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S. HRG. 110–1047

TRADE ENFORCEMENT ACT OF 2007

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

ON

S. 1919

MAY 22, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

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

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

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

WITNESSES

Maruyama, Warren, General Counsel, Office of the U.S. Trade Representative, Washington, DC ........................................................................................... 4

Brainard, Lael, vice president and director, Global Economy and Development

Program, Brookings Institution, Washington, DC ............................................ 6

Magnus, John, president. TradeWins, Washington, DC ...................................... 8

Atkinson, Robert, president, Information Technology and Innovation Foundation, Washington, DC ........................................................................................... 10

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Atkinson, Robert:

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

Prepared statement .......................................................................................... 29

Responses to questions from committee members ......................................... 39

Baucus, Hon. Max:

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

Brainard, Lael:

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

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

Responses to questions from committee members ......................................... 50

Bunning, Hon. Jim:

Prepared statement .......................................................................................... 55

Grassley, Hon. Chuck:

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

Hatch, Hon. Orrin:

Prepared statement .......................................................................................... 56

Magnus, John:

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

Prepared statement .......................................................................................... 57

Responses to questions from committee members ......................................... 65

Maruyama, Warren:

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

Prepared statement .......................................................................................... 76

Responses to questions from committee members ......................................... 80

Rockefeller, Hon. John D., IV:

Prepared statement .......................................................................................... 98

Stabenow, Hon. Debbie:

Prepared statement .......................................................................................... 100

Page

IV

COMMUNICATIONS

Federal Administrative Law Judges Conference .................................................. 103

Forum of United States Administrative Law Judges ........................................... 115

Kelley, Drye, and Warren LLP ............................................................................... 125

Lighthizer, Robert E. ............................................................................................... 132

National Retail Federation ..................................................................................... 148

Tease, Antoinette M. ............................................................................................... 152

United States Association of Importers of Textiles and Apparel ......................... 157

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TRADE ENFORCEMENT ACT OF 2007

TUESDAY, MAY 22, 2008

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:09 a.m., in

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

(chairman of the committee) presiding.

Present: Senators Lincoln, Stabenow, Salazar, Grassley, and

Bunning.

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Amber Cottle, International Trade Counsel; and Demetrios Marantis, Chief International Trade Counsel.

Republican Staff: David Ross, International Trade Counsel; and

John Kalitka, Detailee.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

In ‘‘Measure for Measure,’’ Shakespeare wrote, ‘‘The law hath not

been dead, though it hath slept.’’

The same could be said of our trade enforcement laws.

The administration has many tools to enforce trade agreements

and trade remedy laws. It has the World Trade Organization Dispute Settlement Body to resolve violations of WTO agreements. It

has section 301 to fight market access barriers. It has Special 301

to address intellectual property infringements abroad. And it has

section 421 to remedy Chinese import surges that cause injury here

at home.

But having these rules on the books is not enough. The Government needs to enforce them.

We in Congress often single out the Office of the U.S. Trade Representative for not doing enough to enforce our trade agreements.

We sometimes forget that, in recent years, USTR has launched

some significant enforcement cases. It has brought cases, for example, against China’s weak intellectual property enforcement regime,

against Mexico’s discriminatory telecommunications barriers, and

against European aerospace subsidies.

But USTR can and should do more. And Congress can help

USTR to do more by updating its trade enforcement tools. Many of

the trade enforcement tools that USTR uses today were created

decades ago. Congress created them to address different problems,

in a very different world.

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For example, in 1974, Congress created section 301 to begin

opening foreign countries to American exports. But the rules that

govern our trade with those countries have changed dramatically

since then.

In 1974, America was party to one trade agreement—the General

Agreement on Tariffs and Trade, or GATT. Since then, the GATT

has been dismantled, the WTO has been established, and America

has entered into 11 bilateral and regional trade agreements. A

complex web of interconnecting and often contradictory rules now

regulates our trade with other countries.

Our economy has also changed since 1974. Exports are more

than 10 times higher. The Internet and other forms of electronic

trading have revolutionized international commerce. And America

has shifted from a goods-based economy to a services- and knowledge-based economy.

But our enforcement tools have not kept pace.

That is why I introduced the Trade Enforcement Act of 2007

with Senators Hatch and Stabenow. It can help to ensure that the

administration has the resources that it needs to enforce our existing trade laws. It can help to provide accountability when the administration does not enforce those laws. And it can help to create

new tools to address the enforcement priorities of the 21st century.

The bill would significantly bolster enforcement of our trade

agreements abroad. Among other things, it would require USTR to

provide an annual report to Congress identifying its trade enforcement priorities for the upcoming year. And it would create a

Senate-confirmed Chief Enforcement Officer at USTR to ensure

that those priorities are thoroughly investigated and prosecuted.

It would also bolster enforcement of our trade remedy laws here

at home. It would limit the President’s ability to deny relief in section 421 China safeguard cases. That has happened all too frequently in recent years.

And it would help U.S. companies to obtain relief from subsidized

imports. It would clarify that the Commerce Department may

apply countervailing duties to nonmarket economies.

So let us wake up our trade laws. Let us ensure that the administration enforces them as much as it can. And for the sake of our

farmers, ranchers, manufacturers, and service suppliers, let us ensure that our trade laws do not remain asleep.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Well, thank you, Mr. Chairman, for holding

this hearing. I told you privately, I am going to have to go down

to Judiciary when we are done with my statement because I have

to help make a quorum. But I wanted to tell the panel members

that I might not be here to hear your statements.

Effective enforcement of our trade agreements is, of course, an

important and necessary priority. If we want to maintain the benefit of the bargain, we need to make sure that our trading partners

respect the rules that they have agreed to. That is also important

if we want to sustain broad support for creating more open interVerDate 11-MAY-2000 14:46 Jul 16, 2010 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 56757.000 TIMD PsN: TIMD
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national trading relations, and that is all critical to our future economic growth.

This responsibility, of course, is chiefly executive. If the administration fails to take action when our trading partners ignore the

rules, no one should be surprised if we start to hear complaints.

That said, I am not convinced by those who say this administration

is failing to enforce the rules effectively. For the most part, I think

the real problem is that people are complaining about practices

that are not even subject to rules yet.

If we really want to get serious about enforcement, we should

renew the President’s trade promotion authority, and then, after

that, we will be able to send our negotiators out to solve the problems that are not currently subject to rules, in other words, get

more rules-based. That is whether we are talking about energy,

autos, or whatever else you might want rules and enforcement on.

That is the only way that we will get some resolution of these very

tough issues; they will not solve themselves.

I am also concerned that the premise that enforcement is measured simply by the number of cases filed—as if a failure to file a

certain number of cases necessarily means that we’re not doing a

good job of enforcing our rights—that strikes me as being overly

simplistic. Litigation is not synonymous with effective enforcement.

Often, the best way to enforce the rules is to negotiate, not litigate.

Sometimes, even if you have a good legal case, you may not be able

to eliminate the problem through litigation.

I will give you an example from a farming area that I am concerned about, because over 10 years ago we filed a case against restrictions on our beef exports to Europe. Now, we won that case,

but the restrictions still remain. So that would bring up the question, should we view the beef case as a failure to enforce the rules

or does the beef case illustrate that there are limits to what litigation can accomplish? The availability of dispute resolution is a good

backstop, but it is most effective when it helps to avoid years of

litigation. We know about years of litigation; sometimes we benefit

and stretch out that process, sometimes when we are promoting

the case we find fault with how long it takes.

The administration has succeeded in resolving a number of disputes, such as with China. Now, we always have problems with

China. Everybody feels we are not doing enough. I feel we ought

to maybe file more cases than we have. But often we have won

without having to litigate to get there. While we certainly need to

see much more from China in terms of compliance, that is one example of what I mean by effective enforcement. Our trade agreements offer another means of establishing a strong legal framework

for international trade. Without such frameworks, there are not

any rules to enforce.

Take, for example, our pending trade agreement with Colombia.

Once the agreement enters into force, Colombia will be obligated to

effectively enforce labor laws related to core internationally recognized labor rights, as stated in the 1998 International Labor Organization Declaration of Fundamental Principles and Rights to

Work, and that obligation will be enforceable under the terms of

our trade agreement—but not until that trade agreement is approved. For those who profess to care about enforcing labor laws

4

in Colombia, our trade agreement is an important tool in achieving

that goal.

