Recent growth in international trade and foreign investment has occurred on a scale not seen since the late 19th century. Especially dramatic has been the increase in direct foreign investment, which has overtaken the growth of trade. What are the implications of this trend for people in poverty? And what are the likely social and environmental effects of the proposed forthcoming international agreement on the regulation of direct foreign investment, the Multilateral Agreement on Investment?

Although the main sources and destinations of direct foreign investment are OECD countries, inflows of foreign direct investment into developing countries increased from US$31 billion in 1990 to US$80 billion in 1993. Yet this investment in developing countries is highly concentrated in 10 countries and 48 of the poorest countries received less than 1 percent of this investment. The Multilateral Agreement on Investment (MAI) is a new investment treaty being negotiated between the world's industrialised countries in the OECD. Once agreement is reached the pact will be opened up for accession by non-OECD countries. It aims to reduce discriminatory government regulation of foreign investors, promote legal security for investments and establish a dispute settlement mechanism. The research in hand, commissioned by Oxfam, draws on macro-economic evidence and analysis of the proposed Multilateral Agreement on Investment. Principal findings indicate that:

• foreign investment can make an important contribution to growth and poverty alleviation, but this effect is not automatic. Its impact depends (among other things) on the quality of investment and the nature of the regulatory framework
• increased international trade and investment has brought significant gains to some economies and workforces, not least in East Asia. However, it has marginalised others and has undermined jobs and livelihoods of vulnerable groups in Africa and Latin America. It has also contributed to job insecurity and income inequality in industrialised countries.

The report also considers the indirect impact globalisation is having on labour standards. The growing mobility and power of capital means that companies can relocate (or use the threat of relocation) to drive down production and labour costs. Despite evidence from the OECD that curtailment of core labour standards does not confer any long term competitive advantage, this mobility has provoked a competitive lowering of labour and environmental standards, as governments seek to attract foreign investment by offering the most favourable conditions. The proposed MAI would compound the problems associated with direct foreign investment. It prioritises the reduction of governmental controls and granting of rights to investors. The relaxation of national controls is not matched by the strengthening of national or international standards or supervision, nor are investors' rights linked to their acceptance of social and environmental responsibilities. Policy prescriptions arising from the Oxfam report hinge on the

• give citizens the rights to bring claims directly against investors and to present their views to any tribunal
• place binding responsibilities on investors, relating to internationally agreed core labour, environmental standards and consumer protection, by making the benefits they receive from the MAI conditional on their compliance with these standards
• guarantee rights of governments to regulate investment in sensitive sectors
• introduce ceilings on financial incentives to investors and embody common rules on competition policies.

The report also stresses the need to involve developing country governments and relevant non-governmental groups and stakeholders more fully in the debate.

Source(s):
The OECD Multilateral Agreement on Investment (MAI). Oxfam UK/I, R. Mayne (1997) Full document.

Funded by: Oxfam International (1997)

id21 Research Highlight: 1998-Feb-17

Further Information:
Ruth Mayne
Policy Department
Oxfam
274 Banbury Road
Oxford
OX2 7DZ
UK

Tel: +44 (0)1865 312279
Fax: +44 (0)1865 312417
Contact the contributor: rmayne@oxfam.org.uk

Oxfam UK/I