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Mr. BAUCUS. Mr. President, the next amendment is the Kerry amendment,

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   Very briefly, this amendment may sound good on the surface, but for very compelling reasons it is not a good idea. It is a very bad idea. I will tell you why. It is true that under current law, one has the argument that foreign investors are at an advantage compared to domestic investors in seeking to protect their rights, say, in a fifth amendment takings question regarding, say, an environmental statute. The Methanex case dealing with MTBEs in California has not yet been resolved, but there is an argument that foreign investors in this case are in a more advantageous position than a U.S. investor with respect to the same kind of proceeding, and that is because of the way investor-state relationship rights are written under chapter 11 of NAFTA .

   There are many treaties which govern investor-state relations that are causing some question. One is the one I mentioned. I will not get into great detail as to why the amendment offered by the good Senator from Massachusetts should not be adopted. Suffice it to say that in this underlying bill we have made major changes to ``level the playing field'' between foreign and domestic investors, as well as the rights of those seeking to uphold municipal and State regulations with respect to public health, safety, and the environment. It is totally a level playing field.

   To make that point even further, we adopted in the underlying bill a provision suggested by the Senator from Massachusetts, Mr. Kerry, which made it crystal clear the rights of foreign investors in America do not enjoy an advantageous position over the rights of American investors to make sure the playing field is exactly level.

   As a matter of comity, I can now let the Senator from Massachusetts go ahead and explain his amendment. I thought I would get started while we were waiting for the Senator to come to the Chamber. He has had some other matters to attend. He is here immediately, and we are glad to have him here to speak to the amendment.

   I reserve the remainder of my time.

   The PRESIDING OFFICER. The Senator from Massachusetts is recognized.

   Mr. KERRY. Mr. President, are we operating under any time constraints?

   The PRESIDING OFFICER. There is 60 minutes of debate equally divided.

   Mr. KERRY. Mr. President, I yield myself such time as I may use.

   I want to acknowledge the hard work the chairman and ranking member and those who are trying to press this issue have made. The issue I am raising does not threaten the capacity of investor-state relationships to be protected.

   Let's be very clear about what is happening. As is so often the case on the floor of the Senate, especially when we are limited in time as to how much debate we are going to have, and when we get into these pressure situations, big arguments are thrown out. People raise these red herrings and these notions of sort of a threat to business or to treaties or other things. I respectfully submit that a careful analysis of what we do does not in any way threaten the capacity of the investor-state relationships to be protected under treaties and, specifically, for this trade relationship that somehow we are going to approve on the floor--and I am going to vote for it. I am not trying to disrupt the process. I am here trying to make this process fair and sensible.

   The fact is that chapter 11 of NAFTA is designed to provide foreign investors with the means to seek compensation when a government takes action to decrease the value of the investment. We obviously want that; other investors want that. If a government takes an action that decreases the value of the investment, people have a right to recourse. Either the action of the government might be through the direct physical seizure of property or it might be indirect regulatory action of some kind. That process, which we set up in this legislation, is the model for how that will be done. So it is appropriate that we do that here.

   But I am not coming to the floor expressing a concern that is mine alone. The U.S. Conference of Mayors supports this amendment. The National Council of State Legislatures supports this amendment. The National Association of Attorneys General supports this amendment, and countless other State and government entities do. The attorney general of the chairman's home State of Montana supports it.

   On May 14 he wrote:

   I applaud the Baucus amendment, but remain concerned that the amendment would not be adequate to protect United States sovereign interests and preserve the authority of the U.S. Government at all levels to enact and enforce reasonable measures to protect the public welfare.

   A lot of people have grown upset and concerned about the effect of NAFTA's investment settlement dispute process and the effect it has had on the ability of those States to promulgate legitimate health and safety laws. The National Association of Manufacturers--no supporter of this amendment--has acknowledged that investment provisions such as you find in chapter 11 of NAFTA merit improvement. They have even acknowledged it needs improvement.

   So the test here is not whether we ought to be doing this, but whether we are improving it. The reason it is so important is the following: When we passed NAFTA , there wasn't one word of debate on the subject of the chapter 11 resolution--not one word. Nobody knew what was going to happen. Nobody knew what the impacts might be. And, steadily, foreign investment in the United States is increasing. That trend will be accelerated as we have a free trade area of the Americas agreement that is being developed. A recent report by the Taxpayers for Common Sense at Tufts University shows that, unless we change the chapter 11 model, claims against the United States will average $32 billion annually. That is just in terms of claims. It doesn't even address the millions of dollars the Federal Government is going to spend defending against these claims.

