U.S. GOVERNMENT PUBLISHING OFFICE

31–138 WASHINGTON : 2018

S. HRG. 115–375 

THE NEED FOR U.S. LEADERSHIP ON DIGITAL 

TRADE 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JUNE 27, 2018 

Printed for the use of the Joint Economic Committee 

( 

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JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

HOUSE OF REPRESENTATIVES 

ERIK PAULSEN, Minnesota, Chairman 

DAVID SCHWEIKERT, Arizona 

BARBARA COMSTOCK, Virginia 

DARIN LAHOOD, Illinois 

FRANCIS ROONEY, Florida 

KAREN HANDEL, Georgia 

CAROLYN B. MALONEY, New York 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

SENATE 

MIKE LEE, Utah, Vice Chairman 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

ROB PORTMAN, Ohio 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

MARTIN HEINRICH, New Mexico, Ranking 

AMY KLOBUCHAR, Minnesota 

GARY C. PETERS, Michigan 

MARGARET WOOD HASSAN, New Hampshire 

COLIN BRAINARD, Executive Director 

KIMBERLY S. CORBIN, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota .............. 1 

Hon. Donald S. Beyer, Jr., a U.S. Representative from Virginia ........................ 3 

WITNESSES

Mr. Sean Heather, Vice President, Center for Global Regulatory Cooperation, 

U.S. Chamber of Commerce, Washington, DC .................................................. 5 

Mr. Ryan Radia, Research Fellow and Regulatory Counsel, Competitive Enterprise Institute, Washington, DC .................................................................... 8 

Ms. Rachel Fefer, Analyst, International Trade and Finance Section, Congressional Research Service, Washington, DC ......................................................... 10 

Ambassador Robert Holleyman, Former Deputy U.S. Trade Representative, 

Office of the United States Trade Representative (USTR), Washington, 

DC .......................................................................................................................... 11

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Erik Paulsen, Chairman, a U.S. Representative 

from Minnesota .................................................................................................... 28 

Prepared statement of Hon. Donald S. Beyer, Jr., a U.S. Representative 

from Virginia ........................................................................................................ 29 

Prepared statement of Mr. Sean Heather, Vice President, Center for Global 

Regulatory Cooperation, U.S. Chamber of Commerce, Washington, DC ........ 31 

Prepared statement of Mr. Ryan Radia, Research Fellow and Regulatory 

Counsel, Competitive Enterprise Institute, Washington, DC .......................... 38 

Prepared statement of Ms. Rachel Fefer, Analyst, International Trade and 

Finance Section, Congressional Research Service, Washington, DC ............... 47 

Prepared statement of Ambassador Robert Holleyman, Former Deputy U.S. 

Trade Representative, Office of the United States Trade Representative 

(USTR), Washington, DC ..................................................................................... 62 

Map submitted by Chairman Paulsen titled ‘‘Levels of Perceived Digital Trade 

Barriers in Selected Countries’’ .......................................................................... 66 

Response from Mr. Radia to Questions for the Record Submitted by Representative Maloney ............................................................................................. 67 

Response from Ms. Fefer to Questions for the Record Submitted by Representative Schweikert ................................................................................................... 69 

Response from Ms. Fefer to Questions for the Record Submitted by Representative Maloney ....................................................................................................... 72 

Response from Ambassador Holleyman to Questions for the Record Submitted 

by Representative Maloney ................................................................................. 75 

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THE NEED FOR U.S. LEADERSHIP ON DIGITAL 

TRADE 

WEDNESDAY, JUNE 27, 2018 

UNITED STATES CONGRESS, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

1100, Longworth House Office Building, the Honorable Erik Paulsen, Chairman, presiding. 

Representatives present: Paulsen, Beyer, Schweikert, Adams, 

Handel, and LaHood. 

Senator present: Klobuchar. 

Staff present: Colin Brainard, Ted Boll, W. Gavin Ekins, Ryan 

Elul, Alaina Flannigan, Natalie George, Colleen Healy, Matt Kaido, 

and Allie Neill. 

OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A 

U.S. REPRESENTATIVE FROM MINNESOTA 

Chairman Paulsen. I call this hearing to order. 

Every day, when Americans sit down to order goods from a 

website or consume media online, we are participating in a vibrant 

digital economy, an economy that takes the ideas and creations of 

artists, manufacturers, and innovators and puts them within reach 

of our couches and our kitchens. 

Digital trade means supply-chain tracking, 3D printing, or digital 

platforms that lead to e-commerce, cloud computing, and social 

media. 

You know the names of the leaders in each of these areas; 

Facebook, Amazon, eBay, and so on. That is because the United 

States has pioneered this digital revolution. What many don’t realize is that trade in manufacturing goods is itself a part of the digital economy. From the websites that market the goods to the payments processing systems that carry out the transaction, the digital 

economy facilitates the movement of all kinds of consumer products 

from warehouses to family homes. American manufacturing relies 

on e-commerce and digital trade. 

The benefits of digital trade include domestic economic growth, 

as well as spreading American ideas and culture across the world. 

Of course, to us, this is good. Yet there are others who consider the 

free flow of information, products, and ideas a threat to their control. And nearly three decades after the Berlin wall fell, the way 

ideas and goods travel from one nation to another remains a contentious issue both politically and legally. 

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In fact, because of the novelty of digitalization, commercial principles and freedoms that were carefully developed for conventional 

trade and gained international consensus are now at risk of being 

circumvented. With every innovation comes opportunity for economic advancement but also opportunity for some foreign governments to grow their own power. In today’s interconnected economy, 

they can have wide ranging effects on international commerce and 

other national economies as well as the free flows of information. 

Digital technology does raise legitimate privacy and cybersecurity concerns, but some governments may not be sufficiently concerned with the effects of their policies on trade, and some may 

even be using these concerns as an excuse to be protectionist and 

for other purposes. 

Some foreign governments impose additional taxes and fees, and 

some governments will only permit sales on the condition of storing 

data locally or providing the source code that will inevitably be 

used for a competing state-backed product. Some governments that 

otherwise enforce property and contract laws turn a blind eye to or 

even facilitate intellectual property theft. This is especially true 

when the division between the state apparatus and the private sector is nonexistent. 

Up on the screen right now, on the right, is a map of the world 

showing the prevalence of digital trade barriers. The lighter color 

regions, like Australia, Canada, and Mexico, are perceived to have 

taken a light-handed approach to trade barriers. And at the other 

end of the spectrum are trading blocs in countries like the EU and 

China that make access to their markets far more difficult and 

costly. In part, their motivation likely is to catch up to the United 

States, the leader in digital technology development, and try to 

take the lead themselves. 

American companies have always thrived in a competitive market, but the competition must be fair and free from foreign government intervention on behalf of their domestic companies. That is 

why global players with large economies, such as Chinese and the 

European Union, which represents large global market shares, 

should see the rewards of developing their own digital economies 

without discriminatory standards and testing requirements, localization requirements, forced technology transfers, and the like. 

Governments with control over market access should not use 

their leverage to extract concessions from companies in competition 

with one another. 

In the decades after World War II, U.S. companies dealt with 

smaller economies that saw the likely economic benefit of opening 

their marketplace, and their citizens benefited from more choice, 

lower prices, and faster economic growth, and we must be vigilant 

to preserve the principles that have already led to greater prosperity throughout the world in the digital trade arena. 

And that means addressing swiftly and clearly the excessive burdens foreign governments place on American digital products so 

that we are not unfairly disadvantaged and can compete on merits. 

That also means negotiating new agreements that protect not 

just America’s economic interest but allow the free exchange of culture and ideas throughout the world. The world is a better place, 

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thanks to American ideas in commerce. Keeping the global digital 

marketplace open means continuing the fight for that better world. 

And before I introduce our witnesses today, I will now yield to 

Representative Beyer for his opening remarks. 

[The prepared statement of Chairman Paulsen appears in the 

Submissions for the Record on page 28.] 

OPENING STATEMENT OF HON. DONALD S. BEYER, Jr., A U.S. 

REPRESENTATIVE FROM VIRGINIA 

Representative Beyer. Thank you, Mr. Chairman, very much. 

Since this committee took up digital trade last fall, President 

Trump has weighed into the trade issue in unpredictable and destabilizing ways. The President’s erratic, aggressive approach has 

created an environment of economic uncertainty, is alienating our 

trading partners and allies, and risks harming the global economy. 

So far, the President’s trade advisers have seemed uninterested 

in the significant majority of the U.S. economy that does not consist of heavy manufacturing. Not only has digital trade not been 

front and center, it seems the Administration simply does not have 

a strategy for how to strengthen U.S. leadership in digital trade 

nor any interest in creating one. 

Ceding ground to others, including the competitors who are putting up new barriers, hurts our economy and our workers. This 

failure to lead is a missed opportunity for U.S. small businesses, 

technology companies, manufacturers, and farmers, and all who 

benefit from the increased export opportunities made possible by 

digital trade. It also risks the United States falling behind as other 

countries race to create the technology of the future and write rules 

for operating in the digital economy. 

