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ASIAN FREE TRADE AGREEMENTS: ARE THEY

GOOD FOR THE USA?

HEARING

BEFORE THE

COMMITTEE ON 

INTERNATIONAL RELATIONS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 20, 2006

Serial No. 109–222

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international—relations 

(II)

COMMITTEE ON INTERNATIONAL RELATIONS 

HENRY J. HYDE, Illinois, Chairman 

JAMES A. LEACH, Iowa 

CHRISTOPHER H. SMITH, New Jersey, 

Vice Chairman 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

PETER T. KING, New York 

STEVE CHABOT, Ohio 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

MARK GREEN, Wisconsin 

JERRY WELLER, Illinois 

MIKE PENCE, Indiana 

THADDEUS G. MCCOTTER, Michigan 

KATHERINE HARRIS, Florida 

JOE WILSON, South Carolina 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL MCCAUL, Texas 

TED POE, Texas 

TOM LANTOS, California 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

SHERROD BROWN, Ohio 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

WILLIAM D. DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JOSEPH CROWLEY, New York 

EARL BLUMENAUER, Oregon 

SHELLEY BERKLEY, Nevada 

GRACE F. NAPOLITANO, California 

ADAM B. SCHIFF, California 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

BETTY MCCOLLUM, Minnesota 

BEN CHANDLER, Kentucky 

DENNIS A. CARDOZA, California 

RUSS CARNAHAN, Missouri 

THOMAS E. MOONEY, SR., Staff Director/General Counsel 

ROBERT R. KING, Democratic Staff Director 

DENNIS HALPIN, Professional Staff Member 

JEAN CARROLL, Full Committee Hearing Coordinator 

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C O N T E N T S 

Page

WITNESS 

The Honorable Karan K. Bhatia, Deputy United States Trade Representative, 

Office of the United States Trade Representative ............................................. 9

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Karan K. Bhatia: Prepared statement ......................................... 14

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ASIAN FREE TRADE AGREEMENTS: ARE THEY 

GOOD FOR THE USA? 

THURSDAY, JULY 20, 2006

HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC. 

The Committee met, pursuant to notice, at 10:05, a.m., in room 

2172, Rayburn House Office Building, Hon. Henry J. Hyde (Chairman of the Committee) presiding. 

Chairman HYDE. The Committee will come to order. Ambassador 

Bhatia, we are pleased to have you here today. You are a wellknown expert on United States trade policy, particularly with regard to Asia. Details of your recent trip to that region, including 

visits to Taiwan, Vietnam and India, are of particular interest to 

Members of this Committee. 

You reportedly have been the highest ranking Administration official to visit Taiwan in the last 6 years. So your insights on trade 

relations with Taiwan should be particularly timely. 

This would be a good time for me to mention that I personally 

am a strong supporter of negotiating a free trade agreement with 

Taiwan. There is also an immediate trade issue facing Congress 

with regard to Vietnam. Your insights on that would be appreciated as well. 

We all recognize that trade across the Pacific in both volume and 

value has long surpassed trade across the Atlantic. Such trade is 

the engine which drives the prosperity enjoyed not only by the people of the United States, but by those who live along the Pacific 

Rim and throughout the world beyond. This new century is indeed 

the Pacific Century. 

American consumers have become comfortable with products 

bearing labels reading made in China or some other Asian local, as 

long as the quality is good and the price is low. Visit any department store, any electronics dealer or any discount store and you 

will find labels reading made in Korea or made in Taiwan or made 

in India. Buy a car and it will likely have a Japanese or Korean 

product name. 

It was a little disconcerting to learn that even the American flags 

passed out to spectators at a recent Fourth of July parade in Glenview, Illinois bore the label made in China. One wonders if we 

don’t make even the stars and stripes in the United States any 

more. What do we manufacture here, and what would Betsy Ross 

say? 

At a Senate hearing in 1955 General Motors Chairman Charles 

Wilson, who went on to serve as President Eisenhower’s Secretary 

2

of Defense, made the often quoted remark: ‘‘What’s good for General Motors is good for the USA.’’ In truth, what Mr. Wilson actually said was, ‘‘What is good for the country is good for General Motors, and vice versa.’’ But the point was really the same. 

General Motors of course has fallen on hard times in the half 

century since Mr. Wilson’s famous remark. The company announced last November that it is slashing 30,000 jobs and closing 

nine plants. Ford Motor Company followed suit in January, announcing a downsizing which will eliminate another 30,000 jobs 

and will lead to 14 factory closings. 

Many of these lost manufacturing jobs are in the Midwest, a region I represent. These lost jobs provided financial security to tens 

of thousands of Midwesterners who use the wages provided to 

achieve the American dream of buying their own home and sending 

their kids to college. 

These are the Americans who feel that the globalization of the 

economy has left them behind. They wonder, for example, why we 

unilaterally opened our automobile markets to South Korean manufacturers who, according to a Congressional Research Service report, sold 730,000 cars in the United States in 2005 while South 

Koreans bought only 5,800 cars from America. This lack of sales 

was reportedly largely due to a number of trade restrictions in effect in South Korea. 

Mr. Ambassador, I have been a free trade advocate my entire 

congressional career, but in this time of an exploding trade deficit 

with Asia, Americans are insisting that free trade must also be fair 

trade and increasingly they are wondering, does more trade with 

Asia mean just more red ink for America? 

I note that our country is running a substantial trade deficit with 

all three Southeast and East Asian countries with which the 

United States Trade Representative is currently negotiating; Malaysia, South Korea and Thailand. I note also there were large 

demonstrations in Bangkok earlier this year and just last week on 

the streets of Seoul expressing vehement opposition to the Free 

Trade Agreement negotiations with the United States. Many opponents of course were farmers. But these demonstrators should realize that if rice is Asia’s sacred cow, automobiles are America’s. We 

cannot sacrifice even a portion of our automobile industry if complete market opening, including the agricultural sector, is not guaranteed on the other side of the Pacific. 

I would like to just make two additional points. First, it should 

be noted for the record that many in Congress objected to the inclusion of certain business visa provisions in the FTA successfully negotiated with Singapore. Many saw that as an infringement upon 

congressional prerogatives and a failure by the U.S. Trade Representative to keep the pledge of prior consultations with Congress. 

Such bilateral trade agreements on visas open the door to further 

outsourcing of jobs, which threaten America’s workers. I would like 

the United States Trade Representative’s guarantee today that the 

FTA being negotiated with Malaysia, South Korea and Thailand 

will contain no such provisions. 

Second, the provocative launch by North Korea of a series of missiles on American Independence Day should put to rest any suggestion that Americans will want to buy North Korean made products 

3

from the Kaesong Industrial Complex. We would appear foolish in 

the eyes of the world to open our market even a crack to a nation 

which threatens us and our allies with missiles and nuclear weapons, and which continues to counterfeit our currency. 

I would like the United States Trade Representative’s commitment today that there will be no Kaesong provision in the FTA 

being negotiated with South Korea. 

Mr. Ambassador, the sparkle of the diamond of expanded free 

trade does not shine as brightly in the halls of Congress as it once 

did. You certainly have your work cut out for you compared with 

your predecessors in making the cause for more Asian free trade 

agreements. 

In general, I support free trade agreements, as I have said before, with some important qualifications. I look forward to hearing 

from you on how what is good for free trade agreements is good for 

the USA. 

I now turn to my friend, Mr. Faleomavaega, for an opening statement. 

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. 

I certainly want to commend and thank you for holding this 

hearing this morning. And welcome Ambassador Bhatia for being 

here representing our U.S. Trade Representative’s office. 

Mr. Chairman, I am pleased that under your leadership this 

Committee is holding a hearing on the Asia free trade agreements, 

questioning whether or not these agreements are good for American businesses and for American workers. For the past several 

years I have been very engaged in the Andean Free Trade Agreement in Latin America and also within the upcoming free trade 

agreement now being negotiated, or has been negotiated. 

Given the fact that my district has the largest tuna canning facility in the world, that our private sector economy is more than 80 

percent dependent directly and indirectly on the U.S. tuna fishing 

and processing industries, and the two U.S. canneries, Starkist and 

Chicken of the Sea, employ over 5,000 workers and represent well 

over 70 percent of our workforce in my district, in the years 1984 

and 1986, 1990 and 1992 the International Trade Commission conducted section 332 investigations and on each occasion found, and 

I am glad to say, that canned tuna is an import-sensitive product. 

Fourteen years later it can be argued that the outcome of another section 332 investigation hopefully would yield the same results. 

Mr. Chairman, despite these outcomes our Nation continues to 

negotiate free trade agreements that displace not only my district 

and the industry that we are directly involved in with the jobs of 

more than 5,000 workers in my district. Quite frankly, there is just 

no way that we can compete against a labor force in countries like 

Thailand where they pay less than 50 cents an hour for their cannery workers. The same is true in the Philippines, and even among 

the Andean countries. And yet my workers in these two canneries 

are paid significantly more than the national minimum wage to 

clean and pack tuna. 

For the past several years I have fought for increased wages for 

my workers. To this day it sickens me that when women who toil 

day and night and clean fish for 20 years only end up receiving a 

4

pension of about $100 a month when they retire from working in 

these canneries. 

I am not an economist. I don’t think you have to be a rocket scientist to figure out why we end up with such high trade deficits, 

not only with our Asian partners, but it seems to me all other parts 

of the world as well. 

I remember in recent years, Mr. Chairman, some 60,000 jobs of 

our colleagues in States representing the South. The entire textile 

industry that was very prominent in the southern portion of our 

country is gone. Is it due to the free trade agreements? I say in 

large part it has been. 

NAFTA is a classic example that to this day we are still debating 

the pluses and minuses of whether or not we did the right thing 

in passing on this NAFTA agreement which is supposedly to cure 

all the labor problems of people coming from Mexico, that they are 

supposed to maintain their own economic structure so these people 

don’t have to illegally immigrate to this country to find jobs. 

