By Gary Clyde Hufbauer and Nicholas K. Mitrokostas, Institute For International Economics, July 2003

The Alien Tort Statute (ATS) of 1789, which allows foreign plaintiffs to use US courts to attack alleged wrongs occurring outside the United States, is becoming a major threat to world trade and investment. Existing and potential class action lawsuits under ATS could disrupt over 300,000 jobs in the United States and 2 million jobs in other countries, destroy over $300 billion in global trade and investment, and reduce world economic output by $70 billion. Moreover, the history of economic sanctions suggests that ATS cases would be unlikely to improve social conditions in targeted countries. Hence Congress needs to pass new legislation to clarify and limit the scope of the ATS.

Awakening Monster: The Alien Tort Statute of 1789 foresees a nightmare scenario if Congress does not enact remedial legislation. While US circuit courts have yet to pass final judgment in a corporate case, firms doing business in countries that account for 5 billion people (including India and China) and half the world economy are potential targets.

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Within the next decade, 100,000 class action Chinese plaintiffs, organized by New York trial lawyers, could sue General Motors, Toyota, General Electric, Mitsubishi, and a host of other blue-chip corporations in a US federal court for abetting China’s denial of political rights, for observing China’s restrictions on trade unions, and for impairing the Chinese environment. These plaintiffs might claim actual damages of $6 billion and punitive damages of $20 billion. Similar blockbuster cases are already working their way through federal and state court systems.

This nightmare scenario could become a reality because of a little-known, one-sentence law enacted in 1789—the Alien Tort Statute (ATS): "The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States."

In this policy analysis, Gary Clyde Hufbauer and Nicholas K. Mitrokostas examine the chilling impact the ATS could have on trade and foreign direct investment. They trace its history from the original intent to recent court interpretations, including a look at class action suits over asbestos and apartheid. They provide an economic picture of the potential scope of ATS litigation, cite the possible collateral damage, and review the impact that ATS rulings could have on global relations.

The authors recommend measures Congress should take to limit expansive court interpretations. The study is a must-read for policymakers, international lawyers, and students.

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