Thank you for the opportunity to appear before you on behalf of the Emergency Committee for American Trade – ECAT – an association of the chief executives of leading U.S. business enterprises with global operations.  ECAT is a strong supporter of the U.S. Model BIT.  We believe it that the Model BIT advances U.S. interests both at home and abroad for our economy and our broader national interests.   At the same time, we believe that the 2004 Model BIT can be modified in several substantial ways to improve its ability to protect U.S. investments, provide strong enforcement tools and close the gap with our competitors who benefit from stronger BITs negotiated by their home governments. 

              Let us make no mistake.  U.S. investment overseas is squarely in America’s economic and broader national interest.  With 95 percent of the world's consumers and 80 percent of world purchasing power OUTSIDE the United States, U.S. industries need to be fully engaged internationally to remain competitive and sustain U.S. jobs. U.S. investment overseas largely complements U.S. economic activities and operations; it is NOT a substitute for them. 

In order to secure these benefits, the United States has long undertaken a program to protect investors who often find themselves in jurisdictions with weak rules and/or weak courts.  The modern version of this program is the BIT and trade agreement system. 

            The investment protections in these instruments are based in substantial part on core principles of U.S. law, from the Takings, Equal Protection, and Due Process Clauses of the Constitution to the protection against arbitrary and capricious government action in the Administrative Procedure Act.  In this manner, BITs help advance American notions of justice and the rule of law on a global basis.  

U.S. investors have relied upon these provisions to successfully address foreign governmental action that is discriminatory, expropriatory or otherwise violative of core principles. They have won cases under a number of U.S. BITs, including with Argentina, Ecuador, Poland, and Turkey and under the NAFTA in cases involving Canada and Mexico.  Such provisions are now more important than ever, as some countries, particularly in our own hemisphere, appear to be turning their backs on basic international obligations and rules of fairness.  In many more instances, cases are never filed as the clear investment rules promote the amicable resolution of disputes. 

The United States has itself been a defendant in a relatively small number of cases. Where decisions have been issued, the United States has thus far prevailed on the merits in decisions that reflect the high standards for which arbitration panels are well known.  The cases that we have reviewed, including all the cases in which the United States has been involved, have produced results wholly consistent with U.S. property, Due Process and similar U.S. standards.  Furthermore, none of those decisions have limited the ability of the United States to regulate in the public interest.

            Between 2001 and 2004, the U.S. government engaged in an extensive review of the previous 1996 Model BIT and considered the same issues raised here today. The outcome – the 2004 Model BIT – represented a substantial change from the earlier model and narrowed some protections for U.S. investors overseas.

            As you undertake your review of the 2004 Model BIT, ECAT believes that it can be strengthened in several ways.  I will outline just two proposals today and submit additional proposals with my written submission on Friday:

• First, the Model BIT should be revised to strengthen the provisions on fair and equitable treatment, full protection and security and compensation for expropriation by requiring such treatment without linking it to customary international law.  The linkage to customary international law, which was added in 2004, provides a minimal level of protection, lower than provided under U.S. law and the BITs of most other capital exporting nations.  The core protections should be provided for, in addition to the separate treatment in accordance with customary international law.

• Second, the fair and equitable treatment standard should be modified to clarify that both procedural and equity protections are covered by this obligation.  One option would be to provide greater clarity as to the fair and equitable standard, by referencing, in addition to the current language, such U.S. legal concepts as the Administrative Procedure Act’s prohibition against government action that is “arbitrary, capricious, an abuse of discretion” and Constitutional substantive due process protections against arbitrary or bad faith government actions.  

As this review continues, ECAT also urges you to refrain from adopting exceptions to core obligations or further limiting protections.  Proposals to embrace blanket exceptions for governmental actions to protect the environment or the public welfare are simply inappropriate for a BIT.  The United States itself does NOT maintain such exceptions from the Administrative Procedure Act or the Takings or Equal Protection Clauses or the Fifth and Fourteenth Amendments of the Constitution. Creating such an exception in our treaties would create an unacceptable “safe harbor,” that would allow foreign governments to expropriate U.S. property – including intellectual property – with impunity, to the detriment of U.S. companies and their U.S. workers. The green jobs that we have and hope to create more of here in the United States will be at risk if such exceptions are included.   

Further incorporating the “no greater rights” language, for example, would reverse several decades of U.S. support for strong and binding international rules that largely benefit the United States and its investors. Such an approach would have little effect on challenges to the United States, since these investment protections are already largely consistent with U.S. laws and jurisprudence.  While the benefit for the United States as a potential defendant is at best minimal, the risk for U.S. companies is great.  Other countries will insist on relegating U.S. investors to local standards, negating the purpose of BITs and subjecting U.S. interests to weak, underdeveloped and possibly corrupt legal systems. 

            Finally with regard to capital controls, the overwhelming consensus of economists is that encouraging capital controls would be devastating both for U.S. investors abroad and for the domestic markets in which capital controls are implemented.  Evidence from a number of countries indicates that capital controls have also been misused by foreign governments in ways that promote the misallocation of resources.  This issue was carefully debated in the development of the 2004 Model BIT.  There is no reason to reopen the debate now.  Article 7, which provides that each party “shall permit all transfers relating to a covered investment to be made freely and without delay into and out of its territory,” appropriately reflects the fact that capital controls generally increase the risk that investors face and discourage foreign investment flows that BITs are designed to facilitate.  Additionally, Article 7 already recognizes that a government may impose certain limitations on the right to transfer investment returns, such as when the government applies its bankruptcy, securities trading, or criminal laws, so long as the laws are equitable, non-discriminatory and applied in good faith.  In addition, Article 20.1 provides governments the ability to take measures that would otherwise be contrary to the BIT for prudential reasons.  Additional flexibility is simply not needed. 

            With regard to proposals to require the exhaustion of local remedies, this approach should also be rejected.  It would have us turn back to the future to a 19^th century Calvo-like approach where U.S. investors are only accorded the basic rights of the foreign legal system, not the international norms that BITs set forth. 

            One of the most troubling facts U.S. companies face around the world is that our government has negotiated far fewer BITS or trade agreements with investment chapters than those of our trading partners.  As a result, U.S. companies face a competitive disadvantage in countries from China to India and beyond.  ECAT urges you to complete the Model BIT review expeditiously and to move forward and successfully complete negotiations with key countries

U.S. leadership is essential to promote a stronger international investment climate that will benefit the U.S. economy, U.S. industry and U.S. workers.  ECAT looks forward to working with the Administration to advance that goal.