[Senate Hearing 115-624]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 115-624
 
                   MARKET ACCESS CHALLENGES IN CHINA

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

                                HEARING

                               before the

       SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL 
                            COMPETITIVENESS

                                 of the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 11, 2018

                               __________
                               
                               
                               
                               
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                               

                                     
                                     

            Printed for the use of the Committee on Finance
            
            
            
                              _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
36-645 PDF                WASHINGTON : 2019                  
            
            
            


                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas                  MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming             BILL NELSON, Florida
JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia              SHERROD BROWN, Ohio
ROB PORTMAN, Ohio                    MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania      ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina            CLAIRE McCASKILL, Missouri
BILL CASSIDY, Louisiana              SHELDON WHITEHOUSE, Rhode Island

                     A. Jay Khosla, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                 ______

                 Subcommittee on International Trade, 
                  Customs, and Global Competitiveness

                      JOHN CORNYN, Texas, Chairman

CHUCK GRASSLEY, Iowa                 ROBERT P. CASEY, Jr., Pennsylvania
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
JOHNNY ISAKSON, Georgia              BILL NELSON, Florida
JOHN THUNE, South Dakota             CLAIRE McCASKILL, Missouri
DEAN HELLER, Nevada                  BENJAMIN L. CARDIN, Maryland




                                  (ii)
                                  


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Cornyn, Hon. John, a U.S. Senator from Texas, chairman, 
  Subcommittee on International Trade, Customs, and Global 
  Competitiveness, Committee on Finance..........................     1
Casey, Hon. Robert P., Jr., a U.S. Senator from Pennsylvania.....     3

                               WITNESSES

Garfield, Dean, president and CEO, Information Technology 
  Industry Council, Washington, DC...............................     5
Bliss, Christine, president, Coalition of Services Industries, 
  Washington, DC.................................................     6
Dempsey, Linda Menghetti, vice president, international economic 
  affairs, National Association of Manufacturers, Washington, DC.     8
Lee, Thea M., president, Economic Policy Institute, Washington, 
  DC.............................................................    10

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bliss, Christine:
    Testimony....................................................     6
    Prepared statement...........................................    29
Casey, Hon. Robert P., Jr.:
    Opening statement............................................     3
    Prepared statement...........................................    34
Cornyn, Hon. John:
    Opening statement............................................     1
    Prepared statement...........................................    35
Dempsey, Linda Menghetti:
    Testimony....................................................     8
    Prepared statement...........................................    37
Garfield, Dean:
    Testimony....................................................     5
    Prepared statement...........................................    42
Lee, Thea M.:
    Testimony....................................................    10
    Prepared statement...........................................    47

                             Communication

United Steelworkers (USW)........................................    51

                                 (iii)


                   MARKET ACCESS CHALLENGES IN CHINA

                              ----------                              


                       WEDNESDAY, APRIL 11, 2018

                           U.S. Senate,    
           Subcommittee on International Trade,    
               Customs, and Global Competitiveness,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:30 p.m., 
in room SD-215, Dirksen Senate Office Building, Hon. John 
Cornyn (chairman of the subcommittee) presiding.
    Present: Senators Grassley, Roberts, Thune, Scott, Casey, 
McCaskill, and Cardin.
    Also present: Republican staff: Madison Smith, Legislative 
Assistant for Senator Cornyn. Democratic staff: Livia 
Shmavonian, Legislative Assistant for Senator Casey.

  OPENING STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM 
TEXAS, CHAIRMAN, SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS, 
        AND GLOBAL COMPETITIVENESS, COMMITTEE ON FINANCE

    Senator Cornyn. Good afternoon, and thank you for being 
here today.
    I was just telling Senator Casey I was struck by a recent 
article in The Economist which refers to Bill Clinton's 
statements back in March of 2000, where he said American 
opinion on China was divided into two camps, one he called the 
optimists who would see China becoming the next great 
capitalist tiger with the biggest market in the world, and then 
he said there were the hawks and pessimists who saw China 
stubbornly remaining the world's last great communist dragon 
and a threat to stability in Asia. They conclude that China, Xi 
Jinping, is a great mercantilist dragon under strict communist 
party control using the power of its vast markets to cow and 
co-opt capitalist rivals, to bend and break the rules-based 
order, and to push America to the periphery of the Asia-Pacific 
region. And they conclude that this has led to one of the 
starkest reversals in modern geopolitics.
    The focus of today's hearing is on an important 
international market, the second-largest economy, and that is, 
of course, the country of which I was just speaking, China, 
also the United States' largest trading partner and the third-
largest export market for U.S. goods abroad. While the 
legitimate flow of goods and services between the United States 
and this nation has increased over the years, the statistics 
alone do not tell the whole story. We must also consider the 
national security context. Within 7 years, China will pose the 
greatest threat to U.S. national security of any nation, 
according to the Chairman of the Joint Chiefs of Staff.
    As China's population grows and as its economy continues to 
modernize, the Chinese market will continue to emerge as an 
attractive one for U.S. businesses seeking the opportunity to 
serve the Chinese consumer in all sectors. But unfortunately, 
while Chinese companies enjoy largely unfettered access to the 
United States market and an economy that is open to investment, 
U.S. companies are not afforded with reciprocity in this 
regard.
    In order to paint a picture of the persisting problem, we 
have to review the historical context. In the 1980s, China 
first sought entry to the rules-based global trading system 
known as the World Trade Organization. After years of 
deliberation and negotiation, an agreement was reached in 2001. 
This agreement allowed for China's accession to the World Trade 
Organization if it agreed to comply with a number of free 
market principles: tariff reductions, equal footing for foreign 
businesses, and the removal of implicit and explicit barriers 
to trade. Moreover, China would have to adhere to global 
principles under the TRIPS agreement to protect and enforce 
intellectual property rights.
    Fast forward to 2018, 17 years later, and China has still 
not lived up to those promises and commitments it made under 
WTO. China's authoritarian regime, its One Belt, One Road 
Initiative, and its Made in China 2025 plan are part of a 
comprehensive agenda to promote state-driven industrial 
policies that distort and disadvantage U.S. firms that are 
simply seeking free market competition with Chinese companies.
    U.S. companies seeking to do business in China often 
encounter--I would say always encounter--a protectionist 
system, one that employs predatory practices and promotes 
domestic subsidized industries over foreign competitors. The 
U.S. Trade Representative's 2017 report on China's WTO 
compliance explains that today's situation in China is even 
worse than it was 5 years ago, as the state's grip on the 
economy continues to increase. But even more alarming is the 
fact that U.S. technology companies often report China's 
blatant attempts to steal sensitive and proprietary 
intellectual property.
    In many instances, China has simply used trade as a weapon, 
coercing U.S. companies to enter into joint ventures and other 
business agreements that require the company to hand over key 
technology and know-how--the so-called ``secret sauce''--simply 
in order to gain market access. This practice has already begun 
to erode America's technological advantage and undermine our 
defense industrial base. That is why I have introduced 
legislation, along with Senator Feinstein, called the Foreign 
Investment Risk Review Modernization Act to combat this 
epidemic and modernize the Committee on Foreign Investment in 
the United States.
    It is also my understanding that President Trump and his 
administration are currently considering potential temporary 
actions under existing authority to ensure investment 
reciprocity and protect U.S. national security, in part because 
CFIUS, as it currently is enacted, lacks adequate authority 
under its current statute.
    China's restrictive market is highly concerning. And 
multiple administrations have attempted to engage China's 
leaders on their trade practices. China will even send students 
to American colleges and universities for STEM-related degrees, 
only to have them return to China and further advance their 
goals. It is part of their comprehensive strategy.
    Unfortunately, many rounds of high-level diplomatic talks 
have not yielded progress, often resulting in commitments made 
with zero action. Take the latest comprehensive economic 
dialogue, for example. The 100-day plan on trade yielded 
commitment from China, most of which has not been followed up 
on.
    Discussions may continue in the future, but one thing is 
clear: China's market access reforms are too slow, and barriers 
still exist. Reciprocal treatment for U.S. companies should not 
be too much to ask; indeed, it is the bare minimum of what we 
demand.
    It is my hope that today's hearing will paint a clear 
picture of the problems that persist with access to China's 
market and that significant reforms will follow. With that, let 
me turn it over to Ranking Member Casey.
    [The prepared statement of Senator Cornyn appears in the 
appendix.]

        OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., 
                A U.S. SENATOR FROM PENNSYLVANIA

    Senator Casey. Thanks very much, Mr. Chairman. I want to 
thank Senator Cornyn for this hearing and for our witnesses.
    Whether it is steel or tires or high technology, industries 
across a State like Pennsylvania, and indeed across the 
country, face significant challenges when it comes to China. 
Whether through forced technology transfer or joint ventures, 
theft of intellectual property or straight-up barriers to 
entry, U.S. firms and manufacturers have been fighting for 
decades to get the same treatment for American products in 
China as Chinese exports see in the United States.
    When Ambassador Lighthizer came before this committee just 
a couple of weeks ago, he stated in part of his testimony, 
quote: ``The costs of globalization are falling most heavily on 
workers.'' I will repeat the last five words: ``falling most 
heavily on workers.'' I could not agree more. And this is 
backed up by studies by the Economic Policy Institute, and not 
too long ago by a study done at MIT by economist David Autor 
and his coauthors, David Dorn and Gordon Hanson. All of these 
studies lend credence and lend data to that assertion.
    Just in short, summary fashion, the MIT study said that 
roughly 40 percent--40 percent--of the decline in U.S. 
manufacturing just between 2000 and 2007 was due to a surge in 
imports from China.
    That has been the experience of Pennsylvania. We have had a 
record loss in manufacturing jobs over the last generation, 
economic devastation that none of us could even begin to 
describe or fully understand, lives that have been completely 
destroyed, communities wiped out, trauma and suffering that 
flow from the job loss: suicides, family breakups, opioid 
addiction, all kinds of traumas in the aftermath of that kind 
of job loss.
    It started to present itself in the 1980s. There was a 4- 
or 5-year period in the early 1980s when tens of thousands of 
steelworker jobs were lost in southwestern Pennsylvania. By one 
estimate, in 5 years or less, half of the steelworker jobs in 
that region were lost, from about 90,000 to 45,000. And it just 
continued from there.
    I have to say, I do not think that in the last 40 years at 
least, either party here in Washington has done nearly enough. 
Neither party, in my judgment, has had a strategy, and neither 
party has focused on a way forward. And this applies, of 
course, to multiple presidential administrations and many 
sessions of Congress.
    Workers need an answer for what happened to them--and 
continues to happen to them. U.S. industries have been under a 
sustained attack from China--our steel, our aluminum, 
manufacturing--in the past decade. And now China has given us 
the playbook for their next line of attack: robotics, rail 
equipment, advanced medical products, just to name a few. 
Pennsylvania knows all too well what may be in store for the 
rest of the country if we do not address the systemic threat 
that China presents.
    After the collapse of the steel industry, the city of 
Pittsburgh found its way back, reinventing itself with the help 
of civic leaders, foundations, universities that are on the 
cutting edge in robotics and advanced technology. China, in its 
2025 plan that Senator Cornyn referred to, is coming after all 
of that too.
    So I am glad we are having this hearing today, and I hope 
it begins a much-needed conversation on the type of 
comprehensive strategy we need to address the threat posed by 
China. If you do not have a strategy that undergirds the 
development of an answer, you will not get the results that we 
all agree on: ensuring U.S. workers have the skills they need 
to compete, insulating our communities from economic shock, and 
preventing China from literally stealing our future.
    Part of that is making sure our communities have access to 
immediate economic assistance when large job loss or a 
localized recession occurs, which can happen for any number of 
reasons outside of trade. The goal is always to prevent 
economic shocks from happening, but if they do occur, we must 
respond, and respond quickly. I have put forward a bill on this 
issue and would welcome the insights of the panel on a future 
date.
    China has made no secret about its strategy to push the 
rules to their limit and, when advantageous, break those rules 
outright. They know that by the time a trade case reaches its 
conclusion, the damage to an industry has been done.
    The U.S. needs a sustained and coordinated strategy to 
address the threat posed by China, and the United States should 
work with our allies to execute it. This is not a problem 
unique to the United States, and there is no need to treat it 
as such. We must address the barriers China puts up that 
prevent our companies from competing on a level playing field.
    So I am glad to be working with Senator Cornyn and others 
on these critical issues. It is clear that he and so many 
people in both parties care deeply about this issue. We 
appreciate our witnesses being here today to help us shed light 
on this challenge. Thank you.
    Senator Cornyn. Thank you, Senator Casey.
    [The prepared statement of Senator Casey appears in the 
appendix.]
    Senator Cornyn. I want to take a moment to introduce our 
witnesses. The first is Mr. Dean Garfield. Mr. Garfield serves 
as the president and CEO of the Information Technology Industry 
Council. Our second witness is Ms. Christine Bliss, who is 
president of the Coalition of Services Industries. The third 
panelist is Ms. Linda Dempsey. She is vice president of 
international economic affairs at the National Association of 
Manufacturers. And our final witness today is Thea Lee. Ms. Lee 
serves as president of the Economic Policy Institute.
    Let me join Senator Casey in thanking each of you for being 
here today and sharing your thoughts with us. I will start with 
Mr. Garfield. If each of you would limit your initial 
presentation to about 5 minutes, we promise you that any 
additional remarks you have will be made part of the record. 
But we would like to get to ask questions and exchange ideas.
    So, Mr. Garfield, I will recognize you, sir.

  STATEMENT OF DEAN GARFIELD, PRESIDENT AND CEO, INFORMATION 
          TECHNOLOGY INDUSTRY COUNCIL, WASHINGTON, DC

    Mr. Garfield. Thank you, Chairman Cornyn, Ranking Member 
Casey, members of the subcommittee. On behalf of 63 of the 
world's most dynamic and innovative companies that are members 
of ITI, we thank you for holding this hearing.
    I can think of no issue more important to America's 
economic and technological future than the bilateral 
relationship between China and the United States.
    We have submitted my testimony for the record, so for 
purposes of this hearing, I would like to focus on three 
things: one, what is at stake and the obstacles we face in 
China; two, why we continue to compete in that market; and 
three, what the U.S. Government, Congress, and the 
administration can do to help.
    With regard to the first, which is, what is at stake, it is 
America's economic and technological future. We are 
experiencing now innovations like AI, 5G, quantum computing 
that are some of the most historic in human history. China 
recognizes that and is doing things that are both legitimate 
and illegitimate to put its thumb on the scale in favor of its 
local champions so they can corner the market on the frontier 
innovations of the future.
    The list of pernicious protectionist measures is long; many 
have even called it a tapestry. So for purposes of this 
hearing, I will focus on three elements of the quilt.
    China has become expert in foreclosing strategic elements 
of its market from foreign competition. A case example of that 
is in cloud services. Eighteen of the 20 largest cloud service 
providers in the world are U.S.-based. Unfortunately, those 
cloud service providers do not have free and reciprocal access 
to the Chinese market.
    In fact, those companies cannot directly engage in cloud 
services in China. They cannot engage in contracts with Chinese 
customers. And they cannot directly operate cloud services in 
China. In fact, China has the most restrictive cloud services 
rules in the world. In contrast, Chinese companies that provide 
cloud services have unfettered access to the rest of the world.
    A second element of the quilt that gives you a sense of the 
norm in China is China also has become expert in overwhelming 
companies with an avalanche of vague rules, regulations, 
standards, and practices that create opportunities for 
mischief. For example, the 2016 cybersecurity law in China was 
complemented by an array of rules and regulations that 
culminate in a cybersecurity review regime that empowers 
agencies and municipalities to pressure companies to provide 
access to their source code and, as well, to transfer sensitive 
technologies. Our companies have become adept at navigating the 
straits and avoiding turning over their seed corn to the future 
to China. Nonetheless, in facing those pressures, they 
certainly operate in that market at a disadvantage.
    The trifecta in the quilt in China is what you alluded to, 
Senator Casey, which is the practice in China of making 
commitments that they do not ultimately keep.
    China, when it ascended to the WTO, committed to opening up 
the Chinese market to financial services. Thereafter, China 
lost a WTO case on electronic payment services. And in 2013, it 
committed to opening up the market. Again, in Mar-a-Lago in 
2017 they committed to doing the same and still have not.
    That may raise the question as to why our companies 
continue to compete in China. The answer is, you cannot be a 
global company and ignore one-fifth of the world's population. 
It would be akin to Starbucks saying they are going to have a 
store on every corner with the exception of California, 
Pennsylvania, and Texas. It just does not make sense. As well, 
in the tech sector, in order to acquire customers, you must 
compete globally, which means also competing in China. So the 
choice for our companies is competing in China or not competing 
at all. Our companies have chosen to compete, and that is in 
part why we need the assistance of both Congress and the 
administration.
    What we recommend is twofold, which fits in a singular 
basket, which both Senator Cornyn and Senator Casey raised, 
which is, we need a broader strategy that has two pillars. One 
is making sure that we are working with our allies to advance 
our interests with China. And what that means at this moment is 
focusing more on building that coalition, getting to the 
bargaining table with China, and putting in place timelines and 
accountability mechanisms to make sure that we are changing 
their behavior--so, focusing more on that and less on tariffs.
    Finally, what it means is investing more here in STEM and 
the other essentials for being successful in those areas of 
frontier innovation.
    Thank you for this opportunity, and I look forward to your 
questions.
    Senator Cornyn. Thank you, Mr. Garfield.
    [The prepared statement of Mr. Garfield appears in the 
appendix.]
    Senator Cornyn. Ms. Bliss?

