[Senate Hearing 114-324]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 114-324

                                TREATIES

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

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION
                               __________

                              MAY 19, 2016
                               __________

       Printed for the use of the Committee on Foreign Relations






[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]







                   Available via the World Wide Web:
                        http://www.fdsys.gpo.gov





                                 
                         U.S. GOVERNMENT PUBLISHING OFFICE 

20-973 PDF                     WASHINGTON : 2016 
-----------------------------------------------------------------------
  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 RELATIONS         

                BOB CORKER, TENNESSEE, Chairman        
JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida                 BARBARA BOXER, California
RON JOHNSON, Wisconsin               ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia                TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky                  TIM KAINE, Virginia
JOHN BARRASSO, Wyoming               EDWARD J. MARKEY, Massachusetts


                  Todd Womack, Staff Director        
             Chris Lynch, Democratic Staff Director        
               Chris Ford, Majority Chief Counsel        
            Margaret Taylor, Minority Chief Counsel        
                    John Dutton, Chief Clerk        


                              (ii)        

  














                            C O N T E N T S

                              ----------                              
                                                                   Page

Garber, Hon. Judith G., Acting Assistant Secretary, Bureau of 
  Oceans and International Environmental and Scientific Affairs, 
  U.S. Department of State, Washington, DC.......................    40
    Prepared statement...........................................     5
    Additional questions for the record submitted by Senator 
      Cafdin.....................................................    23

Isakson, Hon. Johnny, U.S. Senator From Georgia..................     1

Kim, John J., assistant legal adviser for private international 
  law, U.S. Department of State, Washington, DC..................     7
    Prepared statement...........................................     9

Schoenecker, John, director, intellectual property, HM.CLAUSE, on 
  behalf of American Seed Trade Association, Davis, CA...........    14
    Prepared statement...........................................    15

Shaheen, Hon. Jeanne, U.S. Senator From New Hampshire............     2
    Prepared statement...........................................     3

Smith, Edwin E., Partner, Law Offices of Morgan, Lewis & Bockius, 
  LLP, Boston, MA................................................    17
    Prepared statement...........................................    19

              Additional Material Submitted for the Record

Letters submitted in support of The Trearty on Plant Genetic 
  Resourced for Food and Argiculture.............................    25

Letters submitted in support of The Convention on the Law 
  Applicable to Certain Rights in Respect of Securities Held With 
  an Intermediary................................................    47




                                 (iii)














 
                                TREATIES

                              ----------                              


                         Thursday, May 19, 2016

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:04 a.m., in 
Room SD-419, Dirksen Senate Office Building, Hon. Johnny 
Isakson presiding.
    Present: Senators Isakson [presiding], Johnson, Gardner, 
Shaheen, and Murphy.

           OPENING STATEMENT OF HON. JOHNNY ISAKSON, 
                   U.S. SENATOR FROM GEORGIA

    Senator Isakson. I will call to order the hearing of the 
Senate Foreign Relations Committee. We welcome our guests and 
our two people to testify. I will make opening remarks, and 
then I will turn it over to Senator Shaheen for her opening 
remarks.
    Today's hearing will review two treaties that will advance 
U.S. interests in the agricultural and financial sectors, the 
International Treaty on Plant Genetics and The Convention on 
the Law Applicable to Certain Rights in Respect of Securities 
Held with an Intermediary.
    Our first treaty is the International Treaty on Plant 
Genetic Resources. The plant genetic treaty was voted out of 
this committee by a voice vote December 2010. Unfortunately, 
the Senate did not take up the treaty before the end of the 
110th Congress.
    As our witnesses will explain in their testimony, our food 
security and the future of United States agriculture depends on 
access to the plant germplasm that will be made available 
through the terms of this treaty.
    The United States is the global leader in agriculture, and 
I might add, parenthetically, so is my State of Georgia, so I 
have a personal and parochial interest in this as well.
    In fact, the multilateral germplasm system established 
under the treaty is based on our own national plant germplasm 
system, which has been in operation for years.
    Without full participation under the treaty, our farmers 
and researchers are placed in a competitive disadvantage. 
Without it, they have to engage in costly, time-consuming, 
bilateral negotiations to access materials that would be fully 
available under the Treaty.
    This treaty entered into force in 2004 and has 139 parties. 
We look forward to hearing from our witnesses today on how 
ratification of this treaty will help our national interests.
    The second treaty we will consider is The Hague Convention. 
In this treaty, we will address significant, complex and 
conflicting laws and issues in global financial markets. 
Financial markets have evolved over the last couple decades. 
The Hague Convention represents the other step forward in the 
evolution of securities law and financial markets.
    The capital markets are now global with the presence of new 
challenges with numerous parties trading securities across 
national borders. Under the indirect system, intermediaries in 
the United States manage accounts owned by people all over the 
world. Although the financial transactions managed by the 
intermediaries are global, the owners live in different 
countries from where the law is applicable. Those accounts may 
vary dramatically from one country to the next.
    Determining which laws are applicable and which courts 
apply brings new challenges with numerous parties trading 
securities across national borders. Legal issues that once 
would be resolved under U.S. law now face complex issues 
regarding the choice of laws and choice of forum.
    By providing a set of fallback rules for reconciliation of 
conflicts of the law, The Hague Convention represents another 
step forward in the evolution of securities law and financial 
markets. The Hague Convention would improve upon the current 
framework, providing a simpler method to resolve these 
conflicts. If ratified, this convention would reduce risk in 
global financial markets and reduce costs.
    The United States has a natural advantage under The Hague 
Convention. The Convention is based on U.S. legal principles 
and the U.S. Uniform Commercial Code.
    I look forward to discussing this today and look forward to 
hearing from our witnesses.
    I will now introduce the ranking member, Senator Shaheen.

               STATEMENT OF HON. JEANNE SHAHEEN, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Shaheen. Thank you, Mr. Chairman. Thank you for 
chairing this hearing. I am glad we are having this hearing 
today because consideration of treaties is one of the critical 
duties the Constitution assigns to the Senate, and I believe 
that we need to take that duty seriously.
    I am not going to repeat what Senator Isakson has said 
about the treaties that we are going to be considering this 
morning, but I just want to make a few points.
    First, as Senator Isakson said, the Treaty has been signed 
by the U.S. and ratified by 139 countries. My understanding is 
that our ratification will require no changes in U.S. law.
    On The Hague Securities Convention, I understand the 
Convention's principles are based on our own Uniform Commercial 
Code, which means they are entirely compatible with those 
already in effect across the United States, and they will not 
require any implementing legislation. The Uniform Law 
Commission, the body instrumental in drafting the code, has 
registered its strong support for ratification of the 
Convention, as have all of the relevant stakeholders, including 
banks, stockbrokers, investment firms, the U.S. Chamber of 
Commerce.
    So I will submit my full statement for the record, Mr. 
Chairman, and apologize in advance that I have to leave early 
to go to a markup in the Appropriations Committee.
    Senator Isakson. Without objection, your remarks will be 
made a permanent part of the record.
    [The prepared statement of Senator Shaheen follows:]


                 Prepared Statement of Senator Shaheen

    Thank you, Mr. Chairman.
    I am glad that we are having this hearing today. Consideration of 
treaties is one of the critical duties the Constitution assigns to the 
Senate, and I believe we need to take that duty seriously. So thank 
you, Senator Isakson, for chairing this hearing.
    Global access to plant genetic resources is greatly valuable to 
America's farmers, our academic institutions, our researchers, and the 
private sector. With these materials, we can develop new crop varieties 
that provide more nutrients, better resist pests and diseases, show 
improved yields, better tolerate environmental stress, and can 
therefore feed the growing number of people inhabiting this earth. The 
United States is the world's largest market for seeds, as well as the 
largest seed exporter.
    The International Treaty on Plant Genetic Resources for Food and 
Agriculture creates a global system for the management of plant genetic 
resources. Ratification of this treaty will ensure the United States 
can protect our national interests in the deliberations of the 
International Treaty Governing Body, which establishes and manages that 
global system. Once the U.S. ratifies this treaty, our companies and 
agricultural researchers will be able to engage in a streamlined 
exchange process for plant genetic resources rather than being forced 
to negotiate separate bilateral agreements. This shift will reduce 
uncertainty, logistical challenges and costs.
    This treaty has already been ratified by 139 countries, and my 
understanding is that ratification will require no changes to U.S. 
laws.
    I look forward to hearing the views of our distinguished witnesses 
on the merits of the Treaty.
    We have before us another important treaty: the Hague Securities 
Convention, which will remove legal uncertainties for cross-border 
securities transactions. I understand all of the relevant stakeholders, 
including banks, broker-dealers, investment firms and the U.S. Chamber 
of Commerce strongly favor its ratification.
    These days, cross-border electronic transactions in stocks, bonds 
and other securities are occurring in higher numbers than ever before. 
However, uncertainty about what law governs the aspects of these 
transactions can carry costs. The Convention resolves these 
uncertainties by providing choice-of-law rules for securities and is 
intended to modernize the conduct of these transactions.
    I understand the Convention's principles are based on our own 
Uniform Commercial Code, which means they are entirely compatible with 
those already in effect across the United States and will not require 
any implementing legislation. The Uniform Law Commission, the body 
instrumental in drafting the code, has registered its strong support 
for ratification of the Convention.
    I look forward to hearing from our witnesses on the merits of this 
treaty as well.


    Senator Isakson. And without objection, I will note that we 
are all going to be out of here pretty fast, because we have 
votes coming up pretty soon. So I do not want our two witnesses 
to think we are being rude or unprofessional, but we do have 
votes, I think at 11 o'clock, if I am not mistaken.
    So we will go right to our testimony.
    I want to first, without objection, enter into the record 
various letters that have been submitted by agricultural 
interests and financial interests around the country in support 
of the United States participation in both of the treaties we 
will discuss today.
    Without objection, they will become part of the record.

