[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]






 ACROSS THE OTHER POND: U.S. OPPORTUNITIES AND CHALLENGES IN THE ASIA 
                                PACIFIC

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


                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 26, 2015

                               __________

                            Serial No. 114-8

                               __________

        Printed for the use of the Committee on Foreign Affairs


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 
                                  or 
                       http://www.gpo.gov/fdsys/
                                 ______
                                 
                    U.S. GOVERNMENT PUBLISHING OFFICE 

93-533 PDF                    WASHINGTON : 2015 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Publishing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001                              
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       BRIAN HIGGINS, New York
MATT SALMON, Arizona                 KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina          ALAN GRAYSON, Florida
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas            GRACE MENG, New York
SCOTT PERRY, Pennsylvania            LOIS FRANKEL, Florida
RON DeSANTIS, Florida                TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
TED S. YOHO, Florida                 ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida                BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
TOM EMMER, Minnesota

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                                 ------                                

                  Subcommittee on Asia and the Pacific

                     MATT SALMON, Arizona Chairman
DANA ROHRABACHER, California         BRAD SHERMAN, California
STEVE CHABOT, Ohio                   AMI BERA, California
TOM MARINO, Pennsylvania             TULSI GABBARD, Hawaii
JEFF DUNCAN, South Carolina          ALAN S. LOWENTHAL, California
MO BROOKS, Alabama                   GERALD E. CONNOLLY, Virginia
SCOTT PERRY, Pennsylvania            GRACE MENG, New York
SCOTT DesJARLAIS, Tennessee
















                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Karl D. Jackson, Ph.D., C.V. Starr Distinguished Professor of 
  Southeast Asia Studies, director of the Asian Studies Program, 
  Johns Hopkins School of Advanced International Studies.........     8
Van Jackson, Ph.D., visiting fellow, Center for a New American 
  Security.......................................................    18
Mr. Matthew P. Goodman, William E. Simon Chair in Political 
  Economy, senior adviser for Asian economics, Center for 
  Strategic and International Studies............................    27
Mr. Abraham M. Denmark, senior vice president, Political and 
  Security Affairs and External Relations, The National Bureau of 
  Asian Research.................................................    38
The Honorable Patrick Mulloy, trade lawyer (former Commissioner, 
  U.S.-China Economic and Security Commission)...................    56

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Karl D. Jackson, Ph.D.: Prepared statement.......................    10
Van Jackson, Ph.D.: Prepared statement...........................    20
Mr. Matthew P. Goodman: Prepared statement.......................    29
Mr. Abraham M. Denmark: Prepared statement.......................    40
The Honorable Patrick Mulloy: Prepared statement.................    58

                                APPENDIX

Hearing notice...................................................    86
Hearing minutes..................................................    87
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    88

 
                      ACROSS THE OTHER POND: U.S.
                      OPPORTUNITIES AND CHALLENGES
                          IN THE ASIA PACIFIC

