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



 
               UNFAIR TRADING PRACTICES AGAINST THE U.S.:
                      INTELLECTUAL PROPERTY RIGHTS
                 INFRINGEMENT, PROPERTY EXPROPRIATION,
                           AND OTHER BARRIERS

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 19, 2012

                               __________

                           Serial No. 112-170

                               __________

        Printed for the use of the Committee on Foreign Affairs


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

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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


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Grant Aldonas, managing director, Split Rock International 
  (former Under Secretary of Commerce for International Trade)...     9
Derek Scissors, Ph.D., senior research fellow, The Heritage 
  Foundation.....................................................    25
Mr. David Hirschmann, president and chief executive officer, 
  Global Intellectual Property Center, U.S. Chamber of Commerce..    38

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Dana Rohrabacher, a Representative in Congress from 
  the State of California: Prepared statement....................     7
Mr. Grant Aldonas: Prepared statement............................    12
Derek Scissors, Ph.D.: Prepared statement........................    27
Mr. David Hirschmann: Prepared statement.........................    40

                                APPENDIX

Hearing notice...................................................    74
Hearing minutes..................................................    75
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    77


UNFAIR TRADING PRACTICES AGAINST THE U.S.: INTELLECTUAL PROPERTY RIGHTS 
        INFRINGEMENT, PROPERTY EXPROPRIATION, AND OTHER BARRIERS

                              ----------                              


                        THURSDAY, JULY 19, 2012

                  House of Representatives,
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 o'clock a.m., 
in room 2172 Rayburn House Office Building, Hon. Ileana Ros-
Lehtinen (chairman of the committee) presiding.
    Chairman Ros-Lehtinen. The committee will come to order 
after we clean up my spilled Cuban coffee. The order will stay 
here for about 6 months it is so strong. After recognizing 
myself and the ranking member, Mr. Berman, for 3 minutes each 
for our opening statements, sorry, Chris, I will recognize for 
3 minutes, the chair and the ranking member of the Subcommittee 
on Terrorism, Nonproliferation, and Trade.
    I will then recognize any members who seek recognition for 
1 minute and then we will hear from our witnesses, and without 
objection, sirs, the witnesses prepared statements will be made 
a part of the record. Members may have 5 days to insert 
statements and questions for the record and the chair now 
recognizes herself for 7 minutes.
    It wasn't that long ago that we could watch other countries 
grappling with their economic difficulties with considerable 
detachment and relief that we were largely insulated from their 
troubles. Those days are long gone. As our economy has become 
increasingly integrated with that of the world as a whole, and 
as millions of jobs in this country are now based on exports, 
our economic future and prosperity are tied to events on 
distant continents.
    The unending crisis in Europe, the economic slowdown in 
China, and the sharp reduction of the growth rates in an 
increasing number of major countries means that the global 
economy is already facing strong headwinds. That will impact us 
in many ways and none more so than the threat to exports and 
the jobs that they support. Even in good times, our exporters 
often find their paths blocked by an endless array of obstacles 
erected by foreign governments that range from quotas, 
licenses, discriminatory regulations, to currency manipulation, 
limits on investment, and mandated technology transfer.
    Some of these barriers are the products of antiquated 
ideologies or just plain ignorance, and the temptation to erect 
barriers to foreign business in order to support domestic 
industries is a strong one in every country, especially in 
times of economic stress. Those policies have had the affect of 
reducing the overall welfare of their own citizens while 
rewarding favored businesses with high profits they otherwise 
could not earn. But we bear the cost as well, and not only in 
terms of lost sales.
    In fact, it has been the resistance of countries such as 
Brazil and India to further liberalization that has led the 
Doha Round of global trade negotiations hostage for over a 
decade. As a result, high barriers remain for services, 
agriculture, and many other products where the U.S. leads the 
world. But in addition to these familiar obstacles, U.S. 
exporters face even greater challenges from predatory policies 
by foreign governments. The most prominent is the theft of 
intellectual property.
    Governments do steal intellectual property for their own 
use, but a far greater problem is their knowing toleration of 
widespread theft in their societies to the point of actually 
encouraging it. China is the most egregious example, where the 
U.S. Trade Representative estimates that 99 percent of all 
music downloads from the Internet is done so illegally. The 
International Intellectual Property Alliance estimates that the 
loss to U.S. companies from copyright violations of records and 
music alone amounts to more than $0.5 billion annually.
    Pirated copies of American movies that have just been 
released in the U.S. are commonly on sale in the streets of 
Beijing and other cities within days, openly marketed under the 
benevolent gaze of the otherwise fearsome police. Despite years 
of promises by Beijing to crack down on violators, and despite 
a succession of formal commitments to do so, the theft of 
intellectual property remains epidemic. Beijing claims that it 
is virtually powerless to stop its citizens from using the 
Internet for illicit purposes.
    However, that same regime devotes massive resources to 
controlling the Internet, including eliminating or blocking 
vast quantities of information that it finds objectionable, 
with little hesitation to use swift and harsh methods to 
enforce its commands. And yet it also claims with a straight 
face that it cannot prevent the unlimited theft of intellectual 
property from sites that operate openly and with unrestricted 
access.
    But intellectual property theft is only one of China's vast 
array of unfair trade barriers that include, among others, 
state-owned businesses using government power for their own 
ends, illegal subsidies of domestic companies, discriminatory 
regulation, a bureaucracy impenetrable to outsiders, currency 
manipulation, and a legal system that is all but worthless in 
enforcing contracts.
    China may have the worst record in unfair trade barriers, 
but U.S. firms face many other challenges around the world. One 
example is the expropriation of American property by foreign 
governments, especially by leftist governments. From the 
beginning of his reign, Venezuelan strongman Hugo Chavez made 
clear his intent to seize control of key industries, such as 
telecommunications, and has deliberately targeted American 
companies. For example, Chavez forced Verizon to sell its 30 
percent ownership of Venezuela's telecommunications giant CANTV 
with the government taking control of the balance of shares at 
bargain prices.
    And he has used his power to bludgeon major oil companies 
into forced sales and renegotiations of contracts that total 
several billion dollars. China and Venezuela are among the most 
outrageous and shameless predators, but they are far from 
alone. Unfortunately, we have only limited tools with which to 
create a level playing field for U.S. companies and provide 
them with protection. The most proven method is through 
enforceable free trade agreements with responsible countries.
    Our network of free trade agreements has created enormous 
opportunities for U.S. exporters, the most recent being with 
the agreements with Columbia, Panama, and South Korea. But that 
remedy cannot be effectively used at present in large part 
because the expiration of the President's trade promotion 
authority has made the negotiation and approval of new trade 
agreements almost impossible. If we in Congress want to do more 
than talk about creating opportunities for U.S. exporters, 
especially at a time of economic difficulty, we must restore 
the President's authority to negotiate enforceable agreements 
that will enable our entrepreneurs to compete effectively and 
to create the jobs so many Americans are desperately searching 
for.
    Although the image of the international marketplace as a 
place of civilized exchange, of trust, and sanctity of contract 
is often an accurate one, there will always be those in other 
countries who wish to use the power of the government to erect 
barriers against U.S. companies and individuals, and even to 
subject them to criminal behavior. In such a world, we must 
ensure that the executive branch vigorously uses the tools it 
already possesses to deal with those countries that openly prey 
on U.S. businesses, including strong and unilateral measures to 
penalize governments which refuse to uphold their commitments 
and agreements.
    Only by doing so can we guarantee our economic security in 
an ever more integrated world where enormous opportunity is 
coupled with many challenges, and thereby ensure that the U.S. 
will always remain the most prosperous nation on Earth. I now 
recognize the ranking member, my friend, Mr. Berman, for his 
opening statement.
    Mr. Berman. Thank you very much Madam Chairman for 
scheduling this hearing and in my opening comments I am going 
to just sort of say what you said, but probably not as well. 
Violations of intellectual property rights in international 
trade are important aspect of a large global problem. According 
to a study commissioned by the International Chamber of 
Commerce, piracy and counterfeiting cost legitimate businesses 
$455 billion in 2008. By 2015, that number is expected to 
increase $1.2 trillion. And nearly \3/4\ of global IPR theft 
winds up in world trade flows.
    The latest USTR Special 301 report lists 40 countries on 
our IPR watch lists. Of these, notable on the priority watch 
list are countries such as Russia, where we are currently 
evaluating the extent of their enforcement efforts in 
conjunction with our review of their status under PNTR, and 
Canada, where we acknowledge important improvements recently, 
but they continue to lag behind international norms for a 
developed economy.
    Not surprisingly though, China dwarfs other countries in 
violations of U.S. intellectual property rights. The USTR 
reports that Chinese violations run the gamut of all forms of 
IPR; patents, trademarks, copyrights, and trade secrets. Worse, 
USTR reports that the Chinese Government is abetting some of 
these violations by compelling foreign companies to transfer 
intellectual property to Chinese companies as a condition of 
licensing and regulatory approvals. These policies exacerbate 
patent infringement, trademark counterfeiting, and outright 
theft of trade secrets.
    IP violations are also a national security threat. The 
Defense Departments procurement system is being inundated by 
counterfeit and pirated parts. To deal with this problem, DoD, 
NASA, and other agencies have launched a drive to root out 
these illegal and dangerous items from the government's supply 
chain. To me, strengthening the protection of American 
intellectual property must be a top priority. IPR plays a 
critical role in our economy, in employment, and in our global 
leadership. While every industry depends on IPR to some extent, 
a recent Commerce Department report identifies 75 industries 
that are ``IPR intensive.'' These account for $5 trillion in 
annual U.S. output. That is like \1/3\ of the entire U.S. 
economy. As the report indicates, companies in these sectors 
directly employ 27 million American workers, or about 1 in 5 of 
the entire U.S. workforce. In addition, suppliers to these 
companies employ another 13 million workers, thus, ``IPR 
intensive'' companies employ, directly or indirectly, 40 
million Americans; 28 percent of the entire U.S. workforce.
    In the Chamber's most recent report from 2010, in 
California, ``IPR intensive'' companies account for $923 
billion of our annual economic output; fully 58 percent of our 
total economy. These companies and their suppliers employ 7.4 
million Californians; 55 percent of our total workforce.
    For America's future, it is essential that our Government 
ensure protection of our intellectual property abroad. Our 
trading partners must provide higher levels of protection for 
our intellectual property, including effective enforcement 
tools and more open markets. We have an opportunity now to 
further our efforts in this area. The U.S. is currently 
negotiating an ambitious agreement with countries in the Asia-
Pacific region; the Trans-Pacific Partnership.
    It is critical that this agreement reflect and prioritize 
the contribution of the U.S. IP industries to the U.S. economy 
by including strong protections for IP and robust enforcement 
provisions. This will benefit both the U.S. and our trading 
partners' creative and innovative industries and economies. 
Madam Chairman, thanks again for calling this important hearing 
and I look forward to the testimony of the witnesses.
    Chairman Ros-Lehtinen. Thank you so much Mr. Berman and 
thank you for your leadership in that important topic of 
intellectual property rights. Thank you. Mr. Smith, the 
chairman of the Subcommittee on Africa, Global Health, and 
Human Rights is recognized.
    Mr. Smith. Thank you very much, Madam Chair, for convening 
this timely and important hearing. Americans, as never before, 
are focused on jobs and competitiveness. All of us know that 
economic growth and vigorous exports are vital to our economic 
prosperity, sustainability, and now, in these difficult times, 
recovery. American companies and American workers can 
outcompete anyone in the world, providing that the playing 
field is level. The theft of intellectual property rights, 
however, robs Americans of a fair return on their innovation 
and their hard work.
    The most egregious intellectual property rights thief in 
the world today is China. Chinese companies, protected by a 
ubiquitous dictatorship, steal, copy, and market American 
software, music, and films. Chinese policies pry technology and 
trade secrets from American firms that invest there and then 
abandon them. China is certainly in the big leagues, there are 
others, but they're the biggest perpetrator of industrial 
espionage where cyber crime is a new tool. China seems to 
believe that unfettered access to American markets is its 
natural right, while they give Americans the stiff arm in a 
myriad of ways, including, and especially, the stealing of 
American intellectual property rights.
    This colossal infringement of IPR by China, and others, 
must end. I thank you and yield back.
    Chairman Ros-Lehtinen. Thank you very much, Mr. Smith, for 
you leadership. Mr. Gregory Meeks, the ranking member on the 
Subcommittee on Europe and Eurasia is recognized.
    Mr. Meeks. Thank you, Madam Chair, for holding this hearing 
today. And as an advocate for U.S. I am keenly aware of the 
risks associated with the U.S. companies venturing into 
intellectual markets less regulated and protected than our own. 
In fact, the producer of intellectual property need not 
formerly enter a particular market to put her products, whether 
those products are manufactured goods, IT content, books, 
movies, or sophisticated patented scientific devices at risk of 
theft.
    Trade, travel, broadcasting, and the Internet make all 
types of intellectual property vulnerable to appropriation. We 
often hear about the impact of this type of theft in gross 
numbers, billions of dollars lost to producers of intellectual 
property. We hear about pirated movies and music, and everyone 
immediately thinks California. This problem, however, is 
pervasive; affecting every state in the nation. The impact of 
IP theft hits home wherever home might be. In New York, for 
example, the motion picture and television industry is 
responsible for 91,608 direct jobs and $8.2 billion in wages, 
including both production and distribution-related jobs.
    Nearly 49,000 of the jobs are production-related. The IT 
industry generated over $19 billion in wagers throughout the 
state. Rampant software piracy, especially heavy in emerging 
markets, destroys innovation and harms New York's economy. Just 
10 percent reduction in PC software piracy would result in 
nearly $3 billion in added New York GDP and would create nearly 
1600 IT jobs. Just as we should look to expand U.S. exports to 
protect and create new jobs in the United States, we need to do 
better to protect the intellectual property that is the basis 
of this employment in this vast segment of our economy.
    Let me just add quickly, I also add that I am deeply 
concerned about the risk to U.S. trade and investments in 
countries that won't play by the rules. In this regard, the 
issues facing Chevron in Ecuador are critical and I hope that 
this is explored here today at this hearing.
    Chairman Ros-Lehtinen. Thank you very much. And now I am 
pleased to recognize Mr. Rohrabacher, the chairman of the 
Subcommittee on Oversight and Investigations, who always has 
nice things to say about China.
    Mr. Rohrabacher. Thank you very much, Madam Chairman, and 
thank you for holding this hearing. It is a significant issue 
in that it dramatically impacts the people of the United 
States. The Communist dictatorship in Beijing has caused 
dramatic harm to the well-being of the people of the United 
States. It comes down to that. And they are relying on us to 
protect their interest, to protect their families, and we have 
not been doing that. One of the most unforgivable elements of 
the economic war China has been conducting against the people 
of the United States is the massive government-approved and 
government-organized theft of American intellectual property 
rights.
    So thank you, Madam Chairman, for your leadership in trying 
to get something done where there has been hundreds of billions 
of dollars of intellectual property that has been stolen, 
hundreds of billions, and hundreds of billions of R&D that the 
Chinese have gotten for free in order to outcompete our people. 
We do the R&D, no wonder they have got a space program that now 
is trying to compete with the aerospace workers in my district, 
because they have stolen all of our R&D. And in California, I 
hate to disagree with my friend, it is worse in California. We 
have a lot of jobs that are tied directly to entertainment.
    They have been stealing from the people of the 
entertainment industry, especially in California, stealing the 
product of their labor. No wonder our people don't have the 
money to pay for rent, don't have the money to raise their 
families, because we are providing free entertainment for the 
people of China, the most populous people of the world, and who 
is benefitting from that? The Chinese merchants who are tied in 
to their Communist Party dictatorship. We have got to take a 
stand. We have been cowardly up until now, Madam Chairman, in 
confronting this horrible attack on the well-being of the 
people of the United States.
    Thank you for holding this hearing. I would like to put 
into the record a statement that I have----
    Chairman Ros-Lehtinen. Without objection.
    Mr. Rohrabacher. Thank you. Thank you, Madam Chairman.
    [The prepared statement of Mr. Rohrabacher follows:]