That is something that I definitely will seek some more answers 

to from our friend Ambassador Bhatia. 

I have to commend and restate the Chairman’s comment, the fact 

that I also believe in free trade, but it should also be fair. For anyone to contend that Thailand and other ASEAN country member 

nations have been disadvantaged as a result of the Andean Free 

Trade Preference Act, I would like to set the record straight and 

say the ASEAN nations are the largest foreign suppliers of tuna to 

the United States market. Thailand supplies the United States 

with more tuna than any other foreign country. 

Seems like, Mr. Chairman, we are giving free trade agreements 

like giving out candy from a store. And yet I also sense, Mr. Chairman, a real inconsistency in our policy. We give free trade agreements to some countries and yet we don’t do it in others. Is it because of political reasons, is it a carrot and stick situation that we 

find ourselves in? 

Just yesterday we had a meeting with the foreign minister from 

New Zealand, crying foul, ‘‘Why are we giving a free trade agreement to Australia and not to a very close partner and democratic 

place like New Zealand?’’ We don’t seem to have very good answers 

for that as well. 

I am hopeful, Mr. Chairman, that as a result of today’s hearing 

the Office of the United States Trade Representative will more 

fully consider the needs, especially as the negotiation of the Thailand Free Trade Agreement, which is currently stalled as a result 

of political uncertainties, including the resignation of Thailand’s recent prime minister and demonstrations that have disrupted the 

talks. 

I am looking forward to hearing from Ambassador Bhatia his 

statement concerning this issue. But, Mr. Chairman, it is not just 

free trade agreements with the Asian countries, it is free trade 

agreements, period. The problems we are having with NAFTA, the 

Andean Free Trade Agreement, and I am sure in all other parts 

of the world, is we just are—there just doesn’t seem to be not only 

a sense of continuity and fairness, but what is the bottom line? Our 

working people are losing jobs, we all know the reason why corVerDate Mar 21 2002 16:35 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\WORK\FULL\072006AM\28788.000 DOUG PsN: DOUG
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porations and why the corporate community from our country go to 

other countries. Cheaper labor. That is the bottom line. So why would we be paying $15 an hour for our professional 

workers here when the same work capacity could be done in another country that pays only $3 an hour? Again, I think we have 

got some very serious problems here as far as free trade agreements are concerned and I look forward to hearing from Ambassador Bhatia. 

Thank you, Mr. Chairman. 

Chairman HYDE. The gentleman from California, Mr. Lantos. 

Mr. LANTOS. Thank you very much, Mr. Chairman. I want to 

publicly apologize for having to cast a vote in my other Committee 

a few minutes ago. I also want to commend you and my friend Mr. 

Faleomavaega for very thoughtful statements. 

Mr. Chairman, the Administration is dispatching our top trade 

negotiators to the leading capitols of Asia to hammer out new free 

trade pacts with the region’s rising economies. The agents of big 

business in this country have the chance to whisper a lot of advice 

during those long 14-hour flights, so I am here today to speak on 

behalf of American working men and women. 

I am obviously not opposed to free trade agreements in principle. 

As a matter of fact, I received my Ph.D. in international economics 

and taught international economics for more years than I care to 

remember at the university. 

Bilateral trade accords that contain strong and enforceable protections for workers and the environment can advance our Nation’s 

interest. The free trade agreement between the United States and 

Jordan, expertly negotiated by the Clinton Administration in 2000, 

dealt with some of these important matters. 

But, Mr. Chairman, I am strongly opposed to agreements that 

fail to protect the rights of workers both at home and abroad, that 

cause the loss of hundreds of thousands of American jobs here in 

the United States and which undermine the global environment. 

Free trade alone is not the answer. As has been said ad nauseam 

and ad infinitum, we need trade that is both fair and free. 

We do not need to look far to understand the wisdom of this principle. The North American Free Trade Agreement, which I strongly 

opposed and voted against, was utterly devoid of meaningful labor 

and environmental provisions. As a result, over a million American 

workers have lost their jobs thanks to growing trade deficits with 

Canada and Mexico. 

Real wages in Mexico have fallen by 25 percent since the inception of NAFTA. Let me repeat this. Real wages in Mexico fell by 

25 percent since the inception of NAFTA. So much for the slamdunk benefits of free trade agreements. 

But rather than looking at the facts, the Administration has chosen to pursue blindly its free trade ideology in Asia at the expense 

of American workers. Let me briefly focus on two of the most likely 

candidates for Asian free trade agreements, South Korea and Malaysia. 

Mr. Chairman, I am a strong friend to both of these key countries. South Korea remains a critically important ally of the United 

States and we will continue to work closely together on the North 

Korean nuclear crisis. America’s economic and political relations 

6

with Malaysia have also grown exponentially over the past decade, 

creating new linkages between the United States and this important Muslim-majority nation. It is precisely these close ties that 

should cause our trade negotiators to put labor rights at the core 

of potential free trade deals. 

The United States must not only protect American workers but 

must also demonstrate to workers in South Korea and Malaysia 

that we will not ignore their fight for greater rights. Increased 

trade with South Korea must be accompanied by substantial improvements in workers’ rights and environmental protection. Korean labor laws are not in full compliance with internationally recognized standards of freedom of association and the right to organize. 

Korean workers face significant limitations on their right to 

strike and more than half of the Korean workforce is made up of 

so-called irregular workers who have little or no labor protections 

or benefits. Worker protests and demonstrations are also regularly 

broken up by brutal police violence. 

Malaysian workers certainly don’t fair any better. The Malaysian 

Government has taken concrete steps to inhibit the development of 

unions in its largest industry, the electronics sector, as well as 

other so-called pioneer sectors of the economy. The Malaysian Government has also pursued legal action for years against Irene 

Fernandez, the head of the highly respected Malaysian NGO, 

whose only crime was to publish the truth about widespread abuse 

of migrant workers detained by Malaysian authorities. 

Mr. Chairman, the Administration must deal with the unpleasant realities of the labor situation in South Korea and Malaysia 

and in other Asian nations with which it would like to negotiate 

free trade agreements. We cannot simply sweep these sad truths 

under the rug. When our negotiators are instructed to include 

strong labor and environmental provisions in free trade agreements, these provisions must be enforceable in reality. 

If the South Korean or Malaysian Governments weaken their 

labor laws after the trade deals are in place, we must be certain 

that they cannot continue to enjoy the great benefits of access to 

the American market. 

Mr. Chairman, free trade agreements without strong enforceable 

labor and environmental provisions only lead to the erosion of 

working conditions around the globe. Today I call on the Administration to change its fundamentally flawed model for free trade 

agreements and negotiate deals that protect American workers and 

create jobs here at home. 

And before concluding, Mr. Chairman, I would like to turn to my 

friend, Mr. Faleomavaega, and explain to him why the foreign minister of New Zealand is unhappy. There is no country I have greater respect for than New Zealand. I did my doctoral dissertation on 

New Zealand. But New Zealand cannot arbitrarily exclude nuclearpowered American ships from its ports and expect the same treatment that our ally Australia gets from us which shares many of the 

unpleasant military burdens that we carry across the globe. 

So New Zealand must get over this obsession. Nuclear-equipped 

ships enter many ports in many civilized countries, and there is no 

earthly reason why New Zealand should exclude itself. 

7

Mr. FALEOMAVAEGA. Would the gentleman yield? 

Mr. LANTOS. I am happy to yield. 

Mr. FALEOMAVAEGA. In our meeting with the foreign minister of 

New Zealand I was the one that raised the very issue of the nuclear problem with our friends in New Zealand whereby they disallowed our ships and aircraft from landing there because of our 

current policy of not denying or even admission of the presence of 

nuclear weapons. 

It is only fair. I think the problem here is if you want to be our 

friend, we also should be willing to carry the same burdens and responsibility as a democratic country. Seems like we are doing the 

dirty work and New Zealand gains all the benefits of being a nonnuclear, helping us with the nuclear problems that we are faced 

within the world. 

I agree with the gentleman and I conveyed that message strongly 

to our good friend and my dear friend the foreign minister of New 

Zealand, Mr. Winston Peters, who I have known for years. And I 

thank the gentleman for his comments on that issue. 

Mr. LANTOS. Thank you, Mr. Chair. 

Chairman HYDE. Mr. Chris Smith of New Jersey. 

Mr. SMITH OF NEW JERSEY. Thank you very much, Mr. Chairman, and thank you for convening this very timely hearing. Let me 

just say a few opening comments and ask that my full statement 

be made part of the record. 

Mr. Chairman and Mr. Ambassador, the Administration often 

makes the case that if we enter into these free trade agreements, 

it leads to more openness in the mitigation of some of the more 

egregious practices by offending governments. While that sounds 

good and it is absolutely well meaning, I have been concerned that 

in many instances that has not been the case and probably the 

quintessential example is the People’s Republic of China. There 

was this big push, as we all remember, for PNTR. Annually we 

would be waiving most-favored nation status, the extension of 

China into the WTO. While China’s economy has certainly risen almost exponentially in terms of economic growth, its human rights 

situation has actually worsened. 

I would ask you if you would during the Q and A or perhaps in 

our opening statement—the AFL–CIO, as you know, has filed a petition. I am one of the two Congressmen who signed on to that petition, expertly written by Mark Barenberg, Professor of Law at Columbia University. As he points out in our petition, the documents 

show how the Chinese Government and multinational corporations 

persistently violate the rights of China’s factory workers. 

The petition shows through four methodologies that the Chinese 

Government systematically in the repression of its factory workers 

significantly contributes to up to a million jobs that are lost in the 

United States. 

As you know, in China millions of child workers in forced labor 

produce goods and services, many of them for export. Workers who 

protest or seek to form independent unions are fired, beaten and 

imprisoned. 

