U.S. Backpedals on Investment Pact

The Clinton administration, already facing stiff congressional opposition to plans bolstering the International Monetary Fund and providing “fast-track” trade authority, has decided to back away from a third proposal--a treaty governing international investment.

In a major shift, U.S. Trade Representative Charlene Barshefsky said the United States did “not envision signing any agreement this April,” as initially planned by the United States and other major participants in the talks.

The new U.S. decision effectively kills any prospect of reaching an accord, at least through the first half of 1998 and possibly indefinitely, both administration officials and private business lobbyists said.

The pact, initiated by the United States and known formally as the Multilateral Agreement on Investment, would extend many of the same principles to global investment that now govern world trade, including a system for settling disputes.

The thrust of the investment accord was to provide new protections for the trillions of dollars in investments that flow back and forth across borders by making sure governments treat foreign and domestic investors equally.

Economists and business analysts had predicted that U.S. firms doing business abroad would be among the chief beneficiaries of the pact, since the United States already imposes relatively few restrictions on foreign investors. Many other countries place severe limits on what foreign firms can own or control.

In recent weeks, however, the agreement has drawn vehement opposition from American environmental and labor groups--the same coalition that successfully blocked President Clinton’s request for fast-track trade-negotiating authority in Congress last November.

The opponents contend that the treaty would force states to roll back their own environmental and labor laws and leave them open to a raft of new lawsuits by foreign investors--allegations that administration officials say are not true.

In one clearly effective tactic, opponents have been mounting a major campaign on the Internet portraying the treaty as a second fast-track bill and a mirror image of the North American Free Trade Agreement--another trade measure that they oppose.

Publicly, the administration contends that domestic political considerations were not a major factor in its decision to shelve the investment treaty.

Senior U.S. officials point to several still-unresolved issues as potential deal blockers--from a French demand that the treaty allow European restrictions on U.S. filmmaking to Washington’s insistence on permitting U.S. sanctions on companies doing business with Cuba.

The current version of the accord is “unbalanced and prejudicial,” Barshefsky told reporters Friday. She said the draft treaty would require “very substantial work” before the United States could endorse it.

However, strategists conceded that the administration’s previous sense of urgency about the treaty had been blunted by White House reluctance to take on another trade-related battle when Congress seems hostile to international economic accords.

On Thursday, White House Press Secretary Mike McCurry told reporters that partly as a result of the need to win quick passage of the IMF bill, the administration would postpone any effort to revive the fast-track trade legislation immediately, as Clinton had vowed before.

Clinton was humiliated last November when the administration’s failure to garner enough votes for the fast-track bill forced him to pull the legislation off the House floor, even though the White House had cut dozens of deals with lawmakers to win support.

Both the fast-track legislation and the IMF bill are the sorts of measures that have historically won routine support from both parties in Congress. In the age of globalization, however, many lawmakers are growing wary of such moves.

Barshefsky’s announcement came as a surprise to many observers. The administration is planning to send two senior officials to Paris this weekend to notify international negotiators formally of the U.S. decision.

Proponents have complained that, as in the case of the fast-track trade legislation, the administration has not made enough of a case for the investment treaty to the American electorate. That gave opponents the floor.

As a result, lawmakers have been raising questions about the treaty in private conversations with administration officials, suggesting that the accord would have faced some difficulty gaining congressional approval.

Business groups, although backing the effort, were wary about how some disputes with Europe and Japan might be resolved. Both the U.S. Council for International Business and the European American Business Council have supported the treaty.