Proposed bar on 'foreign' competition for Penn Pike would kill competition, breach US treaty commitments

There's talk in the legislature in Harrisburg about denying 'foreign' companies the right to bid for a concession on the Pennsylvania Turnpike. That would exclude most of the big bidders!

From what we hear the three big bids are likely to come from:

- Cintra and Macquarie

- Abertis, Deutsche Bank and Babcock & Brown

- Transurban and Goldman Sachs

Except for one half of one of the three (Goldman Sachs) they are all overseas name companies.

Most of these real players in toll concessions in north America are best described as international not foreign. For example Cintra, though headquartered in Madrid Spain is managed mostly out of Austin TX and has the majority of its tollroad assets now located in North America (in Ontario, Illinois, Indiana and Texas), and it has major local investors.

Macquarie with headquarters in Sydney Australia now has its largest investments in north American also - in Virginia, Ontario, Illinois, Indiana and California. It has sold out of most of its Australia toll properties. Its two funds here are about a third American owned and that proportion is growing. Most of Macquarie's tollroad activity now happens out of its offices in New York.

Cofiroute and Autostrade though headquartered in France and Italy respectively have had operations in the US for decades. Transurban headquartered in Melbourne Australia and the largest by far toll operator in that country is also heavily involved in the US, especially in Virginia with commitments on the Capital Beltway, I-95/395, and Richmond Pocahontas Parkway.

Abertis one of the largest European and South American toll operators has a major group here and is moving to merge or acquire Autostrade including its Dulles Virginia operation.

Are these companies more "foreign" than Citigroup with Middle East sovereign funds now owning huge chunks of its equity. State legislators would have great difficulty defining who is "foreign" and who isn't.

Is it where a company has its head offices, the nationality of its investors, where it is registered? Companies can move their offices, change stock holdings by selling or buying shares elsewhere, reregister.

A national company is almost as elusive nowadays as a national automobile. The Ford though an American brand is quite likely to be less made in America from American parts and by American workers than a Honda or a Toyota.

Look at international companies different ways and they look more or less 'foreign.'

US Government supremacy

Foreign investment in any case is a matter for the US Government, not for Harrisburg PA.

Under Article VI of the US Constitution treaties made by the US Government are "supreme law" and the courts will invalidate any conflicting state law.

US-Australia Free Trade Agreement

A United States-Australia Free Trade Agreement (USAFTA) which came into force Jan 1, 2005 clearly prohibits discrimination against Australian companies competing in the United States for government procurements.

A concession on the Pennsylvania Turnpike is clearly a government procurement.

Chapter 15 of the USAFTA defines procurements to include "purchase, rental or lease, with or without an option to buy, build-operate-transfer contracts and public works concession contracts." [Art 15.2 (a)].

The US and Australian governments commit under Article 5 of the USAFTA treaty to ensure that procuring entities such as their state governments comply with the treaty.

The US Government is committed to stopping Pennsylvania or any other state from barring Australian companies from competing on an equal footing. Similarly any US companies competing in Australia have to be treated equally with local Australian companies in procurements there.

The free trade agreement's Article 15.2 under "General Principles and National Treatment and Non-Discrimination" states:

"Each Party (the US and Australia) and its procuring entities shall accord unconditionally to the goods and services of the other Party and to the suppliers of the other Party treatment no less favorable than the most favorable treatment the Party or the procuring entity accords to domestic goods, services and suppliers."

Exclusion of Australia based companies from competition for the Pennsylvania Turnpike concession would contravene this provision of the free trade treaty of 2005.

We've only researched the situation with Australian companies. There are likely similar treaty arrangements with European countries.

The US Constitution in Article VI, Clause 2 states: "... all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding."

Silly even if legal

Even if it were legal it would still be silly to bar 'foreign' companies, even if you contrive to classify an Arab state owned Wall Street name firm as less foreign than a company with head offices in Sydney or Madrid.

Open competition will get the best value and the highest bid for the state. Shareholders are just shareholders wherever they happen to reside. They are subject to concession contracts enforceable in US courts, and to other local law and local taxes. They are motivated by the same motives to get a return on their investment and security for their capital.

No concessionaire can roll up the Turnpike and take it away.

http://www.ustr.gov/Trade_Agreements/Bilateral/Australia_FTA/Final_Text/Section_Index.html

http://www.ustr.gov/assets/Trade_Agreements/Bilateral/Australia_FTA/Final_Text/asset_upload_file339_5160.pdf

TOLLROADSnews 2008-01-15