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27–108 2017

S. HRG. 115–116 

THE DYNAMIC GAINS FROM FREE DIGITAL TRADE 

FOR THE U.S. ECONOMY 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 12, 2017 

Printed for the use of the Joint Economic Committee 

( 

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JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

HOUSE OF REPRESENTATIVES 

PATRICK J. TIBERI, Ohio, Chairman 

ERIK PAULSEN, Minnesota 

DAVID SCHWEIKERT, Arizona 

BARBARA COMSTOCK, Virginia 

DARIN LAHOOD, Illinois 

FRANCIS ROONEY, Florida 

CAROLYN B. MALONEY, New York 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

SENATE 

MIKE LEE, Utah, Vice Chairman 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

ROB PORTMAN, Ohio 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

MARTIN HEINRICH, New Mexico, Ranking 

AMY KLOBUCHAR, Minnesota 

GARY C. PETERS, Michigan 

MARGARET WOOD HASSAN, New Hampshire 

WHITNEY K. DAFFNER, Executive Director 

KIMBERLY S. CORBIN, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Mike Lee, Vice Chairman, a U.S. Senator from Utah ................................. 1 

Hon. Erik Paulsen, a U.S. Representative from Minnesota ................................. 2 

Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico ..... 3 

WITNESSES

Mr. Daniel Griswold, Senior Research Fellow and Co-Director of the Program 

on the American Economy and Globalization, Mercatus Center at George 

Mason University, Arlington, VA ....................................................................... 5 

Mr. Sean Heather, Vice President, Center for Global Regulatory Cooperation, 

U.S. Chamber of Commerce, Washington, DC .................................................. 7 

Mr. Nick Quade, General Manager, Ecommerce Division of Relay Networks, 

Inc., Deephaven, MN ........................................................................................... 9 

Hon. Daniel Alejandro Sepulveda, Former Ambassador and Deputy Assistant 

Secretary, U.S. Coordinator for International Communications and Information Policy, U.S. Department of State, Washington, DC .................................. 10 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Hon. Mike Lee, Vice Chairman, a U.S. Senator 

from Utah ............................................................................................................. 30 

Prepared statement of Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico .......................................................................................... 30 

Prepared statement of Mr. Daniel Griswold, Senior Research Fellow and 

Co-Director of the Program on the American Economy and Globalization, 

Mercatus Center at George Mason University, Arlington, VA ......................... 32 

Prepared statement of Mr. Sean Heather, Vice President, Center for Global 

Regulatory Cooperation, U.S. Chamber of Commerce, Washington, DC ........ 37 

Prepared statement of Mr. Nick Quade, General Manager, Ecommerce Division of Relay Networks Inc. Deephaven, MN .................................................... 50 

Prepared statement of Hon. Daniel Alejandro Sepulveda, Former Ambassador 

and Deputy Assistant Secretary, U.S. Coordinator for International Communications and Information Policy, U.S. Department of State, Washington, 

DC .......................................................................................................................... 52

Response from Mr. Daniel Griswold to Questions for the Record Submitted 

by Chairman Pat Tiberi ....................................................................................... 55 

Response from Mr. Daniel Griswold to Questions for the Record Submitted 

by Representative Carolyn B. Maloney .............................................................. 56 

Response from Mr. Daniel Griswold to Questions for the Record Submitted 

by Representative David Schweikert .................................................................. 57 

Response from Mr. Sean Heather to Questions for the Record Submitted 

by Chairman Pat Tiberi ....................................................................................... 57 

Response from Mr. Sean Heather to Questions for the Record Submitted 

by Representative Carolyn B. Maloney .............................................................. 58 

Response from Mr. Sean Heather to Questions for the Record Submitted 

by Senator Klobuchar .......................................................................................... 58 

Response from Mr. Sean Heather to Questions for the Record Submitted 

by Representative David Schweikert .................................................................. 59 

Response from Mr. Nick Quade to Questions for the Record Submitted by 

Chairman Pat Tiberi ............................................................................................ 59 

Response from Mr. Nick Quade to Questions for the Record Submitted by 

Representative Carolyn B. Maloney ................................................................... 60 

Response from Ambassador Sepulveda to Questions for the Record Submitted 

by Chairman Pat Tiberi ....................................................................................... 61 

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Response from Ambassador Sepulveda to Questions for the Record Submitted 

by Representative Carolyn B. Maloney .............................................................. 62 

Response from Ambassador Sepulveda to Questions for the Record Submitted 

by Senator Amy Klobuchar ................................................................................. 63 

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THE DYNAMIC GAINS FROM FREE DIGITAL 

TRADE FOR THE U.S. ECONOMY 

TUESDAY, SEPTEMBER 12, 2017 

UNITED STATES CONGRESS, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The Committee met, pursuant to call, 10:00 a.m. in Room 216 of 

the Hart Senate Office Building, the Honorable Mike Lee, Vice 

Chairman, presiding. 

Representatives present: Paulsen, Comstock, Beyer, and 

Delaney. 

Senators present: Lee, Klobuchar, Heinrich, Peters, and Hassan. 

Staff present: Theodore Boll, Daniel Bunn, Kim Corbin, Whitney Daffner, Connie Foster, Dori Friedberg, Colleen Healy, Matt 

Kaido, Christina King, A.J. McKeown, Allie Neill, Victoria Park, 

Rohan Shetty, and Joy Zieh. 

OPENING STATEMENT OF HON. MIKE LEE, VICE CHAIRMAN, A 

U.S. SENATOR FROM UTAH 

Vice Chairman Lee. Good morning, and welcome to the Joint 

Economic Committee’s hearing on digital trade. 

Chairman Tiberi could not be here today and has asked me to 

chair the hearing. I want to welcome my colleague, Ranking Member Heinrich, and other members of this Committee and the panel 

of expert witnesses who are appearing before the Committee today. 

What, you might ask, is ‘‘digital trade’’? It covers a wide variety 

of economic activity, including international orders transmitted 

through websites, global connectivity enabled by email and voiceover internet protocol, international banking, and data transmissions to manage global supply chains. 

Advancements in technology mean that digital trade is capable 

of delivering ongoing improvements in production, in distribution, 

and value for the American people. U.S. firms have been pioneers 

and global leaders on the digital technology frontier. American consumers and businesses benefit tremendously from the ability to buy 

and sell across borders and gain access to products and to customers. 

We are swiftly approaching the point at which the word ‘‘digital’’ 

will be an unnecessary adjective for trade. It will just be ‘‘trade,’’ 

although I am sure trade lawyers will want to maintain the extra 

level of specificity just for billing purposes. It makes their billing 

statements perhaps more interesting for them and lucrative. 

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But we need to work both domestically and internationally to facilitate trade and innovation. We should seek to ensure that sensible regulations and standards are put in place for the protection 

of intellectual property and private information. 

Congress has set clear priorities for negotiating trade agreements 

that can lower trade barriers for digital goods and services, and the 

Trump administration is pursuing those priorities in current 

NAFTA discussions. 

It is critical for future U.S. economic success to ensure a regulatory setting in which innovators, entrepreneurs, and businesses 

can experiment with new technology and succeed in a global market. 

I will now yield to Representative Paulsen who earlier this year 

launched the Bipartisan Digital Trade Caucus in the House of Representatives. 

[The prepared statement of Vice Chairman Lee appears in the 

Submissions for the Record on page 30.] 

OPENING STATEMENT OF HON. ERIK PAULSEN, A U.S. 

REPRESENTATIVE FROM MINNESOTA 

Representative Paulsen. Thank you, Vice Chairman Lee, for 

holding this hearing on an issue that is becoming increasingly important to the American and global economies. As a strong advocate for a robust trade agenda, I believe we need to be engaged, 

we need to be educated, and on the forefront of this latest frontier 

in the global 21st Century economy. 

We cannot fall behind in digital trade, because we have so much 

to offer and so much at stake. There are hundreds of thousands of 

U.S. small businesses in nearly every sector, from manufacturing, 

to financial services, to mining, to agriculture, and food, in every 

single state and every Congressional District across the country 

that are harnessing the power of the internet and technology to 

reach new customers around the world. This is no small niche or 

part of our economy. 

Just look at all the facts: Digital trade accounts for more than 

half of all U.S. service exports. Digital trade is responsible for nearly 6.7 million American jobs. Nearly half of all U.S. companies have 

an online trading relationship with the EU, and the U.S. runs a 

$159 billion trade surplus in digitally deliverable services. 

Earlier this year in the House, as Senator Lee mentioned, I 

launched the Bipartisan Digital Trade Caucus, along with my colleague Suzan DelBene from Washington State. Our goal is to work 

with government, with industry, and with other stakeholders to ensure that the world follows our lead, the United States’ lead, in 

promoting the free flow of digital commerce. 

I am very thankful that Chairman Tiberi and Vice Chairman Lee 

have taken it upon themselves to use our Committee for that purpose, as well. 

I want to thank our witnesses for participating in today’s hearing 

to share their perspectives on a very important issue, and thank 

you, Vice Chairman Lee, and I yield back. 

Vice Chairman Lee. Senator Heinrich. 

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OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING 

MEMBER, A U.S. SENATOR FROM NEW MEXICO 

Senator Heinrich. Thank you, Vice Chairman Lee, and thanks 

to our panel for joining us here today. E-commerce touches industries across all sectors of the economy, and Americans across the 

country. It is a key source of American jobs in the 21st Century, 

and its importance will likely only grow with time. 

We know that the internet enables U.S. companies big and small 

to more efficiently reach markets around the world. Manufacturers, 

banks, retailers, airlines, farmers, and a range of other businesses 

rely on the internet to seamlessly access and move data across borders. 

The internet has fundamentally transformed our lives and the 

way that we purchase goods. The benefits of international trade 

used to be concentrated among big business. The internet changed 

that, opening doors to small and mid-sized businesses, and even 

one-person shops. 

Now an individual with a broadband connection can sell his or 

her goods and services all over the world, from an artisan, from 

Acoma Pueblo, to a game designer from Albuquerque, or a chili 

farmer from Hatch. They can all now enter the global market. 

A recent study found that 95 percent of U.S. small and medium 

businesses on eBay export, and 190,000 of those firms export to 

four or more continents. 

The United States is an E-commerce leader today. The International Trade Commission estimates that digital trade contributed 

more to gross domestic product than all but four states in 2011, 

and has lifted wages by as much as 5 percent, while adding up to 

2.4 million more full-time jobs. 

In New Mexico we are working hard to ensure that the opportunities of the digital economy reach into every corner of the State. 

I am excited to welcome Facebook, which is scheduled to open a 

multi-building data center next year in Los Lunas that will generate more than 100 permanent jobs at the data center, and up to 

1,000 construction jobs. 

With 2 billion monthly active users, Facebook is literally built on 

cross-border data flows. To fully realize the gains from digital trade 

we need to ensure that global policies enable companies to harness 

the power of the internet to reach new customers around the world. 

For this to happen, it is vital that we have a free and open internet with privacy protections. And that starts right here at home. 

Your personal information should not be shared or sold without 

your consent. Your health, financial, and other personal and sensitive information must be protected. While internet providers 

must be prevented from selling users’ personal information without 

user consent, companies should be able to choose where to store 

data. 

When U.S. companies cannot store data in the U.S., they lose out 

on jobs and the ability to use the data to improve their products 

and services. 

As far as we’ve come with the number of internet users worldwide tripling in the past decade, we are still in the early stages. 

And the opportunities for E-commerce domestically and internationally are unlimited. 

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But to realize the potential the internet provides, we need to accelerate the deployment of broadband and ensure that rural America and tribal communities in our country have greater access. 

Right now 4 in 10 rural residents lack broadband access. And 

among rural tribes, that number climbs to 7 in 10 without access. 

To help bring more Native American students online, I will soon 

introduce legislation that promotes broadband access for students 

and tribal community centers. 

During a meeting I convened at the Santa Fe Indian School recently, the Tribal Administrator of Santa Domingo Pueblo in New 

Mexico, Everett Chavez, put it this way: 

‘‘Access to the internet is new, but it is an equally essential 

infrastructural need to our tribal communities, equal as water, 

power, telecommunications, or roads.’’ 

It doesn’t matter if you are a student, a rancher, a manufacturer, 

a teacher, a doctor, or a small business, high-speed internet is now 

critical to thriving in the economy of today, much less the future. 

Finally, as we focus on digital trade today we should be clear 

that this is just one piece of a bigger issue. We need to be vigilant 

to evolve the rules of the road when new technologies are developed 

and deployed, and to protect our workers from countries seeking 

advantages through unfair trade practices. 

Mr. Chairman, I look forward to hearing from our panel, and I 

want to especially thank Former Ambassador Daniel Sepulveda, 

the witness that I invited, for being here today. 

[The prepared statement of Senator Heinrich appears in the Submissions for the Record on page 30.] 

Vice Chairman Lee. Thank you very much, Senator Heinrich, 

and thanks to each of you for being here. I am now going to go 

through and introduce our witnesses. 

We will start with Mr. Daniel Griswold, who is a Mercatus Center Senior Research Fellow, and Co-Director of the Program on The 

American Economy and Globalization. Mr. Griswold is a nationally 

recognized expert on trade policy. Prior to his position with 

Mercatus, he served as president of the National Association of 

Foreign Trade Zones, and before that as the Director of Trade and 

Immigration Studies for the Cato Institute. He holds a Bachelor’s 

Degree from the University of Wisconsin at Madison, and a Masters in Politics of the World Economy from the London School of 

Economics and Political Science. 

Mr. Griswold, thank you for your work and welcome. 

Sean Heather is Vice President of the U.S. Chamber’s Center for 

Global Regulatory Cooperation. He also serves as Executive Director for both International Policy and Antitrust Policy. 

During his 17-year career at the Chamber, he has worked on a 

number of diverse issues such as international trade and investment, taxes, standards, technology, and corporate governance. Before joining the Chamber, he worked for the Illinois Comptroller 

and with several political campaigns across the State. He holds an 

undergraduate degree and an MBA from the University of Illinois. 