    
    
                              ----------                              

    Chairman Ros-Lehtinen. Thank you. My New Jersey colleague, 
Mr. Sires.
    Mr. Sires. Thank you, Madam Chairman, for holding today's 
hearing on a topic so vital to our economy and I might just add 
that I agree with a lot of what my colleague on the other side 
have said about China. Usually we are on the same wavelength on 
a lot of things, but it is critical when implementing trade 
policies that we ensure a level playing field. Unfortunately, 
as it stands today, the United States is at a disadvantage to 
countries like China that have weaker protections on 
intellectual property rights. Not only the weaker regulations 
and standards surrounding intellectual property rights in other 
countries put us at a disadvantage economically, it jeopardizes 
public health.
    We have seen the health and safety risk of negligent 
intellectual property laws in the form of poisonous products, 
fake medicines, and medical devices, and counterfeit airplane 
parts. In determining the level of protection of intellectual 
property rights, we must strike a balance that protects 
innovation in our country and allows the United States to 
continue to be a leader, not an obstacle, in foreign 
development assistance. We must commit to engaging with foreign 
governments to truly protect industry and consumer rights, 
guarantee an even playing field, and global trade will boost 
our technological leadership and help grow our economy.
    And I look forward to hearing our distinguished panel 
members and I yield back.
    Chairman Ros-Lehtinen. Thank you very much. Ms. Schmidt of 
Ohio is recognized.
    Ms. Schmidt. Thank you, Madam Chairman. I would just like 
to add to the discussion that we are not alone in this thought. 
Thomas Friedman's book, The World is Flat, and Pat Choate's 
book, Hot Property, illustrates what international property 
theft has done to the integrity and the intelligence of our 
nation. Quite frankly, both authors have said it is quite 
difficult for us to stop it alone, that we need global support. 
The second thing I would like to bring up is that it is not 
just counter theft with the music and film industry alone. In 
my district, Proctor & Gamble was created. It is one of the 
largest companies in the world and international property is a 
big issue with them.
    One of the sub-issues is their product of Tide, a great 
laundry detergent, the counterfeit product that is in China 
today not only loses their revenue, but quite frankly, the 
integrity of the product. So when a Chinese woman uses an 
inferior product that says the cloak of Tide, they don't see it 
doing what it says it does, and so it is a double loss for 
companies like Proctor & Gamble, and I look forward to hearing 
what our folks have to say.
    Chairman Ros-Lehtinen. Thank you so much, Ms. Schmidt. Mr. 
Chabot, the Subcommittee on Middle East and South Asia chairman 
is recognized.
    Mr. Chabot. Thank you, Madam Chair, for holding this very 
important hearing. The U.S. is the world's entrepreneurial 
leader, as evidenced by the overwhelming number of patents, and 
copyrights, and trademarks filed in the United States annually; 
however, U.S. industries are facing very real threats to their 
intellectual property abroad. Many foreign actors are actively 
engaged in eroding our intellectual property rights, often 
using a guise such as protection of the environment, to demand 
IP transfers. This is becoming a significant threat to the U.S. 
economy due to the dozens of industries that rely on the 
adequate enforcement of their patents, and trademarks, and 
copyrights in order to stay competitive in this global 
marketplace.
    Many companies in the Southern Ohio region that I 
represent, and Ms. Schmidt represents, are significantly 
affected by lack of enforcement abroad. IP supports close to 
2.7 million jobs in our state, in Ohio, which constitutes 57 
percent of the private sector there. IP has always been 
critical to innovation and entrepreneurship in the United 
States, which is why it is imperative for our trade agreements 
to appropriately recognize and enforce these IP rights.
    I hope our witnesses here today will shed light on how we 
can address this critical problem. And I yield back.
    Chairman Ros-Lehtinen. Thank you so much, Mr. Chabot. And 
now the chair is pleased to welcome our witnesses. First, we 
will start with Mr. Grant Aldonas, the founder and principle 
managing director of Split Rock International. Mr. Aldonas 
serves as the senior advisor with the Center for Strategic and 
International Studies and as an adjunct professor and fellow of 
the Institute for International Economic Law at Georgetown 
University Law Center. My youngest is a law student there, so 
if you see her in her classes, double the homework. She needs 
that.
    Prior to forming Split Rock, Mr. Aldonas served as 
President Bush's Under Secretary of Commerce for International 
Trade and Executive Secretary for the President's Export 
Council from the years 2001 to 2005; welcome. Thank you.
    Next, we will welcome Dr. Derek Scissors, a senior research 
fellow for economics at the Heritage Foundation's Asian Studies 
Center, where he focuses on the economies of China and India. 
Before joining Heritage, Dr. Scissors was the China economist 
at Intelligence Research, where he wrote its weekly China 
bulletin, China Watch and China Quarterly Forecast. Thank you, 
Dr. Scissors.
    And finally, we would like to welcome David Hirschmann, the 
president and CEO of the U.S. Chamber of Commerce for Capital 
Market Competitiveness. He also serves as president and CEO of 
the Chamber's Global Intellectual Property Center, and is a 
senior vice president at the Chamber, where he serves on its 
management committee, but I know him as Susan's hubby, and he 
better make a lot of money because Susan has an extensive shoe 
collection that would make Sarah Jessica Parker envious.
    So thank you to our witnesses. We kindly remind all of you 
to keep your testimony to no more than 5 minutes. Without 
objection, your written statements will be inserted into the 
hearing record, and, Mr. Aldonas, we will start with you, sir.

 STATEMENT OF MR. GRANT ALDONAS, MANAGING DIRECTOR, SPLIT ROCK 
     INTERNATIONAL (FORMER UNDER SECRETARY OF COMMERCE FOR 
                      INTERNATIONAL TRADE)

    Mr. Aldonas. Thank you, Madam Chairwoman and Ranking Member 
Berman, members of the committee, I feel like I could short 
circuit the process by simply associating myself with the 
comments of the entire committee. The reality is, we are in an 
unacknowledged competition of economic models. And it is more 
than the individual aspects of unfair trade practices. The 
reality is, it is a battle between free minds, free markets on 
the one side and between state capitalism on the other. And the 
sooner we recognize that we are engaged in that competition and 
we understand the importance of vindicating our freedoms, not 
only because of the economic consequences, but because of the 
model that our country represents and the moral solvency of 
that model, the better off we will be. So I welcome the 
hearing.
    It is an incredibly important topic, certainly at this time 
in the global economy and our own economy, but I think it is 
also important to recognize the reality of the challenges that 
we face. Let me start by underscoring the importance of trade, 
both exports and the imports, to the U.S. economy. It is not 
just that our trade is 25 percent of GDP, but that, every 
morning, every man and woman in the United States wakes up 
already wired into a global economy. That is true of General 
Electric's workforce making gas turbine engines in Greenville, 
Michigan, just as it is of my friend Bruce Hultgren who owns a 
paving business in my hometown in Minneapolis. His inputs, his 
trucks, all that depends on our trade policy. He understands he 
is in the global economy every time he gets up in the morning.
    For that reason, the rules governing the global economy 
matter. The institutional incentives in the global trading 
system can either favor individual freedom, reward initiative, 
and encourage innovation, or they undermine the scope of 
individual effort, discourage investments in research and 
development, and ultimately slow both U.S. economic growth and 
the growth of the global economy. To ensure that we contribute 
to and benefit from a dynamic world economy capable of 
providing a foundation for lifting out of poverty and ensuring 
a more broadly shared prosperity, every nation, not just the 
United States, bears a responsibility to foster the world 
trading system rather than systematically undermining it.
    The current fragile state of our own economy and the world 
economy underscores that fact. Expanding opportunities for 
trade essential and not only is a spur to short-term growth, 
but a basis for improving our productivity and competitiveness 
over the long term. Conversely, protectionism in its various 
forms, which we will discuss today, represents the worst 
possible policy response to an economic downturn. One of the 
great lessons of the inter-war years and the Great Depression 
is the extent to which protectionist trade policies can 
exacerbate an economic slump.
    To a large extent, at least at the outset of the financial 
crisis and the recession, we thankfully avoided the mistakes of 
the 1920s and 1930s. We did not see a widespread resort to what 
I would describe as conventional protectionist measures as a 
response to the downturn caused by the financial crisis. Over 
the last several years, however, what we have witnesses is a 
very significant increase in foreign policies and unfair trade 
practices that are, not only inimical to our trade interests, 
but undercut the prospects for economic recovery growth of full 
employment here and abroad.
    While seemingly expedient in the short run, those practices 
also undercut the growth potential of the countries that adopt 
them and they limit the prospects for success globally. That 
logic applies whether it is China or elsewhere, with still 
greater a force to practices that undermine intellectual 
property rights or compel U.S. companies to transfer their 
technology. Innovation drives productivity, which ultimately 
yields stronger economic growth. By diminishing the return on 
investments of U.S. companies that they made in research and 
development, such practices eventually lead to less investment 
innovation and less growth, both in the United States and 
globally.
    In other words, confronting the unfair trade practices on 
which the hearing focuses is not simply a question of defending 
U.S. interests, it is critical to restoring global economic 
growth and delivering a more broadly-shared prosperity, 
particularly to those who live at the bottom of the economic 
pyramid. The importance of rolling back these practices is 
particularly acute for the world's poor. All prosperity 
ultimately flows from expanding individual freedom and 
improving the capacity of the individuals to exercise it. 
Government intervention in markets, expropriation, intellectual 
property theft, limits on consumer choice, diminished 
opportunity for private investment and entrepreneurship, erode 
the scope of individual freedom and undermine the rule of law.
    In other words, wholly apart from their economic importance 
at a time of slow economic recovery and high unemployment in 
the United States, the policies and the practices governments 
use to distort markets in favor of their producers come at a 
price in terms of the values that are foreign policies should 
be designed to vindicate. There is also important strategic as 
well as economic consequences that flow from failing to 
confront these policies, as Ranking Member Berman alluded to in 
terms of our national security, our economic vitality, 
translates directly into an ability to project power, slow 
growth, and limited economic opportunity limits our ability to 
pay for America's global reach.
    But allowing these things to fester is probably more 
important in one way. The more profound strategic reason for 
confronting these practices is that our failure to do so will 
result in a far less dynamic U.S. economy and will inevitably 
weaken the moral solvency of the example we set as a free 
society. Thank you, Madam Chairman.
    [The prepared statement of Mr. Aldonas follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Chairman Ros-Lehtinen. Thank you very much. Dr. Scissors.

