[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
     ASIA OVERVIEW: PROTECTING AMERICAN INTERESTS IN CHINA AND ASIA

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


                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 31, 2011

                               __________

                           Serial No. 112-15

                               __________

        Printed for the use of the Committee on Foreign Affairs


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

                                 ______



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                      COMMITTEE ON FOREIGN AFFAIRS

                 ILEANA ROS-LEHTINEN, Florida, Chairman
CHRISTOPHER H. SMITH, New Jersey     HOWARD L. BERMAN, California
DAN BURTON, Indiana                  GARY L. ACKERMAN, New York
ELTON GALLEGLY, California           ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
DONALD A. MANZULLO, Illinois         DONALD M. PAYNE, New Jersey
EDWARD R. ROYCE, California          BRAD SHERMAN, California
STEVE CHABOT, Ohio                   ELIOT L. ENGEL, New York
RON PAUL, Texas                      GREGORY W. MEEKS, New York
MIKE PENCE, Indiana                  RUSS CARNAHAN, Missouri
JOE WILSON, South Carolina           ALBIO SIRES, New Jersey
CONNIE MACK, Florida                 GERALD E. CONNOLLY, Virginia
JEFF FORTENBERRY, Nebraska           THEODORE E. DEUTCH, Florida
MICHAEL T. McCAUL, Texas             DENNIS CARDOZA, California
TED POE, Texas                       BEN CHANDLER, Kentucky
GUS M. BILIRAKIS, Florida            BRIAN HIGGINS, New York
JEAN SCHMIDT, Ohio                   ALLYSON SCHWARTZ, Pennsylvania
BILL JOHNSON, Ohio                   CHRISTOPHER S. MURPHY, Connecticut
DAVID RIVERA, Florida                FREDERICA WILSON, Florida
MIKE KELLY, Pennsylvania             KAREN BASS, California
TIM GRIFFIN, Arkansas                WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina
ANN MARIE BUERKLE, New York
RENEE ELLMERS, North Carolina
VACANT
                   Yleem D.S. Poblete, Staff Director
             Richard J. Kessler, Democratic Staff Director
                                 ------                                

                  Subcommittee on Asia and the Pacific

                 DONALD A. MANZULLO, Illinois, Chairman
RON PAUL, Texas                      ENI F.H. FALEOMAVAEGA, American 
BILL JOHNSON, Ohio                       Samoa
DAN BURTON, Indiana                  FREDERICA WILSON, Florida
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
MIKE KELLY, Pennsylvania             GREGORY W. MEEKS, New York
JEFF DUNCAN, South Carolina          DENNIS CARDOZA, California


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

The Honorable Kurt Campbell, Assistant Secretary, Bureau of East 
  Asian and Pacific Affairs, U.S. Department of State............     2
Mr. James Fellowes, chairman and chief executive officer, 
  Fellowes, Incorporated.........................................    35
Mr. Calman Cohen, president, Emergency Committee on American 
  Trade..........................................................    43
Michael Auslin, Ph.D., director of Japan studies, American 
  Enterprise Institute...........................................    52
J. Kent Millington, DBA, entrepreneur in residence and director 
  of the Department of Technology Commercialization, Utah Valley 
  University.....................................................    68

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Kurt Campbell: Prepared statement..................     4
The Honorable Donald A. Manzullo, a Representative in Congress 
  from the State of Illinois, and chairman, Subcommittee on Asia 
  and the Pacific: Prepared statement............................    17
The Honorable Eni F.H. Faleomavaega, a Representative in Congress 
  from American Samoa: Prepared statement........................    22
Mr. James Fellowes: Prepared statement...........................    37
Mr. Calman Cohen: Prepared statement.............................    45
Michael Auslin, Ph.D.: Prepared statement........................    54
J. Kent Millington, DBA: Prepared statement......................    70

                                APPENDIX

Hearing notice...................................................    92
Hearing minutes..................................................    93
The Honorable Donald A. Manzullo: Question for the record 
  submitted to the Honorable Kurt Campbell.......................    94
  Response from the Honorable Kurt Campbell......................    96
Mr. James Fellowes: Material submitted for the record............    99
J. Kent Millington, DBA: Material submitted for the record.......   102


     ASIA OVERVIEW: PROTECTING AMERICAN INTERESTS IN CHINA AND ASIA

                              ----------                              


                        THURSDAY, MARCH 31, 2011

                  House of Representatives,
              Subcommittee on Asia and the Pacific,
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:10 p.m., in 
room 2360, Rayburn House Office Building, Hon. Donald A. 
Manzullo (chairman of the subcommittee) presiding.
    Mr. Manzullo. The subcommittee will come to order.
    We have votes coming up. What I would like to do, is to get 
Mr. Campbell's testimony in as soon as possible, so he doesn't 
have to sit around and wait for democracy to take place on the 
floor of the House.
    Secretary Campbell, do you want to go up and take a seat?
    What I am going to do is just give a brief bio of Secretary 
Campbell, and then let you get your testimony in. We will worry 
about opening statements afterward, even after you are gone, if 
that is okay with you.
    I got to know Kurt Campbell just a couple of weeks before 
going to New Zealand and Australia; he came in and did a great 
job at informing us.
    He became Assistant Secretary of State for East Asian and 
Pacific Affairs in June 2009. Previously, he was the CEO and 
co-founder of the Center for a New American Security and 
concurrently served as the director of the Aspen Strategy Group 
and chairman of the editorial board of The Washington 
Quarterly.
    He was the founder of StratAsia, a strategic advisory firm, 
and was senior VP, director of the International Security 
Program and the Henry A. Kissinger chair in national security 
policy at the Center for Strategic and International Studies.
    He has served in various capacities in the government, 
including as Deputy Assistant Secretary of Defense for Asia and 
the Pacific. He is eminently well-qualified.
    Mr. Secretary, the floor is yours.
    Mr. Faleomavaega. Would the chairman yield?
    Mr. Manzullo. Oh, I am--of course.
    Mr. Faleomavaega. Mr. Chairman, before Secretary Campbell 
proceeds with his statement, I, too, would like to offer my 
personal welcome, Secretary Campbell, for coming to testify to 
our subcommittee.
    And I want to say that Secretary Campbell has done an 
outstanding job in not only representing our Nation before all 
of the nations of the Asia-Pacific region, but not only is he 
well-versed, the tremendous depth that this gentleman has in 
understanding all that is going on in the Asia-Pacific region. 
And I want him to know it has been my privilege over the past 2 
years in working closely with him on some of the issues 
affecting this region. And I look forward to continuing our 
working relationship with Secretary Campbell in this regard.
    Thank you.
    Mr. Manzullo. Mr. Secretary, go ahead.

STATEMENT OF THE HONORABLE KURT CAMPBELL, ASSISTANT SECRETARY, 
 BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF 
                             STATE