    [The information referred to is located at the end of this 
document.]]

    Senator Isakson. Our first witness is the Honorable Judith 
Garber, Acting Assistant Secretary for the Bureau of Oceans and 
International Environmental and Scientific Affairs at the 
Department of State.
    We welcome you, and you will be the first to testify.
    Our second witness today is Mr. John Kim, assistant legal 
adviser for private international law at the Department of 
State.
    Ms. Garber, you are recognized for up to 5 minutes.

STATEMENT OF HON. JUDITH G. GARBER, ACTING ASSISTANT SECRETARY, 
BUREAU OF OCEANS AND INTERNATIONAL ENVIRONMENTAL AND SCIENTIFIC 
       AFFAIRS, U.S. DEPARTMENT OF STATE, WASHINGTON, DC

    Ms. Garber. Mr. Chairman, Ranking Member Shaheen, thank you 
for the opportunity to testify today in support of the 
International Treaty on Plant Genetic Resources for Food and 
Agriculture.
    With your permission, I have a longer statement that I 
would like to submit for the record.
    Senator Isakson. Without objection.
    Ms. Garber. The American people depend on U.S. agriculture, 
which in turn depends on stable, high yields of U.S. crops, 
which in turn depend on the continual development of new crop 
varieties. The crops we grow are under constant threat from 
diseases and pests, droughts, and floods. Our food security and 
the future of U.S. agriculture will depend on our ability to 
breed resilient new crops that require less water, less 
fertilizer, and less energy to grow, and still reliably produce 
high-quality yields.
    To develop these new crop varieties, breeders and 
researchers require access to a broad spectrum of plant 
germplasm. Plant germplasm includes the seeds, the bulbs, the 
roots, and other propagating raw materials from which plants 
can be reproduced.
    These materials for plant breeding contain key traits, such 
as immunity to virulent pests and diseases or tolerance for 
drought. Because plant genetic diversity is spread across the 
globe, U.S. access to germplasm from other countries is 
critical to develop the crops we need. This means facilitating 
guaranteed access to what is termed ``plant genetic resources'' 
is a very high priority for the United States and the 
international community. This is the reason the Treaty was 
established.
    This treaty creates a stable legal framework for 
international plant germplasm exchanges. It benefits both 
research and commercial interests in the United States.
    The Treaty also promotes U.S. and global food security 
through the conservation and sustainable use of plant genetic 
resources.
    The Treaty's centerpiece is the establishment of a 
multilateral system. Its purpose is to facilitate access by 
public and private entities to, and benefit-sharing regarding, 
certain plant genetic resources to be used for research, 
breeding, and training for food and agriculture.
    Currently, 64 food, feed, and grazing crops are listed in 
the Treaty. Access is granted through a standard material 
transfer agreement, essentially a contract that defines the 
terms of access and benefit-sharing.
    As a global leader in agricultural production, research, 
and breeding, the United States was intensively involved in 
negotiating the Treaty and the standard material transfer 
agreement. President George W. Bush signed the Treaty in 2002. 
And as you noted, Mr. Chairman, it entered into force in 2004 
and now has 139 parties.
    Throughout the Treaty's negotiating process, the United 
States was firmly committed to creating a system that promotes 
U.S. and global food security, protects U.S. access to genetic 
resources held outside our borders, and supports research and 
breeding in both the public and private sectors.
    The U.S. also sought to protect the ability of 
International Agricultural Research Centers, the institutions 
largely responsible for the Green Revolution, which saved 
hundreds of millions of lives, to continue to breed crops that 
are the foundation for global food security. We were successful 
in achieving these objectives.
    U.S. ratification of the Treaty enjoys strong support among 
stakeholders such as the American Seed Trade Association, the 
American Farm Bureau Federation, the Association of Land-Grant 
Universities, and the National Farmers Union.
    Mr. Chairman, the Treaty is consistent with existing U.S. 
practice and can be implemented under existing U.S. 
authorities. The United States is already in compliance with 
key provisions of the Treaty.
    The Agricultural Research Service would play a major role 
in domestic treaty implementation. Ratification would not 
entail major policy or technical changes.
    For more than 60 years, the U.S. National Plant Germplasm 
System has distributed samples to plant breeders and 
researchers worldwide and without restriction.
    One notable example of collaboration is the crop gene bank 
in Griffin. The gene bank of the Agricultural Research Service 
and the University of Georgia is working to collect, conserve, 
and distribute plant genetic resources for sorghum, peanut, 
vegetables, cowpeas, and other crops and crop wild relatives.
    Ratification of the Treaty would not only underscore 
continued leadership in agricultural research, breeding, and 
markets, it would also help U.S. farmers and researchers 
sustain and improve their crops, and promote food security for 
future generations.
    Finally, it would enable the United States to effectively 
guide the trajectory of the Treaty and its material transfer 
agreement as they evolve to meet future challenges and changing 
conditions.
    Thank you for the opportunity to testify today. I would be 
happy to answer any questions you may have.
    [The prepared statement of Ms. Garber follows:]


                 Prepared Statement of Judith G. Garber

    Mr. Chairman, Ranking Member Shaheen, and Members of the Committee:
    Thank you for the opportunity to testify today in support of the 
International Treaty on Plant Genetic Resources for Food and 
Agriculture (``the Treaty'').
    U.S. agriculture depends on the stable high yields of U.S. crops 
which, in turn, depend on the continual development of new crop 
varieties. The crops we grow are under constant threat from diseases 
and pests, droughts and floods. Our food security and the future of 
U.S. agriculture will depend upon our ability to breed new crops that 
require fewer inputs, such as water, fertilizers, and energy, to grow; 
new crops that are more resilient or resistant to pests and diseases; 
and new crops that still reliably produce high-quality yields. To 
develop these new crop varieties, breeders and researchers require 
access to a broad spectrum of plant germplasm. Plant germplasm includes 
the seeds, bulbs, roots, and other propagating raw materials from which 
plants can be reproduced. These materials for plant breeding contain 
key traits, such as immunity to virulent pests and diseases, or 
tolerance for drought. Because plant genetic diversity is spread around 
the world, the United States needs to have access to germplasm from 
other countries in order to be best equipped to develop the crops we 
need. This means that facilitating access to what is termed ``plant 
genetic resources'' is a critical priority for the United States. It is 
also a critical priority for the entire international community. This 
is exactly why the Treaty was created.
    Technological advances have significantly improved our ability to 
identify, characterize, and utilize plant genetic materials, meaning 
that now more than ever it is important for us to be able to access the 
diversity of plant genetic resources outside our borders. However, U.S 
researchers have found it increasingly difficult to gain access to 
plant genetic resources in other countries. This Treaty establishes a 
stable legal framework for international plant germplasm exchanges, 
benefitting both research and commercial interests in the United 
States, and promoting U.S. and global food security through the 
conservation and sustainable use of plant genetic resources for food 
and agriculture.
    The centerpiece of the Treaty is the establishment of a 
``Multilateral System'' for access to, and benefit-sharing regarding, 
certain plant genetic resources to be used for research, breeding, and 
training for food and agriculture. The Multilateral System currently 
applies to 64 food, feed and grazing crops that are maintained by 
International Agricultural Research Centers or that are under the 
management and control of national governments and in the public 
domain. Access to germplasm in the multilateral system is granted 
through a Standard Material Transfer Agreement (SMTA), a contract that 
defines the terms of access and benefit-sharing.
    As a global leader in agricultural production, research and 
breeding, the United States was intensively involved in negotiating the 
Treaty and the SMTA, which accompanies every transfer of materials 
under the multilateral system. President George W. Bush signed the 
Treaty in 2002. It entered into force in 2004 and now has 139 Parties 
including Australia, Brazil, Canada, Japan, and the EU. President Bush 
forwarded the Treaty to the Senate for consideration in July 2008, 
after negotiation of the SMTA was completed.
    Throughout the Treaty negotiating process, the United States was 
firmly committed to creating a system that promotes U.S. and global 
food security, protects U.S. access to genetic resources held outside 
our borders, and supports research and breeding in both the public and 
private sectors. The United States also sought to protect the ability 
of the International Agricultural Research Centers--the institutions 
largely responsible for the ``Green Revolution'' which saved hundreds 
of millions of lives--to continue to breed crops that are the 
foundation for global food security. We were successful in achieving 
these objectives.
    U.S. ratification of the Treaty enjoys broad stakeholder support, 
including support from major U.S. companies as well as prominent 
industry organizations such as the American Seed Trade Association, the 
American Farm Bureau Federation, the National Farmers Union, the 
National Association of Wheat Growers, the National Corn Growers 
Association, the Biotechnology Industry Organization, and the 
Intellectual Property Owners of America. In addition, the Association 
of Public Land-grant Universities also supports ratification.
    U.S. stakeholders strongly support ratification because it would 
guarantee U.S. users what is known as ``facilitated access,'' that is, 
access on consistent terms for little or no cost, to plant genetic 
materials held by other Treaty Parties. Currently U.S. entities are at 
a disadvantage, as they are not assured access to these resources due 
to our non-party status. When they do gain access, they sometimes have 
to engage in lengthy ad hoc negotiations of terms of access, and those 
terms are not always as favorable as those in the SMTA. If the United 
States were a Party to the Treaty, U.S. users would have guaranteed 
access under the SMTA, and the United States could ensure that any 
revisions to the SMTA were consistent with U.S. interests.
    The Treaty is consistent with existing U.S. practice and can be 
implemented under existing U.S. authorities. The United States is 
already in compliance with key provisions of the Treaty. The 
Agricultural Research Service, in its capacity as manager of the 
National Plant Germplasm System, would play a major role in domestic 
Treaty implementation. Ratification would not entail major policy or 
technical changes to current National Plant Germplasm System 
operations. For more than 60 years, the U.S. National Plant Germplasm 
System has distributed samples of germplasm to plant breeders and 
researchers worldwide and without restriction. One notable example of 
collaboration is the Agricultural Research Service-University of 
Georgia crop genebank in Griffin, Georgia, which is working to collect, 
characterize, conserve, and distribute plant genetic resources for 
sorghum, peanut, vegetables, cowpeas, and other crops and crop wild 
relatives.
    The U.S. Department of Agriculture has long been recognized as the 
world leader in plant germplasm conservation and distribution. If the 
United States were to ratify the Treaty, U.S. entities would gain 
guaranteed access to plant genetic resources covered by the Treaty's 
Multilateral System. This guaranteed access is critical to the efforts 
of researchers and plant breeders to develop new crop varieties that 
are more nutritious, that are resistant to pests and diseases, that 
show improved yields of high-quality products, and that are better able 
to tolerate environmental stresses. The emergence of new plant breeding 
tools only heightens the importance of open access to plant genetic 
resources.
    Ratification of the Treaty would not only underscore our continued 
leadership in agricultural research, breeding, and markets; it would 
also help U.S. farmers and researchers sustain and improve their crops 
and promote food security for future generations. Finally, it would 
enable the United States effectively to guide the trajectory of the 
Treaty and its Material Transfer Agreement as they evolve to meet 
future challenges and changing conditions.
    Thank you for the opportunity to testify today. I would be happy to 
answer any questions.


