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






   THE TRANS-PACIFIC PARTNERSHIP AGREEMENT: CHALLENGES AND POTENTIAL

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

                             JOINT HEARING

                               BEFORE THE

         SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

                                AND THE

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 17, 2012

                               __________

                           Serial No. 112-144

                               __________

        Printed for the use of the Committee on Foreign Affairs









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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              deceased 3/6/12 deg.
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
RON PAUL, Texas                      ELIOT L. ENGEL, New York
MIKE PENCE, Indiana                  GREGORY W. MEEKS, New York
JOE WILSON, South Carolina           RUSS CARNAHAN, Missouri
CONNIE MACK, Florida                 ALBIO SIRES, New Jersey
JEFF FORTENBERRY, Nebraska           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       DENNIS CARDOZA, California
GUS M. BILIRAKIS, Florida            BEN CHANDLER, Kentucky
JEAN SCHMIDT, Ohio                   BRIAN HIGGINS, New York
BILL JOHNSON, Ohio                   ALLYSON SCHWARTZ, Pennsylvania
DAVID RIVERA, Florida                CHRISTOPHER S. MURPHY, Connecticut
MIKE KELLY, Pennsylvania             FREDERICA WILSON, Florida
TIM GRIFFIN, Arkansas                KAREN BASS, California
TOM MARINO, Pennsylvania             WILLIAM KEATING, Massachusetts
JEFF DUNCAN, South Carolina          DAVID CICILLINE, Rhode Island
ANN MARIE BUERKLE, New York
RENEE ELLMERS, North Carolina
ROBERT TURNER, New York
                   Yleem D.S. Poblete, Staff Director
             Richard J. Kessler, Democratic Staff Director
         Subcommittee on Terrorism, Nonproliferation, and Trade

                 EDWARD R. ROYCE, California, Chairman
TED POE, Texas                       BRAD SHERMAN, California
JEFF DUNCAN, South Carolina          DAVID CICILLINE, Rhode Island
BILL JOHNSON, Ohio                   GERALD E. CONNOLLY, Virginia
TIM GRIFFIN, Arkansas                BRIAN HIGGINS, New York
ANN MARIE BUERKLE, New York          ALLYSON SCHWARTZ, Pennsylvania
RENEE ELLMERS, North Carolina

                                 ------                                

                  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 Susan C. Schwab, professor, School of Public 
  Policy, University of Maryland (former United States Trade 
  Representative)................................................     8
Ms. Linda Menghetti, vice president, Emergency Committee for 
  American Trade.................................................    14
Ms. Celeste Drake, trade & globalization policy specialist, AFL-
  CIO............................................................    27
Philip I. Levy, Ph.D., adjunct associate professor, School of 
  International and Public Affairs, Columbia University..........    47

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Edward R. Royce, a Representative in Congress from 
  the State of California, and chairman, Subcommittee on 
  Terrorism, Nonproliferation, and Trade: Prepared statement.....     6
The Honorable Susan C. Schwab: Prepared statement................    10
Ms. Linda Menghetti: Prepared statement..........................    16
Ms. Celeste Drake: Prepared statement............................    29
Philip I. Levy, Ph.D.: Prepared statement........................    49

                                APPENDIX

Hearing notice...................................................    68
Hearing minutes..................................................    69
Material submitted for the record by the Honorable Edward R. 
  Royce, a Representative in Congress from the State of 
  California, and chairman, Subcommittee on Terrorism, 
  Nonproliferation, and Trade:
  The Wall Street Journal article, ``Time for an Asia Trade 
    Breakthrough,'' by Myron Brillian, dated May 8, 2012.........    70
  Statement from Retail Industry Leaders Association (RILA)......    71
Written responses from Ms. Linda Menghetti to questions submitted 
  for the record by the Honorable Ted Poe, a Representative in 
  Congress from the State of Texas...............................    77

