Multilateral Agreement on Investments (Hansard, 23 February 1998)

§ Dr. Nick Palmer (Broxtowe)
I should declare a general interest: I act as consultant for my former employer, Novartis, a multinational company. However, I do not know its view on the multilateral agreement on investment, if it has one. It is perhaps also relevant to mention that I am a member of the World Development Movement, which has taken a critical view of the MAI.
I requested this Adjournment debate in view of the rather striking discrepancies between the official view of the MAI, as expressed by the negotiating Governments, and the fears expressed by the World Development Movement and other non-governmental organisations. I have the draft agreement, which is available in the Library for any hon. Member who would like a copy, and it contains both positive and negative potential. I should like to identify the areas of concern and ask the Minister either to dispel them or, where she agrees that there is a potential problem, to tell us whether the Government will fight for improvements.
The basic principle of the multilateral agreement—that there should be a common basis for attracting investment—is not necessarily controversial. The present patchwork of conditions and special arrangements around the world is profoundly unhelpful to companies with foreign investments, for companies that invest around the world, and, therefore, is particularly unsatisfactory for Britain, with its numerous major international investors.
Conversely, most of us on the left feel that multinational companies increasingly escape from all forms of control. If the agreement were to balance rights and responsibilities, it could be profoundly helpful. In fact, it could be more helpful than many national policies, to which we devote much more attention. I note that the Conservative Benches are entirely empty.
The usual objection to constraints on multinational behaviour is that companies may take their business elsewhere. With a potentially global agreement, and with a balance of rights and responsibilities, we could be less constrained, as we would have to worry about losing business only to little green men from Mars. Furthermore, the requirement that domestic companies should not be given unfair preference, although previously controversial, has now become the norm in most sectors in the developed world.
However, there are a number of matters of concern that, if true, would be major obstacles to acceptance in Britain and in most other countries. First, is it true that local authorities and national Governments will be prohibited not only from discrimination against foreign firms, but from certain types of ethical restriction, even if that ethical restriction is also applied to domestic firms? Could they refuse to give a contract to a firm believed to have used slave labour elsewhere, or to have treated unacceptably the work force, the environment or animals?
The disputed paragraph 4 in the draft treaty would explicitly allow such a restriction, at least for local behaviour: that is to say, behaviour within Britain. Will the Government fight for the retention of the wording of that passage, as it is clear that a number of delegations still oppose it?
148 Secondly, is it true that if developing countries later sign up, they will not be allowed to claim exemptions? If it would be by negotiation, will the Government commit themselves to ensuring that developing countries get a fair deal in those negotiations and are not forced to expose their fledgling industries to instant, massive competition? It is not 20 or 30 years since we in Britain felt the need to protect our industries by special legislation, and we should not expect less from developing countries.
Thirdly, given that multinationals receive considerable benefits from such a level playing field, would it not be reasonable to impose certain responsibilities? In particular, will the Government insist on the retention of the strict formulation of the section "Not Lowering Standards", including a ban on countries waiving labour and environmental laws to attract investment? Will there be any obligation to respect agreed international standards from other treaties, such as environmental treaties, and not just local treaties? If the Philippines wanted to attract investment to Manila, would it be able to say, "If you invest with us, you don't have to worry about that law. We'll waive it for you"? If the section that would rule out such behaviour retains its teeth, it will go a fair way towards making the treaty more balanced between rights and responsibilities.
Fourthly, France has said that it will not sign if the United States is given an exemption for the Helms-Burton law with its illegal boycott of Cuba. Given Britain's strong opposition to Helms-Burton, will we support the French stance? I see reports that President Clinton is seeking ways to soften the boycott. If we take him at his word, this agreement could give him useful ammunition. The boycott seems to be in clear contravention of the draft article on secondary investment boycotts, and if the multilateral agreement on investment will help us get rid of it, it would be an important point in its favour.
Fifthly, under that article would it still be possible to boycott countries that the United Nations agreed were violating international standards? That approach was effective against apartheid, and is currently being applied to Iraq. If South Africa still had apartheid, would it be illegal under the MAI for a local authority or government to campaign against the importing of South African wine?
The draft article on secondary investment boycotts prevents authorities in Britain from taking any account of how companies behave outside Britain, as long as the behaviour is locally legal and is not in conflict with international law. If that is so, the position needs to be modified to allow objections to companies that are violating not just international law, but United Nations resolutions. Otherwise, we should be in the absurd position of being suddenly forbidden to enforce the sanctions on Iraq in so far as they affected movements of capital. I cannot imagine that that would be the intention of most of the likely signatories.
Sixthly, is it true that trading pollution quotas for environmentally friendly technology, as envisaged at Kyoto, would be an illegal anti-competitive subsidy?
Seventhly, I understand that the United States is resisting the draft clause allowing increasing European Union integration, while insisting that US state Governments be allowed to maintain discriminatory practices indefinitely without any commitment to ever rolling them back. What is the Government's position on that?
149 Finally, it has been suggested that a partial agreement may be signed in April covering only some of the issues. Will the Government insist that that should not implement the free-trade aspects, while postponing the labour and environmental safeguards to a nebulous future?

