Congressional Hearings
PRESIDENT'S 2018 TRADE POLICY AGENDA
Congressional Hearings
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| AUTHORITYID | CHAMBER | TYPE | COMMITTEENAME |
|---|---|---|---|
| ssfi00 | S | S | Committee on Finance |
[Senate Hearing 115-618]
[From the U.S. Government Publishing Office]
S. Hrg. 115-618
PRESIDENT'S 2018 TRADE POLICY AGENDA
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
MARCH 22, 2018
__________
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COMMITTEE ON FINANCE
ORRIN G. HATCH, Utah, Chairman
CHUCK GRASSLEY, Iowa RON WYDEN, Oregon
MIKE CRAPO, Idaho DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming BILL NELSON, Florida
JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia SHERROD BROWN, Ohio
ROB PORTMAN, Ohio MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina CLAIRE McCASKILL, Missouri
BILL CASSIDY, Louisiana SHELDON WHITEHOUSE, Rhode Island
A. Jay Khosla, Staff Director
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 3
ADMINISTRATION WITNESS
Lighthizer, Hon. Robert E., United States Trade Representative,
Executive Office of the President, Washington, DC.............. 4
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Hatch, Hon. Orrin G.:
Opening statement............................................ 1
Prepared statement........................................... 47
Lighthizer, Hon. Robert E.:
Testimony.................................................... 4
Prepared statement........................................... 48
Responses to questions from committee members................ 49
Wyden, Hon. Ron:
Opening statement............................................ 3
Prepared statement........................................... 84
Communications
American Farm Bureau Federation.................................. 85
Center for Fiscal Equity......................................... 86
Learning Resources, Inc.......................................... 88
(iii)
PRESIDENT'S 2018 TRADE POLICY AGENDA
----------
THURSDAY, MARCH 22, 2018
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10 a.m.,
in room SD-215, Dirksen Senate Office Building, Hon. Orrin G.
Hatch (chairman of the committee) presiding.
Present: Senators Grassley, Crapo, Roberts, Cornyn, Thune,
Isakson, Portman, Toomey, Heller, Scott, Cassidy, Wyden,
Stabenow, Cantwell, Nelson, Menendez, Carper, Cardin, Brown,
Bennet, Casey, Warner, McCaskill, and Whitehouse.
Also present: Republican staff: Jay Khosla, Staff Director;
Brian Bombassaro, International Trade Counsel; Rory Heslington,
Professional Staff Member; Douglas Peterson, International
Trade Counsel; and Shane Warren, Chief International Trade
Counsel. Democratic staff: Elissa Alben, Senior Trade and
Competitiveness Counsel; and Greta Peisch, International Trade
Counsel.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
UTAH, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The committee will come to order.
Good morning and welcome to today's hearing, during which
we will discuss our Nation's trade policy agenda. I want to
thank Ambassador Lighthizer for being here today and taking his
very important time to be with us. He was last before this
committee in June of last year, and the trade agenda looks
quite different now than it did then.
Let us start with the North American Free Trade Agreement.
Negotiations with Canada and Mexico began on August 16, 2017.
Since then, we have seen good progress toward modernizing the
agreement. In particular, I want to congratulate you on closing
a strong chapter on SPS measures that would benefit American
farmers and ranchers. But many crucial issues must be addressed
before the negotiations can be brought to a successful
conclusion.
Your first priority, in my opinion, should be strengthening
protections for America's creators and innovators and, in
particular, strengthening copyright protection and enforcement
provisions and creating disciplines to ensure that regulation
does not undermine the market value of patented products. It is
essential that any agreement reached be fully enforceable
through state-to-state and investor-state dispute settlement,
and that market access gains, including in government
procurement, are not weakened.
It is also important that you keep in mind that an updated
NAFTA must be passed by Congress. That means that you must
adhere to the negotiating objectives set out in the Trade
Promotion Authority law passed in 2015 and that you deliver an
agreement that will be supported by members who favor expanding
trade with Canada and Mexico. There is no other viable path to
enact a modernized NAFTA.
Now, I want to change the subject a bit. And next up, I
have to discuss what I consider to be a significant step in the
wrong direction: the administration's imposition of steel and
aluminum tariffs.
I am deeply disappointed in the decision to impose global
tariffs to address a problem caused by China. Tariffs are
taxes, and so I am concerned about the harm that this action
will impose on American manufacturers and families. And I am
astonished at the process--or in reality, the lack thereof--for
implementing the tariffs so far.
Ambassador Lighthizer, you have been tasked with working
with our trading partners on exemptions from the new tariffs.
These tariffs are slated to take effect about 14 hours from
now. There is no clarity on country exemptions. And the
recently announced process for product exclusions is prolonged
and unnecessarily cumbersome. As such, I am hoping that you can
make clear what is happening on this front today.
Let me turn now to an issue that is squarely within your
responsibility. I am deeply concerned about Chinese
mercantilist policies that disadvantage U.S. companies,
restrict U.S. exports and investment, and harm American
workers. From the beginning of your tenure, you have identified
Chinese theft of trade secrets and the forced transfer of
American technology as significant problems that must be
addressed. That is why I supported and continue to support
USTR's section 301 investigation.
But as you know, my continued support is contingent on the
President choosing an appropriate remedy. That remedy should be
targeted specifically at the perpetrators and beneficiaries of
China's actions, and it must be part of the strategy to correct
China's technology policies. Now, I really look forward to your
comments on this.
Finally, I welcome the administration's decision to seek a
renewal of Trade Promotion Authority. I particularly welcome
the President's announcement that he would use an extension of
TPA to aggressively negotiate new trade agreements.
I intend to use the extension process to get further
details on your plan of expanding opportunities for American
businesses overseas through new and ongoing negotiations and to
emphasize that these negotiations must be conducted consistent
with the objectives set out in TPA.
And I welcome any comments you have to offer on that today.
[The prepared statement of Chairman Hatch appears in the
appendix.]
The Chairman. So with that, Senator Wyden, please go ahead
with your statement.
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman. I also
want to welcome Ambassador Lighthizer and look forward to
hearing from him.
Colleagues, anybody reading the trade policy news on the
business pages now probably suffers from a nasty case of
whiplash trying to decipher all that news. It is hard to
identify a coherent strategy that will help American workers,
businesses, and farmers when the dust settles.
Since the summer, the administration has been engaged in
negotiations with Canada and Mexico to update NAFTA, a project
that is exceptionally important to our workers and the American
economy. However, these talks are routinely broadsided by
tweets from the President on subjects like the fantasy of
Mexico paying for a border wall. It creates chaos, threatens to
derail the discussions, and, at the very least, distracts from
the important issues.
A decision with respect to steel and aluminum action was
delayed for months as a result of political maneuvering. But
then, in a meeting that was billed as a listening session, the
President blurted out his plans to impose a 25-percent tariff
on steel imports and a 10-percent tariff on aluminum.
What followed was more of the same: chaos. Lobbyists
descended on Washington to get special carve-outs. Other
countries, especially our longstanding allies, threatened
retaliation. It was unclear who in the administration was
responsible for making key decisions about tariffs that would
take effect in very short order.
It is still an open question as to which countries will be
excluded and which will be included in the tariffs. You would
hope and expect that more information will be released. The
tariffs are scheduled to go into effect tomorrow.
Now, with respect to the overnight news about China, I am
pleased the administration appears to be taking a more
deliberative approach. The fact is, China has stolen our
intellectual property, held American companies hostage until
they disclosed their trade secrets, and manipulated their
markets in a strategic manner to rip off American jobs and
industries.
I want to hear more this morning about how the
administration will manage the 301 process going forward to get
trade done right.
The bottom line is, the Trump administration stormed into
office promising better deals, more certainty for businesses to
create good-paying jobs in our country, and a stronger position
in the world economy. But after 14 months, what has basically
been delivered is mostly a whole lot of chaos. Total chaos on
trade is not going to create a single red, white, and blue job
in America.
So we are looking forward to hearing Ambassador Lighthizer
discuss the Trump administration's agenda.
And we, very frankly, Ambassador, are counting on you to be
a cool head in the middle of a very overheated atmosphere.
I look forward to questions and hearing from the
ambassador.
The Chairman. Well, thank you, Senator.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. Today I have the pleasure of introducing
Ambassador Robert E. Lighthizer. Ambassador Lighthizer was
sworn in as the 18th United States Trade Representative on May
15th of last year. Since members of this committee have gotten
to know Bob well over the past several months, and because we
have a lot to talk about, I will dispense with further
introductions.
It is a pleasure to have you here with us today. I think
very highly of you, Mr. Ambassador. So please continue with
your opening statement, and we will go from there.
STATEMENT OF HON. ROBERT E. LIGHTHIZER, UNITED STATES TRADE
REPRESENTATIVE, EXECUTIVE OFFICE OF THE PRESIDENT, WASHINGTON,
DC
Ambassador Lighthizer. Thank you very much, Mr. Chairman,
Ranking Member Wyden, and members of the committee. I begin by
saying being referred to as a ``cool head'' is an unusual
experience for me. But I hope that, over a period of time, I
earn that.
I want to say also, although you have had hearings, I
brought my two newly minted Deputies with me so that the
committee can see them again: Jeff Gerrish, who is the Deputy
for Europe, Middle East, and Asia; and C.J. Mahoney, who is the
Deputy for Africa, China, and the Western Hemisphere; and then
they each have some additional responsibilities.
But I think it is important--I will not do this again--but
I think it is important to remind you that we have people
there. We are grateful for the fact that the committee has
confirmed them.
And I know that you, and probably mostly your staff, will
rely on them and use them. And they are available and very
eager to serve the United States Senate Committee on Finance.
It is a great opportunity for me to testify here. Before I
take questions, I would like to very briefly make three points.
First, I would like to thank you, as I said, for giving me
my Deputies and, in addition to the two here, another Deputy,
Dennis Shea, who is going to be the Deputy in Geneva, whom you
also confirmed; and Gregg Doud, who is the Chief Agricultural
Negotiator.
Second, I would like to draw the committee's attention to
the fact that in the last year, the trade deficit in goods and
services rose to $556 billion, and the trade deficit in goods
alone rose to $811 billion.
There are, of course, many reasons for trade deficits, but
the President believes, and I agree, that persistent, enormous
deficits, to some extent, reflect market distortions around the
world that treat U.S. workers and businesses unfairly.
We also have a massive trade deficit, as everyone here
knows, with China--$375 billion last year--and large deficits
with the EU, Japan, and a few other countries.
I note that members here have a variety of views on these
figures, but we believe they raise significant concerns. They
indicate that global rules of trade sometimes make it hard for
U.S. companies to export. They can discourage U.S. investors
and businesses from entering into certain sectors of the global
economy. Further, they indicate that, in the United States, the
cost of globalization is falling more heavily on workers in
some parts of the economy that are exposed to trade. And this
is troubling. Finally, they undermine the political support for
the global trading system in the United States, and that is
bad.
Third, I would like to very briefly summarize the
President's trade agenda that we just put out, as the committee
knows, pursuant to statute.
First, we at USTR will support the President's National
Security Strategy. That means that our trade policy will help
to build a stronger America, will preserve our national
sovereignty, will respond to hostile economic competitors, will
recognize the importance of technology, and will seek
opportunities to work with other countries that share our
goals.
Second, for U.S. companies and workers to be competitive in
the overseas market, we need a strong economy here at home.
Third, we are negotiating trade deals that will work for
all Americans. As the members know well, the President has
asked us to seek significant changes in NAFTA. We have already
had seven rounds of talks with our partners in Canada and
Mexico, and I believe that substantial progress is being made,
but we are quickly running out of time if we are going to have
this Congress vote on a final passage.
We have also reached out to and begun discussions with
Korea on the KORUS agreement. I am happy to talk about all
this.
Now that we have a full team of Deputies in place, we
intend to pursue vigorously free trade agreements in other
parts of the world. We have a working group with the United
Kingdom, which you are aware of, and expect to begin the
process of entering into an FTA with them at the appropriate
time.
We have told Japan that we are interested in having an FTA
with them when it makes sense for them. And in addition, we
hope to, working with this committee and others in the
administration, pick out countries in Africa and Southeast Asia
for which it would make the most sense to have an FTA, and
begin that process. So that will begin very quickly: the
consultations with this committee, as well as with other people
in the administration.
As the chairman noted, we have asked for an extension of
Trade Promotion Authority until 2020.
Fourth, we are enforcing and defending U.S. trade laws. The
President said he would use all trade laws available to defend
U.S. workers, and he is keeping that promise.
We are, in addition, vigorously defending our laws at the
WTO. And we are prepared to talk about these things to you.
Finally, we seek to reform the multilateral trading system,
which for too long has failed to promote liberalization. For
too many members, it has become a litigation forum and not a
negotiation forum, and we think that is unhelpful.
In short, the USTR, under the direction of President Trump,
is seeking to build a better, fairer system for global markets
that will lead to a higher standard of living for all
Americans. I am excited to have the opportunity to work in this
area. And mostly, I am excited to have the opportunity to work
with the Senate Finance Committee.
Thank you very much, Mr. Chairman.
The Chairman. Well, thank you, Mr. Ambassador.
[The prepared statement of Ambassador Lighthizer appears in
the appendix.]
The Chairman. The administration is set to announce soon
the results of USTR's section 301 investigation into Chinese
theft of trade secrets and forced transfer of American
technology.
The remedies under consideration reportedly include tariffs
on Chinese products, an action I have some qualms about. What
in your mind are the appropriate criteria for determining if
higher tariffs are justified, the appropriate level of any
tariff increases, and the products to be covered?
Ambassador Lighthizer. So that is an excellent question,
and an important question. And I suspect that very soon the
President will make his decision on this 301 on IP, and I hope
as well that it will be supported by members of the committee.
And I suspect it will be, if it is done properly. And no
decisions are made until the President makes them, but I expect
him to make them very quickly.
So the first question that we ask is, do we have a problem
with IP theft? And of course we do. If you look at the record,
going back to 1991, George Herbert Walker Bush brought a 301
against China for failure to protect IP. And it has continued.
We had one from Clinton, neither of which really amounted to
much.
And then we had a system of dialogues over a period of time
in the WTO. During that time, on at least 10 different
occasions, China made specific commitments not to do certain
things in this space. It has not kept any of them.
So we start with the proposition that one of the most
important parts of our economy is the IP protection. It is an
extreme competitive advantage for the United States, and it is
the core of an enormous number of sectors that you do not think
of quite as high-tech.
We have done a study. We will put that study out very
quickly. The members, of course, will have it as soon as we
possibly can give it to you. It is an extensive study of about
200 pages. And it documents this very, very serious problem.
We see four parts to it. One part is, as you suggest, Mr.
Chairman, China forces technology transfer if you want to do
business in China. It is a huge area, and it affects almost
every technology company that goes there.
The second part that we analyzed is, they force technology
licensing at less than economic value.
The third one is, they have a program that is really
hundreds of billions of dollars, the state-owned buying of
technology in the United States. And it is very complicated and
difficult, and it is not market-driven either. But it is very
effective and something that we have to worry about.
And then the fourth leg of this, the way we see it, is the
issue of just plain old ordinary cyber-theft.
Now, you asked about remedies. So technically, to me, among
the things one would consider would be tariffs--and I will
address that right now, because that is your specific question
and I know concern, Mr. Chairman--but also restrictions on
investment.
We have Senator Cornyn, who is one of the leaders in
expanding the CFIUS program, something that we feel very
strongly about and want to encourage. The idea, if the
President decides to take this action, would be to do a lot of
the kinds of things that you want to do, but do them right now.
We cannot be in a position, we believe, where China can go out
and buy U.S. technology in a variety of ways that are troubling
to us.
So the remedies that you would consider would be tariffs,
and you would consider restrictions on investment.
Now, you asked specifically about tariffs. So how would you
decide on the amount of tariffs that you would put in place? We
have given this an enormous amount of thought. I want everyone,
whether you agree with it or not, to know that this has been
really studied. There are a variety of things in this plate of
problems, in these four prongs, that are probably extremely
costly to the United States economy, but difficult to quantify.
Let me give you a good example: cyber-theft. There are
studies that have cyber-theft at $400 billion or $500 billion a
year, theft of technology through cyber, but that is a hard
thing to quantify.
So you look at the things that you can quantify. One of
them is the effect on technology, forced technology transfer.
And then the economists create an algorithm to decide what the
cost, what the value of that should be. They begin using the
system that USTR has used for years and years and years. None
of these is foolproof, but they are designed to be fair.
Then if you decide that you are going to put tariffs on,
the question then becomes, what products do you put the tariffs
on? The rational approach, I would suggest, is that, number
one, you would take products that are in the China 2025
category, which are things that they clearly are designing this
program around, to get our technology, to get to where they are
ahead of the China 2025. I know you know those things, but they
are things like advanced robotics and new-energy vehicles and
high-speed transportation, all the really high-tech things that
China came out a few years ago and said, we are going to put
hundreds of billions of dollars of our resources into a program
of obtaining technology and use those things, not in an
economic way, to become dominant in these spheres. And I have a
list, and I will go through all of those if you like.
So those are the kinds of products a rational person would
put on this list, I would suggest. Then with respect to the
rest of them, what do you do?
What we did is, we created an algorithm, and it was
basically based on past practice. And we did it in a way that I
suspect every member would do it. And that is, you line up
everything that you import from China and you have an axis, and
the things that have the most effect on China and the least
effect on the U.S., you have moving towards the left. And the
purpose of your algorithm is to pick out things, to the extent
you can, that are in that category, things that are in the
category that have the maximum effect on China and the minimum
effect on U.S. consumers.
So if we do this, and if we have tariffs--and the President
has not made that decision, but I think he will make it
quickly--you have a serious economic study of what the
quantifiable cost is. And it is much smaller than the real
cost, I would suggest. And then you use an algorithm basically
to create a list of items that you would put tariffs on.
So for example, something that you get from China and a lot
of other people, if you put a tariff on that, the effect on
U.S. consumers would be minimized. That is kind of the idea of
this.
So it is a sensible, moderate, appropriate amount if the
President decides to do this. And it is calculated and created
in a very businesslike, sensible way.
Now, the final thing I would say is that, with respect to
at least one of these provisions of these four prongs, we
believe there is a violation of our WTO rights. And in that
case, we would bring a WTO case. With respect to things that
are not covered by the WTO, we would then have other options
pursuant to section 301.
I apologize for the fact that I have run over my time. That
was a very lengthy answer. I will try not to do that again, but
I wanted to kind of lay it out, because I know it is on your
mind, Mr. Chairman, and the mind of other members.
The Chairman. Well, I thought it was good.
Senator Wyden?
Senator Wyden. Thank you very much, Mr. Chairman.
So, Mr. Ambassador, the President makes the final decision.
You make recommendations. And of course, we need information
about what is ahead. That is what consultation is all about. So
I want to get into a couple of issues on China, a couple of
issues on steel and aluminum.
The first on China: on which products are you recommending
that the President impose tariffs? This is your recommendation.
Ambassador Lighthizer. Well, in the first place, I want to
make it clear that I am part of the process. And it is not
something that the USTR is doing.
Senator Wyden. Right. But your recommendation.
Ambassador Lighthizer. Yes, sir. We have the Council of
Economic Advisers as well as our internal professional economic
people who have put together this algorithm.
So the way I start with this is--and I think this is how it
was done, Senator--the algorithm kicks out the entire amount.
And then you say, what things are not on the algorithm that any
sensible person would put on? And that would be a list of
things, to me at least, that are on the China 2025 list.
So what is on the China 2025 list? And I will just go
through this very quickly, but I will not if I am just taking
your time.
Senator Wyden. No, I am sure--I want to know which products
you are recommending.
Ambassador Lighthizer. Well, these are the ones, the ones
that I care about.
Senator Wyden. Good.
Ambassador Lighthizer. Number one, I think the algorithm
makes sense because it has maximum effect on them and minimum
effect on our consumers, which is what we want. And there are a
few consumer items which, in my judgment, should not be on
there and they are not on there, but there are some items that
I would put on that clearly would not be in the algorithm.
And those are things related to--and these are the things
that China listed and said, we are going to take technology,
spend several hundred billion dollars, and dominate the world.
And these are things that if China dominates the world in, it
is bad for America.
So here is their list: new, advanced information
technology; automated machine tools and robotics----
Senator Wyden. These are products that you are recommending
should have tariffs?
Ambassador Lighthizer. I believe these items should be--
that is correct.
Senator Wyden. Thank you. Anything else?
Ambassador Lighthizer. Well, I mean, there are 10 of them
here.
Senator Wyden. Okay. Yes, that would be good. Let us hear
all 10.
Ambassador Lighthizer. All right. So, I mean, if you sit
here, you are going to think this is basically America in 10
years, right? Aerospace and aeronautics equipment. Maritime
equipment and high-tech shipping. Modern rail transport
equipment. New-energy vehicles and equipment. Power equipment.
Agriculture equipment. New materials in biopharma and advanced
medical products. Now, every one of these they say they want to
be mostly self-sufficient in within 2 or 3 years and basically
world-dominant by China 2025. That is the sense of China 2025;
that is what it is. And this is not like our spies figuring
this out. They put this out and said this.
Now you see, the last time, in 2006--Senator Portman knows
this--they put out a provision that said, we want to be
dominant in solar panels and solar modules. And they followed
that plan and basically put the United States and most of the
world out of business.
So there is a lot of reason for concern. They did the same
sorts of things in steel. They did the same sorts of things in
aluminum. You can go down the list. But in this case, they
specifically said, these are 10 that are in this category.
Senator Wyden. Okay. What outcome are you seeking in your
strategy with China?
Ambassador Lighthizer. Well, that is a very good question.
I would say two things. Number one, you would like change in
the way they are approaching this thing, changed behavior. That
would be what they do, ideally. And in some areas, I think
there is potential for that; in other areas, there is not.
When I sit around with my colleagues in the administration
and when I talk privately with Senators, I tell them--which I
think is the truth--I think, at the end of the day, no matter
what I do and what you do during your career--and hopefully you
are going to focus more and more on this issue--China is still
going to be a market-driven communist country. It is never
going to be like we are.
It is always going to have a different system that
challenges our system and wants to take over the world. That is
my view. But there are a lot of areas where you can make a
difference, and we should in those areas.
The second part of my answer is, there are some areas where
you just have to protect yourself from them. So they are not
going to change their attitude on these things, but we can at
least be in a position where U.S. industry is not wiped out
because of it. And if we do not do that, then shame on us.
Senator Wyden. Okay.
Ambassador Lighthizer. Particularly in a case--let me give
you the list.
Senator Wyden. I want to get one other question in with
respect to steel and aluminum.
These tariffs go into effect tomorrow. Yesterday, you
listed some countries that you are negotiating with and said
that the tariffs might not apply to them during the
negotiations. Which countries will not have tariffs applied to
them as of tomorrow?
Ambassador Lighthizer. So the idea that the President has
is that, based on a certain set of criteria, that some
countries should get out. There are countries with whom we are
negotiating. And the question then becomes the obvious one,
where you think, well, okay, as a matter of business, how does
this work? So what he has decided to do is to pause the
imposition of the tariffs with respect to those countries.
Senator Wyden. Which ones are they?
Ambassador Lighthizer. Well, all right. So we have the two
NAFTA countries, and we know where they are. We have Europe. We
have Australia. We have Argentina. We have Brazil. Who am I
forgetting? Oh, and obviously Korea, where we are renegotiating
the KORUS.
Senator Wyden. But are the tariffs going to be paused for
them? I mean, I am asking you specifically. We are the
committee of jurisdiction here. Everybody here wants to be part
of the consultation process. We have not had much recently.
Which countries--because this is going to happen tomorrow--
will not have these steel and aluminum tariffs applied to them?
Ambassador Lighthizer. It is the list that I just gave,
Senator.
Senator Wyden. Okay. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Stabenow?
Senator Stabenow. Thank you very much, Mr. Chairman.
And Ambassador Lighthizer, welcome again.
Ambassador Lighthizer. Thank you.
Senator Stabenow. Let me just start off by saying that I
think a goal for all of us ought to be exporting our products,
not our jobs. And it gets complicated beyond that, certainly.
And I look at my colleague and friend, the chairman of the
Ag Committee, and I am sure he will say the same thing on
agriculture that I will, that we need markets; we need markets
for our products, but we also need a level playing field to
make sure that we are not exporting our jobs as we go.
I want to specifically ask you about currency manipulation.
The President said day one of his administration he would label
China a currency manipulator. It is well past day one, and that
has not happened. We have also, in NAFTA, had seven NAFTA
negotiating rounds, and USTR has not specified its objectives
with regard to currency manipulation, which was included in the
administration's NAFTA negotiating strategy.
So you indicated to me last year that you were, quote,
``committed to developing effective approaches to address the
problem of currency manipulation'' and that you would work to
get the best possible enforcement tools. We have lost, in
manufacturing alone, over 5 million jobs in our country related
to currency manipulation. So what is the status of including
strong and enforceable language on currency manipulation in the
NAFTA negotiations?
Ambassador Lighthizer. So as you know, because we have
spoken a lot, I agree completely with your proposition.
Currency manipulation is something that goes right across the
line. It affects all the industries where we export and an
awful lot of them where we do not, that we sell in our own
market. It is a complicated and difficult issue.
It is something where the notion was, we would cover it in
NAFTA, not because we believed the Canadians or Mexicans are
currency manipulators, because we, at least right now, do not,
but that it would become the kind of thing that you would put
in other agreements and it would become sort of a model.
Senator Stabenow. That is right. So the question is, will
there be or will there not be currency manipulation language,
enforcement language, in NAFTA?
Ambassador Lighthizer. Let me say, first of all, there are
a number of things on which I do not know what will finally be
in, because I am in the process, as you know, of negotiations.
But I can tell you what my position is and what is going on.
So what is going on is, you are having the Treasury
Department engaged in negotiations with their counterparts on
this issue, not only with respect to NAFTA issues, but also
with respect to KORUS. And I think it is important to know
this. I asked my career people, ``What happened the last time
you had this level of discussion about currency, where we were
talking about specific things in a hard way?'' And they came
back to me and they said, ``We have never had discussions like
this.'' We have never had Treasury ever be willing to--and this
is not partisan--in any of these administrations--these are
career people--ever get involved in this kind of discussion
like we are doing now.
So it is an enormously important thing that we have
happening. And a lot of it is because of push by you and a
handful of other Senators who have just sort of said, ``This is
such an important issue.'' But it is transformative in terms of
the way the Treasury Department is dealing with this.
Senator Stabenow. So what does that mean, though?
Ambassador Lighthizer. Well, my hope is that we end up with
language that deals with transparency and deals with
competitive devaluations. And the other thing--just notionally,
you have to think of it--you also want to be in a position
where it does not affect, where we are not guilty of the
provision ourselves, in a circumstance where we do some kind of
quantitative easing.
Now, we clearly do not do it for competitive advantages.
But it has to be woven in in a way that somebody cannot say,
``Oh, now the United States has violated the agreement.''
Senator Stabenow. Right. No, and I understand that. They
say that about the Fed all the time, but it is not the same.
Ambassador Lighthizer. But the notion of transparency and
no competitive devaluations is very much at the heart of what
we are doing, whether it is in this agreement or not. It is my
view that it at least has to be enforceable here. That is my
view.
But there are a lot of talks going on. They are very
intense.
Senator Stabenow. Well, I hope that they produce results.
Excuse me, my time is about up.
We need results on this. There has been talk for years and
years, as long as I have been here. And so I appreciate what
you are saying. We need results.
And just finally, what about the U.S.-Korea Free Trade
Agreement negotiations? Are we doing the same thing there?
Because the regimen on enforcing against currency manipulation
needs to be in every agreement.
Ambassador Lighthizer. And if you said, where does it
belong, more than anywhere else you would say China, Japan, and
Korea. So listen, you and I are in complete agreement on both
the pernicious effects of this and on where we ought to go. My
hope is that I will prevail. That is more or less the status
quo.
Senator Stabenow. Thank you, Mr. Chairman.
The Chairman. Your time is up.
We will now turn to--let us see who I have here.
Senator Roberts?
Senator Roberts. Thank you, Mr. Chairman. And thank you for
making a very excellent statement at the opening of this
hearing. I would like to be associated with your remarks.
Ambassador Lighthizer, Bob, welcome back to the committee.
Last year at this committee's trade agenda hearing, and in
many conversations we have had since, we discussed concerns. I
continue to hear in farm country the dire need to expand and
explore new markets. Unfortunately, the ag economy has not seen
improvements; it has become more concerning.
In the last year, the United States, I believe, has lost
its title as a reliable supplier. That is certainly not a good
thing. We have seen Mexico turn to Argentina to purchase wheat
and Brazil for corn. These should be sales with the U.S., not
the other countries.
The Kansas wheat crop is still on the ground. We have
another crop coming on, I hope. But that crop should be on the
Kansas City Southern railway headed for Mexico. And I think
probably, at this juncture, I would like to give you a little
farm report.
Wichita, KS--the latest crop report estimates that about 1
percent of the wheat in Kansas is in excellent condition--1
percent. Ten percent is good; all the rest is poor or very
poor. That assessment comes at the same time that topsoil
moisture supplies were rated as short or very short across 81
percent of our State.
I do not know what we did to mother nature, but she sure is
not being very helpful. We are dry. We are having a drought. We
have wheat at the Dodge City elevator hovering around $4; it
was $7 about 3 years ago. We even have in eastern Colorado and
western Kansas a hotline for people who are considering
suicide. Now, that is pretty bad. I mean, that is a very dire
situation.
We have a situation, however, that is being recognized by
the White House and yourself. We just had a good visit about
that. Thank you for being very candid.
Ray Starling, Special Assistant to the President for
Agriculture, Trade, and Food Assistance, said the other day
that insistence on free and reciprocal trade--and then
obviously we plan to examine that on a case-by-case basis as
those threats materialize. ``We will do everything within our
power to protect our farmers from that sort of egregious
behavior,'' he said. He then said, ``If that results in
retaliation against us, then that tells you something about the
state of free and fair trade.'' My message back to Ray is that,
if the shoe fits, he ought to wear it.
You said yesterday before Ways and Means in a 4-hour
marathon, ``You have to think about counter-retaliation, you
have to think about programs for farmers who are in this
situation. I mean, there are a lot of things outside my realm
that have to be considered.''
I would suggest probably talking with Sonny Perdue--I know
you have done that--our Secretary of Agriculture.
And then you said that you have tasked one of your
Deputies, Deputy USTR Jeffrey Gerrish--with a portfolio
covering Asia--on the possibility of deals with the
Philippines, Vietnam, and Japan. Would you put Taiwan in there,
because they have visited with me, along with a lot of other
people?
Senator Stabenow--who has left the committee right now--and
I have talked at great length about some kind of relief for
farmers on a case-by-case basis. I think somebody said on the
staff that maybe we could have a Trump tariff payment, a TTP
instead of TPP. I would much prefer we do something else. We
need to sell our product, and we need to sell it to about
everybody we can think of. So I encourage you to really think
about this.
If we continue down this road, we may have to consider some
kind of a payment on a case-by-case basis to farmers.
So my message to you is this: it is simple. In 2018, the
USTR's trade agenda must include a focus on returning the
United States to being a reliable supplier, and the USTR must
actively pursue markets to sell our products--any place that
you can sell grain, anything that you can give as hope to a
very bad situation, not only in Kansas, but all over the
country.
On the very day that this committee was talking to the
President, sorghum producers were in my office. By the way, it
is sorghum, not ``sour gum'' as some have said in the
administration. And I do not understand how the basis points
went off 80 points while we were talking with the President.
Senator Toomey was flying at 30,000 feet talking about trade
policy. Senator Portman, of course, used to be the trade rep,
and he added his advice. Senator Thune, who is not here right
now, and myself tried to protect agriculture, and we went all
around the room.
I have had over a hundred people, Kansas farmers, in our Ag
hearing room with kids, and they were wondering if they could
farm the next year, this next crop year. I do not know what
kind of a crop we are going to have, but it is bad unless the
weather changes.
And we still have our past crop on the ground, and we are
not moving it. So we are in a dire fix. We are trying to write
a farm bill here, and it is with a backdrop of severe budget
limitations. And we know that we have to do that, but if we
have to go down the road with a special payment with regards to
retaliation, that just adds another dustup right before the
farm bill.
