    [Senate Hearing 113-160]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 113-160

          THE TRANS-PACIFIC PARTNERSHIP: OPPORTUNITIES AND CHALLENGES
    =======================================================================

                                    HEARING

                                    BEFORE THE

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 APRIL 24, 2013

                                   __________

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                              COMMITTEE ON FINANCE

                         MAX BAUCUS, Montana, Chairman

    JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
    Virginia                             CHUCK GRASSLEY, Iowa
    RON WYDEN, Oregon                    MIKE CRAPO, Idaho
    CHARLES E. SCHUMER, New York         PAT ROBERTS, Kansas
    DEBBIE STABENOW, Michigan            MICHAEL B. ENZI, Wyoming
    MARIA CANTWELL, Washington           JOHN CORNYN, Texas
    BILL NELSON, Florida                 JOHN THUNE, South Dakota
    ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
    THOMAS R. CARPER, Delaware           JOHNNY ISAKSON, Georgia
    BENJAMIN L. CARDIN, Maryland         ROB PORTMAN, Ohio
    SHERROD BROWN, Ohio                  PATRICK J. TOOMEY, Pennsylvania
    MICHAEL F. BENNET, Colorado
    ROBERT P. CASEY, Jr., Pennsylvania

                          Amber Cottle, Staff Director

                   Chris Campbell, Republican Staff Director

                                      (ii)

                                C O N T E N T S

                                   __________

                               OPENING STATEMENTS

                                                                       Page
    Baucus, Hon. Max, a U.S. Senator from Montana, chairman,
      Committee on Finance...........................................     1
    Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     3

                                   WITNESSES

    Bhatia, Hon. Karan, vice president and senior counsel, global
      government affairs and policy, General Electric Company,
      Washington, DC.................................................     5
    Hanson, Bob, president, Montana Farm Bureau Federation, Bozeman,
      MT.............................................................     7
    Hirschmann, David, president and CEO, Global Intellectual
      Property Center, U.S. Chamber of Commerce, Washington, DC......     8
    Suber, Tom, president, U.S. Dairy Export Council, Arlington, VA..    10

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Baucus, Hon. Max:
        Opening statement............................................     1
        Prepared statement...........................................    27
    Bhatia, Hon. Karan:
        Testimony....................................................     5
        Prepared statement...........................................    29
        Responses to questions from committee members................    32
    Hanson, Bob:
        Testimony....................................................     7
        Prepared statement...........................................    35
        Responses to questions from committee members................    39
    Hatch, Hon. Orrin G.:
        Opening statement............................................     3
        Prepared statement...........................................    41
    Hirschmann, David:
        Testimony....................................................     8
        Prepared statement...........................................    43
        Responses to questions from committee members................    47
    Suber, Tom:
        Testimony....................................................    10
        Prepared statement...........................................    49
        Responses to questions from committee members................    56

                                 Communications

    Advanced Medical Technology Association (AdvaMed)................    59
    Japan Automobile Manufacturers Association, Inc. (JAMA)..........    63
    National Milk Producers Federation (NMPF)........................    68
    Retail Industry Leaders Association (RILA).......................    70

                                     (iii)

          THE TRANS-PACIFIC PARTNERSHIP: OPPORTUNITIES AND CHALLENGES

                                  ----------

                           WEDNESDAY, APRIL 24, 2013

                                           U.S. Senate,
                                          Committee on Finance,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:10
    a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max
    Baucus (chairman of the committee) presiding.
        Present: Senators Stabenow, Cantwell, Cardin, Bennet,
    Casey, Hatch, Grassley, Crapo, Enzi, Thune, Isakson, and
    Portman.
        Also present: Democratic Staff: Mac Campbell, General
    Counsel; Bruce Hirsh, Chief International Trade Counsel; Hun
    Quach, International Trade Analyst; and Chelsea Thomas,
    Professional Staff. Republican Staff: Chris Campbell, Staff
    Director; Everett Eissenstat, Chief International Trade
    Counsel; and Rebecca Nasca, Staff Assistant.

       OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM
                MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

        The Chairman. The committee will come to order.
        In the year 1803, with the Louisiana Purchase on the
    horizon, President Thomas Jefferson sent a confidential letter
    to Congress. He was seeking the appropriation of $2,500 for
    ``the purpose of extending the external commerce of the United
    States.''
        He then instructed Captain Meriwether Lewis and Second
    Lieutenant William Clark to explore the newly acquired
    territory. Jefferson wanted to learn more about the people and
    the land. He wanted to find a water route to the Pacific Ocean
    to facilitate commerce across the continent.
        More than 2 centuries later, we continue to look to the
    Pacific to expand and to grow. Since 2009, the United States
    has been engaged in negotiations on the Trans-Pacific
    Partnership, otherwise known as TPP. Since Day 1, the TPP was
    conceived as a high-standard 21st-century trade agreement, and
    TPP leaders have set an ambitious goal to conclude negotiations
    by the end of this year. The TPP presents tremendous
    opportunities to expand U.S. exports and support hundreds of
    thousands of good-paying jobs here in America.
        As a group, the TPP countries are the largest export market
    for United States goods and services. Last year, U.S. goods and
    exports to current TPP countries totaled $619 billion,
    representing 40 percent of total U.S. goods exports. U.S.
    agriculture exports to current TPP countries totaled $47
    billion, making up a third of all U.S. agricultural exports.
        Montana, like the rest of the United States, relies upon
    global markets to maintain and create jobs. One in six
    manufacturing jobs in Montana comes from exports. In 2012,
    Montana's farmers, ranchers, and manufacturers exported nearly
    $2.5 billion worth of grain, beef, and machinery. A third of
    that went to TPP countries.
        In fact, Montana exported more than 117 million bushels of
    wheat around the world, with almost 75 percent going to Asia.
    Without those exports and without the TPP countries, every
    Montanan would have to eat 30 loaves of bread per day in order
    to make up what we export around the world.
        The TPP is exciting, not only because of trade
    opportunities with current parties, but also because of
    opportunities with potential new parties. The TPP is a magnet
    for the fastest-growing economies in the world, those in the
    Asia-Pacific region.
        In 2011, the Gross Domestic Product of nearly all of the
    Asia-
    Pacific economies grew faster than the United States' growth
    rate of 1.8 percent. More than half of them enjoyed growth
    above the world average of 3.8 percent, and Asia's share of
    world imports grew from 18.5 percent in 1993 to 31 percent in
    2011. The United States needs to share in that growth, and the
    TPP offers a way to do so.
        Since the United States joined negotiations in 2008, six
    more countries have joined, including fast-growing Malaysia and
    Vietnam. Just last Saturday, the TPP parties invited Japan to
    join the negotiations. This represents a huge step towards
    another key objective, stitching together the economies of the
    Pacific to expand growth opportunities for all.
        U.S. agriculture exports to Japan totaled $13.5 billion
    last year. With $330 million in pork exports in 2012, Japan is
    the number-one destination for U.S. pork, more than the next
    two countries combined. With Japan in the TPP, the agreement
    will represent 30 percent of global trade and 40 percent of
    global Gross Domestic Product.
        Now, Japan has maintained many barriers to our exports, but
    when the third-largest economy in the world removes those
    barriers, tremendous opportunities are created. We saw this in
    February when Japan allowed more U.S. beef to be imported, and
    I am proud to say much of the beef is from my home State of
    Montana.
        The United States is now on track to increase our beef
    exports by nearly 50 percent, to record levels. The TPP will
    remove more of those barriers and deepen our already strong
    trade ties with Japan.
        On their journey to the Pacific, Lewis and Clark faced
    challenges, but, instead of turning back, they found creative
    paths westward. As we continue to expand, we will also face new
    challenges on the road to concluding the TPP. This agreement
    will need to address concerns about state-owned enterprises,
    will need to address unscientific agricultural barriers, and
    will need to ensure U.S. innovators have robust intellectual
    property protection and enforcement.
        These issues will require creative solutions. I look
    forward to continuing to work with my colleagues in Congress,
    with the administration, and stakeholders like the witnesses
    here today, to find solutions. I am also looking forward to
    working with all of you to renew Trade Promotion Authority and
    Trade Adjustment Assistance this year.
        Fast-track authority will help us conclude the TPP
    negotiations, and that will bring concrete benefits for
    American farmers, ranchers, businesses, and workers. I would
    like to see a bipartisan TPA--that is, Trade Promotion
    Authority--bill introduced by June.
        Lewis and Clark helped to unlock the vast potential of the
    land between the Mississippi and the Pacific. With this
    pioneering spirit in mind, let us allow the TPP to unlock the
    vast potential of the lands across the Pacific. Let us navigate
    the challenges before us so we can seize this opportunity to
    continue extending the external commerce of the United States.
        [The prepared statement of Chairman Baucus appears in the
    appendix.]
        The Chairman. Senator Hatch?

