[Congressional Record Volume 162, Number 139 (Wednesday, September 14, 2016)]
[Senate]
[Pages S5723-S5724]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY:
  S. 3323. A bill to improve the Foreign Sovereign Immunities Act of 
1976, and for other purposes; to the Committee on the Judiciary.
  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

[[Page S5724]]

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.
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