[Senate Hearing 116-285]
[From the U.S. Government Publishing Office]
S. Hrg. 116-285
APPROACHING 25: THE ROAD AHEAD FOR THE
WORLD TRADE ORGANIZATION
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HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MARCH 12, 2019
__________
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
41-994 PDF WASHINGTON : 2020
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COMMITTEE ON FINANCE
CHUCK GRASSLEY, Iowa, Chairman
MIKE CRAPO, Idaho RON WYDEN, Oregon
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
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
TIM SCOTT, South Carolina MARK R. WARNER, Virginia
BILL CASSIDY, Louisiana SHELDON WHITEHOUSE, Rhode Island
JAMES LANKFORD, Oklahoma MAGGIE HASSAN, New Hampshire
STEVE DAINES, Montana CATHERINE CORTEZ MASTO, Nevada
TODD YOUNG, Indiana
Kolan Davis, Staff Director and Chief Counsel
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 3
ADMINISTRATION WITNESS
Lighthizer, Hon. Robert E., United States Trade Representative,
Executive Office of the President, Washington, DC.............. 5
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Brown, Hon. Sherrod:
``How the WTO Undermines U.S. Trade Remedy Enforcement,'' by
Terence P. Stewart and Elizabeth J. Drake, February 2017... 39
Grassley, Hon. Chuck:
Opening statement............................................ 1
Prepared statement........................................... 50
Lighthizer, Hon. Robert E.:
Testimony.................................................... 5
Prepared statement with attachment........................... 51
Responses to questions from committee members................ 54
Wyden, Hon. Ron:
Opening statement............................................ 3
Prepared statement........................................... 84
Communications
Center for Fiscal Equity......................................... 87
Stewart, Terence P............................................... 90
United States Council for International Business................. 98
U.S. Global Value Chain Coalition................................ 100
(iii)
APPROACHING 25: THE ROAD AHEAD FOR THE WORLD TRADE ORGANIZATION
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TUESDAY, MARCH 12, 2019
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:35
a.m., in room SD-215, Dirksen Senate Office Building, Hon.
Chuck Grassley (chairman of the committee) presiding.
Present: Senators Roberts, Cornyn, Thune, Isakson, Portman,
Toomey, Scott, Cassidy, Lankford, Daines, Young, Wyden,
Stabenow, Cantwell, Carper, Cardin, Brown, Casey, Warner,
Whitehouse, Hassan, and Cortez Masto.
Also present: Republican staff: Andrew Brandt,
International Trade Policy Advisor; Brian Bombassaro,
International Trade Counsel; and Nasim Fussel, Chief
International Trade Counsel. Democratic staff: Jayme White,
Chief Advisor for International Competitiveness and Innovation.
OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM
IOWA, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. I usually wait until Senator Wyden gets here
before I start, but he will probably be here before I get my
statement done. The reason I want to start on time is--Senator
Wyden is here; okay--so everybody can plan accordingly.
Ambassador Lighthizer has to leave at 12 o'clock.
I want to welcome everybody for our first trade hearing of
this Congress. The subject today is the future of the World
Trade Organization.
The WTO is a critically important institution. It is our
responsibility on the Finance Committee to monitor the WTO, and
the United States' role in that organization. Since the start
of the World Trade Organization, international trade volumes
have increased by 250 percent. Countries representing 98
percent of the global merchandise trade are currently members
of the WTO, with 22 more countries negotiating membership.
Overall then, it is indisputable that the World Trade
Organization has moved global commerce forward. The rules-based
trading system that the WTO promotes and oversees has been very
successful at integrating people around the world into the
global economy and raising millions of people out of poverty.
One of the WTO's primary functions is to serve as a forum
for trade negotiations. Although well-intended to be a forum
for multilateral trade negotiations, the challenges of our
modern economy have proven this goal to be extremely and
increasingly difficult. The Doha Round of negotiations started
in 2001 and resulted in the successful negotiations of the
Trade Facilitation Agreement of 2013. But Doha failed to
deliver on other ambitious targets, such as further reduction
of tariffs and farm subsidies.