                              ----------                              


                      THURSDAY, FEBRUARY 26, 2015

                       House of Representatives,

                 Subcommittee on Asia and the Pacific,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The committee met, pursuant to notice, at 10 o'clock a.m., 
in room 2172 Rayburn House Office Building, Hon. Matt Salmon 
(chairman of the subcommittee) presiding.
    Mr. Salmon. The hearing will come to order. First, I'd like 
to take this opportunity to welcome everyone to the Asia and 
Pacific Subcommittee's first hearing of the 114th Congress.
    As many of you know, I've spent a significant amount of 
time living and working in the region, and I'm honored to serve 
as the chairman of this important subcommittee. I look forward 
to working with all the committee members to conduct rigorous 
oversight of our nation's foreign policy and spending decisions 
in this critical region of the globe.
    Since President Obama announced his administration's 
rebalance to Asia several years ago, the United States has 
struggled to maintain its priorities to the region. While 
recognizing the significance of the Asia-Pacific, fiscal 
austerity at home, and instability and conflict in the Middle 
East and Eastern Europe have diverted U.S. attention away, and 
the United States struggles to convince our allies and security 
partners of our commitment to the region.
    Two thousand fifteen will be a pivotal year for U.S. 
engagement in Asia, presenting numerous economic, political, 
and security challenges. Today we hope not only to hear about 
the prospects and obstacles facing the rebalance, but how we 
could better operationalize our resources to lend greater 
credence to our objectives in Asia in the medium to long term.
    This year we may see the potential passage of the Trans-
Pacific Partnership, a 12-member nation trade and investment 
treaty with Asia-Pacific countries. And there's no doubt that 
the economic opportunities in the Asia-Pacific are 
unparalleled. Current negotiating member nations account for 37 
percent of total U.S. goods and services trade, so its passage 
has the prospect to vastly bolster our economic well-being.
    Two thousand fifteen will also be a year of continued 
instability and conflict. In addition to persistent challenges 
in Asia such as human trafficking, terrorism, human rights 
violations, catastrophic natural disasters, widespread 
corruption and ethnic strife, new conflicts and threats will 
most certainly emerge.
    North Korea continues to egregiously violate international 
norms; from its cyber-attack on Sony Entertainment Pictures 
late last year to its continued violation of human rights, to 
its continued pursuit of nuclear weapons capabilities.
    Pakistan continues to harbor terrorists and contribute to 
the instability in the region, and poses a threat to the United 
States. Various nations' state-sponsored theft of U.S. 
intellectual property and citizens' personal information 
presents an enduring, long-term threat to our economic and 
national security.
    This year marks the 70th anniversary of the end of World 
War II, and Japan's Prime Minister, Shinzo Abe, has proposed 
revisiting its interpretation of collective self-defense, in 
light of unprecedented tension between Japan and China. At the 
same time, the United States and Japan are also revisiting 
their bilateral defense guidelines. I look forward to hearing 
what our witnesses think the implications are for the U.S.-
Japan alliance.
    Later this year, we will also look forward to welcoming 
India's new leader, Prime Minister Narendra Modi, to the United 
States. As the world's third largest economy and major 
democratic power player in Asia, there is immense potential for 
collaboration and cooperation. Similarly, India also seeks to 
balance China's growing dominance in the region, and the United 
States is poised to play a unique role in this space.
    We will see whether Burma's reforms since we lifted 
sanctions have been genuine in its parliamentary elections 
later this year. And that said, I am concerned with the level 
of ethnic conflict in Northern Burma between the government and 
numerous ethnic minority opposition groups, especially the 
number of displaced refugees the conflict has caused.
    Elsewhere in Southeast Asia, political instability has 
elevated our concern. For example, in Thailand, two military 
coups over the last 8 years have disrupted our traditionally 
strong economic and security relationship with that country. 
Without a clear way forward and no strong domestic governance, 
Thailand may continue to face significant obstacles.
    Finally, China. China continues to gain leverage on the 
international stage and has challenged international norms of 
behavior in such areas as diplomacy and cyberspace alike. China 
has pressured American businesses in unfair, even hostile 
business environments, while simultaneously partaking in 
arguably the largest transfer of intellectual property theft in 
history through means such as cyber espionage. Internally, 
President Xi Jinping has a brutal anti-corruption campaign to 
weed out potential opponents while simultaneously clamping down 
on civilian freedom of expression and access to information.
    At the same time, China continues to modernize its military 
and weapons systems specifically targeted at Taiwan and the 
United States, and U.S.-allied assets. In the maritime space, 
China continues to aggravate tensions in the East and South 
China Seas with its buildup of islands in contested waters and 
with its aggressive expansionist behavior against its neighbors 
such as Japan, Vietnam, and the Philippines under the banner of 
sovereignty claims. As there is currently no clear solution, I 
would certainly be interested in hearing from our witnesses 
today how we can best prevent conflict from escalating and 
arbitrate these disputes.
    China is ostensibly a major factor of the U.S. rebalance, 
though by no means should our attention to China come at the 
expense of our other commitments in the region. Our alliances 
with Japan, South Korea, the Philippines, Australia, and 
Thailand could help secure cooperation and compliance with 
international norms.
    I really hope that the witnesses will be able to address 
how the United States can best focus our time and our assets to 
the rebalance, how we can improve commercial ties, how trade 
deals like the TPP can help, how we can support democratic 
governance and transitions, and how we can best support our 
allies and friends in the region. An improved understanding of 
U.S. opportunities and challenges in Asia will undoubtedly 
inform our engagement in the region.
    I look forward to hearing from the distinguished witnesses 
this morning and I now yield to Mr. Sherman, the ranking member 
of the subcommittee, for his opening remarks.
    Mr. Sherman. Asia and the Pacific, so many issues, so 
little time. Glad, Mr. Chairman, you've put together a survey 
of what our subcommittee will deal with as you begin your 
chairmanship, and I begin my, what do they call it, ranking 
membership. And I'm glad to see that so many of us from 
California and Arizona were able to get through the snow of the 
East. I don't know if the gentleman from Ohio gets any special 
accolades for that or not in order to be here today.
    This committee's jurisdiction is not only over half the 
world's population, it is probably over half the world's 
problems, and half the world's opportunities. A lot of 
attention is focused on the Muslim world. Our jurisdiction 
includes Indonesia and Malaysia, the world's two largest--or 
two of the largest, including Indonesia being the largest 
democracy in the Muslim world.
    Our jurisdiction includes the two nuclear powers that don't 
have stable governments, North Korea and Pakistan. We are posed 
to deal with Prime Minister Modi, a new force in India, and the 
significant trade opportunities that that provides.
    And when I mention trade, I should point out that the 
Trans-Pacific Partnership which is basically a trade deal with 
Asia is, perhaps, the only legislation this Congress will pass 
other than, of course, keeping the doors open by passing 
appropriations bills. Unfortunately, it's legislation we should 
not pass.
    We were told by the International Trade Commission that 
permanent most favored nation status for China would add $1 
billion to our trade deficit. I guess $1 trillion would have 
been closer. Certainly, several hundred billion dollars per 
year has been added to--as a result of that decision. And we 
were told in this room just yesterday by Secretary Kerry that 
this trade agreement was not a race to the bottom. Well, it's a 
free trade deal with a country with 30-cent-an-hour wages. how 
much more bottom do you need to go? How much lower a wage must 
American workers compete against? And we're told that this 
trade agreement will confront China, but if you read the Rules 
of Origin provisions, it will tremendously benefit China.
    We can look to our trade agreement with South Korea and see 
that goods that are 65 percent made in China, sometimes higher, 
and finished in South Korea get duty-free entry into the United 
States. Business will eventually take advantage of that, and so 
China gets all the benefits of a free trade agreement. No, 65 
percent of the benefits of a free trade agreement with the 
United States, and zero percent is what we get of a free trade 
agreement with China.
    It's I think known that I'm a hawk on these trade issues 
with China. I'm also a dove on the military issues. Most of 
Washington is on the other side on both of these. The 
condescension and self-interests of those on the trade issue 
is, I think, well known. Less well known is just how dedicated 
the Pentagon is to finding and building us up to confront a 
worthy adversary. Every time we have confronted a non-uniformed 
adversary since the Philippine insurrection, it has been an 
inglorious experience for the Pentagon. Every time we've 
confronted a worthy uniformed adversary, and there is only one 
available to us at the present time, it has been a glorious 
victory and none more glorious than when we defeated the Soviet 
Union without a major conflagration. So, when I talk to the 
Pentagon about research, about deployment, about training they 
say we don't want to prepare for ISIS. There is no glory in 
Boko Haram; 100 percent of our research dollars are going into 
how to fight China.
    Well, we may get what some wish for; a confrontation with 
China, but keep in mind these little islands, islets, rocks 
that are the excuse, even if we win, they're not ours. We build 
our whole military machine so that Japan, a nation of many 
islands, gets a couple more. And we're told there's oil there; 
there isn't, but if there was, it's not ours. So, this buildup 
to confront China is not in our national interest. It does meet 
the institutional needs of the Pentagon, and pivot toward Asia 
seems to be a cover. It is a slogan that conjures up a trade 
mission to Tokyo, but instead it means spending $\1/2\ trillion 
developing and deploying supersonic fighters that have no 
purpose other than to hit targets in a well-defended 
technologically advanced country.
    So many issues, so little time. I really haven't mentioned 
Taiwan, the Philippines, barely mentioned Japan, Burma or 
Myanmar. We've got a big job to do, and the first step in 
helping to do that is to yield back to the chair.
    Mr. Salmon. There is a little bit of a difference in our 
opening remarks, and you know what, it's a good thing, it 
really is. I have nothing but respect for the ranking member. 
And while we're probably going to come to some different 
conclusions, I have nothing but respect for the positions that 
you've taken. I think they've always been principled, and I 
believe that unlike a lot of politicians here in Washington, 
DC, you actually believe what you say, and I have nothing but 
respect for that.
    Mr. Sherman. Can I use that in my next campaign?
    Mr. Salmon. I'm not sure it will help you coming from me.
    If other members would like to make an opening statement, 
go ahead, absolutely.
    Mr. Chabot. I'll be brief. I just wanted to, first of all, 
congratulate you on your chairmanship, your first hearing, and 
wish you the best. Having had the honor to chair this 
subcommittee in the last Congress, I know that you're more than 
up to the job. Speaking Chinese is something that I never 
accomplished; I really never accomplished speaking in any other 
language other than English, but you've mastered it. And, I 
think you're perfectly positioned to chair this subcommittee. I 
know you're going to do it well.
    I also know that Mr. Sherman will do a great job, even 
though we may disagree on an issue here or there. He is 
principled, and one of the smartest guys in Congress. He'll let 
you know that once in a while. No, I won't say that, no. Just 
by your actions you'll let us know, not by informing us. I know 
having traveled with Mr. Sherman to Asia in the last Congress, 
I think over time I would consider him not just a colleague, 
but a friend. And periodically, we find an issue to agree on, 
and that's a good thing.
    I also want to congratulate and commend Mr. Bera for 
filling in for Eni Faleomavaega in the last Congress as ranking 
member. Eni, as we all know, had some serious health issues 
that he was dealing with much of that Congress, and Ami did a 
great job. At the same time, he had a barn-burner of a race 
back home, which I'm familiar since I've had a number of those 
over the years. My district has changed, and I hopefully won't 
have that any time in the near future, but experience that time 
and again. When you are in one of those races, it can be 
challenging to really put in the time and effort up here, and I 
always try to do that. I know Mr. Bera did, as well, so I want 
to commend him for that.
    I actually having another hearing going on, so I'm going to 
be going between two places. I'm the new chairman of the Small 
Business Committee, the first time I've chaired a full 
committee, so that's something that I'm going to be devoting a 
lot of attention. But Foreign Affairs is near and dear to my 
heart, having served on this committee for 19 years now; the 
full committee, and chaired the Middle East Subcommittee. That 
said, the Asia-Pacific region is critically important, and when 
you consider the amount of trade that goes through that area, 
and the world's oil shipments--two-thirds of the oil 
shipments--it's a critical part of the world.
    The so-called ``rebalancing'' or ``pivot,'' I think in 
concept, at least, may be a good one. I think there's some 
question about the follow-up, particularly when one considers 
the growing, for lack of a better term, chaos in the Middle 
East; whether it's Yemen, which was touted as kind of a success 
story and recently we saw the government fall to an Iranian-
backed Hoothi group; to Libya, where we saw 21 Christians 
literally beheaded on the beach there recently. There's a whole 
range of things we can talk about in the Middle East, so I 
understand why the rebalance certainly may not be as it was 
originally envisioned--we're not necessarily seeing that right 
now.
    Those are the kind of questions I'd ask, but I have to go 
to another committee. What can we expect from that rebalance 
when you consider what's actually going on in the Middle East? 
It looks like not only are we going to be exiting that region 
to some degree, I think we're going to be going back in, in 
considerable form in the very near future.
    So, anyway, thank you and congratulations on your 
chairmanship, and I yield back my time, Mr. Salmon.
    Mr. Salmon. Thank you, very much. Mr. Bera, would you like 
to make an opening statement?
    Mr. Bera. Sure, and I'll keep mine short. I'm looking 
forward to a great session of Congress with you, Mr. Chairman, 
and the new ranking member. I'm also looking forward to the 
testimony of the witnesses.
    Obviously, I have a keen interest in the U.S.-South Asia, 
U.S.-India relationship. Also, very interested in getting an 
update on, you know, some of the tensions in the South China 
Sea, as well as it does seem like things in the East China Sea 
have settled down a little bit, but again these unilateral 
moves that China has made, and getting that update.
    Again, I think we're going to have a great session of 
Congress. I think there is huge opportunity both geopolitically 
and economically in a strong U.S.-Asia relationship. And, 
obviously, just having returned from India, I think there is 
huge opportunity and promise in the U.S.-India relationship, 
both strategically and economically. So, look forward to the 
testimony.
    Mr. Salmon. Thank you. Mr. Lowenthal, yes.
    Mr. Lowenthal. Thank you, Mr. Chairman, ranking members, 
and all the witnesses. It's a real pleasure to join this 
subcommittee.
    I, like many of my colleagues, think that we have 
tremendous--we're at a pivotal point in U.S. foreign policy in 
Asia. I think there are lots of opportunities, but there are 
also great challenges. You know, as we continue to see greater 
involvement and engagement, especially through the TPP, that 
raises certain issues for me.
    I represent the Port of Long Beach and know how critical 
the engagement of all these countries are at an economic level. 
And while we grapple with issues of environment and the TPP, 
labor, currency manipulation, and state-owned enterprises, for 
example, we also now have unprecedented leverage in these 
negotiations to promote universal values of human rights.
    I believe if you want to gain favorable trading status with 
the United States and your neighbors, you must at least adhere 
to a minimal standard of respecting the basic rights of your 
own citizens. So for me in my district, and what I'm concerned 
about is, for example, Vietnam. It's failed time and time again 
to meet anything close to a minimal standard. This one party 
authoritarian government represses, sometimes violently, anyone 
who speaks out against the regime. The government jails 
bloggers, labor activists, and religious leaders seemingly on a 
whim.
    You know, while Vietnam has been increasingly pressured by 
the international community to improve its human rights record 
in recent years, it seems like every step forward is also 
accompanied by two steps backward.
    I look forward to hearing the witnesses, not only in terms 
of economic issues, and security issues, but really how we can 
advocate for values that are not just important to us as 
Americans, but really are universal values. And I look forward 
to really the discussion that takes place on this committee.
    Mr. Salmon. Thank you. Representative Meng.
    Ms. Meng. Thank you, Chairman Salmon, and Ranking Member 
Sherman for welcoming me. I'm very honored to join the 
Subcommittee on Asia and the Pacific this term.
    Our hearing today is aptly named. This is an important time 
for many Asian countries that are rising in economic strength, 
and looking to increase their power in the region, and 
globally. The strength of our relationships with these 
countries will be a defining characteristic of the next 
century.
    I look forward to working with my colleagues as we navigate 
these relationships, and work with our allies in the region.
    Mr. Salmon. Thank you very much. We're pleased to have such 
an excellent panel join us today to share their expertise on 
this very important region of the world.
    First, Dr. Karl Jackson serves as the Director of the Asian 
Studies Program at Johns Hopkins School of Advanced 
International Studies, where he founded the Southeast Asian 
Studies Program. Before he joined Johns Hopkins University, Dr. 
Jackson served as the Vice President's National Security 
Advisor and as Special Assistant to the President.
    Dr. Van Jackson is currently a visiting Fellow at the 
Center for a New American Security. Prior to joining CNAS, Dr. 
Jackson served with distinction in the Office of the Secretary 
of Defense. Dr. Jackson also lectures at a number of highly 
regarded academic institutions, including Georgetown University 
and Catholic University of America.
    Mr. Matthew Goodman joins us from the Center for Strategic 
and International Studies, where he's a Senior Advisor for 
Asian Economics. Mr. Goodman previously served in numerous 
roles in the administration, including the Departments of State 
and Treasury, as well as the White House.
    Mr. Abraham Denmark is the Senior Vice President for 
Political and Security Affairs at the National Bureau of Asian 
Research. Before his time at NBR, Mr. Denmark was a 
professional in both the private sector and the government, and 
worked in the Office of the Secretary of Defense.
    Mr. Patrick Mulloy was most recently a five-term 
Commissioner of the Bipartisan U.S.-China Security and Economic 
Review Commission. Mr. Mulloy is a trade lawyer and former 
Assistant Secretary in the Department of Commerce's 
International Trade Administration.
    And without objection, the witnesses fully prepared 
statements will be made part of the record, and members will 
have 5 calendar days to submit statements, questions, and 
extraneous materials for the record.
    Let me just briefly explain the lighting system. I'm sure 
you're all familiar with it. You each are given 5 minutes for 
your prepared statements. After 4 minutes, you'll see an amber 
light, just to let you know that it's coming close. When the 
light hits red, it's time to conclude. I've not been a real 
stickler if you go a few seconds over because I really want to 
hear what you have to say. The same thing for members' 
questions. We don't want them to go on forever, but I really do 
have a light gavel. If you've got questions you want answered, 
that's why we're here, so if you go a few seconds over, don't 
worry. Let's just get as much as we can.
    So with that, we're going to start with you, Dr. Jackson, 
and we'll work our way over.