This is not a good situation. Now, I have gone over 30
seconds, but I just feel a lot better, because I woke up pretty
cranky.
If you would like to respond, sir--I think we have had a
private talk--I would be delighted to hear anything you might
want to say.
Ambassador Lighthizer. I would just say, since you are over
your time, but I am not sure whether you are over my time--all
I get is part of your time, so I will just say we are both over
time.
I agree completely with your point.
Senator Roberts. Your time is my time; my time is your
time.
Ambassador Lighthizer. I agree completely with your
position. I think that too often we think of agriculture on the
defense. The fact is that every place where we have a market,
and we have a lot of them, the market could be much bigger. And
in most cases, it is protectionism, where we are going, that is
holding us back, even the places like Mexico, as you say, where
we sell $18 billion, China for sure--every one of these
markets.
And then there are additional opportunities, and they are
in East Asia and in other places. And we are in a position
where we are going to very soon, as I say--I mean, like, next
week--start the process of consulting, with a Deputy each doing
one--consulting with the administration, consulting with the
House, consulting with the Senate Finance Committee--and
picking this out, deciding what our objectives are, and then
going forward and deciding what the best way to get the FTA is.
And it is not, if I have my way, going to be a 5-year
negotiation to do all this stuff. It is going to be a focused
negotiation where we get something very quickly for
agriculture, but also other parts of the U.S. economy, and
increase exports.
The Chairman. Okay.
Senator Portman?
Senator Portman. Thank you, Mr. Chairman.
And to my successor in this job at USTR, I feel your pain.
I heard you say earlier you were trying to figure out how to do
your job in 23 hours rather than 24 hours a day so you can get
some sleep. There is a lot going on right now; you are busy.
I want to focus, if I could, on exports, because I think in
your answer to Pat Roberts you are correct: we export way below
our weight and we can do much, much better in terms of opening
markets for our products, including our ag products.
We are concerned right now with the combination of the
potential retaliation from the steel tariffs and potential
retaliation from China on a 301 that is not yet fully
formulated. And so the concern is, we could actually be seeing
a reduction of exports rather than an increase of exports,
which is what we need and should have.
You know, in the context of other countries, the United
States is a relatively small exporter per capita. I think we
are somewhere between Tonga and Ethiopia on the list.
So you talked earlier about the potential of extending the
Trade Promotion Authority. I hope that this committee and this
body will strongly support that. The TPA extension that you are
seeking, it is my understanding, will be automatic unless there
is a resolution of disapproval, which I hope there will not be,
and that will take you until July 30, 2021. Actually, you need
that.
And second, we have to start developing some of these
markets. So you mentioned earlier the United Kingdom. There
was, I think, a good decision by the EU this week saying,
during their transition period, they are allowed to negotiate
trade agreements.
You said there is a working group that has been formed
there. If you could tell us in a moment a little bit about
that, I think that is an extremely important opportunity for us
with Brexit.
You talked about Japan. You talked about Southeast Asia.
You talked about Africa. Putting Africa in context here, back
in, let us say 2000, I think China had about a billion dollars'
worth of trade with Africa, and we had about, more or less, $50
billion, I think. In inflation-adjusted terms, we are about
where we were; China is now at $150 billion with Africa. So
what a great opportunity for us in terms of those countries of
Africa, the AGOA countries, and others. But also, what an
important strategic opportunity for us. So I would like to hear
what you have to say about Africa.
And then just in general, how can we increase the exports,
not just of agriculture products, which are important to Ohio,
but with regard to manufactured products and services?
I think trade agreements work. I know that you are in the
middle of now renegotiating and modernizing NAFTA, the North
American Free Trade Agreement, and I support that
modernization. But I am sometimes concerned about the
administration's position on trade agreements. We have them
with only about 10 percent of the world. We send 47 percent of
our exports to that 10 percent of the world.
In the aggregate, we actually have a trade surplus with our
trading partners in FTAs, and yet they always seem to come up
as a negative. I think they are a positive. Yes, they can be
improved and modernized.
So a lot of questions there. I appreciate your responses.
And again, I appreciate the job you are doing at USTR, which is
a tough job right now.
Ambassador Lighthizer. Thank you very much. And I am
honored to be one of your successors. Well I, unlike you,
expect to die after it. I am going to be more like Christian
Herter. He basically was USTR and then just died.
So, as you say, there are a lot of things there. One of
the----
Senator Portman. Some would say, that is what happens when
coming to the Senate. [Laughter.]
Ambassador Lighthizer. No, that would not be a staffer's
view.
So, you know, there is an overriding problem in why we have
not liberalized trade, and that is that the United States has
low tariffs. Everybody can get through--they think they can get
through litigation at the WTO what they will trade for, and so
we have had no real trade agreements on a multilateral basis
forever and ever and ever. Clearly, we agree completely that
increasing exports is what we should do.
I am just sort of taking these in no particular order.
The African issue, I completely agree with. I am not only
informed by you, but Senator Isakson. The first time I talked
to Senator Isakson, he was, like, ``Lighthizer, you had better
focus on this,'' and Lighthizer focused on it. And not only the
AGOA, where we are in a position to really insist in a new way
that the people who have benefits from AGOA open up their
market and reform in the ways that people want them to, but
also this idea of having an FTA with the appropriate African
country.
We ought to pick out the right country, and we ought to
have an FTA. It would be very good for them and potentially
very good for us. So that is something that we are very serious
about.
And I am informed on that. As I say, it is not a part of
the world that I have enormous amount of expertise in, but I
was informed by the members of this committee and others. So
that is something that--I was literally just waiting to have
these Deputies, because I just cannot do that and these other
things.
The first thing I probably should have said in all of this
is, we want to be more competitive, we want more exports. There
is not universal agreement here, but the tax bill was an
enormous step in that direction. Getting rid of regulations is
an enormous step in that direction. These are all things that
are at least as important as everything I am doing, right? I
mean, these are things that make the whole economy more
efficient and more effective, and that helps us export and
helps us make money generally.
So I guess the last one, I would say, with respect to the
UK, we have a working group. There are things that we can do
because they are not really competencies that were ceded to the
EU; there are certifications of lawyers and accountants. There
are a lot of things like that, and we are making headway on
those.
We are also making headway on the kinds of things you would
expect to have to talk through, some of which are contentious,
like the TRQ. We have a relationship with the EU; now what is
our relationship with the EU and the UK after they break up?
You know, there is a possibility of loss there if you do not do
it right. And so that is a big issue, but we are making real
headway.
Our sense is that, with the exception of that--and I met as
recently as last week with my counterpart. I have talked to him
often; he is an excellent guy, a smart guy. And my guess is
that we are still a year away from being able to start real
negotiations. And to some extent, that time will be dictated by
a variety of things, none related to me. But it is something we
want to be prepared to do the day that it is available.
So getting some new FTAs, we think, is really important.
The kinds of things you have done to make us competitive are
important.
And we also think we are going to get new exports out of
the revision of NAFTA and KORUS and these other things. And if
you believe in the basic ideas that we all have, which is that
you have to improve services, you have to improve digital
trade, you have to improve IP--if you believe all those things,
which we believe, those should lead to new exports and make the
United States----
Senator Portman. Thank you. My time is up.
The Brexit negotiations can begin in earnest a year from
now, so, you know, on March 30, 2019. So I think this committee
would be strongly in support of that.
Thank you, Mr. Chairman.
Senator Wyden. Mr. Chairman? Mr. Chairman? Without taking
any time from Senator Bennet, who is next, if I could just be
recognized for a minute----
The Chairman. Next will be Senator Grassley.
Senator Wyden. Oh, it is Grassley and then Bennet. Okay.
Could I just be recognized for a minute?
The Chairman. Sure.
Senator Wyden. Thank you, Mr. Chairman.
Colleagues, Senator Cornyn and I both serve on the
Intelligence Committee. And we there have the responsibility to
protect some of America's most important secrets. And we have
just learned, because of our committee assignment, that the
chairman is having a birthday today. [Laughter.]
We have been able to excavate this fact. And I just wanted
to mention this because I know Senators would like to wish the
chairman well over the course of the day. And he is still
punching away in the ring, and we hope that before the end of
the year when he and Elaine go back to Utah, we can deliver
some more bipartisan hits by working together.
So, Mr. Chairman, happy birthday.
The Chairman. Well, thank you so much. [Applause.]
I am not much for birthdays. When I was a kid, I was the
only kid in the neighborhood who never had a birthday party, so
I just never--and it even extends to today. It is a crazy
psychological thing. [Laughter.]
Some people think that is my normalcy: a psychological
thing.
[Attendees sing ``Happy Birthday.'']
[Applause.]
The Chairman. For a musician who writes music, that was the
most discordant ``Happy Birthday'' I ever heard. [Laughter.]
Okay. Senator Grassley?
Senator Grassley. Since I was down the hallway at the
Judiciary Committee, maybe my staff or my colleagues have
already talked to you about the administration considering a
$60-billion tariff package against China related to section
301.
I understand 301 concerns with China related to
intellectual property, but I must also remind you, Mr.
Lighthizer, a State like Iowa stands to lose a great deal from
retaliation.
China buys over one-third of America's annual soybean
production, which equates to roughly $14 billion each year. As
an example of how sensitive agriculture markets are, Iowa
farmers still remember President Carter's grain embargo. An
immediate 10-percent reduction in grain exports occurred when
the embargo suddenly halted grain shipment. So, you know, that
is 38 years ago, but that is still in the memory of farmers.
So, Mr. Ambassador, has your office by itself or in
consultation with the USDA done any analysis of what potential
retaliation means for farmers in the Midwest, whom China has
already singled out for retaliation?
Ambassador Lighthizer. We certainly, Mr. Chairman, have
done a lot of analysis of that in the context of 301, but also
in the context of other things. And the analysis is way beyond
just USDA and us; it is also NSC and a whole variety of things.
And at some level, whatever you decide, it is really just
speculation. But there has been a lot of effort, a lot of work
done on it.
And when you come down to it, in almost every case, the
most vulnerable sectors of the economy are the ones that
export. And farmers are a very susceptible group, not only with
respect to 301, but every time we take a trade action,
agriculture is in the crosshairs. And it is something that we
are very sympathetic to and we have to be very careful about.
And we have to decide--and we will work with you to decide--if
that happens, how we react.
Senator Roberts, whom I know very well, remembers the
Carter grain embargo, because it was an important part of his
own political career, or reacting to it was an important part
of his own political career. I know he is very concerned about
it, that he has talked about it.
I do not get out of my own lane in terms of what programs
we have, but I would note that it is unfair in this
circumstance to farmers, particularly in this case soybean
farmers who, number one, sell an enormous amount--as you say,
$14 billion--to China.
And if you look at the ag sales to China, we sell a lot of
things. I mean, if you think of it, we sell $130 billion worth
of stuff to China altogether, and $18 billion is soybeans. That
is a pretty big number. And if you look at it, you drop down to
whatever the second crop is--Senator Roberts probably knows--
but you get down to about a billion and a half is the second
crop. Now, that might be big for them, whatever that crop is,
but it is a huge drop-off. So any person who would look at
this, would look and say, yes, soybeans are a real problem.
And soybeans, also from the point of view of retaliation,
have the advantage of being grown all over the place. As near
as I can tell, most everybody has some soybeans. So it is
something we are worried about.
It is unfair, in my judgment, that farmers, particularly
soybean farmers, would be singled out to have to take this hit.
Having said that, it is not possible to take the position
that, because of soybean farmers, we are not going to stick up
for our rights in a whole variety of ways and have hundreds of
billions of dollars' worth of other exporters and domestic
producers be punished because of unfair trade. It creates a
conundrum.
And I guess my sense is that, working with this committee,
we have to decide the extent to which we retaliate and the
extent to which the Congress in its wisdom decides that there
should be programs that deal with this situation, where people
are unfairly targeted in a case where we are doing something
really for the national good.
But the bottom line is, it is very serious. It is something
we have worked on. We have spent a lot of time on it, USDA and
Secretary Perdue and USTR, but also Commerce and Defense and
NSC and NEC. It is something we spend a lot of time thinking
about.
Senator Grassley. I have 30 seconds to ask a question you
can say ``yes'' or ``no'' to. Can I tell my constituents we are
past the point of worrying about withdrawal from NAFTA?
Ambassador Lighthizer. No.
Senator Grassley. I still have 15 seconds left. [Laughter.]
I do want to tell you about a tool--and Senator Brown will
probably bring this up as well--the Foreign Investment Review
Act, which would give the administration new powers to prevent
investment in the U.S. that originates from countries that do
not believe in reciprocal trade benefits.
Our legislation represents a targeted approach for causing
behavioral changes while not jeopardizing existing trade flows.
And so this is a request that you would work with Senator Brown
and us to give you and Commerce Secretary Ross new tools to
prevent bad behavior by some of our trading partners. Thank
you.
Ambassador Lighthizer. Yes; the answer is ``yes'' to that.
The Chairman. Okay.
Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman.
Mr. Ambassador, it is always good to see you.
I want to follow up on what your response is going to be,
with Commerce and other agencies, on retaliatory actions that
are likely to be taken by other countries in regards to the
steel and aluminum tariff. I say that because we expect there
will be some reactions. And as I understand it, Commerce is
working out a way for exceptions. You are involved in those
conversations.
But I am concerned that, whereas a large company or
industry may be able to have their voices heard, how do you
deal with small companies that have critical supply chains that
could be impacted by retaliatory action by another country
where they do not have the resources to be able to get their
message across to the administration?
How are you going to protect smaller companies, as we are
going to certainly see a lot more activity, not just here but
around the world, in regards to trade?
Ambassador Lighthizer. Well, Senator, I would say, first of
all, with respect to the 232, there are going to be two things
going on. One is going to be the country exclusion process,
which we are in the process of--and I am looking at it, and we
have talked about that. And some countries are under
consideration, and it is a decision that is ultimately going to
be made by the President. It is not going to be made by me in
any case.
Senator Cardin. But on the company-specific----
Ambassador Lighthizer. There will not be company-specific
exclusions, but there will be product exclusions, which I think
is probably what you are referring to, and they will be done at
the Department of Commerce and, to the extent it is
appropriate, on anything that any member here cares about.
Senator Cardin. But how are you going to protect smaller
companies? They are not going to have the same voice that large
companies will have in regards to industry-specific issues.
Ambassador Lighthizer. Yes, I mean, this is a far broader
problem obviously than 232. It is a problem that deals with
using the trade laws and dumping and countervailing, the whole
disequilibrium between people who spend millions of dollars
lobbying in Washington and people who do not have fancy lawyers
who do that. So it is a far bigger problem then in this case.
The product exclusion process at the Department of Commerce
will be one where, if somebody files an exclusion, it will be
looked at by professional people, and they will make a
decision. Hopefully it will not----
Senator Cardin. Well, by what method will small companies
be able to get into that process? That is my concern.
Industries have the resources to do it; big companies have the
resources. But I represent a lot of small companies that do not
have that type of resource on their own. They can work through
their trade groups if their trade group is interested in it,
but if they are not, how do they protect themselves?
Ambassador Lighthizer. Well, I mean, I am sympathetic to
your position. I think the system is set up at the Department
of Commerce so as to make it very easy to apply. That is not to
say you get the same results, and that is a different question,
but it is supposed to be easy to apply.
And to the extent you come to me and say, I have this or
that constituent who has this problem and it is not being
reflected, I will certainly go to the Department of Commerce,
or my people will, and we will sit down with them, because it
is supposed to be designed so as not to discriminate in that
way. I hope it is. I am not that close to it, to be honest, to
know about how it is set up.
Senator Cardin. So I have another set of problems in
regards to potential retaliatory actions. And I will use
McCormick Spice as an example. It is a good American company.
They source as much as they possibly can in our country. But
you cannot move the equator, and they need products from other
countries in order to have their spices. And that is exactly
the type of concern we have: that they could be targeted for
retaliatory actions when they have no choice.
What do I tell McCormick?
Ambassador Lighthizer. Well, I do not know enough about
where they buy spices. A lot of places, presumably, where they
buy spices are not going to be on the list where they are going
to be significantly affected by 232 on aluminum or steel.
One that probably does come to mind where they probably do
is India. I would presume India, I do not know--I mean, once
again, I am just not an expert in the spice industry. But the
Middle East I remember from the old days, the whole spice
trade, the whole opium trade, was basically started with
Europeans getting spices out of India and selling them in
China. So that is kind of my frame of reference.
To the extent they see specific retaliation, they ought to
bring it to our attention. We focus, as we have said before, on
soybeans and some of the very big issues, but it is conceivable
you would have an issue with that. Also with India, my guess is
that India may be in a position where they want to retaliate. I
think there is some vulnerability there. India has a
substantial trade surplus with the United States, and they have
a system which is not particularly open. They have a system
which has a number of vulnerabilities.
So to the extent there are individuals who have this
problem, all I can say is, we will try to work with them. It is
a serious problem and one that we have considered.
Senator Cardin. I thank you for your willingness to work
with our office. I can assure you that you will be getting some
calls.
Ambassador Lighthizer. I would be pleased to spend time
with your people, many of whom are friends.
Senator Cardin. Thank you.
The Chairman. Senator Bennet?
Senator Bennet. Thank you, Mr. Chairman. Thank you for
holding this hearing.
Mr. Lighthizer, I want to tell you how much I appreciate
your candor and your willingness not to speak from a script in
these hearings. So often that is what we hear. I do not
necessarily agree with much of what you say, but I do believe
you are giving us your candid view.
You mentioned in your written testimony and then again in
your oral testimony the need to deal with hostile economic
competitors. And I can never figure out who that is from the
point of view of the United States at this point. But would you
call Canada a hostile economic competitor to the United States?
Ambassador Lighthizer. I would call them an economic
competitor.
Senator Bennet. Okay; that is different from a hostile
economic competitor.
Ambassador Lighthizer. I agree with that.
Senator Bennet. What about Mexico? Are they a hostile
economic competitor?
Ambassador Lighthizer. Of course not; no.
Senator Bennet. What about the members of the EU? Are any
members of the EU hostile economic competitors?
Ambassador Lighthizer. In my view, they are not.
Senator Bennet. Okay. I think it is very important to make
these distinctions, because our allies are hearing the
administration describe them as hostile, when I do not think
you mean to describe them as hostile. The President may have a
different view, but they are hearing that. And I want you to
know that, because we are hearing it as well.
I wanted also to go back to the discussion about
agriculture. You pointed out that agriculture as a sector is
the most vulnerable to retaliation of any sector that we have.
Is that right?
Ambassador Lighthizer. I mean, it is certainly in
everybody's crosshairs----
Senator Bennet. And we have already seen----
Ambassador Lighthizer. And it is vulnerable.
Senator Bennet. We have already seen it with sorghum.
Ambassador Lighthizer. And it is even more vulnerable under
the current economic environment.
Senator Bennet. Exactly, exactly. And you said you were
sympathetic to that, that was the word you used, but that we
could not give up our right to defend our action and that maybe
the Congress could pass something up here that could mitigate
the damage that is being done.
That is not what our farmers and ranchers want. Our farmers
and ranchers want to be able to export the goods that they are
producing here in the United States. They do not need sympathy;
they need the administration to act responsibly.
And along the lines of what I was asking earlier about--our
describing other countries as hostile--do you think the
President has any awareness, Mr. Lighthizer, about the effect
he has on the domestic politics of our allies when he makes
these tweets or decides one day that we ought to increase
tariffs by 25 percent on steel and aluminum?
I think he thinks he is scaring other people, but he is not
really having that effect. I wonder whether you have a sense of
the domestic politics in these other places.
Ambassador Lighthizer. Listen, I am a Trump supporter. I
love the President. I am a trade expert. I am not going to get
engaged with you in a political thing. That is not what I came
here to do.
Senator Bennet. Well, it is not a political thing. Would
you agree that what he says can have an effect on agricultural
commodity prices in the United States, if people believe that
other countries are going to retaliate against the proposed
trade policies of the United States, that our farmers and
ranchers are already being affected in the commodity prices
that they are seeing as a result of this rhetoric? Would you
agree that there is a danger to that?
Ambassador Lighthizer. What I would agree with is that we
have trade rights that we have to defend and that too often
farmers get the short end of the stick.
Senator Bennet. Well, that is right; they do.
Ambassador Lighthizer. And we have to deal with--we cannot
give up. The fact that we have an $800-billion deficit----
Senator Bennet. Nobody is asking you--I am not asking you
to do that.
Ambassador Lighthizer. So we have to balance this.
Senator Bennet. I am asking you to understand that
everybody is listening and that our farmers and ranchers are
bearing the brunt of it. And what I am not asking you to do is
not fight for our fair rights to trade. That is not what I am
asking for.
What I am asking for is for us to do it in a way that does
not inadvertently--I hope it is inadvertent; I am sure it is
not advertent--drive commodity prices down at a moment when our
farmers and ranchers can least withstand that.
Ambassador Lighthizer. I am sorry, what was the question?
Senator Bennet. I will just finish by saying I do not think
it helps when the President--now, I am sure he did not consult
with anybody here before he announced his tariffs--when he
said, I am going to raise tariffs by 25 percent, and then 3
weeks later you come with a list of Australia, Korea, Canada,
Mexico, the European Union, and some others and say, sorry, we
did not really mean it.
This is not a business transaction, you know, for real
estate in New York City. This is the trade policy of the United
States of America. And I wish you guys would consult with us,
or just the Republicans even, so that you can understand the
effect that you are having in places like Weld County, CO,
where we need to have strong commodity prices and where 80
percent of our wheat is exported overseas.
My time is up. I apologize, Mr. Chairman.
I will just acknowledge that my farmers and ranchers know
very well that the day that the President announced these
tariff increases, TPP was being signed in Chile by the
enumerated countries there, and they are still waiting for this
administration to have what it suggested would be its
unilateral trade negotiations with every member of TPP to see
that their equities are being thought of by this
administration.
The Chairman. Senator, your time is up.
Senator Bennet. Thank you, Mr. Chairman.
The Chairman. Senator Cantwell?
Senator Cantwell. Mr. Chairman, I understand I missed the
feting of your birthday, but I guarantee you, my voice was not
needed. I am not a very good singer.
Senator Bennet. It could not have gotten worse. [Laughter.]
Senator Cantwell. But happy birthday. Happy birthday to
you.
The Chairman. It was plenty welcomed, though. I did not
expect it.
Senator Cantwell. Okay. Well, happy birthday.
The Chairman. Thank you, dear.
Senator Cantwell. Ambassador Lighthizer, the Export-Import
Bank does not have a functioning quorum. There are $35 billion
in pending transactions stuck in that pipeline. Do you agree
that the Export-Import Bank needs a functioning quorum?
Ambassador Lighthizer. Yes.
Senator Cantwell. What are the actions the administration
is going to take to get us a new nominee?
Ambassador Lighthizer. Well, first of all, Senator, as you
know, that is not exactly the middle of my lane. But because it
affects trade, it is something that I do care a great deal
about.
When I was here originally, you asked me a question and you
did not discern the subtlety of my support. But since I am here
and confirmed, I can be more straightforward. The answer is, I
clearly support it. I am working with White House personnel. I
am happy to talk to you about it.
I think that Jeff Goettman, the COO, you ought to have in
your office, unless you have met him. He is a very strong guy.
My recommendation is that you sit down and talk to him. He is a
guy who is somebody whom I have known for a long, long time.
And I am working with White House personnel. I realize it
is a tricky issue, but I want to work with you on it to the
extent I can, because I think it is important. And I think you
could probably snap your fingers and get $20 billion worth of
U.S. sales.
Senator Cantwell. I am sorry, Mr. Ambassador; who are you
talking about?
Ambassador Lighthizer. The COO of the Ex-Im Bank is a guy
named Jeff Goettman. He is a person whom I know well. He was
put there, and he is the Chief Operating Officer. He is very
worried about everything that you are worried about.
Senator Cantwell. Okay. How are you suggesting we free up
this--was that a snap of the fingers? Because believe me, today
I would----
Ambassador Lighthizer. No, no, no. No, I was saying if you
can get the Ex-Im Bank operating again, you will find exports
very quickly, a bunch of pent-up demand.
Senator Cantwell. Trust me, I get that. So I am asking you,
as part of the administration whose job it is to worry about
trade, how are we going to get this nominee up from the White
House--and somebody who actually supports the bank, not
supports dismantling the bank?
Ambassador Lighthizer. Well, I am working with--I am happy
to work with you--I am working with White House personnel. It
is not exactly what is in my level of responsibility, although
I am an ex-officio on the bank.
I agree with you completely in terms of outcome. And I am
happy to talk to you offline and try to figure out some
solution. You know the problem better than I do for sure,
because the problem is not in the administration.
Senator Cantwell. The problem is not the--don't you think
that the White House needs to send us a name of somebody who
supports the bank?
Ambassador Lighthizer. All I want is to have a quorum on
the bank and have it start working. That is as far as my
interest goes. I want it to become functional. I think that is
what you want too.
Senator Cantwell. We will take you up on the offer----
Ambassador Lighthizer. Okay.
Senator Cantwell [continuing]. So we work every day to make
sure that great U.S. products can reach the customers in
international markets.
So speaking of that, one of my predecessors--I am kind of
amazed that he said this--Warren Magnuson, said, ``We cannot
afford to ignore or misunderstand China.'' So I am pretty sure
he probably said that in the 1970s or 1980s. Why? Because he
realized that China was not only a market, but a competitor.
So I am somebody who believes in competition. There are
days when we are going to compete with them, and there are days
when we are going to cooperate, depending on what the agenda
is.
So what avenues are we going to take to protect the $7-
billion export agricultural market from my State from being
retaliated against in this trade war that the President is
basically embracing?
Ambassador Lighthizer. Well, I would say there are a
variety of things that I guess I would comment on. Number one,
I do not think the President is embracing a trade war. I think
that is not an accurate statement.
Senator Cantwell. I am just talking about his tweets. If he
has backed off on that--I believe anybody can learn, and if he
has backed off on that, that is great.
Ambassador Lighthizer. I do not believe the President
intends to start a trade war, so I fundamentally disagree with
the first part of what you said.
Senator Cantwell. So this tariff, increasing the cost of
products imported from China, you do not think is going to add
to this?
Ambassador Lighthizer. Well, let me ask you this, because I
know you care about things beyond just the items that would be
retaliated against. We have a $375-billion trade deficit in
goods with China, the biggest in the history of the world
between two countries, probably times five. All right?
We have them engaging in unfair activity and stealing
technology. And by the way, when they get down the road and
develop aerospace and take over that industry----
Senator Cantwell. They are not going to take over
aerospace, trust me.
Ambassador Lighthizer. Well, they seem to have it on their
list of China 2025. I know you are familiar with that.
Aerospace and aeronautic equipment is one of the areas where
they are taking technology and expecting to become the dominant
player. So I know you are concerned about these other issues
too.
We had an enormous amount of discussion about retaliation.
I am happy to reiterate it right now if you--well, perhaps not.
Senator Cantwell. No. I guess here is where I am. I want a
more sophisticated approach. I get that a kind of stomp-your-
feet approach makes some people feel good. But in the
integrated economy that we already have, it is more complex.
I think the S&ED--whether you are talking about Hank
Paulson getting them to readjust on monetary policy or what we
were able to do in getting a clean-energy strategy or the
agreement we got on cybersecurity, which needs to be updated--
it takes constant dialogue. It is not that there is not a WTO
structure and complaints to be filed. But the notion that the
President thinks and has said with his Commerce Secretary many
times that there will be collateral damage, that there will be
a retaliation and that is just part of what is going to happen,
is just not something I think that an economy like the State of
Washington, which is so trade-dependent, is ready to embrace.
They look at this very retro 1980s view of policy: let us
start a trade war. We would like something more sophisticated.
Thank you, Mr. Chairman. My time is expired.
The Chairman. Thank you, Senator.
Senator Casey?
Senator Casey. Thank you, Mr. Chairman.
Ambassador Lighthizer. Mr. Chairman, at some point if I
could have a minute, I would like to respond to that----
The Chairman. Sure.
Ambassador Lighthizer [continuing]. Because I think it is
just fundamentally wrong. If this is the right time, I will do
it. Or I will do it at another time perhaps.
The Chairman. No, this would be fine. Go ahead and respond.
Ambassador Lighthizer. Yes. I would say this. To suggest
that what we are doing is not sophisticated or nuanced is
nonsense.
I would also suggest to you that if you look at these
dialogues that we have had--and we have had a bunch of them,
all right--China joined the WTO in 2002. Before that, we had a
George Herbert Walker Bush action against China for IP--no
result. We had a Clinton 301 action against China for IP--no
result. All right?
Now we start the JCCT, we start the Strategic Economic
Dialogue. The deficit goes from about 100 to about 200 to about
250 billion. Then they decide while we are talking and getting
essentially nothing done through these years of discussions,
they say, well, here is the problem: the Strategic Economic
Dialogue is not working; let us have a Strategic and Economic
Dialogue. So they put that on the table.
They do that for a couple of years--the trade deficit
continues to go up with every one of these. I have a chart that
illustrates this, Mr. Chairman.
We have had every one of these so-called dialogues and have
accomplished almost nothing. The trade deficit has gotten worse
with respect to every single one of them.
And then this President came in and said, we are going to
do exactly what you said. We are going to start a comprehensive
economic dialogue. And we are going to do it differently. We
are going to have short-term goals. We are going to say, here
are the specific things. And we had a 100-day plan.
At the end of the 100 days, we essentially got nothing. And
the trade deficit last year shockingly went up again. So the
idea that there is not a plan, that we are not exploring all of
this, is just wrong.
So what we decided to do was focus the 301 on one of the
things that has specifically been a problem and affects almost
every single part of our economy, even agriculture.
And during the course of all these dialogues--you mentioned
one of the early ones, Senator--during the course of all that,
on 10 different occasions China made specific commitments to do
things in the IP area and did none of them.
Senator Cantwell. Ten seconds, Mr. Chairman.
The lunacy of an administration that cannot make a layup on
the Export-Import Bank and increase exports and yet wants to
shoot consumers in the foot with a tariff costing us something
as the next step is something I disagree with.
Thank you.
The Chairman. Senator Casey?
Senator Casey. Mr. Chairman, thank you very much, and happy
birthday.
The Chairman. Well, thank you.
Senator Casey. Pretty bad singers, but we tried.
[Laughter.]
Mr. Lighthizer, thank you for being here and for your work,
for your willingness to come back into public service at a
difficult time.
I was struck by a lot of your opening statement, but one
sentence that kind of jumped off the page, at the top of page 2
is, quote, ``The costs of globalization are falling most
heavily on workers.'' And I think it is those last five words
that are maybe the most important thing you said: ``falling
most heavily on workers.''
That has been the experience of Pennsylvania. We have had a
record manufacturing job loss in the last generation. You know
a lot of the numbers, but the numbers do not tell the story--
just economic devastation that I cannot even imagine, lives
completely destroyed, the trauma and suffering that flow from
the job loss: suicides and family breakups and all kinds of
trauma is probably the best way to describe it.
And it started to present itself in the 1980s. There was a
4- or 5-year period in the early 1980s when about half of the
steelworker jobs in southwestern Pennsylvania were lost. It
went from close to 90,000 to 45,000 in a couple of years, and
it just continued from there. And I have to say that I do not
think in the last generation either party has done nearly
enough. Neither party has had, in my judgment--and this applies
to multiple administrations, multiple Congresses--an answer for
those workers. A lot of talk, a lot of studies, a lot of
theorizing, but no answers, or at least no answers that
delivered results.
And if you do not have a strategy that undergirds the
development of an answer, I would say I do not think you can
get there. So I am asking you about strategy today.
Obviously, to address some of the root causes of this
problem, you have to have a strategy that addresses global
steel overcapacity, which is the most current discussion topic.
Preventing China from stealing our future--there are so
many instances where China has cheated over and over and over
again on currency and intellectual property, trade deals. And
when they cheat, we lose jobs in Pennsylvania and just get
hammered over and over again, and there is almost no reaction
to that, no response.
And then thirdly, we should be working with allies to
address systemic trade cheaters generally, not just China.
So if you could--and I know this is a lot, and you can
amplify it in writing if you want--but if you could address
your strategy or the administration's strategy on global steel
overcapacity, addressing that, pushing back on China, and then,
thirdly, beyond the cheating that China does, working with
allies to address those systemic trade cheaters.