    Mr. Campbell. Thank you, Mr. Chairman.
    Let me just say at the outset that you learn a lot about 
people during crises. And I have to say, one of the very good 
things that came out of something very bad was to see your 
coolness, Mr. Chairman, under fire and your determination to 
demonstrate U.S. Commitment and solidarity with the people of 
New Zealand.
    For those of us who were there on the ground with you, it 
was very inspiring and it was much appreciated. And I just want 
to tell you that I am proud to be able to stand before you 
today, and I am looking forward to exploring all dimensions of 
American policy in the Asia-Pacific region.
    And to you, Congressman Faleomavaega, it is often the case 
that people who are appointed to these jobs take guidance from 
our friends on Capitol Hill.
    One of the first things that the Congressman told me when I 
took this job is that, you know, officials say the ``Asia-
Pacific region,'' but oftentimes it is the second word that 
doesn't get as much focus as the first. And so he has urged us 
in the government to take a comprehensive look at all the 
things that we do in the Pacific, not just assistance, but our 
military policy, our support to the many regions.
    Some of these countries have stood with us through very 
challenging times. They are with us in the United Nations. They 
have been supportive of us in wars. And I am proud of the fact 
that I think we have stepped up our game generally.
    I want to just say, also, how much I appreciate your 
opening comments about the two tragedies that have befallen the 
Asia-Pacific region over the course of the last couple months: 
First, the terrible earthquake which has damaged the lovely 
town of Christchurch, which we had the very good fortune to 
have spent some time in. And I am confident that the strength 
and the determination and the resilience of the New Zealand 
people will lead to that town, that wonderful city, to be 
rebuilt in a way that will pay tribute to New Zealand.
    And I want to tell you that I will be part of that effort. 
We have been working very closely on the establishment of a 
number of organizations, including the American Friends of 
Christchurch, which will be involved directly in support to 
rebuild parts of that town so badly damaged by the earthquake.
    And then all of us have been working essentially around the 
clock; I would say there has not been a night over the course 
of the last several that we are not working constantly to do 
everything possible to support our Japanese friends as they 
deal with one of the greatest natural disasters ever to befall 
any country.
    And I have to say, I have always been a deep admirer of 
Japan. I believe that the absolute rock of American engagement 
in Asia is our relationship with Japan. And I have been 
impressed at the determination of the Japanese people and their 
ability to soldier through some of the most difficult 
imaginable conditions.
    But I must say, I am also proud of the United States. You 
know, you hear a lot of talk about how the United States maybe 
doesn't have the same punching power, the same abilities, 
capabilities as other nations. I would just ask all of you to 
take a look at the string of natural disasters that have hit 
Asia over the course of the last several years: The tragic 
tsunami that hit Aceh, some of the horrible rains that have 
buffeted the Philippines and elsewhere, the earthquake in New 
Zealand, and now the tragedy striking Japan. The country that 
is the lead at providing humanitarian assistance, nuclear know-
how, military airlift is not another country in Asia; it is the 
United States.
    And I want people to see this very clearly for what it is. 
It is not only our continuing commitment to the region, but it 
shows very clearly the capabilities that, when we put our minds 
to it, what we are able to do. And I want our Japanese friends 
to know that this will not be a challenge that is over in the 
next several days. This will be with us for a substantial 
period of time, and the United States is going to be with Japan 
every step of the way.
    So I just want to say, the purpose of this session is to 
focus on how we in the United States Government can support 
American business as we seek to play a vital role in the 
affairs, both economic, strategic, political, of the Asia-
Pacific region. And I look forward to answering those questions 
and doing the best that I can to convey that we are deeply 
engaged in this overall mission.
    But I want you to understand how much we appreciate you 
calling this hearing. I think sometimes people in other places 
start to think that the United States is either preoccupied on 
its domestic pursuits or on other parts of the planet, other 
parts of the globe. And, indeed, we are consequentially engaged 
in the enormous challenges in the Middle East, currently, where 
American forces are struggling mightily. But it is also the 
case that there is a deep and profound recognition that much of 
the history of the 21st century is going to be written in Asia. 
And we understand that, both in the executive branch and I 
think you do, Mr. Chairman, here in the legislative branch.
    And I want to commit to you that, in a very bipartisan way, 
we are here to support you and to work with you in all of the 
important endeavors that the American people are involved in, 
not just in Asia but globally.
    I would like to request that my full testimony be submitted 
for the record. It is not good for any of us----
    Mr. Manzullo. Without objection, of course.
    Mr. Campbell. It is not good for any of us to have to read 
through that, so I will--you can look at it later.
    Mr. Manzullo. Just speak from your heart.
    Mr. Campbell. I have just done that. So I will just leave 
that as my opening statement and look forward to answering your 
questions at a time of your choosing.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Campbell follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mr. Faleomavaega. The chairman has been very kind to allow 
me to project some questions, Mr. Secretary, concerning your 
statement. And having the opportunity to go through your 
written statement, there are so many questions, we can probably 
take all day in touching on some of these issues that are very 
critical to this important region.
    I wanted to ask you, in terms of the five sectors or 
divisions that you have made in your statement, I hope that it 
isn't putting priorities in terms of which countries are more 
important than the other. I think you are just saying, these 
are some of the issues that are important accordingly. Of 
course, we are here, in particular, discussing our bilateral 
trade relations with China as one very critical and important 
area.
    I just wanted to raise a question with you in terms of the 
tri-relationship that we currently have with Korea, Japan, and 
the United States. Can you comment on how this triumvirate, if 
you will, relates to the rest of the region and why you 
consider this as a very critical point, probably in terms of 
our national strategic and security interests in this region?
    Mr. Campbell. Thank you, Congressman. I would be pleased to 
do so. And I just want to give you all a sense of how we tried 
to construct this overall testimony.
    I think sometimes when American friends think about China, 
they only focus on China. And I think what we are trying to 
suggest is that good China policy is embedded in a larger 
regional context and that, if you want to get China right, that 
you also have to get your relations with your allies right. You 
have to work more closely with India. You have to build 
stronger relations with Southeast Asia. And that the only way 
to be effective in Asia is to be effective comprehensively 
across the board, not just militarily, not just strategically, 
but in our economic and commercial endeavors, as well.
    To your particular question, Congressman, it is the case 
that the linchpin, the foundations of our engagements in the 
Asia-Pacific region really flow from our alliances. And those 
alliances in Northeast Asia are very strong. We have two key 
bilateral relationships, one with Japan and one with South 
Korea. These are extraordinarily important to us. We have 
important commitments strategically to both players.
    I would think it would be fair to say, Congressman, that 
over the course of the last several decades, that while we have 
had excellent relationships with Japan and South Korea, there 
has been a distance and a gap that has existed between South 
Korea and Japan. And one of the things that we have been 
pleased by in recent times is that there is a beginning of a 
strengthening of ties between Seoul and Tokyo and an attempt by 
both sides to put aside some of the problems of history, to 
deal directly as democracies and friends on the joint 
challenges that we all face.
    Last winter, Secretary Clinton hosted the first-ever 
trilateral engagement between the United States, South Korea, 
and Japan, in which we talked about our mutual commitments to 
our values, to try to ensure that North Korea abide by its 
various commitments, and our collective desire to deal----
    Mr. Faleomavaega. Mr. Secretary, I know--I would love to 
have a--I am critical; I only have 1 minute and 30 seconds.
    Mr. Campbell. Okay. I am answering too long. I will be 
shorter.
    Mr. Faleomavaega. Yeah, one more quick question. You know, 
the free-trade agreement with Korea is something that I 
certainly fully support, as well as, I am sure on a bipartisan 
basis, my colleagues in the Congress does this.
    Now there seems to be a little problem that we have the 
free-trade agreements with Colombia and Panama, and our friends 
on the other side of the aisle are saying that, if you don't 
put all of these three free-trade agreements together, we are 
not going to approve that South Korean free-trade agreement.
    Can you comment on that?
    Mr. Campbell. My primary domain is the Asia-Pacific region, 
as you know, Congressman. And I would defer to my friends on 
the economic side to comment more directly on Panaman and 
Colombia.
    I would simply say that the Korea free-trade agreement is 
essential for American leadership. It is not only important 
economically, it is important strategically. It will give us 
the appropriate leverage to be able to embark on consequential 
diplomacy, economic diplomacy associated with the so-called 
TPP.
    And it will send a very clear message that, even through 
difficult times, the United States is committed to trade, 
committed to an optimistic, broad, economic engagement strategy 
in Asia. Ultimately, what matters to Asian friends is not just 
our strategic engagement or our military commitment, but the 
fact that we are committed to the economic intercourse in the 
region as a whole.
    The Korea free-trade agreement is extraordinarily 
important, and I look forward to seeing it passed in the 
nearest possible time.
    Mr. Faleomavaega. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Mr. Manzullo. We have a vote. We should be back in about 25 
minutes. Is that okay with you? At least we got started and got 
your statement in.
    Mr. Campbell. Nothing more important to me. And, actually, 
unlike your opening comment, I actually do think democracy is 
pretty good, so I am happy to wait around.
    Mr. Manzullo. Okay. Thank you.
    We stand in recess until, let's say, 2:45.
    [Recess.]
    Mr. Manzullo. The hearing will now be called back to order.
    We are going to take just a couple of minutes to give the 
opening statements so we can put the testimony into context. 
The Secretary has indicated that he is good until 3:30 and he 
has to leave.
    Is that correct, Mr. Secretary?
    Mr. Campbell. I am, Congressman. But I have to tell you 
honestly, if you need to go longer, I am totally prepared. So 
just, whatever you need to do, I am happy to support.
    Mr. Manzullo. Okay. I appreciate that. Thank you.
    The Obama administration's effort to increase American 
engagement in Asia is welcome. A lot of it has to do with 
recognizing areas in the world that are especially important, 
such as New Zealand and Australia, among others. That is one of 
the reasons why I led a delegation to New Zealand and 
Australia. It was the largest delegation to those countries, 
working on the Trans-Pacific Partnership.
    The President's National Export Initiative occupies a 
central role in his domestic agenda. It takes a look at Asia as 
a region of tremendous opportunity for American exports. 
Secretary of State Hillary Clinton's numerous trips to the 
region and the appointment of Commerce Secretary Locke as the 
U.S. Ambassador to the People's Republic of China, reinforce 
this strategic approach to Asia. I support the President's 
focus on Asia, in particular, his efforts to double American 
exports by 2014.
    While I support the President's efforts, I do have concerns 
about the ability and tools available that the administration 
has for protecting American interests in China and Asia. Far 
too many American businesses are being hurt, as we will see on 
the second panel. We see this worrying trend increasing rather 
than decreasing.
    Under Secretary Francisco Sanchez wanted to be here. 
Unfortunately, he is leading--well, fortunately, he is leading 
a trade delegation to Indonesia. It consists of 55 colleges and 
universities that he is taking with him for the purpose of 
enhancing exports by getting kids from foreign countries 
interested in coming to the United States to study.
    We know that trade violations in China remain a persistent 
problem, and something urgent must be done to address the 
problem. While large corporations are much better equipped to 
negotiate the pitfalls of doing business in China, the reality 
is that there are many more American companies struggling to 
survive because of grossly unfair trade practices.
    American companies doing business in China face many 
serious threats, including piracy, intellectual property theft, 
corruption, lack of transparency regulations, and an 
artificially low currency that allows competitors to market 
their goods for up to 20 percent cheaper.
    The crux of the matter is that the Chinese market is not 
truly competitive. We are calling upon the administration to do 
more to protect our economic and commercial interests there.
    Mr. James Fellowes, chairman and CEO of Fellowes, 
Incorporated, is the head of a manufacturing firm in Illinois 
that makes some of the best office equipment in the world. Mr. 
Fellowes is here to testify about China's violation of trade 
laws that I just described.
    Fellowes, Inc., is the case of a legitimate joint venture 
between an American company and a Chinese company being 
illegally hijacked by the Chinese partner to steal critical 
intellectual property. In fact, an entire line of machine tools 
and inventory has been seized in a brazen effort to force a 
transfer of technology. To make matters worse, his former 
Chinese joint venture partner is now in the process of trying 
to market its own line of office shredders and office 
equipment.
    The U.S. Government has failed to do anything to protect 
the rights of this investor in China, and we are at loggerheads 
with the Chinese Government to get them to recognize a valid 
rule of law.
    The U.S. Government must do everything in its power to 
pressure China to uphold its World Trade Organization 
commitments. Vital American interests are at stake, and if we 
fail to halt this theft, how can we ensure the future of 
American industry? It is very troubling that we are still 
dealing with so many problems a decade after China's accession 
to the WTO. Something, clearly, needs to be done.
    I will now recognize my ranking member, Mr. Faleomavaega, 
for his opening statement.
    [The prepared statement of Mr. Manzullo follows:]

    
    
    
    
    
    
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    Let me begin by congratulating you on your new appointment 
as the chairman of the House Foreign Affairs Subcommittee on 
Asia and the Pacific. I do consider it an honor to serve with 
you.
    And I want to personally thank you for stopping in my 
little district of American Samoa during our recent CODEL visit 
to New Zealand and Australia. The people of American Samoa were 
deeply touched by your visit. And on their behalf, I want to 
join with you in extending my condolences and sympathies to our 
friends in New Zealand, as well as in Japan, who are suffering 
beyond comprehension.
    Two years ago, even my own little district had a little 
experience dealing with earthquakes and tsunamis. In fact, it 
was an earthquake that was 8.3 Richter scale, the most powerful 
earthquake in the world at that time. Only in a matter of 10, 
15 minutes, we had tidal waves up to 20 feet high. And my 
people have a very deep appreciation and understanding when it 
comes to tragedies, when it comes to earthquakes and then to 
tsunamis.
    In some small way, Mr. Chairman, I hope that the good 
people of New Zealand and Japan are comforted by knowing that 
our Nation and the American people are committed to helping 
them.
    I also want to commend you for your leadership in putting 
America back to work. As the former chairman of the House 
Committee on Small Business, for some 4 years or 5 years in 
your tenure, you held more than 60 hearings on the state of 
manufacturing in America. And, no doubt, during your tenure as 
chairman of this subcommittee, you will focus, again, your 
efforts on increasing export opportunities for American 
business owners everywhere. And I fully support your effort in 
this regard.
    While today's hearing will broadly address U.S. policy in 
Asia and its implications for U.S. Commercial interests, this 
hearing is also important to both of us at the district level, 
because we both represent constituencies that are suffering as 
a result of trade policies that are not working.
    For my little district of American Samoa, which I 
represent, we are barely hanging on by a thread due to 
increased competition from low-wage workers in Asia and unfair 
trade practices that have gone unchecked.
    Approximately 80 percent of my own territory's economy 
depends on the private sector, and a workforce of about 74 
percent, on two canneries, tuna processors in StarKist and 
Chicken of the Sea. Unfortunately, in 2009, Chicken of the Sea, 
without the courtesy of discussions, closed down its operations 
and went on to continue its business with the parent company, 
which is Thai Union, located, obviously, in Thailand, where the 
fish cleaners there are paid less than 70 cents an hour.
    Thailand has since reported an 11 percent increase of tuna 
exports, while StarKist has been forced to lay off more than 
1,000 workers due to increased competition from Thailand, which 
is now the world's leading producer and exporter of canned tuna 
in the world. In the third quarter of 2009, Thai Union reported 
a remarkable 12 percent profit. The growth in its private-label 
canned tuna currently accounts for about 30 percent of the tuna 
sold here in the United States.
    Thai Union has previously been found to be dumping shrimp, 
and I believe there is strong evidence that it is also dumping 
canned tuna to the United States. And I certainly would like to 
join with you in calling upon the administration to take a hard 
look at where we go from here when it comes to fair trade.
    But whether we are talking about Thailand or China, Mr. 
Chairman, I have to say I don't place all the blame on Asia for 
our trade deficits and imbalances. I also blame U.S. 
Corporations who outsource American jobs to low-wage countries 
that do not pay workers decent wages, all for the sake of 
maximizing profits for their shareholders. This happens in the 
tuna industry with companies like Chicken of the Sea, and it 
also happens in one industry after another all across America.
    Of course, Mr. Chairman, over the years, our country has 
always been challenged by finding where do we strike the proper 
balance between corporate America and our country's workers, 
corporate profits versus the cost of living that always should 
be taken into account when we talk about the rights and the 
privileges of the American workers trying to make ends meet and 
to provide for their families, church, and taxes, as well, that 
they pay.
    Interestingly enough, too, Mr. Chairman, how is it that 2 
percent of the population of our country owns 50 percent of the 
wealth, which leaves the other 90 percent of the population 
with only 50 percent? I would love to make a dialogue and try 
to see if we can understand that maybe there is a disparity of 
the distribution of wealth in our own country and to see where 
do we need to go, what is happening to the middle class, and 
maybe we can find out a sense of balance, how we can do this.
    And in fairness to our Asia counterparts, Mr. Chairman, 
America must assume some responsibility for our record trade 
deficits. As CRS, the Congressional Research Service, reports, 
and I quote, ``The fundamental cause of the U.S. Trade deficit 
is excess spending by the U.S. consumers, the businesses, and 
the government.'' Put another way, we don't save. We buy on 
credit. We rob Peter to pay Paul. And to subsidize our lack of 
savings, the U.S. Borrows money from foreign governments, which 
spells debt and deficit. We also consume more than we produce, 
and, consequently, this allows countries to sell more to the 
U.S. than they buy from us.
    In my humble opinion, Mr. Chairman, something has to give, 
given that there are serious issues on both sides of the water 
that must be addressed. As we continue the dialogue, Mr. 
Chairman, I think it is extremely important that we do not 
politicize the challenge before us----
    Mr. Manzullo. I need to politicize the time.
    Mr. Faleomavaega. Okay. I have about 10 more pages of my 
statement, Mr. Chairman. Well, let me just give you--I would 
like to ask unanimous consent that the rest of my statement be 
made part of the record.
    Mr. Manzullo. The entire statement will be put into the 
record, along with the entire statements of the other members.
    [The prepared statement of Mr. Faleomavaega follows:]

    
    
    
    
    
    