STATEMENT OF DEREK SCISSORS, PH.D., SENIOR RESEARCH FELLOW, THE 
                      HERITAGE FOUNDATION

    Mr. Scissors. Thank you to the chair and the committee for 
having me here. I am going to focus my remarks on China. The 
committee has already given many reasons for that, and 
actually, Grant has as well, talking about the battle among 
models. I will say that China is not the worst example of 
imposing trade barriers, but it is the biggest. It is not the 
only one, but it is the most important. We can learn a lot by 
assessing what China is doing and we can gain a tremendous 
amount by trying to get them to improve their practices to the 
extent that is possible.
    I will start with IPR. IPR is a core issue in the China 
trade because the trade relationship between the U.S. and 
China, the American comparative advantage there is in 
innovation. Without IPR protection, you don't get as much 
innovation, which means that the U.S. comparative advantage is 
blunted, and that means we don't get the kinds of gains from 
trade that we want and we expect, and that we get in many of 
our other relationships. You see this in the composition of 
U.S.-China trade. China sends us more cell phones than we send 
them; that doesn't make as much sense as it should. The 
composition doesn't make as much sense as it should. You also 
see it in public attitudes.
    The public likes trade, and yet, it has problems with trade 
with certain countries, and there is a good reason. The public 
is right. We are not having the kind of trade relationship with 
China that we should. And the main reason, if I had to pick one 
out, would be that, we don't get our comparative advantage in 
the China trade because they don't protect intellectual 
property. What is the problem with talking about intellectual 
property? Everybody here knows that there is no solution that 
is a magic bullet. Retaliation is very unlikely to help. It 
would have to be very carefully done; trying to give them the 
right incentives; managing their response.
    If we sign a bilateral investment treaty with the China, 
very likely, they are just going to circumvent it. They are 
very good at that. The chairman actually hit the solution on 
the head. It is not direct and it is not perfect, but it will 
work better than others, which is, to sign agreements with 
like-minded countries that are very strong on IPR, that don't 
have Chinese involvement where they are trying to gain the 
agreement so they can step around it, and therefore, the Trade 
Promotion Authority is very important in this task. If we want 
to address Chinese IPR violation, we really need to be able to 
have the freedom to make agreement with like-minded countries 
and put indirect pressure on the Chinese that way.
    The second topic I want to address, which I actually think 
is just as important, the committee hasn't really brought it 
up, but I know you are all aware of it, is subsidies. IPR is at 
that core of the U.S. economy; subsidies are at the core of the 
Chinese economy. It is, therefore, just as important to the 
relationship also, and unfortunately, in a negative way. We 
have been very focused here on subsidized Chinese goods coming 
into the American market. The latest example is solar panels, 
but our consumers gain from those subsidies. The subsidies that 
just hurt the United States are the subsidies that block off 
the Chinese market. We gain nothing from that, and in fact, the 
Chinese people lose as well.
    Financial subsidies are a major part of this. I have a 
little joke I tell here that state-owned enterprises have 
effectively borrowed $3 trillion at no cost since 2009 and even 
the U.S. Government has to respect those kinds of amounts, but 
the subsidy I would like to focus on is not financial, it is 
not the $3 trillion in no-cost borrowing, it is protection from 
competition, because protection from competition is 
fundamental. If you can't compete you can't win, and the rest 
of it all is details. How does China prevent the U.S. from 
competing? They essentially do it by law.
    State-owned enterprises don't go out of business ever, they 
are just merged with other state-owned enterprises and they 
never shrink, so there is no market space created when a state-
owned enterprise fails. Vital sectors of the economy are to be 
dominated by state-owned enterprises by law; autos, banking, 
construction, insurance, I have a long list in my written 
testimony. If you can't get a majority share, if you are not 
fighting for most of a market, then the rest of the policies 
don't really matter. Those are just the ways of implementing 
China's goals to keep everyone out.
    They discourage new businesses. They push out small 
competitors and businesses saying it is disorderly competition. 
There are a range of issues, but the bottom-line here is, if 
you don't allow competition, there is no way U.S. firms can 
win, and the other policies just don't make any difference in 
that framework. Solution; measure and pressure. The first thing 
we need to do is measure the subsidies. That is not very 
exciting, but when we go to China and we say we demand this and 
that, if we don't have a measurement, they will just say they 
improved it. We did want you wanted. We changed the policy. And 
they just invented a new policy.
    We need to be able to measure what they are doing and come 
back to them and say you are not making any progress. How do we 
pressure them? The pressure is, we need to pick something. I 
would pick increasing competition, reducing their barriers to 
competition, but we can't have 15 things that we are asking 
them for in the SNED and the JZZT. It doesn't work. We have 
been doing that for years; it doesn't happen. So there has to 
be focus. Now, the positive side of all of this, it gets back 
to China being important.
    The committee has mentioned Venezuela and Ecuador. 
Venezuela and Ecuador have very significant economic ties to 
China. We get the Chinese to change their policies it would be 
much harder for the Venezuelans, the Ecuadorians, and other 
countries, I don't mean to just pick on them, to practice the 
policies they are practicing. So China is the biggest problem, 
but it also offers us the opportunity for the most progress. 
And I am going to close on a personal note. I want to say thank 
you to my grandmother on the occasion of her 103rd birthday.
    [The prepared statement of Mr. Scissors follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Chairman Ros-Lehtinen. All right. A 103rd, you are going to 
live forever, Dr. Scissors. All right. I feel like Al Roker 
here. Mr. Hirschmann, you are next, sir.

    STATEMENT OF MR. DAVID HIRSCHMANN, PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, GLOBAL INTELLECTUAL PROPERTY CENTER, U.S. 
                      CHAMBER OF COMMERCE

