Statements on Introduced Bills and Joint Resolutions

Floor Speech

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Mr. GRASSLEY. Mr. President, I have mentioned before that I have been paying attention to foreign state-owned companies' growing investments in American companies and commercial markets. I would like to spend a few minutes discussing that issue today.

It is becoming increasingly clear that foreign state-owned companies are highly involved in international commerce and competing with companies that are privately owned by shareholders, not governments. This trend is part and parcel of globalization. While there are some obvious benefits to globalization, we also need to be aware of the challenges it may bring with it, and I think this is one of those.

To give one example, I have seen this trend at work in the agricultural sector. ChemChina, a Chinese state-owned company, is currently working on a deal to buy the Swiss-based seed company, Syngenta. About a third of Syngenta's revenue comes from North America--meaning the company is heavily involved with American farmers, including Iowans--and that's why I'm interested in the transaction.

I have already been considering the approval aspect of this proposed merger. Senator Stabenow and I asked the Committee on Foreign Investment in the United States to review thoroughly the proposed Syngenta acquisition with the Department of Agriculture's help. We raised the issue because, as I have said before, protecting the safety and integrity of our food system is a national security imperative.

Now there is another aspect of this issue I would like to focus on today. Consider this the flip-side of the approval question. As their involvement in international commerce grows, how can we ensure that foreign state-owned companies are held to the same standards and requirements as their non-state-owned counterparts.

First consider two age-old principles of international law. One is that American courts don't exercise jurisdiction over foreign governments as a matter of comity and respect for equally independent sovereigns. This is called ``foreign sovereign immunity.'' The second is that when foreign governments do in fact enter into commerce and behave like market participants--conducting a state-owned business, for example--they are not entitled to foreign sovereign immunity because they are no longer acting as a sovereign, but rather as a business. In that case they should be treated just like any other market participant. This is called the ``commercial activity exception'' to the principle of foreign sovereign immunity. Congress codified both of these age-old principles in the Foreign Sovereign Immunities Act of 1976.

These principles are well and good, but I am concerned that, in some cases, they may not have their intended effects in today's global marketplace.

Some foreign state-owned companies have recently used the defense of foreign sovereign immunity--the principle that a foreign government can't be sued in American courts--as a litigation tactic to avoid claims by American consumers and companies that non-state-owned foreign companies would have to answer. In some cases, foreign state-owned corporate parent companies have succeeded in escaping Americans' claims. They have done this by arguing that the entity conducted commercial activities only through a particular subsidiary--not a parent company often closer to the foreign sovereign. Unless a plaintiff--which may be an American company or consumer--is able to show complete control of the subsidiary by the parent company, the parent company is able to get out of court before the plaintiffs can even try to make their case.

This results in two problems. First, there's an unequal playing field where state-owned foreign companies benefit from a defense not available to non-state-owned companies. Second, there is an uphill battle for American companies and consumers seeking to sue state-owned entities as opposed to non-state-owned entities. When a foreign state- owned entity raises the defense of foreign sovereign immunity, American companies and consumers don't even get the chance to prove their case.

Consider the example I talked about a few months ago. American plaintiffs brought claims against Chinese manufacturers of much of the drywall used to rebuild the Gulf Coast after Hurricanes Katrina and Rita. The drywall in question was manufactured by two Chinese companies--one owned by a German parent and one owned by a Chinese state-owned parent company.

The court considering these plaintiffs' claims had this to say: ``In stark contrast to the straight forwardness with which the . . . litigation proceeded against the [German] defendants, the litigation against the Chinese entities has taken a different course.'' The German, non-state-owned parent company appeared in court and participated in a bellwether trial where plaintiffs were allowed to try to make out their cases.

The manufacturer with a Chinese state-owned parent ``failed timely to answer or otherwise enter an appearance'' in court--and didn't do so for nearly two years. In fact, it waited until the court had already entered a judgment against it. Only then did the Chinese state-owned company finally appear in court. When it did, it argued, that it was immune from suit in the United States because it was a state-owned company. After approximately 6 years of litigation, it ultimately succeeded in its request for dismissal. In contrast to the German parent company, the plaintiffs didn't have a chance to try to prove up their case against the Chinese parent company merely because it happened to be owned by a foreign government. I think that is a problem.

To address these issues I am proposing a modest fix to the Foreign Sovereign Immunities Act. This change would extend the jurisdiction of United States courts to state-owned corporate affiliates of foreign state-owned companies insofar as their commercial activities are concerned. It wouldn't create any additional substantive causes of action against these foreign state-owned companies. Instead, it would mean only that a foreign state-owned company would have to respond to the claims brought by American companies and consumers, just like any other foreign company that isn't owned by a government.

The fix has two main results--correcting the problems I just mentioned. First, it levels the playing field between foreign state- owned and foreign private companies by making both subject to suit in the United States on the same footing, as the ``commercial activity exception'' originally contemplated. Second, it brings clarity to the sometimes opaque structure of foreign state-owned enterprises and provides American companies and consumers the chance to prove their case against these companies just as against private companies.

In an age when sovereign owned entities, with increasingly complex structures, are interacting with American companies and consumers more than ever it is appropriate to re-examine the ``commercial activity'' exception and to update it. We have to make sure it is working as it was designed and historically understood. ______

By Mr. ALEXANDER (for himself, Ms. Ayotte, Mr. Barrasso, Mr. Cochran, Mr. Johnson, Mr. Kirk, Mr. Perdue, and Mr. Portman):

S. 3326. A bill to give States the authority to provide temporary access to affordable private health insurance options outside of Obamacare exchanges; read the first time.

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