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U.S. STRATEGIC INTERESTS AND THE APEC AND

EAST ASIA SUMMITS

HEARING

BEFORE THE

SUBCOMMITTEE ON ASIA AND THE PACIFIC

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

FIRST SESSION

DECEMBER 2, 2015

Serial No. 114–130

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 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

PAUL COOK, California 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

CURT CLAWSON, Florida 

SCOTT DESJARLAIS, Tennessee 

REID J. RIBBLE, Wisconsin 

DAVID A. TROTT, Michigan 

LEE M. ZELDIN, New York 

DANIEL DONOVAN, New York 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON ASIA AND THE PACIFIC

MATT SALMON, Arizona Chairman 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

SCOTT PERRY, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

BRAD SHERMAN, California 

AMI BERA, California 

TULSI GABBARD, Hawaii 

ALAN S. LOWENTHAL, California 

GERALD E. CONNOLLY, Virginia 

GRACE MENG, New York 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Michael H. Fuchs, Deputy Assistant Secretary of State for Strategy 

and Multilateral Affairs, Bureau of East Asian and Pacific Affairs, U.S. 

Department of State ............................................................................................ 5

Mr. Bruce Hirsh, Assistant U.S. Trade Representative for Japan, Korea, 

and APEC, Office of the United States Trade Representative ......................... 13

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Mr. Michael H. Fuchs: Prepared statement .......................................................... 7

Mr. Bruce Hirsh: Prepared statement ................................................................... 15

APPENDIX 

Hearing notice .......................................................................................................... 36

Hearing minutes ...................................................................................................... 37

The Honorable Brad Sherman, a Representative in Congress from the State 

of California: Material submitted for the record ............................................... 38

The Honorable Gerald E. Connolly, a Representative in Congress from the 

Commonwealth of Virginia: Prepared statement .............................................. 44

The Honorable Alan S. Lowenthal, a Representative in Congress from the 

State of California: Prepared statement ............................................................ 46

Questions submitted for the record by members of the Subcommittee on 

Asia and the Pacific ............................................................................................. 48

Written responses from Mr. Michael H. Fuchs to questions submitted for 

the record by the Honorable Brad Sherman and the Honorable Gerald 

E. Connolly ........................................................................................................... 49

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U.S. STRATEGIC INTERESTS AND THE APEC 

AND EAST ASIA SUMMITS 

WEDNESDAY, DECEMBER 2, 2015

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ASIA AND THE PACIFIC,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:35 p.m., in room 

2255, Rayburn House Office Building, Hon. Matt Salmon (chairman of the subcommittee) presiding. 

Mr. SALMON. This subcommittee will come to order. 

Good afternoon. We convene this hearing today to gain a deeper 

understanding of the administration’s continued efforts to engage 

with Asia at the Asia-Pacific Economic Cooperation and East Asia 

Summits. This hearing will examine the outcomes of APEC and 

EAS and determine how Congress can support the expansion of 

U.S. presence in the region. 

The APEC Summit convened 21 member economies in Manila to 

discuss economic growth and integration in the region, which is no 

light task. As a bloc, APEC countries represent over half the 

world’s GDP and 44 percent of all their global trade. 

Given that summit occurred immediately following the Paris attacks, the fight against ISIS was a large part of the conversation. 

The heads of state at the summit rightly took a united stance 

against terrorism and stressed the importance of using economic 

tools to address the root causes of such evils. I am curious about 

how Asia’s views of terrorism may or may not have changed at this 

event. 

I just returned from a trip to Taiwan where I had the opportunity to meet with President Ma and leaders of the opposition 

DPP party. As a strong supporter of Taiwan’s participation on the 

global stage, I am encouraged to see Taiwan’s membership and the 

engagement in APEC. Still, I would like to see additional partners 

in the Asia-Pacific region take advantage of membership in APEC, 

including India, the region’s third-largest and fastest-growing economy. As APEC would greatly benefit from the inclusion of the next 

global economic powerhouse, I urge our administration to support 

India’s candidacy for APEC membership. 

APEC also provided a platform for leaders of TPP countries to 

hold meetings following the completion of the agreement. We will 

be watching closely as the parties work toward ratification, though 

it seems that the TPP strategic value continues to hold. Indonesia 

and the Philippines and South Korea have each expressed interest 

2

or intent to seek inclusion in the deal. Experts say the completed 

negotiation of TPP is a major blow to RCEP, China’s rival to the 

agreement. 

I would be interested, though, to hear from our administration 

witnesses how they see or foresee TPP fitting into the regional architecture with a number of competing trade deals in Asia. And I 

am sure Mr. Sherman will have his thoughts and comments, too, 

which I welcome. I actually find it quite refreshing. It is kind of 

fun. 

President Obama also visited the Gregorio del Pilar, a former 

Coast Guard cutter that is now a centerpiece of the Philippine 

Navy, to talk about the defense of our allies’ maritime security and 

the South China Sea. He announced a $250 million plan to provide 

assistance to regional partners to improve their maritime capabilities, signaling that China’s belligerent activities would be a prominent agenda item at both summits, even in light of APEC’s economic focus. And I welcome that. I think that kind of clarity is 

badly needed, so thank you. 

Maritime security was discussed in depth at the East Asia Summit in Kuala Lumpur immediately following APEC bringing 18 

members of consultations on political and strategic issues. Even 

after President Xi gave his assurance to President Obama and the 

public that China would not militarize the manmade islands of the 

South China Sea, China continues to build dual-use facilities on 

them. 

China’s paper-thin efforts to characterize the construction of assets with military applications as a public service made clear the 

dishonesty in prior statements. Despite this, I was really glad to 

see the summit chairman’s statement reaffirm the importance of 

the freedom of navigation and overflight in the region and supported a rules-based order in the maritime space. 

The EAS also provided an opportunity for discussions of other interests to include terrorism, energy, health, development, combating human trafficking, and poverty reduction. I had the recent 

opportunity to meet with representatives from all the ASEAN nations and reassured them of our support for the development of democracy and security in their countries and across the region. 

Summits such as APEC and EAS have provided substantial opportunities for the United States to bolster our foreign policy goals 

in the region, strengthen our partnerships and alliances, open our 

markets, and promote sound international law and norms. 

And with that, I look forward to hearing from our witnesses. 

Members present will be permitted to submit written statements to 

be included in the official hearing record. And without objection, 

the record will remain open for 5 calendar days to allow for statements, questions, and extraneous materials subject to the length 

limitation in the rules. 

And, Mr. Sherman, I will turn to you. 

Mr. SHERMAN. I oppose the Pivot to Asia if by that phrase we 

mean redirecting our military focus to a place where there are few 

reefs that we can quibble about at a time when ISIS and the Iranian-led Shiite alliance are killing tens of thousands of people and 

killing as many Americans as they can. 

3

It may be useful politically in Beijing to focus nationalist attention on these reefs, and of course it meets the desire of some in our 

Pentagon to focus on a confrontation of uniformed and advanced 

militaries with which they are comfortable. But the fact is these socalled islands, reefs, are basically useless. We are told they are important because ships passing close to them involve hundreds of 

billions of dollars of trade. That is true. They are all going in and 

out of Chinese ports, and I do not think that China will blockade 

its own ports. 

That being said, we do believe in freedom of navigation. We 

should continue to assert that, but not as the chief focus of our 

military. What is happening now at the Pentagon is they are abandoning the research and procurement and structuring and planning 

necessary to deal with the problems of the Middle East and focusing their attention to building advanced naval systems designed 

solely to confront China. Keep in mind if these so-called islands are 

of any economic value, that value does not accrue to the U.S. taxpayer. It accrues to Japan, Korea, the Philippines, et cetera, while 

we are without much attention, spending hundreds of billions of 

dollars in procurement and planning at the Pentagon redirecting 

our military efforts to the defense of these supposedly valuable islands. The amount of additional money being spent on defense by 

the countries that claim to own these islands pales in insignificance. 

