[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]






                           THE FUTURE OF APEC

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON ASIA, THE PACIFIC AND
                         THE GLOBAL ENVIRONMENT

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 14, 2009

                               __________

                           Serial No. 111-51

                               __________

        Printed for the use of the Committee on Foreign Affairs

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

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                      COMMITTEE ON FOREIGN AFFAIRS

                 HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York           ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American      CHRISTOPHER H. SMITH, New Jersey
    Samoa                            DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey          ELTON GALLEGLY, California
BRAD SHERMAN, California             DANA ROHRABACHER, California
ROBERT WEXLER, Florida               DONALD A. MANZULLO, Illinois
ELIOT L. ENGEL, New York             EDWARD R. ROYCE, California
BILL DELAHUNT, Massachusetts         RON PAUL, Texas
GREGORY W. MEEKS, New York           JEFF FLAKE, Arizona
DIANE E. WATSON, California          MIKE PENCE, Indiana
RUSS CARNAHAN, Missouri              JOE WILSON, South Carolina
ALBIO SIRES, New Jersey              JOHN BOOZMAN, Arkansas
GERALD E. CONNOLLY, Virginia         J. GRESHAM BARRETT, South Carolina
MICHAEL E. McMAHON, New York         CONNIE MACK, Florida
JOHN S. TANNER, Tennessee            JEFF FORTENBERRY, Nebraska
GENE GREEN, Texas                    MICHAEL T. McCAUL, Texas
LYNN WOOLSEY, California             TED POE, Texas
SHEILA JACKSON LEE, Texas            BOB INGLIS, South Carolina
BARBARA LEE, California              GUS BILIRAKIS, Florida
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
                   Richard J. Kessler, Staff Director
                Yleem Poblete, Republican Staff Director
                                 ------                                

      Subcommittee on Asia, the Pacific and the Global Environment

            ENI F.H. FALEOMAVAEGA, American Samoa, Chairman
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
DIANE E. WATSON, California          BOB INGLIS, South Carolina
MIKE ROSS, Arkansas                  DANA ROHRABACHER, California
BRAD SHERMAN, California             EDWARD R. ROYCE, California
ELIOT L. ENGEL, New York             JEFF FLAKE, Arizona
GREGORY W. MEEKS, New York
               Lisa Williams, Subcommittee Staff Director
           Daniel Bob, Subcommittee Professional Staff Member
             Nien Su, Republican Professional Staff Member
                       Vili Lei, Staff Associate






                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Kurt Tong, Acting U.S. Senior Official to APEC, Bureau of 
  East Asian and Pacific Affairs, U.S. Department of State.......    21
Ms. Wendy Cutler, Assistant United States Trade Representative 
  for Japan, Korea and APEC Affairs, Office of the United States 
  Trade Representative...........................................    28

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Eni F.H. Faleomavaega, a Representative in Congress 
  from American Samoa, and Chairman, Subcommittee on Asia, the 
  Pacific and the Global Environment: Prepared statement.........     4
The Honorable Donald A. Manzullo, a Representative in Congress 
  from the State of Illinois: Prepared statement.................     7
The Honorable Diane E. Watson, a Representative in Congress from 
  the State of California: Prepared statement....................    13
Mr. Kurt Tong: Prepared statement................................    24
Ms. Wendy Cutler: Prepared statement.............................    31

                                APPENDIX

Hearing notice...................................................    52
Hearing minutes..................................................    53

 
                           THE FUTURE OF APEC

                              ----------                              


                      WEDNESDAY, OCTOBER 14, 2009

              House of Representatives,    
              Subcommittee on Asia, the Pacific    
                            and the Global Environment,    
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:13 p.m., in 
room 2172, Rayburn House Office Building, Hon. Eni F.H. 
Faleomavaega (chairman of the subcommittee) presiding.
    Mr. Faleomavaega. At this time, I would like to call the 
subcommittee hearing to order.
    And I would like to have this opportunity for my opening 
statement, and then will turn to my good friend and 
distinguished colleague, the ranking member of our 
subcommittee, Mr. Manzullo, for his opening statement.
    In consultation with my good friend, the ranking member of 
the subcommittee, we decided to hold this subcommittee hearing 
concerning APEC and reference to the future of APEC and in 
anticipation of the upcoming APEC meeting in the course of the 
next month.
    The Asia-Pacific Cooperation Forum will hold its annual 
leaders' meeting next month in Singapore. The event will mark 
the 20th anniversary of the advent of the organization, which 
was created to reflect and enhance the economic dynamism and 
growing ties among the countries of the Pacific Rim.
    APEC's 21-member economies currently encompass 40 percent 
of the world's population, 45 percent of its trade, 55 percent 
of its gross domestic product, and 60 percent of the market for 
U.S. exports. A large proportion of those exports, moreover, 
are in high value-added products and services that produce good 
jobs and good wages for American workers.
    APEC is also the only significant regional economic 
organization that includes the United States. Indeed, since its 
inception, APEC has been central to U.S. efforts to liberalize 
trade and enhance economic growth. And with the United States 
hosting APEC in 2011, we will soon take the lead in forging the 
organization's agenda. U.S. leadership cannot come at a more 
important time. I say that because APEC has not yet fully lived 
up to its potential, at least as envisioned by those who 
launched the organization.
    At the 1994 leaders' meeting in Indonesia, APEC released 
its Declaration of Common Resolve, better known as the Bogor 
Declaration. In that seminal document, the organization 
committed itself to complete the achievement of free and open 
trade and investment in the Asia Pacific no later than the year 
2020.
    The pace of implementation would take into account 
differing levels of economic development among APEC economies, 
with the industrialized economies achieving the goal of free 
and open trade and investment no later than the year 2010 and 
developing economies no later than the year 2020.
    At every leaders' meeting since 1994, APEC has reaffirmed 
its commitment to the ambitious goals of the Bogor Declaration. 
Despite those annual gestures, however, it appears almost 
certain that APEC will not--will not--meet its 2010 target. The 
impending failure reflects, at least in part, APEC's operating 
principle of consensus. While consensus can be a real strength 
in tackling some of the most difficult issues, it can also 
cause delay.
    I hope that in Singapore APEC once again commits itself to 
the Bogor goals and that, in following years, under the 
leadership of Japan in 2010 and the United States in 2011, it 
charts a clear and speedy pathway toward achievement.
    As the Congressional Research Service has noted, and I 
quote:

        ``The underlying notion of APEC's approach to trade and 
        investment liberalization is that voluntary commitments 
        are easier to achieve and more likely to be implemented 
        than obligatory commitments derived from agreements 
        negotiated by more traditional and potentially 
        confrontational methods. By establishing a common 
        vision or goal for the organization, the belief is that 
        future APEC discussions can make more rapid progress 
        toward the organization's goals by seeking consensus 
        views with which members are willing to comply.''

    Realizing the Bogor Declaration is especially important for 
the United States because of a proliferation of regional 
organizations that do not include the United States since the 
creation of APEC. For example, the East Asian Summit, ASEAN+3, 
ASEAN+6, and the Shanghai Cooperation Organization were all 
initiated without United States membership. The new government 
in Japan, moreover, has proposed the creation of an East Asian 
Community that will similarly exclude the United States.
    The member economies of APEC have also established more 
than 150 bilateral and plurilateral free-trade agreements among 
themselves. Yet, only five of these FTAs include the United 
States. And labor and environment and other critical provisions 
in most of them are far less effective than they should be. We 
would all be better off if we used APEC more aggressively to 
transform this ``noodle bowl'' of agreements into an APEC-wide 
Free-Trade Area of the Asian Pacific.
    Beyond the trade and investment issues at its core, APEC 
also provides its members a chance to engage on other matters 
of importance, from climate change and human security to 
disaster management. This year, for example, APEC will seek to 
further the G-20 response to the global financial crisis.
    And on the way to and from APEC, America's first Pacific 
President will have the chance to visit Japan, China, and Korea 
for summit meetings. As I have said before, we now have the 
first President who knows where the Pacific Ocean is located.
    In my view, APEC remains vital to America's interests in 
the Pacific Rim. Today's witnesses are the U.S. Government's 
two leading figures in the formulation of American 
participation in APEC. I look forward to working with them and 
hearing their comments in this afternoon's hearing.
    I now would like to turn the time to my good friend, the 
distinguished ranking member, the gentleman from Illinois, for 
his comments.
    [The prepared statement of Mr. Faleomavaega follows:]
    
    
    
    Mr. Manzullo. Thank you, Mr. Chairman.
    First of all, I want to express our deepest condolences to 
you and the good people of American Samoa for the immense pain 
and suffering caused by the recent Pacific tsunami. Obviously, 
our thoughts and prayers are with the fine people there. And we 
sincerely hope the road to recovery can begin as soon as 
possible.
    Thank you for the opportunity to have this hearing. We have 
a situation where APEC members account for almost half of all 
international trade. They have a population of 2.7 billion 
people. This is obviously an extraordinarily large market for 
American good and services.
    The 16th Congressional District, which I have the 
opportunity to represent, has in excess of 2,000 manufacturers, 
making everything from paper boxes to iron foundries and metal 
stamping to custom gears. One out of four people in the largest 
city of Rockford, Illinois, are directly involved in 
manufacturing. So strengthening APEC is an important part of 
enhancing U.S. exports. In fact, last year, Illinois companies 
exported more than $33.5 billion worth of goods.
    Mr. Chairman, I look forward to the hearing. And I would 
ask that the rest of my opening statement be made part of the 
record.
    Mr. Faleomavaega. Without objection.
    [The prepared statement of Mr. Manzullo follows:]
    
