Multilateral Agreement on Investment: Implications for the United States

Multilateral Agreement on Investment: Implications for the United States

97-469 E
CRS Report for Congress
Received through the CRS Web
Multilateral Agreement on Investment:
Implications for the United States
Updated March 18, 1998
James K. Jackson
Specialist in International Trade and Finance
Economics Division
Congressional Research Service ˜ The Library of Congress

Abstract
The United States is negotiating with Ministers from the other developed
economies on a Multilateral Agreement on Investment (MAI). U.S. negotiators are
dissatisfied with the current draft of the agreement and oppose setting new deadlines
for completing the long and divisive negotiations. Should the Ministers resolve the
myriad outstanding issues, the measure will be forwarded to the Senate for
consideration as a treaty. This report will be updated as developments require.

Multilateral Agreement on Investment:
Implications for the United States
Summary
Ministers of the 29 members of the Organization for Economic Cooperation and
Development (OECD) have struggled since 1995 to negotiate a Multilateral
Agreement on Investment (MAI). Negotiations on many aspects of a final agreement
have progressed rapidly, but OECD members have been unable to resolve numerous
thorny issues before the latest deadline set for the OECD Ministerial meeting in April
1998. U.S. negotiators have indicated that they will not sign the present agreement
without significant changes and oppose establishing another deadline.
As a whole, the OECD favors eliminating most of the national rules governing
inward and outward direct investment. One notable exception would be exemptions
for each country for industries or sectors that individual members deem to be of
national security or of especial national importance. The United States also favors
the national, or unbiased, treatment of foreign direct investment. At times, however,
the U.S. commitment to this standard has waned as other policy objectives have
taken precedent. Presently, the United States is leading the way for the other
developed countries to adopt a more open standard with an agreed upon, and
enforceable, dispute settlement procedure.
The OECD ministers’ stated goal in adopting a MAI is to create a strong and
comprehensive legal framework on foreign direct investment among the participating
countries. This agreement is intended to be a stand-alone agreement and to be
accessible to any country, developed, or developing, that is willing to abide by its
precepts. Through the MAI, the OECD members also seek to reduce barriers and
discriminatory treatment of foreign direct investment and to increase the legal
security for investments and investors. To give force to this agreement, the MAI will
be legally binding and contain effective provisions for settling disputes.
Despite overall progress on the agreement, a number of issues remain. In
particular, negotiators have not agreed on how many and what type of exceptions
nations will be allowed to take. The United States also is taking issue with the
European Commission over its request for a broad exception for regional economic
integration organizations. U.S. negotiators believe this type of exception will allow
the Commission to exclude itself from parts of the agreement and to discriminate in
favor of European Union member states.
U.S. negotiators also have to consider how the Clinton Administration will
approach the issue of an MAI with the Congress. The Administration is concerned
about the timing and approach of bringing the issue before Congress so that the
agreement does not interfere with such other trade issues as the debate over fast-track
negotiating authority. At the least, Congress likely will be asked to approve the
agreement as a treaty. It is not clear if any additional legislative action will be
required.

Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Overseas Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Existing Arrangements Governing Foreign Investment . . . . . . . . . . . . . . . . . . . . 6
Bilateral Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Multilateral Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Declaration on International Investment and Multinational
Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The OECD Code of Liberalization of Capital Movements . . . . . . . . . . 8
The OECD Code of Liberalization of Current Invisible Operations . . . 8
Trade-Related Investment Measures (TRIMs) . . . . . . . . . . . . . . . . . . 8
The World Trade Organization (WTO) . . . . . . . . . . . . . . . . . . . . . . . 8
The Scope of the MAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Unresolved Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Bribery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
U.S. Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Implications for the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Appendix A. OECD Countries Direct Investment Position Abroad, 1994 . . . . . 15
Appendix B. Multilateral, Regional, and Other
Agreements on Overseas Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Figures
Figure 1 Direct Investment Position Abroad of OECD Countries
in billions of U.S. dollars, 1983-1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 2. U.S., E.C., and Japanese Direct Investment Position Abroad 1994;
Geographic Regions (percent of total overseas direct investment position) . 4
Figure 3. U.S., E.C., and Japanese Direct Investment Position Abroad, 1994
Non-OECD Geographic Regions (percent of total non-OECD overseas direct
investment position) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Multilateral Agreement on Investment:
Implications for the United States
Overview
Since May 1995, ministers of the 29 members of the Organization for Economic
Cooperation and Development (OECD) have struggled to negotiate a Multilatera
1
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Agreement on Investment (MAI). Negotiators are building on previous experience
with overseas direct investment within the OECD in formulating a new set of rules.
These rules, in turn, are intended to become the basis for a freestanding international
treaty open to all OECD Members and all non-OECD countries.
Negotiations on many aspects of a final agreement have progressed rapidly. The
OECD members, however, could not finalize an agreement before the initial deadline
set for the OECD Ministerial meeting in May 1997 and agreed to extend the deadline
for a year. U.S. negotiators, who pressed for an extension in the negotiations of one
year past the original deadline to resolve a number of outstanding issues, now oppose
establishing additional deadlines.2
U.S. officials have agreed to continue negotiations on the MAI, but are not
willing to sign a statement of political intent prior to the April 1998 meeting of
OECD ministers. They are leery of the large number of exceptions European
members are requesting for industrial sectors within their economies, a move the
U.S. negotiators believe would render the agreement meaningless. Assuming an
accord can be reached, the Clinton Administration has indicated that it will forward
the agreement to the Senate as a treaty.
Background
As a whole, the OECD favors eliminating most of the national rules governing
inward and outward direct investment. Each country is allowed exemptions, or
reservations, for industries or economic sectors deemed to be of national importance,
or for matters of national security. The robust growth many developed economies
1 Since May 1995, the OECD has added two members. The member countries of the
OECD are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg,
Mexico, New Zealand, the Netherlands, Norway, Poland, Portugal, Spain, Sweden,
Switzerland, Turkey, United Kingdom, and United States.
2 U.S. Pressing to Delay Conclusion of OECD Investment Pact to May 1998. Inside
U.S. Trade, April 4, 1997.