Ambassador Lighthizer. First of all, we do not have an
enormous amount of time, but I would shorten my response by
saying I agree with almost every single thing you said. And I
only add the ``almost'' because I would have to dice it to make
sure there was not something notionally.
I agree with all of it. I think you are exactly right as a
matter of fact, and I think you are exactly right as a matter
of tone.
And I think that administrations for years have not dealt
with the problem. And it is not one of those problems that is
going to go away with the invisible hand, because there is no
invisible hand. Everybody else is acting.
I would also note that in the 1980s it was, at that point,
a serious problem. Also at that point, the Reagan
administration--and I had the honor to do this--negotiated
voluntary restraint agreements with most of the people in the
world, and it had a huge impact and saved that industry for
that time, but not fundamentally.
So I start off by saying I completely agree with you.
Now, in terms of global steel capacity, you know the issues
as well as I do. I mean, I have been dealing with it and
litigating it and representing steel companies and representing
workers. I agree with you that it is far more devastating than
anyone who does not see it realizes. It is just absolutely
devastating.
And it is way beyond some guy not having a job. It is
families breaking up and opioid addiction and a breakdown of
society. I mean, it is just so fundamental.
And the President is very--I know you have talked to him--
the President is very moved by this. He is very empathetic on
these kinds of things and very, very sympathetic to the people
who are suffering.
So steel--what do you do on steel? You bring cases against
unfair trade, and I think the industry has done that, the
unions have done that, and this administration has been very
good at prosecuting these and getting them to conclusion. But
that only solves the problem with steel coming in here; it does
not solve the problem with China doing it everywhere else.
So the President's view is that you try to do this with
232. That, I might say, is after years of basic discussion. And
we can talk about this Global Forum on Steel, because it is a
classic example of the kind of thing that I was trying to
discuss with Senator Cantwell. And that is, there are so many
opportunities for these kinds of discussions, but people
understand more and more that they do not go anywhere, these
discussions, and almost nothing has been accomplished in that
forum.
So you try to make it expensive for China to have excess
capacity, and that is what we are trying to do in the 232--that
is what you are trying to do with trade cases.
And then you work closely with our allies. And we have a
trilateral group between the United States, Europe in the form
of the EU, and USTR and this administration. We have already
had two meetings. We had one right after the 232. And even with
the disruption of that, the three of us put out a statement
saying exactly what we were doing.
We have to deal with this problem of non-economic capacity
creation and its negative effects on us. And I would love it if
it was just steel, but it is not just steel; it is not just
steel and aluminum. It is semiconductors; it is going to be all
these things on this list. We are literally going to be the
reciprocal of what other people do not want if we do not start
standing up.
I mean, we have a plan: we are trying to make it more
expensive for them to do these noneconomic things.
Unfortunately, the WTO is not designed to deal with this kind
of a problem.
So I should probably stop talking.
So we decided an additional action would be the 301 on IP.
We expect to bring additional ones afterwards in areas where we
do not have reciprocal response and where we are competing
against states or against people who operate in a noneconomic
way.
We are very comfortable when we are competing in a
reciprocal way on the basis of economics. And win or lose, it
is fine, but we cannot be in a position where our people cannot
compete because they are competing with governments or
competing with rules that discriminate against them.
Senator Casey. Thanks. And I will have some questions for
the record that deal with the NAFTA renegotiation on labor
issues.
But, Mr. Chairman, thank you for the extra time.
The Chairman. Thanks, Senator.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman. And by the way,
happy birthday, Mr. Chairman.
The Chairman. Well, thank you very much.
Senator Thune. I heard I missed the opportunity to sing to
you, but I am sure that was, with all the beautiful voices on
this committee, quite a thing.
Senator Wyden. Senator Bennet said you did not miss
anything. [Laughter.]
Senator Thune. Okay.
Ambassador, as I have conveyed to you before, while I
support the administration's overall goal of free, fair, and
reciprocal trade, I am very concerned about the fact that too
little attention is being given to the collateral effect that
many of these actions could have on other sectors of the
economy, particularly the agricultural sector, which is
critically important in my State of South Dakota. And I look
forward to hearing about the administration's plans to address
some of those effects.
But I wanted to take up an issue that is in this year's
trade agenda. You note that President Trump gave as a reason
for withdrawing from the negotiations of the TPP that there is
``no way to fix the TPP and that we do not need to enter into
another massive international agreement that ties us up and
binds us down.'' That is a direct quote.
So the question is, given the President's recent remarks at
the Davos World Economic Forum in January that he would be open
to rejoining the agreement, what is the administration's
current approach to the Trans-Pacific Partnership?
Ambassador Lighthizer. Thank you, Senator. So as you say,
the President is not in favor of TPP. He said he went after it
in the campaign. He was elected, and he did get out. He then
indicated that he would, and I think his exact words were, he
would be willing to discuss an improved TPP either with the 11
or individually with countries.
So the way I dice it is as follows. There are 11 countries
in the TPP. The United States has an FTA with six of those,
including all of the big economies with the exception of Japan.
So of the five with which we do not have an agreement right
now, you have $5 trillion in the case of Japan, where we have
asked for and hopefully at the appropriate time will begin a
process of negotiating an FTA. The next two of consequence are
Malaysia, where the number is probably $300 trillion and
change--this is their entire GDP--and then Vietnam, where it is
about $295 trillion. And then after that, they get smaller
fairly quickly.
So I guess what I am saying is, you could have a couple of
FTA agreements that would essentially bring in a vast majority,
95 percent, of the growth potential that you could get out of a
TPP. And that might be a more effective way to do it.
And then your response might be, well, you also want to
upgrade these other six. And that is probably something that
ought to be done too. So there are more ways to accomplish
this. And it is one of these things on which there is no right
answer.
Is that easier than sitting down and getting 11 people who
have just come to agreement to change that agreement? I mean,
that is something. You do more negotiating than I do, because
you have to do that every day with your colleagues to make that
judgment. In my opinion, I am better off going to these other
countries, and it is easier than trying to get 11 people to
change something that they just agreed to.
Senator Thune. Let me shift to another issue. There is a
significant amount of grain that is exported from my State of
South Dakota. It goes through ports in the Pacific Northwest to
Asian buyers. So it is countries like Japan, South Korea, and
they are among our most active and loyal customers when it
comes to corn and other grains.
And there are countries in Southeast Asia, as you
mentioned, that are among the fastest-growing feed grain
markets in the world. So my question is, what is the
administration currently doing to maintain and build on the
relationships that we have with these key Asian countries
absent a TPP approach?
Ambassador Lighthizer. Well, I would say there is an
enormous amount of stuff that is being done at USDA, of which
you, I am sure, know more about than I do.
I would also point out, as I just mentioned, that Japan is
a country with which it is reasonable to suggest the United
States have an FTA. And we have asked, and they are in their
own position and their own political thing. But I suspect at
some point that will be something to move forward with.
With respect to Korea, they are in a different category,
right? Korea is not in the TPP.
Senator Thune. Right.
Ambassador Lighthizer. They are an independent country. And
in the case of Korea, we are renegotiating KORUS. And I think
that even the course of that renegotiation has been good for
your agriculture sales. And I would note that Korea has bought
a billion dollars more agriculture in the last year than they
did before, and I suspect it is not unrelated to the fact that
they want to get the deficit down and they want to show that
this is an important agreement for the United States. I think
it is an example of ways that pressure does have a positive
effect on agriculture sales, and we ought to be using that
pressure when we can.
So my hope is that we end up with a successful negotiation
with Korea. If we do, I expect it to lead to additional sales.
With respect to Japan, the other one you just mentioned,
that is, you know, more or less the position that I have. I
think that we have asked; it is reasonable to expect at the
appropriate time. This is probably not the appropriate time
right now because they just started the TPP, but that is
something that is coming very quickly.
The Chairman. Senator Warner?
Senator Warner. Thank you, Mr. Chairman.
Ambassador Lighthizer, good to see you again.
Let me first of all add my voice to two of my colleagues'.
One, I completely agree with Senator Bennet that the
President's language about our allies, Mexico, Canada, EU--
there are serious repercussions here. And I know you do not
probably have access to his tweetage, but some restraint would
be terribly appropriate.
And I also agree with Senator Cantwell, and you said you
support the Export-Import Bank. Let us get it functioning, the
sooner the better.
What I am going to talk about is something that falls in
your lane, but not entirely in your lane, and that is, I think,
the incredible growing threat of China.
You outlined some aspects of the China 2025 plan. What I
did not hear you outline were areas--and the ranking member and
I serve on the Intelligence Committee--that China has an
extraordinarily organized plan of investment in: artificial
intelligence, machine learning, quantum computing, where their
goal is to leapfrog ahead of today's technologies and not be
our equal, but bypass us.
We have talked a lot, and I think, again, for many
administrations, we have allowed China to steal our
intellectual property with virtually no pushback.
We now have an unprecedented organized effort by Chinese
investors to invest actually in early-stage companies that we
have never seen before. And it is organized in a way that
companies are not aware of the concerns I believe they should
have.
I think we see in an unprecedented way the Chinese use
their students who come over to this country and then, again,
go back, oftentimes with intellectual property--and again, in
an organized way that did not exist 2 or 3 years ago.
I have huge concerns about the number of American
companies, frankly, that have been so anxious to access the
Chinese market that they give up their intellectual property,
they give up their source codes, in ways they would never do
for entering into any other nation.
And you made an announcement yesterday, the administration
did, about some areas they were going to try to concentrate on
in trying to take on IP. I would like you to spell that out a
little bit more.
But what I am concerned about is, quietly in some of the
companies, like Huawei and Alibaba that people may be aware
of--but there are 20-plus Chinese tech companies all with
valuations north of $20 billion.
Senator Cornyn--I am trying to work with him as well. We
are trying to reform some of the CFIUS process. But the CFIUS
process alone will not get us there when some of these
companies have such breadth and scope they can enter into our
American market directly.
Now again, this is a little bit outside of your lane, but I
would hope, rather than simply focusing on aluminum and steel,
that you would look in a much more organized way at the
national security concerns, the protection of our intellectual
property vis-a-vis China and how we can have a, not just trade
policy, but a whole-of-
government policy to frankly warn American companies before
they allow, I believe, some of these Chinese tech companies to
take over our markets. They operate on totally different
principles than any true market-based economy.
They have a market plan, they have industrial planning in
ways that are exponentially greater--not something we should
repeat. But how is the administration and how is USTR going to
help take on this issue?
Ambassador Lighthizer. Well, I would say, first of all, it
is very encouraging to hear your description of the problem. I
totally agree with it. I think in the final analysis, if you
say what keeps me awake at night, that is what keeps me awake
at night.
If you ask what is going to define whether or not I have
done my job or you have done yours, it is going to be how we
deal with this issue. So it is very encouraging.
Whenever I hear it, I always think, why doesn't the
Intelligence Committee take so many of these other Senators who
are not on it and make them sit in the SCIF and say, here, look
at this stuff? And I think if you did, we would have a lot more
people who are interested and sympathetic to your view.
It strikes me as almost impossible for a smart person to be
exposed to what you are exposed to in that other committee and
not conclude the way you conclude. So I completely agree with
it.
I would say it is because of that that we have focused as
our first major thing--we have NAFTA, we have KORUS, the steel
thing is what it is, we have cases that were brought. But from
my point of view, the most important single thing was this 301
on IP. And it was because I start precisely where you are.
And I agree with you on this issue. I hope that Senators
spend time on it, this issue of putting a million dollars into
10 little things and have one of them pop up and now you are in
a position where it is likely a joint-use technology. It is
going to have whatever the military effects are, but it is
going to have all these effects in terms of our economy going
forward--developed in the United States and gone from the
United States.
So our remedy, in the 301, will deal with that, I believe,
in ways that you will find helpful. And as we announce it and
move forward, I hope that you will engage with the Secretary of
Treasury specifically, just person-to-person on this issue,
this issue of investment that you just mentioned.
Senator Warner. Mr. Chairman, let me just add one quick
comment.
Some of the low-hanging fruit--and this is outside of your
lane--we have a 700,000-person backlog on security clearances,
yet what ought to be one of our top priorities is making sure
the chief security officer of every Fortune 1000 company has a
security clearance so we can share the vulnerabilities that are
out there and some of the nefarious means that some of these
Chinese tech companies are going to use.
The Chairman. Thank you, Senator.
Senator Menendez?
Senator Menendez. Thank you, Mr. Chairman.
Ambassador, thank you for your testimony.
In almost all past trade negotiations, intellectual
property proved to be a sticking point that required high-level
political decisions from us and our trading partners at the
final stages of negotiations.
Given the IP concerns we have in NAFTA, especially those
involving Canada's treatment of innovative, lifesaving U.S.
medicines, what is your strategy for closing out the toughest
chapters and delivering a strong IP chapter for U.S.
innovators?
And what are you doing to make sure that intellectual
property is a top priority in these negotiations so that
innovators in my State of New Jersey and others around the
country will feel protected?
Ambassador Lighthizer. Well, of course, I am sure by that
you are not suggesting that I give out my strategy. But I will
say this. I am in complete agreement.
I think, as you say, in almost every single negotiation, IP
is always the last thing to go. And the principal reason is
that we are basically creators and the people we are
negotiating with are basically takers. And so they have every
instinct and incentive to want to have weak laws so they can
get our IP. And we have the ones to do the opposite.
And ironically--and it is always a surprise to people, but
it will not be to you, of course--Canada is very much in the
group of countries that are the takers and not the protectors.
We think of Canada as having a similar view on most things
that we do, and we think they would have that view on IP. I
know you know, and Senator Hatch for sure knows, that that is
not the case; they have very weak laws.
So it is a high priority. It is something that will go down
to the end and that I expect to--I view myself as being
mandated by the committee to make substantial improvements.
Senator Menendez. So the bottom line is, I get concerned,
since this is virtually always the last thing. After everything
else is agreed to, then why have a sticking point on IP?
But I will take from your comment--and correct me if I am
wrong--that you intend to push for strong IP standards in the
NAFTA agreement.
Ambassador Lighthizer. That is absolutely true.
Senator Menendez. Now, would you agree that having
credibility when negotiating is essential to developing trust
and getting a good deal for the United States in these
negotiations?
Ambassador Lighthizer. Yes, I would.
Senator Menendez. Did I hear you say you would? I'm sorry.
Ambassador Lighthizer. Yes. It struck me as an easy
question to answer.
Senator Menendez. Okay. Well, it would seem so. But have
you ever briefed the President on the status of our trade
relationship with Canada?
Ambassador Lighthizer. Are you going to ask me to go
through the numbers? I am happy to do it.
Senator Menendez. No, I know the numbers. I am asking you,
have you briefed the President?
Ambassador Lighthizer. I have talked to him a lot, yes, and
he was completely right that the numbers are all screwy. And I
am happy to spend time--I do not----
Senator Menendez. So let me read to you what your website
says. USTR's website says that the U.S. goods and services
trade surplus with Canada was $12.5 billion in 2016. Is that
false? Is that false, ``yes'' or ``no''?
Ambassador Lighthizer. I am sorry; would you repeat the
question?
Senator Menendez. Sure. According to USTR's website, the
U.S. goods and services trade surplus with Canada was $12.5
billion in 2016. Is that true or false, what is on your
website?
Ambassador Lighthizer. If it is on there, it could be. Yes,
I will concede that it is. I am sure you would not give me
misinformation, but I do not remember that number.
Senator Menendez. So if it is on your website, I would
assume that you maintain that it is a truism, right?
Ambassador Lighthizer. Well, I would assume it is a version
of the numbers. I am happy to go through these numbers with
you, if you like. I can spend some time on it, if you like.
Senator Menendez. Well, the point is that, as I think
about, whether it is NAFTA or any other place in the world,
that credibility is important to any negotiation. So when the
President has a blatant disregard for the truth when discussing
our trade surplus with Canada's prime minister, I cannot
understand how that helps you in your negotiations.
Ambassador Lighthizer. That is just completely wrong. That
is just completely wrong. So here are the numbers. In 2017,
the----
Senator Menendez. Well, what numbers are you going to give
me that are different than what is on your website?
Ambassador Lighthizer. Can I----
Senator Menendez. Are you going to give me--no, here is the
point. I have limited time.
Ambassador Lighthizer. I am happy to go through this.
Senator Menendez. Are you going to give me different
numbers than what is on your website?
Ambassador Lighthizer. Look, I am happy to go through this.
If you raise the issue, I am happy to go through it. Do you
want me to go through it?
Senator Menendez. Are you going to give me different
numbers than what is on your website?
Ambassador Lighthizer. I am going to give you the numbers.
I am happy to do it and explain the issue. I know what you
really want to do is get an explanation of these numbers rather
than make a political point, so I----
Senator Menendez. What I really want to do is reconcile--if
you are going to tell me something different than what is on
your website, then I am happy to listen to it.
Ambassador Lighthizer. I am going to tell you----
Senator Menendez. If it is the same thing as your website,
I am not quite sure.
Ambassador Lighthizer. I am going to give you the numbers.
Can I do that or not?
Senator Menendez. Well, let me go to a last question,
because I take your website to have the right numbers. You told
me that if it is on your website, it is true. So I take your
website to be true.
Ambassador Lighthizer. Unfortunately, like most things in
trade, it is very complicated, and there are other numbers that
show a massive trade deficit with Canada. And I am happy to
take you through it.
Senator Menendez. Then you should change your website,
because the average American, including a member of the Senate,
would look at your website and it says that the, according to
your website, U.S. goods and services trade surplus--goods and
services--with Canada was $12.5 billion.
So let me ask you this. Do you believe that an optional
dispute mechanism is an effective way to make labor standards
enforceable in NAFTA?
Ambassador Lighthizer. An optional--I am sorry, an
optional----
Senator Menendez. An optional dispute mechanism.
Ambassador Lighthizer. I have to run, as the chairman
knows, so I cannot very well stand here and have you make this
statement which I do not agree with at all on the issue of
these trade numbers. So if you will not get--when people----
Senator Menendez. Look, Ambassador, I am asking you a
different question.
Ambassador Lighthizer. I will submit, Mr. Chairman--can I
submit in writing a response to the Senator on the trade
numbers?
The Chairman. We would be happy to have that.
Ambassador Lighthizer. Thank you.
The Chairman. We would be happy to have that.
Senator Menendez. Can you answer me on the optional dispute
trade mechanism?
Ambassador Lighthizer. Perhaps Senator McCaskill will hear
my point.
Senator Menendez. Ambassador?
Ambassador Lighthizer. Pardon me?
Senator Menendez. Can you answer me on the optional dispute
mechanism? Do you think that is an effective way to make labor
standards enforceable under NAFTA?
Ambassador Lighthizer. An optional dispute--oh, so you are
saying--I think we ought to have labor standards enforced to
the same extent other things are enforced, yes.
Senator Menendez. Yes, so an optional dispute mechanism is
an appropriate way to go ahead?
The Chairman. Senator, your time is up.
Senator McCaskill?
Senator Menendez. Mr. Chairman, I hope that witnesses in
the future can be responsive to questions, because anyone can
eat up my time. I have been around here long enough--26 years
between the House and the Senate--to know when there is a
filibuster going on.
So at the end of the day, if you ask a question and you
cannot get an answer, and the chairman is going to say your
time is up--I would like to get an answer.
Senator Wyden. Mr. Chairman, if Senator Menendez----
The Chairman. I am not against getting an answer, but----
Senator Wyden. Senator Menendez, would you like to make
sure you get an answer before you walk out of the room?
Senator Menendez. I would like to.
Senator Wyden. Go ahead.
The Chairman. Let us give him an answer--whatever.
Ambassador Lighthizer. I think we ought to have enforceable
labor standards, enforced the same way everything--I guess I am
not quite getting the point of what you are saying. I think
labor standards--I have been on record, I have said it many
times--ought to be in the agreement in NAFTA and enforced in
the same way everything else in the agreement is enforced. That
has been my position from the beginning.
The Chairman. Okay.
Senator McCaskill?
Senator McCaskill. Thank you, Mr. Chairman.
I remember talking to you in my office before your
confirmation, Mr. Lighthizer, and I remember telling you how
worried I was about ag. And you said, well, you should be. And
you know, it was startling to me. First of all, I appreciated
your candor; that is unusual in this town to have somebody be
that honest about it.
And I know you said to one of the other Senators earlier
that, you know, it is going to be unfair what happens to
Missouri soybeans, but it is for the national good. Well, it
does not feel like it is for the national good to the soybean
farmers.
You know, this is the thing about trade: in efforts to make
trade more fair, there are always winners and losers in the
countries that are trying to push the envelope in terms of
trade. And ag is going to be a big loser here if this goes down
the path that we are going down, especially if you look at
where our ag products go in Missouri, which is Canada, number
one; Mexico, number two; and for soybeans China, number three.
So it is really worrisome to an economy that is dependent
on agriculture that we are going to say, well, it is for the
national good and you guys are just going to have to power
through it.
I wanted to specifically--and also, of course, the other
one I am worried about is Boeing. Do you anticipate that the
airplane sales that President Trump, many of which had been in
the works for years before he became President, do you
anticipate all of those will go through with what you all are
doing? Do you game this out with your algorithms that Boeing is
going to continue to be able to compete in an evenhanded way
with Airbus or, more importantly, with the Chinese companies
that are developing competitors to the Boeing aircraft?
Ambassador Lighthizer. What I said, and what I do say, is
really that I share your concern. It was not meant----
Senator McCaskill. No. I know you were not being--you were
not saying, ``Too bad for them.'' I was not trying to make you
Simon Legree here. You just acknowledged that ag is going to be
the easiest target for retaliation.
Ambassador Lighthizer. Yes. And it is something that I
worry about a lot.
Senator McCaskill. Yes.
Ambassador Lighthizer. And so does Secretary Perdue and so
does the President. So with respect to NAFTA and your sales in
NAFTA, it is my hope that we have a successful agreement and
those sales are not threatened. So I want to kind of bake that
in.
It is also my hope that we enter into FTAs that increase
sales. And I have tried to make that point here today too.
Now, if we bring in intellectual property, I mean, if the
President decides to do something on the 301, will China
retaliate? That is something that is a real risk that we have
talked about, we have gamed out; we have to decide what we want
to do when it happens. And obviously, it is not something I
want to talk to you about in this forum, but I want to sit down
and get your counsel on what you think we ought to do.
Senator McCaskill. Yes, I would love to, because you did
name aerospace on the list.
Ambassador Lighthizer. And aerospace is something that
specifically the Chinese have decided to be part of their China
2025, and they expect to dominate in that area. And they are
spending over $300 billion to do that.
And they are going to--and Boeing for sure knows. I mean,
they are very focused on this threat. They are focused on the
retaliation threat of sales now, and they are focused on the
noneconomic competition they are going to have to face from
China down the road. So Boeing is in this very peculiar
position where they see long-term----
Senator McCaskill. I would call it ``precarious'' rather
than ``peculiar.''
Ambassador Lighthizer. Yes, precarious. Long-term, they
have a real risk from China in terms of what China is trying to
do, and they have a short-term problem. So we are sympathetic
to that.
And to the extent it comes to real actions afterwards, I
want to work with you on that so that you are satisfied and----
Senator McCaskill. Okay. I am going to try to get to one
more area before I get cut off. Japan was not on the list that
you gave of the countries that have been exempted. Correct?
Ambassador Lighthizer. No.
Senator McCaskill. Okay. And so some of this issue is about
businesses that are relying on specialized steel imports. It is
not a matter of price; it is a matter of availability. I mean,
I have a small company in Joplin that relies on Japanese
specialized steel to make the bearings, and it is not available
in the United States.
So it is not one of these things where they can actually
turn to a more expensive--they are not bringing this in because
they are getting it cheaper than they can get it in the United
States. They are bringing it in because they cannot get it.
Do you have some kind of mechanism in place to rocket those
kinds of manufacturing facilities to the top of your exemption
list? Is there some way they can navigate this? Because they
have no choice, if they want to stay in business, than to use
this Japanese specialized steel they are using.
Ambassador Lighthizer. I agree with you. I am sympathetic.
There is a process at the Department of Commerce to do that. I
do not really have the people they do.
But if you have a specific constituent that you say is
somehow lost in this process, if you bring it to me, I will----
Senator McCaskill. I think all the small manufacturers are
going to be lost in this process. It is 90 days, it is
complicated, the tariff starts tomorrow. There has been nobody
reaching out to these businesses that are going to be
dramatically harmed by this to say, what can we do to
facilitate you continuing to even get the product you must
have? Nobody is doing that, Mr. Ambassador.
The Chairman. Senator, your time is up.
Senator Carper?
Senator McCaskill. Okay. I just want to note for the
record, Mr. Chairman, that earlier in the questioning everybody
was going over 2 and 3 minutes. When you get to the end of the
table, man, it gets tough.
Senator Wyden. Mr. Chairman, the Senator has a valid point.
Is there a response that the Senator wants from the
Ambassador now before we wrap up?
Senator McCaskill. I was just----
The Chairman. I do not have any problem with that, but it
is just----
Ambassador Lighthizer. No, I want to work with you.
Senator McCaskill. It is just low-hanging fruit on trade.
And the notion that you and Secretaries Ross and Mnuchin cannot
get in the room and get Export-Import done is weird.
Thank you, Mr. Chairman.
The Chairman. Well, thank you.
Senator Carper?
Senator Carper. Ambassador, nice to see you.
A number of my colleagues have raised agricultural concerns
with respect to the renegotiation of NAFTA and the loss of TPP:
tariffs, the imposition of tariffs, and what the trickle-down
effect might be on them and their livelihood. I just want to
echo those sentiments.
We only have three counties in Delaware. One of them, the
southern-most county, is Sussex County, the third-largest
county in America. Last time I checked, I think they were maybe
the
number-one soybean county east of the Appalachian Mountains. So
soybeans have been mentioned here already; I want to just
reiterate that.
I have a question on services. I think between 2006 and
2016, service exports from my State more than doubled, I think
from about $1.5 billion to $3 billion. And those exports, I am
told, support close to 20,000 jobs, which is a lot of jobs for
Delaware.
This year's annual Economic Report of the President
reiterates the fact that the U.S. has a trading deficit in
goods but, as you know, a surplus in services. The report goes
on to say that focusing, this is a quote from the annual
Economic Report of the President, ``Focusing only on the trade
in goods alone ignores the U.S. comparative advantage in
services.'' That is lifted right out of the report. And most of
the administration's focus today seems to be on goods. We hear
very little about expanding trade opportunities for services.
So I would just ask you two related questions. One, what is
the administration doing to take advantage of our comparative
advantage in exporting services? Two, what is the
administration's position on restarting talks on the Trade in
Services Agreement? Those two questions, please.
Ambassador Lighthizer. Well, I would say, first of all, we
acknowledge we have about, I think the number is about $750
billion worth of exports in services, and we have about $250
billion--I think these are approximately right----
Senator Carper. And I would just ask, what is the
administration doing to take advantage of our comparative
advantage in exporting services? And what is the position on
restarting talks on the Trade in Services Agreement?
Ambassador Lighthizer. Well, on the NAFTA issue, we have a
very, very aggressive pro-services agenda involving market
access in a whole variety of areas, including delivery of
services, all of which are included in that area. On financial
services, we have a very aggressive plan. On
telecommunications, we are trying to lock in the kinds of
improvements that the Mexicans have made in their own law in
the digital trade area, which is, of course, part of services.
We have a very aggressive agenda there.
We have also started a negotiation, sort of under the
auspices of the WTO. I say ``sort of'' because it is a group of
countries that agree with us. Right now everything is stopped
because you have one or two countries that do not want to do
anything, so we have gotten a group of about 70 countries that
want to negotiate on digital trade and get their own rules. And
we are moving ahead on that as a way to get around this sort of
hostage-taking and the, you know, the logjam that we have had.
The area of trade in services is something that has been
dormant for some time. We are looking at it; we see areas of
improvement. And the question is whether you start that
negotiation up and whether or not that negotiation is the
quickest way to actually make improvement, or if you pick out
some of the areas that are specifically under it and try to
work with them among a plurilateral group of people who
actually are trying to make progress. So we are trying to sort
our way through that right now.
Senator Carper. Now, my second question was, what is the
administration's position on restarting talks on the Trade in
Services Agreement?
Ambassador Lighthizer. Well, that is what I said. So the
TiSA agreement is something that we are studying. And the issue
is, right now for us--and I would be happy to talk to you, you
know, offline and get your thoughts on it--the issue is whether
or not you take all those items.
And you are more likely to make progress in a shorter
period of time in TiSA, or you are more likely to make progress
if you deal with them in specific groups of like-minded people
who actually have the desire to move forward in that area and
not take hostages involving agriculture and all kinds of other
stuff.
So it is something that we are still looking at. We now
have our Deputies onboard as of this week. So we are at kind of
a crucial time, and it probably makes sense for us to sit down
and talk about it.
Senator Carper. All right, fair enough. Thanks very much.
The Chairman. Thank you, Senator.
Senator Whitehouse?
Senator Whitehouse. Thank you, Mr. Chairman.
How are you, Ambassador?
First of all, I am and have been for many years very, very
concerned about what I view as an officially sanctioned and
supported campaign by the Chinese government to, through cyber-
attack, engage in industrial espionage and theft of American
intellectual property in order to provide mercantilist
advantage to their companies against ours. And I appreciate
your focus on that.
I recall that there has actually been an indictment of
Chinese military officials for that activity, and I hope that
the administration continues to look at not only the trade
aspects of this, but what law enforcement aspects might also be
appropriate.
Industrial espionage and theft are industrial espionage and
theft, even when the criminal perpetrators are from a foreign
country.
The second thing I wanted to raise with you is an issue
that is very peripheral to the main thrust of what this hearing
has been about, but I think is an important one for our
country.
I do not know; where do you come from?
Ambassador Lighthizer. I am from Ohio.
Senator Whitehouse. You are from Ohio. Okay. So you are not
going to be much help in the sense of having a big coastal
sensibility. But a lot of us in coastal States are seeing very
significant harm to our ocean environments. And as a result,
Senator Sullivan of Alaska, who gets it even worse than we do
in Rhode Island, and I got together and cleared a bill through
the Senate unanimously to try to address the problem of marine
plastic debris, of ocean plastic junk.
Now, ocean plastic junk has been traced back, the bulk of
it, to five Asian countries. And the reason that they are
putting all this plastic junk into the oceans that then washes
up on our shores is because they have lousy upland waste-
management infrastructure. So everything ends up washing down
the creeks and rivers and into the oceans. This has, I think,
been pretty clearly identified.
So my pitch to you is that, as you are considering our
trade relationship with those countries, that you consider the
advantage they are securing for themselves by failing to invest
in adequate upland waste-management infrastructure and that we
then face the consequences of all the plastic junk that piles
up in our oceans and along our shores.
In Alaska, the testimony from Dan Sullivan's witnesses was
that--you know, we pick up our plastic junk in, like, trash
bags on beach cleanup days. In Alaska, they have to do it with
dumpsters and front-end loaders and barges, they get so much,
because the Pacific is the worst, because those five countries
are the worst.
So if we could simply get them to take their upland waste-
management disposal responsibilities seriously, that would do
two things. One, it would eliminate an unfair competitive
advantage that they have by not paying attention to that. And
two, it would provide a business opportunity for American
companies that are expert in, guess what, waste management.
So I hope that this is an issue that will pop up on your
radar screen. I do not expect it to be your first issue, but I
hope it is not completely ignored, because it is a global
problem.
The U.N. is beginning to address it. There has been a U.N.
resolution about it. They have developed a whole Clean Seas
initiative. NOAA has supported the International Marine Debris
Conference just now in San Diego. The G7, Canada have announced
they are going to try to make this a priority. The G20 has
already released an action plan on this. So there is global
progress moving forward that you should, I think, be consistent
with.
And even the industry is supporting it. The European
plastic trade association has made a new marine plastic pledge
in January. And 74 plastics associations from 40 countries
gathered together under the Global Plastics Association,
including the American Chemistry Council, have made a
declaration for solutions on marine litter.
So you would not be going against the stream; you would be
going with the stream of both our international partners and
our industry. And I take this time with you to urge that you
put this on your list of issues, not necessarily at the top,
but where we can be helpful, let us push in on these five
countries and make sure they clean up their act.
Ambassador Lighthizer. Thank you, Senator. I am generally
aware of the problem, but more specifically aware of it now,
and we will look at it.
