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75–162PDF 2012

UNFAIR TRADING PRACTICES AGAINST THE U.S.:

INTELLECTUAL PROPERTY RIGHTS

INFRINGEMENT, PROPERTY EXPROPRIATION,

AND OTHER BARRIERS

HEARING

BEFORE THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

JULY 19, 2012

Serial No. 112–170

Printed for the use of the Committee on Foreign Affairs

(

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

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

(II)

COMMITTEE ON FOREIGN AFFAIRS 

ILEANA ROS-LEHTINEN, Florida, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

DANA ROHRABACHER, California 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

STEVE CHABOT, Ohio 

RON PAUL, Texas 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

GUS M. BILIRAKIS, Florida 

JEAN SCHMIDT, Ohio 

BILL JOHNSON, Ohio 

DAVID RIVERA, Florida 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ANN MARIE BUERKLE, New York 

RENEE ELLMERS, North Carolina 

ROBERT TURNER, New York 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

ELIOT L. ENGEL, New York 

GREGORY W. MEEKS, New York 

RUSS CARNAHAN, Missouri 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

DENNIS CARDOZA, California 

BEN CHANDLER, Kentucky 

BRIAN HIGGINS, New York 

ALLYSON SCHWARTZ, Pennsylvania 

CHRISTOPHER S. MURPHY, Connecticut 

FREDERICA WILSON, Florida 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

YLEEM D.S. POBLETE, Staff Director 

RICHARD J. KESSLER, Democratic Staff Director 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Grant Aldonas, managing director, Split Rock International (former 

Under Secretary of Commerce for International Trade) ................................... 9

Derek Scissors, Ph.D., senior research fellow, The Heritage Foundation ........... 25

Mr. David Hirschmann, president and chief executive officer, Global Intellectual Property Center, U.S. Chamber of Commerce ........................................... 38

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Dana Rohrabacher, a Representative in Congress from the 

State of California: Prepared statement ............................................................ 7

Mr. Grant Aldonas: Prepared statement ............................................................... 12

Derek Scissors, Ph.D.: Prepared statement ........................................................... 27

Mr. David Hirschmann: Prepared statement ........................................................ 40

APPENDIX 

Hearing notice .......................................................................................................... 74

Hearing minutes ...................................................................................................... 75

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

Commonwealth of Virginia: Prepared statement .............................................. 77

(1)

UNFAIR TRADING PRACTICES AGAINST THE 

U.S.: INTELLECTUAL PROPERTY RIGHTS INFRINGEMENT, PROPERTY EXPROPRIATION, 

AND OTHER BARRIERS 

THURSDAY, JULY 19, 2012

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FOREIGN AFFAIRS, 

Washington, DC. 

The committee met, pursuant to notice, at 10 o’clock a.m., in 

room 2172 Rayburn House Office Building, Hon. Ileana RosLehtinen (chairman of the committee) presiding. 

Chairman ROS-LEHTINEN. The committee will come to order after 

we clean up my spilled Cuban coffee. The order will stay here for 

about 6 months it is so strong. After recognizing myself and the 

ranking member, Mr. Berman, for 3 minutes each for our opening 

statements, sorry, Chris, I will recognize for 3 minutes, the chair 

and the ranking member of the Subcommittee on Terrorism, Nonproliferation, and Trade. 

I will then recognize any members who seek recognition for 1 

minute and then we will hear from our witnesses, and without objection, sirs, the witnesses prepared statements will be made a part 

of the record. Members may have 5 days to insert statements and 

questions for the record and the chair now recognizes herself for 7 

minutes. 

It wasn’t that long ago that we could watch other countries grappling with their economic difficulties with considerable detachment 

and relief that we were largely insulated from their troubles. Those 

days are long gone. As our economy has become increasingly integrated with that of the world as a whole, and as millions of jobs 

in this country are now based on exports, our economic future and 

prosperity are tied to events on distant continents. 

The unending crisis in Europe, the economic slowdown in China, 

and the sharp reduction of the growth rates in an increasing number of major countries means that the global economy is already 

facing strong headwinds. That will impact us in many ways and 

none more so than the threat to exports and the jobs that they support. Even in good times, our exporters often find their paths 

blocked by an endless array of obstacles erected by foreign governments that range from quotas, licenses, discriminatory regulations, 

to currency manipulation, limits on investment, and mandated 

technology transfer. 

Some of these barriers are the products of antiquated ideologies 

or just plain ignorance, and the temptation to erect barriers to forVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
2

eign business in order to support domestic industries is a strong 

one in every country, especially in times of economic stress. Those 

policies have had the affect of reducing the overall welfare of their 

own citizens while rewarding favored businesses with high profits 

they otherwise could not earn. But we bear the cost as well, and 

not only in terms of lost sales. 

In fact, it has been the resistance of countries such as Brazil and 

India to further liberalization that has led the Doha Round of global trade negotiations hostage for over a decade. As a result, high 

barriers remain for services, agriculture, and many other products 

where the U.S. leads the world. But in addition to these familiar 

obstacles, U.S. exporters face even greater challenges from predatory policies by foreign governments. The most prominent is the 

theft of intellectual property. 

Governments do steal intellectual property for their own use, but 

a far greater problem is their knowing toleration of widespread 

theft in their societies to the point of actually encouraging it. China 

is the most egregious example, where the U.S. Trade Representative estimates that 99 percent of all music downloads from the 

Internet is done so illegally. The International Intellectual Property 

Alliance estimates that the loss to U.S. companies from copyright 

violations of records and music alone amounts to more than $0.5 

billion annually. 

Pirated copies of American movies that have just been released 

in the U.S. are commonly on sale in the streets of Beijing and other 

cities within days, openly marketed under the benevolent gaze of 

the otherwise fearsome police. Despite years of promises by Beijing 

to crack down on violators, and despite a succession of formal commitments to do so, the theft of intellectual property remains epidemic. Beijing claims that it is virtually powerless to stop its citizens from using the Internet for illicit purposes. 

However, that same regime devotes massive resources to controlling the Internet, including eliminating or blocking vast quantities 

of information that it finds objectionable, with little hesitation to 

use swift and harsh methods to enforce its commands. And yet it 

also claims with a straight face that it cannot prevent the unlimited theft of intellectual property from sites that operate openly 

and with unrestricted access. 

But intellectual property theft is only one of China’s vast array 

of unfair trade barriers that include, among others, state-owned 

businesses using government power for their own ends, illegal subsidies of domestic companies, discriminatory regulation, a bureaucracy impenetrable to outsiders, currency manipulation, and a legal 

system that is all but worthless in enforcing contracts. 

China may have the worst record in unfair trade barriers, but 

U.S. firms face many other challenges around the world. One example is the expropriation of American property by foreign governments, especially by leftist governments. From the beginning of his 

reign, Venezuelan strongman Hugo Chavez made clear his intent 

to seize control of key industries, such as telecommunications, and 

has deliberately targeted American companies. For example, Chavez forced Verizon to sell its 30 percent ownership of Venezuela’s 

telecommunications giant CANTV with the government taking control of the balance of shares at bargain prices. 

3

And he has used his power to bludgeon major oil companies into 

forced sales and renegotiations of contracts that total several billion dollars. China and Venezuela are among the most outrageous 

and shameless predators, but they are far from alone. Unfortunately, we have only limited tools with which to create a level playing field for U.S. companies and provide them with protection. The 

most proven method is through enforceable free trade agreements 

with responsible countries. 

Our network of free trade agreements has created enormous opportunities for U.S. exporters, the most recent being with the 

agreements with Columbia, Panama, and South Korea. But that 

remedy cannot be effectively used at present in large part because 

the expiration of the President’s trade promotion authority has 

made the negotiation and approval of new trade agreements almost 

impossible. If we in Congress want to do more than talk about creating opportunities for U.S. exporters, especially at a time of economic difficulty, we must restore the President’s authority to negotiate enforceable agreements that will enable our entrepreneurs to 

compete effectively and to create the jobs so many Americans are 

desperately searching for. 

Although the image of the international marketplace as a place 

of civilized exchange, of trust, and sanctity of contract is often an 

accurate one, there will always be those in other countries who 

wish to use the power of the government to erect barriers against 

U.S. companies and individuals, and even to subject them to criminal behavior. In such a world, we must ensure that the executive 

branch vigorously uses the tools it already possesses to deal with 

those countries that openly prey on U.S. businesses, including 

strong and unilateral measures to penalize governments which 

refuse to uphold their commitments and agreements. 

Only by doing so can we guarantee our economic security in an 

ever more integrated world where enormous opportunity is coupled 

with many challenges, and thereby ensure that the U.S. will always remain the most prosperous nation on Earth. I now recognize 

the ranking member, my friend, Mr. Berman, for his opening statement. 

Mr. BERMAN. Thank you very much Madam Chairman for scheduling this hearing and in my opening comments I am going to just 

sort of say what you said, but probably not as well. Violations of 

intellectual property rights in international trade are important aspect of a large global problem. According to a study commissioned 

by the International Chamber of Commerce, piracy and counterfeiting cost legitimate businesses $455 billion in 2008. By 2015, 

that number is expected to increase $1.2 trillion. And nearly 3⁄4 of 

global IPR theft winds up in world trade flows. 

The latest USTR Special 301 report lists 40 countries on our IPR 

watch lists. Of these, notable on the priority watch list are countries such as Russia, where we are currently evaluating the extent 

of their enforcement efforts in conjunction with our review of their 

status under PNTR, and Canada, where we acknowledge important 

improvements recently, but they continue to lag behind international norms for a developed economy. 

Not surprisingly though, China dwarfs other countries in violations of U.S. intellectual property rights. The USTR reports that 

4

Chinese violations run the gamut of all forms of IPR; patents, 

trademarks, copyrights, and trade secrets. Worse, USTR reports 

that the Chinese Government is abetting some of these violations 

by compelling foreign companies to transfer intellectual property to 

Chinese companies as a condition of licensing and regulatory approvals. These policies exacerbate patent infringement, trademark 

counterfeiting, and outright theft of trade secrets. 

IP violations are also a national security threat. The Defense Departments procurement system is being inundated by counterfeit 

and pirated parts. To deal with this problem, DoD, NASA, and 

other agencies have launched a drive to root out these illegal and 

dangerous items from the government’s supply chain. To me, 

strengthening the protection of American intellectual property 

must be a top priority. IPR plays a critical role in our economy, in 

employment, and in our global leadership. While every industry depends on IPR to some extent, a recent Commerce Department report identifies 75 industries that are ‘‘IPR intensive.’’ These account for $5 trillion in annual U.S. output. That is like 1⁄3 of the 

entire U.S. economy. As the report indicates, companies in these 

sectors directly employ 27 million American workers, or about 1 in 

5 of the entire U.S. workforce. In addition, suppliers to these companies employ another 13 million workers, thus, ‘‘IPR intensive’’ 

companies employ, directly or indirectly, 40 million Americans; 28 

percent of the entire U.S. workforce. 

In the Chamber’s most recent report from 2010, in California, ‘‘IPR intensive’’ companies account for $923 billion of our annual 

economic output; fully 58 percent of our total economy. These companies and their suppliers employ 7.4 million Californians; 55 percent of our total workforce. 

For America’s future, it is essential that our Government ensure 

protection of our intellectual property abroad. Our trading partners 

must provide higher levels of protection for our intellectual property, including effective enforcement tools and more open markets. 

We have an opportunity now to further our efforts in this area. The 

U.S. is currently negotiating an ambitious agreement with countries in the Asia-Pacific region; the Trans-Pacific Partnership. 

It is critical that this agreement reflect and prioritize the contribution of the U.S. IP industries to the U.S. economy by including 

strong protections for IP and robust enforcement provisions. This 

will benefit both the U.S. and our trading partners’ creative and innovative industries and economies. Madam Chairman, thanks 

again for calling this important hearing and I look forward to the 

testimony of the witnesses. 

Chairman ROS-LEHTINEN. Thank you so much Mr. Berman and 

thank you for your leadership in that important topic of intellectual 

property rights. Thank you. Mr. Smith, the chairman of the Subcommittee on Africa, Global Health, and Human Rights is recognized. 

Mr. SMITH. Thank you very much, Madam Chair, for convening 

this timely and important hearing. Americans, as never before, are 

focused on jobs and competitiveness. All of us know that economic 

growth and vigorous exports are vital to our economic prosperity, 

sustainability, and now, in these difficult times, recovery. American 

companies and American workers can outcompete anyone in the 

5

world, providing that the playing field is level. The theft of intellectual property rights, however, robs Americans of a fair return on 

their innovation and their hard work. 

The most egregious intellectual property rights thief in the world 

today is China. Chinese companies, protected by a ubiquitous dictatorship, steal, copy, and market American software, music, and 

films. Chinese policies pry technology and trade secrets from American firms that invest there and then abandon them. China is certainly in the big leagues, there are others, but they’re the biggest 

perpetrator of industrial espionage where cyber crime is a new tool. 

