[Senate Hearing 113-182]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-182
 
  REBALANCE TO ASIA IV: ECONOMIC ENGAGEMENT IN THE ASIA-PACIFIC REGION 

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

                                HEARING

                               BEFORE THE

                      SUBCOMMITTEE ON EAST ASIAN 
                          AND PACIFIC AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 18, 2013

                               __________

       Printed for the use of the Committee on Foreign Relations

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                COMMITTEE ON FOREIGN RELATIONS         

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire        MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware       RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois          JEFF FLAKE, Arizona
TOM UDALL, New Mexico                JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut      JOHN BARRASSO, Wyoming
TIM KAINE, Virginia                  RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
               Daniel E. O'Brien, Staff Director        
        Lester E. Munson III, Republican Staff Director        

                         ------------          

         SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS        

             BENJAMIN L. CARDIN, Maryland, Chairman        

CHRISTOPHER MURPHY, Connecticut      MARCO RUBIO, Florida
BARBARA BOXER, California            RON JOHNSON, Wisconsin
TOM UDALL, New Mexico                JEFF FLAKE, Arizona
EDWARD J. MARKEY, Massachusetts      JOHN McCAIN, Arizona

                              (ii)        


                            C O N T E N T S

                              ----------                              
                                                                   Page

Andersen, Hon. John, Principal Deputy Assistant Secretary for 
  Global Markets, International Trade Administration, U.S. 
  Department of Commerce, Washington, DC.........................    13
    Prepared statement...........................................    14
Cardin, Hon. Benjamin L., U.S. Senator from Maryland, opening 
  statement......................................................     1
Goodman, Matthew P., William E. Simon Chair in Political Economy, 
  Center for Strategic and International Studies, Washington, DC.    32
    Prepared statement...........................................    34
Marciel, Hon. Scot A., Principal Deputy Assistant Secretary, 
  Bureau of East Asian and Pacific Affairs, U.S. Department of 
  State, Washington, DC..........................................     5
    Prepared statement...........................................     7
Rubio, Hon. Marco, U.S. Senator from Florida, opening statement..     3
Scissors, Dr. Derek M., Ph.D., resident scholar, American 
  Enterprise Institute, Washington, DC...........................    39
    Prepared statement...........................................    41

              Additional Material Submitted for the Record

Prepared Statement of Walter Lohman, director, Asian Studies 
  Center, The Heritage Foundation, Washington, DC................    54

                                 (iii)

  


  REBALANCE TO ASIA IV: ECONOMIC ENGAGEMENT IN THE ASIA-PACIFIC REGION

                              ----------                              


                      WEDNESDAY, DECEMBER 18, 2013

                               U.S. Senate,
    Subcommittee on East Asian and Pacific Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:06 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Benjamin L. 
Cardin (chairman of the subcommittee) presiding.
    Present: Senators Cardin, Murphy, Rubio, and McCain.

         OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 
                   U.S. SENATOR FROM MARYLAND

    Senator Cardin. Good morning, everyone. It is my 
understanding that Senator Rubio is on his way, so I am going 
to get started and welcome everyone to this hearing of the 
Subcommittee on East Asia and Pacific.
    I want to thank Senator Menendez and Senator Corker for 
their cooperation in the work of the subcommittee and 
particularly thank Senator Rubio for his help and cooperation 
as we have worked together to establish an agenda for the 
subcommittee.
    This is one of a series of hearings that we have held in 
regards to the Rebalance to Asia, and we are going to focus 
today on the economic engagement issues. Before we get started 
in my formal comments, let me point out that this has been a 
year of learning for me. My focus on foreign policy issues 
previous to this term of Congress was mostly in Europe and 
Central Asia in my role with the Helsinki Commission. I took on 
this challenge because of the importance of East Asia and the 
Pacific and also because of the rebalance programs.
    I was aided in this by one of our fellows who come to us 
from the executive agencies, Elise Mellinger. I mention that 
because she started with me this year, she is an expert in this 
area, and she did incredible work in helping us to prepare for 
this responsibility. This will be the last hearing that she 
will be attending. The sad news about these detailees is that 
we lose them after a period of 1 year. I just want to publicly 
thank her for her service to the United States Senate and to my 
office. It is a particularly good day to do this because it is 
her birthday.
    So thank you.
    Ms. Mellinger. Thank you.
    Senator Cardin. Economic engagement is a critical part of 
the rebalance program. It is critical to stability, it is 
critical to prosperity, it opens markets to U.S. producers, 
manufacturers, and farmers. It creates jobs for Americans. It 
promotes private investment.
    It was a major focus of my visit to the region earlier this 
year and was a primary focus of Vice President Biden's trip 
recently in his visit to China, Japan, and the Republic of 
Korea. Secretary Kerry's trip to Vietnam underscored the 
importance of economic engagement and also indicated that we 
must use our economic engagement to promote human rights.
    I think it is particularly important to underscore that 
this week as we celebrate the life of Nelson Mandela. The 
mineral wealth of South Africa only became unleashed as a 
result of denying the government the opportunity for economic 
engagement unless it changed its apartheid policies. That 
policy worked. South Africa changed, with a minimal amount of 
bloodshed.
    I think it really underscores the importance of our 
economic engagements to advance good governance and human 
rights. The Secretary said in his recent trip to Vietnam: ``We 
are working very closely with Vietnam and other regional 
partners in order to complete the TPP negotiations as quickly 
as possible, but to realize our potential as a partner and for 
Vietnam to realize its potential as a thriving economy--and 
this is something we talk about openly and frankly--Vietnam 
needs to show continued progress on human rights and freedom, 
including the freedom of religion, freedom of expression, and 
freedom of association.''
    So it is clear that we need to talk on the economic 
engagement front as to the progress made in many countries on 
labor rights, women's empowerment, and combating corruption, 
promoting democracy, religious freedom, good governance, and 
the list goes on and on and on and on.
    I was pleased to see that Asia-Pacific Economic Cooperation 
Forum goals included expanding economic opportunities for women 
and combating corruption. The ASEAN adopted a declaration to 
safeguard women and children from violence--an important basic 
human right. And the East Asian Leaders summit included human 
rights as a major focus. So we are making progress.
    The United States and China share the goals of increasing 
regional connectivity and prosperity in the Asia-Pacific 
region. I believe it is in the United States interest for China 
to be a prosperous, peaceful, and strong partner with respect 
to its neighbors and international norms, laws, institutions, 
and rules. I look forward to seeing more economic reform as 
China recognizes the importance of halting currency 
manipulation and creating home-grown innovations. I have talked 
about this before. Currency manipulation is unacceptable, and 
China needs to respect intellectual property.
    Chinese initiatives like creating the new Shanghai pilot 
free trade zone and granting more market access are steps in 
the right direction. I was pleased to see that at the Third 
Party Plenum in November China proposed reforms to boost 
competition and economic efficiency. Implementing these reforms 
will be the true test and this will require sincere commitment 
from President Xi and other Chinese leaders. I hope that China 
will quickly begin to implement these reforms and that they 
will include a reduction in the role of government in promoting 
state-owned enterprises.
    However, as former Secretary of State Clinton has said, 
over the long run you cannot have economic liberalization 
without political liberalization. They are connected. And we 
must emphasize this. I was encouraged to hear that at China's 
Third Party Plenum the government announced its commitment to 
``respect and protect human rights''--that is their quote--
prohibiting law enforcement authorities from extracting 
confessions by torture, corporal punishment, or abuse, and 
abolishing the tortuous reeducation through the labor system. 
If properly implemented, these will be groundbreaking reforms. 
These are signs perhaps that China realizes that its 
authoritarian capitalism cannot be sustained over time because 
the suppression of a country's people only creates the illusion 
of stability. It does not keep a people from wanting the 
freedom to express their own opinions without fear of being 
jailed or killed and the freedom to live as they see fit.
    Democracy remains the model which holds the most promise 
for economic growth. We can see this idea taking hold 
throughout the region from Burma to Timor-Leste.
    So we come full circle at this hearing back to where we 
started. The first hearing we held on the rebalance of Asia 
dealt with good governance and we are back to that issue as we 
tie it together through economic engagement. Discrimination 
against women and minorities are contrary to economic 
development goals. Markets cannot effectively operate unless 
human rights and civil liberties, including freedom of speech, 
association, and the press, are protected. Failing to protect 
workers' basic rights undermines a nation's development and 
violates internationally recognized human rights norms.
    Finally, corruption is a critical issue which we must 
tackle through cooperation in both the public and private 
sectors. Corruption is the enemy of the rule of law. It 
destroys public institutions meant to protect people, denying 
them the justice and depriving them of their human rights. 
Corruption in Asia is a drag on growing economies, draining 
billions of dollars from economic development and the 
livelihood of Asians. It is also a major obstacle to reducing 
poverty in Asia. I am glad to see that APEC and ASEAN leaders 
have recognized the importance of dealing with these issues.
    I look forward to hearing from our witnesses about the 
critical issues and the next step in the economic engagement 
with the Asia-Pacific region.
    With that, I would turn to my colleague and friend Senator 
Rubio.

            OPENING STATEMENT OF HON. MARCO RUBIO, 
                   U.S. SENATOR FROM FLORIDA

    Senator Rubio. Thank you. Thank you for holding this 
hearing and all of you for being here. I think we are all well 
aware of the challenges that we face in the region. Especially 
the security challenges have been in the headlines over the 
last few weeks. For instance, we have a dictator with nuclear 
weapons who has just executed his uncle. We have seen China try 
to assert its territorial claims in ways that jeopardize peace 
with Japan, South Korea, and the entire region.
    These are real threats. But there also are extraordinary 
opportunities to which we need to pay close attention and 
dedicate time, effort, and resources, not just to our security 
interests there, but also to the real economic opportunities 
that are a vital component of our own enduring prosperity.
    I hope our goals will be ambitious in that regard. The 
Asia-Pacific will not simply hold onto its current share of 
global activity. It is actually going to expand. It is going to 
grow, and I hope we will be an integral part of that growth. 
For that reason, I think it is important to get the so-called 
``rebalance'' right.
    Asia today accounts for about 33 percent of U.S. trade. 
China is our second-largest trading partner. Japan is No. 4. As 
a block, the 10 nations in the Association of Southeast Asian 
Nations would rank fifth. Meanwhile, the top four countries on 
the 2013 index of economic freedoms are from the Asia-Pacific 
region.
    Therefore, I think the question is what more should we be 
doing to ensure that the United States is continuing to succeed 
economically, particularly in this vital region of the world. 
The Trans-Pacific Partnership, which I know we will hear a lot 
about today in both testimony and questions, can be an 
important part of that effort and we should do all we can to 
finalize those negotiations. I am very interested in the 
testimony today to hear an update on where we stand with 
regards to that.
    It is also important to remember that, as Senator Cardin 
pointed out just a moment ago, we are a nation that is built 
around values, that we cannot leave by the wayside our 
commitment to promote democracy, but also respect for human 
rights. A proactive approach for these ideals has to go hand in 
hand with everything we do everywhere in the world. This is 
especially true in a region of increasing importance like the 
Asia-Pacific region. These ideals, by the way, define who we 
are as a people and as a nation, and they should continue to be 
an integral part of our efforts overseas.
    So I look forward to hearing from the witnesses today. I 
hope to learn more about the specific initiatives that the 
administration is pursuing and has in mind to address these 
challenges and these opportunities. Mr. Chairman, thank you for 
this hearing.
    I would just ask that at the appropriate time the written 
testimony of Mr. Walter Lohman, who is the Director of Asian 
Studies at the Heritage Foundation, be included at an 
appropriate place in the record.
    I thank you, and I thank all of you for being here.
    Senator Cardin. Without objection, it will so be included.
    We now turn to our first panel. The Honorable Scot Marciel 
is a well-known face before our committee. We welcome him back, 
the Principal Deputy Assistant Secretary, Department of State, 
Bureau of East Asian and Pacific Affairs. Secretary Marciel 
began his term as Principal Deputy Assistant Secretary in 
August 2013 after serving for 3 years as the U.S. Ambassador to 
the Republic of Indonesia. Mr. Marciel previously served as the 
Deputy Assistant Secretary of East Asia and Pacific Bureau, 
responsible for relations with Southeast Asia, and the 
Ambassador to ASEAN Affairs.
    Our second witness is the Honorable John Andersen, who is 
the Principal Deputy Assistant Secretary for Global Markets at 
the Department of Commerce in the Office of International Trade 
Administration. He is responsible for overseeing both market 
access and commercial issues. Previously he was the Principal 
Deputy Assistant Secretary for Market Access and Compliance, 
and prior to that the Senior Director for Western Hemisphere 
Affairs in the International Trade Administration.
    We welcome both to the committee, and we will start with 
Secretary Marciel.

 STATEMENT OF HON. SCOT A. MARCIEL, PRINCIPAL DEPUTY ASSISTANT 
   SECRETARY, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S. 
              DEPARTMENT OF STATE, WASHINGTON, DC

    Ambassador Marciel. Chairman Cardin, Ranking Member Rubio, 
thank you very much for the opportunity to appear today before 
you on the economic aspects of the Asia rebalance. I would like 
to thank the committee for its leadership in supporting our 
engagement with the East Asia-Pacific region.
    Recognizing that America's future prosperity and security 
are intertwined with the prosperity and security of the East 
Asia-Pacific region, President Obama made a strategic 
commitment when he came into office to rebalance our interests 
and investments to the region. He set out a clear objective for 
the United States to sustain a stable security environment and 
advance a regional order rooted in economic openness, peaceful 
resolution of disputes, and respect for universal rights and 
freedoms.
    The administration remains committed to this objective. The 
President himself has hosted seven Asian leaders this year, 
including six visits to the Oval Office. The Vice President, as 
you mentioned, was recently in the region. Secretary Kerry is 
just returning from his trip, his fourth trip this year, and 
many other Cabinet members have traveled to Asia this year.
    Our economic engagement is aimed at creating jobs and 
opportunities for the American people, as well as shared 
prosperity in the region, and reinforcing our longstanding 
engagement in the region. The past few generations have 
produced an extraordinary period of prosperity in the East 
Asia-Pacific region. Tapping into this economic dynamism is 
important for our interests. Even as we continue to lay the 
foundation for future economic ties, we are already seeing 
progress in many areas.
    For example, U.S. goods and services exports to the region 
totaled nearly $555 billion last year, which is up 31 percent 
from 2008, and were estimated to have supported as many as 2.8 
million jobs here in the United States. Our companies are the 
leading investors in the region, with cumulative investment of 
over $600 billion in 2012. Meanwhile, foreign investment from 
the region to the United States has also sharply increased, 
again up about 31 percent since 2008.
    But we want to do more. We are using a whole of government 
effort in close partnership with the private sector, the 
business community. We are advocating for U.S. businesses, 
working to attract foreign investment and tourism, reduce trade 
and investment barriers, and promote prosperity. Secretary 
Kerry is personally advancing the U.S. economic agenda in the 
region through his 
active engagement with regional leaders, business leaders, and 
entrepreneurs.
    Our embassies and consulates are key partners in this 
effort. Most of them have established interagency task forces 
within the embassies to provide economic, commercial, 
agricultural, and trade services to promote exports and 
advocate on behalf of U.S. companies. We are very actively 
engaged, working with our colleagues from the Commerce 
Department, in commercial advocacy at the highest level on 
behalf of U.S. firms. In fact, just a few weeks ago the State 
Department worked with the Department of Commerce to launch the 
Select USA summit, which over 170 companies from East Asia-
Pacific region attended.
    Beyond this, we are also laying the policy groundwork for 
expanded trade and investment. We have a number of bilateral 
free trade agreements in the region, including recently with 
Korea, and are now in the final stages of Trans-Pacific 
Partnership negotiations. As Secretary Kerry noted recently, 
``A shared commitment to economic growth and innovation is part 
of why the Trans-Pacific Partnership agreement is a cornerstone 
of the President's economic policy in Asia. This partnership 
will drive growth and create jobs across the Asia-Pacific 
region and the United States.''
    APEC also remains a key forum in which we are able to 
advance efforts to reduce barriers to and facilitate trade and 
investment, promote growth, and strengthen economic 
integration. APEC is effective in providing a formal role for 
the private sector and we collaborate closely with the U.S. 
business community to achieve tangible, useful outcomes.
    The TPP negotiations themselves are an important outgrowth 
of the trade and initiative liberalization agenda of APEC.
    We are also increasing our economic engagement with ASEAN 
and bilaterally throughout the region, including intensive 
bilateral engagement with key economies in the region such as 
China, Japan, and Korea, working on things like IPR protection, 
resolving commercial disputes, expanding market access.
    Very importantly, we are also working to do what we can, 
including with our USDA colleagues, to promote inclusive, 
sustainable growth in the region so that these markets grow. 
These markets which are so key to our future continue to grow, 
creating prosperity there, but also opportunities there. That 
is why we continue to provide a lot of assistance, with the 
support of the committee and Congress, supporting this 
inclusive growth framework.
    I would like to conclude by underscoring the fundamental 
point that the peaceful and prosperous East Asia-Pacific 
benefits the people of the United States and the region. The 
State Department is totally committed to the Asia rebalance and 
in particular is dedicated to ensuring that our economic 
engagement continues to be strong and focused on creating 
prosperity for East Asia and for the United States.
    Thank you very much.
    [The prepared statement of Ambassador Marciel follows:]

