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47–516—PDF 2007

S. HRG. 110–788

TRADE ENFORCEMENT FOR A

21ST-CENTURY ECONOMY

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JUNE 12, 2007

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 2

WITNESSES

Glickman, Dan, chairman and CEO, Motion Picture Association of America,

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

Hillman, Jennifer, distinguished fellow, Institute of International Economic

Law, Georgetown Law School, Washington, DC ............................................... 6

Lighthizer, Robert, international trade partner, Skadden, Arps, Meagher, and

Flom, Washington, DC ......................................................................................... 8

Autor, Erik, vice president and international trade counsel, National Retail

Federation, Washington, DC ............................................................................... 10

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Autor, Erik:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 35

Baucus, Hon. Max:

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

Bunning, Hon. Jim:

Prepared statement .......................................................................................... 43

Glickman, Dan:

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

Prepared statement .......................................................................................... 44

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 2

Hillman, Jennifer:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 49

Lighthizer, Robert:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 61

Response to a question from Senator Grassley .............................................. 76

Snowe, Hon. Olympia J.:

Prepared statement .......................................................................................... 78

(III)

(1)

TRADE ENFORCEMENT FOR A

21ST-CENTURY ECONOMY

TUESDAY, JUNE 12, 2007

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

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

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Rockefeller, Lincoln, Stabenow, Grassley,

Hatch, and Bunning.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

Nearly 2,500 years ago, the Greek playwright Sophocles wrote:

‘‘What you cannot enforce, do not command.’’ For millennia, people

have recognized the importance of enforcement.

When people think about trade, we often think about what nations command. We think about trade agreements. We think about

negotiators flying around the world, concluding deals. And those

deals are important to expanding America’s export opportunities.

But those deals do no good if we cannot enforce them. America

needs to get the full benefits of the bargains that it negotiates.

In other words, our export competitiveness depends, in large

part, on how good a job we do with enforcement. American exporters cannot compete successfully abroad if our trading partners do

not play by the rules of our trade agreements. Likewise, America’s

workers cannot compete successfully at home if our trade partners

export dumped or subsidized goods into our market.

That is why we must do all that we can to enforce our trade

agreements abroad and our trade remedy laws here at home. Unfortunately, we are falling behind on both counts.

First, with respect to trade agreements, the administration

spends far more time negotiating new deals than enforcing those

already in place.

The U.S. Trade Representative recently issued its report on foreign trade barriers in 2006. In it, USTR documented 650 pages

worth of trade barriers. But in 2006, USTR filed only three WTO

cases against those barriers. This year, it has filed only four. With

650 pages worth of barriers, it is hard to believe that only a handful merit action.

2

In 6 years, the previous administration filed 56 WTO cases. But

in its first 6 years, this administration filed only 17 cases. That is

fewer than a third as many.

These WTO cases have been very successful. The United States

has, in fact, won all but four of the WTO cases it has filed. But

we cannot win if the administration fails to bring the cases in the

first place.

And these cases have a real world impact. Studies have estimated, for example, that full enforcement of China’s commitments

will boost U.S. GDP by 0.7 percent by 2010. That is an $84-billion

boost to the U.S. economy.

I recognize that the USTR cannot prosecute every foreign trade

barrier. And I recognize that USTR resolves many barriers through

negotiations. But we can, and we must, do more to enforce our

trade agreements.

Second, we must also do more to enforce our antidumping, safeguard, and other domestic trade remedy laws. When Congress

granted Permanent Normal Trade Relations to China, we gave the

administration a special safeguard tool to address Chinese import

surges, known as ‘‘section 421.’’

But in every case where the International Trade Commission determined that relief was warranted, the President has denied relief. That is not what Congress intended.

What is the problem? How can we improve America’s enforcement record?

Are resources the problem? Congress has granted the tiny USTR

staff an enormous amount of responsibility. Does USTR have

enough people—and does it have the right people—to carry out

that responsibility? Does USTR need a dedicated, Senate-confirmed

enforcement official to lead its enforcement functions?

Are the tools themselves the problem? Should we revamp our existing enforcement tools, like section 421? Should we create new

ones?

Congress has repeatedly underscored the importance of trade enforcement. We need to back up our purpose with action. We must

provide the capacity and the tools that will allow the administration to respond to our concerns and rebuild trust in America’s trade

policy.

I look forward to hearing our witnesses’ ideas on how to best accomplished these tasks. Each witness has distinct expertise in

trade enforcement.

Today I have one simple request of our witnesses. Please limit

your oral testimony to 5 minutes because, as Sophocles wrote: ‘‘A

short saying oft contains much wisdom.’’ [Laughter.]

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Yes. Well, thank you, Mr. Chairman. When

you have hearings on trade, I really enjoy these, because the issue

of trade, although it is very difficult, is one of the most interesting

subjects to come before this committee.

Our trade remedy laws reflect a balance. When the United States

imposes additional duties on imports, U.S. producers of competing

3

products may benefit. But at the same time, those benefits do not

flow through to consumers, who will see higher prices.

The same goes for downstream users of products whose costs will

increase. While that is true of remedial duties such as antidumping

and countervailing duties, it is particularly true of safeguard duties. Those duties are available without regard to whether the subject imports are unfair. In other words, safeguard remedies can be

applied even if there is no allegation or demonstration of an unfair

trade practice.

That is why the standard of showing injury in those cases is particularly higher. That is also why it is important for the administration to weigh carefully the pros and cons of providing safeguard

relief.

When it comes to safeguards, we need to be sure that any action

taken is in the best interests of the country and not just an economic segment. My own view is that we have strong laws already

available. The Commerce Department and the International Trade

Commission take very seriously their obligations to enforce those

laws. So we should be mindful that, when it comes to remedial duties, trade remedies are only allowed when the U.S. industries either suffer or are threatened with material injury.

When the U.S. economy is strong, as it is now, it is probably

going to be more difficult to demonstrate material injury or a

threat. That would result in a decline in trade remedy cases, but

that is not a reason then to re-write our trade laws. I will be interested in hearing what our witnesses have to say on that.

I believe the administration has been very careful in enforcing

our rights at the World Trade Organization, maybe, some people

say, too careful. I particularly am glad that Ambassador Schwab

has brought new China cases on unfair subsidies and the inadequate protection of intellectual property. The administration has

brought some other significant cases, like our challenge to Airbus

subsidies.

To me, the claim that our administration is not pursuing cases

is unfounded, so I will be interested in hearing what witnesses

have to say about whether or not USTR is doing their job. And by

‘‘good case,’’ I mean a case that our industry is willing to support

and that USTR expects to win.

For example, the administration has been holding tough on negotiation over Russia—proceeding carefully to make sure that it’s

prepared to live up to obligations of membership.

Just a couple of days ago, President Putin described the World

Trade Organization as ‘‘archaic,’’ ‘‘undemocratic,’’ and ‘‘inflexible.’’

We might all have some concern about the WTO. For example,

I would share the concern that the WTO appellate body has gone

too far in some cases and created new obligations that the WTO

members never agreed to.

If a WTO agreement is silent on an issue, that means members

have not consented to follow any particular approach. In that case,

it is not the place of the WTO to impose one.

We need to consider any proposal to change our trade laws very

carefully.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator, very much.

4

Today’s panel begins with Secretary Dan Glickman, chairman

and CEO of the Motor Picture Association of America. Secretary

Glickman previously served as Agriculture Secretary in the Clinton

administration, and before that, in the Congress.

Following Secretary Glickman is Jennifer Hillman, a distinguished fellow at the Institute of International Economic Law at

the Georgetown Law School. Ms. Hillman served as Commissioner

on the International Trade Commission and as General Counsel at

USTR during the Clinton administration.

Our third witness is Mr. Bob Lighthizer, an international trade

partner at Skadden, Arps, Meagher, and Flom. Mr. Lighthizer formerly served as Deputy USTR in the Reagan administration.

Finally, we welcome Mr. Erik Autor, vice president and international trade counsel for the National Retail Federation. Mr.

Autor previously served as International Trade Counsel for the Finance Committee under the leadership of former Chairmen Bob

Packwood and Bill Roth.

Secretary Glickman, please proceed.

STATEMENT OF DAN GLICKMAN, CHAIRMAN AND CEO, MOTION PICTURE ASSOCIATION OF AMERICA, WASHINGTON,

DC

Mr. GLICKMAN. Thank you very much. Thank you, Senators Baucus, Grassley, Rockefeller, and Bunning. It is nice to be back in my

old home turf.

When I was at USDA, we brought a high-profile WTO case—

some of you may remember—involving beef hormones. This was a

big case, a high-intensity case, a lengthy WTO process, and the

WTO then approved the U.S. taking retaliatory steps to bring the

EU into compliance. We won.

‘‘Good,’’ I thought, ‘‘our exports will start flowing again.’’ Well, it

was not so simple. For the rest of my time in government, I and

many other government trade officials were occupied with attempting to enforce the WTO case.

I recall thinking to myself, if winning a labor trade enforcement

case like this causes so many problems, I wonder what it is like

to lose a case? I would just start by echoing your words, Senator

Baucus, that negotiations, agreement, and even favorable WTO decisions work only to the extent that they are enforced. Enforcement

is not simply winning a decision. It is making sure that other parties, other governments, comply.

That is the essence of my message today. Whatever we need to

do, realistically, to enforce the cases that we need to enforce, I

think that would complement a successful trade policy. This is especially important in the motion picture business.

About half of our revenues are earned outside the United States.

If you look at the major motion pictures out right now, from

‘‘Spiderman,’’ to ‘‘Pirates of the Caribbean,’’ to a myriad of others,

if you look at the domestic box office revenues and then you look

at international revenues, you will see that in many of those cases,

outside the United States is producing, in some cases, twice the

revenues, for some of the bigger movies, than they are inside the

United States.

5

If we look at revenues from theaters, home entertainment, DVD,

film entertainment, so on and so on, these numbers are actually

higher outside the United States than they are here as well.

