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

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One of the emerging economic (and political) issues for the G7 leaders is the liberalization of investment. Today multinational enterprises (MNEs) dominate world trade and investment. Over half of the world's trade and over eighty percent of the foreign direct investment is undertaken by MNEs based in the G7 countries, namely the United States, Japan and the large countries of Western Europe. Data to support this appears in Rugman (1996) and in the United Nations (1997). While tariffs and many non-tariff barriers to trade have been negotiated away in seven successive rounds of the General Agreement on Tariffs and Trade (GATT) the issue of investment liberalization has been largely ignored. Only in NAFTA was investment a central part of a trade agreement and the investment provision of NAFTA have been argued to be a model for a multilateral agreement on investment (MAI).(1)

An important topic for the 1998 Birmingham Summit of the G7 should be how to rescue the MAI from imminent failure. The design and adoption of a clear set of multilateral investment rules should be a priority for the G7 leaders. In the first half of this paper the reasons for the political failure of the MAI despite its economic benefits are discussed. Following this the Canadian experience with the MAI is used to illustrate the negative side of non-governmental organizations (NGOs) in the MAI process.

The elements of the MAI are reviewed from the perspective of an academic Canadian commentator now relocated to England. Making use of modern academic theory, especially in the second part of the paper, the relationship of the MAI to NAFTA is explained, and the nature of opposition to the MAI by Canadian-based NGOs is discussed. The nature and content of the MAI is outlined. The difference between shallow and deep integration, and the role of multinational enterprises (MNEs) is explained. The impact of the MAI on Canada is considered, and this impact is found to be neutral, since NAFTA already provides the major benefit of the MAI, through opening up investment with the United States.

1. For further discussion of the relationship between NAFTA and the MAI and the argument that the MAI could be based on the investment provisions of NAFTA, see Gestrin and Rugman (1996), Rugman and Gestrin (1996) and Rugman (1997). For discussion of the investment process of NAFTA see Rugman (1994).

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