Business

MAI misgivings

JOHN GEDDES March 16 1998
Business

MAI misgivings

JOHN GEDDES March 16 1998

MAI misgivings

Business

JOHN GEDDES

On a drizzly March weeknight in Smiths Falls, Ont., an hour’s drive southwest of Ottawa, about 120 concerned citizens fill every chair in a community hall. With its plates of cookies, coffee urn and neat stacks of pamphlets, this hardly looks like a gathering that would worry federal cabinet ministers and powerful business lobbyists. But it does. Smiths Falls, population 9,100, is the latest stop on Maude Barlow’s cross-Canada campaign against the Multilateral Agreement on Investment. And while the MAI is worlds removed from daily life in rural eastern Ontario, Barlow draws an impressive crowd. Her past battles against freetrade deals have made her Canada’s best-known anti-corporate rabble-rouser. These days, she sees the agenda launched by the Conservatives in the 1980s being pursued even more vigorously by the Liberals. “I find this government breathtakingly hypocritical,” says Barlow, chairwoman of the Ottawabased Council of Canadians, a public-issues interest group.

“They have taken the notion of promoting globalization a whole step further than the Tories under Brian Mulroney ever did.” The Liberals do not deny the allegation. Trade Minister Sergio Marchi defends the proposed MAI—124 pages of densely worded rules on how governments can treat foreign investors—as a key step towards giving Canadian companies the security they need to do more business abroad. The pact, under negotiation at the Parisbased Organization for Economic Co-operation and Development, aims to do for investment what bilateral and multilateral deals have already done for trade. But the OECD’s self-imposed

deadline for a signing next month now seems unattainable. The talks have bogged down, and Barlow and like-minded critics around the world are stepping up their campaigns to sink the deal permanently. She derides the MAI as a “corporate bill of rights” that would jeopardize Canada’s health system, cultural policies, environmental laws—and much more. Marchi dismisses all that as nonsense. “Some people very loosely say that the Canada we know will be dead with MAI,” he told Maclean’s last week. “I find that irresponsible, and manipulative of some legitimate anxieties that people have about globalization.” Those anxieties were on full display in Smiths Falls. Barlow drew enthusiastic applause after unleashing a rapid-fire barrage of alarming claims in her speech. According to her, almost

STICKING POINTS No “rollback” provision to force Canada siowiy into tine with parts of the MAI that it opted out of from the start The deal must address the U.S. Helms-Burton legislation that hurts some Canadians doing business in Cuba

any Canadian policy that costs a foreign investor money, or limits its access to a business opportunity here, would be vulnerable to an MAI challenge. For example, she said Ottawa might have to pay compensation if it imposed stricter environmental laws that cut into a foreign firm’s profits. Even municipal zoning bylaws that limit retail-store size could be contested by a chain like Wal-Mart. Government control of health care and education would be under pressure. “Wherever there is anything left in the public sector, they want to open it up to international competition,” Barlow said.

Defenders of the MAI deny there is anything in the proposed deal to justify Barlow’s sweeping assault. The draft agreement’s basic principle is that countries should treat foreign investors no less favorably than domestic ones. So in areas such as antipollution regulations or zoning laws, rules that apply equally to both homegrown and foreign-owned firms appear not to be open to dispute. Still, even the most enthusiastic MAI-boosters agree that a perfectly level playing field for investment is out of the question. Virtually every country maintains a raft of prefer-

ences for its own companies and keeps certain industries under domestic ownership. Just how many of these laws supporting domestic investment survive is the main issue in the MAI debate. Canada’s investment re-

strictions now cover sectors such as airlines, telecommunications, financial institutions and cultural enterprises, such as bookstores and newspapers. Most other OECD countries— the 29 industrialized economies involved in the MAI talks—have similar policies. And they come to the MAI bargaining table determined to maintain many of them. Marchi insists his own list of 44 areas where Canada demands the right to keep acting the way it does now, regardless of what the MAI says, is largely non-negotiable. Among these so-called reservations and exemptions: culture,

health and education. “We will sign the right deal when the right one is done,” he says. ‘We will not sign for the sake of signing.” Opponents of the MAI predict that Ottawa will be pressured into compromises that gut sensitive policies. Barlow bluntly accuses the government of deceiving Canadians about how much it can realistically hope to preserve. She bases that largely on the fact that the latest draft of the MAI shows little sign of having been changed to reflect the concerns expressed by Canada and other countries over months of intense negotiations. “It is as if the government of Canada is making one set of promises and there is a whole separate process going on over in Paris at the OECD,” Barlow says. But Marchi is increasingly emphatic. On cultural policy, for instance, he has lately taken to repeating—at every opportunity—that Ottawa will never abandon its right to tightly restrict foreign ownership in areas like publishing and film distribution. “Culture is not negotiable,” Marchi says with exasperation. “Period. Exclamation mark.”

'We will sign the right deal when the right one is done'

In fact, Canada’s stand on culture—shared by countries like France and Italy—is just one of a wider set of hotly contested points that have all but halted progress towards an MAI signing. Washington is frustrated that any deal now appears unlikely to pry open new investment opportunities for the powerful U.S. entertainment industry. And at least two other key disputes have the potential to prevent crucial U.S. acceptance of the agreement. The European Union wants to be declared a special regional zone, within which more liberalized investment flows would be allowed among member countries than from outside investors, such as U.S. and Japanese corporations. The United States, once seen as the driving force behind the MAI, will almost certainly balk at such a sweeping concession for Europe. Even more likely to doom the deal in Washington would be persistence by Canada and Europe in seeking to use the MAI to outlaw, or at least weaken, the Helms-Burton Act—the U.S. law that punishes foreign companies for profiting from Cuban properties owned by Americans before Fidel Castro took power in 1959.

The upshot of those core disagreements is a growing doubt about whether a deal can be reached this year. But Marchi insists that while the MAI may be down, it is not out. In fact, he questions whether the OECD, a club of rich nations, was the best forum for drafting binding international investment rules in the first place. The OECD countries put relatively few restrictions on most in-

vestment. The bigger problems Canadian companies are facing, when it comes to governments interfering with investment, are in developing countries in Asia, Latin America and the Middle East, Marchi says. To get those emerging economies into an investment regime with a powerful dispute-settlement mechanism means transferring the MAI to the 130-member World Trade Organization. “Ultimately, this deal has to find a home at the WTO,” Marchi says. And if the OECD finds it cannot complete the job, Marchi says Canada is proposing passing the baton early: “The question we are raising is whether we want the OECD to finalize an agreement, or do we want it to negotiate two-thirds and let the WTO negotiate the last third.”

In Smiths Falls, Barlow cautions her rapt listeners not to let down their guard if the MAI drops out of the news this spring. “At the moment, they are bogged down,” she says, then adds: “The MAI is part of a much larger process.” On that score, she is undeniably right. Foreign direct investment in Canada amounts to more than $180 billion, while Canadian investment abroad is worth more than $170 billion—and climbing fast. Since 1989, Ottawa has quietly negotiated 24 treaties with other countries—from South Africa to Thailand—all based on a chapter in the North American Free Trade Agreement that set out rules for investment ties among the United States, Canada and Mexico. In fact, the NAFTA text forms the basis for the MAI. Yet another bilateral deal, this one with Brazil, Marchi says, is now being hammered out. As Barlow gamely fights the big battle against the MAI, her side may be losing the war against liberalized investment one small treaty at a time. □