Effects of the Multilateral Agreement on Investment (MAI) on Sub-national Governments

Documents from which excerpts were taken include books, policy papers, articles, letter to the PM, briefs to the Parliamentary Committee on MAI, and Recommendations of the Parliamentary Hearings Committee on MAI

Prepared by Janet M. Eaton, Systemic Change Agent, Educator, Researcher and Writer   January 5, 1998   jeaton@fox.nstn.ca   

1) MAI-Day!  
The Corporate Rule Treaty:  The Multilateral Agreement on Investments (MAI) Seeks to Consolidate Global Corporate Rule - by Tony Clarke.  It was initially prepared for the Common Front on the World Trade Organization in Ottawa, coordinated by the Sierra Club of Canada, April, 1997.     http://www.policyalternatives.ca/mai.html  

2) Writing the Constitution of a Single Global Economy:  
A Concise Guide to the MAI - Supporters and Opponents' Views. 1997  Michelle Sforza-Roderick, Scott Nova, and Mark Weisbro.  U.S. based Preamble Collaborative's Preamble Center for Public Policy  

3) MAI: 
The Multilateral Agreement on Investment and the Threat to Canadian Sovereignty.   1997. Clarke, Tony and Maude Barlow. Canada: Stoddard.  

4) Canadian Public Health Association: 
Letter to the Prime Minister and Ministers of Departments concerned, Leaders of the Federal Opposition Parties and the Federal Party Critics for Health, Environment, Foreign Affairs and International Trade http://news.flora.org/flora.mai-not/133   

5) Excerpts from Barry Appleton Briefing Notes:  
Mr. Appleton is considered to be Canada's leading expert on International Trade.   

6) New Democratic Party Minority Report on the MAI:  
Issued by the Office of Bill Blaikie, M. P.(Winnipeg-Transcona)  December 11, 1997 Sub-Committee on International  Trade, Trade  Disputes and Investment   

7) Concerns of the PC Party: 
from Constituency letter of  Mr. Scott Brison, PC Critic for  International Trade and Foreign Affairs   

8) Recommendations of the Parliamentary Hearing:  
of the Sub-Committee on International Trade, Trade Disputes and Investment.   

9) The Hon. Paul Hellyer: Notes: 
to the Parliamentary Committee Hearings on MAI. Ottawa,  Ontario, November 25, 1997   

10) Sierra Club of Canada: 
Presentation to The Standing Committee on Foreign Affairs and International Trade, Trade Disputes and Investment. November 18, 1997, Ottawa   

11) The Western Governor's Association (WGA)'s s policy paper:  
"Multilateral Agreement on  Investment: Potential Effects on State & Local Government"   
12) MAI front page of Washington Times 12/15:  
"Trade Storm Brews over Corporate Rights" By Lorraine Woellert  15 December 1997   
1) "MAI-Day! The Corporate Rule Treaty: The Multilateral Agreement on Investments (MAI) Seeks to Consolidate Global Corporate Rule" by Tony Clarke.  It was initially  prepared for the Common Front on the World Trade Organization in  Ottawa, co-ordinated by the Sierra Club of Canada, April, 1997)  http://www.policyalternatives.ca/mai.html  

General implications for Governments:  

"In short, the MAI seeks to empower transnational corporations through a set of global investment rules designed to impose tight restrictions on what national governments can and cannot do in regulating their economies. The ability of governments, for example, to use investment policy as a tool to promote social, economic and environmental objectives will be forbidden under the MAI. While corporations are to be granted new rights and powers under the MAI, they are to have no corresponding obligations and responsibilities related to jobs, workers, consumers, or the environment."   
"This new global constitution, however, is certainly not designed to ensure that the rights and freedoms of the world's people are upheld by democratically elected governments.  On the contrary, it is a charter of rights and freedoms for corporations only - a charter to be guaranteed by national governments in the interests of profitable transnational investment and competition. It is meant to protect and benefit corporations, not citizens.  Indeed, through this new global constitution, the rights of citizens and the powers of governments themselves will be largely superseded by those of the transnational corporations."  

In effect, the MAI amounts to a declaration of global corporate rule.   
As such, it is designed to enhance the  
 I) political rights,  
 II) the political power,  
 III) the political security of the TNCs on a world-wide scale."  