China’s labor market bears no resemblance to a free competitive 

market. Millions of migrants from the countryside are denied their 

basic rights of urban residence in manufacturing towns and cities. 

8

They are so powerless that the average worker is simply not paid 

for 3 months of earned wages. Meanwhile, corporations are reaping 

huge profits at the expense of Chinese factory workers who are 

paid wages as low as $0.15–50 per hour. These are violations of 

internationally recognized human rights. 

I would point out parenthetically that I have myself been in some 

of the laogai, in Beijing Prison No. 1, where Tiananmen Square 

incarcerees, detainees, and prisoners were making jelly shoes and 

socks for export, a clear violation of our own Smoot-Hawley Act, as 

you know. 

Let me also raise very briefly the issue of Vietnam. Obviously 

that is a front burner issue with a free trade agreement in the offing or at least moving in that direction. 

I visited Vietnam last December and spoke to some 60 different 

people, including large numbers of dissidents in Ho Chi Minh City 

as well as Hanoi and I was struck by how the human rights situation, especially in people who disagree with the Communist Party, 

continue to get imprisoned. 

One of the women that I met with is the wife of Dr. Fong. Dr. 

Fong is an intellectual, a man who believes in democracy. He got 

sentenced to 5 years in Vietnam’s prisons for downloading an essay 

that was on our United States Embassy Web site, entitled, ‘‘What 

Is Democracy?’’ He translated it, sent it out, was incarcerated and 

is now incarcerated for 5 years. 

Vietnam is also a country of particular concern because of its ongoing violations of religious freedom issues. 

So it seems to me at least at best premature to be moving ahead 

on a trade agreement when we have a number, large number of 

violations of fundamental human rights. 

I hope this year, frankly and finally, the USTR will take up this 

petition that has been so well-documented by the AFL–CIO with 

regards to labor rights. It hurts American workers, and it certainly 

hurts the Chinese worker as well. 

Chairman HYDE. Mr. Tancredo. 

Mr. TANCREDO. Thank you, Mr. Chairman, Mr. Ambassador. The 

United States has currently—or recently concluded an FTA with a 

number of countries, including Morocco, and the CAFTA countries, 

and Oman and Vietnam are on the horizon. 

One concern many of us had with these agreements is that they 

are being negotiated with countries with populations that have 

very little purchasing power. All of the CAFTA nations combined 

had roughly the purchasing power of New Haven, Connecticut. As 

such, they aren’t really in any position to buy many of the things 

Americans sell. 

Taiwan on the other hand has a high standard of living, a significant middle class, has already shown brand loyalty to American 

products over the years. Seems to me that an FTA with Taiwan 

would be a higher priority for the USTR than CAFTA or bilateral 

deals with Bahrain or Vietnam. 

I know that you have had recent trips to Asia and you visited 

Taiwan. I am pleased to learn of that trip because I believe that 

such visits and direct communications between our Governments in 

Taiwan are crucial to strengthen our relationship with Taiwan. 

9

You know that it is the eighth largest trading partner, ranking 

between South Korea and Malaysia, both of which are in active 

FTA negotiations. Yet the pace of negotiations with the bilateral 

deal with Taiwan is dragging and I would hope that you will address during your testimony or in the question and answer, of 

course, if this is because of the Administration’s concern that an 

FTA with Taiwan will ruffle Beijing’s feathers. 

Along the lines of the direction of my colleague’s opening statement, Chris Smith, that China is working on establishing a free 

trade zone in the region with every country except Taiwan. This socalled ASEAN Plus Three initiative, one of China’s primary goals 

in doing this is to economically isolate Taiwan the way that they 

diplomatically isolated the island by barring its participation in 

international organizations. 

If China is successful in this endeavor and the United States 

does not ink an FTA with Taipei, then Taiwan’s economic survival 

could be seriously challenged, increasing pressure on the island for 

the government to simply capitulate the Chinese pressure to annex 

the island. 

All these concerns are something that the Administration should 

be taking into consideration, and I am hoping that you will address 

all of these during your testimony and I look forward to hearing 

it. 

Thank you, Mr. Chairman. 

Chairman HYDE. Mr. Chandler, do you have a statement? Mr. 

Flake, do you have a statement? 

Very well. Ambassador Karan Bhatia appears before the Committee this morning to present the Administration’s views on the 

ongoing negotiation of free trade agreements with Asian economies 

in his capacity as Deputy U.S. Representative. Prior to joining 

USTR, Ambassador Bhatia held the position of Assistant Secretary 

for Aviation and International Affairs at the U.S. Department of 

Transportation from 2003 to 2005. Prior to joining the Bush Administration in 2001, he was an equity partner at the law firm of 

Wilmer, Cutler & Pickering, where he was a member of the firm’s 

international and corporate groups. 

We are very fortunate to have the benefit of his expertise in 

international trade. 

Ambassador Bhatia, would you please proceed with your testimony? 

STATEMENT OF THE HONORABLE KARAN K. BHATIA, DEPUTY 

UNITED STATES TRADE REPRESENTATIVE, OFFICE OF THE 

UNITED STATES TRADE REPRESENTATIVE 

Ambassador BHATIA. Thank you very much, Mr. Chairman and 

Members of the Committee. It is a real pleasure to be here today 

to be able to discuss the Bush Administration’s trade initiatives in 

Asia. 

It is obvious, Mr. Chairman, based on the variety of questions 

and interests that there is a whole slew of issues that we can and 

hopefully will be able to get into. My thought would be there is testimony that has been prepared that perhaps could be entered into 

the record, and I will try and give a condensed version of that and 

touch on as many of the specific questions that came up during the 

10

course of that. If I miss some of the issues, certainly I would be 

open to answer anything during the Q & A session, if that is okay. 

Chairman HYDE. Without objection, your full statement will be 

made a part of the record and you may proceed as you wish. 

Mr. BHATIA. I apologize if I go a little over my time in delivering 

the opening statement. 

Mr. Chairman, Members of the Committee, I am very pleased to 

be able to appear before this Committee today, the Committee on 

International Relations, because we do very much believe that the 

President’s free trade agenda serves not only to strengthen our 

economy but also to foster democracy, development of the rule of 

law, and institutions of good governance. 

Consistent with the Committee’s request, I will focus on the Administration’s trade agenda in Asia, which is my area of focus at 

USTR. 

If I can, perhaps I can start with a word about the trade agenda 

more broadly. Over the last 60 years the United States’ policy of 

seeking to expand trade across Administrations and across parties. 

I believe this has helped to raise standards of living globally, and 

has helped to lift countless millions out of poverty. 

Here at home the facts are clear: Trade liberalization is estimated in the last 60 years to have contributed a trillion dollars to 

U.S. annual incomes or over $9,000 per household on average. And 

in just the last 10 years or so free trade has helped raise our GDP 

by nearly 40 percent and has coincided with the creation of over 

16 million new jobs along with today’s low unemployment rate. 

Much of this has been achieved through multilateral trade liberalization, and I should note that with the Doha Development 

Round that is ongoing today we have another opportunity to benefit the global economy and in particular to bring many developing 

nations more fully into the global trading system. 

I won’t go into that issue in detail unless Members of the Committee want to, but suffice it to say that we are looking for strong 

contributions from other countries in this regard. We cannot do it 

alone. We do remain fully committed, however, to seeking an ambitious outcome to these negotiations. 

With respect to Asia I think it is fair to say that no region of the 

world probably better illustrates our robust trade agenda today 

than Asia. In that region I believe we are presented with exciting 

opportunities for market openings, for the creation of new and 

deeper relations, for the creation of new jobs in the United States 

that would be export-oriented, but at the same time the region presents some of our more significant trade challenges. Some of those 

issues were raised in the opening statements. 

By simply way of overview, our trade with Asia clearly continues 

to grow. Our exports to the Pacific Rim increased to $233 billion 

last year, or in 2005, excuse me. Overall two-way United States 

goods trade with these countries allow for almost $800 billion annually, which is almost a third of total U.S. goods traded. It is the 

rare United States company or multinational company that doesn’t 

have operations in at least a couple of Asian nations, and Asia is 

becoming an increasingly important market for small and medium 

United States businesses as well. 

11

There is strong economic growth, fast growing middle classes, dynamic economies, and as a result I think Asia offers more promising economic opportunities for the foreseeable future for the 

United States than perhaps any other region of the world. Of 

course that economic significance is matched by its substantial 

strategic and geopolitical significance. 

So recognizing both the promise and the stakes, the Administration is working hard to deepen our economic engagement in Asia 

to encourage bilateral and regional trade and investment and to 

bring the countries of the region into the rules-based trading system. 

Now in practical terms that has meant five things. First of all, 

pursuing free trade agreements, and that obviously is a major topic 

today. But, secondly, conducting dialogues under trade and investment framework agreements and other arrangements; third, negotiating accessions to the WTO, including Vietnam; fourth, participating in regional trade enhancing organizations; and fifth, enforcing trade agreements. 

Let me touch on each if I may briefly. First of all, our FTAs are 

considered the gold standard in international trade agreements and 

they are tough to negotiate. I believe one of the opening comments 

suggested that we were handing out FTAs like candy. I can assure 

you from the point of view of those who are negotiating these 

agreements, and I think from the point of view of our trading partners on the other side who I believe feel very hard pushed by the 

United States in negotiating those agreements, we are not by any 

means handing them out like candy. We think through very, very 

carefully before launching trade agreements and then work very 

hard to conclude very high-standard, comprehensive agreements. 

Our FTAs cover not just tariff and nontariff barriers to trade, but 

they include far-reaching commitments covering really virtually 

every aspect of trade and commerce. They contain strong commitments on transparency and openness, they create standards for 

multilateral agreements, and they address other issues, including 

labor and environment issues. 

