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S. HRG. 109–777

NOMINATION OF SUSAN C. SCHWAB

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

ON THE

NOMINATION OF

SUSAN C. SCHWAB, TO BE U.S. TRADE REPRESENTATIVE,

EXECUTIVE OFFICE OF THE PRESIDENT

MAY 16, 2006

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

on Finance ............................................................................................................ 1

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 4

ADMINISTRATION NOMINEE

Schwab, Hon. Susan C., nominated to be U.S. Trade Representative, Executive Office of the President, Washington, DC .................................................... 6

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 4

Prepared statement .......................................................................................... 33

Grassley, Hon. Charles E.:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 35

Schwab, Hon. Susan C.:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 37

Biographical information ................................................................................. 44

Responses to questions from committee members ......................................... 55

Smith, Hon. Gordon:

Prepared statement .......................................................................................... 99

(III)

(1)

NOMINATION OF SUSAN C. SCHWAB, TO BE

U.S. TRADE REPRESENTATIVE, EXECUTIVE

OFFICE OF THE PRESIDENT

TUESDAY, MAY 16, 2006

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:15 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Also present: Senators Hatch, Snowe, Thomas, Crapo, Baucus,

Conrad, Lincoln, Wyden, and Schumer.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Before we begin, let me explain why we are late

getting started. I thought we were going to vote on a judge right

at 10 o’clock, so it was more efficient to vote, then come over here.

Then I find out there are speeches going on, and we might not vote

until 10:25 or 10:30. So, I figured we had better get started. We

will try to keep the hearing going while Senator Baucus and I take

turns going over to vote.

Welcome, Ambassador Schwab. It is a pleasure to welcome you

to the committee. It has only been 7 months to this day that the

committee met to consider Ambassador Schwab’s nomination to her

current position as Deputy U.S. Trade Representative, so promotions happen very quickly here in Washington, DC. Congratulations for your being the lucky one for that to happen.

Since being confirmed to that position last November, Ambassador Schwab has been very busy. She has successfully concluded

trade agreements with Peru and Colombia, as well as the core

terms of the Softwood Lumber Accord with Canada, which I am

going to mention in just a moment, separately.

Ambassador Schwab has actively engaged in the development of

U.S. strategy in the ongoing negotiations of the Doha Development

Round and the World Trade Organization, and of course this is a

critical time for those negotiations.

We need to achieve substantial progress in a very short period

of time if we are to succeed in getting an agreement before the

trade promotion authority runs out next year.

As I have said so often and recently, I do not expect trade promotion authority to be renewed beyond June 30, 2007, even though

I favor it and I will promote that. But there is a trend in Congress

2

that I would say leans toward protectionist that makes the predictability of that extension very chancy.

I have been monitoring Doha rounds very closely. I have thought

long and hard about why we are not further along in those negotiations. One of my concerns is that unilateral preference programs

serve as an obstacle to advancing the negotiations.

For example, Brazil and India derive great benefits under our

generalized system of preference programs, or as we always refer

to them, GSP. They are also two of the countries most responsible

for holding up Doha negotiations.

Maybe they, and other GSP beneficiaries, feel that they do not

need a Doha agreement, since the status quo serves their interests

very well. Of course, this frustrates me.

As a result, I will likely oppose the extension of the GSP program, which is due to expire at the end of this year. If GSP is extended, I will work to see that the eligibility requirements are

tightened, so some countries can expect to be removed from the

program. I want to make clear that any extension of GSP will not

be a continuation of the status quo.

I hope that with this GSP termination looming then, Brazil,

India, and other beneficiary countries will work harder to see that

the Doha negotiations are concluded successfully.

I previously in this statement referred to the softwood lumber

agreement between Canada and the United States. I have expressed my disappointment in that accord to Ambassador Schwab.

In my view, it does not do much for the American consumer.

So looking ahead, I urge you, Ambassador Schwab, to make it a

priority to conclude negotiations with the Canadians on exit ramps

so that the terms of the accord can be set aside as soon as possible.

Apart from Doha, this is an exciting time in American trade, and

particularly in trade policy. We are about to commence negotiations

with two major trading partners, South Korea and Malaysia. These

negotiations will present new challenges, particularly in addressing

regulatory and other non-tariff barriers to trade.

I commend the governments of each of those countries for their

foresight. Robust trade agreements will bring about real market access liberalization, and that will invigorate their economies and put

them on a path to greater economic prosperity.

We also need to continue to encourage meaningful regulatory reform and other major trading partners, and I particularly mentioned Japan and China. I am confident that you, Ambassador

Schwab, will effectively meet each of the many challenges that you

will face as our next Trade Representative.

Everybody knows about your skill, experience, and positive energy, and it makes it very evident to me that you are the right person for the job.

I look forward to working with you to advance the President’s

trade agenda. I hope to see Ambassador Schwab confirmed to her

position as quickly as possible.

Now, Senator Baucus too thought we were going to have a vote.

I am sure that is why he is not here right now. But when he does

get here, I will break in to whatever we are doing so that Senator

Baucus can make his statement.

3

I want to introduce Ambassador Schwab at this point. Most

members of this committee recall earlier in her career, Ambassador

Schwab worked for a former colleague, Jack Danforth. Senator

Danforth had hoped to be here today to introduce Ambassador

Schwab to the committee, and unfortunately he is unable to do it.

So, instead, he wrote me a letter that I am going to read into the

record at this time:

‘‘Dear Chuck: Because I am hosting a Monday evening reception

in St. Louis, I cannot be present to introduce Susan Schwab to the

Finance Committee at her confirmation hearing. I would appreciate

your explaining my absence to the committee and conveying my enthusiastic support for her nomination.

‘‘On the strong recommendation of former U.S. Trade Representative Robert Strauss, I hired Sue in 1981 to be my legislative assistant for trade. She was deeply involved in every trade issue before the Finance Committee, and she played a key role in drafting

and passing the Trade Act of 1988.

‘‘The quality of her mind, her grasp of the issues, and her ability

to work with an array of parties, both in and out of government,

persuaded me to appoint her my legislative director. In that capacity, she further displayed her skills in working with a variety of

people, including others on my legislative staff.

‘‘I have remained in contact with Susan since she left my office,

as she has served as Director General of the U.S. Foreign and

Commercial Service, as Dean of the School of Public Policy at the

University of Maryland, and now as Deputy USTR.

‘‘For me, it is a source of great pride that early in her career she

served on my staff. I have no doubt that Susan will work well with

people at the highest level of the Bush administration and that she

will be an effective negotiator with our trading partners.

‘‘Even 25 years ago, I saw her acquit herself well with thenUSTR’s Bill Brock and Clayton Yeutter, and with officials of other

countries. She worked closely with Josh Bolton when he served on

the Finance Committee staff.

‘‘Besides being smart, knowledgeable, and experienced, Susan

has a quality that is critical for any position of public trust. She

is a good person with the best of motives, and the highest ethical

standards. Without reservation and with great enthusiasm, I commend her to the committee. Sincerely, Jack Danforth.’’

So, as he would welcome you to the committee—and he spoke

very highly of you—we are glad to read Senator Danforth’s letter.

Senator Baucus, I am going to turn to you now, if I can.

Senator BAUCUS. All right. You bet.

The CHAIRMAN. I explained that you and I thought they were

going to vote at 10 o’clock.

Senator BAUCUS. We did.

The CHAIRMAN. So I wanted to get the meeting started. So you

go through your statement, and then we will go to her. Then if we

could do like we usually do, I will go vote, or you go vote, and vice

versa, and we will keep the hearing going. Is that all right?

Senator BAUCUS. Sure. Yes.

The CHAIRMAN. Senator Baucus.

4

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

Ambassador Schwab, welcome back to the Finance Committee.

This is your third appearance since October, when this committee

held its last confirmation hearing on you. Of course, you have been

at this committee in other capacities prior to that.

When the full Senate considers your nomination, it will also be

the third time since October that Senators will vote on you. Indeed,

we liked considering you so much last time, we voted for you twice

for your current position. [Laughter.] I wonder whether the administration is trying to set a record for racking up the most confirmation votes in the shortest amount of time for a single nominee.

Ambassador Schwab, congratulations. I am sorry to see Ambassador Portman leave his job as Trade Representative, but I am

pleased that the President had the wisdom to place him with you.

Many of us have known you for many years. Since the early

1980s when you worked in the Senate for our colleague Jack Danforth, I have long appreciated the skill, wisdom, and energy that

you bring to the table.

You have already proved yourself an able trade negotiator by settling the longest-standing dispute with Canada over lumber imports. Man, that was a long one. We really thank you. If you can

resolve that one, I am confident that you have the mettle to tackle

the many difficult issues on your plate. I look forward to your

speedy confirmation as the 15th U.S. Trade Representative.

Transitions at Cabinet-level agencies are often disruptive, and

this transition certainly has not come at the best time, given ongoing trade negotiations in the World Trade Organization and elsewhere.

But transitions give us a momentary pause to reflect. They give

us an opportunity to think about where we are and the direction

we are heading. Frankly, I think we have reason to be seriously

concerned. Just 13 months before the expiration of trade promotion

authority, the Doha Round is sputtering.

Many of the administration’s free trade agreement strategies

continue to tear us apart instead of bringing us together. With our

huge and growing trade deficit, more and more Americans have

questions about whether America’s trade policy has really served

America’s best interests.

The time has come to begin the conversation about how we could

do a better job. You, Ambassador Schwab, will be a critical part of

that conversation. This conversation may begin today, but this conversation must continue intensively through the coming months.

There are many difficult questions for which we need answers.

