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

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The Political Failure of the MAI

The life of the MAI can be benchmarked between the Halifax G7 Summit of 1995 and the Birmingham G7 Summit of 1998.(2) At Halifax, in June 1995, the final communique endorsed the negotiation of a set of multilateral rules for investment (the MAI) at the Paris-based Organization for Economic Co-operation and Development (OECD). Almost concurrently, ministers and delegates at the OECD launched technical and substantive discussions, hoping to conclude the MAI within two years, in April 1997.(3) Failure to conclude the agenda at that date led to a one year extension, but by April 1998, it was clear that final agreement on the MAI was still far off, so a pause in negotiations of six months was accepted. Without a deadline to force agreement such a pause (which can lead into an indefinite period) signals the political failure of the MAI.

In time, the substantive issues of the MAI may be taken up at the Geneva-based World Trade Organisation (WTO), but probably only as part of a new Round of multilateral trade negotiations. The last, Uruguay Round, of the General Agreement on Tariffs and Trade (GATT) took seven years to complete, so the immediate prospects for an MAI, at the WTO, are not great. It will be even more difficult to generate a censensus, as there are 132 members of the WTO, as opposed to the 29 members of the OECD. About 90 percent of all the world's stock of foreign direct investment (FDI) is undertaken by the 29 OECD members, (who are rich developed countries from Western Europe, North America and Asia). The economic logic of the OECD as the forum for discussion of rules for FDI remains strong, even if the political logic of formal involvement of all parties (including developing countries) through the WTO is of increasing relevance. However, it has become obvious that the real reason for the defeat of the MAI has little to do with which of the OECD or WTO is the better forum, but is due to the negative role of non-governmental organizations (NGOs) as critics of international trade agreements.

2. At a pre-summit conference in Halifax in May 1995, several academic papers expressed the need for an MAI. These included those subsequently published by Rugman and D'Cruz (1997) and by Winham and Grant (1997). Other important contributions at that time include Brewer & Young (1995) and Smith (1995).

3. In mid 1994 the OECD organized a conference on trade, investment, competition and technology policies to develop a "New Trade Agenda" with more of a focus on the issues of "deep integration" (ie investment related) rather than the traditional "shallow integration" of tariff cuts. Following this, the OECD organized a series of Trade Committee sessions at which several important papers were prepared which laid out a policy for the MAI. The most important of these were subsequently published by Gestrin & Rugman (1996) Lawrence (1996) and Graham (1996).

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