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Few Australians yet appreciate the profound threat to Commonwealth-State relations posed by the Multilateral Agreement on Investment (MAI) which is being negotiated, mainly behind closed doors, by teams from each of the OECD [Organisation for Economic Co-operation and Development] countries in the hope of signing the MAI as a treaty in mid-October [1998].

Mr David Keane has put hundreds of hours into a careful analysis of the implications of such a treaty, and has concluded that any State would have strong grounds for a challenge in the High Court to Australian participation in the MAI.

He argues that the States have been at a severe disadvantage since power to raise income tax revenue passed from the States to the Commonwealth during World War II, and will remain so until they demand and win back economic equity.

The MAI, however, would provide a "foreign affairs power" which would allow (indeed force) the Commonwealth to override most of the States' remaining prerogatives -- for example State measures to promote local industry which would be classed as discrimination against foreign investors, or State environmental standards which could be banned as "expropriating" expected profits of trans-national corporations.

It is especially urgent for State parliamentarians, and Federal parliamentarians concerned about the federal system of government, to become alert to the implications of the MAI before it is too late.

We would strongly recommend that you take time to read the accompanying executive summary of Mr Keane's analysis, and consider reading his full and well-referenced document at the Internet addresses which he cites.

Dion Giles, 53 Wood Street, Fremantle WA 6160
John Hermann, PO Box 505, Modbury 5092, South Australia
Alan Griffiths, 142 Gold St, Bruswick, 3056 Victoria
Frances Milne, 14 Gallimore Ave, Balmain 2041, New South Wales
Richard Sanders, BSc (AES) Hons, Research fellow, School of Science,
            Griffith University, Nathan 4111, Queensland


By David Keane, 10 September 1998

MAI, the Multilateral Agreement on Investment, has been officially negotiated in secret since 1995. Attempts were made to sign it (again in secret) in May 1997 and again in April 1998. Both times the signing was postponed due to growing Non Government Organisation (NGO) pressure. The negotiating committee is meeting again in October '98 to attempt once again to sign it with minimum publicity.

In Australia, the MAI has only really begun to become widely known by politicians (as to its existence yet rarely with clear understanding), since early 1998. Growing awareness and pressure has led to the Senate requesting the Joint Standing Committee on Treaties (JSCT) to investigate it. The points recently presented to Parliament in the Interim Report of the JSCT are alarming.

1.30 "Although the MAI is likely to have significant ramifications for the States and Territories, Commonwealth consultation with the States and Territories to date has been inadequate. ... "

1.40 " ... Indeed, the scope of the MAI is such that it would have been appropriate for the States and Territories to be represented on the negotiating team from the outset." (from 1995)

1.41 "The fact that Australia's preliminary exceptions do not include State/Territory matters suggests that the States and Territories are not, as yet, sufficiently aware of the implications of the MAI to develop their views on the potential impact of such an agreement. It is also an indication that their concerns have not yet found their way into Australia's negotiating position, some three years after the process commenced at the OECD."

Why have States been excluded from negotiations and meaningful information about MAI? There is a real concern the signing of MAI will lead to a diminution for the States of their right to legislate and regulate in most of their constitutionally guaranteed areas of power. There is in fact a very strong case to suggest that, if challenged by the States in the High Court, the terms of MAI would be found to be so sweeping as to be constitutionally invalid and therefore its terms would not be binding upon the States. The Commonwealth government plan was to sign it with minimal State consultation, and then impose this "treaty" upon the States through a massive and unprecedented abuse of section 51 (xxix) of the Australian Constitution, the "foreign affairs" power. Perhaps when it would be signed the States would be totally submissive and they would then accept their inevitable diminution of most of their legislative and regulative rights guaranteed under the Australian Constitution.