                 Prepared Statement of Scot A. Marciel

    Chairman Cardin, Ranking Member Rubio, and distinguished members of 
the subcommittee, thank you for the opportunity to appear before you 
today with Department of Commerce Principal Deputy Assistant Secretary 
John Andersen to testify on the Economic Aspects of the U.S. Rebalance 
to the Asia-Pacific. I would also like to thank the committee for its 
leadership in supporting and promoting engagement with the East Asia-
Pacific region and advancing U.S. interests there. The Department of 
State looks forward to working with you and other Members of Congress 
to continue to build on our current efforts in the region.
    Recognizing that America's future prosperity and security are very 
much intertwined with the prosperity and security of the East Asia-
Pacific region, President Obama made a strategic commitment when he 
came into office to rebalance our interests and investments to this 
region. The President set out a clear, overarching objective for the 
United States in the region to sustain a stable security environment 
and advance a regional order rooted in economic openness, peaceful 
resolution of disputes, and respect for universal rights and freedoms.
    The administration remains committed to this objective and is 
building an increasingly active and enduring presence in the East Asia-
Pacific region, including through our economic engagement. President 
Obama has hosted seven Asian leaders in 2013 alone, including six 
visits to the Oval Office; Vice President Biden traveled to Japan, 
China, and Korea in early December; and in addition to Secretary 
Kerry's four trips to the region since assuming office, other Cabinet 
members including Secretary Lew, USTR Froman, Secretary Pritzker, 
Secretary Hagel, Secretary Jewell, Secretary Sebelius, Secretary Moniz, 
and EPA Administrator McCarthy have all traveled to Asia in 2013.
    We have made significant progress on the rebalance in a number of 
areas--modernizing our alliances, deepening our engagement with 
emerging powers such as China, strengthening regional institutions, and 
promoting democracy and human rights. But, during his first major 
speech on the rebalance to the Australian Parliament in 2011, President 
Obama framed the rebalance by emphasizing that the Asia-Pacific is 
critical to achieving his highest priority--creating jobs and 
opportunity for the American people. For this reason, the economic 
pillar of the rebalance is paramount and will have widespread and 
significant positive impacts at home and in the region for many years 
to come.
    The past few decades have produced an extraordinary period of 
prosperity in the East Asia-Pacific region. It has lifted hundreds of 
millions out of poverty across the entire region and fostered dynamic, 
innovative economies that today are fueling global growth. The World 
Bank recently projected that the East Asia-Pacific region will 
contribute 40 percent of global growth this year, and some forecasters 
expect that nearly 50 percent of world growth over the next two decades 
will be generated in this region, yielding hundreds of millions of new 
middle-class consumers.
    Tapping into the economic dynamism of the East Asia-Pacific is 
vitally important for U.S. interests. Even as we continue to lay the 
foundation for future economic ties, we are already seeing progress in 
many areas. For instance, trade with the East Asia-Pacific region grew 
by 22 percent between 2008 and 2012, far outpacing the 13-percent 
growth in global U.S. trade. In 2012, U.S. exports of goods and 
services to the East Asia-Pacific region totaled nearly $555 billion, 
an increase of 31 percent since 2008, which supports an estimated 2.8 
million U.S. jobs.
    Direct investment in both directions has also helped to solidify 
our bond with the region and demonstrates the lasting commitment of 
U.S. businesses to the region's development and economic integration. 
The United States is by far the leading foreign investor in the East 
Asia-Pacific region with the stock of U.S. foreign direct investment 
(FDI) standing at around $622 billion in 2012, up 35 percent from the 
U.S. investment position in 2008, with nearly one-third located in 
ASEAN member countries. Investment into the United States from 
economies of the East Asia-Pacific is also growing, increasing by 31 
percent since 2008 to reach $422 billion by the end of 2012. Between 
the major investments made by our private sector and the potential for 
U.S. industry to tap the region's growing consumer base, American 
businesses recognize that the future economic growth of the Asia-
Pacific region and our increasing economic ties with the region are 
centrally important to economic growth and job creation in the United 
States.
    While the East Asia-Pacific region offers enormous opportunities, 
there are certainly critical challenges as well. We have clear shared 
interests to address these challenges by working together toward 
greater energy and environmental security. For example, rapid economic 
and population growth has created enormous strains on the region's 
food, water, forest, marine, and energy resources. In many areas, the 
increased use of fossil fuel for industries and transportation has 
resulted in dangerous levels of pollution that in turn pose dangers to 
people's health and accelerate climate change. On the political and 
security fronts, the resurfacing of longstanding territorial disputes 
threatens the stability of the region. How we respond to these 
challenges will determine our long-term ties to the region, as well as 
the region's future. The Department recognizes that U.S. economic ties 
to the region are the fundamental underpinning of our relationship and, 
for the overall rebalance to be successful, we must get the economic 
component right.
    I would like to emphasize that to get it right requires a whole-of-
government effort in close partnership with our private sector. Here in 
Washington, we need to work on policy formulation and coordination, and 
in the field, the various agencies within the U.S. missions in the 
region need to work effectively as teams to implement our programs, 
initiatives, and policies and to advance U.S. interests. For our part, 
the Department is dedicating diplomatic, public diplomacy, and 
assistance resources to the region in a way that is commensurate with 
the truly comprehensive nature of our engagement. And we are broadening 
our focus to elevate issues of economic development (including energy, 
environment, health, and education), commercial diplomacy, and 
entrepreneurship. I want to emphasize that in Washington and through 
our embassies, we strive to work very closely with the U.S. business 
community. This partnership is essential to our collective success.
    Secretary Kerry is personally committed to and actively involved in 
the U.S. economic agenda for the region. For example, he undertook 
extensive engagement with regional leaders, business CEOs, and young 
entrepreneurs at the Asia-Pacific Economic Cooperation (APEC) Leaders' 
Week in Indonesia, the East Asia summit in Brunei, and the Global 
Entrepreneurship summit (GES) in Malaysia in October. Secretary Kerry 
is just now returning from visits to Vietnam and the Philippines in 
which we bolstered our bilateral economic partnerships. Economic, 
energy, and climate issues figured prominently during Vice President 
Biden's recent trip to the region as well. While trade and investment 
with the region have increased, we understand there is potential for 
greater growth, and the State Department, in conjunction with the 
interagency team, has stepped up economic engagement across the board, 
through regional economic initiatives and bilaterally.
                     trade and investment promotion
    The State Department and the U.S. missions in the region are 
dedicated to advancing the President's National Export Initiative in 
support of U.S. jobs. Our missions have established Interagency 
Commercial Task Forces to provide economic, commercial, agricultural, 
and trade services in the most efficient and productive manner possible 
and, where other agencies are not present, our economic sections are on 
the front line of export promotion. We are actively engaging in 
commercial advocacy on behalf of U.S. firms. In addition to the 
advocacy our Ambassadors conduct on a routine basis, we raise 
commercial concerns with foreign governments on the margins of various 
fora, such as the U.N. General Assembly and APEC.
    Our missions abroad also have been actively promoting investment 
and tourism. With respect to tourism, our recent reciprocal visa waiver 
agreement with Taiwan and significant reductions in visa interview wait 
times in China have spurred tourist as well as business travel to the 
States.
    On investment, our Ambassadors are hosting investment promotion 
seminars, talking to business leaders around the region to encourage 
them to consider job-creating investments in the United States, and 
working with American service providers to help educate potential 
investors about how to comply with U.S. laws and regulations. FDI into 
the United States from economies in the East Asia-Pacific region is 
already growing, but we cannot rest on our laurels. Just over a month 
ago, the State Department worked with the Commerce Department to launch 
the SelectUSA summit. As a result, over 170 companies from the East 
Asia-Pacific region attended and received the message that the United 
States is ``open for business.''
    In announcing an expansion of SelectUSA during the summit, the 
President noted there would be an enhanced role for U.S. embassies and 
consulates around the world to attract investment into the United 
States. We are committed to build on past success in promoting inward 
investment from the East Asia-Pacific region; however, we recognize 
this may pose resource challenges as we strive also to maintain efforts 
to promote U.S. exports, assist U.S. companies with commercial deals 
and disputes, monitor and report on economic conditions, and engage 
host governments on economic and commercial policy. While we can help 
identify business opportunities and facilitate information sharing, in 
the end, decisions on trade and investment transactions are and should 
be made by companies on business grounds. The United States must 
continue to be competitive. To do so, in part, means fully resourcing 
the State Department, the Office of the U.S. Trade Representative, the 
Foreign Commercial Service, U.S. Export-Import Bank (EXIM), the 
Overseas Private Investment Corporation (OPIC), and the U.S. Trade and 
Development Agency (USTDA).
        trade and investment liberalization-enabling environment
    While the promotion of exports sales and investments provide 
immediate, tangible results for U.S. businesses and, by extension, the 
country, the Department also understands the importance of laying the 
policy groundwork on which the East Asia-Pacific region and the United 
States can continue to grow with shared prosperity. Even before the 
rebalance, we were actively promoting a more open trade and investment 
environment in the East Asia-Pacific through our collaboration with 
economies of the region in APEC, and through the full implementation of 
free trade agreements with Singapore, Australia, and the Republic of 
Korea (ROK).
    These efforts have paid off. Our economic relationship with 
Singapore is flourishing, with bilateral trade having increased almost 
60 percent and U.S. exports by 85 percent since the United States-
Singapore FTA entered into force in 2004. While Singapore is host to 
almost 2,000 U.S. companies, it also accounted for $26 billion in 
foreign direct investment stock in the United States at the end of 
2012. The United States-Australia Free Trade Agreement has also led to 
increased trade and investment. The United States is Australia's 
leading investment partner, with $132 billion of U.S. investments in 
Australia and bilateral trade in goods and services has nearly doubled 
since 2004, topping $64 billion in 2012.
    The United States-Korea Free Trade Agreement, or KORUS FTA, is 
already providing tangible benefits for U.S. manufacturers, workers, 
and farmers. It is expanding one of the most vibrant trading 
relationships in the world, one that topped $130 billion U.S. dollars 
in goods and services in 2012. We believe that more benefits await. By 
January 1, 2016, Korean tariffs on over 95 percent of exports of U.S. 
industrial and consumer goods to Korea will have been eliminated.
    We are working closely with the Korean Government to ensure that 
the FTA is implemented smoothly and fully and that American companies 
can take full benefit of the trade pact.
    We have also continued to build on our past successes within APEC. 
The U.S. Senior Official to APEC is a part of the Bureau's team. We 
coordinate and collaborate with interagency colleagues and the U.S. 
business community to advance a robust work program within the 21-
member APEC to address various economic issues of interest to the 
United States in the region. In the past year, the U.S. interagency 
APEC team worked with our Indonesian APEC hosts and other APEC members 
to achieve meaningful results for our stakeholders: (1) advancing 
cooperation on combating illegal trade in wildlife as well as illegal 
logging and associated trade; (2) promoting cross-border education 
opportunities; (3) improving supply chain performance in the region; 
(4) agreeing on alternative ways to promote job creation and 
competitiveness without implementing local content requirements; (5) 
promoting greater regulatory coherence in APEC economies; (6) 
implementing APEC members' commitment to reduce tariffs on 
environmental goods; and (7) establishing a public-private dialogue to 
address non-tariff measures impacting trade in environmental goods and 
services. The U.S. private sector is heavily involved in APEC, and we 
collaborate closely with the U.S. business community to achieve 
tangible, useful outcomes in that forum. We are currently consulting 
with the U.S. private sector and with other U.S. agencies to develop a 
comprehensive agenda for the 2014 APEC year, which China will host.
    The United States must engage fully both to tap the growth in the 
region and to ensure that our exports maintain a strong market share in 
the coming years in light of the rising number of bilateral and 
regional free trade agreements in the East Asia and Pacific region. As 
Secretary Kerry noted recently in his October 18 op-ed, ``A shared 
commitment to economic growth and innovation is part of why the Trans-
Pacific Partnership (TPP) agreement is a cornerstone of the President's 
economic policy in Asia.'' The 12 current TPP partners account for 
nearly 40 percent of global GDP and one-third of world trade. The 
agreement will provide the United States with greater access to some of 
the most important markets in the world, including Japan, which has the 
world's third-largest economy and is our fourth-largest trading 
partner.
    The TPP agreement, an important outgrowth of the APEC trade and 
investment liberalization agenda, will drive growth and create jobs 
across the Asia-Pacific region and the United States. Substantial 
progress was made by USTR Froman and his counterparts during the TPP 
Ministerial in Singapore December 7-10, generating positive momentum on 
the remaining negotiating issues. The TPP trade ministers will meet 
again early next year. We believe this work can move ahead swiftly, but 
at the same time have been clear that substance will drive the 
timetable. Looking down the road, we see the TPP agreement not just as 
an important vehicle to boost U.S. exports, but also as a compelling 
platform for regional economic integration as the economic benefits of 
its high standards become apparent and its membership expands over 
time.
    The Association of Southeast Asian Nations (ASEAN) is also an 
increasingly important U.S. economic partner. Collectively, these 10 
countries (Brunei Darussalam, Burma, Cambodia, Indonesia, Laos, 
Malaysia, the Philippines, Singapore, Thailand, and Vietnam) have a 
market of approximately 600 million consumers, GDP of more than $2.2 
trillion, and economic growth that has been faster than the world 
average for the past decade. Last year, in Phnom Penh, President Obama 
and the leaders of the ASEAN states welcomed the launch of the Expanded 
Economic Engagement (E3) initiative. The E3 is a framework for economic 
cooperation designed to expand trade and investment ties between the 
United States and ASEAN and to lay the groundwork for ASEAN countries 
to prepare to join high-standard trade agreements like the TPP. As part 
of the E3 initiative, the Department funded the travel of ASEAN 
Economic Ministers to the United States in June 2013 to meet with 
business leaders in IT, health care, innovation, and logistics. We 
expect Commerce Secretary Pritzker will lead a trade mission to the 
region in 2014, and we'll continue to look for opportunities to support 
U.S. businesses in this dynamic region.
    I would like to take a moment to cite our growing relationship with 
Burma as an example of how we have opened new markets for U.S. business 
and done so in a responsible manner and consistent with supporting our 
broad-based human rights agenda. Since 2011, the Burmese Government has 
undertaken a series of political and economic reforms, and, as a 
result, relations between our two countries have changed dramatically. 
In that time, the United States has not only eased economic sanctions 
on Burma, we have worked collaboratively with the Burmese Government to 
strengthen the country's regulatory environment, provided technical 
assistance to facilitate its reentry into the world economy, and helped 
advise and encourage American businesses to enter the Burmese market in 
a manner supportive of Burma's reform efforts. As American businesses 
have entered Burma, they have brought their corporate best practices 
with them, including those on labor rights, environmental protection, 
transparency and corporate social responsibility. This is a great 
example of our government and private sector complementing each other 
to help fundamentally transform the Burmese economy.
    Through October of this year, U.S. exports to Burma reached over 
$124 million, already far exceeding the combined annual exports of 2011 
and 2012. Burma will chair ASEAN in 2014 for the first time and has 
requested U.S. assistance in fulfilling that role, including support 
for highlighting a key policy theme for its chair year, environment and 
climate change.
    The United States also maintain an intense level of engagement with 
China in keeping with the priorities that President Obama set with 
President Xi at Sunnylands in California earlier this year--notably on 
the agreement to collaborate to phase-down the use of potent greenhouse 
gasses known as HFCs. We have emphasized practical cooperation to avoid 
the trap of strategic competition. Our Rebalance to Asia is not meant 
to contain China as part of a zero sum game, but rather to build a 
foundation of long-term mutual understanding and respect. At the same 
time, we continue to press China on issues of significant concern, such 
as human rights. In the economic sphere, we call on China to strengthen 
household consumption, allow the renminbi exchange rate to be 
determined by market forces, protect intellectual property rights 
(including trade secrets), liberalize factor prices, expand market 
access, adopt greater regulatory transparency, and establish a level 
playing field in its markets for private and foreign-invested 
companies.
    We engage China in high-level dialogues, including the Strategic 
and Economic Dialogue (S&ED), which State and Treasury cochair, as well 
as the Joint Commission on Commerce and Trade (JCCT), which USTR and 
Commerce colead. These dialogues provide opportunities to raise our top 
priorities and concerns with the Chinese leadership as well as in 
comprehensive working-level discussions. Although strictly bilateral, 
we engage at these dialogues on some of the Asia-Pacific region's most 
dynamic issues, global challenges, such as energy, climate change, 
financial stability.
    Through these bilateral dialogues and through other engagements 
with China, we have made progress that dovetails with our engagement in 
the region. At the S&ED in July, China committed to negotiate a 
bilateral investment treaty (BIT) that would include the key concepts 
of establishing protections at the market access phase and negotiating 
any exceptions in advance in the form of a ``negative list.'' Although 
much negotiation still remains, the BIT commitment deepens China's 
participation in the global rules-based economic system. Such bilateral 
progress does not preclude multilateral advances, but rather 
strengthens them by raising the bar for everyone in the region.
    We are also partnering with the U.S. private sector and governments 
in the region to build essential entrepreneurship skills. Since 
President Obama hosted the first Global Entrepreneurship summit (GES) 
in 2010--as an outcome of his 2009 Cairo speech--the United States has 
expanded programs and built a broad coalition of governments, business 
people, civil society, investors, and academics to educate and support 
entrepreneurs around the world. This year, the Government of Malaysia 
hosted GES 2013, widening the focus from Muslim-majority countries to a 
greater cross-section of entrepreneurs, including from the East Asia-
Pacific. The event brought together over 3,000 entrepreneurs, 
investors, academics, startup organizers, business people, and 
government officials from over 100 countries. In his remarks at the 
summit, Secretary Kerry highlighted the central role of 
entrepreneurship for economic development and growth and areas of U.S. 
collaboration.
             sustainable growth--creating shared prosperity
    The East Asia-Pacific region is poised for economic growth that 
will make it an even more attractive market for U.S. exports, but for 
that growth to truly transform the region it must be responsible and 
sustainable. To promote environmental sustainability, we have advanced 
work in APEC to improve energy efficiency, increase transparency and 
reporting of subsidies for inefficient fossil fuels, promote greener 
standards of building construction, combat illegal logging, and reduce 
wildlife trafficking. To address the economic dimensions of human 
security in the region we support work in APEC to promote sustainable 
health systems, build resiliency in supply chains to natural disaster, 
and address food security. To build up human resources and expand 
economic opportunities, we are working to connect SMEs to global value 
chains, increase mobility of university students, and promote women's 
economic empowerment.
    Given the impact a natural disaster can have on a country's 
economy, let alone its people, the State Department recognizes the 
importance of humanitarian assistance and disaster relief. The U.S. 
Government responded to Typhoon Haiyan by quickly deploying military 
personnel and a USAID Disaster Assistance Response Team and by 
arranging airlifts and providing other emergency services for American 
citizens. In the Philippines today, the Secretary of State announced an 
additional $24.6 million in humanitarian assistance, bringing the total 
to about $86 million. We are also working hard to facilitate public-
private partnerships that will help with the recovery effort. We have 
also provided support to Palau in the wake of Typhoon Haiyan damage 
there and continue to look at ways we can assist in rebuilding in that 
country. As a Pacific nation, the United States is committed to helping 
our neighbors cope with and recover from such disasters.
    Energy is a key component of U.S. economic engagement with the 
Asia-Pacific, and we are pleased to welcome Singapore and Vietnam to 
cochair the U.S.-Asia Pacific Comprehensive Energy Partnership 
(USACEP). Through this Partnership we hope to bring cleaner and more 
secure energy to the region and supply electricity access to many of 
the 387 million people in Asia without power. Given the region's 
estimated $9 trillion needed for investment in electricity alone over 
the next 20 years, the potential for energy cooperation is substantial. 
Our work is to help U.S. businesses tap into that potential. Through 
efforts by the State Department, the Commerce Department, EXIM, OPIC, 
and USTDA, we are working with U.S. companies to develop potential 
smart grid, wind, solar, biomass, and geothermal energy projects 
throughout the region. We have also worked with the Energy Department, 
Commerce Department, and USTDA to promote the development of China's 
shale gas sector so that U.S. companies may have new opportunities to 
invest, apply their expertise, and help China meet its energy needs 
with cleaner-burning natural gas.
    As part of this effort, EXIM and OPIC have made available $6 
billion in financing resources to support the deployment of American 
clean energy technology, services, and equipment to the region. The 
State Department, OPIC, and USTDA have also announced the creation of 
the Asia-Pacific Clean Energy Program, a one-stop shop in Embassy 
Bangkok that will provide financing and technical support for energy 
companies seeking to do business in the region. We are confident that 
this support will produce results throughout the region as OPIC and 
EXIM have worked with the private sector to provide over $1.2 billion 
in financing support for renewable energy and energy efficiency 
globally last year.
    President Obama's FY 2014 budget request to Congress provides $1.2 
billion in State-USAID funding for East Asia and the Pacific. It is 
essential that funding continue to reflect the priority of the 
rebalance policy. For instance, the State-funded and USAID managed 
U.S.-APEC Technical Assistance to Advance Regional Integration (US-
ATAARI) program is integral to our efforts within APEC to build 
members' capacities in areas such as trade and investment 
liberalization, domestic regulatory environments, and human security. 
In July 2013, State and USAID launched the 5-year ASEAN Connectivity 
Through Trade and Investment (ACTI) technical assistance program, which 
complements E3 activities and aims to help ASEAN achieve its goal of 
forming an ASEAN Economic Community by 2015. The Lower Mekong 
Initiative is a State- and USAID-funded partnership between the United 
States, Cambodia, Laos, Burma, Thailand, and Vietnam that fosters 
integrated subregional cooperation in the areas of education, health, 
environment and water, connectivity, agriculture and food security, and 
energy security.
    The State Department, USAID, and other interagency partners such as 
the Millennium Challenge Corporation (MCC), are also working 
bilaterally to consolidate economic reforms and competitiveness in 
countries that are emerging in the lower middle-income bracket, and 
help the poorest EAP nations reduce poverty. In the Philippines, under 
the Partnership for Growth framework, the United States is addressing 
the most binding constraints to broad-based economic growth and 
investment, including helping to promote broad-based, inclusive, and 
sustainable growth, and improve peace and stability in the conflicted 
areas in Mindanao. Although Indonesia has experienced robust growth, 50 
percent of its population still lives at or below the poverty line. 
Therefore, U.S. assistance to Indonesia encourages policies that 
increase competitiveness across a number of sectors and encourage 
labor-intensive economic activities. Programs in Vietnam have promoted 
judicial reform and the implementation of its World Trade Organization 
commitments. In Mongolia, our programs promote private sector 
competitiveness, financial sector growth, and mining industry reforms. 
These regional and bilateral economic development programs are designed 
to work in tandem to help build the economic foundation and 
capabilities needed to support regional economic integration and 
facilitate increase bilateral trade opportunities for American 
businesses.
    The United States remains a key partner for Pacific nations in 
development and addressing global threats like climate change. Since 
2010, the U.S. has provided climate change assistance for the Pacific 
Islands. At the Pacific Islands Forum in Majuro, Secretary of the 
Interior Jewell announced that USAID has launched the Pacific-American 
Climate Fund, a grant-making facility to provide and monitor grants for 
climate change adaptation measures in the Pacific Islands region.
    The Department of Treasury's Office of Technical Assistance (OTA) 
also has a significant presence in the region. ASEAN represents one of 
OTA's largest investments of technical assistance resources, with 19 
projects in six countries (Burma, Cambodia, Indonesia, Philippines, 
Thailand, and Vietnam) emphasizing five core areas: budget policy and 
accountability, banking and financial services, government debt 
issuance and management, financial crimes, and revenue policy and 
administration. OTA's recently initiated engagements in Burma focus on 
(1) helping the Burmese authorities to build a transparent, 
accountable, and fair revenue administration system and (2) developing 
an effective antimoney laundering and counter financing of terrorism 
(AML/CFT) regime. OTA also supports the Partnership for Growth 
initiative with the Philippines, and Treasury negotiated Tropical 
Forest Conservation Act debt for nature swaps with the Philippines and 
Indonesia.
    Another very important tool for the reduction of poverty and for 
fostering good governance and sound economic policies in the region is 
the MCC Compact agreements. The MCC Compacts have delivered solid 
results for a number of countries in the Asia-Pacific region, and we 
are currently implementing compacts in Indonesia and the Philippines.
    I would like to conclude by underscoring the fundamental point that 
a peaceful and prosperous Asia-Pacific benefits the peoples of United 
States and of the region. The Department of State is totally committed 
to the Asia-Pacific rebalance and, in particular, is dedicated to 
ensuring that our economic engagement with the region continues to be 
robust and reflects that overall commitment.

    Senator Cardin. Thank you for your testimony.
    Secretary Andersen.

  STATEMENT OF HON. JOHN ANDERSEN, PRINCIPAL DEPUTY ASSISTANT 
       SECRETARY FOR GLOBAL MARKETS, INTERNATIONAL TRADE 
  ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, WASHINGTON, DC

    Mr. Andersen. Chairman Cardin, Ranking Member Rubio, thank 
you for the opportunity to speak before you today on the 
Department of Commerce's engagement in the East Asia-Pacific 
region. I also want to thank my State Department colleague, 
Principal Deputy Assistant Secretary Scot Marciel, for his 
leadership and dedication to advancing U.S. interests in the 
region.
    In 2011 President Obama stated that deepening trade and 
investment ties between the United States and Asia was critical 
to our long-term economic expansion and job growth. The 
Department's International Trade Administration is responsible 
for strengthening U.S. competitiveness, promoting exports, 
ensuring compliance with our trade agreements, and enforcing 
U.S. trade laws. As such, ITA plays a key role in the Asia 
rebalance, and our efforts are driven by the needs of our 
primary constituency, the U.S. business community.
    The EAP region contains seven of our top 21 priority export 
markets. These 35 economies account for nearly 28 percent of 
U.S. goods and services, totaling roughly $612 billion. ITA 
staff in 100 locations across the country and in over 70 
markets around the world is dedicated to helping companies 
enter new markets and expand in current ones.
    Areas where we are seeing the most opportunities in the EAP 
region are in health care, energy, and infrastructure sectors. 
To meet these opportunities in the region, ITA began 
redeploying its overseas resources. As a result, over the last 
3 years our regionally based staff increased from 210 to almost 
300.
    Doing business internationally can be risky and the EAP 
region comes with its fair share of challenges and rewards.
    For example, China, our second-largest trading partner, 
presents an extremely complex market. To assist U.S. companies 
in navigating it, ITA has devoted 14 percent of its overseas 
resources, representing the largest footprint of any ITA 
operation outside of the United States. Moreover, in our recent 
consolidation we created a separate unit to focus greater 
attention on China's commercial challenges and opportunities.
    Beyond China, we are working within ASEAN and APEC. In 
October, Secretary Pritzker traveled to Indonesia, Singapore, 
and Malaysia to participate in the APEC CEO summit and to 
advance U.S. commercial interests. Additionally, ITA also plays 
the lead role in APEC's small- and medium-sized working group 
and has hosted capacity-building workshops on ethical business 
practices for SMEs, energy efficient building standards, and 
good regulatory practices.
    Our FTA's with Australia, Singapore, and South Korea have 
also helped expand commercial ties with the EAP. While we did 
not conclude the TPP negotiation during this month's round of 
meetings, we are closing in on an ambitious next generation 
comprehensive trade agreement that reflects U.S. economic 
priorities and values.
    In addition, ITA's advocacy and inward investment 
activities enhance its mission to promote U.S. exports and 
contribute to U.S. job creation and economic growth. ITA's 
Advocacy Center, which coordinates all U.S. Government 
commercial advocacy, helps U.S. companies win government 
contracts. For 2013, client companies reported wins estimated 
at over $12 billion in the EAP region.
    To encourage inward investment, the Obama administration 
created Select USA in the Commerce Department, the only U.S. 
Government-wide program to attract, retain, and grow business 
investment in the United States. In 2012 the Asia-Pacific 
region's stock of foreign direct investment in the United 
States totaled roughly $424 billion. Six weeks ago we hosted 
the first Select USA investment summit, a completely sold-out 
event, with more than 1,300 participants, including 
international and domestic firms and more than 200 
representatives from 48 States, 4 territories, and the District 
of Columbia. As my colleague Principal Deputy Assistant 
Secretary Marciel indicated in his remarks, it was a whole of 
government exercise.
    ITA is also responsible for administering U.S. antidumping 
and countervailing duty laws. We currently have 162 orders in 
place against countries in the EAP region, most of which 
originate in China. In some circumstances, we can refer cases 
to the U.S. Trade Representative's Office or the recently 
created Inter-Agency Trade Enforcement Center, the ITEC. The 
ITEC provides critical research, analysis, translation, and 
support for a number of our ongoing disputes.
    As I noted, the EAP's growing importance is reflected in 
ITA's mission. ITA staff will continue to participate and 
support USTR during the TPP negotiations. Today Secretary 
Pritzker is in China getting ready to begin the 2013 JCCT high-
level meeting. In 2014, Commerce will lead two executive trade 
missions to the Singapore Air Show and to Japan, Korea, and 
Taiwan to promote the United States travel and tourism 
industry.
    Thank you for the opportunity to speak with you today and I 
welcome any questions.
    [The prepared statement of Mr. Andersen follows:]

