Difficulty arises from balancing the economic gains against moral or ethical concessions, as in the case of overseas sweatshops, and the sticky problem of ensuring that true costs are reflected, as in the case of environmental damage. My goal is provide a brief background on the nature of foreign investment insofar as it prompted the Multilateral Agreement on Investment (MAI), as well as to briefly comment on some of the existing problems that remain unaddressed or even raised by the MAI.
One common drawback to foreign investment was exactly the fact that it was foreign. Business was then accountable to two sets of rules that could have been very dissimilar. Foreign countries were subject to unforeseeable political developments. The entire investment could be lost if there was a coup or domestic unrest, such as the rioting which forced the closure of ???? in Indonesia during May of 1998. Foreign investment has always entailed a higher risk, but with that risk comes the possibility of much better returns. Most current foreign investment has either been the result of someone taking a huge risk or it has been underwritten by an international organization like the World Bank.
Traditionally, foreign investment has been very closely related either with trade or with an international development agency. Examples of the link with trade would be the establishment of banana plantations in Costa Rica, Panama and Honduras or the activities of oil companies in the Middle East. Typically the accord involves the exploitation of a natural resource by a more developed foreign country. Foreign investment in South Korea enabled the country to heavily expand its export industries since the 1960's.
International development agencies are often pursue the more enlightened goal of helping countries develop properly rather than seeking the biggest return. By making funds available for progressive development programs, these agencies hope to lend a helping hand to developing countries. Examples would include the International Bank for Reconstruction and Development (the World Bank), the Inter-American Development Bank, the African Development Bank, and the Asian Development Bank. Their degree of success in advancing the conditions of developing countries is questionable, and the fact of the matter is that the world is currently undergoing a transition from public funding to private funding in foreign investment.
This new wave of private funding is ostensibly less accountable to the public interests and more geared towards the reaping greater profits above all else, which could be bad in the long run. However, the hope is that companies will want to remain favorable in the eyes of the consumer and adopt environmentally sound policies on their own initiative. Likewise, certain studies have shown that it may be beneficial for the developing countries because more efficiency may result from a competitive market. In theory, a more efficient company that utilized resources better would more competitive. To quote from the OECD website, "eco-efficiency -the addition of more value to goods and services, using fewer resources and emitting less pollution- can be positively correlated with shareholder value and with economic benefits in general."
The new school of thought is focused on sustainable development, fueled by the infusion of foreign investment in capital and knowledge, that takes into account the true costs of business. The looming question is whether or not these true costs will be reflected. Certainly the goal of the MAI is to provide conducive conditions for this to occur.
The Multilateral Agreement on Investment accomplishes this by ensuring equal treatment of all companies by nations. Basically, domestic companies and foreign companies will have to abide by the same rules and regulations. The idea behind this is that domestic favoritism breeds inefficiency. The second tenet of the MAI is to provide a uniform set of rights for companies making foreign investments. These rights would protect the investments from volatility.
Focus is being shifted from products to services. In that sense, the MAI has been made in the image of the General Agreement on Trade and Tariffs (GATT). If free trade has proven to be beneficial for all the countries involved, why not extend that model to encompass services? Thus, companies become encouraged to think globally and greater competitive efficiency is achieved. On the other hand, trade involves tangible goods. Once we eliminate tangibility, the issue becomes cloudier. A similar paradigm shift is occurring with respect to information and the Internet. Intellectual property, patents, et cetera become relatively more important. These same things are protected under company's rights in the MAI.
However, the MAI is currently stymied by several controversial points:
All told, the road leading up to the OECD's Multilateral Agreement on Investments has been a rocky. While the Multilateral Agreement on Investment promises to foster foreign investment while acting in everyone's interest, it remains to be seen how much the MAI can deliver to all the parties involved.