[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 115-116
THE DYNAMIC GAINS FROM FREE DIGITAL TRADE FOR THE U.S. ECONOMY
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 12, 2017
__________
Printed for the use of the Joint Economic Committee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
27-108 WASHINGTON : 2017
-----------------------------------------------------------------------
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
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Patrick J. Tiberi, Ohio, Chairman Mike Lee, Utah, Vice Chairman
Erik Paulsen, Minnesota Tom Cotton, Arkansas
David Schweikert, Arizona Ben Sasse, Nebraska
Barbara Comstock, Virginia Rob Portman, Ohio
Darin LaHood, Illinois Ted Cruz, Texas
Francis Rooney, Florida Bill Cassidy, M.D., Louisiana
Carolyn B. Maloney, New York Martin Heinrich, New Mexico,
John Delaney, Maryland Ranking
Alma S. Adams, Ph.D., North Amy Klobuchar, Minnesota
Carolina Gary C. Peters, Michigan
Donald S. Beyer, Jr., Virginia Margaret Wood Hassan, New
Hampshire
Whitney K. Daffner, Executive Director
Kimberly S. Corbin, Democratic Staff Director
C O N T E N T S
----------
Opening Statements of Members
Hon. Mike Lee, Vice Chairman, a U.S. Senator from Utah........... 1
Hon. Erik Paulsen, a U.S. Representative from Minnesota.......... 2
Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New
Mexico......................................................... 3
Witnesses
Mr. Daniel Griswold, Senior Research Fellow and Co-Director of
the Program on the American Economy and Globalization, Mercatus
Center at George Mason University, Arlington, VA............... 5
Mr. Sean Heather, Vice President, Center for Global Regulatory
Cooperation, U.S. Chamber of Commerce, Washington, DC.......... 7
Mr. Nick Quade, General Manager, Ecommerce Division of Relay
Networks, Inc., Deephaven, MN.................................. 9
Hon. Daniel Alejandro Sepulveda, Former Ambassador and Deputy
Assistant Secretary, U.S. Coordinator for International
Communications and Information Policy, U.S. Department of
State, Washington, DC.......................................... 10
Submissions for the Record
Prepared statement of Hon. Hon. Mike Lee, Vice Chairman, a U.S.
Senator from Utah.............................................. 30
Prepared statement of Hon. Martin Heinrich, Ranking Member, a
U.S. Senator from New Mexico................................... 30
Prepared statement of Mr. Daniel Griswold, Senior Research Fellow
and Co-Director of the Program on the American Economy and
Globalization, Mercatus Center at George Mason University,
Arlington, VA.................................................. 32
Prepared statement of Mr. Sean Heather, Vice President, Center
for Global Regulatory Cooperation, U.S. Chamber of Commerce,
Washington, DC................................................. 37
Prepared statement of Mr. Nick Quade, General Manager, Ecommerce
Division of Relay Networks Inc. Deephaven, MN.................. 50
Prepared statement of Hon. Daniel Alejandro Sepulveda, Former
Ambassador and Deputy Assistant Secretary, U.S. Coordinator for
International Communications and Information Policy, U.S.
Department of State, Washington, DC............................ 52
Response from Mr. Daniel Griswold to Questions for the Record
Submitted by Chairman Pat Tiberi............................... 55
Response from Mr. Daniel Griswold to Questions for the Record
Submitted by Representative Carolyn B. Maloney................. 56
Response from Mr. Daniel Griswold to Questions for the Record
Submitted by Representative David Schweikert................... 57
Response from Mr. Sean Heather to Questions for the Record
Submitted by Chairman Pat Tiberi............................... 57
Response from Mr. Sean Heather to Questions for the Record
Submitted by Representative Carolyn B. Maloney................. 58
Response from Mr. Sean Heather to Questions for the Record
Submitted by Senator Klobuchar................................. 58
Response from Mr. Sean Heather to Questions for the Record
Submitted by Representative David Schweikert................... 59
Response from Mr. Nick Quade to Questions for the Record
Submitted by Chairman Pat Tiberi............................... 59
Response from Mr. Nick Quade to Questions for the Record
Submitted by Representative Carolyn B. Maloney................. 60
Response from Ambassador Sepulveda to Questions for the Record
Submitted by Chairman Pat Tiberi............................... 61
Response from Ambassador Sepulveda to Questions for the Record
Submitted by Representative Carolyn B. Maloney................. 62
Response from Ambassador Sepulveda to Questions for the Record
Submitted by Senator Amy Klobuchar............................. 63
THE DYNAMIC GAINS FROM FREE DIGITAL TRADE FOR THE U.S. ECONOMY
----------
TUESDAY, SEPTEMBER 12, 2017
United States Congress,
Joint Economic Committee,
Washington, DC.
The Committee met, pursuant to call, 10:00 a.m. in Room 216
of the Hart Senate Office Building, the Honorable Mike Lee,
Vice Chairman, presiding.
Representatives present: Paulsen, Comstock, Beyer, and
Delaney.
Senators present: Lee, Klobuchar, Heinrich, Peters, and
Hassan.
Staff present: Theodore Boll, Daniel Bunn, Kim Corbin,
Whitney Daffner, Connie Foster, Dori Friedberg, Colleen Healy,
Matt Kaido, Christina King, A.J. McKeown, Allie Neill, Victoria
Park, Rohan Shetty, and Joy Zieh.
OPENING STATEMENT OF HON. MIKE LEE, VICE CHAIRMAN, A U.S.
SENATOR FROM UTAH
Vice Chairman Lee. Good morning, and welcome to the Joint
Economic Committee's hearing on digital trade.
Chairman Tiberi could not be here today and has asked me to
chair the hearing. I want to welcome my colleague, Ranking
Member Heinrich, and other members of this Committee and the
panel of expert witnesses who are appearing before the
Committee today.
What, you might ask, is ``digital trade''? It covers a wide
variety of economic activity, including international orders
transmitted through websites, global connectivity enabled by
email and voice-over internet protocol, international banking,
and data transmissions to manage global supply chains.
Advancements in technology mean that digital trade is
capable of delivering ongoing improvements in production, in
distribution, and value for the American people. U.S. firms
have been pioneers and global leaders on the digital technology
frontier. American consumers and businesses benefit
tremendously from the ability to buy and sell across borders
and gain access to products and to customers.
We are swiftly approaching the point at which the word
``digital'' will be an unnecessary adjective for trade. It will
just be ``trade,'' although I am sure trade lawyers will want
to maintain the extra level of specificity just for billing
purposes. It makes their billing statements perhaps more
interesting for them and lucrative.
But we need to work both domestically and internationally
to facilitate trade and innovation. We should seek to ensure
that sensible regulations and standards are put in place for
the protection of intellectual property and private
information.
Congress has set clear priorities for negotiating trade
agreements that can lower trade barriers for digital goods and
services, and the Trump administration is pursuing those
priorities in current NAFTA discussions.
It is critical for future U.S. economic success to ensure a
regulatory setting in which innovators, entrepreneurs, and
businesses can experiment with new technology and succeed in a
global market.
I will now yield to Representative Paulsen who earlier this
year launched the Bipartisan Digital Trade Caucus in the House
of Representatives.
[The prepared statement of Vice Chairman Lee appears in the
Submissions for the Record on page 30.]
OPENING STATEMENT OF HON. ERIK PAULSEN, A U.S. REPRESENTATIVE
FROM MINNESOTA
Representative Paulsen. Thank you, Vice Chairman Lee, for
holding this hearing on an issue that is becoming increasingly
important to the American and global economies. As a strong
advocate for a robust trade agenda, I believe we need to be
engaged, we need to be educated, and on the forefront of this
latest frontier in the global 21st Century economy.
We cannot fall behind in digital trade, because we have so
much to offer and so much at stake. There are hundreds of
thousands of U.S. small businesses in nearly every sector, from
manufacturing, to financial services, to mining, to
agriculture, and food, in every single state and every
Congressional District across the country that are harnessing
the power of the internet and technology to reach new customers
around the world. This is no small niche or part of our
economy.
Just look at all the facts: Digital trade accounts for more
than half of all U.S. service exports. Digital trade is
responsible for nearly 6.7 million American jobs. Nearly half
of all U.S. companies have an online trading relationship with
the EU, and the U.S. runs a $159 billion trade surplus in
digitally deliverable services.
Earlier this year in the House, as Senator Lee mentioned, I
launched the Bipartisan Digital Trade Caucus, along with my
colleague Suzan DelBene from Washington State. Our goal is to
work with government, with industry, and with other
stakeholders to ensure that the world follows our lead, the
United States' lead, in promoting the free flow of digital
commerce.
I am very thankful that Chairman Tiberi and Vice Chairman
Lee have taken it upon themselves to use our Committee for that
purpose, as well.
I want to thank our witnesses for participating in today's
hearing to share their perspectives on a very important issue,
and thank you, Vice Chairman Lee, and I yield back.
Vice Chairman Lee. Senator Heinrich.
OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, A
U.S. SENATOR FROM NEW MEXICO
Senator Heinrich. Thank you, Vice Chairman Lee, and thanks
to our panel for joining us here today. E-commerce touches
industries across all sectors of the economy, and Americans
across the country. It is a key source of American jobs in the
21st Century, and its importance will likely only grow with
time.
We know that the internet enables U.S. companies big and
small to more efficiently reach markets around the world.
Manufacturers, banks, retailers, airlines, farmers, and a range
of other businesses rely on the internet to seamlessly access
and move data across borders.
The internet has fundamentally transformed our lives and
the way that we purchase goods. The benefits of international
trade used to be concentrated among big business. The internet
changed that, opening doors to small and mid-sized businesses,
and even one-person shops.
Now an individual with a broadband connection can sell his
or her goods and services all over the world, from an artisan,
from Acoma Pueblo, to a game designer from Albuquerque, or a
chili farmer from Hatch. They can all now enter the global
market.
A recent study found that 95 percent of U.S. small and
medium businesses on eBay export, and 190,000 of those firms
export to four or more continents.
The United States is an E-commerce leader today. The
International Trade Commission estimates that digital trade
contributed more to gross domestic product than all but four
states in 2011, and has lifted wages by as much as 5 percent,
while adding up to 2.4 million more full-time jobs.
In New Mexico we are working hard to ensure that the
opportunities of the digital economy reach into every corner of
the State. I am excited to welcome Facebook, which is scheduled
to open a multi-building data center next year in Los Lunas
that will generate more than 100 permanent jobs at the data
center, and up to 1,000 construction jobs.
With 2 billion monthly active users, Facebook is literally
built on cross-border data flows. To fully realize the gains
from digital trade we need to ensure that global policies
enable companies to harness the power of the internet to reach
new customers around the world.
For this to happen, it is vital that we have a free and
open internet with privacy protections. And that starts right
here at home. Your personal information should not be shared or
sold without your consent. Your health, financial, and other
personal and sensitive information must be protected. While
internet providers must be prevented from selling users'
personal information without user consent, companies should be
able to choose where to store data.
When U.S. companies cannot store data in the U.S., they
lose out on jobs and the ability to use the data to improve
their products and services.
As far as we've come with the number of internet users
worldwide tripling in the past decade, we are still in the
early stages. And the opportunities for E-commerce domestically
and internationally are unlimited.
But to realize the potential the internet provides, we need
to accelerate the deployment of broadband and ensure that rural
America and tribal communities in our country have greater
access.
Right now 4 in 10 rural residents lack broadband access.
And among rural tribes, that number climbs to 7 in 10 without
access. To help bring more Native American students online, I
will soon introduce legislation that promotes broadband access
for students and tribal community centers.
During a meeting I convened at the Santa Fe Indian School
recently, the Tribal Administrator of Santa Domingo Pueblo in
New Mexico, Everett Chavez, put it this way:
``Access to the internet is new, but it is an equally
essential infrastructural need to our tribal communities, equal
as water, power, telecommunications, or roads.''
It doesn't matter if you are a student, a rancher, a
manufacturer, a teacher, a doctor, or a small business, high-
speed internet is now critical to thriving in the economy of
today, much less the future.
Finally, as we focus on digital trade today we should be
clear that this is just one piece of a bigger issue. We need to
be vigilant to evolve the rules of the road when new
technologies are developed and deployed, and to protect our
workers from countries seeking advantages through unfair trade
practices.
Mr. Chairman, I look forward to hearing from our panel, and
I want to especially thank Former Ambassador Daniel Sepulveda,
the witness that I invited, for being here today.
[The prepared statement of Senator Heinrich appears in the
Submissions for the Record on page 30.]
Vice Chairman Lee. Thank you very much, Senator Heinrich,
and thanks to each of you for being here. I am now going to go
through and introduce our witnesses.
We will start with Mr. Daniel Griswold, who is a Mercatus
Center Senior Research Fellow, and Co-Director of the Program
on The American Economy and Globalization. Mr. Griswold is a
nationally recognized expert on trade policy. Prior to his
position with Mercatus, he served as president of the National
Association of Foreign Trade Zones, and before that as the
Director of Trade and Immigration Studies for the Cato
Institute. He holds a Bachelor's Degree from the University of
Wisconsin at Madison, and a Masters in Politics of the World
Economy from the London School of Economics and Political
Science.
Mr. Griswold, thank you for your work and welcome.
Sean Heather is Vice President of the U.S. Chamber's Center
for Global Regulatory Cooperation. He also serves as Executive
Director for both International Policy and Antitrust Policy.