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experienced in overseas investment in the early 1990s, however, is spurring the
OECD countries to remove a broad range of national restrictions on direct investment
and to develop an international agreement on investment rules. As figure 1 shows,
foreign direct investment by the OECD countries more than quadrupled over the
1983-1994 period, rising from $447 billion in 1983 to $2.1 trillion in 1994.3 This
growth in foreign investment reflects the view of many firms that overseas
investment is an essential component of their overall business strategy and is a
complement to their export efforts. As one OECD official states:
.... Although investments abroad by the largest firms are by no means a
new phenomenon, a growing number of firms now view overseas
expansion through direct investment as a necessity, with the aim often
being to achieve more effective access in markets where the investor is
presently under represented. In many cases these investments have the
effect of leading to increased trade flows as well, demonstrating that
investment and trade flows very often interact in a complementary
manner.4
Figure 1 Direct Investment Position Abroad of OECD Countries
in billions of U.S. dollars, 1983-1994
2500
2000
Direct investment position abroad
1500
1000
500
0
1983
1985
1987
1989
1991
1993

3 International Direct Investment Statistics Yearbook 1996. Paris, Organization for
Economic Cooperation and Development. 1996. Table 8, various countries.
4 Witherell, William H. Developing International Rules For Foreign Investment:
OECD’s Multilateral Agreement on Investment. Business Economics, January, 1997. P. 33.

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As figure 2 shows, the majority of foreign direct investment, whether from the
United States, the European Community, or Japan, is in the developed economie
5
s
of the OECD. Direct investment in OECD countries accounts for over two-thirds of
Japan’s $464 billion in investments, three-fourths of the United States’ $621 billion
in investments and over 80% of the nearly $1 trillion in the EC’s investments (for
detailed data, see appendix A.). U.S. and EC direct investment abroad is focused
heavily on investments within the EC itself. U.S. investment in the EC amounted to
$261 billion in 1994, about 42% of the total U.S. direct investment abroad. U.S.
investments in non-EC developed countries account for 12% of U.S. direct
investment abroad, more than twice the comparable shares for Japan or the EC.
Japanese and EC investments are heavily focused on North America, especially on
the United States. Japanese investors have placed 44% of their investments in North
America, while EC countries have placed over one-fourth of their investments in
North America.
Investments in non-OECD countries follow a vague pattern of specialization
among the three major investors: the United States, the EC, and Japan. As figure 3
shows, U.S. investments are more heavily concentrated in Latin America, accounting
for 60% of U.S. investments in non-OECD countries. The EC has a higher
concentration of investments in Africa and Central Europe than either the United
States or Japan, although a sizeable portion of the EC’s non-OECD investments are
in Latin America (46%) and Southeast Asia (34%). Japanese investors have focused
over 50% of their investments in Southeast Asia, while the share of Japanese
investments in Latin America rank third among the three investors. Japanese
investors, however, have invested less than 1% of their non-OECD investments, in
Central Europe.
U.S. Overseas Investment Policy
Following the end of World War II, U.S. firms invested abroad in record
amounts. The period prior to 1960 has been named by some observers as the
“American phase” because American firms so dominated overseas investing during
this period. U.S. investments during this phase were focused on large-scale
investments in petroleum and raw materials in Latin America, the Middle East, and
Canada. By 1960, as the European Economic Community began to take shape, U.S.
firms shifted their investment focus to Europe to overcome the high and uniform
tariff wall that was taking shape around Western Europe. By the end of the decade,
many European firms had also expanded to become global firms and had joined the
ranks of American multinational corporations (MNCs). By the 1980s, Japanese and
European firms, and to a lesser extent firms of other Asian countries, also became
major international investors.
5 These data were prepared by the OECD prior to the shift by the European Community
to the European Union and the subsequent increase in the number of member countries.

