Final Report - March 1999
Page 76
6.6 Other witnesses were convinced that many TNCs (Trans National Companies) paid little or no taxation in Australia, or only came here because this country was rich in natural resources. In April 1998, it was reported from (the) Australian Taxation Office (ATO) figures that 55.3% of TNCs paid no tax in 1995/6, up from 53.3% in 1994/5.
6.7 Broadly, these witnesses argued that as so many TNCs paid no tax now, the necessary burden of contributing revenue for the operation of the government came from ordinary citizens. There would be no inventive for additional payments from these firms if the draft MAI were introduced.
8.1 Globalisation and, more recently, serious financial problems in a number of countries have demonstrated the need for some regulation of international capital. The benefits of globalisation have been called into question by recent calls to regulate the movement of international capital. The draft MAI was put forward as a solution but, following the abandonment of negotiations, how and when this might be achieved is now another matter.
The OECD as a negotiating body
8.2 It is clear that the negotiations of a treaty like the draft MAI is consistent with the OECD's aims. Because of its restricted membership , however, and because of the exclusion of developing countries from its drafting stage, we do not believe the OECD was the most appropriate body to have negotiated an agreement to regulate international investment. It is difficult to argue against the proposition that this Agreement was being negotiated by the wrong group of nations. As a result, there must be significant doubts about the effectiveness of the draft MAI, had it proceeded in its original form.
The likely effectiveness of the text of the draft MAI were set out in some detail in Chapter 7. While the Australian Vice-Chancellor's Committee (AVCC) was supportive with significant qualifications, the Australian Stock Exchange (ASX), the Australian Chamber of Commerce and Industry (ACCI), the Business Council of Australia (BCA) and the Australian Industries Group (AIG) could have been expected to be strong supporters of this matter. The range of their reservations, covering both the principle and the detail of the draft MAI, raised valid concerns about the likely effectiveness of such an agreement. Many other witnesses had vehement objections to one or more provisions of the draft Agreement.
8.4 At a more specific level, profound doubts remain about an agreement which allowed for the protection of each participants' existing policies, albeit with rollback and standstill, and then saw the foreshadowing of many exceptions on the range of its provisions. Ms Kent of Community Aid Abroad (CAA) observed that, by the middle of 1998, the draft MAI looked unworkable.
National Sovereignty
8.5 In Chapter 2, we drew attention to the impact of globalisation on the nation state, and to the unresolved issue of how the nation state was to continue to operate effectively in the global environment. While it might be useful to have an agreed international investment agreement, it is doubtful whether it would be effective without a revised framework which includes effective nation states.
8.6 The Australian Government's consistent position about the draft MAI was that it would not accede to anything that was not in the national interest. Many of those who opposed the draft MAI saw any infringement of national sovereignty as against the national interest, and this as the only relevant issue for consideration.
8.7 Had the draft MAI proceeded, there would have been impacts on Australia. Treaties can involve agreeing to limitations on national power or activity for a perceived larger good. Many of the concerns about the likely impact of the draft Agreement on Australian sovereignty were over-stated. They were often linked with objections to what was seen as the secret way in which negotiations were conducted.
Treasury and the draft agreement
8.8 While Treasury and those it had consulted knew about the draft MAI from as early as May 1995, little information about it seems to have reached the Australian community until late 1997 or early in 1998. Ms Ranald stated that it was not until 20 February 1998 that a defence of the government's position was released. The February 1998 text of the draft agreement was not tabled in Parliament until 31 Marc 1998.
8.9 As a result of increasing public concern about the issue, the terms of reference for this inquiry were referred to this committee on 5 and 9 March 1998.Treasury stated that it had accelerated its consultative and briefing process 'quite significantly in the last few months' leading up to May 1998.
8.10 The first source of information for many citizens who became concerned seems to have been from the Internet. It also seems to have spread as a result of personal contacts and later through small groups formed to oppose this draft Agreement. It is also clear that a number of people believed that there was a conspiracy against the Australian people, and that these negotiations had been carried out in secret.
8.11 While Treasury may have accelerated its consultative and briefing process 'quite significantly in the last few months' leading up to May 1998, by then it was reacting too late to a situation which was already out of control. Moreover, it advocated the draft Agreement in such a way that the underlying point of preserving the national interest was often lost.
8.12 Treasury was repeatedly accused of 'secrecy' in the way in which it conducted the negotiations for the draft MAI. Whether the information which was received and spread was correct is not relevant, nor does it matter that Treasury officials expressed themselves as able and willing to provide material on the draft agreement. For many people, the workings of the bureaucracy in Canberra are quite baffling. In the absence of other material, many believed that what they were able to discover about this matter, or what they were told, was complete and accurate and did not seek further information.