                  Prepared Statement of John Andersen

                              introduction
    Chairman Cardin, Ranking Member Rubio, and members of the 
committee, thank you for the opportunity to speak about the Department 
of Commerce's role in promoting U.S. businesses abroad, and in 
particular, our engagement in the East Asia and Pacific (EAP) region.
    In 2011, President Obama acknowledged that the Asia-Pacific region 
is critical to achieving his highest priority, that of creating jobs 
and opportunities for the American people. To support the President's 
objectives of advancing economic prosperity by expanding exports and 
deepening trade and investment ties between the United States and Asia, 
Secretary of Commerce Pritzker traveled to Indonesia, Singapore and 
Malaysia in October, to participate in the APEC CEO summit meeting and 
to advance U.S. trade priorities, including pressing for the conclusion 
of the negotiations for a Trans-Pacific Partnership Agreement as soon 
as possible.
    The Department of Commerce's International Trade Administration 
(ITA) is one of the primary agencies responsible for strengthening the 
competitiveness of U.S. industry in the global market, promoting U.S. 
exports, monitoring compliance with U.S. trade agreements, and 
enforcing U.S. trade laws. ITA's efforts are driven by the needs of our 
primary constituency--the U.S. business community. In 2013, 7 of our 
top 21 priority export markets were located in Asia and 41 percent of 
the clients we counseled worldwide, were interested in doing business 
in the EAP region. There is little doubt that Asia is a growing market 
for companies looking to expand their business and ITA continues to 
engage aggressively on this front.
              the importance of east asia and the pacific
    The 35 EAP \1\ economies constitute a total population of more than 
2.2 billion people with a combined GDP of $24.5 trillion in 2012.\2\ 
This dynamic region represents 29 percent of global GDP. The Asia and 
Pacific region \3\ is a major market, accounting for 28 percent of U.S. 
goods and services exports in 2012. Among U.S. merchandise exports, 
manufactured goods such as electrical machinery, machinery, and 
aircraft are among the leading products the U.S. exports to EAP 
countries. Aside from manufactured goods, oil seeds such as soybeans 
are a major export to the region, most of which go to China.
    A priority for Department of Commerce in the region is to build 
partnerships and institutions across the Pacific capable of meeting 
21st-century challenges and ensuring market access for U.S. firms. 
Through deeper trade and investment ties we intend to contribute to the 
peace, security, and prosperity of the region as a whole. The United 
States relationships with Japan, the Republic of Korea, Australia, the 
Philippines, and Thailand form a natural cornerstone of our strategic 
position in the Asia Pacific and complement our multilateral efforts to 
ensure regional prosperity and development at a time of evolving 
challenges. At the same time, a key element of our rebalance policy is 
to continue pursuing a positive, comprehensive, and cooperative 
relationship with China.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                       supporting u.s. companies
    ITA currently has staff in over 100 cities in the United States and 
73 markets around the world, whose goal is to help U.S. companies enter 
new markets and expand in current ones.
    ITA understands the EAP region's growing demand for U.S. goods and 
services and the needs of American companies doing business there. In 
fact, in 2006, ITA began redeploying its resources from other regions 
to Asia. From 2010 until 2013, our staff increased from 210 to 299 in 
EAP. In this time of fiscal constraint, ITA repositioned staff from 
other parts of the world to take into account the growth in 
opportunities in Asia. The President's FY 2014 budget requests 
additional funds to support adding more staff to the region.
    While ITA does not have sufficient resources to place staff in all 
EAP countries, we are maximizing regional coverage in partnership with 
other agencies. For example, ITA has a formal relationship with the 
State Department whereby our staff provides guidance and assistance to 
the State Department in locations where ITA is not present. Our offices 
in Bangkok, Singapore, Beijing, and Sydney support State Department 
staff in Burma, Laos, Brunei, Mongolia, Cambodia, and Fiji. This 
partnership is an important component of our strategy and efforts to 
leverage resources across the Federal Government. This relationship has 
also allowed us to maintain staff at the Asian Development Bank (ADB) 
in the Philippines where we provide information to U.S. companies on 
projects funded by the ADB.
    ITA also runs the Advocacy Center which helps U.S. companies--
small, medium, and large enterprises in various industry sectors win 
government contracts across the globe. Last December, the President 
established an Interagency Commercial Task Force on commercial advocacy 
in order to better coordinate U.S. Government efforts and better 
support U.S. firms competing for foreign project or procurement 
opportunities. The most active sectors which have requested commercial 
advocacy include: aerospace, defense, energy and power, health care, 
infrastructure, computers/IT/security, and telecommunications. The 
Advocacy Center coordinated the U.S. Government strategy across the 
Executive branch (Departments of Commerce, Defense, Energy, State and 
Transportation) for U.S. exporters during interactions with relevant 
members of foreign governments. As of September 30, 2013, client 
companies reported 10 wins with estimated contract values of $12.4 
billion and U.S. export content of $8.4 billion. In addition, the 
Advocacy Center is managing 207 cases in the EAP region worth 
approximately $70 billion in proposed contracts.
    Whether it is educating companies on how to take advantage of 
growing commercial opportunities in the region, enforcing existing free 
trade agreements (FTAs) or working more generally to improve the 
region's business climate, ITA's goal is to ensure U.S. companies have 
the tools necessary to compete on a level playing field. ITA helps 
level the playing field by monitoring foreign governments' compliancy 
with their trade agreement obligations, and by enforcing U.S. trade 
laws.
                meeting the challenges of doing business
    Doing business internationally can be risky and confusing for 
companies, particularly small- and medium-sized enterprises that are at 
the core of ITA's mission. ITA's policy efforts are geared toward 
improving short-, medium- and long-term successes in international 
commerce. We do this in three ways: (1) providing direct support to 
U.S. companies, using existing tools and relationships to help resolve 
commercial problems; (2) opening markets and improving the business 
climate: and (3) by representing U.S. industry interests during trade 
negotiations.
    ITA provides direct support for real-time business needs. Its goal 
is to ensure that trading partners in the EAP region implement their 
trade and investment agreement obligations and otherwise afford market 
access for U.S. exports. Within the EAP region, the United States has 
FTAs in effect with Australia, Singapore, and the Republic of Korea. In 
order to monitor implementation of these agreements, ITA uses its close 
relationship with U.S. industry, as well as its understanding of the 
region and its presence overseas to ensure that these countries are 
fulfilling their obligations under the FTAs. ITA's network of foreign 
and domestic commercial officers, locally employed staff, and industry 
experts in Washington, DC, and trade specialists around the country 
work closely with U.S. firms to help them overcome barriers to doing 
business in foreign markets.
    Let me highlight a few key EAP markets and regional associations 
where ITA plays a critical role helping U.S. companies:
China
    ITA's presence in China, with a total of five posts (Beijing, 
Chengdu, Guangzhou, Shanghai, Shenyang) and a staff of over 130 
representing several ITA units and other Commerce Bureaus, gives us the 
largest footprint of any ITA operation outside the United States. Our 
Commercial Service staff in China has seen the highest number of state-
supported trade missions since the inception of the State Trade and 
Export Promotion program over a year ago. In fact, given the growing 
importance and sophistication of the Chinese market, ITA, as part of 
its recent consolidation, created a separate unit to focus greater 
attention on the Chinese economic area.
    China is our second-largest trading partner and the relationship 
continues to grow. In 2012, we exported $110.5 billion worth of goods 
to China, with agriculture and transportation equipment representing 
the largest export sectors. Demand for U.S. goods and services 
continues to grow in China, however, there are many issues that U.S. 
companies need to be aware of and vigilant about before attempting to 
enter the Chinese market. These include registration and protection of 
intellectual property rights (IPR), due diligence on potential clients 
and partners, and administrative licensing. In addition, China often 
lacks predictability in its business environment, and its legal and 
regulatory systems can be opaque, inconsistent, and often arbitrary. 
The U.S. Government uses two main bilateral venues for addressing 
challenges that U.S. companies face in China: the U.S.-China Joint 
Commission on Commerce and Trade (JCCT) and the U.S.-China Strategic 
and Economic Dialogue (S&ED).
    The JCCT is the primary forum for addressing bilateral trade and 
investment issues and promoting commercial opportunities between the 
United States and China. The Secretary of Commerce and the U.S. Trade 
Representative cochair the annual U.S.-China JCCT forum. ITA serves as 
the lead bureau for Commerce's participation in the JCCT. At last 
year's JCCT meeting, the United States made progress in addressing key 
concerns in our bilateral trade relationship including: protection and 
enforcement of IPR; localization of intellectual property and 
technology; certain tax provisions; government procurement practices; 
regulatory obstacles; regulatory data protection for pharmaceuticals; 
and market access for U.S. companies in China's strategic emerging 
industries.\4\ The next JCCT High-Level Meeting is scheduled for 
December 19-20.
    For the S&ED, the Commerce Department plays a leading role in the 
Trade and Investment Session of the Economic Track of the dialogue. The 
S&ED met this past July and made concrete progress toward expanding 
U.S. export and investment opportunities in China. Most important, the 
Chinese Government committed to enter into substantive bilateral 
investment treaty negotiations with the United States to provide 
greater protections for U.S. investments in China. China also agreed to 
prioritize enforcement against the theft of trade secrets, to submit a 
new and improved offer to accede to the World Trade Organization (WTO) 
Agreement on Government Procurement in 2013, and to adopt new 
disciplines on state-owned enterprises (SOEs), which would help level 
the playing field for U.S. companies competing against SOEs.
Japan
    Japan is the world's third-largest economy and our fourth-largest 
trading partner. The United States exported $70 billion in goods to 
Japan in 2012. Responding to an economic recovery package introduced by 
new Prime Minister Shinzo Abe, Japan has shown steady economic growth 
and its Nikkei stock market has increased over 50 percent this year. On 
July 23, 2013, Japan formally joined negotiations for the Trans-Pacific 
Partnership (TPP) during the 18th round of negotiations in Malaysia 
after working out a robust package of actions and agreements with the 
United States. TPP participation creates for Japan a tremendous 
opportunity to stimulate domestic economic reform and continue on the 
track toward sustained economic growth. The participation of Japan, a 
major U.S. trading partner, as well as close U.S. ally, raises the 
economic significance of a TPP Agreement. With Japan's entry, TPP 
countries account for nearly 40 percent of global GDP and about one-
third of all world trade. Japan's TPP participation, its nascent 
economic recovery, and prospect for domestic structural reforms create 
new opportunities for American exporters and investors. Japanese 
companies are also key partners for U.S. firms in major sectors, 
including civil aviation and defense.
    Since the March 2011 accident at Fukushima Dai-ichi Nuclear Power 
Plant, U.S. firms have assisted Japan in various ways including 
monitoring at the damaged plant, nuclear waste water treatment, 
decontamination work, and support of integrated dose reduction 
planning. U.S. firms have the expertise and technology to assist with 
continued cleanup at the plant (decommissioning, water treatment), 
remediation of the area outside the exclusion zone surrounding the 
plant, and waste management. In October 2013, Japan informed the United 
States of its plans to ratify within the coming year the Convention on 
Supplementary Compensation for Nuclear Damage (CSC), an agreement that 
establishes an international framework for nuclear liability. In its 
official announcement, Japan noted that ratifying CSC would help to 
facilitate the participation of foreign companies in nuclear 
decommissioning and contaminated water management at Fukushima. 
Commerce is working with Japan to facilitate partnerships between U.S. 
and Japanese firms to best assist with the recovery. In February 2014, 
Commerce is organizing a business to business forum which will promote 
these partnerships.
Lower Mekong Initiative
    The Lower Mekong Initiative (LMI) is a multilateral partnership 
effort initiated by the United States in 2009 for promoting cooperation 
in the Mekong subregion (Burma, Cambodia, Laos, Thailand, and Vietnam) 
in the areas of education, health, environment and water, connectivity, 
agriculture and food security, and energy security.
    Under the LMI Connectivity Pillar, ITA is working with other U.S. 
Government agencies to develop workshops for the health, information 
and communication technology, aviation, and energy sectors. The 
workshops will provide an opportunity for the LMI countries to 
highlight numerous active and potential infrastructure projects. These 
workshops will also allow the LMI governments and the U.S. Government 
agencies to develop successful methods of incorporating private 
investment into infrastructure development through the use of public-
private partnerships. The workshops will take place in the LMI 
countries over the next few years.
            Using Existing Tools and Relationships
    ITA is actively engaged with both the Association of South East 
Asian Nations (ASEAN) and the Asia Pacific Economic Cooperation (APEC) 
on a variety of economic issues. U.S. engagement within these fora 
focuses on making improvements in the region, including by addressing 
trade and investment barriers.
ASEAN \5\
    As part of the rebalance, President Obama announced the Expanded 
Economic Engagement (E3) initiative with leaders of the 10 ASEAN 
countries in November 2012. The Commerce Department plays a key role in 
this initiative, particularly on standards development and practices; 
small and medium-sized enterprises, and trade and the environment. In 
addition, ITA works with ASEAN to create an environment that enables 
and encourages U.S. exports by addressing market-access issues, 
ensuring nondiscrimination against foreign firms, improving investment 
protections, increasing transparency and promoting responsible business 
activities. This past summer, ITA working with the United States Trade 
Representative (USTR) and State organized roadshows to Los Angeles, San 
Francisco and Washington, DC, for the ASEAN Economic Ministers. These 
events allowed companies and policymakers to discuss opportunities and 
policies aimed at expanding trade and investment. Further, Commerce 
leads cooperation between the United States and ASEAN on standards and 
related issues. Together, we introduced initiatives on green buildings, 
food safety, medical devices, dietary supplements, green chemistry, and 
electrical and electronic products. Standards, as a core element of 
U.S. cooperation with ASEAN, were highlighted this year during the 
ASEAN Ministers Road Show and the recent ASEAN summit in Brunei.
APEC \6\
    Within APEC, ITA spearheaded efforts to implement voluntary codes 
of business ethics for the medical device, biopharmaceutical, and 
construction and engineering sectors through public and private 
organizations. Each of these initiatives was developed in conjunction 
with U.S. associations and companies to help ensure a more business 
friendly environment for their industries. ITA also plays a lead role 
in the APEC Small and Medium-sized Enterprises (SME) Ministerial, which 
focuses on ways to empower SMEs so they can enter international 
markets. SMEs comprise the majority of businesses in all 21 APEC member 
economies, so building the capacity of SMEs to engage in international 
commerce is a key component of U.S. Government efforts to bolster trade 
and investment linkages across the Asia-Pacific region.
    ITA has also hosted capacity-building workshops on ethical business 
practices for SMEs, energy-efficient building standards, and good 
regulatory practices. ITA is opening these workshops to Burma, 
Cambodia, and Laos so as to further integrate these economies into the 
global market. Given that APEC and ASEAN have designated energy as a 
priority sector, it is important to mention that the United States and 
Indonesia cohosted a regional natural-gas event which was jointly 
endorsed by APEC and ASEAN. This event focused on the changing global 
gas markets and the development of unconventional gas. In August, ITA 
led a trade mission to Thailand, Malaysia, and the Philippines focused 
on renewable energy equipment, smart grid and green-building 
technology, water treatment and emissions control, and natural gas 
exploration and development.
            Representing U.S. Industry Interests
    ITA is ensuring that U.S. industry's interests are taken into 
account and reflected in Trans-Pacific Partnership (TPP) negotiations 
which will help U.S. companies better compete in the region. The TPP is 
the focal point of U.S. Government economic policy in the region, and 
seeks to build on trade agreement advances made in the United States-
Korea Free Trade Agreement (KORUS FTA).
TPP
    The TPP agreement is both the economic cornerstone of the Obama 
administration's rebalance toward the Asia-Pacific, as well as a 
reflection of the President's commitment to a 21st century trade 
agenda, including with our NAFTA partners. USTR is the lead U.S. 
Government agency negotiating the TPP agreement, with extensive 
assistance from the ITA. Together, we are advancing the U.S. trade 
agenda, through intensive cooperation preparing for and conducting the 
TPP negotiations and bilateral meetings with our counterpart ministers 
from TPP member economies. In doing so, ITA works closely with the U.S. 
business community to ensure that its interests are fully reflected in 
the TPP agreement. ITA seeks input from the private sector both 
informally through its network of business contacts and U.S. offices 
and more formally through the Industry Trade Advisory Committees 
(ITAC). The ITACs are composed of private sector representatives 
covering all sectors of the U.S. economy, as well as important 
functional priorities, and provides advice to the Secretary of Commerce 
and the U.S. Trade Representative on the negotiation and operation of 
trade agreements, as well as development, implementation, and 
administration of U.S. trade policy.
    At a meeting of TPP Ministers in Singapore (December 7-10), 
considerable progress was made across a wide range of areas. On 
December 10, the TPP Ministers announced substantial progress had been 
made toward completing the agreement, with progress identified for the 
majority of key outstanding issues in the text. Negotiators will 
continue their intensive work during the coming weeks. Following that, 
Ministers intend to meet again early in the coming year.
Trade Promotion Authority (TPA)
    For over 30 years, Congress has enacted laws providing TPA to guide 
both Democratic and Republican administrations pursuing trade 
agreements that support U.S. jobs, eliminate barriers in foreign 
markets and establish rules to stop unfair trade. TPA provides special 
procedures for congressional consideration of legislation approving and 
implementing those agreements. TPA is a critical tool to keep the 
United States competitive and is connected to the progress that is 
being made on TPP. Having TPA will help bring home a trade agreement 
that includes some of the fast-growing economies of Asia Pacific. Since 
TPA's last renewal in 2002, hundreds of trade agreements between other 
countries have entered into force and several more are currently being 
negotiated. While these agreements are not the high-standard, 
comprehensive trade agreements the United States negotiates, they do 
offer foreign companies better and cheaper access to these markets. 
This places U.S. workers, businesses, and farmers at a comparative 
disadvantage. In fact, China is currently negotiating agreements with 
other Asia-Pacific partners that could displace U.S. goods, services, 
and agriculture products and set standards that exclude U.S. exports 
from these countries' markets. We need TPA to stay competitive. The 
administration supports TPA and looks forward to continuing to work 
with Congress on its renewal.
U.S.-Korea Free Trade Agreement (KORUS)
    The Republic of Korea (ROK) is currently our seventh-largest 
trading partner with approximately $101 billion in total (two-way) 
goods trade during 2012. Since entry into force of the KORUS on March 
15, 2012, trade data shows that KORUS has bolstered U.S. exports to the 
ROK. In fact, exports of U.S. manufactured goods to the ROK from 
January-October, 2013, the latest data available, are 1.6 percent 
higher than in the same period of 2011, before the FTA. U.S. exports of 
motor vehicles to the ROK in the first 10 months of 2013 are also 54 
percent higher than in the same period in 2011, pre-FTA. Other 
industrial goods have also seen notable increases, such as 
pharmaceuticals and electrical equipment. Services exports for the 
first two quarters of 2013 are 21 percent higher than in the same time 
period in 2011 (pre-FTA), and 5.4 percent higher than in the same 
period last year. Using the same time periods, the U.S. trade surplus 
in services with the ROK has grown by 52 percent compared to 2011 and 
by 21 percent compared to last year.
            linking u.s. business with buyers overseas and 
                    attracting investment back home
    ITA provides numerous tools to help U.S. companies learn more about 
the EAP markets, and meet potential clients, distributors, and 
partners. ITA organizes trade missions and trade events, and provides 
market research and export counseling in the markets of interest.
    As demonstrated in the chart below, each year ITA's customers are 
reporting more export successes to the East Asia and Pacific region. 

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    An example of the growing interest in this area is how the ASEAN 
team in Singapore, in collaboration with numerous ITA domestic offices, 
provided over 150 Gold Key services in 2013. A Gold Key service is a 
custom-tailored approach to supporting a company interested in doing 
business in a specific country and sector. This service includes 
arranging one-on-one meetings in-country with potential customers or 
partners. With an average of five appointments per Gold Key Service, 
this translates to more than 750 direct engagements for U.S. companies 
looking to do business in the region.
    ITA annually hosts a large trade event called Trade Winds. Trade 
Winds is a multicountry trade mission that takes U.S. companies to a 
key export market where they meet local companies and attend business 
conferences to learn about doing business in the region, accompanied by 
an optional spinoff trade mission with visits to additional markets. 
This past May, Trade Winds was held in Seoul and was the largest-ever 
U.S. trade event in the Republic of Korea. Seventy-two U.S firms 
participated in the event and over half took part in spinoff trade 
missions to Hong Kong, Japan, the Philippines, and Taiwan.
    ITA prides itself on helping SMEs. For example, ITA's Baltimore 
staff provided market research to identify opportunities and a 
financial background report on prospective partners for Haemo-Sol 
International, LLC, a small manufacturing company with less than five 
employees headquartered in Maryland. Haemo-Sol International exports 
specialized cleaning agents and was struggling to break into new 
markets and to increase sales in existing markets. The Baltimore staff 
suggested the company participate in the ExporTech exporter education 
program. ExporTech is a collaborative program between ITA's domestic 
field offices and the National Institute of Standards and Technology's 
Manufacturing Extension Partnership Program to provide export training 
to U.S. manufacturers. Through ExporTech, Haemo-Sol attended two trade 
missions to Asia which resulted in forging new partnerships. The 
company has increased sales and acquired new customers in Japan and 
China, and has seen the export portion of its sales grow from 50 to 66 
percent of total revenue since participating in its first trade mission 
in 2010.
Foreign Direct Investment (FDI)
    While our trade promotion activities are pivotal to improving the 
U.S. economy, inward investment also contributes significantly to job 
creation and economic growth. ITA is seizing this potential and has 
been working diligently around the world to let investors know that the 
United States is open for business. In total, U.S. subsidiaries of 
foreign companies accounted for one-fifth of total U.S. exports, 
showing the important relationship between trade and investment. In 
2012, the Asia and Pacific region's stock of FDI in the United States 
totaled roughly $424 billion, led by investment in manufacturing, 
wholesale trade and information and telecommunications.\7\ 
Additionally, U.S. FDI in the region exceeded $623 billion.\8\
    While the EAP region is not our largest source of FDI, it has great 
potential. As it stands, approximately 16 percent of FDI in the United 
States originates from Asia in comparison to over 60 percent 
originating from Europe. In terms of average annual growth over the 
past 5 years, China is the fastest-growing source of FDI in the United 
States. Many of the fastest-growing sources of FDI in the United States 
are located in the EAP region.\9\ Japan and Australia both rank among 
the 10 largest sources of FDI.
    The United States is the world's largest free and open market with 
a longstanding open-investment policy. SelectUSA is the federal-level 
resource for firms and U.S. economic development organizations (EDOs). 
SelectUSA is the only U.S. Government-wide program to attract, retain, 
and grow business investment in the United States. On October 31 and 
November 1, 2013, the Department of Commerce and its SelectUSA program 
hosted the SelectUSA summit. The event was a huge success and was 
completely sold out. The summit connected 1,300 participants, including 
456 foreign or multinational firms, with more than 200 EDOs from 48 
states, four territories and the District of Columbia. In addition, 
over 650 prearranged matchmaking meetings occurred and a number of 
impromptu meetings took place during the 2-day conference.
    SelectUSA, while relatively new, has proven to be a successful 
program. In July 2011, RPB Safety Ltd., headquartered in Christchurch, 
New Zealand, contacted ITA's staff for information on setting up a 
manufacturing plant in Michigan. RPB Safety is a manufacturer of 
respiratory protective equipment and was already distributing products 
via its Michigan office. SelectUSA supplied the company with initial 
information on establishing a business in the United States and the 
contact details at the American consulate general in Auckland to assist 
in the visa process. On August 28, 2012, RPB Safety Ltd. publicly 
announced its purchase of a new manufacturing facility in Michigan and 
is now investing more than $4 million into the commercial venture, with 
plans to create 30 jobs over the next 3 years.
                     enforcing domestic trade laws
    ITA is also in charge of enforcing certain trade laws, including 
the application of antidumping duty (AD) and countervailing duty (CVD) 
laws.\10\ ITA also monitors and works with USTR to ensure foreign 
government compliance with trade agreements to counter foreign trade 
barriers and unfair trade practices to support the competitive strength 
of American industry.
    With respect to the administration of the U.S. trade remedy laws, 
as of October 31, 2013, ITA maintains the following AD and CVD orders 
and ongoing investigations.
    ITA also helps U.S. businesses, especially small ones, overcome 
foreign government-imposed trade barriers to gain access to and fair 
treatment in foreign markets in Asia, as well as the rest of the world. 
ITA monitors foreign governments' compliance with trade agreement 
obligations and engages with these governments when problems arise. An 
example is when ITA worked with Navistar Inc. from Lisle, IL. 
Navistar's heavy-duty trucks encountered entry issues when the ROK's 
Ministry of Environment (MOE) issued a ruling that Navistar's open 
crankcase engines were noncompliant with the ROK emissions regulations. 
This determination would have limited Navistar's ability to fully 
access the Korean market. ITA worked with MOE to resolve this issue and 
to get Navistar an unconditional certification from the agency showing 
that Navistar's engines were compliant with ROK emissions standards. 
Navistar projects that sales to the ROK in 2014 will reach 100 units, 
including spare parts, totaling US$15 million. These exports will 
support several thousand unionized jobs in Illinois and in Ohio.
    When ITA is unable to resolve cases, they may be referred to USTR 
or to the recently created Interagency Trade Enforcement Center 
(ITEC)--which serves as the primary forum within the Federal Government 
to coordinate enforcement of U.S. trade rights under international 
agreements and enforcement of domestic trade laws--for further research 
and evaluation for action. ITEC provides critical research, analysis, 
translation and support for a number of ongoing WTO disputes. These 
disputes include: China Raw Material Export Restraints, China's Autos 
and Auto Parts Export Bases, and Indonesia Import Licensing, to name a 
few.
                               conclusion
    The United States remains actively engaged in the East Asia and 
Pacific region. Secretary Pritzker and Ambassador Froman are on their 
way to Beijing, China, for the JCCT Ministerial meeting. In addition, 
our TPP negotiators are working to substantially conclude this historic 
agreement early next year that, once finalized, will significantly 
support economic and job growth here in the United States.
    Secretary Pritzker, at the President's request, will also lead a 
CEO delegation to Southeast Asia, including Burma, next spring and, in 
early 2014, Commerce will lead two executive trade missions. In 
February, we will take U.S. companies to the Singapore Airshow, and in 
March, we will take U.S. travel and tourism industry representatives to 
Japan, the Republic of Korea, and Taiwan.
    As you can see, the EAP region is growing and there continues to be 
an incredible amount of opportunities for U.S. businesses in the 
region. The Commerce Department and ITA stands ready to help these 
companies wherever it can.

