Finance: Investment pact sparks turf war

Opponents of an investment treaty soon to be signed by Britain say it threatens local authorities' economic development work and will invalidate green protection laws around the world. But the pact's supporters say it has the power to bring other nations' labour and environmental laws up to scratch. Paul Gosling considers the arguments.

The Multilateral Agreement on Investment is still in draft form, but is due to be signed by member states of the Organisation for Economic Cooperation and Development at the end of April.

At the heart of the pact are rules that will stop governments treating investors differently according to their country of origin. It will also bar governments from imposing rules on investors that require them to use a certain proportion of local labour, or buy a set proportion of their goods from local businesses.

It will also be illegal to create barriers that indirectly discriminate against the products of other nations - such as banning a chemical produced abroad, while permitting another of similar toxicity that is manufactured locally. Governments - including local authorities - will be subject to legal action if they breach these rules.

Whether the treaty would have wider implications is open to interpretation, and there is a big split between its supporters, such as the International Chamber of Commerce, which drafted the document, and its opponents, led by the World Development Movement and the Green Party. The WDM has written to local authorities asking them to lobby the Government to refuse to sign. But some of the criticisms of the MAI are, it seems, just plain wrong.

"It would prevent local authorities taking action to favour small shops, through rate relief," says Martin Hughes-Jones of the Green Party. "That would favour locally owned businesses. Charity shops, too, might be threatened." The Department of Trade and Industry, which is taking the lead on behalf of Britain in the negotiations, denies this. Councils could still support businesses trading locally: they would merely be unable to discriminate on the grounds of the business's nationality.

In fact, European Union directives already prohibit many of the activities that will be outlawed by the MAI, such as requiring contractors or inward investors to use local labour or locally produced goods. This, however, is common practice in the United States, which is why the US is trying to negotiate an opt-out for its municipalities.

The WDM wants British local authorities to copy this practice, to ensure that the benefits of inward investment "trickle down" into the local economy. "The MAI will prohibit just what should be done," says Jessica Woodroffe, WDM's senior campaigner. She says there are, occasionally, sound policy reasons for discriminating against certain countries. Parts of South Wales are now dependent on investment from South Korea, and will be hard hit if its companies withdraw. This, she says, justifies demanding diversified international investment, and obtaining commitments that companies will stay for a minimum period - a restriction also likely to be prohibited.

Friends of the Earth is more worried by the implications for environmental protection, and the ability the MAI will give companies to sue governments. "It will set a new framework to give more power to trans-nationals," says Tony Juniper, FoE's campaigns director. "It is a bill of rights for companies.

"The MAI just furthers economic growth at the cost of environmental protection. If you allow corporations to sue governments because of policies which protect the environment then this is nonsense. We do need some international regulation of investment, but it should be about setting standards to protect communities and the environment."

This argument is dismissed by the Confederation of British Industry. David Wood, the CBI's head of trade and investment policy, says it is not business but governments that have blocked moves to ensure that environmental protection laws are not watered down to attract investment. "All this trying to set the environmental world to rights through a treaty on investment is a funny way of going about things," he says. "The idea that companies are wandering round the world trying to find the laxest environmental regulations and labour laws is just not true."

The MAI will have no impact on Britain, and will not lower existing standards on environmental protection or on labour conditions, Mr Wood says.

The TUC agrees that as a result of a pact on minimum labour standards that will be attached to the MAI, governments will not be able to reduce standards to attract investment.

Negotiations are continuing, so important changes may yet be made. But there is no sign that the MAI's supporters and opponents will agree on its impact. For that, we may have to wait to see its effects in action.