My predecessor used to say this, and I think it is very important,

that by and large, most years the U.S. film and entertainment industry has a positive balance of payment surplus in every single

country in the world that we go to. Every single country.

So as you can tell, this is like life or death to us, to be able to

move our product outside the United States. We have made great

strides. I must say, the USTR has been extremely helpful to us.

But we still need to do more to get the right kind of laws and regulations in place, and particularly to protect intellectual creativity,

intellectual property in our industry.

If I may offer just five major points. My entire statement will

have all of these in greater detail.

Number one: generally speaking, we support a free and open

trade agenda. In general, free trade agreements hold countries to

a higher IPR standard than the Trade-Related Aspects of Intellectual Property Rights (TRIPS) language in the WTO.

So the free trade agreements are generally good for us because,

by and large, they have better IPR language than the underlying

statute, but inside the FTA, in the upbringing of other countries’

laws and their enforcement of those particular laws, meet a higher

priority.

We acknowledge that the FTAs are somewhat controversial in

some quarters due to labor and environmental provisions, but they

are very important for us, in the general proposition, given the

market for U.S. film and television worldwide.

Number two: stressing the importance of ensuring that the government has sufficient resources for an overseas training program.

State and the Commerce Department fund a variety of training

and education programs, many of which focus exclusively on IPR.

I myself have talked about and given speeches on intellectual

property enforcement to judges and administrative law folks

around the world. Training foreign judicial officers, administrators,

even lawmakers is critical to ensuring effective implementation

and enforcement of trade obligations that these countries make.

Many of these countries have no infrastructure or method for enforcing these particular things, and we can help them there. We

would also like to see these training programs focus on the countries identified as priorities in the Special 301 process. So that is

point number two.

Point number three: the importance of ensuring that USTR and

other trade agencies have sufficient resources. While I believe

USTR is doing a very good job, they desperately need your resources, particularly in the enforcement area, to advocate, enforce,

and advance U.S. trade agreements.

In my view, this is even more important than structural organization or statutory changes. I don’t rule those out, but giving these

folks the enforcement authority and the clout that they need is particularly important.

Contrary to popular views, USTR, as well as other trade officials,

spend as much, if not more, time working to enforce trade agreeVerDate 11-MAY-2000 14:49 Apr 07, 2009 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 47516.000 SFIN1 PsN: SFIN1
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ments as they do negotiating new ones, but they do need more

agreements.

Point number four has to do with the Special 301 countries, like

Russia, China, and India——

The CHAIRMAN. Do not have too many more points.

Secretary GLICKMAN. All right. Just real quick, two more points.

The CHAIRMAN. All right. Very quick ones.

Secretary GLICKMAN. All right.

Anyway, we believe that the Special 301 process is a key IPR enforcement mechanism and it will lead to positive incentives, such

as benefits. Foreign governments would have more reason to abide

by their trade agreements.

We recommend that Congress adopt a change to the GSP program to require beneficiaries to adopt IPR action plans where the

Special 301 process identifies countries as IPR enforcement priorities.

The final point is just congressional oversight. Nothing gets our

trade agenda moving better than a clear and concise look at it.

Thank you very much.

The CHAIRMAN. Thank you, Mr. Glickman, very much.

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

The CHAIRMAN. Ms. Hillman?

STATEMENT OF JENNIFER HILLMAN, DISTINGUISHED FELLOW, INSTITUTE OF INTERNATIONAL ECONOMIC LAW,

GEORGETOWN LAW SCHOOL, WASHINGTON, DC

Ms. HILLMAN. Thank you. It is an honor to appear here before

you. I do so this morning in my personal capacity, so the views I

express are my own and not necessarily those of either the U.S.

International Trade Commission, where I served as a commissioner

for the past 8 years, or those of the Office of the U.S. Trade Representative, where I served as General Counsel and Chief Textile

Negotiator.

In my view, an effective trading enforcement regime is one that

ensures both market access for our exports and efficient relief from

unfairly traded imports. The fact that we are running larger and

larger trade deficits with the vast majority of our trading partners

and that USTR’s annual ‘‘Report on Foreign Trade Barriers’’ continues to highlight numerous obstacles to U.S. exports of goods and

services, suggest that we should be making maximum use of our

trade enforcement tools.

These tools include primarily the WTO dispute settlement system, as well as that of our free trade agreements, section 301, and

Special 301 for enforcement of intellectual property rights. Yet, if

we look at what has happened since 2000, as Senator Baucus noted

in his opening statement, we see a significant drop in the number

of actions taken by the United States.

During the first 6 years after the establishment of the binding

dispute settlement mechanism in the WTO, the period from 1995

to 2000, the U.S. initiated 60 WTO cases covering a wide variety

of products and an equally wide variety of legal rights. That meant

an average of 10 cases per year. However, during the subsequent

7

6 years, the most recent period of 2001 to 2006, the U.S. has initiated only 18 cases, for an average of just three cases per year.

If we look at section 301 actions since the statute was enacted

in 1974, there have been 121 cases brought to date. However, since

March of 2001, no new section 301 investigations have been initiated, and all five of the petitions that have been filed during this

period were rejected by the USTR.

Similarly, while USTR continues to maintain a priority watch

list, and a watch list under Special 301 for countries that do not

adequately enforce their intellectual property commitments, and to

negotiate with those countries on those two lists, since March of

2001, when Ukraine was designated a priority foreign country and

a related section 301 action was filed, USTR has not designated a

single new country as a priority foreign country.

If we turn to the import side of the equation, there are an increasing number of bumps in the road to having a smooth, efficient,

and effective trade remedy system in place.

First is section 421, which is the special safeguard provision enacted in 2000 to combat any surges in imports from China. The law

was set up to provide fast relief, in that the ITC has only 60 days

to make a determination, and was designed with a lower threshold

of injury, a material disruption standard. Yet, in the more than 6

years since 421 was enacted, and despite the huge increase in imports from China, only six cases have been filed.

In four of them, the ITC reached an affirmative determination

and recommended that the President impose tariffs or quotas on

the imports from China, but in all four of those cases the President

decided to provide no relief.

In each case, the President gave two primary reasons for his decision. Because those two reasons are likely to apply in every case

that might be filed, it is hard to see why an industry will find it

worthwhile to file any new section 421 petitions.

The second bump in the road arises from recent court and WTO

decisions that have a major impact on antidumping and countervailing duty determinations. In a major decision handed down a

year ago, the Federal Circuit held that the ITC cannot reach an affirmative determination unless it can show that imports from other

countries that are not the subject of the investigation will not come

in and take the place of the imports that were the subject.

The ITC was so troubled by the extra-statutory test called for by

this decision that, for the first time in its history, it recommended

that the Solicitor General seek Supreme Court review of this decision, but no such review was sought.

Already, at least one ITC decision has been handed down in

which the majority opinion stated that the application of the law

as written by the Congress would result in an affirmative determination, but because of the new tests laid down by the Federal

Circuit, the decision was a negative one.

Similarly, the U.S. has lost a number of WTO cases related to

its use of the so-called ‘‘zeroing’’ methodology in calculating antidumping duties.

Finally, some caution should be noted on whether cases involving

agricultural goods can be made to fit into a trade remedy system

that was fundamentally designed for manufactured goods.

8

One WTO case called into question whether the U.S. can include

farmers and growers in cases involving processed agricultural products. Other cases highlight the difficulty of demonstrating the causal link between particular imports and changes in U.S. prices due

to trading on a number of mercantile exchanges and the existence

of futures markets for many of these goods. Assuming that farmers

can rely on trade remedies to work effectively for them if they are

injured by imports may not be a safe bet.

Our trade enforcement regimes have not been substantially

changed since the Uruguay Round Agreement Act in 1994. Since

then, numerous court cases and WTO rulings, shifts in trade patterns, the growth of trade in services, and the need for better enforcement of intellectual property rights have all placed constraints

and pressures on the trade enforcement system.

A sound trade enforcement regime for the 21st century must adjust for these changes, while ensuring that we fully utilize the tools

that we already have available to us.

Thank you.

The CHAIRMAN. Thank you, Ms. Hillman. That was very interesting. Thank you very much.

[The prepared statement of Ms. Hillman appears in the appendix.]

The CHAIRMAN. Mr. Lighthizer?

STATEMENT OF ROBERT LIGHTHIZER, INTERNATIONAL

TRADE PARTNER, SKADDEN, ARPS, MEAGHER, AND FLOM,

WASHINGTON, DC

Mr. LIGHTHIZER. Mr. Chairman and members of the committee,

good morning.

We are in the midst of a truly unprecedented crisis in our manufacturing sector. We are witnessing trade deficits that would literally have been unimaginable only a few years ago.

China and several other trading partners act in a blatantly mercantilist manner, pursuing policies designed to capture and dominate manufacturing sectors and the jobs that go with them. Every

day, we see new evidence of factories and entire industries picking

up and moving overseas.

The loss of American manufacturing is not due to some lack of

competitiveness or comparative disadvantage, but all too often results from the rules of the game that are stacked against our producers and our workers that range from manipulation of foreign

currency, to subsidies, to protected home markets, to unfair tax

rules, and a range of other distortions with no legal or economic

justification.

In many ways, the only practical and meaningful lines of defense

for American manufacturing are the trade remedy laws, including

the antidumping and anti-subsidy laws. Unfortunately, these provisions are under attack as never before.

First, over-reaching WTO dispute settlement decisions have invented wholly new requirements for applying our laws. Second, in

international negotiations, foreign countries are pushing scores of

detailed proposals with one goal in mind, namely to gut our fair

trade laws. Third, to be perfectly frank, we have seen uneven enforcement here at home, something that has given comfort and enVerDate 11-MAY-2000 14:49 Apr 07, 2009 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 47516.000 SFIN1 PsN: SFIN1
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couragement to foreign countries that engage in market-distorting

practices.

Time is growing short to turn the tide and regain a future for

American manufacturing. There will need to be a wide-ranging effort, but several steps are of immediate and obvious importance. A

first priority must be to deal with judicial activism and over-reaching at the WTO.