----------------
End Notes

    \1\ East Asia and Pacific economics include: China, Hong Kong, 
Macau, the Democratic People's Republic of Korea--North Korea, Taiwan, 
Japan, Mongolia, the Republic of Korea (ROK-South Korea), Brunei, 
Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, 
Thailand, Timor Leste, Vietnam, Australia, Cook Islands (Realm of New 
Zealand), Federated States of Micronesia, Fiji, Kiribati, Nauru, New 
Zealand (MNNA), Niue (realm of New Zealand), Palau, Papua New Guinea, 
Republic of the Marshall Islands, (The Independent State of) Samoa, 
Solomon Islands, Tonga, Tuvalu and Vanuatu.
    \2\ International Monetary Fund, World Economic Outlook Database 
October 2013, Gross domestic product based on purchasing power parity 
(PPP) valuation of country GDP. Country population and GDP data are 
unavailable for the Cook Islands (may be included in New Zealand 
totals), Macau (may be included in China totals), the Democratic 
People's Republic of Korea, Nauru, and Niue.
    \3\ Goods and services trade data is limited and only available for 
the ``Asia and Pacific'' region as defined by the Bureau of Economic 
Analysis. This region includes: China, Hong Kong, the Republic of 
Korea, the Democratic People's Republic of Korea, Macau, Taiwan, 
Thailand, Mongolia, Japan, Brunei, Burma (Myanmar), Cambodia 
(Kampuchea), Indonesia, Laos, Malaysia, Philippines, Singapore, East 
Timor, Vanuatu (New Hebrides), Vietnam, Australia, Cook Islands, Fed 
States of Micronesia, Fiji, Kiribati (Gilbert Island), Nauru, New 
Zealand, Niue, Marshall Islands, Palau, Papua New Guinea, Solomon 
Islands, Tonga, Tuvalu, and Western Samoa.
    \4\ In 2010, China announced its strategic emerging industries 
(SEI) industrial policy initiative to propel Chinese companies into 
leading positions in emerging technologies and to drive its economy in 
the next decade. These seven industries include biotechnology, new 
energy, high-end equipment manufacturing, energy conservation and 
environmental protection, new energy vehicles, new materials, next-
generation IT.
    \5\ ASEAN Economies: Brunei, Cambodia, Indonesia, Laos, Malaysia, 
Myanmar (or Burma), Philippines, Singapore, Thailand, and Vietnam.
    \6\ APEC Member Countries: Australia, Brunei, Canada, Indonesia, 
Japan, Republic of Korea, Malaysia, New Zealand, Philippines, 
Singapore, Thailand, Taiwan, Hong Kong, China, Mexico, Papua New 
Guinea, Chile, Peru, Russia, Vietnam and the United States.
    \7\ Information as an industry includes: data processing, hosting 
and related services; broadcasting (expect Internet); motion picture 
and sound recording industries; newspaper, periodical, book, and 
database publishers; software publishers; other information; and 
telecommunications.
    \8\ U.S. Bureau of Economic Analysis, ``U.S. Direct Investment 
Abroad: Balance of Payments and Direct Investment Position Data'' 
(accessed September 30, 2013).
    \9\ In 2012, growth rate of Chinese FDI in the United States by 
Ultimate Beneficial Owner (UBO) was 70.82 percent, Indonesia's was 
38.05 percent, Malaysia's was 26.37, the Republic of Korea's was 14.86 
percent, New Zealand's was 8.05 percent, Japan's was 6.80 percent and 
Australia's was 5.51 percent.
    \10\ U.S. trade remedy cases are governed by U.S. laws and 
international obligations, which require fair, objective, and 
transparent factual determinations. Consistent with these laws and 
obligations, U.S. AD and CVD proceedings are open, transparent and 
afford all interested parties involved the opportunity to participate 
and defend their interests. Strong enforcement of the AD and CVD laws 
plays an important role in supporting the USG's goal of advancing a 
progressive trade agenda. With respect to the administration of the 
U.S. trade remedy laws, as of October 31, 2013, ITA maintains the 
following AD and CVD orders and ongoing investigations.

    Senator Cardin. Well, we thank both of you for your 
testimony.
    Both of you have mentioned that the United States has been 
pretty active in East Asia this fall, with so many meetings 
focused on economic dimensions. You mentioned the APEC meeting 
in Indonesia. We had the ASEAN, the U.S.-ASEAN summit. It was 
followed by the East Asia summit in Brunei. Then we had the 
global entrepreneurship summit in Malaysia.
    So we participated in a lot of meetings. What got done?
    Ambassador Marciel. Chairman, that is a good question, 
because the meetings themselves, wonderful as they are, it is 
important that we have concrete outcomes. I think in the 
meetings themselves, I would say two things from the State 
Department perspective. The meetings themselves, for example 
the APEC meeting, there were some very substantive things done, 
which I will list in just a second.
    I would say the other thing we really try to do is use 
these meetings and use these visits as action-forcing events. 
For example, Secretary Kerry's visit just this week I think was 
key to getting a long-pending $90 million wind turbine deal 
with the Vietnamese done. I think without his--we effectively 
used his visit to get that finalized. It may have happened 
anyway, but it probably would have taken much longer.
    In terms of APEC itself, there were several outcomes I will 
just go through briefly. There was a lot of focus on improving 
supply chain management, in other words working with countries 
to try to figure out how to reduce barriers to getting the 
various inputs in place, including the setting up of a fund to 
support that way, agreement to implement the agreed-upon 
reduction in tariffs on environmental goods, the APAC 
environmental goods list, establishing a public-private 
dialogue to address nontariff measures, and promoting cross-
border education, which as you know is not only good for the 
education, but also there is a lot of----
    Senator Cardin. Let me just comment. I know you will go 
through the list and we will ask you to supply that. As you 
point out, these meetings are important and the active U.S. 
participation is very important. But results are needed and 
progress needs to be made, and then you have to implement to 
make sure it is done after the meetings are over.
    I would hope that we have a pretty aggressive strategy. You 
talked about additional commitments of resources to Asia. We 
should be evaluating our own progress and be pretty transparent 
about that, so we know whether progress is being made.
    I appreciate your keeping us informed on all of those 
issues. I want to get to TPP, in a couple different contexts. 
First, it could be perceived to be in competition, particularly 
with China, with the Regional Comprehensive Economic 
Partnership, which the United States is not participating in. 
So I would appreciate your giving us your best information as 
to how these two initiatives either complement each other or 
work in cross-purposes.
    Then secondly, in your response if you could give us an 
update. We know that the negotiations have not been completed. 
There is great concern whether we are going to lower the bar on 
a trade agreement to accommodate countries that have had very 
difficult records on human rights--Vietnam and Malaysia. We 
know that Vietnam enacted labor rights, but we also know that 
they have not implemented those reforms.
    So can you at least give us the politics of what is 
happening between China and TPP and the other regional 
discussions and whether we are going to insist and are making 
progress on basic good governance with all of the countries, 
but particularly those countries who have a record of not being 
strong in those areas?
    Ambassador Marciel. Chairman, maybe I can start and John 
Andersen will, I am sure, want to add some thoughts. On the 
question of whether the TPP is in competition with the Regional 
Comprehensive Economic Partnership, or RCEP, our view is that 
we do not see that these various multilateral efforts are 
mutually exclusive. We see them really as complementary efforts 
to promote regional economic cooperation and hopefully both 
serving as building blocks toward an eventual free trade area 
of the Asia-Pacific. We of course favor the TPP because it does 
set very high standards, which we think is very important.
    On the question about lowering the bar and how we deal with 
issues like human rights and labor standards, certainly in TPP, 
the free trade agreement, labor standards are a key part of 
that. I know there has been intensive discussions between USTR, 
particularly with the Vietnamese, and others, but particularly 
with the Vietnamese, on labor standards. I think everyone is 
very focused on that.
    More broadly on human rights----
    Senator Cardin. Well, what progress is being made?
    Ambassador Marciel. The negotiations have been ongoing for 
quite a while----
    Senator Cardin. Can you assure us that we will insist upon 
minimum standards in this agreement and that--worse than 
failing in TPP would be to negotiate an agreement that does not 
meet minimum standards.
    Ambassador Marciel. I think we are very committed to 
meeting those minimal standards, Senator, absolutely.
    Senator Cardin. And that is not changing? We have a pretty 
firm grip----
    Ambassador Marciel. It is not changing. It is not changing.
    Senator Cardin. A lot of us will be watching closely.
    Ambassador Marciel. I understand. As you have noted, 
Secretary Kerry raised this, not only labor standards but human 
rights, not only publicly, but quite directly in his meetings 
with the Vietnamese Prime Minister, party General Secretary, 
and Foreign Minister, and highlighted the connection, not only 
human rights in general, but the connection to things like TPP 
and other things. So he was very direct in his conversations.
    Mr. Andersen. I would just like to add, in Singapore, while 
we made substantial progress and we had obviously hoped to 
conclude before the end of the year, and that was where we were 
moving, we did make significant progress in a number of areas. 
We also narrowed the differences in some of those areas where 
we recognized the need to make some additional progress. 
Negotiations are going to begin again early in January, at 
which point, as I said in my written statement, I think we are 
closing in on a high value, high quality agreement.
    I would second what Principal Deputy Assistant Secretary 
Marciel said on labor standards. While I have not actively 
participated in the negotiations, I have been part of many of 
the other free trade agreement negotiations that we have 
negotiated over my 30 years, and high quality labor standards 
have always been a key part of that.
    Senator Cardin. I have been in Congress now for 27 years, 
voted on many trade agreements, been on the Finance or Ways and 
Means Committee most of my career. I must tell you, I do not 
feel that we have had the open dialogue with Congress which 
instills confidence in these areas. We are conducting trade 
negotiations without trade promotional authority. I know that 
the administration will be seeking that. But I will just tell 
you this. There has got to be a transparent process with 
Congress, particularly with TPP, because it involves so many 
different countries.
    I agree with Senator Rubio. A successful TPP offers 
incredible hope, but it is not going to happen unless there is 
a close working relationship between Congress and the 
negotiators.
    Senator Rubio.
    Senator Rubio. I would defer to Senator McCain if he wants 
to go first on your questions.
    Senator McCain. Well, I thank the witnesses. I thank the 
chairman.
    It is a bit of a microissue as compared to the macroissues 
that we are talking about. But I do not know if you are aware 
or not. I could ask either one of the two witnesses. The 2008 
farm bill proposed and established a $30 million USDA Catfish 
Inspection Office. The catfish has been called wasteful and 
duplicative by the GAO. GAO recommended that Congress repeal 
the office. The President's fiscal year 2014 budget proposed to 
eliminate it. I have read reports that the Catfish Office would 
be a violation of our WTO obligations because it places trade 
barriers on catfish imports from Southeast Asia, particularly 
Vietnam.
    Could you comment on the harm this Catfish Office poses to 
our Southeast Asia relationship and the administration's views 
on the issue?
    Ambassador Marciel. Senator McCain, yes, I am familiar with 
the issue. When I was in Vietnam last month, my Vietnamese 
friends reminded me of it pretty much every 5 minutes. So they 
are very focused on it and have pointed out--and I believe they 
raised it with Secretary Kerry on this trip as well when he was 
in the Mekong Delta, which of course is a big area of growing 
catfish for them. So they certainly see it as very negative and 
very harmful.
    I apologize, but I do not actually know if we have taken an 
official position on this. If we could----
    Senator McCain. I think the administration has made it very 
clear. Our friends from a certain part of the country allege 
that this catfish is not a catfish, which is one of the more 
fascinating and entertaining aspects of the marine life in the 
world that I have encountered. It is clearly just a blatantly 
protectionist measure.
    As you mentioned, it has now taken on a dimension which is 
far in exception--it seemed to me far in excess of the issue 
itself. But it really is--when we complain about discrimination 
against our products and then we see this calling a catfish a 
vasa, I think is what they called that catfish which is grown 
in Vietnam--but I am kind of interested that that is such a 
high-level issue with our Vietnamese friends. I hope that in 
response that maybe we said, we agree with you on that issue.
    But there is still significant persecution of minorities, 
of Buddhists, of Christians, in Vietnam that, as the chairman 
pointed out, really are not acceptable human rights abuses, and 
we had expected a lot more of the Vietnamese than what they 
continue to do, which actually saddens me a great deal.
    Do you have any comment?
    Ambassador Marciel. Well, Senator McCain, I know how much 
you know about Vietnam. What I would say is you are right, 
there are still significant human rights problems as well as 
religious freedom problems in Vietnam. We raise these 
constantly with the Vietnamese. I would say that from my 
experience, having lived there 20 years ago and now, there are 
some areas where it has gotten better and other areas where it 
really has not. The areas where it has gotten better I would 
say is, for example, increased space for people to have 
conversations and offer comments in the blogosphere and these 
sorts of things, as well as on religious freedom some specific 
improvements like more increased registration of churches and 
these sorts of things.
    That said, there still remain significant problems both on 
the religious freedom side, as you have said, and of course 
with continued imprisonment of dissidents, which Secretary 
Kerry raised very specifically on his trip.
    Senator McCain. Thank you.
    Mr. Chairman, I know it sounds like a small item, catfish. 
But it is really just a case of blatant discrimination to call 
a catfish not a catfish and spend $30 million of taxpayers' 
dollars to set up a, ``Catfish Office.'' A lot of people I talk 
to, they think I am making it up. So I think that we ought to 
really at some point maybe even enact a repeal of the funding 
for the ``Catfish Office.''
    I thank the witnesses and I hope--maybe you could give us a 
written response on this issue.
    I thank you, Mr. Chairman.
    Senator Cardin. Senator McCain, it is my understanding that 
the repeal is included in the House version of the farm bill. 
So this might be an issue that we can act on in conference on 
the farm bill. I do not know. I am not a member of the 
Agriculture Committee and I have not talked to Senator Stabenow 
about this. But I think the point that you raise, that in the 
context of our multilateral negotiations there are issues where 
the United States needs to change. Change is not just one way; 
and issues concerning the safety standards, where in this case 
it was one agency--I think it was the Agricultural Department 
was doing the safety standards and there had been no 
complaints, and the cost issues were much less than the change 
that was made to the other agency--does raise questions as to 
whether it is a nontariff barrier to free access to trade, and 
the United States also needs to self-evaluate its practices.
    So I thank the Senator for raising those issues. On the 
human rights matter, you know very well that, as one of the 
strongest proponents in the United States Senate to advance 
human rights, you know that these subjects do not get attention 
unless there is something else on the table. So now we have an 
opportunity to expand economic trade, which is great. We are 
all for it. But it also is an opportunity to advance human 
rights, which is critically important to economic growth.
    So I appreciate both issues that Senator McCain raised on 
these matters.
    Senator Rubio.
    Senator Rubio. Thank you.
    I will begin by prefacing my question. When I look toward 
my first trip to the region next month, where I will be 
visiting Japan, South Korea, and the Philippines, my view is 
that the region has really benefited from a post-World War Two 
order characterized by freedom of commerce and navigation and 
also by an expansion of political rights.
    We have seen these benefits in places like Japan, clearly 
the best example of how those two things have benefited a 
people. In South Korea, a nation whose economy expanded as a 
result of free enterprise, trade, commerce, and has gone from 
being a recipient of aid to a donor; and beyond that other 
places have had similar success. Taiwan, a small place, but 
again a place with real success stories.
    This is an order that I think has benefited not just these 
countries, by the way, but the Chinese people, for whom access 
to the American marketplace has really expanded economic 
opportunity.
    But while open trade has benefited the Chinese people, the 
Chinese Communist Party is not all that enthusiastic about 
expanding civil liberties, and in fact is challenging the 
established principles of freedom of navigation and of 
commerce. As a result, you have seen some of the moves they 
have recently made, and I want to ask you about that in a 
moment.
    So, I would preface my questions by saying that the United 
States obviously needs to be economically engaged in the 
region, but you can see how our security assurances and our 
security arrangements are also critical to, for example, enable 
freedom of commerce and navigation, and how our allies look up 
to our partnership to assure those.
    By the way, in my recent trip to London a number of 
policymakers there were very complimentary of the 
administration's decision to place Marines in Australia as a 
major step forward in terms of reassuring our allies about our 
commitment in the region.
    But let me just ask you this. I would start with you, 
Secretary Marciel. I would like to get your thoughts on the 
implications of China's unilateral announcement of an air 
defense identification zone over territory that the United 
States recognizes as under the administration of Japan and also 
overlapping Korean air space.
    Does the United States recognize this announced ADIZ?
    Ambassador Marciel. Senator Rubio, thank you for that 
question. No, we have told the Chinese--we have said publicly 
and we have told the Chinese, including during the Vice 
President's recent trip, that we do not recognize----
    Senator Rubio. Have we asked them to retract it?
    Ambassador Marciel. What we have told them is we do not 
recognize it, it is unhelpful, they should not implement it. It 
has been a consistent message. We have also said that it is 
extremely unhelpful, it is adding to tensions in the region. 
Some of this was the way it was done, some of the language that 
went with it, et cetera, and the fact, as you said, Senator, 
that it extended over an area that we recognize as 
administratively controlled by Japan.
    So for all these reasons we found it very unhelpful, 
causing tensions and we have continually repeated--Secretary 
Kerry either today or yesterday again repeated in the 
Philippines that this was very unhelpful, we do not accept it, 
we will not abide by it.
    Senator Rubio. Well, thank you for that statement. I would 
just add, you said a moment ago that some of it is the way it 
was done. I would imagine that even if they had said it in very 
diplomatic and rosy language we would still be opposed to it, 
right?
    Ambassador Marciel. Senator, there were so many problems 
with it. There is a whole host of reasons that we oppose it. It 
was not just the language.
    Senator Rubio. Explain for a moment the guidance we have 
given civilian aircraft with regards to reporting in? What is 
the thought process behind that guidance and how does that 
contradict or complement the official position you have stated 
here today?
    Ambassador Marciel. Right. So the position, as I said, is 
we do not accept this, we reject it, it will not change the way 
the U.S. Government, the U.S. military, operates in the region. 
I want to be careful not to speak for FAA, which of course has 
the regulatory authority over the airlines. My understanding is 
that they did not issue specific instructions to the airlines 
on the Chinese announcement of the air defense identification 
zone. They did, however, remind airlines that the expected 
practice, the normal practice, standard practice, what have 
you, around the world is that airlines will follow notice to 
airmen around the world.
    Senator Rubio. But again, our official policy is we do not 
recognize the zone and by and large we are going to ignore it?
    Ambassador Marciel. That is correct, Senator.
    Senator Rubio. Secretary Andersen, I wanted to ask you. 
Earlier in the year the administration had stated it hoped to 
conclude TPP by the end of this year, which is 10 days. So can 
you just provide an update on the timeline, including the 
congressional aspect of fast track and so forth?
    Mr. Andersen. Yes. Thank you for that question, Senator. As 
I indicated earlier, we did make substantial progress in 
Singapore in narrowing differences and coming to agreements in 
some of the areas. Unfortunately, we were not able to conclude, 
as we had hoped to, before the end of the year. But what we 
have agreed to do is set forward and begin again early in 
January.
    I would point out that we were not able to conclude, 
because there were still some areas where we were not achieving 
what we had hoped for, particularly in some of the market 
access areas. As we have stated many times in many agreements 
over the years, we are not just going to negotiate just to 
negotiate. We are going to negotiate to get a high quality, 
high standard agreement, and that is what we are still after 
and that is what we hope to achieve some time early next year.
    Senator Rubio. What about on the congressional side? What 
do you anticipate will be the asks here? What are the existing 
ones? How is that working through?
    Mr. Andersen. Well, as we indicated, the ask that we are 
working with now is enactment of trade promotion, reenactment 
of trade promotion authority. It will be critical to bringing 
home and implementing this agreement once it is finally 
negotiated.
    Senator Rubio. Would you just comment on how do you think 
that not having trade promotion authority would slow or 
undermine the process?
    Mr. Andersen. It does not undermine the process with 
respect to our ability to negotiate. What it does is make it 
difficult to actually implement. It will be critical when we 
get to the implementation phase.
    Senator Rubio. Does that process and the fact that you need 
to seek congressional approval from a body that has gone 
through some friction here over the last couple months, for 
lack of a better term, does that come up in the negotiations? 
Are potential partners aware of how that could slow down the 
process a bit? Is that in any way a factor in terms of how they 
are approaching these things?
    Mr. Andersen. Good question, Senator. Not to my knowledge 
has it come up. But then again, I have not been directly 
involved in those day-to-day negotiations. I know it has come 
up in previous negotiations.
    If I may go off a little bit from some of my previous 
experience, I was part of the team that negotiated with Chile, 
the first time we announced that Chile was going to be a free 
trade agreement member. Once we lost fast track negotiating 
authority, those negotiations were put on hold for a number of 
years. But I cannot speak specifically to where or how that is 
affecting TPP.
    Senator Rubio. Is it safe to say, does it help?
    Mr. Andersen. It certainly does not. It certainly does not 
help.
    Senator Cardin. I have one additional question, Mr. 
Andersen. That is, two of the critical nontariff barriers in 
Asia that affect U.S. access to markets would be currency 
manipulation and protection of intellectual property. Can you 
just give me an update as to whether we have made progress on 
these issues during some of the discussions? I am not talking 
necessarily TPP. I am talking broader than that, obviously, in 
these two areas.
    Mr. Andersen. Well, I cannot speak in detail about currency 
manipulation, Senator. As you know, that is----
    Senator Cardin. The Secretary of the Treasury. Everybody 
bounces that issue from one agency--we are well aware of that. 
But I find it hard to believe that you are not engaged in the 
impact of currency manipulation for market access for American 
companies.
    Mr. Andersen. But I can speak a bit more with respect to 
intellectual property rights. It is, as you said, one of the 
three major areas where we do get concerns from U.S. companies 
about doing business in the Asia-Pacific. We at the Department 
of Commerce have an Office of Intellectual Property Rights that 
is there to specifically help U.S. companies overcome and deal 
with those issues as they arise. In fact, we have a Web site--
stopfakes.gov--that is very active and very much geared toward 
helping especially small- and medium-size companies deal with 
those issues.
    We have dealt with intellectual property rights in the 
JCCT, have made some progress. It is an area, as you can 
imagine, that is foremost on the negotiations as we move 
forward.
    Senator Cardin. Thank you.
    Mr. Marciel, since Mr. Andersen did not want to take the 
currency one, I assume that you will give us the answer on 
currency?
    Ambassador Marciel. I am searching desperately--Mr. 
Chairman, I am searching desperately in my long book for a 
better answer. Unfortunately, I find the same one. But it is 
really a Treasury issue. I have to defer to Treasury.
    Senator Cardin. Well, you know, we hear that frequently, 
and of course when Treasury is here they say it is in context 
to all the diplomatic problems and bilaterals and trade issues. 
So everybody seems to bounce it.
    But the pace of reform has been slow. At one point in 
globalization, America was strong enough to be able to deal 
with currency manipulation. Today we need to have a level 
playing field for American companies to compete. The currency 
issue is a huge matter. It involves more than just one country. 
There are other countries in Asia, other than China, that are 
also involved in currency manipulation. It is a matter that 
needs to be on the radar screen of everyone engaged in regional 
economic discussions.
    So I appreciate the fact that Treasury has the lead on 
this, but I would just urge you to be prepared to answer 
questions as we deal with the economic integration within Asia, 
that currency is a matter that is going to be brought up as 
well as intellectual property.
    Senator Rubio.
    Senator Rubio. No.
    Senator Cardin. So let me thank both of you again for your 
testimony. More importantly, thank you for your service. We 
look forward to continuing to work with you.
    Mr. Andersen. Thank you.
    Senator Cardin. We will now go to our second panel. As they 
are coming to the table here, let me welcome Mr. Matthew 
Goodman, who holds the William E. Simon Chair in Political 
Economy at the Center for Strategic and International Studies. 
He has extensive experience in three different government 
agencies and in the private sector. At the White House, Mr. 
Goodman served as the Coordinator for Asia Pacific Economic 
Cooperation, APEC, in the East Asia Summit; Director for 
International Economics on the National Security Council Staff; 
and Director for Asian Economic Affairs on the staff of the 
National Security Council.
    Let me also welcome Mr. Derek Scissors, who is a resident 
scholar at the American Enterprise Institute, where he studies 
Asian economic issues and trends. In particular, he focuses on 
the Chinese and Indian economies and U.S. economic relations 
with China and India. He is also an adjutant professor at 
George Washington University, where he teaches a course on 
Chinese economy.
    We will start with Mr. Goodman.