    Senator Isakson. Thank you, Ms. Garber.
    Mr. Kim?

 STATEMENT OF JOHN J. KIM, ASSISTANT LEGAL ADVISER FOR PRIVATE 
  INTERNATIONAL LAW, U.S. DEPARTMENT OF STATE, WASHINGTON, DC

    Mr. Kim. Chairman Isakson, Ranking Member Shaheen, members 
of the committee, I appreciate this opportunity to testify 
today in support----
    Senator Shaheen. Mr. Kim, could you just pull your 
microphone a little closer, so we can hear a little better?
    Mr. Kim. Okay, excuse me. I will start again.
    Chairman Isakson, Ranking Member Shaheen, members of the 
committee, I appreciate this opportunity to testify today in 
support of The Hague Convention on the Law Applicable to 
Certain Rights and Respective Securities Held with an 
Intermediary.
    The Convention was adopted by The Hague Conference on 
Private International Law on July 5, 2006, and was signed by 
the United States and Switzerland that same day. Switzerland 
and Mauritius have ratified the Convention. The Convention will 
enter into force after the deposit of a third instrument of 
ratification.
    Many countries are looking to the United States, upon whose 
law the Convention largely was based, to become a party before 
they take action.
    In brief, the rules in the Convention provide a narrow 
technical fix to a serious problem in cross-border securities 
markets that has already been fixed domestically through 
adoption by all U.S. States of Articles 8 and 9 of the Uniform 
Commercial Code.
    The Convention, if widely adopted, would basically extend 
current U.S. law and practice to the global financial markets. 
In particular, the rules in the Convention solve the current 
quandary of determining which country's law apply to certain 
aspects of a cross-border transaction in which the issuer, the 
clearing corporation, the security owner's bank or broker, and 
the owner may be located in different countries.
    First, I would like to provide some brief background 
explaining the nature of the problem that the Convention is 
designed to address. Over the years, financial markets have 
moved from a system of direct holding of security certificates 
or recordings on a share registry to a system of securities 
clearance, settlement, and ownership where the ownership 
information is held electronically as a book entry.
    This so-called indirect system consists of one or more 
tiers of intermediaries between the issuer and the owner. These 
so-called intermediated securities are maintained through 
clearing corporations for the accounts at banks and brokers, 
which in turn maintain accounts for the customers.
    In the movement toward book entry systems, it has become 
increasingly difficult for financial market participants to 
determine which country's law would apply to transactions 
involving securities held through these systems that involve 
different countries. It is crucial that market participants be 
able to identify the relevant law easily and with certainty for 
a variety of purposes, including, among many others, ensuring 
the perfection of interest in the intermediated securities. 
This problem affects U.S. banks and financial institutions 
every day and increases legal uncertainty and raises costs.
    The Uniform Law Commission and the American Law Institute 
addressed this problem within the United States by revising the 
UCC in 1994. The rules and the Convention are based on the 
rules contained in UCC Articles 8 and 9.
    Second, I would like to turn to the solution to this 
problem provided by the Convention.
    The Convention's focus is important but narrow. It deals 
with intermediated securities, but not securities directly held 
by the investor from the issuer. The Convention does not 
prescribe substantive law. Rather, it simply selects a 
governing law for certain issues related to an intermediated 
securities transaction, thereby providing legal certainty on 
issues. These issues include the legal rights and obligations 
of the intermediary, and the resolution of priority conflicts 
among the buyer, the secured party, and a judgment lien 
creditor, if there are conflicting claims to the securities.
    The primary role of the Convention for determining the 
applicable law is to look to the law of the jurisdiction whose 
law governs the account agreement between the customer and the 
intermediary. Virtually all book entry systems are covered by 
an account agreement, and a very large majority of those 
agreements specify governing law.
    Third, the Convention is consistent with and is largely 
based on U.S. law. The Convention generally follows the 
approach to choice of law for the indirect holding system 
already contained in Article 8 of the UCC. In particular, UCC 
Article 8 permits the intermediary and the customer to 
determine the law that governs a transaction by express 
agreement.
    My last and perhaps most important point is that we expect 
that there will be many benefits of U.S. ratification of the 
Convention. The Convention would contribute to the practical 
need in the large and growing global financial markets for 
greater legal certainty as to the laws applicable to interests 
in securities held through indirect holding systems.
    It would reduce the cost of cross-border security 
transactions for securities investors, market actors, and 
custodians. U.S. businesses and individuals would benefit, in 
particular, because the Convention sets forth modern rules, 
which already their domestic transactions, and extend those 
rules more globally, thereby reducing costs and enhancing 
certainty.
    As the Convention was largely based on U.S. law, and given 
this country's significant role in cross-border transactions, 
other countries are looking to the leadership of the United 
States. If United States becomes a party, we expect that many 
other countries, including Canada, as well as countries in 
Asia, South America, and Africa, will be encouraged to join the 
Convention and adopt the same rules on choice of law.
    Thank you, Mr. Chairman, Ranking Member. I am happy to 
answer any questions.
    [The prepared statement of Mr. Kim follows:]