   Let me explain this in sort of graphic terms. I want to add that among the groups supporting the amendment are the National Conference of State Legislatures, Conference of Mayors, National League of Cities, Conference of Chief Justices, Taxpayers for Common Sense, Consumers Union, League of Conservation Voters. All of them support the notion that we have to change this particular amendment.

   The letters of the attorneys general of New York, California, and Montana are particularly instructive.

   The attorney general of New York wrote:

   The rights granted foreign investors under H.R. 3005 could go far beyond the carefully fashioned taking and due process jurisprudence articulated by the U.S. Supreme Court under the 5th and 14th amendments.

   In other words, unless we change this, we are giving to foreign investors the right to have an application of standards that go well beyond the fourth and fifth constitutional amendments, which are applied to businesses here at home.

   It has the ability to apply a takings standard, an expropriation standard that, in effect, is subject to a whole looser standard than that required by the Constitution of the United States.

   What my colleagues are being asked to vote on is, Do you believe that American businesses ought to be subject to a fair playing field and that foreign investors should not be advantaged over American investors and the standards by which our businesses do business at home?

   There are a lot of examples. Let me share quickly the concern of Montana Attorney General Mike McGrath. He wrote:

   I frankly believe an overwhelming majority of American people and Montanans would react with outrage to the idea that an otherwise final and definitive ruling of our domestic courts would be reversed by foreign arbitration panels and could provide the basis for monetary claims against United States taxpayers.

   He could not put it better. That is exactly already what is happening. It is happening right now. Let me share with my colleagues a few of the cases in which that is now happening.

   First of all, there is the Methanix case, the most notorious of the cases, in which a Canadian corporation is suing for California's ban on MTBE. The details are fairly straightforward.

   In 1998, the Governor of California banned the fuel additive MTBE because it has a tendency to leak out of gasoline storage tanks at a much faster rate than other blended gasoline, such as ethanol. We have just been through an ethanol fight on the floor of the

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   Methanix, whose subsidiaries produce methanol, which is the M in the MTBE, filed a chapter 11 claim on the grounds that the ban diminishes their expected profits. Methanix claims that this public health law discriminates against the flow of capital and therefore discriminates against the goals of NAFTA .

   I am not sure any of us would say that makes a lot of sense, but the arbitration panel has yet to agree, and the case demonstrates exactly why we need to protect legitimate health and welfare laws.

   The Methanix case is the most expensive of any pending claim. They are seeking compensation and almost $1 billion in damages. It is not just California that would suffer. All of us as a consequence would suffer because each State is subject to the same kind of problem, and that State, California in particular, would lose money out of education funds, highway funds, or other grants from the Federal Government were that case to succeed.

   A less well known case, but perhaps more egregious, is the case against a jury finding by a Mississippi court against the Lowen Group, which is a Canadian-owned funeral parlor chain. Lowen was sued by a Biloxi funeral home for unlawful anticompetitive actions designed to drive up local insurance costs, forcing smaller funeral parlors into selling. A Mississippi State court agreed with the Biloxi funeral home and awarded $500 million in damages.

   Lowen appealed to the State supreme court which refused to reduce the bond amount needed to receive a stay. Instead of paying a bond, Lowen settled the case for $175 million. It then proceeded to the NAFTA tribunal to file a claim. Lowen's

   chapter 11 case is predicated on the argument that the trial court's refusal to vacate the verdict was tantamount to an expropriation, and the case is now pending.

   The message of this case and of the Methanix case could not be more clear: Anytime a foreign corporation dislikes the outcome of a U.S. jury trial, it can run to an international arbitration panel and try to get the ruling reversed. That is not what we wanted to have or intended to have happen in NAFTA , but the only way to protect it is to change that law now.

   There are other cases. Let me call attention to the Mondev case which has nothing to do with the environment but everything to do with our sovereignty. The doctrine of sovereign immunity is centuries old in this country, and it holds that you cannot sue a government unless such a lawsuit is expressly permitted. But a claim against an action taken by the city of Boston by Mondev International, a Canadian real estate developer, has challenged this concept before a NAFTA tribunal.

   The Mondev case is an example of those cases where we ultimately see the sovereignty of the Supreme Court of the United States being subjected to second-guessing and questioning by a secret tribunal of NAFTA , over which we have no control of the standards because the standards have not been set to respect the Constitution of the United States.

   I can remember how many times Senator Helms from North Carolina has come to the Senate Chamber and said we should not sign a treaty that somehow obviates the demands of the Constitution of the United States. It seems to me that is precisely the principle which is at stake here, which is why Senator Helms, who I know will not be here to vote, supports this amendment as others who believe the Constitution should not be subjected to second-guessing by an international tribunal.