           STATEMENT OF CHRISTINE BLISS, PRESIDENT, 
        COALITION OF SERVICES INDUSTRIES, WASHINGTON, DC

    Ms. Bliss. Chairman Cornyn, Ranking Member Casey, 
subcommittee members, I appreciate the opportunity to present 
the views of the Coalition of Services Industries, which 
represents a wide spectrum of services sectors, from financial 
services to IT services to professional services, media and 
entertainment, logistics, just to give you a sense of the 
breadth of whom we represent.
    China was the United States' second-largest export market 
in 2017 and is one of the fastest-growing markets for U.S. 
services. But we need to make sure that we can take advantage 
of those opportunities, so I want to highlight some particular 
areas of concern, and they are going to overlap with a couple 
of the areas, if not all the areas that Dean mentioned in his 
testimony as well, just to demonstrate how incredibly important 
digital trade is for the economy as a whole and certainly the 
services sector.
    In information and technology services, China fails to 
provide nondiscriminatory market access for a broad range of 
online services, requiring joint venture partners for online 
services and then failing to issue the necessary licenses to 
provide those services.
    On cloud services--which, again, you just heard 
highlighted--the United States should secure China's commitment 
that it will allow U.S. cloud service providers to provide all 
the necessary licenses for the operation and provision of cloud 
services, remove existing investment restrictions, permit U.S. 
cloud services to use their trademarks and brands and to sign 
contracts for the provision of cloud services, and enable U.S. 
cloud services providers to procure telecommunications services 
for the provision of cloud services on a nondiscriminatory 
basis.
    China also maintains barriers to cross-border provision of 
video and music services as well as cross-border data services, 
including virtual private networks. And more broadly, and of 
great concern, China blocks a wide range of legitimate U.S. 
websites and services.
    China's cybersecurity law is another area of concern that 
has the potential to create additional discriminatory barriers 
and, particularly with respect to its requirement that personal 
data be stored domestically and the fact that it is as vague 
and broad as it is, has created confusion and uncertainty as to 
how it will exactly apply and to what types of data it will 
apply.
    Before highlighting China's financial services barriers, I 
just want to thank Finance Committee members, including 
Senators Cornyn, Scott, Heller, Crapo, Portman, Cassidy, 
Isakson, and Thune, for your September 17th letter to the 
administration highlighting the barriers to trade and 
investment that financial services face.
    Currently, to illustrate, there is a 50-percent cap on 
foreign equity in life, health, and pension companies that has 
existed since China entered the WTO in 2001. China's 2017 
announcement that it would allow 51-percent foreign ownership 
in Chinese life insurance companies in 3 years and lift that 
restriction entirely in 5 years is very welcome. But the key 
here is implementation and 
follow-through. China has not authorized any U.S. investment in 
the enterprise annuities sector. And there is a 33-percent cap 
in the securities sector.
    There is also an unlevel playing field in the banking 
sector, as U.S. banks are subject to a 20-percent investment 
ceiling for single foreign shareholders and a 25-percent 
investment limit for multiple foreign shareholders in local 
Chinese banks. China has announced that it will increase 
foreign direct investment in domestic securities firms from 49 
to 51 percent, with a commitment to remove that 51-percent cap 
within 3 years.
    Electronic payment services--another area that we share in 
common with the comments made by ITI--is a very important area. 
In May 2017 in the U.S.-China 100-Day Action Plan, one of the 
commitments China made was to open the domestic market for U.S. 
electronic payment services. There are several U.S. EPS 
suppliers that have filed license applications; they remain 
pending. And we urge China's commitment to full and prompt 
market access for U.S. EPS suppliers.
    In conclusion, we believe that fully realizing the 
tremendous potential the Chinese market represents requires not 
only that specific services and investment barriers be 
addressed, but we think there must be systemic changes across 
the Chinese economy. And CSI believes this can be best achieved 
by ensuring that the U.S. establishes a clear framework for 
engaging in bilateral negotiations with China with defined 
objectives, a timetable, and close coordination with our 
allies.
    I thank you very much, Mr. Chairman, for the opportunity to 
present our testimony.
    Senator Cornyn. Thank you very much.
    [The prepared statement of Ms. Bliss appears in the 
appendix.]
    Senator Cornyn. Ms. Dempsey?

     STATEMENT OF LINDA MENGHETTI DEMPSEY, VICE PRESIDENT, 
    INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF 
                 MANUFACTURERS, WASHINGTON, DC

    Ms. Dempsey. Chairman Cornyn, Ranking Member Casey, members 
of the subcommittee, thank you for the opportunity to testify 
today on manufacturers' views on market access challenges in 
China. The National Association of Manufacturers, NAM, is the 
largest and oldest manufacturing association in the United 
States, representing over 14,000 manufacturers in every 
industrial sector in all 50 States.
    Manufacturing employs 12.6 million women and men across the 
country, contributing a record $2.25 trillion to the U.S. 
economy in 2017. U.S.-China commercial relations are a top 
priority, given both the challenges and the opportunities this 
relationship presents. It is fair to say that our Nation's 
relationship with China is complicated--very complicated.
    On the one hand, there are few places in the world where 
manufacturers in the United States export more or have 
increased sales more. As a result of China's lowering of 
tariffs and implementation of many of the rules of the WTO 
system, manufacturers in the United States have been able to 
export more goods to China than to any other country outside of 
our NAFTA partners, Canada and Mexico. Manufacturers exported 
nearly $96 billion in goods in 2017, which in turn supports 
hundreds of thousands of U.S. manufacturing jobs.
    Exports of ``Made in the USA'' manufacturing goods to China 
have grown by more than $76 billion since 2002, more than to 
any other country besides Canada and Mexico. Similarly, our 
friends in the agricultural sector have seen similar levels of 
growth, which help manufacturers sell to our domestic farmers, 
in terms of equipment, fertilizer, seed, cold storage, and the 
list could go on. This is especially important for 
manufacturers, because more than half of the manufacturing 
workforce depends for their paychecks on exports overseas.
    But on the other hand, there are few places in the world 
where trade has proven more challenging for American 
manufacturing. We face substantial unfair, discriminatory, and 
distortive practices in China that are harming U.S. 
manufacturing and manufacturing workers and are holding our 
country back.
    Among the most troublesome issues on which I expanded in my 
written testimony are localization policies, such as Made in 
China 2025, that discriminate against U.S. companies; 
intellectual property rights and enforcement that are 
insufficient for the 21st century; standards, technical 
regulations, and conformity assessment procedures that limit 
our ability to compete on a fair and equal basis in China; 
subsidies and other measures that distort the market and create 
damaging and unsustainable overcapacity; investment 
restrictions that depress market access and foster harmful 
technology transfer; state-owned enterprises that create unfair 
and uncompetitive conditions of competition; tariffs and other 
import regulations that block U.S. exports; and transparency 
and the rule-of-law issues. While some of these challenges can 
be addressed through the existing WTO rules, others require new 
approaches. The question is how best to address them.
    We at NAM believe it is time, long past time, to undertake 
a truly comprehensive and focused strategy designed to achieve 
the best outcomes for American workers and enterprise. That 
means pursuing a modern, innovative, and comprehensive 
bilateral trade agreement with China that wholly restructures 
our economic relationship.
    As NAM president and CEO Jay Timmons explained in a letter 
to the President on January 8th, ``To be successful, such a 
free and fair trade agreement must eliminate barriers that 
unfairly block American companies and American manufacturing 
exports from full access to the Chinese market, raise standards 
in China and create new rules to prevent the wide range of 
market-distorting practices that violate free markets and fair 
competition and hurt American businesses and workers, and 
create clear mechanisms to mandate strong and binding 
enforcement of the agreement, providing channels for the 
government and industry alike to address cheating and 
violations.''
    This is at once both a radical and, in our view, the most 
effective and pragmatic way forward. This approach must also be 
combined with ongoing enforcement of the WTO rules to which 
China has committed, usage of U.S. trade remedy rules to 
address unfair trade practices that are harming our industries 
and workers, and intensive work with our trading partners to 
address systemic challenges that are undermining trade 
globally. Targeted actions, such as tariffs, can provide some 
relief in the short term to some manufacturing industries, but 
they harm others in the form of significant added costs or 
provoke China to take further destructive actions.
    Ultimately, we think it is best to address directly the 
systemic issues that have given rise to the underlying 
challenges in the first place. The U.S.-China commercial 
relationship has provided significant opportunities for the 
American economy and manufacturers. As a massive and growing 
market, it holds the promise of continuing to do so, but to 
achieve that, to be sustainable, the trading relationship 
simply must be more fair and more open. That is exactly what a 
comprehensive bilateral trade agreement with China would help 
achieve.
    Thank you.
    Senator Cornyn. Thank you.
    [The prepared statement of Ms. Dempsey appears in the 
appendix.]
    Senator Cornyn. Ms. Lee?