  STATEMENT OF MATTHEW P. GOODMAN, WILLIAM E. SIMON CHAIR IN 
   POLITICAL ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL 
                    STUDIES, WASHINGTON, DC

    Mr. Goodman. Thank you, Mr. Chairman, Mr. Ranking member. 
Thank you for this opportunity to offer my thoughts on U.S. 
economic engagement in the Asia-Pacific region.
    Economics is at the heart of U.S. involvement in the Asia-
Pacific region. This statement is as true today as it was in 
1784, when the first U.S. merchant ship bound for Canton set 
sail from New York. Trade, investment, and other economic ties 
across the Pacific today are measured in the trillions of 
dollars, support millions of American jobs, and underpin our 
national security.
    Like administrations before it, the Obama administration 
has put economics at the center of its Asia-Pacific strategy. 
But it has arguably raised the stakes by making the overall 
success of its rebalancing to Asia contingent on a successful 
economic strategy, in particular completion of a high standard 
Trans-Pacific Partnership trade agreement, which I will come 
back to.
    The economic leg of the rebalance is driven by three broad 
objectives: promoting growth in jobs, upholding and updating 
the rules of the international economic system, and supporting 
America's long-term presence in the region. It is important to 
note that these objectives get to both sides of the coin 
regarding the relationship between economics and foreign 
policy, that is using diplomatic tools to support better 
economic outcomes, like growth and jobs, and, arguably more 
challenging, using economic tools in a strategic way to support 
foreign policy objectives, such as strengthening the rules and 
supporting our presence in the region.
    In pursuit of these objectives, the Obama administration 
has used a multilayered approach to economic engagement in the 
Asia-Pacific. This has bilateral, regional, and global strands 
from the strategic and economic dialogue with China, to TPP and 
APEC, to the G20, half of whose members are Asia-Pacific 
economies. And it encompasses all aspects of economic policy, 
not just trade but also promotion of strong domestic demand-led 
growth in large Asian surplus economies like China and Japan, 
negotiation of bilateral investment treaties, and strategic use 
of development assistance.
    But trade and TPP in particular is the sharp end of the 
spear when it comes to Obama economic strategy in Asia. Through 
TPP, the administration seeks to advance all three objectives I 
mentioned, with an accent on updating the rules. TPP aims to 
establish disciplines on an array of behind-the-border 
impediments such as excessive or nontransparent regulation, 
preferences for domestic, especially state-owned, enterprises, 
and inadequate intellectual property protection.
    I believe the administration's aim is to make a successful 
TPP the driver and de facto template for a new multilateral 
system of rules. Failure to reach a TPP deal at this month's 
ministerial meeting in Singapore was disappointing, but not 
fatal. Trade talks are always darkest and noisiest before the 
dawn as differences are narrowed to the most politically 
contentious issues. I remain optimistic that a basic TPP deal 
can be reached by the time of President Obama's planned trip to 
Asia next April.
    The stakes could not be higher for the White House. 
Conclusion of TPP is the sine qua non of success for the Asia 
rebalancing strategy. In addition to its economic benefits, a 
successful agreement would anchor the United States more firmly 
in the Asia-Pacific and bolster American leadership there. 
Without TPP the rebalance would contain little of substance 
that is new and would be perceived in the region as driven 
primarily by military considerations.
    I will end by highlighting three ways in which I believe 
Congress can play a vital role in supporting the economic leg 
of the rebalance. First, enacting trade promotion authority 
legislation would give the administration the guidance and 
certainty it needs to close a high standard TPP deal. Without 
TPA, it is difficult to see how USTR can persuade its 
counterparts that it can fulfill its end of the bargain.
    Second, Congress should insist that the administration 
allocate sufficient senior-level staffing and policy attention 
to Asian economic issues and should provide adequate funding 
for these activities. In particular, I believe the White House, 
including both the NSC and USTR, as well as the State 
Department, do not have sufficient resources or share of mind 
devoted to Asian economics.
    Third, Congress can help explain to the American people 
that the United States is a Pacific power with deep and 
enduring economic interests in the region. A successful 
economic strategy in the Asia-Pacific is essential to 
sustaining American growth and jobs into the 20th century. It 
is also essential to our efforts to remain a champion of the 
global rules-based order and it underpins America's long-term 
presence in the region, which in turn is critical to the 
region's security and prosperity.
    Thank you for your attention.
    [The prepared statement of Mr. Goodman follows:]

                Prepared Statement of Matthew P. Goodman

    Mr. Chairman, Mr. Ranking Member, members of the subcommittee, 
thank you for this opportunity to offer my thoughts on U.S. economic 
engagement in East Asia and the Pacific.
    Economics is at the heart of U.S. involvement in the Asia-Pacific 
region. This statement is as true today as it was in 1784, when the 
first U.S. merchant ship set sail from New York bound for Canton; or in 
1853, when Commodore Perry arrived in Tokyo Bay in his ``black ships'' 
seeking refueling rights for the American whaling fleet. Trade, 
investment, and other economic ties across the Pacific today are 
measured in the trillions of dollars and are critical not only to U.S. 
growth and jobs but also to our national security.
    The Obama administration has put economics at the center of its 
Asia-Pacific strategy. Indeed, the overall success of the 
administration's policy of ``rebalancing,'' or ``pivoting,'' to Asia 
rests on its ability to carry out a successful economic strategy in the 
region, in particular completion of a high-standard Trans-Pacific 
Partnership (TPP) trade agreement.
                       the economic pull of asia
    U.S. economic engagement in Asia is driven by the numbers. The 21 
member economies of the Asia-Pacific Economic Cooperation group (APEC) 
account for roughly 55 percent of global gross domestic product 
(GDP).\1\ The region contains the world's three largest countries by 
GDP--the United States, China, and Japan--and half of the top 20 
economies. Moreover, according to the International Monetary Fund in 
its most recent outlook, the Asia Pacific is the fastest-growing region 
of the world, with real GDP growth in developing Asia expected to 
average 6.3 percent in 2013.\2\
    The APEC region also accounts for 44 percent of world trade, with 
nearly $10 trillion worth of goods and services flowing around the 
Pacific last year.\3\ U.S. exports to APEC economies totaled nearly 
$1.2 trillion in 2011, accounting for over half of total U.S. 
exports.\4\ Our exports to the Asia Pacific have more than doubled over 
the past decade, and 6 of our top 10 trading partners are in APEC.
    Financial flows across the Pacific in the form of both direct and 
portfolio investment are also substantial. The stock of U.S. direct 
investment in Asia totaled nearly $600 billion at the end of 2011 and 
grew some $45 billion that year.\5\ In the same year, nearly $20 
billion worth of foreign direct investment flowed into the United 
States from Asia-Pacific countries, adding to an accumulated stock of 
over $400 billion invested here.\6\ Meanwhile, China and Japan each 
hold over $1 trillion of U.S. Treasury securities,\7\ and Asians and 
Americans have trillions of dollars invested in each other's stock 
markets and other private financial instruments.
    This enormous volume of economic activity across the Pacific 
translates into jobs for Americans. According to one estimate, roughly 
1.2 million American jobs were supported by exports to Asia in 2012.\8\ 
Asian companies investing in the United States directly employed some 
900,000 Americans in 2011, with many more jobs supported indirectly by 
these operations.\9\
    Our economic engagement with Asia also poses challenges. We have 
large and persistent trade imbalances with a number of major Asian 
countries, including a $315 billion deficit with China in 2012.\10\ 
American companies face an array of barriers both at and behind the 
border in these countries, and unfair trade practices in the region 
burden both our businesses and workers. In addition, macroeconomic 
imbalances--including an excess of savings in many Asian economies--
produce large financial flows from Asia to the United States that bring 
near-term benefits but may pose longer term risks to the U.S. economy. 
These challenges require active U.S. policy engagement in the region.
                       policy objectives in asia
    Against this backdrop of tremendous opportunities and challenges, 
U.S. economic policy toward the Asia-Pacific region over the past 
several administrations has been driven by three broad objectives. The 
first is growth and jobs. As described above, the Asia-Pacific region 
is one of the world's largest and fastest-growing economic areas, 
making it an increasingly important source of demand for the U.S. (and 
global) economy. Among other benefits, stronger demand and growing 
purchasing power in Asia mean more U.S. exports, which in turn are a 
vital source of growth and jobs at home.
    The second broad objective is upholding and updating the rules of 
the international economy. The open, rules-based system of trade and 
investment championed by the United States since World War II has 
produced broad benefits not only for this country but for the rest of 
the world. But the prevailing rules are increasingly out of step with 
the realities of today's global economy, which is characterized by 
integrated value chains and digital connectivity; Asia is at the center 
of these trends. As discussed further below, TPP is designed to address 
this gap by establishing ``21st-century'' rules governing not only 
tariffs and other border measures but also behind-the-border issues 
such as intellectual property protection, regulatory transparency, 
labor and environmental standards, and the investment climate.
    The third objective of U.S. economic strategy in the Asia Pacific 
is supporting America's long-term presence in the region. The United 
States is a Pacific power by nature and necessity (i.e., geography as 
well as the pull of historical, security, and economic forces) but also 
by design. Successive administrations since World War II have worked 
deliberately to embed the United States in the Asia Pacific through an 
array of political, security, and economic arrangements. The network of 
U.S. alliances with Japan, South Korea, Australia, and others, and the 
troops and ships deployed in the region, are the most visible 
manifestation of that policy. Binding trade arrangements like the U.S.-
Korea free trade agreement (KORUS FTA) and TPP can be seen as the 
economic equivalent of America's security alliances in the region. That 
is, they enmesh the country in regional affairs and give all Asia-
Pacific countries an increased stake in each other's prosperity and 
security.
                     how the united states engages
    In support of all three objectives described above--growth, rules, 
and presence--recent U.S. administrations have pursued a multipronged 
approach to economic engagement in the Asia-Pacific region. For more 
than 30 years, Washington has worked to promote strong domestic-demand-
led growth in large Asian surplus economies. Japan, then the world's 
second-largest economy, was the initial target of this policy in the 
1970s and 1980s, but attention has broadened in recent years to other 
large, growing economies with persistent current-account surpluses, 
notably China. With U.S. and European consumers and governments alike 
forced to borrow less and export more in the wake of the 2008-09 
financial crisis, Washington has argued that large surplus economies 
need to consume and import more, or global growth will suffer. This is 
why the Obama administration has made ``strong, sustainable, and 
balanced growth'' the mantra of its policy engagement with China and 
other large Asia-Pacific economies in both the G20 and bilateral 
channels.
    U.S. trade policy has also supported the macroeconomic growth 
agenda. Recent administrations have pursued an active trade agenda in 
the region, including President George W. Bush's initial negotiation of 
the KORUS FTA and the Obama administration's launch of the TPP 
negotiations. Enforcement of existing trade agreements has also been an 
increasingly important feature of trade policy in the past two 
administrations. All of these efforts have been designed to reduce 
barriers to U.S. exports, enhance America's own competitiveness, boost 
growth and jobs, and reinforce the rules of the international trading 
system.
    TPP is part of a broader strategy pursued by Presidents since 
George H.W. Bush to tap into and shape aspirations in the Asia Pacific 
for regional economic integration. Bush's Secretary of State, James 
Baker, embraced his Australian counterpart's proposal to create APEC in 
1989 as a venue for foreign ministers from the region to discuss trade 
and investment liberalization and capacity-building. President Bill 
Clinton invited his APEC counterparts to a summit on Blake Island off 
Seattle in 1993, giving top-level political imprimatur to the forum's 
economic integration mission.
    Washington's approach to regional economic integration has been 
marked by two key characteristics that distinguish it from approaches 
championed by other countries in the region: it is trans-Pacific rather 
than Asia-centric; and it emphasizes high standards of liberalization 
and rulemaking.
    The first characteristic is, of course, largely driven by the fact 
that the United States is a Pacific but not an Asian country. But 
higher level policy considerations also play a part. In promoting APEC, 
Secretary of State Baker was clearly animated by concerns about East 
Asian aspirations for community-building that would exclude the United 
States; he later noted that such efforts would ``draw a line down the 
middle of the Pacific.'' \11\
    In addition, strategic considerations in the Western Hemisphere 
have played a part in U.S. insistence on including Pacific-facing Latin 
American countries in regional economic integration efforts. President 
Clinton invited the Mexican President to the Blake Island summit and 
soon after championed Chile and Peru's membership in APEC. It is no 
coincidence that the TPP negotiations include all five APEC economies 
in the Western Hemisphere: Canada, Chile, Mexico, Peru, and the United 
States.
    The second distinguishing feature of the U.S. approach to regional 
economic integration is a preference for comprehensive trade and 
investment liberalization and high-standard rules of the road. This has 
inspired Washington's approach to APEC since the inception but took on 
new substance with the launch of ``21st-century'' treaty negotiations 
with Korea and the TPP partners. The George W. Bush and Obama 
administrations have insisted on the broadest and deepest possible 
liberalization, as well as state-of-the-art disciplines on trade and 
investment-related policies both at and behind the border. By contrast, 
Asia-only integration initiatives, including bilateral and subregional 
FTAs, have generally covered only border measures and included numerous 
exceptions to full liberalization.
    A mix of economic and political considerations lies behind this 
second feature of U.S. regional integration policy. Removing most 
impediments to trade and investment and imposing tough rules of the 
road maximize economic efficiency and growth.
    Washington believes that the narrower and ``shallower'' agreements 
reached to date in Asia have done little to improve efficiency and may 
pose a threat to U.S. competitiveness. As U.S. Trade Representative 
Michael Froman said in a recent interview, ``A race to the bottom is 
not a race we can win.'' \12\ Moreover, congressional support for trade 
agreements increasingly hinges not only on breaking down barriers to 
U.S. exports but also on advancing other American policy objectives 
such as labor rights, environmental regulation, and intellectual 
property protection; hence the emphasis on these issues by U.S. 
negotiators in TPP and other recent trade talks.
                       the ``rebalance'' to asia
    The Obama administration's economic strategy in the Asia Pacific is 
broadly consistent with the traditional objectives and approach 
discussed above. But the stakes have been raised by the 
administration's strategy of ``rebalancing'' to this important region 
of the world.
    From its earliest days in 2009, the administration has put the Asia 
Pacific at the center of its foreign policy. This can be seen on three 
levels: symbolism, including Hillary Clinton's decision to make her 
first overseas trip to the region as Secretary of State; rhetoric, 
notably a prominent Clinton article in the fall of 2011 in which she 
first articulated the administration's strategy of shifting resources 
and attention from the greater Middle East to the Asia Pacific; \13\ 
and substance, with the decisions to join a second regional leaders' 
forum alongside APEC, the East Asia summit, and to embrace TPP as the 
centerpiece of the administration's trade policy in the region.
    Economic engagement is critical to the overall rebalancing 
strategy. In addition to its intrinsic value, it helps balance the 
military and diplomatic elements and thus bolster the strategy's 
credibility both in the region and at home. While most of the focus has 
been on TPP, the Obama administration has, in fact, pursued a 
multipronged economic policy in the region, covering three levels of 
interaction.
    Bilaterally, the administration has engaged with most of the major 
economic powers of the region, in a variety of formats. With China, it 
reconfigured a high-level forum created by the Bush administration and 
established the Strategic & Economic Dialogue (S&ED). Along the S&ED's 
economic track, the administration has sought to encourage more 
balanced growth in China, to promote financial liberalization and 
movement to a more flexible currency system, and to advance a bilateral 
investment treaty (BIT). Meanwhile, engagement with Japan has been 
focused on encouraging Tokyo to restructure its economy to generate 
sustainable growth, including through the decision earlier this year to 
bring Japan into TPP. Renegotiating, passing, and implementing the 
KORUS FTA has been the organizing principle for U.S.-Korean economic 
relations, while the administration has had active bilateral dialogues 
with other important regional players such as Australia and Indonesia.
    Engagement at the global level is another implicit element of the 
administration's Asian economic strategy. Largely in recognition of the 
increasing weight of large emerging countries, including China and 
India, in the global economy, the administration embraced the G20 as 
the premier forum for international economic cooperation in 2009 and 
has worked within that group to encourage strong, stable, balanced 
growth in Asian economies. The administration has also worked in other 
international institutions, such as the World Trade Organization and 
the World Bank, to more deeply embed China and other leading Asian 
countries in the global rules-based system.
    A principal focus of Obama administration economic strategy in the 
Asia Pacific has been at the regional and subregional level. While the 
President himself has not attended the last two APEC leaders' meetings, 
the administration has remained actively engaged in that forum, 
including as host in 2011. In 2012, the administration launched a so-
called ``Enhanced Economic Engagement (E3)'' initiative with the 
Association of Southeast Asian Nations (ASEAN); this initiative is 
ultimately designed to bring all 10 members of that group into high-
standard trade arrangements with the United States. Meanwhile, TPP has 
been the sharp end of the spear when it comes to Obama economic 
strategy in Asia.
                     the trans-pacific partnership
    TPP was conceived in the waning days of the Bush administration, 
when the White House notified Congress in late 2008 of its intention to 
negotiate a trade agreement with four small APEC economies--Brunei, 
Chile, New Zealand, and Singapore--that had already reached their own 
deal 2 years earlier; Australia, Peru, and Vietnam soon joined the 
effort. The Obama administration embraced TPP in late 2009, and 
negotiations among the eight original countries began in March 2010. 
Malaysia joined the talks later in 2010, Canada and Mexico in 2012, and 
Japan in the summer of 2013, bringing the total number of participants 
to 12.
    TPP illustrates the objectives and characteristics of U.S. economic 
strategy enumerated earlier. Its three-part purpose is to stimulate 
American growth and jobs, strengthen the rules of the regional (and 
global) trading system, and lock the United States more deeply into 
regional affairs. As its name and membership suggest, it is trans-
Pacific in nature, incorporating North and South American as well as 
Asian countries. And it is explicitly designed to produce, as President 
Obama said in announcing his embrace of TPP in late 2009, ``the high 
standards worthy of a 21st-century trade agreement.'' \14\
    In addition to lowering border barriers such as tariffs, TPP aims 
to establish disciplines on an array of behind-the-border measures that 
impede trade and investment such as excessive or nontransparent 
regulation; preferences for domestic, especially state-owned, 
enterprises; and inadequate intellectual property protection. The hope 
is that, if successful, TPP will become the driver and de facto 
template for a new multilateral system of rules.
    As I have argued elsewhere, a number of myths cloud regional 
perceptions of TPP.\15\ One is that the negotiations are ``splitting 
Asia,'' since not all Asian economies are eligible to join, while those 
that are eligible must choose between joining TPP, viewed as led by the 
United States, and an alternative track preferred by China, the 
Regional Comprehensive Economic Partnership (RCEP). Yet in principle, 
TPP is open to any APEC economy willing to strive for high-standard 
rules; indeed, U.S. strategy from the outset was to begin the 
negotiations with a small group of ``like-minded'' countries and to 
incentivize others to join over time--a strategy that is ostensibly 
working. Conceptually there is no reason that even non-APEC economies 
like India and Myanmar should forever be excluded; indeed, the logic of 
the E3 initiative is to help all ASEAN countries meet the high 
standards being sought in TPP.
    As for having to ``choose'' between TPP and RCEP, the seven Asian 
countries participating in both negotiations clearly view the two 
approaches as compatible. Moreover, TPP and RCEP could one day converge 
in a regionwide agreement, or at least become interoperable, with 
potential annual gains to world income as high as $2.4 trillion by 
2025.\16\
    Another myth that until recently was popular in Beijing is that TPP 
is part of an effort by Washington to ``contain'' China. Yet no Asia-
Pacific country wants to exclude China from regional integration; on 
the contrary, all want to deepen their economic ties with that country. 
True, one goal of TPP is to create a level playing field that, among 
other things, will allow other countries to better compete with China, 
but this is a far cry from ``containment.'' Over the past few months, 
elite opinion in Beijing has shifted substantially from rejecting TPP 
outright to seeking a better understanding of it; indeed, there are 
some signs--such as Beijing's willingness to negotiate a comprehensive 
BIT with the United States on American terms, as well as the recent 
launch of the Shanghai Free Trade Zone--that China's leadership is 
preparing the ground for eventual membership in a high-standard 
regional agreement.
    A third myth is that the high standards Washington is espousing in 
TPP are too ambitious for Asia. Yet all participants--including less 
advanced members like Vietnam--have made clear that they believe there 
are substantial welfare gains to be had from a high-standard agreement 
that opens up new market opportunities and helps each country address 
structural impediments in its own economy. Moreover, participating 
countries understand the political dynamics in Washington that, 
alongside the economic benefits, drive U.S. ambition in the talks. And 
most welcome an active U.S. role in championing high-standard rules and 
norms in the region.
    With the failure to reach agreement at this month's ministerial 
meeting in Singapore, it is now clear that the TPP negotiations will 
not be concluded by the self-imposed deadline of the end of 2013. 
Although most of the agreement's 29 chapters have reportedly been 
closed, significant differences among the parties apparently remain on 
a number of challenging issues, notably intellectual property, 
competition, and environmental standards, as well as the market-access 
provisions. Moreover, in the absence of trade promotion authority (TPA) 
from Congress, the Obama administration has struggled to persuade TPP 
partners that it can ultimately deliver on U.S. commitments in the 
talks.
    However, the ministerial statement from Singapore reflects a shared 
sense of determination to complete the agreement as soon as possible. 
Trade negotiations are always darkest--and noisiest--before the dawn, 
as differences are narrowed to the most politically contentious issues. 
But insofar as they involve political rather than technical decisions, 
the final deals can be done quickly if the will is there. Thus a basic 
accord in the next few months--perhaps by the time of President Obama's 
planned trip to Asia in April 2014--remains within reach.
    The stakes could not be higher for the Obama White House. 
Conclusion of TPP is the sine qua non of success not only for the 
administration's regional economic policy but arguably for the entire 
Asia rebalancing strategy. In addition to its economic benefits, a 
successful agreement would anchor the United States more firmly in the 
Asia Pacific and bolster American leadership there. Without TPP, the 
``rebalance'' would contain little of substance that is new and would 
be perceived in the region as driven primarily by military 
considerations.
                               conclusion
    America's interests in the Asia Pacific are broad, deep, and 
enduring. None is more important than the U.S. economic stake in the 
region. As Hillary Clinton explained in laying out the rationale for 
the rebalancing strategy, ``Harnessing Asia's growth and dynamism is 
central to American economic and strategic interests and a key priority 
for President Obama. Open markets in Asia provide the United States 
with unprecedented opportunities for investment, trade, and access to 
cutting-edge technology. Our economic recovery at home will depend on 
exports and the ability of American firms to tap into the vast and 
growing consumer base of Asia.'' \17\
    Even beyond near-term recovery, a successful economic strategy in 
the Asia Pacific is essential to sustaining American growth and jobs 
into the 21st century. It is also central to Washington's efforts to 
remain a champion of the global rules-based order. And it underpins 
America's long-term presence in the region, which in turn contributes 
importantly to the region's security and prosperity. For all these 
reasons, the United States is likely to remain an active--even 
impatient--participant in the economic affairs of the Asia-Pacific 
region.
    Thank you for your attention.

