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58–330—PDF 2008

S. HRG. 110–1079

FUTURE OF U.S. TRADE POLICY: PERSPECTIVES

FROM FORMER U.S. TRADE REPRESENTATIVES

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JULY 29, 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)

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

WITNESSES

Kantor, Hon. Michael, partner, Mayer Brown, Washington, DC ........................ 3

Brock, Hon. William E., III, founder and senior partner, The Brock Offices,

Annapolis, MD ...................................................................................................... 5

Hills, Hon. Carla A., chairman and chief executive officer, Hills and Company,

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

Barshefsky, Hon. Charlene, partner, Wilmer Hale, Washington, DC ................. 11

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Barshefsky, Hon. Charlene:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 37

Baucus, Hon. Max:

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

Brock, Hon. William E., III:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 54

Bunning, Hon. Jim:

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

Grassley, Hon. Chuck:

Prepared statement .......................................................................................... 62

Hills, Hon. Carla A.:

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

Prepared statement .......................................................................................... 63

Kantor, Hon. Michael:

Testimony .......................................................................................................... 3

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

Kyl, Hon. Jon:

Prepared statement .......................................................................................... 88

COMMUNICATION

Cooper, Rachel ......................................................................................................... 89

(III)

(1)

FUTURE OF U.S. TRADE POLICY:

PERSPECTIVES FROM FORMER

U.S. TRADE REPRESENTATIVES

TUESDAY, JULY 29, 2008

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:03 a.m., in

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

(chairman of the committee) presiding.

Present: Senators Conrad, Lincoln, Stabenow, Bunning, and Roberts.

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

Ayesha Khanna, Detailee; and Emily Schwartz, Summer Associate.

Republican Staff: Stephen Schaefer, Chief International Trade

Counsel; and David Ross, International Trade Counsel.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

A Chinese proverb says, ‘‘Past experience, if not forgotten, is a

guide to the future.’’ We have with us today a wealth of past experience. We have before us four former U.S. Trade Representatives

who, together, led this country’s trade policies from the first days

of the technological revolution to the global economy of today. We

cannot forget their past contributions, and their experience is a

sure guide to the future.

These former USTRs oversaw the negotiation of NAFTA, and of

the Uruguay Round, which ultimately led to the creation of the

World Trade Organization. They led key Asian countries like China

and Japan to join the global trading system, and they continue to

critique and contribute to America’s trade policy debate.

We stand at a crossroads in trade policy. The past 8 years have

seen an explosion of free trade agreements and market liberalization; tariffs have decreased, international trade in goods and services has increased; and global markets are more integrated than

ever.

But this growth does not come without its costs. American workers have been displaced from their jobs. Environmental and labor

standards have not kept pace with economic growth. America’s curVerDate 11-MAY-2000 14:22 Oct 04, 2010 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 58330.000 TIMD PsN: TIMD
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rent account deficit looms larger than ever, and trade enforcement

has fallen from the top of this administration’s priorities.

It falls to this Congress, and the next, to address these issues.

We must first ensure that America’s workers are protected from

the negative effects of trade agreements and globalization. We

must push for robust Trade Adjustment Assistance that ensures

that America’s manufacturers, farmers, and service workers receive

the help that they need. We must foster America’s competitiveness

by ensuring maximum opportunities for our companies, and to do

this we must ensure that our trading partners play by the rules at

home and abroad.

We must also consider how best to provide American businesses

with the ability to compete and to grow. The President’s fast track

authority expired on June 30 of last year and has not been renewed. The next Congress will face many questions about fast

track: should we renew it? If so, when? What lessons from the past

should be incorporated into any new fast track legislation?

The next Congress will also have to address one of the largest

U.S. current account deficits in our history. Economists have

warned that this deficit may be unsustainable and lead to dire economic consequences. We must address the U.S. current account

deficit comprehensively. Among other things, that means we need

to apply pressure on those countries that maintain misaligned currencies.

And we must face our social responsibilities. For more than 30

years, our country has provided Trade Preference Programs to developing countries. These programs provide incentives for increased

economic development in countries around the world. These programs help to lift many out of poverty. We must examine these

programs to make sure that they are fulfilling their purpose.

The environment is also at the forefront of our social consciousness. The world is debating how to address climate change. America must lead that debate. We must address this pressing issue in

a way that is responsible to our environment, our economy, and our

international trade obligations.

So let us come together to discuss these important issues, let us

recall the experience and expertise that our four witnesses bring to

the table today, and may learning from our past experience guide

us to a stronger, more competitive America in the years to come.

Senator Grassley will be coming shortly. He cannot be with us

right at this moment. He wishes he were here at the beginning, but

cannot be.

I would now like to introduce our witnesses. Today’s panel begins

with Secretary Mickey Kantor, who is a partner at the law firm of

Mayer Brown. Secretary Kantor served as President Clinton’s U.S.

Trade Representative from 1993–1996. Following Secretary Kantor

is Senator William Brock, founder and senior partner of The Brock

Offices. Senator Brock was President Reagan’s U.S. Trade Representative from 1981–1985, and represented Tennessee in the U.S.

Senate from 1971–1977. Our third witness is Secretary Carla Hills,

chairman and chief executive officer of Hills and Company. Secretary Hills served as President George H.W. Bush’s U.S. Trade

Representative from 1989–1993. Our final witness is Ambassador

Charlene Barshefsky, who is a partner at the law firm of Wilmer

3

Hale. Ambassador Barshefsky was President Clinton’s Trade Representative from 1997–2001.

Thank you all very, very much for taking the time to come today.

We very much look forward to your advice and your thoughts on

where we proceed from here.

We will begin, first, with you, Mr. Kantor.

STATEMENT OF HON. MICHAEL KANTOR, PARTNER,

MAYER BROWN, WASHINGTON, DC

Secretary KANTOR. Thank you, Mr. Chairman. Thank you, Senator Bunning, Senator Roberts, for being here today. We appreciate

the opportunity to join together in testifying before the Senate Finance Committee. All four of us appreciate your hard work and

diligence as you confront these difficult and challenging issues, and

we also commend your staff for all their hard work on this hearing

as well.

I would note that over the years all four of us, and other former

USTRs, have spent many hours together in various forums, discussing U.S. trade and other related issues. It is striking how similar are our views and our approach to these concerns. I am truly

honored to be here at the invitation of the committee and to appear

with Secretaries and Ambassadors Brock, Hills, and Barshefsky, all

friends of mine.

The development of future United States trade policy cannot be

pursued in a vacuum. Conceptualizing, considering, concluding,

and implementing U.S. trade priorities will be dependent upon our

ability and willingness to address the crucial issues of our competitiveness, number one, and the credibility of our policies with the

American people and the confidence that major U.S. constituencies

will have in its eventual success and potential impact on our country.

Developing and implementing a successful trade agenda has been

accomplished in the past from pursuit on a nonpartisan basis. The

goal of a successful rules-based trading system will not be accomplished by adhering to strict philosophy, theology, or ideology. At

its best, a trade policy will reflect practical and pragmatic considerations in a constant effort to raise standards of living, supporting

and creating more and better jobs, and growing the U.S. and the

global economy.

Any such agenda must be done in concert and communication

with the U.S. Congress. In article 1, section 8 of the Constitution,

international trade is made the province of the Congress. Since

Cordell Hull—I might add, a fellow Tennessean like Senator Brock

and myself—Franklin Roosevelt’s Secretary of State, pulled trade

policy negotiation into the administration, there has been a constant tension between the Congress and nearly every administration over trade policy and agreements.

Because of this history, there needs to be a working arrangement

between the Congress and the executive branch for pursuing trade

policy goals. Our country’s priorities will drive our trade policy, but

neither policy nor priorities will be served if we cannot or will not

recognize the reality of the world we live in. Our agenda will not

only be driven by our needs and priorities, but also by the influVerDate 11-MAY-2000 14:22 Oct 04, 2010 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 58330.000 TIMD PsN: TIMD
4

ences in a world which is interdependent today and will even be

more connected in the future.

The end of the cold war, the rise of technology, and an increasingly ubiquitous transportation system have brought us together in

what has become a multi-polar world. The irony, of course, is that

the continuing growth and influence of nationalism is a contradictory phenomena which will continue to create barriers to taking advantage of this interdependent world.

Mr. Chairman, we are truly joined at the hip with our world. Our

major companies have become dependent upon international markets. They derive, in many cases, a majority of their revenues from

outside the United States. Jobs connected to trade have grown impressively over the last number of years, and on the average these

jobs pay more than domestic jobs in our economy. Capital flows

across borders, both in direct and portfolio investment, at an everincreasing rate. As a result, trade flows will only grow in the future. It is inevitable.

Our challenge, as it has always been, is to address these questions. How do we take advantage of this growth? How do we continue to pursue and lead in the development of a rules-based trading system? What policies will serve the American people and the

economy and will successfully grow the global economy? What

mechanisms can we use or develop to address an even more complicated economic environment?

Along with my colleagues, we will advance any number of ideas

to engage or challenge and to confront these questions. I would like

to just briefly enumerate a number of ideas I believe will serve as

important steps, and they are more fully fleshed out in my statement.

First, we have to build a competitive America. First, the renewal

and rebirth of American education. Nothing is more important than

that. Second is promoting energy security and addressing global

warming climate change and environmental challenges. Third, rebuilding and updating our infrastructure.

Next, a real emphasis on science, discovery, and research and development. A sound fiscal policy cannot be avoided, and it is going

to affect everything we do. We just noted in the newspapers this

morning how large our budget deficits will be this year and what

that will mean to our economy.

We need to restore a credible, open, and expanding trade agenda,

and credibility is the key word. Mr. Chairman, I am afraid we have

lost credibility with the American people over the years.

Second, enforcing our trade laws and trade agreements. We need

to continue to convince the American people we will stand up for

their interests. We need vigorous enforcement of our trade laws

and full use of the WTO and other dispute settlement systems. I

agree with the establishment of a trade prosecutor at USTR, where

you have led that fight, Mr. Chairman. We also need a new comprehensive trade negotiation with China to ensure their full compliance with international trade commitments. We need to review

and update all existing significant trade agreements to see where

weaknesses may lie and where changes can be made.

We need to enforce legislative standards in all preference programs, for instance, GSP and the Andean Trade Preference Act. We

5

need to also upgrade these standards and obligations under these

preference programs, and we need to initiate discussions with Mexico and Canada about NAFTA.

The labor and environmental provisions, the dispute settlement

provisions, and the investment provisions stand out. It has been 19

years since Secretary Hills began those negotiations, and it is time

to talk to our Canadian and Mexican friends about how to update

that agreement.

Next, we need to advance U.S. trade and economic interests.

Under that, I would say we ought to seek multilateral and plurilateral sectoral agreements in critical areas. We should make a renewed effort to implement the Free Trade Area of the Americas

and the Asia-Pacific Economic Cooperation agreements. We should

complete the Doha Round, which will be difficult at best, and we

need to negotiate convergence and mutual recognition agreements

on a multilateral, regional, and bilateral basis.