Much brouhaha about Japan making the slightest change in 

where it will deploy its forces, the fact that there is so much brouhaha over that proves how insignificant the Japanese—I hope I 

said Japan and not China as to the application of their forces. The 

fact is Japan claims the islands but claims that we should defend 

them and has not insignificantly increased its military budget. 

The one exception to this on burdening-sharing is Taiwan. They 

want to buy a couple frigates for them. The Congress has authorized it. It has been planned. They are ready and it is time to deliver them. And we will have legislation on that to push the delivery of those frigates. 

We do need to focus on the interests of the American middle 

class and the American taxpayer that sends us to Washington. This 

TPP is such a terrible economic deal for the American middle class 

that it is being sold as good geopolitics because it can’t be sold on 

the basis of economics. As a method of containing China, it is a 

fantastically good deal for China and they didn’t even have to show 

up to the negotiations. 

Two things: First, we are told this deal sets precedence of a 

world adopting America’s rules. They are not America’s rules. They 

are the rules that have destroyed the American middle class over 

the last 30 years. They are Wall Street’s rules. But the one case 

the rules reflected in the TPP are not Wall Street’s rules; they are 

Beijing’s rules. This is the holy grail that establishes that currency 

manipulation is allowed and almost glorified in the text of this 

agreement, or should I say the missing pages of the text of this 

agreement. So it establishes for China’s benefit and, I hate to say 

it, but also for Japan’s benefit that currency manipulation is allowed and cannot be stopped. 

4

Second, under the rules of origin, goods that are admitted to be 

30 percent made in Vietnam or Malaysia but 70 percent made in 

China get duty-free access to the United States. Now, it is not just 

30 percent because if a Chinese company creates a factory in Vietnam and then labels things saying, well, at least 30 percent of the 

goods were—they are making all the decisions as to how to allocate 

the costs of production. They are doing the intercompany invoicing. 

Goods that are 3 percent made in Vietnam could be labeled 30 percent made in Vietnam. And this agreement does not employ 50 or 

100,000 accountants to go look at every intercompany invoice, 

which is what would be necessary. 

So this is a free trade deal par excellence for China. Now, I know 

they are fainting and saying, oh, we want to join the deal. They 

get all the benefits of the deal just as soon as Congress approves 

it. Well, maybe only 97 percent of the benefits. They will still have 

to do a little bit of the work in Vietnam or Malaysia. 

So if this deal cannot be sold as good economics for the American 

middle class, it would be sold on the basis of patriotism because 

Americans are patriotic. And we will tell our constituents you have 

got to lose jobs but it is necessary for our security. No. It is necessary to further enhance China and Wall Street. 

And I yield back. 

Mr. SALMON. Thank you. Mr. Bera? 

Mr. BERA. Thank you, Mr. Chairman. 

You know, I want to thank the chairman for having this hearing 

because obviously when we are thinking about the Asian markets, 

you know, some of the fastest-growing markets that are critically 

important to our economy and growing our economy, making sure 

that we have fair access to those markets and our companies. 

Also, you know, I would like to align myself with the chairman’s 

statements that what is happening in the South China Sea is critically important, both strategic value, as well as—it is quite important to make a statement today so we don’t have to engage militarily in the future. And it is incredibly important that international law, international waterways, and international norms in 

the South China Sea are recognized. 

And, you know, I have stated in committee many times that, you 

know, China has incursions here. The building of these manmade 

islands really goes outside international norms. And it is very important that we send a strong message that that is not okay. 

Extremely important that we keep these markets open, extremely important that we create a fair playing field for American 

companies, for the American worker and, you know, evaluate how 

we engage again in an incredibly important region of the world. 

So, again, thank you, Mr. Chairman, for holding this hearing, 

and I look forward to the testimony of the witnesses. 

Mr. SALMON. I thank the gentleman. 

We are really appreciative to have both the very distinguished 

witnesses joining us this afternoon. 

First, Mr. Michael Fuchs is the deputy assistant secretary of 

State for Strategy and Multilateral Affairs in the Department of 

State’s Bureau of East Asian and Pacific Affairs. 

And Mr. Bruce Hirsh is the assistant U.S. Trade Representative 

for Japan, Korea, and APEC, and you have been really busy lately. 

5

We would like to start with you, Mr. Fuchs. 

STATEMENT OF MR. MICHAEL H. FUCHS, DEPUTY ASSISTANT 

SECRETARY OF STATE FOR STRATEGY AND MULTILATERAL 

AFFAIRS, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, 

U.S. DEPARTMENT OF STATE 

Mr. FUCHS. Thank you, Mr. Chairman, Ranking Member Sherman, members of the subcommittee. Thank you for the opportunity 

to appear before you today to testify on the recently concluded East 

Asia Summit and U.S.-ASEAN Summit. I would also like to thank 

the committee for your continued leadership and supporting and 

promoting engagement in the Asia-Pacific region. 

Two weeks ago, as you know, President Obama made his ninth 

trip to the Asia-Pacific, which is a reflection of a continued importance of the region to U.S. national interests and the administration’s commitment to advancing the rebalance strategy. A central 

component of this strategy is what I would call a ‘‘rebalance within 

the rebalance’’ to Southeast Asia and those 10 countries that make 

up the Association of Southeast Asia Nations, or ASEAN. 

Given its strategic location and the essential role it plays in the 

region’s multilateral institutions, ASEAN is at the core of one of 

the world’s most dynamic regions. This year in particular has been 

a historic one for our engagement with ASEAN. At the U.S.-

ASEAN Summit, the President and ASEAN leaders elevated the 

U.S.-ASEAN relationship to a strategic partnership and agreed on 

a new plan of action for 2016 to 2020. And we were pleased to announce that the ASEAN leaders had accepted the President’s invitation to attend a special summit in the United States in 2016. 

Taken together, these summits are charting a course forward 

with ASEAN, guiding our efforts to work together on everything 

from climate change to trafficking-in-persons to maritime security 

and beyond. 

The President also participated in the East Asia Summit, which 

has quickly become the premier forum for addressing political and 

security issues in the Asia-Pacific region. This year was its 10th 

anniversary, and leaders used the occasion to endorse a number of 

institutional reforms to move the EAS closer to being the strong, 

effective institution that the region needs to support the rulesbased order. 

This year, the leaders of EAS also endorsed statements on key 

regional challenges, including maritime cooperation, cyber issues, 

preventing health pandemics, and countering violent extremism, 

which will help build a foundation for regional cooperation. 

And as the region’s premier institution for addressing political 

and security concerns, the leaders also focused on the South China 

Sea. At both the EAS and the U.S.-ASEAN Summits, the President 

directly addressed the maritime disputes in the South China Sea. 

All countries of the EAS, claimants and non-claimants alike, have 

a vested interest in how this issue is addressed. While the United 

States is not a claimant and takes no position on the sovereignty 

of particular features in the South China Sea, the President used 

the East Asia Summit to convey the United States’ deep and abiding commitment to freedom of navigation and overflight and other 

6

lawful uses of the sea, upholding international law, and the maintenance of peace and stability in the region. 

He made clear that the United States will stand by our treaty 

obligations and our security commitments. The President encouraged ongoing efforts to develop a code of conduct between ASEAN 

and China. He also urged parties to take more immediate steps to 

lower tensions, including a halt to land reclamation, construction 

of new facilities, and any further militarization of outposts. 

He noted the unanimous October 29 decision of the arbitral tribunal regarding its jurisdiction in the case between the Philippines 

and China and expressed support for the arbitration process as a 

peaceful mechanism to resolve disputes. 