 
   THE TRANS-PACIFIC PARTNERSHIP AGREEMENT: CHALLENGES AND POTENTIAL

                              ----------                              


                         THURSDAY, MAY 17, 2012

          House of Representatives,        
                 Subcommittee on Terrorism,        
                    Nonproliferation, and Trade and        
                  Subcommittee on Asia and the Pacific,    
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2 o'clock p.m., 
in room 2360 Rayburn House Office Building, Hon. Donald A. 
Manzullo (chairman of the Subcommittee on Asia and the Pacific) 
presiding.
    Mr. Manzullo. We are having a joint subcommittee hearing 
with the Subcommittee on Terrorism, Nonproliferation, and 
Trade, chaired by Mr. Royce of California, and the Subcommittee 
on Asia and the Pacific, chaired by me. We are going to start 
with opening statements, and then there will be a series of 
votes, and then we will come back. I am sure Mr. Royce will 
have an opening statement, and then we can just have you stick 
around for about 35 minutes and watch the excitement on C-SPAN. 
We appreciate you coming.
    The Trans-Pacific Partnership free trade negotiation is one 
of the most significant opportunities we have for trade 
liberalization in the world today. The nine-country pact, if 
successfully completed and passed by Congress, will offer more 
direct benefits to the United States than many prior free trade 
agreements. TPP brings together the U.S. and eight Pacific Rim 
nations in a high quality, 21st Century legal framework that 
promises to shape the future of Asia, and possibly of the rest 
of the world.
    It is in this part of the world, the Asia-Pacific region, 
that has the fastest-growing economies and most populous 
nations; and, it must be our mission to help American companies 
succeed in exporting to these markets so that we grow more jobs 
here at home. In fact, direct exports from Illinois, the Land 
of Lincoln to TPP countries more than doubled from 3.4 billion 
in 2005 to 7.7 billion in 2011, making Illinois the third-
largest exporting state in the nation to the TPP countries, 
after Texas and California.
    The importance of TPP for America's long-term economic 
future is clear. First, the TPP offers the U.S. an invaluable 
opportunity to shape the development of trade rules in the 
fastest-growing region of the world. If we abdicate this 
responsibility and opportunity, we stand a real chance of 
allowing our competitors to write the rules of the game.
    We need to take a leadership role so that we can ensure 
American priorities, such as strong protection for intellectual 
property, open markets, and economic freedom, are incorporated 
into the foundation of regional trade. I cannot stress how 
important this is, and what an opportunity this represents for 
our nation.
    Second, we must proactively work together to reduce onerous 
regulations and trade barriers in Asia, so that American 
exporters and investors can recognize the benefits of growing 
markets. TPP promises to lower the cost of American exports 
overseas by reducing tariffs and other trade barriers, thus 
making our goods more competitive.
    In addition, TPP negotiators must address preferential 
treatment of state-owned enterprises and key market access 
concerns in order to level the playing field for American 
companies.
    I have no illusions about the challenges of negotiating a 
nine-country free trade agreement. The reality is that free 
trade agreements face tremendous political opposition here at 
home and abroad. Important sector-specific issues must be dealt 
with, and difficult decisions must be made by all negotiating 
parties in order to achieve a final agreement. The possible 
inclusion of Japan, Canada, and Mexico complicates matters 
exponentially, and may even threaten the viability of the 
agreement.
    I worry that Japan does not have the political will to make 
difficult reforms in its automotive, financial services, and 
agriculture sectors to meet the demands of our industry 
stakeholders. If Japan can pull it together, I am fully 
supportive of their inclusion in TPP.
    I look forward to hearing the testimony of our 
distinguished witnesses and the opening statement of our co-
committee host.
    Mr. Royce [presiding]. Thank you. Thank you, Mr. Manzullo. 
I appreciate that. Let us go to Mr. Sherman from California.
    Mr. Sherman. You would think that having gone from the 
largest trade surplus in the history of mammalian life to going 
to largest trade deficit, the elites of this country would 
understand that we are getting something wrong. But nothing 
prevents a person from understanding so much as that their 
livelihood depends on not understanding it, and the elites in 
the foreign policy world and in the business world have a big 
chunk of their livelihoods dependent on not understanding why 
we are running the largest trade deficit. And we can create a 
phony economic model in our minds--it happens to fit economic 
theory as long as you ignore the practice--that if we open up 
our markets by lowering our published tariffs and other 
published rules, that other countries will be opening their 
markets by changing their published laws and rules, as if every 
country in the world is just like us and matches an Adam Smith 
model.
    The fact is that if you are a businessperson in Vietnam or 
a decisionmaker in Vietnam, it doesn't matter what is on the 
tariff schedule. You are not going to buy American goods if it 
is politically incorrect. You are not. You can get a phone call 
from Hanoi telling you what to buy. Imagine if one of us called 
a manufacturer in our area, or called an auto dealer in our 
area, and said, ``Don't buy the European goods. Don't buy the 
Asian goods.'' Either we would be laughed at, or there would be 
a press conference: ``Congressman Tries to Pressure Local 
Businessperson.''
    What happens in Vietnam when a phone call is made from 
Hanoi? Do you think they hold a press conference to denounce 
the Communist Party of Vietnam? I don't think so. So we will 
construct in our minds this phony world, this theoretical 
world, in which every country is just like us, and in which, if 
we can just get other countries to change their statutes and 
open their markets, and we will cling to this phony belief 
because understanding the real world undermines the livelihoods 
of the elites that our running our trade and foreign policy.
    We were told by the U.S. International Trade Commission 
that giving MFN to China would increase our trade deficit by 
only $1 billion. They were only off by 20,000 percent, and they 
will be off again today.
    America is in the driver's seat in trade negotiations, but 
we have given the wheel to Wall Street. We are in the driver's 
seat because what every country wants is access to the U.S. 
market, but have we used that to open other markets? Only in a 
phony way. Only in a theoretical way.
    Numbers don't lie. We have given control of this 
international trade policy to elites that have not just run the 
car into a ditch, they have run it over the cliff and down into 
the Grand Canyon: The most spectacular failure ever in economic 
policy.
    And why don't we talk about it? Because the elites that run 
this country don't want to. Because you are called a 
protectionist if you actually look at the results of our trade 
policy. As if you are too stupid to understand the theoretical 
beauty of these trade agreements. If you look at the results, 
you must be stupid. You must be a protectionist.
    I look forward to the day when we have balanced trade. If 
we had balanced trade, we would have a labor shortage in this 
country, and rising wages. We would return to the optimism of 
my youth, when everybody expected that every generation would 
live better than the generation before, not just every 
generation of Wall Street executives living better than that 
before.
    And finally, this is an agreement where we don't know what 
the rules of origin will be. But we do know that in the Korea 
Free Trade Agreement, goods can be 65 percent made in China, 35 
percent finished by Chinese workers living in barracks in South 
Korea, and get free entry into the United States. And this 
agreement as well may give China all the benefits of a free 
trade agreement with the United States--or, one would argue, 
only 65 percent of those benefits--while giving us not even 
theoretical access to the Chinese market.
    There is a reason why the middle class in this country has 
not achieved what we expected it would when I was young, and 
there is a reason why you are not allowed to talk about it 
without being labeled too stupid to understand the theoretical 
beauty of free trade. I look forward to real open markets, and 
this TPP is not the way to do it.
    I yield back.
    Mr. Royce. I thank the gentleman. And in terms of free 
trade agreements, I guess one of the questions is how you 
structure the agreements. We have a $23-billion surplus in 
manufactured goods with our 17 FTA partners. One of the things 
that is problematic for the United States is our dependency on 
oil. Imported oil accounts for our trade deficit in terms of 
the 17 current trade agreement partners.
    If we exclude oil, then we have a surplus. As I say, in 
manufacturing, we have got a surplus. But we have got a problem 
in terms of the importation, and the cost of importation, of 
oil with respect to FTA partners. I don't know.
    I just got the data from the Department of Commerce, and 
they claim with Australia, with our trade agreement, our change 
in U.S. exports went up 59 percent. Imports went up 41 percent. 
Bahrain, which was another relatively recent agreement, our 
exports went up 48 percent, the imports actually came down 20 
percent. In terms of CAFTA, exports went up 50 percent, the 
imports came up 7 percent. As I say, this is the Commerce 
Department analysis. With Chile, exports went up 341 percent, 
imports went up 122 percent. Morocco, exports went up 199 
percent, and imports went up 97 percent. And with Singapore, 
exports went up 68 percent, and imports came up 5 percent.
    So yes, we have to do a better job in terms of the way we 
negotiate these agreements. But there is a reality that the 
Asia-Pacific region is tough to ignore. It is 60 percent of the 
global gross domestic product. It is 50 percent of 
international trade. And the forecasts show that half of the 
world's $22 trillion in economic growth over the next 5 years 
is going to be in Asia.
    So unless the United States acts, and acts wisely--we have 
got to negotiate this to our interests--but we could face the 
prospect of being locked out of this dynamic region. And here 
is the concern that we have heard from a former Secretary of 
State. He said, ``Don't allow a line to be drawn down the 
middle of the Pacific.''
    Asian countries have aggressively pursued trade agreements 
among themselves, and as a consequence, a line can be drawn. A 
hundred and eighty of these agreements are currently in force 
in Asia. Twenty are awaiting implementation there. Seventy are 
being negotiated as they work out free trade agreements 
throughout the region, and it is no coincidence that the U.S.'s 
share of exports to Asia has declined by 10 percent over the 
last decade.
    We are currently party to three free trade agreements in 
Asia. So the Obama administration, and prior to that the Bush 
administration, have backed TPP. TPP countries are our fifth-
largest trading partner. If Japan were added, the bloc would 
represent one third of global GDP. Other countries want in.
    The preeminent trading bloc in the world's fastest-growing 
region offers the United States considerable economic benefits, 
but diplomatic and strategic benefits, too. And it is ambitious 
in content. It would contain provisions that would go beyond 
traditional tariff reductions, covering issues of cross-border 
services, of labor, and of intellectual property. TPP's diverse 
countries will have to tackle other issues, such as supply 
chain management, government procurement, and state-owned 
enterprises. It is tough to see Vietnam's state-owned 
enterprises representing 40 percent of output being acceptable.
    But there is an opportunity to change that in terms of 
inclusion into the agreement. And the goal, obviously, with 
TPP, for the countries in it, is to reach a final text by 
year's end, and this would require strong leadership out of the 
executive branch. We haven't had a request for trade promotion 
authority out of the administration. I think some of the 
witnesses will raise that issue.
    The U.S. has placed great importance on TPP. In many 
respects, it has become more than a trade agreement: It is 
linked to our security and diplomatic goals in Asia. Ninety-
five percent of the world's customers live outside of the 
United States, but according to a study of global 
competitiveness, America ranked a disastrous 121st out of 125 
countries in terms of tariffs faced by our products overseas. 
This is the area where we have to lean in and get trade 
agreements that open markets for the United States, so we need 
to be doing all we can do to hammer away at these barriers.
    And I thank everyone. We are going to have to recess for 
these votes, and we will come back afterwards. Thank you.
    [The prepared statement of Mr. Royce follows:]
    