In addition, I would seek to resolve critical problems with the

pending FTAs with Congress—and these issues are very difficult—

and seek an FTA with Japan or expand that to an FTA with the

Quad, which Secretary Brock initiated when he was USTR, and

that is Canada, the U.S., Europe, and Japan itself.

Third, I would look at fair trade initiatives, including passing

and implementing an expanded TAA program, which I know, Mr.

Chairman, you have tried valiantly to do; seek to abolish abusive

child labor worldwide; include enforceable labor and environmental

provisions in every and all trade agreements; as well as begin to

develop provisions addressing bribery and corruption.

We should implement stronger dispute settlement understandings in all of our trade agreements. In addition, we should promote

developing countries’ access to international trade and spread the

benefits of an open, rules-based trading system. We should remove

barriers to entry of products no longer produced in the United

States. We also should provide technical assistance and training to

developing nations in negotiations and in the WTO process, and

most importantly—most importantly—encourage real Presidential

leadership and advocacy in a trade agenda which serves the interests of the American people, Mr. Chairman.

Let me finish my brief statement by saying, these ideas are neither exclusive nor comprehensive, but the willingness to restore

credibility to a renewed trade agenda and to address the issue of

America’s competitiveness are of paramount importance. If we do

not engage these issues, we are missing the opportunity to create

a 21st-century economy that works for the American people. We

cannot waste one minute as we pursue these goals. Thank you very

much.

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

[The prepared statement of Secretary Kantor appears in the appendix.]

The CHAIRMAN. Senator Brock?

STATEMENT OF HON. WILLIAM E. BROCK III, FOUNDER AND

SENIOR PARTNER, THE BROCK OFFICES, ANNAPOLIS, MD

Senator BROCK. I am almost out of breath, listening to Mickey

Kantor.

6

The CHAIRMAN. Yes. That was fairly comprehensive.

Senator BROCK. It is a terrific agenda, and I agree with at least

two-thirds, if not 90 percent.

Secretary KANTOR. That is better than usual. [Laughter.]

Senator BROCK. No, no. You have moved. You have come along.

[Laughter.]

I want to try to look more broadly, because we really do have an

important moment right now. The conversations are not going well

in Geneva. We have serious opposition from the Indians and the

Chinese. You can understand their point, but it is a dangerous position to be in. We are living in what Fareed Zakaria calls the

‘‘post-American world.’’

I want to note that this post-American world, which I think the

United States largely built, has seen the global economy double in

the last 15 years, over $5 trillion worth of trade. There are 120

countries that have experienced over 4-percent annual growth.

That is an extraordinary changeover. I would say a billion—and

Carla and I disagree on the number—but at least hundreds of millions to a billion people have come out of poverty because of world

trade.

The United States remains the most dominant economy in the

world. We are the largest manufacturer in the world. We are the

most positive, we are the most productive people in the world. We

have robust growth, low unemployment by any historical measure,

low inflation, and a huge inflow of investment, all because of the

world that we have tried to craft and create over the last several

decades.

I want to add a new element to the conversation, though. We

have seen since the Internet facilitated the exchange of trillions of

dollars in nanoseconds around the world, an extraordinary impact

on our ability to trade, which stems not from trade, but from the

overlay of financial matters. The lack of transparency in financial

transactions is serious. It is a danger to this country, it is a danger

to the system, and we have a world where we really do not have

instruments at the international level to address that particular

issue.

Mickey mentioned that I initiated the Quad Group. I did so because the United States, Canada, Japan, and Europe had to work

together or the system was not going to work. If we were going to

have a World Trade Organization, which we were moving towards,

we needed these four to coordinate their policies. No one would

suggest that we could have a group composed only of those four

today. There are players on the field that were not there, that we

did not even have on our radar screen in the early 1990s.

Second, we created the Rio Group, which was composed of trade

and finance ministers, because even then we could see the connection between trade and finance, between exchange rates and financial stability, and we did not even have the Internet for facilitating

these massive exchanges. It is time for us to think about how, and

with whom, we might gather the principal nations of the world in

a new conversation, one in which the subject matter encompasses

not just goods and services, but issues which affect our economic

and our political relationships; intellectual property, investments,

7

sovereign wealth funds, exchange rates, and financial transparency

would at least be a beginning point.

That is something we have to think long and hard about before

we move too far down the pike, but not doing that would expose

us to, I think, an increasing level of risk every year. We need to

start thinking about, how do we move into that kind of a conversation? It is different from just a trade conversation.

To buttress some of Mickey’s points, we have to do some different

things domestically. I happen to have been a supporter in my days

here of Trade Adjustment Assistance. I do not think it even touches

the problem today because we act as if trade were the cause of unemployment in the United States. Yes, there is outsourcing, but the

fact is, for every 10 jobs that are affected in the United States, 9

of them are being affected by changing consumer demands, changing market circumstances, by technology, by productivity improvements.

To address trade as if it were the cause of the problem just

through outsourcing is insane. If somebody is out of work because

we have stopped making buggy whips now and people want to buy

hybrid cars, they are out of work. We need a policy that addresses

the skill that human beings can bring to the economy and facilitates their return to a productive place in that economy.

Today we talk too much about outsourcing and not enough about

education; too much about trade-affected unemployment and not

enough about, how do you get these individuals a new set of skills,

a more flexible set of skills? We do not do it in our education system, we do not do it in our training system, and we do not do it

in our government policies that limit the conversation to outsourcing and trade.

If I had one request of this committee, it would be to broaden the

conversation beyond trade adjustment and look at economic adjustment, because these are human beings whose skills are important

to the well-being of this country, and we need to give them a

chance to get back in. Secretary Hills and I have talked over the

last several months about the need for wage insurance, because

they are going to have a change in their income when they move

from one job to another.

We need some wage insurance that would help transition and facilitate that. Not a lifetime thing, not even close, not a full insurance, but enough to facilitate that transition so that we do not lose

those skills forever, that we can give them a chance to get back

into being productive as human beings, because the world is going

to change underneath their feet. It does not matter what we say,

what we do.

The global economy is moving at warp speed, and we need to

allow ourselves to think about how we facilitate that transition.

When I was at Labor, we did a study and we said, the kids coming

out of our schools are going to have 8 to 10 jobs and 2 to 3 different

careers. We are not training them for that, and we are not facilitating that exchange to a new set of skills on the part of our workers. So we need to think very differently about how we organize not

just trade policy, but the undergirding of that policy through a

transition program for worker adjustment.

8

Lastly, to emphasize something that Mickey mentioned also, if

we do not understand that we are competing, not between Kansas

and Arkansas but between every State in this Union and the best

countries in the world, we are not going to compete for very long.

Our schools are not adequate to a global economy. They are not

even close to adequate. When you compare the United States in literacy, and in international math and science studies, the only

country in the world that our students out-performed was Cyprus,

for gosh sakes.

Now what is wrong, that we cannot have a conversation in the

United States about the fact that, no matter how we label our laws,

we are leaving millions of kids behind and we are not giving them

the flexible skills that they need to be productive and competitive

in a global economy?

The Internet is here, the global economy is here, the real opportunity is here, as well as real competition. We can seize this, or we

can hide from those facts and let our standard of living slide slowly

away. We really need to rethink the larger questions about how we

approach a global economy, first domestically, then second in terms

of international organizations.

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

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

The CHAIRMAN. Secretary Hills?

STATEMENT OF HON. CARLA A. HILLS, CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, HILLS AND COMPANY, WASHINGTON, DC

Secretary HILLS. Thank you very much, Mr. Chairman and members of the committee, for inviting me to share my views on our

Nation’s future trade policy.

I could not agree more with Senator Brock’s comments about

education. One of my recommendations—and I made six in my

written testimony—was to create a bipartisan commission to study

and recommend ways to improve our citizens’ achievements at the

primary, secondary, and tertiary levels of education, and in training programs. Americans can and must sharpen their skills so that

they can compete and win in this world of rapidly changing technology. Putting restrictions on international trade and investment

is a sure way to destroy the American dream.

If the United States is to remain super-competitive in the 21st

century, we need to focus on education. It is unacceptable that 30

percent of our students in high school fail to graduate. Funding is

not the problem. We tie for first place among OECD countries for

annual spending per student in our public schools, and currently

a greater percentage of our younger workers from other nations

earn more bachelor’s, master’s, and doctoral degrees than do our

young workers. We have dropped from 1st to 10th place in advanced education.

For years we have given tax incentives to encourage investment

in capital equipment that would enhance our Nation’s productivity.

We are now in the knowledge age. It is time to figure out ways to

create effective incentives to encourage investment in human capital. Americans can and must be prepared to compete in today’s

9

globalized economy. That ability coupled with a trade policy dedicated to opening world markets to goods, services, and investment

are the most powerful tools that we have to increase America’s

prosperity, reduce global poverty, and strengthen our Nation’s security.

In addition to improving the education and training of our citizens, let me mention very briefly five other recommendations that

I have suggested to you in my written testimony.

First, help encourage the current and succeeding administrations

to complete the Doha Round. Our leadership in the early GATT

rounds helped to rebuild a Europe devastated by World War II and

recreated market opportunities for them, but also for us. America’s

leadership in opening global markets over the intervening 60 years

has increased our Nation’s annual GDP by $1 trillion, increasing

average Americans’ annual household income by $9,500.

This year, our global trade has totally compensated for the losses

in the housing sector, saving us from recession. As market liberalization has spread throughout the world, so has prosperity. Poor

markets that have opened their markets have grown 3 times faster

than those that did not. Whether you take the last 2 decades during which 375 million people have been raised out of poverty or

Secretary Brock’s figure of a billion people figuring from World War

II, we have accomplished a great deal in alleviating world poverty,

but we still have a big job to do. Half the world’s population, roughly 3 billion people, lives below the international poverty line. Now

more than ever we need to integrate Nations that stand on the

fringe of our trading system, as Europe did after World War II.

Lowering barriers to poorer nation’s products, like agriculture,

textiles, and footwear, through a global agreement would stimulate

their growth and create new opportunities for them and for us, just

as we did for Europe following World War II. And since 70 percent

of poor countries’ trade is with other poor countries, it is important

that we have a global reduction of barriers if we are to maximize

their opportunities.

Second, approve the free trade agreements with Colombia, Panama, and South Korea to secure for our Nation the substantial economic and strategic benefits that each of those agreements brings.

All three agreements advance our Nation’s economic opportunities.

The barriers that our producers face in those markets are much,

much higher than their producers face in our market, and in addition all three agreements are in strategic locations where we need

to build relationships.

The record shows that trade soars in the wake of our bilateral

agreements. Nations with whom we have a free trade agreement

account for about half our exports, a third of our imports, but less

than 20 percent of our trade deficit.