Strengthening our position in digital trade starts right here at 

home by ensuring an open internet that enables innovation to 

flourish. 

To that end, it is critical that we restore network neutrality, 

which is vital for small business owners who rely on the internet 

to compete with bigger companies. It also means expanding access. 

Too many people still don’t have access to a broadband connection, 

and their ability to compete in an increasingly digital economy is 

undermined without high-speed internet. 

We need to keep our focus on creating opportunities for all Americans. As we are here this morning, the digital playing field around 

the globe is far from level. When dealing with China, American 

companies confront rampant theft of U.S. intellectual property, 

force technology transfer policies, data localization requirements, 

and other efforts to tilt the playing field against the United States. 

Equally concerning, China is becoming a model for other countries who are erecting trade barriers that restrict the free flow of 

data. We need to knock down these barriers in a systematic, 

thoughtful way, rather than pursuing a policy of ill-conceived tariffs that create additional barriers to trade. 

Further, some data regulations are particularly onerous for small 

and medium-size firms that don’t have big IT departments or can’t 

absorb the added cost of having to store the data locally or comply 

with other requirements. 

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Digital trade is just one piece of a broader trade landscape. In 

the last few months, it has been harder and harder to understand 

the Administration’s position on a range of trade issues. 

One Wall Street analyst estimates that the Administration’s er- ratic trade policies have cut the value of U.S. equities by $1.25 trillion. And the costs extend far beyond the stock market. The Administration’s tariff on solar panels will cause the loss of thousands of 

jobs and the delay or cancellations of billions of dollars in investment in solar energy. These tariffs will slow our transition to renewable energy. 

The Administration has used dubious national security justifications to levy counterproductive tariffs on our closest allies. The 

President has repeatedly acknowledged that these tariffs are not 

justified by national security concerns, undermining any future 

U.S. case of the WTO. 

By levying these tariffs, he has managed to damage our economy 

and our alliances in one fell swoop. And, of course, the negative aspects of President Trump’s trade policy are compounded by his dyspeptic approach to diplomacy. And nowhere was this clearer than 

his catastrophic performance at the G7 in Charlevoix. 

Public expressions of disdain for our leaders of our democratic allies will only make them less likely to engage in productive trade 

negotiations. As the President becomes increasingly unpopular 

abroad, it becomes difficult for democratic leaders to engage in new 

agreements with the United States. 

We need a trade policy that is guided by principle, not whim; 

that is forward looking, not reactionary; something that we saw 

from previous administrations. 

But that is not why we are here today. The way President Trump 

has gone about renegotiating NAFTA has generated instabilities, 

fighting almost daily with Canada, as threats to leave the NAFTA 

deal risk disrupting markets, raising prices, and may trigger retaliatory tariffs. 

Rather than pursue productive discussions with China to drive 

changes in their trade practices, President Trump has launched a 

trade war rolling up $50 billion in tariffs and threatening another 

$200 billion in tariffs last week. 

China, of course, immediately promised retaliatory tariffs of the 

same scale. Even the President’s Council of Economic Advisers prepared an internal analysis showing that tariffs will harm our economy. You know, trade is often a ripe barrier for bipartisan agreement, and that is often especially true in the area of digital trade. 

But the damage to trading relationships with the Administration’s 

moves to impose tariffs on steel, aluminum, and other products 

harms the United States’ ability to forge partnerships that will expand trade both online and offline. And that uncertainty has a 

chilling effect on trade of all kinds. 

We have only begun to see the damage from Trump’s trade policies. 

I really look forward to hearing from the witnesses today how we 

could promote digital trade, how we can knock down barriers, and 

how the Administration can play a more constructive role in expanding American trade. 

Mr. Chairman, I yield back. 

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[The prepared statement of Representative Beyer appears in the 

Submissions for the Record on page 29.] 

Chairman Paulsen. Thank you. 

And now with our four witnesses here today, we will start with 

Mr. Sean Heather, who is the vice president of the U.S. Chambers 

Center for Global Regulatory Cooperation. He also serves as Executive Director for both international policy and antitrust policy. 

During his 15-year career at the chamber, he has worked on a 

number of diverse issues such as international trade and investment, taxes, standards, technology, and corporate governance. Before joining the chamber, he worked for the Illinois comptroller and 

with several political campaigns across the State. 

He holds an undergraduate degree and a Master’s of Business 

Administration from the University of Illinois. 

Mr. Ryan Radia is a Research Fellow and Regulatory Counsel at 

Competitive Enterprise Institute. His research encompasses intellectual property, information privacy, and cybersecurity. 

Mr. Radia has published extensively in major news outlets, appeared on dozens of national shows, and contributes to several 

blogs on policy and technology. 

Mr. Radia holds a Juris Doctor from the George Washington University Law School and a Bachelor of Arts in Economics from 

Northwestern University. 

Ms. Rachel Fefer is an Analyst in International Trade and Finance at the Foreign Affairs Defense and Trade Division of the 

Congressional Research Service where she focuses on digital trade 

and the World Trade Organization. 

Before joining the Congressional Research Service, Ms. Fefer 

worked at the Department of Commerce and the Food and Drug 

Administration on trade issues. Previously, she worked in the private sector for various tech companies in the private sector. Ms. 

Fefer holds a Master of Business and a Bachelor of Arts in Public 

Policy from Duke University. 

And also joining us is Ambassador Robert Holleyman, who is the 

President and CEO of Crowell & Moring International, as well as 

the Partner in Crowell & Moring’s International Trade Group. 

He served as Deputy U.S. Trade Representative between 2014 

and 2017. And during this time, Ambassador Holleyman was responsible for trade policy and services, investment, and intellectual 

property, and led the creation of the digital trade working group 

within the Office of the U.S. Trade Representative. 

He received his Juris Doctor from the Louisiana State University 

Law School and a Bachelor of Arts from Trinity University in San 

Antonio, Texas. 

And, with that, we will welcome and begin our testimony with 

you, Mr. Heather. You are recognized for your statement of 5 minutes. 

STATEMENT OF SEAN HEATHER, VICE PRESIDENT, CENTER 

FOR GLOBAL REGULATORY COOPERATION, U.S. CHAMBER 

OF COMMERCE, WASHINGTON, DC 

Mr. Heather. Thank you, Mr. Chairman and Ranking Member 

and members of the committee, for inviting me to testify. 

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In previous testimony to this committee, I highlighted how certain governments are unnecessarily restricting digital commerce 

and seeking to undermine American technological innovation. Restrictions on cross-border data flows via forced localization measures, new complex and burdensome regulatory regimes, 

problemsome customs approaches to e-commerce, and investment 

measures that force tech transfer are some of the most common 

digital challenges that American companies face in foreign markets. 

Advancing American interest in the global digital economy needs 

to be a top international priority, and we need a whole-of-government approach to counteract trade and regulatory barriers to digital goods and services. 

This starts by recognizing the importance of services. Without 

question, American manufacturing is a big part of the digital economy, whether simply sold through e-commerce channels or part of 

the growing number of products that make up the Internet of 

Things. However, we must not overlook our dominant position in 

services. And the internet is making services more tradeable every 

day. 

The United States is the world’s largest exporter of services, and 

we enjoy a trade surplus in services of nearly $250 billion. Moreover, services sales by foreign affiliates of U.S. multinational corporations tops $1.4 trillion. 

Despite these big numbers, the potential for services industries 

to engage in international trade is almost untapped. 

One in four U.S. factories export. But just 1 in every 20 providers 

of business services export. This means only 3 percent of U.S. services output is being exported. Therefore, our support for digital 

trade starts with increased support for our service industries. 

Now, let me turn to the importance of the State Department and 

the Department of Commerce. 

Foreign embassies are the first line of defense against impediments to digital trade and are important messengers for a liberalized approach to digital economy. The Bureau of Economic and 

Business Affairs at State plays a central role in coordinating U.S. 

engagement on ICT and cyber policy matters. 

Likewise, the Department of Commerce plays a critical role in 

advancing U.S. digital exports and advocating for the adoption of 

U.S.-friendly digital regulatory frameworks. It also has a core responsibility to safeguard the voluntary private sector approach to 

standards that underpins many ICT products. 

Since its inception in 2016, working with the State Department, 

the Commerce Department has operated a valuable Digital Attache 

Program that embeds U.S. digital policy experts in key U.S. Embassies. Expanding this program, ensuring adequate resources, and 

giving them a clear mandate to focus on digital trade is critical to 

ensuring American leadership in the digital economy. 

Further, State and Commerce should lead a whole-of-government 

effort to support international privacy and cybersecurity frameworks that facilitate the seamless movement of data across borders. 

We applaud the Administration for efforts last year to ensure the 

EU–US Privacy Shield successfully made it through its first annual 

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review. And we look forward to supporting this review this year 

post Europe’s implementation of GDPR. 

However, Privacy Shield is just one approach. The United States 

has importantly also advanced, within APEC, the Cross Border Privacy Rules to promote the movement of data between borders and 

bridge national privacy regimes. The United States should do more 

to encourage APEC governments to join. Further, it is important 

to develop similar mechanisms within other regions of the world, 

including Latin America. 