During his 17-year career at the Chamber, he has worked on
a number of diverse issues such as international trade and
investment, taxes, standards, technology, and corporate
governance. Before joining the Chamber, he worked for the
Illinois Comptroller and with several political campaigns
across the State. He holds an undergraduate degree and an MBA
from the University of Illinois.
Mr. Heather, thank you for joining us today.
And now I will pass it off to Representative Paulsen from
the Great State of Minnesota to introduce our next witness.
Representative Paulsen. Thank you, Vice Chairman Lee. It is
my pleasure to introduce fellow Minnesotan Nick Quade. Nick is
the General Manager of Lino Lakes-based Relay Networks. It is a
provider of network, wireless, and telecom equipment.
In his role, Mr. Quade oversees the day-to-day operations
of the business, and he deals first-hand with digital trade on
a daily basis. As a result of his hard work, as well as that of
his co-workers, Relay Networks currently holds a 100 percent
positive feedback rating on its eBay store. This is another
excellent example of how American entrepreneurs leverage the
digital economy.
Mr. Quade, thank you for taking time out of your busy
schedule to join us here today. I know Senator Klobuchar, who
is also a member of this Committee, and I often welcome
Minnesotans who are at the forefront on leading issues.
Thank you again, Vice Chairman Lee. I yield back.
Vice Chairman Lee. Thank you. Finally, we will introduce
Ambassador Daniel Sepulveda, who served as Deputy Assistant
Secretary of State and U.S. Coordinator for International
Communications and Information Policy under the Obama
administration.
Prior to joining the State Department in 2012, Ambassador
Sepulveda served as a senior advisor and a member of Senator
John Kerry's senior management team. Before joining Senator
Kerry's office in 2009, Ambassador Sepulveda served as an
Assistant U.S. Trade Representative, leading a team that
managed Congressional affairs for the U.S. Trade Representative
Ron Kirk.
He has dealt first-hand with the negotiations we are about
to discuss. Ambassador Sepulveda, thank you very much for
joining us.
Okay, we are now going to hear from each of our witnesses,
and we will start with you, Mr. Griswold.
STATEMENT OF MR. DANIEL GRISWOLD, SENIOR RESEARCH FELLOW AND
CO-DIRECTOR OF THE PROGRAM ON THE AMERICAN ECONOMY AND
GLOBALIZATION, MERCATUS CENTER AT GEORGE MASON UNIVERSITY,
ARLINGTON, VA
Mr. Griswold. Chairman Lee, Ranking Member Heinrich, and
members of the Committee, thank you for inviting me to testify
today on the important topic of digital trade,.
Digital trade is transforming the way Americans do business
with the world. It is already delivering more choice and value
to consumers, more opportunities to American companies of all
sizes, higher wages for American workers, and faster, more
dynamic growth for the U.S. economy.
World-wide cross-border internet traffic has soared 500-
fold since the year 2000. That's according to the McKinsey
Global Institute, and it will expand another 8-fold in the next
decade.
In my remarks this morning, I plan to briefly describe the
scope of digital trade, its growing impact on the U.S. economy,
and what policies we should pursue to realize its full
benefits.
Digital trade can range from video streaming, to ordering
merchandise through online platforms, to organizing complex
global supply chains. The growth of digital trade plays to
America's comparative advantage. The U.S. remains the global
leader in creating digital products and online platforms, and
exporting digital services.
In fact, more than half of the services we export are now
digitally delivered. Digital trade is empowering small- and
medium-sized enterprises to sell and source in global markets.
On eBay, 97 percent of the commercial sellers are selling
to international markets. Almost 300,000 U.S. companies are now
exporting to foreign markets, according to the U.S. Census
Bureau, and that's a 50 percent increase since 1997.
Global supply chains are becoming even more efficient,
thanks to digital trade. Such technologies as radio frequency
identification and block chain are facilitating just-in-time
inventory and reducing delays at ports. The U.S. International
Trade Commission estimates that the internet has reduced the
cost both of exporting and importing in digitally intensive
sectors by an average of 26 percent.
This phenomenon is having a measurable and positive effect
on the U.S. economy. As has been noted, the USITC estimates the
enhanced productivity and lower cost because of cross-border
digital trade has boosted U.S. real GDP by as much as 4.8
percent; real wages by as much as 5 percent, with no net job
losses to the overall U.S. economy.
Reaping much of the benefit of digital trade has been
small- and medium-sized U.S. enterprises. These so-called micro
multinationals are reaching global customers through their
websites and common online platforms such as eBay and Amazon.
They can process payments digitally and ship products directly
to individual customers around the world through private and
postal package delivery services. Digital trade has allowed
SMEs to source components and business-to-business services in
global markets, empowering them to better control costs and
enhance the competitiveness of their exports.
The impact of digital trade is not a one-time shift, but an
ongoing process that enhances the dynamic long-term growth
potential of the U.S. economy. By reducing costs, spurring
competition, and expanding markets, digital trade creates
ongoing gains in efficiency that fuel productivity. By
facilitating the spread of ideas and collaboration, digital
trade contributes to product innovation. And by playing to
America's competitive strengths, digital trade allows us as a
Nation to use our physical, intellectual, and human capital in
ways that permanently boost our gross domestic product and
general living standards.
Now despite the dynamic growth and benefits of digital
trade, significant barriers remain to prevent Americans from
reaping its full advantages. To realize those gains, Congress,
in your trade promotion authority legislation from a couple of
years ago, has directed the Administration to seek trade
agreements with other nations that would, among other
objectives--and I think these are very good objectives--ensure
nondiscriminatory treatment of physical goods in the digital
trade environment; prohibit forced localization of servers;
prohibit restrictions to digital trade and data flows; prohibit
duties on electronic transmissions; and ensure that legitimate
regulations affecting digital trade are the least trade
restrictive as possible.
And I think you will be hearing a lot about this today, but
let me just add my endorsement of it: Congress should also seek
higher, more economically and commercially realistic de minimis
thresholds for E-commerce shipments to other countries.
Removing these last remaining barriers to digital trade at
home and in other countries will allow more American consumers
and companies to realize the full benefits of a more
digitalized economy and global trading system.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Griswold appears in the
Submissions for the Record on page 32.]
Vice Chairman Lee. Thank you, Mr. Griswold.
Mr. Heather.
STATEMENT OF MR. SEAN HEATHER, VICE PRESIDENT, CENTER FOR
GLOBAL REGULATORY COOPERATION, U.S. CHAMBER OF COMMERCE,
WASHINGTON, DC
Mr. Heather. Good morning. It's a pleasure to be here. And
the Chamber thanks you all for holding today's hearing.
The United States has positioned itself as a leader in
digital trade. However, our leading position is not assured, as
foreign governments are trying to create their own Silicon
Valleys by implementing policies that often serve as regulatory
barriers.
The ability for data to flow through the global economy is
as important as the ability to move goods, services, or
capital. However, data flows are increasingly threatened by
data localization requirements. For example, the government of
Indonesia currently has 10 different pending regulations that
would require data localization.
In Europe, France and Germany are increasingly promoting
the use of sovereign clouds to limit the market access
opportunities for American companies. China and Russia have
encouraged indigenous innovation through local content
requirements. For instance, Russia grants preferential
treatment for domestic ICT companies when considering
government procurement contracts. And in China last year alone
more than 30 measures were introduced across various
industries, including many ICT specific standards.
Turning to data protection, more than 95 jurisdictions
currently have data protection legislation. Sixty-eight of
these jurisdictions are currently revising their data
protection rules. While privacy standards are necessary in
order to ensure consumer protection, consumers also demand the
mobility of data to bring them the best products and services.
Too frequently privacy regimes can create difficulties for
companies conducting business in-country and across border. A
good example is the EU's General Data Protection Regulation.
GDPR represents an immense regulatory challenge that has
consequences for EU competitiveness and for American firms
doing business in the European Union. GDPR's impact extends to
Latin America where it serves as a template.
For example, Brazil, Argentina, and Chile currently have
draft data protection bills pending which holds elements in
common with GDPR. And other measures across Latin America
include data transfer language that could serve as a
significant barrier to digital trade. Some bills provide a list
of countries whereby data transfers are permitted.
Unfortunately, the United States is often not included on those
lists.
While regulatory challenges can impede digital trade, the
motives aren't always easily discernible to label and clear
attempts to obfuscate trade commitments. That said, many
countries have cited privacy concerns as a basis for requiring
foreign companies to store data within national borders. In
these instances, privacy regulation becomes a forced
localization requirement.
Like privacy, we now see a growing patchwork of
cybersecurity regulations that present compliance challenges
and also hold the potential to mask protectionist motives.
And finally, intellectual property protection. Too often,
forced localization measures require tech transfers as the
price to gain entry in a local market, and piracy, too,
represents a well-documented drain on our competitiveness and
it adversely impacts digital trade.
In closing, let me offer the following recommendations:
First, we need to prioritize digital issues as central to
our trade and investment policy agenda. It is our understanding
that Ambassador Lighthizer and USTR are doing this as part of
the NAFTA Modernization efforts.
We believe any agreements should, at a minimum, one,
prohibit discrimination and secure market access for U.S.
technology companies, products, and services.
Two, ensure the ability to move data across all borders for
all sectors.
Three, combat national policies that require the use of
local technology infrastructure or requirements to transfer
source code or compel access to algorithms.
Four, facilitate regulatory environments that encourage
innovation through smart and effective approaches to privacy
and cybersecurity, data collection and analysis. Finally, even
traditional issues like Customs play an important role in
digital trade given the E-commerce boom previously discussed
and the need to modernize de minimis.
Secondly, we need to look on the enforcement side of the
ledger. We should consider what trade tools are appropriate to
address digital barriers. KORUS offers us a success story on
enforcement. In 2015 through a consultative mechanism created
under the agreement, the U.S. and South Korea were able to
discuss and resolve regulatory concerns that restricted data
flows. Today while some data flow challenges remain, South
Korea has one of the more open data flow regimes in the world.
Three, we need to advance more workable arrangements that
bridge national privacy regimes between the United States and
our key trading partners. The United States should continue to
support the U.S.-EU privacy shield framework and APEC Cross-
Border Privacy Rules.
Four, it is important that the Department of Commerce and
State Department's Digital Office's program continue.
These programs should be used to drive U.S. competitiveness
by promoting U.S. digital exports and advocating for the
adoption of friendly digital regulatory frameworks in foreign
markets.
And five, we need to do a better job of actively engaging
in shaping foreign laws and regulations. U.S. regulators, not
trade negotiators, play an important role outside of trade
agreements in seeking opportunities to influence foreign
regulators. Involving them to help prevent and combat
regulatory barriers is going to be crucial going forward.
In conclusion, I thank the Committee for the opportunity to
testify and look forward to answering your questions.
[The prepared statement of Mr. Heather appears in the
Submissions for the Record on page 37.]
Vice Chairman Lee. Thank you, Mr. Heather.
Mr. Quade.
STATEMENT OF NICK QUADE, GENERAL MANAGER, ECOMMERCE DIVISION OF
RELAY NETWORKS, INC., DEEPHAVEN, MN
Mr. Quade. Thank you, Members of the Committee, for holding
this important hearing today.
I am the General Manager of Ecommerce Division for Relay
Networks Minnesota. We provide domestic and international
customers with access to functional and affordable indoor/
outdoor wireless networking equipment. We leverage
relationships with major universities, school districts,
industry leaders to source and sell our products when their IT
equipment comes out of service. By refurbishing this equipment,
we are extending the life of these items that would otherwise
end up as e-waste or could possibly end up in a landfill.
Our business is expanding quickly, and demand, especially
internationally, is currently outpacing supply. In this
volatile retail environment, small businesses like us must have
an E-commerce presence to survive and compete. I have worked in
the E-commerce field for nearly 10 years now and know that E-
commerce is the future of commerce.
Our product reaches the entire globe through platforms of
eBay and Amazon. These platforms further expand the multi-
billion dollar networking business to a customer base that even
five years ago wasn't possible.
Twenty percent of our sales are exports to customers in
over 50 countries, which expands from Switzerland all the way
to Australia. The education field internationally is one of the
largest in terms of demand. Relay Networks is an example of the
many thousands of small American businesses that are
benefitting from and growing on top of the global digital
economy.
We are using digital tools to reach customers that again
were previously inaccessible for a business of our size. I
believe that much of that economic benefit is being realized by
small businesses that are in turn creating jobs in their local
communities.
Unfortunately, there are critical barriers to further
driving this growth, and governments are slow to catch up with
an industry that has grown 45-fold from 2005 to 2014. While the
U.S. has withdrawn from the Trans Pacific Partnership
Agreement, the digital trade provisions that sought to remove
barriers to digital trade were positive for my business. But
TPP fell short in one critical way. It did not compel countries
to increase their Customs de minimis thresholds which are the
country-by-country thresholds below which international buyers
can import items duty and tax free.
Congress took the right steps to increase the U.S. de
minimis threshold to $800 in the Trade Facilitation and Trade
Enforcement Act, but now we need to encourage our trading
partners to do the same.
Now that we are post-TPP, we should look to use trade
policy making to both advance the positive digital trade
provisions that were in the TPP, as well as the Sense of
Congress that were included in the Customs Reauthorization
Bill, and the current NAFTA negotiations are a perfect place to
start.
Our neighbors to the north in Canada have a $20 de minimis
threshold, which means that Canadian Customs officials can
intercept, open, delay, and assign levies to my sales. Needless
to say, this does not promote a good buyer experience and
compromises my relationship with that buyer.