               OPENING STATEMENT OF HON. ORRIN G. HATCH,
                        A U.S. SENATOR FROM UTAH

        Senator Hatch. Thank you, Mr. Chairman, for holding this
    important hearing. I appreciate our witnesses being here today.
        Over a decade ago, Chile, New Zealand, and Singapore
    launched negotiations to more fully integrate their economies.
    The vision was simple: to create a high-standard free trade
    agreement that would serve as a model of integration for the
    Asia-Pacific region. Joined by Brunei in 2005, this agreement
    eventually became known as the P-4.
        Three years later, in a small conference room on the
    outskirts of the U.N. General Assembly meeting, Ambassador
    Susan Schwab formally announced the United States' interest in
    joining the negotiations. The announcement received little
    fanfare here in the United States. Had it been known at the
    time that this small step would eventually lead to what is now
    one of the most ambitious trade agreements the United States
    has ever undertaken, the TPP, I am certain that her
    announcement would have been front-page news.
        Now with the recent statement by the TPP partners that a
    consensus was reached to include Japan in the negotiations, the
    event takes on even more significance. I strongly support the
    vision that underlies TPP, and I welcome Japan's participation
    in these negotiations.
        I believe this agreement offers an opportunity to finally
    open some of the largest and most promising markets to U.S.
    exports. But we cannot rest on our laurels. While the
    opportunities presented by TPP are real, so are the challenges.
    The first challenge we face is concluding an agreement that
    provides real market access for U.S. goods and services.
        Much has been made about the new issues under discussion in
    TPP, many of which I support. But, in pursuing these new areas
    of agreement, I hope our negotiators do not lose sight of the
    fundamentals of free trade and economic integration.
    Negotiating a 21st-century trade agreement is fine, but not at
    the risk of locking in 18th-century mercantilism.
        Without real and beneficial market access, TPP will never
    reach its full potential. It remains to be seen whether the
    Obama administration is willing and able to successfully manage
    negotiations in some of our most sensitive sectors without
    sacrificing real market access for U.S. businesses. Any
    meaningful agreement should set standards and establish rules
    for trade that will benefit American exporters and innovators
    well into the future.
        Transparency, predictability, and strong intellectual
    property protection, it seems to me, will be critical to
    reaching this goal. A successful agreement must include
    commitments reached under the U.S.-Korea free trade agreement
    and address new areas as well. Specifically, these new areas
    include ensuring the free flow of data across borders, robust
    protection for trade secrets, and discipline for state-owned
    enterprises.
        The agreement should have the strongest possible terms of
    protection for our innovative industries. This must include
    following current U.S. law by providing 12 years of regulatory
    data protection for biologics, a goal that the chairman and I
    both share.
        I have raised this issue at every opportunity, and a
    bipartisan group of 27 Senators sent a letter to former
    Ambassador Ron Kirk expressing support for including this
    provision in the agreement, yet the administration still
    refuses to table text reflecting our own U.S. law. They
    repeatedly argue that this bar for data protection for
    biologics is too high, even though that was fought out long
    ago.
        Of course, such concerns have not stopped the
    administration from pushing a liberal social agenda in the
    negotiations. Indeed, many of our trading partners have serious
    concerns with the administration's approach on issues such as
    labor and environmental protections, especially their linkage
    to dispute settlement and trade sanctions.
        These issues are only marginally related to trade, yet the
    administration seems to give them a higher priority than the
    protection of U.S. intellectual property. To fulfill the vision
    of TPP, the United States must be able to rise to these
    challenges. Unfortunately, after 16 rounds and roughly 37
    months of negotiations, it is still not clear whether the
    agreement will ultimately live up to the lofty expectations
    that we have.
        I believe one reason for this uncertainty is that our
    negotiators simply lack the tools necessary to complete the
    job. While I appreciate the administration's interest in
    discussing Trade Promotion Authority, or TPA, I have yet to see
    any real commitment on the part of the White House to achieving
    its quick consideration and approval in Congress.
        Of course Congress can, and will, develop TPA legislation
    without the support and input of the White House, but a formal
    response from the administration for TPA would send a strong
    signal to our negotiating partners and the proponents of the
    Trans-Pacific Partnership that the President is serious about
    making sure the rhetoric surrounding the agreement meets the
    reality of the negotiating table.
        Now, Mr. Chairman, I want to thank you once again for
    holding this hearing today. I look forward to hearing from each
    of our witnesses about the opportunities and challenges that
    they see in negotiating and concluding what could be one of the
    most significant opportunities to expand U.S. exports in the
    last 25 years.
        With your announcement yesterday and today, which is sadly
    reflected upon by, I think, every member of this committee and
    by many in the Senate, I believe that your remaining time in
    the Senate is going to be a time of tremendous, prodigious work
    and accomplishment, and you deserve that kind of support. And
    we intend to try to see that you have that type of support. But
    I hope we can change some of these things and get them a little
    bit straightened out as we finish up this year. This is a very,
    very important issue for all of us.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Hatch. I especially thank
    you for those comments. This is a great opportunity for us in
    this Congress--there is this year, there is next year--to
    accomplish a lot of legislation that is very good for our
    country. So, thank you very, very much. It is a great
    opportunity.
        [The prepared statement of Senator Hatch appears in the
    appendix.]
        The Chairman. I now would like to introduce our panel. We
    have four witnesses with us here today. First is the Honorable
    Karan Bhatia, vice president and senior counsel for global
    government affairs and policy with General Electric Company.
        Next is Mr. Bob Hanson, president of the Montana Farm
    Bureau. Bob is a farmer and rancher from White Sulfur Springs,
    MT. Thank you, Bob, for traveling this great distance again to
    come and help us. It is a pleasure to see you.
        Next is David Hirschmann, president and CEO of the Global
    Intellectual Property Center with the U.S. Chamber of Commerce.
    Mr. Hirschmann, thank you so much.
        Finally, Mr. Tom Suber is president of the U.S. Dairy
    Export Council. Thank you for that perspective, which is
    clearly vital.
        Thank you all. As you know, our usual practice is to have
    your statements automatically included in the record and get
    you to summarize your statements. Again, I urge all witnesses
    to let her rip. Do not pull any punches; say what you think.
    Thank you very much.
        Why don't you go ahead, Mr. Bhatia?

       STATEMENT OF HON. KARAN BHATIA, VICE PRESIDENT AND SENIOR
    COUNSEL, GLOBAL GOVERNMENT AFFAIRS AND POLICY, GENERAL ELECTRIC
                        COMPANY, WASHINGTON, DC

