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[Senate Hearing 114-762]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-762

STRATEGIC IMPLICATIONS OF TRADE PROMOTION AND CAPACITY-BUILDING IN THE 
                          ASIA-PACIFIC REGION

=======================================================================

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON EAST ASIA, THE PACIFIC, AND
                   INTERNATIONAL CYBERSECURITY POLICY

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 16, 2015

                               __________

       Printed for the use of the Committee on Foreign Relations

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                COMMITTEE ON FOREIGN RELATIONS         

                BOB CORKER, TENNESSEE, Chairman        
JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida                 BARBARA BOXER, California
RON JOHNSON, Wisconsin               ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia                TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky                  TIM KAINE, Virginia
JOHN BARRASSO, Wyoming               EDWARD J. MARKEY, Massachusetts

                 Lester Munson, Staff Director        
           Jodi B. Herman, Democratic Staff Director        
                    John Dutton, Chief Clerk        

                         ------------          

          SUBCOMMITTEE ON EAST ASIA, THE PACIFIC, AND        
               INTERNATIONAL CYBERSECURITY POLICY        

                CORY GARDNER, Colorado, Chairman        

MARCO RUBIO, Florida                 BENJAMIN L. CARDIN, Maryland
RON JOHNSON, Wisconsin               BARBARA BOXER, California
JOHNNY ISAKSON, Georgia              CHRISTOPHER A. COONS, Delaware
JEFF FLAKE, Arizona                  TOM UDALL, New Mexico

                              (ii)        

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hon. Cory Gardner, U.S. Senator From Colorado....................     1
Hon. Benjamin L. Cardin, U.S. Senator From Maryland..............     2
Hon. Tomasz P. Malinowski, Assistant Secretary, Bureau of 
  Democracy, Human Rights, and Labor, U.S. Department of State, 
  Washington, DC.................................................     4
    Prepared statement...........................................     6
Hon. Kurt Tong, Principal Deputy Assistant Secretary, Bureau of 
  Economic and Business Affairs, U.S. Department of State, 
  Washington, DC.................................................     8
    Prepared statement...........................................    10
Jason Foley, Deputy Assistant Administrator, Asia Bureau, U.S. 
  Agency for International Development, Washington, DC...........    15
    Prepared statement...........................................    16

                                 (iii)

  

 
STRATEGIC IMPLICATIONS OF TRADE PROMOTION AND CAPACITY--BUILDING IN THE 
                          ASIA--PACIFIC REGION

                              ----------                              

                         TUESDAY, JUNE 16, 2015

                           U.S. Senate,    
Subcommittee on East Asia, The Pacific, and
                International Cybersecurity Policy,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:50 p.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Cory Gardner 
(chairman of the subcommittee) presiding.
    Present: Senators Gardner and Cardin.

            OPENING STATEMENT OF HON. CORY GARDNER, 
                   U.S. SENATOR FROM COLORADO

    Senator Gardner. This hearing will come to order.
    First of all, thank you for understanding the delay. The 
Senate is still expected to vote on one more in a three-vote 
series. So we will be tag-teaming in terms of making that vote 
once it is called. So I apologize for that and thank you for 
waiting.
    Welcome to the second hearing for the Senate Foreign 
Relations Subcommittee on East Asia, The Pacific, and 
International Cybersecurity Policy.
    I want to thank Senator Cardin for his continued efforts in 
this subcommittee and support for holding this important 
hearing, as well as his work as ranking member on the full 
committee.
    Today's hearing comes at a critical time. The United States 
and 11 nations in the Asia-Pacific are on the cusp of 
concluding perhaps the most consequential free trade agreement 
in history, the Trans-Pacific Partnership.
    The potential economic benefits for the United States are 
enormous. According to the Congressional Research Service, 
total trade in goods between TPP member countries reached $1.6 
trillion in 2014. That represents nearly 40 percent of all 
global trade.
    In my own State of Colorado, trade with countries involved 
in the TPP currently supports more than 260,000 jobs.
    Removing barriers to trade is vital to growing our economy, 
but the TPP is more than just an economic agreement. It is a 
critical test of U.S. strategic leadership in the Asia-Pacific 
region, a region that will be integral to our economic and 
national security for generations to come.
    As stated in the 2015 National Security Strategy, 
sustaining our leadership depends on shaping an emerging global 
economic order that continues to reflect our interests and 
values. Despite its success, our rules-based system is now 
competing against alternative, less open models. To meet this 
challenge, we must be strategic in the use of our economic 
strength to set new rules of the road, strengthen our 
partnerships, and promote inclusive development.
    Defense Secretary Ash Carter echoed that sentiment when he 
said on April 6 of this year, the ``TPP is as important to me 
as another aircraft carrier.''
    But when the United States is absent, others rush to fill 
the vacuum with such alternative, less open models, as the 
National Security Strategy diplomatically stated. So we cannot 
be surprised when a rising China fills that vacuum with 
policies and programs crafted from their own vision of what is 
beneficial for themselves and the region.
    China's establishment of the Asian Infrastructure and 
Development Bank is the prime example. While on the face of it 
the AIIB is a positive response to address the infrastructure 
challenges in the region, it is also the clearest evidence yet 
that the United States has a serious credibility gap in the 
Asia-Pacific region.
    The question before us then, do we want the United States 
or China writing the rules? It is clear that while our partners 
and allies in the region may welcome additional Chinese 
investment, they want more American leadership and more 
American standards.
    We know that the standards TPP and U.S. engagement bring 
include not only economic benefits, such as removal of tariff 
or nontariff barriers, but fundamental American values such as 
transparency, good governance, and respect for basic human 
rights.
    So I hope our witnesses today can address how U.S. economic 
statecraft in the Asia-Pacific reflects our values and cements 
our leadership in this critically important region.
    And with that, I will turn it over to Senator Cardin for 
his opening remarks.

         OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 
                   U.S. SENATOR FROM MARYLAND

    Senator Cardin. Well, thank you, Mr. Chairman. To Chairman 
Gardner, I want to thank him for his leadership on this 
subcommittee. I continue to look forward to working with him, 
and I think today's subject is one of great importance to us, 
``Strategic Implications of Trade Promotion and Capacity-
Building in the Asia-Pacific Region.''
    I want to underscore the points that our chairman made. The 
IMF projects that in the next 5 years we are going to see the 
global economy grow by over $22 trillion and almost 50 percent 
of that is going to be in Asia. So we have a U.S. economic 
interest to make sure that we are engaged in Asia from a trade 
point of view. It affects our U.S. manufacturers, producers, 
and farmers, and we know that they can compete as long as they 
have a level playing field. So part of our responsibility is to 
make sure they have that level playing field.
    And when we take a look at most of the trade conditions and 
our trading partners, it is barriers in other countries that we 
have to get removed. Some of them are direct, such as tariffs. 
Others are a little bit more difficult, such as intellectual 
property. And some are even more difficult when we deal with 
issues such as labor laws, environmental laws, or governance 
laws. But it is in our economic interest to pursue those.
    It is also in our strategic interests. The alliances for 
security in Asia are critically important to the United States. 
And we know alliances are being made and we want the United 
States to have the strategic partners we need for U.S. security 
interests.
    And there is an opportunity here to advance regional 
stability, which should be in all of our interests. Our 
involvement here gives us the opportunity to make it a safer 
place for people to live, helping U.S. national interests.
    But to me one of the key points is how we leverage this 
opportunity to advance good governance because good governance 
is a key challenge to all of the issues that we care about in 
that region on stability and values. As one of our witnesses on 
today's panel recently said, Tom Malinowski, TPP offers the 
best hope of giving the Vietnamese people the space to pursue 
their rights. I could not agree with Mr. Malinowski more.
    It is critically important that as we look at these 
alliances for economic reasons, we are allowing our markets to 
be open to countries that are challenged in good governance, 
that we do everything to make it clear that they must pursue 
and enforce internationally recognized human rights. They must 
have a strategy to combat corruption that includes an 
independent judiciary, an independent prosecutor, the funds 
necessary to operate that, the laws necessary to enforce any 
corruption, the transparency that becomes critically important 
in dealing with anti-corruption, and that they have the labor 
commitments to provide labor protection for their population, 
environmental laws, and just as importantly, that within the 
trade agreement itself, there is enforcement so that we learn 
the lessons from past agreements and so that we have a way to 
make sure that the commitments made under the spotlight of 
negotiating a trade agreement in fact will be carried out after 
that agreement has been ratified.
    TPP presents a particular challenge for us. When you are 
dealing with Vietnam--I have been to Vietnam--it is a country 
that offers tremendous opportunity for the United States. It is 
a country, though, that does not have a tradition of protecting 
its workers, and there is really no right to join a union. We 
have to make sure that those rights exist and are real as a 
result of what we are doing in TPP.
    Malaysia, as you know, is a Tier 3 trafficking country. We 
have got to make sure that those issues are corrected and that 
there is a path forward that is enforceable and workable.
    Brunei has its own challenges on recognizing international 
human rights.
    So there are countries there that have a history that gives 
us pause to say, look, moving forward, we have to make sure 
that we really do have the wherewithal to make the type of 
progress that we know is necessary.
    And then the challenge of capacity-building and the way 
that we use our development assistance. That is a critical 
factor that has to be reevaluated as we move forward in our 
trade relations with Asia.
    The U.S. strategic challenges are clear. There are other 
trade initiatives in the region. We have to be mindful about 
that. We have free trade agreements among many countries in 
Asia that obviously affects the ability of the United States to 
gain market share and influence. And of course, there is the 
Regional Comprehensive Economic Partnership that includes not 
only the ASEAN nations but many of the other key players in 
that region, including China.
    So I welcome the discussion we are having today. I think it 
is a critically important subject, and I think that as a 
result, we can have a better understanding as to why it is 
critically important for the United States to be actively 
engaged in the Asia region.
    Senator Gardner. Thank you, Senator Cardin.
    And now turning to our distinguished panel, our first 
witness is the Honorable Tom Malinowski, the Assistant 
Secretary of State for Democracy, Human Rights, and Labor, a 
position he has held since April 2014. Previously from 2001, he 
was Washington Director of Human Rights Watch, a leading global 
organization dedicated to protecting human rights. From 1998 to 
2001, he served as Senior Director on the National Security 
Council at the White House, where he oversaw the drafting of 
President Clinton's foreign policy speeches and strategic 
communications efforts around the world. And from 1994--I 
almost said 1948. I do not know where that came from. From 1994 
to 1998, he was a speech writer for Secretaries of State Warren 
Christopher and Madeleine Albright and a member of the policy 
planning staff at the Department of State.
    Welcome, Mr. Malinowski. After your testimony, we will hear 
from Kurt Tong, but please, Mr. Malinowski.