    Mr. Faleomavaega. Thank you, Mr. Chairman. Again, I want to 
hear from Secretary Campbell on this. I can go on, but I 
understand.
    Mr. Manzullo. Okay. I won't let you go on.
    Mr. Faleomavaega. Thank you, Mr. Chairman. That is all 
right.
    Mr. Manzullo. Thank you.
    We have opening statements from Congressman Johnson and 
then Congressman Sherman.
    Can you guys keep it kind of short, unlike his? Okay?
    Mr. Johnson. I will certainly be mindful of the time. Thank 
you, Mr. Chairman.
    And thank you, Secretary Campbell, for being with us today.
    Like you and my colleagues here, our hearts and prayers go 
out to the people of New Zealand and Japan for the disasters 
that have occurred in those nations to those people.
    I want to shift gears just a little bit, though. In his 
State of the Union Address last month, the President reaffirmed 
the pivotal role of exports with regard to job creation here in 
America. The administration's stated goal of doubling U.S. 
exports to $3.14 trillion by 2015 will support 2 million new 
jobs here in the United States. Our commercial and economic 
success in reaching this goal relies heavily on American 
relations in Asia. Plain and simple, U.S. exports create U.S. 
jobs.
    Although our Nation's economy is showing positive signs of 
recovery, we are still experiencing high levels of 
unemployment, and many small- and medium-sized businesses are 
still struggling just to stay afloat. In most of my district in 
southern and eastern Ohio, unemployment rates linger, on the 
average, at 11 percent or above, well above Ohio's overall 9.8 
percent rate.
    Trade agreements are important to expanding trade 
opportunities and opening up emerging markets for U.S. Exports. 
Unfortunately, we do not enjoy the trade protection offered by 
trade agreements with every nation with which we trade.
    One of my biggest concerns is the growing role that China 
is playing in our trade relations, accompanied by growing 
sources of economic conflict. China is the third-largest and 
fastest-growing market for U.S. exports, totaling $92 billion 
in 2010. However, these trade ties are weighed down with deep 
mistrust for China. Whether it is through currency 
manipulation, massive government subsidies to Chinese industry, 
or concerns surrounding indigenous innovation efforts, China's 
trade policies pose a significant threat to American exports, 
businesses, and, therefore, jobs.
    In southern and eastern Ohio, these unfair trade practices 
have halted the growth of small businesses, led to significant 
job loss, and caused many factories to close their doors.
    I have a specific example. I came to Congress from a 
company where I was a senior executive. We have an operation, 
manufacturing operation, in China. I was surprised, when I 
joined that company, to learn that, at least from my 
understanding, if you are going to do business in China, you 
have to use an information technology system that is mandated 
by the Chinese Government. You can't just use your own system. 
Everything has to go through the government. So they basically 
see everything that you are doing. Your financial data goes 
across that network, your manufacturing data goes across that 
network, your operational and HR data goes across that network. 
I am not sure I understand how anyone could consider that fair 
and balanced trade practices.
    I would like to touch on a few of these. In fact, in 2010, 
our trade deficit with China was $273 billion. And while this 
massive dollar amount may not be the direct result of any one 
policy, the fact that China manipulates its currency is a 
strong contributing factor.
    China's deliberate efforts to keep its currency from 
appreciating against the U.S. dollar promotes Chinese job and 
export growth, leaving U.S. companies at a severe competitive 
disadvantage. As America tries to compete with the cheap 
imports from China, business owners face tough choices, 
particularly job layoffs.
    Earlier this month, I made remarks at a hearing on China's 
indigenous innovation policy and its potential to severely 
damage the strides that American businesses have made to 
compete globally. Many American companies have taken great risk 
to develop new technology, and I cannot stress enough the 
importance of protecting that intellectual capital from our 
biggest trade rivals.
    China has announced its intent to transition its economy to 
a worldwide source of innovation within 15 years. It has 
subsidized high-tech industries such as aerospace, renewable 
energy, computer science, and life sciences. Simultaneously, 
China has placed limits on competition from foreign firms and 
denied access to China's markets unless foreign firms operate 
in China and share their technology with Chinese firms.
    These practices are cause for strong concern. We must have 
safeguards in place to ensure our continued position as a 
global leader in the world economy. And I am concerned that one 
of our largest export markets is heavily involved in these 
unfair trade practices, some of which also have significant 
national-security implications.
    I look forward to the testimonies today and your comments 
and the chance to discuss these issues with our panelists. 
Thank you so much, again, for being here.
    I yield back.
    Mr. Manzullo. Thank you.
    Mr. Sherman?
    Mr. Sherman. Thank you.
    There are some who say that our trade deficit is because of 
the American people--something the matter with them. They don't 
save, run Federal deficits. We were in a Federal surplus under 
Clinton; we still had a tremendous trade deficit. There are 
even more people who are out there saying that our trade 
deficit is because our workers are lazy or overpaid.
    But the real answer is, we are running a trade deficit 
because the middle class has been betrayed by Washington and 
Wall Street. And if we had a government as good as our people, 
we would be running a trade surplus.
    Now, we can wax eloquently about how wonderful trade 
agreements are, but it is important to actually read the 
agreement, particularly Annex 22-C of the Korea free-trade 
agreement and the sourcing rules in that agreement. And when we 
look at that, we see that this agreement is not what it is made 
out to be.
    It is made out to be: Goods produced by Americans get entry 
into the South Korean market; goods produced by South Korea get 
into the U.S. market. Now, we could argue maybe that would be a 
good deal, maybe not. But the Korea free-trade agreement allows 
goods made in China and North Korea free access to the American 
market.
    Let's first talk about China. I am going to use the figure 
65 percent because that is the percentage that applies to 
autos, auto parts, steel, and electronics. Different 
percentages apply to different products. If the goods are made 
65 percent in China, then brought to South Korea, where the 
other 35 percent of the work is done, they get free access to 
our markets. So China, without allowing a single additional 
American good into their country, gets access to our market.
    But it is not that the 35 percent of the work done in South 
Korea has to be done by South Koreans, because they have, in 
South Korea, barracks filled with Chinese workers. So the other 
35 percent of the work can be done by Chinese workers living in 
barracks in South Korea.
    Now, I am told, well, don't worry about that because at 
least those Chinese workers are being paid almost $4 an hour. 
But wait a minute. Those Chinese workers don't see the $4 an 
hour, because the money is taken from them to pay for all that 
wonderful barracks living. So they get as much money net as the 
employer wants to give them.
    So we have goods 65 percent made in China, 35 percent made 
by Chinese workers in barracks coming into our country duty-
free, and China doesn't open their market to us at all.
    You have to read the agreement and see its implications.
    Even worse, North Korea: The goods are partially made in 
North Korea, partially made in South Korea; they will come to 
an U.S. port. At that point, under the agreement, they have a 
right to come into our country. But under American law, we bar 
them at the port, because we don't accept North Korean goods.
    What is the effect? Well, our law will apply; we will bar 
the goods. And then North Korea can find us not in compliance 
with the agreement, which would have the additional 
disadvantage of being true. And then South Korea can do to us 
exactly what Mexico did: Find us in violation of a trade 
agreement and take away from us the advantages that we 
originally were promised when we signed the agreement.
    Once those goods are barred, then South Korea can raise 
tariffs by billions of dollars, just as Mexico has when we 
didn't, in their view, adhere to NAFTA, and bar U.S. exports to 
North Korea.
    And then, finally, we have the Kaesong and similar special 
manufacturing zones, places where workers are paid perhaps $7 
or $8 a month, if they see that. They are not actually paid 
anything by the employer; the money goes to the North Korean 
Government. And under Annex 22-C, a future administration could 
just enter an executive agreement and let those goods, 100 
percent made in slave conditions in North Korea, into the 
United States duty-free. An executive decision is that they 
would have to waive our ban on North Korean goods, which the 
executive department of this government can do, and they would 
have to reach an executive agreement with the South Korean 
Government viewing Kaesong as under the jurisdiction of the 
South Korean Government.
    So it is one thing to tell American workers that they are 
going to get access to the South Korean market and that South 
Koreans will have access to our market. But when you allow 
goods 65 percent made in China, 35 made by Chinese workers in 
barracks in South Korea, when you allow goods made in North 
Korea or goods made in the Kaesong industrial zone into our 
country, the only way to pass this agreement is to hide its 
real implications from the American people.
    Mr. Manzullo. Well, these guys have opinions.
    I am glad you showed up anyway, Mr. Secretary. I appreciate 
it.
    I do have a couple of questions. I am going to talk about 
trade promotion, because I know that you are heavily involved 
in that. You talked about a five-part framework, at least in 
your written testimony, regarding the President's approach to 
engaging the Asia-Pacific region. Obviously, that is one of the 
reasons why we were down in New Zealand and Australia, and that 
is why you were also there.
    I noted that, quote, deg. ``pursuing a confident, 
aggressive trade and economic strategy'' is the last of the 
five priorities, even after, quote, deg. ``promoting 
multilateral organizations.'' Why does the State Department 
place economic and commercial interests last? Or was that 
simply an issue of how it was listed in your testimony?
    Mr. Campbell. First of all, thank you very much for each of 
your questions and, again, for the honor to be with you.
    What I tried to suggest, Mr. Chairman, is that, in our 
Government, agencies have certain specific responsibilities. I 
actually thought there would be someone from USTR or Commerce 
here. The primary responsibility of the U.S. Trade 
Representative's Office and the Commerce Department are these 
particular issues.
    Our primary responsibility are some of the issues at the 
top. But, at the same time, we also recognize that, 
particularly in the current environment, it is essential for 
American diplomats to promote American businesses, to protect 
American jobs, and to secure a strong American economic and 
commercial presence in the Asia-Pacific region.
    So I would not want to suggest simply by the fact that it 
is listed at number five that it has lesser significance. In 
fact, I would say that a very large part of my time, of 
Secretary Clinton's time, of all of my colleagues at the State 
Department, is to ensure that agreements, that arrangements, 
that American foreign policy supports and extends the 
operations and the input of critical economic agencies: The 
National Economic Council at the White House, U.S. Trade 
Representative's Office, and the Commerce Department.
    So I just want to say that, before I knew I would be coming 
up here today, I have had extensive discussions with the U.S. 
Trade Representative's Office. They have asked me to convey a 
few things. They have asked me to take back a few concerns that 
you and others might have to make sure, as we go forward, that 
some of those concerns can be reflected in ongoing 
negotiations.
    Mr. Manzullo. Congressman Faleomavaega?
    Mr. Faleomavaega. Yes, can I finish my opening statement 
with my 5 minutes? No, I am just kidding.
    Mr. Manzullo. Wait a second. It would be Congressman 
Sherman because you questioned him before.
    Mr. Faleomavaega. I did. I did have my 5 minutes.
    Mr. Manzullo. Okay.
    Mr. Faleomavaega. We will just make the first round 
completed.
    Mr. Manzullo. All right.
    Congressman Sherman?
    Mr. Sherman. Thank you.
    Sir, one of your predecessors was one of the most storied 
diplomats that we have had in the last 20 years. And yet, I 
think his testimony before, I believe it was, this subcommittee 
about 5 years ago illustrates what I fear is a feeling of 
benign neglect toward U.S. jobs. Because this was a man who we 
trusted very much and who wouldn't make an obvious mistake in 
anything he really cared about, and he testified as to how, as 
our Ambassador to South Korea, was promoting Americans jobs 
because he put Chrysler cars on the lawn of the Embassy and 
invited South Koreans to see how great they were. And one of 
the cars was the Crossfire, a DaimlerChrysler product made 
entirely in Germany. I have checked; the German Embassy to 
South Korea did nothing to promote American-made automobiles to 
the South Korean market.
    I wonder whether you, sir, would come before this 
subcommittee and advocate we open our markets, duty-free, to 
goods that are 65 percent made in China, 35 percent made by 
Chinese workers in barracks in South Korea? Is that something 
fair for American workers to have to compete against?
    And does it make any sense to give Chinese products access 
to our markets, when we only get access to the South Korean 
market and not to the Chinese market?
    Mr. Campbell. Let me first say that I very much appreciate 
the compliments to my predecessor, who, in fact, was deeply 
committed to promoting U.S. economic interests in South Korea. 
And I humbly submit that I worked with him often in that 
endeavor and previously. And he was a very strong supporter for 
American jobs and American engagement in the Asia-Pacific 
region.
    I would like, if you will allow me, Congressman, I think 
there were a couple of things that were said that would, at 
least in my view, I would like to----
    Mr. Sherman. Sir, I have very limited time. I would like 
you to address the question. Does it make any sense for us, in 
a deal that does not get us any access to the Chinese market, 
to open our markets, duty-free, to goods that are 65 percent 
Chinese-made?
    Mr. Campbell. I would simply say, I believe the Korea free-
trade agreement, as currently negotiated, is in the best 
strategic interest of the United States. And I believe that it 
will go a long way----
    Mr. Sherman. Did you understand before my opening statement 
that goods 65 percent made in China were going to have free 
access to the United States market?
    Mr. Campbell. I think perhaps in another setting we could 
probably go and explore whether we have differences of view on 
this particular matter. I----
    Mr. Sherman. This is a wonderful setting, if you would just 
answer my question.
    Mr. Campbell. Well, I would simply say that I think there 
were two statements you made--I think the issue of Chinese 
component in manufacturing in South Korea is something that we 
could debate and discuss.
    The other matter that you have discussed, about whether 
this will somehow apply to North Korea, I think is clearly 
incorrect.
    Mr. Sherman. Can you get a statement from the South Korean 
Government that they will never hold America to be in violation 
of this agreement if goods that are 1 percent North Korean-made 
are barred at our ports?
    Mr. Campbell. It is longstanding U.S. policy that----
    Mr. Sherman. No, I know the goods won't come in. The 
question is whether the South Koreans are going to then find us 
in violation of this agreement. They are waiting for the 
opportunity to take away every concession they have made. And 
you can't get them to make a statement like this because that 
takes away the advantage that they expect.
    Mr. Campbell. I believe that--first of all, some of the 
details of this are better discussed by our representatives at 
the U.S. Trade Representative. But I happen to know that, on 
these particular issues, there was a lot of discussion back and 
forth between the United States and South Korea. And I believe 
there is a clear understanding on the part of our South----
    Mr. Sherman. There could be a new administration in South 
Korea. There will be a time where there will be a pharaoh that 
knew not Joseph----
    Mr. Campbell. Yeah.
    Mr. Sherman [continuing]. And the text of the agreement is 
the text of the agreement. And you have nothing in writing from 
the South Koreans that they will not point to the text of that 
agreement and raise tariffs on American chickens or whatever 
else they want to raise tariffs on when we bar those North 
