U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

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

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

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

99–730 PDF 2016

STRENGTHENING U.S. LEADERSHIP 

IN A TURBULENT GLOBAL ECONOMY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 17, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–51 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE

BILL HUIZENGA, Michigan, Chairman 

MICK MULVANEY, South Carolina, Vice 

Chairman 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

MARLIN A. STUTZMAN, Indiana 

ROBERT PITTENGER, North Carolina 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

MIA LOVE, Utah 

TOM EMMER, Minnesota 

GWEN MOORE, Wisconsin, Ranking Member 

BILL FOSTER, Illinois 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

PATRICK MURPHY, Florida 

DANIEL T. KILDEE, Michigan 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 17, 2015 .......................................................................................... 1 

Appendix: 

September 17, 2015 .......................................................................................... 23 

WITNESSES 

THURSDAY, SEPTEMBER 17, 2015 

Sheets, Hon. Nathan, Under Secretary for International Affairs, U.S. Department of the Treasury ........................................................................................... 4 

APPENDIX 

Prepared statements: 

Sheets, Hon. Nathan ........................................................................................ 24 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Sheets, Hon. Nathan: 

Written responses to questions for the record submitted by Representative Huizenga ................................................................................................ 29 

Written responses to questions for the record submitted by Representative Guinta ..................................................................................................... 33 

Written responses to questions for the record submitted by Representative Murphy ................................................................................................... 36 

(1) 

STRENGTHENING U.S. LEADERSHIP 

IN A TURBULENT GLOBAL ECONOMY 

Thursday, September 17, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON MONETARY

POLICY AND TRADE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:03 p.m., in room 

2128, Rayburn House Office Building, Hon. Bill Huizenga [chairman of the subcommittee] presiding. 

Members present: Representatives Huizenga, Mulvaney, Lucas, 

Pearce, Stutzman, Pittenger, Schweikert, Guinta, Love, Emmer; 

Moore, Foster, Himes, and Heck. 

Chairman HUIZENGA. The Subcommittee on Monetary Policy and 

Trade will come to order. Without objection, the Chair is authorized to call a recess of the subcommittee at any time. 

Today’s hearing is entitled, ‘‘Strengthening U.S. Leadership in a 

Turbulent Global Economy.’’ 

Before I go into my opening statement, we have been given notice that they are expecting votes on the Floor sometime between 

2:20 and 2:35. I would suspect that means 2:55 to 3:05. I don’t 

know, hopefully not. But hopefully, it will be more like 2:30. And 

we have one vote, a rule vote, and my intention is to take that 

quick time and have us all go vote and then come back so that we 

can finish up. I don’t suspect that we will have gotten through everybody at that point. 

So with that, I would like to recognize myself for 3 minutes to 

give an opening statement. 

The dictionary defines ‘‘turmoil’’ as a state of confusion or disorder. Unfortunately, that is the state of the global economy right 

now, it seems. 

For instance, for more than 3 decades China has claimed an average annual GDP growth of over 10 percent. However, in the last 

3 years it has seen growth of less than 8 percent and the government has announced that it is now struggling to meet a target of 

7 percent for the year. 

Last month, the People’s Bank of China announced a surprise devaluation of their renminbi by 2 percent, sending major stock markets in Asia and Europe down and sparking fears of additional exchange rate devaluations in other countries. It was the largest devaluation in China’s system in over 20 years. 

2 

In the weeks following the devaluation, however, China spent up to $150 billion in foreign reserves to prevent the currency from 

sliding even further. 

Additionally, the MSCI Emerging Markets Stock Index has fallen 

by more than 15 percent since July, with Brazil’s credit rating now 

cut to junk status. 

Europe is also in dire straits. This month, the European central 

bank announced a new round of quantitative easing. Meanwhile, 

concerns over Greece and the euro’s future continue. 

In each of these cases, a slowdown has been precipitated by 

unsustainable debt and ill-advised government intervention in the 

economy. 

For years, China had depressed the value of the yuan to fuel its 

exports, only recently allowing its value to rise. Meanwhile, easy 

credit led local and regional governments to amass nearly $4 trillion in debt in China. With little ability to find productive investments at home or abroad, the Chinese have created speculative 

bubbles in real estate and stocks that only now are beginning to 

deflate. 

Europe meanwhile sees no end in sight to Greece’s downturn, 

which continues to threaten the integrity of the entire eurozone. 

This summer, Greeks filed nearly $2 billion in arrears to the International Monetary Fund (IMF) and had to close banks to prevent 

capital flight. After negotiating a new rescue with eurozone governments, many of those voters who strongly opposed further bailouts, 

the country now has announced elections that may undermine its 

ability to carry out those reforms that it had just passed and accepted. 

This combination of debt and misguided policy abroad provides 

the United States with an opportunity to reorient international priorities. Three policy debates are of particular relevance to the Monetary Policy and Trade Subcommittee: first, inclusion of China’s 

RMB in the IMF’s basket of elite currencies; second, the IMF participation in the next European bailout of Greece; and third, the 

Transpacific Partnership and its role in expanding rules-based 

trade overseas. 

This hearing will explore these matters and some others and 

urge the Administration to advance a ‘‘back to basics’’ type of approach to economic policy, one that emphasizes fiscal responsibility 

and free markets. 

And with that, I yield back my time. 

The Chair now recognizes the ranking member of the subcommittee, the gentlelady from Wisconsin, Ms. Moore, for 5 minutes. 

Ms. MOORE. Thank you so much, Chairman Huizenga, and members of the subcommittee. 

And I want to welcome you, Under Secretary Sheets. 

Mr. Chairman, this is absolutely a subject that deserves our close 

attention. And I want to thank you for convening this hearing 

today. 

We are in an increasingly global world, for all that means, both 

good and bad. And one extremely important thing I think that this 

Congress can control, although we cannot control everything, is 

that we could make an immediate, tangible, and lasting impact on 

3 

the prestige and confidence of the U.S. global leadership, and that 

would be that we should immediately ratify the new IMF quota 

system. 

Mr. Chairman, I just learned—breaking news—that Chair Yellen 

has announced that there will be no interest rate hike as of right 

now. So, that is really important news. 

But I think that one of the things that we could do right now 

is to ratify this new IMF quota system. There is consensus agreement that it is the rational move to make at this time and there 

is no reason that we have not yet acted. 

U.S. leadership and engagement in economic policy is vital to the 

long-term interests of our country. Global economic stability, as we 

all know, is smart geopolitically. 

Congress’ lack of action has hurt the United States’ standing 

internationally. Further delay makes even less sense. And as the 

chairman has pointed out, China has made a lot of movements to 

fill a void, and we need to take action in this Congress, as well. 

I know that some have sought to tie approval of the quota system 

to other IMF reforms. But I respectfully disagree on that point. The 

quota system should be approved and then we can talk about IMF 

reforms. 

U.S. good-faith engagement in these multinational organizations 

is extremely fruitful as we can flex soft power and accomplish goals 

that are simply not realistic or counterproductive with the use of 

force. 

And I yield back the balance of my time. 

Chairman HUIZENGA. The gentlelady yields back. 

