Washington, DC — Ways and Means Trade Subcommittee Ranking Member Kevin Brady (R-TX) today testified at a joint hearing held by the U.S. State Department and U.S. Trade Representative on U.S. investment policy and the language in the U.S. Model Bilateral Investment Treaty.  His full remarks are provided below.

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Thank you, Mr. Scholz and Mr. Kallmer, for the opportunity to testify at this joint State Department, U.S. Trade Representative hearing on U.S. investment policy. 

The House Ways & Means Trade Subcommittee, on which I serve as the Ranking Member, held a hearing on May 14, 2009, where our Subcommittee looked into U.S. investment policy and examined language in our model Bilateral Investment Treaty (BIT) and other investment instruments.  I ask that my opening statement from that Congressional hearing be made part of the official record of your review.  My testimony today will build on those remarks.   

Let me begin by saying that I believe our BITs and trade agreements right now strike an appropriate balance between protecting U.S. investment abroad and not impinging on the ability of our regulators to protect the public interest.  Furthermore, in the current economic environment, and with negotiations with major emerging destinations for U.S. investment pending, now is without question not the time to weaken these protections for our workers and companies abroad.  

As your review proceeds, I urge you to recognize that U.S. foreign investment abroad provides a critical boost to the U.S. economy.  In fact, increasing trade and investment is the most potent medicine for the current ills afflicting the international economy.  Investment protections in our BITs and trade agreements protect U.S. investment abroad and allow our workers and companies to “Sell American.”  U.S. foreign investment in developing countries helps to reduce poverty, increase living standards, and ultimately, create new markets for all U.S. exporters.  Making sure our companies have access to these foreign markets—either directly through investment, or indirectly through exports—will help America and the rest of the world to emerge from the global financial crisis.   

Furthermore, American investment abroad makes American companies, and their employees, stronger.  According to our Commerce Department, U.S. companies that have foreign operations employ twice as many U.S. workers as they do foreign workers.  Commerce Department data also indicate that 95% of the sales of the foreign affiliates of U.S. companies are made in the host or third-country jurisdiction, which means that foreign presence, does not substitute for U.S. production in the U.S. market.  Economic studies show that foreign-invested U.S. companies spend more capital in the United States than U.S. companies that are not engaged globally.  Studies also show that globally engaged companies pay their U.S. workers more than companies without foreign operations. 

I believe that our investment protections should balance two different U.S. interests:  those of U.S. investors abroad and those of U.S. regulators here.   Investment protections are necessary to shield U.S. investments from expropriation without compensation, as well as from discriminatory and inequitable treatment by foreign governments.  But strengthening these provisions for U.S. investors abroad does not necessarily mean that U.S. regulators will have diminished latitude to regulate for the environmental or other public interests here within our own borders.

A close look at our win-loss record in investment litigation proves my point.  The United States has been perfect in defending investor-state arbitrations under NAFTA, and we’ve never had to defend a case under a BIT or other trade agreement.  The State Department recently won a complete victory in the Glamis Gold NAFTA arbitration, which involved Department of the Interior and State of California pronouncements regarding backfilling and grading for mining operations in the vicinity of Native American sacred sites.  In that case—like all that preceded it—the investment language in NAFTA interfered with neither the regulators’ objective nor the claimed public interest.

Moreover, when one of our trading partners claims an environmental or other public interest, that interest has been held sacrosanct even when we win the arbitrations that our companies bring.  In the Metalclad case in 2000, a municipality in Mexico prohibited a U.S. waste disposal company from opening and operating a hazardous waste facility, even though the company had reportedly obtained all the required federal permits and conducted environmental impact assessments demonstrating that the facility would reduce waste and not harm the environment.  The U.S. company won the arbitration, was remunerated for its losses, and the facility was never built.  In other words, the claimed environmental interest was left fully intact, even when the foreign government “lost.”

It seems to me that U.S. regulators have a strong deal already, and that the existing current investment provisions—in their current form—accommodate and protect environmental interests here in the United States and in the rest of the world.   Accordingly, I believe that it would be unwise to alter the current compromise reflected in the model BIT in a way that would weaken the protections for U.S. investors.  It is critical to remember that the current language in our BITs and FTA investment chapters reflects textual changes that were made in 2004 and that these changes likely address much, if not all, of the criticism that this Subcommittee may be hearing in its deliberations.  Congress also made changes to U.S. investment policy as part of the May 10th Agreement with the Administration. 

Indeed, there is a strong case to be made that we actually need to expand our use of investment agreements and perhaps even strengthen their protections for our investors overseas.  The rest of the world is ahead of us, as other major countries have a much more extensive BIT network than we do.  At the beginning of 2009, there were over 2,600 international investment instruments.  Of these, the United States is party to fewer than 50.  China, South Korea, Germany, the U.K., Italy, and France have all signed more than twice the number of BITs than the United States has.  Moreover, in many instances, these countries’ BITs provide more robust protections for foreign company investment than the U.S. BITs do for U.S. investors abroad.   Implementing the pending trade agreements with Colombia, Panama, and South Korea would be an important step toward ensuring that our own investors are on an equal footing with their foreign competitors in these three strategic markets.

Finally, if unilaterally disarming our investment policy could ever be in the U.S. interest, there are compelling reasons that absolutely counsel against doing it now.  We have pending BIT negotiations with several countries, including China and India, two critical emerging destinations for U.S. trade and investment.  The State Department and USTR should go into those negotiations with the strongest possible hand.
 
Thank you for the opportunity to provide my views today.