    
                              ----------                              

    [Recess.]
    Mr. Royce. We will reconvene at this time.
    Mr. Meeks. Thank you, Mr. Chairman, for this well-timed 
hearing, coming just a day after the 12th round of TPP 
negotiations closed in Dallas, Texas. And it is good to see 
some of our witnesses--two of our witnesses, Ms. Menghetti and 
of course Ambassador Schwab--to see them here, today, to 
testify. And I definitely look forward to hearing from your 
views, and Dr. Levy's and Ms. Drake's testimony as well.
    I will start by saying that I see TPP through the prism of 
job creation first and foremost. It just makes sense to me that 
deepening our trade ties in a region that makes up 50 percent 
of global GDP is the right thing to do. It makes sense to me 
that the American people benefit when American companies--
small, medium, and large alike--get greater access to such a 
large portion of the world's consumers. That is why I am a 
strong supporter of President Obama's export initiative, and I 
believe TPP is crucial and critical to that initiative. We 
cannot neglect the region that has 40 percent of the world's 
population and some of the fastest-growing economies.
    It is always the case that trade agreements are about more 
than the exchange of goods and services. When we negotiate 
trade agreements, we are not just looking to deepen economic 
ties. TPP is also a promising prospect from the security and 
foreign policy aspects. Each of the TPP countries have a role 
in U.S. strategic interests in Asia. Over the years, Asian 
nations have negotiated nearly 200 trade-related agreements. 
The United States is a partner in only three of those 
agreements, most recently the Korea FTA. Australia and 
Singapore are the other two.
    It is in our best interests to quickly change this reality. 
Eight partner countries is a good place to begin with. I am 
aware that there are many challenges involved in negotiating an 
agreement with such a diverse group of countries. In today's 
hearing, I look forward to the perspective of our prestigious 
witnesses on the many challenges ahead. I believe the benefits 
of moving forward outweigh the costs, but I want to hear how we 
might address those concerns.
    And I know, for example, when it comes to a nation like 
Vietnam, the disciplines on state-owned enterprises is a 
critical issue, as evidenced by the intense discussions during 
the Dallas round this week. I also know that we must carefully 
consider how we address labor issues as we proceed, and I would 
like to hear our witnesses consider how the May 10th, 2007 deal 
figures in addressing labor concerns with TPP.
    Investors, inter-state dispute settlement, and the 
possibility of Canada, Japan and Mexico joining: The list of 
challenges is certainly significant. However, I am convinced 
that this agreement is worth doing, and Mr. Chairman, I can't 
wait to hear the witnesses.
    Mr. Royce. Fair enough, Mr. Meeks. Thank you very much. Let 
me just tell you all a little bit about Ambassador Susan 
Schwab, a professor at the School of Public Policy at the 
University of Maryland. And before rejoining the University of 
Maryland, she served as the United States Trade Representative, 
where she successfully concluded bilateral FTAs with Colombia, 
Panama, and South Korea. She also served as a Trade Policy 
Officer in the U.S. Embassy in Tokyo, and under her leadership 
the U.S. began negotiations with the TPP members.
    Ms. Linda Menghetti is vice president of the Emergency 
Committee for American Trade. She advises companies and works 
with administration officials on trade and investment 
legislation, and on policy. Prior to that, she was Chief 
Minority Trade Counsel and Minority Trade Counsel for the 
Senate Finance Committee.
    Ms. Celeste Drake is the Trade and Globalization Policy 
Specialist at the AFL-CIO. Prior to joining the AFL-CIO, she 
served with Congresswoman Linda Sanchez as Legislative 
Director, and was responsible for advising the Congresswoman on 
her work on the Ways and Means Committee. We welcome her here.
    Dr. Phil Levy teaches international trade at Columbia 
University's School of International and Public Affairs. He was 
a scholar at the American Enterprise Institute, and he served 
as Senior Economist of Trade on the White House's Council of 
Economic Advisors. He served at the State Department on policy 
planning staff there. So thank you very much, Dr. Levy.
    Ambassador Schwab, would you like to begin?
    Ms. Schwab. Thank you, Mr. Chairman.
    Mr. Royce. I will ask you one favor. If you would summarize 
your testimony in 5 minutes, and then we have got the record 
here, and then we will go to questions.

 STATEMENT OF THE HONORABLE SUSAN C. SCHWAB, PROFESSOR, SCHOOL 
OF PUBLIC POLICY, UNIVERSITY OF MARYLAND (FORMER UNITED STATES 
                     TRADE REPRESENTATIVE)

    Ms. Schwab. Mr. Chairman, thank you very much. Mr. 
Chairman, thank you. I am very pleased to be here. Congressman 
Meeks, it is great to see you again as well. I will summarize 
my testimony, and I have submitted more detailed testimony for 
the record. As you noted, the Trans-Pacific Partnership was 
initially outlined and launched in the latter part of the Bush 
administration, where I had the great privilege to serve as the 
U.S. Trade Representative.
    We had both defensive and offensive objectives, and 
motivations, for launching such a negotiation. We had free 
trade agreements at the time with Singapore and Australia. We 
had negotiated the KORUS FTA, but we really were concerned 
about the growing network of bilateral and regional deals being 
negotiated without us. We were concerned that we could see a 
situation where U.S. companies--U.S. industry, agriculture, 
services, investment--were going to be locked out of 
preferential trade deals that were being negotiated in the 
region.
    Meanwhile, on the multilateral front, the Doha round was 
stalling out in Geneva, and we saw the TPP as an opportunity to 
open markets and to maintain access for U.S. exports of 
agriculture, of manufactured goods, services, and investment 
opportunities, particularly for small and medium-size 
companies, as well as for larger companies. Because if you 
think about tariff and non-tariff barriers, they have a bigger 
negative impact on small and medium-size companies than on 
large companies, which can invest behind those barriers. My 
written testimony has a chart that shows the benefits that have 
accrued to small- and medium-size U.S. companies from these 
kinds of agreements.
    We also saw it as a potential for building precedents for 
future bilateral, plurilateral and multilateral negotiations. I 
continue to support the Trans-Pacific Partnership, and am 
delighted to see that the Obama administration has gone ahead 
with these negotiations.
    But I would note, I am not in government. I am not privy to 
any of the negotiations going on, and therefore I am not in a 
position to second-guess the progress that is being made. That 
really is what our statutory private-sector advisory committee 
system is for, along with congressional hearings and formal 
consultations. And while it is very easy to second-guess one's 
predecessors and successors as trade negotiators, each 
negotiation is unique.
    What I would like to do, therefore, is just offer a couple 
of observations that helped to guide me as a trade negotiator, 
and our motivations when we launched the TPP. First and 
foremost, the objective was to create precedents. A high-bar, 
high quality, high standard agreement. Creating precedents when 
it came to market access, comprehensive enhanced market access 
for U.S. exports of goods, services and investment. The 
protection of intellectual property, particularly in this era 
of knowledge-intensive growth, and the importance of knowledge-
intensive value-added sectors. Leveling the playing field when 
it came to private firms competing with state-owned and state-
supported enterprise; government procurement; science-based 
sanitary and phytosanitary standards, not allowing them to be 
used against our agricultural commodities, and so on.
    And I would note, given the moderate size, the sort of 
modest size of markets currently involved in the TPP 
negotiations, and the fact that we already have FTAs with 
several of those countries, precedents are particularly 
important. And these issues should be negotiated with the likes 
of China, India, Brazil, the EU and future negotiations in 
mind.
    And I would note, there is no reason why the TPP ultimately 
needs to stay in the Asia-Pacific region. If a country and 
countries outside of the region are willing to become a part of 
this negotiation later, as we build concentric circles around 
this deal, it could ultimately become a WTO-plus template for a 
broader, multilateral agreement.
    I am going to close with that. I think this has the 
potential of being an extremely important trade agreement for 
the United States. And while it is no substitute for a strong 
and vibrant multilateral trading system, it can ultimately 
contribute to such a strong and vibrant multilateral system.
    [The prepared statement of Ms. Schwab follows:]



    
    
                              ----------                              

    Mr. Royce. Thank you, Ambassador.
    Ms. Menghetti?