The level of concern over events in the South China Sea was 

clear from across the region during the summit. At the East Asia 

Summit, 15 of the 18 leaders present expressed concerns over tensions in the South China Sea, and 10 of those leaders emphasized 

the importance of the non-militarization of outposts. And this year, 

ASEAN itself sent a direct and unmistakable signal to China on 

the South China Sea referring in its own summit statement to concerns about the possible militarization of outposts. This chorus of 

support on the issue of non-militarization is a step forward and one 

we intend to work with others to build on in the coming weeks and 

months. 

Fundamentally, of course, these maritime security issues are 

about rules, not rocks. The question is whether countries work to 

uphold international legal rules and standards or whether they 

flout them. It is about whether countries work together with others 

to uphold peace and stability or use coercion and intimidation to 

secure their interests. 

And I want to reaffirm here today that we will continue to champion respect for international law, freedom of navigation and overflight and other lawful uses of the seas, unimpeded lawful commerce, and the peaceful resolution of disputes. 

Finally, while my colleague Bruce Hirsh will address APEC in 

more detail, I would like to note quickly that we view APEC as the 

premier economic forum in the region for advancing free and open 

trade and investment, as well as for fostering cooperating and promoting sustainable and equitable growth. The United States’ priority in APEC is to enhance regional integration and stability while 

establishing systems conducive to U.S. economic competitiveness. 

So in conclusion, I thank the committee for its interest in these 

issues and look forward to working with you in pursuit of U.S. interests in the Asia-Pacific. I look forward to answering any questions you may have. 

[The prepared statement of Mr. Fuchs follows:]

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Mr. SALMON. Thank you. 

Mr. Hirsh? 

STATEMENT OF MR. BRUCE HIRSH, ASSISTANT U.S. TRADE 

REPRESENTATIVE FOR JAPAN, KOREA, AND APEC, OFFICE 

OF THE UNITED STATES TRADE REPRESENTATIVE 

Mr. HIRSH. Chairman Salmon, Ranking Member Sherman, and 

members of the subcommittee, thank you for the opportunity to testify on the recently concluded APEC Leaders’ Meeting and on 

APEC’s importance for U.S. economic and trade engagement in the 

Asia-Pacific region. 

The Asia-Pacific region continues to be a dynamic and growing 

part of the global economy. The 21 APEC economies account for 

nearly 60 percent of global GDP and international trade and are 

home to 2.8 billion consumers, 40 percent of the world’s population. 

U.S. engagement in APEC plays an important role in helping to 

secure the economic benefits offered by the Asia-Pacific region and 

to address the challenges we face there. APEC remains the premier 

regional forum through which we are able to advance U.S. trade 

policy objectives in a leadership role. With other economic powers 

vying for influence in the region, U.S. active engagement remains 

essential. 

The unique characteristics of APEC make it an effective forum 

to advance work on emerging issues in the trade and economic 

area. First, given how much the region has benefitted from trade, 

APEC economies generally embrace open markets and ideas that 

advance free trade. 

Second, APEC outcomes are nonbinding and voluntary in nature, 

thus allowing APEC economies to be more forward-leaning and 

open-minded when exploring new issues in contrast to other venues 

where achieving consensus is more difficult. 

Third, APEC initiatives can take a variety of forms with varying 

levels of participation by economies. This flexibility allows for more 

creative and diverse approaches to new and emerging issues. 

Finally, APEC has a diverse membership. As a result, initiatives 

that emerge from APEC carry significant weight in other fora. For 

example, the WTO Information Technology Agreement and a subsequent expansion have their origins in APEC. Similarly, the 2011 

commitment by APEC leaders to reduce tariffs on environmental 

goods gave impetus to the launch of the WTO Environmental 

Goods Agreement. And APEC’s long-term work on supply chain facilitation helped lay the groundwork for the WTO Trade Facilitation Agreement. 

In 2015, with the Philippines as host, APEC continued its work 

to improve the business environment in the Asia-Pacific and to facilitate trade. This work culminated in a number of outcomes at 

the November 18 to 19 Leaders Meeting, including on topics of 

great interest to U.S. stakeholders such as the reaffirmation of the 

commitment to reduce environmental goods tariffs, endorsement of 

substantive work on the internet and digital economy, a mandate 

to elevate APEC work on services trade, and the instruction to 

complete work on APEC best practices on trade secrets protection 

and enforcement. Other outcomes were reached on electric vehicle 

standards, trade and health care products, and advertising standVerDate 0ct 09 2002 14:01 Jan 21, 2016 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 F:\WORK\_AP\120215\97754 SHIRL
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ards, among others. The U.S. has been a leader on all of these 

issues. 

Finally, APEC leaders also noted the recent conclusion of the 

Trans-Pacific Partnership negotiations. All 12 TPP members are in 

APEC, and most other APEC economies have expressed an interest 

in the agreement. Given this connection, the United States and 

other APEC members have a real opportunity over the coming 

years to educate APEC members about the benefits of adopting 

policies that will meet the requirements of high-standard agreements like the TPP. In this way, U.S. engagement in APEC will 

further serve to support the objective of creating a rules-based 

trading system for the Asia-Pacific region. 

Looking ahead to 2016 when Peru will serve as APEC host, the 

United States will have an opportunity to push for significant outcomes on digital and services trade, as well as on trade secrets protection and enforcement. APEC will assess progress on its target 

of improving supply chain performance by 10 percent and look beyond that target. And we will continue to explore ways to ensure 

that the benefits of economic growth extend to businesses of all 

sizes. 

One of APEC’s successes lies in its mandate to engage with the 

business community. The APEC Business Advisory Council plays 

an important role by providing its views and priorities to APEC officials throughout the year. In the United States we have a longstanding and close working relationship with the National Center 

for APEC. We will also continue to consult with Congress as we 

plan our agenda for APEC in 2016. We are grateful for the interest 

of this subcommittee in this regard. 

In conclusion, I want to thank you for the opportunity to discuss 

the outcomes of the APEC Leaders Meeting and the importance of 

APEC to U.S. engagement in the Asia-Pacific region. As that region 

continues to grow in economic and strategic importance, U.S. leadership in APEC will be increasingly vital. Thank you very much. 

[The prepared statement of Mr. Hirsh follows:]

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Mr. SALMON. Thank you both very much. 

You know, for the last several administrations we have operated 

on an overarching policy toward China under the umbrella of a 

term that just makes me feel about like, you know, the time I remember getting my tooth drilled without Novocain, it is called strategic ambiguity because I believe if we need clarity anywhere, we 

need it with China. 

And on that vein I would like you to pass something on to your 

boss. I applaud him for what he said about the rules of the road 

in maritime space in the South China Sea and the overflights. I 

think that kind of strategic clarity and that recommitment to something that is incredibly important not just to the United States but 

to the world at large was badly needed, and thank him for showing 

that leadership. I don’t think we do that enough. 

We have all been concerned about how we juxtapose this Pivot 

to Asia with the needs and the crisis in the Middle East. Based on 

this year’s Asia-Pacific Summits—and by the way, I think the Pivot 

to Asia is a great thing. I want to go on record saying that. I think 

it is incredibly important that we can walk and chew bubblegum 

at the same time and that we can do more than one thing. 

But based on this year’s Asia-Pacific Summits, how do you assess 

the region’s views toward transnational terrorist threats? And have 

these summits yielded any lessons or insights we can apply to better balance global crises with long-term policy goals and to remain 

engaged in Asia while handling responsibilities elsewhere? Do you 

feel that the recent events in the Middle East and Europe have 

changed Asia-Pacific perceptions about terrorism and how to address it? Mr. Fuchs, can I start with you? 