There is nothing to be gained by forestalling congressional consideration of trade agreements once they are worked out, because

there is much to lose. If there is advantage to our negotiations, to

our President signing trade agreements, we ought to move along,

get them approved, get the enforcement tools that are available,

and make use of them, because our trading partners are not idly

standing by.

Colombia has almost completed negotiating a trade agreement

with Canada, and the European Union is negotiating with Colombia. Delay only harms American workers and exporters who face

the prospects of being placed at further competitive disadvantage

with the second-largest market in South America.

An implementation agenda is, thus, part and parcel of an effective enforcement agenda. Today we look forward to hearing testimony on these. If there are portions of the bill that may be counterproductive, we should know that, and I hope you will say so. If

there are portions that can be improved, we should know that, too.

I am also interested in hearing whether there are other things

that we can do to invigorate our enforcement efforts. For example,

does USTR have sufficient resources and staff or should additional

resources be authorized? I thank each of the witnesses for preparing for this hearing.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator, very much.

Now I would like to introduce our witnesses. Before I do, I would

like to say that Senator Rockefeller cares deeply about this subject,

but he was unable to be here today. He expresses regrets. He is

at his son’s graduation, and unfortunately we could not get Johns

Hopkins to move its commencement date to accommodate this

hearing, so he unfortunately is not here.

Our witnesses today are, first, Warren Maruyama, the General

Counsel at USTR. He is responsible for enforcing U.S. trade agreements. Following Mr. Maruyama is Lael Brainard, director of the

Global Economy and Development Program at the Brookings Institution. Ms. Brainard previously served as the Deputy National Economic Adviser in the Clinton administration. The third witness is

John Magnus, president of TradeWins, a trade law and policy consulting firm. Finally, we welcome Robert Atkinson, the president of

the Information Technology and Innovation Foundation.

As I am sure you all know, our usual practice here is that all

of your statements will automatically be included in the record,

and we would ask each of you to restrain yourselves to about 5

minutes. We will give you a little leeway, but about 5 minutes.

Mr. Maruyama?

STATEMENT OF WARREN MARUYAMA, GENERAL COUNSEL,

OFFICE OF THE U.S. TRADE REPRESENTATIVE, WASHINGTON, DC

Mr. MARUYAMA. Chairman Baucus, Senator Grassley, members

of the committee, I appreciate this opportunity to testify about the

Office of the U.S. Trade Representative’s enforcement agenda and

our views on S. 1919.

5

At USTR, we know that our job is both to negotiate and enforce

trade agreements. Without enforcement, a trade agreement is just

a piece of paper. As Congress and this committee have made clear,

the American people expect the USTR to hold foreign governments

to their trade commitments. Accordingly, we are committed to

using every tool in the U.S. trade arsenal to ensure a level playing

field for American workers, farmers, manufacturers, innovators,

and entrepreneurs.

As General Counsel, a big part of my job is making sure that

trade agreements are enforced. This March, we initiated a major

WTO challenge against China’s Xinhua for erecting barriers to our

financial information providers. We are litigating with the European Union in the WTO on the launch aid subsidies for Airbus,

undue delays in approving our biotech products, and its prohibition

on hormone-treated U.S. beef. During the last year, we launched

two arbitration proceedings against Canada under the softwood

lumber agreement.

Effective enforcement requires the flexible and creative application of a wide range of techniques, tools, and strategies. In dealing

with foreign barriers, our initial preference is negotiation, since a

negotiated solution is typically quicker, more certain, and more

clear-cut. But if that does not work, we will analyze the potential

for a successful WTO challenge.

In fact, the United States has launched more WTO disputes than

any other WTO member. Of the 373 WTO cases that have been initiated through May 1, the United States was the complainant in

89, or almost one-quarter. Our winning percentage in fully litigated

offensive cases is almost 95 percent. What is more, we have been

able to successfully settle about one-half of our disputes on favorable terms so that our industries do not have to wait 3 years or

longer to get relief under the WTO’s procedures.

In the last 16 months, we have filed four WTO cases against

China, challenging China’s prohibited export and import substitution subsidies, failure to adequately protect intellectual property

rights, market access barriers to copyright-intensive products—our

books, movies, videos, and sound recordings—and Xinhua’s barriers

to foreign financial information providers.

Last November, we successfully settled the prohibited subsidy

case with China’s agreement to eliminate all of its WTO-illegal subsidies effective January 1, 2008. We are eagerly awaiting the final

panel report on China auto parts which is due in July. Our challenge to the European Union’s launch aid subsidies to Airbus has

been fully briefed and argued, and we are awaiting a decision by

the panel.

We welcome the committee’s commitment to ensuring we have

the tools necessary to carry out our enforcement duties, and we

look forward to continuing our close partnership. However, we cannot support S. 1919 in its present form. First and foremost, we oppose new restrictions on the President’s authority to review ITC determinations under section 421. Making 421 relief virtually automatic could threaten the public interest and invite retaliation

against some of our leading exports.

Second, there are concerns with the proposed Super 301 procedures. Super 301 may have had utility at one time, but today the

6

WTO and NAFTA have given us a new set of tools, and the USTR

has shown that it is more than willing to use them. The inflexibility of Super 301 could force USTR to bring cases at the wrong

time, in the face of industry opposition, or in situations where the

risk of failure may be unacceptably high.

We do not see what the new USTR Chief Trade Enforcement Officer or Trade Enforcement Working Group would add to our enforcement process. Since we are already required to consult with

the Section 301 Committee or the Trade Policy Staff Committee,

the Working Group could be a new bureaucratic hurdle that leads

to delays in enforcing U.S. trade agreements.

Finally, we hope the committee will reconsider the need for a

commission to review WTO decisions. USTR has already demonstrated that it is fully prepared to criticize flawed WTO decisions, and I urge you to look at our comments yesterday to the

WTO dispute settlement body about the Mexico zeroing case. We

have publicly stated that the WTO’s appellate body overreached in

its zeroing decisions, which represent, in our view, an egregious

case of misplaced judicial activism with no basis in the WTO agreement.

In conclusion, Mr. Chairman, I want to assure this committee

that we are eager to work with Congress to enforce our trade

agreements. If you have a constituent with a strong WTO case, we

want to hear about it.

I would be happy to answer any questions you may have. Thank

you very much.

The CHAIRMAN. Thank you, Mr. Maruyama.

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

The CHAIRMAN. Ms. Brainard, you are next.

STATEMENT OF LAEL BRAINARD, VICE PRESIDENT AND DIRECTOR, GLOBAL ECONOMY AND DEVELOPMENT PROGRAM,

BROOKINGS INSTITUTION, WASHINGTON, DC

Ms. BRAINARD. Chairman Baucus and distinguished members of

the committee, I am very honored to testify today on the Trade Enforcement Act of 2007, S. 1919.

I wanted to first place that act in a broader context and then talk

about some of the specific provisions and how they address the current context. Broadly speaking, I think we are in the middle of a

period of breathtaking global integration that really is just of a different magnitude and a different scope than previous episodes.

Right now we are in the process of integrating an expansion of

the labor force around the world of about 70 percent, which is quite

a startling period if you think about it, with the entry of India and

China, and as everybody knows, with wages less than a tenth of

the level prevailing in wealthy economies. That is more than 3

times bigger than previous episodes if you think about Asia, Japan,

South Korea, and the Asian tigers back in the 1970s and 1980s,

and it is much larger than the integration of the North American

market, which also, I think, was an important event.

These trends are affecting everyone in the U.S. economy. Everybody is now, in some way or another, exposed to trade. Even those

workers who used to be in white collar jobs, which were really very

7

much segmented from international competition, are now finding

themselves competing with services provided in low-wage places

such as India.

While some are very well-placed to take advantage of these new

opportunities, progressively deepening trade deficits and a sharp

20-percent decline in manufacturing jobs over the past 7 years

have contributed to deep and growing concerns among more and

more Americans about the benefits and the fairness of trade, and

those trends go across income classes, education classes, and even

across party lines.

What are we going to see into the future? More and faster of the

same. The G–7 economies have really dominated the world economy with about a 65-percent share for over 35 years. In the last

5 years alone, their share of the world economy has slipped by

about 10 percent, and over the next 40 years they are going to slip

to about a quarter, while the rising economies are going to dominate more than 50 percent of world income.