  STATEMENT OF MS. LINDA MENGHETTI, VICE PRESIDENT, EMERGENCY 
                  COMMITTEE FOR AMERICAN TRADE

    Ms. Menghetti. Thank you, Mr. Chairman, Chairman Royce, 
Chairman Manzullo, members of the subcommittees. I will be 
summarizing my full written testimony.
    I am vice president of the Emergency Committee for American 
Trade, ECAT, an organization of the heads of leading U.S. 
business enterprises representing all major sectors of the U.S. 
economy. ECAT also serves as a secretariat to a much broader 
U.S. Business Coalition for TPP.
    The United States' successful participation in the TPP 
negotiations is critically important for the U.S. business 
community, to America's role in the Asia-Pacific and the 
international economy. There are over 100 free trade agreements 
in negotiation or in force in the Asia-Pacific, most of which 
exclude the United States, although we are in a stronger 
position, given the work of many members of your two 
subcommittees, including Chairmen Royce and Manzullo and 
Congressman Meeks, in securing the U.S.-Korea FTA last year.
    For the business community, the TPP is important in its own 
right and as a building block that could eventually bring in 
other major trading nations that share the same ambitious 
vision. The TPP negotiations also provide an unparalleled 
opportunity to forge a stronger template for regional trade and 
deal directly with how businesses operate in the 21st century.
    The discussions that many of my colleagues and I held with 
numerous delegations in Dallas indicate that there is momentum 
in the negotiations in progress. It is crucial that that 
momentum continue, and that several key principles are 
incorporated into the final TPP.
    First, the final TPP should open markets comprehensively, 
for all goods and services, and investment, and apply the core 
rules to all countries. Such a result will have enormous 
benefits for U.S. ranchers, farmers, manufacturers, and service 
providers in every state. Yet, such an ambitious result is 
threatened. If the United States excludes, wholly or 
effectively, major manufactured or agricultural products, be it 
sugar, dairy or apparel, Australia excludes investor state 
enforcement, or the ASEANs exclude financial services, what 
else will other countries take off the table, let alone a 
Japan, Canada, or Mexico, which seek to join the TPP? We simply 
do not see a successful conclusion to the TPP on a less than 
comprehensive basis.
    The second issue is the ultimate standard for all the key 
rules. I will just focus on two, although there are many being 
negotiated. Of particular importance to the U.S. business 
community are the TPP investment rules, that should seek to 
ensure that U.S. companies have access to foreign markets and 
consumers, are treated with the same types of base-level 
protections that we enjoy through our Constitution and laws 
here in the United States, and that they have access to 
impartial enforcement mechanisms when difficulties arise.
    U.S. investment overseas is vital. It helps drive our 
exports. It increases pay scales. And contrary to conventional 
wisdom, U.S. investment overseas is largely used as a platform 
to make sales overseas, not to displace production in the 
United States. As reflected in a February 2012 letter to the 
President from the business community, a strong outcome on 
investment is absolutely critical.
    Similarly critical are strong protections for intellectual 
property and their effective enforcement, building off of the 
world-class provisions that we've seen in the U.S.-Korea FTA. 
As the heads of 33 business associations, including my own, 
recently wrote to the President, more, not less, rigorous IP 
rules are needed to thwart the explosion in IP infringement, 
piracy, and counterfeit products throughout all sectors of the 
economy.
    Third, it is vital to achieve concrete progress on the new 
21st century issues being addressed in the TPP negotiations, 
from regulatory coherence and state-owned enterprises to supply 
and production chains and e-commerce. Of particular interest to 
all internationally engaged businesses are e-commerce and 
related issues that trade agreements have not fully addressed, 
despite increasing barriers overseas.
    The final TPP should incorporate commitments to spur 
innovation and eliminate barriers to cloud computing, cross-
border data flows, as well as more traditional issues.
    Fourth, it is important that the TPP be a living agreement, 
both in terms of its admission of new members, but also in its 
continued ability to open markets.
    Fifth, time is of the essence in concluding these 
negotiations. None of us want the TPP negotiations to become 
the next Doha that never concluded, so we must work to promote 
their timely confusion on a comprehensive and ambitious basis.
    The lapse of trade negotiating authority for trade 
agreements has been, without a doubt, a drag on the ability of 
the United States to pursue a robust trade agreement agenda. 
While it is vital for the TPP negotiations to continue apace, 
it is also imperative that Congress and the administration work 
aggressively and quickly to restore the congressional-executive 
branch partnership that trade negotiating authority represents.
    Thank you.
    [The prepared statement of Ms. Menghetti follows:]
    
    
    
                              ----------                              

    Mr. Royce. Ms. Drake.

 STATEMENT OF MS. CELESTE DRAKE, TRADE & GLOBALIZATION POLICY 
                      SPECIALIST, AFL-CIO

    Ms. Drake. Thank you. Chairmen Royce, Manzullo, Ranking 
Member Sherman, members of the committee, good afternoon. I 
appreciate the opportunity to testify on the important issue of 
the Trans-Pacific Partnership free trade agreement. I have 
submitted written testimony for the record, and will summarize 
my comments here.
    American workers live in a global economic environment. The 
key decision for policymakers is not whether to increase trade, 
but what rules should govern trade and who benefits. With this 
in mind, the AFL-CIO is especially interested in the TPP, as it 
represents President Obama's first opportunity to negotiate a 
trade agreement completely from scratch.
    While the vast majority of trade among the current TPP 
participants and the U.S. is already covered by free trade 
agreements, the TPP is being specifically designed as an open-
ended agreement. Given that countries like China, Burma, and 
Japan are potential new entrants, it is especially important to 
get the TPP right, as it may govern the majority of our 
international trade in years to come.
    The world is still experiencing an economic slowdown as a 
result of the 2008 financial crisis. In the U.S., unemployment 
remains over 8 percent. Too many families continue to face 
foreclosure, and some employers are continuing to cut wages and 
benefits, even as some global corporations report record 
profits and pay record bonuses. Something is deeply wrong in 
our economy, and it is not something that can be fixed by 
simply focusing on increasing exports. We must increase net 
exports.
    Trade deficits matter. Our nation's international trade 
deficit in goods and services was $560 billion last year, 
including a record $300 billion with China in goods alone.
    Unfortunately, it has not been the practice of U.S. trade 
policy to engage in economic evaluations of trade agreements 
like the TPP until after an agreement is finished. Only when 
the text is complete do we learn of its potential to harm 
particular industries and their employees, or to increase our 
global trade deficit. That is why the United States Trade 
Representatives should evaluate the likely job and industry 
effects of a trade agreement first, and adjust its negotiating 
strategy accordingly.
    This is imperative if we are to retain and rebuild our 
diminished manufacturing capacity. Given that trade agreements 
have replaced foreign aid as our primary economic development 
tool, it is also critical for workers globally. American 
workers have seen nearly 700,000 jobs displaced due to trade 
deficits with our NAFTA partners, while workers in our trading 
partners Colombia, Guatemala, Honduras, Mexico and Bahrain have 
experienced increasing labor repression. This repression varies 
from place to place, but includes detention, persecution, 
threats, and murder against union and human rights activists, 
and it keeps workers from sharing fairly in any gains from 
trade, and has seen global corporations keeping larger and 
larger shares of those gains.
    Properly constructed, a trade agreement can be a force for 
progress. To achieve this, American and global workers need 
more than changes around the margins. We need a TPP approach 
that puts good job creation first. This means a focus on 
commercial terms that don't simply cut tariffs, come what may. 
Reciprocal market access and strong enforcement must be 
integral, not an afterthought.
    It is also imperative that USTR address economic justice 
and the societal infrastructure that promotes it. This means 
that fundamental labor rights which empower workers to seek 
improved wages and benefits must be front and center. 
Enforcement when governments refuse to protect those rights 
must be swift, effective, and meaningful. Aggrieved workers 
should not have to hope and pray that a meritorious case will 
timely be resolved, as Guatemalan workers have had to do.
    Labor rights are but one chapter of a trade agreement. The 
TPP will not help the American economy unless it also addresses 
a host of other issues, including disciplines for state-owned 
enterprises, strong rules of origin, no extraordinary rights 
for foreign investors, financial services rules that promote 
stability, and intellectual property rules that protect 
American innovation without making lifesaving medicines 
unaffordable for developing country partners like Vietnam.
    Finally, for the TPP to work for working families, it must 
address it only in tandem with critical policies that have been 
omitted from past trade agreements, including currency 
manipulation, funding for customs enforcement, capacity-
building, and domestic trade-supporting infrastructure, the 
creation of a robust industrial policy, and labor law reform, 
to ensure that U.S. workers can exercise the same rights we 
promote internationally.
    I thank the committee for its time, and would be pleased to 
answer any questions.
    [The prepared statement of Ms. Drake follows:]
    
    
    
                              ----------                              

    Mr. Royce. Thank you, Ms. Drake.
    Dr. Levy?

     STATEMENT OF PHILIP I. LEVY, PH.D., ADJUNCT ASSOCIATE 
PROFESSOR, SCHOOL OF INTERNATIONAL AND PUBLIC AFFAIRS, COLUMBIA 
                           UNIVERSITY