    Mr. Hirschmann. Madam Chairman, Ranking Member Berman, and 
distinguished members of the committee, thank you for allowing 
me to testify on behalf of the Chamber's Global Intellectual 
Property Center, and the chairwoman was kind enough to mention 
my wife, Susan, all I can say is, I assure you her shoes are 
not counterfeits. This is a very timely hearing and just the 
latest example, frankly, of the bipartisan leadership in this 
committee on these issues. I think that is fitting because 
protecting the millions of jobs tied to inventing, creating, 
discovering, and bringing to market new products and services 
is a goal that unites all of us and impacts every business in 
this country.
    Study after study has shown that innovation and creativity, 
incentivized by a strong intellectual property rights system, 
are the driving forces behind the U.S. economy. In fact, our 
most recent study that was cited here shows that more than 55 
million American jobs are tied directly and indirectly to 
intellectual property. These are jobs that pay 30 percent 
higher wages than on average and account for $5.8 trillion in 
national output. IP is also one of the most valuable trading 
assets and a key to our global competitiveness. In 2011, our 
innovative and creative industries comprised close to \3/4\ of 
all U.S. exports, and this is true in all 50 states, to the 
tune of $1 trillion.
    Today, I would briefly like to make five points before 
taking any questions. First, while counterfeiting and piracy 
are not new crimes, the scale, scope, sophistication, and 
devastating impact of intellectual property theft has grown 
dramatically. The criminal networks engaged in the systematic 
theft of everything we invent may not spend money on research 
and discovery, as has been mentioned, but they are very 
sophisticated marketers and distributors. Cross-border theft of 
IP-protected products has mushroomed from a cottage industry 
into a global network of illicit crimes, including counterfeit 
and piracy both in the physical world and in online 
environments.
    Second, counterfeiting and digital theft impact every 
industry across the nation. In February 2011, Frontier 
Economics found that the global value of counterfeited and 
pirated goods is up to $650 billion every single year. And they 
further estimated that that would triple to $1.77 trillion in 
just 3 years. Counterfeiters and digital thieves are 
increasingly sophisticated and deceive us into purchasing 
counterfeit automobile parts, food, medical devices, medical 
supplies, electrical supplies, pharmaceuticals, that do not 
even meet the most minimal safety standards, or in the space of 
pirated movies and music, consumers are falling prey to 
malicious computer viruses and identity theft.
    The entities behind these illicit goods aren't haphazard 
infringers. They are operators of sophisticated, organized 
criminal networks. For example, recent news reports have found 
that the sale of pirated movies and music now provides a major 
source of income for the Zetas, the drug cartel in Mexico.
    Third, business is doing and must do everything it can to 
protect its own IP. This includes both embracing and investing 
in new and innovative ways to distribute their products and 
developing new technologies and partnerships to protect both 
consumers and their supply chains. Every government must also 
redouble its efforts to protect intellectual properties, and we 
need to set the example right here at home. The recent 
extraordinary efforts of the IPR Center, led by Immigration and 
Customs Enforcement, are evidence of what can be accomplished, 
and it has been done thanks to the great support on a 
bipartisan basis from this Congress.
    Lastly, we need to achieve meaningful advances in 
protecting our greatest trading assets overseas. Foreign 
governments increasingly allow, and even encourage has been 
said, unwarranted exceptions to IP that weaken company's 
ability to innovate. Examples include India's recent issuance 
of its first compulsory license to allow generic manufacturing 
of patent anti-cancer drug and Australia's recent passage of 
legislation that stripped trademark owners of their ability to 
use brand on tobacco products.
    Meanwhile, a number of countries have inadequate IP laws or 
fail to effectively enforce their own IP laws. China is the 
best example and remains, as everybody has said, the leading 
source of counterfeit and pirated goods worldwide. While China 
has taken some steps to advance certain IP reforms, we believe 
the real change will only occur when intellectual property 
environment has changed in China. One of the most immediate 
opportunities to assert U.S. leadership in promoting our 
innovative and creative economy is the negotiation of a Trans-
Pacific Partnership, as Ranking Member Berman has indicated.
    This is a template for future agreements, so it is 
essential that TPP include comprehensive high standards for 
intellectual property protection, looking at the U.S.-Korea 
Free Trade Agreement as a benchmark. We urge governments to 
continue to ensure that TPP provides such strong protections. 
We can't exclude any sector of our economy and we must secure 
meaningful, important opportunities for biotech pharmaceutical 
companies, including the 12 years of data protection for 
biologics that is currently in U.S. law.
    In concluding, let me simply reiterate that it is essential 
for the administration and this Congress to continue to 
identify ways to combat foreign theft of our creative and 
innovative products, to protect the 55 million jobs that these 
products support, and we look forward to working with this 
committee to continue to advance that agenda.
    [The prepared statement of Mr. Hirschmann follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Chairman Ros-Lehtinen. Thank you very much. Excellent 
testimony, gentlemen. I will ask questions on two issues. 
Although we have not talked about the Arab boycott on Israel, I 
wanted to ask you what thoughts you have about the impact that 
the Arab League boycott on Israel has had on U.S. companies. 
How effective have been the steps taken by our Government to 
reduce its impact? What measures can we take in Congress to 
ensure that neither U.S. businesses nor Israel are negatively 
impacted by this boycott?
    And secondly, on the issue we have been discussing, Beijing 
claims that it cannot control the illegal copying and 
downloading by its citizens of music, and movies, and other 
types of U.S. intellectual property, yet, the Chinese regime 
invests massive resources and efforts in blocking the free 
exchange of information by its citizens, including simple 
messages in support of democracy, or prisoners of conscience, 
of course, that cannot be allowed, they say. What are your 
comments on the Chinese regime's control of political 
expression at all costs, yet saying that it cannot prevent 
illegal downloading from open sites?
    So anyone who wishes to comment on the Arab League and the 
Chinese line.
    Mr. Aldonas. Sorry. Let me start with the Arab boycott. My 
own experience in private practice for many years as an 
international lawyer was that it had a very significant impact. 
And that the choices that firms were required to make wasn't 
just dealing or coping with our regulations, which they were 
happy to comply with, it really was the impact and the power of 
what you had in terms of purchasing power in the Middle East as 
a result of oil. So ironically, I think the two things that we 
could do that are most important don't relate to our regulatory 
regime, they actually relate to developing our own energy 
resources, so that, in some respects, we reduce the power of 
the boycott.
    The second thing is, we have a free trade agreement with 
Israel which is not as broad as it should be. When we 
negotiated in 1984, it was our first step toward free trade. It 
was our first bilateral agreement and on both sides we did not 
go as far as we could. At this point, Israel has found its own 
energy resources. We don't have an energy chapter in the FTA. 
In terms of the linkages between our economies, so much of what 
Israel contributes to our economy is high-tech. We actually 
don't have a chapter that expands on that trade or thinks in 
terms of, how would you create an electronic market?
    And what I would think about doing is then building from 
that to a regional initiative. We do have free trade agreements 
with Morocco. We do have free trade agreements with Jordan. We 
do have a QIZ program in the Palestinian Territory. Trying to 
build off of the U.S.-Israeli model and build, frankly, a model 
that is in opposition to the boycott, I think, is the most 
profitable way to do it and also the most positive way to do 
it.
    Chairman Ros-Lehtinen. Thank you very much. Dr. Scissors.
    Mr. Scissors. I think I will stick to the China question 
after Grant's excellent answer on the Israel question, the 
Chinese could obviously do better. They don't devote the 
resources to IPR that they devote to lots of other things that 
are apparently more in their interest, but we know that. We 
know the resources that are available to the Chinese state. We 
see it in evidence all the time in negative, and sometimes 
positive, ways, and they are important in IPR. We have to 
change their incentives. And I think my colleague, Mr. 
Hirschmann, and members of the committee, have indicated the 
way to do that, it is not to try to bludgeon them into doing 
it. They just won't listen.
    The way to do that is to say, okay. You want to play that 
way. We are going to get a group of people, including trade 
partners you really value, we are going to play a different 
way, and if you want to trade with Australia, maybe Indonesia 
comes into this, countries that have resources, you are going 
to have to change the way you behave. So bilaterally, I don't 
know what we can do to get them to use more resources that they 
have, the chairman is exactly right, but indirectly, I think we 
can change their incentives where they realize, all right, 
well, if we don't go along with this we are going to lose more 
than we are gaining by stealing.
    Chairman Ros-Lehtinen. Thank you very much. Mr. Hirschmann.
    Mr. Hirschmann. China's laws are stronger than its 
practices and you are right that when China recognizes that it 
is in its self-interest in an area, it has demonstrated that it 
is also able to enforce its laws. And it has not done so 
consistently on intellectual property. But China is also not 
monolithic and we have found that there are certainly 
businesses within China, government leaders within China, who 
understand that China's future is in innovation. And one of the 
things we have tried to do is strengthen their hand, work with 
them, because ultimately, while China's enforcement of 
intellectual property is inconsistent, to the point that the 
problem continues to grow, to agree that businesses in China 
begin to demand from their government that their own 
intellectual property be protected, and the rest of the world 
joins forces in holding China accountable, I think we will make 
real progress.
    Chairman Lehtinen. Well, thank you, and I will end with a 
question that I don't have time to answer, but a number of 
countries in the Middle East, including Saudi Arabia, are 
notorious for widespread commercial abuses, such as their 
refusal to pay foreign companies and individuals for services 
rendered. And these individuals and businesses have few, if 
any, effective means for redress, and Congress has enacted 
legislation to require the administration to seek resolution of 
these disputes, including the establishment of a special claims 
process, but the problem remains. It has not been eased up at 
all and I had wanted to ask what we can do in Congress to 
ensure that there is a fair and speedy resolution on these 
cases. So we will leave that for another day. Mr. Berman is 
recognized for his questioning period. Thank you, gentlemen.
    Mr. Berman. Yes, I mean, you have touched on some of these 
issues, but I would like to just push a little harder on China 
specifically. Dr. Scissors creates a model of Chinese 
Government intentions. They don't want competition. State-owned 
enterprises don't fold for failure, they merge in other 
entities. They don't allow market space. Other than the obvious 
importance of measuring in the area of intellectual property 
violations--the costs and scope of the theft, the activity, and 
the conduct--tell me a little more what you mean by pressure 
because, hoping that the Chinese private innovative sector 
creates enough pressure on its own government that, for their 
interest, they decide to force this, sounds like a very long-
range plan.
    What is the short-range plan? Because it does occur to one 
that dealing with what we are dealing with here, should there 
be a huge escalation? Should we be talking about threatening 
China with the issue that it probably takes most seriously, 
which is its market access to us? And with all the costs that 
has for American consumers, for trade wars, for all of this, 
what is the argument against a rapid escalation of our tactics 
and weapons to challenge China's notorious market? What are the 
arguments against doing that and finding more moderate, more 
incremental, kinds of strategies?
    Mr. Scissors. There are two arguments, and I think the 
whole committee is aware of one of them, it would cost the 
United States. China is very much in favor of competition 
overseas. Other people should compete and that competition is 
good for everyone. Competition is what drives economic progress 
and if we take away Chinese competition we hurt ourselves. They 
don't like competition at home. Competition is good for others, 
so there are costs to the United States. I think we are aware 
of those. I would add to that, we haven't----
    Mr. Berman. But in and of itself, is the cost to the United 
States in the short term greater than the price of what is 
occurring continuing?
    Mr. Scissors. Sir, I don't think those are the only options 
because I don't think we have done a good job in confronting 
the Chinese without going to the big retaliation phase. We 
don't confront them on a bilateral basis with, look, this is 
exactly what the harm that is being done, we are measuring it, 
and the harm is not dropping. We don't do that. We do lots of 
things. We ask them for lots of things. They tend to be very 
vague and policy-drive, not outcome-drive. The WTO is stalled. 
I think that is very unfortunate. I think an American effort in 
the WTO on IPR and subsidies would be much preferable as a 
first step to taking action against China, and as the 
committee, including yourself, has recognized, grouping of 
like-minded countries have a way of influencing China without 
causing a confrontation.
    So if you are asking me if we have tried everything else, 
is it worth it? I might say no, because, you know, we haven't 
measured the situation yet, so I don't know exactly, but I 
understand the question. I don't think we have tried everything 
else. I don't think we have been very effective in what we are 
trying to do. TPP is a great possibility for changing that, but 
I think we need to try other things before we go to massive 
retaliation.
    Mr. Berman. Okay. Let me just try one last quick response 
from Mr. Hirschmann on the Russia issue. You advocate granting 
PNTR status and I think there is a lot of logic to that. Are 
the current Russian commitments on intellectual property 
protection adequate? Are they meaningful? Are we better off 
with Russia in WTO and them having normal trade relation status 
in terms of making progress here?
    Mr. Hirschmann. Well, thank you for raising Russia. At this 
point, Russia is going to get into the WTO, so the question is, 
will we have, you know, the benefits of PNTR will accrue 
largely to the United States by having access to that market. 
But the reason this has taken a number of years is because the 
United States and this Congress were right to insist that 
Russia not just make promises in exchange for getting into the 
WTO, but that it make actual commitments.
    Mr. Berman. You mean, not replicate the China model.
    Mr. Hirschmann. They actually practice what they say they 
are going to do. There have been some improvement in some 
areas, but overall I think Russia still has a lot to do and 
this Congress should continue to hold Russia accountable to 
live up to its commitments.
    Mr. Aldonas. Madam Chairman, could I just take 10 seconds 
to respond to Congressman Berman's first question? The first 
thing, and I am going to go back to the analogy of where our 
conversation started this morning, which is export controls. 
The problem with sanctions, which you have said eloquently over 
so many years, is, they are frequently not sufficiently 
targeted to have the impact we want. And the broader cost, both 
to our economy and to a lot of people in the Chinese economy of 
