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

Canada and the MAI

During the Canadian federal election campaign in May 1997 the Council of Canadians and various other left wing NGOs such as the Canadian Labour Congress, the Sierra Club of Canada and Citizens Concerned About Free Trade ran full page ads criticizing the MAI. The MAI is still being negotiated in Paris at the Organization for Economic Co-operation and Development (OECD). Negotiations started in May 1995 and should have been completed in May 1997; May 1998 was an extended completion date, but discussion has been postponed for several months.

Maude Barlow's Council of Canadians state that "the new MAI gives transnational corporations so much power that Parliament won't matter." More specific statement include the allegations that the MAI:-

1. "cripples Canada's ability to create jobs"
2. "paves the way for a two-tiered health system"
3. "guts our ability to protect our environment"
4. "leaves Canada's culture at the mercy of U.S. entertainment mega-corporations"

None of these statements by the Council of Canadians is accurate and all of them convey a totally misleading picture alleging that the MAI will introduce changes adversely affecting Canadian sovereignty and economic control. In reality, the MAI will not bring any significant economic or political changes to Canada. The reason is very simple; Canada already has an MAI with the United States - it is called the Free Trade Agreement (FTA).

The investment provisions of the FTA as signed to ten years ago (on January 1st 1988) are the basis of the draft MAI. The NAFTA investment provisions of 1993 were based upon the FTA and these NAFTA investment provisions are identical in all major respects to those in the draft MAI. For example, both the FTA and NAFTA incorporate the key principle of national treatment, i.e. equal access for foreign (U.S.) investors to the Canadian market (but according to Canadian rules). In return, Canadian investors have equal access to foreign (U.S.) markets, on host country rules. Both the FTA and NAFTA also have exemptions from national treatment for important Canadian sectors, including the big five of health care, education, social services, cultural industries and transportation. (5)

The MAI is being negotiated along the same lines; countries have already agreed to the national treatment principle but they disagree over the number and type of exempted sectors. It is clear that the Canadian government will continue to insist on exemptions for the five sectors, especially culture, and that the logic of the FTA/NAFTA will be used as a model for the MAI. The underlying structure of the FTA, NAFTA and MAI is now well understood by Canadians as a clever balance between the pressures of globalization (national treatment) and the need for sovereignty (exempted sectors).

The current challenge in international trade negotiations, somewhat paradoxically, is to negotiate investment rules rather than trade rules. This is because, through seven GATT rounds, and important bilateral agreements such as the FTA, the best known barriers to trade, in the form of tariffs, have already been reduced to a trivial hurdle, even when calculating effective rates of protection (which takes into account the value added and labour component of the protected good.)

Today, the majority of international business is not done by trade in goods, but through services and investments. Over 70% of North Americans work in the service sector, with only 30% in manufacturing. So the new agenda for international agreements is to negotiate rules for trade in services and for international investment, Ostry (1997). The "shallow" integration achieved by reducing tariff barriers to trade in goods is being replaced by "deep" integration through FDI, trade in services and the international networks of multinational enterprises, Brewer and Young (1998).

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5. For details, see Rugman (1994).