Rewriting The Rules
issue 320 - January-February 2000
New global investment rules give carte blanche to investors while demanding nothing in return. An alternative investment code is needed for democratic control of capital and to stimulate investment that benefits local communities.
Tony Clarke argues that corporations have a debt to
all of us. His Alternative Investment Treaty (below) is a
manifesto for bringing the rule of law to big business.
JORGEN SCHYTTE /
When negotiations for a Multilateral Agreement on Investment (MAI) began to fall apart in the Spring of 1998, pundits and journalists took stock of the international citizens’ campaign that had turned the tables on the architects of economic globalization.
Britain’s venerable Financial Times (FT) referred to the final scene from the movie Butch Cassidy and the Sundance Kid when the two amiable but confused American crooks wind up in Latin America facing the Bolivian military. The FT used the scene to portray the bewilderment which overcame Western leaders as the MAI unravelled.
‘Picture a group of politicians and diplomats looking over their shoulders at an encroaching horde of vigilantes whose motives and methods are only dimly understood in most national capitals, asking despairingly: “Who are these guys?” ’
Praising the effectiveness of the anti-MAI campaign, one veteran trade diplomat said: ‘This episode is a turning point. It means we have to rethink our approach to international economic and trade negotiations.’
A rethink is certainly overdue. But it may come as a surprise to the MAI’s well-heeled backers that the deal’s critics were not flatly opposed to the idea of a global investment treaty. Instead, many anti-MAI campaigners insisted that a totally different kind of global treaty was needed – one that would bring transnational corporations under the rule of law rather than provide them with a bill of rights and freedoms, as the MAI did.
So how do we begin to construct an Alternative Investment Treaty which is so fundamentally at odds with the current neo-liberal orthodoxy?
The first step is to review the basic goals of investment. Capital needs to be seen primarily as an instrument or means of development not as tool for turning a quick profit at the expense of people and the earth. Specifically, investment should serve the priorities of just and sustainable development. Nor is this just pie-in-the-sky. The building blocks have already been laid in numerous covenants and charters of the United Nations.
Take the 1948 Universal Declaration of Human Rights and its accompanying Covenant on Economic, Social and Cultural Rights; or the UN Covenant on Civil and Political Rights. Together they assert the supremacy of democratic rights and freedoms over political and economic tyranny. These covenants have been reinforced by more recent charters from the Rio Summit on the Environment, the Beijing Summit on Women and the Copenhagen Summit on Social Development.
What’s more, the 1974 UN Charter on the Economic Rights and Duties of States recognized the responsibilities of national governments to regulate foreign investment in order to serve the economic, social and environmental priorities of development. At the centre of this Charter is the principle that capital has ‘social obligations’. This means that capital formation is a social process built on present and previous generations of human labour. Businesses use both economic and social infrastructure, things like roads and bridges and services like public education, sanitation and clean water.
They also make use of natural resources extracted from the earth for energy and production. For these reasons there is both a social and an ecological mortgage on all capital – corporations have a debt to pay back to both society and nature. This ‘stored value’ of capital provides legitimate grounds for putting obligations on investors.
Such a reassessment won’t happen without changing both the venue and process of negotiations. As a rich-nations club where the world’s most powerful companies are based, the Organization for Economic Co-operation and Development is not the place to hammer out an alternative treaty along these lines. Nor is the World Trade Organization (WTO). Although the WTO includes most of the world’s nation-states, its power structure is heavily weighted against the developing countries.
The only appropriate place is the UN itself. Despite disturbing signs of corporate infiltration in UN affairs, the foundation for developing an alternative framework is located there, along with more equitable decision-making. What is required is leadership within UN circles to kick-start the process.
Tony Clarke is Director of the Polaris Institute in Ottawa. He is the co-author (with Maude Barlow) of three books on the MAI, including the most recent MAI Round 2 (Toronto, Stoddart Books, 1998).
Fair Treatment – Foreign investment would be welcome provided social obligations were met. The concept of ‘national treatment’, which is used to force governments to treat foreign corporations on the same terms as domestic companies, should be discarded. Instead the ‘stored value’ of capital would be the basis for establishing obligations for fair treatment of foreign-based corporations.
Social Obligations – Governments have the legal right to require all corporations, both foreign and domestic, to meet basic social obligations such as labour standards, environmental safeguards and social-security contributions.
Performance Standards – To ensure that foreign investment serves national-development priorities governments would be allowed to require standards such as job quotas, balancing imports with exports, quotas on natural-resource exports or restrictions on the repatriation of profits. In return for access to a country’s markets and resources, a government could require that a foreign company create a specified number of new jobs in the community or adhere to restrictions on the export of non-renewable resources. Canada’s Foreign Investment Review Act once provided the Canadian Government with the policy tools to apply this kind of performance requirement on foreign investments.
Investment Incentives – To ensure that corporations keep these social obligations, governments may use investment ‘incentives’ including: grants, loans and subsidies; procurement practices; tax incentives and limits on profit remittances for foreign companies that fail their social obligations. Governments could decide, for example, to buy from either foreign or domestic companies as a way of attracting productive investment.
Public Enterprises – All governments have a responsibility to use tax revenues for protecting the ‘commons’ through public investments. These could include exercising public ownership over key sectors of the economy; establishing social programmes and public services; safeguarding ecologically sensitive areas; protecting cultural heritage.
Expropriation Measures – Fair compensation should be paid to foreign corporations whose physical assets are expropriated for public purposes. But not when social or environmental regulations add to business costs. Compensation should 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 of the country during the period of investment. A foreign corporation could not demand compensation for an environmental law that placed a quota on the export of a non-renewable resource nor a health ban on the sale of toxic substances, on the grounds that such measures would reduce the corporation’s profit margins. Nor could a foreign company claim compensation for loss of future profits because government actions prevent a planned investment from going ahead.
Financial Transactions – All governments have a right to require that foreign investment be used for productive rather than speculative purposes; that foreign corporations deposit a percentage of their profits in the central bank for a specified minimum period; that foreign-exchange transactions be taxed in order to slow down currency speculation. For example, to prevent the sudden exodus of speculative capital from Chile, ‘speed bump’ measures were introduced which required investment to remain in the country for at least a year.
Dispute Settlement – In the event of a dispute citizens, governments and corporations all have the right to be heard. Disputes filed by citizens would be heard by national courts which would have powers to invoke injunctions and award monetary compensation. Through this process any one of the three parties with legal standing could bring a suit for monetary compensation but not for violation of the investment rules aimed at striking down national laws. To ensure that NGOs, native communities, environment and women’s groups, trade unions and others have equal access to the dispute- settlement mechanism, national and international funds should be established for citizen intervenors.