June 21 2001
We Must Mobilise Against A Miasma of Mini-MAIs
By Aziz Choudry
You’ve got to wonder at the nerve of New Zealand trade officials. During the furtive Multilateral Agreement on Investment negotiations and the subsequent international waves of opposition they were quietly hatching binding bilateral investment deals containing provisions resembling some of the most controversial elements of the MAI.
In 1996 Cabinet (Parliament’s executive arm) approved a model bilateral investment promotion and protection agreement (IPPA). The government then went looking for countries to apply the model with. 1998 Cabinet papers obtained under the Official Information Act advise: "Careful media handling of the issue will be needed if the bilateral investment promotion and protection negotiations are not to worsen the current furore over the participation of New Zealand in MAI negotiations." Officials worried about "walking into a quicksand of negative public opinion", but pushed on regardless.
University of Auckland law professor Jane Kelsey observes: "regional and bilateral agreements are seeking to stitch together from below what is no longer so easy to achieve on a global scale. They are providing a circuit-breaker for both APEC and the WTO. It is globalisation by stealth.”
Rattled by the crisis of credibility and legitimacy engulfing the multilateral trading system and growing popular opposition to the Bretton Woods toxic trio, many governments are turning to bilateral trade and investment agreements. Between 1987 and 1996, according to the International Centre for the Settlement of Investment Disputes (ICSID - which operates under World Bank auspices), over 800 Bilateral Investment Treaties alone were signed. Meanwhile WTO negotiations - especially on GATS - continue in the hope that real ‘progress’ will move the beleaguered institution beyond bad memories of Seattle. WTO Director-General Mike Moore’s December 2000 annual report to the WTO trade policy review body warned of “a growing danger that the huge rise in bilateral and plurilateral trade deals could come to be seen as a substitute for multilateral liberalisation rather than a complement to it". The WTO estimates those agreements now cover three-quarters of world trade. Even disputes are moving outside the WTO.
There have been numerous campaigns on multilateral arrangements like the WTO, the MAI, and APEC. There has been relatively less recent international networking focussing on the use of bilateral agreements to advance trade and investment liberalisation, economic reforms and the neo-liberal agenda. Lower-key bilateral negotiations have the advantage of attracting less publicity and attention conducive to creating international mobilisations that have been conducted around multilateral deals. Officials and politicians often portray them as inherently benign arrangements with a "friendly" country. They can market them as local or regional initiatives rather than externally imposed models. They seek to distinguish them from more politically charged multilateral trade negotiations. Unless we keep tabs on these deals much of what we oppose about the WTO and the MAI will be delivered by the backdoor, bit by bit. As Kelsey warns, few people will even know these agreements exist until an investor decides to seek compensation for a government measure that reduces their profitability.
South Korean activists quickly identified the bilateral investment treaties (BITs) being negotiated by their government with the USA and Japan as “MAI clones” and mobilised against them. The IMF bailout set the scene for the accelerated liberalisation and deregulation of the Korean economy, including making the economy more attractive to overseas investment. In 1998, a bilateral investment treaty with the USA was proposed. In 1999, Korean peoples’ organisations launched Korean People’s Action against Investment Treaties (KOPA). The Korean struggle against BITs is perhaps best-known for mobilising local film producers, actors and directors in defence of the screen quota which stipulates that cinemas must screen local movies for at least 146 days a year. In negotiations with the USA over the BIT, Korea’s government announced it will reduce or remove this.
Some governments say that bilateral agreements can achieve binding agreements on contentious issues like labour and the environment, or further protections or concessions in specific sectors, which they have failed to obtain in multilateral fora like the WTO. For example, former US Trade Representative Charlene Barshefsky boasted that the US-Jordan deal was a model for how bilateral accords could help protect labour standards. This was merely "fair trade" rhetoric, the labour wording in the text little more than unenforceable window-dressing, recognising that it is inappropriate to encourage trade by relaxing domestic labour laws.
Besides Jordan, the USA recently signed free trade accords with China and Vietnam, is negotiating with Chile and Singapore and exploring a possible free trade agreement with Australia. Last month, Democrat senator Max Baucus submitted bills to the US Senate to authorise the negotiation of trade agreements between the USA and New Zealand, Australia, and South Korea. The bills are comprehensive, and include market access for goods and services, rules of origin, customs, sanitary and phytosanitary safeguards, government procurement, investment, intellectual property, transparency, e-commerce, and environment and labour standards. Japan is considering trade agreements with Singapore and Korea. Australia is negotiating a free trade agreement with Singapore, while a High Level Task Force on the AFTA-CER (AFTA = ASEAN’s emerging FTA; CER = Australia-New Zealand Closer Economic Relationship) Free Trade Area recently advised ASEAN and CER governments to work towards a free trade area linking AFTA and CER.
While New Zealand had a change of government with the election of a Labour-led coalition in late 1999, the economic fundamentals remain essentially unchanged. Yet it is hard to sell "free trade and investment agreements" to a public grown sceptical of their supposed benefits, so new language has been adopted. As Hong Kong government documents state, ‘Closer Economic Partnership’ “is New Zealand’s preferred terminology for Free Trade Agreements”. New Zealand Trade Negotiations Minister Jim Sutton remarked in March: “I admit that I myself have some difficulties with the phrase ‘free trade’. It conjures up images of the law of the jungle.”
