[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
CHINA'S COMPLIANCE WITH THE WORLD TRADE ORGANIZATION AND INTERNATIONAL 
                              TRADE RULES 

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

                                HEARING

                               before the

              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 15, 2014

                               __________

 Printed for the use of the Congressional-Executive Commission on China

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


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                          Washington, DC 20402-0001



              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    LEGISLATIVE BRANCH COMMISSIONERS

Senate

                                     House

SHERROD BROWN, Ohio, Chairman        CHRIS SMITH, New Jersey, 
MAX BAUCUS, Montana                  Cochairman
CARL LEVIN, Michigan                 FRANK WOLF, Virginia
DIANNE FEINSTEIN, California         ROBERT PITTENGER, North Carolina
JEFF MERKLEY, Oregon                 MARK MEADOWS, North Carolina
                                     TIM WALZ, Minnesota

                     EXECUTIVE BRANCH COMMISSIONERS

              NISHA DESAI BISWAL, U.S. Department of State

                    Lawrence T. Liu, Staff Director

                 Paul B. Protic, Deputy Staff Director

                                  (ii)


                             C O N T E N T S

                              ----------                              

                               Statements

                                                                   Page
Opening Statement of Hon. Sherrod Brown, a U.S. Senator from 
  Ohio; Chairman, Congressional-Executive Commission on China....     1
Walz, Hon. Timothy, a U.S. Representative from Minnesota; Member, 
  Congressional-Executive Commission on China....................     3
Meadows, Hon. Mark, a U.S. Representative from North Carolina; 
  Member, Congressional-Executive Commission on China............     3
Sherman, Hon. Brad, a U.S. Representative from California........     4
Horn, David, Executive Vice President and General Counsel, AK 
  Steel Holdings Corporation.....................................     5
Drake, Elizabeth, Partner, Stewart and Stewart...................     7
Lee, Thea Mei, Deputy Chief of Staff, American Federation of 
  Labor and Congress of Industrial Organizations.................     9
Webster, Timothy, Assistant Professor of Law, Director, East 
  Asian Legal Studies, Case Western Reserve University School of 
  Law............................................................    11

                                APPENDIX
                          Prepared Statements

Horn, David......................................................    34
Drake, Elizabeth J...............................................    40
Lee, Thea Mei....................................................    48
Webster, Timothy.................................................    52

Brown, Hon. Sherrod..............................................    54
Smith, Christopher...............................................    55
Levin, Carl, a U.S. Senator from Michigan; Member, Congressional-
  Executive Commission on China..................................    56


                   CHINA'S COMPLIANCE WITH THE WORLD

            TRADE ORGANIZATION AND INTERNATIONAL TRADE RULES

                              ----------                              


                      WEDNESDAY, JANUARY 15, 2014

                            Congressional-Executive
                                       Commission on China,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:04 
a.m., in Room 538, Dirksen Senate Office Building, Hon. Sherrod 
Brown, Chairman, presiding.
    Also Present: Senator Jeff Merkley and Representatives Mark 
Meadows, Tim Walz, and Brad Sherman.

 OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM 
  OHIO; CHAIRMAN, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Chairman Brown. We will begin. I know that Ms. Lee will be 
here, because she has always been reliable in the past. But we 
will get started and I will begin with an opening statement and 
then call on the three House Members who have been leaders on 
these China issues, some for many years and others more 
recently, and thanks for their efforts here and their interest 
in this Commission.
    I would like to welcome everyone to this hearing on 
``China's Compliance With the World Trade Organization's 
International Trade Rules.''
    I am calling on China to fully comply with WTO commitments 
and fully and faithfully implement all of the WTO rulings 
against it.
    This Commission believes we have a special obligation, from 
its creation after China PNTR [permanent normal trade 
relations] more than a decade ago, a special obligation to 
monitor China's WTO compliance by adhering to a rules-based 
system to which they committed a decade-and-a-half ago.
    With clear obligations, China can take its role in 
supporting the global economic system, a system based upon 
transparency, respect for property rights, and adherence to the 
rule of law.
    We admire China's rich history. These hearings in this 
Commission help us appreciate the difficult and complex 
challenges in a country so large and so complex, that is 
growing so fast. We support the aspirations of the Chinese 
people to make their country a safer and a cleaner and a more 
prosperous nation in the family of nations.
    We believe that fair trade policies and promotion of the 
rule of law in China will not only benefit this nation, but 
will also benefit the Chinese people and them as a nation, 
also.
    Last week, I applauded the announcement that Fuyao Glass 
Industry Group, a Chinese producer of auto safety glass, will 
redevelop and hire some--they are saying 800 jobs in the former 
General Motors plant just up the road from Mr. Horn's home and 
near Dayton, Ohio.
    It is a great example of how fair trade can benefit both 
sides by giving a Chinese company access to a highly skilled 
workforce and, as I say, creating several hundred jobs in Ohio.
    But to truly have a fair trading relationship that benefits 
both sides, there needs to be a more level playing field. The 
Chinese Government must do more to abide by its WTO 
commitments, protect the rights of workers, and support a clean 
environment.
    The United States Trade Representative [USTR], 
unfortunately, could not send a representative here today. They 
released their 2013 report to Congress on China's WTO 
compliance. Though it acknowledges some areas of improvement, 
it paints a sobering picture of Chinese efforts to intervene in 
the economy and to unfairly help Chinese businesses, despite 
WTO commitments not to do so.
    For example, China still has not agreed to the WTO 
Government Procurement Agreement. By not doing so, our 
businesses miss out on the opportunity to compete potentially 
for $100 billion in government contracts every year.
    China has agreed to submit another offer this year, but 
progress has been frustratingly slow.
    Another issue USTR noted in its report is China's 
imposition of duties in retaliation for countries bringing WTO 
cases against them.
    In one of those cases involving grain-oriented electrical 
steel, China not only lost in the WTO challenge, but now 
appears not to be complying with the ruling. I applaud the USTR 
announcement on Monday that it is now requesting China to enter 
consultations in this case. One of those businesses impacted is 
represented today by Mr. Horn, AK Steel, and he will tell us 
about that case.
    Finally, China's currency manipulation continues to harm 
our workers and our economy. A December 12 report by the 
Peterson Institute found that currency manipulation by foreign 
governments costs the United States--wide estimates here--
between 1 million and 5 million jobs, increasing the U.S. trade 
deficit from anywhere between $200 billion and $500 billion.
    Our trade deficit in 2012, the last year we have full 
measurement, broke $300 billion for the first time. It is 
expected to do so again when the 2013 figures come out.
    These trade deficits are unacceptable. They cost jobs in 
places like Toledo, Akron, and towns and cities all over my 
State and our country.
    That is why I have introduced the currency--again, the 
Currency Exchange Rate Oversight Reform Act. It passed 
overwhelmingly bipartisanly in the Senate. I am hopeful that my 
colleagues in Ohio will take that up--that we pass it again in 
the Senate and my colleagues in the House will take it up and 
move it forward.
    Mr. Walz, thank you for joining us.
    [The prepared statement of Chairman Brown appears in the 
appendix.]

    STATEMENT OF HON. TIM WALZ, A U.S. REPRESENTATIVE FROM 
 MINNESOTA; MEMBER, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Representative Walz. Thank you to Senator Brown and thank 
you for your longtime unwavering commitment to making sure that 
fair trade is exactly what we say it is, that it is fair.
    And thank you to the witnesses for taking the time and the 
effort and for providing us the resources to make informed 
decisions on this.
    And as always, to the staff of this commission, their 
commitment is second to none. Their professionalism is second 
to none. And I was saying earlier I look very much forward to 
what this commission produces, because it is important.
    I would echo the Senator's words. We are here to make sure 
that this relationship--all good relationships are based on 
trust. They are based on fairness.
    My constituents and workers in southern Minnesota are not 
afraid to compete against anyone, but they are frustrated when 
they compete in an unfair system that gives advantages one way 
as opposed to making it fair, because when we compete fairly, 
it improves the quality of products, it improves the quality of 
trade, and it makes the relationship stronger.
    So I would look forward to the hearing today. The WTO 
regulations are in place for that very reason and why we do 
trust, President Reagan was right--trust, but verify--and that 
is what our job is here today.
    So I yield back, Senator.
    Chairman Brown. Mr. Meadows?

  STATEMENT OF HON. MARK MEADOWS, A U.S. REPRESENTATIVE FROM 
 NORTH CAROLINA; MEMBER, CONGRESSIONAL-EXECUTIVE COMMISSION ON 
                             CHINA

    Representative Meadows. Thank you, Mr. Chairman. And thank 
you for your words. As you opened up, you articulated it very 
well.
    From the witnesses what I hope to hear from each one of you 
is the areas, indeed, where we are making some progress, but 
maybe highlighting the three most problematic areas that you 
see that we need to address, and if you could highlight those 
for me, that would be great.
    In addition to that, I can say that our trading partner, 
China, is critical not only to the United States, but to China, 
as well, and that is one that we need to work on and make sure 
that it does have the foundation, as my colleague to my right 
said, a foundation of mutual respect, but, also, trust.
    So in doing that, when you have the rule of law and when 
those laws or agreements are not followed, it is very 
troubling.
    So what we would like to see from each one of you is to 
articulate that in the best form that you can.
    As a member of the Foreign Affairs Committee, we have had 
numerous hearings that were troubling, I guess, in terms of the 
trajectory of where we are going with this, either the progress 
that has been made or the lack thereof. And so I would like for 
each one of you to comment on that.
    Mr. Chairman, I will yield back.
    Chairman Brown. I thank Mr. Meadows.
    Mr. Sherman, welcome.

  STATEMENT OF HON. BRAD SHERMAN, A U.S. REPRESENTATIVE FROM 
                           CALIFORNIA

    Representative Sherman. Thank you, Mr. Chair, for giving me 
an opportunity to participate here today.
    In determining whether China is playing fairly, one is 
tempted to just look at the scoreboard, the balance of trade. 
It is the most lopsided trading relationship in the history of 
mammalian life.
    But we are told instead we should be looking at the 
individual plays on the field. The problem is the field is 
shrouded, because the system we have adopted is based on the 
idea of free market capitalism being practiced in every country 
that is part of the WTO.
    There is an assumption that capitalist businesspeople will 
determine what is imported and that they will import anything 
they can import at a profit, subject only to tariffs and other 
published restrictions, which are enforced through an 
independent judiciary that demands that businesses have the 
freedom to import anything they want, subject only to clearly 
written rules.
    Is there anything in China that reminds us of that system? 
In fact, if we look at the culture, law, politics of China, we 
see state-owned enterprises. China does not need to publish 
tariffs to affect their behavior. They own them.
    Chinese Communist Party members and Chinese Government 
officials are on the boards of other companies. So why look at 
the statute books and the regulations to see how Beijing 
influences companies?
    And I think of myself, what if I were to get on the phone, 
as a Congressman, and call a businessperson and tell them, 
``Don't buy the Chinese product. Buy the American product, 
because I think that's good for America.'' I would be laughed 
at or there would be a press conference denouncing me for 
trying to interfere with business.
    Now, imagine a commissar in China makes an equivalent call. 
The fact is when we asked whether China plays by the rules, 
most of the field is hidden. All we see are the published rules 
and the published tariff rates.
    When we reduce or eliminate those rules that limit imports 
to the United States or impose taxes on them, we give up 
everything. When China alters its published law, it gives up 
nothing.
    The effect of the policy we have followed for the last 
couple of decades is clear. You look at the scoreboard and you 
see the most lopsided trading relationship.
    We should demand not just fair trade, but balanced trade. 
There is no way to look play-by-play when you cannot see the 
field. We should demand that for every $1 of import, there is 
$1 of export.
    Until then, we have to be tough in enforcing the existing 
rules.
    I yield back.
    Chairman Brown. Thank you, Mr. Sherman.
    Again, thank you to the panel for joining us. I will 
introduce each of you now and then we will begin the testimony, 
starting with Mr. Horn.
    David Horn is Executive Vice President, General Counsel, 
and Secretary of AK Steel, which he joined in 2000. Prior to 
that, he was a partner in the Cincinnati law firm of Frost 
Brown Todd. He is an active member in his community, currently 
serving as a member of the board and cochair of the Greater 
Cincinnati Minority Counsel Program and the Mercy Health 
Foundation.
    Thank you, David, for joining us.
    Elizabeth Drake is a partner at Stewart and Stewart. She 
has broad experience in international trade laws, authored 
articles on China's exchange rate policies, WTO rules on 
balance of payment measures, and trade and labor rights.
    She was previously an international policy analyst at the 
AFL-CIO and served on the Labor Advisory Committee on Trade 
Policy and Negotiations to the U.S. Trade Representative.
    Welcome, Ms. Drake.
    Thea Lee is Deputy Chief of Staff at the AFL-CIO. She 
served as Policy Director and Chief International Economist. 
Her research projects have included reports on the impact of 
international trade on U.S. wage inequality.
    She serves on the State Department Advisory Committee on 
International Economic Policy and, also, on the Board of 
Directors of the National Bureau of Economic Research.
    Welcome, Ms. Lee.
    Timothy Webster is Assistant Professor of Law and Director 
of the East Asian Legal Studies Program at Case Western 
University Law School in Cleveland. His research looks at the 
intersection between East Asian and international law and has 
appeared in the Columbia, Michigan, and Penn international law 
journals.
    He previously taught at Yale Law School. He recently 
completed a paper titled ``Paper Compliance: How China 
Implements WTO Decisions.''
    Thank you, Mr. Webster, for joining us.
    Mr. Horn, if you would begin.

 STATEMENT OF DAVID HORN, EXECUTIVE VICE PRESIDENT AND GENERAL 
             COUNSEL, AK STEEL HOLDINGS CORPORATION

    Mr. Horn. Good morning, Chairman Brown and other members of 
the Commission. I appreciate the opportunity to participate in 
today's hearing and to present the views of AK Steel regarding 
China's failure to comply with its obligations as a member of 
the World Trade Organization.
    My name is David Horn. I am Executive Vice President, 
General Counsel, and Secretary of AK Steel Corporation.
    Headquartered in Westchester, Ohio, AK Steel is a leading 
producer of flat-rolled, carbon, stainless, and electrical 
steels.
    China's adherence to its WTO commitments is extremely 
important to AK Steel and its 6,100 employees. From AK Steel's 
perspective, however, China has embraced the opportunities 
offered by the WTO membership, but not the obligations.
    China's failure to follow the rules has hurt AK Steel in 
two very concrete ways. First, the Chinese Government has 
heavily subsidized its steel industry. This has resulted in a 
huge oversupply of steel products in the global market, which 
depresses steel prices in the United States and foreign 
markets.
    Second, China continues to impose antidumping and 
countervailing duty measures on AK Steel's exports of grain-
oriented electrical steel, which is referred to as GOES, 
notwithstanding the fact that the WTO has found that these 
duties are not justified and never should have been imposed.
    Although the enormous subsidies provided to Chinese steel 
producers are a significant concern, what I wish to focus on 
this morning in the limited time I have available is the 
unjustified imposition of duties on GOES from AK Steel.
    China initiated antidumping and countervailing duty 
investigations of GOES from the United States in June 2009. In 
April 2010, China issued its final determination. China found 
that the imports of GOES from the United States had been dumped 
at prices below normal value and subsidized by the U.S. 
Government.
    It imposed duties of nearly 20 percent on imports from AK 
Steel. More than half of this rate, approximately 12 percent, 
was based on an adverse assumption that AK Steel sold all of 
its products to the U.S. Government at a premium under the Buy 
America Act. That was, of course, not true and there was no 
evidence to support this clearly false assumption.
    Nonetheless, AK Steel and the other producer of GOES have 
been shut out of the Chinese GOES market as a result of these 
duties.
    Prior to the start of the investigation, U.S. GOES exports 
to China totaled approximately $270 million annually. Today, 
the value is well under $1 million.
    AK Steel was pleased when the USTR filed a WTO complaint 
against China in September 2010. We likewise were pleased in 
June 2012 when a WTO dispute settlement panel first ruled that 
China had violated its WTO obligations in numerous respects 
when it imposed the duties on GOES.
    China appealed certain aspects of that WTO panel's 
findings, but China's claims were rejected by the WTO Appellate 
Body in October 2012.
    In short, the WTO has ruled that the duties imposed by 
China on GOES from the United States were not justified and 
should never have been imposed.
    Despite that fact, duties have remained in place against 
GOES for over 18 months since the panel first found them to be 
inconsistent with China's international obligations and for 
nearly 4 years since the duties were first improperly imposed.
    Because China would not agree to a reasonable timeline for 
coming into compliance with the WTO rulings, the United States 
was forced to request arbitration to determine a reasonable 
period of time for China to comply.
    After the arbitrator rejected China's pleas for more time, 
on July 31, 2013, China issued a revised final determination. 
It lowered the duties, but it did not eliminate them. China's 
revised determination attempting to comply with the WTO's 
findings retains almost all of the errors of its original one.
    Because of China's intransigence, USTR on Monday of this 
week requested consultations regarding China's failure to come 
into compliance with the WTO's ruling. USTR will seek a ruling 
from a WTO compliance panel that China has failed to comply.
    Unless China relents, the United States will then need to 
request a WTO arbitrator to determine the amount of retaliation 
that the United States is authorized to apply in terms of 
higher tariffs on imports from China.
    While all of this is going on, the GOES produced by AK 
Steel remains shut out of the Chinese market.
    AK Steel's experience shows that the WTO dispute settlement 
system operates too slowly to provide effective relief, 
especially where the losing party does everything it can to 
prolong the process, as China is doing with GOES.
    AK Steel very much appreciates the support it has received 
from the U.S. Government in challenging China's flawed 
antidumping and countervailing duty measures in the GOES case.
    We would respectfully suggest, however, that more should be 
done. For example, USTR should continue to aggressively pursue 
other complaints against China's failure to follow the WTO 
rules in applying antidumping and countervailing duties against 
U.S. exports.
    China has now lost several such cases and those defeats 
make it more likely that the Chinese Government will bring its 
practices into WTO compliance.
    In order to allow USTR to do more, Congress should 
appropriate more funds to USTR's WTO dispute settlement 
function.
    Although I know from personal experience that the USTR has 
very talented lawyers, I understand that most of its WTO 
litigators split their time among various responsibilities. It 
would seem to me that if USTR had more lawyers dedicated to WTO 
disputes, they would launch more cases and litigate more 
expeditiously.
    Finally, Congress should enact the Currency Exchange Rate 
Oversight Reform Act of 2013, which would have the effect of 
applying the countervailing duty law to currency manipulation.
    Alternatively, Congress should attach provisions applying 
the countervailing duty law to currency manipulation to any 
Trade Promotion Authority bill passed by Congress.
    Again, I thank you for this opportunity to testify.
    Chairman Brown. Thank you, Mr. Horn.
    Ms. Drake?
    [The prepared statement of Mr. Horn appears in the 
appendix.]

   STATEMENT OF ELIZABETH DRAKE, PARTNER, STEWART AND STEWART

    Ms. Drake. Chairman Brown, Commissioners, good morning. My 
name is Elizabeth Drake and I am a partner at Stewart and 
Stewart. I thank the Commission for the opportunity to appear 
before you today.
    In the 12 years since China joined the WTO, it has become 
the world's largest exporter and our most important trading 
partner. But this trading relationship is far from balanced.
    Since 2001, our trade deficit with China has nearly 
quadrupled. In 2013, China accounted for only 8 percent of our 
exports, yet a full 46 percent of our trade deficit.
    Part of the reason for these troubling trends is China's 
continued violations of the rules it agreed to when it joined 
the WTO. These violations include discrimination against 
foreign goods and firms, localization requirements, export 
restraints, investment restrictions, lax IPR protections, 
abusive trade remedies, and a persistent lack of transparency.
    Today I would like to highlight just four of these areas. 
First, the tens of billions of dollars in prohibited export 
credit subsidies that China provides to its exporters.
    Second, discrimination by state-owned enterprises against 
U.S. producers and products. Third, technology transfer, local 
content, and export requirements imposed on investors in China. 
And, fourth, massive subsidies to China's strategic and 
emerging industries.
    Our firm filed a 301 petition on behalf of the United 
Steelworkers Union in 2010, highlighting a number of these 
practices in the green technology sector and very much 
appreciate all of the work that USTR has done to follow-up on 
the allegations in that petition and resolve many of them.
    However, we believe more can be done.
    The first issue I would like to address is China's export 
credit system. Export credits that do not comply with the OECD 
[Organisation for Economic Co-operation and Development] 
arrangement on export credits are prohibited under WTO rules. 
China is now the world's largest export credit provider, by 
far.
    In 2012, China provided an estimated $100 billion in export 
credits, three times what U.S. Ex-Im Bank was able to provide 
to our own exporters.
    Yet, China refuses to join the OECD arrangement and our own 
Ex-Im Bank has found that China does not comply with the 
arrangement in practice. Indeed, some reports indicate that 
China's export credits may be available at rates as low as 2 
percent, 1 percent, or even 0 percent.
    Allowing these practices to continue poses a significant 
threat to the competitiveness of our own exporters, who must 
rely on an Ex-Im Bank that does follow the rules.
    One obstacle to challenging these practices at the WTO is a 
lack of transparency in China. However, I believe there is 
enough public information to mount at least a prima facie case 
that China's export credits are prohibited subsidies. The 
burden would then shift to China to come forward and 
demonstrate that the credits, in fact, comply with the OECD 
rules.
    I believe the credible threat of a WTO challenge provides 
vital leverage to bring China's export credit system into 
compliance.
    With regard to the next two issues, discrimination by 
state-owned enterprises and the imposition of technology 
transfer, local content and export requirements on investors, 
have long been a source of concern.
    The United States expended significant negotiating capital 
to get China to agree to rules prohibiting these practices and 
these rules go above and beyond the normal rules in the WTO 
agreement. Unfortunately, these additional rules have never 
been enforced.
    Examples of continued violations by China are many. I have 
laid them out in my written testimony and would be happy to 
answer any questions about those examples.
    The United States has secured numerous commitments from 
China to eliminate these practices over the years. 
Unfortunately, USTR continues to express dissatisfaction with 
China's compliance.
    WTO challenges may be the only way to finally put an end to 
these practices.
    Finally, the United States should continue to closely 
monitor the massive subsidies China is providing to its 
strategic and emerging industries and we should not hesitate to 
bring a WTO challenge if these subsidies cause harm to U.S. 
producers and workers.
    In 2010, China announced its aim to dramatically expand 
seven strategic and emerging industries--energy saving and 
environmental protection, new generation IT, biotech, high-end 
equipment manufacturing, new or renewable energy, new 
materials, and new energy vehicles.
    China aims to be the world leader in each of these seven 
industries by 2030. To meet this goal, it is reported that 
China plans to invest $1.5 trillion in these industries over 
just a few years. There is no way that China can meet these 
goals without displacing foreign competitors. Such aggressive 
distortion of international competition through government 
subsidies is exactly what WTO rules are designed to prevent and 
redress.
    Bringing a case against these subsidies would be a fact-
intensive and resource-intensive exercise, but ensuring the 
United States has a fair chance to compete in these seven key 
sectors in the coming decades would be well worth the effort.
    Thank you for the opportunity to testify. I look forward to 
any questions you may have.
    Chairman Brown. Thank you, Ms. Drake.
    Ms. Lee, welcome.
    [The prepared statement of Ms. Drake appears in the 
appendix.]

