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74–239PDF 2012

THE TRANS–PACIFIC PARTNERSHIP AGREEMENT:

CHALLENGES AND POTENTIAL

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON TERRORISM, 

NONPROLIFERATION, AND TRADE

AND THE

SUBCOMMITTEE ON ASIA AND THE PACIFIC

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

MAY 17, 2012

Serial No. 112–144

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

ILEANA ROS-LEHTINEN, Florida, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

DANA ROHRABACHER, California 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

STEVE CHABOT, Ohio 

RON PAUL, Texas 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

GUS M. BILIRAKIS, Florida 

JEAN SCHMIDT, Ohio 

BILL JOHNSON, Ohio 

DAVID RIVERA, Florida 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ANN MARIE BUERKLE, New York 

RENEE ELLMERS, North Carolina 

ROBERT TURNER, New York 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

ELIOT L. ENGEL, New York 

GREGORY W. MEEKS, New York 

RUSS CARNAHAN, Missouri 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

DENNIS CARDOZA, California 

BEN CHANDLER, Kentucky 

BRIAN HIGGINS, New York 

ALLYSON SCHWARTZ, Pennsylvania 

CHRISTOPHER S. MURPHY, Connecticut 

FREDERICA WILSON, Florida 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

YLEEM D.S. POBLETE, Staff Director 

RICHARD J. KESSLER, Democratic Staff Director 

(III)

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

EDWARD R. ROYCE, California, Chairman 

TED POE, Texas 

JEFF DUNCAN, South Carolina 

BILL JOHNSON, Ohio 

TIM GRIFFIN, Arkansas 

ANN MARIE BUERKLE, New York 

RENEE ELLMERS, North Carolina 

BRAD SHERMAN, California 

DAVID CICILLINE, Rhode Island 

GERALD E. CONNOLLY, Virginia 

BRIAN HIGGINS, New York 

ALLYSON SCHWARTZ, Pennsylvania

SUBCOMMITTEE ON ASIA AND THE PACIFIC

DONALD A. MANZULLO, Illinois, Chairman 

RON PAUL, Texas 

BILL JOHNSON, Ohio 

DAN BURTON, Indiana 

EDWARD R. ROYCE, California 

STEVE CHABOT, Ohio 

MIKE KELLY, Pennsylvania 

JEFF DUNCAN, South Carolina 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

FREDERICA WILSON, Florida 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS CARDOZA, California 

(V)

C O N T E N T S 

Page

WITNESSES 

The Honorable Susan C. Schwab, professor, School of Public Policy, University of Maryland (former United States Trade Representative) ....................... 8

Ms. Linda Menghetti, vice president, Emergency Committee for American 

Trade ..................................................................................................................... 14

Ms. Celeste Drake, trade & globalization policy specialist, AFL–CIO ................ 27

Philip I. Levy, Ph.D., adjunct associate professor, School of International 

and Public Affairs, Columbia University ........................................................... 47

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Edward R. Royce, a Representative in Congress from the 

State of California, and chairman, Subcommittee on Terrorism, Nonproliferation, and Trade: Prepared statement ................................................... 6

The Honorable Susan C. Schwab: Prepared statement ........................................ 10

Ms. Linda Menghetti: Prepared statement ........................................................... 16

Ms. Celeste Drake: Prepared statement ................................................................ 29

Philip I. Levy, Ph.D.: Prepared statement ............................................................ 49

APPENDIX 

Hearing notice .......................................................................................................... 68

Hearing minutes ...................................................................................................... 69

Material submitted for the record by the Honorable Edward R. Royce, a 

Representative in Congress from the State of California, and chairman, 

Subcommittee on Terrorism, Nonproliferation, and Trade: 

The Wall Street Journal article, ‘‘Time for an Asia Trade Breakthrough,’’ 

by Myron Brillian, dated May 8, 2012 ............................................................ 70

Statement from Retail Industry Leaders Association (RILA) .......................... 71

Written responses from Ms. Linda Menghetti to questions submitted for the 

record by the Honorable Ted Poe, a Representative in Congress from the 

State of Texas ....................................................................................................... 77

(1)

THE TRANS–PACIFIC PARTNERSHIP 

AGREEMENT: CHALLENGES AND POTENTIAL 

THURSDAY, MAY 17, 2012

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TERRORISM,

NONPROLIFERATION, AND TRADE AND

SUBCOMMITTEE ON ASIA AND THE PACIFIC,

COMMITTEE ON FOREIGN AFFAIRS, 

Washington, DC. 

The committee met, pursuant to notice, at 2 o’clock p.m., in room 

2360 Rayburn House Office Building, Hon. Donald A. Manzullo 

(chairman of the Subcommittee on Asia and the Pacific) presiding. 

Mr. MANZULLO. We are having a joint subcommittee hearing 

with the Subcommittee on Terrorism, Nonproliferation, and Trade, 

chaired by Mr. Royce of California, and the Subcommittee on Asia 

and the Pacific, chaired by me. We are going to start with opening 

statements, and then there will be a series of votes, and then we 

will come back. I am sure Mr. Royce will have an opening statement, and then we can just have you stick around for about 35 

minutes and watch the excitement on C–SPAN. We appreciate you 

coming. 

The Trans-Pacific Partnership free trade negotiation is one of the 

most significant opportunities we have for trade liberalization in 

the world today. The nine-country pact, if successfully completed 

and passed by Congress, will offer more direct benefits to the 

United States than many prior free trade agreements. TPP brings 

together the U.S. and eight Pacific Rim nations in a high quality, 

21st Century legal framework that promises to shape the future of 

Asia, and possibly of the rest of the world. 

It is in this part of the world, the Asia-Pacific region, that has 

the fastest-growing economies and most populous nations; and, it 

must be our mission to help American companies succeed in exporting to these markets so that we grow more jobs here at home. In 

fact, direct exports from Illinois, the Land of Lincoln to TPP countries more than doubled from 3.4 billion in 2005 to 7.7 billion in 

2011, making Illinois the third-largest exporting state in the nation 

to the TPP countries, after Texas and California. 

The importance of TPP for America’s long-term economic future 

is clear. First, the TPP offers the U.S. an invaluable opportunity 

to shape the development of trade rules in the fastest-growing region of the world. If we abdicate this responsibility and opportunity, we stand a real chance of allowing our competitors to write 

the rules of the game. 

2

We need to take a leadership role so that we can ensure American priorities, such as strong protection for intellectual property, 

open markets, and economic freedom, are incorporated into the 

foundation of regional trade. I cannot stress how important this is, 

and what an opportunity this represents for our nation. 

Second, we must proactively work together to reduce onerous 

regulations and trade barriers in Asia, so that American exporters 

and investors can recognize the benefits of growing markets. TPP 

promises to lower the cost of American exports overseas by reducing tariffs and other trade barriers, thus making our goods more 

competitive. 

In addition, TPP negotiators must address preferential treatment 

of state-owned enterprises and key market access concerns in order 

to level the playing field for American companies. 

I have no illusions about the challenges of negotiating a ninecountry free trade agreement. The reality is that free trade agreements face tremendous political opposition here at home and 

abroad. Important sector-specific issues must be dealt with, and 

difficult decisions must be made by all negotiating parties in order 

to achieve a final agreement. The possible inclusion of Japan, Canada, and Mexico complicates matters exponentially, and may even 

threaten the viability of the agreement. 

I worry that Japan does not have the political will to make difficult reforms in its automotive, financial services, and agriculture 

sectors to meet the demands of our industry stakeholders. If Japan 

can pull it together, I am fully supportive of their inclusion in TPP. 

I look forward to hearing the testimony of our distinguished witnesses and the opening statement of our co-committee host. 

Mr. ROYCE [presiding]. Thank you. Thank you, Mr. Manzullo. I 

appreciate that. Let us go to Mr. Sherman from California. 

Mr. SHERMAN. You would think that having gone from the largest trade surplus in the history of mammalian life to going to largest trade deficit, the elites of this country would understand that 

we are getting something wrong. But nothing prevents a person 

from understanding so much as that their livelihood depends on 

not understanding it, and the elites in the foreign policy world and 

in the business world have a big chunk of their livelihoods dependent on not understanding why we are running the largest trade 

deficit. And we can create a phony economic model in our minds—

it happens to fit economic theory as long as you ignore the practice—that if we open up our markets by lowering our published tariffs and other published rules, that other countries will be opening 

their markets by changing their published laws and rules, as if 

every country in the world is just like us and matches an Adam 

Smith model. 

