The Multilateral Agreement on Investment ( )

By Matt Price, Coordinator, Progressive Ventures

The Multilateral Agreement on Investment (MAI) is presently being negotiated by the world's industrialized nations, including Canada. In a nutshell, the MAI will seek to make the world a 'safer' place for global investors through limiting restrictions that government bodies can place on persons and companies doing business overseas (or in our case, in Canada).

Leaving aside the debate as to whether global trade is beneficial or harmful, the MAI differs from past international trade agreements by implying that all governments, including federal, provincial, and municipal, are bound by the agreement. This is done by applying the MAI to the entire "land territory, internal waters, and the territorial sea of a Contracting Party," rather than areas of Federal jurisdiction, and also by specifically naming "sub-federal entities," "subnational governments," or "local governments" in various parts of the text.

Clearly, this fact raises the issue of due process and the rights of these governments to be consulted. The Government of BC recently came out against the MAI, pointing out that the provisions have profound implications for areas of provincial jurisdiction. Because local government is a function of provincial jurisdiction, BC's municipalities have the same concern about consultation before their powers are eroded by Federal actions.

Another way in which the MAI is different from other international trade agreements is that companies have as much standing as nation states in bringing grievances. In the past, a company which felt wronged had to convince its national government to bring a grievance against another government. The MAI, however, makes it easy for a company to do all of this itself, which will ensure that the MAI is invoked on a daily basis, becoming the most-used international trade agreement ever.

In conferring more powers to transnational investors, the MAI has three principle thrusts:

1) National Treatment. The MAI states that foreign companies can be treated no differently than domestic ones. While this appeals to our sense of fairness, this provision has the effect of precluding the favouring of 'local' companies in the case of awarding government contracts. It should be noted that requiring those applying for commercial fishing licenses be Canadian, for example, is favouring 'locals.'

2) Investor Rights. The MAI also talks about "performance requirements," which are limits placed on national, provincial, and municipal governments to take any actions which have an impact upon foreign companies. All governments are bound by a long list of "do nots," which include requirements that foreign companies purchase goods and services locally, supply local markets or value-added producers, or maintain a given level of employment or production. Under this provision, for example, a foreign logging company could not be bound to process wood regionally or even provincially.

3) Expropriation. Finally, the MAI prohibits government 'takings' (or expropriation) of assets of foreign companies without compensation. While this also appeals to our sense of fairness, the MAI actually goes beyond our common law provisions that have governed the issue of expropriation to date. Canadian courts have thus far held that property rights exist at the discretion of the Crown, and therefore that limiting the use of property does not necessarily constitute expropriation. The MAI, however, specifically makes the definition of expropriation so broad that any limits on the use of property may constitute expropriation, and that financial compensation is necessary.

These provisions have immediate implications for municipal governments all across Canada. The greatest impact concerns the measures to guard foreign companies against expropriation (broadly defined) and the impact this has on the practice of municipal zoning. In cases such as the Village of Euclid et. al. v. Ambler Realty Company, (1926) and Regina Auto Court v. Regina (City), (1958), North American courts have ruled that municipalities can pass by-laws limiting the use of property in order to serve the public interest.

The MAI, however, defines expropriation very broadly with no relation to these decisions, and also binds all governments (federal, provincial, and municipal) to compensate accordingly. Under the MAI, municipalities must therefore consider the likelihood of having to award compensation to offshore property owners before passing by-laws. In effect, the Federal government is quietly signing away legal rights that municipalities have won over the past several decades.

Another immediate impact on municipalities concerns the awarding of contracts. Presently, a municipality is able to specify that local contractors, or at least contractors who hire locally, are eligible for municipal contracts. Under the MAI, a foreign contractor would be able to take the municipality to a tribunal to stop this 'national treatment.'

The indirect impacts on municipalities as elements of the more general rubric of 'local control' are numerous. The MAI will challenge such tools of local control as regional resource boards, joint ventures, regional development strategies, and more.

The Federal government is quietly negotiating this deal with the other nations of the OECD, and intends to ratify the MAI by May of 1998. A groundswell of opposition to this closed-door process is building, however, particularly among municipalities which view the MAI as an erosion of their powers and also of local control generally.

The District of Squamish recently passed a resolution calling for "the strongest possible representations" to the Federal government on behalf of municipalities, and also urging public hearings in every province. This resolution went a long way in expressing to the Federal government that municipalities have a right to be consulted before their powers are eroded.

In many ways the MAI is an affront to democracy itself. Not only is this sweeping agreement being negotiated with no consultation or public debate, but the principle effect of the MAI in Canada will be to 'protect' transnational corporations from democratically-elected governments. Whether this 'protection' is needed has not even been asked; indeed, many would counter that in this age of lightening-fast global trade, that it is not transnational corporations that need protection from governments, but rather the other way around.

The issue of the right of municipalities to pass zoning by-laws has been brought before North American courts since early this century. After all, the heart of property rights involves the right of property owners to enjoy the use of their property, and the heart of many municipal by-laws is to limit the use of the same property in the public interest.

Property owners sometimes claim that the effect of a by-law limiting the use of their property amounts to a government 'taking' or expropriation of their property. While it is recognized that governments do indeed have the right to 'take' property, if it is deemed to be expropriation then the owner does have a right to compensation. The issue, then, is whether limiting use of property amounts to expropriation requiring compensation.

At least two cases have set significant precedents with regard to balancing the rights of municipalities to pass by-laws and the rights of owners to enjoy the full use of their property.

The foundational case is an American one, the Village of Euclid et. al. v. Ambler Realty Company, (1926). In the case, a property owner challenged the right of the Village of Euclid to pass comprehensive zoning by-laws on the grounds that they infringed on his Fourteenth Amendment to the Constitution right to "liberty and property." The court ruled, however, that municipalities have the right to exercise "police powers" which are actions which bear "a rational relation to the health and safety of the community," and therefore said that compensation was not necessary.

The second case is Canadian, Regina Auto Court v. Regina (City), (1958). In this case, the City of Regina re-zoned an area from 'residential' to 'park,' including the land of a property owner who claimed that the City should have bought his land outright rather than limiting his use of it. The court, however, ruled that the City was within its rights to pass the by-law even though it was "to some extent confiscatory in nature," and referred to the necessity of all cities to do this to regulate development. Compensation was refused.

North American case law therefore upholds the rights of municipalities to pass zoning by-laws which limit the use of property, and in so doing, limits the potential claim of 'expropriation' that property owners may level at them.

Under the Multilateral Agreement on Investment (MAI), however, a much more sweeping definition of 'expropriation' is proposed, with the implication that federal, provincial, and municipal governments will be bound by it. It states that governments are bound to:

not expropriate or nationalise directly or indirectly an investment in its territory of an investor...or take any measure or measures having equivalent effect...except... accompanied by payment of prompt, adequate and effective compensation

In other words, under the MAI, a foreign property owner can claim that expropriation has taken place 'indirectly,' or that a municipal by-law has the 'equivalent effect.' The foreign property owner may not have success in Canadian courts, but could take the municipality to the tribunal established to enforce the MAI in order to claim compensation.

This will have the effect of putting a chill on the practice of municipal zoning by making municipal councils in passing by-laws consider whether they may be taken to the tribunal by a foreign property owner. So, the decades of case law which have established municipal zoning rights may be undermined in a couple of months by an agreement negotiated by the Federal government without consulting either municipalities or the general public.