[Senate Hearing 111-377]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-377

   STRENGTHENING THE TRANSATLANTIC ECONOMY: MOVING BEYOND THE CRISIS

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 9, 2009

                               __________

       Printed for the use of the Committee on Foreign Relations


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html





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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin       BOB CORKER, Tennessee
BARBARA BOXER, California            JOHNNY ISAKSON, Georgia
ROBERT MENENDEZ, New Jersey          JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland         JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania   JOHN BARRASSO, Wyoming
JIM WEBB, Virginia                   ROGER F. WICKER, Mississippi
JEANNE SHAHEEN, New Hampshire        JAMES M. INHOFE, Oklahoma
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
                  David McKean, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

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

                SUBCOMMITTEE ON EUROPEAN AFFAIRS        

            JEANNE SHAHEEN, New Hampshire, Chairman        

CHRISTOPHER J. DODD, Connecticut     JIM DeMINT, South Carolina
ROBERT MENENDEZ, New Jersey          JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   BOB CORKER, Tennessee
JIM WEBB, Virginia                   ROGER F. WICKER, Mississippi
EDWARD E. KAUFMAN, Delaware

                              (ii)        








                            C O N T E N T S

                              ----------                              
                                                                   Page

Burwell, Frances G., Ph.D., Vice President, Director of 
  Transatlantic Relations, the Atlantic Council, Washington, DC..    27
    Prepared statement...........................................    30
Hormats, Hon. Robert, Under Secretary of State for Economic, 
  Energy, and Agricultural Affairs, Department of State, 
  Washington, DC.................................................     5
    Prepared statement...........................................     8
Howland, Charles, president and CEO, Warwick Mills, Inc., New 
  Ipswich, NH....................................................    22
    Prepared statement...........................................    22
Maibach, Michael C., President and CEO, European-American 
  Business Council, Washington, DC...............................    23
    Prepared statement...........................................    26
Shaheen, Hon. Jeanne, U.S. Senator from New Hampshire, opening 
  statement......................................................     1
    Prepared statement...........................................     3

                                 (iii)

  

 
   STRENGTHENING THE TRANSATLANTIC ECONOMY: MOVING BEYOND THE CRISIS

                              ----------                              


                      WEDNESDAY, DECEMBER 9, 2009

                               U.S. Senate,
                  Subcommittee on European Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Jeanne 
Shaheen (chairman of the subcommittee) presiding.
    Present: Senators Shaheen and Risch.

           OPENING STATEMENT OF HON. JEANNE SHAHEEN,
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Shaheen. Good afternoon, everyone. We will begin in 
hopes that we can get through a major portion of this 
afternoon's hearing before we have any votes.
    So, and we also very much appreciate Secretary Hormats 
being here. We know that you have a tight schedule. So we will 
get underway right away.
    And I have an abbreviated statement, but we will file the 
complete one for the record.
    So the Senate Foreign Relations Subcommittee on European 
Affairs meets today to examine the economic, trade, and 
investment ties between the United States and Europe and to 
assess opportunities for further integration, expansion, and 
deepening of this critical partnership.
    I want to welcome all of you here today. We have two 
impressive panels, and we look forward to hearing from our 
witnesses and engaging them in dialogue on this important 
relationship.
    Today, we are nearly 2 years into the worst economic 
downturn certainly of my generation. Though we have begun to 
see some positive signs, unemployment remains much too high, 
and growth is still too stagnant.
    We need to find additional ways to encourage investment and 
create jobs here at home. As the global economy begins to 
rebalance and the American consumer can no longer represent the 
sole engine of growth, U.S. businesses will need to look 
overseas for markets and investment.
    Understandably, much of global attention has turned to the 
rapidly developing economies like China, India, and Brazil. And 
it is easy to forget that, by far, America's largest, most 
vibrant, and perhaps its most critical economic relationship is 
actually with Europe. It would be a mistake to neglect this 
crucial partnership as we attempt to dig ourselves out of this 
economic downturn.
    The numbers really do speak for themselves. Representing 
over 800 million people, the combined economies of the United 
States and Europe generate a gross domestic product of $32.7 
trillion, which accounts for over 50 percent of the world's 
GDP.
    As Governor of New Hampshire, I was able to witness 
firsthand the critical nature of the transatlantic relationship 
to communities and businesses throughout my State. I was the 
first Governor to lead a trade delegation outside of North 
America.
    We traveled to England, Ireland, Germany, and Denmark on 
missions which generated millions of dollars for New Hampshire 
businesses. And we went to Europe because what we heard from 
New Hampshire businesses was that is where the markets were.
    In 2007, Europeans bought nearly 1 billion dollars' worth 
of goods from businesses in my home State of New Hampshire, and 
today, European countries represent 6 of the top 10 overseas 
markets for New Hampshire goods. Obviously, I think what 
happened in New Hampshire and what is good for New Hampshire is 
good for the rest of the country.
    It is not only goods and services crossing the ocean, it is 
also investment dollars. For every $1 in goods traded across 
the Atlantic, nearly $4 are invested between the United States 
and Europe. Of the $5.2 billion invested in New Hampshire in 
2006, $3.6 billion came from Europe.
    Investment dollars from Europe means jobs right here in New 
Hampshire and in the United States. European investment 
supports tens of thousands of jobs in my home State, and an 
estimated 7 million Americans countrywide are employed by 
businesses affiliated with Europe.
    So it is easy to see why the transatlantic economy has been 
the anchor for global economic stability for so many years. 
However, like any partnership that wants to remain relevant to 
a rapidly changing world, we need to continue to foster and 
adapt our relationship to meet present-day realities. We can't 
take this relationship for granted or allow it to coast on 
autopilot.
    There are a number of areas where we can work to improve 
integration and foster continued growth. First, as integrated 
as our two economies are, there are still significant barriers 
to businesses gaining access to overseas markets.
    Nearly 95 percent of the world's customers are outside of 
the country, but less than 1 percent of small- and medium-sized 
businesses export to those markets. We need to improve this 
imbalance and do a better job of helping small businesses gain 
access to markets in Europe and elsewhere.
    In addition, we need to make sure we are better organized 
and coordinated at the Government level to help our businesses 
compete abroad. We can also do more to revitalize the 
Transatlantic Economic Council and try to harmonize the 
differences in regulatory policies across the Atlantic in 
support of American businesses.
    Finally, as we continue to assist our businesses in gaining 
access and investment overseas, we also need to do a better job 
of enforcing our trade rules. The violation of trade agreements 
from either side of the Atlantic hurts profits, hinders growth, 
and adds to skepticism of the benefits of free trade.
    At a time of ongoing economic uncertainty and significant 
unemployment, it is critical that the United States seek ways 
to expand and strengthen its economic relationship with Europe. 
These ties will be critical to further prosperity, profit, job 
growth, and jobs on both sides of the Atlantic.
    [The prepared statement of Senator Shaheen follows:]

               Prepared Statement of Hon. Jeanne Shaheen,
                    U.S. Senator From New Hampshire

    The Senate Foreign Relations Subcommittee on European Affairs meets 
today to examine the economic, trade, and investment ties between the 
United States and Europe and to assess opportunities for further 
integration, expansion, and deepening of this critical partnership. I 
want to welcome all of you here today. We have two impressive panels, 
and we look forward to hearing from our witnesses and engaging them in 
dialogue on this important relationship.
    Today, we are nearly 2 years into the worst economic downturn of 
our generation. Though we have begun to see some positive signs, 
unemployment remains much too high and growth is stagnant. We need to 
find additional ways to encourage investment and create jobs here at 
home. As the global economy begins to rebalance and the American 
consumer can no longer represent the sole engine of growth, U.S. 
businesses will need to look overseas for markets and investment.
    Understandably, much of global attention has turned to the rapidly 
developing economies, like China, India, and Brazil. It is easy to 
forget that, by far, America's largest, most vibrant, and perhaps its 
most critical economic relationship is actually with Europe. It would 
be a mistake to neglect this crucial partnership as we attempt to dig 
ourselves out of this economic downturn.
    The numbers really do speak for themselves. Representing over 800 
million people, the combined economies of the United States and Europe 
generate a GDP of $32.7 trillion--which accounts for over 50 percent of 
the world's GDP. Both the United States and Europe represent each 
other's largest trading partners, and total trade between the two, 
which now stands at over $600 billion per year, represents an 
astounding 33 percent of the global trade volume.
    As Governor of New Hampshire, I was able to witness firsthand the 
critical nature of the transatlantic relationship to communities and 
businesses throughout my State. I was the first New Hampshire Governor 
to lead a trade delegation outside of North America. Searching for new 
and expanded markets, we immediately looked to our friends across the 
Atlantic. I traveled to England, Ireland, Germany, and Denmark on 
missions which generated millions of dollars for New Hampshire 
businesses. In 2007, Europeans bought nearly 1 billion dollars' worth 
of goods from businesses in my State, and European countries represent 
6 of the top 10 overseas markets for New Hampshire goods.
    It is not only goods and services crossing the ocean, it is also 
investment dollars. For every $1 in goods traded across the Atlantic, 
nearly $4 are invested between the United States and Europe. 
Transatlantic investment dollars totaled over $3 trillion in 2008 with 
Europe investing nearly $1.4 trillion here in the United States. Of the 
$5.2 billion invested in New Hampshire in 2006, $3.6 billion came from 
Europe. Investment dollars from Europe means jobs right here in the 
United States. European investment supports tens of thousands of jobs 
in the State of New Hampshire, and an estimated 7 million Americans 
countrywide are employed by businesses affiliated with Europe. The 
volume of goods, services, and investment dollars crossing the Atlantic 
lead to job creation, profit growth, and economic prosperity on both 
sides of the ocean.
    It is easy to see why the transatlantic economy has been the anchor 
for global economic stability for so many years. The United States and 
Europe share an economic and trade system based on common values, the 
protection of intellectual property, and a commitment to the rule of 
law. However, like any partnership that wants to remain relevant to a 
rapidly changing world, we need to continue to foster and adapt our 
relationship to meet present-day realities. We cannot take this 
relationship for granted or allow it to coast on auto-pilot. There are 
a number of areas where we can work to improve integration and foster 
continued growth.
    First, as integrated as our two economies are, there are still 
significant barriers to businesses gaining access to overseas markets. 
Nearly 95 percent of the world's customers are outside the country, but 
less than 1 percent of small businesses export to those markets. We 
need to improve this imbalance and do a better job of helping small 
businesses which are responsible for half of all American jobs in the 
private sector--to gain access to markets in Europe and elsewhere.
    In addition, we need to make sure we are better organized and 
coordinated in helping our businesses compete abroad. Currently as many 
as 20 agencies are involved in trade and export promotion in the U.S. 
Government, and we will need a more integrated, governmentwide approach 
if we are to meet the needs of our businesses as they compete in Europe 
and beyond.
    Because tariffs remain low between the United States and Europe, 
costly regulatory differences are widely recognized as the more 
significant barriers to further integration and growth. We can do more 
to try to harmonize the differences in regulatory policies across the 
Atlantic in support of American businesses. A revitalization of the 
Transatlantic Economic Council and a focus on future regulatory issues 
before they become trade impediments can help spur integration and 
promote business growth.
    Finally, as we continue to assist our businesses in gaining access 
and investment overseas, we also need to do a better job of enforcing 
our trade rules. Though it is said that trade disputes between the 
United States and Europe make up only 2 percent of commercial 
transactions, it is important that we maintain and enforce, where 
necessary, a commitment to a rules-based commercial relationship. The 
violation of trade agreements--from either side of the Atlantic--hurts 
profits, hinders growth, and adds to skepticism of the benefits of free 
trade.
    At a time of ongoing economic uncertainty and significant 
unemployment, it is critical that the United States seek ways to expand 
and strengthen its economic relationship with Europe. As the largest, 
most vibrant trade relationship in the world, the economic, financial, 
and investment ties between the United States and Europe continue to be 
critical to prosperity, profit, job growth, and jobs on both sides of 
the Atlantic.
    We are pleased to have before us today two distinguished, high-
level panels to discuss these critical issues. I shall reserve my 
introductions for the second panel until later. On our first panel, we 
have the Honorable Robert Hormats, the current Under Secretary for 
Economic, Energy, and Agricultural Affairs.
    Under Secretary Hormats is the senior economic official at the 
State Department and is responsible for formulating, coordinating, and 
implementing international economic policies aimed at protecting and 
advancing U.S. economic, political, and security interests. He 
participates in international trade negotiations, supports U.S. 
business in foreign countries, and participates in formulating U.S. 
international sanctions.
    Under Secretary Hormats has a long, distinguished career in the 
public and private sectors. Formerly a vice chairman at Goldman Sachs, 
he has also served throughout government in a variety of senior 
positions at the State Department, the Office of the U.S. Trade 
Representative, and at the National Security Council, where he was 
senior economic advisor to Dr. Henry Kissinger, General Brent 
Scowcroft, and Dr. Zbigniew Brzezinski.
    He is well placed to give us the government's views with respect to 
the transatlantic economic relationship, and we are pleased to welcome 
him here today.

    Senator Shaheen. Now, as I said, we have two panels today 
before us, and we are very pleased to have such distinguished 
representatives on each of those panels. I want to reserve my 
introductions of the second panel for later because, as I have 
said, we know that Secretary Hormats, who is currently the 
Under Secretary for Economic, Energy, and Agricultural Affairs 
at the State Department, has to leave. And we want to make sure 
we get his testimony in and have the opportunity to have a real 
dialogue.
    Under Secretary Hormats is the senior economic official at 
the State Department. He is responsible for formulating, 
coordinating, and implementing international economic policies. 
Secretary Hormats has a long, distinguished career in the 
public and private sectors. Formerly a vice chairman at Goldman 
Sachs, he has also served throughout Government in a variety of 
senior positions at the State Department, the Office of the 
U.S. Trade Representative, and at the National Security 
Council, where he was senior economic adviser to Dr. Henry 
Kissinger.
    He is well placed to give us the Government's views with 
respect to the transatlantic economic relationship, and we are 
so pleased you could join us today.
    Thank you very much for being here. I will turn the floor 
over to you.

STATEMENT OF HON. ROBERT HORMATS, UNDER SECRETARY OF STATE FOR 
   ECONOMIC, ENERGY, AND AGRICULTURAL AFFAIRS, DEPARTMENT OF 
                     STATE, WASHINGTON, DC