The fact is that if you are a businessperson in Vietnam or a decisionmaker in Vietnam, it doesn’t matter what is on the tariff 

schedule. You are not going to buy American goods if it is politically incorrect. You are not. You can get a phone call from Hanoi 

telling you what to buy. Imagine if one of us called a manufacturer 

in our area, or called an auto dealer in our area, and said, ‘‘Don’t 

buy the European goods. Don’t buy the Asian goods.’’ Either we 

would be laughed at, or there would be a press conference: ‘‘Congressman Tries to Pressure Local Businessperson.’’

3

What happens in Vietnam when a phone call is made from 

Hanoi? Do you think they hold a press conference to denounce the 

Communist Party of Vietnam? I don’t think so. So we will construct 

in our minds this phony world, this theoretical world, in which 

every country is just like us, and in which, if we can just get other 

countries to change their statutes and open their markets, and we 

will cling to this phony belief because understanding the real world 

undermines the livelihoods of the elites that our running our trade 

and foreign policy. 

We were told by the U.S. International Trade Commission that giving MFN to China would increase our trade deficit by only $1 

billion. They were only off by 20,000 percent, and they will be off 

again today. 

America is in the driver’s seat in trade negotiations, but we have 

given the wheel to Wall Street. We are in the driver’s seat because 

what every country wants is access to the U.S. market, but have 

we used that to open other markets? Only in a phony way. Only 

in a theoretical way. 

Numbers don’t lie. We have given control of this international 

trade policy to elites that have not just run the car into a ditch, 

they have run it over the cliff and down into the Grand Canyon: 

The most spectacular failure ever in economic policy. 

And why don’t we talk about it? Because the elites that run this 

country don’t want to. Because you are called a protectionist if you 

actually look at the results of our trade policy. As if you are too 

stupid to understand the theoretical beauty of these trade agreements. If you look at the results, you must be stupid. You must be 

a protectionist. 

I look forward to the day when we have balanced trade. If we 

had balanced trade, we would have a labor shortage in this country, and rising wages. We would return to the optimism of my 

youth, when everybody expected that every generation would live 

better than the generation before, not just every generation of Wall 

Street executives living better than that before. 

And finally, this is an agreement where we don’t know what the 

rules of origin will be. But we do know that in the Korea Free 

Trade Agreement, goods can be 65 percent made in China, 35 percent finished by Chinese workers living in barracks in South 

Korea, and get free entry into the United States. And this agreement as well may give China all the benefits of a free trade agreement with the United States—or, one would argue, only 65 percent 

of those benefits—while giving us not even theoretical access to the 

Chinese market. 

There is a reason why the middle class in this country has not 

achieved what we expected it would when I was young, and there 

is a reason why you are not allowed to talk about it without being 

labeled too stupid to understand the theoretical beauty of free 

trade. I look forward to real open markets, and this TPP is not the 

way to do it. 

I yield back. 

Mr. ROYCE. I thank the gentleman. And in terms of free trade 

agreements, I guess one of the questions is how you structure the 

agreements. We have a $23-billion surplus in manufactured goods 

with our 17 FTA partners. One of the things that is problematic 

4

for the United States is our dependency on oil. Imported oil accounts for our trade deficit in terms of the 17 current trade agreement partners. 

If we exclude oil, then we have a surplus. As I say, in manufacturing, we have got a surplus. But we have got a problem in terms 

of the importation, and the cost of importation, of oil with respect 

to FTA partners. I don’t know. 

I just got the data from the Department of Commerce, and they 

claim with Australia, with our trade agreement, our change in U.S. 

exports went up 59 percent. Imports went up 41 percent. Bahrain, 

which was another relatively recent agreement, our exports went 

up 48 percent, the imports actually came down 20 percent. In 

terms of CAFTA, exports went up 50 percent, the imports came up 

7 percent. As I say, this is the Commerce Department analysis. 

With Chile, exports went up 341 percent, imports went up 122 percent. Morocco, exports went up 199 percent, and imports went up 

97 percent. And with Singapore, exports went up 68 percent, and 

imports came up 5 percent. 

So yes, we have to do a better job in terms of the way we negotiate these agreements. But there is a reality that the Asia-Pacific 

region is tough to ignore. It is 60 percent of the global gross domestic product. It is 50 percent of international trade. And the forecasts show that half of the world’s $22 trillion in economic growth 

over the next 5 years is going to be in Asia. 

So unless the United States acts, and acts wisely—we have got 

to negotiate this to our interests—but we could face the prospect 

of being locked out of this dynamic region. And here is the concern 

that we have heard from a former Secretary of State. He said, 

‘‘Don’t allow a line to be drawn down the middle of the Pacific.’’

Asian countries have aggressively pursued trade agreements 

among themselves, and as a consequence, a line can be drawn. A 

hundred and eighty of these agreements are currently in force in 

Asia. Twenty are awaiting implementation there. Seventy are 

being negotiated as they work out free trade agreements throughout the region, and it is no coincidence that the U.S.’s share of exports to Asia has declined by 10 percent over the last decade. 

We are currently party to three free trade agreements in Asia. 

So the Obama administration, and prior to that the Bush administration, have backed TPP. TPP countries are our fifth-largest trading partner. If Japan were added, the bloc would represent one 

third of global GDP. Other countries want in. 

The preeminent trading bloc in the world’s fastest-growing region 

offers the United States considerable economic benefits, but diplomatic and strategic benefits, too. And it is ambitious in content. It 

would contain provisions that would go beyond traditional tariff reductions, covering issues of cross-border services, of labor, and of 

intellectual property. TPP’s diverse countries will have to tackle 

other issues, such as supply chain management, government procurement, and state-owned enterprises. It is tough to see Vietnam’s 

state-owned enterprises representing 40 percent of output being acceptable. 

But there is an opportunity to change that in terms of inclusion 

into the agreement. And the goal, obviously, with TPP, for the 

countries in it, is to reach a final text by year’s end, and this would 

5

require strong leadership out of the executive branch. We haven’t 

had a request for trade promotion authority out of the administration. I think some of the witnesses will raise that issue. 

The U.S. has placed great importance on TPP. In many respects, 

it has become more than a trade agreement: It is linked to our security and diplomatic goals in Asia. Ninety-five percent of the 

world’s customers live outside of the United States, but according 

to a study of global competitiveness, America ranked a disastrous 

121st out of 125 countries in terms of tariffs faced by our products 

overseas. This is the area where we have to lean in and get trade 

agreements that open markets for the United States, so we need 

to be doing all we can do to hammer away at these barriers. 

And I thank everyone. We are going to have to recess for these 

votes, and we will come back afterwards. Thank you. 

[The prepared statement of Mr. Royce follows:]

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[Recess.] 

Mr. ROYCE. We will reconvene at this time. 

Mr. MEEKS. Thank you, Mr. Chairman, for this well-timed hearing, coming just a day after the 12th round of TPP negotiations 

closed in Dallas, Texas. And it is good to see some of our witnesses—two of our witnesses, Ms. Menghetti and of course Ambassador Schwab—to see them here, today, to testify. And I definitely 

look forward to hearing from your views, and Dr. Levy’s and Ms. 

Drake’s testimony as well. 

I will start by saying that I see TPP through the prism of job creation first and foremost. It just makes sense to me that deepening 

our trade ties in a region that makes up 50 percent of global GDP 

is the right thing to do. It makes sense to me that the American 

people benefit when American companies—small, medium, and 

large alike—get greater access to such a large portion of the world’s 

consumers. That is why I am a strong supporter of President 

Obama’s export initiative, and I believe TPP is crucial and critical 

to that initiative. We cannot neglect the region that has 40 percent 

of the world’s population and some of the fastest-growing economies. 

It is always the case that trade agreements are about more than 

the exchange of goods and services. When we negotiate trade agreements, we are not just looking to deepen economic ties. TPP is also 

a promising prospect from the security and foreign policy aspects. 

Each of the TPP countries have a role in U.S. strategic interests 

in Asia. Over the years, Asian nations have negotiated nearly 200 

trade-related agreements. The United States is a partner in only 

three of those agreements, most recently the Korea FTA. Australia 

and Singapore are the other two. 