With that, the Chair recognizes the gentleman from Minnesota, 

Mr. Emmer, for 2 minutes for an opening statement. 

Mr. EMMER. Thank you, Mr. Chairman. Thanks for holding this 

important hearing. 

With the backdrop of Congress passing trade promotion authority and, U.S. Trade Representative negotiators laying the groundwork for historic trade agreements with Europe and the Pacific 

Rim, I am concerned that our Nation’s interest in promoting and 

securing trade agreements, which are certainly important to both 

our economic opportunity and our national security, may collide 

with our sovereignty and other legitimate interests. 

Sluggish growth and the debt crises in European Union member 

states and the devaluation of China’s currency threaten current 

market stability and pose serious risks to future multilateral trade 

deals like TPP or TTIP, as well as the insurance and regulatory 

frameworks that will comprise these agreements. 

I look forward to hearing the Under Secretary speak about how 

the United States is exercising its leadership to ensure our sovereignty, such as my home State’s ability to regulate its insurance 

market further. 

I am particularly interested in what the Treasury is doing to leverage U.S. influence when it comes to the International Monetary 

Fund’s consideration of the RMB as a basket currency, its systemic 

exemption policy, terrorism financing, remittances, and global bailouts. 

Mr. Chairman, thank you again for calling this hearing. And I 

yield back. 

4 

Chairman HUIZENGA. The gentleman yields back. 

We will now turn to our witness. Today, we welcome the testimony of the Honorable Nathan Sheets, Under Secretary for International Affairs at the U.S. Department of the Treasury. Mr. 

Sheets previously worked as a global head of international economics at Citigroup. He also served for 18 years at the Federal Reserve 

in various capacities, and from 2006 to 2007 was a senior advisor 

to the U.S. executive director at the the International Monetary 

Fund (IMF). 

Mr. Sheets, without objection, your written statement will be 

made a part of the record. And you will be recognized for 5 minutes. 

But I should also mention that one of our Members has taken 

great pleasure in getting to know you by talking on local streets 

and in restaurants, and he has heard all the good stuff about your 

growing up in Mesa. So Mr. Schweikert is very pleased to start 

claiming you as one of his own. You grew up there, and then you 

were off to BYU, I believe, for your B.A., and then MIT for your 

Ph.D. 

Yes, too many letters. Sorry, Mr. Mulvaney wasn’t following how 

many letters. 

But I do want to say thank you for your time and attention and 

your ability to be here today. You are now recognized for 5 minutes 

to give your testimony. 

STATEMENT OF THE HONORABLE NATHAN SHEETS, UNDER 

SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY 

Mr. SHEETS. Thank you. Chairman Huizenga, Ranking Member 

Moore, and members of the subcommittee, thank you for the opportunity to testify today to discuss Treasury’s role in promoting global economic growth. 

Earlier this month, I joined Secretary Lew at the G20 finance 

ministers and central bank governors meeting in Ankara, Turkey. 

Discussions at the meeting focused on the recent turbulence in 

global financial markets, particularly in China, as volatility in its 

equity and currency markets has spilled over to markets globally. 

Fears of a slowdown in China have also raised concerns about 

the global growth outlook. Commodity producers have been especially vulnerable to lower Chinese demand. 

We discussed ways to boost global growth, including through 

strategic infrastructure investment and structural reforms, as well 

as the need to continue to strengthen financial, supervisory, and 

regulatory practices to reduce the risk of financial crises. 

As has been widely noted, the Chinese economy is undergoing a 

difficult but essential transition that if successful, will make 

growth there more reliant on domestic consumption and less reliant on exports and investment. 

The Chinese government has laid out a comprehensive set of economic reforms to move toward a more market-oriented, consumerdriven economy. These reforms are largely consistent with what 

the United States has long advocated. 

5 

To ensure that the transition is managed in an orderly way, 

China must transparently communicate its policies and actions and 

allow the market to play a primary role in determining outcomes. 

Treasury has had sustained and robust engagement with China 

on its policies, including in the economic track of the strategic and 

economic dialogue. In light of recent developments, we are encouraging the Chinese authorities to accelerate the implementation of 

their reform agenda, while underlining that to bolster effectiveness, 

these reforms must be implemented in an orderly and transparent 

manner. 

Turning back to the global arena, our partners look to U.S. leadership to help formulate the international agenda. And we, in turn, 

rely on the international financial institutions to provide analytical, 

technical, and financial support to identify vulnerabilities, advance 

reforms, and smooth adjustment. 

The IMF has played and continues to play an important role in 

providing assistance to key strategic partners of the United States. 

For example, in Ukraine the IMF is currently supporting a program that aims to bolster the Ukrainian government’s extraordinary reform efforts. 

The IMF has been a key partner in Europe’s efforts to fight crisis 

in the region, preserve the integrity of the euro area, and frame a 

reform program for Greece that includes necessary adjustments, 

encourages growth, and puts debt on a more sustainable path. The 

United States and the IMF are actively supporting the need for 

further debt relief for Greece now. 

To ensure that the IMF remains at the center of the multilateral 

economic system, and that we maintain an important voice in it, 

the United States should promptly approve the 2010 quota and 

governance reforms. Our interest in strengthening the Fund is 

based on hard-won experience that a well-resourced and effective 

IMF is indispensable to achieving our economic and national security interests. The proposed reforms are designed to strengthen the 

Fund’s finances while preserving the U.S. veto by a comfortable 

margin. 

The Treasury Department also fosters growth and prosperity by 

working in partnership with the Multilateral Development Banks 

(MDBs), including the World Bank and the regional development 

banks. Like the IMF, the MDB’s purposes firmly align with the interests of the United States, and they are vital tools for promoting 

security, economic growth, environmental sustainability, and poverty reduction. 

Finally, the Administration’s trade agenda is also essential to our 

efforts to promote prosperity. We are working to secure a final 

Trans-Pacific Partnership agreement, or TPP, that unlocks export 

markets, establishes strong rules, and bolsters economic growth at 

home. 

TPP promises to help U.S. businesses reach customers in the 

world’s fastest-growing region, deliver more and better jobs in the 

United States, and elevate trade and investment standards, including on transparency, fairness, innovation, labor rights, and the environment. And we very much look forward to continuing to work 

with you on these objectives. 

6 

I am very happy to answer any questions that members of the 

subcommittee may have. 

[The prepared statement of Under Secretary Sheets can be found 

on page 24 of the appendix.] 

Chairman HUIZENGA. All right, thank you. We appreciate that. 

And the Chair now recognizes himself for 5 minutes. 

Mr. Sheets, I think it is difficult to find anyone who argues for 

the continuation of the IMF’s systemic exemption to its exceptional 

access framework which bailed out Greece creditors without restoring economic growth or competitiveness to the country. But we 

keep getting mixed signals from the Administration on this. 