So what do those trends mean? They mean we have to compete

effectively in international markets in order to guarantee future

prosperity. They mean that Americans need to see that trade is

both beneficial and fair. The administration has been very busy

signing a lot of trade agreements. I think many Americans are

wondering whether any of those rules are actually bringing benefits to them.

So let me quickly go through how big an increase in activity we

have seen. In terms of the actual increase in trade, U.S. exports

and imports have grown by over $1.4 trillion in the last 7 years.

The WTO has expanded to include 12 new members, chief among

them, of course, China, the world’s fastest-growing and most populous nation, which we know does not have internal enforcement

mechanisms for its own food safety, let alone some of the trade

rules that we are asking them to comply with. The number of countries with which the United States has concluded free trade agreements has expanded by 16, and, for each of those trade agreements, they are vastly more complex, with many more disciplines

and rules than we used to have.

With those trade volumes shooting up, the disciplines expanding

out, and trade agreements spreading to countries with weaker

oversight capacities, you would naturally expect the number of

trade disputes and the number of trade enforcement actions to rise.

GAO analysis tells us that, in fact, non-compliance has increased,

as documented by the interagency process. Enforcement actions

have fallen. In fact, if you look at the Clinton period, or just that

first 7 years of the WTO, 11 actions per year. If you look at the

last 7 years, 3 per year. If you thought about just the volume of

trade expanding and trade enforcement expanding at a constant

rate, you would expect it to be around 17.

Now, at the end of the day enforcement actions are not the right

measure. It is the amount of compliance. That is what we should

be looking at, and we do not see that improving the way that one

would want.

So let me just quickly point to some of the provisions of the

Trade Enforcement Act that I think would be helpful. I think it

would be helpful for USTR to have a senior-level person who wakes

8

up every day with a job of investigating and prosecuting enforcement. I think they should welcome additional resources—$5 million

in additional help from an interagency working group—to proactively prioritize compliance actions. I think that they should welcome the help that would be brought by a very carefully crafted

version of Super 301 which is currently in this bill.

Thank you.

The CHAIRMAN. Thank you, Ms. Brainard.

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

The CHAIRMAN. Mr. Magnus?

STATEMENT OF JOHN MAGNUS, PRESIDENT,

TRADEWINS, WASHINGTON, DC

Mr. MAGNUS. Thank you, Chairman Baucus and other members

of the committee. Good morning. I am, likewise, honored to participate in this hearing before you and in the company of such distinguished experts. I congratulate you for moving ahead with consideration of S. 1919. The bill tackles important topics, and it proposes solid solutions.

I am going to go through the titles in the order that they appear

in the bill.

Title 1 establishes an updated version of the Super 301 mechanism for identifying and prompting action on the highest-priority

foreign barriers to U.S. trade. I always regarded Super 301 as a

useful element in U.S. trade policy, and I would welcome its return

in the form that your bill proposes.

Actually forcing action by the executive branch with respect to

any trade barriers, of course, is a difficult matter. I think that the

‘‘shall’’ provisions in amended section 310 may give rise to some

disagreements, but also will provide some useful jolts of electricity.

This can legitimately be part of a new architecture of energized cooperation between the government’s political branch and trade policy.

Title 2 establishes a commission that is empowered to review

WTO decisions that are adverse to the United States and to opine

as to whether the reasoning and outcomes of those decisions are legally sound. Having such a commission is a good idea. The need

for it has not diminished over the years since it was first proposed

in 1994. An objective second look at adverse WTO decisions, creating additional inputs for the political actors in the U.S. Government who must decide what to do is something that we should welcome. It can be expected at least to promote fully informed political

decisions, and at best to bolster public confidence both in the WTO

rulings themselves and in the U.S. Government’s responses.

I have personally devoted a lot of professional time to helping

with the defense of U.S. measures that should have survived WTO

review, but did not. There is a real problem and a number of reforms are needed, both in the rules and procedures of the WTO dispute system and in the way the United States participates in that

system.

Title 3 of the bill assigns Congress a role in the decision made

after the ITC finds that the criteria for import relief in a section

421 case are satisfied. This, too, is a sensible reform. Some political

9

review before imposing relief is appropriate, but that political review can include a role for both of the government’s political

branches so long as the new arrangements preserve efficiency and

respect a rule against legislative vetoes.

Title 4 has two good provisions involving the antidumping and

countervailing duty laws. Section 401 confirms that the countervailing duty law applies to products imported from non-market

economies. As a policy matter, it makes sense for the law to reach

these imports now that the Commerce Department is confident

about identifying and measuring the subsidies involved.

The need for legislation is debatable given what Commerce has

done on its own, but court approval for Commerce’s new approach

has not yet been secured, and in any event legislative clarification

cannot be harmful. Processing countervailing duty cases involving

China may in time lead to Commerce having to grapple more deeply with currency subsidies.

Section 402 of the bill overturns a line of court decisions that impose an additional requirement for obtaining relief under both the

antidumping and countervailing duty laws, forcing the International Trade Commission to speculate about whether the benefit

of import relief will flow to domestic producers. These court decisions were mistaken ones. They have caused a significant problem

in the enforcement of the affected statutes, and they deserve legislative correction.

Title 5 on trade enforcement personnel, which has received a lot

of attention this morning, proposes to create a new Senateconfirmed position at USTR with enforcement responsibilities, the

goal being to increase the level of enforcement activity and reduce

the likelihood of good enforcement initiatives dying on the vine. I

share the goal and would only raise a note of caution with respect

to expectations because I do not think this reform alone is going

to function as a magic bullet. There have been grounds for criticizing enforcement decisions made in each of the last several administrations.

In my judgment, the hyper-caution that functions as a wet blanket over our enforcement program is the true culprit, and it has

many sources. Congressional oversight and occasional pressure

have been hugely important in maintaining trade enforcement at

a reasonably active level. Looking forward, I would advise you to

prioritize, addressing the hyper-caution problem at its sources, as

you do in other titles of the bill.

If you do legislate on personnel issues, I would urge you to correct a serious mistake from the mid-1990s by repealing the Lobbying Disclosure Act provisions that permanently disqualify individuals from serving in high-level trade positions on the basis of

past work on trade disputes for foreign interests. These provisions

are unjust at an individual level and unwise at the level of public

policy in attracting top-flight talent into government service.

I savor your title 7 of the bill. I think it could help on interagency trade organization. I think it could help to reduce the structural problem that makes it harder than it should be for robust

trade enforcement actions to achieve lift-off within the U.S. Government. Trade officials are perennially at risk of seeing their

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cies more senior in the Cabinet structure whose portfolios lead

them to prefer calm and patience. I think clarifying the consultative nature of the relationship there is a good step.

In conclusion, the committee is doing important work by advancing its consideration of S. 1919, acting in its own best traditions

and in the public interest. I am very pleased to have a chance to

offer a practitioner’s viewpoint, along with my ongoing support as

the committee takes this work forward.

Thank you.

The CHAIRMAN. Thank you, Mr. Magnus.

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

The CHAIRMAN. Mr. Atkinson?

STATEMENT OF ROBERT ATKINSON, PRESIDENT, INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION, WASHINGTON, DC

Mr. ATKINSON. Thank you, Chairman Baucus and members of

the committee. It, too, is an honor to be here today, and I commend

you for addressing this important issue.

I want to start by talking about how our trade system has

changed. It has changed basically in many, many ways, but let me

just list two that I think are important to this hearing.

One, over the last decade we have seen the rise of several nations, particularly India and China, that now are so large and have

such control that they are able to exert monopsony power over foreign terms and essentially dictate terms of trade. If you do not like

their mercantilist policies, you can leave. If you complain about

them, you get squeezed out of the marketplace.

Second, and even more important, in the last decade a growing

share of nations has set its sights precisely on the sectors that the

U.S. economy specializes in and is most competitive in, and that is

knowledge-based/technology-based advanced production and business services.

So to get those jobs, they are not just relying on things that we

would rely on—government support for research and development,

good universities, and the like. They have decided they are going

to impose a whole new set of aggressive, what we would call Protectionist 2.0 strategies. ITIF documented these in a recent report

called ‘‘The Rise of the New Mercantilism: Unfair Trade Practices

in the Innovation Economy.’’ Let me just allude to a few of these.