8.13 Undoubtedly, there were difficulties to be faced in managing the effective consultation process, including particularly:
8.14 Regardless of what efforts Treasury said that it made, many Australian citizens were outraged by what they saw as a secret process in which information was not made available to those who had concerns. Organisation after organisation told us that they had not been approached, and how they had found out about the draft Agreement by accident.
8.15 One example should be sufficient to make this point. As late as August 1998, Major-General Glenny (Rtd) of AUSCARE made it clear that while Treasury officials had listened to his concerns, he did not believe that there had been an exchange of information.
8.16 We support this view, taken by many of those who participated in this inquiry, that the consultation process was inadequate. Too little information was made available publicly until too late in the negotiation process.
8.17 Treasury's submission was of indifferent quality, given its crucial role in the negotiating process and to this inquiry. It made no attempt to spell out the detail in the text, or by using material in the Commentary, the likely implications of the draft Agreement for Australia. This submission simply set out the more important provisions in the text in brief, seeming to reveal either a lack of interest in or a lack of knowledge of the needs of the inquiry process. It did point out that some national delegations had proposed quite different approaches to various articles.
8.18 It was particularly unfortunate that local government representatives were excluded from the consultation process. This oversight is especially puzzling in view of the Treasury's own description, provided to the OECD Negotiating Group, of the important role played by local government in Australia.
8.19 The case fro the draft MAI would have been much stronger if the likely implications for Australia had been modelled. Allowing for methodological difficulties, and even the possible lack of certainty of the results, we are at a loss to understand why this was not done.
8.20 The two final points need to be made.
8.21 Treasury stressed the benefits of the draft Agreement, but never presented the need for Australia to be involved. The two were taken to be the same issue and Treasury did not understand that, outside orthodox economic circles, they are not seen as one. Perhaps if there had been modelling of the likely impact on a number of areas of the Australian economy, it would have been easier to demonstrate that a need existed.
8.22 Treasury stressed that Australia's negotiations were on the basis that the draft MAI would not impinge on this country's sovereign right to regulate and to discriminate against international investors in areas where country-specific exceptions would be taken out. It was also clear, however, that the intentions behind the draft Agreement was progressively to remove all exceptions and, in fact, to use a peer review process within the OECD to do this.
8.23 Treasury appeared to believe that this situation was appropriate, and it was taken for granted that exceptions would be allowed. There had been no consideration of the impact of a rejection of the approach to exceptions in the negotiating text. Thus, if Annex B had not been included, the draft exceptions Australia had proposed for inclusion would have been irrelevant and there would have been no protection for those matters.
Implication for Commonwealth Agencies:
8.24 If Australia had acceded to this Agreement, there would have been substantial changes to the operation of the Commonwealth Government. It is alarming that Departments seem only to have made cursory assessments of the likely impacts of the provisions of the draft MAI against their programs, rather than making detailed assessments of its likely impact on each policy and program.
8.25 This is an unusual inquiry because:
8.26 The issues represented in Chapter 6 represent the views of some of the citizens of the country on the provisions of the draft MAI. Their criticisms were set out in some detail to indicate the range and number of questions which were raised about those provisions and the way in which the public process was handled before March 1998.
8.27 For those opposed to the draft MAI, there were issues at stake other than simply its provisions. Acceding to this treaty, according to many of its opponents, would have changed Australia by means imposed from outside and without any detailed consultation of its people. To them, it would have changed the nation and the Federation.
8.28 This view possibly under-estimated the range of protections enshrined in the Constitution, and, in particular, the role of the High Court could have in resolved disputes which might have arisen if the draft MAI had entered into force.
8.29 As we pointed out in Chapter 5, there can be no doubt of the Commonwealth Government's powers to negotiate and accede to international treaties and, when any necessary domestic legislation has been enacted, to implement them.
8.30 We have had to concentrate a good deal of attention in this Report on Treasury's role and actions, not to accuse it of wrong doing but to draw attention to how excessive zeal for a cause in which it believes can sometimes blind an organisation.
8.31 Treasury seemed to believe that it owned this document to the point where it did not accept the validity of the concerns of those who opposed it. These people were simply seen as 'misinformed' and largely ignored. In turn, they felt that they were being treated with contempt. Hostility and suspicion was generated against the draft Agreement, and also towards the process of government in the minds of many citizens.
8.32 We were provided with a great deal of information about the consultation process, and treasury seemed satisfied with both the quantity and the quality of its efforts. This is a very difficult area, because it is not possible to consult with every organisation and reaching the community is also difficult, as this Committee knows. The need for consultation with the community has been one of the most frequent themes in our Reports.