Whatever Congress may do to strengthen enforcement of our

laws will be of no effect if such measures can be undermined by

baseless WTO litigation. At a minimum, Congress should set up an

expert body to advise it on WTO dispute settlement decisions adversely affecting the United States.

This idea has been endorsed over the years by a broad range of

policy makers, going back to the very creation of the WTO, including my old boss, Senator Dole, President Clinton, Senator Baucus,

Senator Grassley, Senator Rockefeller, and several other members

of this committee. Its time has come.

Next, we must get serious about China. We, of course, need to

apply our anti-subsidy laws to the biggest subsidizer in the world,

but we need to do it in the right way. That means continuing to

treat China as a non-market economy and ensuring that our antidumping methodology is not weakened.

We need to stop talking about currency manipulation and start

acting to address it. If anyone is still laboring under the impression

that a policy of endless dialogue will lead to anything but unemployment in the United States, they need to reassess the situation.

Finally, we need rigorous enforcement of our antidumping/countervailing duties (AD/CVD) laws. Foreign unfair traders are relentless in attacking these laws because they understand what some

policymakers seem to forget, namely that these laws work and

have a vitally important effect when we are willing to use them.

A true policy of enforcement means resisting groundless WTO decisions, such as the recent line of so-called ‘‘zeroing’’ cases, which

have been ridiculed by observers across the spectrum. It means

that Congress must actively oversee our trade negotiations to ensure that our laws are not given away as part of the Doha Round,

or any other negotiations.

At the end of the day, businesses will go where the rules favor

them. If that means manufacturing overseas and shipping back to

the U.S., then that is exactly what they will do. I hope that the

committee will make sure that the rules do not reward such behavior.

This is a task that is crucial and urgent if we are to keep our

manufacturing base and the millions of good, middle-class jobs that

have sustained this country throughout its history.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. Lighthizer, very much.

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

The CHAIRMAN. Mr. Autor?

10

STATEMENT OF ERIK AUTOR, VICE PRESIDENT AND INTERNATIONAL TRADE COUNSEL, NATIONAL RETAIL FEDERATION, WASHINGTON, DC

Mr. AUTOR. Thank you, and good morning.

By way of introduction, the National Retail Federation is the

world’s largest retail trade association, representing an industry

with more than 24 million employees, about 1 in 5 American workers, that had 2006 sales of $4.7 trillion.

International trade issues fundamentally impact the ability of

U.S. retailers to run their businesses in an industry marked by cutthroat competition and a 2-percent profit margin.

Every American retailer, from the biggest to the smallest,

sources consumer products from around the world to provide their

customers, the American consumer, what they want: the widest selection of merchandise at the best value.

These commercial activities support millions of good-paying,

blue- and white-collar jobs, both in the retail industry and in industries that support retail operations: manufacturing, farming, transportation, and logistics, to name a few.

I, first, want to underscore that American retailers fully support

actions by the U.S. Government to ensure that our trading partners abide by their commitments under international trade agreements and rules, for example, through the use of dispute settlement mechanisms at the World Trade Organization.

Retailers have also experienced problems on this front, such as

piracy of retail brands and trade barriers that violate international

trade rules as more U.S. retailers serve customers in foreign markets.

We do, however, have concerns about over-zealous and inappropriate actions, mainly involving the U.S. trade remedies laws: antidumping, countervailing duty and safeguards measures.

These laws have their place in the rules-based trading system,

however, some domestic industries exploit anxiety over trade and

globalization to push for protectionist measures and legislation to

limit foreign competition and pad their own profit margin at the

expense of U.S. consumers.

Calling for stronger laws and more vigorous enforcement against

what they erroneously claim is illegal and predatory trade, they

manipulate widespread understanding about what the trade remedies laws are and what they are intended to do to make it easier

to obtain import protection. As an extremely trade-dependent industry, retailers are very vulnerable in the face of such histrionics.

Based on our experience from an increasing number of trade

cases against consumer products, we firmly believe that there is no

need to strengthen current trade remedies laws to make it easier

for petitioning industries to obtain relief.

The fact is that U.S. trade remedies laws are already vigorously—even zealously—enforced. Most antidumping and CVD cases

end up in affirmative determinations, and any disputed or unclear

issues are almost always decided in favor of the petitioner.

In the apparel trade, backdoor political deals have created arbitrary safeguard measures that violate basic principles of U.S. administrative law and possible government self-initiation of antiVerDate 11-MAY-2000 14:49 Apr 07, 2009 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 47516.000 SFIN1 PsN: SFIN1
11

dumping actions designed to circumvent the injury and standing

requirements of U.S. law.

Meanwhile, the trade remedies rules are already heavily stacked

against U.S. retailers and other importing and consuming industries in manufacturing and agriculture who are forced to defend

their interests with one hand tied behind their backs.

For example, unless they are an importer of record, they are not

considered interested parties for purposes of standing to participate

fully in investigations, even though they pay the bill for the import

taxes imposed in these cases.

Therefore, many U.S. industries and companies look with alarm

at some recent legislation purporting to strengthen U.S. trade remedies laws, some of which would allow petitioners to abuse and

game the system to attack legitimate trade, undermine U.S. competitiveness, and violate WTO rules.

We live in a more trade-dependent, interconnected economy than

when most of the current trade remedies rules were first written.

To be competitive in this world, all U.S. industries now have global

supply chains, importing from their foreign suppliers and exporting

to their foreign customers.

In this world, trade cases brought against imports into the

United States have increased costs and often undermine the ability

of U.S. retailers, farmers, and manufacturers to compete globally.

Also, these cases are no longer a struggle solely between foreign

and domestic manufacturers. Rather, they increasingly pit U.S. industries against each other, as we have seen in the recent case of

the steel and automobile industries. When the importer is a manufacturer, losing this fight can force it to close its U.S. operations

and move offshore.

U.S. industries also see increasing risk to their businesses from

trade remedies imposed by foreign countries. The problem is so serious, that U.S. exporters are now the number-three target for antidumping cases in the world, after China and Korea.

We need to ask ourselves a basic question: is our trade remedies

regime compatible with where our economy will be in 10 years? It

is not in our national interest to create a trade remedy system

that, posing as a quasi-judicial proceeding, becomes an arbitrary,

results-driven, and politically influenced means to provide a few favored industries automatic relief from import competition.

Such a protectionist system undermines U.S. competitiveness,

hurts millions of American consumers, and is incompatible with

where our country needs to be in the 21st-century global economy.

To support a modern, globally competitive U.S. economy, we need

trade remedy rules that are balanced and fair, inclusive of the participation of all affected parties, and compatible with commercial

practices. These objectives would not weaken trade remedies rules,

they would improve them.

Thank you.

The CHAIRMAN. Thank you, Mr. Autor, very much.

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

The CHAIRMAN. I have some concerns about the implementation

of section 421, given the ITC’s recommendations and the refusal of

the administration to pay any attention to the ITC. I may not have

12

time to get to that. If I do not this round, I will get to it in the

next round. I know Senator Rockefeller is quite interested as well.

I would just like to ask each of the four of you, what three new

changes should we make in our enforcement regime? Whether it is

to increase our exports to other countries, to knock down foreign

trade barriers, or better enforce our local trade remedy law.

I am spending a little time asking the question to give you a little time to think about it. But if each of you could give me the

three major changes we should make in our enforcement regime to

enforce the trade laws and help American companies and employees, what would those three be?

Whoever wants to answer that question first, just speak up, then

I will go down to the other ones. Does anyone want to jump into

it? Mr. Lighthizer?

Mr. LIGHTHIZER. Mr. Chairman, I am happy to answer that. I

would say three things. I would say, first of all, we need to pass

a WTO review commission. It is something that I think, if it had

been passed when you first introduced it, when Senator Grassley

went to the floor of the U.S. Senate in June of 1996 and tried to

get it passed, if that had been passed I believe there would be a

lot of Americans working right now in manufacturing jobs.

If I could just drop a footnote down on that to show you how important this provision is. When Senator Grassley went there, it was

about 2 weeks after Senator Dole resigned from the Senate.

The person who stopped it was Senator Hollings, who, when he

introduced his last trade bill, included this provision in it. That is

how important this provision is and how universally I think it is

accepted. We have to put that in place and we have to stop implementing absolutely patently wrong WTO decisions, like zeroing.

Number two, we need to have CVD for non-market economies. It

is crazy to me that the biggest subsidizer in the world is actually

treated better than other countries in the world when it comes to

this.

We need to do something about currency. This is all under my

number two for strengthening trade enforcement. We need to, I

think, have subsidies for currency manipulation, and I think we

have to do something about this value added tax.

Finally, I think we need more funding, not just for USTR, but

for the Department of Commerce. The Import Administration (IA),

which actually works on these cases, has seen their budget reduced

by almost 20 percent in the last 3 years. It has been a major problem for those of us who litigate before them. So, those are the three

things.

The CHAIRMAN. All right. Good. Thank you very much.

Mr. Glickman? And briefly, because my time is expiring.

Mr. GLICKMAN. More resources and dedicated staff at USTR, and

a trade enforcement leadership, perhaps, dedicated to advise the

President or at a much higher level in the trade agencies. That

would be useful.

The other things relate to our particular industry. Again, we are

substantially an export industry and we have market access barriers to U.S. motion pictures around the world, so we would like

to see that attention heightened because, as I said, this is one business that has a positive balance of payments surplus with the U.S.

13

Then the final thing is cooperation, working with foreign governments on Internet piracy, which is the real dagger at the heart of

protecting our products.

The CHAIRMAN. Ms. Hillman? Thank you. Ms. Hillman?

Ms. HILLMAN. I would start on the export side, because I think

we do need to do a lot more work aggressively in terms of getting

market access. We have good tools, but they have not been used

enough.

We must sort out a way to get both the resources and the political pressure so that the cases are not turned down, and that we

actually use 301 to go after the biggest markets that still have the

largest number of barriers to our imports. That means starting

with China. But we have to use the tools that we have. We cannot

simply say ‘‘no’’ to every 301 petition that is filed and not initiate

cases on our own and expect those markets to open.