 I) Political Rights:  
"There is nothing new about corporations having political rights.....Indeed, corporations were given legal rights to "personhood" and "citizenship" in most countries before women and Aboriginal peoples were. Today, a vast body of corporate law and legal doctrine is now in place which serves to recognize and protect the property rights and operations of corporations. 

"If enacted, the proposed MAI will further consolidate and enhance the political rights of corporations in the following  ways: (See  # 5 below re: municipal)  

i. The MAI seeks to codify a special set of rights for corporations as investors.  

ii. The MAI attempts to expand the scope of investor rights of corporations by advancing a much broader definition of investment.  

iii. Under the "national treatment" and "most favored nation"  clauses of the MAI, foreign-based corporations or investors are to be accorded special rights and privileges.  

iv. In addition to codifying property rights ranging from the rights of petroleum corporations to hydro-carbon resources (p.95, sec. 35), to all forms of intellectual property rights (e.g., patents, copyrights, industrial design, trade secrets, etc.), the MAI emphasizes the right to the free flow of capital.  

v. These investor rights of corporations would be applied in all political jurisdictions by all levels of government in those countries that are party to the MAI. While the precise details of how the MAI is to apply to sub-national levels of government are not spelled out, it is clear throughout municipal, as well as federal governments). Moreover, the MAI grants to corporations the right to sue governments or states and provides a binding  investor-state dispute settlement mechanism (pp. 53-64) for these  purposes (see below). While governments can also challenge other governments under the state-to-state dispute settlement procedure (pp. 44-52), governments are not granted reciprocal rights to sue corporations for damages on behalf of their people. Hence, the  political rights of corporations are greatly enhanced by the inclusion of this investor-state dispute mechanism."  "In effect, the draft MAI points to a massive transfer of "rights" from citizens to investors in the new global economy. At a time  when peoples all over the world feel that their fundamental democratic rights as citizens (e.g., the Universal Declaration of Human Rights) and the ecological rights of the planet (e.g., the Earth Charter from the Rio Summit on the Environment) are not protected by governments, the rights and freedoms of transnational corporations are being guaranteed through trade and investment treaties (like the MAI) that have become the new global economic constitutions. This transfer of rights, in turn, is reinforced by radical shifts in the balance of power between governments and corporations."  

III) Political  Security: the fifth implication Constitutional Politics notes:  
"Federalists should be equally wary that virtually all the provisions being negotiated under the MAI will be applicable to  sub-national governments (which, in turn, have not been party to the negotiations that have been taking place)."  

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2) "Writing the Constitution of a Single Global Economy: A Concise Guide to the MAI - Supporters and Opponents' Views"  by  Michelle Sforza-Roderick, Scott Nova, and Mark Weisbro.  [U.S. based Preamble Collaborative's Preamble Center for Public Policy]  

Domestic Laws that May Violate the MAI:  

"Opponents cite a host of American laws that they believe could be subject  to challenge under the MAI.  Some laws that protect the environment and public health could be ruled to be discriminatory against foreign investors, to constitute expropriation of investor assets, or to be illegal performance requirements, opponents argue.  
Examples include:  
* Bans on the production or sale of dangerous products;  
* Laws designed to conserve valuable natural resources or land;  
* Requirements that recycled content be used, when possible; in the production process;  
* Public contract preferences for environmentally responsible firms."  

"In addition, the MAI, as drafted, does not include the exceptions usually included in trade agreements that allow governments some leeway with respect to environmental and public health  protections."   

"Opponents also cite a range of laws encouraging local economic development, that because they may put foreign investors at a competitive disadvantage, could be subject to challenge under the MAI.   
These include:   
* Programs earmarking economic development funds for local businesses;   
* Community reinvestment laws requiring banks to invest in economically deprived areas;   
* Set-asides for minority- and women-owned businesses;   
* State and municipal programs earmarking loans and subsidies the home-grown businesses;  Rules promoting the investment of public pension funds in  local businesses and/or in socially responsible businesses;  and  
* Set-asides, targeted loan and grant programs, and special regulatory relief for small businesses."  

"Laws designed to enhance financial and economic security could also be illegal under the MAI, opponents assert. Laws that could be challenged include:  
* "Speed bumps" or other restrictions on short-term stock, bond and currency transactions which countries use to avoid financial crises,and  
* Laws designed to protect jobs by requiring corporations that move jobs out of a country to pay tax penalties."  