  STATEMENT OF THEA MEI LEE, DEPUTY CHIEF OF STAFF, AMERICAN 
 FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS 
                           [AFL-CIO]

    Ms. Lee. Good morning and thank you for the opportunity to 
testify today on this very important issue that impacts our 
members, but also impacts Chinese and American workers who are 
not in unions.
    I wanted to start by congratulating the Commission for its 
excellent work over the last 13 years, particularly under the 
current chairmanship, Senator Brown and Congressman Smith. I 
think you have done a wonderful job of reminding our 
government, the Congress and the Administration of the 
interrelationship between our economic relationship with China 
and some of the more important issues, like democracy, rule of 
law, human rights, workers' rights, that do not get the 
attention that they deserve in the national discussion that we 
have been having.
    Our bilateral dialogues focus too often on narrow 
commercial concerns. But the concerns about workers' rights, 
human rights, and rule of law are essential to American 
workers, consumers, and businesses. It is impossible for us to 
have a healthy economic relationship with China if we do not 
address those fundamental concerns. That should be a part of 
all of our bilateral U.S.-China economic dialogue. And we 
believe that our government should seek more effective avenues 
for raising these concerns within the multilateral framework of 
the World Trade Organization [WTO] and other international 
bodies.
    When China joined the WTO more than 12 years ago, there 
were several concerns raised. One is whether the WTO rules 
themselves were adequate to protecting workers' rights and the 
environment, promoting democracy and development, addressing 
currency manipulation, and, in general, supporting U.S. jobs 
and manufacturing.
    The second question was, given the WTO rules, whether China 
would comply with those commitments and if not, whether the WTO 
enforcement mechanisms would be adequate.
    The third question is whether the U.S. Government had the 
will and/or the tools to use WTO mechanisms effectively to 
protect the interests of American workers and domestic 
producers, rather than just the interests of multinational 
corporations.
    And if we step back now, 12 years later, I would say that 
the results are very disappointing. American workers and 
domestic businesses are paying a high price every day for the 
failures of WTO accession and WTO enforcement.
    The rapid industrialization and export growth in China have 
far outpaced the development of regulatory institutions, laws, 
and enforcement capacity. Workers' rights, environmental 
protections, and consumer safety did not naturally and 
automatically improve, while foreign investment and exports 
grew rapidly, I think more rapidly than many expected.
    And as Congressman Sherman said, the imbalanced trade 
relationship between China and the United States continues to 
grow, to the point where our bilateral trade deficit with China 
is more than two-thirds of our non-oil goods deficit with the 
entire world.
    If you look, in particular, at advanced technology 
products, it really is striking. If you look at just that one 
table in U.S. trade statistics, you will see that we had a $106 
billion trade deficit in advanced technology products alone 
with China. That is larger than our whole advanced technology 
trade deficit with the world, which means that we have trade 
surpluses in advanced technology products with most of our 
trading partners, but we have a massive trade deficit with 
China. That does highlight some of the areas that Elizabeth 
Drake outlined in terms of the unfair practices and the uneven 
playing field that leads to this kind of a dramatic imbalance 
in an area where there should be a competitive advantage for 
the United States.
    In conclusion, I think that this Commission's proposal that 
human rights and rule of law be integral to all trade and 
economic discussions is important, particularly in the context 
of the Strategic and Economic Dialogue with China.
    I understand that the topic is not welcome. I understand, 
and I hear this often from the U.S. Government, that the 
Chinese Government does not want to have a conversation about 
human rights or workers' rights or democracy. I think that 
highlights all the more why this is important. It is a 
foundational building block to everything about our economic 
relationship with China. Everything that we hope to accomplish 
vis-a-vis China--political stability, a reciprocal trade 
relationship, an appropriate regulatory framework, and an 
economic relationship that delivers good jobs for American 
workers, as well as for Chinese workers--cannot be accomplished 
if there is a lack of democracy and fundamental workers' rights 
and human rights in China.
    The second thing is action on currency. 2014 is the year 
that the U.S. Government needs to take action. Congress should 
take action, and the Administration should take action. We 
totally support the Currency Exchange Rate Oversight Reform Act 
that Chairman Brown mentioned, and it is time for Congress to 
stop juggling ineffectually and tossing this bill back and 
forth between the House and the Senate and the Administration. 
Congress should stop pretending that this issue is being 
resolved, because it is not.
    And, particularly, in a year when our negotiations are 
moving forward on the Trans-Pacific Partnership and the 
bilateral investment treaty with China, it is essential that we 
put these issues of human rights and workers' rights and 
democracy back at the center of our U.S.-China dialogue.
    Thank you so much for your attention. I look forward to 
your questions.
    Chairman Brown. Thank you, Ms. Lee.
    Professor Webster, welcome.
    [The prepared statement of Ms. Lee appears in the 
appendix.]

   STATEMENT OF TIMOTHY WEBSTER, ASSISTANT PROFESSOR OF LAW; 
   DIRECTOR, EAST ASIAN LEGAL STUDIES, CASE WESTERN RESERVE 
                    UNIVERSITY SCHOOL OF LAW