While differences between privacy regimes can be bridged increasingly, cybersecurity regulatory frameworks are being developed that also threaten the movement of data. 

The United States has created the NIST Framework, an innovation-friendly framework to manage cyber risks. However, approaches developed in foreign jurisdictions often look much different. The United States needs to be more active in both shaping 

and aligning these emerging regulations but also developing new 

agreements to address cross-border cybersecurity requirements. 

Turning to trade agreements, the Chamber sees the need to seek 

commitments from our trading partners to support digital trade in 

goods and services and foster cross-border movement of data. 

We welcome USTR’s efforts to modernize NAFTA to include digital trade provisions. We also strongly support the United States 

playing a leading role within the WTO to develop e-commerce rules 

that ensure an open and predictable marketplace for American 

businesses. 

We would also encourage the Administration to consider relaunching negotiations around the Trade in Services Agreement, 

otherwise known as TiSA. TiSA has the potential to be more than 

just a services agreement as it could secure data flow commitments 

to the benefit of all sectors. 

Finally, while USTR, Commerce, and State play focal roles in developing and advocating the U.S. digital strategy, U.S. regulators 

are very much needed for a whole-of-government approach to be effective. 

The Federal Trade Commission has been active with the Department of Commerce to advance an understanding of U.S. privacy 

protections in shaping foreign privacy laws and in being the enforcement behind data flow agreements like Privacy Shield. But 

other U.S. regulators are increasingly being called upon. U.S. financial regulators need to be there to ensure regulatory frameworks abroad don’t limit U.S. opportunities for fintech leadership. 

U.S. auto and aviation regulators also need to be there to encourage that regulatory designs abroad will not affect American competitiveness on things like autonomous vehicles and drones. 

Further, regulators in foreign markets are beginning to contemplate policy questions about artificial intelligence, machinebased decisionmaking, access to algorithms, and big data, as well 

as a host of other issues. U.S. regulators need to be at the ready 

to positively shape these discussions. 

In whole—or in short, a whole-of-government approach requires 

the entire U.S. Government to be vigilant, coordinated, better prepared to actively shape foreign regulatory environments that will 

deeply impact Americans’ ability to compete abroad. 

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With that, I thank you for the opportunity to testify and look forward to your questions. 

[The prepared statement of Mr. Heather appears in the Submissions for the Record on page 31.] 

Chairman Paulsen. Thank you. 

And, Mr. Radia, you are now recognized for 5 minutes. 

STATEMENT OF RYAN RADIA, RESEARCH FELLOW AND REGULATORY COUNSEL, COMPETITIVE ENTERPRISE INSTITUTE, 

WASHINGTON, DC 

Mr. Radia. Thank you, Chairman Paulsen, Representative 

Beyer, members of the Committee. We are at a critical juncture for 

international trade. And at this time, the United States must 

maintain its historic role as a global leader and promote free trade 

in open markets. 

I will focus specifically on the information economy. The U.S. 

technology sector is not just important domestically, but it exports 

$300 billion annually in products and services, supporting 800,000 

American jobs. 

Tariffs and nontariff barriers to trade do risk trade in the digital 

marketplace. I will focus on another set of policies, however, that 

threaten digital trade; governmental regulations regarding privacy 

copyright and antitrust. 

Particularly important is the European Union. Their member 

states collectively represent America’s single largest trading partner in goods and services. And there are 430 million Europeans 

who use the internet, meaning that Facebook has more European 

users than American users. Google is more popular as a search engine in Europe than it is the United States. The same is true for 

tech companies of all sizes. So, although EU users are a core aspect 

of the user bases of United States technology companies, the EU, 

European Union’s approach to regulation differs dramatically from 

that in the United States, underscoring the need for greater U.S. 

leadership in this space. 

In particular, the European Union, as Mr. Heather mentioned, 

recently implemented the GDPR, the General Data Protection Regulation. It went into force on May 25, 2018, and in just over a 

month, it has already had major effects on how digital trade occurs 

between the United States and the European Union. Those effects, 

I believe, will only grow. 

The GDPR applies to any company that processes or controls 

data on EU data subjects, no matter where the company is domiciled and, in some cases, regardless of the size of that company. 

The GDPR does not distinguish between offline and online data collection, but the brunt of its impact will be felt, and is being felt, 

by technology companies and financial companies. 

So far, some of the most notable examples of the GDPR include 

U.S. companies stopping providing service to EU users for fear of 

regulatory fines, which in the EU could amount to up to 4 percent 

of a firm’s global revenue. Tronc, formally Tribune Online, has 

stopped serving EU users with websites like the Chicago Tribune, 

the Los Angeles Times. A&E Networks followed suit. An internet 

analytics firm called Klout that helps social media users and 

thinkfluencers gauge their reach shut down its operations entirely 

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on May 25th, the day the GDPR went into force. Many other examples, not just in the United States but around the world, have occurred. 

The result of this is not just harmful to the EU users who will 

lose out on American content and American companies who will 

lose out on revenue from EU users. Even those who comply with 

the regulation will have a more difficult time monetizing their content. But also it hurts U.S. consumers because in this industry, 

where fixed costs are high and the marginal cost of delivering content to consumers is low, any reduction in revenue from a major 

user base means a reduction in the quality of overall service. 

So the cost of compliance with the GDPR will likely be significant. According to estimates from Ernst & Young and the International Association of Privacy Professionals, the average Fortune 

500 spent $16 million to comply with the GDPR in the 2 years before it went into effect. It seems that the cost of complying with 

this regulation will only increase. 

Moreover, the GDPR may entrench existing internet companies 

at the expense of startups because large established companies 

that could not have complied with the GDPR when they were in 

a dorm room or a garage are now better positioned to do so. 

The role of U.S. leadership in this space is important. Congress 

has been considering a number of bills to address privacy. Although I won’t discuss the specifics of those bills, it is important 

that Congress and the Administration take a lead in advocating an 

approach to user privacy and data protection that recognizes the 

need to reduce compliance costs, that respects the role of notice and 

choice, and does not put onerous mandates on businesses. 

In brief, a couple of other areas in which EU policies are harming or potentially risking harming U.S. business include the European digital single market’s treatment of copyrighted materials. In 

general, the European Union’s digital single market is a laudable 

effort to harmonize regulations and taxes across EU member 

states, but it has also created and will continue to create barriers 

and restrictions on practices, such as geo-blocking and different 

treatment of content by content owners in the movie industry, 

streaming platforms, and the like, ultimately hurting consumers. 

Similarly, the European Union’s approach to competition policy 

has targeted U.S. companies. Record-breaking fines against companies such as Intel, Google, and Microsoft, several of which are still 

under appeal in the EU courts, have undermined American companies and represent a seeming effort by the EU to engage in protectionism. 

Thank you for the opportunity to testify, and I look forward to 

your questions. 

[The prepared statement of Mr. Radia appears in the Submissions for the Record on page 38.] 

Chairman Paulsen. Thank you, Mr. Radia. 

And Ms. Fefer, you are recognized for 5 minutes. 

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STATEMENT OF RACHEL FEFER, ANALYST, INTERNATIONAL 

TRADE AND FINANCE SECTION, CONGRESSIONAL RESEARCH SERVICE, WASHINGTON, DC 

Ms. Fefer. Chairman Paulsen, members of the Committee, 

thank you for the opportunity to testify today. My testimony focuses on the increase in digital trade barriers around the globe and 

how other countries are shaping new international standards and 

rules that may impact the market access for U.S. firms. 

The internet-driven digital revolution is causing fundamental 

changes to the U.S. and global economy. According to the U.S. 

International Trade Commission, in 2016, the digital economy supported 5.9 million U.S. jobs. The United States is a leader in international digital trade. 

U.S. firms Google, Microsoft, Amazon, and IBM are top global 

cloud service providers. At the same time, challenges exist that 

may impede the growth of digital trade. 

Multiple U.S. public and private sector reports identify a breadth 

of digital trade barriers, including high tariffs, localization requirements, such as cross-border data flow limitations, intellectual property rights infringement and forced technology transfer. 

Congress has taken an interest in addressing trade barriers. In 

2015, Congress set negotiating objectives for trade agreements to 

include provisions such as World Trade Organization’s nondiscrimination provisions to digital trade, and to prohibit forced localization requirements and data flow restrictions. 

The proposed Trans-Pacific Partnership included these provisions 

and others, and multiple opportunities exist to pursue these objectives in ongoing negotiations as highlighted in my written submission. 

No single set of international rules or disciplines governs digital 

trade. This lack of globally accepted rules and standards means 

that individual economies around the world are creating their own, 

experimenting with different approaches. 

I will focus on how China and the European Union, or EU, are 

each shaping global norms. China has a fundamentally distinct approach to the internet. With over 700 million internet users and 

the world’s largest market for e-commerce, China is attractive for 

many U.S. businesses. However, China’s various government policies and actions have limited the ability of U.S. firms to compete 

there. For example, China’s policy of internet sovereignty censors 

or limits what websites or data individuals can access. China’s cybersecurity law restricts cross-border data flows and requires safety reviews of critical network equipment. Many U.S. firms are concerned that this law may lock them out of the market or force them 

to transfer proprietary technology or information to Chinese regulators or partners. 