Let me raise a few. First, what is our plan should the Doha Round

fail? Should the United States explore more seriously alternatives

to the WTO, such as deepened cooperation in a re-energized AsiaPacific economic cooperation? Should we begin to contemplate free

trade agreements with economic giants like Japan, India, and the

European Union?

Second, how do we get beyond disagreements about handling

labor issues in trade agreements? These disagreements dominate

partisan debate on most free trade agreements.

5

With fresh reports of labor abuses in Jordan, how can we address, meaningfully, American workers’ legitimate concerns about

competing with other countries that maintain substandard labor

practices? How do we do so in a manner acceptable to both political

parties?

Third, how can we tie trade policy more closely to the goal of enhancing America’s long-term competitiveness? How can we use

trade agreements to help shape domestic priorities in education, in

research, in innovation?

Fourth, is it not finally time to recognize, as a matter of national

policy, that popular support for trade depends on whether our government is willing to commit to help workers and industries that

trade leaves behind? I do not think we have done a very good job

there. Should we not be doing more through programs like trade

adjustment assistance?

These are not idle questions. The future of U.S. trade policy depends on how we answer them. Ambassador Schwab, the clock is

ticking on the government’s trade promotion authority, and it is

near time for the alarm to sound.

Unless and until we do some hard thinking and get some answers—good answers—I cannot imagine how the Congress will be

in a position to agree to a new grant of trade promotion authority.

So, let us start the process now. I look forward to working with

you, the Chairman, members of this committee, and others in finding those right answers.

Mr. Chairman, I have another page I want to read if I can on

a subsequent nominee, Mr. Basham.

The CHAIRMAN. Yes. Go ahead.

Senator BAUCUS. Mr. Chairman, I understand that as soon as we

get a quorum we will vote on the nomination of Ralph Basham to

be Commissioner of Customs. I want to say that I was very pleased

at his efforts to work with me and my staff over the last few weeks.

In particular, he has given me assurance that everything is on

track for standing up a Northern Border Air Wing branch in Great

Falls, MT. I worked hard to bring that base to Montana 2 years

ago, so I am obviously anxious to see this finally become a reality.

Mr. Basham has promised to work with me on the deployment

of the Air Wing, and I feel confident that he understands the challenges that Montana faces to secure our border.

I support his nomination and look forward to working with him

on this key Montana interest, as well as other national and economic security issues.

Thank you, Mr. Chairman.

The CHAIRMAN. All right. Why do you not go vote?

Senator BAUCUS. All right.

The CHAIRMAN. Ambassador Schwab, we will start with your

statement. Before you do, we always give nominees an opportunity

to introduce family and friends who have come to support them.

We would ask people to make themselves known as she mentions

you, if you have people here.

Ambassador SCHWAB. Yes, Mr. Chairman. Thank you very much.

I am pleased to be able to introduce members of my family, Gerald

and Joan Schwab, my parents, and Theresa Marshall, my sister,

6

and Ariel Viller, a good friend of the family. So I am delighted to

be able to introduce them today.

The CHAIRMAN. Thank you. Now, proceed with your statement.

STATEMENT OF HON. SUSAN C. SCHWAB, NOMINATED TO BE

U.S. TRADE REPRESENTATIVE, EXECUTIVE OFFICE OF THE

PRESIDENT, WASHINGTON, DC

Ambassador SCHWAB. Thank you, Chairman Grassley, Senator

Baucus, and distinguished panel members. Since you will allow me

to put the full text of my remarks in the record, I would like to

focus my comments this morning on some thoughts that have come

to me during meetings with various Senators on this committee.

I had the opportunity to introduce my family. I would also like

the opportunity to thank Rob Portman for his exceptional service

as U.S. Trade Representative, and for being my friend and my

mentor. Finally, I need to thank the USTR staff, among the smartest, most dedicated and hardest-working individuals serving our

Nation today.

President Bush made trade one of his top priorities in this administration. He entrusted this priority to two remarkable public

servants, Bob Zoellick and Rob Portman. Under their leadership,

the United States has returned to the negotiating table, has established U.S. leadership in multilateral trade talks, and has opened

new markets for American products and services.

The President’s trade agenda is a full one that, if confirmed, I

would hope to work closely with you to pursue. At this critical juncture in U.S. trade policy, we have a unique opportunity to establish

a trade legacy that we can be proud of as public officials and as

a Nation, a trade legacy that builds on a history of prosperity

through the negotiation and enforcement of trade liberalizing

agreements.

First up is the Doha Development Round of multilateral trade

negotiations under the WTO that you, Mr. Chairman, referred to.

We are approaching some key deadlines that must be met for the

U.S. Congress to approve any Doha agreement under the trade promotion authority legislation that expires next summer.

As you know, the U.S. has shown real leadership in our approach

to the negotiation in an effort to build some momentum for the

talks. We have shown the political will to deal, and now it is up

to others to do the same.

Next on the agenda are the bilateral and regional free trade

agreements that are either under negotiation or awaiting Congressional approval or implementation. In the last 5 years, Congress

has approved agreements with 12 countries.

Agreements with Oman, Peru, and Colombia are pending Congressional approval, and agreements with 11 more countries, including Korea and Malaysia, are in negotiation.

Through these agreements, we are able to set positive precedents

and to open new markets in concert with like-minded countries

that understand the benefits of free and fair commerce.

Enforcement of existing trade agreements is always on the agenda. For the United States to maintain an ambitious roster of market-opening trade agreements, we must show that we are just as

rigorous in enforcing our rights under these agreements.

7

U.S. trade law gives us a variety of tools to use to ensure that

trade under our agreements is both fair and free, and this administration has pledged to use these tools in the manner most likely to

accomplish the objective, whether with respect to China, Japan, the

European Union, Mexico, or, indeed, any of our trading partners.

Finally, we have a variety of other important activities associated with our trade agenda, from WTO accession negotiations and

PNTR approvals, to the question of extension and renewal of various trade preference programs, and ultimately TPA itself. It is a

full agenda and one that has the promise of benefitting our workers, manufacturers, farmers and ranchers, and service providers,

an agenda to further open markets to U.S. exports, generate more

productive and competitive U.S. industry, raise real compensation,

and build standards of living not just at home, but abroad as well.

Because happily, for those of us engaged in the trade field, trade

is not a zero-sum game. That trade can be a win-win is one of the

sure bets of international economics.

I believe that markets work, and open trade has a long and compelling track record of success. While the benefits of trade are not

always enjoyed equally, the outcome is generally better for all concerned.

In theory, nations of the world would be better off by unilaterally

opening our markets, but as a practical matter, for fair trade and

free trade to be more doable and to spread the benefits more broadly, we engage in trade agreements, and we enforce them.

This does not mean that we should neglect those few who are,

indeed, displaced by trade. Rather, we need to find ways to help

them that do not damage the trade development and growth interests of our economy.

Mr. Chairman, I like to get things done. I am a problem solver.

The most pressing problem we face in trade today has been the erosion of America’s traditional bipartisan support for open trade and

the pro-trade agenda that has so benefitted the United States since

the Eisenhower era.

If confirmed, I promise to continue the bipartisan approach to

U.S. trade policy embraced by the President and Ambassador

Portman, and by the first U.S. Trade Representative I worked for,

Bob Strauss. To this end, I will reach out, listen, and consult with

members of Congress on both sides of the Capitol and both sides

of the aisle.

In his State of the Union Address, the President warned of the

risks of economic isolationism and the importance of U.S. competitiveness. If confirmed, I will work tirelessly with you to fulfill the

vision of a world where the free flow of commerce gives people everywhere more choices, more opportunities, and more hope.

I look forward to hearing your thoughts and answering any questions you might have.

[The prepared statement of Ambassador Schwab appears in the

appendix.]

The CHAIRMAN. Thank you very much.

Three questions that we asked you just 9 months ago, I have to

ask again.

8

The first is, is there anything that you are aware of in your background that might present a conflict of interest with the duties of

the office to which you have been nominated?

Ambassador SCHWAB. No, Mr. Chairman.

The CHAIRMAN. Do you know of any reason, personal or otherwise, that would in any way prevent you from fully and honorably

discharging the responsibilities of the office to which you have been

nominated?

Ambassador SCHWAB. No, Mr. Chairman.

The CHAIRMAN. And, third, do you agree, without reservation, to

respond to any reasonable summons to appear and testify before

any duly constituted committee of Congress, if you are confirmed?

Ambassador SCHWAB. I will be happy to do so, Mr. Chairman.

The CHAIRMAN. Thank you.

I will start the questioning. Then when Senator Baucus comes

back, even if I am not done with asking questions, I am going to

have to run and vote.

The first question is, my concern about barriers that Mexico is

imposing on imports of U.S. agricultural products. For example,

Mexico continues to significantly impede imports of U.S.-produced

high-fructose corn syrup, despite NAFTA and WTO rulings that its

policies violate its international trade agreements.

I do believe that the Congress of Mexico, one house or the other,

has passed something in this area, but I do not know whether it

is through completely. But in addition to that, Mexico’s antidumping order on U.S. beef remains highly questionable. If confirmed, how will you ensure that Mexico’s barriers to these and

other agricultural products are removed?

Ambassador SCHWAB. Mr. Chairman, thank you. You ask a very

important question and one that I have had the opportunity to

work on in my tenure at USTR.

As you know, when I spoke of enforcement in my opening statement, we have had a lot of enforcement activities vis-a`-vis Mexico,

in particular in agricultural commodities. We have, as you know,

taken WTO cases and won cases against Mexico on high-fructose

corn syrup, their beverage tax, on rice, and on certain other commodities. Mexico has pledged to resolve those problems.