Senator Whitehouse. Great. Thank you. I will follow up.
Ambassador Lighthizer. Thank you.
The Chairman. Thank you.
Senator Cassidy?
Senator Cassidy. Hey, Ambassador, thank you for hanging in
there, man.
Listen, if tariffs are on steel, but not on the finished
products, it greatly disadvantages our fabricators. There are
folks in Korea who are doing finished product and taking it
across the ocean and installing it in a major petrochemical
plant in southwest Louisiana, depriving our fabricators of the
business.
My concern is, if you do tariffs on the raw steel--and that
has increased the price of inputs for our domestic
fabricators--you further tilt it because now you have
incentivized folks to build their finished product overseas,
and you have increased the cost differential.
Any thoughts on that?
Ambassador Lighthizer. We are, of course, aware of the
problem of downstream effects. And that is always something
that you have to consider when you take any trade action.
And your fundamental point is that you are generally better
off putting tariffs and taking actions on finished products.
Senator Cassidy. Correct.
Ambassador Lighthizer. That is for sure true, in my
judgment.
Having said that, you are in a position here where you have
a specific problem and you have to figure out how you are going
to deal with it.
So I think what we have to do--the President has decided to
take this action--I think we have to monitor what you are
saying very closely and see if there is something that we
should be doing in the meantime somehow to mitigate the problem
with respect to specific circumstances.
But your fundamental point is--and the President, by the
way, completely agrees--your fundamental point is, you are far
better off taking action on finished products than you are on
input products.
Senator Cassidy. Now, that seemed to be a little bit of a
disconnect there. You fundamentally agree, the President
fundamentally agrees, but you are only monitoring as opposed to
implementing. We can predict--we are already losing projects to
overseas fabricators because their cost of steel is
significantly lower than ours, labor is lower, et cetera.
So let me just ask, if you fundamentally agree, why is
there a hesitation in doing something about the finished
product?
Ambassador Lighthizer. Well, I am not--I guess what I am
saying is, when you have a circumstance that you consider to be
a national security issue on the 232, you cannot not take that
action for that reason.
But to the extent there are specific cases we ought to be
looking at, I guess what I am saying is, I am sympathetic, and
I think we ought to be looking at them.
Senator Cassidy. Now, secondly--and I do not know this; I
am asking--there is a fabricator in, I think, Montana, Wyoming,
one of those States, who tells me that he bid on a project and
lost to a South Korean company. The South Korean company bid
$900,000 for this steel project for a replacement part for a
refinery up there. But the transportation costs, according to a
logistics company, would be at least $600,000. So the Korean
company bid $900,000, won the bid, and you can look at that and
imagine there is a subsidy of some sort, because they would
have to have taken all their inputs and install it for $300,000
after you factor in the logistics.
Are we doing anything about the subsidies that are accruing
to folks perhaps in terms of transportation of these major
pieces of a complex----
Ambassador Lighthizer. Well, I mean, I do not know about,
of course, that specific case.
Senator Cassidy. I understand.
Ambassador Lighthizer. But as a general matter, yes, this
administration has been very aggressive on going after
subsidies. Even, I think, people who view themselves as
fundamentally free traders have to acknowledge that there is
nothing fair about government subsidies. That just throws the
whole thing askew. It is more of a Department of Commerce
issue, but we are happy to take the facts of a specific
circumstance and go to the Department and have them look at it.
You know, it is complicated. Will you bring your case? Then
you bring the case, and can you prove injury and the like? But
directionally, you are completely right: it is a huge problem.
And I have heard stories like this over the years from time
to time, and they have always been bothersome. So to the extent
you have a specific one, we would like to look at it.
Senator Cassidy. I heard earlier that it is actually
Commerce who is responsible for giving the exemptions. But I
will say, just so you can pass this along, that we are
requiring small fabricators who make custom pieces to give a
specification as to the thickness of the steel, the diameter of
the pipe, et cetera, when this is a one-off.
It is not something being stamped for a car door, of which
you will do a million; it is something you are doing 50 of. And
the means by which you obtain an exemption is somewhat onerous.
Is it at all possible that we could allow the exemption to
go to the vendor to sell their steel as opposed to the
purchaser who then has to justify their purchase by giving
specs which, again, are a one-off?
Ambassador Lighthizer. Yes, I guess I just do not know the
detail enough on that. I mean, what you are saying strikes me
as reasonable, but I do not know exactly how it is set up. I am
happy to look into it if you like.
Senator Cassidy. Please. Okay, thank you.
I yield back.
The Chairman. Thank you, Senator.
We will turn to Senator Brown, who is next.
Senator Brown. Thank you, Mr. Chairman. And happy birthday,
Mr. Chairman.
The Chairman. Well, thank you so much.
Senator Brown. It is good to be with you on your birthday.
I have a couple of comments.
And, Ambassador, welcome again, and nice to see you. And
thank you for your responsiveness pretty much all the time. I
appreciate that.
I want to make a few comments before I get to just really
one question. First, thanks for what you are doing on NAFTA
negotiations. I appreciate the new approach. You know I place a
lot of importance on the labor chapter and investor-state and
strong and enforceable currency provisions. I appreciate the
cooperation with your whole staff and my staff, and with you
and me personally.
I have tried many times--I want to make it clear today--I
have said it at the White House, I have said it to you in
meetings with staff, one-on-one, that I will strongly support a
NAFTA agreement if it is good for workers. I have confidence
that you will achieve that goal. And if you do, I think you
will see, for sure, a lot of Democratic support for a
renegotiated NAFTA.
There is one thing I want to express concern about, an
article on the front page of, I believe, yesterday's New York
Times. It indicates provisions are being discussed in the NAFTA
talks that would make it harder for countries to maintain food
labeling standards.
I do not want to take time to ask you to confirm if the
reporting is accurate, I just want to urge you to make sure
that a renegotiated NAFTA does not undermine, does not make it
easier to block public health measures on food labeling.
That kind of special interest, multinational, corporate
agenda is what made our trade agreements so backward and so, so
reviled by so many in the American public.
The second statement I want to make briefly is, I know you
told the committee that Korea would be excluded from the 232
tariffs. That is troubling, given their history of unfair trade
practices. There are a lot of laid-off workers in Ashtabula and
Mansfield and places in between in Ohio because of their
subsidized imports.
I urge you to reconsider the exclusion. And, I would
appreciate if your staff would follow up with Nora and me
directly on your strategy to exclude South Korea.
And lastly, I want to talk briefly about China. I applaud
your decision to launch a 301 into China's theft of U.S.
intellectual property. We have to reset our trade relationship
with China; I think it does that.
I know you have said tariffs may be part of the remedy if
the President chooses to make that decision. As you know,
tariffs are one tool in your toolkit and also temporary, so
they can help buy time. But the Chinese, as you know, have a
long, long history, and they may look at time a little
differently from how we do.
I know you are considering proposals to address Chinese
investment in the U.S., which tripled between 2015 and 2016. It
has gone up tenfold in the last 5 years, so we should be
concerned.
I mean, I welcome Chinese investment in my State, but I
have concerns sometimes about their strategies and their
subsidies of land and water and energy and capital and all they
do.
Senator Grassley earlier mentioned, but it is worth
mentioning again, that he and I have introduced a bill that
would require a review of certain foreign investments made in
the U.S., particularly those made by state-owned companies. The
point of our bill is to ensure that, as we do with CFIUS in
national security, that foreign investments made here are in
our national economic interest. Currently, there is no legal
mechanism to do that.
We want to get this bill signed into law. My question is
pretty simple, Ambassador. Will you commit to working with
Senator Grassley and me on our legislation as part of the
section 301 remedy package and as part of the administration's
overall trade agenda?
Ambassador Lighthizer. Yes. Yes, absolutely I will. And I
think the Korea thing will not be a problem. I am happy to work
with you on that also.
Senator Brown. Okay. Thank you so much.
The Chairman. Senator Scott?
Senator Scott. Thank you, Mr. Chairman. And happy birthday
as well. Good to be with you and Senator Brown on your
birthday, which I thought was nice of him.
Ambassador Lighthizer, thank you for your responsiveness.
You and I have had many conversations, and the lines of
communication have been open. And I appreciate your
responsiveness.
One of the reasons why having open lines of communication
with you is quite important to me as a South Carolina Senator
is, South Carolina has really come back to life because of our
trade. We have 6,000 companies employing more than 500,000
people, exporting over $2 trillion of goods around the world.
It is critically important for our major brands, from the
Boeings, the Volvos, the Mercedes, the BMWs of the world, and
our farmers to connect with about 96 percent of the consumers
who live outside of the country. So it is critically important
for us to have open lines of communication, and you have been
very responsive, and I appreciate that.
We believe that good trade policy unlocks opportunity for
American families and gives us the tools necessary to make sure
our trade partners play by the same rules we do.
With those thoughts in mind, I think it is important for us
to understand your approach to China. Much has been said,
correctly, about China's lack of commitment to world economic
policies championed by the WTO. And many have been accurately
critical of the U.S.-China trade relations when it comes to
manufacturing, IP, and technology.
Here are my questions for you, sir. How does the
administration view China's efforts to open market access to
U.S. companies in other sectors, such as financial services?
And how do we balance, or is it possible to increase investment
flows between the two countries in those sectors while
continuing to challenge negative practices in other sectors?
Ambassador Lighthizer. So, first I would say it has been a
pleasure working with you. And I find our close working
relationship to be important in terms of us getting it right.
So I am grateful. And South Carolina has to benefit from this
whole process.
Senator Scott. Yes, sir.
Ambassador Lighthizer. If you do not, then we are doing
something very wrong.
In terms of this question of financial services, what the
administration has to demand is reciprocity. The administration
has to demand and I think will take steps to--and I will deal
with you offline on this, because it is a next, very important
phase of this, so it is extremely timely.
But the essence, in my opinion, of financial services, of
our policy, has to be that China cannot operate in the United
States on rules that are more favorable than we can operate on
in China. And financial services are important for the reasons
that you say. It is jobs, and it is this, and it is that.
But far more important than that is, it is, in many cases,
the vehicle by which capital is allocated. And if capital is
allocated in the state-capitalist way that China would do it as
opposed to the
market-driven way that we would do it, we are going to have
different results in terms of how the economies work out and
how our resources are allocated. So financial services are
extremely important.
I have dealt with people in the industry. I want to deal
personally with you now that I know this is another issue that
you are interested in.
And it is a whole variety of things that are related but
different, as you know. But to me, the fundamental rule has to
be, they get the same rules that we get, and we have to be
extremely careful about how those mechanisms are used to
allocate resources for the next 100 years or 50 years.
Senator Scott. Yes. Good. Thank you.
As you know, South Carolina has a significant trade surplus
with South Korea. And I understand that you guys are on track
to continue the discussions on KORUS. When do you anticipate
releasing objectives for the negotiations? And do you have a
time frame when you think it will be finished? And how does
USTR differentiate between renegotiation and amending the
agreement when seeking new asks?
Ambassador Lighthizer. So this is really important. So
NAFTA we are renegotiating, and we are using TPA. On KORUS, of
course, we are not. The objective from the beginning was to
make this an easier, simpler thing to do. There is a mechanism
under that agreement that we can use and that we are using.
In terms of where the lines are drawn, if it requires
changing law, we cannot do it in this agreement. So it has to
be things that we can do by the terms of the agreement or
things they can do themselves that do not require changes in
law.
But if it requires a change in law, then you have to do
TPA. Our initial objective was not to do that, because we
thought it would lead to this level of uncertainty, that we
would go on and on and on, because TPA, as you know, is a
process that requires literally years.
So our hope is that we will make--the final part of your
question--our hope is that we are making progress. I met with
my counterpart, Minister Kim, yesterday, I met with him the day
before; I met with him last week. So it is impossible to
predict when you will end the negotiation. But it certainly is
my hope that we will do it sooner. I know it is important to
you.
Senator Scott. Okay. I look forward to continuing the
conversation offline on this subject as well.
Ambassador Lighthizer. Good.
Senator Scott. Thank you.
Ambassador Lighthizer. Thank you.
Senator Scott. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
My partner, Senator Wyden, has a question.
Senator Wyden. Thank you very much, Mr. Chairman. It is
really a statement, and I will be just about a minute or so.
Mr. Chairman, steel and aluminum tariffs go into effect in
12 hours. Before this hearing, we knew that Canada and Mexico
would be exempt from the tariffs. And the Ambassador, when I
asked him about it, gave us new information that Europe,
Australia, Brazil, Argentina, and South Korea would also be
exempt.
I bring this up only, Mr. Chairman, to note that you and I
have felt so strongly, and our colleagues on a bipartisan basis
have, that real consultation means that we have to get
information so as to be able to do vigorous oversight, and that
means getting it certainly well in advance of this morning and
12 hours before the tariffs go into effect.
So I only make that point because I want to work with you
on improving consultation.
The second point, Mr. Chairman, I want to direct to the
ambassador.
Ambassador, you are a veteran of the Finance Committee, and
you know that folks here have real differences of opinion. We
have pretty spirited debates.
I do want to tell you, to describe a member of the
committee's position, as was the case with Senator Cantwell, as
nonsense is unacceptable to me, and I just believe beneath you.
So I hope you will keep that in mind when you next appear
before the committee.
Ambassador Lighthizer. Well, I will. And I certainly did
not mean that as a--I guess what I was saying is that I
disagree with that problem. And ``nonsense'' was an
inappropriate term.
Senator Wyden. Well, I appreciate your saying that,
Ambassador, because, you know, you are an alum of the
committee. We have pretty vigorous debates around here, and
people differ constantly. But I appreciate your saying that
that was not what you wanted to say.
Ambassador Lighthizer. No. I disagreed, but you are
completely right.
Senator Wyden. I appreciate your clarifying.
Mr. Chairman, I am done. Thank you.
The Chairman. Well, thank you.
Ambassador, I have to say that I have always enjoyed
working with you. You are a straight-up, straight-shooting guy.
You are very competent. You have a world of experience behind
you. I think we are lucky to have you. I think today's hearing
proves that to a degree--not as much as I know you can show.
But I think very highly of you, and we just wish you the
best in working for our country. And I have no doubt that you
are going to continue to do a terrific job.
So we appreciate you taking time to be with us. And I hope
this has not been too painful for you.
So with that, we will recess until further notice.
[Whereupon, at 12:24 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Hon. Orrin G. Hatch,
a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah)
today delivered the following opening statement at a Finance Committee
hearing on the administration's trade agenda.
Good morning and welcome to today's hearing, during which we will
discuss our Nation's trade policy agenda.
Thank you, Ambassador Lighthizer, for being here today. You were
last before this committee in June of last year, and the trade agenda
looks quite different now than it did then.
Let's start with the North American Free Trade Agreement.
Negotiations with Canada and Mexico began on August 16, 2017. Since
then, we've seen good progress toward modernizing the agreement. In
particular, I want to congratulate you on closing a strong chapter on
SPS measures that would benefit American farmers and ranchers.
But many crucial issues must be addressed before the negotiations
can be brought to a successful conclusion.
Your first priority should be strengthening protections for
America's creators and innovators, in particular: strengthening
copyright protection and enforcement provisions and creating
disciplines to ensure that regulation does not undermine the market
value of patented products.
It is essential that any agreement reached be fully enforceable
through state-to-state and investor-state dispute settlement, and that
market access gains, including in government procurement, are not
weakened.
It is also important that you keep in mind that an updated NAFTA
must be passed by Congress. That means that you must adhere to the
negotiating objectives set out in the Trade Promotion Authority law
passed in 2015, and that you deliver an agreement that will be
supported by members who favor expanding trade with Canada and Mexico.
There is no other viable path to enact a modernized NAFTA.
Now, I want to change the subject a bit. Next up, I have to discuss
what I consider to be a significant step in the wrong direction: the
administration's imposition of steel and aluminum tariffs.
I am deeply disappointed in the decision to impose global tariffs
to address a problem caused by China. Tariffs are taxes, and so I am
concerned about the harm that this action will impose on American
manufacturers and families. And I am astonished at the process--or in
reality, the lack thereof--for implementing the tariffs so far.
Ambassador Lighthizer, you have been tasked with working with our
trading partners on exemptions from the new tariffs. These tariffs are
slated to take effect about 14 hours from now. There is no clarity on
country exemptions, and the recently announced process for product
exclusions is prolonged and unnecessarily cumbersome.
As such, I am hoping that you can make clear what is happening on
this front today.
Let me turn now to an issue that is squarely within your
responsibility. I am deeply concerned about Chinese mercantilist
policies that disadvantage U.S. companies, restrict U.S. exports and
investment, and harm American workers. From the beginning of your
tenure, you have identified Chinese theft of trade secrets and the
forced transfer of American technology as significant problems that
must be addressed.
That is why I supported and continue to support USTR's section 301
investigation.
But, as you know, my continued support is contingent on the
President choosing an appropriate remedy. That remedy should be
targeted specifically at the perpetrators and beneficiaries of China's
actions, and it must be part of a strategy to correct China's
technology policies. I look forward to your comments on this.
Finally, I welcome the administration's decision to seek a renewal
of Trade Promotion Authority. I particularly welcome the President's
announcement that he would use an extension of TPA to aggressively
negotiate new trade agreements.
I intend to use the extension process to get further details on
your plan for expanding opportunities for American businesses overseas
through new and ongoing negotiations, and to emphasize that these
negotiations must be conducted consistent with the objectives set out
in TPA. And I welcome any comments you have to offer on that today.
______
Prepared Statement of Hon. Robert E. Lighthizer, United States
Trade Representative, Executive Office of the President
Mr. Chairman, Ranking Member Wyden, and members of this committee,
thank you very much for the opportunity to testify this morning. During
my time at USTR, I have benefited from many helpful and productive
conversations with the members of this committee. I am grateful for
your counsel and look forward to our continued engagement.
My remarks will be brief--I want to cover three major points.
First, I would like to thank the members of this committee--and the
rest of the Senate--for approving three Deputies for my office and my
Chief Agriculture Negotiator. This has been a long process and I am
glad we are now in a position to better support your priorities and
those of the President.
Second, I would draw the committee's attention to the fact that
last year, the U.S. trade deficit in goods and services rose to $568
billion, and that the trade deficit in goods alone rose to $811
billion. There are, of course, many causes for the trade deficits but
the President believes--and I agree--that persistent, enormous deficits
to some extent reflect market distortions around the world that treat
U.S. workers and businesses unfairly. We also have a massive trade
deficit in goods with China--$375.2 billion last year--and large
deficits with the European Union, Japan, and others.
I know that the members here have a variety of views on these
figures. But we believe that they raise significant concerns. They
indicate that the global rules of trade sometimes make it harder for
U.S. companies to export. They can discourage U.S. investors and
businesses from entering certain sectors of the global economy.
Further, they indicate that in the United States, the costs of
globalization are falling most heavily on workers in those parts of the
economy exposed to trade. And they undermine U.S. political support for
the global trading system.
Third, I would like to summarize the President's Trade Agenda,
which we released recently. We are focused on five major priorities.
First, we at USTR will support the President's National Security
Strategy. That means that our trade policy will help to build a
stronger America, will preserve our national sovereignty, will respond
to hostile economic competitors, will recognize the importance of
technology, and will seek opportunities to work with other countries
that share our goals.
Second, for U.S. companies and workers to be competitive in
overseas markets, we need a strong and robust economy at home. The
Congress has passed and President Trump has signed a major tax reform
bill. The administration has also begun making regulatory changes that
will strengthen the U.S. economy.
Third, we are negotiating trade deals that will work for Americans.
As the members of this committee know well, the President has directed
us to seek significant changes to NAFTA. We have already held seven
rounds of talks with our partners in Canada and Mexico, and I believe
that we have made a great deal of progress. I have urged our trading
partners to recognize that time is short if we are to complete a deal
in time for consideration by this Congress. We have also reached out to
South Korea to discuss potential improvements in our free trade
agreement with that country.
Now that we have a full team of deputies, we intend to aggressively
pursue other potential free trade agreements. We have a trade working
group in place with the United Kingdom to lay the groundwork for when
they are eligible to enter into a free trade agreement following their
formal exit from the European Union. We have told Japan of our desire
to negotiate a free trade agreement with them. We will work closely
with the committee to decide upon opportunities for potential FTAs in
Africa and Southeast Asia. Given this agenda, the President will soon
ask the Congress for an extension of Trade Promotion Authority until
2021. We look forward to working with you on these new deals.
Fourth, we are enforcing and defending U.S. trade laws. During the
Presidential campaign of 2016, President Trump said that he would use
all available tools to defend our national interest and our national
security--including sections 201 and 301 of the Trade Act of 1974, and
section 232 of the Trade Expansion Act of 1962. Those promises are
being fulfilled--and our trading partners are on notice that the
President will act when necessary to defend our national security or to
address unfair trading practices that threaten U.S. jobs. We are also
aggressively defending the trade laws created by Congress--including
our important antidumping and countervailing duty laws--in litigation
at the World Trade Organization.
Finally, we seek to reform the multilateral trading system. For too
long, the WTO has failed to promote trade liberalization. Too many
members remain committed to an outdated Doha Round agenda that is
incapable of addressing modern issues like digital trade. Too many WTO
members think that they can get their way through litigation, rather
than negotiation. Perhaps most worryingly of all, the WTO has proven to
be wholly inadequate to deal with China's version of a state-dominated
economy that rejects market principles.
In short, USTR--under the direction of President Trump--is seeking
to build a better, fairer system of global markets that will lead to
higher living standards for all Americans. I am excited about our
efforts, and am happy to take your questions.
______
Questions Submitted for the Record to Hon. Robert E. Lighthizer
Questions Submitted by Hon. Orrin G. Hatch
Question. I welcome the President's request for an extension of
Trade Promotion Authority. I am seeking your assurances that, if
extended, the administration will use this authority effectively. That
means negotiating new trade agreements that comply with the negotiating
objectives and procedures of TPA.
What new agreements is USTR considering? And do you commit that
both in negotiating these new agreements, as well as in the ongoing
negotiations regarding NAFTA and KORUS, USTR will comply with the
objectives set out in TPA?
Answer. USTR is currently exploring potential bilateral deals with
several countries, including the UK and countries in Africa and the
Indo-Pacific, in order to secure greater market access for American
farmers, workers, ranchers, and businesses. As you know, USTR
frequently explores these options through our Trade and Investment
Framework Agreements as well as through discussions that are more
informal. Before USTR begins any bilateral negotiations, we will ensure
to consult closely with you and your staff and to follow the
requirements outlined in TPA throughout the process.
Question. As you know, U.S. law provides for a 12-year term of
regulatory data protection for biologics. Securing a result consistent
with U.S. law is an important outcome for the NAFTA negotiations.
What is USTR doing to secure strong provisions on regulatory data
protection for biologics?
Answer. USTR understands the critical role that intellectual
property plays in incentivizing the investment in research and
development necessary to bring new pharmaceutical products to patients.
Through the NAFTA renegotiations, USTR is pressing for high standards
on intellectual property protections for pharmaceuticals, including
biologics data protection, that appropriately recognize the value of
innovative medicines so that these trading partners contribute their
fair share to research and development of new treatments and cures.
Specifically, USTR has been pressing for a robust data protection term
for biologics in the NAFTA renegotiation.
Question. As Senator Nelson and I noted in our letter to you dated
April 13, 2018, the United States has the world's strongest creative
industries. America's creative industries were responsible for $177
billion in U.S. exports in 2015, and provide more than 4.5 percent of
all private sector jobs in the United States. Unfortunately, Canada and
Mexico do not place the same value on strong intellectual property
protections as the United States. It was recently said that Canada
maintains third-world IP standards, which indicates there is certainly
room for improvement.
Will you please share with us how you will use the NAFTA talks to
strengthen, rather than create exceptions to, current copyright
standards, and how you will ensure the agreement protects the value of
U.S. innovation?
Answer. We are using the NAFTA talks to ensure that U.S. creators
have a full and fair opportunity to use and profit from their
copyrights and related rights. Ensuring strong intellectual property
protection and enforcement by our trading partners is a top trade
priority, including in trade negotiations. As reflected in USTR's NAFTA
renegotiation objectives and our proposed text, USTR continues to
``[s]eek provisions governing intellectual property rights that reflect
a standard of protection similar to that found in U.S. law, including,
but not limited to protections related to trademarks, patents,
copyright, and related rights, undisclosed test or other data, and
trade secrets.''
Question. TPA requires that U.S. trade agreements include robust
and enforceable dispute settlement procedures. Such procedures ensure
that our trading partners comply with their commitments, including
those concerning the protection of intellectual property. As you know,
many WTO Members frequently violate their IP obligations. And yet,
until the recent dispute against China brought under the TRIPS
Agreement, the United States had not initiated an IP dispute at the WTO
in over a decade.
How do you intend to use the WTO dispute settlement system to
ensure that countries comply with their IP and other WTO obligations?
Answer. Consistent with the President's trade policy agenda, USTR
will use all available tools, including the WTO where appropriate, to
ensure that American intellectual property holders receive fair
treatment in trade and win the full benefit of the economic
opportunities the United States has negotiated.
Question. Services constitute the largest sector of the U.S.
economy, and enhancing trade in services is vital for American economic
growth. And yet, services often seem to be under-appreciated during
U.S. trade policy discussions.
In the context of ongoing and future trade negotiations, how do you
intend to facilitate increased trade for America's world-leading
services industry?
Answer. The U.S. service sector is highly innovative and a key
driver of the U.S. economy. Maintaining a vibrant U.S. services sector
and expanding U.S. services exports is vital to a healthy economy and a
core objective of U.S. trade policy. USTR is pursuing robust services
outcomes in the ongoing NAFTA negotiations and other ongoing bilateral
efforts. We are also pursuing talks on digital trade with a group of
like-minded countries at the WTO, which of course has a strong services
component. USTR is also evaluating the various options available to
pursue these objectives in other forums and will continue to consult
with you as we chart the best course forward.
Question. In recent years, India has maintained or instituted a
host of concerning trade policies, including inadequate protection of
intellectual property rights, draconian price controls on medical
devices, and tariff increases on technology products. Despite these
policies, India continues to benefit from the United States' GSP
program.
To this end, I welcomed the WTO case that USTR recently filed
against India's export subsidy programs. I also was pleased that USTR
initiated a review of India's GSP eligibility and accepted two GSP
petitions filed by the U.S. dairy and medical device industries
concerning India's market access barriers.
However, I would like to know how these actions fit into the
administration's broader strategy concerning India's trade policies.
Can we expect to see other actions to oppose India's unfair trade
practices, either at the WTO or through other means?
Answer. USTR is focused on improving the terms of our trade
relationship with India, through both enforcement and negotiation
efforts. The administration's filing of a request for consultations in
the WTO on export subsidies and the initiation of a review of India's
GSP eligibility followed efforts over some years to engage with India
both multilaterally in the WTO and bilaterally in the Trade Policy
Forum (TPF). We intend to continue to address our concerns with India
on a range of trade restrictive measures through the TPF and the WTO.
We will also consider additional tools and points of leverage, as
appropriate, to push India to make the changes needed to rebalance the
bilateral trade relationship. For example, USTR just submitted the
first ``counter-notification'' at the WTO highlighting subsidy programs
that India failed to notify despite its obligation to do so.
Question. In the Trade Facilitation and Trade Enforcement Act of
2015, Congress raised the de minimis threshold to $800, in order to
reduce the burden on U.S. businesses. USTR also established in its
NAFTA specific objectives of November 7, 2017, the goal of
``provid[ing] for a de minimis shipment value that is comparable to the
U.S. de minimis shipment value of $800.''
How does USTR intend to meet the negotiating objective of
increasing the de minimis shipment values of Canada and Mexico?
Answer. The United States put forth very ambitious negotiating
objectives for the NAFTA Customs Administration and Trade Facilitation
Chapter and is seeking commitments that meet this level of ambition.
Included among the objectives is a de minimis value comparable to what
the United States offers importers, so that U.S. exporters and
companies can see new job growth and increased opportunities. The
United States has been a vocal proponent of Canada and Mexico raising
their respective de minimis shipment values during the NAFTA
negotiations. Unfortunately, both of our NAFTA trading partners have
been unwilling to move their very low de minimis levels to match the
United States' level.
Question. Multiple foreign governments have subjected U.S.
companies to competition investigations that lack adequate due process
protections. I am also concerned about the imposition by some
governments of overly broad remedies. The NAFTA specific objectives of
November 7, 2017, recognize the importance of establishing rules to
promote due process and responsible remedies in competition policy.
What steps have been taken in the KORUS and NAFTA negotiations, and
what steps have been taken in bilateral discussions with other trading
partners, to pursue fair treatment of U.S. companies in competition
proceedings?
Answer. The United States has long been following the developments
in foreign competition authority regimes and shares the concern
expressed in the question. The United States is taking several, varying
steps to address the concerns that are being raised by U.S.
stakeholders, as well as concerns of our own.
For example, as indicated in the November 2017 NAFTA negotiating
objectives, the United States identified two key objectives related to
the question above:
Establish or affirm basic rules for procedural fairness on
competition law enforcement, including by: allowing
representation by counsel; recognizing privileged
communications; providing for the protection of confidential
and privileged information and communications; ensuring access
to information necessary to prepare an adequate defense,
providing an opportunity to present rebuttal evidence and
cross-examine witnesses; and ensuring the resolution of
competition law cases before an impartial administrative or
judicial authority.
Ensure that, in calculating a fine for a violation of a
national competition law, the party considers revenue or profit
relating to the party's territory or commerce. Limit remedies
relating to conduct outside the party's territory to situations
where there is an appropriate nexus to the party's territory.
As you know, the competition chapter in the NAFTA negotiations was
closed right before the commencement of the 4th negotiating round
(i.e., prior to the release of the November negotiating objectives). We
cannot discuss any specifics of the text due to the confidential nature
of the negotiations, but can assure you that Canada and Mexico share
our commitment to these objectives, and we worked very closely with
both NAFTA parties on the obligations in the text.
With Korea and other trading partners where such concerns continue
to exist, we have actively and consistently engaged with the
competition authorities to raise our concerns.
With Korea, we have made competition issues a priority and are
continuing to engage to resolve concerns with respect to the KFTC's
implementation of procedural fairness rights provided under KORUS.
______
Questions Submitted by Hon. Pat Roberts
Question. Over a year ago, the administration withdrew from the
Trans-Pacific Partnership (TPP) negotiations. Recently, the remaining
11 countries moved forward and signed an agreement. In the absence of a
free trade agreement in the same region, the United States will miss
opportunities to expand and explore trade with Pacific Rim countries.
Last year, during the USTR trade agenda hearing, you expressed interest
in working with Asia-Pacific countries on a bilateral basis to export
U.S. agriculture products. However, over the last year, we have not
seen much progress on this front.
During the House Ways and Means Trade Agenda hearing, you stated
you planned to task Deputy USTR Gerrish with ``thoroughly studying''
countries that would be good candidates for trade negotiations. What
criteria do you plan to use to make these determinations and what is
your timeline for concluding this study?
Answer. The President understands that strong relationships with
the countries in the Indo-Pacific region are economically and
strategically important to the United States. With regard to possible
FTAs in the region, we are engaging with countries who are interested
in concluding agreements on terms that will lead to free, fair, and
reciprocal trade and significantly improved market outcomes for U.S.
companies, workers, farmers, and ranchers. My Deputy USTR, Jeff
Gerrish, is traveling to the region next week to meet with trade
officials in Vietnam and the Philippines, and he will also be working
with trade officials from several countries in the region at the APEC
ministerial meetings. I have another team that just returned from
Japan, where they pressed the need to engage in FTA discussions. USTR
will continue to consult with Congress and stakeholders as we
contemplate next steps.
Question. In March, President Trump announced global tariffs on
imports of steel and aluminum based on national security concerns. The
President's proclamation provided an opportunity for our national
security allies to work with the United States to address oversupply
and potentially remove or modify tariffs if an agreement is reached.
What details can you share about the process and procedure USTR
uses to determine country specific national security exclusions? Also,
does USTR plan to consult with our national security agencies to
identify the United States' ongoing security relationships?
Answer. The President's proclamations note that he may remove or
modify the tariffs he has imposed pursuant to section 232 of the Trade
Expansion Act of 1962, as amended, where he determines that the United
States and a country with which we have a security relationship have
arrived at satisfactory alternative means to address the threat to the
national security caused by imports from that country, such that the
President determines that imports from that country no longer threaten
to impair the national security. There has also been an interagency
process regarding security relationships in the section 232 context,
which has included our national security agencies. USTR is advising the
President with respect to matters within our expertise, but the
President will make any determination about whether to remove or modify
the tariffs for individual countries.