I should note that many observers, objective observers, believe 

that the balance of movement in these FTAs when one looks at 

changes that are happening in domestic laws, that the balance of 

movement is often perceived to rely more on the part of our trading 

partners than in the United States, and certainly if you look at the 

way tariffs move, United States tariffs frequently come down substantially less in our FTA agreements than they do on the part of 

our foreign trading partners. This certainly would be true with respect to our agreements with respect to Korea and Malaysia. 

The history of the FTAs in the region; we concluded an FTA with 

Singapore in 2004. To date, that has resulted in a 24 percent increase in U.S. exports to that country, creating new jobs and new 

wealth for American workers. We have launched FTA negotiations 

with Thailand in 2004 and those agreements, as has been noted, 

have been suspended because of Thailand’s ongoing political crisis, 

although we have recently agreed to hold informal consultations on 

outstanding issues over the next several months in order to allow 

us to rapidly re-engage and conclude this deal if and when a new 

Thai Government is formed, hopefully later this year. 

12

As a number of Members have mentioned, we have launched 

FTA negotiations with South Korea and with Malaysia. Both are 

significant trading partners, with dynamic economies and tremendous strategic significance in the region. 

A quick update on the status. We concluded the second round of 

the Korean FTA talks last week in Seoul. We are in the midst of 

the Malaysia talks this week in Washington. These will be challenging FTAs in a number of respects, but I think it is fair to say 

that the progress to date in both has generally been encouraging. 

Perhaps, Mr. Chairman, I can pause here to address two of the 

issues. The first is the question of immigration that you raised and 

commitments in that regard. Let me just assure you I believe this 

issue has come up in the past, including with the Oman FTA perhaps most recently. And it is the policy of the Administration to 

make quite clear in the context of our FTAs that no provision of 

the agreement will be construed as imposing any obligation with 

respect to a party regarding its immigration measures. 

Secondly, you raise the issue of the Kaesong Industrial Complex. 

In that regard let me indicate that this is an issue clearly that both 

we and the Koreans have flagged. We have made clear that it is 

both our, and our strong perception that it is Congress’ position, 

that this needs to be an agreement between the people of South 

Korea and the people of the United States and that it is not intended to benefit North Korea, and indeed benefits flowing from 

this agreement to North Korea would in our view be inconsistent 

with the very spirit of the FTA. 

Let me continue. In addition to the FTAs we are using our trade 

and investment framework agreements, or TIFAs, to deepen our relationship with Asian partners. We have agreements with a number of the ASEAN countries; Indonesia, Philippines, Cambodia and 

Taiwan. 

In that regard I noticed a number of Members raised the issue 

of Taiwan and the question of an FTA there. I have recently come 

back from a trip to Taiwan. I understand I was the most senior 

ranking Administration official to visit Taiwan over the course of 

the last 51⁄2 years. It was a visit to conduct a dialogue under our 

TIFA and to help address outstanding impediments in our trade relationship. 

We do have a good strong trade relationship with Taiwan. There 

is a substantial amount of trade there. It is not a trade relationship 

without issues in it right now and the TIFA was intended to help 

address some of those issues. 

This is precisely the kind of steps that we undertake while looking forward toward a deepening and a strengthening of the trade 

relationship. There is work that needs to be undertaken in that regard. 

I would point out, Congressman Tancredo, first of all, that needs 

to continue to happen. Secondly, I believe there needs to be a continued strengthening of support for a United States-Taiwan FTA 

among many of the relevant constituencies and stakeholders here 

in the United States. One thing that I have heard a great deal 

from our businesses in Taiwan and our economic stakeholders was 

that policies that Taiwan itself was imposing upon itself and upon 

its relations with the broader Asian region, including, for instance, 

13

limitations on cross straits trade, it placed increasing pressure on 

Taiwan as a destination for United States economic involvement. 

The long story short is this is an increasingly integrated region 

and if Taiwan is going to undertake policies that make itself less 

attractive to United States companies looking for regional hubs in 

Taiwan, those are considerations that need to be taken into account. 

So one of the messages that I delivered to the officials in Taiwan 

was that it would be helpful as we look forward to a deepening of 

the relationship if they would rethink some of these policies or perhaps address some of these policies to enable us to make a stronger 

case that there is a strong business interest in the deepening and 

the strengthening of that relationship. 

Let me—I don’t want to take too much time here, but let me 

point out that we enjoy structured dialogues as well with Japan 

and India. And let me pause briefly if I can with respect to China, 

Mr. Chairman. I don’t think any overview of our activities in Asia 

would be complete without a discussion of our trade relations with 

China. 

In February of this year the United States Trade Representative’s Office under the then leadership of Ambassador Rob Portman 

undertook a complete comprehensive top to bottom review of our 

trade relationship with China. It was a comprehensive assessment 

and it concluded that, while the U.S. has clearly derived substantial benefits from United States-China trade, that relationship has 

not been sufficiently balanced in the opportunities that it provides. 

It assessed that we are entering, however, into a new phase of 

United States-China trade relations. You can sort of think about it 

in three phases. The period 1986 to 2000 was one in which we were 

working to try to bring China into the global rules-based trading 

system; the period 2001 to 2005 was one in which China was going 

through the accession process and trying to meet its commitments. 

Now, with the beginning of 2006 we are entering into a new period 

in which the report concluded our trade resources need to be refocused on getting China to open its market, to reform its policies 

that skew its commitments and discriminate against United States 

exporters, and to abide by its WTO commitments. 

In short, China has got to bear the responsibilities that commensurate with the benefits it has obtained from participating in the 

rules-based trading system. 

To this end we have enhanced our trade enforcement capacity by 

establishing a new Chief Counsel for China Enforcement, which is 

the first time in history that we have created an enforcement czar 

focused on a single country; creating an Interagency China Enforcement Working Group, by adding new analytical resources to 

help create stronger and more forward looking cases, and by closely 

collaborating with trading partners and seeking to enforce our 

rights. 

We are also looking forward to strengthen, expand and increase 

the effectiveness of our United States-China dialogue on issues 

ranging from subsidies practices, financial services, labor, transparency, et cetera. 

We are also bringing cases before the WTO. I should note that 

we have already filed one WTO case against China this year conVerDate Mar 21 2002 16:35 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 F:\WORK\FULL\072006AM\28788.000 DOUG PsN: DOUG
14

cerning China’s treatment of United States-made auto parts and 

we are on the verge of filing another when China rescinded the regulation that was the cause of the complaint. We have been working 

closely with allies in Europe and elsewhere in bringing these cases. 

Let me lastly perhaps touch on Vietnam, as Congressman Smith 

mentioned. We have been working hard to encourage our trading 

partners in the region to accede to the WTO. Today one of our top 

trade priorities is securing Vietnam’s WTO accession. On May 31st 

we signed the Bilateral Market Access Agreement that will help 

clear the way for Vietnam to join the WTO. 

The agreement will dramatically reform the Vietnamese economy, it will open its market to United States exporters, and it will 

also subject Vietnam to the disciplines and rules of the WTO. 

With respect to the issue the Congressman raised of religious 

freedom and human rights, we are by no means blind to that set 

of issues. We take that set of issues very seriously and indeed they 

have been raised repeatedly with the Vietnamese. 

I think, although USTR is not the expert on human rights and 

labor rights issues, I believe that if my Department of State colleagues were sitting here they would tell you the situation in Vietnam is far from perfect but that it is improving. I believe that they 

would also tell you and I believe it is our experience that the decision that faces the Congress right now, which is whether to vote 

for permanent normal trade relations, just as a footnote, not a free 

trade agreement but PNTR, presents us with a fairly stark choice, 

which is do we try and bring Vietnam into the global trading system and subject it to WTO rules, which are not rules admittedly 

on religious freedom or human rights issues, but they are rules 

that have powerful effects on the way the Vietnamese society will 

function and certainly how its economy will function. 

It will create new competition, new opportunities, new abilities 

for United States companies to come in and set up businesses there 

and hire Vietnamese employees and create competition in the labor 

market there. And it is our view that the true travesty that exists 

is where a state so controls the economy that there is no ability for 

the value of worker services to be competed over. And it would be 

our view that the best course of action that we can take is not to 

shut Vietnam out of the WTO, or worse still, allow Vietnam into 

the WTO but not allow us to be able to pursue claims against Vietnam or have our companies be able to get the benefit of Vietnam’s 

WTO accession. But rather to involve them in the WTO and to continue the process of progress that we believe has been made today. 

I am happy to engage in further discussion on this issue. 

Mr. Chairman, I vastly exceeded my time, I fear, but I have been 

trying to weave in answers to some of the questions. I suspect 

there are probably some that I missed and I would be delighted to 

answer further questions on them now. 

[The prepared statement of Ambassador Bhatia follows:]

PREPARED STATEMENT OF THE HONORABLE KARAN K. BHATIA, DEPUTY UNITED

STATES TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Chairman Hyde, Ranking Member Lantos, Members of the Committee, it is a 

privilege to be here today to discuss the Bush Administration’s free trade initiatives 

in Asia. 

15

Meeting regularly with Congress is an important part of our work. During the 

eight months that I have been at USTR, both former U.S. Trade Representative Rob 

Portman and current Trade Representative Susan Schwab have placed a very high 

priority on consulting regularly with Congress and working to reestablish a bipartisan consensus behind an active U.S. trade policy. I’m particularly pleased to appear today before the International Relations Committee, whose responsibilities include broader U.S. foreign policy concerns. We strongly believe that the President’s 

free trade agenda serves not only to strengthen the U.S. and global economy, but 

also to foster democracy, development, rule of law, and institutions of good governance. 

