U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

27–146—PDF 2005

S. HRG. 109–371

NOMINATIONS OF JAMES S. HALPERN,

KARAN K. BHATIA, SUSAN C. SCHWAB,

FRANKLIN L. LAVIN, AND CLAY LOWERY

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

ON THE

NOMINATIONS OF

HON. JAMES S. HALPERN, TO BE JUDGE OF THE U.S. TAX COURT; HON.

KARAN K. BHATIA, TO BE DEPUTY U.S. TRADE REPRESENTATIVE,

WITH THE RANK OF AMBASSADOR; HON. SUSAN C. SCHWAB, TO BE

DEPUTY U.S. TRADE REPRESENTATIVE, WITH THE RANK OF AMBASSADOR; HON. FRANKLIN L. LAVIN, TO BE UNDER SECRETARY OF

COMMERCE FOR INTERNATIONAL TRADE; AND CLAY LOWERY, TO BE

DEPUTY UNDER SECRETARY OF THE TREASURY

OCTOBER 18, 2005

(

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)
(III)

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 ................................................ 3

ADMINISTRATION NOMINEES

Halpern, Hon. James S., to be Judge of the U.S. Tax Court, The Judiciary ...... 7

Bhatia, Hon. Karan K., to be Deputy U.S. Trade Representative, with the

rank of Ambassador, Executive Office of the President .................................... 7

Schwab, Hon. Susan C., to be Deputy U.S. Trade Representative, with the

rank of Ambassador, Executive Office of the President .................................... 9

Lavin, Hon. Franklin L., to be Under Secretary of Commerce for International

Trade, U.S. Department of Commerce ............................................................... 10

Lowery, Clay, to be Deputy Under Secretary of the Treasury, U.S. Department of the Treasury ........................................................................................... 11

CONGRESSIONAL WITNESSES

DeWine, Hon. Mike, a U.S. Senator from Ohio ..................................................... 4

Hoyer, Hon. Steny, a U.S. Representative from Maryland .................................. 4

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 3

Bhatia, Hon. Karan K.:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 31

Biographical information ................................................................................. 33

Responses to questions from committee members ......................................... 44

DeWine, Hon. Mike:

Testimony .......................................................................................................... 4

Grassley, Hon. Charles E.:

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

Halpern, Hon. James S.:

Testimony .......................................................................................................... 7

Biographical information ................................................................................. 54

Hoyer, Hon. Steny:

Testimony .......................................................................................................... 4

Lavin, Hon. Franklin L.:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 61

Biographical information ................................................................................. 63

Responses to questions from committee members ......................................... 74

Lowery, Clay:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 92

Biographical information ................................................................................. 94

Responses to questions from committee members ......................................... 100

Mikulsky, Hon. Barbara:

Prepared statement .......................................................................................... 105
Page

IV

Schwab, Hon. Susan C.:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 106

Biographical information ................................................................................. 108

Responses to questions from committee members ......................................... 119

Smith, Hon. Gordon:

Prepared statement .......................................................................................... 130
(1)

NOMINATIONS OF HON. JAMES S. HALPERN,

TO BE JUDGE OF THE U.S. TAX COURT;

HON. KARAN K. BHATIA, TO BE DEPUTY U.S.

TRADE REPRESENTATIVE, WITH THE RANK

OF AMBASSADOR; HON. SUSAN C. SCHWAB,

TO BE DEPUTY U.S. TRADE REPRESENTATIVE, WITH THE RANK OF AMBASSADOR;

HON. FRANKLIN L. LAVIN, TO BE UNDER

SECRETARY OF COMMERCE FOR INTERNATIONAL TRADE; AND CLAY LOWERY, TO

BE DEPUTY UNDER SECRETARY OF THE

TREASURY

TUESDAY, OCTOBER 18, 2005

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:06 a.m., in

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

Grassley (chairman of the committee) presiding.

Also present: Senators Hatch, Smith, Crapo, Baucus, and Lincoln.

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

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Normally I do not start without Senator Baucus,

but he sent word that I could go ahead, and I am happy to do that.

It is my pleasure to welcome several nominees to the Finance

Committee today. All of the nominees before us have had long, distinguished careers that make them well-qualified for positions for

which they are nominated. I am sure all of them are eager to get

started in their new roles or they would not have submitted to the

President’s request for them to serve.

First, I am pleased to welcome James S. Halpern, who has been

reappointed to a second term as Judge of the U.S. Tax Court. Including his exemplary service for the Tax Court, Judge Halpern

has more than 33 years experience as a tax lawyer, tax teacher,

and tax judge.

Highly regarded by government and private sector members of

the Bar, Judge Halpern has shown the intellectual leadership required for the inherent complexity of the tax laws.
2

Then we have trade nominees. I would like to note two elements

of trade policy that I hope they will keep in mind as they serve in

their new capacities. First, is the importance of strong monitoring

and enforcement. International trade is essential for the U.S. economy.

That is why I fully support efforts to enhance international trade

through bilateral and multilateral trade agreements. But we cannot lose sight of the need to ensure that our Trade Representative

and our trading partners live up to their obligations under these

agreements.

So, as Chairman of this committee, I strive to ensure that we

abide by our trade commitments. I fully expect each of you, as well

as this administration, to be forceful and to be diligent in pursuing

our rights under each of these agreements. The American people

deserve to reap the full benefits of each trade agreement that we

enter into, and it is our duty to make sure that they do.

The second point that I would make to our trade nominees is to

keep in mind the role of consumers in international trade. When

governments impose tariffs and other restrictions on goods and

services, they increase the cost of those goods and services to consumers and limit freedom of choice.

Government tariffs and restrictions can also stifle innovation and

drive up the cost of producing in this country by increasing the cost

of inputs, which can needlessly inhibit our ability to compete internationally.

As you develop and implement our trade policies, I say to these

nominees, I would urge each of you to not overlook the important

role that the consumers play.

I would also welcome Karan Bhatia, the second nominee, for

Deputy U.S. Trade Representative. Should he be confirmed, Mr.

Bhatia will oversee our trade policies towards East Asia, South

Asia, and Africa. He has over 15 years of firsthand experience in

international trade, investment, and economic issues, and that experience is going to serve him well in that capacity.

We would welcome Susan Schwab, the President’s nominee for

Deputy U.S. Trade Representative. Should she be confirmed, Dr.

Schwab will help guide our Nation’s trade policy in Europe, Latin

America, and the Middle East.

Dr. Schwab has an extensive professional career of public and

private service, as well as a rich understanding of international

trade. The accumulated wisdom over her long career, which includes legislative, corporate, and academic areas, will aid her in

her new role.

Ambassador Frank Lavin is the President’s nominee for Under

Secretary of Commerce for International Trade. Ambassador Lavin

has had a long and distinguished career in both the private and

public sectors, which makes him a very able candidate. I appreciate

his record of public service and appreciate his enthusiasm for working for the American people.

Finally, I will introduce Clay Lowery, the President’s nominee for

Deputy Under Secretary of International Affairs at the Department

of the Treasury. If confirmed, Mr. Lowery will formulate international policy concerning international monetary and financial affairs, trade and debt issues, and participation in international fi-
3

nancial institutions. His strong analytic skills and wealth of experience during his past 15 years are particularly suited for that job.

That said, once again, I would welcome all of our nominees to the

committee, and I appreciate your patience with this process, of

which Congressional consideration is only part of the red tape that

you have had to go through.

I call on Senator Baucus at this point.

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

I would like to congratulate all of you on your nominations. You

all come before this committee strongly recommended and highly

qualified.

But no support is more important than that of your families’,

your spouses and your children, and I congratulate them. I suspect

that, without their support, you would not be here today.

I have had the pleasure of meeting some of you, and I have

worked with many of your predecessors. I look forward to working

with all of you.

Judge Halpern, you have earned an excellent reputation in the

15 years you have already served on the Tax Court, and I am glad

that you are willing to serve another term.

Mr. Lowery, you already have a decade of experience at Treasury. You have earned the respect and trust of your superiors.

Dr. Schwab and Mr. Bhatia, you bring many years of experience

in trade and international affairs to the USTR. You both will be

effective advocates for the United States.

Ambassador Lavin, your long and varied experience in Asia will

serve you well as Under Secretary of Commerce. Many of our

greatest opportunities and most difficult problems are in Asia.

Your nominations come at a critical point in U.S. economic policy. I believe that we are at a watershed moment. How we fulfill

our international economic agenda today will determine whether

younger generations view international trade as a contributor of

wealth or a cause of hardship.

How we act today will decide whether our children and grandchildren view China and India as an opportunity or as a threat.

How we act today will decide whether international, financial, and

trade institutions are treated with suspicion and derision or viewed

as a forum for hopeful cooperation and progress.

I hope and trust that this is just one of the many times that I

will see you in the Senate, and I hope that we can cooperate to pursue an international economic agenda that allows future generations to look abroad for hope, opportunity, cooperation, and prosperity.