Current plurilateral discussions on e-commerce and on
fisheries show promise. And of course, I fully support
continuing those efforts.
The second point is that the World Trade Organization is
responsible for implementing and monitoring trade agreements.
Third and finally, the institution serves as a forum for
settling disputes amongst its members over the meaning and
application of WTO agreements.
As we approach the 25th year of operation for the WTO, it
would be wise for us to acknowledge that the United States has
overall been a beneficiary of WTO dispute settlement processes.
But we cannot overlook the serious challenges preventing the
system from working as it was intended to, and as we intended.
And we must all agree that updates and reforms would improve
the effectiveness of the organization.
Let us get to the Appellate Body. It soon could lose a
minimum quorum needed to function. That is in particular need
of reform.
The administration's concerns about systemic and procedural
problems with the Appellate Body are not new, nor are they
partisan. Three Presidents on both sides of the aisle have
raised concerns for many years about the Appellate Body, what
it does and how it functions, and tried to get reform.
The United States first refused to consent to a new
Appellate Body appointment under the Obama administration. And
the Trump administration has maintained the same position. So
when we see both a person like President Obama and a person
like President Trump claiming reform of the Appellate Body is
needed, all WTO members ought to take it as a very serious
issue.
It is very unfortunate that this tactic is the only way
that the United States has been able to get serious attention
from other WTO members. I am not necessarily endorsing this
approach, but now we are here. Since we are here, we cannot
waste time lamenting the tactics. WTO members must take the
United States seriously and commit to meaningfully addressing
our concerns. The areas of much-needed reform are not limited
just to dispute settlement.
The administration is very right to point out that some WTO
members consistently fail to meet their obligations to
accurately notify of the subsidies they provide to domestic
industries. This is simply unacceptable.
The WTO also needs to address the treatment of state-owned
enterprises. State-owned enterprises are becoming more
prevalent in the global economy. China is notorious for using
state-owned enterprises to buy private companies around the
world and has used these enterprises as a conduit for
subsidizing its industries.
The ability of WTO members to self-certify as a developing
country is another problem for the organization's long-term
credibility. When my constituents in Iowa at my town meetings
ask me why China--which happens to be the world's second
largest economy--gets to self-certify as developing, I cannot
explain it.
There are other countries, including OECD members, that the
administration rightly points out have advanced economies, but
still declare themselves developing.
Also for sure, we cannot have a hearing on the WTO without
talking about China. The fact of the matter is that China
simply has not lived up to the commitments it made when it
joined the WTO. This is detailed every year by the USTR's
annual report on China and whether or not they comply with the
World Trade Organization's decisions. And we have seen over the
last decade or so that WTO rules have not effectively
constrained China's mercantilist policies and their distortion
of global markets.
So there is a heck of a lot of work to be done. And of
course, being that the organization operates mostly under
consensus, we cannot do it alone. The United States, Japan, and
the European Union are discussing WTO reform options through a
trilateral process that also seeks to address industrial
subsidies and forced technology transfers. Partnerships such as
this example are critical to showing China that the United
States is not the only country complaining.
The world certainly has come a long way on trade policy in
the last century. I hope to learn from history and never repeat
the protectionist mistakes of beggar-thy-neighbor policies that
came about as a result of the infamous Smoot-Hawley tariffs.
Yet there are also many legitimate bipartisan issues that we
must address with some of our trading partners and within the
WTO.
To conclude, I probably do not need to remind many in this
room of the following fact: the Constitution gives Congress the
power to impose and collect taxes, tariffs, and duties and to
regulate interstate and foreign commerce.
