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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA Joint Standing Committee on Treaties Report 18 Multilateral Agreement on Investment: Final Report March 1999 Commonwealth of Australia ISBN iii CONTENTS COMMITTEE MEMBERS: 38TH PARLIAMENT vii COMMITTEE MEMBERS: 39TH PARLIAMENT ix TERMS OF REFERENCE: 38TH PARLIAMENT xi TERMS OF REFERENCE: 39TH PARLIAMENT xiii RECOMMENDATIONS xv ABBREVIATIONS AND ACRONYMS xvii CHAPTER 1: INTRODUCTION 1 Purpose of this Report 1 Negotiation of the Draft MAI 1 The Interim Report 2 Cessation of negotiations 3 Resumption of the Inquiry 4 The perspective of this Report 4 Text of the draft Agreement 5 Conclusions 5 CHAPTER 2: GLOBALISATION 7 The concept and brief history 7 Foreign direct investment 10 The benefits of globalisation 11 The IMF’s views 12 The OECD’s views 14 The Prime Minister’s initiative 14 Parliamentary interest 15 Reserve Bank Governor’s views 16 Some implications of globalisation 17 Mr Soros’ ‘open society’ 22 Discussion 25 CHAPTER 3: FOREIGN DIRECT INVESTMENT 31 Definition and global amounts 31 Benefits of FDI 32 Foreign investment in Australia 33 FDI and developing countries 35 Discussion 36 CHAPTER 4: PROVISIONS OF THE DRAFT MAI 37 Background 37 The concept 37 Specific provisions in brief 39 iv Other provisions 47 Comparison with other international investment agreements 49 CHAPTER 5: AUSTRALIA AND THE DRAFT MAI 53 Imposition of conditions and limits on foreign investment 53 Implications of rollback and standstill for a range of rights 54 Impacts on the Australian economy 55 Dispute handling procedures 56 Constitutionality 56 Impact on agriculture 57 Impact on manufacturing 60 Impact on State, Territory and local governments 63 Impact on Australian investors overseas 63 Views of other Commonwealth Departments 65 CHAPTER 6: ISSUES RAISED BY THE DRAFT MAI 75 Major issues raised in the inquiry 75 Other issues 76 Sovereignty 77 The ‘secrecy’ of the negotiation process 79 Rollback, standstill and exceptions 80 Expropriation and compensation provisions 88 Dispute resolution process 92 Provisions for withdrawal 96 Performance requirements 97 Definitions of ‘investor’ and ‘investment’ 101 Investment protection 102 Constitutionality of the draft Agreement 104 Impact on State/Territory Governments 106 The impact on local government 111 CHAPTER 7: ISSUES OF PRINCIPLE 115 The need to regulate international capital 115 The OECD and the regulation of international capital 118 The draft MAI and other international agreements 120 Likely effectiveness of the draft MAI 121 National sovereignty issues 125 The consultation process 126 Treasury’s submission to the inquiry 131 Implications for other Commonwealth Departments 133 Future negotiations 133 The lead Department 136 CHAPTER 8: CONCLUSIONS AND RECOMMENDATIONS 137 The need to regulate international capital 137 The OECD as a negotiating body 137 v The likely effectiveness of the draft MAI 137 National sovereignty 138 Treasury and the draft Agreement 138 Implications for Commonwealth agencies 141 Conclusions 142 APPENDIX 1 SUBMISSIONS RECEIVED 147 APPENDIX 2 WITNESSES AT PUBLIC HEARINGS 159 APPENDIX 3 EXHIBITS 167 APPENDIX 4 MEMBERSHIP OF THE OECD 175 APPENDIX 5 STATISTICAL INFORMATION 177 vi vii COMMITTEE MEMBERS: 38TH PARLIAMENT Mr Bill Taylor MP Senator Eric Abetz* (Chairman)* Mr Robert McClelland MP Senator Vicki Bourne* (Deputy Chairman)* Hon Dick Adams MP Senator Helen Coonan1 Mr Kerry Bartlett MP* Senator Barney Cooney2* Mr Laurie Ferguson MP* Senator Shayne Murphy3* Mr Gary Hardgrave MP* Senator Bill O'Chee* Ms Susan Jeanes MP4* Senator the Hon Margaret Reynolds5* The Hon Peter McGauran MP6* Mr Tony Smith MP* COMMITTEE SECRETARIAT Committee Secretary Mr Peter Stephens Research Officers Mr Bob Morris Mr Jon Bonnar Executive Assistant Ms Jodie Williams Administrative Assistant Ms Elizabeth Halliday 1 Replaced Senator the Hon C Ellison from 26 February 1997. 2 Replaced Senator K Carr from 4 December 1996. 3 Replaced Senator K Denman from 12 December 1996. 4 Replaced Mr C W Tuckey MP from 24 September 1997. 5 Replaced Senator B J Neal from 5 March 1998. 