 STATEMENT OF HON. TOMASZ P. MALINOWSKI, ASSISTANT SECRETARY, 
 BUREAU OF DEMOCRACY, HUMAN RIGHTS, AND LABOR, U.S. DEPARTMENT 
                    OF STATE, WASHINGTON, DC

    Mr. Malinowski. Thank you, Mr. Chairman. And I did not get 
that job with Secretary of State George Marshall in 1948. It 
has hurt me ever since. [Laughter.]
    Thank you for the opportunity to testify, Senator Cardin, 
Senator Gardner. This is obviously a very, very timely topic 
given the low-key little debate we have been having on this 
issue in the last week. So let me offer some thoughts on TPP 
from my perspective.
    This is, first and foremost, obviously an economic 
agreement, but as you have suggested, it has huge strategic 
implications. For the first time in the Asia-Pacific, if TPP 
happens, we will have a group of nations that have consented to 
join their economic destinies together under commonly agreed, 
enforceable rules with America at its center. And that is a big 
deal.
    The alternative to TPP is not less trade, because trade has 
been expanding with or without trade agreements with all of its 
creative and admittedly disruptive consequences. The 
alternative would be far less cooperation in shaping the rules 
of trade, including rules that protect labor rights and the 
environment. And whatever rules do develop will be shaped by 
somebody other than the United States.
    Now, my focus, obviously, is on how TPP can help us advance 
values of human rights, democratic freedoms, labor rights. And 
it is not immediately obvious because this is a trade 
agreement. It is not a human rights treaty. And there are 
critics out there who have legitimate doubts. But I believe 
that it will help us greatly.
    Now, in making the argument, I am not going to suggest to 
you that trade somehow by itself leads to democracy and human 
rights. I think that is a simplistic argument you should be 
skeptical of. Here is what I believe.
    Number one, to promote democracy and human rights and labor 
rights in the Asia-Pacific effectively, we have to stand up for 
those values. We have to speak out. We have to use our voice. 
We have to use our leverage. We have to use our assistance.
    But number two, we also have to continue to lead in the 
region on matters of security and prosperity, otherwise 
governments in the region are not going to listen to us on 
these other issues we care about. In other words, we have to be 
principled, but we also have to be present, and TPP does both.
    Number one, it will be a cornerstone of our strategic 
presence in the Asia-Pacific. It will enable us to continue to 
play the leading role in shaping the region's institutions and 
norms for years to come. TPP is also principled. Labor rights 
objectives are built into the treaty, enforceable like every 
other core commitment within it.
    In addition, we have leveraged the interests of countries 
to be part of TPP to advance a broader human rights agenda, for 
example, to press Malaysia to take stronger action against 
trafficking, Brunei's recent commitment to sign the Convention 
Against Torture, which would not be happening absent TPP.
    Now, let me focus in particular on how this will work with 
respect to the country with some of the biggest human rights 
challenges among the TPP member countries, Vietnam. We have got 
absolutely no illusions about how far Vietnam still has to go. 
It is still a one-party state. It is still a country where many 
forms of dissent are prohibited by law. But there is a profound 
debate going on within Vietnamese society and within the 
government about the future direction their country should 
take, and reformers within the government are using the 
prospect of membership in TPP as a way of winning the internal 
argument in favor of greater openness and freedom.
    Under the spotlight of TPP negotiations, Vietnam has 
released prisoners of conscience. Convictions for political 
offenses are way down from about 61 in 2013 to 1 or 0, 
depending on who you listen to this year, a huge decline. It 
has ratified human rights treaties. It has committed to 
reforming domestic laws, and it is consulting with us on how to 
do it. Right now in the Vietnamese national assembly, there is 
a debate underway on introducing the right against self-
incrimination into the criminal code, something that we are 
working with them on.
    Now, most dramatically TPP requires freedom of association, 
the right to form independent trade unions for the very first 
time in that country's history. Now, breaking the Communist 
Party's monopoly on trade union organizing in Vietnam would be 
an absolute breakthrough, and Vietnam must make this reform or 
miss out on the benefits of TPP.
    Now, will this be enough? Will this guarantee Vietnam's 
transformation into a country that respects human rights? No, 
it will not. Nothing we can do will guarantee that.
    But the question we have before us is, will we be better 
off in pursuit of that goal if this process is allowed to 
continue with the passage of TPA, which preserves that prospect 
that gives us the leverage to keep Vietnam moving in this 
direction? Will Vietnam be better off if next year its workers 
have the right to form independent unions, if this debate about 
legal reform continues, if there are fewer political prisoners 
in jail? From where I sit, the answer is absolutely yes. And 
very few of these things would likely be happening if not for 
the prospect of TPP membership. I think we would be set back 
considerably if that prospect were taken away.
    So from my standpoint, as the person who has to go to 
Vietnam, negotiate improvements in human rights, TPA and TPP--
this is not a leap of faith. It is an instrument of leverage, 
and I hope that the Congress will find a way to give us that 
leverage so that we can use it over the next few months to 
achieve the progress that we want to see.
    Thank you.
    [The prepared statement of Mr. Malinowski follows:]

                  Prepared Statement of Tom Malinowski

    Mr. Chairman, thank you for the opportunity to testify today. You 
have asked us to discuss the strategic implications of trade promotion 
in the Asia-Pacific region. This is obviously a timely question given 
the intense debate now underway on Trade Promotion Authority (TPA) and 
the Trans-Pacific Partnership (TPP) agreement.
    The TPP is, first and foremost, an economic agreement, for which 
the economic case is clear. But as the first trade agreement spanning 
both sides of the Pacific, the TPP will deliver larger strategic 
benefits as well. The TPP will be a community of common interest--a 
group of nations that have consented to join their economic destinies 
together, according to rules that all must respect and that will be 
enforced if violated. America's central role in this partnership 
further cements our leadership in the Asia-Pacific, and ensures that 
the rules being negotiated reflect our interests and values.
    The alternative to the TPP, should it fail to materialize, would 
not be an absence of trade in this region. Trade across the Pacific, 
with all of its creative and disruptive consequences, has been 
expanding steadily for years, between countries already linked by trade 
agreements and those, like the United States and China, that are not. 
But absent TPP, there would be far less political cooperation between 
nations in shaping the rules governing this growing commerce, including 
rules that protect labor rights and the environment. And to the extent 
rules and values might still develop, countries other than the United 
States would be shaping them. The fact is that the high standards we 
seek will only happen if we are there to insist on them.
    By binding its parties' economic futures together, the TPP also can 
deepen cooperation across the region on other matters of importance to 
the United States. There are historical parallels. The European Coal 
and Steel Community of the 1950s, for example, was also an economic 
agreement, but few people remember it solely as a common market for two 
industrial commodities. We remember it as the first transnational 
community forged in post-war Europe, and a foundation for European and 
transatlantic unity on political and security issues as well.
    In evaluating the potential strategic benefits of TPP, I will focus 
on how it could help us advance human rights and labor rights. 
Promoting human rights is one of America's core objectives in the Asia-
Pacific, and in our Asia ``rebalance.'' It helps build more stable 
societies by encouraging governments to give people peaceful outlets 
for political expression and to seek the most reliable source of 
legitimacy: the consent of the governed. It supports our economic goals 
by promoting laws and institutions that secure property rights, enforce 
contracts, fight corruption, and ensure the free flow of data and 
information. It empowers citizens to hold their governments accountable 
on issues like the environment and product safety, which are important 
to the health of our own people. It aligns American leadership with the 
aspirations of everyday people in the region, and with values that they 
admire. And it distinguishes us from other great powers that define 
their interests in narrower and more cynical terms.
    To say that TPP can help us advance these goals is to say something 
not immediately obvious to many people who have followed the debate 
over the agreement. TPP is a trade agreement, not a human rights 
treaty, and some of its parties--Vietnam in particular--have poor human 
rights records.
    Many people are skeptical of the argument that free trade itself 
encourages democracy. I am one of those people. Authoritarian 
government can coexist with a McDonalds in every city and an iPhone in 
every pocket. Democracy and the rule of law are built by political 
effort, usually in the face of stubborn political resistance.
    But I am convinced that, on balance, TPP will greatly aid the 
effort to advance human rights in the Asia-Pacific region.
    Promoting human rights in the region depends on using our voice, 
our assistance, and our economic and diplomatic leverage to stand up 
for universal values and the people who are defending them. But 
governments in the Asia-Pacific are more likely to respect our voice on 
these issues if they know the United States also remains committed to 
maintaining our leadership for security and prosperity in their region. 
In other words, to champion human rights effectively, we must be 
principled and present at the same time.
    TPP will be a cornerstone of our strategic presence in the Asia-
Pacific. Its conclusion is the single most important thing the United 
States can accomplish in its economic and strategic relationship with 
the region this year. It will help ensure that we, the United States 
and our partners, will continue to play the leading role in shaping the 
region's institutions and norms.
    And when it comes to labor rights, specifically, TPP is also 
principled. I know that some people have doubts about this, perhaps 
because many past trade agreements put such issues to the side, or had 
weaker standards than the TPP. But as a candidate for President, then 
Senator Obama promised to put labor and environmental standards at the 
core of trade agreements and to make them enforceable like any other 
core commitment in the agreements. TPP keeps that promise. In addition, 

we have leveraged the interest of countries to be part of TPP to 
advance an even broader range of human rights and worker rights 
objectives--for example to press Malaysia to take stronger action 
against human trafficking, and Brunei's recent commitment to sign the 
Convention against Torture.
    Let me discuss how this will work with respect to the country with 
some of the broadest human rights challenges among potential TPP 
countries--Vietnam.
    We have no illusions about how far Vietnam must still go to become 
a country that fully respects the human rights of its people. It is a 
one-party state. It has laws that criminalize political dissent. It 
does not yet fully guarantee freedom of expression, assembly, or 
association.
    At the same time, there is a high-stakes debate underway in Vietnam 
about whether and how to build a more democratic society under the rule 
of law. That debate is being driven by civil society, but has also been 
joined by many within the government who do not want changes in their 
society to leave them behind. The reformers' most powerful pragmatic 
argument is that reform is necessary to secure something everyone--from 
Communist Party leaders to democracy activists--says the country needs: 
a closer economic and security partnership with the United States.
    Under the spotlight of the TPP negotiations, Vietnam has released 
prisoners of conscience, bringing the total number down to around 110 
from over 160 two years ago. In 2013, Vietnam convicted 61 people for 
peaceful political expression; thus far in 2015, there has only been 
one case in which activists were convicted under statutes criminalizing 
peaceful expression. Vietnam has recently ratified the Convention 
Against Torture and the U.N. Convention on the Rights of Persons with 
Disabilities, and promised to bring its domestic laws--including its 
penal and criminal procedure codes--into compliance with its 
international human rights obligations. This will be a long and hard 
process, which some in the Vietnamese Government will resist. But the 
government has been sharing drafts of new laws with its public and 
invited the input of other countries, including the United States, 
which would have been unthinkable a few years ago.
    What's more, the TPP agreement will include a requirement that 
Vietnam guarantee freedom of association, by allowing workers to form 
genuinely independent trade unions. Allowing workers for the first time 
under their system to establish and join trade unions of their own 
choosing would be a historic breakthrough in a one-party state. Vietnam 
will have to make the necessary legal reforms or miss out on the 
agreement's benefits. And its commitments will be subject to the same 
enforcement provisions as every other core obligation of the TPP 
agreement.
    These developments may not by themselves guarantee full respect for 
human rights and labor rights in Vietnam. But the question we must ask 
is, will we be better or worse off with TPP? I believe there is no 
question that advocates for human rights and the rule of law in Vietnam 
will be better off if by next year, their country has independent trade 
unions, fewer dissidents in prison, legal reform, and a foreign policy 
that links its destiny with the United States. Without the chance to 
join TPP, it is not likely Vietnam would be making any of these 
choices. Passage of TPA legislation, which helps preserve that chance, 
gives us bargaining power to keep pushing Vietnam for more progress. 
And if Vietnam then meets the conditions for TPP itself, we will still 
have leverage, such as via Vietnam's strong desire for a full lifting 
of restrictions on the transfer of lethal arms.
    It's hard to see how these goals would advance if TPA fails. The 
Vietnamese understand our political process, and calendar. They know 
that approval of a trade pact is less likely in the United States next 
year. If Congress closes the door to an agreement now, the Vietnamese 
Government will turn its focus to internal political consolidation--
with a Communist Party leadership contest coming up in 2016--rather 
than on what it will take to improve its relationship with the United 
States. In this scenario, there would be zero chance of seeing 
independent unions legalized in Vietnam, less support for the legal 
reforms we are seeking, and a greater likelihood of a political 
crackdown.
    Members of Congress concerned about human rights in Vietnam are 
right to maintain a healthy skepticism about its government's 
intentions. Congress should keep demanding more progress. But Members 
should also recognize the critical role TPA and TPP play in sustaining 
a process that facilitates securing more progress. TPP is not a leap of 
faith; it is an instrument of leverage, with respect to Vietnam and all 
the nations aspiring to participate in the TPP. I hope that the 
Congress will enable us to continue to use that leverage, and to 
maintain America's role as the nation shaping the future of the Asia-
Pacific.
    Thank you for the opportunity to testify today. I'd be pleased to 
answer any questions you may have.

