[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 115-375
THE NEED FOR U.S. LEADERSHIP ON DIGITAL TRADE
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HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JUNE 27, 2018
__________
Printed for the use of the Joint Economic Committee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
31-138 WASHINGTON : 2018
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Erik Paulsen, Minnesota, Chairman Mike Lee, Utah, Vice Chairman
David Schweikert, Arizona Tom Cotton, Arkansas
Barbara Comstock, Virginia Ben Sasse, Nebraska
Darin LaHood, Illinois Rob Portman, Ohio
Francis Rooney, Florida Ted Cruz, Texas
Karen Handel, Georgia 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
Colin Brainard, 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. Erik Paulsen, Chairman, a U.S. Representative from Minnesota 1
Hon. Donald S. Beyer, Jr., a U.S. Representative from Virginia... 3
Witnesses
Mr. Sean Heather, Vice President, Center for Global Regulatory
Cooperation, U.S. Chamber of Commerce, Washington, DC.......... 5
Mr. Ryan Radia, Research Fellow and Regulatory Counsel,
Competitive Enterprise Institute, Washington, DC............... 8
Ms. Rachel Fefer, Analyst, International Trade and Finance
Section, Congressional Research Service, Washington, DC........ 10
Ambassador Robert Holleyman, Former Deputy U.S. Trade
Representative, Office of the United States Trade
Representative (USTR), Washington, DC.......................... 11
Submissions for the Record
Prepared statement of Hon. Erik Paulsen, Chairman, a U.S.
Representative from Minnesota.................................. 28
Prepared statement of Hon. Donald S. Beyer, Jr., a U.S.
Representative from Virginia................................... 29
Prepared statement of Mr. Sean Heather, Vice President, Center
for Global Regulatory Cooperation, U.S. Chamber of Commerce,
Washington, DC................................................. 31
Prepared statement of Mr. Ryan Radia, Research Fellow and
Regulatory Counsel, Competitive Enterprise Institute,
Washington, DC................................................. 38
Prepared statement of Ms. Rachel Fefer, Analyst, International
Trade and Finance Section, Congressional Research Service,
Washington, DC................................................. 47
Prepared statement of Ambassador Robert Holleyman, Former Deputy
U.S. Trade Representative, Office of the United States Trade
Representative (USTR), Washington, DC.......................... 62
Map submitted by Chairman Paulsen titled ``Levels of Perceived
Digital Trade Barriers in Selected Countries''................. 66
Response from Mr. Radia to Questions for the Record Submitted by
Representative Maloney......................................... 67
Response from Ms. Fefer to Questions for the Record Submitted by
Representative Schweikert...................................... 69
Response from Ms. Fefer to Questions for the Record Submitted by
Representative Maloney......................................... 72
Response from Ambassador Holleyman to Questions for the Record
Submitted by Representative Maloney............................ 75
THE NEED FOR U.S. LEADERSHIP ON DIGITAL TRADE
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WEDNESDAY, JUNE 27, 2018
United States Congress,
Joint Economic Committee,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
1100, Longworth House Office Building, the Honorable Erik
Paulsen, Chairman, presiding.
Representatives present: Paulsen, Beyer, Schweikert, Adams,
Handel, and LaHood.
Senator present: Klobuchar.
Staff present: Colin Brainard, Ted Boll, W. Gavin Ekins,
Ryan Elul, Alaina Flannigan, Natalie George, Colleen Healy,
Matt Kaido, and Allie Neill.
OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A U.S.
REPRESENTATIVE FROM MINNESOTA
Chairman Paulsen. I call this hearing to order.
Every day, when Americans sit down to order goods from a
website or consume media online, we are participating in a
vibrant digital economy, an economy that takes the ideas and
creations of artists, manufacturers, and innovators and puts
them within reach of our couches and our kitchens.
Digital trade means supply-chain tracking, 3D printing, or
digital platforms that lead to e-commerce, cloud computing, and
social media.
You know the names of the leaders in each of these areas;
Facebook, Amazon, eBay, and so on. That is because the United
States has pioneered this digital revolution. What many don't
realize is that trade in manufacturing goods is itself a part
of the digital economy. From the websites that market the goods
to the payments processing systems that carry out the
transaction, the digital economy facilitates the movement of
all kinds of consumer products from warehouses to family homes.
American manufacturing relies on e-commerce and digital trade.
The benefits of digital trade include domestic economic
growth, as well as spreading American ideas and culture across
the world. Of course, to us, this is good. Yet there are others
who consider the free flow of information, products, and ideas
a threat to their control. And nearly three decades after the
Berlin wall fell, the way ideas and goods travel from one
nation to another remains a contentious issue both politically
and legally.
In fact, because of the novelty of digitalization,
commercial principles and freedoms that were carefully
developed for conventional trade and gained international
consensus are now at risk of being circumvented. With every
innovation comes opportunity for economic advancement but also
opportunity for some foreign governments to grow their own
power. In today's interconnected economy, they can have wide
ranging effects on international commerce and other national
economies as well as the free flows of information.
Digital technology does raise legitimate privacy and
cybersecurity concerns, but some governments may not be
sufficiently concerned with the effects of their policies on
trade, and some may even be using these concerns as an excuse
to be protectionist and for other purposes.
Some foreign governments impose additional taxes and fees,
and some governments will only permit sales on the condition of
storing data locally or providing the source code that will
inevitably be used for a competing state-backed product. Some
governments that otherwise enforce property and contract laws
turn a blind eye to or even facilitate intellectual property
theft. This is especially true when the division between the
state apparatus and the private sector is nonexistent.
Up on the screen right now, on the right, is a map of the
world showing the prevalence of digital trade barriers. The
lighter color regions, like Australia, Canada, and Mexico, are
perceived to have taken a light-handed approach to trade
barriers. And at the other end of the spectrum are trading
blocs in countries like the EU and China that make access to
their markets far more difficult and costly. In part, their
motivation likely is to catch up to the United States, the
leader in digital technology development, and try to take the
lead themselves.
American companies have always thrived in a competitive
market, but the competition must be fair and free from foreign
government intervention on behalf of their domestic companies.
That is why global players with large economies, such as
Chinese and the European Union, which represents large global
market shares, should see the rewards of developing their own
digital economies without discriminatory standards and testing
requirements, localization requirements, forced technology
transfers, and the like.
Governments with control over market access should not use
their leverage to extract concessions from companies in
competition with one another.
In the decades after World War II, U.S. companies dealt
with smaller economies that saw the likely economic benefit of
opening their marketplace, and their citizens benefited from
more choice, lower prices, and faster economic growth, and we
must be vigilant to preserve the principles that have already
led to greater prosperity throughout the world in the digital
trade arena.
And that means addressing swiftly and clearly the excessive
burdens foreign governments place on American digital products
so that we are not unfairly disadvantaged and can compete on
merits.
That also means negotiating new agreements that protect not
just America's economic interest but allow the free exchange of
culture and ideas throughout the world. The world is a better
place, thanks to American ideas in commerce. Keeping the global
digital marketplace open means continuing the fight for that
better world.
And before I introduce our witnesses today, I will now
yield to Representative Beyer for his opening remarks.
[The prepared statement of Chairman Paulsen appears in the
Submissions for the Record on page 28.]
OPENING STATEMENT OF HON. DONALD S. BEYER, Jr., A U.S.
REPRESENTATIVE FROM VIRGINIA
Representative Beyer. Thank you, Mr. Chairman, very much.
Since this committee took up digital trade last fall,
President Trump has weighed into the trade issue in
unpredictable and destabilizing ways. The President's erratic,
aggressive approach has created an environment of economic
uncertainty, is alienating our trading partners and allies, and
risks harming the global economy.
So far, the President's trade advisers have seemed
uninterested in the significant majority of the U.S. economy
that does not consist of heavy manufacturing. Not only has
digital trade not been front and center, it seems the
Administration simply does not have a strategy for how to
strengthen U.S. leadership in digital trade nor any interest in
creating one.
Ceding ground to others, including the competitors who are
putting up new barriers, hurts our economy and our workers.
This failure to lead is a missed opportunity for U.S. small
businesses, technology companies, manufacturers, and farmers,
and all who benefit from the increased export opportunities
made possible by digital trade. It also risks the United States
falling behind as other countries race to create the technology
of the future and write rules for operating in the digital
economy.
Strengthening our position in digital trade starts right
here at home by ensuring an open internet that enables
innovation to flourish.
To that end, it is critical that we restore network
neutrality, which is vital for small business owners who rely
on the internet to compete with bigger companies. It also means
expanding access. Too many people still don't have access to a
broadband connection, and their ability to compete in an
increasingly digital economy is undermined without high-speed
internet.