    
    
    Mr. Faleomavaega. I also would like to give an opportunity 
to our other distinguished colleagues who are with us, if they 
have an opening statement.
    Mr. Sherman. Yes, Mr. Chairman?
    Mr. Faleomavaega. The gentleman from California, Mr. 
Sherman.
    Mr. Sherman. First, I want to join the gentleman from 
Illinois in expressing my concern and solidarity with the 
people of American Samoa at this time. Just last week, I had 
the opportunity to attend a meeting called by the subcommittee 
on the condition in American Samoa, even knowing that the 
chairman had critical things to do in American Samoa and could 
not attend.
    The second point I would like to make is that the United 
States will be hosting the APEC conference in 2011, and I hope 
that we will host it in Los Angeles. Not only do the ports of 
Los Angeles and Long Beach handle over 40 percent of all cargo 
containers entering the United States, but they handle close to 
80 percent of the cargo containers entering or leaving the 
United States going to the Pacific and going to the APEC 
region. I don't think any other place in the United States 
comes close.
    Finally, I would like to comment about our trade with the 
APEC region, which I hope you will not hold against my home 
city, but I am very concerned about the trade deficit we have 
with that region. I do not believe that that trade deficit 
stems from a fair application of free-trade principles, and nor 
do I think that we can achieve free trade by closing our eyes 
to the actions taken by others and refusing to take any 
aggressive action on ourselves and then turning to anyone who 
does want to be aggressive and say, ``Oh, you just don't 
understand the benefits of free trade.'' I do understand the 
benefits of free trade. We do not have trade with many of the 
members of APEC.
    I would hope that you, before your next interaction with 
the APEC representatives from China, will take a look at the 
hearing that Ranking Member Royce and I of the Terrorism, 
Nonproliferation, and Trade Subcommittee did that focused on 
the outrageous and illegal actions taken by China that affect 
those Americans doing business in China. I hope that you would 
look at the field hearings done by the full committee, held in 
the San Fernando Valley, where we focused on the gross abuse of 
intellectual property in China.
    And so, not only do we have this enormous trade deficit 
with the region, and with China in particular, but it stems 
again and again and again, when you peel away the veneer, from 
unfair practices.
    The best illustration of this, though, is the fact that, 
because of the Chinese system, we can never know what happens. 
Because here in the United States, if the Federal Government is 
going to affect purchase decisions, it does so only through 
printed regulations and statutes and tariff statues, et cetera. 
Whereas, in China, the government can control the decision of 
businesses without ever publishing anything. And then people 
can come to us and say, ``Oh, it is a level playing field.'' It 
is a level playing field if you ignore every unpublished 
document and every unpublished oral statement.
    But if I call somebody in my district and say, ``Hi, I am a 
Congressman; I think you should buy the American product, not 
the Chinese product,'' they will either giggle at me or they 
will hold a press conference saying, ``Congressman trying to 
intimidate local business.'' Since I have no capacity to 
intimidate them, I think they would giggle.
    Imagine a Chinese company. They can be instructed by the 
government not to buy, because the government sits on their 
board. But if that isn't sufficient, they can call an 
individual business person and say, ``Sir, we know you won't 
buy the American product because we look at your curriculum 
vitae and we see you are well-educated. We would hate to think 
you need re-education.''
    So any oral statement like this, we can see the results of. 
We can never bring any action because it is an oral statement 
over the phone and we never know what happened. What we do know 
is that the results are horrendous for the American people and 
are getting more horrendous every year.
    I know, during this recession, the degree to which we are 
being destroyed is not at the same high rate as 2 years ago, 
but every year we pile up an international debt that is 
enormous. And I hope that APEC is an opportunity for us to 
demand a system that gives us balanced trade. And the only way 
you are going to do that is to threaten or actually deny access 
to the U.S. market to those who use both detectable and 
nondetectable methodologies to give us unbalanced results.
    So I hope that you will take a look at those two hearings, 
and I believe I have one other that I will send to you. You 
have a lot of reading ahead.
    Thank you very much.
    Mr. Faleomavaega. I thank the gentleman for his comments.
    And, at this time, I would like to turn the time to the 
gentleman from California, Mr. Royce, for his opening 
statement.
    Mr. Royce. Thank you, Mr. Chairman.
    And I want to welcome Mr. Tong. I very much appreciated 
your availability to Members of Congress when the American 
journalists were held in North Korea for those many months. We 
appreciate that. Thankfully, that has been resolved.
    As we will hear from our witnesses today, APEC is certainly 
looming in terms of importance to the United States. It is the 
only economic group where we have a seat at the table in one of 
the world's most important economic regions. Five of our top 
seven world trading partners are APEC members, so, certainly, 
this forum holds great importance for the United States.
    But if we are going to be taken seriously at APEC, it would 
be prudent not to ignore the second-largest trade agreement 
ever negotiated by the United States, and that is the Korea-
U.S. Free Trade Agreement. Both governments, not to mention one 
of our witnesses, labored for months to get this deal done. And 
I think turning our backs on KORUS, as we are, is a huge slight 
to our ally, to South Korea, not to mention a missed economic 
opportunity.
    By all measures, the trade agreement negotiated by the past 
administration and the Roh government helps both countries. The 
United States gets better access to South Korean markets; South 
Korea gets assurances that its favorable U.S. market access 
will continue.
    By one estimate, the KORUS FTA would increase trade $20 
billion--that is from $80 billion to $100 billion--between our 
two countries. And still there are few amongst the majority 
that are calling for this agreement to be ratified; fewer still 
among the leadership.
    Despite these sentiments in Congress, Asia is changing. 
China, not the United States, is now South Korea's largest 
export market. The European Union has completed a free-trade 
agreement of its own with South Korea. And India recently 
signed a trade agreement with South Korea.
    And, in these agreements, I think the upshot is the United 
States loses. And what could be a win-win for the United States 
in South Korea instead has become a situation where South Korea 
is beginning to negotiate outside the U.S. market in terms of 
trade liberalization.
    And I would hope that during your opening testimony or 
maybe later in your discussions you could comment on another 
thought. And that is, it is my understanding there have been 
over 500 public comments posted on the USTR Web site regarding 
the KORUS FTA. And I would just like to ask the witnesses what 
has been the general nature of these comments, have they 
largely been in support, and how does your office plan on 
responding to these comments?
    And lastly, on the subject of China, I would just close 
with the observation that I think that our own Commerce 
Department has done an awful lot to lure United States 
investors into China, where they have subsequently lost their 
shirts. I can't tell you how many times those of us in southern 
California have heard about the lack of rule of law in Shanghai 
and Beijing and the consequences to U.S. investors. And I wish 
that these cheerleading sessions done by the Commerce 
Department weren't undertaken, because the upshot is the loss 
for investors. And, certainly, we are not teaching the rule of 
law to China.
    I would suggest that an investor warning system, the likes 
of which myself and Congressman Brad Sherman, my colleague from 
California, have laid out the case for, would be championed by 
those who wish to see some change of conduct. Because the 
conduct that we are seeing out of China in no way reflects a 
nation that intends to embark upon adopting the rule of law. 
And the consequences are that they are undermining trade 
agreements around the world. Frankly, if they are allowed to 
get away with it, they are going to wreck the WTO.
    And this requires action on our part when China violates 
the basic norms of international commerce and international 
law. And I think it is imperative that the U.S. begin to call 
them on it. And it is equally important that we quit the 
subsidization or the cheerleading in order to entice more 
United States investment into China when the consequences are 
so injurious.
    I am familiar with different reports that have been done 
around the world, in terms of return on investment in China. 
Things look rosy until you try to get your money out. And I 
can't tell you how many times we have heard cases of the basic 
contracts being changed. And if you attempt to defend yourself 
in Shanghai or in Beijing in any of these contracts and you are 
an American company or an American investor, it is a farce.
    So those would be my observations. And I thank the chairman 
again for holding this hearing today.
    Mr. Faleomavaega. I thank the gentleman for his comments.
    And now the gentlelady from the State of California also, 
for her opening statement, Ms. Watson.
    Ms. Watson. Thank you, Mr. Chairman. And welcome back. And 
I do hope that the island nation that you come from is faring 
better than they were a few days ago. We certainly wish you 
well. And I think we sent down a lot of help and assistance, 
and you were there guiding that. So, thank you.
    In 1994, in Bogor, Indonesia, APEC members agreed to 
voluntarily move forward free and open trade and investment in 
the Asia Pacific region by 2010 for developed nations and 2020 
for developing nations. This vital 21-member organization 
accounts for 55 percent of the world's gross domestic product, 
45 percent of global trade, 40 percent of the world's 
population, and among America's top trade partners.
    However, APEC faces challenges. There are currently 70 
bilateral and multilateral trade agreements being negotiated, 
in addition to the 210 trade agreements that already exist. The 
United States has been largely excluded from bilateral and 
multilateral trade agreements in the Asia Pacific region. 
Several Asia-only organizations have been established. The ways 
in which the U.S. can participate meaningfully in the region 
has been reduced.
    As markets in Asia and the Pacific continue to grow, the 
demand for U.S. products will only grow, making APEC member 
markets and APEC a critical part of America's economic 
recovery. So I, too, want to be sure that we get to the time to 
do some agreements with, particularly, South Korea.
    We were there a few months ago, and we hope to be able to 
get back together with them and come up with some kind of free-
trade agreement. They are urging us to sit down and talk about 
it. As you know, we have not really had time, in terms of the 
priorities we have been dealing with, to think about our trade 
agreements.
    So I look forward to hearing from our witnesses today, and 
I do hope this subject will come up again in your subcommittee, 
Mr. Chairman. Thank you.
    Mr. Faleomavaega. I thank the gentlelady.
    There seems to be a predominance of California members 
participating.
    Ms. Watson. I wonder why. I have all of Korea Town in my--
--
    [The prepared statement of Ms. Watson follows:]
    