 STATEMENT OF KARL D. JACKSON, PH.D., C.V. STARR DISTINGUISHED 
  PROFESSOR OF SOUTHEAST ASIA STUDIES, DIRECTOR OF THE ASIAN 
STUDIES PROGRAM, JOHNS HOPKINS SCHOOL OF ADVANCED INTERNATIONAL 
                            STUDIES

    Mr. Karl Jackson. Thank you very much, Mr. Chairman, and 
other distinguished members of the committee. I used to testify 
as a government witness; now I'm a free man, but that was a 
long time ago in the age of Steve Solarz and Jim Leach. But, in 
any case, it's good to be back in front of the committee, and 
I'm not going to read my statement. I'd like to just make a few 
points so that we can get on to my younger brother, Dr. Van 
Jackson.
    The first point I'd like to make is, Asia has in our 
lifetimes been a remarkably successful place. It's been far 
more successful than we ever thought, at least I ever thought 
as a young adult. There's been a larger increase in prosperity 
in a shorter amount of time than mankind has ever witnessed.
    This is an amazing turn of events, but with that turn of 
events comes greater complexity because China and India are 
going to be much, much more powerful in the next 25 years than 
we ever anticipated really 30 to 40 years ago. The so called 
uni-polar moment of the United States in Asia, in my opinion, 
has passed, and we will be facing a multi-polar balance of 
power in Asia, and we have to figure out how to deal with it so 
that we preserve our own interests, but also avoid conflict.
    Now, I'd say the last time the world faced the problem of 
integrating two new big rising powers we failed miserably. We 
have two World Wars, as a result, and the name of the game for 
us in the 21st century, and the assignment for the next 
generation, is to avoid repeating the follies of the 20th 
century.
    I would contend that we have to bring to the head table of 
international relations both India and China, and to combine 
them in a quadri-partite conflict prevention mechanism that 
deals only with security, not with trade, not with human 
rights, not with many other incredibly important issues, but I 
contend that the biggest problem we face in Asia is to prevent 
these disputes over worthless rocks escalating into warfare 
which would destroy both the peace and prosperity of the 
Pacific.
    Several members mentioned the rebalance. I think it's very 
important to make sure that the rebalance is not under-
resourced on the military side. I think it's incredibly 
important to make sure that TPP and the trade side receive the 
prominence that they deserve. And I think it's enormously 
important that the rebalance be conceptualized as running all 
the way from India around the Horn to Korea, and all the way 
down under; otherwise, it becomes just a synonym for a China 
containment strategy which, in my opinion, if that is 
approached unilaterally with just the United States, or just 
the United States and Japan, it won't work.
    So, I would contend that U.S. policy over the next 5 years 
should give just as much attention to the U.S.-India 
relationship as it gives to the U.S.-China relationship, as it 
gives to the U.S.-Japan relationship. Why? We need to have four 
powers together potentially in the same room at a very high 
level to insure that we will not allow some of the things that 
Mr. Sherman mentioned to escalate into warfare. Thank you. I 
yield to my older brother.
    [The prepared statement of Mr. Karl Jackson follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Salmon. Thank you. Dr. Jackson.

STATEMENT OF VAN JACKSON, PH.D., VISITING FELLOW, CENTER FOR A 
                     NEW AMERICAN SECURITY

    Mr. Van Jackson. Thank you. Mr. Chairman, Ranking Member 
Sherman, distinguished members of the subcommittee, let me just 
say that I'm a great fan of both California and Arizona. And 
thank you for the opportunity to come address this topic today.
    U.S.-Asia policy should not be autopilot. Right? It merits 
regular critical scrutiny most intensely at times when the 
regional landscape is changing, and I would offer that that 
time is today. If I have a singular assertion it's that over 
the next 2 years, keeping Asia stable should be the 
overwhelming priority for U.S. policy in Asia.
    The Trans-Pacific Partnership, human rights, fostering 
democratic political transitions in authoritarian regimes, all 
of this matters, but none of it's possible in a region riven 
with conflict, so it may sound banal to prioritize keeping Asia 
stable, but it means adapting to what I would describe as 
greater structural risks facing the region.
    The chairman mentioned some of these. China is 
demonstrating an increased willingness to challenge the 
international status quo. At the same time, we have Japan 
seeking to expand its security role in the region after half a 
century of formalized pacifism in international affairs. 
Militaries across the Asia-Pacific are undertaking robust arms 
buildups, military modernization programs, increasing the 
latent capacity for rapid destruction in the event of conflict. 
And North Korea is expanding and improving its nuclear and 
ballistic missile programs completely unchecked, even as it 
finds novel ways to coerce, to probe the resolve of the United 
States and its South Korean ally.
    All of these developments are taking place against a 
backdrop of region-wide mistrust, uncertainty about the future, 
and longstanding unresolved territorial disputes. Taken 
together, these circumstances constrain the ability for even 
astute statesmen to navigate Asia peacefully.
    I would submit that keeping Asia stable amid these evolving 
circumstances require two things from the U.S. First, to be 
seen as a sure thing, as a reliable ally and partner. To the 
extent uncertainty drives regional security trends in a 
problematic or undesirable direction, certainty about the U.S. 
can help be an antidote for that. And then second, I think we 
need to do what we can to encourage the militarization of the 
region in a defensive direction. And I think this can be 
achieved by working with regional allies and partners to 
develop military capabilities and operational concepts that 
improves overall situational awareness, counter the ability of 
others to project power, and strengthen territorial integrity 
of sovereign borders.
    In short, I think it would benefit the region and the 
United States to empower the region's smaller and middle powers 
to better defend themselves; particularly, as dominant military 
technologies evolve and spread. Despite growing economic 
interdependence among Asian states, the region remains a 
potential powder keg.
    China is still a lingering concern for most, but so are the 
long-term intentions of neighbors among middle powers, to say 
nothing of the risks that North Korea may pose as it develops a 
survivable nuclear force. The United States rightly seeks a 
peaceful, liberal order in Asia, and I would suggest that the 
minimal necessary condition for that to obtain is stability, 
which is facing greater structural risk. So, thank you again, 
and I look forward to answering your questions.
    [The prepared statement of Mr. Van Jackson follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Salmon. Thank you. Mr. Goodman.

STATEMENT OF MR. MATTHEW P. GOODMAN, WILLIAM E. SIMON CHAIR IN 
 POLITICAL ECONOMY, SENIOR ADVISER FOR ASIAN ECONOMICS, CENTER 
            FOR STRATEGIC AND INTERNATIONAL STUDIES

    Mr. Goodman. Thank you, Mr. Chairman, Mr. Ranking Member, 
distinguished members of the subcommittee. I'm delighted to 
have a chance to talk about the economic dimension of the 
rebalancing of our economic opportunities and challenges in 
this important region, Asia-Pacific.
    As someone who works on economics in a foreign policy think 
tank, I sometimes joke that my colleagues work on life and 
liberty, and I work on the pursuit of happiness, and so that's 
the way I look at the economic story in Asia, because it's 
largely a positive one for us. So, I'd just like to make four 
points.
    First, the economic stakes for the United States in the 
Asia-Pacific are enormous. The region accounts for around 60 
percent of global GDP, includes eight of the world's $15 
trillion economies, and it's consistently been the fastest 
growing region of the world in recent times. By 2030, Asia will 
likely be home to 3 billion middle class consumers, which is a 
huge opportunity for us to export American goods and services, 
beef, pork, soybeans, aircraft, software, healthcare services, 
and the many other things that we are competitive in. But U.S. 
economic engagement with Asia also comes with a number of 
challenges. We have sizable trade deficits, as Congressman 
Sherman mentioned, with a number of Asian countries. Our 
companies face an array of barriers and unfair trade practices 
both at and behind the border in many Asian economies from 
regulatory impediments, to theft of intellectual property. And 
excess savings; I'm a former Treasury guy, so I have to say 
excess savings in Asia create macroeconomic imbalances that can 
be destabilizing, as we saw in the global financial crisis; 
which leads to my second point.
    Addressing these challenges and these opportunities, and 
maximizing these opportunities requires a robust U.S. economic 
diplomacy in the region. And, indeed, administrations of both 
parties over the past 40 years have pursued an active economic 
strategy toward Asia from Nixon's opening of China, which 
really facilitated China's reform and opening strategy, to the 
Obama administration's pursuit of the Trans-Pacific 
Partnership, which I'll come back to.
    The basic objectives of U.S. economic strategy across these 
administrations have been threefold. The first is growth and 
jobs. Stronger demand, rising purchasing power, and lowering 
trade barriers means more opportunities for U.S. exporters, 
which translates into growth and jobs at home.
    The second objective is upholding and updating the rules of 
the international economic order. Those rules have increasingly 
fallen out of step with the realities of today's global economy 
which revolves around integrated value chains. This means trade 
agreements need to be updated, not just to cover things that 
happen at the border like tariffs and other border measures, 
but also behind the border issues, like the behavior of state-
owned enterprises, regulatory practices, intellectual property 
protection, and so forth.
    Finally, U.S. economic policy in the Asia-Pacific has been 
aimed at underpinning America's long-term presence in the 
region. Our alliances with Japan, South Korea, Australia and 
others have provided long-term stability and security in the 
region, and these trade investment and other economic 
arrangements help provide a critical economic equivalent 
enmeshing the U.S. in regional affairs, and reassuring our 
allies and potential adversaries of our long-term commitment to 
the region.
    My third point is that there is a new reality in Asia 
shaping our economic engagement, which is obviously the rise of 
China and India. I'll focus mainly on China. Just 15 years ago, 
China's economy was roughly one-ninth the size of ours. Today 
it is the world's second largest economy, and could surpass 
ours in nominal terms in just a few years.
    China clearly has ambitions to resume its historical 
position as the Middle Kingdom at the heart of Asia, which has 
implications for the established order in the region and the 
U.S. role in it.
    Not all of this is a bad thing. China's economic success 
has created a significant new source of demand for the United 
States and neighboring countries and, therefore, economic and 
export opportunities. Beijing has to date largely been a rule 
taker in the regional economic order, and has even been a 
constructive player in regional institutions such as APEC, but 
Beijing has also, of course, been selective in its compliance 
with international rules and norms, as others have mentioned; 
failing to honor the spirit of its WTO commitments, tilting the 
playing field in favor of its industrial champions, and harming 
the interests of U.S. companies.
    Moreover, Beijing is clearly seeking a greater voice in 
setting international rules and standards, and imbuing them 
with Chinese characteristics, setting up new institutions that 
raise questions about the sustainability of the Bretton Woods 
institutions that we champion for so long. So, this means we 
have to have this robust economic strategy to deal with both 
these challenges and opportunities of interacting with China.
    Final point is about TPP. It is obviously right now the 
sharp end of the spear of our economic engagement in Asia, and 
it serves all three of the enduring objectives that I mentioned 
of U.S. economic strategy in Asia, substantial economic gains, 
potentially, updating the rules of the regional trade with new 
disciplines in the areas I mentioned, and TPP would embed the 
U.S. more deeply in the Asia-Pacific region, and reassure our 
allies who are skeptical about our long-term commitment.
    As you know, TPP is near the end game, and it's now 
believed this could be brought to you and Congress for 
consideration as soon as later this year. The stakes are very 
high. I think this is a critical component of the rebalance. 
Without the economic components, and TPP as the, as I say, the 
sharp end of the spear, then the rebalance is seen as a 
primarily military endeavor, and that's not going to be 
acceptable to the region, so we need to pursue this agreement 
for a number of reasons. Thank you very much.
    [The prepared statement of Mr. Goodman follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Salmon. Thank you. Mr. Denmark.