"Proponents dismiss many of these fears, especially those regarding environmental or safety regulation, as exaggerated. They claim that legal challenges will be rare. They argue that the only laws that will be successfully challenged are those that should not have been in place to begin with, since they cause wasteful distortions in the allocation of investment resources." 

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3)  Clarke, Tony and Maude Barlow. 1997. "Multilateral Agreement on Investment: and the Threat to Canadian Sovereignty." Canada: Stoddard  

This authoritative analysis of the impact of the MAI on Canadian sovereignty covers every arena of public policy  implicated as well as sovereignty issues within a broad context of the historical development of  both the rights of citizens and rights of corporations. Many implications for sub-national governments both provincial and municipal are examined throughout the book. A few key excerpts are cited.  

"..the MAI will directly affect municipal  governments, by seriously hindering their ability to implement their own local policies and programs. In their relationship with provincial governments, municipal councils are directly involved in delivering services that will be affected by MAI, such as public education, social housing, health care, and social assistance. Many municipal governments have their own procurement programs for purchasing goods and services, to help local economies and job-creation.   

The MAI could also affect municipal regulations on local real estate, bank loans for and investment in community development, and the privatization of public services ranging from garbage collection to libraries."  (Clarke and Barlow, 1997 P. 177-78)  

Also the implication for sub-national governments to create meaningful legislation after MAI implementation:  

In Chapter Two ""The Emergence of Global Corporate Rule" they characterize the MAI as a "toolbox" for corporations, a set of power tools, the use of which will enable corporations to "take resources away from the public and the commons". (p. 33)  

1. Political Rights  
2. Performance Standards  
3. Public Enterprises  
4. Political clout  
5. Public legislation  
6. Protective measures  
7. Public revenues  
8. Political Security  

Under Take 5 Public Legislation they state:  

"The MAI contains measures specifically designed to take away government's ability to maintain existing laws or enact new laws in the public interest. Like most democratic societies, Canada has built up a vast body of economic, social, and environmental legislation - a broad range of public concerns ranging from foreign ownership, consumer protection, and social programs to regional development, environmental legislation designed to protect public interest and the common good. This body of legislation covers a broad range of public concerns ranging from foreign ownership, consumer protection, and social programs, to regional development, environmental conservation, and cultural identity. Yet, this kind of public interest legislation could very well be jeopardized by what the MAI proposes as "roll-back" and "stand still" clauses.  

The roll-back legislation is designed to ensure that any pieces of legislation or regulatory measures of member countries that did not conform with the basic principles and conditions of the MAI would be reduced and eventually eliminated. All member countries signing on to the agreement are expected to list in advance any current laws, policies, or programs considered "non-conforming" with respect to the disciplines of the MAI.  

At the same time these roll-back measures would be reinforced by "standstill" provisions. These stipulate that governments not introduce any new non-conforming laws, policies, or programs in the future. In effect the MAI would forbid any future government in Ottawa, or the provinces to take public ownership or control over a sector of the economy that had been previously privatized or to reintroduce regulations that had been scrapped in the past. (Clarke and Barlow, 1997 pp 43-44)   

Another crucial implication is found in the Chapter on the Threat to Environmental Rights:  

"The MAI principles of national treatment and most favored nation would explicitly apply to the privatization of government and hydro-electric facilities. .... the same rules would apply to municipal water and sewer systems, now financed by local tax payers. Shrinking provincial transfer payments have caused municipalities to consider privatizing these services; The Globe and Mail reports that Canada has become a "hot prospect for foreign water firms". Under the MAI, there might be no way to control this process or keep these vital services in Canadian hands. Canada is one of a handful of countries to allow provinces and municipalities to cede control of energy services without policy constraints from higher levels of government. Once they are gone, they will not be retrievable."  Clarke and Barlow, 1997 p 88)

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4) Canadian Public Health Association (CPHA)  Letter to the Prime  
Minister,  Ministers of  Departments concerned, Leaders of the Federal Opposition  
Parties and  the Federal Party Critics for Health, Environment, Foreign Affairs and International Trade   

CPHA has three specific concerns with the draft MAI:  
 1. Compensatory Rights of Private Investors and Corporations  
 2. Undemocratic Dispute Resolution Process  
 3. Threats to Existing Social Equity and Environmental Sustainability Policies  

The draft MAI fails to protect existing policies on social equity and  environmental sustainability, in two ways.  