    
    

    Mr. Faleomavaega. But I again would like to give the 
opportunity for another gentleman from California for his 
opening statement, Mr. Rohrabacher.
    Mr. Rohrabacher. The ``Pacific'' part of the definition 
there in the title is very applicable, and that is why you see 
more Californians.
    Let me just note that, first and foremost, I would like to 
identify myself with remarks dealing with concern about the 
people of Samoa and the terrible tragedy that they have 
suffered with the tsunami wave. Let us remember that at least 
half of Samoa--there is an American Samoa and a non-American 
Samoa--but at least half there are Americans. But our hearts go 
out to them, whether they are American Samoans or non-American. 
They suffered a great tragedy.
    I remember visiting the islands with you, Mr. Chairman. 
Such wonderful people. And such a sad thing that they have had 
to go through such turmoil in their lives and loss of family 
and places to work, et cetera. We need to do everything we can 
to stick by them and to try to help them every bit as much as 
what we did to help the people of New Orleans, for example, 
when they suffered a natural disaster.
    So my heart goes out to them, and I want to put that on the 
record.
    About some of the points that have been made, I find myself 
in great consternation when I have to agree almost totally with 
everything my Democrat colleague, Brad Sherman, said in his 
opening statement. But I find his remarks and the remarks that 
were made by my friend, Mr. Royce, to be especially poignant 
and things that we should pay attention to.
    My district includes both the ports of Los Angeles and Long 
Beach. And, as we know, such a huge percentage of our 
international trade comes through those ports. Unfortunately, 
what we are talking about is 10 percent of all the containers 
that go through the ports are going out of the ports, exporting 
something that is an American product. Ninety percent is what 
is coming in, especially coming in from the Asia Pacific 
region, especially from China.
    And so I would suggest that that intolerable situation 
cannot be permitted to go on. The fact that we have been 
unwilling to negotiate the type of trade arrangements that 
would be mutually beneficial, rather than a transfer of wealth 
and knowledge and technology and investment, especially to 
China, speaks very poorly of our Government. Our Government has 
not been representing the interests of the American people.
    And what we have had, then, is a huge transfer of wealth 
and power, especially to China, at a time when China has not 
had one bit of liberalization of their political system. It is 
still the world's worst human rights abuser. Yet we permit this 
type of unfair transfer of wealth and trade and power to China 
at the expense of the American people. Over a 10-year period, 
that amounts to about $1 trillion of wealth transfer. There is 
no excuse for that.
    Who is watching out for the American people? It is supposed 
to be us. And if we are not doing it and we are permitting that 
type of scenario to continue, yes, the American people will 
rise in a righteous anger and a justified anger that they are 
not being represented by their own government; that 90 percent 
of the containers coming through the ports are coming in, only 
10 percent are going out.
    That is after we have permitted the trade policies of China 
to thwart American products, but encourage Americans to 
transfer capital and investment to that country so that they 
can manufacture those items there instead of having to import 
them from our country. And then they end up exporting those 
items to our country. It is a double insult.
    There are some real problems. We are going through some 
major changes. This great economic crisis that we are suffering 
will lead to dramatic changes in policy because the American 
people will demand it. And those on the other side of ``Lake 
Pacific'' have to understand government here is going to start 
changing its attitude toward the things we have been willing to 
accept in the past, because our people will not tolerate a 
major economic decline and suffering here while we permit 
policies to exist that are unfair to us and lead to this major 
transfer of wealth.
    With that said, Mr. Chairman, I am looking forward to the 
testimony, hearing more details. Thank you very much.
    Mr. Faleomavaega. I thank the gentleman from California for 
his comments.
    First of all, I just want to note for the record that I 
deeply appreciate the sentiments and the concerns of my 
colleagues on the tragic disaster that occurred in my district 
recently.
    We had an earthquake that took place approximately 120 
miles south of Samoa. It was on the Tonga Trench. And the 
earthquake measured 8.3 on the Richter scale, producing a 
shockwave that traveled about 500 miles an hour.
    And what made this disaster so unique was the fact that, 
for a period of 3 or 4 minutes, the earthquake caused a lot of 
tremors and shaking on the islands in the surrounding area, but 
it was only a matter of minutes, 5 or 10 minutes, that 20-foot 
tidal waves showed up.
    I have seen tidal waves before in my life, and usually what 
happens is the water recedes, leaving the shorelines and the 
reefs totally dry. And sometimes you get a mistaken notion; you 
see fish flipping all over the place, thinking that it is okay 
to start picking up the fish, when, in fact, that is when the 
tidal wave is coming.
    And the most tragic sense is that there was just simply no 
way that anybody could properly prepare for it. It is not like 
preparing for a hurricane or a typhoon that you anticipate in a 
matter of hours. This took place in a matter of 15 minutes: The 
earthquake in 3 or 4 minutes, and then 7 or 8 minutes later the 
tidal wave shows up.
    This is what made it very, I say, unique: Because I think 
it was because of the distance. It was such a short distance 
between where the epicenter of where the earthquake occurred 
and where the Samoan Islands are.
    At any rate, I do want to deeply thank my colleagues for 
their expressions of concern. My people are in good spirits. I 
have so many different stories. I have had to attend several 
funerals in the process.
    But one story that I thought was very interesting: We had 
one of the 75 Peace Corps volunteers that came from the United 
States. One gentleman came up to me and said, ``You know, what 
is really unusual about your people, we are here supposedly to 
help you, and instead your people ask me if I need food, if I 
need water, if I need anything, so that they could take care of 
us rather than the volunteers taking care of the people.''
    But that is the nature of the Samoan people and their 
culture, wanting to make sure that, regardless of what happens 
to them, they will always be concerned for their neighbor and 
people who have been so kind to come and to render assistance 
and offer help for this.
    And I do want to thank the President for his declaration on 
the area, and that the FEMA officials and various Federal 
agencies are there to give assistance. I do deeply appreciate 
the prayers and the faith of the American people.
    And, as I have said earlier in my statement on the floor--
it is the Chinese proverb--there are many acquaintances but 
very few friends. And I do count my colleagues truly as friends 
when the chips are down. And I can certainly also appreciate 
when tragedies like this happen in other Members' districts, 
and I can feel their pain and share their suffering and can 
understand that life goes on. And I deeply appreciate your 
comments and your expressions of concern.
    For our hearing, we have two distinguished officials from 
the administration. And I deeply appreciate your taking the 
time for coming to testify before our subcommittee.
    We have with us Mr. Kurt Tong, who is the acting U.S. 
senior official for APEC, managing all aspects of U.S. 
participation in that organization. Currently, he is the 
director of Korean affairs for the Department of State, where 
he is responsible for coordinating U.S. relations with both the 
Republic of Korea and the Democratic People's Republic of 
Korea.
    Previously, he served as director of Asian economic affairs 
at the National Security Council from 2006 to 2008. Prior to 
that, he served as minister-counselor for economic affairs at 
the U.S. Embassy in Seoul where he promoted U.S.-Korea 
relations in the area of economics and trade policy and was 
involved in the launch of the free-trade agreement negotiations 
between the United States and South Korea.
    Before arriving in Seoul, Mr. Tong was counselor for 
environmental, science, and health affairs at the U.S. Embassy 
in Beijing from 2000 to 2003. He was a first secretary, 
covering macroeconomics and finance at the U.S. Embassy in 
Tokyo, and also a visiting scholar at Tokyo University. His 
early service experience included work at the Office of 
Japanese Affairs at the State Department.
    Mr. Tong holds a bachelor's degree, magna cum laude, from 
the Woodrow Wilson School of Public and International Affairs 
at Princeton University. He also studied graduate-level 
economics at the U.S. Foreign Service Institute in Washington, 
DC.
    The gentleman is fluent in both Japanese and Mandarin, is a 
member of the Senior Foreign Service and a recipient of the 
2005 Herbert Salzman Award for Excellence in International 
Economic Performance awarded by the State Department for 
outstanding contributions in advancing U.S. international 
relations in the economic field.
    With us also is the gentlelady, Wendy Cutler, who currently 
serves as Assistant U.S. Trade Representative for Japan, Korea, 
and APEC affairs. Ms. Cutler became Assistant U.S. Trade 
Representative for Japan, Korea, and APEC affairs in the Office 
of U.S. Trade Representative in June 2004.
    In this capacity, she is responsible for developing and 
implementing U.S. trade policies toward Japan and Korea. In 
addition, she is responsible for developing and implementing 
the United States trade and investment agenda in the Asia 
Pacific Economic Cooperation forum.
    Since joining USTR in 1988, Ms. Cutler has held numerous 
positions, including assistant U.S. trade representative for 
North Asian affairs, as well as for services, investment, and 
intellectual property. She was the chief U.S. negotiator for 
the U.S.-Korea Free Trade Agreement, which was signed on June 
30, 2007.
    She also negotiated bilateral agreements on a wide range of 
sectoral issues, including telecommunications, insurance, and 
semiconductors. She has extensive multilateral negotiating 
experience as a U.S. negotiator for the 1997 WTO Financial 
Services Agreement and the Uruguay Round Agreements on Rules of 
Origin and Import Licensing.
    Ms. Cutler received her master's degree in foreign service 
from Georgetown University and her bachelor's from George 
Washington University.
    So we are deeply appreciative to both of you for being 
here.
    I just want to note a basic observation about APEC. It is 
my understanding two basic things that come out of the 
organization: One, it was never a formalized organization to 
the extent that it is structured like you would a WTO or 
others. It was more of, really, consultations. Whatever 
principles that we agreed upon in the Bogor, Indonesia, 
declaration, the principles that were outlined there for 2010 
and 2020, again, were just principles, but it really bore no 
enforcement mechanism that nations had to comply.
    But one positive aspect about APEC, according to my 
understanding, is that it was more of a forum which allowed 
member states or heads of state to conduct side meetings or 
agreements and whatever when they had the meetings.
    I noticed that when we had the APEC meeting in Australia, 
it was a disappointment to some of the Members when our 
President was there and then all of a sudden he left quickly 
without waiting there for the time that the meetings took place 
with the other countries. And there was a disappointment in 
other countries that our President had to leave so suddenly 
without being there for the extent of the meetings that took 
place in Australia. And I suspect that our President will be 
going to Singapore as a participant on this APEC meeting.
    With that, the committee would like to hear the testimonies 
of our two distinguished witnesses.
    Mr. Tong, would you like to begin?