Mr. Chairman, thank you for today’s hearing.

The CHAIRMAN. You bet. Thank you very much.

Now we have Senator DeWine, who is interested in introducing

Ambassador Lavin, and then we have Representative Hoyer, who,

it is my understanding, would speak for Susan Schwab.

Senator DeWine?
4

STATEMENT OF HON. MIKE DeWINE,

A U.S. SENATOR FROM OHIO

Senator DEWINE. Mr. Chairman, thank you very much. Senator

Baucus, Senator Smith. Thank you for having me.

It is my privilege today to introduce my good friend, Ambassador

Frank Lavin, of Canton, Ohio, whom President Bush has nominated to be the Under Secretary of Commerce for International

Trade.

Frank has a solid background, Mr. Chairman, in the economic

and international issues that his job entails, including advanced

degrees from Georgetown, Johns Hopkins, and Wharton.

Professionally, Frank has distinguished himself through over 2

decades of work in Asian affairs in both the government and private sectors. I have known Frank for almost 2 decades, over 2 decades, dating back to his days in the Reagan administration when

he worked at the National Security Council as Deputy Executive

Secretary. He then went on to serve the White House in the Office

of Political Affairs.

Frank was then nominated and served as the Deputy Assistant

Secretary of Commerce for Asia and the Pacific, where he was responsible for commercial policy, assisting companies with market

access and trade negotiations for the region. He continued his connection with the region during the late 1990s as a banker and venture capitalist in Hong Kong and Singapore.

Mr. Chairman, with his high caliber of professional experience

within the region, it was no surprise when President Bush nominated Frank to be Ambassador to Singapore. As Ambassador to

Singapore, Frank helped oversee the successful negotiation and enactment of the U.S.-Singapore Free Trade Agreement.

It is important that we have someone in this position who knows

business, knows our trade rights and responsibilities, knows our

trade partners, and knows how to open markets to U.S. goods.

It is particularly important to have someone like Ambassador

Lavin, who has a thorough understanding of the countries in the

Far East, which seem to be at the center of so many trade discussions here in Congress.

Frank has a ground-floor view of the region, both from his days

in the private sector and from his years spent in government

service.

Adding to his professional accomplishments, I would like to mention that Ambassador Lavin is also a Lieutenant Commander in

the U.S. Naval Reserves, and has three wonderful children together with his wife, Ann.

Mr. Chairman, I thank you for your kind attention and for allowing me to make this introduction of my good friend, Frank Lavin.

The CHAIRMAN. Thank you, Senator.

Now, Representative Hoyer?

STATEMENT OF HON. STENY HOYER,

A U.S. REPRESENTATIVE FROM MARYLAND

Representative HOYER. Mr. Chairman, thank you very much for

giving me this opportunity. Senator Baucus, Senator Hatch, Senator Smith, I appreciate very much your allowing a member of the

other body to be with you this morning.
5

Mr. Chairman, I cannot recall immediately, during the 25 years,

now 26th year that I have been in the Congress, that I have testified on other than a judicial nomination on the Senate side for an

appointee.

Senator Mikulski and Senator Sarbanes, because of scheduling,

could not be here, but I am sure that I speak for them.

Dr. Susan Schwab is a good friend of mine, and in that respect

I may not be totally objective. But I have had the opportunity of

working with her for over a decade in a number of different capacities.

I will not go through her curriculum vitae, but I will say that,

as you pointed out in your opening statement, Mr. Chairman, she

has a broad range of experience: legislative, executive, and academic.

In all three of those endeavors, she has brought with her the

skills, the intellect, and the integrity that one would want in an appointment of this type.

I wanted to come and tell this committee that, at a time when

the national trade policy pursued by the United States is one deeply enmeshed in controversy and partisanship, which I believe, personally, is unfortunate, she will be, I think, along with Congressman Portman, our Trade Representative, a person who can bring

a greater consensus, a greater sense of collective wisdom, working

together to forge a trade policy that is both rational and effective,

and bipartisan, which I think is important for our country and for

our policy.

She is a positive individual, a perceptive individual. Having

worked for Senator Danforth for a number of years, Mr. Chairman,

as you know—and perhaps you worked with her during that period

of time—she understands the process of bringing people together to

forge positions that can be broadly supported, and therefore, in my

opinion, more effective.

I am enthusiastic, as someone would be who has served on the

Board of Trustees or the Board of Advisors during her tenure as

Dean of the School of Public Policy at the University of Maryland,

who knows her academic qualifications as a graduate of Williams,

a graduate of Stanford, and receiving her doctorate from George

Washington.

I know that she will bring the same kind of effective leadership

to the Trade Representative’s office as she has brought to the University of Maryland, as she brought to Motorola, as she brought to

Senator Danforth’s office. I congratulate the President on his selection and urge this committee to approve quickly and unanimously

the nomination of Dr. Susan Schwab to be Deputy Trade Representative.

Again, Senator, thank you for this opportunity to appear before

you.

The CHAIRMAN. I have no questions.

Do any of my colleagues have questions of the Senator or the

Congressman? [No response]. All right. We thank you very much

for coming.

Senator DEWINE. Thank you.

Representative HOYER. Thank you, Mr. Chairman.
6

The CHAIRMAN. Would the witnesses all come to the table at the

same time? Mr. Halpern, Mr. Bhatia, Dr. Schwab, Mr. Lavin, and

then Mr. Lowery.

Before you give your statement, I want to remind you that a long

statement will be put in the record. So the extent to which you

have anything to say, it will be a matter of the record, and if you

could summarize.

But before you do that, we will start with you, Mr. Halpern, for

any friends or family that you have with you that you would like

to introduce. We would have them stand.

Mr. HALPERN. Thank you, Senator. My wife, the Honorable

Nancy Nord, Chairman of the Consumer Product Safety Commission, could not be here with us today, but I would like to acknowledge her support.

I would like to acknowledge that my staff is here, and my two

attorneys, Fred Wallach and Allen Stenger, my personal assistant,

Velinda Morton-Payne, and my secretary, Deborah Peterson.

Thank you.

The CHAIRMAN. Thank you.

Now, Mr. Bhatia?

Mr. BHATIA. Thank you, Mr. Chairman. I would like to recognize

my family back there. My wife, Sara, my two sons, Alexander and

Teddy. Extremely handsome young men, I must say. My parents,

Samir and Janice Bhatia, and my parents-in-law, Marsha and Les

Levine. Thank you very much.

The CHAIRMAN. Now, Dr. Schwab?

Dr. SCHWAB. Thank you, Mr. Chairman. I would like to acknowledge my parents, Gerald and Joan Schwab, who are seated back

there.

The CHAIRMAN. Would you stand, please? All right. Thank you.

Dr. SCHWAB. And with them, Professor Mac Destler from the

School of Public Policy at the University of Maryland, a friend and

an expert on trade policy, along with some of our graduate students

from the school.

The CHAIRMAN. Thank you. Thank you all.

Now, Mr. Lavin?

Mr. LAVIN. Thank you, Mr. Chairman. My wife is still on station

in Singapore, but I would like to acknowledge that my daughter

Abby is able to be with us today, as well as my sister-in-law,

Lauren, and my two nephews, Seth and Austin.

The CHAIRMAN. Thank you.

Now, Mr. Lowery?

Mr. LOWERY. Thank you, Mr. Chairman. I would like to acknowledge my wife Diana and my father Richard, who are here with me

today. And also I would like to acknowledge my deceased mother,

Gail, who could not be here, obviously, but thanks to her, I am

here.

The CHAIRMAN. Thank you.

Now, in the order in which we have just gone, I would ask you

for your opening statement.

Mr. Halpern?
7

STATEMENT OF HON. JAMES S. HALPERN, TO BE JUDGE OF

THE U.S. TAX COURT, THE JUDICIARY

Mr. HALPERN. Thank you, Mr. Chairman.

Mr. Chairman, Senator Baucus, and members of the committee,

thank you for scheduling this hearing promptly. It is an honor to

have been nominated by the President for a second term as a judge

in the U.S. Tax Court.

Fifteen years ago, I appeared before this committee to testify in

connection with the then-President’s nomination of me to my first

term. I hope that during the intervening 15 years the work of the

court, and my work in particular, has met with the approval of the

committee.

I am sure that I speak on behalf of all of my colleagues on the

Court in expressing my appreciation for the support that the committee has shown the Court in connection with the committee’s

oversight responsibilities towards the Court.

The Court particularly appreciates your efforts, Mr. Chairman,

and the efforts of Senators Baucus, Hatch, and Lincoln on behalf

of the Tax Court Modernization Act.

I would be pleased to answer any questions that you have.

The CHAIRMAN. Thank you.

Now, Mr. Bhatia?

STATEMENT OF HON. KARAN K. BHATIA, TO BE DEPUTY U.S.