    Dr. Hormats. Thank you very much, Madam Chair, for your 
very kind introduction and for inviting me here to testify on 
this extremely important subject.
    In September, I appeared before the full committee in 
conjunction with my nomination, and I am very grateful for the 
consideration that you and your colleagues showed me during the 
nomination process. I am honored by the trust that President 
Obama, Secretary Clinton, and the Senate have placed in me in 
giving me and providing me with this opportunity to serve our 
Government.
    I am very pleased to appear here today to highlight our 
relationship with Europe as a key part of a robust global 
economy. As you emphasized, this is an extremely important 
economic relationship, and sometimes, with all the 
conversations about China and the BRICs and other countries, we 
tend to underestimate the importance of Europe. And I think in 
your introductory remarks, you have emphasized that point very 
strongly and very correctly that Europe is a huge market, the 
biggest by far, for American products and a big source of 
investment for New Hampshire and virtually every other major 
State in our country.
    And I would like to focus in my testimony on the importance 
of our economic relationship with Europe and the potential that 
the administration sees in using that relationship to boost 
America's international competitive strength and create jobs in 
the United States.
    The European economic relationship is really today one of 
the central drivers of the world economy. To put it in 
perspective--and you have done so with a number of very 
important statistics, and let me just add a few thoughts to 
complement what you have said. The value of United States goods 
and services exported to the EU is over five times the value of 
our exports to China.
    From 2000 to 2009, in contrast, over half of the total of 
United States foreign direct investment was in Europe, while 
the stock of United States foreign direct investment in Brazil, 
Russia, India, and China, the so-called BRICs, combined in 2008 
amounted to only 7 percent of total United States investment 
stock in the EU.
    So the proportion of our trade and the proportion of our 
foreign investment that is in the EU is enormous compared to 
all the rest of the world. And even when you add all the BRICs 
together, the numbers vis-a-vis Europe are considerably 
greater.
    As a further illustration, the existing stock of United 
States foreign direct investment in Ireland alone of $146 
billion in 2008 was more than double the total United States 
investment stake in Russia, India, and China combined, which 
was $71 billion. In little Ireland, it is bigger than the stock 
of investment in all those countries.
    These percentages and figures are likely to change as the 
economies of the BRICs grow and as their role in the world 
commerce increases. But for the moment and for some time to 
come, they will underscore the enormous economic importance of 
Europe to the United States--to American jobs, exports, 
profits, and overall prosperity.
    Europe is the most important foreign source of jobs in the 
United States. In 2007, European-owned firms employed roughly 
two-thirds of the 5.5 million United States workers on the 
payrolls of all foreign firms operating in the United States 
combined. In fact, the majority of foreigners working for 
European-owned companies outside of the EU are Americans.
    Many corporate brands that Americans hold in high esteem 
are European-owned. How many Americans know, for instance, that 
Ben and Jerry's ice cream and Dove soap are owned by Unilever, 
a U.K. firm? And many United States brands are highly popular 
in Europe. Starbucks, for instance, has more outlets in London 
than in Manhattan. As a New Yorker, I am surprised to hear 
that, but apparently, that is the case.
    We need to build on this strong transatlantic foundation, 
given the importance of transatlantic trade and investment in 
supporting high-quality jobs in the United States. I cannot 
emphasize enough, as you have done in your opening statement, 
the importance of making further efforts to remove barriers to 
trade and investment between the United States and Europe. We 
are doing this in several ways.
    First, achieving a successful outcome in the WTO's Doha 
Round remains a top priority for this administration. 
Multilateral liberalization makes sense and can produce huge 
dividends for the United States.
    Second, the United States has every interest in promoting 
strong market-based, rules-based approaches to economic 
policies in third countries, including in particular Russia, 
China, Brazil, and India, which are among the world's fastest-
growing economies.
    The United States and Europe can both benefit if we work 
together to promote the adoption of market principles 
worldwide. A perfect example of the potential for EU-U.S. 
collaboration in third countries is the joint effort the United 
States and the European Union have undertaken to help China 
improve the quality of the toys and other products it exports, 
which is essential to the health and safety of our consumers in 
this country.
    The U.S.-EU Investment Dialogue, chaired by Treasury and 
our IPR Enforcement Working Group, are other examples of our 
joint work to promote better policies in third countries.
    Third, in the bilateral economic relationship that we 
enjoy, over the past 3 years, we have coordinated important 
parts of our agenda with the EU through the Cabinet-level 
Transatlantic Economic Council, the so-called TEC. The 
Transatlantic Economic Council provides a way for our most 
senior economic policymakers to cooperate and engage in joint 
work on regulation, investment, intellectual property 
protection, innovation, trade, and security.
    The United States and the EU account for 40 percent of 
world trade. Within this massive market, regulatory divergences 
between the United States and Europe are the main impediments 
to increased transatlantic economic commerce.
    One way we are seeking to minimize the impact of regulatory 
divergences on trade and investment is to examine closely our 
respective approaches to regulation. A core function of the 
Transatlantic Economic Council is to encourage our regulatory 
agencies to collaborate when possible.
    While differences in perspective and regulatory processes 
will never be completely overcome, at this time when we most 
need innovation, we should be ready to rely on each other for 
ideas to address common problems.
    Looking forward, we will be sharpening our focus on such 
critical emerging sectors as nanotechnology and e-health. As we 
work on the bilateral relationship, we have recently been 
observing significant institutional changes on the European 
side. I would like to highlight several areas for you that 
could impact on the way we do business on economic matters.
    First, the December 1 entry-into-force of the Lisbon treaty 
has given the EU a permanent President of the European Council, 
as well as a High Representative for Foreign Affairs and 
Security Policy. Additionally, the European Parliament has 
received increased powers under the Lisbon treaty in setting 
the EU budget, in agricultural supports, and the exercise of 
new parliamentary authority to approve or disapprove trade 
agreements.
    In so many of these areas impacted by the Lisbon treaty, 
the relationships and the dynamics are being rewritten by the 
EU as we speak. But the clear message of these changes is that 
we will need to increase our engagement--both we in the 
administration and U.S. legislators--with the EU's elected 
legislators.
    There is another institutional point worth noting. Despite 
the changes I have described Member States' influence will 
remain strong. While the Lisbon treaty has given agenda-setting 
of EU meetings on foreign security affairs to the High 
Representative, Catherine Ashton--the nation holding the EU 
Presidency, which rotates every 6 months, will continue to lead 
EU meetings of, for instance, Ministers of Energy, Environment, 
and Agriculture.
    The influence of the Member States in economic policymaking 
will, therefore, remain strong. Those who would seek to 
influence developments in the EU and the dialogue with the EU--
such as the distinguished Senators on this subcommittee and 
those of us in the administration--will continue to find the 
best results by engaging with the EU on all channels, through 
the EU's high-level officials, through Member States, through 
the commission, and with Members of the European Parliament.
    A final institutional factor under Lisbon that will have 
significant influence is the following. While the EU Member 
States may transfer some authorities to the commission, they 
will still have strong incentives to determine policies 
affecting their own national firms. You may recall that the 
shift of competence over trade policy to the commission led to 
a long and difficult set of bilateral negotiations regarding 
compensation over lost tariff advantages as the EU consolidated 
its tariff schedule.
    The transatlantic investment relationship is a good example 
of an area where this shift of authority onto Brussels could 
have significant consequences. The transatlantic investment 
relationship, as you pointed out in your opening statement, is 
enormous. It is currently valued at over $3 trillion, and its 
impact on trade flows is evident from the fact that so much 
U.S.-EU trade is intra-firm trade. Investor protections and 
openness on both sides are generally high, but the relationship 
is based on legal commitments with the Member States in the 
OECD as well as an incomplete network of treaties of 
friendship, navigation, and commerce and bilateral investment 
treaties.
    With greater competence now moving to the EU, we will want 
to work with both Member States and the commission to ensure 
that our investment relations, the foundation of the 
transatlantic economy, remain strong. This last point on 
transatlantic investment is perhaps the most important, and you 
have emphasized it quite correctly in your opening statement.
    We need to continue to look at what we do next not just to 
continue, but to strengthen transatlantic investment flows. 
Quite simply, additional investment between the United States 
and Europe means additional high-quality, high-paying jobs for 
many Americans.
    I thank you again, Madam Chair and members of the 
subcommittee, for the opportunity to appear before you on this 
subject. And I very much look forward to answering your 
questions on this important topic.
    Thank you again.
    [The prepared statement of Dr. Hormats follows:]

Prepared Statement of Hon. Robert D. Hormats, Under Secretary of State, 
    Economic, Energy and Agricultural Affairs, Department of State, 
                             Washington, DC

    Madame Chair, Senator DeMint, and members of the Senate Foreign 
Relations Committee's Subcommittee on European Affairs. Thank you for 
inviting me to testify today on this important subject. In September I 
appeared before the full committee in conjunction with my nomination as 
President Obama's Under Secretary of State for Economic, Energy, and 
Agricultural Affairs. I am grateful for the consideration the committee 
and the Senate showed me during the nomination process. And I am 
honored by the trust the President, Secretary Clinton, and the Senate 
have placed in me in my new position.
    I am very pleased to appear here today to highlight our 
relationship with Europe as a key part of our shared interest in a 
robust global economy.
    In my remarks today, I'd like to focus on the importance of our 
economic relationship with Europe and the potential the administration 
sees in using that relationship to boost America's international 
competitiveness and create jobs in the United States. Enhancing our 
trading relationship with Europe is one way to do this. Attracting more 
foreign investment--which can produce high-quality jobs and bring us 
new technologies--is another. We look forward to continued cooperation 
with the Congress, our national Governors and Mayors, and the private 
sector as we realize these goals.
                   the u.s.-eu economic relationship
    The U.S.-European economic relationship is one of the central 
drivers of the world economy. To put it in perspective, the value of 
U.S. goods and services exports to the EU is over five times the value 
of our exports to China. From 2000 to 2009, over half of total U.S. 
foreign direct investment (FDI) was in Europe. The stock of U.S. FDI in 
Brazil, Russia, India, and China (the BRICs) combined in 2008 accounted 
for only 7 percent of the total U.S. investment stock in the EU.
    As a further illustration, the existing stock of U.S. FDI in 
Ireland alone of $146 billion in 2008 was more than double the total 
U.S. investment stake in Russia, India, and China combined ($71 
billion). These percentages and figures are likely to change as the 
economies of the BRICS and other emerging economies grow and as their 
role in the world commerce increases. But for the moment and for some 
time to come, they will underscore the enormous economic importance of 
Europe to the United States--to American jobs, exports, profits, and 
overall prosperity.
    Europe is the most important ``foreign source'' of jobs in America. 
European-owned firms in 2007 employed roughly two-thirds of the 5.5 
million U.S. workers on the payrolls of all foreign firms operating in 
the United States combined. In fact, the majority of foreigners working 
for European-owned companies outside of the EU are Americans.
    Many corporate brands that Americans hold in high esteem are 
European-owned. How many Americans know, for instance, that, Ben and 
Jerry's ice cream and Dove soap, for example, are owned by Unilever, a 
U.K. firm? And many U.S. brands are, of course, hugely popular in 
Europe. Starbucks, for example, has more outlets in London than in 
Manhattan.
    We need to build on this strong transatlantic foundation as we 
continue to construct new international economic rules and architecture 
to meet today's challenges. This is why my colleagues and I in the 
administration intend to take a very hands-on approach to developing 
our economic relationship with Europe and with the EU in particular.
        the potential of the transatlantic economic relationship
    Given the importance of transatlantic trade and investment in 
supporting high-quality jobs in the United States, I cannot emphasize 
enough the importance of making further efforts to remove barriers to 
commerce between the United States and Europe. And this is not only in 
America's interest--it is in Europe's as well.
    The United States and European Union need to work together on a 
number of levels--in spurring multilateral liberalization in our 
globalized world; promoting good economic policies in third countries, 
especially the major emerging economies; and of course, in 
strengthening our bilateral relationship.
Multilateral Liberalization
    Achieving a successful outcome in the WTO's Doha Round remains a 
top priority for this administration. Multilateral liberalization makes 
sense. The United States and the EU have relatively open markets--we 
want other markets to be more open as well. And the most efficient way 
to achieve this is through the WTO. We need the Europeans to help us 
promote an ambitious, balanced conclusion to the WTO talks.
    Similarly, we want to work with our European partners and the 
European Union on numerous other multilateral fronts: from devising a 
new global financial regulatory and supervisory structure through the 
G20 and Financial Stability Board, to promoting effective development 
assistance with the EU as the world's largest donor, to improving 
supply chain security through the World Customs Organization. And as 
the climate change talks now going on in Copenhagen underscore, it is 
incumbent upon us to find common ground with our European partners.
Third Countries
    Even as we focus on achieving strong multilateral results, the 
United States and the European Union have every interest in promoting 
strong market-based, rules-based approaches to economic policies in 
third countries, including in particular Russia, China, Brazil, and 
India.
    The United States and Europe can both benefit if we work together 
to promote the adoption of market principles worldwide. Better economic 
policies in third countries will raise growth and increase the openness 
needed to generate U.S. exports and U.S. jobs. A perfect example of the 
potential for U.S.-EU collaboration in third countries is the joint 
effort the United States and EU have undertaken to help China improve 
the quality of the toys and other products it exports, which is 
essential to the health and safety of our consumers. The U.S.-EU 
Investment Dialogue, chaired by Treasury, and our IPR Enforcement 
Working Group are other examples of our joint work to promote better 
policies in third countries.
    Our work with third countries is most important in the case of 
Russia, from which I just returned last Thursday. Russia has made the 
transition to capitalism. But there is still significant state 
intervention in the economy and other major distortions. It is in our 
interest for Russia to be a prosperous economic partner and an active 
stakeholder in a rules-based international trading system. Negotiations 
have been underway for some time to enable it to join the WTO, and the 
pace of those negotiations remains in Russia's hands. Success in those 
negotiations, leading to Russia's membership, would enhance the 
international flow of goods, farm products, and services, to the 
benefit of Americans, Russians as well as other Europeans. To attract 
the investment Russia needs to diversify and grow its economy, Russia 
needs to make important improvements in its economic regime. It is in 
our interest to see Russia succeed. Russian prosperity will not only 
improve the lives of millions of Russians; it will also be good for 
American trade and therefore for U.S. jobs.
    We want to work with Russia to support reforms, promoting the 
developing middle class and entrepreneurs. We also want effective 
protection of intellectual property rights that do not disadvantage 
American and foreign products and manufactured goods, and science-based 
sanitary and phyto-sanitary rules that are consistent with 
international standards and do not unfairly impede imports of U.S. farm 
products. Many American companies are doing very well in Russia and we 
want more to do so--supporting our prosperity and Russia's as well. And 
many Russian companies are doing very well in the United States. We 
seek a level playing field for both--to our mutual benefit and to 
expand mutual commerce and investment. Our goal is a win-win situation 
where Americans and Russians see closer economic ties with one another 
as beneficial to one another. The Bilateral Presidential Commission 
established by Presidents Obama and Medvedev is intended to achieve 
that.
    Europe depends on Russia for a significant amount of its energy 
imports, while Russia derives much of its budget revenues from energy 
sales to the West. This is an important relationship to which I know 
this committee pays close attention. We want to work with all parties 
to promote energy security. As part of this effort, we strongly support 
greater interconnection among European countries, increased storage 
facilities, as well as alternative supplies of gas to Europe, and are 
working actively to help Europe to diversify its supplies. Senator 
Lugar has spoken particularly strongly and effectively about this topic 
as have others on this subcommittee. We welcomed the recent EU-Russia 
agreement to establish an early warning mechanism on supply 
disruptions. Our shared concern on energy security was one of the key 
reasons the United States and the EU established the U.S.-EU Energy 
Council, cochaired on the U.S. side by Secretaries Clinton and Chu, at 
last month's summit. Ambassador Richard Morningstar is actively engaged 
with his European counterparts to promote our common objectives in this 
area. He also cochairs a U.S.-Russia subworking group focused on energy 
security issues.
    We need to work with Europe and the European Union to promote 
private sector engagement in countries like Iraq and Afghanistan. Both 
sides of the Atlantic have a direct interest in the development of 
stable and prosperous societies in these countries. This will come only 
with economic growth, which in turn will depend in large part on 
private sector engagement through trade and investment relationships. 
The United States and Europe are both doing many things to promote 
trade and investment ties with Iraq and Afghanistan. This includes, for 
instance, the EU's recent negotiations toward a Partnership Agreement 
with Iraq and substantial aid to Afghanistan. But we can all do more.
The Bilateral Economic Relationship
    As I noted at the beginning of my remarks, the transatlantic 
economic relationship is our deepest and broadest by far. Given the 
absolute size of our relationship, even small gains in any sector can 
mean significant improvements in the lives of our workers.
    For this reason the administration is focusing on things that can 
be done to strengthen transatlantic economic ties. In the past 3 years, 
we have coordinated important parts of our bilateral economic agenda 
with the EU through the Cabinet-level Transatlantic Economic Council, 
the ``TEC.'' The Transatlantic Economic Council provides a way for our 
most senior economic policymakers to cooperate and engage in joint work 
on regulation, investment, intellectual property protection, 
innovation, and trade and security.
    Similarly, given that services account for nearly 70 percent of 
economic activity in both the United States and Europe, we are 
searching for ways to break down transatlantic barriers in this area. 
Different approaches to financial regulation, and ``incipient 
mercantilism,'' could have huge deleterious consequences for us both. 
Treasury, the SEC, and our other regulators are actively using the 
U.S.-EU Financial Markets Regulatory Dialogue to find a way to avoid 
this.
    By many accounts, the most significant obstacles to trade between 
the United States and Europe are largely the result of regulatory 
divergences. Regulators in both Europe and the United States aim 
essentially for the same results--strong protections for the health and 
safety of our citizens, for our environment, and for our financial 
system. The EU has sometimes imposed non-science-based measures on U.S. 
agricultural and industrial exports, such as the bans on the use of 
growth hormones in beef and pathogen reduction treatments for poultry, 
restrictions on the cultivation and marketing of biotech products, and 
various labeling schemes. We will continue to support the efforts of 
USTR, USDA, and the Department of Commerce to encourage the EU to 
remove these barriers to trade. It is important to ensure that in 
achieving their regulatory goals the EU not also impose arbitrary 
barriers or fail to comply with its international obligations.
    One way we are seeking to minimize the impact of regulatory 
divergences on trade and investment is to examine closely our 
respective approaches to regulation. The Transatlantic Economic Council 
has spurred new discussions on our respective approaches to risk 
analysis, cost-benefit analysis, and the assessment of the economic 
impact of regulation on economic activity. We have also discussed 
regulatory approaches in particular sectors, including the food, drug, 
chemical, automotive, and electrical/electronics sectors.
    A core function of the Transatlantic Economic Council is to 
encourage our regulatory agencies to collaborate, wherever possible. We 
are working to create the expectation among our regulators that part of 
their job is to cooperate with their transatlantic counterparts. 
Regulatory cooperation would not just benefit trade--it can also 
promote more effective regulation. When we both face increased imports 
from areas where regulatory systems are still weak, for example, we can 
ill-afford to have our regulatory enforcement assets inordinately 
focused on products from places we trust to be safe. And by 
cooperating, we can increase the returns on the scarce public funds 
devoted to our respective regulatory budgets. While differences in 
perspective and regulatory processes will likely never be completely 
overcome, at this time when we most need innovation, we should be able 
to rely on each other for ideas to address common problems.
    Looking forward, we will be sharpening our focus within the 
Transatlantic Economic Council on promoting innovation in emerging 
sectors, such as nanotechnology and e-health, which will be critical to 
our competitiveness in a globalizing world. The TEC has recently 
launched a high-level Innovation Dialogue to further these efforts.
    Additionally, if the United States and European Union can agree on 
common approaches among ourselves in some of these areas, they can 
serve as a model for other nations. Together we can provide an 
incentive for others to embrace our approaches rather than impose 
standards that could be less rigorous or impede American and European 
access to their markets.
    Transatlantic Economic Council successes thus far include a major 
statement on the importance to our economies of maintaining open 
investment policies; significant simplification of administrative 
procedures for transatlantic approval of new drugs, especially 
``orphan,'' or low-demand, drugs; the EU's agreement to extend its 
acceptance of dual labeling, in both metric and standard, for units of 
measurement; steps to develop compatible standards to allow sharing of 
electronic patient health records; and the U.S.-EU IPR Enforcement 
Working Group.
    We also place enormous weight on collaborating with our European 
partners on developing energy technologies, both to reduce demand for 
hydrocarbons and to cut greenhouse gas emissions. Last month we 
inaugurated the U.S.-EU Energy Council, under the leadership of 
Secretaries Clinton and Chu and their European counterparts. In 
addition to its work on energy security, the Energy Council will seek 
to stimulate transatlantic cooperation in energy research. It also will 
look at the policy and regulatory issues that have the potential to 
hinder trade, as our technology and responsible energy use continue to 
progress. A prime example is the issue of interoperability standards 
for the range of electronic devices communicating on the ``Smart 
Grid,'' as we continue to modernize the electrical grids in the United 
States and Europe.
    Another promising area for transatlantic integration efforts is 
aviation. The 2007 U.S.-EU Air Transport Agreement has been a major 
success, benefiting airlines, travelers, shippers, communities, and the 
broader economies on both sides of the Atlantic. The agreement expanded 
Open Skies to all 27 EU Member States, stripping away protectionist 
restrictions. Both sides committed in the agreement to second-stage 
negotiations aimed at further liberalization. The second-stage 
negotiations began in May 2008, and we have made progress across a 
range of important issues, including security, regulatory cooperation, 
and the role of the Joint Committee established by the 2007 agreement. 
The sixth round is scheduled for January in Washington. Our goal is to 
reach, in 2010, a second stage agreement that includes benefits for 
both sides.
                      the institutional framework
    The United States has a range of Cabinet- and sub-Cabinet-level 
economic collaborative efforts with the Europeans. The United States 
maintains a multifaceted, dynamic engagement with the EU on economic 
topics in both bilateral and multilateral gatherings. We held the U.S.-
EU summit here in Washington November 3, at which President Obama 
hosted his EU colleagues, Prime Minister Reinfeldt of Sweden and 
European Commission President Barroso. The focus of their economic 
discussion was on the challenges of responding to climate change and 
promoting strong, sustained economic growth--as articulated by the G20 
in Pittsburgh.
    In the weeks since the U.S.-EU summit, we have seen significant 
institutional changes on the European side. The ratification and 
December 1 entry-into-force of the Lisbon Treaty has given the EU a 
permanent President of the European Council as well as a High 
Representative for Foreign Affairs and Security Policy.
    These new positions, along with the European External Action 
Service, the new diplomatic service that the EU is starting to build, 
are designed to increase continuity and coherence in EU policy. Though, 
in economic policy, the precise role and full impact of these 
innovations remain to be seen particularly the role and impact of the 
position held by President Van Rompuy.
    The Lisbon Treaty brings other institutional changes that are worth 
careful consideration by U.S. policymakers. One significant shift is 
the increased role of the European Parliament in EU decisionmaking.
    The European Parliament has received increased powers under Lisbon. 
The changes that have received the most attention are the increased 
powers and role of the European Parliament in the areas of justice and 
home affairs. In the economic area, the European Parliament's increased 
authority in setting the EU budget will also be an important factor. 
Stronger European Parliament authority over agriculture policy, and the 
exercise of new Parliamentary authority to approve or disapprove trade 
agreements, will also be of high interest to the United States.
    As with so many other areas impacted by the Lisbon Treaty, the 
relationships and the dynamics are essentially being rewritten by the 
EU as we speak. But the clear message of these EU institutional changes 
for U.S. economic policymakers is that we will need to increase our 
engagement--both we in the administration, and U.S. legislators--with 
the EU's elected legislators. We have a reasonably strong understanding 
of activities in key European Parliamentary committees, such as in work 
on climate change, chemicals and pesticide regulation, 
telecommunications, and a range of other areas. But more work remains 
to be done, and the importance of that work will grow as the 
Parliament's role grows.
    Ties and contacts between U.S. and EU legislators should also 
strengthen as the European Parliament's authority broadens. We in the 
administration welcome interparliamentary engagement. Many members of 
this subcommittee, as well as other Senators, have engaged in a range 
of dialogues and detailed discussions with their European counterparts. 
And on the House side, a number of Members, led by Representative 
Shelly Berkley, have recently met with their European counterparts in 
New York under the Transatlantic Legislators Dialogue.
    A second institutional point is worth our attention. Although 
Lisbon has given agenda-setting of intra-EU meetings on foreign and 
security affairs to High Representative Catherine Ashton, the nation 
holding the EU presidency, which rotates every 6 months, will continue 
to lead EU meetings of, for instance, Ministers for Energy, 
Environment, and Agriculture. The influence of the Member States in 
economic policymaking will therefore remain strong. Those who would 
seek to influence developments in the EU and dialogue with the EU--such 
as the distinguished Senators on this subcommittee, and those of us in 
the administration--will continue to find best results by engaging with 
the EU on ``all channels.''' We need to continue to engage the EU 
through its high-level officials, through the Member States, the 
Commission, and the Parliament.
    Certainly the EU has a unique and complex institutional structure 
in Brussels. But I know the Europeans feel the same way when they visit 
Washington and try to figure out how to talk with both ends of 
Pennsylvania Avenue. The puzzlement Americans and Europeans may 
sometimes feel when looking at the other's system of government, 
however, cannot be allowed to deter us from doing everything we can to 
ensure close collaboration on the range of policy issues--too much is 
at stake.
    Finally, a third institutional factor that will have significant 
policy implications for the United States and for U.S. companies is 
that EU institutions will gain additional authority over energy as well 
as agriculture supports. This process will take time. While Member 
States may transfer legal and policymaking authorities to the 
Commission, they will still have strong incentives to determine 
policies affecting their own national firms. You may recall that the 
shift of competence over trade policy to the Commission led to long and 
difficult bilateral negotiations of compensation over lost tariff 
advantages as the EU consolidated its tariff schedule.
    The transatlantic investment relationship is a good example of an 
area where this change in competency from Member States to Brussels 
could have significant consequences. The transatlantic investment 
relationship is currently valued at over $3 trillion, and its impact on 
trade flows is evident from the fact that so much U.S.-EU trade is 
intra-firm. Support for the rights of American investors abroad, not 
just in Europe but elsewhere as well, is an important objective of the 
State Department and of other agencies. We see the Department of 
Commerce and USTR as partners in this effort. The level of investor 
protection and openness on both sides is generally high. However, the 
relationship is based on legal commitments with the Member States in 
the OECD as well as an incomplete network of Treaties of Friendship, 
Navigation, and Commerce and Bilateral Investment Treaties. With 
greater competence now moving to the EU, we will want to work with both 
Members States and the Commission to ensure that our investment 
relations, the foundation of the transatlantic economy, remain strong.
    I thank you again, Madame Chair and members of the subcommittee, 
for the opportunity to appear before you on this subject. I look 
forward to answering your questions on this important topic.