  STATEMENT OF MR. ABRAHAM M. DENMARK, SENIOR VICE PRESIDENT, 
  POLITICAL AND SECURITY AFFAIRS AND EXTERNAL RELATIONS, THE 
               NATIONAL BUREAU OF ASIAN RESEARCH

    Mr. Denmark. Thank you very much, Mr. Chairman, Mr. Ranking 
Member, and the distinguished members of the subcommittee.
    I agree with the ranking member that when we talk about 
Asia, we have so many issues and so little time. And since my 
time is ticking away rapidly, I'm going to just focus on three 
things, and look forward to our conversation later.
    The first is looking at China. As has been mentioned 
before, the rise of China is probably the most significant and 
profound geopolitical trend of the 21st century. Its economic 
rise, its rapid and profound military modernization program is 
really historically unprecedented, and something that is of 
tremendous importance to American interests. But the rising 
prosperity that China has experienced in recent years is 
forcing Beijing to adjust to the demands of a modern economy 
and rising expectations of its people.
    China is facing unprecedented levels of urbanization, 
privatization, marketization, globalization, and what they call 
informatization. It speeds in scale that we've really never 
seen before. This economic development is creating corruption, 
environmental degradation, social dislocation, economic 
disparity, and political unrest that is incredibly challenging 
for Beijing to manage.
    These are challenges that Beijing is very much aware of. 
These are Beijing's absolute top priorities, and China's 
leaders are engaging on several programs to address them; the 
most well known being Xi Jinping's anti-corruption campaign. 
And this is a very serious campaign that Beijing is going 
through; tens of thousands of senior cadres have already been 
charged with corruption, hundreds of thousands of lower level 
officials have been charged with corruption, and the Bank of 
America has estimated that China's GDP fell by 1.5 percent last 
year solely as the result of government officials no longer 
buying luxury goods and real estate, so this is a huge problem, 
but also a major program that Beijing is going through. It has 
important implications for the rule of--for Xi Jinping's power, 
and for Chinese politics. And it informs Beijing's ability to 
craft its approach to foreign policy and U.S.-China relations.
    I would argue that in the grand scheme of things, China is 
not pursing a radically revisionist agenda in the international 
system, and that it sees that it is this system that allowed it 
to grow prosperous, to remain stable. Where China is 
revisionist, however, is regionally. As has been said before, 
China is attempting to establish something what I call a neo-
tributary system which places it at the center of the Asia-
Pacific's economic, political, and security destiny; a destiny 
that in China's mind does not include the United States playing 
a major role. This is, obviously, something that is very 
problematic for American interests, and so we are engaging them 
in a wide variety of different activities that involve both 
cooperation and competition.
    The second issue I wanted to address with you has been 
brought up a little bit already, is American alliances and 
partnerships in the Asia-Pacific. Our alliances are absolutely 
critical to American interests going forward. They are at the 
center of our power, our influence, and our presence in the 
region, and something that we need to be able to maintain and 
update for the requirements of the 21st century.
    Japan is, obviously, a very important alliance for the 
United States. Prime Minister Abe is revitalizing Japan's 
economy, but also revitalizing the role that Japan can play in 
the geopolitical realm in the Asia-Pacific. By working with us 
on new defense program guidelines, we have a tremendous 
opportunity to bolster their capabilities, and find a new 
capable and more balanced alliance that will help our 
interests, help maintain stability in the region.
    It has also been mentioned that India is incredibly 
important to the United States. President Obama is the first 
American President to be invited to India to celebrate Republic 
Day. He's also the first President to visit India twice while 
in office. Prime Minister Modi clearly sees the United States 
as incredibly important to India's interests, and there are 
great opportunities for us to engage with them strategically, 
politically, and economically. India's ACDIS policy has 
tremendous potential complementarities with our rebalancing 
policy, and I think those are complementarities that we need to 
address.
    Third and finally, there's been a lot of questions and lot 
of ink spilled over questions about the long-term potential for 
American power. Many in Asia, some in the United States talk 
about potential American decline, that we are going to be 
overshadowed by the rise of China, the rise of other powers in 
Asia. And I actually wanted to make the point here that I think 
this is a very wrong analysis. I actually think that the United 
States has tremendous potential to remain powerful and dominant 
in the Asia-Pacific. Our economy is the most rigorous, the most 
powerful in the region, our military is the most powerful in 
the region. The key for us, though, is to take this potential 
and translate it into actual power. We have opportunities to 
maintain our power and dominance in the region, but it's going 
to require the adroit leadership and good decision making from 
our leaders in the Executive Branch, and from you all in 
Congress.
    I look forward to talking with you about U.S. strategy and 
dynamics in the Asia-Pacific. Thank you very much.
    [The prepared statement of Mr. Denmark follows:]
    
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Salmon. Thank you. Mr. Mulloy.

STATEMENT OF THE HONORABLE PATRICK MULLOY, TRADE LAWYER (FORMER 
   COMMISSIONER, U.S.-CHINA ECONOMIC AND SECURITY COMMISSION)

    Mr. Mulloy. Mr. Chairman, Ranking Member Sherman, and 
members of the subcommittee, thank you for inviting me to 
testify about U.S. opportunities and challenges in the Asia-
Pacific area.
    I had the great good fortune in my life to work 15 years on 
the staff of the U.S. Senate Banking Committee where I was 
General Counsel and Chief International Counsel, so I love 
working with the elected representatives of people. And I think 
some of my views about what's happening in Asia may be 
reflective of the fact that I did have the chance to work for 
people who have to get elected to office.
    I have already submitted my written testimony to the 
subcommittee, and I just want to take a little time here to hit 
some of the key points that I made in my written testimony.
    I think America's so called pivot to Asia and a TPP as one 
element of the pivot are grounded in concerns about the rapid 
rise of China's economic, political, and military power. The 
pivot includes, among other things, beefing up our military 
capabilities, and building a closer working relationship with 
Japan and India.
    I understand that by 2020, the Navy and Air Force plan to 
base 60 percent of their forces in the Asia-Pacific region. The 
pivot also makes a more vigorous attempt to integrate our 
economic relationship with Asian economies, such as those with 
whom we are negotiating the TPP.
    I should note that we presently have a combined total trade 
deficit with the TPP countries of well over $100 billion. I 
hear a lot about the geopolitical reasons we must do the TPP, 
but I am not aware of any analysis that claims the TPP deal, if 
approved, would reduce our very large trade deficits with the 
TPP countries.
    I also hear a lot about how the TPP, whose provisions I 
have not seen, will bring about increased exports from the 
U.S., but I hear nothing, nothing about what we might expect in 
terms of increased imports. Most economists will tell you that 
when a nation runs large negative net exports, you are 
detracting from your GDP and job growth.
    The Chinese use a term called comprehensive national power, 
meaning that if you build your economy, then your military and 
political strength will come from that economic base.
    Our completely unbalanced trade and economic policies 
toward China are helping China to become a great power much 
more quickly than we ever thought imaginable. Let me explain. I 
think we must correct our totally unbalanced economic 
relationship with China if we want to strengthen America's 
geopolitical position in Asia, and elsewhere.
    Last year, our nation ran a $345 billion trade deficit with 
China. Since China joined the WTO in 2001, we have run over $3 
trillion worth of trade deficits with China. How has China done 
this? One, they manipulated their currency. Two, they're 
stealing intellectual property. Three, they're incentivizing 
American companies to transfer factories from here to there 
partially through their currency manipulation. The companies 
can make bigger profits by moving there and shipping back here. 
China also incentivizes our companies to transfer technology 
and R&D from here to China. This is building China's military 
and industrial base. And then some people say then we have to 
arm ourselves because China is more powerful. I'm like the 
Congressman. I'm a trade hawk, and I'm not so keen on just 
using military means to rebalance this whole relationship.
    I had the great good fortune, as well, to be a Commissioner 
on the U.S.-China Economic and Security Review Commission. That 
is a bipartisan group appointed by the leaders of the House and 
the Senate, and they're charged to look at the economic--at the 
national security implications of our economic relationship 
with China.
    Most of their reports have been unanimous. In their 2014 
report to the Congress, which is unanimous, the Commission said 
this:

        ``China's rapid economic growth has enabled it to 
        provide consistent and sizable increases to the PLA 
        budget to support its military modernization. China's 
        defense budget has increased by double digits every 
        year since 1989.''

    Let me just finish this last part. They said,

        ``As a result of China's comprehensive and rapid 
        military modernization, the regional balance of power 
        between China on the one hand, and the U.S. and its 
        associates and allies on the other is shifting in 
        China's direction.''

So, it is clear that our imbalanced trade with China, that has 
fed China's extraordinary economic growth--over 10 percent a 
year for over 30 years--is contributing to a shift in the 
balance of power in Asia against our interests.
    To me, we've got to pay a lot of attention to rebalancing 
this whole economic relationship with China. I have provided 
some ideas on how we might do that in my written testimony.
    Thank you for giving me the opportunity to testify, and I 
look forward to taking any questions you may have.
    [The prepared statement of Mr. Mulloy follows:]
    