                   Prepared Statement of John J. Kim

    Chairman Isakson, Ranking Member Shaheen, and Members of the 
Committee, I appreciate this opportunity to testify today in support of 
the Hague Convention on the Law Applicable to Certain Rights in Respect 
of Securities Held with an Intermediary (``the Convention'').
    The Convention was adopted by the Hague Conference on Private 
International Law on July 5, 2006, and it was signed by the United 
States and Switzerland that same day. The Convention will enter into 
force after the deposit of the third instrument of ratification. 
Switzerland and Mauritius have ratified the Convention. Many countries 
are looking to the United States, upon whose law the Convention largely 
was based, to become a party before they take action.
    In brief, the rules in the Convention provide a narrow, technical 
fix to a serious problem in cross-border securities markets that has 
already been fixed domestically through adoption by all U.S. states of 
Articles 8 and 9 of the Uniform Commercial Code (UCC). The Convention, 
if widely adopted, would basically extend current U.S. law and practice 
to the global financial markets.
    In particular, the rules in the Convention solve the current 
quandary of determining which country's law applies to certain aspects 
of a cross-border transaction in which the investor or owner, the 
issuer, the clearing corporation, and the owner's bank or broker may be 
located in different countries. As a result, the Convention (1) reduces 
the legal and systemic risks in cross-border investment securities 
transactions; (2) reduces costs; and (3) facilitates capital flows.
    My statement will consist of three parts. First, I will provide 
some background on the Convention explaining the nature of the problem 
that the Convention was designed to address. Second, I will explain how 
the Convention addresses the problem and briefly run through its basic 
provisions. Third, I will indicate the Convention's relation to 
domestic law and its importance to U.S. banks, brokers and others.
                i. background--the nature of the problem
    Historically, owners of securities had a direct relationship with 
the issuer. Investors or owners would either have physical possession 
of the securities certificates, or be recorded on the issuer's share 
registry. The location of the certificate or registry was readily 
identifiable.
    Over time, however, financial markets have expanded and moved to a 
system of securities clearance, settlement, and ownership where the 
ownership information is held electronically and indirectly as a book 
entry. This so-called ``indirect system'' consists of one or more tiers 
of intermediaries between the issuer and the owner. These so-called 
``intermediated'' securities are maintained through clearing 
corporations (or central securities depositories) for the accounts of 
banks, brokers, and other financial institutions which in turn maintain 
accounts for their customers (the beneficial owners of the securities). 
The owners do not appear on any registry maintained by the issuer, nor 
do they have actual possession of certificates.
    In the movement towards book-entry systems, it has become 
increasingly difficult for financial market participants to determine 
which country's law would apply to transactions involving securities 
held through these systems that involve different countries. (For 
example, suppose that a New York broker holds stock issued by Japanese 
and Singapore companies for a South American customer.) Also, these 
cross-border transactions take place very quickly and in huge volumes.
    Many countries' legal systems have not kept up with the book-entry 
system, and their rules remain different than those in the United 
States. This problem affects U.S. financial institutions every day, and 
increases legal uncertainty and raises costs associated with the often-
complicated determination of which country's law may apply.
    That is why the Uniform Law Commission (ULC) and the American Law 
Institute in 1994 addressed this problem domestically in revising the 
UCC. The rules in the Convention reflect the modern finance law of the 
United States in Articles 8 and 9 of the UCC, adopted by all U.S. 
states and the District of Columbia. The Convention would bring this 
modern approach to the global markets.
                       ii. the proposed solution
    I turn now to the solution to this problem that is provided by the 
Convention.
    The Convention's focus is important but narrow. It deals with 
intermediated securities but not securities directly held by the 
investor from the issuer. The Convention does not prescribe substantive 
law for securities intermediaries, and it has no effect on regulatory 
law. The Convention simply selects a governing law for certain issues 
related to an intermediated securities transaction, thereby providing 
legal certainty on the law applicable to those issues, and avoiding the 
need to comply with the laws of multiple jurisdictions for the same 
transaction.
    The issues covered by the Convention include the legal rights and 
obligations of the intermediary; the legal nature and effect of a 
disposition of the investor's interest in the securities by the 
investor's bank or broker, to a buyer or a secured lender; and how 
priority conflicts among the buyer, the secured party and a judgment 
lien creditor are resolved if there are conflicting claims to the 
securities.
    The primary rule of the Convention for determining the applicable 
law is to look to the law of the jurisdiction whose law governs the 
account agreement between the customer and the intermediary. Virtually 
all book-entry systems are covered by an account agreement, and the 
very large majority of those agreements specify a governing law.
    Under the Convention, some minimal nexus must be established for 
the choice of that law, such as an office (a place of business) of the 
intermediary that performs certain functions in the chosen jurisdiction 
dealing with securities, even if those functions are unrelated to any 
particular securities account. This is generally not an issue for U.S. 
banks or brokers. They would normally require that the governing law of 
the account agreement be that of a jurisdiction in which they maintain 
an office.
    If the applicable law cannot be determined pursuant to an agreement 
between the customer and the intermediary, certain fallback provisions 
in the Convention would ultimately apply the law of the jurisdiction in 
which the intermediary is organized.
                   iii. relation to u.s. domestic law
    Turning now to the third part of my presentation, the Convention is 
consistentwith, and was largely based on, U.S. law.
    The Convention generally follows the approach to choice of law for 
the indirect holding system contained in Article 8 of the UCC. Article 
8 was specifically revised in 1994 to reflect the increasing use of 
securities accounts without physically identifiable securities or 
issuer share registries. In particular, UCC Article 8 permits the 
intermediary and the customer to determine the law that governs the 
transaction by express agreement.
    As previously noted, the Convention has no effect on regulatory law 
or the jurisdictional scope or mandate of any banking, securities, or 
other regulators.
    Federal law does not cover these types of commercial transactional 
matters, so there is no federal law that would be displaced. In 
addition, the Convention would not affect any other legal rules or 
contractual provisions that are not specified in the Convention.
    UCC Articles 8 and 9 will continue to cover any issues not covered 
by the Convention and issues related to securities held directly by the 
investor or owner.
    There are some minor differences between the Convention and UCC 
Articles 8 and 9, relating to perfection by filing, and regarding the 
consequences of a change in the governing law of the agreement (which 
would be a rare occurrence). Also, UCC Article 8, while permitting the 
intermediary and the customer to select the applicable law, does not 
contain a ``qualifying office'' rule.
    None of these differences are significant, and none of the 
interested U.S. industry associations or the ULC has indicated any 
difficulty with these differences. These minor differences are not 
expected to create any difficulties for U.S. practices under UCC 
Articles 8 and 9.
    The Administration has proposed that the Convention be self-
executing. No federal or state legislation would be required to 
implement the Convention. This method of domestic implementation was 
supported by the ULC. There is no need to craft federal legislation 
that would intersect with Articles 8 and 9 of the UCC since the terms 
of the Convention itself would do that adequately.
    Finally, the Convention does not permit reservations, and the 
Administration has not proposed any understandings or declarations.
                   iv. benefits of u.s. ratification
    My last and perhaps most important point is that I hope the Senate 
will appreciate the many benefits of U.S. ratification of the 
Convention.
    The Convention would contribute to the practical need in the large 
and growing global financial markets for greater legal certainty as to 
the laws applicable to interests in securities held through indirect 
holding systems, and would reduce the costs of cross-border securities 
transactions for securities investors, market actors, and custodians. 
As a result, the Convention would facilitate the flow of capital to 
both developed and emerging markets.
    In addition to the aforementioned benefits to the United States, 
U.S. banks and brokers would benefit in particular because the 
Convention sets forth modern rules with which U.S. intermediaries 
already are familiar and are generally applying. Further, U.S. 
investors would benefit. For example, many Americans have pension funds 
or 401(k) accounts, and these pension funds have large holdings in 
securities that are managed under the book-entry systems I have 
described. Widespread adoption of the Convention would enhance 
harmonization and lower the costs of cross-border transactions 
involving these funds.
    It is therefore not surprising that industry trade associations 
such as the International Swaps and Derivatives Association, the 
Securities Industry and Financial Markets Association, the Association 
of Global Custodians, and the Trade Association for the Emerging 
Markets (EMTA) have written to this Committee indicating their support 
for U.S. ratification. Also, notably, the President of the ULC sent a 
letter to this Committee supporting U.S. ratification of the 
Convention.
    In view of the successful development of UCC Articles 8 and 9 in 
the United States, and given this country's significant role in cross-
border securities transactions, other countries are looking to U.S. 
leadership on the Convention.
    If the United States becomes a party, we expect that many other 
countries, including Canada, as well as countries in Asia, South 
America, and Africa, will be encouraged to join the Convention and 
adopt the same rules on choice of law for cross-border securities 
transactions. As other countries proceed to adopt the Convention, legal 
certainty will continue to increase for all securities transactions, 
including those carried out by banks, brokers and other market 
participants in the United States.