Consistent with the Committee’s request, I will focus today on the Administration’s trade agenda in Asia—my area of focus at USTR—and, in particular, on the 

free trade agreements that we are currently negotiating with Korea, Malaysia, and 

Thailand. I will also touch briefly on our trade relations with Japan, China, India, 

Taiwan, and Southeast Asia, and would be happy to delve into those relationships 

at greater depth, if you would like. 

Doha Round 

Before turning to our trade policy with respect to these nations, let me first raise 

a subject that will affect our trade relationships with Asia and the rest of the world 

for years to come: the Doha Round of multilateral trade negotiations. 

Over the last 60 years, the United States’ policy of seeking to expand trade has 

helped to raise standards of living globally and lift countless millions out of poverty. 

As industrialized countries have lowered their average tariff on industrial goods 

from 40 percent to 4 percent—thus opening their markets to exports from other 

countries—global exports have grown from $58 billion to over $10 trillion, benefiting 

both industrialized and developing countries. Here at home, trade liberalization 

since 1945 is estimated to have contributed $1 trillion to U.S. annual incomes, or 

on average $9,000 per household. In just the last ten years or so, freer trade has 

helped raise our GDP by nearly 40 percent and has coincided with the creation of 

over 16 million new jobs and today’s low unemployment rate. 

The Doha Round is the first WTO/GATT Round to focus specifically on international trade as a way to lift millions out of poverty by giving developing countries 

greater access to world markets. To accomplish this, we are working hard to lower 

the tariffs that impede developing nations from trading with developed nations and 

with each other. We are also working to lower the subsidies of wealthier nations 

that can distort markets and place developing nations at a disadvantage. This is a 

once-in-a-generation opportunity to bring developing nations into the global trading 

system as full partners, and we cannot afford to miss it. 

In spite of setbacks, we remain fully committed to achieving an ambitious outcome to these negotiations. But we cannot do it alone. We need others to make 

meaningful proposals, just as the United States has done, including through our October 2005 offer to reduce agriculture subsidies. We are at a critical juncture right 

now, with the President’s trade promotion authority set to expire next summer. 

Those who want a successful round must commit to serious tariff reductions and 

real market opening, so that the results of the Round will match the promise that 

heralded its inaugural session nearly five years ago. 

Asia Trade—Overview 

Turning now to the subject of our trade policy with respect to Asia in particular, 

let me note that our trade agenda has a number of goals. We seek to create opportunities for U.S. farmers, workers, and businesses abroad by reducing tariffs and barriers to trade and investment, thereby opening markets and creating more level 

playing fields. By enhancing the channels for commerce and investment, we also 

seek to strengthen bilateral relationships and reinforce U.S. foreign policy objectives. Finally, we seek to ensure, through firm and vigilant enforcement of trade 

laws and obligations, that our trading partners live up to the agreements they 

make. 

Perhaps no region of the world better illustrates our robust trade agenda than 

Asia. There, we are presented with exciting opportunities for market openings and 

the creation of new and deeper relationships, as well as some of our most significant 

trade challenges. 

Our trade with Asia continues to grow. Our exports to Asian Pacific Rim nations 

increased from $181 billion in 1995 to $233 billion in 2005, despite poor growth in 

Japan, the impact of the Asian financial crisis, and trade barriers to U.S. exports. 

Overall, two-way U.S. goods trade with these countries accounts for almost $800 billion annually—nearly a third of total U.S. goods trade. The U.S. commercial presence across Asia is at its historic peak. It is the rare U.S. multinational that does 

16

not have sales operations or production facilities in at least a couple Asian nations, 

and Asia is becoming an important market for small and medium U.S. businesses 

looking to move into international markets. U.S. foreign direct investment in the region has tripled over the last decade. Looking forward, with strong economic growth, 

fast-growing middle classes, and dynamic economies, Asia offers more promising 

economic opportunities for the foreseeable future than any other region of the world. 

The economic importance of the region is matched by its substantial strategic and 

geopolitical significance. Representing over 40 percent of the world’s population, 

there are few areas that pose greater challenges for U.S. foreign policy than South, 

Southeast, and East Asia, which just in the past several years have captured global 

headlines with terrorist incidents, military tensions, natural disasters, and the prospect of global pandemics. 

Recognizing both the promise and the stakes, the Administration is working hard 

to deepen our economic engagement in the region, encourage bilateral and regional 

trade and investment, and bring the countries of the region into the rules-based 

international trading system. In practical terms, that has meant pursuing free trade 

agreements, conducting dialogues under trade and investment framework agreements (TIFAs) or other arrangements, negotiating their accessions to the World 

Trade Organization, participating in vital regional trade-enhancing organizations, 

and enforcing trade agreements. 

FTAs with Singapore, Thailand, Korea, and Malaysia 

A word about our FTAs. They are considered the gold standard in international 

trade agreements, and they are tough to negotiate. They cover not just tariffs and 

nontariff barriers to trade, but include far-reaching commitments covering virtually 

every aspect of trade and commerce. I should note that, among other things, they 

contain strong commitments on transparency and openness, an important step in 

laying the foundations for democracy and rule of law. Further, our comprehensive 

FTAs help seed regional trade, raise standards for multilateral agreements, and promote economic and political reform. 

Our first FTA partner in Asia was Singapore. This comprehensive agreement is 

already paying off for U.S. businesses, with U.S. exports to Singapore up by over 

24 percent since the agreement took effect in 2004. 

Shortly thereafter, the President announced his Enterprise for ASEAN Initiative, 

which aims to deepen our relationships in Southeast Asia by offering the possibility 

of FTAs with all the ASEAN countries that are WTO members. Under this Initiative, we launched FTA negotiations with Thailand in 2004. Unfortunately, these 

talks have been suspended since February because of Thailand’s ongoing political 

crisis. Last week, we met with Deputy Prime Minister Somkid to discuss the impact 

of the political situation on Thailand’s economic outlook and our trade relationship. 

We have agreed to hold informal consultations on outstanding issues over the next 

several months, in order to allow us to rapidly reengage and conclude this deal if 

and when the Thai Government is formed, hopefully later this year. 

Earlier this year, we launched FTA negotiations with the Republic of Korea. 

Whether measured by population or GDP, Korea is our largest FTA partner in many 

years. We concluded the second round of the talks last week in Seoul and, while 

this has been and will be a challenging FTA in a number of areas, the progress to 

date has generally been encouraging. 

Under this FTA, American workers, farmers, ranchers, and businesses stand to 

gain greater access to a large and growing economy. Korea’s growth in trade—double digit increases for each of the past ten years—has enabled it to become the 

world’s tenth largest economy. Two-way trade in goods between our two nations currently stands at approximately $72 billion in 2005. Korea is our seventh largest 

trade partner, while we are Korea’s third largest trading partner. One has only to 

compare Korea’s economic dynamism with that of its neighbor to the north to see 

the benefits of a robust policy of trade engagement with the world. 

A comprehensive FTA with Korea will bring down tariffs, reduce barriers to U.S. 

manufacturing, agricultural, and services businesses, and improve the investment 

climate for American investors. In short, it will level the playing field for our companies and investor. This FTA will also cement important economic and political reforms that the Korean Government has undertaken. It will reinforce our strong ties 

to Korea, a key alliance partner for over 50 years, and will enhance our engagement 

in Northeast Asia. 

Finally, in March of this year, we launched FTA negotiations with Malaysia. 

While few Americans are aware of the magnitude of our trade relationship with Malaysia, this nation is our tenth largest trading partner—and our largest in Southeast Asia. Our exports to Malaysia grew by about 20% over the past decade, but 

hold the promise of much stronger growth in the future. Today, Malaysia imports 

17

more from the United States than from any other country except Japan, and we are 

now Malaysia’s largest foreign investor, eclipsing even nations such as the Netherlands and Britain that have deep historical ties to Kuala Lumpur. 

Malaysia is a leader in the Muslim and developing world, and a U.S.-Malaysia 

FTA will demonstrate the U.S. commitment to the region, deepening our bilateral 

relationship and strengthening support for our efforts on key political and security 

issues such as counterterrorism and counter-narcotics. 

TIFAs and Other Dialogues—Other East Asian Economies, China, and India 

In addition to FTAs, we are using our ‘‘Trade and Investment Framework Agreements,’’ or TIFAs, to deepen our trade relationships with Asian partners, address 

bilateral trade issues, cooperate on regional and multilateral issues, and, in some 

cases, lay the groundwork for FTAs. We have robust TIFA dialogues with a number 

of individual ASEAN countries—including Indonesia, the Philippines, and Brunei— under which we meet several times a year to discuss the full range of issues on our 

trade agenda, ranging from intellectual property rights, to regulatory issues affecting agricultural trade, to customs agreements to combat shipments of illegal goods. 

Last week, we signed a U.S.-Cambodia TIFA that we hope will help spur bilateral 

investment and provide us with a forum to handle trade issues as they arise. 

We also have an active TIFA dialogue with Taiwan. I recently traveled to Taiwan 

for two days of discussions under the U.S.-Taiwan TIFA, and was able to get a firsthand view of the vibrancy of that economy and of the importance that senior leaders 

there place on our trade relationship. That relationship is a strong one, with nearly 

$57 billion in two-way goods trade last year. Taiwan is an important economic partner for the United States and it is one that we are determined not to overlook. 

No overview of our activities in East Asia would be complete without a discussion 

of our trade relations with China, relations that are critical to our economy and our 

people. In February, USTR unveiled a top-to-bottom review of our trade relationship 

with China. It was a balanced and comprehensive assessment that concluded that, 

while the U.S. has clearly derived substantial benefits from U.S.-China trade, the 

relationship has not been sufficiently balanced in the opportunities it provides. The 

review also called for our China trade policy resources and priorities to be refocused. 

Now that China’s transition period as a new WTO member is ending, the United 

States will treat China as a mature trading partner and will draw upon the full 

set of tools available to us to ensure that China complies with its commitments. 