In an August 31st letter to me last month, Treasury said this 

systemic exemption was ‘‘important to the IMF’s role in providing 

support in most difficult crisis cases.’’ But when Secretary Lew testified here in June, he said in response to one of my questions, ‘‘I 

think exceptional access has serious questions. I have never pushed 

back on the kinds of questions you are asking’’—in other words, 

questions about eliminating the systemic exemption—and again, he 

is saying, ‘‘I am open to a serious conversation about it. I think 

looking forward, finding a way for the IMF to avoid having to use 

tools like that is in all of our best interests. And I would be happy 

to have that conversation.’’ That was Secretary Lew. 

Previously, in fact just last month, IMF’s former chief economist 

said, ‘‘The reforms now being discussed at the Fund, namely the 

wider use of the debt reduction rescheduling option and the elimination of the systemic exemption, are really important.’’ 

In fact, even my good ranking member had said that she was 

‘‘entirely open to considering the case for IMF reforms,’’ which I am 

happy to hear. 

But Secretary Sheets, isn’t it time to get rid of the systemic exemption? 

Mr. SHEETS. This is an enormously important issue and one that 

is also particularly salient. Clearly, my sense is that given where 

the world was in the spring of 2010, using the systemic exemption 

was the right thing to do. There were severe spillover risks if 

Greece or Portugal or Ireland had been required to restructure 

their debt in that environment. 

Chairman HUIZENGA. But you would admit that they basically 

bent the rules or ignored the rules to make all that happen, correct? 

Mr. SHEETS. The decision was made in accordance with the powers of the IMF Executive Board. And the IMF Executive Board 

very much felt that moving toward a debt restructuring in that environment would be inappropriate. So they established mechanisms 

that allowed these programs to go forward. 

Chairman HUIZENGA. I can take ‘‘yes’’ for that as an answer. But 

what about going forward? 

Mr. SHEETS. Right. 

Chairman HUIZENGA. We know what happened in 2010, but it is 

the going forward I am concerned about. And I think there are a 

number of us who are concerned about IMF future bailouts of 

Greece, as they are very concerned. 

Mr. SHEETS. And as you indicate, there is a very lively debate 

on this issue that is ongoing inside of the IMF. One proposal on 

7 

the table is to further specify the conditions under which the systemic exemption could be used. But there are also other approaches 

that are being articulated in that debate. And we very much look 

forward, as Secretary Lew said, to having a conversation with you 

and your staff on this issue. 

Chairman HUIZENGA. Okay. I want to move on a little bit to the 

exclusion of financial services in the negotiations, such as TPP and 

TTIP. 

I have been engaged in an ongoing dialogue with Treasury over 

its exclusion of the financial services sector. And as you well know, 

that is an extremely important thing, with a number of important 

issues including localization of information and a number of others. 

To date, your colleagues at Treasury have offered varying rationales for why Treasury refuses to support strong rules to ensure foreign investment. Foreign governments do not impose such restrictions, but I am very concerned that it is going in a different direction. 

I have weighed in on this issue, the Ways and Means and Finance Committees have weighed in, calling on you to—not you, you 

collectively—eliminate such localization requirements for all sectors, including financial services. 

Does the Administration, particularly Treasury, understand that 

the current discriminatory approach to addressing localization barriers will jeopardize existing support for trade agreements if it is 

not addressed? 

Mr. SHEETS. This is another issue that I personally am working 

on quite intensively. 

Over the last 6 weeks or so, I have had the opportunity to speak 

in some detail with our various regulatory agencies as well as with 

USTR and the State Department on this. 

And the sense that we get is that in pursuit of financial stability 

and soundness of institutions, it is absolutely imperative that the 

regulators have unimpeded access to various books and records associated with the operations of foreign institutions in the United 

States. 

And it is not clear, if these institutions are not required to have 

books and records actually in the United States, that the regulators 

would have that unimpeded access. So it is a matter of regulation, 

it is a matter of supervision to ensure that these institutions are 

safe and sound. It is also a matter of law enforcement. So there are 

a number of issues at stake here. 

Chairman HUIZENGA. My time has expired. 

And with that, I recognize the gentlelady from Wisconsin for 5 

minutes. 

Ms. MOORE. Thank you so much, Mr. Chairman. 

And thank you again, sir. 

I was searching all over for it, but in your testimony you talked 

about the importance of the United States paying its share to the 

IMF. And I think I referred to that in my opening remarks. 

Other countries have developed other institutions to sort of get 

around the IMF because of our lack of participation. Could you just 

give us a little bit, just sort of fill in the blanks of what we could 

expect if these other multinational development organizations take 

8 

off and the IMF and the United States uses its influence in this 

sphere? 

Mr. SHEETS. As you say, a strong, well-resourced IMF is very 

much in U.S. national interests, U.S. security interests, and so 

forth. 

These are institutions that we led the establishment of 70 years 

ago. And if we walk away from these institutions or fail to live up 

to the leadership role that we have, it is at our peril. 

One of the risks, as you articulate, is that other countries that 

feel, at present by the governance structure, underrepresented 

could initiate other institutions in which we have less voice or institutions whose goals and objectives are less consonant with those 

of the United States. 

Similarly, as you say, at least arguably, we have seen that over 

the last year or two with the establishment of the Asia Infrastructure Investment Bank, the AIIB, led by the Chinese and the establishment of the new development bank known as the BRICS Bank 

by the four BRICs emerging market economies. 

So I think the risk that you highlight is a real one. And it underscores how essential it is that we continue to play a leadership role 

in the IMF. And quite frankly, it is the leadership role that the rest 

of the world wants us to play. They look to us for leadership. So 

the quota reforms achieve a number of objectives. 

Ms. MOORE. Okay. I was looking through my notes here to try 

to find out what the yuan, the RMB is being considered. The Chinese really want it included in the SDR. And obviously, the Chinese are meeting the first criterion of being a major exporter and 

the second criterion, with regard to having its currency sort of 

freed up or being free, is not being met. But there are indications 

that they are close. 

Supposedly, the readjustment on August 10th, I think I was in 

China at the time, and their explanation was that they were trying 

to square it more with the actual market forces. 

What is your opinion of whether or not this movement, which 

erased $5 trillion out of the world economy, is in fact or is not in 

fact moving the RMB closer to actual market conditions? 

Mr. SHEETS. This is a complex set of issues. On the one hand, 

they have through this announcement incorporated some features 

into their exchange rate regime that does make the currency more 

market-determined and more market-oriented. 

Ms. MOORE. Be careful of what we pray for, huh? 

Mr. SHEETS. Exactly. 

Ms. MOORE. We might get it. 

Mr. SHEETS. They were moving in that direction. 

But at the same time, it is important that they take these steps 

in a well-telegraphed, very clearly communicated way. And I think 

that what we saw in that move was a step toward market determination that was done in a way that raised uncertainties about 

what the objective was. 

And I think going forward as China becomes a more market-determined, market-oriented economy, it is going to be imperative 

that the Chinese authorities take steps to communicate their intentions, their views, and to explain why it is they are doing what 

they are doing. 

9 

Had they explained up front more clearly that it was about exchange rate reform as opposed to other kinds of objectives, I think 

the market response would have been more positive. 

Ms. MOORE. Thank you. 

Thank you. My time has expired. I yield back. 

Chairman HUIZENGA. The gentlelady yields back. 