"First, many social and environmental policies are now under the jurisdiction of provinces and municipalities.  It is also at these levels that social and environmental performance requirements on investment are most likely to be found, and to be enforced. The U.S. federal government, concerned that the draft MAI would infringe on state and local government sovereignty, has filed reservations that would exempt their laws from MAI obligations.  To our knowledge, as of this date, the Canadian government has not done this, nor have provincial or local governments been engaged in debates or decision-making about the draft MAI.  

Until provincial and local governments become fully engaged in MAI debates, including negotiations of the Government of Canada's position on the draft MAI, Canadian negotiators should ensure that these levels of government are exempted from MAI obligations."  

"Second, the draft MAI contains no provisions allowing other multilateral agreements on environment, health, labour, and human rights to take precedence when conflict arises.  NAFTA, at least, allows seven international environment-related agreements to take  precedence.  The draft MAI allows governments, "notwithstanding" any other MAI obligations, to take "prudential measures" to protect the interests of investors and depositors in financial services, but no similar "notwithstanding" clauses are granted for the protection of ecosystem integrity and stability, or movement in the direction of social equity."  

At a minimum, Canadian negotiators should ensure that the draft MAI contain "notwithstanding" clauses for social equity and environmental stability, specifically exempting governments from MAI obligations if these obligations imperil social policies and programs that improve social equity.   

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5) Excerpts from Barry Appleton , Canada's leading expert on International Trade, Briefing Notes   

Excerpts re Provincial State and Municipal Legislation with regard to  social services (i.e. health care, public education, child care, etc)  

i. Although the language of Canada's proposed reservation for social services is identical to the reservation taken by Canada at II-C-9 under NAFTA, because it applies only to the federal level, it would only totally cover the provision of public law enforcement and correctional services, thus excluding health, education, childcare, etc. (p. 13)

ii. The US government's interpretation of the NAFTA social services reservation suggests that any services not directly provided by government would not be considered within the definition of the term social services.  

This is particularly serious in the Canadian context where a mix of providers - government, private for-profit and private not-for-profit - are involved in the health, education, childcare and other sectors. (p. 13)

Appleton draws on the history of decisions by international trade  tribunals - including NAFTA, GATT and WTO - to describe the undermining of environmental protection through trade and investment agreements.  

As Minister Marchi has confirmed, the Government of Canada has chosen to accept weak, non-binding language on the environment in the preamble of the MAI. By failing to even propose reservations to try to protect the ability of government to take environmental measures that would otherwise violate the MAI, Canada has "chosen to voluntarily bind itself, its provinces and its municipalities to obligations which protect investments over the environment" (p.23).  

Environmental deregulation currently underway at the federal and provincial levels (provincial environment budgets have been slashed by between one-third and sixty percent in most provinces in the last two years) would be permanently locked in under the MAI.  

The proposed reservations put forward by Canada fail to deal with the critical areas of culture and environment and are virtually meaningless for health care, public education and other social services.  

The Government of Canada's strategy for protecting Canadian interests at the MAI negotiating table is poorly thought out and seriously flawed.  

Meanwhile, the OECD Secretariat reported in November 1996 that "MAI negotiators are determined to keep [general exceptions and country-specific reservations] to a minimum".  With an opening position this weak and only five months remaining until the OECD deadline, it is hard to imagine that the final result will not be disastrous for Canada.  

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6) New Democratic Party Report on the Multilateral Agreement on Investment:  (MAI) Issued by the Office of Bill Blaikie, M. P. (Winnipeg-Transcona)  December 11, 1997 Sub-Committee on International Trade, Trade Disputes and Investment  

"The aforementioned features of the MAI, when added to other objections that the NDP has about the agreement, such as th uncertainty about the effectiveness of reservations in protecting health-care, education and social services, the extension of national treatment to "investment incentives", the stigmatization of "performance requirements", and the possibility that the provinces will also be included,  give rise to an even greater objection about this affront to the flexibility of democratic decision making. The MAI would bind Canada for 20 years.  Unlike even the NAFTA, which has a six month notice period for termination, MAI requires at least a 5 year period before notice can be given, followed by the requirement to honor existing obligations to existing foreign investors and companies for another 15 years.  This is a feature of the MAI that would bind several Parliaments, and is so anti-democratic on the faceof it that the MAI cannot be supported by the New Democratic Party of Canada."  

