2WhatisMAI?
2.1 Stylized Facts
The negotiations for a multilateral agreement on investment were launched in
1995 among the twenty-nine member states of the OECD and stopped in 1998,
without success. Since then, the task of exploring the desirability and the fea-
sibility of a multilateral investment agreement has been deferred to a WTO
working group.
The core rules of any possible MAI draft are similar to those of existing bi-
lateral or regional investment agreements. What really distinguishes MAI with
respect to other existing investment treaties is that the agreement is not pref-
erential. To be consistent with multilateralism, the agreement must be open to
all the countries that are willing to obey its rules. So, compared with bilateral
or regional agreements, all countries are potential members. International in-
vestment agreements are characterized by four basic elements: the definition of
the investments covered by the agreement, the rules aimed at protecting invest-
ment, those directed at investment liberalization, and a set of rules defining a
dispute settlement mechanism. Foreign investment may either be defined in a
narrow (e.g. FDI in manufacturing) or in a broad sense (FDI in all sectors and
activities and portfolio investment). Concerning the rules aimed at providing
investment protection, they basically consist of provisions against expropriation
and to guarantee free transfer of funds. The rules that are directed at fostering
investment liberalization may act both ex-ante (right of establishment) and ex-
post (guarantees against performance requirements) and should be applied in a
non-discriminatory way. Finally, concerning the dispute settlement mechanism
(DSP), it may work only on a State-State basis, or also on a Investor-to-state
basis. The OECD MAI proposal contemplated investment defined in a broad
sense (all FDIs plus portfolio investment), non discrimination consistent with
the MFN and national treatment principles, and a DSP working both on a
State-State basis and on an Investor-State basis.
The rules concerning the principle of non-discrimination, the definition of
expropriation, and the working of the DSP are among the most disputed. Non-
discrimination is not surprisingly a sensitive issue: it corresponds to a loss of
policy tools used by governments to deter or attract different types of invest-
ments. As for expropriation, there are controversies around its definition. In-
vestors might feel expropriated whenever a so-called ”regulatory taking” occurs,
i.e., whenever a government action reduces the value of their assets. However,
some takings may correspond to outright expropriation (confiscation, national-
ization...), while others may be justified on the ground of health, safety, envi-
ronmental or social concerns. Regarding the working of the DSP, the Investor-
State arbitration is often criticized. Since this way MNEs can directly sue
governments, the fear is that MNEs may use the DSP as a device to discourage
governments from introducing legitimate regulations. Because the concepts of
expropriation and non-discrimination are subtle, MNEs may have an incentive
to contest any government action that is felt as detrimental. Governments,