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Figure 2. U.S., E.C., and Japanese Direct Investment Position Abroad
1994; Geographic Regions (percent of total overseas direct investment position)
United States
European Community
Non-OECD
Non-OECD
26.5%
15.8%
Oth. OECD
4.3%
Oth. OECD
12.4%
N. America
26.3%
EC
EC
N. America
46.6%
42.0%
12.1%
Oth. Europe
Oth. Europe
7.0%
7.1%
Japan
Non-OECD
31.0%
EC
18.1%
Oth. Europe
Oth. OECD
1.0%
6.2%
N. America
43.7%
Source: Organization for Economic Cooperation and Development

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Figure 3. U.S., E.C., and Japanese Direct Investment Position Abroad, 1994
Non-OECD Geographic Regions (percent of total non-OECD
overseas direct investment position)
United States
European Community
Asia 29.8%
Asia 34.5%
Africa 10.1%
M. East 4.2%
Africa 3.4%
C. Europe 2.7%
C. Europe 6.8%
M. East 2.7%
L. America 59.9%
L. America 45.9%
Japan
Asia 53.8%
Africa 5.4%
C. Europe 0.6%
M. East 3.3%
L. America 36.9%
Source: Organization for Economic Cooperation and Development
The United States has generally favored the national, or unbiased, treatment of
foreign direct investment. At times, however, U.S. commitment to this policy has
been overwhelmed by other issues, or has been diluted by other, sometimes
conflicting, policy objectives. Initially, U.S. government actions concerning foreign
investment revolved around efforts to negotiate Friendship, Commerce, and
Navigation treaties with other governments. One author argues that the United States
did not have a distinct, comprehensive foreign investment policy, but a group of
disparate policies:
... U.S. parent investment policy was so fragmented that it is more
accurate to describe it as a number of distinct policies, which sometimes
touched or became entangled, but never quite meshed into a single
systematic and coherent policy. These distinct policies include the
following: 1) a balance of payments policy, which entailed the
discouragement of an outward flow of U.S. capital; 2) a policy to the
developing world which relied on private foreign investment as a
supplementary tool for development assistance, but also provided
guarantees, protection, and diplomatic assistance to the U.S. investor

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should problems arise with the host government; 3) a third country policy
which discouraged trade with Communist countries by prohibiting exports
from the subsidiaries of American MNCs; 4) a tax policy on U.S. MNCs
which sometimes served to encourage, sometimes to discourage foreign
investment, and sometimes was neutral; and 5) the extraterritorial
application of domestic law like antitrust and securities disclosure; and 6)
the use of foreign investors as overt and covert instruments of American
diplomacy.6
In 1961, the governments of the OECD adopted a Code of Liberalization of
Capital Movements. Though not legally binding, the code set rules for the flow of
transnational investment and established a mechanism for consultation when
restrictions on capital movements were felt necessary by a government. During the
same year, President Kennedy announced measures to stem the outflow of capital
from the United States to check the growing U.S. balance of payments deficit.
Furthermore, in 1963, President Kennedy urged Congress to pass the Interest
Equalization Tax (IET) on the purchase of foreign stock by U.S citizens. As the U.S.
balance of payments condition worsened, President Johnson announced in 1965 a
Voluntary Foreign Credit Restraint Program (VFCR) to curb bank lending and to
urge businessmen to reduce their foreign investment.7 In 1968, President Johnson
issued an Executive Order setting mandatory ceilings on foreign investment.8
These measures proved to be ineffective and eventually were removed. One
factor that contributed to the demise of the controls on foreign investment was a set
of contradictory U.S. policies. One of these policies encouraged U.S. firms to invest
in developing countries for foreign policy reasons. To assist U.S. firms in this
endeavor, the U.S. government established the Overseas Private Investment
Corporation (OPIC) in 1969. (The 105th Congress considered a proposal to
eliminate OPIC.)9
Existing Arrangements Governing Foreign Investment
Existing arrangements governing foreign investment include a wide variety of
instruments that differ in their legal character, scope, and subject matter. Th
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United Nations reports that since the early 1980s, a growing number of countries
have changed their policies on foreign direct investment by encouraging and
6 Pastor, Robert A. Congress and the Politics of U.S. Foreign Economic Policy: 1929-
1976. Berkeley, University of California Press, 1980. Pp. 209-210.
7 Ibid., p. 212.
8 Kindleberger, Charles P. The International Corporation. Cambridge, the M.I.T.
Press, 1970. Pp. 101-103.
9 For additional information, see: U.S. Library of Congress. Congressional Research
Service. The Overseas Private Investment Corporation: Reauthorization and Funding.
CRS Report 97-132 E, by James K. Jackson.
10 Annual Report, 1996. World Trade Organization, 1996. P. 61.