As chairman of this committee, working very closely with
Ranking Member Wyden, I intend to assist President Trump and
Ambassador Lighthizer with their efforts at the WTO and in
seeking strong and enforceable trade deals. If I am not doing
enough for the President or for Ambassador Lighthizer, just
tell me what more to do.
However, I want you and President Trump to understand I do
so with the understanding that erecting new market barriers
with tariffs and quotas cannot be a long-term solution. I am
looking forward to working in a bipartisan way with the members
of the committee and the Trump administration to ensure the
United States has a sound and constructive trade policy that
benefits our country.
[The prepared statement of Chairman Grassley appears in the
appendix.]
The Chairman. Senator Wyden?
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman.
Mr. Chairman, first of all, thank you for holding this
hearing. I certainly share many of the views that you have
articulated today. And, colleagues, I am just going to start
off by saying that what we are going to be talking about this
morning is one of the least-known and biggest issues facing our
country as it relates to creating more good-paying jobs and
expanding markets for our country around the world.
And as the chairman indicated, I am very much interested in
addressing the proposition that it is long past time to fix
what is wrong with the World Trade Organization. In my view,
that process has to begin with China. China became a member of
the World Trade Organization in December 2001. Based on nearly
2 decades of hard evidence, it is clear that the agreements
that allowed China to join the World Trade Organization have
fallen far short.
The rules that underpin the WTO were crafted more than 2
decades ago when China was essentially an economic
middleweight. At that time, multiple States within our country
actually had economies that were larger than China's.
During the debate on China entering the World Trade
Organization, many predicted that membership would drive China
away from one-party control of government and economics. And
the Chinese made specific commitments dealing with economic
reforms as a precondition of joining the WTO. That was the
basis on which the Congress granted China normalized trade
relations with the United States, legislation which I
supported.
Today, China is no longer a middleweight. China is an
economic heavyweight, second only to the United States, and
continues to grow rapidly. Much of that growth has come at our
direct expense and in violation of World Trade Organization
rules and World Trade Organization commitments that were made
in 2001.
What I am talking about are the following: subsidized
state-owned enterprises, intellectual property theft, forced
tech transfers, the great Internet firewall, and government-led
shakedowns of foreign investors. China has used those schemes
to strong-arm American businesses, steal American innovations,
and rip off American jobs. Especially under President Xi, the
government has tightened its grip on power.
For our purposes in today's hearing, the Chinese government
identifies weaknesses in the WTO system, and then it seizes on
them to further their country's explosive growth. The U.S. and
our economic allies have not done enough to crack down on those
abuses. WTO rules, as I have indicated, date back to a time
before the Internet was, in effect, this country's shipping
lane and the center of gravity for international commerce. It
was a time when smartphones were still science fiction. It
should not be any surprise that those rules cannot keep up with
China's modern-day trade rip-offs.
As the chairman and I have both indicated, there is
bipartisan interest in addressing that problem, and today gives
us a chance to accelerate the effort to find real solutions. I
am hopeful that the talks currently happening with respect to
digital trade rules will finally drag the WTO into this
century. And I am quite certain that Ambassador Lighthizer
shares that perspective.
One topic that is particularly important to the Pacific
Northwest is under active discussion at the WTO, and this is
the matter of unfair fishing subsidies. Senator Crapo, a senior
member of this committee, and I held the Trade Subcommittee
hearing on this issue dating back to 2010.
The bottom line is that an agreement that curbs fishing
subsidies is going to protect jobs in our fisheries and promote
sustainable oceans, and, obviously, accomplishing both of those
objectives is also a bipartisan goal.
Finally, it is quite clear that our workers, and this is
true from sea to shining sea--I see it in Oregon; I see it when
I go elsewhere. Our workers have had enough with respect to
cheating by China and other countries. And when the WTO proves
too slow to stop the cheats, and when it announces decisions
that clash with the founding principles, I think it is pretty
obvious that lawmakers are no longer just going to grin and
bear it.
