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37–635—PDF 2006

S. HRG. 109–977

NOMINATIONS OF JOHN K. VERONEAU

AND ROBERT K. STEEL

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

ON THE

NOMINATIONS OF

JOHN K. VERONEAU, TO BE DEPUTY U.S. TRADE REPRESENTATIVE

WITH THE RANK OF AMBASSADOR, EXECUTIVE OFFICE OF THE

PRESIDENT; AND ROBERT K. STEEL, TO BE UNDER SECRETARY, U.S.

DEPARTMENT OF THE TREASURY

SEPTEMBER 21, 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

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 1

ADMINISTRATION NOMINEES

Steel, Robert K., nominated to be Under Secretary, U.S. Department of the

Treasury, Washington, DC .................................................................................. 4

Veroneau, John K., nominated to be Deputy U.S. Trade Representative with

the rank of Ambassador, Executive Office of the President, Washington,

DC .......................................................................................................................... 5

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

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

Prepared statement .......................................................................................... 23

Frist, Hon. Bill:

Prepared statement .......................................................................................... 25

Grassley, Hon. Charles E.:

Prepared statement .......................................................................................... 26

Steel, Robert K.:

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

Prepared statement .......................................................................................... 27

Biographical information ................................................................................. 29

Responses to questions from committee members ......................................... 39

Veroneau, John K.:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 45

Biographical information ................................................................................. 47

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

(III)

(1)

NOMINATIONS OF JOHN K. VERONEAU, TO

BE DEPUTY U.S. TRADE REPRESENTATIVE

WITH THE RANK OF AMBASSADOR, EXECUTIVE OFFICE OF THE PRESIDENT; AND

ROBERT K. STEEL, TO BE UNDER SECRETARY, U.S. DEPARTMENT OF THE TREASURY

THURSDAY, SEPTEMBER 21, 2006

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:37 a.m., in

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

Grassley (chairman of the committee) presiding.

Present: Senator Baucus.

The CHAIRMAN. We are going to start the hearing right away, but

I have to go next door here to make a quorum for Judiciary, so I

am going to ask Senator Baucus to conduct the hearing in my absence.

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

Today we consider two important nominees, Robert Steel to be

Under Secretary for Domestic Finance, and John Veroneau, to be

Deputy U.S. Trade Representative. Both of these nominees will

face tough challenges. They both appear to be up to the task.

Let me start, first, with Mr. Steel. President Clinton’s advisor,

James Carvel, once famously remarked that in his next life, he

wanted to come back as the bond market because it was so powerful.

Mr. Steel has seen that power up close. He knows how it works.

He is well-suited to serve as the government’s primary ambassador

to the bond market, the Under Secretary of Domestic Finance.

Mr. Steel comes highly recommended by Democrats and Republicans alike. I am pleased that Secretary Paulson is bringing in talent of the highest caliber.

Once confirmed, Mr. Steel will supervise the issuance of Federal

debt, maybe even figure out a way to insure it, too. His job will include the grim task of recommending when Congress will need to

raise the statutory debt limit.

2

Unfortunately, his predecessors over the past 6 years told Con- gress that we had to raise the debt limit by about $3 trillion. The

debt limit has increased by 50 percent during that time, from $6

trillion to $9 trillion. That means that every man, woman and child

in America carries a debt burden of about $30,000.

And the future does not look better. The administration projects that the debt will rise to $11 trillion in the next 5 years. Beyond

that, the picture gets even worse. Do we really want to leave that

kind of burden to our grandchildren?

Much of the increase in the debt is financed by foreigners. During this administration, debt held by foreigners has doubled. If foreigners decided to buy less of our debt, it could cause a drop in the

value of the dollar. It could cause a rapid increase in interest rates.

It could cause a recession.

We are in this mess because the government has failed to act responsibly. We need to change course. We need to return to paying

as we go.

We were doing just that as recently as 6 years ago. The Treasury

Department played a big role in that effort, and Treasury should

play a role again.

As one of Secretary Paulson’s senior domestic advisors, I hope

that Mr. Steel will help to restore fiscal sanity. I hope that he will

bring a little of that power of the bond market into the room to

help us change course.

I am also pleased that the committee is considering Mr.

Veroneau’s nomination to become Deputy USTR. I believe that Mr.

Veroneau is well-qualified. He has served both as Assistant USTR

for Legislative Affairs and USTR General Counsel.

I admire and appreciate his willingness to return to public service to serve in this important post, and I have confidence that he

will be a great asset to USTR.

I believe that his skills and experience will be put to good use

during this difficult period in trade policy. The Doha Round negotiations are at an impasse, WTO members differ on how the system

should operate, populism is on the increase, particularly in South

America, and I understand it will be part of his portfolio. To break

the deadlock, America will have to provide real leadership. There

is nobody else who can.

But providing leadership abroad will be difficult if we do not first

address concerns about trade here at home. Many have serious concerns about the way that this administration has used trade promotion authority. That authority expires in less than a year, and

I for one do not see a smooth path to renewal. I favor it, but I do

not see a smooth path. It is going to be very difficult.

Mr. Veroneau has extensive experience with the Senate. He is

well-placed to meaningfully address Congressional concerns and to

help find a way forward.

I again thank both the nominees for their willingness to serve.

It is a real sacrifice, especially to their families. I look forward to

working with them in the future, and I really mean that.

We have to form a real partnership, you, us, the executive

branch, and the Congress. I think this committee is developing

good relationships with a good number of people that this committee deals with, and I extend my hand to both of you and tell

3

you I am more than willing to want to work to try to find solutions

here, and I know you both feel the same way.

Thank you.

The CHAIRMAN. Thank you, Senator Baucus.

[The prepared statement of Senator Baucus appears in the appendix.]

The CHAIRMAN. I believe, in listening to Senator Baucus, he covered most of the points that I would on each of these individuals.

I would highlight this, though, that Senator Frist had hoped to

be here to introduce Mr. Veroneau, and he is submitting a statement that I am going to put in the record for him and express his

regrets that he cannot be here.

[The prepared statement of Senator Frist appears in the appendix.]

The CHAIRMAN. Of course, I would be repetitive of what Senator

Baucus said about speaking to your vast experience on Capitol Hill,

in Washington, in the private sector, so I will not repeat that, but

it will be printed in the record.