It is in our best interests to quickly change this reality. Eight 

partner countries is a good place to begin with. I am aware that 

there are many challenges involved in negotiating an agreement 

with such a diverse group of countries. In today’s hearing, I look 

forward to the perspective of our prestigious witnesses on the many 

challenges ahead. I believe the benefits of moving forward outweigh 

the costs, but I want to hear how we might address those concerns. 

And I know, for example, when it comes to a nation like Vietnam, the disciplines on state-owned enterprises is a critical issue, 

as evidenced by the intense discussions during the Dallas round 

this week. I also know that we must carefully consider how we address labor issues as we proceed, and I would like to hear our witnesses consider how the May 10th, 2007 deal figures in addressing 

labor concerns with TPP. 

Investors, inter-state dispute settlement, and the possibility of 

Canada, Japan and Mexico joining: The list of challenges is certainly significant. However, I am convinced that this agreement is 

worth doing, and Mr. Chairman, I can’t wait to hear the witnesses. 

Mr. ROYCE. Fair enough, Mr. Meeks. Thank you very much. Let 

me just tell you all a little bit about Ambassador Susan Schwab, 

a professor at the School of Public Policy at the University of Maryland. And before rejoining the University of Maryland, she served 

as the United States Trade Representative, where she successfully 

concluded bilateral FTAs with Colombia, Panama, and South 

Korea. She also served as a Trade Policy Officer in the U.S. EmVerDate 0ct 09 2002 10:32 Jul 10, 2012 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 F:\WORK\TNT\051712\74239 HFA PsN: SHIRL
8

bassy in Tokyo, and under her leadership the U.S. began negotiations with the TPP members. 

Ms. Linda Menghetti is vice president of the Emergency Committee for American Trade. She advises companies and works with 

administration officials on trade and investment legislation, and on 

policy. Prior to that, she was Chief Minority Trade Counsel and Minority Trade Counsel for the Senate Finance Committee. 

Ms. Celeste Drake is the Trade and Globalization Policy Specialist at the AFL–CIO. Prior to joining the AFL–CIO, she served 

with Congresswoman Linda Sanchez as Legislative Director, and 

was responsible for advising the Congresswoman on her work on 

the Ways and Means Committee. We welcome her here. 

Dr. Phil Levy teaches international trade at Columbia University’s School of International and Public Affairs. He was a scholar 

at the American Enterprise Institute, and he served as Senior 

Economist of Trade on the White House’s Council of Economic Advisors. He served at the State Department on policy planning staff 

there. So thank you very much, Dr. Levy. 

Ambassador Schwab, would you like to begin? 

Ms. SCHWAB. Thank you, Mr. Chairman. 

Mr. ROYCE. I will ask you one favor. If you would summarize 

your testimony in 5 minutes, and then we have got the record here, 

and then we will go to questions. 

STATEMENT OF THE HONORABLE SUSAN C. SCHWAB, PROFESSOR, SCHOOL OF PUBLIC POLICY, UNIVERSITY OF MARYLAND (FORMER UNITED STATES TRADE REPRESENTATIVE) 

Ms. SCHWAB. Mr. Chairman, thank you very much. Mr. Chairman, thank you. I am very pleased to be here. Congressman 

Meeks, it is great to see you again as well. I will summarize my 

testimony, and I have submitted more detailed testimony for the 

record. As you noted, the Trans-Pacific Partnership was initially 

outlined and launched in the latter part of the Bush administration, where I had the great privilege to serve as the U.S. Trade 

Representative. 

We had both defensive and offensive objectives, and motivations, 

for launching such a negotiation. We had free trade agreements at 

the time with Singapore and Australia. We had negotiated the 

KORUS FTA, but we really were concerned about the growing network of bilateral and regional deals being negotiated without us. 

We were concerned that we could see a situation where U.S. companies—U.S. industry, agriculture, services, investment—were 

going to be locked out of preferential trade deals that were being 

negotiated in the region. 

Meanwhile, on the multilateral front, the Doha round was stalling out in Geneva, and we saw the TPP as an opportunity to open 

markets and to maintain access for U.S. exports of agriculture, of 

manufactured goods, services, and investment opportunities, particularly for small and medium-size companies, as well as for larger 

companies. Because if you think about tariff and non-tariff barriers, they have a bigger negative impact on small and medium-size 

companies than on large companies, which can invest behind those 

barriers. My written testimony has a chart that shows the benefits 

9

that have accrued to small- and medium-size U.S. companies from 

these kinds of agreements. 

We also saw it as a potential for building precedents for future 

bilateral, plurilateral and multilateral negotiations. I continue to 

support the Trans-Pacific Partnership, and am delighted to see 

that the Obama administration has gone ahead with these negotiations. 

But I would note, I am not in government. I am not privy to any 

of the negotiations going on, and therefore I am not in a position 

to second-guess the progress that is being made. That really is 

what our statutory private-sector advisory committee system is for, 

along with congressional hearings and formal consultations. And 

while it is very easy to second-guess one’s predecessors and successors as trade negotiators, each negotiation is unique. 

What I would like to do, therefore, is just offer a couple of observations that helped to guide me as a trade negotiator, and our motivations when we launched the TPP. First and foremost, the objective was to create precedents. A high-bar, high quality, high standard agreement. Creating precedents when it came to market access, comprehensive enhanced market access for U.S. exports of 

goods, services and investment. The protection of intellectual property, particularly in this era of knowledge-intensive growth, and 

the importance of knowledge-intensive value-added sectors. Leveling the playing field when it came to private firms competing 

with state-owned and state-supported enterprise; government procurement; science-based sanitary and phytosanitary standards, not 

allowing them to be used against our agricultural commodities, and 

so on. 

And I would note, given the moderate size, the sort of modest 

size of markets currently involved in the TPP negotiations, and the 

fact that we already have FTAs with several of those countries, 

precedents are particularly important. And these issues should be 

negotiated with the likes of China, India, Brazil, the EU and future 

negotiations in mind. 

And I would note, there is no reason why the TPP ultimately 

needs to stay in the Asia-Pacific region. If a country and countries 

outside of the region are willing to become a part of this negotiation later, as we build concentric circles around this deal, it could 

ultimately become a WTO-plus template for a broader, multilateral 

agreement. 

I am going to close with that. I think this has the potential of 

being an extremely important trade agreement for the United 

States. And while it is no substitute for a strong and vibrant multilateral trading system, it can ultimately contribute to such a strong 

and vibrant multilateral system. 

[The prepared statement of Ms. Schwab follows:]

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Mr. ROYCE. Thank you, Ambassador. 

Ms. Menghetti? 

STATEMENT OF MS. LINDA MENGHETTI, VICE PRESIDENT, 

EMERGENCY COMMITTEE FOR AMERICAN TRADE 

Ms. MENGHETTI. Thank you, Mr. Chairman, Chairman Royce, 

Chairman Manzullo, members of the subcommittees. I will be summarizing my full written testimony. 

I am vice president of the Emergency Committee for American 

Trade, ECAT, an organization of the heads of leading U.S. business 

enterprises representing all major sectors of the U.S. economy. 

ECAT also serves as a secretariat to a much broader U.S. Business 

Coalition for TPP. 

The United States’ successful participation in the TPP negotiations is critically important for the U.S. business community, to 

America’s role in the Asia-Pacific and the international economy. 

There are over 100 free trade agreements in negotiation or in force 

in the Asia-Pacific, most of which exclude the United States, although we are in a stronger position, given the work of many members of your two subcommittees, including Chairmen Royce and 

Manzullo and Congressman Meeks, in securing the U.S.-Korea 

FTA last year. 

For the business community, the TPP is important in its own 

right and as a building block that could eventually bring in other 

major trading nations that share the same ambitious vision. The 

TPP negotiations also provide an unparalleled opportunity to forge 

a stronger template for regional trade and deal directly with how 

businesses operate in the 21st century. 

The discussions that many of my colleagues and I held with numerous delegations in Dallas indicate that there is momentum in 

the negotiations in progress. It is crucial that that momentum continue, and that several key principles are incorporated into the 

final TPP. 