  STATEMENT OF MR. KURT TONG, ACTING U.S. SENIOR OFFICIAL TO 
APEC, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT 
                            OF STATE

    Mr. Tong. Thank you very much. I have submitted some 
written testimony.
    Mr. Faleomavaega. Without objection. And any other related 
materials both of you submit will be made part of the record.
    Mr. Tong. Thank you very much.
    Thank you, Mr. Chairman, Representative Manzullo, and 
members of the subcommittee. It is an honor to appear before 
you today, along with my colleague and friend, Wendy Cutler of 
USTR, to talk about the Asia Pacific Economic Cooperation 
Forum, or APEC.
    One month from now, President Obama will make his first 
trip to Asia since taking office and attend his first APEC 
leaders' meeting in Singapore. The meeting will mark APEC's 
20th anniversary, as well as the beginning of an important 2-
year period for U.S. economic relations with the Asia Pacific, 
one that starts with Japan hosting APEC next year and 
culminates with the United States hosting APEC in 2011.
    Hosting APEC will be a tremendous opportunity for the 
United States to promote U.S. business and investment 
opportunities which will benefit American workers, farmers, and 
businesses of all sizes. It will also be an important 
opportunity for the United States to define a new 21st-century 
economic policy agenda for the Asia Pacific region.
    I would like to discuss with you today why APEC is such a 
valuable asset to the United States and what we envision for 
APEC in the years ahead.
    APEC is strategically important to the United States 
because it is the premier venue for economic engagement with 
the Asia Pacific region. The 21 APEC members account for 55 
percent of world gross domestic product, 45 percent of global 
trade, and 40 percent of the world's population. Sixty percent 
of U.S. goods exports go to APEC economies. Five of America's 
top seven trading partners are APEC members.
    APEC's role is particularly important in the current 
economic environment. Although nations on both sides of the 
Pacific have taken individual steps to respond to the economic 
crisis, President Obama has emphasized that concerted action is 
needed to get the global economy back on track and to pursue 
the reforms needed to protect against future crises.
    APEC is unique because it has the tools to promote policies 
for long-term economic growth and ensure that all our citizens 
have the opportunity to thrive in the global economy. It 
promotes free and open trade and investment and tackles such 
important issues as energy security, small-business 
development, and preparing workforces to be globally 
competitive.
    APEC achieves this by emphasizing capacity-building and 
practical solutions that yield tangible benefits at low cost. 
These efforts are supported by U.S. foreign assistance 
contributions and our recent establishment of a technical 
assistance and training facility at the APEC secretariat.
    I note that there has been a proliferation of pan-Asian 
institutions, with more being proposed. The United States does 
not want or need to be a member of every organization, and we 
support Asia's efforts at multilateral cooperation. But given 
the trans-Pacific nature of economic affairs, we believe that 
truly effective regional economic institutions must include 
members from both sides of the Pacific.
    We also believe that these institutions must not only be a 
forum for high-level dialogue, but must also be geared toward 
producing tangible progress in addressing the challenges facing 
the Asia Pacific region. On the economic front, we believe APEC 
provides the best, most established mechanism for practical 
cooperation and action.
    Mr. Chairman, with Japan and the United States hosting APEC 
back to back, we have a unique opportunity over the next 2 
years to take APEC's work to the next level. To this end, we 
are lining up major priorities and themes for 2010 and 2011.
    First, concerning APEC's trade and investment agenda, I 
will defer to Wendy Cutler to address this issue in detail. But 
I would note America risks becoming disadvantaged economically 
if we do not participate in the process of economic integration 
that is already under way in the region.
    Second, APEC can and should contribute to the promotion of 
global economic recovery. With half of the G-20 being APEC 
members, APEC has an important role in supporting and 
implementing G-20 efforts to spur economic recovery and growth. 
The G-20 and APEC can reinforce one another and lead to the 
best results possible in a critical region.
    APEC is already leading efforts to prevent future crises 
and improve the region's business environment, including by 
improving corporate governance and promoting regulatory reform. 
APEC has also launched an initiative to make it faster, 
cheaper, and easier to do business in APEC economies, covering 
such areas as starting a business, obtaining credit, and 
efficient conduct of trade.
    Third, we are working with APEC members on robust efforts 
to promote balanced, sustainable, and inclusive growth.
    Regarding balanced growth, we see APEC reinforcing the G-
20's pledge to establish a pattern of global growth that is 
more balanced by region and less prone to destabilizing booms 
and busts.
    Regarding sustainable growth, we see an increased role in 
energy security and green development. APEC members are 
examining ways to promote greater energy trade and investment, 
liberalize trade and environmental goods and services, and 
foster development of new energy sources and advanced 
technologies.
    Finally, regarding inclusive growth, APEC seeks to ensure 
that all citizens have the opportunity to thrive in the global 
economy. This includes fostering more adaptable workforces and 
greater investment in education and worker training.
    Finally, the United States believes that APEC can make a 
vital contribution to human security, ensuring the resiliency 
of economies against a multitude of threats. This means, for 
example, enhancing food and product safety; bolstering regional 
food security; protecting the region's financial and trade 
systems from terrorist attack and abuse; and enhancing disaster 
preparedness.
    With the recent natural disasters in Samoa and Southeast 
Asia, I want to especially highlight APEC's work on disaster 
preparedness. APEC is fostering closer collaboration among 
regional emergency management agencies; examining the impact of 
climate change on disaster management; and helping 
schoolchildren prepare for disasters. Going forward, APEC will 
continue to strengthen public-private partnerships and 
capacity-building for emergency preparedness.
    I would like to conclude by underscoring the Obama 
administration's commitment to the Asia Pacific region. The 
United States brings tremendous capability and creativity to 
bear on the enormous challenges that the region and the world 
face today.
    By hosting APEC in 2011, we have an opportunity to set the 
agenda for the Asia Pacific region. Of course, the 
administration cannot realize this vision without the strong 
support of Congress. I look forward to consulting closely with 
you on how APEC can further meet the needs of the American 
people and make APEC 2011 a success for our country.
    Thank you for this opportunity to testify, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Tong follows:]
    
    
    
    Mr. Faleomavaega. Thank you, Mr. Tong.
    Unfortunately, we have a series of votes, as I am sure both 
of you are aware. I just wish there was a better way of 
organizing these votes, but we do have a series of them. And 
one of the pieces of legislation is in reference to the 
resolution concerning my own district.
    So, if it is all right with both of you, we need a little 
delay in our hearing for about 15 or 20 minutes, and then we 
will be back. I deeply apologize for this, but that is the 
reality that we are faced with here in the Congress.
    The committee hearing will be delayed for 20, 25 minutes. 
All right? Thank you.
    [Recess.]
    Mr. Faleomavaega. While my colleagues continue to vote, I 
would like to continue the subcommittee hearing at this time.
    We have just completed the testimony of Mr. Tong and we 
will now turn to Ms. Wendy Cutler for her testimony.