    Mr. Levy. Chairmen Royce and Manzullo, Ranking Member 
Sherman and members of the committee, thank you for the 
opportunity to testify today on the Trans-Pacific Partnership 
trade agreement. Mr. Chairman, per your request, I will offer a 
summary of my testimony, and I have submitted an extended 
version for the record.
    The TPP is an agreement with enormous potential. If the 
agreement succeeds, it could help set the rules of trade for 
the 21st century and serve as a pillar of U.S. presence in the 
critical Asia-Pacific region. It can benefit America's 
companies and consumers, and help secure the country's vital 
interests.
    This great potential is, as yet, unrealized. The challenges 
that remain are daunting. The administration's embrace of the 
TPP as its principal active trade initiative and the core of 
its commercial policy toward Asia also distinctly raise the 
stakes on the agreements.
    In my remarks, I will comment on how far the TPP has come 
and what it has to offer the United States, and then offer some 
thoughts on what must be done to conclude the agreement 
successfully. There is a significant role for the U.S. 
Congress, as the branch constitutionally entrusted with trade 
policy, in laying the groundwork for TPP's success. I thus 
heartily commend the committee for holding this hearing.
    To understand the potential of the agreement, I think it is 
worth putting the TPP in the context of a strained global 
trading system. The prolonged and fruitless efforts to strike a 
Doha deal at the WTO have left global trade powers wary of 
grand trade promises that bring repeated ministerials but no 
signing ceremony.
    By the end of a decade of negotiations, Doha talks had 
repeatedly hit impasses. Among the key contentious issues 
splitting the participants were the level of ambition, how much 
the agreement should do about modern facets of trade 
regulation, and the appropriate role of economically successful 
developing countries.
    The TPP is clearly situated on one side of these debates, 
the side the United States has favored. One of the TPP's core 
principles is that it embraces a high-standards approach. It 
deals with issues like service market access, intellectual 
property rights protection, and investment regulation, that are 
important parts of modern global commerce.
    While the TPP has expanded to include a number of 
developing nations, including Malaysia and Vietnam, it expects 
those nations to participate in these high-standard commitments 
as well. Thus, a successful TPP would have important 
ramifications for the global trading system. It would 
demonstrate the possibility of concluding such an ambitious 
trade accord, and of bridging the north-south divide that has 
plagued the Doha talks.
    The TPP also has captured the imagination of countries 
because of its other founding principle: An openness to new 
members. This approach suggests that the TPP could serve as a 
template for how to build a sophisticated approach to opening 
markets.
    It is natural to want to quantify the benefits the TPP has 
to offer the United States, and to ask just how close we are to 
achieving those benefits. Neither question is easy to answer. 
If we look at the potential benefits from an agreement, we 
cannot be satisfied by just looking at the extent of current 
trade among participants, or even market size, as an indicator 
of potential. After all, as we have heard, the United States 
already has agreements with Australia, Chile, Singapore, and 
Peru, and among new applicants with Canada and Mexico. That, 
alone, would suggest that gains might be overstated.
    But one could equally argue that potential gains are 
understated for the agreement. When we talk about trade flows 
within the region, we usually discuss goods trade. We ought to 
be discussing services trade as well, something the United 
States is particularly good at, and that would capture much of 
the novelty in market opening throughout the TPP. But services 
trade is difficult to measure, and therefore often neglected. 
Nor are we well-equipped to quantify the benefits from 
harmonizing a spaghetti bowl of different trade rules into a 
coherent package, or the benefits from facilitating the 
sprawling global supply chains that characterize modern 
commerce. We do get a hint of the importance of such factors, 
however, when we see global supply chains interrupted by 
natural disasters in Japan or Thailand, and U.S. producers and 
consumers suffer.
    How close are we to realizing the gains TPP has to offer, 
whatever they might be? For all the laudable technical progress 
that USTR negotiators have made, the most politically divisive 
issues remain unresolved. To give an example of one such core 
issue, there is the question of whether the TPP will be built 
around a single set of market access commitments, to which all 
members sign on, or whether it will consist of a patchwork of 
existing market access rules, augmented by new promises to fill 
in the empty spaces. This may seem just one issue in a long 
checklist, but it poses major political problems and will have 
an inordinate impact on the extent to which the TPP realizes 
its potential.
    So, what needs to be done? A principal reason that so many 
important issues remain unaddressed is that no bipartisan 
consensus on trade has been reached here in the United States. 
Issues such as labor regulation, environmental provisions, and 
intellectual property rights protection all remain contentious. 
The appropriate way to address this would be through passage of 
new trade promotion authority. Such legislation would prompt an 
open discussion of the key issues, and would make clear to U.S. 
negotiators just how much room for maneuver they have in 
discussions with their counterparts. The very fact that the TPP 
may serve as a template for future trade agreements makes such 
discussions essential.
    To conclude, the United States has played a leadership role 
in the Asia-Pacific for decades. Economically and 
strategically, there is no more important region of the world. 
The TPP has the potential to continue this tradition of 
leadership, while delivering significant economic benefits to 
the country. As a demonstration of a high-standards approach to 
trade globalization which addresses modern concerns about 
global commerce and incorporates developing nations as full 
members, the TPP can set an example that will have positive 
repercussions well beyond the region.
    Thank you.
    [The prepared statement of Mr. Levy follows:]
    
    
    