   These second-guessing efforts will have a chilling effect in the end on investment. They create expensive litigation. Just the threat of the litigation is, in and of itself, a chilling effect. I believe, based on these claims, chapter 11 , as it currently stands, can be used to threaten governments from enacting public health measures.

   The Canadian Government has now sought to ban the use of the words ``light,'' ``mild,'' and ``low tar'' from cigarette advertising. Philip Morris recently issued a warning to Canada under NAFTA that Canada must compensate investors when measures expropriate investments in Canada. We are going to go back and forth on this. We are going to have a constant second-guessing and a constant challenging of these standards.

   It seems to me we ought to recognize that the Baucus bill, as amended, does not ensure that long-held U.S. case law on expropriation is upheld. The Baucus bill allows cases still to be decided against the United States when regulatory or statutory actions result in a partial taking. Such a case would stand on far more tenuous grounds in U.S. courts based on U.S. law and legal precedents.

   My amendment would ensure that foreign companies could use investment dispute mechanisms. We do not say they cannot do it. We honor the concept of NAFTA or any treaty creating a dispute mechanism, but when a Government action causes physical invasion of property or denial of economic use of that process, that should be consistent with U.S. Supreme Court holdings.

   In the Concrete Pipe case which was decided by the Supreme Court in 1993, the Court said:

   Our cases have long established that the mere diminution of a value of property, however serious, is insufficient to demonstrate a taking.

   We should not subvert that holding of the Supreme Court by refusing to embrace in this legislation a recognition of American sovereignty in court procedure.

   I reserve the remainder of my time.

   The PRESIDING OFFICER. Who yields time?

   Mr. GRAMM. Mr. President, I yield myself 10 minutes.

   The PRESIDING OFFICER. The Senator from Montana.

   Mr. BAUCUS. I yield 10 minutes to the Senator from Texas.

   The PRESIDING OFFICER. The Senator from Texas is recognized for 10 minutes.

   Mr. GRAMM. Mr. President, we just heard a wonderful dissertation on the trade equivalent of single-entry bookkeeping. Our dear colleague has talked on and on about investment protections in the United States, but he has not said one word about investment protections in other countries for American investors.

   I want to take a moment to remind my colleagues of a little history that I think is critically important in understanding this issue.

   At the end of World War II, we negotiated a series of treaties known as Friendship, Commerce, and Navigation Treaties. Later, in the 1980s, we began entering into what are known as bilateral investment treaties, and today we have 45 such treaties. In both the FCN treaties and the bilateral investment treaties, we established procedures to protect our investors overseas. These protections, which were modeled on familiar concepts of American law, became the standard for protection of private property and investment around the world. And they made sure that our investors were protected from unfair treatment by foreign nations.

   Why does the business community in America adamantly opposed the Kerry amendment? It is not because of concerns about foreign investor protections here in America. It is because they are concerned about protections for Americans overseas. Investment is a reciprocal process. We negotiated 45 bilateral investment treaties in order to protect American investment from being confiscated by actions of other countries.

   As for foreign investment in America, our colleague argues that billions of dollars will be lost to foreign investors. But he fails to point out that never, ever, have we lost a case since these 45 treaties have been in effect. Not once since chapter 11 of NAFTA has been in effect have we ever lost a case. Not once has there ever been a judgment against the United States of America for failing to protect private property or investments.

   The problem with this amendment is very simple and straightforward. The problem is that we are not talking only about foreign investors in America. We are talking about American investors around the world as well. These investment agreements are reciprocal.

   In countries all over the world, if an investor is a large American company,

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   If we take away the investor protections we have worked for years to establish, if we carve out certain areas where investor protections will not apply, if we narrow the scope of investor protections, we will be leaving American investors vulnerable to actions by foreign governments. And in turn we will be discouraging our businesses from investing around the world. Keep in mind that United States investment abroad helps create a market for American goods, promote capitalism, promote democracy, and do everything else that we in the United States want to see done around the world. It is critically important that that investment be protected.

   Every day these investment treaties protect American investment around the world. Meanwhile, we have never lost a case under these same investment treaties.

   Let me explain further to my colleagues what happens if we do not provide investment protections. American businesses in certain countries often end up being forced to deal with government corruption. Congress passed the Foreign Corruption Practices Act to try to stop such corruption. But under this amendment to lower investor protections, hundreds of billions of dollars of American investment abroad would be jeopardized. We are the largest investor in the world, and these protections are critically important to us.

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