First, the final TPP should open markets comprehensively, for all 

goods and services, and investment, and apply the core rules to all 

countries. Such a result will have enormous benefits for U.S. 

ranchers, farmers, manufacturers, and service providers in every 

state. Yet, such an ambitious result is threatened. If the United 

States excludes, wholly or effectively, major manufactured or agricultural products, be it sugar, dairy or apparel, Australia excludes 

investor state enforcement, or the ASEANs exclude financial services, what else will other countries take off the table, let alone a 

Japan, Canada, or Mexico, which seek to join the TPP? We simply 

do not see a successful conclusion to the TPP on a less than comprehensive basis. 

The second issue is the ultimate standard for all the key rules. 

I will just focus on two, although there are many being negotiated. 

Of particular importance to the U.S. business community are the 

TPP investment rules, that should seek to ensure that U.S. companies have access to foreign markets and consumers, are treated 

with the same types of base-level protections that we enjoy through 

our Constitution and laws here in the United States, and that they 

have access to impartial enforcement mechanisms when difficulties 

arise. 

15

U.S. investment overseas is vital. It helps drive our exports. It 

increases pay scales. And contrary to conventional wisdom, U.S. investment overseas is largely used as a platform to make sales overseas, not to displace production in the United States. As reflected 

in a February 2012 letter to the President from the business community, a strong outcome on investment is absolutely critical. 

Similarly critical are strong protections for intellectual property 

and their effective enforcement, building off of the world-class provisions that we’ve seen in the U.S.-Korea FTA. As the heads of 33 

business associations, including my own, recently wrote to the 

President, more, not less, rigorous IP rules are needed to thwart 

the explosion in IP infringement, piracy, and counterfeit products 

throughout all sectors of the economy. 

Third, it is vital to achieve concrete progress on the new 21st 

century issues being addressed in the TPP negotiations, from regulatory coherence and state-owned enterprises to supply and production chains and e-commerce. Of particular interest to all internationally engaged businesses are e-commerce and related issues 

that trade agreements have not fully addressed, despite increasing 

barriers overseas. 

The final TPP should incorporate commitments to spur innovation and eliminate barriers to cloud computing, cross-border data 

flows, as well as more traditional issues. 

Fourth, it is important that the TPP be a living agreement, both 

in terms of its admission of new members, but also in its continued 

ability to open markets. 

Fifth, time is of the essence in concluding these negotiations. 

None of us want the TPP negotiations to become the next Doha 

that never concluded, so we must work to promote their timely confusion on a comprehensive and ambitious basis. 

The lapse of trade negotiating authority for trade agreements 

has been, without a doubt, a drag on the ability of the United 

States to pursue a robust trade agreement agenda. While it is vital 

for the TPP negotiations to continue apace, it is also imperative 

that Congress and the administration work aggressively and quickly to restore the congressional-executive branch partnership that 

trade negotiating authority represents. 

Thank you. 

[The prepared statement of Ms. Menghetti follows:]

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Mr. ROYCE. Ms. Drake. 

STATEMENT OF MS. CELESTE DRAKE, TRADE & 

GLOBALIZATION POLICY SPECIALIST, AFL–CIO 

Ms. DRAKE. Thank you. Chairmen Royce, Manzullo, Ranking 

Member Sherman, members of the committee, good afternoon. I appreciate the opportunity to testify on the important issue of the 

Trans-Pacific Partnership free trade agreement. I have submitted 

written testimony for the record, and will summarize my comments 

here. 

American workers live in a global economic environment. The 

key decision for policymakers is not whether to increase trade, but 

what rules should govern trade and who benefits. With this in 

mind, the AFL–CIO is especially interested in the TPP, as it represents President Obama’s first opportunity to negotiate a trade 

agreement completely from scratch. 

While the vast majority of trade among the current TPP participants and the U.S. is already covered by free trade agreements, the 

TPP is being specifically designed as an open-ended agreement. 

Given that countries like China, Burma, and Japan are potential 

new entrants, it is especially important to get the TPP right, as it 

may govern the majority of our international trade in years to 

come. 

The world is still experiencing an economic slowdown as a result 

of the 2008 financial crisis. In the U.S., unemployment remains 

over 8 percent. Too many families continue to face foreclosure, and 

some employers are continuing to cut wages and benefits, even as 

some global corporations report record profits and pay record bonuses. Something is deeply wrong in our economy, and it is not 

something that can be fixed by simply focusing on increasing exports. We must increase net exports. 

Trade deficits matter. Our nation’s international trade deficit in 

goods and services was $560 billion last year, including a record 

$300 billion with China in goods alone. 

Unfortunately, it has not been the practice of U.S. trade policy 

to engage in economic evaluations of trade agreements like the 

TPP until after an agreement is finished. Only when the text is 

complete do we learn of its potential to harm particular industries 

and their employees, or to increase our global trade deficit. That 

is why the United States Trade Representatives should evaluate 

the likely job and industry effects of a trade agreement first, and 

adjust its negotiating strategy accordingly. 

This is imperative if we are to retain and rebuild our diminished 

manufacturing capacity. Given that trade agreements have replaced foreign aid as our primary economic development tool, it is 

also critical for workers globally. American workers have seen 

nearly 700,000 jobs displaced due to trade deficits with our NAFTA 

partners, while workers in our trading partners Colombia, Guatemala, Honduras, Mexico and Bahrain have experienced increasing 

labor repression. This repression varies from place to place, but includes detention, persecution, threats, and murder against union 

and human rights activists, and it keeps workers from sharing fairly in any gains from trade, and has seen global corporations keeping larger and larger shares of those gains. 

28

Properly constructed, a trade agreement can be a force for 

progress. To achieve this, American and global workers need more 

than changes around the margins. We need a TPP approach that 

puts good job creation first. This means a focus on commercial 

terms that don’t simply cut tariffs, come what may. Reciprocal 

market access and strong enforcement must be integral, not an 

afterthought. 

It is also imperative that USTR address economic justice and the 

societal infrastructure that promotes it. This means that fundamental labor rights which empower workers to seek improved 

wages and benefits must be front and center. Enforcement when 

governments refuse to protect those rights must be swift, effective, 

and meaningful. Aggrieved workers should not have to hope and 

pray that a meritorious case will timely be resolved, as Guatemalan workers have had to do. 

Labor rights are but one chapter of a trade agreement. The TPP 

will not help the American economy unless it also addresses a host 

of other issues, including disciplines for state-owned enterprises, 

strong rules of origin, no extraordinary rights for foreign investors, 

financial services rules that promote stability, and intellectual 

property rules that protect American innovation without making 

lifesaving medicines unaffordable for developing country partners 

like Vietnam. 

Finally, for the TPP to work for working families, it must address it only in tandem with critical policies that have been omitted 

from past trade agreements, including currency manipulation, 

funding for customs enforcement, capacity-building, and domestic 

trade-supporting infrastructure, the creation of a robust industrial 

policy, and labor law reform, to ensure that U.S. workers can exercise the same rights we promote internationally. 

I thank the committee for its time, and would be pleased to answer any questions. 

[The prepared statement of Ms. Drake follows:]

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Mr. ROYCE. Thank you, Ms. Drake. 

Dr. Levy? 

STATEMENT OF PHILIP I. LEVY, PH.D., ADJUNCT ASSOCIATE 

PROFESSOR, SCHOOL OF INTERNATIONAL AND PUBLIC AFFAIRS, COLUMBIA UNIVERSITY 

Mr. LEVY. Chairmen Royce and Manzullo, Ranking Member 

Sherman and members of the committee, thank you for the opportunity to testify today on the Trans-Pacific Partnership trade 

agreement. Mr. Chairman, per your request, I will offer a summary 

of my testimony, and I have submitted an extended version for the 

record. 

The TPP is an agreement with enormous potential. If the agreement succeeds, it could help set the rules of trade for the 21st century and serve as a pillar of U.S. presence in the critical Asia-Pacific region. It can benefit America’s companies and consumers, and 

help secure the country’s vital interests. 

This great potential is, as yet, unrealized. The challenges that remain are daunting. The administration’s embrace of the TPP as its 

principal active trade initiative and the core of its commercial policy toward Asia also distinctly raise the stakes on the agreements. 

In my remarks, I will comment on how far the TPP has come and 

what it has to offer the United States, and then offer some 

thoughts on what must be done to conclude the agreement successfully. There is a significant role for the U.S. Congress, as the 

branch constitutionally entrusted with trade policy, in laying the 

groundwork for TPP’s success. I thus heartily commend the committee for holding this hearing. 