In addition, I would note that in the case of rice, the WTO panel

finding is one that could have, and should have, very good implications in terms of Mexico’s broader antidumping and countervailing

duty law and practices, which we consider to be, and the WTO considered to be, inappropriate in certain ways.

The administration of President Fox is committed to resolving

these problems, and you can be certain that, if confirmed, I will

work to make sure that happens.

You mentioned beef. That is another issue. You are correct, after

the sunset review, Mexico decided to maintain its antidumping duties on U.S. beef exports, and we will be working on that.

I would note that Mexico has, however, allowed the importation

of beef from the United States, in spite of the BSE scare. So, we

have made progress with Mexico on that front.

The CHAIRMAN. Yes. I think I am going to reserve my two minutes and twenty seconds and ask Senator Thomas to go ahead with

his questions. Then when Senator Baucus comes back, he will be

9

next in line for questions and he will operate the committee while

I am gone. But I am just going to go over and vote. So would you

go ahead, please?

Senator THOMAS. So I will temporarily be in charge. Is that it?

The CHAIRMAN. Yes, I am asking you if you would be.

Senator THOMAS. Yes. Thank you.

Welcome. I am sorry. Voting interrupts our life around here. But

I am glad to have you here and look forward to your confirmation.

As you know, Wyoming is involved quite a bit with soda ash

trade. In Brazil, there is a high tariff or tax against imports, even

though their own is very low. It seems as if this is in violation of

the General Agreement on Tariffs and Trade.

What could you say or do about this Brazilian trona problem?

Ambassador SCHWAB. Senator Thomas, thank you very much. I

am very much aware of the problem that Wyoming and other U.S.

high-competitive soda ash producers are facing in Brazil. We are in

the process of looking to see exactly what the situation is in terms

of the value-added tax and tariff situation to see whether there is,

in fact, a good case to go forward with.

Senator THOMAS. Good. It seems in trade, some of the smaller

commodities get funny ideas going on with them. I guess people

think they are not important, but they are important to the people

who are impacted, of course.

Ambassador Portman testified that we are seeking real cuts in

tariffs that apply to both developed and advanced developing countries. Is it still the position of the U.S. Government that we should

not accept a final Doha agreement that does not result in substantial reductions in industrial tariffs?

Ambassador SCHWAB. Senator, Ambassador Portman and those

of us who have been involved in our Doha strategy feel very good

about the approach that we have taken up to this point. We have

been very forthcoming, forward-leaning in terms of our agricultural

offer that was put on the table last fall and in terms of what we

have indicated we are prepared to do on industrial tariffs as well.

These two areas, plus services and a variety of other areas in the

Doha Round negotiations, should be pursued for a successful conclusion that results in real new market access opportunities. I

think that is the critical point here, that we are not talking about

paper cuts, we are talking about new opportunities for trade.

With that, with those new opportunities for trade, the potential

for adding to global economic growth and U.S. economic growth is

most pronounced and, I might add, particularly important for developing countries.

Senator THOMAS. Yes. Services account for 80 percent of the U.S.

economy, but only 20 percent of our global trading. I guess you

have alluded to it, but what are we doing to make sure that the

Doha Round reduces the barriers in other markets for our companies and our employees?

Ambassador SCHWAB. The services component of the Doha Round

is a major priority for us, as you know, along with agriculture and

non-agricultural market access issues. The services negotiations

are on a somewhat different track.

As you know, there were collective requests put forward in February, and there are offers due at the end of July. There are clusVerDate 11-MAY-2000 14:29 Jan 29, 2007 Jkt 095484 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 32350.000 SFIN1 PsN: SFIN1
10

ters of countries, like-minded countries, that are interested in particular sectors to see opening.

So, those negotiations are rather different from the agriculture

and non-agricultural market access negotiations where you have

formulas that you are dealing with, but they are no less important,

and we will continue to pursue them.

Senator THOMAS. What do you see, generally, in terms of trade

negotiations? Do you see us working through organizations or do

you see us doing individual country-to-country negotiations?

Ambassador SCHWAB. That, Senator, is a very, very good question. I believe that the current U.S. policy, which is running the

multilateral negotiations through the Doha Round parallel with

our bilateral and regional negotiations, is absolutely the right formula. These multilateral trade rounds are very complicated and

take many, many years to pursue. You get one a decade, one a generation, basically.

In the case of the bilateral and regional agreements, when there

are like-minded countries that really want to go beyond what we

are able to do in a multilateral context, we are able to set precedents, we are able to create allies for free trade in subsequent multilateral negotiations, so having those run in tandem works very,

very well for us. In terms of the bilateral and regional agreements,

there are obviously both economic and commercial rationales, and

geopolitical reasons for pursuing those.

Senator THOMAS. That is good. It just appears sometimes that

the issues become something other than trade assistance, and it

seems like we ought to be trading with people who want to trade.

That would be the best result.

Let me stop and pass it over to Senator Conrad.

Senator CONRAD. Thank you, Mr. Acting Chairman.

Welcome.

Ambassador SCHWAB. Thank you, Senator.

Senator CONRAD. It is good to have you here. I enjoyed our visit

the other day.

Let me just use a couple of charts here to illustrate my concerns

about what is happening.

First of all, this shows what happened after NAFTA. Before NAFTA, we had an almost $2 billion trade surplus with Mexico.

We now have a $50 billion trade deficit with Mexico.

China. The pattern is much the same. In 1985, we had a $6 mil- lion trade deficit. That is now up to over a $200 billion trade deficit

with China for 2005. It is really pretty stunning.

And this is the overall U.S. trade deficit and the pattern of it

going back to 1992 when we almost were in balance, to today,

where we had a trade deficit last year of $726 billion.

Is this a successful trade policy, in your judgment?

Ambassador SCHWAB. Senator, I think that our trade policy has

been successful. I think one has to be careful how we look at these

numbers. Yes, we have a very large trade deficit, no question. You

will note from my written statement, there are questions about

sustainability. That said, the $726 billion trade deficit last year is juxtaposed

against a 3.5 percent GDP growth rate, unemployment of 4.7 percent. In fact, during the course of the year, unemployed declined

11

from 5.1 to 4.7 percent. We are talking about increases in real compensation that have taken place during this period of time.

So, there are a variety of underlying economic data points that

would tell you that this trade deficit, while large, can indicate

something else going on in the economy. As you know, very little

of our trade deficit can actually be tied to trade policy.

So much of it has to do with broader macroeconomic factors having to do with different rates of growth between countries, having

to do with different savings and investment rates.

I would note also, you mentioned NAFTA and China. In the case

of NAFTA, I think it is worth noting that during the time in the

last 10, 11 years since the Uruguay Round and NAFTA came into

effect, that during this period of time U.S. industrial production

has grown faster than the 10 years prior to NAFTA, that the unemployment rate has been less in the last 10 years prior to

NAFTA.

We can talk about China at some other point as well, but I think

it is worth noting that there are a lot of statistics that one can look

at and think about in terms of juxtaposing the trade deficit and

other things that are going on in the economy that are very strong.

Senator CONRAD. My own view is, if this is a success, I would

hate to see a failure. To me, we are on a course that is utterly

unsustainable. It took 42 Presidents 224 years to run up $1 trillion

of U.S. debt held by foreigners. In the last 5 years, that amount

has been more than doubled. So to me, it is clear that this is an

utterly unsustainable course.

When I hear you talk about unemployment and growth, and

those things are all obviously goals, but when it is financed by this

extraordinary borrowing, which is really unprecedented in the history of our country, it tells me we are just on the wrong course.

Let me just say this. It reminds me very much—in my previous

life I was tax commissioner of my State. I had a fellow come in that

owed the State a lot of money. I asked him how he was doing in

his financial life, and he told me everything was going well.

As I probed a little, I found out that he had maxed out every

credit card, and he had multiple credit cards. I found out he had

borrowed against his home equity line the maximum amount. I

found out that he had borrowed from his parents, he had even borrowed from his in-laws. And he thought everything was going well.

This kind of reminds me of where our country is. We are running

massive trade deficits, massive budget deficits. We are borrowing

money from every country around the world. We now owe the Japanese almost $700 billion. We owe the Chinese more than $250 billion. We owe the Brits $250 billion. We owe the Caribbean banking

centers almost $100 billion. And everything is going well? I do not

think so. I think this is a losing strategy.

I would just ask you this specific question. The former Director

of Economics at the ITC, who is currently a professor at the University of Maryland where you used to be, recently released a

paper on trade policy. He argues, ‘‘our current trade deficit taxes

economic growth.’’

He concludes that, ‘‘our out-of-control trade deficits over the last

10 years have cost this economy $1.7 trillion in economic activity.’’

He argues, ‘‘our current approach cannot succeed in reducing the

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trade deficit. Instead,’’ he says, ‘‘negotiating international rules

that prohibit countries from currency manipulation should be the

primary objective of the United States.’’

What do you think about that question of dealing and aggressively going after those who manipulate their currencies for trade

advantage?

Ambassador SCHWAB. I should begin, Senator, by noting, having

spent the last 10 years of my career in academia, you will find

economists who will articulate any number of data points and assertions.

I would say in this particular case, there is compelling evidence

that an open trade policy and that trade liberalizing agreements

really have contributed positively and profoundly to the U.S. economy.

By one estimate, I think the Institute for International Economics, the trade liberalizing agreements that we have negotiated since

the second World War have added probably $1 trillion to our economy. That is a very, very important number that translates into

$9,000 or so per family of four.

So I think that when you are talking about our trade policy, you

are talking about a variety of tools and a variety of issues. You

mentioned savings and consumption rates. You are absolutely

right. Those are critical, and have a critical impact on our trade

balances.

Senator CONRAD. How about this question of currency manipulation?