    Senator Gardner. Thank you, Mr. Malinowski.
    Next up we have the Honorable Kurt Tong, who serves as 
Principal Deputy Assistant Secretary for the Bureau of Economic 
and Business Affairs at the Department of State, a position he 
has held since 2014, not 1948. Before joining the Bureau, Mr. 
Tong served for 3 years as the Deputy Chief of Mission in 
Tokyo, Japan. Prior to his time in Tokyo, he was the U.S. 
Ambassador for Asia-Pacific Economic Cooperation, or APEC, 
managing all aspects of U.S. participation in APEC while 
concurrently serving as the Economic Coordinator for the State 
Department's Bureau of East Asian and Pacific Affairs, 
organizing bureau-wide efforts on economic policy. Mr. Tong has 
been a economic affairs diplomat for the State Department since 
1990, including serving as Director for Asian Economic Affairs 
at the National Security Council from 2006 to 2008, and as 
Economic Minister Counselor in Seoul from 2003 to 2006. Prior 
to that, he was Counselor for Environment, Science, and Health 
in Beijing, and served as Deputy Treasury Attache in Tokyo and 
as an Economic Officer in Manila.
    Welcome, Mr. Tong. Thank you for your testimony today.

    STATEMENT OF HON. KURT TONG, PRINCIPAL DEPUTY ASSISTANT 
   SECRETARY, BUREAU OF ECONOMIC AND BUSINESS AFFAIRS, U.S. 
              DEPARTMENT OF STATE, WASHINGTON, DC

    Mr. Tong. Thank you, Mr. Chairman. I really appreciate this 
opportunity to testify.
    Today you have asked us to consider how the 
administration's work on trade promotion and capacity-building 
supports our Nation's broader Asia-Pacific strategy, and I look 
forward to addressing that.
    As you know, economic policy engagement with the region is 
deep and expanding, covering many more issues and programs than 
we could possibly discuss fully here today. This engagement 
aims at creating a regional economic system that is open, free, 
transparent, and fair, thereby creating new opportunities for 
growth and jobs here at home, even as it strengthens our 
strategic presence overseas.
    Our work in this area supports American trade and 
investment interests by securing property rights, enforcing 
contracts, and fighting corruption. It also empowers citizens 
to hold governments accountable on protecting the environment 
and product safety. And as Assistant Secretary Malinowski 
explained, it aligns American leadership with the aspirations 
of ordinary people in the region and with the values that they 
admire.
    It is worthwhile to note that our most potent tool in all 
of these efforts is America's private sector presence in the 
region. And as you noted, total trade in goods and services 
with the region is at an all-time high, reaching over $1.6 
trillion last year. And U.S. businesses remain the largest 
source of foreign investment in the region.
    But the U.S. Government plays a critical role, including by 
training thousands of officials on issues vital to our 
interests, such as customs and trade facilitation, information 
technology connectivity, financial regulation, and the like.
    Mr. Chairman, concluding the Trans-Pacific Partnership 
negotiation remains the single most important thing the United 
States can accomplish with the Asia-Pacific this year. The 
region is home to vibrant economies, some of our closest 
allies, and some of our most demanding challenges. Foreign 
policy and trade policy are closely linked. Trade issues cannot 
be separated from larger questions about America's global 
leadership and our global security.
    With the TPP, we are building a stable foundation for our 
trade and investment in the region. TPP unites 40 percent of 
global GDP in articulating the values that we American people 
want to see prevail, values like protecting worker rights and 
the environment, ensuring transparency in regulatory processes, 
and enforcing laws fighting bribery and protecting intellectual 
property rights.
    TPP will also have a broad magnetic effect on the region 
beyond its current membership. In fact, we are already seeing 
that encouraging more open, fair, and transparent policies 
among potential future TPP members.
    Mr. Chairman, despite the mixed results of last Friday's 
votes in the House of Representatives, the administration is 
committed to working with Congress to see trade promotion 
authority passed, and we are committed to concluding the TPP 
agreement as soon as possible. TPP is profoundly in the best 
interests of the American people, but the world will not wait 
for us.
    If we do not lead, we risk ceding leadership to countries 
that do not share our interests and values. Indeed, China and 
others have already reached agreements that disadvantage us, 
and they are negotiating more such agreements, which do not 
protect worker rights or environmental interests, do not 
adequately protect intellectual property rights or help 
maintain a free and open Internet. And they certainly do not 
address unfair competition from state-owned enterprises. If 
these lower quality agreements become the standard for the 
fastest growing region of the world, it will put our firms and 
workers at a disadvantage, result in markets being carved up 
against us, remove us from supply chains, and cause our overall 
national strategic influence to be diminished.
    And, Mr. Chairman, let me stress that this is an urgent 
matter. We need to act now. As economic power spreads more 
widely around the world, we need to face the fact that our 
opportunity to shape rules to our advantage as a Nation may be 
limited in time and scope. Our weight in global economic 
affairs is challenged as the rest of the world becomes a middle 
income economy, and we need to act now while we still have the 
leverage to succeed.
    Mr. Chairman, in my written testimony, I provided 
additional detail about other important matters such as our 
critical engagement with ASEAN as it prepares to launch the 
ASEAN Economic Community this year. That work has great 
potential to benefit the people of ASEAN, and as the top 
investor in ASEAN, it has great potential also for the United 
States. In fact, technical assistance on trade capacity-
building is undoubtedly among the wisest forms of investment 
that we can make, and I expect Mr. Foley to share more ideas 
with you about that in a minute. Such work not only accelerates 
growth in developing economies, it also creates greater 
opportunities in our own economy, even as it reinforces 
American values such as transparency, good governance, and fair 
play.
    When I visit and speak with government officials around the 
world, regardless of which corner we are in, Southeast Asia, 
Central America, Central Asia, Eastern Europe, the top request 
that I consistently hear is for the United States to invest 
more in teaching and sharing best practices on questions like 
improving customs facilitation, which can both spur trade and 
help stem corruption.
    And finally, another important priority, of course, for the 
administration, as well as for Congress, is our economic policy 
engagement with China. The upcoming strategic and economic 
dialogue is an important opportunity to make further progress, 
as are the ongoing negotiations toward concluding a bilateral 
investment treaty.
    So we look forward to support from Congress on all aspects 
of this high priority agenda, and thank you for your attention. 
I look forward to your questions.
    [The prepared statement of Mr. Tong follows:]