Third, enact Trade Promotion Authority so that our trading partners will be willing to negotiate regarding sectors that present

them with tough political choices. You know better than I that our

Constitution vests Congress with the power to regulate trade and

the executive branch with the power to negotiate with foreign governments. Unless we have a compact between the two branches, we

will be unable to negotiate agreements that deliver to our Nation

10

the most extensive economic, security, and strategic benefits possible.

Fourth, inform the American people about the substantial economic, humanitarian, and security benefits that we obtain from

opening global markets. Polls do show that Americans are anxious

about their economic futures, and they worry that trade is part of

the problem.

But most Americans do not know that past market openings

have made the average American family $9,500 richer per year, or

that lowering global trade barriers in the Doha Round by just onethird—one-third—would boost the average American’s income by

another $2,000 and help poor countries grow their way out of poverty, or that jobs connected to trade pay 13 to 18 percent more than

jobs in the overall economy, or that 97 percent of our exporters are

small- and medium-sized businesses who account for about 30 percent of our exports and need foreign markets to prosper so they

continue to be the backbone of job creation in our country.

Most Americans are unaware that agricultural tariffs are 5 times

higher than tariffs on manufactured goods, preventing poor countries that typically have large rural populations from climbing their

way out of poverty, or that Bangladesh, Indonesia, Pakistan, all

large Muslim countries, each with 100 million people living below

the poverty line, face much higher tariffs on the products that they

produce than rich countries face on theirs. Americans are always

surprised to learn that, last year, Bangladesh paid $120 million

more in tariffs to the United States on $3 billion worth of exports

than did France on $37 billion worth of exports.

They hear that NAFTA cost us millions of jobs, and they do not

know that the bipartisan Congressional Research Service shows

that statement to be totally false. In fact, economic studies show

that the average American family has gained about $600 as a result of NAFTA.

Fifth, reform and broaden the Alternative Trade Adjustment Assistance Act, covering service workers, expanding wage insurance,

and increasing the health coverage tax credit. Polls show that

workers’ anxieties recede when they are told that trade liberalization and trade agreements are accompanied by programs to assist

those who are displaced. Broadening the coverage of those programs would help.

Interestingly, the same studies that calculate our Nation’s gains

from foreign trade to be $1 trillion per year calculate that the annual cost for funding wage insurance and transitional health care

assistance for all dislocated workers to be $12 to $15 billion.

I have mentioned the importance of education, so in closing let

me just say that our great country must marshal the political will

both to deal with our own domestic shortcomings and to lead the

world in tearing down trade barriers that limit new opportunities

for all nations, including our own. Failure to do so risks repeating

some very sad mistakes that cost us so dearly in the past.

The CHAIRMAN. Thank you very much, Secretary Hills.

[The prepared statement of Secretary Hills appears in the appendix.]

The CHAIRMAN. Ambassador Barshefsky?

11

STATEMENT OF HON. CHARLENE BARSHEFSKY,

PARTNER, WILMER HALE, WASHINGTON, DC

Ambassador BARSHEFSKY. Thank you, Mr. Chairman and members of the committee. It is a great pleasure to be before you today

with my colleagues, and I would like to associate myself with almost all the comments that have been made.

This hearing could not be more timely, nor this great committee

more important. Over the last 40 years, the share of trade in the

U.S. economy has tripled, to almost 30 percent of GDP. In the last

25 years, and particularly in the last 10, the acceleration of growth

in world GDP has intensified as economic integration has reshaped

the global economy. World trade has grown faster than world output over these years, and cross-border capital flows have grown

faster than trade.

The positive effects for the U.S. are quite clear: record manufacturing output, record manufacturing exports, and services and farm

trades that have risen even faster and are likely to hit records in

2008. Exports today are our only significant source of private sector

growth in a time of financial crisis and domestic turmoil and represent 20 percent of all U.S. manufacturing jobs at wages between

13 and 18 percent higher than non-export-related jobs. Imports

dampen inflation, provide choice, and help shift family spending to

education, health, and other services.

At the same time, public anxiety over globalization has rarely

been so high. The benefits to income have been poorly spread, with

stagnant wages for middle-income families. Competition is tougher,

and the range of competitors is far broader. According to the IMF,

since 1980 the global supply of college graduates has increased 50

percent and the global supply of labor has increased 4-fold.

Productivity increases and specialization have meant that, while

U.S. value-added manufacturing output hit record levels in 2005,

2006, and 2007, the number of manufacturing workers needed per

unit of output has shrunk. Globally, the integration of east Asia,

sparked by China’s reemergence, has created a far more competitive Asian economy.

India’s rise and the ‘‘rise of the rest,’’ as Fareed Zakaria calls it,

is only beginning. Logistics industries, telecom networks, and IT

are more sophisticated each year, subjecting new sectors of the U.S.

economy to trade. These structural changes will only accelerate.

There are benefits to be had for the United States, but these issues

also pose profound challenges for the U.S. as a country, for Americans as individuals, and U.S. policy has yet to respond. The consequences of inattention are already serious: the failure to remedy

our weaknesses which are uniquely in our own control to fix, in

confusing strong foreign competition with unfair competition, and

in wasted time we do not have.

Look to the past for what could easily lie ahead. In 1820, China

and India accounted for 50 percent of global GDP. That was in

1820. Their share shrank as the industrial revolution took hold,

reaching a low of about 8 percent. But their share of GDP has now

rebounded. It is roughly 20 percent, and growing rapidly. As a far

smaller country we can retain a leading role, but only if we are

more competitive, if we are more innovative, and if we are a lot

better educated than we are today.

12

These are the facts of the landscape. Complacency about their

implications, resentment of their consequences as unfair, or the notion that American economic leadership is our birthright, fails to

respond to the world as it is today and guarantees the continuing

erosion of American leadership and our strategic positioning. What,

then, should we do? My first and most important point is that

trade policy can be one element in our response, but it is surely not

the principal element.

We must place national competitiveness at the center, examining

our finances, our commitment to science and innovation, our hightech and traditional infrastructure, our human resources policies in

education and immigration. We should also restructure our domestic social contract, remove powerful sources of anxiety, including

the fear of the loss of health care, spread the benefits of our economy more equitably, and mitigate risks for individuals.

With these as a foundation, we also need a battery of trade, financial, and global policies that allows us to draw maximum benefit from the global economy, tap areas of growth, and support

three strategic goals in particular, in my view: (1) economic expansion; (2) security and development; and (3) an international sharing

of responsibility.

Our trade agenda should help us meet each of these policy imperatives, but thus far we have tended to debate NAFTA, fast track

authority, and bilateral agreements generally with small countries.

Let me suggest that these are not the appropriate places to start.

Our relationship with Canada and Mexico is large, and NAFTA is

important, but NAFTA is neither the source of, nor the cure for,

Internet-driven globalization, the advance of logistics, or Asia’s rising competitiveness. Fast-track authority is a procedure meant to

implement an agenda. If the agenda responds directly to America’s

needs, we will find a procedure to pass it. If it does not, procedure

is unimportant. Small bilateral agreements, whatever one’s position on them, have absolutely minor effect.

Let me then turn to my three suggested trade policy imperatives.

My written testimony is far more detailed. First, economic expansion. Trade policy has to refocus on major markets in fast-growing

industries. Whatever the final Doha outcome, the WTO’s future is

not in comprehensive rounds but in large sectoral agreements in

industries like energy, environment, medical equipment, and infrastructure.

We should rebuild our place in Asia-Pacific economic and trade

diplomacy by passing the Korea FTA, undertaking a similar agreement with Japan, a services FTA with Europe, incidentally, and

honing the agenda—not expanding it, honing the agenda—with

China, India, ASEAN, and APEC. We should work with other developed economies, particularly Japan and Europe, on coordinating

regulatory policies in the emerging technologies.

Second, security and development. Parts of our trade regime are

outdated, regressive, and politically damaging. Our clothing, shoe,

and other light industry tariff regimes tax poor people heavily at

home and place barriers less to industrial rivals than to very poor

Asian countries like Cambodia, and large Muslim states like Pakistan.

13

The foundation of policy should be unilateral reform of this system, removing all barriers to trade to the least-developed countries—these are the poorest countries on the face of the planet—

and goods from major Muslim countries cooperating with us in the

fight against radicalism. We must also act to dampen South American drift toward resource-based authoritarianism. Congress should

begin by passing the Colombia and Panama agreements, but then

drop the FTA-centered approach and begin weaving together the

agreements we already have in Latin America and work intensively with Brazil on a restored regional program.

Third, shared international responsibility, a new Bretton Woods

which renovates the international financial institutions, focusing,

as Bill said, on financial transparency and exchange rates. Bring

China and India into the G–8 and upgrade their roles at the IMF;

create a global environmental organization, a GEO, as a parallel to

the WTO, capable of overseeing the already over 90 international

environmental agreements that exist; and oversee an eventual climate change agreement, imbedding an enforcement mechanism

and averting a clash between environmental rules and those of the

WTO.

While trade policies are thus part of the solution, our larger

tasks are at home, requiring new competitiveness policies and new

approaches to the social contract, as well as a refocused trade agenda. These are large responsibilities that need solutions in limited

time. We need to face up to it, and as Americans we have to begin

the work now.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Ambassador.

[The prepared statement of Ambassador Barshefsky appears in

the appendix.]

The CHAIRMAN. I want to follow up on one of your last points,

namely, how best to integrate climate change and the needed

transparency in financial instruments with the WTO. You mentioned GEO. How do we begin to integrate some of these emerging

trends that are so important?

Ambassador BARSHEFSKY. The U.S. has always done best when

it works initially with a relatively small group of countries to begin

to create a critical mass for change. This is how the U.S. has

launched rounds. This is how the U.S. achieved breakthrough

agreements in financial services and telecommunications. You start

with a smaller group that represents a high proportion of trade,

you work out an agenda, you work out an approach, and then you

take that to an ever-expanding circle of countries for discussion, potential modification, and then approval.

This is what we need to do in the international financial institutions, it is what we need to do with respect to climate change. If

the U.S., Europe, Japan, for example, cannot get their acts together, the developing countries are not likely to move either in the

direction of renovated financial institutions or in the direction of a

climate change agreement.

It is the large economies that ought to begin to move, begin to

correlate policy, bring along the next tier of countries economically,

the next, the next, and so on, until you build out a sufficient critical mass. That does not mean everybody, but it means a critical

14

mass, the critical greenhouse gas emitters, the critical participants

in the global financial sector, that can work toward change in the

financial institutions, and work toward change in the creation of a

global environmental organization.

The CHAIRMAN. All right.

Senator Brock?

Senator BROCK. May I just supplement that, because I very much

agree. Back when we were just about to see the demise of the

GATT because we were a little too aggressive in pushing everybody

to talk about things that they were not ready to talk about, we

started free trade agreements, first with Israel, then Canada, and

then on through the rest that you have seen, in order to set an example, to create a model of an agreement, but also to show the rest

of the world that we would play well with them if they would respect the rules and deal honorably in resolving some of these

issues. The U.S. has to have some examples out there so people can

see that there is a better way of doing it.