Ambassador SCHWAB. You asked about currency manipulation.

Let me note that while that is in fact a key component, an influence on our trade deficit, it, in turn, is influenced by a lot of the

macroeconomic factors I described, and I would defer to the Treasury Department on this issue.

Senator CONRAD. My time is up.

Senator BAUCUS. Thank you, Senator.

Ambassador, frankly, my eyebrows raised up when I heard you

say that the current account trade deficit, for example, is due to

larger macroeconomic issues. I inferred that to mean, more than it

is due to trade laws.

That caught my attention because, clearly, your job is to address

the trade barriers that do occur, and they are very significant, to

address the phenomenon that Senator Conrad addressed, the very

real problem.

For example, countries are not taking American beef. They are

foot-dragging. Even in China. At the JCCT talks they said, yes,

they will take more of it, now they are foot-dragging. Mexico has

got an antidumping duty now on beef going into Mexico. Japan continues to ban U.S. beef.

So, could you tell us today what you would do, if confirmed, to

get those countries to play fair, to abide by scientific standards, not

political, parochial pressures in their own countries?

Ambassador SCHWAB. Senator Baucus, you have my absolute

commitment to enforcing U.S. trade agreements and to pursuing

the elimination of foreign barriers to our exports. As you know, my

first job was at USTR as an agricultural trade negotiator.

13

Ironically, my first negotiation was with the Japanese, trying to

open the market for U.S. beef exports. In 1977, we had less than

$77 million worth of U.S. beef being exported to Japan. That number, by the year 2003, before the first BSE cow was identified here,

that number had grown to $1.4 billion. We still have a lot of work

to do. You mentioned Japan, China.

Senator BAUCUS. How about these countries who are not taking

American beef today, 2006?

Ambassador SCHWAB. Absolutely. Absolutely. Korea, as well.

These are countries——

Senator BAUCUS. So what are you going to do about that?

Ambassador SCHWAB. We are, as you know, in negotiations or in

discussions with each of these countries. They are all at a different

stage. In each case, the common denominator, as you point out, is

having a scientifically based mechanism, OIE-based standard for

accepting beef from the United States.

In the case of Korea, in the case of Japan, these negotiations

have been going on, recognizing that each country has a right to

protect the health and safety of its citizens. The Department of Agriculture has been very actively engaged in this. We have a team,

I believe, in Japan this week, in Korea next week, working with

their——

Senator BAUCUS. Words generally do not do it. What leverage do

we have with these countries?

Ambassador SCHWAB. Well, in the case of Korea, for example,

prior to the identification of a BSE cow in the United States, we

had used the WTO and our rights under the WTO to get the Koreans to open their beef market. So, that is one example. The bottom

line is, we need to be prepared to use all of the tools in our arsenal

to get the job done.

In the case of sanitary and phytosanitary issues, we walk a very

sure line in terms of making sure that scientifically based standards to determine what imports of beef can and cannot be allowed

will get us to the point where the United States will be able to export beef to these markets.

Senator BAUCUS. You have a lot of experience. But as we all

know, in life it is deeds, not words, that count. You will be getting

the job as USTR, and the world is going to be watching you to see

how successful you are. Not words, deeds. So, this is a real opportunity to address those who are watching. I just encourage you to

get results right away in lots of areas.

I would also tell you that the Congress will work with you to try

to help you get those results. For example, if, creatively, you see

a way of working together to get these countries to legitimately, as

they should, take American beef, then work with us. I am saying,

be creative, now.

Say, if the president of Korea is coming over, it might make

sense if we could orchestrate letters, a floor debate, or something,

about Korea not taking American beef, for example. There are

ways to do things here.

But my main point here is, you are starting fresh. It is a halo

effect. First impressions count. You have an opportunity here to

really get some results, and you will find this Congress, I am quite

14

certain, wanting to help you, because, after all, it is good for the

country.

Ambassador SCHWAB. Senator, you have my commitment. We

will take those opportunities. At the most recent JCCT meeting

with the Chinese, we made some real progress with respect to beef.

As it happens, Prime Minister Koizume will be coming to Washington in the not-too-distant future.

Senator BAUCUS. Good luck.

Ambassador SCHWAB. Thank you.

The CHAIRMAN. Before I call on the next participant, could I back

up what Senator Baucus said and tell you what my gut feeling is?

There is no doubt that everything you said, you intend to do. You

will probably work very hard at doing it, and you are probably very

successful at what you do.

But the frustration that Senator Baucus expresses, and I sense

from my constituents, is that the message that you send to us and

what you are trying to do—I should say, not you as a person, but

your agency—does not come through to the American people that

we are really tough.

It leads me to believe—and maybe you have to be in your business—that you are too diplomatic. People that negotiate are too

diplomatic in how they approach these problems that the average

working man and woman in America sees, and they see that we

are not doing enough to protect our interests.

So I would urge you to be just a little more hard-nosed, not only

in your negotiations, which you probably are anyway, but signal to

the American people that you are hard-nosed, so the American people feel that their government is actually looking out for their interests, and they see it expressed rather than in an implied sort

of way that never really comes through. I hope I am saying the

same thing Senator Baucus said. I do not know whether I am or

not.

Senator BAUCUS. Mr. Chairman, you are the chairman. You are

saying the same things I am saying. I am just teasing you.

The CHAIRMAN. I was gone. Now, was Senator Conrad the next

person?

Senator CONRAD. I am done.

The CHAIRMAN. You are done? All right.

Then Senator Snowe.

Senator SNOWE. All right. Thank you. Thank you, Mr. Chairman.

I want to welcome you, Ambassador Schwab. I am glad we had

a chance to talk the other day on a variety of issues. First and foremost, I want to applaud your efforts on what has been accomplished thus far, and keep our fingers crossed for reaching the

goals on the softwood lumber agreement, hopefully solidifying a

permanent resolution to what has been a 25-year endeavor.

So, I just want to express my appreciation to you for your hard

work on this longstanding dispute with Canada that has ultimately

resulted in the loss of thousands of jobs in my State of Maine, of

course, and in so many parts of the country.

So, I just wanted to express not only my appreciation, but also

to learn more from you about what you expect the time table to be,

what the remaining impediments are, and what is necessary to solidify this agreement once and for all.

15

Ambassador SCHWAB. Senator Snowe, thank you very much for

asking that question. A lot of work went into the recent agreement

between the United States and Canada on softwood lumber. As you

note, this is a problem that has been with us and has been litigated

on and off for over 24 years.

We reached an ad referendum agreement last month, and now

all the details are being worked out. We hope to get it done as soon

as possible, within the next few weeks, to lock it in and have a

final signed document.

There are consultations going on, obviously, on a day-to-day basis

with the Canadians, and on each side with our respective industries to make sure that we put in place a workable solution.

But the agreement, as you know, is very market-based in terms

of its structure and is designed to address the problems that our

industry faces at the low end without disrupting and unduly burdening consumers of lumber.

Senator SNOWE. I appreciate that. I also appreciate being kept

informed on its progress, because I do think it will be a milestone.

It is sort of one of the little bright lights on all the trade-related

issues that we have had, and disputes in this country, particularly

in my State, being hard hit by imported lumber that has been subsidized by the government, and on so many fronts, too, not just in

the lumber industry. So, this will be a welcome resolution after almost a quarter of a century.

As the Chairman expressed, I think that you certainly note the

sense of frustration that we have with our government, the agencies, your office as well, in general, about some of the issues in enforcing our trade laws.

I know that my State has been affected and victimized by the

loss of thousands of jobs by inequitable treatment, the lack of a

level playing field, and unfair trade practices or barriers that affect

our ability to export to particular countries.

One of the areas that is critical is the effectiveness of our trade

laws that are being undermined, I think, as well by the dispute

resolution mechanisms in both NAFTA and the WTO.

Do you have any thoughts on those mechanisms and what we

can do to improve them, the configuration? I mean, it so often

works against us. I know, the lumber dispute was a good example

of that as well, and some of the issues that they handed down with

respect to that conflict.

Ambassador SCHWAB. Let me begin, Senator, by addressing your

broader point, which is the fundamental point of enforcement, because you made that point very eloquently, both in our meeting

and just now. Just to reiterate, I believe and am committed, and

this administration is committed, to enforcement of our trade laws

and trade agreements.

I believe that we cannot be negotiating and expecting enactment

of new trade agreements unless we are credible in terms of how we

enforce them. So, you have our commitment, and we will go forward and make sure that that happens, regardless of the product,

regardless of the country.

You ask about the dispute resolution mechanisms. Those dispute

resolution mechanisms, as these things happen, sometimes cut for

us, sometimes cut against us. If you actually look at a roster of

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cases that we have brought over the last 10 years since the WTO

and NAFTA came into existence, you discover that we have won,

settled, or resolved more cases than we have lost.

It is important, though, that we make certain that these dispute

resolution mechanisms are also credible, that they are fair and that

they are credible. I would be more than happy to look to see what,

if anything, should be done to make sure that they are fair and

credible in terms of their execution.

Senator SNOWE. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Snowe.

Now, I have Hatch, Lincoln, and Wyden. So I am going to call

on Senator Lincoln. Was Senator Wyden here first?

Senator LINCOLN. He can go first.

The CHAIRMAN. Well, you are very fair, Senator Lincoln.

Senator WYDEN. Thank you, Mr. Chairman.

Congratulations to you, Ambassador. You said to Senator Conrad

that unemployment is down, productivity is up. But what we did

not add is that middle-class folks are not getting ahead. Their

wages are stagnant. They have not seen any progress there.