One of them is antitrust enforcement. We use antitrust enforcement in this country to protect consumers; many other countries do

it as a way to protect domestic producers. We have seen this in the

EU and Korean cases against leading U.S. technology companies,

including Microsoft and Intel.

Rampant IP theft. We hear a lot about that, and it is real. One

of the best examples is the fact that the Chinese government itself

uses pirated U.S. software on their computers. They do not even

buy enough of it and they are using it themselves. So when they

say they cannot enforce it, it is really a question of, they will not

enforce it.

This really hit home to me over the holidays. Over the holidays

I was in Guangzhou, over Christmas, and I went out with my famVerDate 11-MAY-2000 14:46 Jul 16, 2010 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 56757.000 TIMD PsN: TIMD
11

ily to an electronics mall. I saw there just scores of stalls selling

iPods, only they were not iPods, they were fake iPods with the iPod

logo on them. This was less than a mile and a half or 2 miles from

the U.S. consulate. So it is not as if these things are hidden. They

are wide open.

There are a whole slew of other practices. Forced technology

transfer. If you do not give them the crown jewels in technology

and research, you do not get market access in many of these countries. Use of government standards to keep out foreign products

and services. Discriminatory taxes on foreign companies to favor

domestic ones. Restrictions on software uses, encryption, and other

types of technologies.

But even tariffs have been reengineered for Protectionism 2.0.

The best case of this now is what the EU is doing. In 1996, the

WTO passed, in large part with American leadership, the Information Technology Agreement, which was probably one of the most

important trade agreements in the last 20 years, I would argue. It

was supposed to eliminate tariffs on a whole wide variety of IT

products, and the result of that has been significant economic

growth around the world through the greater use of IT products.

Europe is a signatory to the ITA so, having a limit on many of

its IT products, it is difficult for them to come right out and say

we are going to eliminate the Act or reimpose the tariffs. Instead,

what they have done is a more subtle trick. They have decided to

simply reclassify IT products and call them something else.

So, for example, the computer that I have, the monitor I use on

my desk at work, is a 21-inch Dell flat-screen LCD monitor. The

Europeans just simply decided that is going to be a television.

When you call it a television, you can put a 14-percent tariff on it.

When you call it a monitor, you cannot put a tariff on it. They are

doing this on a whole slew of other products that have changed

slightly, that have innovated slightly since the 1990s, and they are

going to keep doing it unless we take aggressive action against

them.

Overall, I would say these highlight the fact that we need much

more aggressive trade enforcement. I think our trade policy suffers

from two major limitations. The other speakers have alluded to

that. First, it largely is focused, particularly in the last 8 years, on

opening new trade agreements but not on keeping markets open

with aggressive enforcement.

Second, many of these new Protectionism 2.0 practices fall under

the radar screen of the USTO and traditional WTO processes. That

is why we believe that the Trade Enforcement Act of 2007 is an

important step forward. At the most basic level it will send an important signal to USTR specifically, and the U.S. Government generally, that it must rebalance its approach to trade and make enforcement a much larger component of its trade policies. In that regard, title 1 is an important step to ensure that USTR focuses

much more actively on trade enforcement.

For those who say that measuring simply WTO cases is an inferior measure, I would argue it is quite a valid measure, and along

that measure, as Dr. Brainard has pointed out, we have fallen behind. But I think the other measure is simply, when you go out

and look at the scope of these practices that we have uncovered—

12

and we have uncovered these only in a slice of our economy, which

is the technology slice—the scope of these practices is quite significant. The fact that these practices exist is not being challenged,

and that other countries are using them with impunity suggests to

me that we simply are not doing enough.

Why is it that USTR has let the balance shift away from enforcement? I think there are a number of reasons. Partly it is financial,

that bringing cases costs money. That is why boosting the budget

is important. Partly it is cultural, though. It is a lot easier to go

out and bring new agreements, but a lot harder to go out and be

the bad cop who is always confronting these other countries and

some of the colleagues that trade officials always deal with, to have

to actually be the bad cop there. I think what you are doing would

help move that along.

One last part. I would argue that one of the other advantages

other nations have is that they are able to do a lot more of this

and take the burden off their companies. In the U.S., we have a

public/private partnership in a sense. We rely on companies to do

a lot of the legwork for USTR when they bring cases. That is why

ITF has proposed letting companies take a 25-percent tax credit for

the costs involved in bringing a WTO case. We think that would

help bring more action there.

Lastly, I just want to state there are people who would argue

that, somehow, enforcement is somehow antithetical to support for

free trade. I would argue it is just the opposite. If we are going to

continue support here and around the world for a robust trading

system, enforcement has to be a key component of it. In my view,

unless we really step up to the plate and make enforcement a

much bigger role, we will not get the support of Americans for

globalization and free trade.

Thank you very much.

The CHAIRMAN. Thank you, Mr. Atkinson.

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

The CHAIRMAN. This world is getting much more complex with

the rise of globalization, was Ms. Brainard’s point. Mr. Maruyama,

why should the United States not have on the books the most aggressive enforcement tools at its disposal? I say that in part because other economies, other countries’ attitudes and cultures are

a bit different. It may be changing a little bit, but we in the United

States pride ourselves in being a process-based country, rooted in

the Constitution, fairness, civil rights, et cetera.

Other countries are a bit more results-oriented, a little less process, more results. Forget the process. From their point of view, it

is the results, the exports, to get those products into the United

States, irrespective of any process. That may have changed a little,

I do not know. I think the WTO perhaps is helping a little bit.

But my premise really is, eventually we are going to move—the

world is going to move—much more to a process-based approach to

trade, and there has to be some common denominator, at least

there should be. So why would the United States not, why would

you, USTR, not want all the tools at your disposal to make sure

that we are being treated ‘‘fairly’’ because we are a process country?

13

Mr. MARUYAMA. Senator, we completely agree that effective enforcement has to be a very high priority—and it is. We think we

also have the tools in our hands right now to enforce U.S. trade

laws. During the Uruguay Round, one of the big U.S. objectives

was a stronger WTO dispute settlement mechanism that would

avoid some of the problems that had come up under the GATT. Effectively, we got it. We have a process where there are arguments

by the parties, there are rulings by independent panels, there is an

appellate mechanism, and it is all backed up by the threat of sanctions if a party does not comply with the rules. So, we have those

tools.

The CHAIRMAN. Let me change the question. Would this bill not

give you more tools? Would you not, as an agency—ostensibly to

enforce the U.S. trade laws—want all the tools you could possibly

get? So what is wrong with more tools?

Mr. MARUYAMA. Well, sometimes if you have too many tools or

you have too much process, you can get bogged down, and that is

part of our concern about some of the tools in the bill. A new working group. We already go through, as I think Lael can testify, a

very extensive interagency process.

The CHAIRMAN. Yes, but it waters it down. It limits you. It does

not help you, it limits you.

Mr. MARUYAMA. And then we would have, under the bill, a new

process they would have to go through, so there would be a new

bureaucratic hurdle that we would have to jump through in order

to launch a WTO case.

The CHAIRMAN. But again, why would you not want more tools?

You can use the tools at your discretion. For example, in this legislation they are asking you to set priorities and give you a menu

of options you can take. Why would you not want that?

Mr. MARUYAMA. Well, the purpose of Super 301 was to force the

administration to bring section 301 cases at a time when the WTO

did not exist. Now we have the WTO, and I think USTR’s track

record has shown under both administrations that we are ready,

willing, and able to use it. We have brought four cases against

China in the last 16 months. The Airbus case is a major systemic

challenge to the way that the EU has subsidized its industry. So

there is no, as I see it, blockage, hesitation, or cold feet about going

after our trading partners who are not playing fair.

The CHAIRMAN. What about the EU changing tariff lines, as

mentioned by Mr. Atkinson?

Mr. MARUYAMA. Well, I think I would agree with many of Mr.

Atkinson’s points. But I think a lot of what he said has bolstered

what Senator Grassley said at the outset of this hearing. There are

certain practices out there that really are not reachable under the

current rules. It is not illegal right now to have a tariff. The standards disciplines in the WTO are pretty weak. Antitrust competition

policy really is not covered by the WTO, so to get at that sort of

stuff you need new trade promotion authority, and you need to do

a new round that brings those under some form of WTO disciplines.

The CHAIRMAN. I do not agree with that, frankly. I do not think

that is the remedy.