Let me give you an example. Right now, the two largest consumers are China and the United States in the energy field. We

are accused of being a significant factor in the environmental concerns that we have. Would it not be a remarkable exercise if these

two countries, just as a beginning point, would start having conversations about how we might jointly work on new technologies

that deal with energy and the environment simultaneously? Because what we have today in terms of technology does not seem to

be cutting the mustard. So, if we could get that conversation going,

that might lead to the kind of groups that we——

The CHAIRMAN. So how do we get that conversation going?

Senator BROCK. There are some people working on it now, in all

candor, that Carla and I are both familiar with and have been trying to support. But in all honesty, it is going to take an administration that makes an opportunity for a new door to open, probably

in January, because the imperative of the pressing issues of the

moment make it pretty hard to do in——

The CHAIRMAN. Secretary Kantor, I see you are wishing to join

in here.

Secretary KANTOR. Yes. I also served with Secretary Hills and

Secretary Brock in the same effort, private sector effort, but encouraged by both the people up here in the U.S. Senate, as well as,

by the way, in the government of China to try to wipe away the

barriers to environmental technologies, for instances, tax barriers

and tariff barriers and other barriers that exist. It is a way to

start. It is a way to begin to address this issue.

If China and the U.S. can come together, my guess is that you

can start to bring around much of the rest of the world. Now, it

is not easy. It is easier said, of course, than done. But I believe

those kinds of efforts need to be encouraged and pushed, and I

think the next administration ought to make it a high priority.

Senator BROCK. But this Congress could do a lot just by encouraging that sort of thing.

The CHAIRMAN. How would you merge the two? That is, environment on the one hand, and trade on the other? In what form do

you deal with it?

15

Senator BROCK. Start with environment and energy. The connection there is extraordinary.

The CHAIRMAN. We have the WTO and the IMF, and Charlene

Barshefsky suggested the GEO. Clearly, efforts on the part of one

country to encourage, not only with carrots but with sticks, another

country to adopt climate change regimes is going to lead to some

kind of a, if not collision, certainly tension.

Secretary HILLS. It probably would be helpful, Mr. Chairman, to

begin the conversations with a small group of governments, as has

been suggested. There is a natural nexus between our economy

that has the technology to produce clean energy and, for example,

China’s, which does not. So there is a deal to be made. If the barriers were lowered to our technology and the proprietary aspects of

our technology were respected, China and we would obtain the benefits that we each are seeking. Environment is one of China’s urgent challenges. President Hu Jintao mentioned at the Party’s Congress in March energy and the environment as his government’s

top two problems.

One of your colleagues has explored having these kinds of bilateral exchanges, encouraging discussions regarding energy and the

environment. In my view that would be a better process rather

than trying to thrust energy and environment on the end of an already complex negotiation dealing with trade and other issues. The

example of an effective bilateral arrangement dealing with energy

and the environment will grow because it is broadly recognized as

needed today.

The CHAIRMAN. All right. My time has expired, but go ahead,

very briefly.

Ambassador BARSHEFSKY. Yes, Mr. Chairman.

The CHAIRMAN. Very briefly.

Ambassador BARSHEFSKY. There is no question that the unilateral imposition of, for example, a cap and trade system or a border

tax system could violate existing WTO rules, both on the basis that

one would retaliate against countries that did not adopt a similar

system, taxing their imports into the United States, as well as on

the basis that one could violate the basic WTO principles of nondiscrimination in national treatment.

There has to be a concerted effort to take a look at the direction

of environmental policy and climate change policy and find ways,

whether by exception to WTO rules or most particularly by the critical mass of countries coming together on an agreement, so that

WTO rules are, in fact, not violated, but countries share in a common system.

The CHAIRMAN. Thank you very much.

Senator Roberts, you are next.

Senator ROBERTS. Thank you, Mr. Chairman. Thank you for

holding the hearing, and kudos to all present on the panel. It is a

little awesome to see all members of the panel with whom I have

had the privilege of working on the sometimes powerful Agriculture

Committee and the Senate Agriculture Committee as well. There

is an expression out in my country that, if you want to be a big

flea, you have to run with tall dogs, and I just appreciate the opportunity to share things with you down through the years.

16

So, the Honorable Mickey—and I apologize for being informal—

the proposals in your testimony are an agenda that any presidential candidate could run on. So, I will probably Kantorize a lot

of my remarks, and thank you for your suggestions and outlining

a very ambitious agenda.

Bill, thank you for your friendship down through the years.

Thank you for the warning. Congress needs to be warned. America

needs to be warned that we are in a period in which the United

States is not the only dominant force, more especially from a trade

position. You have said that very clearly and indicated the importance of education and new skills. We always talk about the Trade

Adjustment Act and the environment and things of this nature

when we are talking about the trade agreements.

It used to be in agriculture, in the many speeches that I have

written or given down through the years, that you mentioned trade

as the number-two thing, trade and exports. That has slipped. The

bloom is off the trade lily in farm country. They have heard about

it. I know we over-sell trade agreements and I know we criticize

them, certainly, that is for sure. So we really need to get down to

the hard-rock truth. But you have issued a good warning.

The Honorable Carla, thank you very much for your six suggestions, and more especially with regards to education. We have a

math and science program that passed the HELP Committee featuring help to our teachers of math and science to recruit more.

Obviously we got into a little challenge with the appropriations to

fund all these programs, but at least I think we have our head in

the right direction. Thank you for indicating the value of trade to

the individual families.

The Honorable Charlene has always been very pertinent. Thirty

percent of the GDP. I did not realize that, in the private sector

growth, in the wages. So, thank you for your contribution. However, we are in a situation where we cannot even get a trade agreement worked out for Colombia. By the way, Mr. Chairman, all of

these individuals were, on average, 3 minutes and 50 seconds over

time, so I am still under time in regards to that criteria. [Laughter.] I apologize for that.

But here we are with a situation with Colombia, 31 nations in

the southern command, and this is the country that represents the

turn-around. The Columbia trade agreement is a win-win, as everybody has said. It has national security implications, big-time, with

Hugo Chavez, aside from the economic benefits of the trade agreement. We are stuck. We are in purgatory. We are in the trade twilight zone here in the Senate. The same thing with the FTA with

regard to South Korea.

The Korean President must grapple with people worried about

BSE in our beef exports. However, I do not think safety concerns

with U.S. beef are the case, really, but a mask for broader concerns

by the political opposition. It is a perfect storm in regard to the political opposition. But a government could fall based on a trade

item, and that government is very pro-United States. Who knows

what the next government would be.

You have a situation with North Korea and the 6-party talks. All

of these things have very serious national security implications,

and we are stuck. Quite frankly, I am concerned that we are not

17

going to move on the trade agreement. The Chairman is very willing to do it, so is Senator Grassley. But there are other irons in

the fire, most of them very political. So, I do not know.

If we do not do these trade agreements and, if we do not get

Trade Promotion Authority, the result will be 535 trade ambassadors here in Congress. I do not know of any country that wants

to deal with that. So, given that situation and given the fact that

I am way over time, what do you think in terms of the real world?

You have spelled out very clearly the value of trade, you have

spelled out the consequences.

But given the fact that we are in a trade twilight zone, it is unlikely we will do anything until after this session is over. We’ll then

have to start over, and we will invite you all back to testify on the

benefits of trade.

If we do not act on the trade agreements with Colombia and

Korea and change this current attitude that trade is very negative,

what do you believe are the consequences? Any comments? I mean,

I think we are at the crossroads here.

Ambassador BARSHEFSKY. If I may just make the comment, Senator Roberts, the U.S. has always—and as former Trade Representatives, we all have—taken the view that every trade agreement we

ever did had to have something in it for everybody, all the time,

no matter what. The downside to that approach is that, one, it sets

no priorities at all for what is the most important factor or set of

factors that needs to be achieved, and then, even if an agreement

falls somewhat short in other areas, nonetheless, pass the agreement, because the fact is, not everything the U.S. wants is attainable, all the more so given our diminished international stature

and our current economic state, which, after all, has been the traditional source of our great power, not so much our military, at least

since World War II.

So, in the case of Colombia, it seems to me rather obvious. This

is a critical country. It is the oldest democracy in our region. It was

nearing failed state status, with terrible consequences for its regional neighbors in instability. Not to pass the agreement, to repudiate it at this juncture, it having been negotiated, would do nothing to strengthen labor rights in Colombia. It would be Hugo

Chavez’s dream and would do everything to strengthen his brand

of authoritarian populism and his use of natural resources as a

weapon against, for example, other democratic nations.

Similarly, Korea. Of course the agreement should pass. This is

the world’s 13th-largest economy. The agreement having been negotiated, to repudiate it is to take an ally, a critical ally in a region

where we are grossly under-represented—grossly under-represented—and turn that ally away. We cannot seem to accept ‘‘yes’’ as an

answer from anybody.

I think it is critical that the U.S. set the priorities that are most

important, work as hard as possible to get everything everyone

could possibly want, but, if it does not work out quite that way,

nonetheless the priorities having been set, move forward on these

agreements. But I have never seen the U.S. grow closer to countries that we repudiate or grow closer in our goals of democratizing

the world when we try to negotiate agreements which then do not

pass the Congress.

18

The CHAIRMAN. Thank you very much.

We now have a little bit of an issue here as to who is next. We

have an early bird rule here. One Senator was in the anteroom

ahead of the other, the other was in the hearing room ahead of the

other. The basic rule is whoever is in the anteroom first, so the

next Senator is going to be Senator Stabenow. She is next, then

Senator Bunning.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman. And to my good

friend Senator Bunning, thank you. Thank you, Mr. Chairman, for

holding the hearing. I appreciate all of you being here.

I feel like I am representing the poster child State for what happens when we do not enforce our trade laws or get it right when

they are negotiated, so I do feel compelled to share with you my

thoughts on behalf of the people in the industries I represent, and

I certainly welcome your comments.

We are in a global economy. We want to export our products, not

our jobs. We have lost 3.5 million manufacturing jobs just in the

last 8 years because we are not paying attention. My biggest concern—and Secretary Kantor, you have spoken before about trade

enforcement. Certainly Ambassador Barshefsky, you did as well.

But we are not creating a level playing field on trade. Our companies are competing against countries, and we have not yet figured

that out in the way we have come forward with things.

It is not trade that is losing jobs. It is the fact that we are not

creating a level playing field and enforcing the trade laws. I would

first have to say, on South Korea, over 80 percent of what they

send us right now is automobiles. The latest numbers are, they

sold 700,000 to us, and we were able, because of non-tariff trade

barriers, to get 6,300 in to them. This trade agreement does not

guarantee a fix on that.