We need to keep our focus on creating opportunities for all
Americans. As we are here this morning, the digital playing
field around the globe is far from level. When dealing with
China, American companies confront rampant theft of U.S.
intellectual property, force technology transfer policies, data
localization requirements, and other efforts to tilt the
playing field against the United States.
Equally concerning, China is becoming a model for other
countries who are erecting trade barriers that restrict the
free flow of data. We need to knock down these barriers in a
systematic, thoughtful way, rather than pursuing a policy of
ill-conceived tariffs that create additional barriers to trade.
Further, some data regulations are particularly onerous for
small and medium-size firms that don't have big IT departments
or can't absorb the added cost of having to store the data
locally or comply with other requirements.
Digital trade is just one piece of a broader trade
landscape. In the last few months, it has been harder and
harder to understand the Administration's position on a range
of trade issues.
One Wall Street analyst estimates that the Administration's
erratic trade policies have cut the value of U.S. equities by
$1.25 trillion. And the costs extend far beyond the stock
market. The Administration's tariff on solar panels will cause
the loss of thousands of jobs and the delay or cancellations of
billions of dollars in investment in solar energy. These
tariffs will slow our transition to renewable energy.
The Administration has used dubious national security
justifications to levy counterproductive tariffs on our closest
allies. The President has repeatedly acknowledged that these
tariffs are not justified by national security concerns,
undermining any future U.S. case of the WTO.
By levying these tariffs, he has managed to damage our
economy and our alliances in one fell swoop. And, of course,
the negative aspects of President Trump's trade policy are
compounded by his dyspeptic approach to diplomacy. And nowhere
was this clearer than his catastrophic performance at the G7 in
Charlevoix.
Public expressions of disdain for our leaders of our
democratic allies will only make them less likely to engage in
productive trade negotiations. As the President becomes
increasingly unpopular abroad, it becomes difficult for
democratic leaders to engage in new agreements with the United
States.
We need a trade policy that is guided by principle, not
whim; that is forward looking, not reactionary; something that
we saw from previous administrations.
But that is not why we are here today. The way President
Trump has gone about renegotiating NAFTA has generated
instabilities, fighting almost daily with Canada, as threats to
leave the NAFTA deal risk disrupting markets, raising prices,
and may trigger retaliatory tariffs.
Rather than pursue productive discussions with China to
drive changes in their trade practices, President Trump has
launched a trade war rolling up $50 billion in tariffs and
threatening another $200 billion in tariffs last week.
China, of course, immediately promised retaliatory tariffs
of the same scale. Even the President's Council of Economic
Advisers prepared an internal analysis showing that tariffs
will harm our economy. You know, trade is often a ripe barrier
for bipartisan agreement, and that is often especially true in
the area of digital trade. But the damage to trading
relationships with the Administration's moves to impose tariffs
on steel, aluminum, and other products harms the United States'
ability to forge partnerships that will expand trade both
online and offline. And that uncertainty has a chilling effect
on trade of all kinds.
We have only begun to see the damage from Trump's trade
policies.
I really look forward to hearing from the witnesses today
how we could promote digital trade, how we can knock down
barriers, and how the Administration can play a more
constructive role in expanding American trade.
Mr. Chairman, I yield back.
[The prepared statement of Representative Beyer appears in
the Submissions for the Record on page 29.]
Chairman Paulsen. Thank you.
And now with our four witnesses here today, we will start
with Mr. Sean Heather, who is the vice president of the U.S.
Chambers Center for Global Regulatory Cooperation. He also
serves as Executive Director for both international policy and
antitrust policy.
During his 15-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 a Master's of Business
Administration from the University of Illinois.
Mr. Ryan Radia is a Research Fellow and Regulatory Counsel
at Competitive Enterprise Institute. His research encompasses
intellectual property, information privacy, and cybersecurity.
Mr. Radia has published extensively in major news outlets,
appeared on dozens of national shows, and contributes to
several blogs on policy and technology.
Mr. Radia holds a Juris Doctor from the George Washington
University Law School and a Bachelor of Arts in Economics from
Northwestern University.
Ms. Rachel Fefer is an Analyst in International Trade and
Finance at the Foreign Affairs Defense and Trade Division of
the Congressional Research Service where she focuses on digital
trade and the World Trade Organization.
Before joining the Congressional Research Service, Ms.
Fefer worked at the Department of Commerce and the Food and
Drug Administration on trade issues. Previously, she worked in
the private sector for various tech companies in the private
sector. Ms. Fefer holds a Master of Business and a Bachelor of
Arts in Public Policy from Duke University.
And also joining us is Ambassador Robert Holleyman, who is
the President and CEO of Crowell & Moring International, as
well as the Partner in Crowell & Moring's International Trade
Group.
He served as Deputy U.S. Trade Representative between 2014
and 2017. And during this time, Ambassador Holleyman was
responsible for trade policy and services, investment, and
intellectual property, and led the creation of the digital
trade working group within the Office of the U.S. Trade
Representative.
He received his Juris Doctor from the Louisiana State
University Law School and a Bachelor of Arts from Trinity
University in San Antonio, Texas.
And, with that, we will welcome and begin our testimony
with you, Mr. Heather. You are recognized for your statement of
5 minutes.
STATEMENT OF SEAN HEATHER, VICE PRESIDENT, CENTER FOR GLOBAL
REGULATORY COOPERATION, U.S. CHAMBER OF COMMERCE, WASHINGTON,
DC
Mr. Heather. Thank you, Mr. Chairman and Ranking Member and
members of the committee, for inviting me to testify.
In previous testimony to this committee, I highlighted how
certain governments are unnecessarily restricting digital
commerce and seeking to undermine American technological
innovation. Restrictions on cross-border data flows via forced
localization measures, new complex and burdensome regulatory
regimes, problemsome customs approaches to e-commerce, and
investment measures that force tech transfer are some of the
most common digital challenges that American companies face in
foreign markets.
Advancing American interest in the global digital economy
needs to be a top international priority, and we need a whole-
of-government approach to counteract trade and regulatory
barriers to digital goods and services.
This starts by recognizing the importance of services.
Without question, American manufacturing is a big part of the
digital economy, whether simply sold through e-commerce
channels or part of the growing number of products that make up
the Internet of Things. However, we must not overlook our
dominant position in services. And the internet is making
services more tradeable every day.
The United States is the world's largest exporter of
services, and we enjoy a trade surplus in services of nearly
$250 billion. Moreover, services sales by foreign affiliates of
U.S. multinational corporations tops $1.4 trillion.
Despite these big numbers, the potential for services
industries to engage in international trade is almost untapped.
One in four U.S. factories export. But just 1 in every 20
providers of business services export. This means only 3
percent of U.S. services output is being exported. Therefore,
our support for digital trade starts with increased support for
our service industries.
Now, let me turn to the importance of the State Department
and the Department of Commerce.
Foreign embassies are the first line of defense against
impediments to digital trade and are important messengers for a
liberalized approach to digital economy. The Bureau of Economic
and Business Affairs at State plays a central role in
coordinating U.S. engagement on ICT and cyber policy matters.
Likewise, the Department of Commerce plays a critical role
in advancing U.S. digital exports and advocating for the
adoption of U.S.-friendly digital regulatory frameworks. It
also has a core responsibility to safeguard the voluntary
private sector approach to standards that underpins many ICT
products.
Since its inception in 2016, working with the State
Department, the Commerce Department has operated a valuable
Digital Attache Program that embeds U.S. digital policy experts
in key U.S. Embassies. Expanding this program, ensuring
adequate resources, and giving them a clear mandate to focus on
digital trade is critical to ensuring American leadership in
the digital economy.
Further, State and Commerce should lead a whole-of-
government effort to support international privacy and
cybersecurity frameworks that facilitate the seamless movement
of data across borders. We applaud the Administration for
efforts last year to ensure the EU-US Privacy Shield
successfully made it through its first annual review. And we
look forward to supporting this review this year post Europe's
implementation of GDPR.
However, Privacy Shield is just one approach. The United
States has importantly also advanced, within APEC, the Cross
Border Privacy Rules to promote the movement of data between
borders and bridge national privacy regimes. The United States
should do more to encourage APEC governments to join. Further,
it is important to develop similar mechanisms within other
regions of the world, including Latin America.
While differences between privacy regimes can be bridged
increasingly, cybersecurity regulatory frameworks are being
developed that also threaten the movement of data.
The United States has created the NIST Framework, an
innovation-friendly framework to manage cyber risks. However,
approaches developed in foreign jurisdictions often look much
different. The United States needs to be more active in both
shaping and aligning these emerging regulations but also
developing new agreements to address cross-border cybersecurity
requirements.