The Federal Reserve noted, for the first time in years, that middle-class families are not even increasing their net worth. A lot of

those middle-class folks come to us and say that trade is a big part

of the reason they are not getting ahead.

Now, I have suggested to you, both publicly and privately, some

ways to expand the winner’s circle so that middle-class folks see

trade policy as a tool for them to get ahead. But so far, no action.

What is going to be done in your office on your watch to use

trade as a tool to help those middle-class folks, who are now living

paycheck to paycheck, actually enjoy some of the fruits of the economy?

Ambassador SCHWAB. Senator Wyden, you have spoken eloquently about this issue, and you know that it is a matter of concern to me, this disconnect between the successes from trade and

the apparent perception that trade has hurt the economy.

I certainly am committed to doing everything that I can, whether

it is through the bully pulpit or through other mechanisms that I

have described to you, and will describe now, to get the word out.

I think that there are some compelling statistics that can be used

and some compelling messages that can be delivered.

In my first conversation with you, before the Senate Finance

Committee considered me for my current position, we talked about

this. You said, what are you doing? One of the things we did subsequent to that is, we sat down with the Advisory Committee for

Trade Policy Negotiations (ACTPN), which, as you know, is the

highest-level advisory committee that we have on trade policy and

negotiations, and asked them to make sure that the companies that

are engaged in the ACTPN and the other groups, whether it is the

Business Roundtable, the Emergency Committee on American

Trade (ECAD), or the National Association of Manufacturers, those

groups, make sure that their member companies get the word out

to their employees.

17

Senator WYDEN. Ambassador, with all due respect, because I

need to get into another area, this is not a question of getting the

word out. What we need to do is take concrete steps.

As you know, I suggested, for example, even on a voluntary

basis, when companies get tariff reductions, which has been a key

part of the trade agreements, that we urge those companies, even

voluntarily, to give a portion of those tariff reductions back to the

workers.

So I know we are going to talk about it privately some more. I

appreciate the fact that you are all trying to get the word out. But

that is not what I am looking for.

I am looking for concrete ways, such as I have suggested to you,

to broaden the winner’s circle so that we see the middle-class folks

getting something out of trade agreements where, frankly, I take

a lot of heat for voting with folks like you to put them in place.

Let me ask you about one other area, and that is ending the

Arab League boycott of Israel. This has been a key issue for the

entire U.S. Senate. It is a harmful trade practice. The United

States ought to take every opportunity in trade agreements and bilateral negotiations to end the boycott.

During session negotiations at the World Trade Organization,

the Saudi’s assured the Secretary of State they would apply most

favored nation status to all WTO members, including Israel.

But the fact is, we still have this problem. It seems to me that,

again, you all put out these statements: ‘‘Saudi Arabia is legally obligated to provide most favored nation treatment to all WTO members; any government-sanctioned activity on the boycott would be

a violation of the Saudi Arabia obligations.’’ So you put out all

these statements, but when it comes to action on the boycott issue,

again, you have been all wind-up and no pitch.

So my question to you is, if you are confirmed here, what specific

steps would you take to ensure that Saudi Arabia finally—finally—

stops getting a free ride and meets its obligations?

Ambassador SCHWAB. Senator, the issue of the Arab League boycott of Israel is one that is very important to our office, and to our

Nation. I would note that we have made a lot of progress on this

in the last several months and several years.

As you mentioned, in the case of Saudi Arabia, as part of their

accession to the WTO, they took on the obligation as a WTO member not to discriminate against trading partners, other members of

the WTO. They have done that.

In our free trade agreements, we have also ensured that, whether we are talking about the primary, secondary, or tertiary aspects

of the boycott—and we can talk about those in specific if you would

like—that those are not applied.

In fact, I would suggest that there is a Jerusalem Post article

today on this very topic, on how the boycott really is increasingly

a thing of the past, because so many of the countries that we trade

with are simply not applying the boycott.

In the case generally, we continue to monitor, on a regular basis,

issues or potential issues related to the boycott. We have teams

that go into the region. When there was the last accusation that

the Saudis had not, in fact, renounced the boycott, we sent a team

to Saudi Arabia. We have made sure that these issues are adVerDate 11-MAY-2000 14:29 Jan 29, 2007 Jkt 095484 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 32350.000 SFIN1 PsN: SFIN1
18

dressed, and, in fact, appear annually in our National Trade Estimate report.

Senator WYDEN. My time is up. I just want to be clear. My understanding is, the Saudi government has said that the kingdom

intends to maintain the boycott, despite WTO membership. Is that

incorrect?

Ambassador SCHWAB. That is incorrect.

Senator WYDEN. All right.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Wyden.

I have Senators Hatch, Lincoln, and Crapo left. So, Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

Ambassador Schwab, I certainly appreciate your taking time to

meet with me last week. As I expressed in our meeting, I am particularly interested in the ongoing WTO Doha Round. Our hope is

that, in the next several months, you will be able to heavily draw

your attention to its progress.

I tried to make aware to you then, and will again now, that my

constituents are very concerned about what they have to give up

in hopes for their market access. They have experienced that in the

past, and similar to the concerns, I think, that Senator Snowe expressed in terms of the remedies that they have.

I believe the Chairman mentioned Mexico, which we talked about

at great length last week. That is probably the most recent example of access that is not materializing under previous agreements.

Our growers are finding themselves, obviously, caught in this situation where two cases that have already been denied, and now a

third one is being brought against rice producers.

So I hope we just have your commitment that resolving this matter will be a priority. I mean, this is a huge issue for us, as Senator

Wyden and others have mentioned.

For us to be able to continue to be supportive of your efforts in

opening up free trade, we have to have the support of our constituency. It is definitely waning now because people are not seeing the

support that they need in the remedies, concerns, and problems

that they are seeing from negotiated agreements.

Ambassador SCHWAB. Senator Lincoln, you have my commitment

that this will continue to be a high priority for USTR and, if confirmed, for me as our Trade Representative.

Senator LINCOLN. We appreciate that.

The other thing that is similar in nature is, obviously, that domestic support for agricultural producers is critical, and the administration has, on multiple occasions now, indicated that it is not

going to be supportive of domestic programs for our producers,

whether it is emergency assistance or whether it is the programs

themselves.

With that considered and thinking of the agreement that was

laid on the table last summer by USTR, do you intend for the U.S.

to reduce its offer to cut domestic supports in response to a lessthan-acceptable market access offer?

Ambassador SCHWAB. Senator Lincoln, you ask a very important

and timely question. We are, as you know, in the last several

weeks, several months of the Doha negotiations, if we are to get

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it done in time to see enactment of the Doha Round agreement for

the United States using trade promotion authority that expires

next summer.

We did, as you mentioned, put out a very ambitious, very forward-leaning agricultural proposal last fall. It was a proposal, and

is a proposal, designed to prompt equally ambitious responses from

our developed country trading partners, the EU, Japan, and others,

as well as advanced developing countries.

As you know, agriculture, if you look at the potential benefits

from trade-liberalizing agreements, so much of it goes to agriculture. The elimination of agricultural trade barriers, opening of

market access, elimination of export subsidies, disciplining of domestic support really can have a fundamental impact and great

benefit for our farmers and ranchers.

Senator LINCOLN. If it all happens.

Ambassador SCHWAB. Exactly. Assuming we have a robust outcome. The proposal that we put on the table was conditional on a

robust outcome, an ambitious outcome to the Doha Round, and we

are still in negotiations on that. It is premature to speculate what

we will do, but your message is well-taken.

Senator LINCOLN. So I am to assume that perhaps if there is not

a robust response from these others, then hopefully our Nation will

be willing to reduce that offer, or certainly stand for our producers

in whatever negotiations would be forthcoming after that.

Ambassador SCHWAB. Let me suggest, it is premature for me to

answer that question. I certainly take your point. We still are seeking an ambitious and robust outcome.

Senator LINCOLN. Just a couple of other things. I know that the

U.S. has consistently called for a single-undertaking approach to

the Doha negotiations and no early harvest. I am hoping that we

still remain strong in that.

Ambassador SCHWAB. Senator, absolutely.

Senator LINCOLN. Particularly in regard to cotton.

Ambassador SCHWAB. I was going to say, Senator, that is a very,

very important point. I hope that the developing countries that

gain so much—for example, in the ministerial meeting that took

place in Hong Kong in December, whether it is on cotton or dutyfree/quota-free—I hope that they all understand that if there is no

successful Doha outcome, none of these things come to pass. The

single undertaking means everything, and everything together.

Senator LINCOLN. Great. I just want to also echo Senator Snowe’s

comments and compliment your skills as a negotiator, and the

dedication of your negotiating team that I think provided the essentials in bringing about the terms of the possible lumber agreement. I know that we still have a few miles to go on that, but I

appreciate the hard work that you put into that.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Lincoln.

Senator Crapo?

Senator CRAPO. Thank you very much.

Ambassador, welcome. I was going to go into the softwood lumber

agreement and congratulate you as well, so let me just add my

comments to those of the Senators who have already done so.

20

I would like to move on to another issue that is very important

to me, and that is the rules negotiations that are going on in the

Doha Round.

The Senate, I think, has made it pretty clear, at least as I understand the mood around here, that we cannot sign on to an agreement that weakens the antidumping or countervailing duty laws.

But I am concerned that I am not seeing that the United States

has put forward a sufficient counter-balancing proposal to strengthen those laws. I understand that the U.S. has proposed two or

three changes that would strengthen the laws, and that there are

something like 150 other proposals to weaken them from other

countries.

It is also my understanding that the U.S. is considering tabling

proposals to accomplish this strengthening, but those seem to be

tied up in the inter-agency process. I am not exactly clear on just

where we are in terms of the United States’ strategy to maintain

a strong set of rules, particularly in the antidumping or countervailing duty arena.