----------------
End Notes

    \1\ U.S. Department of State, ``21st Annual APEC Economic Leaders' 
Meeting Fact Sheet,'' October 8, 2013, http://www.state.gov/r/pa/prs/
ps/2013/10/215195.htm.
    \2\ International Monetary Fund, ``World Economic Outlook 
Database,'' October 2013, http://www.imf.org/external/pubs/ft/weo/2013/
02/weodata/index.aspx.
    \3\ WTO, ``World Trade 2012, Prospects for 2013,'' April 10, 2013, 
http://www.wto.org/english/news_e/pres13_e/pr688_e.pdf.
    \4\ U.S. Department of State, ``21st APEC Fact Sheet.''
    \5\ Bureau of Economic Analysis, ``Balance of Payments and Direct 
Investment Position Data,'' U.S. Department of Commerce, http://
www.bea.gov/iTable/index_MNC.cfm.
    \6\ Ibid.
    \7\ U.S. Department of the Treasury, ``Major Foreign Holders of 
Treasury Securities,'' August 2013, http://www.treasury.gov/resource-
center/data-chart-center/tic/Documents/mfh.txt.
    \8\ East-West Center, ``Asia Matters for America,'' http://
www.asiamattersforamerica.org/overview.
    \9\ Organization for International Investment, ``Insourcing 
Facts,'' August 2012, http://www.ofii.org/resources/insourcing-facts. 
Estimate based on Asia's share of overall U.S. inbound FDI.
    \10\ Bureau of Economic Analysis, U.S. Department of Commerce.
    \11\ Cited in Claude Barfield and Philip I. Levy, ``Tales of the 
South Pacific: President Obama and the Transpacific Partnership,'' 
American Enterprise Institute, December 2009, http://www.aei.org/files/
2009/12/18/09-IEO-Dec-g.pdf.
    \12\ ``U.S. to China: Play by our Economic Rules,'' The Atlantic, 
November 13, 2013, http://www.theatlantic.com/china/archive/2013/11/us-
to-china-play-by-our-economic-rules/281433.
    \13\ Hillary Clinton, ``America's Pacific Century,'' Foreign 
Policy, November 2011, http://www.foreignpolicy.com/articles/2011/10/
11/americas_pacific_century.
    \14\ White House, ``Remarks by President Barack Obama at Suntory 
Hall,'' news release, November 14, 2009, http://www.whitehouse.gov/the-
press-office/remarks-president-barack-obama-suntory-hall.
    \15\ Matthew P. Goodman, ``Global Economics Monthly: Five Myths 
about TPP,'' CSIS, April 30, 2013, http://csis.org/publication/global-
economics-monthly-five-myths-about-tpp.
    \16\ Peter Petri, Michael G. Plummer, and Fan Zhai, ``The Trans-
Pacific Partnership and Asia-Pacific Integration: A Quantitative 
Assessment,'' Peterson Institute for International Economics, November 
2012.
    \17\ Clinton, op. cit.

    Senator Cardin. Thank you very much for your testimony.
    Dr. Scissors.

 STATEMENT OF DR. DEREK M. SCISSORS, PH.D., RESIDENT SCHOLAR, 
         AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC

    Dr. Scissors. Thank you, Mr. Chairman.
    I am going to start with something we all know, but I think 
it is a useful reminder. We certainly need to more effectively 
engage the Asia-Pacific on human rights. It seems by recent 
events we need to do so on security. It may be that the public 
dimension of our economic engagement, the government dimension, 
needs to be improved. But the private sector does not need to 
rebalance to Asia. It does not need to pivot to Asia. It never 
left Asia and it is doing extremely well.
    I will give you a quantitative example and a qualitative 
example. Quantitatively, U.S. total trade has gone from $2.3 
trillion in 2004 to $3.9 trillion in 2013, as we near the end 
of the year, and the Asian share is the same. Over that same 
period, we have seen a deepening intensification, greater 
sophistication, and greater value in the supply chains that run 
through Asia.
    So when we are talking about rebalancing, thankfully for 
us, the private sector leads our economy, and the private 
sector does not need to rebalance. It is doing fine. I want to 
remind everyone that we have a lot of strengths as well as 
weaknesses in our engagement in Asia that we should recall.
    I want to do some quick run-through of countries that have 
been mentioned by the committee and one that has not that I 
would like to emphasize. In doing that, I want to make the 
point that I think several members of the committee have 
already made, which is that economic engagement is going to 
strengthen the security cooperation and security environment in 
the region and that is a crucial part of the reason for 
engaging economically.
    The country I want to start with is Japan. Japan is 
obviously engaged in something of a security standoff at the 
moment and what they need in the long term to strengthen 
themselves in a variety of ways is economic reform. That is not 
happening. Japan has talked about economic reform. They are not 
implementing it.
    A useful tool to spur them that the United States is 
involved in is in fact the Trans-Pacific Partnership. We want 
things from the Japanese. We have for a long time on the 
economic front. The TPP makes that possible. It will also help 
Japan economically and in terms of security.
    My comment on China is that the key element in dealing with 
the Chinese both indirectly and directly is to deal with state-
owned enterprises. It is something that the Congress has 
brought up before, absolutely correctly. Therefore the 
negotiations in the Trans-Pacific Partnership concerning 
competitive neutrality, which is a way of handling state-owned 
enterprises, are a vital element of our long-term engagement in 
Asia and with China. We are also going to have to bring up 
state-owned enterprises bilaterally. This is not an easy issue. 
Happy to talk about it more in Q and A. But it is vital.
    Another country I think is very interesting that has been 
brought up by Senator Rubio is the Philippines. The Filipino 
economy is doing better now than it has for some time. It is 
not a proven, sustained, and durable expansion, but it is an 
expansion that may make them more amenable to economic 
engagement with the United States and with the world. They have 
a large labor force that they are going to need to find 
employment for. This is a good time for us to engage the 
Philippines and they may be falling below the radar a little 
bit.
    Similarly, Senator McCain brought up Vietnam. He made a 
very interesting point about catfish. I would say that textiles 
are similar in some ways to the catfish issue, but multiplied 
by a thousand. When we are asking for human rights reform in 
Vietnam, which the Communist Party is very reluctant to give 
us, textiles are a lever in which we can make progress on that 
issue because it is so important to the Vietnamese that they 
get better access to the United States market.
    The last country I want to bring up is Taiwan, which has 
not been mentioned, partly because there is a very sensitive 
security situation. They are also not very cooperative economic 
partners in some cases. But I will say that, for both security 
and economic interests--because, for example, on human rights 
Taiwan is an excellent, excellent partner of the United 
States--we need to not wait for the international environment 
to be right. We need to take the initiative, push ourselves and 
push the Taiwanese. That would be another dimension of American 
engagement I think that could be improved.
    I have two themes that I want to close with. One is really 
directed toward the executive branch, and I will agree with the 
chairman that the executive branch's cooperation with Congress 
has been lacking. I do not know why TPA is coming up this late. 
TPP is almost done and now we are going to get TPA guiding on 
the negotiations of TPP--does not make a lot of sense to me.
    So my advice to the executive branch is that: focus on 
countries that are ready to make internal reform. Japan seems 
like it might be ready. The Philippines, given their economic 
situation, might be ready. There are other countries that are 
not ready, and simply negotiating with them endlessly when they 
are not ready to make those changes is not a good use of 
American resources in engaging Asia.
    My advice to the Congress is that priorities need to be 
set. I will give a concrete example. It is only one. It is just 
an example. I do not think currency manipulation is an issue 
for the Trans-Pacific Partnership. I do not have a problem with 
Congress saying it is. If Congress says this is an important 
issue, that is fine. What I want is priorities to be set. It 
cannot be everything. We have--this is true on China, it is 
true in the TPP. I know the members are very well aware of it. 
We have a lot of groups demanding this issue and that issue and 
the other issue. One thing Congress has to do through TPA and 
informally is guide the administration: These are where the 
buck stops, these two, these three things. That would be very 
helpful in the United States engagement of Asia.
    Thank you.
    [The prepared statement of Dr. Scissors follows:]

                Prepared Statement Dr. Derek M. Scissors

    It does not, in fact, ``take money to make money.'' Ideas and 
innovation can make money, so can rich land and skilled labor, 
especially when these are combined with protection of private property 
and the willingness to compete.
    To successfully engage Asia economically, which will enhance 
prosperity both at home and for American partners, the U.S. does not 
need to pour in either financial or human resources. Those are 
luxuries. Our wealth, technology, natural resources, skilled labor, 
and--making these much more valuable--our willingness to conduct free 
and open exchange have shaped Asia in the post-war area. If we act 
wisely, they will do so for decades to come.
    It is certainly true that the U.S. must be consistently involved in 
the institutions (acronyms) that matter to Asia, from the Association 
of South East Asian Nations (ASEAN) and the East Asia Summit (EAS) to 
the Trans-Pacific Partnership (TPP) and Asia-Pacific Economic Community 
(APEC).\1\ So a bit more funding for plane flights, hotel stays, and 
specialists at the office of the United State Trade Representative and 
elsewhere would be useful. But U.S. economic openness will count far, 
far more than any combination of government programs and personnel.
    The core of engagement with Asia should be to guarantee to maintain 
and extend that openness, in exchange for steps by our partners to 
better protect property rights and enhance competition in their 
markets. These steps will vary by country and characterizing each 
situation is a book-length endeavor. A partial list of American 
priorities includes: (i) accepting in policy terms the benefits of 
imports and the costs of export subsidies; (ii) quickly concluding a 
strong TPP to boost regional economies, especially Japan's, and (iii) 
with more difficult partners, matching the level of ambition in 
bilateral talks to the extent and direction of internal reform.
                           what matters most
    Our economic engagement in the Asia-Pacific rests on more than six 
decades of access to the U.S. market. This access was transformative in 
post-war Japanese economic reconstruction and in the development of 
Korea and Taiwan. It was transformative in the expansion of the Chinese 
economy.\2\ It could yet prove transformative in the development of 
India and Vietnam. Of course, these countries primarily needed, and 
still need, to make wise policy decisions concerning savings and other 
factors but they frequently make them in order to take advantage of the 
indispensable American market.
    The reference point for understanding the American economic role in 
Asia, both for the U.S. and the region, is our imports from Japan. From 
zero in 1945, these reached $69 billion in 1985. This was almost 
exactly the same as American imports from Canada (our largest trade 
partner for nearly all of our history) and the equivalent of 5 percent 
of Japanese GDP, which was then second-largest in the world and fast-
rising.\3\ American capacity and willingness to import in these 
quantities was highly visible and highly sought by others.
    South Korea did not have Japan's prewar legacy of development. In 
1960, it was comparable in wealth to countries in sub-Saharan Africa 
and exports to the U.S. were negligible. By 2000, its exports to the 
U.S. exceeded $40 billion, or 7.5 percent of GDP, and South Korea was 
well on its way to being a rich nation.\4\ In 1960, Taiwan was only 
modestly richer than Korea at the time and exports to the U.S. were 
negligible. In 2000, exports exceeded $40 billion, 12 percent of GDP, 
and Taiwan was solidly upper middle-income.\5\ These facts were well-
appreciated for decades but now sometimes seem to be forgotten on both 
sides of the Pacific.
    Chinese development was not initially linked to the U.S. However, 
the second wave of Chinese reform, starting in late 1992, improved 
corporate efficiency and prepared the way for WTO accession, an 
accession driven by Sino-American agreement.\6\ From 1992 to 2012, 
Chinese exports to the U.S. increased by a factor of 17, or $400 
billion. In 2012, they were the equivalent of 5 percent of China's GDP, 
which is second-largest in the world and fast-rising.\7\ The parallel 
to Japan is striking.
    In light of the Chinese experience, another obvious candidate to 
walk this path is India. There is little sign of India being willing to 
undertake fundamental reform in order to sell on a large scale to the 
American market, but this was also true in China in 1991. Smaller but 
still notable in size is Vietnam. Through its negotiations in the TPP, 
Vietnam is attempting first and foremost to win market access to the 
U.S. and follow the path of its neighbors.\8\
    Investment has been much less important than trade in Asia-American 
economic relations and can play a larger role. Japan is by far the 
largest Asian investor in the U.S., while flows from Korea and Taiwan, 
as well as Australia, are inconsistent in size. Chinese money goes 
overwhelmingly into low-yield bonds.\9\ Drawing steadier investment 
from the richer countries and more productive investment from China 
does not require financial incentives--American respect of property 
rights, huge consumer market, and natural resources are more than 
enough incentive. All that is needed is information from local 
governments and a timely, transparent approval process at the federal 
level.
Some of the implications
    The matter of open American markets to many Asian countries, and 
the lack of reciprocal openness in some cases, has been subject to 
extensive political debate in the U.S. In one important respect, the 
debate is misguided: the large trade deficits the U.S. runs with Asia 
as a whole, and China in particular, do not necessarily represent lost 
American jobs.
    Imports from Asia-based producers, even improperly subsidized 
imports, benefit consumers and thus strengthen the American economy. 
They can even create jobs directly here, in offloading, transportation, 
sales and so on. It is no surprise that the sharp downturn in 2009 saw 
the U.S. trade deficit with our top six Asian trade partners at $290 
billion while the recovering economy of 2012 saw the deficit exceed 
$430 billion.\10\ At the same time, subsidized American exports are a 
type of income redistribution program--taxpayer money going to certain 
exporters--and do not benefit the country as a whole.
    It is certainly true that many Asian policymakers have shown 
mercantilist tendencies over the years, inhibiting American exports and 
denying the associated benefits to American workers and companies.\11\ 
Congress has struggled to influence these policies without resorting to 
denial of access to the U.S., which would harm both trade partners and 
American interests. The solution is to continue to leverage our open 
market.
    Leveraging has already occurred--despite domestic political 
dissatisfaction, American demands for open trade have powerfully shaped 
Asia compared to the pre-WTO era. More recently, China joined the WTO 
to protect its access to the U.S., signing up for rules put in place at 
America's behest.\12\ Japan, Vietnam, and Malaysia are willing to go 
beyond the WTO and join the American-led TPP for the same reason. The 
institutional engagement with ASEAN and, to a lesser extent at the EAS 
and APEC, offers additional opportunities.
    In contrast, a protectionist turn by the U.S. would be destructive 
for the region and our role in it. A truly closed American market, 
featuring high tariff walls imposed for political reasons, would 
shatter the Sino-American relationship and alienate other countries 
which are not treaty allies. It would leave the U.S. with an unpleasant 
and possibly untenable role as security guarantor, only, in an 
economically damaged and increasingly hostile region.
    While withdrawal is not on the table at the moment, fortunately, 
there is also risk from the failure to engage. If restrictive rules of 
origin in the TPP make it more like a bloc than the core of an Asia-
Pacific free trade zone, it will force countries to decide to be ``with 
us or against us.'' This may lead to one of the regional endeavors, 
such as ASEAN+3, becoming a counter-bloc. Even if nothing so dramatic 
happens, the absence of American economic leadership will almost surely 
lead to more mercantilist competition within the region, which already 
lingers just below the surface in exchange rate policy.\13\ The region 
will see more political tension and offer less in the way of benefits 
to the U.S.
                            u.s policy tour
    Writing about Asia is similar to trying to plan a trip to Asia: 
there are too many places to go. The economic kingpins, Japan and 
China, naturally merit the most attention. There are also particularly 
interesting American choices to be made with regard to Taiwan, India, 
the Philippines, and Indonesia. All involve leveraging the U.S. market 
and other economic strengths to drive Asian policy choices.
The large economies
    The TPP is not the only game in town but it is the biggest one. It 
became the main event when Japan joined and Tokyo now very much needs a 
good TPP.
    Prime Minister Abe's program to end the long period of economic 
stagnation has begun to founder on delays in much-touted structural 
reform.\14\ The TPP could deliver the painful changes necessary while 
allowing Abe to claim they are not his doing, but rather unavoidable in 
light of the economic importance of the TPP group as well as Japan's 
current standoff with China. Agriculture reform in particular would 
improve Japan's land usage, which constitutes a fundamental shift, and 
is a high American negotiating priority.\15\ A TPP which both helps 
reinvigorate Japan's economy and improves access for goods and services 
in which the U.S. has a comparative advantage would be the single 
biggest accomplishment of the Asia pivot.
    As ever, China's impact is multifaceted. In terms of the TPP, most 
member states want China to be able to join. Several, including the 
U.S., want China to be able to join if and only if it fulfills the 
terms of a high-standard agreement. Negotiating with China will involve 
the same issues as negotiating with other parties but one stands out as 
more pointed: the treatment of state-owned enterprises (SOEs). This is 
being done in the TPP through a chapter on ``competitive neutrality.''
    The idea behind competitive neutrality is SOEs should not be 
granted competitive advantages over private firms. But existing 
versions of competitive neutrality, such as Australia's, were 
formulated for countries that wish to limit SOEs. It is not clear 
Singapore and Vietnam qualify and it is entirely clear China does not 
qualify.\16\ 
So this is a two-stage process. First, TPP talks must yield a strong 
version of competitive neutrality that binds hesitant countries. 
Second, the TPP grouping must become a sufficiently powerful lure for 
China to meet the obligations.
    Beyond the TPP, Asian countries understand that Chinese policy is 
based essentially on convenience, while American economic policy is 
based on principle. China welcomes foreign commodities and other goods 
and services that it considers valuable at the time, the U.S. welcomes 
foreign goods and services that offer quality and low prices. This 
provides the U.S. with a major diplomatic advantage and counterweight 
to Chinese practices. At the bilateral level, the record shows that 
negotiating change from outside does not work.\17\ Internal Chinese 
reform must precede an investment treaty, it will not come about from 
an investment treaty.
Pivotal smaller economies
    A challenge of a different sort for U.S. policy involves Taiwan. 
With only 23 million people, Taiwan remains in the top 13 of American 
trade partners. This impressive performance is also a vulnerability: to 
remain prosperous, Taiwan must remain in the forefront of global trade 
evolution. This has been extremely difficult due to Chinese 
intimidation of much of the world with regard to Taiwan's signing 
bilateral and some multilateral trade agreements.\18\
    Offering Taiwan economic alternatives is just as important as the 
American security commitment in ensuring the island's citizens can 
choose their own destiny. Given regional politics, the U.S. must either 
lead a multilateral effort to engage Taiwan or work toward purely 
bilateral accords. While Taiwan-U.S. economic negotiations have 
sometimes been unpleasant, American shale shipments could have 
extremely high value to Taiwan and enable needed improvements in the 
treatment of agriculture products.\19\
    Other difficult economic negotiations have involved India. To be 
the kind of economic and, ultimately, security partner the U.S. wants, 
India must fundamentally liberalize rural land ownership, manufacturing 
labor laws, and economic exchange across its own states. Yet the India-
U.S. bilateral economic relationship is shaky and India is often 
constitutes the chief obstacle to progress at the WTO Doha round.\20\
    The best--perhaps the only--place to make progress may be in forums 
with Asian countries that have successfully liberalized. These have 
adopted a number of principles India has repeatedly infringed, for 
example with regard to taxation and intellectual property. Progress may 
be elusive, but it will certainly damage the relationship and encourage 
more disruptive Indian behavior in the WTO and elsewhere if the U.S. 
starts closing the door to Indian workers. Taxing Indian labor to pay 
for internal American programs, as in early 2011, is harmful in this 
regard.\21\
    Two members of ASEAN not currently involved in the TPP and 
therefore not receiving much American policy attention are Indonesia 
and the Philippines. The latter is, of course, a U.S. treaty ally. It 
boasts an economy where household spending has accelerated to better 
than 6 percent growth annually and manufacturing and services are now 
far outperforming the traditional sector leaders agriculture and 
mining.
    To maintain this performance and create the jobs necessary to 
absorb more than 10 million unemployed will require promarket 
reform.\22\ With reform and given the large Filipino labor force, a 
maturing industrial sector would become quite competitive on world 
markets, making this the most promising time yet to enhance the 
Philippines-U.S. economic relationship. The security relationship means 
American political support for closer economic ties is high, the 
question of whether a bilateral or multilateral approach is superior 
should be answered by internal Philippines politics.
    Indonesia is the largest ASEAN member, with a population about 
equal to that of the U.S. in 1989. It also has a growing labor force 
and, unlike some of its neighbors, has shown no particular tendency to 
run large trade surpluses. Indonesia's policy record, though, is uneven 
at best. It is contemplating a year-long ban of unprocessed ore 
exports, which would be illegal under the WTO, and a mercantilist turn 
that could have a considerable impact in the region.\23\ It is not 
clear how best to engage Indonesia economically and the obstacles and 
potential in doing so are perhaps the best justification for active 
American participation in the EAS.
                            recommendations
    The U.S. has already changed Asia, especially East Asia, for the 
better with our openness. The ideal course is to continue to do so. 
Economic engagement of Asia should be based on, but not limited to, the 
following guidelines:

    (1) Do not treat imports as if they automatically cause job losses 
here. Do not treat subsidized exports as contributing to national 
prosperity.
    (2) For foreign investors, provide information rather than opaque 
or politicized review processes.
    (3) Ensure the competitive neutrality provisions in the TPP tightly 
constrain countries that continue to seek to subsidize their state-
owned enterprises.
    (4) Quickly conclude a strong TPP that offers Japan benefits in 
autos and elsewhere in exchange for better access to the Japanese 
agriculture and services markets.
    (5) Do not move forward on a bilateral investment treaty with China 
until it is clear that relevant internal reform is under way there.
    (6) In the trade and investment framework talks with Taiwan, bundle 
two key commodities: Taiwan can be treated as free trade partner in oil 
and gas if it is also one in agriculture.
    (7) Treat India as a vital but long-term partner. Negotiate under 
the bilateral economic dialogue for basic reform and do not punish 
Indian services firm for the failure of their government.
    (8) Be quick in seizing an unprecedented opportunity to engage the 
growing but fragile economies in the Philippines and Indonesia either 
on a bilateral basis or through the TPP.
    The U.S. does not need a large commitment of resources to 
successfully engage Asia economically. We just need the willingness to 
maintain and extend our openness.

