[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
STRENGTHENING U.S. LEADERSHIP
IN A TURBULENT GLOBAL ECONOMY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 17, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-51
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Monetary Policy and Trade
BILL HUIZENGA, Michigan, Chairman
MICK MULVANEY, South Carolina, Vice GWEN MOORE, Wisconsin, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma BILL FOSTER, Illinois
STEVAN PEARCE, New Mexico ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut
MARLIN A. STUTZMAN, Indiana JOHN C. CARNEY, Jr., Delaware
ROBERT PITTENGER, North Carolina TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona DANIEL T. KILDEE, Michigan
FRANK GUINTA, New Hampshire DENNY HECK, Washington
MIA LOVE, Utah
TOM EMMER, Minnesota
C O N T E N T S
----------
Page
Hearing held on:
September 17, 2015........................................... 1
Appendix:
September 17, 2015........................................... 23
WITNESSES
Thursday, September 17, 2015
Sheets, Hon. Nathan, Under Secretary for International Affairs,
U.S. Department of the Treasury................................ 4
APPENDIX
Prepared statements:
Sheets, Hon. Nathan.......................................... 24
Additional Material Submitted for the Record
Sheets, Hon. Nathan:
Written responses to questions for the record submitted by
Representative Huizenga.................................... 29
Written responses to questions for the record submitted by
Representative Guinta...................................... 33
Written responses to questions for the record submitted by
Representative Murphy...................................... 36
STRENGTHENING U.S. LEADERSHIP
IN A TURBULENT GLOBAL ECONOMY
----------
Thursday, September 17, 2015
U.S. House of Representatives,
Subcommittee on Monetary
Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:03 p.m., in
room 2128, Rayburn House Office Building, Hon. Bill Huizenga
[chairman of the subcommittee] presiding.
Members present: Representatives Huizenga, Mulvaney, Lucas,
Pearce, Stutzman, Pittenger, Schweikert, Guinta, Love, Emmer;
Moore, Foster, Himes, and Heck.
Chairman Huizenga. The Subcommittee on Monetary Policy and
Trade will come to order. Without objection, the Chair is
authorized to call a recess of the subcommittee at any time.
Today's hearing is entitled, ``Strengthening U.S.
Leadership in a Turbulent Global Economy.''
Before I go into my opening statement, we have been given
notice that they are expecting votes on the Floor sometime
between 2:20 and 2:35. I would suspect that means 2:55 to 3:05.
I don't know, hopefully not. But hopefully, it will be more
like 2:30. And we have one vote, a rule vote, and my intention
is to take that quick time and have us all go vote and then
come back so that we can finish up. I don't suspect that we
will have gotten through everybody at that point.
So with that, I would like to recognize myself for 3
minutes to give an opening statement.
The dictionary defines ``turmoil'' as a state of confusion
or disorder. Unfortunately, that is the state of the global
economy right now, it seems.
For instance, for more than 3 decades China has claimed an
average annual GDP growth of over 10 percent. However, in the
last 3 years it has seen growth of less than 8 percent and the
government has announced that it is now struggling to meet a
target of 7 percent for the year.
Last month, the People's Bank of China announced a surprise
devaluation of their renminbi by 2 percent, sending major stock
markets in Asia and Europe down and sparking fears of
additional exchange rate devaluations in other countries. It
was the largest devaluation in China's system in over 20 years.
In the weeks following the devaluation, however, China
spent up to $150 billion in foreign reserves to prevent the
currency from sliding even further.
Additionally, the MSCI Emerging Markets Stock Index has
fallen by more than 15 percent since July, with Brazil's credit
rating now cut to junk status.
Europe is also in dire straits. This month, the European
central bank announced a new round of quantitative easing.
Meanwhile, concerns over Greece and the euro's future continue.
In each of these cases, a slowdown has been precipitated by
unsustainable debt and ill-advised government intervention in
the economy.
For years, China had depressed the value of the yuan to
fuel its exports, only recently allowing its value to rise.
Meanwhile, easy credit led local and regional governments to
amass nearly $4 trillion in debt in China. With little ability
to find productive investments at home or abroad, the Chinese
have created speculative bubbles in real estate and stocks that
only now are beginning to deflate.
Europe meanwhile sees no end in sight to Greece's downturn,
which continues to threaten the integrity of the entire
eurozone. This summer, Greeks filed nearly $2 billion in
arrears to the International Monetary Fund (IMF) and had to
close banks to prevent capital flight. After negotiating a new
rescue with eurozone governments, many of those voters who
strongly opposed further bailouts, the country now has
announced elections that may undermine its ability to carry out
those reforms that it had just passed and accepted.
This combination of debt and misguided policy abroad
provides the United States with an opportunity to reorient
international priorities. Three policy debates are of
particular relevance to the Monetary Policy and Trade
Subcommittee: first, inclusion of China's RMB in the IMF's
basket of elite currencies; second, the IMF participation in
the next European bailout of Greece; and third, the
Transpacific Partnership and its role in expanding rules-based
trade overseas.
This hearing will explore these matters and some others and
urge the Administration to advance a ``back to basics'' type of
approach to economic policy, one that emphasizes fiscal
responsibility and free markets.
And with that, I yield back my time.
The Chair now recognizes the ranking member of the
subcommittee, the gentlelady from Wisconsin, Ms. Moore, for 5
minutes.
Ms. Moore. Thank you so much, Chairman Huizenga, and
members of the subcommittee.
And I want to welcome you, Under Secretary Sheets.
Mr. Chairman, this is absolutely a subject that deserves
our close attention. And I want to thank you for convening this
hearing today.
We are in an increasingly global world, for all that means,
both good and bad. And one extremely important thing I think
that this Congress can control, although we cannot control
everything, is that we could make an immediate, tangible, and
lasting impact on the prestige and confidence of the U.S.
global leadership, and that would be that we should immediately
ratify the new IMF quota system.
Mr. Chairman, I just learned--breaking news--that Chair
Yellen has announced that there will be no interest rate hike
as of right now. So, that is really important news.
But I think that one of the things that we could do right
now is to ratify this new IMF quota system. There is consensus
agreement that it is the rational move to make at this time and
there is no reason that we have not yet acted.
U.S. leadership and engagement in economic policy is vital
to the long-term interests of our country. Global economic
stability, as we all know, is smart geopolitically.
Congress' lack of action has hurt the United States'
standing internationally. Further delay makes even less sense.
And as the chairman has pointed out, China has made a lot of
movements to fill a void, and we need to take action in this
Congress, as well.
I know that some have sought to tie approval of the quota
system to other IMF reforms. But I respectfully disagree on
that point. The quota system should be approved and then we can
talk about IMF reforms.