8.33 Nevertheless, Treasury was selective in its early consultations and while this may have been reasonable at that time, its process cannot have been effective if so many NGOs and other organisations were not consulted. Treasury stated that it dealt with 'umbrella bodies' and that material was not passed on. This may well have been the case, but it surprising that such organisations as the AIG, the AVCC, Local Government associations and the Australian Stock Exchange were not contacted or had to approach Treasury for information about the draft MAI.
8.34 We are aware of the range of concerns about the draft MAI that were expressed by citizens of this country. Some of their submissions and emotional language, accusing anyone involved with negotiations for the draft Agreement of treason. We regret that such accusations were made. Our process undoubtedly provided many citizens with the opportunity to express their views, and may have helped to diffuse some of the emotion generated in the community. Had the consultation process been more effective, those accusations may not have been made.
8.35 Our consideration in Chapter 2 concluded that globalisation is a feature of the 1990s and that it was evading reality to pretend otherwise. Events of the last year and a half in Asia and elsewhere have demonstrated a need for a revised role for the nation state to be devised, but it is far from clear how or when this will occur. The 1999 Davos Forum was told of disillusionment with market solutions to economic problems, and of the growing gap between rich and poor as a result of globalisation.
8.36 Agreements on international investment, however they might be negotiated, will not of themselves address or solve these problems. They are among the most significant challenges for globalisation.
8.37 It is not yet clear what will happen to the OECD's negotiating text. It is likely, however, that its proponents will want to resume the quest for agreed rules for international investment where this draft Agreement was abandoned. There is a need for agreed rules. Many of those who were concerned about the provisions and implications of the draft MAI expect it to reappear in a new forum with the same provisions to which they took exception. It is a fact, however, that many of these provisions are standard in multilateral international agreements.
8.38 The World Trade Organisation (WTO) is probably a more appropriate forum for the negotiation of such an agreement than was the OECD. Such negotiations are likely to be a long process and it is a matter of conjecture how, in the increasingly globalised world, the international finance system will cope without internationally agreed rules for the movement of capital.
8.39 We believe that the Australian Government should support, and be involved in, negotiating an agreement on international investment which may occur from the OECD's work.
8.40 Any such new document should be based on a clear understanding of the features of the draft MAI and which made it unacceptable to so many Australians. It should therefore include clear statements of such matters as the rights and obligations of both host countries and international investors and protection of existing rights, together with an equitable dispute resolution processes. These areas were among the greatest deficiencies of the draft MAI. Without such a framework, any successor document would almost certainly fail to gain acceptance in Australia.
8.41 The Joint Standing Committee on Treaties recommends that, if there are negotiations for an across country agreement for the regulation of international capital, Australia continue to be involved in those negotiations.
8.42 Treasury must have a continuing role in such negotiations, but in the negotiation of the draft MAI its approach was so flawed as to demand another approach. Given the cross-portfolio perspective of the Department of the Prime Minister and Cabinet (PM&C) on the operations of Government, if there were to be further negotiations towards such an agreement, it would be appropriate to ensure that a focus was provided which was not wholly economic. PM&C may able to include other Government agencies effectively, notably the Department of Foreign Affairs and Trade (DFAT), from the beginning of any negotiating process.
8.43 PM&C may also be more adept than was Treasury at ensuring all those with an interest, including NGOs and the citizens of this country, are included in arriving at a position on an agreement to regulate international capital. If this is done effectively, and such an agreement is negotiated, it will not be necessary to create an additional advisory body to involve the community of NGOs in the development of Australia's position.
8.44 This Committee was established to ensure parliamentary scrutiny of treaties, generally between signature and ratification. No other body exists within the Australian process of Government to provide this scrutiny. In this inquiry, it has also provided a valuable and public means for many citizens to express their concerns and give evidence on them.
8.45 The draft MAI caused a great deal of concern in the Australian community, as well as suspicion of government and its processes. Periodic reporting to this Committee on any new negotiations, in whatever forum, may go some way to dealing with the philosophical and other concerns which may arise again.
8.46 This would be consistent with our role since the reforms to the treaty-making process in 1996. Our involvement on a regular basis in the future, if negotiations do begin on another agreement, may go some way to avoiding the hostility which was generated about the draft MAI in early 1998.
8.47 The Joint Standing Committee on Treaties recommends that, if there are negotiations for an across countries agreement for the regulation of international capital;
Andrew Thompson MP (See what his predecessor said in 1998)
Committee Chairman