[The prepared statement of Senator Grassley appears in the appendix.]

The CHAIRMAN. Then I would only highlight, in the case of Mr.

Steel, long years of experience in which he, for 30 years, has experienced and seen the dynamic change in how people utilize the capital markets on both the domestic and international level, and how

that is going to prepare him well for his duties as Under Secretary.

So with that in mind, we will now turn to you. We do not swear

people in in this committee, so we ask you to do two things. One,

give any opening statement you want to make to the committee. A

long statement, if you have one, will be printed in the record. Then

we would like to have each of you, maybe before either one of you

speaks, to introduce family and friends who are with you and have

come here to support you, and ask them to stand as you introduce

them.

Mr. Veroneau, would you like to start with introduction of family, friends, and supporters?

Mr. VERONEAU. Thank you, Mr. Chairman. With me today are

my wife Carol, my sons Zach and Sam, my sister Anne, and my sister-in-law Cathy.

Senator BAUCUS. Would you all stand so we can applaud you?

Because you have a lot of teamwork here. You have to work together. [Applause.]

The CHAIRMAN. And Mr. Steel?

Mr. STEEL. Yes. Thank you, Mr. Chairman. With me today are

my wife, Gillian, of 26 years, and my two brothers, John and

Charles. Our three daughters, all of whom are college-aged, are

hopefully either in class or studying, because that is what they told

me they were doing today. [Laughter.]

The CHAIRMAN. All right.

Senator BAUCUS. Congratulations, all of you. [Applause.]

The CHAIRMAN. Thank you.

Mr. Steel, we will start with your testimony.

4

STATEMENT OF ROBERT K. STEEL, NOMINATED TO BE UNDER

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

Mr. STEEL. Thank you. Chairman Grassley, Ranking Member

Baucus, and distinguished members of the committee, thank you

for the opportunity to testify today. I am both honored and enthusiastic about being nominated to the position of Under Secretary of

the Treasury for Domestic Finance.

If confirmed, I look forward to serving the President, the Secretary of Treasury, and our country in this position. I also look forward to working closely with the Congress on a variety of important issues facing our country.

I am also honored, especially as I know many of the people who

have held this position previously, and I am humbled to assume

these same responsibilities as this group of distinguished public

servants.

I am enthusiastic because of the opportunity to work for this administration, and for Secretary Paulson. The Secretary and I have

worked closely together for almost 3 decades. I know him to be a

leader of wisdom and integrity, and would look forward, subject to

confirmation, to being a member of his Treasury team.

I hope that my personal and professional background is a good

fit with the responsibilities of this position. Recently, I retired from

Goldman Sachs after nearly 30 years with the firm and, over that

time, had the opportunity to be part of the significant evolution

and change in the domestic and international capital markets.

My career started in 1976 in the company’s Chicago office, and

I rose through the ranks to become co-head of institutional sales

in Chicago by 1984.

In 1987, I relocated to London to establish the firm’s equity capital markets efforts in Europe. At this time there was a movement

in Europe to privatize major state-owned companies and a transition towards a more market-driven economy.

I was directly involved in the efforts to transition these companies, which included major telecommunications, utility, and energy

holdings of the different governments of Europe.

In 1996, I became co-head of the Equities Division and joined the

firm’s Management Committee. Lastly, I was appointed vice chairman of the firm, and these responsibilities expanded to include

many cross-divisional strategic activities.

Today, I remain an advisor to the firm and, when asked, play an

active role in issues related to inter-firm training, education, and

diversity initiatives.

Over the course of my career I have had the benefit of great

counsel from many of my colleagues and our firm’s esteemed clients. I generally believe that these experiences should give me an

appropriate foundation to do my best with regard to the responsibilities related to this position.

I have also had the opportunity to participate in the academic

and public policy worlds, using my experience to help frame discussions of important issues facing our markets and our economy.

If confirmed as Under Secretary for Domestic Finance, I plan on

bringing my understanding of financial matters and my commitment to sound public policy to the Treasury Department.

5

In closing, I want to thank you for your consideration and want

to pledge to you that, if confirmed, I will fulfill my duties as Under

Secretary to the best of my ability.

I welcome your questions today.

The CHAIRMAN. Thank you.

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

The CHAIRMAN. Now we will go on to Mr. Veroneau, then we will

come back to questioning.

STATEMENT OF JOHN K. VERONEAU, NOMINATED TO BE DEPUTY U.S. TRADE REPRESENTATIVE WITH THE RANK OF AMBASSADOR, EXECUTIVE OFFICE OF THE PRESIDENT, WASHINGTON, DC

Mr. VERONEAU. Thank you, Mr. Chairman.

Chairman Grassley, Senator Baucus, it is a pleasure to be here

today. I deeply appreciate your time and consideration. I am grateful for the confidence shown in me by the President and Ambassador Schwab in nominating me for this position.

I would like to thank, publicly, my wife Carol and our sons, Sam

and Zach, for supporting my continued interest in government

service.

While previously at USTR, I had the pleasure of working with

this committee on many trade policy and enforcement issues. I applaud the committee’s bipartisan approach to trade and, if confirmed, look forward to working closely with you to continue that

tradition.

I believe strongly that open markets best serve America’s longterm interests, but recognize that even the best policies are for

naught if they lack political support. It is incumbent upon those of

us who endorse global trade to ensure and to demonstrate that,

over time, open markets serve the interests of all Americans.

Those of us who benefit most directly and immediately from a

global economy must redress those who, in the short term, may be

adversely affected. We must support policies that encourage job

creation and help workers in acquiring new skills.

At the same time, I think it is important to realize that the global economic pie is not fixed. Trade between nations enhances the

well-being of the citizens in both countries.

Twenty-five years ago I helped Cambodian refugees fleeing genocide under Pol Pot to build new lives here in America. Today, economic opportunities exist in Cambodia, thanks in part to trade

agreements that simply did not exist at the time. Economic

progress in Cambodia is clearly good for Cambodia, but it is also

good for America.

Consumers benefit from a wider choice of goods and, over time,

Cambodia will provide a growing market for U.S. exports. Greater

economic and political stability in Cambodia will also enhance our

security interests in that part of the world.