                    Prepared Statement of Kurt Tong

    Chairman Gardner, Ranking Member Cardin, and members of the 
subcommittee, thank you for the opportunity to testify before you today 
together with my colleagues, Assistant Secretary of State for 
Democracy, Human Rights, and Labor, Tom Malinowski, and Jason Foley, 
the Deputy Assistant Administrator in the Asia Bureau of the U.S. 
Agency for International Development (USAID).
    Over the last 6 years, the administration's sustained ``rebalance'' 
to the Asia-Pacific has established a ``new normal'' of extensive 
collaboration with Asia-Pacific allies and partners on important global 
issues, driven by a high tempo of engagement by the President, the 
Secretary of State, and other Cabinet and senior officials.
                 our vision for the asia-pacific region
    The administration's rebalance to the Asia-Pacific recognizes that 
our future prosperity and security are inextricably tied to that 
region. Economies in the region have witnessed a period of 
extraordinary growth over the past few decades as they have liberalized 
trade and opened their borders. Literally hundreds of millions of 
people have been lifted out of poverty and into a middle class expected 
to reach 3.2 billion people by 2030. This growing middle class has 
expanded trade opportunities and growth in countries around the world, 
including the United States. The rebalance reflects the importance we 
place on our economic, security, public diplomacy, and strategic 
engagement in the Asia-Pacific, and our strong support for advancing 
democracy, good governance, justice, and human rights. These goals are 
mutually reinforcing elements of a unified strategy.
    Our economic engagement with Asia--aimed at creating a system that 
is open, free, transparent, and fair--creates new opportunities for 
growth at home, and strengthens our strategic presence abroad. It helps 
to build more stable societies by encouraging governments to strengthen 
rule of law. It supports our trade and investment goals by promoting 
laws and institutions that secure property rights, enforce contracts, 
and fight corruption. It empowers citizens to hold their governments 
accountable on issues such as protecting the environment and product 
safety, which is also important to the health and well-being of our own 
people. It aligns American leadership with the aspirations of ordinary 
people in the region, and with values that they admire, thus 
distinguishing us from other great powers past and present.
    By the same token, our strategic presence in Asia--our alliances, 
our trade agreements, our ability to provide security and reassurance 
to our friends--ensures that our partners in the region maintain 
confidence in our leadership for peace and prosperity. The United 
States is not the only great power with a vision for the future of the 
Asia-Pacific. To advance the vision we share with so many of the 
region's people, we must be principled and present at the same time.
    These are all reasons why this administration is committed to 
advancing our economic engagement with Asia. Our engagement with the 
region is deep, enduring, and expanding, covering many more issues and 
programs than we are able to fully discuss here. Most important is 
America's private sector presence in the region. Our bilateral trade in 
goods and services is at an all-time high, reaching over $1.4 trillion 
in 2013. U.S. businesses remain the largest source of foreign 
investment in East Asia and the Pacific. But the U.S. Government plays 
a key market expansion role as well, including by providing hundreds of 
millions of dollars in assistance each year to developing Asia, and 
thereby training thousands of officials on issues vital to our 
interests such as customs and trade facilitation, ICT connectivity, 
financial regulation, energy efficiency, environmental governance and 
resources management, and disaster preparedness.
                     the trans-pacific partnership
    Concluding the Trans-Pacific Partnership (TPP) negotiations remains 
the single most important thing the United States can accomplish in its 
economic and strategic relationship with the Asia-Pacific this year. 
The centrality of the TPP to the United States Asia policy is 
fundamental. The Asia-Pacific region is home to some of the world's 
most dynamic economies, some of our closest allies, and some of our 
most demanding challenges. As our prosperity and security are 
inextricably tied to the region, so too are foreign policy and trade 
policy inextricably linked to each other. Trade issues cannot be 
separated from larger questions about America's global leadership.
    As Secretary Kerry recently said, ``If we retreat on trade, our 
influence on the global economy will diminish. And if our economic 
stature is in doubt, our ability to deliver on defense and political 
challenges will be increasingly questioned. In today's world, the 
economic and security realms are absolutely integrated; we simply 
cannot retreat from one without diminishing our role on the other.'' We 
have to be fully engaged in each of these realms--commercially, 
politically, and diplomatically.
    With the TPP, we, along with our partners, are building a stable 
foundation for trade and investment in the Asia-Pacific region. Through 
the agreement, we will leverage 40 percent of global GDP to articulate 
the values that we want to see prevail--values like protecting the 
rights of workers and the environment, ensuring transparency and 
participation in regulatory processes, and enforcing laws against 
bribery and laws protecting intellectual property rights. These are the 
same values that are vital to a healthy business environment, and are 
sustainable only in a region where rights are respected, institutions 
are stable, and disputes are settled in accordance with the rule of 
law.
    TPP will include strong and enforceable labor standards and 
environment commitments, groundbreaking new rules to ensure fair 
competition between state-owned enterprises (SOEs) and private 
companies; commitments to improve transparency and consistency of the 
regulatory environment, a robust intellectual property framework to 
promote innovation while supporting access to medicines and an open 
Internet. The agreement will also protect and underscore the need to 
maintain the free flow of data across borders. This is not only vital 
to the effective working of a modern digital economy, but also enhances 
the right of individuals to freedom of information, which reflects our 
democratic values.
    Despite its economic gains, the Asia-Pacific region continues to be 
plagued by corruption and environmental destruction, and inadequate 
labor standards persist in many corners of the region. TPP will help 
ensure the region's future economic growth is sustainable and guided by 
a framework that is cemented in place by us and our partners.
    TPP will also have a broader magnetic effect on the region, beyond 
its current membership, by encouraging nonmembers to adopt to open, 
fair, and transparent trade and investment policies in their efforts to 
attract new economic partners. The TPP example can help spur them to 
make reforms to elevate the standards of their trade and investment 
regimes, and lower tariff and nontariff barriers to trade and 
investment.
             trade policy leadership in america's interests
    The Asia-Pacific's growing engagement with the world will not wait 
for us. If we do not take the lead, we risk ceding leadership to other 
countries that do not share our interests and our values, and are 
pushing their own regional initiatives with weaker standards. 
Presently, China and others are negotiating a number of agreements. 
These agreements do not protect workers' rights or environmental 
interests. They do not adequately protect intellectual property rights 
or help maintain a free and open Internet. And they do not address 
unfair competition from state-owned enterprises. If these agreements 
were to become the model for the fastest growing region of the world, 
it would not only put our workers and firms at a significant 
disadvantage, it would also result in Asian markets being carved up, 
removing us from supply chains, decreasing our linkages to important 
allies, and seeing our overall influence diminished.
    There is another important reason why the United States is pushing 
for a global system of trade agreements that so heavily emphasizes 
resolving nontariff issues, over and above seeking tariff reduction. 
The comparative advantage theories of the 19th century British 
economist David Ricardo described a world of arms-length transactions--
of commodities sent overseas in simple exchange for other commodities. 
The economy of the 21st century--and this is especially true for the 
United States, which stands at the apex of the modern economy--is a 
much more complex system, where trade in services ranks with trade in 
goods, and goods and services are often intermixed. Today's economy is 
a system where investment begets trade and trade spurs investment; 
where products move electronically as well as physically; and where 
globalized value and supply chains can witness products crossing 
borders numerous times before being ready for final consumption. In 
such a globalized economy, fair rules are the key to promoting the 
interests of our people, workers, and employers alike--fair rules on 
issues like investment, regulatory transparency and coherence, customs 
procedures, intellectual property, e-commerce, and data protection.
    It is precisely because the United States has the most complex 
economy--because we are the leader technologically, and in services, 
and in higher value-added manufacturing--that we must use all the tools 
at our disposal to propagate rules that allow us to harness that 
complexity to our advantage. ``All the tools'' includes technical 
assistance--as we negotiate path-breaking reforms in important areas 
such as labor and the environment, we also want to develop technical 
assistance tools to ensure that our trading partners are successful in 
implementing these reforms.
    And we need to do this now. Thirty years ago, the majority of the 
world's population lived in countries classified as low income. Now, 
the lion's share live in middle-income countries. These nations are 
active in international trade and investment policymaking, and they 
influence the rules of the road. While the United States currently has 
comprehensive trade agreements with 20 countries, primarily in Latin 
America, there are over 200 such agreements in Asia. As economic power 
spreads more widely around the world, we need to face the fact that our 
opportunity to shape the rules to our advantage, as a nation, may be 
limited in time and scope. Our weight in global economic affairs is 
challenged as the rest of the world becomes a middle-income economy. We 
need to act now while we still have the leverage to succeed.
                             apec and asean
    The Trans-Pacific Partnership, then, is an urgent and vital 
initiative. At the same time, while the TPP is rightfully considered 
the centerpiece of our Asia-Pacific economic ``rebalance'' strategy, it 
is by no means the only tool at our disposal. And fortunately some 
other key mechanisms also allow us to reach out effectively and expand 
economic ties with other Asia-Pacific economies that have not yet 
volunteered to join TPP, or are not yet ready to meet its standards.
    The Asia-Pacific Economic Cooperation (APEC) forum, in particular, 
has been critical as an incubator for new ideas that are now being 
incorporated into the TPP. When I served as the U.S. Ambassador to 
APEC, I saw firsthand the potency of its work in spreading best 
practices on not only trade and investment, but also other key issues 
such as environmental protection and promoting more inclusive growth. 
The United States continues to bolster APEC's role as the region's 
premier economic forum for advancing free and open trade and 
investment, and fostering sustainable and equitable growth. Its 21-
member economies accounted for 44 percent of world trade and 54 percent 
of global GDP in 2013, consisting of both small and large economies, 
and more advanced and developing economies. The practical training and 
policy deliberations that the United States and other key players 
sponsor under the APEC umbrella are intensely valuable.
    Another critical avenue of U.S. strategic economic engagement is 
through our Partnership Dialogues with ASEAN and our support of the 
ASEAN Economic Community (AEC). We continue to work to deepen our trade 
relations with all of ASEAN through the U.S.-ASEAN Expanded Economic 
Engagement initiative, as well as through bilateral efforts with the 
individual ASEAN members. When fully implemented, the AEC will 
integrate the diverse economies of ASEAN and create a region with freer 
movement of goods, services, investment, skilled labor, and capital. 
Thus the AEC has tremendous potential to benefit the people of ASEAN, 
and as the top investor in ASEAN, it has equal potential to benefit the 
United States. I believe my colleague from USAID will mention a number 
of specific examples of highly successful trade capacity-building 
programs that USAID has implemented through both ASEAN and APEC, among 
them the ASEAN Single Window project.
    In fact, technical assistance on trade-related capacity-building is 
undoubtedly among the wisest forms of investment we can make. Such work 
not only accelerates growth in developing economies, it also creates 
greater opportunities for growth in our own economy--even as it 
reinforces the ``export'' of American values such as transparency, good 
governance, and fair play. When I visit and speak with government 
officials from middle-income nations around the world, whether in 
Southeast Asia, Central America, Central Asia, or Eastern Europe, their 
top request of the United States is consistently that we invest more in 
teaching and sharing best practices on questions like improving customs 
facilitation, which can both spur trade and help stem corruption.
    Multilateral development banks are also useful partners in this 
work. When thinking about Asia-Pacific regional economic integration in 
particular, the Asian Development Bank (ADB) has been at the forefront 
of supporting shared solutions and approaches to issues such as water 
resources management and regional energy supply and connectivity. The 
Greater Mekong Subregion (GMS) program, for example, and the Central 
Asia Regional Economic Cooperation program, known as CAREC, have worked 
diligently on a subregional basis to promote development through 
cooperation, leading to accelerated growth and poverty reduction.
    The existing multilateral development banks such as the ADB have 
prioritized transparency, sound governance, and social and 
environmental safeguards in their own operations and in the standards 
they set in the region. As these existing institutions continue their 
work, there is a set of new actors and institutions that are also 
poised to contribute to development, particularly infrastructure 
finance, in the broader Asia-Pacific region and beyond. The United 
States aims to communicate with such institutions, such as the emerging 
Asian Infrastructure Investment Bank sponsored by China, to help ensure 
that they have a positive impact on regional development.
                                 china
    No discussion of the Asia-Pacific economy would be complete without 
considering the important role of China. The past 30 years have seen 
China undergo an unprecedented transformation, as hundreds of millions 
of its citizens emerged from poverty, migrated to cities, and reengaged 
with the world with a voracious appetite driven by voluminous 
government-led investment. China's economy has grown a staggering 1,600 
percent since 1983, reducing the proportion of its population living on 
the equivalent of less than $2 a day from almost 93 percent in 1984 to 
less than 20 percent in 2011. The net result is now an economy that 
rivals that of the United States in terms of its gross size and scale 
of activity. China accomplished this, however, at great expense to its 
environment, and in a manner that emphasized rapid growth over other 
social and political development considerations. China's internal focus 
on building a strong economy while retaining firm government control 
over economic activity remains at odds with the American vision of 
economic growth led by entrepreneurship, adherence to the rule of law, 
and a free and strong private sector. Concerns about basic aspects of 
China's approach to economic policy have deepened in recent months due 
to the recent spate of regulations and laws introduced by China that 
could cast doubt on the legality of a wide range of normal economic 
activities.
    Because of these differences between the U.S. and Chinese economic 
policy models, some commentators have suggested that the United States 
should feel threatened by China's growing economic role among its 
neighbors. Indeed, China has made no secret of its ambitions to retake 
what it considers to be its rightful place in the region and in the 
world. There are reasons, however, why the United States should not be 
overly concerned about this, and be confident in our long-term 
strategies.
    First and foremost, we must remember that, when it comes to 
influencing economic policy affairs, the quality of ideas matters as 
much as the quantity of transactions. China is in the process of 
discovering that, in a globalized world economy, possessing a large 
trading economy does not translate into unilateral monopoly power or 
monopsony power that can be used to twist the arms of one's neighbors. 
At the same time, possessing large cash reserves can allow one to make 
a positive contribution to regional and global economic development. 
But it is much harder to use such financial might in aggressive or 
exclusivist ways when the world's financial markets are highly 
intertwined and capital is a priced commodity.
    In fact, the United States should be reassured, by the experience 
of the TPP and our other initiatives, about the powerful attractiveness 
of our model of economic cooperation, which is mutually beneficial and 
respects the needs of all participants. Any other model will not work 
for long in the modern world, and that is a good thing.
    So, while vigorously pressing China to open its own markets and 
show greater respect for rule of law inside China, we will continue to 
confidently prod China in positive directions in the regional context.
    Direct bilateral engagement with China is, of course, an urgent 
business, and the upcoming U.S.-China Strategic and Economic Dialogue 
is an important opportunity to make progress in advancing U.S. economic 
priorities and narrowing areas of disagreement. Presently, on a 
bilateral basis, one of the most interesting initiatives directly 
involving the State Department is the ongoing negotiation toward 
concluding a Bilateral Investment Treaty (BIT) with China. These talks 
offer an important opportunity to support economic reform in China, and 
to promote a more level playing field for U.S. investors in China's 
market. We are seeking a high quality BIT with a ``negative list'' 
reflecting a high level of openness to foreign investment. We are also 
pressing for strong investor protections for U.S. investors, supporting 
transparency, predictability, and the rule of law. We need to see 
additional progress on the ground in China in terms of economic reform. 
We need China to do more to welcome American businesses and reassure 
them that they will not be subject to discriminatory treatment and that 
their intellectual property will be protected.
                               conclusion
    In short, the administration is using a wide range of tools, 
ranging from the Trans-Pacific Partnership to trade capacity-building 
programs to APEC and ASEAN and our direct engagement with China, to 
help build an Asia-Pacific economic system that will allow the United 
States to realize the full and lasting benefit of being a Pacific 
power. The administration remains committed to working with Congress on 
this high priority agenda.

    Senator Gardner. Thank you, Mr. Tong.
    Last but certainly not least, we have the Honorable Jason 
Foley, who serves as the Deputy Assistant Administrator in the 
Asia Bureau of the U.S. Agency for International Development, 
USAID, overseeing East Asia and the Pacific. Mr. Foley is a 
career member of the Senior Executive Service. Previously Mr. 
Foley served as the Director of Strategic and Program Planning 
in the Bureau of Policy, Planning and Learning. Mr. Foley has 
worked as the Budget Director for Immigration and Customs 
Enforcement, the Director of Strategic Planning for the State 
Department, and a Peace Corps volunteer in--I am not sure where 
he was.
    Mr. Foley. Benin.
    Senator Gardner. Benin. Very good.
    Prior to his U.S. Government service, Mr. Foley was a 
senior manager for a consultancy firm where he focused on 
financial sector reform issues in East Asia. Welcome, Mr. 
Foley.