    Senator Isakson. Thank you very much, Mr. Kim.
    We will have an opening round of 5-minute questions. I will 
start on that.
    Ms. Garber, your recognition of the University of Georgia 
was duly noted. I want to tell you how much I appreciate that. 
[Laughter.]
    Senator Isakson. They do have a great agriculture extension 
service throughout the State and a great research center in 
Griffin, which you acknowledged in your remarks, which I 
appreciate.
    That brings me, actually, to the key question that I have 
been asking, given the genetically modified organisms issue. It 
used to be in Asia, but now it seems like the Europeans are 
using it as well. Will our participation in this treaty help us 
in having GMOs recognized as being safe and secure as a 
component part of our agricultural products? Or does it have 
anything to do with that?
    Ms. Garber. Thank you for that question, Senator.
    This treaty deals with the particular product or plant 
material, the building blocks of plants, but it does not deal 
with the particular processes or techniques that were used to 
create any particular seed or bulb or propagating material, so 
it is completely neutral on the question of genetically 
modified organisms. It just deals with access and the 
particular seeds or tubers or bulbs or plant propagating 
material.
    Senator Isakson. Carrying that same thought a little bit 
further, in terms of trade agreements, we have TPP that is 
pending in the United States Senate, and hopefully TTIP will be 
pending at some time in the next Congress, in terms of Europe 
and Scandinavia, will it be of any help to us?
    One of our problems in trade around the world is people 
will use standards in their country for health and safety and 
security and/or financial standards, Mr. Kim, in their country 
to be a reason why they do not want to have free and fair and 
open trade with United States.
    Will this help us, either one of those treaties, by getting 
into them and having a more level playing field?
    Ms. Garber. This treaty is distinct from that, but what 
this treaty does do is it creates a level playing field in 
terms of guaranteed access for our public and private plant 
breeders, as well as our agricultural researchers.
    Senator Isakson. Mr. Kim, like most Americans who are not 
attorneys and not bankers or financial services personnel, I 
have always been worried about losing a stock certificate, but 
I am even more worried about an electronic recording of stock 
ownership that I can never touch, feel, and put in a safety 
deposit box.
    Our participation in this financial Convention with The 
Hague, will that help in assuring people that their ownership 
is secure and safe in the event of a cyberattack or some other 
electronic problem?
    Mr. Kim. Senator, this convention will certainly enhance 
the global financial markets by introducing legal certainty as 
to the choice of law in a situation where there is currently no 
certainty. When there are many different countries involved, 
people do not know which law applies, and they often try to 
comply with many different laws.
    So it would reduce legal and systemic risk, and reduce 
costs. I think that would be good for U.S. investors, as well 
as U.S. banks and brokers, and will enhance the integrity of 
the indirect holding system through which much of our 
securities trade proceeds.
    Senator Isakson. To that point, and I want to make sure I 
am right on this, the laws governing financial transactions in 
the residence of the owner of the account under this convention 
will be the laws that govern handling the financial services of 
that account. Is that correct?
    In other words, if I have a financial manager in the United 
States of America, and I am a resident of the United States of 
America, and there is a question about an account transfer, 
this would guarantee the determination that U.S. law prevailed? 
Is that right?
    Mr. Kim. In practical reality, yes, because almost all U.S. 
banks or brokers and U.S. residents would choose U.S. law to 
govern their account agreements.
    Senator Isakson. Thank you very much, Mr. Kim.
    Thank you very much, Ms. Garber.
    Senator Shaheen?
    Senator Shaheen. Thank you.
    Ms. Garber, can you talk about how and whether the treaty 
would help address the challenges of global food insecurity?
    Ms. Garber. Thank you for that question, Senator.
    This treaty would absolutely help address the challenge of 
global food security. So many regions of the world that suffer 
from global food insecurity, such as in Africa, South Asia, or 
the Caribbean, suffer from low agricultural productivity. What 
this treaty does is it provides guaranteed access for those who 
are trying to produce new plant varieties that will be stronger 
and more resistant to part of the undercurrent reasons why we 
have low agricultural food productivity or, for example, pests 
and diseases that may affect certain crops.
    So by providing the system of access, it enhances not only 
the food security of the United States, but food security 
globally.
    Senator Shaheen. Thank you.
    Mr. Kim, you pointed out that the Convention was signed in 
July 2006, which is almost a decade ago, that there are only 
two countries that have actually ratified it today. So why is 
it taking so long?
    Mr. Kim. Thank you, Senator, for the question.
    Other countries are looking to the United States for 
leadership on this convention, as this convention was based on 
our law and rules, and in view of the significant role that the 
United States plays in global markets.
    U.S. ratification of this convention would lead to the 
entry into force of the Convention, and we believe that would 
create momentum to encourage other countries to join the 
treaty.
    I have had conversations with the Canadians. We have heard 
voices from Japan and Korea that they are very interested in 
what the United States does with The Hague Securities 
Convention.
    Senator Shaheen. I understand that. That makes sense to me. 
But why has it taken so long for the Convention to come before 
the Senate?
    Mr. Kim. Well, the treaty transmittal package was submitted 
by President Obama in May 2012.
    Senator Shaheen. So we have been slow to take it up?
    Mr. Kim. Well, it has been before the committee, certainly, 
but I am sure there have been many other priorities and has 
taken some time.
    Senator Shaheen. I guess what I am trying to get at is, 
given that we heard that the stakeholders seem to all be 
supportive, have there been objections coming from some areas 
that are not apparent, that we need to better understand?
    Mr. Kim. Thank you, Senator.
    No, we are not aware of any opposition or objections posed 
to this convention. It has near universal support. Almost every 
industry trade association has written to the committee in 
support of U.S. ratification of the Convention, as has the 
Uniform Law Commission, which promulgates the UCC. They have 
all written in support of the Convention.
    I think it is high time we take action. Thank you.
    Senator Shaheen. Thank you.
    Thank you, Mr. Chairman.
    Senator Isakson. I would comment, Senator Shaheen, that it 
is understandable why Mr. Kim works for a diplomatic agency of 
the government. [Laughter.]
    Senator Shaheen. He did that very well.
    Senator Isakson. The answer to his question is that it is 
our fault, number one, that it is so late in coming up. I would 
compliment Chairman Corker and Senator Cardin on the fact that 
we are having this hearing, which I think sends a clear signal 
that we are ready to take action. But I appreciate your 
diplomacy very much in answering the question.
    Senator Johnson?
    Mr. Johnson. No questions.
    Senator Isakson. Senator Murphy?
    Senator Murphy. No questions.
    Senator Isakson. See, you did so good, nobody even has a 
question. Thank you very much for your testimony, we are going 
to move to our second panel.
    For members, we will leave the record open until the end of 
business on Monday for questions or additional comments, and 
would ask the witnesses from the first panel to be sure to 
reply quickly, if you do receive any additional questions from 
the committee.
    It is now my privilege to recognize our second panel. We 
have two witnesses. The first is Mr. John Schoenecker, director 
of intellectual property at the American Seed Trade 
Association. Our second witness is Mr. Edwin Smith, partner at 
the Law Offices of Morgan, Lewis & Bockius.
    We recognize Mr. Schoenecker for his comments up to 5 
minutes.

STATEMENT OF JOHN SCHOENECKER, DIRECTOR, INTELLECTUAL PROPERTY, 
HM.CLAUSE, ON BEHALF OF AMERICAN SEED TRADE ASSOCIATION, DAVIS, 
                               CA

    Mr. Schoenecker. Thank you, Mr. Chairman and members of the 
committee. I would just point out that I work for HM.CLAUSE, a 
vegetable seed company out of Davis, California.
    But I want to thank you for the opportunity to testify 
today in support of the International Treaty on Plant Genetic 
Resources for Food and Agriculture, which I will call the 
treaty. I am here on behalf of the members of the American Seed 
Trade Association. Founded in 1883, ASTA represents over 700 
companies engaged in plant breeding, production, and 
distribution of many seed types, including grains, oil, seeds, 
rice, cotton, vegetables, flowers, forages, cover crops, and 
grasses, what we in the vegetable seed business like to call 
everything from asparagus to zucchini.
    ASTA members are research-intensive companies in the 
business of discovery, development, and marketing of seed 
varieties with enhanced production and end-use qualities.
    As you know, our global food system is highly 
interdependent. For example, 70 percent of the food we eat and 
grow in the U.S. comes from crops that are not native to the 
U.S. As such, not all plant genetic resources needed to improve 
these crops are found in the U.S. The treaty is an agreement 
that aims to address this and enhance global food security by 
providing access to, and exchange of, the plant materials 
required to improve seed varieties.
    A notable example of the impact of plant breeding, which 
our previous speaker talked about, is the Green Revolution. It 
demonstrates that you need all these sources of plant genetics 
to be successful. It was credited with feeding millions and 
saving countless lives.
    The wheat of Dr. Norman Borlaug was developed based on 
varieties from the United States, Japan, and Mexico, which in 
turn thrived in India and Pakistan.
    In the days of Dr. Borlaug, all plant breeders enjoyed much 
freer access to global plant genetic resources. However, 
certain countries began restricting access to their germplasm, 
and the treaty was drafted to stabilize the situation, with the 
U.S. playing a key role in its development. The intent was to 
establish rules and standards to facilitate access and provide 
benefit-sharing for the global seed resources needed for 
agriculture.
    Recently, the implementation of the Nagoya Protocol under 
the Convention on Biological Diversity, or CBD, is further 
threatening the global exchange of germplasm.
    With ratification of the treaty, the U.S. would be able to 
resume its leadership position, enhance the treaty's 
functioning, and greatly diminish the uncertainty created by 
Nagoya and the CBD.
    Our national plant germplasm system is one of the best in 
the world. It stores, maintains, and distributes worldwide over 
a half-million accessions, but almost 2 million more are held 
in seed banks outside the U.S.
    Access to this crop diversity is equally important to all 
sectors of agriculture, including organic, conventional, 
public, and private. Lack of access means lost opportunities to 
improve yield, enhance nutrition, better adapt crops to 
changing weather, and to address the threats posed by evolving 
pests and diseases.
    As we know, U.S. farmers are global leaders in 
productivity. Secure access to global plant material will 
enable public and private breeders working with organic, 
biotech, and conventional varieties to benefit from the treaty 
and to supply the best seeds to growers, so they can produce 
more of the best food tomorrow and well into the future.
    As noted, we came close to ratification in 2010 when this 
committee submitted the treaty and recommended ratification. 
Today, support for ratification remains broad and committed. 
More than 80 companies and organizations representing plant 
breeders, academics, and seed users have expressed support to 
the committee for ratification. These groups include the 
American Farm Bureau Federation, American Society of Plant 
Biologists, Association of Public and Land Grant Universities, 
National Corn Growers Association, National Cotton Council, and 
the National Farmers Union, to name a few.
    The treaty provides a simple and noncontroversial solution 
for a pressing problem. As a specialized system to exchange 
plant materials, the treaty puts all member countries on a 
level playing field and provides all plant breeders with clear 
terms and conditions of use.
    No new U.S. laws are required to implement the treaty, and 
no new appropriations are needed. In fact, most of the 
obligations of the treaty are currently being met by the U.S. 
system.
    With this, and on behalf of the American seed trade and 
farmers and researchers who support the treaty, I urge the 
committee to recommend ratification and support passage in the 
Senate. This access is critical and will greatly assist the 
U.S. seed industry in developing new varieties to benefit the 
U.S. farmer and consumer, and enhance global security food 
security.
    Thanks for this opportunity to comment, Mr. Chairman.
    [The prepared statement of Mr. Schoenecker follows:]