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facilitating such investment. This
11
type of activity picked up speed in the 1990s as
many nations altered their domestic laws that govern foreign investment and as
nations increased their use of bilateral investment treaties. Nearly two-thirds of the
1,200 bilateral investment treaties that were concluded prior to July 1996 were
concluded during the 1990s.12
Bilateral Investment Treaties
Bilateral investment treaties have emerged as the favored investment instrument,
because previous attempts at developing multilateral agreements have been so
unsuccessful. There are two main approaches used in admitting foreign investment
under bilateral treaties. The United States requires that nations apply most favored
nation (MFN), or non-discriminatory, treatment and that countries also observe
national treatment with respect to both the admission and the subsequent treatment
of foreign direct investment. Exceptions are made for industries or areas reserved for
national security, or for other national objectives. In contrast, most other nations
apply bilateral treaties that require nations to encourage and to admit into their
territories investments by nationals and companies of the other party. This
commitment, however, is subject to any existing or future restrictions on the entry of
foreign investment contained in domestic laws, which historically have been applied
to investments only after they have been admitted into a country.
According to the World Trade Organization (WTO), general standards of
treatment of foreign investment commonly found in bilateral investment treaties
include a number of measures. Such measures generally require that investments be
accorded fair and equitable treatment, full protection and security, and that nations
refrain from interfering in ways that disrupt the normal management, maintenance,
use or disposal of investments. In addition, most treaties accord the parties involved
most favored nation and national treatment standards.13
Multilateral Investment Treaties
At the multilateral, or multi-nation, level, there are at lest two major types of
arrangements. There are investment treaties that are part of broader arrangements
that aim to integrate rules on foreign investment into a framework of rules geared
toward economic cooperation and integration. Such arrangements include the treaty
establishing the European Community and the North American Free Trade
Agreement. In addition, there are arrangements which cover only foreign investment.
Of particular prominence among this second group is the OECD Code of
Liberalization of Capital Movements and the Code of Liberalization of Current
Invisible Operations. In addition, the OECD has issued a basic statement on foreign
investment, The Declaration on International Investment and Multinational
Enterprises.
11 World Investment Report 1994: Transnational Corporations, Employment, and the
Workplace. New York, United Nations, 1994. P. 277.
12 Annual Report 1996, p. 62.
13 Ibid., pp. 62-63.

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The Declaration on International Investment and Multinational
Enterprises. The members of the OECD adopted this Declaration on June 21, 1976,
and then updated it in 1979, 1984, and 1991. The Declaration is not a legally binding
treaty, but it is a general statement of policy regarding foreign investment. Member
countries are expected to accord multinational enterprises national treatment and to
assure that this treatment is followed at the sub-national level. The Declaration
makes note of the use of incentives or disincentives by governments, and requires
member countries to make such measures as transparent as possible so that “their
importance and purpose can be ascertained.”
The OECD Code of Liberalization of Capital Movements. This and the
companion code on invisible operations are legally binding on OECD members,
although there is no enforcement mechanism. Instead, the code provides a
framework of notification, examination, and consultation. This and the companion
code on current invisible operations are meant to promote the removal of restrictions
on capital movements, including foreign investment and the repatriation of profits.
The OECD Code of Liberalization of Current Invisible Operations. The
purpose of this code is to encourage nations to remove or to reduce restrictions on
current payments and transfers of funds. “Invisible” is the general term the OECD
applies to all financial exchanges in which no merchandise is involved. Within this
group there are current and capital operations, consisting primarily of a transaction
between two parties and a related transfer of money. The code’s obligations also
extend to ensure that the underlying transactions themselves are not frustrated by
legal or administrative regulations.
Trade-Related Investment Measures (TRIMs). The Uruguay Round of trade
negotiations did not include negotiations explicitly on foreign direct investment. As
a result, the TRIMs Agreement was more modest than the United States had hoped
for. The Agreement did not add to any of the obligations then existing under the
General Agreement on Tariffs and Trade (GATT) — now the WTO, but clarified the
obligations existing at the time. The Agreement provides a procedure for more
effective compliance with the national treatment obligations.14
The World Trade Organization (WTO). Investment is one of a number of
thorny issues facing the WTO. As a result of a handful of countries, members of the
WTO have been unable to agree on who would chair a working group on investment,
or on what issues the group should consider.15
14 World Investment Report 1994, p. 280.
15 WTO Haggling Over Plans on Investment, Competition, Procurement. Inside U.S.
Trade, March 14, 1997. P. 17.