Korean goods from our ports.
    Mr. Campbell. Let me just say, it is a very longstanding 
American policy of which the Obama administration has no 
intention of changing that we will prohibit North Korean 
imports into the United States. The South Koreans have been 
made--this point has been made very clear to them. I believe 
they understand this very clearly----
    Mr. Sherman. And they then understand that the moment that 
we enforce our law, they are free, under this agreement, to 
impose countervailing tariffs on American goods. And they are 
looking forward to that opportunity, which they will not 
deprive themselves of by sending a letter claiming that they--
announcing that they will not use that tactic.
    Mr. Campbell. With respect, Congressman, I believe that 
there is a very different understanding between the United 
States and South Korea. Now, you may say, well, look, there 
could----
    Mr. Sherman. In 2 years, there will be a new South Korean 
Government.
    Mr. Campbell. It is the case that with all agreements that 
are negotiated between two countries that you have to always be 
vigilant going forward. But I will tell you----
    Mr. Sherman. If you sign an agreement that is faulty and 
then you say you are going to be vigilant----
    Mr. Campbell. Look, I don't----
    Mr. Sherman. My time has expired. I thank you.
    Mr. Campbell. We have very clear protections, very clear 
protections, and we have made very clear to the South Koreans 
that we will not import goods produced in North Korea.
    Mr. Sherman. You have nothing signed by them.
    I yield back.
    Mr. Manzullo. Congresswoman Wilson, do you have a question? 
I like your hat, but they won't let you wear that on the floor, 
will they?
    Ms. Wilson. No.
    Mr. Manzullo. So you are welcome to wear it here.
    Ms. Wilson. Thank you, Mr. Chairman.
    I came in late, and I am not sure where we are, at this 
point. But the reason I wanted to serve on this particular 
subcommittee was I was interested in job creation in my 
district and in a part of the world that I am interested in, 
which is Haiti, but especially in my 17th Congressional 
District.
    And I wanted to see how the Obama administration's Asia 
policy translates into any commercial benefits to U.S. 
companies or workers and consumers.
    Mr. Campbell. Thank you very much, Congresswoman.
    We have had a good discussion so far about American 
economic performance in Asia. And I think you will see, if you 
look over the course of the last couple of years, the area in 
which American exports have had the greatest success, by an 
order of magnitude, has been in the Asia-Pacific marketplace.
    I think you are going to hear from a lot of companies--and 
I have been grateful to have the opportunity to work on some of 
the specific issues that Fellowes, a very able company from 
Illinois, will present in a little bit. And it is a very tough 
environment in many places in Asia. But I think what we have 
seen is American businesses that are committed and recognizing 
that the commerce of the 21st century is going to be anchored 
in the Asia-Pacific region and we have to be successful there.
    So I think you see a multifaceted approach on the part of 
the Obama administration. One is to promote exports. Two is to 
make sure that any kind of trade agreements protects the 
interests of American workers and American companies.
    Three, there is, I think, a deep recognition that there has 
to be a form of rebalancing. And you heard this a little bit 
from Congressman Johnson and also from Chairman Manzullo. We 
are going to have to save a bit more. But, as importantly, big 
countries in Asia are going to have to spend more on American 
products, products that will assist in all aspects of their 
economic development.
    I think that the United States is sending a message that we 
are prepared to compete in the Asia-Pacific region and that, 
through exports, we can create good jobs. And so I think that 
you are seeing the initial fruits of that strategy playing out 
before you.
    This is a very difficult time. Manufacturing is struggling 
in almost every State if the Union. We recognize that we are 
facing very stiff competition from many countries in the Asia-
Pacific region. But we believe, through a very principled 
application of American laws, clear advocacy of American firms, 
that the United States can be successful, that American jobs 
can be created, and American exports can penetrate some of the 
most challenging markets in the Asia-Pacific region.
    Ms. Wilson. Can you give me an example of the jobs that you 
have in mind? When you say that they will translate into jobs, 
what kind of jobs?
    Mr. Campbell. I mean, there are a lot of examples, and I 
would hate to just choose one industry, but let me choose one, 
if I might, Congresswoman.
    When President Hu came to Washington not long ago for a 
meeting with President Obama, there were very detailed and 
intense discussions in advance of that trip. And when he was 
there, he and the Chinese Government agreed to purchases of 
American products somewhere between $40 billion and $50 billion 
over a period of time.
    One of the key components of that are in the realm of 
aerospace. Aerospace jobs affect many States in the Union. They 
are well-paying. They are unionized. They allow for the United 
States to maintain a technological edge. And they, in fact, 
allow for American brands to penetrate markets.
    That is just one example. But you see in a variety of 
areas--agricultural products, ranching products, high-tech 
carbon fibers, a variety of manufacturing--the United States 
has some unique advantages.
    Now, it is our job, once the United States is able to make 
these sales, to protect the IPR, to ensure a level playing 
field, and to give the United States the opportunity to compete 
fairly with Asian competitors. I believe that we have taken 
some initial steps, and, frankly, previous administrations have 
done, as well, but I am pleased at some of the progress we have 
seen of late.
    Mr. Manzullo. Congressman Royce?
    Mr. Royce. Just a couple of questions, Mr. Chairman. One 
has to do with the Philippines. I wanted to ask Mr. Campbell 
about the state of affairs there.
    Three Filipino workers were put to death in China after 
being convicted for drug smuggling, and we got engaged in this. 
I understand the death penalty is largely disapproved of in the 
Philippines, as you know. So it is having an impact, especially 
since according to one report I have seen there are 74 more 
Filipinos sitting on death row in China. And these men and 
women are awaiting a similar fate.
    And one of the arguments is that you have Triads or you 
have those working this business that are well-established in 
China taking advantage of workers, who then basically are 
utilized as pawns and as couriers. And if something goes wrong, 
they get the death penalty. But the entities actually involved 
in setting this up and running the operation in which the 
worker may or may not know about their being used as a courier, 
there seems to be very little reprisal there.
    So with such an exceptionally high number, are these cases 
justifiable, or, in your view, is there something nefarious 
taking place here?
    And to what extent are poor Philippine workers being taken 
advantage of in countries like China where you have the death 
penalty handed out? And now these three individuals, despite 
the international requests for clemency, for some level of 
mercy, they have all lost their lives.
    Mr. Campbell. First of all, I thank you, Congressman, for 
bringing up the Philippines. A good country, a solid ally of 
the United States, wonderful Filipino American citizens here 
who contribute so much to our livelihood. We all celebrated 
when President Aquino came to power. We have had a very strong 
relationship with the Philippines for years.
    And you will have noted, in the last couple of months, we 
have taken a series of steps to step up our own engagement with 
the Philippines, through enhanced trade interactions, a 
strategic dialogue to make sure that we are coordinating on 
issues of mutual concern like the South China Sea. We are also 
working with the government of President Aquino to try to help 
him in his effort to reduce corruption and profiteering in the 
Philippines. And I must say we are very impressed by the early 
steps that he has taken.
    I think the way you stated that, Congressman Royce, is 
exactly accurate. I would just add one further thing, if I 
might.
    It is fairly unusual in Asia, when a government makes a 
very, almost personal appeal at the very highest levels--and I 
won't go into great detail, but I think you know how strongly 
the Philippines Government and President Aquino's own cabinet 
felt about this issue--to be turned away in such a manner. And 
I think it was a little bit of a surprise to Filipino friends. 
And I will be interacting with our Filipino colleagues in the 
coming days about this matter.
    Mr. Royce. Thank you.
    Mr. Campbell. I do think that the overarching picture that 
you paint of, frankly, the lowest member of the totem pole of 
this crime syndicate paying the highest price is, indeed, 
accurate. And I believe that this is something that we will 
want to support our Filipino friends on, going forward.
    Mr. Royce. Very good.
    Mr. Campbell. Not that these people don't deserve 
punishment. They do. But, clearly, there are procedures here 
that should be followed.
    Mr. Royce. The radical disparity of the death penalty here, 
when the people organizing it get off scot-free is riveting.
    But let me ask you another question. We frequently hear the 
argument that China has used foreign investment--for 30 years 
now--to spark its economy and now has an abundance of domestic 
capital. So, being less dependent on foreign direct investment, 
China is changing course and deciding that ``made in China'' is 
going to be ``designed in China'' but, more importantly, is 
going to be done by breaking the rules and basically preventing 
U.S. firms from competing domestically.
    The Harvard Business Review had a good piece in December 
about how this is official state policy, basically, in China. 
And I wanted to ask you about that, because that portends--I 
mean, for investors, for hope for reform in China, this has 
grave consequences.
    Am I right to be concerned about this? We just had a 
hearing on it.
    Mr. Campbell. I think it would be fair to say that we are 
all concerned. And, look, we are committed to having a strong 
and stable relationship with China, but it is also the case 
that we expect countries to play by the rules.
    Improving the protection and the enforcement of 
intellectual property rights has to be a top priority for any 
administration, and it is for the Obama administration. 
Continuing U.S. trade losses to counterfeiting and to piracy in 
China, frankly, remain unacceptably high. It is also the case 
that certain practices, like the so-called indigenous 
innovation, run contrary to established procedures of how to 
maintain an open economy.
    I will assure you that we have many fora with the Chinese 
interlocutors. Our Commerce Secretary, the White House, the 
President himself, Secretary Clinton, everyone underscores how 
important it will be for the United States and China to make 
sure that there is this kind of open playing field and that 
American firms have the opportunity to sell their products in 
China in an environment where they are unhindered by unfair 
disadvantages.
    Mr. Royce. Thank you, Mr. Campbell. But I don't think quiet 
diplomacy is working. And we are going to have to try another 
strategy.
    Right, Mr. Chairman.
    Mr. Manzullo. He is not very quiet. Talk to him one-on-one 
and you get some more----
    Mr. Royce. No, I have worked with Mr. Campbell before. I 
know his effectiveness, and that is why I am trying to instill 
a little enthusiasm to help us solve this problem.
    Thank you very much, Mr. Chairman.
    Mr. Manzullo. Thank you.
    The Secretary is going to be leaving, but Melissa Sweeney 
from his office will be staying to hear the testimony of the 
second panel, so we have continuity.
    Mr. Secretary, thank you very much for coming. We 
appreciate you spending almost 2 hours with us because of the 
vote.
    Mr. Campbell. Thank you.
    Can I just have one appeal?
    Mr. Manzullo. Absolutely.
    Mr. Campbell. This is a rare appeal from the executive 
branch. We want more hearings on Asia. We want more hearings on 
American competitiveness in Asia. We want more hearings on 
American alliances in Asia. We want more hearings on American 
focus in Asia. And I can promise you willing witnesses and 
strong support for the legislative branch continuing this 
effort.
    Mr. Manzullo. We appreciate that. We will do that on a 
couple of levels: First, hearings at the subcommittee level and 
then also informal get-togethers, briefings, et cetera, that 
are open to the public.
    Mr. Faleomavaega. Would the chairman yield?
    Mr. Manzullo. Of course.
    Mr. Faleomavaega. If I could just have 30 seconds before 
the Secretary leaves.
    Mr. Manzullo. Okay.
    Mr. Faleomavaega. Mr. Secretary, with all due respect--and 
I appreciate the fact that you have given a sense of importance 
about the Pacific region, but, unfortunately, as I read your 
testimony, you have all of Asia covered, you have New Zealand 
and Australia covered, but nothing whatsoever in reference to 
the 16 Pacific Island countries.
    And I would note also with interest that India, in my 
humble opinion, should be treated just like China because of 
the tremendous population and the priorities that this 
administration has given to this country.
    I just wanted to add that, Mr. Chairman.
    Mr. Campbell. Let me respond, if I could, to that.
    It is absolutely the case, Congressman, that one of the 
most important Asia-Pacific countries in the 21st century will 
be India. We have to do everything possible to support India's 
``Look East'' policy. For any omission, that is my fault. 
Frankly, you always worry about having too long a testimony. 
But if that was not covered in great enough detail--I know I 
had a few sentences--I stand corrected, and I will not make 
that mistake again.
    The truth is, I did testify before your committee on the 
Pacific. I should have taken sections of that and put it into 
this testimony. I think you will see, Congressman, over the 
course of the next couple of months, we have a strategy that we 
are about to roll out, including businesses, commercial 
support, a new AID mission, thanks to your strong pushing, that 
I think you can be proud of in the months and years ahead.
    Thank you.
    Mr. Manzullo. Thank you, Mr. Secretary.
    If the staff could get the second panel. While they are 
setting up, I am going to be introducing the panel, so we can 
maximize our time.
    On the second panel, we have James Fellowes. He is the 
chairman and CEO of Fellowes, Inc. It is one of Chicago's 
oldest and largest family-owned businesses. This is the firm 
that started making what we know as the ``Bankers Box'' and now 
is one of the premier makers of residential and industrial 
paper shredders. Recognized throughout the entire business 
community, Mr. Fellowes received Ernst and Young's Illinois 
Master Entrepreneur of the Year award in 1997.
    Also joining us on the panel is another survivor of the New 
Zealand earthquake, Cal Cohen. He is president of the Emergency 
Committee for American Trade. It is an organization whose 
purpose is to promote economic growth through the expansion of 
international trade and investment.
    Mr. Cohen has worked with Members of Congress and the 
executive branch on a wide range of investment and trade 
issues, such as NAFTA, China's World Trade Organization 
accession, and, more recently, the pending trade agreements 
with Colombia, Panama, and South Korea. In New Zealand, we 
discussed the salient issues involved in the Trans-Pacific 
Partnership.
    Dr. Michael Auslin is resident scholar in foreign and 
defense policy studies and concurrently director of Japanese 
studies at the American Enterprise Institute for Public Policy 
Research in Washington. He is also a columnist for the Wall 
Street Journal, writing on Japanese and Asian topics. 
Previously, he was an associate professor of history at Yale 
University and senior research fellow at Yale's Macmillan 
Center for International and Area Studies prior to joining AEI.
    I also want to note that Dr. Auslin's young son, Ben, is in 
the audience today to watch his father testify, and who 
shadowed me when we went to the floor, helped me make some very 
important votes, and asked some very important questions about 
the State of Illinois, on which he is writing a paper for his 
school.
    Also joining us is Mr. Kent Millington. He is entrepreneur 
in residence and director of the Department of Technology 
Commercialization at Utah Valley University. He has 25 years of 
experience in the business community, helping build one of the 
world's largest Internet companies, with extensive 
international experience in Asia. He has 9 years of experience 
teaching at the university level and is currently teaching 
innovative outline MBA courses to students worldwide and serves 
as adjunct professor of entrepreneurship at the University of 
Science and Technology of China.
    Without objection, the complete statements of all the 
witnesses will be made part of the record.
    I now give Mr. Fellowes the floor.
    Mr. Fellowes, we look forward to your testimony.