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Salmon. Thank you. That concludes the panel 
testimonies. We'd like to now be able to ask some questions.
    First of all, regarding these maritime disputes both in the 
South China and East China Seas, and in light of this month's 
reports that China is building artificial islands, and 
potentially building up military installations, what is the 
administration's response? And do you see it as effective? 
Start with you, Dr. Jackson, what are your thoughts?
    Mr. Van Jackson. Yes.
    Mr. Salmon. Yes. Okay, thank you.
    Mr. Van Jackson. Thank you. So, the administration has 
taken steps to shore up its alliances. It's focused--it's taken 
its own credibility in the region seriously. The challenge is 
not so much with the United States sort of showing up, or 
demonstrating resolve short of violence, or the threat of great 
violence. The larger issue is with the nuanced way that China 
is doing what it's doing.
    It makes it much easier to stand firm or retaliate whenever 
the Chinese send in the PLA Navy. Right? Whenever they use 
traditional military force it's easy to respond in kind. 
Signaling resolve in this kind of thing becomes a clearer 
exercise, but when you're using unarmed drones, when you're 
pressing assertive with the construction of artificial islands 
or water canons, or any of these sort of nontraditional means, 
it creates this dynamic where it's very hard to respond without 
being seen as the bad guy, without being seen as escalatory 
yourself.
    I think there's a way to remedy this by sort of forcing 
operational transparency to the extent possible through 
cooperation, information sharing regimes with allies and 
partners. It's something that China can be a part of, too, if 
it wanted to. The question is does it want to? And as long as 
China operates coercion within this gray space, transparency is 
really the only solution without sort of risking escalation, I 
think.
    Mr. Salmon. Thank you. Yes, Dr. Jackson.
    Mr. Karl Jackson. I would just say that, to amplify the 
answer of my fellow Jackson member here, that China really 
follows, if you look at it in a long term, a take and then talk 
strategy. It's cyclical. The number of incidents go up in the 
South China Sea, or in the East China Sea, and then if there's 
an APEC meeting coming in Beijing, suddenly things get quiet in 
the Pacific again. And then I would assume we're moving into--
in fact, we're in the middle of the next phase of a take 
strategy, which is the creation of new islands in the South 
China Sea. And, you know, this is a very difficult problem to 
deal with, and it requires, in my opinion, that the 
administration provide more assistance to the Philippines, more 
diplomatic assistance, as well as military assistance. Thank 
you.
    Mr. Salmon. Thank you. Over the last few years, the 
tensions in the Taiwan Strait have de-escalated with the 
election of President Ma. He's facing some political challenges 
of his own, and recently there's speculation that the DPP 
candidate may gain a little bit of steam given some of his 
challenges.
    China has made no secret of its loathing of the DPP and 
what they stand for. If the DPP is successful in the next 
election, where do you see Taiwan-China-U.S. relations going? 
Any thoughts? Mr. Denmark, did you want to address that?
    Mr. Denmark. Sure. Obviously, we're still quite a ways away 
from the next Taiwan Presidential election, so it's difficult 
to speculate on who may win. But I do think that the Mainland 
is being very careful to try to keep some space open in case a 
DPP candidate wins so that they'd be able to maintain a 
relationship with Taiwan.
    They, obviously, recognize that it's very--it's going to be 
very complicated if the DPP wins the next Presidential election 
in Taiwan. There's going to be a lot of concern in China that 
the next candidate would show some of the more problematic 
tendencies that Chen Shui-bian showed when the DPP was last in 
power. But I also think that the Mainland would be trying to 
find a space that they can work with the DPP, so I expect them 
to be fairly quiet about the election. I'm not trying to put 
anybody in a corner, but I do think that they're going to be 
very concerned about what happens.
    I also wanted to note that there's going to be some real 
challenges in the next election, and if--whoever wins the next 
election in Taiwan, because of what's happened last year in 
Hong Kong, because of the framework that China talks about 
these systems of one country, two systems; although, the 
proposals are not exactly the same. There are some important 
differences, but they are some very important similarities, as 
well; enough similarities that I think in Taiwan there will be 
a lot of concerns and questions about this formulation of one 
country, two systems, and how Taiwan can position itself within 
that context.
    Mr. Salmon. I completely concur. In fact, I think the 
Taiwan body has been really watching with interest how this 
whole one country, two systems has played out. And it hasn't 
really played out the way that China said it would back in 
1997. They have not been nearly as hands off, especially with 
the selection of the CEO, as they said they would be. And it's 
prompted these protests and quite a bit of political unrest 
within Hong Kong. And I don't think that is helping their case 
at all with Taiwan as they seek a peaceful reunification at 
some point in the future. I think it bodes very ill for them.
    In fact, I'm going to be leading a codel in May with Elliot 
Engel to Hong Kong, specifically, for these purposes, so stay 
tuned. I'll yield to Mr. Bera.
    Mr. Bera. I want to thank my colleague from California for 
giving me this time.
    It is a very interesting time in this pivot to Asia, and as 
we look at the U.S.-Asia relationship, as we look at the 
opportunities and the challenges, listening to the opening 
testimony, the goal is twofold; stability in the region and 
prosperity in the region. And, certainly, that is to our 
advantage.
    Having had the privilege to travel to India with the 
President and, you know, just kind of up front looking at the 
dual interests on both sides; clearly, I think at the Executive 
level the Prime Minister and the President understand the 
importance of the relationship. I think the Prime Minister as 
he is looking at an ambitious agenda in India, is looking for 
reliable partners, and clearly is looking to the West. 
Certainly, is building a relationship with Japan, but also 
increasingly is looking at the importance of the relationship 
with the United States. And I think the President understands 
the opportunities to open up the Indian markets here. And then, 
also, the importance of India geopolitically and strategically 
in stabilizing South Asia, and helping bring some stability to 
the South China Sea and so forth.
    I think we make a mistake if we just look at these 
relationships in a bilateral way, though, because there are 
really trilateral, multilateral relationships. And when we 
think about the U.S.-India relationship, we should also think 
about the U.S.-India-Japan relationship because, again, it's in 
our interests as allies. Certainly, India is looking at these 
relationships in a multilateral way. I think we make a mistake 
if we just look at India as picking the United States or China. 
Again, all these countries have major trading relationships 
with China, as well; and, again, I think we approach these in a 
multilateral relationship.
    You know, I'd be curious, you know, as we look at this 
growing relationship with India, as we've set the framework in 
moving forward with another 10-year bilateral defense treaty, 
looking forward to continuing progress on a bilateral 
investment treaty with India, and so forth, there's real 
opportunities here in the U.S.-India space to protect our 
interests but also, again, to bring stability to the region. 
Maybe we'll start with Mr. Denmark, your thoughts on this.
    Mr. Denmark. Thank you, Congressman.
    I completely agree with the tremendous potential there is 
in the U.S.-India relationship. I actually happened to be in 
New Delhi when Xi Jinping was visiting and got to see what a 
problematic relationship that India has with China.
    Clearly, Prime Minister Modi is seeking to enhance his 
relationships with all the major countries in Asia, so he's had 
important visits with President Obama, with Xi Jinping, but 
also with Putin, with Abe, and with Abbott down in Australia. 
But I think, clearly, that the United States occupies a special 
place in Prime Minister's Modi's outlook. And the bilateral 
defense agreement, the investment agreement that you mentioned 
I think have tremendous potential both in themselves, and what 
we can work with them, but also the precedents that they set; 
that the bilateral agreements that we've already put together 
with India, the Ash Carter push when he was the deputy, now his 
secretary, I think have tremendous potential to enhance our 
defense technology cooperation capabilities, potentially our 
interoperability, our planning. And because we share so many 
interests, especially in East Asia with India. On the 
investment side, encouraging India to look more outward as an 
exporter, to be a more integrated member of the international 
economy, I think is of vital importance.
    And I would just add, finally, you mentioned the trilateral 
and quadrilateral agreements, aspects of this relationship. 
Prime Minister Modi had very interesting and very close 
engagements with Prime Minister Abe, and with Abbott in 
Australia, and I think there's real potential for that 
quadrilateral dynamic that I hope in the coming years we'll see 
really getting----
    Mr. Bera. Great. And I'm glad you mentioned the new 
Secretary of Defense, Ash Carter. I think we've got a great 
team in place that understands the complexity of the region, as 
well as the opportunity. Obviously, the Secretary of Defense 
understands the region and spent a lot of time there. Our new 
Ambassador to India, Rich Verma, certainly understands the 
complexity and the opportunities there, as well.
    Mr. Goodman, you talked about kind of a basis of economic 
stability and economic prosperity. In the extreme seconds that 
I have left, would you like to go ahead and expand on that?
    Mr. Goodman. Sure. Again, the same basic point, which is 
there's huge potential in the U.S.-India relationship in the 
economic front. It's been, frankly, under-exploited over a long 
period of time. I think that that's for a number of reasons. I 
think one of them is that India has not until Prime Minister 
Modi in recent times had somewhat committed to the internal 
economic reform that Modi seems to be clearly committed to. And 
I think that's a precondition to a stronger relationship.
    Then there are the direct bilateral processes you 
mentioned. The bilateral investment treaty I think has great 
potential. I think it's going to be a challenging negotiation, 
but I do think it's something that could provide a real 
foundation.
    There are number of outstanding concerns, particularly of 
our U.S. businesses in India with foreign investment 
restrictions, localization requirements, intellectual property 
problems, the patent protection and so forth. Modi has 
addressed some of those. There's been some improvement on 
foreign direct investment in the railways and other 
infrastructure sectors, and I think that's quite an important 
sort of down payment on an improvement.
    I also would just endorse the point that regionally there's 
a big opportunity. You know, frankly, India has not been as 
engaged in certainly regional economic affairs to the extent 
that I think would be good for all of us. And they're not a 
member of APEC, which is the fault of both sides really for 
their not being in there. But they've also been sort of 
lukewarm about some of these regional endeavors. And I actually 
think that there would be, if they were willing to invest in a 
more greater openness in their own economy, they could make a 
great contribution to rulemaking and principle in these 
regional arrangements.
    Mr. Bera. Great, and I would just close with this. As co-
chair of the Caucus on India and Indian-Americans which is the 
largest country caucus in Congress, I think I can speak for 
members on both sides of the aisle that we view the U.S.-India 
relationship in a bilateral way, and see some of the 
opportunities there. Thank you.
    Mr. Salmon. Great. Thank you. Mr. Rohrabacher.
    Mr. Rohrabacher. First and foremost, thank you, Mr. 
Chairman for holding this hearing, and with these five very 
informative witnesses.
    Dr. Mulloy, or Mr. Mulloy mentioned that in the TPP he did 
not see anything that was going to bring down the level of 
trade deficit with the Pacific, which is now $100 billion a 
year, and with China it is $350 billion a year trade deficit. 
Do any of you disagree with Mr. Mulloy's assessment that 
there's nothing in the TPP that will bring that down? Are you 
predicting that the trade deficit will go down if we pass this 
trade policy? Yes, whoever. Does anyone disagree with him on 
that?
    Mr. Goodman. Well, I think it's very unclear how bilateral 
trade deficits and surpluses will be affected by trade 
agreements like this. I think in principle, a trade agreement 
like TPP which is opening markets in some of these key markets 
in Asia will increase our export opportunities. Of the 23 trade 
agreements that we've negotiated since 2000, all but one of 
them has led to a significant increase in U.S. exports. The one 
that hasn't is the Korea free trade agreement, and that's 
largely because Korea hasn't been growing and, therefore, 
particularly our coal exports to Korea have really plummeted. 
Our corn exports have also plummeted because of drought here. 
But if you take out those factors, other exports to Korea have 