 STATEMENT OF MS. WENDY CUTLER, ASSISTANT UNITED STATES TRADE 
REPRESENTATIVE FOR JAPAN, KOREA AND APEC AFFAIRS, OFFICE OF THE 
               UNITED STATES TRADE REPRESENTATIVE

    Ms. Cutler. Thank you, Mr. Chairman, for convening this 
hearing today. I think I was here about 2 years ago when you 
held your last hearing on APEC and I continue to applaud you 
and the subcommittee putting the spotlight on APEC.
    The Asia-Pacific region is a significant part of the global 
economy and has become a driver of world economic recovery and 
growth. In your opening remarks you underscored the importance 
of the Asia-Pacific economies for global GDP and global trade. 
And instead of going through these figures I just want to add 
that the significance of APEC economies as U.S. export 
markets--as U.S. exports to these economies have tripled over 
the past 15 years and now account for 60 percent of all U.S. 
sales abroad.
    Along with the opportunities that this region presents for 
the United States, there are also challenges. As the 
developments in regional economic architecture in the Asia-
Pacific is moving toward the creation of Asia-only groupings, 
the United States will increasingly be left out of key 
decisions. Further, the continued proliferation of free trade 
agreements in the Asia-Pacific--there are already over 150 
agreements in place with about another 70 being negotiated--
have gone on without the United States.
    Just this past week, of recent note, there has been an 
announcement by China, Korea, and Japan to begin exploring a 
trilateral free trade pact, and tomorrow Korea and the European 
Union will be initialing a groundbreaking comprehensive FTA. 
APEC is the only regional grouping in which the United States 
is a member. Therefore, our strong and active participation in 
this organization provides us with a unique opportunity to play 
a leadership role in this region.
    APEC has a number of other unique characteristics that make 
it critical to the United States trade and economic agenda. 
First, the region has benefited greatly from trade and, as a 
result, APEC members are open to initiatives that lead to 
further open markets. Second, the nonbinding voluntary nature 
of APEC often allows economies to be more forward-leaning on 
issues that would be difficult to reach consensus in other fora 
such as the WTO. Third, APEC is a flexible institution which 
allows it to take on more pressing and new cutting-edge 21st 
issues as they emerge. APEC's members include major economies 
such as China, Korea, Russia, and Japan, but also key 
developing economies as well as ASEAN. And, finally, APEC is 
the only such regional grouping to have members from both sides 
of the Pacific.
    The Obama administration views our hosting APEC in 2011 as 
a critically important opportunity to take advantage of these 
unique strengths of APEC to push forward a bolder vision to 
promote economic recovery and growth and further strengthen 
regional economic integration in the region.
    In preparation for our host year, we have been pursuing a 
forward-leaning agenda in 2009, including through initiatives 
that will serve as building blocks for more ambitious outcomes 
in 2010 and 2011. As my colleague, Kurt Tong, highlighted, APEC 
has been instrumental in building support and endorsing G-20 
outcomes.
    APEC continues to work to support the multilateral trading 
regime and the Doha development agenda specifically. In July 
APEC Trade Ministers called for an ambitious and balanced 
conclusion to the Doha Round and called on the establishment of 
senior officials process that is currently underway in Geneva.
    Accelerating efforts to strengthen regional economic 
integration remains at the core of APEC's mission. And to this 
end, the United States has emphasized making substantive 
progress in key trade and investment issues as a way to address 
specific barriers to doing business in the region. For example, 
the United States, along with Australia, has launched an 
initiative to promote trade and services, is taking steps to 
facilitate trade in information and communications technology, 
and is examining ways to reduce or eliminate barriers to trade 
and investment in environmental goods and services. Making it 
cheaper and easier for companies and particularly for small- 
and medium-sized businesses to operate in the region is also 
one of the priority areas in APEC.
    APEC is working on simplifying and making trade 
documentation and procedures more consistent and transparent 
among APEC economies and is working to make information on 
tariff rates, rules of origin, and other customs-related 
information more accessible.
    As Singapore's host year approaches its conclusion, we are 
working closely with Japan to build on this work in 2010 and 
2011. As part of that contribution, we will be contributing to 
Japan's effort to assess whether the Bogor Goals agreed to in 
1994 of free and open trade in the Asia-Pacific region have 
been achieved.
    Since 1994 APEC's commitment to free and open trade and 
investment has resulted in tremendous economic growth, 
reduction of trade barriers, and lifting millions out of 
poverty. And as a result, we are looking forward next year to 
telling a positive story on the role APEC has played toward 
reaching the Bogor Goals.
    Another priority for us going into 2010 and 2011 will be 
focusing on how APEC's overall trade and investment agenda 
benefits small- and medium-sized enterprises. This will be part 
of USTR's recently announced larger effort to bolster trade 
opportunities for SMEs in recognition of how highly important 
these companies are to our economy. We will be looking to 
further help SMEs by seeking to simplify complex and divergent 
trade rules and reduce transaction costs. We will work to 
ensure that the benefits of economic recovery and growth in the 
region are extended to businesses of all size, and we will also 
focus on making it easier to start a business in the region.
    Finally, in 2010 and 2011, we will continue to work closely 
with all stakeholders, including Congress and this 
subcommittee, to ensure that the APEC agenda contains a well-
rounded, relevant, ambitious and inclusive set of priorities. 
Within the United States, we have a longstanding and close 
working relationship with the National Center for APEC, which 
will be even more important as we prepare for hosting in 2011. 
Congressional input and support will be critical, and we are 
encouraged by the interest of this subcommittee as well as the 
work of the House Caucus for APEC under the leadership of 
Representatives Brady, Larson, Crowley, and Herger.
    In conclusion, I want to thank you for holding this hearing 
and remind everyone that in 1993 when the United States last 
hosted APEC, it was a relatively new forum with only 14 
members; yet, in recognition of the potential value of the 
organization, the United States instituted a meeting at the 
heads-of-state level where, for the first time an Asia Pacific 
vision of stability, security, and prosperity for our peoples 
was outlined. We hope that in 2011 when we host again, we will 
use this opportunity to once again break new ground and put 
APEC in the forefront of Asia-Pacific economic integration and 
cooperation. Thank you.
    Mr. Faleomavaega. Thank you very much.
    [The prepared statement of Ms. Cutler follows:]
    
    
    