14

I might ask Mr. Atkinson, what action could the United States

commence today with respect to the changing tariff lines, and does

this legislation help? Would that be helpful?

Mr. ATKINSON. Well, I think in some areas it is a little harder

to do things, but in many areas we have the ability to do things

now. For example, the notion that we need more trade agreements

in order to prosecute some of these types of Protectionist 2.0 practices: many of the countries we allude to—in fact most of the countries that we document in that report—are already members of the

WTO, or we have our own trade agreements with them.

Vietnam is a good example. We concluded a trade agreement

with Vietnam, and yet, after that trade agreement, they had discriminatory taxes on U.S. IT and computer parts that go into Vietnam. So, there is an awful lot we could do on these; we just are

choosing not to do them. I think your bill would lend support to

that, and more importantly would make it clear that that is the big

role for USTR right now.

The CHAIRMAN. Thank you.

Senator Bunning, you are next.

Senator BUNNING. Thank you, Mr. Chairman.

I appreciate your participation, panel.

Mr. Maruyama, yesterday the WTO released a report that criticized China for keeping its currency undervalued. As you know,

China is running a huge current account surplus with the rest of

the world, and our bilateral trade deficit with China last year

reached historical levels. Last year, it was $256 billion.

Based on China’s current account surplus, most trade economists

believe China’s currency remains substantially undervalued, and

the recent appreciation is better explained by movement in the dollar. Article 15 of the GATT requires WTO members to maintain

currency policies that do not frustrate the intent of the GATT. Assuming China was violating article 15, would USTR have the resources to challenge currency manipulation, and how would you go

about it?

Mr. MARUYAMA. Senator, on matters of exchange rate, this is

longstanding. USTR, and I think every agency of the U.S. Government, defers to the Treasury Department.

Senator BUNNING. We have a problem there.

Mr. MARUYAMA. Secretary Paulson has determined that the best

approach to the exchange rate issues is high-level bilateral and

multilateral engagement with China.

Senator BUNNING. Balking.

Mr. MARUYAMA. We do not think that a WTO dispute is the best

way of getting at exchange rate disparity.

Senator BUNNING. Well, sir, we have been talking for 3 years and

getting absolutely zero progress, so that is completely unsatisfactory.

Another question. I note, Mr. Maruyama, that USTR has won

another battle this week in the long-running banana case at WTO.

As Ambassador Schwab stated, this is the eleventh win against the

European Union. I am pleased that we won, but I wonder if winning means anything here. What enforcement steps does USTR intend to take to ensure full compliance? You know, we have won before, and we have had no compliance.

15

Mr. MARUYAMA. Well, my understanding, Senator, is that right

now the EU is negotiating with some of the Central American and

Latin American banana suppliers to try to reach a settlement. We

would hope that that would lead to something that would work for

all the parties. It is a difficult negotiation because some of the suppliers have different and varied interests.

Senator BUNNING. Some of us think that the WTO is a toothless

tiger.

Mr. Atkinson, I am troubled by what you describe in your testimony as the new mercantilism practiced by developing countries.

Among other strategies, you say that some countries have decided

that theft of our intellectual property is a legitimate path to

growth. U.S. law enforcement and intelligence officials have testified repeatedly about determined efforts of the Chinese government

to obtain our industrial secrets by spying and by other means.

There are many examples, some of them cited in your testimony.

Our comparative advantage in trade rests, to a large degree, on intellectual property. What should we be doing to turn this tide in

this area?

Mr. ATKINSON. I think we need to do several things. At the most

specific level, we need to bring more cases. Part of what we can do

is actually go out and document that these cases are actually going

on, that these practices are going on. We are not doing enough of

that. We need to do more of that. We need to bring more cases. We

also need to renegotiate TRIPS, the agreement on intellectual property, to have it with more teeth, with more enforcement.

Finally, while I think that this bill is a critical, important step,

I think it is only the first step. What we need is, we really need

to have a fundamentally different approach to trade policy in this

country. Other countries simply, as the chairman alluded to, are

looking at this—we look at trade basically from the perspective of

consumer welfare. These other countries are looking at it largely

from producer welfare, not just developing countries, either—Europe, Japan. We need to be much more aggressive at all levels in

our government. The President and other officials in the government need to say this is just simply not acceptable when we are

almost the only Nation in the world that is running a trade deficit.

Almost every other country is——

Senator BUNNING. Let me get to one other thing, and I think it

is very important. In WTO dispute settlement, overall statistics—

during the Clinton administration the U.S. initiated 60 offensive

cases. During the Bush administration we have initiated 25. Of

course, we have a little better percentage settlement on the offensive cases. But if you are not going to initiate cases, you are not

going to get enforcement. I am telling you that, if the WTO and our

Trade Representative will not fight for our corporations, then who

is supposed to do it? That is the reason we have S. 1919, to give

you more tools. I think you ought to appreciate the fact that the

Congress is trying to give you more tools to use.

Thank you.

The CHAIRMAN. Thank you, Senator, very much.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman.

16

First, I would ask that a complete, full statement be placed in

the record on my behalf.

The CHAIRMAN. Without objection.

[The prepared statement of Senator Stabenow appears in the appendix.]

Senator STABENOW. Thank you. A letter signed by myself and 11

other members was just sent to the President, asking that he not—

urging in fact, that he not—bring forward the U.S.-Korea Fair

Trade—Free Trade Agreement; I wish it was a fair trade agreement—Free Trade Agreement until we truly enforce, and have enforcement tools in place, and enforce our trade rules.

I believe that this topic is one of the most fundamental topics before the United States going forward in terms of our economy, and

I appreciate all of you being here. I think those who say it is protectionist versus free trade are really missing the boat. Mr. Atkinson, I very much appreciate your comments around that. I think

this is about how we compete in the global economy and keep our

standard of living, and keep the middle class of this country.

We can either compete down to the lowest wage and a lower

standard of living or we can compete up, with education, innovation, and a level playing field on trade. That is the choice. I come

from the great State of Michigan, that has been, at the moment,

sort of the poster child for what happens when this country does

not get it, when our government is not fighting for our businesses

and our workers.

Mr. Maruyama, I appreciate that the administration, the USTR,

has finally brought forward a case with China on U.S. auto parts.

But because of the slowness of that and how long it has taken, we

have lost six auto parts companies to bankruptcy in this country,

and hundreds of thousands of jobs because of the inability to move

quickly. I could go from industry to industry to industry on that

front.

Mr. Chairman, I very much appreciate the bill you have introduced, and I appreciate your including a provision that Senator

Lindsey Graham and I have been advocating regarding a Senateconfirmed chief enforcement officer. I think this brings very important accountability to that position, and also emphasizes the fact

that Ambassador Schwab has basically laid out a budget for USTR,

where one-quarter of it goes to enforcement and three-quarters to

new trade agreements, which does not make any sense to me either.

I also want to thank Senator Bunning. It has been my pleasure

to work with Senator Bunning on the issue of China currency manipulation, and I feel strongly about adding to the good work that

the Finance Committee did in including other tools, like countervailing duties, in that. So, I appreciate his advocacy on that.

There are many things that I would ask and say. I feel very

strongly about this issue. But I would start, Mr. Maruyama, with

a new GAO report. GAO has strongly suggested that the USTR is

failing in its efforts to monitor and enforce China’s compliance with

WTO obligations. The report says, your annual China compliance

reports lacked critical information on the number, scope, and disposition of reported issues. It took the GAO analysis to reveal that

only one-quarter of the problems that had been identified in USTR

17

reports have been fully resolved, one-quarter, and that since 2003

you reported no progress on about a third of the issues that have

been brought to the USTR.

I would, with all due respect, suggest that the GAO’s report says

that what is being done is not working, as a matter of fact. So I

am wondering, the GAO made specific recommendations to make

the China compliance reports more transparent and useful. I would

like to know what you are going to do in terms of adopting those

suggestions.

Mr. MARUYAMA. Thank you, Senator. We welcome the GAO’s report, and particularly its conclusion that USTR has made ‘‘considerable progress’’ on implementing the top-to-bottom review. We

have made it a top priority to expand our China office, and we have

also opened, as part of this initiative, a new USTR office in the

U.S. embassy in Beijing. We are studying the GAO’s recommendations closely and we are always open to new ideas on how we can

improve our report.