the simple escalation is, it is not targeted to actually affect 
the actors that would make a difference.
    What I would suggest is that, many of the tools we have 
domestically are not well-adapted to the global economy in 
which we operate. So, for example, we do have provisions that 
allow you to enforce, at the border, your intellectual property 
rights. The reality is, it is only on the finished product; 
whereas, many of the intellectual property violations are deep 
in the value chain. But there is a series of things we could do 
with our own laws that would be much better at targeting the 
individual companies, and particularly the state-owned 
enterprises that engage in this kind of behavior.
    Chairman Ros-Lehtinen. Thank you very much. Thank you, Mr. 
Berman. Mr. Rohrabacher, the chairman of Subcommittee on 
Oversight, is recognized.
    Mr. Rohrabacher. Thank you very much, again, Madam Chairman 
for holding this very significant discussion. I know people 
think that I am not for free trade because I am rather 
passionate about some of my beliefs in dealing with China, but 
I am a free trader. I believe in free trade between free people 
and I do not believe that it is possible for free people to 
have free trade with their fellow citizens of the world if the 
other people they are dealing with live under a Communist-style 
dictatorship as they do in China. I believe that the rules will 
always be manipulated so that there is a flow of power and 
wealth, not only from one country to the other, but from one 
people to the ruling dictatorship. That is why they are a 
dictatorship in the world's most populous country because they 
know how to wield power for their own benefit.
    We have been played for suckers over the years. We have 
been played for fools. And we should because we have been 
permitting ourselves to act like fools. Oh, we are so afraid. 
We are so afraid of this dramatic confrontation that will 
happen. We are cowardly. They are not cowardly. They are brazen 
in their theft of wealth that should be going for our people to 
help our way of life, to help people pay for their family's 
education, or their family's home, and instead, the wealth is 
going, because we are permitting a one-way free trade. We are 
permitting massive theft of value that we have invested to go 
to another country that is dominated by a click of people that 
ensure that the wealth and power that goes there is under their 
control.
    It is not bizarre. It is cowardly. And let me ask about 
WTO. Well, first of all, let me know about Russia. When Russia 
sees the way we are acting about China, why would they think 
that they have to change any problem that they have got? They, 
in fact, think that they are being discriminated against if we 
are letting China off the hook. They don't even have any 
political reform in China as compared to Russia. Russia has 
dramatic political reform over these last 30 years, yet, they 
have all these massive restrictions still on them from the Cold 
War, and yet, we let China, which is the world's worst human 
rights abuser, literally, get away with murder.
    If we do rely on the WTO, which I voted against permitting 
China into the WTO, do we have a situation where we can enforce 
our own findings against China if we see that there is an 
organized effort by the Chinese Government to steal 
intellectual property from us, which we know exists? If we 
prove that, can we then unilaterally move forward or then do we 
have to rely on some panel from the WTO, perhaps with really 
significant countries like Cambodia or Nigeria, making the 
decision for us?
    Mr. Aldonas. If I could, first of all, thank you for your 
comments because I largely agree with the idea; if it is not a 
free people, free trade is hard to have. Having said that, with 
the WTO, the answer is yes or no. You know, if we are in a 
situation where the rules, as they currently are, cover the 
practice, we have actually had a considerable success in 
litigating against the Chinese. The real problem is that, the 
WTO rules, such as they are, are largely confined to trade in 
industrial goods. They don't reach many of the things that are 
a competitive advantage. They don't go far enough. So the 
bindings on China are insufficient to go after the kind of 
broad panoply that you have described, Congressman, in terms of 
their affairs.
    That is why I think what Derek has said is, we need to be 
working with other countries to be developing the disciplines 
that go further, and it goes to the point you made about 
Russia. The reality is, we got into the trading system, the 
GATT and the WTO, with a bunch of countries that had similar 
underlying assumptions about free-market economies. We never 
bothered to state those assumptions and the principles on which 
the entire system has to be based, and until we get there, we 
won't actually have global free trade.
    Mr. Scissors. Just really quickly, I mostly agree with what 
Grant said. There are some things you can make progress on in 
the WTO; there are some things you can't The WTO is a partial 
answer. It is not a complete answer. We can do better with the 
WTO if we go to them with a measurement of what the Chinese are 
doing. We don't do that on some issues, like subsidies, now, 
but that isn't going to finish the process. The process also 
has to be finished, as you mentioned in the outset, by making 
agreements with countries that agree with us, and making a 
stark choice between, you can play it this way and this is who 
you get to deal with, or you can play it this way and you get 
to deal with a much bigger, more prosperous, set of countries.
    Mr. Hirschmann. I would just add that, in addition to the 
very excellent points here, we do need to have an all-of-the-
above strategy. The U.S. is not only a big market for Chinese 
legitimate products, it is also a big market for counterfeit 
Chinese products and we don't do enough to enforce our own laws 
here and to address the counterfeits that come into our own 
economy. Second, what we have seen that when, as Dr. Scissors 
and Grant Aldonas have pointed out, China's leading trading 
partners unite behind an issue, you don't make perfect 
progress, but you make better progress. And we need to put 
every effort we can to working with Europe and other trading 
partners with China to put this issue higher on the agenda for 
all of us.
    Chairman Ros-Lehtinen. Thank you very much, Mr. 
Rohrabacher. Thank you. Mr. Meeks, the ranking member on the 
Subcommittee on Europe.
    Mr. Meeks. Thank you, Madam Chair. Let me ask Mr. Aldonas 
first. I just want you to elaborate a little bit more on the 
Russia situation, that Russia is getting into the WTO, and 
whether or not, by Russia being in the WTO, and by us granting 
PNTR, will that have any effect at all with reference to 
reducing IP theft? I just want a little more elaboration on 
that.
    Mr. Aldonas. They will be subject to the disciplines of the 
TRIPS agreement and as I am comfortable as I am as a free 
trader of saying that you want a society, going to Mr. 
Rohrabacher's point, where everything isn't free as a 
participant in the system, we are better off with them under 
those rules. There is absolutely no doubt in my mind.
    Mr. Meeks. So to anybody then, what do we do? You know, the 
realities of the global marketplace, we made certain trade 
commitments that we are not going to undo, but what can we do 
when a trading partner is acting in a manner that is 
unfavorable to American interests? What should we do? I mean, 
you heard my comments earlier about what is taking place in 
Ecuador and Chevron, and, you know, you just have some people 
that they are not going to--what should we do in those 
instances?
    Mr. Aldonas. I think Ecuador is an interesting example 
because we do have leverage in the fact that they are a part of 
the ATPA process, whether or not, given what they have done 
with expropriation, and given the violations they have 
committed of the Bilateral Investment Treaty, particularly with 
respect to Chevron, whether they should be entitled to those 
tariff preferences, is a serious question. My own instinct, 
that is an opportunity where you do retaliate because they are 
flatly flouting the rules of the Bilateral Investment Treaty 
and investment is one measure that we are supposed to be taking 
into account when we think about the preferences we offer.
    More broadly, you have to be thinking about whether you can 
help Peru with an FTA, as you have done, outcompete Ecuador 
because the answer at the end of the day, even with China, is, 
can you build a better model that starts to outcompete them for 
capital and for investment? And so my instinct, even in the 
Western hemisphere is, as Derek was saying more broadly, let us 
find a way to get back in touch with the people that are 
committed to free trade. Let us build that.
    It may not include Brazil or Argentina right off the bat, 
it certainly won't include Venezuela and Ecuador, but if we get 
started in terms of that and connecting into Asia, we are in a 
far better position to say that Correa and the other 
politicians in Ecuador are going to have to listen and start to 
move in the direction we want. So in the medium and short run, 
use the enforcement tools, longer run, we create a better 
mousetrap.
    Mr. Scissors. I just have a quick thing to add, because we 
all seem to be agreeing with each other on this, but 
documentation is really important here. We have this kind of 
knee-jerk reaction, they are doing something wrong, but you 
can't fix every trade problem. We are not going to fix every 
trade problem in China. We are not going to fix every trade 
problem in the United States. So what are the big ones? And we 
really need to be able to document that in comparison, where do 
we put our eggs? I think Ecuador is a good candidate, but I 
really want to see, what are they costing U.S. businesses, U.S. 
workers, with their action, as compared to other actions we 
have to go after?
    There has to be a set of priorities here; otherwise, we 
just degenerate down into a knee-jerk reaction to everything, 
and I don't mean to imply that is the case in Ecuador, I am 
just saying, when you want to know what can we do with trade 
partners, the first thing I want to know is, how bad is it 
really? Because I am not going to solve all the problems. Is 
this a problem I really need to solve? Do I have to bring out 
sticks and carrots for this one or can I really just say, I got 
to move on to something else?
    Mr. Meeks. Mr. Hirschmann?
    Mr. Hirschmann. I just want to add one point on Ecuador, 
and Venezuela for that matter, you know, expropriations are 
exceedingly negative in that they impact more clearer than 
anything else in the investment climate in a country, even 
worse, if that is possible, is when expropriations are carried 
out without any process whatsoever. And Ecuador and Venezuela 
have gone even one step further by not even recognizing the 
international agreements they have reached or binding 
international arbitration. So I think, you know, there is 
almost a three-part test there. The other thing I would add is, 
when all those things are happening, it is also symptomatic of 
larger violations of rule of law across the board that severely 
impact the citizens of those countries, so those would argue 
for a tougher approach.
    Mr. Meeks. So, I mean, we are sitting here today and we are 
doing this hearing, and I think part of the purpose of the 
hearing is, Congress is frustrated. We don't want, as you heard 
in my opening statements, the loss of revenue that takes place 
in my little state called New York, but we are trying to get, 
and I am trying to find out, what affirmative action should we 
take? Some say end the preferences agreement. Is that the right 
thing to do or is it not the right thing? What is the line when 
you cross that line that you are talking about, when it is more 
serious than others, you know, or something that we can remedy?
    You know, that is what we are trying to determine. I think 
we have to determine it as legislators, and I don't have any 
more time, but just saying that those are the kinds of 
questions that we have, or I have, and I would love to know 
what you think in that regards because I don't want to cut off 
our nose despite our face.
    Mr. Aldonas. I love the direction of the question, 
Congressman Meeks, because the reality is, there is a lot of 
things that we have, whether it is Section 337 on intellectual 
property, whether it is customs enforcement, which could be 
better. They don't do anything on their own motion. They have 
to wait for somebody to petition, even though they got a ruling 
from the ITC that should ban the intellectual property 
violations. There is all sorts of things we should be cleaning 
up that are specific to the tools we could use ourselves on 
enforcement of things like IP.
    With expropriation, since the investment is there, the 
question is, how are you going to try and discipline that 
process more broadly? And frankly, that really depends on what 
kind of incentives we create for investment elsewhere.
    Chairman Ros-Lehtinen. Thank you so much. Thank you, Mr. 
Meeks. Thank you to the panelists. Mr. Turner of that little 
state of New York is recognized.
    Mr. Turner. Thank you, Madam Chair. I want to relate a 
personal experience I have had. About 20 years ago I worked for 
a Hollywood studio and I traveled to Moscow to secure an 
agreement for the home video rights for a new movie that we 
expected to do very well there called Red Heat. I don't know if 
you remember it, Arnold Schwarzenegger, it was a good movie. I 
was there about a day and walked into the subway station by 
Lubyanka, the famous prison, and there were boxes of Red Heat, 
the Cyrillic alphabet around our graphics and artwork. I bought 
one, copy was absolutely terrific.
    This would bespeak that, they had ties, this was pre-
release, into Hollywood to get the artwork and all the other 
things they needed. This would be a vast criminal network. The 
income on this had to be tremendous. That was a long time ago. 
And if anything, I am sure they have gotten a lot better. There 
have been a number of regime changes in Russia, but these guys 
are still working and working well. Also, I think there is 
evidence that they are taking American properties, copying it, 
and then sending it back to us in the black market.
    Are we aware of this as a criminal enterprise and what 
steps are we taking that you know of or should we be taking? 
And I direct this, you mentioned this, Mr. Hirschmann, so if 
you would like to lead on that and I would like all your 
opinion's if you would. Thank you.
    Mr. Hirschmann. I recently met with a young woman who is a 
film editor out in Hollywood and I asked her why she wasn't 
working. She said, well, I have been working for a film that 
was filmed in China by a Chinese filmmaking company and 
employed thousands of Chinese to make it, and I was helping 
edit it here in Hollywood, and by the time we got done editing 
it, it had been distributed so many times counterfeit in China 
that there was no longer a market in China for their own movie. 
And so there are countless examples of that across the world.
    You know, one thing to remember is that, increasingly, 
people who distribute counterfeit products, whether it is 
physical products or movies and videos, are using the Internet 
to do that. The Internet is a vibrant distribution network for 
all kinds of products and we need to be very careful to 
preserve the innovative properties of the Internet and continue 
to encourage innovation there. But at the same time we have to 
recognize that it is also being used by a few to distribute 
products in that way. So I think one thing we can do is to 
begin to work with the world to find reasonable pro-Internet 
freedom, but still rule-of-law approaches to address the 
distribution on the Internet of counterfeit goods and stolen 
digital properties.
    Mr. Turner. Do we know if these criminal enterprises are ad 
hoc or is there a continuing thread in this?
    Mr. Hirschmann. In most case they are not ad hoc. They are 
very sophisticated networks operating, usually not in one 
country, but in multiple countries. You might find the servers 
in one country and the business, the place where they take the 
credit card orders, in another country, so it really requires a 
global approach to addressing that problem. And this are every 
bit the sophisticated, organized criminal networks that their 
predecessors were that we dealt with effectively here in the 
United States.
    Mr. Scissors. Just something that is indirectly, but I 
think important in its relevance, there is a bill in front of, 
well, I am not sure of its status, there is a bill in the House 
on economic espionage, which is a criminal activity and goes at 
IPR the same way as you are talking about. It involves large 
criminal enterprises, and the bill has to do with penalties, 