U.S. good-faith engagement in these multinational
organizations is extremely fruitful as we can flex soft power
and accomplish goals that are simply not realistic or
counterproductive with the use of force.
And I yield back the balance of my time.
Chairman Huizenga. The gentlelady yields back.
With that, the Chair recognizes the gentleman from
Minnesota, Mr. Emmer, for 2 minutes for an opening statement.
Mr. Emmer. Thank you, Mr. Chairman. Thanks for holding this
important hearing.
With the backdrop of Congress passing trade promotion
authority and, U.S. Trade Representative negotiators laying the
groundwork for historic trade agreements with Europe and the
Pacific Rim, I am concerned that our Nation's interest in
promoting and securing trade agreements, which are certainly
important to both our economic opportunity and our national
security, may collide with our sovereignty and other legitimate
interests.
Sluggish growth and the debt crises in European Union
member states and the devaluation of China's currency threaten
current market stability and pose serious risks to future
multilateral trade deals like TPP or TTIP, as well as the
insurance and regulatory frameworks that will comprise these
agreements.
I look forward to hearing the Under Secretary speak about
how the United States is exercising its leadership to ensure
our sovereignty, such as my home State's ability to regulate
its insurance market further.
I am particularly interested in what the Treasury is doing
to leverage U.S. influence when it comes to the International
Monetary Fund's consideration of the RMB as a basket currency,
its systemic exemption policy, terrorism financing,
remittances, and global bailouts.
Mr. Chairman, thank you again for calling this hearing. And
I yield back.
Chairman Huizenga. The gentleman yields back.
We will now turn to our witness. Today, we welcome the
testimony of the Honorable Nathan Sheets, Under Secretary for
International Affairs at the U.S. Department of the Treasury.
Mr. Sheets previously worked as a global head of international
economics at Citigroup. He also served for 18 years at the
Federal Reserve in various capacities, and from 2006 to 2007
was a senior advisor to the U.S. executive director at the the
International Monetary Fund (IMF).
Mr. Sheets, without objection, your written statement will
be made a part of the record. And you will be recognized for 5
minutes.
But I should also mention that one of our Members has taken
great pleasure in getting to know you by talking on local
streets and in restaurants, and he has heard all the good stuff
about your growing up in Mesa. So Mr. Schweikert is very
pleased to start claiming you as one of his own. You grew up
there, and then you were off to BYU, I believe, for your B.A.,
and then MIT for your Ph.D.
Yes, too many letters. Sorry, Mr. Mulvaney wasn't following
how many letters.
But I do want to say thank you for your time and attention
and your ability to be here today. You are now recognized for 5
minutes to give your testimony.
STATEMENT OF THE HONORABLE NATHAN SHEETS, UNDER SECRETARY FOR
INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY
Mr. Sheets. Thank you. Chairman Huizenga, Ranking Member
Moore, and members of the subcommittee, thank you for the
opportunity to testify today to discuss Treasury's role in
promoting global economic growth.
Earlier this month, I joined Secretary Lew at the G20
finance ministers and central bank governors meeting in Ankara,
Turkey. Discussions at the meeting focused on the recent
turbulence in global financial markets, particularly in China,
as volatility in its equity and currency markets has spilled
over to markets globally.
Fears of a slowdown in China have also raised concerns
about the global growth outlook. Commodity producers have been
especially vulnerable to lower Chinese demand.
We discussed ways to boost global growth, including through
strategic infrastructure investment and structural reforms, as
well as the need to continue to strengthen financial,
supervisory, and regulatory practices to reduce the risk of
financial crises.
As has been widely noted, the Chinese economy is undergoing
a difficult but essential transition that if successful, will
make growth there more reliant on domestic consumption and less
reliant on exports and investment.
The Chinese government has laid out a comprehensive set of
economic reforms to move toward a more market-oriented,
consumer-driven economy. These reforms are largely consistent
with what the United States has long advocated.
To ensure that the transition is managed in an orderly way,
China must transparently communicate its policies and actions
and allow the market to play a primary role in determining
outcomes.
Treasury has had sustained and robust engagement with China
on its policies, including in the economic track of the
strategic and economic dialogue. In light of recent
developments, we are encouraging the Chinese authorities to
accelerate the implementation of their reform agenda, while
underlining that to bolster effectiveness, these reforms must
be implemented in an orderly and transparent manner.
Turning back to the global arena, our partners look to U.S.
leadership to help formulate the international agenda. And we,
in turn, rely on the international financial institutions to
provide analytical, technical, and financial support to
identify vulnerabilities, advance reforms, and smooth
adjustment.
The IMF has played and continues to play an important role
in providing assistance to key strategic partners of the United
States. For example, in Ukraine the IMF is currently supporting
a program that aims to bolster the Ukrainian government's
extraordinary reform efforts.
The IMF has been a key partner in Europe's efforts to fight
crisis in the region, preserve the integrity of the euro area,
and frame a reform program for Greece that includes necessary
adjustments, encourages growth, and puts debt on a more
sustainable path. The United States and the IMF are actively
supporting the need for further debt relief for Greece now.
To ensure that the IMF remains at the center of the
multilateral economic system, and that we maintain an important
voice in it, the United States should promptly approve the 2010
quota and governance reforms. Our interest in strengthening the
Fund is based on hard-won experience that a well-resourced and
effective IMF is indispensable to achieving our economic and
national security interests. The proposed reforms are designed
to strengthen the Fund's finances while preserving the U.S.
veto by a comfortable margin.
The Treasury Department also fosters growth and prosperity
by working in partnership with the Multilateral Development
Banks (MDBs), including the World Bank and the regional
development banks. Like the IMF, the MDB's purposes firmly
align with the interests of the United States, and they are
vital tools for promoting security, economic growth,
environmental sustainability, and poverty reduction.
Finally, the Administration's trade agenda is also
essential to our efforts to promote prosperity. We are working
to secure a final Trans-Pacific Partnership agreement, or TPP,
that unlocks export markets, establishes strong rules, and
bolsters economic growth at home.
TPP promises to help U.S. businesses reach customers in the
world's fastest-growing region, deliver more and better jobs in
the United States, and elevate trade and investment standards,
including on transparency, fairness, innovation, labor rights,
and the environment. And we very much look forward to
continuing to work with you on these objectives.
I am very happy to answer any questions that members of the
subcommittee may have.
[The prepared statement of Under Secretary Sheets can be
found on page 24 of the appendix.]
Chairman Huizenga. All right, thank you. We appreciate
that.
And the Chair now recognizes himself for 5 minutes.
Mr. Sheets, I think it is difficult to find anyone who
argues for the continuation of the IMF's systemic exemption to
its exceptional access framework which bailed out Greece
creditors without restoring economic growth or competitiveness
to the country. But we keep getting mixed signals from the
Administration on this.
