[asia-apec 1778] ZNet Commentary 21/6/01- Beware Bilateral Trade/Investment Deals

[Apec Monitoring Group]

We Must Mobilise Against A Miasma of Mini-MAIs

By Aziz Choudry

You've got to wonder at the nerve of New Zealand trade officials. During
the furtive Multilateral Agreement on Investment negotiations and the
subsequent international waves of opposition they were quietly hatching
binding bilateral investment deals containing provisions resembling some
of the most controversial elements of the MAI.

In 1996 Cabinet (Parliament's executive arm) approved a model bilateral
investment promotion and protection agreement (IPPA). The government
then went looking for countries to apply the model with. 1998 Cabinet
papers obtained under the Official Information Act advise: "Careful
media handling of the issue will be needed if the bilateral investment
promotion and protection negotiations are not to worsen the current
furore over the participation of New Zealand in MAI negotiations."
Officials worried about "walking into a quicksand of negative public
opinion", but pushed on regardless.

University of Auckland law professor Jane Kelsey observes: "regional and
bilateral agreements are seeking to stitch together from below what is
no longer so easy to achieve on a global scale. They are providing a
circuit-breaker for both APEC and the WTO. It is globalisation by
stealth."

Rattled by the crisis of credibility and legitimacy engulfing the
multilateral trading system and growing popular opposition to the
Bretton Woods toxic trio, many governments are turning to bilateral
trade and investment agreements. Between 1987 and 1996, according to the
International Centre for the Settlement of Investment Disputes (ICSID -
which operates under World Bank auspices), over 800 Bilateral Investment
Treaties alone were signed. Meanwhile WTO negotiations - especially on
GATS - continue in the hope that real 'progress' will move the
beleaguered institution beyond bad memories of Seattle. WTO
Director-General Mike Moore's December 2000 annual report to the WTO
trade policy review body warned of "a growing danger that the huge rise
in bilateral and plurilateral trade deals could come to be seen as a
substitute for multilateral liberalisation rather than a complement to
it". The WTO estimates those agreements now cover three-quarters of
world trade. Even disputes are moving outside the WTO.

There have been numerous campaigns on multilateral arrangements like the
WTO, the MAI, and APEC. There has been relatively less recent
international networking focussing on the use of bilateral agreements to
advance trade and investment liberalisation, economic reforms and the
neo-liberal agenda. Lower-key bilateral negotiations have the advantage
of attracting less publicity and attention conducive to creating
international mobilisations that have been conducted around multilateral
deals. Officials and politicians often portray them as inherently benign
arrangements with a "friendly" country. They can market them as local or
regional initiatives rather than externally imposed models. They seek to
distinguish them from more politically charged multilateral trade
negotiations. Unless we keep tabs on these deals much of what we oppose
about the WTO and the MAI will be delivered by the backdoor, bit by bit.
As Kelsey warns, few people will even know these agreements exist until
an investor decides to seek compensation for a government measure that
reduces their profitability.

South Korean activists quickly identified the bilateral investment
treaties (BITs) being negotiated by their government with the USA and
Japan as "MAI clones" and mobilised against them. The IMF bailout set
the scene for the accelerated liberalisation and deregulation of the
Korean economy, including making the economy more attractive to overseas
investment. In 1998, a bilateral investment treaty with the USA was
proposed. In 1999, Korean peoples' organisations launched Korean
People's Action against Investment Treaties (KOPA). The Korean struggle
against BITs is perhaps best-known for mobilising local film producers,
actors and directors in defence of the screen quota which stipulates
that cinemas must screen local movies for at least 146 days a year. In
negotiations with the USA over the BIT, Korea's government announced it
will reduce or remove this.

Some governments say that bilateral agreements can achieve binding
agreements on contentious issues like labour and the environment, or
further protections or concessions in specific sectors, which they have
failed to obtain in multilateral fora like the WTO. For example, former
US Trade Representative Charlene Barshefsky boasted that the US-Jordan
deal was a model for how bilateral accords could help protect labour
standards. This was merely "fair trade" rhetoric, the labour wording in
the text little more than unenforceable window-dressing, recognising
that it is inappropriate to encourage trade by relaxing domestic labour
laws.

Besides Jordan, the USA recently signed free trade accords with China
and Vietnam, is negotiating with Chile and Singapore and exploring a
possible free trade agreement with Australia. Last month, Democrat
senator Max Baucus submitted bills to the US Senate to authorise the
negotiation of trade agreements between the USA and New Zealand,
Australia, and South Korea. The bills are comprehensive, and include
market access for goods and services, rules of origin, customs, sanitary
and phytosanitary safeguards, government procurement, investment,
intellectual property, transparency, e-commerce, and environment and
labour standards. Japan is considering trade agreements with Singapore
and Korea. Australia is negotiating a free trade agreement with
Singapore, while a High Level Task Force on the AFTA-CER (AFTA = ASEAN's
emerging FTA; CER = Australia-New Zealand Closer Economic Relationship)
Free Trade Area recently advised ASEAN and CER governments to work
towards a free trade area linking AFTA and CER.