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7)  Concerns of the PC Party in Canada- from Constituency letter of Mr. Scott Brison, PC Critic International Trade and  Foreign Affairs.   

Secondly, the MAI may potentially weaken domestic environmental laws by undermining the ability of the government to introduce environmental standards. Measures must be put in place which will enable the government to act as required to protect the environment. The PC Party will not support any agreement that does not adequately protect Canadian cultural and environmental interests.

A final important issue requiring clarification is the affect the agreement will have on our provinces and municipalities. The United States and the European Union have clearly protected the sovereignty of their sub-national states. The current Canadian government has failed to protect sub-national jurisdiction.

The Government of Canada has also failed to conduct an impact analysis on current Federal, Provincial, and Municipal programs as was undertaken during the NAFTA negotiations. We will continue to pressure the current government to carry out a study.

In summary, the PC Party supports the principles of the Multilateral Agreement on Investment. However, a number of issue must be carefully considered, before Canada signs the agreement. Further, the PC Party will continue to pressure the current government to provide a forum for meaningful consultation with theCanadian public throughout this process.

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8)  Recommendations of the Parliamentary Hearing of the Sub-Committee on International Trade, Trade Disputes and Investment.   
Recommendations relating to Sub-national levels of Government:  

Recommendation No. 1  
Recognizing the importance of better multilateral rules for the security of Canadian inward and outward investment, Canada should continue to participate actively in the MAI negotiations with its OECD partners. Canada should become a Contracting Party to the MAI subject to a final text which fully protects Canadian culture, the environment, labour standards, health, education and social services at the federal and sub-national levels.

Recommendation No. 3  
The Government should pursue a process that fully involves the provinces and that will allow sufficient time for the text available at that time to receive the benefit of further parliamentary examination by this Committee prior to the signature of any negotiated agreement.

Recommendation No. 4
The Government should consider undertaking a full impact analysis which will note the reason why Canada should take part in the MAI. Where relevant, this will include a discussion of foreseeable economic, environmental, social and cultural effects of the agreement and the obligations imposed by the final terms of the agreement.

Recommendation No. 5 
In future negotiations regarding matters of as widespread importance as the MAI, the Government should undertake an open and transparent process so that public disclosure and consultations can be carried out in a timely manner, to the extent that this is strategically possible.

Recommendation No. 13
The concerns of Canadians regarding the maintenance and introduction of effective environmental standards must be addressed through the use of strong and unambiguous language in the text of the agreement - as in Alternative 2 on page 50 of the MAI draft text. Nothing in the MAI, apart from the national treatment of non-discrimination provisions, should infringe on Canadian governments' capacity, at all levels, to introduce new measures to protect the environment and promote sustainable development. 

Recommendation No. 15
The federal government, in consultation with its provincial and territorial counterparts should finalize as soon as possible its draft list of reservations affecting areas of public policy lying within the jurisdiction of sub-national levels of government. The federal government should make available to the public the complete list of reservations once agreed upon.

Recommendation No. 16
In consultation with sub-national levels of government, Canada must achieve an unbound reservation for health, education and social services.

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9) The Hon. Paul Hellyer - Notes to the Parliamentary Committee Hearings on MAI. Ottawa,  Ontario, November 25, 1997

"The loss of sovereignty I want to talk about is the loss of our right to restrict foreign investment if the survival of our country is at stake. Under the MAI we would not be able to say enough is enough.  We could not say that foreigners could not buy more than 50% of our forests. They could buy them all.  We could not say that foreigners can not own more than 80 per cent of our oil and gas reserves.  They could own them all.  We could not say that American agribusiness's could not buy more than 50 per cent of the farms in Elgin county.  The  MAI treaty would say that they can buy them all."   