In an August 31st letter to me last month, Treasury said
this systemic exemption was ``important to the IMF's role in
providing support in most difficult crisis cases.'' But when
Secretary Lew testified here in June, he said in response to
one of my questions, ``I think exceptional access has serious
questions. I have never pushed back on the kinds of questions
you are asking''--in other words, questions about eliminating
the systemic exemption--and again, he is saying, ``I am open to
a serious conversation about it. I think looking forward,
finding a way for the IMF to avoid having to use tools like
that is in all of our best interests. And I would be happy to
have that conversation.'' That was Secretary Lew.
Previously, in fact just last month, IMF's former chief
economist said, ``The reforms now being discussed at the Fund,
namely the wider use of the debt reduction rescheduling option
and the elimination of the systemic exemption, are really
important.''
In fact, even my good ranking member had said that she was
``entirely open to considering the case for IMF reforms,''
which I am happy to hear.
But Secretary Sheets, isn't it time to get rid of the
systemic exemption?
Mr. Sheets. This is an enormously important issue and one
that is also particularly salient. Clearly, my sense is that
given where the world was in the spring of 2010, using the
systemic exemption was the right thing to do. There were severe
spillover risks if Greece or Portugal or Ireland had been
required to restructure their debt in that environment.
Chairman Huizenga. But you would admit that they basically
bent the rules or ignored the rules to make all that happen,
correct?
Mr. Sheets. The decision was made in accordance with the
powers of the IMF Executive Board. And the IMF Executive Board
very much felt that moving toward a debt restructuring in that
environment would be inappropriate. So they established
mechanisms that allowed these programs to go forward.
Chairman Huizenga. I can take ``yes'' for that as an
answer. But what about going forward?
Mr. Sheets. Right.
Chairman Huizenga. We know what happened in 2010, but it is
the going forward I am concerned about. And I think there are a
number of us who are concerned about IMF future bailouts of
Greece, as they are very concerned.
Mr. Sheets. And as you indicate, there is a very lively
debate on this issue that is ongoing inside of the IMF. One
proposal on the table is to further specify the conditions
under which the systemic exemption could be used. But there are
also other approaches that are being articulated in that
debate. And we very much look forward, as Secretary Lew said,
to having a conversation with you and your staff on this issue.
Chairman Huizenga. Okay. I want to move on a little bit to
the exclusion of financial services in the negotiations, such
as TPP and TTIP.
I have been engaged in an ongoing dialogue with Treasury
over its exclusion of the financial services sector. And as you
well know, that is an extremely important thing, with a number
of important issues including localization of information and a
number of others.
To date, your colleagues at Treasury have offered varying
rationales for why Treasury refuses to support strong rules to
ensure foreign investment. Foreign governments do not impose
such restrictions, but I am very concerned that it is going in
a different direction.
I have weighed in on this issue, the Ways and Means and
Finance Committees have weighed in, calling on you to--not you,
you collectively--eliminate such localization requirements for
all sectors, including financial services.
Does the Administration, particularly Treasury, understand
that the current discriminatory approach to addressing
localization barriers will jeopardize existing support for
trade agreements if it is not addressed?
Mr. Sheets. This is another issue that I personally am
working on quite intensively.
Over the last 6 weeks or so, I have had the opportunity to
speak in some detail with our various regulatory agencies as
well as with USTR and the State Department on this.
And the sense that we get is that in pursuit of financial
stability and soundness of institutions, it is absolutely
imperative that the regulators have unimpeded access to various
books and records associated with the operations of foreign
institutions in the United States.
And it is not clear, if these institutions are not required
to have books and records actually in the United States, that
the regulators would have that unimpeded access. So it is a
matter of regulation, it is a matter of supervision to ensure
that these institutions are safe and sound. It is also a matter
of law enforcement. So there are a number of issues at stake
here.
Chairman Huizenga. My time has expired.
And with that, I recognize the gentlelady from Wisconsin
for 5 minutes.
Ms. Moore. Thank you so much, Mr. Chairman.
And thank you again, sir.
I was searching all over for it, but in your testimony you
talked about the importance of the United States paying its
share to the IMF. And I think I referred to that in my opening
remarks.
Other countries have developed other institutions to sort
of get around the IMF because of our lack of participation.
Could you just give us a little bit, just sort of fill in the
blanks of what we could expect if these other multinational
development organizations take off and the IMF and the United
States uses its influence in this sphere?
Mr. Sheets. As you say, a strong, well-resourced IMF is
very much in U.S. national interests, U.S. security interests,
and so forth.
These are institutions that we led the establishment of 70
years ago. And if we walk away from these institutions or fail
to live up to the leadership role that we have, it is at our
peril.
One of the risks, as you articulate, is that other
countries that feel, at present by the governance structure,
underrepresented could initiate other institutions in which we
have less voice or institutions whose goals and objectives are
less consonant with those of the United States.
Similarly, as you say, at least arguably, we have seen that
over the last year or two with the establishment of the Asia
Infrastructure Investment Bank, the AIIB, led by the Chinese
and the establishment of the new development bank known as the
BRICS Bank by the four BRICs emerging market economies.
So I think the risk that you highlight is a real one. And
it underscores how essential it is that we continue to play a
leadership role in the IMF. And quite frankly, it is the
leadership role that the rest of the world wants us to play.
They look to us for leadership. So the quota reforms achieve a
number of objectives.
Ms. Moore. Okay. I was looking through my notes here to try
to find out what the yuan, the RMB is being considered. The
Chinese really want it included in the SDR. And obviously, the
Chinese are meeting the first criterion of being a major
exporter and the second criterion, with regard to having its
currency sort of freed up or being free, is not being met. But
there are indications that they are close.
Supposedly, the readjustment on August 10th, I think I was
in China at the time, and their explanation was that they were
trying to square it more with the actual market forces.
What is your opinion of whether or not this movement, which
erased $5 trillion out of the world economy, is in fact or is
not in fact moving the RMB closer to actual market conditions?
Mr. Sheets. This is a complex set of issues. On the one
hand, they have through this announcement incorporated some
features into their exchange rate regime that does make the
currency more market-determined and more market-oriented.
Ms. Moore. Be careful of what we pray for, huh?
Mr. Sheets. Exactly.
Ms. Moore. We might get it.
Mr. Sheets. They were moving in that direction.
But at the same time, it is important that they take these
steps in a well-telegraphed, very clearly communicated way. And
I think that what we saw in that move was a step toward market
determination that was done in a way that raised uncertainties
about what the objective was.
And I think going forward as China becomes a more market-
determined, market-oriented economy, it is going to be
imperative that the Chinese authorities take steps to
communicate their intentions, their views, and to explain why
it is they are doing what they are doing.