I am not sure what to make of the GAO’s recommendations that

we should try to quantify progress on each issue. Since China

joined the WTO in 2001, our goods exports have increased by 240

percent and now total $65 billion, the best measure of progress on

how the WTO has contributed to market opening.

Also, I am not sure how you can effectively quantify progress on

those trade issues. It could backfire by overstating or understating

progress and it could basically let the Chinese know that they are

off the hook. The GAO’s proposal to give each issue a numerical

rank may tell the Chinese which issues they can ignore. It may be

a relatively small issue but one that is important to one of your

constituents.

Senator STABENOW. Well, with all due respect, I would suggest

what we are doing right now is backfiring. Whether we are looking

at currency manipulation—I have had businesses in my office indicating that, when they compete, the differential and currency manipulation, which is anywhere from 8 percent up to 40 percent, has

cost them contracts.

The counterfeit industry alone, counterfeit auto parts coming into this country, is a $12-billion industry and has cost us about

250,000 jobs, and counting. I can take you to any part of Michigan,

big city or small, where I have businesses that have had their patents stolen. They have gone out of producing those products because it costs too much to fight it and have laid off people. So I

would suggest—and Mr. Chairman, I have a second question, but

I would be happy to wait if you would like.

The CHAIRMAN. Go ahead.

Senator STABENOW. I see my time is up.

The CHAIRMAN. Go ahead.

Senator STABENOW. Thank you. Thank you very much.

I would suggest that we do not take this seriously enough. That

is an understatement right now. We have to decide who we are

going to fight for in this country, whether it is for American businesses and American workers, or if we are going to sit back and

just let whatever happens, happen.

I do have a question on South Korea as we go forward. I have

spent a great deal of time on this. I have had my chief of staff be

18

a part of a delegation to visit with those in South Korea and talking before that trade agreement was determined. I am very concerned about the fact that we have had not one, but two Memorandums of Understanding in the past with South Korea as it relates

to automobiles, neither one of which has been enforced, neither one

has been upheld. We still have a situation where, last year, U.S.

auto makers were able to sell 6,300 vehicles to South Korea, and

South Korea sold 730,000 to the United States.

Now we have another agreement that basically just sets up an

advisory committee with no enforcement powers and threatens a

snap-back provision to an already low U.S. tariff on autos, but not

on light trucks. There is no real enforcement in this, now, third

time around here as it relates to what is a clearly huge imbalance

in one of our major industries in this country.

So how can you tout the USTR’s dedication to trade enforcement

on one hand, and yet offer this free trade agreement as a solution?

The CHAIRMAN. Very briefly. Senator, your time has way expired.

Senator STABENOW. I know it has.

The CHAIRMAN. Very, very, very briefly.

Senator STABENOW. I know it is, Mr. Chairman. I thank you.

The CHAIRMAN. Just take 10, 15 seconds, if you want to respond.

Senator STABENOW. I thank you. I thank you very much. But I

do want to know how you can bring this forward without strong enforcement provisions.

The CHAIRMAN. Fifteen seconds.

Mr. MARUYAMA. Senator, I appreciate your concern. The KORUS

FTA provides unprecedented new tools for addressing Korean nontariff barriers and a special snap-back mechanism. That is why we

think it is important for Congress to approve the agreement.

The CHAIRMAN. Thank you.

I would just like to focus a little on, I think, the difference between maybe Ms. Brainard and Mr. Maruyama. If I understand

you, Mr. Maruyama, everything is fine. You have what you need.

That is basically your point. I heard Ms. Brainard say, no, we

should give you more tools, or sharper tools.

Ms. Brainard, what is, as you understand it, the difference between you and Mr. Maruyama on that point? I assume you do not

agree that everything is fine and we should not change the law.

Ms. BRAINARD. No. My observation is that the administration has

been preoccupied with finding trade agreements. We have had a

huge increase in negotiations of trade agreements with individual

countries that are not huge in terms of the economic commerce involved, but are huge in terms of the details and staff time that are

required to deeply understand the full set of disciplines that are at

issue. USTR has one-fifth of its staff devoted to enforcement.

Now, the more trade agreements you sign, if you are serious

about those trade rules being enforced, the more enforcement

mechanisms you need. Yet, we do not see an expansion in staff, we

do not see an expansion in funding for this. So the question, I

think, is at what time, at what point, do you right that balance?

The Trade Enforcement Act and this committee are offering to

provide you those additional tools, the ability to be proactive. Right

now I think that interagency is very reactive. It simply does not

have what it needs to be proactive in terms of prioritizing which

19

of these barriers are the most important to the U.S. economy,

which ones can be resolved most expeditiously.

So I think it is puzzling. I will say that we in the Clinton administration had Super 301. The minute the WTO came into force we

used Super 301 to reinforce those tools multilaterally. I do not see

those things as substitutes or in conflict with each other. The way

the Super 301 provision is crafted really encourages USTR to use

it in that way.

Similarly, on China, that agreement with China was very carefully crafted with a balance of benefits. Congress, in order to approve of that agreement, had certain issues that were extremely

important. It took the administration 3 years to take the first case.

The GAO report that Senator Stabenow was referring to suggests

that the high-water mark in terms of getting enforcement was 3

years ago.

But we know that China is the most important trade partner to

monitor and to stay on day-by-day because they, internally, have

difficulties with rules enforcement. The whole process of bringing

them in to the WTO was intended to in fact introduce a rules-based

culture to China’s trade. So I would, if I were sitting on these

issues, welcome these additional tools because I think they are

needed.

The CHAIRMAN. Let me ask you another question. There is a deep

suspicion here in the Congress, and certainly among those of us on

the Finance Committee, that often legitimate trade enforcement actions are not brought because interests elsewhere in the government—the State Department, DoD, whoever else it might be—they

tend to trump any trade action that the United States might otherwise conduct.

Your perspective on that? It is complex. Certainly trade provisions shouldn’t prevail over everything else. But we do not want

them subsumed to a degree where our trade interests are not enforced. My sense is that the actions that USTR brought with respect to China are a result of a lot of pressure from Congress, that

finally the USTR got its act together and brought some actions.

Ms. Brainard, based on your experience in another administration, tell us the degree to which maybe these additional tools will

help the United States pursue its economic interests, as well as its

non-economic interests.

Ms. BRAINARD. There is always a complex set of interests that is

being considered. Members of Congress can also consider a complex

set of interests. They weigh security interests, they weigh our

broader national interests, they weigh particular economic interests. I think, at any point in time, the question is, how are those

interests balanced, and whether this set of interests, in terms of

making sure that trade rules are enforced, does that give it enough

weight in the interagency process? Is that given enough weight

when the ultimate decision is made at the White House?

I think this act suggests that there is a legitimate perception

that the enforcement agenda has taken a back seat to a whole host

of other agendas in the trade realm, narrowly to the agenda of

signing lots and lots of trade agreements, but more generally in the

government that the enforcement agenda has not gotten the priority that it deserves.

20

The CHAIRMAN. Mr. Maruyama, why would you not want more

tools? That is the earlier question I asked. I am just kind of perplexed, frankly. Around here, everybody is greedy, everybody wants

everything. Most agencies want everything for themselves. Why

would you not want a few more tools? Then you have them. Maybe

you use them, maybe you do not, but at least you have them there.

I just do not understand it.

Mr. MARUYAMA. Well, Senator, we think we have the tools.

The CHAIRMAN. Well, why would you not want more tools, is my

question.

Mr. MARUYAMA. Yes. Super 301 would be useful if you had an

administration where the State Department or other interests were

blocking you from bringing WTO cases. So that is a concern. For

some future administration, Super 301 may be appropriate. But in

this administration, in the 2 years that I have been there, we have

never been blocked from bringing a valid WTO case because of foreign policy or other reasons. So I do not see what Super 301 would

add to the process. The idea of just mandating cases willy-nilly at

the beginning of the year——

The CHAIRMAN. It is not mandating what you do. This legislation

provides a menu and you choose what makes the most sense here.

Mr. MARUYAMA. But the purpose of Super 301 is to force the initiation of——

The CHAIRMAN. As well as enforcing. That is correct.

Mr. MARUYAMA [continuing]. WTO cases on a specific time track.

The CHAIRMAN. Right. But it is written in a way so as not to run

up against the problem of the old Super 301. The old Super 301

would not carry very well these days after the WTO. Anyway, I am

just perplexed. My time has expired.

