Congressional committee hearings are often interesting, but they are difficult to blog about. The Q & A is the best part, but an official transcript -- which is much more blog-friendly than typing things up as they go along -- doesn't come out for a while. So, that's why I'm just now doing a post about a May 2009 House Ways and Means hearing on investment protection. The transcript is here. Some excerpts:
Negotiating a balancing between investor protection and sovereignty:
Mr. Larson.
… I think the challenge for U.S. negotiators is that in many -- for U.S. foreign investors in other jurisdictions, we want to obtain greater substantive rights for our investors than domestic investors may have in those countries. That is sort of the value of the BIT.We understand, as negotiators, that we would generally want to offer as little as possible, in terms of, you know, the substantive benefits that foreign investors might get under a BIT here. But there is clearly a trade-off between what we want for our investors in some of the jurisdictions, and what we want to give up, in terms of rights for foreign investors in our country.
Investment protection as "exporting Constitutional protections," and finding the right balance
Mr. Brady. … Mr. Posner, you talked about how those improvements have taken what is, at its basics, a way to export our Constitutional protections, and improve even greater upon it over the years. Can you expound? You are always looking for ways to improve provisions in trade agreements. Have we seen improvements, and have they been good for us?
Mr. Posner. Well, I think we have seen improvement, to the extent that you had a debate on the appropriate balance between protecting the interests of U.S. investors seeking to do business overseas, and the so-called defensive interests, taking account of the risk that the United States might be sued with respect to a regulatory action.So, I see where we are today as an improvement over, say, where we were in 1982, in the sense that we have now had that debate and achieved that balance.
The role of competitive investment liberalization:
Ms. Menghetti.
…. Many OECD countries have investment treaties with Korea that have investor-state. If, as was proposed, we took out investor-state from our FTA with Korea, our investors, our businesses, our economy, and our workers would be the worse off.
Mr. Brady. So it is a competitiveness issue, as well?
Ms. Menghetti. Absolutely, it is a competitiveness issue.
Different rules for different countries, different rules for different entities
Mr. Doggett. …So, the first question that has to be asked, I think -- and I don't believe that USTR has had any real set of guidelines about how to do this -- is whether you need any investment agreement or not, or whether, as we determined with Australia, that their courts are adequate to handle this.There is, for an example, the decision to include investor panels for Korea. There is a body of case law in this country on forum non conveniens that Korea provides, through its judicial system, an adequate forum. And, therefore, cases have been dismissed that would be brought here, because it's maintained that Korea, through its court system, provides an adequate system. Now, if I were a trade lawyer, and I had the choice of going to a Korean court or going to a panel of other trade lawyers who that day, instead of being advocates, were arbitrators, I think I would clearly prefer the arbitrator panel. But that doesn't mean that's what is in the best interest of the American public.…And the fact that the United States has yet to have a ruling against it, I think has to be considered against the backdrop of the fact that the trade lawyers who are the arbitrators in these panels are well aware of what the impact would be if the United States did lose a major decision.
Ms. Lee. …If you look at the trade agreements, investors have a privilege that no other group -- not a union, not a non-governmental organization -- has, to challenge whether the other party to the agreement is living up to its obligations or not. We have talked a lot about whether unions, for example, should have the right to sue another government if it is not in compliance with a labor chapter, and whether we would have the opportunity to bypass our own government, so that we wouldn't have to convince our government to bring that case. Everything but the investment language in the trade agreement is adjudicated on a government-to-government basis. I think it creates a huge imbalance in the trade agreements, certainly, if you give one group, private investors, the right to sue. Even in the context of the bilateral investment treaties, it creates an imbalance between private companies and governments. Governments have an obligation to protect the interests of their citizens. They have a democratic process for determining the level of regulation, whether it's public health or the environment.
Bailouts and the prudential exception
Dr. McDermott. And that same thing, then, could be happening with our bail-out money to banks. If there is some creative lawyers in some countries, we may wind up, our $700 billion bail-out of our banks -- Mr. Stumberg?
Ms. Menghetti. I think that's not the case. I mean, in 2004, one of the very big innovations put into our model BIT was this prudential carve-out--that governments have the right to take measures, precisely financial measures, if they need to, for prudential reasons.The bail-out that we have seen, the TARP, has not been discriminatory. I don't see any allegation that it has come close to violating anything our government has committed to.
Mr. Stumberg. The question about the prudential carve-out was raised in Ambassador Kirk's confirmation hearing. It's a two-sentence exception. The first sentence says nothing in the agreement should stop a government from taking prudential measures. The second sentence says that governments may not take advantage of the exception, if to do so would avoid their obligations under the agreement. It appears to be self-canceling. Or, perhaps it creates a burden of proof in favor of the investor and against the government. That is the kind of question I am trying to raise to your attention, where I am not arguing that there shouldn't be investor protections. I am saying that these are very complex agreements. We learn as we go. And every time we anticipate a new factual scenario, we should take advantage of it. We should be prudent and manage future risk, and do things like tighten the screws on that prudential exception.
Recent refinements in expropriation and minimum treatment standards
Dr. McDermott. ….So, I want a system of trade agreements that does not trump the common good, whether it is in Honduras or the United States. And I would like to hear from you what you think we ought to do with this issue.
Mr. Stumberg. Let me limit my answer to the two most important investor protections. Recall earlier what you were talking about America's defense team and the offense team. The defense team is a crack squad of lawyers at the U.S. State Department, and they successfully defended the California measures in the Methanex case, which we should all celebrate.… They won the Methanex case, and they got the arbitrators to adopt the following one-sentence conclusion about the scope of expropriation. May I read it to you? I am proposing this as yet a further improvement. "As a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process, and which affects the foreign investor, is not deemed an expropriation.'' That is more protective of the public interest than even the crafted language that Mr. Posner was talking about before. I would submit that idea as the best the State Department's lawyers have accomplished: it is the high water mark of clarity in an arbitral decision. And then, with respect to the other investment protection, the minimum standard of treatment, the so-called substantive due process issue, the brief of the State Department's lawyers in the Glamis case is a masterpiece. Unfortunately, it is a long masterpiece. But if you look at page 221, you will see that --
Chairman Levin. It is long.
Mr. Stumberg. You will see that definition --
Dr. McDermott. I will have my staff write down, "221".
Mr. Stumberg. And I will leave it for you. The customary international law treatment of aliens, which the State Department lawyers have, in scholarly fashion, illuminated in a way that is a logical, tight and unambiguous definition. It is tighter, more clear, and less risky than even the improved language in the draft Panama and Korea -- free trade agreements.So, I would submit page 221 of the brief of the State Department is the United States government's lawyers' best guidance on how to clarify this investor protection.