Second, I think we do need to fix the import issues raised by

these WTO and court cases so that, on our side of the equation, the

dumping and the countervailing duty laws continue to work.

Thirdly, we need to do something about safeguards. We have lost

every WTO safeguards case that has been brought, and so has

every other country in the world. The WTO has yet to find a safeguard measure that it finds acceptable. We need to do something

if that tool is going to be out there, and I think we also need to

fix the 421 safeguard problem.

The CHAIRMAN. Thank you.

Mr. Autor?

Mr. AUTOR. Well, I think that we should be using WTO dispute

settlement in appropriate cases. I think that Senator Grassley

made the point that we need to ensure that these are appropriate

cases and ones where we expect that we have a good case and are

not going to end up losing.

I would like to make a note of caution, though, that when we

look at the trade remedies regime and possible changes to it, that

what is sauce for the goose is sauce for the gander. Other countries

look at what the United States does and copies it to hit U.S. exports, so we have to make sure that anything we do is consistent

with WTO rules.

With respect to applying countervailing duties for non-market

economy countries, we need to bear in mind that the way the methodology works in antidumping cases against China and other NME

countries, it effectively offsets any benefit from subsidies that the

Chinese companies would be getting because they are using costs

from a surrogate country.

We need to make sure that if there are concurrent countervailing

duty cases and antidumping cases against the same product, that

it does not involve double counting.

The CHAIRMAN. My time has expired.

One brief question. How do we properly influence the WTO that

makes, clearly, wrong decisions? Zeroing, for example. How do you

get the WTO to be fair, not make new law, to be an arbiter, but

not be a legislator? How do we do that?

Mr. AUTOR. Well, I am not convinced that the WTO——

The CHAIRMAN. I am going to ask Mr. Lighthizer, because he

cares about this.

14

Mr. LIGHTHIZER. Well, if you asked me, I would say, number one,

I would have a commission so that you objectively know, from

former judges or something, that this, in fact, is a mistake. Everybody that loses always thinks every decision is a mistake.

The CHAIRMAN. All right.

Mr. LIGHTHIZER. Once you have arrived at that conclusion, number one, I would not implement, and number two, I would begin to

negotiate. Number three, if I had to, I would act unilaterally. I

think if you are actually convinced, over a period of time, that a

lot of WTO cases are wrong, you basically have to change the system. That is my belief.

The CHAIRMAN. Thank you very much.

Senator Grassley?

Senator GRASSLEY. Yes. Erik, I want to ask you to elaborate, because you expressed some concern in your statement about the possibility of countervailing duty law being applied to non-market

economy countries in a way that would lead to double relief for the

same industry, and ways that you would address that issue.

Mr. AUTOR. Well, this was considered by the House of Representatives last Congress. The House passed a bill that would apply

countervailing duty law to China and other non-market economy

countries, but in a way that would prevent basically double counting the benefit from the subsidies if there is a concurrent countervailing duty case and an antidumping case.

The antidumping methodology on a non-market economy country, the way it works, it essentially offsets the benefit that a Chinese company, for example, would be receiving from a subsidy it

would get.

I can give you a simple example, if you wish. If, for a Chinese

company, it costs $15 to make a widget which they are selling in

the U.S. for $10, there is a dumping margin. That Chinese company is getting a $5 subsidy from its government, which reduces

its cost down to $10, what it is selling in the United States.

In an antidumping case, the Commerce Department would ignore

the Chinese company’s costs, would look at a surrogate country like

India, and determine what the cost of production of that widget is

in India.

Let us assume that it is $20 to make that widget, so you are comparing the $20 cost of production with the $10 price in the

United States, and you have ignored the entire benefit from the

subsidy that the Chinese company is receiving and that essentially

offsets that benefit.

Now, if a countervailing duty case were to be filed against Chinese widgets and would apply a countervailing duty on top of that

antidumping duty, the concern is, you have essentially offset the

benefit from that subsidy twice.

I think WTO rules are fairly clear, that you only get one remedy

for an injury. So we want to make sure we do not have a problem

with applying the countervailing duty law to China and other nonmarket economy countries. We want to make sure that it is done

in a way that is consistent with WTO rules.

Senator GRASSLEY. Yes.

Mr. LIGHTHIZER. Senator, can I just speak to that for a second?

Because as a practitioner on the other side, we totally disagree

15

with that analysis. I agree that that provision was in the House

bill; hopefully it will not be in it again.

The fact is, the non-market economy methodology is a substitute

for being able to find reliable costs in a non-market economy. So

what we do is, we take a surrogate country and we say we are

going to use their costs instead of whatever the costs are—in

China, for example—because those are unreliable and manipulable.

This surrogate cost could be higher or lower.

They are not always lower, they could be higher or lower. It has

nothing to do with whether or not, wholly unrelated to that problem, there are subsidies in that system. There is no double counting. That is just a misunderstanding of what is happening in those

economies. So, I totally disagree with that. I hope we get a chance

to talk to staff about this. I realize this is very technical, but please

believe me, there is no double counting.

Senator GRASSLEY. All right.

Erik, we have heard some concerns about the President’s decision to deny relief in section 421 cases. Does the President have too

much discretion in deciding whether to provide such relief?

Mr. AUTOR. Well, like in other safeguards measures, the President has the authority to consider the broader economic interests

and weigh those in the balance. I do not see that it makes any

sense to apply a safeguards remedy if the conclusion is that the potential damage to the U.S. economy is going to outweigh any benefit that might be gained by applying it. So, I think it is appropriate to keep that discretion in the hands of the President.

Now, there may be some disagreement whether the justification

that the President gave in not offering relief in those cases was appropriate or not, but I would be very concerned about essentially

taking away the President’s discretion to weigh the economic interests in whether or not to apply those cases.

We have to remember that these are not products that are alleged to be unfairly traded, so it is appropriate that some higher

standard be applied before that trigger is pulled.

Senator GRASSLEY. Dan, in your testimony you talked about the

success that we have had when we posted Commerce Department

intellectual property experts at our overseas embassies. You also

mentioned the possibility of expanding the program to more posts.

What countries would you expand that program to?

Mr. GLICKMAN. We are already doing some of that in China, but

I would take the priority watchlist examples: Russia, China, India,

Thailand, Chile, Argentina, and Ukraine. I would look at each one

of those countries. I am not sure exactly how much we have in any

of them, but they are extremely helpful.

What we find, our folks on the ground find that there is actually,

as opposed to, in many cases, a negative attitude about U.S. product compliance, intellectual property, market access, it is just an

undeveloped atmosphere.

In many respects they are very primitive and they need our help

and assistance. And it does work. It is not magic, but it is helpful.

So, I would look at all the priority watchlist countries, particularly.

Senator GRASSLEY. Thank you.

The CHAIRMAN. Thank you, Senator, very much.

Senator Rockefeller?

16

Senator ROCKEFELLER. Thank you, Mr. Chairman.

When we and other members of the WTO brought China into the

global trading system, it was a deal. It was a deal, it was not just

a nice thing to do. It was a contract, exactly in the same manner

as contracts apply between private businesses and individuals—you

will not accept that [to Mr. Autor]; I think the rest of you might—

and having enforcement obligations for all parties involved as a result of that, as contracts must.

Now, the 421. I would just make this point. There is not a chance

in the world that Congress would have passed PNTR, Mr. Autor;

there is not a chance in the world that we would have passed WTO

accession had 421 not been a part of that arrangement. So this is

not just something—I mean, in my bill we say the President exclusively, with respect to China, does not have the ability to ignore

what the ITC recommends.

All right. So China is huge, it is growing. It has 421 that is supposed to provide a remedy, but no action has been taken on it for

the first 5 years of this administration. It appears to me then that

421 is, essentially, meaningless in a country with which we have

active and losing trade relations.

So, Ms. Hillman, a quick question for you, then Mr. Lighthizer.

I am interested in your take on this, because you were a member

of the ITC that recommended these remedies to the President,

which he then neglected to provide. What is the purpose of even

having section 421 if it is not going to be used?

Mr. Lighthizer, I would ask you, you represent the steel industry,

I am told. So could you share your perspective on what it means

to an industry when 421 remedies are ignored?

Ms. HILLMAN. First, on what has happened on 421. There were

six cases filed. In the four that went affirmative, the ITC made

very clear recommendations to the President. And if you look at

what the President then said in denying any relief, he basically

said two things in each of the cases.

First, he said that he was not going to grant relief because imports might come in from somewhere outside of China, other than

China, and that therefore the domestic industry would not necessarily benefit. Instead, imports from somewhere else would benefit. His second reason was that consumers of the products, the

users of these products, will not like the additional tariffs or duties.

My point would be, that is true in all cases. There are virtually

no products that are made only in China. So if what your criteria

is going to be is that there cannot be any imports from anywhere

else that could come in and take the place of China, what you are

really saying is you are never going to impose a remedy.

Similarly, users are never going to like it when duties are imposed or quotas are imposed, so that is always going to be the case.

So what the President has effectively said in making this determination, in my judgment, is that we are not going to ever impose

a 421 remedy.

So, unless and until you take away some of that discretion, I do

not see how an industry is going to think that there is a good

chance that they can win. The process was set up to be cheap, easy,

and fast for the petitioners. They do not have to file a whole lot

in terms of data. The timing is very short on the ITC end.

17

The standard of proof is one of, in essence, material injury, not

the serious injury standard that applies in a regular 201 case. So

it was intended by the Congress, as I think the ITC read it, to be

a very fast and efficient process that resulted in a quick and tailored remedy whenever there was a significant surge in imports

from China.

Senator ROCKEFELLER. Thank you.

Mr. Lighthizer?

Mr. LIGHTHIZER. Yes. Senator, I did learn, over the last few

years, that the President should not have this discretion. I think

administrations—and this is not an attack on this administration,

obviously.

But I think every President in every administration has pressures on him for all kinds of foreign policy reasons that are unrelated to the person who is actually suffering. The President should

not have that discretion. I do not buy the basic idea that the Congress is somehow less capable of making these decisions or more

political.