Could you tell me where we are and what the U.S. strategy is

going to be in that regard?

Ambassador SCHWAB. Senator, in the rules negotiations in the

Doha Round, those have gotten, as you know, somewhat less

pressed, less focused than agriculture and the industrial negotiations, manufactured goods, and services. The rules negotiations are

very, very important. We have made a point of not just having a

defensive agenda, but that we needed an offensive agenda.

There are, for example, key elements of transparency that we do

not find in other countries’ antidumping and countervailing duty

laws that we are insisting we need to find, whether it is with the

EU or some advance developing countries. Where that transparency is not there, the kind of transparency that we have in our

own laws, we need to see that in other countries.

So that is an example of the kind of approach that we are taking

in the rules negotiations. We are well-aware of the sensitivities and

the importance of maintaining the fundamentals of our antidumping and countervailing duty laws.

Senator CRAPO. Well, thank you. And you and I have talked

about this before, and I am sure we will talk about it again. I just

want to be sure that the U.S. has a very strong offensive position

there as well, and I appreciate your attention to that.

One other area, just because our time is short, I wanted to jump

into, and that is food aid. As you know, U.S. farmers and ranchers

produce safe, nutritious, and abundant supplies of food. Our domestic food resources should continue to be utilized for humanitarian

purposes.

As the WTO negotiations continue, I encourage you to stand

strong in maintaining the U.S. in-kind food aid system and not to

let it be eroded into a cash-only type system. Do you agree, and

what are your plans in this regard?

Ambassador SCHWAB. Senator, food aid has come up on a number

of occasions during the course of these negotiations. The United

States is committed to maintaining a food aid program that includes in-kind. We need to be responsive when there are emergencies.

21

Examples of cash-only food aid are not examples we would emulate. In fact, where you see countries that have gone to cash-only,

in many cases their contributions to food aid have gone down rather than increasing.

We are conscious that we need to avoid a food aid program that

results in commercial dislocation. That is something that we are

looking at in the context of the negotiation.

I will be working very, very closely with Secretary Johans and

others at the Department of Agriculture to make sure that the fundamentals of our Food Aid program are intact, and that we keep

the in-kind portion of that.

Senator CRAPO. Well, thank you very much.

I just would like to conclude by, again, thanking you for your excellent work on the softwood lumber agreement and in the many

other areas where you are working so hard and so aggressively to

maintain and protect a strong U.S. posture in these negotiations,

and I look forward to working with you.

Ambassador SCHWAB. Thank you, Senator.

The CHAIRMAN. We are going to have a second round, if people

want it. Senator Baucus wants it, I want it, and other people can

participate if they want to. I am going to have seven minutes and

twenty seconds, because I reserved two minutes and twenty seconds from the first round.

Senator CONRAD. Object. [Laughter.]

The CHAIRMAN. All right.

Senator BAUCUS. And we are going to be watching the clock very

closely, Mr. Chairman, go down to the seven-twenty. [Laughter.]

The CHAIRMAN. All right.

Anyway, Ambassador Schwab, our number-one trade priority

should be to complete the WTO agreement that grants meaningful

market access, particularly in agriculture, but also in industrial

goods and the service sector. Entrenched positions held by the EU,

Brazil and India leave me very pessimistic that we will reach an

agreement before trade promotion authority expires.

What is your strategy to move the negotiations forward to meet

that deadline? And it is kind of a nebulous deadline, but I think

I have reason to believe that if great progress is not made during

June and July, it cannot be done this year. If it cannot be done this

year, the Senate cannot consider it next year.

Ambassador SCHWAB. Mr. Chairman, you are absolutely right in

terms of the timetable you have articulated. We are in a very sensitive period in the next several weeks and months through the end

of July where we really need to have closure on the key elements

of the Doha Round negotiations if we are to conclude the details,

and ultimately come to the U.S. Congress with a Doha Round

agreement that you can enact prior to the expiration of TPA authority.

If I am confirmed, I will continue pushing very, very hard for the

kind of ambitious, robust outcome for a Doha Round agreement.

We have a very forthcoming agricultural proposal on the table. We

have been forward-leaning in the NAMA, Non-Agricultural Market

Access, negotiations. We have ambitions, great ambitions, in terms

of services and so on.

22

It is premature to talk about a Plan B. I would say we have not

given up on Plan A and an ambitious and robust outcome. I would

hope, and expect to be consulting very closely with you and your

colleagues on this committee as we go forward in the coming weeks

and months to ensure that we are on track and to make sure that

we are in synch in terms of our thinking and approach.

The CHAIRMAN. If Plan B might be a minimalist approach, do not

bother to bring a Plan B to me. This is going to be a successful

round or there is not going to be any consideration by this committee.

Also, let me emphasize what I said in my opening statement, as

you are talking to countries that have GSP privileges in our country, that this committee will not consider reauthorization of GSP

when it runs out because everything that GSP does can be accomplished in the Doha Round for the very same countries.

If there would be reason to reauthorize some GSP, we are going

to be very careful in that reauthorization that it does not include

countries that ought to be graduated out anyway.

I am going to be very liberal on that graduation, because countries that are holding up Doha seem to be the very same ones that

are benefitting from GSP. There is no reason why they get a free

ride if they are not willing to give the United States something.

Another question. The United States currently does have a surplus in services trade, and it is important that we continue growth

in that sector. If confirmed, how would you energize the service sector negotiations in Doha to get those parts of the negotiation back

on track?

Ambassador SCHWAB. Mr. Chairman, services are, indeed, a critical part of the Doha Round negotiations and a very fundamental

part of our exports. As you note, 8 out of 10 jobs in this country

are associated with the service sector, including many high-skill,

knowledge-intensive positions.

We have been working very closely with the U.S. industry, in

terms of making sure that the outcome of this negotiation is as ambitious as the other parts of the negotiation. We are on a different

track in terms of services negotiations.

The initial sets of requests were only issued on a collective basis

in February. The end of July marks the period where the second

round of offers comes back. So, so far we are on track on these negotiations, and it is very important that we continue working with

the U.S. industry to make sure we stay that way.

The CHAIRMAN. I think I am going to call on Senator Baucus. I

have ended my questioning. I may submit some questions in writing.

Senator BAUCUS. All right. Thank you, Mr. Chairman.

Ambassador Schwab, first, thank you for your hard work on the

lumber deal. I would just urge you, as other Senators have, to just

keep on it. We all know that there is many a slip between the cup

and the lip. It is not over until it is over, and even then it is often

not over. So, stick with it.

Ambassador SCHWAB. Senator Baucus, you are absolutely right,

and we certainly will.

Senator BAUCUS. Thank you.

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I am just curious if maybe there is some way we can boost our

efforts with China. The JCCT was helpful, but I think most people

think it was not as helpful as it could, and should, have been. I

think we need to go the extra mile to try to find ways to be more

helpful in those kinds of talks.

I also think that the more we talk with China on lots of different

levels, many different levels, the more likely it is that the two

countries will have a strong, sustained relationship. There will be

little spats, probably, now and then, but basically strong.

I am thinking of a similar relationship we have with Japan. In

the JCCT, which was just a couple of weeks ago, when Madam Wu

was here, it was basically trade issues. But in Japan, there is a

much broader framework on a similar kind of negotiation.

With Japan, we talk about trade, but also currency and energy

investment, in one broad framework. Our framework with Japan

covers more than narrow issues that were discussed in the JCCT.

I just urge you to think about how to expand the JCCT to a much

broader—not too broad; you cannot solve all of the world’s problems—framework than the current one so it is more meaningful.

I say that is extremely important because, frankly, when I talk

to friends of mine in China whom I trust and know, they tell me

that President Hu’s visit here did not work out well. That is, not

only did the fellow at the White House call out the wrong national

anthem for China, or a demonstrator, and so forth, but also, President Hu was not given a state dinner. It was not a state visit.

I, for the life of me, cannot understand why in the world the

President of China was not given a state dinner, particularly to the

Chinese, because they value face more than a lot of people.

I am picking up that the Chinese are starting to think that

Americans are arrogant toward China, look down their noses at

China, are above China, have no sufficient respect of China. Respect goes so much farther than any other dynamic.

As long as there is mutual respect, you can generally get something done. So, I would just mention to you that that would be

helpful, if you could pursue something along those lines. I would

just like your thoughts on that, please.

Ambassador SCHWAB. Senator, before I came to the University of

Maryland, I had the opportunity to spend a couple of years working

for Motorola in Schaumburg, Illinois. Most of the work I did for

Motorola involved China: Asia strategy and a lot of work in China.

You are absolutely right.

There is nothing that beats mutual respect in terms of interacting with anyone, interacting with a trading partner, interacting

with China, interacting with colleagues. That is critical. It is also

critical to be honest and forthright and not to pull punches. I call

it like it is.

In the case of China, we have a lot of issues, a lot of trade issues,

as you know, ranging from market access issues to intellectual

property rights issues that really need to be addressed to build a

healthier set of relationships with China. I will be certain, if confirmed, to make this a priority.

The JCCT meeting, as you noted, was quite successful on a variety of fronts. There are a lot of other avenues of dialogue going on

between the United States and China, as you know, but the U.S.-

24

China relationship is a very, very important one for both countries,

and I will certainly make this a priority.

Senator BAUCUS. Well, yes. I am just trying to give you some

ideas of how to do it. For example, Deputy Secretary Zoellick, who

was one of your predecessors, has an ongoing, established relationship with either the Premier of China or his counterpart over in

the Foreign Ministry in China. That is locked in.