increased. There should be an expectation of greater trade and 
exports to those countries.
    I would like to take on one point----
    Mr. Rohrabacher. Before you do.
    Mr. Goodman. Yes?
    Mr. Rohrabacher. Do you actually know what's in the TPP, 
because----
    Mr. Goodman. I mean, I haven't read the actual agreement 
itself, but I have a general sense of what the contents are, 
yes.
    Mr. Rohrabacher. Because we're not even permitted to know 
exactly what it's in the TPP. I mean, I've got people telling 
us what it's about. It's interesting they can read it and we 
can't. What's going on here?
    You were about to make a point. I'm sorry for cutting you 
off.
    Mr. Goodman. No, no, it's all right.
    Mr. Rohrabacher. I'd like Mr. Mulloy to have his chance to 
answer you, but go ahead.
    Mr. Goodman. Sure. No, I have not read the TPP agreement, 
so I am basing my understanding or assessment of it on the 
presentation by the U.S. Trade Representative Office, and by 
other players in TPP, what the contents are.
    Mr. Rohrabacher. Have they been successful. You're basing 
it on them; have they been successful in their predictions in 
the past?
    Mr. Goodman. Well, I mean, I think trade has increased with 
the countries with which we've negotiated free trade 
agreements, so I think in that sense yes.
    Mr. Rohrabacher. Okay.
    Mr. Goodman. We'll see what TPP actually does.
    I just wanted to respond to one thing about imports. So, I 
mean, this is a somewhat controversial statement to say, but 
imports are not as bad as people say in the sense that we're 
all working--I mean, it's like we work 5 days a week, that's 
exporting, to have the weekend, that's importing. We all want 
our iPhones. Right? We all want our, sorry, Smart Phones, which 
are made up of value from all around the world. You buy it for 
a couple of hundred dollars. When it arrives in Long Beach, 
it's valued at about $170, and that is booked by customs as an 
import from China worth $170. The reality is only about $6 
worth of this phone is actually produced in China, the rest is 
value-added from all over the world, including the United 
States. So, I think our trade data is not entirely an accurate 
reflection of global value chain production today. That's the 
specific point I----
    Mr. Rohrabacher. Give Mr. Mulloy a chance to answer.
    Ordinary working people who have jobs producing high-
quality products in the United States has enabled us to have a 
very wealthy, not a wealthy, but a middle class who lives at a 
decent standard of living. I personally see that in jeopardy, 
and by basically people who make analysis all based on what's 
good for a business, which then translates sometimes just into 
very wealthy Americans are getting better, but middle class 
Americans are not because they don't have these high-quality 
jobs.
    We've got just a couple of minutes, or a couple of seconds. 
Go right ahead.
    Mr. Mulloy. Thank you, Congressman. I remember the debate 
about whether to give China PNTR and bring them into the WTO. 
Many of the same groups, which are now behind the TPP, talk 
about increasing exports. I remember those same people were 
telling us that if we brought China into the WTO--we had an $80 
billion trade deficit with China at that time, now we have a 
$345 billion annual trade deficit with China. So, they told us 
that it would help balance our trade. It didn't, it made the 
situation much worse.
    I remember being on the staff of the Senate Banking 
Committee when we did hearings on NAFTA, and we were being told 
that it would help expand and improve our trade relationship 
with Mexico. We have about a $70 billion trade deficit with 
Mexico now after that, because there were no currency 
provisions in that agreement. And shortly after it was signed, 
Mexico devalued their currency. And that was--when we looked at 
it, we saw that wasn't a trade agreement, that was an 
investment agreement. And that's why they wanted those investor 
state provisions in that agreement to protect their right not 
to have to settle disputes in Mexican courts. So, I hear a lot 
of talk about the TPP exports. I never hear anybody talk about 
the trade balance that we're going to get out of this TPP. And 
I think that's very important for members to think about, and 
the impact that's going to have on their constituents.
    Mr. Rohrabacher. Well, thank you for bringing that up, and 
thank you, Mr. Chairman.
    Just a note; we were also told that with more trade with 
China, by bringing them into a close economic relationship with 
the United States, that we would have democratization. And I 
notice Mr. Denmark's remarks, he went through all the isms that 
are happening in China, but democratization wasn't one of them. 
And, in fact, I think what we see now is a regime in China that 
is politically just as oppressive that its ever been, and the 
theory that we were going to have more democracy by having this 
more open economic relationship, which they have manipulated, 
has not worked out. And what I call it is we were given the hug 
a Nazi, make a liberal theory, and it didn't work. They're no 
more liberal in China than they ever were. Thank you very much, 
Mr. Chair.
    Mr. Salmon. Thank you, Mr. Rohrabacher. Mr. Lowenthal.
    Mr. Lowenthal. Yes, I find the conversations fascinating. I 
think that there's been a focus more--again, I'm going to bring 
it back to some of the--what's important to me is some of the 
smaller countries in Asia. We focused on China, and we focused 
on India. I've listened a lot. But I'm concerned about, as I 
mentioned in my opening statement, I talked about, and I'll 
give you some other examples. I'd really like to hear your 
thoughts.
    I talked about some of the, what I consider--I represent 
Little Saigon, and Garden Grove, and Westminster, and all I 
hear from my constituents are the fact that human rights 
violations that are going on, and prisoners of conscience. And 
I also just recently introduced the International Human Rights 
Defense Act to protect--to create a special envoy within the 
Department of State for LGBT rights; and, yet, you know, I 
also--and as that bill was just beginning to be moved forward, 
Senator Markey also had the same bill, Secretary Kerry picked 
it up and appointed a special envoy for LGBT rights. Yet, we're 
talking about, just as Vietnam, we're talking about Brunei. 
Brunei puts LGBT folks to death, you know. It recently made 
same-sex sexual activity punishable by death; yet, it continues 
to be part of the TPP negotiations. We have some real issues of 
human rights violations also in Malaysia, in Singapore.
    I'm wondering with this pivot is there a role that we can 
leverage, as I raised, on some of the smaller countries to--
without imposing, but to really talk about, you know, you want 
to increase trade with the United States. What are you going to 
do about these issues, you know, that--and how are you going to 
really demonstrate beforehand that you're really moving forward 
at this time; or is that just not really a reasonable request 
to make at this time? You know, does that destabilize the 
situation?
    We talked about needing--I think it was Mr. Jackson talked 
about--Dr. Jackson, about the need for stability. I mean, I'm 
more concerned about protection of human rights at this moment, 
so I'm just wondering. That would protect the stability within 
those nations.
    Mr. Karl Jackson. Well, you've posed a difficult question. 
I used to work a lot on human rights problems in Vietnam, and I 
used to interview people in Westminster.
    Mr. Lowenthal. Right.
    Mr. Karl Jackson. I used to hang out with Dana Rohrabacher 
working on the same issues.
    Mr. Lowenthal. And Dana has done a great job, and I now 
represent part of the--that Dana used to represent. So, I 
picked up the Dana Rohrabacher mantle; so, I'm following in the 
great tradition of Dana Rohrabacher.
    Mr. Karl Jackson. All of that said, the whole business of 
making foreign policies is prioritizing, making choices, tough 
choices. And while it is possible for us to try to the best of 
our ability via the State Department, the Defense Department, 
et cetera, to push Vietnam toward being more reasonable toward 
its citizens, we have not been very effective. It's been very 
difficult.
    Mr. Lowenthal. Yet, now we're going to reward this bad 
behavior by having a special trade agreement.
    Mr. Karl Jackson. No, I think what we're going to do is 
reward ourselves by creating a more stable Asia-Pacific area by 
having this trade agreement. And, you know, nothing, nothing is 
going to come close to being perfect either with a trade 
agreement, or certainly with the human rights dimension. I've 
been doing this for a long time, and I wish I could say I've 
been 100% successful. It's not for lack of trying, but I don't 
think you're going to be able to turn to the Vietnamese 
administration and say all right, if you don't make the 
following six changes, there'll be no TPP. I think that would 
be a counterproductive way to go.
    Mr. Lowenthal. For them, for us to say to them. What if I 
said to myself if you don't make those changes, I won't vote 
for it.
    Mr. Karl Jackson. That's your--you know, obviously----
    Mr. Lowenthal. I'm just saying would that--do we have any 
leverage?
    Mr. Karl Jackson. We have only very limited leverage over 
what goes on at the domestic level inside Vietnam. I wish it 
were otherwise, Congressman.
    Mr. Mulloy. Well, I think you have a lot of leverage 
because you haven't given TPA yet, and in the TPA you can say 
what you want addressed in these trade agreements, because if 
you're going to bring them back without having a chance to 
amend them, and you have to vote them up or down, you've got to 
be pretty clear what you want, and then follow-up and make sure 
that those items are on the agenda of the negotiators.
    My problem now is, I think the TPP is being put to bed even 
before the TPA is going to be enacted, so you're going to come 
back without Congress really having a chance to put its input 
into this TPP in the way it should.
    Mr. Lowenthal. I yield back.
    Mr. Salmon. Thank you. Representative Meng.
    Ms. Meng. Thank you to the witnesses for being here today.
    My first question is for Dr. Van Jackson, or whoever, is 
welcome to answer, about North Korea. North Korea has been 
increasing its investment in nontraditional military weapons, 
chemical and cyber, in addition to its nuclear program. Is 
there any strategy that would dissuade North Korea from the 
further development of these weapons? I'm curious about your 
thoughts.
    Mr. Van Jackson. So, the short answer is probably no, not 
in the near term, anyway. They've put nuclear weapons in their 
constitution so it's more than a bargaining chip at this point. 
It's increasingly becoming part of who they see themselves as 
being.
    Chemical weapons, my interpretation has been that they see 
it not as a taboo the way we or the international community 
does, but as a sort of operational capability just like any 
other military capability. So, there's some reasonable 
expectation that chemical weapons could be used in some sort of 
limited conflict because they don't share the same taboo about 
it. But there is a larger pattern here where North Korean sort 
of egregious misdeeds, especially on the violence end, only 
occur in the context of sort of shared hostilities, which is 
very much the case right now, obviously. And we can--we and our 
South Korean ally can only bend so far, obviously, but it takes 
two to cooperate. It takes two to have, you know, a 
rapprochement, or non-hostile relations, qua amity from enmity. 
Right? So, all of the bad things we see from North Korea tend 
to be arrested during periods of better relations.
    The question is, how can get there? And in the near term, I 
don't see a path, so it seems the responsible thing to do in 
that context then is to be prepared for the range of 
possibilities with North Korea.
    Ms. Meng. My second question, anyone is welcome. the Asian-
American diaspora is the fastest growing population in the 
United States. How do you think this will impact our point of 
view and relationships with our allies in Asia?
    Mr. Karl Jackson. No, the increasing size of the Asian-
American diaspora is a good thing. It's a very good thing, 
because of the fact it makes us much more informed about this 
place called Asia. And I think that anything that can be done 
to facilitate the movement of more Asian-Americans, for 
instance, into our diplomatic service would be a great plus.
    We're beginning to see Korean Americans as Ambassadors and 
things like that. And, frankly, they receive a different 
reception in Asia. They are 100 percent American, but they have 
a different reception, and it's a very positive--it can be a 
very positive thing. Thank you.
    Mr. Mulloy. Governor McAuliffe has recently appointed me to 
the Commonwealth's Asian Advisory Board in Virginia, so I'm 
having a great opportunity to meet a lot of very talented Asian 
Americans, and learn a lot. And I think they'll be a tremendous 
asset for this country going forward on giving this broader 
perspective on how we should be integrated with these Asian 
economies.
    I'm a trade hawk, but I am very much in favor of balanced 
trade, and that's what I think we ought to be doing. I'm very 
much in favor of a closer economic relationship with India. I 
went to India when I was in the Clinton administration. I was 
Assistant Secretary, and before the President went out there, I 
was out there trying to line up some deliverables that the 
President could sign when he went out later. And I always 
thought that we should be putting a lot more attention on 
India. They're a democracy. Why are we putting all of our 
apples, and all of our effort into this China relationship? The 