Mr. Heather, thank you for joining us today. 

And now I will pass it off to Representative Paulsen from the 

Great State of Minnesota to introduce our next witness. 

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Representative Paulsen. Thank you, Vice Chairman Lee. It is 

my pleasure to introduce fellow Minnesotan Nick Quade. Nick is 

the General Manager of Lino Lakes-based Relay Networks. It is a 

provider of network, wireless, and telecom equipment. 

In his role, Mr. Quade oversees the day-to-day operations of the 

business, and he deals first-hand with digital trade on a daily 

basis. As a result of his hard work, as well as that of his co-workers, Relay Networks currently holds a 100 percent positive feedback rating on its eBay store. This is another excellent example of 

how American entrepreneurs leverage the digital economy. 

Mr. Quade, thank you for taking time out of your busy schedule 

to join us here today. I know Senator Klobuchar, who is also a 

member of this Committee, and I often welcome Minnesotans who 

are at the forefront on leading issues. 

Thank you again, Vice Chairman Lee. I yield back. 

Vice Chairman Lee. Thank you. Finally, we will introduce Ambassador Daniel Sepulveda, who served as Deputy Assistant Secretary of State and U.S. Coordinator for International Communications and Information Policy under the Obama administration. 

Prior to joining the State Department in 2012, Ambassador Sepulveda served as a senior advisor and a member of Senator John 

Kerry’s senior management team. Before joining Senator Kerry’s 

office in 2009, Ambassador Sepulveda served as an Assistant U.S. 

Trade Representative, leading a team that managed Congressional 

affairs for the U.S. Trade Representative Ron Kirk. 

He has dealt first-hand with the negotiations we are about to discuss. Ambassador Sepulveda, thank you very much for joining us. 

Okay, we are now going to hear from each of our witnesses, and 

we will start with you, Mr. Griswold. 

STATEMENT OF MR. DANIEL GRISWOLD, SENIOR RESEARCH 

FELLOW AND CO-DIRECTOR OF THE PROGRAM ON THE 

AMERICAN ECONOMY AND GLOBALIZATION, MERCATUS 

CENTER AT GEORGE MASON UNIVERSITY, ARLINGTON, VA 

Mr. Griswold. Chairman Lee, Ranking Member Heinrich, and 

members of the Committee, thank you for inviting me to testify 

today on the important topic of digital trade,. 

Digital trade is transforming the way Americans do business 

with the world. It is already delivering more choice and value to 

consumers, more opportunities to American companies of all sizes, 

higher wages for American workers, and faster, more dynamic 

growth for the U.S. economy. 

World-wide cross-border internet traffic has soared 500-fold since 

the year 2000. That’s according to the McKinsey Global Institute, 

and it will expand another 8-fold in the next decade. 

In my remarks this morning, I plan to briefly describe the scope 

of digital trade, its growing impact on the U.S. economy, and what 

policies we should pursue to realize its full benefits. 

Digital trade can range from video streaming, to ordering merchandise through online platforms, to organizing complex global 

supply chains. The growth of digital trade plays to America’s comparative advantage. The U.S. remains the global leader in creating 

digital products and online platforms, and exporting digital services. 

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In fact, more than half of the services we export are now digitally 

delivered. Digital trade is empowering small- and medium-sized enterprises to sell and source in global markets. 

On eBay, 97 percent of the commercial sellers are selling to 

international markets. Almost 300,000 U.S. companies are now exporting to foreign markets, according to the U.S. Census Bureau, 

and that’s a 50 percent increase since 1997. 

Global supply chains are becoming even more efficient, thanks to 

digital trade. Such technologies as radio frequency identification 

and block chain are facilitating just-in-time inventory and reducing 

delays at ports. The U.S. International Trade Commission estimates that the internet has reduced the cost both of exporting and 

importing in digitally intensive sectors by an average of 26 percent. 

This phenomenon is having a measurable and positive effect on 

the U.S. economy. As has been noted, the USITC estimates the enhanced productivity and lower cost because of cross-border digital 

trade has boosted U.S. real GDP by as much as 4.8 percent; real 

wages by as much as 5 percent, with no net job losses to the overall 

U.S. economy. 

Reaping much of the benefit of digital trade has been small- and 

medium-sized U.S. enterprises. These so-called micro multinationals are reaching global customers through their websites and 

common online platforms such as eBay and Amazon. They can 

process payments digitally and ship products directly to individual 

customers around the world through private and postal package delivery services. Digital trade has allowed SMEs to source components and business-to-business services in global markets, empowering them to better control costs and enhance the competitiveness 

of their exports. 

The impact of digital trade is not a one-time shift, but an ongoing 

process that enhances the dynamic long-term growth potential of 

the U.S. economy. By reducing costs, spurring competition, and expanding markets, digital trade creates ongoing gains in efficiency 

that fuel productivity. By facilitating the spread of ideas and collaboration, digital trade contributes to product innovation. And by 

playing to America’s competitive strengths, digital trade allows us 

as a Nation to use our physical, intellectual, and human capital in 

ways that permanently boost our gross domestic product and general living standards. 

Now despite the dynamic growth and benefits of digital trade, 

significant barriers remain to prevent Americans from reaping its 

full advantages. To realize those gains, Congress, in your trade promotion authority legislation from a couple of years ago, has directed the Administration to seek trade agreements with other nations that would, among other objectives—and I think these are 

very good objectives—ensure nondiscriminatory treatment of physical goods in the digital trade environment; prohibit forced localization of servers; prohibit restrictions to digital trade and data flows; 

prohibit duties on electronic transmissions; and ensure that legitimate regulations affecting digital trade are the least trade restrictive as possible. 

And I think you will be hearing a lot about this today, but let 

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er, more economically and commercially realistic de minimis 

thresholds for E-commerce shipments to other countries. 

Removing these last remaining barriers to digital trade at home 

and in other countries will allow more American consumers and 

companies to realize the full benefits of a more digitalized economy 

and global trading system. 

Thank you, and I look forward to your questions. 

[The prepared statement of Mr. Griswold appears in the Submissions for the Record on page 32.] 

Vice Chairman Lee. Thank you, Mr. Griswold. 

Mr. Heather. 

STATEMENT OF MR. SEAN HEATHER, VICE PRESIDENT, CENTER FOR GLOBAL REGULATORY COOPERATION, U.S. CHAMBER OF COMMERCE, WASHINGTON, DC 

Mr. Heather. Good morning. It’s a pleasure to be here. And the 

Chamber thanks you all for holding today’s hearing. 

The United States has positioned itself as a leader in digital 

trade. However, our leading position is not assured, as foreign governments are trying to create their own Silicon Valleys by implementing policies that often serve as regulatory barriers. 

The ability for data to flow through the global economy is as important as the ability to move goods, services, or capital. However, 

data flows are increasingly threatened by data localization requirements. For example, the government of Indonesia currently has 10 

different pending regulations that would require data localization. 

In Europe, France and Germany are increasingly promoting the 

use of sovereign clouds to limit the market access opportunities for 

American companies. China and Russia have encouraged indigenous innovation through local content requirements. For instance, 

Russia grants preferential treatment for domestic ICT companies 

when considering government procurement contracts. And in China 

last year alone more than 30 measures were introduced across various industries, including many ICT specific standards. 

Turning to data protection, more than 95 jurisdictions currently 

have data protection legislation. Sixty-eight of these jurisdictions 

are currently revising their data protection rules. While privacy 

standards are necessary in order to ensure consumer protection, 

consumers also demand the mobility of data to bring them the best 

products and services. 

Too frequently privacy regimes can create difficulties for companies conducting business in-country and across border. A good example is the EU’s General Data Protection Regulation. 

GDPR represents an immense regulatory challenge that has consequences for EU competitiveness and for American firms doing 

business in the European Union. GDPR’s impact extends to Latin 

America where it serves as a template. 

For example, Brazil, Argentina, and Chile currently have draft 

data protection bills pending which holds elements in common with 

GDPR. And other measures across Latin America include data 

transfer language that could serve as a significant barrier to digital 

trade. Some bills provide a list of countries whereby data transfers 

are permitted. Unfortunately, the United States is often not included on those lists. 

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While regulatory challenges can impede digital trade, the motives aren’t always easily discernible to label and clear attempts to 

obfuscate trade commitments. That said, many countries have cited 

privacy concerns as a basis for requiring foreign companies to store 

data within national borders. In these instances, privacy regulation 

becomes a forced localization requirement. 

Like privacy, we now see a growing patchwork of cybersecurity 

regulations that present compliance challenges and also hold the 

potential to mask protectionist motives. 

And finally, intellectual property protection. Too often, forced localization measures require tech transfers as the price to gain 

entry in a local market, and piracy, too, represents a well-documented drain on our competitiveness and it adversely impacts digital trade. 

In closing, let me offer the following recommendations: 

First, we need to prioritize digital issues as central to our trade 

and investment policy agenda. It is our understanding that Ambassador Lighthizer and USTR are doing this as part of the NAFTA 

Modernization efforts. 

We believe any agreements should, at a minimum, one, prohibit 

discrimination and secure market access for U.S. technology companies, products, and services. 

Two, ensure the ability to move data across all borders for all 

sectors. 

Three, combat national policies that require the use of local technology infrastructure or requirements to transfer source code or 

compel access to algorithms. 

Four, facilitate regulatory environments that encourage innovation through smart and effective approaches to privacy and cybersecurity, data collection and analysis. Finally, even traditional 

issues like Customs play an important role in digital trade given 

the E-commerce boom previously discussed and the need to modernize de minimis. 

Secondly, we need to look on the enforcement side of the ledger. 

We should consider what trade tools are appropriate to address 

digital barriers. KORUS offers us a success story on enforcement. 

In 2015 through a consultative mechanism created under the 

agreement, the U.S. and South Korea were able to discuss and resolve regulatory concerns that restricted data flows. Today while 

some data flow challenges remain, South Korea has one of the 

more open data flow regimes in the world. 

Three, we need to advance more workable arrangements that 

bridge national privacy regimes between the United States and our 

key trading partners. The United States should continue to support 

the U.S.-EU privacy shield framework and APEC Cross-Border Privacy Rules. 

Four, it is important that the Department of Commerce and 

State Department’s Digital Office’s program continue. 

These programs should be used to drive U.S. competitiveness by 

promoting U.S. digital exports and advocating for the adoption of 

friendly digital regulatory frameworks in foreign markets. 

And five, we need to do a better job of actively engaging in shaping foreign laws and regulations. U.S. regulators, not trade negotiators, play an important role outside of trade agreements in seekLAP51NQ082 with DISTILLER

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ing opportunities to influence foreign regulators. Involving them to 

help prevent and combat regulatory barriers is going to be crucial 

going forward. 

In conclusion, I thank the Committee for the opportunity to testify and look forward to answering your questions. 

[The prepared statement of Mr. Heather appears in the Submissions for the Record on page 37.] 

Vice Chairman Lee. Thank you, Mr. Heather. 

Mr. Quade. 

STATEMENT OF NICK QUADE, GENERAL MANAGER, 

ECOMMERCE DIVISION OF RELAY NETWORKS, INC., 

DEEPHAVEN, MN 

Mr. Quade. Thank you, Members of the Committee, for holding 

this important hearing today. 

I am the General Manager of Ecommerce Division for Relay Networks Minnesota. We provide domestic and international customers with access to functional and affordable indoor/outdoor 

wireless networking equipment. We leverage relationships with 

major universities, school districts, industry leaders to source and 

sell our products when their IT equipment comes out of service. By 

refurbishing this equipment, we are extending the life of these 

items that would otherwise end up as e-waste or could possibly end 

up in a landfill. 

Our business is expanding quickly, and demand, especially internationally, is currently outpacing supply. In this volatile retail environment, small businesses like us must have an E-commerce 

presence to survive and compete. I have worked in the E-commerce 

field for nearly 10 years now and know that E-commerce is the future of commerce. 

Our product reaches the entire globe through platforms of eBay 

and Amazon. These platforms further expand the multi-billion dollar networking business to a customer base that even five years 

ago wasn’t possible. 

Twenty percent of our sales are exports to customers in over 50 

countries, which expands from Switzerland all the way to Australia. The education field internationally is one of the largest in 

terms of demand. Relay Networks is an example of the many thousands of small American businesses that are benefitting from and 

growing on top of the global digital economy. 

We are using digital tools to reach customers that again were 

previously inaccessible for a business of our size. I believe that 

much of that economic benefit is being realized by small businesses 

that are in turn creating jobs in their local communities. 

Unfortunately, there are critical barriers to further driving this 

growth, and governments are slow to catch up with an industry 

that has grown 45-fold from 2005 to 2014. While the U.S. has withdrawn from the Trans Pacific Partnership Agreement, the digital 

trade provisions that sought to remove barriers to digital trade 

were positive for my business. But TPP fell short in one critical 

way. It did not compel countries to increase their Customs de minimis thresholds which are the country-by-country thresholds below 

which international buyers can import items duty and tax free. 

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Congress took the right steps to increase the U.S. de minimis 

threshold to $800 in the Trade Facilitation and Trade Enforcement 

Act, but now we need to encourage our trading partners to do the 

same. 

Now that we are post-TPP, we should look to use trade policy 

making to both advance the positive digital trade provisions that 

were in the TPP, as well as the Sense of Congress that were included in the Customs Reauthorization Bill, and the current 

NAFTA negotiations are a perfect place to start. 

Our neighbors to the north in Canada have a $20 de minimis 

threshold, which means that Canadian Customs officials can intercept, open, delay, and assign levies to my sales. Needless to say, 

this does not promote a good buyer experience and compromises my 

relationship with that buyer. 

Furthermore, Canada’s threshold was set in 1985 when I was 

three years old. And according to the neo-MacDonald of the CBC 

News, Ottawa spends $166 million a year to collect $39 million in 

taxes and duties. It’s quite astonishing. 

On the Canadian side, this policy amounts to a protectionist 

move that puts every consumer at a disadvantage. And on the U.S. 

side, this is a trade barrier that hurts small businesses the most. 