Question. President Trump, along with USTR and others in the
administration, took steps early on towards increasing exports to China
including historic beef and rice access, agreements on biotechnology,
and continued enforcement action on Chinese subsidies and tariff rate
quotas (TRQs) on certain agricultural products. Much of this activity
stemmed from the U.S. China Comprehensive Economic Dialogue.
Since this dialogue, what has been the universe of bilateral
engagement with China? Moving forward, what opportunities will the
United States have to build on the early progress and engage with China
to eliminate barriers to trade, particularly for the agriculture
sector?
Answer. As explained more fully in USTR's 2017 Report to Congress
on China's WTO compliance, the administration carefully reviewed the
past 15 years of the United States' formal high-level trade dialogues
with China, including the U.S.-China Comprehensive Economic Dialogue.
The administration found that these dialogues did not lead to
fundamental changes in China's trade, investment, and intellectual
property rights regimes, but rather incremental and incomplete changes
to Chinese policies and practices that it repeatedly failed to fulfill.
Currently, despite the absence of a formal high-level dialogue, the
administration is communicating with China about the systemic problems
that have given rise to enforcement actions such as USTR's section 301
investigation and the types of steps that China needs to take,
including on a wide range of agricultural matters, to make the U.S.-
China trade relationship fair, balanced, and reciprocal.
Question. I have been pleased to hear that progress has been made
in moving towards a modernized and strengthened NAFTA agreement. Now
that seven rounds of negotiations have been completed, I hope that we
continue to build momentum and work quickly to finalize a new
agreement. Continued progress on issues like Canada dairy access could
go a long way in helping our producers who have recently been in a
rough patch.
What is your assessment of the NAFTA negotiations, and how can we
continue to move full speed ahead towards finalizing a strong agreement
so that the United States can continue to aggressively pursue new
market opportunities around the world?
Answer. Renegotiating NAFTA remains a top priority of the Trump
administration. Since early March, we have been negotiating on a more
or less continuous basis. Technical experts have been holding
discussions in all remaining area, and I have been in regular
communication with my Canadian and Mexican counterparts on key U.S.
priorities. We are making good progress, but as always, as you approach
the end the most difficult issues must be addressed. Dairy in
particular has been a difficult issue, but USTR has set out ambitious
negotiating objectives in that regard.
______
Questions Submitted by Hon. John Cornyn
Question. For decades, U.S. trade and investment agreements have
provided for neutral arbitration to resolve investment disputes. Yet
despite this precedent, and also despite the fact that Trade Promotion
Authority requires the administration to pursue FTA's with ISDS like
protections, the U.S. negotiators have advocated to eliminate ISDS
completely. ISDS is an essential enforcement mechanism for investor
protections and must be maintained rather than weakened or abandoned.
Robust ISDS protections are absolutely critical to the energy sector in
my State.
Why is USTR insistent on eliminating ISDS from an updated agreement
when TPA clearly shows Congress's support for it?
Answer. The administration is committed to pursuing an outcome in
the NAFTA negotiations that puts the interests of American farmers,
ranchers, businesses, and workers first. The administration is
advocating for a flexible, opt-in approach to ISDS in the NAFTA that
safeguards U.S. sovereignty and avoids incentivizing the off-shoring of
U.S. jobs and manufacturing. Robust and modern investment protections
will continue to be available for U.S. investors in Mexico and Canada
through state-to-state dispute settlement mechanisms, just like it is
for all other enforceable obligations in NAFTA. I look forward to
continuing to work with the Congress on this issue, consistent with the
broad negotiating objectives on investment protections set forth in the
2015 Trade Promotion Authority legislation.
Question. The President has made it clear that addressing our trade
deficits with certain countries are the top priority, particularly with
regard to NAFTA. There is a clear dispute about whether trade deficits
are the right way to measure productive economic activity and jobs
growth. Regardless of which side you land on that debate, it is a fact
that the United States has a services surplus with both Mexico and
Canada.
What aspects of the NAFTA negotiations do you think will best
preserve and grow the United States services success story?
Answer. The U.S. service sector is highly innovative and a key
driver of the U.S. economy. Maintaining a vibrant U.S. services sector
and expanding U.S. services exports is vital to a healthy economy and a
core objective of U.S. trade policy. USTR is pursuing robust services
outcomes in the ongoing NAFTA negotiations and other ongoing bilateral
efforts. These include the highest possible standards for market access
and non-discriminatory treatment; targeted commitments in important
sectors like telecommunications, financial services, and delivery
services; and robust digital trade obligations that will support the
growth and prosperity of the U.S. service sector.
Question. One of the most important issues for Texas's agriculture
sector is market access. I hear on a regular basis from Texas farmers
of their desire to see the U.S. actively pursue new trade agreements
with key trading partners in Asia. Our dairy, beef, and cotton growers
need this in order to stay competitive in those priority markets as
their competitors from the EU, Oceania, and elsewhere negotiate new
deals. At the top of that list is Japan and Vietnam, but others in Asia
such as allies in Southeast Asia would make good partners as well.
Will the administration move forward with the bilateral trade deals
in Asia that it has promised to pursue?
Answer. Yes. The United States will continue to lead in the Indo-
Pacific region by building our trade relationships with countries
bilaterally and through our engagements with APEC and ASEAN. Concerning
FTAs with nations in Southeast Asia, the President has expressed the
willingness of the United States to engage with interested countries on
terms that will lead to free, fair, and reciprocal trade and
significantly improved market outcomes for U.S. companies, workers,
farmers, and ranchers. My Deputy is visiting the region next week to
speak with trade officials to explore the possibility of beginning
talks for such deals.
Regarding Japan specifically, President Trump recently confirmed
his interest in negotiating a bilateral trade deal in his meeting with
Prime Minister Abe. Both leaders agreed to intensify U.S.-Japan trade
and investment consultations, which USTR is leading. In fact, a USTR
team just returned from Japan last week, where they discussed the scope
of discussions with Japan and pressed them on the need to begin work on
a bilateral FTA.
Question. I am highly concerned at China's concerted effort to
vacuum up dual-use technologies, many of which have direct military
applications. In some ways, China has weaponized investment to evade
the current CFIUS process, circumventing review and gaining access to
sensitive technologies. I have been working on legislation to modernize
CFIUS so that it can review certain types of transactions it currently
cannot.
Do you agree that we should take a look at the current CFIUS
statute and make sure that CFIUS can handle these additional types of
transactions that may have national security impacts?
Are you concerned that China has weaponized investment to evade
national security review?
Answer. I agree on both counts. CFIUS only reviews a fraction of
proposed foreign investment in the United States, and some transactions
that are outside the current scope of CFIUS authorities do raise
national security concerns. Further, certain transactions--including
transactions involving China-based acquirers--may be deliberately
structured to evade CFIUS jurisdiction. Through the Department of
Treasury, as Chair of CFIUS, USTR has been actively engaged with your
staff and others in Congress to modernize CFIUS so that it can review
certain types of transactions that are currently outside its
jurisdiction. In January, the administration voiced support for the
Foreign Investment Risk Review Modernization Act (FIRRMA), which you
sponsored, noting that the bill would protect national security and
preserve the longstanding U.S. open investment policy.
______
Questions Submitted by Hon. John Thune
Question. A significant amount of the grain exported from my State
of South Dakota goes through ports in the Pacific Northwest to Asian
buyers. Countries like Japan and South Korea are among our most active
and loyal customers of U.S. corn and other grains, and countries in
Southeast Asia are among the fastest-growing feed-grain markets in the
world.
How is the administration working to maintain and build on the
relationships we have with key Asian countries?
Answer. As the President stated at the APEC summit in Vietnam last
November, the United States is working to establish a new and stronger
partnership with the Indo-Pacific region. We see tremendous
opportunities in the region to deepen our trade ties, enhance economic
and job growth, remove barriers to goods and services, and expand U.S.
exports. The United States will continue to lead in this important
region by working to combat unfair trade practices and by building our
trade relationships with countries bilaterally and through our
engagements with APEC and ASEAN, including through free, fair, and
reciprocal bilateral trade deals. We just completed an agreement in
principle with Korea to update KORUS which preserved agricultural
market access for U.S. farmers. Regarding Japan, President Trump
recently confirmed his interest in negotiating a bilateral trade deal
in his meeting with Prime Minister Abe. Both leaders agreed to
intensify U.S.-Japan trade and investment consultations, which USTR is
leading. USTR had a team in Japan just last week to move talks forward
and encourage the negotiation of a bilateral FTA.
Question. The farm economy has been struggling with low commodity
prices--farm income is down 50 percent compared to 2013 and crop prices
are down 40 percent in just the last 5 years. Farmers are very
concerned that the administration's current trade policies could cause
retaliation by the United States' largest trading partners, kneecapping
prices received by our producers and further hurting the already
depressed farm economy. We should be seeking additional trade
opportunities to support rural America and the rural economy, not
jeopardizing agriculture's export markets.
What is the administration doing to increase agricultural exports?
Answer. USTR is working closely with USDA to address a number of
bilateral issues that block or impede exports of U.S. agricultural
products. With regard to possible new trade agreements, we are open to
engaging with countries who are ready to conclude agreements on terms
that will lead to free, fair, and reciprocal trade and significantly
improved market outcomes for U.S. companies, workers, farmers and
ranchers. USTR will continue to consult with Congress and stakeholders
as we contemplate next steps. At the same time, USTR will support the
President's agenda by using strong enforcement tools to eliminate
unfair trade practices that affected U.S. exporters, including our
farmers.
Question. I appreciate the administration's focus on the negative
economic impact of China's industrial policies, forced technology
transfer, intellectual property theft, and unfair trade practices.
However, the administration's proposed tariffs in response to these
practices raise significant concerns. By some estimates, tariffs the
range proposes by the administration would wipe out over a third of the
benefit that American families are now seeing from the tax-reform
legislation that took effect at the start of this year. We cannot
afford to jeopardize that positive economic result with a destructive
trade war that would create serious consequences for U.S. economic
growth and job creation.
Has the administration taken into account the negative, offsetting
effects this action would have with respect to tax reform and other
options exist for dealing with China that do not endanger the
livelihood of America's consumers, businesses, and farmers?
Answer. On a long-term basis, the United States simply cannot
afford to let China illicitly obtain the crown jewels of our economy,
our intellectual property. The proposed list of products that may be
subject to tariffs was based on an extensive interagency economic
analysis that targeted products that benefit from China's industrial
plans while minimizing the impact on the U.S. economy and consumers,
taking into account alternative country sources for each product. The
list is not final, and interested parties, including businesses, have
an opportunity to provide public comment on the proposed list and
appear at a public hearing.
Question. As I know you are aware, there is strong support among
the members of this committee for retention of an investor-state
dispute settlement (ISDS) mechanism in the updated NAFTA agreement.
I've been concerned by reports that USTR continues to advocate for
weakening the ISDS option in chapter 11 of NAFTA by making it optional
for any of the three countries to join it. The history of this
provision demonstrates that ISDS is important to U.S. companies, and
that it is not a threat to U.S. sovereignty since its panels cannot
alter U.S. law or regulations. U.S. companies have used ISDS 40 times
under NAFTA, and have prevailed in 11 cases and settled the others on
favorable terms. Moreover, the United States has won all of the NAFTA
ISDS cases brought against it--20 in all.
Why is USTR continuing to target ISDS when weakening or eliminating
it will cost significant support from the business groups, like the
U.S. Chamber of Commerce, the National Association of Manufacturers,
the Business Roundtable, and their member companies, which it is
intended to benefit, as well as so many members of Congress who have
clearly expressed our support for this provision in the updated NAFTA
agreement?
Answer. The administration is committed to pursuing an outcome in
the NAFTA negotiations that puts the interests of American farmers,
ranchers, businesses, and workers first. The administration is
advocating for a flexible, opt-in approach to ISDS in the NAFTA that
safeguards U.S. sovereignty and avoids incentivizing the off-shoring of
U.S. jobs and manufacturing. NAFTA will of course cover a broad range
of strong, modern investment protections which can be enforced through
state-to-state dispute settlement just like other obligations in the
agreement. I look forward to continuing to work with the Congress on
this issue, consistent with the negotiating objectives set forth in the
2015 Trade Promotion Authority legislation.
Question. De minimis thresholds are increasingly important to small
e-commerce businesses that leverage the Internet to sell low-value
items to customers across the globe, but do not have the resources to
manage complex customs regimes. Unfortunately, both Canada and Mexico
continue to erect customs and trade facilitation barriers that limit
the success of Internet-enabled goods exporters, many that ship small,
low-value packages. Canada has a $20 CAD customs de minimis threshold
and Mexico has a $50 threshold--both of which stand in stark contrast
to the United States' $800 threshold, which I worked to increase in the
Trade Facilitation and Trade Enforcement Act. Mexico also has proposed
changes to eliminate streamlined customs procedures to disadvantage
U.S. e-commerce companies exporting to Mexico. USTR has committed to
seeking parity with Mexico and Canada on de minimis in the
renegotiations of NAFTA.
What progress has been made on de minimis thresholds in the
negotiations?
Answer. The United States has been a vocal proponent of Canada and
Mexico raising their respective de minimis shipment values during the
NAFTA negotiations, and has worked closely with U.S. stakeholders on
this matter. We are aware this is a highly sensitive issue in both
Canada and Mexico, but it is a very important issue to the United
States. I have personally pushed this issue with my counterparts, but
we have seen no appetite in either Mexico or Canada to adjust their
levels upward.
Question. How is USTR engaging with other countries in raising
their de minimis levels so that U.S. goods shipped abroad can receive
parity?
Answer. The United States engages in all forums to advocate for
countries to raise their de minimis levels. This advocacy includes work
in APEC, the World Customs Organization, the World Trade Organization,
and raising de minimis levels to help American competitiveness is an
objective in bilateral initiatives, including trade and investment
frameworks.
Question. American innovation and intellectual property support
more than 45 million U.S. jobs in manufacturing, agriculture,
entertainment, high tech, and beyond. America's ability to support and
grow those jobs depends on our ability to protect intellectual property
in the United States and abroad.
Answer. What approach is USTR taking in the NAFTA negotiations to
ensure that intellectual property protections are strengthened?
Answer. We are using the NAFTA talks to ensure that U.S. right
holders have a full and fair opportunity to use and profit from their
intellectual property rights in Canada and Mexico. As reflected in
USTR's NAFTA renegotiation objectives, USTR continues to ``[s]eek
provisions governing intellectual property rights that reflect a
standard of protection similar to that found in U.S. law, including,
but not limited to protections related to trademarks, patents,
copyright, and related rights (including, as appropriate, exceptions
and limitations), undisclosed test or other data, and trade secrets.''
Unfortunately, our trading partners have been unwilling to fully commit
to improving their intellectual property regimes.
Question. What steps are you taking to see that the IP chapter is
given the top priority it deserves?
Answer. We tabled an ambitious text and we have pushed strong
intellectual property protections in the IP chapter at all levels--from
USTR professional staff right up to my personal interventions with my
counterparts in Mexico and Canada. USTR is seeking robust commitments
for IP protection and enforcement that update and modernize the IP
Chapter of NAFTA consistent with the Trump administration's commitment
to ensuring strong intellectual property protection and enforcement.
______
Questions Submitted by Hon. Richard Burr
Question. I appreciate USTR's work on the section 301 investigation
of China's Acts, Policies, and Practices Related to Technology
Transfer, Intellectual Property, and Innovation. China's violations of
trade laws have disadvantaged many U.S. businesses and workers, and I
share the desire to see actions taken to ensure that U.S. companies are
able to compete freely and fairly in China.
Going forward, it is my hope that as negotiations occur with China
to address the issues identified, USTR will make every effort to ensure
that there are not unintended consequences, such as the retaliation of
North Carolina's agriculture exports. Can you assure me this will be
the case?
Answer. Our goal is to maximize pressure on China to change its
behavior while minimizing any negative effects on American businesses,
including those in agriculture. Economies around the world--including
China's domestic economy--will benefit if China responds by making
needed reforms to its trade distortive policies, instead of adopting
new and harmful policies to block trade and distort world markets.
We note that China has historically put unfair limits on U.S.
exports of competitive, high-quality agricultural products through a
variety of policies. The Trump administration is committed to vigorous
enforcement to defend the interests of America's farmers and ranchers.
As we take a stronger approach to the way we handle trade, we will use
all of our authorities to ensure that we protect and expand our
agricultural interests.
Question. In December 2017, Senator Tillis and I wrote to you
regarding Colombia's reference price system that poses a significant
barrier to the entry of value-added textile products made from U.S.-
grown cotton and U.S.-spun yard. The system, in place since 2013,
results in the application of a value added tax that is higher than the
actual value of the merchandise, and additional decrees since then have
made the prospect of importing goods with U.S. content into Colombia
even more onerous.
Will you commit to working to resolve this issue and raising it in
the appropriate venues for discussion with the Colombians?
Answer. The Office of the U.S. Trade Representative has been
closely following the Colombian Government's developments on this issue
since it was first brought to our attention a few years ago. Since
Colombia introduced its new measure on reference pricing earlier this
year, USTR has been working with colleagues at the Departments of
Commerce and State to collect additional information on the directive
and its application. We have been regularly raising the issue with
Colombian authorities and will continue to do so.
______
Questions Submitted by Hon. Johnny Isakson
Question. Your testimony mentions the groundwork being laid to
enter into bilateral agreements with the UK, Japan, and countries in
Africa and Southeast Asia.
Now that you have your Deputies, what is the timeline for following
through on these intentions, especially with Japan?
Answer. With respect to the UK, the UK cannot formally negotiate
and sign trade agreements with non-EU countries until it has exited the
EU (commonly known as Brexit), which is scheduled to take place on
March 29, 2019. In July 2017, UK Secretary of State for International
Trade Dr. Liam Fox and I established a U.S.-UK Trade and Investment
Working Group in order to deepen our current trade relationship and to
lay the groundwork for a potential future free trade agreement once the
UK has left the EU. That working group is continuing to meet regularly
with the last meetings held in March 2018 in Washington and the next
meetings to be held this summer in London.
With respect to Japan, President Trump recently confirmed his
interest in negotiating a bilateral trade deal in his meeting with
Prime Minister Abe. Both leaders agreed to intensify U.S.-Japan trade
and investment consultations, which USTR is leading. A USTR team just
returned from Japan, where we discussed the scope of talks and pressed
them on negotiating a bilateral trade agreement.
With respect to bilateral deals with Africa and Southeast Asia, we
are in the process of identifying potential partners who are ready to
enter into exploratory talks regarding free, fair, and reciprocal
arrangements, so it would be premature to signal a timeline.
Question. How does Japan's participation in the Comprehensive
Trans-Pacific Partnership affect our ability to negotiate a bilateral
agreement with a key Pacific ally?
Answer. Both Japan and the United States have many existing trade
agreements with other countries. A U.S.-Japan bilateral trade deal is
the preferred approach and views such a deal as an opportunity to
improve upon some of the major concerns with, and shortcomings of, the
CPTPP agreement. The United States was by far the largest economy--and
Japan was the second largest economy--among the TPP countries, and it
makes sense for the United States and Japan to have a bilateral trade
agreement.
Question. I appreciate your announcement about finding an African
country to enter into a bilateral trade agreement. While I am excited
about this opportunity, I am concerned that we could be missing
opportunities to expand markets for not only American goods, but also
our services, if we only pursue bilateral agreements.
Given regional economic integration, such as ECOWAS, the South
African Customs Union and the East African Community, how do these
efforts throughout sub-Saharan Africa affect our ability to negotiate
bilateral agreements in a region where I fear we may be behind other
competitors, such as China and the EU?
Answer. The United States has expressed an interest in pursuing
deeper trade ties on the continent that go beyond the unilateral
preferences offered by AGOA. Our vision is to begin by establishing a
model with an African partner on a bilateral basis that we can then
expand to other partners in the region. We have the opportunity to
explore such a model agreement and ways it can help strengthen African
regional integration and expand our two-way trade relationship in both
goods and services.
Question. Just like the President and our allies, I share your
concerns about China's unfair trade practices. I believe that
coordinated and concerted action against China is the only way to get
them to change their behavior. Unilateral action from the United States
will just lead to China redirecting its trade to other countries--on
top of what they are already doing.
What discussions have you had with our allies and partners?
Do they agree with our assessment? And are they willing to take
simultaneous, coordinated action?
Answer. Most of our allies and trade partners share the same
concerns about China's state-driven, mercantilist policies on trade and
technology transfer.
Many countries also agree that China continues to game the WTO's
international rules-based trading system and the openness of our
economies in ways that threaten all of our economies and our long-term
competitiveness.
In addition, we have maintained a sustained engagement effort with
our allies and other like-minded countries in confronting China.
Through a series of high-level meetings, we continue to work
closely with Japan and the European Union to ensure that WTO
members maintain their rights to use non-market economy
methodologies in antidumping proceedings in order to curb
China's distortive economic behavior.
During the WTO Ministerial Meeting in Argentina last
December, the EU Trade Commissioner, the Japanese Trade
Minister and the U.S. Trade Representative issued a joint
statement recognizing that ``forced technology transfer''
threatens the proper functioning of international trade, the
creation of innovative technologies, and sustainable growth of
the global economy. Together, we agreed to enhance trilateral
cooperation in the WTO and in other fora to address this and
other critical trade concerns.
Earlier this year, the EU Trade Commissioner, the Japanese Trade
Minister and the U.S. Trade Representative underscored ``their shared
objective to address non market-oriented policies and practices.''
______
Questions Submitted by Hon. Rob Portman
Question. As part of our World Trade Organization (WTO)
commitments, the United States bound its tariff rates. Because of this,
I am concerned that the proposed tariffs on Chinese goods violates WTO
rules.
Do you believe that these tariffs violate WTO commitments, and if
not, why?
Answer. China's behavior has been undermining the global trading
system and the WTO for years, using its protected market to force
technology transfers and by acquiring leading technology companies
overseas. Mercantilist trade policies, like China's Made in China 2025
initiative, clearly state that China seeks to take away domestic and
international market share from foreigners, in defiance of global
norms. The world's second-largest economy should not continue to ignore
fundamental precepts of the global trading system.
The administration has been clear from the outset that most of
China's policies covered by the investigation cannot be addressed under
WTO rules. Further, we have made clear that if and when we determined
that a particular aspect of China's trade distorting technology
transfer policies could be addressed through WTO dispute settlement, we
would pursue that option.
Indeed, one of the matters covered in the investigation--technology
licensing requirements--does appear to be inconsistent with China's WTO
obligations. Accordingly, USTR has initiated formal dispute settlement
on this issue.
Question. China's behavior is a threat to the multilateral trading
system. However, since the WTO is a consensus body it will be difficult
to change rules, make reforms, and update agreements to correct China's
behavior.
What is your strategy for WTO reform both broadly for the world,
and specifically in regards to China?
Answer. The United States is focusing on three areas of reform:
dispute settlement, monitoring and implementation, and development.
On dispute settlement, we are seizing on the opportunity to have a
serious discussion about the failure of the WTO Appellate Body to
follow and apply WTO rules, which undermines the functioning of the
rules-based trading system, and about the need for members of the WTO
to exercise their authority appropriately to manage the WTO's dispute
settlement system. These discussions are critical if WTO dispute
settlement is to assist in addressing the systemic distortions caused
by China's non-market economy.
On monitoring and implementation, the United States has been
providing leadership on the issue of notifications and transparency in
order to correct a substantial shortcoming in the functioning of the
WTO. In contrast, China's economic and trading system continues to be
opaque and its record on transparency in the WTO continues to be a
concern for many WTO members.
Finally, we see scope for a serious look at how we incorporate
development issues into WTO work. These issues touch on core questions
of how WTO members evaluate the relationships between trade rules,
market opening, and prospects for economic expansion and development.
China is at the heart of this paradigm and, in our view, should be
treated as the global trader and producer that it is--and not like
developing countries who do not compete on the same level.
Question. What steps have been taken pursuant to this strategy?
Answer. I have personally engaged with my counterparts from dozens
of countries on these issues. At the December 2011 WTO Ministerial
Conference, we received quite a bit of support and agreement from other
countries. Discussions on each of these areas of reform are ongoing in
Geneva, with the understanding that consensus views take considerable
time and considerable effort to establish. However, the United States
views this hard work as necessary to keep the WTO relevant.
Question. During the time that you have to receive feedback and
finalize the tariff list, do you--and others in the administration--
plan to begin negotiating with China during that time?
Will those negotiations focus on addressing specific practices by
China?
If so, what will those specific practices be? The end of joint
venture requirements? The cessation of all distortive practices for
certain priority sectors or the end to a handful of distortive
practices across all sectors?
Answer. The administration has been clear about its concerns with
China's unfair trade practices. There is a wide range of such
practices, including those applicable to U.S. farmers, manufacturers,
and service providers, and many have been problematic for years despite
prior promises. For the 301 investigation, USTR looked into China's
market-distorting forced technology transfers, theft of intellectual
property, cyber-intrusions of U.S. commercial networks, and China's
failure to abide by its WTO obligations. We are looking for fundamental
change from China, including--but not limited to--the possible
solutions you have highlighted.
Under section 301 of the Trade Act of 1974, USTR conducted an open
and exhaustive investigation and determined that China's unfair trade
practices harm America's economy. The administration has also
identified specific programs that China needs to address. These are
identified in numerous reports, including USTR's report on China's
compliance at the World Trade Organization, USTR's Special 301 Report,
and the Department of Commerce's determination that China remains a
non-market economy.
The administration has been and continues to be open to hear what
steps China will take to address these critical concerns. As you may
know, a delegation comprised of Ambassador Lighthizer, Secretary
Mnuchin, Secretary Ross, and other senior administration officials
traveled to China on May 2nd to meet with Chinese counterparts to
discuss these issues. We are meeting again this week in Washington.
Question. Data from the Department of Commerce, shows that in 2016
foreign students attending U.S. institutions of higher education spent
$39.4 billion in foreign funds on U.S. services. In other words, a
$39.4 billion export that reduces the trade deficit. Do you support
restrictions on student visas for Chinese students studying in the
United States as part of the section 301 remedy?
Answer. USTR is not managing any section 301 responsive actions
involving visas. We would refer you to the Department of State for
general questions about U.S. visa policy.
Question. I know that there is still interest in beginning to
negotiate a Free Trade Agreement (FTA) with an African country. I think
this would be a helpful bulwark against China. What are you doing to
identify such a country and what qualities, features, and conditions
are you looking for when it comes to identifying ideal future trading
partners both in Africa and other parts of the world?
Answer. The administration is still at an early stage of
identifying a potential African partner with which to negotiate a free
trade agreement. We would first engage in exploratory talks to clarify
mutual expectations as well as consultations with Congress. We are in
the process of defining the range of criteria for selecting an African
negotiating counterpart, and we welcome your views. The advantage of
such an FTA to the United States would be to ensure free, fair, and
reciprocal access to a growing African market, and for the African
partner it would represent an important opportunity to build on the
successes of the African Growth and Opportunity Act.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. I remain concerned that the administration's trade agenda
is centered on reducing the U.S. trade deficit, which fails to provide
an accurate measure of a country's economic health. The United States
has experienced its largest trade deficits when manufacturing output
was highest and unemployment low. When the economy is growing and
Americans have more disposable income, consumers can purchase more
goods and services from both domestic and foreign sources, which will
inevitably increase the trade deficit. Last year, the U.S. trade
deficit increased 12 percent compared to 2016, yet our economy
experienced tremendous growth and saw the unemployment rate drop to 4.4
percent, the lowest level since 2000. It would be unwise for USTR to
jeopardize these economic gains by implementing policies that restrict
imports and increase prices for American consumers and businesses.
How do you rationalize strong growth in the U.S. economy last year,
despite the United States incurring a higher trade deficit with its
trading partners?
Answer. The President is concerned about trade deficits, especially
since some of our trading partners have enormous surpluses and have
simultaneously sustained high growth rates. The administration has made
reducing trade deficits a priority given that they are evidence, among
other things, of unfair trade practices by our trading partners.
Reducing trade barriers and increasing our exports is a major priority.
Insomuch as barriers are reduced and U.S. exports increase, it will
further benefit our economy.
Question. As you and your team strive to complete the NAFTA
renegotiations, I urge you to continue advocating for stronger
intellectual property protections and greater access to Canada's dairy
market. I also have concerns about including a sunset provision in the
revised agreement. To my understanding, under your proposal, NAFTA
would automatically terminate after 5 years unless the member nations
agree to continue the agreement for another 5 year term. This framework
would reduce investment in the United States, both domestically and
from abroad, and would immediately curtail U.S. exports. Businesses
need to plain their supply chains well beyond a 5 year time horizon and
would move production and sourcing locations outside of North America
if such a sunset provision were included in the finalized agreement.
If the administration believes that it has the unilateral authority
to withdraw from NAFTA, why is USTR also advocating for a sunset
provision, which will risk investment in and exports from the United
States?
Answer. All of our trading relationships should be frequently
reviewed to ensure that they continue to serve the interest of the
American people. The proposed performance review mechanism will achieve
this goal. Constant scrutiny of these agreements is necessary to ensure
that they serve our interests, and the traditional withdrawal mechanism
has not provided an incentive for parties to keep the agreement
beneficial to Americans. This is why, in the NAFTA, the administration
is seeking to provide a mechanism to ensure that the parties assess the
benefits of the agreement on a periodic basis. There is no evidence
that the performance review provision would have an adverse impact on
the United States. Indeed, the U.S. economy, which is the largest in
the world and dwarfs those of Canada and Mexico, has boomed during the
renegotiation of NAFTA and will continue to be the destination of
choice for investors.
______
Questions Submitted by Hon. Dean Heller
Question. As a strong proponent of an all-of-the-above energy
policy, I have long championed using the best in conventional and
alternative energy technologies to deliver the greatest possible
savings to Nevada's consumers. In a place like Nevada, where we're
blessed with an abundance of sunshine, alternative energy necessarily
includes solar, and that means thousands of solar jobs. In fact, more
than 6,500 Nevadans work for the over 120 solar companies, including 15
manufacturers, that operate in our State.
While I commend the President on his efforts to strengthen the
economy and protect American jobs, I believe we must always closely
examine our trade policies, including the recent solar tariffs, to
ensure they are having the intended effect.
Based on your preliminary analysis, what has the net impact of
these tariffs been on solar jobs in this country?
Answer. Under section 201 of the Trade Act of 1974, when the U.S.
International Trade Commission (ITC) reaches an affirmative
determination of serious injury, the Trade Policy Committee (TPC),
chaired by the USTR, reviews any recommendations made by the ITC,
public comments, and testimony delivered in relation to the public
hearing to develop a recommendation for the President. The TPC's
recommendation considers all relevant facts related to the case,
including the impact a given action may have on solar jobs, and
develops an appropriate and feasible recommendation for action within
the President's authority. This process also includes the consideration
of the extent to which the adjustment of such workers may be
facilitated by existing programs. Accordingly, the statute requires the
President to take into account a cost-benefit analysis that any action
will have greater economic and social benefit than harm.
Section 204(a) of the Trade Act of 1974 requires the ITC to
``monitor developments with respect to the domestic industry, including
the progress and specific efforts made by workers and firms in the
domestic industry to make a positive adjustment to import
competition.'' The statute then requires the ITC to report the results
of its monitoring to the President no later than halfway through the
initial period the safeguard measure is scheduled to be in place. The
administration will carefully review that report when it arrives.
Although the administration is not monitoring developments, we note
that a number of foreign and domestic companies have announced or
continued with plans to open manufacturing facilities in the United
States for the production of solar cells or modules. The planned
facilities would increase the number of U.S. manufacturing jobs in the
solar industry and help maintain levels of employment elsewhere within
the industry.
Question. Tariffs can be a blunt instrument and oftentimes must be
tailored to maximize their benefit. In the case of solar, the President
thoughtfully included an exclusion process for products that are not
made in the United States.
Will you commit to meeting with a group of stakeholders whose
companies have significant investment planned in my home State of
Nevada to ensure these solar tariffs capture all relevant nuances?