and there are possibilities. There are lines of attack that 
work. As David just said, these are global enterprises, which 
means it is not the case that if we pass a penalty in the U.S. 
we will never see these guys because they are safe in some 
country that we can't get access to. They are not in one 
country. They are in lots of countries.
    They like to travel. They like to portray themselves as 
legitimate multi-nationals. Globalization gives us ways to put 
pressure on them just like it gives them more access to us. So 
I do think, in thinking about economic espionage, which is more 
my area of expertise in this matter, that there are ways that 
the U.S. can change its laws, not to solve the problem, but to 
exert more pressure on these companies and make it more 
difficult for them to be very organized, and very large, and 
very profitable.
    Mr. Aldonas. If I could, I think you are absolutely right 
to treat it as a criminal enterprise and what that implies is 
that there are tools available. The individual theft becomes a 
predicate offense for a RICO charge and that becomes a criminal 
enforcement matter and we can turn to INTERPOL to help us 
enforce it, but we don't do that now, all right? I mean, the 
sad fact is, is that, even with the way we have thought about 
access to our securities markets, the U.K. securities market, 
they are a large enterprise that benefit from making profits of 
these illegal activities, and we don't do an awful lot to 
enforce disclosure under those circumstances. Specific 
conditions that said we are going to force disclosure of this, 
the sunshine would help. It really would.
    Chairman Ros-Lehtinen. Thank you so much. Thank you, Mr. 
Turner.
    Mr. Aldonas. Thank you.
    Chairman Ros-Lehtinen. Mr. Sires of New Jersey is 
recognized.
    Mr. Sires. Thank you, Chairperson. You know, I would like 
to share a story with you that happened to me and really opened 
up my eyes. I was having lunch here at the Members' restaurant 
and they happen to have catfish that day. I don't eat a lot of 
catfish, but I ate the catfish. You know, I took some catfish, 
I went to the table, and the ranking member of the Agriculture 
Committee, as I am eating the catfish, says to me, ``You know, 
we had to put some language in the Agriculture Committee bill 
because most of the catfish is imported in this country now, 
that is consumed here, and actually, in Vietnam, they grow the 
catfish right next to the sewage outflow.''
    So needless to say, I haven't eaten any catfish since, but, 
you know, that goes to the question that the American people 
don't know what is coming in. I mean, I was like, oh, my God. 
Then we have the other issue--and then, of course, obviously 
that industry is being destroyed in Alabama, where we have a 
legitimate catfish industry, because, obviously, it is a lot 
cheaper to raise the catfish in Vietnam than it is in Alabama. 
But, you know, the other question that I have also is, you 
know, with the development of the solar panels.
    You know, we develop the solar panels, you know, I guess we 
help China, whatever, they stole it, you know, the way of 
making it, then they come here and they dump all these solar 
panels in this country and it basically destroys our industry. 
I mean, we have got to find a way of dealing with these things 
because they are costing us a great deal of jobs in this 
country. And when I say that I agree with some of the comments 
by Dana Rohrabacher, we have to get a little tougher, you know, 
with some of these things. And I don't think the American 
people really know, sometimes, what comes in and what we 
consume. We are just not that well informed.
    I mean, I watch it and I am here listening to everything 
that goes on here in this country all day long. So I was just 
wondering if you have a comment about that.
    Mr. Aldonas. Yes, I do. So I think Congressman Meeks would 
testify, I am a free trader, and what I would tell you is 
that----
    Mr. Sires. Don't eat the catfish.
    Mr. Aldonas. Yes, I would. There is no consumer benefit, 
which is what free trade is about, to allowing unsafe products 
into our country, and it does mean doing what governments 
should do. That is not a debate about whether this, as a 
government function, should do, which is to protect our 
consumers. And that is not in opposition to the idea of free 
trade. So if that catfish is a health problem, of course we 
should be focusing on it. We want to participate and get the 
benefits of the global economy, but only to the extent it is 
serving our consumers. So you instincts are right and I just 
want to reassure you, it is not a protectionist measure when 
you are doing that, that is free trade.
    Mr. Scissors. On Chinese solar, I think the opening topic 
of the committee is IPR. That is the key issue here. If the 
Chinese, on their own, develop better and cheaper solar panels, 
we should be able to buy them. I don't want to tell people they 
can't buy them. I don't want to tell people they can't expand 
solar power because it is too expensive. There is a cheaper 
solar panel over here, but you can't have it. I don't want to 
do that. If the Chinese stole the solar panel technology, now, 
that is a totally different story, and that is why information 
is crucial here.
    I mean, I don't mean to say anything about our solar panel 
companies, because we do some great work in this country in 
solar panels, I don't want a solar panel company to be able to 
come to Congress and say, they stole it. Just trust me. They 
steal lots of stuff. They stole that. I want evidence and I 
want a process by which we can take that evidence and say, here 
is the problem; here is what it costs us; here is our 
retaliation. So free trade says, if they are making better 
solar panels on their own, we want to be able to buy them. IPR 
protection, what we are talking about here, says, if they are 
stealing it, we need to document that and we need to take the 
action that is appropriate to what they have done.
    Mr. Sires. But what happens when they dump in the market, 
you know, to purposely hurt another industry in another 
country?
    Mr. Scissors. Well, I mean, dumping is a separate issue 
from IPR. That is a perfectly legitimate issue. The Chinese are 
very likely to be dumping because they originally grew up 
selling to Europe and Europe doesn't have the money anymore, so 
they are very likely dumping solar panels, or have been at 
certain times, then the Congress has a choice to make. Cheaper 
products have a benefit for the clean energy industry in this 
country; they do, but there is a tradeoff. And we have means to 
decide, we don't like the dumping, we are going to measure the 
dumping, and take retaliation appropriately, but there is a 
cost and a benefit there when they are doing it legitimately.
    The great thing about this hearing is, if they steal the 
IPR, that is just theft. It is a clear-cut case. When we get 
into dumping you have to decide, do I want the cheap product or 
do I want to punish them for dumping?
    Mr. Sires. Mr. Hirschmann, do you have a----
    Mr. Aldonas. Just to add further on the dumping side. I 
used to have to administer that part of the Commerce Department 
and it is another one of those areas where the tools that we 
have are not adequate to the global economy in which we 
operate. The reality is, you know, going to Derek's good point, 
I don't want to prevent cheaper products where somebody is 
competing on the basis of their own innovation from coming to 
the country, but I do think it is time to reconsider what we do 
with the dumping laws and it may be time to consider whether or 
not a private right of action makes more sense than asking the 
Commerce Department to investigate it.
    In other words, put a tool in the hand of the company that 
is most affected, put them in a position where they have to 
provide the evidence that Derek suggests, but also allow them 
to be able to go after the company that is penalizing their 
potential and find a way so they have direct recourse rather 
than a tariff, which sort of damages our economy. It doesn't 
actually have that much of an impact on the dumping company. 
But I think it might be time to rethink how we approach that 
issue.
    Chairman Ros-Lehtinen. Thank you. Thank you so much, Mr. 
Sires.
    Mr. Sires. Thank you.
    Chairman Ros-Lehtinen. Have you seen that show, Hillbilly 
Catfishing? I don't think you want to eat it from the United 
States either. Mr. Marino of Pennsylvania is recognized.
    Mr. Marino. Thank you. Thank you, Madam Chair. That is why 
I am a meat-and-potatoes guy. My professor in undergraduate 
work told me a long time ago to watch the sleeping bear; China. 
And he predicted with a great deal of accuracy where we are at 
today concerning China. And if we believe that private industry 
in China, which is an oxymoron in and of itself, will have any 
effect on IP theft, I think we are truly kidding ourselves. 
China is a dictatorship. It is a brutal regime that will not 
change its basic ideology. Nevertheless, China wraps its arms 
around capitalism, which I think, to a certain extent, we are 
responsible for because they are getting rich, in part, because 
of capitalism.
    And the Chinese Government has absolute control over 
everything. I have spent my life in college, and graduate work 
in law school, and up until this point of studying China pretty 
significantly, and it reacts on a day-to-day basis. I don't 
think China is concerned with long-term future. And as far as 
Russia, Russia already is very much aware of our lack, the 
U.S.'s lack, of a response to China's IP theft. Russia is just 
waiting. I just visited Russia a short period ago. They are 
very concerned and want to get into WTO. It is the ultimate for 
them. But watch what happens when Russia does get into the WTO, 
it will step up its intellectual property theft to the levels 
of China.
    So with that little dissertation, and we will start with 
Mr. Hirschmann, and then anyone else who has a comment, please 
chime in, because I have a couple of questions, what is the 
reality? What are the facts, the bare-bone facts, if the U.S. 
simply says to China, within 6 months, if you do not change 
your policies of flooding the market, stealing our intellectual 
property, products coming in this country will substantially 
curtail, if not stop?
    Mr. Hirschmann. I don't think we, you know, as Grant 
Aldonas pointed out, you have to balance our desire to make 
progress in China with also making sure that, where we benefit 
from the relationship from China, we don't shoot ourselves in 
the foot, and simply denying consumers products from China, or 
starting a trade war with China, while, you know, it would 
certain escalate the confrontation with China, but I don't 
think it would be a swifter path to solving the problem. I wish 
there was a simple solution and I can see why that is tempting, 
and I don't think that simply waiting for indigenous businesses 
in China to rise up is the answer, but it is part of the 
answer, because China is not monolithic.
    It is also true that we can do a better job of closing off 
markets to counterfeit Chinese products. We can also join with 
the rest of the world. The one thing I do know is, they are not 
likely to listen just to us. And too often, to be candid, other 
issues in the U.S.-Chinese, or in the European-Chinese, 
relationship end up trumping these issues. If we are going to 
make progress on these issues we have to be united and put them 
at the high up top of the list.
    Mr. Marino. Doctor?
    Mr. Scissors. If you were to do that in the short term it 
would be much more harmful than it needs to be. There are a lot 
of corporate supply chains that run through our allies, our 
companies, their companies, and then also China. And a short-
term adjustment like that is going to be very difficult. I am, 
you know, going to caution, there are a lot of gains from--we 
just had a Chinese State entity today buying GM pension assets. 
It helps GM, but might save the U.S. Government some money. 
There are a lot of gains in this relationship. If you were 
going to go the route of saying enough is enough, we have a new 
Chinese Government coming in this fall, you tell them, look, 
the last government was a disaster, we are not putting up with 
10 more years of this.
    Give them a time period. Don't say 6 months, it is not fast 
enough for them, it is not fast enough for us. Give them a time 
period, give everybody warning, if you are going to go the 
retaliation route and say, new government, you get to change 
gears, we are not accepting another 10 years of statism, that 
would be a more responsible retaliation route because it is us, 
it is our allies, it is our companies, we are all involved in 
this process.
    Mr. Marino. Thank you. Sir.
    Mr. Aldonas. You know, I guess what I would say is that, we 
have this disturbing tendency, I know I do, to assume that 
China is monolithic and that there is no politics going on over 
there, but China has gone through a generational shift. The 
folks who have been in charge for 10 years are the people who 
kept their heads down and made their way through the Cultural 
Revolution. The people who are coming now brought you the 
Cultural Revolution and there are two different factions that 
draw very different conclusions from that experience.
    One part of that generation desperately doesn't want to go 
back, another part wants to embrace that reality and reinforce 
it. And I think our job is to be sophisticated enough to bring 
pressure to bear on them where we can influence their 
decisions, but actually to create the political space for that 
reform movement to move in the direction they know they have 
to. They know they are living with a 4000-year-old system of 
Guanxi rather than a rule of law. They have to make a 
transition. They know they have to make that transition and 
employ that 650 million people that are west of Shiyan with 
nothing but a handheld hoe.
    Mr. Marino. Okay.
    Mr. Aldonas. But I think we have to provide the incentive 
for them at the same time we are providing a stick to the other 
side to say, that is not going to work and it makes me start 
thinking about, what is the biggest ticket item you could use 
to send a signal that the relationship has to change? It 
doesn't necessarily have to be across-the-board tariffs on 
imports, but we do have to send a signal that enough is enough.
    Mr. Marino. Thank you.
    Chairman Ros-Lehtinen. Thank you, Mr. Marino. And we will 
conclude with Ms. Bass, the ranking member on the Subcommittee 
on Africa, Global Health, and Human Rights. You are recognized.
    Ms. Bass. Thank you, Madam Chair, and I want to thank the 
gentlemen who have given us testimony for you expertise today 
and congratulations to your grandmother. You are very blessed 
to still have her in your life. You know, this is a very 
important issue for my district. We have spoken a lot about 
Hollywood. I actually represent Hollywood, Culver City, a lot 
of the entertainment industry, a number of studios, and also 
the music industry, and I just, in listening to you, wanted to 
know if any one of you could provide me some specific examples 
so I can understand a little better. For example, I think I 
have heard several things. I think I have heard that there is a 
need for--well, that we could do better.
    For example, we don't necessarily have the tools, then I 
believe I have heard we actually have the tools, but they are 
not necessarily enforced. I was wondering, is it a question of 
resources? Is it political will? What is missing? Because it 
seems as though you have described that the parts are there, 
but for whatever reason, we have not put it all together and 
have actually enforced, or used the tools, when we could, and 
maybe you could give me some examples.
    Mr. Scissors. I will go first because I am short. What is 
missing is focus. We need to decide what our priority is. I 
said this in my opening statement, you can't go to the Chinese 
with eight vague demands. It is not going to work. They don't 
want to cooperate and you are giving them an opportunity not 
to. So the hardest thing for Congress to do is to not pressure 
the administration that at the next meeting, at the next 
Presidential Summit, I want you to bring up my issue, and I 
want you to bring up mine, and mine, and mine, and mine, and 
mine.
    Ms. Bass. Right.
    Mr. Scissors. There has to be some sort of decision about, 
this is the big thing. IPR would be a very tough one, but it 
would be a justified one. So the number one thing I would 
suggest is, there has to be some sort of consensus on, this is 
where we draw the line and, you know, the relationship isn't 
going to be perfect, but this needs to improve.
    Ms. Bass. Do you have opinions about what that priority 
should be?
    Mr. Scissors. Yes, and my opinion is that, until you get 
the Chinese to accept more competition within China, we can't 
make progress. Everything else is at a level below that. And 
