The idea of a multilateral agreement on investment (MAI) has been discussed for decades as a way to establish common rules and protections for cross-border investments. However, achieving consensus among developed and developing countries has proven difficult. This article will examine the history of attempts at negotiating a MAI, analyze the key obstacles, and discuss whether a global investment framework is feasible or desirable in the future. Issues like investment protection standards, dispute settlement, and safeguarding policy space will be explored. With foreign direct investment flows surpassing $1.5 trillion annually, an effective international investment system is crucial, but divisions remain on the appropriate multilateral approach. These dynamics will be assessed while evaluating the merits and drawbacks of a potential multilateral agreement on investment.
Early efforts at multilateral investment rules were controversial and unsuccessful
In the post-war period, developing countries pushed for sovereignty over natural resources and domestic control over investment issues. UN resolutions in the 1950s-1970s affirmed the right of host states to regulate foreign investment and determine compensation for expropriation. However, some developed countries sought stronger international protections for their overseas investors. This set the stage for a clash at the Havana Charter negotiations in the late 1940s, which would have created an International Trade Organization with rules on foreign investment. Developing countries rejected this, opposing legal constraints on their ability to manage investment policies.
Decades later, OECD nations tried again to negotiate a Multilateral Agreement on Investment in the 1990s. This was envisioned to liberalize investment flows and establish standards like non-discrimination, compensation for expropriation, and investor-state dispute settlement. But developing countries and civil society groups criticized the MAI as infringing on national policy space. The negotiations collapsed due to an inability to bridge the North-South divide.
Key obstacles have hindered a consensus on multilateral investment rules
Several complex issues have stalled progress on a multilateral framework for investment:
– Investment protection standards: Developed countries want rules like fair and equitable treatment and compensation for indirect expropriation. Developing countries resist constraints on regulation and unclear concepts like indirect expropriation.
– Investor-state dispute settlement (ISDS): Developing countries prefer domestic courts to rule on investment disputes. Developed countries argue national courts may be biased or lack expertise on international law. But ISDS has also faced a backlash in developed countries.
– Policy space concerns: Developing countries want flexibility to regulate foreign investment and develop domestic industries. But developed countries argue this may disguise disguised protectionism.
– Development objectives: Developing countries want multilateral rules to affirm their right to development policies. But developed countries prefer focusing on investment liberalization and protections.
– Trade-investment linkage: Some countries want to address investment issues at the WTO alongside trade. But others prefer to leave investment for bilateral or regional deals.
With these fundamental disagreements, crafting compromise language for a multilateral investment agreement has remained elusive.
The feasibility and merits of a global investment framework remain contested
Looking ahead, it is unclear if sufficient common ground exists for a multilateral agreement on investment. With over 3,000 bilateral investment treaties already in place, some argue further multilateral rules are unnecessary or premature. Critics contend global standards could unduly restrict regulatory space.
However, proponents maintain that a multilateral framework would reduce transaction costs, provide equal treatment for investors, and offer certainty. For them, existing bilateral deals lack consistency and the growth of global value chains needs coherent international rules. From their perspective, an MAI could balance investment protection with policy flexibility and affirm the right to regulate for public interest objectives.
Realistically, negotiating comprehensive multilateral investment rules would face steep challenges at present. But some see potential value in plurilateral approaches among like-minded countries to begin harmonizing standards. Incremental progress may be possible by starting with less controversial issues like transparency. With investment flows projected to rise further, pressures for greater cooperation may ultimately facilitate movement towards a multilateral investment framework.
The history of a multilateral investment agreement has seen developed and developing countries at odds over issues like investor protections versus policy space. While an MAI faces obstacles, global investment flows are rising rapidly. This may eventually generate momentum for compromise on shared investment principles, if priorities like development policy flexibility can be accommodated.