    Senator Shaheen. Thank you very much for that very 
enlightening testimony.
    And I want to start with the Transatlantic Economic 
Council, which you referenced in your comments, and get your 
assessment of that effort and how it is working. It was 
designed to better harmonize, as I understand, the differences 
in regulatory practices between the United States and the EU. 
But how effective has it been?
    Is there a way to make it more relevant? Should we forget 
about it and try something else? Or what is the status?
    Dr. Hormats. It is an interesting question, and we have 
tried to improve it over a period of time. I think the answer 
is that in a number of areas, it has demonstrated success. We 
are working together very closely on the regulatory issues that 
I mentioned. And while there are not very high tariffs between 
the United States and the EU on most items, there are a lot of 
differences in regulations, the way they are administered, and 
the procedures.
    One of the things we emphasized at the last set of 
meetings, which I had the pleasure of attending, was to try to 
do a much better job at harmonizing regulations, or at least 
have mutual recognition where possible. Because while it is 
true that there are regulatory differences between the United 
States and the EU, there are much greater regulatory 
differences between the EU and much of the rest of the world 
and the United States and much of the rest of the world.
    So if we can harmonize our relations, we do several things. 
One, we improve trade flows or reduce trade barriers across the 
Atlantic. Two, we set a higher standard for the rest of the 
world. And three, if we do that properly, we can avoid other 
countries imposing nationalistic regulatory policies which 
restrict the access of our goods and of European goods and our 
investment and European investment to their markets.
    So we think this is an important area. There are other 
areas where we are working together. Energy security is a very 
important issue. We are particularly concerned, as are you and 
other members of this committee, with the vulnerability of 
Western Europe to a heavy dependence on a certain set of 
suppliers and certain kinds of energy, natural gas. So to the 
extent we can work with the Europeans on energy security 
issues, that presents an opportunity as well.
    Intellectual property protection, as I mentioned earlier, 
is another area where we can work together. By and large, the 
United States and Europe have quite good protection of 
intellectual property. But many parts of the world don't. That 
disadvantages American companies and European companies. And 
many parts of our economy are finding piracy of intellectual 
property to be an enormous problem.
    European companies are finding the same kinds of 
difficulties. To the extent we can use the TEC to improve 
cooperation in this area, that is a plus. But I would also say 
that we have to continue to improve it. This is the most 
important and certainly in quantitative terms, but also for 
many other reasons, the most important relationship.
    And Fran is here, who has just done an excellent report on 
this. We haven't had a chance to study it yet, but I can assure 
you we will. And there are some very imaginative and thoughtful 
recommendations in the report, and we will certainly take a 
hard look at them because it does need continued efforts to 
improve it. On both sides, we agree to do that, and we are 
looking for new ideas.
    So I can assure you that we are going to be taking a very 
hard look at this, and I am sure we will be talking later.
    Senator Shaheen. Yes, and we are looking forward to hearing 
from her as well.
    Dr. Hormats. She always has good ideas. So I am sure it 
will be good testimony.
    Senator Shaheen. Actually, I was thinking what I would 
really like to do is put you all in a room and just have you 
talk among each other.
    Dr. Hormats. We can do that next week.
    Senator Shaheen. Good. But the point you are making I think 
is one that is an ongoing challenge, and that is how do we 
better coordinate the various Government agencies and efforts 
that are trying to work on this kind of an issue to work better 
together and coordinate the relationship so that we have a 
unified approach to how we are dealing, in this case, with the 
EU-U.S. relationship?
    Dr. Hormats. I agree with that. I think part of the 
challenge is we have got so many agencies doing so many things 
in Western Europe that coordination among them is very 
important.
    One of the things the TEC enables us to do, it focuses us--
you know, it focuses our various agencies on the TEC meeting so 
that we have a lot of preparatory work prior to the meetings 
that is focused on the issues that are going to be covered. And 
to the extent it serves as sort of a catalytic agent for us, it 
can be very helpful.
    Senator Shaheen. We were having a conversation outside 
before we came in about small business and the importance of 
trying to provide some assistance to small business to access 
international markets. And you talked a little bit about an 
effort that you are thinking about, but I wanted to--wonder if 
you could elaborate on that and talk about how we can do a 
better job of helping our small businesses gain access to 
European markets?
    Dr. Hormats. Yes. Thank you very much for that question. I 
think it is something that is very important to me, and I had 
the pleasure of meeting your constituent, Mr. Howland, in the 
other room, and companies such as his are very creative. There 
is a lot of entrepreneurism going on in the United States. And 
much of it is with small- and medium-sized enterprises, and 
they could export a lot more.
    There are a lot of inhibiting factors, and we were talking 
about a few of them. First of all, it takes a long investment 
of time and effort to understand how to export to various 
markets. Most American companies that export, export to one or 
two countries, and most of those are Canada or Mexico because 
of proximity and the knowledge of those markets by Americans.
    But to the extent companies can export to those countries, 
they should, in most cases, be able to export to others. So one 
of the things that I am going to try to do, as I mentioned, is 
to sit down very shortly with the head of the Small Business 
Administration and with people in the Chamber of Commerce and 
other groups to figure out what we in the Government can do.
    And the State Department, obviously, can't do it alone. We 
have to work particularly with the Department of Commerce, 
which is doing an excellent job in this area also. And figure 
out ways that we can help small business to, first of all, 
identify markets; second, get to understand how to crack those 
markets; and three, utilize our Embassies, our State 
Department, Civil Service, and Foreign Commercial Service 
officials to provide the assistance they need.
    And for small businesses, this is particularly important. 
Bigger businesses have done it for a long time. Smaller ones 
have not. So we are trying to figure out ways we can work with 
them.
    There are other things that are important. I met yesterday 
with a coalition of services industries, and one of the things 
that is important is when small businesses do try to crack 
these markets, they have the financial services, the transit, 
the communication services, the Fed Ex, UPS kind of services 
that are needed to provide them opportunities to sell into 
these markets. And many of these service companies have had a 
lot of experience at these, in dealing with these emerging 
markets.
    And last, to deal with some of the bigger companies. Some 
of the bigger companies have experience, but in order to 
advance their own export potential, they would like to work 
with smaller companies that have newer products. Where those 
companies may, themselves, not be able to export to these 
markets, bigger companies have an interest in working with them 
to help them do so.
    So on a number of fronts, we are going to try to make this 
an effort. Secretary Clinton is quite interested in doing this. 
So we are going to, over the next several months, really make 
an effort to work closely with small businesses and help them 
to do this. It can create jobs. It can help exports. It can 
help in the overall rebalancing that we are talking about 
internationally.
    Senator Shaheen. And you mentioned the Qualcomm example 
outside. Is there a role, do you think, a public role to work 
with private companies like that to encourage them to think 
about assisting the smaller businesses that they may be doing 
business with?
    Dr. Hormats. Absolutely.
    Senator Shaheen. And how would you envision that working?
    Dr. Hormats. Absolutely. I had the pleasure of meeting with 
the CEO of Qualcomm this morning, and they are doing a lot of 
very good work with American companies and helping them to 
export, and also they are helping other countries to understand 
how better to use things like cell phones to advance their own 
internal commerce, which, in turn, helps us. To the extent 
these countries can grow, it helps us as well.
    So one of the thoughts I had was to work with large 
companies, get them informally--and they are doing it to a 
large degree already--but informally working with some of the 
smaller companies to see where the two can actually find mutual 
benefits. And also I think what is not as fully understood in 
this country is how much many of the American high-tech 
companies are already contributing to development in emerging 
and poor economies.
    Cell phones, for instance, are the delivery device for much 
of the information that goes to rural India so people know 
about the price of crops. They were telling me about one use of 
cell phones where you can take a picture of, for instance, some 
fruit that is blighted.
    You send it in to a research center. The guy couldn't come 
out from the research center to the small village. He takes a 
look at it and describes what he thinks is wrong with it, sends 
out the kind of spray that is needed to cure whatever is wrong 
with the apple or the cherry or whatever is on the tree.
    So there are ways you can use this technology to the 
advantage of developing countries, which, in turn, promotes the 
exports of American goods. And not just the cell phone, but 
everything that goes into the cell phone, which, in many cases, 
can be produced by smaller companies so that if they don't 
export directly, they can export indirectly by providing 
components to the final product.
    So a lot of this is intertwined. And one of the things we 
are trying to do is to work--and the State Department, as I 
say, can't do it alone. But we can provide a sort of catalytic 
role for companies like this and encourage them and shine a 
spotlight on this so people--others know what they are doing 
and can participate.
    Senator Shaheen. We actually just had a conversation 
earlier at a hearing about Afghanistan around the cell phones, 
the potential use of cell phones in Afghanistan. So it is a 
very interesting----
    Dr. Hormats. Yes. It is remarkable.
    Senator Shaheen [continuing]. Prospect.
    Dr. Hormats. It is. It is.
    Senator Shaheen. I want to go back to energy, which you 
raised a little earlier. And again, as you mentioned in your 
written testimony, the administration launched the U.S.-EU 
Energy Council during the summit in November. And I know that 
energy security and clean energy is a priority for this 
administration, for you in your new position, and there are 
areas that I think are particularly critical for future 
business growth. They will have a significant impact on our 
economy as we transition to a new energy economy.
    And I wondered if you could outline the kinds of 
opportunities that you think exist and then the obstacles to 
promoting development of these critical energy businesses? And 
maybe you could also, if you would, address whether you think 
there is--what is going to happen in Copenhagen this week and 
next will have an impact on how you see this issue playing out 
in the U.S.-EU markets?
    Dr. Hormats. Sure. Well, I am delighted you focused on the 
energy portion of it because that is increasingly important in 
terms of several areas of the energy scene. One is energy 
security, as I mentioned. We are all interested in more secure 
supplies of energy.
    The Western Europeans in particular have felt very 
vulnerable in some cases because they are highly dependent on 
Russian natural gas. Now I think--having just been to Russia 
last week, and I have put a little bit of this in my written 
testimony, I think there is a greater degree of cooperation 
between Russia and the EU now than there has been in the past.
    They have established an early warning system that will 
identify the potential for energy supply disruption, and that 
means the EU and the Russians will be working very closely on 
that, and I think that is a plus. And by and large, my 
conversations in Russia suggest that the Russians really wanted 
to be seen as a reliable supplier.
    On the other hand, as with any commodity, anything at all, 
diversification is extremely important. And therefore, we are 
very supportive of the efforts of the Europeans, the Western 
Europeans to have diverse sources of energy, diverse channels 
for delivering energy.
    And there is the notion of the southern route with the 
potential Nabucco pipeline, which, as you know, Senator Lugar 
has been very interested in supporting, and a lot of members of 
this committee have recognized the importance of a pipeline or 
a source of energy that can take natural gas from the Caspian 
Sea and move it into Western Europe as an alternative to 
Russian gas, just because diversification is a positive thing. 
It is a positive thing for us. It is certainly a positive thing 
for Europe.
    Now what has happened in the gas market is quite 
interesting. Because the United States is now producing a lot 
more natural gas, we are relying a lot less on liquefied 
natural gas, which is imported. And a lot of that is going to 
Europe so that there is more diversification in European gas 
supplies by this additional liquefied gas coming in.
    And if you add other potential sources from the Caspian, 
the so-called southern route, the Europeans will have greater 
potential for diversifying. That is one area.
    Second is energy efficiency. We all need to improve the 
efficiency of our energy. Working together with the EU on 
energy technology is something that is extremely important. 
Those are the kinds of areas where we think with American 
science and American companies working together, we can 
actually make a considerable amount of progress.
    On the Copenhagen question, I haven't been as closely 
involved in that as Todd Stern and some of the others. So I 
think I will hold off on answering that question because they 
are right in the middle of negotiations now, and I just don't 
know how they are going to come out.
    But I will say that however they come out, one of the 
things that we need to do--one would hope they come out very 
successfully, and we are certainly working toward that end. But 
however they come out, the United States and Europe still need 
to concentrate to a greater degree on energy efficiency, clean 
energy, working together to develop new energy technologies.
    There are a wide range of things we can do together, and we 
have a common interest. We are both dependent--Europe, most of 
Europe more heavily so than the United States--on imported 
energy, and we want to rely as much as we can on domestic 
primarily clean energy.
    Senator Shaheen. Thank you. I am trying to get you to wade 
into Copenhagen, but----
    Dr. Hormats. Yes. We are in the middle of it. So I sort of 
reserve until we have a clear idea of what we are going to come 
out with.
    Senator Shaheen. I want to switch to some of the 
enforcement challenges because, obviously, enforcement issues 
remain a concern to a lot of businesses that do work abroad. 
And though, as you have indicated, it is not as much an issue 
in our relationship with the EU as with some other countries, 
there are still challenges there. And I have had some companies 
complain that we have not had a consistent U.S. policy when it 
comes to enforcing trade policies and that we need to be more 
focused on the potential impacts to American business of 
companies abroad that don't abide by our trade policies.
    And I wonder if you could talk about what kind of a 
priority that is for the State Department and how we work 
together with the Office of the Trade Representative, with 
Commerce, to address the issue of enforcement and how important 
you see that is for American businesses?
    Dr. Hormats. Well, I think enforcement is critically 
important. It is important for two very fundamental reasons, 
one of which is that American companies who find their rights 
abridged by, or their access to markets abridged by, actions by 
other countries expect correctly the Federal Government of the 
United States to support them in their efforts to correct that 
situation.
    And second, because we would like to develop agreement in 
the Doha Round, the WTO round. We would like to work together 
as, you know, the President made an announcement when he was in 
Asia about reinvigorating the TPP talks, more engagement in 
those. If we are going to be credible with the American people 
in negotiating trade agreements, we have to be credible in 
enforcing those agreements. Otherwise, we won't have the kind 
of support we need to conclude them if they think we are going 
to conclude them and not follow up.
    So that, on both counts, they are very important. And I 
would say that we--the State Department and USTR, Ambassador 
Kirk, who has done a superb job, we are working with them and 
very supportive of them in these efforts. Every time I go 
anywhere, every time the Secretary of State goes anywhere, and 
other senior officials, we make very strong points in support 
of American companies that are, A, experiencing trade 
difficulties in individual countries and, B, in terms of 
support for American exporters.
    For instance, in Russia just last week, I made a number of 
points. The Russians had agreed in 2006 with the United States 
to do a number of things to reduce barriers in the agriculture 
field, beef and poultry and pork. And there were a number of 
areas in which the progress has not been as good. In some 
cases, there is a concern even about backtracking with respect 
to higher tariff rate quotas on pork and poultry--or lower 
tariff rate quotas, in fact, lowering the quota, which would 
harm our exports.
    So, basically, what we are trying to do is figure out in 
every country we go to the kinds of issues we need to raise to 
ensure that our trade interests are put into effect, and we 
push what we are trying to get these countries to do and push 
our trade agenda. And that is something we do in every country. 
All the talking points for the Secretary, for myself, and 
anyone else focus on these to a very substantial extent because 
we know they are important exports and we know they are 
important to credibility.
    And in doing these things, in developing these points and 
taking these initiatives, we work very closely with the U.S. 
Trade Representative. With respect to the EU, for instance, 
there are a number of things that we have done. We 
successfully, for instance, reached a compromise agreement with 
the European Union on hormone beef after a series of bilateral 
talks. This is something that is now leading to an increase in 
the exports of hormone beef to Western Europe.
    So the other part of the problem is that we still have 
issues with the EU on such things as the exports of biotech 
corn and corn products, particularly animal feed. So we are 
working to--these are just individual examples. But we are 
trying to enforce and promote our interests and make sure that 
what we believe to be our legitimate trade rights under the WTO 
or the guide before it, or under bilateral agreements, are 
enforced.
    So this is a very high priority, both in terms of our 
economy and in terms of our credibility as a country and in 
terms of the credibility of the whole trade negotiating 
process.
    Senator Shaheen. Good. Thank you.
    I especially appreciate hearing that. We had a situation 
with a company in New Hampshire that had a longstanding issue, 
not with the EU, but with Japan, that----
    Dr. Hormats. I recall that. It came up in my hearing. So--
--
    Senator Shaheen. Yes, I think it probably did.
    Let me also ask about the restrictions that we have on 
exports, companies. ITAR is one of those that is challenging as 
we think about defense and security items. And is there a way 
to work toward a more open defense market?
    And I am sure that Dr. Burwell will get into this a little 
bit on the second panel, but is this something that State can 
help take a look at so that we can ensure that we are not 
restricting everybody in the defense industry, regardless of 
how critical their product is to national security?
    Dr. Hormats. Yes. This is a very significant question 
because the world has changed a lot since the cold war, and 
technology has changed a lot even since last year. So what we 
are in the process of doing is taking another look at a number 
of products.
    Obviously, there are some areas where there is a strong 
national security argument, and there won't be any loosening 
and may be some tightening. But in many cases, there are 
products that are on the list that should be reviewed in terms 
of, one, are they readily available on the shelves of P.C. 
Richard or some other store? And--or readily available from 
other countries, and therefore, a unilateral American embargo 
on the export would not serve very much purpose.
    So we are going to take a look at this and hopefully 
modernize the process and bring it up to date. This is 
obviously important. It is important to review these things 
periodically anyway, but particularly, given the fast pace of 
technology, the spread of technology, the wider availability of 
a lot of things. We obviously have to look at these things and 
review these lists on a fairly regular basis.
    And I think that that is fair to exporters. It also means 
that we can concentrate the work and the efforts of our people 
on the high priorities, and they don't have to worry about 
things that are less important and are available on the 
drugstore shelves or anywhere else in the world.
    Senator Shaheen. And is that something that you think State 
will take the lead on?
    Dr. Hormats. State will certainly work with the other 
agencies. There are several agencies. Obviously, the Defense 
Department will be critical. The Department of Commerce will be 
critical. State will certainly play a very strong role in this 
process, for sure.
    Senator Shaheen. Thank you.
    And my final question has to do with the concern about 
making sure that we have all of the nominees in the key 
positions that we need in order to get this work done.
    Dr. Hormats. Yes.
    Senator Shaheen. And I know that the nominee to be the 
Deputy U.S. Trade Representative with trade responsibility for 
WTO and the EU was nominated in April, has been voted out of 
committee, and yet is being held up. And I wonder if you could 
just speak briefly to the challenges it creates in terms of 
addressing some of the issues that have been raised today to 
not have in place a full team of people who can do the work?
    Dr. Hormats. Well, it does make things more difficult. If 
you don't have people in place who are responsible for the 
kinds of things that you have just mentioned, WTO and Europe, 
and both are very important, and both are very important 
priorities.
    So the sooner those jobs can be filled, the better for our 
country and for addressing the very kinds of issues that you 
and I have been discussing for the last several minutes. These 
are the kind of people who are needed and we have a very able 
person who has already been trained for this job. These things 
can help the process along.
    And I would simply say that the sooner these jobs can be 
filled with the kind of quality people who have been nominated 
for them, in this case, a very high qualified person, it would 
certainly help the process.
    Senator Shaheen. Well, thank you. Thank you very much.
    Dr. Hormats. My pleasure. Thank you for having me.
    Senator Shaheen. I think we are getting you out of here on 
time.
    Dr. Hormats. I appreciate that, and I look forward to 
seeing you again. Thank you for inviting me up.
    Senator Shaheen. Yes. We look forward to continuing to work 
on these issues as we try and strengthen this relationship and 
our exports.
    Dr. Hormats. I look forward to it, and I will follow up 
with Fran's paper, too.
    Senator Shaheen. Good. Thank you very much.
    I will ask then our second panel if they could come 
forward?
    Welcome to our second panel. I understand that we are not 
going to have any votes until after 4 p.m. So we should be all 
set with getting through your testimony and our questions 
before the votes occur. Again, we have three more very 
impressive witnesses to further delve into these issues.
    First on our panel is Dr. Frances Burwell. Dr. Burwell is 
currently the vice president and director of transatlantic 
relations and studies at the Atlantic Council of the United 
States. Her areas of expertise include U.S.-EU relations and 
the development of the European Union's foreign, defense, and 
economic policies.
    Most recently, she worked with Dr. Daniel Hamilton from the 
Johns Hopkins University Center for Transatlantic Relations on 
a new report that we have already heard about, outlining ways 
to strengthen the U.S.-EU partnership. The publication, 
entitled ``Shoulder to Shoulder: Forging a Strategic U.S.-EU 
Partnership,'' has already been met with wide acclaim. The 
subcommittee looks forward very much to hearing more from you, 
Dr. Burwell.
    We also have joining the panel Dr. Michael Maibach, the 
president and CEO of the European-American Business Council, 
where he has served for over the last half decade. It sounds 
very impressive when we say it that way. I think you have been 
there for little more than 5 years. Is that correct? Seven 
years, OK.
    Founded in 1989, the council includes 70 global companies, 
both European and North American-based enterprises. The council 
has offices in both Washington and Brussels and is committed to 
promoting transatlantic investment, innovation, and 
integration. And prior to his current position, Mr. Maibach 
worked for over 18 years at Intel Corp., where he became an 
industry leader in a number of important policy initiatives. 
And we are very happy to have you here today as well.
    And finally, I want to introduce from New Hampshire, Mr. 
Charles Howland, who is the president of Warwick Mills. And I 
should point out to all of us here how much we appreciate your 
getting here in a snow storm in New Hampshire. So thank you 
very much.
    Warwick Mills is a New Hampshire-based company founded back 
in the late 1800s that has developed itself into a world leader 
in innovative textile engineering and cut-resistant fabrics for 
use in advanced protective garments. Warwick holds 14 
international patents in protective materials, and in 2008, the 
company was awarded the Export Achievement Award from the U.S. 
Department of Commerce in recognition of the firm's growth into 
the global marketplace. And Warwick Mills does a significant 
amount of business in Europe, where it exports many of its 
products overseas to the United Kingdom, Netherlands, Germany, 
and France.
    Mr. Howland is well placed to offer this subcommittee a 
unique perspective on the transatlantic economy and how the 
U.S. Government can better support and sustain the efforts of 
small- and medium-sized businesses in their efforts to expand 
into overseas markets. We applaud you and Warwick Mills for 
your success and look forward to hearing your insights into 
what has worked and what hasn't.
    And I will ask you to begin, and then Mr. Maibach, and we 
will finish with Dr. Burwell.
    Mr. Howland.