Open trade, along with technological changes and other factors,

have made the 21st century a period of unprecedented growth and

change in the world. The challenge of the next few years will be

to continue to secure the benefits of a global economy, while building political support for the institutions and policies that make

global integration possible.

6

The chairman of the Federal Reserve Bank recently cautioned

that further global economic integration ‘‘should not be taken for

granted.’’ He then pressed the need to ‘‘ensure that the benefits of

global economic integration are sufficiently widely shared.’’ I share

Chairman Bernanke’s sentiments in this regard.

If confirmed, I welcome the opportunity to work with this committee to advance vigorously our trade interests and to maximize

the benefits of global integration for all Americans. I thank you for

your time this morning.

The CHAIRMAN. Well, thank you very much.

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

The CHAIRMAN. We have three questions that we ask everybody,

and all you have to do is answer ‘‘I will’’ or ‘‘I will not.’’

The first question is, and I would ask you to answer separately,

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. Steel?

Mr. STEEL. No, Mr. Chairman.

The CHAIRMAN. Mr. Veroneau?

Mr. VERONEAU. No, Mr. Chairman.

The CHAIRMAN. Next, 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. Steel?

Mr. STEEL. No, Mr. Chairman.

Mr. VERONEAU. No, Mr. Chairman.

The CHAIRMAN. Third, 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. Steel?

Mr. STEEL. Yes, Mr. Chairman.

Mr. VERONEAU. Yes, Mr. Chairman.

The CHAIRMAN. My first question is for Mr. Steel. As recently as

Tuesday in the Wall Street Journal, but in other places as well, we

have been reading a lot about hedge fund losses and the pension

plans that invest in them.

We are now also hearing—and this is what I am referring to recently reading about—the United Kingdom is looking into potential

tax abuses by hedge funds.

I would like to know your views on these matters and would like

you to share with us whether these are areas related to hedge

funds that you believe need to have a heightened level of scrutiny

with regard to public policy, and in regard to tax policy.

I do not pretend that you ought to know what this committee has

been active in, so let me tell you in regard to tax policy and hedge

funds and things of that nature.

This committee has had quite a crusade on to close abusive tax

shelters or other ways that people are avoiding taxes, and particularly under Senator Baucus’s leadership in that effort, and doing

other things to close the tax gap. So, in regard to public policy as

well as tax policy.

Mr. STEEL. Thank you, Mr. Chairman. Let me approach the

question in maybe three ways. One, let us look at the position of

hedge funds; two, think about what the issues are; and three, the

7

public policy remedies, and then maybe comment on the tax issue

lastly, if I might.

The CHAIRMAN. Yes.

Mr. STEEL. First, with regard to the landscape with hedge funds, if one goes back just to about 1990, there were probably about $50

billion in hedge funds. Today, depending on which numbers you believe, it is between $1.2 to $1.5 trillion. So, clearly this has changed

the landscape, and it is something quite important to be aware of.

From my perspective, number two, the key public policy issues

really relate to systemic risk and to protection of the people so that

the right people are investing in hedge funds.

What I mean by both of those is, from a systemic risk perspective, we need to understand when hedge funds might have positions that could affect the system in a broad way. I will come to

that in my policy point.

Second, I think the issue is that hedge funds are a sophisticated

instrument for investment. They should be available to people who

can live with the illiquidity and the potential risk and non-transparency of the hedge fund regimen.

With regard to what should be done, I think that, if you go back

to 1998 and in the wake of the long-term capital situation, in 1999

the President’s working group reported that they saw no direct

need for regulation specifically.

Instead, there are ways that the SEC has, whether it is through

the anti-fraud provisions or market manipulation issues, to monitor. The counter-party network is really the best way to monitor

the risk.

Having said that, there are many groups looking at this. At

Treasury, it is my understanding that there will be meetings this

fall with both people who were participants and public policy people to discuss what is going on in the hedge fund market. The SEC

has indicated that they are interested in this also. So, I think now

is the time, from a public policy perspective, to pause, reevaluate,

and see what might be needed from a public policy perspective.

With regard to the tax issue, I know what I have read. It seems

as though there was an agreement with Inland Revenue and this

specific hedge fund in the United Kingdom to come to a settlement.

Without knowing the specifics, it certainly seems appropriate

that vigilant review of the appropriate domicile for taxing should

be part of this, and people should not be able to seek a place that

gives them a preferred tax rate.

So that should be part of that, and I look forward to learning

more about it and working with you to make sure, if confirmed,

that this is something that the government is vigilant about from

a collection of taxes.

The CHAIRMAN. All right.

Also, you are going to be involved, of course, in advising the Secretary and Deputy Secretary in areas of domestic finance, banking,

and fiscal policy. Your office includes many different policy areas

and programs that will give you the opportunity to have an impact

in many ways.

So, getting some direction from you—as you probably considered

whether or not you ought to take the appointment and the impact

that you make, because I would think that you would see your job

8

as trying to improve everything that would come within your jurisdiction so we would have a better economy, a better country—if you

are confirmed, what would your priorities be? Where would you

like to have an impact, from day one, as you begin your tenure as

Under Secretary?

And maybe if you could be specific from this standpoint: if there

are policies that are being done that you think ought to be

changed, where would you change those?

Mr. STEEL. Thank you. Maybe the right way would be to highlight three areas that seem to me, from the outside, to be areas of

interest and where, having spoken to Secretary Paulson, we would

like to work together, should I be confirmed. I think the first we

would put under the rubric of the competitiveness of the American

capital markets.

In 2002, the Sarbanes-Oxley bill was passed, and it was very

constructive and a very positive force. But here we are 4 years

later, and it seems as though there are aspects of that that warrant review and possibly modification. So I think making sure that

America has the best capital markets and focusing on the competitiveness would be one.

I think the second issue, sir, has to be the issue of entitlements.

This is an important issue, going back to Senator Baucus’s opening

comments about the issues that we really owe it to ourselves to

take charge of.

Secretary Paulson said recently that when you see a large problem you should run toward it to deal with it, as opposed to running

from it. As Senator Baucus outlined, this is an impending issue

that requires our attention. So I think the entitlements aspect,

with the dual issues of Social Security and Medicare/Medicaid,

would be item number two.