Turning to trade agreements, the Chamber sees the need to
seek commitments from our trading partners to support digital
trade in goods and services and foster cross-border movement of
data.
We welcome USTR's efforts to modernize NAFTA to include
digital trade provisions. We also strongly support the United
States playing a leading role within the WTO to develop e-
commerce rules that ensure an open and predictable marketplace
for American businesses.
We would also encourage the Administration to consider
relaunching negotiations around the Trade in Services
Agreement, otherwise known as TiSA. TiSA has the potential to
be more than just a services agreement as it could secure data
flow commitments to the benefit of all sectors.
Finally, while USTR, Commerce, and State play focal roles
in developing and advocating the U.S. digital strategy, U.S.
regulators are very much needed for a whole-of-government
approach to be effective.
The Federal Trade Commission has been active with the
Department of Commerce to advance an understanding of U.S.
privacy protections in shaping foreign privacy laws and in
being the enforcement behind data flow agreements like Privacy
Shield. But other U.S. regulators are increasingly being called
upon. U.S. financial regulators need to be there to ensure
regulatory frameworks abroad don't limit U.S. opportunities for
fintech leadership.
U.S. auto and aviation regulators also need to be there to
encourage that regulatory designs abroad will not affect
American competitiveness on things like autonomous vehicles and
drones.
Further, regulators in foreign markets are beginning to
contemplate policy questions about artificial intelligence,
machine-based decisionmaking, access to algorithms, and big
data, as well as a host of other issues. U.S. regulators need
to be at the ready to positively shape these discussions.
In whole--or in short, a whole-of-government approach
requires the entire U.S. Government to be vigilant,
coordinated, better prepared to actively shape foreign
regulatory environments that will deeply impact Americans'
ability to compete abroad.
With that, I thank you for the opportunity to testify and
look forward to your questions.
[The prepared statement of Mr. Heather appears in the
Submissions for the Record on page 31.]
Chairman Paulsen. Thank you.
And, Mr. Radia, you are now recognized for 5 minutes.
STATEMENT OF RYAN RADIA, RESEARCH FELLOW AND REGULATORY
COUNSEL, COMPETITIVE ENTERPRISE INSTITUTE, WASHINGTON, DC
Mr. Radia. Thank you, Chairman Paulsen, Representative
Beyer, members of the Committee. We are at a critical juncture
for international trade. And at this time, the United States
must maintain its historic role as a global leader and promote
free trade in open markets.
I will focus specifically on the information economy. The
U.S. technology sector is not just important domestically, but
it exports $300 billion annually in products and services,
supporting 800,000 American jobs.
Tariffs and nontariff barriers to trade do risk trade in
the digital marketplace. I will focus on another set of
policies, however, that threaten digital trade; governmental
regulations regarding privacy copyright and antitrust.
Particularly important is the European Union. Their member
states collectively represent America's single largest trading
partner in goods and services. And there are 430 million
Europeans who use the internet, meaning that Facebook has more
European users than American users. Google is more popular as a
search engine in Europe than it is the United States. The same
is true for tech companies of all sizes. So, although EU users
are a core aspect of the user bases of United States technology
companies, the EU, European Union's approach to regulation
differs dramatically from that in the United States,
underscoring the need for greater U.S. leadership in this
space.
In particular, the European Union, as Mr. Heather
mentioned, recently implemented the GDPR, the General Data
Protection Regulation. It went into force on May 25, 2018, and
in just over a month, it has already had major effects on how
digital trade occurs between the United States and the European
Union. Those effects, I believe, will only grow.
The GDPR applies to any company that processes or controls
data on EU data subjects, no matter where the company is
domiciled and, in some cases, regardless of the size of that
company. The GDPR does not distinguish between offline and
online data collection, but the brunt of its impact will be
felt, and is being felt, by technology companies and financial
companies.
So far, some of the most notable examples of the GDPR
include U.S. companies stopping providing service to EU users
for fear of regulatory fines, which in the EU could amount to
up to 4 percent of a firm's global revenue. Tronc, formally
Tribune Online, has stopped serving EU users with websites like
the Chicago Tribune, the Los Angeles Times. A&E Networks
followed suit. An internet analytics firm called Klout that
helps social media users and thinkfluencers gauge their reach
shut down its operations entirely on May 25th, the day the GDPR
went into force. Many other examples, not just in the United
States but around the world, have occurred.
The result of this is not just harmful to the EU users who
will lose out on American content and American companies who
will lose out on revenue from EU users. Even those who comply
with the regulation will have a more difficult time monetizing
their content. But also it hurts U.S. consumers because in this
industry, where fixed costs are high and the marginal cost of
delivering content to consumers is low, any reduction in
revenue from a major user base means a reduction in the quality
of overall service.
So the cost of compliance with the GDPR will likely be
significant. According to estimates from Ernst & Young and the
International Association of Privacy Professionals, the average
Fortune 500 spent $16 million to comply with the GDPR in the 2
years before it went into effect. It seems that the cost of
complying with this regulation will only increase.
Moreover, the GDPR may entrench existing internet companies
at the expense of startups because large established companies
that could not have complied with the GDPR when they were in a
dorm room or a garage are now better positioned to do so.
The role of U.S. leadership in this space is important.
Congress has been considering a number of bills to address
privacy. Although I won't discuss the specifics of those bills,
it is important that Congress and the Administration take a
lead in advocating an approach to user privacy and data
protection that recognizes the need to reduce compliance costs,
that respects the role of notice and choice, and does not put
onerous mandates on businesses.
In brief, a couple of other areas in which EU policies are
harming or potentially risking harming U.S. business include
the European digital single market's treatment of copyrighted
materials. In general, the European Union's digital single
market is a laudable effort to harmonize regulations and taxes
across EU member states, but it has also created and will
continue to create barriers and restrictions on practices, such
as geo-blocking and different treatment of content by content
owners in the movie industry, streaming platforms, and the
like, ultimately hurting consumers.
Similarly, the European Union's approach to competition
policy has targeted U.S. companies. Record-breaking fines
against companies such as Intel, Google, and Microsoft, several
of which are still under appeal in the EU courts, have
undermined American companies and represent a seeming effort by
the EU to engage in protectionism.
Thank you for the opportunity to testify, and I look
forward to your questions.
[The prepared statement of Mr. Radia appears in the
Submissions for the Record on page 38.]
Chairman Paulsen. Thank you, Mr. Radia.
And Ms. Fefer, you are recognized for 5 minutes.
STATEMENT OF RACHEL FEFER, ANALYST, INTERNATIONAL TRADE AND
FINANCE SECTION, CONGRESSIONAL RESEARCH SERVICE, WASHINGTON, DC
Ms. Fefer. Chairman Paulsen, members of the Committee,
thank you for the opportunity to testify today. My testimony
focuses on the increase in digital trade barriers around the
globe and how other countries are shaping new international
standards and rules that may impact the market access for U.S.
firms.
The internet-driven digital revolution is causing
fundamental changes to the U.S. and global economy. According
to the U.S. International Trade Commission, in 2016, the
digital economy supported 5.9 million U.S. jobs. The United
States is a leader in international digital trade.
U.S. firms Google, Microsoft, Amazon, and IBM are top
global cloud service providers. At the same time, challenges
exist that may impede the growth of digital trade.
Multiple U.S. public and private sector reports identify a
breadth of digital trade barriers, including high tariffs,
localization requirements, such as cross-border data flow
limitations, intellectual property rights infringement and
forced technology transfer.
Congress has taken an interest in addressing trade
barriers. In 2015, Congress set negotiating objectives for
trade agreements to include provisions such as World Trade
Organization's nondiscrimination provisions to digital trade,
and to prohibit forced localization requirements and data flow
restrictions.
The proposed Trans-Pacific Partnership included these
provisions and others, and multiple opportunities exist to
pursue these objectives in ongoing negotiations as highlighted
in my written submission.
No single set of international rules or disciplines governs
digital trade. This lack of globally accepted rules and
standards means that individual economies around the world are
creating their own, experimenting with different approaches.
I will focus on how China and the European Union, or EU,
are each shaping global norms. China has a fundamentally
distinct approach to the internet. With over 700 million
internet users and the world's largest market for e-commerce,
China is attractive for many U.S. businesses. However, China's
various government policies and actions have limited the
ability of U.S. firms to compete there. For example, China's
policy of internet sovereignty censors or limits what websites
or data individuals can access. China's cybersecurity law
restricts cross-border data flows and requires safety reviews
of critical network equipment. Many U.S. firms are concerned
that this law may lock them out of the market or force them to
transfer proprietary technology or information to Chinese
regulators or partners.