  STATEMENT OF CHARLES HOWLAND, PRESIDENT AND CHIEF ENGINEER, 
              WARWICK MILLS, INC., NEW IPSWICH, NH

    Mr. Howland. Thank you very much for that introduction.
    I would just like to say a few things about our perspective 
on international trade. In particular, our most important 
relationships, of course, are in Europe.
    The EU is a critical trading partner for American 
companies. In our own case, we have product lines whose primary 
market is the EU. As a small business, we exist on the value of 
our innovations. We must innovate to thrive.
    To make a commercial success out of our inventions, we must 
have access to markets that are deep and sophisticated. Europe 
is at the top of the list in these characteristics.
    In the technology and materials sector, products are very 
targeted and must conform to regional standards and 
specifications. These are not commodity offerings, and the 
basis for competitive advantage is in advanced engineering. 
Programs of this type allow us to manufacture in New Hampshire 
at a profit.
    At a national level, we are engaged in a debate about how 
to retain and expand manufacturing employment. On the ground, a 
few small manufacturers have found a new business model. This 
model is based on developing best-in-class technology products 
and selling them into specialty markets where they can command 
a premium. In Europe, customers understand this value 
proposition, operate on a clear legal basis, and respect 
intellectual property.
    Maintaining the required levels of R&D investment is an 
ongoing challenge for small companies. Taking a concept through 
to revenue production is not a sure thing. We have found that 
keeping both domestic and European requirements as objectives 
doubles our potential for success.
    The current, more realistic valuation of the dollar is 
helpful. The return to a bilateral foreign policy and 
constructive engagements with the Europeans on issues such as 
climate change are all important. However, the key to trade 
with Europe is to build and maintain technical leadership in 
the engineering of our products.
    There are some issues with Federal policy that we would 
like to comment on. The SBIR/STTR program coming out of the DOD 
is enlightened. However, the DOD program is focused solely on 
internal domestic needs for new technology and cannot drive 
exports because of ITAR controls.
    We propose that the U.S. Commerce Department should get 
involved and become a full participant in the SBIR program. The 
Department of Commerce focus would be on the development of 
export products and the creation of manufacturing jobs.
    [The prepared statement of Mr. Howland follows:]

 Prepared Statement of Charles Howland, President and Chief Engineer, 
                  Warwick Mills, Inc., New Ipswich, NH