I think for the third—and this is something that is really going

on right now in Congress—is the issue of reform for GSEs. It is appropriate to consider reform with the key issues being to deal with

a stronger regulator and to protect against systemic risk, but also

to ensure that the housing market remains strong and confident,

and that people who want access to finance so as to buy a home

and to fund their housing have confidence in the system, too. So

those would be three areas and how I might think about how to

approach them.

The CHAIRMAN. All right.

After Senator Baucus gets done with his questioning, I would

have four or five questions for you, Mr. Veroneau.

Go ahead, Senator Baucus.

Senator BAUCUS. Mr. Steel, what did Secretary Paulson say to

you to get you to take this job? [Laughter.]

Mr. STEEL. Well, I think the reality is, Secretary Paulson and I

have been friends for a long time, and he has been a great person

to work for. The idea of being part of his Treasury team is quite

appealing.

I guess I would say parenthetically, Senator Baucus, that Goldman Sachs is a place that has a long tradition of encouraging all

of us to think about what we can do, not just for our firm, but in

a bigger sense.

9

In the 30 years I worked at the firm, there were six leaders of

the firm: John Whitehead, John Weinberg, Bob Rubin, Steve Friedman, John Corzine, and Hank Paulson—Secretary Paulson, I beg

your pardon.

If you think about the example they set, they were not bosses

that told you what to do. They were leaders that showed you what

to do. Every one of them has had this same aspect. So, I look forward to the privilege of working with Secretary Paulson and being

a part of his team.

Senator BAUCUS. I appreciate that. Maybe you answered my

question in your previous answer. But in addition to serving, generally, what do you want to accomplish? How do you want to be

remembered in 2 years?

Mr. STEEL. Well, I think, as I just said to Chairman Grassley,

I would go back to focusing on the issues that might be easy to

avoid, but really demand our attention. In your opening comments

you alluded to several. I think that entitlements would be high on

that list. Ensuring the competitiveness of American capital markets would be one, and otherwise focusing on those types of issues.

Senator BAUCUS. Right.

Now, what are your concerns in regard to competitiveness in the

capital markets?

Mr. STEEL. Well, I think that in the wake of Sarbanes-Oxley in

2002——

Senator BAUCUS. Yes. You anticipated that. In going through

your biography here, I see you wrote an article on July 29 in, I

guess maybe it was the Financial Times last year, in which you say

Sarbanes-Oxley was ‘‘a breath of fresh air.’’ I was curious the degree to which you still think that.

Mr. STEEL. Well, I think that there is no question that it was

successful. If you look back, sir, at the time, with the issues that

were affecting the economy and the capital markets, we had all the

effects of the bursting of the telecom bubble. We had a lack of confidence with corporate management. We had the effects of 9/11 and

a slowing economy. Shortly after 9/11, it was the opinion of almost

every economist that we were heading into recession.

So you can see why these were the right tools for the task for

giving confidence in the capital markets. I think today we are 4

years later, and, as Secretary Paulson alluded to, sometimes the

pendulum swings too far.

Senator BAUCUS. Has it, do you think?

Mr. STEEL. I think there is no question that we need to work together to look at these issues and see if that is not the case.

Senator BAUCUS. Because you hear a lot about public companies

going private. A lot of companies want to de-list, new listings are

overseas, not in New York.

Mr. STEEL. Yes.

Senator BAUCUS. What is going on?

Mr. STEEL. Well, I think that sometimes people kind of bang on

about that being only a Sarbanes-Oxley issue. I do not think that

is the case.

Senator BAUCUS. What else might it be?

Mr. STEEL. I think it is really issues related to, number one, capital markets outside the United States are better, deeper.

10

Senator BAUCUS. Better than they were in the past?

Mr. STEEL. Better than they were in the past.

Senator BAUCUS. All right.

Mr. STEEL. Thank you. And so I think that the competition is

better, and so we should realize that our markets have to improve

and be aware of that. And there are other aspects, whether it is

the litigation system, and there may be some parts of SarbanesOxley that can be part of all the ingredients in this issue. But it

is not simply one thing.

Senator BAUCUS. So what do you recommend? First, you want to

reexamine Sarbanes-Oxley. You mentioned litigation. What are the

other factors that, perhaps comparatively, make the U.S. capital

markets a little less competitive than they once were?

Mr. STEEL. Well, I think, as I said, it is the improvement of others. I think there are aspects of Sarbanes-Oxley. In particular, Sarbanes-Oxley is 75, 80 pages long, and there are about 150 words

in the fourth title of that in 404 that require review. That would

be one. I think, also, it is possible that certain other parts of the

U.S. markets need to be reconsidered, and we should see what we

can learn from other places.

Senator BAUCUS. What comes to mind there? What might we

learn?

Mr. STEEL. Well, I think that there are changes going on in the

American capital markets, increased use of technology, changing

business models, things like that.

Senator BAUCUS. What about this doubling of our foreign debt in

the last 5 years? What are we going to do about that? I mean, this

is serious. There is a lot of talk, but what can you pledge to do

about that?

Mr. STEEL. I think that my description would be, first of all, to

try to frame the issue. The level of debt that we currently have is

manageable, both by historic standards and compared to our other

major competitors. For example, we really, today, run with public

debt as a percent of GDP of about 36 percent. Throughout the

1990s, that was closer to 45 or 46 percent.

If you look at the G–7 countries, ex the United States, that same

number, which is 35 percent in the United States, would be close

to 60 percent. Having said that, the President and Secretary

Paulson have committed to reducing the deficit and driving it

down. They have a plan in place and the goal is to cut the deficit

by half by the year——

Senator BAUCUS. Right. But you have talked about debt as a percentage of GDP. I am talking about debt held by foreigners. This

may not be accurate, but I heard not long ago that, in the last year,

60, 70 percent of the new debt is purchased by foreigners.

Mr. STEEL. I do not know the number on the marginal debt, the

new debt.

Senator BAUCUS. Yes. Right.

Mr. STEEL. I know what it is on total.

Senator BAUCUS. But I am talking about the accumulation. The

trend is not good.

Mr. STEEL. Well, I think there is another way of looking at that.

That is, when foreign governments, who own today about 52 percent of the public debt of the United States, actually want to inVerDate 11-MAY-2000 10:57 Sep 24, 2007 Jkt 095484 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 37635.000 SFIN1 PsN: SFIN1
11

vest, it is a positive for us. It lowers the interest rate. Having competition of demand among different people to want to own our debt

is not all unconstructive. There are positive aspects for it, too.