STATEMENT OF JASON FOLEY, DEPUTY ASSISTANT ADMINISTRATOR, ASIA 
BUREAU, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT, WASHINGTON, 
                               DC

    Mr. Foley. Thank you, Mr. Chairman, for this opportunity to 
testify today on the role of USAID in trade promotion and 
capacity-building in the region.
    As previously mentioned, the region has experienced 
remarkable growth and prosperity over the past three decades 
and has lifted hundreds of millions of people out of extreme 
poverty. But in order for this growth to be sustainable and 
therefore continue to benefit the region and the United States, 
there are several development challenges that need to be 
addressed.
    The first, inequitable growth, which can lead to a playing 
field that is not level and also can exclude underprivileged 
and marginalized groups like women. And as Senator Cardin 
mentioned, the second key challenge is weak governance, which 
leads to ineffective and not well-informed laws and regulatory 
frameworks. And finally, inadequate social and environmental 
standards, which can lead to forced labor and environmental 
degradation.
    USAID is best positioned to address these development 
challenges through sustained U.S. leadership on trade. 
Specifically, the Trans-Pacific Partnership offers us, the 
agency, an unparalleled opportunity to help reduce poverty, 
improve human rights, and promote environmental safeguards in 
the region. I will talk about a few examples of what we are 
doing to address these development challenges.
    To help create open and inclusive economies, USAID is 
working with ASEAN, for example, to, one, improve the 
regulatory framework for trade and investment and thus open 
markets for U.S. exports; two, harmonize customs regulations 
that will lower the cost of doing business; and three, train 
small- and medium-sized enterprises, including women 
entrepreneurs and provide them greater access to capital.
    To help strengthen governance, USAID is working with 
governments, civil society, and the private sector to 
strengthen the rule of law, increase transparency, and enable 
citizens to play an active voice. In Vietnam, for example, we 
are providing assistance to improve the rule of law in 
compliance with trade agreements. In Burma, we are working to 
increase land tenure security for smallholder farmers by 
supporting public participation in the development of a land 
use policy. In the Philippines, we are helping to make the 
country a more reliable trade and investment partner. And in 
Laos, we are supporting key legal reforms needed to fully 
implement trade commitments.
    To help establish social and environmental safeguards, 
USAID is working to ensure that investments meet domestic and 
international standards for protecting the environment and 
workers rights. For example, at this week's Asia Clean Energy 
Forum in the Philippines, USAID is bringing together U.S. and 
Lower Mekong countries or businesses to explore sustainable and 
renewable energy development. Through the Tropical Forest 
Alliance 2020, which extends to over 400 global companies, 
USAID supports the Government of Indonesia in its efforts to 
reduce commodity-driven tropical deforestation. And in 
Cambodia, we are supporting improving working conditions and 
workers' livelihoods and promoting safe labor migration, 
freedom of association, and labor dispute resolution.
    In conclusion, Mr. Chairman, East Asia has become a key 
driver of global economic prosperity. USAID has helped to make 
this growth more equitable and sustainable, but our continued 
success requires strong U.S. leadership on trade. For example, 
our best leverage to improve labor rights and ensure 
appropriate environmental safeguards comes from 21st century 
trade agreements such as the TPP.
    I appreciate the opportunity to testify today. I look 
forward to your counsel and questions.
    [The prepared statement of Mr. Foley follows:]

                   Prepared Statement of Jason Foley

    Chairman Gardner, Ranking Member Cardin and distinguished members 
of the subcommittee, thank you for the invitation to testify on the 
role of the U.S. Agency for International Development (USAID) in 
supporting trade capacity-building in the Asia-Pacific region. It is an 
honor to appear before the committee, and a pleasure to be here 
alongside my colleagues from the U.S. Department of State, Assistant 
Secretary Tom Malinowski and Principal Deputy Assistant Secretary Kurt 
Tong.
    It is an exciting and pivotal time for U.S. policy in the region. 
More people live in Asia than anywhere else on the planet. Over the 
past three decades, the region has experienced an unprecedented period 
of prosperity, propelling hundreds of millions out of extreme poverty. 
A growing middle class has expanded trade opportunities and driven 
reciprocal growth in countries around the world, including the United 
States. The 10 member states of the Association of Southeast Asian 
Nations (ASEAN) alone comprise our fourth-largest export market. In the 
next decade, trade volume in Asia is expected to double, and by 2050, 
Asia's gross domestic product (GDP) is projected to account for more 
than half of the world's GDP.
    At the same time, the region faces complex development challenges 
that threaten to derail this growth trajectory--and compromise 
stability. Governance challenges in certain countries limit the full 
participation in economic growth of marginalized segments of society, 
such as smallholder farmers and women--holding countries back from 
reaching their full potential. Small and medium enterprises--the 
backbone of any economy--lack the tools and financing they need to 
succeed in creating jobs for the region's massive youth bulge. In some 
cases, governments are not doing enough to protect their most 
vulnerable and marginalized from exploitation and abuse. The incidence 
of sex trafficking and forced labor is higher in the region than 
anywhere else in the world, and regulating legitimate labor migration 
is an ongoing challenge. The region's voracious appetite for natural 
resources has resulted in some of the fastest rates of deforestation in 
the world, which affects everything from air quality to water supply.
    The U.S. Government's rebalance to the Asia-Pacific recognizes that 
our future prosperity and security are inextricably tied to the region. 
It is in our strategic interest to ensure that economic growth in Asia 
is sustainable and inclusive and contributes to strengthened stability 
across the region and the United States. USAID plays an integral role 
in achieving this vision. Key to achieving our mission of ending 
extreme poverty and promoting resilient, democratic societies is 
addressing the quality of economic growth--that it is widely shared and 
inclusive of all ethnic groups, women and other marginalized groups; 
that it is compatible with the need to reduce climate change impacts 
and to manage natural and environmental resources responsibly; and that 
it ensures international markets function properly, complies with 
international rules-based, transparent frameworks and obligations, and 
improves the well-being of all members of society.
    The economies of the Asia-Pacific region are at varying stages of 
development--from emerging to established. USAID works both at a 
regional level--primarily through ASEAN, the Asia-Pacific Economic 
Cooperation (APEC) forum and the Lower Mekong Initiative--and at a 
bilateral level to overcome the barriers to closing this development 
gap.
               regional economic connectivity & inclusion
    A hallmark of USAID's regional work is our 5-year ASEAN 
Connectivity through Trade and Investment (ACTI) project, which helps 
to improve ASEAN's regulatory framework for trade and investment and 
private sector competitiveness--further opening markets for U.S. 
exports. Specifically, we provide support for customs integration, 
advancing renewable and sustainable energy solutions, the development 
and application of regulatory and technology solutions to rural 
broadband access, leveraging of information and communication 
technologies, and trade and investment facilitation--which includes 
harmonizing business standards in collaboration with the private sector 
to create a more level playing field and boost consumer confidence in 
the quality of products.
    ACTI prioritizes the economic inclusion of small and medium 
enterprises (SMEs)--which account for the majority of employment in 
ASEAN member states--through business development training, access to 
financing and market linkage support. We are targeting the vast youth 
population--which represents 60 percent of ASEAN's total population--as 
well as women. We know if we can erase gender inequities, we can unlock 
human potential on a transformational scale. Investing in women has a 
well-documented multiplier effect. Research has found that women 
typically invest more of their income than men do in their children and 
communities.
    The U.S.-ASEAN Business Alliance for Competitive SMEs, a public-
private partnership between USAID and the U.S.-ASEAN Business Council, 
has already trained 3,500 SMEs--with nearly half of the individuals 
trained being women entrepreneurs--in all 10 member states since its 
launch just over 1 year ago. On removing barriers to financial access, 
USAID recently entered into a partnership with some of ASEAN's largest 
banks to fund research grants to study how to improve access to capital 
for SMEs. This program will target and explore the particular issues 
women face in Southeast Asia in accessing capital.
    Regional economic integration presents tremendous potential for 
global growth. USAID is providing support for the establishment and 
upcoming launch of the ASEAN Single Window (ASW), a key benchmark in 
the establishment of the ASEAN Economic Community. By enabling all 10 
member states to exchange cargo clearance data through a ``single 
window,'' the ASW will increase transparency in customs systems and 
improve customs compliance, speed customs clearance procedures, and 
lower the cost of doing business in the region, allowing increased 
trade that supports jobs and business opportunities in the United 
States and ASEAN. This single window for conducting trade with ASEAN 
countries will also facilitate ASEAN's participation in global supply 
chains, creating opportunities for expansion for American business.
    We are also supporting APEC members in meeting their commitments by 
providing technical assistance in a number of U.S. priority areas 
through the 5-year U.S.-APEC Technical Assistance to Advance Regional 
Integration (U.S.-ATAARI) project. Through APEC, we are working to 
advance regional economic integration, harmonize product standards, 
improve domestic regulations, and reduce or eliminate behind-the-border 
barriers to cross-border trade in 21 member countries. U.S.-ATAARI's 
supply chain connectivity assistance, for example, is working to speed 
up and reduce costs associated with customs measures. APEC's work to 
reduce trade transaction costs, including through these streamlined 
customs procedures, has saved tens of billions of dollars for 
businesses across the region.
               leveraging partnerships to maximize impact
    Across all our programming, we leverage strategic partnerships 
wherever possible--including with U.S. universities and businesses--to 
introduce new skills training and financial access opportunities, 
modern technologies, international standards, and the American brand of 
responsible investment.
    In Burma, increased U.S. trade and responsible investment promotes 
inclusive economic development, contributes to the welfare of the 
people of Burma and assists regional integration. As investors begin to 
turn their attention to Burma, the United States Government is 
encouraging businesses to be a model for responsible investment and 
business practices, encouraging further change, promoting inclusive 
economic development and contributing to the welfare of all the 
country's people. In partnership with USAID, U.S. companies are not 
only seeking investment opportunities in Burma, but also actively 
engaging local communities to support broad-based development to 
benefit all sectors of the population. They are investing millions of 
dollars in advancing information technology, building the capacity of 
women entrepreneurs, training engineers and managers, and offering 
apprenticeship opportunities for youth.
    For example, USAID partnered with Hewlett-Packard (HP) to launch 
HP's Learning Initiative for Entrepreneurs (LIFE) in Burma, an online 
business and information technology program. So far, HP has established 
6 of 12 planned LIFE centers equipped with computers, learning 
solutions and Internet to enable access to HP LIFE e-Learning for urban 
and rural entrepreneurs. And just this past December, we initiated a 
U.S.-Burma Information Communications Technology Council in 
collaboration with leading U.S. technology companies--Cisco, Google, 
HP, Microsoft and Qualcomm Incorporated--to maximize ways in which 
technology can spur broad-based economic growth, increase transparency 
and support Burma's integration into regional and global markets.
           strengthening good governance that enables growth
    Critical to sustainable and inclusive economic growth is good 
governance that encourages an enabling environment where 
entrepreneurship and innovation can flourish. That is why we work with 
governments, the private sector and civil society in countries across 
Asia to modernize laws and regulations affecting trade and responsible 
investment. We promote a legal and regulatory process that strengthens 
the rule of law, increases transparency, safeguards worker rights, and 
enables citizens to play an active role in economic reform.
    In Vietnam, USAID partners with civil society and others to help 
structure an inclusive economic environment that enables trade that 
benefits all citizens, helping Vietnam continue its responsible 
integration into the global economy. We focus on addressing reforms and 
accountability and expanding the rule of law--both of which are of 
great relevance to Vietnam's likely commitments under the Trans-Pacific 
Partnership (TPP) trade agreement, while the rule of law underpins 
nearly every U.S. policy priority in Vietnam.
    In Vietnam, USAID works in close coordination with other U.S. 
Government agencies to facilitate activities that are critical TPP-
related reforms. This includes implementation of, and compliance with, 
obligations on worker rights and on the environment, including in such 
areas as wildlife trafficking. This work is critical: We want to make 
certain that our trade agreement partners have both the capacity to 
implement and ultimately follow through with any commitments that they 
agree to undertake. Through our Governance for Inclusive Growth (GIG) 
program, USAID is providing technical assistance to improve compliance 
with trade agreements, the rule of law and expand our access to 
Vietnam's growing market for U.S. exports--with an emphasis on 
improving the regulatory environment and labor issues, systems for 
accountability, and inclusion of vulnerable and historically 
disadvantaged groups, such as women. And our efforts with the Vietnam 
Chamber of Commerce and Industry are driving regulatory reforms and new 
business enabling policies at the local government level, thanks to a 
Provincial Competitiveness Index we've implemented.
    Our work in this area also extends to economies achieving year-on-
year high growth rates, such as that of the Philippines, where one-
fifth of the population still lives in extreme poverty. Through the 
Partnership for Growth (PFG), a White House initiative implemented in 
only four countries worldwide, the United States and the Philippines 
collaborate to address the country's most serious constraints to 
lasting equitable growth that benefits all Filipinos. USAID activities 
promote trade and investment, greater competition, increased 
transparency, and improved fiscal policy and management--which have a 
direct correlation to reducing the cost of doing business.
    Our assistance has resulted in unprecedented economic growth for 
the country, and has made it a more reliable trade and investment 
partner. In 2014, foreign direct investment in the Philippines 
increased by 66 percent over 2013, with the United States being the 
largest source of private investment. At the same time, the Philippines 
has become one of the fastest growing markets for U.S. food and farm 
products.
    The next stage of the PFG is to address the income inequality that 
persists outside the national capital area, through USAID's Cities 
Development Initiative, which is envisioned to develop growth hubs in a 
select number of outlying cities.
    In the Philippines, we also work through the Trade-Related 
Assistance for Development (TRADE) project to assist the government in 
improving trade and investment policy, trade facilitation, competition 
policy, and public outreach and advocacy in line with ASEAN 
commitments. At the request of the Philippines' Bureau of Customs, 
TRADE assisted in the compilation and posting of a comprehensive 
database on import regulations (licenses, clearances, and permits) of 
various trade regulatory government agencies. This led to the issuance 
of the country's first-ever Regulated Imports List covering more than 
7,200 commodities, which is now available online and used as a 
reference by customs officers and the trading public. In the process of 
compiling this list, TRADE also identified redundant, overlapping or 
unnecessary requirements that are effectively serving as nontariff 
measures that inhibit trade. The project thus plans to work toward 
rationalizing and streamlining these various requirements.
    And in Laos, where USAID assistance was instrumental to World Trade 
Organization (WTO) accession in 2013, regulatory capacity remains 
limited and threatens future sustainable growth. Through the Lao 
People's Democratic Republic (PDR)--U.S. International and ASEAN 
Integration project, USAID supports key legal reforms needed to fully 
implement WTO and ASEAN Economic Community commitments, as well as the 
U.S.-Lao PDR Bilateral Trade Agreement. The reforms contribute directly 
to modernizing the legal, policy and institutional framework for 
dynamic private sector growth, the integration of Laos into regional 
and international markets, and contribute to advancing the rule of law 
and improving governance throughout many sectors in Laos.
              ensuring environmental and social safeguards
    Across the Asia-Pacific, we help ensure that investments, 
particularly in natural resource and infrastructure projects, meet 
domestic and international standards for protecting the environment and 
labor rights, and are sensitive to local communities.
    Indonesia is one of the most biodiverse regions in the world, but 
it also ranks among the world's top ten countries with the highest 
rates of deforestation. The United States serves as a long-term partner 
in helping Indonesia conserve its biodiversity. Through the Tropical 
Forest Alliance 2020, which the U.S. Government created in partnership 
with the Consumer Goods Forum, a network of over 400 global companies, 
the Government of Indonesia is actively engaged in efforts to reduce 
commodity-driven tropical deforestation from soy, beef, palm oil, and 
pulp and paper--which account for nearly 40 percent of global tropical 
deforestation. Illegal and unsustainable deforestation not only puts 
vulnerable populations at further risk, but it also contributes to 
greenhouse gas emissions and the loss of endangered species, such as 
tigers and rhinos.
    Together with the Department of State, USAID is currently hosting 
the Lower Mekong Initiative Renewable and Clean Energy Business 
Dialogue in Manila on the margins of the Asia Clean Energy Forum. To 
ensure energy security for a region with a 6-to-9 percent annual 
increase in electricity demand, Lower Mekong countries must collaborate 
across borders, while leveraging the private sector and establishing 
sound energy and investment policies essential to help set the 
countries on a path to sustainable low-emissions development. The LMI 
Business Dialogue will directly facilitate this collaboration, while at 
the same time, creating opportunities for U.S. businesses by giving 
them a seat at the table to discuss clean energy solutions that promote 
energy security and sustainability in the Mekong subregion--home to 
roughly 60 million people.
    Throughout the region, USAID's Global Labor Program supports 
improved working conditions and workers' livelihoods and promotes safe 
labor migration. The program links migrant labor organizations 
throughout the Asia-Pacific region to advocate collectively for 
strengthened global and regional frameworks to protect migrant labor 
rights. USAID will support a major conference on labor migration in 
Indonesia, bringing together representatives from government, civil 
society, multilaterals and business in August 2015.
    In Cambodia, our labor program is active, focusing on providing 
technical assistance and training on policy issues and labor dispute 
resolutions to trade unions and union federations in all economic 
sectors. USAID is also supporting the Community Legal Education Center, 
a local nongovernmental organization, to promote core labor standards 
and freedom of association of workers. USAID has provided key 
assistance to facilitate collective bargaining agreements between 
companies and trade unions. For instance, over the course of a 
politically charged year post 2013 elections, USAID encouraged 
constructive dialogue between unions and the Ministry of Labor. This 
dialogue led to a reduction in violence and improved communication 
resulting in successful talks between the two parties. Ultimately, this 
resulted in an agreement for an increase in the minimum monthly wages 
for garment workers.
    USAID is also supporting a 5-year program in Cambodia to improve 
health outcomes for garment workers and their families. It focuses on 
improving the regulatory environment related to workplace health; 
improving access to and utilization of affordable quality health care 
for the garment industry workforce through private sector, host 
government and service provider engagement; and informing regional and 
global health standards improvement through a robust evaluation 
learning agenda.
                               conclusion
    Mr. Chairman, the Asia-Pacific has become a key driver of global 
politics and economic prosperity and presents tremendous promise for 
the future--if growth is inclusive and sustainable. Our continued 
engagement in the region will be critical for our own prosperity and 
security. USAID's trade capacity-building work helps to ensure the 
region follows this trajectory and contributes the type of global 
growth that lifts up the poorest of the poor, empowers the 
disenfranchised, and brings rule of law where it's needed most.
    I appreciate the opportunity to share USAID's work on trade 
capacity-building in the Asia-Pacific and look forward to hearing your 
counsel. I welcome any questions you may have.