The EU poses a different type of challenge for U.S. firms.
Its legal approach to information privacy and protection of
personal data has led to policies that vary from those of the
United States. As mentioned, the EU's General Data Protection
Regulation, or GDPR, took effect last month. It establishes a
single set of rules for personal data protection throughout the
EU and grants individuals new rights to control their data.
U.S. firms have voiced several concerns about the GDPR,
including its complexity, how it is implemented and enforced,
and the scale of potential fines. Some U.S. firms exited the EU
market rather than comply with the regulation. Because no
multilateral rule exists on cross-border data flows or data
privacies, some experts state that the GDPR may effectively set
new global data privacy standards.
Countries such as Brazil, Japan, and South Korea consulted
with the EU for their own data protection laws. Some U.S. firms
determined it is easier to comply with EU regulations globally
rather than implement changes only for the EU market. U.S.
privacy advocates and others support these decisions.
Some analysts view China and the EU as using their large
market size to impose their views and set global rules. They
contend that the United States should proactively counter their
efforts. Others suggest that the United States should focus on
developing new digital trade rules and disciplines through
trade negotiations.
Mr. Chairman, thank you again for the opportunity to
testify, and I look forward to your questions.
[The prepared statement of Ms. Fefer appears in the
Submissions for the Record on page 47.]
Chairman Paulsen. Thank you.
And now we will hear from Ambassador Holleyman. You are
recognized for 5 minutes.
STATEMENT OF AMBASSADOR ROBERT HOLLEYMAN, FORMER DEPUTY U.S.
TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE
REPRESENTATIVE (USTR), WASHINGTON, DC
Ambassador Holleyman. Thank you, Chairman Paulsen, Mr.
Beyer, members of the Committee. I appreciate the opportunity
to testify before you today. I have three points I would like
to make.
First is that U.S. leadership in digital trade isn't about
technology. And it is not just about the technology industry.
Digital trade is the tool by which every business competes.
Whether you are a home enterprise or managing a supply chain or
you are accessing a market, it is fundamental. And I share the
view of your Vice Chairman, Senator Lee, from your earlier
hearing where he said that we are swiftly approaching a point
where the word ``digital'' will be an unnecessary adjective for
trade. Digital underpins every aspect of our economy. And I
think it is critical for us to recognize that part of the
digital transformation because it also talks about why this
issue in your hearing is imperative for U.S. industry and long-
term leadership.
I just returned from Hong Kong and Beijing. And I could
tell you the fast pace at which foreign competitors to U.S.
technology leaders and U.S. companies who rely on technology
are gaining ground quickly. And as one foreign government
official said to me, he said, ``I am not sure people in the
U.S. fully realize how much in Asia that non-U.S. technology
providers and platforms are gaining an edge over, in many case,
U.S. firms.'' We are still the leaders but the competitors are
catching up very quickly.
We have had discussions about the rules that foreign
governments are setting up that impact this, and I will be
happy to answer questions. I think our fellow panelists have
discussed this well. One of the things that we did at USTR
under the leadership of Ambassador Mike Froman, was create a
Digital Trade Working Group to try to bring the entire USTR
approach on focusing on this--not just the tech people, not
just the people from one region, but we wanted essentially a
SWAT team so that if we saw a digital trade barrier being
erected, we could move quickly to try to address that.
And one of the key factors we did was asked the
International Trade Commission to undertake a three-part study
that looked at the impact of digital trade barriers. It has
already been referenced. The first study came out last August.
It was intended to really look at the scope of this. The next
two studies are to look at B2B digital trade; the next, B2C,
business consumer digital trade. And they are intended to be
providing our negotiators and Congress with information about
which aspects of this are the most impacted by regulations,
which are sectors that are important now but long-term will be
part of the underpinning of American competitiveness, and allow
USTR and this Congress to help prioritize in fighting digital
trade barriers.
My second point is that we have to continue to lead. And
this was a practice, you know, we focused on--broad bipartisan
support. I would say that not only is the Administration's
current approach on trade causing uncertainty within the
business community, but it is also, it might be crowding out
the attention that should also be focused on digital trade.
We need our allies working with us to break down these
barriers. We need to flex our muscle to show in the trade
landscape that we have a better approach to digital trade.
There are several models I am happy to talk about. The broadest
model is now what we are not only trying to do at NAFTA, but
what, you know, the 10 trading partners are trying to do in the
comprehensive and progressive Trans-Pacific Partnership, which
is the model.
Finally, I will talk about a big opportunity, which is
privacy. We have heard a lot, and I agree with the statements
about how the European Union with their comprehensive approach
to privacy through the GDPR, which went into place last month,
has really begun to set the global framework around the
approach to privacy.
But there is an alternative, and it is actually an
alternative that America helped endorse, which is the Asia-
Pacific Economic Cooperation forum Cross Border Privacy Rules.
That is an approach that is the U.S. and 20 other economies of
how you would transfer data around the Asia-Pacific region. The
U.S. has supported this. It is important for us, for this
committee, and others to do everything possible for the U.S. to
encourage our trading partners in APEC to stand up and put in
place those Cross Border Privacy Rules that have an Asia-
Pacific and an America supported framework for privacy as a
counterpoint to what the EU is doing.
With that, I am happy to answer any questions you have, but
we should not take a back seat to any country in our leadership
on these issues. And I appreciate the important role of this
Committee in shining a light on digital trade. Thank you.
[The prepared statement of Ambassador Holleyman appears in
the Submissions for the Record on page 62.]
Chairman Paulsen. Thank you, Ambassador Holleyman.
I will ask that members do keep their questions to 5
minutes, and I will begin. I will start with you, Mr. Heather.
The EU's General Data Protection law, or GDPR, which
several of you actually referenced, and the notices we have
been receiving about it here in the United States are a wake-up
call that alerts us to the fact that foreign government actions
in their own domestic markets can have a very direct
repercussion for us as well.
I have heard from folks in Minnesota, for instance, that
have expressed confusion about the complexity, and they are
just questioning about where do they go next.
Can you just frame a little bit more about, you know, for
the committee here, what are the developments that are taking
place in other countries or trading blocs around the world with
respect to the governance of digital services and digital
technology? Or maybe can you sketch out a little bit about--you
talked a little bit about the program with the Department of
State and the Department of Commerce, but for us here in the
United States, our involvement in this process, how can we be
making sure that our interest for our citizens and our
businesses is in fact protected?
Mr. Heather. So I think there is a lot there, Mr. Chairman,
to respond to.
I think, first of all, what I would say is this: The
primary concern around privacy regulations is the ability to
move data. The secondary concern around privacy frameworks that
we see around the world is the ability to offer the products
and services that you have in that market.
So, whenever you are looking at a privacy framework,
whether it be in the EU or now in about 120 different
jurisdictions around the world that have updated their privacy
laws or are in the process of updating their privacy laws, when
we evaluate those. We evaluate them on that two-prong test,
will this regime limit the ability to move data outside of the
country? And, two, how harmful will it be for us to offer the
products and services that we would like to offer in that
market?
As I think has been discussed here at length, Europe is way
ahead of the game in terms of influencing the world around
GDPR. Many of the governments around the world have looked to
Europe as a model and have taken most of it, not all of it but
most of it. Where I think an effort should be made today is on
cybersecurity. There is yet to be the race for who defines how
cybersecurity laws are written around the world.
Vietnam just put a new law on the books recently that
forced localization of data, and oftentimes, these cyber laws
are a second bite at really privacy questions.
Here, I think the U.S. has a helpful message in the NIST
framework that could be advanced in these foreign markets with
discussions with legislators and regulators in those economies.
And I think an effort to do more on the cyber front would be
imperative because I think that is the next battleground for
data flows and questions of forced localization.
Chairman Paulsen. Ambassador Holleyman, let me just follow
up because I think Mr. Heather mentioned TiSA as an opportunity
in this space. And given your experience at USTR, maybe can you
describe a little bit for the committee how TiSA could be used
to advance some of these concepts?
My understanding is that the work that has been done on
NAFTA, which obviously has not been completely modernized, has
been progressively very well in the area of digital space uses,
the model out of TPP that you are involved in, but can you just
elaborate maybe for us?
Ambassador Holleyman. Certainly, Mr. Chairman. And the
Trade in Services Agreement would be a big opportunity. We were
working to negotiate that in our Administration. It is an
opportunity to sort of bring new industries together around new
frameworks.
Candidly, the challenge around that is also going to be the
EU. I mean, their views on data movement and protection are
very different from the U.S. I tend to think that we should
look at a potential plurilateral agreement around data and
around the digital economy and that we should actually align
with the TPP partners around the set of data issues. Because
their view on data, as they have now adopted, as we are
promoting in NAFTA, is essentially the same.