We have had two other Memorandums of Understanding that

also did not create a fix on that. I am happy to support South

Korea, as long as our products can be sold to them, including manufacturing and automobiles, as they are selling to us. Unfortunately, I do not see that, and I certainly do not see that from our

industries. I am deeply concerned right now with the Doha Round

and what has happened.

The latest thing I have heard from the Auto Trade Policy Council

is that, in fact, once again the auto industry and manufacturers basically have been put aside for other interests, important interests,

where major commercial net losses will occur in the U.S. auto industry because we are not addressing what is happening in terms

of tariffs in the auto sector and non-tariff trade barriers.

We are bringing down ours, but we are not requiring other countries to eliminate theirs. After 7 years, on the last possible day, the

USTR offered an extremely weak, watered-down proposal to ask

countries to be more transparent on their auto standards. I just

have to say that I go back to something that I remember, Secretary

Kantor, you saying at a previous meeting, which is the fact that

we have the smallest trade enforcement agency in the industrialized world.

We are negotiating agreements, but we are not making sure

other countries keep their promises, and we are losing jobs as a reVerDate 11-MAY-2000 14:22 Oct 04, 2010 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 58330.000 TIMD PsN: TIMD
19

sult of that. That is the business perspective of manufacturers who

have created the middle class in this country, as well as from a

labor standpoint. So I would ask you to respond to certainly the

concerns about enforcement, and I would simply say this. What we

have done by lack of action and by not enforcing policies is create

a race to the bottom in this country, saying to people, if you only

work for less, lose your health care and your pension, we can be

successful.

I would embrace what you have talked about in terms of a race

to the top: education, innovation, tackling health care costs, and

leveling the playing field on trade. But frankly, until we see that,

the people in my State have said we have had enough of this until

we can make sure that our policies reflect how we support growth

and investment in the United States. So I would welcome your

comments on that, or any suggestions, particularly as it relates to

enforcement.

I am happy to have China in the WTO. Before they started, we had an $83-billion trade deficit; now we have a $256-billion trade

deficit. With all due respect, I do not see where we are moving

ahead. From a defense standpoint, we are making vehicles, we are

making products that are critical to the national defense of our

country. If we cannot manufacture those anymore, we are in deep

trouble from a security standpoint. I would welcome your thoughts.

Secretary KANTOR. Mr. Chairman, I would like to, not respond,

but to be supportive of that. Senator Stabenow, you and I have

talked about a lot. First of all, thank you, Mr. Chairman, for your

legislation on a trade prosecutor at USTR. If anyone is puzzled

about why we cannot pass these trade agreements, you need not

look further than the lack of credibility we now have with the

American people. It may not be, in this room, something that we

share because, for whatever reason, we seem to think we have an

understanding of what is going on.

But if you are in Detroit and you are seeing, since 1999, less

trucks going over the Ambassador Bridge or in the Detroit-Windsor

Tunnel, or on the Blue Water Bridge, all three of which connect

Detroit, and it is the auto industry that does it, and you realize the

loss of jobs, and you are looking around for a culprit, fair or not,

trade is it.

Now, we have not enforced our trade laws and trade agreements,

particularly in the last 8 years, in the way that we should. We

have brought 19 actions in the WTO. In the previous 51⁄2 years

since the WTO passed, 66 actions were brought in the WTO.

Now the numbers alone do not tell the story, but we need emphasis on standing up for our trade laws and trade agreements, having

labor and environmental provisions in every trade agreement, addressing bribery and corruption, by the way, making sure when we

write a trade agreement and we negotiate a trade agreement and

we pass it here, that the American people are behind it. Because,

if we do not do that, then trade policy, which has been so well articulated by my three colleagues, which is a positive agenda that

we need to follow, will not go anywhere politically.

So I could not agree with you more, we must—we must—enforce

these trade agreements. Nothing could go further in helping us do

that than a trade prosecutor at USTR. I think my colleagues will

20

join with me. There is just not enough personnel there to do the

kind of job that you or Senator Baucus would want us to do.

The CHAIRMAN. Senator Bunning?

Ambassador BARSHEFSKY. If I might add——

The CHAIRMAN. Just very briefly. Then I have to go to Senator

Bunning. Very briefly.

Ambassador BARSHEFSKY. If I just might add, I think you are

looking at people here who, when they were USTR, were real enforcement hawks. I agree with Mickey that there has been a dearth

of cases filed in the last 7 years. My own view has always been,

if you do not intend to enforce an agreement, do not negotiate the

agreement. At the end of the day, enforcement is absolutely critical. Not the threat of enforcement, enforcement. This is what has

been lacking, particularly the last 7 years.

The CHAIRMAN. Senator Bunning?

Senator BUNNING. Thank you, Mr. Chairman.

Welcome, distinguished panel. I think I have dealt with everyone

who is on this panel, either at the Ways and Means Committee or

over here, and some personally. As the largest market for goods

and services in the world, our strategy on trade has been to offer

access to the U.S. market in return for trade concessions that open

foreign markets to U.S. goods and services. The strategy appears

to have some flaws. During the past 9 years, our imports have doubled to $2 trillion, but our trade deficit has grown from 2.7 percent

of GDP in 1998 to 5.7 percent of GDP last year.

What good are trade agreements if the market access concessions

we win are undermined by factors such as currency manipulation

or other types of intellectual property stealing or all the things that

have gone on with the trading partners that we have negotiated

with? Anyone?

Secretary HILLS. Senator, I do not think that you can blame the

growth of our trade deficit on the fact that markets are closed to

our products as much as you can blame it on our over-spending and

issues in the areas of the financial sector that Senator Brock alluded to.

We do have a mercantile manner of negotiation: we open our

market if you open yours. But every time that we open our market

to a less-developed country, they use the hard currency to buy

products from us. China is much in the cross-hairs of our anxiety

today. However, China is our fastest growing export market. Every

State in the Union is enjoying triple-digit growth of exports to

China.

Senator BUNNING. Let me just mention that. In China last year,

we had a trade deficit of about $256 billion, which was about 32

percent of our total trade deficit. We imported $1.9 trillion worth

of goods and services and exported $1.1 trillion, so we had a $790

billion trade deficit.

I do not disagree with what you have said, but when one country

is 32 percent of your trade deficit and they are not enforcing our

intellectual property laws in that country—I have been there, tried

to meet with our good friends from China. Six members of this

committee, in fact, went there. The Trade Representative—or the

Trade Minister, excuse me—from China would not meet with the

six U.S. Senators.

21

Secretary HILLS. If I could just respond. First of all, I think it

is tragic that the Trade Minister in China did not have the opportunity to meet with you.

Senator BUNNING. Well, he would not.

Secretary HILLS. I do not endorse that. Let us look at this country of 1.3 billion people and look back to 1990.

Senator BUNNING. Well, there are 1.3 billion people.

Secretary HILLS. There are 1.3 billion people.

Senator BUNNING. Yes.

Secretary HILLS. Right. In 1990, when I served, we were focused

on Japan, and our deficit with East Asia as a whole was about 50

percent of the total. Today our deficit with East Asia as a whole

is 40 percent of the total. The difference is that our deficit with

Japan has shrunk. Our deficits with Singapore, Taiwan, and South

Korea have shrunk, and our deficit with China has grown as other

East Asian countries have moved their production facilities to

China. So, China is now the biggest deficit contributor in East

Asia, but East Asia’s total deficit vis-a`-vis the United States has

gone down.

You mentioned intellectual property. I could not agree with you

more. We should enforce our intellectual property laws, but we

need different measures, domestic measures, to tackle our trade

deficit as opposed to those needed to enforce our intellectual property laws. They are both important.

Senator BUNNING. My time has expired. The biggest problem I

am having is that, if you have a problem with enforcement, and we

do, and we have a problem with one country, and we do, the fact

that they will not talk with the people who actually have to pass

the trade laws that we make—it is not the administration. They

negotiate it, but we have to pass it. That is the problem that Senator Stabenow has talked about. It is in the province of the Congress of the United States to pass a reasonable trade law that gives

us——

Secretary HILLS. I understand your problem.

Senator BUNNING. Thank you.

The CHAIRMAN. Thank you, Senator.

Senator Conrad?

Senator CONRAD. Thank you, Mr. Chairman. Thank you very

much for having this hearing.

This is a very distinguished panel, and people who have realworld experience dealing with these trade issues. I would just like

to take a moment for a reality check, because, as I listen to the

conversation here, it seems disconnected from the conversations I

have when I go home. Let me just say, I represent North Dakota,

a State that is heavily dependent on trade, because so much of

what we produce in agriculture is exported.

Also, North Dakota is an energy State, although most people do

not think of us that way. But we have major coal deposits. We have

tremendous deposits of oil and natural gas. In fact, the Bakken formation—it has just been determined we have 150 billion barrels of

oil in North Dakota, really quite a stunning revelation. Unfortunately, only a small percentage of that is recoverable under current

technology, but nonetheless, enormous deposits there.

22

When I talk about a disconnect, when I go home people talk to

me about their sense that we have not done a good job negotiating

for ourselves, that we have a $700-billion trade deficit. Although

they do not know the number, they know that we are buying much

more than we sell and that that disparity is increasing. We have

told them we have had a series of great successes—the Canadian

Free Trade Agreement, NAFTA, WTO, China PNTR, CAFTA—and

the trade deficit keeps going up.

They say, how can we afford much more of this success? I have

had people ask me that in meetings all across North Dakota. I can

tell you, in a State like mine which had traditionally been very favorable toward trade, now there is great skepticism. They believe

that we are not doing a very good job negotiating for ourselves.

Let me point to one sector, agriculture, which is the dominant

part of North Dakota’s economy. They say to me, wait a minute.

The Europeans, our major competitors, provide more than 3 times

as much support to their producers as we provide to ours. We enter

into these agreements that maintain their advantage. This is after

cap reform. Before cap reform they had a 5:1 advantage. Now it is

something over, well over, 3:1. They see us make an offer in this

negotiation. Nobody bites, so then we make another offer, more

generous, negotiating against ourselves.

I just was at a meeting in North Dakota with some of the major

industry leaders in my State, and they said, who taught our negotiators negotiation? How did anybody ever succeed in a negotiation

by negotiating against yourself?

We make an offer, nobody bites, so we make a more generous

offer. Nobody bites on that one, so we make another one. If anybody thinks that people out at home are not aware of what is happening, they are badly misinformed. These people read the Wall

Street Journal, they read the New York Times. They do it online

in the morning when they are going about their farm chores, and

they know that we are out there negotiating against ourselves.

Let me, if I could, just ask each of you: what do we do about this

growing trade deficit that is increasingly unsustainable? What do

we do to recapture credibility by dealing with that?

Secretary Kantor?

Secretary KANTOR. Well, quickly, because I am sure my colleagues have a lot to say on this one, we just have to be more competitive, is one. That is a mid-term to long-term issue, but you

know those issues from education, to energy, to health care, and so

on, including doing something about this fiscal deficit, which of

course you have been a great champion of trying to do something

about in your career, Senator, and we appreciate that.