 STATEMENT OF MR. JAMES FELLOWES, CHAIRMAN AND CHIEF EXECUTIVE 
                OFFICER, FELLOWES, INCORPORATED

    Mr. Fellowes. Chairman Manzullo, Ranking Member 
Faleomavaega, members of the subcommittee, my name is James 
Fellowes. I am a third-generation chairman and chief executive 
officer of Fellowes, Inc. Thank you for providing this 
opportunity for me to testify today.
    Fellowes, a family-owned business headquartered in Itasca, 
Illinois, produces business machines and office products that 
reach customers in over 100 countries. Until the time of our 
difficulties last August, we employed approximately 2,700 
workers in 16 countries, including 625 workers in the United 
States. The company is perhaps best known for our market-
leading line of paper shredders. Fellowes' engineering 
expertise and intellectual property is what sets our shredders 
apart.
    Although Fellowes produces many products domestically, we 
began manufacturing our shredders in China in 1998 to serve the 
global market. In 2006, Fellowes entered into a joint venture 
agreement with Jiangsu Shinri Machinery Company in Changzhou, 
China. Under the terms of the contract, Fellowes retained 
ownership over the tooling and the IP used to manufacture the 
Fellowes-brand shredders in the JV facilities. Moreover, the JV 
contract specifically provided Fellowes the right to manage the 
day-to-day operations of this business.
    For over 3 years, this engagement resulted in a very 
productive relationship with Shinri to manufacture and ship our 
goods to Fellowes locations around the world. Shinri enjoyed a 
100 percent-plus return on investment for each of the years, 
and this return on investment was always paid on time.
    In 2009, Shinri methodically imposed unreasonable 
requirements on Fellowes in an effort to extort more profit and 
ultimately control our global shredder business, in direct 
violation to our contract. Specifically, unless Fellowes would 
assign its 100-percent-owned tools to the JV, and unless 
Fellowes would assign its 100-percent-owned engineering 
capability and its 100-percent-owned Chinese sales division to 
the JV, and unless Fellowes immediately increased its prices by 
40 percent, and unless Fellowes agreed to unilaterally 
contribute over $10 million to the JV, then Shinri would close 
down our operation as legal representative of the JV.
    When Fellowes refused these illegal demands, Shinri 
proceeded to destroy our business. They illegally obstructed 
shipments of paper shredders, beginning on August 7, 2010, 
forcing the JV to stop production. This ultimately led to the 
bankruptcy of the JV.
    They placed security guards and trucks at the gates of the 
JV to prevent entrance of our personnel, shipment of our goods, 
and transfer of our wholly owned assets. They expelled 
Fellowes-appointed management personnel from the facility, and 
they illegally detained Fellowes' injection molding tools.
    Immediately after the closure of our facility, I traveled 
to Changzhou and met with local Chinese Government officials. 
They sympathized with our plight but were either unable or 
unwilling to force our Chinese partner to open our factory and 
they were unable to facilitate a purchase of the JV by 
Fellowes.
    Fellowes' global sales volume for these blocked products 
was $168 million. The cumulative impact of these actions is an 
economic loss to Fellowes totaling over $100 million.
    Also, we recently learned that affiliates of Shinri are 
planning to compete directly with Fellowes in the shredder 
business, all while using illegal tactics to block Fellowes 
from recovering its custom molding tools that represent the 
embodiment of Fellowes' engineering investment and intellectual 
property.
    As a result of Shinri's decision to stop shipments, 
suppliers filed lawsuits against the JV for its failure to pay 
its invoices. The Changzhou intermediate court has initiated 
proceedings to liquidate the JV and to auction the assets to 
satisfy the debts of the JV.
    The sale of Fellowes' tooling and/or finished goods 
inventory to anyone other than Fellowes would directly violate 
our intellectual property rights. The immediate release of our 
tools is a great concern for us today. We have been restricted 
from these tools for nearly 8 months, and that has greatly 
hampered our ability to recover.
    We also want to close by commenting that we are working 
around the clock to retool our products and to bring up new 
factories. One of these factories will be in Itasca, Illinois. 
We will bring two high-performance shredder models up, with the 
hope of adding more products in time. This will immediately 
create about 30 jobs at Fellowes and about twice that amount to 
the approximately 15 suppliers that will supply parts to us in 
the Midwest.
    We are grateful for your efforts, Mr. Chairman and Ranking 
Member Faleomavaega, as well as the assistance that we have 
received from Senators Durbin and Kirk and Congressman Roskam. 
We hope the U.S. Government will act to protect the rights of 
American companies like ours.
    [The prepared statement of Mr. Fellowes follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    Mr. Manzullo. Thank you very much.
    The next witness will be Cal Cohen.

 STATEMENT OF MR. CALMAN COHEN, PRESIDENT, EMERGENCY COMMITTEE 
                       ON AMERICAN TRADE

    Mr. Cohen. Thank you, Mr. Chairman, Ranking Member 
Faleomavaega, members of the committee, for this opportunity to 
testify.
    ECAT, which I represent, is an association of the chief 
executives of leading U.S. business enterprises with global 
operations that was founded more than four decades ago to 
promote expansionary trade and investment. ECAT and ECAT 
companies have played an active role in policies, negotiations, 
and legislation related to U.S. commercial and economic policy 
in the Asia Pacific.
    U.S. trade and investment with Asia and the Asia Pacific 
have expanded significantly over the last decade. Nevertheless, 
U.S. exports represent a declining portion of Asia's imports, 
as other countries have pursued a much more aggressive policy 
of entering into new arrangements with our Asian and Asia-
Pacific trading partners.
    In March 2010, eight countries formally began the TPP 
negotiations, including the United States. Malaysia became the 
last member to join these negotiations in October 2010. From 
ECAT's perspective, the TPP, the Trans-Pacific Partnership, 
should be viewed as a building block that could eventually 
bring other major trading countries, including Canada, Mexico, 
Japan, and Korea, into a common set of rules and market 
openings that will provide even greater benefits for the United 
States.
    I have appended to my written testimony a summary of the 
key negotiating objectives that ECAT and ECAT business members 
would like to see from these negotiations. Let me just focus on 
five of these objectives.
    First, we believe the negotiations should create new market 
openings among the negotiating partners. The agreement should 
be comprehensive, covering all sectors and subsectors, goods 
and services, and digital and traditional trade.
    Second, the agreement should simplify trade throughout the 
Asia Pacific. Negotiators indicate that they are seeking a 
21st-century agreement. For many of us, that includes 
addressing day-to-day costs and delays that companies with 
global supply chains and global operations face every day. The 
TPP needs, too, to create a regulatory environment among the 
TPP countries that builds effective, mutually coherent 
regulatory systems.
    Third, we believe the TPP should achieve high standards on 
all core issues, including intellectual property and 
investment. IP is a major contributor to U.S. economic growth 
and employment in IP-dependent industries that span every 
sector of the U.S. economy. It is vital that the final 
agreement provide the highest protections for all industries. 
IP protection should build off of, but not diminish, IP 
protections found in each of the existing trade agreements that 
the United States has with TPP countries and the currently 
pending U.S.-Korea FTA.
    We in the business community see major challenges in the 
protection of IP among several of our TPP negotiating partners. 
In last year's Special 301 Report on intellectual property, 
Chile was listed on the priority watchlist. Industry is 
concerned by actions in New Zealand and potentially other 
countries, such as Australia, that would weaken strong IP-
protection regimes.
    Industry is strongly seeking a final agreement in which all 
the negotiating partners agree to high-standard IP protections 
and effective enforcement for all sectors, including trademark, 
patent, and copyright protection. A successful TPP agreement 
should incorporate strong investment protections as well, 
covering market access and investor-state and state-to-state 
dispute settlement.
    Fourth, the TPP has the potential to create a living 
framework, both in terms of membership and activities, that 
will expand its reach and make it relevant for years to come.
    And, fifth, the TPP must be concluded as quickly and as 
smartly as possible. Many, starting with an initiative of our 
coalition, have called for the agreement to be reached by the 
November 2011 APEC Leaders' meeting. While such a deadline will 
require focused and intensive negotiations, we believe it is an 
achievable outcome.
    Beyond the TPP negotiations, the United States must 
continue to advance its economic engagement with leading 
countries throughout the Asia Pacific, including through the 
Doha Development Agenda negotiations and the work program of 
the Asia-Pacific Economic Cooperation forum.
    As well, engagement with China and Japan are critical. For 
the United States, China is both a major market and a major 
competitor. U.S. exports to China have quadrupled since 2000. 
It is America's fastest-growing export market in the world. 
Among the key issues on which ECAT and ECAT companies are 
focused are the following: China's indigenous-innovation 
policies that restrict market access, China's inadequate 
intellectual-property protection and enforcement, and China's 
government-procurement restrictions and discrimination.
    Lastly, as regards to Japan, I would just seek to point out 
that it is now trying to recover and move forward from the 
horrific earthquake and tsunami, as well as address its nuclear 
crisis, we are even more mindful of the special relationship 
between the United States and Japan.
    The only point that I would make at this time is that, 
before the recent shocking events, Japan had been actively 
engaged in considering joining the TPP negotiations. That focus 
was predicated on decisions within the government to address 
longstanding agricultural issues. We look forward to hearing 
more from the Japanese Government at the appropriate time on 
its continued interest in these negotiations.
    Having, like both of you, recently returned from a New 
Zealand visit, I wanted to associate myself with your comments 
about how we all support the reconstruction and the restoration 
to economic health of both of those countries, Japan and New 
Zealand. We believe that the TPP could also be a vehicle to 
assist in the economic recovery of right now New Zealand but 
also, over the long term, Japan.
    In conclusion, America's role as the world's economic 
leader is being put to a difficult test in the Asia Pacific. 
Expanding our network of commercial engagements through 
regional and bilateral trade and investment agreements, as well 
as the APEC forum and other activities, must become, as both of 
you have pointed out, a top priority to ensure American goods, 
services, and investments grow strongly in the bourgeoning 
Asia-Pacific market, including the Pacific Islands, and can 
help sustain and grow American jobs.
    Thank you.
    [The prepared statement of Mr. Cohen follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mr. Manzullo. Thank you.
    Dr. Auslin?