The demand for electronics and networking equipment no longer 

needed in our market is in high demand overseas. We need to 

bring these dollars back into the U.S. as fast as possible to maximize value. While 20 percent of my sales today are to international 

customers, I know they would grow if digital trade barriers like the 

de minimis thresholds were taken down. 

Just recently, deals were lost because of fees involved. This included a resort in Canada that we were working with that wanted 

to upgrade their network, several schools in Latin America, and a 

teacher in the UK that wanted to replace her broken laptop, but 

because of a 20 percent plus increase in the fee, she couldn’t afford 

the unit. These are just several of numerous examples. Thank you 

again for the opportunity to share my views with the Committee, 

and I look forward to answering all your questions. 

[The prepared statement of Mr. Quade appears in the Submissions for the Record on page 50.] 

Vice Chairman Lee. Thank you. 

Ambassador Sepulveda. 

STATEMENT OF HON. DANIEL ALEJANDRO SEPULVEDA, 

FORMER AMBASSADOR AND DEPUTY ASSISTANT SECRETARY, U.S. COORDINATOR FOR INTERNATIONAL COMMUNICATIONS AND INFORMATION POLICY, U.S. DEPARTMENT 

OF STATE, WASHINGTON, DC 

Mr. Sepulveda. Mr. Vice Chairman Lee, Ranking Member Heinrich, Members of the Committee, thank you very much for the opportunity to testify here today. 

The digital economy and the preservation of the open global 

internet may feel like an issue that is somewhat removed from the 

daily lives of your constituents, but it is not. It is central to their 

success in today’s economy, and it is central to our ability as America to lead the world going into the 21st Century. 

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Our responsibility at home is to invest in making world-class 

broadband and digital skills accessible to all Americans, and work 

abroad to protect and preserve the global internet as a force for the 

democratization of opportunity and commerce. 

Farmers, ranchers, small manufacturers throughout America, 

are using digital platforms and services to engage in international 

trade. They are also leveraging digital information management 

tools as springboards for innovation, increased efficiency, and improved productivity, which is making them more competitive globally. 

Tourism operators are using Airbnb, Expedia, and other platforms to attract international visitors to cities and venues that are 

not as well known as New York City or Disneyland. 

As a result, places like Santa Fe, or the Rock & Roll Hall of 

Fame from the Chairman’s home State, in Cleveland, are now attracting more international visitors, creating opportunities for 

working families. 

In the digital space, the United States is leading the world. But 

to stay there, we need three things: 

We need a clear digital trade strategy—and I fully endorse the 

arguments made by my fellow panelists. We need to make the right 

investments at home. And we need to ensure that every American 

can participate in the global digital economy. 

The Congressional Research Service has released an excellent report in June that lists the policy venues where these sorts of issues 

are being debated, many of which I’ve participated in, from the 

WTO to the G–7 and G–20 gatherings, which are issuing annual 

digital ministerials, to the OECD and the United Nations, and in 

our bilateral engagements, digital trade and the open internet need 

to be a high priority. 

Having appointed Senate-confirmed officials representing America’s digital interests abroad is going to be critical to our success. 

As Commerce former Deputy Secretary of Commerce General 

Counsel Cameron Carey wrote recently, many of the key posts in 

this Administration for successful advocacy abroad are still unfilled. 

That is understandable in the first year of an Administration, 

but we do need to make that a priority going forward. 

In addition to our work abroad, we do have to do a better job at 

home creating constructive solutions the challenges of the digital 

economy create, even as we celebrate its success. 

The reason that many of the risks abroad that are being created 

are due to—are rooted in fear. They are rooted in fear of cybersecurity threats. They’re rooted in fear of privacy. They’re rooted in fear 

of disruptions to local labor markets, to the relationship between 

government and the market. 

To instill trust in digital trade and the sense that it is working 

for all, we need to team with our technology community to bridge 

the digital divide at home and help bridge it abroad, and address 

new challenges that the digital economy is creating. 

The United States needs to lead the way with workable solutions 

to these challenges or we will end up dealing with a global patchwork of laws and regulations that end up doing more harm than 

good, and splintering the global internet. 

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In some countries, the sharing economy, artificial intelligence, 

and robotics will face impossible restrictions due to fear of labor 

disruption, and if we do not show them how to transition the displaced due to technology at home, they will not have the proper 

roadmap for how to deal with displacement in their own communities. 

And as Europe has indicated, without mutual recognition for our 

respective structures for protecting consumer privacy, there will be 

calls to close off data from transfer abroad. In fact, I think the most 

pressing and immediate challenge to the health of digital trade is 

the preservation of the EU–U.S. privacy shield to ensure that 

transatlantic data flows are not hindered. 

The EU is by far our largest digital trade partner, and our systems for governing the digital economy need to remain interoperable. 

In closing, it is also critical that we protect network neutrality 

at home to send the message abroad that services and applications 

delivered over the global internet must remain free from discriminatory treatment by local and national broadband internet service 

providers. 

Repealing network neutrality regulation at home without a legislative replacement will not help us to argue abroad that the pipes 

entering homes and businesses in China, India, and Brazil should 

remain open to our services on a nondiscriminatory untariffed 

basis. 

Our kids take the global internet for granted and everything it 

makes possible. As leaders, we cannot. It is up to us to make sure 

that they can benefit from digital trade and a digital economy that 

works for them and remains a force for progress for decades to 

come. I thank the Committee and my fellow panelists, and I welcome your questions. 

[The prepared statement of Mr. Sepulveda appears in the Submissions for the Record on page 52.] 

Vice Chairman Lee. Thank you very much to each of you for 

your remarks. 

I will begin the round of questioning, and then we will go in 

order of—in the following order. I will raise questions, then Senator 

Heinrich, Representative Paulsen, Senator Peters, Senator Klobuchar, Representative Delaney, and Representative Beyer. 

At the outset of my questions, I would like to ask each of you 

to identify a couple or three policies that you would adopt if you 

were king for a day. Let’s say if you were in Congress for a day. 

A couple or three policies that you would put in place if you could 

make that change, to prioritize, advance, and protect digital trade. 

And we’ll start in the opposite order from last time. So we’ll start 

with Ambassador Sepulveda and then move to the other end of the 

table. 

Mr. Sepulveda. I think you’re going to get a fair amount of 

agreement on the panel in terms of international policies specifically. 

First of all, we would advocate at every international gathering 

to ensure that data localization wasn’t used in an anticompetitive 

manner. 

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Second, I think that we would all work to bridge the digital divide abroad. That would mean, there are 3.2 billion people connected to the internet today. That means there are close to 4 billion 

people who are not. And that’s a market that we could be reaching 

in this particular space where we are such a leader. 

And then at home I would do everything we could to bridge the 

digital divide. I think the move towards making significant investments in infrastructure at home should include an effort to connect 

the 23 million Americans in rural communities that are not yet 

connected at broadband speed. 

So those would be my three. 

Vice Chairman Lee. Thank you. 

Mr. Quade. 

Mr. Quade. King for a day? That sounds excellent. Well, an $800 minimum threshold universally would be incredible. Not only would we be able to reach consumers, but we would 

have a business-to-business number there, too. As our average is 

about $180, but $800 is where we’re at. I’d love to see that universal. That would be incredible to break all of those barriers to 

make transactions seamless. 

In America we’re used to seamless transactions where you’re able 

to order something. It gets there, and we don’t think twice about 

it. But all of a sudden you cross borders, and it’s a whole other 

process. But again, since most individual consumers don’t buy 

products overseas, they’re not necessarily that familiar with it. So 

$800 is great. 

And to the Ambassador’s point, the 23 million people that don’t 

have high-speed access, let’s get everybody access. Because it will 

allow them the opportunity to again open up small businesses like 

ours in Minnesota. Or, for that matter, an individual who has an 

idea, that has a product, now using platforms like eBay or Amazon 

they can show that product to the entire world and change their 

life. 

So those would be the two. 

Vice Chairman Lee. Mr. Heather. 

Mr. Heather. I will agree with what everybody else says, I’m 

sure, but let me give you a nontraditional answer. I think, while 

this hearing is on trade, I think what my answer is: What can we 

do to address regulation around the world? And a committee like 

this that has a horizontal responsibility to think about economics 

and policy, these challenges we see facing—take vehicles. Who is 

responsible for going out and pushing good regulatory frameworks 

in foreign markets to ensure that the vehicles that have rolled out 

in those countries are set up in a way in which we can compete? 

There’s a huge role here that goes beyond commerce and state 

and USTR, that goes to NHTSA, that goes to the mainline regulatory agencies that this Congress created in many cases a hundred 

years ago before there were international markets. 

And these regulatory agencies all have offices of international affairs, but they aren’t central to the policymaking function of these 

agencies. They are not equipped to go out and engage with a mandate to advance U.S. commercial interests. Not to say they should 

go out and advance U.S. commercial interests above their mandate 

for health and safety and environmental protection. Those things 

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are obviously paramount. But once we’ve decided on a regulatory 

model we think works here, why aren’t we out there advocating it 

to the rest of the world? 

So one of the things I would do is I would take the silo approach 

to the way we think about issues here in Washington and try to 

bring about a more consolidated approach within particularly the 

Executive Branch with the support of the Congress in bringing our 

regulators to advance some of these concerns abroad. 

Vice Chairman Lee. Mr. Griswold. 

Mr. Griswold. Mr. Chairman, thank you. That’s a great question. First, I think a universal $800 de minimis would be great. 

How do you get there? You know, we had a successful trade facilitation agreement in the World Trade Organization. That seems to 

me maybe one approach. Maybe amending that agreement. 

We have a World Customs Organization. Maybe discussions 

there. Most countries in the world have a de minimis standard 

under $200, so there’s some heavy lifting there, and I think negotiations are the way to do that. 

The Trade Promotion Authority bill that Congress passed in 

2015, all those negotiating objectives are important. We basically 

have our digital policies down correctly in this country. I don’t always say that about U.S. policy, but I can say that here. 

The problem is largely in other countries. How do you get them 

to address that? It’s through negotiated agreements. Chapter 14 of 

the Trans Pacific Partnership remains the best template we have 

available. And I think maybe in the renegotiations of NAFTA that 

should be an objective, along with talking to our Canadian friends 

about their de minimis standard. 

The Korean Free Trade Agreements, according to a survey by the 

Congressional Research Service, has the most robust digital trade 

provisions of any agreement we’ve signed. Currently, I think for 

many reasons, walking away from the Korea Agreement would be 

a huge mistake, but digital trade would be one of them. 

So that’s my wish list, if I were king for a day. 

Vice Chairman Lee. Thank you. 

Senator Heinrich. 

Senator Heinrich. Any trade agreement that the Trump administration enters into should help strengthen export opportunities 

for U.S. businesses, level the playing field, and ensure that trade 

agreements are fair for everyone, particularly American consumers, 

businesses, workers, farmers, and ranchers. I’ll ask this in particular to Ambassador Sepulveda and Mr. Griswold, but any of you 

are welcome to chime in afterwards. 

As we embark on a renegotiation of the NAFTA Agreement, or 

should I say as the Administration does, what are some of the U.S. 

offensive interests in the digital trade space for our small businesses and manufacturers? Where should U.S. negotiators focus 

their attention? 

Mr. Griswold. Would you like me to go first? 

Senator Heinrich. Sure. You bet. 

Mr. Griswold. First, Senator, thanks for mentioning consumers. 

You know, that list gets mentioned a lot, ranchers, farmers, small 

businesses; consumers are sometimes forgotten. So my compliments 

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to you for mentioning that, because consumers have an interest in 

digital trade, in trade generally but also in digital trade. 

And I have to say—I am complimenting Congress a lot today 

when you raised, the de minimis standard to $800, that is probably 

one of the best things you have done for your constituents in the 

trade front in a long time. 

And I think on NAFTA—— 

Senator Heinrich. Mr. Quade is nodding, for the record. 

[Laughter.] 

Mr. Griswold. In NAFTA, that should be part of the discussions. And they are going beyond just the strict guidelines of TPA. 

By the way, Mexico has a de minimis threshold of $300, but that 

is still significantly below where it should be. So I think that is 

what we should do in those negotiations. 

Senator Heinrich. Ambassador, do you want to jump in there? 

Mr. Sepulveda. I would endorse all of Mr. Griswold’s negotiations. And I think it is also important to think about consumers in 

Mexico as well as consumers in the United States, the degree to 

which a product like the one from Relay that can be sold de minimis to a teacher to be able to teach his or her kids in Mexico. 

Senator Heinrich. Clearly that was the intention of the de 

minimis standard in the first place. 

Mr. Sepulveda. Right, right. That’s very useful to everyone involved. And as was pointed out, it is highly inefficient to have a 

de minimis significantly lower than that. And it is a good signaling 

thing for us as the United States to have elevated our de minimis. 

Senator Heinrich. We have an incredibly open internet in the 

United States. I mean obviously the Russians can play on our 

internet, but there are a lot of countries that control content, very 

closely control who can have a website, what is on that website, 

what can be offered. 

What should our response be—and some of these countries are 

quite large trading partners of ours—what should our response be 

generally in terms of negotiations to that very different playing 

field domestically and abroad? 

Mr. Griswold, do you have a—— 

Mr. Griswold. You know, you are getting into some sensitive 

areas about censorship and that sort of thing, and that is really beyond the scope of trade agreements. I think the biggest losers when 

countries adopt those policies are their own citizens. They are 

being deprived of information, both important political and other 

information, but commercial information. They are less educated 

shoppers in the global arena. 

So, one, we can set a good example. And I think we have, in this 

area. But also, negotiate as well as we can—that is where the language is important—that regulations be adopted in other countries 

regarding national security, cybersecurity, privacy, that are the 

least trade restrictive as possible. So maybe that is the pressure 

point that we should bring in negotiations. 

Senator Heinrich. Ambassador. 

Mr. Sepulveda. One of the things that we saw abroad was an 

effort by many countries to create import substitution strategies for 

the building up of their own digital economy. 