Had they explained up front more clearly that it was about
exchange rate reform as opposed to other kinds of objectives, I
think the market response would have been more positive.
Ms. Moore. Thank you.
Thank you. My time has expired. I yield back.
Chairman Huizenga. The gentlelady yields back.
With that, the Chair recognizes the vice chairman of the
subcommittee, Mr. Mulvaney from South Carolina, for 5 minutes.
Mr. Mulvaney. I thank the gentleman.
And Dr. Sheets, thank you.
I will move very quickly into the 2012 reauthorization of
the Export-Import Bank. The last time the bank was
reauthorized, Treasury was obligated by law to do some things
specifically regarding negotiations on export credit facilities
overseas in the airline industry.
I had submitted to the Treasury some questions for the
record after Secretary Lew testified here back in March. You
all were very kind, by the way, and responded, and I have the
responses.
First things first. At the end of one of your questions,
you said that there was a list attached of your engagements to
events, and that list was, I think, inadvertently left off. If
you could give us that, that would be great.
In the details, though, that you provided us, you gave us a
list of things that I asked you, when have you done this? The
law requires you to start negotiations, to begin discussions on
getting out of this business of mutually disarming with the
other countries that have export credit facilities. And I asked
you to tell me what you had done along those lines.
I want to go over some of your responses.
One of the things you said was that ahead of discussions at
the Organisation for Economic Co-operation and Development
(OECD) in March on possible reforms to arrangement guidelines
for determining interest rates, Treasury staff held several
conference calls with OECD members to advocate a U.S. proposal
to make the arrangement's interest rate mechanism more market
reflective.
You then said you had met separately with them later in
April on the same topic.
Not exactly a response, though, is it, Dr. Sheets? Interest
rate was not part of the 2012 reauthorization, was it?
Mr. Sheets. If I may, more recently, specifically on the
issue that you raise, I have had consultations with my
colleagues in the Airbus countries. So both the German finance
ministry and the German economics ministry, the U.K. Exchequer
and the French ministry of finance.
So we are in ongoing conversations specifically on working
together with the Airbus--
Mr. Mulvaney. Okay. Let me ask, when did those--you said
you met with or talked with the Germans, the French, and the
Britains?
Mr. Sheets. Three of those four meetings were face-to-face.
Mr. Mulvaney. Okay.
Mr. Sheets. And the German economics ministry was on the
phone.
Mr. Mulvaney. Of those four meetings, what was the
earliest?
Mr. Sheets. They were all around the time of the Ankara
meeting, so it has been within the last 3 weeks or so, all 4 of
them.
Mr. Mulvaney. In the last 3 weeks, okay, so after these
answers were prepared for my office.
Mr. Sheets. Correct. That is why it is not referenced.
Mr. Mulvaney. I will look forward to another time when I
have more than a few minutes to talk to you.
Mr. Sheets. Yes, we have been very busy since April.
Mr. Mulvaney. You would agree with me that a discussion on
interest rate mechanisms is not really responsive to the 2012
mandate. You are required to talk to them about getting out of
the export credit business, and that is not really interest
rates. I am not trying to bait you; it is just not really
responsive.
Mr. Sheets. Yes. Our sense, though, is if you have a higher
sear, that will increase the charges associated with going
through export credit agencies, which would then motivate
people to go to the private sector for the lending.
Mr. Mulvaney. Right. Let me ask you this way then: When you
met in March and had discussions in April with the OECD
participants, did you specifically discuss export credit
arrangements?
Mr. Sheets. I wasn't at the meeting, and I don't recall,
but we did talk about this financing issue.
Mr. Mulvaney. In another area, when I asked for specifics,
you say in July of 2014 Secretary Lew, you, and other senior-
level officials utilized the U.S.-China strategic economic
dialogue to press the Chinese counterparts on U.S. negotiating
priorities. And you gave me five or six other circumstances and
you mentioned U.S. negotiating priorities.
Was extricating ourselves from the export credit business
part of our negotiating priorities?
Mr. Sheets. I would say the answer to that is yes, and we
have continued those conversations with the Chinese over the
last year-and-a-half. I personally have met with officials,
including the finance minister of China, folks from the PBOC
and the president of the Chinese ex-im bank, and had those
conversations, including mechanisms to--
Mr. Mulvaney. When did you meet with the chairman of the
Chinese ex-im bank?
Mr. Sheets. I believe that was in a July visit.
Mr. Mulvaney. July what?
Mr. Sheets. In July of 2015.
Mr. Mulvaney. Why isn't that on the list of things that I
asked about?
Mr. Sheets. Because this is a response--when is this
response? I had understood it was in April.
Mr. Mulvaney. I have a May 2015 meeting on this list, but
not a July 2015 meeting.
Mr. Sheets. Right. I think--when did we send it to you?
Mr. Mulvaney. I don't know. Let me ask my last question and
we can come back--
Mr. Sheets. I apologize. We will make sure that it is
comprehensive.
Mr. Mulvaney. A specific question that is more up to date
and more timely, this week GE announced that they may have to
move jobs out of this country because they are trying to bid on
a job in Indonesia with a state-owned enterprise. I have
received the bid request from the Indonesian power company and
it specifically requires that PLN shall finance using 30
percent equity, 70 percent debt, an export credit agency shall
cover at least 50 percent of the debt of financing. It goes on
to say the government of Indonesia won't guarantee the loan.
Has Treasury ever talked to other members of the OECD,
other working groups that you have about getting rid of these
sorts of requirements in their state-owned bid requests?
Mr. Sheets. Not specifically on that issue, but we have
worked and I have spoken to senior officials in India about
increasing their dialogue and participation in the
International Working Group, which is designed to extend these
export credit rules in the OECD to the emerging markets and
would thus have the effect you articulate.
Mr. Mulvaney. I appreciate the patience.
Why do you think that a state-owned company would require--
Chairman Huizenga. The gentleman's time has expired.
Mr. Mulvaney. --your export credit financing as part of
their bid request?
Mr. Sheets. Well, my understanding is--
Mr. Mulvaney. It is cheaper, isn't it?
Mr. Sheets. --that they are doing it because it creates
jobs in their economy.
Mr. Mulvaney. But why are they requiring export credit
participation in their financing? It is cheaper, isn't it, than
private financing?
Mr. Sheets. I would think in India it is, and we are trying
to bring them into the system of export credit that has existed
in the OECD and through our work in the IWG.
Chairman Huizenga. The gentleman's time has expired.
Mr. Mulvaney. I appreciate the patience. Thank you, Mr.
Chairman.
Chairman Huizenga. Just a quick announcement. They called
votes a few minutes ago. We have 3 votes and I expect that will
probably take about 30 minutes.
We are going to grant a question period for Mr. Foster, and
what we would like to do after Mr. Foster is to take a short
break, and then have us reconvene approximately 30 minutes
after that. So immediately after that final vote, if you could
please cast your vote and then get back here, I would
appreciate it.