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The Scope of the MAI
Despite the rapid growth in foreign direct investment, foreign investors still
encounter barriers, discriminatory treatment, and legal and regulatory uncertainties.16
Spurred by these and other problems facing firms that attempt to invest abroad, the
OECD governments decided to begin negotiations among themselves on a MAI and
to conclude the agreement by the time of the OECD Ministerial meeting in May
1997. The goal of the negotiations is “to create a strong and comprehensive legal
framework for foreign direct investment among the participating countries,”
according to a senior OECD official. This means the MAI will seek to reduc
17
e
barriers and discriminatory treatment of foreign direct investment and to increase the
legal security for investments and investors. To give force to the agreement, the MAI
will be legally binding and contain effective provisions for settling disputes. The
basic outlines of the MAI include the following areas:
Definitions and Scope. The aim of the MAI negotiations is to develop
a comprehensive definition of direct investment for all countries that will
cover all tangible and intangible assets, but not include financial
transactions that have no connection to an investment.
Investment Protection. The member countries of the OECD basically
agree on such issues as a general standard of treatment of foreign
investment and investors, compensation in the event of expropriation,
protection from strife, and the free transfer of funds.
The Treatment of Investors and Investments. Provisions are being
drafted to cover both the entry of investments and the treatment of foreign
enterprises after they are established in host countries. These provisions
are based on the concept of national, or nondiscriminatory, treatment.
Also, the provisions will assure most favored nation (MFN) treatment and
transparency in national conduct toward foreign investment and investors.
Exclusions for purposes of national security likely will be included.
Several approaches concerning the environment are being discussed,
including a provision which calls on governments not to lower
environmental standards in an effort to attract foreign investment.
Additional Disciplines. These provisions include a wide range of
investment areas, such as “key personnel” provisions that would address
the wish of international firms to be able to transfer freely, or to hire,
personnel to perform vital functions. In particular, MAI negotiators are
considering rules that would assure firms the right of temporary entry, stay
and work for key personnel. Additional areas include the participation of
foreigners in privatization programs, performance requirements (export
requirements, local sales, content and production requirements,
16 Witherell, William H. Developing International Rules for Foreign Investment:
OECD’s Multilateral Agreement on Investment. Business Economics, January 1997. P. 39.
17 Ibid., p. 40.

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employment and investment requirements), monopolies and state
enterprises, investment incentives , and corporate practices.
18
Dispute Settlement. The agreement will encourage consultation
arrangements to encourage amicable solutions to investment disputes.
Binding arbitration of disputes between states or between an investor and
a participating government will also be available to ensure that there is an
effective recourse in the event of a breach of an agreement.19
The Treatment of Taxation. OECD members apparently have been
concerned that obligations placed on nations concerning national
treatment, non-discrimination and most favored nation treatment under the
MAI could conflict with obligations nations have accepted in bilateral
agreements on the avoidance of double taxation. As a result, th
20
e
members agreed not to adopt a code of national treatment on taxation, but,
instead, to develop a “political commitment” not to discriminate in
taxation matters. Such a commitment would not be subject to the MAI’s
dispute settlement mechanism.21
Unresolved Issues
A number of issues still need to be resolved before any final agreement can be
reached. One of the thorniest issues is how many and what type of exceptions
nations will be allowed to take. Every nation wants some industries or areas
exempted from unfettered national control, either because of national security
concerns or because of specific domestic political issues. Too many exemptions,
however, would render the MAI useless and ineffective. The United States also is
taking issue with the European Commission over its request for a broad exception for
regional economic integration organizations. U.S. negotiators believe this type of
exception would allow the Commission to derogate from the MAI national treatment
obligations and discriminate in favor of European Union member states.22
1 8 The number of countries offering foreign firms investment incentives has grown
sharply over the last decade. Nevertheless, few are willing to consider restrictions on such
incentives beyond the limitations imposed by rules on non-discrimination. While the
negotiators appear to favor the principle that rules on national treatment should apply to
incentives, it appears unlikely the negotiating group will reach a consensus before the May
1997 deadline. Negotiators increasingly are supporting postponing any further consideration
of incentives until after May 1997. Ahnlid, Anders. The Multilateral Agreement on
Investment: Special Topics. Available at the OECD website: www.oecd.org.
19 Ibid., pp. 40-41.
20 Engering, F.M. The Multilateral Agreement on Investment: Progress and Prospects.
Available from the OECD site on the World Wide Web: www.oecd.org/
2 1 Negotiators Near Accord on Tax Issues in OECD Multinational Investment
Agreement. International Trade Reporter, September 24, 1997. P. 1606.
22 Larson Hints at Possible Delay...., Inside U.S. Trade, p. 12.