Furthermore, Canada's threshold was set in 1985 when I was
three years old. And according to the neo-MacDonald of the CBC
News, Ottawa spends $166 million a year to collect $39 million
in taxes and duties. It's quite astonishing.
On the Canadian side, this policy amounts to a
protectionist move that puts every consumer at a disadvantage.
And on the U.S. side, this is a trade barrier that hurts small
businesses the most.
The demand for electronics and networking equipment no
longer needed in our market is in high demand overseas. We need
to bring these dollars back into the U.S. as fast as possible
to maximize value. While 20 percent of my sales today are to
international customers, I know they would grow if digital
trade barriers like the de minimis thresholds were taken down.
Just recently, deals were lost because of fees involved.
This included a resort in Canada that we were working with that
wanted to upgrade their network, several schools in Latin
America, and a teacher in the UK that wanted to replace her
broken laptop, but because of a 20 percent plus increase in the
fee, she couldn't afford the unit. These are just several of
numerous examples. Thank you again for the opportunity to share
my views with the Committee, and I look forward to answering
all your questions.
[The prepared statement of Mr. Quade appears in the
Submissions for the Record on page 50.]
Vice Chairman Lee. Thank you.
Ambassador Sepulveda.
STATEMENT OF HON. DANIEL ALEJANDRO SEPULVEDA, FORMER AMBASSADOR
AND DEPUTY ASSISTANT SECRETARY, U.S. COORDINATOR FOR
INTERNATIONAL COMMUNICATIONS AND INFORMATION POLICY, U.S.
DEPARTMENT OF STATE, WASHINGTON, DC
Mr. Sepulveda. Mr. Vice Chairman Lee, Ranking Member
Heinrich, Members of the Committee, thank you very much for the
opportunity to testify here today.
The digital economy and the preservation of the open global
internet may feel like an issue that is somewhat removed from
the daily lives of your constituents, but it is not. It is
central to their success in today's economy, and it is central
to our ability as America to lead the world going into the 21st
Century.
Our responsibility at home is to invest in making world-
class broadband and digital skills accessible to all Americans,
and work abroad to protect and preserve the global internet as
a force for the democratization of opportunity and commerce.
Farmers, ranchers, small manufacturers throughout America,
are using digital platforms and services to engage in
international trade. They are also leveraging digital
information management tools as springboards for innovation,
increased efficiency, and improved productivity, which is
making them more competitive globally.
Tourism operators are using Airbnb, Expedia, and other
platforms to attract international visitors to cities and
venues that are not as well known as New York City or
Disneyland.
As a result, places like Santa Fe, or the Rock & Roll Hall
of Fame from the Chairman's home State, in Cleveland, are now
attracting more international visitors, creating opportunities
for working families.
In the digital space, the United States is leading the
world. But to stay there, we need three things:
We need a clear digital trade strategy--and I fully endorse
the arguments made by my fellow panelists. We need to make the
right investments at home. And we need to ensure that every
American can participate in the global digital economy.
The Congressional Research Service has released an
excellent report in June that lists the policy venues where
these sorts of issues are being debated, many of which I've
participated in, from the WTO to the G-7 and G-20 gatherings,
which are issuing annual digital ministerials, to the OECD and
the United Nations, and in our bilateral engagements, digital
trade and the open internet need to be a high priority.
Having appointed Senate-confirmed officials representing
America's digital interests abroad is going to be critical to
our success. As Commerce former Deputy Secretary of Commerce
General Counsel Cameron Carey wrote recently, many of the key
posts in this Administration for successful advocacy abroad are
still unfilled.
That is understandable in the first year of an
Administration, but we do need to make that a priority going
forward.
In addition to our work abroad, we do have to do a better
job at home creating constructive solutions the challenges of
the digital economy create, even as we celebrate its success.
The reason that many of the risks abroad that are being
created are due to--are rooted in fear. They are rooted in fear
of cybersecurity threats. They're rooted in fear of privacy.
They're rooted in fear of disruptions to local labor markets,
to the relationship between government and the market.
To instill trust in digital trade and the sense that it is
working for all, we need to team with our technology community
to bridge the digital divide at home and help bridge it abroad,
and address new challenges that the digital economy is
creating.
The United States needs to lead the way with workable
solutions to these challenges or we will end up dealing with a
global patchwork of laws and regulations that end up doing more
harm than good, and splintering the global internet.
In some countries, the sharing economy, artificial
intelligence, and robotics will face impossible restrictions
due to fear of labor disruption, and if we do not show them how
to transition the displaced due to technology at home, they
will not have the proper roadmap for how to deal with
displacement in their own communities.
And as Europe has indicated, without mutual recognition for
our respective structures for protecting consumer privacy,
there will be calls to close off data from transfer abroad. In
fact, I think the most pressing and immediate challenge to the
health of digital trade is the preservation of the EU-U.S.
privacy shield to ensure that transatlantic data flows are not
hindered.
The EU is by far our largest digital trade partner, and our
systems for governing the digital economy need to remain
interoperable.
In closing, it is also critical that we protect network
neutrality at home to send the message abroad that services and
applications delivered over the global internet must remain
free from discriminatory treatment by local and national
broadband internet service providers.
Repealing network neutrality regulation at home without a
legislative replacement will not help us to argue abroad that
the pipes entering homes and businesses in China, India, and
Brazil should remain open to our services on a
nondiscriminatory untariffed basis.
Our kids take the global internet for granted and
everything it makes possible. As leaders, we cannot. It is up
to us to make sure that they can benefit from digital trade and
a digital economy that works for them and remains a force for
progress for decades to come. I thank the Committee and my
fellow panelists, and I welcome your questions.
[The prepared statement of Mr. Sepulveda appears in the
Submissions for the Record on page 52.]
Vice Chairman Lee. Thank you very much to each of you for
your remarks.
I will begin the round of questioning, and then we will go
in order of--in the following order. I will raise questions,
then Senator Heinrich, Representative Paulsen, Senator Peters,
Senator Klobuchar, Representative Delaney, and Representative
Beyer.
At the outset of my questions, I would like to ask each of
you to identify a couple or three policies that you would adopt
if you were king for a day. Let's say if you were in Congress
for a day. A couple or three policies that you would put in
place if you could make that change, to prioritize, advance,
and protect digital trade.
And we'll start in the opposite order from last time. So
we'll start with Ambassador Sepulveda and then move to the
other end of the table.
Mr. Sepulveda. I think you're going to get a fair amount of
agreement on the panel in terms of international policies
specifically.
First of all, we would advocate at every international
gathering to ensure that data localization wasn't used in an
anticompetitive manner.
Second, I think that we would all work to bridge the
digital divide abroad. That would mean, there are 3.2 billion
people connected to the internet today. That means there are
close to 4 billion people who are not. And that's a market that
we could be reaching in this particular space where we are such
a leader.
And then at home I would do everything we could to bridge
the digital divide. I think the move towards making significant
investments in infrastructure at home should include an effort
to connect the 23 million Americans in rural communities that
are not yet connected at broadband speed.
So those would be my three.
Vice Chairman Lee. Thank you.
Mr. Quade.
Mr. Quade. King for a day? That sounds excellent.
Well, an $800 minimum threshold universally would be
incredible. Not only would we be able to reach consumers, but
we would have a business-to-business number there, too. As our
average is about $180, but $800 is where we're at. I'd love to
see that universal. That would be incredible to break all of
those barriers to make transactions seamless.
In America we're used to seamless transactions where you're
able to order something. It gets there, and we don't think
twice about it. But all of a sudden you cross borders, and it's
a whole other process. But again, since most individual
consumers don't buy products overseas, they're not necessarily
that familiar with it. So $800 is great.
And to the Ambassador's point, the 23 million people that
don't have high-speed access, let's get everybody access.
Because it will allow them the opportunity to again open up
small businesses like ours in Minnesota. Or, for that matter,
an individual who has an idea, that has a product, now using
platforms like eBay or Amazon they can show that product to the
entire world and change their life.
So those would be the two.
Vice Chairman Lee. Mr. Heather.
Mr. Heather. I will agree with what everybody else says,
I'm sure, but let me give you a nontraditional answer. I think,
while this hearing is on trade, I think what my answer is: What
can we do to address regulation around the world? And a
committee like this that has a horizontal responsibility to
think about economics and policy, these challenges we see
facing--take vehicles. Who is responsible for going out and
pushing good regulatory frameworks in foreign markets to ensure
that the vehicles that have rolled out in those countries are
set up in a way in which we can compete?
There's a huge role here that goes beyond commerce and
state and USTR, that goes to NHTSA, that goes to the mainline
regulatory agencies that this Congress created in many cases a
hundred years ago before there were international markets.
And these regulatory agencies all have offices of
international affairs, but they aren't central to the
policymaking function of these agencies. They are not equipped
to go out and engage with a mandate to advance U.S. commercial
interests. Not to say they should go out and advance U.S.
commercial interests above their mandate for health and safety
and environmental protection. Those things are obviously
paramount. But once we've decided on a regulatory model we
think works here, why aren't we out there advocating it to the
rest of the world?
So one of the things I would do is I would take the silo
approach to the way we think about issues here in Washington
and try to bring about a more consolidated approach within
particularly the Executive Branch with the support of the
Congress in bringing our regulators to advance some of these
concerns abroad.
Vice Chairman Lee. Mr. Griswold.
Mr. Griswold. Mr. Chairman, thank you. That's a great
question. First, I think a universal $800 de minimis would be
great. How do you get there? You know, we had a successful
trade facilitation agreement in the World Trade Organization.
That seems to me maybe one approach. Maybe amending that
agreement.
We have a World Customs Organization. Maybe discussions
there. Most countries in the world have a de minimis standard
under $200, so there's some heavy lifting there, and I think
negotiations are the way to do that.
The Trade Promotion Authority bill that Congress passed in
2015, all those negotiating objectives are important. We
basically have our digital policies down correctly in this
country. I don't always say that about U.S. policy, but I can
say that here.
The problem is largely in other countries. How do you get
them to address that? It's through negotiated agreements.
Chapter 14 of the Trans Pacific Partnership remains the best
template we have available. And I think maybe in the
renegotiations of NAFTA that should be an objective, along with
talking to our Canadian friends about their de minimis
standard.
The Korean Free Trade Agreements, according to a survey by
the Congressional Research Service, has the most robust digital
trade provisions of any agreement we've signed. Currently, I
think for many reasons, walking away from the Korea Agreement
would be a huge mistake, but digital trade would be one of
them.
So that's my wish list, if I were king for a day.
Vice Chairman Lee. Thank you.
Senator Heinrich.
Senator Heinrich. Any trade agreement that the Trump
administration enters into should help strengthen export
opportunities for U.S. businesses, level the playing field, and
ensure that trade agreements are fair for everyone,
particularly American consumers, businesses, workers, farmers,
and ranchers. I'll ask this in particular to Ambassador
Sepulveda and Mr. Griswold, but any of you are welcome to chime
in afterwards.
As we embark on a renegotiation of the NAFTA Agreement, or
should I say as the Administration does, what are some of the
U.S. offensive interests in the digital trade space for our
small businesses and manufacturers? Where should U.S.
negotiators focus their attention?
Mr. Griswold. Would you like me to go first?
Senator Heinrich. Sure. You bet.
Mr. Griswold. First, Senator, thanks for mentioning
consumers. You know, that list gets mentioned a lot, ranchers,
farmers, small businesses; consumers are sometimes forgotten.
So my compliments to you for mentioning that, because consumers
have an interest in digital trade, in trade generally but also
in digital trade.
And I have to say--I am complimenting Congress a lot today
when you raised, the de minimis standard to $800, that is
probably one of the best things you have done for your
constituents in the trade front in a long time.
And I think on NAFTA----
Senator Heinrich. Mr. Quade is nodding, for the record.
[Laughter.]
Mr. Griswold. In NAFTA, that should be part of the
discussions. And they are going beyond just the strict
guidelines of TPA. By the way, Mexico has a de minimis
threshold of $300, but that is still significantly below where
it should be. So I think that is what we should do in those
negotiations.
Senator Heinrich. Ambassador, do you want to jump in there?
Mr. Sepulveda. I would endorse all of Mr. Griswold's
negotiations. And I think it is also important to think about
consumers in Mexico as well as consumers in the United States,
the degree to which a product like the one from Relay that can
be sold de minimis to a teacher to be able to teach his or her
kids in Mexico.
Senator Heinrich. Clearly that was the intention of the de
minimis standard in the first place.
Mr. Sepulveda. Right, right. That's very useful to everyone
involved. And as was pointed out, it is highly inefficient to
have a de minimis significantly lower than that. And it is a
good signaling thing for us as the United States to have
elevated our de minimis.
Senator Heinrich. We have an incredibly open internet in
the United States. I mean obviously the Russians can play on
our internet, but there are a lot of countries that control
content, very closely control who can have a website, what is
on that website, what can be offered.
What should our response be--and some of these countries
are quite large trading partners of ours--what should our
response be generally in terms of negotiations to that very
different playing field domestically and abroad?
Mr. Griswold, do you have a----
Mr. Griswold. You know, you are getting into some sensitive
areas about censorship and that sort of thing, and that is
really beyond the scope of trade agreements. I think the
biggest losers when countries adopt those policies are their
own citizens. They are being deprived of information, both
important political and other information, but commercial
information. They are less educated shoppers in the global
arena.