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So everybody wants to have a Google App, a Facebook, and an 

Amazon, right? So what we advocated abroad was to say, do what 

you do well and make sure that your people can use the platforms 

to continue what they’re doing to do it better. And import substitution strategy in this space is deeply destructive for them. 

The Boston Consulting Group, the World Bank, and others have 

shown that more open, better connected countries are doing better 

than those that are not. But there is to some degree abroad this 

feeling that the United States has first-comer advantage and that 

they’re responding to that first-comer advantage by creating barriers to our firms being able to do well in their markets, to which 

we have argued and believe the evidence exists to say that actually 

having and using the platforms that the American economy has 

been able to create is useful for you. 

Senator Heinrich. Thank you all. 

Vice Chairman Lee. Representative Paulsen. 

Representative Paulsen. Thank you, Vice Chairman Lee. 

Mr. Quade, you and the other witnesses here today have presented some very valuable testimony about the importance of digital trade to American businesses and our economy. 

As I mentioned earlier in my opening statement, both Senator 

Klobuchar and I can attest to the numerous small businesses in 

particular in Minnesota that have shared that type of success story 

in engaging in the digital economy, and it is great to have you 

here. 

I am curious, as Members of Congress consider future legislation 

in this area, as we watch the Administration negotiate future trade 

agreements that include digital trade provisions, I think it would 

be helpful for this Committee to hear about some of the specific 

barriers you face. 

You outlined the de minimis component to digital trade that companies like Relay Networks face. What are some of the challenges 

that your company has come across as you try to reach customers 

abroad? And how can we help you in overcoming these barriers? 

Does anything come to mind? 

Mr. Quade. Congressman, it is not just the de minimis but it 

is also the Customs process as a whole. It is amazing how many 

times we have an international customer and the transaction 

seems seamless. I do not hear anything, you know, days later. And 

all of a sudden two, three weeks later an international customer 

will call me up and say, well, where is my product? 

Well now all of a sudden I have to get on the phone and call multiple different areas. It could be the shipping provider. It could be 

Customs. And spend hours trying to track down this product that 

is stuck somewhere in this process, and that includes countries like 

the UK. 

I can cite a specific example just recently where, you know, I 

must have spent two, three hours on the phone tracking down 

product, trying to find where it is. And this is, again, our partner 

in the UK. 

So in terms of barriers, it seems as though the whole processes 

just are slow. Products get lost. There are whole countries where 

we would just as soon not ship product to because we know that 

we are rolling the dice. One of those would be Russia, for example. 

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But it seems as though these processes are just a nightmare. 

And I know specifically businesses that are involved in digital 

trade that simply do not offer their products internationally because they simply do not want to deal with it. 

And that, quite frankly, I think hurts those companies because 

if they open these products up, and we could simplify these, we can 

get this product that no longer has a market in the United States 

out of the United States and bring money back in. 

Representative Paulsen. So just pause for a minute. Essentially, you are emphasizing that we need to be proactive in combating some of these existing barriers that exist to digital trade. So 

just really quick, highlight what it has meant to Relay Networks. 

Digital trade has meant a lot to the success of your company and 

where you are going as a small business, the people you employ, 

but what has it meant to you? 

Mr. Quade. Since I have come aboard, we have nearly doubled 

the size of our employees. We have doubled our warehouse space. 

We have completely redone our processes in the back room so we 

can be more efficient, because we need to start handling the volume based on the demand. 

My phone blows up every single day with international customers wanting the stuff that no longer has a need here in our 

market. And that includes student-issued tablets. You know, Americans, we do not necessarily—not a lot of us need an iPad2. We 

want the latest and greatest. We want the iPadair, right? 

But an iPad2 in a Latin American country? This changes their 

life. Or network equipment that has come out of use at a major 

company. You put that in play in a school that has not had internet access before? It changes lives. And the demand is there. 

The supply is our challenge. So we need more equipment that 

has been sitting around in IT closets because of this international 

demand so we can bring that money, again, back into the United 

States. And so that I can keep hiring more people, so we can keep 

expanding our warehouse. It is extremely exciting. Every day I 

come to work I talk to the owner of our company, Darren Ashcroft, 

who is here with me today, and we are just so excited every day 

to come in and speak to new customers, the Netherlands, Chile, et 

cetera. 

So it is a very exciting time, Congressman. 

Representative Paulsen. Thank you, Mr. Chairman. 

Vice Chairman Lee. Senator Klobuchar. 

Senator Klobuchar. Thank you very much. I also welcome you, 

Mr. Quade. Not everyone has a Senator and a Congressman, so you 

are going to get all the questions now. But thank you for employing 

people in our State. 

I guess I will just ask you one question. And that is, that in July 

I joined my colleagues in calling on the USTR Ambassador to make 

small businesses a priority in trade negotiations by seeking to raise 

the de minimis threshold for goods and services that U.S. businesses can sell overseas. 

And as noted, right now up to $800 can be imported into the U.S. 

with no duties or tax, but a U.S. company would face a much lower 

threshold when exporting goods and services to another country. 

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When we have 95 percent of the world’s customers in foreign 

countries, there is a world of opportunity out there, as you point 

out. Can you talk about, expand on how making sure that increasing the de minimis level for developed countries can benefit small 

businesses? 

Mr. Quade. Sure. Again, when, Senator, you take down these 

barriers, it creates that seamless transaction that we are all used 

to here in the United States. And it also makes businesses like 

ours run more efficiently. 

So if these transactions can be more seamless, I do not necessarily have to spend all of my time, again, tracking down these 

products. Because I want to take care of these customers, but I also 

do not want to upset these customers. Congressman Paulsen talked 

about our 100 percent feedback rating on eBay. It is a lot of work 

to maintain that feedback. It is a lot of work to take care of these 

customers. But I am more than willing to do the hard work. But 

again, I can speak to numerous small businesses in Minnesota that 

are doing a large amount of volume that, again, do not have their 

products internationally because they do not want to deal with it. 

Senator Klobuchar. They do not want to deal with the threshold. 

Mr. Quade. Yes. You take those barriers down, all of a sudden 

these companies can start offering these products internationally 

and experience the same boom that we are experiencing at Relay 

Networks. 

Senator Klobuchar. Very good. Thank you. 

Mr. Heather, you talked about the Digital Attache ́ Program in 

your testimony at the Commerce and the State Departments, and 

I have always been a big booster of the Foreign Service and the 

people that can help us provide help to companies both in our own 

country and what markets they can go into, and then of course in 

the Foreign Commercial Service. And then also the staff in the embassies. But the Digital Attache ́ Program is relatively new. As you 

know, it helps U.S. businesses increase exports by helping them 

manage digital policy and regulatory issues. 

The digital attache ́ programs were established in 2016. We have 

seen some proposed budget cuts of course from the Administration. 

How do you think these programs could be helpful if we kept them 

in place? 

Mr. Heather. Well, given the fact that most of the challenges we 

are talking about today are in foreign markets, if you do not have 

eyes and ears on the ground in real time to know what is happening either legislatively or regulatorily in these countries, there 

is not an ability to feed that information back into the broader U.S. 

Government in order to then come up with a response to what we 

see happening. 

And in our experience, even though this program is relatively 

new, we have done a significant effort to have regular conference 

calls with these folks who are on the ground, and have participation on many of these calls of over 100 companies who are very 

eager to hear what is being seen by these Digital Attache ́ officers. 

And also oftentimes it is our members who are able to tell the Digital Attache ́s things that they are not seeing, necessarily. 

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So we have found the program, even in its infancy, to be very important and highly successful, and something we think there is the 

ability to leverage. 

I think that there are, on the Commerce side, somewhere—and 

Danny may need to help me here; I know you were at State—but 

I think we expanded it from 12 to 16, or from 9 to 12, or something 

like that. But we are in the most important and key markets, and 

State has amplified that effort by doing a lot of training and programming for their commercial officers, and many more embassies 

to be on the lookout for things like data localization, force tech 

transfer issues. So this is a program that is valuable. 

Senator Klobuchar. Thank you. One last question, Mr. Ambassador, very briefly. The importance of broadband deployment to the 

issues that we are talking about. We have the Broadband Caucus 

in the Senate. We have been working really hard to try to get infrastructure built to get more investment. 

Mr. Sepulveda. Thank you, Senator Klobuchar. And I want to 

echo the good work of the Digital Attache ́s, and we also created a 

Digital Economic Officers Program at the State Department. So 

every post has an economic officer. They are trained and knowledgeable on traditional economic issues, trade issues, customs 

issues, those sorts of things. But in the digital space, we needed to 

create a new curriculum and educational mechanism by which to 

ensure that our economic officers abroad are well versed in these 

issues, and we have done that through the State Department’s Economic Bureau. 

And there has been some call for reducing the number of people 

at the State Department, and that is a real issue. To your 

broadband issue, the excitement that you see out of Relay Networks, the ability that they have had to succeed as a small business using their digital connectivity, needs to be extended to every 

small business in America. 

And there are far too many rural communities in particular, because of the cost of building networks out to those communities, 

that are not connected. Having something in the infrastructure 

build to help with those initial capital costs would be critical to 

making sure that the Universal Service Fund can then help, once 

it is built, those long-term costs. Blair Levine, who used to be with 

the FCC, has written a paper for Brookings making a specific recommendation for the infrastructure, whatever infrastructure stimulus is proposed, that I would strongly endorse and recommend to 

you. 

Senator Klobuchar. Thank you, very much. 

Vice Chairman Lee. Representative Comstock. 

Representative Comstock. Good morning. It is great to be 

with you here this morning. Sorry I was a little late, but, Mr. Griswold, I appreciate George Mason represented here, and Mercatus, 

and we appreciate your great work there. So with the widening use 

of digital technology, and with the internet lowering the cost of 

international trade, it helps our productivity, the kinds of things 

you have highlighted. Could you explain why this is not a threat? 

Why this is not a threat to other jobs? And why this is something 

that will really have a ripple effect for all kinds of industries? And 

maybe just paint a few pictures of some of the small- and mediumLAP51NQ082 with DISTILLER

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sized enterprises that will be able to expand and benefit in a way 

that is growing new markets, not in any way cutting into anybody’s 

existing? 

Mr. Griswold. Yes. Thank you for that question. 

Yes, there is a lot of anxiety about jobs connected with trade, and 

I make the point in my testimony that this is not something radically new about the ‘‘why’’ of trade, it is about the ‘‘how.’’ So the 

same principles apply: International trade allows us to do more of 

what we are better at as a Nation, that plays to our strengths in 

terms of our high technology industries, and digital, and information technology. 

So in that sense, the internet is enabling trade to happen in 

ways it was not able to happen before, with all the benefits that 

it brings to our country. 

The U.S. International Trade Commission study is important in 

this respect. They talked about up to 4.8 percent larger gross domestic product, up to 5 percent higher real wages—— 

Representative Comstock. What was the larger amount, the 

study? 

Mr. Griswold. Yes, that was the 2014 U.S. International Trade 

Commission Study on Digital Trade. And they estimated our GDP 

is larger by 3.4 to 4.8 percent, real wages of American workers in 

Northern Virginia and around the country are 4.5 to 5 percent 

higher. They were more cautious on jobs. They said it is either 0 

to 2.4 million, but I think the zero is an important factor, because 

trade is not about more jobs or fewer jobs; it is about better jobs. 

About jobs in areas that are growing, that play to our strengths. 

And I think digital trade plays to that. You mentioned small- and 

medium-size enterprises. The barrier to companies like Relay Networks getting into global markets in the past has been how to 

reach foreign customers, how to make foreign customers aware. 

Also, how to overcome something called ‘‘Information 

Asymmetries.’’ And that is, if you are a branded multinational, people can know your reputation, and they know where to complain. 

If you are a small- and medium-sized company, people do not know 

your reputation, and they are hesitant to take that plunge. But on 

the internet you can have things like customer reviews, which raise 

confidence. You have platforms like Amazon and eBay, and that 

has enabled small- and medium-sized companies to create jobs. 

So trade is like technology. You know, 200,000 to 300,000 Americans line up for unemployment insurance every week in a low-unemployment economy, not primarily because of trade but because 

of technology and changing consumer taste. So jobs are created and 

jobs are eliminated through trade, through technology, but the bottom line is, it raises our productivity. It is creating opportunities 

for our children and workers in the future economy. And that is the 

important thing, and that is what digital trade is contributing to 

our economy. 

Representative Comstock. Okay, and what are some of the 

biggest regulatory threats that you see that would stymie the 

growth, or limit that entry level? 

Mr. Griswold. Yes, there are barriers to cross-border trade, and 

we have talked about a lot of them today in terms of force localization of servers, which by the way interferes with the cloud. For 

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small- and medium-sized companies, the cloud computing is more 

important to them than it is to large companies that can have their 

own IT departments. But the cloud allows small- and medium-sized 

companies to buy those services. And that is why a forced localization of servers is something we need to resist and get into trade 

agreements. 

Domestically we need to have a flexible economy. We need to sort 

out our corporate tax system, which everybody agrees is a drag on 

growth. We need to invest in education in a way that prepares our 

workers to fill these jobs. 

I know it is beyond the scope today, but we need immigration reform so that high-skilled workers can come into the country and 

help us grow these high-tech companies, and create the innovative 

digital products that we can then export to the rest of the world. 

So it is a broad package, but you are exactly right. It is all part 

of a package of making our economy more flexible and opening up 

markets for opportunities. 

Representative Comstock. Okay. Thank you. And thank you 

so much for your work. 

Vice Chairman Lee. Representative Beyer. 

Representative Beyer. Thank you, Mr. Chairman, very much. 

I want to begin by saying, as an automobile dealer in my real 

life, 99 percent of our sales start online. So it is very, very out 

there. 

Mr. Heather, I want to thank you right off the top for pages 8 

and 9. You have a very clear multi-page strategy for where our digital stuff should go. So thanks for putting that together. 

Ambassador Sepulveda, you say very eloquently that there is 

critically protected network neutrality at home. To send the signal 

to others that services and applications delivered over the global 

internet must remain free from discriminatory treatment by local 

and national broadband internet service providers. This is said eloquently. 