STATEMENT OF MICHAEL AUSLIN, PH.D., DIRECTOR OF JAPAN STUDIES, 
                 AMERICAN ENTERPRISE INSTITUTE

    Mr. Auslin. Mr. Chairman, Mr. Faleomavaega, members of the 
committee, thank you for inviting me to testify here today.
    And, Mr. Chairman, I would like to thank you very much for 
giving my son, Ben, an extraordinary experience in direct 
democracy in our legislative branch today which I know he won't 
forget.
    I guess I am a bit of the odd man out here today. I am not 
here to talk about jobs, but what I am here to talk about is 
the broader strategic context of our position in the Asia 
Pacific and the threats to it and the opportunities, as well.
    There are questions in Washington, as you are well aware, 
whether the extraordinary expense that we commit to maintaining 
our position in Asia is worthwhile, whether that money can be 
spent better in other places or not. And I think the answer is 
absolutely that the United States has extreme direct interests 
in maintaining the liberal, democratic trends in this region, 
because it is, without question, I think, the most important 
region in the Earth to our long-term prosperity and stability 
here at home.
    Mr. Chairman, you asked in this hearing to consider whether 
or not we are protecting our interests. And I guess there are 
two ways, I think, to answer that.
    The first is to look at what we are doing today. And 
Secretary Campbell and others can attest to the fact that we 
have our top officials going over to the Asia Pacific 
regularly. We have good relations with most of the countries 
there. We have economic ties, we have political ties, we have 
military ties. We have problems, and some that we seem not to 
be able to solve like North Korea. But on the whole, when we 
look in the past, let's say, compared to other periods in 
history, it seems to be a fairly benign time.
    Within that, we have heard today, at least, from the 
economic end about some of the problems we face with China. And 
I think that the concern that we hear echoed in Washington 
about the challenge that China poses politically and 
militarily, politically and economically as well, is something 
that will grow in coming years.
    What I think we have to face and accept is that China sees 
its interests very differently from ours; that is not simple 
and easy for us to engage simply in a conversation that is 
going to get them to accept our definition of norms of 
international behavior.
    At the same time, I think it is important not to overstate 
China's strength or make unrealistic predictions that it one 
day will supplant us in Asia. But while we do that, we also 
have to understand the immensity of the impact that China is 
having on the region. Its actions over the past several years, 
be they in the economic sphere or, more importantly, I think, 
in the political and military sphere, have increased the sense 
of insecurity on the part of many of our friends and partners 
in the region.
    And, as we saw with the Japan-China clash over the Senkakus 
last year, with the very recent interaction between the 
Philippine Navy and the Chinese Navy, there has, indeed, been 
increased instability in connection with China's expansive 
maritime territorial claims.
    The United States has played a key role in underwriting 
security in this region for the past 70 years. It is a role 
that I think we cannot give up, and I don't think that any 
administration would claim that it is giving up. The question 
is, where do we go from here? How do we more effectively play 
that underwriting role, that assurance role that we have played 
for the past half-century and longer.
    We may think that our commitment to Asia is not waning, but 
nations around the region--and you have been there, Mr. 
Chairman; and, Mr. Faleomavaega, I know you have been there 
often--are undoubtedly concerned about the future of our 
position. They question how our defense spending cuts will 
impact our ability to live up to our security commitments. They 
watch in concern as we bend over backward not to antagonize 
China. They question whether we are wavering in defining what 
interests we are willing to defend.
    The point is that they see us active in the region, but 
they question to what end. Are we committed just simply to 
stability for stability's sake or to some larger goal?
    So I think the answer to your question, Mr. Chairman, are 
we protecting our interests, is actually not enough. We need to 
actively promote them. And I think we can do that and help to 
bring about an Asia that contributes to global prosperity, 
liberalism, and stability by doing two things.
    First, we need to broaden our perspective beyond merely 
Asia and the Pacific. And I certainly echo Mr. Faleomavaega's 
comments that we need to include the many nations of the 
Pacific in this. But the region we are really concerned with is 
one that stretches from the Western Pacific all the way to the 
Indian Ocean. And it came up at the very end of Secretary 
Campbell's comments, but it includes India. There is simply no 
way that we can make effective policy in this region by 
excluding India. And I would argue that both our legislative 
and executive branches should reorganize so as to focus on this 
broader Indo-Pacific, as opposed to the Asia Pacific.
    And then, finally, I think we need to move beyond the hub 
and spoke that has structured our alliances for the past half-
century--not get rid of them, but expand them. There is 
something that I have included in my formal testimony and a map 
that is what I call the concentric triangles, a way of linking 
together both our closest allies and strategic partners in the 
region in a grand triangle or an outer triangle of Japan, South 
Korea, Australia, and India, along with an inner triangle that 
is focused on the lower South China Sea, which links us with 
Indonesia, Malaysia, Singapore, and Vietnam.
    If we are able to focus our efforts on creating a working 
relationship with these two interlocking triangles on issues of 
job growth, standards and best practices, on freedom of 
navigation and maritime security, then I think we will best 
serve our interests and promote those of the region as a whole. 
The 21st century almost certainly will be an Indo-Pacific one. 
It is up to us whether to make it an Americasian one, as well.
    Thank you for the opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Mr. Auslin follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mr. Manzullo. Thank you.
    Mr. Millington?

STATEMENT OF J. KENT MILLINGTON, DBA, ENTREPRENEUR IN RESIDENCE 
AND DIRECTOR OF THE DEPARTMENT OF TECHNOLOGY COMMERCIALIZATION, 
                     UTAH VALLEY UNIVERSITY