China seems to believe that unfettered access to American markets 

is its natural right, while they give Americans the stiff arm in a 

myriad of ways, including, and especially, the stealing of American 

intellectual property rights. 

This colossal infringement of IPR by China, and others, must 

end. I thank you and yield back. 

Chairman ROS-LEHTINEN. Thank you very much, Mr. Smith, for 

you leadership. Mr. Gregory Meeks, the ranking member on the 

Subcommittee on Europe and Eurasia is recognized. 

Mr. MEEKS. Thank you, Madam Chair, for holding this hearing 

today. And as an advocate for U.S. I am keenly aware of the risks 

associated with the U.S. companies venturing into intellectual markets less regulated and protected than our own. In fact, the producer of intellectual property need not formerly enter a particular 

market to put her products, whether those products are manufactured goods, IT content, books, movies, or sophisticated patented 

scientific devices at risk of theft. 

Trade, travel, broadcasting, and the Internet make all types of 

intellectual property vulnerable to appropriation. We often hear 

about the impact of this type of theft in gross numbers, billions of 

dollars lost to producers of intellectual property. We hear about pirated movies and music, and everyone immediately thinks California. This problem, however, is pervasive; affecting every state in 

the nation. The impact of IP theft hits home wherever home might 

be. In New York, for example, the motion picture and television industry is responsible for 91,608 direct jobs and $8.2 billion in 

wages, including both production and distribution-related jobs. 

Nearly 49,000 of the jobs are production-related. The IT industry 

generated over $19 billion in wagers throughout the state. Rampant software piracy, especially heavy in emerging markets, destroys innovation and harms New York’s economy. Just 10 percent 

reduction in PC software piracy would result in nearly $3 billion 

in added New York GDP and would create nearly 1600 IT jobs. 

Just as we should look to expand U.S. exports to protect and create 

new jobs in the United States, we need to do better to protect the 

intellectual property that is the basis of this employment in this 

vast segment of our economy. 

Let me just add quickly, I also add that I am deeply concerned 

about the risk to U.S. trade and investments in countries that 

won’t play by the rules. In this regard, the issues facing Chevron 

in Ecuador are critical and I hope that this is explored here today 

at this hearing. 

Chairman ROS-LEHTINEN. Thank you very much. And now I am 

pleased to recognize Mr. Rohrabacher, the chairman of the SubVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
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committee on Oversight and Investigations, who always has nice 

things to say about China. 

Mr. ROHRABACHER. Thank you very much, Madam Chairman, 

and thank you for holding this hearing. It is a significant issue in 

that it dramatically impacts the people of the United States. The 

Communist dictatorship in Beijing has caused dramatic harm to 

the well-being of the people of the United States. It comes down to 

that. And they are relying on us to protect their interest, to protect 

their families, and we have not been doing that. One of the most 

unforgivable elements of the economic war China has been conducting against the people of the United States is the massive government-approved and government-organized theft of American intellectual property rights. 

So thank you, Madam Chairman, for your leadership in trying to 

get something done where there has been hundreds of billions of 

dollars of intellectual property that has been stolen, hundreds of 

billions, and hundreds of billions of R&D that the Chinese have 

gotten for free in order to outcompete our people. We do the R&D, 

no wonder they have got a space program that now is trying to 

compete with the aerospace workers in my district, because they 

have stolen all of our R&D. And in California, I hate to disagree 

with my friend, it is worse in California. We have a lot of jobs that 

are tied directly to entertainment. 

They have been stealing from the people of the entertainment industry, especially in California, stealing the product of their labor. 

No wonder our people don’t have the money to pay for rent, don’t 

have the money to raise their families, because we are providing 

free entertainment for the people of China, the most populous people of the world, and who is benefitting from that? The Chinese 

merchants who are tied in to their Communist Party dictatorship. 

We have got to take a stand. We have been cowardly up until now, 

Madam Chairman, in confronting this horrible attack on the wellbeing of the people of the United States. 

Thank you for holding this hearing. I would like to put into the 

record a statement that I have——

Chairman ROS-LEHTINEN. Without objection. 

Mr. ROHRABACHER. Thank you. Thank you, Madam Chairman. 

[The prepared statement of Mr. Rohrabacher follows:]

7


75162d.eps
8

Chairman ROS-LEHTINEN. Thank you. My New Jersey colleague, 

Mr. Sires. 

Mr. SIRES. Thank you, Madam Chairman, for holding today’s 

hearing on a topic so vital to our economy and I might just add 

that I agree with a lot of what my colleague on the other side have 

said about China. Usually we are on the same wavelength on a lot 

of things, but it is critical when implementing trade policies that 

we ensure a level playing field. Unfortunately, as it stands today, 

the United States is at a disadvantage to countries like China that 

have weaker protections on intellectual property rights. Not only 

the weaker regulations and standards surrounding intellectual 

property rights in other countries put us at a disadvantage economically, it jeopardizes public health. 

We have seen the health and safety risk of negligent intellectual 

property laws in the form of poisonous products, fake medicines, 

and medical devices, and counterfeit airplane parts. In determining 

the level of protection of intellectual property rights, we must 

strike a balance that protects innovation in our country and allows 

the United States to continue to be a leader, not an obstacle, in foreign development assistance. We must commit to engaging with 

foreign governments to truly protect industry and consumer rights, 

guarantee an even playing field, and global trade will boost our 

technological leadership and help grow our economy. 

And I look forward to hearing our distinguished panel members 

and I yield back. 

Chairman ROS-LEHTINEN. Thank you very much. Ms. Schmidt of 

Ohio is recognized. 

Ms. SCHMIDT. Thank you, Madam Chairman. I would just like to 

add to the discussion that we are not alone in this thought. Thomas Friedman’s book, The World is Flat, and Pat Choate’s book, Hot 

Property, illustrates what international property theft has done to 

the integrity and the intelligence of our nation. Quite frankly, both 

authors have said it is quite difficult for us to stop it alone, that 

we need global support. The second thing I would like to bring up 

is that it is not just counter theft with the music and film industry 

alone. In my district, Proctor & Gamble was created. It is one of 

the largest companies in the world and international property is a 

big issue with them. 

One of the sub-issues is their product of Tide, a great laundry detergent, the counterfeit product that is in China today not only 

loses their revenue, but quite frankly, the integrity of the product. 

So when a Chinese woman uses an inferior product that says the 

cloak of Tide, they don’t see it doing what it says it does, and so 

it is a double loss for companies like Proctor & Gamble, and I look 

forward to hearing what our folks have to say. 

Chairman ROS-LEHTINEN. Thank you so much, Ms. Schmidt. Mr. 

Chabot, the Subcommittee on Middle East and South Asia chairman is recognized. 

Mr. CHABOT. Thank you, Madam Chair, for holding this very important hearing. The U.S. is the world’s entrepreneurial leader, as 

evidenced by the overwhelming number of patents, and copyrights, 

and trademarks filed in the United States annually; however, U.S. 

industries are facing very real threats to their intellectual property 

abroad. Many foreign actors are actively engaged in eroding our inVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
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tellectual property rights, often using a guise such as protection of 

the environment, to demand IP transfers. This is becoming a significant threat to the U.S. economy due to the dozens of industries 

that rely on the adequate enforcement of their patents, and trademarks, and copyrights in order to stay competitive in this global 

marketplace. 

Many companies in the Southern Ohio region that I represent, 

and Ms. Schmidt represents, are significantly affected by lack of 

enforcement abroad. IP supports close to 2.7 million jobs in our 

state, in Ohio, which constitutes 57 percent of the private sector 

there. IP has always been critical to innovation and entrepreneurship in the United States, which is why it is imperative for our 

trade agreements to appropriately recognize and enforce these IP 

rights. 

I hope our witnesses here today will shed light on how we can 

address this critical problem. And I yield back. 

Chairman ROS-LEHTINEN. Thank you so much, Mr. Chabot. And 

now the chair is pleased to welcome our witnesses. First, we will 

start with Mr. Grant Aldonas, the founder and principle managing 

director of Split Rock International. Mr. Aldonas serves as the senior advisor with the Center for Strategic and International Studies 

and as an adjunct professor and fellow of the Institute for International Economic Law at Georgetown University Law Center. My 

youngest is a law student there, so if you see her in her classes, 

double the homework. She needs that. 

Prior to forming Split Rock, Mr. Aldonas served as President 

Bush’s Under Secretary of Commerce for International Trade and 

Executive Secretary for the President’s Export Council from the 

years 2001 to 2005; welcome. Thank you. 

Next, we will welcome Dr. Derek Scissors, a senior research fellow for economics at the Heritage Foundation’s Asian Studies Center, where he focuses on the economies of China and India. Before 

joining Heritage, Dr. Scissors was the China economist at Intelligence Research, where he wrote its weekly China bulletin, China 

Watch and China Quarterly Forecast. Thank you, Dr. Scissors. 

And finally, we would like to welcome David Hirschmann, the 

president and CEO of the U.S. Chamber of Commerce for Capital 

Market Competitiveness. He also serves as president and CEO of 

the Chamber’s Global Intellectual Property Center, and is a senior 

vice president at the Chamber, where he serves on its management 

committee, but I know him as Susan’s hubby, and he better make 

a lot of money because Susan has an extensive shoe collection that 

would make Sarah Jessica Parker envious. 

So thank you to our witnesses. We kindly remind all of you to 

keep your testimony to no more than 5 minutes. Without objection, 

your written statements will be inserted into the hearing record, 

and, Mr. Aldonas, we will start with you, sir. 

STATEMENT OF MR. GRANT ALDONAS, MANAGING DIRECTOR, 

SPLIT ROCK INTERNATIONAL (FORMER UNDER SECRETARY 

OF COMMERCE FOR INTERNATIONAL TRADE) 

Mr. ALDONAS. Thank you, Madam Chairwoman and Ranking 

Member Berman, members of the committee, I feel like I could 

short circuit the process by simply associating myself with the comVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
10

ments of the entire committee. The reality is, we are in an 

unacknowledged competition of economic models. And it is more 

than the individual aspects of unfair trade practices. The reality is, 

it is a battle between free minds, free markets on the one side and 

between state capitalism on the other. And the sooner we recognize 

that we are engaged in that competition and we understand the 

importance of vindicating our freedoms, not only because of the economic consequences, but because of the model that our country represents and the moral solvency of that model, the better off we will 

be. So I welcome the hearing. 

It is an incredibly important topic, certainly at this time in the 

global economy and our own economy, but I think it is also important to recognize the reality of the challenges that we face. Let me 

start by underscoring the importance of trade, both exports and the 

imports, to the U.S. economy. It is not just that our trade is 25 percent of GDP, but that, every morning, every man and woman in the 

United States wakes up already wired into a global economy. That 

is true of General Electric’s workforce making gas turbine engines 

in Greenville, Michigan, just as it is of my friend Bruce Hultgren 

who owns a paving business in my hometown in Minneapolis. His 

inputs, his trucks, all that depends on our trade policy. He understands he is in the global economy every time he gets up in the 

morning. 

For that reason, the rules governing the global economy matter. 

The institutional incentives in the global trading system can either 

favor individual freedom, reward initiative, and encourage innovation, or they undermine the scope of individual effort, discourage 

investments in research and development, and ultimately slow both 

U.S. economic growth and the growth of the global economy. To ensure that we contribute to and benefit from a dynamic world economy capable of providing a foundation for lifting out of poverty and 

ensuring a more broadly shared prosperity, every nation, not just 

the United States, bears a responsibility to foster the world trading 

system rather than systematically undermining it. 

The current fragile state of our own economy and the world economy underscores that fact. Expanding opportunities for trade essential and not only is a spur to short-term growth, but a basis for 

improving our productivity and competitiveness over the long term. 

Conversely, protectionism in its various forms, which we will discuss today, represents the worst possible policy response to an economic downturn. One of the great lessons of the inter-war years 

and the Great Depression is the extent to which protectionist trade 

policies can exacerbate an economic slump. 

To a large extent, at least at the outset of the financial crisis and 

the recession, we thankfully avoided the mistakes of the 1920s and 

1930s. We did not see a widespread resort to what I would describe 

as conventional protectionist measures as a response to the downturn caused by the financial crisis. Over the last several years, 

however, what we have witnesses is a very significant increase in 

foreign policies and unfair trade practices that are, not only inimical to our trade interests, but undercut the prospects for economic 

recovery growth of full employment here and abroad. 

While seemingly expedient in the short run, those practices also 

undercut the growth potential of the countries that adopt them and 

11

they limit the prospects for success globally. That logic applies 

whether it is China or elsewhere, with still greater a force to practices that undermine intellectual property rights or compel U.S. 

companies to transfer their technology. Innovation drives productivity, which ultimately yields stronger economic growth. By diminishing the return on investments of U.S. companies that they made 

in research and development, such practices eventually lead to less 

investment innovation and less growth, both in the United States 

and globally. 