        Mr. Bhatia. Thank you. Thank you very much, Mr. Chairman,
    Ranking Member Hatch, Senators.
        I appear before you today in two capacities: first, as a
    former Deputy Trade Representative who had responsibility for
    overseeing the agency's work leading up to the launch of the
    TPP negotiations from 2005 to 2007; and second, in my current
    role overseeing global government affairs and policy for
    General Electric.
        In both capacities and as a citizen who cares greatly about
    America's competitiveness, economic growth, and global
    influence, I strongly support the Trans-Pacific Partnership
    initiative launched by President Bush and continued and
    expanded by President Obama.
        As a former Deputy USTR, I can attest that the launch of
    TPP was carefully considered by the Bush administration. As you
    will recall, this was a very busy period in U.S. trade policy.
    We were negotiating, ratifying, and implementing multiple FTAs,
    had an active regional agenda, and the Doha Round was still
    going full throttle.
        But notwithstanding our full plate, the TPP captured our
    attention. First, it represented a chance to create a sustained
    path of trade liberalization for the United States going
    forward. With the expiration of Trade Promotion Authority in
    2007, it was not clear what the future of trade liberalization
    would look like for the U.S. TPP presented an opportunity to
    keep advancing an international trade agenda, one that
    reflected U.S. trade policies and enhanced U.S.
    competitiveness.
        Second, with America's relative share of the trade in the
    region eroding and a number of regional agreements that would
    exclude the United States having been proposed, there was
    concern that the U.S. would increasingly be on the outside of
    the Asia-Pacific region looking in. TPP represented an
    opportunity for America to continue to engage and grow in this
    exciting, economically dynamic region.
        Third, TPP really presented a unique opportunity: an FTA
    that was based not on geography or sector, but one based on a
    common philosophy--a shared commitment to the highest level of
    ambition for trade liberalization. In time, we believe that
    this coalition of the most ambitious could create a model
    agreement that would set a new standard and attract others to
    join.
        At that time, of course, there were some things we could
    not predict: the global financial crisis, the resulting
    economic slow-down, the failure of Doha, or the rise of state
    capitalism. But today I would submit that the decision to
    launch TPP was prescient.
        At a time when all of these unforeseen developments could
    have led America and its Asia-Pacific trading partners to turn
    inwards and erect barriers to trade, TPP, which to its great
    credit the Obama administration has continued to pursue and
    expand, has helped solidify the commitment of a growing group
    of countries to trade liberalization.
        Now, in my role at GE, I can attest first-hand to the great
    promise that TPP offers innovative American companies whose
    growth increasingly depends on global markets. Today, 60
    percent of GE's revenue is derived from markets abroad, up from
    40 percent just a decade ago, and much of our opportunity for
    future growth lies in these expanding markets.
        Today, exports to countries like Malaysia, Japan, Canada,
    and Vietnam help support GE operations, making jet engines in
    States like Ohio and, yes, Montana; gas turbines in South
    Carolina and New York; health care devices in Wisconsin and
    Utah; and locomotives in Pennsylvania and Texas.
        Last year, GE had revenues of more than $20 billion from
    the 11 TPP countries, almost 2.5 times our revenues from those
    countries just 5 years ago. But we believe that with a level
    playing field we can do even better, which is why we are big
    supporters of TPP.
        We are very hopeful that the agreement will offer American
    companies like GE an improved operating environment in the
    region by strengthening disciplines around government
    procurement, including addressing disqualifying local content
    requirements; ensuring a level playing field with state-owned
    enterprises; promoting enhanced transparency; promoting easier
    and faster clearance of goods and movement of people;
    eliminating tariffs on manufactured goods; addressing non-
    tariff barriers, including those imposed on environmental goods
    and flows of data; and fostering Trans-Pacific innovation with
    21st-century intellectual property disciplines, in particular
    for the protection of trade secrets.
        Above all, we support TPP because we believe that the
    processes of economic reform and openness that TPP will drive
    will support broader and more inclusive economic growth. Simply
    stated, where economies are healthier, more transparent and
    freer, we, our employees, and our shareholders do better.
        In sum, I believe that TPP represents the right course for
    U.S. trade policy. The U.S. was right to join it, the Obama
    administration was right to continue the negotiation and to
    expand it, including most recently to include Japan. It will be
    critical that the agreement fulfill its original goal, being a
    very ambitious agreement among countries committed to reform.
        I have every confidence that the superb negotiating team at
    USTR that is pursuing this negotiation, in close consultation
    with U.S. stakeholders, will obtain just that, and, upon its
    submission, I hope this committee and this Congress will
    support its ratification.
        Finally, Mr. Chairman, if I might, I would just like to
    thank you. Having had the opportunity to testify before you on
    this committee on trade issues on a number of occasions, I know
    well the enormous contribution that you have made to our
    country and to the world in this area, and you will be deeply
    missed. Thank you.
        The Chairman. Thank you so much, Mr. Bhatia.
        [The prepared statement of Mr. Bhatia appears in the
    appendix.]
        The Chairman. Next, Mr. Hanson?

                  STATEMENT OF BOB HANSON, PRESIDENT,
              MONTANA FARM BUREAU FEDERATION, BOZEMAN, MT

        Mr. Hanson. Thank you, Mr. Chairman, for this opportunity
    to speak to you about the trade agreement. My name is Robert
    Hanson, or Bob. I am president of the Montana Farm Bureau,
    which is the largest agricultural organization in Montana. I am
    a board member of the American Farm Bureau board. I am a full-
    time rancher, fourth generation, in Montana.
        I would like the opportunity to talk about the Trans-
    Pacific Trade Partnership, and mainly about Japan entering it.
    Japan has been a real key issue to Montana. Sixty percent of
    all the agriculture production in Montana is exported out of
    the United States, and the majority of that is grain to the
    Pacific Rim.
        The other countries offer some opportunities which we have
    not experienced yet in Montana, but it is very essential that
    we have this. The administration is going forward with this. We
    are very pleased. We would like to have this agreement be as
    transparent and open as possible.
        The two governments work hand-in-hand, the U.S. and Japan.
    It has been very rewarding that they have moved forward with
    the 30 months of age for cattle recently, on the 1st of
    September. That opened a lot of opportunities and lessened some
    requirements we have in managing our cattle.
        Wheat, corn, soybeans, beef, and pork are the main things
    that go into Japan--not too much corn or soybeans from Montana;
    we do not do very well there. But it has been very lucrative
    for us in a very good market. I have had the opportunity to
    take two trips to Japan on the beef trade, one in 2004 and one
    in 2005, promoting the beef trade and trying to understand
    their culture in relation to our product.
        I found it to be a very open and a good place to market our
    products. The people, in general terms, are very eager for our
    products from Montana, and it would be good to have it opened
    up so they have full access to our market.
        The only other thing I would like to add at this time is,
    it is quite a shock to us having Senator Baucus resign. He has
    really been a statesman for the State of Montana whom we really
    enjoy, and we are going to sorely miss him. We understand why
    he is making the shift. We were kind of laughing about it in a
    certain way, because there are not any of his staff who are as
    old as the time he has been here. All of them are a lot younger
    than his tenure. So we are going to sorely miss him, but we
    have 2 years to go forward, and I think he will do a good job
    on this. So, thank you again for the opportunity to testify.
        Senator Hatch [presiding]. Thank you, sir.
        [The prepared statement of Mr. Hanson appears in the
    appendix.]
        Senator Hatch. Mr. Hirschmann?

       STATEMENT OF DAVID HIRSCHMANN, PRESIDENT AND CEO, GLOBAL
        INTELLECTUAL PROPERTY CENTER, U.S. CHAMBER OF COMMERCE,
                             WASHINGTON, DC

        Mr. Hirschmann. Mr. Chairman, Ranking Member Hatch, members
    of the committee, thank you for inviting the Intellectual
    Property Center to testify in this important hearing.
        Like you, we believe that effective intellectual property
    protection is vital to creating jobs into the future of our
    society and the world society. In fact, IP delivers in at least
    four ways: it generates jobs; it stimulates innovation; it
    ensures consumer safety; and, probably not as well understood,
    there is also enormous investment in taking products to market,
    so it ensures that we are able to take new, innovative products
    to markets all around the world.
        So, without an intellectual property agreement, you do not
    really have a full trade agreement, because it is the
    intellectual property and the ability to deliver that and
    invest in marketing around the world that really fulfills the
    promise of trade agreements.
        The case for the Trans-Pacific Partnership is very strong.
    Two billion Asians joined the middle class in the last 20
    years, and another 1.2 billion are expected by 2020. According
    to the International Monetary Fund, the world economy will grow
    by $21.6 trillion over the next 5 years, and nearly half of
    that growth will be in Asia.
        Trade agreements are crafted to build bridges, create jobs,
    and promote global economic growth. However, the United States
    has been falling far behind. The number of trade accords
    between Asian countries surged from just three in the year 2000
    to more than 50 by 2011, and another 80 or so are in the
    pipeline. At the same time, the United States has clinched just
    three trade agreements in Asia.
        The TPP is America's best chance to tap into these exciting
    markets. Its objective is to achieve a comprehensive, high-
    standard, commercially meaningful trade and investment
    agreement. The current 12 TPP partners, as the chairman
    mentioned, would become the U.S.'s largest trading bloc,
    representing 40 percent of the world's Gross Domestic Product
    and a third of all trade.
        Working closely with the Office of the U.S. Trade
    Representative and a broad and diverse range of companies and
    industries, the Chamber of Commerce is helping to lead the
    business community's advocacy for the inclusion of strong
    intellectual property protections and disciplines throughout
    the TPP trade agreement, including market access for goods and
    services and investment, as well as path-breaking new rules for
    regulatory coherence, due process, anti-trust enforcement, and
    state-owned enterprises. The opportunity to create a truly
    high-standard agreement is simply too important to miss.
        Now, why intellectual property? Fifty-five million American
    jobs depend on intellectual property. They pay 30-percent
    higher wages on average, and, most importantly for this
    hearing, 74 percent of our exports are tied to intellectual
    property.
        However, the industries that create these exports are
    facing challenges all around the world. IP matters for two
    reasons: it will maximize the benefits of the agreements, both
    for the U.S. and its partners, but it is also important to
    remember that some countries are moving in the wrong direction
    in terms of advancing innovation and IP.
        I would be remiss not to single out the recent negative
    trends, for example, in India. Many of our members across a
    range of industries are struggling with the very difficult
    problems in that country. If the TPP is to be a model
    agreement--as the negotiators said when they laid it out,
    saying that the ambition levels would be the highest in 2011--
    it is essential to include binding, enforceable, and robust
    standards for the protection of intellectual property.
        At a minimum, we should seek to meet or exceed the
    standards for patents, trademarks, copyright, and criminal
    enforcement of trade secrets theft in the U.S.-Korea Free Trade
    Agreement, and in some areas such as trade secrets there may be
    an opportunity to go further.
        We would like to especially thank Senator Baucus and
    Senator Hatch for their letter to the Office of the U.S. Trade
    Representative calling for strong IP protections. We also urge
    you to push back on any efforts to weaken IP rights or exclude
    any sector from protection in the agreement.
        In trade negotiations, whenever one party seeks to exclude
    a given commodity or sector from an agreement, others tend to
    follow suit, limiting its reach. For the United States to
    achieve the goal of a truly 21st-century agreement, our
    negotiators must hold fast to the goal of a comprehensive
    accord that avoids carve-outs and exclusions. This is a
    position that enjoys broad and diverse support not only in
    business, but from former USTRs and a whole range of officials
    who have spoken out on this recently.
        We know that USTR has been working tirelessly to ensure a
    high-standard agreement. As part of that, it is essential that
    this administration propose and secure commercially meaningful
    opportunities for all biotech and pharmaceutical companies, as
    Senator Hatch mentioned.
        We believe that the 12 years of regulatory data protection
    for biologic products is essential, as currently provided in
    U.S. law, and will ensure that companies are able to continue
    to invest in lifesaving innovations.
        For the U.S. to remain the world's most competitive,
    innovative economy, we must ensure that our IP-intensive
    industries remain confident that copyrights, patents, and
    trademarks will be protected. We commend this committee for its
    consistent work to advance that goal. We appreciate your
    willingness to work now to ensure that the TPP is indeed a
    high-standard agreement for intellectual property that benefits
    jobs, innovation, consumer access, and safety, both here and
    for each of our 11 TPP partners.
        Chairman Baucus, I would be remiss in not pointing out that
    we will sorely miss your leadership here in the Senate. We
    greatly appreciate the chance to work with you, and
    congratulate you on what you accomplished, but we also know
    that, over the next 2 years, you will accomplish a great deal.
    On behalf of the Chamber, we look forward to working with you
    to make those accomplishments happen. Your leadership on trade
    and TPP is just one example.
        The Chairman. Thank you, Mr. Hirschmann. I think you know,
    as well as my very good friend Bob Hanson, that I do intend to
    double down. We are going to get this thing done. Thank you.
        [The prepared statement of Mr. Hirschmann appears in the
    appendix.]
        The Chairman. Mr. Suber?