The EU poses a different type of challenge for U.S. firms. Its 

legal approach to information privacy and protection of personal 

data has led to policies that vary from those of the United States. 

As mentioned, the EU’s General Data Protection Regulation, or 

GDPR, took effect last month. It establishes a single set of rules 

for personal data protection throughout the EU and grants individuals new rights to control their data. 

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U.S. firms have voiced several concerns about the GDPR, including its complexity, how it is implemented and enforced, and the 

scale of potential fines. Some U.S. firms exited the EU market 

rather than comply with the regulation. Because no multilateral 

rule exists on cross-border data flows or data privacies, some experts state that the GDPR may effectively set new global data privacy standards. 

Countries such as Brazil, Japan, and South Korea consulted with 

the EU for their own data protection laws. Some U.S. firms determined it is easier to comply with EU regulations globally rather 

than implement changes only for the EU market. U.S. privacy advocates and others support these decisions. 

Some analysts view China and the EU as using their large market size to impose their views and set global rules. They contend 

that the United States should proactively counter their efforts. 

Others suggest that the United States should focus on developing 

new digital trade rules and disciplines through trade negotiations. 

Mr. Chairman, thank you again for the opportunity to testify, 

and I look forward to your questions. 

[The prepared statement of Ms. Fefer appears in the Submissions 

for the Record on page 47.] 

Chairman Paulsen. Thank you. 

And now we will hear from Ambassador Holleyman. You are recognized for 5 minutes. 

STATEMENT OF AMBASSADOR ROBERT HOLLEYMAN, FORMER 

DEPUTY U.S. TRADE REPRESENTATIVE, OFFICE OF THE 

UNITED STATES TRADE REPRESENTATIVE (USTR), WASHINGTON, DC 

Ambassador Holleyman. Thank you, Chairman Paulsen, Mr. 

Beyer, members of the Committee. I appreciate the opportunity to 

testify before you today. I have three points I would like to make. 

First is that U.S. leadership in digital trade isn’t about technology. And it is not just about the technology industry. Digital 

trade is the tool by which every business competes. Whether you 

are a home enterprise or managing a supply chain or you are accessing a market, it is fundamental. And I share the view of your 

Vice Chairman, Senator Lee, from your earlier hearing where he 

said that we are swiftly approaching a point where the word ‘‘digital’’ will be an unnecessary adjective for trade. Digital underpins 

every aspect of our economy. And I think it is critical for us to recognize that part of the digital transformation because it also talks 

about why this issue in your hearing is imperative for U.S. industry and long-term leadership. 

I just returned from Hong Kong and Beijing. And I could tell you 

the fast pace at which foreign competitors to U.S. technology leaders and U.S. companies who rely on technology are gaining ground 

quickly. And as one foreign government official said to me, he said, 

‘‘I am not sure people in the U.S. fully realize how much in Asia 

that non-U.S. technology providers and platforms are gaining an 

edge over, in many case, U.S. firms.’’ We are still the leaders but 

the competitors are catching up very quickly. 

We have had discussions about the rules that foreign governments are setting up that impact this, and I will be happy to anLAP51NQ082 with DISTILLER

12 

swer questions. I think our fellow panelists have discussed this 

well. One of the things that we did at USTR under the leadership 

of Ambassador Mike Froman, was create a Digital Trade Working 

Group to try to bring the entire USTR approach on focusing on 

this—not just the tech people, not just the people from one region, 

but we wanted essentially a SWAT team so that if we saw a digital 

trade barrier being erected, we could move quickly to try to address 

that. 

And one of the key factors we did was asked the International 

Trade Commission to undertake a three-part study that looked at 

the impact of digital trade barriers. It has already been referenced. 

The first study came out last August. It was intended to really look 

at the scope of this. The next two studies are to look at B2B digital 

trade; the next, B2C, business consumer digital trade. And they are 

intended to be providing our negotiators and Congress with information about which aspects of this are the most impacted by regulations, which are sectors that are important now but long-term 

will be part of the underpinning of American competitiveness, and 

allow USTR and this Congress to help prioritize in fighting digital 

trade barriers. 

My second point is that we have to continue to lead. And this 

was a practice, you know, we focused on—broad bipartisan support. 

I would say that not only is the Administration’s current approach 

on trade causing uncertainty within the business community, but 

it is also, it might be crowding out the attention that should also 

be focused on digital trade. 

We need our allies working with us to break down these barriers. 

We need to flex our muscle to show in the trade landscape that we 

have a better approach to digital trade. There are several models 

I am happy to talk about. The broadest model is now what we are 

not only trying to do at NAFTA, but what, you know, the 10 trading partners are trying to do in the comprehensive and progressive 

Trans-Pacific Partnership, which is the model. 

Finally, I will talk about a big opportunity, which is privacy. We 

have heard a lot, and I agree with the statements about how the 

European Union with their comprehensive approach to privacy 

through the GDPR, which went into place last month, has really 

begun to set the global framework around the approach to privacy. 

But there is an alternative, and it is actually an alternative that 

America helped endorse, which is the Asia-Pacific Economic Cooperation forum Cross Border Privacy Rules. That is an approach 

that is the U.S. and 20 other economies of how you would transfer 

data around the Asia-Pacific region. The U.S. has supported this. 

It is important for us, for this committee, and others to do everything possible for the U.S. to encourage our trading partners in 

APEC to stand up and put in place those Cross Border Privacy 

Rules that have an Asia-Pacific and an America supported framework for privacy as a counterpoint to what the EU is doing. 

With that, I am happy to answer any questions you have, but we 

should not take a back seat to any country in our leadership on 

these issues. And I appreciate the important role of this Committee 

in shining a light on digital trade. Thank you. 

[The prepared statement of Ambassador Holleyman appears in 

the Submissions for the Record on page 62.] 

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13 

Chairman Paulsen. Thank you, Ambassador Holleyman. 

I will ask that members do keep their questions to 5 minutes, 

and I will begin. I will start with you, Mr. Heather. 

The EU’s General Data Protection law, or GDPR, which several 

of you actually referenced, and the notices we have been receiving 

about it here in the United States are a wake-up call that alerts 

us to the fact that foreign government actions in their own domestic markets can have a very direct repercussion for us as well. 

I have heard from folks in Minnesota, for instance, that have expressed confusion about the complexity, and they are just questioning about where do they go next. 

Can you just frame a little bit more about, you know, for the 

committee here, what are the developments that are taking place 

in other countries or trading blocs around the world with respect 

to the governance of digital services and digital technology? Or 

maybe can you sketch out a little bit about—you talked a little bit 

about the program with the Department of State and the Department of Commerce, but for us here in the United States, our involvement in this process, how can we be making sure that our interest for our citizens and our businesses is in fact protected? 

Mr. Heather. So I think there is a lot there, Mr. Chairman, to 

respond to. 

I think, first of all, what I would say is this: The primary concern 

around privacy regulations is the ability to move data. The secondary concern around privacy frameworks that we see around the 

world is the ability to offer the products and services that you have 

in that market. 

So, whenever you are looking at a privacy framework, whether 

it be in the EU or now in about 120 different jurisdictions around 

the world that have updated their privacy laws or are in the process of updating their privacy laws, when we evaluate those. We 

evaluate them on that two-prong test, will this regime limit the 

ability to move data outside of the country? And, two, how harmful 

will it be for us to offer the products and services that we would 

like to offer in that market? 

As I think has been discussed here at length, Europe is way 

ahead of the game in terms of influencing the world around GDPR. 

Many of the governments around the world have looked to Europe 

as a model and have taken most of it, not all of it but most of it. 

Where I think an effort should be made today is on cybersecurity. 

There is yet to be the race for who defines how cybersecurity laws 

are written around the world. 

Vietnam just put a new law on the books recently that forced localization of data, and oftentimes, these cyber laws are a second 

bite at really privacy questions. 

Here, I think the U.S. has a helpful message in the NIST framework that could be advanced in these foreign markets with discussions with legislators and regulators in those economies. And I 

think an effort to do more on the cyber front would be imperative 

because I think that is the next battleground for data flows and 

questions of forced localization. 

Chairman Paulsen. Ambassador Holleyman, let me just follow 

up because I think Mr. Heather mentioned TiSA as an opportunity 

in this space. And given your experience at USTR, maybe can you 

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describe a little bit for the committee how TiSA could be used to 

advance some of these concepts? 

My understanding is that the work that has been done on 

NAFTA, which obviously has not been completely modernized, has 

been progressively very well in the area of digital space uses, the 

model out of TPP that you are involved in, but can you just elaborate maybe for us? 

Ambassador Holleyman. Certainly, Mr. Chairman. And the 

Trade in Services Agreement would be a big opportunity. We were 

working to negotiate that in our Administration. It is an opportunity to sort of bring new industries together around new frameworks. 

Candidly, the challenge around that is also going to be the EU. 