So I think, as the issuer and someone who is seen as a place of

refuge, of sound investment with good return on a risk-adjusted

basis, that is a compliment to the United States. So while there are

attendant risks, potentially, I see it overall as a positive of having

competition for the debt, for owning our debt.

Senator BAUCUS. Right. Well, my time has expired. I will have

to come back later. Thank you.

The CHAIRMAN. I said I was done asking you questions, but this

is not a difficult one for you. It follows up on something you said

as you answered my question about hedge funds.

You talked about a group at Treasury talking to folks in the

hedge fund industry. I would like to ask if the Finance Committee

staff, if possible, would be allowed to participate, or at a minimum

at least be closely informed on Treasury’s findings from that review. Would that be possible?

Mr. STEEL. I pledge to you that, sir.

The CHAIRMAN. All right. Thank you very much. I am glad that

you would cooperate with us on that.

Now, Mr. Veroneau, in regard to Argentina, it seems to be imposing a 23 percent export tax on soybeans, but only 5 percent export

tax on biodiesel from soybeans, giving Argentina and people in

business there a strong incentive for them to export biodiesel over

soybeans.

It seems to me that the export tax on biodiesel, in effect, operates

like an export subsidy. If confirmed, would you raise that issue

with government officials in Argentina?

Mr. VERONEAU. Absolutely, Mr. Chairman. This is an area that

the U.S., as you know far better than I, is extremely competitive.

I think it is critical that USTR step up and go to bat for our producers in the face of what may be distorting practices by other

countries. I would be pleased, if confirmed, to raise this with my

counterpart.

The CHAIRMAN. All right. On another trade issue involving Mexico, high fructose corn syrup, presumably this is all worked out.

But I would beg you to pay great attention to seeing that complete

liberalization of the sweetener markets will take place when it is

supposed to, on January 1, 2008, and not wait until January 1,

2008 to see that it is evolving into their good-faith compliance with

what they told us they were going to do.

Mr. VERONEAU. Yes, Mr. Chairman. As you know, there is an industry-government group that has been formed to manage these

issues over the next 15 months to assure that the market liberalization that is called for in NAFTA comes to fruition.

The CHAIRMAN. Yes.

And you know, with several countries—now I guess, four or

five—we have moved forward with the President’s goal of a Middle

East Free Trade Area by the year 2013. Part of each one of those

debates and negotiations is whether these free trade partners in

the Middle East would or would not participate in the Arab League

boycott of Israel.

12

So, if confirmed, I would hope that you would work to obtain

commitments that that would continue as we bring more countries

into it, and also police the commitments of those countries that

have already made that promise.

Mr. VERONEAU. Without question, Mr. Chairman, this has been

a high priority in all of the FTA negotiations in that part of the

world, to secure that commitment that countries are abiding by

their WTO MFN obligations in that regard.

The CHAIRMAN. Yes.

The next question, in regard to Brazil, is probably a little sensitive for you right now, because I know that your boss is going to

try to work out some things for the reauthorization of the Generalized System of Preferences.

But I have taken a strong position that Brazil and other countries that are impeding our efforts to get the World Trade Organization Doha Round completed, that these countries that benefit

from our opening our markets through GSP but are not, in turn,

helping us open, not only their markets, but worldwide markets as

well—and Brazil is one of them—that we should not give GSP to

those countries.

Why should we continue to extend unilateral preferences to

Brazil, given the lack of cooperation on the Doha Round negotiations?

Mr. VERONEAU. Mr. Chairman, I understand your position on

this. As you mentioned, these are unilateral preferences that we

provide as a gift, as an incentive to developing countries to help

them get different parts of their economies off the ground.

But because these are unilateral, I agree that we should take

this time as the program expires to reconsider and assess different

countries and different sectors to see if the extension of those unilateral benefits is still warranted, to the extent that they are.

The CHAIRMAN. Yes. And obviously it is my view they should not

be.

During the committee’s informal consideration of the proposed

legislation to implement the U.S.-Peru Trade Promotion Agreement, our committee amended the Statement of Administrative Action to reflect that the administration will not implement that

trade agreement until Peru takes measures necessary to comply

with its obligations under certain agreements on sanitary and

phytosanitary barriers to trade and technical barriers to trade.

Do you understand that to be the administration’s position? Before you answer, if confirmed, will you work with Peru to see that

such measures are, in fact, taken before the agreement enters into

force?

Mr. VERONEAU. Mr. Chairman, that is my understanding of the

administration’s position. I would intend to make a high priority

for myself, if confirmed, to the execution and enforcement of these

commitments.

As you well know, these food safety issues have at certain times

been thinly veiled protectionist measures, and I think it is important that we endeavor to make sure, in all these cases, that we are

separating legitimate safety issues from thinly veiled protection.

The CHAIRMAN. To emphasize another—I do not know whether

it is small or large at this point—disagreement between Peru and

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the United States on these agreements: we want them to take into

consideration our request on their taking our beef into their market.

Mr. VERONEAU. Understood, Mr. Chairman.

The CHAIRMAN. All right.

Senator Baucus?

Senator BAUCUS. Yes. If I might just follow up on that last point

about beef. Peru, as I understand it, in the agreement we reached,

agreed to take beef over 30 months of age, but is not doing so. Is

that correct?

Mr. VERONEAU. Well, there are negotiations under way right now

with Peru, as I understand it, Senator Baucus, where the goal is

to secure the kind of commitment that was secured with Colombia

with regard to beef.

Senator BAUCUS. And in the side letter, Peru committed to permit beef—all beef—under internationally accepted standards. Is

that your understanding?

Mr. VERONEAU. That is my understanding.

Senator BAUCUS. But Peru is not doing so with respect to beef

over 30 months.

Mr. VERONEAU. It is my understanding that the USTR and

USDA are working extremely closely and diligently with Peru to

make sure that this matter is resolved satisfactorily.

Senator BAUCUS. Well, I would hope you would work aggressively, once confirmed, because this is very important to a lot of

people in our country.

Back to you, Mr. Steel. You mentioned a little about entitlements

as a way to get a handle on the budget deficit. Do you not agree,

though, that it is a little bit unwise to just cut Medicare, cut Medicaid as a way to address the rise in entitlement spending in health

care because health care costs are increasing for all Americans?