Answer. Following the President's decision on solar products, USTR
announced an opportunity for companies to request product exclusions
from the safeguard. On February 14, 2018, USTR issued a Federal
Register notice providing for a public comment period that concluded on
April 16th. USTR is currently in the process of reviewing the requests
that we have received, and will meet with stakeholders as appropriate
to implement the President's proclamation.
______
Questions Submitted by Hon. Ron Wyden
china ip/tech transfer (section 301 investigation)
Question. Some administration officials have stated that the United
States is currently negotiating or that it intends to enter into
negotiations with China to address the concerns identified in USTR's
section 301 determination.
Is the administration currently discussing with China the issues
identified in the section 301 determination, and if so, which U.S.
agency or agencies are leading those discussions?
Has the administration requested that China modify laws,
regulations, or other measures relating to the section 301
determination since that determination was issued and if so, which
measures?
Answer. The administration has been clear about its concerns with
China's unfair trade practices. These practices include China's market-
distorting forced technology transfers, theft of intellectual property,
cyber intrusions of U.S. commercial networks, and China's failure to
abide by its WTO obligations..
Under section 301 of the Trade Act of 1974, USTR conducted an
exhaustive investigation and determined that China's unfair trade
practices harm America's economy and published a detailed report on
related policies. In addition, the administration has identified very
specific programs that China needs to address. These are identified in
numerous reports, including USTR's report on China's compliance at the
World Trade Organization and the Department of Commerce's determination
that China remains a non-market economy.
The President hopes that China will take concrete action to address
its unfair policies and practices such as distorting markets, forcing
technology transfer, and stealing technology. China must also finally
follow through on commitments to lower its barriers to U.S. exports and
cease its WTO-inconsistent behavior.
If China takes these actions, trade between the United States and
China will be more free, fair, and reciprocal. The United States will
finally be able to export more products to China and the trade deficit
will narrow.
The administration has been and continues to be open to hear what
steps China will take to address these critical concerns. As you may
know, a delegation comprised of Ambassador Lighthizer, Secretary
Mnuchin, Secretary Ross and other senior administration officials
traveled to China on May 2nd to meet with Chinese counterparts to
discuss these issues. The administration will continue to be open to
China's views on how to change its unfair trade practices.
steel and aluminum (section 232 investigations)
Question. Which countries have requested exemptions from the steel
and aluminum tariffs imposed under section 232?
Of the countries listed, with which ones is the administration
currently negotiating a possible exemption? For each, please identify
the lead administration official responsible for the negotiation.
Please list the criteria the administration is using in the
negotiations to determine whether to exempt countries from the steel
and aluminum tariffs
Beyond the section 232 proceedings, what is the administration's
strategy for addressing global overcapacity in steel and aluminum?
With respect to the quota agreement recently announced with Korea,
what product categories will be used to set product specific quotas?
How will the agreement be enforced, and what steps is the
administration taking to ensure that the agreement does not incentivize
increased imports of specialty or high value products?
Answer. The President's proclamations identify countries with which
the United States is engaged in discussions on satisfactory alternative
means to address the threatened impairment to the national security
caused by imports of steel and aluminum. The Department of Commerce is
leading discussions with the European Union, on behalf of its member
countries; USTR is leading discussions with the other identified
countries.
The President's proclamations identify the criteria for determining
whether to exempt a country from the tariffs the President proclaimed
pursuant to section 232 of the Trade Expansion Act of 1962, as amended.
These criteria are whether the United States has a security
relationship with a country, and whether the United States and that
country can arrive at satisfactory alternative means for addressing the
threatened impairment to the national security caused by imports from
that country.
In proclaiming the tariffs, the President recognized that certain
countries share our concern about global excess capacity in the steel
and aluminum sectors, a situation that is contributing to the
threatened impairment of U.S. national security. We continue to work
with willing partners to address the root causes of this excess
capacity, including through cooperation in relevant international fora.
An annex to the President's April 30, 2018 steel proclamation
identifies the product categories to which the quota on steel articles
from the Republic of Korea will apply. Further information on the
quota, including as regards enforcement, is available at the website of
U.S. Customs and Border Protection (https://www.cbp.gov/trade/quota/
bulletins/qb-18-118-steel-mill-articles).
nafta
Question. Shortcomings in Mexico's implementation of labor reforms
have created serious concern that it will be unable to live up to its
commitments in NAFTA. Please describe your plan to ensure that the
NAFTA parties, and particularly Mexico, implement the labor commitments
that they ultimately agree to in the current negotiation.
Do you agree that the labor legislation currently pending in
Mexico's Senate, if adopted in its current form, would not be
consistent with labor commitments the United States is seeking in
NAFTA? If so, what steps is the administration taking to ensure that
there are effective mechanisms available to the United States--other
than dispute settlement--to ensure that Mexico expeditiously implements
NAFTA labor commitments, including commitments with respect to freedom
of association and collective bargaining?
Answer. Among our top priorities for the NAFTA are improvements
that create incentives to increase manufacturing in the United States,
lower the U.S. trade deficit with the NAFTA countries, and improve
export opportunities for U.S. producers and workers. To support these
priorities, we are working to ensure that the renegotiated agreement
provides strong labor standards. In accordance with the objectives
Congress set out in TPA, we are prioritizing the inclusion of high-
standard labor provisions directly in the core of the agreement rather
than in a side agreement as is currently the case with the NAFTA. We
are also working to ensure that the labor obligations are subject to
the same dispute settlement mechanisms and trade sanctions as the rest
of the agreement.
Regarding labor standards in Mexico, we are closely monitoring the
implementation of Mexico's landmark constitutional reforms that will
overhaul its system of labor justice. NAFTA provides an opportunity to
lock in this progress. We understand the concerns that have been raised
regarding some elements of the proposed labor legislation in Mexico,
particularly on collective bargaining and protection contracts. We are
consulting with Mexico on these issues and on ways to address these
concerns.
Question. It is also the case that very few of our trading partners
have implemented obligations to provide a conditional safe harbor to
online service providers with respect to liability for copyright
infringement. Please describe what you plan to do to get our trading
partners to implement those existing obligations.
Answer. USTR takes the proper and complete implementation of all
FTA commitments seriously and engages with trading partners on a
regular and sustained basis to advance implementation of all of FTA
commitments.
Question. This administration has made steady progress on its
effort to renegotiate NAFTA. I am encouraged by the fact that you have
closed six chapters and seemed to be getting close on others as well.
Of course, negotiations often get harder as time goes on and more
difficult issues need to be resolved. And, the environment won't get
any easier with elections occurring in all three countries this year.
That said, I would like to reiterate a point that I have made to you
before--the substance should drive the timing in this negotiation. It
is too important to our workers that we get enforceable labor and
environmental standards and upgraded obligations across the board--we
can't just throw up our hands and walk away or hastily accept
unambitious outcomes because we have failed to meet some artificial
deadline. Have you set a deadline for concluding negotiations?
Answer. I completely agree. We are seeking to conclude a modernized
and rebalanced NAFTA as soon as possible. However, the substance will
determine the pace of this negotiation and we will not limit the United
States to an artificial deadline. We will not conclude a bad deal for
the sake of expediency.
Question. At the 2017 trade agenda hearing, you stated that you
were prepared to negotiate until we get a high-standard agreement
unless there is a total stalemate, in which case, you said, you would
be back in front of this committee to consult with us. Is that still
your commitment?
Answer. As the United States Trade Representative, I place great
importance on the both the history of the agency's relationship with
Congress and its requirements under statute. This administration is
committed to following the guidelines for consultations with Congress
for trade agreement negotiations that were developed in 2015.
Question. Chapter 19 of the NAFTA has been used successfully by
Canada to roll back U.S. protections against unfair trade, particularly
for softwood lumber producers in Oregon and across the country.
Frankly, it is a relic that does not belong in any trade agreement and
I urge you to get rid of it. You have spoken at some length about
concerns you see regarding the impact of a different mechanism--ISDS--
on U.S. sovereignty. While as you acknowledge the United States has
never lost a case under ISDS, it has lost dozens of cases under NAFTA
chapter 19. Furthermore, while ISDS remedies are limited to penalties,
chapter 19 allows these tribunals to function as U.S. courts and compel
U.S. agencies to reverse protections for American manufacturers.
Does chapter 19 in your view create concerns regarding U.S.
sovereignty?
Will you be satisfied with a renegotiated NAFTA agreement that
includes chapter 19?
Answer. This administration agrees with you that chapter 19
disputes brought by Canada and Mexico have been detrimental to our
robust trade remedy regime. As indicated in our negotiating objectives
for NAFTA, our objective in a renegotiated NAFTA is to preserve the
ability of the United States to enforce rigorously its trade laws,
including antidumping, countervailing duty, and safeguards laws, as
well as eliminate the chapter 19 dispute settlement mechanism. We have
not deviated from this objective in our discussions with Canada and
Mexico and are working with both countries to strengthen our respective
trade remedy regimes so that they can more adequately and vigorously
address dumped or subsidized injurious trade.
Question. On April 11th, Secretary Perdue told the Senate
Agriculture Appropriations Subcommittee that he was not optimistic that
our challenges with Canada in the dairy sector would be resolved. He
indicated that it is not one of your top priorities--that you have
larger issues. It is one of my top priorities. As I laid out at last
year's trade agenda hearing--before USTR launched negotiations--
addressing challenges to our dairy industry is a key issue in a
renegotiated NAFTA. That means, at a minimum, eliminating the Class 7
pricing program and obtaining gains in market access. In your view, is
a NAFTA renegotiation a success if it fails to eliminate Class 7 and
improve access to Canada's market for our dairy producers?
Answer. I have personally been engaging with my Canadian
counterpart on the dairy issue and it is at the forefront of our
negotiations. The administration understands that Canada's pricing
policy (Class 7) is harming U.S. dairy exports and is working at the
highest levels to address this critical issue in NAFTA renegotiation.
The administration is also seeking to open up Canada's market to the
full range of U.S. dairy, poultry and egg products through NAFTA
renegotiation. These are both high priorities for the United States.
Question. It is my firm belief that our trade agreements must
protect the free exchange of ideas and information, and the access of
American-made digital products and services around the world. Other
countries are increasingly erecting barriers, threatening to erode U.S.
leadership in digital trade. That is why it is so important that a
renegotiated NAFTA set a new high-water mark on obligations that
protect the Internet as an open platform for commerce as well as the
free exchange of ideas of all kind. This means it must have robust
commitments on data flows and localization, clear commitments on
intermediary liability, as well as copyright commitments that reflect
U.S. law and its support of creation and innovation. Do you agree with
me that NAFTA is a critical opportunity to set a new standard on the
frontier of digital trade and are you seeking to address each aspect of
a digital trade agenda?
Answer. I agree that a renegotiated NAFTA provides the opportunity
to pursue the highest possible standards for ensuring key U.S.
objectives in with respect to digital trade, helping to safeguard U.S.
leadership in this critical area. We have tabled an ambitious set of
proposals, in consultation with you and others in the Congress. I am
confident that the United States is currently on a path to achieving
the strongest outcome on digital trade issues ever negotiated in a U.S.
trade agreement.
Question. As NAFTA discussions progress, it becomes even more
important for the administration to consult with Congress. We are
partners in this effort and share the administration's goals. I'd argue
there isn't a member of Congress who doesn't think NAFTA can be
improved to the benefit of U.S. workers, businesses and farmers. And,
Congress is the body who will be asked to pass the legislation that
gives effect to the deal you negotiate. For these reasons, as decisions
get harder and trade-offs are made to strike a deal, it is critical
that the administration follows the letter and spirit of the
consultations requirement in TPA, including the Guideline for
Transparency Engagement promulgated by USTR. To that end:
Will you recommit to make yourself available in a timely manner--
i.e., before key decisions are made and communicated to trading
partners--to the committee when it requests your presence for
consultations?
Answer. As I said during that hearing, it is my intention to
fulfill the consultation requirements as outlined by TPA. I, along with
the USTR senior and professional staff, have dedicated over 2,600
employee hours to consultations with members of Congress and their
staff.
Question. The TPA guidelines state that: ``In formulating and
adjusting U.S. negotiating positions with respect to the negotiating
objectives found in the Trade Priorities Act, USTR will consult with
relevant congressional committees.'' Will you commit to ensure that any
adjustments to U.S. negotiating positions discussed by negotiators with
our trading partners are first the subject of consultations with the
committee, even if such adjustments are not proposed in writing?
Answer. The TPA requirements and guidelines require USTR to engage
in detailed information exchange throughout the negotiations. It is my
intention to continue to fulfill these requirements.
Question. The TPA guidelines state: ``During key negotiating
meetings, USTR will consult intensively with the Committees on Finance
and Ways and Means.'' Will you commit to ensure that committee staff is
updated on the negotiations on a regular and timely basis, including
during key meetings, such as ministerial discussions? Will you commit
to make senior policy staff on your political team available for
intensive consultations during key negotiating meetings?
Answer. As the USTR, I have made it a habit of personally calling
the chairman and ranking member, or in some circumstances their senior
staff, to deliver news on upcoming actions, and it is my intent to
continue personally relaying important messages in this way.
Furthermore, by my own approximation I have personally conducted over
85 meetings and calls with congressional members, while my staff has
conducted over 649 such meetings and calls. In total, we estimate that
USTR has spent over 2,600 man-hours in consultations with congressional
staff and members. Moving forward, I can assure you that USTR will
continue to consult with congressional members and staff in a timely
fashion.
Question. In written questions for both your confirmation hearing
and the 2017 Trade Agenda hearing, I asked you about the trade-
distorting measures undertaken by British Columbia and other provinces
that have a severe impact on wine exported from the United States,
including Oregon wine. The United States originally requested
consultations with Canada on January 18, 2017 through the World Trade
Organization's dispute settlement mechanism. Your administration
updated the request in October, but didn't expand it to the full range
of Canadian federal and provincial laws and regulations that
disadvantage U.S. exports. And, that dispute has not proceeded.
Are you committed to addressing these barriers in the renegotiated
NAFTA?
What is the status of the dispute at the WTO?
Answer. Policies restricting sales of U.S. wine in Canada are a
major problem. We are considering the most effective steps to address
those British Columbia measures governing the sale of wine in grocery
stores, as well as other measures in Canada that may be harming our
wine exports. Whether we go to a dispute settlement panel or address
these measures in the NAFTA negotiations, we are working to get this
problem resolved for U.S. wine makers.
With regard to the status of dispute settlement proceedings at the
WTO, the United States and Canada held consultations in October 2017
concerning British Columbia measures governing the sale of wine in
grocery stores. In March 2018, the United States joined consultations
between Australia and Canada concerning the same British Columbia
measures, as well as other provincial and federal measures identified
by Australia in its request for consultations.
asia-pacific trade agenda
Question. The remaining participants in the Trans-Pacific
Partnership (TPP) last month signed the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP). Press reports indicate
that the President on April 12th directed you and other senior economic
advisors to initiate discussions with TPP countries on U.S. reentry
into the TPP. The President then tweeted that the United States ``would
only join TPP if the deal were substantially better'' and that the
United States is ``working to make a deal with'' Japan.
Have you been directed to initiate discussions with TPP countries
on U.S. reentry into the TPP?
Answer. As the President has stated, we believe that multilateral
and multi-
country agreements like TPP limit the depth of commitments
participating countries make. We have offered to move forward with
countries in the region on a bilateral basis, and we look forward to
negotiating and concluding free, fair, and reciprocal trade agreements.
Question. Has Japan expressed interest in a bilateral free trade
agreement with the United States? If not, what ``deal'' is the
administration working on with Japan? What are the U.S. priorities for
this deal and what specific issues would the administration like the
deal to address?
Answer. President Trump and Prime Minister Abe recently met, and
President Trump made clear his preference for negotiating a bilateral
trade deal with Japan. Among other objectives, the administration would
aim to maximize export opportunities to Japan through removal of a
broad range of tariff and non-tariff barriers to U.S. exports.
Question. Has USTR identified improvements that, if achieved, would
constitute a ``substantially better'' TPP deal? If so, in what areas
would it be seeking improvements to the TPP? If not, when will USTR
identify its priorities for improving the TPP?
Answer. As noted previously, the United States is focused on the
negotiation and conclusion of bilateral trade deals to address the
numerous barriers to trade and investment throughout the Indo-Pacific
region. Such negotiations will offer the United States the opportunity
to improve upon some of the concerns and shortcomings of the TPP.
Question. As the CPTPP moves forward, what is the administration's
strategy to ensure that U.S. farmers and manufacturers are not
disadvantaged as compared to their competitors in Canada and Mexico
when exporting to Japan, Vietnam, and other CPTPP countries?
Answer. The administration aims to negotiate and conclude free,
fair, and reciprocal trade deals across the Indo-Pacific region. For
example, the President already has made clear his desire to negotiate a
bilateral deal with Japan, and USTR is currently leading talks to
advance this objective.
geographical indications
Question. In order for our companies to stay competitive globally,
we need strong enforcement when countries ignore their trade
commitments to us and a comprehensive strategy to counter the
intentional use of trade policies to create artificial barriers to our
products. Last year, Chairman Hatch and I together sent a letter to the
Acting USTR on the misuse of geographical indications (GIs) that puts
at risk U.S. market access opportunities. The EU has a track record of
using trade deals to throw up new barriers that make it harder for the
United States to sell various foods and wines in the EU and other key
markets by misusing GIs. In questions for the record for last year's
trade agenda hearing, I asked you how you were going to use the NAFTA
discussions to continue to engage with Mexico in particular to prevent
that result.
Can you provide an update on that effort to engage with Mexico on
GIs and their negotiations with the European Union?
Answer. We have consistently raised our strong objection to the
practice of protecting GIs through international agreements without
adequate fairness, transparency, or due process, including through the
Mexico-EU trade agreement. We are discussing the outcomes of this
negotiation in detail with Mexico. USTR will use all appropriate trade
tools to combat unfair GI practices, in Mexico and elsewhere.
Question. Is there anything we can do to address GIs in Canada in
NAFTA?
Answer. The United States seeks fairness in the GI systems in all
trading partners, including Canada. We seek robust IP commitments in
the NAFTA, including with respect to geographical indications.
Question. How you plan to confront this problem more generally?
Answer. We are working intensively in many forums to ensure that
GI-related trade initiatives of the EU, its member states, like-minded
countries, and international organizations, do not undercut our market
access. USTR, with the Department of Agriculture, Department of
Commerce and many other U.S. agencies is promoting and protecting
access to foreign markets for U.S. exporters of products that are
trademark protected or are identified by common names. We are using
every available opportunity to advance these objectives including free
trade agreement negotiations, Asia-Pacific Economic Cooperation (APEC),
WIPO, and the WTO. USTR is also continually engaging bilaterally to
address concerns resulting from the GI provisions in existing EU trade
agreements, agreements under negotiation, and other initiatives.
wto and other plurilateral initiatives
Question. As we have discussed in the past, the United States is
the world's leader in the services sector, which accounts for 30
percent of U.S. exports and supports millions of jobs. But, we can't
take that competitive advantage for granted. We must continue to
address barriers to U.S. service exports so that we can continue to be
a worldwide leader in the sector. In the past, you have said that the
administration was evaluating whether to pursue the multilateral Trade
in Services Agreement (TiSA) and developing a strategy to eliminate
service barriers worldwide, including on new digital services.
What is the outcome of that evaluation of TiSA and what strategy
has been developed?
Answer. The U.S. service sector is highly innovative and a key
driver of the U.S. economy. Maintaining a vibrant U.S. services sector
and expanding U.S. services exports is vital to a healthy economy and a
core objective of U.S. trade policy. USTR is currently pursuing robust
services outcomes in the ongoing NAFTA negotiations and other ongoing
bilateral efforts. USTR is also pursuing an aggressive agenda on
digital trade, including through participation in plurilateral
discussions at the WTO involving e-commerce. USTR is still evaluating
additional options for pursuing our services trade objectives,
including TiSA, and will continue to consult with you as we chart the
best course forward.
Question. Ongoing negotiations for an agreement to eliminate
tariffs on environmental goods have been on hold for more than a year.
Trade in environmental goods presents major opportunities for American
businesses and workers given that over 80 percent of clean energy
investments will take place outside of the United States and the United
States is a leading producer of a number of environmental technologies,
ranging from water filtration equipment to turbines to air quality
monitoring equipment. Last June, you indicated that the administration
was in the process of reviewing the Environmental Goods Agreement
(EGA).
What is the status of the administration's review? If it is still
pending, when will it be complete? If it is complete, what is the
administration's assessment?
Answer. The administration continues to review the EGA, among other
initiatives, and I look forward to working with you and other members
of Congress and stakeholders as we consider how best to move forward in
order to advance U.S. manufacturing interests in this sector.
Question. Fishing and fisheries are important to Oregon's coastal
economy, and ensuring that other countries play by the rules is vital
to ensuring fairness for Oregon's fishers. In the President's Trade
Policy Agenda, the administration detailed its support for ``strong
prohibitions on subsidies that contribute to overfishing and
overcapacity and those that support illegal fishing activities.'' The
administration also advised that it will ``continue to press for an
ambitious agreement on fisheries subsidies that includes enhanced
transparency and notifications of fisheries subsidies programs.''
Please provide an update on your efforts to pursue these goals, as
well as the status of ongoing negotiations at the WTO regarding these
issues.
Answer. At the WTO's Ministerial Conference in December 2017,
members agreed to continue negotiations to prohibit harmful fisheries
subsidies with the goal of concluding an agreement by the next WTO
Ministerial in December 2019. WTO Members have since agreed to a robust
work program to advance the fisheries subsidies negotiations. The
administration will continue to actively participate in these
negotiations and advocate for prohibitions that apply to all members,
including the largest subsidizers, which will help level the playing
field for the U.S. fishing industry. I look forward to working you and
other members and stakeholders as we further advance these
negotiations.
e-commerce
Question. In recent years, we have seen a true transformation in
trade, where even a very small business in Oregon can reach customers
globally due to the Internet. This disaggregation of trade means that
we are seeing more and more shipments come in through small packages,
rather than shipping containers. That is why Congress raised the de
minimis threshold for small shipments entering the United States in the
Trade Facilitation and Trade Enforcement Act of 2015. I was pleased
that USTR's summary of negotiating objectives indicates that you are
asking Canada and Mexico to raise their thresholds to the level of the
United States. But, we need to look beyond Canada and Mexico at what
discussions are going on around the world regarding how to capitalize
on the opportunities and address challenges posed by the new reality we
are living in. To me, it is critical the United States be a leader in
those discussions, with USTR play a prominent role.
Will you commit to me that will be the case not only at the World
Trade Organization, but also at the World Customs Organization, and any
other relevant international bodies?
Answer. The United States put forth very ambitious negotiating
objectives for the NAFTA Customs Administration and Trade Facilitation
Chapter and is seeking commitments that meet this level of ambition. We
have been seeking new commitments on faster and less burdensome release
of goods, transparency and automation in customs procedures, and in how
the government works with and interacts with traders. Included among
the objectives is a higher de minimis value, so that U.S. exporters and
companies will also enjoy including new job growth and increased
opportunities. Based on input and feedback we have received from U.S.
stakeholders and Congress, we know that faster, more transparent, and
less burdensome formalities make trade easier and more profitable for
U.S. traders. USTR is committed to seeking reciprocal reforms and
modernized borders from our trading partners as the United States
offers at its borders, and will seek such commitments in all
international fora.
ethics compliance
Question. Given the wide range of bilateral trade negotiations
recently launched by the administration, it is more critical than ever
that both the President and top administration officials are in full
compliance with ethics laws as they negotiate on behalf of the United
States. The American people must have full confidence that the results
of such negotiations are in the interest of the United States as a
whole and not designed to benefit particular companies or sectors to
which administration officials have financial or other ties.
With respect to the recently announced steel and aluminum tariffs,
for example, the President has stated that the United States Trade
Representative has chief responsibility for negotiating country
exemptions. In his ethics agreement, Ambassador Jeffrey Gerrish, who
was recently confirmed as Deputy United States Trade Representative,
committed not to participate for one year after his withdrawal from
Skadden (his previous law firm) in any particular matter involving
specific parties which were former clients, unless first authorized to
participate. Ambassador Gerrish recently served as counsel to U.S.
Steel Corporation, a major U.S. steel company affected by these
negotiations, and was a registered lobbyist for the company from Q4
2007-Q1 2009 and from Q4 2014-Q2 2016.
Furthermore, in his ethics agreement, Ambassador Gerrish committed
to divest certain assets, including holdings in a major energy company,
within 90 days of confirmation and committed not to participate in any
particular matter that to his knowledge has a direct and predictable
effect on the financial interests of such entities until divestment was
complete.
Has Ambassador Gerrish participated in negotiations with foreign
governments related to steel and aluminum tariff exemptions and if so,
when did he first do so?
Answer. Yes, but he did not participate in any particular matters
involving specific parties which were former clients. He first
participated on March 16, 2018.
Question. If Ambassador Gerrish did participate in such
negotiations, did he receive authorization from the USTR Designated
Agency Ethics Official (DAEO) before doing so? If so, please describe
the basis for that authorization and provide a copy to the committee.
Answer. Ambassador Gerrish has had and continues to have
discussions about ethics issues with appropriate USTR officials, and he
is in full compliance with applicable ethics requirements.
Question. Ambassador Gerrish's ethics agreement states that within
90 days of confirmation (which took place March 5, 2018) he will divest
his interests in the entities listed in Attachment A of his ethics
agreement. Has he divested his interests in these entities? On what
date was divestiture completed?
Answer. Ambassador Gerrish has fully complied with all requirements
of his ethics agreement. He filed a 278-T periodic transaction report
and filed his Certification of Ethics Agreement Compliance with the
Office of Government Ethics on May 1, 2018.
______
Questions Submitted by Hon. Debbie Stabenow
Question. Last year, Chairman Roberts and I sent you and Secretary
Perdue a letter asking you to address the impact of Canada's new dairy
pricing (``Class 7'') scheme on the U.S. dairy industry. In 2017, this
new policy cost Michigan dairy farmers an estimated $40 million in lost
income. At a time when our dairy farmers are already facing significant
financial hardship, this unfair practice cannot continue.
I appreciate your engagement on this issue, but will you continue
to prioritize finding a solution for U.S. dairy farmers in the NAFTA
renegotiation?
Answer. The administration understands that Canada's pricing policy
(Class 7) is harming U.S. dairy exports and is working at the highest
levels to address this critical issue in NAFTA renegotiation.
Question. Michigan cherry growers are continuing to struggle with a
flood of cheap imports of tart cherry juice concentrate, primarily from
Turkey. During your confirmation, you committed to work with me and
Michigan's cherry industry to address this, and I appreciate your
attention to this issue.
The U.S. cherry industry has submitted a petition to have Turkey's
duty-free access for tart cherry juice concentrate revoked under the
Generalized System of Preferences (GSP) program. The petition also
noted that Turkey has exceeded the GSP program's competitive need limit
(CNL) by supplying more than 50 percent of all U.S. imports of tart
cherry juice concentrate every year since 2013. How long will it take
to make a determination on this petition? If Turkey is exceeding the
CNL threshold for tart cherry juice concentrate, will you move to
terminate their duty-free treatment for this product?
Answer. USTR will be making a decision on which GSP product
petitions to accept for review in the coming weeks. In the most recent
GSP renewal, Congress established a new deadline of November 1st for
GSP CNL decisions. The President makes the final decision on all GSP
product removals. USTR will continue to work with you and the U.S.
cherry industry to address its concerns.
Question. One of the challenges in addressing this issue is the
lack of information about production and processing capacity, market
conditions, and potential countervailable subsidies in Turkey. Will you
consider requesting that the U.S. International Trade Commission
undertake a section 332 investigation into these factors and their
impact on the U.S. cherry industry?
Answer. We are always willing to discuss any appropriate measures
to collect any necessary additional information.
Question. As we have discussed, including strong and enforceable
language on currency manipulation in NAFTA, and other trade agreements
we are negotiating, is critical. Given what seems to be an acceleration
of discussions between the NAFTA parties recently, what is the status
of including language on currency manipulation in the NAFTA
negotiations?
Answer. As I have said before, this administration believes it is
critical to ensure that trading partners do not manipulate exchange
rates in order to prevent effective balance of payments adjustment or
to gain an unfair competitive advantage. Secretary Mnuchin and I are
working closely with our Canadian and Mexican counterparts on how best
to achieve this in the NAFTA.
Question. As you are aware, the long-standing dispute with China on
solar products has also ravaged the U.S. polysilicon industry, which is
a critical component for semiconductors. Hemlock Semiconductor, located
in Michigan, is one of the largest polysilicon producers in the world.
This dispute has blocked market access for U.S. polysilicon in China
and threatens a critical manufacturing industry in the United States.
In January USTR announced, it would be engaging in discussions about
how U.S. polysilicon can gain market access in China. Thank you for
your commitment on this issue.
Have you engaged in the discussions on this issue? How?
What actions have you taken to stop China's retaliation on the U.S.
polysilicon industry?
What steps do you plan to take to help the U.S. polysilicon
industry?
When do you plan to take these steps?
Answer. When President Trump announced safeguard relief for U.S.
manufacturers of solar cells and modules, he committed that ``[t]he
U.S. Trade Representative will engage in discussions among interested
parties that could lead to positive resolution of the separate
antidumping and countervailing duty measures currently imposed on
Chinese solar products and U.S. polysilicon. The goal of those
discussions must be fair and sustainable trade throughout the whole
solar energy value chain, which would benefit U.S. producers, workers,
and consumers.'' The Office of the U.S. Trade Representative has been
engaged in such discussions with U.S. stakeholders in an effort to find
a solution that is beneficial to both the U.S. solar industry and the
U.S. polysilicon industry, and which would be acceptable to China.
Those discussions are ongoing.
Question. USTR is engaged in negotiations with several countries in
light of the President's announcement and implementation of tariffs on
certain steel and aluminum imports to the United States.
What are your criteria for country exemptions and negotiations as
they relate to the steel and aluminum tariffs?
Are your criteria consistent for each country?
Answer. The President's proclamations identify the criteria for
determining whether to exempt a country from the tariffs he proclaimed
pursuant to section 232 of the Trade Expansion Act of 1962, as amended.
These criteria are whether the United States has a security
relationship with a country, and whether the United States and that
country can arrive at satisfactory alternative means for addressing the
threatened impairment to the national security caused by imports from
that country. The President's proclamations relating to section 232
also describe the issues the United States is discussing with partner
countries relating to satisfactory alternative means. These include
measures to reduce global excess capacity by addressing its root causes
and measures to increase domestic capacity utilization.
______
Questions Submitted By Hon. Maria Cantwell
bilateral trade agreements
Question. Please identify the countries that the President is in
bilateral negotiations with at this time. Which countries is he
targeting for bilateral trade agreements and what is the timeline for
beginning these negotiations?
Answer. USTR is currently exploring potential bilateral deals with
several countries in order to secure greater market access for American
farmers, workers, ranchers, and businesses. These include the UK,
Japan, and countries in Africa and the Indo-Pacific. As you know, USTR
frequently explores these options through our Trade and Investment
Framework Agreements as well as through discussions that are more
informal. Before USTR begins any bilateral negotiations, we will ensure
to consult closely with you and your staff.
Question. Who will be the lead negotiator of bilateral agreements--
or any agreements for that matter: USTR or the Department of Commerce?
Answer. As USTR, my statutorily mandated responsibility is to be
the President's principal trade advisor and lead trade negotiator for
the United States. I intend to continue fulfilling that role. As USTR
has always done, and where required by statute, I will continue to work
closely with all members of the President's cabinet, Congress, and the
Trade Advisory Committees in order to develop a balanced trade policy
that furthers the priorities of the President and the American people.
Question. In your view, does USTR have the personnel/expertise on
board to be able to negotiate more than one bilateral agreement at a
time?
Answer. As you know, in March, the Senate confirmed three of my
deputies, C.J. Mahoney, Dennis Shea, and Jeffrey Gerrish, as well as my
Chief Agriculture Negotiator, Gregg Doud. Our new senior leadership
team joins more than 200 highly qualified civil service staff already
at the agency who bring decades of negotiating experience to the table.