I mean, their views on data movement and protection are very different from the U.S. I tend to think that we should look at a potential plurilateral agreement around data and around the digital 

economy and that we should actually align with the TPP partners 

around the set of data issues. Because their view on data, as they 

have now adopted, as we are promoting in NAFTA, is essentially 

the same. 

And so I would actually think that would be a faster way for us 

to set rules on data than the TiSA, which I also think is hugely 

important for a broader set of industries. 

Chairman Paulsen. And, Mr. Radia, would you concur on some 

of those comments. You mentioned we should not mimic what the 

EU is doing, for instance, in GDPR. 

Mr. Radia. I would concur with those comments that we should 

stake out a role that emphasizes that customizable agreements between users and companies are important with respect to data localization. Ideally, when companies make decisions about where to 

store data about particular users, that decision should be made 

based on efficiency, based on how the technology works, on optimizing the user experience. To the extent that harmonization can 

occur, that multilateral agreements can occur that ensure that 

companies don’t have an incentive to store data in one place about 

a user rather than another because they can be subject to a different set of laws, that would help advance innovation and competitiveness. 

Chairman Paulsen. Thank you. 

Mr. Beyer, you are recognized for 5 minutes. 

Representative Beyer. Thank you, Mr. Chairman, very much. 

And thank you all very much for your testimonies. 

Mr. Heather, Tom Donohue, your boss, president of the U.S. 

Chamber of Commerce, said this spring, quote, the tariffs of $30 

billion a year would wipe out over a third of the savings American 

families received from the doubling of the standard deduction in 

the tax reform bill. 

I know the chamber is very clear in its opposition to tariffs, but 

last Friday, the Trump Administration detailed $50 billion in tariffs against Chinese imports. 

What is going to be the impact on American consumers of this 

trade war? And aren’t higher prices just a different way of essentially raising taxes on them? 

LAP51NQ082 with DISTILLER

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Mr. Heather. So I think the Chamber’s concerns with the approach to the Trump Administration is taking, both with regard to 

tariffs, as well as with regard to the approach in renegotiating 

NAFTA, is well documented in terms of the chamber’s objections to 

the way this Administration is headed. And, yes, we do believe tariffs are taxes on American consumers. 

Representative Beyer. Thank you very much. 

Ambassador Holleyman, first of all, thank you very much for 

your service in the USTR. 

The Administration is now fighting trade battles with Canada, 

with Mexico, with Germany, with the WTO, this cozying up to Russia and North Korea. Does the President’s seemingly belligerent attitude towards our allies, our trusted trading partners make it 

more difficult to reach agreement on digital trade issues? 

Ambassador Holleyman. Well, we lose our focus through that. 

I mean, it is hard to prioritize those issues when you are attacking 

your allies, and that is why I believe we really have to find an approach on digital trade where we find some group. And, quite 

frankly, that is not only our NAFTA partners, but that is our 

former TPP partners. And we need to support them as allies in this 

effort and get focused on those issues rather than, in many cases, 

treating them as enemies, which is what we are doing, certainly, 

in the proposed auto taxes and the steel and aluminum taxes. 

Representative Beyer. Thank you very much. 

Mr. Heather, the administration in China, I know you are very 

aware, they are going tit for tat on tariffs on everything from agricultural products, steel, electronic components, semiconductors, 

lithium batteries, given the potential for tariffs on electronic components that are important to building up the digital infrastructure, can you talk about the potential consequences of the existing 

tariff battle on our ability to move forward on digital trade? 

Mr. Heather. I am not a tariff expert. I spend most of my life 

thinking about nontariff barriers in the regulatory context. But as 

I said before, tariffs are taxes on consumers, and so the cost for 

consumers to access digital technologies will inevitably go up. 

Representative Beyer. I assume you are distraught, too, about 

the potential for 25 percent tariffs on all imported cars or banning 

all German luxury cars. 

Mr. Heather. I think our views on 232 are also well documented. We were not supportive of the approach on steel and aluminum. And our concerns associated with where they may be headed with 232 on autos is also on the record. 

Representative Beyer. Ambassador Holleyman, restrictions on 

the cross-border flow of data, the so-called data localization requirements, are immensely costly for U.S. businesses across a wide 

range of sectors. And countries seem to be imposing these requirements in a supposed effort to protect privacy—you don’t have to 

worry about the NSA—improve cybersecurity, bolster economic 

growth, but it seems like the data localization effects have exactly 

the opposite effect. 

How can we most effectively, the U.S. Government, U.S. businesses, push back against these? 

Ambassador Holleyman. Well, two things: Certainly, the effort, while I don’t agree with all the tactics and tools, the effort to 

LAP51NQ082 with DISTILLER

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focus on the problems in China is critical. When I was there for a 

cyberspace trilateral with China, India, and the U.S. think tanks 

2 weeks ago, the Chinese very proudly talked about the concept of 

data sovereignty and why they needed to restrict the information 

that was coming in and out of the internet, not only for their citizens but for their businesses. 

And we have to push back against those. We do have a tool; we 

have a group of people, group of countries who share that view, led 

by Japan, Canada, Mexico. We need to align with them because, 

quite frankly, the Chinese approach is gaining support from other 

economies who look at that. We need a counterpoint. 

Secondly, we have to promote things like the APEC Cross Border 

Privacy Rules as a viable alternative, which it is, to the GDPR. The 

U.S. is behind that. Japan is behind it. But we need to get more 

countries, economies behind it and really drive it because that is 

part of the answer to ensuring that there is an American-led approach to privacy and cross-border data transfers. 

Representative Beyer. Great. Thank you. 

Just very quickly. WTO for years has agreed no customs duties 

on electronic transmission, and now Indonesia seems to be going in 

a different way. Is there anything specifically we can do to try to 

change Indonesia from becoming the new role model? 

Ambassador Holleyman. Well, one, I think we need to have a 

sort of plurilateral tool. I think we have to complete NAFTA and 

show that we have got the cross-border rules there. And, three, I 

think we have to use our bilateral tools with Indonesia to push 

back on this and tell them what a break that would be, not only 

with their neighbors but with the U.S. 

Representative Beyer. Thank you very much, Mr. Chairman. 

Chairman Paulsen. Thank you. 

Representative Schweikert, you are recognized for 5 minutes. 

Representative Schweikert. Thank you, Mr. Chairman. 

Look, this is fascinating for a lot of us. And one of the interesting 

things hearing is you are starting to here now both parties being 

free trade, which is sort of exciting considering our past history in 

those subjects. 

I want to also walk through, because my fear is in this discussion 

it is much more complex than we are actually touching on. You 

know, whether it is the Europeans’ attempt to—you know, the 

right to be forgotten, you know, the right to remove data, to how 

I move a product in a supply chain back and forth, to digital commerce where, what is money? Can I move a cryptocurrency to do 

a purchase? Can I actually have PayPal, you know, be my mechanisms? Or do I have to touch a SWIFT system that actually has 

certain bilateral agreements already attached to it, to now to one 

of my personal fixations is data on supply chains. 

And is it Ms. Fefer? Did I get close in the proper pronunciation? 

You have done some writing about this not too long ago, if I remember correctly. 

Am I going the right approach, that part of our issue with Europe is the individual privacy issues, but our issue with certain 

areas in Asia, it is the control of the money flow and the product 

supply chain? 

LAP51NQ082 with DISTILLER

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Ms. Fefer. Thank you, sir. I think our issues are not so crystal 

clear, that we have a variety of issues with Europe. I think the 

most prominent one at the moment I believe is privacy with GDPR. 

With Asia, a lot of the issues are similar, and revolve around the 

cross-border data flows, as has been brought up many times, as 

companies use more and more cross-border data flows for supply 

chain tracking. 

For example, blockchains. 

Representative Schweikert. Yeah. Look, as you know, I have 

a personal fixation on distributive ledger. You know, and within 

that, we have actually had presentations on you could manufacture 

a product here, you could actually, you know, use RFID or types 

of encoded containers, padlocks, to make it much more efficient to 

move through Customs. 

We could, you know, the documentation, so it hits Customs; you 

already had the manifest that completely loads. But that is operating at one level, but now I have a problem if there is privacy on 

my ability to have made the order, to move the money, to—was the 

details in the manufacturing order, was there proprietary information there that doesn’t get stolen or handed to the government? 

Has anyone out there in all of your experience sort of talked 

about or written about sort of this unified theory of how we deal 

with Europeans’ privacy concerns, parts of Asia’s ability to remove 

money, our concerns about moving IP? I mean, if we came to you 

and said, ‘‘Where do we go to sort of find this unified theory,’’ who 

has written on it? And sort of a universal question for everyone on 

the panel. 

Ms. Fefer. As to who has written on it, I would probably need 

to go back and look a little further, but I believe that a lot of the 

various organizations that focus on privacy issues or on data flows 

or that represent the industry have written on this, but I can get 

back to you on that. 

Representative Schweikert. Ambassador Holleyman. 