    Senator Gardner. Thank you, Mr. Foley.
    I will begin questions. And again, I apologize. I will be 
leaving when Senator Cardin returns to take the third vote and 
then return.
    Mr. Malinowski, you mentioned in your testimony that some 
of the reforms highlighted during your testimony would not have 
happened without the prospect of the Trans-Pacific Partnership 
or the talks that are being held. What are you hearing now from 
our trade partners with the failure of the House to move 
forward in a meaningful way?
    Mr. Malinowski. All of us are hearing a tremendous amount 
of anxiety. There is a sense of doubt among many of our 
partners in the region about whether the United States is--not 
only about whether we are going to go through with TPP, but 
with respect to our overall posture in the Asia-Pacific. And I 
think as a result of that doubt, my understanding is that the 
discussions over the specific provisions that we want to see in 
TPP on labor rights, on the environment, on all of the issues 
that people are rightly concerned about are essentially--you 
know, people are waiting to see how this debate turns out. If 
there is no TPA, then these countries have far less reason to 
make the many times very painful and difficult choices we are 
asking them to make as a condition of entry into TPP. They are 
only going to take those painful steps, politically painful in 
many cases, if they know that there is a realistic prospect at 
the end of the day that this is going to work out. And that is 
in doubt right now.
    Senator Gardner. And I do apologize. We are going to have 
to take a short recess so I can go vote before they close it 
out. When Senator Cardin returns, we can resume the hearing, 
but for now, this committee will stand in recess and we will 
resume when I return or Senator Cardin returns.

[Recess.]