While New Zealand had a change of government with the election of a
Labour-led coalition in late 1999, the economic fundamentals remain
essentially unchanged. Yet it is hard to sell "free trade and investment
agreements" to a public grown sceptical of their supposed benefits, so
new language has been adopted. As Hong Kong government documents state,
'Closer Economic Partnership' "is New Zealand's preferred terminology
for Free Trade Agreements". New Zealand Trade Negotiations Minister Jim
Sutton remarked in March: "I admit that I myself have some difficulties
with the phrase 'free trade'. It conjures up images of the law of the
jungle."

Last year, New Zealand and Singapore concluded a "CEP" free trade and
investment agreement which took effect this January. The rationale for
this was largely strategic. Tim Groser, New Zealand's former chief trade
negotiator said: "the Singapore/NZ FTA is a Trojan Horse for the real
negotiating end-game: a possible new trade bloc encompassing all of
South East Asia and Australia and NZ." Trade officials held that "an FTA
with Singapore . might act as a catalyst for free trade areas with other
ASEAN economies". Significantly, the Singapore agreement is open to
accession by other states or separate customs territories. It is also a
model for future bilateral free trade and investment deals. New Zealand
has offered assistance and information to Thailand to undertake a
feasibility study on a possible Thailand/New Zealand free trade
agreement. A possible "CEP" with South Korea has been mooted.

Reaction to the bilateral trade strategy has often been confused and
confusing. Some trade union officials, NGOs and local government
politicians are reluctant to openly criticise Labour Party policy. Some
who opposed the MAI seem to view bilateral free trade and investment
deals as unproblematic. However, among others, there is growing concern
and awareness about the implications of the bilateral deals. Even David
Binning, vice-president of the NZ Exporters Institute recently
criticised "the unrestrained headlong dive we are taking with CEP
agreements with any country wanting to be friendly".

New Zealand is now negotiating a "CEP" with Hong Kong. Once again, we
can't examine negotiating drafts before the deal's complete. Sutton says
that "it would not be appropriate to make available draft texts before
any negotiations are concluded, as this could be expected to prejudice
the successful conclusion of negotiations".

Last year, textile clothing and footwear unions, activist organisations
like GATT Watchdog, and others opposed the Singapore agreement,
highlighting contradictions between a government supposedly committed to
"nation-building" and "open government", and its pursuit of yet another
secretly-negotiated free trade agreement. They pointed out the
contradiction between the Labour-led government's recently announced
tariff freeze and the move to remove tariffs from all Singapore sourced
goods almost immediately. But as with most other bilateral deals,
investment was the greatest concern.

Back in 1995, without any fanfare, let alone debate, New Zealand signed
an Investment Promotion and Protection agreement with Hong Kong, which
has a 15-year term. Its expropriation provision is almost identical in
effect to the MAI's. It would prevent, or force compensation for,
nationalisation or expropriation or measures having effect equivalent to
nationalisation or expropriation. Bill Rosenberg notes that New Zealand
could face similar actions to those in NAFTA from Hong Kong-based
investors: "any change in environmental regulations by central or local
government which reduced the profitability of an enterprise could result
in awards of compensation and perhaps a reversal of a change in law or
regulation". The "CEP" currently under negotiation with Hong Kong could
well extend the 1995 agreement.

The Singapore deal defines 'investment' and 'investor' as widely as in
the MAI, although it does not give the same level of guarantees for
investors against "expropriation" as NAFTA, nor does it define
expropriation. But it is the first such agreement which New Zealand is
signatory to which provides for investor enforcement of alleged
breaches.

In 1999, the previous government signed bilateral agreements for the
protection and promotion of investment with both Chile and Argentina.
These require only an exchange of letters between governments to take
effect and have even stronger expropriation clauses than the Singapore
agreement. Article 6 of both agreements forces compensation for any
measures of nationalisation or expropriation or any other measure having
equivalent effect against the investments of the other party. Once the
Chile agreement takes effect, neither New Zealand nor Chile can withdraw
for a minimum of 15 years, and the agreement would apply to any
investments existing at the time of withdrawal for a further 15 years.
The Argentina agreement specifies a minimum 10 year period but an
identical 15 years term of protection for Argentinian investments at the
time of withdrawal.

Like the MAI, the model IPPA developed by New Zealand officials contains
an Investor-State dispute mechanism in which private investors can take
a signatory government to international arbitration. Under the
Singapore, Chile, and Argentina agreements an investor from or based in
one of these countries can submit a dispute against New Zealand to
ICSID. Governments belonging to ICSID must pass domestic legislation
enabling all ICSID awards to be directly enforced against them in their
domestic courts. Under NAFTA governments have no choice about submitting
to an investor-initiated dispute process. Under ICSID rules the
government must agree to submit the dispute to ICSID jurisdiction. While
it can theoretically decline ICSID arbitration, it is unlikely to do so
for fear of provoking criticism that its policies or laws (or indeed
local government measures or actions) threaten investor confidence.

Four years ago I briefed then opposition MP Pete Hodgson, (now Minister
for Energy, Forestry, and Fisheries) on the MAI. Overseas investors
using international agreements could not override sovereign powers of
governments to make policy, he insisted. The legal actions taken under
NAFTA's notorious chapter on investment - itself the blueprint for much
of the MAI - have proved him wrong. Now his government - and others, too
- are hatching a new batch of mini-MAIs which are sneaking in underneath
the radar. Internationally, we must work together to expose these
backdoor deals and stop them before we are trapped in webs of mini-MAIs,
facing Metalclad and Ethyl Corp-style disputes in all our backyards.