Ambassador Holleyman. I appreciate your focus through the 

Blockchain Caucus, and I think these issues are critical. I would 

say I think there are two things: One is the APEC Cross Border 

Privacy Rules are intended to have a referential that would essentially allow them to be interoperable with EU GDPR. And—— 

Representative Schweikert. So you believe that one could actually be sort of an international standard, WTO, or however 

you—— 

Ambassador Holleyman. It was intended that the two of those 

should be interoperable and that businesses should be able to work 

across because, quite frankly, we are not going to get the EU to 

stand down on their privacy—— 

Representative Schweikert. That would be more of a privacy 

standard for—down to the individual level. 

Ambassador Holleyman. Well, around personal information. 

Representative Schweikert. Yes. 

Ambassador Holleyman. Personally identifiable information, 

which is replete in what large businesses have. So I think that is 

an important part of that. 

Secondly, you know, the role of blockchain technologies, which I 

think is huge in terms of not only supply chain efficiency but elimiLAP51NQ082 with DISTILLER

18 

nating corruption in government systems, reducing leakage, and 

right now, the rules, because they are so diffuse, don’t fully ensure 

that a country like China couldn’t simply block new technologies 

and require that a domestic—— 

Representative Schweikert. And I have only—Ryan? Sorry. I 

really liked parts of your testimony, and you hit some really brilliant things, but is there any platform because, you know, we were 

all so excited a few years ago, the ability to use internet and public 

information to deal with everything from baksheesh—I mean, corruption in societies. And I know certain local governments have 

pushed back on that at the same time you and I are trying to build 

sort of the eBay of the world. Where do I go to try to find a way 

to continue to push open commerce? 

Mr. Radia. I think that is being explored by a lot of scholars, 

including the use of the distributable ledger. I would be happy to 

follow up on projects that are underway in that regard. 

Representative Schweikert. If we get a second round, I would 

love to talk to you about, is a worldwide sort of node network one 

of the solutions? 

Thank you, Mr. Chairman. 

Chairman Paulsen. Thank you. 

And, Dr. Adams, you are recognized for 5 minutes. 

Representative Adams. Thank you, Mr. Chairman. 

And thank you all very much for your testimony. 

I agree with the idea that the U.S. must lead on the issue of digital trade as it provides the foundation upon which the world’s 

economy of the 21st century will be built. But I want to emphasize 

that we focus on not repeating the same mistakes we made in past 

trade agreements like NAFTA, which really impacted my State, 

which eroded the wages of middle class workers and small business 

owners. We need to ensure that the benefits that flow from our future trade agreements are shared equally among all market participants. 

Ambassador Holleyman, you mentioned in your testimony the 

trade barriers that foreign nations are enacting in terms of new 

regulatory regimes and rules in the digital space. 

So my question is, how can Congress break through these barriers in a way that ensures U.S. business and workers are able to 

play on a level playing field, thus ensuring that benefits flow to all? 

Ambassador Holleyman. Thank you, Dr. Adams. I appreciate 

your question. 

There are two things I would suggest. One is by using your 

power in Congress to make sure that these issues are top of mind 

and top of attention for the U.S. Government. It is not only by having hearings like this, and having the good work of CRS; I also 

highly commend these International Trade Commission reports. In 

fact, there are two that will be coming out that are actually going 

to be confidential. 

Ambassador Lighthizer will determine whether any of that is 

made available, but I would encourage this committee when that 

is, the next two are made available, to have a classified hearing 

and ask the ITC because they were really trying to dig into this 

to help this committee and the negotiators understand where to 

focus their efforts. 

LAP51NQ082 with DISTILLER

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Secondly, I think we have to more broadly bring the benefits of 

a global trade to our citizens, and I think that is improving things 

in our local community. But I also think it is fighting among likeminded economies and countries for provisions like the digital 200 

that were in the TPP and that are similar in NAFTA, allying with 

our partners and moving ahead with those. Because until we get 

new rules in place, then we don’t have an effective counterbalance 

against the economies that want to close. 

So simply having them on paper isn’t good enough. We have to 

get them in place and get other countries to make the commitments. Thank you, Dr. Adams. 

Representative Adams. To follow up on that, what impact 

would prioritization of rural broadband have on closing this divide? 

Ambassador Holleyman. Well, rural broadband is a key part 

of it to, one, make sure that every citizen in the U.S. economy can 

build not only their domestic and national and their local engagement, but for those individual entrepreneurs and creators who 

want to have markets outside of their local community, outside of 

this country, these are the rules that we need to do it. 

That is why President Obama, Ambassador Forman, we believe 

so strongly in these Digital 2 Dozen provisions because we believe 

that added to better broadband in the United States, it would create a more equal playing field for all types of American citizens in 

the fastest growing global markets. 

Representative Adams. Thank you. I am concerned by the 

FCC’s repeal of net neutrality allowing internet providers to charge 

more for certain content or give preferential treatment to certain 

websites. 

So what kind of impact could the FCC’s action have on ensuring 

free digital trade? 

Ambassador Holleyman. Well, it is a model that will get 

picked up by other countries that could increase the disparities in 

what it costs for people to use the internet. 

Generally, in the trade arena, we were trying to find ways to 

break down barriers. And we believe, again, it is not a technology 

issue; it is an issue for all economy. And we believe that citizens 

at every level needed to be able to access. So it is what we are driving in Digital 2 Dozen. 

Representative Adams. Ms. Fefer, you stated that China has 

been persistent in stealing intellectual property. 

What are better alternatives for the U.S. to pursue to combat 

this practice in the digital trade regime? 

Ms. Fefer. In order to deal with China, we have various bilateral 

communication forums that we use to engage with them. It is also 

an opportunity for the United States to engage with its allies, such 

as the EU and Japan and others, who have concerns with China’s 

internet sovereignty regime in terms of their cybersecurity law and 

others, to pressure China to make some changes to it. 

I know, Congress is working currently on—the CFIUS reform is 

working its way through Congress. There are multiple opportunities for engagement with China to explain how their rules can also 

have a negative impact on domestic Chinese companies in addition 

to the U.S.—— 

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Representative Adams. Thank you very much. I am out of 

time. 

Mr. Chairman, I yield back. 

Chairman Paulsen. Thank you, Dr. Adams. 

Representative Handel, you are recognized for 5 minutes. 

Representative Handel. Thank you, Mr. Chairman. 

And thank you to each of you for being here. 

I wanted to stay on the topic of China and the internet sovereignty issue. And Mr. Heather, I wondered if you had any additional insights or comments on that topic. And the same for Mr. 

Radia. 

Mr. Heather. No, I would agree with what was previously stated that, you know, China’s approach to sovereignty of the internet 

is one that is counter to the way in which we look at the internet 

and its role, not only for digital trade but for speech. 

In terms of kind of bridging the question that was previously 

asked, I would totally agree: The only way to approach China is 

with our partners around the world. There is no easy fix to our 

trade problems that we have with the Chinese, but if we don’t have 

partners in those conversations, the job is much tougher. 

Representative Handel. Got it. 

Mr. Radia, anything to add? 

Mr. Radia. I would agree with what Mr. Heather said and echo 

that the Chinese approach to intellectual property, the censorship 

of the internet, among other areas, is very problematic, which 

raises a difficult question in some cases for U.S. internet companies 

as to whether to engage with China or not in terms of being located 

in the country and doing business there. 

I don’t think there is a clear answer to that question universally 

because, in some cases, engaging and abiding by problematic censorship rules is a better approach. Although some internet companies have decided that they would rather not operate in the country, although users in China can sometimes access their services by 

circumventing the great firewall of China. 

Representative Handel. Thank you. In the Sixth District of 

Georgia that I represent, we have a fairly significant footprint of 

Chinese companies based in the district. So, you know, I just wonder ultimately with that approach it is going to eventually come 

back around and be detrimental to their own companies as well as 

being detrimental to the U.S. 

We are live-streaming this, and it struck me as I was listening 

to all of the testimony, that we might have some viewers and individuals who are newer to this issue, like I am. And I would be curious to understand sort of the process, because the GDPR was a 

long time in the making, and sort of how we got to this place. And 

what was the role of the United States in those negotiations? And 

did we weigh in, and were our concerns voiced? Were they taken 

into consideration? 

And perhaps, Mr. Heather, you can weigh in, and Ambassador 

Holleyman. 

Mr. Heather. It was a long road to get where we are today. In 

short, the previous legal framework was developed in 1995, I believe, within the EU. They embarked on an effort to update that. 

And somewhere along the way Edward Snowden and revelations 

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associated with NSA came about and put an accelerant into the 

mix that really limited the ability for the United States Government or the U.S. business community, for that matter, to engage 

in a way that we might otherwise have been more productive in 

steering. So there was a bit of a storm of unseen events that occurred that really limited the ability to have effective influence. 

Representative Handel. Ambassador. 

Ambassador Holleyman. I agree with everything that Mr. 

Heather said. I mean, the world sort of changed very much after 

the Snowden leaks in terms of other countries basically not trusting the United States. What I think we have is two opportunities. 

You know, and we did engage, certainly on the GDPR. It was clear 

that something was going to happen. 

I think we have two options. You know, one is to find these ways 

that we can be interoperable, which again is to drive the APEC 

framework. And the challenge that the U.S. has, quite frankly, is 

that we don’t have a uniform privacy law in the United States. 

