The multilateral agreement on investment(MAI) was an ambitious attempt in the 1990s to establish a broad multilateral framework for international investment. Despite years of negotiations, MAI ultimately failed due to a lack of consensus among participating countries. The core issue was the difficulty of balancing protection for foreign investors with safeguarding the policy space of national governments. While MAI did not come to fruition, it laid the groundwork for bilateral investment treaties and illuminated key challenges in constructing a multilateral investment system acceptable to developed and developing countries alike. Understanding MAI’s origins and demise provides insight into the dynamics of international investment rule-making.
MAI Negotiations Reflected Tensions Between Investor Protections and Regulatory Authority
The MAI negotiations, conducted under the auspices of the Organisation for Economic Cooperation and Development (OECD) between 1995-1998, sought to extend investment protections beyond bilateral and regional agreements. Proposed MAI provisions included market access rights, non-discrimination against foreign firms, limits on performance requirements, and recourse to investor-state dispute settlement. But a core sticking point was the extent to which these investor protections would constrain governments’ ability to regulate investments for public welfare. Developing countries worried that accepting expansive MAI commitments would undermine their policy autonomy. The discord led MAI negotiators to circular debates over how to balance investment protection with regulatory flexibility.
MAI Aimed for Broad Scope, Intending to Cover Nearly All Forms of FDI
A key attribute of MAI was its extensive scope – the agreement was meant to cover nearly all forms of foreign direct investment(FDI), including manufacturing facilities, mergers and acquisitions, services, intellectual property rights, and portfolio investment. This comprehensive scope contrasted with narrower investment provisions in the WTO’s General Agreement on Trade in Services (GATS) and Trade-Related Investment Measures (TRIMS) that applied only to specific sectors. MAI’s broad coverage aimed to create unified rules for international investment, but raised concerns that its obligations would constrain domestic regulatory authority over swaths of national economies.
MAI Sought to Extend National Treatment and MFN to Pre-Establishment Rights
A major ambition of MAI negotiators was to extend the principles of national treatment and most-favored nation (MFN) to the pre-establishment phase of investment. This meant that MAI would require member countries to provide foreign investors treatment no less favorable than domestic investors not only after setting up operations, but also when initially attempting to make investments. However, many developing countries opposed granting pre-establishment coverage, which would restrict their ability to screen and approve foreign investment projects based on developmental criteria.
Collapse of MAI Highlighted North-South Divide Over Investment Rules
MAI negotiations collapsed in 1998 after France withdrew from the talks, reflecting disagreements between OECD members themselves as well as opposition from civil society groups in both developed and developing countries. Developing countries felt that OECD-led MAI disproportionately reflected the interests of capital-exporting states. The demise of MAI negotiations showed that constructing a global investment framework acceptable to countries at varying levels of development would require finding an appropriate balance between investor protections and policy flexibility.
The failed MAI represented an important episode in the evolution of international investment rule-making. Its collapse underlined that promoted investment protections while retaining regulatory authority remain core challenges in building a multilateral framework agreement on investment.