To understand the potential of the agreement, I think it is worth 

putting the TPP in the context of a strained global trading system. 

The prolonged and fruitless efforts to strike a Doha deal at the 

WTO have left global trade powers wary of grand trade promises 

that bring repeated ministerials but no signing ceremony. 

By the end of a decade of negotiations, Doha talks had repeatedly 

hit impasses. Among the key contentious issues splitting the participants were the level of ambition, how much the agreement 

should do about modern facets of trade regulation, and the appropriate role of economically successful developing countries. 

The TPP is clearly situated on one side of these debates, the side 

the United States has favored. One of the TPP’s core principles is 

that it embraces a high-standards approach. It deals with issues 

like service market access, intellectual property rights protection, 

and investment regulation, that are important parts of modern 

global commerce. 

While the TPP has expanded to include a number of developing 

nations, including Malaysia and Vietnam, it expects those nations 

to participate in these high-standard commitments as well. Thus, 

a successful TPP would have important ramifications for the global 

trading system. It would demonstrate the possibility of concluding 

such an ambitious trade accord, and of bridging the north-south divide that has plagued the Doha talks. 

The TPP also has captured the imagination of countries because 

of its other founding principle: An openness to new members. This 

48

approach suggests that the TPP could serve as a template for how 

to build a sophisticated approach to opening markets. 

It is natural to want to quantify the benefits the TPP has to offer 

the United States, and to ask just how close we are to achieving 

those benefits. Neither question is easy to answer. If we look at the 

potential benefits from an agreement, we cannot be satisfied by 

just looking at the extent of current trade among participants, or 

even market size, as an indicator of potential. After all, as we have 

heard, the United States already has agreements with Australia, 

Chile, Singapore, and Peru, and among new applicants with Canada and Mexico. That, alone, would suggest that gains might be 

overstated. 

But one could equally argue that potential gains are understated 

for the agreement. When we talk about trade flows within the region, we usually discuss goods trade. We ought to be discussing 

services trade as well, something the United States is particularly 

good at, and that would capture much of the novelty in market 

opening throughout the TPP. But services trade is difficult to 

measure, and therefore often neglected. Nor are we well-equipped 

to quantify the benefits from harmonizing a spaghetti bowl of different trade rules into a coherent package, or the benefits from facilitating the sprawling global supply chains that characterize modern commerce. We do get a hint of the importance of such factors, 

however, when we see global supply chains interrupted by natural 

disasters in Japan or Thailand, and U.S. producers and consumers 

suffer. 

How close are we to realizing the gains TPP has to offer, whatever they might be? For all the laudable technical progress that 

USTR negotiators have made, the most politically divisive issues 

remain unresolved. To give an example of one such core issue, 

there is the question of whether the TPP will be built around a single set of market access commitments, to which all members sign 

on, or whether it will consist of a patchwork of existing market access rules, augmented by new promises to fill in the empty spaces. 

This may seem just one issue in a long checklist, but it poses major 

political problems and will have an inordinate impact on the extent 

to which the TPP realizes its potential. 

So, what needs to be done? A principal reason that so many important issues remain unaddressed is that no bipartisan consensus 

on trade has been reached here in the United States. Issues such 

as labor regulation, environmental provisions, and intellectual 

property rights protection all remain contentious. The appropriate 

way to address this would be through passage of new trade promotion authority. Such legislation would prompt an open discussion of the key issues, and would make clear to U.S. negotiators 

just how much room for maneuver they have in discussions with 

their counterparts. The very fact that the TPP may serve as a template for future trade agreements makes such discussions essential. 

To conclude, the United States has played a leadership role in 

the Asia-Pacific for decades. Economically and strategically, there 

is no more important region of the world. The TPP has the potential to continue this tradition of leadership, while delivering significant economic benefits to the country. As a demonstration of a 

high-standards approach to trade globalization which addresses 

49

modern concerns about global commerce and incorporates developing nations as full members, the TPP can set an example that 

will have positive repercussions well beyond the region. 

Thank you. 

[The prepared statement of Mr. Levy follows:]


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Mr. ROYCE. Let me start with a question to Ambassador Schwab 

that goes back to the speech of the Deputy National Security Advisor earlier this year on behalf of the administration. He said that 

the administration was embracing this strategy of TPP because the 

U.S. faces the prospect of being locked out of Asia due to the large 

number of bilateral trade agreements that were being negotiated 

between Asian countries and signed without our participation, and 

I believe one of the fractures cited was the 10 percent decline in 

U.S. exports to the region. 

How real, I was going to ask you, is the prospect of the U.S. 

being locked out as a result of these agreements within Asia, between trading partners which are liberalizing trade? 

Ms. SCHWAB. I think it is a very real threat. One of the attachments to my testimony is a chart from the WTO Web site which 

shows the trajectory of the bilateral and regional deals being negotiated, and that have been implemented around the world. And I 

think we are closing on 300 in effect today, a lot of those—most of 

those—in the Asia-Pacific region, and most of those exclude the 

United States. 

The one that is of the most prominence is the ASEAN agreement, 

and the one that is gaining the most focus is ASEAN-plus-three, 

which is ASEAN, Korea, Japan, and China. The prospect of 

ASEAN-plus-six, which would add Australia, New Zealand, and ultimately India. And just recently, this week, China, Korea, and 

Japan announced they were going to go ahead with their negotiation—and they are all of different qualities, so it is really hard to 

generalize, but there is the distinct possibility that these will be—

some of these are in existence, some are under negotiation. 

As I noted in my testimony, it is particularly damaging for smalland medium-size companies. Large, multinational corporations can 

go and invest behind the walls of preferential trade agreements. 

That really is damaging to U.S. workers. Better that we produce 

in the United States, or in terms of the supply chains, have the option of producing wherever there is comparative advantage, and 

that if the production is better done here, and part of it is done in 

a country within Asia as part of the supply chain—but unfortunately, it is a real risk and TPP is one of the ways of mitigating 

that risk, or at least partially mitigating that risk. 

So yes, it is a real threat. It was a threat that we perceived in 

the Bush administration, and the Obama administration continues 

to see the same risk. 

Mr. ROYCE. One of the points, Dr. Levy, that you raised, was that 

many of the TPP negotiating countries already have significant access to the U.S. market. If you go back, for example, to some of the 

arguments we had about the Colombia FTA, the argument was the 

U.S. had the most to gain because Colombia had preferential market access before its FTA went into effect. Once the FTA went into 

effect and knocked down the tariffs on the Colombian side, then we 

saw our exports grow at a considerable pace. 

So the question I would have for you is, give us your take on 

that. Is it the U.S. that has the most to gain in terms of an agreement that ratchets down tariffs to barriers of entry, whereas in 

point of fact that access is already granted to TPP countries anyway? Let me get your take on that. 

56

Mr. LEVY. I think you are quite right, Mr. Chairman, that that 

has traditionally been true of agreements, because the U.S. has 

fairly low tariff barriers. So to many of the countries with whom 

we are negotiating, there is an asymmetry, and it works in the U.S. 

favor in terms of new openness to exports. That should be true 

here, as well, for those countries where we have not already negotiated trade agreements. Of course, with a number of them, we already have those agreements. 

Mr. ROYCE. All right. So your thesis, I will just ask, Ambassador, 

if you agree with that assessment that one of the phenomena that 

we see here, and maybe why we see in the most recent trade agreements the large increase in exports, as opposed to imports, is because of—at least from the data we got from the Chamber of Commerce, because of this phenomenon that, like with Colombia, the 

agreements that were already in force gave market access to our 

trading partners without guaranteeing us the ability to export into 

those markets. Were the barriers ratcheted down, and that’s the 

main goal here for the FTA, is to get that kind of ubiquity out of 

the agreement? Or would it be in the agreement, so that at the end 

of the day, we don’t end up bypassing that opportunity? 

Anyway, I am going to recognize Mr. Sherman for his time. 

Mr. SHERMAN. The American people know that the trade policy 

of the United States is destroying the American middle class. The 

elites know that it is in the elites’ interest to continue this trade 

policy. There is no issue in American politics where the elites and 

the people of all parties differ more than on trade policy. There are 

four devices that the elites use to tell the people of this country 

what the people know is false, and that is to make the claim that 

these are somehow agreements in the interests of the American 

middle class. 