    Senator Cardin [presiding]. So with the consent of Senator 
Gardner, I am going to reconvene the Subcommittee on East Asia 
and The Pacific for the purposes of questioning. I know Senator 
Gardner will be back as soon as he has a chance to vote on the 
last of our rollcall votes this afternoon. There should not be 
any further interruptions beyond that.
    And I apologize for not hearing the second two witnesses, 
but let me at least start the discussion with Mr. Malinowski. 
And the other two--you are more than welcome to respond as 
well.
    I agree with you that we see progress being made on issues 
important to the United States during these trade negotiations 
with the Trans-Pacific Partnership countries. Yes, they are 
making progress on not arresting people for their conduct that 
previously would have been arrested. They are releasing people 
from prisons. They are showing some sign of legislative action. 
They are making certain commitments on moving forward with 
labor protections. They are dealing with some of the other 
issues that we have brought up.
    My question is that we sign an agreement and then it is 
much more difficult to get the continued interest of these 
countries. They have got what they want--the trade commitments. 
And enforcement is not easy. If it is not spelled out in 
specific detail under dispute settlement resolution procedures, 
good governance is very difficult to enforce. If you have a 
commitment to reduce tariffs, you know whether those tariffs 
are being collected or not collected. If you have a commitment 
that you will not require corrupt activities in order to 
participate in government procurement, it is not as easy to 
demonstrate that American companies had an honest shot at those 
issues.
    So how do you recommend that we proceed to make sure that 
the type of progress that we have seen on good governance is 
not only for the purposes of negotiating an agreement but will 
be permanent changes made to protect the way a country deals 
with its citizens?
    Mr. Malinowski. Thank you, Senator Cardin. That is the most 
important question. I would say several things.
    First of all--and maybe let us stick to Vietnam because it 
is, I think, the most challenging and important example here. 
Some of the things that we are talking about have to happen 
before TPP enters into force with respect to Vietnam. So on 
freedom of association, they have to change the law and they 
have to change it before they get the benefits of the treaty. 
And we will know when they have changed the law. We have been 
engaged in intensive conversations with them about exactly what 
that needs to mean. So it is not just a slogan, ``freedom of 
association,'' but we are bearing down on the specific details.
    Then, as you say, they have to enforce the law. And that 
enforcement becomes subject to the same dispute settlement 
mechanisms as anything else, including the commercial aspects 
of the trade agreement. Enforcement, as you said, is still hard 
even under those circumstances, as we have seen with other 
trade agreements. But will we be better off if we have the law 
changed and a provision in place to enforce it? I would argue, 
yes, much better off. Will we be better off if they continue 
down the path that they have started on in the last year under 
the spotlight of these negotiations? I would argue yes.
    We will also have other leverage in the relationship. For 
example, Vietnam is very, very eager to see the United States 
lift the existing ban on lethal arms sales, which we have very 
partially lifted, but made clear that a full lift depends on 
significant progress on human rights.
    So this will happen in stages. We have multiple forms of 
leverage. We have a high degree of commitment across every 
agency of the U.S. Government to move Vietnam, to try to 
encourage them to move in the right direction. And there are 
many people within the Vietnamese system who also, for their 
own very good reasons of national interest, wish to build a 
more open political system. And there is a synergy between what 
we want and what they want.
    So I cannot think of a better way. It is not perfect, but I 
cannot think of another strategy that gives us a better chance 
of achieving our goals.
    Senator Cardin. And I appreciate the honesty of that 
answer, and it is true that there will be dispute settlement 
provisions that will be included in, I hope, the trade 
agreement. At least that is if the TPA that passed the Senate 
and the House is ultimately signed. It is certainly in the 
language that they must, in fact, do that.
    The challenge I find with laws in countries that are ruled 
by a Communist Party is that you do not normally find the 
Communist Party written into their constitution or into their 
laws for that matter. And when you look at the constitutional 
protections, you look at the human rights that are embedded in 
their principles, they are not bad, but everything is subject 
to the Communist Party. And what concerns me is that if we have 
strong laws, laws that would enforce their commitments, that 
because of the way that a Communist system is organized, it is 
subject to an authority that is not spelled out in statute. How 
do you overcome that hurdle?
    Mr. Malinowski. It will take time, of course. You have 
identified a central problem within Vietnam and other one-party 
states.
    I have found in my experience in dealing with them that it 
is in many ways a legalistic society despite the problem that 
you have identified. So, for example, when I have met with 
senior leaders in the Vietnamese Government, including within 
essentially their secret police, and we talk about cases of 
political prisoners who have been arrested, they cite the law 
to me, and they are right on the law because the law in Vietnam 
does explicitly allow the government to arrest people for 
criticism of the Communist Party and other so-called crimes. 
The law does explicitly forbid independent trade union 
organizing. So were they to stop a strike, they would be within 
the law.
    So if we can get changes in the law, we are not all the way 
there, but when we have that argument with them and, more 
importantly, when their own civil society has that argument 
with them, the law will be on the side of the angels as against 
now when it is not on the side of the angels. So that is one 
step in what we are trying to achieve but not the full step.
    Senator Cardin. Well, I would just urge us to be as clear 
as we can in the enforcement provisions in TPP, and I would 
urge you to talk not only with our trade partners here in the 
United States in the administration but also with our trading 
partners. I must tell you I was not encouraged in talking to 
other TPP countries, where governance is not an issue as to 
their lack of interest in the good governance provisions of a 
TPP agreement. They were much more concerned about a particular 
industry or one of their issues or whether we are going to get 
an agreement--more so than the niceties of us worrying about 
good governance and human rights and anticorruption, et cetera.
    I would just tell you this is an incredible opportunity. It 
is going to be looked upon as the model moving forward, and if 
we do not get this right, it is a huge opportunity loss. And I 
do not want to put too much on your plate, but you are the 
point person in the administration that we look to that will 
raise these issues and make sure that our trade representatives 
press upon how results have to be shown.
    Mr. Tong, if I might, I want to get on to one other issue, 
and that has to do with other trade initiatives in the region 
and what impact it has on the TPP and the U.S. involvement. We 
know that there is the Regional Comprehensive Economic 
Partnership in which the ASEAN countries are trying to enter 
into agreements with Australia, China, India, Japan, New 
Zealand, and South Korea. That would certainly be a pretty 
dynamic region if they can come to an agreement on trade.
    We also know that there are bilateral free trade agreements 
in the region. We know that all the countries are actively 
engaged beyond just the TPP, although we do understand there is 
a good focus right now on what is happening with TPP in that 
region.
    There is the ASEAN Economic Community which is trying to 
become more significant on trade rules.
    Tell us where the United States currently stands as far as 
our opportunities for strategic partnerships versus other 
activities that are taking place in the region, which we are 
not part of.
    Mr. Tong. Well, thank you for that question, and I think it 
is a very astute one.
    By way of background, the United States currently has 20 
free trade agreement partners. In the past few years, there 
have been 200 such agreements reached just within the Asia-
Pacific that exclude the United States. So there are a lot of 
activity out there.
    What I would like to convey is a sense that over the past 
few years--I have been working on this for a quarter century. 
Over the past few years, the U.S. has been the one setting the 
agenda, and the momentum has been building behind our 
initiative in the Trans-Pacific Partnership. And what we risk 
if we do not maintain that momentum is dissipation of that 
momentum in the direction of others setting the agenda.
    So what happens to the United States? Well, there is the 
classic question about trade diversion to our disadvantage. If 
people are reaching tariff reduction agreements that exclude 
us, that does disadvantage the United States.
    The more important question, I believe, is with respect to 
the nontariff aspects because these agreements that are being 
reached among the nations of Asia characteristically do not 
have the kind of nontariff provisions that a high value-added, 
high-technology, sophisticated economy like the United States 
needs to see in order to fully benefit from participation in 
this region. And once those agreements are reached, the system 
tends to get locked into place, and the expectation for what 
the rules of the road will be becomes lower. And the United 
States loses its leverage to change that agenda in a more 
sophisticated way that benefits our firms and our workers by 
having these more complex and, frankly, invasive nontariff 
measures, whether it is labor rules or any of the other aspects 
of these trade agreements. So really, we need to maintain 
momentum behind the Trans-Pacific Partnership.
    Now, you mentioned the ASEAN Economic Community. That is an 
opportunity--and we want to support that because these are all 
developing economies, and their greater integration among 
themselves is less likely than some of these other agreements 
to result either in diversion to the detriment of the United 
States or a low-bar approach toward the nontariff measures. And 
so what we are doing is working with the ASEAN Economic 
Community to try and build up the nontariff aspects of what 
they are attempting to accomplish, as well as help them 
implement that agreement because that will help our firms set 
up in a regional basis and create more export opportunities for 
the United States.
    Senator Cardin. I have one followup question for you, if I 
might, Mr. Chairman, and that deals with China.
    In my conversations in the region, including with China, 
you get the impression that China looks at TPP as an effort to 
isolate China and to--for particularly the United States since 
it is the leader in the TPP--of trying to get an advantage over 
China. I try to do my best to assure them that that is not our 
desire, that we want to see China as a strong country. We want 
them to buy more of our products. We want to move forward with 
our commerce with China. In the meantime, China has reached out 
with certain trade arrangements with other countries and they 
are involved in this regional cooperation. There have been some 
rumors that they may be interested in TPP.
    Can you just share with us your view as to how you see 
China reacting to TPP and what opportunities do we have in the 
United States in regards to China?
    Mr. Tong. Certainly. A few years back, China definitely 
viewed the TPP as an aggressive American attempt to contain 
their economic space in the Asia-Pacific region. Their view of 
that has softened over time, and the reason for that is that 
they have come to understand better--not well enough yet in my 
opinion, but better--that the United States objectives for the 
region of having an open and fair system for trade and 
investment in the Asia-Pacific is something that over the long 
run would be something that China would value itself.
    A real issue is Chinese protectionism. Even as China starts 
to realize that an open system outside its borders is not such 
a bad thing, China continues to take a very protectionist 
approach toward the regulation of its own economy. And 
therefore, when it reaches bilateral agreements in particular 
with other countries, they tend to keep the bar very low both 
in terms of the amount of tariff relaxation, as well as the 
nontariff rules. And again, I am repeating myself here, but 
locking the region into a set of low-quality arrangements is to 
the detriment of the United States. Therefore, we need to 
maintain momentum behind our initiatives.
    Mr. Malinowski. If I may add to that, Senator Cardin. You 
mentioned some inklings of interest within China and the TPP. I 
would just say from my standpoint, I would be very happy if 
China were interested in the TPP because then they would have 
to meet the freedom of association requirement, and that would 
be a very good thing.
    Senator Cardin. I hope there is more than just freedom of 
association requirements.
    Mr. Malinowski. And many, many other requirements.
    Senator Cardin. Thank you very much for clarifying.
    Mr. Malinowski. As the Assistant Secretary for Human 
Rights, Democracy, and Labor----
    Senator Cardin. I am sure you read all the principal 
negotiating objectives that are included in the TPA that we 
expect are going to be complied with in the TPP agreement.
    Mr. Malinowski. Indeed.
    Senator Cardin. Thank you.
    Senator Gardner [presiding]. Thank you again for putting up 
with our vote schedule today.
    I wanted to go back to Mr. Tong in terms of following up on 
one of the questions I asked Mr. Malinowski, and that was about 
the aftermath of the House vote this week. In your statement, 
in your opening testimony, you mentioned that foreign policy 
and trade policy are closely linked. What are you hearing? What 
is the feedback you are receiving after the House aftermath of 
the vote?
    Mr. Tong. Well, I think Assistant Secretary Malinowski 
answered this accurately a moment ago in saying that the 
fundamental reaction is one of anxiety. Our 11 partners in the 
Trans-Pacific Partnership endeavor very much want this to be a 
successful initiative. They have put a lot on the line 
politically, and they have put an enormous amount of effort 
into reaching a high quality agreement. And so they are anxious 
and watching us very closely to see if the United States can 
deliver on its promise of having the capability of coming to 
closure and the trade promotion authority being that 
capability. Trade promotion authority, as you know, is Congress 
telling the administration what to achieve in the agreement in 
return for promising to consider that agreement as a whole once 
it is reached, not a promise to pass it, just a promise to 
consider it.
    With respect to the region, if you think about the 
rebalance strategy, which I think both Congress and the 
administration have internalized as an important priority for 
the United States, there is a diplomatic aspect to it. A few 
years back, we would hear from friends across the Pacific 
constantly that we were not showing up enough, and the United 
States has been showing up. We heard that they were very 
concerned and anxious about us maintaining our military 
presence, and we have both maintained and augmented our 
military presence. And they have asked us to be more engaged in 
the region economically, not just in a material sense, but in 
the sense of shaping the rules of the road for how the Asia-
Pacific economy works because they know, as was pointed out 
earlier, that only the United States has that unique commitment 
to actually emphasize in the long term issues of fairness and 
transparency and how trade investment takes place.
    So this is fundamentally part of a piece in how the United 
States expresses its aspirations and its interests in the Asia-
Pacific region. So we really cannot be successful in an overall 
sense without the economic piece.
    Senator Gardner. Thank you.
    I want to follow up, Mr. Foley, with you on that engagement 
question. In your testimony, you stated that our continued 
engagement in the region will be critical for our own 
prosperity and security. USAID's trade capacity-building work 
helps to ensure the region follows this trajectory and 
contributes to the type of global growth that lifts up the 
poorest of the poor, empowers the disenfranchised, and brings 
the rule of law where it is needed most.
    Mr. Tong mentioned the rebalance as well as part of that 
engagement.
    What percentage of the total would you estimate USAID 
currently spends on its trade capacity-building efforts in the 
Asia-Pacific region?
    Mr. Foley. Thank you for the question.
    Before I get into specifics in terms of the portfolio, just 
to add on previous comments on the rebalance and how important 
these issues are of human rights and governance and improving 
the livelihoods of people out there, our role is to help ensure 
that there is an appropriate balance within the rebalance that 
these core issues are focused on. And we do work in Vietnam in 