    Mr. Webster. Thank you. Chairman Brown, members of the 
Commission, ladies and gentlemen, it is my pleasure and my 
honor to speak with you here this morning.
    I would like, in particular, to thank Lawrence Liu, the 
staff director of the CECC for contacting me back in October 
and for inviting me here today. And like others on this panel 
have said already, I would like to congratulate the CECC on its 
terrific work educating not only Congress, but, also, the 
American people and, indeed, the world about issues that are 
ongoing in China.
    I frequently assign hearings and roundtables and other 
testimony from this Commission to my class on Chinese law. So 
you are also serving to educate the general public.
    Now, throughout the United States, but particularly here in 
Washington, as we have heard from the panel this morning, there 
is a pervasive belief that China is an international trade 
scofflaw. By manipulating its currency, subsidizing its 
domestic industries, dumping goods in the United States, China 
is seen as a scourge whose baleful influence harms us all.
    My recent research, which will appear later this year in 
the Michigan Journal of International Law attempts to temper 
this view through empirical observation.
    I have examined China's record of implementing the 10 
decisions that have been rendered by the WTO's dispute 
settlement body [DSB] over the past 10 years, and I find that 
China has a strong, but increasingly imperfect, record of 
implementing DSB decisions.
    For reasons I will explain, I conclude that China is, at 
base, a system maintainer, not a system challenger. Part of 
using any system, whether it is the rules of civil procedure or 
the rules of international trade or the rules of football, is 
tactical manipulation. A smart lawyer, coach, or WTO member 
will strategically deploy procedural rules to benefit his 
client or to benefit his side to the greatest extent he can.
    Of course, sometimes a member will break the rules, and 
that, I think, is where China is moving and has been moving 
over the past few years.
    Now, in the first wave of cases, before 2007, China was 
quick to settle WTO decisions and quick to, I would submit, 
change its laws in accordance with DSB rulings. But after 
gaining familiarity with the DSB procedures, China has become 
an increasingly sophisticated WTO litigant and now more willing 
to use DSB procedures to minimize the effects of adverse 
rulings.
    This is true both in the steel case that Mr. Horn talked 
about and in other cases, as well. There are two ways of 
thinking about this. First, China is willing to use the 
internal procedures of the DSB to its own effect, and we can 
talk about that, but, second, once decisions have actually been 
rendered, China is not necessarily willing to implement those 
decisions as quickly as it should.
    That could include things like taking an appeal, as it does 
when the case looks like it is going to really be difficult to 
implement and buying itself maybe a year or two of time, or, as 
I found in a couple of cases, just not changing the 
inconsistent regulations at all.
    So there are a couple of cases, and I talk about it in my 
article and I talk about it in my testimony. And hearing from 
Mr. Horn, as well, I wonder if we have not, in a sense, opened 
the box up by not enforcing earlier decisions where 
inconsistent regulations were found. We said, ``Okay, try it, 
see if you can push the limit, see how far you can go.''
    Now, I want to respond very briefly to what Congressman 
Meadows said. What can we do about this? And, again, here, I 
would echo some of the comments that Mr. Horn made. The United 
States is usually the plaintiff in these cases. As a result, it 
is perfectly well positioned to look at the enforcement piece.
    The United States, I think, could push the dispute 
settlement body to specify which laws, which regulations, which 
provisions of the regulations need to be changed, need to be 
amended, and by what time. Does China need to change all of 
these regulations, some of them? What is the roadmap that China 
needs to achieve full compliance or full implementation?
    I also think the United States needs to focus on 
enforcement. As I said before, there are several cases where 
many, four to five or six or so, regulations continue to be in 
effect even now, even though they were found three, four, five 
years ago to be inconsistent with the WTO.
    I think it is the United States' position to hold China's 
feet to the fire in those couple of cases.
    The final thing I would like to add is that I think the 
United States also needs to live up to its end of the bargain. 
The United States, of course, was the chief architect of the 
World Trade Organization, the chief architect of the dispute 
settlement body, and we have a special obligation to implement 
WTO decisions, as well.
    Last year, the Congressional Research Service published a 
report that said there were either 12 or 13 cases that the 
United States has yet to implement. So I think our failure to 
implement cases that go back to the late 1990s and early 2000s 
erodes confidence in the international trade regime. I think by 
implementing them, we would gain moral authority when we try to 
push other countries to do the same.
    So I will stop my comments there. I look forward to your 
questions, and I appreciate the time to come here today.
    Thank you.
    [The prepared statement of Mr. Webster appears in the 
appendix.]
    Chairman Brown. Thank you. Thank you all.
    I will start with Mr. Webster. USTR, Mr. Webster, expressed 
some cautious optimism, perhaps over what they have called far-
reaching economic reform pronouncements, including that the 
market shall be decisive and dominant during the Communist 
Party's third plenum last November.
    What should we be looking for in the coming months to 
determine whether China is, indeed, actually making real and 
lasting change and achieving those goals?
    What will we see? What should we be looking for to measure 
that and to plan accordingly?
    Mr. Webster. That is a great question. The language you are 
citing is from the recent Chinese Government's Third Plenum of 
the 18th Central Committee. And this is supposed to be the 
roadmap of the future.
    I think it is very difficult to know. It is a very abstract 
phrasing. I think some of the things we have been talking 
about, opening up market access to foreign competitors would be 
one area where China has not been particularly transparent.
    If we see that market-based mechanisms, meaning the best 
bid as opposed to the best-positioned SOE [state-owned 
enterprise], winning contracts in various industries would be 
one index of that. Or if an SOE somehow defaulted on a payment, 
we would see that Chinese banks are becoming stricter in their 
lending, which would also indicate the application of market-
based principles.
    But I think that is a great question and I wish I had a 
better answer for you. That has certainly been the rhetoric of 
China over the past three or four months. But how we can 
actually measure that is anybody's guess.
    Chairman Brown. Thank you.
    Ms. Lee, is there more that we can do through the WTO or 
through future trade negotiations in agreements with China to 
address worker rights?
    What kinds of provisions, labor provisions, would you like 
to see in future agreements that, as we move forward, can help 
workers in our country and, frankly, workers in other places?
    Ms. Lee. That is an excellent question. We have talked a 
lot about the lack of worker rights commitment within the WTO, 
but it is also true that even within the WTO, in the Singapore 
Declaration, for example, there is a commitment that the 
members would respect, promote, and realize the international 
core workers' rights as outlined by the ILO [International 
Labour Organization]. There is certainly language in the WTO, 
in Article 20(e) about prison labor. There is language about 
measures that affect human or animal or plant life or health.
    I think that the U.S. Government should be more aggressive 
in testing the limits of the worker rights protections under 
the WTO.
    We have filed a case in the past and we may file a case in 
the future, a Section 301 case that the U.S. Government would 
take up and prosecute about whether the Chinese Government's 
violation of workers' rights is, in fact, an unfair trading 
practice. It hurts American workers, it hurts American 
businesses, and it has a big economic impact on the United 
States, and it is widespread. It is systematic. It is not one 
factory with a child laborer working.
    It is a systematic, economy-wide repression of the right of 
freedom of association and the right to bargain collectively.
    I think it would also help, as I said earlier, if the U.S. 
Government put more focus on this issue in all of its strategic 
and economic dialogues, in the joint talks that happen 
regularly.
    I always see the agendas for these talks and you see 
intellectual property rights, you see market access, you see 
subsidies, which are all important issues and we totally 
support them. We would like to see workers' rights elevated in 
every discussion that the U.S. Government has with the Chinese 
Government, because it is so important.
    In terms of what kinds of commitments, we are always 
looking for enforceable commitments of the ILO core labor 
rights, the freedom of association, right to organize and 
bargain collectively, and the prohibitions against child labor, 
forced labor, and discrimination in employment.
    The key challenge for us in the international arena is how 
do we make those commitments real, and how do we get the 
resources to monitor and enforce? When we start with a country 
like China, whose labor laws are so far out of compliance with 
international labor standards, we need a much stronger kind of 
dialogue that is focused on benchmarks and interim steps. It is 
unrealistic to think that even if the U.S. Government were to 
sign a bilateral free trade agreement with China tomorrow and 
put the strongest worker rights measures into that trade 
agreement, that that little worker rights chapter would be 
sufficient to address the kinds of concerns and the kinds of 
violations that we see in China.
    So I think we have to start with a dialogue. We have to 
start with raising this issue more consistently, and then we 
could decide whether--if the United States is going to go ahead 
and negotiate a bilateral investment treaty with China, the 
issue of workers' rights needs to be confronted squarely and 
head on in that forum.
    Chairman Brown. Thank you.
    Ms. Drake, this Commission is primarily charged with two 
things--to deal with issues of human rights and economic 
issues. And I want to shift to a human rights issue for a 
moment with you.
    This Commission did a roundtable just several weeks ago 
with a number of journalists, all of whom had been threatened 
visa denial to go back into China for the new year and have 
access or have an ability to tell the story of what is 
happening in China on a whole host of issues.
    Perhaps in part because of the light that we shone on this, 
perhaps for other reasons, too, the Chinese Government did end 
up renewing visas for most reporters, but notably did not give 
a visa to a New York Times reporter.
    There were also the issues that came out in this roundtable 
about China blocking U.S. Web sites.
    My question is this: Is there a trade remedy either through 
the WTO or some other avenue that could address this ongoing 
problem? It is expected. I mean, we have no reason not to 
expect it, if you will, because it is going to happen at the 
end of the year again this year and the following year perhaps 
not.
    But if there is a proactive way we can deal with this, how 
do we do this?
    Ms. Drake. Thank you, Senator. That is an excellent 
question and the Commission's work on this issue has been very 
important.
    First on the issue of the journalist visas. When China 
acceded to the WTO, under the general agreement on trade and 
services, it committed to allow free entry for senior employees 
of foreign investors in China for three years, on three-year 
terms.
    And so the United States could try to look at that 
commitment and see if there is a creative way to either seek 
consultations with China under that commitment or even bring a 
WTO dispute, but it would depend on whether or not these 
journalists were considered senior employees of companies that 
were actually invested in China.
    So it's a limited commitment. It is not broad enough to 
probably cover all of the journalists that we would want to be 
sure are protected and are able to do their work in China.
    On the Internet blocking issue, that is an extremely 
interesting issue, and, actually, the United States has raised 
it at the WTO. In 2011, the USTR submitted a series of 
questions to the Chinese Government about its Internet-blocking 
activities.
    Again, under the context of the general agreement on trade 
and services, under which China did make some commitments for 
market access for U.S. companies, that could be an avenue for 
challenging blocking. That blocks the ability of U.S. companies 
to use the Internet and China to have their Web sites up in 
China, et cetera.
    But, again, that commitment is not complete. It does not 
cover all kinds of Internet content providers. For example, 
news services are a sector in which China did not make any 
commitments under the GATT [General Agreement on Tariffs and 
Trade].
    So blocking the New York Times Web site or the Washington 
Post Web site or what have you likely would not violate their 
GATT's commitments, but maybe blocking another service provider 
would if they made commitments in that area.
    So the United States did a good job presenting a very full 
set of questions to China at the WTO on these practices. China 
made a partial response in 2012 and apparently they had 
consultations then, but it is definitely an avenue that 
deserves greater attention and more work.
    Chairman Brown. Thank you.
    Mr. Horn, first, thank you for your support on the currency 
issues that you mentioned at the end of your testimony, both 
freestanding legislation and as part of future trade 
agreements.
    I understand that your company, AK Steel, has filed trade 
cases with the Commerce Department and the U.S. International 
Trade Commission [ITC] against China and other countries for 
allegedly dumping non-oriented electrical steel, in addition to 
your testimony.
    Are the various tools that the U.S. Government has at its 
disposal enough to ensure a level playing field with China? And 
if we need additional tools, what should they be? Give me your 
thoughts.
    Mr. Horn. Great question. I do not think that they are 
enough. Certainly, we have been able to file the GOES and the 
NOES trade cases, but they are very expensive to do. They 
require a lot of data to be able to prepare them and get them 
filed.
    Sometimes it is not always available, the market data in 
the foreign country and things like that. So first off, you 
have an obstacle there. Beyond that, they only help us with 
imports of those specific products into the United States from 
the targeted countries.
    There is also always the risk that countries will 
circumvent whatever decision is made in terms of duties by 
trying to send the product through another country or something 
like that.
    So there is a risk there. There needs to be strong 
enforcement of the trade laws to make sure that there is not 
circumvention.
    Beyond that, it does not help us with our ability to 
export, and what we have in the case of China is not only a 
situation where they are exporting their goods to the United 
States and lowering the prices here because of subsidized 
product that we have a difficult time competing against, but we 
also cannot compete in China now. We cannot sell our product 
there. Trade cases here do not help us address that issue.
    So I think there is more that can be done in both 
directions.
    Chairman Brown. Thank you.
    Mr. Walz?
    Representative Walz. Thank you, Chairman.
    Thank you all, to the witnesses.
    Just hitting on a couple of things. The one thing I would 
say, too, is this issue of enforcement, I hear that again and 
again and I think we all understand it.
    I want to be very clear. We are going to vote on an omnibus 
today that is going to be $4 million less, significantly less 
than what was requested by USTR, specifically for interagency 
trade enforcement and the Beijing side of it.
    So you can go home and tell your people you saved money, 
you cut the budget, and you underfunded the agency that 
actually is enforcing this to return money back to the 
Treasury.
    So it is very frustrating to me, but I think that is our 
responsibility to bring that to light.
    A couple of things, and, Mr. Webster, I thought you brought 
up a good point, too, and I think it is important for us 
because this trade relationship is important and it needs to be 
fair.
    I think the point you brought out about the United States 
upholding ours, whether it is upland cotton or whatever it is, 
it is making sure that we are addressing those, and I think 
that sends the message.
    The question I have is, looking at China's organization on 
the economy from the large state-owned enterprises, banks, 
telecoms, the joint ventures, the carmakers and things, then 
there is this talk about there is the private.
    My question is, how private are they? My experience with 
the Chinese, you have a lot of municipal investment through 
joint venture or, I mean, venture capital that is actually 
owned government-wise or whatever.
    So this idea of how transparent or how much interference 
there is, in your opinion of looking at this, is it deeper than 
we think?
    Mr. Webster. Again, it is difficult to track down who owns 
what. I think in the late 1990s and early 2000s, there was a 
growing private sector in China. But over the past 8 or 10 
years, this has been supplanted by state-owned enterprises 
across a wide range of important key industries, including the 
ones that we have talked about today, automotive, steel, 
telecom and so forth.
    I guess the only response I would have is that, at least as 
regards trade, the WTO itself only offers limited capacity to 
dive into things like workers' rights, environmental rights, 
things like that.
    So we cannot see every bilateral problem involving China 
through a trade lens. If we do, we are going to be disappointed 
by the efficacy of what WTO or what international trade laws 
can do.
    That is a great question. Thank you.
    Representative Walz. Very good.
    Mr. Horn, again, thank you for your work. Two questions to 
you. First of all, give me your overall impression of doing 
business in China, as you see it. And then, second, could USTR 
be more aggressive in helping out? Because this is a case, 
again, as I said, with this budget, this seems to me to be one 
of those cases that the private sector does not have the 
ability nor the authority to do what WTO, USTR, and the Federal 
Government does. And have they been aggressive enough in 
helping you do that?
    Mr. Horn. Thank you. Let me address the first part of that 
question first, about doing business in China.
    We are optimistic that once the duties ultimately are 
eliminated on electrical steel, we will be able to get back 
into China and do business there. But there is absolutely no 
certainty of that.
    We are very concerned about the political element of it and 
the state-owned enterprises and whether they will be willing to 
buy from us, even if there are no duties at some point.
    So that is a significant concern to us. We have been locked 
out now for about four years and have continued to try to 
maintain the relationships and we will try to get back in 
there, because it is an important part of the business to our 
company.
    But we are very concerned that it will be difficult for us 
to do business in China given the importance that the Chinese 
Government has placed on building its electrical steel industry 
and not wanting us to go in there and compete against it.
    So that is going to be a problem for us.
    With regard to the USTR, we do appreciate the support they 
have given us, but I think if they had more resources that they 
could devote to cases, they could move the cases along more 
expeditiously.
    From time to time, there were delays between when things 
occurred and when USTR was able to respond. So I do not fault 
them for trying. They have a lot of things to do.
    But if they had greater resources, I think they could have 
responded more promptly in following up on things that needed 
to be done in our case.
    Representative Walz. Mr. Webster, what will be, in your 
experience, in past history, what will be China's response to 
the GOES? What will we see? Will we see token--trying to keep 
these guys on the hook, trying to do that with no real effort 
to actually do it, while, at the same time, beefing up and 
supporting their domestic ability on the grain-oriented steel?
    Is that a fair assumption of the way this will play out?
    Mr. Webster. Yes. Again, another great question. This is 
really the limit. I do not think China has fought a case this 
hard as of yet. In an earlier decision that challenged China's 
censorship regime, there was a lot of pushback. China failed to 
implement the decision in a timely manner, but eventually it 
did achieve full--or relatively full-- compliance.
    I think with the steel industry being as important as it is 
in China--and we have already seen and Mr. Horn has already 
mentioned, there was a huge row over what a reasonable period 
of time to implement this decision is.
    Usually it takes 8 to 10 months to implement a WTO ruling. 
But in the steel case, China and the United States first went 
to arbitration to determine a reasonable period of time. Now 
that period has ended, and the United States is still 
dissatisfied by China's implementation. The United States is 
now bringing an implementation action against China. This is 
the first time a WTO member has brought an implementation 
proceeding against China, so we will have to wait to see what 
the result is. I am fairly confident that the United States 
will win the proceeding, but less sure that China will actually 
change its conduct. It levied the same anti-dumping duty again 
after the reasonable period of time ended with no explanation 
of how it arrived at the duty--which was the brunt of the 
United States complaint to begin with.
    It is up to the USTR or the United States to continue to 
apply pressure. In the past, as I testified, the United States 
has allowed China to get away with incomplete implementation. I 
suspect this, too, will be another multiyear saga before full 
implementation is realized.
    Representative Walz. Very good.
    And, Ms. Lee, I will just end quickly here with you on 
this. Could you tell, from your perception, as this goes on and 
you see Mr. Horn's dilemma, you heard about where we are, you 
hear the experience, tell me how this affects American workers? 
What does that do to an American worker trying to go to work, 
work hard, do their thing, pay their bills, raise their family? 
What happens to them in this?
    Ms. Lee. This imbalanced and unfair economic relationship 
with China is very present for American workers, particularly 
in the manufacturing sector, but not just in manufacturing. It 
affects engineers, as well, and other technicians.
    But the idea that American workers are going to be in 
direct competition with workers who lack basic fundamental 
freedoms is devastating. It is undermining to an American 
worker trying to keep his or her job, an American worker trying 
to bargain decent wages and benefits, an American worker trying 
to form a union at a mobile manufacturing plant.
    So this is ever present. It is something we hear about 
constantly from our members. They are faced with it every day. 
They sit down at the bargaining table and the boss says to 
them, ``Yeah, you want a raise. Yeah, you want health care, you 
want a pension, you want safety equipment, you want a bathroom 
break, whatever it is, we can go to China and we don't have to 
worry about that. And not only that, but on top of it, we are 
not going to worry so much about environmental protections, we 
are not going to worry about consumer safety protections, and 
all of those create enormous economic incentives for an 
American company to move that production.
    That is something that we face every day, and this is a 
burning issue. This is an urgent issue for American workers.
    Thank you, Congressman Walz.
    Representative Walz. Thank you all. I yield back.
    Chairman Brown. Senator Merkley?
    Senator Merkley. Thank you. I appreciate all of your 
insights and expertise being brought to bear on this topic and 
have a lot of questions.
    Ms. Drake, you listed a whole series of challenges in the 
trade relationship: Currency manipulation, export subsidies, 
tech transfer requirements, local content requirements, export 
requirements for investing companies, subsidies to China's 
strategic and emerging industries.
    Probably those include some of the things that I often hear 
about, including the low-cost bank loans, below-cost bank 
loans, free land, people being thrown off their land and 
provided the key, industry's intellectual property theft.
    There is a long list. And then I hear Mr. Webster 
summarizing and saying that China is a system maintainer, not a 
system challenger.
    So it is kind of a question for the two of you. I am not 
sure if those are academic terms, Mr. Webster, coming from a 
political science perspective, but it seemed like from your 
introduction you were trying to diminish the normal impression 
that we have of all these serious--this long list of serious 
violations do significant harm to the United States, and you 
listed things the United States could do to kind of make the 
system work better.
    I have a picture, from Ms. Drake's presentation, of gross 
violations that have a huge impact on the United States, and 
from your presentation, it is like, well, they stretch the 
rules, occasionally break them, but the United States could 
respond.
    Are the two of you coming from dramatically different 
positions or is it more a political science evaluation that you 
are reaching?
    Why do you not start, Mr. Webster, and I will ask Ms. Drake 
to comment.
    Mr. Webster. Thank you. Thanks for that question. I think 
we may be talking about two different things.
    If I understand Ms. Drake, she is talking about the entire 
panoply of WTO agreements. Right? There were 20-some-odd 
agreements that China has to adhere to, as all WTO members have 
to adhere to, and she is saying, look, holistically, China is 
X, Y, and Z.
    I am looking at a very narrow subset of that; i.e., the 
implementation of rulings by the WTO court and I am saying 
insofar as we can look at rulings from the WTO court, we find 
the following things.
    There are cases that China has not fully implemented. But 
so far we have not brought arbitration proceedings against 
China to ensure implementation. This grain-oriented steel case 
will be the first test of that.
    But my point is simply looking at that narrow aspect of--
essentially looking at court rulings, if you like, China has a 
fairly strong interest and a fairly strong--again, not perfect 
and increasingly imperfect, but fairly strong record of 
implementing WTO rulings as they have been handed down by the 
DSB.
    Senator Merkley. As I read your testimony, I think you have 
it divided into two phases--an earlier phase where they are a 
little bit more responsive and recent phases in which they have 
been a lot less responsive.
    I think about when U.S. Senators, a group of 10 of us, took 
a trip to China and we were talking to the ambassador and his 
economic team in regard to trade enforcement, and his basic 
response was, ``Our top priority is getting China to cooperate 
with us on sanctions on Iran.'' And that basic insight was, 
well, we have other foreign policy considerations and we do not 
want to upset the field by doing trade enforcement, and we kind 
of see this rhythm in which we--we have a lot of priorities in 
the world and kind of maintain the level playing field or more 
level playing field maybe envisioned by the spirit and the 
details of the law leaves a lot of room for China to 
essentially flout and break that understanding.
    In that regard, it makes sense that if you have a very low 
wage, low labor law, low environmental law, low enforcement 
state, that it is going to be cheaper to make things.
    We have lost 5 million manufacturing jobs since 1998, 
50,000 factories, and I think people across America are not so 
convinced that this trade relationship is actually working to 
the benefit of the United States.
    Ms. Drake, can you comment on that?
    Ms. Drake. Thank you so much. I really appreciate that 
question. And I agree, I do not think that Mr. Webster and I 
are in disagreement, I hope. It was because we were looking at 
different things.
    He was looking at compliance with the rulings that result 
from disputes that have been brought. I was looking at the 
disputes that have not been brought. And China's record of 
compliance is a function of the disputes that have been 
brought, most of which deal with, as his paper details, paper 
compliance.
    This regulation, per se, we can just read this regulation 
and tell it does not comply with WTO rules. Okay. We will 
withdraw that regulation or we will modify that regulation.
    It is very different to bring a case that is based not just 
on a facial violation, but an actual violation based on the 
facts on the ground, and that is more of what the GOES case is 
about, looking at how the government actually functions when it 
is trying to--when it should be complying with its WTO 
obligations, and there we have seen less compliance, as has 
been discussed.
    But what cases are brought, again, gets back to the issue 
we were talking about, about what resources USTR has. It is 
much, much easier to formulate a case based on a facial 
violation that it is based on a very complicated fact pattern 
on the ground in China about what provincial authorities may be 
doing or what have you. And in order to bring those cases, 
which I think are the most difficult, but also the most 
important cases, USTR needs resources. They also should look at 
how they interact with the private sector and attorneys for the 
private sector.
    While they are very responsive to attorneys and their 
attorneys are excellent, it is very different when you see how 
China does it. China will hire attorneys, often U.S. attorneys, 
and have them in the room at WTO dispute panel meetings.
    USTR never does that. They do not allow any outside 
attorneys on its side of the case to come into the room. That 
is a problem. That makes USTR's job harder.
    They should also look at the question of a lot of U.S. 
firms who may have problems in China and are invested in China, 
and also have concerns about retaliation, about giving USTR 
information that then leads back to the company.
    We should all be looking at ways that we can protect those 
companies and give them the confidence they need to actually 
give us this information so we can mount the more difficult 
cases that we need to bring.
    Senator Merkley. Thank you very much. I want to try to get 
in one last quick question, but I am basically out of time. So 
brief question, brief answer.
    In 2011, I proposed an amendment that would require USTR to 
do a counter-notification on China, because China had not done 
its notifications under WTO as required.
    Within two weeks, USTR did put out a list of counter-
notifications, basically listing many of the things that China 
does.
    One of those pieces was a famous brand strategy and you 
could see it all the way through. You can see it in the 
vignettes that we hear stories of where in order to attract a 
famous international brand, China would pre-build a factory and 
say ``Come. See, we've already built the factory for you. Look, 
we will give you these loans, below interest rate or even a net 
negative interest rate. Look, we'll do this for you. Look, 
we've lined up the labor. Look, we've done this.''
    The whole theory behind it was if we can bring the leader 
and their supply chain, then we will bring their competitors. 
And so we can do massive subsidies in this setting as kind of a 
lost leader, if you will.
    Has that national brand strategy ever been challenged by 
the United States in kind of a formal proceeding and is the 
national brand strategy, with these massive subsidies to 
particular companies, in compliance with WTO?
    Ms. Drake. Part of the answer depends on whether it is an 
export contingent subsidy or not. It is clearly a subsidy that 
is harming U.S. industries and, therefore, even if it is not 
export contingent, is actionable at the WTO.
    Senator Merkley. So it is a yes and yes situation in that 
regard.
    Ms. Drake. Yes.
    Senator Merkley. Which then makes it yes in violation. 
Thank you.
    Mr. Webster. And the final, yes, the United States did 
bring a case against it and did win the case, and China has 
more or less not fully, but to some extent, closed down that 
famous brands project. So there was a case brought specifically 
against that.
    Senator Merkley. I will note they have still not resumed, 
though, doing full notification as required under WTO nor have 
we done counter-notifications since 2011.
    Ms. Drake. And there have been some remaining benefits from 
that program found in countervailing duty investigations.
    Chairman Brown. Mr. Meadows?
    Representative Meadows. Thank you, Mr. Chairman.
    Thank each of you for your great testimony.
    Ms. Drake, I am going to go to you. Your 17 pages of 
testimony was very illuminating and is spot on.
    But I want to follow up on one thing that you said in your 
oral testimony. You talked about the export credits and about 
the filing of either a lawsuit or a brief with regard to export 
credits.
    What agency or what person is the best position to do that? 
And then it sounded like you were a little bit ambiguous about 
the potential outcome of that. And so I would like you to 
comment on that, if you would.
    Ms. Drake. Thank you for the question.
    The responsibility for bringing a WTO case, a WTO challenge 
is with the Trade Representative's office. But this is a 
sensitive issue that normally is more in Treasury's bailiwick.
    Representative Meadows. Right.
    Ms. Drake. And the United States, starting in 2012 through 
the Strategic and Economic Dialogue and Treasury did launch 
negotiations with China to try to come to an agreement on 
guidelines to govern export credit financing.
    Now, it was of some concern that they were not trying to 
get China into the OECD arrangement, which exists, which raised 
a concern that maybe this was going to be a lower bar for 
China.
    Those negotiations were supposed to conclude by this year. 
The last public news about the status of the negotiations was 
from the last Strategic and Economic Dialogue in 2013, where it 
appeared they were focused just on sectoral issues, like ships 
and medical equipment and not the universal problem that these 
export credits pose.
    So if the United States were to bring a case, it would 
require action by USTR, but I am sure agreement within the 
Administration, including the Treasury Department.
    Representative Meadows. What is the expected outcome? 
Because that is where I saw our hesitancy, well, we can do 
that----
    Ms. Drake. I think part of the hesitancy from USTR is the 
lack of public information about the rates at which these 
export credits are provided.
    But to bring a WTO case, it is important to understand what 
burdens each side bear. The United States only bears the burden 
of showing that those rates are below market rates.
    I believe, as I outlined in my testimony, there is more 
than enough information to establish that.
    It then becomes China's burden to establish that those 
below market rates are nonetheless compliant with the OECD 
arrangement. So it is China's burden to put forward the 
information.
    So if we really ever want to get this information, probably 
a WTO dispute is the only way to get it, and I believe that we 
would prevail in a dispute, but I understand there is some 
hesitance because the United States cannot be 100 percent 
certain what the record will show, because China does not 
disclose that information.
    Representative Meadows. So is it that uncertainty that is 
the major impediment toward filing that or are there other 
impediments at this point?
    Ms. Drake. I think it is the lack of transparency, the 
uncertainty, and the amount of work that would be needed. The 
USTR has a lot of priorities and this has not risen to the top 
of the pile.
    Representative Meadows. So it becomes more of a funding and 
a priority issue for USTR than anything else.
    Ms. Drake. Right. A difficult case is harder to pursue than 
a case that is open and shut.
    Representative Meadows. Thank you.
    Professor Webster, I want to come back to you, because you 
were talking about some of the rules that get followed and the 
appeals that slow down the process.
    In the United States, they would call that doing a good job 
and having good lawyers. And so I want to make sure that we 
look at that in the proper context, because if, indeed, they 
are following rules and there are guidelines and rules within 
that, that is something that is very difficult to challenge is 
really where they break the rules, and that is the nature of 
this hearing today.
    Help define that for me, if you would, because it seemed 
like you characterized that a lot of that was just being 
prudent with--playing within the confines and not breaking the 
rules.
    Mr. Webster. Thank you. I think that is right. When you 
take an appeal, even if your appeal is not necessarily 
meritorious, you are still working within the system and that 
is why I have characterized at least their litigation 
strategies as system-maintaining as opposed to system-
challenging.
    Now, that said, there are cases, as I have outlined in my 
paper and as I have outlined in my remarks today, where China 
has not shown full compliance with those rulings, and those, I 
think, are areas where the United States bears the burden of 
holding China's feet to the fire and saying, ``Look, you need 
to make sure this regulation is canceled.''
    So in those instances, I would say China is perhaps 
challenging the system or is working outside of the fairly 
clear legal logic of the WTO.
    That has happened in only two cases. So I am not prepared 
to say that China is systematically challenging the WTO DSB 
procedures, but there are cases and I think maybe with this 
grain-oriented steel case, where we will see more of that in 
the future as China becomes more familiar and understands how 
it can manipulate the levers of international dispute 
resolution.
    Representative Meadows. Our lack of enforcement across the 
board will only encourage more breaking of potential rules. We 
find it wherever we may go. If a certain behavior is ignored, 
it will be repeated over and over again.
    So I guess my question to each one of you is how can we be 
more effective. I have heard, one, funding for USTR, helping 
them establish priorities that maybe have the most significant 
effect in terms of commerce and human rights and employees.
    What are some of the other areas that we can address or at 
least try to highlight? Anybody want to comment? Ms. Lee?
    Ms. Lee. Thank you so much. This is a really important 
issue. One question is whether the very setup of the WTO 
compliance is problematic in the sense that it is all complaint 
driven. So it takes a lot of resources, as Mr. Horn and Ms. 
Drake pointed out, to mount these cases, and there is a 
fundamental lack of information.
    In some of these cases that Ms. Drake talked about, you 
have two problems, two recalcitrant members. One is the Chinese 
Government. It is not in their interest to disclose what the 
subsidies are, how they are distributed, or what they are. The 
other is U.S. companies who, for various reasons, are fearful 
of doing that.
    So I think one piece might be more transparency. If we can 
figure out, as Ms. Drake suggested, ways of encouraging more 
transparency or using some of that budget for USTR to have more 
investigative resources, I think that would be one piece.
    Representative Meadows. And if the Chairman will indulge me 
for just one second, I will close with this. I would like each 
one of you, if you would, to submit for the record a comment on 
this.
    How can we--and it gets back to the most effective way you, 
within your particular area that you testified on here today, 
highlight that particular issue either within an agency or with 
one area where we, from a legislative point of view, could 
offer a legislative fix.
    So if you could highlight that and submit that for the 
record, I would greatly appreciate it.
    Thank you, each one of you.
    I apologize. I am going to have to step out for a South 
Sudan hearing that I am late for, but I will yield back.
    Chairman Brown. Thank you, Mr. Meadows.
    Mr. Sherman?
    Representative Sherman. Thank you.
    Ms. Lee, I could not agree with you more that we need to 
talk to the Chinese about international labor standards. But I 
will point out, before the subcommittee I was then chair of, 
the State Department I was able to get to admit that right to 
work laws are a violation of international labor standards. So 
we have some cleaning up to do at home.
    One issue before us, when we see a violation or what we 
perceive to be a violation of trade rules, is whether we 
retaliate first and then bring the action to WTO or whether we 
just file with WTO.
    Ms. Drake, a number of us up here would like to see 
immediate double-digit tariffs on all Chinese goods because of 
their currency manipulation.
    The Chinese would regard that tariff as a violation of WTO. 
Do you think that if we were to take that action, they would 
just file something with WTO and not retaliate in any way until 
that long process was completed or would they--if we imposed 
double-digit tariffs tomorrow, would they actually take some 
physical action on the ground?
    Ms. Drake. That is a very interesting question, 
Congressman. Thank you.
    If we took that action, I would not be surprised if China 
itself felt that it could also take immediate action while it 
was waiting for a WTO dispute to be resolved.
    But I do think it is worth looking at history. The WTO, 
since the founding, since the GATT, has allowed members to take 
action when they are facing balance of payment difficulties, 
and many countries have done so, including our own.
    In 1971, when Nixon imposed a temporary import surcharge to 
deal with what was then an alarming decline in our trade 
balance, which would look absolutely wonderful to most of us if 
it were our trade balance today.
    It did not result in a GATT dispute, but the United States 
did invoke those balance of payments provisions, saying this 
was an emergency situation and something needed to be done, 
and, as a result, got some concessions from Japan and other 
countries on currency issues before a GATT dispute could 
proceed.
    There was a project done a couple of years ago where our 
firm wrote a paper laying out this history and explaining the 
legal justification for countries to take balance of payments 
measures.
    So it is not out of the realm of contemplation and, in 
fact, the GATT members themselves agreed that countries have a 
right to ensure that they have more balanced trade on a 
temporary basis.
    Representative Sherman. So we could impose double-digit 
tariffs on Chinese goods either because they are a currency 
manipulator, we could defend on that basis, we could defend on 
the basis that you have just identified, that we have a 
temporary balance of payments.
    In any case, we could take action now. But when I look at 
this chart you provided, where we see this lopsided trading 
relationship, it is clear. It is not that they have got better 
workers or better business people. They have got a better 
government when it comes to fighting for the trade rights of 
their citizens.
    They would take immediate action when they think we have 
violated WTO. And as we have heard in case after case here, and 
Mr. Horn was very clear, we never take immediate action. We go 
through the process and then after the company bringing the--
that suffered the problem is bankrupt, maybe by then the WTO 
process will end.
    Mr. Horn, have your colleagues in the business world or 
business advisors or any of them said, ``Hey, you know, if you 
come publicly testify to Congress, that is going to make it 
tough for you to do business in China in the future? ''
    Mr. Horn. We talked about that and concluded we needed to 
do it, of course, or I would not be here. But there was some 
concern, particularly if we identified particular customers or 
companies, that that could make things even worse.
    Representative Sherman. I represent the entertainment 
industry and their preference is to accept whatever crumbs they 
are given rather than to note that they are allowed to show a 
limited number of pictures on a limited number of screens for a 
very limited percentage of the box office.
    They have asked me not to propose in their name, that we 
have a limited number of toys or a limited number of shoes 
imported from China sold at a limited number of stores.
    Mr. Webster, your paper, by its terms, focuses only on 
paper compliance. So if they paper comply, but they telephone 
various businesspeople and say, ``Hey, don't buy the American 
goods anyway,'' there is no way that is reflected. You would 
have no source of information.
    You are nodding, for the record.
    Mr. Webster. Yes. Yes. So, yes, that is true. As I said 
before, the WTO provides blunt tools by which to address 
certain problems in international trade.
    Representative Sherman. And it provides absolutely no tool 
for dealing with the violations that are done under the table 
as opposed to the top of the table.
    Mr. Webster. That is correct.
    Representative Sherman. And if you live in an under-the-
table country, you are going to run roughly a 4:1 trade surplus 
with a country that plays entirely above the table.
    Mr. Webster. If I might, sir, respond to your earlier 
comment about going right to slapping on tariffs.
    I might suggest that going through the process is 
worthwhile because we are, after all, a rule-of-law country. We 
want to set a good example to other countries, especially ones 
that we hope will adhere to the rule of law. Otherwise, we 
begin a race to the bottom.
    Representative Sherman. We have been setting that example 
and all the stuff takes place under the table. We have a 4:1 
trade deficit. China has four times as much to lose if there is 
a trade war as compared to us, and yet we cower behind this 
theory that if we owe them money, we dare not upset them, 
confusing international creditor relationships with domestic 
creditor relationships.
    I would point out, I fear my bank because they could take 
my home if I did not pay them. Not true in international 
creditor relationships, at least not since about 1910.
    Does anyone else have a further comment?
    [No Response.]
    Representative Sherman. I yield back.
    Chairman Brown. Thank you, Mr. Sherman.
    Let me ask one more question of the panel. Mr. Meadows kind 
of began that question and then Mr. Sherman followed up on it.
    What suggestions do you have--and I want to ask this of all 
four of you--what suggestions do you have to make this work 
better?
    Obviously, a better funded USTR. I talk to Ambassador 
Froman pretty regularly. He never whines about it. We disagree 
on TPA [Trade Promotion Authority], we disagree fundamentally 
on a number of things, but I think that this Administration has 
done a reasonably good job on enforcing trade rules, and we do 
not fund them nearly enough to do it. That is pretty clear.
    But the answer that Ms. Lee gave and then a number of you 
sort of cited with Mr. Sherman's question--and so it is 
enforcement dollars, it is transparency, and some other things.
    But my question is this--just give me general thoughts on 
how to make this work better.
    What has really troubled me on trade enforcement, I watch 
an industry in southwest Ohio, the coated paper industry, 
pretty much just more or less go out of business because of 
Chinese dumping of coated paper on industry. They did not 
even--it did not exist in China until a decade-and-a-half ago.
    They buy their wood pulp in Brazil. They ship it to China. 
They mill it on the east coast of China. They ship it back to 
the United States. They underprice our manufacturers, and it is 
not moving diamonds around. I mean, it is wood pulp and it is 
paper. It is heavy and it is dense and it is expensive to move 
for $1 of sales. Yet, they are able to.
    But my point that I should get to is that the problem is 
that by the time this industry could go through our labyrinth 
of rules and procedures--and I agree with Professor Webster, 
absolutely, we want to be known as and be a country of the rule 
of law, of course.
    But by the time it takes for an industry to go to our 
government and get action, so often, there is so much damage. I 
mean, the damage, that Mr. Horn still cannot sell his grain-
directional steel into the Chinese market has done damage to 
him. His company is vibrant enough and strong enough, it is not 
close to putting him out of business, but some industries it 
is.
    So my question is this: How do we make this--the USTR says 
it prefers to negotiate it. If that does not work, then it 
takes action at WTO.
    How do we make this--how do we just make this more 
efficient that it does not take so long to go through this 
process, follow the rule of law, but to go through this arduous 
process in a way that is a little bit faster for American 
companies and American workers to get redress and get 
enforcement, ultimately. It is decisionmaking, then enforcement 
after the decision is made.
    Did you want to start, Mr. Horn?
    Mr. Horn. It would seem to me that if there is a way to 
more expeditiously impose the retaliatory tariffs, you are 
going to go a long way toward getting compliance more quickly.
    The problem we have is that while it is true that China has 
used the rules to its advantage in terms of the delay, the fact 
of the matter is it ignored the rules at the outset when it 
issued tariffs without sufficient evidence, and without 
providing that evidence to us.
    There were a lot of places where China flouted the rules. 
Once it issued the duties and we got before the WTO, yes, it is 
true that they just took advantage of the rules. But now it has 
dragged out over multiple years that we have had to fight 
improperly imposed tariffs.
    So the only, I think, way to put pressure on China is if we 
can retaliate with tariffs that cost it business.
    So somehow I think we have to be able to expedite that if 
we are going to get China to really comply.
    Chairman Brown. Thank you. And, also, address the issue on 
the other end of--you know, we launch an investigation into all 
of this, a very complex, complicated set of behaviors to figure 
out subsidies that the Chinese might be paying, whether they 
are dumping, whether they--whatever kinds of subsidies they are 
doing.
    Ms. Drake?
    Ms. Drake. Thank you, Senator. Yes, absolutely, the trade 
remedy process, which the private industry uses, can be costly 
and can take a long time.
    So in terms of resources, it is important not only that 
USTR has sufficient resources, but also the Department of 
Commerce, International Trade Commission, particularly the 
Department of Commerce, which needs to investigate these 
subsidies and often pays those intransigents from the Chinese 
Government when it tries to do so.
    A tool that we have not used in the trade remedy area is 
self-initiation. The Administration has the ability to self-
initiate antidumping and countervailing duty cases, which would 
take the burden off the industry to gather the information to 
bring the case. But you would still need to show support in the 
industry to comply with our law and with WTO rules.
    But the Administration does have the ability to do this, 
which would be especially useful in fragmented industries, 
where it is very difficult to bring together all the players in 
order to organize a case based simply on private sector 
efforts.
    This is something that we raised with the Administration, 
particularly in the context of auto parts, where you have a lot 
of small producers that are being harmed, but do not 
necessarily have one or two or three big players that are able 
to get together and take action.
    So those are some of the things that would be helpful.
    Chairman Brown. How much faster would that self-initiation 
process be?
    Ms. Drake. It would depend on the resources that the 
government had to do it, and it can be very slow on the WTO 
side, but if there was a concerted effort to get the Commerce 
Department, the ITC, and USTR working together to gather the 
information, they might be able to do it more quickly.
    They could work with state and local governments, who would 
have information about the industries that are being harmed in 
their areas. They could work with the Labor Department on 
employment data. But it would require, again, resources, which 
seems to be the issue that we continue to come back to.
    Chairman Brown. Thank you.
    Ms. Lee?
    Ms. Lee. I want to totally agree with Ms. Drake's last 
point about self-initiation. This actually confronts a point 
that maybe we have not talked about today. The lack of 
resources for the labor movement, for unions, is a real 
obstacle to bringing trade cases, even if we are aware of 
unfair trade practices.
    In the olden days, a couple of decades ago, it was more 
common that labor and business would bring a trade case 
together. That still happens in the steel industry and in a few 
other places.
    But too often now, the interests of American workers and 
the interests of the companies they work for diverge, because 
the companies are multinational. The companies may be producing 
in China, and they may be importing into the United States. 
Even if they have operations both in the United States and in 
China or in other countries, they are often not willing to 
bring a trade case, because they do not want to jeopardize 
their relationship with the government where they have 
production. For that reason, their economic interests are 
mixed. They are benefiting from subsidies or from lack of 
enforcement of labor and environment regulations, whereas 
American workers do not benefit from that. We cannot outsource 
ourselves. We need to make a living on American soil.
    So I think the idea of self-initiation is a really 
important way to bring together the interests of labor, small 
businesses that are still located in the United States, and 
state and local governments, and try to really remake our trade 
policy in the interests of American jobs and American workers.
    So I want to reinforce that. And just to make one more 
general point about this issue: Slow dispute resolution and the 
lack of transparency are very much to the advantage of a rule 
breaker. In this case, it operates to the advantage of the 
Chinese Government.
    What we face here is that the scale of violation is so 
great that the machinery of WTO dispute resolution is simply 
inadequate. And so what we need is for our government to be 
more aggressive, and more creative in bringing these kinds of 
WTO violation cases. They need more resources to do it, because 
they are facing a scale that is unprecedented.
    In some of the areas like currency and workers' rights, 
these are more difficult cases to bring, but it is very 
important that they not shy away from them.
    Thank you.
    Chairman Brown. Thank you. Your point about self-initiation 
and in light of some companies' varied interests, whether it is 
intimidation in another country or it is production elsewhere, 
in a number of countries.
    We worked on a case brought by the Steelworkers that 
ultimately the U.S. company won and the Steelworkers, 
therefore, won, but the U.S. company did not petition with them 
because they had a good bit of production in China and in the 
United States. It was clear China was dumping this product, as 
the ITC determined and there were countervailing duties 
applied, but it took a long time and it probably would have 
been done more quickly if the company had not had the sort of 
dual interest there, which is increasingly likely, perhaps 
inevitable in some cases.
    Thank you.
    Mr. Webster?
    Mr. Webster. Thank you. First, as many of us have said 
before, the international trade regime cannot handle 
everything. So I think the first thing is to have realistic 
expectations of what we can achieve through WTO litigation in 
the first place.
    Currency manipulation, workers' rights are going to be very 
difficult to get through a WTO panel.
    Second, as I have said, the rule of law is a slow, 
laborious, and difficult process. Three, five years is a long 
time and during that time, industries, such as Mr. Horn's, are 
going to suffer, no doubt about it.
    I wonder if it might be possible to allocate government 
funds to help out these businesses while they suffer, while 
there is ongoing litigation.
    I think international trade does a lot of good things, but 
in the various industries that it displaces, it does not 
necessarily take account for or provide for people who are 
adversely affected by international trade.
    So we have lots of workers in Ohio, for example, who are 
left without jobs because manufacturing has now been outsourced 
to China.
    Having programs to train those people would be helpful and 
I think some kind of funding for industries that are currently 
engaged in WTO litigation so they do not run out of business 
might be something that the United States can do.
    And although we have said it before, I think enforcement is 
helpful. A, making sure that the violating regulations are 
spelled out clearly for China; B, holding China's feet to the 
fire to ensure that they change or modify all the regulations 
that have been specified; and, C, as we said before, beefing up 
the number of, say, Mandarin-speaking, Chinese-speaking 
experts, Chinese law experts in the USTR may be another 
suggestion to help improve enforcement.
    Chairman Brown. Thank you.
    Last question, Mr. Sherman.
    Representative Sherman. I just have a comment, and that is 
if we were to move forward with that currency manipulation, 
impose the tariff now, that would generate the funds to help 
industries. That would provide the funds for the staffing. But 
most importantly, it would change the circumstance where China 
can gain just by delaying--just by having so many infractions 
above and below the table that the system cannot handle it, and 
to watch companies and their competitors go out of business 
through delay.
    If we took that one step, we would solve all the problems 
we are talking about here.
    Chairman Brown. If not all of them, a significant number, 
because it watches over currency, watches over all products 
going in both directions. Mr. Horn would still have the problem 
of their subsidies and tariffs, but it would make a big 
difference.
    Representative Sherman. It would put us in a position to 
deal with all the problems we are talking about.
    Chairman Brown. Thank you. I would also like, without 
objection, to enter Cochairman Chris Smith's statement for the 
record. No objection. So ordered.
    Thanks to all of you for your testimony. It was very 
helpful.
    A special thanks to Mr. Liu and Ms. Ellerman from my staff 
and from the Commission for their help, their really good work 
on this hearing.
    The Commission is adjourned. Thank you all.
    [The prepared statement of Representative Smith appears in 
the appendix.]
    [Whereupon, at 11:32 a.m., the hearing was concluded.]
                            A P P E N D I X