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Bribery
The United States wants “concrete commitments” to criminalize overseas
bribery. In essence, U.S. negotiators are pressing other nations to adopt legislation
similar to the U.S. Foreign Corrupt Practices Act. Many OECD members hav
23
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argued against criminalizing bribery until there is an international agreement on
bribery. U.S. negotiators are concerned that developing such a pact likely would take
years to hammer out and still would not be effective until the members adopted
national implementing legislation. The United States also is pressing to have
member countries eliminate the tax deductibility of bribes.
Dispute Settlement
Dispute settlement is another outstanding issue that still needs to be resolved.
OECD members have begun drawing up their own lists of those investment sectors
and areas they want to be exempted from the MAI. While the United States
considers these lists as first round offers in a negotiable process, some European
members believe the lists represent their notification to the OECD of places where
their domestic laws differ from the proposed MAI and are not necessarily negotiable.
Several of these members are waiting for more precise MAI disciplines to be drafted
before they will negotiate further on their own list of exceptions. Members also are
split over how rulings on state to state disputes will be enforced. While all members
apparently want to have an enforcement mechanism in case a MAI signatory country
does not comply with a ruling, they disagree over whether the mechanism should fall
within or outside the scope of the overall agreement. Some members argue that
countries that fail to comply with a MAI ruling should be denied access to future
dispute settlement procedures, while other members want the ability to retaliate
outside the scope of the obligations covered by the agreement by employing such
additional measures as trade sanctions.24
One area where the negotiators have made progress is in investor-state disputes.
To satisfy Japanese negotiators, the members agreed to a two-stage process to review
complaints so that “frivolous” complaints could be eliminated before a full panel
review of a complaint. Members also agreed that the MAI can enforce investor-state
disputes by issuing declarations against a signatory that does not comply with a ruling
and to award monetary compensation plus interest or in-kind restitution. Members
have the ability to nullify rulings that are deemed to be “aberrant.”
23 P.L. 95-213, December 19, 1977. The act prohibits U.S. persons or companies from
bribing foreign government officials to win business. The act also covers joint ventures
with state-owned companies, transactions with relatives of senior government officials,
retention of agents and consultants, gifts, entertainment, selection of officers and directors,
and other business activities abroad. Low, Lucinda A., and Kathryn Cameron Atkinson.
The World Wages War on Corruption. The National Law Journal, March 3, 1997. P. b9.
2 4 OECD Progresses on MAI Dispute Plans But Split on Enforcement. Inside U.S.
Trade, March 14, 1997. P. 13.

CRS-12
U.S. Issues
Another issue under the rubric of enforcement that interests the United States
is the way in which MAI rulings will be applied to such subfederal entities as states
and municipalities. U.S. negotiators have indicated that the United States will bind
states to comply with MAI rulings as long as the MAI offers an “acceptable” level
of liberalization, or market access. In its list of reservations, for instance, th
25
e
United States has included state measures that would violate the MAI, implying its
willingness to override those state measures to bring the states in accordance with the
MAI.26
U.S. negotiators, however, do not have unlimited authority to negotiate the
MAI. Moreover, some groups and some Members of Congress have concerns over
the impact an international investment agreement could have on the U.S. economy
and on U.S. environmental and labor standards. As a reflection of these concerns,
part of the legislation to reauthorize fast track procedures for implementing trad
27
e
agreements, the Senate Finance Committee’s proposed “Export Expansion and
Reciprocal Trade Agreements Act of 1997,” specifies a set of overall negotiating
objectives for a broad range of agreements, including foreign investment. The
proposed legislation states that the principal U.S. negotiating objective regarding
foreign investment is:
...to reduce or eliminate artificial or trade-distorting barriers to U.S.
investment, to expand the principle of national treatment, and to reduce
unreasonable barriers to establishment.
Furthermore, the proposed legislation states that it is the objective of the United
States to “develop internationally agreed rules through the negotiation of investment
agreements.” Nevertheless, the legislation also states that the negotiating objectives
on foreign investment, “shall not be construed to authorize any modification of
United States law.”
During discussions in March 1997, U.S. negotiators pressed for an extension in
the negotiations of one year past the original deadline to resolve more of the
outstanding issues, because a number of issues remain to be settled. These issues
include: measures that can be taken against a MAI signatory country that does not
comply with a MAI panel verdict; how to distinguish between the European
Commission or a member state should the subject of Europe-related complaints arise;
and how to treat investment screening procedures which member governments have
25 Ibid., p. 14.
26 Ibid., p. 14.
27 Fast track procedures are part of an understanding between the executive and
legislative branches, whereby the Administration agrees to consult closely with Congress
during trade negotiations, and Congress agrees to a definite yes-or-no vote without
amendments. For additional information, see: CRS Report 97-876, Fast-Track Authority:
Debate Over the President’s Proposal, by George Holliday, and CRS Report 97-885, Fast-
Track Legislative Procedures for Trade Agreements: The Great Debate of 1991, by Lenore
Sek.