Rebalancing America's trading relationships to better serve our
workers, farmers, ranchers, and businesses is a principal objective of
this President. I am fully confident that USTR will be able to
accomplish this mission.
section 301 action
Question. The recent 301 case investigated two important issues
that companies want to see addressed: IPR protection and forced
technology transfer. Despite the recent announcement of WTO, tariff and
investment restriction action, it remains unclear what the
administration's strategy is in this case and more broadly for U.S.-
China relations, and what you would consider to be successful
resolution of these issues. I would like some clarity on these issues:
How will the proposed tariffs address the problems of IP protection
and forced technology transfer in China, and bring it to a successful
resolution?
Answer. By targeting products that benefit from Chinese industrial
policies, including Made in China 2025, the proposed tariff list aims
to apply pressure on China in sectors that China deems important.
Question. What actions would China need to take to improve IP
protection and end forced technology transfer to end the tariffs you
plan to implement? Specifically, how will issues around cloud computing
be addressed?
Answer. The administration has been clear about its concerns with
China's unfair trade practices. These practices include China's market-
distorting forced technology transfers (including in the cloud
computing sector), theft of intellectual property, cyber intrusions of
U.S. commercial networks, and China's failure to abide by its WTO
obligations.
The administration has also identified very specific programs that
China needs to address. These are identified in numerous reports,
including USTR's report on China's compliance at the World Trade
Organization, USTR's Special 301 Report, and the Department of
Commerce's determination that China remains a non-market economy.
The appropriate response from China should be to change its
behavior, which China's government has pledged to do many times in the
past but has not. Economies around the world--including China's
domestic economy--will benefit if China responds by making needed
reforms to its trade distortive policies, instead of adopting new and
harmful policies to block trade and distort world markets.
Question. How long will the administration keep tariffs and
investment restrictions in place before it decides this course of
action is or isn't working? What metrics will be part of that
evaluation?
Answer. The administration has made no final determination with
respect to the length of time the proposed tariff action or any
investment restrictions would be imposed.
Question. Given that the Comprehensive Economic Dialogue is
stalled, what active steps is the administration taking to get China to
the table to negotiate a resolution to these issues and other economic
and trade issues?
Answer. As you may know, a delegation comprised of Ambassador
Lighthizer, Secretary Mnuchin, Secretary Ross, and other senior
administration officials traveled to China on May 2nd to meet with
Chinese counterparts to discuss these issues. The same delegation met
this week to further discuss ways to resolve challenges in the U.S.-
China trade relationship.
The President calls on China to take concrete action to stop
distorting markets, forcing technology transfer, and stealing
technology. China must also finally follow through on commitments to
lower its barriers to U.S. exports and cease its WTO-inconsistent
behavior.
If China takes these actions, trade between the United States and
China will be more free, fair, and reciprocal.
dairy trade
Question. Does the United States remain committed to addressing
concerns about Class 7 policies as part of NAFTA talks?
What progress is being made to address the Class 7 pricing program
in the NAFTA renegotiation context?
Answer. The administration understands that Canada's pricing policy
(Class 7) is harming U.S. dairy exports and is working at the highest
levels to address this critical issue in NAFTA renegotiation.
trade enforcement
Question. I appreciate USTR's effort to remove Indonesia's import
restrictions on horticultural imports. These restrictions cost growers
in Washington State tens of millions of dollars in lost sales and added
costs each year. As a result of USTR's work, Indonesia lost its appeal
at the World Trade Organization last year. However, Indonesia has
decided to close its market to apples during August, September, and
October of this year, when 30 percent of the fruit is shipped to
Indonesia.
What is USTR's plan to address Indonesia's decision to close its
market to apples during certain months of the year?
Answer. We continue to attach a high importance to resolving
Indonesia market access concerns, including the import restrictions on
apples. Indonesia's seasonal restrictions on horticultural products--
including apples--were found by the WTO Dispute Settlement Body to be
inconsistent with Indonesia's WTO obligations. USTR will continue to
pursue the WTO dispute as quickly and vigorously as possible in order
to obtain effective market access for U.S. producers.
USTR will also continue to press for removal of the planned
seasonal restrictions on apple imports in other forums. In particular,
USTR made this issue a priority at the Trade and Investment Framework
Agreement (TIFA) meeting with Indonesia held on May 14th.
polysilicon
Question. As you know, the United States has been engaged in a
longstanding dispute with China over solar products, which has crippled
the U.S. polysilicon industry. The domestic polysilicon industry is a
high tech manufacturing industry, and is critical for U.S. semi-
conductor independence. The industry has the potential to be a large
net exporter to China.
In his announcement of the section 201 action, the President said
that USTR would be working to resolve the persistent issues plaguing
the domestic polysilicon industry. Please explain what concrete steps
you plan to take to achieve a resolution for the U.S. polysilicon
industry.
Answer. When President Trump announced safeguard relief for U.S.
manufacturers of solar cells and modules, he committed that ``[t]he
U.S. Trade Representative will engage in discussions among interested
parties that could lead to positive resolution of the separate
antidumping and countervailing duty measures currently imposed on
Chinese solar products and U.S. polysilicon. The goal of those
discussions must be fair and sustainable trade throughout the whole
solar energy value chain, which would benefit U.S. producers, workers,
and consumers.'' The Office of the U.S. Trade Representative has been
engaged in such discussions with U.S. stakeholders in an effort to find
a solution that is beneficial to both the U.S. solar industry and the
U.S. polysilicon industry, and which would be acceptable to China.
Those discussions are ongoing.
Question. Is polysilicon currently part of an ongoing USTR effort?
If not, what is USTR's timetable to address the challenging issues
facing the domestic polysilicon industry?
Answer. As noted above, USTR has been engaged in discussions with
U.S. stakeholders in an effort to find a solution that is beneficial to
both the U.S. solar industry and the U.S. polysilicon industry, and
which would be acceptable to China.
Question. How have Chinese tariffs on U.S. solar products, such as
polysilicon, impacted the U.S. polysilicon industry?
Answer. The Office of the U.S. Trade Representative has been
informed by U.S. polysilicon producers that Chinese tariffs have
effectively blocked U.S. polysilicon from entering the Chinese market.
Question. I understand that there is currently a fund held at the
Treasury Department of roughly $1.4 billion in duties collected from
solar imports from China into the United States. Is that accurate?
Answer. The ``fund'' mentioned in this question appears to be a
reference to the antidumping and countervailing duty cash deposits
collected by U.S. Customs and Border Protection on entries of solar
cells and modules from China that are subject to U.S. antidumping and
countervailing duty measures. Such cash deposits are held by U.S.
Customs and Border Protection until the final antidumping and
countervailing duties are determined by the U.S. Department of Commerce
(``Commerce'') and the entries on which the cash deposits were paid are
``liquidated.'' At that point, the actual duties owed are assessed
against the cash deposits, and any additional duty owed beyond the cash
deposits is collected, or any excess portions of the cash deposits are
refunded; the duties collected are transferred to the General Fund of
the United States. The Commerce determination of the final duties is
subject to appeal to the U.S. Court of International Trade, the U.S.
Court of Appeals for the Federal Circuit, and possibly even the U.S.
Supreme Court. Liquidation of these cash deposits occurs only after all
judicial review of the Commerce determination has been completed.
Question. How has this effective tax on solar investments in the
United States helped or hurt the U.S. solar industry? Is there any
evidence that the 2012 tariffs on certain Chinese manufactured solar
panels helped U.S. solar manufacturers, particularly the petitioner
SolarWorld, which subsequently still declared bankruptcy?
Answer. The Office of the U.S. Trade Representative does not track
the effect of U.S. antidumping and countervailing duty measures. Such
measures are imposed by Commerce following investigations conducted by
Commerce and the U.S. International Trade Commission that result in
affirmative determinations that dumping/subsidization exists and that
such dumping/subsidization has caused material injury or threatened to
cause material injury to the U.S. industry producing the like domestic
product.
Question. How does USTR and/or the Treasury Department plan to use
those funds to support the U.S. solar manufacturing industry?
Answer. Neither the Office of the U.S. Trade Representative nor the
Department of the Treasury has legal authority to use collected cash
deposits to support the U.S. solar manufacturing industry. However, as
noted above, President Trump committed earlier this year that ``[t]he
U.S. Trade Representative will engage in discussions among interested
parties that could lead to positive resolution of the separate
antidumping and countervailing duty measures currently imposed on
Chinese solar products and U.S. polysilicon. The goal of those
discussions must be fair and sustainable trade throughout the whole
solar energy value chain, which would benefit U.S. producers, workers,
and consumers.'' The Office of the U.S. Trade Representative has been
engaged in such discussions with U.S. stakeholders in an effort to find
a solution that is beneficial to both the U.S. solar industry and the
U.S. polysilicon industry, and which would be acceptable to China.
Those discussions are ongoing.
aluminum tariffs
Question. I understand the Department has self-initiated an
antidumping investigation regarding Chinese aluminum sheet.
Other than the aluminum industry, have you consulted with other
downstream users of aluminum sheet products?
It is my understanding beverage cans are outside the scope of the
antidumping investigation. Will other aluminum products be considered
outside the scope as well?
What process did the administration take to determine what items
are out of the scope of the ongoing antidumping investigation?
What impact do actions in the 232 investigation have on this
investigation?
Answer. I would refer you to the U.S. Department of Commerce for
questions relating to this antidumping investigation.
digital trade
Question. What steps are you taking to bridge the remaining gaps
between the U.S., Mexico, and China on digital trade in the NAFTA
renegotiation? Where do the negotiations on digital issues stand in the
talks?
Answer. The United States has tabled an ambitious set of proposals
on digital trade in the NAFTA renegotiations, and we have made
substantial progress in our negotiations to date. While we are
continuing to work with Mexico and Canada to resolve some outstanding
issues, I am confident that the United States is currently on a path to
achieving the strongest outcome on digital trade issues to date in a
U.S. trade agreement.
e-commerce
Question. I was encouraged by your reiteration of commitment to
work on e-commerce issues at the conclusion of the meetings in Brussels
with Japan and the EU earlier this month. An e-commerce work program at
the WTO is a step in the right direction toward addressing trade issues
affecting a number of technology companies in Washington State.
What are USTR's goals for a successful outcome of these talks?
Is the United States committed to achieving agreement on high-
standard objectives on digital trade similar to those under discussion
in the NAFTA renegotiation talks?
Answer. Digital trade is essential to the U.S. economy, and USTR is
pursuing an aggressive agenda on digital trade in a range of forums,
including at the WTO. At the WTO Ministerial in Buenos Aires in
December, I joined 70 other trade ministers in initiating exploratory
work on negotiations on digital trade issues at the WTO. That work is
now underway, and the United States was among the first members to
submit a paper outlining potential priorities for the initiative as
part of the ongoing exploratory discussions. This paper, which is
publicly available, outlines the highest-standard provisions for
safeguarding and promoting digital trade, including provisions that
guarantee cross-border data flows and ensure fair treatment of digital
products and services. As this initiative moves forward, USTR will
continue to push for an outcome that delivers commercially meaningful
results for U.S. companies and consumers.
______
Questions Submitted by Hon. Bill Nelson
Question. I want to commend you for your leadership on providing an
equitable way for regional fruit and vegetable growers to combat unfair
trade practices. You deserve a lot of credit for having the courage to
stick firm on the issue. However, there's been rumors that you may be
willing to give up on the current U.S. proposal for letting regional
growers use seasonal data in anti-dumping and countervailing duty
cases, in order to win other concessions in NAFTA renegotiations. I
want to give you the opportunity to put those rumors to rest. Please
answer each of the following questions.
Do you plan to withdraw the current U.S. proposal for dealing with
the problem of Mexican agricultural goods being unfairly subsidized and
dumped into the U.S. during the winter months?
Do you foresee any possibility of giving in on that proposal?
Should Florida growers have anything to fear about your
resoluteness on this issue?
Answer. It would be inappropriate to comment on any rumors
regarding the negotiations due to the confidential nature of the
discussions. That being said, as we have maintained throughout the
negotiations, we want to help ensure that our agricultural products are
treated fairly.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. As you know, the NAFTA rules of origin for heavy-duty
trucks and buses are different than those for light duty passenger cars
and trucks. In particular, to qualify for preferential treatment, the
largest commercial vehicles are required to contain North American
content equal to at least 60 percent of their value. Light duty
vehicles must meet a 62.5 percent benchmark. Heavy-duty and light-duty
vehicles also have different tracing requirements.
The 2.5-percent variance in the above content levels reflects the
significant differences between the two industries. For example, in
2017, passenger cars and light-duty trucks sold a combined 17 million
new units, while the market for new heavy trucks was 300,000 vehicles.
The average sale price of heavy trucks is approximately three times
that of passenger vehicles. And, due to their robust manufacture and
challenging service lives, heavy trucks and buses include significantly
more steel than their smaller counterparts.
Would you please assure this committee that, when you have
concluded renegotiating the rules of origin provisions with our North
American partners, the new rules will continue to reflect the
differences between the heavy commercial vehicle and passenger car
industries, including a lower regional value number for trucks and
buses and different tracing requirements?
Answer. USTR understands that there are differences between the
heavy truck and passenger car industries. We are working with our heavy
truck industries to understand how to reflect these differences in the
rules of origin provisions of the renegotiated NAFTA.
Question. During the March 22nd hearing, I raised a few concerns
with you regarding the process by which companies may apply for
exclusions from the section 232 steel and aluminum tariffs. In
particular, I am concerned that the exclusion process may be very
difficult for small businesses. For instance, based on the guidance
issued by the Commerce Department, it appears that exclusion may only
be requested on a company-by-company basis, rather than allowing
smaller companies to seek exclusions--a resource-intensive process that
requires extremely detailed specifications--jointly or via trade
associations. In addition, if granted, I understand that an exclusion,
in most cases, is only available to the company that petitioned, as
opposed to extending to the product. The fact that the exclusions will
be provided to individual companies could further tip the balance
against smaller players; whereas larger companies can afford legal
counsel with respect to exclusion requests, smaller companies will have
to spread that cost over fewer sales.
Do you agree that the Commerce Department's exclusion process
should take into account the challenges and resource constraints faced
by smaller businesses?
Answer. I would refer you to the U.S. Department of Commerce for
questions relating to the procedures for seeking product exclusions
from the section 232 tariffs.
Question. Newspapers are a vital civic resource that helps keep
citizens connected to their schools, local businesses, and with one
another. Over the last 10 years, local newspapers, like The Baltimore
Sun and community newspapers throughout my State, have faced strong
headwinds. Historically, advertising provided the lion's share of
revenue, but this advertising revenue has been cut in half, as a result
of the Great Recession and market forces.
Recent countervailing and antidumping duties on Canadian imports of
newsprint imposed by the Department of Commerce have exacerbated the
challenges that community newspapers face. As a result of these duties,
newspapers have seen the price of newsprint go from $600 to a $800
ton--a more than 30 percent increase.
I understand that this trade dispute stems from a single actor that
operates one mill and was recently acquired by a hedge fund. I also
understand that other U.S. paper producers universally oppose this
action, including the American Forest and Paper Association.
Newspapers have publicly stated that they cannot absorb these
tariffs, and will need to implement expense and revenue measures, such
as cutting jobs in their operations, reducing news coverage in
communities, cutting back on days of print distribution, and raising
subscription prices on the printed newspaper which hurts citizens--
particularly the elderly in rural communities that are reliant on
print. Overall, the tariffs will likely have the effect of convincing
customers to reduce demand for a product from U.S. producers that the
tariffs are intended to help.
Are changes in our trade laws needed that would allow
decisionmakers at the Commerce Department and the International Trade
Commission to acknowledge the economic damage to U.S. businesses and
their customers that can occur when trade remedies are imposed?
Is there sufficient discretionary authority for mitigating such
unintended effects?
Answer. Under U.S. law, the domestic industry for a particular
product can submit a petition to the U.S. Department of Commerce and
U.S. International Trade Commission (ITC) alleging that it is being
injured or threatened with injury by dumped or subsidized imports.
Throughout the investigation, particularly during the injury phase
conducted by the ITC, parties have the opportunity to submit
information on the administrative record in the form of questionnaire
responses and through hearing testimony for the Commission to consider
when making its final determination regarding injury or threat thereof.
Question. Since the March 22nd hearing, there have been several
major developments related to the China section 301 investigation. The
tariff list resulting from that investigation on the U.S. side was
released on April 3rd; China responded with its own list on April 4th;
and President Trump asked USTR to consider proposing $100 billion in
additional tariffs on April 5th.
I strongly agree with USTR's assessment that we have significant
problems related to intellectual property and other market access-
related issues with China. We should protect U.S. workers, businesses,
and innovation.
That being said, I would like to know more about USTR's long-term
plans to address these issues, beyond tariff escalation. As you may
know, the Finance Committee's Subcommittee on International Trade,
Customs, and Global Competitiveness recently held a hearing on market
access challenges in China since the country's accession to the WTO.
When asked, the panel of witnesses for that hearing seemed to agree
that more certainty was needed with respect to the administration's
strategy to hold China to its commitments in order to protect American
industry and level the playing field for our workers.
Could you elaborate on what you see as a productive path forward
with China?
What steps need to be taken to ensure that the Chinese government
will follow through on market access and IP-related commitments in a
timely way?
Answer. China's behavior has been undermining the global trading
system and the WTO for years, using its protected market to force
technology transfers and by acquiring leading technology companies
overseas. Mercantilist trade policies, like China's Made in China 2025
initiative, clearly state that China seeks to take away domestic and
international market share from foreigners, in defiance of global
norms. The world's second-largest economy should not continue to ignore
fundamental precepts of the global trading system.
China should respond to the findings and the action of the section
301 investigation by undertaking the necessary economic and policy
reforms and market liberalization needed to end its trade-distortive
practices. In contrast, counter-reactions--either unilaterally or
through attempted recourse to WTO dispute settlement--would do nothing
to address the harmful impacts of China's policies.
The President hopes that China will take concrete actions to
address its unfair trade practices and policies soon. China must also
finally follow through on commitments to lower its barriers to U.S.
exports and cease its WTO-inconsistent behavior.
If China takes these actions, trade between the United States and
China will be more free, fair, and reciprocal.
Question. How can we best engage our allies who share our position?
Answer. Most of our allies and trade partners share the same
concerns about China's state-driven, mercantilist policies on trade and
technology transfer.
Many countries also agree that China continues to game the WTO's
international rules-based trading system and the openness of our
economies in ways that threaten all of our economies and our long-term
competitiveness.
We have maintained a sustained engagement effort with our allies
and other like-minded countries in confronting China.
We continue to work closely with Japan and the European Union to
ensure that WTO members maintain their rights to use non-market economy
methodologies in antidumping proceedings in order to curb China's
distortive economic behavior.
During the WTO Ministerial Meeting in Argentina last December, the
EU Trade Commissioner, the Japanese Trade Minister, and the U.S. Trade
Representative issued a joint statement recognizing that ``forced
technology transfer'' threatens the proper functioning of international
trade, the creation of innovative technologies, and sustainable growth
of the global economy. Together, we agreed to enhance trilateral
cooperation in the WTO and in other fora to address this and other
critical trade concerns.
Earlier this year, the EU Trade Commissioner, the Japanese Trade
Minister, and the U.S. Trade Representative underscored ``their shared
objective to address non-market-oriented policies and practices.''
______
Questions Submitted by Hon. Robert Menendez
Question. Ambassador Lighthizer, during your confirmation hearing,
I asked you about a matter in Australia that my constituents had
brought to my attention. I am told that the Government of New South
Wales (NSW) expropriated a company's mining license and left investors,
including those from the United States, with no recourse to challenge
the action or ability to seek compensation. These were rights the
investors had when they made the investments, but were later nullified
by an act of the NSW Parliament.
Thank you for your previous response and for agreeing to look into
the matter. I understand that USTR has since formally requested
consultations with Australia under the Australia-U.S. Free Trade
Agreement (AUSFTA). However, I understand the federal and NSW
governments have shown little interest in finding a resolution.
What is the status of the consultations USTR previously requested
under AUSFTA?
Has USTR linked this issue to discussions on a permanent exclusion
from the section 232 tariffs?
What other means or mechanisms are you exploring to resolve this
dispute?
Answer. The administration places a high priority on ensuring full
compliance with the obligations in our trade and investment agreements,
including the Australia-United States Free Trade Agreement.
Accordingly, we initiated consultations under the Investment Chapter of
that Agreement to address a discrete investment dispute in the energy
sector involving U.S. investors. We are continuing to engage with
Australia regarding this ongoing matter.
Question. Ambassador Lighthizer, you've stated several times that
you believe labor obligations in NAFTA should be subject to the same
enforcement mechanisms as other aspects of the agreement. However, it
is my understanding that USTR is advocating for a non-binding dispute
settlement mechanism that could allow parties to disregard penalties
imposed for a failure to comply with labor or other provisions. In
other words, it appears that while you support having an enforcement
mechanism that applies equally to all parts of the agreement, that
mechanism may be useless in compelling parties to adhere to the deal.
Under the non-binding system you have proposed, what incentive will
our trading partners have to live up to their labor and other
obligations if they can simply disregard penalties for noncompliance?
How is such a system an improvement on what was negotiated in TPP,
which at least provided for binding penalties for violations of labor
obligations?
Answer. I am committed to vigorously enforcing our trade
agreements, including by incorporating enforceable, high-standard labor
provisions into the core of the agreement rather than in a side
agreement as is currently the case with the existing NAFTA. As you may
know, current NAFTA dispute settlement procedures do not work, and
NAFTA violations eventually are litigated at the WTO instead of through
NAFTA panels. In consultation with Congress, we are considering a
number of options in the renegotiation that will allow us to enforce
vigorously the new labor obligations, as well as ensuring that the
obligations are subject to the same dispute settlement mechanisms and
trade sanctions as the rest of the agreement. We also seek to make sure
that any improved dispute settlement system permits the United States
to retain its sovereign ability to enact laws and regulations.
______
Questions Submitted by Hon. Robert P. Casey, Jr.
Question. During the tax debate, I wrote a letter to the President,
which you were copied on, asking for details on how the administration
is acting in a coordinated fashion to curb outsourcing. To your
knowledge, is there an interagency policy to coordinate strategy on
curbing outsourcing?
Answer. Ensuring that American firms, especially those located
here, have the tools to remain competitive in the global marketplace is
a principal objective of this administration. As the President's Trade
Agenda outlined in five major pillars, the administration is aiming to
decrease offshoring incentives by supporting our national security,
strengthening the U.S. economy, negotiating better trade deals,
aggressively enforcing U.S. trade laws, and reforming the multilateral
trading system. President Trump believes that each of these pillars is
necessary to increase the competiveness of U.S. firms and to obtain
more efficient global markets and fairer treatment for U.S. workers. We
work on these objectives together with other appropriate agencies to
ensure that we are moving toward this goal.
Question. To your knowledge, does interagency guidance exist
requiring the assessment of outsourcing impact prior to the
administration's advancement or endorsement of policy?
Answer. There are several interagency processes for assessing the
trade impacts of administration decisions. Specifically, USTR oversees
the Trade Policy Committee (TPC) and the Trade Policy Staff Committee
(TPSC). The TPSC is the first line operating group, with representation
at the senior civil servant level. Supporting the TPSC are more than
100 subcommittees responsible for specialized issues. The TPSC
regularly seeks advice from the public on its policy decisions and
negotiations through Federal Register Notices and public hearings. USTR
also oversees the trade advisory committee system, established by
Congress in 1974. There are 28 of these committees, with a total
membership of up to 700 advisors. USTR regularly consults with the TPC,
the TPSC, and the trade advisory committees when developing the
administration's trade policy. This includes evaluating the potential
effects of offshoring.
Question. We now know that the 2017 tax bill creates incentives for
corporations to move tangible assets overseas; that is, the bill
creates incentives for companies to locate manufacturing abroad (pp.
109-110 of CBO's ``The Budget and Economic Outlook: 2018 to 2028'').
How does this policy align with the President's goal to curb
outsourcing? Did Treasury consult with USTR on the impact on
outsourcing from the international tax provisions they negotiated in
the tax bill?
Answer. The President's economic advisors, including USTR and the
Department of the Treasury, coordinate closely on all matters affecting
the U.S. economy. The tax bill has proven a huge boon to U.S.
businesses and workers.
Question. NAFTA didn't simply have a direct impact on jobs in the
years following its passage, but has had lasting impacts on workers
ever since. Including the looming threat of a company moving to Mexico
absent wage or workplace concessions. In many ways it put companies
ahead of workers. U.S. workers can outcompete anyone in the world if
the playing field is level. Can you discuss how exempting profits from
a new overseas factory from U.S. tax helps level the playing field for
workers in the United States?
Answer. Among our top priorities for NAFTA are improvements that
create incentives to increase manufacturing in the United States, lower
the U.S. trade deficit with the NAFTA countries, and improve export
opportunities for U.S. producers and workers. We are vigorously
pursuing these goals throughout the renegotiations, including by
strengthening rules of origin and bringing strong labor and environment
provisions into the core of the Agreement, and subjecting them to the
same dispute settlement mechanisms as other provisions in the
Agreement. U.S. trade agreements, including NAFTA, do not deal with
domestic tax policy.
______
Questions Submitted by Hon. Claire McCaskill
Question. The President announced on April 5th that he would
consider adding another $100 billion in tariffs against China as part
of a section 301 remedy. Can you discuss the process by which USTR and
other administration officials will develop the list of products that
will be covered by the tariff?
Answer. Trade analysts from various U.S. Government agencies
continue to implement the President's instruction announced on April
5th. Any list that comes out of that process will be subject to public
comment as was the original list.
Question. USTR has highlighted our interest in finding remedies
that inflict maximum pain against China and minimum pain on the United
States. What kind of analysis have you done to ensure that is the case?
Can you explain exactly how the algorithm works?
Answer. Trade analysts from several U.S. Government agencies
identified products that benefit from Chinese industrial policies,
including Made in China 2025. The list was refined by removing specific
products identified by analysts as likely to cause disruptions to the
U.S. economy, and tariff lines that are subject to legal or
administrative constraints. The remaining products were ranked
according to the likely impact on U.S. consumers, based on available
trade data involving alternative country sources for each product. The
proposed list was then compiled by selecting products from the ranked
list with lowest consumer impact.
Question. Can you explain how tariffs on apparel and footwear would
address the IPR and forced technology transfer issues underlying the
section 301 case?
Answer. Neither apparel nor footwear were on the proposed list of
products set forth in USTR's Federal Register notice published on April
6, 2018. As we review products for a potential second list, an
interagency team of career staff international trade experts and
economists will base any proposal on extensive economic analysis, using
widely accepted sources of trade and other economic data.
Question. Has USTR studied the economic impact for the proposed
section 301 tariffs? Have you looked at the downstream impact the
proposed tariffs will have on businesses, both large and small? What
about the impact on consumers?
Answer. Yes. The interagency team of trade analysts and economists
accounted for various economic factors in its analysis. The analysis
identified products that benefit from Chinese industrial policies,
including Made in China 2025. The list was refined by removing specific
products identified by analysts as likely to cause disruptions to the
U.S. economy, and tariff lines that are subject to legal or
administrative constraints. The remaining products were ranked
according to the likely impact on U.S. consumers, based on available
trade data involving alternative country sources for each product. The
proposed list was then compiled by selecting products from the ranked
list with lowest consumer impact. This list is not final, and
businesses, both large and small, have an opportunity to provide public
comment on it, and many participated in a hearing this week on this
topic.
Question. What kind of consultations have you done with U.S.
companies who rely on imports from China to talk about the potential
impact this will have on their businesses?
Answer. After the launch of the 301 investigation in August 2017,
USTR held extensive stakeholder outreach including soliciting input for
the advisory committee system, a Federal Register Notice with public
comment period, and a public hearing.
We received over 70 written submissions during the public comment
period and heard from witnesses with varied interests and perspectives
on China's technology transfer acts, practices, and policies. The
majority of the submissions and witnesses support USTR's determination
that China engages in unreasonable and discriminatory technology
transfer acts, policies, and practices that burden or restrict U.S.
commerce.
Furthermore, the April 6th Federal Register Notice announcing the
proposed list of products invited comments from all interested parties.
The interagency section 301 committee, chaired by USTR, conducted 3
days of public hearings beginning on May 15th. We have briefed Congress
throughout the process. We have also consulted with the advisory
committees before initiating the investigation, and provided further
opportunities for input during the investigation.
Question. Has USTR conducted any kind of analysis of the supply
chains that will be affected by the 301 tariffs? Did this analysis
include an evaluation of available capacity in other markets to produce
covered goods? How quickly does USTR believe companies can shift
sourcing away from China?
Answer. Yes. In compiling the proposed list of products for the
$50-billion list, the interagency team of trade analysts and economists
had considered and accounted for alternative country sources for each
product, thereby minimizing the effects on supply chains. In addition,
interested parties also have the opportunity to provide additional
information regarding supply chain issues for each product during the
notice and comment period.
Question. Have you done any kind of analysis on the potential for
retaliation from China against U.S. industries, specifically
agriculture?
Answer. We have considered that China may retaliate, but how China
ultimately responds is, of course, China's decision. The appropriate
and constructive response from China to our action should be for China
to change its behavior, which China's government has pledged to do many
times in the past but has failed to carry out. The administration
stands ready to defend our producers that may be harmed by foreign
country retaliation, in particular farmers and ranchers who are often
the first to be targeted by trade actions. As we take a stronger
approach to the way we handle trade, we will use all appropriate
authorities to ensure that we protect and preserve our agricultural
interests.
Question. Please describe the goal of our negotiations with China.
Are there specific actions expected from China in order to remove
tariffs? Will you use specific benchmarks to measure success?
Answer. The administration has been clear about its concerns with
China's unfair trade practices. These practices include China's market-
distorting forced technology transfers, theft of intellectual property,
cyber-intrusions of U.S. commercial networks, and China's failure to
abide by its WTO obligations.
Under section 301 of the Trade Act of 1974, USTR conducted an
exhaustive investigation and determined that China's unfair trade
practices harm America's economy. The administration has also
identified very specific programs that China needs to address. These
are identified in numerous reports, including USTR's report on China's
compliance at the World Trade Organization, USTR's Special 301 Report,
and the Department of Commerce's report on China's non-market economy.
The President calls on China to take concrete action to address its
unfair policies and practices such as distorting markets, forcing
technology transfer, and stealing technology. China must also finally
follow through on commitments to lower its barriers to U.S. exports and
cease its WTO-inconsistent behavior.
If China takes these actions, trade between the United States and
China will be more free, fair, and reciprocal.
Question. How does the administration consider the supply chain of
the U.S. economy when setting tariffs? Did USTR staff speak with
companies who are sourcing from China to discuss their supply chains?
Did the USTR analyze other potential sources for products that are
currently made in China?
Answer. As discussed in the response above, the interagency team of
trade analysts and economists had considered and accounted for
alternative country sources for each product in compiling the proposed
list of products, thereby minimizing the effects on supply chains. In
addition, interested parties also have the opportunity to provide
additional information regarding supply chain issues for each product
during the notice and comment period.
Question. Why do you believe the proposed tariffs will have the
effect of pressuring China to change its policies?
Answer. By targeting products that benefit from Chinese industrial
policies, including Made in China 2025, the proposed tariff list aims
to apply pressure on China in sectors that China deems important.
Question. When the administration discusses the trade deficit, does
this only address trade in goods or does this include trade in services
as well?
Answer. The administration looks at all trade balances when
assessing trade flows--goods and services, goods alone, services,
agriculture, manufacturing, and resources.
Question. Under the proposed tariffs, stakeholders can petition to
not have their products subject to the tariff. Can you describe that
process? If a company is in the petition process when the tariffs take
effect, will they be subject to the tariff? Will they be able to get a
refund on the tariff if their product is exempt after the tariff takes
effect?
Answer. Sections E, F, and G of the April 6th Federal Register
notice set forth the process to comment and testify about specific
products subject to the proposed tariff. USTR has not made any final
determination with respect to the proposed tariff action, including any
effective date.
Question. The aluminum sector is facing tariffs set under the 232
action, as well as an ongoing Department of Commerce antidumping
investigation regarding aluminum sheet from China. Does the
administration consider the impact of both tariffs on manufacturing
that uses aluminum?
Answer. I would refer you to the U.S. Department of Commerce for
questions relating to the antidumping investigation of imports of
aluminum sheet and its relationship to the President's section 232
action.