And so I would actually think that would be a faster way
for us to set rules on data than the TiSA, which I also think
is hugely important for a broader set of industries.
Chairman Paulsen. And, Mr. Radia, would you concur on some
of those comments. You mentioned we should not mimic what the
EU is doing, for instance, in GDPR.
Mr. Radia. I would concur with those comments that we
should stake out a role that emphasizes that customizable
agreements between users and companies are important with
respect to data localization. Ideally, when companies make
decisions about where to store data about particular users,
that decision should be made based on efficiency, based on how
the technology works, on optimizing the user experience. To the
extent that harmonization can occur, that multilateral
agreements can occur that ensure that companies don't have an
incentive to store data in one place about a user rather than
another because they can be subject to a different set of laws,
that would help advance innovation and competitiveness.
Chairman Paulsen. Thank you.
Mr. Beyer, you are recognized for 5 minutes.
Representative Beyer. Thank you, Mr. Chairman, very much.
And thank you all very much for your testimonies.
Mr. Heather, Tom Donohue, your boss, president of the U.S.
Chamber of Commerce, said this spring, quote, the tariffs of
$30 billion a year would wipe out over a third of the savings
American families received from the doubling of the standard
deduction in the tax reform bill.
I know the chamber is very clear in its opposition to
tariffs, but last Friday, the Trump Administration detailed $50
billion in tariffs against Chinese imports.
What is going to be the impact on American consumers of
this trade war? And aren't higher prices just a different way
of essentially raising taxes on them?
Mr. Heather. So I think the Chamber's concerns with the
approach to the Trump Administration is taking, both with
regard to tariffs, as well as with regard to the approach in
renegotiating NAFTA, is well documented in terms of the
chamber's objections to the way this Administration is headed.
And, yes, we do believe tariffs are taxes on American
consumers.
Representative Beyer. Thank you very much.
Ambassador Holleyman, first of all, thank you very much for
your service in the USTR.
The Administration is now fighting trade battles with
Canada, with Mexico, with Germany, with the WTO, this cozying
up to Russia and North Korea. Does the President's seemingly
belligerent attitude towards our allies, our trusted trading
partners make it more difficult to reach agreement on digital
trade issues?
Ambassador Holleyman. Well, we lose our focus through that.
I mean, it is hard to prioritize those issues when you are
attacking your allies, and that is why I believe we really have
to find an approach on digital trade where we find some group.
And, quite frankly, that is not only our NAFTA partners, but
that is our former TPP partners. And we need to support them as
allies in this effort and get focused on those issues rather
than, in many cases, treating them as enemies, which is what we
are doing, certainly, in the proposed auto taxes and the steel
and aluminum taxes.
Representative Beyer. Thank you very much.
Mr. Heather, the administration in China, I know you are
very aware, they are going tit for tat on tariffs on everything
from agricultural products, steel, electronic components,
semiconductors, lithium batteries, given the potential for
tariffs on electronic components that are important to building
up the digital infrastructure, can you talk about the potential
consequences of the existing tariff battle on our ability to
move forward on digital trade?
Mr. Heather. I am not a tariff expert. I spend most of my
life thinking about nontariff barriers in the regulatory
context. But as I said before, tariffs are taxes on consumers,
and so the cost for consumers to access digital technologies
will inevitably go up.
Representative Beyer. I assume you are distraught, too,
about the potential for 25 percent tariffs on all imported cars
or banning all German luxury cars.
Mr. Heather. I think our views on 232 are also well
documented. We were not supportive of the approach on steel and
aluminum. And our concerns associated with where they may be
headed with 232 on autos is also on the record.
Representative Beyer. Ambassador Holleyman, restrictions on
the cross-border flow of data, the so-called data localization
requirements, are immensely costly for U.S. businesses across a
wide range of sectors. And countries seem to be imposing these
requirements in a supposed effort to protect privacy--you don't
have to worry about the NSA--improve cybersecurity, bolster
economic growth, but it seems like the data localization
effects have exactly the opposite effect.
How can we most effectively, the U.S. Government, U.S.
businesses, push back against these?
Ambassador Holleyman. Well, two things: Certainly, the
effort, while I don't agree with all the tactics and tools, the
effort to focus on the problems in China is critical. When I
was there for a cyberspace trilateral with China, India, and
the U.S. think tanks 2 weeks ago, the Chinese very proudly
talked about the concept of data sovereignty and why they
needed to restrict the information that was coming in and out
of the internet, not only for their citizens but for their
businesses.
And we have to push back against those. We do have a tool;
we have a group of people, group of countries who share that
view, led by Japan, Canada, Mexico. We need to align with them
because, quite frankly, the Chinese approach is gaining support
from other economies who look at that. We need a counterpoint.
Secondly, we have to promote things like the APEC Cross
Border Privacy Rules as a viable alternative, which it is, to
the GDPR. The U.S. is behind that. Japan is behind it. But we
need to get more countries, economies behind it and really
drive it because that is part of the answer to ensuring that
there is an American-led approach to privacy and cross-border
data transfers.
Representative Beyer. Great. Thank you.
Just very quickly. WTO for years has agreed no customs
duties on electronic transmission, and now Indonesia seems to
be going in a different way. Is there anything specifically we
can do to try to change Indonesia from becoming the new role
model?
Ambassador Holleyman. Well, one, I think we need to have a
sort of plurilateral tool. I think we have to complete NAFTA
and show that we have got the cross-border rules there. And,
three, I think we have to use our bilateral tools with
Indonesia to push back on this and tell them what a break that
would be, not only with their neighbors but with the U.S.
Representative Beyer. Thank you very much, Mr. Chairman.
Chairman Paulsen. Thank you.
Representative Schweikert, you are recognized for 5
minutes.
Representative Schweikert. Thank you, Mr. Chairman.
Look, this is fascinating for a lot of us. And one of the
interesting things hearing is you are starting to here now both
parties being free trade, which is sort of exciting considering
our past history in those subjects.
I want to also walk through, because my fear is in this
discussion it is much more complex than we are actually
touching on. You know, whether it is the Europeans' attempt
to--you know, the right to be forgotten, you know, the right to
remove data, to how I move a product in a supply chain back and
forth, to digital commerce where, what is money? Can I move a
cryptocurrency to do a purchase? Can I actually have PayPal,
you know, be my mechanisms? Or do I have to touch a SWIFT
system that actually has certain bilateral agreements already
attached to it, to now to one of my personal fixations is data
on supply chains.
And is it Ms. Fefer? Did I get close in the proper
pronunciation? You have done some writing about this not too
long ago, if I remember correctly.
Am I going the right approach, that part of our issue with
Europe is the individual privacy issues, but our issue with
certain areas in Asia, it is the control of the money flow and
the product supply chain?
Ms. Fefer. Thank you, sir. I think our issues are not so
crystal clear, that we have a variety of issues with Europe. I
think the most prominent one at the moment I believe is privacy
with GDPR. With Asia, a lot of the issues are similar, and
revolve around the cross-border data flows, as has been brought
up many times, as companies use more and more cross-border data
flows for supply chain tracking.
For example, blockchains.
Representative Schweikert. Yeah. Look, as you know, I have
a personal fixation on distributive ledger. You know, and
within that, we have actually had presentations on you could
manufacture a product here, you could actually, you know, use
RFID or types of encoded containers, padlocks, to make it much
more efficient to move through Customs.
We could, you know, the documentation, so it hits Customs;
you already had the manifest that completely loads. But that is
operating at one level, but now I have a problem if there is
privacy on my ability to have made the order, to move the
money, to--was the details in the manufacturing order, was
there proprietary information there that doesn't get stolen or
handed to the government?
Has anyone out there in all of your experience sort of
talked about or written about sort of this unified theory of
how we deal with Europeans' privacy concerns, parts of Asia's
ability to remove money, our concerns about moving IP? I mean,
if we came to you and said, ``Where do we go to sort of find
this unified theory,'' who has written on it? And sort of a
universal question for everyone on the panel.
Ms. Fefer. As to who has written on it, I would probably
need to go back and look a little further, but I believe that a
lot of the various organizations that focus on privacy issues
or on data flows or that represent the industry have written on
this, but I can get back to you on that.
Representative Schweikert. Ambassador Holleyman.
Ambassador Holleyman. I appreciate your focus through the
Blockchain Caucus, and I think these issues are critical. I
would say I think there are two things: One is the APEC Cross
Border Privacy Rules are intended to have a referential that
would essentially allow them to be interoperable with EU GDPR.