With that, the Chair recognizes the vice chairman of the subcommittee, Mr. Mulvaney from South Carolina, for 5 minutes. 

Mr. MULVANEY. I thank the gentleman. 

And Dr. Sheets, thank you. 

I will move very quickly into the 2012 reauthorization of the Export-Import Bank. The last time the bank was reauthorized, Treasury was obligated by law to do some things specifically regarding 

negotiations on export credit facilities overseas in the airline industry. 

I had submitted to the Treasury some questions for the record 

after Secretary Lew testified here back in March. You all were very 

kind, by the way, and responded, and I have the responses. 

First things first. At the end of one of your questions, you said 

that there was a list attached of your engagements to events, and 

that list was, I think, inadvertently left off. If you could give us 

that, that would be great. 

In the details, though, that you provided us, you gave us a list 

of things that I asked you, when have you done this? The law requires you to start negotiations, to begin discussions on getting out 

of this business of mutually disarming with the other countries 

that have export credit facilities. And I asked you to tell me what 

you had done along those lines. 

I want to go over some of your responses. 

One of the things you said was that ahead of discussions at the 

Organisation for Economic Co-operation and Development (OECD) 

in March on possible reforms to arrangement guidelines for determining interest rates, Treasury staff held several conference calls 

with OECD members to advocate a U.S. proposal to make the arrangement’s interest rate mechanism more market reflective. 

You then said you had met separately with them later in April 

on the same topic. 

Not exactly a response, though, is it, Dr. Sheets? Interest rate 

was not part of the 2012 reauthorization, was it? 

Mr. SHEETS. If I may, more recently, specifically on the issue 

that you raise, I have had consultations with my colleagues in the 

Airbus countries. So both the German finance ministry and the 

German economics ministry, the U.K. Exchequer and the French 

ministry of finance. 

So we are in ongoing conversations specifically on working together with the Airbus— 

Mr. MULVANEY. Okay. Let me ask, when did those—you said you 

met with or talked with the Germans, the French, and the Britains? 

Mr. SHEETS. Three of those four meetings were face-to-face. 

Mr. MULVANEY. Okay. 

Mr. SHEETS. And the German economics ministry was on the 

phone. 

Mr. MULVANEY. Of those four meetings, what was the earliest? 

10 

Mr. SHEETS. They were all around the time of the Ankara meeting, so it has been within the last 3 weeks or so, all 4 of them. 

Mr. MULVANEY. In the last 3 weeks, okay, so after these answers 

were prepared for my office. 

Mr. SHEETS. Correct. That is why it is not referenced. 

Mr. MULVANEY. I will look forward to another time when I have 

more than a few minutes to talk to you. 

Mr. SHEETS. Yes, we have been very busy since April. 

Mr. MULVANEY. You would agree with me that a discussion on 

interest rate mechanisms is not really responsive to the 2012 mandate. You are required to talk to them about getting out of the export credit business, and that is not really interest rates. I am not 

trying to bait you; it is just not really responsive. 

Mr. SHEETS. Yes. Our sense, though, is if you have a higher sear, 

that will increase the charges associated with going through export 

credit agencies, which would then motivate people to go to the private sector for the lending. 

Mr. MULVANEY. Right. Let me ask you this way then: When you 

met in March and had discussions in April with the OECD participants, did you specifically discuss export credit arrangements? 

Mr. SHEETS. I wasn’t at the meeting, and I don’t recall, but we 

did talk about this financing issue. 

Mr. MULVANEY. In another area, when I asked for specifics, you 

say in July of 2014 Secretary Lew, you, and other senior-level officials utilized the U.S.-China strategic economic dialogue to press 

the Chinese counterparts on U.S. negotiating priorities. And you 

gave me five or six other circumstances and you mentioned U.S. 

negotiating priorities. 

Was extricating ourselves from the export credit business part of 

our negotiating priorities? 

Mr. SHEETS. I would say the answer to that is yes, and we have 

continued those conversations with the Chinese over the last yearand-a-half. I personally have met with officials, including the finance minister of China, folks from the PBOC and the president 

of the Chinese ex-im bank, and had those conversations, including 

mechanisms to— 

Mr. MULVANEY. When did you meet with the chairman of the 

Chinese ex-im bank? 

Mr. SHEETS. I believe that was in a July visit. 

Mr. MULVANEY. July what? 

Mr. SHEETS. In July of 2015. 

Mr. MULVANEY. Why isn’t that on the list of things that I asked 

about? 

Mr. SHEETS. Because this is a response—when is this response? 

I had understood it was in April. 

Mr. MULVANEY. I have a May 2015 meeting on this list, but not 

a July 2015 meeting. 

Mr. SHEETS. Right. I think—when did we send it to you? 

Mr. MULVANEY. I don’t know. Let me ask my last question and 

we can come back— 

Mr. SHEETS. I apologize. We will make sure that it is comprehensive. 

Mr. MULVANEY. A specific question that is more up to date and 

more timely, this week GE announced that they may have to move 

11 

jobs out of this country because they are trying to bid on a job in 

Indonesia with a state-owned enterprise. I have received the bid request from the Indonesian power company and it specifically requires that PLN shall finance using 30 percent equity, 70 percent 

debt, an export credit agency shall cover at least 50 percent of the 

debt of financing. It goes on to say the government of Indonesia 

won’t guarantee the loan. 

Has Treasury ever talked to other members of the OECD, other 

working groups that you have about getting rid of these sorts of requirements in their state-owned bid requests? 

Mr. SHEETS. Not specifically on that issue, but we have worked 

and I have spoken to senior officials in India about increasing their 

dialogue and participation in the International Working Group, 

which is designed to extend these export credit rules in the OECD 

to the emerging markets and would thus have the effect you articulate. 

Mr. MULVANEY. I appreciate the patience. 

Why do you think that a state-owned company would require— 

Chairman HUIZENGA. The gentleman’s time has expired. 

Mr. MULVANEY. —your export credit financing as part of their 

bid request? 

Mr. SHEETS. Well, my understanding is— 

Mr. MULVANEY. It is cheaper, isn’t it? 

Mr. SHEETS. —that they are doing it because it creates jobs in 

their economy. 

Mr. MULVANEY. But why are they requiring export credit participation in their financing? It is cheaper, isn’t it, than private financing? 

Mr. SHEETS. I would think in India it is, and we are trying to 

bring them into the system of export credit that has existed in the 

OECD and through our work in the IWG. 

Chairman HUIZENGA. The gentleman’s time has expired. 

Mr. MULVANEY. I appreciate the patience. Thank you, Mr. Chairman. 

Chairman HUIZENGA. Just a quick announcement. They called 

votes a few minutes ago. We have 3 votes and I expect that will 

probably take about 30 minutes. 

We are going to grant a question period for Mr. Foster, and what 

we would like to do after Mr. Foster is to take a short break, and 

then have us reconvene approximately 30 minutes after that. So 

immediately after that final vote, if you could please cast your vote 

and then get back here, I would appreciate it. 

With that, the gentleman from Illinois is recognized for 5 minutes. 

Mr. FOSTER. Thank you, Dr. Sheets, for being here today. 