Mr. FUCHS. Thank you, Mr. Chair. I think it is obviously a very 

important issue that you have raised. And I think coming back 

from these summits I can say without a doubt that the countries 

of the region are focused on this issue. And this is something that, 

obviously, many of the countries in the region and Southeast Asia 

have been focused on for a number of years. These are threats to 

them as well. And so this is why this has been a priority for us 

working both bilaterally with many of these countries to strengthen 

their capacity, information-sharing, to deal with these issues and 

to coordinate and cooperate on them. And it is also why we have 

tried to engage through these regional institutions, including 

ASEAN and East Asia Summit, to build broader cooperation 

throughout the region in dealing with these issues. 

In 2014, last year’s summit in Burma, the leaders of the East 

Asia Summit adopted a statement about the need to stem the flow 

of foreign fighters to and from Iraq and Syria and agreed to take 

a number of steps to do so and to cooperate on that endeavor. 

This year, following up on that—and obviously the horrible attacks of Paris had just taken place right before the leaders of the 

EAS met this year, and so that was very much on their minds as 

well. And they adopted a statement on countering violent extremism and again trying to set out some actions and some principles 

at least that countries can use to cooperate when it comes to this 

important issue. So without a doubt I can say this is on their 

minds and this is something the region has to deal with. 

20

Mr. SALMON. Well, and one of the rationales I used for trying to 

get Taiwan observer status in INTERPOL is that when we have a 

global terrorist crisis, then it needs to be all hands on deck. And 

hopefully, all of these countries understand that. It is nobody’s responsibility solely. It is collectively our responsibility to deal with 

this horrible global threat. 

I have a question for you, Mr. Hirsh. Twelve out of the 21 APEC 

countries are members already of TPP. How does the conclusion of 

the TPP affect where APEC fits in the U.S. policy toward Asia? 

And how do you reconcile APEC’s principles of volunteerism and 

open regionalist with the TPP, which is a binding agreement? 

Mr. HIRSH. Thank you very much. And those are very good questions. 

You know, the TPP is going to serve as a race to the top, we 

hope, in terms of the rules of the road in Asian trade. We have had 

a lot of interest from a number of non-TPP parties in what is in 

the agreement, and we believe that the conclusion of the agreement 

will help to emphasize the importance of maintaining high standards. 

With regard to reconciling APEC’s volunteerism with the approach in the TPP, APEC has a very useful and important role to 

play by virtue of the fact that not every member of APEC is in the 

TPP. Because it is a voluntary organization, APEC members who 

are not members of TPP will be more open to experimentation and 

exploration of ideas that ultimately will allow them to adopt policies that are consistent with high-standard agreements like the 

TPP. So APEC can continue to serve as an incubator for good policy ideas in the region, and it can help us to educate countries in 

the region about the value of high standards such as those in TPP. 

Mr. SALMON. Thank you. Mr. Bera? 

Mr. BERA. Thank you, Chairman. 

You know, I applaud the work that the administration has done 

in the Pivot in laying some of the groundwork, working with the 

APEC nations. Obviously, they are creating economic cooperation 

to help their region, and our partnership there certainly is important. I also think, you know, a good TPP certainly starts to build 

a framework for economic cooperation throughout the Pacific Rim 

nations. 

So as we evaluate the TPP and look at that and consider it here 

in this body, I think many of us will be doing it with that eye to 

the future, does it lay the foundation for a fairer trade policy across 

the entire Pacific Rim region. 

You know, as I think about APEC, though, and some of the 

steps, you know, I have a unique focus on the U.S.-India relationship and certainly a lot of the discussion that is going on in economic cooperation between the United States and India. Certainly, 

Prime Minister Modi and President Obama have, you know, both 

echoed a similar theme to, you know, open up stronger economic 

ties between both countries. You know, while the bilateral investment treaty is not moving as quickly as I would like to see, you 

know, certainly is a starting point. But another starting point that 

many of us have talked about is India’s desire to join APEC and, 

you know, some have suggested that the United States should take 

a more active role in, you know, pushing for India’s inclusion. 

21

I would be curious as to what challenges and what suggestions 

either one of you would have for both, you know, Members here in 

Congress who might suggest that we push to include India, but 

then also what India ought to be doing to make it more palatable 

to join APEC. 

Mr. HIRSH. Thank you very much. Well, we welcome India’s interest in joining APEC. It is important for economies that are interested in APEC to align their trade and investment policies and 

their economic reform plans with APEC’s longstanding commitments to trade and investment liberalization and market-driven 

economic reforms. 

APEC is an important consensus-based economic institution that 

deals with a wide range of issues, and it will be important for India 

to demonstrate its commitment to that consensus-based approach, 

as well as to the free and open trade and investment policies that 

APEC espouses. So we certainly will want to understand better 

how APEC fits into India’s economic reform efforts. 

Mr. FUCHS. If I may add, Congressman, perhaps taking a step 

back as well, I think as you mentioned, this administration and 

President Obama have taken a real interest in engaging with India 

and strengthening our partnership with India. And that includes, 

you know, the top of that list, engaging with India with respect to 

the Asia-Pacific region. Obviously, President Obama’s trip there 

earlier at the beginning of this year, they released a joint vision 

statement on cooperation between our two countries and the AsiaPacific, the goals that we share. 

In this administration we have begun a series of other dialogues, 

including a bilateral U.S.-India dialogue about the Asia-Pacific, a 

trilateral dialogue with India, as well as Japan, covering issues 

with respect to the Asia-Pacific region. And so, broadly speaking, 

we are engaged in multiple different levels with India trying to 

deepen the relationship and the cooperation that we can pursue together on a wide range of issues in the Asia-Pacific. 

Mr. BERA. Great. And I agree, laying that foundation today, you 

know, which, again, we may not see the return on this investment, 

for, you know, several years or maybe a decade. But it is important 

that we start to lay that foundation of economic cooperation not 

just in the region but again across the Pacific, which I do believe, 

as that partnership strengthens, as the economic relationship between the TPP countries, as well as the APEC countries, strengthens, I do think China will actually see the importance of, you know, 

normalizing its economy in a way that, you know, allows it to consider joining the TPP. I don’t see this as a giveaway to China. I 

see this actually as the United States strengthening our rules of 

economic engagement. 

And actually hearing the desire of the countries in the region to 

play by our economic rules, which are much fairer, which are much 

more equitable, and much more benevolent in helping those countries grow their economies, grow their stability. And I do see this 

as a key to building stability in the region. So, you know, again, 

I applaud the administration’s efforts. And I will yield back. 

Mr. SALMON. Thanks, Mr. Bera. 

Mr. Lowenthal, did you have any questions? 

22

Mr. LOWENTHAL. Yes, I have—thank you, Mr. Chairman—statement by also applauding not only the Pivot to Asia but the administration moving towards—in much more way moving toward policies, a strong stance on the South China Sea and making sure that, 

you know, being the adult in the room and talking about how we 

have freedom of navigation and that territorial disputes must be 

kind of resolved in a rational way. And I think that is really a very, 

very important message for the United States not only to shift but 

to send that message. 

I have three issues wanting to understand more about our role 

and maybe either in ASEAN or APEC. One of them is human 

rights, another one is climate change, and the third one is Taiwan. 

And human rights, we have seen how human rights abuses in one 

nation can have a regional impact. The persecution of the Rohingya 

Muslims in Burma has created a refugee crisis that affects surrounding countries. Are these issues that are discussed and in this 

kind of context? I would really kind of like to know how those 

issues are being discussed. 

The same thing by climate change, how is the United States 

bringing up climate change in the context of these talks? Developing nations in ASEAN that are expected to rapidly grow and develop in coming years, have they been receptive to discussing emissions and how to limit them? And beyond emissions, how have the 

Asia-Pacific nations been preparing for adaptation and resiliency? 

And so that is the second. 