    At Warwick we have a few thoughts with respect to transatlantic 
trade. The EU is a critical trading partner for American companies. In 
our own case we have product lines whose primary market is in the EU. 
As a small business we exist on the value of our innovations. We must 
invent to thrive. To make a commercial success out of our inventions we 
must have access to markets that are deep and sophisticated. Europe is 
at the top of the list in these characteristics.
    In the technology and materials sector products are very targeted 
and must conform to regional standards and specifications. These are 
not commodity offerings and the basis for competitive advantage is in 
the advanced engineering. Programs of this type allow us to manufacture 
in NH at a profit. At a national level we are engaged in a debate about 
how to retain and expand manufacturing employment. On the ground a few 
small manufactures have found a new business model. The model is based 
on developing best in class technology products and selling them into 
specialty markets where they can command a premium. Europe customers 
understand this value proposition, operate on a clear legal basis, and 
respect intellectual property.
    Maintaining the required levels of R&D investment is an ongoing 
challenge for small companies. Taking a concept through to a revenue 
product is not a sure thing. We have found that keeping both domestic 
and European requirements as objectives doubles our potential of 
success. The current more realistic valuation of the dollar is helpful. 
The return to a bilateral foreign policy and constructive engagement in 
with the Europeans on issues such as climate change are all important. 
However the key to trade with Europe is to build and maintain technical 
leadership in the engineering of our products.
    There are some issues with Federal Policy that we would like to 
comment on. The SBIR/STTR program coming from the DOD is an enlightened 
program. However the DOD program is focused solely on internal domestic 
needs for new technology and can not drive exports because of ITAR 
controls. We propose that the U.S. Commerce Department should get 
involved and become a full participant in the SBIR program. The DOC 
focus would be on development of export products and the creation of 
manufacturing jobs.
    Warwick Mills is based in New Ipswich, NH, and is a manufacturer of 
advance protective garments and flexible composites with high cost of 
failure. Established in 1888, Warwick engineers these protective suits 
and systems from concept, through prototype, and into production. 
Engineering and manufacturing operations include lab testing, research 
and development, material production, laminating, and final assembly.
    In 2008, Warwick Mills was Awarded Export Achievement Certificate 
from the United States Department of Commerce which recognized the 
firm's recent growth in the past 5 years in the global marketplace. A 
significant portion of this achievement was due to Warwick's strong 
export business in Europe, particularly Great Britain, Netherlands, 
Germany, and France. In addition to Warwick's premier position in stab-
resistant body armor technology in Europe, the company has a broad line 
of protective materials found industrial suits, gloves, and a tire 
components including the antiflat component is the largest-selling 
bicycle tire in Europe. Warwick's line of TurtleSkin Gloves provides 
the highest level of puncture, stab, and protection from hypodermic 
needles, nails, wire, glass fragments, metal shards, wood splinters and 
cuts, meeting the rigorous EU standards requirements.
    One of Warwick's largest customers worldwide has been the 
Netherlands National Police. Beginning in 2005, Warwick began a 
collaboration with Ten Cate, a Dutch manufacturer, and BSST, a German 
manufacturer, and together won a contract to supply the Netherlands 
National Police force with stab and ballistic body armor, to date which 
has reached over 90,000 body armor units. This award came after the 
three companies successfully answered a second call for proposals 
issued to the European market.
    Warwick holds 14 international patents in protective materials. The 
company produces TurtleSkin protective materials and products for 
applications requiring advanced levels of puncture and cut protection, 
as well as durability and performance. Warwick's staff participate in 
ASTM and ISO standards committees both in North America and in Europe.

    Senator Shaheen. Thank you very much.
    Mr. Maibach.

 STATEMENT OF MICHAEL C. MAIBACH, PRESIDENT AND CEO, EUROPEAN-
           AMERICAN BUSINESS COUNCIL, WASHINGTON, DC

    Mr. Maibach. Good afternoon, Madam Chairman. And thank you 
very much for having me. It is an honor.
    And I want to compliment Chad Kreikemeier on your staff. He 
is a fine professional and very easy to work with. We 
appreciate it.
    Senator Shaheen. Thank you.
    Mr. Maibach. The EABC was founded 20 years ago. We 
represent 70 companies--40 U.S. and 30 European-based global 
companies. Our companies possess cutting-edge competitive 
skills in the service of customers across the globe.
    These skills include how to successfully collaborate with 
commercial and governmental partners across national and 
sectoral lines to drive economies of scale, to promote 
innovation, and meet the needs of customers in ways made 
possible often because of partnerships. These are the kind of 
skills, insights, and best practices U.S. officials must also 
hone to keep our Nation competitive in an exceptionally 
competitive world.
    The strategic skills I'm referring foster transnational 
regulatory collaboration in ways which enhance investment and 
innovation. The pressure to hone these skills is coming from 
the forces of globalization. Of course, globalization has been 
with us since at least Columbus and Magellan. However, ever 
since the Berlin Wall came down, globalization has been 
tumbling faster and faster through the streets of every nation, 
through the boardrooms of every enterprise, and through the 
halls of every government.
    Today globalization is being driven by twin strategic 
events. First, when the Berlin Wall came down China decided to 
embrace capitalism. This change in China caused India to throw 
open its doors to global markets, as it hadn't in the past. 
Overnight, we had almost 3 billion new capitalists competing 
with our country and with the West. Economic forces of historic 
proportions were then set in motion.
    Compounding the impact of China and India have been several 
accelerants of change. Moore's Law of Computing has combined 
with Metcalf's Law of Networks to create the transnational 
tsunami we call the Internet. Since 1947, the WTO has expanded 
from 23 to 139 nations, tearing down centuries-old barriers to 
trade, investment, innovation, and competition. And the world's 
population has doubled since John F. Kennedy was President.
    In summary, everything is changing everywhere, very, very 
quickly. The world's vertical chessboard has been flipped onto 
a horizontal axis. This means that every enterprise and every 
government survives and thrives in part because of the quality 
of its ``horizontal partnerships.'' This is really ``the 
century of alliances.''
    Government-to-government, company-to-company, and 
government-to-industry collaboration are now fundamental to 
economic success in the 21st century. The United States and 
Europe represent only 11 percent of the world's people, but 
account together for over half the world's trade, investment, 
and GDP. The same percentages goes for air travel, health care 
spending, and capital flows. This is clearly a very wealthy, 
successful part of the world. And Americans and Europeans are 
more than anything else investment partners. For every dollar 
traded across the Atlantic, $4 is invested. Enterprises attempt 
to sell everywhere, but only invest where the risk is low and 
the laws and commercial regulations are clear and enforceable. 
Seventy percent of the investment that comes into the United 
States is invested by European companies, and over half the 
investment into Europe is invested by American companies. There 
is twice as much United States investment in Ireland than all 
of China. There is more Dutch investment in Texas than in 
China. The European investment in China is only 4 percent of 
their total investment portfolio in this country, only 4 
percent. And together, the United States and Europe drive the 
world's standards, regulatory regimes, and best practices. And 
we have for several decades.
    The fact is that the United States and Europe are at the 
heart of the global economy. In 2007, Chancellor Merkel, 
Presidents Bush and Barroso created the Transatlantic Economic 
Council. They recognized that global regulatory cooperation 
must begin with transatlantic collaboration. This is the TEC's 
mission and its promise.
    It has yet to reach the potential of its promise, and this 
needs to change and in 2010. We have, at the EABC, a five-point 
prescription for TEC's success.
    No. 1: Select ``yes-yes'' policy projects that will enjoy 
strong, sustained government support and collaboration. By 
this, I mean projects where the bureaucracies on both sides of 
the Atlantic want to have success. Without that, you won't move 
forward. And at an early and in a continuous way, we have to 
have the buy-in and active support of legislative leaders on 
both sides of the Atlantic.
    No. 2: Select policy projects that can be accomplished in 1 
to 4 years.
    No. 3: Appoint senior United States and European Union 
career officials as Policy Project cochairs. These are people 
with 10, 20, even 30 years of experience in the bureaucracy, 
not a political appointee who will come and go in less than 2 
years.
    These cochairs must enlist the active involvement of key 
industry groups with whom they work. Our phone needs to ring in 
industry, whether it is the U.S. Chamber, NAM, the EABC, or 
some other associations. We need to be put to work as partners 
by the two governments in a way we have not been asked to do.
    No. 4: Semiannual TEC meetings must become ``performance 
reviews'' for Policy Project cochairs. United States and 
European Union legislators must be involved in those reviews. 
The cochairs need to be called in and asked for their roadmaps 
to success and how they are doing on their roadmap timelines.
    And No. 5: The annual U.S.-EU leaders summit between 
President Obama and President Barroso and whomever has the EU 
Presidency in that particular semester must include a report of 
TEC deliverables. These leaders have to expect results. These 
are deliverables that are business operational for wealth 
creation, innovation, and investment.
    Finally, we have five recommendations for the TEC agenda 
I've just described. No. 1: e-Accessibility. Create a global 
standard--starting across the Atlantic--for sight and hearing 
impaired people to be on the Internet and not be locked in a 
silo in one country or the other. Everybody wants to set this 
global standard. The EABC has been working for 7 years on this.
    No. 2: e-Health. We have $20-$30 billion in the stimulus 
package for the digitization of health records. But we must 
have e-Health interoperability--not only between Americans, but 
across the Atlantic and around the world. This is not only for 
the direct benefit of patients, but interoperability for all 
related products, services, hardware and software so that we 
can globalize those sales to serve billions of patients. Also, 
diseases are on the move, as well as patients.
    No. 3: Accounting convergence. U.S.-EU cooperation is now 
nearly successful. We have IFRS recognition here in the United 
States. We plan to move away from U.S. GAAP to a global 
standard of 130+ countries now suing the IFRS standards.
    No. 4: Carbon accounting standards. We are starting to talk 
about ``cap and trade,'' as well as other regulatory regimes. 
Our companies want to have common metrics when they work with 
global customers. They must have the same carbon metrics in 
every country to advance innovation and success. If DHL 
delivers a package in the United States, they have to be able 
to measure the ``carbon footprint'' of that package delivery 
the same way they do in France, Germany, or any other market.
    And finally: Nanotechnology. This is a highly important 
competitive advantage for our country and for the nations of 
Europe. We have to have nano research and regulatory 
cooperation.
    So these are our ideas on how to improve the TEC 
performance in support of our success as a country. And these 
are five ideas of what the TEC should focus on.
    Thank you.
    [The prepared statement of Mr. Maibach follows:]

  Prepared Statement of Michael Maibach, President and CEO, European 
               American Business Council, Washington, DC

    Good afternoon, Madam Chairwoman and Senators. Thank you for 
inviting me. It is an honor to be here. My name is Michael Maibach, 
president and CEO of the European-American Business Council. We were 
founded in 1989 and have offices in Washington and Brussels. We 
represent 70 global companies, including 40 U.S. and 30 European-based 
enterprises.
    Our companies possess cutting edge, competitive skills in the 
service of people across the globe. These skills include how to 
successfully collaborate with commercial and governmental partners 
across national and sectoral lines to drive economies of scale, promote 
innovation, and meet the needs of customers in ways only possible 
because of these partnerships. These are the kind of skills, insights, 
and best practices U.S. officials must hone to keep us competitive in 
an exceptionally competitive world.
    The strategic skills I'm referring foster transnational regulatory 
collaboration in ways which enhance investment and innovation. The 
pressure to hone these skills is coming from the forces of 
globalization. Of course, globalization has been with us since at least 
Columbus and Magellan. However, ever since the Berlin Wall came down 
globalization has been tumbling faster and faster through the streets 
of every nation, through the board rooms of every enterprise, and 
through the halls of every government on the planet.
    Today globalization is being driven by twin strategic vectors: 
First--China: After the Berlin Wall came down China embraced 
capitalism. This change in China caused India to throw open its doors 
to global markets, as well. Over night the world had 3 billion new 
capitalists competing for the future. Economic forces of historic 
proportions were set in motion.
    Compounding the impact of China and India have been several 
accelerants of change: Moore's Law of Computing has combined with 
Metcalf's Law of Networks to create the transnational tsunami we call 
the Internet. Since 1947 the WTO has expanded from 23 to 139 nations--
tearing down centuries--old barriers to trade, investment, innovation, 
and competition. And the world's population has doubled since John 
Kennedy was elected President.
    In summary, everything is changing, everywhere, very, very quickly. 
The world's vertical chess board has been flipped on to a horizontal 
axis. This means that every enterprise and every government survives 
and thrives in part because of the quality of its ``horizontal 
partnerships.'' Government-to-government, company-to-company and 
government-to-industry collaboration are now fundamental to economic 
success in the 21st century.
    The United States and Europe represent only 11 percent of the 
world's people, but together account for over 50 percent of the world's 
trade, investment and GDP. The same goes for air travel, health care 
spending, and capital flows. And Americans and Europeans we are more 
than anything investment partners. Seventy percent of foreign 
investment in the United States comes from European firms. And over 50 
percent of the foreign investment into Europe is done by U.S. firms.
    There is twice as much U.S. investment in Ireland as in all of 
China. European investment in China is only 4 percent of their total 
U.S. investment portfolio. And together the United States and European 
Union drive the world's standards, regulatory regimes and best business 
practices in business and government. The fact is that the United 
States and Europe are at the heart of the global economy.
    In 2007 Chancellor Merkel and Presidents Bush and Barroso created 
the Transatlantic Economic Council. They recognized that global 
regulatory cooperation must begin with transatlantic collaboration. 
This is the TEC's mission and its promise. It has yet to reach the 
potential of its promise. This needs to change--now.
    We have a 5 point prescription for TEC's success:

          1. Select ``Yes-Yes'' Policy Projects that will enjoy strong, 
        sustained government support. This must include early and 
        continuous buy-in from U.S. and EU legislative leaders.
          2. Select Policy Projects that can be accomplished in 1-4 
        years.
          3. Appoint senior career U.S. and EU officials as Policy 
        Projects cochairs. They must agree on a roadmap for success 
        that includes timelines for progress. And they must enlist the 
        active involvement of key industry groups such as the EABC.
          4. Semiannual TEC meetings must become performance reviews 
        for Policy Project cochairs. U.S. and EU legislators must be 
        involved in these reviews.
          5. The annual U.S.-EU Leaders Summit must include TEC 
        deliverables. Presidents Obama and Barroso must expect results 
        that have business operational value.

    Finally, the EABC recommends that the 2010 TEC Agenda include 5 
Policy Projects:

          1. e-Accessibility: A global standard for sight and hearing 
        impaired.
          2. e-Health: A global standard for health IT records and 
        systems.
          3. Accounting Convergence: A single global accounting system 
        (IFRS).
          4. Carbon Accounting Standards: A single global standard.
          5. Nano-Technology: U.S.-EU research and regulatory 
        cooperation.

    Thank you for your interest in our views.

    Senator Shaheen. Thank you very much.
    Dr. Burwell.

    STATEMENT OF FRANCES G. BURWELL, PH.D., VICE PRESIDENT, 
  DIRECTOR OF TRANSATLANTIC RELATIONS, THE ATLANTIC COUNCIL, 
                         WASHINGTON, DC