With that, the gentleman from Illinois is recognized for 5
minutes.
Mr. Foster. Thank you, Dr. Sheets, for being here today.
First, I would like to heartily endorse your support of the
IMF. The point that you made about the benefits to the United
States regarding the IMF's role in mitigating the 2010 eurozone
crisis were exactly on point.
When U.S. markets dropped by $2 trillion, the average
American lost $6,000 which, at least to my constituents, is not
a small amount of money.
And I would like to add also that those who bemoan what
they call the lack of U.S. leadership around the world and then
take positions that directly undercut that, like opposing the
IMF quota and governance reforms, really could benefit from a
healthy reexamination of their logic.
My question is, in the debate over the trade promotion
authority, I expressed my concerns that any free trade
agreement that did not address currency manipulation would
allow one of our trade partners to improve its own balance of
trade by manipulating its currency to make its exports cheaper
and its imports more expensive.
And I was disappointed that the TPA ultimately contained
only a best-efforts clause as a negotiating objective.
Now, one of the principal, perhaps the principal objection
that we heard from the Administration to stronger language was
that it would preclude our own domestic monetary policy
practices, such as quantitative easing. But I actually disagree
with this.
I think that there are tests that many have delineated,
including Dr. Bergsten's work at the Peterson Institute, that
provided a very clear framework for applying the IMF
requirement of intent while providing for short-term domestic
intervention.
Those criteria are, first, did the nation have foreign
exchange reserves greater than 6 months of goods and services
imports?
Second, did the foreign exchange reserves grow rapidly over
the period in question?
And third, was the current account in significant surplus
relative to the GDP over that period?
Those seem to me like workable criteria that could and
should be included.
And so my question to you is simply, do you believe that
quantitative easing, as we exercised it during the crisis and
its aftermath, would have failed these criteria? What would
have prevented, if those were the criteria, what would have
gone wrong in regard to the quantitative easing and other
monetary policy?
Mr. Sheets. As a matter of fact, in the WTO discussions,
there were assertions from some emerging market economies that
quantitative easing policies were currency manipulation,
notwithstanding the fact that it was carefully constructed and
delineated toward achieving the Federal Reserve's dual mandate.
So I think that is a meaningful risk. I think there are
other risks as well in that having--
Mr. Foster. Now the risk you are referring to is that other
people would complain about, other countries would complain
about it, or that actually we would set up objective criteria
and then find that we chaffed under those objective criteria?
Mr. Sheets. And then it would potentially bring it in to
trade adjudication channels that could be difficult.
Mr. Foster. But if, for example, they were the three
criteria that Dr. Bergesten has outlined, if those were the
criteria, would anything have gone wrong? Would there have been
any case in any court for--it seems pretty clear to me that we
would have been far from being out of compliance with those and
that there would have been no problem.
Mr. Sheets. It is hard to speculate as to how that might
have proceeded. Certainly, it is a risk factor.
Similarly, having the United States behave in a unilateral
fashion in terms of enforceable currencies, I think would
create increased uncertainties in global financial markets and
also damage our bilateral relationships.
The Treasury and the Administration are firmly opposed to
countries doing anything that approaches currency manipulation.
We just feel pretty strongly that there are other mechanisms
that are better to respond than enforceable currency
provisions.
Mr. Foster. Do you believe that any of these have been
effective? That is the question.
If I look over the last 15 years, it seems to me that China
and other countries have gotten away with murder. And as
someone who represents an area with a strong manufacturing base
that has been gutted for no good reason, I actually question
the fact that we have not had effective response to currency
manipulation.
Mr. Sheets. When I look at the global economy today, my
sense is that the mechanisms that we are using through
bilateral engagement, this is the leading issue that we talk
about when we sit down with our international counterparts,
through the G7 and the G20 where we just reiterated strong
language in terms of how countries should manage their exchange
rates is powerful.
And consistent with that, over the last 5 years we have
seen a very substantial, real appreciation of the Chinese
currency.
So I think that these mechanisms are powerful and we are
working to bolster them and to do more. As I said, we are
foursquare against anything that smacks of currency
manipulation and are ready to proceed vigorously on that front.
Mr. Foster. Okay. Well, I am not yet convinced of its
effectiveness. Thank you.
Chairman Huizenga. The gentleman's time has expired.
With that, we will be taking a short recess and reconvene
immediately following votes, which for information and all the
Members' awareness, we expect to be about 30 minutes.
So with that, we are at recess.
[recess]
Chairman Huizenga. The hearing will come to order. We
appreciate your patience, Mr. Secretary. We concluded with the
Member from Illinois. I now recognize the gentleman from New
Mexico, Mr. Pearce, for 5 minutes.
Mr. Pearce. Thank you, Mr. Chairman. And thanks, Mr.
Secretary, for being here today.
As we think about China and admission to the SDR, a couple
of questions come up. In your testimony, you talk about them
being more reliable, less consumption, less on exports and
investment.
Now my opinion of the Chinese economy is that the failure
has been that they have just misled the entire world for the
last 20 or 30 years, that they have shadow firms building
entire cities that don't have a purpose, with no one living in
them, so then basically looking like they are keeping activity
going. And that doesn't sound like they have been relying upon
exports and investment; they have been relying on deception.
So I guess my question is, do you think that China is ready
to be admitted to the SDR? To the currency, there?
Mr. Sheets. The IMF as you suggest, is in the midst of a
review of its SDR basket. The IMF conducts these reviews once
every 5 years.
There are two key conditions: One regarding global trade--
China satisfies that--
Mr. Pearce. I am aware of those. I am asking what is the
position of this Administration--
Mr. Sheets. --and the other one is the freely usable
condition. The Chinese have taken some steps over the last 6 to
12 months--
Mr. Pearce. No, I am just asking for your opinion. Are they
or are they not ready? Does that currency fit the requirements?
And will we support that? Or are we, the United States, not
supporting it?
Mr. Sheets. My bottom line is that the IMF technical staff
are engaged in a review to determine whether or not the Chinese
currency satisfies those conditions.
Mr. Pearce. Basically then, the Administration is not going
to go into this with an opinion; you are going to rely on the
IMF staff and whatever they say, yes or no.
Mr. Sheets. We are going to wait for that technical review
to conclude. And based on that review and broader judgment, we
will decide whether or not to support this and the IMF
Executive Board.
Mr. Pearce. Okay. Thank you.
Now, in response to Ms. Moore, you had talked about the
other nations having some judgment on our unwillingness or
inability to convey some approval of the reforms. And then in
response, you said that has been one of the reasons that a
couple of other banks have formed--worldwide banks have formed
another--so my opinion is, and it may be incorrect, is that
those currencies formed as we were deeply engaged in
quantitative easing and those comments that those countries
were making is that you continue to print or create currency
out of thin air, and we are not going to stand for it, we are
going to start trading in something other than dollars.