                  STATEMENT OF TOM SUBER, PRESIDENT,
                U.S. DAIRY EXPORT COUNCIL, ARLINGTON, VA

        Mr. Suber. Thank you. Chairman Baucus, Ranking Member
    Hatch, and members of the committee, I appreciate the
    opportunity to testify today on behalf of the U.S. Dairy
    Council regarding the challenges and opportunities of the U.S.
    dairy industry in the Trans-Pacific Partnership.
        U.S. DEC supports these negotiations, as it has all the
    recent agreements that have helped expand our increasingly
    export-
    dependent sector. It is important to recognize that, if the
    administration brings back an unfair result, the U.S. dairy
    industry will have no choice but to oppose congressional
    approval of the agreement.
        The TPP started with no clear up-side for U.S. dairy. The
    original few countries involved consisted of prior U.S. FTA
    partners, a country without significant dairy consumption, and
    a major competitor with a monopolistic industry structure.
    Despite this grim outlook, we began work to identify offensive
    interests to include in a dairy package that could provide the
    foundation of a positive TPP outcome.
        Today we are pleased that the pieces are in place so that
    this agreement, properly negotiated, could deliver large and
    lasting benefits across the U.S. dairy sector. There are
    several key elements we have identified as necessary in
    assembling this positive overall dairy package.
        The first critical area is broadly shared by most
    throughout the U.S. food and agricultural community: a high-
    quality and enforceable sanitary and phytosanitary, or SPS
    chapter. Non-tariff barriers to trade have proliferated in
    recent years, making agricultural tariffs a lesser evil in many
    export markets.
        Given this, U.S. DEC has joined with other groups to insist
    on the importance of securing enforceable SPS obligations that
    build upon the existing WTO SPS agreement. We believe that a
    strengthened reliance on scientific and risk-based requirements
    throughout the TPP region will improve trading conditions while
    maintaining the ability of all countries, including the U.S.,
    to preserve food, animal, and plant health, just as has been
    the case with the existing SPS agreement in the WTO.
        The next key area for us is export market access, where our
    industry actually has some of the largest potential gains among
    all U.S. agricultural sectors. In order to provide a positive
    potential export up-side for our industry, it is critical that
    TPP provide fully open access for our products into the
    Canadian and Japanese markets, as well as into Vietnam and
    Malaysia. In fact, a large share of the prospect for a positive
    net outcome for us rests in great part on how the dairy
    negotiations with Canada and Japan are handled.
        U.S. DEC and many others throughout our industry would
    strongly reject a TPP outcome where the U.S. industry is asked
    to accept negative trade impacts with respect to other major
    dairy-
    producing countries while omitting export gains in other
    markets, particularly Canada and Japan.
        As part of the TPP bilateral discussions on dairy, it is
    critical this agreement also address the ability of New
    Zealand's quasi-
    monopoly dairy firm to use its market power to undermine the
    efforts of U.S. companies in global markets.
        One dairy company in New Zealand is a direct heir of the
    prior state trading enterprise that today controls 90 percent
    of the market. It has benefitted dramatically from past
    government decisions to create and support a national champion.
        These government policies granted the firm exclusive access
    to lucrative overseas import licenses for several years and
    permitted it to inherit key global accounts through
    facilitating a consolidation of virtually all New Zealand dairy
    exports. In the world's single-largest dairy exporting nation,
    this poses a sizeable concern.
        It is simply inappropriate to provide new market access to
    New Zealand without addressing the excess level of market
    concentration resulting from these government preferences. This
    is not simply a strong conviction of American dairy farmers,
    but is shared by many trade-reliant dairy processing companies
    within U.S. DEC.
        Finally, U.S. DEC believes it is important to use the
    opportunity provided by TPP to set more reasonable guidelines
    for the use of common food names, such as parmesan and feta,
    which are under attack by the European Union. This is a de
    facto non-tariff barrier to our cheese exports. As the U.S.
    prepares to embark on trade talks with the European Union, this
    issue takes on even greater significance.
        In closing, let me repeat that U.S. DEC supports the TPP
    negotiations and hopes to actively support the final agreement.
    Economists at the National Milk Producers Federation have
    calculated that, without major reforms in New Zealand and
    without other offsetting dairy market access opportunities in
    the TPP such as in Canada and Japan, U.S. industry would lose
    $20 billion over the first decade of the agreement.
        U.S. DEC's aim is to turn a sizeable loss into a strongly
    positive figure at the end of the day. Our ability to do so
    hinges on how key elements of TPP are ultimately decided.
        Thank you again for the opportunity to testify. I look
    forward to any questions you may have and echo the other
    members of the panel in thanking you for your service over the
    many years, Chairman Baucus.
        The Chairman. Thank you, Mr. Suber, very much.
        [The prepared statement of Mr. Suber appears in the
    appendix.]
        The Chairman. I would like to ask each of you, what is the
    major objective you would like to see accomplished in a
    successfully concluded TPP? If you were to think about one--I
    will give you two objectives. One might be positive; it might
    be preventing something bad from happening. But what are the
    two major objectives that each of you would like to see
    accomplished in this agreement? I will start with you, Mr.
    Bhatia.
        Mr. Bhatia. Thank you, Mr. Chairman. As I reflected in my
    opening comments, for us, for a company like GE that is in so
    many different sectors, that is in all of these different
    countries, we will stand to benefit, frankly, simply from the
    general trend of openness, of market reform, that is going to
    result.
        When we see that kind of initiative moving forward, we are
    going to see growth in those economies; we are going to see
    greater openness. So it is hard to pick any individual sector,
    for instance, or any individual point, and say that alone would
    be critical to our support.
        Having said that, I do think there are a couple of points
    that I would suggest that are a particularly high priority for
    us. One is in the area of government procurement. As you step
    back and you look at the world that we are increasingly
    confronting, the role of governments in economies is growing.
    It is growing more year by year in some senses, and it
    certainly took a substantial step forward post-financial
    crisis.
        So, when you have governments acting in economies as
    consumers, as well as regulators, investors, and so forth,
    having a strong set of disciplines around how the governments
    and state-owned enterprises actually procure, what their
    involvement is in markets, is key.
        In that regard, I would flag one specific trend that has
    been of concern, which is the rise of forced local content
    requirements that we have seen. Now, these may come through
    various different forms, various different means, but they are
    trade-distorting.
        I think they ultimately work to the detriment, not just of
    U.S. companies, but indeed of their own economies. So I would
    flag a strong government procurement chapter as being a key
    one. There are obviously many others, some of which were
    mentioned--state-owned enterprises, IP disciplines, and so
    forth--but that is one example.
        The Chairman. Mr. Hanson, I take it you are also concerned
    about the tobacco safe harbor; for example, the other safe
    harbor provisions that are carve-outs. Mr. Hirschmann mentioned
    that. But what are the couple of things that come to your mind?
        Mr. Hanson. Well, the safe harbor does give us a little bit
    of heartburn. I guess the problem is that I can understand the
    comments about tobacco, but the other side of it is--I guess
    the way I look at it is, it kind of creates a loophole that can
    create some instability in being able to get your product into
    the market.
        We are concerned that companies might use the safe harbor
    to create trade barriers related to that. We would like to make
    sure that the agreement is very transparent and that we can
    have a consistent process going forward so we know where we are
    in our production and are able to market it in a steady fashion
    in the country.
        The Chairman. Mr. Hirschmann?
        Mr. Hirschmann. I suppose it would be cheating on the
    question if I said we wanted it to be comprehensive.
        The Chairman. No, that does not work. [Laughter.]
        Mr. Hirschmann. Obviously, there are 29 chapters, and we
    have teams at the Chamber working on just about all of them.
    But I will talk my book at the Global Intellectual Property
    Center. In that regard we hope that it is a high-standard
    agreement, one that has no exceptions, one that certainly
    preserves U.S. law, particularly on biologics, and builds on
    that. I think in intellectual property as in other areas, if
    you do not move forward, you are indeed falling back.
    Technology changes.
        So I think there is an opportunity to really, not just for
    our country--I mean, this is the U.S. Senate Finance Committee,
    so we are talking about the benefits to the United States--but
    every nation in the TPP will benefit from effective
    intellectual property protection.
        The Chairman. Good. Thanks.
        Mr. Suber?
        Mr. Suber. Well, since 3 of every 5 new pounds of milk
    produced in the country end up going out of the country, growth
    is the highest priority we have in the dairy package we are
    speaking of. That comes from market access. There, Canada
    stands out as the primary one.
        We think that that poses the highest potential new access
    for us, essentially creating a truly open NAFTA free trade
    area, which did not happen from the original FTA with Canada
    and NAFTA itself. But also the issue of the reliability of that