And the third one, again, with a lot of questions is, you know, 

we have known that the Presidents of mainland China, President 

Xi and President Ma, have held a historic meeting last month. And 

APEC is one of the few international bodies where the PRC and 

Taiwan both participate. Has APEC been historically a place where 

the two can cooperate? And do other APEC participants, have they 

facilitated any dialogue between Taiwan and the PRC? So take a 

stab at any of the three: Human rights; climate change, our role; 

and Taiwan. 

Mr. FUCHS. Thank you, Congressman. I think that those are, 

again, I think very important and relevant questions. I will try to 

tackle the first two——

Mr. LOWENTHAL. Okay. 

Mr. FUCHS [continuing]. If I can start. Human rights issues without a doubt are regularly discussed in a variety of different manners in these summits. For instance, trafficking in persons is an 

issue that is front and center in Southeast Asia and in this region 

obviously. We do a lot of work programmatically and otherwise 

with the countries of ASEAN bilaterally at 10 to try to address 

these issues and to strengthen regional cooperation. 

Just the other week during the series of ASEAN summits, 

ASEAN itself actually inaugurated its own convention against trafficking in persons, especially women and children, which is a real 

step forward——

Mr. LOWENTHAL. Okay. 

Mr. FUCHS [continuing]. For ASEAN. And we are doing some 

work now with the member countries of ASEAN to try to ensure 

that they can begin to implement that convention. And so that is 

without a doubt a feature of these conversations. 

23

Other human rights issues obviously are regular features of our 

conversations, especially at the bilateral level and with all of these 

countries on the sidelines of them. You saw President Obama make 

some comments about these issues when he was in Malaysia as 

well. And so again, this is a regular feature of all of our engagement in the region. 

With respect to climate change, this is obviously, again, a top priority for the administration. And with respect to ASEAN in particular, we in the last couple of years have been doing a lot of work 

with ASEAN. Last year, in the 2014 summit, the leaders in the 

U.S.-ASEAN Summit, the 11 leaders agreed to a statement on climate change, which the first time had all 11 countries and all 10 

countries of ASEAN agreeing to put forth their intended nationally 

determined contributions well before Paris. At that point I believe 

only one of the countries of ASEAN had done so. And to date I 

think all but two now have done so. 

And the process of engaging with them on the negotiation of that 

statement, again, was a real boost and a chance for us to discuss 

a wide variety of these issues. 

Mr. LOWENTHAL. But I was wondering, you know, we are seeing 

a dramatic—I think—dramatic change in China. China a few years 

ago said there is a critical difference between developing nations 

and developed nations in terms of setting standards. They have 

subsequently changed that position and really have come to now 

address that this is a critical issue for them also. 

Are we seeing with these developing nations—what is the discussion because they are further behind and so I just would like to understand how do they see themselves as—you know, on one hand 

they will be tremendously impacted, especially those in the Southeast Asia that are on sea level rise. On the other hand, they have 

a long way to go. And so I am just kind of wondering how that dynamic has been played out. 

Mr. FUCHS. Well, I think if I can—just to add, I think, to answer 

your question, I think you have summed it up actually quite well, 

the way in which they see this. This is both something that is 

going to affect them so they need to adapt, they need to find ways 

to grow their economies in sustainable ways, and they are grappling with these issues right now in a very real and tangible way. 

They also recognize, though, that with respect to the global negotiations and the fact that this is a global issue and that there are 

many economies in Southeast Asia that are very large and are 

growing rapidly in terms of emissions and so they also have a responsibility to contribute when it comes to reducing emissions. And 

so I think that they are trying to grapple with both of these issues 

at the same time. And for our part again, we are trying to engage 

on both sides. The statement with respect to climate change last 

year was engaging them, I would say, a lot more on the latter side 

of it, how can we work together to reduce emissions? 

On the former side and the adaptation and growing sustainable 

economies, we have done a lot of work, including through one of 

our sub-ASEAN initiatives called the Lower Mekong Initiative, 

which works with the five countries of mainland Southeast Asia on 

a variety of transnational issues, frankly the top one of which is 

climate change and the environment and water and the nexus beVerDate 0ct 09 2002 14:01 Jan 21, 2016 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 F:\WORK\_AP\120215\97754 SHIRL
24

tween that and energy. And so we have been doing a lot of work 

with those five countries to build local capacity. 

Mr. SALMON. The chair recognizes Mr. Chabot. 

Mr. CHABOT. Thank you very much, Mr. Chairman. And I apologize for being a little late for this meeting. As some may have already mentioned, there is a Middle East committee hearing going 

on at the same time so I am trying to cover both areas. 

But just a couple questions, and if you already asked these—

somebody already asked and they were answered, I apologize for 

that. But India sought membership in APEC for 20 years and has 

been an observer since, I believe, 2011. However, some members of 

the U.S. business community have expressed doubts about India’s 

role in APEC and feel that the U.S. should refrain from proactively 

supporting India’s membership. Could you comment on that? And 

does the administration believe India has shown enough commitment to economic reform to warrant U.S. support in India’s membership, whoever wants to handle that? 

Mr. HIRSH. Sure. Yes, again, we do welcome India’s interest in 

joining APEC, but we are evaluating some of the considerations 

that you mentioned. It is important for economies that are interested in APEC to demonstrate that their policies are aligned with 

the approaches in APEC for trade liberalization and economic reform. 

Also, APEC is a consensus-based organization, and so it is important for prospective members to indicate their ability to work in 

that environment, as well as to demonstrate their commitment to 

free trade and open trade and investment. So we are certainly examining these criteria as we look at this question. 

Mr. CHABOT. Thank you. Next, President Xi continues to argue 

that China does not intend to pursue militarization in the South 

China Sea, but many experts would argue that it has already done 

so and that the artificial islands have both civilian and military applications. How are President Xi’s arguments received by other 

Asian neighbors, many of whom are our allies? What steps is the 

U.S. taking to display an active leadership role in preventing China’s militarization of the area? And what further steps might we 

contemplate from the administration? 

Mr. FUCHS. Congressman, that is a great question and one on 

the front of a lot of our minds, as well coming out of these summits. 

First, to take a step back and get the second part of your question, I think that this administration has pursued a consistent 

strategy with respect to the South China Sea that is focused on upholding our interests, our interests in upholding international law 

and the freedom of navigation, the peaceful resolution of disputes, 

and that is where our energy is focused. So we are doing that in 

a variety of ways. It is by making concerns directly known to the 

Chinese. It is by increasing our maritime security capacity-building, just as the President announced some more funding for during 

his stop in Manila. It is by actively supporting the development of 

crisis mechanism tools, the availability of—supporting the ability of 

countries to avail themselves of international legal mechanisms 

like arbitration such as the Philippines is doing. And it is includVerDate 0ct 09 2002 14:01 Jan 21, 2016 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 F:\WORK\_AP\120215\97754 SHIRL
25

ing, of course, by strengthening our defense posture in the region 

so we can ensure that we are upholding these variety of interests. 

But obviously we are clear-eyed about the challenges that we 

face in the South China Sea. This is about, I think, shaping an environment to ensure that we can uphold these interests. 

So with respect to President Xi’s comments about militarization, 

I think that coming out of the East Asia Summits and the various 

summits, to your first question, the response is very clear from—

the majority of the region is concerned about the actions taking 

place in the South China Sea. Ten of the leaders in the room at 

the East Asia Summit, including Premier Li, mentioned the importance of non-militarization of these outposts. 

And so we are looking to ensure that there is a regional consensus to ensure that there is no militarization and no further militarization of these outposts. That is our goal. 