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


                          Prepared Statements

                              ----------                              


                    Prepared Statement of David Horn

                            january 15, 2014

                              Introduction

    Chairman Brown, Chairman Smith, and Members of the Commission, I 
appreciate the opportunity to participate in today's hearing and to 
present the views of AK Steel regarding China's failure to comply with 
its obligations as a Member of the World Trade Organization (``WTO'').
    My name is David Horn. I am Executive Vice President, General 
Counsel, and Secretary of AK Steel Corporation. Headquartered in West 
Chester, Ohio, AK Steel is a leading producer of flat-rolled carbon, 
stainless and electrical steels, primarily for automotive, 
infrastructure and manufacturing, construction and electrical power 
generation and distribution markets. Through a wholly-owned subsidiary, 
the company also produces tubular steel products for truck, automotive, 
and other markets.
    China's adherence to its WTO commitments is extremely important to 
AK Steel and its 6,100 employees. The WTO system is intended to 
encourage trade and investment, break down artificial trade barriers, 
and promote efficiency and increase wealth for all. China was admitted 
into the WTO system in 2001 based on its pledges to adhere to 
international rules. Upon its accession, China obtained significantly 
improved access to most of the world's markets, including the U.S. 
market. WTO membership has paid off handsomely for China. For example, 
China is now the world's largest exporter.
    From AK Steel's perspective, China has embraced the opportunities 
offered by WTO membership but not the obligations. China's compliance 
with WTO rules is severely lacking, and AK Steel and its employees are 
suffering as a result. China's failure to follow the rules has hurt AK 
Steel in at two very concrete ways. First, the Chinese government's 
subsidization of its steel industry has created a huge oversupply of 
steel products in the global market, which depresses steel prices in 
the United States and foreign markets. Second, China continues to 
impose antidumping and countervailing duty measures on AK Steel's 
exports of Grain Oriented Electrical Steel (``GOES'') notwithstanding 
the fact that the WTO has found that these duties are not justified and 
never should have been imposed.
    I will discuss those two issues and conclude by offering a few 
modest suggestions for addressing these problems.

     China Subsidizes Its Steel Industry To An Unprecedented Degree

    The Government of China has encouraged steel production from the 
earliest days of the People's Republic. During the Great Leap Forward, 
for example, Chairman Mao oversaw construction of millions of small, 
backyard furnaces to smelt iron in rural areas. The Chinese government 
invested billions upon billions in its efforts to build an industry 
capable of dominating not only the Chinese market but also the global 
market. There is no doubt that China has achieved its objective of 
global dominance in steel. Six of the ten largest steel producers in 
the world today are Chinese companies.\1\
---------------------------------------------------------------------------
    \1\ World Steel Association, ``World Steel in Figures 2013.''
---------------------------------------------------------------------------
    In 2000, the year before China's WTO accession, the country's 
annual crude steel production was reported to be approximately 128 
million metric tons,\2\ already the largest in the world. A U.S. 
government report published in 2000 noted that although China's steel 
industry was large, it suffered from structural problems. The report 
stated, however, that the Government of China was working to address 
these problems by fostering the development of bigger, more efficient 
steel companies:
---------------------------------------------------------------------------
    \2\ World Steel Association, ``Crude Steel Production, 1980-2012.''

        [T]he Chinese government is undertaking a concerted effort to 
        upgrade key producers. Government planned and supported 
        investment projects will improve production techniques and 
        product quality. And a government-directed consolidation of the 
        industry will concentrate steel production around a small 
        number of large industrial conglomerates. The Chinese 
        government intends for these producers to enjoy the full 
        benefits of economies of scale and diversified business 
        operations.\3\
---------------------------------------------------------------------------
    \3\ U.S. Department of Commerce, ``Global Steel Trade: Structural 
Problems and Future Solutions'' (2000).

    In the years that followed, government assistance flowed to China's 
largest steel companies, and production continued to increase. From 
2000 to 2005, steel production nearly trebled.\4\ Apparently not 
satisfied, the Chinese government in 2005 promulgated an industrial 
plan entitled the Iron and Steel Policy.\5\ This plan continued and 
refined earlier policies promoting consolidation in the industry and 
upgrading equipment and technology. Article 16 of the policy specified 
that the Chinese government would support the industry directly through 
``taxation, interest subsidies, and scientific research funds.'' It 
also provided instructions for reorganizing existing steel producers 
into more efficient, larger companies and called for discriminatory 
treatment of foreign companies and technologies. Article 23, for 
example, specified that foreign investors would not be ``allowed to 
have a controlling share'' of a Chinese iron or steel company. The 
Chinese government made clear that it would support the growth of its 
steel industry and ensure that it remained Chinese.
---------------------------------------------------------------------------
    \4\ World Steel Association, ``Crude Steel Production, 1980-2012.''
    \5\ P.R.C. National Development and Reform Commission, ``Policies 
for Development of Iron and Steel Industry'' (July 8, 2005).
---------------------------------------------------------------------------
    China's 2005 steel policy had the desired effect. Chinese steel 
production increased to more than 535 million metric tons in 2009--
almost half of global steel production.\6\ Not content, the Chinese 
government issued another policy calling for additional government 
support for ``backbone'' enterprises.\7\ This new plan continued 
support through export rebatees, grants, and loans. In 2011 China 
issued yet another industrial policy for the steel industry calling for 
additional support to ``certain enterprises'' to help them attain 
``strong competitiveness and influence in the international market.'' 
\8\
---------------------------------------------------------------------------
    \6\ World Steel Association, ``Crude Steel Production, 1980-2012.''
    \7\ P.R.C. State Council, ``Steel Adjustment and Revitalization 
Plan'' (Mar. 23, 2009).
    \8\ P.R.C. Ministry of Industry Information and Technology, ``Iron 
and Steel Industry 12th Five Year Plan'' (Oct. 24, 2011).
---------------------------------------------------------------------------
    The Chinese Government's sustained support has created an industry 
bigger than either China or the world needs. In 2013 its steel industry 
reportedly produced 780 million metric tons of steel,\9\ more than 
seven times all U.S. production. Some reports have the number being 
even higher. The vastness of the Chinese steel industry is difficult to 
comprehend. Consider, for example, that after subtracting apparent 
consumption from production,\10\ the Chinese steel industry has more 
than 70 million tons of excess production. This volume exceeds steel 
production in almost all other countries. In fact, the only countries 
other than China producing more than 70 million tons of steel per year 
are Japan, the United States, and India.\11\ China's industry is so 
large that its excess production alone would qualify as the fifth 
largest steel-producing country in the world.
---------------------------------------------------------------------------
    \9\ ``China's Steel Output to Hit Record High in 2013--NDRC,'' 
Reuters (Aug. 2, 2013).
    \10\ ``China Steel Demand Rebounding as Nation Adds Railways, 
Cars,'' Bloomberg News (Mar. 13, 2013).
    \11\ World Steel Association, ``Crude Steel Production, 1980-
2012.''
---------------------------------------------------------------------------
    The opaqueness of China's governmental and economic systems makes 
it difficult to find, let alone quantify, the subsidies that benefit 
Chinese industry. China did not make its first subsidies notification 
required by the WTO until 2006, five years after it joined.\12\ This 
belated disclosure was grossly inadequate. It provided almost no 
information on the amount of funds paid out under identified subsidy 
programs and it offered no information at all about subsidies provided 
by provincial and municipal authorities. It failed to disclose one-off 
subsidies such as the government-directed gift of 51 percent of the 
shares in the Ercheng Iron and Steel Group to another Chinese steel 
producer in 2004.\13\ The recipient paid nothing for control of an 
enterprise with three million tons of capacity. China's WTO 
notification also ignored rampant debt-for equity swaps in which State-
Owned Banks forgave non-performing debt in exchange for often valueless 
shares.\14\
---------------------------------------------------------------------------
    \12\ See Office of the United States Trade Representative, ``United 
States Details China and India Subsidy Programs in Submission to WTO'' 
(Oct. 2011).
    \13\ See Citigroup Global Markets, ``China Steel Industry: Capacity 
Continues to Grow, So Does Surplus'' (Feb. 21, 2006).
    \14\ See generally Song and Liu, The Chinese Steel Industry's 
Transformation (2012).
---------------------------------------------------------------------------
    The information that is available indicates that the subsidies 
provided to Chinese steel companies are substantial. In the first U.S. 
countervailing duty investigation addressing a steel product from 
China, the U.S. Department of Commerce found in 2008 that Chinese 
producers of circular welded pipe were subsidized at rates ranging from 
approximately 30 to 45 percent ad valorem.\15\ The countervailed 
subsidy programs included export assistance grants, other types of 
grants, and the provision of hot-rolled steel to pipe producers for 
less than adequate remuneration.
---------------------------------------------------------------------------
    \15\ Circular Welded Carbon Quality Steel Pipe from the People's 
Republic of China: Final Affirmative Countervailing Duty Determination 
and Final Affirmative Determination of Critical Circumstances, 73 Fed. 
Reg. 31966 (June 5, 2008).
---------------------------------------------------------------------------
    In a 2009 decision on oil country tubular goods (``OCTG'') from 
China, the Department of Commerce found that the producers examined 
were subsidized at rates ranging from approximately 10 to 16 percent ad 
valorem.\16\ The subsidy programs included policy loans for OCTG 
production; export financing; the provision of steel rounds for less 
than adequate remuneration; grants from various government funds; 
income tax breaks for companies with foreign investment and companies 
with high technology; tax breaks for purchasing Chinese equipment; 
accelerated depreciation; debt forgiveness for State-Owned Enterprises; 
and the provision of electricity for less than adequate remuneration.
---------------------------------------------------------------------------
    \16\ Certain Oil Country Tubular Goods from the People's Republic 
of China: Final Affirmative Countervailing Duty Determination, 74 Fed. 
Reg. 64045 (Dec. 7, 2009).
---------------------------------------------------------------------------
    In 2013, the European Commission completed its first subsidies 
investigation of a Chinese steel product. The Commission found that the 
manufacture of organic coated steel products in China benefited from a 
variety of subsidies including the provision for less than adequate 
remuneration of land use rights, hot rolled steel, cold rolled steel, 
electricity, and water; policy loans; debt for equity swaps; equity 
infusions; tax breaks for research and development; tax concessions for 
designated geographical regions; and a variety of grant program.\17\ As 
it has in many U.S. cases, the Chinese Government declined to fully 
participate in the investigation, forcing the Commission to base 
several decisions on the facts available. The Commission found 
countervailing duty rates ranging from 14 to 45 percent ad valorem.
---------------------------------------------------------------------------
    \17\ Council Implementing Regulation (EU) No. 215/2013 imposing a 
countervailing duty on imports of certain organic coated steel products 
originating in the People's Republic of China (Mar. 11, 2013).
---------------------------------------------------------------------------
    Researchers Usha and George Haley recently published a study 
showing that, following WTO accession, the Chinese government has 
provided financing for 20 percent of the expansion of the country's 
manufacturing capacity, leading to ``massive excess global capacity, 
increased exports, and depressed worldwide prices, and have hollowed 
out other countries' industrial bases.'' \18\ The Haleys report that 
the Chinese "subsidies took the form of free or low-cost loans; 
artificially cheap raw materials, components, energy, and land, and 
support for R&D and technology acquisitions." The Haleys calculate that 
the Chinese steel industry received $27 billion in energy subsidies 
alone between 2000 and 2007, which allowed Chinese steel companies to 
sell their products for up to 25 percent less than comparable U.S. and 
European products.\19\
---------------------------------------------------------------------------
    \18\ Haley and Haley, ``How Chinese Subsidies Changed the World,'' 
Harvard Business Review (Apr. 25, 2013).
    \19\ Id.
---------------------------------------------------------------------------
    Toward the end of last year, AK Steel filed antidumping and 
countervailing duty petitions against imports of GOES and non-oriented 
electrical steel (``NOES'') from China. The evidence collected by AK 
Steel in connection with these petitions indicates that Chinese 
producers of electrical steel receive numerous subsidies. For example, 
we cited China's Iron and Steel Industry 12th Five-Year Plan, which 
covers 2011 through 2015, and designates electrical steel as a 
``development priority'' for China. This plan instructs Chinese 
government agencies to provide special treatment to ``leading specialty 
steel enterprises'' and to ``strongly promote specialty steel 
enterprises.'' The Iron & Steel Plan further requires that government 
entities ``coordinate'' policies to this effect, ``including fiscal 
policy, taxation policy, finance policy, trade policy, land policy, 
energy saving policy, [and] environmental protection policy.'' The 
Department of Commerce is now investigating some 30 different subsidy 
programs appearing to benefit the production of GOES and NOES in China.
    Another Chinese government program that benefits its steel 
producers is currency undervaluation. Although the U.S. Department of 
the Treasury has not named any country a currency manipulator in two 
decades, and although the U.S. Department of Commerce has declined to 
investigate whether currency undervaluation constitutes a 
countervailable subsidy, the fact is that the Chinese government 
manipulates the value of its currency, the Yuan. Although the Yuan has 
been appreciating in recent years, the International Monetary Fund 
reported in 2013 that the Yuan remains undervalued by up to 10 
percent.\20\ This provides Chinese steel exporters with a significant 
price advantage when selling their products overseas. AK Steel feels 
this pressure every day. We feel it directly when China floods the U.S. 
market with dumped and subsidized Chinese steel. We feel it indirectly 
when China floods foreign markets with dumped and subsidized Chinese 
steel and the manufacturers in those markets which cannot sell their 
products domestically then come to the U.S. to sell their products 
here, flooding the U.S. market with even more excess capacity and 
driving prices even lower.
---------------------------------------------------------------------------
    \20\ International Monetary Fund, ``2013 Pilot External Sector 
Report--Individual Economy Assessments'' (Aug. 1, 2013).
---------------------------------------------------------------------------
    It is well settled in economic theory that production subsidies 
tend to expand output.\21\ As a result, there has been a tremendous 
buildup of excess production in China. Chinese producers look to export 
markets to sell their excess production. Estimates from the National 
Development and Reform Commission, China's most important industrial 
planning agency, indicate that in 2013 the country exported 
approximately 61 million tons of steel.\22\ This amount is greater than 
all of the steel produced in South Korea or Germany, which are the 
world's sixth and seventh largest steel producing countries, 
respectively.\23\
---------------------------------------------------------------------------
    \21\ See generally World Trade Organization, ``World Trade Report 
2006.''
    \22\ ``China's Steel Output to Hit Record High in 2013 - NDRC,'' 
Reuters (Aug. 2, 2013).
    \23\ World Steel Association, ``Crude Steel Production, 1980-
2012.''
---------------------------------------------------------------------------
    China's overcapacity and overproduction are causing serious 
problems for producers in other countries, including AK Steel. As 
reported by the Wall Street Journal in May 2013, a ``surge in Chinese 
steel production and a flood of exports are pressuring world-wide steel 
prices.'' \24\ A May 2013 article in the industry publication Platts 
quotes an industry observer as noting that "Overcapacity is ensuring 
steel mills globally have `zero pricing power.' '' \25\
---------------------------------------------------------------------------
    \24\ ``Surging Chinese Steel Exports Put Pressure on World 
Prices,'' The Wall Street Journal (May 16, 2013).
    \25\ Forster, ``Steel Prices, Raw Material Costs Out Of Sync,'' 
Platts (May 2013).
---------------------------------------------------------------------------
    The unprecedented degree to which the Chinese steel industry is 
subsidized means that Chinese companies are not playing according to 
same market rules and principles as U.S. steel companies like AK Steel. 
Large Chinese steel companies have access to virtually limitless low-
cost loans from government-owned banks. They continue to expand 
production notwithstanding low prices, low profits, and mounting 
inventories.\26\ In market economies, companies cannot rely on endless 
supplies of money from the government and cannot ignore market 
conditions and produce for the sake maintaining employment for extended 
periods. These market rules do not apply in China, which increases 
capacity year after year irrespective of market signals.\27\
---------------------------------------------------------------------------
    \26\ A state-owned news agency reported in 2013 that data from the 
China Iron and Steel Association indicated that the profit rate at 
China's steel companies in the first half of 2013 was only 0.13 
percent. ``Overcapacity sends China steel sector into Loss,'' Xinhua 
(July 31, 2013).
    \27\ In the years since China's WTO accession, data from the World 
Steel Association show that China's steel production has increased 
fourfold, whereas production in the United States has been steadily 
declining.
---------------------------------------------------------------------------
    China's mammoth steel industry also squeezes foreign competitors by 
driving up costs for the raw materials used to make steel. China is, 
for example, the world's largest purchaser of iron ore, accounting for 
approximately 60 percent according to some reports. China's insatiable 
demand for raw materials has driven up global prices for raw materials 
while its overcapacity and overproduction have driven down prices for 
finished products. The result is that, for many products, the margins 
are either small or non-existent. This is not sustainable for market 
economy steel companies which must earn a profit to survive.
    This is the reality in which AK Steel exists: The Chinese 
Government has heavily subsidized its industry in order to dominate the 
world steel market. These subsidies are inconsistent with China's WTO 
obligations and detrimental to the world trading system.