TRADE REPRESENTATIVE, WITH THE RANK OF AMBASSADOR, EXECUTIVE OFFICE OF THE PRESIDENT

Mr. BHATIA. Thank you, Mr. Chairman.

Mr. Chairman, Senator Baucus, distinguished members of the

committee, it is my great pleasure to appear before you today. I am

deeply honored by the confidence shown in me by the President

and by Ambassador Portman, and, if confirmed, I very much look

forward to working with you to develop and implement U.S. trade

policy.

I will keep my statement brief. If I may, Mr. Chairman, I would

again like to extend my thanks and recognize my family. I should

also like to extend my appreciation to the members of the committee and their staff, with whom I have had the opportunity to

meet over the past several weeks. Those meetings have given me

a chance to learn about your concerns and to begin a dialogue

about U.S. trade policy that I very much hope to continue.

Over the past 4 years, in my positions at the Department of

Commerce and Transportation, I have had the pleasure of working

closely with relevant committees in both Houses of Congress, and

if confirmed, I look forward to building that same kind of relationship in this job.

Let me also stress my personal commitment to Ambassador

Portman’s goal of working with both the Majority and Minority to

rebuild a bipartisan consensus on international trade.

The evidence, I believe, demonstrates that this country’s commitment to open markets, free trade, and sustained international engagement in the post-war era has produced a tremendous record of

economic growth, cultural dynamism, and international leadership.

The record also shows that acts of protectionism and isolationism

in our history have ill served U.S. national interests and harmed
8

our workers and farmers, companies, consumers, and communities

across the Nation.

At the same time, I recognize that public support for free trade

today—which is fragile, even in the best of times—is being tested.

News of record trade deficits, challenges in our multilateral trade

negotiations, and evidence that some partners are not playing by

the rules concern many Americans.

Those concerns, of course, arise against the backdrop of a rapidly

changing, globalizing international economy, with its inherent uncertainties, complexities, and dislocations.

Yet, it is precisely these changes, I would submit, that demand

that the United States actively engage in the shaping and integration of the international economic system.

If confirmed, I believe that one of my more pressing challenges

will be to help reestablish a consensus through words, actions, and

results that international trade is in the best interests of the American people, now more than ever before.

Now, in part, that challenge must be met through continued efforts to open markets abroad for our highly competitive companies,

products, workers, and farmers. In the geographic areas that would

constitute my area of responsibility, Asia and Africa, I believe that

there are significant opportunities for continued market opening,

and I pledge to work hard to pursue those opportunities.

Rebuilding a national consensus on trade also requires vigorous

enforcement of our existing agreements. Free trade does not mean

giving away the store or turning a blind eye to the failures of our

trading partners to honor their commitments.

If confirmed, I will join the President and Ambassador Portman

in insisting that our partners live up to their responsibilities, and

that American companies and their workers receive a fair shake as

they strive to take advantage of opportunities in international

markets.

Far from being a threat to free trade, a transparent and equitable system of rules that binds trading partners, and a serious enforcement regime to back it up, is actually indispensable to the

cause of free trade.

Let me conclude, Mr. Chairman, by noting that, for me, the cause

of promoting a free, fair, vibrant, and open international economic

system is a deeply-held personal commitment. It is one shaped by

my experiences growing up in Asia and Africa. It is one to which

I have devoted my professional and academic careers.

It was the focus of my undergraduate and graduate studies. My

law practice was dedicated to helping companies work their way

through the tangled webs of regulations here and abroad that can

so easily derail international trade and investment.

At the Commerce Department’s Bureau of Industry and Security,

I worked hard to promote a safer and more secure international

trading system in our post-9/11 environment.

Over the past 2 years, as Assistant Secretary of Transportation

for Aviation and International Affairs, I have been privileged to assist Secretary Mineta in negotiating a series of liberalized air services agreements with nations such as China, India, Indonesia,

Thailand, Vietnam, and Ethiopia.
9

These agreements have helped to open some of our largest air

services markets, freeing our airlines to fly where, when, and how

they want, and in so doing, to broaden the pipelines through which

much of our international trade and commerce flow.

Working closely with this committee and with all affected stakeholders, I look forward to continuing the quest to ensure that international trade and commerce can continue to connect economies

and people. I thank you for the opportunity to make this statement

and look forward to your questions.

The CHAIRMAN. Thank you, Mr. Bhatia.

[The prepared statement of Mr. Bhatia appears in the appendix.]

The CHAIRMAN. Now, Dr. Schwab?

STATEMENT OF HON. SUSAN C. SCHWAB, TO BE DEPUTY U.S.

TRADE REPRESENTATIVE, WITH THE RANK OF AMBASSADOR, EXECUTIVE OFFICE OF THE PRESIDENT

Dr. SCHWAB. Mr. Chairman, Senator Baucus, members of the

committee, first, I would like to offer my thanks to Congressman

Hoyer for his kind words and strong support for the University of

Maryland.

It is great to be back with the Senate Finance Committee. I

spent many fascinating hours here during the 1980s when it was

my privilege to work with Senator John Danforth, who was then

chair of your International Trade Subcommittee.

For me, today is about taking a fond look back in anticipation of

moving forward. I am grateful for the honor of being here, for the

President’s and Ambassador Portman’s faith in my potential to

serve our Nation in this important role.

When I left graduate school in 1977, I came to Washington looking for a job in international trade, development, or agriculture. I

arrived at 1800 G Street, which was then the home of the President’s Special Representative for Trade Negotiations.

I picked a name off of a directory in the lobby and went upstairs

to find its owner. I had in hand a form letter from the office thanking me for my job inquiry and telling me that there were no vacancies.

The gentleman I sought was not there, but his assistant was.

She looked at my resume and took me down the hall and introduced me to a friend of hers. This was an agricultural trade negotiator, and it turned out they had a vacancy. Someone had turned

down a job the previous week.

An interview with her boss and one security clearance later, and

they hired me, just in time for the Tokyo Round multilateral trade

negotiations. Ambassador Robert S. Strauss was then the Trade

Representative.

It was an amazing office then, it is an amazing office today, with

some of the smartest, hardest-working career professionals you will

ever meet. It is an honor to be nominated, and it will be a privilege, if I am confirmed, to become their colleague once again.

In the intervening years, I have had the opportunity to work in

U.S. trade policy and promotion from multiple perspectives in the

government and the private sector, from the executive branch and

the legislative branch, as a career foreign service officer, and as a

political appointee, as a negotiator who helped open doors for U.S.
10

business, and as a commercial service employee helping small, medium, and large firms walk through those doors.

I sense that the United States stands at a crossroads in our approach to global trade. We are looked to for leadership in the international trading system, both in what we say and in what we do.

We cannot afford to shirk that responsibility.

But neither can we forget that support for open markets at home

requires that trade be perceived as fair, as well as free, that negotiation of promising trade agreements be followed by strong enforcement, and that those impacted by the rigors of competition

have the opportunity to succeed in today’s knowledge-based economy. We will have many opportunities in the coming years to exercise our leadership and to make and reinforce the case for open

trade in the United States.

In addition to the negotiation and implementation of agreements

that contribute to economic and political freedom around the world,

we must ensure that the benefits of trade to the American people

are articulated in a clear, consistent, and bipartisan manner.

If confirmed, I look forward to working with colleagues in the

interagency process and with industry, agriculture, labor, and

other interested groups, both within and outside of USTR’s Statutory Advisory Committee structure.

Above all, I look forward to working with members of this committee and your colleagues across the Capitol to ensure that the

promise of international trade is realized in the years ahead

through forward-looking U.S. trade policy, negotiations, and implementation.

Let me close with a special word of thanks to my parents, Gerald

and Joan Schwab. Our lives abroad together and their passion for

public service instilled in me a profound appreciation for the

United States and for the importance of serving and representing

my country to the best of my ability.

If confirmed by the Senate, I look forward to doing so in the role

of Deputy U.S. Trade Representative. Thank you.

The CHAIRMAN. Thank you, Dr. Schwab.

[The prepared statement of Dr. Schwab appears in the appendix.]

The CHAIRMAN. Now, Mr. Lavin?

STATEMENT OF HON. FRANKLIN L. LAVIN, TO BE UNDER SECRETARY OF COMMERCE FOR INTERNATIONAL TRADE, U.S.

DEPARTMENT OF COMMERCE

Mr. LAVIN. Thank you, Mr. Chairman, Senator Baucus, distinguished members of the committee. Thank you for the opportunity

to appear here today. I also want to thank Senator DeWine for his

very gracious introduction. I am proud that he represents my home

State, and I am certainly grateful for his support.

I am grateful that my daughter, Abby, Lauren, my sister-in-law,

and my nephews, Seth and Austin, were able to come by. My wife,

Ann, and my children, Nat and Elizabeth, are here in my heart,

although the oceans and the miles keep us apart for the moment.

I also want to recognize my fellow nominees here on the panel,

and, if confirmed, I would particularly look forward to working

with Dr. Schwab and Assistant Secretary Bhatia as they assume

their posts in the Office of the Trade Representative.
11

Mr. Chairman, with your permission, I would like to submit written testimony for the record.