                 Prepared Statement of John Schoenecker

    Mr. Chairman and Members of the Committee:
    Thank you for the opportunity to testify today in support of the 
International Treaty on Plant Genetic Resources for Food and 
Agriculture (the Treaty). I am here on behalf of my company HM.CLAUSE 
and the American Seed Trade Association which was founded in 1883. 
ASTA's broad membership includes over 700 companies engaged in plant 
breeding, production, and distribution of seed varieties including 
grains, oilseeds, rice, cotton, vegetables, flowers, forages, cover 
crops and grasses. ASTA members are research-intensive companies in the 
business of discovery, development and marketing of seed varieties with 
enhanced agronomic and end-use qualities. Ratification of the Treaty by 
the U.S. has always been an important issue for the American seed 
industry. Since its inception, the Treaty has been considered the 
preferred mechanism for plant breeders to move seed and plant materials 
between countries in order to improve varieties for the world's 
farmers.
    Many people are not aware of the highly interdependent nature of 
our global food system. Seventy percent of the food we eat and grow 
comes from crops that are not native to the U.S. The resources to 
improve these crops have been brought into the U.S over time. The 
Treaty is an agreement that aims to enhance global food security 
through the continued access and exchange of materials used to improve 
seeds for farmers. Perhaps the most notable example of the impact of 
exchanging plant materials is the Green Revolution which is credited 
with saving millions of lives. The wheat that Norman Borlaug developed 
was based on a combination of materials from the U.S., Japan and Mexico 
which, in turn, thrived in India and Pakistan. We still use relatives 
of that wheat today in our breeding programs. There are many examples 
across crops. In vegetables, some disease and pest resistance in 
carrots has come from materials from South America and Europe. Green 
beans have disease resistance from French seed banks bred into 
commercial varieties.
    No country, including the U.S., is self-sufficient when it comes to 
seed for the future. U.S. seed banks store, maintain and distribute 
over 560,000 crop varieties. However, over two million more crop lines 
and their relatives are held in seed banks outside of the U.S. Public 
and private plant breeders once enjoyed much freer access to seeds for 
research and development. However, certain countries began restricting 
access to their germplasm and the Treaty was drafted to try to 
stabilize this situation. The U.S. played a key role in negotiations 
leading up to the creation of the final text of the Treaty during the 
Bush Administration. The intent was to create international rules and 
standards around access and benefit sharing with regard to seed used 
for agriculture. Recently, the implementation of the Nagoya Protocol 
(Nagoya) under the Convention on Biological Diversity (CBD) is further 
threatening our ability to exchange germplasm globally. With 
ratification, the U.S. would be able to resume its leadership position 
to enhance the functioning of the Treaty and greatly diminish the 
uncertainty created by the CBD and Nagoya.
    Currently, the Treaty has 139 Contracting Parties, many of which 
are important sources of seed exchange and also competitors of the 
U.S., including all EU countries, India, Brazil and Japan. If those 
countries chose to, they could restrict access to their germplasm to 
only other contracting parties. Without ratification, U.S. agriculture 
could then be at a huge disadvantage.
    Access to crop diversity is equally important to all sectors of 
agriculture including organic, conventional, public and private. Lack 
of access to global crop diversity will lead to lost opportunities to 
better adapt crops to changing weather and drought, and to address the 
threats posed by evolving pests and diseases. Improving yields will 
help us feed a growing global population. In the vegetable sector we 
are looking for new crop characteristics to enhance nutritional 
content, improve flavors and extend shelf-life to reduce food waste. 
Responding to these agricultural challenges requires a much deeper 
understanding of individual crop varieties, which have been developed 
under diverse conditions across the globe, and their wild ancestors. 
High throughput DNA sequencing technologies and bioinformatics tools 
provide new opportunities for university researchers to mine 
international collections of regional plant materials. These 
collections can be characterized and leveraged to provide important 
agronomic, nutritional, and other traits of societal value that can be 
utilized through traditional plant breeding. This work is hindered when 
the mechanism to exchange materials isn't in place, and instead has to 
be negotiated on an ad hoc basis.
    The Treaty will benefit public and private breeders working on a 
variety of crop types, in addition to U.S. farmers who are already 
global leaders in productivity. As a specialized system to exchange 
plant materials, the Treaty puts all member countries on a level 
playing field and provides their plant breeders with clear terms and 
conditions. Secure access to global materials will enable U.S. 
researchers and the broader industry to supply the best seeds to our 
customers to grow more of the best food for tomorrow and into the 
future.
    Support for ratification is broad. More than 80 companies, 
organizations and universities representing plant breeders, academics 
and seed users have expressed support for ratification to the 
Committee. In addition to ASTA, these groups include American Farm 
Bureau Federation, American Society of Plant Biologists, Crop Science 
Society, Association of Public and Land-grant Universities' Board on 
Agriculture Assembly, National Corn Growers Association, National 
Cotton Council, National Farmers Union and National Wheat Growers 
Association.
    The Treaty provides a simple and non-controversial solution for a 
pressing problem. We came close to completing the ratification process 
in 2010 when the Treaty was passed by this Committee. No new laws are 
required to implement the Treaty in the U.S. and no new appropriations 
are needed. In fact, most of the obligations of the Treaty are already 
being met by the U.S. systems that are already in place.On behalf of 
the American Seed Trade and the farmers and researchers who also 
support the Treaty, I urge the Committee to recommend ratification and 
support passage in the Senate. After ratification, the U.S. can resume 
the leadership role it once played guiding the system that supports all 
seed research and development to the benefit of U.S. farmers and 
consumers, as well as food security around the world.


    Senator Isakson. Thank you very much.
    Mr. Smith?

 STATEMENT OF EDWIN E. SMITH, PARTNER, LAW OFFICES OF MORGAN, 
                LEWIS & BOCKIUS, LLP, BOSTON, MA

    Mr. Smith. Chairman Isakson and members of the committee, 
thank you for the opportunity to testify before you today on 
The Hague Securities Convention.
    I am a partner in the law firm of Morgan, Lewis & Bockius, 
where I regularly represent clients in cross-border 
transactions and insolvencies, including transactions that 
would be covered by the Convention. I am also a Uniform Law 
commissioner, and I participated in the drafting of revisions 
to the Uniform Commercial Code.
    I appreciate the opportunity to appear before you today to 
express my support for the Convention. The Convention would 
solve a vexing problem for market participants in cross-border 
security transactions. That problem is determining which 
country's law applies to security interests and property rights 
in intermediated securities.
    The problem arises from the fact that the owner of the 
security, the holder of the security interest in the 
securities, the issuer of the securities, and the location of 
the securities, may all be in different countries.
    Currently, each country has its own choice of law rules 
that govern these transactions, and the lack of uniformity 
creates real uncertainty and risk for market participants in 
the financial system.
    To solve this problem, the Convention would establish clear 
choice of law rules that are based largely on the choice of law 
rules in the Uniform Commercial Code that is in effect 
throughout the United States. By ratifying the Convention, the 
United States would take an important step that would not only 
facilitate international commerce by preventing disputes over 
property rights and securities, but it would also help mitigate 
potential systemic risk created by the lack of clarity over the 
governing law for cross-border security transactions.
    To demonstrate the importance of the Convention, let me 
give you an example drawn from a real situation on which I had 
to advise a client. A customer of a U.S. bank custodian owned 
securities of a Japanese issuer. The U.S. bank custodian held 
those securities for the customer. The customer wanted to 
pledge those securities, grant a security interest in those 
securities, to secure a loan from the bank.
    The pledge would work very well under U.S. law. The 
custodian's interest in the securities would be protected from 
creditors of the customer that try to use U.S. courts to reach 
the securities. In this case, there would be very little 
additional cost to the customer.
    The problem is that these were securities issued by a 
Japanese issuer. Could a creditor of the customer ignore the 
effective pledge under U.S. law and try to reach those 
securities in Japan? The answer, it turned out, based on advice 
from Japanese counsel, was yes.
    Now, how can that be? It is because we learned that a court 
in Japan would apply traditional conflict of law rules. Their 
rule would look to the location of the asset to determine which 
country's law governs whether the pledge is a good one. Since 
the securities were issued by Japanese issuers, they were 
viewed to be located in Japan.
    Without them undertaking steps to get a good pledge under 
Japanese law, the securities could be reached by a creditor of 
the customer who has a passport to go to Japan and can bring a 
lawsuit there.
    Moreover, if the customer became a debtor under the U.S. 
bankruptcy code, there would not even need to be an actual 
creditor who goes to Japan for the pledge to be vulnerable. The 
customer's bankruptcy trustee likely would have the rights of 
any creditor who could go to Japan to attach the securities, 
even if the creditor did not actually do so.
    Well, would the pledge then be protected if the lender went 
through the steps of protecting the pledge under both U.S. and 
Japanese law? Not necessarily. If the securities were evidenced 
by stock certificates, a court in Japan or another country 
might view the applicable law to be the country where the 
certificates were located. And if the securities were held 
through a clearing corporation, it might view the applicable 
law to be where the clearing corporation operates.
    Under current law, neither the bank nor the custodian could 
be sure where a lawsuit could be brought or what country's law 
might apply. The uncertainty creates risk, and risk reduces the 
availability and increases the cost of credit for the customer.
    The situation would be even worse if there were multiple 
pledges of securities of different issuers in different 
countries being pledged, because then you are multiplying the 
governing laws that could possibly apply.
    The Convention would solve this troublesome problem. It 
would create a simple conflict of law rule that points to the 
law of the country whose law governs the custody agreement 
between the bank custodian and the customer, so long as the 
bank custodian has an office in that country that generally 
deals with securities. That law would be readily apparent from 
the agreement.
    The Convention also mitigates systemic risk by facilitating 
the resolution of financial institutions in case of financial 
distress or market failure by making the receiver's or 
trustee's job easier in determining which governing law 
applies.
    Then we also talked about the fact that this convention is 
totally consistent with U.S. law, in terms of choice of law 
rules.
    So in conclusion, the convention creates significant 
benefits with little practical downside. For that reason, 
market participants, with no opposition of which I am aware, 
urge its ratification.
    Thank you very much. I would be happy to answer any 
questions any of you may have.
    [The prepared statement of Mr. Smith follows:]