They do that, I think, twice a year to talk about issues, to get

things done. I encourage you to set up something very similar, to

minimize misunderstandings. That is what the Chairman and I do.

I take great pride in this. We meet every Tuesday at 5 o’clock.

Every Tuesday, for about an hour to go over issues, legislation that

is coming up, how to work things out. Our staffs are there.

It is one team, how to work all this out together. It is locked in.

Even if we just have our kids to talk about because there is nothing on the agenda, we still meet and we talk about our kids.

I encourage you very strongly to set up something very similar

with China, and with other countries in other ways, so you are

talking to people, so they understand you better and you understand them better. So much of this is understanding. It is trust.

You have to work extremely hard on a personal level to develop

that trust.

Eighty percent of life is showing up, just being there. You get on

that airplane and you go see them personally and talk to them,

have them come see you personally. Get out of your office. Do not

spend too much time listening to your staff. Trust your own instincts. You will pick up an awful lot by talking to a lot of people

on the outside.

Ambassador SCHWAB. Thank you, Senator. I have had the opportunity to meet with Minister Bo, who would be my counterpart if

I were confirmed.

Senator BAUCUS. Minister Bo is a good man, but he has interests, too. You just keep meeting with Minister Bo constantly and

honestly. After a while, trust is going to build up.

Ambassador SCHWAB. Thank you.

The CHAIRMAN. Thank you, Senator Baucus.

I am going to call on Senator Hatch and Senator Schumer before

I go to a second round for Senator Conrad and Senator Lincoln.

Senator HATCH. Well, thank you, Mr. Chairman.

Madam Ambassador, since your nomination I have been dismayed by the opinions of some who state that your nomination is

an indication that the administration is de-emphasizing trade policy. Obviously these individuals do not know you.

I, on the other hand, have had the privilege of working with you,

and join my colleagues in stating that you are a tenacious, forceful,

yet thoughtful advocate of our Nation’s trade agenda.

We have a vital work that has to be accomplished: first ensuring

that the Doha Round lives up to its potential; second, moving expeditiously in negotiations between the United States and Korea,

that will result in an agreement that provides unfettered access to

the Korean market, a market that is notorious for its non-tariff

barriers to American products, especially automobiles and automobile parts. These are vital objectives. I cannot think of anyone

better suited to lead our Nation’s policy and negotiations than you.

25

So I am here basically just to let you know that I strongly support you, and I expect you to be a great representative of our country, as you have been in the various positions you have filled in the

past.

So, Mr. Chairman, that is all I have to say.

Ambassador SCHWAB. Thank you, Senator.

The CHAIRMAN. All right.

The Senator from New York. Thank you.

Senator SCHUMER. Thank you, Mr. Chairman.

And thank you for coming. I would just like to go back to the currency issue. It walks like a duck and it quacks like a duck, and it

lays eggs like a duck, and you say it is not a duck.

Yesterday, the Chinese Government said they were going to fix

the value of the yuan to below eight. Today, they fixed it above

eight. That is not market forces. How could you say it is not manipulation? How could our government, the Secretary of Treasury, say

that? It is clearly manipulation.

Explain to me. I know Senator Conrad asked a general question

about this. What is it if it is not manipulation?

Ambassador SCHWAB. Senator Schumer, we have had a couple of

conversations about China and U.S.-China trade issues. As you

know, currency is but one component of the issues that we face in

terms of U.S.-China trade. In terms of the report, I think you are

referring to the Department of Treasury report.

Senator SCHUMER. Yes.

Ambassador SCHWAB. I believe that the Secretary of Treasury

will be up here tomorrow.

Senator SCHUMER. Oh, I will be here.

Ambassador SCHWAB. He will be here tomorrow to testify about

the report. I would defer, obviously, to him and to Treasury on that

question.

Senator SCHUMER. All right.

Ambassador SCHWAB. I would note that both the United States

and China have made the point, and the United States has made

it most forcefully, that flexible exchange rates, floating exchange

rates are far preferable.

Senator SCHUMER. All right. Let me ask you this. Do you think

the currency issue is an important issue in terms of our trade relationship with China?

Ambassador SCHWAB. I do.

Senator SCHUMER. All right. So I presume that in the next USTR

top-to-bottom review of China, currency would not be just a footnote, which is what it was in the last one.

Ambassador SCHWAB. The top-to-bottom review addressed currency, as you noted.

Senator SCHUMER. In a footnote, right?

Ambassador SCHWAB. The top-to-bottom review addressed those

issues over which the U.S. Trade Representative’s office and the

broader trade policy apparatus in the administration, the interagency process, addresses. Currency was in there. But you are

right, we really did focus more on issues where we have tools in

terms of trade barriers, intellectual property, and so on. Enforcement issues.

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Senator SCHUMER. Do you think the law ought to be changed in

regards to currency and what manipulation is and what intent is?

Ambassador SCHWAB. I think I will defer to the Treasury Department on that.

Senator SCHUMER. All right.

Then let me go to another area, another place where China,

again, is not playing by the rules. This, as a New Yorker, I care

about in particular, but also as an American—barriers to American

companies operating freely in China. This occurs day in, day out

in terms of financial services.

First, were you disappointed that China did not allow Citigroup

to gain 40 percent ownership in that ailing Chinese bank? I forget

the name of it. They just rejected that, as you probably know. Or

the word is they are about to reject it. I guess they have not officially rejected it yet, but they have unofficially rejected it.

Ambassador SCHWAB. I think, Senator, you will find this administration fully committed to opening market access in China, and

that is whether we are talking about agriculture, whether we are

talking about industrial goods, or whether we are talking about

services. That includes financial services.

Senator SCHUMER. Right. This was the Guangdong Development

Bank that Citigroup wanted to take over, not with the usual 9 percent or 20 percent, but really with a controlling interest.

Ambassador SCHWAB. Senator, I have not read anything about

the disposition of that case, but I would be happy to look into it

and come back to you.

Senator SCHUMER. Do you think an American bank should be

able to take over an ailing Chinese bank and operate in China?

Ambassador SCHWAB. I believe it is important that we have fair

access in terms of financial services in any country with which we

are doing business. Those are areas that are negotiated through

trade agreements.

Senator SCHUMER. Are you happy with the progress so far in

terms of financial services?

Ambassador SCHWAB. I am not sure the United States will ever

be happy with the progress that we have made.

Senator SCHUMER. Are you? You are going to be the Trade Representative, if you are confirmed. Are you happy with the progress

we have made in financial services?

Ambassador SCHWAB. I believe there is always more progress to

be made.

Senator SCHUMER. Are you happy with what has been made so

far?

Ambassador SCHWAB. I believe there is always more progress to

be made.

Senator SCHUMER. All right. If you cannot answer ‘‘no’’ where

there has been virtually no progress, I am very disappointed, I

have to tell you. I mean, this is why we do not get anywhere in

China, because we never take a stand. Then people like myself and

Senator Graham, Senator Grassley, and Senator Baucus are forced

to do things.

But if you cannot say out and out that you are not happy with

the progress that has been made in terms of financial services—the

27

Chinese have a savings rate of 45 percent. They have rudimentary

financial institutions.

This is not like textiles. This is one of the areas where we have

a huge comparative advantage, and we are not allowed in. You

want us—the administration—to be for free trade, but you only

seem to want us to be for free trade in areas where China wins and

we do not.

Yes, I know Caterpillar is doing well, and one or two other companies. But in financial services, if we were allowed freely into

China, it would be a huge boon for U.S. companies and U.S. markets.

I have to tell you, I do not see us making a big issue of this. I

think this administration’s policy on trade, and I say this as somebody who basically wants to see a good, open relationship where

they prevail in some areas and we prevail in other areas, succeed.

When I hear the remarks that are so couched in diplomacy, if

you will, that you cannot say something that everyone knows to be

true—I am sure in every private conversation you have had, with

insurance companies, securities companies, banks, they will tell

you that they are not happy with the progress, that they are

blocked at every step of the way.

And you cannot say more than, well, more progress should be

made? I am disappointed. I am very disappointed. As I recall, when

your predecessor came, he was not that cautious about this. Financial services barriers are supposed to be phased out at the end of

2006. We are not even close.

Let me ask you, what are you doing to ensure that that happens?

The CHAIRMAN. That will have to be your last question.

Senator SCHUMER. Thank you. I apologize, Mr. Chairman.

The CHAIRMAN. Would you answer?

Ambassador SCHWAB. Absolutely. Senator, as you probably know,

there is a constant stream of negotiations, consultations going on

with China. The United States has a variety of tools at our disposal

to ensure that trade agreements are enforced and implemented as

they were designed.

We use, and, if I am confirmed, I am committed to use, all of this

arsenal of tools to make sure that we accomplish our objectives.

You mentioned the importance to the U.S. financial services sector

of access to the Chinese markets. It is also in the interests, quite

frankly, of the Chinese banking sector.

So if you look at the top-to-bottom review that was just recently

issued by the U.S. Trade Representative’s office and by Ambassador Portman, you will see that this notion of enforcement and

using the tools is front and center, and that includes financial services, it includes services.

Senator SCHUMER. Could I just ask one quick question? Can you

name for me one thing you are proud of in terms of financial services and the progress we made in China in the last year?

Ambassador SCHWAB. Senator, when I used to do business in

China for Motorola, we had no access whatsoever in terms of financial services. These changes are slow. They are frustratingly slow,

and I will acknowledge that. You have my commitment to do whatever we can to make sure that we get to the point where we have

free and fair access.

28

The CHAIRMAN. All right.

Senator Conrad, did you want a second round?

Senator CONRAD. Please.

The CHAIRMAN. Go ahead.