Congress has grappled with this for many years. 

We have a series of laws that protect health data, other data. 

And so when you stand that up, quite frankly, against a comprehensive privacy law, it has been through multiple administrations difficult to say, ‘‘Adopt the U.S. approach,’’ with a series of 

different laws. And so the more comprehensive approach of the 

GDPR is the one that is gaining authority. 

So I think as Congress looks ahead, it has been debated, you may 

want to continue to think, is there a comprehensive framework for 

the U.S.? And then make sure where we are a player, like APEC, 

that those end up being truly interoperable and bringing that up 

to the EU, that we need to make sure that those are interoperable. 

Representative Handel. Great. Thank you. 

Mr. Chairman, I yield back. 

Chairman Paulsen. Thank you. 

And, Senator Klobuchar, I recognize you for 5 minutes. 

Senator Klobuchar. Thank you very much, Mr. Chairman. 

Thank you to all of you. This is such an important topic, digital 

trade, with 95 percent of our potential customers outside of our 

borders. And I have seen from small businesses in our State that 

this is the way that they actually get to engage in export that they 

might not have done otherwise before we had digital trade. In our 

State, exports were over $20 billion in 2017, and manufacturing accounted for $19 billion of those exports. 

So I am starting with one thing that is not manufacturing, and 

that is tourism. I am the co-chair of the Senate Travel and Tourism 

Caucus. And we have been doing with Brand USA a lot of advertising digitally of our country. 

And, Mr. Heather, can you talk about how digital trade can benefit the U.S. tourism industry in general? 

Mr. Heather. I don’t think anybody books a flight or an adventure without using the internet these days. So, as I said in my testimony, most of what happens in services trade is now available because of the internet. And we have barely tapped the ability to export our services. 

In my opening testimony, I said that only 3 percent of all our 

services output is exported. So the more that we can facilitate the 

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movement of data across borders, the more that we can have an 

open internet system where tourists from outside the United States 

can see what destinations they can visit in the great State of Minnesota, the better chance there is for there to be tourism in your 

great State. 

Senator Klobuchar. Exactly. And the international tourists 

spend an average of $4,400 every time they come to our country. 

So it is more than just the airline business. It is more than the 

hotel business. It is retail and everything with it. 

Reliable data, Senator Capito and I just passed our bill out of the 

Commerce Committee this morning on getting better measurements for economic impact of broadband along with Senator Sullivan. 

And what we are seeing now is that if we don’t have that 

broadband deployed in rural areas, we are not even going to be 

able to use the equipment that we have or that other parts of the 

world are using that have better internet in places like Canada or 

even Iceland. 

So could you talk about the importance of that with our modern 

day machinery and technology? 

Mr. Heather. Well, certainly, the ability for any American to access the modern economy requires access to the internet. And innovation doesn’t only happen in Silicon Valley. And so the ability to 

bring real broadband across America so that Americans, wherever 

they are, have the ability to be entrepreneurs and start up a business, and not only reach other consumers across the U.S., but to 

those 95 percent of the consumers that exist outside the United 

States, it is an opportunity to export. 

Senator Klobuchar. Thank you. 

Ambassador, over the last few years, online companies, as you 

know, have had some major issues with the disclosure of personal 

information. And while we know that there is this great advantage 

of using the internet to improve our economy, and we have some 

of the world’s best companies that have developed these products, 

coming with it are some issues. 

And one of them is this data being disclosed. And Senator Kennedy and I have introduced a bill that is basically a consumer 

rights bill to improve consumers’ protections and online data. As 

you know, other countries around the world have done this to some 

success, to some not. But this idea that we have no rules in place 

at all while we see this increase in digital trade and digital business I think is a real problem. And even Mark Zuckerberg at our 

hearing told me he thought publicly that we were probably going 

to have to have some legislation come through Congress. 

One of the provisions of our bill he agreed to is a 72-hour limit 

on notice when a consumer finds out that their data has been 

breached. 

Could you talk about the importance of allowing consumers as 

part of this move to greater digital trade to allow them to have 

greater control of their personal data? 

Ambassador Holleyman. Senator Klobuchar, I want to thank 

you. Thank you for the question. 

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I think the focus on what consumers need and ensuring that 

there is the right privacy protection and the right tools to address 

when there are breaches is critical. 

I mean, trust in the internet is critical. What we do globally 

around our trade frameworks like the Digital 2 Dozen, they require 

countries to have privacy frameworks in place. They don’t say exactly what they need to be. It is probably not one size fits all. But, 

quite frankly, the U.S. should lead on this. 

Senator Klobuchar. Well, that has not been happening. 

And when we talk on digital trade or transfers of data, we also 

need to be simultaneously saying, ‘‘and we want to do that in a 

way that protects personal privacy.’’ 

So it is not one or the other, transfer data or protect privacy. It 

should be both. And we should be bold in how we talk about both. 

So thank you for your question. 

Senator Klobuchar. All right. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman Paulsen. Representative LaHood, you are recognized 

for 5 minutes. 

Representative LaHood. Thank you, Mr. Chairman. 

I want to welcome our witnesses here today. Nice to have a fellow Illinoisan on our panel. 

Mr. Heather, welcome. 

I want to focus first on China and cloud services and access. And 

as I look at the barriers and hurdles and restrictions that the Chinese have put in place with cloud in particular and whether it is 

Amazon or Google or Facebook, trying to wrap my arms around 

how we remedy this situation. 

If you look at Alibaba, and you look at their access in the United 

States, and when you hear the stories of companies that go to 

China and try to engage in cloud and really the extortion—or fill 

in your adjective on what you want to use—in terms of what they 

put in place in terms of that. You know, it is trying to figure out, 

what is the remedy for that? What should we be doing? You know, 

trying to work within the framework of international norms on 

this, but it is extremely frustrating to have that, again, those barriers in place there. 

Ambassador, if you could comment on that? 

Ambassador Holleyman. Mr. LaHood, you state the problem 

precisely. And the consequences of what China is doing can’t be 

overstated. I mean, essentially, they are taking away the ability to 

access their market; they are limiting the amount of access by foreign players. Everything is moving to the cloud, as the CRS report 

and ITC report note. And if we don’t have full access to the market, 

that will be a long-term hindrance to our companies working globally. 

So we were trying to negotiate in the Obama Administration a 

bilateral investment treaty with China. One of the things we made 

absolutely clear was that to ever have an agreement with the U.S., 

we had to have openness in areas like cloud computing. So we need 

to pursue this at every course. 

Secondly, we need allies in this effort. I mean, the TPP partners 

agree with us on this. They don’t want to see Chinese companies 

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hold this. And so we need to tackle it bilaterally. But, quite frankly, we need friends. 

And this is an area where there should be friends because my 

concern is this: One is that China is the largest market in the 

world. It will remain the largest market. If Chinese companies, 

many of whom have fine products, like an Alibaba, if they have a 

protected market in China and then can access the rest of the 

world, U.S. companies can access the rest of the world but not 

China, then that is not only distortive to the economy, but in areas 

like data analytics, AI, where you need information, for non-Chinese companies to essentially have none of that information is not 

only economically harmful, but it decreases their efficiency long 

term. And that is why the barrier is bad today and is getting worse 

over time. 

Representative LaHood. Thank you for that. I do want to 

switch to another topic here. 

Just broadly on trade. And Mr. Heather, I will ask you this. You 

know, I look at kind of this, what I would describe protectionist 

path that this is headed down, whether you look at TPP, whether 

you look at NAFTA, whether you look at steel and aluminum. And 

particularly in the NAFTA negotiations, I look at the collateral 

damage that will be done to digital trade and other things by what 

I would call unconventional and unorthodox positions that we have 

taken in NAFTA negotiations. 

Look at ISTS. Look at sunset provision. Look at rules of origin. 

You know, these are, I think, hurdles, barriers, that are really, 

really hard to get our partners to agree upon. 

Can you comment on that on whether you are optimistic with the 

approach we have taken, that we are going to reach a resolution 

on this? 

Mr. Heather. First of all, it is good to see you. You probably 

don’t remember, but 21 years ago, I worked for Lolita Didrikson, 

and we met in that capacity. 

Representative LaHood. Yep. 

Mr. Heather. I was thinner then and had more hair, but anyway, it is good to see you. 

I think you have painted the problem accurately. If we are going 

to confront China, we need partners. And the activity that this Administration and the agenda that this Administration has pursued 

has kind of poked the eyes of all the partners that we need to be 

aligned with us in conversations with China. 

And from that standpoint, at least in the immediate near future, 

I don’t have a lot of hope for having a dialogue with China that 

will involve the EU, will involve Japan, will involve Canada, will 

involve the collection of TPP countries that we used to be aligned 

with in having a whole-of-country approach, global approach to addressing the concerns with China. 

At some point, I suspect that will change, but at least in the 

short term, the actions that this Administration have taken have 

not created an environment for us to find partners. 

Representative LaHood. Thank you. Thank you, Mr. Chairman. Thank you. 