So, one, we can set a good example. And I think we have, in
this area. But also, negotiate as well as we can--that is where
the language is important--that regulations be adopted in other
countries regarding national security, cybersecurity, privacy,
that are the least trade restrictive as possible. So maybe that
is the pressure point that we should bring in negotiations.
Senator Heinrich. Ambassador.
Mr. Sepulveda. One of the things that we saw abroad was an
effort by many countries to create import substitution
strategies for the building up of their own digital economy.
So everybody wants to have a Google App, a Facebook, and an
Amazon, right? So what we advocated abroad was to say, do what
you do well and make sure that your people can use the
platforms to continue what they're doing to do it better. And
import substitution strategy in this space is deeply
destructive for them.
The Boston Consulting Group, the World Bank, and others
have shown that more open, better connected countries are doing
better than those that are not. But there is to some degree
abroad this feeling that the United States has first-comer
advantage and that they're responding to that first-comer
advantage by creating barriers to our firms being able to do
well in their markets, to which we have argued and believe the
evidence exists to say that actually having and using the
platforms that the American economy has been able to create is
useful for you.
Senator Heinrich. Thank you all.
Vice Chairman Lee. Representative Paulsen.
Representative Paulsen. Thank you, Vice Chairman Lee.
Mr. Quade, you and the other witnesses here today have
presented some very valuable testimony about the importance of
digital trade to American businesses and our economy.
As I mentioned earlier in my opening statement, both
Senator Klobuchar and I can attest to the numerous small
businesses in particular in Minnesota that have shared that
type of success story in engaging in the digital economy, and
it is great to have you here.
I am curious, as Members of Congress consider future
legislation in this area, as we watch the Administration
negotiate future trade agreements that include digital trade
provisions, I think it would be helpful for this Committee to
hear about some of the specific barriers you face.
You outlined the de minimis component to digital trade that
companies like Relay Networks face. What are some of the
challenges that your company has come across as you try to
reach customers abroad? And how can we help you in overcoming
these barriers? Does anything come to mind?
Mr. Quade. Congressman, it is not just the de minimis but
it is also the Customs process as a whole. It is amazing how
many times we have an international customer and the
transaction seems seamless. I do not hear anything, you know,
days later. And all of a sudden two, three weeks later an
international customer will call me up and say, well, where is
my product?
Well now all of a sudden I have to get on the phone and
call multiple different areas. It could be the shipping
provider. It could be Customs. And spend hours trying to track
down this product that is stuck somewhere in this process, and
that includes countries like the UK.
I can cite a specific example just recently where, you
know, I must have spent two, three hours on the phone tracking
down product, trying to find where it is. And this is, again,
our partner in the UK.
So in terms of barriers, it seems as though the whole
processes just are slow. Products get lost. There are whole
countries where we would just as soon not ship product to
because we know that we are rolling the dice. One of those
would be Russia, for example.
But it seems as though these processes are just a
nightmare. And I know specifically businesses that are involved
in digital trade that simply do not offer their products
internationally because they simply do not want to deal with
it.
And that, quite frankly, I think hurts those companies
because if they open these products up, and we could simplify
these, we can get this product that no longer has a market in
the United States out of the United States and bring money back
in.
Representative Paulsen. So just pause for a minute.
Essentially, you are emphasizing that we need to be proactive
in combating some of these existing barriers that exist to
digital trade. So just really quick, highlight what it has
meant to Relay Networks. Digital trade has meant a lot to the
success of your company and where you are going as a small
business, the people you employ, but what has it meant to you?
Mr. Quade. Since I have come aboard, we have nearly doubled
the size of our employees. We have doubled our warehouse space.
We have completely redone our processes in the back room so we
can be more efficient, because we need to start handling the
volume based on the demand.
My phone blows up every single day with international
customers wanting the stuff that no longer has a need here in
our market. And that includes student-issued tablets. You know,
Americans, we do not necessarily--not a lot of us need an
iPad2. We want the latest and greatest. We want the iPadair,
right?
But an iPad2 in a Latin American country? This changes
their life. Or network equipment that has come out of use at a
major company. You put that in play in a school that has not
had internet access before? It changes lives. And the demand is
there.
The supply is our challenge. So we need more equipment that
has been sitting around in IT closets because of this
international demand so we can bring that money, again, back
into the United States. And so that I can keep hiring more
people, so we can keep expanding our warehouse. It is extremely
exciting. Every day I come to work I talk to the owner of our
company, Darren Ashcroft, who is here with me today, and we are
just so excited every day to come in and speak to new
customers, the Netherlands, Chile, et cetera.
So it is a very exciting time, Congressman.
Representative Paulsen. Thank you, Mr. Chairman.
Vice Chairman Lee. Senator Klobuchar.
Senator Klobuchar. Thank you very much. I also welcome you,
Mr. Quade. Not everyone has a Senator and a Congressman, so you
are going to get all the questions now. But thank you for
employing people in our State.
I guess I will just ask you one question. And that is, that
in July I joined my colleagues in calling on the USTR
Ambassador to make small businesses a priority in trade
negotiations by seeking to raise the de minimis threshold for
goods and services that U.S. businesses can sell overseas.
And as noted, right now up to $800 can be imported into the
U.S. with no duties or tax, but a U.S. company would face a
much lower threshold when exporting goods and services to
another country.
When we have 95 percent of the world's customers in foreign
countries, there is a world of opportunity out there, as you
point out. Can you talk about, expand on how making sure that
increasing the de minimis level for developed countries can
benefit small businesses?
Mr. Quade. Sure. Again, when, Senator, you take down these
barriers, it creates that seamless transaction that we are all
used to here in the United States. And it also makes businesses
like ours run more efficiently.
So if these transactions can be more seamless, I do not
necessarily have to spend all of my time, again, tracking down
these products. Because I want to take care of these customers,
but I also do not want to upset these customers. Congressman
Paulsen talked about our 100 percent feedback rating on eBay.
It is a lot of work to maintain that feedback. It is a lot of
work to take care of these customers. But I am more than
willing to do the hard work. But again, I can speak to numerous
small businesses in Minnesota that are doing a large amount of
volume that, again, do not have their products internationally
because they do not want to deal with it.
Senator Klobuchar. They do not want to deal with the
threshold.
Mr. Quade. Yes. You take those barriers down, all of a
sudden these companies can start offering these products
internationally and experience the same boom that we are
experiencing at Relay Networks.
Senator Klobuchar. Very good. Thank you.
Mr. Heather, you talked about the Digital Attache Program
in your testimony at the Commerce and the State Departments,
and I have always been a big booster of the Foreign Service and
the people that can help us provide help to companies both in
our own country and what markets they can go into, and then of
course in the Foreign Commercial Service. And then also the
staff in the embassies. But the Digital Attache Program is
relatively new. As you know, it helps U.S. businesses increase
exports by helping them manage digital policy and regulatory
issues.
The digital attache programs were established in 2016. We
have seen some proposed budget cuts of course from the
Administration. How do you think these programs could be
helpful if we kept them in place?
Mr. Heather. Well, given the fact that most of the
challenges we are talking about today are in foreign markets,
if you do not have eyes and ears on the ground in real time to
know what is happening either legislatively or regulatorily in
these countries, there is not an ability to feed that
information back into the broader U.S. Government in order to
then come up with a response to what we see happening.
And in our experience, even though this program is
relatively new, we have done a significant effort to have
regular conference calls with these folks who are on the
ground, and have participation on many of these calls of over
100 companies who are very eager to hear what is being seen by
these Digital Attache officers. And also oftentimes it is our
members who are able to tell the Digital Attaches things that
they are not seeing, necessarily.
So we have found the program, even in its infancy, to be
very important and highly successful, and something we think
there is the ability to leverage.
I think that there are, on the Commerce side, somewhere--
and Danny may need to help me here; I know you were at State--
but I think we expanded it from 12 to 16, or from 9 to 12, or
something like that. But we are in the most important and key
markets, and State has amplified that effort by doing a lot of
training and programming for their commercial officers, and
many more embassies to be on the lookout for things like data
localization, force tech transfer issues. So this is a program
that is valuable.
Senator Klobuchar. Thank you. One last question, Mr.
Ambassador, very briefly. The importance of broadband
deployment to the issues that we are talking about. We have the
Broadband Caucus in the Senate. We have been working really
hard to try to get infrastructure built to get more investment.
Mr. Sepulveda. Thank you, Senator Klobuchar. And I want to
echo the good work of the Digital Attaches, and we also created
a Digital Economic Officers Program at the State Department. So
every post has an economic officer. They are trained and
knowledgeable on traditional economic issues, trade issues,
customs issues, those sorts of things. But in the digital
space, we needed to create a new curriculum and educational
mechanism by which to ensure that our economic officers abroad
are well versed in these issues, and we have done that through
the State Department's Economic Bureau.
And there has been some call for reducing the number of
people at the State Department, and that is a real issue. To
your broadband issue, the excitement that you see out of Relay
Networks, the ability that they have had to succeed as a small
business using their digital connectivity, needs to be extended
to every small business in America.
And there are far too many rural communities in particular,
because of the cost of building networks out to those
communities, that are not connected. Having something in the
infrastructure build to help with those initial capital costs
would be critical to making sure that the Universal Service
Fund can then help, once it is built, those long-term costs.
Blair Levine, who used to be with the FCC, has written a paper
for Brookings making a specific recommendation for the
infrastructure, whatever infrastructure stimulus is proposed,
that I would strongly endorse and recommend to you.
Senator Klobuchar. Thank you, very much.
Vice Chairman Lee. Representative Comstock.
Representative Comstock. Good morning. It is great to be
with you here this morning. Sorry I was a little late, but, Mr.
Griswold, I appreciate George Mason represented here, and
Mercatus, and we appreciate your great work there. So with the
widening use of digital technology, and with the internet
lowering the cost of international trade, it helps our
productivity, the kinds of things you have highlighted. Could
you explain why this is not a threat? Why this is not a threat
to other jobs? And why this is something that will really have
a ripple effect for all kinds of industries? And maybe just
paint a few pictures of some of the small- and medium-sized
enterprises that will be able to expand and benefit in a way
that is growing new markets, not in any way cutting into
anybody's existing?
Mr. Griswold. Yes. Thank you for that question.
Yes, there is a lot of anxiety about jobs connected with
trade, and I make the point in my testimony that this is not
something radically new about the ``why'' of trade, it is about
the ``how.'' So the same principles apply: International trade
allows us to do more of what we are better at as a Nation, that
plays to our strengths in terms of our high technology
industries, and digital, and information technology.
So in that sense, the internet is enabling trade to happen
in ways it was not able to happen before, with all the benefits
that it brings to our country.
The U.S. International Trade Commission study is important
in this respect. They talked about up to 4.8 percent larger
gross domestic product, up to 5 percent higher real wages----
Representative Comstock. What was the larger amount, the
study?
Mr. Griswold. Yes, that was the 2014 U.S. International
Trade Commission Study on Digital Trade. And they estimated our
GDP is larger by 3.4 to 4.8 percent, real wages of American
workers in Northern Virginia and around the country are 4.5 to
5 percent higher. They were more cautious on jobs. They said it
is either 0 to 2.4 million, but I think the zero is an
important factor, because trade is not about more jobs or fewer
jobs; it is about better jobs. About jobs in areas that are
growing, that play to our strengths.
And I think digital trade plays to that. You mentioned
small- and medium-size enterprises. The barrier to companies
like Relay Networks getting into global markets in the past has
been how to reach foreign customers, how to make foreign
customers aware. Also, how to overcome something called
``Information Asymmetries.'' And that is, if you are a branded
multinational, people can know your reputation, and they know
where to complain. If you are a small- and medium-sized
company, people do not know your reputation, and they are
hesitant to take that plunge. But on the internet you can have
things like customer reviews, which raise confidence. You have
platforms like Amazon and eBay, and that has enabled small- and
medium-sized companies to create jobs.
So trade is like technology. You know, 200,000 to 300,000
Americans line up for unemployment insurance every week in a
low-unemployment economy, not primarily because of trade but
because of technology and changing consumer taste. So jobs are
created and jobs are eliminated through trade, through
technology, but the bottom line is, it raises our productivity.
It is creating opportunities for our children and workers in
the future economy. And that is the important thing, and that
is what digital trade is contributing to our economy.
Representative Comstock. Okay, and what are some of the
biggest regulatory threats that you see that would stymie the
growth, or limit that entry level?
Mr. Griswold. Yes, there are barriers to cross-border
trade, and we have talked about a lot of them today in terms of
force localization of servers, which by the way interferes with
the cloud. For small- and medium-sized companies, the cloud
computing is more important to them than it is to large
companies that can have their own IT departments. But the cloud
allows small- and medium-sized companies to buy those services.
And that is why a forced localization of servers is something
we need to resist and get into trade agreements.
Domestically we need to have a flexible economy. We need to
sort out our corporate tax system, which everybody agrees is a
drag on growth. We need to invest in education in a way that
prepares our workers to fill these jobs.
I know it is beyond the scope today, but we need
immigration reform so that high-skilled workers can come into
the country and help us grow these high-tech companies, and
create the innovative digital products that we can then export
to the rest of the world.
So it is a broad package, but you are exactly right. It is
all part of a package of making our economy more flexible and
opening up markets for opportunities.
Representative Comstock. Okay. Thank you. And thank you so
much for your work.
Vice Chairman Lee. Representative Beyer.
Representative Beyer. Thank you, Mr. Chairman, very much.