§ Mr. David Heath (Somerton and Frome)
I am following the hon. Gentleman's argument closely, and agree with much of what he is saying.
The environmental study by the Organisation for Economic Co-operation and Development, commissioned at the behest of the British Government, was not discussed at the January OECD meeting. The Secretary of State for International Development has commissioned a study of the impact on developing countries, but we are told that it will not be presented until 23 March. Given those facts, does the hon. Gentleman agree that there is some logic in the Government's withholding signature in April, and delaying it until we have secured an agreement that satisfies us that all the impacts on the developing world and the environment can be properly addressed?

§ Dr. Palmer
I am grateful for that interesting intervention, but I think it is more a question for my hon. Friend the Minister, so I shall not attempt to deal with it.
I am aware that other hon. Members want to speak briefly before the Minister's reply, so I shall conclude my speech. If my hon. Friend can cast light on the issues that I have raised, she will have done a real service to a great many concerned individuals and groups and reinforced our commitment as a Government to an ethical foreign policy. This agreement has real potential. I hope that we shall make the most of it, and will not allow ourselves to be trapped into making an agreement that does not give the benefits for which we all hope.

§ Mr. Jeremy Corbyn (Islington, North)
rose—

§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. It is normal in Adjournment debates for Members who wish to speak to have obtained the permission of both the hon. Member who has secured the debate and the Minister. Do I take it that that applies in this case?

§ The Minister for Small Firms, Trade and Industry (Mrs. Barbara Roche)
Yes.

§ Mr. Jeremy Corbyn (Islington, North)
I shall be brief.
The House is indebted to my hon. Friend the Member for Broxtowe (Dr. Palmer) for securing the debate, and for putting his case.
When the Minister replies, I should be grateful if she would acknowledge some serious concerns about the MAI. First, the agreement promotes the unfettered power of multinational corporations—many of which are larger than national Governments, can move capital around the world at whim and yet can deny the movement of labour around the world at whim. That should be contrasted with the attempts of the International Labour Organisation to impose minimum standards around the world, with the welcome steps taken at Rio a few years ago in setting a worldwide environmental agenda, and with what was achieved at the Kyoto conference on climate change.
150 The MAI will increase world trade and the amount of transport of goods world wide, and I believe it will be very damaging to economies in the poorest developing countries in the world.
It appears to many people—not just those lobbying on behalf of aid agencies and others—that all the aces are being stacked in favour of the OECD members that are busy negotiating all kinds of get-out clauses and protections for themselves, while the world's poorest countries have no alternative but to sign the agreement, knowing that they will have no control over what multinational capital does in their countries about land ownership, import substitution or anything else that those countries may wish to impose in order to protect themselves and encourage development of the living standards of their people.
We are debating serious matters. The Minister should say that Britain will not sign the agreement until we are sure that it is environmentally sustainable and will not destroy the ability of poor countries to develop themselves rather than hand their economic development to international capital.

§ Ms Joan Walley (Stoke-on-Trent, North)
I congratulate my hon. Friend the Member for Broxtowe (Dr. Palmer) on securing the debate, for which many hon. Members are present. Perhaps the Minister will say whether we can have more time to apply the full parliamentary scrutiny that the subject of the debate requires. We would all appreciate that. Perhaps through our Select Committee procedure we could find an opportunity to investigate the matter in even greater detail. Hon. Members in all parts of the House are anxious to ensure that agreements are environmentally sustainable, and I emphasise that in this important debate.