The CHAIRMAN. Without objection.

[The prepared statement of Mr. Lavin appears in the appendix.]

Mr. LAVIN. Thank you. I would like to offer a brief summary of

my statement.

It has been a privilege to serve the President and the American

people as the U.S. Ambassador to the Republic of Singapore. I am

honored that President Bush and Secretary Guttierrez have asked

me to serve as Under Secretary of Commerce for International

Trade.

Trade is an important source of good jobs for our workers, with

new opportunities for entrepreneurs and higher growth for our

economy.

Mr. Chairman, as U.S. Ambassador to Singapore and as a banking executive and Commerce official, I helped U.S. companies navigate the international marketplace, breaking down trade barriers,

facilitating export financing, and I have seen the opportunities and

challenges first-hand.

If confirmed, I will use this experience in the International Trade

Administration to promote exports, to open foreign markets, ensure

compliance with trade laws and agreements, and support U.S. commercial interests at home and abroad.

Mr. Chairman, my service will be guided by three principles.

First, American companies produce world-class goods and services

and we can win in the international marketplace.

Second, we must use all the tools at our disposal to ensure that

American businesses face fair competition. We must enforce the

rules and hold our trading partners accountable to the agreements

they have signed.

Third, cooperation between the legislative branch and ITA is essential for constructive international trade policy. I look forward to

working with the Congress on the vital issues we face.

In closing, I would like to express my enthusiasm for ITA’s mission. If confirmed, I will join an extraordinarily capable group of

men and women who work around the world as commercial officers, trade specialists, economists, and trade lawyers, to support

that mission.

I believe their work has never been more critical to both our economic well-being and our National security. With your support, I

would be honored to lead them in this endeavor. Thank you for

your time. I would be happy to answer any questions the committee might have.

The CHAIRMAN. Thank you.

Now, Mr. Lowery?

STATEMENT OF CLAY LOWERY, TO BE DEPUTY UNDER

SECRETARY OF THE TREASURY, U.S. DEPARTMENT OF THE

TREASURY

Mr. LOWERY. Chairman Grassley, Senator Baucus, and distinguished members of the committee, I am honored to appear before

you today as President Bush’s nominee to serve as Deputy Under

Secretary of the Treasury for International Affairs.
12

Please allow me to express my gratitude to the President and

Secretary Snow for the confidence and trust that they have shown

in me, and I would like to thank you for your consideration of my

nomination.

I again want to thank my family for providing me the foundation

and the passion to pursue a career in public service. I want to particularly thank my wife for supporting me in a career that, at

times, has the rewards of long flights abroad, little communication

in the field, and interminable hours at the office.

I have served as a career civil servant at the Treasury for the

past decade. It has been my privilege to serve in the administrations of President Clinton and President Bush in a number of positions, promoting the national interest in such areas as international development, finance, and economics.

As a desk officer, economist, negotiator, diplomat, and manager,

I have been deeply involved in such issues as responding to the

emerging market crises of the 1990s, developing the initiative to

provide debt relief to the world’s poorest countries, and creating the

Millennium Challenge Corporation.

For the past year and a half, on loan from the Treasury Department, I have served at the Millennium Challenge Corporation as

a member of its investment committee and as vice president.

In this capacity, I have been a leader in building and managing

a start-up government corporation to implement President Bush’s

pioneering initiative to revamp the model for foreign assistance and

to reduce poverty by investing in sustainable economic growth in

poor countries that rule justly, invest in their people, and encourage economic freedom.

Prior to MCC, I held a variety of positions at the Treasury Department, most recently as Deputy Assistant Secretary for Debt

and Development Finance.

In this position, I led a team consisting of four offices with responsibilities for debt work-outs, trade finance, development policy,

and cross-cutting financial market analysis.

I have also had the privilege of working at the National Security

Council as the Director of International Finance, a job that allowed

me to bring together the complementary imperatives of protecting

national security and advancing economic prosperity.

In most of these capacities I have worked very closely with Congress, and, if confirmed, I plan to continue such collaboration on a

full range of issues.

Mr. Chairman, this range of issues starts with a juxtaposition.

In many respects, the global financial picture could not be stronger,

with global growth led by the U.S. economy at roughly 30-year

highs, inflation around the world relatively benign, and foreign investment on an upswing in emerging market economies.

This positive news, however, is accompanied by worrisome global

financial imbalances, potential complacency in financial circles, and

large swaths of poverty in the developing world.

To me, I think the challenge for the United States is to help the

American people seek the great opportunities offered by such an

environment, while promoting the essential benefits of increased

productivity, open markets, and free trade.
13

If confirmed, I look forward to working with the administration,

the Congress, and the Treasury team in addressing these challenges and opportunities, focusing on such key priorities as promoting economic growth worldwide, preventing financial crises and

opening up foreign markets to U.S. goods and services, particularly

through negotiations to include a strong Doha Development Round.

If confirmed, I also look forward to leading a dedicated Treasury

team by continuing to make President Bush’s vision of providing

more effective development assistance to the poorest people a reality.

Mr. Chairman, Senator Baucus, and members of the committee,

I am grateful for the opportunity to appear before you today, and

I would welcome any questions that you have. Thank you.

The CHAIRMAN. Thank you very much.

[The prepared statement of Mr. Lowery appears in the appendix.]

The CHAIRMAN. Before we start our 5 minutes of questioning for

each member in our first round, I have three questions that I have

to ask each of you, and would ask you to answer in the affirmative

or in negative.

I am going to ask this of all of you, so I will just state it once.

First, is there anything that you are aware of in your background

that might present a conflict of interest with the duties of office to

which you have been nominated?

Mr. HALPERN. No.

Mr. BHATIA. No, Mr. Chairman.

Dr. SCHWAB. No, Mr. Chairman.

Mr. LAVIN. No, Mr. Chairman.

Mr. LOWERY. No, Mr. Chairman.

The CHAIRMAN. Thank you.

The second question. 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?

Mr. HALPERN. No, Mr. Chairman.

Mr. BHATIA. No, Mr. Chairman.

Dr. SCHWAB. No, Mr. Chairman.

Mr. LAVIN. No, Mr. Chairman.

Mr. LOWERY. No, Mr. Chairman.

The CHAIRMAN. And the last question. Do you agree, without reservation, to respond to any reasonable summons to appear and testify before any duly constituted committee of Congress, if confirmed?

Mr. HALPERN. Yes, Mr. Chairman.

Mr. BHATIA. Yes, Mr. Chairman.

Dr. SCHWAB. Yes, Mr. Chairman.

Mr. LAVIN. Yes, Mr. Chairman.

Mr. LOWERY. Yes, Mr. Chairman.

The CHAIRMAN. All right.

You do not have to respond to this, but I would like to give an

editorial comment on the last question. That is, most of us in Congress—but I tend to specialize—have oversight responsibilities, and

I ask for information.

We are, sometimes, not getting responses. I am not speaking just

to you or just to your agencies. I am speaking to everybody in the
14

executive branch of government. Sometimes we do not get answers

until we pull teeth to get answers, and then we get partial answers.

There just seems to be some sort of feeling among the executive

branch of government, not just in this administration but in every

administration I have worked with, that somehow there is information that is not the public’s business, unless it is national security,

privacy, or executive privilege.

You know, there is nothing that goes on in the executive branch

of government that should not be transparent and above-board. We

have the constitutional responsibility of oversight. For us to carry

out that responsibility, we have to have the cooperation of everybody in the executive branch of government.

Now, as that relates to your nomination, only this, and it is really peripheral. But sometimes members of Congress—and I am not

speaking about myself, most often—might hold up your nomination, not because they dislike you or have any fault with you, but

it is the only way that somehow we get the attention of the administration, that questions have not been answered, letters have not

been answered, information has not been forthcoming.

So I would urge you, the extent to which you can, even though

you are not confirmed for the departments that you are being appointed to, that you would urge cooperation with this effort of any

member of this committee.

Now, for your specific nomination and your specific approval by

the Senate, unless I see that there is a partisan reason for holding

up your nomination, I generally respect Republican or Democratic

efforts to get answers to questions that you can answer that involve your nomination.

So if you get written questions and they are not for just the sole

purpose of delaying things, I would ask you to respond to every one

of them. I would back up any member of this committee to get answers to their questions that are submitted as part of this hearing

process.

With that said, then we will have 5 minutes of questions, starting with me, and then it will be Senator Baucus, Senator Smith,

and Senator Hatch.

Judge Halpern, this is your opportunity to tell this committee—

not to answer our questions but to tell this committee—from your

perspective of service, where you have been for a long time now,

what there is about the Tax Court that deserves further attention

and scrutiny from the Finance Committee.

