MULTILATERAL INVESTMENT AGREEMENT

Submitted By:
Isha Raya
B.A.LL.B, 8th Semester
Roll no.: 38

18th May, 2023

 Multilateral Investment Agreement (MIA)

Introduction
While investment rules are mostly absent from the multilateral system, the past decade had seen a
phenomenal increase in the number of bilateral and regional investment agreements concluded
worldwide. The last ten years also witnessed an acceleration in the liberalization of foreign direct
investment (FID) regimes and strong growth in FDI inflows. In fact, there was a trial to implement
a multilateral agreement of investment to liberalize FDI. In the year 1995, negotiations for a
Multilateral Agreement on Investment (MAI) were initiated by the Organization for Economic Co-
operation and Development (OECD) among experts and a draft proposal emerged.
There are few basic elements that make up an international investment agreement: the definition
of the investments covered by the agreement, the rules aimed at providing protection against
expropriation, those directed at liberalizing investment in a non-discriminatory way, and a set of
rules defining a dispute settlement mechanism (DSP). The attempts to establish such an agreement
failed in the 1998 at the Organization for Economic Co-operation and development (OECD) and
in 2003, as part of the Doha Development Agenda of the World Trade Organization (WTO).
This text will examine the provisions in the failed Multilateral Agreement on Investment (MAI)
negotiated by the member of OECD and other multilateral agreements (SAFTA, NAFTA, RCEP).

OECD-Multilateral Agreement on Investment

In May 1995, the OECD began negotiations on a Multilateral Agreement on Investment (MAI).
The US, eager to avoid interference from poor countries, considered the OECD Council a "safe"
body since only rich countries are members of the organization. Secret negotiations took place
from 1995 until 1997 when an OECD source leaked a copy of the draft agreement to a Canadian
citizen group. The leak revealed that the MAI sought to establish a new body of universal
investment laws that would guarantee corporations unconditional rights to buy, sell and do
financial operations all over the world, without any regard for national laws and citizens' rights.
The draft gave corporations a right to sue governments if national health, labor or environment
legislation threatened their interests. However, the negotiations failed in 1998 when first France,
and then other countries, successively withdrew after pressure from a global movement of NGOs,
citizens groups and governments of poor countries. MAI opponents saw the agreement as a threat
to national sovereignty and democracy and argued that it would lead to a "race to the bottom" in
environmental and labor standards. The failure of the MAI negotiations proved a success for the
global movement against the MAI.
However, rich governments continue to push for similar investment provisions in regional trade
agreements and the World Trade Organization (WTO). At the WTO Ministerial in Cancun in
September 2003, the richer WTO members tried to introduce a Multilateral Investment Agreement
(MIA) through the "Singapore" issues (four issues introduced to the WTO agenda at the December
1996 Ministerial Conference in Singapore: trade and investment, trade and competition policy,
transparency in government procurement, and trade facilitation). These efforts failed again.

Key Elements in the OECD- MAI

Progressive Liberalization:
The MAI aims at promoting an open international investment climate, removing obstacles to the
cross border flow of capital, and facilitating the establishment of enterprises. The key disciplines
are national treatment, most favored nation (MFN) treatment, and transparency.
National treatment means that foreign controlled enterprises can expect, in like circumstances,
treatment no less favorable than that accorded to domestic investors. This implies equality of
competitive conditions for foreign enterprises already established in the country and access to
investment opportunities for non-resident enterprises. The MFN treatment safeguards the
multilateral character of the agreement. As a matter of principle, preferential regimes among
participating countries or reciprocity requirements based on a bilateral exchange of concessions
are contrary to this principle. Transparency means that rules, regulations, and administrative
practices applying to investment and business activities in the country should be clear, predictable,
and published. The MAI aims to avoid discrimination.
Investment Protection:
Expropriation of foreign investment (and measures having similar effects) shall, be limited to cases
of public interest, be applied in a non-discriminatory manner in accordance with due process of
law, and be subject to prompt, fully convertible and transferable compensation at fair market value.
Interest rate payments or exchange loss adjustments shall be borne, when applicable, by the host
country.
All payments to or from the foreign investor shall be freely transferred into and out of the host
country in a convertible currency. Transfers may only be delayed to protect creditors or to comply
with domestic securities or criminal laws. Transfers of data and information in and out of host
country shall also be freely made
The MAI would protect investments made before and after its entry into force.

Effective settlement of investment disputes:

State-State Procedures: In cases of dispute between contracting parties regarding the

interpretation or application of the agreement, the parties must first attempt to resolve the dispute
amicably through consultations (between disputing parties), multilateral consultations with the
Parties Group (a permanent organ to be created by the MAI), mediation or conciliation. These
proceedings, as well as the information provided by the parties therein, shall be confidential. If the
parties fail to resolve the dispute through amicable proceedings, the issue may be submitted to an
arbitral tribunal. The tribunal may request a written report on any scientific or technical matter, by
a technical review board or an expert. The tribunal, in its award, may: declare that a party has
contravened its obligations under the MAI; make recommendations thereto; and award pecuniary
compensation for any loss or damage to the requesting party’s investor. Tribunal awards, which
shall be made publicly available, are final and binding (but subject to nullification).

If a party fails to comply with the award, the other party may request consultations. Should these
fail, the latter party may submit the issue to the Parties Group, which may decide to what extent
the requesting party will be allowed to take responsive measures (i.e. suspension of the benefits to
the non-complying party or its investors). A dispute on failure to comply with an award by one
party may, yet again, be submitted by the other party to decision by a new arbitral tribunal.