    Mr. Millington. Thank you, Chairman Manzullo, 
Representative Faleomavaega. Thank you for the opportunity to 
be here today.
    Because I have been involved in the development and 
deployment of technologies on both sides of the Pacific, I am 
optimistic about the future.
    There is no question that America leads the world in the 
development of technologies of all kinds. In this area, we have 
a strong competitive advantage, one that we can use not only to 
create jobs, opportunity, and growth for ourselves, but to 
forge strong relationships between America and the nations of 
the Pacific Rim.
    These nations are important to us. They are part of our 
economic ecosystem and are necessary for our future. There are 
obvious challenges and even threats. However, I believe these 
are outweighed by opportunity. And that begins with our 
technological prowess, an advantage that gives us an 
opportunity to change the current environment that sometimes 
hinders our U.S. companies in China or prevents them from 
effectively competing in the Chinese markets.
    It has been my experience with students and business 
leaders in China that there is a strong desire to do business 
with American companies. They are eager to develop business 
relationships that can be mutually beneficial, in spite of 
official policies that sometimes limit market access.
    China has made numerous changes and improvements in the 
last 30 years. Let me point out some of the beneficial effects 
of these changes.
    Over 100,000 Chinese students currently study in America, 
with 65 percent of them being in graduate schools, mostly 
technological or engineering schools. This level has been 
maintained for most of the last 15 years. Many of these former 
students are now producing a quality and quantity of technology 
that is approaching world standards, if not leading the world.
    For example, China has become the world leader in research 
of nanotechnologies. A specific use for one nanotechnology is 
that the Chinese Academy of Sciences has found that sheets of a 
new technology called graphene oxide are highly effective at 
killing bacteria such as E. coli. This means that graphene 
could be used in applications for packaging that will keep food 
fresh for a longer period of time.
    I have worked with Chinese researchers in areas as diverse 
as emissions controls and medicine and have found them to be of 
world class.
    The science parks throughout China are populated by U.S. 
companies, both large and small. One American company, GEM, a 
maker of semiconductors, has a large semiconductor plant in 
Hefei, in Anhui province, currently employing 600 employees and 
plans to expand to 1,500 employees. And this is to service the 
making of laptops that are then shipped to the United States. 
Most of the laptops in the world are made in China.
    It is in the area of technological development and moving 
these technologies to the marketplace by innovating good, new 
products where the U.S. and China can realize substantial 
improvement in bilateral relations. I am convinced that people 
want this to happen and are willing to make the necessary 
changes in order to allow it to happen.
    Moving from a centralized planning system to a more open 
market system has not come without pain. It is no secret that 
companies, such as Fellowes, doing business in China have had a 
variety of legal problems, including intellectual property 
violations and contract disputes. Both of these major issues 
stem from the lack of a well-developed legal system in China.
    The government is taking a variety of steps to correct 
these abuses by developing a more robust and recognized legal 
system. Improvements in the law are being made at a rather 
rapid pace. Adherence to these new laws will take some time, as 
there are entrenched practices that must be routed out and a 
new order of business accepted.
    U.S. ingenuity is still the best in the world. The 
technologies discovered here and the products that flow from 
our technological advances are still the envy of the world. As 
we continue our technological leadership, China will be a 
cooperative partner and will be able to strengthen political, 
cultural, and economic ties.
    There are some things that the United States can do to 
assist China in its transition to a stronger legal system that 
will allow for more cordial and profitable economic 
interactions: First, provide legal tutoring and legal training 
for Chinese students and attorneys in the area of business and 
contract law and intellectual property law.
    Second, assist in the development of intellectual property 
law and observance by inviting patent office and government 
officials in China to intern in the United States at 
universities and at the U.S. PTO.
    Finally, promote scientific and technological exchanges, 
especially in areas that address mutual problems of health, the 
environment, energy, and medicine. Instead of further isolating 
China, we need to engage China's leaders as well as business 
and legal professionals in a systematic process of dialogue.
    We protect America's interests best when we assist others 
in seeing the value of the systems and processes we have put 
into place and show how effectively they work to provide a 
functional business environment.
    Thank you for allowing me to make this presentation.
    [The prepared statement of Mr. Millington follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    Mr. Manzullo. I appreciate that very much.
    I chaired the U.S.-China Interparliamentary Exchange for 
years. Mr. Millington, I am going to take great disagreement. I 
see China as going backward. I have never in my life, as a 
Member of Congress, seen so many complaints over outrageous 
stealing of intellectual property, and making a folly over the 
rule of law.
    The Chinese know--we don't need to have legal tutoring for 
them. Many of them in the government have gone to law schools 
in this country. They know the rule of law. They just are not 
interested in enforcing it because they don't have the same 
principles of private property as we do. It is an entirely 
different culture.
    Along with intellectual property, we had a company back 
home, Aqua-Aerobic, that made wastewater treatment facilities, 
et cetera, from Rockford, Illinois. They were in the process of 
bidding and installing a waste-treatment facility in China, and 
somebody there locally stole everything, I mean, even wiped out 
their Web site.
    While at one time we had a working relationship with the 
Chinese Embassy, we no longer do. We have written five letters 
to the Ambassador of China. Each time, he has refused to answer 
those letters. With prior ambassadors, we have asked them to 
come into the office for this case involving Aqua-Aerobic. We 
showed them the evidence, and the Chinese Government became 
actively involved in that litigation, along with our Commerce 
Department, and made sure the litigation ended up favoring the 
American company.
    However, I see the Chinese going in the opposite direction, 
based upon the number of complaints that are coming in. I can't 
believe that the people who are tearing apart Mr. Fellowes' 
company lack any type of knowledge about property law, 
intellectual property law, or the legal system.
    In fact, I am a member of the Legislative Commission on 
Human Rights, which was set up at the time that China came into 
the WTO. We see more and more egregious abuses in the area of 
human rights, so I just see China as going in the opposite 
direction.
    If the Ambassador of China wants to blow off Members of 
Congress, which he has been doing over the past several months, 
that is up to him. To me, that is no indication of any breath 
of fresh air going through that country.
    Did you--I have to give you the opportunity to respond to 
that. It wouldn't be fair.
    Mr. Millington. Thank you very much for the observation.
    There is no question, as I already indicated in my 
testimony and at longer length in the written submission, that 
there are problems there. Part of the reason that we see an 
increase in these problems is simply because we have had a 
fourfold increase in interaction with China in the last 10 
years. Obviously, we are going to see an increase in problems.
    I have already testified that, while the laws may be 
changing, observance of the law will take longer to change. I 
have not suggested at all that we should stop putting pressure 
on China to effect these changes in observance, not just in 
passing the laws. And that is the issue that will take longer, 
of course.
    You are exactly correct, in that many of these people 
understand the law. They are moving from a central-planned, 
dictated way of doing business to a more market-oriented way of 
doing business, and that shift will take some time.
    Mr. Manzullo. Do you really believe that?
    Mr. Millington. Yes, I do.
    Mr. Manzullo. I mean, maybe I am missing something here. 
You have extraordinarily impressive credentials, 25 years of 
experience in dealing with this, way beyond the business 
experience that I have on it, but I can't see that.
    China will say, ``Well, you know, we are still a struggling 
country. We are not market-oriented. We are not there yet.'' If 
I could bring Mr. Fellowes into this discussion, as it were, 
your facility in China opened, was it 19 or 16 years ago?
    Mr. Fellowes. No. It opened in--the facility that became 
our JV operation opened in about 2000, 2001.
    Mr. Manzullo. Oh, okay. So you have about 10 years.
    Mr. Fellowes. Yes.
    Mr. Manzullo. Do you want to get into this dialogue as to 
what you see going on in regards to openness and rule of law 
and what you have been seeing going on over the last several 
years?
    Mr. Fellowes. Well, our own experience has been a case of 
ignoring rule of law. That is exactly the situation in which we 
find ourselves.
    I would not have any particular perspective on how the 
trend has been unfolding here, except to say that, in our 
conversations with U.S. Government officials, we keep hearing 
that our case is not a one-off kind of case, that we hear of 
these things frequently.
    Mr. Cohen. Mr. Chairman?
    Mr. Manzullo. Yes, go ahead, please.
    Mr. Cohen. Just picking up on the theme of the discussion, 
I would say, at the time of China's accession to the WTO, we in 
ECAT and the broader business community saw a desire on the 
part of China to open its market to allow for increased 
engagement and commercial exchange.
    In recent years, we have seen a partial shift that you are 
addressing, where increasingly the focus of its leadership is 
on autochthonous development, to the exclusion of imports from 
outside the country. I say that at the same time that the 
exports of the American business community continue to grow and 
the market remains our fastest-growing market, as I said in my 
written testimony.
    Nonetheless, we do, in the business community, see the 
shift that you are referring to. And, in some cases, the shift 
brings about specific actions that are inconsistent with 
China's obligations under the world trading system. As a 
result, you do see American business availing themselves of 
dispute settlement under the rules of the World Trade 
Organization. That is to say, we do have some mechanisms in 
place to address these issues.
    It doesn't mean that we can justify them. It means that we 
have to be aggressive, to use the terms of your hearing, to 
protect and advance America's interests. And that means 
pressing China to live up to its obligations and to abide, in 
the area of intellectual property, by the commitments that it 
has made.
    Mr. Manzullo. Let me get Dr. Auslin's, and then, Eni, I 
will just double your time, as I did mine. Okay?
    Mr. Auslin. Thank you, Mr. Chairman. Actually, I would 
like, if I can, just to expand the frame a little bit and say 
that I think what Mr. Fellowes----
    Mr. Manzullo. Well, I picked on Mr. Millington, so--I 
didn't mean to do that. You know that.
    Mr. Millington. That is just fine. You are welcome to do 
that.
    Mr. Auslin. Well, I think, actually, what Mr. Millington 
and Mr. Fellowes have shown is----
    Mr. Manzullo. They are saying the same.
    Mr. Auslin. Well, in one way they are saying the same, but 
they also really represent the two views of how do we deal with 
China. Mr. Millington's view, which is very widely accepted, is 
that the more we engage, the more we help shape the Chinese 
eventual adoption of our principles and norms. And what I think 
Mr. Fellowes has shown is that the Chinese act very much--and 
the state will support this--in their own interests when they 
determine that that is where they want to go, regardless of 
that framework.
    I think, Mr. Chairman, you pinned it when you said that 
they simply don't share the same principles that we do. We 
don't see this only in the economic sphere, and that is really 
what I want to bring up. We see it in the political sphere, we 
see it in the military sphere. We see a China that, as it has 
grown stronger and more confident, it has become more 
assertive. I don't think there is any observer who would really 
doubt that. It has become more confrontational. It has become 
less willing to accede to the norms that we have helped 
establish in the region and that other states have tried to 
adhere to. That, I think, is the great concern.
    For example, when so many of the states in the region are 
concerned about clashes over these maritime territorial areas, 
it is not that the Chinese Navy is going to these small 
islands, it is individual private fishing boats. But what is 
happening is that the Chinese Coast Guard--it is not often the 
PLAN--but the Coast Guard is then supporting these small 
fishing boats. It is that the state has made a choice to uphold 
what it perceives to be Chinese interests regardless of the 
declarations of other states over EEZs and the like.
    So I think that what we are hearing today not only reflects 
the different views on how to deal with China, but it has to be 
understood in the broader context, that it is not just 
economic. This is how we face China's emergence into the world, 
and I would agree that it is probably becoming less cooperative 
and more confrontational.
    Mr. Manzullo. Congressman Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    I agree with the chairman, and I disagree with him, on the 
basis that I think I take a more broader view of the situation 
in our bilateral relationship with China.
    China has experienced a colonial legacy like many other 
Asian countries--the British in Burma and China, the Dutch in 
Indonesia, the French in Laos, Cambodia, and Vietnam. I would 
say that probably 99 percent of the American people had no idea 
that Vietnam was a colony of the French for some 100 years 
before we stepped into the picture.
    The point I wanted to make here is that, when China finally 
achieved its independence in 1949, there were 400 million 
people living in China at that time. In our own history of well 
over 226 years, we have just barely reached 310 million people 
as a population.
    So I take the view of the fact that now we have 1.3 billion 
people living in China. And I say, I don't care what kind of a 
governmental system you have in that country, but you have to 
give them some kind of a credit to the leaders and those who 
are trying to figure, how are we going to feed 1.3 billion 
people?
    The fact that China, as we all know, despite all its media 
hype about it is now the second most powerful economic country 
in the world, the fact that 800 million people in China still 
live below the poverty level. Barely 400 million are trying to, 
in some way, reach some element of being in the middle class.
    I think Professor Auslin stated quite accurately that Mr. 
Fellowes has become one of the victims, in terms of how he was 
treated as a company.
    But I would like to ask Mr. Fellowes, what prompted your 
company to want to go do business in China to begin with?
    Mr. Fellowes. Our company began to move some of our 
manufacturing to China in the period of late 1990s and early 
2000s. We did so because we could not be competitive in 
manufacturing these products in the United States.
    Mr. Faleomavaega. Competitive because you were having to 
pay your workers how much, in terms of the wage?
    Mr. Fellowes. Yes, considerably more than in China, perhaps 
$15 an hour or $12 an hour. I can't remember precisely at this 
time. We would have preferred to keep all of those positions in 
the United States, but the economics of it forced us to move to 
China.
    And China had the infrastructure to make the parts that go 
into our kind of product. They were readily available. They are 
not readily available, that technology is not readily available 
in all countries that you might imagine. So that is the reason 
that we made that choice.
    Mr. Faleomavaega. And in the process of the 10-year period 
when you were in partnership your counterparts in China, did 
you make the reasonable margin of profit in those years that 
you were an active participant or as a partner in doing 
business in China?
    Mr. Fellowes. Truthfully, we have had a mixed picture in 
terms of the profitability. Our category is a very competitive 
category. Our company invented the first personal shredder and 
envisioned a residential product, a household product. And we 
made these products in the United States, and they were copied 
and made in China within, literally, a matter of months from 
the time that we launched these machines.
    Mr. Faleomavaega. Well, I know that what the chairman--and 
I totally agree with the chairman that this has been one of the 
biggest problems in dealing with China, intellectual property 
piracy, to the extent that many of our companies who have gone 
to China and do business----
    Mr. Fellowes. Right.
    Mr. Faleomavaega. And you are not the only company. I have 
had other companies also complain to me about the fact that 
they will let you come in, do the business, and all of a sudden 
chase you out, and then continue on doing the business. And by 
that time, they have taken all of your technology, they know 
how to do the--fix the tractors or whatever it is that they 
wanted to do. And there is no question there is a violation of 
law here, in that respect.
    China--and, again, in reference to what Mr. Millington is 
trying to share with us--it is a huge, huge--just to consider 
the bureaucracy, if you want to talk about a bureaucracy, how 
do you provide a governmental system, which has taken us over 
220 years and it is still not perfect, to the extent that they 
definitely have administrative problems.
    You know, when you talk about the Parliament of China, 
there are 3,000 members that make up the Parliament of China. I 
don't know of any other Parliament in the world or any country 
of the world that has that many people representing someone 1.3 
billion people, let alone with our own 535 or 541 Members 
representing 310 million people. To me, that is peanuts 
compared to the leaders of these countries like China, like 
India.
    I would like to feel a sense of encouragement. India has 
very serious problems. It is the largest democracy in the 
world. And to say their kind of democracy effectively 
implements the principles of democratic principles in a country 
like China, I think it can.
    I think Deng Xiaoping's decision in 1978 to change China's 
whole economic structure by getting into the free-market system 
has been a totally diametric opposition to the idealogy of a 
socialist, planned economic system that they found after years 
of doing has been an utter failure. And now it is one of the 
most unique features of a communistic country practicing free-
market system somewhat.
    And yet, ironically, in the middle of this global 
recession, even in our country it almost went to pot because of 
what Wall Street has done to our own economy. Which country 
happens to have the most stable economy in the midst of the 
global recession? And I am sure Professor Auslin knows about 
it. And my guess, it is China. Because they had control systems 
like we had at one point in time. I think it was Glass law that 
did pass through that put an I&R on Wall Street for which for 
years Wall Street wanted to get rid of. And, ironically, it was 
the Clinton administration that took out that Glass law to keep 
an eye on our Wall Street moneymakers, for which--when that 
left, I think that is how we ended up with derivatives and 
wraparounds and the housing market losing its fence. If I am 
wrong, correct me on that.