Mr. CHABOT. Thank you. Just one final comment—my time is 

ready to run out—but one of my real concerns that the administration has been sending in the whole defense area—and I am sure 

this has some concern with our allies in the region—is that, you 

know, we are now down—or we will be if the President’s proposals 

go forward—to have an army that we haven’t seen as low in numbers since World War II, an Air Force that is getting older and apparently numbers under when we first had an Air Force. And on 

the naval front, whereas Ronald Reagan was trying to get it up to 

a 600-ship Navy, we are now down to 200 and some, which is levels 

that are all the way back to 1916 in the Navy area. And that is 

of particular concern in that part of the world. 

So I think some of the actions and some what we talk about and 

what the President is proposing are inconsistent, and I will leave 

it there since my time has run out. I yield back. 

Mr. SALMON. Up for another round of questions? I have got——

Mr. SHERMAN. I didn’t get my first round. 

Mr. SALMON. What? 

Mr. SHERMAN. I am up to my first round. 

Mr. SALMON. Oh, you didn’t have your first round. Okay. Go 

ahead. 

Mr. SHERMAN. I will try to make my questioning memorable 

enough to——

Mr. SALMON. We will give you a second round, too. 

Mr. SHERMAN. Oh, good for me, maybe not for the witnesses. We 

will see. 

Mr. Fuchs, I will ask you to just answer for the record just basic 

questions on the law of the sea, at least as interpreted by the 

United States. How big is the economic zone for an uninhabited 

reef or island that is submerged at high tide? What is the size of 

the economic zone for an uninhabited island or reef that at least 

a little bit is above the water at high tide? And what is the economic zone for an inhabited island? And what is the economic zone 

for an island that has been uninhabited for the last few millennia 

but the Chinese Government puts one fisherman’s family on it and 

gives him a free boat and tells him that he has got to live there 

whether he likes it or not? But he does get a free boat, and then 

after maybe 5 or 10 years they put a different—in other words, 

habitation that begins only after the South China Sea becomes a 

26

huge area of dispute but islands that have been uninhabited for at 

least the last millennia as far as we know. 

Now, for questions for an oral response, we got a $600 billion 

military budget, especially if you throw in veterans’ benefits or the 

cost of compensating our troops. And it is hard for any cost accountant to tell you what portion of that $600 billion is properly 

allocable to the cost of defending world security in the Eastern Pacific or the Asia-Pacific area. But when I talk to the military about, 

say, research projects, they say we are not interested in doing research on anything that is going to help us in the Middle East. We 

want all of our research to be how to shoot down Chinese planes 

over the South China Sea. 

And so knowing that no one could possibly refute it because we 

can’t possibly know, I will say that we are now spending, say, onethird of our military budget focused on the Asia-Pacific area and 

we are on our way to spending half or $300 billion. So whether it 

is $200 billion, whether it is $300 billion or it is $200 billion now, 

whether it is $300 billion later, how much collectively is Japan, the 

Philippines, and South Korea spending on their total military, all 

of which is devoted to the East Asia area? And any chance they are 

increasing their budgets or collective budgets by $100 billion or 

anything close to that? 

Mr. SALMON. Before you answer all those questions, I just want 

to say if you can get them all off the top of your head, I am going 

to buy you a milkshake. 

Mr. SHERMAN. I am going to buy him a drink. 

And if you prefer, you can just respond for the record and answer 

the more general—give me solid numbers for the general—but is 

there any evidence of tens of billions of dollars of increase in the 

defense budgets of Japan, South Korea, and Philippines? 

Mr. FUCHS. Well, Congressman, I will have to look into some of 

these questions to get back to you with some specific answers for 

the record so that I can make sure that they are accurate. 

What I can tell you about your first question, although I am not 

a lawyer, is that my understanding is that with respect to some of 

the general explanations of features is that if there is a feature 

that is submerged, it derives nothing——

Mr. SHERMAN. Right——

Mr. FUCHS [continuing]. No territorial sea, no exclusive economic 

zone——

Mr. SHERMAN. We agree on that, yes. 

Mr. FUCHS. Yes. Right. 

Mr. SHERMAN. I just threw that in to give you more questions to 

answer for the record. 

Mr. FUCHS. Right. So we can provide you with some of the other 

answers to those. 

Mr. SHERMAN. Yes. But what will be interesting is the inhabited 

and then the ‘‘never inhabited before, but now that there is a dispute, there is a fisherman.’’

Mr. FUCHS. Okay. 

Mr. SHERMAN. Mr. Hirsh, okay, we have got the rules of origin 

under TPP, but if you controlled the entire supply chain, if you own 

the factory in China and you own the factory in Vietnam or you 

just have a cooperative relationship but you could own it, a factory 

27

that is Chinese-owned and the goods are 70 percent made in China, 

30 percent made in Vietnam, if the rule of origin is 30 percent, 

they get duty-free in the United States, right? 

Mr. HIRSH. The rule of origin varies by product so——

Mr. SHERMAN. Right. And for many products. And then for others 

it will be 40 percent and others will be 45 percent. 

Mr. HIRSH. There has to be a verification or there can be 

verification in examining the eligibility of a product so——

Mr. SHERMAN. How would you possibly do that with less than 

50,000 accountants? 

Mr. HIRSH. Well, the way that we—I am sorry, Congressman. 

Mr. SHERMAN. Yes. 

Mr. HIRSH. Yes. Yes, the way that we have approached that in 

our past FTAs that we would approach here, as well, is just 

through a multilayered approach where there are spot-checks, 

verifications——

Mr. SHERMAN. Spot—okay. Every invoice, every intercompany 

billing decision is totally in the control of those who want the free 

entry of the product. What spot-checking—I mean, your spot-checking could verify that nothing was being done to the product in Vietnam, but how would you possibly know whether it was 33 percent 

or 23 percent Vietnamese-made? 

Mr. HIRSH. Well, spot-checks are one of the mechanisms which 

are used to confirm rule of origin. Customs also conducts 

verifications in which they actually go onsite and examine the company’s books in great detail——

Mr. SHERMAN. But the books are made by the company. I mean 

have you ever done a—you have never been involved on the tax 

side but we do this in the section 482 audits. There is no chance 

of catching. Every invoice, every decision, every booking—you get 

to look at the company’s books? They will put on the books what 

they need to put on the books. How are we supposed to say that 

if the left side of the product was made in China and the right side 

of the product was made in Vietnam that it is incorrect to say that 

the Chinese portion is only 42 percent? 

Mr. HIRSH. Well, they have to follow generally accepted accounting principles and customs——

Mr. SHERMAN. I am probably the only CPA in the room and I 

know generally accepted accounting principles do not answer the 

question. So what it means is goods that are maybe 10 or 15 percent in reality made in Vietnam get duty-free into the United 

States. So China knows that even if we decide to push them with 

higher tariffs on their own goods, they can just stamp the madein-Vietnam sticker on it, bring it into the United States. 

I yield back. 

Mr. SALMON. We are going to do another round. 

Mr. SHERMAN. Yes. 

Mr. SALMON. If you want to ask another question——

Mr. SHERMAN. I am going to go ahead, yes. 

Mr. SALMON [continuing]. Then we will go to the next one because I will get you another chance so he can get——

Mr. SHERMAN. Okay. Then I will——

Mr. SALMON. How about we move on to Mr. Connolly and 

then——

28

Mr. SHERMAN. Yes. 

Mr. SALMON [continuing]. You think about the answer to that 

one because we are going to go back around again. 

Mr. SHERMAN. We will give you a chance, yes. 

Mr. CONNOLLY. Thank you, Mr. Chairman. 

I have got to say the implication here is that Vietnam and China 

are in collusion because Vietnam is just so much in love with 

China and everything Chinese. I think that is a false premise. 

Mr. SHERMAN. If the gentleman will yield? 

Mr. CONNOLLY. I would yield. 

