The Constitution of a Single Global Economy

Scott Nova and Michelle Sforza-Roderick

In popular mythology, economic globalisation is a natural phenomenon, like continental drift: impossible to resist or control. In reality, globalisation is being shaped and advanced by carefully planned legal and institutional changes embodied in a series of international agreements. Pacts like the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA) promote the unregulated flow of money and goods across borders and strip elected governments of their regulatory authority, shifting power to unaccountable institutions such as the World Trade Organisation (WTO), the successor to GATT.

Virtually unreported, the latest and potentially most dangerous of these agreements is now under negotiation at the Organisation for Economic Cooperation and Development (OECD). The purpose of the Multilateral Agreement on Investment (MAI), as the proposed pact is known, is to grant transnational investors the unrestricted right to buy, sell and move businesses and other assets wherever they want, whenever they want. To achieve this goal, MAI would ban a wide range of regulatory laws now in force around the world and preempt future efforts to hold transnational corporations and investors accountable to the public. Negotiators planned to complete the agreement by May 1997 and to present it to the 29 OECD countries for approval as a treaty. Once MAI has gained OECD assent, the agreement's backers (the United States and the European Union) then intend to push the new accord on the developing world.

Negotiations are at an advanced stage. Yet few of the general public, particularly in either the US or European Union countries, have even heard of the agreement. Trade officials are treating MAI like nuclear secrets; the mainstream media is oblivious. Whether MAI is adopted, and, if so, just how far its deregulatory tentacles will extend, depends on whether opponents can force the proposal from its present obscurity into the light of public debate.

As proposed, MAI would force countries to treat foreign investors as favourably as domestic investors; laws violating this principle would be prohibited. Under these conditions, transnational corporations would find it easier and more profitable to move investments, including production facilities, to low-wage countries. At the same time, these countries would be unable to use strategies they have employed in the past to wrest benefits from investments, such as imposing performance requirements on transnational investors and providing special protection for domestic business. These performance requirements include laws mandating the employment of local managers or requiring the purchase of materials from local vendors. Efforts to promote local development by earmarking subsidies for home-grown businesses and limiting foreign ownership of local resources would also be barred. Removal of these investment barriers would increase job flight from industrial nations and place new pressures on countries, rich and poor, to compete for increasingly mobile investment capital by lowering environmental and labour standards.

A key MAI provision could also threaten corporate accountability laws. MAI could undermine statutes in any nation that link the establishment and receipt of subsidies, tax breaks and other public benefits to corporate behaviour. Depending on the outcome of the current negotiations, MAI may ban these so-called performance requirements. These include laws requiring subsidised firms to remain in the territory for a minimum number of years or to meet certain job-creation and local hiring goals; community reinvestment rules that require banks to invest in underserved areas; and the living wage laws that are the focus of activist campaigns in many countries.

Perhaps most disturbing, MAI would preempt strategies for restricting corporate flight to low-wage areas - a major cause of job loss and income stagnation in the industrialised world. On top of the damage done by plant closings and layoffs, corporations use just the threat of flight to undermine the bargaining power of unions and to scare policymakers away from the tough regulation and strong public investment necessary to raise living standards. Though remote from today's policy agenda, rules limiting the capacity of corporations to flee are essential to restoring the ability of government and labour to deal with corporations on anything like a level playing field. MAI would bar such rules in any country that is a party to the agreement.

In its scope and enforcement mechanisms, MAI represents a dangerous leap over past international agreements. It grants any corporation with a regulatory gripe the right to sue a city, state or national government before an international tribunal - with a binding outcome. Governments would enjoy no reciprocal right to sue corporations on the public's behalf. And MAI ignores most of the exceptions in previous agreements such as NAFTA and GATT; these clauses created exemptions for domestic laws designed to protect human and animal health and safety, promote economic development and conserve natural resources. The full extent of the drafters' ambitions is reflected in WTO Director General Renato Ruggerio's recent characterisation of the MAI negotiations: "We are writing the constitution of a single global economy."

If MAI is a constitution, its bill of rights is for investors only. The agreement contains no standards to protect workers or consumers or to shield small businesses from anticompetitive practices by transnationals.

The US government backs MAI for the same reason it supported NAFTA: increased international commerce is said to be inherently beneficial and whatever's good for corporations has to be good for the nation.

Organisations like Citizens' Trade Campaign, Global Trade Watch and the AFL-CIO trade union have made major strides educating government representatives and the public on trade and investment issues. If unions, consumer groups, environmentalists, state and local officials, and small businesses build on this work and make their voices heard, it is not too late to modify or even derail the agreement.

The outcome is critical - not just because of the destructive provisions of MAI itself, but because it is the next battleground in an intensifying campaign to institutionalise corporate dominance. While pundits rhapsodise about the triumph of unrestrained capitalism, corporate leaders know that social democratic politics may yet make a comeback. And they aspire to tie the hands of future policymakers by using their present political clout to inscribe deregulation indelibly in international law. Francis Fukuyama may be satisfied that the current winning streak of market ideology heralds the end of history. The corporations, however, want to put it in writing.

Preamble Collaborative, Washington, DC.

The OECD themselves have a Web Page devoted to questions and answers about the MAI.