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10) Sierra Club of Canada's:  Presentation to The Standing Committee on Foreign Affairs and International Trade, Trade Disputes and Investment. November 18, 1997,  Ottawa  

The Sierra Club of Canada's  Director Elizabeth May raised 5 points: the fourth of which pertains directly to "provincial and municipal governments".  

i) The MAI would restrict Members of Parliament's freedom to legislate, without fear or threat of financial penalty to Canada, to protect the  environment, public health and other non-monetary  interests deeply valued by Canadians.  

ii) The MAI would greatly extend the major enforcement tool found in Chapter 11 of NAFTA -- the right of multinational corporations to claim  compensation directly from the Government of Canada.  

iii) Environmental protection virtually absent in draft MAI text.  

iv) Canada's ambiguous position on the application of the MAI to  provincial and municipal governments must be resolved:  

"In recent years, the federal government has handed off its environmental responsibilities to the provinces at an alarming rate. Meanwhile, it is very uncertain how those interests would be protected at the sub-national level in the MAI. In its February, 1997 submission of reservations, the Government says the agreement's application to Canadian provinces depends on a satisfactory overall balance of rights and obligations in the MAI. We are not confident that the federal government has demonstrated an understanding of balance in the MAI and are deeply concerned that the provinces have not been engaged in the MAI debate to date. If the provinces are to be exempt from the MAI, the federal government must explicitly and publicly state that they will be exempt.  

The U.S. federal government is clearly concerned that the MAI would impinge on state and local government sovereignty and has filed reservations that would exempt all state and local government laws from MAI obligations on national treatment, Most Favored Nation treatment, performance requirements and senior management and boards of directors. While these reservations may prove inadequate, they are at a minimum, an attempt at protection of a multitude of state laws that balance economic development with sound resource management; to ensure the ability of states to use performance requirements to protect jobs and the environment; and to limit development of private land and provide incentives for investment in pollution prevention and control equipment."

v) The MAI is a profoundly undemocratic document negotiated in a profoundly undemocratic manner.

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11) The Western Governor's Association (WGA)'s policy paper "Multilateral Agreement on  Investment: Potential Effects on State & Local Government"   

The WGA's policy paper "Multilateral Agreement on Investment: Potential Effects on State & Local Government is a 47 page document examining implications for state sovereignty of the MAI in order to recommend action for governors, to aid in dialogue occurring between the federal government and the states on the MAI and to satisfy Federal governments request to the States for information on laws that the MAI may impact.

It is a comprehensive report provided in 6 sections the fourth of which examines the potential MAI effects on state governments under the following headings:  
A. Economic Regulation  
B. Land Use and Environment  
C. Economic Development  
D. Enforcement and State Sovereignty  
E. Addressing State Interests in the MAI  

Summary of Areas covered:

A. Economic Regulation:
States exercise a wide range of regulatory authorities over business activity. Regulatory activity that could be impacted by MAI proposals include state rules regarding  i) ownership, ii) residency, iii) business licenses and iv) banking.

B. Land Use and Environment:  
MAI negotiators have not identified environmental measures as a particular problem for foreign investors. However, they may oppose adoption of the general exceptions found in the WTO for environmental measures that may be inconsistent with the MAI. This section identifies state environmental measures that might run afoul of MAI proposals like:

  i) limits on the use of state lands
ii) limits on the development of private land
iii) regulation of oil shipments
iv) incentives for investment in pollution prevention and control equipment
v) incentives for investment in recycled materials markets.

C. Economic Development

There are many state programs that fall within the scope of MAI recommendations to limit development incentives. Examples of the potential conflicts between state interests and MAI proposals to limit or eliminate incentives follow: 

i. Tax incentives.  

ii. Non-tax incentives. Almost every state also provides investment  incentives in the form of grants, low interest loans (industrial revenue bonds, direct loans, loan guarantees), equity  investments, and in-kind assistance such as customized job training. Again, depending upon how the MAI effects incentives, foreign investors may be able to argue that state non-tax incentives favor recipients in the offering jurisdiction and violate the MAI.  