Mr. SHERMAN. My question was a company in Vietnam entirely 

owned by China would cooperate with its parent company, and of 

course it would be in the interest of the Vietnamese Government 

to let this happen——

Mr. CONNOLLY. But I am not——

Mr. SHERMAN [continuing]. Because at least they are getting 

some of the jobs. 

Mr. CONNOLLY. Okay. But you seem to be making sweeping conclusions from that as if everyone is going to cheat and that clearly—apparently Chinese companies are going to dominate trade in 

12 countries involving 40 percent of the world’s economy. I think 

that is a false premise and I think it is a misleading suggestion. 

The fact that some people may cheat is sort of the human condition. 

My question, Mr. Hirsh, would be, you know, you got ridiculed 

for talking about spot-checks so please don’t talk about spot-checks. 

Surely, we have some other mechanisms, however, for verifying the 

nature of goods and services coming into the United States or 

crossing borders pursuant to this pending trade agreement. 

Mr. HIRSH. Well, we do. As with other mechanisms in other 

FTAs, we have onsite verifications in which the books are examined in great detail, and if anything incorrect is found, there is the 

potential for enforcement actions where there would be penalties 

involved for providing inaccurate information. 

Mr. CONNOLLY. So, for example, the example used, a Chineseowned company operating in, say, Cholon in former Saigon, now Ho 

Chi Minh City, if we were able to catch them cheating, there would 

be consequences? 

Mr. HIRSH. Yes, there would. 

Mr. CONNOLLY. What would those consequences be? 

Mr. HIRSH. Well, in addition to the obvious consequence of denying them the benefits of the agreement, there are penalties under 

our customs statutes for providing incorrect information. 

Mr. CONNOLLY. So when a company decides to cheat, pursuant 

to the example given by my friend from California, they have to 

calculate the risk here. And it is not a consequence-free risk if 

caught, is that correct? 

Mr. HIRSH. That is correct. 

Mr. CONNOLLY. Would there be consequences for the host country, for Vietnam, since the private company—the example given by 

my friend Mr. Sherman—is not a signatory to the agreement? The 

Government of Vietnam is. Are there consequences to the Government of Vietnam for either turning a blind eye, acquiescing, or simply being malfeasant with respect to this cheating? 

29

Mr. HIRSH. Well, at the very least they would have an interest 

in not seeing their exporters cheating because it is going to expose 

their other exporters to closer scrutiny. 

Mr. CONNOLLY. No, but my question was does the pending agreement penalize the host country if it knowingly or even blindly allows such blatant cheating, as described by my friend from California? 

Mr. HIRSH. I would probably have to take a closer look at that 

question. But if it is merely a question of one of their companies 

doing this, I don’t know that the country itself would be penalized. 

Mr. CONNOLLY. Okay. If it were a pattern, however, if there were 

thousands of Chinese-owned companies engaging in this kind of 

subterfuge, would there be consequences for the Government of 

Vietnam? 

Mr. HIRSH. I will have to take a closer look at that question and 

get back to you. But, if in fact they were involved in encouraging 

that behavior, then——

Mr. CONNOLLY. Well, it is a pretty significant question my friend 

from California is asking, and I think it is pretty important that 

you answer it hopefully forthrightly and forcefully because, frankly, 

this goes to the question of are there teeth in the enforcement of 

this agreement or not? Are there consequences for serious patterns 

of evasion and cheating or not? If there aren’t, then the treaty isn’t 

worth much. 

Mr. HIRSH. I understand. 

Mr. CONNOLLY. We already have cheating without a treaty. 

My friend also asked, Mr. Fuchs, questions about defense spending. Our NATO allies, are they all meeting their goals in defense 

spending? They are all spending billions of dollars more in defense 

spending right now, too, right? 

Mr. FUCHS. Congressman, I work in the Bureau of East Asian 

and Pacific Affairs so——

Mr. CONNOLLY. How compartmentalized. 

Mr. FUCHS. I——

Mr. CONNOLLY. Well, are you aware of the fact that there is a 

2-percent goal for NATO members, that we want you to be spending 2 percent of your GDP on defense? Are you aware of any besides the United States, member of NATO, who in fact is meeting 

that goal? 

Mr. FUCHS. I would have to get back to you on that, Congressman. 

Mr. CONNOLLY. Well, would it surprise you to learn not one? 

Would it surprise you to learn that most of them in fact are retreating from the goal rather than advancing toward the goal? I 

only point that out because it is not unique to Asia that our allies 

in fact are not meeting defense investment goals. 

And my friend mentioned the Middle East, too, but I would be 

interested in seeing data on the Middle East when you can talk to 

your colleagues, you know, how is Jordan doing, how is Israel 

doing, how is Egypt doing? And what percentage of their current 

defense spending is coming from the United States? 

Japan’s defense budget, we provide a protective umbrella. We 

have a collaborative relationship but we don’t subsidize their deVerDate 0ct 09 2002 14:01 Jan 21, 2016 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 F:\WORK\_AP\120215\97754 SHIRL
30

fense that I am aware of. But when you get back to us for the 

record, I would be interested in seeing that data. 

But I think it is important that the State Department give us the 

comparative data because I don’t want—the suggestion being that 

Asia is unique. It isn’t. So I would request you add to that, knowing and stipulating that you are in your compartment, but the 

State Department covers the world and if you could get back to us, 

I would appreciate it. 

Mr. FUCHS. Absolutely. 

Mr. CONNOLLY. Thank you, Mr. Chairman. 

Mr. SALMON. Thank you. 

Mr. Hirsh, I have a question for you. And before I ask the question, I want to precursor it by saying that this is my 10th year in 

Congress. It was kind of bifurcated. I started in ’94 and I served 

to 2000. Bill Clinton was the President. And now I am going on 

my—well, next year will be my 4th year back, my second time 

around. During that whole time, I have supported every free trade 

agreement that has come before us in the Congress. I voted for 

TPA, and so I am very robust. I have held many hearings trying 

to be very supportive of the TPP process because I know how important it is both to our country and to the region. 

That having been said, what are you guys at USTR or with the 

administration doing to manage the expectations of the other 10 

TPP countries that—it is probably pretty likely that we are not 

going to get something out of the Congress approving that next 

year. I mean we are entering the silly season, and the leading candidate on the President’s side has come out against it even though 

she helped shepherd it through when she was Secretary of State. 

Many of our candidates on the Republican’s side are coming out 

against it as well. It is a bizarre world. 

But the fact is TPA passed this body by four votes. And given 

some of the challenges now—and the vote will be sometime at best 

in the spring—I think it is very likely that TPP is not going to be 

ratified by the Congress next year. And I say that not because I 

hope that or because I want that. I think it is just a fact of life 

that we are all going to have to deal with. 

I have had lots of conversations with the Ambassadors from 

these TPP countries, and they have expressed to me their interest 

in being patient and staying the course and waiting for a good deal. 

I know that your real concern, as I am, about a vacuum being filled 

by China, and all those arguments are very good and forthcoming, 

but the fact remains that, politically, it is going to be a real heavy 

lift if not impossible to get it through next year. What are you 

doing to manage the expectations of those TPP partners so that 

they will stay patient and stay in the boat? 

Mr. HIRSH. Thank you, Mr. Chairman. Right now, we are focused 

on making the case for TPP here in Congress and for the American 

people. And we are confident that when we have made that case 

that there will be the support. 

With regard to our trading partners, our colleagues in TPP are 

following our processes closely, and I think they are aware of the 

challenges we face but share our optimism as well. 

Mr. SALMON. It is always great to be really optimistic, and I 

know every football team goes in with the idea that they are going 

31

to come out victorious, but at the end of the game, somebody comes 

out winning and somebody comes out losing. And I think there has 

to be a plan B. This is too important to not have a plan B. And 

I hope that the administration is managing the expectations because I don’t want our partners to lose heart and think that, you 

know, if it doesn’t pass next year then it is off the table because 

I don’t believe that is the case. 