    Mr. Faleomavaega. I do have some questions and wanted to 
start our dialogue. If my own personal experience is 
symptomatic of how Washington has operated, I recall when I 
first became a member of this committee over 20 years ago, 
nobody wanted to be on the Asia-Pacific Subcommittee. The Asia-
Pacific Subcommittee and African Subcommittee were neglected. 
The whole mentality, not only in the Foreign Affairs Committee, 
but Washington itself, was focused on Europe and the Middle 
East. As some observers have noted, we were still fighting 
World War II in Europe.
    That seems to be the mindset of how Washington was, and I 
may be wrong, but that was my first impression when I became a 
member of this committee. I would say it has only been in the 
course of the last 3 or 4 years that this has changed 
dramatically. I can probably say that maybe before then, but I 
will say in my own personal experience, this has been the 
situation.
    And I note with interest, Mr. Tong, you mentioned, and I 
want to emphasize again, the 21 APEC members account for 55 
percent of the world's GDP, 45 percent of the global trade and 
40 percent of the world population. Sixty percent of U.S. goods 
exports go to APEC economies. Five of America's top seven trade 
partners are APEC members. I think that in itself should give 
some striking understanding and appreciation of our 
relationship with the Asia-Pacific region or, for that matter, 
as a member of this organization.
    I also note with interest, Mr. Tong, you mentioned that 
APEC is probably the only organization where we have the 
People's Republic of China and Taiwan as full members. As you 
know, in public forums regionally as well as even in the United 
Nations, there is every effort made by the People's Republic of 
China never, never to allow Taiwan to be an active participant. 
Yet in APEC's membership, this is taken very well in terms of 
how that situation is taken.
    But I wanted to ask both of you--from both of your 
testimonies, I hear a lot of positives. But I would like to 
hear from you what are some of the downsides; or, you might 
say, are there problems with APEC in its current situation not 
just in terms of its operations but just in terms of are there 
serious problems? Even though you have given such a magnificent 
picture of how great APEC is, I would like to think that there 
are problems within APEC, and I would like to ask you if there 
are problems, I would like to hear from you. Or should I say 
``challenges,'' if that's a better way of saying it?
    Mr. Tong. If I could go first, I was actually going to 
suggest we call them challenges because we certainly look 
forward to trying to address these problems or challenges in 
APEC.
    I think I would like to mention two. One is the question of 
the level of ambition, and I think several members spoke to 
this, and the question of whether APEC is really living up to 
its full potential as an organization. Given the considerable 
importance of its membership, are we in fact doing all that we 
can do within APEC? And I think it is really--it is a question 
of whether the economies are looking for opportunities for 
results. And the United States I think is recognized within 
APEC as a leader in pushing for results-oriented approaches, 
agreements and commitments, which, if not binding by law, are 
binding at least in the sense of being commitments that are 
being made in all seriousness and with the intention to fulfill 
them. That's an important question. I think that a critical 
question for 2010 and 2011 is: Can we, Japan and the United 
States, lead the economies of the region in trying to be as 
ambitious as possible within APEC?
    To be honest, one difficulty that we face is the fact that 
the global economy is not doing well right now. It is a tougher 
environment for many of the economies to take on new 
challenges, but it is an important one to face.
    Now, you suggested not going beyond APEC operations. There 
is also a challenge in terms of just how the nitty-gritty of 
the organization runs; that even in an organization as young as 
APEC, which has only existed for about 20 years, there is a 
tendency for things to become bureaucratic and stodgy in terms 
of how things are done. And I think that we are committed to 
try and make sure that the focus is on the results rather than 
the process and that APEC in its operations is efficient and 
speedy.
    Mr. Faleomavaega. Ms. Cutler.
    Ms. Cutler. Well, I wholeheartedly agree with all the 
challenges that Kurt put forward, and I would just like to add 
two more. One, I think APEC could do a better job at setting 
its priorities and streamlining its work. I have worked on APEC 
now for about 6 years, and I still find there are different 
working groups I have never even heard of. A lot of times these 
groups are easy to establish, but they are hard to shut down. 
And also I think if you look at some of the statements that are 
put out after these meetings, there are pages and pages of 
different work programs. So I think setting priorities could 
help.
    Second, I think we could do a better job with what I call 
follow-through or implementation on initiatives we have agreed 
on and arrangements we have endorsed. And this is an area that 
we are trying very hard to work on to make sure that if in 1 
year an initiative is announced and APEC economies agree to the 
initiative, that next year we can have a discussion on follow-
through and actually ask economies to present how they have 
lived up to these commitments--nonbinding commitments.
    Mr. Faleomavaega. I notice that both of you have made 
comments of the fact that next year Japan is going to host the 
APEC conference and the following year the United States is 
going to host the conference. Does that sound like some kind of 
a conspiracy going on here with the two most powerful 
economies? It sounds like they want to dominate the APEC 
organization by having this little conspiracy going here.
    I note with interest that you said that this is a golden 
opportunity for the United States and Japan to make APEC a more 
effective organization in terms of its trade and investment 
policies. Do you consider this as a grand scheme on the part of 
the United States and Japan to dominate APEC?
    Mr. Tong. Well, I certainly hope that our partners, the 
other 19 economies in APEC, don't view this as a negative that 
Japan and the United States are hosting back to back. I think 
APEC has done very well in the years where the most capable 
economies or the wealthiest economies have led. It has also 
done very well in years when developing economies have led APEC 
as the host, because they throw themselves into it with full 
enthusiasm and great vigor.
    I think actually that the other economies look to the next 
2 years with Japan--and also the current year with Singapore--
but the next 2 years with Japan and the United States in the 
chair with anticipation; that they actually are looking forward 
to us helping set the direction and lead efforts and follow 
through.
    Mr. Faleomavaega. Ms. Cutler, I hate to impose on you. Go 
ahead, please.
    Ms. Cutler. I would just add that the United States, we 
hosted in 1993; Japan hosted in 1995. It is kind of our turn 
again. Indonesia hosted in 1994 and they are going to be 
hosting again in 2013. So there is some logic to these hosting 
years.
    Mr. Faleomavaega. I note with interest also that I am just 
curious; how do the economies of the Asia-Pacific region 
compare to the European Union and our trade relations with 
these two regions of the world? I don't have the figures in my 
hand, but I am just curious; is our trade with the Asia-Pacific 
region greater than the Europeans and Europe at this point in 
time? You can submit it as part of the record.
    Mr. Tong. I will have to get back to you with the exact 
numbers but my impression is it is larger.
    Mr. Faleomavaega. It is larger.
    Mr. Tong. I think we said 60 percent of the exports go to 
Asia-Pacific economies so my hunch is that is the case, but I 
will check and make sure.
    Mr. Faleomavaega. Don't we currently have about $600 
billion in trade with the European countries?
    Mr. Tong. They are also extremely important.
    [The information referred to follows:]
 Written Response Received from Mr. Kurt Tong to Question Asked During 
           the Hearing by the Honorable Eni F.H. Faleomavaega
    U.S. trade with the Asia-Pacific is greater than with Europe.
    In 2008, total U.S. trade with Europe in goods was $642 billion. If 
both goods and services are included, U.S.-Europe trade was roughly 
$953 billion.
    In comparison, U.S. goods trade with APEC member economies, 
including Canada and Mexico, was $2.1 trillion in 2008. U.S.-APEC trade 
in both goods and services was $2.2 trillion in 2007, the latest year 
that we have data available for both categories.

    Mr. Faleomavaega. I have some more questions, but I am very 
glad that I have my good friend and colleague here with us, the 
gentleman from California, Mr. Rohrabacher, for his questions. 
I will wait for the second round.
    Mr. Rohrabacher. Thank you very much.
    Here we are in the middle of an economic crisis. The 
American people are justifiably asking some questions about 
economic policies that perhaps they weren't asking about 
before. So let me just go over some questions for you.
    Have the rules of the trade game been unfairly tilted 
against the American people, especially concerning China, over 
these last 20 years?
    Ms. Cutler. With respect to China, it is really the rules 
of the WTO that govern our trade relationship with them, in 
addition to additional bilateral agreements that we have 
reached with them. In our view, the rules--let us just say we 
are putting great emphasis on enforcing these rules and making 
sure that China like other WTO members lives up to its 
obligations.
    Mr. Rohrabacher. So your answer is no, the rules are fair 
and we are trying to enforce them, and to the degree that we 
haven't enforced them, it wouldn't be fair to the American 
people. But the basic rules of trade between China and the 
United States have been fair to the people of the United 
States.
    What about you?
    Mr. Tong. We are certainly trying to make sure that the 
interests of the American people are protected and promoted as 
much as humanly possible in the trade relationship with China. 
I think several of the members pointed out that there are rules 
which are agreed upon between nations, including in the WTO, 
and then there are rules which sometimes operate in practice 
beyond those which are formally agreed. And certainly our 
intention is to make sure that all of the rules that we 
negotiate are favorable to the American worker.
    There is a problem with rules being made in either an ex 
officio way or informally. I think Representative Sherman was 
referring to informal guidance which was given by the Chinese 
Government--its different entities, maybe different levels of 
government--to businesses which can make it more difficult for 
U.S. businesses to compete in the Chinese environment, and 
certainly that is an issue of concern to the United States.
    Mr. Rohrabacher. So there is an informal factor rather than 
actual rules of the game that is working against the American 
people, but the rules you think are fundamentally fair?
    Mr. Tong. Well, I think the intention is to try to make 
sure that to the extent possible in our discussions government 
to government, that there is not a situation where the playing 
field was tilted against the American businesses.
    Mr. Rohrabacher. Is the Chinese currency undervalued? And 
if the answer is yes, which everybody in the world seems to be 
saying, how long has it been undervalued?
    Mr. Tong. I think the Treasury Department would make sure 
that I get fired if I comment on that topic. So I am sorry. I 
would have to ask you for your next opportunity to ask someone 
from the Treasury Department.
    Mr. Rohrabacher. Do you have any opinion on that, or should 
we have another set of government officials? Okay.
    Let us just note that every information that I have 
received indicates that it is undervalued, has been undervalued 
for a long time, and the American people have suffered because 
of our willingness to permit that basic element of trade to 
continue. And why haven't we acted upon it? Maybe it is because 
we have some very corporate elite, rich Americans who are 
benefiting from the China trade at the expense of the American 
people, and they have a great deal of influence as to what 
policies we push; like, for example, pushing on the Chinese and 
laying down the law that we are not going to permit this unfair 
valuation of their currency at the expense of the American 
people.
    Mr. Faleomavaega. Will the gentleman yield?
    Mr. Rohrabacher. Certainly.
    Mr. Faleomavaega. I would just like to add to the 
gentleman's concerns and questions here, I would like to ask 
you if you could submit the names and the number of U.S. 
companies that are doing business right now in China. And as 
part of the Chinese exports that I recall 2 years ago, $340 
billion of exported goods to the United States, how much of 
that percentage was produced by American companies who do 
business in China? I think that is pretty much in terms of the 
concerns of the gentleman.
    [The information referred to follows:]
 Written Response Received from Mr. Kurt Tong to Question Asked During 
           the Hearing by the Honorable Eni F.H. Faleomavaega
    The United States government does not keep statistics on the number 
of U.S. companies doing business currently in China. I would recommend 
inquiring with private sector organizations such as the U.S.-China 
Business Council and the U.S. Chamber Commerce as to whether they have 
such data. The United States government also does not have the raw data 
available that would be needed to calculate statistics on the amount of 
Chinese exports that are actually produced by American companies who do 
business in China.

