Water Resources Development Act of 2016

Floor Speech

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Mr. GRASSLEY. Mr. President, I have been to the floor several times to call attention to foreign state-owned companies' growing investments in American companies and commercial markets. I come to the Senate floor to discuss this further with my colleagues.

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 with nothing to do with any government. 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 them.

To give an example, I have seen this trend at work in the agricultural sector of our economy. ChemChina, a Chinese state-owned company, is currently working on a deal to buy the Swiss-based seed company Syngenta. About one-third of Syngenta's revenue comes from North America--meaning the company is heavily involved with American farmers, including Iowans--and that is why I am interested in this 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 have raised the issue because, as I have said before, protecting the safety and integrity of our food system is a national security imperative as well as an economic issue.

There is another aspect of this issue I would like to focus on. I would like to consider 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 the same requirements as their non-state-owned counterparts or companies that are in the private sector?

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 countries. Each is sovereign. This is called the foreign sovereign immunity. The second is that when foreign governments do in fact enter into commerce and then 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 acting like any 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 Immunity Act of 1976. All of 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 even have a chance to make their case.

This results in two problems. First, there is an unequal playing field, where state-owned companies benefit from a defense not available to a non-state-owned company. 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 as well as American consumers don't even get a chance to prove their cases.

Consider the example I talked about a few months ago. American plaintiffs brought claims against Chinese manufacturers for 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 straightforwardness 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 their cases.

The manufacturer of the Chinese state-owned parent ``failed timely to answer or otherwise enter an appearance'' in court and didn't do so for a long period of time of at least 2 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 that company did appear, it argued 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 their case against the Chinese parent company merely because it happened to be owned by a foreign government. That is a great big problem.

To address these issues, I am proposing a very modest fix to the Foreign Sovereign Immunities Act. This change would extend the jurisdiction of the U.S. courts to state-owned corporate affiliates of foreign state-owned companies insofar as their commercial activities are concerned and only as far 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 both American companies and American consumers, just like any other foreign company that isn't owned by a government.

This 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 structures of foreign state-owned enterprises and provides American companies and American consumers the chance to prove their case against these companies just as they would have that opportunity against any private company.

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

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