In other words, confronting the unfair trade practices on which 

the hearing focuses is not simply a question of defending U.S. interests, it is critical to restoring global economic growth and delivering a more broadly-shared prosperity, particularly to those who 

live at the bottom of the economic pyramid. The importance of rolling back these practices is particularly acute for the world’s poor. 

All prosperity ultimately flows from expanding individual freedom 

and improving the capacity of the individuals to exercise it. Government intervention in markets, expropriation, intellectual property theft, limits on consumer choice, diminished opportunity for 

private investment and entrepreneurship, erode the scope of individual freedom and undermine the rule of law. 

In other words, wholly apart from their economic importance at 

a time of slow economic recovery and high unemployment in the 

United States, the policies and the practices governments use to 

distort markets in favor of their producers come at a price in terms 

of the values that are foreign policies should be designed to vindicate. There is also important strategic as well as economic consequences that flow from failing to confront these policies, as Ranking Member Berman alluded to in terms of our national security, 

our economic vitality, translates directly into an ability to project 

power, slow growth, and limited economic opportunity limits our 

ability to pay for America’s global reach. 

But allowing these things to fester is probably more important 

in one way. The more profound strategic reason for confronting 

these practices is that our failure to do so will result in a far less 

dynamic U.S. economy and will inevitably weaken the moral solvency of the example we set as a free society. Thank you, Madam 

Chairman. 

[The prepared statement of Mr. Aldonas follows:]

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Chairman ROS-LEHTINEN. Thank you very much. Dr. Scissors. 

STATEMENT OF DEREK SCISSORS, PH.D., SENIOR RESEARCH 

FELLOW, THE HERITAGE FOUNDATION 

Mr. SCISSORS. Thank you to the chair and the committee for having me here. I am going to focus my remarks on China. The committee has already given many reasons for that, and actually, 

Grant has as well, talking about the battle among models. I will 

say that China is not the worst example of imposing trade barriers, 

but it is the biggest. It is not the only one, but it is the most important. We can learn a lot by assessing what China is doing and we 

can gain a tremendous amount by trying to get them to improve 

their practices to the extent that is possible. 

I will start with IPR. IPR is a core issue in the China trade because the trade relationship between the U.S. and China, the 

American comparative advantage there is in innovation. Without 

IPR protection, you don’t get as much innovation, which means 

that the U.S. comparative advantage is blunted, and that means 

we don’t get the kinds of gains from trade that we want and we 

expect, and that we get in many of our other relationships. You see 

this in the composition of U.S.-China trade. China sends us more 

cell phones than we send them; that doesn’t make as much sense 

as it should. The composition doesn’t make as much sense as it 

should. You also see it in public attitudes. 

The public likes trade, and yet, it has problems with trade with 

certain countries, and there is a good reason. The public is right. 

We are not having the kind of trade relationship with China that 

we should. And the main reason, if I had to pick one out, would 

be that, we don’t get our comparative advantage in the China trade 

because they don’t protect intellectual property. What is the problem with talking about intellectual property? Everybody here 

knows that there is no solution that is a magic bullet. Retaliation 

is very unlikely to help. It would have to be very carefully done; 

trying to give them the right incentives; managing their response. 

If we sign a bilateral investment treaty with the China, very 

likely, they are just going to circumvent it. They are very good at 

that. The chairman actually hit the solution on the head. It is not 

direct and it is not perfect, but it will work better than others, 

which is, to sign agreements with like-minded countries that are 

very strong on IPR, that don’t have Chinese involvement where 

they are trying to gain the agreement so they can step around it, 

and therefore, the Trade Promotion Authority is very important in 

this task. If we want to address Chinese IPR violation, we really 

need to be able to have the freedom to make agreement with likeminded countries and put indirect pressure on the Chinese that 

way. 

The second topic I want to address, which I actually think is just 

as important, the committee hasn’t really brought it up, but I know 

you are all aware of it, is subsidies. IPR is at that core of the U.S. 

economy; subsidies are at the core of the Chinese economy. It is, 

therefore, just as important to the relationship also, and unfortunately, in a negative way. We have been very focused here on subsidized Chinese goods coming into the American market. The latest 

example is solar panels, but our consumers gain from those subVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
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sidies. The subsidies that just hurt the United States are the subsidies that block off the Chinese market. We gain nothing from 

that, and in fact, the Chinese people lose as well. 

Financial subsidies are a major part of this. I have a little joke 

I tell here that state-owned enterprises have effectively borrowed 

$3 trillion at no cost since 2009 and even the U.S. Government has 

to respect those kinds of amounts, but the subsidy I would like to 

focus on is not financial, it is not the $3 trillion in no-cost borrowing, it is protection from competition, because protection from 

competition is fundamental. If you can’t compete you can’t win, and 

the rest of it all is details. How does China prevent the U.S. from 

competing? They essentially do it by law. 

State-owned enterprises don’t go out of business ever, they are 

just merged with other state-owned enterprises and they never 

shrink, so there is no market space created when a state-owned enterprise fails. Vital sectors of the economy are to be dominated by 

state-owned enterprises by law; autos, banking, construction, insurance, I have a long list in my written testimony. If you can’t get 

a majority share, if you are not fighting for most of a market, then 

the rest of the policies don’t really matter. Those are just the ways 

of implementing China’s goals to keep everyone out. 

They discourage new businesses. They push out small competitors and businesses saying it is disorderly competition. There are 

a range of issues, but the bottom-line here is, if you don’t allow 

competition, there is no way U.S. firms can win, and the other policies just don’t make any difference in that framework. Solution; 

measure and pressure. The first thing we need to do is measure the 

subsidies. That is not very exciting, but when we go to China and 

we say we demand this and that, if we don’t have a measurement, 

they will just say they improved it. We did want you wanted. We 

changed the policy. And they just invented a new policy. 

We need to be able to measure what they are doing and come 

back to them and say you are not making any progress. How do 

we pressure them? The pressure is, we need to pick something. I 

would pick increasing competition, reducing their barriers to competition, but we can’t have 15 things that we are asking them for 

in the SNED and the JZZT. It doesn’t work. We have been doing 

that for years; it doesn’t happen. So there has to be focus. Now, the 

positive side of all of this, it gets back to China being important. 

The committee has mentioned Venezuela and Ecuador. Venezuela and Ecuador have very significant economic ties to China. 

We get the Chinese to change their policies it would be much harder for the Venezuelans, the Ecuadorians, and other countries, I 

don’t mean to just pick on them, to practice the policies they are 

practicing. So China is the biggest problem, but it also offers us the 

opportunity for the most progress. And I am going to close on a 

personal note. I want to say thank you to my grandmother on the 

occasion of her 103rd birthday. 

[The prepared statement of Mr. Scissors follows:]

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Chairman ROS-LEHTINEN. All right. A 103rd, you are going to 

live forever, Dr. Scissors. All right. I feel like Al Roker here. Mr. 

Hirschmann, you are next, sir. 

STATEMENT OF MR. DAVID HIRSCHMANN, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, GLOBAL INTELLECTUAL PROPERTY CENTER, U.S. CHAMBER OF COMMERCE 

Mr. HIRSCHMANN. Madam Chairman, Ranking Member Berman, 

and distinguished members of the committee, thank you for allowing me to testify on behalf of the Chamber’s Global Intellectual 

Property Center, and the chairwoman was kind enough to mention 

my wife, Susan, all I can say is, I assure you her shoes are not 

counterfeits. This is a very timely hearing and just the latest example, frankly, of the bipartisan leadership in this committee on these 

issues. I think that is fitting because protecting the millions of jobs 

tied to inventing, creating, discovering, and bringing to market new 

products and services is a goal that unites all of us and impacts 

every business in this country. 

Study after study has shown that innovation and creativity, 

incentivized by a strong intellectual property rights system, are the 

driving forces behind the U.S. economy. In fact, our most recent 

study that was cited here shows that more than 55 million American jobs are tied directly and indirectly to intellectual property. 

These are jobs that pay 30 percent higher wages than on average 

and account for $5.8 trillion in national output. IP is also one of 

the most valuable trading assets and a key to our global competitiveness. In 2011, our innovative and creative industries comprised 

close to 3⁄4 of all U.S. exports, and this is true in all 50 states, to the tune of $1 trillion. 

Today, I would briefly like to make five points before taking any 

questions. First, while counterfeiting and piracy are not new 

crimes, the scale, scope, sophistication, and devastating impact of 

intellectual property theft has grown dramatically. The criminal 

networks engaged in the systematic theft of everything we invent 

may not spend money on research and discovery, as has been mentioned, but they are very sophisticated marketers and distributors. 

Cross-border theft of IP-protected products has mushroomed from 

a cottage industry into a global network of illicit crimes, including 

counterfeit and piracy both in the physical world and in online environments. 

Second, counterfeiting and digital theft impact every industry 

across the nation. In February 2011, Frontier Economics found that 

the global value of counterfeited and pirated goods is up to $650 

billion every single year. And they further estimated that that 

would triple to $1.77 trillion in just 3 years. Counterfeiters and digital thieves are increasingly sophisticated and deceive us into purchasing counterfeit automobile parts, food, medical devices, medical 

supplies, electrical supplies, pharmaceuticals, that do not even 

meet the most minimal safety standards, or in the space of pirated 

movies and music, consumers are falling prey to malicious computer viruses and identity theft. 

The entities behind these illicit goods aren’t haphazard infringers. They are operators of sophisticated, organized criminal networks. For example, recent news reports have found that the sale 

39

of pirated movies and music now provides a major source of income 

for the Zetas, the drug cartel in Mexico. 

Third, business is doing and must do everything it can to protect 

its own IP. This includes both embracing and investing in new and 

innovative ways to distribute their products and developing new 

technologies and partnerships to protect both consumers and their 

supply chains. Every government must also redouble its efforts to 

protect intellectual properties, and we need to set the example 

right here at home. The recent extraordinary efforts of the IPR 

Center, led by Immigration and Customs Enforcement, are evidence of what can be accomplished, and it has been done thanks 

to the great support on a bipartisan basis from this Congress. 

Lastly, we need to achieve meaningful advances in protecting our 

greatest trading assets overseas. Foreign governments increasingly 

allow, and even encourage has been said, unwarranted exceptions 

to IP that weaken company’s ability to innovate. Examples include 

India’s recent issuance of its first compulsory license to allow generic manufacturing of patent anti-cancer drug and Australia’s recent passage of legislation that stripped trademark owners of their 

ability to use brand on tobacco products. 

Meanwhile, a number of countries have inadequate IP laws or 

fail to effectively enforce their own IP laws. China is the best example and remains, as everybody has said, the leading source of 

counterfeit and pirated goods worldwide. While China has taken 

some steps to advance certain IP reforms, we believe the real 

change will only occur when intellectual property environment has 

changed in China. One of the most immediate opportunities to assert U.S. leadership in promoting our innovative and creative economy is the negotiation of a Trans-Pacific Partnership, as Ranking 

Member Berman has indicated. 

This is a template for future agreements, so it is essential that 

TPP include comprehensive high standards for intellectual property 

protection, looking at the U.S.-Korea Free Trade Agreement as a 

benchmark. We urge governments to continue to ensure that TPP 

provides such strong protections. We can’t exclude any sector of our 

economy and we must secure meaningful, important opportunities 

for biotech pharmaceutical companies, including the 12 years of 

data protection for biologics that is currently in U.S. law. 

In concluding, let me simply reiterate that it is essential for the 

administration and this Congress to continue to identify ways to 

combat foreign theft of our creative and innovative products, to protect the 55 million jobs that these products support, and we look 

forward to working with this committee to continue to advance that 

agenda. 

[The prepared statement of Mr. Hirschmann follows:]

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Chairman ROS-LEHTINEN. Thank you very much. Excellent testimony, gentlemen. I will ask questions on two issues. Although we 

have not talked about the Arab boycott on Israel, I wanted to ask 

you what thoughts you have about the impact that the Arab 

League boycott on Israel has had on U.S. companies. How effective 

have been the steps taken by our Government to reduce its impact? 

What measures can we take in Congress to ensure that neither 

U.S. businesses nor Israel are negatively impacted by this boycott? 

And secondly, on the issue we have been discussing, Beijing 

claims that it cannot control the illegal copying and downloading 

by its citizens of music, and movies, and other types of U.S. intellectual property, yet, the Chinese regime invests massive resources 

and efforts in blocking the free exchange of information by its citizens, including simple messages in support of democracy, or prisoners of conscience, of course, that cannot be allowed, they say. 

What are your comments on the Chinese regime’s control of political expression at all costs, yet saying that it cannot prevent illegal 

downloading from open sites? 

So anyone who wishes to comment on the Arab League and the 

Chinese line. 