right now, they were moving toward more competition, for about 
20 years, 25 years, this government, they have moved away and 
they need to move back. And everything else gets better if they 
do that and it gets worse if they don't. So that is where I 
would put it. I have a lot of specifics, but I don't want to 
take up all the time.
    Ms. Bass. Okay.
    Mr. Aldonas. We have a lot of debate about currency. The 
Chinese are actually getting worse on currency right now. They 
are actually driving the Renminbi down relative to the dollar 
because they are concerned about European markets at this 
point, but we shouldn't overlook the fact that the more 
powerful reason is actually the lack of competition in capital 
markets and the fact that you have, essentially, a system of 
indentured capital for Chinese savers. That is the real 
problem, right? And one of the answers is expanded market 
access.
    And when I think about Hollywood, my daughter is trying to 
be a comic out there, and when I talk with Kiki about, you 
know, these sorts of issues, and she asks me very similar 
questions, I say, look, you know, the irony is, is that, 
ensuring that there is broader market access for Hollywood 
studios in China so that the product gets there, that the cost 
is low, that the Chinese people have access to a legitimate 
product, which they now have the income to buy, is our best 
answer, and that is a very specific demand, and it is a 
positive one.
    It is not saying we are going to bash you. What I am saying 
is, let us go to the table and say, sorry, part of the answer 
on IP, particularly as it affects Hollywood, is you deny our 
studios the ability to market their product the way they can do 
it cost effectively and serve the consumer. So there are 
specific and, I think, positive ways to try and address the 
problem at the end of the day, but it starts, not only with 
focus, it actually starts with what the concept of the 
challenge is. And I think the real challenge we face is, we 
have a set of tools that, frankly, aren't geared toward the 
world we live in, and until we get there and we rethink all of 
the tools with that perspective in mind, China is the 
paradigmatic example, we probably won't make the progress we 
have to.
    Ms. Bass. Well, the example that Mr. Hirschmann mentioned 
about how the film was being counterfeited before it was even 
in the editing stages, I have heard that many, many times.
    Mr. Aldonas. Absolutely.
    Ms. Bass. And, I guess, if you do, and, you know, not right 
this minute, have legislative proposals, I would certainly be 
interested in knowing what they are.
    Mr. Hirschmann. Let me raise one to build on what Dr. 
Scissors and Grant Aldonas have said, which is, we recommend in 
our testimony that we strengthen the 301 process, which is the 
process at the United States Trade Representative's Office. You 
know, it has been a useful tool to do that report every year. 
USTR uses it to guide, but really, we need a process that has 
much clearer metrics, much clearer benchmarks, and that we can 
use to rally and focus the world's attention on specific 
problems and make real progress. So that is one area. And the 
second is, Congress can play a useful role in ensuring that the 
administration negotiates the strongest possible provisions on 
intellectual property in the Trans-Pacific Partnership 
Agreement.
    You know, China will be watching to see what we do there 
and if we don't continue to raise the bar when we do negotiate 
trade agreements, we will pay a price for that.
    Ms. Bass. Thank you very much.
    Chairman Ros-Lehtinen. Thank you, Ms. Bass. Mr. Royce, the 
chairman of the Subcommittee on Terrorism, Nonproliferation, 
and Trade. Thank you, Mr. Royce.
    Mr. Royce. Thank you, Madam Chair. The Chinese Government 
estimated its public procurement market at, I think, $110 
billion in 2009, but we have figures from our Department of 
Commerce report, Doing Business in China, that puts that actual 
figure in excess of $200 billion. We saw some figures from the 
European Chamber of Commerce, they report that their estimate, 
because of the way these companies work there, or are publicly 
owned, of the Chinese Government contracts, they put their 
estimate at over $1 trillion.
    So that is a lot of money. A lot of potential contracts out 
there for U.S. business, but only in theory, because in fact, 
that market is closed, largely, to us in the United States. But 
at the same time, Chinese entities continue to be awarded U.S. 
Government contracts despite not being a party to the WTO's 
general procurement agreement. That agreement among 40 major 
WTO member countries is intended to open up contracts to 
foreign competition, so they just won't sign it. To address 
this problem, I have introduced a bill with Mr. Connolly which 
prohibits Chinese-based companies from receiving U.S. 
Government contracts until China joins the GPA, which will then 
force them to open their market.
    And I was going to ask each of you, would this approach be 
a helpful incentive for China to join the GPA and would its 
joining help eliminate Chinese unfair trade practices against 
U.S. companies in the public contract market? The other aspect 
of this that is so troubling is just how much of China is, in 
fact, you know, big government in China as opposed to an 
evolution toward more market economy, but if I could have your 
views.
    Mr. Scissors. Unfortunately, I am going to have to say no. 
We have plenty of examples of the Chinese signing agreements 
and finding ways around them because of the extent of state 
intervention. They have a lot of options for how to do things.
    Mr. Royce. So your presumption is that they will just 
violate that rule and that we won't use the enforcement 
mechanisms under the WTO to compel them to?
    Mr. Scissors. My presumption is that, if you are talking 
about really opening the GPA market----
    Mr. Royce. Right.
    Mr. Scissors [continuing]. Government procurement market in 
China, not making improvements, because you can make 
improvements, I am not arguing that, but the big one, where we 
count all the SOEs and those very large numbers you are talking 
about, that is much more fundamental than signing another WTO.
    Mr. Royce. Yes, but how do you do that? I mean, I have 
given you one suggestion of a way in which we cut off their 
contracts here.
    Mr. Scissors. Their contracts here are minor, Congressman. 
That is not going to have an effect. You have set the stage 
perfectly.
    Mr. Royce. Right.
    Mr. Scissors. You can count this up to a $1 trillion.
    Mr. Royce. Right.
    Mr. Scissors. They are not making anything like a $1 
trillion here, so I mean, they are just going to weigh those 
two things and say, no, I don't think so. You know, you have to 
go at, if you want access to big things, which is pushing the 
state back, opening the market, which I completely agree with 
you, is the proper goal, you have to involve big things. And 
big things are, look, this is the nature of our relationship. 
We are not getting our comparative advantage and you are. We 
are going to start trading with other people more through the 
Trans-Pacific Partnership, through other kinds of deals like 
that, because the whole nature of the relationship needs to 
change.
    Mr. Royce. But I understand we have this dialog with them, 
but I have suggested a concrete act where we cutoff contracts, 
you are saying, that alone won't--then can you suggest 
something decisive? Because I am not certain dialog, as much 
dialog as we have had, is going to lead us to where we need to 
go. Is there decisive action we can take in terms of access to 
the U.S. market which would cause them to reconsider?
    Mr. Scissors. I know I am taking up all the time, I 
wouldn't use access to the U.S. market. A big, expanding, well-
done, TPP is the best lever on the Chinese.
    Mr. Royce. Let us go to----
    Mr. Aldonas. Yes, I don't disagree with Derek's point about 
a TPP and outcompeting them for investment capital is 
ultimately the answer in terms of what will sway people, it is 
creating the political space for a new generation that does 
want to move in the direction of reform, but I differ in the 
sense that I like your idea. We reach an agreement with certain 
countries to provide certain preferences under that, and the 
fact that countries like China benefit from that agreement and 
from an open procurement market while they don't open their 
procurement market, I feel perfectly comfortable as a matter of 
political economy as opposed to economics to say that we 
definitely should adopt that approach. I would go one step 
further.
    I would say that you also need rules within the GPA that 
reinforce things under TRIPS, so there ought to be a linkage 
between intellectual property violations and GPA that says, 
even if you are a member of the GPA, if your computers are 
running pirated Microsoft software, sorry, you don't get the 
benefits of the procurement code. And then what I would also 
say is that, I would be looking hard at the rules on state-
owned enterprises in the WTO, and any other agreement we reach, 
to make sure that similar sets of disciplines apply to the 
SOEs, because I think Derek's point is that, you know, GPA, 
government procurement, you have those definitional problems, 
but if you really accept the Chinese economy as it is, it is 
the state-owned enterprises that----
    Mr. Royce. Mr. Aldonas, we worked together some years ago 
when you were on the Senate Finance staff on AGOA. I would like 
to just ask if afterwards I could talk to you about your ideas 
on how to add that to the legislation.
    Mr. Aldonas. Sure. More than happy to do it.
    Mr. Royce. All right, very good.
    If I have time I will ask Mr. Hirschmannn for a response, 
if not, I yield back.
    Chairman Ros-Lehtinen. Go right ahead.
    Mr. Royce. Thank you.
    Mr. Hirschmannn. I think we would agree that China is very 
focused on what might emerge as competing markets for itself. 
So if we can surround China, while that may not be as swift an 
action, we have certainly--they are watching very carefully 
what happens in Vietnam and other countries in Southeast Asia, 
and they are losing market share in some areas to the--if we 
can raise the bar in the rest of Southeast Asia through strong 
TPP, I think we will make progress far faster than any other 
approach.
    Mr. Royce. Thank you, Mr. Hirschmannn. Thank you, Madam 
Chair.
    Chairman Ros-Lehtinen. Thank you, Mr. Royce. Pleased to 
yield for his questioning time to Mr. Sherman, the ranking 
member on the Royce committee, the Subcommittee on Terrorism, 
Nonproliferation, and Trade.
    Mr. Sherman. The Royce committee, the best.
    Washington and Wall Street have backed the trade policies 
over the last 20 years. We see the results. And we are told 
that if we just rearrange the deck chairs on the Titanic, we 
won't need to use the lifeboats. Well, this is simply absurd to 
have you gentlemen come to us and say, we gave MFN for China, 
we saw the result, so now we need more free trade agreements 
without fair trade, without balanced trade. But we are told we 
have got to get tough with China. How do we do that? More 
imports to the United States from more places that may or may 
not accept our exports. We are told that yes, we were in a 
$700-billion trade deficit, but that is because American 
workers are lazy or overpaid, not because Washington and Wall 
Street have adopted terrible policies in their own best 
interests and not in the interests of American working 
families.
    I will start with Mr. Aldonas. I know we are focused on 
movies and intellectual property. China limits the number of 
screens where American movies can appear. Have we had the guts 
to say there will only be 20 stores in America that sell 
Chinese apparel? I think that is a one word answer.
    Mr. Aldonas. No.
    Mr. Sherman. And this is because Wall Street makes money by 
selling that apparel here. Nothing prevents a man from 
understanding something so much that his livelihood depends 
upon him not understanding it, and nothing is clearer than that 
MFN for China and the host of so-called free trade agreements 
have destroyed the American dream.
    What would happen to the Chinese economy if we ended MFN 
for China?
    Doctor?
    Mr. Scissors. They would have a period of rather difficult 
adjustment so they would probably have about a 2-year slump, an 
outright slump. They would either make the adjustment to move 
toward more market economy, or they would subsidize goods to 
send then to other countries which would then ship to the U.S.
    Mr. Sherman. When I say MFN, I don't mean transshipment 
would be allowed. You are positing a world where we end MFN for 
China and so the Chinese goods come to the United States by way 
of Mexican ports? You are changing my hypothetical.
    Mr. Scissors. I know, but I am trying to indicate, sir, 
that your hypothetical doesn't involve just stopping MFN for 
China. It involves unraveling a large part of the world trading 
system.
    Mr. Sherman. No. It means that when goods come into our 
country we have to know their origin, we do that already. I 
assume that when something says made in China it is not made in 
North Korea. If you tell me that that is not the case then----
    Mr. Scissors. Well, sir, think about the supply chain. 
Think about the supply chain. Is a computer that was assembled 
in China, made in China?
    Mr. Sherman. A computer with over 51 percent value-added in 
China is majority value-added in China. A computer that is 21 
percent value-added in China is 21 percent. And if you impose a 
tariff on a good and you say it is 21 percent value-added in 
China, therefore it is subject to 21 percent of its value is 
subject to a tariff, then you have an endless sliding scale. 
You simply have to determine what percentage of the good was 
made in that country.
    Now you bring up sourcing rules, of course we now have 
sourcing rules that allow that we have a China free trade 
agreement already. We call it the South Korea Free Trade 
Agreement. Goods that are 60, 70 percent made in China get to 
come into our country duty free, no reverse access.
    Five minutes is simply not enough time to discuss how 
Washington and Wall Street have acted in their own interests 
and have been responsible for what we have seen over the last 
20 years, which is the destruction of the American dream. I 
yield back.
    Chairman Ros-Lehtinen. Thank you very much, Mr. Sherman. 
Thank you.
    Mr. Manzullo, the chairman of the Subcommittee on Asia and 
the Pacific, the Manzullo subcommittee.
    Mr. Manzullo. Thank you. Good to be here. Grant, good to 
see you, and I appreciate all the efforts that you have made to 
help out with the steel embargo. Steel tariffs were placed by 
the Bush administration and I fought those, and you were the 
portal in commerce that allowed us to get the specialty steel 
that kept thousands of American jobs. I just want to thank you 
publicly for that.
    Our committee held a hearing several months ago dealing 
with the piracy of intellectual property rights in China and 
one of the witnesses was a fellow by the name of Fellowes, F-E-
L-L-O-W-E-S, world renowned in the making of paper shredders. 
Their American facility is located in the suburbs of Chicago. 
Mr. Fellowes testified that he had a partnership with a Chinese 
entity and an investment of about $180 million. One day the 
American partners were locked out. The shop was closed. A 
lawsuit was filed by the so-called disgruntled customers who 
had ordered these shredders and could not get them, and then 
the Chinese courts entered judgment levied on the property, 
smoking Fellowes. This is another example of what happens with 
the piracy and the complicity of the Chinese courts.
    My question to the three of you is, in these cases where 
the Chinese courts are getting involved, do you see any 
indication at all with the exception of a few cases, of them 
doing anything to protect American property rights?
    Mr. Aldonas. No. I mean the problem, Congressman Manzullo, 
is that oftentimes in their legal process, the judge is looking 
over their shoulder at what the provincial governor wants. And 
if the provincial governor is someone like my former 
counterpart who just took the fall, they are trying to find a 
way to shift those assets that Mr. Fellowes had invested in 
into the hands of one of their colleagues in China. So no great 
surprise the judge is looking over their shoulder at the 
provincial governor and decides to disenfranchise the U.S. 
investor.
    Mr. Scissors. Unfortunately that is true. The judiciary is 
controlled by the Party, and the interesting thing, I guess, 
from an academic perspective is the local Party versus the 
central Party. The best option U.S. firms have, and this is not 
a good option, is to be able to go to the central Party 
leadership and say, the local judiciary is making a decision 