   The WTO Ruled That China Violated Its WTO Obligations By Imposing 
  Antidumping and Countervailing Duties Against GOES From The United 
                                 States

    AK Steel has also been harmed by China's use of trade remedies as a 
sword instead of a shield. In the 2013 National Trade Estimate, the 
Office of the United States Trade Representative (``USTR'') reported 
that:

        The United States and other WTO members have also expressed 
        serious concerns about China's evolving practice of launching 
        antidumping and countervailing duty investigations that appear 
        designed to discourage the United States or other trading 
        partners from the legitimate exercise of their rights under WTO 
        antidumping and countervailing duty rules and the trade remedy 
        provisions of China's accession protocol. This type of 
        retaliatory conduct is not typical of WTO members, and it may 
        have its roots in China's Foreign Trade Law and antidumping and 
        countervailing duty implementing regulations, which authorize 
        ``corresponding countermeasures'' when China believes that a 
        trading partner has discriminatorily imposed antidumping or 
        countervailing duties against imports from China. Further, when 
        China has pursued investigations under these circumstances, it 
        appears that its regulatory authorities imposed duties 
        regardless of the strength of the underlying legal and factual 
        support.\28\
---------------------------------------------------------------------------
    \28\ Office of the United States Trade Representative, ``2013 
National Trade Estimate Report on Foreign Trade Barriers.''

    AK Steel has first-hand experience with the punitive and arbitrary 
nature of China's trade apparatus. China initiated antidumping and 
countervailing duty investigations of GOES from the United States in 
June 2009. Many of the subsidy programs China investigated had no basis 
in reality, and the authority made multiple demands for substantial 
volumes of confidential and irrelevant information, in an apparent 
effort to make participating impossible.
    In April, 2010 China issued its final determination. China found 
that imports of GOES from the United States had been dumped at prices 
below normal value and subsidized by the U.S. Government. China also 
found that low-priced imports had injured the domestic industry and 
that additional import duties were justified as a result. China imposed 
antidumping duties of 7.8 percent and countervailing duties of 11.7 
percent on GOES manufactured by AK Steel. Virtually the entire 
countervailing duty rate was based on adverse assumptions that AK Steel 
sold all of its production--not just GOES, but all of its products--to 
the U.S. Government at a premium under the ``Buy America'' Act. There 
was, of course, no evidence supporting this assumption, because it was 
clearly false.
    With a combined duty rate of nearly 20 percent, AK Steel was shut 
out of the Chinese GOES market. The other U.S. producer of GOES, ATI, 
faced an even higher combined duty of more than 30 percent. Prior to 
the start of the investigation, U.S. GOES exports to China totaled more 
than $270 million annually. Today the value is nearly zero.
    AK Steel was pleased when USTR filed a WTO complaint against China 
in September 2010, challenging many procedural and substantive flaws in 
China's investigation and findings. In June 2012, a WTO dispute 
settlement panel ruled in favor of the United States. It found that 
China violated its WTO obligations in numerous respects by imposing 
duties on imports of GOES from the United States. For example, the 
Panel found that

         China failed to require the Chinese petitioners to 
        provide adequate public summaries of the confidential portions 
        of their petition and thus impaired the ability of foreign 
        respondents, including AK Steel, to defend their interests.
         China's finding that its domestic producers suffered 
        adverse price effects failed to reflect an objective 
        examination of the evidence and was not based on positive 
        evidence. For example, China found that the ``low prices'' of 
        imports forced down the Chinese producers' prices, when, in 
        fact, imports were priced higher than the Chinese producers' 
        prices.
         China's finding that imports from the United States 
        were a cause of injury to the domestic industry failed to 
        reflect an objective examination of the evidence and was not 
        based on positive evidence. For example, China ignored the fact 
        that the huge increase in capacity resulting from a new Chinese 
        production facility created an oversupply of GOES in the 
        Chinese market, which caused the two Chinese producers to 
        aggressively compete on price and to lead market prices down. 
        Imports had nothing to do with this race to the bottom by the 
        Chinese producers.
         China failed to disclose the ``essential facts'' on 
        which certain of its key findings were based.
         China's assumption that all of AK Steel's sales 
        benefited from overpayments under the ``Buy America'' program 
        had no factual basis. The WTO Panel stated that on this issue 
        China's ``determination is particularly flawed in its treatment 
        of AK Steel.'' \29\
---------------------------------------------------------------------------
    \29\ Panel Report, China--Countervailing and Anti-Dumping Duties on 
Grain Oriented Flat-rolled Electrical Steel from the United States, WT/
DS414/R (circulated June 15, 2012).

China appealed certain aspects of the WTO panel's findings, but China's 
claims were rejected by the WTO Appellate Body in October 2012.\30\
---------------------------------------------------------------------------
    \30\ Appellate Body Report, China--Countervailing and Anti-Dumping 
Duties on Grain Oriented Flat-rolled Electrical Steel from the United 
States, WT/DS414/AB/R (adopted Oct. 18, 2012).
---------------------------------------------------------------------------
    Under the relevant WTO Agreements, antidumping and countervailing 
duties cannot be imposed without valid findings that dumped and/or 
subsidized imports caused material injury to a domestic industry 
producing a similar product. The WTO Panel and the Appellate Body ruled 
that China's findings did not meet this standard. In particular, the 
WTO found China failed to make a WTO-consistent finding that imports 
either (1) had adverse price effects on Chinese producers or (2) were a 
cause of material injury to the Chinese industry. As a result, no 
duties should ever have been imposed.

            China Has Refused To Comply With The WTO Rulings

    Antidumping and countervailing duties have remained in place for 
over 18 months since the WTO panel found them to be inconsistent with 
China's international obligations--and for nearly four years since the 
duties were improperly imposed. Following the USTR's victory before 
both the WTO Panel and Appellate Body, China would not agree to a 
reasonable timeline for coming into compliance with the WTO rulings. 
The United States had to request a WTO arbitrator to determine a 
reasonable period of time for China to comply.\31\
---------------------------------------------------------------------------
    \31\ See Arbitration Report, Countervailing and Anti-dumping Duties 
on Grain Oriented Flat-Rolled Electrical Steel from the United States--
Arb-2013-1/27.
---------------------------------------------------------------------------
    After the arbitrator rejected China's pleas for more time to 
comply, on July 31, 2013, China issued a revised final determination 
lowering the punitive subsidy rate of approximately 12 percent for AK 
Steel in the original decision to 3.4 percent. China did not, however, 
remedy the serious flaws in its injury and causation findings that the 
WTO had identified, and it continued to find that imports from the 
United States were a cause of material injury to its domestic industry. 
Thus, China has kept the duties in place notwithstanding the WTO's 
rulings. China's revised determination attempting to comply with the 
WTO's findings retains almost all of the errors in the original one. 
Because of China's intransigence, USTR will next need to present 
evidence and argument to explain why a WTO compliance panel should rule 
that China has failed to comply with the WTO's earlier findings. The 
United States will then need to request a WTO arbitrator to determine 
the amount of retaliation that the United States is authorized to apply 
in terms of higher tariffs on imports of China.

                      Observations And Conclusions

    Based on AK Steel's experience, China is not complying with its WTO 
commitments. From our perspective, the Chinese Government appears to 
have become very skilled in taking advantage of the benefits of WTO 
membership without accepting the corresponding obligations.
    When the United States and other Members accepted China into the 
WTO, they did so with expectations that China would comply with its WTO 
commitments to eliminate subsidies, move from a state-controlled 
economy to a market economy, and adhere to WTO rules in trade remedy 
proceedings. Instead, subsidization and state capitalism remain not 
only alive and well in China but appear to be expanding. The GOES case 
demonstrates that China will ignore its international obligations when 
applying duties to protect the industries it has chosen to support with 
vast subsidies.
    AK Steel's experience also shows that the WTO dispute settlement 
system operates too slowly to provide effective relief, especially 
where the losing party does everything it can to thwart and prolong the 
process, as China is doing on GOES. In the GOES case, the panel ruled 
against China in June 2012, and the Appellate Body affirmed that ruling 
in October 2012. More than one year has passed, yet the duties remain 
in place. The United States will need to prevail in several additional 
time-consuming proceedings in order for AK Steel to regain the market 
access that has been unjustifiably taken away by the Chinese 
government.

                          What Should Be Done

    AK Steel appreciates the support it has received from the U.S. 
government in challenging China's flawed antidumping and countervailing 
duty measures in the GOES case. We would respectfully suggest, however, 
that more should be done.
    USTR should aggressively pursue WTO complaints against China's 
failure to follow the WTO rules in applying antidumping and 
countervailing duties against U.S. exports. China has now lost several 
such cases in a row, including several challenges by USTR and one by 
the European Commission. The United States should encourage other WTO 
Members adversely affected by China's trade remedy investigations to do 
the same. As China loses more and more WTO cases, it is more likely 
that the Chinese government will bring its practices into WTO 
compliance.
    In order to allow USTR to do more, Congress should appropriate more 
funds to USTR's WTO dispute settlement function. USTR needs more 
resources to bring more WTO complaints against China and to do so more 
quickly. AK Steel fears that those charged with protecting America's 
trade rights are being outgunned. The Chinese Government hires private 
lawyers to litigate their WTO cases, many of whom are located here in 
Washington, DC. These outside lawyers become members of China's 
official WTO delegation, participate in the dispute, and speak for the 
Government of China before WTO panels and the Appellate Body. USTR, on 
the other hand, does not hire outside trade lawyers and does not allow 
private industry's trade lawyers to observe, much less participate in, 
the WTO hearings. Thus, USTR must largely rely on its own resources.
    Although I know from personal experience that USTR has talented and 
effective lawyers, I understand that most of its WTO litigators split 
their time among various responsibilities, including negotiating trade 
agreements. It would seem to me that if USTR had more lawyers dedicated 
to WTO disputes, it could launch more cases and litigate them more 
expeditiously and aggressively.
    Finally, Congress should enact The Currency Exchange Rate Oversight 
Reform Act of 2013, introduced by Senators Brown, Sessions, Schumer, 
Burr, Stabenow, and Collins, which would have the effect of applying 
the countervailing duty law to currency manipulation. Alternatively, 
Congress should attach provisions applying the countervailing duty law 
to currency manipulation to any Trade Promotion Authority bill passed 
by the Congress.
    Again, I thank you for this opportunity to testify.
                                 ______
                                 

              Prepared Statement of Elizabeth J. Drake\1\

                            january 15, 2014

                            I. Introduction

    Since China joined the WTO twelve years ago, it has become the 
world's number one exporter and the most important U.S. trading 
partner. Unfortunately, the growth in trade between the U.S. and China 
has not been balanced. While annual U.S. exports to China grew by $101 
billion from 2001 to 2013, annual U.S. imports from China rose by 
nearly $337 billion, more than three times as much.\2\ As a result, our 
trade deficit with China has nearly quadrupled since 2001. Even though 
China only accounted for eight percent of our exports to the world in 
2013, it accounted for 19 percent of our imports and a full 46 percent 
of our trade deficit.\3\
---------------------------------------------------------------------------
    \1\ Partner, Law Offices of Stewart and Stewart. This testimony is 
submitted in the author's personal capacity and not on behalf of the 
firm or its clients.
    \2\ Import and export statistics are from USITC Dataweb. Imports 
are general imports; exports are total exports. Imports and exports for 
2013 estimated based on first eleven months of data.
    \3\ Id.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Though China has reaped significant benefits from its accession to 
the WTO, it continues to violate many of its WTO obligations both on 
paper and in practice. Despite the rapid ascent of China as a major 
trading nation, the Government of China has failed to assume the 
responsibility and leadership necessary to fulfill its obligations as a 
Member of the WTO. WTO-inconsistent policies that China continues to 
pursue twelve years after accession include discrimination against 
foreign goods and firms, localization requirements, prohibited export 
subsidies and other massive trade-distorting subsidies, export 
restraints, and the abuse of trade remedies not as a legitimate means 
of correcting unfair trade but as a tool of retaliation and 
intimidation. These policies give Chinese producers and exporters a 
significant competitive advantage at the expense of producers and 
workers in the U.S., distort trade flows and competition, thwart 
innovation, and undermine the rules-based trading system.
    While USTR and the Administration have made impressive efforts to 
identify and redress such violations, more can be done. In order to 
tackle these violations, particularly in the context of a Chinese legal 
system that is not uniformly transparent, USTR needs more resources so 
it can expand and intensify its excellent work. These resources are a 
smart investment in our country's long-term competitiveness. For the 
price of additional attorneys and experts at USTR, we can do more to 
address tens of billions of dollars of WTO-illegal subsidies, blatant 
discrimination by Chinese entities, and a growing trade deficit that 
saps U.S. production, investment, and jobs. Indeed, the important 
victories the U.S. has already won at the WTO when it has challenged 
China's policies confirm how essential U.S. leadership is in holding 
China accountable to the rules it has agreed to. We made significant 
concessions when China joined the WTO; in return, it agreed to abide by 
the rules. Yet if the rules are not fully and effectively enforced, the 
sacrifices we made when China joined the WTO will have been in vain.
    USTR recently reported on the broad array of areas in which China 
has continued to fall short of its WTO commitments, including in areas 
such as intellectual property rights protection, access for investors 
and service providers, and transparency. This testimony highlights just 
four areas in which China is failing to comply with its WTO 
commitments. These are among the areas in which I believe U.S. industry 
and workers would have the most to gain from greater enforcement 
efforts by the U.S. They are: (1) billions of dollars in prohibited 
export subsidies provided by the Export-Import Bank of China and the 
China Development Bank; (2) discrimination by state-owned enterprises 
against U.S. producers and products; (3) the imposition of technology 
transfer, local content, and export requirements on companies investing 
in China; and (4) trade-distorting subsidies being provided to China's 
Strategic and Emerging Industries.
    Finally, China's undervaluation of its currency also gives Chinese 
exports a significant unfair advantage and directly harms U.S. 
producers and workers. The U.S. should consider all available options 
for addressing this distortion, including options at the IMF and WTO as 
well as action under our trade remedy laws. These written comments are, 
however, limited to the four areas listed above.