Finally, I would just say that article 1, section 8 of the U.S. constitution says that you people are responsible for this, not the

President. This is a trade-with-foreign-nations question and I think

you are in at least as good a position as anyone else to say, if this

set of facts happens, people who are victims should get relief.

Senator ROCKEFELLER. Thank you.

The CHAIRMAN. Thank you, Senator, very much.

Senator Bunning?

Senator BUNNING. Mr. Lighthizer, as the former Chief of Staff of

this committee and Deputy U.S. Trade Representative in the

Reagan administration, you have a strong background and credentials in trade policy.

Why do you believe the legislation I have sponsored with Senator

Stabenow to treat currency manipulation by China and other countries as a subsidy is sound and sensible, as you say, and consistent

with WTO rules?

Mr. LIGHTHIZER. Well, I think, first of all that, in any WTO analysis, the first question is whether or not there is a benefit. I think

everyone who has looked at that will say, yes, currency manipulation does confer a benefit. The question then becomes whether or

not there is a financial contribution. I believe that is also clear.

Then the final issue is whether or not this is an export subsidy

or is export-contingent, and I think the way this system of currency

manipulation in China is set up, that it is export contingent. So,

I believe it meets all the requirements.

I also think that if there was only one thing that you could ever

do to reduce this trade deficit, this would be the most important

thing. It not only helps on the import side, which gives people in

our home States a fair shake at sales in their hometown, but it also

helps them export.

People tend to forget that currency manipulation helps on both

sides: it makes it harder to sell in China and it makes it easier for

China to sell here. So, it helps at both ends. I think it is an extremely important piece of legislation. I do believe that it is WTOconsistent.

18

If you asked me the question, which you did not, whether or not

I was confident that a WTO appellate body would rule this way,

I would say, for all the reasons I have stated before, I do not have

confidence. The United States has had 40 percent of all the cases

brought against anybody brought against us, and we have lost 40

out of 47 of them. So, I am never confident about that.

But if you say, if I were the staff director of the Senate Finance

Committee, would I advise the members of the committee that this

was something that was, in good conscience, consistent with the

WTO, I believe I would give that advice.

Senator BUNNING. One more question. As you point out in your

written testimony, we are the only major economy with a large current account deficit. Why have our trade agreements not led to improvement in the current account deficit? Does it matter?

Mr. LIGHTHIZER. I think our current account deficit is abysmal.

I am not an economist, so I will not get involved in economics. But

I think it is important for every member to look at that Figure 2

in my written testimony. Basically what it says is that there is only

one country in the world that has a huge current account deficit.

Some believe that numerous countries have deficits. But that is not

the truth.

Everybody’s surplus is driven by the United States’ deficit. I am

not an economist. I think it does matter. I think economists, more

and more, come to the conclusion that it is a huge drag on GDP

growth, as well as having a kind of unfair effect on people who engaged in the industries that are, in fact, prey.

Senator BUNNING. Ms. Hillman or Mr. Lighthizer, as you know,

a ruling by the Department of Commerce recently found that China

has been heavily subsidizing its coated paper industry. Commerce

has provisionally allowed an 18-percent tariff on imports of Chinese

coated paper.

In reaction, China doubled the subsidy by allowing a targeted

value added tax rebate for coated paper. In another case, China

has put in place a targeted export tax rebate for steel pipe products.

What would you say to that?

Ms. HILLMAN. First, on the coated, free sheet paper, you are absolutely correct. This is the first time since the 1980s that the

Commerce Department has gone against the precedent established

way back in the Czechoslovakia and Poland wire rod cases, that

yes, in fact, countervailing duty laws can be applied in a country

that is deemed a non-market economy.

So, it is very precedent-setting that we have gone down this road

and said that our laws permit us to bring a countervailing duty

case against a non-market economy country. The problem is going

to be, how are we going to measure that subsidy, particularly if

China does what it has done. Presumably we will continue as we

do——

Senator BUNNING. By double subsidizing.

Ms. HILLMAN. Exactly. We will have to keep assessing, as we do

after the fact, the level of the subsidy provided to each company.

In an annual review, we are going to have to re-calculate the subsidy amounts because they are going to change if China is going

to do this.

19

Senator BUNNING. The same goes for the steel?

Ms. HILLMAN. I do not know that the Commerce Department has

yet decided whether or not to go forward with that case. The Commerce Department has issued its preliminary determination for

coated, free sheet paper, saying, yes, it is applying countervailing

duties to that industry. They are now in the course of calculating

those amounts, which will have to take into account these kinds of

programs.

The CHAIRMAN. Thank you very much, Senator.

Senator BUNNING. Thank you.

The CHAIRMAN. Thank you.

Senator Stabenow?

Senator STABENOW. Thank you very much, Mr. Chairman, for

this very interesting panel. To each of you, welcome.

Just to follow up with Senator Bunning’s comments. I would say,

Mr. Lighthizer, when you were speaking about what is happening

in manufacturing in this country, I live it every day in Michigan.

It is very, very real when you see the faces of workers, families,

and businesses that want to be American businesses, people want

to work here, what is happening.

I appreciate your comments on the issue of whether or not currency manipulation is a subsidy. We know, in the case of automobiles in Japan—we mostly think of China, but Japan is doing

something similar—it is anywhere from a $2,000 to an $8,000 discount on a vehicle, and then if you add the $1,500 our auto makers

pay per car for health care that the other folks are not paying, and

on, and on, and on, you can see why, even though we are extremely

efficient and competitive, it is very tough to compete with that. So,

I appreciate your comments.

We had a manufacturing summit, a caucus of about 70 manufacturing leaders, who came in last week and talked to us about level

playing fields, what we can do to compete in a global economy, and

trade was at the top. Trade and health care, which are both very

much a part and connected.

One of the things that struck me is, they talked about the fact

that it is companies competing with countries, not competing with

companies. They are competing with countries that set up requirements in order to do business there, or they will not partner with

you, the country does, or they provide these other kinds of subsidies and so on.

So I hope we are going to come to an understanding of what we

are dealing with in this new global economy and what it is going

to take for us to compete and keep jobs here.

I have many questions, but I would ask one about nontariff barriers. We have talked a lot about a number of things, currency manipulation and so on. But right now we have an agreement with

South Korea that is going to come before us, and we have had,

since 1992, two different agreements with them on autos, neither

of which they have complied with as it relates to market access.

Now we are in a situation where, when we close one loophole,

they add another. Now it is insurance premiums. If you are a foreign vehicle, you pay a higher rate, the owner does, than if you buy

a South Korean car, and so on.

20

I wonder if any of you could speak to the questions around nontariff barriers and what we need to be doing with other countries

as they put up new things that continually create barriers. Last

year, about 700,000 vehicles were sold from South Korea to the

U.S.; we were able to sell about 5,000 to them. Part of that relates

to these less-transparent nontariff trade barriers.

Mr. GLICKMAN. If I could just quickly comment. Culture is a big

trade barrier. Cultural diversity is being used in many parts of the

world to keep U.S. intellectual property out: books, movies, music,

intellectual property generally. It is just something we need to

watch about. It is not just our traditional adversaries. Even our

friends to the north raise culture a tremendous amount when it

comes to U.S. products.

On the Korean issue, I would just say to you that, in that area,

it is kind of interesting. The Korean FTA, I am sure, is mixed; it

does not affect everybody the same way. In our industry, it is actually pretty good because they provide a higher level of protection

than previous FTAs and intellectual property. There were side letters.

One of them includes the requirement that the Korean government adopt an anti-camcording law, which is how most piracy

starts in this world, and the Koreans did agree, previous to us considering agreement, to reduce the quota on the days that American

films could appear in Korea. They have the quota. So, there are

some positive things in there.

Senator STABENOW. On the manufacturing end, it is not the case,

unfortunately.

Ms. HILLMAN. I would say two things. One part of your question

gets to the issue of whether there is a violation, if you will, of an

agreement itself—whether the letter of an agreement has been violated. I think what we have seen in Korea and in a number of

other countries is that the words of the agreement sound quite

good.

I think a lot of manufacturers that testified with respect to the

Korean agreement said, on paper, it reads quite well. But when

you look at what has actually happened in terms of the volume of

trade of foreign autos going into Korea, it is a whole other story.

It does go a little bit to this cultural issue. It goes to a lot of other

things that the Koreans do, and it has the effect of deterring imports.

So the question is, what do you do about it? You have to come

back to, what are your trade enforcement mechanisms? If there is

an actual violation of the agreement, you do have rights: if it is a

violation of the WTO agreement, within the WTO context; if it is

a violation of the Korea Free Trade Agreement, it will have its own

dispute settlement mechanism.

But probably the problems that you are addressing are not a violation of the actual letter of the agreement, which brings you back

to, what can you do about those in-between kind of violations?

The tool that is available to us is section 301, where you can go

after an action that is not deemed, per se, a violation of the agreement itself, but is nonetheless discriminatory and an unfair burden

on U.S. commerce, and the other criteria that is laid out in section

301. So, it is a question of working on the political will to bring a

21

case that is in between a per se violation, and yet still has the effect of burdening U.S. commerce.

The CHAIRMAN. Thank you, Senator, very much. I appreciate it.

Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman, and thanks so

much. These hearings on trade have been enormously helpful, and

I think they bring to light not only a lot of the struggles and challenges that we see in the ever-increasing global economy, but also

the fact that we need to be doing more in terms of implementation.

And thanks to all of our witnesses. I have to say, in hearing your

answers and discussions, I am reminded, particularly on the section 421, how we have been encouraging it. I have introduced bills

time and time again on expedited remedy, and we have been slowwalked by the Department of Commerce for the last 3 years, basically, on how it is that we can expedite some of the use of our own

trade laws in order to be able to make sure that we do see adherence to the trade negotiations that we spend a lot of time and

money on.

We spend a lot of time, effort, and money on negotiating these

trade agreements, and we should spend at least as much effort—

certainly the same amount of time and money—on enforcing those

agreements.