which will hurt China as a whole. That means the same 
government we have been rightly criticizing as not respecting 
IPR as a whole is the better option in the court cases. It is 
not a very appealing situation. But local judiciary as Grant 
said is responsible, but it is responsible to local officials. 
So they don't care about precedent. They just care about what 
is benefitting the local economy at that time. And when your 
better outcome is to go to Beijing, you are not in a very good 
situation.
    Mr. Hirschmannn. I think that is exactly right, and it is 
another example of why, both how complex it is to deal with 
China and why we need to understand that China is not 
monolithic. Even at the provincial level we have occasionally 
found people who understand the need to move forward. And so 
the only way I would amend what Dr. Scissors says, I think you 
have to push at both levels at the same time, and you have to 
also use the competition among the provinces to your advantage 
within China.
    Mr. Manzullo. One of the things that I have noticed is 
several years ago a local firm had made a bid on a waterworks 
improvement facility and the Chinese stole everything, the 
intellectual property, they even downloaded and stole their Web 
site. I asked the Chinese Ambassador to come into the office 
and he did, along with the DCM. We explained to them the 
situation, and the word got back that you don't do stuff like 
this, and there was a favorable ruling in the Chinese courts. 
If you asked the Chinese Ambassador to do that today, no one 
comes in. The relationship that Members of Congress now have 
with the Chinese is nothing as it was a few years ago. Does 
that indicate anything to any of you?
    Mr. Scissors. Yes, this government, the government that has 
been in charge since 2002 that is about to leave, thankfully, 
is a statist, aggressive government. And it is not the same 
government that presided over Chinese true reform period which 
ended about the time this government took over. So what it 
indicates is that you have the possibility of a better 
government in China and a worse government in China. As David 
has repeated, it is not a monolithic entity. We have a worse 
government now. We also have a new government coming in for 10 
years. It is coming in in the fall. I am not going to promise 
you they are better. That is a very difficult question. But 
that is an important question for Congress to get a handle on. 
You guys have front-line experience. Are the new people who are 
coming in more responsive? If they are not that is a piece of 
information because they are going to be in charge for 10 more 
years.
    Mr. Aldonas. And I can, actually, Congressman, is my most 
recent trip to China was to Hong Kong, and the surprising thing 
there was how many Chinese entrepreneurs were leaving. In other 
words, they are betting against their own country and sort of 
the strengthening in some respects of the position of the 
state-owned enterprises, the strengthening of this model of 
having the right political connection to get the right result 
in the Chinese court. And the next generation of Chinese 
leaders, there certainly are leaders in that next generation 
that understand that that is a much deeper threat to, what, 
even to the Party maintaining its position in Chinese society 
than the idea that you shouldn't engage in free trade. So 
ultimately things are changing. I am not sure they are changing 
in a positive way in the short term, but China is going to come 
very quickly to the point where it confronts the fact that the 
very things like private property, contract enforcement that 
allowed them to move from 1979 to the present day with that 
growth are going to come to a short stop. Because every step 
they are taking is eroding that set of underlying institutions 
that actually allow their economy to grow.
    Mr. Manzullo. Thank you.
    Chairman Ros-Lehtinen. Thank you very much, Mr. Manzullo.
    Mr. Connolly is recognized of Virginia. Thank you, sir.
    Mr. Connolly. I thank my friend the chairman, and I want to 
welcome our panel on being here.
    Last year I was on the congressional trip to the Silicon 
Valley and to Seattle where we visited Microsoft, and we 
actually had sort of a big seminar for the business community 
and it was talking about this very topic, intellectual property 
protection and infringement. And what stunned me was, we had a 
string of business representatives, every single one of them 
had his or her own story about blatant intellectual theft in 
China. There was a candy manufacturer where right down to the 
color picture packaging of the package of their products was 
outright stolen. Starbucks, whole and entire replications of 
Starbucks' coffee shops plunked down in Chinese markets, right 
down to the logo, the product looks exactly the same, entirely 
unrelated to Starbucks, stolen. Microsoft software, stolen. It 
was really an astounding presentation and what struck me was--
and I am going to elicit your reactions--what is the United 
States Government doing about this? I mean it is across the 
board. It is blatant. We are not talking about knock-offs in a 
certain part of town that we have got to kind of crack down on. 
This is not Itaewon in Seoul years ago.
    What is your honest assessment of the United States 
Government's enforcement, vigorous enforcement, what should it 
be, and what leverage do we have to try to make sure the 
Chinese come into the family of nations in terms of 
respectable, honest, predictable, reliable protection of 
intellectual property when the violations are so sweepingly 
blatant and across the board in terms of products?
    Mr. Aldonas. So I am tempted to use an analogy to the 
environment. There is this thing called a Kuznets curve where 
things get a lot dirtier before they get better, and it all 
depends on rising income. And so the irony in all this is that 
we are actually better off with the China that has the 
incentive to move in the right direction, because as incomes 
rise those consumers want to buy the right thing.
    I am charmed a little bit by your example because I had 
some negotiations at one point with the vice chairman, Madam Wu 
Yi. We literally walked out of those; I walked into a 
Starbucks, bought a Starbucks cup that said Beijing on it, 
walked outside and saw the replica on the street. And she was 
standing next to me and all I had to do was point out the 
obvious that we are now outside the street, here is the--so it 
is that deep, just as you suggest.
    But I think the answer honestly is to say, how do we appeal 
and create the political space for the folks who still do very 
much want to perform? They don't want their entrepreneurs to 
leave. They do want a China that can employ the 650 million 
people west of Shiyan. That really is the struggle. Because you 
have got to find things that target the people, the state-owned 
enterprises that are the negative element, and you also at the 
same time be sophisticated enough to say, let's provide an 
incentive for that other part of China from which we can both 
benefit from a mature relationship. That is not what we have 
now.
    Mr. Scissors. I am going to not disagree with Grant. I am 
going to compliment him in the sense of providing another 
angle. I was a business consultant for more than a decade on 
China, and one of my clients would ask me, how do I keep the 
Chinese from stealing my intellectual property? I said, don't 
deal with the Chinese. That is the only answer. Well, I have 
to; they are such a huge, wonderful market. Okay, well, then 
you are making the decision.
    And I want American companies to be able to make that 
decision. I mean Qualcomm is a great American company that has 
been able to protect its intellectual property through very 
hard work in China, so it can be done. But the real response 
from the government is to create relationships that are better 
than the relationship that we have with China. And we keep 
bringing that up again and again and again, but if American 
companies look at other American trade partners and say, wow, 
we can really do good work in Indonesia, say, or in Brazil, 
then the Chinese are going to have to change and we don't have 
to fight over the details because they will just lose all this 
business.
    The reason people get their stuff stolen in China is 
because they are in China and someone says, oh, I want to copy 
that and take their market share. The best way, the 
unanswerable way, the thing the Chinese can't do anything about 
is if companies say, I like my business opportunities better 
elsewhere, and the U.S. Government can help with that.
    Mr. Hirschmannn. There is an even more recent news story 
about an Apple store in China where the employees didn't 
realize they actually weren't Apple employees because they wore 
the t-shirts and thought they were going to work for Apple 
every day.
    These are highly sophisticated thefts. It is not fly-by-
night. It is not your grandfather's counterfeiting and piracy, 
and I wish there was a simple answer but there simply isn't. It 
is an all of the above approach to dealing with the problem. We 
have to deny them markets for those products. We need to 
organize a global response. And we need to realize that what 
many companies do is not just stay out of the Chinese market 
but they withhold from the Chinese market their most innovative 
products. And ultimately China will want to attract that as 
well.
    Mr. Aldonas. Just one final comment really, to pick up on 
what Derek was saying. We have an opportunity with the 
Transpacific Partnership, and it is going to be a challenge for 
Members of Congress because we are going to be negotiating with 
Vietnam. But I will say, the single most important reaction 
that I have seen out of the Chinese Government is when Intel 
decided to put a plant in Vietnam rather than in China. And to 
the extent we can use the TPP process to encourage Vietnam with 
its historic relationship with China to make choices that China 
has yet to make, and they do start to outcompete the Chinese 
for capital because the reality is Vietnam has become the new 
south coast of China. The go-West policy of the Chinese 
Government hasn't worked. The more you see of that the more 
responsive they have to become because they have to deal with 
the economic reality of trying to continue to attract that 
investment flow. And that will come to an end if there is a 
better option.
    Chairman Ros-Lehtinen. Thank you very much, Mr. Connolly.
    Mr. Connolly. Thank you.
    Chairman Ros-Lehtinen. Excellent answers. Thank you, 
gentlemen.
    Mr. Kelly, my friend, vice chair of the Subcommittee on 
Asia and the Pacific, is recognized.
    Mr. Kelly. Thank you, Madam Chairman.
    Mr. Scissors, in your testimony you suggest about a grab 
bag approach that the administration has as opposed to being 
very specific to make sure that we get more production out of 
it. What can we do to push that initiative?
    Mr. Scissors. Well, the first thing, I hate to put it this 
way because I am going to make myself really unpopular, is 
Members of Congress have to not start pushing their own 
agendas, right. I mean one of the things that people in the 
administration complain about is that they feel like there are 
10 members with 10 different things they want to accomplish. So 
whatever Congress decides. If Congress decides it is IPR, then 
IPR. If Congress decides as I would it is subsidies, Congress 
can decide whatever it wants. But there has to be more of a 
unified voice. The administration ends up, different 
departments respond to different members and then we go with 
this long laundry list. IPR is a great choice. And what you get 
is some sort of sense of the Congress, either legislatively or 
resolution or even just private communication from the 
leadership saying, look, you have 2 years. We want you to focus 
on IPR for the next couple years. That would really put the 
administration, whichever administration, Republican or 
Democrat, on the hook that the Congress is united. When the 
Congress isn't united you get the tendencies within 
adninistrations for Treasury to want one thing and Commerce 
wants another thing and State wants another thing, and it is a 
lost cause. So I would pick subsidies, Chinese subsidies. 
Somebody else might pick IPR. Congress passing legislation just 
encouraging the administration. All they need to do is signal. 
That is the first step.
    Mr. Kelly. All right. And I understand what you are saying. 
And I would say that it is probably not, there is 435 agendas, 
and certainly during a year of reelection that it becomes even 
more intense. So the idea for me has never been who is the most 
popular, who is the most productive, so we have got to start 
looking at that because, I think, as we become more productive 
as a body our popularity will rise with it. The opportunities 
though, when we look at the TPP, tell me, how can KORUS serve 
as a good model for TPP, especially when it comes to IPRs? Any 
of you can answer. In fact, all of you can answer. We struggled 
with that agreement for so long, and we waited too long, in my 
opinion, to get there, and it caused a great deal of problem 
internally with the republic. It caused a shift actually in 
some of the government there.
    Mr. Aldonas. I agree with you completely about both the 
delay. It serves as sort of the baseline. But I am troubled by 
this idea that we are bragging in the TPP about negotiating a 
21st century agreement. It is literally true, we are in the 
21st century, right, it is not wrong to say it is a 21st 
century agreement. But think about what we are saying. You can 
either take an incremental approach based on KORUS, or you 
could say our entire economy has shifted onto a different 
basis, industrial organization has been changed fundamentally 
by globalization. We need to reenvision what our goals have to 
be in that context.
    What I would say is, it is time that we actually 
articulated in TPP the notion of free trade and ideas. What are 
the institutional settings that would allow not only to develop 
technology, make use of it, make a profit at it, but encourage 
diffusion, particularly in the poorest countries in the world? 
That ought to be our goal. In other words, it is reimagining 
what we should be doing. It is not content with just saying, 
well, we have TRIPS, let us make an incremental change there 
because we have seen a particular problem in this country or 
that country. Of course that is part of the way the negotiation 
works, but the much more fundamental shift we have to say is 
where is the global economy going, where our economy is going. 
If growth depends on innovation what do we have to negotiate, 
and it is free trade and ideas ultimately.
    Mr. Kelly. Any other witnesses?
    Mr. Hirschmannn. The reason we keep pointing to the Korea 
Free Trade Agreement is because it is the highest level 
protection that we have achieved internationally. I keep 
remembering that when the NAFTA was negotiated, the word 
``Internet'' was not part of the agreement. The world does 
evolve. And the purpose of the next agreement is to build upon 
that. So what Congress can do is make sure that it is united in 
asking the administration to build upon the model in Korea and 
to seek stronger protections that aren't just in our interests 
but really are in all the TPP partners' interest to protect 
intellectual property.
    Mr. Scissors. And just to add to that. If Korea, that is a 
great issue for Congress to coalesce around. We passed the 
KORUS. It has good IPR standards. Congress can build upon that 
and encourage the TPP process that way. In response to your 
first question, What can Congress do?, that is a great avenue 
for Congress to follow.
    Mr. Kelly. I thank you all for being here today. And I 
think the opportunity is so great that for us now to be 
debating things that really don't add to the ability to create 
jobs and take advantage of a market that is out there for us, I 
don't want to participate in it from this country. I want to 
make sure we dominate in it. So I think that should be our goal 
always, and as we go forward that would be my goal and I think 
all the goals of the members I serve with here. I don't know of 
anybody that doesn't want to see our country retain its status 
and go forward.
    And so with that I yield back. Thank you, Madam Chairman.
    Chairman Ros-Lehtinen. Amen. Thank you so much, Mr. Kelly. 
Thank you to all of the members for excellent questions, but 
most especially, thank you, our panelists, for good solid 
recommendations and suggestions about what we can do working 
together with private businesses to level the playing field and 
do away with these unfair trade practices. So thank you very 
much for being here, and the committee is now adjourned.
    [Whereupon, at 12:04 p.m., the committee was adjourned.]
                                     

                                     

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