MAI --- Constitutional Validity in the High Court by David Keane, is an article of 35 pages which analyses these issues, and is now set up on internet in 3 parts. Part (1) of the article goes into an in-depth legal argument, guided by preceding verdicts in the High Court and with frequent reference to statements by High Court Justices, establishing a strong case for why MAI would be deemed unconstitutional if ever the States challenged it in the High Court. The 4 main arguments presented for MAI being legally invalid and unworkable are listed below:

Ground No 1. The MAI agreement is in essence and substance a contractual agreement, rather than a treaty. The Commonwealth has no power to make such contracts with respect to the general areas of government controlled by the States.

Ground No 2. To resolve any MAI cases, a special international corporate tribunal must decide with respect to powers vested in the State. Under the Australian Constitution, authority to decide on matters touching the division of power between the Commonwealth and States can only be vested in the High Court.

Ground No 3. The Commonwealth government cannot, through a single executive action, take control and usurp the basic powers of States nor destroy the democratic and federal system which has been fundamentally guaranteed in our Constitution.

Ground No 4. The Commonwealth government has no Constitutional authority to financially pressure the States, nor to enforce compliance with any MAI agreement by selectively administering money derived from collection of taxation, nor by directing the manner by which the States should acquire their revenues.

Part (3) of the article MAI --- Constitutional Validity in the High Court then proceeds to examine the MAI draft document in detail.

What are these "significant ramifications for the States and Territories" that the JSCT discusses? MAI is based upon three key principles;

(1) Non-discrimination of investors from other countries (foreign investors cannot be treated worse than domestic companies)

(2) No entry restrictions (signatories cannot refuse any form of foreign investment, including the purchase of privatised or part-privatised companies, in any sector apart from defence),

(3) Freedom from regulatory restraints which would be deemed in an international corporate tribunal to "impair the operation, management and maintenance" of investments.

The MAI agreement not only provides a carte blanche for multinational corporations to enter most sectors of our society, but once they are established, any regulation (whether by the Commonwealth, a State or a local council) that is perceived by the corporation to be unfairly disadvantaging them, can become the focus for suing through an international tribunal.

In this way, the multinational corporations will have a very powerful means to force national governments to toe the line. How much money is likely to be involved in cases coming before such tribunals?

MAI is in many respects modelled from the NAFTA agreement between US, Canada and Mexico (ensuring unrestricted free trade and freedom for investment by multinationals). The Canadian government had banned a toxic petrol additive for reasons of protection of public health, but the US petroleum giant Ethyl Corporation used the NAFTA agreement to sue the Canadian government for $251 million (US) for loss of profit and reputation. Believing they would lose the case, the Canadian government backed down, and in order to avoid massive damages payments, made a public statement that the petrol additive is perfectly safe and permitted the unrestricted commercial sale in Canada of the additive.

The U.S.-based waste disposal company Metalclad Corporation sued the Mexican government for breaching the NAFTA agreement, after an environmental impact assessment revealed that the site Metalclad wanted to use for waste disposal lay atop an ecologically sensitive underground alluvial stream, and then the local Governor had refused to allow Metalclad to re-open the facility. Metalclad is seeking $90 million in damages, a figure that is larger than the combined annual income of every family in the county where Metalclad's facility is located.

The economic ramifications for Australia are potentially horrific, and could possibly lead Australia into massive foreign debt. They are discussed in much detail in the article, MAI --- Constitutional Validity in the High Court.

Let us consider the following list of topics;

None of these are exclusively Commonwealth issues. All these issues are federal issues to be resolved jointly by Commonwealth and States working together. It is the dominance of Commonwealth government of the national economy that is the basic cause of many of the problems facing the States today. The Australian Constitution guarantees economic equity between Commonwealth and States. Ever since the end of World War II, the States have permitted the Commonwealth government to dominate the major economic decisions in Australia. Many of these problems are due to the timidity and lack of vision by the States over the past 50 years.