______
Questions Submitted by Hon. Sheldon Whitehouse
Question. The Senate report accompanying the 2018 National Defense
Authorization Act asked the U.S. Trade to consider marine debris in
future trade agreements. Yet, disappointingly, the President's 2018
policy agenda does not mention ``plastic'' or ``marine debris.''
How will you consider the direction given in the NDAA and
incorporate it into your office's work on future trade agreements?
Answer. The Office of the U.S. Trade Representative (USTR) has
taken into consideration both the Marine Debris Act and the NDAA, and
we are actively working to incorporate this guidance into our bilateral
and regional trade policy initiatives, including through the
environment cooperation work programs with our trading partners.
Question. Around 80 percent of the plastic in the oceans comes from
land. Of that plastic, more than half comes from just five countries:
China, Indonesia, the Philippines, Thailand, and Vietnam.
Are there opportunities with these countries to push waste
management improvements and other efforts to mitigate their
contributions to the global marine plastic debris problem?
Answer. Yes, USTR is actively exploring opportunities with these
countries to discuss and encourage waste management improvements and
other efforts to mitigate their contributions to the global marine
plastic debris problem, including under existing Trade and Investment
Framework Agreements (TIFAs).
Question. How will you include marine debris in future multilateral
or bilateral negotiations with these and other priority countries?
Answer. Environmental protections are important negotiating
objectives that Congress has set out in TPA for future U.S. trade
agreements, including obligations for the parties to effectively
enforce their environmental laws, such as laws that would address land
and sea pollution. Additionally, USTR was directed under the Marine
Debris Act and the NDAA to consider including marine debris in future
multilateral or bilateral negotiations with these and other priority
countries. I look forward to working closely with you and other members
as we consider possible future FTAs with additional trade partners.
Question. What role will the U.S. Trade Representative's office
play in helping rapidly developing economies in Africa avoid the same
waste management issues we've seen in rapidly developing economies in
Asia?
Answer. USTR supports developing countries following sound
development strategies, as reflected in the statutory eligibility
criteria of the African Growth and Opportunity Act as well as Trade
Promotion Authority. USTR's efforts are complemented by those of other
U.S. Government agencies operating in Africa, including the U.S. Agency
for International Development. As USTR considers possible African
partners for exploratory FTA talks, we will make efforts to incorporate
environmental obligations, consistent with guidance outlined in TPA.
Question. Where does marine debris rank among the United States'
many trade priorities with China, the greatest contributor of plastic
from land into the ocean?
Answer. Marine debris is among the many trade and environment
policy priorities we have with China, and we are working to address
marine debris in multilateral fora to which we both belong, such as
APEC and G20.
Question. How can the U.S. Trade Representative coordinate with
NOAA, the State Department, and EPA to provide technical assistance and
research support for countries needing to improve their waste
management regimes and reduce plastic waste entering the ocean?
Answer. USTR is already coordinating closely with NOAA, the State
Department, and EPA to include marine debris as a priority in existing
environmental cooperation work programs that support implementation of
our FTAs to improve waste management regimes and reduce plastic waste
entering the ocean. USTR, NOAA, the State Department, and EPA are
currently considering technical assistance and research to address
marine debris and waste management under the Environment Plans of
Action with Singapore, Jordan, and Oman, as well as an ongoing program
in Panama to prevent land-based trash from flowing into the Caribbean
Sea.
Question. What role will the U.S. Trade Representative's office
play if a new international treaty on land-based sources of marine
debris were developed? How quickly could the USTR incorporate a new
treaty into future trade agreements?
Answer. The 2015 Bipartisan Trade Priorities and Accountability Act
(2015 TPA) provides that USTR ensure that our trading partners comply
with their obligations under certain common multilateral environmental
agreements (MEAs) through trade agreement negotiations. I look forward
to consulting with you and other members of Congress closely on any
proposed future additions related to marine debris.
Question. You opposed the Paris Agreement, characterizing it as
``another unfair trade barrier that America cannot afford.'' In
reality, the Paris Agreement would not have penalized American exports
nor favored imports from overseas. In fact, the trade risk comes from
withdrawing from the Paris Agreement, as every other country in the
world begins implementing it. Canada is in the process of implementing
an economy-wide carbon price. Several European countries are discussing
implementing a carbon tax, and Mexico, Columbia, and Chile have also
indicated that they will begin pricing carbon. And China has begun
implementing a cap and trade system to limit carbon emissions.
As the rest of the world charges ahead with pricing carbon in order
to meet national emissions reductions goals under the Paris Agreement,
what is the risk that these countries will impose tariffs on U.S. goods
to compensate for the fact that we are not pricing carbon?
Answer. The President has clearly articulated his views regarding
the Paris Climate Agreement, while at the same time expressing his
support for a balanced approach to climate policy that lowers emissions
while promoting economic growth and ensuring energy security.
Question. Extreme weather events and global sea level rise borne of
climate change threaten manufacturing and transportation
infrastructures around the world.
Do you believe that climate change poses a threat to the global
supply chains upon which world trade depends?
How do you propose the United States address the threats that
climate change poses to global supply chains and the economy?
Answer. I defer to other relevant Cabinet officials regarding U.S.
and global climate change policy matters.
Question. The U.S. helped negotiate the Kigali Amendment to the
Montreal Protocol. The Kigali Amendment would phase down emissions of
hydrofluorocarbons (HFCs), a powerful greenhouse gas used as a
refrigerant. It is supported by American manufacturers, which have
developed alternative molecules to replace HFCs and would see increased
sales were it to be implemented. However, the Trump administration has
yet to indicate whether it will send the Kigali Amendment to the Senate
for ratification. The Kigali Amendment is good for American business,
American workers, our international leadership, and the planet.
Do you support the Kigali Amendment? If not, why not?
Answer. The administration continues to review the Kigali Amendment
to the Montreal Protocol, and USTR and other relevant agencies are
participating in the interagency review process led by the National
Security Council (NSC).
Question. As you know, President Trump recently announced his
intention to impose tariffs on $60 billion of imported goods from
China. While China's troubling record of intellectual property theft
warrants U.S. action, I'm concerned that American families may end up
paying for these tariffs in the form of higher prices for clothing,
toys, electronics, and household goods.
Are you working to ensure that tariffs on Chinese goods are
tailored to ensure minimal price affects for middle-class families? Do
you anticipate these tariffs will lead to higher prices for clothing,
toys, electronics, and household goods? Why or why not?
Answer. The proposed tariff list was selected based on a
methodology that balances the application of maximum pressure on
China's unfair industrial policy, and minimizing any impact on the U.S.
economy. The interagency team of trade analysts and economists had
accounted for various economic factors in its analysis. The proposed
tariff list identified products that benefit from Chinese industrial
policies, including Made in China 2025. The list was refined by
removing specific products identified by analysts as likely to cause
disruptions to the U.S. economy, and tariff lines that are subject to
legal or administrative constraints. The remaining products were ranked
according to the likely impact on U.S. consumers, based on available
trade data involving alternative country sources for each product. The
proposed list was then compiled by selecting products from the ranked
list with lowest consumer impact.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
Anybody reading the trade policy news on the business pages is
probably suffering from a nasty case of whiplash. Trying to decipher
all that news, it is hard to identify a coherent strategy that will
help American workers, businesses, and farmers when the dust settles.
Since the summer, the administration has been engaged in
negotiations with Canada and Mexico to update NAFTA--a project that is
incredibly important to U.S. workers and the American economy. However,
those talks are routinely broadsided by tweets from the President on
subjects like the fantasy of Mexico paying for a border wall. It
creates chaos, threatening to derail the discussions, or at least
distract from the important issues.
A decision with respect to steel and aluminum action was delayed
for months as a result of political maneuvering. But then, in a meeting
that was billed as a ``listening session,'' the President blurted out
his plans to impose a 25 percent tariff on steel imports and a 10
percent tariff on aluminum.
What followed was more of the same: it was chaos. Lobbyists
descended on Washington to get special carve-outs. Other countries--
including longstanding allies--threatened retaliation. It was unclear
who in the administration was responsible for making key decisions
about tariffs that would take effect in very short order.
It's still an open question as to which countries will be excluded
and which will be included in the tariffs. You'd hope and expect that
more information will be released over the coming weeks. But the
tariffs are scheduled to go into effect tomorrow.
With respect to the overnight news about China, I'm pleased the
administration appears to be taking a more deliberative approach. The
fact is, China has stolen our intellectual property, held American
companies hostage until they disclose their trade secrets, and
manipulated their markets in a strategic manner to rip off American
jobs and industries. I want to hear more this morning about how the
administration will manage the 301 process going forward in order to
get trade done right.
Bottom line, the Trump administration stormed into office promising
better deals, more certainty for businesses to create jobs in America,
and a stronger position in the world economy. But after 14 months, it's
mostly delivered a whole lot of chaos. Total chaos on trade isn't going
to create a single red, white, and blue job.
So I'm glad Ambassador Lighthizer is here with the committee today
to discuss the administration's trade agenda, because I am counting on
him to bring a cool head to this heated situation. And I look forward
to questions.
______
Communications
----------
American Farm Bureau Federation
600 Maryland Avenue, SW, Suite 1000W
Washington, DC 20024
p 202-406-3600
f 202-406-3606
www.fb.org
The American Farm Bureau Federation (Farm Bureau) offers the following
statement for the record on the hearing: ``President's 2018 Trade
Policy Agenda.''
Trade is critical to the livelihood of the U.S. agricultural sector
because it spurs economic growth for our farmers, ranchers, and their
rural communities. Agriculture supports jobs in the food and
agricultural industries and beyond. The fact is that 95 percent of the
world's consumers live outside of the United States and over 20 percent
of U.S. farm income is based on exports. Expanding opportunities for
U.S. crop and livestock producers to access international markets will
boost farm income in the United States, while preserving existing
access is critical to maintaining farm income at current levels. U.S.
agricultural exports amounted to $140.5 billion in 2017. Imports,
critical for certain products, especially out of season produce,
totaled $119 billion in 2017.
Trade agreements have significantly contributed to the decades-long
positive growth in trade by U.S. agriculture. Between 2003 and 2017,
U.S. agricultural exports to countries we have trade agreements with
increased from $24 billion to $63 billion annually, 45 percent of all
agricultural exports. Existing trade agreements have proved successful
in tearing down tariff and non-tariff trade barriers that hinder U.S.
farmers' and ranchers' competitiveness and prevent us from taking
advantage of consumer demand for high quality U.S. food and
agricultural products throughout the world. For consumers, trade
agreements provide access to new varieties of food products and off-
season supplies of fresh produce.
nafta
One of the most talked about trade agreements, the North America Free
Trade Agreement (NAFTA), has been overwhelmingly beneficial for
farmers, ranchers, and associated businesses all across the United
States, Canada, and Mexico for decades. With NAFTA, U.S. farmers and
ranchers across the nation have benefited from an increase in annual
exports to Mexico and Canada from $8.9 billion in 1993 to $39 billion
in 2017.
The NAFTA negotiations between the United States, Canada, and Mexico
seek to modernize the agreement and provide greater benefits to the
economics of North America. Despite these numerous benefits, there are
reasons to update and reform NAFTA from agriculture's perspective.
Improvements that eliminate and reduce tariff barriers, eliminate
redundant regulatory costs, expedite transit across borders, and hasten
the resolution of disputes between members would go a long way towards
more efficient trade between NAFTA partners. The rules related to
biotechnology, sanitary and phytosanitary measures and geographic
indicators need to be improved in order to reflect the progress that
has been made in these areas over the decades since NAFTA was enacted.
U.S. agricultural exports to Canada would grow if tariff barriers to
dairy, poultry, and eggs were reduced or eliminated. The recent Class 7
pricing program instituted by Canada has eliminated an important export
market for U.S. dairy producers of ultra filtered milk products and
needs to be removed.
While there are several areas where the NAFTA agreement could be
modernized to improve trade in agricultural goods, however, it is
critical that the modernization effort should recognize and build upon
the strong gains achieved by U.S. agriculture through the tariff
eliminations, the recognition of equivalency of numerous regulatory
issues, and the development of integrated supply chains that have
arisen due to the agreement.
Trade in goods consists of not only final consumer products but also
intermediate inputs and raw materials, as firms reorganize their
activities around regional markets for both inputs and outputs, spurred
in part by greater foreign direct investment (FDI).
This integration enables agricultural producers and consumers in the
region to benefit more fully from their relative strengths and to
respond more efficiently to changing economic conditions. The creation
of a larger, single market has given producers access to cheaper
suppliers of inputs, which allows U.S. producers to be more price
competitive domestically and abroad.
U.S. agriculture depends upon a growing international economy that
provides opportunities for farmers and ranchers to sell their products.
Modernization of NAFTA will expand market opportunities for U.S.
agriculture.
trans-pacific partnership
The 11 countries of the Trans-Pacific Partnership, after the U.S.
withdrawal in January 2017, have agreed to form a new agreement. The
CPTPP (Comprehensive and Progressive Trans-Pacific Partnership) was
recently signed and will be ratified by the participating countries in
the next months.
The Farm Bureau was a strong supporter of the TPP and we encourage the
Administration to engage with the TPP countries to discuss joining the
CPTPP. Our analysis of the TPP found that U.S. agricultural trade would
increase by over $5.5 billion annually due to the removal of tariff and
non-tariff barriers in the TPP region.
japan
The Farm Bureau supported the Trans-Pacific Partnership (TPP) agreement
due to the gains for U.S. agricultural exports from the lowering of
tariff and non-tariff barriers with the TPP partner countries. The
majority of the export gains were with Japan, due especially to the
lowering of Japanese tariffs on beef, pork, dairy, and other products.
We encourage the discussions by the Administration with Japan about
trade concerns. We also support efforts by the United States to rejoin
the TPP, now called the CPTPP (Comprehensive and Progressive Trans
Pacific Partnership.
china
The U.S. exported over $22 billion in agricultural products to China in
2017, ranking as the #2 export market for U.S. farmers and ranchers.
This market in China is especially critical for U.S. soybean growers as
$14 billion of the $22 billion of soybean exports in 2017 went to
China.
Any effort to impose tariffs on Chinese imports by the U.S. runs the
risk of retaliatory measures against U.S. agricultural exports.
Previous U.S. Government action against China on tires resulted in
China retaliating against U.S. poultry exports. The impact on American
farmers and ranchers, and the associated businesses, must be considered
when pursuing trade actions. U.S. agriculture has strongly supported,
for decades, efforts to open the world to our agricultural and other
trade products.
______
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
fiscalequitycenter@yahoo.com
Chairman Hatch and Ranking Member Wyden, thank you for the opportunity
to submit these comments for the record to the Committee on Finance.
This largely mirrors our comments from last year. As usual, we will
preface our comments with our comprehensive four-part approach, which
will provide context for our comments.
A Value-Added Tax (VAT) to fund domestic military spending and
domestic discretionary spending with a rate between 10% and 13%, which
makes sure very American pays something.
Personal income surtaxes on joint and widowed filers with net
annual incomes of $100,000 and single filers earning $50,000 per year
to fund net interest payments, debt retirement and overseas and
strategic military spending and other international spending, with
graduated rates between 5% and 25%.
Employee contributions to Old-Age and Survivors Insurance (OASI)
with a lower income cap, which allows for lower payment levels to
wealthier retirees without making bend points more progressive.
A VAT-like Net Business Receipts Tax (NBRT), which is
essentially a subtraction VAT with additional tax expenditures for
family support, health care and the private delivery of governmental
services, to fund entitlement spending and replace income tax filing
for most people (including people who file without paying), the
corporate income tax, business tax filing through individual income
taxes and the employer contribution to OASI, all payroll taxes for
hospital insurance, disability insurance, unemployment insurance and
survivors under age 60.
Far be it from the Center to interfere with a dispute between the
Committee and the White House over steel tariffs and NAFTA. Such
arguments are like those over immigration, where some business owners
want employees to stay in the shadows and be abused, others want legal
employees (though non-union--repealing right to work laws would end
illegal immigration because no one would hire an undocumented worker
with union representation) and still others in the conservative camp
simply hate the illegality or the ethnicity of the immigrants (speaking
of the White House).
The real similarity in the short term is that attacking unions for the
past 30 years has taken its toll on the American worker in both
immigration and trade. That has been facilitated by decreasing the top
marginal income tax rates so that when savings are made to labor costs,
the CEOs and stockholders actually benefit. When tax rates are high,
the government gets the cash so wages are not kept low nor unions
busted. It is a bit late in the day for the Majority to show real
concern for the American worker rather than the American capitalist or
consumer.
Reversing the plight of the American worker will involve more than
trade, but I doubt that the Majority has the will to break from the
last 30 years of tax policy to make worker wages safe again from their
bosses. Sorry for being such a scold, but the times require it.
Some of our prior comments to the Trade Subcommittee from June of 2016
on our standard tax plan still apply, even though that hearing was on
agricultural exports. Allow us to repeat them now.
The main trade impact in our plan is the first point, the value-added
tax (VAT). This is because (exported) products would shed the tax,
i.e., the tax would be zero rated, at export. Whatever VAT congress
sets is an export subsidy. Seen another way, to not put as much
taxation into VAT as possible is to enact an unconstitutional export
tax.
The second point, the income and inheritance surtax, has no impact on
exports. It is what people pay when they have successfully exported
goods and their costs have been otherwise covered by the VAT and the
Net Business Receipts Tax/Subtraction VAT. This VAT will fund U.S.
military deployments abroad, so it helps make exports safe but is not
involved in trade policy other than in protecting the seas.
The third point is about individual retirement savings. As long as such
savings are funded through a payroll tax and linked to income, rather
than funded by a consumption tax and paid as an average, they will add
a small amount to the export cost of products.
The fourth bullet point is tricky. The NBRT/Subtraction VAT could be
made either border-adjustable, like the VAT, or be included in the
price. This tax is designed to benefit the families of workers, either
through government services or services provided by employers in lieu
of tax. As such, it is really part of compensation. While we could run
all compensation through the public sector and make it all border
adjustable, that would be a mockery of the concept. The tax is designed
to pay for needed services. Not including the tax at the border means
that services provided to employees, such as a much-needed expanded
child tax credit--would be forgone. To this we respond, absolutely
not--Heaven forbid--over our dead bodies. Just no.
The NBRT will have a huge impact on trade policy, probably much more
than trade treaties, if one of the deductions from the tax is purchase
of employer voting stock (in equal dollar amounts for each worker).
Over a fairly short period of time, much of American industry, if not
employee-owned outright (and there are other policies to accelerate
this, like ESOP conversion) will give workers enough of a share to
greatly impact wages, management hiring and compensation and dealing
with overseas subsidiaries and the supply chain--as well as impacting
certain legal provisions that limit the fiduciary impact of management
decision to improving short-term profitability (at least that is the
excuse managers give for not privileging job retention).
Employee-owners will find it in their own interest to give their
overseas subsidiaries and their supply chain's employees the same deal
that they get as far as employee-ownership plus an equivalent standard
of living. The same pay is not necessary, currency markets will adjust
once worker standards of living rise.
Over time, this will change the economies of the nations we trade with,
as working in employee owned companies will become the market
preference and force other firms to adopt similar policies (in much the
same way that, even without a tax benefit for purchasing stock,
employee-owned companies that become more democratic or even more
socialistic, will force all other employers to adopt similar measures
to compete for the best workers and professionals).
In the long run, trade will no longer be an issue. Internal company
dynamics will replace the need for trade agreements as capitalists lose
the ability to pit the interest of one nation's workers against the
others. This approach is also the most effective way to deal with the
advance of robotics. If the workers own the robots, wages are swapped
for profits with the profits going where they will enhance consumption
without such devices as a guaranteed income.
If Senator Sanders had been nominated and elected, this is the type of
trade policy you might be talking about today. Although the staff at
the Center supported the Senator, you can imagine some of us thought
him too conservative in his approach to these issues, although we did
agree with him on the $15 minimum wage. Economically, this would have
had little impact on trade, as workers at this price point often
generate much more in productivity than their wage returns to them.
This is why the economy is slow, even with low wage foreign imports.
Such labor markets are what Welfare Economics call monopsonistic
(either full monopsony, oligopsony or monopsonistic competition--which
high wage workers mostly face). Foreign wages are often less than the
current minimum wage, however many jobs cannot be moved overseas.
As we stated at the outset, the best protection for American workers
and American consumer are higher marginal tax rates for the wealthy.
This will also end the possibility of a future crisis where the U.S.
Treasury cannot continue to roll over its debt into new borrowing.
Japan sells its debt to its rich and under-taxes them. They have a huge
debt to GDP ratio; however, they are a small nation. We cannot expect
the same treatment from our world-wide network of creditors, an issue
which is also very important for trade. Currently, we trade the
security of our debt for consumer products. Theoretically, some of
these funds should make workers who lose their jobs whole--so far it
has not. This is another way that higher tax rates and collection (and
we are nowhere near the top of the semi-fictitious Laffer Curve) hurt
the American workforce. Raising taxes solves both problems, even though
it is the last thing I would expect of the Majority.
We make these comments because majorities change--either by deciding to
do the right thing or losing to those who will, so we will keep
providing comments, at least until invited to testify.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
______
Learning Resources, Inc.
380 North Fairway Drive
Vernon Hills, IL 60061
Statement on Possible Chinese Toy Tariffs
My name is Richard Woldenberg, and I am CEO of Learning Resources, Inc.
located in Vernon Hills, IL. I am submitting this testimony on behalf
of our company. Our company is a family business which develops and
markets educational products and educational toys in the United States
and dozens of other countries. We outsource the manufacturing of our
products overseas, and as a result, we are a significant importer (of
our own products) into the United States. Many of our products are made
in China under our control.
We have grave concerns about reports that the President intends to
impose high tariffs on toys made in China by the end of March. The
imposition of tariffs on toy imports is completely unrelated to
allegations of Chinese theft of intellectual property and forced
technology transfers in other industries, and is rife with risk and
unintended consequences. Our industry is highly dependent on China as a
manufacturing hub, and thus an easy target in trade disputes with
China. I fear that the future of our company, and the many jobs we
provide, are at stake here. We are a small business under the Federal
Government definition and believe that the problems we will face under
a harsh import tariff regime will be experienced by many other small
business importers in the United States.
Our Company
Learning Resources, Inc. (LR) was founded in 1984 and is located in
Vernon Hills, IL and has about 150 employees in the United States and
the U.K. The company is part of our family business group which turned
100 years old in 2016; I am the third generation of my family to run
this business, and we were proud to welcome the first member of the
fourth generation into our business last year. LR develops and markets
proprietary educational toys and materials in Vernon Hills but has
manufactured most of its 1,200 products overseas since the late 1980s.
Jobs at our company pay well, turnover is low and we are an important
member of our community, injecting many millions of salary and benefit
dollars into the local economy annually. In 2013 and again in 2016, LR
tried and failed to find factories located in the United States
interested in making our products. In other words, we know from recent
experience that we have no realistic option to make our products in the
United States, with or without the coercive pressure of tariffs. High
tariffs will just shrink our business and impoverish our consumers.
Toy Tariffs Will Hit the Wrong Target
Our China factories are not state-owned
Our business largely depends on factory relationships in China. To my
knowledge, we do not do business with any Chinese government-owned or
controlled entities. The factories that we use are private businesses,
typically family businesses like ours. These businesses are subject to
law, and pay fair wages to make our products in a responsible manner.
The factories are subject to Code of Conduct audits and certifications,
and must also pass compliance audits by local authorities. The high
quality products we make in our Chinese factories satisfy U.S. safety
standards and other international safety standards. We do good business
in China with good people.
Losses by our partner factories will hurt us. Our partners are hard-
working and honest people who do a great job making consumer goods for
Americans to buy and enjoy. They do not have deep capital reserves,
however. Their economic suffering at the hands of U.S. tariffs will
come out of our pockets, in the form of higher costs, lost production
capacity, ruined teams or forgotten know-how, weakened balance sheets
and broken trust. When the President pushes Humpty Dumpty off the wall,
we know he cannot be put back together again.
Chinese enforcement of our property rights has been reliable
We have never experienced intellectual property theft by our factories.
We register our intellectual property in China, as elsewhere, and rely
on Chinese lawyers and Chinese courts to enforce our rights in our
innovations. We have been successful in enforcing our rights in China,
in part because of our legal ability to close the U.S. market to
infringers. We are not confident we will have the same leverage when
the President closes U.S. markets to all Chinese toy companies
preemptively.
In fact, a greater issue in our business is the economic health of our
factories, which can be shaky at times. We have seen factories go out
of business, leaving our U.S. business endangered. In one notorious
case, a big factory closed overnight, leaving our business exposed with
many important proprietary molds in legal limbo. However, within a
short period of time, a Chinese judge ruled in our favor in the local
insolvency proceeding and allowed us to recover our molds in time for
Christmas toy production. The Chinese judge's decision to uphold our
property rights in the molds saved our holiday selling season. In our
experience, Chinese courts and Chinese judges have been respectful of
our property rights even though we come from another country.
Our company has no realistic ability to move its supply chain to
another country
We have business reasons for the assignment of products to specific
factories, whether in the United States or in other countries. There
are many considerations for these decisions. Based on our market
knowledge, we locate our manufacturing in the most efficient way
possible. We know of no other markets where we can get the range of
services and skills necessary to make our products at the best possible
cost. We have also made repeated attempts to develop a U.S.-based
supply chain but cannot do so on any basis, even inefficiently. We have
no known realistic alternative to our current supply chain.
Our products are used in American schools
Toy tariffs will harm American schools because many toy companies cross
over into school supply. Notably, our company was formed to supply
schools with hands-on learning tools in 1984. U.S. Customs regulations
treat our educational products as ``toys,'' which means that the cost
of tariffs will force us to raise the cost of school products. The big
losers will be poorly-equipped American schools, and the American
families depending on them. This is yet another example of the self-
destructive nature of import tariffs aimed at the wrong target.
Our industry is greatly weakened right now
The demise of Toys R Us is a material event in the American toy
industry. Not only did TRU have U.S. market share of 20-25 percent,
leaving a huge hole for many companies in the wake of its liquidation,
but it also played a special role in the market for the introduction of
hot new toys. The absence of TRU from the marketplace removes a
critical industry marketing vehicle, not to mention a brand ambassador
and a critically important source of revenue. Notably, TRU inflicted
massive losses on many toy companies in September 2017 when it sought
Chapter 11 bankruptcy protection, and again in March 2018 when it
announced plans to fully liquidate. This was a kind of a ``Double
Indemnity'' event for the toy industry. Adding tariffs at this time
will devastate the health of an already weakened American toy industry
employing hundreds of thousands of Americans.
The vast majority of imports are made by small businesses
It is well-known that 97 percent of U.S. importers are Small Businesses
(U.S. Census data, 2014). The average import value per annum per
congressional district is about $1.5 billion from Small Business alone.
The annual import value (2015) for the U.S. Small Business community
was a very healthy $631 billion (https://www.census.gov/foreign-trade/
Press-Release/edb/2015/exh1d.pdf). Toy tariffs will certainly be a
Small Business tax. According to the U.S. Census Bureau, there were
more than 191,000 small business importers in 2015 in the United
States. Toy tariffs will put many small business jobs at risk and there
should be no presumption that those jobs will come back if Mr. Trump
later reverses course.
Just Because We Start a Fight Doesn't Mean We Will Have the Power to
End it
The effect of toy tariffs is unknown and may be irreversible
Our industry has never experienced high tariffs. The burden of toy
tariffs was last felt in the early 1990s and the removal of those small
tariffs led to dramatic industry growth. In that same time period,
retail prices have fallen on an adjusted basis while innovation has
skyrocketed. It is reasonable to assume that high tariffs will sharply
reverse that progression. The cost of tariffs will have to be passed on
to American consumers, and the financial burden of the tariffs will
drain cash availability at victimized toy companies. The outcome of
this grand trade experiment cannot be foretold but it is certainly not
going to be pleasant. Jobs lost because of this ill-considered policy
may never return. The historic lessons of Smoot-Hawley need to be taken
seriously.
Retaliation may leave a permanent mark on certain industries owing to
lack of trust
The imposition of tariffs on our industry has no precedent. No one has
a plan to deal with it, and our factories will immediately become
financially sick. Under these circumstances, when the U.S. Government
demonstrates a willingness to act capriciously and unpredictably, trust
can be forever damaged. Who will be willing to invest in reliance on
prevailing trade practices after that? We will have to deal with this
externality for years to come. That's a cost we will never get back.
Retaliation will be followed by reinvigorated foreign competition
The likelihood of retaliation for high tariffs is great. Market access
removed because of aggressive trade actions may cede market control to
foreign competition. As everyone knows, it's easier to retain a
customer than to win one back. The government is playing with our
life's work with these tariffs, and the future is murky. We will have
no control over the removal of measures taken in response to the
President's provocative tariff plan.
Conclusion
Regardless of the justifications supporting toy tariffs, no one is
going to miss the point that costs are going to skyrocket. In the wake
of tax reform designed to improve corporate competitiveness, the high
toy tariffs will come as a shock to an unsuspecting corporate community
preparing for expansion. The voters' anger will only mount as job
losses pile up and prices rise.
There must be another, better way to fix trade imbalances with China,
and it is Congress's responsibility to find it. Thank you for
considering my views.
[all]
| MEMBERNAME | BIOGUIDEID | GPOID | CHAMBER | PARTY | ROLE | STATE | CONGRESS | AUTHORITYID |
|---|---|---|---|---|---|---|---|---|
| Wyden, Ron | W000779 | 8265 | S | D | COMMMEMBER | OR | 115 | 1247 |
| Hatch, Orrin G. | H000338 | 8314 | S | R | COMMMEMBER | UT | 115 | 1351 |
| Brown, Sherrod | B000944 | 8309 | S | D | COMMMEMBER | OH | 115 | 136 |
| Stabenow, Debbie | S000770 | 8261 | S | D | COMMMEMBER | MI | 115 | 1531 |
| Thune, John | T000250 | 8257 | S | R | COMMMEMBER | SD | 115 | 1534 |
| Burr, Richard | B001135 | 8286 | S | R | COMMMEMBER | NC | 115 | 153 |
| Enzi, Michael B. | E000285 | 8328 | S | R | COMMMEMBER | WY | 115 | 1542 |
| Toomey, Pat | T000461 | S | R | COMMMEMBER | PA | 115 | 1594 | |
| Isakson, Johnny | I000055 | 8323 | S | R | COMMMEMBER | GA | 115 | 1608 |
| Cornyn, John | C001056 | 8295 | S | R | COMMMEMBER | TX | 115 | 1692 |
| Cantwell, Maria | C000127 | 8288 | S | D | COMMMEMBER | WA | 115 | 172 |
| Cardin, Benjamin L. | C000141 | 8287 | S | D | COMMMEMBER | MD | 115 | 174 |
| Carper, Thomas R. | C000174 | 8283 | S | D | COMMMEMBER | DE | 115 | 179 |
| McCaskill, Claire | M001170 | 8252 | S | D | COMMMEMBER | MO | 115 | 1820 |
| Whitehouse, Sheldon | W000802 | 8264 | S | D | COMMMEMBER | RI | 115 | 1823 |
| Casey, Robert P., Jr. | C001070 | 8282 | S | D | COMMMEMBER | PA | 115 | 1828 |
| Heller, Dean | H001041 | 8060 | S | R | COMMMEMBER | NV | 115 | 1863 |
| Warner, Mark R. | W000805 | 8269 | S | D | COMMMEMBER | VA | 115 | 1897 |
| Cassidy, Bill | C001075 | 7964 | S | R | COMMMEMBER | LA | 115 | 1925 |
| Bennet, Michael F. | B001267 | 8302 | S | D | COMMMEMBER | CO | 115 | 1965 |
| Scott, Tim | S001184 | 8141 | S | R | COMMMEMBER | SC | 115 | 2056 |
| Crapo, Mike | C000880 | 8289 | S | R | COMMMEMBER | ID | 115 | 250 |
| Grassley, Chuck | G000386 | 8316 | S | R | COMMMEMBER | IA | 115 | 457 |
| Menendez, Robert | M000639 | 8239 | S | D | COMMMEMBER | NJ | 115 | 791 |
| Nelson, Bill | N000032 | 8236 | S | D | COMMMEMBER | FL | 115 | 859 |
| Portman, Rob | P000449 | 8266 | S | R | COMMMEMBER | OH | 115 | 924 |
| Roberts, Pat | R000307 | 8275 | S | R | COMMMEMBER | KS | 115 | 968 |
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