Mr. ALDONAS. Sorry. Let me start with the Arab boycott. My own 

experience in private practice for many years as an international 

lawyer was that it had a very significant impact. And that the 

choices that firms were required to make wasn’t just dealing or 

coping with our regulations, which they were happy to comply 

with, it really was the impact and the power of what you had in 

terms of purchasing power in the Middle East as a result of oil. So 

ironically, I think the two things that we could do that are most 

important don’t relate to our regulatory regime, they actually relate to developing our own energy resources, so that, in some respects, we reduce the power of the boycott. 

The second thing is, we have a free trade agreement with Israel 

which is not as broad as it should be. When we negotiated in 1984, 

it was our first step toward free trade. It was our first bilateral 

agreement and on both sides we did not go as far as we could. At 

this point, Israel has found its own energy resources. We don’t 

have an energy chapter in the FTA. In terms of the linkages between our economies, so much of what Israel contributes to our 

economy is high-tech. We actually don’t have a chapter that expands on that trade or thinks in terms of, how would you create 

an electronic market? 

And what I would think about doing is then building from that 

to a regional initiative. We do have free trade agreements with Morocco. We do have free trade agreements with Jordan. We do have 

a QIZ program in the Palestinian Territory. Trying to build off of 

the U.S.-Israeli model and build, frankly, a model that is in opposition to the boycott, I think, is the most profitable way to do it and 

also the most positive way to do it. 

Chairman ROS-LEHTINEN. Thank you very much. Dr. Scissors. 

Mr. SCISSORS. I think I will stick to the China question after 

Grant’s excellent answer on the Israel question, the Chinese could 

obviously do better. They don’t devote the resources to IPR that 

they devote to lots of other things that are apparently more in their 

interest, but we know that. We know the resources that are availVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
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able to the Chinese state. We see it in evidence all the time in negative, and sometimes positive, ways, and they are important in 

IPR. We have to change their incentives. And I think my colleague, 

Mr. Hirschmann, and members of the committee, have indicated 

the way to do that, it is not to try to bludgeon them into doing it. 

They just won’t listen. 

The way to do that is to say, okay. You want to play that way. 

We are going to get a group of people, including trade partners you 

really value, we are going to play a different way, and if you want 

to trade with Australia, maybe Indonesia comes into this, countries 

that have resources, you are going to have to change the way you 

behave. So bilaterally, I don’t know what we can do to get them 

to use more resources that they have, the chairman is exactly 

right, but indirectly, I think we can change their incentives where 

they realize, all right, well, if we don’t go along with this we are 

going to lose more than we are gaining by stealing. 

Chairman ROS-LEHTINEN. Thank you very much. Mr. 

Hirschmann. 

Mr. HIRSCHMANN. China’s laws are stronger than its practices 

and you are right that when China recognizes that it is in its selfinterest in an area, it has demonstrated that it is also able to enforce its laws. And it has not done so consistently on intellectual 

property. But China is also not monolithic and we have found that 

there are certainly businesses within China, government leaders 

within China, who understand that China’s future is in innovation. 

And one of the things we have tried to do is strengthen their hand, 

work with them, because ultimately, while China’s enforcement of 

intellectual property is inconsistent, to the point that the problem 

continues to grow, to agree that businesses in China begin to demand from their government that their own intellectual property 

be protected, and the rest of the world joins forces in holding China 

accountable, I think we will make real progress. 

Chairman LEHTINEN. Well, thank you, and I will end with a 

question that I don’t have time to answer, but a number of countries in the Middle East, including Saudi Arabia, are notorious for 

widespread commercial abuses, such as their refusal to pay foreign 

companies and individuals for services rendered. And these individuals and businesses have few, if any, effective means for redress, 

and Congress has enacted legislation to require the administration 

to seek resolution of these disputes, including the establishment of 

a special claims process, but the problem remains. It has not been 

eased up at all and I had wanted to ask what we can do in Congress to ensure that there is a fair and speedy resolution on these 

cases. So we will leave that for another day. Mr. Berman is recognized for his questioning period. Thank you, gentlemen. 

Mr. BERMAN. Yes, I mean, you have touched on some of these 

issues, but I would like to just push a little harder on China specifically. Dr. Scissors creates a model of Chinese Government intentions. They don’t want competition. State-owned enterprises don’t 

fold for failure, they merge in other entities. They don’t allow market space. Other than the obvious importance of measuring in the 

area of intellectual property violations—the costs and scope of the 

theft, the activity, and the conduct—tell me a little more what you 

mean by pressure because, hoping that the Chinese private innovaVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
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tive sector creates enough pressure on its own government that, for 

their interest, they decide to force this, sounds like a very longrange plan. 

What is the short-range plan? Because it does occur to one that 

dealing with what we are dealing with here, should there be a huge 

escalation? Should we be talking about threatening China with the 

issue that it probably takes most seriously, which is its market access to us? And with all the costs that has for American consumers, 

for trade wars, for all of this, what is the argument against a rapid 

escalation of our tactics and weapons to challenge China’s notorious market? What are the arguments against doing that and finding more moderate, more incremental, kinds of strategies? 

Mr. SCISSORS. There are two arguments, and I think the whole 

committee is aware of one of them, it would cost the United States. 

China is very much in favor of competition overseas. Other people 

should compete and that competition is good for everyone. Competition is what drives economic progress and if we take away Chinese 

competition we hurt ourselves. They don’t like competition at home. 

Competition is good for others, so there are costs to the United 

States. I think we are aware of those. I would add to that, we 

haven’t——

Mr. BERMAN. But in and of itself, is the cost to the United States 

in the short term greater than the price of what is occurring continuing? 

Mr. SCISSORS. Sir, I don’t think those are the only options because I don’t think we have done a good job in confronting the Chinese without going to the big retaliation phase. We don’t confront 

them on a bilateral basis with, look, this is exactly what the harm 

that is being done, we are measuring it, and the harm is not dropping. We don’t do that. We do lots of things. We ask them for lots 

of things. They tend to be very vague and policy-drive, not outcome-drive. The WTO is stalled. I think that is very unfortunate. 

I think an American effort in the WTO on IPR and subsidies would 

be much preferable as a first step to taking action against China, 

and as the committee, including yourself, has recognized, grouping 

of like-minded countries have a way of influencing China without 

causing a confrontation. 

So if you are asking me if we have tried everything else, is it 

worth it? I might say no, because, you know, we haven’t measured 

the situation yet, so I don’t know exactly, but I understand the 

question. I don’t think we have tried everything else. I don’t think 

we have been very effective in what we are trying to do. TPP is 

a great possibility for changing that, but I think we need to try 

other things before we go to massive retaliation. 

Mr. BERMAN. Okay. Let me just try one last quick response from 

Mr. Hirschmann on the Russia issue. You advocate granting PNTR 

status and I think there is a lot of logic to that. Are the current 

Russian commitments on intellectual property protection adequate? 

Are they meaningful? Are we better off with Russia in WTO and 

them having normal trade relation status in terms of making 

progress here? 

Mr. HIRSCHMANN. Well, thank you for raising Russia. At this 

point, Russia is going to get into the WTO, so the question is, will 

we have, you know, the benefits of PNTR will accrue largely to the 

51

United States by having access to that market. But the reason this 

has taken a number of years is because the United States and this 

Congress were right to insist that Russia not just make promises 

in exchange for getting into the WTO, but that it make actual commitments. 

Mr. BERMAN. You mean, not replicate the China model. 

Mr. HIRSCHMANN. They actually practice what they say they are 

going to do. There have been some improvement in some areas, but 

overall I think Russia still has a lot to do and this Congress should 

continue to hold Russia accountable to live up to its commitments. 

Mr. ALDONAS. Madam Chairman, could I just take 10 seconds to 

respond to Congressman Berman’s first question? The first thing, 

and I am going to go back to the analogy of where our conversation 

started this morning, which is export controls. The problem with 

sanctions, which you have said eloquently over so many years, is, 

they are frequently not sufficiently targeted to have the impact we 

want. And the broader cost, both to our economy and to a lot of 

people in the Chinese economy of the simple escalation is, it is not 

targeted to actually affect the actors that would make a difference. 

What I would suggest is that, many of the tools we have domestically are not well-adapted to the global economy in which we operate. So, for example, we do have provisions that allow you to enforce, at the border, your intellectual property rights. The reality 

is, it is only on the finished product; whereas, many of the intellectual property violations are deep in the value chain. But there is 

a series of things we could do with our own laws that would be 

much better at targeting the individual companies, and particularly 

the state-owned enterprises that engage in this kind of behavior. 

Chairman ROS-LEHTINEN. Thank you very much. Thank you, Mr. 

Berman. Mr. Rohrabacher, the chairman of Subcommittee on Oversight, is recognized. 

Mr. ROHRABACHER. Thank you very much, again, Madam Chairman for holding this very significant discussion. I know people 

think that I am not for free trade because I am rather passionate 

about some of my beliefs in dealing with China, but I am a free 

trader. I believe in free trade between free people and I do not believe that it is possible for free people to have free trade with their 

fellow citizens of the world if the other people they are dealing with 

live under a Communist-style dictatorship as they do in China. I 

believe that the rules will always be manipulated so that there is 

a flow of power and wealth, not only from one country to the other, 

but from one people to the ruling dictatorship. That is why they are 

a dictatorship in the world’s most populous country because they 

know how to wield power for their own benefit. 

We have been played for suckers over the years. We have been 

played for fools. And we should because we have been permitting 

ourselves to act like fools. Oh, we are so afraid. We are so afraid 

of this dramatic confrontation that will happen. We are cowardly. 

They are not cowardly. They are brazen in their theft of wealth 

that should be going for our people to help our way of life, to help 

people pay for their family’s education, or their family’s home, and 

instead, the wealth is going, because we are permitting a one-way 

free trade. We are permitting massive theft of value that we have 

invested to go to another country that is dominated by a click of 

52

people that ensure that the wealth and power that goes there is 

under their control. 

It is not bizarre. It is cowardly. And let me ask about WTO. Well, 

first of all, let me know about Russia. When Russia sees the way 

we are acting about China, why would they think that they have 

to change any problem that they have got? They, in fact, think that 

they are being discriminated against if we are letting China off the 

hook. They don’t even have any political reform in China as compared to Russia. Russia has dramatic political reform over these 

last 30 years, yet, they have all these massive restrictions still on 

them from the Cold War, and yet, we let China, which is the 

world’s worst human rights abuser, literally, get away with murder. 

If we do rely on the WTO, which I voted against permitting 

China into the WTO, do we have a situation where we can enforce 

our own findings against China if we see that there is an organized 

effort by the Chinese Government to steal intellectual property 

from us, which we know exists? If we prove that, can we then unilaterally move forward or then do we have to rely on some panel 

from the WTO, perhaps with really significant countries like Cambodia or Nigeria, making the decision for us? 

Mr. ALDONAS. If I could, first of all, thank you for your comments 

because I largely agree with the idea; if it is not a free people, free 

trade is hard to have. Having said that, with the WTO, the answer 

is yes or no. You know, if we are in a situation where the rules, 

as they currently are, cover the practice, we have actually had a 

considerable success in litigating against the Chinese. The real 

problem is that, the WTO rules, such as they are, are largely confined to trade in industrial goods. They don’t reach many of the 

things that are a competitive advantage. They don’t go far enough. 

So the bindings on China are insufficient to go after the kind of 

broad panoply that you have described, Congressman, in terms of 

their affairs. 

That is why I think what Derek has said is, we need to be working with other countries to be developing the disciplines that go 

further, and it goes to the point you made about Russia. The reality is, we got into the trading system, the GATT and the WTO, 

with a bunch of countries that had similar underlying assumptions 

about free-market economies. We never bothered to state those assumptions and the principles on which the entire system has to be 

based, and until we get there, we won’t actually have global free 

trade. 

Mr. SCISSORS. Just really quickly, I mostly agree with what 

Grant said. There are some things you can make progress on in the 

WTO; there are some things you can’t The WTO is a partial answer. It is not a complete answer. We can do better with the WTO 

if we go to them with a measurement of what the Chinese are 

doing. We don’t do that on some issues, like subsidies, now, but 

that isn’t going to finish the process. The process also has to be finished, as you mentioned in the outset, by making agreements with 

countries that agree with us, and making a stark choice between, 

you can play it this way and this is who you get to deal with, or 

you can play it this way and you get to deal with a much bigger, 

more prosperous, set of countries. 

53

Mr. HIRSCHMANN. I would just add that, in addition to the very 

excellent points here, we do need to have an all-of-the-above strategy. The U.S. is not only a big market for Chinese legitimate products, it is also a big market for counterfeit Chinese products and 

we don’t do enough to enforce our own laws here and to address 

the counterfeits that come into our own economy. Second, what we 

have seen that when, as Dr. Scissors and Grant Aldonas have 

pointed out, China’s leading trading partners unite behind an 

issue, you don’t make perfect progress, but you make better 

progress. And we need to put every effort we can to working with 

Europe and other trading partners with China to put this issue 

higher on the agenda for all of us. 