When the States have access to foreign ownership and taxation figures, and make a comprehensive statistical survey of nominee shareholders, they may well confirm Australia is now 90% foreign owned, and multinationals pay a very minute portion of our national taxation. Our escalating economic problems are because most multinationals take their profits out of Australia without paying much tax.

Anyone who maps both increase of foreign ownership and increase in unemployment (whether in Australia or any other country) will see a direct correlation.

The States are hurting, and to make it through difficult times, they are encouraged to sell off their assets. The most vital issue at these coming Commonwealth elections is not "GST or no GST". It is the idea that Commonwealth can legislate that the State tax revenue can be limited to a 10% GST as a ceiling to State income. When in 1942 the Commonwealth took over the State tax departments, the States lost 63% of their revenue, and this has been compensated for over the intervening years by States having to go to Canberra to beg for grants. At least begging for grants has a safety valve, as inadequate as this has been. But for the Commonwealth to legislate to cap State revenue is like trying to cap a volcano.

It is not the voters who will in October decide whether the State revenue should be capped at 10% GST, but the States themselves will decide between October'98 and July 2,000, whether or not they will accept the 10% GST tax revenue cap. For if a majority of States combine together, they can at any time re-introduce income tax or any type of tax they choose, except customs and excise which are exclusively vested in the Commonwealth;

"The Commonwealth Parliament could not pass a law compelling a State to surrender the power to tax incomes or prohibiting the exercise of that power by a State" (Justice Latham, Uniform Tax case in the High Court).

Like the MAI agreement, the Commonwealth government has never consulted with the States on whether they agree to getting no revenue from income tax, and in its place a 10% GST. The State's revenue is already inadequate, and this is largely because $200 billion yearly is going out of the country through profits to multinationals who pay little or no tax. To impose a revenue ceiling on the States at times of such international economic uncertainty is sheer folly. Have the Prime Minister and Treasurer worked out the impact on the States of this tax revenue ceiling in the event of a global economic downturn?

In part (2) of the article MAI --- Constitutional Validity in the High Court, is described a way by which the States can enforce recognition of their constitutionally valid right for economic equity. When things begin to really hurt, when the State assets are all sold off and the hospitals and schools are in greater crisis than before, the solution from Canberra is that the States can then come together to agree on an increase in GST. John Howard knows that it is virtually impossible for the States to arrive at total consensus over such a controversial issue. The above-mentioned article describes how the States to demand equity would need only a majority of States, and this would all of a sudden appear a far easier and (with the threat of a Commonwealth imposed revenue ceiling) a suddenly attractive proposition for the States.

For the States, it will be impossible to present a final detailed analysis of the impact scenarios of a Commonwealth imposed tax ceiling until after the October elections. And how many Premiers, when asked before the October'98 elections, will give an unconditional guarantee to abide by a Commonwealth imposed taxation revenue ceiling, or will agree that the Commonwealth has a constitutional right to impose such a ceiling upon the States at times other than "hot war"?

It will require just one Premier with vision and courage to speak out to sow seeds of hope among the young, and to initiate a point of transformation for our nation into the 21st Century.

David Keane
P.O.Box 582 Gosnells W.A. 6110

The full 35-page article, MAI --- Constitutional Validity in the High Court, may be downloaded from the internet, starting on:
For information on massive tax evasion by multinationals,


Media Release, September 11, 1998

Letters have been sent by the Stop MAI Coalition to each of Australia's 750 federal and state parliamentarians, aimed for delivery on Monday (14/9).

In them, author David Keane of Perth presents a devastating argument against the Multilateral Agreement on Investment (MAI), which is certain to raise eyebrows.

For, based on his detailed investigative report entitled MAI-Constitutional Validity in the High Court, David Keane outlines a compelling prospect that--

David Keane proceeds to present a blueprint by which, he claims, any single State Parliament could break down the tradition of economic patronage from Canberra and inspire a new national economic direction for the 21st century.

The full text of David Keane's letter and annexures can be accessed at website   The 35-page investigative report is at

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