We are not, and it is to the detriment of Americans and working

families, and really our economy, and a whole host of other things.

So our hope is that we can really elevate this issue and work with

you and others to see if we cannot do a better job.

A couple of questions. Secretary Glickman, welcome. We are glad

to see you again. We appreciate your testimony. Having reviewed

your testimony, I kind of started wondering whether or not there

were examples of good behavior out there, or success stories in the

defense of intellectual property theft.

Towards the end of your written statement, you had mentioned

the development of an action plan that was presented to the government of Brazil and the subsequent improvements that happened. I was hoping that maybe you might be able to elaborate a

little bit on that action plan in more detail with the committee and

really whether you were able to quantify what those improvements

meant to the industry, if we know anything about that.

Mr. GLICKMAN. First of all, we are glad to provide you with a

more fully documented effort. It was generally improved enforcement. This was part of the issue that we had been working on.

Senator LINCOLN. Improved enforcement on our part or their

part?

Mr. GLICKMAN. Their part. Of intellectual property rights, developing a better infrastructure in their court system, in their administrative law system. This was all part of keeping the GSP preferences that we had. This is what I recommend us doing around

the world, generally. There has to be a quid pro quo for the GSP

preferences we would provide.

Senator LINCOLN. Right.

Mr. GLICKMAN. I am not telling you it is perfect in Brazil, but

they have made some strides to improve their internal intellectual

property enforcement. I will get you a more specific paper on this.

Senator LINCOLN. Sure.

22

Are there benefits to them if they adhere to the arrangements

that we have?

Mr. GLICKMAN. Yes. Brazil is a very, very big purchaser of American entertainment product. It is a big net importer of our product.

We have some cultural problems with Brazil, because they do have

some domestic industry there.

But what we found is that there was a lot of Brazilian piracy

that was appearing elsewhere, and it is in their interest, not only

for us but for them, because they have an indigenous intellectual

property industry to protect.

Senator LINCOLN. Well, we have talked about the cultural issues.

Of course, when you talk about it in the Korean agreement, for us,

when they take a stand that it may be a cultural or a sensitive

issue, that rice not even be on the table, which is what the case

was for us in the Korean agreement, we have a real problem with

that, not only in the precedent it sets for the ability to take other

commodities and other things just simply off the table and not have

any open market access to them, but the idea that we would allow

them to be able to set that precedent and to take an issue off. So,

culture is certainly important and we have to be sensitive to it, but

I think it is also important for us to stand tough on things that are

important to us.

Ms. Hillman, you mentioned today that we should consider

whether we are providing adequate levels of funding and staff to

kind of carry out the enforcement of trade agreements and domestic trade laws. You mentioned or you touched on a circumvention

tactic used by importers into the U.S. market known as ‘‘new shippers.’’ We certainly suffered in Arkansas a tremendous amount,

whether it is the steel industry or the catfish industry.

You summarized the problem very effectively and mentioned that

it is too early to tell whether our new rules and procedures will

produce the desired result. I guess my question is whether, in your

opinion, you think we are providing adequate resources in that

area to be successful.

Ms. HILLMAN. In general, I would say on the side of dumping and

countervailing duty cases, I do think we have adequate resources.

Where I think we do not have adequate resources is on the side of

bringing WTO cases, bringing 301 cases, bringing a lot of the

export-oriented cases, where I think the staff, particularly at the

General Counsel’s Office at USTR, is fairly limited.

Most of the people who work there did not necessarily come in

to be litigators; they came in to work on trade agreements. So, it

is not necessarily their first priority to think about litigation as

their primary work, yet an awful lot of what we are asking them

to do is to be aggressive litigators on the affirmative side.

On the new shipper review side, what has happened is, there has

been a change in the way they do the bonding procedures at the

Department of Commerce, because it had been a huge problem

with shippers, particularly in China, basically just changing their

name and saying ‘‘I’m a new shipper and therefore don’t apply

dumping duties to me.’’

The ability for the Commerce Department to go and look and

verify whether or not, in fact, they were new shippers was limited

23

because it was happening in many, many cases and for many producers.

So they have changed the procedures and changed the bonding

requirement so that you do not get out from paying a bond, even

if you are a new shipper, while the review is being conducted. Certainly, given the number of new shippers, they may need more resources.

But in this whole panoply of trade and enforcement resources, I

would put more money into the affirmative side of bringing more

actions for market access than I think you absolutely need on the

dumping and countervailing duty side of the equation.

The CHAIRMAN. Thank you, Senator, very much. I appreciate

that.

Senator LINCOLN. Thank you.

The CHAIRMAN. The next round of questions.

Now, Mr. Lighthizer, does legislation provide for the Commerce

Department to, say, commence a CVD case against non-market

economies? There was a decision with coated paper, but that was,

as you say, Ms. Hillman, sort of precedent-setting. Is legislation

still needed to make that clear, that actions can be taken against

non-market economies?

Mr. LIGHTHIZER. Yes, Mr. Chairman. I think it is every bit as

needed as it was before the action. Number one, a future administration could change this. Number two, China is, right now, challenging it in court. They are asking for an injunction to stop it,

even though they agreed to it in the WTO and their accession

agreement, they are now challenging it in U.S. court.

And number three, it is extremely important to make sure, in my

judgment, that it is done right. Only the Congress can do that, can

write the rules to make sure that we do not end up, when we implement this, cutting back on what is already a reasonably effective

antidumping regulation.

The CHAIRMAN. All right. Thank you.

Mr. LIGHTHIZER. We have seen evidence of that at the Department of Commerce.

The CHAIRMAN. Thank you very much.

Mr. Glickman, what lessons have we learned with respect to

PNTR and 421 with China, with respect to intellectual property,

that we can apply to Russia so we do not get caught twice?

Mr. GLICKMAN. The fact is, we need to make maximum use of the

leverage of the WTO accession process on Russia. With China, obviously we have been victimized by their failure to properly enforce

intellectual property rights.

That is the subject of a WTO case that was done a couple months

ago. We were disappointed that Russia did not meet its obligations

under the IPR side letter that they reached with us, and that has

been criticized as well. My judgment is that it is foundational for

WTO accession for Russia that they put their money where their

mouth is in terms of intellectual property rights enforcement.

I would like to say there is one difference between Russia and

China, however. That is, that the Chinese continue to restrict the

importation of American movies; the Russians do not. So while

they have IPR problems, we do not have market access problems

of the same magnitude that we do with China.

24

The CHAIRMAN. I would like to ask a general question. Maybe,

Mr. Lighthizer, you are best to answer it. How far can Congress

go in specifically directing the administration to take an action? On

the other hand, how much discretion can we give the President?

Clearly, the President, constitutionally, has national security power

that may trump anything else.

But constitutionally, how far can the Congress go in precisely establishing specifically the actions that this Congress says that the

administration should take under certain circumstances?

Mr. LIGHTHIZER. I believe that article 1, section 8 gives you the

power—indeed, the mandate—to tell the administration exactly

what to do on this subject. Now, if you had asked me, Mr. Chairman, should he have some kind of a legitimate national security

exemption, I guess I would be willing to do that. But I think that

is in a very rare case. It tends not to be what happens. It tends

to be just sort of foreign policy or politics, somehow or another.

But I think we have learned one thing over the last several years when we have gone from a modest deficit to an $800-billion deficit,

and that is we need more involvement, more oversight, and more

specific directions from the Congress of the United States.

The CHAIRMAN. Other reactions to that question from any of the

panelists? Ms. Hillman, your thoughts? You have given this question some thought, clearly, as the former General Counsel of USTR.

Ms. HILLMAN. I would not disagree with Mr. Lighthizer, that I

think you need to be pressing harder on the administration, and

in some instances perhaps cutting back on the amount of discretion

granted. Again, part of it depends on how it is exercised. Just to

give you an example, we have laws respecting imports that violate

intellectual property, section 337.

If you look at the history of how those have been implemented,

it is the rare case in which the administration does not accept, does

not go ahead and implement, an exclusion order if that is what the

ITC recommends. So, you certainly have one area of trade law

where the exercise of the discretion has been almost universally to

accept the recommendation of the ITC.

And then if you flip over to the safeguards area, both 421 and

global safeguards, you do not see that same pattern. You see the

administration, more often than not—and again, it does not matter

the administration—choosing not to implement the recommendation of the ITC.

So part of it may be coming back to what has been mentioned,

making sure that the political pressures, the other forces that come

in on foreign policy concerns and other things, do not outweigh the

trade interests. Right now, in many areas they do.

The CHAIRMAN. Mr. Autor?

Mr. AUTOR. I think we do need to be very cautious about how,

and to what extent, we limit the President’s discretion here. I think

the operative word under 421 is that the ITC makes a ‘‘recommendation’’ to the President. We have had a very bad experience

with what was essentially an automatic safeguard measure under

the China textile safeguard provision.

This procedure was essentially automatic. The evidence that the

domestic industry had to present to trigger the safeguard was

minimal at best, and it was essentially an automatic procedure and

25

it was extremely disruptive. In fact, it was so bad that even importers were willing to have the U.S. go and negotiate new textile

quotas with China because the safeguard mechanism was so bad.

The CHAIRMAN. My time has expired. Does anybody else want to

comment on the China safeguards? Anybody else?

[No response.]

The CHAIRMAN. As I recall, it also helped the Europeans enact

their textile safeguard. There is a little bit of, each country sort of

helped each other a little bit, as I recall, back when that happened.

Next, Senator Grassley?

Senator GRASSLEY. Bob, I’m troubled by reports that some antidumping petitioning industries used threats of administrative review to obtain cash payments from foreign producers. The petitioners file requests for review of hundreds of foreign companies,

and they agree to withdraw requests if foreigners pay up.

Anyone who refuses is subject to review and risk of increased duties. I think it is a misuse of antidumping laws, possibly anticompetitive. Are you aware of the practice? If so, what, if anything,

should Congress do about it?