                              ----------                              

    Mr. Royce. Let me start with a question to Ambassador 
Schwab that goes back to the speech of the Deputy National 
Security Advisor earlier this year on behalf of the 
administration. He said that the administration was embracing 
this strategy of TPP because the U.S. faces the prospect of 
being locked out of Asia due to the large number of bilateral 
trade agreements that were being negotiated between Asian 
countries and signed without our participation, and I believe 
one of the fractures cited was the 10 percent decline in U.S. 
exports to the region.
    How real, I was going to ask you, is the prospect of the 
U.S. being locked out as a result of these agreements within 
Asia, between trading partners which are liberalizing trade?
    Ms. Schwab. I think it is a very real threat. One of the 
attachments to my testimony is a chart from the WTO Web site 
which shows the trajectory of the bilateral and regional deals 
being negotiated, and that have been implemented around the 
world. And I think we are closing on 300 in effect today, a lot 
of those--most of those--in the Asia-Pacific region, and most 
of those exclude the United States.
    The one that is of the most prominence is the ASEAN 
agreement, and the one that is gaining the most focus is ASEAN-
plus-three, which is ASEAN, Korea, Japan, and China. The 
prospect of ASEAN-plus-six, which would add Australia, New 
Zealand, and ultimately India. And just recently, this week, 
China, Korea, and Japan announced they were going to go ahead 
with their negotiation--and they are all of different 
qualities, so it is really hard to generalize, but there is the 
distinct possibility that these will be--some of these are in 
existence, some are under negotiation.
    As I noted in my testimony, it is particularly damaging for 
small- and medium-size companies. Large, multinational 
corporations can go and invest behind the walls of preferential 
trade agreements. That really is damaging to U.S. workers. 
Better that we produce in the United States, or in terms of the 
supply chains, have the option of producing wherever there is 
comparative advantage, and that if the production is better 
done here, and part of it is done in a country within Asia as 
part of the supply chain--but unfortunately, it is a real risk 
and TPP is one of the ways of mitigating that risk, or at least 
partially mitigating that risk.
    So yes, it is a real threat. It was a threat that we 
perceived in the Bush administration, and the Obama 
administration continues to see the same risk.
    Mr. Royce. One of the points, Dr. Levy, that you raised, 
was that many of the TPP negotiating countries already have 
significant access to the U.S. market. If you go back, for 
example, to some of the arguments we had about the Colombia 
FTA, the argument was the U.S. had the most to gain because 
Colombia had preferential market access before its FTA went 
into effect. Once the FTA went into effect and knocked down the 
tariffs on the Colombian side, then we saw our exports grow at 
a considerable pace.
    So the question I would have for you is, give us your take 
on that. Is it the U.S. that has the most to gain in terms of 
an agreement that ratchets down tariffs to barriers of entry, 
whereas in point of fact that access is already granted to TPP 
countries anyway? Let me get your take on that.
    Mr. Levy. I think you are quite right, Mr. Chairman, that 
that has traditionally been true of agreements, because the 
U.S. has fairly low tariff barriers. So to many of the 
countries with whom we are negotiating, there is an asymmetry, 
and it works in the U.S. favor in terms of new openness to 
exports. That should be true here, as well, for those countries 
where we have not already negotiated trade agreements. Of 
course, with a number of them, we already have those 
agreements.
    Mr. Royce. All right. So your thesis, I will just ask, 
Ambassador, if you agree with that assessment that one of the 
phenomena that we see here, and maybe why we see in the most 
recent trade agreements the large increase in exports, as 
opposed to imports, is because of--at least from the data we 
got from the Chamber of Commerce, because of this phenomenon 
that, like with Colombia, the agreements that were already in 
force gave market access to our trading partners without 
guaranteeing us the ability to export into those markets. Were 
the barriers ratcheted down, and that's the main goal here for 
the FTA, is to get that kind of ubiquity out of the agreement? 
Or would it be in the agreement, so that at the end of the day, 
we don't end up bypassing that opportunity?
    Anyway, I am going to recognize Mr. Sherman for his time.
    Mr. Sherman. The American people know that the trade policy 
of the United States is destroying the American middle class. 
The elites know that it is in the elites' interest to continue 
this trade policy. There is no issue in American politics where 
the elites and the people of all parties differ more than on 
trade policy. There are four devices that the elites use to 
tell the people of this country what the people know is false, 
and that is to make the claim that these are somehow agreements 
in the interests of the American middle class.
    The first is to simply be condescending, and assume that 
those who oppose these agreements are luddites, protectionists, 
or simply didn't pass Economics 101. In order to be effectively 
condescending, one must ignore the results of the last 20 
years, something that can be done by those who have not been 
displaced by foreign imports.
    The second way to do this is to be very selective as to 
what counts as our current trade policy. The worst part of our 
current trade policy is permanent MFN for China. The problems 
with that dwarf any of the supposed benefits of the FTAs, but 
the supporters of our current trade policy insist that we only 
talk about FTAs and somehow the many elephants in the room 
don't count.
    The third approach that is used is the phony choice 
approach, that our only choice is to continue the terrible 
policies we have now, or to intensify them and make them 
permanent, that if we have given away the store--say, to 
Colombia--that the only thing to do is to give it away 
permanently, and if we can get one penny for giving it away 
permanently, that is one penny we wouldn't have had otherwise. 
It is simply absurd to think that we have to take bad trade 
policy that is temporary and say we have improved it by making 
it permanent, or to claim that they already have the benefits 
that have been given to them temporarily, as if those are 
permanent.
    And finally is just kind of fuzzy math. And it is to ignore 
the base on which we are dealing when we calculate increases. 
We are told that exports to certain countries increase more 
than imports. But not by dollars, not by jobs. You can't count 
the number of jobs, you can't count the number of dollars, 
which, I have to say, is--if we export to a country $1, and we 
import 50, and we are able to sign a trade agreement where we 
export three and we import 100, that that is some major 
accomplishment for America, having gone from a trade deficit of 
49 to one of 97, because, after all, we tripled our exports and 
only doubled our imports. It is time for the advocates of these 
agreements to talk in terms of the size of our trade deficit, 
which is the largest in history.
    Now, Ms. Drake, we talked about--I think you mentioned that 
one thing in these trade agreements is that we should, at 
least, get for American workers the labor rights that we 
theoretically try to get from others. It was in this committee, 
long ago, that the State Department testified that if another 
country had a ``right-to-work law,'' we would call that a 
deprivation of human rights. And I realize it is not within the 
jurisdiction of this committee, but to think that in half of 
our country the right to organize a union is illusory is a 
violation--maybe if we put in the TPP that other countries 
could sue us for having right-to-work states, maybe then you 
would get some of us to be for it.
    Now, could you compare for us the right to organize in 
Colombia with Vietnam? I think in one country, you can organize 
a union, but you might be shot, and in the other one you can't 
organize at all.
    Ms. Drake. Well, it is a difficult comparison. In Vietnam, 
there is a national trade union confederation, the VGCL.
    Mr. Sherman. This is government-controlled?
    Ms. Drake. Absolutely. It is not independent at all, and--
--
    Mr. Sherman. Would we count that as a trade union?
    Ms. Drake. We would not. It would not count as a trade 
union here.
    Mr. Sherman. So in Vietnam, you can have something that 
lies about being a trade union, and in Colombia you can 
organize a real trade union, except you might be shot.
    Ms. Drake. That is correct.
    Mr. Sherman. And these are the labor rights that we are 
being told we achieve through these free trade agreements.
    I yield back.
    Mr. Royce. Mr. Manzullo.
    Mr. Manzullo. You know, all politics is local. It is good 
to talk about--or it is interesting to talk about the big 
picture. The district I represent has over 2,000 factories. The 
UAW plant at Chrysler Belvidere, exports about 46 percent of 
its product. In slow years, 20 million a month goes to Mexico 
because of NAFTA. About two miles away, also in Belvidere, is a 
place called ABAR Ipsen. It is owned by a German holding 
company. It is a UAW shop. They export 97 percent of their 
product, and they make the world's only portable heat treating 
machine. It costs about $200,000, pre-programmed into many 
languages. I asked the operators of the shop ``What do you 
want?'' They said ``We want a Brazilian free trade agreement.''
    I could go through my district, shop by shop, union by 
union, and demonstrate conclusively the benefits that happen as 
a result of union shops that are involved in manufacturing, 
because as you know, there is a $38-billion trade surplus with 
17 free trade agreements involving U.S. manufactured products. 
I can only go by what happens to my constituents.
    In the area around Rockford, Illinois, with about 250,000 
people, there are exports of a whopping $3.5 billion in goods 
and services each year. It is one of the most highly 
concentrated areas of exports in the country, and these are 
good jobs. Jobs involving exports pay on the average, I think, 
about 17 to 20 percent more than jobs not involving exports.
    From the giant Chrysler plant to a fellow that makes 
starting gates for BMX bicycle races across the countries, an 
11 man shop exporting 60, 70, to 80 percent of its product, are 
all looking forward to the next free trade agreement.
    There are a lot of problems that go on with these free 
trade agreements, and I understand that. But as a Congressman, 
I look to what impacts the employment of the people that I 
represent. To me, that is paramount to other talk that goes on.
    Working with Japan, we are strong friends with that 
country. We have been dealing with its inclusion in the TPP, 
and we are familiar with Japan's closed automotive and beef 
sectors. However, less well known are the non-tariff barriers 
presented in Japan's financial service sector, particularly 