Chairman ROS-LEHTINEN. Thank you very much, Mr. Rohrabacher. Thank you. Mr. Meeks, the ranking member on the Subcommittee on Europe. 

Mr. MEEKS. Thank you, Madam Chair. Let me ask Mr. Aldonas 

first. I just want you to elaborate a little bit more on the Russia 

situation, that Russia is getting into the WTO, and whether or not, 

by Russia being in the WTO, and by us granting PNTR, will that 

have any effect at all with reference to reducing IP theft? I just 

want a little more elaboration on that. 

Mr. ALDONAS. They will be subject to the disciplines of the 

TRIPS agreement and as I am comfortable as I am as a free trader 

of saying that you want a society, going to Mr. Rohrabacher’s point, 

where everything isn’t free as a participant in the system, we are 

better off with them under those rules. There is absolutely no 

doubt in my mind. 

Mr. MEEKS. So to anybody then, what do we do? You know, the 

realities of the global marketplace, we made certain trade commitments that we are not going to undo, but what can we do when 

a trading partner is acting in a manner that is unfavorable to 

American interests? What should we do? I mean, you heard my 

comments earlier about what is taking place in Ecuador and Chevron, and, you know, you just have some people that they are not 

going to—what should we do in those instances? 

Mr. ALDONAS. I think Ecuador is an interesting example because 

we do have leverage in the fact that they are a part of the ATPA 

process, whether or not, given what they have done with expropriation, and given the violations they have committed of the Bilateral 

Investment Treaty, particularly with respect to Chevron, whether 

they should be entitled to those tariff preferences, is a serious question. My own instinct, that is an opportunity where you do retaliate 

because they are flatly flouting the rules of the Bilateral Investment Treaty and investment is one measure that we are supposed 

to be taking into account when we think about the preferences we 

offer. 

More broadly, you have to be thinking about whether you can 

help Peru with an FTA, as you have done, outcompete Ecuador because the answer at the end of the day, even with China, is, can 

you build a better model that starts to outcompete them for capital 

and for investment? And so my instinct, even in the Western hemisphere is, as Derek was saying more broadly, let us find a way to 

get back in touch with the people that are committed to free trade. 

Let us build that. 

54

It may not include Brazil or Argentina right off the bat, it certainly won’t include Venezuela and Ecuador, but if we get started 

in terms of that and connecting into Asia, we are in a far better 

position to say that Correa and the other politicians in Ecuador are 

going to have to listen and start to move in the direction we want. 

So in the medium and short run, use the enforcement tools, longer 

run, we create a better mousetrap. 

Mr. SCISSORS. I just have a quick thing to add, because we all 

seem to be agreeing with each other on this, but documentation is 

really important here. We have this kind of knee-jerk reaction, they 

are doing something wrong, but you can’t fix every trade problem. 

We are not going to fix every trade problem in China. We are not 

going to fix every trade problem in the United States. So what are 

the big ones? And we really need to be able to document that in 

comparison, where do we put our eggs? I think Ecuador is a good 

candidate, but I really want to see, what are they costing U.S. businesses, U.S. workers, with their action, as compared to other actions we have to go after? 

There has to be a set of priorities here; otherwise, we just degenerate down into a knee-jerk reaction to everything, and I don’t 

mean to imply that is the case in Ecuador, I am just saying, when 

you want to know what can we do with trade partners, the first 

thing I want to know is, how bad is it really? Because I am not 

going to solve all the problems. Is this a problem I really need to 

solve? Do I have to bring out sticks and carrots for this one or can 

I really just say, I got to move on to something else? 

Mr. MEEKS. Mr. Hirschmann? 

Mr. HIRSCHMANN. I just want to add one point on Ecuador, and 

Venezuela for that matter, you know, expropriations are exceedingly negative in that they impact more clearer than anything else 

in the investment climate in a country, even worse, if that is possible, is when expropriations are carried out without any process 

whatsoever. And Ecuador and Venezuela have gone even one step 

further by not even recognizing the international agreements they 

have reached or binding international arbitration. So I think, you 

know, there is almost a three-part test there. The other thing I 

would add is, when all those things are happening, it is also symptomatic of larger violations of rule of law across the board that severely impact the citizens of those countries, so those would argue 

for a tougher approach. 

Mr. MEEKS. So, I mean, we are sitting here today and we are 

doing this hearing, and I think part of the purpose of the hearing 

is, Congress is frustrated. We don’t want, as you heard in my opening statements, the loss of revenue that takes place in my little 

state called New York, but we are trying to get, and I am trying 

to find out, what affirmative action should we take? Some say end 

the preferences agreement. Is that the right thing to do or is it not 

the right thing? What is the line when you cross that line that you 

are talking about, when it is more serious than others, you know, 

or something that we can remedy? 

You know, that is what we are trying to determine. I think we 

have to determine it as legislators, and I don’t have any more time, 

but just saying that those are the kinds of questions that we have, 

55

or I have, and I would love to know what you think in that regards 

because I don’t want to cut off our nose despite our face. 

Mr. ALDONAS. I love the direction of the question, Congressman 

Meeks, because the reality is, there is a lot of things that we have, 

whether it is Section 337 on intellectual property, whether it is customs enforcement, which could be better. They don’t do anything 

on their own motion. They have to wait for somebody to petition, 

even though they got a ruling from the ITC that should ban the 

intellectual property violations. There is all sorts of things we 

should be cleaning up that are specific to the tools we could use 

ourselves on enforcement of things like IP. 

With expropriation, since the investment is there, the question 

is, how are you going to try and discipline that process more broadly? And frankly, that really depends on what kind of incentives we 

create for investment elsewhere. 

Chairman ROS-LEHTINEN. Thank you so much. Thank you, Mr. 

Meeks. Thank you to the panelists. Mr. Turner of that little state 

of New York is recognized. 

Mr. TURNER. Thank you, Madam Chair. I want to relate a personal experience I have had. About 20 years ago I worked for a 

Hollywood studio and I traveled to Moscow to secure an agreement 

for the home video rights for a new movie that we expected to do 

very well there called Red Heat. I don’t know if you remember it, 

Arnold Schwarzenegger, it was a good movie. I was there about a 

day and walked into the subway station by Lubyanka, the famous 

prison, and there were boxes of Red Heat, the Cyrillic alphabet 

around our graphics and artwork. I bought one, copy was absolutely terrific. 

This would bespeak that, they had ties, this was pre-release, into 

Hollywood to get the artwork and all the other things they needed. 

This would be a vast criminal network. The income on this had to 

be tremendous. That was a long time ago. And if anything, I am 

sure they have gotten a lot better. There have been a number of 

regime changes in Russia, but these guys are still working and 

working well. Also, I think there is evidence that they are taking 

American properties, copying it, and then sending it back to us in 

the black market. 

Are we aware of this as a criminal enterprise and what steps are 

we taking that you know of or should we be taking? And I direct 

this, you mentioned this, Mr. Hirschmann, so if you would like to 

lead on that and I would like all your opinion’s if you would. Thank 

you. 

Mr. HIRSCHMANN. I recently met with a young woman who is a 

film editor out in Hollywood and I asked her why she wasn’t working. She said, well, I have been working for a film that was filmed 

in China by a Chinese filmmaking company and employed thousands of Chinese to make it, and I was helping edit it here in Hollywood, and by the time we got done editing it, it had been distributed so many times counterfeit in China that there was no longer 

a market in China for their own movie. And so there are countless 

examples of that across the world. 

You know, one thing to remember is that, increasingly, people 

who distribute counterfeit products, whether it is physical products 

or movies and videos, are using the Internet to do that. The InterVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
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net is a vibrant distribution network for all kinds of products and 

we need to be very careful to preserve the innovative properties of 

the Internet and continue to encourage innovation there. But at the 

same time we have to recognize that it is also being used by a few 

to distribute products in that way. So I think one thing we can do 

is to begin to work with the world to find reasonable pro-Internet 

freedom, but still rule-of-law approaches to address the distribution 

on the Internet of counterfeit goods and stolen digital properties. 

Mr. TURNER. Do we know if these criminal enterprises are ad hoc 

or is there a continuing thread in this? 

Mr. HIRSCHMANN. In most case they are not ad hoc. They are 

very sophisticated networks operating, usually not in one country, 

but in multiple countries. You might find the servers in one country and the business, the place where they take the credit card orders, in another country, so it really requires a global approach to 

addressing that problem. And this are every bit the sophisticated, 

organized criminal networks that their predecessors were that we 

dealt with effectively here in the United States. 

Mr. SCISSORS. Just something that is indirectly, but I think important in its relevance, there is a bill in front of, well, I am not 

sure of its status, there is a bill in the House on economic espionage, which is a criminal activity and goes at IPR the same way 

as you are talking about. It involves large criminal enterprises, and 

the bill has to do with penalties, and there are possibilities. There 

are lines of attack that work. As David just said, these are global 

enterprises, which means it is not the case that if we pass a penalty in the U.S. we will never see these guys because they are safe 

in some country that we can’t get access to. They are not in one 

country. They are in lots of countries. 

They like to travel. They like to portray themselves as legitimate 

multi-nationals. Globalization gives us ways to put pressure on 

them just like it gives them more access to us. So I do think, in 

thinking about economic espionage, which is more my area of expertise in this matter, that there are ways that the U.S. can 

change its laws, not to solve the problem, but to exert more pressure on these companies and make it more difficult for them to be 

very organized, and very large, and very profitable. 

Mr. ALDONAS. If I could, I think you are absolutely right to treat 

it as a criminal enterprise and what that implies is that there are 

tools available. The individual theft becomes a predicate offense for 

a RICO charge and that becomes a criminal enforcement matter 

and we can turn to INTERPOL to help us enforce it, but we don’t 

do that now, all right? I mean, the sad fact is, is that, even with 

the way we have thought about access to our securities markets, 

the U.K. securities market, they are a large enterprise that benefit 

from making profits of these illegal activities, and we don’t do an 

awful lot to enforce disclosure under those circumstances. Specific 

conditions that said we are going to force disclosure of this, the 

sunshine would help. It really would. 

Chairman ROS-LEHTINEN. Thank you so much. Thank you, Mr. 

Turner. 

Mr. ALDONAS. Thank you. 

Chairman ROS-LEHTINEN. Mr. Sires of New Jersey is recognized. 

57

Mr. SIRES. Thank you, Chairperson. You know, I would like to 

share a story with you that happened to me and really opened up 

my eyes. I was having lunch here at the Members’ restaurant and 

they happen to have catfish that day. I don’t eat a lot of catfish, 

but I ate the catfish. You know, I took some catfish, I went to the 

table, and the ranking member of the Agriculture Committee, as I 

am eating the catfish, says to me, ‘‘You know, we had to put some 

language in the Agriculture Committee bill because most of the catfish is imported in this country now, that is consumed here, and 

actually, in Vietnam, they grow the catfish right next to the sewage 

outflow.’’

So needless to say, I haven’t eaten any catfish since, but, you 

know, that goes to the question that the American people don’t 

know what is coming in. I mean, I was like, oh, my God. Then we 

have the other issue—and then, of course, obviously that industry 

is being destroyed in Alabama, where we have a legitimate catfish 

industry, because, obviously, it is a lot cheaper to raise the catfish 

in Vietnam than it is in Alabama. But, you know, the other question that I have also is, you know, with the development of the 

solar panels. 

You know, we develop the solar panels, you know, I guess we 

help China, whatever, they stole it, you know, the way of making 

it, then they come here and they dump all these solar panels in 

this country and it basically destroys our industry. I mean, we 

have got to find a way of dealing with these things because they 

are costing us a great deal of jobs in this country. And when I say 

that I agree with some of the comments by Dana Rohrabacher, we 

have to get a little tougher, you know, with some of these things. 

And I don’t think the American people really know, sometimes, 

what comes in and what we consume. We are just not that well informed. 

I mean, I watch it and I am here listening to everything that 

goes on here in this country all day long. So I was just wondering 

if you have a comment about that. 

Mr. ALDONAS. Yes, I do. So I think Congressman Meeks would 

testify, I am a free trader, and what I would tell you is that——

Mr. SIRES. Don’t eat the catfish. 

Mr. ALDONAS. Yes, I would. There is no consumer benefit, which 

is what free trade is about, to allowing unsafe products into our 

country, and it does mean doing what governments should do. That 

is not a debate about whether this, as a government function, 

should do, which is to protect our consumers. And that is not in 

opposition to the idea of free trade. So if that catfish is a health 

problem, of course we should be focusing on it. We want to participate and get the benefits of the global economy, but only to the extent it is serving our consumers. So you instincts are right and I 

just want to reassure you, it is not a protectionist measure when 

you are doing that, that is free trade. 