On a per capita basis, I think we are number one, by a magnitude of close to two. We are about twice as expensive on a per

capita basis. Health care costs in the United States are about twice

as expensive on a per capita basis compared with health care costs

in other countries.

So, as we try to address Medicare and Medicaid increases in expenditures, really it is important to address the underlying questions. Why are health care costs generally increasing? It is not just

for Medicare patients. It is not just for Medicaid patients. It is for

all Americans.

Do you not think it unwise just to cut Medicare and Medicaid

just for the sake of cutting without also trying to address the underlying health care costs that this country faces?

Mr. STEEL. Absolutely, Senator Baucus. This is quite a complex

issue. The idea that there is a single solution of just cutting is, I

think, completely wrong. Instead, I look forward to learning a lot

more about this.

But there is an issue of, from a system perspective, what can we

do to encourage efficiency, reward innovation, and bring a slowing

down, as you quite correctly described, of health care costs rising

at what seems to be an overly quick rate.

Senator BAUCUS. I do not want to overstate the point, but I was

in Bangalore not long ago. I was at the Jack Welch Technology

14

Center. It was very impressive. I am no technology buff. I like to

think I am, but I know I am not. But it was very impressive.

I turned to the manager there afterwards and I said, why are

you here? Why are you here in Bangalore? He said, because this

is the greatest talent pool. I said, what country has the next greatest talent pool? China. I asked, where is the United States? He

said, well, you are down there a ways.

I asked, what do we need to do to get up there? He said, two

things. One, education. You need to better educate your people, especially in science and math, and so forth. But, second, he said

health care costs. He said, you have to get a handle on your health

care costs.

Now, I did not have a long, involved conversation with him, but

those were two responses that popped up in his head in response

to my questions to him, just right off the top. I think he is accurate.

You and I all talk to lots of American businessmen who have had

a devil of a time dealing with their health care costs, let alone the

legacy costs, say, that GM, Ford, and other companies, airlines,

have to face.

So I urge you very, very strongly, when you are in your inner

sanctum there, talking about all these things, that you figure out

a way to address the underlying causes of all this, and that is

health care costs. And be very aggressive about it, because otherwise these problems are going to continue to increase, in my judgment. It is not an easy issue.

Mr. VERONEAU. No. Thank you, Senator.

Senator BAUCUS. In fact, I ask people every day their solutions

to this question. I would guess, every day, a couple of different

groups come into my office, hospital groups, cancer folks, intermediaries, you name it. I ask, what are we going to do about health

care costs in this country?

Unfortunately, not many people have a good answer. They are

kind of pigeon-holed, or siloed. They just look at their issues and

they do not look at it overall. We have to start looking at the overall. We have to start thinking ahead. We have to think strategically about all this, not just react ad hoc. Again, I would just urge

you very strongly that we have to do something about this.

Now, on entitlements. Some suggest an entitlement commission

of some kind to get a handle on entitlements. Do you not agree, if

we are going to solve this honestly—which means solving the Federal budget deficit, the fiscal imbalances—that we have to also include revenue?

Revenue has to be on the table. If we are going to look at entitlements, we have to look at, not only entitlement spending, but discretionary spending and also revenue. Do you agree that everything has to be on the table if there is going to be an honest, nonpolitical solution?

Mr. STEEL. Well, Senator, I think that, if confirmed, my perspective would be to hear what everyone thinks. I guess to the extent

that means everything is on the table, I guess that is right. But

the issue really now is understanding.

15

As you said, these issues are quite complex and quite large. So,

hopefully, we can get the right people, in a bipartisan way, around

the table to focus on these issues and to talk about everything.

Senator BAUCUS. Yes. I do not want to belabor the point, but a

lot of us talked about this basic question, the fiscal imbalances,

trade imbalances, et cetera. We are trying to grapple, trying to find

solutions.

But to avoid the talk, that is, and get down to action, in this

form of government we have, in a democracy, it only really works,

in my judgment, when both ends of Pennsylvania Avenue, both political parties, kind of forget the politics. This is real. This is serious. We have to solve this thing.

Mr. STEEL. Yes, sir.

Senator BAUCUS. The only example I can think of that really

worked was back in the 1980s with the Social Security Commission. President Reagan appointed Mr. Greenspan, and it worked.

Jim Baker called Tip O’Neill and said, if you Democrats agree to

lower benefits, we Republicans will agree to raise taxes. Tip said,

fine. Baker said, great. There was a handshake. They did it. Nobody criticized anybody.

My judgment here is that you have to do the same. You have to

do the same thing here, otherwise one party is going to suspect

there are ulterior motives. People will say, oh, you just want to cut

entitlement spending. You just want to cut Medicare and Medicaid.

What about other issues? You have to avoid any smell or scent or

scintilla of perceived political ulterior motive to get something

done.

Mr. STEEL. Well, I think to reference, as I have before, your

opening comments, that basically to get things done, we are going

to have to find things that are nonpartisan and work together.

Senator BAUCUS. Right.

Mr. STEEL. And the second point is, I think we should focus on

the big, important issues. If we were to say, what are the issues

that fall in the center of the crossfire of those two issues that are

important and require bipartisan effort, then this is the one.

Senator BAUCUS. Let me give you another big, important issue,

and that is the tax gap. You know as well as anybody, it is about

$350 billion every year.

Mr. STEEL. Yes, sir.

Senator BAUCUS. Income taxes, legally owed, are not collected. It

is about $340, $350 billion a year. The Chairman alluded to this

in the statement he made. I am making this sort of a cause of mine

to start doing something about this. I asked Secretary Paulson to

address it. I have asked Commissioner Everson and others.

This committee essentially gave the administration, a couple, 3

months ago, a deadline of the end of September to come up with

a plan, that is, with benchmarks, deadlines, and metrics and so

forth, and an honest, realistic way to try to address it. So far, they

have not come up with that. I just strongly urge you, when confirmed, to find a solution to this.

Mr. STEEL. Sir, I can tell you that when I saw Secretary Paulson

several days ago before he headed to Asia, we were talking about

a variety of things, that your voice has been heard, and Secretary

16

Paulson has this as an issue that he knows he wants to be responsive on.