    access is important, not just with Canada but with the entire
    TPP region, and an enforceable SPS agreement would bring that.
        Making sure that the rules of trade are based on science,
    transparency, and timely adjudication of issues, bindingly
    done, is important to make sure that our access is actually
    delivered and will make a difference as we go into the European
    discussions, where those issues will be particularly difficult.
        The Chairman. Right. But how do you deal with New Zealand?
    I have visited New Zealand. I have visited their dairy farms
    down there.
        Mr. Suber. They are very good competitors, and they make
    very good products and are a global player, and they should be.
    Where the issue becomes tricky is that they have, for years,
    provided preferences to the single company there called
    Fonterra. It has essentially created a situation where, either
    inside of our market or external to our market, we find
    ourselves playing on an unbalanced playing field.
        We are not talking about leaving New Zealand out of the
    agreement or leaving dairy out of the agreement, but, if you
    are going to provide new access, you need to reform their
    industry. If this is going to be a high-ambition agreement in
    the 21st century, you need to reform that industry which is
    creating a 90-percent market share for one company.
        In the global market, that company controls about 35
    percent of the global trade, which exceeds by a factor of 2
    what Saudi Arabia controls in oil. So, their market power is
    substantial, and it should be reformed.
        The Chairman. Thank you very much.
        Senator Hatch?
        Senator Hatch. Thank you, Mr. Chairman.
        Ambassador Bhatia, from your experience as a former senior
    government official responsible for negotiating and
    implementing trade agreements in the Asia Pacific and African
    areas, how important is Trade Promotion Authority to the
    successful negotiation, approval, and implementation of the
    Trans-Pacific Partnership?
        Mr. Bhatia. Senator Hatch, TPA certainly is important. I
    think there are probably three real ways in which it is
    important. I think the first is, it is important to help guide
    the negotiators. It is, at the end of the day, a mandate from
    Congress to the negotiators and helps us--helps them--
    understand what it is they need to accomplish, to bring back,
    to gain the Congress's approval. So I think it is important in
    that regard.
        I think, second, it is important to close the agreement. I
    think you find your trading partners are concerned and
    sometimes skeptical if they think that the agreement is not
    going to be subject to an up-or-down vote, that it is going to
    potentially be carved back in certain places. So I think it is
    important to close the agreement at the end of the day when you
    hit that point.
        Last, I will say it is important as a sign of American
    leadership in trade. So I think, for all of those reasons, TPA
    is important.
        Senator Hatch. Well, thank you.
        Mr. Hirschmann, let me just ask you this. Just yesterday,
    an article came out focusing on a junior Obama administration
    Health and Human Services official. Now, this official proudly
    bragged about his efforts to steamroll USTR by watering down
    the U.S. intellectual property chapter in TPP in order to
    advance his vision of ``global health policy'' objectives.
        Now, perhaps this explains why, as you alluded to in your
    testimony, the Obama administration has thus far refused to
    commit to seek 12 years of regulatory data protection for
    pharmaceuticals in the TPP negotiation, which reflects current
    U.S. law.
        I am concerned that the administration is more preoccupied
    with placating various left-wing interest groups than it is in
    protecting innovators and content creators who generate a
    significant and increasing portion of U.S. jobs.
        Do you believe there are steps we can take to assist our
    trade negotiators in advocating more effectively on behalf of
    U.S. innovators and content creators? If the administration
    decides to unilaterally depart from the standards reflected in
    U.S. law in determining their negotiating objectives for
    intellectual property and TPP, do you believe that it will do
    lasting damage to U.S. innovators?
        Mr. Hirschmann. Senator Hatch, as you pointed out, it is
    U.S. law, and it received great bipartisan support in Congress
    during the consideration of the health care legislation. So I
    think ultimately negotiators understand that they have to bring
    back an agreement that will be approved, that this committee
    will consider.
        Twelve years of biologic protection is important, and the
    reason it has had such support on a bipartisan basis here in
    the Congress is because it is what is needed to really drive
    the investment in what are lifesaving drugs. So, as a matter of
    health policy, it is the right answer as a matter of trade
    policy.
        Just as a matter of negotiating, U.S. negotiators should
    always start, at a minimum, with U.S. law. I think legislation
    like what you proposed, the Innovation Through Trade Act, that
    would elevate the status of IP within USTR, is a good step. I
    think we should always be looking for ways to strengthen our
    ability to open markets and to ensure IP protection around the
    world.
        Senator Hatch. Well, thank you.
        Mr. Suber, your concerns over the proliferation of trade
    agreements which enshrine the European Union's use of a
    geographical indication system are well-founded, in my opinion.
    I am afraid that, if the United States does not vigorously
    advocate for an alternative system, many competitive export
    opportunities will be lost. So, do you believe the
    administration has an effective strategy for dealing with this
    problem? If not, how can that strategy improve?
        Mr. Suber. Well, thank you for the question. We have been
    gratified by the interest that the administration, both at USTR
    and USDA, has taken on this issue. At first it seemed
    nettlesome and small, but now, as we have explained it to them,
    they see very much the same thing we see: it has denied us
    access; it potentially is a de facto barrier. We do think that
    they are addressing it in the proper way in the background
    negotiations related to TPP. These issues are persistent.
        The European Union considers this one of their very top
    priorities, and they put it into all sorts of other trade
    agreements. So the issue is about monitoring, the issue is
    about persistence, the issue is about diligence and recognizing
    that this is something that can spread--already has spread--
    beyond dairy. It is a food issue about preserving the use of
    common food names, our immigrant culture, and the heritage that
    we have from that.
        Senator Hatch. Well, thank you.
        Just one last question for you, Mr. Hirschmann. How
    important is it that we establish the highest standards of
    protection for intellectual property rights in TPP in light of
    the challenges that U.S. innovators face in markets such as
    China and India, just to give two examples?
        Mr. Hirschmann. In addition to making sure that we know the
    rules of the road and that companies can continue to innovate
    and invest in innovative products of all kinds, I think it is
    important to remember that countries like China, India, and
    others are watching to see what we do here. So it is good
    offense, but it is also good defense, and ultimately it will
    accelerate the path.
        In private, I think most Chinese officials understand that
    intellectual property protection is their future. They just are
    not sure quite how to get there. I think this will help spur
    the movement towards strong and effective intellectual property
    protection around the world.
        Senator Hatch. Well, thank you.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Stabenow?
        Senator Stabenow. Well, thank you very much, Mr. Chairman,
    for holding the hearing. I want to start out by saying, Mr.
    Hanson, that you are not only fortunate that the chairman of
    the Finance Committee is from Montana, but, speaking as the
    chair of the Agriculture Committee, I can assure you, nobody
    fights harder for Montana agriculture than this gentleman. So
    he is going to be missed in many, many different capacities,
    but I look forward to working with you, Mr. Chairman.
        The Chairman. I am not going anywhere.
        Senator Stabenow. I know you are not. And I am counting on
    you to help us get a farm bill passed again, so we are looking
    forward to doing that.
        Let me also just echo, Mr. Hirschmann, my strong support
    for what you said about binding and enforceable standards on
    intellectual property rights. We have to make sure that this
    happens. Mr. Chairman, I very much appreciate your holding the
    hearing. This really is a historic opportunity to open markets.
        I would ask and encourage that we also hear from those who
    have concerns, additional concerns, about making sure we get
    this right. Of course, I am referring to the auto industry,
    where Japan's interests now in being a part of this creates a
    situation where we have a country involved that has spent 80
    years blocking our auto industry from fully participating in
    trade. So I know the USTR is working hard. There are some steps
    they have taken that are very positive.
        But the truth is, at the moment we have an industry that,
    last year, was 30 percent of the economic growth of this
    country, that is still in a situation where Japan is sending
    120 automobiles to us for every one we can send to them.
        So it is not just tariffs, but it is very much non-tariff
    barriers that they put in place, where Japanese auto dealers
    cannot sell foreign vehicles. So there are a lot of things that
    we need to get right on this, particularly for Japan, and I
    look forward to working with you on that. This is really
    important, and I am hopeful that we can have an opportunity to
    hear from them as well.
        I also understand, with my Agriculture hat on, how
    significant this is in opening markets. Our bright light,
    frankly, in exports is agriculture in terms of trade surpluses.
    But also, representing a big dairy State, Mr. Suber, I am very
    concerned about what you said in terms of Canada and Japan, and
    making sure that we deal with the SPS obligations in the right
    way so we are not seeing non-tariff trade barriers in that
