[PEN-L:11248] Why MAI?

["Rosenberg, Bill" <ROSENBER@xxxxxxxxxxxxxxxxxx>]

The MAI (Multilateral Agreement on Investment) sparked a long
discussion on globalisaton in May, but here's a more specific
question about this (type of) agreement that I'm puzzling over.

The basic question is this: what is the (e.g. OECD, WTO) orthodox
economist's rationalisation for such a treaty from the point of view
of the host country?

My thoughts so far go like this:

1. Payment of investment incentives to foreign investors loses some
of the benefits to the host country of the investment. However if
countries compete for inward investment by paying incentives then
that loss is more difficult to avoid. Hence it is in the interests of
all host countries to cooperate in agreeing not to pay such
incentives. (Significantly OECD cannot agree to include this in the
MAI!)

2. If one assumes (as the orthodox economists do) that all foreign
investment is A Good Thing - i.e. a net benefit to the host country
- then it is in the interests of every host country to impose upon
itself all the other "disciplines" in the MAI to encourage such
investment - such as "non-discrimination" (National Treatment and
Most Favoured Nation), transparency of regulations, removal of
performance requirements, removal of restrictions on capital and
investment income flows, guarantee against expropiation, etc.

Thus there is no need for common agreement to enforce these - i.e.
no loss to the common good if they are not enforced. In fact
individual countries can benefit by not signing such an agreement
because they can gain a competitive advantage by offering such
disciplines to attract investment, and that process would eventually
make them universal.

Even if the economist conceded *some* foreign investment wasn't
beneficial, in which case some form of performance requirements etc
could be justified, the logic still holds.


If I am correct in the above, then it is only from the point of view
of the *investors* that the MAI disciplines have a theoretical
justification.

Any corrections, comments?

Bill Rosenberg

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|  Bill Rosenberg, Acting Director, Centre for Computing and Biometrics,  |
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