First, I would like to heartily endorse your support of the IMF. 

The point that you made about the benefits to the United States 

regarding the IMF’s role in mitigating the 2010 eurozone crisis 

were exactly on point. When U.S. markets dropped by $2 trillion, the average American lost $6,000 which, at least to my constituents, is not a small 

amount of money. 

And I would like to add also that those who bemoan what they 

call the lack of U.S. leadership around the world and then take poVerDate Nov 24 2008 19:09 Apr 28, 2016 Jkt 099730 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\99730.TXT TERI
12 

sitions that directly undercut that, like opposing the IMF quota 

and governance reforms, really could benefit from a healthy reexamination of their logic. 

My question is, in the debate over the trade promotion authority, 

I expressed my concerns that any free trade agreement that did not 

address currency manipulation would allow one of our trade partners to improve its own balance of trade by manipulating its currency to make its exports cheaper and its imports more expensive. 

And I was disappointed that the TPA ultimately contained only 

a best-efforts clause as a negotiating objective. 

Now, one of the principal, perhaps the principal objection that we 

heard from the Administration to stronger language was that it 

would preclude our own domestic monetary policy practices, such 

as quantitative easing. But I actually disagree with this. 

I think that there are tests that many have delineated, including 

Dr. Bergsten’s work at the Peterson Institute, that provided a very 

clear framework for applying the IMF requirement of intent while 

providing for short-term domestic intervention. 

Those criteria are, first, did the nation have foreign exchange reserves greater than 6 months of goods and services imports? 

Second, did the foreign exchange reserves grow rapidly over the 

period in question? 

And third, was the current account in significant surplus relative 

to the GDP over that period? 

Those seem to me like workable criteria that could and should 

be included. 

And so my question to you is simply, do you believe that quantitative easing, as we exercised it during the crisis and its aftermath, would have failed these criteria? What would have prevented, if those were the criteria, what would have gone wrong in 

regard to the quantitative easing and other monetary policy? 

Mr. SHEETS. As a matter of fact, in the WTO discussions, there 

were assertions from some emerging market economies that quantitative easing policies were currency manipulation, notwithstanding the fact that it was carefully constructed and delineated 

toward achieving the Federal Reserve’s dual mandate. 

So I think that is a meaningful risk. I think there are other risks 

as well in that having— 

Mr. FOSTER. Now the risk you are referring to is that other people would complain about, other countries would complain about it, 

or that actually we would set up objective criteria and then find 

that we chaffed under those objective criteria? 

Mr. SHEETS. And then it would potentially bring it in to trade 

adjudication channels that could be difficult. 

Mr. FOSTER. But if, for example, they were the three criteria that 

Dr. Bergesten has outlined, if those were the criteria, would anything have gone wrong? Would there have been any case in any 

court for—it seems pretty clear to me that we would have been far 

from being out of compliance with those and that there would have 

been no problem. 

Mr. SHEETS. It is hard to speculate as to how that might have 

proceeded. Certainly, it is a risk factor. 

Similarly, having the United States behave in a unilateral fashion in terms of enforceable currencies, I think would create inVerDate Nov 24 2008 19:09 Apr 28, 2016 Jkt 099730 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\99730.TXT TERI
13 

creased uncertainties in global financial markets and also damage 

our bilateral relationships. 

The Treasury and the Administration are firmly opposed to countries doing anything that approaches currency manipulation. We 

just feel pretty strongly that there are other mechanisms that are 

better to respond than enforceable currency provisions. 

Mr. FOSTER. Do you believe that any of these have been effective? That is the question. 

If I look over the last 15 years, it seems to me that China and 

other countries have gotten away with murder. And as someone 

who represents an area with a strong manufacturing base that has 

been gutted for no good reason, I actually question the fact that we 

have not had effective response to currency manipulation. 

Mr. SHEETS. When I look at the global economy today, my sense 

is that the mechanisms that we are using through bilateral engagement, this is the leading issue that we talk about when we sit 

down with our international counterparts, through the G7 and the 

G20 where we just reiterated strong language in terms of how 

countries should manage their exchange rates is powerful. 

And consistent with that, over the last 5 years we have seen a 

very substantial, real appreciation of the Chinese currency. 

So I think that these mechanisms are powerful and we are working to bolster them and to do more. As I said, we are foursquare 

against anything that smacks of currency manipulation and are 

ready to proceed vigorously on that front. 

Mr. FOSTER. Okay. Well, I am not yet convinced of its effectiveness. Thank you. 

Chairman HUIZENGA. The gentleman’s time has expired. 

With that, we will be taking a short recess and reconvene immediately following votes, which for information and all the Members’ 

awareness, we expect to be about 30 minutes. 

So with that, we are at recess. 

[recess] 

Chairman HUIZENGA. The hearing will come to order. We appreciate your patience, Mr. Secretary. We concluded with the Member 

from Illinois. I now recognize the gentleman from New Mexico, Mr. 

Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. And thanks, Mr. Secretary, for being here today. 

As we think about China and admission to the SDR, a couple of 

questions come up. In your testimony, you talk about them being 

more reliable, less consumption, less on exports and investment. 

Now my opinion of the Chinese economy is that the failure has 

been that they have just misled the entire world for the last 20 or 

30 years, that they have shadow firms building entire cities that 

don’t have a purpose, with no one living in them, so then basically 

looking like they are keeping activity going. And that doesn’t sound 

like they have been relying upon exports and investment; they 

have been relying on deception. 

So I guess my question is, do you think that China is ready to 

be admitted to the SDR? To the currency, there? 

Mr. SHEETS. The IMF as you suggest, is in the midst of a review 

of its SDR basket. The IMF conducts these reviews once every 5 

years. 

14 

There are two key conditions: One regarding global trade—China 

satisfies that— 

Mr. PEARCE. I am aware of those. I am asking what is the position of this Administration— 

Mr. SHEETS. —and the other one is the freely usable condition. 

The Chinese have taken some steps over the last 6 to 12 months— 

Mr. PEARCE. No, I am just asking for your opinion. Are they or 

are they not ready? Does that currency fit the requirements? And 

will we support that? Or are we, the United States, not supporting 

it? 

Mr. SHEETS. My bottom line is that the IMF technical staff are 

engaged in a review to determine whether or not the Chinese currency satisfies those conditions. 

Mr. PEARCE. Basically then, the Administration is not going to 

go into this with an opinion; you are going to rely on the IMF staff 

and whatever they say, yes or no. 

Mr. SHEETS. We are going to wait for that technical review to 

conclude. And based on that review and broader judgment, we will 

decide whether or not to support this and the IMF Executive 

Board. 

Mr. PEARCE. Okay. Thank you. 

Now, in response to Ms. Moore, you had talked about the other 

nations having some judgment on our unwillingness or inability to 

convey some approval of the reforms. And then in response, you 

said that has been one of the reasons that a couple of other banks 

have formed—worldwide banks have formed another—so my opinion is, and it may be incorrect, is that those currencies formed as 

we were deeply engaged in quantitative easing and those comments that those countries were making is that you continue to 

print or create currency out of thin air, and we are not going to 

stand for it, we are going to start trading in something other than 

dollars. 