    area.
        I wonder if you might, just for a moment, talk a little bit
    more about New Zealand. New Zealand is a huge problem here,
    with 90 percent of the market being controlled by Fonterra.
    When we look at, not just the TPP but other things that USTR
    should be doing right now to really overcome what is a huge
    home field advantage for New Zealand, I wonder if you have
    other ideas. We obviously have to get TPP right. But what else
    should we be doing? What should USTR be doing on this?
        Mr. Suber. Well, New Zealand is within its rights, the WTO
    rights, to do as it is doing. The issue we are dealing with
    here within the TPP is how to make it a high-ambition agreement
    in a way that makes it a more fair and open trading system. And
    just to use an illustration of, why is this competition unfair?
    What does it mean to U.S. dairy exporters and suppliers that
    this concentration creates a problem? I think there is a really
    relevant and recent example on this.
        Last October, New Zealand had a situation where one item
    that it was spraying on its field was considered to be
    potentially toxic and was related to the melamine product that
    had caused such consternation in China. Though they discovered
    this in October, in collaboration with their own Ministry of
    Primary Industries they kept it secret from their other
    competitors in New Zealand, they kept it secret from FDA, they
    kept it secret from the world, until their flush period, until
    their big production period had passed so they could secure
    their contracts, so they could get themselves in place, and
    then they revealed it to their domestic competitors as well as
    the world.
        Now, it turned out not to be a huge food safety issue, but
    they clearly had the hush-hush collaboration of their
    government regulators, who, with the exemption from the
    antitrust agreement, are supposed to be watching to make sure
    that they are playing fairly, but are, in fact, preserving
    their market power.
        So that is just an example about robust enforcement that
    currently is lacking there. And essentially, not an entire
    dismantling, but a lowering of the concentration of that
    sector, is in order. That is what USTR should be asking for.
        Senator Stabenow. Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Cardin?
        Senator Cardin. Thank you very much, Mr. Chairman. We had a
    chance to talk privately, but I just really want the committee
    to know, and the public to know, that we look to you as one of
    the major reasons why we can advance legislation such as TPP.
    You bring us together.
        Your legacy has been one of bridging the gaps between, not
    only Democrats and Republicans, but philosophical differences
    that exist in the U.S. Senate. You understand more than any of
    us the importance of the work that this committee does in
    getting the policy right for this Nation.
        I know we have a year and a half, but I think you are going
    to be particularly important as we work our way through TPP and
    Trade Promotion Authority. These issues can divide us, but I am
    confident, under your leadership, we will find a way to move
    this forward.
        TPP is particularly important because it deals with the
    rebalance of the Asia-Pacific region, which is an important
    priority of this country. I chair the East Asian and Pacific
    Subcommittee of the Foreign Relations Committee, so I am
    particularly interested in this subject. I thought the manner
    in which you handled WTO with Russia was the right way. It
    needed to get done.
        You recognized, by combining that with a basic human rights
    issue, we would not only accomplish two positive aspects but we
    would broaden the support for moving that legislation forward.
    The challenge in TPP is that you do have countries that run the
    gamut on their advancements on labor rights, on their
    advancements on environmental issues, and on basic values,
    basic human rights issues.
        So we will be looking for your magic, Mr. Chairman, as to
    how we can advance those causes in a way that broadens the
    support base on moving forward on these issues. Now,
    representing my State of Maryland, I will have specific issues,
    like other Senators will have. We have a high-end suit and
    shirt manufacturer in our State, and we are very proud of the
    quality work that company does, the jobs it preserves in my
    State and our country.
        But the yarn-forward rules are going to be very important
    issues for us to take a look at. We must make sure that we are
    not allowing, through a TPP country, the importing of fabric
    that otherwise should not enter our market tariff-free and
    which puts our manufacturers at a disadvantage. So I do not
    have any specific questions, but I would be glad to get just
    your general reactions as to how we can, with such a diverse
    group of countries, make advancements on issues that are
    important to us, such as advancing labor, environment, basic
    rights, et cetera, in a trade bill.
        If you have thoughts on that, I would appreciate you making
    that available to us. I say that in a very positive way,
    because I do think it is not easy to get these types of bills
    to the finish line. When you are dealing with the countries
    that we are dealing with here and the concerns that we would
    have about respect for basic rights, it is going to be an issue
    that we are going to have to deal with.
        Thank you, Mr. Chairman.
        The Chairman. Thank you.
        Next is Senator Brown.
        Senator Brown. Thank you, Mr. Chairman. Thank you for your
    leadership and your open-mindedness as we have talked on these
    issues, and as we move forward.
        Mr. Bhatia, I am concerned about the deeply entrenched
    state capitalist models, the state-owned enterprises, and what
    they mean to companies like yours. You have a major presence in
    my State, for which we are grateful: the lighting business in
    the north and the jet engines and other business in the south
    of Ohio.
        I sent a letter to Acting U.S. Trade Representative
    Marantis urging strong disciplines on state-owned enterprises,
    including considering an injury test to ensure any anti-
    competitive actions taken by these SOEs under TPP do not result
    in harm to U.S. businesses. What does GE do if it finds itself,
    either in this country or in a third country, competing with a
    state-owned enterprise with the advantages that an SOE has?
    Where do you go with that?
        Mr. Bhatia. Well, Senator, we attempt to do the best we can
    to close that sale anyway. I mean, it does happen. I was
    mentioning before, the world we see out there increasingly, the
    world post-
    financial crisis in particular, governments and government-
    owned entities play a bigger role than they did before.
        Partly that is sort of the tectonic shift of plates of
    which countries are coming to the fore. They tend to be
    countries that have bigger state-owned enterprises and where
    the public entities are a bigger part of their economies, and
    partly it is those countries and companies that are going out
    globally much more. So we are competing with state-owned
    enterprises in countries around the world.
        I know the folks at USTR have given a lot of thought to
    this, looking at disciplines that might be applied. I think
    part of it, frankly, comes down to transparency as well--
    frankly, understanding where the flow of funds is in this area.
    I know people have been looking at things like the Santiago
    principles, which were adopted for sovereign wealth funds,
    being potentially applied in this area. I think those are all
    useful things.
        One other thing that may not be addressed in the TPP, but I
    would mention it in this area, is the critical importance of
    mechanisms in the United States itself to be able to allow us
    to compete on a level playing field, things like the U.S.
    Export-Import Bank, which are frankly simply, in my mind,
    deterrence mechanisms against the kinds of competitive
    challenges we face out there. So I do not know if that answers
    your question.
        Senator Brown. All right. Talk to me about supply chains.
    They are disbursing quickly as the world is more
    interconnected. It may lower the cost of production for U.S.
    manufacturers, but it does not necessarily create jobs here.
    Chairman Baucus has talked about that before. It does not
    necessarily have a particularly good effect on bringing the
    standard of living up in this country because it can depress
    wages. Companies have been using off-shoring as a way of
    leveraging wages and compensation here.
        You come--as a major, important company in this country and
    in the world--to Congress every so often, asking for trade
    agreements. The question we ask is, how does this actually
    bring jobs to the United States? Convince me. I mean, the TPP
    is going to actually--I mean, I know the anecdotal evidence
    that GE is beginning to re-shore some jobs, but convince me
    that TPP gets us there.
        Mr. Bhatia. So maybe I can approach it from two different
    ways. One is, simply, the export opportunities that TPP means
    for a company like GE. So to take aviation, for instance, with
    its principal point of production, Senator, as you know, in
    Cincinnati, 80 percent of the jet engines we produced last year
    were exported, and they were increasingly exported to the
    markets that we are talking about here today: the fast-growing,
    emerging markets.
        So, absent those emerging markets now and going forward, I
    can tell you that the thousands of jobs that we have throughout
    the United States, including in Ohio, it would be hard to
    maintain and sustain those. So we have to have that, and to the
    extent that TPP enables us to break down barriers and sell more
    easily into those markets, I would say it is critical.
        The second point that you allude to, the idea of global
    supply chains and what they do in terms of jobs, I think the
    point today is, at least in our industry, high technology
    manufacturing where there is some sort of off-shoring, is over
    with.
        The amount of hourly labor that goes into some of these
    products has been relatively modest. A small difference in
    labor costs is not going to make the difference. It is
    technology, it is training, it is the strength of rule of law.
    All of those are the key issues that really determine where it
    goes. So the international global supply chain that we have