    Dr. Burwell. Thank you very much, Madam Chairwoman. Thank 
you for this opportunity to appear before you.
    I am honored. I truly welcome your interest in a subject--
the transatlantic economy--that is often ignored but is a vital 
part of U.S. prosperity. I would like to make a few remarks 
regarding U.S.-EU economic relations and then talk about 
proposals for making that relationship stronger.
    As a number of people here today have mentioned, the United 
States and the European Union make up more than half of global 
GDP. Even though we can expect growth rates to be fairly flat 
next year, the size and attractiveness of the United States and 
European Union markets will continue to make them leaders in 
the global economy, especially in the shaping of global 
standards and regulations.
    The EU, with its 27 Member States unified in one trading 
bloc, is the top trading partner of the United States, and it 
is also the top investment partner of the United States with 12 
million jobs on both sides of the Atlantic supported by this 
investment. I realize there is much talk of the United States 
and China as the new G2, but I hope that this brief recitation 
makes clear that it is the United States and the European Union 
that is the real G2.
    That said, the financial crisis has fully demonstrated the 
importance of the emerging economies. As we integrate these 
countries as new leaders in the global economy, it is even more 
important that the transatlantic partners work closely 
together. Not all the emerging economies share our views on the 
importance of markets and rule of law, as Secretary Hormats 
pointed out before, and yet these must be reinforced in the 
aftermath of the crisis.
    This is an especially propitious moment to focus on 
transatlantic economic relations. The new Lisbon treaty moves 
trade and investment policy more strongly away from the Member 
States and to the European level, although it will undoubtedly 
take some time for everything to shake out. It gives new 
decisionmaking power in these areas to the European Parliament, 
much more equivalent to the U.S. Congress.
    This is especially important because most obstacles to 
transatlantic trade and investment are now regulatory obstacles 
rather than traditional tariffs and quotas. The Congress and 
Parliament now both play a central role in determining whether 
U.S. and EU regulatory policy is compatible or contradictory.
    To strengthen the transatlantic economy, we would recommend 
a three-pronged strategy. These recommendations draw on two 
reports, ``Shoulder To Shoulder,'' which you kindly and 
graciously mentioned before, and ``Resetting the Transatlantic 
Economic Council,'' which has been done with the Bertelsmann 
Foundation Washington office, as well as the Atlantic Council.
    The first element of this is to reduce the barriers that 
still exist between the United States and European Union to 
create a barrier-free transatlantic market. We would suggest 
several initiatives to this end.
    First, a tariff-only free trade agreement that would 
eliminate duties on industrial and agricultural products traded 
across the Atlantic. This would provide an important positive 
political impulse, even though most tariffs are already very 
low.
    It is likely to have significantly more domestic political 
support, including from unions, than many other FTAs currently 
under consideration. I realize this is likely to sound very 
controversial, and I would be happy to talk about it more in 
the questions.
    Second, we should initiate transatlantic negotiations to 
reduce barriers in certain sectors, particularly services. 
Services is a huge part of the United States and European Union 
economies, and our service sectors are increasingly linked.
    Three, we should invite others to join these initiatives if 
they are willing to take on the responsibilities and 
obligations. This should not be a ``Fortress Atlantique,'' but 
rather should be the building block for wider and continued 
liberalization of the global economy.
    Four, we should remove remaining barriers to investment 
while developing reasonable and compatible guidelines for 
national security along the lines of CFIUS. In the past, it has 
been the nation states--the Member States in Europe--who have 
had that responsibility, but it is now possible that we could 
do this on an EU-wide level, making it actually practical.
    We should boost regulatory cooperation by identifying 
essentially equivalent regulations that we can recognize 
mutually. We should focus on regulation in areas of new 
technology where there is not a lot of existing regulation, and 
we should provide regulatory agencies with the resources and 
incentives to cooperate internationally. Congress in this area 
has a real opportunity to take leadership in ensuring that 
companies operating on both sides of the Atlantic do not face 
conflicting regulatory environments.
    The second major element in deepening the transatlantic 
economy would be to launch an effort to create green economies 
with an emphasis on innovation that will create jobs and 
prosperity. Again, we would suggest several steps in that 
direction.
    No. 1, supporting transatlantic innovation in the energy 
field by working with the EU to establish financial support for 
research and for commercializing new technologies, if required. 
We should also work together to encourage greater energy 
efficiency, including joint development of smart grids and 
carbon capture and storage technologies.
    Two, we need to address the potential conflict between 
climate policy and trade. The United States and European Union 
should work with our G20 partners so that new trade obstacles, 
such as border charges, are not levied on carbon-intensive 
imports. It may be that new trade negotiations are required to 
avoid that type of barrier.
    Three, we should implement the commitment at the October 
2009 TEC meeting to establish a U.S.-EU innovation dialogue.
    And four, we should ensure that the new U.S.-EU Energy 
Council develops a forward-looking and focused agenda.
    The final element in deepening the U.S.-EU economic 
relationship is to reinvigorate the Transatlantic Economic 
Council. The TEC needs to focus on strategic issues or it will 
fail to engage key policymakers in the White House, Cabinet 
departments, and on the Hill.
    The next TEC meeting in spring 2010 is crucial. To maintain 
its focus, the ministerial-level TEC should be supported by a 
series of subcouncils or working groups that can focus on 
specific issues. Every effort should be made to resist having 
the TEC dominated again by issues such as chlorine-washed 
chicken.
    The TEC should focus on strategic issues in three areas. 
One, promoting economic recovery and growth, with a focus on 
building a green economy and boosting innovation.
    Two, coordinating approaches to global economic governance. 
In effect, the TEC should become the place where the United 
States and the European Union coordinate informally prior to 
G20 meetings.
    Three, the TEC should advance efforts to create a barrier-
free transatlantic market, as described earlier, including by 
pursuing several regulatory projects. Mike has described some 
of them. And a special emphasis might be given to emerging 
industries, where little regulation yet exists.
    Finally--and this comment applies not just to TEC, but 
beyond. We must expand the circle of those engaged in managing 
the U.S.-EU economic relationship, particularly bringing in key 
legislators and the Transatlantic Legislators Dialogue. None of 
the obstacles that need to be addressed--tariffs, regulatory, 
investment barriers--can be addressed without the cooperation 
of legislators.
    The TLD needs to be reinvigorated. Representative Berkley 
has been doing a great job, but I think she cannot do it just 
based on the House. It might interest you to know that in our 
report, ``Shoulder to Shoulder,'' we recommended that the chair 
of the Europe Subcommittee of Senate Foreign Relations become 
the cochair of the TLD.
    TLD members and key committee chairs should be integral 
members of the TEC, as should their colleagues from the 
European Parliament. Legislators could develop a regular review 
mechanism for identifying pending legislation that has a 
transatlantic impact and could report that to the TEC.
    The fact that the European Parliament is opening an office 
in Washington in the new year offers an opportunity for greater 
legislative consultation and dialogue on key issues affecting 
the transatlantic economy.
    Thank you for your attention, and I look forward to your 
questions.
    [The prepared statement of Dr. Burwell follows:]

 Prepared Statement of Frances G. Burwell, Vice President and Director 
 for Transatlantic Programs and Studies, Atlantic Council, Washington, 
                                   DC

    Madam Chairwoman, Senator DeMint, other distinguished members of 
the subcommittee, thank you for this opportunity to appear before you 
to discuss this important topic. I am honored. I truly welcome your 
interest in a subject--the transatlantic economy--that is often ignored 
but is a vital part of U.S. prosperity. Moreover, this interest is 
especially timely, as there are now opportunities to deepen the 
transatlantic economic relationship and take on a key role in leading 
the global economy away from the financial crisis.
    The transatlantic economy--the combined market of the United States 
and the European Union--is the core of the global economic system. Even 
after the financial crisis, the United States and the EU together 
comprise 54 percent of global GDP. Their markets represent mature, 
service-oriented economies that have been the major engines for 
innovation in both markets and technology for the last few decades. And 
because of the size and attractiveness of their markets, the United 
States and the EU (along with its Member States) play a major role in 
shaping global standards and regulations.
    Recently, much of the policy community has been focused on China as 
an economic partner of the United States. While China is clearly an 
increasingly important member of the global economy, along with a 
number of other emerging economies, the reality is that China's 
economic interactions with the United States are generally not of the 
same magnitude as those of the EU. In terms of trade, for example, 
China imported 85 billion dollars' worth of goods and services from the 
United States in 2008, and exported $348 billion. That same year, the 
EU as a whole (and the EU is a single trading zone) imported $467 
billion in goods and services from the United States. and exported $521 
billion. And while the U.S. trade deficit with China totaled $262 
billion, the trade deficit with the EU was $54 billion. The U.S. EU 
investment relationship is even more dominant. In 2008, U.S. EU 
investment into the United States totaled $1.4 trillion, or just over 
60 percent of all foreign investment in the United States. U.S. 
investment in the EU totaled $1.6 trillion, or 51 percent of U.S. 
investment abroad. That same year, U.S. investment in China totaled 
only $46 billion (one-third of what the United States invests in 
Ireland, for example) and Chinese investment into the United States was 
only $1.2 billion.
    The fact that the U.S.-EU economic relationship is so focused on 
investment has an important consequence--because investment is about 
supporting or establishing companies, it is also about creating jobs. 
While high trade levels raise fears of jobs leaving, high investment 
levels usually mean the creation of more jobs. Today, about 12 million 
jobs in the United States, and an equal number in Europe, are the 
result of transatlantic investment.
    The financial crisis of 2008 demonstrated that such close economic 
integration can have its downside. Weaknesses in one country can be 
transferred swiftly to its economic partners, as demonstrated by the 
collapse or near collapse of several European banks that had invested 
in U.S. subprime mortgages. The result has been weaker economies in 
both the United States and Europe, with unemployment in both now at 
close to 10 percent (although in Europe, this represents a lower 
increase and has less of an impact, because of the more extensive 
social safety net). Both the U.S. and EU are now moving out of 
recession, but OECD forecasts call for slower growth on both sides of 
the Atlantic next year (2.5 percent in the United States and 1.15 
percent in the eurozone.
    An argument can certainly be made that the United States should 
strengthen its partnership with rising economic powers such as China, 
and not worry about the future of its economic relations with Europe. 
After all, the financial crisis fully demonstrated the growing 
importance of the BRIC countries. They have moved into the management 
structures of the global economy by joining the G20, as befits their 
growing share of the world economy. They also seem to be recovering 
more quickly from the financial crisis than either the United States or 
the EU, and expectations for next year are for a larger increase in GDP 
growth than either of the transatlantic partners will experience. 
However, there is little to suggest that U.S. exports to China will 
increase anytime soon. Thus, if the current U.S.-China relationship is 
any indication, an increase in U.S.-China trade is most likely to lead 
to an even greater trade deficit. The fact that European Commission 
President Jose Manuel Barroso recently visited Beijing to discuss a 
revaluation of the yuan--almost immediately after President Barack 
Obama's visit with the same ambition--shows whose interests are more 
closely aligned with those of the United States.
    China, and the other emerging economies, will undoubtedly become 
more important partners of the United States and Europe in the future. 
Their economies will evolve, and trade will become less significant as 
investment and services become a larger part of their portfolio. But as 
China adapts to WTO rules and as the BRICs take on a larger role in 
global economic management, the U.S. and EU would be best served by 
working closely together. They should send consistent messages to the 
BRICs about the need to strengthen markets and openness in their own 
economies. In an era of globalization, the impact of standards and 
regulations goes far beyond national boundaries, and the United States 
and EU will want to work together to ensure that such rules (governing, 
for example, regulation of financial services, or handling of chemical 
substances, or accounting standards) are consistent with their 
preferences and economic systems. Clearly, at least some of the 
emerging economies have very different views of markets and adherence 
to contracts and rules than is the norm in the United States and 
Europe. This is not to say that the U.S. and Europe always agree, but 
their general approaches are far more similar when compared to others. 
The BRICs should also be encouraged to think beyond their own interests 
as they carry out their evolving responsibilities as global economic 
leaders. The U.S. and EU can best send these messages by reinforcing 
and enhancing the openness in their own economies--rejecting the 
temptation of protectionism--and by assuming a strong role in leading 
the global economic recovery.
    To do this, and to speed their recovery from the financial crisis 
itself, the U.S. and Europe must reinvigorate and strengthen the 
transatlantic economy. This will require a two-pronged approach:

   Reducing the barriers that still exist between the United 
        States and the EU to create a ``Barrier Free Transatlantic 
        Market.'' By removing as many of the obstacles as possible that 
        inhibit even greater transatlantic investment and trade, the 
        United States and EU can spur growth within the private sector 
        while reinforcing the creation of highly paid, high-skilled 
        jobs. By addressing together future areas requiring regulation 
        and standards, the U.S. and EU can boost corporate efficiencies 
        by providing one set of rules, while moving toward ensuring 
        that global regulations reflect their policy preferences. In no 
        way is such a transatlantic deepening intended to be a 
        ``Fortress Atlantique,'' however. Others can--and should--be 
        integrated into these efforts as they are willing to take on 
        the obligations and responsibilities.
   Leading an effort to create green economies, with an 
        emphasis on innovation that will create jobs and prosperity. 
        The financial crisis offers not only hardship, but also an 
        opportunity. By erupting just as the U.S. and EU were looking 
        for ways to cooperate in reducing the environmental impact of 
        our high energy consumption, including carbon emissions, the 
        crisis can give impetus to efforts to build a new type of 
        economy. Based on significantly less energy consumption and on 
        creating less pollution, this economy will require innovation 
        and new investments in technology and infrastructure if it is 
        to become a reality. These in turn should create new jobs and a 
        revitalized prosperity for the transatlantic partners. It will 
        also allow developing countries to grow economically without 
        automatically following the patterns of high-energy consumption 
        that have plagued the current industrialized economies, and 
        thus benefit all of us who require a more sustainable 
        environment.

    Today is an auspicious time to begin an effort to take the 
transatlantic economic relationship to the next level. For the last 2 
years, we have been in a form of political limbo, with the defeat of 
the Lisbon treaty in Ireland, the U.S. Presidential campaign and then a 
rather lengthy transition, and then a European Parliament election, the 
passage of Lisbon, and selection of a new European Commission. This 
phase is now drawing to a close. The Lisbon treaty, which took effect 
on December 1, moves some key economic powers to the Union institutions 
from the Member States. The European Parliament will now have 
decisionmaking powers in trade and agriculture, as well as in more 
areas related to energy and investment. Indeed, investment, which has 
been primarily a matter for the individual Member States, will move to 
some extent to the Union level, making it easier for the United States 
to identify its partner in discussing that issue. In addition, Lisbon 
gives the Union its own legal personality, making it easier to conclude 
agreements that do not have to be approved by all 27 Member States. By 
February, we hope that the new European Commission will be in place and 
it will be time to get down to business. In another important 
innovation, the European Parliament will open a small office in 
Washington with the aim of increasing cooperation with the Congress; 
such cooperation could be especially fruitful in the projects 
identified below.
            building a barrier free transatlantic market \1\
    Removing the remaining barriers to a truly open U.S.-EU market will 
require a multistage effort to reduce remaining tariff barriers, 
overcome regulatory obstacles, remove investment restrictions, and 
align future standards. It will be controversial and difficult; the 
remaining barriers persist precisely because they have been the most 
difficult to remove. Transatlantic trade disputes in recent years have 
increasingly been about regulatory obstacles, such as the unwillingness 
of many European countries to import genetically modified foods, and 
these issues have become extremely sensitive. Moreover, responsibility 
for areas such as regulation and investment are often split between the 
EU and Member States in Europe and between Federal and State (or even 
local) governments in the United States, so just figuring out who 
should be involved in discussions can be a real challenge.
---------------------------------------------------------------------------
    \1\ This section and the following one draw on the recently 
released report ``Shoulder to Shoulder: Forging a Strategic U.S.-EU 
Partnership,'' by Daniel S. Hamilton and Frances G. Burwell. Issued by 
the Center for Transatlantic Relations at SAIS and the Atlantic Council 
of the U.S. in December 2009, the report represents a collaborative 
project among five European think tanks, CTR, the Atlantic Council, and 
CSIS. It is available at the Web sites of most of these institutions, 
including www.acus.org.
---------------------------------------------------------------------------
    In recent years, the effort to reduce barriers in the global 
economy has focused on the Doha Development Round. There will be those 
who argue that a transatlantic initiative will undercut the Doha Round, 
and privilege the United States and Europe. In reality, the DDR has 
been stalled because of disagreements between the industrialized 
economies and those emerging economies that are reluctant to improve 
access to their own markets. Any transatlantic initiative should be 
open to others once it is established, and it may actually provide some 
important leverage to move the Doha Round forward. For both the United 
States and the EU, the goal should be to pursue the transatlantic and 
the multilateral efforts to a successful conclusion. But the Doha 
Round, even if successfully concluded, will not address the most 
central issues in the U.S.-EU economic relationship. Mutual recognition 
or harmonization of regulations, tax differences, competition policies, 
divergent standards for products--these are all central to the U.S.-EU 
market but are not included in Doha. Their importance reflects how 
integrated that market is already, in that it is not external barriers, 
such as tariffs, but domestic policy choices, such as consumer product 
safety standards, that have a significant impact.
    To move toward a Barrier Free Transatlantic Market, the U.S. and EU 
should:

   Announce a joint commitment to work toward a ``tariff only'' 
        Free Trade Agreement, eliminating all duties on traded 
        industrial and agricultural products, as an important 
        intermediate goal. Given that most transatlantic tariffs are 
        low and often simply have nuisance value, a focused tariff-only 
        free trade agreement could be achieved relatively quickly. It 
        is likely to enjoy a broader base of domestic political 
        support. The U.S. AFL-CIO has long championed a transatlantic 
        free trade agreement, for example, and would likely accept a 
        goods-only version. It is likely to have immediately beneficial 
        effects on investment, profits and jobs, since two-thirds of 
        U.S.-EU trade is intra-firm; i.e., companies trading 
        intermediate parts and components among their subsidiaries on 
        both sides of the Atlantic. Tariffs on agriculture have always 
        been the major problem, but with agricultural trade growing 
        across the Atlantic, now may be the time to take a bold step 
        forward. Where agricultural tariffs are high, phase-out periods 
        could be longer. Moreover, European and American agricultural 
        sectors would still remain implicitly protected by a range of 
        nontariff barriers that are far more important, lessening the 
        political concerns that might accompany a complete 
        liberalization.
   Once such a deal is negotiated, the U.S. and EU should 
        invite others to join in certain sectors or in the overall 
        arrangement. If a critical mass of participants develops, 
        benefits should be extended to all WTO members on an MFN basis. 
        This approach was successful in negotiations leading to the 
        1997 International Telecommunications Agreement. This may 
        create incentives for many other countries who would like full 
        access to the transatlantic market to lobby major developing 
        countries such as India and China to join, as other countries 
        are only likely to benefit after those major economies agree.
   Initiate transatlantic negotiations aimed at reducing 
        barriers globally in certain sectors, starting with services. 
        Such negotiations may trigger plurilateral negotiations to 
        include other partners. An initial transatlantic initiative can 
        be a building block for more global arrangements. On both sides 
        of the Atlantic, services now make up more than half of GDP, 
        and the output of the protected services sectors is larger than 
        that of protected agricultural and manufacturing sectors. A 
        targeted opening of services could present vast opportunities 
        to firms and huge gains to consumers. The main market for the 
        growth in U.S. service-sector exports has been Europe, not the 
        Asia-Pacific region. U.S. service-sector exports to the EU have 
        tripled since 1995, reaching $198 billion in 2008--$62 billion 
        more than the U.S. earned from exporting services to countries 
        in the Asia-Pacific region. EU service-sector exports to the 
        United States have also tripled--from $46 billion in 1995 to 
        $152 billion in 2008.
   Remove remaining barriers to mutual investment, while 
        developing reasonable and compatible guidelines for national 
        security reviews. Ownership restrictions on marine shipping, 
        airlines, and infrastructure should be removed in most cases. 
        In those situations where national security considerations 
        might apply, there should be an appropriate review process. 
        CFIUS, in the United States, has no EU equivalent, although 
        several Member States do have similar processes. Although 
        implementation is likely to remain with the national 
        authorities, the U.S. and EU, together with the Member States, 
        should develop guidelines for allowing foreign investment to 
        flourish with reasonable national security safeguards. In time, 
        such guidelines might become a global standard as other 
        countries grapple with the balance between prosperity and 
        security.
   Creating an open transatlantic market for air transport by 
        allowing cabotage and removing restrictions on foreign 
        investment. At the 2009 U.S.-EU summit both sides confirmed 
        their intention to reach an air transport agreement that would 
        essentially achieve this goal. Both sides should commit to 
        completing this agreement in 2010. There are estimates that a 
        full open-skies agreement could boost transatlantic travel by 
        up to 24 percent, save consumers more than $6 billion annually 
        and increase economic output in related industries by at least 
        $9 billion a year. The impact of this one single sectoral 
        agreement could have the equivalent economic boost on the U.S. 
        and EU economies as the entire Doha Round.
   Boost bilateral regulatory cooperation by identifying 
        ``essentially equivalent'' regulations for mutual recognition, 
        focusing on regulatory cooperation relevant to new 
        technologies, and ensuring that regulatory agencies have the 
        resources and incentives to cooperate internationally. Since 
        ``behind the border'' regulatory differences pose the most 
        significant barriers to transatlantic commerce, the 
        transatlantic partners should seek to address these differences 
        with far greater urgency and attention. As indicated, there is 
        considerable potential to create jobs, stimulate investment, 
        and boost trade. U.S. and EU regulators generally have the same 
        high standards for protecting the welfare of our consumers, our 
        environment and our financial systems. This commonality of 
        regulatory purpose implies that we can trust one another's 
        regulatory systems. In October 2009 the U.S. and EU agreed to 
        take ``steps that could lead toward greater compatibility of 
        effective and economically beneficial regulation and that could 
        promote economic integration.'' The U.S. and EU have identified 
        key sectors, including labeling, energy efficiency, and 
        nanotechnology, where both sides will seek to develop 
        compatible approaches to regulation. To go farther, the High 
        Level Regulatory Cooperation Forum should be tasked to provide 
        specific recommendations to the spring 2010 meeting of the 
        Transatlantic Economic Council aimed at achieving mutual 
        recognition of compatible regulatory regimes in individual 
        regulated sectors (toys, engines, automobiles, electrical 
        products, etc.). If agreement can be reached that both sides 
        are seeking ``essentially equivalent'' outcomes in terms of 
        health, safety, etc., in such areas, then the legislative 
        process on both sides should accept the regulatory decisions 
        and standards of the other side. The process for reaching this 
        decision should be in the hands of U.S. and EU regulators, who 
        would always have the right to withdraw the automatic approval 
        for products approved by the other. In addition, regulators and 
        legislators on both sides of the Atlantic should focus on 
        emerging areas of technology that will require regulation but 
        where persistent disputes do not yet exist. Areas such as 
        nanotechnology, e-health records, RFID, and ``green'' 
        technologies may be easier to regulate cooperatively before 
        differences emerge. Furthermore, financial resources must be 
        available that allow regulators to engage in sustained, face-
        to-face dialogue with international partners. Such resources 
        should not compete with the regulating agencies' core mandates 
        for budget and staff resources.
     building a green economy for innovation, jobs, and prosperity
    A transatlantic ``green economy'' offers an opportunity to 
encourage innovation and revitalization of key economic sectors, while 
fostering greater energy and environmental sustainability. By using the 
opportunity of the financial crisis to motivate governments, firms, and 
individuals to change their established patterns of consumption and 
behavior, we can not only promote economic recovery, but also reduce 
carbon emissions.
    Both the United States and Europe bring real value to such an 
endeavor. The United States was long the leader in innovative, market 
driven environmental solutions, including the cap-and-trade system for 
sulphur dioxide. The U.S. has an outstanding track record in turning 
innovation into profitable ventures, given the right economic 
incentives. In recent years, Europe has become the world leader in 
promoting energy efficiency standards in buildings, and has pledged to 
make renewables 20 percent of its energy mix by 2020. At the November 
2009 U.S.-EU summit, the parties demonstrated their commitment to 
energy sustainability and security by establishing a new Energy Council 
to pursue such efforts in a cooperative and coordinated framework.
    To begin building such a green economy, the U.S. and EU should: \2\

   Boost energy innovation by creating a U.S.-EU Clean Energy 
        Bank and a Transatlantic Energy Innovation Fund. The Clean 
        Energy Bank, which would be open to others, would underwrite 
        the risks of developing new, commercially viable technologies. 
        It would help commercialize new technologies, some of which 
        might be developed under the Innovation Fund. That fund would 
        support joint research and development to accelerate the 
        introduction on new technologies for electric mobility (car 
        technology, batteries, infrastructure); super smart grid; 
        renewable energy development and deployment; carbon capture and 
        storage; and energy efficiency.
---------------------------------------------------------------------------
    \2\ In addition to ``Shoulder to Shoulder,'' this section also 
draws on ``A Shared Vision for Energy and Climate Change: Establishing 
a Common Transatlantic Agenda,'' by John Lyman, in ``Shoulder to 
Shoulder,'' the companion edited volume to this report, and on 
``Transatlantic Cooperation for Sustainable Energy Security: A Report 
of the Global Dialogue between the European Union and the United 
States,'' by Franklin Kramer and John Lyman (Washington DC: CSIS, 
2009).
---------------------------------------------------------------------------
   Encourage enhanced energy efficiency, including the joint 
        development of smart grid and carbon capture and storage 
        technologies. The U.S. and EU must harmonize emerging 
        regulatory frameworks on these two technologies to ensure that 
        standards reinforce interoperability and compatibility. They 
        should work together to develop the capacity to protect smart 
        grids from cyber attacks and initiate a number of joint carbon 
        capture and sequestration projects. They should collaborate on 
        establishing energy efficiency standards, including setting 
        higher standards for appliances, making standards associated 
        with building products more consistent, and agree that only 
        products with the highest efficiency ratings be eligible for 
        public procurement.
   Head off the looming collision between climate policy and 
        trade. Failure to coordinate these two key components of the 
        broader system could both imperil the climate change talks and 
        stimulate major new trade conflicts. It is untenable 
        politically to enact cap-and-trade systems that impose costs on 
        companies operating in the U.S. or Europe only to have them 
        shift jobs and pollution to countries such as China or India, 
        which are reluctant to embrace binding emission reductions. Yet 
        potential remedies, such as imposing additional "border 
        charges" on carbon-intensive imports and subsidizing domestic 
        producers, could lead to retaliation or WTO challenges that 
        might undermine climate and trade agreements. The U.S. and EU 
        should demonstrate leadership by working with G20 partners to 
        develop a ``Green Code'' of multilateral trade disciplines and 
        consider new trade negotiations to address these potential 
        commercial and climate trade-offs.
   Implement the commitment at the October 2009 TEC meeting to 
        establish a new U.S.-EU innovation dialogue to accelerate 
        efforts to spur growth, productivity and entrepreneurial 
        activity, including by sharing best policy practices and ways 
        of improving the policy environment for innovative activities 
        in both markets. The Dialogue will establish with stakeholders 
        a work program identifying priority areas and sectors for 
        action, including innovation policy, information and 
        communication technologies, advanced technologies, health 
        information technology, and clean energy technologies.
   Ensure that the new U.S.-EU Energy Council develops a 
        focused agenda and effective working groups. At the 2009 U.S.-
        EU summit, a ministerial-level U.S.-EU Energy Council was 
        established to deepen the dialogue on strategic energy issues; 
        improve energy security; promote cooperation in achieving 
        climate change goals; and further strengthen research 
        collaboration on sustainable and clean energy technologies. 
        This is a broad agenda, and much will depend on the working 
        groups addressing some key issues where progress can be made 
        (such as smart grids, carbon capture and storage, etc.). The 
        Energy Council does have a regulatory role, and this should 
        work cooperatively with the Transatlantic Economic Council 
        rather than becoming competitive. The Energy Council must also 
        provide for active involvement of U.S. and European legislators 
        and the business community.
           reinvigorate the transatlantic economic council\3\
    To achieve these aims of building a barrier-free transatlantic 
market and a transatlantic green economy, the U.S. and EU must 
reinvigorate the Transatlantic Economic Council as the premier forum 
for discussions about the transatlantic economic relationship. Created 
as a result of a German initiative in 2007, the TEC brings together the 
principal Cabinet officers, White House officials, and European 
Commissioners for a meeting twice per year. In its initial conception, 
the TEC was to provide political impetus to solve regulatory issues 
that could not be resolved by the High-Level Regulatory Cooperation 
Forum and other bodies. Over the past 2 years, however, the TEC became 
overly focused on preexisting trade disputes, to the point that its 
last meeting during the Bush administration was dominated by the U.S.-
EU dispute over chlorine-washed chickens. The first TEC under the Obama 
administration was used primarily to set a general agenda for the next 
few years, including pledging to initiate an innovation dialogue. But 
many of those attending from the European side were effectively ``lame 
ducks'' as the new European Commission had not yet been announced, with 
the exception of Commission President Barroso. In spring 2010, the TEC 
meeting will include new European Commissioners. Commissioner Karel de 
Gucht, who has held the development portfolio, will have the trade and 
investment portfolio, which now includes the TEC. With the U.S. and EU 
having finished their government transitions, the spring 2010 meeting 
presents a golden opportunity to revamp the TEC by making both 
substantive and institutional changes.
---------------------------------------------------------------------------
    \3\ This section draws on ``Shoulder to Shoulder: Forging a 
Strategic U.S.-EU Partnership and also on Resetting the Transatlantic 
Economic Council,'' a report of the Atlantic Council of the U.S. and 
the Bertelsmann Foundation (Washington DC, 2009, available at 
www.acus.org).
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    In terms of agenda, the TEC should focus on strategic issues in 
three areas:

   Promoting economic recovery and growth, with a focus on 
        building a green economy and boosting innovation. The TEC 
        should ensure that government interventions are well-
        coordinated, mutually supportive, and of limited duration. The 
        TEC should help coordinate ``exit strategies'' if necessary, 
        and be a watchdog on protectionist impulses.
   Coordinating approaches to global economic governance, 
        effectively becoming an informal G2 for U.S.-EU discussions 
        prior to the G20 meetings. With the weakening of the G8, there 
        are few fora left where the U.S. and EU can develop a strategic 
        approach to the new, larger institution and the issues of 
        global economic management.
   Advancing efforts to create a barrier-free transatlantic 
        market, including through pursuit of several regulatory 
        ``lighthouse'' projects. These could include financial services 
        regulation, e-health regulation, intellectual property rights, 
        and many others. Of particular interest might be those emerging 
        industries and technologies where little regulation yet exists.

    To address these issues effectively, the TEC must:

   Maintain a strategic focus. This might be best accomplished 
        by establishing a two-level TEC; the ministerial-level Council 
        that will usually address issues on a strategic level, and a 
        series of sub-Councils at the next level down to deal with 
        specific issues.
   Expand the circle of those engaged, especially by bringing 
        in key legislators and the Transatlantic Legislators' Dialogue. 
        The very dense nature of transatlantic economic relations means 
        that many constituencies are affected. None of the obstacles 
        that need to be overcome--tariffs, regulatory, investment 
        barriers--can be addressed without the cooperation of the 
        business community or legislators. In the past, both the 
        Congress and the European Parliament have passed measures that 
        created barriers to transatlantic economic interaction; 
        Sarbanes-Oxley is a prominent but not isolated example. Given 
        the new range of powers the Parliament will receive under 
        Lisbon, it is even more important than ever that both the 
        Congress and European Parliament be an integral part of the 
        TEC. Legislators could develop a regular mechanism for 
        identifying pending legislation that might have an 
        extraterritorial impact and that should be examined more 
        closely. By providing such a report regularly to the TEC and 
        engaging key committee chairs in regulatory issues of their 
        jurisdiction, legislators could become an essential part of the 
        TEC dialogue.