§ The Minister for Small Firms, Trade and Industry (Mrs. Barbara Roche)
I apologise to the House and to my hon. Friend the Member for Broxtowe (Dr. Palmer) for my late arrival. I missed his opening comments and my excuse is the vagaries of the House in Committee.
I thank my hon. Friend for raising the topic of the multilateral agreement on investment. He has done the House a great service, and the debate gives me an opportunity to bring hon. Members up to date on the agreement since our previous debate on the matter on 23 July last year. In that debate, I outlined the background and, I hope, corrected some of the misunderstandings about the MAI, which is currently being negotiated within the Organisation for Economic Co-operation and Development.
In the Government's view, the flow of investment across national borders is an integral and usually a welcome part of global economic reality. Britain has a particularly large stake in that in both directions, and it is difficult to imagine what the British economy would be like without the contributions of European, American and Asian companies. My hon. Friend spoke about that. We are second only to the United States in outward direct investment to developed and developing countries throughout the globe.
The United Kingdom has a strong interest in creating a framework in which foreign investment can prosper and make its full contribution to the global economy. 151 Above all, we must bear it in mind that the MAI is about non-discrimination. The idea is that foreign investors should be treated no less well than domestic investors or each other. Another key feature that is planned for it is a binding dispute settlement system that will cover state-to-state and investor-to-state disputes. The Government support those basic principles, although there are some important issues in the agreement on which we are not yet fully satisfied. I shall return to those.
If an agreement can be reached that increases the confidence and security of foreign investors, and if the detailed terms are right and our specific concerns are properly addressed, we shall want to sign it. However, I make no bones about the fact that there is some way to go. It might be useful to explain the state of the negotiations, to clarify some confused recent press coverage. In late May last year, which was the original deadline for completing the negotiations, OECD Ministers unanimously decided to extend the time limit to the next OECD ministerial meeting on 27 and 28 April this year. However, at a high-level meeting last week to prepare for the April event, the United States stated that it would not be ready to reach an agreement by April. All OECD countries accepted that they should intensify their efforts to resolve outstanding issues, with a view to making as much progress as possible by April, and that, in the light of that progress, it was for OECD Ministers at the April meeting to decide what to do next.
At this stage, the most important outstanding issues for the UK are the treatment of environmental and other regulatory issues, labour standards and the listing of "exceptions", by which countries may reserve the right not to accept MAI obligations in full in particular sectors or in relation to categories of governmental activity. On environmental and labour matters, there has been a distinct change of policy by the UK. This Government have been taking the lead in ensuring that the MAI will not undermine regulation in those sectors, as some people claimed it might. It is essential that we avoid that, and I am confident that we shall, as all participants in the negotiations recognise the need to do so.
In addition, we have pressed hard for unambiguous reaffirmation in the MAI of commitments to sustainable development and core labour standards; for close association with the MAI of OECD guidelines for multinational enterprises, which are collective recommendations by OECD Governments to multinationals on good corporate behaviour; and for a strong and binding provision on not waiving environmental or labour standards to attract particular investments. That is one of the important questions that my hon. Friend has put to me. The majority now share our strong line on those points, although some remain to be persuaded.
It was this UK Government who proposed a review of the MAI and environmental policy. The first part, an overview of the literature on foreign direct investment and the environment, is on the internet. The second part, on the relationship between the MAI and multilateral environmental agreements, is under discussion and should be available shortly.
152 In short, the Government are absolutely determined to ensure that there is no risk that the MAI will undermine environmental protection and labour standards.

§ Dr. Lynne Jones (Birmingham, Selly Oak)
Will my hon. Friend give way?

§ Mrs. Roche
May I finish this point?
We have said it many times before and I say it again: if there were such a risk, we would not sign the agreement.

§ Dr. Jones
The Minister has answered my question. I was going to seek the assurances that she has just given.