improving transparency and accountability. We do work in other 
countries. But what TPP and these type of trade deals allows us 
to do is to shine the spotlight even further and actually get 
the support of the reformers in these governments that we are 
working with to push deeper. So they provide us the opportunity 
to do so.
    In terms of our overall portfolio for trade capacity-
building, we work very closely with the State Department, with 
USTR, with the Department of Commerce. And so we collectively 
look at what the needs are in these different areas that we are 
working on either regionally that we do through APEC or ASEAN, 
in addition to bilaterally. And so we calibrate based on what 
the needs are. I can get you an exact percentage. I do not have 
it off hand.
    Senator Gardner. If you could give me that percentage, that 
would be fantastic, just the estimate of what we currently 
spend on trade capacity-building efforts in the Asia-Pacific 
region. I think that is important to know as we talk about the 
rebalance and if we are actually focusing the proper energy 
into the rebalance or whether we need to reenergize the 
rebalance.
    Senator Gardner. Following up on that, the countries in the 
region where these challenges are most prominent--what are 
they, and what is USAID's plan to address these challenges?
    Mr. Foley. The challenges imposed by?
    Senator Gardner. In the region when it comes to the trade 
challenges, trade barriers. And we talked about some of the 
work you are doing. What countries in the region face the most 
significant challenges and what are you doing right now?
    Mr. Foley. So our work in APEC and ASEAN is sort of the 
centerpiece of the regional trade that we are doing that works 
in a number of our countries in Southeast Asia. Looking at 
Vietnam, looking at Burma, looking at Cambodia. And so we 
address most of our trade issues regionally through 
streamlining customs through our ASEAN Single Window programs, 
and through APEC, ensuring that we reduce the costs of doing 
business in the region.
    Our bilateral work also supports our regional work, and 
that deals more with the one-to-one U.S. Government and the 
individual countries in areas like improving transparency, rule 
of law, such as we are doing in Vietnam.
    So we come at it regionally and we come at it bilaterally.
    Senator Gardner. As we negotiate the TPP and the opening 
that it creates, is USAID planning on increasing trade 
capacity-building efforts in the Asia-Pacific region? And if 
so, to what extent?
    Mr. Foley. So that is what we are in discussions right now 
about with our interagency partners, about what the needs are 
particularly around labor rights, environmental safeguards. 
What are we doing already to support. What are we doing 
regionally, bilaterally. And then based on what those needs 
are, should the agreement pass, we will then be determining 
what our role is within the interagency and then support as 
appropriate.
    Senator Gardner. Do you think efforts to continue building 
out our trade capacity-building efforts within the region would 
be set back with the failure of TPA?
    Mr. Foley. You know, I think that my colleagues at the 
State Department could probably answer broadly diplomatically 
in terms of our programs. We are doing this work whether TPP 
passes or not. This is important work that we are doing in 
building trade capacity. So we continue to do it. Would it be 
helpful to have this? Absolutely.
    Senator Gardner. Continuing, Mr. Foley, last year the 
Government Accountability Office produced an assessment of the 
agency's trade capacity-building efforts and concluded--and I 
will quote the report--``the U.S. Agency for International 
Development's 2003 trade capacity-building strategy does not 
directly guide TCB activities and parts of the strategy no 
longer reflect the current TCB environment.''
    Have you responded in any way to the GAO study, and what 
steps have you taken to update TCB strategy?
    Mr. Foley. I do not know. I will have to follow up and get 
back to you.
    Senator Gardner. If you would get back to myself and 
Senator Cardin, that would be appreciated.
    Senator Gardner. My time is up, Senator Cardin. If you 
would like anything----
    Senator Cardin. I have one more question.
    Senator Gardner. Please go ahead and we will go back and 
forth.
    Senator Cardin. Well, Mr. Foley, I want to follow up on the 
development assistance program and capacity-building for trade. 
I must tell you there are some who are pretty critical, saying 
that our aid policies were established for a developing world 
in Asia that has turned into an emerging world where you have 
economies that are getting more sophisticated and that we have 
not really changed our aid programs in Asia to reflect the 
current needs for trade capacity.
    There is also a concern, as we rebalance to Asia, that the 
total size of the foreign development assistance in that area 
is relatively small compared to the other regions and, 
therefore, you do not have the size going in. And whenever you 
try to redesign aid programs, you have political problems not 
just within the agency, but within the countries we are dealing 
with. So these are hard issues to change.
    But here we are talking about the most modern trade 
agreement, the largest trade agreement, in which a large part 
depends upon countries being capable of handling the 
commitments that they are making under this agreement, and if 
we have not focused our development assistance to make these 
modifications and changes in the country, then we are not going 
to succeed.
    So it seems to me that USAID has to take a pretty bold step 
here and be able to tell us how they plan to deal with the 
realities of the nations we are dealing with, particularly in 
TPP, but also beyond TPP, because the template here, we expect, 
will be used for other participants in TPP to have countries 
prepared to be capable of dealing with a modern trade 
agreement.
    Mr. Foley. It is a very good question, and it raises an 
issue that we grapple with in terms of our resources and how 
that is shaped. Economic governance resources for us, as well 
as democracy and governance--they are sort of part of the 
discretionary pot. They are not earmarked. They are not 
directives. They are not part of the administration-identified 
initiatives. And so it is often hard to ensure that we have 
adequate levels to support what the needs are. And so we are 
continuing to look through, as budgets are being developed and 
implemented, how we can assure that we do have appropriate 
resources to support this very critical set of issues that you 
have raised.
    Senator Cardin. Well, I am glad I identified a problem. I 
would like to have some hope of an answer here.
    You know, we adopt these policies for a developing world 
and developing countries, and there have been changes, somewhat 
dramatic changes. Vietnam today is not what it was 20 years 
ago. And we need to be prepared to change our priorities to 
meet American needs. I understand budgets are tight. Believe 
me. I would like you to have a larger budget. I really would. 
But it does mean you have to make hard decisions.
    And if what you have said here today--to this panel--that 
trade is critically important to America's strategic interests 
and economic interests and this is a critical moment with the 
TPP negotiations taking place, then I think we all have to be 
working in the same direction. And therefore, I hope that you 
will come forward with some concrete ways that will give some 
of us confidence that we can vote for a TPP knowing that there 
will be the tools available so that, in fact, particularly the 
countries of challenge will have the ability to comply with the 
commitments that Congress expects will be included in this TPP.
    Mr. Foley. We are working on it, and we will seek your 
counsel as we put forth our plans.
    Senator Cardin. Thank you.
    Senator Gardner. As you can tell, I think both Senator 
Cardin and I continue to seek answers on how well we are doing 
and what our progress is in the rebalance. And that is why I 
appreciated Senator Cardin's efforts with my office to make 
sure that we were able to include in the base bill of the State 
Department operations authorization that we just did last week 
in the markup that passed unanimously out of our committee--we 
asked that very question. Are we doing enough when it comes to 
the rebalance? What resources have we focused, and what can we 
learn from where we are today with that focus?
    And keeping in line with that same question to Mr. Tong, I 
will turn to you. Depending on how you measure it, in the 
fiscal year 2016 foreign operations request, the East Asia and 
Pacific Bureau is about 4 percent of that total, the fiscal 
year 2016 foreign operations, which basically makes it dead 
last amongst all of the bureaus for funding. Is that directing 
enough resources to make the rebalance successful?
    Mr. Tong. Boy, I am tempted to answer that question.
    Senator Gardner. We would encourage you to answer the 
question. [Laughter.]
    Mr. Tong. Well, I do not work in the East Asia Bureau now, 
so I cannot really speak to the adequacy of its budget. I will 
say that the challenges in the Asia-Pacific are enormous. 
Certainly having worked in that region over the last 25 years, 
I have never felt flush in terms of the amount of resources 
available in pursuing those objectives. As for which region 
versus which budget, I am not in a position to address that 
question.
    I would like to comment a bit on what Senator Cardin 
brought up. There was a question about the relationship between 
trade capacity-building and TPA, and I do think there is a 
linkage there, if a subtle one, which is that trade capacity-
building activities will be more successful if they are tied to 
a specific initiative such as TPP.
    I think there was also a question about bilateral versus 
regional approaches. And the regional approaches tend to be 
very efficient whether through APEC or through ASEAN or through 
a TPP framework because you have peer pressure from the 
participating economies reinforcing one another as they move 
forward in their understanding about trade policy.
    And then finally, this question about middle income 
versus--how to be providing appropriate support to middle 
income countries versus those that are most in need of poverty 
alleviation, I do think there is a question there that needs to 
be looked at both in terms of trade policy but also in trade 
capacity-building and our assistance programs. And I look 
forward to working with USAID on that question.
    Senator Gardner. Thank you, Mr. Tong.
    Shifting to the Asian Infrastructure and Investment Bank, 
or AIIB, I think 56-some nations are now a part of the AIIB, 
including some of our closest allies. There are people who are 
very concerned about the transparency, accountability of the 
AIIB. They talk about rules and governance that remain unclear 
when it comes to the AIIB. But when the United States expressed 
strong reservations, we had a number of allies that went ahead 
to become a part of it.
    Why do you think they ultimately decided to join the AIIB 
despite the reservations by the United States?
    Mr. Tong. I think that the nations that have volunteered to 
negotiate--it is still not yet launched, but negotiate the 
terms of the AIIB to get under Chinese leadership have 
identified an opportunity for themselves to participate in 
something which may provide additional funding to them or in 
cooperation with them to the very important question of 
infrastructure financing in the Asia-Pacific.
    The United States approach to this question has been less 
clear than it should have been from the beginning. The 
President made a very clear statement on our approach toward 
this emerging institution in Brisbane last year, but it did not 
get much public attention, and we should have amplified it 
more.
    The fundamental view of the administration toward this 
emerging organization is that it both presents an opportunity, 
as well as a challenge. There is an opportunity in that there 
may be more funding available to this question of 
infrastructure financing, which is a very legitimate demand or 
concern that there be more funds available. The challenge is 
that with any new institution, that it do its business in a way 
that actually reinforces the best practices in the region 
rather than undermines them.
    And so from the United States approach, we have been trying 
to communicate our concerns, questions, cautions to the 
participants in the initiative both directly with China as the 
leader of the initiative, as well as with other participants. 
For example, when I was in Beijing a couple weeks ago, I met 
with the Secretary General of the design part of this 
institution to discuss through some of the ways that they are 
answering all of the concerns that are coming from the United 
States and other partners. And so we need to continue to engage 
to express in our unique American leadership role as, in a way, 
custodians of the global financial system and the global 
development policy apparatus that we really want this AIIB 
organization to make a positive contribution. And so we will 
continue to speak with them on this.
    The other thing that we need to keep in mind is that the 
amount of cash being brought to the problem by this new 
institution is just a supplement of existing organizations, and 
even with those existing organizations, plus the AIIB, their 
resources will fall far short of the actual demand for 
infrastructure build-out in the Asia-Pacific region. And so 
really the more fundamental challenge is designing good 
projects and getting the private sector engaged, including the 
U.S. private sector, in meeting this demand.
    Senator Gardner. And I think that is the interesting point 
that you make because talking about our unclear reaction or I 
think as you said it, we were less clear than we should have 
been in response to the AIIB, talking about the amount of 
investments that the AIIB will be making in terms of falling 
short of real needs. Should the United States have been more 
assertive in its efforts to create a viable alternative to the 
AIIB? Should the administration have put forward a viable 
alternative, or should we have worked to improve our existing 
multilateral institutions like the Asian Development Bank? What 
should have been the response?
    Mr. Tong. We have been working with the Asian Development 
Bank and the World Bank to nudge them, encourage them to be 
more efficient and more effective in the infrastructure space. 
They have other priorities as well in poverty alleviation and 
health and the like, and resources are finite in these 
questions. But you identify a very important channel for us to 
express our desires in this, which is the multilateral 
development banks.
    Another is our own efforts through the Ex-Im Bank, OPIC, 
the Trade and Development Agency to help support American 
business and developing economies link up in creating 
infrastructure solutions. I do not have a new game plan for you 
or an alternative to the Chinese approach led by the United 
States, but rather, I think we just need to do what we have 
been doing, do more of it, and continue to try and do it 
better.
    Senator Gardner. Thank you.
    And, Senator Cardin, if you would like to jump in.
    Senator Cardin. I have no further questions. I found this 
discussion to be very helpful, and I know we all share the same 
values of what we are trying to achieve. I just think that 
President Obama is committed to a rebalance to Asia.
    Senator Gardner is correct. I share a concern that we 
understand what that really means and whether we are devoting 
the adequate resources to it because I think for a long time 
the East Asia and Pacific Bureau did not get the same 
attention, same resources in all of the different areas, 
including the attention of the political structure of America, 
including the size of its budget within the State Department, 
including the programs under USAID, including some who received 
grants under the major initiatives. You look at the number of 
countries in Asia, a rebalance to me means that because of the 
importance, because of the growth, that we are going to 
evaluate how we can do things more effectively in that region. 
Some of it means reallocating resources, but others mean 
changing programs to meet the current needs. And clearly the 
Trans-Pacific Partnership is part of that strategy. I know we 
are moving in that direction, but I do think it is important 
that we have a coordinated effort and that Congress understand 
that, the American people understand that.
    Senator Gardner. Thank you.
    And we have another hearing that we are going to be going 
to this afternoon. So we do appreciate the opportunity for 
everyone to participate in this afternoon's hearing.
    And with that, I think if there is no further business, we 
can conclude this hearing. So thank you for your testimonies 
today. Thank you to the witnesses for appearing before us today 
and for providing us your testimony and responses.
    For the information of members, the record will remain open 
until the close of business this Friday, including for members 
to submit questions for the record. We ask the witnesses to 
respond as promptly as possible. Your response will also be 
made a part of the record.
    With the thanks of this committee, the hearing is now 
adjourned. Thank you very much for your time and testimony 
today and your willingness to put up with our vote schedule. 
The committee is adjourned.
    [Whereupon, at 4:00 p.m., the hearing was adjourned.]

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