             STATEMENT OF THEA M. LEE, PRESIDENT, 
           ECONOMIC POLICY INSTITUTE, WASHINGTON, DC

    Ms. Lee. Thank you, Chairman Cornyn, Ranking Member Casey, 
members of the subcommittee, for the invitation to participate 
in this important hearing today. I am the president of the 
Economic Policy Institute, the Nation's premier think tank 
analyzing the effects of economic policy on America's working 
families.
    Seventeen years after China acceded to the WTO, the 
bilateral economic relationship between our two countries is 
enormously lopsided and problematic. The U.S. goods deficit 
with China is the 
single-largest bilateral deficit between any two countries in 
the history of the world, and it continues to trend upward, 
despite more than 20 U.S. challenges to China at the WTO, 
despite earnest annual bilateral talks and commitments, and 
despite all the reform commitments China made upon accession.
    Furthermore, it is not just the sheer size of the trade 
imbalance with China that is of concern. It is the composition. 
The U.S. ought to be a leader in advanced technology products. 
A wealthy, technologically savvy, high-skilled, capital-
intensive country like the United States would be presumed to 
have a comparative advantage in ATP. However, the U.S. runs 
annual deficits in advanced technology products of over $100 
billion, and that is entirely accounted for by China. That is 
to say, we have a trade surplus in ATP with the rest of the 
world.
    This one fact alone should be a signal that there are 
significant anomalies in the U.S. trade relationship with China 
that cannot be explained by market forces. Overall, top U.S. 
exports to China include raw materials, agricultural products 
and waste materials, as well as aerospace, while our imports 
are concentrated in computers, electronics, miscellaneous 
manufactured commodities, and apparel. This is not the profile 
of imports and exports that would be expected between countries 
at the respective economic development levels of China and the 
U.S.
    According to USTR, China is still not fully compliant with 
the commitments it made during the WTO accession process, as 
has been talked about today. American companies trying to do 
business in China face theft of trade secrets, counterfeiting, 
inadequate protection of intellectual property, online piracy, 
industrial policies that promote domestic goods at the expense 
of U.S. products, subsidies, discriminatory product standards, 
the dumping of excess capacity, and restricted access for 
American services.
    Seventeen years after accession, China has not even listed 
all of its restricted export subsidies, let alone eliminated 
them, as was promised. In addition, China has used currency 
policies to gain an unfair competitive advantage over American 
business and labor.
    This litany of unfair trade practices, together with 
currency manipulation, has had a serious negative impact on 
American jobs and wages. As my colleague Rob Scott has shown, 
the U.S. trade deficit with China cost jobs in all 50 States 
and the District of Columbia while also putting downward 
pressure on the wages of manufacturing workers and, in fact, 
all non-college graduates.
    It is no secret that the Chinese government has a long-term 
economic strategy to build certain sectors through subsidies as 
well as through purchasing, tax, and regulatory policies. These 
plans set targets for indigenous production, use of technology, 
favorable treatment for state-owned enterprises, and 
discriminatory treatment of foreign brands and companies, among 
other things. These practices are deep and pervasive.
    There are two problems here, and we should be careful to 
distinguish them. On the one hand, many of the Chinese 
government's practices are inconsistent with international 
rules and norms, not just the WTO, but also international 
conventions on workers' rights, public health, human rights, 
environmental protections, intellectual property rights, and 
consumer safety. The U.S. touts the importance of a rules-based 
system, but if some players, like China, flout the rules with 
impunity over decades, then the rules-based system becomes a 
trap for those who comply.
    The U.S. Government's piecemeal and scattershot enforcement 
strategy has been time-consuming and ineffective, as well as 
uneven. For example, our government has not even raised in any 
significant or meaningful way China's failure to comply with 
its obligations as a member of the International Labor 
Organization. This means that American workers and businesses 
are competing on a tilted playing field, since Chinese workers 
cannot exercise their rights to form independent and democratic 
unions.
    The Chinese government is clearly playing a long game, 
while the U.S. is egregiously shortsighted. Our trade policies 
have been so inadequate in scale and slow in implementation 
that by the time we take action, it is often a decade too late, 
with the result that our trade actions are ineffective, if not 
counterproductive.
    We need to reform our domestic trade laws so we can act 
expeditiously. Going forward, we must address new barriers to 
trade in services and e-commerce. We need to make sure that we 
have and are willing to use measures to address currency 
misalignment.
    Our trade enforcement measures should prioritize good jobs, 
workers' rights, democracy, environmental compliance, and 
consumer safety over outsourcing and short-term profits.
    In summary, the U.S. Government needs to develop and 
articulate its own long-term economic development strategy. It 
needs to use domestic tax, infrastructure, and workforce 
development policies to ensure that American workers and 
businesses have the tools and the skills they need to compete 
successfully.
    But our government also needs to strengthen our trade 
compliance and enforcement measures and be willing to use them 
aggressively and consistently and in a timely manner to ensure 
that our trade relationship with China is both reciprocal and 
fair.
    Thank you for your attention. I look forward to any 
questions you may have.
    Senator Cornyn. Thank you very much, Ms. Lee.
    [The prepared statement of Ms. Lee appears in the 
appendix.]
    Senator Cornyn. We will be doing 5-minute rounds with 
questions, and I will start.
    Maybe, Mr. Garfield, I will start with you. It strikes me 
that most Americans, when they look at China, do not fully 
appreciate the fact that this is a country under communist 
party control and that one of the motivations of the party and 
of the country is to grow their economy, for obvious reasons, 
but also to control their people and to further their 
surveillance on their own people by, for example, maintaining 
data on their people in their country and not making it 
available more broadly because that undermines their goal of 
control.
    But also, in their approach to stealing intellectual 
property or, through creative investments, getting access to 
not only the intellectual property, but the know-how in order 
to build a product maybe that has been invented here in the 
United States, they do threaten American jobs, because they 
undermine the industrial base here. And if they can make it in 
China using Chinese workers, obviously that is to the detriment 
of American workers.
    So when you think about how we look at China, is that an 
accurate description? Or do you see some differences?
    Mr. Garfield. I think it is fair. Even when you are on the 
ground in China, which I have been double-digit times, it is 
often easy to forget that you are in a market that is state-
operated and -controlled, with that as a fundamental pillar of 
their existence.
    I do not think that difference alone suggests that we 
should not be engaging with China. I think what it suggests is, 
given the level of state control and their desire to maintain 
control over their population, the United States also has to 
play the long game and develop a strategic outlook that has in 
mind leveraging our strategic advantages.
    Senator Cornyn. Well, Ms. Bliss, let me ask you this. Given 
what Mr. Garfield has said--and I do not disagree with him at 
all--how do we get China to embrace a rules-based regime where 
the rule of law is applied impartially no matter who is 
involved, when it seems so committed to its overall goal of 
economic growth and undermining any advantage of the United 
States?
    For example, the USTR's 2017 report on China's WTO 
compliance track record said the U.S. erred in supporting 
China's entrance into the WTO on terms that have been proven 
ineffective.
    I mean, the reason why China was accepted in the WTO was 
the idea that they would then have to comply with WTO policies 
and decisions and rules. If they do not recognize those rules 
as authoritative or controlling, how do we deal with China?
    Ms. Bliss. Thank you, Senator. Well, I think there a couple 
of ways that we respond. And I would agree--as I said in my 
oral statement, and I think you have heard from other witnesses 
this afternoon--that we very much support playing, as Dean 
said, the long game. In a sense, we believe there needs to be 
an established process where we get the Chinese to sit down at 
the negotiating table with well-defined objectives and a 
timetable, but we do that in concert with our allies in order 
to exert maximum pressure.
    I also think that we avail ourselves--which I think the 
United States has been doing, but could also step up--of 
existing commitments under the WTO. And I would say that there 
are some examples of where our hope is that the WTO commitments 
and the dispute settlement process will ultimately yield 
positive results in this area.
    And the example I would give is the electronic payment 
services, where China not only lost the case, was informed by a 
WTO panel that it was inconsistent with its WTO commitments, 
but then, in the 100-day initiative, recommitted to address 
that and to allow U.S. EPS suppliers into the market. There are 
now, as I am sure you are aware, a number of those license 
applications pending. And our view is, now is the time to 
ensure that China follows through on these commitments and 
issues those licenses.
    So that is one example where I know you question the 
effectiveness of the WTO, but I think there is an opportunity 
to show that it can be effective with China.
    Secondly, I think the administration's current 301 
response, where they have indicated their decision to take 
forward an aspect of that with respect to licensing to the WTO, 
is another example where we can take advantage of WTO rules in 
forcing China to really live up to its commitments.
    But finally, I would say we are concerned that under the 
current environment, we do not think that turning to things 
like escalating tariff threats is going to be an effective way 
to secure meaningful systemic reform in China.
    So I think the bottom line in our view is long-term, 
consistent pressure to negotiate, working with our allies with 
clearly defined objectives, and using tools that are available 
to us, which we continue to believe are effective. And we would 
include in that the WTO.
    Senator Cornyn. Senator Casey?
    Senator Casey. Thanks very much.
    I want to start with Ms. Lee. I was glad that you focused 
in part of your testimony about the impact on jobs and wages 
here in the U.S. We have heard these numbers so many times, so 
many different versions of them, and the enormity of them, I 
think, even escapes our imagination.
    There is a growing body of research, in addition to the 
work that EPI has done--and we appreciate that work. The MIT 
study I mentioned in my opening statement about just a 7-year 
period--40 percent of the decline in U.S. manufacturing is 
attributable to the surge in Chinese imports. So can you 
discuss the impact in terms of not just jobs, but also in 
particular wages--U.S. wages, I should say?
    Ms. Lee. Thank you very much, Senator. And this is a really 
important issue, and it is one that I think got a lot more 
attention when David Autor and his colleagues at MIT did their 
study, which was very carefully done. They were looking at 
counties that were importing a lot of the products that we 
import from China, and they were measuring the impact on jobs 
and wages.
    And one of the things I think that is not well understood 
is, people talk about the benefits of free trade, but I think 
even economists understand that there are winners and losers. 
But the magnitude of the difference is, I think, part of what 
is important, which is, there can be very small net economic 
gains, and there can be very large distributional impacts. And 
I think that is what we see from the trade relationship with 
China. It is not entirely what we would expect from economic 
theory.
    Dani Rodrik at the Kennedy School has said it could be as 
much as five to one, that the dislocation and the disruption 
and the distributional impact could be five times greater than 
the net gains. And so this is something.
    One of the points that I made is, it is not just the 
workers who lose their jobs because of imports from China or 
because of outsourcing to China, but this is a labor market. 
And so workers who are not directly impacted, who do not 
directly lose their job, could also be impacted by downward 
pressure on their wages. So even service sector workers who are 
not in the traded sector could feel that impact.
    And that is really a massive effect on the U.S. labor 
market.
    Senator Casey. So the wage impact is substantial?
    Ms. Lee. Very substantial and in some ways more important 
than the number of jobs that are directly displaced.
    Senator Casey. No city in the United States can claim to 
have the recipe for how to recover from huge job loss. 
Pittsburgh has done as good a job as any, I think, in modern 
history. It did not happen overnight. It did not happen because 
they had a guidebook. They had to do a lot of trial-and-error, 
invest in technology. They had big institutions, medical 
research, big universities, foundation support, public/private 
efforts, a whole range of things that were done.
    But if you look at not just the Pittsburgh circumstance, 
but just more broadly, what do you think we need to do to 
confront this challenge in terms of what we can do 
affirmatively in addition to confronting China? And I guess a 
more particular way of talking about it is, how do we keep our 
workforce more competitive?
    Ms. Lee. Thank you for that question. I think, you know, if 
we think about it as the supply and the demand side, on the 
supply side, I think that is the responsibility of the U.S. 
Government to invest more heavily in retraining and education 
and skills for American workers.
    The U.S. Government, compared to other governments, 
especially in other industrialized nations, under-invests in 
our workforce. And that is something, you know, that we 
continue to see in the most recent budgets. And so that is an 
easy place to start. But also, I think we need to make sure 
that we are, you know, building those supply chains and the 
manufacturing extension partnership, that we are supporting 
cutting-edge manufacturing. We do not need to keep all 
manufacturing here, but the United States should have a 
competitive edge in really advanced manufacturing.
    And there are apprenticeship programs for advanced 
manufacturing skills that I know the AFL-CIO has invested in 
that could be really important. There are programs like Jobs to 
Move America, which is helping to tie public transit purchases 
to rewarding companies that are producing those trains in the 
United States and using American workers and training those 
workers and really investing in their workforce. So I think 
those are the kinds of programs that we should be looking at, 
in addition to making sure that our trade policy is fair and 
that we are enforcing the trade laws that we have on the books.
    Senator Casey. I am just about out of time. Maybe I will go 
to the other panel members on the next round, but thank you.
    Senator Cornyn. Senator Grassley?
    Senator Grassley. Yes. Instead of asking questions, I would 
like to reflect on a trip I had with Senators Daines, Johnson, 
Perdue, and Sasse to China a couple of weeks ago. We visited 
five cities; we did not visit any of the rural parts of the 
country. And Daines, Johnson, and Perdue have been to China 
many times connected with businesses, so they know better than 
I do about China and what they do that way.
    But I had various ideas about China before I went there, 
and all I can say is, they were made very real to me, some 
assumptions I had, like their status as a developing nation, to 
still be considered such, that does not meet the common-sense 
test. I think a common-sense test for me was, if they want to 
do business, their businesses doing business in the United 
States--they are the second-largest economy in the world; we 
are the largest--if they want to do business in our country, we 
ought to be able to do business on the same basis in their 
country. That is just what common sense tells me.
    If China was the 50th-largest economy in the world, that 
would be a whole different story. But number one and number two 
ought to be able to operate pretty much the same way.
    I kind of came away with the opinion that they will do 
anything legal or illegal, anything moral or immoral, anything 
ethical or unethical--do whatever they want to to get ahead and 
to stay ahead.
    And I had a chance with the political leaders in each one 
of the five cities, we each of us had an opportunity to present 
our views and ask for their rebuttal. I said that I am one of 
the few members of the United States Senate who is still in the 
Senate who voted for China to be in the WTO. I thought it was a 
very good thing that they be in the WTO, and I suppose I still 
think that they ought to be in the WTO, because that signifies 
living by the trade rules that we have under our international 
organizations.
    And I said it has not turned out the way that I anticipated 
with you violating all these rules and doing what you do to 
foreign competition. And I said, you know, I kind of feel like 
I should be sorry for my vote. And of course, they assured me I 
should not be sorry for my vote.
    And then you keep hearing from them, well, we want to have 
dialogue with the United States. Well, we have been having 
dialogue with them for a long, long time. I told them my view--
you know, not that they are going to listen to me, but they 
have to hear me, what I think--you know what needs to be done, 
you just ought to do it.
    But they are, as you said, I think, Ms. Lee, very 
strategic, and we are very shortsighted. That is our fault. But 
if you want to do business in that country, do you have to give 
them all your trade secrets? They steal our trademarks. They 
make fake products. They violate everything.
    And so I will end with this, to whoever of you said, we 
need new laws. I would like to have my colleagues look at a 
bill that Senator Brown and I have put in that would take a lot 
of what countries want to do here into consideration, 
particularly if they are going to buy into the United States 
and buy our research and development and all that sort of 
stuff.
    Then lastly, the former Governor of Iowa is now the 
Ambassador to China. And I saw him at several of our meetings 
over there. But I came to this conclusion from visiting with 
Chinese political leaders: because of his 30-year relationship 
with President Xi and American business people over there as 
well as our foreign service officers, I got a feeling that he 
was the right choice for the President of the United States to 
choose to be our Ambassador there.
    Thank you very much.
    Senator Cornyn. Thank you, Senator Grassley.
    Senator Roberts?
    Senator Roberts. I do not know if I can top that. 
[Laughter.] Although I understand, Mr. Chairman, that you did 
invite Mr. Smoot and Mr. Hawley to come and testify; I do not 
see them. [Laughter.]
    Senator Cornyn. They were busy.
    Senator Roberts. I do not know if they are in the audience 
or not, but I do recall I knew them, but Senator Grassley 
worked with them at that particular time. [Laughter.]
    Ms. Dempsey, you are the only witness who brought up 
agriculture, and I appreciate that, although there was a 
connection, I think, with Ms. Bliss too. And I do appreciate 
the two pillars and the testimony of all the witnesses.
    China has obviously, Mr. Chairman, been at the forefront of 
our trade policy agenda here in recent weeks--or months for 
that matter. Most significant has been the administration's 
enforcement actions now following the conclusion of 
investigations regarding section 232, steel and aluminum 
imports, and section 301, the intellectual property and 
technology transfer practices, which have been referred to by 
all of the witnesses.
    But as we have seen numerous times, Mr. Chairman, 
agriculture is often the first industry impacted when 
retaliatory measures are enacted. And with the recent 
announcement of Chinese tariffs on U.S. products, many of which 
are agriculture products, they are the first ones that they 
pick. It is clear that history may be repeating itself. I hope 
that is not the case.
    The U.S. exported nearly $20 billion in agriculture 
products to China in 2017. That made it one of the top export 
markets for U.S. agriculture. But let me point out that over 
the last 3 or 4 years, farm prices are down 40 percent. Farm 
income is down 52 percent. So, when we have a tariff that is 
announced in response to whatever negotiations are going on and 
all of a sudden we find out, in response to washing machines 
and solar panels, sorghum producers in my State, whose price 
was about the cost of production, all of a sudden find out 
their basis points are down 80 percent. Boom, just like that.
    And in the second place, as we keep going with that, now we 
have the additional--I do not know what to call them--I guess 
measures that the President has mentioned and that the 
administration has mentioned, Wilbur Ross and Mr. Navarro and 
Bob Lighthizer.
    I had a long talk with Bob Lighthizer about this here just 
the other night. And some of us are going up to the White House 
tomorrow. Obviously, we are involved in agriculture, and we are 
worried about the retaliation.
    And here we have the soybean market off 17 percent. The 
sorghum producers that I mentioned, when I was at the White 
House, they were in my office. And when I came back, they said, 
``What in God's name did you do?'' I said, ``Hey, it was not 
me, coach.'' You know, one farmer was in tears. He said, ``You 
know, I had to sell at this particular time.'' So you can see 
the ramifications here.
    So during an already challenging time for farmers and 
ranchers, drastic trade policy measures will have a compounding 
effect on producers in rural America. Everybody up and down 
Main Street is nervous about trade--everybody in the food chain 
and all the lenders.
    And by the way, Senator Casey is a Senator I really 
respect. He is a very valuable Senator on the sometimes 
powerful Senate Agriculture Committee. And I understand your 
plea for workers with regards to Pennsylvania.
    Pennsylvania is also a big ag State, and farmers and 
ranchers and growers are also workers, and they work from dawn 
to dusk. And I hope we do not get into a situation where one is 
pitted against the other. That is not what we should do.
    So, what has the administration proposed here in terms of 
proposing tariffs? I think the President has signaled, at least 
in the press--and we will learn about that possibly tomorrow--
about using the Commodity Credit Corporation and using money to 
offset some of the problems that we have experienced with 
regards to prices in the farm sector.
    We do not need that. We do not want another subsidy 
program. What we want is a market. We have to sell our product, 
we have to sell things we make, but we also have to sell things 
that we grow. And we are in a rough patch in agriculture today. 
So I am very hopeful--and any witness who wants to can comment 
about this--but I hope we do not go down that road of creating 
some very cumbersome and very difficult-to-implement if not 
impossible program from the CCC.
    What do you think about--the President mentioned this 
sometime back; he has not mentioned it since. I hope maybe 
after tomorrow he will mention it again. How about the 11 
countries that joined on the TPP program, what about making 
efforts to get back in sync with the TPP? If there is ever an 
opportunity for the United States to plant the American flag 
and also have their back and also increase trade--you know, 
propositions all throughout the Pacific--it would be that. That 
would be my best suggestion, either that or, well, both sell 
something or else signal that we are interested in getting back 
with the TPP.
    Would any of you like to comment?
    Ms. Dempsey. Maybe I can start. I mean, the National 
Association of Manufacturers had wanted to see a strong TPP go 
forward, and we were disappointed that it did not. If there is 
an opportunity for the United States to get back in as part of 
the TPP, I think that is important. It would set the rules of 
the international trading system.
    We also, though, think we have to take this moment with 
China. We have to act urgently to get new rules of the road. 
When China joined the WTO in 2001, the rules were written in 
1994 for most of it. Right? We did not have an Internet, we did 
not have the digital economy and the cyber issues. We did not 
have the growth in trade that we have now seen today.
    We have to get China to, at the negotiating table, not just 
dialogues where statements are issued, we have to get them at 
the negotiating table to an agreement that is fully 
enforceable. And we can do that through working with our TPP 
partners, but we also have to do that bilaterally.
    Senator Roberts. Well, thank you for your comments. My time 
has long since expired.
    Senator Cornyn. I think, Mr. Garfield, you had a comment; 
you wanted to respond to Senator Roberts?
    Mr. Garfield. Yes.
    Senator Roberts. I am sorry, Mr. Garfield. Please.
    Mr. Garfield. I think your point about farming is an apt 
one. One of the things that has been surprising about the 
discussion over the last 3 weeks around China is how much it 
has unified the broad business community across three pillars, 
I would say. One is the need to redefine the relationship with 
China. What we are doing is simply not sustainable. Second is 
the importance of doing things that work, which means avoiding 
tariffs. They have not worked since McKinley or Smoot-Hawley 
and will not work now. And then third is doing all the things 
that we have been talking about in alignment here on the panel, 
which are, developing a strategy and pushing China with clearly 
defined dates and accountability metrics.
    When China acceded to the WTO, there were no timelines 
against which China would do the things that it committed to 
do. In fact, 2 days ago, President Xi recommitted for the fifth 
time for China to open up its financial services sector.
    And so, unless we push China to commit to a date certain 
and have a metric for measuring whether they are doing it, we 
will simply continue to repeat the current cycle.
    Senator Roberts. Well, let me just close by saying that I 
agree with the President, I agree with everybody who has said, 
all of the witnesses, that long-term--and it is going to have 
to be a long-term policy with regards to China--you are going 
to have to have systemic change in China. That may be an 
oxymoron; I hope it is not. But that is one thing.
    But short-term, for goodness' sake, do not, in this 
business of playing your cards of trying to get a better deal 
for the United States or a better trade situation, do not do so 
at the expense of American agriculture, which is going through 
a very difficult time.
    And I do not like this business of using farmers and 
workers as pawns in this particular game, because every sector 
of ag now is in trouble, and they are worried to death and very 
nervous about that future.
    And I want to thank you all for your comments. Sorry for 
going overboard.
    Senator Cornyn. Senator Cardin?
    Senator Cardin. Well, Mr. Chairman, first, thank you for 
convening this hearing. And I thank all of our witnesses.
    And I just want to underscore the point that Senator 
Roberts made. I recently took over as the ranking Democrat on 
the Small Business Committee, and farmers are small-business 
owners. And over half of our exporters to China are small 
businesses.
    So what concerns me is, we talk about these policies 
concerning China and how companies have to adjust. If you are a 
small-
business owner, it is almost impossible to adjust.
    So I would hope we could get some suggestions as we talk 
about how we engage on trade, our sensitivity to small-business 
owners who are engaged in export, international trade, because 
they really are getting caught without any ability to handle 
the consequences of these trade discussions.
    I do not know if any of you have any suggestions focused on 
small businesses, but I would welcome those.
    Ms. Dempsey. Maybe I will start. You know, over 90 percent 
of the NAM's members are small and medium-sized businesses. And 
actually, one of our small-business members of our board of 
directors was on the House Small Business Committee today 
talking exactly about these types of trade issues.
    I mean, small-business owners, certainly our manufacturers, 
face many of the same challenges that bigger companies do, but 
they face more challenges because they do not have outside 
legal teams, inside legal teams, and the whole support network 
to deal with these challenges.
    Senator Cardin. So how do we help them? How do we, how does 
the USTR, how does the trade discussion become sensitive to our 
smaller companies?
    Ms. Dempsey. The three items that our small-business 
colleague mentioned today at the Small Business Committee on 
the House side were, first, making sure that we have strong and 
enforceable trade agreements with clear rules.
    You know, they are in China and facing multiple changes to 
medical equipment regulations and different standards. That 
makes it really hard for a small-business owner to compete. 
They have done great in terms of exports to China; will that 
continue? That is hard. If we can get China to agree to strong, 
accountable rules, that is part of it.
    Another piece for us is, getting things like our Export-
Import back into full functionality. And we would like to see 
the Senate move forward expeditiously on the nominees that are 
awaiting confirmation.
    The other thing is, the Small Business Administration has 
programs, like the STEP program and other trade promotion 
activities. Our trading partners overseas, our friends and 
allies and those who are not, do a heck of a lot more to help 
their small businesses export and participate--market 
intelligence and assistance--than we do here in the United 
States.
    We have to look really clear-eyed at ways that we can use 
the resources we have. We have excellent resources at the 
Commerce Department; our foreign service officers that Senator 
Grassley was talking about should be making sure that those 
activities are coordinated with the States, because the States 
do a lot of export promotion now too.
    But clear rules, defined rules, that type of support, and 
certainty. And that is why trade agreements and those types of 
things are so important.
    Senator Cardin. I think that is helpful.
    I want to get to Ms. Bliss for one second. I appreciated 
your testimony and responses to some of the questions.
    I just want to get to the overall strategies we have on 
China that I think are not well understood, primarily because 
of the President's lead on general tariffs on steel and 
aluminum under section 232, and then coming under section 301 
against China specifically, where we have legitimate problems 
with China on intellectual property. But it gets confused as to 
whether we are going after specific problems in countries or 
whether we are just trying to protect our domestic industries, 
as seen by the international community in the credibility of 
our programs.
    We did not use the antidumping claim this go-around, which 
is better understood and is specific to a country. Instead, we 
used a general tariff. And I just would like to get your view, 
as a person who was in the USTR, as to how this affects 
America's credibility globally, working with our trading 
partners to understand our policies in regards to China, which 
we have legitimate concerns about, but the manner that we are 
going about packaging that, international trade policies.
    Ms. Bliss. Well, thank you, Senator. In that regard, I 
think, as I have said, that certainly wearing both maybe my old 
USTR hat, but also at CSI, we honestly think that it is 
critically important at this stage to clearly define what the 
objectives are. Now, a lot of that work has been done, because 
there was tremendous work put into the 301 investigation with 
respect to tech transfer and IP. So I think there is no 
question that measures have been looked at, have been 
identified.
    But I think, in terms of pressing forward on what should be 
accomplished, there still needs to be a roadmap, and I think 
that is what we have been really waiting to see in terms of, 
what are the specific objectives, what is the timetable, what 
happens if those objectives are not reached?
    And I think a critical part of that, as I have said, is 
working with our allies, which I think the United States 
government does to a great degree. But I think now, more than 
ever----
    Senator Cardin. We did not in regards to the steel and 
aluminum.
    Ms. Bliss. No, I am not saying that. I am just talking 
about China right now.
    Senator Cardin. But it came right after steel and 
aluminum----
    Ms. Bliss. Right. No, I understand that. But I am just 
saying that, to be effective in focusing specifically on China, 
I think working with our allies--and even though it is out of 
my area of expertise at this point--I think the same could have 
been done with respect to steel and aluminum, although that 
issue seems to be working itself out.
    I would say, and I just wanted to add, that I think 
services is an important part of the trade picture in going 
forward and figuring out where the benefits are.
    Senator Cardin. I agree with you. I think their rules on 
services--and our penetration on services is so low compared to 
our capacity to be involved in services in China.
    Ms. Bliss. Exactly.
    Senator Cardin. And their rules on investment limitations, 
et cetera, are just so protectionist. We clearly need to take 
actions.
    But I guess my point is that that is how we should be going 
after China, where we have very strong claims that are 
understood by the international community rather than using, 
again, the broad stroke, as we started, with aluminum and steel 
at this point.
    Mr. Garfield. I was in Brussels 2 weeks ago, and they were 
very clear about their interest in working with the United 
States on these issues. And our colleagues are heading to Japan 
and Korea next week, and the interest in partnering and working 
with the United States is high. The concern they have is that 
they do not see the broader strategy, and they think the focus 
is solely on tariffs, which our allies are not interested in.
    And so, if we can make clear that there is a broader 
strategy and that it goes beyond tariffs, I think we would be 
surprised at the number of nations that are willing to work in 
collaboration with us.
    Senator Cornyn. Senator Scott?
    Senator Scott. Thank you, Mr. Chairman. And thank you to 
the panelists for being here this afternoon.
    Certainly, our trade approach perhaps is unorthodox at this 
moment. I do think that we are going beyond the trade scope. I 
think I would break it down to three ``t''s, Mr. Chairman: 
trade, tariffs, and theft.
    And perhaps we are conflating some issues at times, but 
really, long-term, I think the President's objective is to make 
sure that we are still in business in the next generation. And 
if we allow the theft to continue from an IP perspective, we 
will find ourselves wishing we would have addressed it 
differently in the past, looking back a generation from now.
    I think the importance of goods in this conversation cannot 
be emphasized enough. I come from South Carolina, a State where 
we were fairly anti-trade for a hundred-plus years, and in the 
last decade or two, maybe three, we have seen a renaissance. 
And now we have BMW that exports 100,000-plus cars from South 
Carolina to China. We are building the new Volvo plant. We have 
the country's largest exporter, Boeing, in my backyard, 
Mercedes as well. So we have a lot of folks who are focused and 
interested in the goods part of the trade conversation.
    I am on the Banking Committee, so I have spent a little 
time on the services part as well. And I think as we look at 
the portfolio of who we are as Americans and what we will 
produce in the future, 75 percent of the U.S. private sector is 
in services. About $731 billion of our exports are services, 
about 80 percent of our GDP.
    So while we spend a lot of time, and we should, on the 
goods component or aspect of our trade conversation, it is 
truly important that we spend a fair amount of time on the 
future economy of this country, which will be driven by our 
services and our ability to engage this world around those 
services. And I would note that our services trade surplus with 
China has grown from, in 2007, $1.3 billion to, 2017, around 
$38 billion. Now, this is just a smidgen--which is southern for 
``small.'' [Laughter.]
    Now, I know that kind of confuses people sometimes. But the 
fact of the matter is that we are growing in the right 
direction. And if we get the rules right with China, we can 
grow exponentially faster in a shorter period of time.
    That growth would be better, Mr. Garfield, as you were just 
talking about, if we made sure that we hold the folks in China 
accountable for the timelines that they set out.
    And to that, if you think about it, China prohibits 
American firms in banking and insurance from establishing 
wholly owned operations by capping their ownership levels. Of 
course, when the Chinese financial services providers come 
here, they do not face the same barriers. And so the 
conversation around reciprocity, I think, is actually a healthy 
conversation and a necessary one.
    In November, China announced plans to remove its foreign 
ownership equity caps in financial services over the next 3 
years. President Xi reiterated those comments this week. Good 
news, I think, Mr. Garfield.
    Maybe not good enough, Ms. Bliss, so I am going to ask you 
to answer a question--two questions for you. Number one, when 
you are focused on China's approach to services, I think there 
is a lot of fine print in the contracts that we have to pay 
close attention to. My understanding is that the Chinese 
securities regulatory commission is currently writing draft 
rules to implement these changes. Is there something we should 
watch for that would not allow U.S. firms to compete on a level 
playing field as promised? Do you think the 3-year roadmap is a 
realistic one?
    Ms. Bliss, if you would start, and anyone else who wants to 
can jump in in my 45 seconds that I have left.
    I have noted, however, that we typically give each Senator 
12 minutes in this hearing, and I appreciate that.
    Senator Cornyn. We will come back for another round.
    Ms. Bliss. Thank you very much, Senator Scott, and for your 
comments about services. Because certainly, one of our missions 
at CSI is to educate about the role of services in the economy 
and the very positive role that it has in job creation and in 
good jobs, and jobs of the future in particular.
    But let me turn specifically to financial services. I think 
we see the notion of--certainly with respect to life insurance, 
China has talked about lifting the 51-percent cap entirely in 5 
years. So we see that as a positive development. And with 
respect to securities, similarly, we look in a positive way at 
the timetable for that to be lifted.
    And really, I think the answer to your question is ``yes,'' 
it is a welcome development for two reasons. One is, because it 
is a commitment that we can solidly and hopefully enforce; and 
two, because it sets a specific timetable.
    So I think our challenge is to make sure that we are there 
the whole way, pushing and making sure that it happens and 
talking about what happens if it does not. So I absolutely 
agree with you.
    And if I can add just a couple of things on the services 
side. I think that, certainly, in terms of the future, one of 
the points that we like to make, which I think is very 
important, is the role that services play in other sectors of 
the economy, like manufacturing and agriculture.
    Senator Scott. Yes.
    Ms. Bliss. So I would just mention that, because when you 
talk about how eight out of 10 of us are in services jobs, if 
you look closely in manufacturing, 25 to 49 percent of the 
import in manufacturing is services.
    So a lot of the jobs that are being created in smart 
manufacturing, which is critically important to our future, are 
services jobs.
    Senator Scott. Absolutely.
    Ms. Bliss. So thank you.
    Senator Scott. Thank you.
    Thank you, Mr. Chairman.
    Senator Cornyn. Thank you, Senator Scott.
    I am interested, Ms. Bliss. I think you said something 
along the lines that the aluminum and steel tariff issue is 
working its way out--or something like that. Am I putting words 
in your mouth? And if not, would you--if I am, please clarify 
that, and if you would, sort of tell us what you meant by that.
    Ms. Bliss. I think what I meant more generally was that the 
administration approach to that particular issue, for which I 
claim no expertise and I am not involved in with respect to my 
association, seems to be on a road--I am not endorsing it one 
way or another--but that is all my comment really meant.
    Senator Cornyn. Okay. Okay. Thank you.
    Given the nature of the Chinese government and their desire 
for economic growth and stability in their political system, 
why in the world would they want to participate in a trade war 
with the United States? Do any of you have any comment on that 
or any response? Because it strikes me as counterintuitive that 
they would want to do anything that would create either 
economic uncertainty or political instability.
    Mr. Garfield. Well, I do not think they want a trade war. I 
think President Xi has spent the last 6, 7 years consolidating 
power for reasons that are important locally.
    Senator Cornyn. He has done a pretty good job.
    Mr. Garfield. Yes. And if there is the potential of eroding 
that consolidation of power, then he and the nation will push 
back aggressively. And I think that is what we saw with the 
tit-for-tat discussions around tariffs.
    I think you raised an excellent point, though. One of the 
things I have learned over the years in visiting China is that 
there are Chinese companies and individuals within the Chinese 
government who have significant concern about the trade norms 
in China. And so part of the work is actually empowering those 
companies and those potential allies within China to begin to 
stand up on the need for China to align with global norms.
    Senator Cornyn. Several of you have mentioned that we ought 
to be playing the long game when it comes to China, but I am a 
little concerned about what happens in the near term, which may 
affect the long game. In other words, if China is able, through 
theft of intellectual property, to undermine our industrial 
base by strategic investment in the United States, including 
startup companies that may not even be on our radar screen, I 
just wonder how much time we have before they basically beat us 
in the near-term game so that, long-term, they are the dominant 
economy. And meanwhile, they continue to build their military, 
project military power, in order to protect that position.
    Ms. Dempsey. You know, I think one of the issues that this 
administration, this President, has brought to the table is the 
urgency of the situation. And my remarks on a bilateral trade 
agreement with China--that is not a long game, that is 
something we should be engaged in right now with real 
timetables to move this forward, because we have to solve these 
issues now rather than later.
    The Chinese market--Mr. Garfield talked about the ICT 
sector. Think about autos, which the Senator from South 
Carolina, Senator Scott, was talking about. Last year in China, 
there were nearly 30 million vehicle sales. Contrast that to 
the United States market, about 17.5 million vehicle sales.
    We have to be part of that market. We have to find a way to 
grow in that market. And right now, the rules are stacked 
against us. We have old rules. We can bring them to comply with 
the WTO rules that are clear-cut. There have been many cases 
that the U.S. Government has brought--rare earths, raw 
materials, auto parts, some others--where the rules were 
absolutely clear; China actually complied.
    But we do not have clear enough rules on a lot of these 
issues right now. We have unfair trade practices that both Ms. 
Lee and I talked about. We need to make sure that our own rules 
there are enforced as well, but we have to act now.
    And I think it is really important that both of you have 
brought this hearing together today, but that is our message.
    Ms. Lee. And, Senator Cornyn, I think that is a really 
excellent point. I have been in this trade debate for a long 
time, for a couple of decades, and a decade ago this was an 
urgent question. And the AFL-CIO, where I used to work, was in 
partnership with a lot of small businesses that were also 
feeling that they were being completely undermined by China's 
currency policies at that time and others.
    And so, you know, I think the urgency is important. And in 
one sense--you asked about a trade war. I know Clyde Prestowitz 
from the Economic Strategy Institute will say we have been in a 
trade war with China that they started a long time ago, and we 
have been losing, and so when we come to the table----
    Senator Cornyn. I am not sure we have been fighting back.
    Ms. Lee. Right. Well, that is because we have not 
recognized that we were in the war. And we come to the table 
very late.
    And, you know, I think that the current policies, the trade 
policies, the tariff policies, that the Trump administration 
has put in place have not been well messaged, they have not 
been well implemented, they have not been thoughtfully 
addressed with respect to our trading partners. And yet, we 
definitely do have the attention of the Chinese government.
    And I think you are right and Mr. Garfield is right, that 
the Chinese government is looking for a trade war, because we 
already have this tremendously imbalanced trade relationship. 
They cannot even find enough U.S. exports to put tariffs on, 
because the imbalance is so great. So I think that the urgency 
is important.
    And I just wanted to quickly address the issues about 
agriculture and small business that were raised by your 
colleagues.
    If you look at the immediate impact, I think people are 
concerned about what will happen if there is retaliation; will 
farmers be in the crosshairs? They will, and small business 
will be impacted.
    But we need to step back and take in the bigger picture 
that I think other people have also raised, which is that, if 
we can address the totality of Chinese unfair trade practices, 
including currency, including subsidies, it will actually help 
both small businesses and farmers.
    Senator Cornyn. Well, I know, Ms. Dempsey, you said we need 
to get a bilateral agreement with China. Most of us are 
concerned with the more immediate concerns about section 232, 
section 301, and NAFTA renegotiation. And it is almost like our 
plate is overflowing, and the idea of undertaking something of 
that magnitude is daunting.
    But let me ask you again. There has been some discussion 
about TPP. I think many of us think the President has not been 
well advised when it comes to trade issues, and we are hoping 
that with Mr. Kudlow onboard and with his track record that he 
will provide a more balanced advice to the President on these 
issues.
    But I have heard the President say that the 11 countries 
that entered into the TPP, absent the United States, have now 
come back to the United States to see if we would be interested 
in joining. Is that a real prospect? Because it strikes me that 
TPP may be one of our best weapons--``weapons'' is not the 
right word--one of our best instrumentalities to try to engage 
China constructively on trade and to leverage our allies, as 
many of you have said we should be doing when it comes to 
dealing with China on trade issues.
    Mr. Garfield. I actually think this is a place where the 
Senate, and Congress generally, can be incredibly impactful.
    Two things. In recent conversations with Ambassador 
Lighthizer, he has raised that both publicly and in private. 
There is the question as to whether that is something this 
Congress would support.
    And so I think, to the extent that there is clarity, that 
it has a path to success, that would be incredibly helpful. And 
so anything that you and your colleagues could do to clearly 
communicate that, I think would be quite helpful.
    The second thing that has been really surprising to us in 
the whole back-and-forth with China with this administration 
over the last few weeks, particularly over the last few days, 
is just the lack of urgency in sitting down face-to-face with 
China to take advantage of the moment. And that is something 
where I think some encouragement from Congress on Secretary 
Mnuchin to get on a plane and advance these negotiations in the 
immediate term, so we can take advantage of what President Xi 
is saying, would be quite helpful as well.
    Senator Cornyn. Well, thank you for that.
    I would just remind all of us that Trade Promotion 
Authority in and of itself was not an easy lift. And so the 
idea of actually approving some other trade agreement in this 
political environment is far from a certainty. So there are 
challenges everywhere.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman.
    I wanted to put something on the record to respond to the 
distinguished chairman of the Agriculture Committee, Senator 
Roberts.
    He and I might have a disagreement about when I was making 
points about workers, but I do not think this is one of those 
false choices where you can choose to support workers or 
farmers when it comes to China. Everyone loses if we do not 
confront China.
    They have really taken advantage of our workers and our 
economy, so I hope we do not get into pitting one group against 
the other, because we are all going to lose if we do not 
confront them. And we have not confronted them; neither party 
has done a very good job on this.
    Senator Cornyn. I thought he was just pulling your leg.
    Senator Casey. Well, I just wanted to make sure the record 
was clear before we moved on.
    Now, Ms. Dempsey, I am calling on you not only because you 
have roots in Pennsylvania, but it helps.
    I want to talk to you about IP theft, because I know we 
have been referring to a number of the consequences of our 
failure to confront China. And I wanted to start with western 
Pennsylvania.
    I am not sure there has been a county--and I am speaking of 
Allegheny County, where Pittsburgh is--or a region of any State 
where there has been more of a target placed by the Chinese 
government than western Pennsylvania.
    They managed to hack into a number of institutions, whether 
it was U.S. Steel or the Steelworkers or ALCOA or ATI or 
Westinghouse--the list goes on and on. A course of prosecution 
was commenced by then United States Attorney David Hickton and 
then carried forward.
    The individual who took over for Dave Hickton, the Acting 
U.S. Attorney for western Pennsylvania, as of when this 
statement was made, November of 2017, said, quote: ``Any 
company should be able to succeed based upon its ability to 
innovate and to compete without being sabotaged by cyber-
hacking,'' unquote. So companies invest millions, if not tens 
of millions, in developing technology and innovation to give 
them a competitive edge, and then that can be ripped away from 
them and certainly have long-term impacts.
    I guess I wanted to ask you to discuss some of those 
impacts in terms of what happens to a particular company on a 
number of fronts. Number one, what happens to their ability to 
be competitive or to be as competitive as they once were or 
hoped to be? What happens to their incentives to innovate? And, 
of course, what happens to their jobs? Can you comment on all 
of that?
    Ms. Dempsey. Absolutely, Senator. And thank you for 
highlighting that concern, because that is a concern. Our 
members in Pennsylvania, those that you mentioned, but also 
across the country, look at that--you know, those were well-
publicized cases--and it chills a lot of our manufacturers.
    And going back to the conversation about small 
manufacturers, can you imagine these smaller manufacturers too 
and the impacts? The impacts are devastating. Companies are 
losing their trade secrets, their ``secret sauce'' of 
production or their special formulas. And some of that you can 
never get back again.
    The concern is, it is not just general counsels' offices, 
it is discussions engineers are having about, how do you plan 
and incentivize that growth going forward? How do you deal with 
that? And then there is the jobs impact.
    I think one of the things that we are looking at is how 
these cases are going in U.S. courts. This is not something 
that is legal in the U.S. legal system, right? We need to make 
sure that the U.S. legal system has the right remedies to stop 
this and to prevent this. And that is probably beyond my level 
of expertise, in terms of the types of actions that we need to 
take.
    This is an issue that we are facing. You know, we face it 
domestically, we face it from other countries, but the concerns 
we have out of China are probably the most compelling that we 
are seeing here. And I think it is an issue that we need to 
stay on top of; we need to be making sure that we do everything 
in our own domestic legal system. We do not need a trade 
agreement to deal with some of this. We can take care of these 
domestic actions right here at home.
    Senator Casey. Anyone else in terms of the company-specific 
or sector-specific impacts? Does anyone want to comment on 
that?
    Mr. Garfield?
    Mr. Garfield. We talked about electronic payment systems. 
When you look at China UnionPay and how much China UnionPay has 
grown since China entered the WTO--and it is now, I think, the 
number-two electronic payment processor in the world while non-
Chinese-based payment processors do not have access to the 
China market--it shows you the nonreciprocal nature and the 
impact it has, because those are jobs that were created there 
through China UnionPay but are not being created here because 
we do not have access to that market, or those companies do not 
have access to that market.
    Senator Casey. Ms. Lee?
    Ms. Lee. Just a brief point. I want to agree with Ms. 
Dempsey's points about the impact on workers but also the 
importance for manufacturing, because we think of intellectual 
property rights as being for pharmaceuticals or for motion 
pictures or other things. But the counterfeit auto parts and 
other things directly impact American workers.
    But there is a difference also when it happens in Allegheny 
County. We have certain tools, we can use the U.S. court 
system. When it happens in another country--which does happen 
when there is outsourcing, when American companies take their 
precious intellectual property and they bring it to another 
country where they do not have these kinds of protections--it 
is much more challenging. So I think it is worth noting that.
    Senator Casey. I want to highlight something that was 
submitted as testimony by the United Steelworkers. On page 2 of 
this testimony, they are talking about the auto sector and the 
consequences here. They are talking about a particular 
advanced, high-strength steel used in the auto industry. And I 
am quoting: ``Companies in China have been unable to develop 
this technology and were under pressure from their domestic car 
companies to get it, so their government stole it for them. 
After the theft, one of the largest steel companies in China, 
Bohai steel, used the trade secrets to produce the specialized 
steel and export it to the United States in direct competition 
with U.S. steel,'' unquote.
    So that is what we are talking about. And we are either 
going to confront this or we are just going to surrender to it. 
And I think for too long, we have been in a surrender mode.
    Thanks, Mr. Chairman.
    Senator Cornyn. Well, thank you, Senator Casey.
    And thanks to each of you for helping us highlight this 
important topic. And I do think the slumbering giant of the 
United States government is starting to be awakened. And 
hopefully, we will be in a position to respond and to address 
these challenges in a way that protects our economy and 
protects our national security and protects our workforce, 
which is so important.
    I want to express my gratitude to Senator Casey and his 
staff for working with my staff to put together this hearing.
    And as a reminder, the deadline for filing any additional 
questions or statements for the hearing record will be 2 weeks 
from today.
    So with that, the Senate Committee on Finance stands 
adjourned. Thank you very much.
    Senator Casey. Thanks, John.
    [Whereupon, at 4:05 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


