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Opening Statement of Ranking Member Kevin Brady

May 14, 2009
(Remarks as Prepared)

Thank you, Chairman Levin, for calling this hearing on investment.  A hearing is exactly what we need on this topic.  There is so much mis-information out there about the investment protections in our BITs and our trade agreements.  The myths abound because the investor-state mechanism is just so easy to demagogue, and, unfortunately, there will always be people who reflexively oppose trade.  This hearing, however, is an opportunity to shine light on the facts and to set the record straight.  

First of all—and perhaps most importantly—we don’t need to fear foreign investment.  According to our Commerce Department, U.S. companies that have foreign operations employ twice as many U.S. workers than they do foreign workers.  Furthermore, 95 percent of the goods and services produced by these companies abroad are sold not in the U.S. market, but rather in the host or third-country jurisdictions.   Much has been made of “Buy America” recently, but U.S. investment abroad allows us to “Sell America,” which is what it will take for the United States to lead the world out of this global economic crisis.    

The following point is perhaps already evident, but it needs to be highlighted:   The United States is the party insisting on legal and procedural protections for outbound U.S. investment.  The U.S. BITs and the investment chapters in our bilateral and regional FTAs benefit our guys.  We demand these provisions because they safeguard U.S. investments in foreign countries by shielding the investments from expropriation without compensation, as well as from discriminatory and inequitable treatment by foreign governments.  Put another way, the core purpose of these legal instruments is to raise the level of investment and property rights protections in foreign jurisdictions to the level of protection that already exists in the United States.  

The investor-state mechanism is designed to accomplish the same fundamental goal.  It’s meant to raise for U.S. investors abroad the level of protection—in this case dispute settlement due process rights—that exists for the equal benefit of domestic and foreign investors in the United States.  In fact, the investor-state mechanism is often credited with helping to instill the rule of law in developing countries.  In a sense, the investor-state mechanism allows the United States to export its Constitutional procedural due process standards to our trading partners.   I have no problem with that.

I’m sure we’ll hear today that the investor-state mechanism exposes the United States to an endless stream of costly, frivolous, and invasive arbitrations brought by foreigners.  Well, I’ve looked into the allegation.   Here’s what my research turned up:  The investor-state mechanism has existed in U.S. BITs since the very first ones that we entered into in the early 1980s.  It’s been around for a quarter-century and it’s never been used against the United States.  We’ve never been forced to defend a single law, regulation, or administrative action in a BIT investor-state dispute.  In the handful of cases that foreign investors have brought under NAFTA, we have not, to date, lost or settled on unfavorable terms a single case.

You don’t need to take my word for it.  Consider this excerpt from the summer 2008 issue of the Harvard Journal on Legislation.  And I quote:  “[T]he United States has never lost a single dollar in an ‘investor-state’ dispute under NAFTA, or under any other trade agreement or bilateral investment treaty.”  The author?  Ways and Means Chairman Charles Rangel. 

The last point I’ll make is that the provision in U.S. BITs and the investment chapters of our FTAs have evolved over the years.   I am eager to hear the testimony on this point because the evolution of the provisions, it seems to me, has been in direct response to the criticism raised.  Changes and clarifications that were made to our investment language include:

• provisions to require that panels consider the same U.S. Supreme Court factors that U.S. courts consider when determining whether there has been an expropriation of property;

• provisions to allow panels to dismiss frivolous claims at an early stage of the proceedings; and

• provisions that clarify that environmental and other public welfare regulations are presumed not to constitute indirect expropriations. 

Furthermore, the landmark May 10th deal added language to Peru and our pending FTAs with Colombia, Panama, and South Korea that foreign investors are not accorded “greater substantive rights with respect to investment protections than domestic investors under domestic law” in the United States.   These changes, taken together, strike me as a compromise that aims for the right balance between the interests of U.S. regulators, on the one hand, and U.S. investment abroad, on the other.

I welcome all the witnesses and I look forward to your testimony.   Mr. Chairman, I yield back.