Can you expand on that? And the recently announced FCC plan 

to roll back the Title II designation on that neutrality, is that a 

step in the wrong direction for our digital trade? 

Mr. Sepulveda. Thank you, sir. I hesitated to mention that due 

to the fact that it is an issue that is being heavily debated in the 

Congress. The reason I mention it is because internet services are 

global in nature. That is to say that if you build—if Relay Networks puts up a website, it can reach any consumer anywhere in 

the world, as well as anyone else, right? Broadband internet service 

is provided locally. So that last mile, if your service or your speech 

is discriminated against in that last mile, it will hurt you. And that 

is the point of control that could be leveraged abroad against our 

providers. Now the signal that we sent, when we say that network 

neutrality is not going to be the rule of the land in the United 

States, sends that signal to other countries that it is okay for their 

broadband service providers to discriminate against content that 

isn’t local or isn’t originated in their country. 

So that is the biggest challenge. I think it sends a bad signal, 

particularly to repeal the rule without having a replacement in 

law. You can have an honest, and you will have a very strong debate and deliberation on what that should look like in law versus 

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in rule, but I strongly support Chairman Wheeler’s work. And I 

think it has sent the right signal abroad, and I know that you have 

done work with Chairman Wheeler on this in your own District 

and we appreciate that work. 

Representative Beyer. Thank you. Ambassador, the KoreaU.S. Free Trade Agreement was hailed as having the most modern 

and robust digital trade chapter in history. How would you assess 

the success of this a few years in? And aside from the obvious strategic and commercial impacts, can you discuss the impact of a 

course withdrawal on digital trade, both with Korea and internationally? 

Mr. Sepulveda. I think I would echo what my fellow panelist 

has said, that the Korea Agreement was very, very strong, as was 

the language in the TPP, which was not pursued. 

I think at the end of the day it would send a very poor signal 

to a very strong ally and a key commercial partner to withdraw 

from the Korea-U.S. Free Trade Agreement. 

Representative Beyer. Thanks. Mr. Heather, a similar question on NAFTA. So the original NAFTA obviously predated the centrality of the internet and digital goods. But NAFTA still governs 

North American trade and telecoms and digital goods and services 

of some status quo. So how important is the digital piece of the 

modernization negotiation that the President is talking about? 

Mr. Heather. Well we have every indication that the digital 

issues in the NAFTA modernization are a priority for Ambassador 

Lighthizer and the negotiations. I think when you look at the relationship the United States has with Canada and Mexico, save 

maybe de minimis, and maybe a couple other issues, we don’t have 

a lot of the kinds of barriers I outlined in my testimony with either 

trading partner. 

But what NAFTA modernization represents is an opportunity to 

get the rules right. Yes, KORUS was a good start in the digital age. 

TPP built on that. But there are always new questions that are 

emerging in the policy space. For example, cyber and how cyber 

regulations are being promulgated around the world. 

We do not have a cyber challenge in terms of the regulatory environment in Mexico or Canada, but Canada and Mexico because 

they are good trading partners and good partners on strong policy 

represent an opportunity to get the rules right. 

So NAFTA, more so than sorting out challenges that we face, 

save de minimis, maybe a couple of other minor issues, Mexico and 

Canada and the United States have an opportunity in the NAFTA 

modernization to create a very high set of rules and standards that 

we would like to see pushed in other trade agreements around the 

world. 

And I would just say, since we have a lot of home cooking going 

on between Mercatus and the Congresswoman and my friend from 

Minnesota, I happen to be your constituent, sir. 

Representative Beyer. Thank you, Mr. Heather. 

So a quick follow-on. Canada has got the cultural exemption in 

NAFTA. Is that likely? Can we modify that? What can we achieve 

in the NAFTA renew issues? 

Mr. Heather. I am aware of it. I am not following that issue 

quite closely. The cultural exemptions are challenges in many cases 

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for all kinds of content issues in Europe and elsewhere. They all 

are something USTR pushes back on from a market access standpoint. But I would have to follow up with you in terms of, with 

folks who are following that specifically as to what we might be 

able to achieve. 

Representative Beyer. Thank you. And thank all of you very 

much. 

Representative Paulsen [presiding]. Senator Lee had to leave, 

but we have time for another round of questions from Members 

who would like to ask. So, maybe I will just start with Mr. Heather, to follow up a little bit on that conversation. 

There are multiple avenues in which to pursue free trade with 

appropriately facilitating rules, and the WTO is one. Free trade 

agreements with individual or group countries is another, obviously. Each has its pros and its cons. 

Digital trade is also discussed at G–7 meetings and G–20 meetings. Can you explain some of the pros and the cons of the various 

forums? Can you suggest which path or paths toward appropriate 

regulation are more promising and how the United States should 

prioritize them? 

Mr. Heather. It is a very good question, and I suspect you would 

get a lot of different answers to that. Let me say this. We have 

found conversations in the G–7 and the G–20 to be immensely 

challenging. And China’s year of hosting the G–20, I think that 

was the first year that G–20 took on digital policy type issues. 

It was amazing, looking behind the curtain to the degree I had 

the ability to look behind the curtain, to see the kinds of efforts 

that were made not just by the Chinese but the Russians, as well 

as our European friends and allies. To not have what I would say 

to be very basic statements about having an open digital economy 

and free flow of data. That did not get any better this past year 

when Germany chaired the G–20. 

And so I think the G–20 and G–7 are very tough forums and represent tough sledding ahead for establishing consensus and good 

rules. I think we play a lot of defense, quite frankly, in both of 

those fora. 

When you look at the WTO, I think the WTO has a significant 

ministerial meeting coming up this fall. There have been some 

voices who have called for the WTO to get into the digital game, 

as being an area of expansion. 

I do not expect that the WTO will ultimately receive that mandate this fall. I think there is a view that the WTO has enough on 

its plate that it needs to work on before it tries to venture into new 

areas. But I think that is an area worth watching. 

And I think one agreement that we have not mentioned that has 

not had much attention in the transition from one Administration 

to the other, is TISA, which is a plurilateral agreement with a 

number of countries that is a real opportunity to set rules in the 

digital space, particularly for the Services environment. 

So I would put as a priority getting our act together and figuring 

out what we want to do with TISA, and pushing that in terms of 

the concept of establishing digital rules. 

Representative Paulsen. Ambassador Sepulveda, can you 

share some thoughts along those lines, too? 

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Mr. Sepulveda. Sure. I thought that was an excellent presentation of where we are. I would say that the G–20 in particular is 

a challenging environment, and the G–7 creates some challenges as 

well, but we need to be there. We need to be making our arguments. 

And they also serve to telegraph to us what countries are thinking about doing domestically, and then we can engage on that level 

as well. 

I think it is critically important that some of the private, larger 

international organizations like the World Economic Forum and 

others, are entering this space. The Chamber has made this a priority. The International Chamber of Commerce has made it a priority as well. 

So there are various venues. When I was working at State, you 

could be traveling every week somewhere in the world to talk about 

this stuff. And we need to be engaged in all of them. 

Representative Paulsen. Mr. Griswold, I am going to follow up 

with one other question, because I know countries like France and 

Germany that are technologically advanced are heavily engaged in 

international trade, and at the same time they are adopting policies that are not necessarily trade friendly. 

Maybe you could give a couple of examples and their reasons. On 

the other hand, there are countries that seem very strongly oriented towards free trade, Singapore, for instance. Could you share 

that perspective and what examples we should be following? 

Mr. Griswold. Yes. First just a quick comment on how to 

achieve liberalization of digital trade. There are trade-offs. If you 

have an agreement at the WTO that benefits 160 countries but 

there is a lower common denominator of what you can achieve. So 

I continue to think bilateral and regional agreements have the 

most promise, and Chapter 14 of TPP remains the template. 

But, yes, our European friends are advanced in a lot of ways, but 

in some ways I think they have a little envy that they do not have 

an Amazon and an eBay and an Apple. And, frankly, you see some 

protections disguised as concerns over privacy and security. And I 

think we need to challenge them on that. 

So we need to continue to push them. It is in their interest to 

not require the localization of servers and things like that. It really 

enhances your own efforts at security if information can be located 

in multiple sources, not only in your own country but elsewhere, 

and in countries like the United States where we have very high 

security and technological standards. We need to make that case 

to them, that it is not only in our interest to open up your market, 

but it is in their interest to have a more diverse means of distributing information. 

Yes, Singapore is a good example, and we do have a bilateral 

trade agreement with Singapore that has some digital components. 

But they are a first-world country in that respect. You are finding 

that countries that understand the benefits of digital trade, as we 

do in the United States, are very willing partners to sign on with 

us. 

Canada and Mexico were ready to sign on to the Trans Pacific 

Partnership, so they embrace all the negotiating objectives of the 

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U.S. Congress. So I think we have willing partners out there. We 

have some work to do with others. 

Representative Paulsen. Senator Heinrich, you are recognized. 

Senator Heinrich. Central to the U.S. leadership in E-commerce is our highly skilled workforce. To ensure that we build on 

our current strength there, we obviously need to invest in that 

workforce through quality education, things that work, job training, apprenticeships, other programs that equip our workers with 

skills needed to compete in that global economy electronically and 

otherwise. 

Last week the Administration announced its decision to end the 

Deferred Action for Childhood Arrivals Program, DACA. Starting 

with you, Ambassador, and I will just go across and get all of your 

thoughts, what is your assessment of how ending that program will 

potentially affect the U.S. economy and our ability to compete in 

coming years? 

Mr. Sepulveda. Thank, you very much, Senator, for that question. The technology community, and I think the corporate community, has spoken fairly uniformly on this. The estimates are that 

it will cost hundreds of billions of dollars to end the DACA program. 

And for the technology community, where so many in that community are either immigrants or the children of immigrants, this 

issue has hit very, very close to home. In fact, I think Brad Smith 

has said that this Congress should take up DACA legislation even 

before they move to tax reform, which is obviously something critically important to Microsoft. 

So as we move forward, being open to the world’s talent, being 

respectful of all our children, and making sure that the corporate 

community has all the talent it needs available, because this is not 

a zero sum game. For us to succeed in the global economy, and for 

them to continue to innovate and grow, is incredibly critically important. 

Senator Heinrich. Does anyone want to add to that? 

Mr. Griswold. Senator, thanks for bringing that up. Free digital 

trade is necessary, but it is not sufficient. We have to have the educated workforce, the flexible domestic economy to take advantage 

and create the new products, and immigration is part of that. 

I know it is controversial, but we are facing a demographic issue 

in this country where the workforce is going to start shrinking 

without immigration because of declining birth rates, but we also 

have a challenge in terms of a trained workforce in the STEM subjects. 

You hear anecdotally and otherwise of U.S. companies that cannot hire the high-skilled workers they need. These are manufacturing companies as well as IT companies. 

As far as DACA goes, to me these young people are about as 

close to a sure bet as you can get. This is basically the only country 

they have known. They are fully Americanized in every sense in 

terms of the language and the culture. 

By definition they have graduated from high school. The older 

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nology companies. They have been fully vetted in a security point 

of view. 

I disagree with some of the economic statements that Attorney 

General Sessions made, but I think Constitutionally he is probably 

right. It is up to Congress to fix this problem. And I would just— 

you asked about my wish list. If I were king for a day, I would legalize the DACA young people. 

Senator Heinrich. It sounds like we should get on that. 

Mr. Griswold. I believe you should. 

Senator Heinrich. Mr. Heather, do you want to add to that? 

Mr. Heather. No, I couldn’t improve on the Ambassador’s statement. 

Senator Heinrich. Thank you. 

Representative Paulsen. Representative Comstock, you are 

recognized for five minutes. 

Representative Comstock. Mr. Quade, you had said in your 

testimony, and we talked about here, the TPP agreement did provide positive things there. Given we do not have that, how can we 

take the positive things there now and utilize them to help businesses—and actually for any of you who might have some thoughts 

on what we might do in an environment where unfortunately you 

have opposition from both sides on trade. And I think the testimony you are providing today shows why this is something that 

really can help both of those sides advance, and so the fear of it, 

how do we overcome that? And what are some of the ways that we 

could help advance the digital trade in a way that is inclusive and 

engages everybody? 

Mr. Quade. Absolutely. Mr. Griswold said that we could use 

that part of TPP as a template, you know, and carry that out in 

the future negotiations, including the current NAFTA ones. 

So if we use that as a template, and then we also bring it on an 

individual level like I was talking about earlier, the small businesses including our neighbors in Canada over here that I deal 

with, or the education field internationally that is looking to get 

connected. But that barrier from—because they are limited in capital, you know? So they are on tight budgets. 

Representative Comstock. So this is really like a micro enterprise assistance, if we were able to—— 

Mr. Quade. Exactly. 

Representative Comstock [continuing]. Help here, and it 

would change sort of the whole dynamic of aid versus trade. This 

is another—— 

Mr. Quade. Yes. That is a perfect way to think about it. Think 

about it as the easiest way that we can touch an individual and 

allow them the free flow of goods, like we are used to in the United 

States. 

The teacher I referenced, the teacher in the UK who was just 

looking to replace a laptop. Why is it that somebody has to show 

up on her door with the laptop and say give me another $60 for 

a $225 laptop? That is a perfect way to humanize a trade agreement. How does this affect individuals? 

And I see it all the time. You know, the resort in Canada that 

I was working with. You know, they just wanted to upgrade their 

network, but we could not do it. The customer said, well, alright, 

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maybe we will visit it next year. You know, like geeze, if we could 

just get this done now. 

Representative Comstock. So it ends up depressing their business. 

Mr. Quade. Exactly. 

Representative Comstock. There is nobody there who is necessarily engaged in this, but there is no reason they couldn’t be. 

I mean the U.S. is the leader in this area of digital trade at this 

point, so there is nothing to fear from us in terms of—I mean, who 

would be our nearest competitor in the digital trade area? 