imbalance in it I think is really harmful to this country, and 
I think we've got to rebalance that. But I think Asian 
Americans are going to be a tremendous asset to this country 
going forward.
    Ms. Meng. Thank you. I yield back.
    Mr. Salmon. Thank you. Mr. Connolly.
    Mr. Connolly. Have you gone, Brad? Entirely up to you, 
whatever you have scheduled. Thank you, sir.
    Welcome to the panel and, Pat, great to see you again. Pat 
and I had the honor of serving together in the U.S. Senate as 
fellow staffers working with Senator Sarbanes, in particular; 
great preparation for this job, I'll tell you.
    Pat, let me pick up on something you had to say about 
NAFTA. It sounded like what you were saying was Mexico 
deliberately waited until the ink was dry on the NAFTA 
agreement and then devalued its currency, thus, unfairly 
exploiting the opportunity NAFTA gave it. Is that your view of 
history?
    Mr. Mulloy. No, here's my view. When we did the hearings in 
the Banking Committee on NAFTA, it was sold as a free trade 
agreement. But when you really held the hearings, you concluded 
that was really an investment agreement. It was to provide an 
opportunity for American companies to be able to invest more in 
Mexico, to have a lower base job--to have lower wages, and be 
able to compete with some of the Asian imports. That was kind 
of the theory of the thing. But we didn't have any currency 
provisions in that agreement. And the fact that you had those 
investor state provisions in it to get outside of the Mexican 
courts to protect American investors was a good sign it was an 
investment agreement. Senator Warren has a big article about 
that issue in The Washington Post today.
    But shortly after that was done, Mexico ran into an 
economic emergency and devalued its currency, but we had no 
provisions in the NAFTA to deal with currency issues. I don't 
think they necessarily planned it, but it happened, and I think 
it had enormous deleterious impact on the American economy, and 
particularly those jobs in the Midwest where the companies 
relocated to Mexico and shipped back here.
    Mr. Connolly. Got it. Dr. Karl Jackson, sometimes in the 
world of political upheaval transformative change can happen 
virtually overnight. I mean, there may be lots of things that 
lead up to it, but the actual change happens very rapidly; 
witness the fall of the Berlin Wall, and everything that 
happened in Eastern Europe. I don't know any experts who 
predicted the rapidity of that change, and the reintegration of 
the two Germanies. I mean, nobody I knew at that time.
    Are we prepared for something comparable in North Korea? 
What if change comes to North Korea, I mean, with lightning 
speed and the regime collapses, and now what do we do?
    Mr. Karl Jackson. Well, you've hit upon a really good 
problem, because of the fact that if there were really rapid 
uncontrolled regime change, this would make China extremely 
nervous. It would make South Korea extremely nervous, and it 
would make the United States extremely nervous. And this is an 
instance where if there were the kind of security arrangement 
that I was advocating in my written testimony, then the phones 
would ring in New Delhi, Washington, Tokyo, and Beijing, and we 
would hopefully all say to one another let's all be calm and 
take this one step at a time, no troop movements. Let us all 
try to let the situation sort itself out to the maximum degree 
possible. But it is a very worrisome thing, and Chinese 
officials worry about it just as much as you do, because 
uncontrolled change is the one thing they want to avoid. They 
don't want a flood of refugees, and more than anything else 
they don't want the kind of instability that might necessitate 
the south coming to the north.
    Mr. Connolly. Thank you. Mr. Denmark, I wish we had more 
time, but real quickly, Mr. Mulloy has given a pretty cogent 
critique of a potential TPP, but I wonder if you might address 
both that critique and--but what's the alternative? I mean, one 
of the things I wrestle with is, if we don't set the standards 
through TPP, and we let this fall, then by virtue of the 
vacuum, it seems to me the Chinese then set them. And that is 
part of the choice, I think, we're wrestling with up here.
    Mr. Denmark. Thank you, Mr. Chairman. And an aside, I'm 
very glad that you asked about Korean unification. I think it's 
an incredibly important issue.
    On TPP, I am not an economist. I am not even going to--it's 
hard for a think tank person to admit his lack of expertise in 
something, but I'll admit I'm not an economist. I leave that to 
my friend, Mr. Goodman, here. But I can talk about the 
geopolitics of TPP; that TPP is absolutely essential to the 
longstanding American power and influence in Asia; that 
economics is at the center of Asian geopolitics, and the United 
States needs to play a leading role in that area; that TPP 
would go a long way in setting the rules of the road for 
economic engagement in Asia that goes beyond the specifics of 
the agreement, but would really set the tenor for much of 
economic engagement across the Asia-Pacific. And if we don't 
set the rules of the road, then China will. And if China is 
able to set the rules of the road, as it is already attempting 
to do by establishing things like the Asia Infrastructure 
Investment Bank and other sort of alternative institutions, 
we'll see much lower standards for environmental protection, 
lower standards for--lower tariffs for tariffs, and just a 
lower quality mode of economic integration; something that 
would be very much detrimental to our broader interest for 
greater economic integration in the region. So, geopolitically 
I see the TPP as being incredibly important.
    Mr. Connolly. I would only ask the chairman, Mr. Mulloy 
seeking recognition. It's the chairman's call, because my time 
is up.
    Mr. Salmon. Mr. Sherman.
    Mr. Connolly. Thank you.
    Mr. Sherman. There is an alternative. It's fair trade 
rather than free trade. The question is not TPP, or the status 
quo. The question is when we listened to Warren Buffet when he 
suggested that we require that for every dollar of imports 
there be a dollar of exports. The economic arguments for TPP 
are so bad that we have to be told that somehow we're going to 
obtain a national security advantage. The benefit--China, 
actually, will be the beneficiary of TPP because, as I 
indicated in my opening statement, goods could be admitted to 
be 65 percent made in China, but actually 70, 80, 90 percent 
made in China, and get duty-free access to the United States 
under the ``rules of origin.'' You just ship it to a TPP 
country, the slap a Made in Vietnam sticker on it, and end it 
to the United States, and we get no access to China.
    And as to the joy of us writing the rules of the road, 
these are Wall Street's rules. They have mutilated the American 
middle class, and the fact that they were made in Wall Street 
doesn't change that. The rules of the road in the future ought 
to be fair trade.
    But moving on to another subject, Mr. Jackson, and 
whichever Mr. Jackson feels most focuses on this. Would China 
be less inclined to support the North Korean regime if they had 
a solid promise from the United States that American forces 
will never be deployed north of the DMZ, and that, in fact, a 
unified Korea would have substantially fewer American forces in 
it than South Korea does today?
    Mr. Van Jackson. That's a good question. I don't think no 
matter what we promise that they would find it credible, 
ultimately.
    Mr. Sherman. Even if it was a Senate-ratified treaty?
    Mr. Van Jackson. Anything is possible, I suppose. I think 
the reasonable hedge for China is to maintain a reasonably 
sized military garrison on the other side of its border, and as 
it has suggested, in the event of any kind of instability 
insert itself as a buffer. Their overwhelming concern is with 
refugee flows, so what do we do about that?
    Mr. Sherman. And we would hope that a prosperous unified 
Korean would be able to accommodate the resettlement of all 
residents of North and South Korea in a newly prosperous state, 
but I'm going to go on to another issue, and that is that we're 
told exports are good, but imports don't matter; that where the 
statistics indicate that exports will grow, we embrace the 
statistics; where the statistics indicate that imports will 
grow, well, we dismiss the statistics because there's always 
something fuzzy about a statistic. We're told that if we export 
50,000 cars, that produces jobs. If we import 500,000 cars, 
well, that has no affect on our economy.
    Our school systems should be able to teach subtraction as 
well as addition. Every other country in the world knows that 
it's about trade balances, that if you increase exports by 1 
billion but you increase imports by 2 billion, you devastate 
your economy. And the only country that doesn't understand that 
is the country that is experiencing the largest trade deficit 
in the history of mammalian life.
    We can hold up an iPhone as a symbol of trade, but the real 
symbol are the broken families in every district in this 
country where jobs have been lost, families have been broken 
up.
    Now, we're told--we were told before MFN for China that the 
effect would be negligible on trade flows. That was off by $3 
trillion. We were told that the deal with Korea would benefit 
us as far as our trade deficit and, in fact, we have had a 
spectacular increase in our trade deficit with South Korea. And 
now there apparently aren't even any economic studies, they're 
not even promising to help the U.S. economy.
    Mr. Mulloy, are there--what do the economic studies which 
have consistently understated the devastation of these 
agreements, what do these economic studies show about this 
agreement?
    Mr. Mulloy. I've been reading a lot about TPP.
    Mr. Sherman. Your microphone.
    Mr. Mulloy. Yes, I've been reading a lot about the TPP. 
What I see always in any spokesperson in favor of the TPP, they 
talk about increased American exports. I have not seen any 
studies, or what is going to be the impact on our trade balance 
with those TPP countries. Is it going to improve?
    We're running a pretty major deficit with those countries 
right now. Will the TPP improve that? I have not seen any study 
that supports that.
    Mr. Sherman. The proponents of this can't even figure out a 
way to lie to us. That's exceptional, so there aren't--the last 
few times they've been able to tell us that they're going to 
increase net jobs in the United States, and now they've 
retreated. You and I would specify yes, these agreements will 
create increased exports to some degree.
    Mr. Mulloy. If I could speak to just one more thing.
    Mr. Sherman. Yes.
    Mr. Mulloy. Under the Constitution, you guys have control 
over trade.
    Mr. Sherman. Tell that to the administration, but go on.
    Mr. Mulloy. And my understanding is the majority of both 
Houses of Congress have written to the administration asking 
them to address exchange rates in the TPP.
    Mr. Sherman. Well, let me--because I've got a response from 
the administration, if the chairman will indulge me. Every time 
I talk about them cheating on their currency, China 
particularly, the response is, ``But they're cheating less.'' 
Gentlemen, don't try that on your wives. Honey, I'm cheating 
less.
    The idea that we would violate every day as the Executive 
Branch does the law compelling them to designate China as a 
trade--as a currency manipulator on the theory that they're 
treating--that they're cheating less demonstrates that no 
future trade agreement is going to be enforced no matter what 
the provisions might be. We'll scurry around, we'll file 
papers, but we won't do anything serious. I believe my time has 
expired.
    Mr. Salmon. Thank you. Mr. Goodman, I'm going to give you a 
chance. We're going to go through one more round. We have three 
folks, and we'll go through another round of questions. But, 
Mr. Goodman, I'd like to give you a chance to respond to some 
of the issues that were raised.
    Mr. Goodman. Thank you, Mr. Chairman. I'd just like to make 
three quick points.
    First, there are studies that show the potential benefit of 
TPP. The Peterson Institute did a study a year or two ago that 
showed that the annual income gains from a completed TPP 
agreement in 2025 would be roughly 225 billion U.S. dollars. 
That's a global number. And for the United States, $76.6 
billion. That's based on an econometric analysis that covers 
both exports and imports. I'm happy to put that specific 
reference in front of you. I think I may have referred to it in 
my written testimony, but happy to get that citation to you. 
So, there are studies showing potential benefits.
    Of course, these numbers are not going to be absolute. The 
$.6 billion I take with a grain of salt, but I do think there 
are studies showing there's some significant income gains for 
the United States that come both from the export, and as I was 
trying to suggest earlier, the import side of the equation. So, 
that leads to my second point.
    Globalization is a reality. Globalization and technological 
change are realities regardless of trade agreements. They're 
happening, and so the question in my mind is whether we are 
going to be able to positioned, and when I say we, I mean 
broadly the United States, including middle class workers, are 
going to be able to be competitive in that globalized 
technologically advanced, and changing world. And, to me, trade 
agreements run the possibility of establishing a set of rules 
which would level the playing field, and give us a chance to 
compete. So, that's what they're about.
    I don't think they are going to make globalization or--the 
existence of them or nonexistence of them is not going to make 
globalization or change.
    Mr. Sherman. If I can interrupt for a second.
    Mr. Goodman. And I'm happy to----