Last year, New Zealand and Singapore concluded a “CEP” free trade and investment agreement which took effect this January. The rationale for this was largely strategic. Tim Groser, New Zealand’s former chief trade negotiator said: "the Singapore/NZ FTA is a Trojan Horse for the real negotiating end-game: a possible new trade bloc encompassing all of South East Asia and Australia and NZ." Trade officials held that “an FTA with Singapore ... might act as a catalyst for free trade areas with other ASEAN economies”. Significantly, the Singapore agreement is open to accession by other states or separate customs territories. It is also a model for future bilateral free trade and investment deals. New Zealand has offered assistance and information to Thailand to undertake a feasibility study on a possible Thailand/New Zealand free trade agreement. A possible “CEP” with South Korea has been mooted.
Reaction to the bilateral trade strategy has often been confused and confusing. Some trade union officials, NGOs and local government politicians are reluctant to openly criticise Labour Party policy. Some who opposed the MAI seem to view bilateral free trade and investment deals as unproblematic. However, among others, there is growing concern and awareness about the implications of the bilateral deals. Even David Binning, vice-president of the NZ Exporters Institute recently criticised "the unrestrained headlong dive we are taking with CEP agreements with any country wanting to be friendly”.
New Zealand is now negotiating a “CEP” with Hong Kong. Once again, we can’t examine negotiating drafts before the deal’s complete. Sutton says that "it would not be appropriate to make available draft texts before any negotiations are concluded, as this could be expected to prejudice the successful conclusion of negotiations".
Last year, textile clothing and footwear unions, activist organisations like GATT Watchdog, and others opposed the Singapore agreement, highlighting contradictions between a government supposedly committed to “nation-building” and “open government”, and its pursuit of yet another secretly-negotiated free trade agreement. They pointed out the contradiction between the Labour-led government’s recently announced tariff freeze and the move to remove tariffs from all Singapore sourced goods almost immediately. But as with most other bilateral deals, investment was the greatest concern.
Back in 1995, without any fanfare, let alone debate, New Zealand signed an Investment Promotion and Protection agreement with Hong Kong, which has a 15-year term. Its expropriation provision is almost identical in effect to the MAI’s. It would prevent, or force compensation for, nationalisation or expropriation or measures having effect equivalent to nationalisation or expropriation. Bill Rosenberg notes that New Zealand could face similar actions to those in NAFTA from Hong Kong-based investors: "any change in environmental regulations by central or local government which reduced the profitability of an enterprise could result in awards of compensation and perhaps a reversal of a change in law or regulation”. The “CEP” currently under negotiation with Hong Kong could well extend the 1995 agreement.
The Singapore deal defines ‘investment’ and ‘investor’ as widely as in the MAI, although it does not give the same level of guarantees for investors against “expropriation” as NAFTA, nor does it define expropriation. But it is the first such agreement which New Zealand is signatory to which provides for investor enforcement of alleged breaches.
In 1999, the previous government signed bilateral agreements for the protection and promotion of investment with both Chile and Argentina. These require only an exchange of letters between governments to take effect and have even stronger expropriation clauses than the Singapore agreement. Article 6 of both agreements forces compensation for any measures of nationalisation or expropriation or any other measure having equivalent effect against the investments of the other party. Once the Chile agreement takes effect, neither New Zealand nor Chile can withdraw for a minimum of 15 years, and the agreement would apply to any investments existing at the time of withdrawal for a further 15 years. The Argentina agreement specifies a minimum 10 year period but an identical 15 years term of protection for Argentinian investments at the time of withdrawal.
Like the MAI, the model IPPA developed by New Zealand officials contains an Investor-State dispute mechanism in which private investors can take a signatory government to international arbitration. Under the Singapore, Chile, and Argentina agreements an investor from or based in one of these countries can submit a dispute against New Zealand to ICSID. Governments belonging to ICSID must pass domestic legislation enabling all ICSID awards to be directly enforced against them in their domestic courts. Under NAFTA governments have no choice about submitting to an investor-initiated dispute process. Under ICSID rules the government must agree to submit the dispute to ICSID jurisdiction. While it can theoretically decline ICSID arbitration, it is unlikely to do so for fear of provoking criticism that its policies or laws (or indeed local government measures or actions) threaten investor confidence.
Four years ago I briefed then opposition MP Pete Hodgson, (now Minister for Energy, Forestry, and Fisheries) on the MAI. Overseas investors using international agreements could not override sovereign powers of governments to make policy, he insisted. The legal actions taken under NAFTA’s notorious chapter on investment - itself the blueprint for much of the MAI - have proved him wrong. Now his government - and others, too - are hatching a new batch of mini-MAIs which are sneaking in underneath the radar. Internationally, we must work together to expose these backdoor deals and stop them before we are trapped in webs of mini-MAIs, facing Metalclad and Ethyl Corp-style disputes in all our backyards.