So is that a valid point of view? It is not reflected in
your testimony, but is it a valid point of view that it was not
simply a response to our unwillingness to act on the reforms?
Mr. Sheets. I think that there are a number of factors at
work that have motivated the advent of the New Development Bank
and the AIIB. As I said, I think one of them is an element of
frustration in terms of having sufficient voice in the existing
institutions, particularly the IMF. And this governance reform
would have been an important part and will be, once approved,
an important step toward improving the voice in governance in
the IMF.
Mr. Pearce. Okay. So one of the comments that you make is
that China needs to be more market-oriented. Is a too-big-to-
fail policy market-oriented?
Mr. Sheets. My sense is that both here in the United States
and within the context of the FSB, we have worked vigorously to
end too-big-to-fail.
Mr. Pearce. I didn't ask if you tried to--I appreciate that
you are trying to stop it.
I am just asking a plain question, is it market-oriented?
It doesn't seem to me to be. But again, you may have a
different opinion. I am willing to hear it, but I am not
hearing it so far, and I am running out of time.
Mr. Sheets. Yes.
Mr. Pearce. I guess the accompanying question with that is,
is quantitative easing market-oriented? And so we are holding
China to standards that we are not willing to hold ourselves
to, and I think that is an alarming thing.
I see I am about out of time, but you can spend the rest of
the time answering. Thank you.
Mr. Sheets. Yes. In both instances, I would characterize it
as economic policy, monetary policy on the one hand and efforts
to achieve and pursue financial stability on the other.
That said, as I indicated, both the FSB internationally and
domestically here at home, we have worked to end too-big-to-
fail.
Mr. Pearce. Thank you, Mr. Chairman.
I appreciate it, Mr. Secretary.
Chairman Huizenga. The gentleman's time has expired.
And with that, we will go to Mr. Schweikert of Arizona for
5 minutes.
Mr. Schweikert. Thank you, Mr. Chairman.
I have sort of a little follow-up, but maybe with a
slightly different angle. I think actually in this very room
before the remodel a few years ago we were talking about how
frustrated we were with China not making its currency subject
to market forces, the artificial peg, undervaluing. So in some
ways, isn't the movement right now what we have been demanding
of China?
And the fact of the matter is, the slide in their currency
value as they were starting to expand, let us call it expanding
the peg, it is an easier way to understand, also the fact that
market forces now are actually looking at the realities of the
Chinese economy, foreign currency reserves, other than just the
data put out by China?
Mr. Sheets. As you say, certain elements of this recent
reform do make the Chinese renminbi more market-oriented and
more market-determined. As I emphasized, along with that they
need to be more transparent.
Another comment that I think is very important is that
given some of the uncertainties about the Chinese economy and
ongoing capital outflows, we have seen some downward pressure
on the renminbi. And it is imperative that when those pressures
shift, the Chinese allow the exchange rate to appreciate.
So in order to be flexible, it needs to be flexible in both
ways.
Mr. Schweikert. Within that, won't the Chinese economy in
some ways be punished because they don't provide enough
information, they are thought to step in and engage
intervention? And that is actually part of my next question.
But they are going to pay a risk premium for currency traders
because of the lack of sunshine, the lack of honest data, and
the fear that they are going to intervene on either side of the
up-or-down.
Mr. Sheets. I feel that the lack of transparency about the
policies that they have pursued created additional uncertainty
about the outlook for the Chinese economy which, very much as
you say, would manifest itself in Chinese financial markets and
perhaps to some extent redound back into weaker economic growth
for China.
Mr. Schweikert. But ultimately, would you not agree, a true
market-sensitive, let us call it floating, currency coming out
of China would be good for the United States?
Mr. Sheets. Yes.
Mr. Schweikert. Okay. Second thing. In our own sovereign
debt situation, I have a personal fixation coming very soon, if
we do not demonstrate to the world here is our debt management
plan to get through the reality of the 30-, 40-year demographic
bubble, Baby Boomers, as they are retiring, we need to be
telling the world how we are going to manage this skyrocketing
debt that as we saw on congressional budget in their document
say 2018 it is game on, the debt starts to explode.
For the protection of the value of U.S. currency, for the
protection of the value of our currency as being sort of the
benchmark, do we not have to telegraph to the world, here is
our debt management plan?
I have ideas of long-term bonds, and a couple of other more
technical things, at least to telegraph that we are taking this
seriously because right now this Administration has not been
taking it seriously.
I know that is hard because you work there. But am I wrong
that we are going to have to start telegraphing to the world
our debt management future?
Mr. Sheets. I need to defer to my colleagues, including the
Secretary, on issues related to debt management. That is not
part of my portfolio.
But certainly it is also the case that having confidence in
U.S. policy and confidence in U.S. securities is a critical
input for there to be confidence in the U.S. dollar.
Mr. Schweikert. It comes right up against this area
especially.
And in the last 50-some seconds, as we are also working on
our relationships in regard to money-moving currencies, how
much fixation do you see in the countries you deal with on also
eliminating bad actors from using our infrastructure? I am
concerned many of us, I think even the chairman have discussed
of SWIFT in others of our financial backbone being used by
whether it be Iran, whether it be drug cartels, or just bad
actors. How often does that come up in your conversations with
our--
Mr. Sheets. This is a crucial issue that manifests itself
in the so-called de-risking and correspondent banking
discussions and also in discussions associated with remittance
flows.
And I think there are two core objectives that we are
working to achieve and, in some sense, to balance. On the one
hand, to ensure the ongoing efficiency of the financial system
and protect the ability of the financial system to effectively
intermediate and for flows to move from one part of the system
to the other.
On the other hand, it is imperative that we protect the
soundness, the integrity, and make sure that it is not abused
by bad actors.
Mr. Schweikert. Dr. Sheets, we have gone over time.
Thank you, Mr. Chairman.
Chairman Huizenga. The gentleman's time has expired.
With that, we will go to the gentleman from Minnesota, Mr.
Emmer, for 5 minutes.
Mr. Emmer. Thank you, Mr. Chairman.
And thank you to the Under Secretary for being here today.
Just some insurance questions, I guess, first. With regard
to all of the international insurance regulatory standards, but
especially capital standards, including the higher-loss
absorbency, HLA, do you support requiring international bodies
to wait until the United States has established its standards
and then insist that the U.S. standard be recognized as at
least one way to comply?
Mr. Sheets. I see the ongoing work on international
standards for insurance as being constructive. It helps achieve
financial stability and a level global playing field. So I
think having that work ongoing is constructive and useful.