Mr. Quade. I think perhaps one of the other members of the 

panel could answer that, but with—I think I referred to the, what 

was the phrase that I used, we’re the United States of Stuff. We’ve 

got lots of stuff in this country, and a lot of stuff that we do not 

need anymore, you know, but other countries do. 

And we have got a whole bunch of it, and it is just sitting 

around. And companies like us, we can get extra life out of it, and 

we can provide it to people that need it. But I think in terms of 

other countries like us, I don’t know—— 

Representative Comstock. Like maybe, what about various 

countries in Africa, developing countries where they have an increasingly educated workforce, but they are seeing all kinds of 

trade barriers. How would this help say Uganda, or Kenya, if anyone has any thoughts on that? 

Mr. Griswold. Well, I think it is a great opportunity for them 

and for us. As Nick points out, there is a great demand over there 

for stuff that we’ve got that we no longer need. So I think it is a 

great opportunity to export this used stuff here in America to great 

benefit over there, and they are getting online. 

They have access to cellular networks over there, and it is transforming the way business is being done in Africa. So there is a 

great opportunity there. We can earn more through our exports. 

But again, the issues are largely over there, and we need to work 

with them. The African Growth and Opportunity Act is a good 

thing Congress has done to encourage trade there, but you’re right. 

It is both good business, and also the U.S. by being a good citizen 

in the world encourages trade with those countries. 

Representative Comstock. Thank you. 

Mr. Sepulveda. I’m sorry, if I could just add quickly. In traveling around the world I spent a significant amount of time in the 

developing world, particularly in Latin America but in Africa as 

well. And where you see—it is fascinating to see people who want 

to be connected so badly. 

I mean, you will see kids without shoes but they will have a 

cellphone. There is a hunger for this type of connectivity. The challenge is that in too many countries governments see it as a revenue 

grab, essentially, to tax digital goods, to tax high technology products, because they feel it is a luxury. 

But the fact of the matter is that connectivity and these sources 

are no longer a luxury; they are a necessity to compete in the modern economy. 

So one of the things we did is we created the Global Connect Program, and we teamed up with the World Bank to try to send the 

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message to finance ministers around the world to focus not on taxation but on connectivity. 

And we have seen examples of success. So in Colombia, for example, they had a program called Viva Digital, and the idea was to 

not tax computers and tablets. And they did a reverse auction system by which to connect their rural communities. And they connected 90 percent of rural Colombia, and a computer was actually 

cheaper in Colombia than anywhere else in Latin America because 

of these programs to incentivize consumption of these goods and 

get people connected. 

Representative Comstock. They are changing the taxation. 

With a focus on education, they see it as education rather than a 

luxury good. It is not watching movies; it is educating the kids. 

And having these kids, you know, if you are in a rural area in a 

Third World country, you still can get access to the best education 

if you would just get these tablets that we can take our used ones 

and get to them, right, and be a dynamic change for them. 

Mr. Sepulveda. And these tools will make them better at whatever they are good at. So if you are really good at agriculture, be 

really good at agriculture. And use the connectivity and the tools 

of the internet and the information services to be better at it. 

You can’t tax your farmers, your ranchers, from getting these 

tools that are necessary to succeed in a modern economy. It won’t 

work. 

Representative Comstock. So it’s sort of a modern day machine and tool tax, which I know still in the U.S. we are always 

trying to get rid of in various places because it is taxing the tools 

to get things done. We need to get rid of these taxes internationally. 

Representative Paulsen. We are going to wrap up. I would like 

to thank the witnesses again for being here today. The record will 

be open for five business days for any Member that would like to 

submit questions for the record. And this hearing is adjourned. 

[Whereupon, at 11:26 a.m., Tuesday, September 12, 2017, the 

hearing of the United States Joint Economic Committee was adjourned.] 

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SUBMISSIONS FOR THE RECORD 

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PREPARED STATEMENT OF HON. MICHAEL S. LEE, VICE CHAIRMAN, JOINT ECONOMIC

COMMITTEE

Good morning and welcome to the Joint Economic Committee’s hearing on digital 

trade. Chairman Tiberi could not be here today and has asked me to chair the hearing. I want to welcome my colleague Ranking Member Heinrich, the other Members 

of this Committee, and the panel of expert witnesses who are appearing before us 

today. 

What is digital trade? It covers a wide variety of economic activity, including: 

international orders transmitted through websites; global connectivity enabled by 

email and voice-over internet protocol; international banking; and data transmissions to manage global supply chains. 

Advancements in technology mean that digital trade is capable of delivering ongoing improvements in production, distribution, and value for Americans. U.S. firms 

have been pioneers and global leaders on the digital technology frontier. American 

consumers and businesses greatly benefit from the ability to buy and sell across borders and gain access to new products and customers. 

We are swiftly approaching the point where the word ‘‘digital’’ will be an unnecessary adjective for trade. Although, I’m sure trade lawyers will want to maintain the 

extra level of specificity for billing purposes. 

But we need to work both domestically and internationally to facilitate trade and 

innovation. We should seek to ensure that sensible regulations and standards are 

put in place for the protection of intellectual property and private information. 

Congress has set clear priorities for negotiating trade agreements that can lower 

trade barriers for digital goods and services, and the Trump administration is pursuing those priorities in the current NAFTA discussions. 

It is critical for future U.S. economic success to ensure a regulatory setting in 

which innovators, entrepreneurs, and businesses can experiment with new technology and succeed in a global market. 

I will now yield to Representative Paulsen, who earlier this year launched the Bipartisan Digital Trade Caucus in the House of Representatives. 

OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING DEMOCRAT, JOINT

ECONOMIC COMMITTEE

Thank you, Vice Chairman Lee, and thank you to our panel for being here today. 

E-commerce touches industries across all sectors of the economy and Americans 

across the country. It is a key source of American jobs and 21st century economic 

growth and its importance will only grow. 

We know that the internet enables U.S. companies, big and small, to efficiently 

reach markets around the world. Manufacturers, banks, retailers, airlines, farmers 

and a range of other businesses rely on the internet to seamlessly access and move 

data across borders. 

The internet has fundamentally transformed our lives—and the way we buy 

goods. 

The benefits of international trade used to be concentrated among big business. 

The internet changed all that, opening doors to small and mid-sized businesses and 

even one-person shops. 

Now, an individual with a broadband connection can sell his or her goods and 

services all over the world—from an artisan from Acoma Pueblo, to a game designer 

from Albuquerque or a Hatch Chile farmer in Cruces, they can all now enter the 

global market place. 

A recent study found that 95 percent of U.S. small and medium businesses on 

eBay export and 190,000 of these firms export to four or more continents. 

The United States is an e-commerce leader today. The International Trade Commission estimates that digital trade contributed more to gross domestic product 

than all but four states in 2011, and has lifted wages by as much as 5 percent, while 

adding up to 2.4 million more full-time jobs. 

In New Mexico, we are working hard to ensure that the opportunities of the digital economy reach every corner of the State. I’m excited to welcome Facebook, 

which is scheduled to open a multi-building data center next year in Los Lunas that 

will generate more than 100 jobs at the data center and up to 1,000 construction 

jobs. 

With 2 billion monthly active users, Facebook is literally built on cross-border 

data flows. 

To fully realize the gains from digital trade, we need to ensure global policies enable companies to harness the power of the internet to reach new customers around 

the world. 

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For this to happen, it’s vital we have a free and open internet, with privacy protections. And that starts right here at home. Your personal information should not 

be shared or sold without your consent. Your health, financial and other personal 

and sensitive information must be protected. 

While internet providers must be prevented from selling users’ personal information without user consent, companies should be able to choose where to store data. 

When U.S. companies can’t store data in the U.S., they lose out on jobs and the 

ability to use the data to improve their products and services. 

As far as we’ve come, with the number of internet users worldwide tripling in the 

past decade, we are still in the early stages. And the opportunities for e-commerce, 

domestically and internationally, are unlimited. 

But, to realize the potential the internet provides, we need to accelerate the roll 

out of broadband and ensure that rural areas and tribal communities have greater 

access. Right now, four in ten rural residents lack broadband access, and among 

rural tribes, that number climbs to seven in ten without access. 

To help bring more Native American students online, I will soon introduce legislation that promotes broadband access for students and tribal community members. 

During a meeting I convened at the Santa Fe Indian School recently, the Tribal 

Administrator of Santo Domingo Pueblo in New Mexico Everett Chavez put it this 

way: ‘‘Access to the internet is new, but it is an equally essential infrastructural 

need to our tribal communities as water, power, telecommunications, or roads.’’ 

It doesn’t matter if you are a student, rancher, manufacturer, teacher, doctor or 

small business—high-speed internet is critical to thriving in the economy of the future. 

Finally, as we focus on digital trade today, we should be clear that this is just 

one piece of a bigger issue. 

We need to be vigilant, to evolve the rules of the road when new technologies are 

developed, and to protect our workers from countries seeking advantages through 

unfair trade practices. 

Mr. Chairman, I look forward to hearing from our panel, and I’d like to thank 

former Ambassador Daniel Sepulveda, the witness I invited, for being here today. 

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1Stuart Anderson, ‘‘Immigrants and Billion Dollar Startups,’’ Policy Brief, National Foundation for American Policy, March 2016. 2Sari Pekkala Kerr, William Kerr, Caglar Ozden, and Christopher Parsons, ‘‘Global Talent 

Flows,’’ Journal of Economic Perspectives, Vol. 30, No. 4, Fall 2016, p. 84. 

QUESTIONS FOR THE RECORD FOR MR. DANIEL GRISWOLD SUBMITTED BY CHAIRMAN

PAT TIBERI

Since World War II, the United States has been a world leader in path breaking 

technologies that have spread around the world. 

• Why do you think the United States leads the world in technical innovations and 

why many U.S. companies are leaders in the world markets? 

• Do you think our traditionally free domestic market economy abets this development? 

• What are the biggest obstacles domestically to the digital economy and to the 

growth of U.S. digital trade? 

ANSWER FOR THE RECORD FOR MR. DANIEL GRISWOLD

Chairman Tiberi, 

Thank you for the questions on digital trade. Here are my thoughts: 

The United States is a technology leader for a number of reasons: 

• Our world-leading higher education system, which is a mixture of public and 

private institutions that must compete with each other for students and tuition 

dollars; 

• Our open economy that exposes producers to import competition for goods and 

services. This spurs domestic technology companies to control costs, innovate, 

and provide the best possible products and services to their customers; 

• Our relative openness to immigration. High-skilled immigrants allow U.S.-based 

companies to expand and to create new, innovative products. According to a 

June 2017 report from the Massachusetts Technology Leadership Council, 40 

percent of America’s Fortune 500 companies were founded by immigrants or the 

children of immigrants. A 2016 study by the National Foundation for American 

Policy found that more than half of the start-up companies in the United States 

today that are valued at more than $1 billion, so-called ‘‘unicorns,’’ were started 

by immigrants.1 In Silicon Valley today, more than half of the high-skilled IT 

workers and entrepreneurs are foreign-born;2

• Our venture capital markets that allow start-up companies to access the seed 

money they need to grow; 

• Strong intellectual property protection within the U.S. market; 

• An entrepreneurial culture in which risk-taking is not only accepted but encouraged; 

• And finally, as you note, our relatively free domestic market economy that allows resources, including workers and capital, to flow to sectors and regions of 

the economy where demand is highest. Among the most import freedoms is 

labor market flexibility. 

As for the biggest obstacles to digital trade, my view is that they lie primarily 

outside the United States. My best advice to Congress would be to encourage the 

Trump administration to pursue the sound negotiating objectives on digital trade 

that Congress approved in the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. Through bilateral, regional, and multilateral trade negotiations the United States should pursue agreements that: 

• ensure non-discriminatory treatment of physical goods in the digital trade environment; 

• prohibit forced localization of servers; 

• prohibit restrictions to digital trade and data flows; 

• prohibit duties on electronic transmissions; and 

• ensure that legitimate regulations affecting digital trade are the least trade restrictive as possible. 

• Congress should also seek higher, more commercially realistic de minimis 

thresholds for e-commerce shipments to other countries, which as you know remains a huge obstacle to small and medium-sized U.S. companies seeking to export directly to customers abroad. 

LAP51NQ082 with DISTILLER

56 

QUESTIONS FOR THE RECORD FOR MR. DANIEL GRISWOLD SUBMITTED BY

REPRESENTATIVE CAROLYN B. MALONEY

I represent a district that is one of the financial service and publishing capitals 

of the world—and so New Yorkers are very interested in measures that could help 

to strengthen and expand digital export opportunities for U.S. based businesses. 

I also agree with our witnesses that the world could be a more prosperous and 

more enlightened place if there were fewer barriers to the swift movement of data, 

goods, people and information. 

Placing arbitrary limits on how and where big data moves and is analyzed can 

slow the pace of innovation and just makes things more expensive. It’s inefficient and 

can act like a hidden tariff. 

And I find it to be unfortunate and short sighted of the government of China to 

block the site for The New York Times. 

But I also think that making the world of digital trade better—is not only a matter 

of knocking down barriers and regulations. 

Because—in some areas—the problem seems to be that regulations and agreements 

in place now are not being adequately enforced—Digital piracy overseas is hurting 

many U.S. businesses. 

And in other areas—needed regulation is either currently insufficient or lacking altogether. 

Take for instance—the protection of sensitive private information—like Social Security numbers. 

I am very concerned about the recent Equifax hack—which may become the most 

economically damaging hack in U.S. history. The hack involved the personal data 

of as many as 143 million Americans—including their names, addresses, birth dates, 

Social Security numbers, and in some cases their driver’s license and credit card 

numbers. 

That is nearly half of all the people in the country. 

And the Equifax hack also included the personal data of up to 44 million British 

consumers as well. 

If a bad actor has all that personal data about you—he can apply for credit cards 

in your name, take out loans, file tax refunds, even apply for government benefits. 

Or he can sell it on the dark web—over and over again—not just now—but for 

years to come. And he can sell it to people who will use it to commit cybercrimes 

that haven’t even been invented yet. 