    Mr. Rohrabacher. So we end up with 90 percent of the 
containers that go through the Port of Los Angeles and Long 
Beach, which I represent, are coming in and only 10 percent are 
going out, and there is a reason for that. That didn't just 
happen. That is based on policies that have been established 
for these last 20 years. And I focus on 20 years, because it 
was 20 years ago when the Communist Party of China, who 
controlled the Beijing government at that time, slaughtered the 
democratic movement in Tiananmen Square.
    How much investment have U.S. capitalists put into China 
over these last 20 years?
    Mr. Tong. I would need to get back to you for the exact 
figure on that. I believe it is a considerable investment. I 
would point out that the investment that American companies put 
into China, much of it supports, as you have noted, imports 
back to the United States; much of it also supports exports 
from the United States.
    Mr. Rohrabacher. Right. And it also suggests what? Very 
limited exports for the first couple of years and setting up a 
factory, and then a long-term drain on the financial resources 
which are being taken from the pockets of American workers who 
have been put out of work and now are in the pockets of, yes, a 
few capitalists who can now make a bigger profit, American 
capitalists, and Chinese elites as well, as perhaps the Chinese 
people. But who is watching out for the American people?
    So it is considerable. Is $1 trillion, do you think that it 
would be $1 trillion worth of investment or is that just way 
too high?
    Mr. Tong. I think it would be most responsible for us to 
get back to you with an exact figure, because there is a 
question of stock investment and flow investment and how much 
of it is double-counted. So we will certainly give you that.
    [The information referred to follows:]
 Written Response Received from Mr. Kurt Tong to Question Asked During 
             the Hearing by the Honorable Dana Rohrabacher
    According to the U.S. Bureau Economic Analysis, the total stock of 
U.S. foreign direct investment (FDI)--that is, the total accumulated 
amount of U.S foreign investment in China--in 2008 was $45.7 billion. 
In 1989, U.S. FDI stock in China was $436 million.

    Mr. Rohrabacher. That would be very helpful. How about the 
value of tech transfer that we have had, where American 
taxpayers over these last four decades have spent hundreds of 
billions of dollars developing new technologies that just end 
up being sent to increase the manufacturing capabilities of 
China? What is the value of the tech transfer? Have there been 
any estimates on that?
    Mr. Tong. Again, for an exact figure we can get back to 
you.
    Mr. Rohrabacher. I would certainly appreciate that.
    [The information referred to follows:]
 Written Response Received from Mr. Kurt Tong to Question Asked During 
             the Hearing by the Honorable Dana Rohrabacher
    The State Department does not keep statistics on the amount of 
technology transfers between U.S. and Chinese companies. I note that 
the Obama Administration is committed to fostering development of new 
technologies, including green technologies, here in the United States 
that create jobs for Americans. The administration is also committed to 
ensuring that American workers and businesses stay competitive in the 
global economy, including through technological innovation.

    Mr. Tong. Turning back to APEC,I would point out, and 
perhaps Wendy can elaborate on this, there is an intense effort 
within APEC to try to tighten intellectual property rights 
protection. It is one of the major agenda items for the 
economies within APEC. We have had some progress.
    Mr. Rohrabacher. That is intellectual property theft. But I 
was just talking about in terms of actual tech transfer where 
it might not be theft. It might just be our corporations that 
have benefited by government research contracts over the years, 
taking the results of that research and putting it to use for 
the benefit of people who are our competitors.
    But speaking about property theft, what is the estimate on 
the value of the intellectual property theft in China every 
year? None? What about----
    Mr. Tong. Well, I believe industry have done calculations 
on that and certainly we can provide that information.
    [The information referred to follows:]
 Written Response Received from Mr. Kurt Tong to Question Asked During 
             the Hearing by the Honorable Dana Rohrabacher
    The private-sector International Intellectual Property Alliance 
(IIPA) estimates that the amount of U.S. trade losses due to copyright 
piracy in China of business software and music totaled $3.5 billion in 
2008. They also estimate that 79 percent of business software and 90 
percent of records and music are pirated in China.

    Mr. Rohrabacher. Okay. Is China the country that--we have 
spies, we have economic spies that we have here, as well as 
military and other national security spies, but is not China 
the number one country--that when we find these economic spies, 
is not China the number one country that is engaged in economic 
espionage?
    Mr. Tong. That again is something I would need to get back 
to you on, and probably in a classified forum, for an accurate 
estimate.
    [The information referred to follows:]
 Written Response Received from Mr. Kurt Tong to Question Asked During 
             the Hearing by the Honorable Dana Rohrabacher
    The State Department is not in a position to give a response to 
this type of intelligence-related question. I would recommend that you 
seek information from the FBI or the intelligence community.