           Prepared Statement of Christine Bliss, President, 
                    Coalition of Services Industries
    Chairman Cornyn, Ranking Member Casey, members of the subcommittee, 
thank you for the opportunity to present the views of the Coalition of 
Services Industries (CSI) on market access issues in China.

    For more than 3 decades, CSI has been the leading industry 
association devoted exclusively to promoting the international 
objectives of U.S. services companies and associations. Our members 
include the vast array of U.S. companies that provide services and 
digitally enabled services--domestically and internationally--including 
information and communication technology (ICT) services, financial 
services, express delivery and logistics, media and entertainment, and 
distribution and professional services.

    The services sector is a bedrock of the U.S. economy. Services 
account for about 75 percent of U.S. private sector jobs, $730.6 
billion in U.S. exports, and nearly 80 percent of U.S. gross domestic 
product (GDP). Services, including digitally enabled services, are a 
part of and enable every single sector of the U.S. economy. Moreover, 
ICT services drive U.S. productivity overall. Services allow all 
businesses to be more productive, reach more customers in more foreign 
markets, and ultimately, support a better livelihood through higher 
wages and greater opportunities.
                     current state of play in china
    China was the second-largest services export market for U.S. 
services providers in 2017, with $56 billion in U.S. services exports, 
and a $38 billion services trade surplus.\1\ From 1999 to 2007, the 
United States maintained a services trade surplus with China of around 
$1 billion. Since then, U.S. services exports have more than 
quadrupled, resulting in the growth of the U.S. services trade surplus 
with China from $1.3 billion in 2007 to $38 billion in 2017.\2\ This 
growth over the last decade in U.S. services exports to China, along 
with the bilateral services trade surplus with China, exceeds the 
growth in U.S. services exports to other nations (54 percent), and 
exceeds the increase in the global U.S. services trade surplus (which 
has risen by 115 percent).\3\ China has thus become one of the fastest 
growing markets for U.S. services.
---------------------------------------------------------------------------
    \1\ ``Table 3.2. U.S. International Trade in Services by Area and 
Country, Seasonally Adjusted Detail, China,'' Bureau of Economic 
Analysis, U.S. Department of Commerce, March 21, 2017, https://
www.bea.gov/itable/.
    \2\ Ibid.
    \3\ Ibid.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    The financial services sector has been an area of great strength 
for U.S. services providers. Over the last decade, the United States 
has increased its financial services exports to China by 347 percent, 
totaling over $3 billion in 2015.\4\ This growth rate is the second 
highest among all U.S. trade partners and nearly triple the average 
global financial services export growth rate.\5\
---------------------------------------------------------------------------
    \4\ ``Table 2.3. U.S. Trade in Services, by Country or Affiliation 
and by Type of Service, China,'' Bureau of Economic Analysis, U.S. 
Department of Commerce, December 19, 2016, https://www.bea.gov/itable/.
    \5\ Ibid.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Despite the growth of U.S. financial services exports and China's 
stated intent to provide greater services market access, significant 
market access barriers remain, including existing and proposed 
discriminatory regulations in areas such as restrictions on data flows, 
information technologies, equity cap limitations, licensing 
---------------------------------------------------------------------------
restrictions, and outright bans on foreign investment.

