, such as GATS, TRIMS and TRIPS.

The participant added that the experience with the WTO services agreement showed it was impracticable to have a mandatory approach to investment liberalisation, and that a voluntary approach was instead needed.

She also found problems with the proposed binding "standstill and rollback" principles of the OECD's MAI. She said that whilst a country had certain investment regulations at present, it was impossible to foresee the future, and thus it would not be practical to make a standstill and rollback commitment."

Finally, she agreed with other participants who made the point that for an agreement to be acceptable, there must be balance between interests of foreign investors and host countries.

Another Asean participant pointed out that business investments seemed to be flowing to countries where potential returns were highest, and where some basic protection to investors was provided. Thus there was a question whether an MAI was required by host countries.

He commented that an agreement usually involved a quid pro quo where rights and obligations were exchanged. However the proposed MAI seemed to grant rights to investors without placing any obligations on them. On the other hand, the host country would have obligations but no rights. There was thus no balance between the interests of investors and host countries in the matter of rights and obligations.

Not all non-OECD countries at the workshop were however so sceptical. Participants from Hong Kong and Argentina were strongly in favour of the OECD's MAI process, whilst participants from a few other countries appeared to prefer a wait-and-see approach.

The OECD is planning to organise more workshops to dialogue on the MAI with non-OECD economies, and provide regular briefings for ambassadors of selected non-OECD countries to update them on the ongoing negotiations. The OECD Negotiating Group on the MAI will be meeting once every six weeks in order to speedily finalise the agreement in time for the OECD Council meeting of Ministers in May 1996.