And----
Representative Schweikert. So you believe that one could
actually be sort of an international standard, WTO, or however
you----
Ambassador Holleyman. It was intended that the two of those
should be interoperable and that businesses should be able to
work across because, quite frankly, we are not going to get the
EU to stand down on their privacy----
Representative Schweikert. That would be more of a privacy
standard for--down to the individual level.
Ambassador Holleyman. Well, around personal information.
Representative Schweikert. Yes.
Ambassador Holleyman. Personally identifiable information,
which is replete in what large businesses have. So I think that
is an important part of that.
Secondly, you know, the role of blockchain technologies,
which I think is huge in terms of not only supply chain
efficiency but eliminating corruption in government systems,
reducing leakage, and right now, the rules, because they are so
diffuse, don't fully ensure that a country like China couldn't
simply block new technologies and require that a domestic----
Representative Schweikert. And I have only--Ryan? Sorry. I
really liked parts of your testimony, and you hit some really
brilliant things, but is there any platform because, you know,
we were all so excited a few years ago, the ability to use
internet and public information to deal with everything from
baksheesh--I mean, corruption in societies. And I know certain
local governments have pushed back on that at the same time you
and I are trying to build sort of the eBay of the world. Where
do I go to try to find a way to continue to push open commerce?
Mr. Radia. I think that is being explored by a lot of
scholars, including the use of the distributable ledger. I
would be happy to follow up on projects that are underway in
that regard.
Representative Schweikert. If we get a second round, I
would love to talk to you about, is a worldwide sort of node
network one of the solutions?
Thank you, Mr. Chairman.
Chairman Paulsen. Thank you.
And, Dr. Adams, you are recognized for 5 minutes.
Representative Adams. Thank you, Mr. Chairman.
And thank you all very much for your testimony.
I agree with the idea that the U.S. must lead on the issue
of digital trade as it provides the foundation upon which the
world's economy of the 21st century will be built. But I want
to emphasize that we focus on not repeating the same mistakes
we made in past trade agreements like NAFTA, which really
impacted my State, which eroded the wages of middle class
workers and small business owners. We need to ensure that the
benefits that flow from our future trade agreements are shared
equally among all market participants.
Ambassador Holleyman, you mentioned in your testimony the
trade barriers that foreign nations are enacting in terms of
new regulatory regimes and rules in the digital space.
So my question is, how can Congress break through these
barriers in a way that ensures U.S. business and workers are
able to play on a level playing field, thus ensuring that
benefits flow to all?
Ambassador Holleyman. Thank you, Dr. Adams. I appreciate
your question.
There are two things I would suggest. One is by using your
power in Congress to make sure that these issues are top of
mind and top of attention for the U.S. Government. It is not
only by having hearings like this, and having the good work of
CRS; I also highly commend these International Trade Commission
reports. In fact, there are two that will be coming out that
are actually going to be confidential.
Ambassador Lighthizer will determine whether any of that is
made available, but I would encourage this committee when that
is, the next two are made available, to have a classified
hearing and ask the ITC because they were really trying to dig
into this to help this committee and the negotiators understand
where to focus their efforts.
Secondly, I think we have to more broadly bring the
benefits of a global trade to our citizens, and I think that is
improving things in our local community. But I also think it is
fighting among like-minded economies and countries for
provisions like the digital 200 that were in the TPP and that
are similar in NAFTA, allying with our partners and moving
ahead with those. Because until we get new rules in place, then
we don't have an effective counterbalance against the economies
that want to close.
So simply having them on paper isn't good enough. We have
to get them in place and get other countries to make the
commitments. Thank you, Dr. Adams.
Representative Adams. To follow up on that, what impact
would prioritization of rural broadband have on closing this
divide?
Ambassador Holleyman. Well, rural broadband is a key part
of it to, one, make sure that every citizen in the U.S. economy
can build not only their domestic and national and their local
engagement, but for those individual entrepreneurs and creators
who want to have markets outside of their local community,
outside of this country, these are the rules that we need to do
it.
That is why President Obama, Ambassador Forman, we believe
so strongly in these Digital 2 Dozen provisions because we
believe that added to better broadband in the United States, it
would create a more equal playing field for all types of
American citizens in the fastest growing global markets.
Representative Adams. Thank you. I am concerned by the
FCC's repeal of net neutrality allowing internet providers to
charge more for certain content or give preferential treatment
to certain websites.
So what kind of impact could the FCC's action have on
ensuring free digital trade?
Ambassador Holleyman. Well, it is a model that will get
picked up by other countries that could increase the
disparities in what it costs for people to use the internet.
Generally, in the trade arena, we were trying to find ways
to break down barriers. And we believe, again, it is not a
technology issue; it is an issue for all economy. And we
believe that citizens at every level needed to be able to
access. So it is what we are driving in Digital 2 Dozen.
Representative Adams. Ms. Fefer, you stated that China has
been persistent in stealing intellectual property.
What are better alternatives for the U.S. to pursue to
combat this practice in the digital trade regime?
Ms. Fefer. In order to deal with China, we have various
bilateral communication forums that we use to engage with them.
It is also an opportunity for the United States to engage with
its allies, such as the EU and Japan and others, who have
concerns with China's internet sovereignty regime in terms of
their cybersecurity law and others, to pressure China to make
some changes to it.
I know, Congress is working currently on--the CFIUS reform
is working its way through Congress. There are multiple
opportunities for engagement with China to explain how their
rules can also have a negative impact on domestic Chinese
companies in addition to the U.S.----
Representative Adams. Thank you very much. I am out of
time.
Mr. Chairman, I yield back.
Chairman Paulsen. Thank you, Dr. Adams.
Representative Handel, you are recognized for 5 minutes.
Representative Handel. Thank you, Mr. Chairman.
And thank you to each of you for being here.
I wanted to stay on the topic of China and the internet
sovereignty issue. And Mr. Heather, I wondered if you had any
additional insights or comments on that topic. And the same for
Mr. Radia.
Mr. Heather. No, I would agree with what was previously
stated that, you know, China's approach to sovereignty of the
internet is one that is counter to the way in which we look at
the internet and its role, not only for digital trade but for
speech.
In terms of kind of bridging the question that was
previously asked, I would totally agree: The only way to
approach China is with our partners around the world. There is
no easy fix to our trade problems that we have with the
Chinese, but if we don't have partners in those conversations,
the job is much tougher.
Representative Handel. Got it.
Mr. Radia, anything to add?
Mr. Radia. I would agree with what Mr. Heather said and
echo that the Chinese approach to intellectual property, the
censorship of the internet, among other areas, is very
problematic, which raises a difficult question in some cases
for U.S. internet companies as to whether to engage with China
or not in terms of being located in the country and doing
business there.
I don't think there is a clear answer to that question
universally because, in some cases, engaging and abiding by
problematic censorship rules is a better approach. Although
some internet companies have decided that they would rather not
operate in the country, although users in China can sometimes
access their services by circumventing the great firewall of
China.
Representative Handel. Thank you. In the Sixth District of
Georgia that I represent, we have a fairly significant
footprint of Chinese companies based in the district. So, you
know, I just wonder ultimately with that approach it is going
to eventually come back around and be detrimental to their own
companies as well as being detrimental to the U.S.
We are live-streaming this, and it struck me as I was
listening to all of the testimony, that we might have some
viewers and individuals who are newer to this issue, like I am.
And I would be curious to understand sort of the process,
because the GDPR was a long time in the making, and sort of how
we got to this place. And what was the role of the United
States in those negotiations? And did we weigh in, and were our
concerns voiced? Were they taken into consideration?
And perhaps, Mr. Heather, you can weigh in, and Ambassador
Holleyman.
Mr. Heather. It was a long road to get where we are today.
In short, the previous legal framework was developed in 1995, I
believe, within the EU. They embarked on an effort to update
that. And somewhere along the way Edward Snowden and
revelations associated with NSA came about and put an
accelerant into the mix that really limited the ability for the
United States Government or the U.S. business community, for
that matter, to engage in a way that we might otherwise have
been more productive in steering. So there was a bit of a storm
of unseen events that occurred that really limited the ability
to have effective influence.
Representative Handel. Ambassador.
Ambassador Holleyman. I agree with everything that Mr.
Heather said. I mean, the world sort of changed very much after
the Snowden leaks in terms of other countries basically not
trusting the United States. What I think we have is two
opportunities. You know, and we did engage, certainly on the
GDPR. It was clear that something was going to happen.
I think we have two options. You know, one is to find these
ways that we can be interoperable, which again is to drive the
APEC framework. And the challenge that the U.S. has, quite
frankly, is that we don't have a uniform privacy law in the
United States. Congress has grappled with this for many years.