Mr. HALPERN. Thank you, Mr. Chairman. It may seem a long

time since 1998 when the Congress passed the Internal Revenue

Service Restructuring and Reform Act, which added significant taxpayer protections to the Internal Revenue Code, in particular, provisions for hearings before collection by levy or by lien, and added

protections for so-called innocent spouses.

Cases that involve review of the Internal Revenue Service’s determinations in that area have come to constitute a substantial

portion of the Court’s docket. Over the intervening 7 years, we

have been called upon to interpret the statute in numerous situations and rule with respect to the IRS’s conduct of these hearings

and the Court’s review of the hearings, and other matters.
15

It seems to me that, after 7 years, it might be appropriate for the

committee to look at our performance and see if the Court has carried out the Congress’ will in implementing this statute, and if necessary, make whatever changes or other instructions to the court

that might be desirable.

But these cases have come to constitute a substantial portion of

our docket, and we would invite, of course, any review that the Finance Committee would care to make and change.

The CHAIRMAN. Thank you.

Mr. Bhatia, I hope the question I am going to ask you is settled

before you get sworn in, but we have this Japanese beef issue before us. We have been waiting for an answer for a long period of

time.

In fact, I had a meeting with the Ambassador back in March and

I thought, maybe by June, there was some hope that something

would be done. I recently had another meeting with him, with some

hope that something might be done by now, at least. Still, nothing

has been done.

So I want you to know that I appreciate the efforts of the President and everybody that works for him, including people doing

your work before you get there, to achieve the goal of export of our

beef to Japan. But we are not there.

So would you outline for the committee what steps you would

take if this is not solved by the time you get in your appointed position?

Mr. BHATIA. Thank you. Thank you, Mr. Chairman. I am well

aware of not only the issue, but of your particular interest in it

and, frankly, the interest, I know, of many members of the committee. It has been an issue that has been outstanding far too long.

The fact that it has not been resolved is deeply, deeply concerning.

This is an issue, just to give you a sense of how broadly I know

the administration has been pushing the Japanese, how many in

the administration have been pushing the issue, Secretary Mineta

and I raised the issue with Prime Minister Koizumi when we were

in Japan in April.

My understanding, in terms of the status of the issue, is that Japan’s Food Safety Commission is scheduled to complete its deliberations in the coming weeks, and that their recommendations

then go to a 30-day comment period. This is consistent, Mr. Chairman, with what you were saying.

Our strong hope, our expectation, is that the Japanese will have

resolved this problem by the time the President meets with Prime

Minister Koizumi in Japan in November. In the interim period,

clearly, we need to continue to keep up the pressure.

I would undertake to speak with my counterparts, and I know

Ambassador Portman has been pressing his, but if the issue is not

resolved by that period, we will have to look at alternative measures. We will look, I would suggest, at all of the tools available to

the administration.

The CHAIRMAN. My time is up. I will call on Senator Baucus. If

we just have a few members like this present, I will probably have

some more oral questions. But if we have more members come, I

am going to have to submit the rest of my questions for answer in

writing.
16

Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Bhatia, I hope that the President is very firm with the Prime

Minister when they meet November 15 in Korea. This has been

going on way, way too long, and I have very deep, long experience

with the Japanese on beef.

They will not do anything unless there is some leverage, unless

the President is firm and makes it very clear that they have to act.

Otherwise, it will not happen. You say you are hopeful. We are all

hopeful. Hopeful does not do it, action does it.

I strongly urge you and Ambassador Portman to get the word up

to the White House that they have to mean business or it is not

going to happen.

Mr. BHATIA. I very much appreciate that, Senator Baucus, and

agree with you.

Senator BAUCUS. I would also like to ask a question now to Mr.

Lavin. As you know, Mr. Lavin, there is a recent NAFTA panel

which overturned the Department of Commerce’s calculation of

countervailing duty on Canadian imports, and the panel remanded

the case back to Commerce with instructions to recalculate the

duties.

There is no question that Canada subsidizes lumber. I mean,

that is a given. Now they have this NAFTA panel decision, though.

I want you to tell us whether you think that you can find a way

to calculate those duties in a way that is consistent with the

NAFTA panel, but also makes it clear that it is more than a de

minimis determination so that the subsidy is imposed, so with the

determination of subsidies, we know how much the duty should be.

Mr. LAVIN. Thank you, Senator. You and I had a chance to discuss this issue in your office. I share your view. If confirmed in this

position, I do not want to take any action which is injurious to U.S.

workers, U.S. businesses, particularly with regard to——

Senator BAUCUS. I mean, that is your job, to protect U.S. business.

Mr. LAVIN. Absolutely.

Senator BAUCUS. That is what your job would be.

Mr. LAVIN. Absolutely.

Senator BAUCUS. So it is not only not to be injurious, but to be

helpful.

Mr. LAVIN. I agree, Senator. I am also optimistic that there are

potentially some mechanisms that we can use after this remand. I

have not taken office yet, clearly. I have not been sworn in. I cannot offer a specific policy prescription on what to do.

But the trade experts in ITA say there are, indeed, mechanisms

that can be used, that this does not necessarily end the dispute of

this fourth remand, and that we can go ahead with other techniques to keep this——

Senator BAUCUS. Well, I appreciate hearing that. It is my understanding that there are lots of different ways to interpret this, consistent with the NAFTA panel decision. I would just strongly urge

you to find a way that is consistent with helping U.S. business as

opposed to Canadian business.

Mr. LAVIN. Absolutely.
17

Senator BAUCUS. Dr. Schwab, I am concerned about Ambassador

Portman’s offer to the WTO to reduce Amber Box supports by 60

percent. Could you tell us what is going on here?

Dr. SCHWAB. Thank you, Senator Baucus. The agricultural initiative that was presented last week by Ambassador Portman was developed in conjunction with the Secretary of Agriculture and in

consultation with members of Congress, and was a dramatic step

forward, designed to jog free the Doha Round discussions.

As you know, things have been moving somewhat more slowly

than we would have liked. What was required was an ambitious

and bold proposal in agriculture. As you know, the United States

can only benefit from market opening in agriculture internationally.

Senator BAUCUS. But can U.S. farmers benefit with a 60-percent

reduction in Amber Box supports?

Dr. SCHWAB. I think, Senator, the answer is, if, and only if, our

trading partners respond with dramatic cuts of their own. As you

know from the 2004 framework, the talks are designed such that

those countries with the most trade-distorting practices and protections, tariffs, and export subsidies that distort trade, would be expected to put on the table concessions that would be dramatic as

well. The proposal that was put forward last week was not a unilateral proposal. It is contingent on other countries.

Senator BAUCUS. Yes. I appreciate that. I know you and the Ambassador are trying very hard, and I think we all very much appreciate that. I am just asking these questions to reinforce the strong

positions that you are taking so you can tell the European Union

and the Europeans, ‘‘Hey, remember, it is Congress that determines trade policy, and we have to get all this through Congress.’’

Remember whom we represent.

We represent our people, Americans. It is clear that we have to

do what we can to get the Europeans to reduce and eliminate their

export subsidies and to dramatically reduce the price supports and

to get other countries to get rid of their state-trading enterprises,

that is, the Australians with their Wheat Board, and also the Canadians with theirs. In doing so, I would just urge you to continue

to stand firm because, remember, it is Congress that determines

trade policy.

Dr. SCHWAB. Senator, I could not agree with you more. If confirmed, I would look forward to working with you and your colleagues on this.

Senator BAUCUS. Thank you. My time has expired.

The CHAIRMAN. Senator Smith?

Senator SMITH. Thank you, Mr. Chairman.

Mr. Lavin, as we talked in my office, and to Senator Baucus’

point about Canadian softwood lumber, apparently the NAFTA

panel has found yet again that Canada is not subsidizing by giving

away the raw products on their crown lands. I do not need to reiterate to you, but for the record, my State has lost tens of thousands

of jobs, family wage jobs, because of the Federal timber policy.

But apparently what NAFTA is saying is that if we turned our

public lands into ‘‘presidential lands’’ and gave to American private

enterprise the raw products from them free, that that would not be
18

dumping. That is not a subsidy. Is that how you read their decision?

Mr. LAVIN. Senator, I did not read their decision, but I share

your skepticism that the Quebec reference price is not a fair reference price and that we are trying to make a determination about

the cost of Canadian lumber vis-a`-vis U.S. lumber.

Senator SMITH. Well, I know it is good political fodder in Canada

right now to point to these NAFTA decisions. I am, frankly, thankful that I was not here to vote against NAFTA.

If that does not constitute a subsidy and result in their dumping

their unemployment to us, I do not know what is. I do not know

what you are referring to about recalculating these duties and returning them to Canada and substituting some other provision. Are

you allowed to talk to us about that?

Mr. LAVIN. Well, as you know, Senator, I am not in office yet. I

think you are making a very important point, if I understand the

thrust of your question, which is, we have a set of issues dealing

with subsidies and we also have a set of issues dealing with the

$4 to $5 billion that has been collected so far.

Senator SMITH. Correct.

