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Baucus “Chapter 11” Amendment to Senate Trade Bill Highlights Need for Kerry Amendment

May 15, 2002

Baucus “Chapter 11” Amendment to Senate Trade Bill Highlights Need for Kerry Amendment

WASHINGTON, D.C. ? Tuesday?s 98-0 passage of an amendment brought to the Senate floor by Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa) highlights the need for the Kerry “Chapter 11″amendment to the trade package coming later this week, Public Citizen?s Global Trade Watch said.

The Baucus-Grassley amendment provides a technical correction to language concerning the rights provided to foreign investors in so-called investor-state suits, but it fails to correct serious problems with investor rules that threaten state and local authority to enact laws to protect health, safety and the environment.

Corporations are using investor rights contained in the North American Free Trade Agreement?s (NAFTA) Chapter 11 to challenge in closed NAFTA tribunals a variety of national, state and local policies and decisions. Companies claim that these governmental regulatory policies are “tantamount to” an expropriation of private property and therefore they deserve compensation from the taxpayers of the country in which they are investing. An unamended Fast Track bill would extend to new pacts the problematic Chapter 11 investment rules of NAFTA, which have resulted in a string of investor-to-state lawsuits.

“It?s nice they fixed a drafting error by passing the Baucus amendment,” said Lori Wallach, director of Public Citizen?s Global Trade Watch. “Now the Senate needs to pass the Kerry Amendment to start fixing the NAFTA Chapter 11 problem.”

Unlike the amendment sponsored by Sen. John Kerry (D-Mass.), the Baucus-Grassley Amendment does not set the U.S. Constitution as the benchmark for the scope of property rights available to foreign investors in the United States. Instead, it uses the same vague standards employed in previous failed Fast Track bills, requiring that provisions be “consistent with U.S. legal principles and practice.” This is the same standard that led to the investment rules in NAFTA Chapter 11, which has been used to claim that NAFTA grants foreign investors special, preferential treatment over domestic investors. To date, businesses have claimed more than $1.8 billion from U.S. taxpayers on the basis of these special privileges. These challenges could cost up to $32 billion each year in the future if expanded through Fast Track, according to a recent Tufts University study released by Taxpayers for Common Sense.

“The Baucus Amendment was a content-free appetizer to the main course of the upcoming Kerry Amendment, which actually provides some fixes to the NAFTA Chapter 11 problems instead of spreading them to additional deals,” Wallach said.

The Kerry Amendment would repair the investment model of NAFTA. Under the Kerry Amendment, a foreign investor would be required to demonstrate that the policy in question was enacted primarily with discriminatory intent against foreign investors or investments. There is no comparable provision in the Baucus-Grassley Amendment or the underlying Baucus-Grassley trade package, meaning that even non-discriminatory domestic public interest policies (those that treat foreign and domestic investors identically) would continue to face challenges as violations of foreign investors? rights.

Also, under NAFTA Chapter 11, foreign investors may file a claim and seek compensation when regulatory action only partially diminishes the value of their investment, even though such “mere dimunition” claims are not allowed by U.S. courts. The Kerry Amendment is based on U.S. Supreme Court rulings on expropriation in that it would guarantee that future trade agreements improve upon the NAFTA model and restrict such investment protection actions to only those cases where government action causes a physical invasion of property or the denial of all economic or productive use of that property.

In contrast, the Baucus-Grassley Amendment and the underlying Baucus-Grassley trade package fail to set a specific standard for what qualifies as expropriation. Instead of limiting the definition to what is allowed in U.S. law, the Baucus-Grassley language merely requests that negotiators “seek to establish” standards for expropriation that are consistent with “U.S. legal principles.”

Finally, the Kerry Amendment provides a government screen on future investor-to-state cases consistent with NAFTA?s Article 2103.6 for tax claims, and NAFTA Article 1415 for certain financial services measures. This procedure provides for a government review of a private company?s proposed case to ensure against the filing of frivolous suits.