    constructed allows us to be competitive around the world and I
    think sustain far more jobs in the United States.
        Senator Brown. The other side of that is, look what happens
    to--I do not want to get into this part now, I have another
    question--our persistent trade deficits. But let me ask you one
    other question, if you could sort of share ideas with us.
        Mr. Bhatia. Sure.
        Senator Brown. How do you ensure that products from
    countries like China, non-signatory countries to TPP--how do
    you ensure that the benefits come to the signatory countries
    and not particularly the state-owned enterprises in these non-
    signatory countries?
        Mr. Bhatia. You mean, in terms of having them be able to
    ship products through the TPP countries?
        Senator Brown. Yes. Yes.
        Mr. Bhatia. Look, I think that is a matter of trade
    enforcement. At the end of the day, it is going to be
    important, as it always has been, that there be strong Customs
    and other protections to make sure that non-signatories do not
    get the benefit of it. That is important.
        Senator Brown. So do we write stronger rules of origin
    language in TPP?
        Mr. Bhatia. I think the importance of the rules of origin
    is really that they be consolidated so that you do not have the
    very different ones. But I think, to get to your point, it
    really is a matter of making sure that we have effective
    Customs and other enforcement so that countries and folks are
    not cheating and they are not getting goods through that are
    not really derived from the countries that are signatories.
        Senator Brown. Good. Thank you.
        Mr. Bhatia. Thank you.
        Senator Brown [presiding]. I am done. Yes, sir?
        Senator Grassley. We have a situation here where a lot of
    people were ahead of me, but I am the only one here. So I have
    a short statement and then two questions. Then, if nobody else
    shows up, I assume we are done, but I will have to clear that
    with Senator Baucus's staff.
        I am very glad that we are holding this hearing today.
    Whether I am meeting with a group of Iowa farmers, corporate
    CEOs, or small business owners, they all seem to share similar
    thoughts about global trade: that is, expanding international
    markets is very key to sustaining and growing business.
        Farmers are eagerly watching the development of the Trans-
    Pacific Partnership because they see the potential it holds. It
    is a chance to gain greater access to markets for their
    products by lowering tariffs and reducing non-tariff trade
    barriers and specific sanitary and phytosanitary obstacles. I
    am going to have a question on that.
        Businesses of all types and sizes are looking for global
    opportunities to sell products and services, whether it is an
    insurance company in Des Moines or John Deere in Waterloo,
    expanding trade benefits to all of Iowa's communities and
    workers. I also, besides the questions then, want to show my
    support for TPP.
        I am going to start with Mr. Suber. Given the global nature
    of business today, including agriculture, increasing
    international trade and expanding overseas markets are very
    important for dairy farmers. With the potential inclusion of
    Japan in TPP and Canada already at the negotiating table, there
    are now two major markets where U.S. dairy farmers see
    tremendous opportunities in TPP.
        So I would like to have you explain for each, Japan on the
    one hand and Canada on the other, why there is such an
    opportunity for those countries for U.S. dairy, and what do we
    need to do in the TPP negotiations to seize those
    opportunities?
        Mr. Suber. Well, thank you for focusing on those two. Those
    are two of the biggest up-sides for us. Talking specifically
    about Canada, Canada has a very rigid supply management system
    which depends almost entirely on very high tariff walls. The
    existing access that has been there under the WTO is relatively
    small, and they continually try to nullify that access through
    technical barriers to trade in order to withdraw those
    concessions through changing their product standards and
    playing games with their Customs classifications.
        So the issue is, even though it is a large market today,
    most of our product goes in there and then goes out again. It
    is under their re-export program. So simply ensuring that there
    is significant open access into that market over time,
    considering the similarity of our markets and the fact that we
    share one of the longest unguarded borders--well, I guess it is
    now guarded--in the world, makes it a significant opportunity
    for us.
        Now Japan--we do ship a fair amount to Japan today. It is a
    large market for us, primarily cheese and ingredients, but the
    large dairy commodities of butter and powder and certain
    amounts of cheese, processed cheese, are closed to us.
        So the issue of making sure that the market access is
    significant and open over time is what we seek. It is about
    growth and making sure that the rules of trade are honored in
    that way.
        Senator Grassley. Are we proceeding in regard to what we
    need to do to seize those opportunities? Do you feel the
    negotiations are headed in that direction?
        Mr. Suber. Well, they are really just starting with those
    two countries. Of course, with Japan it technically has not
    started yet.
        Senator Grassley. Yes.
        Mr. Suber. There are a fair amount of words coming out of
    Japan that dairy is one of their sanctuary products. Should
    they come to the agreement, we would expect, of course, that
    everything would be included, including dairy and the other
    four sanctuary products they have spoken of.
        On Canada, our government has heard us loud and clear. It
    has acknowledged the importance we attach to Canada and has
    been helping us on the non-tariff barriers I mentioned. We are
    hopeful and confident that they will seek full and open access
    to Canada as well.
        Senator Grassley. And then my second question is to
    President Hanson, as well as to you. The TPP negotiations
    present a crucial opportunity for U.S. agriculture in areas
    other than reducing tariffs. In my opening statement, I spoke
    about the text of the sanitary and phytosanitary chapter that
    could have a major impact down the road on resolving what are
    oftentimes delicate issues.
        So what is your assessment, your's and Mr. Suber's
    assessment, of how the negotiations are proceeding on sanitary
    and phytosanitary issues, and what do you think the SPS chapter
    will need to include in order to work for our farmers?
        Mr. Hanson. Personally, I think the biggest thing we need
    to do is make sure they are transparent so everybody can see
    what the game is. But the second thing is that I am not sure
    how you are going to enforce them, and I guess that is a
    question that I do not think has been answered yet.
        Senator Grassley. All right.
        Mr. Suber?
        Mr. Suber. I would share Mr. Hanson's opinion about
    enforcement. Ultimately, at the end of the day, it is about
    honoring your agreements. There has been a lot of concern
    raised in our country that this will compromise our own food
    safety standards, and I simply have seen no example, credible
    or otherwise, put forth where our existing food standards have
    been compromised by either the WTO agreement under SPS or this
    enhanced SPS enforcement. In fact, our regulators are at the
    table.
        This is a very good thing. It is most unprecedented that
    the food and environmental folks be there, and I think their
    contributions will ensure that it meets our needs and protects
    us, as well as our overseas interests, in trade.
        Senator Grassley. Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Thune?
        Senator Thune. Thank you, Mr. Chairman. Thank you all for
    being here today and answering our questions about a subject
    that is awfully important to the American economy and the
    global economy as well.
        I would like to ask Mr. Bhatia, if I might, you were the
    former Deputy U.S. Trade Representative during the Bush
    administration. I would be interested in hearing your view
    regarding the timing of TPA.
        Many of us believe that we need Trade Promotion Authority
    to successfully conclude the Trans-Pacific Partnership and
    other trade agreements, just as the U.S.-E.U. agreement, yet we
    know that renewal of TPA is likely to be contentious and is
    going to take time, obviously, for Congress to process.
        Given that reality, do you believe the Obama administration
    is running the risk of holding up conclusion of TPP if they
    continue to delay their request for TPA? A follow-up question
    would be, do you agree, at least with my assessment, that TPA
    is essential if we want to successfully conclude TPP and other
    trade negotiations?
        Mr. Bhatia. Thank you, Senator. Look, I agree, as I
    mentioned in response to the question from Senator Hatch, that
    TPA is very important. It is important to the negotiations and
    the negotiators, and it will be important to close the deal, so
    I certainly think it is something I would urge the Congress to
    move on. The administration has indicated its interest in
    seeing that as well.
        In terms of timing, look, as you can tell, obviously the
    negotiations have been going forward for several years without
    TPA. I think that can continue to happen. I do think it gets
    harder to get to closure on the very tough issues when your
    trading partners do not have assurance necessarily that the
    deals that they are going to strike are ones that will
    ultimately last in the Congress.
        So I think, if you are a negotiator, you want to get TPA,
    and you probably want to get it as quickly as you can. That
    should not stop the negotiations, though, from proceeding in
    the interim.
        Senator Thune. Right. But do you share the concern that I
    have, perhaps even a fear, that if we do not have TPA, that the
    TPP gets unnecessarily delayed?
        Mr. Bhatia. I think at a certain point, while they are
    moving their way through, we can do it. But, if the goal is to
    close this agreement this year, I think we need to get TPA, and
    we need to get it relatively soon.
        Senator Thune. All right.
        I want to follow up on some questions that Senator Grassley
    raised with regard to sanitary and phytosanitary issues in this
    agreement. To be truly effective--and I guess I would pose this
    to Mr. Suber and Mr. Hanson--I believe commitments in that area