We have a series of laws that protect health data, other
data. And so when you stand that up, quite frankly, against a
comprehensive privacy law, it has been through multiple
administrations difficult to say, ``Adopt the U.S. approach,''
with a series of different laws. And so the more comprehensive
approach of the GDPR is the one that is gaining authority.
So I think as Congress looks ahead, it has been debated,
you may want to continue to think, is there a comprehensive
framework for the U.S.? And then make sure where we are a
player, like APEC, that those end up being truly interoperable
and bringing that up to the EU, that we need to make sure that
those are interoperable.
Representative Handel. Great. Thank you.
Mr. Chairman, I yield back.
Chairman Paulsen. Thank you.
And, Senator Klobuchar, I recognize you for 5 minutes.
Senator Klobuchar. Thank you very much, Mr. Chairman. Thank
you to all of you. This is such an important topic, digital
trade, with 95 percent of our potential customers outside of
our borders. And I have seen from small businesses in our State
that this is the way that they actually get to engage in export
that they might not have done otherwise before we had digital
trade. In our State, exports were over $20 billion in 2017, and
manufacturing accounted for $19 billion of those exports.
So I am starting with one thing that is not manufacturing,
and that is tourism. I am the co-chair of the Senate Travel and
Tourism Caucus. And we have been doing with Brand USA a lot of
advertising digitally of our country.
And, Mr. Heather, can you talk about how digital trade can
benefit the U.S. tourism industry in general?
Mr. Heather. I don't think anybody books a flight or an
adventure without using the internet these days. So, as I said
in my testimony, most of what happens in services trade is now
available because of the internet. And we have barely tapped
the ability to export our services.
In my opening testimony, I said that only 3 percent of all
our services output is exported. So the more that we can
facilitate the movement of data across borders, the more that
we can have an open internet system where tourists from outside
the United States can see what destinations they can visit in
the great State of Minnesota, the better chance there is for
there to be tourism in your great State.
Senator Klobuchar. Exactly. And the international tourists
spend an average of $4,400 every time they come to our country.
So it is more than just the airline business. It is more than
the hotel business. It is retail and everything with it.
Reliable data, Senator Capito and I just passed our bill
out of the Commerce Committee this morning on getting better
measurements for economic impact of broadband along with
Senator Sullivan.
And what we are seeing now is that if we don't have that
broadband deployed in rural areas, we are not even going to be
able to use the equipment that we have or that other parts of
the world are using that have better internet in places like
Canada or even Iceland.
So could you talk about the importance of that with our
modern day machinery and technology?
Mr. Heather. Well, certainly, the ability for any American
to access the modern economy requires access to the internet.
And innovation doesn't only happen in Silicon Valley. And so
the ability to bring real broadband across America so that
Americans, wherever they are, have the ability to be
entrepreneurs and start up a business, and not only reach other
consumers across the U.S., but to those 95 percent of the
consumers that exist outside the United States, it is an
opportunity to export.
Senator Klobuchar. Thank you.
Ambassador, over the last few years, online companies, as
you know, have had some major issues with the disclosure of
personal information. And while we know that there is this
great advantage of using the internet to improve our economy,
and we have some of the world's best companies that have
developed these products, coming with it are some issues.
And one of them is this data being disclosed. And Senator
Kennedy and I have introduced a bill that is basically a
consumer rights bill to improve consumers' protections and
online data. As you know, other countries around the world have
done this to some success, to some not. But this idea that we
have no rules in place at all while we see this increase in
digital trade and digital business I think is a real problem.
And even Mark Zuckerberg at our hearing told me he thought
publicly that we were probably going to have to have some
legislation come through Congress.
One of the provisions of our bill he agreed to is a 72-hour
limit on notice when a consumer finds out that their data has
been breached.
Could you talk about the importance of allowing consumers
as part of this move to greater digital trade to allow them to
have greater control of their personal data?
Ambassador Holleyman. Senator Klobuchar, I want to thank
you. Thank you for the question.
I think the focus on what consumers need and ensuring that
there is the right privacy protection and the right tools to
address when there are breaches is critical.
I mean, trust in the internet is critical. What we do
globally around our trade frameworks like the Digital 2 Dozen,
they require countries to have privacy frameworks in place.
They don't say exactly what they need to be. It is probably not
one size fits all. But, quite frankly, the U.S. should lead on
this.
Senator Klobuchar. Well, that has not been happening.
And when we talk on digital trade or transfers of data, we
also need to be simultaneously saying, ``and we want to do that
in a way that protects personal privacy.''
So it is not one or the other, transfer data or protect
privacy. It should be both. And we should be bold in how we
talk about both. So thank you for your question.
Senator Klobuchar. All right. Thank you very much.
Thank you, Mr. Chairman.
Chairman Paulsen. Representative LaHood, you are recognized
for 5 minutes.
Representative LaHood. Thank you, Mr. Chairman.
I want to welcome our witnesses here today. Nice to have a
fellow Illinoisan on our panel.
Mr. Heather, welcome.
I want to focus first on China and cloud services and
access. And as I look at the barriers and hurdles and
restrictions that the Chinese have put in place with cloud in
particular and whether it is Amazon or Google or Facebook,
trying to wrap my arms around how we remedy this situation.
If you look at Alibaba, and you look at their access in the
United States, and when you hear the stories of companies that
go to China and try to engage in cloud and really the
extortion--or fill in your adjective on what you want to use--
in terms of what they put in place in terms of that. You know,
it is trying to figure out, what is the remedy for that? What
should we be doing? You know, trying to work within the
framework of international norms on this, but it is extremely
frustrating to have that, again, those barriers in place there.
Ambassador, if you could comment on that?
Ambassador Holleyman. Mr. LaHood, you state the problem
precisely. And the consequences of what China is doing can't be
overstated. I mean, essentially, they are taking away the
ability to access their market; they are limiting the amount of
access by foreign players. Everything is moving to the cloud,
as the CRS report and ITC report note. And if we don't have
full access to the market, that will be a long-term hindrance
to our companies working globally.
So we were trying to negotiate in the Obama Administration
a bilateral investment treaty with China. One of the things we
made absolutely clear was that to ever have an agreement with
the U.S., we had to have openness in areas like cloud
computing. So we need to pursue this at every course.
Secondly, we need allies in this effort. I mean, the TPP
partners agree with us on this. They don't want to see Chinese
companies hold this. And so we need to tackle it bilaterally.
But, quite frankly, we need friends.
And this is an area where there should be friends because
my concern is this: One is that China is the largest market in
the world. It will remain the largest market. If Chinese
companies, many of whom have fine products, like an Alibaba, if
they have a protected market in China and then can access the
rest of the world, U.S. companies can access the rest of the
world but not China, then that is not only distortive to the
economy, but in areas like data analytics, AI, where you need
information, for non-Chinese companies to essentially have none
of that information is not only economically harmful, but it
decreases their efficiency long term. And that is why the
barrier is bad today and is getting worse over time.
Representative LaHood. Thank you for that. I do want to
switch to another topic here.
Just broadly on trade. And Mr. Heather, I will ask you
this. You know, I look at kind of this, what I would describe
protectionist path that this is headed down, whether you look
at TPP, whether you look at NAFTA, whether you look at steel
and aluminum. And particularly in the NAFTA negotiations, I
look at the collateral damage that will be done to digital
trade and other things by what I would call unconventional and
unorthodox positions that we have taken in NAFTA negotiations.
Look at ISTS. Look at sunset provision. Look at rules of
origin. You know, these are, I think, hurdles, barriers, that
are really, really hard to get our partners to agree upon.
Can you comment on that on whether you are optimistic with
the approach we have taken, that we are going to reach a
resolution on this?
Mr. Heather. First of all, it is good to see you. You
probably don't remember, but 21 years ago, I worked for Lolita
Didrikson, and we met in that capacity.
Representative LaHood. Yep.
Mr. Heather. I was thinner then and had more hair, but
anyway, it is good to see you.
I think you have painted the problem accurately. If we are
going to confront China, we need partners. And the activity
that this Administration and the agenda that this
Administration has pursued has kind of poked the eyes of all
the partners that we need to be aligned with us in
conversations with China.
And from that standpoint, at least in the immediate near
future, I don't have a lot of hope for having a dialogue with
China that will involve the EU, will involve Japan, will
involve Canada, will involve the collection of TPP countries
that we used to be aligned with in having a whole-of-country
approach, global approach to addressing the concerns with
China.
At some point, I suspect that will change, but at least in
the short term, the actions that this Administration have taken
have not created an environment for us to find partners.
Representative LaHood. Thank you. Thank you, Mr. Chairman.
Thank you.
Chairman Paulsen. Thank you. And I want to thank all of the
witnesses for being here.