Senator Lincoln?

Senator LINCOLN. Thanks to you and to all the witnesses for

being here today, as well as my colleagues.

I want to, first, take the opportunity to commend Senators

Stabenow, Baucus, and Hatch for their excellent leadership and

work on the Trade Enforcement Act of 2007. Trade enforcement is

consistently an issue that is on the minds of my constituents in my

State. We have seen a surge in trade over the past decade, and

with it more frequent cases of industry struggling to compete

against the unfair trade practices.

Even with the surge in trade, we have not seen the responding,

I do not think, needs that exist in terms of modernizing some of

our enforcement laws and trade agreements. There are multiple industries in Arkansas in similar situations, from the catfish industry, to timber, to hardwood flooring, our growing steel industry.

However, the relief from unfair competition for these industries

often comes way too late. These other countries know our trade

laws better than we do, and they just wait us out until we lose the

contest. To give an example, I have made multiple trips and have

testified before the ITC on behalf of our Arkansas steel industry.

Despite being the most competitive and efficient steel producers—these are mini-mills—and across the world using recyclable steel and being efficient and effective, our steel companies have

suffered from a flood of imported government-subsidized steel from

China. It is not a new revelation.

21

Again, these are things that happen consistently that we do not

seem to provide the kind of remedy that we need that is going to

act in a timely way. The ITC has found injury to the steel industry

in the past; however, the President chose to deny relief to the industry. I found myself back at the ITC just last week testifying on

behalf of our steel pipe producers, still facing a surge of cheap, imported steel from China.

I appreciate the USTR’s hard work, but it is clear to me and

many of my constituents that our trade enforcement monitoring

and our enforcement efforts are often cumbersome, they are slowmoving, and they fail to provide adequate relief in a reasonable

time frame. The workers who showed up at that ITC hearing that

I attended last week were flabbergasted that their government is

not doing a better job of making sure that our neighbors in the

global economy are meeting the requirements that we have in our

trade agreement.

In a time when our trade is rapidly increasing with the rest of

the world, and also increasing anxiety from Americans about trade,

I agree with my colleagues here that we need more reliable trade

enforcement and monitoring mechanisms. I am pleased that S.

1919 works to address those issues—I have raised them, others

have—that are critical to our businesses in States like Arkansas,

and all across this country that are seeking that kind of relief from

unfair trade competition.

So I recognize that legislation is always a work in progress, and

we are grateful that you are here, and we hope that you will continue to work with us as we work through the details of bringing

about the best legislation we can.

Just a couple of quick questions, if I may. Mr. Magnus, do you

support creating a WTO dispute settlement review commission that

is empowered to review the WTO decisions that are adverse to the

U.S.? Can you give us an example, and maybe you have already

done this—I apologize for being late—of some of the WTO panel

and appellate body decisions that have been wrongly decided that

could have benefitted from something like that?

Mr. MAGNUS. Yes, I would be glad to. By the way, the decisions

that are correctly decided would benefit from something like that,

too. We have had adverse decisions that were improper in the

sense that they expanded our obligations beyond what we had

agreed to in a number of areas. One that was very much in the

news just recently was Internet gambling. I thought that was a bad

decision, and one that I believe would have flunked the standard

that is in this bill to be applied by the WTO dispute settlement review commission. In fact, in that particular case the U.S. Government actually said, we are not going to implement.

There have also been quite a few adverse decisions in the trade

remedy area that reflected over-reaching. Warren mentioned one a

couple of moments ago, actually a series of decisions involving zeroing in the antidumping context. Our other major trade laws have

been victimized in that way as well. Our countervailing duty law

has been the subject of adverse decisions that were wrongly decided, and one in particular that I spent quite a bit of time working

on involving pre-privatization subsidies. Likewise with our safeguard laws and safeguard measures that we put in place on a

22

whole range of products, ranging from steel, to wheat gluten, to

lamb meat, and others.

Senator LINCOLN. Thank you.

The CHAIRMAN. Thank you very much.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman. I just did not

want to leave today without having a moment to ask particularly

about small business. I know, Mr. Magnus, that you have devoted

your career to trying to fix the problems created by trade policies.

I wonder if you have any specific recommendations for us on how

you think we could make the trade remedy system more accessible

to small business. Then, second, what language do we need to include in trade agreements to prevent the problems that your clients

are facing in the first place?

Mr. MAGNUS. One very positive step—and I have to say on behalf

of the Trade Bar, the proposal that Mr. Atkinson has made for favored tax treatment of the money the companies spend to work up

WTO cases, that sounds dandy. [Laughter.] The government has

extended itself to try to make the benefits of the trading system

more available to small businesses. The trade remedy laws are

costly to use and typically cannot be invoked by individual businesses. They have to be invoked, instead, by industry coalitions.

There are offices in both the Commerce Department and in the

International Trade Commission whose job it is to try to provide

technical assistance to those applicants for relief who cannot afford

to hire expensive counsel, or to fully engage expensive counsel, in

putting their complaints together.

As far as I know, those officers are doing a good job. The problem

with respect to our trade remedy system—I would not describe it

as a problem of access. There is certainly a resource problem at at

least one of the agencies. The Commerce Department, and I think

the Import Administration, is running on fumes right now. They

have a great many empty positions, and it is hamstringing their

work. I do not know if they have been in a position to come and

ask you to help with that, but I am aware of the problem there.

That might be something in the very near term that you could do.

Then the uncertainty that hangs over the whole trade remedy

program because of the longstanding pattern of adverse WTO decisions is a real issue. I think it is something the government should

be addressing in a more energetic way in the current round of negotiations, because it casts a pall over the entire program if it

raises the costs of getting relief and then maintaining that relief

over time at a level that is not worthwhile.

Especially that is true with respect to our trade remedy laws

that do not involve a legal right to relief, but they have political

discretionary decisions at the end, such as the safeguard law and

the China safeguard law, section 421. From my point of view it is

a cost/benefit analysis there from an industry that might seek relief and will almost never be satisfied with the way things are

working now. I think it is a good idea for the committee to consider

that an enforcement issue and to take it up in the bill, as you have

done.

Senator STABENOW. Well, thank you very much.

23

Mr. Chairman, I have heard from so many small businesses that

do not have the funds, or are not a part of a coalition, to be able

to bring a case. I think of a company in Cadillac, MI, northern

Michigan, that makes hand trucks to move boxes, and so on. One

of their designs was just totally stolen by a Chinese company, and

they said it was going to cost about $10,000 a month to hire an attorney to try to do something with it, so they just stopped making

it and laid off about 50 people. So, I know as we go forward with

trade enforcement, hopefully we can keep a special eye on what we

can do to help small business.

Thank you.

The CHAIRMAN. Thank you, Senator.

The section 421 matter is very important. As the four of you

know, there is considerable frustration among many on this committee that it is not working quite the way it should.

Ms. Brainard, you were there at the creation of China PNTR and

section 421. When 421 was enacted, what was contemplated? Or to

put it differently, is it working out the way you all thought it would

work out?

Ms. BRAINARD. I sort of find myself in a curious position because,

at the time that we crafted that provision with Congress, it was designed to give the administration the flexibility that it needed,

while addressing very real concerns about the need for safeguards

in particular segments. But it was one of the most important provisions ultimately in getting the agreement through, and I think we

understood at the time that implementing that provision would be

extremely important.

So here we are standing, several years later, and all of the affirmative decisions have been denied by the President. You look at

that record and I think there is an understandable desire on the

part of Congress to limit the discretion, which the President has

used much more loosely than, I think, was intended originally.

So I understand the motivation behind 421. If I were sitting in

the administration’s position, I think anticipating that, it would

have made a lot more sense to be much more proactive on the affirmative cases. This is, I think, an inevitable result of that pattern

of inaction.

The CHAIRMAN. Do you think the language that we are proposing

is about right? Is it too strong, not strong enough? What is your

sense?

Ms. BRAINARD. I think my reading is that many, if not all, of

these provisions—and I am not a lawyer; I want to put that on the

table—have been very carefully crafted and are striking a very

careful balance. I think if I were sitting in Warren’s seat, I would

be very concerned about any narrowing of that discretion. But

again, those provisions were absolutely central to the China agreement, and to see them repeatedly not implemented, I think, does

provide grounds for narrowing that discretion.