     II. Selected Examples of China's Non-Compliance with its WTO 
                              Commitments

                 A. Prohibited Export Credit Subsidies

    Article 3 of the WTO Agreement on Subsidies and Countervailing 
Measures prohibits WTO Members from providing subsidies that are 
contingent, in law or in fact, whether solely or as one of several 
other conditions, upon export performance.\4\ China committed to 
eliminate all such prohibited export subsidies when it joined the 
WTO.\5\ There is a safe harbor from this prohibition on export 
subsidies for official export credits, but only if those export credits 
comply with the terms of the OECD Arrangement on Export Credits.\6\ 
Export credits that do not comply with the terms of the OECD 
Arrangement are prohibited under WTO rules. Though China has been 
invited to join the OECD Arrangement, it has declined to do so. And, 
even though China is now the world's largest provider of export credits 
by far, it appears to be routinely flouting the terms of the OECD 
Arrangement, significantly undermining its relevance and posing a 
substantial threat to the competitiveness of U.S. exporters and their 
workers.
---------------------------------------------------------------------------
    \4\ Agreement on Subsidies and Countervailing Measures (SCM 
Agreement), Article 3.
    \5\ Protocol on the Accession of the People's Republic of China, 
WT/L/432 (Nov. 10, 2011) at para.10.3; see also Report of the Working 
Party on the Accession of China, WT/MIN(01)/3 (Nov. 10, 2011) at 
para.para.167-168.
    \6\ SCM Agreement, Annex I, item (k).
---------------------------------------------------------------------------
    In 2012, the U.S. ExIm Bank estimates that the Export-Import Bank 
of China (China ExIm) issued $45 billion in new medium- and long-term 
export credits, almost one-and-a-half times the value of such credits 
newly issued by the U.S. ExIm Bank in 2012.\7\ An additional $50 
billion in export credits is estimated to have been provided by the 
China Development Bank.\8\ In all, China provided over $3 in export 
credits to Chinese firms for every dollar provided by the U.S. to its 
exporters.
---------------------------------------------------------------------------
    \7\ Export-Import Bank of the United States, Report to the U.S. 
Congress on Export Credit Competition and the Export-Import Bank of the 
United States (June 2013) at 18.
    \8\ Id. at 143.
---------------------------------------------------------------------------
    China ExIm explains that the purpose of its programs is to support 
the export of Chinese products and improve their competitiveness in the 
international market, and it describes the export seller's credit as a 
loan with large amount, long maturity, and preferential interest 
rate.\9\ While China ExIm reveals little information about the rates 
that are charged under these programs, there are various second-hand 
reports indicating that the terms of this financing are highly 
concessional, with some sources citing rates as low as two, one, or 
zero percent.\10\ This information has led the U.S. ExIm Bank to 
conclude that China's export financing does not comply in practice with 
the terms of the OECD Arrangement.\11\
---------------------------------------------------------------------------
    \9\ See The Export-Import Bank of China, ``Introduction;'' The 
Export-Import Bank of China, ``Export Seller's Credit.''
    \10\ See, e.g., Ryan J. Orr and Jeremy R. Kennedy, ``Highlights of 
recent trends in global infrastructure: new players and revised game 
rules,'' Transnational Corporations, Vol. 17, No. 1 (April 2008) at 
108-109; Deborah Brautigam, China's African Aid: Transatlantic 
Challenges, the German Marshall Fund of the United States (April 2008) 
at 25-26. See also Terence P. Stewart, et al., China's Support Programs 
for Automobiles and Auto Parts under the 12th Five-Year Plan (Jan. 
2012) at 60.
    \11\ Export-Import Bank of the United States, Report to the U.S. 
Congress on Export Credit Competition and the Export-Import Bank of the 
United States (June 2013) at 18.
---------------------------------------------------------------------------
    To bring a successful WTO challenge to these subsidy programs, the 
U.S. must make out a prima facie case that the Chinese government 
provides export financing, that the financing is contingent on export 
performance, and that the rates at which the financing is provided are 
below market rates. Each of these elements seems relatively 
straightforward to establish based on publicly available information. 
While there is little transparency regarding the rates at which much of 
China's export credits are provided, the People's Bank of China does 
put out regular circulars indicating that at least one category of 
export credits, for high- and new-technology products, is subject to a 
rate that is lower than the Bank's own benchmark rate for 
``commercial'' loans. According the China ExIm, such high- and new-tech 
products account for more than a third of their export sellers' credit 
disbursements.\12\ Once this prima facie case is made, the burden would 
shift to China to come forward with sufficient information and argument 
to demonstrate that its export credits nonetheless comply with the 
terms of the OECD Arrangement and are thus not prohibited under WTO 
rules.
---------------------------------------------------------------------------
    \12\ China ExIm 2012 Annual Report at 15.
---------------------------------------------------------------------------
    Instead of mounting a WTO challenge to China's export credits, the 
U.S. has instead opted to pursue negotiations with China to regulate 
its export financing activities. Rather than seeking China's accession 
to the OECD Arrangement, however, the U.S. is negotiating with China to 
agree to ``international guidelines'' for official export credits that, 
while ``consistent with international best practices,'' also ``tak[e] 
into account varying national interests and situations.'' \13\ The 
description of the negotiations raises concerns that China is seeking 
to avoid a WTO dispute by agreeing to guidelines that fall short of the 
requirements of the OECD Arrangement, which would be a significant step 
backward from the rules that have governed export financing for 
decades.
---------------------------------------------------------------------------
    \13\ U.S. Department of the Treasury, ``Joint U.S.-China Economic 
Track Fact Sheet--Fourth Meeting of the U.S. China Strategic and 
Economic Dialogue (S&ED),'' (May 4, 2012).
---------------------------------------------------------------------------
    Yet even the modest goals of the negotiations may be too ambitious 
for the U.S. and China to meet. While the negotiations originally 
intended to result in agreement by 2014, no final agreement has been 
announced to date. Moreover, the most recent public statements 
regarding the negotiations suggest that any agreement may be limited to 
certain sectoral guidelines, and not result in a universal set of rules 
covering all export financing activity. In July of this year, the U.S. 
and China explained that negotiations had begun in earnest on 
guidelines for the ships and medical equipment sectors, and that such a 
sectoral agreement was hoped for by 2014.\14\ While it is unknown how 
much medical equipment is supported by China's export financing, ships 
account for less than 11 percent of China's export sellers' credit 
disbursements in 2012.\15\
---------------------------------------------------------------------------
    \14\ U.S. Department of the Treasury, ``Joint U.S.-China Economic 
Track Fact Sheet--Fifth Meeting of the U.S.-China Strategic and 
Economic Dialogue'' (July 12, 2013).
    \15\ China ExIm 2012 Annual Report at 15.
---------------------------------------------------------------------------
    Moreover, in the midst of these negotiations, the Government of 
China has repeatedly denied officials from the U.S. Department of 
Commerce the ability to verify the amounts of export financing 
benefitting Chinese producers in the context of countervailing duty 
investigations on imports from China on an array of products, including 
solar cells, wind towers, and shrimp.\16\ In one such instance, when 
Commerce officials asked if they could query China ExIm's loan database 
(a standard practice to verify the extent of government subsidies), 
China ExIm officials refused, stating they could not permit Commerce to 
view the database, that Commerce ``should trust them'' in this matter, 
and that it would be ``nonsense'' for Commerce to view the database if 
they did not trust their statements.\17\
---------------------------------------------------------------------------
    \16\ See Memorandum from Mark Hoadley, Program Manager, AD/CVD 
Operations, Office 6, ``Countervailing Duty Investigation of 
Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into 
Modules, From the People's Republic of China: Verification of the 
Questionnaire Responses Submitted by the Government of China'' (Aug. 
15, 2012) at 16.
    \17\ Id.
---------------------------------------------------------------------------
    Absent greater cooperation and transparency from China regarding 
its export financing programs, the U.S. should not hesitate to 
challenge these prohibited export subsidies at the WTO. China is 
already bound by WTO rules that prohibit export credits that do not 
comply with OECD Arrangement, and permitting China to provide ever 
greater sums of export subsidies in defiance of these rules serves only 
to further undermine U.S. competitiveness and, as a result, production, 
investment, and jobs here in the U.S.

              B. Discrimination by State-Owned Enterprises

    State-owned enterprises (SOEs) have had, and continue to have, a 
dominant presence in the Chinese market, and the Government of China 
has professed a policy of strengthening political control of SOEs and 
consolidating their position in key sectors. During the negotiation of 
China's accession to the WTO, Members voiced their concerns regarding 
the role of the Chinese Government in the decisions and activities of 
SOEs,\18\ and China agreed to a number of important disciplines on 
their SOEs as a result.
---------------------------------------------------------------------------
    \18\ Report of the Working Party on the Accession of China, WT/
MIN(01)/3 (Nov. 10, 2011) at para.44.
---------------------------------------------------------------------------
    Article III:4 of the GATT prohibits discriminatory treatment of 
imported goods--while there is a limited carve-out to this obligation 
for government purchases of goods for governmental purposes, the 
exception does not apply when SOEs procure goods for commercial 
purposes. Nor is there any exemption for SOEs outside of the purchasing 
context, such as in their negotiation of joint venture agreements. 
National treatment obligations in the GATS have a similar scope, though 
they only apply to sectors in which Members have made positive 
commitments.
    China made additional, specific commitments to respect the 
principle of non-discrimination in SOE purchasing decisions. In its 
Protocol of Accession and accompanying Working Party Report, China 
agreed that SOEs shall make purchases based solely on commercial 
considerations, that foreign enterprises will have an adequate 
opportunity to compete for such contracts on a non-discriminatory 
basis, that China will not influence, directly or indirectly, the 
purchasing decisions of SOEs, and that SOEs' commercial purchases will 
not be subject to government procurement exceptions.\19\ These 
commitments apply to purchases of both goods and services, and they 
appear to require non-discrimination not only for imports but also for 
foreign-invested firms in China.
---------------------------------------------------------------------------
    \19\ Report of the Working Party on the Accession of China, WT/
MIN(01)/3 (Nov. 10, 2011) at paras. 46, 47, 342; Accession of the 
People's Republic of China, WT/L/432 (Nov. 23, 2011) at Sec. 1(2).
---------------------------------------------------------------------------
    China appears to be in violation of these important commitments. In 
the telecommunications sector, for example, China's big three state-
owned operators reportedly purchase under a government directive to buy 
domestic components and equipment.\20\ The government's policy is 
reflected in the telecom operators' discussion of their purchasing 
arrangements. China Unicom, for example, purchases equipment through 
contracts with its state-owned parent, and it warns investors that the 
arrangement may not be in the best interests of shareholders.\21\ Under 
the arrangement, the state-owned parent gets three percent of the 
contract cost for purchases of domestic equipment but only one percent 
of the contract cost for imported equipment,\22\ creating an incentive 
for the parent company to procure equipment from domestic producers 
even if it is more expensive than imported equipment.
---------------------------------------------------------------------------
    \20\ USTR, 2011 National Trade Estimate Report on Foreign Trade 
Barriers (March 2011) at 64.
    \21\ China Unicom 2008 Form 20-F at 10.
    \22\ China Unicom 2009 Form 20-F at 83.
---------------------------------------------------------------------------
    Discrimination also appears in the form of domestic content and 
localization provisions in Chinese SOEs' sourcing and joint venture 
contracts. In the wind-energy sector, for example, the state-owned 
producer Sinovel contracted to purchase wind turbine components from 
American Superconductor for delivery from 2009 to 2011. The contract 
set out a ``localization schedule'' under which converters which 
American Superconductor had produced with foreign material would 
instead be produced with Chinese materials.\23\ By 2010, American 
Superconductor reported that it had successfully localized the supply 
of components for its converters to China.\24\ More recently, as part 
of an agreement to establish a joint-venture with a Chinese SOE to 
produce trucks in China, Daimler similarly agreed to ``localize'' the 
production of the truck engines to China.\25\
---------------------------------------------------------------------------
    \23\ American Superconductor Corp. Form 8-K (June 5, 2008) at Ex. 
10.1.
    \24\ American Superconductor Corp. Form 10-Q (Aug. 5, 2010) at 18.
    \25\ ``Germany's Daimler to Make Trucks in China,'' Agence France 
Presse (Sept. 26, 2011); ``Final Approval Issued by Chinese 
Authorities: Way Clear for Daimler's Truck Joint Venture with Foton,'' 
Daimler.com (Sept. 26, 2011).
---------------------------------------------------------------------------
    The U.S. and other countries expended significant negotiating 
effort and bargaining capital to secure accession commitments from 
China regarding SOEs that go above and beyond the rules in the WTO 
Agreements. The U.S. has continued to press China to honor these 
commitments, and obtained promises of compliance in the context of the 
Strategic and Economic Dialogue and other fora.\26\ Yet, after twelve 
years and substantial evidence that these commitments have not been 
honored, there has been no formal challenge to enforce the obligations 
that China undertook. This lack of formal enforcement is particularly 
problematic given current efforts to build upon these SOE disciplines 
in new trade and investment agreements. While new and stronger rules 
are certainly needed, the U.S. must also send a strong signal that the 
existing rules will be effectively enforced.
---------------------------------------------------------------------------
    \26\ See, e.g., USTR, 2013 Report to Congress on China's WTO 
Compliance (Dec. 2013) at 70-71.
---------------------------------------------------------------------------

         C. Technology Transfer and Other Investment Conditions

    As part of its accession to the WTO, China committed to be bound by 
the obligations contained in the Agreement on Trade-Related Investment 
Measures (TRIMs Agreement). Pursuant to Article 2 of the TRIMs, Members 
shall not apply any trade-related investment measure that is 
inconsistent with the national treatment obligation or the elimination 
of quantitative restrictions obligation contained in Articles III and 
XI, respectively, of the GATT.\27\ The Annex to this provision provides 
an illustrative list of trade-related investment measures that would be 
inconsistent with Article 2, including measures that require an entity 
to purchase or use domestic products or that limit an entity's 
importation, purchase, or use of imported products based on the amount 
of the entity's exports.\28\ In addition to complying with TRIMs, China 
also committed in its Accession Protocol to, ``eliminate and cease to 
enforce trade and foreign exchange balancing requirements, local 
content and export or performance requirements made effective through 
laws, regulations or other measures.'' \29\ Moreover, China agreed not 
to enforce provisions of contracts imposing such requirements.\30\ 
China also agreed to ensure that any means for approving investments in 
China not be conditioned on: ``whether competing domestic suppliers of 
such products exist; or performance requirements of any kind, such as 
local content, offsets, the transfer of technology, export performance 
or the conduct of research and development in China.'' \31\
---------------------------------------------------------------------------
    \27\ Agreement on Trade-Related Investment Measures Art. 2.1.
    \28\ Id., Annex para. 1.
    \29\ Protocol on the Accession of the People's Republic of China, 
WT/L/432 (Nov. 10, 2011) at para.7.3.
    \30\ Id.
    \31\ Id.
---------------------------------------------------------------------------
    While China has revised or eliminated some measures to conform with 
these obligations, measures continue to remain in place that impose--
whether through formal requirements or ``encouragement''--local content 
and export requirements, as well as technology transfer and research 
and development requirements. As explained in the 2013 National Trade 
Estimate Report on Foreign Trade Barriers:

        some laws and regulations `encourage' exportation or the use of 
        local content. Moreover, according to U.S. companies, some 
        Chinese government officials, even in the absence of applicable 
        language in a law, regulation or agency rule, still consider 
        factors such as export performance and local content when 
        deciding whether to approve an investment or to recommend 
        approval of a loan from a Chinese policy bank . . . .\32\
---------------------------------------------------------------------------
    \32\ USTR, 2013 National Trade Estimate Report on Foreign Trade 
Barriers at 91.

    Although such measures are inconsistent with China's WTO 
obligations, policies tying foreign investment to export performance, 
local content, technology transfer, and research and development 
investments appear to continue to be present in a variety of industries 
throughout China.
    For example, a foreign tire company that started producing in China 
in 2008 was required by its business license to commit to export all of 
its production for the first five years of its operation.\33\ 
Additionally, the Catalogue Guiding Foreign Investment in Industry, 
with the most recent update entering into force in January 2012, lists 
industries that are encouraged, restricted, or permitted.\34\ As 
explained in the most recent WTO Trade Policy Review of China, 
``[f]oreign investment in the restricted category may be permitted, 
subject to approval, if export sales are over 70% of total sales of the 
product.'' \35\ Industries listed in the most recent catalogue as 
``restricted'' include, inter alia, chemical raw material products 
manufacturing, non-ferrous metal smelting and rolling processing, and 
common and special purpose equipment manufacturing.\36\ The U.S. has 
exerted substantial efforts to obtain revisions to the Catalogue and 
other measures that restrict investment and thus provide leverage to 
obtain export and local content commitments, as well as other 
commitments from investors.\37\ However, in its most recent report on 
China's WTO compliance, USTR notes its disappointment that China has 
not always been responsive to these efforts.\38\
---------------------------------------------------------------------------
    \33\ U.S. International Trade Commission, Certain Passenger Vehicle 
and Light Truck Tires from China, Inv. No. TA-421-7, USITC Pub. 4085 
(July 2009) at 34, n.190.
    \34\ See Trade Policy Review Body, Trade Policy Review Report by 
the Secretariat China, WT/TPR/S/26/Rev.1 (July 20, 2012) at para.45.
    \35\ Id. at para.48.
    \36\ Catalogue for the Guidance of Foreign Investment Industries 
(amended in 2011), available at http://english.mofcom.gov.cn/article/
policyrelease/aaa/201203/20120308027837.shtml.
    \37\ USTR, 2013 Report to Congress on China's WTO Compliance (Dec. 
2013) at 80-81.
    \38\ Id. at 81.
---------------------------------------------------------------------------
    Moreover, as noted in The President's 2013 Trade Policy Agenda, the 
United States and other WTO Members have ``continually reported that 
some Chinese government officials, who typically retain a high degree 
of discretion when reviewing investment applications, still considered 
factors such as technology transfer and local content when reviewing 
investment applications.'' \39\ In the area of technology transfer, for 
example, such violations continue to persist due to provisions in 
Chinese law and regulations that require that any technology provided 
by a foreign investor as part of a joint venture agreement be 
``advanced'' and be appropriate to help the venture compete (including 
internationally); \40\ furthermore, all such technology transfer 
agreements must be submitted for government approval.\41\ Various 
foreign firms have been subject to localization or technology transfer 
requirements in order to be able to invest in China and/or sell to 
Chinese firms (particularly state-owned firms, as noted in Section 
II.B, above).
---------------------------------------------------------------------------
    \39\ U.S. Trade Representative, The President's 2013 Trade Policy 
Agenda at 27.
    \40\ Regulations for the Implementation of the Law on Sino-Foreign 
Equity Ventures, art. 41 (July 22, 2001).
    \41\ Id. at Arts. 3-4.
---------------------------------------------------------------------------
    The automotive sector is one sector where these types of investment 
conditions are evident. For example, China waives requirements that 
foreign investors seeking to produce complete automobiles must enter 
into joint ventures with majority Chinese ownership if the venture is 
located in an export processing zone.\42\ China has also used 
investment approval measures to access technology for new energy 
vehicles (NEVs). In March 2011, the National Development and Reform 
Commission issued a draft Catalogue Guiding Foreign Investment in 
Industry that proposed a new limitation on foreign ownership in NEV 
parts manufacturing facilities in China to no more than 50 percent.\43\ 
After repeated efforts by the U.S., China removed the 50 percent limit 
for almost all of the key components of NEVs in the final version 
issued in January 2012, but retained the restriction on NEV 
batteries.\44\ This is a significant limitation on foreign ownership in 
the NEV industry, because batteries are one of the critical components 
of most NEVs. By requiring foreign investors to partner with domestic 
firms, and by requiring domestic firms to have ``mastery'' over the 
technology involved in such ventures, China ensures that any foreign 
investor in the critical technology will be sharing that technology 
with its Chinese joint venture partner. USTR notes that it remains 
difficult to assess the extent to which China has implemented the 
commitments it made to comply with its WTO commitments in the NEV 
sector as far back as 2011.\45\
---------------------------------------------------------------------------
    \42\ Policy on Development of Auto Industry (May 21, 2004) at 
Article 49.
    \43\ See USTR, 2013 National Trade Estimate Report on Foreign Trade 
Barriers at 69. See also USTR, 2013 Report to Congress on China's WTO 
Compliance (Dec. 2013) at 83-84.
    \44\ Id.
    \45\ USTR, 2013 Report to Congress on China's WTO Compliance (Dec. 
2013) at 83.
---------------------------------------------------------------------------
    Despite repeated requests from the U.S. to eliminate these WTO-
inconsistent policies, and repeated assurances from China that such 
measures are not enforced, USTR continues to express its concern that 
investment approvals in China are conditioned on export performance, 
local content, technology transfer and research and development 
investment requirements. All such requirements are explicitly 
prohibited under terms the U.S. negotiated with China when it joined 
the WTO. While some requirements appear to be imposed on an ad hoc or 
informal basis, others are based in the provisions of Chinese law and 
policies, and form a sufficient basis for challenge at the WTO. The 
U.S. should work to develop the facts and arguments necessary to 
challenge these harmful policies at the WTO and bring China into 
compliance with its commitments.