So is that a valid point of view? It is not reflected in your testimony, but is it a valid point of view that it was not simply a response to our unwillingness to act on the reforms? 

Mr. SHEETS. I think that there are a number of factors at work 

that have motivated the advent of the New Development Bank and 

the AIIB. As I said, I think one of them is an element of frustration 

in terms of having sufficient voice in the existing institutions, particularly the IMF. And this governance reform would have been an 

important part and will be, once approved, an important step toward improving the voice in governance in the IMF. 

Mr. PEARCE. Okay. So one of the comments that you make is 

that China needs to be more market-oriented. Is a too-big-to-fail 

policy market-oriented? 

Mr. SHEETS. My sense is that both here in the United States and 

within the context of the FSB, we have worked vigorously to end 

too-big-to-fail. 

Mr. PEARCE. I didn’t ask if you tried to—I appreciate that you 

are trying to stop it. 

I am just asking a plain question, is it market-oriented? It 

doesn’t seem to me to be. But again, you may have a different opinion. I am willing to hear it, but I am not hearing it so far, and I 

am running out of time. 

15 

Mr. SHEETS. Yes. 

Mr. PEARCE. I guess the accompanying question with that is, is 

quantitative easing market-oriented? And so we are holding China 

to standards that we are not willing to hold ourselves to, and I 

think that is an alarming thing. 

I see I am about out of time, but you can spend the rest of the 

time answering. Thank you. 

Mr. SHEETS. Yes. In both instances, I would characterize it as 

economic policy, monetary policy on the one hand and efforts to 

achieve and pursue financial stability on the other. 

That said, as I indicated, both the FSB internationally and domestically here at home, we have worked to end too-big-to-fail. 

Mr. PEARCE. Thank you, Mr. Chairman. 

I appreciate it, Mr. Secretary. 

Chairman HUIZENGA. The gentleman’s time has expired. 

And with that, we will go to Mr. Schweikert of Arizona for 5 minutes. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

I have sort of a little follow-up, but maybe with a slightly different angle. I think actually in this very room before the remodel 

a few years ago we were talking about how frustrated we were 

with China not making its currency subject to market forces, the 

artificial peg, undervaluing. So in some ways, isn’t the movement 

right now what we have been demanding of China? 

And the fact of the matter is, the slide in their currency value 

as they were starting to expand, let us call it expanding the peg, 

it is an easier way to understand, also the fact that market forces 

now are actually looking at the realities of the Chinese economy, 

foreign currency reserves, other than just the data put out by 

China? 

Mr. SHEETS. As you say, certain elements of this recent reform 

do make the Chinese renminbi more market-oriented and more 

market-determined. As I emphasized, along with that they need to 

be more transparent. 

Another comment that I think is very important is that given 

some of the uncertainties about the Chinese economy and ongoing 

capital outflows, we have seen some downward pressure on the 

renminbi. And it is imperative that when those pressures shift, the 

Chinese allow the exchange rate to appreciate. 

So in order to be flexible, it needs to be flexible in both ways. 

Mr. SCHWEIKERT. Within that, won’t the Chinese economy in 

some ways be punished because they don’t provide enough information, they are thought to step in and engage intervention? And that 

is actually part of my next question. But they are going to pay a 

risk premium for currency traders because of the lack of sunshine, 

the lack of honest data, and the fear that they are going to intervene on either side of the up-or-down. 

Mr. SHEETS. I feel that the lack of transparency about the policies that they have pursued created additional uncertainty about 

the outlook for the Chinese economy which, very much as you say, 

would manifest itself in Chinese financial markets and perhaps to 

some extent redound back into weaker economic growth for China. 

16 

Mr. SCHWEIKERT. But ultimately, would you not agree, a true 

market-sensitive, let us call it floating, currency coming out of 

China would be good for the United States? 

Mr. SHEETS. Yes. 

Mr. SCHWEIKERT. Okay. Second thing. In our own sovereign debt 

situation, I have a personal fixation coming very soon, if we do not 

demonstrate to the world here is our debt management plan to get 

through the reality of the 30-, 40-year demographic bubble, Baby 

Boomers, as they are retiring, we need to be telling the world how 

we are going to manage this skyrocketing debt that as we saw on 

congressional budget in their document say 2018 it is game on, the 

debt starts to explode. 

For the protection of the value of U.S. currency, for the protection of the value of our currency as being sort of the benchmark, 

do we not have to telegraph to the world, here is our debt management plan? 

I have ideas of long-term bonds, and a couple of other more technical things, at least to telegraph that we are taking this seriously 

because right now this Administration has not been taking it seriously. 

I know that is hard because you work there. But am I wrong that 

we are going to have to start telegraphing to the world our debt 

management future? 

Mr. SHEETS. I need to defer to my colleagues, including the Secretary, on issues related to debt management. That is not part of 

my portfolio. 

But certainly it is also the case that having confidence in U.S. 

policy and confidence in U.S. securities is a critical input for there 

to be confidence in the U.S. dollar. 

Mr. SCHWEIKERT. It comes right up against this area especially. 

And in the last 50-some seconds, as we are also working on our 

relationships in regard to money-moving currencies, how much fixation do you see in the countries you deal with on also eliminating 

bad actors from using our infrastructure? I am concerned many of 

us, I think even the chairman have discussed of SWIFT in others 

of our financial backbone being used by whether it be Iran, whether it be drug cartels, or just bad actors. How often does that come 

up in your conversations with our— 

Mr. SHEETS. This is a crucial issue that manifests itself in the 

so-called de-risking and correspondent banking discussions and 

also in discussions associated with remittance flows. 

And I think there are two core objectives that we are working to 

achieve and, in some sense, to balance. On the one hand, to ensure 

the ongoing efficiency of the financial system and protect the ability of the financial system to effectively intermediate and for flows 

to move from one part of the system to the other. 

On the other hand, it is imperative that we protect the soundness, the integrity, and make sure that it is not abused by bad actors. 

Mr. SCHWEIKERT. Dr. Sheets, we have gone over time. 

Thank you, Mr. Chairman. 

Chairman HUIZENGA. The gentleman’s time has expired. 

With that, we will go to the gentleman from Minnesota, Mr. 

Emmer, for 5 minutes. 

17 

Mr. EMMER. Thank you, Mr. Chairman. 

And thank you to the Under Secretary for being here today. 

Just some insurance questions, I guess, first. With regard to all 

of the international insurance regulatory standards, but especially 

capital standards, including the higher-loss absorbency, HLA, do 

you support requiring international bodies to wait until the United 

States has established its standards and then insist that the U.S. 

standard be recognized as at least one way to comply? 

Mr. SHEETS. I see the ongoing work on international standards 

for insurance as being constructive. It helps achieve financial stability and a level global playing field. So I think having that work 

ongoing is constructive and useful. 

However, it is also important that I emphasize that these international groups that are doing this work, like the International Association of Insurance Supervisors (IAIS), which includes our insurance regulators, that the international groups do not have authority, they do not have any jurisdiction within the United States. 