    Senator Shaheen. Thank you very much.
    And I am going to start with where you ended and ask you a 
little bit more about how you see the Lisbon Treaty affecting
the U.S.-EU relationship, and do you think that there was a 
message in the EU selecting Catherine Ashton, a former EU Trade 
Minister, as the first-ever High Representative for Foreign 
Affairs and Security?
    Did you take that as a signal that there was increased 
interest on the part of EU governments in letting the--EU 
member governments in letting the EU take the lead on trade and 
economic issues?
    Dr. Burwell. No, but I did not take it as not doing that 
either. I would take it as quite separate. I think the 
selection of President Van Rompuy and High Representative 
Ashton really had to do with a lot of internal EU bargaining.
    Certainly, there are those, and I would argue this, that 
the relatively low profile of these two individuals prior to 
their appointment--and that has nothing to do with their 
competence or how they will handle their jobs--is indicative of 
at least some heads of European countries wanting to remain the 
lead interlocutors with the United States.
    However, I think that in the selection of Catherine Ashton, 
the EU picked someone who met some criteria that was set. There 
has been a great deal of discussion, as you may know, about the 
gender balance among the new European leaders. They did pick 
someone who has, from my inquiries, an excellent reputation 
here in Washington with the economic officials with whom she 
has dealt and someone who is known for being very positive in 
terms of transatlantic relations.
    They had to expect that she would, as she has in her 
initial statements, say very good things about the 
transatlantic relationship. So I think that we certainly can 
look forward to working with Ms. Ashton--with Catherine 
Ashton--and working very closely with her in a very positive 
transatlantic environment.
    Senator Shaheen. You and Mr. Maibach both talked--had a 
number of very specific recommendations for the Transatlantic 
Economic Council, and I wonder if you have specific thoughts 
about how we should approach adopting some of those very 
specific recommendations, and either of you?
    Dr. Burwell. Well, we were in Brussels last week, Dan 
Hamilton and myself, my coauthor, and we met with the chief de 
cabinet of Commissioner Karel de Gucht, the Belgian 
Commissioner, who currently has the development portfolio, but 
in the new commission will have the trade portfolio.
    Interestingly, the trade portfolio now also includes 
investment and also includes responsibility for the TEC. So we 
have kind of directly put forward our recommendations. They 
were interested to hear them. I mean, obviously, he is not in 
the job yet. He hasn't had his hearing yet. So there is no 
commitment there.
    But I do think that my impression is that on both sides of 
the Atlantic, the people involved in the TEC are actively 
looking for ways to reinvigorate it. The last TEC meeting, most 
of the European participants were lame ducks, in effect, except 
for President Barroso. So I think that the next one is the one 
where everyone kind of expects to see real plans for a new, 
reinvigorated TEC. And I think they are looking to institutions 
not only the Atlantic Council, but certainly the European-
American Business Council and others, such as the TABD, for 
suggestions as to how they might best move forward.
    Senator Shaheen. Thank you.
    Mr. Maibach.
    Mr. Maibach. Yes. That is a good question, and I agree with 
some of the things that were just said.
    I'd add that the TEC could be more fully staffed. If you 
are in the White House supporting the G20 and G8 talks, as well 
as all the other responsibilities that Mr. Froman and his 
colleagues have, they should be appointing senior-level civil 
servants to support TEC goals, if you will. Delegate that to 
those departments' key tasks. They must then become accountable 
for their work.
    And then enlist industry support and expertise in the work 
of those departments, whether it is Commerce, Energy, State, et 
cetera. And then the White House adopts more of an oversight 
role rather than having the responsibility for the tasks 
themselves. I think delegation is going to be a key for the TEC 
here.
    Also, one or two people might be assigned to the TEC work, 
for example, on the U.S. side, from OMB. We see a White House 
that has so many things going on that they can probably use a 
few extra hands on some of these things.
    Senator Shaheen. Thank you.
    Before I get to Mr. Howland, I am going to ask if either of 
you would like to speak to the role that you think small 
businesses can play in expanding and deepening the 
transatlantic economy, either or both?
    Mr. Maibach. Yes. One of the things that we have had since 
1981 in the United States is the R&D Tax Credit. It expires 
every 3 years. It should be made permanent. And the U.S. credit 
does not include two things that many credits around the world 
do include:
    No. 1, the U.S. credit doesn't include joint R&D between 
companies. And two, it does not include joint R&D between 
companies and universities. As a matter of fact, the OECD ranks 
the U.S. credit as the 17th most valuable R&D credit in the 
world. The U.S. credit was No. 1 in 1990.
    If you are a big company and you are doing some joint R&D 
with a small business, that doesn't count toward the credit. 
This is something Congress could do to help small business 
right away. If IBM does more joint R&D with enterprises that 
you have never heard of, it might really help those smaller 
firms.
    That is one idea that might be very useful. I will leave it 
at that.
    Senator Shaheen. Dr. Burwell.
    Dr. Burwell. My comment would be that, first off, I very 
much agree with what Mr. Howland said about small and medium 
enterprises being engines of innovation, and I think that it is 
extremely healthy for the relationship for American small and 
medium enterprises, small businesses to be present in Europe, 
not just because of the jobs that they then create back here 
and the investment possibilities. But because some of us who 
have watched some of the major European economies--particularly 
the German, but not just that--over the last few years have 
seen how difficult it can be for their small businesses with a 
few exceptions, such as some of the specialized German 
steelmakers and things like that.
    It is harder for them often to get loans, things of that 
nature, and I think there is an illustrative value, if I can 
put it that way, to have American small business active on the 
global marketplace.
    Senator Shaheen. Thank you.
    Mr. Howland, can you talk a little bit more about some of 
the obstacles that your business faced, and you faced, as you 
were trying to get into the European market? You had a good 
list when you were talking earlier with Under Secretary 
Hormats.
    And can I ask you to turn your microphone on?
    Mr. Howland. Sorry. I think the first point that is hard 
for people who are immersed in this conversation to realize is 
a small business person has absolutely no clue to begin an 
export program because we don't have a generational 
understanding of export businesses.
    If you live in Luxembourg, you have been exporting for five 
or six generations at a minimum if you have a business. And 
that culture creates an understanding of the process and the 
resources that are available. To small entrepreneurial American 
businesses, this is a mystery. This is a closed book.
    And it takes a number of years at a minimum even to 
understand the resources of the U.S. Commerce Department, the 
Commercial Service, what the embassies can do for you. And I 
think you can't underestimate that unknown is a barrier to 
entry into export. And unless you can break that down and 
create some kind of portal to begin that process, people are 
going to defer it because the domestic market is big enough for 
a small business to appear to be the first priority.
    And that is a mistake small business people make, but it is 
inevitable given these other barriers.
    Senator Shaheen. And you talk about a portal. Can you be a 
little more specific about ways in which you think Government 
could be helpful as small businesses are thinking about how to 
export?
    Mr. Howland. Small business, everyone who works in a small 
business wears multiple hats. You don't get to specialize in 
this. As a consequence, you are always pressed to complete all 
of your responsibilities.
    The reason I raise this proposal of using the Small 
Business Innovation and Research grant program is it is a fully 
competed program, and the way that would work is, a topic is 
like a contest. And the way that program works is very smart 
people write topics for proposals. That will unleash an 
outpouring of excellent proposal ideas. It creates the 
innovative process; gets it started.
    And it creates a focus for the small business player and a 
justification and a reason for pursuing an idea that they no 
doubt already have but need a focus to get that going. And the 
process, if it was worked through Commerce, would give a 
perfect opportunity for Commerce to show that small business 
person what the rest of the resource package is. Because unless 
you have been involved in the export process, you don't know 
about it.
    Senator Shaheen. Thank you.
    Senator Risch.
    Senator Risch. I am going to pass. Thank you.
    Senator Shaheen. OK. I want to go back, and for any of you, 
to the question that I asked Under Secretary Hormats about 
coordination of Government agencies and efforts to look at 
trade, particularly when it comes to the European market.
    Do you think there are ways that we should be coordinating 
better the efforts, and how would you--you have talked about 
the TEC. Are there other things that we ought to be looking at 
that would better coordinate some of those efforts, for anyone 
who would like to address it?
    Dr. Burwell. Let me say something about two not apparently 
related processes. One is along with the TEC, we now have the 
new Energy Council. The Energy Council has three mandates. One 
is energy security. One is research and technology, and another 
one is energy-related regulatory.
    And that last one in particular overlaps significantly with 
the TEC, and we need to deconflict that in some way. There are 
different institutions involved right now in these two 
councils. And so, I think we need to have an honest 
conversation about do they both claim the regulatory mandate 
and do they find a way to do that together, or does the 
regulatory mandate go in one or the other? And what are the 
consequences in terms of who belongs to--which agencies belong 
to which of the councils?
    The other challenge that I think that we have, and I am 
sure that we need additional coordination between State, 
Commerce, et cetera. But I think since so much depends upon 
regulatory agencies right now in this relationship that one of 
the things we really need to focus on is how do you take a 
regulatory agency like the FDA with the Consumer Product Safety 
Commission or something like that, which is domestically 
focused, and where the political oversight is really focused on 
protecting American consumers, environment, and encourage them 
to take the time and give them the budget to actually travel 
overseas.
    We have hosted meetings on U.S.-EU energy technology issues 
and discovered that EPA, for example, or at least certain 
offices of EPA, have an extremely limited budget for overseas 
travel. And something as simple as that makes it extremely 
difficult for them to even think about coordinating with the 
EU.
    I think if Congress were to, in some of the reports that it 
requires from these agencies, ask them what they are doing to 
coordinate abroad and provide them with the resources, frankly, 
to do that, resources that don't compete with the resources 
they already have--so they are robbing Peter to pay Paul--I 
think that would be of enormous help.
    Senator Shaheen. Well, can you talk a little bit more about 
you suggested a barrier-free transatlantic market and a place 
where we might start. Can you talk a little bit more about how 
you see that working? And as you know and as you pointed out, 
that is an issue that often raises controversy when we are 
talking about barrier-free trade.
    Dr. Burwell. I think the big difference to understand or 
distinction to understand is that the United States and the 
European Union economies are both mature, service-oriented 
economies. This is not the same thing as doing a free trade 
agreement or a no tariffs agreement, if I can put it that way, 
with a country that has workers who are paid significantly less 
than American workers or where health and safety standards are 
significantly less.
    In fact, you can certainly argue that in some areas, 
European regulations are much stricter. It is probably about 
equal overall. The current trade between the United States and 
the European Union--a lot of it is intra-firm trade, or it is 
between major firms and their subcontractors. So by doing away 
with the tariffs on the goods that go back and forth, you 
actually would make it more efficient for many of those 
companies that are European and American for the most part.
    On agriculture, we actually--when we were discussing this 
particular recommendation, we discussed agriculture quite a 
lot. There is more agricultural trade now across the Atlantic 
of more variety. And it seemed to us that there are certainly 
some very sensitive products, and you could have a longer time 
period before you removed all of the barriers, all the tariffs 
on those.
    Our proposal does not get rid of regulatory obstacles 
necessarily at that stage. So it would still be possible if you 
have different health and safety standards on certain foods, 
for example, to maintain those barriers. Eventually, we would 
hope that we would find a regulatory solution to that, too, 
that there would be some agreement on that.
    But as a first step, to think about a tariffs-only free 
trade agreement between the United States and the European 
Union I think would make a political statement that we want to 
move forward and deepen the relationship. It would provide a 
small bump for the economies, not a huge bump. But I think it 
would send the right type of political statement, and I think 
it is, at this point, doable.
    Senator Shaheen. Mr. Howland, would that have been helpful 
to you? And then I am going to ask Mr. Maibach what your 
thoughts are and where you think the European-American Business 
Council would be on that?
    Mr. Howland. I think that small business and big business 
doesn't always have exactly parallel views of some of these 
trade issues. In particular, regulation and specifications, you 
know,
the diversity of European requirements is actually an advantage 
and an opportunity for a small business. A very large 
requirement that would be EU-wide is going to be competed so 
aggressively
by a large business it will probably exclude small business 
opportunities.
    It is not a--please, I don't want to suggest that in 
markets like energy and agriculture, your goals are still 
appropriate, but the diversity of the European market. I mean, 
we find that working standards issues, regulatory issues is 
extremely cooperative. We can be invited to a standards group 
as an ISO participant. The Europeans are not exclusionary.
    I don't have the same experience, however, that I think we 
are probably not as inclusive of Europeans as they are of us. 
And I think that will be a bad thing long term if we don't 
remedy that.
    Senator Shaheen. Mr. Maibach.
    Mr. Maibach. Yes; thank you.
    I have two comments. One is about the TEC and regulatory 
collaboration. Regulations can either be barriers or they can 
be enablers of innovation. By having products become 
horizontally available across borders, if you will. That is one 
point.
    The other one I wanted to make is--and this is 
underappreciated, I think, in Congress. Tax policy is really 
trade policy in many ways. I will give you some examples.
    The EABC has copies of our study in the back of the room 
called ``The Atlantic Century'' that we issued earlier this 
year. The United States has the highest corporate tax rate in 
the world. We are tied with the Japanese at 39 percent. Ireland 
has about a 9-percent rate. It depends on the numbers you look 
at, but ours is very high.
    We are also the only country in the world with 
international taxation of foreign profits. This is related to 
the U.S. foreign source tax credit sometimes called the 
``deferral issue'' that was raised again this year as a 
possible source of U.S. revenue. Taxation occurs wherever the 
sale is. But if you are going to tax the money when it comes 
back to the USA, it will not usually be repartiated. It will 
stay where it is and be reinvested.
    If you are a small business person, you look at that and 
say, ``Is this really worth it?'' Because I don't have a plant 
to invest it in, I have to bring profits back to the United 
States. Am I going to pay the differential between the highest 
corporate tax rate in the world and wherever I am selling 
abroad?
    The third thing is we have no ``VAT forgiveness'' because 
we don't have a VAT. If you are an exporter, in most every 
country in the world you have a value added tax--VAT. And if 
you export, you don't have to pay it. We don't do it that way 
here. I don't think we can get into this topic right now, but 
that certainly is an export promotion Tax Code feature that we 
don't have.
    And we usually use 5-year depreciation on capital 
investments. I spent 18 years in the semiconductor industry. If 
you build a chip fab in most countries, they allow you to 
expense it in 1-year depreciation rather than 5. U.S. tax 
treatment is a major disincentive to export out of this 
country.
    And finally, the value of the U.S. R&D Credit that I 
mentioned. I think we ought to double it from 20 to 40 percent. 
That would make the U.S. credit the nineth most valuable R&D 
Credit in the world, rather than No. 17. And we must extend it 
to include university collaborations, as well as company-to-
company collaboration.
    So there are lots of things in the Tax Code we can improve 
to create wealth. The average corporate tax rate in the OECD--
29 industrial nations--is 28 percent. That is 11 percent lower 
than the U.S. corporate tax rate. So we don't have a climate 
here for treating capital to enhance exports and innovation 
that we should.
    Senator Shaheen. Thank you.
    Before we close, and I do think we are getting into a vote 
time here shortly. But Mr. Howland, you talked a little bit in 
your written testimony about the ITAR regulations, and they 
came up with Under Secretary Hormats.
    Can you expand on what you think some of the challenges 
those ITAR regulations are for American businesses? And, I 
don't know, either Mr. Maibach or Dr. Burwell, if you would 
have anything that you would like to add with respect to 
whether we should look at reforming those ITAR regulations?
    Mr. Howland. I think that your first panelist really 
identified the issue that they are, like many things, a 
regulatory framework that is really cold war. And it covers the 
waterfront, everything involved.
    And as we have pointed out, it is a very peculiar situation 
when you know that competitive products are offered by your 
European competitors in a very free trade environment, and your 
products can't be exported without license, it is a peculiar 
situation when the regulation is just simply obsolete. It is 
not pertinent to the current situation.
    And even where a license is possible, that licensing 
process is not a straightforward one. It is not--particularly 
for small companies--it is not an easy thing to execute. 
Commerce-related licenses are more straightforward, and 
anything that has to go to State, the kind of rule of thumb is, 
``Boy, do we really want to try to do that?'' It is an 
unintended barrier.
    Senator Shaheen. Thank you.
    Dr. Burwell. The commission has recently passed a new 
directive on defense procurement, which will go into effect 
over the next few years in the Member States. And this creates 
open tenders. There cannot be any discrimination among European 
firms for certain parts of defense procurement by ministries of 
defense, et cetera.
    In the past, there wasn't necessarily open procurement, and 
U.S. companies did very well just simply networking and having 
good products. With ITAR having caused, shall we say, some 
discomfort among European MODs, I mean, in making it difficult 
for them to use products, et cetera, there may be--the 
political dynamic is that if ITAR continues to be difficult, 
there may be less incentive to make sure that a European--no 
discrimination against European firms also means no 
discrimination against United States firms as this directive 
takes effect.
    So I think that we are at a point where not only because of 
the difficulties that it poses for our companies, such as Mr. 
Howland, but also because of the political dynamic that it 
creates across the Atlantic, that it probably is a good time to 
revisit ITAR.
    Senator Shaheen. Thank you.
    Mr. Maibach, did you want to add anything to that?
    Mr. Maibach. I agree with what has already been said. I 
think that we have to collaborate with our allies. I think all 
through the 1980s and 1990s, we learned with export control, 
certainly in semiconductor technology, that drawing lines just 
around the United States when these technologies move 
everywhere so quickly does not work. Semiconductors are like 
water these days. You can get them in a greeting cards.
    You must focus just on key technologies. Usually, they are 
multiple technologies combined in a final product, rather than 
just a chip or a single software program. Let's say a 
supercomputer. Who makes those? You have to advance mutual 
enforcement of those rules with your allies, if you wish to 
have a positive impact. If you don't do this together, you 
probably are not going to be successful. You are just going to 
hurt your own companies.
    And so, whether it is NATO or some other venue, we probably 
ought to have much more collaboration on what we are going to 
control and agree on that. And as Fran said, we want the 
European market to become a true single market. Most companies 
say that they have 27 European markets for defense. They would 
like to have a single market, and we would like to have that, 
too.
    This might be a way, as Europe changes, to foster new ways 
for NATO to advance collaboration more deeply.
    Senator Shaheen. Thank you.
    And finally, Mr. Maibach, I couldn't get Under Secretary 
Hormats to comment on Copenhagen, but given that you raised 
carbon metrics, maybe I can get you to comment on it. You did 
point out that that would be helpful for companies as they 
think about the U.S. market since they are operating in the EU 
market, where they do have metrics.
    Can you talk about how your member companies are looking at 
the negotiations in Copenhagen and what they hope might be the 
outcome of those negotiations?
    Mr. Maibach. Well, we have 70 companies, and we have at 
least 37 opinions, I would imagine. I think what I have learned 
in some 25 years in industry is that incentives and 
collaboration work a lot better than regulation and taxation 
for motivators of change.
    And to that point one of the great things about the United 
States and its wealth creation machine for 200 years is--if you 
allow for collaboration to be fairly free and have incentives, 
you can make money. You can use tax credits, et cetera. If you 
allow for that to happen, and you get a lot of clues from and 
industry insights into how to make that happen, you will be 
more successful than something designed by a regulatory 
committee and imposed.
    The reason is because there are so many differences in 
business models. I was talking yesterday to an executive of a 
Midwest electric utility. He was saying that because their 
plant configuration--one nuclear plant, several coal plants--
versus some on the coasts who have more nuclear and less coal--
that a one-size-fits-all cap and trade bill is so much more 
difficult on his particular State and how they have configured 
their utility than in other states.
    So one-size-fits-all, whether it is Copenhagen or a U.S. 
congressional act, is very different than incentives for people 
who agree on key goals but who are allowed to get there their 
own way. In summary, I would say that providing incentives to 
reach targets, the cap part, I think there is a lot of 
unanimity about that. ``I would like to move 20 percent down 
over 5 years.''
    Allowing people to have different ways to get there and 
rather than use a unidimensional system is going to be helpful 
because some are going to pay a lot more in taxes than others 
based on the regulatory world in which they live.
    That may not be very helpful. But I think the more you 
listen to industrial groups, the more you will allow innovation 
to get out of this mess rather than regulation. So I would 
focus on incentives.
    Senator Shaheen. Thank you.
    Would either of our other panelists like to comment on 
that? You are going to take a pass. Smart. [Laughter.]
    Well, thank you very much.
    This has been very enlightening. We look forward to 
continuing to work with each of you as we think about how to 
better promote our transatlantic relationship between the 
United States and the EU.
    So thank you all very much for being here.
    The hearing is adjourned.
    [Whereupon, at 4:05 p.m., the hearing was adjourned.]
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