[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

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                                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




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                        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

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                     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.


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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.
  

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