Second is, we have to restore credibility to our trade program.

Unfortunately—or fortunately, and I think, fortunately—it means

we have to look at our trade laws and trade agreements and enforce them. We need a trade prosecutor, we need labor and environmental provisions in every trade agreement. We need to address

the issues of bribery and corruption. We need to make sure that

we establish that trade prosecutor at USTR. We need to go to the

Chinese and say there are 66 pages in the National Trade Estimates Report published by USTR of problems that China has with

trade with the United States. It is 66 pages.

23

Now, I would take each of those pages, if I were USTR, and just

start going down the list. We are going to resolve these one way

or the other. On the other hand, we need to cooperate with China

in so many areas, as my three colleagues have been very articulate

in discussing. We need to update our significant trade agreements.

NAFTA first began negotiations—I think, Secretary Hills, it was

1990. It was 18 years ago. Clearly, things need to be done, including putting labor and environmental provisions inside that agreement with a good dispute settlement mechanism.

When we negotiated that in 1993, as you remember, Senator,

President Bush 41 had already signed NAFTA, and we had to put

them outside the agreement. There had never been labor and environmental provisions in any trade agreement in history. Those provisions were all right, but not great. I negotiated them, but they

were not terrific. We need to make them terrific. We need to put

them inside the agreement and sit down with our Canadian and

Mexican counterparts and get it done.

Now, will that affect the trade deficit? Maybe or maybe not. But

what it will do is say to the American people, we are standing up

for your interests. Nothing could be more important.

The CHAIRMAN. Senator Lincoln?

Senator CONRAD. I will come back on my second round and just

repeat the question so others get a chance.

Senator LINCOLN. A special thanks to the chairman for gathering

such a distinguished panel. We appreciate so much your willingness to come and work with us. It is such a great opportunity to

step back and take a look at our trade agenda, particularly in today’s world. We are now up here grappling with the idea of having

to move from an old energy economy to a new energy economy. We

are also seeing that in trade.

We have been begging for years to be a part of the global economy, and, now that the global economy is here, we have to figure

out what our role is and how we participate in this global economy.

Countries like China, India, Brazil, all of these others that are engaging in so much of this, we now have to figure out how we do

it and what we do with this global economy that we have begged

for.

I do find it interesting that there seems to be a consensus among

our panel here that trade often does get unfairly characterized. I

mean, I think you have heard that from a lot of us, but to hear

it from you all as well is important. Certainly the skepticism of the

benefits of trade is being fueled, I think in large part by not just

agreements, but certainly other issues which you all have mentioned, stagnant middle-class incomes, inflation, caused in large

part by our huge government deficits, rising energy and food prices.

These are all things that are contributing to the skepticism that exists out where we all come from, which is the heartland of America.

But you all have some great suggestions, and we do very much

appreciate that. I think you emphasized improving education. I

think we all have to remember that our competitiveness, as Secretary Kantor recognizes, is a really important part of what we

have to do in this global economy. It is definitely linked to education, where we have dropped internationally in terms of K–12,

the investment that we are making in our human capital. Energy,

24

health care costs—nobody has really talked about raw materials

and what that does to us, as well as producers in the global economy. Legal liability and other things really do affect how we participate in this global economy.

I would just like to ask a couple of questions. I guess the options

that are on the table right now, you all have expressed an awful

lot of things that we could do. But I would love for each of you to

maybe take the top two, or maybe the most important thing that

we could do in terms of the challenges that we face regarding

trade, and what would be the number one or number two that we

should do, in this next Congress—obviously our time is limited

now—to focus this committee, to really start in that process of dealing with four, five, six, seven different things. But what would be

the first one?

I think, Secretary Kantor, you also touched on our agricultural

sector and its importance to trade. Many of you all have talked

about that. We are in the midst of a global food crisis. We are also

looking at our own energy crisis and the role that renewables and

agricultural products are going to play in that energy crisis. We

have seen some countries close their borders to agricultural trade

in response.

I have been very interested in what is going on this past week

with the Doha Round and the negotiations on agriculture, wondering what you all’s comments would be in terms of believing that

the so-called advanced developing countries, particularly China,

Brazil, and India, are going to come to the table and really provide

the kind of market access that our growers, our producers are

going to need to be able to remain competitive and continue to

grow the safest, most abundant, and most environmentally sensitive crops in the world and continue to be the leaders in those

areas.

So the one most important thing is, do you think we are ever

going to see other countries work with us in terms of opening markets for access to agriculture? Anybody?

Senator BROCK. I will start. If you want to deal with your trade

deficit in the short term, live within your means domestically. Deal

with the Federal deficits. You cannot continue to spend yourself

rich. It cannot be done, and it is destroying our ability to compete.

If you have a long-term answer, look at the fact that we have a

knowledge-based technologically networked global economy. All

productivity improvements come out of knowledge, not out of muscle.

We have a situation where 100 kids go to the 9th grade, 68 finish

high school, 40 go on to college, 27 finish the first year, 18 have

finished with a bachelor’s degree in 6 years or an associate degree

in 3, and 85 percent of the new jobs require post-secondary education. We have lost our minds in this country because we do not

pay attention to human development. There is no higher priority

for this country. If we do not address that, nothing else is going

to work.

Senator LINCOLN. As the mother of twin 12-year-olds, I appreciate that answer. Thank you.

Ambassador BARSHEFSKY. If I can second what Senator Brock

said. Richard Nixon equated trade deficits and unfair trade. That

25

was when our trade deficit was in the billions. This was never the

right characterization, but it has stuck. Efforts by each of us to try

to unstick it have always been unsuccessful because it is a very

convenient moniker. A trade deficit is the difference between what

we earn and what we spend, and it reflects what you see at a

household level. Americans have a penchant for accumulating massive debt. We live way beyond our means.

Our national savings rate is a disgrace. It is 40 percent in China,

it is still in the low 20s in Japan, and it hovers between a negative

number here and 1. That is what a trade deficit is. If you were to

remove all of the unfair trade barriers that exist in the world

today, my guess—but it is a reasonably educated guess—is that

you would move the trade deficit dial by maybe 10 percent. Not

points, not 10 points, but 10 percent, 15 percent.

The aggregate imbalances are huge because Americans will buy

anything that moves whether or not they have the money. [Laughter.] That is what we do best. It is what powers our economy. It

is what has powered the global economy. It is why, when the U.S.

slows down, there is a contagion-like effect, somewhat less today

than it was 10 years ago, but there is still a contagion-like effect.

So I agree with Bill. The most important thing we can do is to

address our fiscal imbalances and get Americans to understand the

importance of savings. If we do not like trade with China, then why

is China our banker, which we willingly accept? If we do not like

trade with Asia, then why is it that we have put ourselves in a position where Asia is our banker? How many of us go to our banker

to say, excuse me, I do not like your attitude? I would say none.

[Laughter.]

The CHAIRMAN. Thank you, Senator.

I would just follow on that conversation a bit. One reason private

savings rates are so high in other countries—let us say China, for

example—is because China does not have nearly as well-developed

a social services network, whether it is health care, pension, retirement, and so on and so forth.

I am not advocating this, but if the U.S. were to live totally within its means fiscally—that is, the government would—it would necessarily mean less expenditures someplace. Maybe that is Iraq.

Maybe that is Afghanistan. Maybe it is Medicare, maybe it is Medicaid. Maybe it is other government expenditures. It would still

mean taxes are not raised.

So it would mean, if my analysis is correct, some very significant

dislocations if we started to live fiscally, totally within our means.

So I am curious whether you have any thoughts on how we might

adjust so we live more within our means, but in a way that is not

totally cataclysmic. Anyone?

Secretary KANTOR. Mr. Chairman, this goes to Senator Lincoln’s

question as well. I can do this very quickly. It is not just the problem of Americans, as you say, in the heartland of America. We

need presidential leadership, number one. We need an agreement

between Congress and the next administration as to how we are

going to proceed in some detail, and we need a bipartisan coalition

up here to put that into action. Those are the things I would think

would be most important.

26

All of what has been said here is absolutely correct. I associate

with it, I am for it. But if we do not do that and we do not say

to ourselves, as Senator Conrad has suggested, it is not just the

problem of Americans overspending and not saving, we have a consumption economy—it is two-thirds of our GDP, we all understand

that—we also have to come to some agreements here in Washington between the administration and the Congress, and within

the Congress itself, as to how we are going to proceed if we are

going to make progress.

The CHAIRMAN. Well, it really requires presidential leadership. It

is hard for Congress to do this on its own if a president is not on

board.

Secretary KANTOR. I could not agree more. It is not just leadership from time to time, it is constant and consistent leadership, advocating these policies and agreements with the Congress, that is

going to make this happen.

The CHAIRMAN. Frankly, I do not see, so far in the presidential

campaigns, a significant indication from either candidate that he

understands this, grasps it, and understands that this has to be addressed in a very full way.

Senator BROCK. Mr. Chairman, I agree with that. I also think

some very unfortunate statements have been made in the presidential campaign that lead us to think we are going to go negative

in terms of our responsibilities. But candidly, if I were a candidate,

I would pay attention to the fact that this is not a popular subject

to talk about. We keep avoiding the hard issues.

The CHAIRMAN. Yes.

Senator BROCK. We are not talking about education reform. We

are not talking, frankly, about training reform, about adjustment

reform. We are not talking about health reform very effectively. We

have not dealt with energy. You have to worry about where this

country is in terms of, are we able politically to address the hard

issues any more? I very much respect the question, but it is going

to take not just a new president, it is going to take committees like

this. I have worked with this committee for 40 years, and I have

seen some terrific things come out of here. Russell Long was fun

to deal with. [Laughter.] You are.

But here we are. Committees like this can play an extraordinary

role. We talked about the U.S. and China with energy and environment. Hearings on issues like that would break some new ground

in terms of the national conversation, that is really where you can

make an extraordinary difference. I think this conversation today

is a pretty good example.

The CHAIRMAN. It is a good start. I deeply appreciate it.

Senator Conrad? I have to leave. I have to go to something else.

But, Senator Conrad?

Senator CONRAD. How much longer would you want us to go?

The CHAIRMAN. You can proceed as long as you want. [Laughter.]

Senator CONRAD. But we will not ask the witnesses to stay past

noon, certainly. But thank you, Mr. Chairman. Again, thank you

for having this hearing. What an excellent hearing.

Senator Brock, just for a moment I would like to go back to

something you ran through just off the top of your head there in

terms of education, because I want to make sure I have the numVerDate 11-MAY-2000 14:22 Oct 04, 2010 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 58330.000 TIMD PsN: TIMD
27

bers. You talked about, 100 enter school, I think you said 69 graduate high school.

Senator BROCK. Sixty-eight.

Senator CONRAD. Sixty-eight. Forty——

Senator BROCK. Go on to college.