CRS-13
in place, and their relationship to an investor’s right to take a government to dispute
settlement prior to the establishment of an investment.28 The U.S. negotiators
reportedly want to ensure that investors cannot challenge decisions by regulatory
authorities. A clear majority of OECD members also favor excluding matters of
taxation from the agreement, except for provisions which bar expropriatory taxes,
and rules on transparency. Another outstanding issue is the number and types of
exceptions members will be allowed to take from the MAI disciplines. U.S
29
.
negotiators are pushing to allow only those exceptions which are based on specific
government laws and regulations, while European countries lean towards exceptions
for entire sectors of their economies.30
Although the negotiations framing the terms of the MAI have not yet been
extensively scrutinized by the American public or by most of the Members of
Congress, the issue is attracting a fair measure of supporters and critics. For their
part, supporters argue that reducing foreign barriers to U.S. direct investment aids
U.S. consumers and U.S. workers by lowering the price of internationally traded
goods and by raising the U.S. standard of living. Most of these benefits arise from
the greater efficiencies firms gain through a more efficient allocation of capital
throughout the world.
Critics acknowledge the gains in efficiency which result from greater foreign
investment, but argue that these gains are achieved at a high cost. In particular, they
argue that foreign investment has contributed to the growth in disparities in wealth
and income between the richest and poorest groups within the United States and
between the richest and poorest nations. Furthermore, these critics contend that
foreign investment increases the mobility of transnational corporations, which allows
them to play countries and localities against each other, bidding down wages and
other labor standards. In addition, they argue that this global competition weakens
environmental standards, workplace safety rules and similar safeguards. By adopting
an MAI, these critics state, governments would be restricted in their ability to shape
domestic investment policies to promote social, economic, and environmental goals
and would create a whole set of rights for multinational firms that would require
governments to defend even when those rights conflicted with the rights, needs, or
interests of individual nations and their citizens.31
Implications for the United States
28 U.S. Pressing to Delay Conclusion of OECD Investment Pact to May 1998. Inside
U.S. Trade, April 4, 1997.
2 9 Larson Hints at Possible Delay in Finalizing OECD Investment Pact. Inside U.S.
Trade, March 14, 1997. P. 12.
30 U.S. Pressing to Delay Conclusion...,
3 1 For additional information, see the following sites on the World Wide Web:
www.citizen.org, and www.rtk.net/preamble.

CRS-14
There are benefits as well as costs for the United States in an international
investment agreement. On the positive side, a mutually agreed upon set of rules
would reduce some of the confusion and uncertainty U.S. firms face as they invest
overseas. Also, as the world’s largest overseas investor, the United States, and U.S.
firms, likely stands to gain the most. Such an agreement likely would help U.S. firms
that are investing in both developed and developing countries and would aid them in
gaining access to export markets abroad. While these actions are not likely to boost
U.S. employment, they might help sustain, or enhance, U.S. wages and incomes.
Fewer restrictions on international direct investment could also add to U.S. incomes
by allowing for a more efficient allocation of resources among nations.
On the negative side, an international investment agreement ultimately could
stalemate further progress towards reducing national restrictions and controls. In
essence, a MAI may act to set a status quo that becomes entrenched in practice and
less subject to change than the present situation. An agreement among the developed
countries also could add to tensions between the developed and the developing
economies. Such an agreement could alienate many of the developing countries who
see an investment agreement as a protective measure established by the richest
economies (the OECD members) to preserve their economic status relative to the
developing economies by limiting the amount of investment that flows to those
economies.
U.S. negotiators also have to consider how the Clinton Administration will
approach the MAI issue with the Congress. The Administration has indicated that
it will send the agreement to the Senate for approval as a treaty, but growing
dissatisfaction among U.S. negotiators over the numbers and extent of exceptions the
Europeans and Canadians are requesting coupled with public unease at home augurs
poorly for consideration of the agreement during the present legislative session. The
Administration would also be leery of broaching the issue with Congress until other,
higher priority, trade issues have been resolved. Congress may also consider the
impact a MAI will have on state and local governments. The other nations
participating in the MAI negotiations expect that the provisions of the agreement will
apply not only at the U.S. federal level, but at the sub-federal, or state and local, level
as well. At the very least, this likely will require the cooperation of the non-federal
levels of government. It also is unclear how many exceptions U.S. negotiators will
32
request for such state and local government programs as minority set-aside programs
and local economic development programs.
32 A similar issue was confronted when the United States and the European Union
reached a bilateral agreement on public procurement, which required the compliance of the
state and local governments. See: Cooney, Stephen. American Industry and the New
European Union. National Association of Manufacturers, Washington, 1994. P. 123.