    Mr. Rohrabacher. Okay. Over these last 20 years when we 
have had a massive flow of capital and know-how and value and 
wealth transferred to China, have there been any government 
policies on the part of the United States that encouraged this 
flow? For example, have there been any programs of the United 
States Government that provided loan guarantees or any other 
type of, let us say, support for large capitalists to go into 
China and invest?
    Mr. Tong. My understanding is that the Export-Import Bank 
of the United States is active in China, but the Overseas 
Private Investment Corporation is not active.
    Mr. Rohrabacher. So the Export-Import Bank. How about IMF 
and the World Bank, which of course most of their money comes 
from us anyway? Do they support projects of American 
capitalists investing there in China?
    Mr. Tong. IMF I don't know. World Bank and certainly also 
the Asian Development Bank are very active in China in 
investing in infrastructure development, environmental 
protection, and other areas.
    Mr. Rohrabacher. Right. Okay.
    Mr. Chairman, let me just note that the American people are 
suffering from a nonnatural disaster. Your people in Samoa just 
went through a catastrophe; it was a tidal wave based on an 
earthquake. They are suffering tremendously, as we have 
recognized at the beginning of this.
    The American people are going into a time of suffering and 
hardship not because of a natural catastrophe, but because the 
policies that have been put in place have led to this. The 
Chinese Government now owns--what is the Chinese debt that they 
own half of ours?
    Mr. Faleomavaega. Almost $1 trillion.
    Mr. Rohrabacher. Almost $1 trillion of debt.
    Mr. Faleomavaega. Not debt, but investments in the United 
States.
    Mr. Rohrabacher. Well, that is what it is going to turn out 
to be, that they own a lot of----
    Mr. Tong. U.S. Government Treasuries.
    Mr. Rohrabacher. They will own a lot now. Where did that $1 
trillion come from? Yes, they bought bonds. But I would suggest 
that we have given at least $1 trillion worth of financial 
support in building up an economic power to a country that is 
headed by people who are the worst human rights abusers in the 
world and have not had one bit of liberalization in their 
political process. This hoping for the best by making China 
prosperous and powerful has not worked, and I would hope that 
the questions that I offered today--and I look forward to your 
research and reply because I really could use those figures. I 
hope that alerts us to the fact that our Government has not 
been--Republican and Democrat administrations have not been 
watching out for the interests of the American people and now 
we are paying a horrible price for that.
    Thank you very much, Mr. Chairman.
    Mr. Faleomavaega. I thank the gentleman for his comments 
and questions and I hope that our good friends, the witnesses 
this afternoon, will provide us with the data that he has 
requested.
    Ms. Cutler, I notice with interest that you had mentioned 
about the proliferation of trade agreements that seems to be 
going around, 70 trade agreements, free trade agreements 
currently being negotiated, and that is on top of 150 other 
free trade agreements. And it is interesting that I think we 
only have 5 free trade agreements in place, which brings to 
bear my next question.
    I noticed that you were actively engaged in the free trade 
agreement negotiations with South Korea, and I know this became 
one of the big political issues in last year's Presidential 
campaign. As a strong supporter of the free trade agreement 
with South Korea, I noticed also there was some concern about 
auto parts and the automobile trade we have with South Korea. 
Can you comment on where we are now with our free trade 
agreement with Korea?
    Ms. Cutler. We are currently undertaking a review of the 
Korea FTA. As part of this review we have had numerous meetings 
with various stakeholders including the auto companies and the 
UAW. We also issued a Federal Register notice in August and 
received over 300 comments, and we are now looking through 
these comments. There has been overwhelming support for the 
agreement based on the comments, but I would also note that 
there are areas of concern noted by some of the submissions, 
particularly by two of the automotive companies and the UAW and 
other workers groups.
    We are now looking at the various suggestions that have 
been put forward of ways to address concerns. We are thinking 
of our own ways to address concerns, and we will be consulting 
intensively with our stakeholders and Congress, and we hope to 
reengage with Korea in the near future with a package of 
recommendations to build on the existing agreement.
    Mr. Faleomavaega. Given our experience with NAFTA, two 
basic issues always seem to come up whenever we talk about 
trade agreements--labor standards and environmental standards. 
And it seems that South Korea is pretty much transparent when 
it comes to those fundamental issues.
    I have also noticed allegations--and I don't know if there 
is any truth in this and would like your comment--that some 
600,000 Korean cars are purchased here in America versus some 
7,000 American cars purchased in Korea. Is there any truth to 
that allegation?
    Ms. Cutler. First, with respect to the environment and 
labor, Korea does have some very strong protections in both 
areas. And Korea also, as part of the FTA, agreed to the May 
10th bipartisan package of 2007, so that is part of the 
agreement.
    With respect to automotive trade, yes, there is a huge 
imbalance. Hundreds of thousands of cars are sold by Korean 
companies here in the United States and our success in 
penetrating the Korean market has met with impediments. The 
current agreement does provide provisions to get rid of Korea's 
tariffs immediately on autos. It also provides a series of 
provisions on nontariff measures.
    However, based on comments, concerns, and discussions since 
we concluded this deal 2 years ago, it is apparent that more 
can be done and should be done in the automotive sector to help 
level the playing field for U.S. companies and workers in this 
important sector.
    Mr. Faleomavaega. Is there a possibility to separate the 
automotive issue? It seems to be the basic obstacle in agreeing 
to many other provisions of the proposed free trade agreement 
which are very positive to the extent that we are looking at 
possible exports from the United States of over $11 billion as 
a benefit not only to the American workers but to companies 
that want to export to Korea. Is there a possibility of looking 
at this separately if this is really the main impediment to the 
agreement? I was just wondering if the administration is 
viewing that rather than continuing to put the auto issue as 
part of the--almost like \1/10\ of 1 percent of the other 
provisions of the FTA that are both in agreement by both 
countries.
    It seems to me that we are putting on hold the bigger part 
for something that is just specific and maybe it takes more--it 
will take more time to negotiate because, as you said, this--I 
don't know if it is because of the tariffs that the Korean 
Government puts on our vehicles when we export to Korea. There 
is a claim that the tariffs that they put in as an offset of 
some of the things that we export to Korea, especially 
agricultural products. This is something that comes into the 
meat industry or the beef. You know, I think Korea is one of 
the biggest consumers of beef in the world, and I was just 
curious if we are going to continue to have the auto industry 
to hold the benefits that could be given to the American people 
as well as the workers and the businesses who will benefit from 
this free trade agreement.
    Ms. Cutler. Our focus now is on understanding and trying to 
address the concerns put forth by the automotive industry but 
not limited to the automotive industry. The submissions to our 
Federal Register notice are public, and if you have time to 
comb through hundreds and hundreds of them you will see that 
there are other concerns as well.
    With respect to beef, the comments do suggest that our beef 
industry is now pleased with the inroads they have made into 
the Korean market. But some other concerns have been raised 
more generally with respect to nontariff measures. In any 
event, we are looking through all of these concerns. We are 
trying to come up with a package of proposals which will level 
the playing field, address the remaining issues so we would be 
in a position to move this agreement forward in Congress.
    Mr. Faleomavaega. Well, that was our hope as well. But it 
seemed to have been that the previous administration had really 
moved to get the free trade agreement for some other exchanges 
that took place at the time when this proposed free trade 
agreement was brought for public review.
    I wanted to note also that you had commented about APEC and 
its ability to cope with the global financial crisis. Will this 
be one of the issues that will be taken up in our meeting in 
Singapore, Mr. Tong?
    Mr. Tong. Yes. I definitely think this will be a major 
topic for the leaders as well the finance ministers to meet a 
few days previous to the leaders meeting in Singapore. Our 
expectation is that both the finance ministers and the leaders 
will review some of the outcomes of the Pittsburgh G-20 summit 
and, we hope, endorse the principles agreed to in Pittsburgh 
and take on commitments as an Asia-Pacific region to implement 
those approaches to economic growth and recovery. But I think 
it is going to be a major theme in Singapore.
    Mr. Faleomavaega. Touching upon the issue that my friend 
from California had covered earlier, I note with interest that 
for years Russia and China had been moving or proposing to the 
global community about having international currency rather 
than using the dollar as the international currency of 
exchange. What is your comment on that?
    Mr. Tong. I am always real cautious about matters related 
to the currency, but I think that what we are finding is 
happening on the ground in actuality is that, while there is 
some discomfort in some economies to the very prominent role 
played by the U.S. dollar in the international financial 
system, that there is also a sense of reality and a sense of 
the continued importance of the U.S. dollar. So sometimes there 
is a tradeoff between reality and aspiration on that front.
    Mr. Faleomavaega. I don't know about reality and a 
tradeoff. But let me just ask you, in the advent of the recent 
economic crisis, ironically a country that happens to be the 
most stable economy happens to be China, which is not even a 
capitalist country other than the fact that they implemented 
free market principles since the time of Deng Xioping. It think 
it was in 1978.
    What I wanted to note with interest is that on the failure 
of our own economic institutions, for lack of regulation 
perhaps, for lack of just greed perhaps in corporate America. 
And yet somehow we just continue skipping over and not really 
admitting to ourselves there are some very serious moral and 
ethical questions raised about how we have gone on doing 
business, which has completely impacted our economy in a most 
serious way.
    And I think this probably bears on what China and other 
countries are saying: That if this is the kind of example that 
is causing economic instability around the world because of our 
conduct and what we have done, do you think that perhaps the 
idea of an international currency, with some sense of 
stabilization efforts, to make sure that the world economic 
crisis doesn't have another repeat of history, with what we are 
going through right now?
    Mr. Tong. I am not sure whether a change in the way that 
international currencies are handled would improve things or 
not. But I will say that we have heard quite a bit from the 
Asia-Pacific economies over the past year, concern about the 
United States economy. It is sincere concern. They have the 
best interests, for the most part, in seeing the U.S. economy 
recover, and, fortunately, we are starting to see some signs of 
recovery. But we have heard from the Asia-Pacific economies 
great concern.
    We have also heard some relief that the U.S. Government has 
tackled the problems of our domestic economy head-on and done 
our best efforts to try and achieve a rapid recovery in the 
U.S. economy and a return to growth.
    You mentioned the role that the Chinese economy has played 
in the global macro-economy. I think it is fair to say that 
continued Chinese growth has been a source of stability and has 
assisted the Asia-Pacific region in getting through this past 
year and returning toward recovery. And our hope is that as the 
Chinese economy becomes increasingly consumer-oriented and 
takes a more balanced approach toward its future growth, that 
that role can continue and can continue in a way that also 
addresses some of the concerns that we have about the trade 
balance and the way that our economic relationships with China 
are structured.
    That is a concern that many economies share as they look 
toward China: Both a sense of the opportunity which China has 
created through its rapid growth, but a sense of hope that the 
Chinese will restructure their economy in a way that is 
beneficial to everyone.
    Mr. Faleomavaega. Ms. Cutler? I didn't mean to put you on 
the spot there.
    Your sense on the Bogor goals of free and open trade and 
investment in the Asia-Pacific region by 2010 and 2020: Are 
they realistic goals or are they just a dream?
    Ms. Cutler. They were goals that were agreed to in 1994. 
The industrialized countries, APEC economies, are scheduled to 
announce in 2010 how far they have come to achieving them, and 
we in the United States believe we have made important progress 
and great progress toward achieving these goals.
    The trade landscape in 1994 was very different than it is 
today. So it is hard to compare what leaders meant when they 
agreed to those goals in 1994 to what the environment is and 
all the issues that now come under the trade and investment 
rubric.
    So we think we have a good story to tell. We believe a 
number of our other 2010 colleagues have a good story to tell. 
And we hope, then, that next year under Japan's leadership, we 
will have a successful review of Bogor, and then we can discuss 
what we need to do to further our trade and investment 
liberalization objectives looking ahead.
    Mr. Faleomavaega. In my recent meetings with President Lee 
and several other leaders of South Korea--as you know, South 
Korea is perhaps one of our closest allies in this region. And 
to the extent that they have shared with me their concern to 
the effect that it is not just about free trade, it is not just 
about having a free trade agreement, it is about a partnership 
that cuts through not just economics, but the whole region is 
looking at how our country is treating this democracy or this 
country that has always been our strongest supporter 
militarily, economically, and in every way.
    And I just wanted to pass that message on to the 
administration that this proposed free trade agreement now--
that has been 2 years in the making--that it is not going to 
continue on for another 4 years of continued negotiations. It 
does negatively reflect on our inability to say are we really--
do we really have the political will to make this free trade 
agreement as a good result and seeing that we are serious about 
our commitments to our friends?
    And I sincerely hope that in the coming months, Ms. Cutler, 
as you have said, that you continue the negotiations, that we 
don't continue the negotiations for the next 2 years and still 
with no result. It will bring about tremendous disappointment. 
And I just want to say that they are anxiously waiting, 
hopefully, not only as a benefit to them but certainly as a 
benefit to our country as well. And I sincerely hope that 
something positive will come as an outcome of your continued 
efforts to work out the differences or the problems that we 
have faced in that proposed free trade agreement.
    I truly want to thank both of you for being here. I hope 
and wish both of you all the best in the upcoming APEC 
conference. I understand the President also plans to visit 
China, and maybe even Indonesia where he was raised.
    It was very interesting at the height of the last year's 
Presidential campaign, there was a national blog going on, and 
that I was a specially appointed agent of Barack Obama who went 
to Indonesia, which I did. I went to Indonesia and I also 
visited the school that he went to when he was a young man, and 
that my mission, as a special agent of President Obama, was to 
make sure that there was no record whatsoever indicating that 
he was born in Indonesia.
    And I just wanted to let you know that confirmation for 
those who still think that President Obama is not a naturalized 
citizen--I get to the point where not only it becomes absurd 
and this whole thing about, well, why doesn't he show his birth 
certificate? I think maybe if you go see the application when 
he filed for the Presidency, I am sure there is an indication 
of where he was born, which happens to be the Kapiolani 
Hospital in Honolulu, in the State of Hawaii, if they really 
are that serious and wanted to know where he was born.
    If anybody could find out that he falsely filled those 
applications to become President of this great country, I would 
be the first person that would like to shake that person's hand 
to say that he falsely filled out that application to become 
President of this great Nation of ours.
    Again, I commend both of you for your tremendous work and 
service to our country. Thank you so much for being here.
    The hearing is adjourned.
    [Whereupon, at 4:36 p.m., the subcommittee was adjourned.]
                                     

                                     

                            A P P E N D I X

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               Material Submitted for the Hearing Record



                                 
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