China needs to do more to open its markets, reform policies that skew markets and 

discriminate against U.S. exporters, and abide by its WTO commitments, particularly in the area of intellectual property rights enforcement. In short, China must 

bear responsibilities that are commensurate with the benefits it has obtained from 

participation in the rules-based trading system. 

In accordance with this view, USTR has enhanced its trade enforcement capacity 

by establishing a China Enforcement Working Group, and I will say more about this 

later. We are also working to strengthen, expand, and increase the effectiveness of 

the U.S.-China dialogue on issues such as standards and SPS issues, China’s subsidies practices, financial services, telecommunications services, labor, environmental protection, and transparency and the rule of law, among others. The Administration recognizes as well the importance of increasing coordination with other 

trading partners in pursuing these issues and—as evidenced by our coordination 

with European and Asian partners on intellectual property rights and auto parts 

issues—is already vigorously pursuing such coordination. 

This emphasis on enforcement, we believe, complements the dialogue with China 

that we carry out on a number of levels, primarily through the Joint Commission 

on Commerce and Trade. During the most recent JCCT in April, we achieved 

progress on a range of important bilateral issues, including measures to improve intellectual property rights enforcement, China’s commitment to join the WTO Government Procurement Agreement, transparency of government regulations, improved market access for medical devices and telecommunications services, and beef. 

Now let me turn to Japan, which is the third largest market for U.S. goods, with 

exports of $55.5 billion last year, and is our fourth largest overall goods trading 

partner, with $194 billion in two-way goods trade. While a key market for the U.S., 

formal and informal barriers still prevent U.S. products from reaching Japanese 

consumers. Japan’s continued ban on imports of U.S. beef remains one area of particular concern, and we look to Japan to reopen its market in the very near term. 

The principal institutionalized mechanism for bilateral trade policy engagement 

with Japan is the Regulatory Reform Initiative, which along with other initiatives 

on finance and investment is a key component of the Economic Partnership for 

Growth that President Bush and Prime Minister Koizumi launched in June 2001. 

Under this initiative, we are tackling many of the same kinds of market access 

18

issues that we would address under an FTA and seeking to ensure trade is fair and 

mutually beneficial. 

Turning to India, we have seen double-digit growth in our exports in recent years 

and are excited that our economic relations with the world’s largest democracy are 

on the verge of expanding significantly. As India continues to embrace economic reform, it will claim its place among the world’s largest trading nations. The United 

States is proud to be India’s largest overall trading partner. In July 2005, President 

Bush and Prime Minister Singh endorsed creation of the U.S.-India Trade Policy 

Forum (TPF), a bilateral mechanism devoted to creating an improved environment 

that will facilitate bilateral trade and investment. The TPF has already met six 

times—three at the ministerial level—and is making steady progress reducing trade 

impediments, many of which have been in existence for well over a decade. We have 

set an ambitious target to double two-way trade over the next three years, and we 

are encouraged by our progress to date. 

WTO Accessions—Vietnam 

While working to strengthen bilateral relations, we have also worked hard to encourage our trading partners to accede to the WTO. By requiring countries to open 

up their economies and reduce tariff and nontariff barriers to trade, WTO accession 

not only creates new opportunities for U.S. exporters, it also subjects acceding countries to the disciplines and rules of the WTO. 

In 2004, we helped secure the WTO accession of Cambodia. Today, one of our top 

trade priorities is securing Vietnam’s WTO accession. On May 31, we signed a bilateral market access agreement that will help to clear the way for Vietnam to join 

the WTO. The agreement will dramatically reform the Vietnamese economy, requiring it to reduce tariffs and nontariff barriers and opening its fast-growing markets 

to U.S. manufacturers, service providers, farmers and ranchers. But we are not 

there yet. For Americans to benefit fully from Vietnam’s WTO accession, the Congress must provide for permanent normal trade relations (PNTR) with Vietnam. If 

that change in law does not occur, every other member nation will have WTO relations with Vietnam—including the right to bring WTO cases against Vietnam—but 

the U.S. will not. We hope that the House will soon take up this important legislation, and I would urge the Members of this Committee to support this effort. 

Participating Regionally through APEC 

We continue to attach great importance to APEC, which has helped us advance 

our trade agenda in key areas, such as intellectual property rights, trade facilitation, and transparency. President Bush has made it clear that APEC is the ‘‘premier 

forum in the Asia Pacific region for addressing economic growth, cooperation, trade 

and investment.’’ The United States has $1.6 trillion in total goods trade with APEC 

economies, accounting for roughly two-thirds of total U.S. goods trade. Yet opening 

markets through APEC has been slower and more painstaking than many would 

like. As APEC nears its 20th anniversary, it needs to be strengthened and revitalized, so that it can better address the wide range of challenges facing the Asia-Pacific region. We are currently working closely with other APEC members to develop 

ways to do that—with the goal of ensuring that APEC is more efficient and more 

effective for the United States and all its members in promoting growth and advancing liberalization in the growing Pacific Rim markets. 

Enforcing Our Rights 

As I mentioned at the beginning of my statement, achieving market access for 

U.S. citizens and businesses loses its value if our trading partners do not follow 

through on their obligations. We expect our trading partners to abide by the commitments they make. USTR has been using the tools and resources provided by 

Congress to ensure that American businesses can compete on a level playing field. 

Let me note here the emphasis that we at USTR have placed on the enforcement 

of China’s trade commitments. Stepping up that enforcement was a particular focus 

of the Top to Bottom review discussed above. In particular, it called for the creation 

of a new Chief Counsel for China Enforcement (the first time in history that USTR 

has created an enforcement czar focused on a single country), a China Enforcement 

Working Group, the infusion of new analytical resources in USTR to help create 

stronger and more forward-looking cases, and close collaboration with trading partners in seeking to enforce our rights. 

We are already far along on implementing many of the recommendations in that 

report. We recently hired a Chief Counsel for China Enforcement. We have already 

filed one WTO case this year—concerning China’s treatment of U.S.-made auto 

parts—and we were on the verge of filing another when China rescinded the offending regulation. We have been working closely with allies in Europe and elsewhere 

in bringing these cases. 

19

Let me mention in particular, that we continue to press China on its obligations 

to honor U.S. intellectual property rights. We have made clear that if action is not 

taken to curb piracy in China, we will not hesitate to exercise our rights at the 

WTO to enforce its obligations. 

Thank you for this opportunity to testify. I look forward to your questions.

Chairman HYDE. Thank you very much, Ambassador. 

Mr. Smith of New Jersey. 

Mr. SMITH OF NEW JERSEY. Thank you very much, Mr. Chairman. 

Mr. Ambassador, thank you for your comprehensive answers and 

testimony. Let me just ask you with regards to China again, if I 

could, and you talked about subject to the WTO and the regimen 

that that imposes on a country, rules and regulations, but one of 

the concerns that I had when WTO was being crafted was the lack 

of concern. Intellectual property rights are actionable offenses, as 

they should be, but when you get into the areas of human rights 

and even workers’ rights, what does the WTO have to say about 

that? 

The problem that I and many others have with regards to workers’ rights in China is that there has been a systematic tightening 

of the noose, if you will, on workers in the PRC. There is an aggressive, comprehensive denial of the right to organize collective bargaining. Increasingly workers are finding that they are not paid, so 

wage arrearages have become a significant issue in China. And if 

you strike, you are on your way to the gulag. Just try it and you 

go. You are tortured. It is an engraved invitation to abuse if you 

strike in the PRC. 

There are as many as 10–20 million child laborers. There is a lot 

of forced labor. We know the laogai system, 1,100 strong and plus, 

we have an MOU with them. We have had it since Bush 1, during 

the Clinton Administration. That MOU on gulag-made goods isn’t 

worth the paper it is written on. As we all know, we have got to 

ask them to investigate, they, being the Chinese officials, and there 

is a time period. We must have compelling evidence. 

I mentioned Frank Wolf and I—I didn’t mention Frank, but he 

was with me when we visited Beijing Prison No. 1. It was only because we took samples from that prison factory that we were able 

to get a hold on an import sanction on those goods coming to the 

United States. Otherwise, our customs people are like the Maytag 

repair salesman, they do not have the kind of access because of a 

flawed MOU. 

So that MOU was touted again and again during Bush 1 and 

Clinton, and I don’t hear much of it now even though it is I guess 

still in force, but we know that there are prison-made goods that 

are finding their way onto our shelves here in the United States. 

Again, that is not even 15–50 cents an hour, that is zero per hour. 

There is the occupational health issue. We have got OSHA in 

this country and it does provide at least a modicum of protection 

for our workers, but in the PRC, according to the Country Reports 

on Human Rights Practices, in excess of 125,000 men and women 

died in the factory last year. There was an official Chinese document that suggested that rates of illness and injury have never 

been higher in the Chinese manufacturing sector. So that it is getting worse, and they don’t lift a finger to protect. 

20

I raise all of this because there is a significant section 301 complaint petition that has been filed with the USTR. Two years ago 

a similar complaint was filed. Remediation, if you want to call it 

that, was suggested that the Administration would try to push, and 

I am sure a good faith effort was made, but we have got nothing 

to show for it, nothing. 

The bottom line is if you are a factory worker, your life is relatively grim in the PRC and it is dangerous going to work every 

day. Why don’t we take this and please respond to it? Will you take 

this petition and investigate? This is very well documented. I have 

read it three times now. Very well written, heavily footnoted, and 

in addition to Chinese workers being hurt, United States workers 

are being hurt as well. There is a displacement factor. The upwards number in here is 1.2 million people who have lost their 

jobs. I don’t know if that is absolutely correct, but it is a good faith 

effort to arrive at job loss here in the United States. 

And it also has a corresponding depression on factory workers 

throughout the world. When you pay so little and when China produces so much, it hurts developing countries in Africa and elsewhere because it brings down what can be paid for a product on 

the world market. 