I want to begin by saying, as an automobile dealer in my
real life, 99 percent of our sales start online. So it is very,
very out there.
Mr. Heather, I want to thank you right off the top for
pages 8 and 9. You have a very clear multi-page strategy for
where our digital stuff should go. So thanks for putting that
together.
Ambassador Sepulveda, you say very eloquently that there is
critically protected network neutrality at home. To send the
signal to others that services and applications delivered over
the global internet must remain free from discriminatory
treatment by local and national broadband internet service
providers. This is said eloquently.
Can you expand on that? And the recently announced FCC plan
to roll back the Title II designation on that neutrality, is
that a step in the wrong direction for our digital trade?
Mr. Sepulveda. Thank you, sir. I hesitated to mention that
due to the fact that it is an issue that is being heavily
debated in the Congress. The reason I mention it is because
internet services are global in nature. That is to say that if
you build--if Relay Networks puts up a website, it can reach
any consumer anywhere in the world, as well as anyone else,
right? Broadband internet service is provided locally. So that
last mile, if your service or your speech is discriminated
against in that last mile, it will hurt you. And that is the
point of control that could be leveraged abroad against our
providers. Now the signal that we sent, when we say that
network neutrality is not going to be the rule of the land in
the United States, sends that signal to other countries that it
is okay for their broadband service providers to discriminate
against content that isn't local or isn't originated in their
country.
So that is the biggest challenge. I think it sends a bad
signal, particularly to repeal the rule without having a
replacement in law. You can have an honest, and you will have a
very strong debate and deliberation on what that should look
like in law versus in rule, but I strongly support Chairman
Wheeler's work. And I think it has sent the right signal
abroad, and I know that you have done work with Chairman
Wheeler on this in your own District and we appreciate that
work.
Representative Beyer. Thank you. Ambassador, the Korea-U.S.
Free Trade Agreement was hailed as having the most modern and
robust digital trade chapter in history. How would you assess
the success of this a few years in? And aside from the obvious
strategic and commercial impacts, can you discuss the impact of
a course withdrawal on digital trade, both with Korea and
internationally?
Mr. Sepulveda. I think I would echo what my fellow panelist
has said, that the Korea Agreement was very, very strong, as
was the language in the TPP, which was not pursued.
I think at the end of the day it would send a very poor
signal to a very strong ally and a key commercial partner to
withdraw from the Korea-U.S. Free Trade Agreement.
Representative Beyer. Thanks. Mr. Heather, a similar
question on NAFTA. So the original NAFTA obviously predated the
centrality of the internet and digital goods. But NAFTA still
governs North American trade and telecoms and digital goods and
services of some status quo. So how important is the digital
piece of the modernization negotiation that the President is
talking about?
Mr. Heather. Well we have every indication that the digital
issues in the NAFTA modernization are a priority for Ambassador
Lighthizer and the negotiations. I think when you look at the
relationship the United States has with Canada and Mexico, save
maybe de minimis, and maybe a couple other issues, we don't
have a lot of the kinds of barriers I outlined in my testimony
with either trading partner.
But what NAFTA modernization represents is an opportunity
to get the rules right. Yes, KORUS was a good start in the
digital age. TPP built on that. But there are always new
questions that are emerging in the policy space. For example,
cyber and how cyber regulations are being promulgated around
the world.
We do not have a cyber challenge in terms of the regulatory
environment in Mexico or Canada, but Canada and Mexico because
they are good trading partners and good partners on strong
policy represent an opportunity to get the rules right.
So NAFTA, more so than sorting out challenges that we face,
save de minimis, maybe a couple of other minor issues, Mexico
and Canada and the United States have an opportunity in the
NAFTA modernization to create a very high set of rules and
standards that we would like to see pushed in other trade
agreements around the world.
And I would just say, since we have a lot of home cooking
going on between Mercatus and the Congresswoman and my friend
from Minnesota, I happen to be your constituent, sir.
Representative Beyer. Thank you, Mr. Heather.
So a quick follow-on. Canada has got the cultural exemption
in NAFTA. Is that likely? Can we modify that? What can we
achieve in the NAFTA renew issues?
Mr. Heather. I am aware of it. I am not following that
issue quite closely. The cultural exemptions are challenges in
many cases for all kinds of content issues in Europe and
elsewhere. They all are something USTR pushes back on from a
market access standpoint. But I would have to follow up with
you in terms of, with folks who are following that specifically
as to what we might be able to achieve.
Representative Beyer. Thank you. And thank all of you very
much.
Representative Paulsen [presiding]. Senator Lee had to
leave, but we have time for another round of questions from
Members who would like to ask. So, maybe I will just start with
Mr. Heather, to follow up a little bit on that conversation.
There are multiple avenues in which to pursue free trade
with appropriately facilitating rules, and the WTO is one. Free
trade agreements with individual or group countries is another,
obviously. Each has its pros and its cons.
Digital trade is also discussed at G-7 meetings and G-20
meetings. Can you explain some of the pros and the cons of the
various forums? Can you suggest which path or paths toward
appropriate regulation are more promising and how the United
States should prioritize them?
Mr. Heather. It is a very good question, and I suspect you
would get a lot of different answers to that. Let me say this.
We have found conversations in the G-7 and the G-20 to be
immensely challenging. And China's year of hosting the G-20, I
think that was the first year that G-20 took on digital policy
type issues.
It was amazing, looking behind the curtain to the degree I
had the ability to look behind the curtain, to see the kinds of
efforts that were made not just by the Chinese but the
Russians, as well as our European friends and allies. To not
have what I would say to be very basic statements about having
an open digital economy and free flow of data. That did not get
any better this past year when Germany chaired the G-20.
And so I think the G-20 and G-7 are very tough forums and
represent tough sledding ahead for establishing consensus and
good rules. I think we play a lot of defense, quite frankly, in
both of those fora.
When you look at the WTO, I think the WTO has a significant
ministerial meeting coming up this fall. There have been some
voices who have called for the WTO to get into the digital
game, as being an area of expansion.
I do not expect that the WTO will ultimately receive that
mandate this fall. I think there is a view that the WTO has
enough on its plate that it needs to work on before it tries to
venture into new areas. But I think that is an area worth
watching.
And I think one agreement that we have not mentioned that
has not had much attention in the transition from one
Administration to the other, is TISA, which is a plurilateral
agreement with a number of countries that is a real opportunity
to set rules in the digital space, particularly for the
Services environment.
So I would put as a priority getting our act together and
figuring out what we want to do with TISA, and pushing that in
terms of the concept of establishing digital rules.
Representative Paulsen. Ambassador Sepulveda, can you share
some thoughts along those lines, too?
Mr. Sepulveda. Sure. I thought that was an excellent
presentation of where we are. I would say that the G-20 in
particular is a challenging environment, and the G-7 creates
some challenges as well, but we need to be there. We need to be
making our arguments.
And they also serve to telegraph to us what countries are
thinking about doing domestically, and then we can engage on
that level as well.
I think it is critically important that some of the
private, larger international organizations like the World
Economic Forum and others, are entering this space. The Chamber
has made this a priority. The International Chamber of Commerce
has made it a priority as well.
So there are various venues. When I was working at State,
you could be traveling every week somewhere in the world to
talk about this stuff. And we need to be engaged in all of
them.
Representative Paulsen. Mr. Griswold, I am going to follow
up with one other question, because I know countries like
France and Germany that are technologically advanced are
heavily engaged in international trade, and at the same time
they are adopting policies that are not necessarily trade
friendly.
Maybe you could give a couple of examples and their
reasons. On the other hand, there are countries that seem very
strongly oriented towards free trade, Singapore, for instance.
Could you share that perspective and what examples we should be
following?
Mr. Griswold. Yes. First just a quick comment on how to
achieve liberalization of digital trade. There are trade-offs.
If you have an agreement at the WTO that benefits 160 countries
but there is a lower common denominator of what you can
achieve. So I continue to think bilateral and regional
agreements have the most promise, and Chapter 14 of TPP remains
the template.
But, yes, our European friends are advanced in a lot of
ways, but in some ways I think they have a little envy that
they do not have an Amazon and an eBay and an Apple. And,
frankly, you see some protections disguised as concerns over
privacy and security. And I think we need to challenge them on
that.
So we need to continue to push them. It is in their
interest to not require the localization of servers and things
like that. It really enhances your own efforts at security if
information can be located in multiple sources, not only in
your own country but elsewhere, and in countries like the
United States where we have very high security and
technological standards. We need to make that case to them,
that it is not only in our interest to open up your market, but
it is in their interest to have a more diverse means of
distributing information.
Yes, Singapore is a good example, and we do have a
bilateral trade agreement with Singapore that has some digital
components. But they are a first-world country in that respect.
You are finding that countries that understand the benefits of
digital trade, as we do in the United States, are very willing
partners to sign on with us.
Canada and Mexico were ready to sign on to the Trans
Pacific Partnership, so they embrace all the negotiating
objectives of the U.S. Congress. So I think we have willing
partners out there. We have some work to do with others.
Representative Paulsen. Senator Heinrich, you are
recognized.
Senator Heinrich. Central to the U.S. leadership in E-
commerce is our highly skilled workforce. To ensure that we
build on our current strength there, we obviously need to
invest in that workforce through quality education, things that
work, job training, apprenticeships, other programs that equip
our workers with skills needed to compete in that global
economy electronically and otherwise.
Last week the Administration announced its decision to end
the Deferred Action for Childhood Arrivals Program, DACA.
Starting with you, Ambassador, and I will just go across and
get all of your thoughts, what is your assessment of how ending
that program will potentially affect the U.S. economy and our
ability to compete in coming years?
Mr. Sepulveda. Thank, you very much, Senator, for that
question. The technology community, and I think the corporate
community, has spoken fairly uniformly on this. The estimates
are that it will cost hundreds of billions of dollars to end
the DACA program.
And for the technology community, where so many in that
community are either immigrants or the children of immigrants,
this issue has hit very, very close to home. In fact, I think
Brad Smith has said that this Congress should take up DACA
legislation even before they move to tax reform, which is
obviously something critically important to Microsoft.
So as we move forward, being open to the world's talent,
being respectful of all our children, and making sure that the
corporate community has all the talent it needs available,
because this is not a zero sum game. For us to succeed in the
global economy, and for them to continue to innovate and grow,
is incredibly critically important.
Senator Heinrich. Does anyone want to add to that?
Mr. Griswold. Senator, thanks for bringing that up. Free
digital trade is necessary, but it is not sufficient. We have
to have the educated workforce, the flexible domestic economy
to take advantage and create the new products, and immigration
is part of that.
I know it is controversial, but we are facing a demographic
issue in this country where the workforce is going to start
shrinking without immigration because of declining birth rates,
but we also have a challenge in terms of a trained workforce in
the STEM subjects.
You hear anecdotally and otherwise of U.S. companies that
cannot hire the high-skilled workers they need. These are
manufacturing companies as well as IT companies.
As far as DACA goes, to me these young people are about as
close to a sure bet as you can get. This is basically the only
country they have known. They are fully Americanized in every
sense in terms of the language and the culture.
By definition they have graduated from high school. The
older ones over 25, two-thirds of them are either in college or
have graduated from college. Hundreds of them are working in
high-technology companies. They have been fully vetted in a
security point of view.
I disagree with some of the economic statements that
Attorney General Sessions made, but I think Constitutionally he
is probably right. It is up to Congress to fix this problem.
And I would just--you asked about my wish list. If I were king
for a day, I would legalize the DACA young people.
Senator Heinrich. It sounds like we should get on that.
Mr. Griswold. I believe you should.
Senator Heinrich. Mr. Heather, do you want to add to that?
Mr. Heather. No, I couldn't improve on the Ambassador's
statement.
Senator Heinrich. Thank you.
Representative Paulsen. Representative Comstock, you are
recognized for five minutes.
Representative Comstock. Mr. Quade, you had said in your
testimony, and we talked about here, the TPP agreement did
provide positive things there. Given we do not have that, how
can we take the positive things there now and utilize them to
help businesses--and actually for any of you who might have
some thoughts on what we might do in an environment where
unfortunately you have opposition from both sides on trade. And
I think the testimony you are providing today shows why this is
something that really can help both of those sides advance, and
so the fear of it, how do we overcome that? And what are some
of the ways that we could help advance the digital trade in a
way that is inclusive and engages everybody?
Mr. Quade. Absolutely. Mr. Griswold said that we could use
that part of TPP as a template, you know, and carry that out in
the future negotiations, including the current NAFTA ones.
So if we use that as a template, and then we also bring it
on an individual level like I was talking about earlier, the
small businesses including our neighbors in Canada over here
that I deal with, or the education field internationally that
is looking to get connected. But that barrier from--because
they are limited in capital, you know? So they are on tight
budgets.
Representative Comstock. So this is really like a micro
enterprise assistance, if we were able to----
Mr. Quade. Exactly.
Representative Comstock [continuing]. Help here, and it
would change sort of the whole dynamic of aid versus trade.
This is another----
Mr. Quade. Yes. That is a perfect way to think about it.
Think about it as the easiest way that we can touch an
individual and allow them the free flow of goods, like we are
used to in the United States.
The teacher I referenced, the teacher in the UK who was
just looking to replace a laptop. Why is it that somebody has
to show up on her door with the laptop and say give me another
$60 for a $225 laptop? That is a perfect way to humanize a
trade agreement. How does this affect individuals?