Mr. LIGHTHIZER. I do not want to create the impression that I am

an expert on it; I am really not. I have sort of heard of it. Clearly,

it is not acceptable. Every year, either side can ask for administrative review, either the importer or the domestic side.

We make a judgment as to whether or not we think, if there is

a re-litigation of what the dumping margin should be, whether it

will go up or down, and we make our decision based on the interests of our companies and our workers.

So, I mean, I do not know. I would be happy to think about it

and make recommendations. Clearly it is not something that we do.

It is not something that I have really heard many people do or talk

about. I do not know other contexts in which it comes in.

I am confident that if you told me you wanted me to think about

it and give you advice as to how to stop it, that I could come up

with a solution. I am happy to do that, Senator, if that is what you

want me to do.

Senator GRASSLEY. Submit something in writing, please.

Mr. LIGHTHIZER. Absolutely.

[The information appears in the appendix on p. 76.]

Senator GRASSLEY. All right.

Erik, in your testimony you stated that U.S. exporters are now

the number-three target of antidumping cases around the world.

Should the United States be concerned about this, and where

would we take action?

Mr. AUTOR. Well, a couple of things. We need to ensure that the

rules under the WTO with respect to the application of trade remedies are clear, that our trading partners are adhering to those

rules, and, when they are not, that we take them to the WTO dispute settlement. And by the same token, we need to ensure that

what we do is consistent with WTO rules because what we do is

copied by other countries.

That is why, in a number of instances, we have seen proposals

that are acknowledged to violate WTO rules, and yet I think that

willingness to proceed, notwithstanding the fact that we would

clearly be taken to dispute settlement, sends a very bad message

26

to other countries like China that we are not willing to abide by

our obligations.

I think, as I said, it is a two-way street here. We need to ensure

that the trade remedies measures that our trading partners take

are consistent with WTO rules, and we need to do the same as

well.

Senator GRASSLEY. Jennifer, given the sharp decline in antidumping and countervailing duty cases filed over the past few

years, and in light of Mr. Lighthizer’s conclusion that the Commerce Department’s Import Administration is inadequately funded,

do you agree or disagree?

Ms. HILLMAN. I do not believe the number of cases being filed relates to the resources at the Commerce Department. I think the

reason we have seen a big decline in the number of cases is partly

structural within the U.S. economy. Generally, these cases have

been filed by U.S.-based companies that are manufacturing primarily in the United States.

You now have seen a huge amount of companies become importers themselves, or a joint venture or partner with facilities overseas, so they are no longer solely a U.S.-based industry that has

the same level of interest in filing a case.

Second, I think you have seen many of the prices in the products

that are typically subject to cases are right now at very high levels.

I mean, we have very high steel prices, we have very high prices

in a number of the sectors that typically file these cases. When

prices are very high, it is hard for these companies to make a

showing that they have suffered price suppression or depression,

which you would have to show in order to bring a case.

Then, third, if you look at the major user of the dumping law,

more than 50 percent of all cases over time have been filed by the

steel industry. If you look at, today, who is the single largest steel

producer in the United States, it is a company called Mittal,

foreign-owned, foreign-based.

So their interests, I think, in affirmatively bringing a lot of cases

is probably different than the steel industry of old in which the

vast majority of the production was solely U.S.-based. So I think

you have a lot of structural things going on that have, in part, affected the reason why we are not seeing as many cases being filed

in recent years as we used to.

Senator GRASSLEY. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator.

Next, is Senator Bunning.

Senator BUNNING. Thank you, Mr. Chairman.

Ms. Hillman, you discussed the Bratsk case in your testimony.

Ms. HILLMAN. Yes.

Senator BUNNING. Can you explain again why this case was

wrongly decided by the Federal Circuit? Should Congress overturn

the case legislatively? And we can do that.

Ms. HILLMAN. In my judgment, yes, the Congress should overturn it legislatively. The reason I think it was wrongly decided is

that it sets up a test or sets of tests that are not in any way contemplated in the statute. What the case involved was imports of

silicon metal from Russia.

27

What the court said was that the ITC cannot render an affirmative determination unless it can affirmatively determine that imports from somewhere other than Russia will not simply come in

and fill this void that is created by putting duties on Russia. The

ITC has to show us that the dumping order on Russia will have

provided a benefit to the U.S. industry.

Nowhere in the statute does it say that the ITC—or anybody—

has to understand what imports that are not subject to the investigation are going to do, nor does it say that you have to affirmatively prove that an industry will, in fact, benefit from an order the

day you put one on. You do not know when you put an order on

what is going to come about.

There is no way for the ITC to prove that an industry affirmatively will benefit, nor is there any way for the ITC to get the data

from all of these other countries out there that are not part of the

case to say whether they will or will not come in and fill this alleged void.

So, I think there are many reasons why the case was wrongly decided. I think the Federal Circuit did not understand how the trade

laws work or what their intent was.

Senator BUNNING. Or they did not understand that the Congress

of the United States was in charge of the trade?

Ms. HILLMAN. Clearly, in my view what they have done is to set

up things that were not in the statute—what the Congress does not

ask the ITC to do in these cases. So they are adding on tests and

requirements in order to get a determination that the Congress did

not include in the statute.

Senator BUNNING. All right.

Mr. LIGHTHIZER. Senator, could I just add, briefly, I completely

agree, of course, with Commissioner Hillman that this is an outrageous case. The law is designed to have the ITC determine

whether or not there is present material injury.

What this new standard seems to say is, guess about something

that is going to happen in the future. As a matter of policy, it is

impossible to do and really not relevant to the question that Congress was trying to address when they created the antidumping

laws.

Senator BUNNING. May I suggest to our Chairman that we look

for a legislative remedy to this, Mr. Chairman, and move forward

with it?

The CHAIRMAN. It is a good suggestion. Thank you.

Senator BUNNING. Dan, it is good to see you. Thank you for being

here. In your written testimony, you indicated that the U.S. Government ‘‘lacks the political will’’ to take meaningful action to protect our intellectual property rights abroad, with regard specifically

to Russia and China.

Do you think the USTR has been hesitant to enforce our agreements in this area?

Mr. GLICKMAN. I think they have been hesitant, although they

did file a case. We worked with them closely on it. It took a very

long time because we had two issues with China, which are IPR

and market access.

Senator BUNNING. Walking down the streets of Beijing——

28

Mr. GLICKMAN [continuing]. And that is the case where they

interrelate with each other. Since you cannot bring in the product

legally, it creates an environment where more illegal product occurs on the streets. As you know, you can find anything ever made

in the history of the world on the streets in most cities in China.

Senator BUNNING. Most of it is copied.

Mr. GLICKMAN. Well over 90 percent is pirated material, the stuff

that is on the streets. So when you talk about political will, I mean,

yes, I realize the issues are complicated, but it has taken our government a very long time to move on the China issue, and hopefully, as Senator Baucus raised, we will learn some of those mistakes as we deal with Russia. They have a different set of problems, but their IPR and piracy issues are every bit as bad.

Senator BUNNING. But we still have the bag that they want.

They want WTO accession. If we do not give it to them, if we do

not allow it to happen, we have a lot more power in negotiating

with Russia than we do with China, because we already caved in

to the Chinese.

Mr. GLICKMAN. Certainly we have more power right now. I would

just mention one other thing about China. I think I have mentioned this before. In 14 months, China will host perhaps the largest event ever in the history of China where the outside world, by

the millions of visitors and billions of people watching on television,

will be able to see this great country. And it is a great country. But

the fact of the matter is, we need to think through intellectually

how we exploit that leverage.

Senator BUNNING. Wear your mask. Because I have been there.

Mr. GLICKMAN. All right. Well, that part of it, I do not know. I

would just say that it offers us some opportunities over the next

year.

The CHAIRMAN. We have talked about that.

Mr. GLICKMAN. I think that China can, and should, show the

world that it intends to play by the rules. The whole world will be

watching this process. I suspect that next year it will give them an

opportunity to clean up their streets more than they have done in

the past because they will want to do that.

They will not want the news stories in the summer of 2008 to

be about pirated material on the streets, because I guarantee you,

that is what the U.S. television industry will focus on, whether it

is DVDs, or whether it is fashion material, or pharmaceuticals.

Senator BUNNING. Mr. Secretary, they are going to have to be

able to see the Olympics, too, so they are going to have to shut

down all their power plants and take all the automobiles off the

streets and only allow buses to transport people to and from the

Olympic Games. In my experience of being in Beijing, that had better happen starting right now or it will not be cleaned up in time.

The CHAIRMAN. Thank you, Senator, very much. I appreciate

that.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman. This has been a

very, very important hearing. Just one other question related to

the WTO process. When we look at China, finally the administration is moving on the issue related to auto parts, and we appreciate

29

it. It has been too long in coming, but they are moving as it relates

to issues of local content and so on.

But we have seen, in the last 5 years, a $12-billion counterfeit

auto parts industry, established parts coming in that do not meet

our safety standards, they are coming in illegally. We have seen six

different major auto suppliers declare bankruptcy: Delphi, Dana

Corporation, Collins and Aikman, Federal Mogul, Tower Automotive, and Dura Automotive.

My question is, now we finally have a case, at least on a piece

of it. It is not totally about counterfeiting, it is about local content,

and so on. But we are at least a year away before we have any

kind of a decision from the WTO. We have lost 250,000 jobs. We

have seen six major auto suppliers go out of business.

Any other suggestions that relate to the WTO process for moving

these cases more quickly? We finally have the administration taking some action, but they are going to have to wait, and we are

going to see more job loss in the meantime. Any thoughts?

Mr. GLICKMAN. This does not relate directly to your question, but

it relates to the issue of counterfeiting, because a lot of the auto

parts that are coming in that are illegal are pirated.

Senator STABENOW. Right.

Mr. GLICKMAN. There are efforts here, and you should be aware

that on Thursday, the U.S. Chamber has put together a coalition

of music, movies, automobiles, pharmaceuticals, software, manufactured goods to deal with the issue of pirating and counterfeiting

goods generally in the world and coming into the United States. So,

it may offer some help. It is not going to address your question directly, but it may address it indirectly.