                  Prepared Statement of Edwin E. Smith

    Chairman Isakson, Ranking Member Shaheen, and the members of the 
committee, thank you for the opportunity to testify before you today on 
the Hague Securities Convention. I am a partner at the law firm of 
Morgan, Lewis and Bockius LLP, where I regularly represent clients in 
cross-border transactions and insolvencies, including transactions that 
would be covered by the Convention. I am also a Uniform Law 
Commissioner and have participated in the drafting of revisions to the 
Uniform Commercial Code. I appreciate the opportunity to appear today 
to express my support for the Hague Securities Convention.
    The Hague Securities Convention, formerly known as the Convention 
on the Law Applicable to Certain Rights in Respect of Securities Held 
with an Intermediary (the ``Convention''), was promulgated in 2006 by 
the Hague Conference on Private International Law and has been adopted 
thus far by Mauritius and Switzerland. The Convention has been signed 
by the United States but has not been ratified. The Convention requires 
that at least three countries adopt the Convention for the Convention 
to go into effect. If the United States were to ratify the Convention, 
the Convention would then go into effect among the adopting countries, 
and many more countries would likely follow the lead of the United 
States in adopting the Convention.
    The Convention addresses certain important conflict of laws issues 
that arise under current law when securities are held with a bank, 
broker or clearing corporation through the so-called ``indirect holding 
system.'' The uncertainty under current law on these issues creates 
significant risks for securities customers, banks, brokers, clearing 
corporations and third party lenders. The Convention, if widely 
adopted, would resolve these issues. Ratification of the Convention by 
the United States is supported by the American Bar Association, the 
Association of Global Custodians, the International Swaps and 
Derivatives Association, the Securities Industry and Financial Markets 
Association and the Uniform Law Commission. The United States should 
ratify the Convention.
    I will first explain why the United States should ratify the 
Convention and then briefly describe the indirect holding system, 
explain the conflict of laws problems that arise under current law and 
describe how the Convention will solve those problems without 
disrupting current practices in the United StatesThe Indirect Holding 
System
    In the indirect holding system, the registered owner of securities 
of an issuer is typically a clearing corporation, such as Depository 
Trust Company, Clearstream or Euroclear. The clearing corporation 
maintains accounts that reflect that the interests in the securities 
are for the benefit of a bank or broker. The ultimate beneficial owner 
of the securities may be a customer of the bank or broker. So, if a 
retail securities customer says ``I own IBM securities,'' what the 
customer really means in the indirect holding system is that the 
customer has a right to the securities against the customer's bank or 
broker and that the bank or broker has a right to the securities 
against the clearing corporation.
            the conflict of laws problems under current law
The Problems in General
    The cross-border holding of securities in the indirect holding 
system raises conflict of laws issues that are not easily resolved 
under the current law. Securities may be issued by a company located in 
Country A to a clearing corporation located in Country B which holds 
the securities for a bank or broker in Country C and that in turn 
credits interests in the securities to the account at the bank or 
broker of a customer located in Country D. A third party lender to the 
customer, relying on recourse to the securities in extending credit to 
the customer, may even be located in Country E. Current law is very 
unclear as to which country's laws govern the following issues:


   The disposition of the customer's interest in the securities by the 
        bank or broker to a buyer of the securities with or without the 
        customer's consent;
   The perfection steps that need to be taken for a customer to grant 
        a security interest in the customer's interest in the 
        securities to the bank or broker or to a third party lender to 
        the customer;
   The right of a judgment creditor of the customer to attach or levy 
        on the interest of the customer in the securities;
   Whether any interest in the securities obtained by the buyer, 
        secured party or judgment lien creditor extends to dividends 
        and other distributions on the securities;
   How the priority conflict among the buyer, the secured party and 
        the judgment lien creditor is resolved if they all claim an 
        interest in the securities; and
   How any transfer of an interest in the securities is characterized 
        for purposes of determining whether the transfer is a sale or 
        merely creates a security interest that secures an obligation.


    Under current law, the resolution any of these conflict of laws 
issues--i.e., determining which jurisdiction's substantive law applies 
to the issue--may depend upon where any litigation raising the issue is 
brought. The court in the country in which the litigation is brought 
would apply the conflict of laws rules of that country. Those rules 
might point to the substantive law of that country or to the 
substantive law of another country to resolve the issue. However, if 
litigation were brought in a court of another country, the court in 
that other country may, using its conflict of laws rules, apply its own 
substantive law or the substantive law of an entirely different country 
to resolve the issue.
An Example
    To illustrate, let's assume that a bank located in New York acts as 
a securities custodian. The bank custodian credits to an account of its 
customer an interest in securities issued by an issuer in Country X and 
held by a clearing corporation for the account of the custodian. A 
third party lender extends credit to the customer, obtains a security 
interest in the customer's interest in the securities under New York 
law to secure the repayment of the credit and takes all appropriate 
steps under New York law to perfect the security interest. Later, a 
creditor of the customer obtains a judgment against the customer and 
seeks a judgment lien on the customer's interest in the securities.
    Under New York's conflict of laws rules, so long as the custody 
agreement designates New York as the ``securities intermediary's 
jurisdiction'' or, absent that designation, is governed by New York 
law, New York substantive law will determine how the creditor obtains 
the judgment lien and how the priority conflict between the lender as 
secured party and the judgment lien creditor is resolved. Applying New 
York substantive law, the attachment of the lien must be made by 
service of process on the custodian. And, under New York substantive 
law, the lender, holding a perfected security interest in the 
securities, prevails over the judgment lien creditor.
    However, if the creditor brings a lawsuit against the customer in 
Country X, the court in Country X will apply its own conflict of laws 
rules. It is possible that the conflict of laws rules of Country X may 
follow a very common rule that looks to the situs of the asset (often 
referred to as lex re sitae). Under that conflict of laws rule, the 
issues are resolved under the substantive law of the jurisdiction in 
which the securities are viewed to be located. Let's say that under the 
law of Country X securities issued by an issuer located in Country X 
are themselves viewed to be located in Country X. In that case, the 
substantive law of Country X will determine how the creditor obtains 
the judgment lien and how the priority conflict between the lender as 
secured party and the judgment lien creditor is resolved. The creditor 
may under the substantive law of Country X attach the securities by 
serving process on the issuer in Country X. Moreover, any judgment lien 
of the creditor arising from the service of process may under the 
substantive laws of Country X have priority over the lender's security 
interest if the lender has not previously taken steps under the law of 
Country X for its security interest in the securities to obtain 
priority over a subsequent judgment lien. (A similar analysis would 
apply if, under the conflict of laws rules of Country X, the securities 
were viewed to be located in Country Y where the clearing corporation 
is located or where share certificates for the securities are 
physically held.)
    This problem is especially acute under United States bankruptcy 
law. If the customer were to become a debtor under the U.S. Bankruptcy 
Code, the customer's bankruptcy trustee would have the hypothetical 
status of a creditor who has obtained a judgment lien against the 
customer's interest in the securities at the time of the commencement 
of the bankruptcy case. If the lender's security interest in the 
customer's interest in the securities would not prevail over a judgment 
lien under applicable non-bankruptcy law, the security interest will be 
set aside in the bankruptcy case, and the lender will be treated as a 
general unsecured creditor of the customer. It is unclear under the 
Bankruptcy Code whether the bankruptcy trustee's status as a 
hypothetical judgment lien creditor could be that of a hypothetical 
judgment lien creditor in Country X. If that were the case, then the 
bankruptcy trustee could set aside the lender's security interest and 
treat the lender as a general secured creditor even though the lender's 
security interest in the customer's interest in the securities would 
have been senior to the judgment lien under New York's substantive law.
    As a result, for the lender to have confidence that its security 
interest would be given priority over the lien of the judgment lien 
creditor or even would not be set aside in the customer's bankruptcy 
case, the lender would need to comply with not only New York 
substantive law but also the substantive law of Country X. The lender's 
doing so will involve additional expense that may decrease the 
availability or increase the cost of credit to the customer. Moreover, 
if the lender were extending the credit to the customer based on a 
security interest in securities issued by issuers or held through 
clearing corporations in numerous countries, the costs of complying 
with the substantive law that might be applicable under the conflict of 
laws rules of each country in which litigation might be brought could 
be prohibitive.
             how the convention would address the problems
    The Convention would address these problems by creating a single, 
uniform conflict of laws rule that would apply the substantive law of 
the country whose law is chosen by the custody or securities account 
parties to govern their agreement or, alternatively, to govern the 
issues covered by the Convention. The only limitation is that the 
chosen law must be that of a country in which the relevant bank, broker 
or clearing corporation maintains an office for dealing in securities--
often referred to as the ``Qualifying Office'' test.
    In our example, if the United States and Country X had adopted the 
Convention and litigation were brought in Country X and so long as the 
custodian and the customer have agreed that the custody agreement or, 
alternatively, the issues covered by the Convention are governed by New 
York law, Country X would apply New York substantive law to determine 
how the creditor obtains the judgment lien and how the priority 
conflict between the lender as secured party and the judgment lien 
creditor is resolved.
    Accordingly, the Convention, by applying a single, uniform conflict 
of laws rule would simplify very complex conflict of laws issues that 
arise under current law, provide greater certainty for transacting 
parties, dramatically reduce transaction costs and potential litigation 
claims, and provide a basis for increasing the availability and 
reducing the cost of credit. The Convention would also, by resolving 
the relevant conflict of laws issues, reduce risks in the entire cross-
border securities clearance and settlement system that could arise in 
resolving competing claims in times of financial crisis.
        no disruption of current practices in the united states
    Adoption of the Convention would not in any material respect 
disrupt current practices in the United States. The Convention is 
largely consistent with the domestic commercial law in the United 
States, namely Article 8 of the Uniform Commercial Code as adopted in 
every state of the United States and the District of Columbia. Article 
8 contains choice of law rules that are substantially the same as the 
conflict of laws rules of the Convention. The main difference is that 
Article 8 does not have a Qualifying Office test. However, this 
difference is expected to have little effect in practice.
    If the Convention were to become effective, it would apply to pre-
effective date transactions. Nevertheless, on account of interpretive 
rules contained in the Convention, it should not be necessary in most 
cases for pre-effective date agreements to be modified to account for 
the Convention. Even so, many private parties have already been 
inserting into their contracts a clause that would address the 
Convention if the Convention were to come in effect.