Now, whether we hit exactly the program or the project by a certain date, he is just getting into the job. But your point of view has

been heard loud and clear, and his intention is to be responsive to

your issue.

Senator BAUCUS. Well, thank you very much. Really, not to be

corny about it, a lot of American people are thinking, gee whiz,

they pay taxes and it is being collected. What about these other

folks who are not paying their taxes? And it is a big amount.

Mr. STEEL. Yes, sir.

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

The CHAIRMAN. Yes. Thank you.

I have one question left for Mr. Veroneau, and then one little

thing to discuss with Mr. Steel.

Senator Baucus and I, on May 11, along with Chairman Thomas

and Ranking Member Rangel, sent a letter to President Bush about

Russia’s accession to the WTO.

We said that until Russia demonstrates a sustained commitment

from the highest levels of Russian government to protect intellectual property rights and to respect and implement international

standards on sanitary and phytosanitary measures, that we could

not support their accession to the WTO.

What is your assessment of the Russian government’s commitment to do these things we wrote about, intellectual property rights

and implementing international standards on sanitary and phytosanitary measures?

Mr. VERONEAU. Truthfully, Mr. Chairman, I think it is unclear.

I think they have made some efforts and made some progress, but

frankly I think there is much more that they need to do to demonstrate that they are committed to enforcing intellectual property

and to not use SPS issues in an inappropriate way.

As you know, this past summer there was great pressure and, I

would dare say expectation, that the U.S. would reach a bilateral

agreement with Russia on its WTO accession.

At the end of the day, Ambassador Schwab and the President

said, no, we are not ready to close this. We do not have the commitments that we need to move confidently ahead. They said no.

I think, hopefully, that sent a strong message to the Russian government that the President and Ambassador Schwab need further

progress, a demonstration of progress on those two important

issues, as well as some others.

The CHAIRMAN. Yes. Thank you.

Mr. Steel, not a question, but a conversation with you. It picks

up on the issue that Senator Baucus brought up, and probably impressions I get from my town meetings in Iowa.

That is, I think Iowans have the opinion that we go hat-in-hand

to Beijing, saying, will you buy some of our debt. And I do not

think that is the way it works. If it does work that way, say so.

I think each Monday morning, or some period of time, somebody

in the Treasury Department goes out once a week to refinance our

debt. Chuck Grassley can invest in that, and people in China can

invest in that. Do we go to Beijing and say, will you finance our

17

debt, or do we just put it out on the market and, in the marketplace, they invest in it?

Mr. STEEL. It is the latter, sir. It is, we offer our debt to the people that would pay the highest price or, in essence, give us the lowest interest rate.

The CHAIRMAN. All right.

Mr. STEEL. It is an open market. The savings of these other

places, the largest buyer of our debt is Japan, the second would be

China, and the third is the United Kingdom. These people choose

to buy our debt because it is attractive and there is no quid pro

quo inferred at all.

The CHAIRMAN. All right.

Well, it would be good for somebody in the executive branch of

government to say that, because people listen to the executive

branch more than they do 535 members of Congress. Anything we

say kind of gets lost.

I have a feeling, even from speeches on the Senate floor that various Senators make, that they think we go to Beijing and beg them

to take our debt, as opposed to the marketplace making that determination.

So that gets me back then to a point about whether the problem

is a problem of our government. And I know there are certain public policy issues right now that Secretary Paulson is working on,

like the floating of their currency and things of that nature, and

whether or not they are keeping their promise under the World

Trade Organization and all those things. Those are our business.

We have to deal with those.

So much of our debt is related to consumer goods, and it seems

to me in America that the consumer is king. If Americans decide

to have a negative saving ratio, like we did last year for the first

time, and we want to buy everything that China is selling to us,

then the problem is that America is not saving enough, we are

prone to live for today and forget about tomorrow.

We want to be materialistic in what we are doing, so we are

spending all of our money instead of investing it in government

bonds. Somewhat, the problem is each of us as we look in the mirror every morning. We do not save enough. We want to be so consumer-oriented.

That is one of the reasons we have a big trade deficit with China.

They save a lot and they want to invest in America. Right or

wrong? If I am wrong, do not be afraid to tell me, because I have

to think these things through, and you can help me think them

through.

Mr. STEEL. I look forward to helping you think these things

through.

The CHAIRMAN. In other words, I am wrong in what I said.

[Laughter.]

Mr. STEEL. No, Mr. Chairman. I assure you, that is not the case.

I think there are lots of issues here, going back to the purchasing

of our debt by foreign governments.

About half of the publicly traded debt of the United States is

owned by people outside the United States because it is an attractive place to invest. I think that the idea of the savings rate in the

18

United States starting to rise is a good thing and that we should

work together.

I look forward, if confirmed, to try to work with the Congress on

thinking about ways to encourage savings in America. That should

be a good ambition for us. Together, we can think about those

issues, but I think that is the right way to think about the issue.

The CHAIRMAN. All right.

Well, one of those things you have 2 or 3 months to think about

is taking this Breaux-Mack Commission report, or maybe it is the

Secretary’s responsibility, and making some recommendations to

the President, because our tax policies discourage savings to a considerable extent.

There are several opportunities in that commission report for encouragement for savings. I am hoping—although we are going to

move forward regardless—that the President will study that and

make some recommendations to Congress from the year-long work

of the Breaux-Mack Commission.

Senator Baucus, did you have something you wanted to say?

Senator BAUCUS. Yes, just a couple of things. I need to find out

more myself. To what degree are the Chinese and Japanese buying

American debt because, (a) it is an attractive investment, but also,

(b) it helps keep the dollar high vis-a`-vis the RMB and the yen,

which helps them sell more goods.

Americans find lower prices, Chinese prices for goods. Those

Wal-Mart products come over from somewhere. I mean, is this not

sort of a vicious circle we are in here? They like to buy our debt

because it helps keep the dollar higher compared with the RMB

and the yen, which makes us buy more of their products.

Mr. STEEL. Yes. I think the right thing for me to say, Senator,

is that, if confirmed, that is something I look forward to learning

more about from the inside of Treasury, and then having further

discussions with you.

The CHAIRMAN. Well, it seems to me that common sense would

dictate that if we are trying to float our debt, the impact on the

dollar is not any different than if Chuck Grassley invests in that

debt or some Chinese person invests in that debt. You are taking

a dollar out and putting it in savings. So would they not both have

the same impact on the dollar, on the value of the dollar?