    Thank you to the members of the Senate Committee on Finance--
including Senators Cornyn, Scott, Heller, Crapo, Portman, Cassidy, 
Isakson, and Thune--among other Senators, for your leadership on these 
issues. Your September 2017 letter to the administration regarding 
trade and investment barriers that harm U.S. financial services 
institutions and their ability to grow the American economy outlined 
many of our issues. We appreciate your leadership on these and other 
trade issues.

    China has long insisted that it is an open market with clear rules. 
Unfortunately, this position does not match reality. While China 
continues to increase its investments abroad and engage in more trade 
with its partners, U.S. firms have an increasingly difficult time 
competing on a fair playing field in China. U.S. firms have 
considerable experience that could prove beneficial to China as its 
economy develops further, but this requires that U.S. companies have 
non-discriminatory access to the Chinese market. China's current short-
sighted approach means that China risks losing the significant benefits 
and expertise of U.S. services firms.
                china's treatment of data and technology
    The free flow of data across borders is critical in every business 
sector as it is necessary for businesses to operate globally in an 
efficient and secure manner. In addition to the free flow of data, 
businesses also need ICT services, platforms, and other infrastructure 
to provide their services, which are increasingly digitally enabled.

    The free flow of data means that companies can integrate staff 
around the world, maintain their customer networks as well as their 
supply chains, and ultimately build their competitiveness. For 
instance, financial services companies rely on the ability to transfer 
data quickly and easily across the globe to provide better service to 
their clients at lower cost. This means that consumers can access their 
accounts from any location, whether they are performing a simple bank 
transfer or more complex transactions. Further, cross-border data flows 
increase access to capital for start-ups and allow small businesses, 
through digital marketplaces, to tap into foreign markets and receive 
payments from customers.

    Over the last decade, China has taken wide-ranging steps to 
restrict data flows, including through requirements to localize data 
and servers in China. Because of the widespread use of and reliance on 
customer data by many services firms, these practices have significant 
impacts, including in insurance, banking, and cloud computing, among 
other areas.\6\ These data-restrictive policies impede the ability of 
U.S. services firms to supply cross-border services and to make 
investments in China. The inability to operate cross-border, the loss 
of efficiency, the increase in costs, and other impediments reduce U.S. 
competitiveness. The Office of the U.S. Trade Representative (USTR) has 
recently raised concerns at the World Trade Organization (WTO) over 
China's recent restrictions on cross-border data services (including 
Virtual Private Networks or VPNs), and the types of companies able to 
offer those services. The restrictions impact the availability of 
services and suppliers for important business communication services in 
China. There have also been reports of China blocking VPNs used by 
foreign businesses in China.
---------------------------------------------------------------------------
    \6\ Nigel Cory, ``Cross-Border Data Flows: Where Are the Barriers, 
and What Do They Cost?'', Information Technology and Innovation 
Foundation, May 1, 2017, https://itif.org/publications/2017/05/01/
cross-border-data-flows-where-are-barriers-and-what-do-they-cost.

    Moreover, as noted in the letter to China's Cybersecurity 
Administration signed by a global coalition of industry associations, 
including CSI, China's Cyber Security Law (CSL), along with other 
current and proposed regulations, has the potential to create 
additional, discriminatory barriers and impose significant compliance 
burdens for suppliers of a wide number of services due to the CSL's 
broad and vaguely defined scope. Particularly concerning is China's 
proposed requirement that all Chinese personal data must be stored 
domestically. The CSL also potentially subjects U.S. companies to 
security reviews. This includes the proposed requirements to review 
companies' proprietary source code and allow the government to review 
and approve encryption measures. China is still developing implementing 
regulations 9 months after the law has gone into effect, creating a 
great deal of uncertainty around the obligations around different kinds 
of data. Specifically, measures regarding the cross-border transfer of 
data and the scope of Critical Information Infrastructure were written 
quite broadly and contain the strictest requirements around localized 
---------------------------------------------------------------------------
storage of data and cross-border transfer.

    China restricts foreign firms from providing cloud services 
directly in China and imposes numerous discriminatory restrictions. In 
addition, new draft regulations, if implemented, combined with existing 
Chinese laws, would force U.S. cloud service providers to hand over 
operation and control of their business to a Chinese company in order 
to operate in China, and also transfer valuable U.S. intellectual 
property and use of their brand names. These proposed regulations are 
of concern both to U.S. cloud service providers as well as the many 
services and other U.S. sectors that rely on cloud services to operate 
in China.

    To address this, the United States should secure China's commitment 
that it will allow U.S. cloud service providers to obtain and hold all 
necessary licenses for the operation and provision of cloud services in 
China, including those related to software, hardware, facilities, and 
infrastructure; allow foreign investment in Chinese companies 
established to provide cloud services in China; and allow U.S. cloud 
service providers to sign contracts for the provision of cloud services 
in China and use their trademarks and brands to market their cloud 
services. China should also allow U.S. cloud service providers to 
procure telecommunication services (including bandwidth) for the 
provision of cloud services on the same terms available to Chinese 
companies.

    China's regulation of cloud services flows from its decision to 
classify cloud services as a telecommunications service, which, based 
on China's rules, restricts foreign providers to a maximum 50-percent 
equity limit. A similar approach has been taken with other services not 
typically regulated as telecom services, such as content delivery 
networks and Internet platforms. China's approach is inconsistent with 
the global approach that does not regulate or restrict foreign 
participation in these types of services. China should loosen these 
policies to increase market access for U.S. providers of these and 
other types of communications services.

    China has cited concerns over national security as the 
justification for many of these restrictions, but in September 2015 and 
June 2016, China committed to the United States that measures it has 
taken to enhance cybersecurity in commercial sectors would be non-
discriminatory and would not impose nationality-based conditions or 
restrictions. These restrictions are in direct contradiction of 
commitments and commitments China has made to open up its market.

    China imposes other severe restrictions in ICT services as well. It 
fails to provide non-discriminatory market access for a broad range of 
online services--requiring joint venture partners for online services 
and then failing to issue approvals for those joint ventures. It fails 
to allow U.S. companies to provide video and music services on a cross-
border basis. And more broadly, China completely blocks a wide range of 
legitimate U.S. websites and services, as USTR has highlighted in its 
recent National Trade Estimate report.
                       insurance markets in china
    U.S. access to China's insurance and retirement securities markets 
remains difficult because of restrictive Chinese measures. Foreign 
insurers have less than a 5-percent cumulative market share in what is 
the third-largest insurance and pensions market in the world.\7\ Given 
the size and future growth of China's insurance markets, and the 
relatively small market share of foreign firms, the economic 
opportunity for foreign insurers, absent the discriminatory equity cap 
and prohibition on U.S. companies in the enterprise annuities sector 
(China's 401k), is exponential and would deliver significant commercial 
benefits to U.S. industry. Profits generated from overseas operations 
would help fund long-term infrastructure investments in the United 
States, create jobs, and support high-paying service jobs.
---------------------------------------------------------------------------
    \7\ ``The 13th Five-Year Plan--China's Transformation and 
Integration With the World Economy,'' KPMG, October 2016, https://
assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2016/10/13fyp-opportunities-
analysis-for-chinese-and-foreign-businesses.pdf.

    Current Chinese regulation places a 50-percent cap on foreign 
equity in life, health, and pension companies, a restriction that has 
been in place since China's accession to the WTO in 2001. Removing this 
equity cap has been a top priority for the U.S. financial services 
industry for over a decade. At the end of 2017, China announced it 
would allow 51-percent foreign ownership in Chinese life-insurance 
companies in 3 years and lift that restriction entirely in 5 years. 
This is a welcome development and strong signal of liberalization from 
China, though follow-through and implementation are of utmost 
importance to ensure the equity cap is lifted in an effective manner. 
Liberalization in the life insurance sector would benefit Chinese 
consumers who need greater access to insurance and more stable 
protection and investment options in light of China's recent market 
---------------------------------------------------------------------------
volatility.

    China has made some progress in liberalizing the non-life insurance 
sector. In 2013, China removed all restrictions on foreign non-life 
insurers. In January 2017, China's State Council issued the ``Circular 
on Several Measures to Expand the Opening-up and Actively Utilize 
Foreign Investment,'' which committed to lower entry restrictions on 
foreign investment in several services sectors, including insurance, 
banking, and securities.\8\ But, further action is needed.
---------------------------------------------------------------------------
    \8\ ``Circular on Several Measures to Expand the Opening-up and 
Actively Utilize Foreign Investment,'' State Council of China, January 
17, 2017, http://www.gov.cn/zhengce/content/2017-01/17/
content_5160624.htm.

    The elimination of the equity cap aligns well with China's domestic 
policy goals and economic reform agenda, which emphasizes the need to 
grow the services sector, deepen financial inclusion, and enhance the 
participation of foreign financial services firms in China. 
Liberalization in the life insurance sector would benefit Chinese 
consumers who need greater access to insurance and more stable 
protection and investment options in light of China's recent market 
---------------------------------------------------------------------------
volatility.

    China has not yet authorized any U.S. investment in the enterprise 
annuities industry, which is China's 401(k) industry. In addition to 
equity restrictions in China, there is a 33 percent cap in the 
securities sector. There is also a recent proposal for new regulations 
to restrict domestic shareholding in foreign-invested insurance 
companies (both life and property casualty), which will diminish the 
value of existing investments. The United States should seek 
confirmation from China's insurance regulator that the existing 
``Foreign-Invested Measures'' will continue to govern, with respect to 
foreign equity and all other issues involving insurers, with at least 
25-percent foreign investment. It should also seek confirmation that 
the proposed regulations will not be applied retroactively to foreign-
invested insurance companies.

    China has made several commitments on insurance at the WTO. This 
includes allowing 100-percent foreign equity in property insurance and 
reinsurance, as well as prohibitions on creating conditions of 
ownership for existing foreign suppliers of insurance services that are 
more restrictive than they were on the date of China's accession to the 
WTO. Both commitments are formalized in the 2004 ``Detailed Rules on 
the Measures for the Administration of Foreign-Invested Insurance 
Companies.''

    However, questions remain on how well these commitments have been 
followed. In short, explicit and implicit barriers in China's insurance 
sector mean that U.S. firms are unable to fully tap into this critical 
market.
                    banking and securities barriers
    China has exercised great caution in opening its banking sector to 
the United States. In particular, China has imposed capital 
requirements and other rules that that have made it more difficult for 
foreign banks to establish and expand their market presence in China. 
It is then unsurprising that foreign banks' collective market share in 
2013 was below 2 percent.\9\
---------------------------------------------------------------------------
    \9\ ``Future Directions for Foreign Banks in China 2014,'' Ernst 
and Young, 2014, http://www.ey.com/Publication/vwLUAssets/EY-foreign-
bank-china-report-2014/$FILE/EY-foreign-bank-china-report-2014.pdf.

    U.S. banks, securities, and other bodies are unable to compete on 
an equal footing with domestic institutions. U.S. banks are subject to 
a 20 percent investment ceiling (for single foreign shareholders) and a 
25-percent investment limit (for multiple foreign shareholders) in 
local Chinese banks. Further, once a foreign-funded business in the 
banking sector is established, it is limited in its activity for 2 
years. Following this waiting period, a business can expand the scope 
of the business, assuming it has met certain conditions, which includes 
holding over $10 billion in total assets.\10\ There are also other 
restrictive regulations, including stipulations that foreign banks in 
China must work through branches, as opposed to subsidiaries. These 
restrictions have legal and economic impacts.
---------------------------------------------------------------------------
    \10\ ``2017 National Trade Estimate,'' China, Officer of the United 
States Trade Representative, Executive Office of the President, March 
2017, https://ustr.gov/about-us/policy-offices/press-office/reports-
and-publications/2017/2017-national-trade-estimate, 87-88.

    Equity caps on foreign ownership of securities joint ventures have 
not been lifted in China since 2012, and remain at 49 percent, despite 
the commitment to ``gradually raise'' the equity caps from the 2016 
Strategic and Economic Dialogue (S&ED).\11\ China has announced it will 
allow foreign companies to hold 51 percent of domestic securities 
firms, up from 49 percent, with the plan for the 51-percent cap to be 
removed 3 years after the new limit takes effect. Again, a welcome 
development that requires proper implementation. Following through on 
this commitment to ensure that a foreign firm can establish a wholly 
owned company in its market is a bedrock free market principle that the 
Unitexd States and a significant number of other countries committed 
themselves to many years ago. It is time for China to make the same 
positive step by allowing U.S. securities firms to establish wholly 
owned subsidiaries without subjecting them to additional requirements 
that would hamper those subsidiaries' ability to conduct business 
onshore on the same terms as domestic players.
---------------------------------------------------------------------------
    \11\ ``2016 U.S.-China Strategic and Economic Dialogue Joint U.S.-
China Fact Sheet--Economic Track,'' U.S. Department of Treasury, June 
7, 2016, https://www.treasury.gov/press-center/press-releases/Pages/
jl0484.aspx.

    China has also committed to expand opportunities for U.S. financial 
services firms to acquire settlement and underwriting licenses as part 
of the 2016 S&ED.\12\ CSI's member companies look forward to working 
with the U.S. and Chinese governments to ensure proper and effective 
implementation of these licenses is underway.
---------------------------------------------------------------------------
    \12\ Ibid.
---------------------------------------------------------------------------
                      electronic payment services
    In May 2017, opening China's domestic market for U.S. electronic 
payment services (EPS) suppliers via a bank card clearing institution 
(BCCI) licensing process was included in the 100 Day Action Plan 
between the United States and China. Several U.S. EPS suppliers filed 
their BCCI applications in 2017 and all are still pending review by the 
People's Bank of China (PBOC) at this time.

    China has committed through its WTO obligations, and more recently 
under the 100 Day Action Plan, to ensure ``full and prompt'' market 
access for U.S. EPS suppliers. CSI urges this commitment to be upheld 
as soon as possible.
         a path forward through continued bilateral engagement
    Despite the market access issues I've outlined, it is important to 
keep in mind that China represents a significant opportunity for U.S. 
services firms. China is the third largest destination for American 
goods and services.\13\ In fact, U.S. exports to China supported 1.8 
million new jobs and $165 billion in GDP in 2015.\14\ One cannot 
underestimate the potential of the Chinese market--one-fifth of the 
world's population and almost 10 percent of global wealth is China.\15\ 
China also holds the largest middle class in the world. In order to 
increase the services surplus with China, we recommend identifying 
incentives to open up new opportunities for U.S. firms. Any approach 
designed to further U.S. interests ought to recognize that the Chinese 
market has much to offer for American companies and their employees.
---------------------------------------------------------------------------
    \13\ Oxford Economics, ``Understanding the U.S.-China Trade 
Relationship,'' U.S. China Business Council, January 2017, https://
www.uschina.org/sites/default/files/Oxford%20Economics
%20US%20Jobs%20and%20China%20Trade%20Report.pdf, 4.
    \14\ Ibid., 4.
    \15\ Richard Kersley and Markus Siterli, ``Global Wealth in 2015: 
Underlying Trends Remain Positive,'' Credit Suisse, October 2015, 
https://www.credit-suisse.com/corporate/en/research/research-institute/
news-and-videos/articles/news-and-expertise/2015/10/en/global-wealth-
in-2015-underlying-trends-remain-positive.html.

    CSI supports efforts to constructively engage with China because it 
is critical for the United States to address the current and growing 
trade and investment challenges facing U.S. services providers 
operating in China. We believe that a measured and holistic approach in 
engaging with China and avoiding harm to U.S. businesses, workers and 
consumers is of the utmost importance. Close cooperation with our 
---------------------------------------------------------------------------
international partners is also an essential element for success.

    CSI and its members stand ready to work with you in crafting a 
comprehensive and transparent approach to ensure that the full spectrum 
of barriers to U.S. services providers operating in China are addressed 
in a manner that demands action from China and minimizes the real 
threat of reciprocal punitive measures. CSI believes that a carefully 
calibrated approach with robust input from industry will facilitate the 
most positive outcome.

    Thank you for your time. I look forward to answering your 
questions.

                                 ______
                                 
           Prepared Statement of Hon. Robert P. Casey, Jr., 
                    a U.S. Senator From Pennsylvania
    From steel and tires to high-tech, industries across Pennsylvania 
and the country face significant challenges when it comes to China. Be 
it through forced technology transfer, joint ventures, theft of 
intellectual property, or straight-up barriers to entry, U.S. firms and 
manufacturers have been fighting for decades to get the same treatment 
for American-made products in China, as Chinese exports see in the 
United States.

    When Ambassador Lighthizer came before the committee a few weeks 
ago, he stated ``the costs of globalization are falling most heavily on 
workers.'' I could not agree more. Studies by EPI and MIT economist 
David Autor, and his coauthors David Dorn and Gordon Hanson lend data 
to that assertion. According to the MIT study, roughly 40 percent of 
the decline in U.S. manufacturing between 2000 and 2007 was due to a 
surge in imports from China.

    That has been the experience of Pennsylvania. It started to present 
itself in the 1980s. There was a 4- or 5-year period in the early 1980s 
when tens of thousands of steel worker jobs in southwestern 
Pennsylvania were lost. And it just continued from there. And I have to 
say that I don't think in the last generation that either party has 
done nearly enough. Neither party has had, in my judgment--and this 
applies to multiple administrations and multiple Congresses--an answer 
for these workers.

    U.S. industries have been under a sustained attack from China for 
the past decade--our steel, aluminum, manufacturing. And now China has 
given us the playbook for their next line of attack: robotics, rail 
equipment, and advanced medical products, to name a few. Pennsylvania 
knows all too well what may be in store for cities across the country 
if we don't address the systemic threat that China presents. After the 
collapse of the steel industry Pittsburgh fought its way back, 
reinventing itself with the help of our civic leaders, foundations and 
universities to be on the cutting edge in robotics and advance tech. 
China, in its 2025 plan, is coming after that too.

    I am glad we're having this hearing today, and I hope it begins a 
much-needed conversation on the type of comprehensive strategy we need 
to address the threat posed by China. If you don't have a strategy that 
undergirds the development of an answer, then you won't get the result 
I think we can all agree on: ensuring U.S. workers have the skills they 
need to compete, insulating our communities from economic shock and 
preventing China from stealing our future.

    Part of that is making sure our communities have access to 
immediate economic assistance when a large job loss or localized 
recession occurs--which can happen for any number of reasons outside of 
trade. The goal is always to prevent economic shocks from happening, 
but if they do occur, we must respond, and respond quickly. I've put 
forward a proposal on that and would welcome your insights at a future 
date.