So what is your view on this petition? Has it been reviewed? And 

I hope you are not going to tell us it is going to be rejected again. 

Ambassador BHATIA. First of all, Congressman, let me, if I can, 

make a completely unequivocal statement here on the subject of 

China’s labor practices. I am not here to defend China’s labor practices in any way, shape or form. I do not think any of us would suggest, and I think this is something that was said by the Administration at the time of the last 301 petition, that we believe China 

is in the shape that we would like to see it, or anything close to 

the shape we would like to see it in the area of labor. So let me 

just get that on the table. 

Second thing I need to say is, there is a section 301 petition currently pending before us. It is filed, there is a process we proceed 

under, and so I am a little limited as to what I can say to you 

there. I can tell you that the petition is under consideration by the 

Section 301 Committee that exists. 

But perhaps I can talk in a little more general terms about what 

the Administration has been doing in the area. It is not just USTR, 

but it is more broadly. There have been a number of initiatives by 

the Department of Labor that have been launched with respect to 

the Chinese to seek to work in some of the areas that you mentioned, occupational, health, and safety, as well as in other areas. 

The issue of whether China is compliant with international labor 

standards is something that is a key factor in determining whether 

China continues to be deemed a non-market economy by the Department of Commerce, which is something that really bites; something that they care about. So that is another relevant factor here. 

I think a third factor that I would say one needs to think about 

301 in terms of is what we really want to have happen here. I 

mean, what we want to have happen is for China’s labor practices 

to improve, for some of these egregious examples you are talking 

about to end, we want to see China’s labor market not be distorted 

by government policies and things that range from the egregious, 

21

as you term it, to simply the out-and-out irrational, which also exists in this area. So I think all of these are issues. 

The question that we ultimately have to face, and indeed that 

the 301 decision will have to wrestle with, is what the most effective way to do that is. Now, this may not bare on the 301 petition, 

but one thing I would point out is perhaps the most positive development we have seen with respect to China in recent years has, in 

fact, been the rising growth of wages and of labor rates in China. 

And I would submit to you that the reason we have seen that is 

because of the greater trade, the greater involvement of foreign enterprises in China, which has had the effect of both stimulating demand in the labor market but also creating the effect of a set of 

conditions and standards that are increasingly being adhered to. 

So, the issue of whether China is where it should be or not is 

one that I do not think there is any disagreement among probably 

any of us. The issue we are faced with is what is the most effective 

way to do that. 

Finally, ultimately, I would point out that the 301 mechanism is 

one that is a mechanism that has carried over from a pre-WTO era. 

So we need to think very carefully about the question of the use 

of 301 remedies, given that we are now under new strictures and 

restrictions in terms of sanctions that can be placed on it. 

Mr. SMITH. If I could, Mr. Chairman. 

Chairman HYDE. If you don’t mind. 

Mr. SMITH. Okay. 

Ambassador BHATIA. I would be delighted to follow up with you, 

Congressman. 

Chairman HYDE. Mr. Faleomavaega. 

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman.

I would gladly yield an extra additional minute to my good friend 

from New Jersey, if he wishes to pursue his question. 

Mr. SMITH. Thank you, Mr. Chairman, and Mr. Faleomavaega. 

Does WTO preclude 301 remedies? 

Ambassador BHATIA. Congressman, I can’t answer that question 

directly, simply because I don’t know what remedies conceivably 

could be imposed. I don’t know. But I can tell you that one needs 

to look very closely at how WTO obligations cabin 301. 

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. I want to thank 

Ambassador Bhatia for a very excellent statement. I noted in your 

initial statement, Mr. Ambassador, you said that free trade agreements strengthen the U.S. economy. But I think previous to that, 

Mr. Lantos had indicated in his concerns the tremendous loss of 

jobs in our country due to the impact of free trade agreements. 

I am not an economist, but my good friend, Mr. Lantos, is an 

international economist, and I am trying to reconcile these two observations to say which is which. 

I want to note the fact that we are members of the World Trade 

Organization. 

Ambassador BHATIA. Yes, sir. 

Mr. FALEOMAVAEGA. That we have these regional trade blocks. 

Ambassador BHATIA. Yes, sir. 

Mr. FALEOMAVAEGA. And then we have these free trade agreements both multilaterally and bilaterally. And in all this mix, do 

you honestly believe that we are really heading into the right direcVerDate Mar 21 2002 16:35 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 F:\WORK\FULL\072006AM\28788.000 DOUG PsN: DOUG
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tion in terms of providing a more stabilized economy, providing for 

more opportunities for our workers in the business community? 

This is one of the problems that I am concerned with, Mr. Ambassador. And I hate to, Mr. Chairman, use NAFTA as an example, 

but I can’t help but to say, look, one of the problems that we have 

with this free trade agreement, if you want to call it that, we used 

labor and environmental issues as a side or supplemental issue. 

That wasn’t how we agreed to it; to say, well, we’ll take care of 

those issues but let’s move on and get NAFTA moving. Well, somehow in the situation with our trade relations with Mexico, it seems 

to be totally opposite. 

The whole import of NAFTA, supposedly, was to prevent these 

illegal immigrants from coming over into the country so that jobs 

would be provided with our export market to Mexico and with all 

these things. But this has not happened. Like I said, I am not an 

economist, but I find this probably in the same situation in our 

trade relations with other Asian countries. We are exporting, but 

I don’t see where we are providing more workers working opportunities because of this. 

We are now at a trade deficit with these Asian countries, which 

is a good example of what I’m trying to get at. Can you reconcile 

that for me, Mr. Ambassador? 

Ambassador BHATIA. Sure, Congressman. Thank you. The point 

you raise, I think, is one that we probably need to do a better job 

of explaining, because I believe so passionately that our free trade 

agreements are not only reconcilable with economic growth and 

stability in our country but are essential to it. The reality, Congressman, is that the nature of not only the U.S. economy, but 

every other economy around the world is changing rapidly and will 

continue to change rapidly. The forces of globalization that we all 

know about are impelling us in that direction. 

The question the FTAs present to us are, I think, twofold: One, 

whether foreign markets that currently are, if not closed, at least 

more closed off to us than our own economy is to the foreign countries, whether that balance needs to be struck. So if you look at industrial tariffs, let’s say in Malaysia, or you look at them in Korea, 

they are multiples of what our industrial tariffs are. The Koreans, 

the Malaysians and others have access to the United States market, which is one of the reasons, I would submit, not the only reason, but a contributing factor in why you see those trade deficits. 

So if the concern is to reestablish balance, which certainly is one 

potential goal out there, the FTAs are in fact critically helpful to 

that. They don’t only deal with tariffs, obviously. They also deal 

with nontariff barriers and the creation of intellectual property 

rights protections. And those are also essential to economy and to 

our workers because those are fundamentally necessary preconditions, one could argue, for our companies to be able to compete effectively in those economies. 

So I will proffer that answer. And another point I would make 

is that while change is always difficult in economies, I fully agree 

with that, and we do have systems and programs and things in 

place to try to help address that change, the change ultimately, I 

do believe, is for the better. 

23

If you look at our other export-oriented jobs today, they pay higher, on an average 15–18 percent higher than the nonexport jobs. 

Services jobs, which are more likely to be export-oriented jobs, are 

generally likely to be paid higher wage and have more satisfactory 

jobs. 

So, the U.S. economy is changing, there is no question, but the 

benefits we are moving towards, and what we can only really capture in a free-trade environment is a situation where we have a 

healthier economy. 

I don’t know if that answers your question, but that is how I 

think we look at it. 

Mr. FALEOMAVAEGA. My time is up, but I hope to get a second 

round. 

Thank you, Mr. Chairman.

Ambassador BHATIA. Thank you very much. 

Chairman HYDE. Mr. Flake. 

Mr. FLAKE. Thank you, Mr. Chairman, and thank you for holding 

this hearing. I thank Mr. Ambassador for being here, and I just 

want to say from the outset I am a huge believer in free trade. 

Ambassador BHATIA. I am well aware. 

Mr. FLAKE. And anxious to see more free trade agreements. I 

hope we move quickly with the Korean Free Trade Agreement, and 

I do believe that when we change economies, we change the political dynamic as well. And I think we can see evidence of that in 

China and elsewhere. 

I just wish that we were more consistent with that principle and 

would apply it to Cuba. But that is the subject of another hearing, 

I’m sure. 

Let me just ask you: How big of a problem are our own agricultural subsidies? I know we have had some problems in the Doha 

Round with regard to Asian free trade agreements. What are we 

going to be faced with? 

I know that is important for other regions, but how important is 

it that we restructure? As we go toward reauthorizing the Farm 

Bill coming up, we know that we need to make some changes, and 

gratefully so. These subsidies are bad for a number of reasons, but 

one of them is that it really makes a mess of some of these free 

trade agreements. It makes them less free trade than anything 

else. 

And the biggest problem with the free trade agreements we have 

signed in the past couple of years have been the massive exemptions to them. So, if you can offer some guidance as to how big a 

problem it is with Asian free trade agreements and what we are 

doing to solve that. 

Ambassador BHATIA. Congressman, I think the issue of agricultural subsidies is not one that I would say thus far has emerged 

as a major issue in our Asian FTAs. I would point out that we are 

still only in the second round of the negotiating with the Korean 

and the Malaysian agreements, so I don’t know for certain what 

issues may come up. They have not come up as major issues there, 

but they are clearly a very major issue in our Doha Round negotiations, which sits on top of all of these and establishes the multilateral framework. 

24

I would note that we, as the United States Government, working 

in close cooperation with Congress, the relevant Committees and 

with Congress as a whole, have put forward in the Doha Round a 

very aggressive ambitious offer that would deal with both the issue 

of market access in agriculture, i.e. tariffs and being able to sell 

into the market, as well as trade distorting subsidies. And we have 

put forward a proposal that would require substantial reformation 

of our own subsidies, if it were to be accepted. 