with regards to insurance. The state-owned enterprise, Japan 
Post, which has over $2 trillion in assets, and 24,700 
locations, just passed a law of preference for insurance.
    I would like to ask whoever wants to provide an answer, 
given the collective expertise on TPP and international trade, 
what is the assessment of Japan's ability to make the necessary 
changes to key sectors of the economy in order to qualify for 
the TPP? Anybody?
    Ms. Menghetti. Let me begin, Mr. Chairman. From our 
perspective, Japan's potential entry into the TPP is both a 
huge opportunity--you look at that market, its GDP, the 
purchases it could have--but for all the reasons you mentioned, 
we are concerned about each and every one of them in terms of 
barriers to manufactured goods, barriers to agricultural 
exports, what we are seeing on Japan Post that affects 
insurance and other industries as well--is a great challenge.
    I think the position here has to be to keep engaging with 
the Japanese Government and see if they, too, can get to the 
point--they expressed interest at the APEC leaders meeting in 
Honolulu to join the TPP. I don't believe they have formally 
requested joining and they are looking at it in their own 
economy right now.
    I think we need to try to help them understand that moving 
toward the market openness that we all see as strongly 
beneficial will help them just as well. I think it is a great 
challenge, and I am sorry I don't have an easy answer for you.
    Mr. Royce. If we could go then to Mr. Meeks of New York?
    Mr. Meeks. We will have time, probably, for another round, 
Mr. Chairman?
    Mr. Royce. Yes.
    Mr. Meeks. Good. Thank you, Mr. Chairman, and I am going to 
just ask questions. I am going to resist to go into some of the 
specifics in regards to numbers, except to say that I know that 
Dr. Levy--I will start with you. You talked earlier about 
services, and I chair the Congressional Services Caucus.
    And from the numbers that I have seen recently, as of 2011, 
we had a $193.5-billion surplus in services as far as trading 
is concerned. Not a deficit, services. I mean, an increase. And 
experts have told me, especially, in fact, Dr. Brad Jensen of 
Georgetown university estimates that we could--U.S. services 
could export about 860 billion more than they are doing now, 
which would then suggest that that would create an additional 3 
million more U.S. jobs in the United States from cross-border 
trade.
    I want to know from you, what do you think the TPP will do 
to create more opportunities for U.S. services in particular, 
and investment abroad?
    Mr. Levy. I think you are absolutely right to point this 
out, that this is a huge potential. It is something that the 
U.S. does very well. I think that is a large part of what one 
means when one talks about a high-standards agreement, is that, 
whereas we have seen globally a fair bit of progress in terms 
of lowering tariff barriers, less so on services market access. 
And it offers great potential for the United States.
    I think Dr. Jensen's work is very solid on this area, so I 
think there is tremendous potential. And that is potential both 
with the existing TPP members, but especially as one looks to 
expanding it to new entrants who might want to come in.
    Mr. Meeks. Now, Ms. Menghetti, let me ask you--and I know 
that ECAT has done a lot of work and analysis over the years on 
the impact of FTAs on the volume of trade between the United 
States and its partners. And what I have seen indicates to me 
that we increase our exports to our FTA counterparts, 
especially--because what I see that causes the imbalance 
sometimes is if you put oil into it. But if you take oil out of 
it, the importation of oil trade, can you tell us a bit about 
what ECAT's findings are about trade balances and FTAs? And can 
you discuss this dynamic--of course, since we are talking about 
TPP--and TPP, and how that can help create jobs here in the 
United States?
    Ms. Menghetti. Thank you, Mr. Congressman. Absolutely. What 
we have seen is that, when every single one of our high-
standard FTAs has gone into force, in the years--comparing the 
year the agreement went into force to the year after, we have 
seen a huge increase in exports to each of those markets.
    And I think Chairman Royce, you talked about some of those 
increases at the beginning: To Chile, 300 percent. Australia, 
very significant percentages. I think one of the really 
interesting facts is, when you look at the current U.S. goods 
exports to the TPP countries, you will see--we did a comparison 
in my testimony between 2000 and 2011--that 85 percent of the 
value of the increase--so, how much did U.S. exports increase--
because U.S. exports did increase to every single one of the 
TPP countries during that period. But 85 percent of that 
increase went to the four countries where we already have FTAs 
in force.
    And so we see FTAs have a huge benefit, for all the reasons 
Ambassador Schwab and Dr. Levy were talking about. The U.S. 
market is relatively open. Yes, we have some tariff barriers 
and other barriers, but it is the other countries who have 
tariff barriers--they limit access, regulatory barriers, non-
tariff barriers--that these agreement really get at, 
particularly when you are talking about IP, intellectual 
property-intensive industries, and the rest.
    Mr. Meeks. And let me just conclude on this, because--and 
maybe this is a question for Ms. Drake. As I looked at 
Colombia, and I look at Vietnam, for example, some would think 
that we are not trading with Vietnam now. We are trading with 
Vietnam now. Trade agreements help put rules and regulations in 
place that are not, or would not otherwise, be in place. And I 
know we had a big agreement on labor concerns on May 10th, 
2007. We put in labor standards in trade agreements with 
countries that have not had these standards before, to help 
them with rules and regulations, especially concerning labor 
issues.
    So my question to you would be, what are your thoughts on 
including something like the May 10th, 2007 deal into TPP.
    Ms. Drake. We think the May 10th agreement was a positive 
step forward. We don't think that it goes far enough. And just 
seeing--Colombia has been in force since Tuesday, but the 
Colombian Government never really came into baseline compliance 
with international labor standards. And we have been seeing 
violence and death threats and murders of union activists 
increase just this year, and even since the announcement that 
the Colombia FTA would go into force. So we think May 10th is a 
place to start. We think Vietnam in particular, because of its 
particular labor system, has an awful long way to go.
    Mr. Royce. Let us go to Mr. Chabot of Ohio.
    Mr. Chabot. Thank you, Mr. Chairman. Ms. Menghetti--am I 
pronouncing that correctly?
    Ms. Menghetti. Yes.
    Mr. Chabot. Okay, thank you. I think I will begin with you, 
if I can.
    Mr. Royce. And let me also suggest--I mean, we have from 
CRS, maybe, a difference of opinion on that. You might want to 
update them, because they might be behind the curve. They said 
that labor violence was down.
    Go ahead.
    Mr. Chabot. I thought you might be talking about the 
pronunciation of Ms. Menghetti's name. [Laughter.]
    Mr. Royce. I am not going to attempt it. [Laughter.]
    Mr. Chabot. All right. Thank you. I guess--does my clock 
start from the beginning, there?
    Mr. Royce. No, you have lost that time. All right, we will 
start over.
    Mr. Chabot. Thank you, Mr. Chairman. I read the recent 
letter that was sent to President Obama signed by the heads of 
33 trade associations, underscoring the need for strong IP 
protections in the TPP. And I know that ECAT was one of the 
signatories on that letter.
    Would you take, maybe, a few minutes, and please discuss 
some of the disciplines that you and your colleagues are 
seeking, that were signatories of the letter?
    Ms. Menghetti. Absolutely, Congressman. And I am glad that 
you saw that letter, and if anyone has not, we would be happy 
to share it. As many of you who have seen a report that came 
out from the U.S. Department of Commerce in April 2012 know, 
our IP--our intellectual property-intensive industries here in 
the United States are hugely important to our economic growth 
and our employment. Just two quick facts: They directly or 
indirectly produced 40 million U.S. jobs and contributed about 
$5 trillion to the U.S. economy.
    So naturally, from the business perspective, having strong 
intellectual property protections in the TPP is critical, 
having them be specific and binding and enforceable, and 
improving those rules. What was done in the Korea-U.S. FTA 
really went beyond prior trade agreements in a lot of ways, and 
we want to see that continue. We also want to continue on with 
provisions on anti-camcording, having stronger protections, I 
would say, for the pharmaceutical sector, on data protection 
issues that are really critical to both the biotechnology 
companies that are starting right now, as well as others.
    We need countries to adopt mechanisms where they can 
actually better enforce IP protection, and we need that IP 
protection to be online as well. Many of our goods and services 
are delivered online--you think about software, the 
entertainment industry--so to help us grow our jobs here and 
the productivity that all of these industries, from lifesaving 
medicines to entertainment and publishing, and everything in 
between, we really need to see a good outcome. And it is a 
struggle right now in the TPP.
    Mr. Chabot. Thank you. And could you further discuss the 
reason or the need for strong international IP protections 
through trade agreements in terms of how it impacts the overall 
U.S. economy and jobs?
    Ms. Menghetti. Absolutely. If you haven't all looked at the 
Commerce Department report, I think it is really important to 
do so. Intellectual property is part of almost every company in 
the United States. You know, sometimes the smaller and medium-
size companies, they develop these intellectual property 
protections, or they use some of the tools that are there. It 
affects every industry in the United States.
    But the Commerce Department said that there were about 75 
industries across the medical, scientific, entertainment, 
artistic world that focus, really, on IP. They account for 
about 30 percent of U.S. jobs. They were a big part of our 
economic recovery, providing a 1.6 percent increase in direct 
employment. And they provide huge merchandise exports, about 
$775 billion.
    We see overseas, though, huge threats, right? So we see 
piracy, we see counterfeit, we see the violation of trademarks, 
trade secrets, which is one of the new issues that the U.S. 
just put down. I think the U.S. approach in the TPP 
negotiations so far has been a good one--USTR's approach--but 
we are facing a lot of push-back. Other governments are saying, 
``Well, we are not so sure we want binding commitments. We are 
not so sure we want these same IP protections.''
    And what we have tried to argue is that, in all these 
sectors, the innovation that these industries bring helps every 
single one of us in our daily lives, and really helps 
countries, whether they are developing or developed, whether 
they are IP-exporting countries or IP-importing countries, when 