And I see it all the time. You know, the resort in Canada
that I was working with. You know, they just wanted to upgrade
their network, but we could not do it. The customer said, well,
alright, maybe we will visit it next year. You know, like
geeze, if we could just get this done now.
Representative Comstock. So it ends up depressing their
business.
Mr. Quade. Exactly.
Representative Comstock. There is nobody there who is
necessarily engaged in this, but there is no reason they
couldn't be. I mean the U.S. is the leader in this area of
digital trade at this point, so there is nothing to fear from
us in terms of--I mean, who would be our nearest competitor in
the digital trade area?
Mr. Quade. I think perhaps one of the other members of the
panel could answer that, but with--I think I referred to the,
what was the phrase that I used, we're the United States of
Stuff. We've got lots of stuff in this country, and a lot of
stuff that we do not need anymore, you know, but other
countries do.
And we have got a whole bunch of it, and it is just sitting
around. And companies like us, we can get extra life out of it,
and we can provide it to people that need it. But I think in
terms of other countries like us, I don't know----
Representative Comstock. Like maybe, what about various
countries in Africa, developing countries where they have an
increasingly educated workforce, but they are seeing all kinds
of trade barriers. How would this help say Uganda, or Kenya, if
anyone has any thoughts on that?
Mr. Griswold. Well, I think it is a great opportunity for
them and for us. As Nick points out, there is a great demand
over there for stuff that we've got that we no longer need. So
I think it is a great opportunity to export this used stuff
here in America to great benefit over there, and they are
getting online.
They have access to cellular networks over there, and it is
transforming the way business is being done in Africa. So there
is a great opportunity there. We can earn more through our
exports.
But again, the issues are largely over there, and we need
to work with them. The African Growth and Opportunity Act is a
good thing Congress has done to encourage trade there, but
you're right. It is both good business, and also the U.S. by
being a good citizen in the world encourages trade with those
countries.
Representative Comstock. Thank you.
Mr. Sepulveda. I'm sorry, if I could just add quickly. In
traveling around the world I spent a significant amount of time
in the developing world, particularly in Latin America but in
Africa as well. And where you see--it is fascinating to see
people who want to be connected so badly.
I mean, you will see kids without shoes but they will have
a cellphone. There is a hunger for this type of connectivity.
The challenge is that in too many countries governments see it
as a revenue grab, essentially, to tax digital goods, to tax
high technology products, because they feel it is a luxury.
But the fact of the matter is that connectivity and these
sources are no longer a luxury; they are a necessity to compete
in the modern economy.
So one of the things we did is we created the Global
Connect Program, and we teamed up with the World Bank to try to
send the message to finance ministers around the world to focus
not on taxation but on connectivity.
And we have seen examples of success. So in Colombia, for
example, they had a program called Viva Digital, and the idea
was to not tax computers and tablets. And they did a reverse
auction system by which to connect their rural communities. And
they connected 90 percent of rural Colombia, and a computer was
actually cheaper in Colombia than anywhere else in Latin
America because of these programs to incentivize consumption of
these goods and get people connected.
Representative Comstock. They are changing the taxation.
With a focus on education, they see it as education rather than
a luxury good. It is not watching movies; it is educating the
kids. And having these kids, you know, if you are in a rural
area in a Third World country, you still can get access to the
best education if you would just get these tablets that we can
take our used ones and get to them, right, and be a dynamic
change for them.
Mr. Sepulveda. And these tools will make them better at
whatever they are good at. So if you are really good at
agriculture, be really good at agriculture. And use the
connectivity and the tools of the internet and the information
services to be better at it.
You can't tax your farmers, your ranchers, from getting
these tools that are necessary to succeed in a modern economy.
It won't work.
Representative Comstock. So it's sort of a modern day
machine and tool tax, which I know still in the U.S. we are
always trying to get rid of in various places because it is
taxing the tools to get things done. We need to get rid of
these taxes internationally.
Representative Paulsen. We are going to wrap up. I would
like to thank the witnesses again for being here today. The
record will be open for five business days for any Member that
would like to submit questions for the record. And this hearing
is adjourned.
[Whereupon, at 11:26 a.m., Tuesday, September 12, 2017, the
hearing of the United States Joint Economic Committee was
adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared Statement of Hon. Michael S. Lee, Vice Chairman, Joint
Economic Committee
Good morning and welcome to the Joint Economic Committee's hearing
on digital trade. Chairman Tiberi could not be here today and has asked
me to chair the hearing. I want to welcome my colleague Ranking Member
Heinrich, the other Members of this Committee, and the panel of expert
witnesses who are appearing before us today.
What is digital trade? It covers a wide variety of economic
activity, including: international orders transmitted through websites;
global connectivity enabled by email and voice-over internet protocol;
international banking; and data transmissions to manage global supply
chains.
Advancements in technology mean that digital trade is capable of
delivering ongoing improvements in production, distribution, and value
for Americans. U.S. firms have been pioneers and global leaders on the
digital technology frontier. American consumers and businesses greatly
benefit from the ability to buy and sell across borders and gain access
to new products and customers.
We are swiftly approaching the point where the word ``digital''
will be an unnecessary adjective for trade. Although, I'm sure trade
lawyers will want to maintain the extra level of specificity for
billing purposes.
But we need to work both domestically and internationally to
facilitate trade and innovation. We should seek to ensure that sensible
regulations and standards are put in place for the protection of
intellectual property and private information.
Congress has set clear priorities for negotiating trade agreements
that can lower trade barriers for digital goods and services, and the
Trump administration is pursuing those priorities in the current NAFTA
discussions.
It is critical for future U.S. economic success to ensure a
regulatory setting in which innovators, entrepreneurs, and businesses
can experiment with new technology and succeed in a global market.
I will now yield to Representative Paulsen, who earlier this year
launched the Bipartisan Digital Trade Caucus in the House of
Representatives.
__________
Opening Statement of Hon. Martin Heinrich, Ranking Democrat, Joint
Economic Committee
Thank you, Vice Chairman Lee, and thank you to our panel for being
here today.
E-commerce touches industries across all sectors of the economy and
Americans across the country. It is a key source of American jobs and
21st century economic growth and its importance will only grow.
We know that the internet enables U.S. companies, big and small, to
efficiently reach markets around the world. Manufacturers, banks,
retailers, airlines, farmers and a range of other businesses rely on
the internet to seamlessly access and move data across borders.
The internet has fundamentally transformed our lives--and the way
we buy goods.
The benefits of international trade used to be concentrated among
big business. The internet changed all that, opening doors to small and
mid-sized businesses and even one-person shops.
Now, an individual with a broadband connection can sell his or her
goods and services all over the world--from an artisan from Acoma
Pueblo, to a game designer from Albuquerque or a Hatch Chile farmer in
Cruces, they can all now enter the global market place.
A recent study found that 95 percent of U.S. small and medium
businesses on eBay export and 190,000 of these firms export to four or
more continents.
The United States is an e-commerce leader today. The International
Trade Commission estimates that digital trade contributed more to gross
domestic product than all but four states in 2011, and has lifted wages
by as much as 5 percent, while adding up to 2.4 million more full-time
jobs.
In New Mexico, we are working hard to ensure that the opportunities
of the digital economy reach every corner of the State. I'm excited to
welcome Facebook, which is scheduled to open a multi-building data
center next year in Los Lunas that will generate more than 100 jobs at
the data center and up to 1,000 construction jobs.
With 2 billion monthly active users, Facebook is literally built on
cross-border data flows.
To fully realize the gains from digital trade, we need to ensure
global policies enable companies to harness the power of the internet
to reach new customers around the world.
For this to happen, it's vital we have a free and open internet,
with privacy protections. And that starts right here at home. Your
personal information should not be shared or sold without your consent.
Your health, financial and other personal and sensitive information
must be protected.
While internet providers must be prevented from selling users'
personal information without user consent, companies should be able to
choose where to store data.
When U.S. companies can't store data in the U.S., they lose out on
jobs and the ability to use the data to improve their products and
services.
As far as we've come, with the number of internet users worldwide
tripling in the past decade, we are still in the early stages. And the
opportunities for e-commerce, domestically and internationally, are
unlimited.
But, to realize the potential the internet provides, we need to
accelerate the roll out of broadband and ensure that rural areas and
tribal communities have greater access. Right now, four in ten rural
residents lack broadband access, and among rural tribes, that number
climbs to seven in ten without access.
To help bring more Native American students online, I will soon
introduce legislation that promotes broadband access for students and
tribal community members.
During a meeting I convened at the Santa Fe Indian School recently,
the Tribal Administrator of Santo Domingo Pueblo in New Mexico Everett
Chavez put it this way: ``Access to the internet is new, but it is an
equally essential infrastructural need to our tribal communities as
water, power, telecommunications, or roads.''
It doesn't matter if you are a student, rancher, manufacturer,
teacher, doctor or small business--high-speed internet is critical to
thriving in the economy of the future.
Finally, as we focus on digital trade today, we should be clear
that this is just one piece of a bigger issue.
We need to be vigilant, to evolve the rules of the road when new
technologies are developed, and to protect our workers from countries
seeking advantages through unfair trade practices.
Mr. Chairman, I look forward to hearing from our panel, and I'd
like to thank former Ambassador Daniel Sepulveda, the witness I
invited, for being here today.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions for the Record for Mr. Daniel Griswold Submitted by Chairman
Pat Tiberi
Since World War II, the United States has been a world leader in
path breaking technologies that have spread around the world.
Why do you think the United States leads the world in
technical innovations and why many U.S. companies are leaders in the
world markets?
Do you think our traditionally free domestic market
economy abets this development?
What are the biggest obstacles domestically to the
digital economy and to the growth of U.S. digital trade?
answer for the record for mr. daniel griswold
Chairman Tiberi,
Thank you for the questions on digital trade. Here are my thoughts:
The United States is a technology leader for a number of reasons:
Our world-leading higher education system, which is a
mixture of public and private institutions that must compete with each
other for students and tuition dollars;
Our open economy that exposes producers to import
competition for goods and services. This spurs domestic technology
companies to control costs, innovate, and provide the best possible
products and services to their customers;
Our relative openness to immigration. High-skilled
immigrants allow U.S.-based companies to expand and to create new,
innovative products. According to a June 2017 report from the
Massachusetts Technology Leadership Council, 40 percent of America's
Fortune 500 companies were founded by immigrants or the children of
immigrants. A 2016 study by the National Foundation for American Policy
found that more than half of the start-up companies in the United
States today that are valued at more than $1 billion, so-called
``unicorns,'' were started by immigrants.\1\ In Silicon Valley today,
more than half of the high-skilled IT workers and entrepreneurs are
foreign-born;\2\
---------------------------------------------------------------------------
\1\ Stuart Anderson, ``Immigrants and Billion Dollar Startups,''
Policy Brief, National Foundation for American Policy, March 2016.
\2\ Sari Pekkala Kerr, William Kerr, Caglar Ozden, and Christopher
Parsons, ``Global Talent Flows,'' Journal of Economic Perspectives,
Vol. 30, No. 4, Fall 2016, p. 84.
---------------------------------------------------------------------------
Our venture capital markets that allow start-up companies
to access the seed money they need to grow;
Strong intellectual property protection within the U.S.
market;
An entrepreneurial culture in which risk-taking is not
only accepted but encouraged;
And finally, as you note, our relatively free domestic
market economy that allows resources, including workers and capital, to
flow to sectors and regions of the economy where demand is highest.
Among the most import freedoms is labor market flexibility.
As for the biggest obstacles to digital trade, my view is that they
lie primarily outside the United States. My best advice to Congress
would be to encourage the Trump administration to pursue the sound
negotiating objectives on digital trade that Congress approved in the
Bipartisan Congressional Trade Priorities and Accountability Act of
2015. Through bilateral, regional, and multilateral trade negotiations
the United States should pursue agreements that:
ensure non-discriminatory treatment of physical goods in
the digital trade environment;
prohibit forced localization of servers;
prohibit restrictions to digital trade and data flows;
prohibit duties on electronic transmissions; and
ensure that legitimate regulations affecting digital
trade are the least trade restrictive as possible.
Congress should also seek higher, more commercially
realistic de minimis thresholds for e-commerce shipments to other
countries, which as you know remains a huge obstacle to small and
medium-sized U.S. companies seeking to export directly to customers
abroad.
__________
Questions for the Record for Mr. Daniel Griswold Submitted by
Representative Carolyn B. Maloney
I represent a district that is one of the financial service and
publishing capitals of the world--and so New Yorkers are very
interested in measures that could help to strengthen and expand digital
export opportunities for U.S. based businesses.
I also agree with our witnesses that the world could be a more
prosperous and more enlightened place if there were fewer barriers to
the swift movement of data, goods, people and information.
Placing arbitrary limits on how and where big data moves and is
analyzed can slow the pace of innovation and just makes things more
expensive. It's inefficient and can act like a hidden tariff.
And I find it to be unfortunate and short sighted of the government
of China to block the site for The New York Times.
But I also think that making the world of digital trade better--is
not only a matter of knocking down barriers and regulations.
Because--in some areas--the problem seems to be that regulations
and agreements in place now are not being adequately enforced--Digital
piracy overseas is hurting many U.S. businesses.
And in other areas--needed regulation is either currently
insufficient or lacking altogether.
Take for instance--the protection of sensitive private
information--like Social Security numbers.