The principal issue we have in the Doha Round, as you may be 

aware, is the question of whether other trading partners, the Europeans in particular, are willing to be as bold. And, unfortunately, 

it takes not only two, but 150 to tango in the Doha Round. We are 

going to have to see if we can coalesce around an ambitious outcome there. But it is an issue in our international trade negotiations. 

Mr. FLAKE. Well, thank you. I just hope the Administration is 

aware that there are many of us here in Congress who, for whatever reason we can use, and whatever excuse or whatever else, we 

need to readdress the Farm Bill, in particular, as we come up to 

reauthorize it, and to make it more consistent with our free trade 

goals and objectives. 

And I want to commend the Administration for pursuing, as I 

mentioned, these free trade agreements, and in particular, in other 

regions as well, in Africa, AGOA, and AGOA II, have made a difference. I think most of us recognize if we want long-term sustainable development in the developing world and in Third World countries, then trade is where it is at. 

Ambassador BHATIA. Yes. 

Mr. FLAKE. So thank you for what you are doing. 

Ambassador BHATIA. Thank you for your support. 

Chairman HYDE. Well, I think we have run out of questioners. 

Oh, Mr. Wilson. We saved the best for last. 

Mr. Wilson. 

Mr. WILSON. Thank you, Mr. Chairman. Being so junior, he can’t 

see me down here this far. But just honored to be serving on this 

Committee with Chairman Hyde. And of course, we are in his last 

year, so this is sort of bittersweet for many of us who are so proud 

to serve with him. 

Ambassador, I want to congratulate you, too. I am the former CoChair of the India Caucus, and you, I believe, may be the highest 

ranking Indian American ever to serve in a public office, and we 

are very proud of your service. 

Ambassador BHATIA. Thank you. 

Mr. WILSON. Additionally, I really share a concern of my good 

friend, Mr. Faleomavaega, that when people think of free trade 

agreements, in my home State of South Carolina, they are thinking 

outsourcing. But you really actually brought to mind that, indeed, 

we need to tell the story better. 

I am not quite the free-trader my good friend Mr. Flake of Arizona is. I hope there will be safeguards for domestic industries, 

such as textiles, and I understand that they can’t be there forever, 

but certainly, to safeguard against dumping and against transshipment and relabeling. 

25

We need to get the message out, and you call it export jobs, but 

these are jobs created in the United States for exports abroad. I 

think the message needs to get out more about the exports-imports 

to Asia from the United States. 

Additionally, a message I have given to my Indian friends is that 

they need to make it clearer about the investments in the United 

States. 

Ambassador BHATIA. Absolutely. 

Mr. WILSON. When I think of Asia, I think of my home State of 

South Carolina and Fuji Film, American Koyo Ball Bearings, and 

I think of Honda building vehicles in South Carolina, and then I 

think next door, Australia. PBR Brakes are made right down the 

street from where I live. So we have phenomenal investments. 

And then I think, too, amazingly enough of when I came and you 

were talking about Taiwan, we have a billion dollar investment 

from Mosa Plastics Group, Nan-Ya Plastics in Lake City, South 

Carolina, that creates jobs in a very depressed community. It 

means a lot. 

Ironically, we have PRC Builds, through hire, refrigerators, air 

conditioners, and apartment-sized appliances, of all things, at a facility in Camden, South Carolina. And so I know firsthand. 

But we do, and you have a hard job in your position with the 

trade representative, but I hope that somehow this message can 

get out about the jobs created through exports. And the information is available by State, almost by county. And also the impact 

of encouraging investments. 

So what efforts are being made to make this message? 

Ambassador BHATIA. Well, first of all, let me start by thanking 

the Chairman for holding a hearing like today’s, which hopefully 

helps start getting the message out. And your point, Congressman, 

about both trade and investment being critical parts of this, really 

two sides of the same coin in today’s globalized economy, is another 

very, very important element of that. 

The reality is that the United States is increasingly a destination 

for foreign investment that creates jobs; that creates innovation; 

and that makes our economy more competitive. So we, and perhaps 

our trading partners, need do a better job of getting that word out. 

The reality is that a substantial and growing portion of U.S. jobs 

in all sectors, but including in the manufacturing sector, are jobs 

that are supported by foreign investment into the United States. 

One of the things we are trying to do, and we are a small office 

at USTR, but we are trying to get out a little more into regions of 

the country, like South Carolina and elsewhere, to spread that 

message. I think our corporations, frankly, can probably help in 

this regard as well. They need to be pointing out to folks that their 

jobs, in many cases, are supported by, or certainly the standard of 

living and the wages are supported by exports. 

And there are many major manufacturers in many of the districts that are represented here today that, frankly, given the export markets that we have had over the past few years, and the 

fact that they are growing, the future of those companies may well 

reside with foreign exports and with free trade agreements that 

will open up those markets even more. 

26

I am all ears and willing to work with anybody who has good 

ideas about how we can get that message out more effectively. 

Mr. WILSON. Well, we need to do this, because there are textile 

plants closing this week, Avondale Mills in Aiken, South Carolina. 

So this is what the media will be covering, and we really need your 

assistance. 

Thank you very much for your service. 

Ambassador BHATIA. Thank you. Thank you, Congressman. 

Chairman HYDE. Ambassador, I just have one very short question. 

Ambassador BHATIA. Certainly, Mr. Chairman.

Chairman HYDE. We are running a record trade deficit with 

Asia, and there are those would who believe that increasing the 

trade volume with Asia only means more red ink. What is your response to that? 

Ambassador BHATIA. Congressman, I think the trade deficit, if 

you look at it, and I think if you talk to economists, they will say 

the trade deficit is influenced by factors that go far beyond, indeed 

trade deficits are dictated by factors far beyond the trade regimes 

themselves. They have to do with macroeconomic factors and they 

have to do with economic growth. 

The reality is that our economy has been the healthiest of all of 

the G–8 economies for the past 5 years. So when we have a strongly growing economy, with, and I would admit this, a low savings 

rate here in the United States compared to savings rates that are 

much higher abroad, those are some of the key factors that are 

going to lead to deficits. 

So if the concern is deficits, I think what we need to do is continue to promote economic growth domestically in our trading partners, including in Asia but also Europe and the rest of the world, 

and we need to help address the savings rate problem that we have 

here. 

I would say that I think to the extent FTAs and trade agreements can contribute in leveling this and helping promote balance, 

the trade agreements do serve that function. They help lower tariffs and nontariff barriers abroad, which helps make it easier for 

our goods to be exported. I think if you look at the example of 

Singapore, where our exports have increased 24 percent, substantially more than I would note Singapore’s have, I think they are 

a good testament to that. 

Chairman HYDE. Growth trumps deficits; right? 

Ambassador BHATIA. Growth is something we wouldn’t want to 

give up, I think I would say. 

Chairman HYDE. Mr. Faleomavaega wishes to make a closing 

statement, something we don’t hear very often in this Committee, 

so we look forward to his closing statement. 

Mr. Faleomavaega. 

Mr. FALEOMAVAEGA. Mr. Chairman, I thank you. I am always 

very, very pleased when our Chairman and other leaders of our 

Committee set up hearings that pertain to the Asia-Pacific Region. 

I say this because I believe I am the only American whose roots 

are from the Asia-Pacific Region and who is a Member of this Committee. 

27

I think sometimes in our national and foreign policies, we seem 

to look at Asia-Pacific, I don’t know how to describe it, Mr. Chairman. But given the fact that two-thirds of the world’s population 

resides in the Asian Pacific Region; given the fact that six of the 

10 largest armies in the world is in the Asia-Pacific Region; given 

the fact that the second most powerful economy in the world happens to be Japan, in the Asia-Pacific Region; given the fact that 

two of the most populous nations in the world reside in the AsiaPacific Region; given the fact that I think our trade with the AsiaPacific Region is four times greater than any other region of the 

world, I think it gives me a real sense of appreciation of the fact 

that we now have finally come to grips with the fact that the AsiaPacific region is very important not only to our strategic and military interests, but certainly to our economic interests. 

Ambassador Bhatia, as an American who happens to be of Indian-American ancestry, it gives my sense of pride and strengthens 

the diversity of our Nation to see you in your position. Truly, we 

are a Nation of immigrants, and your presence here I think gives 

me a sense of reassurance that, hey, we are all in this together. 

And I sincerely hope that the 14 million of us Asian-Pacific Americans that make up the fabric and the greatness of this Nation are 

making meaningful contributions. 

So I am really, really happy this morning that the Chairman has 

seen fit that we call this hearing to address these very serious 

problems in our trade deficit with the Asian region, but more importantly, the fact that we need more communications. I remember 

10 years ago nobody wanted to be on the Asia-Pacific Subcommittee. We were bashing the Japanese then, and in recent 

years we bash the Chinese, because of our own seemingly self-interest and thinking that this region is the enemy. It can only be 

due to the fact of the tremendous diversity of cultures and people 

who do not understand that one size does not fit all, even in the 

diversity of the Asia-Pacific Region itself and the dynamics of the 

economics and of the culture. 

So, again, I want to extend my real appreciation to Chairman 

Hyde for calling this hearing and for having you, Ambassador 

Bhatia. And I could go on the whole day in dialoguing with you 

about this very interesting issue, but in closing, thank you, Mr. 

Chairman and I thank the Ambassador. 

Ambassador BHATIA. Thank you very much. 

Chairman HYDE. And I want to thank you, too, Ambassador. You 

have made a very constructive presentation and you have stimulated our interest even further. Thank you. 

Ambassador BHATIA. Thank you, very much, Mr. Chairman.

Chairman HYDE. The Committee stands adjourned. 

[Whereupon, at 11:26 a.m., the Committee was adjourned.]

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