For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments

in host countries (see, e.g., Blomstrom (1989)). It follows that any provision that
is likely to attract FDIs (like improved transparency of investment procedures
and reduced risk of expropriation) is possibly beneficial to host countries. The
loss of discretion has also costs for host countries. The loss of bargaining power
and freedom of action will probably correspond to a smaller gain that the host
countries can derive from a given stock of FDI (foregone tax revenue, unregu-
lated negative externalities,...). The loss of discriminatory policy tools to handle
MNEs differently is also costly. Some MNEs may create positive spillovers and
benefit local production factors. Others may instead be largely polluting and
unwilling to invest in the skills of the local workforce. If MAI forbids treating
these cases differently, some MNEs will be deterred unnecessarily, and others
will obtain a free lunch. In general, if MAI does not really contribute much in
fostering investment and attracting FDI, the negative effect of MAI associated
with reduced discretion and bargaining power may prevail.

The concern of this paper is especially with the position of LDCs. Some of
them have been vigorously against the OECD negotiations (Drabek, 1998).¹⁰
The position taken by these LDCs during the OECD negotiations of MAI is at
odds with some facts.

First, most countries, especially LDCs, seem to consider that the political
costs associated with uncontrolled FDI inflows are largely outweighed by eco-
nomic gains. In the last couple of decades, countries started to be keen on
liberalizing investment. This is understood, for instance, by looking at the dis-
tribution of new policy measures towards FDI. During the nineties almost all
countries shifted to more liberal policies (Table 1).

Table 1 : National Regulatory Changes, 1992-97

(Source, UNCTAD 1999, table IV.1, p. 115.)

Second, the objections to MAI are also hardly justified by the loss of discretion.
Countries, in general, do not seem to escape from international commitments
on FDI. We observe instead a recent surge of Bilateral Investment Treaties
(BITs), regional arrangements on international investment, and Double Taxa-
tion Treaties (DTTs).¹¹ While until the sixties there were no BITs in place, the
number of BITs has risen to 1513 in 1997 and has been growing throughout all
the nineties (see UNCTAD, 1998).

¹⁰In particular, India, Indonesia, and Malaysia were critical. The vigour with which the
representatives of these countries reacted against the MAI draft can be found in the words
of Manmohan Singh, the former Finance Minister of India : “You have to remember our
history as a colony. The East India Company came here as a trader and ended up owning
the country.” (The Economist, 1998).

¹¹It also app ears that the same countries that object MAI recently negotiated new BITs.
An example is India (see The Economist, 1998).

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