Senator STABENOW. I very much appreciate the fact that there is

more focus on this, because it is very real, and it is costing us jobs.

Ms. HILLMAN. On just the speed of the WTO cases, I do not know

that anyone can offer much hope. I mean, those that have been involved in this litigation would argue they cannot go any faster than

the cases do because there is a huge amount of work on the legal

end of it. I mean, the time frames within the WTO were meant to

sort of mirror U.S. 301 procedures in terms of timing, so I do not

know that an actual case can be sped up.

But clearly, a couple things. One is, we have to get these cases

filed faster. We have found, I think, with China that often China

does not always want to take the case through the full litigation.

They have, in the past, been more willing to actually have the filing of the case be the leverage that gets them to the table to actually try to find a negotiated settlement.

I think, in general, at the WTO, if we can get to a mutually

agreed solution, it is far, far better than anything that we can come

up with if we let the litigation simply run its course. So if we can

use the mere filing of the case to really press the Chinese to come

up with a negotiated solution, that is our first, best, and fastest option.

So that, I think, is what we ought to be encouraging, is the

USTR to really use the consultation mechanism that is built into

the WTO dispute settlement process to try to come up with a better

result than we would get simply litigating.

Senator STABENOW. Thank you. Thank you, Mr. Chairman.

30

The CHAIRMAN. Thank you, Senator.

I just wondered—some suggest, like Senator Stabenow has, this

idea of establishing an ambassador-level, Senate-confirmed enforcement officer in USTR. Some suggest maybe it should be someplace

else. But the main point being, we need to put more focus on enforcement. I would be interested in any response that any of you

might have.

Mr. LIGHTHIZER. Mr. Chairman, I have thought for a long time

that we need something like that. The fact is, when I worked for

this committee the USTR was 98 percent negotiation and 2 percent

sort of non-binding litigation. The fact is, now it is, at best 50/50.

I also would add that we lose things in litigation at the WTO that

we would never give away, you would never permit any negotiator

to give away, in negotiation.

So what is the solution? I think, two deputies in DC. I think one

of them ought to be—I totally endorse your bill—a deputy who is

responsible for litigation and enforcement, period, and it ought to

be a person who is a tough trade litigator and worries about enforcement on both sides. Then let the other be the negotiation deputy. So I guess I would agree with both of you, and up you one.

I think one of the two deputies should have that responsibility.

The CHAIRMAN. Other thoughts, any panelist?

Ms. HILLMAN. I would not disagree. I think that the culture at

USTR, and the people who tend to come there, and the vast majority of the staff, view themselves as negotiators. They do not necessarily view themselves as litigators. So the question is whether

you can develop a different set of players and whether it ought to

be USTR that does this litigation.

I know when I was the General Counsel, we had 13 lawyers on

the staff. At the time, we had had an average of three or four cases

litigated in the old GATT system. Within 2 years, when we had

gone to the binding WTO system, we are, all of a sudden, in 33 or

34 cases. I still had 13 lawyers to do that work, and none of them

really wanted that as their primary role.

So we actually thought about whether or not the Justice Department should start litigating these cases on behalf of USTR, as most

other agencies do, have the Justice Department do their litigation;

whether we should create a sort of solicitor/barrister kind of role

where you had lawyers with substantive expertise, and yet a cadre

of litigators whose job was to actually do the litigation based on the

substantive expertise of lawyers; whether there were other mechanisms we should use.

In the end, we brought in more lawyers and tried to do a little

bit more training, but I think there was a huge reluctance—you

will find a tremendous reluctance at USTR—to farm out the litigation. I think they feel very strongly that they are in charge of any

WTO litigation, and that it needs to stay at USTR.

The CHAIRMAN. How do other countries handle this question?

Mr. LIGHTHIZER. Well, I will give you one idea. If you look at the

major WTO cases involving the United States, the foreign government is usually represented by an American lawyer.

So when we took our 201 case to the WTO, the other side sat

there and they had, representing their governments, the litigator

who had litigated against us for 2 years; we had a smart, wellVerDate 11-MAY-2000 14:49 Apr 07, 2009 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 47516.000 SFIN1 PsN: SFIN1
31

meaninged government lawyer who did not have near the resources

or near the background.

So I believe that, if this is something you care about, you ought

to let the private parties be deputized to come in there and help

USTR do it. Foreign countries basically do that. It is a travesty

that we have not used this free resource.

Senator STABENOW. Mr. Chairman?

The CHAIRMAN. Go ahead. Sorry.

Senator STABENOW. I am sorry. I just wanted to follow up on

what you were saying, because, since introducing the legislation

that Senator Graham and I have, and the Chairman and Ranking

Member also have a larger bill that includes this, there are those

who have come to me and said, rather than being in USTR, they

think we should put it in Justice, with more of the enforcement

piece. I was just curious. Ms. Hillman, you almost sounded like you

were suggesting Justice.

The CHAIRMAN. No.

Senator STABENOW. No?

Ms. HILLMAN. Like I said, I think you will find a huge resistance

to that at USTR. Part of the argument against it is that the Justice

Department lawyers, again, are very, very capable and very knowledgeable about both the procedures and the substantive law in the

United States.

When you now go into litigating at the WTO, it is a separate set

of rules in terms of how it works, it is a separate set of substantive

obligations in terms of the law that nobody at Justice right now is

particularly well-steeped in.

And, unlike Federal court litigation, WTO dispute settlements

start with a consultation idea, with the concept that you are going

to actually sit down and talk through the problem and see if you

can come to a negotiated solution.

That is not, again, the typical role of a Justice Department lawyer, to try to come up with a negotiated solution at the get-go. For

all of those reasons, the view was leave it at USTR, but substantially beef up their litigation capacity.

The CHAIRMAN. What about Mr. Lighthizer’s observation of other

countries’ practices, that is, hire or pro bono? I do not know how

it works out.

Ms. HILLMAN. He is absolutely correct in that. Fairly early on in

the WTO dispute settlement process, the WTO did agree that outside hired private counsel could come in in the shoes of the government, and that is very typically now the case.

The CHAIRMAN. Should we do that? Should the United States do

that?

Ms. HILLMAN. It has its pros and cons. Again, the concern, I

would say, on the USTR end is needing to keep some ability to, in

essence, understand an argument that might be compelling to a

private litigant in one case, but may have the effect of setting a

policy that we cannot live with in another case or in another industry. So the question is, how do you best keep control over the arguments? What is good for GM may not be what is good in another

case, or good as a matter of policy or law.

The CHAIRMAN. Presumably the USTR would have control over

that.

32

Ms. HILLMAN. Again, that would be the trick, whether you are

unleashing private litigants to be making arguments that you cannot live with in another setting.

The CHAIRMAN. Mr. Glickman?

Mr. GLICKMAN. I am thinking from my old USDA days, running

a Federal agency. I would be really careful about allowing private

litigants to handle the government’s prime legal business, except

under rare and exceptional circumstances.

What I find is, many of the private litigants have so many interests that are maybe internally inconsistent, that it may be very difficult to manage. I do think that USTR or some agency of government needs the clout of a somewhat protected or Senate-confirmed

enforcement position.

I would say that, when I was at USDA, we used to bring a lot

of our own cases, but we would also, in certain circumstances, have

to work through the Justice Department because the U.S. Government needs some coordinating authority so every agency does not

go out and file any case that it wants to.

So you have to blend it with the realities of the government

speaking with one voice, but I do not believe right now there is a

place where the government feels comfortable in filing an enforcement action.

The CHAIRMAN. All right.

Mr. Lighthizer?

Mr. LIGHTHIZER. I will let Erik go first.

The CHAIRMAN. All right. Mr. Autor?

Mr. AUTOR. I agree with Mr. Glickman on this, that the government lawyers need also to keep in mind the big picture, and I think

that they are best able to do that from the points that Ms. Hillman

and Mr. Glickman mentioned.

Also, as I said in my statement, we need a system that is inclusive of all the affected parties, and we do not really currently have

that. I think that this would not remedy that situation.

If we had a deputy-level enforcement person in addition to, obviously, giving a higher profile to these issues, I think we need to understand what would be the responsibilities and duties of that person that would be different than what the General Counsel does.

The CHAIRMAN. Thank you.

Mr. Lighthizer, you were going to say something?

Mr. LIGHTHIZER. Yes. I will just be very brief. On this question

of private participation, I think the situation here is inapposite

from what you would find at the Department of Agriculture.

The fact is, in the rules cases, this is private litigation. This is

litigation where there are parties and there is private litigation all

the way up. Now, at a new level, it becomes an international appeal. That is really what is happening.

Every one of these rules cases is basically being appealed up to

the WTO, so it is not a case where you have a kind of de novo start

and you have the interests of the Department of Agriculture, for

example, and the interests of somewhere else. You actually have

private parties. What is happening is, the other private party is

keeping his lawyer and the U.S. private party is not.

The second thing is, you would have to have a situation where

the power and the control was at USTR. They, in fact, would be

33

the client. I do not think that is that much of a problem. If you

had difficulty with someone, it would be easy enough, just like anyone else, just to say, I am sorry, we are not going to use you any

more, you are not acceptable.

Finally, I guess I would say that when Commissioner Hillman

says what is good for GM may not be good for the United States,

that may be true. But what is good for neither of them, is losing

the cases. We have now lost 40 of 47 cases. We need to make a

change.

The CHAIRMAN. All right. We are about out of time.

Mr. Glickman?

Mr. GLICKMAN. I would just say, first of all, I would hire Mr.

Lighthizer if I were in this position. He is a very articulate advocate. But I would have to say, industry provides extensive and expensive input on all of these things right now, so I would be somewhat reluctant about having too many private litigants manage the

matter.

The CHAIRMAN. This has been a very good hearing. I want to

thank everybody very, very much, all of you, all the panelists, for

taking the time. It has been very constructive, a lot of good ideas.

I cannot thank you enough.

The hearing is adjourned.

[Whereupon, at 11:45 a.m., the hearing was concluded.]

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