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Joint Business Coalition Letter on Investment Dispute
Settlement
October 15,
2001
The Honorable Max Baucus
Chairman
Committee
on Finance
U.S. Senate
219 Dirksen Senate Office
Building
Washington, D.C. 20510
Dear Mr.
Chairman:
We are writing to underscore the importance
of foreign investment to the U.S. economy and to affirm our
support for strong substantive standards modeled after the
protections accorded under U.S. law and effective
investor-to-state dispute settlement provisions.
We firmly believe that the approach that the United States has
taken in our 45 bilateral investment treaties (BITs) and
Chapter 11 of the NAFTA should be pursued in our negotiations
with our trading partners in Latin America, the Caribbean and
the rest of the world.
Foreign investment by U.S.
companies plays a vital role in promoting the health and
dynamism of the U.S. economy.
-- U.S. companies with
global operations export more, expend more on research and
development and physical capital investments in the United
States and pay their U.S. workers more than companies not
engaged globally.
-- Since 1977, U.S. companies
that invested abroad have accounted for one-half to
three-quarters of all U.S. exports. Over 40
percent of large company exports go to their foreign
affiliates. The figure is 20 percent for small
companies.
-- The sales of U.S. affiliates abroad
exceed $2.4 trillion and help support jobs and business
activities in the United States. More than 70 percent of
the profits earned by these affiliates are returned to the
United States.
Each of the substantive protections and
the investor-to-state dispute settlement provisions contained
in the U.S. BITs and NAFTA Chapter 11 are critical to promote
and protect continued investment abroad. The legal and
judicial systems in many foreign countries are not as
developed as in the United States. Without strong
substantive standards and a workable investor-to-state dispute
settlement system in international agreements, U.S. investors
abroad will face a host of arbitrary, unfair and
discriminatory actions and local courts that are in many cases
corrupt or inadequate to provide the protection readily
available under U.S. law.
Since foreign investors in
the United States already enjoy the strong legal protections
contained in U.S. law, lowering investment protections will
only really hurt U.S. investors abroad. Further, our
European and other competitors, whose approximately 1800 BITs
contain virtually the same language as ours on investor
protection and investor-to-state, will gain a competitive
advantage in overseas markets if the protections for U.S.
investors are lowered.
These investor protections and
the investor-to-state dispute settlement mechanism have served
U.S. interests well over the years and, contrary to some
suggestions, the cases that have actually been decided under
NAFTA Chapter 11 and our BITs are consistent with U.S. legal
principles and the principles underlying those
agreements. It is also important to emphasize that
investment tribunals under NAFTA Chapter 11 and BITs have
no authority or ability to modify or eliminate any
country’s environmental, health, safety or other
laws.
We welcome your support for pursuing strong
investment protections in our trade and investment
agreements. We also support greater transparency in the
investor-to-state dispute settlement process. Your
suggestions for public access to briefs (excluding proprietary
information) and, to the extent practical, opening the
hearings to the public will go a long way to create greater
understanding of the issues and the process.
We are
concerned, however, by certain proposals that would weaken
those investor protections that the United States and the U.S.
business community have fought hard to achieve over the
years. Specifically:
-- Narrowing the
expropriation standard to limit compensation only for direct
takings (i.e., when the government physically takes
title to an investor’s property) through the adoption of
language that would exclude from protection or treat
differently indirect expropriations, measures “tantamount” to
expropriation, or measures only involving a “mere diminution
of value.” Adoption of any of these formulations
will create a two-tiered system providing lower protections
for U.S. investors abroad. Foreign investors in the
United States will continue to benefit from the broader U.S.
constitutional law standard, that requires compensation for
both direct and indirect (i.e., regulatory) as the
Supreme Court has found in case after case since 1922.
U.S. investors, on the other hand, will be vulnerable to
interference by foreign governments which, in the context of
modern and sophisticated international commercial relations,
may significantly impair the value of their investments in
diverse ways not necessarily limited to direct taking of
title.
-- Creating unnecessary and potentially harmful
exceptions from the basic protections of fairness and equal
treatment for environmental, health and safety laws. The
investment protections in U.S. international agreements
subject all laws and government action to the same basic
protections that are applied in the United States. These
rules do not prohibit bona fide, nondiscriminatory application
of legitimate regulation. Therefore, establishing
special exceptions for certain laws or actions is simply
unnecessary and will likely lead to mischief, as some foreign
governments will take advantage of this “safe harbor” to
shield unfair and arbitrary actions.
-- Politicizing
investor-to-state disputes and creating unnecessary delays in
their resolution by requiring investors to gain approval (or
no action) by the investor’s home country before proceeding
with a claim. Investors must already wait six months before
they file a claim. The proposed standard adds an
unnecessary hurdle that will allow political, not legal,
considerations to determine whether U.S. investors abroad can
seek adequate remedies. In addition, the U.S. Government
may be placed in an awkward diplomatic situation by having to
approve, explicitly or implicitly, claims that U.S. investors
intend to file against foreign governments. Again,
foreign investors in the United States will not be constrained
since they can use U.S. courts to pursue remedies under the
same substantive standards. If this type of
provision is motivated by a desire to reduce frivolous claims,
we believe that this objective could be achieved far more
effectively by an independent and non-politicized claims
registration process or by a mechanism to dismiss frivolous
claims early in the process.
We hope you will find
these comments helpful as you move forward in the debate on
investment issues in Trade Promotion Authority. We would
be glad to meet with you or your staff to discuss these issues
in greater detail.
Sincerely,
Thomas
Niles
President
U.S. Council for International
Business
Calman Cohen
President
Emergency
Committee for American Trade
William Reinsch
President
National Foreign Trade Council
Jerry
Jasinowski
President
National Association of
Manufacturers
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