Mr. LAVIN. We need to, from the U.S. perspective, view those as

tools to try to get some kind of negotiated settlement, in my view.

It is interesting to me, Senator, that just in the last week, President Bush, in the course of a phone conversation with Prime Minister Martin, I think, made a very similar point that President

Clinton made in the course of a public speech: that a negotiated

settlement is going to be fair to all parties and put this issue behind us once and for all.

So one of my goals, if confirmed, is to see if we can get Canada

back to the negotiating table and take it away from the seemingly

endless litigation and come up with some kind of comprehensive

settlement.

Senator SMITH. Well, maybe giving away public property in Canada is not a subsidy. I know it is a hot issue there. It is a hot issue

in our home. I just cannot emphasize enough how critical this is,

if we are serious about employing the American people and not just

being victimized on what is told to us, even by the Wall Street

Journal, is fair trade. It is not fair when it is free in terms of raw

product from the public sector to the private sector. So that point

has been made.

Mr. Bhatia, it was a pleasure to meet with you as well. I emphasized to you how urgent it is that we get intellectual property

rights. We are just the subject of grand larceny abroad on intellectual property.

Companies like Nike and Intel that are located in my State lose

billions of dollars a year to copyright, trademark, and trade secret

infringements. I think we just simply have to do better, or else,

again, trade is not fair, it is stealing.

In particular, we talked about another issue. I introduced the

Tariff Relief and Assistance for Developing Economies Act to help

countries like Cambodia so that our retailers have somewhere to go

other than China to buy products to sell to the American people,

where perhaps we can get better results in protecting trademarks.
19

Would the administration, in principle, support this TRADE Act

that we have introduced?

Mr. BHATIA. Senator Smith, again, I, too, very much enjoyed our

conversation and very much share your concern about intellectual

property violations.

As we discussed, the importance of this resides not only in ensuring that public faith is maintained in our trade agreements, but as

we talked with respect to both companies in your State—but frankly around the United States—the United States’ strategic advantage and competitive advantage is in high-technology items, it is in

knowledge. So, I cannot tell you how seriously I view this.

It was mentioned in my opening remarks how important I

thought enforcement was, and enforcement of intellectual property

rights, I think, has got to be number one on the list. Certainly, I

would endeavor to make it a very high priority, if confirmed.

With respect to the continuing opening of markets, again, that

was also mentioned in my remarks. I do look forward to building

stronger trade relationships with other countries in the Asia-Pacific

region. And, too, I believe there continue to be important opportunities for our companies there, in the intellectual property area,

but also in others. So, I look forward to working with you on that.

With respect to the legislation, I am not immediately familiar

with it, but I do look forward to working with you on it.

Senator SMITH. I look forward to working with you as well. I

want to say I have, as many of my colleagues on this committee,

been supportive of trade legislation and hope to support future legislation. But, frankly, as I look at how NAFTA is operating on an

issue that is a dagger to the heart of my State, frankly, my appetite is running out. China needs some competition, but if we cannot

get right the agreements we have already entered, there will not

be Republican or Democratic support for these things in the future.

Senator BAUCUS. Thank you, Senator.

Senator Hatch?

Senator HATCH. Maybe as a follow-on to Senator Smith’s comments, Mr. Lavin, let me ask you this. There are a number of proposals to amend Title 7 of the Tariff Act of 1930 in order to address

the problems of unfairly traded Chinese goods, including the possibility of applying our countervailing duty law.

Now, based on your experience with the law, does Commerce already have the legal authority to impose countervailing duties, despite the Federal Circuit’s decision in Georgetown Steel? If so,

under what circumstances would you accept a countervailing duty

petition against imports from China?

Mr. LAVIN. Thank you, Senator. My interpretation is that the

Commerce Department does have the right to undertake a countervailing duty case against China, and that would be consistent with

the Georgetown Steel case.

I think the wisdom of such an action is an open question. We

have a number of trade actions currently under way against China,

57 antidumping cases at present, I believe more than twice the

number we have against any other country.

So the view within the International Trade Administration is

that we have a good toolbox, and we are fully prepared to use it

with regard to unfair trade practices in China. The question I think
20

you raise is, does that toolbox need to be augmented or is there

value in adding another tool to it?

It is an open question. There are trade experts who tell me that,

if we start looking at constructed-value measures with regard to

China and countervailing duty, we could inadvertently limit our

ability to use antidumping cases. So, there is a trade-off, potentially, that calls for a countervailing duty.

But no countervailing duty petition has been presented with regard to China, and I think you would have to say it is case-specific.

If such a petition is presented, we would evaluate it upon receipt.

Senator HATCH. Thank you.

What, in your prior experience, is the most significant tool that

we have among our trade laws to combat rampant intellectual piracy in China, India, and elsewhere? What would be the single

most important change in our trade laws that you would make to

discourage such piracy?

I would just ask a bunch of questions here, because we have limited time. What has been your previous experience in working with

local law officials on enforcement of intellectual property rights?

What lessons would you draw from your experience in terms of

what you would do as Under Secretary?

Mr. LAVIN. Intellectual property rights, Senator, to my mind, is

perhaps the most vexing trade issue in China, and I think our

progress is going to be incremental. But if we apply ourselves right,

we can gain ground.

I think, first and foremost, we need to push on market access,

because, when there is good market access and the trade barriers

are reduced and our companies have the ability to distribute and

sell, that just reduces the scope of activity for the pirates.

So, for example, if American film producers can freely distribute

and sell their movies in China, the scope for movie piracy is reduced. Now, of course, they are not freely allowed to do so. So market access, in itself, is a good anti-piracy tool.

I think the second tool is that we have to look at harnessing indigenous constituencies—there are Chinese recording artists, Chinese chemical factories who, themselves, are victims of piracy.

To the extent that we can work with those constituencies, that

is a better voice, a better representation to the Chinese government

about the economic price that is paid when intellectual piracy takes

place. So, those are the kind of steps we would like to take.

We also have, potentially, a very interesting opening in terms of

the Doha Round negotiations, because some of the transparency

rules we observe are not standards that are globally held.

So if we can get other countries to observe some of the AD/CVD

methodology—for example, transparency—we will be in a better position to enforce our anti-piracy goals in third countries. If the good

is made in China but shipped, say, to Southeast Asia, we have

fewer tools now, but we have to look at a WTO mechanism to get

on board to give us tools in that regard.

Senator HATCH. All right.

Now, one of the critically important roles that the Commerce Department has traditionally played in supporting our trade negotiations is that of assembling the numbers behind our tariff proposals.
21

Now, based on your experience, do you think that the different

variations on the Swiss formula that have been put forward more

in the context of the Doha Round thus far will address the current

imbalance and market access that U.S. exporters face throughout

most of the world, particularly in emerging and developing country

markets?

If not, what other approach should we take to the negotiation of

non-agricultural market access that would accomplish that objective?

Mr. LAVIN. Senator, if you will forgive me, I am not familiar with

the Swiss formula. But if you will let me, after this hearing is adjourned, go back to the International Trade Administration and

consult with the leadership there, I will get back to you with a response.

Senator HATCH. All right. Sure.

[The information appears in the appendix.]

Senator HATCH. Mr. Vice Chairman, I am going to submit some

questions for the panel, and hopefully they can answer them.

[The questions and responses appear in the appendix.]

Senator BAUCUS. Thank you. Thank you very much, Senator.

Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

First, let me congratulate all of the nominees that are here

today. I have had the opportunity to meet with some of you all in

the recent weeks, and we look forward to working with you.

There are so many important issues that come before this committee, so many that are really on the hearts and minds of my constituents. Obviously, as an agricultural State, the integrity of our

farm safety net within the Doha Round’s negotiations and our ability to react quickly to the instances of unfair trade are issues that

really hit home for many American farmers, workers, families, with

a tremendous steel industry, poultry industry, and others that we

have in our State, these issues are very prevalent on working

Americans’, and particularly working Arkansans’, minds.

I kind of associate myself with Senator Smith, because those of

us who have tried so desperately to work within the realms of an

open mind to trade and being there working to move forward the

initiatives of trade for our country and opening up that global economy, are finding a tremendous amount more resistance from our

constituencies who do not believe that, as Americans, we are willing to demand the respect that we need to demand in a global marketplace, and that we do not find that fair trade is as important

as free trade.

So I think you all have many, many responsibilities and some

very difficult intersections ahead of you in the jobs that you have

to do, and I hope that we can work together, as we can bring to

you, probably, a more public view of what Americans are thinking,

and then you in turn will have to sit down, and I think in many

instances at some very hard discussions, and demand that respect,

as well as the engagement of other countries in this global economy.

I have to reiterate today that Congress sets the foreign policy in

this country. As you all work in the WTO in these coming months,

we are really going to have to demand Europeans and others to
22

step up to the plate and provide meaningful access for our producers. Dr. Schwab mentioned this, as Senator Baucus asked the

question about our Amber Box reductions.