    Professor Auslin?
    Mr. Auslin. Well, Mr. Faleomavaega, I think that what you 
are pointing out is the question of, how do you make a balance? 
And it is true that China emerged in relatively good condition 
from the financial crisis, but so did Canada, for example.
    Mr. Faleomavaega. Yes.
    Mr. Auslin. And Canada maintained all of the property 
rights of owners but had a----
    Mr. Faleomavaega. And so did North Dakota.
    Mr. Auslin. Actually, what is interesting and ironic, 
perhaps, what you were saying about China being a socialist 
system with a more capitalist economy is that India, the 
largest democracy in the world, had a socialist economy that it 
is now trying to get rid of.
    Mr. Faleomavaega. And so were most of the countries in 
Europe in the past--democracies, but they are somewhat 
socialistic. And that has caused a lot of problems with their 
economies, if you want to put it in those terms.
    Mr. Auslin. But I think, just very briefly, what you have 
said I think is right, I agree with. And what I think it 
requires from us, then, is just simply a realism, to understand 
that this process--and I don't disagree with Mr. Millington 
here--that is going on is something we cannot fool ourselves 
about, as to where China is.
    Mr. Faleomavaega. Right.
    Mr. Auslin. And I think that that would reduce a lot of the 
disappointment and uncertainties, whether it is agreements that 
we make with them or expectations for Chinese behavior. But if 
we expect that simply because we have engaged them they are 
going to change, we are in for, I think, a much rougher ride.
    Mr. Faleomavaega. Mr. Cohen?
    Mr. Cohen. I just want to pick up on some of the discussion 
of the panel and of you, Congressman, and Congressman Manzullo.
    I recognize the importance of historical and cultural 
analysis and developmental processes, including how long 
development takes. But there is another part of the interest 
aspect of your hearing that, again, I just wanted to address. 
And perhaps one of the best ways to address it is by giving a 
real example, just as the one that we heard from the Fellowes 
company.
    And that is, at a time when China is developing, we do need 
to give it some time to take on all the obligations of an 
industrial, advanced economy. Having said that, there are areas 
where China can be doing much more, and has the capacity to do 
much more, but it has chosen not to.
    The example I want to give is how the Chinese Government 
operates its system. They are using in all its bureaucracies 
counterfeit software. This is government, over which, it has in 
the Beijing area, control. But the agencies of government in 
China are using purloined, counterfeit software.
    And for several years now, they have said they will put in 
place a system to end that process that has not been enforced. 
When the President of China was here most recently, he 
committed to doing an inventory of the software being used in 
government agencies.
    I say this not to be a critic of China, but to say we do 
have some core commercial interests tied to the success of our 
own companies and the workers at those companies who are paying 
the price for this illegal activity in China.
    Does that mean we don't want to trade with China? Does that 
mean we want to wall off China? Absolutely not. Our companies 
and the companies I represent are among the major investors in 
China, the major traders with China. But we believe that 
systems have been put in place, commitments have been made, and 
they do need to be held to account.
    And that is all that the American business community is 
saying right now. We are not saying that we want to end or 
somehow not recognize the importance of China. We are not 
saying that we don't realize they need more time to develop. 
But there are certain things that they can do that they are 
choosing not to. We believe it is a national policy that has 
been put in place to favor its own companies and not protect 
the intellectual property of foreign companies, and that does 
need to be challenged.
    Mr. Faleomavaega. I just want to make a comment in closing. 
Thank you, Mr. Chairman, for extending my time.
    Probably the biggest challenge that China currently faces 
is the fact that you have one political party, which is the 
Communist Party. Then you have to figure, how are you going to 
keep controlling every aspect of the community, 1.3 billion 
people? You are talking about free speech, you are talking 
about the right to--even Twitter or Google, all these things 
that the world community is actively participating in.
    And I think there is probably a subtle fear among the 
leadership in the Communist Party: How are we going to continue 
controlling this number of people and make it in our own 
political way? Because, right now, I think the level of 
governments in the provinces--I think there are 33 provinces in 
China--there is beginning to be a little schism between these 
provincial governments and the central government and the 
Communist Party, because these provincial governments are 
wanting to expand their own respectives, just like the 50 
States that we have here. And it is a question of how the 
central committee, how the central government is going to 
continue putting its control over these provincial governments 
who want to expand trade.
    And I am sure the chairman must have had delegations and 
delegations of these people coming from these different 
provinces. They want to expand. They want to do things. 
Basically, they want to be free to do the economic things. Why? 
So they can benefit.
    I remember, when I was in Shanghai, I was amazed to see, 
the provinces surrounding just the city of Shanghai, you are 
talking about 400 million people, just around Shanghai. And 
Shanghai is only about, what, 16 million people? When we talk 
about 60,000 people who died in a catastrophe, to China that is 
not even a pea in a pod. But to us, it is a major, major 
catastrophe or something that we feel very much, and simply 
because of the numbers.
    So I don't think that, when I say the numbers are so small, 
that the leaders don't have a sense of compassion or 
understanding or sympathy for what has happened. But just the 
sheer numbers makes me wonder sometimes, too, is, how do we 
really deal with a country--right now, basically, we have 
allies--and I think you noted in one of the comments made by 
Professor Auslin--allies versus strategic partners.
    Who are our strategic partners? I suspect that China is one 
of those strategic partners. And what is our new policy toward 
China? It is called hedging. It is called, who has the upper 
leg over whatever policy or whatever issue that we are having 
problems in resolving. But just a sense of, who is getting the 
better end of the stick, if you will, about whatever happens--
economics, political.
    And this is the other thing that I think sometimes when our 
allies put pressure on China, saying, ``Do this,'' you know 
what China would say? And I would feel the same way. ``I am not 
your messenger boy. You know, treat me with a little more 
respect, North Korea, all other countries. Let's work it 
together, rather than to think that I am just going to jump 
simply because you request it.''
    And I think that is the essence of where sometimes we have 
these difficulties in communications. And this is where I--I 
support your concerns, Mr. Fellowes. At the same time, I 
support Mr. Millington's advocacy of the idea that we need to 
continue the engagement process. And I honestly believe it can 
only lessen the tensions and the problems, that China could 
really be a big help, in working together with our country, in 
resolving the problems.
    Thank you, Mr. Chairman.
    Mr. Manzullo. I have a question. Mr. Fellowes, what happens 
if you don't prevail in the litigation with this former joint 
venture partner? I mean, they locked you out of the facility; 
is that correct? What happens? What happens to you? What 
happens to your company?
    Mr. Fellowes. Well, our company has basically walked away 
from the joint venture. It is bankrupt. And we have 
established, or are in the process or establishing, new supply 
chains. We are bringing up three new factories; we may bring up 
a fourth factory. We are retooling. We are concluding that our 
recovery should not be based on our recapturing these assets.
    Mr. Manzullo. You are presuming that you are going to lose 
in the Chinese courts, which you already have.
    Mr. Fellowes. Well, I wouldn't exactly choose those words. 
We are going to fight very, very hard. It is extremely 
important to us.
    Mr. Manzullo. The plans you are making----
    Mr. Fellowes. Yes.
    Mr. Manzullo [continuing]. Are on the basis that you can 
defend?
    Mr. Fellowes. Exactly.
    Mr. Manzullo. I found something very interesting. You said 
that you were making a new line of shredders, and then, within 
a few months, some copycat came along and China started making 
the same thing.
    Mr. Fellowes. Yes.
    Mr. Manzullo. Did you seek counsel at the time? Or was 
there just nothing you could do because of the price that was 
involved in fighting it? Or did you just accept the fact that 
they had commoditized and stolen your invention?
    Mr. Fellowes. The shredders that I was referencing were the 
first personal shredders that we brought into the market in 
about 2000, or 1999, 2000. And we did not have patent 
protection around them, so we had no legal case to bring 
against them.
    Mr. Manzullo. Okay.
    There has been a very extraordinarily disturbing decision 
from the WTO on tires. It involves a company back home, Titan 
Tires, which was not impacted, but at one time, if the Chinese 
Government owned a company, a wholly state-owned enterprise, it 
was presumed that one was the alter ego of the other, to use an 
old law school term. Now the WTO has come out with an 
astonishing decision that says, in order to impose 
countervailing duties on that company, in light of predatory 
pricing, one actually has to show manipulative policy on the 
part of the Chinese Government toward a company which it owns 
100 percent.
    Are any of you familiar with that latest decision?
    Mr. Cohen. I have read of that decision. I know our 
Government has indicated that it has problems with this outcome 
and is seeking clarification and has registered its concern.
    Mr. Manzullo. Okay.
    Professor Auslin?
    Mr. Auslin. I would just like to, not necessarily on that 
but connected----
    Mr. Manzullo. That is okay. Go ahead.
    Mr. Auslin [continuing]. If I could, just two very brief 
points.
    One is on the nature of economic development in China over 
the past decade. One thing that is not reported on as much and 
I think we have to pay attention to is that the PLA, the army, 
has moved dramatically and rapidly into productive facilities 
and capabilities and exporting. Huawei, for example, the 
company that tried to buy into one of our major telecoms, is a 
wholly owned subsidiary of the PLA.
    So when we talk about state control, we are talking not 
only about, in many cases, military control but, in fact, about 
a tension between the state and the military. And I think it is 
something we should pay attention to.
    Very briefly, Mr. Chairman, if I could just pick up on what 
Mr. Faleomavaega stated about the concerns of the regime to 
maintain control. This is probably the greatest issue facing 
China. This is a very brittle regime. It is a regime that has 
scrubbed the word ``Egypt,'' for example, from its Internet 
sensors. People in China are not able to see what is happening 
in the Arab Spring. It is a regime that is faced with enormous 
income disparities throughout the country. It is a regime that 
arrests Nobel Prize winners and arrests their families.
    There is no doubt that what we need to be paying attention 
to, I believe, in Washington, DC, is not necessarily a China 
that grows linearly over the next decade; it is a China that 
may suddenly stop growing and would have dramatic 
repercussions, not only economically for our companies, but 
throughout the region and for the instability that we and our 
allies would be drawn into. This is a great issue of concern.
    Mr. Millington. If I may comment, just a couple of things.
    China continues its rapid development of all kinds of 
technologies. And regardless of policies that we put into 
place, we will not stop that. Their reliance upon their own 
inventions will grow simply because they are inventing great 
technologies. I have provided in my written testimony the 
history of how the technologies of China ignited the 
Renaissance in the 15th century. Well, China is getting back to 
its inventive ways, and it will continue to do that.
    Now, we will notice a further reliance on internal 
technology advancements simply because they are making them. 
And they will not look to us for further technology 
advancements. And so we need to pay attention to our own 
technology advancement and protecting our IP and then learning 
ways to share. And, in that way, we can mutually be beneficial.
    May I take issue with Professor Auslin just briefly? I 
returned from China 10 days ago, and I was there during the 
Arab Spring. And I found references on the Internet to Egypt 
and the Arab Spring and much of what was going on, both on 
television and on the Internet. And I was there, inside of 
China, where I had been teaching at the EMBA program for 
Zhongguo Keji Daxue. So, yes, they have put some limits. They 
are not total. You can still find that information.
    I do not apologize for their brutality. I recognize that. I 
am a realist. I have been there for many, many years. And I 
make no excuses for their behavior in that regard, in human 
rights.
    But I am optimistic about the possibilities as we engage 
China in technological advancements, because it is technology 
that advances economies. And, as we work together, we will 
mutually advance economics and cultural and political ties. And 
that is perhaps the only way that we will be able to continue 
to be engaged with China. Because they will make advancements 
in technology, whether we want them to or not.
    Mr. Faleomavaega. Mr. Chairman, would you----
    Mr. Manzullo. Well, sure.
    Mr. Faleomavaega. I was watching television the other 
evening, 3 o'clock in the morning, watching the situation in 
Japan. And there was an announcement that there was a Chinese 
cruiser ship, a frigate--you know, this is a big, big, big--
almost close to a battleship--came all the way from China, went 
through the Straits of Malacca, and went right through the Suez 
Canal for the purpose of picking up some 36,000 Chinese 
nationals who were working either in Egypt or whatever it was.
    But it was something that was so new, I think, in the eyes 
of the world, to see, here is China coming with up with this 
huge ship that came right through the Suez Canal, and it was 
just simply to say looking after the interest of some 36,000 
Chinese nationals who were working in Libya and Egypt, to pick 
them up, just like what we are doing with our own people 
whenever there is a catastrophe or an emergency.
    Interestingly enough, what I was trying to say in terms of, 
where or what should we do? I mean, are we going to consider 
China as the next monster or the next Soviet Union, or are we 
going to consider China truly as a strategic partner? Where 
there are issues, we are going to continue to disagree, as well 
as there are issues that we could work together and solve some 
of the serious problems that the world community is now 
confronted with.
    And, Mr. Chairman, I totally agree with your premise, the 
fact that intellectual property violations of companies like 
Mr. Fellowes', we need to continue the engagement process. And 
I feel for you, the fact that the Embassy and the officials of 
the Chinese Government have not even bothered to respond to 
your letters and requests from you and some of our colleagues. 
And why they have not done so, that is a very good question.
    Mr. Manzullo. Well, we finally got a letter, a two-page 
letter, after our staff engaged with the Embassy.
    Well, this has been an extraordinary hearing--four people 
of vast backgrounds: Academic, hands-on victim of what has been 
going on in China. We will be having, if not more hearings, 
roundtables, and informal discussions. I am very much 
concerned--there are a lot of things we could go into: The U.S. 
trying to change its own patent system to, quote, deg. 
``harmonize with Europe.''
    Mr. Millington, I take it--and we can talk afterwards--that 
you are not too much in favor of that and have a lot of 
problems with it.
    We have a long way to go on this issue. My big concern is 
in the attitude of the Chinese. I thought, when I voted for 
WTO, that was a tough vote. I purposely joined the Commission 
on Human Rights because I wanted to see if the condition of 
human rights would improve for the Chinese people.
    In one of several trips that I made to China, we were at 
Johns Hopkins University in Shanghai and at another university 
in Beijing, interacting with American students and the Chinese 
students. At the forum in Shanghai, one of the Chinese students 
asked an extraordinary question. There were 13 Members of 
Congress there. I had led the largest U.S. Delegation of 
Members of Congress to China. The extraordinary question was: 
Do you think that China, the Chinese, are ready for democracy?
    This was a Chinese student asking that question, and I 
think we all gasped when we heard that because, number one, it 
wasn't a lack of information. This student had studied in the 
United States, knew what democracy was, and asked the question, 
are they ready for democracy?
    The second thing that happened at that extraordinary town 
hall meeting with 13 Members of Congress and over 200 U.S. and 
Chinese students, is one of the Chinese students asked, of all 
the seminal documents that make up the American experience, 
which of these do you consider to be most appropriate?
    Congressman Pascrell from New Jersey gave the most 
brilliant definition and defense of the doctrine of natural law 
that I have ever seen. We were in absolute astonishment as how 
he described the basis of personal property rights and 
liberties. He said, ``In our country, we believe that God is 
the author of rights, that he is the author of liberties, not 
man.'' If God is the author of liberties, only God can take 
them away; but in China, you don't have such a belief. They 
believe that man only has the liberties to which other men give 
him.
    This went on for about 15 or 20 minutes--I think the most 
brilliant lecture in defense of the doctrine of natural law 
that I have ever heard in my entire life. I have known Bill 
Pascrell for a long time, and he used to teach at a community 
college on the method of learning. So he just--this was just 
tucked deep within his heart, as he just expounded.
    I think that is where we are, between the United States and 
China. Our systems come from such different constructs that it 
is almost impossible for the Chinese to understand the dignity 
of personal property. That is not within their definition. They 
have no idea what personal property means.
    You talk about what they are doing in their cities, if they 
don't like somebody's house, they just put an X on it. Well, of 
course, we have some horrible situations taking place here in 
our country, where the Supreme Court actually condoned 
condemnation for economic purposes, but nothing near what the 
Chinese are doing.
    What I expected to see after joining the WTO, was a whole 
new way of thinking in China. They had wanted to be a part of 
the international market for years. It would behoove them, they 
would actually benefit from embracing democracy. It would help 
their economy. It would help their people, but they simply do 
not understand, notwithstanding the years of studies here in 
this country at our marvelous universities, the concept of 
private property.
    Anyway, I appreciate you coming. If there is anything 
additional that you want to add to your testimony, even though 
we have had a lot of time, please feel free to send it to us. I 
will just keep the record open for 21 days. Even if it is a 
simple letter that you want to send to us, we would be willing 
to work with it.
    Thank you very much for coming.
    This hearing is adjourned.
    [Whereupon, at 4:57 p.m., the subcommittee was adjourned.]
                                     

                                     

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