The first is to simply be condescending, and assume that those 

who oppose these agreements are luddites, protectionists, or simply 

didn’t pass Economics 101. In order to be effectively condescending, 

one must ignore the results of the last 20 years, something that 

can be done by those who have not been displaced by foreign imports. 

The second way to do this is to be very selective as to what 

counts as our current trade policy. The worst part of our current 

trade policy is permanent MFN for China. The problems with that 

dwarf any of the supposed benefits of the FTAs, but the supporters 

of our current trade policy insist that we only talk about FTAs and 

somehow the many elephants in the room don’t count. 

The third approach that is used is the phony choice approach, 

that our only choice is to continue the terrible policies we have 

now, or to intensify them and make them permanent, that if we 

have given away the store—say, to Colombia—that the only thing 

to do is to give it away permanently, and if we can get one penny 

for giving it away permanently, that is one penny we wouldn’t have 

had otherwise. It is simply absurd to think that we have to take 

bad trade policy that is temporary and say we have improved it by 

making it permanent, or to claim that they already have the benefits that have been given to them temporarily, as if those are permanent. 

57

And finally is just kind of fuzzy math. And it is to ignore the 

base on which we are dealing when we calculate increases. We are 

told that exports to certain countries increase more than imports. 

But not by dollars, not by jobs. You can’t count the number of jobs, 

you can’t count the number of dollars, which, I have to say, is—

if we export to a country $1, and we import 50, and we are able 

to sign a trade agreement where we export three and we import 

100, that that is some major accomplishment for America, having 

gone from a trade deficit of 49 to one of 97, because, after all, we 

tripled our exports and only doubled our imports. It is time for the 

advocates of these agreements to talk in terms of the size of our 

trade deficit, which is the largest in history. 

Now, Ms. Drake, we talked about—I think you mentioned that 

one thing in these trade agreements is that we should, at least, get 

for American workers the labor rights that we theoretically try to 

get from others. It was in this committee, long ago, that the State 

Department testified that if another country had a ‘‘right-to-work 

law,’’ we would call that a deprivation of human rights. And I realize it is not within the jurisdiction of this committee, but to think 

that in half of our country the right to organize a union is illusory 

is a violation—maybe if we put in the TPP that other countries 

could sue us for having right-to-work states, maybe then you would 

get some of us to be for it. 

Now, could you compare for us the right to organize in Colombia 

with Vietnam? I think in one country, you can organize a union, 

but you might be shot, and in the other one you can’t organize at 

all. 

Ms. DRAKE. Well, it is a difficult comparison. In Vietnam, there 

is a national trade union confederation, the VGCL. 

Mr. SHERMAN. This is government-controlled? 

Ms. DRAKE. Absolutely. It is not independent at all, and——

Mr. SHERMAN. Would we count that as a trade union? 

Ms. DRAKE. We would not. It would not count as a trade union 

here. 

Mr. SHERMAN. So in Vietnam, you can have something that lies 

about being a trade union, and in Colombia you can organize a real 

trade union, except you might be shot. 

Ms. DRAKE. That is correct. 

Mr. SHERMAN. And these are the labor rights that we are being 

told we achieve through these free trade agreements. 

I yield back. 

Mr. ROYCE. Mr. Manzullo. 

Mr. MANZULLO. You know, all politics is local. It is good to talk 

about—or it is interesting to talk about the big picture. The district 

I represent has over 2,000 factories. The UAW plant at Chrysler 

Belvidere, exports about 46 percent of its product. In slow years, 

20 million a month goes to Mexico because of NAFTA. About two 

miles away, also in Belvidere, is a place called ABAR Ipsen. It is 

owned by a German holding company. It is a UAW shop. They export 97 percent of their product, and they make the world’s only 

portable heat treating machine. It costs about $200,000, pre-programmed into many languages. I asked the operators of the shop 

‘‘What do you want?’’ They said ‘‘We want a Brazilian free trade 

agreement.’’

58

I could go through my district, shop by shop, union by union, and 

demonstrate conclusively the benefits that happen as a result of 

union shops that are involved in manufacturing, because as you 

know, there is a $38-billion trade surplus with 17 free trade agreements involving U.S. manufactured products. I can only go by what 

happens to my constituents. 

In the area around Rockford, Illinois, with about 250,000 people, 

there are exports of a whopping $3.5 billion in goods and services 

each year. It is one of the most highly concentrated areas of exports 

in the country, and these are good jobs. Jobs involving exports pay 

on the average, I think, about 17 to 20 percent more than jobs not 

involving exports. 

From the giant Chrysler plant to a fellow that makes starting 

gates for BMX bicycle races across the countries, an 11 man shop 

exporting 60, 70, to 80 percent of its product, are all looking forward to the next free trade agreement. 

There are a lot of problems that go on with these free trade 

agreements, and I understand that. But as a Congressman, I look 

to what impacts the employment of the people that I represent. To 

me, that is paramount to other talk that goes on. 

Working with Japan, we are strong friends with that country. We 

have been dealing with its inclusion in the TPP, and we are familiar with Japan’s closed automotive and beef sectors. However, less 

well known are the non-tariff barriers presented in Japan’s financial service sector, particularly with regards to insurance. The 

state-owned enterprise, Japan Post, which has over $2 trillion in 

assets, and 24,700 locations, just passed a law of preference for insurance. 

I would like to ask whoever wants to provide an answer, given 

the collective expertise on TPP and international trade, what is the 

assessment of Japan’s ability to make the necessary changes to key 

sectors of the economy in order to qualify for the TPP? Anybody? 

Ms. MENGHETTI. Let me begin, Mr. Chairman. From our perspective, Japan’s potential entry into the TPP is both a huge opportunity—you look at that market, its GDP, the purchases it could 

have—but for all the reasons you mentioned, we are concerned 

about each and every one of them in terms of barriers to manufactured goods, barriers to agricultural exports, what we are seeing on 

Japan Post that affects insurance and other industries as well—is 

a great challenge. 

I think the position here has to be to keep engaging with the 

Japanese Government and see if they, too, can get to the point—

they expressed interest at the APEC leaders meeting in Honolulu 

to join the TPP. I don’t believe they have formally requested joining 

and they are looking at it in their own economy right now. 

I think we need to try to help them understand that moving toward the market openness that we all see as strongly beneficial 

will help them just as well. I think it is a great challenge, and I 

am sorry I don’t have an easy answer for you. 

Mr. ROYCE. If we could go then to Mr. Meeks of New York? 

Mr. MEEKS. We will have time, probably, for another round, Mr. 

Chairman? 

Mr. ROYCE. Yes. 

59

Mr. MEEKS. Good. Thank you, Mr. Chairman, and I am going to 

just ask questions. I am going to resist to go into some of the specifics in regards to numbers, except to say that I know that Dr. 

Levy—I will start with you. You talked earlier about services, and 

I chair the Congressional Services Caucus. 

And from the numbers that I have seen recently, as of 2011, we 

had a $193.5-billion surplus in services as far as trading is concerned. Not a deficit, services. I mean, an increase. And experts 

have told me, especially, in fact, Dr. Brad Jensen of Georgetown 

university estimates that we could—U.S. services could export 

about 860 billion more than they are doing now, which would then 

suggest that that would create an additional 3 million more U.S. 

jobs in the United States from cross-border trade. 

I want to know from you, what do you think the TPP will do to 

create more opportunities for U.S. services in particular, and investment abroad? 

Mr. LEVY. I think you are absolutely right to point this out, that 

this is a huge potential. It is something that the U.S. does very 

well. I think that is a large part of what one means when one talks 

about a high-standards agreement, is that, whereas we have seen 

globally a fair bit of progress in terms of lowering tariff barriers, 

less so on services market access. And it offers great potential for 

the United States. 

I think Dr. Jensen’s work is very solid on this area, so I think 

there is tremendous potential. And that is potential both with the 

existing TPP members, but especially as one looks to expanding it 

to new entrants who might want to come in. 

