[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

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

                                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

                              ----------                              

                     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

                              ----------                              


                        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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