However, it is also important that I emphasize that these
international groups that are doing this work, like the
International Association of Insurance Supervisors (IAIS),
which includes our insurance regulators, that the international
groups do not have authority, they do not have any jurisdiction
within the United States.
So they make recommendations and then depending on which
part of the code it is, either the Federal Reserve in its role
as looking at the systemic institutions, or the State insurance
regulators, would make a decision about how and in what way
they are going to implement these international
recommendations.
Mr. Emmer. Speaking of the IAIS, the organization recently
voted to shut out observers, including U.S. industry and
consumer representatives from its working group meetings. Are
Treasury representatives working to reopen those meetings? And
how about with regard to the closed-door meetings of the
Financial Stability Board, same question?
Mr. Sheets. We are represented, the Treasury is represented
in the IAIS, the Federal Insurance Office, and State regulators
are represented in the IAIS.
Mr. Emmer. And I hate to interrupt, but it is limited time.
Are you working to open those meetings to the industry and
consumer representatives?
Mr. Sheets. We are working to make those institutions as
transparent as possible, including releasing documents and
explanations and so on and so forth. And we see that as being a
very constructive step toward increased transparency.
Mr. Emmer. Is that a yes, Mr. Under Secretary, yes you are
working on it? I understand you are trying to make it more open
and transparent.
Mr. Sheets. We are working to get to a similar outcome, but
we are taking a somewhat different route than the one you just
articulated.
Mr. Emmer. Okay. The IMF issued a report in July
criticizing the United States for the way its State insurance
regulators are designated or elected and calling for a national
insurance regulatory body.
To what extent did Treasury provide resources for this
report? And does the Treasury agree with those comments?
Mr. Sheets. I am not aware of the extent to which we were
involved in commenting on this.
Certainly, the IMF is an independent body or the IMF does
independent research, so it would not be the case that anything
they said would for us have a ratification from the U.S.
Treasury.
And the recommendations there are the IMF's; they are not
the U.S. Treasury's.
Mr. Emmer. All right. Would the Treasury support the
termination of the Financial Sector Assessment Program (FSAP)
reviews of the U.S. insurance regulatory system?
Mr. Sheets. We just went through one of those FSAPs. It is
a very resource-intensive proposition for insurance in the
sector, more broadly.
My instinct is that the FSAP is--it occurs once every 5
years--probably a useful exercise for all of us to go through.
Mr. Emmer. To what extent does the Treasury conduct cost-
benefit analyses with regard to positions it takes on insurance
regulatory issues in international bodies?
Mr. Sheets. We are always analyzing pros and cons, costs
and benefits. I am not sure that I have a formal document that
I can generate.
But another important point is that as these international
frameworks are developed, once they move to the point of
actually being implemented by State regulators and by the
Federal Reserve and others, there will, at that point, be more
detailed cost-benefit and impact analysis done.
Mr. Emmer. Thank you. Very quickly in the seconds I have
left, changing course, what if any role is the Treasury
Department playing in coordination with the State Department in
the Cuba Steering Committee to normalize banking relationships
with Cuba?
As I understand it, to date only one bank has a
relationship in Cuba, and I want to know what the Treasury is
doing.
Mr. Sheets. Let me get back to you on that. As far as I
know, we have no formal role in that group, but I would want to
check that.
Mr. Emmer. Thank you.
I yield back.
Chairman Huizenga. The gentleman's time has expired.
With that, we will go to the gentleman from North Carolina,
Mr. Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Secretary Sheets, regarding the snapback provisions, it is
my understanding that the Europeans are going in flocks right
now to Iran, their trade ministers and various individuals,
looking for agreements with Iran. Is it reasonable to assume
that snapback provisions will really be, at that period of
time, something that we could expect given China and Russia
and--the world has changed and there is a clear reluctance, it
seems to me, to join in?
It seems that there has been a lot of communication that we
will just go into snapback, but is that really likely? Wouldn't
you agree that this is really not something we should be
believing that this will occur?
Mr. Sheets. Those issues related to Iran sanctions are
outside of my purview as the Under Secretary for International
Affairs.
Mr. Pittenger. Okay.
Mr. Sheets. And I should defer to the Secretary and to
acting Under Secretary Szubin.
Mr. Pittenger. Very good.
Mr. Sheets. I very much apologize for that, but I should
be--
Mr. Pittenger. All right. Let us talk about the IMF
systemic exemption. Could you enlighten us where the
Administration stands with that? The IMF, the systemic
exemption that there has been some discussion about.
Mr. Sheets. Yes, and what about the systemic exemption?
Mr. Pittenger. There have been a lot of mixed signals from
the Administration about it. I would just like some
clarification on it.
Mr. Sheets. Yes, okay. My sense is that the systemic
exemption was put into place in response to significant
economic and financial risks in 2010. Had we pressed forward
with debt restructuring of those peripherals at that point,
there would have been a significant risk of contagion at a
point when the global economy was just starting to recover from
2008-2009.
That said, also recognize that there is an ongoing
conversation, an animated conversation going on about this
inside the IMF. And we are open to various ideas. One is to
further specify criteria that we need to be satisfied in the
event of the systemic exemption. But there are other ideas.
And as I mentioned to Chairman Huizenga, I would be very
happy to work with you and your staffs on this issue going
forward. It is a very important issue.
Mr. Pittenger. It certainly is. Would you be able to
address some issues related to terrorism financing? There are
46 banks in Iran that will come under SWIFT authority in
transfer of funds. And certainly, it should be of concern to
all of us that $100 billion will be received by Iran from
repatriated oil profits and how that money could be processed
through the international financial system.
What efforts are being made right now through the Treasury,
FinCEN and other departments to track this money?
Mr. Sheets. Again, I have to defer those questions to my
colleagues. I very much apologize for that.
Mr. Pittenger. Okay. I yield back.
Chairman Huizenga. The gentleman yields back.
With that, we are--do you need a minute? All right.
Mr. Heck, then, if that is all right, we are going to go to
our side, and then we will come to your side.
With that, we will recognize the gentleman from Indiana,
Mr. Stutzman, for 5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman.
And thank you, Mr. Sheets, for being here.
I want to talk a little bit about what is going on in the
Middle East. Do you support sanctions relief for individuals
and groups known to sponsor terrorism?
Mr. Sheets. Again, I think it is necessary for me to defer
those questions to my colleagues. I apologize.
Mr. Stutzman. Who would those colleagues be?
Mr. Sheets. Secretary Lew, and then acting Under Secretary
Adam Szubin, who had his confirmation hearing today, would be
the two principals, and then acting Under Secretary Szubin's
staff.
It is in the TFI cone of the Treasury.
Mr. Stutzman. Okay. Can you talk a little bit then about
the new financing options that they will have as a result of
the Iran deal?