The Equifax hack is the Irma of cyber hacks—and to make it even worse—it’s the 

third major hack of Equifax in less than two years. 

Unfortunately—failures like this by U.S. based companies can have a negative 

spillover on the reputational standing of other U.S. data exporters in the global market. In the past—the EU has expressed concerns about the sometimes-inadequate 

measures taken by U.S. companies to protect data privacy. 

The Europeans have claimed—and not without reason—that the U.S. does not 

guarantee a sufficient level of protection for European citizens’ personal data. 

Even before the Equifax affair—European concerns threatened to disrupt data 

flows between the U.S. and the EU. 

In 2015, the Court of Justice of the European Union invalidated a Safe Harbor 

Agreement that allowed personal data to be transferred with the U.S. 

Basically—the failures of some have hurt other innocent actors as well. 

The U.S. invented the internet—and this is an area where we should be the unquestioned leader. 

So—in light of the recent Equifax breach—my question to our witnesses is: What 

regulations, if any, should the Federal Government consider putting in place to protect consumer privacy—so that data sent to—or stored in the U.S. will be secure. 

What should our exporters do so that they are viewed as setting the standard? Where 

should our country set the bar—so that we are viewed around the globe as the leaders—not the leakers of the world’s sensitive private data? 

ANSWER BY MR. DANIEL GRISWOLD

Representative Maloney, 

Thank you for your important question. As I confessed at the Sept. 12 hearing, 

I am not an expert in cybersecurity. I do agree with your general point that ensuring that data is secure is an important step to promoting digital trade and maintaining the attractiveness of the United States as an innovative hub for technology. 

As a trade policy analyst, my primary interest is to promote the greatest freedom 

possible for your constituents to engage in digital trade around the world, both as 

importers and exporters. To that end, I fully endorse the negotiating objectives on 

LAP51NQ082 with DISTILLER

57 

digital trade that Congress approved in the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. 

Among the negotiating objectives that impact cybersecurity is the recommendation that we seek agreements that would prohibit other governments from requiring 

local storage or processing of data. Despite recent breaches, the United States can 

offer some of the best cybersecurity systems in the world. Allowing data to be stored 

in the United States as well as in other countries will allow companies to maximize 

their ability to keep data secure. 

Another relevant trade negotiating objective is to obtain commitments from our 

trading partners that ‘‘domestic regulations that affect digital trade in goods and 

services or cross-border data flows . . . are the least restrictive on trade, nondiscriminatory, and transparent, and promote an open market environment.’’ Such commitments will help foreign governments guard against the temptation to use legitimate 

concerns about cybersecurity as a cloak to protect their domestic digital service providers at the expense of more competitive American companies. 

QUESTIONS FOR THE RECORD FOR MR. DANIEL GRISWOLD SUBMITTED BY

REPRESENTATIVE DAVID SCHWEIKERT

With blockchain and distributive ledger technology in its infancy, how important 

is it to prevent a tax or border fee for the exchange of data secured through this technology? Furthermore, if a ‘‘data tax’’ was imposed by a country, how do you see that 

impacting the blockchain ecosystem? 

ANSWER SUBMITTED BY MR. DANIEL GRISWOLD

Representative Schweikert, 

Thank you for your very important question about the emerging issue of a data 

tax and distributive ledger technology. 

I approach this issue as a trade policy expert, not a technology expert, but I can 

confirm that blockchain technology holds tremendous promise for enhancing the economic benefits of international trade. Around the world, companies and governments are realizing that blockchain technology can enhance security, speed efficiency, and reduce costs for international trade. The technology is already having 

a positive impact on digitizing and automating global supply chain management and 

the payments process for trade financing. 

My concern with a data tax is that it could slow the development of the technology and at the same time prove to be difficult to implement. A data tax would 

act as a kind of global tariff on trade, depriving consumers and producers alike from 

realizing the full benefits of international competition. It could also have the unintended consequence of pushing more transactions ‘‘underground’’ into a global black 

market. 

Finally, a global data tax would go against the sound trade negotiating objective 

that Congress endorsed in its 2015 Trade Promotion Authority legislation that the 

United States should seek agreements ‘‘to extend the moratorium of the World 

Trade Organization on duties on electronic transmissions.’’ This should continue to 

be a goal of U.S. trade policy. 

RESPONSE FROM MR. SEAN HEATHER TO QUESTIONS FOR THE RECORD SUBMITTED BY

CHAIRMAN PAT TIBERI

Since World War II, the United States has been a world leader in path breaking 

technologies that have spread around the world. Why do you think the United States 

leads the world in technical innovations and why many U.S. companies are leaders 

in the world markets? Do you think our traditionally free domestic market economy 

abets this development? What are the biggest obstacles domestically to the digital 

economy and to the growth of U.S. digital trade? 

The United States has led the world in technical innovation that, in turn, has produced many leading U.S. companies for a host of reasons. Chief among them has 

been an open, market-based economy that rewards risk taking, which is necessary 

for innovation. The U.S. economy is open and connected to global markets and encourages investment in human capital. 

Further, while many countries reflexively regulate in response to new technology, 

the United States typically has taken a more thoughtful approach. 

U.S. competitiveness in the global economy is the biggest challenge we face as a 

country. In response, we need a range of policy solutions that include tax reform, 

LAP51NQ082 with DISTILLER

58 

a highly trained workforce to meet the jobs of tomorrow, and trade agreements with 

new trading partners to open foreign markets to U.S. products and services. 

RESPONSE FROM MR. SEAN HEATHER TO QUESTIONS FOR THE RECORD SUBMITTED BY

REPRESENTATIVE CAROLYN B. MALONEY

So—in light of the recent Equifax breach—my question to our witnesses is: What 

regulations, if any, should the Federal Government consider putting in place to protect consumer privacy—so that data sent to—or stored in the U.S. will be secure. 

What should our exporters do so that they are viewed as setting the standard? Where 

should our country set the bar—so that we are viewed around the globe as the leaders—not the leakers of the world’s sensitive private data? 

We need a balanced approach that promotes the cybersecurity of businesses and 

protects their consumers. Regulatory barriers are a significant challenge to digital 

trade, as is the lack of regulatory enforcement in foreign markets that allows piracy 

to go unchecked. Both undermine U.S. competitiveness and innovation. 

The question with regard to regulation in the digital economy and its relationship 

to international trade and U.S. competitiveness is two-fold: 1) ensuring regulation 

or lack of enforcement is not a safe harbor for masking protectionism, tech transfer, 

or piracy, and 2) that regulatory design is done in the least trade restrictive manner. With regard to any high profile data breach, when a company is hacked and sensitive information is stolen, the company is the victim of a crime. Debate around 

cyber incidents will raise questions about whether a company could or should have 

done more to safeguard itself and its customers. But, the reality is cyber-attacks are 

crimes, and cyber criminals are highly sophisticated 

Attacks target American and foreign companies that have data deemed valuable. 

U.S. companies are committing enormous resources to the challenge, and today’s 

cyber-attacks are a cycle of trying to stay one step ahead of the bad guys. 

Policymakers need to recognize this and build a supportive and collaborative policy environment that focuses on private-public partnerships and emphasizes prevention. For this reason, additional regulation will not necessarily lead to increased security. 

When it comes to security, attempts to regulate today will become outdated tomorrow. Flexible approaches to collaboration and cooperation to combat shared threats 

have significant advantages over national regulation, which can fragment the global 

economy and will always slow technological innovation. 

Further, the United States already has in place several regulations that protect 

consumer data privacy. American companies are also active participants in privacy 

frameworks, such as the APEC Cross-Border Privacy Rules and EU–U.S. Privacy 

Shield, which are both global standard setting agreements. 

But we also recognize that this is an evolving set of issues that runs across several policy portfolios ranging from consumer protection to national security. We believe that there should be coordination amongst different government agencies and 

governments and a private-public partnership that allows for a collaborative process 

to promote best practices to protect businesses and their customers. 

RESPONSE FROM MR. SEAN HEATHER TO QUESTIONS FOR THE RECORD SUBMITTED BY

SENATOR KLOBUCHAR

How could accurate, reliable data on the economic impact of broadband help make 

the case for investing in rural broadband? 

Broadband deployment is critical to U.S. competitiveness and leadership in a global economy, and this certainly holds true for rural America as much as it does for 

our urban areas. Broadband deployment is a significant capital investment, and 

there are real challenges where return on that investment is uncertain. Better information about the economic impact broadband represents to rural America is helpful, 

but it is unlikely by itself to provide the needed certainty for many investors. 

As we work on revising and updating our trade agreements, what alternative tools 

do we have, or should we develop, to address the types of trade barriers that affect 

digital trade across borders? 

As indicated in my testimony, trade agreements are a critical tool to combating 

barriers in foreign markets that adversely impact digital trade. However, trade 

agreements take time and can only be reached with willing partners. Many of the 

challenges American digital products and services face in foreign markets are regulatory obstacles. Regulatory developments in foreign markets are constantly evolving, making it difficult for trade agreements to keep pace. In response, we need to 

LAP51NQ082 with DISTILLER

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have a better ‘‘whole of government’’ approach to the challenge, one that brings the 

resources and expertise of U.S. regulators into play. 

U.S. regulators have a primary mandate to protect health, safety, the environment, or advance other types of safeguards. However, U.S. regulators need a secondary mandate that as part of a larger coordinated strategy advances U.S. commercial interests. U.S. regulators can be better leveraged to address regulatory barriers abroad by advancing U.S. approached to regulation at a peer-to-peer level. 

RESPONSE FROM MR. SEAN HEATHER TO QUESTIONS FOR THE RECORD SUBMITTED BY

REPRESENTATIVE DAVID SCHWEIKERT

With blockchain and distributive ledger technology in its infancy, how important 

is it to prevent a tax or border fee for the exchange of data secured through this technology? Furthermore, if a ‘‘data tax’’ was imposed by a country, how do you see that 

impacting the blockchain ecosystem? 

First, cross-border data flows are massive and growing. Cross-border data flows 

are 45 times higher than they were in 2015, eclipsing global flows of trade and finance. The dramatic increase in cross-border data flows has ushered in a more digital form of economic activity, enabling goods, services, financial capital and people 

to be moved around the world more rapidly, easily and cheaply. Attempts by policymakers to tax these flows as they cross the border would be short sighted for a host 

of reasons and, ultimately, severely limit the potential benefits of digitization. 

Second, blockchain technology will have many applications beyond any role it 

plays in serving as an alternate currency. For example, some experts see it as holding the potential to revolutionize the way government collects taxes, while dramatically easing the burden of tax compliance. However, while cross-border data flows 

that are supported by blockchain technology may aid in better answering age old 

accounting questions of allocating revenues or costs, it does not solve fundamental 

political questions over the role of government and how to best fund it. 

RESPONSE FROM MR. NICK QUADE TO QUESTIONS FOR THE RECORD SUBMITTED BY

CHAIRMAN PAT TIBERI

Since World War II, the United States has been a world leader in path breaking 

technologies that have spread around the world. 

• Why do you think the United States leads the world in technical innovations and 

why many U.S. companies are leaders in the world markets? • Do you think our traditionally free domestic market economy abets this development? • What are the biggest obstacles domestically to the digital economy and to the 

growth of U.S. digital trade? 

1. The United States is a leader in innovation throughout the world because of 

a number of reasons. First, our standard of living is one of the best in the world. 

People live in our country because we have access to everything you can need or 

want. You can get whatever that may be in a time efficient manner as well. In the 

hearing I stated we are the ‘‘United States of Stuff.’’ We have so much stuff in our 

country people don’t know what to do with it. Likely goods sit in closets in businesses and homes across the country. Spend a Saturday in the donations bay at a 

local Goodwill and it will shock you the amount of quality items people no longer 

need. Yet in other countries, people fight over these goods or might never get access 

to them. 

Second, we have the best schools in the world here. Harvard, MIT, John Hopkins, 

and we could go on with the list. 

Third, we get access to the latest and greatest tech first before everyone else. 

Also, we as Americans expect the latest and greatest. Think of the lines that will 

form when the iPhone 8 and X come out. We are talking about $799 phones!!! Average monthly wages even in some European countries make this impossible to purchase yet here, again, there will be lines to get it first. 

Fourth, the United States is 5th highest in the world in average monthly wages. 

That brings the top talent here to the U.S. and keeps them here. This talent is why 

we are the leaders in the world in innovation. 

2. I don’t believe our traditionally free domestic market economy abets this development. My question is what is the better alternative? Our economic model drives 

down prices on goods that are not interfered with via government or outside influences. Meaning, you can now get an iPhone 6 now for $260 or less on eBay and 

when it was released in fall of 2016, it retailed for $650. There is no interference 

LAP51NQ082 with DISTILLER

60 

in this market and thus it drives down prices. It then makes manufactures step 

their game up on the new models to drive people to the latest and greatest model. 

Then, when there is no longer a market here for these goods, international demand 

is extremely high across the board in various industries. Our problem in this country is what to do when old tech is no longer needed in our market. We at Relay 

Networks have a solution and that is to reach out to international customers that 

need the equipment for their market. Our greatest challenge is supply and getting 

business/schools to realize that once equipment comes out of service, they need to 

partner with companies like Relay Networks. We can then maximize the value and 

we can get them to the customers oversees to bring dollars back into our country. 

3. The biggest challenge domestically is that foreign customs fees/process or de 

minimis, prevents international customers from getting affordable access to goods 

from the U.S. We the U.S. are not that familiar with this as our threshold is $800 

here, but in other countries this is much higher. In Canada for example, the threshold is $20. This was set in 1985! The economy of the world has changed so much 

since then, yet Canada stays firm on this $20 threshold. Therefore, anything over 

$20 coming into the country has to go thru customs process and have a fee associated with it. In fact, in my testimony I refer to a Canadian reported who dived into 

the numbers and in fact the country losses millions of dollars a year just collecting 

the fees. What a waste and Canada should be our number one foreign customer as 

we are a half days drive from the boarder, but sadly they are not. We have lost 

deals because of this ridiculous threshold and process. 