Mr. SCISSORS. On Chinese solar, I think the opening topic of the 

committee is IPR. That is the key issue here. If the Chinese, on 

their own, develop better and cheaper solar panels, we should be 

able to buy them. I don’t want to tell people they can’t buy them. 

I don’t want to tell people they can’t expand solar power because 

it is too expensive. There is a cheaper solar panel over here, but 

58

you can’t have it. I don’t want to do that. If the Chinese stole the 

solar panel technology, now, that is a totally different story, and 

that is why information is crucial here. 

I mean, I don’t mean to say anything about our solar panel companies, because we do some great work in this country in solar 

panels, I don’t want a solar panel company to be able to come to 

Congress and say, they stole it. Just trust me. They steal lots of 

stuff. They stole that. I want evidence and I want a process by 

which we can take that evidence and say, here is the problem; here 

is what it costs us; here is our retaliation. So free trade says, if 

they are making better solar panels on their own, we want to be 

able to buy them. IPR protection, what we are talking about here, 

says, if they are stealing it, we need to document that and we need 

to take the action that is appropriate to what they have done. 

Mr. SIRES. But what happens when they dump in the market, 

you know, to purposely hurt another industry in another country? 

Mr. SCISSORS. Well, I mean, dumping is a separate issue from 

IPR. That is a perfectly legitimate issue. The Chinese are very likely to be dumping because they originally grew up selling to Europe 

and Europe doesn’t have the money anymore, so they are very likely dumping solar panels, or have been at certain times, then the 

Congress has a choice to make. Cheaper products have a benefit for 

the clean energy industry in this country; they do, but there is a 

tradeoff. And we have means to decide, we don’t like the dumping, 

we are going to measure the dumping, and take retaliation appropriately, but there is a cost and a benefit there when they are 

doing it legitimately. 

The great thing about this hearing is, if they steal the IPR, that 

is just theft. It is a clear-cut case. When we get into dumping you 

have to decide, do I want the cheap product or do I want to punish 

them for dumping? 

Mr. SIRES. Mr. Hirschmann, do you have a——

Mr. ALDONAS. Just to add further on the dumping side. I used 

to have to administer that part of the Commerce Department and 

it is another one of those areas where the tools that we have are 

not adequate to the global economy in which we operate. The reality is, you know, going to Derek’s good point, I don’t want to prevent cheaper products where somebody is competing on the basis 

of their own innovation from coming to the country, but I do think 

it is time to reconsider what we do with the dumping laws and it 

may be time to consider whether or not a private right of action 

makes more sense than asking the Commerce Department to investigate it. 

In other words, put a tool in the hand of the company that is 

most affected, put them in a position where they have to provide 

the evidence that Derek suggests, but also allow them to be able 

to go after the company that is penalizing their potential and find 

a way so they have direct recourse rather than a tariff, which sort 

of damages our economy. It doesn’t actually have that much of an 

impact on the dumping company. But I think it might be time to 

rethink how we approach that issue. 

Chairman ROS-LEHTINEN. Thank you. Thank you so much, Mr. 

Sires. 

Mr. SIRES. Thank you. 

59

Chairman ROS-LEHTINEN. Have you seen that show, Hillbilly 

Catfishing? I don’t think you want to eat it from the United States 

either. Mr. Marino of Pennsylvania is recognized. 

Mr. MARINO. Thank you. Thank you, Madam Chair. That is why 

I am a meat-and-potatoes guy. My professor in undergraduate work 

told me a long time ago to watch the sleeping bear; China. And he 

predicted with a great deal of accuracy where we are at today concerning China. And if we believe that private industry in China, 

which is an oxymoron in and of itself, will have any effect on IP 

theft, I think we are truly kidding ourselves. China is a dictatorship. It is a brutal regime that will not change its basic ideology. 

Nevertheless, China wraps its arms around capitalism, which I 

think, to a certain extent, we are responsible for because they are 

getting rich, in part, because of capitalism. 

And the Chinese Government has absolute control over everything. I have spent my life in college, and graduate work in law 

school, and up until this point of studying China pretty significantly, and it reacts on a day-to-day basis. I don’t think China is 

concerned with long-term future. And as far as Russia, Russia already is very much aware of our lack, the U.S.’s lack, of a response 

to China’s IP theft. Russia is just waiting. I just visited Russia a 

short period ago. They are very concerned and want to get into 

WTO. It is the ultimate for them. But watch what happens when 

Russia does get into the WTO, it will step up its intellectual property theft to the levels of China. 

So with that little dissertation, and we will start with Mr. 

Hirschmann, and then anyone else who has a comment, please 

chime in, because I have a couple of questions, what is the reality? 

What are the facts, the bare-bone facts, if the U.S. simply says to 

China, within 6 months, if you do not change your policies of flooding the market, stealing our intellectual property, products coming 

in this country will substantially curtail, if not stop? 

Mr. HIRSCHMANN. I don’t think we, you know, as Grant Aldonas 

pointed out, you have to balance our desire to make progress in 

China with also making sure that, where we benefit from the relationship from China, we don’t shoot ourselves in the foot, and simply denying consumers products from China, or starting a trade 

war with China, while, you know, it would certain escalate the confrontation with China, but I don’t think it would be a swifter path 

to solving the problem. I wish there was a simple solution and I 

can see why that is tempting, and I don’t think that simply waiting 

for indigenous businesses in China to rise up is the answer, but it 

is part of the answer, because China is not monolithic. 

It is also true that we can do a better job of closing off markets 

to counterfeit Chinese products. We can also join with the rest of 

the world. The one thing I do know is, they are not likely to listen 

just to us. And too often, to be candid, other issues in the U.S.-Chinese, or in the European-Chinese, relationship end up trumping 

these issues. If we are going to make progress on these issues we 

have to be united and put them at the high up top of the list. 

Mr. MARINO. Doctor? 

Mr. SCISSORS. If you were to do that in the short term it would 

be much more harmful than it needs to be. There are a lot of corporate supply chains that run through our allies, our companies, 

60

their companies, and then also China. And a short-term adjustment like that is going to be very difficult. I am, you know, going 

to caution, there are a lot of gains from—we just had a Chinese 

State entity today buying GM pension assets. It helps GM, but 

might save the U.S. Government some money. There are a lot of 

gains in this relationship. If you were going to go the route of saying enough is enough, we have a new Chinese Government coming 

in this fall, you tell them, look, the last government was a disaster, 

we are not putting up with 10 more years of this. 

Give them a time period. Don’t say 6 months, it is not fast 

enough for them, it is not fast enough for us. Give them a time period, give everybody warning, if you are going to go the retaliation 

route and say, new government, you get to change gears, we are 

not accepting another 10 years of statism, that would be a more responsible retaliation route because it is us, it is our allies, it is our 

companies, we are all involved in this process. 

Mr. MARINO. Thank you. Sir. 

Mr. ALDONAS. You know, I guess what I would say is that, we 

have this disturbing tendency, I know I do, to assume that China 

is monolithic and that there is no politics going on over there, but 

China has gone through a generational shift. The folks who have 

been in charge for 10 years are the people who kept their heads 

down and made their way through the Cultural Revolution. The 

people who are coming now brought you the Cultural Revolution 

and there are two different factions that draw very different conclusions from that experience. 

One part of that generation desperately doesn’t want to go back, 

another part wants to embrace that reality and reinforce it. And 

I think our job is to be sophisticated enough to bring pressure to 

bear on them where we can influence their decisions, but actually 

to create the political space for that reform movement to move in 

the direction they know they have to. They know they are living 

with a 4000-year-old system of Guanxi rather than a rule of law. 

They have to make a transition. They know they have to make that 

transition and employ that 650 million people that are west of 

Shiyan with nothing but a handheld hoe. 

Mr. MARINO. Okay. 

Mr. ALDONAS. But I think we have to provide the incentive for 

them at the same time we are providing a stick to the other side 

to say, that is not going to work and it makes me start thinking 

about, what is the biggest ticket item you could use to send a signal that the relationship has to change? It doesn’t necessarily have 

to be across-the-board tariffs on imports, but we do have to send 

a signal that enough is enough. 

Mr. MARINO. Thank you. 

Chairman ROS-LEHTINEN. Thank you, Mr. Marino. And we will 

conclude with Ms. Bass, the ranking member on the Subcommittee 

on Africa, Global Health, and Human Rights. You are recognized. 

Ms. BASS. Thank you, Madam Chair, and I want to thank the 

gentlemen who have given us testimony for you expertise today 

and congratulations to your grandmother. You are very blessed to 

still have her in your life. You know, this is a very important issue 

for my district. We have spoken a lot about Hollywood. I actually 

represent Hollywood, Culver City, a lot of the entertainment indusVerDate 0ct 09 2002 10:05 Oct 01, 2012 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 Y:\WORK\FULL\071912\75162 HFA PsN: SHIRL
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try, a number of studios, and also the music industry, and I just, 

in listening to you, wanted to know if any one of you could provide 

me some specific examples so I can understand a little better. For 

example, I think I have heard several things. I think I have heard 

that there is a need for—well, that we could do better. 

For example, we don’t necessarily have the tools, then I believe 

I have heard we actually have the tools, but they are not necessarily enforced. I was wondering, is it a question of resources? Is 

it political will? What is missing? Because it seems as though you 

have described that the parts are there, but for whatever reason, 

we have not put it all together and have actually enforced, or used 

the tools, when we could, and maybe you could give me some examples. 

Mr. SCISSORS. I will go first because I am short. What is missing 

is focus. We need to decide what our priority is. I said this in my 

opening statement, you can’t go to the Chinese with eight vague 

demands. It is not going to work. They don’t want to cooperate and 

you are giving them an opportunity not to. So the hardest thing for 

Congress to do is to not pressure the administration that at the 

next meeting, at the next Presidential Summit, I want you to bring 

up my issue, and I want you to bring up mine, and mine, and mine, 

and mine, and mine. 

Ms. BASS. Right. 

Mr. SCISSORS. There has to be some sort of decision about, this 

is the big thing. IPR would be a very tough one, but it would be 

a justified one. So the number one thing I would suggest is, there 

has to be some sort of consensus on, this is where we draw the line 

and, you know, the relationship isn’t going to be perfect, but this 

needs to improve. 

Ms. BASS. Do you have opinions about what that priority should 

be? 

Mr. SCISSORS. Yes, and my opinion is that, until you get the Chinese to accept more competition within China, we can’t make 

progress. Everything else is at a level below that. And right now, 

they were moving toward more competition, for about 20 years, 25 

years, this government, they have moved away and they need to 

move back. And everything else gets better if they do that and it 

gets worse if they don’t. So that is where I would put it. I have a 

lot of specifics, but I don’t want to take up all the time. 

Ms. BASS. Okay. 

Mr. ALDONAS. We have a lot of debate about currency. The Chinese are actually getting worse on currency right now. They are actually driving the Renminbi down relative to the dollar because 

they are concerned about European markets at this point, but we 

shouldn’t overlook the fact that the more powerful reason is actually the lack of competition in capital markets and the fact that 

you have, essentially, a system of indentured capital for Chinese 

savers. That is the real problem, right? And one of the answers is 

expanded market access. 

And when I think about Hollywood, my daughter is trying to be 

a comic out there, and when I talk with Kiki about, you know, 

these sorts of issues, and she asks me very similar questions, I say, 

look, you know, the irony is, is that, ensuring that there is broader 

market access for Hollywood studios in China so that the product 

62

gets there, that the cost is low, that the Chinese people have access 

to a legitimate product, which they now have the income to buy, 

is our best answer, and that is a very specific demand, and it is 

a positive one. 

It is not saying we are going to bash you. What I am saying is, 

let us go to the table and say, sorry, part of the answer on IP, particularly as it affects Hollywood, is you deny our studios the ability 

to market their product the way they can do it cost effectively and 

serve the consumer. So there are specific and, I think, positive 

ways to try and address the problem at the end of the day, but it 

starts, not only with focus, it actually starts with what the concept 

of the challenge is. And I think the real challenge we face is, we 

have a set of tools that, frankly, aren’t geared toward the world we 

live in, and until we get there and we rethink all of the tools with 

that perspective in mind, China is the paradigmatic example, we 

probably won’t make the progress we have to. 

Ms. BASS. Well, the example that Mr. Hirschmann mentioned 

about how the film was being counterfeited before it was even in 

the editing stages, I have heard that many, many times. 

Mr. ALDONAS. Absolutely. 

Ms. BASS. And, I guess, if you do, and, you know, not right this 

minute, have legislative proposals, I would certainly be interested 

in knowing what they are. 

Mr. HIRSCHMANN. Let me raise one to build on what Dr. Scissors 

and Grant Aldonas have said, which is, we recommend in our testimony that we strengthen the 301 process, which is the process at 

the United States Trade Representative’s Office. You know, it has 

been a useful tool to do that report every year. USTR uses it to 

guide, but really, we need a process that has much clearer metrics, 

much clearer benchmarks, and that we can use to rally and focus 

the world’s attention on specific problems and make real progress. 