Chairman Paulsen. Thank you. And I want to thank all of the 

witnesses for being here. 

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25 

I think you could see from the engagement on both sides of the 

aisle, there is a recognition that there is potential, huge potential, 

and opportunity for where the United States can go and should go 

and needs to go in this space. 

And so I think that your comments across the board have reinforced that, and we have some suggestions to follow up on now, actually, and continue to drive attention to this. 

So, with that, I want to remind members that should they wish 

to submit questions for the record, the hearing record will remain 

open for 5 business days. 

And, with that, this hearing is adjourned. 

[Whereupon, at 11:12 a.m., the committee was adjourned.] 

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SUBMISSIONS FOR THE RECORD 

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I call this hearing to order. 

Every day, when Americans sit down to order goods from a website or consume 

media online, we are participating in a vibrant digital economy—an economy that 

takes the ideas and creations of artists, manufacturers, and innovators and puts 

them within reach of our couches and kitchens. 

Digital trade means supply chain tracking, 3–D printing, or digital platforms that 

lead to ecommerce, cloud computing, and social media. You know the names of the 

leaders in each of these areas: Facebook, Amazon, eBay, and so on. That’s because 

the United States has pioneered this digital revolution. 

What many don’t realize is that trade in manufactured goods is itself a part of 

the digital economy. From the websites that market the goods, to the payment processing systems that carry out the transaction, the digital economy facilitates the 

movement of all kinds of consumer products from warehouses to family homes. 

American manufacturing relies on E–Commerce and digital trade. 

The benefits of digital trade include domestic economic growth as well as spreading American ideas and culture across the world. Of course, to us, this is good. Yet, 

there are others who consider the free flow of information, products, and ideas a 

threat to their control. 

Nearly three decades after the Berlin Wall fell, the way ideas and goods travel 

from one nation to another remains a contentious issue, both politically and legally. 

In fact, because of the novelty of digitization, commercial principles and freedoms 

that were carefully developed for conventional trade and gained international consensus are at risk of being circumvented. 

With every innovation comes opportunity for economic advancement but also opportunity for some foreign governments to grow their own power. In today’s interconnected economy, they can have wide-ranging effects on international commerce 

and other national economies as well as the free flow of information. 

Digital technology does raise legitimate privacy and cybersecurity concerns but 

some governments may not be sufficiently concerned with the effects of their policies 

on trade and some may even be using these concerns as an excuse for protectionist 

and other purposes. 

Some foreign governments impose additional taxes and fees, and some governments will only permit sales on the condition of storing data locally or providing the 

source code that will inevitably be used for a competing, state-backed product. 

Some governments that otherwise enforce property and contract laws turn a blind 

eye to, or even facilitate, intellectual property theft. This is especially true when the 

division between the State apparatus and the private sector is nonexistent. 

Up on the screen right now is a map of the world showing the prevalence of digital trade barriers. 

The lighter colored regions like Australia, Canada, and Mexico are perceived to 

have taken a light-handed approach to trade barriers. 

At the other end of the spectrum are trading blocs and countries like the EU and 

China that make access to their markets far more difficult and costly. 

In part, their motivation likely is to catch up to the United States, the leader in 

digital technology development, and try to take the lead themselves. 

American companies have always thrived in a competitive market, but the competition must be fair and free from foreign government intervention on behalf of 

their domestic companies. 

That is why global players with large economies, such as China and the European 

Union, which represent large global market shares, should see the rewards of developing their own digital economies without discriminatory standards and testing requirements, localization requirements, forced technology transfers, and the like. 

Governments with control over market access should not use their leverage to extract concessions from companies in competition with one another. 

In the decades after World War II, U.S. companies dealt with smaller economies 

that saw the likely economic benefit of opening their marketplace. Their citizens 

benefited from more choice, lower prices, and faster economic growth. 

We must be vigilant to preserve the principles that have already led to great prosperity throughout the world in the digital trade arena. 

That means addressing, swiftly and clearly, the excessive burdens foreign governments place on American digital products, so that we are not unfairly disadvantaged 

and can compete on the merits. 

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That also means negotiating new agreements that protect not just American’s economic interests, but allow the free exchange of culture and ideas throughout the 

world. 

The world is a better place thanks to American ideas and commerce. Keeping the 

global digital marketplace open means continuing the fight for that better world. 

Before I introduce our witnesses, I will now yield to Representative Beyer for his 

opening remarks. 

STATEMENT OF HON. DONALD S. BEYER, JR., A U.S. REPRESENTAIVE FROM VIRGINIA

[STANDING IN FOR RANKING MEMBER SENATOR MARTIN HEINRICH] 

Thank you Mr. Chairman. 

Since this Committee took up digital trade last fall, President Trump’s has waded 

into the trade issue in unpredictable and destabilizing ways. 

The President’s erratic, aggressive approach is creating an environment of economic uncertainty, is alienating our trading partners and allies, and risks harming 

the global economy. 

So far, the President and his trade advisors have seemed uninterested in the significant majority of the U.S. economy that does not consist of heavy manufacturing. 

Not only has digital trade not been front and center, it seems the Administration 

simply does not have a strategy for how to strengthen U.S. leadership in digital 

trade, nor any interest in creating one. 

Ceding ground to others, including competitors who are putting up new barriers, 

hurts our economy and our workers. 

This failure to lead is a missed opportunity for U.S. small businesses, technology 

companies, manufacturers and farmers, and all who benefit from the increased export opportunities made possible by digital trade. 

It also risks the United States falling behind as other countries race to create the 

technologies of the future and write rules for operating in the digital economy. 

Strengthening our position in digital trade starts right here at home, by ensuring 

an open internet that enables innovation to flourish. 

To that end, it is critical that we restore network neutrality—which is vital for 

small business owners who rely on the internet to compete with bigger companies. 

It also means expanding access. 

Too many people still don’t have access to a broadband connection. Their ability 

to compete in an increasingly digital economy is undermined without high-speed 

internet. 

We need to keep our focus on creating opportunities for all Americans. 

As we will hear this afternoon, the digital playing field around the globe is far 

from level. 

When dealing with China, American companies confront rampant theft of U.S. intellectual property, forced technology transfer policies, data localization requirements, and other efforts to tilt the playing field against the United States. 

Equally concerning, China is becoming a model for other countries who are erecting trading barriers that restrict the free flow of data. 

We need to knock down these barriers in a systematic, thoughtful way, rather 

than pursuing a policy of ill-conceived tariffs that will create additional barriers to 

trade. 

Burdensome data regulations are particularly onerous for small and medium-sized 

firms that don’t have big IT departments or can’t absorb the added costs of having 

to store data locally or comply with other requirements. 

Digital trade is just one piece of a broader trade landscape. And in the last few 

months, it has been harder and harder to understand the Administration’s positions 

on a range of trade issues. 

One Wall Street analyst estimates that the Administration’s erratic trade policies 

have cut the value of U.S. equities by about $1.25 trillion. 

And the costs extend beyond the stock market. 

The Administration’s tariffs on solar panels will cause the loss of thousands of 

jobs and the delay or cancellation of billions of dollars of investments in solar energy. These tariffs will slow our transition to renewable energy. 

The Administration has used dubious national security justifications to levy counterproductive tariffs on our closest allies. The President has repeatedly acknowledged that theses tariffs are not justified by national security concerns, undermining any future U.S. case at the WTO. 

By levying these tariffs, he has managed to damage our economy and our alliances in one fell swoop. 

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Of course, the negative aspects of President Trump’s trade policy are compounded 

by his dyspeptic approach to diplomacy. Nowhere was this clearer than his catastrophic performance at the G–7 in Charleroi. 

Public expressions of disdain for the leaders of our democratic allies will only 

make them less likely to engage in productive trade negotiations. As the President 

becomes increasingly unpopular abroad, it will become more difficult for democratic 

leaders to enter into new agreements with the United States. 

We need a trade policy that is guided by principle, not whim, and that is forwardlooking and not reactionary. Something we saw from the previous Administration. 

But that’s not where we are today. The way President Trump has gone about renegotiating NAFTA has generated instability. 

He’s fighting almost daily with Canada and his threats to leave the deal risk disrupting markets and raising prices and may trigger retaliatory tariffs. 

Rather than pursue productive discussions with China to drive changes in their 

trade practices, President Trump has launched a trade war, rolling out $50 billion 

in tariffs and threatening another $200 billion in tariffs last week. China immediately promised retaliatory tariffs of the ‘‘same scale.’’ 

Even the President’s Council of Economic Advisers prepared an internal analysis 

showing that tariffs will harm our economy. 

Trade is often an area ripe for bipartisan agreement and that’s especially true in 

the area of digital trade. 

But the damage to trading relationships from the Administration’s moves to impose tariffs on steel, aluminum and other products harms the United States’ ability 

to forge partnerships that will expand trade, both online and offline. 

And that uncertainty has a chilling effect on trade of all kinds. We have only 

begun to see the damage from Trump’s trade policies. 

I look forward to hearing from our witnesses about how we can promote digital 

trade and knock down barriers and how the Administration can play a more constructive role. 

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