Mr. MEEKS. Now, Ms. Menghetti, let me ask you—and I know 

that ECAT has done a lot of work and analysis over the years on 

the impact of FTAs on the volume of trade between the United 

States and its partners. And what I have seen indicates to me that 

we increase our exports to our FTA counterparts, especially—because what I see that causes the imbalance sometimes is if you put 

oil into it. But if you take oil out of it, the importation of oil trade, 

can you tell us a bit about what ECAT’s findings are about trade 

balances and FTAs? And can you discuss this dynamic—of course, 

since we are talking about TPP—and TPP, and how that can help 

create jobs here in the United States? 

Ms. MENGHETTI. Thank you, Mr. Congressman. Absolutely. What 

we have seen is that, when every single one of our high-standard 

FTAs has gone into force, in the years—comparing the year the 

agreement went into force to the year after, we have seen a huge 

increase in exports to each of those markets. 

And I think Chairman Royce, you talked about some of those increases at the beginning: To Chile, 300 percent. Australia, very significant percentages. I think one of the really interesting facts is, 

when you look at the current U.S. goods exports to the TPP countries, you will see—we did a comparison in my testimony between 

2000 and 2011—that 85 percent of the value of the increase—so, 

how much did U.S. exports increase—because U.S. exports did increase to every single one of the TPP countries during that period. 

But 85 percent of that increase went to the four countries where 

we already have FTAs in force. 

60

And so we see FTAs have a huge benefit, for all the reasons Ambassador Schwab and Dr. Levy were talking about. The U.S. market is relatively open. Yes, we have some tariff barriers and other 

barriers, but it is the other countries who have tariff barriers—they 

limit access, regulatory barriers, non-tariff barriers—that these 

agreement really get at, particularly when you are talking about 

IP, intellectual property-intensive industries, and the rest. 

Mr. MEEKS. And let me just conclude on this, because—and 

maybe this is a question for Ms. Drake. As I looked at Colombia, 

and I look at Vietnam, for example, some would think that we are 

not trading with Vietnam now. We are trading with Vietnam now. 

Trade agreements help put rules and regulations in place that are 

not, or would not otherwise, be in place. And I know we had a big 

agreement on labor concerns on May 10th, 2007. We put in labor 

standards in trade agreements with countries that have not had 

these standards before, to help them with rules and regulations, especially concerning labor issues. 

So my question to you would be, what are your thoughts on including something like the May 10th, 2007 deal into TPP. 

Ms. DRAKE. We think the May 10th agreement was a positive 

step forward. We don’t think that it goes far enough. And just seeing—Colombia has been in force since Tuesday, but the Colombian 

Government never really came into baseline compliance with international labor standards. And we have been seeing violence and 

death threats and murders of union activists increase just this 

year, and even since the announcement that the Colombia FTA 

would go into force. So we think May 10th is a place to start. We 

think Vietnam in particular, because of its particular labor system, 

has an awful long way to go. 

Mr. ROYCE. Let us go to Mr. Chabot of Ohio. 

Mr. CHABOT. Thank you, Mr. Chairman. Ms. Menghetti—am I 

pronouncing that correctly? 

Ms. MENGHETTI. Yes. 

Mr. CHABOT. Okay, thank you. I think I will begin with you, if 

I can. 

Mr. ROYCE. And let me also suggest—I mean, we have from CRS, 

maybe, a difference of opinion on that. You might want to update 

them, because they might be behind the curve. They said that labor 

violence was down. 

Go ahead. 

Mr. CHABOT. I thought you might be talking about the pronunciation of Ms. Menghetti’s name. [Laughter.] 

Mr. ROYCE. I am not going to attempt it. [Laughter.] 

Mr. CHABOT. All right. Thank you. I guess—does my clock start 

from the beginning, there? 

Mr. ROYCE. No, you have lost that time. All right, we will start 

over. 

Mr. CHABOT. Thank you, Mr. Chairman. I read the recent letter 

that was sent to President Obama signed by the heads of 33 trade 

associations, underscoring the need for strong IP protections in the 

TPP. And I know that ECAT was one of the signatories on that letter. 

61

Would you take, maybe, a few minutes, and please discuss some 

of the disciplines that you and your colleagues are seeking, that 

were signatories of the letter? 

Ms. MENGHETTI. Absolutely, Congressman. And I am glad that 

you saw that letter, and if anyone has not, we would be happy to 

share it. As many of you who have seen a report that came out 

from the U.S. Department of Commerce in April 2012 know, our 

IP—our intellectual property-intensive industries here in the 

United States are hugely important to our economic growth and 

our employment. Just two quick facts: They directly or indirectly 

produced 40 million U.S. jobs and contributed about $5 trillion to 

the U.S. economy. 

So naturally, from the business perspective, having strong intellectual property protections in the TPP is critical, having them be 

specific and binding and enforceable, and improving those rules. 

What was done in the Korea-U.S. FTA really went beyond prior 

trade agreements in a lot of ways, and we want to see that continue. We also want to continue on with provisions on anticamcording, having stronger protections, I would say, for the pharmaceutical sector, on data protection issues that are really critical 

to both the biotechnology companies that are starting right now, as 

well as others. 

We need countries to adopt mechanisms where they can actually 

better enforce IP protection, and we need that IP protection to be 

online as well. Many of our goods and services are delivered online—you think about software, the entertainment industry—so to 

help us grow our jobs here and the productivity that all of these 

industries, from lifesaving medicines to entertainment and publishing, and everything in between, we really need to see a good 

outcome. And it is a struggle right now in the TPP. 

Mr. CHABOT. Thank you. And could you further discuss the reason or the need for strong international IP protections through 

trade agreements in terms of how it impacts the overall U.S. economy and jobs? 

Ms. MENGHETTI. Absolutely. If you haven’t all looked at the Commerce Department report, I think it is really important to do so. 

Intellectual property is part of almost every company in the United 

States. You know, sometimes the smaller and medium-size companies, they develop these intellectual property protections, or they 

use some of the tools that are there. It affects every industry in the 

United States. 

But the Commerce Department said that there were about 75 industries across the medical, scientific, entertainment, artistic world 

that focus, really, on IP. They account for about 30 percent of U.S. 

jobs. They were a big part of our economic recovery, providing a 1.6 

percent increase in direct employment. And they provide huge merchandise exports, about $775 billion. 

We see overseas, though, huge threats, right? So we see piracy, 

we see counterfeit, we see the violation of trademarks, trade secrets, which is one of the new issues that the U.S. just put down. 

I think the U.S. approach in the TPP negotiations so far has been 

a good one—USTR’s approach—but we are facing a lot of pushback. Other governments are saying, ‘‘Well, we are not so sure we 

62

want binding commitments. We are not so sure we want these 

same IP protections.’’

And what we have tried to argue is that, in all these sectors, the 

innovation that these industries bring helps every single one of us 

in our daily lives, and really helps countries, whether they are developing or developed, whether they are IP-exporting countries or 

IP-importing countries, when you think about the computer and information technology-type innovations, medicines, as well as all the 

wonderful artistic works that we all like to enjoy. 

So if we don’t get those, we are going to see increasing rates of 

piracy, and that is going to affect jobs here in the United States. 

Mr. CHABOT. Okay. Thank you very much. Mr. Chair, I would 

note that I have got 9 seconds left, so I think rather than ask another question, I will yield those 9 seconds back to the chair. 

Mr. ROYCE. We are going to go to Mr. Kelly from Pennsylvania. 

Mr. KELLY. I appreciate that. I was just looking over—there is 

a letter for inclusion of Canada in the TPP negotiations. I don’t 

know if there has been any conversation about that yet. I know, 

Chairman, you are one of the signers on that letter. So it is probably Ms. Drake, could you give us some of the ups and down of the 

Canadian participation? 

Ms. DRAKE. I am happy to. Thank you. We already have a trade 

agreement with Canada. First we have the U.S.-Canada FTA, and 

now we have NAFTA. It is an economically advanced country, high 

wages, so it doesn’t pose the same kind of export platform threat 

as some of the other countries. 

The key is, again, what rules are put in place, and do those rules 

apply? So from the AFL–CIO’s perspective, there are some things 

about NAFTA that we don’t think that we got right. We think the 

investor state dispute settlement provisions are particularly bad. If 

those provisions in the TPP were better, and they overruled the 

provisions in NAFTA, so that investors would have to use the 

newer, more modern provisions, that would be a good thing. 