    are going to need to be enforceable so that we can hold our
    trading partners accountable.
        You touched on this in response to a question from Senator
    Grassley: the suggestion, however, that making TPP SPS
    commitments enforceable in the same way that WTO SPS
    commitments are already enforceable would somehow put the
    American food safety at risk. I am just wondering maybe if you
    could rebut those claims. How important are enforceable
    sanitary and phytosanitary commitments to U.S. agricultural
    exporters?
        Mr. Suber. Well, thank you for the suggestion for
    clarification. I think our regulations are primarily based on
    science today. I think we can defend our standards based on
    science. I think we have every opportunity to evolve those if
    different science comes to the fore that may be different than
    the science we may have used. In other words, science evolves.
        But ultimately it should be about making sure that food is
    safe and making sure that the best science is used to determine
    that so it does not get in the way of using food safety as some
    other goal. It is about making sure you meet customer
    preferences, both in quality and in safety.
        So the enforcement mechanism is fundamentally important,
    otherwise it becomes a never-ending chain of consultations and
    discussions without ultimately achieving what the underlying
    goal is, which is to facilitate trade.
        Senator Thune. Yes. Mr. Hanson?
        Mr. Hanson. I concur with what he had to say. The other
    thing is, if you negotiate an agreement, you have to make sure
    that what you negotiate, you can enforce. It has no value if
    you do not.
        Senator Thune. All right.
        There are some in the agricultural community who are
    obviously very excited about this, for obvious reasons. We are
    very excited about the possibilities and what they could mean
    for American agriculture. But there are a number of significant
    outstanding issues that would have to be addressed concerning
    Japan's persistent barriers to certain segments of U.S.
    agriculture, and I would be interested in knowing--and I guess
    this is a question that perhaps any of you could respond to--do
    you view Japan as more of an opportunity or a challenge with
    respect to their inclusion in the TPP, and do you believe that
    the U.S. Trade Representative's office has done an adequate job
    of securing promises from the Japanese government that they are
    truly willing to negotiate in some of these sensitive areas?
    More a general question.
        Mr. Hanson. Well, I guess our feeling that they moved on
    the 30 months of age is an indication that the Japanese
    government was sincere about their position. In Montana, we
    have shipped a lot of grain to Japan. The only question that I
    have had, the way I understand the process, is that the grain
    is bought in Montana by Japanese companies, but the only
    salesman they have or person they can sell it to is the
    government, and then they have to buy it back at a different
    price. That is, to a certain degree in my mind, a little bit of
    an issue.
        Senator Thune. All right.
        Mr. Hirschmann? Anybody?
        Mr. Hirschmann. We welcome Japan's entry and think Japan
    has agreed to participate as a country seeking a high-standard
    agreement, and we believe that is the case. We think it will
    actually make the opportunity out of the TPP far greater and
    help create momentum forward.
        I would add, as you correctly pointed out--and it is not
    specific to Japan--that countries today have many means of
    trying to protect their markets that do not involve the
    traditional trade tariffs. That is why we think this ill-
    considered safe harbor proposal that the U.S. administration
    might be considering to exempt a product would actually be the
    wrong approach and will actually backfire on us and will lead
    to other countries finding innovative ways to exempt U.S.
    products from their markets.
        Senator Thune. All right. Great.
        Mr. Bhatia?
        Mr. Bhatia. Senator, I echo that. I think Japan represents
    an enormous opportunity. This has been in some ways sort of a
    major goal of U.S. trade policy for decades, to get Japan to
    open up and reform. It is an enormous economy. It presents
    enormous opportunities for American companies in all of our
    sectors.
        But Japan has been a slow-growth place, and it desperately
    needed reform. If TPP can enable it to gather the political
    will internally to finally make those tough choices, I think it
    could be a tremendously beneficial opportunity for the United
    States and for American business.
        Senator Thune. All right. I appreciate that. Thank you all
    very much.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Casey?
        Senator Casey. Right on time. Thanks very much.
        I wanted to first of all thank you for the testimony today.
    I have a high degree of skepticism about TPP, and it is of long
    standing. I have had a real concern about it. It seems, even in
    the last generation, if you look at all the engagements and
    debates about trade, we have never really developed a trade
    policy for the country that has been comprehensive and
    bipartisan. We have had a lot of debates about trade
    agreements, and they sometimes have shed some light on the
    problem, but sometimes have been more of a political fight than
    an advancement to a trade policy.
        So I have natural skepticism about this. I have even more
    skepticism when it comes to Japan, even in light of the recent
    news. But just the enormous challenge of breaking into the auto
    market in that country is a great challenge.
        By one estimate, their closed auto market has reached a
    point where we have virtually no penetration at all, even with
    the commitments that they seem to have made more recently. So,
    I approach the issue generally with a high degree of
    skepticism.
        Number two, when I evaluate any agreement, any trade
    agreement, I have to ask two basic questions: the impact on
    Pennsylvania jobs, either retaining or creating, and also the
    impact on the national economy and whether or not this will
    level the playing field, which is difficult to achieve, and
    does it help our manufacturing base? So that is kind of the
    Pennsylvania and U.S. test that I have to apply.
        But I did want to pursue some of the subjects that each of
    you raised. I probably only have time for two. First of all,
    with regard to dairy, Mr. Suber, I was interested in your
    testimony. I realized that you have some skepticism, and you
    articulated support for the process going forward, with a lot
    of conditions.
        The concern that I have just about dairy is that you might
    have, potentially, the perfect storm, where you have a surge of
    imports from New Zealand, and at the same time no real
    meaningful progress as it relates to our folks having an
    opportunity in markets like Canada or Japan. I just wanted to
    get your thoughts on that basic concern that I have.
        Mr. Suber. Well, you are correct that no new market access
    into these interesting countries of Japan and Canada, no way of
    defending our issues because of sanitary and phytosanitary
    issues, and allowing a virtual state-owned enterprise to
    continue to operate, would be a very unfortunate outcome, which
    would lead the U.S. dairy industry to oppose it.
        However, generally speaking, the pieces that are in place
    make this a very positive situation. The negotiations are tough
    with every country in this group. We think that there are good
    opportunities that will in fact continue with the growth in the
    U.S. dairy industry that there has been. We have grown over 10
    times in the last 13 years. We have a trade surplus.
        We are confident we can compete globally, but there is that
    one niggling concern about the virtual state-owned enterprise
    out of New Zealand. The opportunity is there for an up-side
    outcome, and we want to continue to work with our government to
    make that happen.
        Senator Casey. I look forward to further discussion about
    that.
        Mr. Suber. Thank you.
        Senator Casey. I appreciate it.
        I know we do not have much time left, but, Mr. Hirschmann,
    I wanted to highlight part of your testimony on data
    exclusivity. We had, over the course of a long period of time--
    and I have a letter that I can reference here--a great
    bipartisan effort that has been undertaken on this issue. I am
    looking at a September 12, 2011 letter.
        If I counted the signatures, there were about 37 Senators
    raising a concern about any reduction in that 12-year time
    period for data exclusivity. It is signed by maybe the greatest
    collection of Democrats and Republicans you could get on one
    letter, a real broad cross-section of the country. Just, your
    comments on that concern that you raised.
        Mr. Hirschmann. Senator, as you pointed out, the reason
    this gets bipartisan support is because investment in the
    billions of dollars it takes to invest in biologics and create
    jobs really is a key American asset, but it is also the best
    way and offers the most promise for solving the world's most
    significant health care challenges.
        You cannot attract that investment without some certainty,
    so, in addition to the number of years, the certainty that the
    Affordable Care Act provided of 12 years on biologics is very
    important to attract that investment. To begin to walk back on
    that or create uncertainty for that, actually has a harm that
    goes well beyond TPP.
        Senator Casey. I appreciate that. I know I am a bit over
    time, but at another time I will have the chance to maybe
    question and discuss with our two other witnesses. We are
    grateful for your presence here, your testimony, and your
    service.
        Mr. Hanson, I hope that in some future time, when I am
    leaving the Senate, that folks in our Farm Bureau in
    Pennsylvania express the same, or even somewhat similar,
    sentiments that you expressed for Senator Baucus here. We are
    going to miss him. Your heartfelt praise for his service is of
    great value, and I think is widely shared here in the committee
    and throughout the Senate.
        I guess I can gavel us out, but I do not have a gavel, so I
    will use a fist. We are adjourned.
        [Whereupon, at 11:33 a.m., the hearing was concluded.]
                                A P P E N D I X

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