Mr. CONNOLLY. Mr. Chairman? 

Mr. SALMON. Yes, Mr. Connolly, I yield. 

Mr. CONNOLLY. I just want to echo what you said. I couldn’t 

agree with you more. I think timing is everything actually. And, 

Mr. Hirsh, I wish we lived in a world of pure reason and rational 

actors, but I don’t think the dynamic for approval of this agreement 

is simply a matter of more information, the more people know, the 

more they will come to love it. I wish that were true but I don’t 

think it is. 

You have got to do your job and we understand that, but I think 

timing is everything, and I think the chairman has said it well. 

And if the timing is wrong, it is not like we have some huge cushion to fall back on in terms of support up here. I believe TPA 

passed by a margin of 10. 

Mr. SALMON. Was it 10? 

Mr. CONNOLLY. Was it 10? 

Mr. SALMON. I thought it was four. 

Mr. CONNOLLY. I thought it was 218 to 208 but——

Mr. SALMON. Anyway——

Mr. CONNOLLY [continuing]. Whatever. 

Mr. SALMON. It was not a lot——

Mr. CONNOLLY. It was not a lot to spare, to the chairman’s point. 

And that is why, frankly, getting the timing right is really critical. 

So I echo what he said as a supporter of the agreement and of TPA. 

But this is going to be a slog and a bit of trench warfare. 

Mr. SALMON. And it would be prudent to have a plan B. The 

chair recognizes Mr. Sherman. 

Mr. SHERMAN. I would very much hope the trade decisions were 

made on the basis of pure reason and rational actors, in which case 

we would have a completely different trade policy than we have 

had for the last 30 years when we have decimated the American 

middle class. 

I do want to agree with the gentleman from Virginia that as 

much Chinese cheating as may go on under this agreement, that 

will not be the lion’s share of all the trade that occurs under this 

agreement. Toyota will be a Japanese company whether we ratify—

ratify is the wrong word—whether Congress approves the agreement or not. 

But just to show you how incredibly difficult it is to stop cheating, I want to put in the record two articles. One is ‘‘U.S. put 

China-made parts in the F–35 fighter program.’’ There is no way 

that we are auditing Vietnamese and Chinese textile firms as carefully as our national security is focusing on the parts in the F–35. 

Even there, cheating happens. ‘‘Counterfeit Chinese parts slipping 

into U.S. military aircraft,’’ ABC News is the second article that I 

would put in the record if there is no objection. 

32

Mr. SALMON. Can I just say to my friend, we are willing to audit 

every one of those firms if we get your vote. 

Mr. SHERMAN. Don’t promise what you can’t deliver. 

And the idea that you can catch this and will penalize it when 

you catch it, yes, you can audit the books but I am the only one 

in the room who has ever written one of these books, and you put 

in the books what you want to put in the books. You could easily 

value at zero for intercompany transactions the value of Chinese 

intellectual property in the product and value at a high value intellectual property that happened to be owned by one of the subsidiaries in Vietnam or Malaysia. 

There are so many ways to handle this, not to mention the profit 

margins. You could set a profit margin at zero of what the Chinese 

company ships to its Vietnamese subsidiary. And those are the 

above-board, legitimate ways to cheat. That doesn’t even involve 

lying, just setting the prices differently. 

But the other concern I have is on coproduction agreements. Now 

and then, China does import something from the United States, 

and what they do is they say, okay, you think you are getting jobs 

because we are buying these planes, but in order to buy your 

planes, you have to build a factory in China to build the fuselages 

not just for the planes that you are selling to China but the planes 

you are selling all over the world. 

Now, that is great if all you are concerned with is Wall Street 

profits because you move the fuselage factory to China, maybe you 

will make even more money, but you of course lose the jobs. And 

once this deal goes forward and China has another route to ship 

its goods into the United States, we will never be able to demand 

that we don’t have coproduction agreements. 

But, Mr. Hirsh, is there anything in this agreement that says 

that a Vietnamese airline or Malaysian airline can’t prefer one aircraft supplier over the other based on which one is willing to 

produce parts for its plane or to have manufacturing facilities in 

the buying country? Are coproduction agreements bad? 

Mr. HIRSH. Thank you, Congressman. That is a very specific 

question that I don’t have the answer right here. 

Mr. SHERMAN. Furnish it for the record, please. 

Mr. HIRSH. And we will look into that. Thanks. 

Mr. SHERMAN. Good. And I think I had asked another question 

prior to others that you might want to respond to. And do you have 

any other comments on any of the other parts of my diatribe that 

have been focused on you? 

Mr. HIRSH. Sir, only to say that we have a number of FTAs and 

that the enforcement of rules of origin is something which is an 

issue in every single FTA. We do have a track record there. And 

customs does look at these issues very seriously. 

Mr. SHERMAN. Okay. We here in Washington are cut off. Even 

I should probably be required to go and sit in the back of a Trump 

rally. If you think that our prior FTAs’ enforcement is what America wants, that we have been doing a great job, that there is no 

cheating under our existing rules, that everything is hunky-dory 

and the middle class is doing well in the United States, then you 

and I should sit in the back of a Trump rally together and see the 

anger. I won’t say that the focus of the solution for that anger, 

33

electing Mr. Trump as President, is the solution, but the anger is 

there and the anger is because for 30 years America hasn’t gotten 

a raise, especially those who do not have grad school degrees. 

So I have gone way over time. I thank the chairman for his indulgence and I yield back. 

Mr. SALMON. You have given Steve and I an opportunity to think 

about a present that we could give you, maybe one of those Trump 

Make America Great hats. 

Mr. SHERMAN. The greatest present that you could give to my 

party and the worst thing or one of the worst things you could do 

for my country is to nominate the Presidential candidate who has 

got the hat. 

Mr. SALMON. All right. And on that note, ba-dum-bum, Mr. 

Chabot. 

Mr. CHABOT. Thank you very much. Rather than discuss—never 

mind. I am just going to stay away from that altogether and go to 

something less controversial, and that is TPA and TPP. As one who 

also supported TPA and is inclined to support TPP or certainly was 

inclined and TTIP and other trade agreements, I have generally 

been considered a free-trader over my career, I was at a meeting 

this morning where a fairly prominent person indicated that in 

chapter 20 of TPP is language that in essence requires that TPP 

implementation of any environmental agreements that are agreed 

to in other forums, forums similar to the one that President Obama 

recently participated in in Paris. 

And a lot of ears perked up, including mine at that point, and 

I went and read the language myself, and it seemed relatively 

vague. I see that you could interpret it that way. I think you could 

perhaps interpret it a different way. But, Mr. Hirsh, on behalf of 

the administration, can you give us some clarification on that 

issue? 

Mr. HIRSH. I will have to defer to my colleagues back at USTR 

who are more familiar with the details of that particular issue, if 

that is okay. 

Mr. CHABOT. Okay. Yes, I would like to get that as quickly as 

we can and as much detail as we can and clarification because if 

that is the case, you know, that would give a lot of people some 

real heartburn. So I will yield back at this point. 

Mr. SALMON. Great and lively discussion. I really congratulate 

the two of you for sitting through this and being so patient and 

diligent in your answers and your testimony. We really appreciate 

it. So thank you very much. 

And this committee is now adjourned. 

[Whereupon, at 3:48 p.m., the subcommittee was adjourned.] 

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A P P E N D I X 

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MATERIAL SUBMITTED FOR THE RECORD BY THE HONORABLE BRAD SHERMAN, A

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PREPARED STATEMENT OF THE HONORABLE ALAN S. LOWENTHAL, A REPRESENTATIVE

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