you think about the computer and information technology-type 
innovations, medicines, as well as all the wonderful artistic 
works that we all like to enjoy.
    So if we don't get those, we are going to see increasing 
rates of piracy, and that is going to affect jobs here in the 
United States.
    Mr. Chabot. Okay. Thank you very much. Mr. Chair, I would 
note that I have got 9 seconds left, so I think rather than ask 
another question, I will yield those 9 seconds back to the 
chair.
    Mr. Royce. We are going to go to Mr. Kelly from 
Pennsylvania.
    Mr. Kelly. I appreciate that. I was just looking over--
there is a letter for inclusion of Canada in the TPP 
negotiations. I don't know if there has been any conversation 
about that yet. I know, Chairman, you are one of the signers on 
that letter. So it is probably Ms. Drake, could you give us 
some of the ups and down of the Canadian participation?
    Ms. Drake. I am happy to. Thank you. We already have a 
trade agreement with Canada. First we have the U.S.-Canada FTA, 
and now we have NAFTA. It is an economically advanced country, 
high wages, so it doesn't pose the same kind of export platform 
threat as some of the other countries.
    The key is, again, what rules are put in place, and do 
those rules apply? So from the AFL-CIO's perspective, there are 
some things about NAFTA that we don't think that we got right. 
We think the investor state dispute settlement provisions are 
particularly bad. If those provisions in the TPP were better, 
and they overruled the provisions in NAFTA, so that investors 
would have to use the newer, more modern provisions, that would 
be a good thing.
    If they sat side by side, which we understand might be the 
case, and investors could pick and choose which sets of rules 
they wanted, we haven't achieved all that much. In particular, 
the rules of origin with autos in NAFTA were good in that they 
were rising over time. So now we have a 62.5 percent rule of 
origin, regional value content, for autos with NAFTA. If that 
is decreased in the TPP and auto manufacturers are allowed to 
choose the lower, that will severely hurt auto jobs in the U.S. 
So it really depends on the rules.
    Mr. Kelly. Okay. So, are you supporting the idea of Canada 
being involved in this?
    Ms. Drake. We don't have a yes or no position. We did 
submit comments, and we talked about the possible upsides as 
well as the possible downsides.
    Mr. Kelly. I think the big part--and I think, Mr. Chairman, 
that is the idea. Mr. Meeks is also on this letter. The upside, 
the potential, as we continue to try and go after markets that 
are--we truly operate in a global economy. I think it is 
foolish to think that we don't. The fact that we are still the 
world's largest manufacturer, and we have all these 
capabilities.
    The Canadians are by far our biggest trading partner right 
now. Is that correct?
    Ms. Drake. Yes.
    Mr. Kelly. Okay. So there is more to be gained than to be 
lost by this, as long as we set the rules up right going in?
    Ms. Drake. If we set up the rules right, I think workers in 
the United States and in Canada could benefit. Absolutely.
    Mr. Kelly. Okay. Thank you, sir.
    Mr. Royce. I think Mr. Manzullo had an additional question, 
so without objection I will----
    Mr. Manzullo. Thank you. It is really a follow-up. The U.S. 
and Canada, obviously, have a free trade agreement, and NAFTA 
trumped that, is that correct? So if the U.S. and Canada enter 
into the TPP, would the latter trump NAFTA?
    Ms. Drake. This is for me?
    Mr. Manzullo. Anybody that wants to answer it.
    Ms. Drake. USTR hasn't been completely clear with us on how 
they will interact. What they have said is that the existing 
FTAs won't be repealed, they will stand side by side. And what 
they have talked about repeatedly is that the higher standard 
will prevail. Well, on some of the rules, I think there might 
be a difference of opinion between parties as to which is the 
higher standard.
    Mr. Manzullo. Ambassador Schwab?
    Ms. Schwab. The thing to remember about the U.S.-Canada 
Free Trade Agreement and then--U.S.-Mexico, and ultimately 
NAFTA--is that by free trade agreement standards, those are 
ancient free trade agreements. Mid-eighties. So there are 
things that I think everyone agrees need to be brought up to 
date in those agreements. If you just look at agriculture in 
the U.S.-Canada agreement, Canada maintains supply management 
and U.S. exports of poultry and dairy to the Canadian market 
face 200- and 300-percent tariffs, for example. And you won't 
find a single agricultural group in the United States, that 
doesn't think those should be addressed.
    So really, when we launched the TPP, my Canadian and 
Mexican counterparts, the Trade Ministers, were among the first 
I spoke with about the potential of building them into this 
agreement at some point, and updating and upgrading the U.S.-
Canada and U.S.-Mexico agreements.
    Mr. Manzullo. This TPP is interesting. What is interesting 
was the earthquake. We got our delegation out in 2 hours and 29 
minutes, and you got caught in it.
    Ms. Schwab. You did indeed, sir. You did indeed.
    Mr. Manzullo. That was quite an event. The way the TPP 
works, is an agreement is forged, then the first two countries 
to join it are bound by that to each other, and then as other 
countries come in, they agree to all the criteria and become 
part of that agreement. Is that correct?
    Ms. Schwab. Well, this is an unusual configuration. In the 
past, we have negotiated with CAFTA, for example--that was 
almost a hub and spoke kind of negotiation, and then we 
expected the CAFTA countries to work out, to have their FTA and 
build it out.
    In the case of TPP, it is unclear whether--we had always 
imagined building concentric circles around the original--what 
we thought was a P-8, which is now being negotiated as a P-9. 
What is not clear is whether it will be an accession process, 
much the way a country accedes or joins the WTO, or whether it 
is a whole new negotiation. Because there are nine core 
countries involved, it is unclear how that is going to work, 
and is one of the things that the nine countries will have to 
decide is, is that negotiation with each of the nine? Will 
there be changes to the core agreement when a new country comes 
in? And my guess is, it will depend on how big the new country 
is, and what kinds of issues they will want to bring in.
    Mr. Manzullo. Isn't that something that should be 
determined first?
    Ms. Schwab. It is going to have to be determined as part as 
the original deal.
    Mr. Manzullo. Dr. Levy?
    Mr. Levy. Mr. Chairman, I think you have hit on an 
absolutely critical issue. And I address this a little bit 
further in my written testimony, that I think this question of 
whether there is going to be a new, single set of market access 
agreements and rules which then supersedes, or whether there is 
going to be a collection where past agreements, such as NAFTA, 
remain largely intact and you strike new marginal agreements, 
is absolutely key to whether or not this realizes its 
potential.
    It is, of course, very difficult to rewrite all these 
things, but doing so offers two things that I think are really 
essential. One is the benefits of harmonization. It means that 
U.S. businesses don't have to play by different rules depending 
on which country they are dealing with. And two, what I think 
many of us have talked about is the benefit of precedent. It is 
much stronger if there is a single set of rules, as opposed to 
if any newcomer says, ``You have already got a hodgepodge of 
approaches, here is the one I want to toss into the pile.''
    Mr. Manzullo. Thank you.
    Mr. Royce. Mr. Meeks, did you have a question?
    Mr. Meeks. Thank you, Mr. Chairman. I just want to touch on 
and ask another matter. I guess I will ask Ambassador Schwab 
this question and Dr. Levy a second one.
    Another matter of great concern is the prospect of 
including investor state dispute mechanisms in the agreements. 
So I wonder, what are your thoughts on the need to lay out 
rules to ensure that state enterprises compete fairly with 
private companies, and that U.S. investors have the protection 
of the rule of law and due process? So that is to Ambassador 
Schwab.
    And then Dr. Levy, in my opening statement, I talked about 
how trade agreements are generally not just economics. It also 
deals with security and foreign policy implications. And so I 
was wondering if you could expound, just a little bit, what 
security or foreign policy implications are connected to TPP. 
And do you agree, first of all, with my statement that they do? 
And what do you see as U.S. strategic issues linked to TPP?
    Ms. Schwab. I would address your question in two parts. 
One, in terms of the Investor State provisions of the most 
recent negotiations, most recent agreements, those are solid 
provisions. It is incredibly important, particularly if you 
look at some of the expropriations and some of the anti-
investment actions being taken by governments around the world, 
it is particularly important that our trade agreements have 
very strong Investor State provisions, like the one in the 
Korea Free Trade Agreement. And I would hope that the TPP would 
have an investor state provision at least as strong as that.
    In terms of the level playing field issue, which is 
obviously in some cases related, in some cases can be separate 
from investor state, the state-owned enterprises, and state-
supported enterprises; the competitive neutrality issue--we 
clearly need to get a handle on, how do you make sure there is 
a level playing field when a private sector enterprise is 
competing with a state-owned or state-supported enterprise? And 
it is one of the ``21st century issues'' that is being tackled 
in the TPP, and that is going to set a very important 
precedent.
    Mr. Levy. Congressman, I agree strongly with you that the 
significance of these agreements goes well beyond just the 
economic matters. There are strategic and foreign policy 
concerns that are intimately tied into this. I think if you 
look in this case, one could argue that that is, to a great 
extent, how interest in the TPP was renewed. When President 
Obama went to gatherings of Asian leaders--I think they have 
been quite clear that these were sort of political gatherings, 
groupings, APEC and the like--and these are the issues that 
APEC leaders care about.
    If you want to demonstrate allegiance and friendship and a 
continued U.S. leadership role in the region, then you must be 
active on this front. If you say, ``Well, all we have are 
security concerns. We just want to talk about terrorism, we 
don't really want to deal with you commercially,'' the United 
States would not be taken seriously in the region. And because 
we do have significant concerns throughout that region, those 
are conversations in which we want to be concluded. So I could 
not agree with you more strongly.
    Mr. Royce. All right. Well, I thank very much our panelists 
today. I thank the members. And we stand adjourned.
    [Whereupon, at 4:07 p.m., the subcommittee was adjourned.]
                                     

                                     

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