[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
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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
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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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