I think American farmers have been willing to try opening up

markets—Freedom to Farm was that initiative—to say, you know,

there is a great, big marketplace out there, why do you not go and

play in it? But they also need to have the support that we are

going to fight for them in that marketplace, and they did not receive that support.

Consequently, we are back with a new farm bill that was negotiated in, I think, a very bipartisan way to try to provide a kind

of safety net that came into effect when our agricultural producers

needed it, but when the marketplace was working, it did not activate. I think it was a good beginning.

So, I just think there is a lot of work ahead of us, and I really

do hope that we can work together and come up with some positive

results, because I think our economy is going to need it in the next

several decades. It is going to really need your thoughtful, and

somewhat defensive work.

So many of my colleagues have mentioned today many of the

other issues that I wanted to bring up. Softwood lumber. We are

at a critical point in our Canadian softwood lumber dispute. For

the fourth time, as we all know, the NAFTA panel has remanded

back to the Commerce Department a decision that interprets our

law and instructs the Department to recalculate those subsidies.

Mr. Lavin, I guess my question there is, as Under Secretary for

International Trade at Commerce, what can you assure us that you

will do to ensure that that original subsidy rate that is going to be

now under review, and will continue to be under review, will not

go below that de minimis rate?

Mr. LAVIN. Senator, thank you for your question. You and I, I believe, had a very fruitful discussion on this topic, and I am grateful

to get back into it.

It is difficult, in the position I currently sit in, to give a precise

answer to your question. But I can assure you of this: we will turn

over every single stone we can to make sure that American workers are not victimized by unfair trade practices.

We are not simply going to be on the receiving end of a NAFTA

remand. So if there are mechanisms we have that allow us to go

back into this issue again, we are going to pursue them.

Senator LINCOLN. Well, with all due respect, Mr. Lavin, I have

to say, you have talked an awful lot about a big toolbox with lots

of tools. For those of us who have been fighting these battles for,

unfortunately, more time than we would like to talk about, I think

the specifics of what tools you are going to use and how you are

going to use that toolbox are completely appropriate.

So, I hope that we will hear more about the tools that you intend

to use out of that toolbox and the passion that you intend to put

behind them, and I think that is very important.

Dr. Schwab, you were asked by Senator Baucus about agriculture. I guess one of the things that I have great concern about,

is that, as we move into these negotiations and the offer that was

put on the table by Ambassador Portman with the 60 percent

Amber Box reduction, even with the reductions that would be
23

asked of the other countries, Europe, Japan and others, they are

still going to be supplying or providing a greater subsidy than we

will because they are so much further ahead of us now. So, obviously they are still going to be ahead. There is no doubt that being

able to equalize some of that is very important.

I guess my real question is, how can we really trust those trading partners, that they are going to do what they say they are

going to do, when, from our administration’s standpoint, particularly in the budget this year, the administration was willing to

jump out ahead of the negotiations and the talks and actually ask

for reductions in our safety net programs through the budgetary

process as opposed to the negotiations of our legislation like our

farm bill, or through the actual negotiations of trade agreements.

I mean, if I were our trading partners, I would say, well, why

do I need to fight for this? I have got the administration fighting

for me in terms of those reductions of subsidies. Why should I have

to do anything?

Dr. SCHWAB. Senator, you ask a very good question. When I

started out my career as an agricultural trade negotiator, one of

the things I learned was that our farmers are as competitive and

as hardworking as any you will find in the world, and our $60 billion in farm agricultural exports last year are a testament to that.

Senator LINCOLN. Well, you will not get any argument out of this

farmer’s daughter. [Laughter.]

Dr. SCHWAB. But I also never came across a farmer who wanted

a subsidy.

Senator LINCOLN. That is right.

Dr. SCHWAB. So I think, clearly, the potential is there for a clear

win-win with the kind of framework-dictated disproportionate cuts

that we are talking about in trade barriers, enhancement of access

to foreign markets for our agricultural products, and the reduction

of trade-distorting export subsidies.

Clearly, the negotiations will operate in the context of the existing farm bill, but the idea would be to make those kinds of supports unnecessary and unneeded. In the interim, they exist and we

need to be supportive of our agricultural community.

Senator LINCOLN. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Bhatia, something dealing with the privatization of Japan’s postal service. I assume that that is going to happen because of the reelection of the Prime Minster there.

It is my understanding that there may be an attempt, as this privatization unfolds, of the prospect that Kemper may introduce new

or modified insurance products or services before special advantages are eliminated, and so create an unlevel playing field for insurance industries from anyplace in the world that may want to

sell insurance there.

Have you studied that? If you have, what would you do to make

sure that there is a level playing field?

Mr. BHATIA. Mr. Chairman, you are exactly right. The Japanese

postal privatization obviously was at the core of Prime Minister

Koizumi’s reelection campaign. My understanding is, actually, the

legislation was just passed either last Friday or yesterday by the

Japanese Diet that allows that to move forward.
24

I am also well familiar with the issue or concern on the part of

many American companies, frankly, that competition with this

newly privatized entity—or I guess four entities, as they are looking to break it up—remains, that there is the ability for U.S. companies to compete fairly with them, whether it is in the insurance

industry, financial products, or express services. This actually was

a subject that was briefed to me when I was in Japan earlier this

year by our Chamber of Commerce there. So, I am aware of it.

I think, at this point, without having had any promulgation of

regulations or rules by the Japanese government or the implementation, I think it falls to us principally to make very clear to the

Japanese government that we would look for that implementation,

including in the period that starts right now, to preserve a fair,

level playing field for our companies, that they do not have to compete against a Japan Post that continues to retain monopoly powers.

But this is one that is going to bear very close watching and,

frankly, a lot of bilateral dialogue between ourselves and our Japanese partners.

The CHAIRMAN. On another point, in dealing with the negotiations now going on in the Doha Round, two things. One, we have

a major goal of market access. Number two, India is playing a

major and prominent role in these negotiations.

So, if confirmed, what steps would you take to get the Indian

government to engage more constructively, particularly in this area

of market access liberalization?

Mr. BHATIA. Thank you, Mr. Chairman. I am very cognizant of

the important role that India plays, not only in the Doha Round,

but frankly, I think, in a regional context in the area. I mean, it

is the source both of tremendous opportunities, I think, frankly, but

also some significant challenges.

I think there are some signals that India itself is reconsidering

its approach to international trade in a way that would be more

productive. Recently, earlier this year, I had the privilege of concluding a bilateral Open Skies agreement between the United

States and India that basically removes all trade restrictions and

completely opens the Indian international aviation and air services

market to U.S. companies.

So, there are some signals like that that suggest the Indian government is moving in the right direction. But I would say that the

jury is still very much out on that. Part of the basis upon which

it will be judged is how constructive a role they are able to play

at the WTO in market access, in agriculture, and in other areas,

and frankly, what sort of bilateral steps we are able to take.

One thing I would point to is the trade policy forum that was recently launched between Ambassador Portman and Minister Nath

in India. I think that would be a very useful tool, or could be a very

useful tool, to promote the kind of bilateral cooperation between

the U.S. and India in trade that would help us get, frankly, greater

support from them in the international multilateral realm as well.

The CHAIRMAN. Yes. Thank you.

Dr. Schwab, I will ask a question and then give some background

from my point of view before you answer. I guess I would ask for

some sort of a commitment to work to see that Brazil is rightly con-
25

sidered a developed country—from the standpoint, at least, of agriculture—in the WTO negotiations.

This comes from the fact—and obviously you are up on it more

than I am—about how Brazil wants to be considered a developing

nation when it comes to agriculture, and they have very advanced

agriculture.

Their farms are tremendously large. They are major players in

soybeans, pork, cattle, as an example. They are probably as advanced in agriculture as what we have in the United States as far

as their commercial agriculture is concerned, and yet they want to

be considered a developing nation, get special privileges as a developing nation from the agricultural negotiation standpoint, or at

least the results of those negotiations. That is the problem, as I

see it.

I guess my question is, how do you see it?

Dr. SCHWAB. Mr. Chairman, you make a very, very good point.

As you know, Brazil is the second-largest soybean exporting country in the world, for example, a sector that largely did not exist

until the U.S. soybean embargo in 1973. So, this has been a dramatic jump in terms of Brazil’s agricultural prowess.

I think you would be pleased to know that, in the agricultural

proposal that was put forward last week by Ambassador Portman,

the anticipated reductions in barriers to trade and reductions and

elimination of trade-distorting practices would apply to countries,

regardless of their status, developed or developing. Brazil, as you

know, is a leader among the G–20 countries that have been arguing in favor of dramatic action in agriculture.

As a leader of the G–20, it is time for Brazil to not just be asking, but also to be considering what kind of concessions that Brazil

and other G–20 countries need to bring to the table in response to

the bold proposal that was put forward last week.

The CHAIRMAN. Thank you.

Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

I would ask Mr. Bhatia and Dr. Schwab, what are our largest

trade problems in the world today, from the United States’ point

of view? Which countries present the largest trade barriers to us?

If you could just list the top two or three biggest trade problems

we have today, wherever they might be.

Dr. SCHWAB. I could start with a couple that have been raised

this morning. We talked about intellectual property and protection

of intellectual property rights. China has come up as an issue. We

have not mentioned Russia.

Senator BAUCUS. So we have IP. What else, more specifically instead of China, generally, as a country?

Dr. SCHWAB. I am talking about intellectual property, in terms

of intellectual property rights protection. It is China, Russia, for example, that are the countries where there are particular issues.

Senator BAUCUS. All right. So intellectual property with those

countries. That is one.

Dr. SCHWAB. Agriculture. We have talked about the Europeans.

We have talked about the Japanese, for example.

Senator BAUCUS. And what Japanese practices?

Dr. SCHWAB. Import restrictions. Karan?
26

Mr. BHATIA. Clearly, there are issues, Senator, that have come

up here, both with respect to the beef ban that continues that is,

frankly, very troubling that has not been resolved, as we have discussed, and the new issues that are being posed by the postal privatization.

I think another challenge, frankly, Senator, with respect to

Japan, China, and others, is to make APEC and the Asia-Pacific

region a dynamic region and one in which we are fully engaged. I

mean, I think we are looking now at a plethora of bilateral free

trade agreements that are popping up between Japan and Malaysia, between China and Malaysia.

I think one of the challenges that we have before us is to make

sure that as that continues, as that integration goes forward, that

we are a part of it, we are shaping it, we are driving it, and we

are not, frankly, excluded from it. So, that, I would throw into the

category of things that I see as being significant trade challenges

for us.

Senator BAUCUS. All right. Yes?

Dr. SCHWAB. If you look at the three areas of focus for the Doha

Round, non-agricultural market access, services, and agriculture,

you are talking about a scope of issues really designed to address

in negotiations some of the major barriers and trade-distorting

practices that exist in the world today that hinder the potential for

U.S. exports and U.S. trade.

Senator BAUCUS. All right. So you are talking about three: Doha,

IP, a little bit in Japan, the postal issue, and then in addition to

that, U.S. inclusion in shaping a lot of these FTAs going around

the world. I am going to ask you to report back to us in 6 months

with what progress you have made on each of them.

I want you to quantify it. I want you to quantify it. I want you

to quantify what you think the problem is today. That is the benchmark. Then I want you to come back in 6 months and tell us what

progress you have or have not made during that period, and then

quantify it.

Mr. BHATIA. Thank you, Senator. We would look forward to doing

that.

Dr. SCHWAB. Thank you.

Senator BAUCUS. Next, your thoughts on the former Super 301

we used to have. Was that a good statute or not a good statute?

It has expired, as you know. Your thoughts about reenacting it in

some form. In explaining it, you might tell the world what Super

301 was.

Dr. SCHWAB. Senator, Super 301, as you know, when it was enacted as part of the 1988 Trade and Competitiveness Act, was a

systematic means of bringing forward U.S. actions against unjustified, unreasonable, unfair foreign trade practices. ‘‘Systematic’’

means it was linked to the National Trade Estimate report that is

issued annually by the U.S. Trade Representative’s office.

Senator BAUCUS. Right. But basically it prioritized the most egregious practices.

Mr. BHATIA. Right.

Senator BAUCUS. And basically it then said, all right, USTR, try

to negotiate with these countries under the threat of sanction. That

is basically what it was. Is that correct?
27

Dr. SCHWAB. That is correct.

Senator BAUCUS. All right.

So what about reenacting that today?

Dr. SCHWAB. The context for Super 301 has changed. With the

establishment of the WTO in 1996, at that point Super 301, as a

tool—and to a degree Section 301—became a much harder tool to

use as an initiating tool without going crosswise with WTO rules.

We have, though, as you know, brought 75 cases to the WTO

since 1996. Of those 75 cases, my understanding is, 24 of them

have been resolved through negotiation or without resorting to

final action on the case; 24 of them were resolved through panel

reports that largely agreed with where the United States’ core

issues were.

Super 301 can be used with countries that are not WTO members to initiate activities, and it also can be used for retaliation.

Senator BAUCUS. I appreciate that. I am going to be introducing

legislation that modifies Super 301. I agree with you that the world

has changed since that expired, because the world is more complicated now with WTO, et cetera. But I think that, nevertheless,

some modified form is necessary.

The modification would essentially direct the administration to

list the most egregious practices and then tell Congress what it is

doing about it. That certainly does not violate WTO. There is more

transparency. It lets the American people know what the biggest

problems are.

It lets Congress know, and the people know, what is or is not

being done about all this. I think all of this is very important because, as you said, Dr. Schwab, in your opening statement, we are

at a crossroads in American history. What is the future of the

United States in terms of not only economic policy, but political

and social policy, for that matter?

I believe for a long time the United States, because we have been

the big boy on the block, we have been able to kind of let people,

as we saw it, kick our shins a little bit, nibble us a little bit, because we can deal with it. We are the United States, after all.

But the world has changed. That is not the world today. The

world today is extremely competitive. I think it is more competitive

than most Americans realize. I think it is more competitive than

most people in government realize, including the executive branch,

including some of the trade people, recognize.

We have our work cut out for us. It raises a deeper question of,

what clout does the United States have any more? We are extended

so thinly worldwide, especially in the Middle East.

Other countries are working so aggressively. You know the figures, what China is doing, what India is doing, Indonesia, and

other countries as well. I just think that we in the United States

have to stand up a little taller, a little more firmly.

I believe in being fair, but firm. I do not think we have been firm

enough. If we are going to still be the biggest, strongest country in

the world, particularly for our kids and grandkids, we have our

work cut out for us in spades. You have a heck of a job on your

hands.

An example, again, is the negotiations at the WTO with respect

to agriculture. American farmers today are going to be a lot, lot
28

more interested in looking to see what is or is not being negotiated.

In part, it is because their industry, as well as almost every other

industry, is so much more competitive today than it was many

years ago.

Many years ago we could, incredibly, as Americans, agree in

WTO to let each country, on a percentage basis, reduce its subsidies, which left the Europeans now with three times what we

have. I mean, it is incomprehensible that the United States of

America would agree to something like that. But we did back then

because we could afford it, somewhat. But we cannot any more. We

cannot any more. We cannot any more let other countries out-negotiate us on trade.

The Canadians tend to because trade is so much more important,

proportionately, in Canada than it is in the United States. Trade

is almost everything in Canada. It is very little in the psyche of the

American mind. Trade is so much more important to Europeans

than it is to Americans, so they are much more aggressive. They

work a lot harder at it.

You cannot tell me that China does not care about its economic

policy. You bet it does. Aggressively. Very aggressively. Very, very

aggressively. I just would tell you, we will be looking very closely

at your performance, or lack thereof.

But I wish you well. We all wish you very, very well. But you

have got a very, very difficult job on your hands, extremely difficult, as does the administration, generally, here. It means us getting smart with China, smart with Japan, smart with other countries, being firm with these countries. These countries are out for

themselves, as they should be. No country altruistically, out of the

goodness of its heart, is going to lower the trade barrier.

They never do, never have. The only language they understand

is leverage. You have to be there with leverage. Words do not do

it. I have deep, deep experience with words with these countries on

trade matters. I will not tell you all of them, but it goes on forever.

In my experience, for all this to work, again, is leverage, so you

have to find the leverage. You have to convince the other agencies

in the government, you have to convince the White House to not

let other political or other concerns get in the way.

Ultimately, we will only be the country we want to be, politically,

economically, if we are very strong economically here at home.

That is the bottom line. If we are strong economically at home, we

are going to be able to project power, be able to project influence

in all corners of the earth, and be able to maintain the high ethical

and moral standards that we like to think that we have.

So, good luck. I wish you very good luck. I wish you more good

luck than any other nominees that have appeared before this committee, because I think the stakes are that much higher.

Mr. BHATIA. Thank you.

Dr. SCHWAB. Thank you, Senator.

The CHAIRMAN. Thank you, Senator Baucus.

Let me compliment each of you for your desire for further public

service. Thank you very much for doing it. The only admonition I

would give you at this point would be that if members submit questions for answer in writing, that you would get them back just as

soon as you can.
29

Senator BAUCUS. And if I might add to that, Mr. Chairman, often

when we run out of time here we submit questions for the record,

and sometimes the answers come back pablum. I urge you not to

give us pablum.

Give us real, honest answers to these questions, please, because

they are asked for a good purpose, a good reason, and that is basically to help advance the ball. That is basically to help the American people lead better lives. Thank you.

The CHAIRMAN. Yes. Thank you all very much.

The hearing is adjourned.

[Whereupon, at 11:34 a.m., the hearing was concluded.]

(31)

A P P E N D I X

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF KARAN K. BHATIA
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131

Æ