I am very concerned about the recent Equifax hack--which may become
the most economically damaging hack in U.S. history. The hack involved
the personal data of as many as 143 million Americans--including their
names, addresses, birth dates, Social Security numbers, and in some
cases their driver's license and credit card numbers.
That is nearly half of all the people in the country.
And the Equifax hack also included the personal data of up to 44
million British consumers as well.
If a bad actor has all that personal data about you--he can apply
for credit cards in your name, take out loans, file tax refunds, even
apply for government benefits.
Or he can sell it on the dark web--over and over again--not just
now--but for years to come. And he can sell it to people who will use
it to commit cybercrimes that haven't even been invented yet.
The Equifax hack is the Irma of cyber hacks--and to make it even
worse--it's the third major hack of Equifax in less than two years.
Unfortunately--failures like this by U.S. based companies can have
a negative spillover on the reputational standing of other U.S. data
exporters in the global market. In the past--the EU has expressed
concerns about the sometimes-inadequate measures taken by U.S.
companies to protect data privacy.
The Europeans have claimed--and not without reason--that the U.S.
does not guarantee a sufficient level of protection for European
citizens' personal data.
Even before the Equifax affair--European concerns threatened to
disrupt data flows between the U.S. and the EU.
In 2015, the Court of Justice of the European Union invalidated a
Safe Harbor Agreement that allowed personal data to be transferred with
the U.S.
Basically--the failures of some have hurt other innocent actors as
well.
The U.S. invented the internet--and this is an area where we should
be the unquestioned leader.
So--in light of the recent Equifax breach--my question to our
witnesses is: What regulations, if any, should the Federal Government
consider putting in place to protect consumer privacy--so that data
sent to--or stored in the U.S. will be secure. What should our
exporters do so that they are viewed as setting the standard? Where
should our country set the bar--so that we are viewed around the globe
as the leaders--not the leakers of the world's sensitive private data?
answer by mr. daniel griswold
Representative Maloney,
Thank you for your important question. As I confessed at the Sept.
12 hearing, I am not an expert in cybersecurity. I do agree with your
general point that ensuring that data is secure is an important step to
promoting digital trade and maintaining the attractiveness of the
United States as an innovative hub for technology.
As a trade policy analyst, my primary interest is to promote the
greatest freedom possible for your constituents to engage in digital
trade around the world, both as importers and exporters. To that end, I
fully endorse the negotiating objectives on digital trade that Congress
approved in the Bipartisan Congressional Trade Priorities and
Accountability Act of 2015.
Among the negotiating objectives that impact cybersecurity is the
recommendation that we seek agreements that would prohibit other
governments from requiring local storage or processing of data. Despite
recent breaches, the United States can offer some of the best
cybersecurity systems in the world. Allowing data to be stored in the
United States as well as in other countries will allow companies to
maximize their ability to keep data secure.
Another relevant trade negotiating objective is to obtain
commitments from our trading partners that ``domestic regulations that
affect digital trade in goods and services or cross-border data flows .
. . are the least restrictive on trade, nondiscriminatory, and
transparent, and promote an open market environment.'' Such commitments
will help foreign governments guard against the temptation to use
legitimate concerns about cybersecurity as a cloak to protect their
domestic digital service providers at the expense of more competitive
American companies.
__________
Questions for the Record for Mr. Daniel Griswold Submitted by
Representative David Schweikert
With blockchain and distributive ledger technology in its infancy,
how important is it to prevent a tax or border fee for the exchange of
data secured through this technology? Furthermore, if a ``data tax''
was imposed by a country, how do you see that impacting the blockchain
ecosystem?
answer submitted by mr. daniel griswold
Representative Schweikert,
Thank you for your very important question about the emerging issue
of a data tax and distributive ledger technology.
I approach this issue as a trade policy expert, not a technology
expert, but I can confirm that blockchain technology holds tremendous
promise for enhancing the economic benefits of international trade.
Around the world, companies and governments are realizing that
blockchain technology can enhance security, speed efficiency, and
reduce costs for international trade. The technology is already having
a positive impact on digitizing and automating global supply chain
management and the payments process for trade financing.
My concern with a data tax is that it could slow the development of
the technology and at the same time prove to be difficult to implement.
A data tax would act as a kind of global tariff on trade, depriving
consumers and producers alike from realizing the full benefits of
international competition. It could also have the unintended
consequence of pushing more transactions ``underground'' into a global
black market.
Finally, a global data tax would go against the sound trade
negotiating objective that Congress endorsed in its 2015 Trade
Promotion Authority legislation that the United States should seek
agreements ``to extend the moratorium of the World Trade Organization
on duties on electronic transmissions.'' This should continue to be a
goal of U.S. trade policy.
__________
Response from Mr. Sean Heather to Questions for the Record Submitted by
Chairman Pat Tiberi
Since World War II, the United States has been a world leader in
path breaking technologies that have spread around the world. Why do
you think the United States leads the world in technical innovations
and why many U.S. companies are leaders in the world markets? Do you
think our traditionally free domestic market economy abets this
development? What are the biggest obstacles domestically to the digital
economy and to the growth of U.S. digital trade?
The United States has led the world in technical innovation that,
in turn, has produced many leading U.S. companies for a host of
reasons. Chief among them has been an open, market-based economy that
rewards risk taking, which is necessary for innovation. The U.S.
economy is open and connected to global markets and encourages
investment in human capital.
Further, while many countries reflexively regulate in response to
new technology, the United States typically has taken a more thoughtful
approach.
U.S. competitiveness in the global economy is the biggest challenge
we face as a country. In response, we need a range of policy solutions
that include tax reform, a highly trained workforce to meet the jobs of
tomorrow, and trade agreements with new trading partners to open
foreign markets to U.S. products and services.
__________
Response from Mr. Sean Heather to Questions for the Record Submitted by
Representative Carolyn B. Maloney
So--in light of the recent Equifax breach--my question to our
witnesses is: What regulations, if any, should the Federal Government
consider putting in place to protect consumer privacy--so that data
sent to--or stored in the U.S. will be secure. What should our
exporters do so that they are viewed as setting the standard? Where
should our country set the bar--so that we are viewed around the globe
as the leaders--not the leakers of the world's sensitive private data?
We need a balanced approach that promotes the cybersecurity of
businesses and protects their consumers. Regulatory barriers are a
significant challenge to digital trade, as is the lack of regulatory
enforcement in foreign markets that allows piracy to go unchecked. Both
undermine U.S. competitiveness and innovation.
The question with regard to regulation in the digital economy and
its relationship to international trade and U.S. competitiveness is
two-fold: 1) ensuring regulation or lack of enforcement is not a safe
harbor for masking protectionism, tech transfer, or piracy, and 2) that
regulatory design is done in the least trade restrictive manner.
With regard to any high profile data breach, when a company is
hacked and sensitive information is stolen, the company is the victim
of a crime. Debate around cyber incidents will raise questions about
whether a company could or should have done more to safeguard itself
and its customers. But, the reality is cyber-attacks are crimes, and
cyber criminals are highly sophisticated
Attacks target American and foreign companies that have data deemed
valuable. U.S. companies are committing enormous resources to the
challenge, and today's cyber-attacks are a cycle of trying to stay one
step ahead of the bad guys.
Policymakers need to recognize this and build a supportive and
collaborative policy environment that focuses on private-public
partnerships and emphasizes prevention. For this reason, additional
regulation will not necessarily lead to increased security.
When it comes to security, attempts to regulate today will become
outdated tomorrow. Flexible approaches to collaboration and cooperation
to combat shared threats have significant advantages over national
regulation, which can fragment the global economy and will always slow
technological innovation.
Further, the United States already has in place several regulations
that protect consumer data privacy. American companies are also active
participants in privacy frameworks, such as the APEC Cross-Border
Privacy Rules and EU-U.S. Privacy Shield, which are both global
standard setting agreements.
But we also recognize that this is an evolving set of issues that
runs across several policy portfolios ranging from consumer protection
to national security. We believe that there should be coordination
amongst different government agencies and governments and a private-
public partnership that allows for a collaborative process to promote
best practices to protect businesses and their customers.
__________
Response from Mr. Sean Heather to Questions for the Record Submitted by
Senator Klobuchar
How could accurate, reliable data on the economic impact of
broadband help make the case for investing in rural broadband?
Broadband deployment is critical to U.S. competitiveness and
leadership in a global economy, and this certainly holds true for rural
America as much as it does for our urban areas. Broadband deployment is
a significant capital investment, and there are real challenges where
return on that investment is uncertain. Better information about the
economic impact broadband represents to rural America is helpful, but
it is unlikely by itself to provide the needed certainty for many
investors.
As we work on revising and updating our trade agreements, what
alternative tools do we have, or should we develop, to address the
types of trade barriers that affect digital trade across borders?
As indicated in my testimony, trade agreements are a critical tool
to combating barriers in foreign markets that adversely impact digital
trade. However, trade agreements take time and can only be reached with
willing partners. Many of the challenges American digital products and
services face in foreign markets are regulatory obstacles. Regulatory
developments in foreign markets are constantly evolving, making it
difficult for trade agreements to keep pace. In response, we need to
have a better ``whole of government'' approach to the challenge, one
that brings the resources and expertise of U.S. regulators into play.
U.S. regulators have a primary mandate to protect health, safety,
the environment, or advance other types of safeguards. However, U.S.
regulators need a secondary mandate that as part of a larger
coordinated strategy advances U.S. commercial interests. U.S.
regulators can be better leveraged to address regulatory barriers
abroad by advancing U.S. approached to regulation at a peer-to-peer
level.
__________
Response from Mr. Sean Heather to Questions for the Record Submitted by
Representative David Schweikert
With blockchain and distributive ledger technology in its infancy,
how important is it to prevent a tax or border fee for the exchange of
data secured through this technology? Furthermore, if a ``data tax''
was imposed by a country, how do you see that impacting the blockchain
ecosystem?
First, cross-border data flows are massive and growing. Cross-
border data flows are 45 times higher than they were in 2015, eclipsing
global flows of trade and finance. The dramatic increase in cross-
border data flows has ushered in a more digital form of economic
activity, enabling goods, services, financial capital and people to be
moved around the world more rapidly, easily and cheaply. Attempts by
policymakers to tax these flows as they cross the border would be short
sighted for a host of reasons and, ultimately, severely limit the
potential benefits of digitization.
Second, blockchain technology will have many applications beyond
any role it plays in serving as an alternate currency. For example,
some experts see it as holding the potential to revolutionize the way
government collects taxes, while dramatically easing the burden of tax
compliance. However, while cross-border data flows that are supported
by blockchain technology may aid in better answering age old accounting
questions of allocating revenues or costs, it does not solve
fundamental political questions over the role of government and how to
best fund it.
__________
Response from Mr. Nick Quade to Questions for the Record Submitted by
Chairman Pat Tiberi
Since World War II, the United States has been a world leader in
path breaking technologies that have spread around the world.
Why do you think the United States leads the world in
technical innovations and why many U.S. companies are leaders in the
world markets?
Do you think our traditionally free domestic market
economy abets this development?
What are the biggest obstacles domestically to the
digital economy and to the growth of U.S. digital trade?
1. The United States is a leader in innovation throughout the world
because of a number of reasons. First, our standard of living is one of
the best in the world. People live in our country because we have
access to everything you can need or want. You can get whatever that
may be in a time efficient manner as well. In the hearing I stated we
are the ``United States of Stuff.'' We have so much stuff in our
country people don't know what to do with it. Likely goods sit in
closets in businesses and homes across the country. Spend a Saturday in
the donations bay at a local Goodwill and it will shock you the amount
of quality items people no longer need. Yet in other countries, people
fight over these goods or might never get access to them.
Second, we have the best schools in the world here. Harvard, MIT,
John Hopkins, and we could go on with the list.
Third, we get access to the latest and greatest tech first before
everyone else. Also, we as Americans expect the latest and greatest.
Think of the lines that will form when the iPhone 8 and X come out. We
are talking about $799 phones!!! Average monthly wages even in some
European countries make this impossible to purchase yet here, again,
there will be lines to get it first.
Fourth, the United States is 5th highest in the world in average
monthly wages. That brings the top talent here to the U.S. and keeps
them here. This talent is why we are the leaders in the world in
innovation.
2. I don't believe our traditionally free domestic market economy
abets this development. My question is what is the better alternative?
Our economic model drives down prices on goods that are not interfered
with via government or outside influences. Meaning, you can now get an
iPhone 6 now for $260 or less on eBay and when it was released in fall
of 2016, it retailed for $650. There is no interference in this market
and thus it drives down prices. It then makes manufactures step their
game up on the new models to drive people to the latest and greatest
model. Then, when there is no longer a market here for these goods,
international demand is extremely high across the board in various
industries. Our problem in this country is what to do when old tech is
no longer needed in our market. We at Relay Networks have a solution
and that is to reach out to international customers that need the
equipment for their market. Our greatest challenge is supply and
getting business/schools to realize that once equipment comes out of
service, they need to partner with companies like Relay Networks. We
can then maximize the value and we can get them to the customers
oversees to bring dollars back into our country.
3. The biggest challenge domestically is that foreign customs fees/
process or de minimis, prevents international customers from getting
affordable access to goods from the U.S. We the U.S. are not that
familiar with this as our threshold is $800 here, but in other
countries this is much higher. In Canada for example, the threshold is
$20. This was set in 1985! The economy of the world has changed so much
since then, yet Canada stays firm on this $20 threshold. Therefore,
anything over $20 coming into the country has to go thru customs
process and have a fee associated with it. In fact, in my testimony I
refer to a Canadian reported who dived into the numbers and in fact the
country losses millions of dollars a year just collecting the fees.