I think you could see from the engagement on both sides of
the aisle, there is a recognition that there is potential, huge
potential, and opportunity for where the United States can go
and should go and needs to go in this space.
And so I think that your comments across the board have
reinforced that, and we have some suggestions to follow up on
now, actually, and continue to drive attention to this.
So, with that, I want to remind members that should they
wish to submit questions for the record, the hearing record
will remain open for 5 business days.
And, with that, this hearing is adjourned.
[Whereupon, at 11:12 a.m., the committee was adjourned.]
SUBMISSIONS FOR THE RECORD
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I call this hearing to order.
Every day, when Americans sit down to order goods from a website or
consume media online, we are participating in a vibrant digital
economy--an economy that takes the ideas and creations of artists,
manufacturers, and innovators and puts them within reach of our couches
and kitchens.
Digital trade means supply chain tracking, 3-D printing, or digital
platforms that lead to ecommerce, cloud computing, and social media.
You know the names of the leaders in each of these areas: Facebook,
Amazon, eBay, and so on. That's because the United States has pioneered
this digital revolution.
What many don't realize is that trade in manufactured goods is
itself a part of the digital economy. From the websites that market the
goods, to the payment processing systems that carry out the
transaction, the digital economy facilitates the movement of all kinds
of consumer products from warehouses to family homes. American
manufacturing relies on E-Commerce and digital trade.
The benefits of digital trade include domestic economic growth as
well as spreading American ideas and culture across the world. Of
course, to us, this is good. Yet, there are others who consider the
free flow of information, products, and ideas a threat to their
control.
Nearly three decades after the Berlin Wall fell, the way ideas and
goods travel from one nation to another remains a contentious issue,
both politically and legally.
In fact, because of the novelty of digitization, commercial
principles and freedoms that were carefully developed for conventional
trade and gained international consensus are at risk of being
circumvented.
With every innovation comes opportunity for economic advancement
but also opportunity for some foreign governments to grow their own
power. In today's interconnected economy, they can have wide-ranging
effects on international commerce and other national economies as well
as the free flow of information.
Digital technology does raise legitimate privacy and cybersecurity
concerns but some governments may not be sufficiently concerned with
the effects of their policies on trade and some may even be using these
concerns as an excuse for protectionist and other purposes.
Some foreign governments impose additional taxes and fees, and some
governments will only permit sales on the condition of storing data
locally or providing the source code that will inevitably be used for a
competing, state-backed product.
Some governments that otherwise enforce property and contract laws
turn a blind eye to, or even facilitate, intellectual property theft.
This is especially true when the division between the State apparatus
and the private sector is nonexistent.
Up on the screen right now is a map of the world showing the
prevalence of digital trade barriers.
The lighter colored regions like Australia, Canada, and Mexico are
perceived to have taken a light-handed approach to trade barriers.
At the other end of the spectrum are trading blocs and countries
like the EU and China that make access to their markets far more
difficult and costly.
In part, their motivation likely is to catch up to the United
States, the leader in digital technology development, and try to take
the lead themselves.
American companies have always thrived in a competitive market, but
the competition must be fair and free from foreign government
intervention on behalf of their domestic companies.
That is why global players with large economies, such as China and
the European Union, which represent large global market shares, should
see the rewards of developing their own digital economies without
discriminatory standards and testing requirements, localization
requirements, forced technology transfers, and the like.
Governments with control over market access should not use their
leverage to extract concessions from companies in competition with one
another.
In the decades after World War II, U.S. companies dealt with
smaller economies that saw the likely economic benefit of opening their
marketplace. Their citizens benefited from more choice, lower prices,
and faster economic growth.
We must be vigilant to preserve the principles that have already
led to great prosperity throughout the world in the digital trade
arena.
That means addressing, swiftly and clearly, the excessive burdens
foreign governments place on American digital products, so that we are
not unfairly disadvantaged and can compete on the merits.
That also means negotiating new agreements that protect not just
American's economic interests, but allow the free exchange of culture
and ideas throughout the world.
The world is a better place thanks to American ideas and commerce.
Keeping the global digital marketplace open means continuing the fight
for that better world.
Before I introduce our witnesses, I will now yield to
Representative Beyer for his opening remarks.
__________
Statement of Hon. Donald S. Beyer, Jr., a U.S. Representaive from
Virginia [standing in for Ranking Member Senator Martin Heinrich]
Thank you Mr. Chairman.
Since this Committee took up digital trade last fall, President
Trump's has waded into the trade issue in unpredictable and
destabilizing ways.
The President's erratic, aggressive approach is creating an
environment of economic uncertainty, is alienating our trading partners
and allies, and risks harming the global economy.
So far, the President and his trade advisors have seemed
uninterested in the significant majority of the U.S. economy that does
not consist of heavy manufacturing.
Not only has digital trade not been front and center, it seems the
Administration simply does not have a strategy for how to strengthen
U.S. leadership in digital trade, nor any interest in creating one.
Ceding ground to others, including competitors who are putting up
new barriers, hurts our economy and our workers.
This failure to lead is a missed opportunity for U.S. small
businesses, technology companies, manufacturers and farmers, and all
who benefit from the increased export opportunities made possible by
digital trade.
It also risks the United States falling behind as other countries
race to create the technologies of the future and write rules for
operating in the digital economy.
Strengthening our position in digital trade starts right here at
home, by ensuring an open internet that enables innovation to flourish.
To that end, it is critical that we restore network neutrality--
which is vital for small business owners who rely on the internet to
compete with bigger companies.
It also means expanding access.
Too many people still don't have access to a broadband connection.
Their ability to compete in an increasingly digital economy is
undermined without high-speed internet.
We need to keep our focus on creating opportunities for all
Americans.
As we will hear this afternoon, the digital playing field around
the globe is far from level.
When dealing with China, American companies confront rampant theft
of U.S. intellectual property, forced technology transfer policies,
data localization requirements, and other efforts to tilt the playing
field against the United States.
Equally concerning, China is becoming a model for other countries
who are erecting trading barriers that restrict the free flow of data.
We need to knock down these barriers in a systematic, thoughtful
way, rather than pursuing a policy of ill-conceived tariffs that will
create additional barriers to trade.
Burdensome data regulations are particularly onerous for small and
medium-sized firms that don't have big IT departments or can't absorb
the added costs of having to store data locally or comply with other
requirements.
Digital trade is just one piece of a broader trade landscape. And
in the last few months, it has been harder and harder to understand the
Administration's positions on a range of trade issues.
One Wall Street analyst estimates that the Administration's erratic
trade policies have cut the value of U.S. equities by about $1.25
trillion.
And the costs extend beyond the stock market.
The Administration's tariffs on solar panels will cause the loss of
thousands of jobs and the delay or cancellation of billions of dollars
of investments in solar energy. These tariffs will slow our transition
to renewable energy.
The Administration has used dubious national security
justifications to levy counterproductive tariffs on our closest allies.
The President has repeatedly acknowledged that theses tariffs are not
justified by national security concerns, undermining any future U.S.
case at the WTO.
By levying these tariffs, he has managed to damage our economy and
our alliances in one fell swoop.
Of course, the negative aspects of President Trump's trade policy
are compounded by his dyspeptic approach to diplomacy. Nowhere was this
clearer than his catastrophic performance at the G-7 in Charleroi.
Public expressions of disdain for the leaders of our democratic
allies will only make them less likely to engage in productive trade
negotiations. As the President becomes increasingly unpopular abroad,
it will become more difficult for democratic leaders to enter into new
agreements with the United States.
We need a trade policy that is guided by principle, not whim, and
that is forward-looking and not reactionary. Something we saw from the
previous Administration.
But that's not where we are today. The way President Trump has gone
about renegotiating NAFTA has generated instability.
He's fighting almost daily with Canada and his threats to leave the
deal risk disrupting markets and raising prices and may trigger
retaliatory tariffs.
Rather than pursue productive discussions with China to drive
changes in their trade practices, President Trump has launched a trade
war, rolling out $50 billion in tariffs and threatening another $200
billion in tariffs last week. China immediately promised retaliatory
tariffs of the ``same scale.''
Even the President's Council of Economic Advisers prepared an
internal analysis showing that tariffs will harm our economy.
Trade is often an area ripe for bipartisan agreement and that's
especially true in the area of digital trade.
But the damage to trading relationships from the Administration's
moves to impose tariffs on steel, aluminum and other products harms the
United States' ability to forge partnerships that will expand trade,
both online and offline.
And that uncertainty has a chilling effect on trade of all kinds.
We have only begun to see the damage from Trump's trade policies.
I look forward to hearing from our witnesses about how we can
promote digital trade and knock down barriers and how the
Administration can play a more constructive role.
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