    Mr. Sherman. If I can interrupt for a second. The idea that 
the greatest companies in the world, the greatest workers in 
this world are losing by $300 billion or $400 billion a year in 
terms of our trade deficit, because they're bad workers, and we 
have fair trade is one view. The other view is that we have the 
greatest workers, and we have the worst rules. But it's clear 
we're losing, and I don't think we should blame our workers for 
that. I think we should blame our Government for that.
    Mr. Goodman. Totally agree. I think that it's not our 
workers. Our workers are the best in the world, and our economy 
is the strongest in the world. We can compete if there's a 
level playing field, which there is not. And that's why trying 
to shape the rules is what these trade agreements are trying to 
do. Of course, they're not going to solve every problem, but I 
think that's what they're aspiring to do.
    Just on currency really quickly, I would say that there is 
a currency problem in East Asia, a currency manipulation 
problem. Most countries in East Asia have engaged in that 
practice at some point or the other, and it has been a 
persistent problem and challenge.
    My own view is that using a trade agreement to solve that 
problem is unlikely to be successful, and that there should be 
other mechanisms explored to try to promote fairness in 
currency practices.
    Mr. Salmon. I'd like to move to a different issue. Several 
of you have mentioned that it's critical that the U.S. be seen 
by our allies in the region as a stable, consistent ally. Do 
you believe that's the view of the U.S. today in the region? 
Let me start with you, Dr. Jackson.
    Mr. Van Jackson. So, if you had asked me 2 years ago, there 
would have been much greater doubts. There are still 
hesitations, there are still concerns, not least because it's 
kind of a bottomless well with some of our allies. But they 
feel much more confident about the U.S. today and the 
trajectory we're on than 2 years ago, but it's not constant. 
So, like if you're checking in right now, I would say that 
we're in a better place than we were, but there's always room 
for improvement.
    Mr. Salmon. Mr. Denmark, do you have any thoughts on that?
    Mr. Denmark. Sure. Our allies and our partners in the Asia-
Pacific are in a very difficult geopolitical position in that 
there's a major strategic rival or challenge very close to 
them, and their primary ally guarantor of their security is far 
away, so they're very sensitive to indications that the United 
States be consistent, be reliable. So, the challenge that we 
have as being the dominant power is that if we demonstrate our 
reliability and consistency 90 times, and twice we stumble, all 
we're going to hear about is the two times that we've stumbled. 
So, I've been hosting groups of people from our ally countries 
when we had government shutdown, and those sorts of events that 
we have when the government shuts down for reasons that are 
very difficult to explain to them, raises their concerns about 
how reliable we are, how we can act as a responsible country.
    Further, being able to pass TPP after we have encouraged 
them to do it, after we've been negotiating for so long, if 
we're not able to pass it, that would send a signal to our 
allies that we're not a reliable partner, that we're not able 
to follow through with what we say we're going to do. So, 
they're very sensitive to that. They want to be able to work 
with us. They see themselves as needing us economically, 
politically, militarily, strategically, but they need to make 
sure that we're consistent and reliable.
    Mr. Salmon. Dr. Karl Jackson.
    Mr. Karl Jackson. Yes, I guess I would have a twofold view 
on this. First of all, in the last 40 years of going back and 
forth, especially to Southeast Asia, I've almost never heard 
anyone say gee whiz, you guys are doing a terrific job. Now, we 
can't have been wrong consistently all the time so there is a 
tendency to try to poke us a little bit to get us to do a 
little bit more. That's one side of my answer, that is that 
this is a perennial complaint about us.
    The other side of the answer is that if, after having said 
that we will rebalance to Asia, we fall down on those 
commitments and under-resource the rebalance to Asia, then they 
will begin to really doubt whether or not we are at all 
reliable. Thank you.
    Mr. Salmon. Well, do you feel that right now our policies 
in our Government are adequately resourcing that pivot?
    Mr. Karl Jackson. I think the pivot is under-resourced to 
the extent that the change is occurring slowly. The folks in 
Southeast Asia tend not to notice the changes, and they tend to 
pocket whatever the changes are and say but, what have you done 
for me lately? So, it's a very careful balance, and if the 
Defense budget, particularly as it has an impact on U.S. 
presence in Asia, and particularly U.S. presence in the South 
China Sea were to go down, or if it wasn't responsive to 
increased activities on the part of the Chinese Navy, then 
doubts would increase. And those increases in doubt would be 
based upon empirical fact rather than upon just a desire to get 
the Americans more involved.
    Mr. Salmon. I just have one last question, and then I'll 
yield to the ranking member. We've seen a lot of very erratic 
and irresponsible behavior out of North Korea, and that's 
probably the understatement of the century. But as far as 
threat level to the United States, how serious is the threat of 
Kim Jong-un?
    Mr. Van Jackson. So, I wouldn't put too much credence on 
threats that they're going to attack the White House, or the 
Continental United States, or even Hawaii today. In 5 or 10 
years, it's a completely different--my answer could be 
completely different. But when they make threats--so, their 
threat level is always at the, you know, intolerable level, and 
most of the time it's incredible, but most of the time when 
they engage in sort of low-level violence, or the novel forms 
like the Sony hack, they do signal ahead of time that they're 
going to do this. They do threaten that they're going to do 
things like this. Like the Sony hack played out over a series 
of months, and then the question is, you know, how do you 
separate signal from noise? And that's always the challenge 
with North Korea. But I would say that there is an upper limit, 
and so it's reasonable to not take as seriously. Well, I mean, 
if you're in the military you should take it all seriously, but 
you don't need to take as seriously some of the bombast about, 
you know, global annihilation. But the stuff--if they're saying 
they're going to hack a South Korean bank, or if they say 
they're going to go after a corporate actor in the U.S., I 
would take that extremely seriously, because they've shown that 
that's--they're willing to match word and deed on those smaller 
scale acts.
    Mr. Salmon. Thank you. I yield to the gentleman.
    Mr. Sherman. Mr. Jackson brings up this hacking of Sony 
which, of course, was designed to chill free speech in America. 
I'd point out China has bought AMC, or a Chinese businessman 
working with the Chinese Government, and so I wonder whether 
we'll see any more movies made about Tibet, or a movie made 
about Tiananmen knowing that so many of the screens around the 
country may not air it; this at the same time while the Chinese 
Government, while claiming to be part of WTO, doesn't allow our 
movies free access to their screens.
    Mr. Denmark, I have to disagree with you on something that 
you probably don't even realize you said. You said, ``Asians 
will think we can't get it passed.'' We, means the Executive 
Branch in that sentence. That is a misunderstanding of the 
United States Constitution. We are the American people. We 
under Article I of the Constitution are the United States 
Congress. We in Congress are given the authority to deal with 
international commerce, and the only thing we have agreed on is 
that this currency manipulation has to stop. We--to say that 
the American President can go out there, make promises, and 
then say Congress is unpatriotic or letting America down, or 
besmirching America's word because we don't do what he says, is 
a device used to dismantle our Constitution, and has been done 
by many administrations.
    Again, Mr. Jackson, we're now deploying, Mr. Mulloy says, 
60 percent of our Air Force, 60 percent of our Naval power to 
the Pacific mostly to fight over some rocks that Japan claims, 
as much as anything else. How much does Japan spend as a 
percentage of its GDP on its defense? Isn't it below 1 percent?
    Mr. Karl Jackson. It's characteristically below 1 percent. 
Their defense budget, however, has been going up for the last 3 
years.
    Mr. Sherman. And it still remains under 1 percent?
    Mr. Karl Jackson. Yes. It once exceeded 1 percent, and I 
was there that afternoon and helped make it happen.
    Mr. Sherman. Congratulations. So, we spend 4 or 5 percent 
of our GDP, more if you throw in veterans benefits, which after 
all is part of our military pay structure. And, as I pointed 
out, there isn't any oil under those islands, but if there was, 
we don't get any of it.
    I want to go to this idea that this trade deal benefits us. 
Mr. Mulloy, in general, to the extent there have been benefits 
from trade, they've gone to Wall Street, and the harm of trade 
has hit American working families. Is there any study out there 
that shows that there are more jobs in the United States net 
after imports from TPP, as currently configured?
    Mr. Mulloy. First, the study that Mr. Goodman cited by the 
Petersen Institute, I know the administration used that. And 
then Glenn Kessler in The Washington Post investigated that 
claim and gave it four Pinnochios. It might be worthwhile to 
get that article from The Washington Post and put it in the 
record of the hearing.
    Mr. Sherman. Without objection we'll do that. Go on.
    Mr. Mulloy. Now, I think when the TPP is concluded, it's 
not concluded yet, I think under the law, the ITC is supposed 
to give an economic analysis looking at its total impact on the 
American economy, which I think will have to get into the whole 
business of a trade balance and jobs.
    There is a formula that economists use for determining GDP. 
They use investment, consumption, government spending, and then 
net exports. When net exports are negative, they are detracting 
from GDP and job growth, and that means that your economy is 
not performing the way it would if you weren't running the 
negative net exports. You'd probably grow your economy 2 or 3 
percent more than it would happen if you run the major deficit 
in net exports. That would result in better paying jobs for 
Americans, and I think better communities.
    And I think the way we've run it now, the corporations are 
focused on shareholder value. Other countries put in place 
policies that make it good for them to outsource. For example, 
if you produce in China and then ship back, that underpriced 
currency gives you an export subsidy and helps you make greater 
profits. It also makes it more difficult for you to sell from 
here into China.
    Mr. Sherman. If I can interrupt, one good example is the 
Chinese realize they're going to import planes from the United 
States, so they require Boeing to make the fuselages in China, 
and then those fuselages are shipped and used all over the 
world. And they're able to do that while being in WTO because 
the government controls the decision as to whether they're 
going to buy Airbus, or they're going to buy Boeing.
    Here, our airlines will buy a Brazilian plane or a Canadian 
plane based on what's in the interest of the airline; whereas, 
the Chinese airlines are doing what's--based on what's in the 
interest of China as defined by its government. And with those 
kinds of rules, we're going to lose airplane manufacturing one 
airplane part at a time.
    Mr. Mulloy. One of my recommendations in my written 
statement is that we ought to give an antitrust protection, 
where if Boeing wanted to go to Airbus and say let's both of us 
agree that we're not going to be transferring technology as 
part of making a sale to China; that we should give them the 
right to do that, so that they're not squeezed by the Chinese. 
The Chinese will say to Boeing if you don't do this, then we'll 
buy from Airbus. Well, the two of them ought to get together. 
And I think the Europeans might be interested in some kind of a 
relationship like that, because this is going on across the 
board.
    Our companies are told that if you invest more and move R&D 
into China, you'll be considered friends of China. But what's 
happening is, those transfers of technology and R&D are beefing 
up the Chinese ability to build their defense industrial base, 
and their military base. So, I think we need to really focus on 
this whole China relationship and get that as a key part of the 
rebalancing to Asia. And it will strengthen our whole 
geopolitical position if we get this relationship more 
balanced.
    Mr. Sherman. Thank you.
    Mr. Salmon. Well, thank you. It looks like the questions 
are through. I appreciate the distinguished panel coming and 
addressing many of our concerns. As you can see, this was the 
tip of the iceberg. We've got a lot to cover over the next 
couple of years, and we didn't even get to a lot of the 
questions and the concerns that the committee will have.
    I appreciate everybody's participation, and this committee 
is now adjourned.
    [Whereupon, at 11:58 a.m., the subcommittee was adjourned.]
                                     

                                     

                            A P P E N D I X

                              ----------                              


                   Material Submitted for the Record

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                 [all]