----------------
End Notes

    \1\ ``Asia-Pacific Economic Cooperation'' is grammatically 
irritating.
    \2\ See, respectively, Aaron Forsberg, ``America and the Japanese 
Miracle: The Cold War Context of Japan's Postwar Economic Revival, 
1950-1960,'' (Chapel Hill: UNC Chapel Hill Press, 2000), Charles Harvie 
and Hyun-Hoon Lee, ``Export Led Industrialization and Growth--Korea's 
Economic Miracle 1962-89,'' (working paper series, University of 
Wollongong, 2003), http://ro.uow.edu.au/cgi/
viewcontent.cgi?article=1066&context=commwkpapers; Robert E. Baldwin, 
Douglas Nelson, ``The Political Economy of U.S.-Taiwanese Trade and 
Other International Economic Relations,'' in Trade and Protectionism, 
ed. Takatoshi Ito and Anne O. Krueger (Chicago: National Bureau of 
Economic Research, 1993) http://www.nber.org/chapters/c8079; and Thomas 
I. Palley, ``External Contradictions of the Chinese Development Model: 
export-led growth and the dangers of global economic contraction,'' 
Journal of Contemporary China Volume 15, Issue 46, 2006, pg. 69-88.
    \3\ ``Foreign Trade: U.S. Trade in Goods by Country,'' United 
States Census Bureau, Department of Commerce, http://www.census.gov/
foreign-trade/balance/index.html and ``GDP (current US$),'' World 
Development Indicators, The World Bank, http://data.worldbank.org/
indicator/NY.GDP.MKTP.CD?page=2.
    \4\ Dani Rodrik, ``Getting interventions right: how South Korea and 
Taiwan grew rich,'' Economic Policy Volume 10, No. 20, 1995, http://
isites.harvard.edu/fs/docs/icb.topic442978.files/
Rodrik%20_%20How%20Korea%20and%20Taiwan%20grew%20rich.pdf and Charles 
R. Frank Jr., Kwang Suk Kim, and Larry E. Westphal, ``Economic Growth 
in South Korea since World War II,'' in Foreign Trade Regimes and 
Economic Development: South Korea (Chicago: National Bureau of Economic 
Research, 1975), http://www.nber.org/chapters/c4063.pdf; ``Foreign 
Trade: U.S. Trade in Goods by Country,'' United States Census Bureau, 
Department of Commerce, http://www.census.gov/foreign-trade/balance/
index.html, and ``GDP (current US$),'' World Development Indicators, 
The World Bank, http://data.worldbank.org/indicator/NY.GDP.MKTP.CD? 
page=2.
    \5\ Dani Rodrik, ``Getting interventions right: how South Korea and 
Taiwan grew rich,'' Economic Policy Volume 10, No. 20, 1995, http://
isites.harvard.edu/fs/docs/icb.topic442978.files/
Rodrik%20_%20How%20Korea%20and%20Taiwan%20grew%20rich.pdf and Robert E. 
Baldwin, Douglas Nelson, ``The Political Economy of U.S.-Taiwanese 
Trade and Other International Economic Relations,'' in Trade and 
Protectionism, ed. Takatoshi Ito and Anne O. Krueger (Chicago: National 
Bureau of Economic Research, 1993) http://www.nber.org/chapters/c8079, 
``Foreign Trade: U.S. Trade in Goods by Country,'' United States Census 
Bureau, Department of Commerce, http://www.census.gov/foreign-trade/
balance/index.html and ``GDP, current prices,'' Econ Stats, World 
Economic Outlook data, International Monetary Fund, http://
www.econstats.com/weo/V004.htm.
    \6\ Harry G. Broadman, ``China's Membership in the WTO and 
Enterprise Reform: The Challenges for Accession and Beyond,'' (working 
paper series World Bank, Washington, DC, United States, 2000), http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=223010 and ``Bilateral 
Agreement on China's Entry into the WTO Between China and the United 
States,'' Ministry of Foreign Affairs of the People's Republic of 
China, 2000, http://www.fmprc.gov.cn/eng/ziliao/3602/3604/t18051.htm.
    \7\ ``Foreign Trade: U.S. Trade in Goods by Country,'' United 
States Census Bureau, Department of Commerce, http://www.census.gov/
foreign-trade/balance/index.html and ``GDP (current US$),'' World 
Development Indicators, The World Bank, http://data.worldbank.org/
indicator/NY.GDP.MKTP.CD?page=2.
    \8\ Derek Scissors, ``What Indian Economic Reform Could Mean for 
the U.S.,'' (Washington, DC: Heritage Foundation, August 18, 2011), 
http://www.heritage.org/research/reports/2011/08/what-indian-economic-
reform-could-mean-for-the-us and ``U.S.-Vietnam basic accord clears 
major hurdle to TPP deal,'' Kyodo News International, September 14, 
2013 http://www.globalpost.com/ 
dispatch/news/kyodo-news-international/130914/us-vietnam-basic-accord-
clears-major-hurdle-tpp-deal.
    \9\ ``Foreign Direct Investment in the U.S.: Balance of Payments 
and Direct Investment Position Data,'' Bureau of Economic Analysis, 
U.S. Department of Commerce, http://www.bea.gov/international/
di1fdibal.htm and ``Foreign Portfolio Holdings of U.S. Securities,'' 
Department of the Treasury, Board of Governors of the Federal Reserve 
(Washington: 2013), http://www. 
treasury.gov/resource-center/data-chart-center/tic/Documents/
shla2012r.pdf.
    \10\ Derek Scissors, Charlotte Espinoza, and Ambassador Terry 
Miller, ``Trade Freedom: How Imports Support U.S. Jobs,'' (Washington, 
DC: Heritage Foundation, September 12, 2012), 
http://www.heritage.org/research/reports/2012/09/trade-freedom-how-
imports-support-us-jobs and ``Foreign Trade: Top Trading Partners,'' 
United States Census Bureau, Department of Commerce, http://
www.census.gov/foreign-trade/statistics/highlights/top/index.html.
    \11\ ``The Real Asian Threat: Mercantilism,'' Bloomberg 
BusinessWeek, April 14, 1996, http://www.businessweek.com/stories/1996-
04-14/the-real-asian-threat-mercantilism.
    \12\ DG Supachai Panitchpakdi, ``American Leadership and the World 
Trade Organization: What is the Alternative?'' (speech at the National 
Press Club, Washington, DC, February 26, 2004), http://www.wto.org/
english/news_e/spsp_e/spsp22_e.htm.
    \13\ Derek Scissors, ``Rules of Origin Can Make or Break the Trans-
Pacific Partnership,'' (Washington, DC: Heritage Foundation, August 27, 
2013), http://www.heritage.org/research/reports/2013/08/rules-of-
origin-can-make-or-break-the-trans-pacific-partnership and Vidya 
Ranganathan, ``Korea becomes the red flag for Asia's currency war,'' 
Reuters, January 31, 2013, http://www.reuters.com/article/2013/02/01/
markets-currency-war-idUSL4N0B01SL20130201.
    \14\ Alexis Xydias, ``Abenomics to Fail Without `Third Arrow,' 
Allianz Global,'' Bloomberg, November 12, 2013, http://
www.bloomberg.com/news/2013-11-13/abenomics-to-fail-without-third-
arrow-allianz-global.html.
    \15\ ``TPP or no, aging farm sector needs true reform,'' The Japan 
Times, March 26, 2013, http://www.japantimes.co.jp/news/2013/03/26/
business/tpp-or-no-aging-farm-sector-needs-true-reform/#.Uqp8EtJDtac.
    \16\ Derek Scissors, ``Why the Trans-Pacific Partnership Must 
Enhance Competitive Neutrality,'' (Washington, DC: Heritage Foundation, 
June 6, 2013), http://www.heritage.org/research/reports/2013/06/why-
the-trans-pacific-partnership-must-enhance-competitive-neutrality.
    \17\ ``Shade of Grey,'' The Economist, December 10, 2011, http://
www.economist.com/node/21541408.
    \18\ Mac William Bishop, ``Taiwan's free trade troubles,'' Asia 
Times Online, July 14, 2004, http://www.atimes.com/atimes/China/
FG14Ad05.html.
    \19\ ``After five years, Taiwan-US trade talks resume,'' Taiwan 
Insights, March 27, 2013, http://www.taiwaninsights.com/2013/03/27/
after-five-years-taiwan-us-trade-talks-resume/ and Song Yen Ling, 
``Taiwan keen to import US LNG from shale gas-fed projects: report,'' 
Platts, June 6, 2013, http://www.platts.com/latest-news/natural-gas/
singapore/taiwan-keen-to-import-us-lng-from-shale-gas-fed-27050534.
    \20\ Peter Alford, ``India cripples World Trade Organization's Doha 
Round hopes,'' The Australian, December 4, 2013, http://
www.theaustralian.com.au/news/world/india-cripples-world-trade-
organisations-doha-development-round-hopes/story-e6frg6so-1226775236139 
and Doug Palmer, ``U.S. trade chief urges India to heed to U.S. 
companies' complaints,'' Reuters, July 12, 2013, http://in.reuters.com/
article/2013/07/12/usa-india-trade-chidambaram-idINDEE96B01J20 
130712.
    \21\ ``Ignoring India's concerns, Obama signs 9/11 health care 
bill,'' The Economic Times, January 3, 2011, http://
articles.economictimes.indiatimes.com/2011-01-03/news/28430935_1_obama-
signs-health-and-compensation-act-health-care.
    \22\ ``Philippine Economy posts 7.0 percent GDP growth in Q3 
2013,'' National Statistical Coordination Boar, Republic of the 
Philippines, November 28, 2013, http://www.nscb.gov.ph/sna/ and Poverty 
Reduction and Economic Management Unit, ``Philippine Economic Update: 
Accelerating Reforms to Meet the Jobs Challenge,'' The World Bank, May 
2013, http://www.worldbank.org/content/dam/Worldbank/document/EAP/
Philippines/Philippine_Economic_ 
Update_May2013.pdf.
    \23\ ``Foreign Trade, Export by Month, Year 2013,'' Badan Pusat 
Statistik, Statistics Indonesia, http://www.bps.go.id/eng/exim-
frame.php?kat=2, ``Indonesia Economic Quarterly, Policies in focus,'' 
The World Bank and Bank Dunia, December 2012, http://www.worldbank.org/
content/dam/Worldbank/document/IEQ-DEC-2012-ENGLISH.pdf and ``Go-Ahead 
for Indonesia's Controversial Ban on Unprocessed Mineral Exports,'' 
Indonesia Investments, December 7, 2013, http://www.indonesia-
investments.com/doing-business/business-columns/go-ahead-for-
indonesias-controversial-ban-on-unprocessed-mineral-exports/item1397.

    Senator Cardin. Well, thank you both for your testimony.
    Dr. Scissors is absolutely correct. Congress has to set 
priorities. If an agreement is negotiated and we do not have 
TPA, there will be 535 priorities. The good thing about doing 
TPA first is that collectively we can determine the priorities 
before the fact rather than after the fact.
    So it is a little frustrating to many of us that we have 
not seen the TPA bill and that there has not been a more 
transparent process. It is not just TPP, there are a couple 
other agreements that are floating around, one for Europe 
particularly that is also very, very important. I also 
appreciate your comments about leveraging for change and 
seeking the priorities to do that.
    So let me talk about China just for one moment and what is 
happening. China is the largest authoritarian, one-party 
regime. It has been slow to change its ways, but it has made 
some reform, most recently announcing that the reeducation 
camps are going to be ended, that they are progressing on some 
of their human rights issues. In my visit to China, you can see 
that there has been change in this country, there is no 
question about it.
    So is there enough internal reasons for change in China 
that it is going to happen? Yes, we should try to work on 
leveraging issues of priorities to us. But what is your 
assessment of the pace of reform and whether there is hope that 
the country will become a much more open society in the decades 
to come?
    Dr. Scissors. Thank you, sir. If you had asked me that 
question 2 years ago, I would have said it is just hopeless, 
just forget it, that we had a government in charge that was in 
charge for 10 years, that had taken the country backward 
economically, that had no interest in useful foreign policy 
engagement as far as I was concerned and was not improving the 
human rights situations of its people.
    As you have said, we now have a new government. We now had 
a major meeting a month ago where they talked about a number of 
reforms. That is a good sign. It is certainly better than where 
we were before. Otherwise, it is far too soon to tell. I remain 
deeply suspicious, perhaps scarred by the last 10 years.
    But for example, the Chinese are treating foreign companies 
worse than they were 2 years ago. That is not the only issue. 
It is not maybe the most important issue. But it is not an 
encouraging sign. The air defense zone is not an encouraging 
sign.
    So I would say you are right, sir, we should watch the 
reform promises. But at this moment I am suspicious and I think 
of China as a place where we are going to have a lot of 
difficulty making progress on the things we care about.
    Senator Cardin. Mr. Goodman, let me let you elaborate on 
that, but if you would focus on one area that is a particular 
concern to me in China. That is the relationship between the 
local government and the national government. As a 
businessperson, you would need to deal with local governments, 
and the inconsistency among local governments and the amount of 
corruption is legendary.
    How do you see that changing and what can we do so that 
businesses' access to China can be more consistent and without 
the disadvantages brought on by corruption?
    Mr. Goodman. Thank you, Mr. Senator. It is a good question. 
The relationship between the center and the local governments 
in China is one of the kind of enduring themes of Chinese 
governance. It has been a sort of pull, tug, and force--a to-
and-fro between the center and local governments, including 
over this 30 years of reform, but going back thousands of 
years.
    In order to really crack this reform nut, they are going to 
have to find a way to both incentivize the local governments to 
continue with the needed changes that they need to take to 
promote more efficient markets and a more competitive playing 
field, including for our businesses. At the same time, they are 
going to have to crack down on corruption and they are going to 
have to find a way to give the local governments the financial 
resources they need to be able to engage in the kinds of 
investments that are going to support this market-based reform 
and not wastefully--well, first of all, seize land and seize 
assets from farmers in order to generate revenues and then to 
spend the money wastefully.
    So it is a huge challenge for the central government and 
one of the reasons that I think I share Derek's skepticism, or 
at least caution, about whether they are going to be able to 
follow through on this reform. I think the good news is that, 
like an alcoholic, the first step to recovery is acknowledging 
you have a problem, and I think they have acknowledged that 
they have a problem and that is I think the most important 
first step.
    But following through and implementing, including on these 
issues of getting the incentives right with local governments 
so they will do the market-based reform, cut down corruption, 
but make the kinds of investments they need, that are efficient 
and support a market-based system, I think is going to be the 
real challenge going forward and one of the things that we are 
going to be watching very closely.
    Senator Cardin. Well, Dr. Scissors, mentioned the fact of 
leveraging, which I strongly support. It is in our interest, it 
is in the interest of the region, it is in the interest of 
China that they move ahead with these reforms, that they deal 
with the problems of local government and corruption, that they 
deal with state-owned enterprises. You are absolutely correct 
about that issue. That is a huge problem that confronts China 
and other countries in Asia.
    What leverage do we have and how can we advance these 
issues in a more urgent manner?
    Mr. Goodman. I think, look. On one level I would say that 
it is up to the Chinese to figure out how to do this, and we 
are going to have on one level a limited amount of leverage and 
we have to I think accept that on one level. On the other hand, 
there are a lot of things they want from us.
    They want our large market. They want our businesses. They 
want our technology. They want our ideas and our experience 
with reform.
    I think it is very interesting that recently they announced 
this opening of a free trade zone in Shanghai. That comes right 
on the heels of the decision to expand TPP to include Japan and 
I think there is a relationship there. I think they see the 
competitive challenge from a TPP arrangement that includes high 
standard rules and liberal markets in this large economic area 
as a competitive challenge for them and they have to match it 
in some way.
    I think that that has provided some leverage that has 
generated that change that I mentioned in Shanghai. Their 
willingness to talk about a bilateral investment treaty with 
the United States on the terms that we are seeking of 
preestablishment, market access, and a negative list approach, 
I think that all came in the wake of these developments 
externally that we were very much a part of in our strategy on 
TPP.
    So I think we do have leverage. But in the end they have 
got to figure this out for themselves.
    Dr. Scissors. I completely agree with what Matt said.
    I just want to add one thing. I have been following Chinese 
outward investment, investment coming out of China, for 15 
years and this is a booming area for them, and their preferred 
destination, frankly, is the United States because we are big 
and we have resources and we give investor protection. So one 
discussion with them is: Hey, we want to give you good access 
to the American market, that is part of our principles. But, by 
the way, these things that you are asking for, we do not have 
them in China.
    That is not going to solve all of our problems. They are 
not going to do everything we want in exchange for investment 
access. But we can improve some of the business conditions for 
U.S. firms operating in China on the basis of reciprocity. So 
that is an area where we have some leverage.
    Senator Cardin. Senator Rubio.
    Senator Rubio. Thank you.
    I wanted to explore first with you, Dr. Scissors, this 
notion of free trade and in particular imports. So I get 
resistance from people who believe that free trade is a 
destroyer of American jobs. Obviously, free trade has to be 
fair and there are rules that are important, because, as you 
have just described, one scenario, not exactly on point, but 
you have described a scenario that is a one-way street. Our 
values of openness allow them to invest, the Chinese to invest 
here, but when we try to reciprocate there are all kinds of 
impediments to that.
    That has always been a challenge to us on multiple fronts, 
including on the trade front. But in specific on the issue of 
imports, there is this idea that imports into the United States 
in and of themselves destroy American jobs. But in your written 
statement you have outlined why in fact that is not potentially 
the case, that in fact there are also jobs created through 
imports from offloading.
    Can you just elaborate on that more, because that is an 
issue I get a lot when I go out and talk about the need to 
expand trade opportunities, not just with Asia but with the 
entire world. Can you elaborate a little bit more on the 
benefits that imports--obviously, we want to be able to export, 
too, but the benefits that imports have for American jobs, 
particularly stable middle class jobs?
    Dr. Scissors. Yes, sir, I would be happy to. I think this 
is an important point. This is not to say that unfair 
competition does not exist and the Chinese do not subsidize 
their firms and these are things we should not fight. But I do 
think that the people forget that imports are good for us. They 
are good for us in a number of ways.
    I talked about the electronics supply chain. Not only do we 
all have good quality phones in our pockets, hopefully turned 
off, and some people have big flat-screen TVs at home that are 
incredibly cheap. So that is nice for consumers. But it also 
saves money, creating resources that are available for other 
things in the American economy. Clothes used to be a big part 
of Americans' budget. We are all old enough to remember that. 
They are not any more. Consumer electronics are a declining 
part of America's budget. That money goes for individuals and 
for the country as a whole to other things, including job-
creating activities here.
    So there is an indirect effect. When you do not spend as 
much money and as many resources on things that you can import 
well, you have those things, those resources, available for 
what you do extremely well, which in our case is high-tech 
manufacturing, agriculture, and so on.
    There is also the direct effect that you referred to, which 
is imports do not magically appear. You do not say some thing 
is produced in China or elsewhere and now I have it in front of 
me. It is shipped, it is offloaded, it is transported within 
the country, it is sold, it is marketed. All those create jobs.
    I will give you a specific example. We found that the 
number of jobs that are supported just by shipments of clothing 
from China is larger than the number of jobs supported by the 
United States textile industry. So I understand people's 
concern about unfair competition from countries. That exists. 
There is no denying it. But it is not the case that imports 
necessarily cost jobs. There are certainly examples where 
imports in fact create jobs for the United States.
    Senator Rubio. So just to describe the supply chain for 
this phone for a second, it says here it was innovated and 
designed in California, but assembled in China. Somebody built 
this phone over there and then they had to ship it here. They 
had to offload it at a port of entry. Those were American jobs. 
Then it had to be transported from the port of entry to a 
distribution center, again another set of American jobs. Then 
from that distribution center--there were jobs there--they were 
shipped out to the retailers, another group of American jobs. 
Then at the retail level there is somebody selling it, another 
set of American jobs at the retail level.
    Then whoever buys these things is paying less than they 
normally would, which means whatever money you are saving on 
this, the difference between how much it would have cost to do 
it somewhere else and do it where it is happening now and what 
you actually paid, that difference is now available to spend 
somewhere else because you did not spend it on this.
    Is that an accurate description of how it plays out?
    Dr. Scissors. A better one than the one I gave; yes, sir.
    Senator Rubio. Well then, let me just ask one last one. I 
do not know if you know the answer to this, but my guess is 
that all of those jobs down that supply network that I have 
described probably pay better than some of the people that are 
building this.
    Dr. Scissors. That is a good point to elaborate on. We have 
kept the higher value-added jobs here. To even extend your 
supply chain further, it does not--the design does not occur 
here and then suddenly the phone is in China. We actually have 
production that routes through Japan, Taiwan, Malaysia, Korea, 
various of our Asian partners, and then the assembly occurs in 
China.
    The assembly of the phone is not such a great job and in 
fact the Chinese have very significant labor problems connected 
to some of those jobs.
    Senator Rubio. Because their wages are increasing and it is 
forcing it to go elsewhere?
    Dr. Scissors. Because their wages should be increasing and 
sometimes they are not, because the conditions are not very 
good. The better jobs associated with consumer electronics, far 
better than in China, are here. What we get is a trade number 
that looks like we are running a consumer electronics deficit 
with China, but we are getting better jobs than they are out of 
it.
    Senator Rubio. That is a good way to describe it.
    Mr. Goodman, in your testimony you talked about something I 
thought was interesting, and that is a notion that you said was 
recently popular, until recently was popular in Beijing, that 
TPP is part of an effort by Washington to contain China. But in 
fact, if they decide not to participate in free enterprise and 
free commerce and free navigation and the benefits of this sort 
of barrier reductions, that is a decision they have made to 
contain themselves, right?
    I mean, this is not--my understanding of the region is that 
most, if not all, of the countries would like stronger 
integration with China, but on a set of rules based on freedom 
and freedom of commerce and freedom of navigation and mutual 
reciprocity on rules, et cetera, not on the set of rules that 
China would like to impose. So really the ones--to the extent 
that there is anybody excluding anyone, it is Chinese 
policymakers that have decided to potentially exclude 
themselves from this and other arrangements because they do not 
like the rules. The rules they want are actually much more one-
sided, to the benefit of China and to the detriment of their 
neighbors and perhaps the rest of the world.
    Mr. Goodman. Thank you, Senator. That is I think absolutely 
correct. I think that the notion of, first of all, of somebody 
trying to contain China economically does not make any sense, 
because everybody wants to engage with them. So I think there 
was a misunderstanding.
    In fact, TPP was designed to do the opposite of excluding 
them, which is to pull them into this global rules-based order 
and, frankly, make them follow the rules of the road that we 
have helped champion for half a century. So this notion never 
made sense in terms of U.S. strategy.
    Yes, you are right, on China's own side, it was only about 
a year ago that they were continuing to say: We do not want 
these rules, we do not want to be part of this system. Then I 
think what happened, as I say, I think the big change was Japan 
joining TPP, because now you have got the third-largest economy 
in the world, a major competitor for them economically and 
strategically, joining this agreement, and it becomes suddenly 
an agreement that has large heft and, frankly, is the place in 
the world--frankly, I am sorry, but it is not Geneva--where the 
rules are being written. It is in TPP where the rules of the 
international trading system are being written.
    China realized this and I think said: We have got to be 
part of this rulemaking exercise whether we are in TPP, which 
may be challenging, frankly--I am not sure they are ready to 
reach the kind of standards that are being negotiated in TPP. 
But if not, they need to find another way to match this, and 
that is why I mentioned the Shanghai FTZ. That is why I think 
it helped drive a very forward-leaning reform package at this 
Third Plenum last month. It is why they are willing to talk 
about a bilateral investment treaty, and it is why they are 
talking more positively about TPP.
    So I think, yes, I think they themselves were their own 
worst enemies in this area, and I think they have figured out 
that this is not the right approach and they have changed 
course.
    Senator Cardin. Senator Murphy.
    Senator Murphy. Thank you, Mr. Chairman.
    I want to continue to explore this question of where the 
rules of the global economy are being set. You know, if we want 
more transparency around these trade agreements or we want more 
public debate, we should probably think about renaming them. 
``TTP'' and ``TTIP'' creates a little bit of unnecessary 
confusion out there amongst the public.
    But as the chairman of the Europe Subcommittee, we hear a 
fair bit of consternation in places like China and India that 
TTIP is an effort between the United States and Europe to gang 
up on the developing world, to set global standards for product 
safety and financial instruments and food quality that the rest 
of the world will have to live with.
    Mr. Goodman, you are sort of saying the opposite. You are 
saying that really if--or I heard you to say that the rules of 
the road are being set not in Geneva, but in the negotiations 
on TPP.
    So I just would love for the two of you to sort of explore 
the interaction on the beginnings of negotiation on a Europe 
agreement coming on the heels of the negotiation with Japan and 
others in TPP, and to what extent is it a fair characterization 
of the Europe trade agreement that this is the United States 
and Europe essentially trying to get together on standards 
setting so that those standards are not set in Asia, or to what 
extent--maybe you can continue upon what you began to talk 
about with respect to the fact that maybe the game is not in 
the Europe negotiations, the game is really in what comes out 
of the TPP negotiations.
    Mr. Goodman. Thank you, Mr. Senator. A good question, and I 
am sorry that I was misleading before. What I meant was that 
the place that these rules should be negotiated is Geneva in 
the WTO. Everybody I think understands that you need a 
multilateral framework of rules and that is the first best 
solution.
    But it is like trying to climb Mount Everest. We tried the 
north face. We tried going up the multilateral route and, 
frankly, with the exception of this latest thing in Bali, this 
agreement on trade facilitation, which was encouraging but 
quite small, we really failed and we have had to come back down 
the mountain find another way around.
    That other way around I think is TPP currently and TTIP, 
the U.S.-EU negotiations.
    So I would say the same thing about TTIP that I said about 
TPP, that to the extent that is starting to gain momentum and 
there is a real conversation about the rules, I think that is 
where the action is. So it is TTP and TTIP. Ultimately I think 
the idea and the strategy--it is maybe not stated quite this 
clearly, but now that I am not in government I can say it a 
little more clearly--I think this is a strategy of trying to 
move from TPP through TTIP to establish de facto a multilateral 
set of rules that covers at that point 90 percent of the world 
economy, and the rest of the world economy I think will be 
faced with a choice of trying to aspire and attain that level 
of high standard rules or they are going to be left out of the 
system. To date a lot of those countries that you mentioned 
have been free riders on the system and if they are not willing 
to negotiate and participate actively in these negotiations, 
then I think this is the best second-best strategy.
    Senator Murphy. I want to hear what you have to say, Mr. 
Scissors, about this as well. But let me just follow up quickly 
on that point. So you have got now two enormous sectors of the 
global economy negotiating simultaneously. What are the 
potential for inconsistencies in how those two regimes get 
worked out that frankly will work at cross-purposes with the 
very notion that you are suggesting as to an effective 
replacement for the WTO?
    Mr. Goodman. Well, the good news is that we are on one side 
of both of those agreements, and so we presumably are bringing 
into TTIP the same kind of approach and principles that we 
brought into TPP and have been pushing in TPP. Now, Europe is 
different, and I used to work in Europe on some of these 
regulatory issues when I was in the private sector and it is a 
very different world view. Frankly, I think we are like Mars 
and Venus on some of these regulatory issues with Europe.
    I think in some ways that is going to be a much tougher 
negotiation. It may not appear that way because of our shared 
values and history and everything, but actually there are some 
very tough differences on regulatory issues and GMO's and a 
range of other issues.
    But I think the fact that the United States is pushing a 
similar approach with similar principles, similar standards, 
means that there is less risk of fundamental inconsistency. But 
of course each negotiation is going to be slightly different 
and it may come out in a slightly different place.
    Dr. Scissors. I think it is a big framing question you have 
asked, which is what is the replacement U.S. strategy after the 
WTO has stalled. I think I hate to use this phrase, but it is 
appropriate: We are looking for coalitions of the willing, and 
if we find a subset of countries in Asia, hopefully a very big 
subset, hopefully eventually everyone, we are happy to deal 
with them.
    The way I see the trans-Atlantic negotiations is a little 
bit more positive--of course, they have barely started, so it 
is easy to be positive--a little bit more positive than you do, 
which is we are going to use TPP as a base. We used KORUS as a 
base for the TPP negotiations. We are going to use TPP as a 
base for the trans-Atlantic negotiations. They are going to be 
difficult in some respects. They may not work.
    But hopefully they will go forward, and so we will start 
with TPP and we will go beyond that in the trans-Atlantic 
discussion. And if we cannot, then we should look toward Latin 
America, and if we cannot do that we should look toward sub-
Saharan Africa. We should keep looking for partners who are 
willing to sign these agreements.
    One concrete benefit that I see here is, TPP is pushing the 
boundaries or trying to push the boundaries on intellectual 
property protection. It is still only going to be the first 
step. We are not going to get top-notch intellectual property 
protection on the first round from Malaysia. But we might get 
it with Europe. So I think there is an opportunity there not to 
have a conflict between the agreements, but to use them to 
build on each other to get to those high standards in areas the 
United States has been trying to get to for years.
    Senator Murphy. I do not mean to sound pessimistic about 
TTIP. I am actually optimistic about it, notwithstanding I 
think the fact that it is going to operate on a very different 
framework involving tradeoffs that are unfamiliar to a lot of 
Members of Congress than what we have seen in agreements with 
developing economies. But I have been a big supporter and 
supportive of it both from an economic standpoint and a 
geopolitical standpoint.
    Thank you very much, Mr. Chairman.
    Senator Cardin. Let me ask one additional question if I 
might, and that deals with your recommendations of where 
priorities should be placed for empowerment of women in Asia. 
Land reform has been a major area of focus for us. I just would 
like to get your advice as to where you think the most progress 
can be made.
    Mr. Goodman. Thank you, Mr. Senator. A very important issue 
and one that is very much part of the conversation in our Asian 
economic discussions. I think you mentioned that in APEC there 
has been a women's empowerment initiative and a couple of, 
maybe now three, summits that Secretary Clinton, former 
Secretary Clinton, began. They have been talking about I think 
some very specific ways in which women can be given more 
opportunities to enter the work force, better conditions once 
they are in the work force, a more inclusive approach to growth 
strategies in the region. That is I think an important 
initiative.
    APEC is a good forum. I did not have the chance to say this 
before, but APEC is actually a very good forum for this kind of 
conversation, because it is nonbinding, it is consensual, it is 
an opportunity to flesh out ideas and share experiences and 
build capacity. So I would look to that negotiation or that 
discussion as an important forum.
    As you know, in Japan they are trying to empower women 
because demographically they are shrinking, dying, frankly, as 
a country. If they do not bring women into the work force, it 
is going to be impossible for them to grow and thrive as a 
country going forward. So there is a very active program that 
Prime Minister Abe has announced.
    Now, whether those things are going to--the problem is 
these are very difficult issues of social mores and some of 
these countries do not have traditions of empowering women in 
this way, and I think it is going to take a lot of time and 
working and conversation about these issues to change those 
social mores. But I do think law and policy can contribute 
importantly, as they have in this country, to social change, 
and I think in a country like Japan we want to try to encourage 
that conversation and legal and policy changes.
    Dr. Scissors. I think this is an area where you need to use 
carrots rather than sticks. I do not see how threatening 
countries, even when they are doing things we really do not 
like, is going to help the standards, living standards for 
women in those countries. Just my opinion.
    The carrots I see, we have a lot of carrots. We have a lot 
of countries that want access to the U.S. market, better access 
than they have now, protected access, especially in certain 
areas. I mentioned Vietnamese textiles before as an example. I 
can imagine that we can tie access to Vietnamese textiles in 
the United States to working conditions for women in the 
textile sector. It seems like a very natural link and it is a 
very powerful lever on our part.
    I would say, to echo Matt's point about Japan's demography, 
it is not just Japan. Most of northeast Asia is getting older 
and they are not utilizing women properly in their labor force. 
So I would think that Korea and to a lesser extent China are 
also going to be open to these kinds of initiatives for their 
own reasons, not because they have suddenly seen the light and 
have the same social view that we do, but because they are 
going to need more contributions from women economically than 
they have allowed so far. So I think we could make progress 
here.
    Senator Cardin. Thank you.
    Let me thank both of our witnesses. This has been a very 
helpful hearing and I appreciate your participation. With that, 
the subcommittee will stand adjourned. Thank you.
    [Whereupon at 11:36 a.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