    China has made no secret about its strategy to push the rules to 
their limit, and when advantageous, break them outright. They know that 
by the time a trade case reaches conclusion the damage to an industry 
has been done. The United States needs a sustained and coordinated 
strategy to address the threat posed by China. And the United States 
should work with our allies to execute it. This is not a problem unique 
to the United States, there is no need to treat it as such.

    I think we can all agree that something must be done to address the 
barriers China puts up that prevent our companies from competing on a 
level playing field.

    I am glad to work with Senator Cornyn on these critical issues. And 
I appreciate our witnesses for sharing their expertise and experience 
with the committee.

                                 ______
                                 
                Prepared Statement of Hon. John Cornyn, 
                       a U.S. Senator From Texas
    Good afternoon. Thank you for being here today.

    The focus of today's hearing is on an important international 
market--one that happens to be the world's second-largest economy.

    This market--I'm talking about China, of course--is also the United 
States' largest merchandise trading partner and is the third-largest 
export market for U.S. goods abroad.

    While the legitimate flow of goods and services between United 
States and this nation have increased over the years, the statistics 
alone do not tell the entire story.

    We also must consider the national security context here. Within 
just 7 years, China will pose the greatest threat to U.S. national 
security of any nation, according to General Joe Dunford, Chairman of 
the Joint Chiefs of Staff.

    As China's population grows and its economy continues to modernize, 
the Chinese market will continue to emerge as an attractive one for 
U.S. businesses seeking the opportunity to serve the Chinese consumer, 
in all sectors.

    But, unfortunately, while Chinese companies enjoy largely 
unfettered access to the U.S. market and an economy that is open to 
investment, U.S. companies are not afforded with reciprocity in this 
regard.

    In order to paint a picture of the persisting problem, we must 
first review the historical context.

    In the 1980s, China first sought entry into the rules based global 
trading system known as the World Trade Organization (WTO).

    After years of deliberations and negotiations, an agreement was 
reached in 2001.

    This agreement allowed for China's accession to the World Trade 
Organization if it agreed to comply with a number of free-market 
principles: tariff reductions, equal footing for foreign businesses, 
and the removal of implicit and explicit barriers to trade.

    Moreover, China would have to adhere to global principles under the 
TRIPS agreement to protect and enforce intellectual property rights.

    Fast forward to 2018, 17 years later, and China has still not lived 
up to its WTO obligations.

    China's authoritarian regime, its One Belt, One Road Initiative, 
and its Made in China 2025 plan are part of a comprehensive agenda to 
promote state-driven industrial policies that distort and disadvantage 
U.S. firms who are simply seeking free market competition with Chinese 
companies.

    U.S. companies seeking to do business in China often encounter a 
protectionist system; one that employs predatory tactics and promotes 
domestic, subsidized industries over foreign competitors.

    The U.S. Trade Representative's 2017 Report on China's WTO 
Compliance explains that today's situation in China is even worse than 
it was 5 years ago, as the state's grip on the economy continues to 
increase.

    Even more alarming is the fact that U.S. technology companies often 
report of China's blatant attempts to steal sensitive and proprietary 
intellectual property.

    In many cases, China has used trade as a weapon, coercing U.S. 
companies to enter into joint ventures and other business arrangements 
which require a company to hand over key technology and know-how, the 
so-called ``secret sauce,'' simply in order to gain market access.

    This practice has already begun to erode America's technological 
advantage and undermine our defense industrial base.

    That's why I have introduced legislation, along with Senator 
Feinstein, called the Foreign Investment Risk Review Modernization Act 
(FIRRMA), to combat this epidemic and modernize the Committee on 
Foreign Investment in the United States (CFIUS).

    It is also my understanding that President Trump and his 
administration are currently considering potential temporary actions 
under existing authority to ensure investment reciprocity and protect 
U.S. national security, in part because CFIUS lacks adequate authority 
under its current statute.

    China's restrictive market is highly concerning, and multiple 
administrations have attempted to engage China's leaders on their trade 
practices.

    China will even send its students to American colleges and 
universities for STEM-related degrees, only to have them return to 
China and further advance their goals.

    Unfortunately, many rounds of high-level diplomatic talks have 
generally yielded little progress--often resulting in commitments made 
with zero action.

    Take the latest Comprehensive Economic Dialogue for example. The 
``100-day plan on trade'' yielded commitments from China--most of which 
have yet to be followed through on.

    Discussions may continue in the future, but one thing is clear: 
China's market access reforms are too slow, and barriers still exist.

    Reciprocal treatment for U.S. companies should not be too much to 
ask.

    It is my hope that today's hearing will paint a clear picture of 
the problems that persist with access to China's market, and that 
significant reforms will follow.

                                 ______
                                 
    Prepared Statement of Linda Menghetti Dempsey, Vice President, 
 International Economic Affairs, National Association of Manufacturers
    Chairman Cornyn, Ranking Member Casey, and members of the 
subcommittee, thank you for the opportunity to testify on 
manufacturers' views on market access challenges in China.

    The National Association of Manufacturers (NAM) is the largest 
manufacturing association in the United States, representing more than 
14,000 manufacturers small and large in every industrial sector and in 
all 50 States. Manufacturing employs nearly 12.6 million women and men 
across the country, contributing $2.25 trillion to the U.S. economy 
annually. The NAM is committed to achieving a policy agenda that helps 
manufacturers grow and create jobs. Manufacturers very much appreciate 
your interest in and support of the manufacturing economy.

    U.S.-China commercial relations are a top priority for 
manufacturers in the United States, given both the challenges and 
opportunities this relationship presents. I appreciate the opportunity 
to testify today to discuss the market access challenges that 
manufacturers face in China.
                              i. overview
    It's fair to say that our Nation's trading relationship with China 
is complicated.

    On the one hand, there are few places in the world where 
manufacturers sell more or have increased sales. Indeed, manufacturers 
in the United States export more goods to China than any other market 
outside of our NAFTA partners in North America--to the tune of nearly 
$96 billion in 2017--which, in turn, supports hundreds of thousands of 
U.S. manufacturing jobs here at home. Exports of ``made in the USA'' 
manufactured goods to China have grown more than $76 billion since 
2002, more than to any other country, except Canada and Mexico. That's 
especially important considering that more than half of American 
manufacturing workers depend on exports for their paychecks.

    On the other hand, there are few places in the world where trade 
has proven more challenging for American manufacturing. From unfair 
subsidies, to intellectual property (IP) theft and market-distorting 
policies that shield Chinese companies, manufacturers and workers in 
the United States face an unfair playing field that harms U.S. 
manufacturing and holds us back.

    There is no doubt that we need to address these challenges. China 
simply must follow the same rules as everyone else. It simply must be 
held accountable when it cheats. On this, nearly all parties agree.

    The question is how best to go about doing so.

    There has been a lot of debate about this for a long time. We at 
the NAM believe it's time to finally change the contours of that 
debate. We think a comprehensive strategy will be needed if our country 
is to truly achieve the best outcomes for American workers and American 
enterprise. In our view, that means pursuing a modern, innovative and 
comprehensive bilateral trade agreement that wholly restructures our 
economic relationship with China. This is at once both a radical idea 
and, in our estimation, the most pragmatic and effective way forward.

    Targeted actions can provide some relief in the short term to some 
manufacturing industries, they can harm others, and there will be a lot 
of arguments about their merits in-between. So, at the end of the day, 
we think it's best to address the underlying systemic issues that have 
given rise to the imbalances in the U.S.-China relationship in the 
first place. That's what I look forward to discussing with you further 
a little later in my testimony.

    But first, it's important to understand the nature of our trading 
relationship with China.
               ii. the u.s.-china commercial relationship
    The U.S.-China commercial relationship has grown substantially over 
the past several decades following China's accession to the World Trade 
Organization (WTO) in 2001. China is the United States' largest goods 
trading partner, the largest source of U.S.-manufactured goods imports, 
and the third-largest export market for U.S.-manufactured goods:

          U.S.-manufactured goods exports to China grew from $19 
        billion to nearly $97 billion between 2002 and 2017.

          U.S. imports of manufactured goods from China have grown 
        even more from $122 billion in 2002 to nearly $496 billion in 
        2017.

    In joining the WTO, China agreed to abide by the WTO agreements 
that were largely created in the Uruguay Round talks that ended in 
1994, as well as some specific requirements in its protocol of 
accession. In subsequent years, China has also agreed to new, targeted 
agreements, including the Trade Facilitation Agreement (TFA) to cut red 
tape at the border and regularize customs processing and the 2015 
expansion of the Information Technology Agreement cutting tariffs on 
information and communications technology products. Unlike some of the 
original WTO members, most notably Brazil and India, China was brought 
into the WTO on much stricter tariff terms, agreeing to cut tariffs to 
an average rate of 10 percent without any flexibility to raise tariffs 
(as Brazil, India, and other countries have retained) and changing 
thousands of regulations, laws, and guidelines. China's protocol of 
accession also outlined many other requirements specific to China, 
including some requirements to address distortive activities by state-
owned enterprises (SOEs) and unfair government involvement in 
commercial transactions. While China implemented many of these 
provisions fully, there are gaps in China's implementation and issues 
that were not fully covered by the WTO requirements.

    As a result of the implementation of many of these provisions, U.S. 
manufacturers have increased exports to record levels in 2017, 
supporting hundreds of thousands of American manufacturing workers. 
China is the single largest foreign purchaser of U.S.-manufactured 
goods outside of North America, and U.S.-manufactured goods exports 
account for approximately 11 percent of all of China's imports. Among 
the U.S. manufacturing sectors that have seen the biggest growth are:

          Transportation equipment, including aerospace products and 
        parts; motor vehicles, auto parts, and related products; 
        railroad rolling stock; and ships and boats; overall, U.S. 
        transportation equipment exports increased by nearly $26 
        billion between 2002 and 2017;

          Chemical products, which have increased by nearly $12 
        billion since 2002;

          Computer and electronic products, including semiconductors, 
        measuring and medical control equipment, and computer and 
        communications equipment; overall, U.S. computer and electronic 
        product equipment exports to China increased by nearly $12 
        billion between 2002 and 2017; and

          Machinery, such as industrial machines, engines, and power 
        transmission equipment; overall, U.S. machinery exports 
        increased by more than $6 billion between 2002 and 2017.

    Manufacturers of agricultural equipment, from tractors and seeds to 
farming implements, grain storage structures, and fertilizers, have 
also grown as a result of increased sales to the U.S. agricultural 
sector, which has expanded U.S. product through strong export growth to 
the Chinese market in numerous areas. Indeed, U.S. agricultural exports 
to China have grown to nearly $18 billion in 2017, from a base of less 
than $1.5 billion in 2002. China is the largest single country 
purchaser of U.S. farm products.

    The U.S.-China investment relationship is also substantial, 
totaling more than $68 billion in 2016. U.S. manufacturing investment 
in China equaled $47 billion in 2016, up from nearly $6 billion in 
2002, and equal to just 7 percent of worldwide U.S. foreign direct 
investment in manufacturing ($667 billion in 2016). Sales by U.S. 
manufacturing affiliates in China equaled $283 billion in 2015, 
compared to only $9 billion in U.S. exports by those same affiliates. 
Chinese foreign direct investment in U.S. manufacturing totaled nearly 
$21 billion that same year, up from just $215 million in 2002.

    While there have been significant improvements in the U.S.-China 
commercial relationship, China also poses a major challenge for 
manufacturers small and large, imposing a range of market-distorting 
and trade-limiting barriers that impact manufacturers in the United 
States. To address some of these issues, the United States has brought 
more than 20 WTO challenges against China, several of which have 
successfully resolved issues directly covered by WTO rules, such as 
relating to export restraints, subsidies, and automotive parts. In 
other areas, as discussed below, the WTO rules do not explicitly or 
sufficiently discipline practices, and additional work is needed to 
address these gaps in coverage that allow unfair barriers to continue.
      iii. key market access concerns in china and related issues
    The Chinese market remains one of the most frequently cited trouble 
spots for manufacturers in the United States, and challenges continue 
to rise. Among the market-distorting and damaging industrial policies 
and other measures negatively impacting manufacturers in the United 
States include the following:

          Localization Policies: Manufacturers in the United States 
        have seen in recent years a resurgence of discriminatory 
        policies, particularly those that have a differential impact on 
        products and technologies produced by domestic and foreign 
        companies, even if they do not explicitly treat domestic and 
        foreign companies differently. These policies are often as 
        problematic for foreign companies as explicit discrimination 
        and should be eliminated. Particularly concerning are 
        localization policies related to production or technology that 
        mandate local testing and certification requirements for 
        products in the information, communications and 
        telecommunications, (ICT) and medical sectors as well as 
        policies requiring companies to store China-generated data on 
        local servers and prohibiting their transfer overseas.

           One policy area of significant concern is China's ``Made in 
        China 2025,'' an ambitious 10-year plan designed to upgrade 
        China's manufacturing economy. The plan sets specific targets 
        for domestic manufacturing (40 percent domestic content of core 
        components and materials by 2020 and 70 percent by 2025), 
        focusing on 10 priority sectors, such as information 
        technology, new energy vehicles, agricultural equipment, and 
        robotics. While the plan's broad objective of promoting smart 
        manufacturing policies in China is common to many countries, 
        the specific implementation and localization targets of the 
        plan raise significant concerns for manufacturers in the United 
        States. In particular, the plan's focus on building globally 
        competitive Chinese companies through specific government 
        policies and financial support raise concerns that the plan's 
        effect will be to benefit Chinese manufacturers over foreign 
        ones, raising significant questions about the consistency of 
        policies with China's WTO commitments.

           Examples of other policies with localization elements 
        include:

              Cybersecurity policies that pressure 
        companies to localize technology;

              Data flow restrictions/Internet controls; and

              Expedited product approvals for innovative 
        medical device products.

          IP Rights: While China has increasingly recognized the value 
        of innovation and IP rights and enforcement, with some steps 
        being taken to upgrade IP laws and regulations, promote IP 
        awareness, and tackle IP enforcement, much more work is needed 
        in this core area important to manufacturers of all sizes and 
        types. Among the areas of most concern that impede U.S. market 
        access and fair competition in the Chinese market are:

              High levels of counterfeiting, piracy, and 
        trade secret theft, both physically and online;

              Structural barriers to strong IP enforcement, 
        such as value thresholds that effectively preclude criminal 
        enforcement;

              Policies designed to push companies to 
        localize R&D and technology and promote the development of 
        Chinese IP-intensive industries;

              Policy developments in areas such as 
        competition, standards, and product price controls that 
        undercut U.S.-generated IP;

              Cybertheft that has targeted several U.S. 
        companies; and

              Weak enforcement.

          Standards, Technical Regulations, and Conformity Assessment 
        Procedures: Manufacturers in the United States continue to 
        experience a variety of challenges related to standards and 
        technical regulations in China, ranging from inadequate 
        channels for participation in standard-setting processes, 
        treatment of IP in standards setting, and Chinese efforts to 
        promote standards, both at home and abroad, that do not 
        harmonize with international standards. All of these 
        regulations and requirements can add significantly to the cost 
        of manufacturing products for export to China and limit the 
        ability of U.S.-manufactured products to compete fairly in 
        China. Among the areas where manufacturers in the United States 
        are facing challenges include electric vehicles, medical 
        equipment, and hazardous substances in electric and electronic 
        products.

          Subsidies and Other Measures: Manufacturers in the United 
        States continue to be concerned about a range of other Chinese 
        Government actions that have led to market distortions, such as 
        subsidies and state-owned enterprise (SOE) interventions in the 
        market that have built up massive overcapacity. Steel and 
        aluminum are front and center, but overcapacity is also a 
        problem in industries such as chemicals, fertilizer, concrete, 
        agricultural processing, and semiconductors. More broadly, 
        Chinese Government agencies continue to use a variety of export 
        policies, particularly export restraints and subsidies, to 
        promote or restrict the growth and export of priority products 
        and sectors to provide an advantage to Chinese producers 
        reliant on various metals and raw materials. While the United 
        States has brought and won WTO cases on some of these policies, 
        others continue to pop up. These actions both undermine U.S. 
        market access in China and distort competition in the United 
        States and third-country markets, all to the disadvantage of 
        manufacturers and their workers in the United States.

          Investment Restrictions: Manufacturers also face investment 
        caps in key manufacturing sectors, such as agricultural 
        processing, automotive, and telecommunications, forcing them to 
        form joint ventures with domestic companies under the Catalogue 
        Guiding Foreign Investment. Problematically, this allows 
        government and company stakeholders leverage to seek 
        concessions from foreign companies, including investment 
        commitments, local sourcing, and access to capital and 
        technology, in exchange for investment approval. In a series of 
        changes in late 2016, China approved some revisions to its main 
        foreign investment laws, which, while generally welcome, did 
        not fully address remaining concerns from manufacturers in the 
        United States about continued investment caps in critical 
        sectors, efforts to build a national security review system for 
        foreign investment and broader regulatory concerns that impact 
        foreign-invested enterprises. Given the role of investment 
        overseas in helping manufacturers reach foreign customers and 
        participate in foreign resource and infrastructure projections, 
        these rules negatively impact market access for manufacturers 
        in the United States.

          SOEs: During China's WTO accession, China made a number of 
        commitments related to the activities of SOEs and state-
        invested enterprises (SIEs), including agreeing that those 
        firms would make purchases and sales based solely on commercial 
        considerations and not be influenced by the government. Despite 
        that commitment, the Chinese Government has continued to play a 
        strong hand in SOE and SIE management and decision-making and 
        pressure these firms to act in ways to support government 
        priorities. Efforts to strengthen SOEs have only accelerated 
        under President Xi Jinping, with plans that have generally 
        focused on strengthening, not reforming, SOEs with only small 
        changes, such as promoting mixed-ownership structures, 
        addressing corruption, and reforming executive board 
        operations.

          Import Regulation: From tariffs and customs barriers to 
        differential import procedures, manufacturers in the United 
        States face a number of border barriers in China that impede 
        U.S. exports and limit market access:

              While China reduced tariffs as part of its 
        WTO implementation on a broad range of manufacturing products, 
        the process did not eliminate all of China's burdensome 
        tariffs, including some high tariff rates in key manufacturing 
        sectors.

              While China ratified the WTO's TFA in 
        September 2015, it will not implement its Schedule B 
        commitments, including implementation of a ``single window'' 
        system for customs clearance, publication of average customs 
        release times, or customs cooperation, until 2020. As a result, 
        U.S.-manufactured goods face higher costs and red tape as well 
        as delays in exporting to China.

              Inconsistencies in customs-related 
        regulations and enforcement create unnecessary challenges for 
        U.S. exporters. Particularly concerning are different customs 
        clearance proceedings and regulations between different ports, 
        different agencies, and even different customs agents as they 
        seek to get products cleared, including customs classification, 
        customs valuation procedures, and clearance requirements.