           D. Subsidies to Strategic and Emerging Industries

    When China joined the WTO, it agreed not only to eliminate 
prohibited subsidies such as export subsidies, but also to be subject 
to WTO rules which make subsidies which are not prohibited actionable 
if they cause serious prejudice to another Member. When a government 
makes a financial contribution that is specific to an industry or 
region, and that contribution confers a benefit, WTO rules permit other 
Members to challenge those subsidies if they displace their exports, 
cause lost sales, suppress or depress prices, or increase the 
subsidizing country's share of world trade in the subsidized good. 
Since 2006, the U.S. has investigated hundreds of subsidy programs 
benefitting dozens of goods exported from China to the U.S., including, 
among others, reduced tax rates for companies in preferred industries 
and regions,\46\ \47\ preferential policy lending from state-owned 
banks at below market rates at the central and provincial levels,\48\ 
the provision of electricity and key raw materials by SOEs for less 
than adequate remuneration (LTAR),\49\ \50\ the provision of land by 
central and local governments for LTAR,\51\ and numerous grant 
programs.\52\ In response to the lack of transparency in China 
regarding the broad array of subsidy programs it maintains, as well as 
its failure to notify the WTO of these programs as required by WTO 
rules, in 2011 the U.S. submitted a counter subsidy notification to the 
WTO that covers hundreds of subsidy programs at the central and sub-
central levels of the Chinese government.\53\ These include export 
subsidies and domestic content subsidies, as well as other injurious 
subsidies.\54\ More than two years later, action to eliminate these 
subsidies still has not occurred.
---------------------------------------------------------------------------
    \46\ Light-Walled Rectangular Pipe and Tube From the People's 
Republic of China: Final Results of the Expedited First Sunset Review 
of the Countervailing Duty Order, 78 Fed. Reg. 48416 (Dep't Comm. Aug. 
8, 2013), and accompanying Issues and Decision Memorandum at 6.
    \47\ Certain Kitchen Appliance Shelving and Racks From the People's 
Republic of China: Final Results of Countervailing Duty Administrative 
Review; 2010, 78 Fed. Reg. 21594 (Dep't Comm. Apr. 11, 2013) and 
accompanying Issues and Decision Memorandum (``KASR IDM'') at 7-8.
    \48\ Drill Pipe From the People's Republic of China: Final Results 
of Countervailing Duty Administrative Review; 2011, 78 Fed. Reg. 47275 
(Dep't Comm. Aug. 5, 2013) and accompanying Issues and Decision 
Memorandum at 11-13.
    \49\ Id. at 13-14.
    \50\ KASR IDM at 9-12.
    \51\ Drawn Stainless Steel Sinks From the People's Republic of 
China: Final Affirmative Countervailing Duty Determination, 78 Fed. 
Reg. 13017 (Dep't Comm. Feb. 26, 2013) and accompanying Issues and 
Decision Memorandum (``Steel Stinks IDM'') at 22-24.
    \52\ KASR IDM at 13-14, 15; Steel Stinks IDM at 25-28.
    \53\ See Subsidies--Request from the United States to China 
Pursuant to Article 25.10 of the Agreement, G/SCM/Q2/CHN/42 (Oct. 11, 
2011).
    \54\ See id.
---------------------------------------------------------------------------
    To date, however, the U.S. has only challenged prohibited subsidies 
provided by China at the WTO--it has not taken any action to challenge 
non-prohibited subsidies that are nonetheless causing harm to American 
industries and workers both in the U.S. market and abroad. Instead, 
industries seeking relief from such subsidy programs must file a 
countervailing duty case and seek import duties to offset those 
subsidies; even if relief is obtained, it only covers competition in 
the U.S. market, not in China or third-country markets. While disputes 
challenging actionable subsidies are fact-intensive and thus 
complicated to pursue, providing companies and workers with only 
partial relief through the domestic trade remedy system imposes major 
long term costs on our ability to compete.
    This ability to compete is particularly threatened in the seven 
``Strategic and Emerging Industries'' (SEIs) in which China plans to 
invest a reported $1.5 trillion dollars over the coming years. China's 
12th Five-Year Plan for National Economic and Social Development (2011-
2015) identifies seven priority SEIs and aims to increase their 
contribution to GDP from the current 2 percent level to 8 percent by 
2015 and 15 percent by 2020.\55\ Achieving this goal would require the 
sectors to grow more than seven times over in size over less than a 
decade--a massive undertaking that could likely not be achieved without 
displacing foreign competitors from the market. Indeed, the Government 
of China's explicit goal is to displace global competitors in each of 
the seven sectors; it aims to become a global leader in each of these 
industries by 2030.\56\
---------------------------------------------------------------------------
    \55\ China's 12th Five-Year Plan for National Economic and Social 
Development at Chapter 10, translation available at http://
www.britishchamber.cn/content/chinas-twelfth-five-year-plan-2011-2015-
full-english-version.
    \56\ Emerging Strategic Industries: Aggressive Growth Targets, 
China Strategy, HSBC Global Research (October 19, 2010).
---------------------------------------------------------------------------
    The seven SEIs are key industries that many countries will be 
hoping to pursue in the coming years: (1) energy saving and 
environmental protection; (2) new generation of information technology; 
(3) biotechnology; (4) high-end equipment manufacturing; (5) new 
energy; (6) new materials; (7) new energy vehicles.\57\ China's State 
Council first identified these industries in its Decision on 
Accelerating the Fostering and Development of New Strategic Industries 
announced in 2010. China will provide SEIs with preferential policies, 
incentives, and funds that media reports indicate could reach $1.5 
trillion from 2011 to 2015.\58\
---------------------------------------------------------------------------
    \57\ China's 12th Five-Year Plan for National Economic and Social 
Development at Chapter 10, translation available at http://
www.britishchamber.cn/content/chinas-twelfth-five-year-plan-2011-2015-
full-english-version.
    \58\ See Ping Gong and Jessica Wang, China's 12th Five-Year Plan: 
An Overview (May 18, 2011).
---------------------------------------------------------------------------
    In 2012, China issued three catalogues on SEIs development. Among 
these, the Development Priorities of Key Generic Technologies and Key 
Products in Strategic Emerging Industries issued by MIIT in July 2012 
stands out because it identifies major research and development units 
and major companies, as well as government policies and funds designed 
to spur development in each category. However, only a small number of 
companies listed have any foreign investment, as the list heavily 
favors Chinese-invested firms, particularly state-owned enterprises and 
national champions.\59\ MIIT further suggested that another catalogue 
should be used by other Chinese government departments to ``issue 
targeted supporting fiscal and taxation policies.'' \60\
---------------------------------------------------------------------------
    \59\ USTR, 2013 National Trade Estimate Report on Foreign Trade 
Barriers at 98.
    \60\ Id.
---------------------------------------------------------------------------
    The Chinese government has decided to dedicate a tremendous amount 
of resources to help these industries develop and overtake global 
competitors. If China succeeds, it will be because the subsidies it 
provides to these industries enable them to take market share from 
other producers, including industries in the U.S. The U.S. is closely 
following the SEI program, and it has urged China to be more 
transparent about subsidies provided to these industries.\61\ As part 
of this monitoring, the U.S. should ensure that any negative impact the 
SEI policy does have on U.S. producers and workers is quickly and 
effectively redressed, including through WTO dispute settlement if 
merited.
---------------------------------------------------------------------------
    \61\ USTR, 2013 Report to Congress on China's WTO Compliance (Dec. 
2013) at 46-47.
---------------------------------------------------------------------------

                            III. Conclusion

    Holding China accountable to its WTO commitments should be one of 
the very top trade priorities of the U.S. government. China is our 
largest trading partner, and continued violations by China distort 
trade and investment, contribute to a growing trade deficit, harm U.S. 
producers and workers, and undermine innovation. USTR has made 
significant strides in its China enforcement efforts in recent years, 
and those efforts are paying off in successful WTO dispute settlement 
outcomes and negotiated commitments obtained bilaterally from China. As 
China's role in the world trading system continues to grow, however, 
its responsible compliance with the rules of the road remains sorely 
lacking. In the four areas identified in this testimony, there appear 
to be meritorious WTO disputes that would affect billions of dollars in 
subsidies, the development and safeguarding of critical technologies, 
and industries that support thousands of American jobs. Additional 
enforcement resources and intensified enforcement efforts would deliver 
significant benefits to U.S. firms, workers, and communities.
                                 ______
                                 

                   Prepared Statement of Thea Mei Lee

                            january 15, 2014
    Good morning, Chairman Brown and Chairman Smith, members of the 
Commission. Thank you for inviting me to testify on behalf of the 
twelve and a half million working women and men of the AFL-CIO on 
China's compliance with its World Trade Organization (WTO) obligations 
and how that record impacts American workers.
    I would like to start by congratulating the Commission for its 
excellent work over the past thirteen years, particularly under the 
leadership of the current chairmen. It is essential that the U.S. 
Congress and the White House pay attention to the breadth of issues 
that affect our economic and national security relationship with China, 
and the CECC has helped to bring needed attention to human rights, 
democracy, and rule of law.
    Too often, our bilateral dialogues focus solely on narrow 
commercial concerns. As the CECC pointed out in its 2013 report, 
though, workers' rights, human rights and rule of law issues are also 
central to American workers, consumers and businesses. We urge that 
these concerns be made an integral part of all bilateral U.S.-China 
economic dialogues and that our government seek more effective avenues 
for raising these concerns within the multilateral framework of the WTO 
and other international bodies.
    When China joined the WTO more than twelve years ago, the AFL-CIO 
and many other organizations raised concerns about:

        (1) whether WTO rules were adequate to protecting workers' 
        rights and the environment, promoting democracy and 
        development, addressing currency manipulation or supporting 
        U.S. jobs and manufacturing;
        (2) whether China would comply with WTO commitments, and, if 
        not, whether WTO enforcement measures would be adequate;
        (3) whether the U.S. government had the will and/or the tools 
        to use WTO mechanisms effectively to protect the interests of 
        American workers and domestic producers, rather than just the 
        interests of multinational corporations.

    On all these fronts, after twelve years, the results have been 
disappointing, and American workers and domestic businesses pay a high 
price every day for these failures.
    Rapid industrialization and export growth in China far outpaced the 
development of regulatory institutions, laws, and enforcement capacity. 
Workers' rights, environmental protections, and consumer safety did not 
naturally and automatically improve, while foreign investment and 
exports grew rapidly. WTO rules were ineffectual at addressing any of 
these problems. While the Obama Administration has taken several 
important and effective trade actions to protect U.S. interests, these 
have not matched the scale of China's non-compliance.
    In addition, other developing countries striving to protect 
workers' rights and improve living standards have lost market share and 
investment to China. The Chinese government's currency manipulation 
continues to be a concern, and the U.S. government has failed to use 
international trade tools effectively to counter this intervention. In 
fact, the WTO's paralysis in the face of currency manipulation by China 
and other countries highlights an enormous gap in international trade 
rules. Finally, China's workers continue to see their most fundamental 
rights routinely violated, worker insecurity and unrest continues to 
grow, and the Chinese government continues to crack down on most forms 
of dissent.
Trade Impact
    Our trade deficit with China has almost quadrupled in nominal terms 
since WTO accession--from $84 billion in 2001 to an estimated $320 
billion in 2013. Robert Scott of the Economic Policy Institute has 
estimated that the growth in the U.S. trade deficit with China between 
2001 and 2011 displaced about 2.7 million American jobs.\1\ Our 
imbalanced trade relationship with China has resulted in a huge 
transfer of intellectual property as a result of Chinese intellectual 
property theft, as well as forced technology transfers. The Chinese 
government's continuing violation of its workers' fundamental labor 
rights has limited not only the economic prospects of its own people, 
but has diminished opportunities for American workers as well.
---------------------------------------------------------------------------
    \1\ ``The China Toll: Growing U.S. trade deficit with China cost 
more than 2.7 million jobs between 2001 and 2011, with job losses in 
every state,'' Robert E. Scott, EPI Briefing Paper, Economic Policy 
Institute, August 23, 2012 (available at: http://www.epi.org/
publication/bp345-china-growing-trade-deficit-cost/).
---------------------------------------------------------------------------
    China's actions are continuing to distort global trade and 
investment patterns and stymie our still weak recovery. The government 
of China's failure to honor its WTO commitments has had dire 
consequences for U.S. workers and the American economy, causing 
businesses to shut their doors and leaving their former workers 
unemployed.
    Perhaps even more disturbing than the aggregate growth in the U.S. 
trade imbalance with China is the composition of our imports and 
exports. In 2013, we ran a trade deficit with China in advanced 
technology products of $106 billion - up more than ninefold from less 
than $12 billion in 2002 and $31 billion more than our overall ATP 
deficit. In fact, we ran trade surpluses in ATP with most of our other 
trading partners in 2013, and no other country had an imbalance larger 
than $16 billion. This should raise many questions about the underlying 
policies skewing this important trade balance.
    Among the key issues that must be addressed are:
Currency
    If China increased the value of its currency to the level it would 
be if free market forces were able to prevail, the resulting growth in 
the United States could create 2.25 million new U.S. jobs, according to 
a 2011 EPI report.\2\ According to the report, if the value of the 
Chinese currency, the yuan, and satellite currencies, such as those in 
Hong Kong, Taiwan, Singapore, and Malaysia, were increased by 25 
percent to 30 percent against the dollar, the U.S. gross domestic 
product would grow as much as $285.7 billion, creating up to 2.25 
million U.S. jobs. Creating that many jobs would reduce the U.S. 
unemployment rate by at least one full percentage point. By labeling 
China as a currency manipulator, and pursuing countervailing duties on 
Chinese imports to offset the unfair advantage of the artificially low 
value of the yuan if China failed to take immediate corrective action, 
the Administration could address this problem in a WTO-consistent 
manner. Brazil, another WTO member, has taken initial steps in this 
area. However, it is one in which the U.S. should take the lead. 
Addressing China's currency manipulation would likely be the single 
most effective action the U.S. government could take with respect to 
China's trade policy.
---------------------------------------------------------------------------
    \2\ ``The Benefits of Revaluation: Full revaluation of the Chinese 
yuan would increase U.S. GDP and employment, reduce the federal budget 
deficit, and help workers in China and other Asian countries,'' Robert 
E. Scott, EPI Briefing Paper, Economic Policy Institute, Jun. 17, 2011 
(available at: http://www.epi.org/publication/revaluing--chinas--
currency--could--boost--us--economic--recovery/)
---------------------------------------------------------------------------
    Existing domestic and international law permits the U.S., alone or 
in tandem with other nations through the WTO or IMF, to address this 
manipulation as a prohibited subsidy. To the extent that the 
Administration believes it does not, the Administration should support 
the Currency Exchange Rate Oversight Reform Act.
Selective Use of Value Added Tax (VAT) Rebates
    China continues to utilize selective rebates as a way to promote 
exports of its products in a trade distorting manner. While the 
original GATT allowed for a system of general rebates, the intent of 
the GATT (and subsequent WTO) was to address the overall system of 
indirect taxation and not to allow for the exclusion to be used in a 
trade distorting manner. In the absence of an American VAT, the AFL-CIO 
continues to believe that the U.S. should seek the elimination of the 
exclusion of VAT rebates within the WTO to level the playing field, as 
Congress has called for in the past. In the interim, the Administration 
should seek to eliminate the ability of a country to engage in 
selective rebating.
Export Restraints
    The United States deserves substantial credit for the export 
restraint case against China regarding raw materials, including 
bauxite, coke, fluorspar, and other products, and for the follow-up 
case regarding export restraints on 17 rare earth minerals, as well as 
tungsten and molybdenum. The WTO's decision on the raw materials case 
made clear that China is engaged in facial violations of its WTO 
commitments. Despite the WTO's decision, China continues to limit the 
export of more than 300 products with only 84 of those products 
included in its first reserved schedule. China must bring its policies 
into compliance with its commitments--to do otherwise injures U.S. 
producers and their workers. As the U.S. considers further action, due 
regard should be given to commodities on which existing AD/CVD orders 
are in place or where similar domestic U.S. interests might be 
adversely affected.
Auto Parts
    The President's leadership in saving General Motors and Chrysler 
has had an enormous positive effect on our economy, investment and, 
most important, jobs. Action by the Administration to address China's 
illegal duties on U.S. auto exports and its most recent request for 
consultations on illegal export-contingent subsidies are deeply 
appreciated. Nevertheless, as documents shared with the United State 
Trade Representative (USTR) earlier this year clearly identify, there 
are other practices and programs in place that are detrimental to auto 
and auto parts makers producing here in the U.S. , as well as their 
employees. Those items should continue to receive the highest priority 
within the ITEC and action to address these policies must be pursued. 
We reiterate that, as much as we appreciate an aggressive enforcement 
strategy, in many cases, by the time a case is filed, permanent damage 
has often been done to an industry and its workers. We continue to urge 
a proactive approach and the creation and use of mechanisms that can 
make effective changes as soon as WTO-inconsistent behavior is 
recognized.
Prohibited Subsidies (Generally)
    Article 3 of the WTO Agreement on Subsidies and Countervailing 
Measures (SCM Agreement) prohibits WTO members from granting subsidies 
that are contingent on export performance or on the use of domestic 
over imported goods. China committed to eliminate all prohibited 
subsidies when it joined the WTO--but it has not done so. Instead, it 
has put a tremendous amount of energy into disguising its subsidy 
programs or modifying them to be facially WTO-compliant. Illegal, 
mercantilist subsidies (including currency manipulation discussed 
above) have proliferated enormously, to the detriment of American 
workers and businesses.
    In June 2011 pursuant to a petition filed by the United 
Steelworkers, the Administration was able to secure agreement (under 
threat of WTO action) to end illegal subsidies in the wind energy 
sector, but this success was hard fought, expensive, and left lost jobs 
and reduced market share in its wake. Because China has repeatedly 
failed to publish all its subsidies, as required by WTO rules, even 
explicit, on-the-books subsidies can only be found at great expense. 
Aside from such specific subsidy programs, China provides a number of 
benefits to its exporters that are de facto dependent on export 
performance, such as low-cost or free land, infrastructure, industrial 
inputs, tax rebates, cash transfers disguised as loans, and below-
market export insurance. Due to this lack of transparency, we strongly 
recommend that the U.S. investigate other critical sectors, including 
aerospace, autos, electronics, and shipbuilding, for such hidden 
subsidies.
    The American labor movement simply does not have resources on its 
own to pursue a Section 301 complaint against every Chinese violation 
of its WTO commitments. Nor would such a strategy be effective in 
protecting and promoting jobs: by the time a union collects enough 
evidence to pursue a case effectively, thousands of workers may have 
lost their jobs and the factories that employed them may have already 
closed or moved overseas. Therefore, we urge the Administration to act 
affirmatively to monitor and address prohibited Chinese subsidies in 
their many forms.
National Treatment
    Article III, Section 4 of the GATT 1994 requires WTO Members to 
accord imported goods treatment no less favorable than that afforded to 
domestic goods in respect of all laws or regulations affecting their 
internal sale or use. Laws that condition the receipt of an advantage 
on the use of domestic over imported goods--local content 
requirements--are a classic example of a policy that violates this 
Article. In paragraph 3(a) of its Protocol of Accession to the WTO, 
China also agreed to accord foreign firms treatment no less favorable 
than that accorded to domestic firms with respect to the procurement of 
inputs and the conditions under which their goods are produced, 
marketed, or sold. China violates these commitments on a regular basis 
in a variety of sectors.
    For example, the wind sector subsidy program challenged at the WTO 
also violated the national treatment principle because it required 
Chinese wind turbine manufacturers receiving grants under the program 
to use key components made in China rather than imports. In July 2012, 
the USTR won a WTO case challenging measures with respect to China 
UnionPay, which has had a monopoly over the handling of domestic 
currency payment card transactions. Such a policy clearly discriminates 
against American and other non-Chinese financial services providers--
the win, though beneficial for the U.S. financial services sector, 
illustrates the weakness of the piecemeal approach toward China's WTO 
compliance. As China defends each new case, it has time to implement 
alternate policies.
    Given the USTR's long-standing recognition that China has failed 
year after year to abide by its commitment to provide national 
treatment for U.S. goods and services, we urge you to make clear that 
continued discrimination will not be tolerated.
Market Access
    China has never provided the kind of market access that it promised 
when it joined the WTO. It has used a variety of mechanisms, including 
obscure licensure and certification requirements and official supplier 
lists, to ensure that its own firms dominate the market. As a result, 
China imports almost no finished goods, thereby harming employment in 
the United States and obligating American firms to conduct business 
through joint ventures with Chinese partners.
    Even financial services firms, loathe to take on China and thereby 
risk losing what little access they do have to the vast Chinese market, 
have urged the Administration to act forcefully to ensure China opens 
its banking and insurance sectors. In 2009, the WTO ruled that China 
unfairly restricted the ability of U.S. firms to sell DVDs, music, 
books, software and other copyright-intensive material in its market 
(not only restricting access, but building a market for counterfeit 
goods). Despite this ruling, China continues today to restrict access 
to films, music, books, and other entertainment, including certain 
internet sites (particularly those that carry news and information). 
Such restrictions harm our members and cost jobs in the United States. 
China also continues to demand that U.S. manufacturers transfer 
technology and production in return for market access. Industries like 
aerospace, machine tools, and shipbuilding have been significantly 
impacted by this market distorting mechanism.
Intellectual Property Rights
    China's abject refusal to enforce intellectual property rights 
(IPR) is a problem of long standing. From movie studios, to book 
publishers, to software giants, American businesses--and those they 
employ--are losing income every minute of every day. In 2010, at a 
hearing before the House Ways and Means Committee, even the U.S.-China 
Business Council, the trade organization for U.S. firms doing business 
in China--not an organization with a strong record of challenging 
China's policies--said:

        ``China's poor record of IPR protection influences what 
        products foreign companies are able to sell in China's market; 
        counterfeit products made in China often show up in other 
        markets as well. Only one-third of respondents in USCBC's most 
        recent survey of China's business environment say that the poor 
        IPR environment does not impact them. And, for companies in 
        certain sectors, like movies and software, the issue is without 
        doubt their top problem in China and needs to be addressed.'' 
        (John Frisbie President, U.S.-China Business Council, Testimony 
        before House Ways and Means Committee, June 16, 2010)