 Prepared Statement of Walter Lohman, Director, Asian Studies Center, 
                The Heritage Foundation, Washington, DC

    My name is Walter Lohman. I am director of the Asian Studies Center 
at The Heritage Foundation. The views I express in this testimony are 
my own, and should not be construed as representing any official 
position of The Heritage Foundation.
    I commend the subcommittee for taking such a concerted, detailed 
look at America's interests and role--what, I would argue, should be 
its continued leadership role--in the Asia-Pacific. You will find broad 
agreement among the foreign policy community with the commitment to 
Asia implied in the President's rebalance. There are disagreements over 
the priorities of the commitment, whether ``rebalance'' is the most 
constructive way to frame it, or whether enough resources are devoted 
to it. Some would even question whether a rebalance is actually 
underway.
    It is important, however, for foreign audiences in particular to 
understand that the American commitment to its interests in the Western 
Pacific--what Chairman Royce has called America's ``near west''--is 
very widely supported in Washington. As is the case with many national 
priorities, the debates occur over how the commitment is put into 
effect and which priorities constitute it.
                           strategic picture
    America's commitment to the Western Pacific is both about the 
challenge posed by China's rise, and about something much broader. It's 
about China, yet it's not about China. In that conundrum may lay the 
reason for confusion and misperceptions in Beijing and other Asian 
capitals about the rebalance.
    On the political and diplomatic side, America's Asia policy is 
largely about China. This is because whatever may have been the 
situation in the region more than 150 years ago, before China's 
``century of humiliation,'' it is the U.S. and its allies who have 
shaped today's regional order. That order is best characterized by the 
pursuit of a secure liberal international order, characterized by such 
things as freedom of navigation and commerce and promotion of political 
liberty. It benefits China--if not always the Chinese Communist Party--
as much as it does any other country in the region. This is essentially 
the same vision that the George W. Bush administration and many 
administrations before it have pursued.
    The problem is that Chinese Government does not necessarily see it 
this way. It poses an alternative to this vision that seems more 
tightly focused on China's narrowly drawn national interests.
    The regional order established by the U.S. in the decades following 
World War II was not just strategic and institutional. A concrete 
geographical order accompanied it. It included Taiwan's de facto 
independence, Japan's administration of the Senkaku Islands, and the 
claims of Southeast Asian nations to land features in the South China 
Sea. This is today's status quo. Awakened after 150 years, what the 
Chinese call their core interests revolve around changing this status 
quo, and not necessarily through means now acceptable to the rest of 
the region. China's narrow interests are driving its disposition to the 
broader order. Thus, much of the diplomatic and security side of 
America's Asia policy requires pushing back against China and 
channeling the conflicting interests into administration of established 
institutions and norms, such as the peaceful settlement of disputes and 
adherence to customary international law.
    The Obama administration has sought to frame this effort by 
appealing to an ASEAN-centric architecture, that is, a set of 
institutions created by the Association of Southeast Asian Nations 
intended to enmesh external regional powers in a web of interlocking 
regional relationships. Involvement in these institutions, the East 
Asia Summit, the U.S.-ASEAN Leaders Summit, and many others, is a good 
thing. My only reservation is that the administration's approach seems 
to underappreciate ASEAN's severe limitations in dealing with 
contention. It also seems to either underestimate American power vis-a-
vis the ASEAN countries, or seeks to purposely blunt that power in the 
cause of an amorphous accumulation of soft power. At its worst, this 
amounts to serving ASEAN's interests in pleasing all comers and muting 
differences among them--not necessarily American interests. America has 
some very critical interests in Southeast Asia that in the absence of 
heavy, uncomfortable pressure on ASEAN will not be served. Among them 
are human rights and security issues, freedom of the seas being the 
most important of the latter. At best, excessive deference to ASEAN's 
sensitivities and mechanisms will result in an underutilization of 
time, focus, and resources.
    It should be noted that the Obama administration, as the Bush 
administration before it, also believes that conflicts arising from 
differences in U.S. and China world views can be ameliorated through 
extensive direct contact with China on political and security issues. 
The effectiveness of this set of tactics is a topic for another 
hearing. Suffice it to say for purposes of today's hearing that the 
effort, and especially the rhetoric representing it, contributes to the 
perception of incoherence in the rebalance.
              economic commitment to east asia and pacific
    The economic side of the American role in Asia is very different. 
It is not about China. And, there are overwhelmingly more advantages in 
this engagement than risk. The challenge the U.S. faces lies in 
simultaneously countering China in the diplomatic and security areas 
while maximizing the upside of Asia's burgeoning economies, including 
China. This can be accomplished with a principled clarity in America's 
vision for the transpacific economy, robust bilateral and ad hoc 
multilateral economic agreements, engagement of the region's economy-
focused diplomatic architecture, and the most effective use of other 
tools available to American officials.
    The vision is pure and simple: the promotion of a liberal economic 
order. This should be the fundamental goal of our international 
economic policy. It is not the success of American companies per se, 
pursuit of which can produce misallocation of resources and 
inefficiency. It is support for an open, rule-based economic 
environment in which American companies can fully compete and the 
market can determine winners and losers. This applies at home as well 
as abroad. There is nothing of inherently greater value in exports than 
in imports, and nothing inherently better about American investment at 
home, than foreign investment here. Politically sensitive market 
segments at home are not more justifiable objects of protection than 
the protections of our trading partners. Both are distortions of the 
market mechanism. Companies ought to be able to avail themselves of 
international value chains and finance with as few restrictions as 
possible. They should also bear the cost and risks.
              free trade and the trans-pacific partnership
    The first thing this economic vision means is energetic 
presidential-level support for free trade, and in particular the 
conclusion of a Trans-Pacific Partnership (TPP) that is no less open 
and encompassing than the agreements that have come before it. The TPP 
is today the explicit economic ``centerpiece'' of the administration's 
rebalance. There are several key areas that free trade advocates will 
be weighing in order to determine how free the agreement actually is. 
In general, they will be judging it against the most recent trade 
agreement the U.S. has struck in Asia, the Korea-U.S. Free Trade 
Agreement. It was not perfect. It would be nice to see aspects of it--
like precedents in managed auto trade and exclusion of trade in rice--
rolled back. But at the very least, the TPP should not get worse in 
terms of protection. It should also redress protectionist provisions in 
previously concluded agreements, such as the U.S.-Australia Free Trade 
Agreement, which retains restrictions on Australian access to the U.S. 
sugar market.
    Beyond this general guidance, however, the manner in which the 
following several specific areas are addressed will determine the 
nature, quality, and value of the TPP: State-owned enterprises (SOEs), 
intellectual property rights (IPR), the services sector, and rules of 
origin.\1\
    First, SOEs. As former Heritage Foundation senior fellow Derek 
Scissors has pointed out, there are two main issues involved in 
consideration of SOEs in trade talks: definition of SOE and subsidies. 
``Subsidies'' can come in many forms, from actual government budget 
allocation to favorable access to credit to favorable regulatory 
treatment. Several of the participants in the TPP talks have major 
SOEs, especially Vietnam, but also Singapore and Malaysia. The U.S. 
also has SOEs if one includes ``government sponsored enterprises'' like 
Fannie Mae and Freddie Mac, and the precedents set for government 
involvement in the private sector following the 2008 economic crisis. 
The TPP ought to embrace the broadest possible definition of SOEs, and 
get at the wide range of available subsidies by providing for true 
competitive neutrality.\2\ This is one of the most difficult issues at 
stake in the TPP negotiations. The very nature of state-ownership is 
preferential and discriminatory. How it is dealt with in the TPP 
negotiations has broad implications beyond the current participants.
    Second, IPR. Poor intellectual property rights protection is 
essentially a tax on innovation. It is a redistribution of resources 
from the business that invests in research and development to the 
business that steals the product. IPR is important to the U.S., as it 
has a strong comparative advantage in innovation. But it should be 
important to other economies as well. Some, like Japan, are in 
desperate, structural need of more innovation. Others have interest in 
attracting investments from world-class businesses and locking in rules 
today that will benefit their own businesses in the long run.
    Parties should be looking to a TRIPS-Plus approach (Trade-Related 
Aspects of Intellectual Property Rights-Plus), that is, protection of 
intellectual property that goes beyond the commitment that negotiators 
have already made in the World Trade Organization (WTO), to include 
among other things, data exclusivity and increased protection against 
coercion of trade secrets. Trips-plus has been the standard in U.S. 
negotiated FTAs. TPP is certainly not the time to back away from it.
    Third, services. In services, negotiators should be looking to 
apply a negative list--that is, creating a presumption of openness--on 
both investments and services trade across borders. Open investment 
regimes and ensuring free flow of data across borders are perhaps the 
most important factors in maximizing services trade. TPP should also be 
looking to enhanced liberalization and protection for investment in 
financial services.
    Fourth, rules of origin. The TPP countries are already tied up in a 
number of free trade agreements (FTAs) among themselves: America's FTAs 
with six of the TPP countries; the P-4 Agreement among Brunei, Chile, 
New Zealand, and Singapore, which served as the launching pad for the 
TPP; the ASEAN Free Trade Area (AFTA); and an ASEAN-Japan FTA, among 
others. In rationalizing their rules of origin, the aim should be a 
common set of rules that is as loose as possible across the board, 
including for textiles and apparel. Rules of origin are extremely 
important to determining the character of the final agreement. Closed 
rules create a disposition toward trading blocs. Trading blocs by their 
nature are predominantly political in purpose and therefore not 
conducive to maximizing economic benefits. As such, tight rules of 
origin detract from the broader, longer-term goals of global free 
trade, and in their worst case implication, can lead to open conflict.
    In the end, the traditional supporters of free trade, like analysts 
at The Heritage Foundation, are going to be looking for a truly 
economy-freeing agreement.
    China ought to be permitted to join the TPP as long as it can 
fulfill the provisions of the agreement, and as per the process, all 
the currently participating countries agree to its participation. The 
only stipulation on China's entry beyond technical compliance with the 
agreement should be the extension of equal opportunity to Taiwan. 
Similar arrangements were made for China's entry into the Asia-Pacific 
Economic Cooperation (APEC) and the WTO. Taiwan's economy is larger 
than most of those currently represented in the TPP. It would also be 
among the more developed economies represented in the negotiations. The 
prevention of its participation would be an artificial political 
barrier. Taiwan has been generally neglected in the administration's 
rebalance. Exclusion from the TPP would be a serious blow to its 
efforts to fully and formally keep pace with the economic integration 
taking place around it, and would leave it, by default, overly 
dependent on China.
    In lieu of China's inclusion in the TPP, the U.S. can engage China 
in its free-market perspective through mechanisms such as the strategic 
and economic dialogue (S&ED), the Joint Commission on Commerce and 
Trade (JCCT), negotiation of a bilateral investment treaty, and global 
forums like the WTO.
     principled engagement of government-to-government architecture
    In addition to ad hoc multilateral trade negotiations like the TPP 
or bilateral trade talks, the U.S. can pursue its free trade vision 
through the many pieces of architecture already in place. The TPP, and 
the 16-member China-centric Regional Comprehensive Economic Partnership 
(RCEP), have been formally identified by APEC leaders as building 
blocks for an eventual APEC-wide free trade agreement, or a Free Trade 
Agreement of the Asia Pacific (FTAAP).\3\ Continued leader-level and 
robust participation in APEC is important to ensure that the FTAAP 
tracks APEC's American-inspired vision for a ``comprehensive, high 
quality agreement.'' APEC is important for other reasons besides. U.S. 
participation in APEC is critical to its broader strategic position in 
the region. In turn, an active, leader-oriented APEC is a pull on the 
region to remain outwardly oriented--in this case, looking east across 
the Pacific.
    APEC could do more on this score by also reaching westward toward 
India. The U.S. should encourage it to do so. APEC has already brought 
India into its plans for the FTAAP by referencing RCEP negotiations as 
a basis for its long-term vision for trade liberalization. (India is a 
part of those negotiations.) If APEC is to maintain its dreams of an 
FTAAP, it must begin to socialize India in the more routine details of 
its mission. These include information-sharing on regulatory standards, 
rules, procedures, capacity needs, and multilateral initiatives 
conducted by member states outside its rubric, and voluntary 
harmonization in the direction of freer markets.
    The U.S. also has a critical role to play in helping ASEAN achieve 
its goal of ``a stable, prosperous, and highly competitive ASEAN 
Economic Region in which there is a free flow of goods, services and 
investments, a freer flow of capital, equitable economic development 
and reduced poverty and socioeconomic disparities.'' \4\ It can only do 
that if it is at the table. Forums like the ASEAN Economic (Trade) 
Ministers, the ASEAN Finance Ministers Meeting, and other sector-
specific meetings are useful venues for a free-market American message.
    Regional economic integration is real. Most of it is organic, that 
is, the result of millions of individual business decisions, and 
unilateral government activity to facilitate them. The governments in 
the region are pushing to formalize and expand integration. ASEAN 
integration is the most formally developed. Completion of it will be 
far from European Union-style integration, as ASEAN members have always 
made abundantly clear. It is also behind schedule to meet its December 
2015 completion deadline.\5\ Yet, given the size and diversity of the 
ASEAN market, it will be a major achievement. The U.S. should help it 
achieve its goal.
                 nuts and bolts of economic engagement
    Because of ASEAN's consultative nature, the history of U.S. 
economic policy toward it is replete with reference to new initiatives, 
all essentially aimed at the same thing--building the capacity that 
will help it achieve its integrated, free-market vision. The alphabet 
soup of initiatives include the EAI (Enterprise for ASEAN Initiative); 
the ACP (ASEAN Cooperation Plan); the ASEAN-U.S. Enhanced Partnership; 
the U.S.-ASEAN TIFA (Trade and Investment Framework Arrangement); 
ADVANCE (ASEAN Development Vision to Advance National Cooperation and 
Economic Integration); and, now, at least two more, the E3 initiative 
(U.S.-ASEAN Expanded Economic Engagement); and ACTI (ASEAN Connectivity 
through Trade and Investment).
    The U.S. has not lacked new initiatives--the latter two being 
initiatives of the Obama administration. ACTI is essentially the 
follow-on to the Bush-initiated ADVANCE program. Its most important 
trade-enabling component is the assistance it provides to the ASEAN 
effort to establish a single customs window, first at the national, and 
then the regional level. In concept, ACTI is a very useful, 
constructive program--as was ADVANCE before it. However, even at its 
modest price ($18 million over 5 years) it must maintain a focus on the 
intersection of America's and ASEAN's free trade visions in order to be 
of most value.
    Some in the business and strategic communities will bemoan the lack 
of real U.S. investment in the development of ASEAN's infrastructure. 
But the U.S. Government tinkering at the edges of ASEAN's 
infrastructure needs--estimated by the Asian Development Bank (ADB) at 
$8 trillion--is a distraction. If those needs represent opportunity for 
American business, they will find their way to them. American 
participation in ASEAN forums and the assistance that flows from it 
should support the infrastructure of economic freedom. On an individual 
country basis--still the much more relevant measure of economic 
performance in ASEAN--the region lags significantly. Singapore has been 
consistently ranked No. 2 globally in The Heritage Foundation's annual 
``Index of Economic Freedom.'' The closest in the region after that in 
the 2013 Index were Malaysia at No. 56, and Thailand at No. 61. Roads 
and rail lines developed by the Japanese, Koreans, Chinese, or ADB are 
public goods. To see them as an area of national competition that the 
U.S. is losing is playing ASEAN's game to maximize the economic 
contributions of all its interlocutors, not America's.
    The E3 is also a useful initiative, to the extent it is used as a 
path for lesser-developed economies, such as the Philippines and 
Indonesia, to join the TPP. The administration's expressed intention to 
use it to negotiate a U.S.-ASEAN Trade Facilitation Agreement and 
regionwide bilateral investment treaty can help reach that goal. 
However, if the E3 does not succeed in readying governments for 
participation in the TPP, it will remain just another clever acronym in 
the alphabet soup--doing good work, but marginal to achieving either 
ASEAN's or America's economic vision.
                               conclusion
    Criticism of the rebalance that it is overly focused on the 
military is misplaced. Economic engagement for the U.S. is not a 
government activity. This makes it different from some of the other 
governments in the region. It is certainly much different from American 
military engagement. If the Commander in Chief determines that a 
carrier strike group should move from the Persian Gulf to the South 
China Sea, it goes. If he determines that 60 percent of the U.S. Navy 
will now be stationed in the Pacific, it happens. The Secretary of 
State can make as many visits, and the U.S. Government can participate 
in as many regional forums, as the Federal Government's budget can 
support. At modest cost, the U.S. Government can initiate as many new 
capacity-building programs as the region can absorb. It cannot compel 
American business participation or even effectively lead it.
    On the economic side of policy, what the government does best is 
create opportunity for business through trade negotiations and 
otherwise promoting a positive business environment. The TPP is the big 
bang of America's current economic commitment to Asia. When complete, 
it will encompass 40 percent of global GDP. However, it must truly be 
the ``comprehensive, high standard'' agreement promised in order to be 
a game-changer and garner the necessary support of real free-traders in 
Washington.
    America's commitment to Asia can both protect its political and 
security interests vis-a-vis China, and encompass a broader economic 
element. In order to do that, it must consistently articulate and 
advocate its vision for, not just transpacific, but global, free trade. 
If it does this effectively--particularly if it successfully concludes 
the TPP--all the other pieces of America's economic statecraft in the 
region will fall into place, and the other elements of the rebalance, 
both political and military, will assume their proper perspective in 
the strategy.

----------------
End Notes

    \1\ Derek Scissors, ``What a Good Trans-Pacific Partnership Looks 
Like,'' Heritage Foundation Backgrounder No. 2772, March 8, 2013, 
http://www.heritage.org/research/reports/2013/03/what-a-good-trans-
pacific-partnership-looks-like (accessed November 17, 2013).
    \2\ Derek Scissors, ``Why the Trans-Pacific Partnership Must 
Enhance Competitive Neutrality,'' Heritage Foundation Backgrounder No. 
2809, June 6, 2013, http://www.heritage.org/research/reports/2013/06/
why-the-trans-pacific-partnership-must-enhance-competitive-neutrality 
(accessed November 17, 2013).
    \3\ APEC, ``Pathways to FTAAP,'' November 14, 2010, http://
www.apec.org/Meeting-Papers/Leaders-Declarations/2010/2010_aelm/
pathways-to-ftaap.aspx (accessed November 17, 2013).
    \4\ ASEAN, ``ASEAN Vision 2020,'' December 15, 1997, http://
www.asean.org/news/item/asean-vision-2020 (accessed November 17, 2013).
    \5\ Asian Development Bank, ``Asian Economic Integration Monitor,'' 
October 2013, http://www.adb.org/sites/default/files/pub/2013/aeim-oct-
2013.pdf (accessed November 17, 2013).

                                  
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