So they make recommendations and then depending on which 

part of the code it is, either the Federal Reserve in its role as looking at the systemic institutions, or the State insurance regulators, 

would make a decision about how and in what way they are going 

to implement these international recommendations. 

Mr. EMMER. Speaking of the IAIS, the organization recently 

voted to shut out observers, including U.S. industry and consumer 

representatives from its working group meetings. Are Treasury 

representatives working to reopen those meetings? And how about 

with regard to the closed-door meetings of the Financial Stability 

Board, same question? 

Mr. SHEETS. We are represented, the Treasury is represented in 

the IAIS, the Federal Insurance Office, and State regulators are 

represented in the IAIS. 

Mr. EMMER. And I hate to interrupt, but it is limited time. Are 

you working to open those meetings to the industry and consumer 

representatives? 

Mr. SHEETS. We are working to make those institutions as transparent as possible, including releasing documents and explanations 

and so on and so forth. And we see that as being a very constructive step toward increased transparency. 

Mr. EMMER. Is that a yes, Mr. Under Secretary, yes you are 

working on it? I understand you are trying to make it more open 

and transparent. 

Mr. SHEETS. We are working to get to a similar outcome, but we 

are taking a somewhat different route than the one you just articulated. 

Mr. EMMER. Okay. The IMF issued a report in July criticizing 

the United States for the way its State insurance regulators are 

designated or elected and calling for a national insurance regulatory body. 

To what extent did Treasury provide resources for this report? 

And does the Treasury agree with those comments? 

Mr. SHEETS. I am not aware of the extent to which we were involved in commenting on this. 

18 

Certainly, the IMF is an independent body or the IMF does independent research, so it would not be the case that anything they 

said would for us have a ratification from the U.S. Treasury. 

And the recommendations there are the IMF’s; they are not the 

U.S. Treasury’s. 

Mr. EMMER. All right. Would the Treasury support the termination of the Financial Sector Assessment Program (FSAP) reviews 

of the U.S. insurance regulatory system? 

Mr. SHEETS. We just went through one of those FSAPs. It is a 

very resource-intensive proposition for insurance in the sector, 

more broadly. 

My instinct is that the FSAP is—it occurs once every 5 years— 

probably a useful exercise for all of us to go through. 

Mr. EMMER. To what extent does the Treasury conduct cost-benefit analyses with regard to positions it takes on insurance regulatory issues in international bodies? 

Mr. SHEETS. We are always analyzing pros and cons, costs and 

benefits. I am not sure that I have a formal document that I can 

generate. 

But another important point is that as these international frameworks are developed, once they move to the point of actually being 

implemented by State regulators and by the Federal Reserve and 

others, there will, at that point, be more detailed cost-benefit and 

impact analysis done. 

Mr. EMMER. Thank you. Very quickly in the seconds I have left, 

changing course, what if any role is the Treasury Department playing in coordination with the State Department in the Cuba Steering Committee to normalize banking relationships with Cuba? 

As I understand it, to date only one bank has a relationship in 

Cuba, and I want to know what the Treasury is doing. 

Mr. SHEETS. Let me get back to you on that. As far as I know, 

we have no formal role in that group, but I would want to check 

that. 

Mr. EMMER. Thank you. 

I yield back. 

Chairman HUIZENGA. The gentleman’s time has expired. 

With that, we will go to the gentleman from North Carolina, Mr. 

Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Secretary Sheets, regarding the snapback provisions, it is my understanding that the Europeans are going in flocks right now to 

Iran, their trade ministers and various individuals, looking for 

agreements with Iran. Is it reasonable to assume that snapback 

provisions will really be, at that period of time, something that we 

could expect given China and Russia and—the world has changed 

and there is a clear reluctance, it seems to me, to join in? 

It seems that there has been a lot of communication that we will 

just go into snapback, but is that really likely? Wouldn’t you agree 

that this is really not something we should be believing that this 

will occur? 

Mr. SHEETS. Those issues related to Iran sanctions are outside 

of my purview as the Under Secretary for International Affairs. 

Mr. PITTENGER. Okay. 

19 

Mr. SHEETS. And I should defer to the Secretary and to acting 

Under Secretary Szubin. 

Mr. PITTENGER. Very good. 

Mr. SHEETS. I very much apologize for that, but I should be— 

Mr. PITTENGER. All right. Let us talk about the IMF systemic exemption. Could you enlighten us where the Administration stands 

with that? The IMF, the systemic exemption that there has been 

some discussion about. 

Mr. SHEETS. Yes, and what about the systemic exemption? 

Mr. PITTENGER. There have been a lot of mixed signals from the 

Administration about it. I would just like some clarification on it. 

Mr. SHEETS. Yes, okay. My sense is that the systemic exemption 

was put into place in response to significant economic and financial 

risks in 2010. Had we pressed forward with debt restructuring of 

those peripherals at that point, there would have been a significant 

risk of contagion at a point when the global economy was just 

starting to recover from 2008–2009. 

That said, also recognize that there is an ongoing conversation, 

an animated conversation going on about this inside the IMF. And 

we are open to various ideas. One is to further specify criteria that 

we need to be satisfied in the event of the systemic exemption. But 

there are other ideas. 

And as I mentioned to Chairman Huizenga, I would be very 

happy to work with you and your staffs on this issue going forward. 

It is a very important issue. 

Mr. PITTENGER. It certainly is. Would you be able to address 

some issues related to terrorism financing? There are 46 banks in 

Iran that will come under SWIFT authority in transfer of funds. 

And certainly, it should be of concern to all of us that $100 billion 

will be received by Iran from repatriated oil profits and how that 

money could be processed through the international financial system. 

What efforts are being made right now through the Treasury, 

FinCEN and other departments to track this money? 

Mr. SHEETS. Again, I have to defer those questions to my colleagues. I very much apologize for that. 

Mr. PITTENGER. Okay. I yield back. 

Chairman HUIZENGA. The gentleman yields back. 

With that, we are—do you need a minute? All right. 

Mr. Heck, then, if that is all right, we are going to go to our side, 

and then we will come to your side. 

With that, we will recognize the gentleman from Indiana, Mr. 

Stutzman, for 5 minutes. 

Mr. STUTZMAN. Thank you, Mr. Chairman. 

And thank you, Mr. Sheets, for being here. 

I want to talk a little bit about what is going on in the Middle 

East. Do you support sanctions relief for individuals and groups 

known to sponsor terrorism? 

Mr. SHEETS. Again, I think it is necessary for me to defer those 

questions to my colleagues. I apologize. 

Mr. STUTZMAN. Who would those colleagues be? 

Mr. SHEETS. Secretary Lew, and then acting Under Secretary 

Adam Szubin, who had his confirmation hearing today, would be 

the two principals, and then acting Under Secretary Szubin’s staff. 

20 

It is in the TFI cone of the Treasury. 

Mr. STUTZMAN. Okay. Can you talk a little bit then about the 

new financing options that they will have as a result of the Iran 

deal? 

Mr. SHEETS. Similar. I regretfully cannot answer that. 

Mr. STUTZMAN. Okay, all right. Let us talk about the TPP then 

a bit. Could you give us an update on TPP and how the negotiations are going? I am interested in your take. 