§ Mrs. Roche
I am grateful to my hon. Friend.
The Government believe that, far from being a threat to environmental and other standards, the MAI provides a useful opportunity to encourage all participants to raise their standards, but we do not believe that it would be either right or practicable to make the MAI an instrument by which to impose particular labour or environmental standards on other countries. There would be a danger of deterring potential members from joining, without achieving any improvement in standards. The Government are working hard in the appropriate forums to raise international labour and environmental standards.
I hope that I can allay other anxieties that have been expressed. The idea that an investor should be allowed to challenge the state has been received with horror in some quarters. It has been suggested that that is a threat even to democracy, but private interests can and do mount legal challenges to state decisions in the UK and in other democracies, and binding international arbitration for investor-to-state disputes has existed for many years in the UK's numerous bilateral investment treaties. What is new in the MAI is binding international arbitration for investor-to-state disputes, over a wider range of issues than in existing bilateral treaties.
My hon. Friend the Member for Broxtowe mentioned local government. The agreement will apply to all levels of government, including local government, but it will not obstruct local government or interfere with programmes that are aimed at increasing employment opportunities for local people. We would not expect nationality of ownership to be a factor in local government decisions, but we have consulted local authorities. They have not identified any problems or any need for exceptions. If any do come to light, we shall, of course, consider them.

§ Ms Julia Drown (South Swindon)
I understand that the USA has sought exemption for its states and local government. If so, surely that should ring warning bells for us to protect our national and local government.

§ Mrs. Roche
As part of the negotiations, countries will try to get exemptions. I am stating the position, as we understand it, from the UK's viewpoint and giving an assurance that we have consulted local government. If it raises objections, we shall certainly consider them.
My hon. Friend the Member for Broxtowe asked about developing countries. The agreement will not be forced on reluctant developing countries. Many have attended seminars in Latin America, Asia and Africa to learn more about the MAI. For many of the more advanced 153 developing countries, the MAI is an attractive opportunity. Argentina, Brazil, Chile, Hong Kong, China and Slovakia are already observers at the negotiations and are keen to join at the earliest possible stage. Others are queueing up for the same treatment. The reason is, of course, that inward investment is a key element in their development plans. Naturally, we recognise that many of the least developed countries may have difficulty taking on the full range of obligations immediately. Negotiations are progressing on how to tackle that. It is important to do that.
Whatever the solution, the British Government will be determined to ensure that the agreement does not damage the interests of the poorest countries. If possible, it should offer opportunities to the developing world as a whole. As has already been mentioned, the Department for International Development has commissioned a review of any implications that the MAI may have for poorer developing countries. That will be made public upon completion.

§ Mr. Corbyn
Will my hon. Friend give way on that point?

§ Mrs. Roche
I should like to make progress. I would usually give way, but I am anxious—

§ Mr. Corbyn
Will my hon. Friend give way?

§ Mrs. Roche
Yes, but very briefly.

§ Mr. Corbyn
When will the report be ready?

§ Mrs. Roche
It will certainly be ready before April and will be available for consideration.
One persistent complaint in the press and in documents from the non-governmental organisations is that the MAI negotiations have been secret. That was mentioned by my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley). That is simply not the case, either in the UK or in the OECD. The start of the negotiations was announced, as were other milestones. Representatives of labour and business have been kept in close touch, as have trade unions and local government.
154 More recently, in response to legitimate NGO interest, many groups have had discussions with officials and with my noble Friend Lord Clinton-Davis. There have been various public events. In the OECD, there have been briefings after meetings of the negotiating group, consultations with non-member countries and consultations with NGOs. The current draft text is available on the internet. My hon. Friend the Member for Stoke-on-Trent, North raised a point about parliamentary scrutiny. All the appropriate parliamentary scrutiny processes will be adhered to.
The next major stage in the process will be the ministerial meeting in April, at which OECD Ministers collectively can review progress and the prospects for achieving a satisfactory agreement.

§ Ms Walley
Have the opportunities for detailed parliamentary scrutiny by Select Committees passed by? How can we have influence before a decision is made?

§ Mrs. Roche
The opportunity has not gone by. All the European scrutiny processes of Select Committees and Standing Committees will have to be undertaken.
My hon. Friend the Member for Broxtowe raised a number of other points. The United Kingdom strongly supports the European Union-wide position against Helms-Burton. He asked about sanctions. Any United Nations sanctions would prevail over MAI obligations. He also raised an important question about trading pollution quotas. That would not be prohibited.
We do not think that there is a possibility of even a partial agreement in April, but, even if there were, we would not postpone our aims on environmental and labour standards.
This has been a welcome opportunity to hear hon. Members' views. It is important that we consult widely during our presidency of the European Union and beyond. We shall ensure that the consultation process is as wide as possible.
I hope that I have explained the Government's position in the short time available. Our stance is balanced. The MAI is potentially a useful agreement, but we must get it right. We shall keep the House informed.