The Political Economy Of The Multilateral Agreement On Investment
Alan M. Rugman

MAI and NAFTA

The draft MAI is similar to the NAFTA investment regime in all substantive respects and even in most procedural detail. The critics of the MAI have misunderstood the technical details of the MAI (as they did the FTA and NAFTA). For example, they claim that there are tighter mechanisms for "standstill" and "rollback". Here "standstill" means that countries cannot impose any new regulations to restrict investment; while "rollback" means that countries agree to a timetable to reduce existing regulations on investment. These are technical and legal terms intended to make the MAI function effectively. These process-related issues do not add to the economic or political substance of the MAI in any way when compared to NAFTA. There are similar provisions in NAFTA. There is, in fact, a large overlap in the technical and legal procedures of the proposed MAI and the existing NAFTA. In turn, there was a very strong overlap between the investment provisions of NAFTA and those of the FTA of 1987.

One issue seized upon by NGOs is the first NAFTA based investor-state appeal case brought by U.S.-owned Ethyl Corporation. They are the sole manufacturers in Canada of a gasoline additive, MMT, which was banned by the Canadian government in 1997. Although this is the only case in the four years of NAFTA, and is highly unlikely to be successful, NGOs use it as a stick to batter the MAI. They generalize the specifics of this case to claim that foreign investors could use the expropriation provision of an MAI to claim compensation for loss of business when an environmental regulation is passed. They argue that any harm on any foreign-owned property or product would qualify for MAI protection. All of this is misconceived. All an MAI can do is apply the principle of national treatment. Environmental regulations can be adopted by countries, before or after an MAI, without the MAI making any difference. All that the MAI can require is that foreign-owned firms be treated in the same way as domestic firms in the face of new legislation. The issue of there being a monopoly foreign supplier is a different issue, better handled by economic-based competition policy than by any aspect of the MAI. Of course, there is always the possibility that lawyers can screw up the MAI as it will produce a set of multilateral investment laws. The issue of eminent domain (the power of a sovereign country to regulate) and "taking" of laws is a matter for legal interpretations, which can differ between regimes. However, the MAI cannot confer more power in law on a foreign-owned firm, all the MAI can do is make a foreign firm equal to a domestic firm in law.