Mr. STEEL. Yes, sir.

Senator BAUCUS. But just to explore further here. The Chinese

are willing to get lower pay or to get back lower interest rates than

maybe others, because they like to invest in the United States, and

for the reasons I mentioned. Is there any truth in that?

Mr. STEEL. I am not sure I can completely comment on the perspective, the ambition, or the interest of the specific investor. But

I think the overriding aspect is that investing in the debt of the

United States is seen as an attractive, safe alternative that, on a

risk-adjusted basis, provides an attractive return for the investor.

The CHAIRMAN. Wait a minute. Does common sense not dictate

that the marketplace is going to make that determination? If the

Chinese want to invest, they are going to pay some percentage

point or part of a percentage point more than Chuck Grassley is

going to pay for that debt. Right or wrong?

Mr. STEEL. Yes, sir. Yes, sir. [Laughter.]

19

The CHAIRMAN. So there. [Laughter.]

Senator BAUCUS. Fine.

What country has the highest proportionate debt held by foreigners after the United States?

Mr. STEEL. I do not know the answer, sir.

Senator BAUCUS. Any rough guess what it may be?

The CHAIRMAN. No, you just said. You said Japan.

Senator BAUCUS. No, the other way around. The other way

around.

The CHAIRMAN. I am sorry.

Senator BAUCUS. They have our debt. I am asking the question:

what other countries have so much of their debt held by foreigners?

Mr. STEEL. I would look forward to finding out and coming back

to you, sir.

Senator BAUCUS. Yes. I am a little bit surprised at that answer

because you know a lot about all this. You are kind of steeped in

all this, and I am just a little surprised you are not able to help

us a little more.

The CHAIRMAN. These are kind of arcane statistics, you know.

Senator BAUCUS. Well, they are somewhat arcane, but this is Mr.

Steel’s life, to a large degree, too. So I am just a little curious there.

Mr. Veroneau, how in the world are we going to, almost literally,

get more consensus and understanding that trade is good so long

as everybody benefits, not just companies, frankly, but also Joe

Sixpack?

There is a concern not just in the United States, but also in other

developed countries, as to the widening divergence in income between the most wealthy and the least wealthy. I mean, it is widening in America, it is widening in other countries, too. I think that

probably explains why there is a lot of concern about trade and

why trade agreements are not very popular.

Hugo Chavez’s comment yesterday, playing to populism, for example, in South America, does not help either. So what is your

overall general approach? And maybe both of you could chime in

here a little bit. How can the United States provide leadership?

What do we have to do to kind of lower the temperature here a

little bit and also to address some legitimate questions, namely the

perceived gap in who benefits from trade with the United States,

an actual gap, and yet encourage other countries, maybe Peru, and,

say, Venezuela, to kind of start working together?

Mr. VERONEAU. Right. Senator, as you well know, all politics is

local. I think when you take each country, there are different

trends in these countries, but a common theme lately. That is this

backlash against globalization. It is serious in some countries and

less serious in others.

I think, in my view, the objective evidence is overwhelming that

a global, integrated economy is a win-win. There are certainly

issues of competitiveness in subsectors, and certainly with families.

Those families and those sectors deserve our attention because,

at the end of the day, the goal here is to make sure that all human

capital is fully employed. If people are losing their jobs in one sector, we need to make sure that they are as quickly and as painlessly transitioning to others.

20

Senator BAUCUS. Well, that is the objective. But do you have any

plans to concretely do something about that?

Mr. VERONEAU. Well, I think, going back to comments you made

earlier about your conversation in India, the education system—I

do not have domain over U.S. education policy, but clearly the administration, together, must have a coherent strategy for the competitiveness of the U.S. in education. Lifelong job training has to

be part of it, and is part of it. It is not an overnight solution, but

it is a steady solution that we need to focus on.

I think in Latin America you are seeing this sort of rolling populism for different reasons. Some of it is, these governments are relatively new democracies, many of them. Democracy is hard, and especially new democracies that, over the past 20 years, have made

promises to their citizens of what they will deliver and have not always followed through on some perhaps over-aggressive promising.

I mean, we see this in Russia with the collapse of the Soviet

Union. There is clearly a backlash among some in the citizenry

who feel that they had it better under the old regime. Even though,

without question, Russia is on a proper path now and a better path

for its future, there are difficulties in the transition.

I would submit that in Latin America, what we are seeing, albeit

on a less drastic basis, is economies, cultures, and countries going

through a transition that is not easy, but is the right transition.

Senator BAUCUS. Right. Right. Well, as you said, politics is local.

It is also, as you know, a perception of reality. A lot of people in

our country really wonder about the value of trade agreements. I

support almost all of them, but I can tell you, it is difficult. People

at home really wonder, and with good reason.

I strongly urge you to address much more aggressively in future

trade agreements the current transition, TAA benefits that really

work, that are not just talk. If we want people to adjust, we have

to help them adjust.

Some people have a hard time adjusting. A 50-year-old guy, that

is all he knows. It is easy for an investor to adjust, he just moves

his capital around. It is very difficult for a working stiff to adjust.

Very difficult. You have to develop policies to help that really happen.

Second, I just think, with respect to Latin America, this country

has made a big mistake by poking our finger in Chavez’s eye. He

uses us as a foil for his populism. We should take away that foil.

It is just common sense to me. And we are causing some of our

problems in Latin America, frankly. That is one way to help, I

think, find some solutions here.

Thank you.

The CHAIRMAN. I would suggest that we tell Chavez, if we want

to help Venezuela, how stupid he was when 19,000 oil workers

went on strike and he fired them all and hired people back that

did not know how to run the oil industry, and he is reaping half

a million barrels less per day.

I would say, for the President of Bolivia, how stupid he was to

nationalize his gas industry. Then all the industry pulls out and he

finds out 6 months later he does not know how to run it, and he

has to call in somebody from Brazil to run it. They are not very

wise.

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If they want to help the people they were elected to help, as populism is supposed to, they ought to be a little bit smarter on how

they make their decisions. If I was in the executive branch of government, that is what I would be telling those people, how stupid

they are. [Laughter.]

[Whereupon, at 11:40 a.m., the hearing was concluded.]

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