Investor-State Procedures: Disputes between a contracting party and an investor of another party
concerning an alleged breach of the MAI, or of a specific obligation acquired by the contracting
party under an authorization or written agreement, should be settled amicably, or else be submitted
for resolution. This could be done via: to the courts of the contracting party; in accordance with
any agreed upon procedure; or by arbitration under the ICSID, the ICSID Additional Facility, The
United Nations Commission on International Trade Law (UNCITRAL) or the International
Chamber of Commerce (ICC). The arbitral tribunal will consist of three members, one appointed
by each party and the third by mutual agreement. The tribunal may request written reports by
experts on scientific or technical matters. The arbitration award will be final and binding, and may:
declare that the contracting party contravened the agreement; award pecuniary compensation or
restitution in kind (when possible) of any loss or damage. The award should be complied with
promptly, subject to the rights of the parties under the arbitral system utilized.

Exceptions and safeguards:

 General exceptions: The contracting parties are allowed to take any actions necessary for the
protection of their essential security interests and of international peace, as well as for the
maintenance of public order, even if such actions may contravene the MAI. However, the
exception does not apply to the provisions concerning expropriation and compensation and
protection from strife, which must be observed at any time.

 Monetary and exchange rate policies: NT, MFN and transparency provisions of the MAI do
not apply to the transactions carried out by monetary authorities as part of their monetary or
exchange rate policies.

 Temporary safeguard: Signatories may adopt, only temporarily and subject to review and
approval every six months by the IMF and the Parties Group, measures inconsistent with their
obligations regarding international transfers of funds, or inconsistent with NT regarding cross-
border capital transactions. This is permissible: a) in case of severe balance of payments
difficulties; or b) exceptionally, when such transactions seriously hinder the implementation
of monetary and exchange rate policies.
Concerns in the agreement
1. Closed secretive negotiations: The MAI has been negotiated with little public or congressional
input. The wide range of concerns raised by international capital mobility -- sustainability, labor
right, financial stability -- have largely been ignored.

2. Opens developing countries: OECD members are the source of 85% and destination of 65% of
foreign investment, but increasing amounts of money go to developing countries. OECD countries
will pressure developing nations to join the MAI, an agreement they had no role in drafting.

3. Preemption of local, state and national laws: The US may have to change some laws to join
the MAI. Then foreign companies can use the MAI dispute system to challenge laws that affect
their investments.

4. All rights, no responsibility: Corporate investors get new rights, but there are no mechanisms to
hold them accountable to the social and environmental concerns of the countries they came from,
or the countries they invest in.

5. Effects on sustainability: The MAI will contain weak, non-binding environmental provisions.
Meanwhile, the agreement will let corporations go everywhere and buy everything, allowing us to
temporarily live beyond our ecological limits and worsening an already inequitable distribution of
resources.

Attempts to co-ordinate investment policies between a larger groups of countries have been most
successful where countries are highly interdependent in their trade and investment flows. Regional
trade agreements involving both industrialized and developing countries have responded the
growing importance of the latter group as an investment location. Typically, these treaties include
commitments on non-discriminatory treatment and investment restrictions. This appears to be
easiest where one of the partners has a clearly dominant position in the region and is committed to
a high standard liberalization agreement.

NAFTA:
A multilateral investment treaty between Mexico, Canada and the US. The agreement came into
force in 1994 and created a free-trade zone between the countries.

Investment provisions are contained in the NAFTA chapters on investment, on services and on
financial services. All three chapters provide for national treatment. Where a signatory has lodged
an exemption from these disciplines MFN will act as a minimum standard. In this case, the host
country may discriminate in favour of national firms but must grant equal treatment to all foreign
investors.

Conversely, where the host country government discriminates in favour of foreign firms, such
preferential treatment will have to be extended to all foreign investors. NAFTA also bans a
comprehensive list of performance requirements and thereby provides disciplines that go well
beyond multilateral disciplines in GATT/WTO. Most performance requirements are also banned
even if the investor agrees to comply with the restriction in return for accepting an investment
incentive from the host country. The dispute settlement mechanism in NAFTA is similarly
innovative. Private investors and not just states have the right to bring cases for arbitration under
either ICSID or UNCITRAL, the two international bodies for the settlement of investment disputes
- creating the prospect of international investor-state claims NAFTA underscores the benefits of a
comprehensive approach to trade and investment liberalization. Provisions on intellectual property
rights, services and technical standards all are integral elements of meaningful investment
liberalization

SAFTA
The South Asian Free Trade Area (SAFTA) is the free trade arrangement of the South Asian Association
for Regional Cooperation (SAARC). The agreement came into force in 2006, succeeding the 1993
SAARC Preferential Trading Arrangement. SAFTA signatory countries are Afghanistan, Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

This is a treaty with investment provisions committed to strengthen intra-SAARC economic

cooperation to maximize the realization of the region’s potential for trade and development for the
benefit of their people. Removal of barriers to intra-SAARC investments has been provisioned
to support and complement SAFTA for mutual benefit. Art 5 provides national treatment to the
products of other contracting States. Art 8 of the treaty supports to stimulate intra-SAARC FDI
flow to the Least Developed Contracting States.

The Regional Comprehensive Economic Partnership (RCEP)

It is a comprehensive free trade agreement between the 10 ASEAN Member States and ASEAN’s
free trade agreement (FTA) partners viz. Australia, China, India, Japan, Korea and New Zealand.

It establishes clear and mutually advantageous rules to facilitate trade and investment, competitive
investment environment, expansion of trade and investment opportunities, and trade and
investment liberalization. It contains a separate chapter on investment with provisions on definition
of investment, NFN, NT, fair and equitable treatment and full protection and security, performance
requirement, conditions for expropriation and nationalization, etc.