Senator CONRAD [continuing]. Go on to college. Twenty-seven——

Senator BROCK. Some form of post-secondary. Yes.

Senator CONRAD. Twenty-seven complete the first year.

Senator BROCK. Twenty-seven enter the second year, let us put

it that way.

Senator CONRAD. Twenty-seven enter the second year. Then was

there something after that?

Senator BROCK. Only 18 out of 100, after 3 years, have an associate degree, or 6 years, have a B.A.

Senator CONRAD. All right.

Senator BROCK. That is scary.

Senator CONRAD. I really liked your going through that, because

that goes to the heart of one of the issues that we have. I also very

much like what all of you were talking about with respect to fiscal

policy and the role it has as we continue to run these massive fiscal

deficits which are dis-savings, societal dis-savings that put us in

the hole Ambassador Barshefsky referred to where we actually

have now a negative savings rate, at least by some measures, in

this country. That has enormous implications for the future, because, if you do not have savings, then at some point you have reduced investment, which means you have less economic growth. I

mean, these things are connected.

One of the great frustrations we have here is helping our colleagues connect the dots, because they are pulled in so many different directions. These things, to some of my colleagues, just become numbers on a page and they do not connect to real people’s

real lives. The great challenge we have collectively is to connect the

dots so that these are not just numbers on a page. This is directly

related to the kinds of lives, at least the economic lives, people are

going to lead in this country. If I could go back. I raised the question on the $700-billion trade

deficit and credibility. I wanted to give each of the others—Secretary Kantor had an excellent answer. I wanted to give you, Senator Brock, Secretary Hills, and Ambassador Barshefsky, a chance

to give your reflections on that question. What do we do about this

massive, yawning trade deficit? What are the specific steps you

think we ought to bring to the attention of our colleagues?

Senator BROCK. The hard part of the answer is that we have to

do things that are unrelated to trade. Negotiations are not going

to fix—I think it was Charlene, or maybe it was Carla, who said,

if we got everything we wanted, we might change the trade numbers by 10 percent. That is probably optimistic. Negotiations are

not our problem. You can blame the negotiators all you want to,

but they are not the problem. The problem is us.

We are not educating our kids, and they are falling further and

further behind—Carla said 9th in the world; there are some studies

that show us 28th in the world. In one literacy study, our adult literacy, we only beat Cyprus, for gosh sakes. Every other industrial

country is doing better than we are. Here is Korea, that was below

28

Afghanistan 20 years ago, and now they are number one in the

world in the percentage of their GDP that they are putting into

education. That means they are number two in the world of high

school graduates, number three in the world in terms of college

graduates. We are not doing that. We are not paying attention to

that. So, we have to go back to our human development. That has

to be the top priority.

Second, if you are going to deal with this fiscal deficit, you have

to think about the way we compose our tax policy. That is where

this committee does have jurisdiction. Why is it that other countries have a value added tax, what we used to call a business

transfer tax, on anything we ship over there, and they come over

here, they are tax refunded at the border, and they come in taxfree. We have to compete over there against that. What if we had

some equivalent tax instead of the payroll——

Senator CONRAD. Nothing rebatable at the border.

Senator BROCK. Yes. The payroll tax is a tax on work. Why are

we taxing work in the United States? We ought to be taxing consumption, but not work. What if we replaced the payroll tax with

some form of a business transfer tax or a value added tax? It would

enhance our competitive viability, it would take the burden off of

our workers, and it would give us more competitive opportunities.

Senator CONRAD. The last member who recommended that, you

may remember the Congressman from Oregon who was on the

Ways and Means Committee and found his career quickly ended.

Part of the problem here is, if we are going to seriously address—

my own belief is, our country is in a deep hole and we have to do

a lot of tough things, and an awful lot of them are going to be unpopular. I really believe we have to deal with entitlements. We

have over-promised.

Senator BROCK. We have to.

Senator CONRAD. We are going to have to deal with the tax

structure. I think we have to have thorough-going tax reform. Our

tax system was created at a time when we were a colossus. We

faced very little competition. Now the world has fundamentally

changed, and we are stuck with a tax system that has almost no

relationship to our current competitive environment.

Senator BROCK. I completely agree. Completely agree. It can be

done. Just to talk about the politics, though, Senator, if you are replacing a negative tax with one that has better economic logic to

it, that is not necessarily a political hazard. There are ways that

we can do this. The American people are not dumb. They know we

are not living within our means. They know we have to do some

things differently. They just want somebody to say, here, let us try

this, or let us debate. All these primaries, we have had all these

debates. We have not had a debate on education. We have not had

a debate on real tax policy. What are we debating? I do not know.

Senator CONRAD. We have had really very little debate on economic policy.

Senator BROCK. Thank you. Absolutely.

Senator CONRAD. Secretary Hills?

Secretary HILLS. Well, Senator, I would agree with everything

that Bill Brock has just said. The most important thing to correct

in each of those areas is educating the American people. What we

29

have heard for months and months and months are untruths about

trade: trade is responsible for stagnant wages; trade is responsible

for our deficit; our trade policy is responsible for every ill in the

economy.

A key issue is to educate Americans about the benefits that flow

from global trade and our trade agreements, and this committee

could play a big part in doing just that. And we must be clear with

our fellow Americans, our Nation cannot be globally competitive

unless we turn around that appalling and unacceptable statistic

that 30 percent of our high school students fail to graduate. Americans need to know the facts so that they will understand the hard

choices their elected leaders must make to deal with today’s challenges. You mentioned the tax policy. Again, we do not talk about

the fact that we tax work, not consumption. We can speak straight

to the American people. I would like to see and hear every Senator

talking to his or her constituents about such facts. For example,

stop saying that NAFTA costs us jobs, when the fact is, and the

non-partisan Congressional Research Service shows, that is false.

It did not cost us jobs. In fact, NAFTA has provided a pay-off for

the average American family of about $600.

There are facts that we should be getting out on trade that would

set the record straight, and let us talk seriously about policy

changes that make economic sense. This, we have not been doing.

We have been using slogans that are totally incorrect on education,

on tax, and on trade. It has gotten us into a deep hole. When we

talk about the deficit, we should tell the American people the facts:

that the largest portions of the deficit are, (A) our negative savings,

and (B) our energy costs. We could and should do something about

both, and it is up to us to exercise the political will to deal with

those issues, not to hide behind falsehoods.

Senator CONRAD. Yes. Energy costs now—we are spending about $700 billion a year that is going out of the country. You wonder,

how much better would our country be, how much stronger would

the economy be if some significant portion of that were being spent

here?

Senator BROCK. Like developing oil in your State.

Senator CONRAD. Yes. We are very excited about the prospects in

my State, and we are developing the oil in my State. We have other

States, unfortunately, that somehow have an attitude that it is fine

to do it in North Dakota, but they do not want it. Not only do they

want it in their State, they do not want it anywhere close to their

State.

Ambassador Barshefsky?

Ambassador BARSHEFSKY. Yes. I would just add that I have been

distressed now for a number of years about the level of political debate in the United States. It is at its meanest, lowest, and most

ill-advised when, in presidential prime-time, two candidates debate

who hates NAFTA more, as though NAFTA is relevant to our competitive position today, as though NAFTA makes a difference with

respect to our responsibility to educate our children, as though

NAFTA is the cause of job loss, when it is quite clear that it has

not been, and that is a bipartisan result.

There is no question that, with respect to priorities, education is

critical. How is it that a 4th-grader in the U.S. ranks quite well

30

in math among the OECD countries, and by 12th grade we are 28

of 30? What happened between 4th grade and 12th grade that we

cannot seem, first of all, to acknowledge nationally, and second of

all, to fix?

Senator CONRAD. Can I just interrupt you on that point? I have

just done kind of a little experiment on this. I have gone to a number of schools, and I ask the students, how many of you do 2 hours

of homework a night, high school audiences? Almost no hands go

up. I ask the teachers, when I was going to school we were doing

lots of homework. I was easily doing 2 hours a night, because it

was right after Sputnik and so they established all these special

classes, special classes in science, in math. I will tell you, we were

doing homework. Now, somehow they are not doing it.

So I asked the teachers, why are you not assigning homework?

Their answer is, the parents object. I said, really? What is the nature of their objection? Well, their objection is, the kids have a job

after school. I said, what is the reason for that? Well, they have

got to pay for gas for the car. I mean, somehow we have gotten all

confused here about what this is about.

Senator BROCK. They gave them the car.

Senator CONRAD. They probably did give them the car. But honestly, I have had this conversation, not once, not twice, but dozens

of times. So we are not doing homework. We are not doing homework because the parents object. The parents object because the

kids have a job. The kids have a job to pay for the car. Wait a

minute.

Senator BROCK. And the iPod.

Senator CONRAD. And the iPod, yes.

Senator BROCK. And the boom box.

Senator CONRAD. Yes. But this kind of gets down to a matter of

priorities. Somehow I think our priorities have gotten a little

skewed here. We have gotten way out there on things that are

pretty trivial, and we have forgotten about the basics. The basics

are, you have to get as good as—my grandmother was a schoolteacher. I was raised by my grandparents. My grandmother said,

there are three priorities in this household: number one is education, number two is education, number three is education. Everybody got the message, and we need to do that.

Senator Lincoln?

Senator LINCOLN. Thanks.

Well, thanks again. I am extremely pleased in your response

about education, because I think it is so important; I really do. In

terms of the human capital that we have to invest in in this country, it is going to be just absolutely critical if we are going to be

successful.

I would just like to go to two things. One, the labor and environment parts of the agreements that Secretary Kantor brings up. It

seems now, more so than ever, when we are looking at the issue

of energy, the cost of energy, what the cost of it is to our economy,

to our businesses, to the climate, quite frankly, the issue of labor

and the ability to be able to ensure that there is a quality of life

in the labor force, I agree with Secretary Kantor that it has to be

a part of these agreements. Is it appropriate for us, as we talk

about energy, particularly, and the environment, to use those as

31

tools in trade agreements in regard to—I mean, our two big discussions up here have been about energy and its costs and how we

move forward in this new energy economy.

We have been talking about climate change, and my biggest concerns in climate change have been the costs, making sure that the

cost is relative and that we are not putting a disproportionate burden on low-income working families, making sure that what we are

doing is cost containment and we are being reasonable in terms of

how we administer those issues.

Can we use those as tools when we are negotiating in terms of

encouraging—not just doing things to set an example, but doing

things and using that as a tool in what we negotiate in those trade

agreements? I would just add to that, hopefully my previous question, which was, when Doha right now is negotiating on agriculture, how do we stand there?

Do we really think that these other countries, particularly maybe

the advanced developing countries like China and others, are going

to open their markets to our agricultural goods or not? I mean, I

think that has a direct relationship to the other question I have

asked, which is the role that environment plays in the tools that

you have in your toolbox to negotiate and move us forward in a

new energy economy, and a new world global economy. Does that

make sense?