Mr. Sheets. Similar. I regretfully cannot answer that.
Mr. Stutzman. Okay, all right. Let us talk about the TPP
then a bit. Could you give us an update on TPP and how the
negotiations are going? I am interested in your take.
Mr. Sheets. Absolutely, thank you. I see TPP as being
enormously important for the U.S. economy. It links our economy
and our firms to the fastest-growing region in the world and
many rapidly growing countries.
Moreover, it establishes rules of the road for
international trade that emphasize transparency and openness
and rules of the road where U.S. firms will be able to compete
fairly and, I think, flourish.
The negotiations met with a fair amount of success and
progress during the negotiations in late July. The USTR and our
international counterparts are working vigorously to get this
agreement concluded as soon as possible.
I don't think we have any eminent, specific date by which
we will be concluded. I think soon we will be at a place where
we will be done.
Mr. Stutzman. Are you hearing any reluctance from countries
in the negotiations related to agricultural products or
automobiles, medical device industry that it would affect? Are
you hearing anything as far as related to those three?
Mr. Sheets. I think that those are ongoing issues where
various of our counterparties in TPP would have several of
those issues that would be open and concerned. But that is
where the negotiations are at this stage. It is working through
those now.
Mr. Stutzman. Can you share what their concerns would be
thus far?
Mr. Sheets. Our work has been more in the financial sector
specifically. But for Japan, it is autos and agricultural. For
New Zealand, say, it is dairy. For Canada, it is agriculture. I
would say that those are some examples of ongoing issues.
Mr. Stutzman. How about manufacturing? Anything that you
know of related to manufacturing?
Mr. Sheets. Over and above the issues on autos, I haven't
heard as much about manufacturing.
Mr. Stutzman. Okay. What about autos? What are you hearing
on autos?
Mr. Sheets. Of course, that is an ongoing issue of
discussion with the Japanese.
Mr. Stutzman. Okay. Could you talk quickly about Ukraine
and the concern that we have about foreign aid falling into the
wrong hands?
Mr. Sheets. I think what has been happening in Ukraine over
the last 18 months is truly, truly extraordinary. That on the
one hand, there have been enormous stresses there as a result
of the security situation.
On the other hand, we have seen the government move forward
with a vigorous reform program that has put in place many of
the kinds of things that the international community, the Fund
has been asking the Ukrainians to do for several decades.
As a result of the vigor of this program, the IMF has
provided support, the international partners have provided
support, and the situation in Ukraine appears like it might be
approaching a point of stability.
I should finally note that an important part, an important
tier of the reform program is an anti-corruption drive where
they are working to make the government more reliable and
trustworthy in a number of different dimensions.
Mr. Stutzman. Okay, thank you.
I yield back.
Chairman Huizenga. The gentleman's time has expired.
With that, we will go to Mr. Heck from Washington State for
5 minutes.
Mr. Heck. Thank you, Mr. Chairman.
Mr. Sheets, thanks very much for being here.
I think we are party to at least three agreements that
affect our biggest export industry, namely aircraft sales: the
OECD agreement; the aircraft sector understanding; and the home
market agreement between us and the Airbus countries, which
says we won't provide export credit on sales into each other's
countries.
As I understand it, however, there are no enforcement
mechanisms on any of these. They are so-called gentlemen's
agreements.
But it has always seemed to me that there is also no
incentive to cheat, because everyone has export credit
agencies, or did, and anyone who cheats and provides subsidies
would suddenly find other countries providing subsidies in
response.
But now that we don't have an export credit agency, it
seems like we lack this ability. If the Airbus countries want
to provide deeply discounted export credit to sell planes into
the United States, sir, do we have any tools to stop them and
protect American jobs now that we have shut down our export
credit agency?
Mr. Sheets. I broadly agree with the argument you made that
by not having an Ex-Im Bank we have much less leverage in our
discussions and our interactions with the rest of the world on
issues with respect to export credits.
And specifically, as this body knows well, the Treasury has
a mandate to take steps globally to reduce, with an eye toward
eliminating, export credits. But it is very difficult to do it
if we don't have any leverage in those discussions.
Mr. Heck. Do we have any tools to deter or disincentivize
their export credit agencies deeply discounting now that we
have no direct retaliatory entity or potentially retaliatory
entity?
Mr. Sheets. We are very much dependent on our argumentation
and our relationships. But the direct tool that we would use is
now gone.
Mr. Heck. Unless you disagree, I will conclude that you
have just indicated that we are being put at a competitive
disadvantage.
I want to change to IMF. And I am curious as to whether you
know whether U.S. cooperation with the Asian Infrastructure
Investment Bank will be discussed with President Xi during his
upcoming visits and what possible forms of cooperation that
might take.
Mr. Sheets. I am not sure what exactly is on the agenda.
But I can say that in our bilateral discussions with the
Chinese, the functioning of the AIIB is one of the issues that
we discuss. And we take that opportunity very much to
underscore that for the AIIB to contribute constructively to
the global environment, it needs to operate according to the
best practices that have been established by the multilateral
development banks over the last 70 years for issues of
governance and transparency and environment and social
inclusion and so on and so forth.
These are points we make repeatedly, and I think these are
points that we have some evidence to believe that the Chinese
are starting to hear, based on the documents that this
institution is generating.
Mr. Heck. Do you think there is any reason to believe that
failure to adopt IMF reform may have contributed, directly or
indirectly, materially or immaterially, to the creation of AIIB
and the BRICS Bank?
Mr. Sheets. I do think that was a factor, that these
emerging market economies wanted a greater voice in the
international institutions and the international architecture.
And the 2010 quota reforms gives them that larger voice. But
without it, they are left to seek opportunity to have an impact
through other mechanisms, including through the creation of
these new institutions.
Mr. Heck. What further consequences might there be if
America fails to embrace the otherwise broadly recommended
reforms? How else might we be disadvantaging ourselves in terms
of an ability to provide a leadership role?
Mr. Sheets. My sense is that a strong IMF that is led
meaningfully by the United States is very much in U.S. economic
and national security interests. And to the extent that we are
not leading, then the IMF is going to go in other directions.
And it is imperative. The world looks for our voice, and it
is an opportunity for us to take steps to ensure that the IMF
is moving in directions that we see as being most compatible
with global economic, financial stability and other
considerations that we have.
Mr. Heck. Thank you, sir.
Chairman Huizenga. The gentleman's time has expired.
And again, my apologies for that little delay. We would
have loved to have been able to do a second round. But I know
you had a target time of about 4:00 and we want to be
respectful of that.
So I would like to thank our witness today for his
testimony.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place his responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
And with that, this hearing is adjourned.
[Whereupon, at 4:05 p.m., the hearing was adjourned.]
A P P E N D I X
September 17, 2015
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