6 Replaced the Hon W E Truss MP from 23 October 1997. * Member of MAI Sub Committee. viii ix COMMITTEE MEMBERS: 39TH PARLIAMENT The Hon Andrew Thomson MP Senator Barney Cooney (Chairman) (Deputy Chairman) The Hon Dick Adams MP Senator Vicki Bourne The Hon Bruce Baird MP Senator the Hon David Brownhill Mr Kerry Bartlett MP Senator Helen Coonan The Hon Janice Crosio MBE MP Senator Bill O’Chee Mrs Kay Elson MP Senator the Hon Margaret Reynolds Mr Laurie Ferguson MP Senator the Hon Chris Schacht Mr Gary Hardgrave MP Mrs De-Anne Kelly MP COMMITTEE SECRETARIAT Committee Secretary Mr Peter Stephens (to December 1998) Mr Grant Harrison (from December 1998) Inquiry Secretary Mr Patrick Regan (from July 1998) Research Officers Mr Jon Bonnar Mr Bob Morris Executive Assistant Ms Jodie Williams Administrative Assistant Ms Elizabeth Halliday x xi TERMS OF REFERENCE 38th PARLIAMENT • The potential consequences for Australia arising from the matter known as the MAI. (Referred to the Committee by the Hon Alexander Downer MP, Minister for Foreign Affairs, on 5 March 1998.) • Advantages and/or disadvantages for Australia arising from the MAI currently being negotiated in secret by the Australian Government at the Organisation for Economic Co-operation and Development, with particular reference to: (a) the ability of countries to impose conditions on foreign investment; (b) the ability of countries to establish limits on foreign investment; (c) the implications arising from the ‘roll back’ and ‘standstill’ provisions; (d) the ability of countries to pursue social, environmental, labour, cultural, human rights and indigenous protections and the impacts for each of these sectors resulting from foreign investment regimes under the MAI; (e) any implications for Australia’s national debt and current account deficit of the growth in foreign investment the MAI is expected to bring; (f) the MAI’s dispute handling procedures; (g) the issue of the constitutionality of the MAI for Australia; (h) the impact on agricultural and manufacturing sectors; (i) the impact on State, Territory and local governments; and (j) the impact on Australian investors seeking to invest overseas. (Referred to the Committee by resolution of the Senate on 9 March 1998.) xii xiii TERMS OF REFERENCE 39TH PARLIAMENT Noting that the text of the draft Multilateral Agreement on Investment (MAI) was tabled in Parliament on 31 March 1998, the Committee resolves to inquire into and produce a final report on: 1. the potential consequences for Australia arising from the matter known as the draft MAI; and 2. the advantages and/or disadvantages for Australia which may have arisen from the draft MAI, with particular reference to: (a) the ability of countries to impose conditions on foreign investment; (b) the ability of countries to establish limits on foreign investment; (c) the implications arising from the ‘roll back’ and ‘standstill’ provisions; (d) the ability of countries to pursue social, environmental, labour, cultural, human rights and indigenous protections and the impacts for each of these sectors resulting from foreign investment regimes under the MAI; (e) any implications for Australia’s national debt and current account deficit of the growth in foreign investment the MAI is expected to bring; (f) the MAI’s dispute handling procedures; (g) the issue of the constitutionality of the MAI for Australia; (h) the impact on agricultural and manufacturing sectors; (i) the impact on State, Territory and local governments; and (j) the impact on Australian investors seeking to invest overseas. (These terms of reference were adopted by the Committee on 21 December 1998.) xiv xv RECOMMENDATIONS The Joint Standing Committee on Treaties recommends that, if there are negotiations for an across countries agreement for the regulation of international capital: • Australia continue to be involved in those negotiations (paragraph 8.41); • the Department of the Prime Minister and Cabinet assume the lead role in coordinating the Australian Government’s negotiations; • the Department of the Prime Minister and Cabinet actively and effectively involve all relevant Commonwealth agencies from the beginning of any negotiations; • the Department of the Prime Minister and Cabinet ensure that all Australians have the opportunity to put their views on all aspects of any negotiating text as part of an open and public process, and • from the beginning of any negotiations towards such an agreement, the Department of the Prime Minister and Cabinet forward written reports on a six-monthly basis to the Committee about their content and progress (paragraph 8.47). xvi xvii ABBREVIATIONS AND ACRONYMS ABA Australian Broadcasting Authority ABC Australian Business Chamber ACF Australian Conservation Foundation ACFOA Australian Council for Overseas Aid ACCI Australian Chamber of Commerce and Industry ACM Australian Chamber of Manufactures (now the Australian Industry Group) ACOSS Australian Council of Social Services ACT Australian Capital Territory ACTU Australian Council of Trade Unions AGs Attorney-General’s Department AI Amnesty International Australia AIG Australian Industry Group ALGA Australian Local Government Association APA Australian Publishers’ Association APEC Asia-Pacific Economic Cooperation forum ASEAN Association of South-East Asian Nations ASA Australian Society of Authors ASX Australian Stock Exchange ATC Australian Tourist Commission ATO Australian Taxation Office ATSIC