What a waste and Canada should be our number one foreign customer as we
are a half days drive from the boarder, but sadly they are not. We have
lost deals because of this ridiculous threshold and process.
__________
Response from Mr. Nick Quade to Questions for the Record Submitted by
Representative Carolyn B. Maloney
I represent a district that is one of the financial service and
publishing capitals of the world--and so New Yorkers are very
interested in measures that could help to strengthen and expand digital
export opportunities for U.S. based businesses.
I also agree with our witnesses that the world could be a more
prosperous and more enlightened place if there were fewer barriers to
the swift movement of data, goods, people and information.
Placing arbitrary limits on how and where big data moves and is
analyzed can slow the pace of innovation and just makes things more
expensive. It's inefficient and can act like a hidden tariff.
And I find it to be unfortunate and short sighted of the government
of China to block the site for The New York Times.
But I also think that making the world of digital trade better--is
not only a matter of knocking down barriers and regulations.
Because--in some areas--the problem seems to be that regulations
and agreements in place now are not being adequately enforced--Digital
piracy overseas is hurting many U.S. businesses.
And in other areas--needed regulation is either currently
insufficient or lacking altogether.
Take for instance--the protection of sensitive private
information--like Social Security numbers.
I am very concerned about the recent Equifax hack--which may become
the most economically damaging hack in U.S. history. The hack involved
the personal data of as many as 143 million Americans--including their
names, addresses, birth dates, Social Security numbers, and in some
cases their driver's license and credit card numbers.
That is nearly half of all the people in the country.
And the Equifax hack also included the personal data of up to 44
million British consumers as well.
If a bad actor has all that personal data about you--he can apply
for credit cards in your name, take out loans, file tax refunds, even
apply for government benefits.
Or he can sell it on the dark web--over and over again--not just
now--but for years to come. And he can sell it to people who will use
it to commit cybercrimes that haven't even been invented yet.
The Equifax hack is the Irma of cyber hacks--and to make it even
worse--it's the third major hack of Equifax in less than two years.
Unfortunately--failures like this by U.S. based companies can have
a negative spillover on the reputational standing of other U.S. data
exporters in the global market. In the past--the EU has expressed
concerns about the sometimes-inadequate measures taken by U.S.
companies to protect data privacy.
The Europeans have claimed--and not without reason--that the U.S.
does not guarantee a sufficient level of protection for European
citizens' personal data.
Even before the Equifax affair--European concerns threatened to
disrupt data flows between the U.S. and the EU.
In 2015, the Court of Justice of the European Union invalidated a
Safe Harbor Agreement that allowed personal data to be transferred with
the U.S.
Basically--the failures of some have hurt other innocent actors as
well.
The U.S. invented the internet--and this is an area where we should
be the unquestioned leader.
So--in light of the recent Equifax breach--my question to our
witnesses is: What regulations, if any, should the Federal Government
consider putting in place to protect consumer privacy--so that data
sent to--or stored in the U.S. will be secure. What should our
exporters do so that they are viewed as setting the standard? Where
should our country set the bar--so that we are viewed around the globe
as the leaders--not the leakers of the world's sensitive private data?
The issue of data security is important in regards to digital
trade. Equipment and data are traveling outside the United States every
second and this will continue to grow indefinitely. In terms of
equipment; in 2014 the Department of Defense adopted National Institute
of Standards and Technology (NIST) standards in place of their own
standards. This move helped align DOD with civilian agencies so the
result would be the same risk standards for all IT systems in terms of
data wiping. NIST 800-88 is the accepted guidelines for media disposal
and data erasure compliance. I have included a link to the NIST 800-88
publication:
https://12382-presscdn-0-52-pagely.netdna-ssl.com/wp-content/
uploads/nist-800-88.pdf
relay networks supports and practices nist standards
In this ever expanding cyber world threats will continue to evolve.
The United States Government, according to public documents, spent $28
billion on cybersecurity in 2016 according to budget watch dog
Taxpayers for Common Sense. However, according to Market Research Media
on Oct. 2 2017 the Federal level would have to grow at 12% a year just
to hit $22 billion in 2022. The United States fiscal budget is so vast
that it is hard to pin down an exact figure for how much is spent on
cybersecurity per year. We do know that the U.S. Government in FY 2017
had an $89.9 billion IT budget. The question of the effectiveness of
our efforts is really hard to answer because the amounts of spending
for individual spy agencies are classified. Indeed Rep. Peter Welch
said in 2015, ``The top-line intelligence budgets for 16 Federal
agencies are unknown to the American taxpayer and largely unknown to
most members of Congress in spite of the strong recommendation by the
9-11 Commission that they be disclosed . . . ''
We do know that in 2015 the Office of the Director of National
Intelligence disclosed that the 2016 non-military intelligence spending
request was $53.9 billion for FY 2016. FY 2013 individual agency
budgets were reveled through the Washington Post via Edward Snowden.
The Post reported that FY 2013 spy agencies, including Central
Intelligence Agency and National Security Agency, were awarded $52.6
billion not including another $23 billion for military intelligence
programs. How much these individual agencies are spending on
cybersecurity we may never know and that includes members of Congress.
We will just have to trust that these agencies are spending enough on
cybersecurity as well cannot pin point a dollar amount in their
budgets.
__________
Response from Ambassador Sepulveda to Questions for the Record
Submitted by Chairman Pat Tiberi
Since World War II, the United States has been a world leader in
path breaking technologies that have spread around the world.
Why do you think the United States leads the world in
technical innovations and why many U.S. companies are leaders in the
world markets?
The U.S. has historically made the basic investments in research
and development, infrastructure, and educational institutions necessary
to create a platform for innovation. The internet itself came out of a
DARPA project and it is no coincidence that our centers of venture
capital funding and innovation surround strong institutions of higher
education.
Do you think our traditionally free domestic market
economy abets this development?
Yes, the ability to conduct business efficiently across state lines
allows for an economy of scale that helps our start ups grow quickly.
What are the biggest obstacles domestically to the
digital economy and to the growth of U.S. digital trade?
The digital economy is doing well domestically but it isn't
reaching everyone and we aren't making the most of our domestic talent
pool. Every high school should have computer science classes available
for their students, every local chamber of commerce and community
should encourage start ups in businesses serving the needs of working
families and the sector in which their locality is competitive, and
every small business should be connected to the internet and reaching
consumers worldwide. The market alone will not get us there due to the
difficult economics of building networks out to sparsely populated
communities.
__________
Response from Ambassador Sepulveda to Questions for the Record
Submitted by Representative Carolyn B. Maloney
I represent a district that is one of the financial service and
publishing capitals of the world--and so New Yorkers are very
interested in measures that could help to strengthen and expand digital
export opportunities for U.S. based businesses.
I also agree with our witnesses that the world could be a more
prosperous and more enlightened place if there were fewer barriers to
the swift movement of data, goods, people and information.
Placing arbitrary limits on how and where big data moves and is
analyzed can slow the pace of innovation and just makes things more
expensive. It's inefficient and can act like a hidden tariff.
And I find it to be unfortunate and short sighted of the government
of China to block the site for The New York Times.
But I also think that making the world of digital trade better--is
not only a matter of knocking down barriers and regulations.
Because--in some areas--the problem seems to be that regulations
and agreements in place now are not being adequately enforced--digital
piracy overseas is hurting many U.S. businesses.
And in other areas--needed regulation is either currently
insufficient or lacking altogether.
Take for instance--the protection of sensitive private
information--like Social Security numbers.
I am very concerned about the recent Equifax hack--which may become
the most economically damaging hack in U.S. history. The hack involved
the personal data of as many as 143 million Americans--including their
names, addresses, birth dates, Social Security numbers, and in some
cases their driver's license and credit card numbers.
That is nearly half of all the people in the country.
And the Equifax hack also included the personal data of up to 44
million British consumers as well.
If a bad actor has all that personal data about you--he can apply
for credit cards in your name, take out loans, file tax refunds, even
apply for government benefits.
Or he can sell it on the dark web--over and over again--not just
now--but for years to come. And he can sell it to people who will use
it to commit cybercrimes that haven't even been invented yet.
The Equifax hack is the Irma of cyber hacks--and to make it even
worse--it's the third major hack of Equifax in less than two years.
Unfortunately--failures like this by U.S. based companies can have
a negative spillover on the reputational standing of other U.S. data
exporters in the global market. In the past--the EU has expressed
concerns about the sometimes-inadequate measures taken by U.S.
companies to protect data privacy.
The Europeans have claimed--and not without reason--that the U.S.
does not guarantee a sufficient level of protection for European
citizens' personal data.
Even before the Equifax affair--European concerns threatened to
disrupt data flows between the U.S. and the EU.
In 2015, the Court of Justice of the European Union invalidated a
Safe Harbor Agreement that allowed personal data to be transferred with
the U.S.
Basically--the failures of some have hurt other innocent actors as
well.
The U.S. invented the internet--and this is an area where we should
be the unquestioned leader.
So--in light of the recent Equifax breach--my question to our
witnesses is: What regulations, if any, should the Federal Government
consider putting in place to protect consumer privacy--so that data
sent to--or stored in the U.S. will be secure?
We need comprehensive privacy protection legislation. The
Clinton FTC and the Obama administration both called for improvements
to our privacy laws and objections from industry kept it from
happening.
Many of our best and largest firms have strong internal
data protection practices and we should codify those best practices.
There is no reason that Equifax should have been able to
hide the breach of their security for as long as they did and there is
no reason that they shouldn't have had in place protections to keep the
breach from happening. But none of that is illegal today. They may face
some after the fact investigation and penalties from the FTC but they
won't be the first and it is obviously not having a sufficient
deterrent effect on future actors.
What should our exporters do so that they are viewed as setting the
standard?
Our exporters and importers of personally identifiable
information should publicly report their privacy protection practices
and continually upgrade those practices.
There are numerous rights that Europeans have now when
American firms collect their data and bring it to the U.S. that
Americans do not enjoy. The EU-U.S. Privacy Shield protections for
Europeans are a gold standard and our law should provide those same
protections to Americans.
Where should our country set the bar--so that we are viewed around
the globe as the leaders--not the leakers of the world's sensitive
private data?
We are clearly the world's leader in innovation and some
attribute that to our flexible and relatively light privacy laws and
practices. It is a balancing act and we do not want to kill the
internet goose laying golden eggs. But if we do not recognize that big
data and vague rules of the road are exposing everyday people to
substantial harm, the American people will turn on our technology
stakeholders in much the same way they turned on our open trade
stakeholders.
These are really hard issues. People much more talented
and capable than I have struggled with them for two decades. What we
really need is open deliberation on potential solutions and a good
faith effort at bipartisan cooperation and collaboration with true and
meaningful outreach and engagement with the technology community of
firms, civil society, and academics.
__________
Response from Ambassador Sepulveda to Questions for the Record
Submitted by Senator Amy Klobuchar
economic impact of broadband
Ambassador Sepulveda, I introduced the Measuring the Economic
Impact of Broadband Act (S. 645) with Senator Capito. This bill would
require the Department of Commerce to conduct an analysis of the
effects of broadband deployment and adoption on the U.S. economy,
including how broadband deployment and adoption impacts employment,
education, job creation and population growth.
How could accurate, reliable data on the economic impact
of broadband help make the case for investing in rural broadband?
This is an excellent and necessary idea. It would shine a light at
a granular level on what the digital divide is costing America.
Broadband adoption and deployment are strong, but not strong
enough. And for the millions of Americans it is failing, the immediate
and long term costs are high.
You and others have been working on these issues for years.
Broadband providers are sensitive to criticism of their efforts and
worry about having to compete with government or having competitors
leverage government against them. We have to get past those fears and
work together to understand the challenge at a granular level the way
you propose and then attack it with policy scalpels and significant
additional funding to ensure that we are not leaving rural and lower
income Americans living in digital deserts. The market is not going to
reach the left behind without policy incentives, mandates, or the
allowance for the public provision of service. The longer we wait to
address the challenge, the more inequality we will see.
addressing barriers to international digital trade
Ambassador Sepulveda, you raised several points regarding barriers
to digital trade across borders. The barriers you cited included data
localization requirements, local content requirements, and data
protection regulations. Additionally, privacy standards are critical
for protecting consumers. As noted, these types of trade barriers are
not easily addressed by using traditional trade tools.
As we work on revising and updating our trade agreements,
what alternative tools do we have, or should we develop, to address the
types of trade barriers that affect digital trade across borders?
Our strongest tools lie in structured engagement out of State,
Commerce, and USTR with their counterparts overseas. The most
challenging barriers to digital trade are not coming from our bilateral
trade counterparts. They arise in China, Brazil, India, South Africa,
Indonesia, and elsewhere. They are rooted in fear of technology and
worries that their people are only consumers in the digital economy,
not producers or profiting participants.
We need to work with policymakers abroad to incentivize investments
in local content development to help them preserve their culture. We
need to work together across security teams to ensure that data stored
outside of jurisdictions is not a mechanism for avoiding law
enforcement. We also need to take a hard look at our privacy laws and
regulations and update them for the digital age. And lastly, we need to
model a new digital social construct that allows gig economy workers to
port benefits across gigs, provides some form of wage insurance in lean
years, and makes training and continuous skill development accessible,
affordable, and rewarding.
[all]