Senator BROCK. Yes. Can I take a stab at it?

Senator LINCOLN. Yes, sir.

Senator BROCK. Reading the wires from the last 12 hours leads

you to a certain amount of pessimism about the round. India is

being a serious block to moving. China has joined them. They have

maybe 30 of the developing countries associated with them. It is

hard to see whether we can get a breakthrough or not. We have

a terrific team over there, and they are working their hearts out.

Senator LINCOLN. From an agricultural-based State, no deal is

better than a bad deal.

Senator BROCK. We have all agreed to that, and that is the truth

of it.

Senator LINCOLN. Yes.

Senator BROCK. I am not sure—were you in the room when we

were talking about a U.S.-China conversation? I do not think you

were.

Senator LINCOLN. Maybe I was not.

Senator BROCK. Three of us have gotten involved in a private initiative to get China and the United States talking about the connection between energy and the environment—maybe doing some

things together, because we are the two largest consumers in the

world, by yards.

Senator LINCOLN. That is right.

Senator BROCK. There is no nation even close to us. When you

put on top of that, we have the technology and China has a problem that is much worse than ours, frankly, if we could do this in

just a bilateral context of getting something done—it would be

more than an example, because, if the two of us really made a difference in this area, we would open the door for a huge amount of

improvement in the rest of the world. We could work on joint technologies.

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China has an extraordinary amount of creativity. We have to be

sure that, when we work with them in this area, we have dealt

with the intellectual property problem that we have with China.

Now, all of these things are part of a whole. That is my point. I

do not think we are grabbing some of these opportunities as effectively as we could to sort of leap-frog the present stalled situation,

I guess.

Ambassador BARSHEFSKY. Can I make a comment?

Senator LINCOLN. Oh, sure. I just know Secretary Kantor had

some comments.

Secretary KANTOR. This has been happening for years. Go ahead.

[Laughter.]

Ambassador BARSHEFSKY. No, Mickey. You go. That has also

been happening for years. You go. [Laughter.]

Secretary KANTOR. Just real quickly. Japan is 9 times more efficient in conservation and energy than China, 3 times more efficient

than we are. You are right, we have to start with China. I think

trade will not solve it. You cannot have trade agreements that

solve all these problems. Trade is not the only way. But a bilateral

agreement with China in a trade context of reducing tariffs and

taxes, getting rid of them on environmental and energy equipment

and high technology, it is in our interests. By the way, it is in China’s interest too, to address the problem.

Senator LINCOLN. Yes.

Secretary KANTOR. But also in terms of introducing, here at

home and in China, conservation techniques and technologies and

requirements. I know the Senate is taking steps towards that, both

with mobile and stationary sources. It will make a huge difference.

Then we have to bring the rest of the world into this. But trade

will not solve all these problems, and I think we all understand

that, but it is one part of the solution.

Ambassador BARSHEFSKY. I would just add, the U.S. is the highest per capita emitter of carbon. We are 25 percent of total annual

global emissions. Our per capita oil consumption is the highest in

the world. It is twice that of Europe. The productivity with which

we use that oil is among the lowest of developed countries. Americans seem to believe we have a right to waste, and so we do.

Yes, these are critical issues on which to negotiate, particularly,

and I agree, with China, there is no question. Are these parts of

trade agreements? I think the environmental issues readily stand

on their own, and certainly the urgency of those issues with respect

to climate change suggest that to put these in a global round-type

setting from the get-go will lead to 10 years of basic inactivity. We

cannot afford 10 years of inactivity in these areas.

I do think we have to be careful what it is we ask of other countries when we do trade agreements on the environmental side, because we are asking these countries to change their regimes for the

privilege of buying our goods, when in fact we need to export our

goods; but also, given our own quite dismal record on environmental usage, or rather energy usage and environmental degradation, we have to be a little bit careful when you are talking about

countries that are vastly poorer than the United States, which do

not have the kinds of resources we do to enforce environmental

standards across the board.

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So we just have to show a little bit of sensitivity. I think these

are critical issues, obviously, but we also have to show a little bit

of sensitivity, and again figure out what our priorities are. If our

priorities are to export our goods, because of 20 percent of all

American jobs and because those are the best-paying jobs in our

economy, then we ought to make that a priority.

Senator LINCOLN. Well, it is difficult because we are an older

economy. We are the developed nation. You look at China, there is

an opportunity with China because as their middle class grows and

they are purchasing more automobiles, they are purchasing them

at a time when an alternative vehicle is much more likely than it

is for an American, necessarily, to even replace one of those. So

there are opportunities on both sides, and it is important for us to

acknowledge what each of our respective opportunities are.

Ambassador BARSHEFSKY. If I might say, this is why I said that

what we need to do actually is narrow the agenda with China, not

expand the agenda with China. One of the most critical areas is climate change. So, if the U.S. and China do not come to agreement,

it will not happen.

Senator LINCOLN. You are right.

Ambassador BARSHEFSKY. Each will believe it is severely disadvantaged by the other, and then that is the end of the conversation. So it is absolutely critical that the U.S. and China get together. It also suggests focused attention on the issue, not on the

other 150 issues that are around the agenda, but there probably

ought to be 5 issues on the agenda that merit really intense focus,

one of which, of course, is macroeconomic policy and exchange

rates. Then you go at these issues persistently and methodically,

clear away the rest of the underbrush, because it does not matter.

Secretary HILLS. Let me say that I agree with what Charlene has

said on the fact that we are the largest emitter, we are the largest

consumer, and that we need to turn around our own behavior. It

makes sense, as we said before you entered the room, Senator, for

us to sit with China, not to dictate to China, but to find a way to

link energy conservation—that is technology—clean energy, and

the environment.

And were we to find a way for the two largest emitters in the

world to reach agreement, we would find that we would set a

precedent for how we might work with other governments in the

future. So my strong recommendation is not to add this to our multilateral trade talks now. We have a number of multilateral environmental agreements, and we should start dealing with this issue

by creating a bilateral partnership with China to see how we could

mutually help each other. Also, you asked how Doha is going. Senator Brock gave you a somewhat pessimistic answer, and it brought

to mind the fact that the Uruguay Round blew up in 1990 in Brussels.

My counterpart, Trade Minister John Crosby from Canada, from

Newfoundland, said, when people were complaining that it had

come to a halt, ‘‘Well, she’s dead but she won’t lie down.’’ And don’t

give up yet. We will not get all of what we want, but please keep

in mind that, in addition to the economic benefits, there are enormous security benefits. If we do not integrate the countries that are

now on the fringe of our global trading system into that system and

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bring down globally the barriers to what they have to trade, we

will have serious trouble in the future.

Bangladesh, Indonesia, Pakistan, large Muslim countries, each

have 100 million people living below the poverty line. We have

higher barriers by 15 times on the products they sell to us than we

have on the products that rich countries sell to us. That should be

changed, and we could and should lead in that effort. Were we to

add those large countries, among others, to the global trading system, it would copy the great programs like the Marshall Plan that

we launched after World War II and it would greatly enhance our

security as well as our prosperity.

But trade is not a silver bullet. Trade is one key component of

a strategy for enhancing our prosperity and security. I hope that

you will help, not hinder, the negotiations in Doha by refraining

from putting limitations that are unrealistic on our negotiators, because, even if we get 50 percent of what we are after, it will not

be a bad agreement. Because every time we improve the global

trading system, we are better off. And, please, do not forget the

pending Colombia, the South Korea, and the Panama trade agreements, which are strategic, and have profound security implications for us, as well as economic.

Senator LINCOLN. Well, it is so sad because there are so many

possibilities there. But as we have discussed earlier, there are two

sides here. People have chosen sides. I believe that TAA and many

of those FTAs are very, very important, and I think a lot of us

would hope that we could move those things parallel in a way that

made sense. But I do not know. It does not look like that is going

to happen.

Senator BROCK. You hang in there, Senator. [Laughter.]

Secretary HILLS. We are rooting for you on that one.

Senator BROCK. We have not given up. Everyone else on this

panel agrees.

Secretary HILLS. There is a grand bargain to be made. You notice

that we all supported an increase in Trade Adjustment Assistance.

Senator LINCOLN. It is absolutely necessary.

Secretary HILLS. Expanding Trade Adjustment Assistance coupled with opening up the current trade impasse and moving forward on pending trade agreements is a grand bargain that would

serve our Nation well.

Senator LINCOLN. It is not only important for the economy, but

it goes back to the other thing that we talked about earlier, which

is the confidence that we need out in middle America, where people

need to know that, when those jobs are compromised because of

something we have agreed to, that we have not forgotten them.

Senator BROCK. But Senator, please, please, please be careful

about relating unemployment to trade. Nine out of ten jobs are affected by changing consumer demands, changing market circumstances, changing technologies, changing productivity. We need

to deal with unemployment, whatever the cause. That is one of the

more fundamental things that has to be done. TAA is a misnomer.

It is not Trade Adjustment Assistance.

Senator LINCOLN. But what it does for States like us is, it allows

us to improve on that education and those skills. Like you said, I

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am not saying that it is the whole reason, that trade agreements

are the reason.

But they contribute to it in the sense that we are moving from

an older economy to a newer economy, and we still have to be able

to provide that education. And you are right, we are not doing it

in K–12, so we have to make sure that, as those economies change

and those jobs change, that there are the resources to provide the

skills and the education.

Senator BROCK. We are in complete agreement.

Senator LINCOLN. My husband would say, we are in violent

agreement. [Laughter.]

Senator BROCK. We are.

Ambassador BARSHEFSKY. Exactly.

Senator BROCK. But unemployment is unemployment. If you are

out of work, you are out of work. We as a people are losing something important when that person is not able to participate productively. We need, whatever the cause of that unemployment, to help

them get the tools to become more productive, more flexible, more

able to adapt. Frankly, we are going to have to have some wage

insurance to help them bridge the gap.

Ambassador BARSHEFSKY. And I think this goes to sort of a fundamental point that I think all of us have made, and that is, Americans, I believe, do not at all appreciate the world in which we live.

This is not the world in which anyone here grew up. It is not the

world that dictates that the children will do better than the parents’ generation. It is actually quite the reverse in the minds of

most Americans. Most Americans believe their children will not do

as well as they did. This is the first generation where poll numbers

show this quite unequivocally.

It should not be this way, but it will be this way so long as the

level of debate is as truncated and as ill-informed as it often is, including by presidential candidates, including by educators, including by some members of Congress. It is vitally important—this is

where presidential leadership, I think, particularly plays a role—

that the American people understand what this economy actually

is, what its implications are, what the side issues are, and what

the real issues are that have to be tackled for our future.

Senator CONRAD. We thank you. Let met just say that the four

of you can be extremely proud of your contributions to the country,

and certainly to this committee, and we thank you for both.

[Whereupon, at 12:05 p.m., the hearing was concluded.]

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