So that is one area. And the second is, Congress can play a useful 

role in ensuring that the administration negotiates the strongest 

possible provisions on intellectual property in the Trans-Pacific 

Partnership Agreement. 

You know, China will be watching to see what we do there and 

if we don’t continue to raise the bar when we do negotiate trade 

agreements, we will pay a price for that. 

Ms. BASS. Thank you very much. 

Chairman ROS-LEHTINEN. Thank you, Ms. Bass. Mr. Royce, the 

chairman of the Subcommittee on Terrorism, Nonproliferation, and 

Trade. Thank you, Mr. Royce. 

Mr. ROYCE. Thank you, Madam Chair. The Chinese Government 

estimated its public procurement market at, I think, $110 billion 

in 2009, but we have figures from our Department of Commerce report, Doing Business in China, that puts that actual figure in excess of $200 billion. We saw some figures from the European 

Chamber of Commerce, they report that their estimate, because of 

the way these companies work there, or are publicly owned, of the 

Chinese Government contracts, they put their estimate at over $1 

trillion. 

So that is a lot of money. A lot of potential contracts out there 

for U.S. business, but only in theory, because in fact, that market 

is closed, largely, to us in the United States. But at the same time, 

63

Chinese entities continue to be awarded U.S. Government contracts 

despite not being a party to the WTO’s general procurement agreement. That agreement among 40 major WTO member countries is 

intended to open up contracts to foreign competition, so they just 

won’t sign it. To address this problem, I have introduced a bill with 

Mr. Connolly which prohibits Chinese-based companies from receiving U.S. Government contracts until China joins the GPA, 

which will then force them to open their market. 

And I was going to ask each of you, would this approach be a 

helpful incentive for China to join the GPA and would its joining 

help eliminate Chinese unfair trade practices against U.S. companies in the public contract market? The other aspect of this that 

is so troubling is just how much of China is, in fact, you know, big 

government in China as opposed to an evolution toward more market economy, but if I could have your views. 

Mr. SCISSORS. Unfortunately, I am going to have to say no. We 

have plenty of examples of the Chinese signing agreements and 

finding ways around them because of the extent of state intervention. They have a lot of options for how to do things. 

Mr. ROYCE. So your presumption is that they will just violate 

that rule and that we won’t use the enforcement mechanisms 

under the WTO to compel them to? 

Mr. SCISSORS. My presumption is that, if you are talking about 

really opening the GPA market——

Mr. ROYCE. Right. 

Mr. SCISSORS [continuing]. Government procurement market in 

China, not making improvements, because you can make improvements, I am not arguing that, but the big one, where we count all 

the SOEs and those very large numbers you are talking about, that 

is much more fundamental than signing another WTO. 

Mr. ROYCE. Yes, but how do you do that? I mean, I have given 

you one suggestion of a way in which we cut off their contracts 

here. 

Mr. SCISSORS. Their contracts here are minor, Congressman. 

That is not going to have an effect. You have set the stage perfectly. 

Mr. ROYCE. Right. 

Mr. SCISSORS. You can count this up to a $1 trillion. 

Mr. ROYCE. Right. 

Mr. SCISSORS. They are not making anything like a $1 trillion 

here, so I mean, they are just going to weigh those two things and 

say, no, I don’t think so. You know, you have to go at, if you want 

access to big things, which is pushing the state back, opening the 

market, which I completely agree with you, is the proper goal, you 

have to involve big things. And big things are, look, this is the nature of our relationship. We are not getting our comparative advantage and you are. We are going to start trading with other people 

more through the Trans-Pacific Partnership, through other kinds of 

deals like that, because the whole nature of the relationship needs 

to change. 

Mr. ROYCE. But I understand we have this dialog with them, but 

I have suggested a concrete act where we cutoff contracts, you are 

saying, that alone won’t—then can you suggest something decisive? 

Because I am not certain dialog, as much dialog as we have had, 

64

is going to lead us to where we need to go. Is there decisive action 

we can take in terms of access to the U.S. market which would 

cause them to reconsider? 

Mr. SCISSORS. I know I am taking up all the time, I wouldn’t use 

access to the U.S. market. A big, expanding, well-done, TPP is the 

best lever on the Chinese. 

Mr. ROYCE. Let us go to——

Mr. ALDONAS. Yes, I don’t disagree with Derek’s point about a 

TPP and outcompeting them for investment capital is ultimately 

the answer in terms of what will sway people, it is creating the political space for a new generation that does want to move in the 

direction of reform, but I differ in the sense that I like your idea. 

We reach an agreement with certain countries to provide certain 

preferences under that, and the fact that countries like China benefit from that agreement and from an open procurement market 

while they don’t open their procurement market, I feel perfectly 

comfortable as a matter of political economy as opposed to economics to say that we definitely should adopt that approach. I would 

go one step further. 

I would say that you also need rules within the GPA that reinforce things under TRIPS, so there ought to be a linkage between 

intellectual property violations and GPA that says, even if you are 

a member of the GPA, if your computers are running pirated 

Microsoft software, sorry, you don’t get the benefits of the procurement code. And then what I would also say is that, I would be looking hard at the rules on state-owned enterprises in the WTO, and 

any other agreement we reach, to make sure that similar sets of 

disciplines apply to the SOEs, because I think Derek’s point is that, 

you know, GPA, government procurement, you have those definitional problems, but if you really accept the Chinese economy as it 

is, it is the state-owned enterprises that——

Mr. ROYCE. Mr. Aldonas, we worked together some years ago 

when you were on the Senate Finance staff on AGOA. I would like 

to just ask if afterwards I could talk to you about your ideas on 

how to add that to the legislation. 

Mr. ALDONAS. Sure. More than happy to do it. 

Mr. ROYCE. All right, very good. 

If I have time I will ask Mr. Hirschmannn for a response, if not, 

I yield back. 

Chairman ROS-LEHTINEN. Go right ahead. 

Mr. ROYCE. Thank you. 

Mr. HIRSCHMANNN. I think we would agree that China is very focused on what might emerge as competing markets for itself. So if 

we can surround China, while that may not be as swift an action, 

we have certainly—they are watching very carefully what happens 

in Vietnam and other countries in Southeast Asia, and they are losing market share in some areas to the—if we can raise the bar in 

the rest of Southeast Asia through strong TPP, I think we will 

make progress far faster than any other approach. 

Mr. ROYCE. Thank you, Mr. Hirschmannn. Thank you, Madam 

Chair. 

Chairman ROS-LEHTINEN. Thank you, Mr. Royce. Pleased to yield 

for his questioning time to Mr. Sherman, the ranking member on 

65

the Royce committee, the Subcommittee on Terrorism, Nonproliferation, and Trade. 

Mr. SHERMAN. The Royce committee, the best. 

Washington and Wall Street have backed the trade policies over 

the last 20 years. We see the results. And we are told that if we 

just rearrange the deck chairs on the Titanic, we won’t need to use 

the lifeboats. Well, this is simply absurd to have you gentlemen 

come to us and say, we gave MFN for China, we saw the result, 

so now we need more free trade agreements without fair trade, 

without balanced trade. But we are told we have got to get tough 

with China. How do we do that? More imports to the United States 

from more places that may or may not accept our exports. We are 

told that yes, we were in a $700-billion trade deficit, but that is because American workers are lazy or overpaid, not because Washington and Wall Street have adopted terrible policies in their own 

best interests and not in the interests of American working families. 

I will start with Mr. Aldonas. I know we are focused on movies 

and intellectual property. China limits the number of screens 

where American movies can appear. Have we had the guts to say 

there will only be 20 stores in America that sell Chinese apparel? 

I think that is a one word answer. 

Mr. ALDONAS. No. 

Mr. SHERMAN. And this is because Wall Street makes money by 

selling that apparel here. Nothing prevents a man from understanding something so much that his livelihood depends upon him 

not understanding it, and nothing is clearer than that MFN for 

China and the host of so-called free trade agreements have destroyed the American dream. 

What would happen to the Chinese economy if we ended MFN 

for China? 

Doctor? 

Mr. SCISSORS. They would have a period of rather difficult adjustment so they would probably have about a 2-year slump, an 

outright slump. They would either make the adjustment to move 

toward more market economy, or they would subsidize goods to 

send then to other countries which would then ship to the U.S. 

Mr. SHERMAN. When I say MFN, I don’t mean transshipment 

would be allowed. You are positing a world where we end MFN for 

China and so the Chinese goods come to the United States by way 

of Mexican ports? You are changing my hypothetical. 

Mr. SCISSORS. I know, but I am trying to indicate, sir, that your 

hypothetical doesn’t involve just stopping MFN for China. It involves unraveling a large part of the world trading system. 

Mr. SHERMAN. No. It means that when goods come into our country we have to know their origin, we do that already. I assume that 

when something says made in China it is not made in North Korea. 

If you tell me that that is not the case then——

Mr. SCISSORS. Well, sir, think about the supply chain. Think 

about the supply chain. Is a computer that was assembled in 

China, made in China? 

Mr. SHERMAN. A computer with over 51 percent value-added in 

China is majority value-added in China. A computer that is 21 percent value-added in China is 21 percent. And if you impose a tariff 

66

on a good and you say it is 21 percent value-added in China, therefore it is subject to 21 percent of its value is subject to a tariff, then 

you have an endless sliding scale. You simply have to determine 

what percentage of the good was made in that country. 

Now you bring up sourcing rules, of course we now have sourcing 

rules that allow that we have a China free trade agreement already. We call it the South Korea Free Trade Agreement. Goods 

that are 60, 70 percent made in China get to come into our country 

duty free, no reverse access. 

Five minutes is simply not enough time to discuss how Washington and Wall Street have acted in their own interests and have 

been responsible for what we have seen over the last 20 years, 

which is the destruction of the American dream. I yield back. 

Chairman ROS-LEHTINEN. Thank you very much, Mr. Sherman. 

Thank you. 

Mr. Manzullo, the chairman of the Subcommittee on Asia and 

the Pacific, the Manzullo subcommittee. 

Mr. MANZULLO. Thank you. Good to be here. Grant, good to see 

you, and I appreciate all the efforts that you have made to help out 

with the steel embargo. Steel tariffs were placed by the Bush administration and I fought those, and you were the portal in commerce that allowed us to get the specialty steel that kept thousands of American jobs. I just want to thank you publicly for that. 

Our committee held a hearing several months ago dealing with 

the piracy of intellectual property rights in China and one of the 

witnesses was a fellow by the name of Fellowes, F–E–L–L–O–W–

E–S, world renowned in the making of paper shredders. Their 

American facility is located in the suburbs of Chicago. Mr. Fellowes 

testified that he had a partnership with a Chinese entity and an 

investment of about $180 million. One day the American partners 

were locked out. The shop was closed. A lawsuit was filed by the 

so-called disgruntled customers who had ordered these shredders 

and could not get them, and then the Chinese courts entered judgment levied on the property, smoking Fellowes. This is another example of what happens with the piracy and the complicity of the 

Chinese courts. 

My question to the three of you is, in these cases where the Chinese courts are getting involved, do you see any indication at all 

with the exception of a few cases, of them doing anything to protect 

American property rights? 

Mr. ALDONAS. No. I mean the problem, Congressman Manzullo, 

is that oftentimes in their legal process, the judge is looking over 

their shoulder at what the provincial governor wants. And if the 

provincial governor is someone like my former counterpart who just 

took the fall, they are trying to find a way to shift those assets that 

Mr. Fellowes had invested in into the hands of one of their colleagues in China. So no great surprise the judge is looking over 

their shoulder at the provincial governor and decides to disenfranchise the U.S. investor. 

Mr. SCISSORS. Unfortunately that is true. The judiciary is controlled by the Party, and the interesting thing, I guess, from an 

academic perspective is the local Party versus the central Party. 

The best option U.S. firms have, and this is not a good option, is 

to be able to go to the central Party leadership and say, the local 

67

judiciary is making a decision which will hurt China as a whole. 

That means the same government we have been rightly criticizing 

as not respecting IPR as a whole is the better option in the court 

cases. It is not a very appealing situation. But local judiciary as 

Grant said is responsible, but it is responsible to local officials. So 

they don’t care about precedent. They just care about what is benefitting the local economy at that time. And when your better outcome is to go to Beijing, you are not in a very good situation. 

Mr. HIRSCHMANNN. I think that is exactly right, and it is another 

example of why, both how complex it is to deal with China and why 

we need to understand that China is not monolithic. Even at the 

provincial level we have occasionally found people who understand 

the need to move forward. And so the only way I would amend 

what Dr. Scissors says, I think you have to push at both levels at 

the same time, and you have to also use the competition among the 

provinces to your advantage within China. 