    Likewise, the Business Software Alliance reports that nearly four 
out of every five computer programs installed on personal computers in 
China in 2009 were being used illegally. U.S. firms cannot stay in 
business and continue to employ hard-working Americans with an 80 
percent theft rate. While China has initiated some reforms in this 
area, the results have been incremental at best. More must be done.
    China's violations of intellectual property rights are not limited 
to copyrights, servicemarks, and trademarks. Increasingly, China is 
engaging in theft of patents--including ``downstream dumping'' by 
violating the patents involved in the manufacturing process. Law 
enforcement officials have identified instances where the Chinese have 
sought to pirate plans for proprietary production equipment--resulting 
in dramatically lower costs of production. Today, China's IPR 
violations threaten U.S. producers across the board. At all levels of 
IPR, China's record is abysmal.
State-Owned Enterprises
    Upon WTO accession, China agreed that it would ensure that state-
owned and state-supported enterprises (collectively, SOEs) would make 
purchases and sales decisions based solely on commercial 
considerations.\3\ It also agreed that it would not influence 
commercial decisions except in a WTO consistent manner. This promise, 
like so many others, has been broken. China's state-owned and state-
supported enterprises receive raw materials and other inputs at below 
market rates, and have access to preferential debt and equity 
financing, including soft ``loans'' from state-owned banks that do not 
need to be repaid. Moreover, they are consistently operated in a manner 
that gains them market share--rather than profits. A private enterprise 
would not long remain in business if it failed to respond to the 
market, but, because state resources prop them up, Chinese SOEs not 
only can, but do. While losing money by selling goods at below market 
prices, they force U.S. competitors out of business. The overcapacity 
that China is intentionally pursuing in industries like glass and steel 
will eventually be needed, once international competitors have all 
folded.
---------------------------------------------------------------------------
    \3\ The AFL-CIO does not oppose SOEs per se and does not seek to 
privatize them. However, especially given America's lack of a 
comprehensive manufacturing strategy or adequate governmental support 
for that sector, without strict disciplines on the behavior of SOEs, 
U.S. workers and producers remain at risk from those entities.
---------------------------------------------------------------------------
    Increased outward investment by Chinese SOEs is becoming a greater 
issue every day. Several Chinese entities have already entered into or 
announced transactions that could pose problems for U.S. producers and 
their workers. Tianjin Pipe, a Chinese SOE, is investing $1 billion in 
a Texas facility. However, we know little about its cost of capital and 
whether it will operate on the basis of commercial concerns. So long as 
China refuses to comply with its SOE commitments, U.S. workers remain 
at risk.
    We believe that the USTR should ensure that SOEs and any other 
entities acting with state-delegated authority do not undermine the 
competitiveness of private enterprise or the rights, pay, and benefits 
available to their workers. Nor should these entities be allowed to 
skew supply chains or engage in predatory practices in the U.S. or 
third country markets, thereby destroying jobs for American workers.
Workers' Rights
    While the WTO does not include specific commitments regarding 
fundamental labor rights, they are important on their own merits and as 
they relate to trade. Furthermore, the 1998 Singapore WTO Declaration 
did commit WTO members to ``respect, promote, and realize'' the core 
ILO standards as delineated in the ILO Declaration of Fundamental 
Principles and Rights at Work. Nevertheless, the Chinese government 
fails to guarantee these core labor standards. China shirks its duties 
to its own people, as well as to the international community, by 
failing to uphold fundamental labor rights for its citizens.
    Multi-national employers and brands, their Chinese contractors, and 
even Chinese employers outside international supply chains have 
frequently adopted business models premised on this relative lack of 
human rights and labor standards, for example, by failing to ensure 
workplaces are free from child and forced labor or to abide by laws 
with respect to wages, hours, and conditions of work. Taking advantage 
of, and acquiescing to, the government's failure to enforce its own 
labor laws or secure fundamental rights means firms operating in China, 
whether in private hands or state-supported, operate with an unfair 
advantage over U.S. competitors: it is not just that labor costs less 
in China, it is that government practice aims ensure low costs and a 
workforce that is officially limited in its ability to act collectively 
to better its wages, benefits, and conditions of employment. Chinese 
workers, seeing the failure of their own government to protect their 
rights, have in recent years engaged in numerous wildcat strikes to 
take back the rights and benefits their own government failures to 
secure for them.
    Given that the Bipartisan Trade Promotion Authority Act of 2002 
included the goals, among others, ``to foster economic growth, raise 
living standards, and promote full employment in the United States,'' 
and ``to promote respect for worker rights and the rights of children 
consistent with core labor standards of the ILO,'' we urge the USTR to 
address this issue in no uncertain terms. A violation of labor rights 
anywhere is a violation of labor rights everywhere. China's current 
labor policies hurt not only Chinese workers, but American workers who 
must compete economically with forced and child labor; discriminatory 
pay and conditions of employment; and a lack of opportunity to freely 
associate and collectively bargain.
    In sum, the AFL-CIO believes that the Chinese government's approach 
to international trade and investment since its accession to the WTO 
demonstrates that China was an inappropriate candidate for WTO 
membership. China has shown little commitment to the rules-based 
system. Its strategies have wreaked havoc on the American manufacturing 
sector. Anything the U.S. can do to hold China accountable and to 
ensure that American workers do not bear the brunt of this policy 
mistake will be welcome.
                                 ______
                                 

                 Prepared Statement of Timothy Webster

                            january 15, 2014
    Chairman Brown, Cochairman Smith, Members of the Commission, and 
ladies and gentleman, it is my pleasure and honor to speak with you 
this morning. I would like in particular to thank Lawrence Liu, Staff 
Director of the Commission, for contacting me back in October, and 
inviting me here today. His loyal service over the past eight years has 
been an enormous asset, helping educate not only Members of Congress 
and the Executive branch, but also the general public both in the 
United States and around the world. I routinely assign testimony from 
Commission roundtables and hearings to my law students at Case Western 
Reserve.
    Throughout the US, but especially here in Washington, there is a 
pervasive belief that China is an international trade scofflaw. By 
manipulating its currency, subsidizing domestic industries and dumping 
goods in the US market, China is a scourge whose baleful influence 
harms us all. My recent research, which will appear later this year in 
the Michigan Journal of International Law, tries to temper this view 
through empirical observation. Specifically, I have examined China's 
record of implementing ten decisions rendered by the World Trade 
Organization's Dispute Settlement Body (``DSB'') over the past decade.
    I find that China has a strong, but increasingly imperfect, record 
of implementing DSB decisions. For reasons I will explain, I conclude 
that China is, at base, a system maintainer, not a system challenger. 
Part of using any system--whether the rules of football or of civil 
procedure--involves tactical manipulation. A smart lawyer, coach, or 
WTO member strategically deploys procedural rules to benefit its side 
to the greatest extent possible. Sometimes a member even breaks the 
rules. That has been, I submit, China's experience with the DSB over 
the past decade.
    In the first wave of cases, concluded before 2007, China either 
settled cases, or revised its domestic regulations to accord with WTO 
rulings, relatively quickly. These cases involved minor adjustments to 
subsidies, tax refunds, and financial incentives that China provided to 
both state-owned enterprises and foreign-invested enterprises.
    After gaining greater familiarity with WTO dispute settlement 
procedures, China has become an increasingly sophisticated WTO 
litigant. It is now more willing to use the DSB's procedures to 
minimize the effects of unfavorable WTO rulings. In a series of cases 
over the past five years, China has begun to test the limits of what is 
possible, rather than conceding at the earliest stages.
    This testing may include probing internal DSB procedures. For 
example, China failed to submit a compliance report in one case, and 
then explained that it was not bound to do so because the dispute was 
resolved (DS 340). Likewise, as we know from our colleague in the steel 
industry, China sought an unusually long period of time in which to 
implement the electrical steel case decision (DS 414). China suggested 
that it needed nineteen months, far in excess of the fifteen-month 
ceiling suggested by WTO rules, whereas the US believed the number was 
closer to four months. Unable to resolve this difference China and the 
US submitted the issue to an arbitrator, who determined that eight and 
a half months would be a ``reasonable period of time.''
    But it also involves decisions, outcomes rendered by the DSB. 
First, China has appealed unfavorable decisions, even when the appeal 
lacks merit, presumably to postpone revising the offending regulation. 
In so doing, China has bought itself a year or two of time before the 
decision becomes final (DS 340, DS 363).
    Second, China has failed to make the necessary changes to its legal 
system within the prescribed ``reasonable period of time.'' In the 
publications and entertainment case, which required major changes to 
its censorship regime and film distribution system, China failed to 
make all necessary changes within the 14-month period (DS 363).
    Third, China has left in place many regulations that the DSB found 
inconsistent with WTO disciplines. In the publications case just cited 
(DS 363), a national regulation prohibiting foreign investment in news, 
radio, television and internet services remains in effect. Indeed 
local-level regulations, promulgated years after the DSB found the 
measure inconsistent, cite this regulation, and bid local officials to 
``earnestly and thoroughly implement'' it. The US and China signed a 
Memorandum of Understanding in May 2012, though they disagree about its 
significance. China believes it has achieved full implementation, while 
the US views the MOU as significant progress, but not a final 
resolution. Inconsistent regulations remain in effect in the financial 
information services case as well (DS 373). One regulation in 
particular continues to subject foreign service-providers to onerous 
requirements not placed on domestic outfits.
    In light of these shortcomings, what should the United States do?
    First, since the US is usually the ``plaintiff'' in cases against 
China, it is well positioned to guide the enforcement action. The US 
could push the DSB to specify which laws and regulations must be 
revised. As WTO panel may find a dozen or more Chinese regulations in 
violation of WTO disciplines. Does China need to change all of them? 
Some of them? It would be helpful to have a roadmap explaining how 
China should implement the decision. I believe the US should bring 
about greater clarity to the legal steps prescribed by the DSB.
    Second, the US needs to focus on enforcement. My research shows 
that many regulations remain in effect, even after the DSB found them 
inconsistent. I would argue that China has an obligation to annul such 
regulations, and that the US should apply pressure on China to ensure 
their annulment. In addition, many local- or provincial-level 
regulations reference these inconsistent national regulations. It is 
possible, then, that inconsistent regulations emit an ``enforcement 
afterglow'' at the local or provincial level.
    Third, the US needs additional capacity. As I have argued in a 
prior paper, China understands the US far better than the US 
understands China. This is a systemic imbalance, to be addressed by 
educating more Americans about China, its language, political culture, 
and legal system. To be sure, the Commission plays a vital role in 
disseminating sophisticated information about China, but it is not 
enough. The narrower issue is the insufficient number of US trade 
officials who speak and read Mandarin, understand the Chinese legal 
system, and can monitor China's compliance efforts. US officials may 
not know that inconsistent regulations remain in effect, or that they 
are referenced by lower-level regulations after they have been 
annulled. Accordingly, it is difficult to ascertain when China has 
changed its laws and regulations, when it has not done so, and what the 
overall effect of these implementation efforts is. I am pleased to note 
that the Interagency Trade Enforcement Center (ITEC) is currently 
looking to hire Mandarin-speaking trade analysts. I would urge even 
more efforts if this type as well as the allocation of funds to hire 
Chinese legal experts, and to train the next generation of trade 
officials with China expertise.
    Fourth, the US also needs to live up to its end of the bargain. A 
recent study by the Congressional Research Service lists a dozen WTO 
decisions that the US has not fully implemented. China frequently 
raises these implementation failures when the DSB meets in Geneva. As 
the chief architect of the WTO, and its dispute settlement procedures, 
the US has a special obligation to implement WTO decisions. Our failure 
to do so erodes confidence in the international trade regime we have 
worked so hard to create and perpetuate. Implementing our obligations 
would also give us additional moral authority when calling on other 
states to implement theirs.
    To sum up, China is now an active litigant in the world trade 
system. It mounted the learning curve of WTO dispute resolution during 
its first five years of membership, and now artfully deploys the 
procedural mechanisms and features of the DSB. One could say that we 
got what we asked for. By welcoming China into the WTO, the US now has 
a forum in which to challenge the compatibility of China's domestic 
regulations with the international trade law that the US helped write. 
It was only a matter of time before China learned the rules of the 
game. Now that it does, we can expect a savvier adversary in WTO 
proceedings, one less likely to fold at the first threat of litigation, 
and one that will use procedural tactics and other tools to challenge 
our claims. We should also anticipate that China will not only annul 
inconsistent regulations, as it has traditionally done, but also leave 
a small subset of inconsistent regulations in place. The latter 
problem, I believe, can be addressed by additional scrutiny from US 
trade officials.
    I thank you for your attention and look forward to your comments 
and questions.
                                 ______
                                 

  Prepared Statement of Hon. Sherrod Brown, a U.S. Senator From Ohio; 
         Chairman, Congressional-Executive Commission on China

                            january 15, 2014
    I'd like to welcome everyone to this hearing on ``China's 
Compliance with the World Trade Organization and International Trade 
Rules.''
    Today I am calling on China to fully comply with all of its World 
Trade Organization commitments and fully and faithfully implement all 
of the WTO rulings against it.
    This Commission believes we have a special obligation to monitor 
China's WTO compliance.
    By adhering to a rules-based system, with clear obligations, China 
can take its role in supporting the global economic system - a system 
based upon transparency, respect for property rights, and adherence to 
the rule of law.
    We admire China's rich history, appreciate its difficult and 
complex challenges, and support the aspirations of the Chinese people 
to make their country a safer, cleaner, and more prosperous nation.
    And we believe that fairer trading policies and the promotion of 
the rule of law in China will not only benefit Americans, but the 
Chinese people as well.
    Just last week, I applauded the announcement that Fuyao Glass 
Industry Group, a Chinese producer of auto safety glass, will redevelop 
the former General Motors plant in Moraine, Ohio.
    This is a great example of how fair trade can benefit both sides, 
by giving a Chinese company access to our highly-skilled workforce and 
creating up to 800 new jobs for Ohioans.
    But to truly have a fair trading relationship that benefits both 
sides, there must be a level playing field.
    The Chinese government must do more to abide by its WTO 
commitments, protect the rights of workers, and support a clean 
environment.
    The United States Trade Representative or USTR, which unfortunately 
could not send a representative here today, just released its 2013 
Report to Congress on China's WTO Compliance.
    And though it acknowledges some areas of improvement, it paints a 
sobering picture of the Chinese state's efforts to intervene in the 
economy and unfairly help Chinese businesses, despite its WTO 
commitments not to do so.
    For example, China still has not agreed to the WTO Government 
Procurement Agreement. By not doing so, our businesses miss out on the 
opportunity to compete for potentially $100 billion in government 
contracts every year. China has agreed to submit another offer this 
year, but progress has been frustratingly slow.
    Another issue USTR noted in its report is China's imposition of 
duties in retaliation for countries bringing WTO cases against them.
    In one of those cases involving grain-oriented electrical steel, 
China not only lost in a WTO challenge, but now appears to not be 
complying with the ruling.
    I applaud the USTR's announcement on Monday that it is now 
requesting China to enter consultations in this case. One of those 
businesses impacted is AK Steel, and we are grateful that their General 
Counsel, David Horn, is here today to tell us more about this case.
    Finally, China's currency manipulation continues to harm our 
workers and our economy.
    A December 2012 report by the Peterson Institute of International 
Economics found that currency manipulation by foreign governments cost 
the U.S. between 1 million and 5 million jobs, increasing the U.S. 
trade deficit by $200 billion to $500 billion per year.
    In 2012, our trade deficit with China broke $300 billion for the 
first time and is expected to do so again when the 2013 figures come 
out.
    These massive trade deficits are unacceptable and cost jobs in 
places like Toledo, Akron, and towns and cities all over this country.
    That's why I've reintroduced the Currency Exchange Rate Oversight 
Reform Act of 2013 and urge members in both chambers to act swiftly on 
this measure.
    I want to thank our excellent panel of witnesses for being here. I 
look forward to their thoughts on what more we in Congress and on this 
Commission can do to ensure China complies with its WTO commitments.
                                 ______
                                 

  Prepared Statement of Hon. Christopher Smith, a U.S. Representative 
  From New Jersey; Cochairman, Congressional-Executive Commission on 
                                 China

                            january 15, 2014
    In 2001, China acceded to the World Trade Organization. At that 
time China's economy was liberalizing. It was a vast and promising 
market, and foreign businesses were eager to see the imposition of the 
WTO's set of rules and principles bring some order to the Chinese 
investment and legal systems. Some also hoped that bringing China into 
the WTO would improve its record on human rights, though I and several 
other members of this Commission were skeptical. This hearing will 
revisit questions previously addressed by this Commission, namely, has 
China honored its commitments as a member of the WTO? Has China 
embraced human rights and the rule of law, as the optimists hoped?
    Sadly, the answer is no. As this Commission's most recent Annual 
Report documents, China continues to massively violate the most basic 
human rights of its own people and to systematically undermine the rule 
of law. Today, ethnic minorities are repressed. Freedom of religion is 
denied to those who worship outside state-sanctioned institutions. 
Believers are harassed, incarcerated, and tortured. The abuse of women 
and the draconian repressive one-child policy which has involved 
egregious abuses such as forced abortions and forced sterilizations 
remains firmly in place. Those who stand up to the central government 
and advocate for human rights are also detained and tortured.
    It is not only the activists who suffer, but also their families 
and loved ones as well. As 2010 Nobel Peace Prize winner Liu Xiaobo 
continues to serve an 11-year prison sentence for peacefully advocating 
for political reform, his wife, Liu Xia, is forced to endure the 
extreme isolation of house arrest and is now reportedly experiencing 
severe depression. Self-taught legal activist Chen Guangcheng's own 
nephew languishes in prison while other members of Chen's family are 
kept under surveillance and harassed. Last month I chaired a hearing of 
the Subcommittee on Africa, Global Health, Global Human Rights, and 
International Organizations that gave voices to five young women who 
called upon the Chinese government to free their wrongfully imprisoned 
fathers. The citizens of China deserve far better than leaders who use 
such ugly methods to bolster their own political power.
    As a member of the WTO, China has experienced tremendous economic 
growth and become increasingly integrated into the global economy, 
benefitting greatly in the process. So how is it doing on living up to 
its obligations? Terribly. China agreed to abide by the WTO principles 
of non-discrimination and transparency. However, U.S. companies are 
still forced to compete with China's large state-owned sector that 
benefits from unfair policies designed to favor Chinese producers.
    U.S. exporters continue to face many barriers when trying to enter 
the Chinese market. Some of these barriers are obvious, such as China's 
indigenous innovation policy and restrictive investment regime. Others 
are more subtle and difficult to substantiate, such as reports from 
U.S. companies that Chinese officials sometimes require the transfer of 
valuable technology to gain market access or investment approval. These 
barriers represent blatant violations of WTO rules.
    China's investment in the United States has sky-rocketed in the 
past few years as Chinese companies invest in everything from real 
estate projects to the pork producer Smithfield Foods. It, however, 
remains difficult for U.S. companies to access the Chinese market. 
China's multi-billion dollar government procurement market also remains 
largely closed to U.S. bids, and the Chinese government has dragged its 
feet on taking steps to open it.
    China's record of protection of intellectual property rights, a 
fundamental WTO obligation, is abysmal. Infringement of our companies' 
IP leads to lost sales in China, the U.S., and other countries; lost 
royalty payments; and damaged reputations. The United States government 
and U.S. companies have been the victims of repeated and sustained 
cyber-attacks by Chinese entities. In 2013, the Commission on the Theft 
of American Intellectual Property reported that the U.S. loses hundreds 
of billions of dollars in IP theft, and estimated that China accounts 
for 50 to 80 percent of these losses.
    Even China's internet censorship serves to keep American products 
and services out of the Chinese market. Both the New York Times and 
Bloomberg websites are blocked in China, reportedly resulting in the 
loss of millions of dollars in revenue. In December, the Chinese 
government delayed the visas of as many as two dozen foreign 
journalists. This blatant attempt at intimidation not only threatened 
these journalists' livelihoods, but also the closure of the China 
bureaus of several U.S. media organizations.
    The level playing field promised as part of China's WTO accession 
has not been achieved. China has used the WTO as a tool to strike back 
against other members who legitimately challenge China's imposition of 
antidumping and countervailing duties. China has also become extremely 
adept at appearing to comply with WTO decisions without addressing the 
actual problems. This has caused great harm to U.S. companies, from 
automobile and steel manufacturers to publishing houses and movie 
studios.
    In November 2013, the Chinese government once again released a plan 
outlining how they reform their economy. Only time will tell if these 
proposals will lead to meaningful reform. Until China's leaders are 
truly committed to embracing the rule of law and fundamental human 
rights, this plan, like those before it, will be full of nothing but 
empty promises.
                                 ______
                                 

 Prepared Statement of Hon. Carl Levin, a U.S. Senator From Michigan; 
          Member, Congressional-Executive Commission on China

                            january 15, 2014
    I am pleased the CECC is holding this hearing on China's Compliance 
with WTO and International Trade Rules. This is an important issue in 
need of close monitoring given China's past poor record of compliance. 
When Congress voted to grant China PNTR status upon its accession to 
the WTO it established the CECC as part of that legislation precisely 
to monitor China's progress in achieving its WTO commitments and in 
transitioning to the rule of international law.
    Twelve years after acceding to the WTO, there is broad consensus 
that China has fallen far short in achieving the positive changes many 
expected WTO membership would bring about regarding complying with the 
international trade rules it committed to. In many ways, China 
continues to play by its own rules in the global marketplace; setting 
industrial policies to promote identified and favored domestic industry 
sectors and heavily subsidizing state owned enterprises.
    The following quote from USTR's 2013 Report on China's WTO 
Compliance provides a succinct assessment of China's behavior as a WTO 
member:

        With the state leading China's economic development, the 
        Chinese government pursued new and more expansive industrial 
        policies, often designed to limit market access for imported 
        goods, foreign manufacturers and foreign service suppliers, 
        while offering substantial government guidance, resources and 
        regulatory support to Chinese industries, particularly ones 
        dominated by state-owned enterprises.

    Especially troubling to me are China's lack of intellectual 
property rights protections, failure to act against wide-spread 
counterfeiting, and theft of American technology and trade secrets in 
cyber space. As far back as 2011, the National Counterintelligence 
Executive said in its annual report to Congress that ``Chinese actors 
are the world's most active and persistent perpetrators of economic 
espionage.'' USTR's Special 301 report stated that ``Obtaining 
effective enforcement of IPR in China remains a central challenge, as 
it has been for many years.'' The report continued ``This situation has 
been made worse by cyber theft, as information suggests that actors 
located in China have been engaged in sophisticated, targeted efforts 
to steal [intellectual property] from U.S. corporate systems.''
    Additional concerns include China's continued currency manipulation 
which gives Chinese exports an unfair price advantage, its abusive use 
of trade remedy laws for retaliatory purposes rather than for their 
permitted use to respond to prohibited trade actions and anti-
competitive policies that favor China's domestic renewable energy 
technology sector, China's automotive sector, and other domestic 
sectors targeted for growth.
    The United States must continue to hold China to its WTO 
commitments and initiate WTO challenges where appropriate. Doing 
anything less will continue to put American companies, workers and 
farmers in the position of continuing to have to compete against the 
resources of an entire country rather than individual companies.