Mr. SHEETS. Absolutely, thank you. I see TPP as being enormously important for the U.S. economy. It links our economy and 

our firms to the fastest-growing region in the world and many rapidly growing countries. 

Moreover, it establishes rules of the road for international trade 

that emphasize transparency and openness and rules of the road 

where U.S. firms will be able to compete fairly and, I think, flourish. 

The negotiations met with a fair amount of success and progress 

during the negotiations in late July. The USTR and our international counterparts are working vigorously to get this agreement 

concluded as soon as possible. 

I don’t think we have any eminent, specific date by which we will 

be concluded. I think soon we will be at a place where we will be 

done. 

Mr. STUTZMAN. Are you hearing any reluctance from countries in 

the negotiations related to agricultural products or automobiles, 

medical device industry that it would affect? Are you hearing anything as far as related to those three? 

Mr. SHEETS. I think that those are ongoing issues where various 

of our counterparties in TPP would have several of those issues 

that would be open and concerned. But that is where the negotiations are at this stage. It is working through those now. 

Mr. STUTZMAN. Can you share what their concerns would be thus 

far? 

Mr. SHEETS. Our work has been more in the financial sector specifically. But for Japan, it is autos and agricultural. For New Zealand, say, it is dairy. For Canada, it is agriculture. I would say that 

those are some examples of ongoing issues. 

Mr. STUTZMAN. How about manufacturing? Anything that you 

know of related to manufacturing? 

Mr. SHEETS. Over and above the issues on autos, I haven’t heard 

as much about manufacturing. 

Mr. STUTZMAN. Okay. What about autos? What are you hearing 

on autos? 

Mr. SHEETS. Of course, that is an ongoing issue of discussion 

with the Japanese. 

Mr. STUTZMAN. Okay. Could you talk quickly about Ukraine and 

the concern that we have about foreign aid falling into the wrong 

hands? 

Mr. SHEETS. I think what has been happening in Ukraine over 

the last 18 months is truly, truly extraordinary. That on the one 

hand, there have been enormous stresses there as a result of the 

security situation. 

On the other hand, we have seen the government move forward 

with a vigorous reform program that has put in place many of the 

21 

kinds of things that the international community, the Fund has 

been asking the Ukrainians to do for several decades. 

As a result of the vigor of this program, the IMF has provided 

support, the international partners have provided support, and the 

situation in Ukraine appears like it might be approaching a point 

of stability. 

I should finally note that an important part, an important tier 

of the reform program is an anti-corruption drive where they are 

working to make the government more reliable and trustworthy in 

a number of different dimensions. 

Mr. STUTZMAN. Okay, thank you. 

I yield back. 

Chairman HUIZENGA. The gentleman’s time has expired. 

With that, we will go to Mr. Heck from Washington State for 5 

minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

Mr. Sheets, thanks very much for being here. 

I think we are party to at least three agreements that affect our 

biggest export industry, namely aircraft sales: the OECD agreement; the aircraft sector understanding; and the home market 

agreement between us and the Airbus countries, which says we 

won’t provide export credit on sales into each other’s countries. 

As I understand it, however, there are no enforcement mechanisms on any of these. They are so-called gentlemen’s agreements. 

But it has always seemed to me that there is also no incentive 

to cheat, because everyone has export credit agencies, or did, and 

anyone who cheats and provides subsidies would suddenly find 

other countries providing subsidies in response. 

But now that we don’t have an export credit agency, it seems like 

we lack this ability. If the Airbus countries want to provide deeply 

discounted export credit to sell planes into the United States, sir, 

do we have any tools to stop them and protect American jobs now 

that we have shut down our export credit agency? 

Mr. SHEETS. I broadly agree with the argument you made that 

by not having an Ex-Im Bank we have much less leverage in our 

discussions and our interactions with the rest of the world on 

issues with respect to export credits. 

And specifically, as this body knows well, the Treasury has a 

mandate to take steps globally to reduce, with an eye toward eliminating, export credits. But it is very difficult to do it if we don’t 

have any leverage in those discussions. 

Mr. HECK. Do we have any tools to deter or disincentivize their 

export credit agencies deeply discounting now that we have no direct retaliatory entity or potentially retaliatory entity? 

Mr. SHEETS. We are very much dependent on our argumentation 

and our relationships. But the direct tool that we would use is now 

gone. 

Mr. HECK. Unless you disagree, I will conclude that you have 

just indicated that we are being put at a competitive disadvantage. 

I want to change to IMF. And I am curious as to whether you 

know whether U.S. cooperation with the Asian Infrastructure Investment Bank will be discussed with President Xi during his upcoming visits and what possible forms of cooperation that might 

take. 

22 

Mr. SHEETS. I am not sure what exactly is on the agenda. But 

I can say that in our bilateral discussions with the Chinese, the 

functioning of the AIIB is one of the issues that we discuss. And 

we take that opportunity very much to underscore that for the 

AIIB to contribute constructively to the global environment, it 

needs to operate according to the best practices that have been established by the multilateral development banks over the last 70 

years for issues of governance and transparency and environment 

and social inclusion and so on and so forth. 

These are points we make repeatedly, and I think these are 

points that we have some evidence to believe that the Chinese are 

starting to hear, based on the documents that this institution is 

generating. 

Mr. HECK. Do you think there is any reason to believe that failure to adopt IMF reform may have contributed, directly or indirectly, materially or immaterially, to the creation of AIIB and the 

BRICS Bank? 

Mr. SHEETS. I do think that was a factor, that these emerging 

market economies wanted a greater voice in the international institutions and the international architecture. And the 2010 quota reforms gives them that larger voice. But without it, they are left to 

seek opportunity to have an impact through other mechanisms, including through the creation of these new institutions. 

Mr. HECK. What further consequences might there be if America 

fails to embrace the otherwise broadly recommended reforms? How 

else might we be disadvantaging ourselves in terms of an ability 

to provide a leadership role? 

Mr. SHEETS. My sense is that a strong IMF that is led meaningfully by the United States is very much in U.S. economic and national security interests. And to the extent that we are not leading, 

then the IMF is going to go in other directions. 

And it is imperative. The world looks for our voice, and it is an 

opportunity for us to take steps to ensure that the IMF is moving 

in directions that we see as being most compatible with global economic, financial stability and other considerations that we have. 

Mr. HECK. Thank you, sir. 

Chairman HUIZENGA. The gentleman’s time has expired. 

And again, my apologies for that little delay. We would have 

loved to have been able to do a second round. But I know you had 

a target time of about 4:00 and we want to be respectful of that. 

So I would like to thank our witness today for his testimony. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

And with that, this hearing is adjourned. 

[Whereupon, at 4:05 p.m., the hearing was adjourned.] 

(23) 

A P P E N D I X 

September 17, 2015 

24 


99730.001
25 


99730.002
26 


99730.003
27 


99730.004
28 


99730.005
29 


99730.006
30 


99730.007
31 


99730.008
32 


99730.009
33 


99730.010
34 


99730.011
35 


99730.012
36 


99730.013
37 


99730.014