              In addition, China's current import clearance 
        regime unnecessarily complicates trade and restricts low-value 
        shipments (including shipments of manufactured goods sent 
        through e-commerce channels) from benefiting from expedited 
        shipments treatment, as envisioned in the TFA. Although China's 
        complex import clearance procedures can clear products through 
        one of three channels (including an e-commerce category), 
        burdensome requirements to utilize the e-commerce channel 
        prevent many products from benefiting from this option.

              Manufacturers in the United States are seeing 
        the misuse of Chinese trade laws to retaliate against U.S. 
        industries and limit U.S. imports unfairly.

              Import bans and other regulatory limits have 
        also undermined U.S. access to China's market, including bans 
        on remanufactured products and units and a July 2018 ban on 24 
        types of materials, including scrap paper and plastic.

          Transparency and the Rule of Law: Despite Chinese 
        commitments during its accession to a range of reforms related 
        to the rule of law, including regulatory transparency and 
        consistent implementation of laws and regulations, China 
        continues to struggle with many of these areas in ways that 
        have a significant negative impact on the ability of 
        manufacturers in the United States to navigate China's 
        regulatory framework and participate on a level playing field 
        in the Chinese market. Among the most concerning areas are:

              A lack of full regulatory transparency 
        regarding laws and regulations, where new rules are implemented 
        with limited notice and input from the private sector; and

              A lack of fair and open processes regarding 
        regulatory approvals.
          iv. improving the u.s.-china commercial relationship
    The U.S.-China commercial relationship holds potential to spur the 
growth and expansion of manufacturing here at home, but the trading 
relationship must be fair and open and must tackle persistent barriers.

    On this point, there is a lot of work left undone. Of particular 
importance for manufacturers is work to ensure full enforcement of 
existing international and domestic trade rules, including bringing 
additional WTO cases; engagement and coordinated activities with our 
trading partners and through regional and global channels, such as the 
Asia-Pacific Economic Cooperation Forum and G20; and the creation of 
new rules to ensure a free and fair competitive landscape for 
manufacturers in the United States.

    While targeted actions can provide some relief in the short term to 
some manufacturing industries, they can harm others, and there will be 
a lot of arguments about their merits in-between. This is especially 
true of tariffs, which, as NAM president and CEO Jay Timmons recently 
put it, can also create new challenges in the form of significant added 
costs or provoke China to take further destructive actions. So, at the 
end of the day, we think it's best to address the underlying systemic 
issues that have given rise to the imbalances in the U.S.-China 
relationship in the first place.

    As Timmons explained in a letter to the President on January 8th, 
to address these issues comprehensively and truly level the playing 
field for the long term, the United States should ``be pursuing a truly 
modern, innovative and comprehensive bilateral trade agreement with 
China that wholly restructures our economic relationship.'' The letter 
explained that ``[t]o be successful, this free and fair agreement must:

          ``Eliminate barriers that unfairly block American companies 
        and America's manufacturing exports from full and fair access 
        to the Chinese market;

          ``Raise standards in China and create new rules to prevent 
        the wide range of market-distorting practices that violate free 
        markets and fair competition and hurt American businesses and 
        workers; and

          ``Create clear mechanisms to mandate strong and binding 
        enforcement of the agreement, providing specific channels for 
        government and industry alike to address cheating and 
        violations.''

    A bilateral U.S.-China trade agreement would need to build on, but 
go far past, previous agreements by adding priority issues relevant to 
China, from industrial policy, state-favored industries and new 
transparency and IP disciplines to rules that reflect other changes in 
the global economy since the WTO agreements were negotiated, starting 
with digital trade and cross-border data flows. In particular, such an 
agreement would need to address those areas where unfair, 
discriminatory and harmful Chinese policies and practices are not 
actionable at the WTO.

    We believe this approach, while in some sense a radical idea, 
presents the best way to restructure the U.S.-China economic 
relationship so that it works for manufacturers and all Americans.
                             v. conclusion
    Chairman Cornyn, Ranking Member Casey, and members of the 
subcommittee, thank you for your work on global trade and 
competitiveness issues and for holding this hearing.

                                 ______
                                 
        Prepared Statement of Dean Garfield, President and CEO, 
                Information Technology Industry Council
                              introduction
    Chairman Cornyn, Ranking Member Casey, and members of the 
subcommittee, thank you for inviting me to testify this afternoon.

    The Information Technology Industry Council (IT) represents over 60 
of the world's leading information and communications technology (ICT) 
companies. We are the global voice of the tech sector and the premier 
advocate and thought leader in the United States and around the world 
for the ICT industry. ITI's member companies are comprised of leading 
technology and innovation companies from all corners of the ICT sector, 
including hardware, software, digital services, semiconductor, network 
equipment, Internet companies, and companies using technology to 
fundamentally evolve their businesses. Trade issues are critical to our 
members, and China is always a subject of much concern and interest.

    Today's hearing is particularly timely, as the U.S.-China 
relationship stands at a crossroads. If we continue down our current 
path of tolerating China's blatant disregard for international norms 
governing free trade and market access, we will continue to lose ground 
on both technological and economic fronts. Yet, altering course poses a 
unique challenge of navigating uncharted waters. The U.S.-China 
relationship is as complex as it is important. The relationship has 
always been--and likely will continue to be--one of both competition 
and cooperation. We need to approach managing difficulties in the 
bilateral trade relationship with the nuance and deliberation they 
deserve, recognizing that both action and inaction will have 
consequences for years to come, in positive and negative respects.

    The tech sector has been at the forefront of the competitive and 
cooperative balance with China for decades. While competition and 
collaboration between our companies can and should be a driver of 
innovation and growth, it is clear that China does not compete fairly. 
The Chinese have run a robust effort to rewrite the rules of the game 
in their favor--and this needs to change. Foreign companies must be 
able to compete on even footing with domestic companies in China and 
around the globe.

    While we must address China's problematic policies and practices, 
that is only half of the equation. We also need to rebalance our 
approach to strengthening the U.S. economy and our own capacity for 
innovation. To that end, we must invest in our own people, our own 
research and development, and foster emerging technologies here in the 
United States.

    Regardless of whether China plays by the rules or not, it will 
continue to develop significant capacity for technological development, 
innovation, and growth. The United States must be prepared to compete.

    In my testimony, I will outline some of the key market access 
problems that our companies face as well as what we can do about it, 
why the Chinese market is so important, and how we can ensure that the 
United States continues to foster an environment that gives the best 
and brightest individuals the necessary tools to develop tomorrow's 
most innovative technology.
     key problems foreign tech companies face in the chinese market
    Our companies face real and persistent challenges in the Chinese 
market, including data localization requirements, cloud services 
restrictions, and intrusive and undefined security review regimes that 
may lead to exposure of source code and intellectual property. Over the 
last decade, China has made a concerted effort not only to address 
legitimate cybersecurity and privacy concerns but also to foster a 
protected space for domestic companies to gain an unfair market 
advantage. As the Office of the United States Trade Representative 
(USTR) laid out in its comprehensive section 301 investigation findings 
report, China has created a tapestry of laws, regulations, standards, 
and practices that collectively advantage Chinese companies and create 
conditions for direct and indirect tech transfer.

    Despite this clearly strategic approach to boost Chinese innovation 
and indigenous technology, the Chinese government is not a monolith. 
Infighting, discord, and pressure from Chinese leadership for agencies 
to issue regulations and demonstrate enforcement has added another 
layer of uncertainty and unpredictability to the Chinese market. 
Following passage of China's 2016 Cybersecurity Law, the tech sector 
has seen an unprecedented onslaught of implementing regulations, 
notices, measures, and standards drafted by numerous agencies within 
the Chinese bureaucracy, often contradicting one another. For example, 
the information technology standards body known as TC 260 released 110 
standards for comment between November 2016 and September 2017 alone, 
accounting for nearly half of all standards it has ever released for 
comment. Implementing regulations and standards that the Chinese 
government promised would clarify compliance questions often seem 
hastily drafted by individuals without relevant expertise, leading to 
more questions than answers. While the Chinese government has addressed 
certain concerns through solicitation of comment, often industry finds 
that issues go unaddressed or appear again in other regulations or 
implementing guidelines--leaving us to play an endless game of ``whack-
a-mole.'' These hastily enacted regulations also allow enforcement 
agencies to both interpret obligations unevenly and, potentially, 
target foreign companies.
              broad and ambiguous security review regimes
    While the Chinese Government has for the most part been careful not 
to explicitly outline requirements for transfers of technology, source 
code, or IP, the ambiguity and uncertainty surrounding China's numerous 
``security review regimes'' create conditions ripe for coercion of 
companies to expose these valuable trade secrets. The Cybersecurity Law 
requires that companies subject themselves to intrusive security 
reviews for products and infrastructure to qualify as ``secure and 
controllable.'' While the meaning of this term is ambiguous, the 
provision seems to favor domestic companies and products as inherently 
more secure. This provision appears to be a thinly-veiled attempt to 
encourage consumers to ``buy domestic.'' Specifically, the Cross-Border 
Data Transfer Measures outline highly intrusive procedures, including 
background investigations of network suppliers and inspections of 
corporate offices. Given that President Xi Jinping and other officials 
have publicly stated an official preference for Chinese technologies, 
industry remains concerned that this policy empowers agencies to focus 
disproportionate regulatory attention on foreign technology products 
and services, relying on a broad justification of ``public interest'' 
concerns rather than true national security.
         implicit and explicit technology transfer requirements
    Intellectual property and source code are the lifeblood of American 
companies, and they make a concerted effort to safeguard these secrets. 
In addition to ambiguous security review regimes, Chinese requirements 
outlined in various laws and regulations--including those that require 
firms to locate production or facilities in China and establish a joint 
venture (JV) with a Chinese partner in order to operate in China--can 
put this invaluable information at risk. Disclosure of sensitive 
information can be forced through a contract (e.g., JV, partnership), 
direct pressure from local or central governments, or governmental 
review or certification mechanisms. While the term ``joint venture'' 
has come to carry a negative connotation, JVs can serve as an asset in 
China and other markets--allowing foreign companies to operate under 
otherwise rigid investment restrictions as well as leverage local 
expertise, support, and connections. There is nothing inherently wrong 
with JVs and partnerships if they are voluntary. They become 
problematic, however, when they are forced and regulations stipulate 
that the Chinese partner must maintain majority control of the JV or 
required product licenses can only be obtained by a Chinese company, 
thereby necessitating a partnership.\1\
---------------------------------------------------------------------------
    \1\ See ``Law of the People's Republic of China on Chinese-Foreign 
Joint Ventures; Provisions on Administration of Foreign-Invested 
Telecommunications Enterprises; The People's Republic of China Foreign 
Investment Catalogue 2017.''

    China has made its technology transfer objective clear through its 
national strategy to promote indigenous innovation, Made in China 2025. 
The strategy explicitly promotes the transfer of technology as a means 
of advancing technological capability, competitiveness, and strategic 
emerging industries. Further, it outlines a wide-ranging effort to 
employ funding and the investment of significant government resources 
in support of key industries. This top-down direction fosters an 
environment that actively pursues technology transfer as a prerequisite 
for doing business in China. These factors create real risks for 
companies and reduce the competitiveness of American firms as well as 
their profitability.
            restrictions on foreign cloud service providers
    China's restrictions on U.S. cloud services providers (CSPs) 
exemplify the lack of reciprocity in the U.S.-China trade relationship. 
Foreign companies face written and unwritten requirements that could 
force U.S. CSPs to transfer valuable intellectual property, surrender 
use of their brand names, and hand over operation and control of their 
businesses to Chinese companies in order to do business in the Chinese 
market. Chinese cloud service providers operating in the United States 
are subject to none of these market access barriers.

    Draft and current Chinese regulations--including Regulating 
Business Operation in Cloud Services Market (2016) and Cleaning Up and 
Regulating the Internet Access Service Market (2017), would force U.S. 
cloud computing providers to offer their services through Chinese 
partners in the market. These measures, together with existing 
licensing and foreign direct investment restrictions on U.S. CSPs 
operating in China under the Classification Catalogue of 
Telecommunications Services (2015), would require U.S. CSPs to turn 
over essentially all ownership and operations to a Chinese company, 
forcing the transfer of incredibly valuable intellectual property and 
know-how to China.
                     data localization requirements
    Despite numerous efforts by the U.S. tech sector to revise 
problematic Chinese regulations and explain that localization does not 
equate to security, China continues to publish new and troubling laws, 
regulations, and standards that restrict data flows. Cross-border data 
flows are essential to digital trade. In 2016, over 53 percent of total 
U.S. service exports relied on cross-border data flows.\2\ China's 
Cybersecurity Law and other regulations seriously harm many U.S. 
exporters by restricting cross-border data flows and requiring firms to 
store and process data in China. Draft regulations--including the 
Cross-Border Data Transfer Measures and the Critical Information 
Infrastructure Protection Regulation (both implementing regulations of 
the Cybersecurity Law) contain numerous provisions that will force 
companies to localize certain data in China and create undue and 
expensive impediments to transferring business information out of China 
in a timely manner.
---------------------------------------------------------------------------
    \2\ https://www.brookings.edu/blog/up-front/2014/10/21/cross-
border-data-flows-the-internet-and-what-it-means-for-u-s-and-eu-trade-
and-investment/.

    The Chinese Government's focus on data localization reflects the 
premium placed on control of content and data as a tool to ensure the 
stability of the Chinese Government. Though these policies will also 
have a negative impact on Chinese multi-national companies, thus far 
the Chinese Government has not heeded these concerns.
              proliferation of ``china-unique'' standards
    Standards offer yet another avenue for China to expand its 
regulatory and legal objectives--with even greater international 
consequences. Since the early 2000s, China has sought to establish a 
more robust and coordinated national technical standards regime, 
increase China's participation in international standards setting 
bodies, and increase the number of Chinese standards adopted by those 
bodies. This has led to notable improvements in China's standards 
setting and transparency, but also caused significant problems for U.S. 
tech companies.

    China's use of standards is particularly problematic for a few 
reasons. First, China uses standards as final implementing guidelines 
of laws (including the Cybersecurity Law) for companies, meaning the 
standard is our last chance to clarify and address problematic 
provisions of laws and regulations. Political pressure in China to 
produce standards rapidly has also led regulators to offer insufficient 
comment periods that fall far short of the WTO's recommended 60-day 
comment period.\3\
---------------------------------------------------------------------------
    \3\ The WTO TBT Agreement Code of Good Conduct calls for a 60-day 
comment period and mandatory reply to all comments received by domestic 
and international stakeholders.

    Second, China claims that numerous Chinese standards are in line 
with international standards; however, they frequently contain key 
differences that require companies to modify products and practices 
specifically for the Chinese market, which takes time and increases 
costs for foreign companies. Moreover, China's reluctance to allow 
foreign experts to participate in the standards-setting process in a 
truly robust and influential way has limited technical experts' ability 
---------------------------------------------------------------------------
to counter these trends.

    Third, China seeks to promote its standards in international 
standards setting bodies. The cumulative effect of China rapidly 
publishing and promoting ``China-unique'' standards that favor Chinese 
companies will not only limit foreign companies' access to the Chinese 
market but also reshape international standards in favor of Chinese 
companies.

    Recently, China has also sought to codify its standards-setting 
process in law through revision of its Standardization Law. The 
Standardization Law presents numerous requirements unique to China, 
including public disclosure requirements for internal company practices 
that will add unnecessary costs and risk making public sensitive 
company data and practices. For example, the Law requires that 
companies disclose ``enterprise standards,'' which are related to the 
features and performance of a company's product. In addition, the 
inclusion of a preference for indigenous innovations in the Law creates 
trade barriers that would conflict with China's obligations under the 
WTO TBT Agreement. In order to counter these trends, we must ensure 
that countries' national standardization practices are fully compliant 
with international norms and WTO obligations that apply to a central 
government standardizing bodies.
              why do companies stay in the chinese market?
    While the Chinese market presents clear risks and impediments for 
foreign companies, its size and impact on the global supply chain 
cannot be ignored. In 2017 alone, the U.S. exported $23 billion worth 
of ICT goods to China.\4\ And, as of 2015, China was the second largest 
export market for U.S. commercial ICT services exports in Asia. Put 
simply, companies cannot be truly global if they give up 25 percent of 
the global market.
---------------------------------------------------------------------------
    \4\ U.S. GDP was $19.739 trillion in the fourth quarter of 2017.

    Customer retention is another important factor. Customers operate 
globally, and they expect leading American companies to offer services 
where they need them. If U.S. companies cannot operate in China, they 
risk ceding to Chinese companies in the global market, as customers--
particularly those that depend on services such as Cloud--will seek out 
---------------------------------------------------------------------------
companies that provide services in all markets in which they operate.

    Ultimately, companies face two unappealing options: loss of the 
Chinese market and diminished global competitiveness OR operating in a 
risky and highly restricted but profitable and important market.
        what the u.s. government can do to change the status quo
    ITI appreciates that the U.S. Government recognizes that there is a 
market-access problem in China and has taken steps to address it, 
including USTR's Section 301 investigation and subsequent report 
regarding China's unfair trade policies and practices. The tools that 
the U.S. Government uses to address these issues, however, must be 
tailored and strategic to avoid causing unnecessary harm to U.S. 
consumers, businesses, and the economy. I'd like to outline a few basic 
tenets below.
              do no harm to u.s. consumers and businesses
    Tariffs are counterproductive. The broad array of products 
identified by USTR for increased tariffs will have a significant 
negative impact on the U.S. economy across multiple sectors, increasing 
prices for consumers and businesses. The administration has claimed 
that consumer goods will be exempt from tariffs; however, the structure 
of the global supply chain and the numerous product inputs from across 
the globe factoring into final products make it virtually impossible to 
exempt consumer goods from the increased costs attributable to tariffs. 
For example, smart home devices like connected thermostats would 
increase in price as a result of these tariffs,\5\ as the final product 
ships from China though it is the product of U.S. know-how and 
innovative technology. Additionally, tariffs on key components of 
televisions, touch-screen devices, and cameras are all captured by the 
current list of potential tariffs and, if imposed, will yield increased 
prices on the final product. In short, tariffs ultimately amount to a 
tax on American consumers.
---------------------------------------------------------------------------
    \5\ https://www.federalregister.gov/documents/2018/04/06/2018-
07119/notice-of-determination-and-request-for-public-comment-
concerning-proposed-determination-of-action.
---------------------------------------------------------------------------
   don't go it alone--leverage international pressure and coalitions
    We cannot ignore the global importance of the Chinese market and we 
cannot unilaterally punish China into changing its behavior. It is 
misguided to assume that publically--and unilaterally--punching China 
will change behavior. As we are seeing play out in real-time, this will 
only prompt China to retaliate in order to demonstrate that it won't be 
bullied by the United States.

    We must focus on what works. Multilateral pressure is one of the 
few tactics that has caused China to change course. For example, in 
2004, China proposed an international standard for wireless security, 
``Wireless Authentication and Privacy Infrastructure (WAPI).'' China 
subsequently tried to make this mandatory for wireless LAN equipment in 
China. Members of the International Standards Organization (ISO) 
refuted the mandatory status of the standard and slow-rolled its 
approval as an international standard. With the support of business 
groups and standards group around the world, ISO ultimately rejected 
the proposal for WAPI to become an international standard in 2006.

