September 15, 1998
Knight-Ridder/Media Tribune Services, September 15, 1998
It would seem an inopportune time to negotiate a treaty that makes it easier for capital to flow recklessly across national boundaries. One of the world’s worst economic crises since the Great Depression has engulfed much of Asia, and it was clearly set off by hot money that flowed in prior to August 1997, then gushed out in a panic when the Thai baht began to fall.
Economists now recognize that the liberalization of international borrowing and investing in countries like South Korea, Indonesia, and Thailand over the last decade created the instability from which the crisis was born. Yet the Clinton Administration is still working diligently to conclude the Multilateral Agreement on Investment (MAI), an international treaty that would make it more difficult to prevent these kinds of self-reinforcing panics in the future.
The MAI is being negotiated among the 29 mostly high income countries of the OECD (Organization for Economic Co-operation and Development), but its backers hope to extend it to the rest of the world as well. The agreement would create a host of new rights and privileges for foreign investors.
A government that wanted to prevent large foreign banks, hedge funds, or other institutions from speculating against its currency, to the point of causing it to collapse, would run afoul of the MAI. It would also violate the agreement’s most fundamental principle: that foreign investors cannot be treated any differently than domestic investors, regardless of the circumstances.
Consider the case of a government struggling to defend the value of its currency– as was recently the case in Russia (it failed), or presently in Brazil. An international bank shows up and wants to borrow $100 million worth of domestic currency. It is clear from the situation that they are engaged in “short-selling”– that is, they will sell the borrowed domestic currency for dollars, and then pay it back later, after it has been devalued. The actions of enough big short-sellers can actually cause the currency to collapse, and make a fortune for the speculators. But the MAI would prevent the government from restricting such loans or currency conversions in order to avoid this outcome.
The MAI would also give foreign corporations the right to sue governments when they feel that their profits have been reduced by an environmental regulation. An example will illustrate the significance of this provision. Last year the Canadian government prohibited the import of MMT, a gasoline additive that is effectively banned in the United States. It was on prohibited on the grounds that it was a potential health hazard.
The producer of the additive, the American-based Ethyl corporation, sued the Canadian government for $251 million in damages, under a provision in NAFTA that is similar to the MAI’s rules. On July 20 the Canadian government dropped its ban on MMT and agreed to pay Ethyl $13 million (Canadian) for legal costs and lost profits.
Examples like this have led major environmental organizations to oppose this new “Bill of Rights for multinational corporations.” But they’re not the only ones. State and local governments have expressed concerns about their own sovereignty under the agreement. Community organizations have seen the MAI as a threat to their efforts to promote local economic development. And human rights groups object to the treaty’s limits on economic sanctions against corporations that do business with repressive governments.
No wonder Business Week called the MAI “the explosive trade deal you’ve never heard of.” The Clinton Administration managed to keep it secret for the first two years of negotiations, and is still trying the “stealth approach.” But it’s out in the open now, and the more press it gets, the less chance it has of passing.