Senator CONRAD. Ambassador, when I pointed out, this is the

record on trade deficits, your answer was, well, you have to look

at the economic statistics, because there are some positive economic

statistics. Let me just give you an alternative view on economic statistics that is not so positive.

Here is what has happened to real median household income: it

has declined 4 years in a row. That is not positive. Here is what

has happened to business investment compared to the nine previous recoveries since World War II. Something is going on here.

Something is amiss. This dotted red line shows what happened in

the nine previous recoveries since World War II. The black line is

this recovery. We are 45 percent less on business growth at this

stage of the recovery than the average of the nine previous recoveries. This is job creation. The dotted red line is the nine previous

recoveries since World War II. This recovery is the black line.

At this stage of the recovery, we are 6.5 million private sector

jobs short of the average of the nine recoveries since World War II.

Something is not going well, and I have an increasing suspicion of

what it is. I think it is our trade policy. I think it is our budget

policy.

As I referenced, Peter Morici, the former Director of Economics

at the ITC, has said ‘‘these out-of-control trade deficits have cost

us $1.7 trillion in economic activity.’’

Now, I heard you say on agriculture, where I have a special interest, that you all have made a robust proposal. Let me just say

to you, I deeply believe the proposal you made is a disaster, a disaster for my farmers, a disaster for our country’s agriculture. Let

me say why.

You all proposed 60 percent reductions in our support levels, but

you did it without getting anything from the other side. You said

this only holds if you get something from the other side.

Let me just say, I have done a lot of negotiating in my life. I

have never seen anybody succeed in negotiating by going to the negotiating table and saying, we are willing to give up A, B, or C,

without a concession from the other side. That is backward negotiating. It just makes no sense.

Have you ever seen anybody go to a car dealership and say, we

will pay the sticker price? That is kind of what you guys are doing.

The idea is, you are going to make these big concessions, and

then you are going to get concessions in return. We have already

seen what the Europeans said. They said, forget it, we are not

making the concessions.

So the idea that somehow we are going to get more access, I do

not think we are going to get more access from Europe. I do not

think that is real. Then you have the developing countries, which

in agriculture really are not developing. But they have all kinds of

special treatment in the agreements.

Like Brazil. Brazil is number one in commodity after commodity,

and they are just licking their chops, just licking their chops. Why?

Because if there is any more access that is forthcoming, who is

29

going to get the advantage of it? Brazil has a crop base of about

325 million acres. They have the potential to expand on another

350 million acres. They have roughly the same crop base we do

now, but they have enormous potential to expand.

I would just tell you, in agriculture I think the proposal you have

laid down—not you, but the office laid down—is a huge mistake,

and it is a negotiating strategy that I have never seen work for

anybody else. I am happy to hear your response.

Ambassador SCHWAB. Senator, as I commented earlier on the agricultural proposal, the agricultural proposal that we put down is,

as you say, very forward-leaning, very forthcoming, and very conditional.

Senator CONRAD. But why make it conditional? That is what I

do not get. I have never seen anybody succeed in a negotiation by

making a conditional offer. Why do you not have a bargained-for

conclusion in which we give up something only if the other guys

give up something?

This idea of going out and saying we are going to give up a

bunch of stuff and we hope the rest of you do it, it just seems to

me, is a losing way to negotiate.

Ambassador SCHWAB. Senator, as you know, the Doha Round negotiations were stuck and the question is, would we do something

to unstick them? The effort was to get some momentum in the negotiations. In terms of negotiating technique, while I was not in

this job when this was put forward, this is a negotiating technique

that is fully consistent.

If you read the writings of John Nash and Tom Shelling, both

Nobel laureates in economics on game theory, some of the iterative

models of negotiating would have one being forthcoming at the

front end. In many, many cases—prisoners dilemma type cases,

iterative negotiating model cases—you discover that those really

come out with the best outcomes.

But your fundamental point, which is that other countries have

not come to the table, that the EU is not there in terms of market

access, that the advanced developing countries are not there yet, is

absolutely right, and that is why we are pressing ahead. We will

not bring back to this Congress or this committee an agreement

that does not result in real market access and have a good, balanced outcome.

The CHAIRMAN. Before I call on Senator Lincoln, I have come to

the conclusion, partly because of time, but also because we do not

have a quorum, that we are going to have to reschedule the Oman

Free Trade Agreement and the Basham nomination for later this

week.

So would staff of members work with our schedulers to see what

we can get scheduled? We need to move ahead on Oman because

the House has already done that, and I promised Mr. Basham we

would do his nomination today, and obviously we cannot do it.

Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman. I will just submit

the rest of my questions for the record to be answered. Thank you.

The CHAIRMAN. All right. Thank you, Senator.

Senator Schumer?

30

Senator SCHUMER. Thank you, Mr. Chairman. I would just like

to continue to follow up again on the area of financial services,

which really does bother me.

The CHAIRMAN. I am going to step out for a minute. I will not

leave you alone; I will be right back. [Laughter.]

Senator SCHUMER. I think she can handle herself just fine, Mr.

Chairman.

Can you again point to me something that happened in 2006

where we made progress? I mean, I am for reciprocity. Chinese

companies can buy majority shares here. I did not even oppose the

CNOOC deal. We cannot, there. It seems only in the key industries

where we have major technological and other advantages.

If we keep playing by the slow pace that we are doing now,

China will learn how to do all these things, continue to keep American firms out, and any hope of comparative advantage will not

occur. I look high and low. I do not think financial services is as

much a priority to this administration in terms of opening up

China as it should be. I think there are other things that come in

more quickly.

But again, I would like to ask you, give me a little solace here.

What is one specific thing in 2006 or 2005, in the last year and a

half, that has happened in financial services that have given American firms a greater opportunity to operate in China, to own companies in China, to buy other Chinese companies and have some

degree of say?

Ambassador SCHWAB. Senator, as you know, financial services is

an area where the USTR works very closely with Treasury and

other agencies. We tend to have the lead on insurance in the services area; in financial services, Treasury tends to have the lead.

You raise the question of ownership. A lot of progress has been

made in terms of ownership in China. There was a point where

wholly owned facilities were not possible in China. I am talking, for

example, in manufacturing. That has changed. Initially, all requirements were for joint ventures.

I think what you are addressing in terms of the importance of

pushing ahead and making sure that the U.S. benefits from the

comparative advantage that we have and the economies of scale—

I mean, why do companies want to go into China? It is the economies of scale—that is front and center in terms of the agenda.

It is a matter of pushing forward through the JCCT and other

forums. It is a matter of pushing forward in terms of trade remedies and trade remedy laws that we have. And intellectual property rights being another area where obviously your State has a

significant amount.

Senator SCHUMER. It does. But I just got back from China. It was

an eye-opener to me. I care a lot about intellectual property, but

the central government cannot do as much there.

If the Governor of Hubei Province wants to counterfeit things,

there is not much they can do. I have tried to focus on areas where

the central government can, should they want to, change. Currency

is one of those.

But a second is allowing American firms, financial firms, to operate freely in China. That is not a local government control issue,

31

that is a central government control issue. We basically have been

stonewalled.

Let me ask you. Will removing financial service barriers be on

the agenda for the Doha discussions in July?

Ambassador SCHWAB. If I might answer an earlier comment

about intellectual property.

Senator SCHUMER. Yes.

Ambassador SCHWAB. One of the points that I think you are

aware of is, in the most recent Special 301 report that we put out,

we are doing a provincial-level assessment of intellectual property.

Senator SCHUMER. I know. And by the way, one thing you can

do in intellectual property, the fines are basically a slap on the

wrist. Even when somebody is found to violate, the fines are so little, they are a cost of doing business. That is an indication of the

Chinese Government’s enthusiasm, or lack thereof.

Ambassador SCHWAB. Fines and prosecution obviously are critical.

Senator SCHUMER. Yes. Which they could do more of. But it is

sort of like pushing on a wet noodle. Whereas, this stuff is not.

This, they could do if they wanted to. I know the Chinese, particularly the political. They love control. Letting go of control in financial services is letting go control of an important part of their economy.

But enough already. Enough already. They cannot just have the

advantages of free trade and not the obligations or responsibilities.

Every one of us, every day, has to tell people who lose jobs in manufacturing that that is just how the world is. But we really cannot

say, except in isolated instances, that in the areas where we have

comparative advantage we are gaining jobs.

And to me, again, New York-oriented, financial services is at the

top of the list. I have not seen this administration make it as high

a priority as it should, both in terms of relative to other things, but

also in terms of really forward action.

Ambassador SCHWAB. And, Senator, I can tell you it has been,

and will continue to be, a priority. I would look forward to working

with you if there are specific areas we can be working on with respect to China, and, quite frankly, other countries.

Senator SCHUMER. All right. Well, I would like, if you could—I

do not know when we are going to vote—to get me some reaction

on this Citigroup thing. All right?

Ambassador SCHWAB. Certainly.

Senator SCHUMER. That was supposed to be a breakthrough.

When we went there, everyone was optimistic. Now it is not going

to happen, it looks like. It is very disappointing.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Just a reminder, there were not very many members present

today because of votes and other committee meetings, so you may

get a lot of questions for response in writing. So I would ask any

members who have questions, to have them submitted no later

than next Tuesday, May 23. No. That is when we would like to

have you respond to them. That is with the hopes we can get your

nomination through next week.

Ambassador SCHWAB. Thank you, Senator.

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The CHAIRMAN. But anyway, get the questions submitted to the

committee today. Thank you very much.

Ambassador SCHWAB. Thank you, Senator. Thank you, Mr.

Chairman.

The CHAIRMAN. Hearing adjourned. Thank you.

[Whereupon, at 12:02 p.m., the hearing was concluded.]

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Æ