    In 2009, China required that ``Green Dam-Youth Escort'' screening 
software be installed on computers to be sold in China, ostensibly for 
the purpose of restricting pornographic imagery. However, the software 
had clear ``censor-ware'' capabilities with intrusive surveillance 
potential; cybersecurity experts also noted serious security 
vulnerability concerns. The international community across businesses, 
rights groups, and NGOs, and the United States, Japanese, and EU 
governments combined intense pressure on numerous fronts, which led to 
the delay and ultimate suspension of the program.

    Finally, while it is fair to say that bringing China into the WTO 
has not had the positive impact that we hoped for, it does create the 
opportunity to hold China accountable. Thus far, China has not faced 
any real consequences for its actions. It's time for the international 
community to stand united and tell China that its market access 
restrictions will no longer be tolerated.
              compete with china and invest in our future
    Punishing China and restricting Chinese investment in the United 
States alone will not help us achieve our goals. We must invest in our 
own future. This means investing in research and development, 
education, science and technology, artificial intelligence (AI), and 
incentivizing innovation--all of which are key to our future economic 
and societal prosperity.

    We must be prepared to step up and compete with China. Regardless 
of whether China plays by the rules or not, Chinese inventors, 
entrepreneurs, and businesses will continue innovating and will close 
the technological gap between the United States and China. While we of 
course want a level playing field, we must also step up our game. China 
is making a concerted and strategic effort to invest and plan for its 
economic and technological future. The United States can and should do 
more. According to the World Economic Forum, in 2016 China had 4.7 
million recent STEM graduates while the United States had 568,000 
graduates. In 2017, China accounted for 48 percent of the total global 
investment in AI startup funding, while the U.S. accounted for 38 
percent. In monetary terms, China invested $7.3 billion in AI while the 
U.S. invested $5.77 billion.\6\
---------------------------------------------------------------------------
    \6\ https://www.technologyreview.com/the-download/610271/chinas-ai-
startups-scored-more-funding-than-americas-last-year/.

    China is also on track to outpace the United States in other areas. 
For example, according to a 2018 International Data Corporation (IDC) 
report, the United States will spend $22 billion on smart city 
development this year. China is close behind with projected spending at 
$21 billion.\7\ As of 2015, there were 1,000 smart city pilot plans in 
the works worldwide, 500 of which were located in China.\8\
---------------------------------------------------------------------------
    \7\ https://www.techrepublic.com/article/smart-cities-expected-to-
invest-80b-in-technologies-in-2018/.
    \8\ https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/
public-sector/deloitte-nl-ps-smart-cities-report.pdf.

    These are just a few examples. The bottom line is that the United 
States is failing itself by not seriously investing in our country's 
technological and economic future.
                               conclusion
    The tech sector faces serious challenges in accessing the Chinese 
market. We must address these challenges aggressively, but we also 
cannot ignore or deny the significant role China plays in the global 
economy as a key piece of the global supply chain, supplier of products 
and components, and a vital market for U.S. goods and services.

    There is no question that it is time to demonstrate to China that 
there are consequences for its unfair trade actions, and that the 
international community will not tolerate blatant disregard for 
international norms and principles of free trade. However, addressing 
China's behavior must not come at a cost for American consumers and 
businesses. And we cannot let our efforts distract us from 
strengthening and developing our own tech sector and economy. We do 
ourselves a disservice if we downplay the need to invest in our ability 
to compete with an increasingly innovative and technologically advanced 
China.

    Market access in China is a complex and multi-faceted problem that 
will require us to be strategic on numerous fronts. With the right 
approach, we can address these serious issues in a way that benefits, 
not harms, the United States and the global economy.

    On behalf of all ITI members, I thank you for having me before the 
committee today and commend you for your interest in examining the 
evolving U.S.-China trade relationship. We stand ready to work with you 
to address these challenges. I look forward to answering your 
questions.

                                 ______
                                 
                  Prepared Statement of Thea M. Lee, 
                  President, Economic Policy Institute
    Thank you, Chairman Cornyn and Ranking Member Casey, for the 
invitation to participate in this important hearing. I am the president 
of the Economic Policy Institute, the Nation's premier think tank for 
analyzing the effects of economic policy on America's working families. 
EPI has focused attention over many years on the impact of the 
imbalanced U.S. economic relationship with China on U.S. jobs and 
wages, as well as on American business and the long-term prospects for 
U.S. innovation and growth.

    Seventeen years after China acceded to the World Trade Organization 
(WTO), the bilateral economic relationship between our two countries is 
enormously lopsided and problematic. The U.S. ran a goods trade deficit 
with China of $375 billion in 2017--up from $83 billion in 2001. This 
is the largest single bilateral trade deficit between any two countries 
in the history of the world--and it continues to trend upwards, despite 
20 U.S. challenges to China at the WTO, despite earnest annual 
bilateral talks and commitments, and despite all the ``reform'' 
commitments China made upon accession.

    Furthermore, it is not just the sheer size of the U.S. trade 
imbalance with China that is of concern. It is the composition.

    As recently as 2001, the U.S. ran a global trade surplus in 
advanced technology products (ATP). ATP includes advanced elements of 
computers and electronics, as well as biotechnology, life sciences, 
aerospace, and nuclear technology, among others. ATP should be a strong 
suit for a wealthy, technologically savvy, high-skilled, capital-
intensive country like the United States. However, roughly coincident 
with China's entry into the WTO, the surplus turned to deficit and grew 
rapidly, hitting $136 billion in 2017. The U.S. ATP deficit with China 
is more than our entire global ATP trade deficit, which was $110 
billion. This means that excluding China, we actually have a trade 
surplus in ATP with the rest of the world. This statistic alone should 
be a signal that there are significant anomalies in the U.S. trade 
relationship with China that cannot be explained by market forces.

    Meanwhile, top U.S. exports to China include raw materials, 
agricultural products, and waste materials. Between 2001 and 2015, we 
saw the fastest growth in imports over exports with China in computers, 
electronics, miscellaneous manufactured commodities, and apparel. We 
saw the fastest growth in exports over imports in agriculture and 
aerospace (where significant technology is being transferred over 
time). This is not the profile of imports and exports that would be 
expected between countries at the respective economic development 
levels of China and the United States.
                              wto promises
    In 2000, politicians from both the Democratic and Republican 
parties and business leaders argued that WTO accession would create a 
``win-win result for both countries''--the U.S. would gain access to 
Chinese markets, ``reformers'' in China would ascend in the political/
economic hierarchy, workers' rights would improve, and both countries 
would prosper.

    The actual outcomes have been decidedly different.

    According to USTR, China is still not fully compliant with the 
commitments it made during the WTO accession process. American 
companies trying to do business in China face theft of trade secrets, 
counterfeiting, inadequate protection of intellectual property, online 
piracy, industrial policies that promote domestic goods at the expense 
of U.S. products, subsidies, discriminatory product standards, the 
dumping of excess capacity, and restricted access for American 
services. Seventeen years after accession, China has not even listed 
all of its restricted export subsidies, let alone eliminated them, as 
promised.

    In addition, China has used currency policy to gain an unfair 
competitive advantage over American business and labor. During the 
crucial decade after China's accession, the Chinese Government 
intervened systematically and in one direction in currency markets to 
thwart exchange rate adjustment that could have helped to rebalance 
trade with the United States. The legacy of that currency intervention 
remains an important factor in the current imbalance. While in 
principle both the WTO and the IMF have mechanisms and rules to address 
currency manipulation, in practice no U.S. administration has yet been 
willing to use those mechanisms or U.S. unilateral measures to address 
this problem.
                        impact on jobs and wages
    This litany of unfair trade practices and currency manipulation has 
had a serious and pervasive negative impact on American jobs and wages. 
As my colleague, Rob Scott, demonstrated in a 2017 report, ``Growth in 
U.S.-China Trade Deficit Between 2001 and 2015 Cost 3.4 Million Jobs,'' 
the deficit cost jobs in all 50 States and the District of Columbia. 
Between 2001 and 2011, the growing trade deficit cost directly impacted 
workers $37 billion a year, while also putting downward pressure on the 
wages of all non-college graduates by $180 billion a year.

    American businesses have also suffered from closed markets and 
unfair practices in China, but they are often reluctant to initiate 
trade complaints or protest, as they fear any public outcry will bring 
more unfavorable treatment on their company.

    It is no secret that the Chinese Government has a long-term 
economic strategy to build certain sectors through subsidies, as well 
as purchasing, tax, and regulatory policies. These strategies are 
announced publicly at regular intervals--pillar industries, strategic 
emerging industries, Made with China, Made in China 2025. These 
strategic plans are variations on the theme of ``picking winners,'' 
also known as industrial policy, something American politicians of both 
parties tend to scorn. These plans set targets for indigenous 
production, use of technology, favorable treatment for state-owned 
enterprises, and discriminatory treatment of foreign brands and 
companies, among other things. These practices are deep and pervasive.

    Of course, the Chinese Government has a right to set its own 
strategic goals, and the United States can certainly be faulted for 
failing to articulate, let alone implement, any coherent, long-term 
economic strategy.

    But there are two problems here, and we should be careful to 
distinguish them. On the one hand, many of the Chinese Government's 
practices are inconsistent with international rules and norms--not just 
WTO rules on prohibited subsidies and dumping, but also international 
conventions on workers' rights, public health, human rights, 
environmental protections, intellectual property rights, and consumer 
safety. The United States touts the importance of a rules-based system, 
but if some players--like China--flout the rules with impunity over 
decades, then the rules-based system becomes a trap for those who 
comply. The United States failure to adequately enforce existing rules 
is why there is so much pent-up frustration among workers and domestic 
producers over trade with China. The U.S. Government's piecemeal and 
scattershot enforcement strategy has been time-consuming and 
ineffective.

    The U.S. Government has not ever raised, in any systematic or 
meaningful way, China's failure to comply with its obligations as a 
member of the International Labor Organization to ``respect, promote, 
and realize'' the core international workers' rights outlined in the 
ILO Declaration on Fundamental Principles and Rights at Work: freedom 
of association, right to organize and bargain collectively, and freedom 
from child labor, forced labor, and discrimination. This means that 
American workers and businesses are competing on a tilted playing 
field, since Chinese workers cannot exercise their rights to form 
independent and democratic unions.

    On the other hand, the United States has its own responsibility to 
develop and implement a coherent long-term economic strategy with 
respect to both manufacturing and services, both trade-related and 
domestic. The U.S. Government has failed to invest adequately in 
infrastructure and skills for decades, and business has not filled the 
void. We have a tax system that rewards capital over labor and 
outsourcing over domestic production. It remains riddled with 
unproductive loopholes, and--especially after last year's changes--it 
fails to raise adequate revenue to fund needed investments.

    Our trade policy is geared toward boosting the profits and mobility 
of multinational corporations, but not creating and supporting good 
jobs at home. Our government spends a lot of time and energy 
negotiating new trade agreements, but has failed to act to stem 
currency manipulation, which undermines the market-opening measures 
negotiated with so much fanfare.

    Forced technology transfer, IPR transgressions, and the loss of 
domestic capacity in key sectors can all contribute to the undermining 
of American innovation and technological leadership. This has 
consequences not just for the current labor market, but for our future 
trajectory.

    The Chinese Government is clearly playing a long game, while the 
U.S. is egregiously shortsighted. Our trade policies in the past have 
been so inadequate in scale and slow in implementation that by the time 
we take action, it is often a decade too late, with the result that our 
trade actions are ineffective, if not counterproductive.

    We need to reform our domestic trade laws so we can act 
expeditiously--as soon as the Chinese government announces its 
strategic priorities, not a decade later, after we've lost market share 
and the technological edge. Going forward, we must address new barriers 
to trade in services and e-commerce. We need to make sure that we 
have--and are willing to use--measures to address currency 
misalignment. Our trade enforcement measures should prioritize good 
jobs, workers' rights, democracy, environmental compliance, and 
consumer safety over outsourcing and short-term profits.

    In summary, the U.S. Government needs to develop and articulate its 
own long-term economic development strategy. It needs to use domestic 
tax, infrastructure, and workforce development policies to ensure that 
American workers and businesses have the tools and skills they need to 
compete successfully. But the government also needs to strengthen our 
trade compliance and enforcement measures and be willing to use them 
aggressively and consistently and in a timely manner to ensure that our 
trade relationship with China is reciprocal and fair.

    Thank you for your attention. I look forward to any questions you 
may have.

                                 ______
                                 

                             Communication

                              ----------                              


                       United Steelworkers (USW)

       Statement of the United Steel, Paper and Forestry, Rubber,

              Manufacturing, Energy, Allied Industrial and

               Service Workers International Union (USW)

On behalf of the 850,000 members of the United Steelworkers (USW), we 
wish to thank you for holding this important hearing on market access 
challenges in China and for the opportunity to provide submissions to 
the record. Access to foreign markets are critical for any 
manufacturer, and as the largest union in the manufacturing sector in 
North America, it is imperative that the rules of trade provide for 
fair competition that raises living standards for all workers.

Since the ascension of the People's Republic of China (PRC) to the 
World Trade Organization (WTO), the dramatic loss of U.S. manufacturing 
jobs has been staggering. The growth in the U.S. goods trade deficit 
with China eliminated or displaced 3.4 million U.S. jobs between 2001 
and 2015 according to research by the Economic Policy Institute. Nearly 
three-fourths of the jobs lost, or 2.6 million jobs, were in 
manufacturing.\1\
---------------------------------------------------------------------------
    \1\ https://www.epi.org/press/the-growing-trade-deficit-with-china-
cost-3-4-million-u-s-jobs-between-2001-and-2015/.

The market access barriers in China are not unknown to American workers 
or to Congress. The most recent National Trade Estimate report of the 
United States Trade Representative (USTR) highlights, in 18 pages, 
multiple long standing market access barriers for every segment of the 
economy from agriculture to manufacturing.\2\ Each of these barriers 
represents a long established issue with the PRC, such as the illegal 
hacking of several USW represented companies like United States Steel. 
Throughout 2010, the Chinese Government subjected U.S. Steel to cyber-
attacks. Then in 2011, government hackers in China hijacked information 
from U.S. Steel on advanced high-strength steel used in the auto 
industry.
---------------------------------------------------------------------------
    \2\ https://ustr.gov/sites/default/files/files/reports/2017/NTE/
2017%20NTE.pdf.

Companies in China had been unable to develop this technology and were 
under pressure from their domestic car companies to get it. So their 
government stole it for them. After the theft, one of the largest steel 
companies in China, Baosteel, used the trade secrets to produce the 
specialized steel and export it to the United States in direct 
competition with U.S. Steel.\3\
---------------------------------------------------------------------------
    \3\ https://www.usw.org/blog/2016/outlaw-chinese-steel.

These attacks also targeted USW staff. We were directly attacked by 
China's People's Liberation Army hackers, as shown in the May 2014 
indictment obtained by the U.S. Attorney for the Western District of 
Pennsylvania, David Hickton. Several of our employers were also 
identified as victims in those attacks.\4\
---------------------------------------------------------------------------
    \4\ https://www.usw.org/news/media-center/releases/2018/usw-
section-301-decision-confronts-chinas-intellectual-property-abuses.

These overt raids of intellectual property and espionage of labor 
organizations are unfortunately just one of the many challenges with 
the PRC market. The industrial policies of the country create a wide 
array of limits to U.S. products that were long established prior to 
the recent announcements of retaliation by the PRC for the U.S. attempt 
to maintain its critical defense and infrastructure through the 
---------------------------------------------------------------------------
completion of the 232 investigations on steel and aluminum.

USW members in the food processing and ethanol industries have seen 
anti-dumping and countervailing duties raised against their exports 
because of the PRC's mercantilist policies. After USW tire workers 
successfully petitioned the Obama administration for tariff relief 
under section 421 of U.S. trade law on passenger vehicle and light 
truck tires, the PRC responded by illegally retaliating against U.S. 
chicken producers.\5\
---------------------------------------------------------------------------
    \5\ https://www.reuters.com/article/us-chicken-china-sb/u-s-china-
tire-spat-couId-hurt-chicken-feet-idUSTRE58D4P620090914.

In the last 2 years, the PRC has also raised significant tariffs on 
U.S. ethanol production, undercutting foreign market growth for U.S. 
producers and amplifying ongoing issues in U.S. domestic renewable 
fuels policy. In late 2016, the PRC added a 30-percent tariff on U.S. 
ethanol exports, the goal was not to prevent U.S. dumping but to 
develop the domestic industry and reduce Chinese subsidized corn 
stocks.\6\ The addition of a 15 percent ethanol tariff in retaliation 
for the Administration's steel and aluminum 232 announcements was not 
just a response to tariffs but strategically done to blunt U.S. 
producer's competitiveness. U.S. imports had recently picked up after 
prices fell enough to be attractive even with the high 30-
percent duties.\7\
---------------------------------------------------------------------------
    \6\ https://lta.reuters.com/article/marketsNews/
idLTAL4N1DM34C?rpc=401&.
    \7\ https://www.reuters.com/article/usa-trade-china-ethanol/update-
1-china-tariffs-on-u-s-ethanol-to-cut-off-imports-in-short-term-
idUSL4N1RF4G0.

While much attention continues to be paid to the PRC's retaliatory 
threats against U.S. agricultural products, previously established 
market access barriers from the country's ``Made in China 2025'' 
program will undercut the U.S. ability to access the Chinese market in 
advanced manufacturing. The PRC intends to develop and grow advanced 
information technology, automated machine tools and robotics, aviation 
and spaceflight equipment, maritime engineering equipment and high-tech 
vessels, advanced rail transit equipment, new energy vehicles, power 
equipment, farm machinery, new materials, biopharmaceuticals and 
advanced medical products. The country intends to capture these 
advanced manufacturing productions through state-driven plans and 
initiatives, as it, for example, sets targets for indigenous production 
or control of up to 40 percent of certain critical components in the 
aerospace, power and construction sector.\8\
---------------------------------------------------------------------------
    \8\ https://ustr.gov/sites/default/files/tiles/reports/2017/NTE/
2017%20NTE.pdf.

How we respond to these market challenges is a critical function that 
the administration and Congress must address. For too long U.S. 
manufacturing workers have been asked to sacrifice their jobs to what 
economists blithely call ``comparative advantage.'' However, economics 
101 quickly falls apart in the real world where political calculations 
are made. U.S. workers cannot idly wait years for international forums 
to squabble over terms and definitions of industrial overcapacity and 
other critical debates. Congress should support aggressive attempt to 
open Chinese markets but not at the expense of unilateral domestic 
deindustrialization. Trade between the two largest individual economies 
---------------------------------------------------------------------------
in the world today must be fair and reciprocal.

                                   