CRS-15
Appendix A. OECD Countries Direct Investment Position Abroad, 1994
(in millions of US dollars)
Country
TOTAL
OECD
EC
Other
North
Other
Non-
Europe
America
OECD
OECD
Australia
34,964
28,986
15,180
0
7,890
5,419
5,978
Austria
9,016
6,572
3,929
1,173
630
39
2,444
Belg.-Lux.
44,635
38,184
26,239
(234)
1,924
231
6,451
Canada
96,217
76,983
19,317
1,825
50,406
5,435
19,234
Denmark
16,258
15,418
8,329
4,040
2,741
311
839
Finland
11,381
10,154
5,428
2,462
2,350
139
1,228
France
157,018
133,870
87,993
10,584
32,723
2,570
23,148
Germany
203,202
178,479
102,715
20,327
46,765
8,671
24,724
Iceland
143
130
60
1
65
4
13
Italy
82
70
52
8
8
3
12
Japan
463,606
319,773
83,786
4,681
202,690
28,616
143,833
Netherlands
144,436
122,866
66,326
13,421
40,677
2,442
21,570
Norway
16,907
15,575
9,737
3,061
2,673
174
1,341
Sweden
57,284
45,101
33,048
5,443
7,517
0
12,182
Switzerland
108,377
86,171
49,160
4,614
26,514
5,884
22,206
U.K.
270,085
216,512
93,850
8,719
92,646
21,295
53,574
U.S.
621,044
456,659
261,137
43,543
74,987
76,992
164,385
Total
2,254,656
1,751,502
866,286
123,668
593,206
158,226
503,162
Country
Africa
Centr.
Latin
Middle
Oceania
Asia
Europe
America
East
Australia
0
0
877
0
0
3,045
Austria
6
2,787
182
0
0
95
Belg.-Lux.
(41)
785
5,048
(38)
0
317
Canada
322
0
12,370
794
0
5,748
Denmark
36
142
149
(4)
0
359
Finland
11
158
230
0
0
180
France
667
602
4,108
752
0
3,073
Germany
2,299
4,718
10,881
311
0
9,744
Iceland
0
2
4
0
0
0
Italy
2
1
5
1
0
1
Japan
7,697
765
52,284
4,736
1,911
76,219
Netherlands
1,189
1,049
10,732
1,174
0
7,383
Norway
220
45
586
89
0
401
Sweden
0
0
0
0
0
0
Switzerland
1,508
820
15,103
359
0
4,161
U.K.
7,620
646
22,816
970
1,090
19,398
U.S.
5,530
4,270
96,512
6,794
47,876
Total
27,067
16,789
231,887
15,936
3,001
177,999
Source: International Direct Investment Statistics Yearbook 1996. Paris, Organization for
Economic Cooperation and Development. 1996. Table 8, various countries.

CRS-16
Appendix B. Multilateral, Regional, and Other
Agreements on Overseas Investment
Instrument
Date
Multilateral Agreements
Code of Liberalization of Capital Movements (OECD)
1961
Code of Liberalization of Current Invisible Operation (OECD)
1961
Declaration on Investment and Multinational Enterprises (OECD)
1976
Agreement on Promotion, Protection and Guarantee of Investment among the
1981
Member States of the Organization of the Islamic Conference
Fourth ACP-EEC Convention of Lome
1989
APEC Non-binding Investment Principles
1994
Final Act of the European Energy Charter Conference, the Energy Charter Treaty,
1994
Decisions with Respect to the Energy and Annexes to the Energy Charter Treaty
Multi-Country or Regional Agreements
Treaty Establishing the European Community
1957
Agreement on Arab Economic Unity
1957
Agreement on Andean Subregional Integration
1969
Treaty Establishing the Caribbean Community
1973
Treaty Establishing the Latin American Integration Association
1980
Treaty Establishing the Economic Community of Central African States
1983
North American Free Trade Agreement
1992
Treaty Establishing the Common Market for Eastern and Southern Africa
1993
Other Agreements
Common Convention on Investments in the States of the Customs and Economic
1965
Union of Central Africa
Agreement on Investment and Free Movement of Arab Capital among Arab
1970
Countries
Decision No. 24 of the Commission of the Cartagena Agreement
1970
Convention Establishing the Inter-Arab Investment Guarantee Corporation
1971
Joint Convention on the Freedom of Movement of Persons and the Right of
1972
Establishment in Central African Customs and Economic Union
Agreement on the Harmonization of Fiscal Incentives to Industry
1973
The Multinational Companies Code in the Custom and Economic Union of
1975
Central Africa
Unified Agreement for the Investment of Arab Capital in the Arab States
1980
Community Investment Code of the Economic Community of the Great Lakes
1987
Countries
Agreement for the Establishment of a Regime for CARICOM Enterprises
1987
Revised Basic Agreement on ASEAN Industrial Joint Enterprises
1987
Agreement Among the Governments of Brunei Darussalam, the R Republic of
1987
Indonesia, Malaysia, the Republic of the Phillipines, the Republic of Singapore,
and the Kingdom of Thailand for the Promotion and Protection of Investment
continued

CRS-17
Instrument
Date
Charter on a Regime of Multinational Industrial Enterprises (MIEs) in the
1990
Preferential Trade Area for Eastern and Southern African States
Decision No. 291 of the Commission of the Cartegena Agreement
1991
Decision No. 292 of the Commission of the Cartegena Agreement
1991
Colona Protocol on Promotion and Reciprocal Protection of Investment within
1994
MERCOSUR
Protocol on Promotion and Protection of Investments Coming from States non
1994
Parties to MERCOSUR
Source: Annual Report 1996. Geneva, World Trade Organization, 1996. p. 64-65.