    Senator Isakson. Thank you for your testimony. I have only 
two questions to ask.
    One is, on all treaties, there is usually some question 
about U.S. ceding sovereignty. Have you heard of any objection 
in either case on these two treaties to the sovereignty 
question of the United States?
    Mr. Schoenecker. Not I, Mr. Chairman.
    Mr. Smith. No, Mr. Chairman.
    Senator Isakson. That is the right answer, and that is a 
good answer. Thank you very much.
    The second question is, I am a Swedish--and I am Swedish, 
so I can use that as an example. This is a hypothetical. I am a 
Swede who owns stock in a U.S.-based corporation. I take a 
legal action against that company. If we are a member of this 
treaty, that guarantees that the legal action would be governed 
under the laws of who? Sweden or the United States?
    Mr. Smith. The convention does not deal with that issue, 
Mr. Chairman. It does not deal with actions against the issuers 
of the securities. It just deals with who has property rights 
of the securities.
    So all of the normal rules dealing with rights of action 
against an issuer of securities, or security law disclosures, 
are not impacted at all by this convention.
    Senator Isakson. So in that same example, if I was the 
corporation and had a question with the owner of the stocks, 
U.S. law would govern any action I took against the owner? Is 
that correct?
    Mr. Smith. It would govern any action dealing with whatever 
property rights the investor had in the securities.
    Senator Isakson. Which is why this is so important to 
domestic companies in the United States of America.
    Mr. Smith. It is. It is, Mr. Chairman. That is why it is 
important for mutual funds, 401(k)s, for lots of investors who 
want certainty on what law governs their property rights.
    Senator Isakson. Mr. Schoenecker, I have been told many 
times, and heard in many hearings, that we have about a 90-day 
supply of food available in the world, at any given point in 
time. It is the most important commodity we have for nutrition 
and security and safety.
    This will help enhance the food security of the United 
States and the rest of the world. Am I correct?
    Mr. Schoenecker. Absolutely, without a doubt.
    Crop varieties and productivity of agriculture is 
fundamental to having reasonable access under clear terms to 
these resources, so that we can build new varieties to solve 
problems and increase productivity for farmers in the U.S. and 
around the world.
    Senator Isakson. We appreciate both of your willingness to 
be here today to testify. I hope you will not take all the 
Senators leaving as any affront to your testimony. In fact, it 
is acknowledgment that we needed to have done what we are doing 
now a long time ago.
    I will do everything I can to expedite the hearing and 
passage of this legislation from the subcommittee to the full 
committee.
    We will keep the record open for 5 days until the end of 
the business day on Monday, if anybody has additional 
questions. I would ask both of you to try to respond as quickly 
as possible, if you get any additional questions from the 
committee.
    Senator Isakson. Unless there are any other comments, we 
will stand adjourned, and I thank everybody for their 
testimony.
    [Whereupon, at 10:43 a.m., the hearing was adjourned.]


              Additional Material Submitted for the Record


 Responses to Questions Submitted to Judith G. Garber by Senator Corker


    Question. In its transmittal documents, the Administration 
suggested the Senate include in its resolution of consent to 
ratification an understanding with respect to U.S. laws on intellectual 
property laws and the operation of Article 12.3(d). Please explain why 
this recommended understanding is necessary.

    Answer. Article 12.3(d) of the Treaty states that recipients shall 
not claim intellectual property rights that limit access to the plant 
genetic materials in the form received from the Multilateral System. 
Our understanding would underscore that an invention derived from 
material obtained from the Multilateral System could be patented or 
protected by plant variety protection. For example, if corn germplasm 
is taken from the Multilateral System and used to create a new corn 
hybrid that is distinct from the original material, intellectual 
property protection would be available for the new variety. Similarly, 
a modified gene sequence or modified extract from the corn or a method 
of use of material isolated from plant genetic materials from the 
Multilateral System could also be patentable. A number of other 
Parties, including Japan, the United Kingdom and Germany, have 
submitted similar declarations; no country has submitted a declaration 
to the contrary.


    Question. It is my understanding that, because the U.S. has not 
ratified the Treaty, U.S. citizens may not take full advantage of the 
rights provided under the Standard Materials Transfer Agreement. U.S. 
agriculture must instead negotiate for plant germplasm under the Nagoya 
Protocol to the Convention on Biological Diversity which came into 
effect in October 2014. It is also my understanding that the Convention 
on Biological Diversity requires a benefit sharing arrangement, 
negotiated on a bilateral contractual basis, in order to exchange 
germplasm. United States industry and public researchers have raised 
concerns about requirements under the Nagoya Protocol, such as the 
necessity of obtaining government-issued proof of prior informed 
consent to acquire materials, and have characterized such compliance 
issues as posing significant logistical problems, and likely to be both 
cumbersome and costly.
    Please describe the difficulties and challenges presented to U.S. 
agriculture by the requirements of the Nagoya Protocol.

    Answer. Because the United States is not a party to the Treaty, 
U.S. users do not have guaranteed access to plant genetic resources for 
food and agriculture from other nations under the terms of the 
International Treaty on Plant Genetic Resources for Food and 
Agriculture and the Standard Material Transfer Agreement (SMTA). U.S. 
users therefore often must negotiate access and the terms of transfer 
on a case-by-case basis. Some U.S. entities seeking access to foreign 
genetic resources have been subjected to burdensome terms and 
conditions. These circumstances threaten to impede U.S. government and 
stakeholders' access to and use of genetic resources, their ability to 
conduct research and even, in some cases, to obtain overseas patents, 
public funding, or market access. In some cases, countries cite their 
domestic legislation implementing the Nagoya Protocol when imposing 
terms of access and benefit sharing on U.S. industry and other users. 
However, with regard to covered plant genetic resources for food and 
agriculture, if the provider's and user's countries both are Party to 
the Treaty, then access to those resources is governed by the Treaty 
and guaranteed to be under the terms of the Standard Material Transfer 
Agreement. Being a Party to the International Treaty on Plant Genetic 
Resources for Food and Agriculture would therefore offer U.S. 
researchers and breeders guaranteed access, on the predictable terms of 
the SMTA, to the covered plant germplasm collections of the other 140 
Parties.


    Question. It is my understanding that the Treaty covers the 
exchange of plant materials that are used in traditional breeding 
within a single species. Is the Treaty related in any way to the 
development or use of transgenic biotech crops?

    Answer. The focus of the Treaty is on propagating materials (e.g., 
seeds and cuttings)--the building blocks for crop improvement--as 
opposed to specific technologies or traits. The Treaty is neutral on 
the question of genetically modified organisms and does not address the 
regulation of genetically engineered crops, genetically modified 
organisms, or biotechnology. However, being a Party to the Treaty would 
benefit all breeders--regardless of whether they use techniques of 
biotechnology, techniques of conventional breeding, or a combination--
by ensuring access on predictable terms to genetic resources that are 
important to researchers and breeders seeking to improve plant 
varieties and ensure food security.


    Question. Explain how the treaty's benefit sharing regime will 
work. How will payments made to the treaty's Trust Account be allocated 
and for what purposes will they be used?

    Answer. The centerpiece of the Treaty is the Multilateral System 
under which a Party provides access to other Parties and its users, 
upon request, to listed plant genetic resources held in national and 
international gene banks and collections.
     As part of the Multilateral System, the Treaty provides for non-
monetary benefit sharing that is consistent with longstanding USDA and 
USAID work to advance agricultural progress and support global food 
security. The Treaty also established a Benefit Sharing Fund. If an 
entity using the Standard Material Transfer Agreement commercializes a 
product containing plant genetic material covered by the Treaty, the 
entity can choose either to make the product freely available for 
further research and breeding, or can pay a relatively small royalty 
into the Fund. Contracts with royalty provisions are already in 
widespread use commercially for such plant genetic material, and the 
rate specified by the Treaty is well within range of terms used by 
agricultural industry. The Fund supports projects to improve on-the-
ground efforts to conserve plant genetic resources for food and 
agriculture, especially in developing countries. This in turn promotes 
global food security.
    The Treaty's Governing Body oversees the Fund, which is managed by 
the Treaty's Secretariat. As a Party to the Treaty, the United States 
would be able to participate in decisions regarding operation of the 
Fund and block consensus on any proposals contrary to U.S. interests. 
The Administration's policy on the appropriate uses of these funds will 
include consideration of consistency with the Treaty's objectives, as 
well as efficiency, effectiveness and accountability in the use of such 
funds.


    Question. What is the relationship between this Treaty and the 
Convention on Biological Diversity (CBD) which the U.S. has not 
ratified? Does ratification of this Treaty imply acceptance of any of 
the obligations under the CBD?

    Answer. This Treaty and the Convention on Biological Diversity 
(CBD) are separate instruments, with separate implementation. Joining 
the Treaty does not imply acceptance of or incur any obligation for the 
United States under the CBD.


    Question. If the United States becomes a party to the treaty, what 
financing commitments will the U.S. be adopting with respect to 
capacity-building resources for the conservation and use of 
agricultural biodiversity globally and for the implementation of the 
MLS provisions by developing countries.

    Answer. The Treaty does not obligate Parties to contribute specific 
amounts of financial resources for national activities in developing 
countries for the conservation and sustainable use of plant genetic 
resources. Further, there are no mandatory contributions from Parties 
to the Treaty. The Treaty is funded through voluntary contributions 
from Parties and other sources. There are no plans to make voluntary 
financial contributions toward the Treaty's budget at this time.

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


                    Letters Submitted in Support of

                      The Treaty on Plant Genetic

                  Resources for Food and Agriculture,

                           Treaty Doc. 110-19

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





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


                    Letters Submitted in Support of

                The Convention on the Law Applicable to

                Certain Rights in Respect of Securities

                       Held With an Intermediary,

                           Treaty Doc. 112-6

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                                  [all]