If they sat side by side, which we understand might be the case, 

and investors could pick and choose which sets of rules they wanted, we haven’t achieved all that much. In particular, the rules of 

origin with autos in NAFTA were good in that they were rising 

over time. So now we have a 62.5 percent rule of origin, regional 

value content, for autos with NAFTA. If that is decreased in the 

TPP and auto manufacturers are allowed to choose the lower, that 

will severely hurt auto jobs in the U.S. So it really depends on the 

rules. 

Mr. KELLY. Okay. So, are you supporting the idea of Canada 

being involved in this? 

Ms. DRAKE. We don’t have a yes or no position. We did submit 

comments, and we talked about the possible upsides as well as the 

possible downsides. 

Mr. KELLY. I think the big part—and I think, Mr. Chairman, 

that is the idea. Mr. Meeks is also on this letter. The upside, the 

potential, as we continue to try and go after markets that are—we 

truly operate in a global economy. I think it is foolish to think that 

we don’t. The fact that we are still the world’s largest manufacturer, and we have all these capabilities. 

63

The Canadians are by far our biggest trading partner right now. 

Is that correct? 

Ms. DRAKE. Yes. 

Mr. KELLY. Okay. So there is more to be gained than to be lost 

by this, as long as we set the rules up right going in? 

Ms. DRAKE. If we set up the rules right, I think workers in the 

United States and in Canada could benefit. Absolutely. 

Mr. KELLY. Okay. Thank you, sir. 

Mr. ROYCE. I think Mr. Manzullo had an additional question, so 

without objection I will——

Mr. MANZULLO. Thank you. It is really a follow-up. The U.S. and 

Canada, obviously, have a free trade agreement, and NAFTA 

trumped that, is that correct? So if the U.S. and Canada enter into 

the TPP, would the latter trump NAFTA? 

Ms. DRAKE. This is for me? 

Mr. MANZULLO. Anybody that wants to answer it. 

Ms. DRAKE. USTR hasn’t been completely clear with us on how 

they will interact. What they have said is that the existing FTAs 

won’t be repealed, they will stand side by side. And what they have 

talked about repeatedly is that the higher standard will prevail. 

Well, on some of the rules, I think there might be a difference of 

opinion between parties as to which is the higher standard. 

Mr. MANZULLO. Ambassador Schwab? 

Ms. SCHWAB. The thing to remember about the U.S.-Canada Free 

Trade Agreement and then—U.S.-Mexico, and ultimately NAFTA—

is that by free trade agreement standards, those are ancient free 

trade agreements. Mid-eighties. So there are things that I think everyone agrees need to be brought up to date in those agreements. 

If you just look at agriculture in the U.S.-Canada agreement, Canada maintains supply management and U.S. exports of poultry and 

dairy to the Canadian market face 200- and 300-percent tariffs, for 

example. And you won’t find a single agricultural group in the 

United States, that doesn’t think those should be addressed. 

So really, when we launched the TPP, my Canadian and Mexican 

counterparts, the Trade Ministers, were among the first I spoke 

with about the potential of building them into this agreement at 

some point, and updating and upgrading the U.S.-Canada and 

U.S.-Mexico agreements. 

Mr. MANZULLO. This TPP is interesting. What is interesting was 

the earthquake. We got our delegation out in 2 hours and 29 minutes, and you got caught in it. 

Ms. SCHWAB. You did indeed, sir. You did indeed. 

Mr. MANZULLO. That was quite an event. The way the TPP 

works, is an agreement is forged, then the first two countries to 

join it are bound by that to each other, and then as other countries 

come in, they agree to all the criteria and become part of that 

agreement. Is that correct? 

Ms. SCHWAB. Well, this is an unusual configuration. In the past, 

we have negotiated with CAFTA, for example—that was almost a 

hub and spoke kind of negotiation, and then we expected the 

CAFTA countries to work out, to have their FTA and build it out. 

In the case of TPP, it is unclear whether—we had always imagined building concentric circles around the original—what we 

thought was a P–8, which is now being negotiated as a P–9. What 

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is not clear is whether it will be an accession process, much the 

way a country accedes or joins the WTO, or whether it is a whole 

new negotiation. Because there are nine core countries involved, it 

is unclear how that is going to work, and is one of the things that 

the nine countries will have to decide is, is that negotiation with 

each of the nine? Will there be changes to the core agreement when 

a new country comes in? And my guess is, it will depend on how 

big the new country is, and what kinds of issues they will want to 

bring in. 

Mr. MANZULLO. Isn’t that something that should be determined 

first? 

Ms. SCHWAB. It is going to have to be determined as part as the 

original deal. 

Mr. MANZULLO. Dr. Levy? 

Mr. LEVY. Mr. Chairman, I think you have hit on an absolutely 

critical issue. And I address this a little bit further in my written 

testimony, that I think this question of whether there is going to 

be a new, single set of market access agreements and rules which 

then supersedes, or whether there is going to be a collection where 

past agreements, such as NAFTA, remain largely intact and you 

strike new marginal agreements, is absolutely key to whether or 

not this realizes its potential. 

It is, of course, very difficult to rewrite all these things, but doing 

so offers two things that I think are really essential. One is the 

benefits of harmonization. It means that U.S. businesses don’t have 

to play by different rules depending on which country they are 

dealing with. And two, what I think many of us have talked about 

is the benefit of precedent. It is much stronger if there is a single 

set of rules, as opposed to if any newcomer says, ‘‘You have already 

got a hodgepodge of approaches, here is the one I want to toss into 

the pile.’’

Mr. MANZULLO. Thank you. 

Mr. ROYCE. Mr. Meeks, did you have a question? 

Mr. MEEKS. Thank you, Mr. Chairman. I just want to touch on 

and ask another matter. I guess I will ask Ambassador Schwab 

this question and Dr. Levy a second one. 

Another matter of great concern is the prospect of including investor state dispute mechanisms in the agreements. So I wonder, 

what are your thoughts on the need to lay out rules to ensure that 

state enterprises compete fairly with private companies, and that 

U.S. investors have the protection of the rule of law and due process? So that is to Ambassador Schwab. 

And then Dr. Levy, in my opening statement, I talked about how 

trade agreements are generally not just economics. It also deals 

with security and foreign policy implications. And so I was wondering if you could expound, just a little bit, what security or foreign policy implications are connected to TPP. And do you agree, 

first of all, with my statement that they do? And what do you see 

as U.S. strategic issues linked to TPP? 

Ms. SCHWAB. I would address your question in two parts. One, 

in terms of the Investor State provisions of the most recent negotiations, most recent agreements, those are solid provisions. It is 

incredibly important, particularly if you look at some of the expropriations and some of the anti-investment actions being taken by 

65

governments around the world, it is particularly important that our 

trade agreements have very strong Investor State provisions, like 

the one in the Korea Free Trade Agreement. And I would hope that 

the TPP would have an investor state provision at least as strong 

as that. 

In terms of the level playing field issue, which is obviously in 

some cases related, in some cases can be separate from investor 

state, the state-owned enterprises, and state-supported enterprises; 

the competitive neutrality issue—we clearly need to get a handle 

on, how do you make sure there is a level playing field when a private sector enterprise is competing with a state-owned or state-supported enterprise? And it is one of the ‘‘21st century issues’’ that 

is being tackled in the TPP, and that is going to set a very important precedent. 

Mr. LEVY. Congressman, I agree strongly with you that the significance of these agreements goes well beyond just the economic 

matters. There are strategic and foreign policy concerns that are 

intimately tied into this. I think if you look in this case, one could 

argue that that is, to a great extent, how interest in the TPP was 

renewed. When President Obama went to gatherings of Asian leaders—I think they have been quite clear that these were sort of political gatherings, groupings, APEC and the like—and these are the 

issues that APEC leaders care about. 

If you want to demonstrate allegiance and friendship and a continued U.S. leadership role in the region, then you must be active 

on this front. If you say, ‘‘Well, all we have are security concerns. 

We just want to talk about terrorism, we don’t really want to deal 

with you commercially,’’ the United States would not be taken seriously in the region. And because we do have significant concerns 

throughout that region, those are conversations in which we want 

to be concluded. So I could not agree with you more strongly. 

Mr. ROYCE. All right. Well, I thank very much our panelists 

today. I thank the members. And we stand adjourned. 

[Whereupon, at 4:07 p.m., the subcommittee was adjourned.] 

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