RESPONSE FROM MR. NICK QUADE TO QUESTIONS FOR THE RECORD SUBMITTED BY

REPRESENTATIVE CAROLYN B. MALONEY

I represent a district that is one of the financial service and publishing capitals 

of the world—and so New Yorkers are very interested in measures that could help 

to strengthen and expand digital export opportunities for U.S. based businesses. 

I also agree with our witnesses that the world could be a more prosperous and 

more enlightened place if there were fewer barriers to the swift movement of data, 

goods, people and information. 

Placing arbitrary limits on how and where big data moves and is analyzed can 

slow the pace of innovation and just makes things more expensive. It’s inefficient and 

can act like a hidden tariff. 

And I find it to be unfortunate and short sighted of the government of China to 

block the site for The New York Times. 

But I also think that making the world of digital trade better—is not only a matter 

of knocking down barriers and regulations. 

Because—in some areas—the problem seems to be that regulations and agreements 

in place now are not being adequately enforced—Digital piracy overseas is hurting 

many U.S. businesses. 

And in other areas—needed regulation is either currently insufficient or lacking altogether. 

Take for instance—the protection of sensitive private information—like Social Security numbers. 

I am very concerned about the recent Equifax hack—which may become the most 

economically damaging hack in U.S. history. The hack involved the personal data 

of as many as 143 million Americans—including their names, addresses, birth dates, 

Social Security numbers, and in some cases their driver’s license and credit card 

numbers. 

That is nearly half of all the people in the country. 

And the Equifax hack also included the personal data of up to 44 million British 

consumers as well. 

If a bad actor has all that personal data about you—he can apply for credit cards 

in your name, take out loans, file tax refunds, even apply for government benefits. 

Or he can sell it on the dark web—over and over again—not just now—but for 

years to come. And he can sell it to people who will use it to commit cybercrimes 

that haven’t even been invented yet. 

The Equifax hack is the Irma of cyber hacks—and to make it even worse—it’s the 

third major hack of Equifax in less than two years. 

Unfortunately—failures like this by U.S. based companies can have a negative 

spillover on the reputational standing of other U.S. data exporters in the global market. In the past—the EU has expressed concerns about the sometimes-inadequate 

measures taken by U.S. companies to protect data privacy. 

The Europeans have claimed—and not without reason—that the U.S. does not 

guarantee a sufficient level of protection for European citizens’ personal data. 

LAP51NQ082 with DISTILLER

61 

Even before the Equifax affair—European concerns threatened to disrupt data 

flows between the U.S. and the EU. 

In 2015, the Court of Justice of the European Union invalidated a Safe Harbor 

Agreement that allowed personal data to be transferred with the U.S. 

Basically—the failures of some have hurt other innocent actors as well. 

The U.S. invented the internet—and this is an area where we should be the unquestioned leader. 

So—in light of the recent Equifax breach—my question to our witnesses is: What 

regulations, if any, should the Federal Government consider putting in place to protect consumer privacy—so that data sent to—or stored in the U.S. will be secure. 

What should our exporters do so that they are viewed as setting the standard? Where 

should our country set the bar—so that we are viewed around the globe as the leaders—not the leakers of the world’s sensitive private data? 

The issue of data security is important in regards to digital trade. Equipment and 

data are traveling outside the United States every second and this will continue to 

grow indefinitely. In terms of equipment; in 2014 the Department of Defense adopted National Institute of Standards and Technology (NIST) standards in place of 

their own standards. This move helped align DOD with civilian agencies so the result would be the same risk standards for all IT systems in terms of data wiping. 

NIST 800–88 is the accepted guidelines for media disposal and data erasure compliance. I have included a link to the NIST 800–88 publication: 

https://12382-presscdn-0–52-pagely.netdna-ssl.com/wp-content/uploads/nist-800– 

88.pdf 

RELAY NETWORKS SUPPORTS AND PRACTICES NIST STANDARDS

In this ever expanding cyber world threats will continue to evolve. The United States Government, according to public documents, spent $28 billion on cybersecurity in 2016 according to budget watch dog Taxpayers for Common Sense. However, 

according to Market Research Media on Oct. 2 2017 the Federal level would have 

to grow at 12% a year just to hit $22 billion in 2022. The United States fiscal budget 

is so vast that it is hard to pin down an exact figure for how much is spent on cybersecurity per year. We do know that the U.S. Government in FY 2017 had an $89.9 

billion IT budget. The question of the effectiveness of our efforts is really hard to 

answer because the amounts of spending for individual spy agencies are classified. 

Indeed Rep. Peter Welch said in 2015, ‘‘The top-line intelligence budgets for 16 Federal agencies are unknown to the American taxpayer and largely unknown to most 

members of Congress in spite of the strong recommendation by the 9–11 Commission that they be disclosed . . . ’’ 

We do know that in 2015 the Office of the Director of National Intelligence disclosed that the 2016 non-military intelligence spending request was $53.9 billion for 

FY 2016. FY 2013 individual agency budgets were reveled through the Washington 

Post via Edward Snowden. The Post reported that FY 2013 spy agencies, including 

Central Intelligence Agency and National Security Agency, were awarded $52.6 billion not including another $23 billion for military intelligence programs. How much 

these individual agencies are spending on cybersecurity we may never know and 

that includes members of Congress. We will just have to trust that these agencies 

are spending enough on cybersecurity as well cannot pin point a dollar amount in 

their budgets. 

RESPONSE FROM AMBASSADOR SEPULVEDA TO QUESTIONS FOR THE RECORD

SUBMITTED BY CHAIRMAN PAT TIBERI

Since World War II, the United States has been a world leader in path breaking 

technologies that have spread around the world. 

• Why do you think the United States leads the world in technical innovations and 

why many U.S. companies are leaders in the world markets? 

The U.S. has historically made the basic investments in research and development, infrastructure, and educational institutions necessary to create a platform for 

innovation. The internet itself came out of a DARPA project and it is no coincidence 

that our centers of venture capital funding and innovation surround strong institutions of higher education. 

• Do you think our traditionally free domestic market economy abets this development? 

Yes, the ability to conduct business efficiently across state lines allows for an 

economy of scale that helps our start ups grow quickly. 

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62 

• What are the biggest obstacles domestically to the digital economy and to the 

growth of U.S. digital trade? 

The digital economy is doing well domestically but it isn’t reaching everyone and 

we aren’t making the most of our domestic talent pool. Every high school should 

have computer science classes available for their students, every local chamber of 

commerce and community should encourage start ups in businesses serving the 

needs of working families and the sector in which their locality is competitive, and 

every small business should be connected to the internet and reaching consumers 

worldwide. The market alone will not get us there due to the difficult economics of 

building networks out to sparsely populated communities. 

RESPONSE FROM AMBASSADOR SEPULVEDA TO QUESTIONS FOR THE RECORD

SUBMITTED BY REPRESENTATIVE CAROLYN B. MALONEY

I represent a district that is one of the financial service and publishing capitals 

of the world—and so New Yorkers are very interested in measures that could help 

to strengthen and expand digital export opportunities for U.S. based businesses. 

I also agree with our witnesses that the world could be a more prosperous and 

more enlightened place if there were fewer barriers to the swift movement of data, 

goods, people and information. 

Placing arbitrary limits on how and where big data moves and is analyzed can 

slow the pace of innovation and just makes things more expensive. It’s inefficient and 

can act like a hidden tariff. 

And I find it to be unfortunate and short sighted of the government of China to 

block the site for The New York Times. 

But I also think that making the world of digital trade better—is not only a matter 

of knocking down barriers and regulations. 

Because—in some areas—the problem seems to be that regulations and agreements 

in place now are not being adequately enforced—digital piracy overseas is hurting 

many U.S. businesses. 

And in other areas—needed regulation is either currently insufficient or lacking altogether. 

Take for instance—the protection of sensitive private information—like Social Security numbers. 

I am very concerned about the recent Equifax hack—which may become the most 

economically damaging hack in U.S. history. The hack involved the personal data 

of as many as 143 million Americans—including their names, addresses, birth dates, 

Social Security numbers, and in some cases their driver’s license and credit card 

numbers. 

That is nearly half of all the people in the country. 

And the Equifax hack also included the personal data of up to 44 million British 

consumers as well. 

If a bad actor has all that personal data about you—he can apply for credit cards 

in your name, take out loans, file tax refunds, even apply for government benefits. 

Or he can sell it on the dark web—over and over again—not just now—but for 

years to come. And he can sell it to people who will use it to commit cybercrimes 

that haven’t even been invented yet. 

The Equifax hack is the Irma of cyber hacks—and to make it even worse—it’s the 

third major hack of Equifax in less than two years. 

Unfortunately—failures like this by U.S. based companies can have a negative 

spillover on the reputational standing of other U.S. data exporters in the global market. In the past—the EU has expressed concerns about the sometimes-inadequate 

measures taken by U.S. companies to protect data privacy. 

The Europeans have claimed—and not without reason—that the U.S. does not 

guarantee a sufficient level of protection for European citizens’ personal data. 

Even before the Equifax affair—European concerns threatened to disrupt data 

flows between the U.S. and the EU. 

In 2015, the Court of Justice of the European Union invalidated a Safe Harbor 

Agreement that allowed personal data to be transferred with the U.S. 

Basically—the failures of some have hurt other innocent actors as well. 

The U.S. invented the internet—and this is an area where we should be the unquestioned leader. 

So—in light of the recent Equifax breach—my question to our witnesses is: What 

regulations, if any, should the Federal Government consider putting in place to protect consumer privacy—so that data sent to—or stored in the U.S. will be secure? 

LAP51NQ082 with DISTILLER

63 

• We need comprehensive privacy protection legislation. The Clinton FTC and the 

Obama administration both called for improvements to our privacy laws and objections from industry kept it from happening. 

• Many of our best and largest firms have strong internal data protection practices and we should codify those best practices. 

• There is no reason that Equifax should have been able to hide the breach of 

their security for as long as they did and there is no reason that they shouldn’t 

have had in place protections to keep the breach from happening. But none of 

that is illegal today. They may face some after the fact investigation and penalties from the FTC but they won’t be the first and it is obviously not having 

a sufficient deterrent effect on future actors. 

What should our exporters do so that they are viewed as setting the standard? 

• Our exporters and importers of personally identifiable information should publicly report their privacy protection practices and continually upgrade those 

practices. 

• There are numerous rights that Europeans have now when American firms collect their data and bring it to the U.S. that Americans do not enjoy. The EUU.S. Privacy Shield protections for Europeans are a gold standard and our law 

should provide those same protections to Americans. 

Where should our country set the bar—so that we are viewed around the globe as 

the leaders—not the leakers of the world’s sensitive private data? 

• We are clearly the world’s leader in innovation and some attribute that to our 

flexible and relatively light privacy laws and practices. It is a balancing act and 

we do not want to kill the internet goose laying golden eggs. But if we do not 

recognize that big data and vague rules of the road are exposing everyday people to substantial harm, the American people will turn on our technology stakeholders in much the same way they turned on our open trade stakeholders. 

• These are really hard issues. People much more talented and capable than I 

have struggled with them for two decades. What we really need is open deliberation on potential solutions and a good faith effort at bipartisan cooperation 

and collaboration with true and meaningful outreach and engagement with the 

technology community of firms, civil society, and academics. 

RESPONSE FROM AMBASSADOR SEPULVEDA TO QUESTIONS FOR THE RECORD

SUBMITTED BY SENATOR AMY KLOBUCHAR

ECONOMIC IMPACT OF BROADBAND

Ambassador Sepulveda, I introduced the Measuring the Economic Impact of 

Broadband Act (S. 645) with Senator Capito. This bill would require the Department 

of Commerce to conduct an analysis of the effects of broadband deployment and 

adoption on the U.S. economy, including how broadband deployment and adoption 

impacts employment, education, job creation and population growth. 

• How could accurate, reliable data on the economic impact of broadband help 

make the case for investing in rural broadband? 

This is an excellent and necessary idea. It would shine a light at a granular level 

on what the digital divide is costing America. 

Broadband adoption and deployment are strong, but not strong enough. And for 

the millions of Americans it is failing, the immediate and long term costs are high. 

You and others have been working on these issues for years. Broadband providers 

are sensitive to criticism of their efforts and worry about having to compete with 

government or having competitors leverage government against them. We have to 

get past those fears and work together to understand the challenge at a granular 

level the way you propose and then attack it with policy scalpels and significant additional funding to ensure that we are not leaving rural and lower income Americans living in digital deserts. The market is not going to reach the left behind without policy incentives, mandates, or the allowance for the public provision of service. 

The longer we wait to address the challenge, the more inequality we will see. 

ADDRESSING BARRIERS TO INTERNATIONAL DIGITAL TRADE

Ambassador Sepulveda, you raised several points regarding barriers to digital 

trade across borders. The barriers you cited included data localization requirements, 

local content requirements, and data protection regulations. Additionally, privacy 

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standards are critical for protecting consumers. As noted, these types of trade barriers are not easily addressed by using traditional trade tools. 

• As we work on revising and updating our trade agreements, what alternative 

tools do we have, or should we develop, to address the types of trade barriers 

that affect digital trade across borders? 

Our strongest tools lie in structured engagement out of State, Commerce, and 

USTR with their counterparts overseas. The most challenging barriers to digital 

trade are not coming from our bilateral trade counterparts. They arise in China, 

Brazil, India, South Africa, Indonesia, and elsewhere. They are rooted in fear of 

technology and worries that their people are only consumers in the digital economy, 

not producers or profiting participants. 

We need to work with policymakers abroad to incentivize investments in local content development to help them preserve their culture. We need to work together 

across security teams to ensure that data stored outside of jurisdictions is not a 

mechanism for avoiding law enforcement. We also need to take a hard look at our 

privacy laws and regulations and update them for the digital age. And lastly, we 

need to model a new digital social construct that allows gig economy workers to port 

benefits across gigs, provides some form of wage insurance in lean years, and makes 

training and continuous skill development accessible, affordable, and rewarding. 

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