 iii. Enterprise zones. Enterprise zones are geographic areas, recognized by federal, state, and local governments to receive  coordinated targeting of investment incentives and deregulation. As noted above, the WTO has a general exception for subsidies that are targeted to disadvantaged regions.{179} No such exception is proposed for the MAI.{180}

iv. Discriminatory practices in granting incentives. In addition to bans or limitations on investment incentives, the MAI may also protect foreign investors against discrimination in the provision of incentives. Several states explicitly limit certain kinds of development assistance on the basis of residency or citizenship. For example:

v. Economic accountability. A growing number of states have provided development incentives only to see their value vanish as beneficiaries move out of state or otherwise fail to fulfill their promises. In response, at least 15 states have enacted accountability measures that legally bind beneficiaries to perform in various ways, refund the contribution, or suffer penalties. These are called "clawback" policies.{188} Economic accountability policies could run afoul of MAI proposals banning or limiting the incentives with which they are linked. They might also run counter to MAI proposals limiting performance requirements that distort investment to the benefit of the jurisdiction offering the incentive{189} and protecting investors' right to transfer assets or funds, as illustrated by the examples below:{190}

vi. Domestic procurement preferences. State procurement practices receive major emphasis in foreign complaints about U.S. barriers to trade, particularly "buy domestic" programs and small business set-asides.{195} These practices could run afoul of the MAI if they are viewed as discriminating against foreign investors or creating investment-distorting incentives.

D. Enforcement and State Sovereignty:

i. MAI legal remedies  
ii. State sovereign immunity  
iii. Equal protection  
iv Delegation of judicial power  

 V. Conclusion:  

Foreign investors consider many of the policies that distort investment to exist at the state level, where corporations are chartered and real estate and other assets regulated. The European Union claims that American federalism results in "market fragmentation" which thwarts national treatment.{218} But federalism is by design a bottom-up assembly of democratic institutions with diverse and conflicting outcomes.  

The MAI could supplant bottom-up processes for preserving differences between nations, much less between sub-national governments. The MAI may be more than merely a tougher NAFTA or WTO. Unlike those agreements, the MAI may protect investors by curtailing both sovereign powers and sovereign immunity. While America's overseas investors may stand to gain from these trade-offs and FDI may grow even faster, American state and local officials have much to think about. The complexity of our federal system, which confounds foreign investors, also complicates the task of assessing the ways in which this system would be impacted by the proposed MAI. MAI proposals and country positions are also subject to change as negotiations proceed, making ongoing attention necessary. No one can do this job better than governors and other state officials, once they know what the MAI portends. This report is intended to help state leaders get started on the MAI, and balance state interests with the forces of global economic integration."  

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12) MAI front page of Washington Times 12/15 "Trade storm brews over corporate rights" By Lorraine Woellert  THE WASHINGTON TIMES   15 December 1997  
The world's wealthy nations are in talks to construct an international bill of corporate rights, an economic treaty  that could ignite America's biggest trade battle yet.  The pact -- the Multilateral Agreement on Investments, or  MAI -- is being called a "virtual constitutional amendment" because of its potential to wrest power from state and local  governments and move it into the hands of multinational corporations.

It embodies the worst fears of isolationists, environmentalists and labor groups because it could give foreign corporations a  way to bypass America's court system.  Challenges to U.S. laws would go before an international panel  of industry experts that would interpret the treaty and issue  binding rulings.

"It strikes right to the heart of our state government," said  Steve Moeller, policy adviser to Nebraska Gov. Ben Nelson.  "We may be destroying states' rights or states' abilities to govern themselves just to promote international business."

A report by the Western Governors' Association in  April concluded that the MAI, among other things, could  prevent states from giving incentives for economic  development, could outlaw government contracting laws that  give preference to local companies and might gut environmental  restrictions on land use.

"It takes the kind of dispute that used to be settled through the U.S. courts and turns it into an economic and political issue,  and it does so without the process of reviewing that statute in  the U.S. courts," said Robert Stumberg, a professor at  Georgetown's Harrison Institute of Public Law and author of  the report.

U.S. negotiators want to exempt all existing U.S. federal, state an  local laws from the MAI, but a provision in the  agreement also calls for a "rollback" of existing laws that  run contrary to the agreement.

U.S. negotiators also are seeking exemptions from a so-called standstill provision, which would prevent  governments from enacting new laws that may violate the agreement. The United States particularly wants to protect future legislation in areas such as government contracting, affirmative action and environmental protection.  "Before we would move forward with any multilateral treaty, we'd take care to ensure we had completely  safeguarded our ability to act under existing laws and certain areas where we need further flexibility," said Alan Larson,  undersecretary of state for global affairs."   

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Dr. Janet M Eaton
J.M.Eaton Associates
Systemic Change Consultants
P.O. Box 1525, Wolfville, N.S.
Canada B0P 1X0
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