Mr. MANZULLO. One of the things that I have noticed is several 

years ago a local firm had made a bid on a waterworks improvement facility and the Chinese stole everything, the intellectual 

property, they even downloaded and stole their Web site. I asked 

the Chinese Ambassador to come into the office and he did, along 

with the DCM. We explained to them the situation, and the word 

got back that you don’t do stuff like this, and there was a favorable 

ruling in the Chinese courts. If you asked the Chinese Ambassador 

to do that today, no one comes in. The relationship that Members 

of Congress now have with the Chinese is nothing as it was a few 

years ago. Does that indicate anything to any of you? 

Mr. SCISSORS. Yes, this government, the government that has 

been in charge since 2002 that is about to leave, thankfully, is a 

statist, aggressive government. And it is not the same government 

that presided over Chinese true reform period which ended about 

the time this government took over. So what it indicates is that you 

have the possibility of a better government in China and a worse 

government in China. As David has repeated, it is not a monolithic 

entity. We have a worse government now. We also have a new government coming in for 10 years. It is coming in in the fall. I am 

not going to promise you they are better. That is a very difficult 

question. But that is an important question for Congress to get a 

handle on. You guys have front-line experience. Are the new people 

who are coming in more responsive? If they are not that is a piece 

of information because they are going to be in charge for 10 more 

years. 

Mr. ALDONAS. And I can, actually, Congressman, is my most recent trip to China was to Hong Kong, and the surprising thing 

there was how many Chinese entrepreneurs were leaving. In other 

words, they are betting against their own country and sort of the 

strengthening in some respects of the position of the state-owned 

enterprises, the strengthening of this model of having the right political connection to get the right result in the Chinese court. And 

the next generation of Chinese leaders, there certainly are leaders 

in that next generation that understand that that is a much deeper 

threat to, what, even to the Party maintaining its position in Chinese society than the idea that you shouldn’t engage in free trade. 

So ultimately things are changing. I am not sure they are changing 

68

in a positive way in the short term, but China is going to come very 

quickly to the point where it confronts the fact that the very things 

like private property, contract enforcement that allowed them to 

move from 1979 to the present day with that growth are going to 

come to a short stop. Because every step they are taking is eroding 

that set of underlying institutions that actually allow their economy to grow. 

Mr. MANZULLO. Thank you. 

Chairman ROS-LEHTINEN. Thank you very much, Mr. Manzullo. 

Mr. Connolly is recognized of Virginia. Thank you, sir. 

Mr. CONNOLLY. I thank my friend the chairman, and I want to 

welcome our panel on being here. 

Last year I was on the congressional trip to the Silicon Valley 

and to Seattle where we visited Microsoft, and we actually had sort 

of a big seminar for the business community and it was talking 

about this very topic, intellectual property protection and infringement. And what stunned me was, we had a string of business representatives, every single one of them had his or her own story 

about blatant intellectual theft in China. There was a candy manufacturer where right down to the color picture packaging of the 

package of their products was outright stolen. Starbucks, whole 

and entire replications of Starbucks’ coffee shops plunked down in 

Chinese markets, right down to the logo, the product looks exactly 

the same, entirely unrelated to Starbucks, stolen. Microsoft software, stolen. It was really an astounding presentation and what 

struck me was—and I am going to elicit your reactions—what is 

the United States Government doing about this? I mean it is across 

the board. It is blatant. We are not talking about knock-offs in a 

certain part of town that we have got to kind of crack down on. 

This is not Itaewon in Seoul years ago. 

What is your honest assessment of the United States Government’s enforcement, vigorous enforcement, what should it be, and 

what leverage do we have to try to make sure the Chinese come 

into the family of nations in terms of respectable, honest, predictable, reliable protection of intellectual property when the violations 

are so sweepingly blatant and across the board in terms of products? 

Mr. ALDONAS. So I am tempted to use an analogy to the environment. There is this thing called a Kuznets curve where things get 

a lot dirtier before they get better, and it all depends on rising income. And so the irony in all this is that we are actually better off 

with the China that has the incentive to move in the right direction, because as incomes rise those consumers want to buy the 

right thing. 

I am charmed a little bit by your example because I had some 

negotiations at one point with the vice chairman, Madam Wu Yi. 

We literally walked out of those; I walked into a Starbucks, bought 

a Starbucks cup that said Beijing on it, walked outside and saw the 

replica on the street. And she was standing next to me and all I 

had to do was point out the obvious that we are now outside the 

street, here is the—so it is that deep, just as you suggest. 

But I think the answer honestly is to say, how do we appeal and 

create the political space for the folks who still do very much want 

to perform? They don’t want their entrepreneurs to leave. They do 

69

want a China that can employ the 650 million people west of 

Shiyan. That really is the struggle. Because you have got to find 

things that target the people, the state-owned enterprises that are 

the negative element, and you also at the same time be sophisticated enough to say, let’s provide an incentive for that other part 

of China from which we can both benefit from a mature relationship. That is not what we have now. 

Mr. SCISSORS. I am going to not disagree with Grant. I am going 

to compliment him in the sense of providing another angle. I was 

a business consultant for more than a decade on China, and one 

of my clients would ask me, how do I keep the Chinese from stealing my intellectual property? I said, don’t deal with the Chinese. 

That is the only answer. Well, I have to; they are such a huge, 

wonderful market. Okay, well, then you are making the decision. 

And I want American companies to be able to make that decision. I mean Qualcomm is a great American company that has 

been able to protect its intellectual property through very hard 

work in China, so it can be done. But the real response from the 

government is to create relationships that are better than the relationship that we have with China. And we keep bringing that up 

again and again and again, but if American companies look at 

other American trade partners and say, wow, we can really do good 

work in Indonesia, say, or in Brazil, then the Chinese are going to 

have to change and we don’t have to fight over the details because 

they will just lose all this business. 

The reason people get their stuff stolen in China is because they 

are in China and someone says, oh, I want to copy that and take 

their market share. The best way, the unanswerable way, the thing 

the Chinese can’t do anything about is if companies say, I like my 

business opportunities better elsewhere, and the U.S. Government 

can help with that. 

Mr. HIRSCHMANNN. There is an even more recent news story 

about an Apple store in China where the employees didn’t realize 

they actually weren’t Apple employees because they wore the tshirts and thought they were going to work for Apple every day. 

These are highly sophisticated thefts. It is not fly-by-night. It is 

not your grandfather’s counterfeiting and piracy, and I wish there 

was a simple answer but there simply isn’t. It is an all of the above 

approach to dealing with the problem. We have to deny them markets for those products. We need to organize a global response. And 

we need to realize that what many companies do is not just stay 

out of the Chinese market but they withhold from the Chinese 

market their most innovative products. And ultimately China will 

want to attract that as well. 

Mr. ALDONAS. Just one final comment really, to pick up on what 

Derek was saying. We have an opportunity with the Transpacific 

Partnership, and it is going to be a challenge for Members of Congress because we are going to be negotiating with Vietnam. But I 

will say, the single most important reaction that I have seen out 

of the Chinese Government is when Intel decided to put a plant in 

Vietnam rather than in China. And to the extent we can use the 

TPP process to encourage Vietnam with its historic relationship 

with China to make choices that China has yet to make, and they 

do start to outcompete the Chinese for capital because the reality 

70

is Vietnam has become the new south coast of China. The go-West 

policy of the Chinese Government hasn’t worked. The more you see 

of that the more responsive they have to become because they have 

to deal with the economic reality of trying to continue to attract 

that investment flow. And that will come to an end if there is a 

better option. 

Chairman ROS-LEHTINEN. Thank you very much, Mr. Connolly. 

Mr. CONNOLLY. Thank you. 

Chairman ROS-LEHTINEN. Excellent answers. Thank you, gentlemen. 

Mr. Kelly, my friend, vice chair of the Subcommittee on Asia and 

the Pacific, is recognized. 

Mr. KELLY. Thank you, Madam Chairman. 

Mr. Scissors, in your testimony you suggest about a grab bag approach that the administration has as opposed to being very specific to make sure that we get more production out of it. What can 

we do to push that initiative? 

Mr. SCISSORS. Well, the first thing, I hate to put it this way because I am going to make myself really unpopular, is Members of 

Congress have to not start pushing their own agendas, right. I 

mean one of the things that people in the administration complain 

about is that they feel like there are 10 members with 10 different 

things they want to accomplish. So whatever Congress decides. If 

Congress decides it is IPR, then IPR. If Congress decides as I 

would it is subsidies, Congress can decide whatever it wants. But 

there has to be more of a unified voice. The administration ends 

up, different departments respond to different members and then 

we go with this long laundry list. IPR is a great choice. And what 

you get is some sort of sense of the Congress, either legislatively 

or resolution or even just private communication from the leadership saying, look, you have 2 years. We want you to focus on IPR 

for the next couple years. That would really put the administration, 

whichever administration, Republican or Democrat, on the hook 

that the Congress is united. When the Congress isn’t united you 

get the tendencies within adninistrations for Treasury to want one 

thing and Commerce wants another thing and State wants another 

thing, and it is a lost cause. So I would pick subsidies, Chinese subsidies. Somebody else might pick IPR. Congress passing legislation 

just encouraging the administration. All they need to do is signal. 

That is the first step. 

Mr. KELLY. All right. And I understand what you are saying. 

And I would say that it is probably not, there is 435 agendas, and 

certainly during a year of reelection that it becomes even more intense. So the idea for me has never been who is the most popular, 

who is the most productive, so we have got to start looking at that 

because, I think, as we become more productive as a body our popularity will rise with it. The opportunities though, when we look 

at the TPP, tell me, how can KORUS serve as a good model for 

TPP, especially when it comes to IPRs? Any of you can answer. In 

fact, all of you can answer. We struggled with that agreement for 

so long, and we waited too long, in my opinion, to get there, and 

it caused a great deal of problem internally with the republic. It 

caused a shift actually in some of the government there. 

71

Mr. ALDONAS. I agree with you completely about both the delay. 

It serves as sort of the baseline. But I am troubled by this idea that 

we are bragging in the TPP about negotiating a 21st century agreement. It is literally true, we are in the 21st century, right, it is not 

wrong to say it is a 21st century agreement. But think about what 

we are saying. You can either take an incremental approach based 

on KORUS, or you could say our entire economy has shifted onto 

a different basis, industrial organization has been changed fundamentally by globalization. We need to reenvision what our goals 

have to be in that context. 

What I would say is, it is time that we actually articulated in 

TPP the notion of free trade and ideas. What are the institutional 

settings that would allow not only to develop technology, make use 

of it, make a profit at it, but encourage diffusion, particularly in 

the poorest countries in the world? That ought to be our goal. In 

other words, it is reimagining what we should be doing. It is not 

content with just saying, well, we have TRIPS, let us make an incremental change there because we have seen a particular problem 

in this country or that country. Of course that is part of the way 

the negotiation works, but the much more fundamental shift we 

have to say is where is the global economy going, where our economy is going. If growth depends on innovation what do we have to 

negotiate, and it is free trade and ideas ultimately. 

Mr. KELLY. Any other witnesses? 

Mr. HIRSCHMANNN. The reason we keep pointing to the Korea 

Free Trade Agreement is because it is the highest level protection 

that we have achieved internationally. I keep remembering that 

when the NAFTA was negotiated, the word ‘‘Internet’’ was not part 

of the agreement. The world does evolve. And the purpose of the 

next agreement is to build upon that. So what Congress can do is 

make sure that it is united in asking the administration to build 

upon the model in Korea and to seek stronger protections that 

aren’t just in our interests but really are in all the TPP partners’ 

interest to protect intellectual property. 

Mr. SCISSORS. And just to add to that. If Korea, that is a great 

issue for Congress to coalesce around. We passed the KORUS. It 

has good IPR standards. Congress can build upon that and encourage the TPP process that way. In response to your first question, 

What can Congress do?, that is a great avenue for Congress to follow. 

Mr. KELLY. I thank you all for being here today. And I think the 

opportunity is so great that for us now to be debating things that 

really don’t add to the ability to create jobs and take advantage of 

a market that is out there for us, I don’t want to participate in it 

from this country. I want to make sure we dominate in it. So I 

think that should be our goal always, and as we go forward that 

would be my goal and I think all the goals of the members I serve 

with here. I don’t know of anybody that doesn’t want to see our 

country retain its status and go forward. 

And so with that I yield back. Thank you, Madam Chairman. 

Chairman ROS-LEHTINEN. Amen. Thank you so much, Mr. Kelly. 

Thank you to all of the members for excellent questions, but most 

especially, thank you, our panelists, for good solid recommendations and suggestions about what we can do working together with 

72

private businesses to level the playing field and do away with these 

unfair trade practices. So thank you very much for being here, and 

the committee is now adjourned. 

[Whereupon, at 12:04 p.m., the committee was adjourned.] 

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