The CHAIRMAN. Mr. Atkinson, your thoughts on 421, the language here that we are proposing with respect to 421?

Mr. ATKINSON. I am not an expert on the nuts and bolts of how

that has been implemented in the past, as Lael has laid out. Again,

I am not an attorney either, but it strikes me, again, that it is the

right balance. I think if I were USTR I would not necessarily supVerDate 11-MAY-2000 14:46 Jul 16, 2010 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 56757.000 TIMD PsN: TIMD
24

port a bill that would limit my discretion, to some extent. But I

think the case has been shown that some of their discretion needs

to be limited here.

The CHAIRMAN. Mr. Magnus, your thoughts?

Mr. MAGNUS. I think the language that you have put forward

makes good sense. I do not actually interpret it the way that Warren does. He has described it as something that makes relief automatic, or virtually automatic——

The CHAIRMAN. Right. It is not automatic.

Mr. MAGNUS [continuing]. If the ITC makes an affirmative finding. If that is what it does, it is a bad idea. There should be a layer

of political review at the end of these cases. The reason is that they

involve goods that may be fairly traded goods. So a layer of political review, I think everybody can agree, for this kind of a remedy

makes sense. I see no reason why that political review has to be

conducted uniquely by one of the political branches of our government.

I see no reason why that political review cannot be conducted

jointly by the executive branch and the Congress, and according to

a formula that does not trample on efficiency or involve a legislative veto. I think there is a space in the middle there for that political layer of review to be conducted effectively, and I think you

have landed on the right formula.

The CHAIRMAN. Mr. Maruyama, three other witnesses think this

is crafted about right. They sound pretty convincing to me. Your

thoughts?

Mr. MARUYAMA. Well, I am from the executive branch, and we

like presidential discretion.

The CHAIRMAN. We know that.

Mr. MARUYAMA. I was not here when the decisions were made on

whether or not to grant import relief under section 421, so I cannot

speak from any firsthand knowledge of what happened or why the

decisions were made. But as we all know, import relief involves

trade-offs. It benefits the domestic industry, but it also raises consumer costs, it can hurt a U.S. manufacturer that is dependent on

access to imported parts and components, and in some circumstances it can lead to retaliatory actions against major U.S. exporters like our farm sector. In our view, the President is in the

best position to evaluate whether import relief is in the overall national interest. We are concerned that some of the language in the

bill would overly constrain his or her ability to make that evaluation.

The CHAIRMAN. But what about the thought—my time has expired. We will get to my point a little later.

Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

Mr. Maruyama, I am generally very supportive of trade agreements. I think it is important for us to be engaged with our neighbors in the global community and be a part of that global economy.

But we have experienced an incredible surge in trade with other

countries in the past decade, and with that I think comes greater

anxiety and doubts from Americans, whether they are agricultural

producers worried about the restrictions that they have and the

markets that they can access, or whether it is hardworking folks

25

in middle America who are getting undercut tremendously by products, raw materials that are dumped into our country.

You expressed serious doubts about the benefits of S. 1919. I

guess I would just like to know if you believe that our current

trade enforcement and monitoring policies are sufficient. Is doing

nothing about what is occurring, what our workers and what our

industries are feeling, is that appropriate? If not, if there is nothing

needed—or is there? What further could be done to address some

of the problems that are occurring if it is not this?

Mr. MARUYAMA. Well, I think some of the issues that have been

raised in this hearing are basically outside USTR’s purview. Exchange rates. That is Treasury’s job. I know you raised concerns

about an ITC determination. I think antidumping and countervailing duty——

Senator LINCOLN. They determined in our favor.

Mr. MARUYAMA. Yes. Antidumping and countervailing duty decisions are not within our bailiwick. On the enforcement side, we

have been very active in bringing cases. The United States is still

the largest user of the WTO dispute settlement system.

Senator LINCOLN. Do you find any of those decisions that have

been wrongly decided from the WTO panel appellate body?

Mr. MARUYAMA. I would invite you to read our comments yesterday to the WTO dispute settlement body, where we blasted the

Mexico ‘‘zeroing’’ decision and called it a major over-reach. But on

the offensive side, we have been very aggressive.

Senator LINCOLN. But do you expect them to ever reconsider a

position on those issues because of that?

Mr. MARUYAMA. We would hope so. There are some new appellate body members, but they are pretty well dug in. As a lawyer,

I would say that I would not bet on that one.

Senator LINCOLN. Well, I agree with the other two. I am not a

lawyer either, but I figured there were plenty of them in the room.

[Laughter.]

Mr. MARUYAMA. And we have been very aggressive with China.

We have brought four cases against them in the last 16 months.

We have brought big, systemic cases like biotech, Airbus, the China

IPR case. Those are big cases that have major implications for how

our trading system works.

Senator LINCOLN. Do you think that they will resolve themselves

in a timely enough fashion, though, so that it helps the people in

this country who really are hurt by the loss of jobs and the loss

of resources?

Mr. MARUYAMA. I certainly hope so.

Senator LINCOLN. Do you have the tools to do that, do you think?

Mr. MARUYAMA. We do.

The CHAIRMAN. Thank you, Senator.

I would like to ask a question about Special 301. There has been

a lot of concern that the administration has not used Special 301

with respect to China and Russia and has not put those countries

on a priority foreign countries list. Why not, Mr. Maruyama?

Mr. MARUYAMA. I think both China and Russia are on priority

watch.

The CHAIRMAN. They are?

26

Mr. MARUYAMA. They are on the priority watch list. I can come

back to you on that, but I believe they are both listed on priority

watch.

On China, we brought the IPR action against them in the WTO,

and also a related action on barriers to copyright-intensive products. On Russia, IP is one of the major issues in Russia’s WTO accession and it is a high priority for USTR.

The CHAIRMAN. I think they are on the watch list, but not on the

most elevated list that requires sanctions, China and Russia.

Mr. MARUYAMA. Yes. They are not on the——

The CHAIRMAN. They are not on the elevated list, they are on the

lower list.

Mr. MARUYAMA. But on both of them, on China we brought WTO

cases, and in Russia we are going toe-to-toe with them in Geneva

on their WTO accession.

The CHAIRMAN. Let me ask another question. The world is

changing so quickly, it is so sophisticated. Are trade laws, or even

the proposed provisions here, tailored to the problems, or are they

too blunt, kind of flat, out of synch? I am talking about IT, for example. We need more sophistication. Does anybody have any sense

of that?

Mr. MAGNUS. Mr. Chairman, one of our IT-related trade laws

that none of us actually addressed in our statements, but is covered by your bill and needs your attention, and you have in your

bill some very useful language that will enable a problem in the

administration to be——

The CHAIRMAN. This is the ALJ?

Mr. MAGNUS. I beg your pardon?

The CHAIRMAN. This is the administrative law judge problem?

Mr. MAGNUS. Yes, sir. That is a good government reform that is

in your bill on one of our key statutes that involves the intersection

of trade and intellectual property. I am—although I did not mention it in my oral statement—very pleased to see that you are trying to give the ITC the flexibility that it needs to meet——

The CHAIRMAN. Right.

Does anybody disagree with that provision in this bill?

[No response.]

The CHAIRMAN. All right. Well, I am going to conclude this. Has

anybody said something that needs to be addressed? Has anybody

said something so outrageous that it should be commented on?

Anybody?

Ms. BRAINARD. I just wanted to come back to this issue of small

business. One of the most important things, I think, about

strengthening trade enforcement is that small businesses really

rely on rules, and they really rely heavily on proactive efforts to

monitor and enforce on the part of the U.S. Government because

they simply do not have the resources that large multinationals do

to work around the rules in places like China, and they do not have

the resources to do the due diligence to help the government bring

cases. So this agenda, I think, is extraordinarily important, especially for small businesses that are very active in trade, but could

be much more so.

The CHAIRMAN. Well, that is a very good point. It’s like the wire

hangers case. Is that not an example?

27

Ms. BRAINARD. Yes, although that is on the remedy side. But I

think the set of provisions that you have put down on the market

access side are equally important for small business.

The CHAIRMAN. Well thanks, everybody, very, very much. I appreciate you taking the time to come to the hearing.

The hearing is adjourned.

[Whereupon, at 11:35 a.m., the hearing was concluded.]

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