It is important for our country to fight for the economic
system that was created after World War II and was built on
strong democratic alliances. It faced down the Soviet Union and
helped to reduce violent conflict around the world.
Unfortunately, I think this administration too often
signals to our allies that they are not interested in defending
that system from attackers and cheats. So updating the WTO is
an issue where we cannot have a bunch of tough talk and then
take a pass on real action. An effective, fair, and enforceable
trade system is the best defense our country can have against
underhanded economic tactics by China.
Mr. Chairman, I look forward to working with you and our
colleagues.
The Chairman. Thank you, Senator Wyden.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. Today I have the distinct pleasure of
introducing Ambassador Lighthizer. He was sworn in as the 18th
U.S. Trade Representative May 15, 2017, and you have not had a
day off since you took that job. Since members of this
committee have gotten to know Bob, and know him well over the
past several months, I will dispense with further introduction.
It is a pleasure to have you here today and to remind all
of my colleagues--because I have been around here a long time--
you were an employee of this committee for 2 years, my first 2
years on the committee, 1981 and 1982, as I recall. Go ahead.
STATEMENT OF HON. ROBERT E. LIGHTHIZER, UNITED STATES TRADE
REPRESENTATIVE, EXECUTIVE OFFICE OF THE PRESIDENT, WASHINGTON,
DC
Ambassador Lighthizer. Well, thank you very much.
Chairman Grassley and Ranking Member Wyden, distinguished
members of the committee, it is a pleasure to be here today.
I should begin with saying that I am inspired by and agree
almost completely with both your statement, Mr. Chairman, and
the ranking member's statement. I think they summarize and
make, in many ways, unnecessary my own statement. Nonetheless,
I will read it.
Before I get in to talking about the WTO, I would like to
note that, under President Trump's leadership, U.S. trade has
been surging. From 2016 to 2018, total exports have grown by
12.8 percent. During that same time, imports grew by 14.8
percent. Last year we exported almost $2.5 trillion worth of
goods and services. Further, last year alone we created 264,000
manufacturing jobs, the highest figure in 21 years. And our
economy is growing at a rate faster than any other country,
substantially faster than any other country in the G7.
As you all know, we have had a very busy trade agenda. We
renegotiated KORUS. We have been working with Congress on the
newly renegotiated USMCA agreement. We are in discussions with
Europe, Japan, the United Kingdom, and several other countries.
In addition, we have been very active at the WTO. We work
closely with the very able Director-General Roberto Azevedo,
and we are busy on the various standing committees that do the
actual day-to-day work of the organization. The WTO is a very
important organization, as you say, but we believe it has
significant deficiencies.
First, over the last 20 years it has migrated from a
negotiation forum to a litigation forum. This development has
unfortunate consequences. Developing new trade agreements has
been stifled, and the commitment to the organization has been
undermined.
Second, many countries have very high ``bound'' tariffs and
other barriers, and it is difficult to see how pressure can be
created to get them to reduce either.
Third, many members have gotten into the habit of not
living up to their basic obligations. The requirements for
subsidy notification by members are often ignored, and numerous
transparency obligations go unfulfilled on a regular basis.
Another problem is the anomaly that many members self-
declare themselves to be developing countries, even though they
are among--in many cases--the richest in the world.
Fourth, the dispute settlement process is in need of
reform. We have an Appellant Body that often does not follow
its own rules. The administration has complained about this, as
have previous administrations. I have some quotes and the like
I will do at another time.
In spite of these challenges, the administration is working
diligently to jumpstart new negotiations in the areas of
digital trade, fish subsidies, and other areas. We look forward
to working with the committee to solve these and other very
important trade issues.
I am sorry I ran a little over, Mr. Chairman.
[The prepared statement of Ambassador Lighthizer appears in
the appendix.]
The Chairman. There are two reasons I would give committee
members an admonition to keep their questions short. First of
all, our witness has to leave at noon. And secondly, we are
soon going to have a hearing on the President's 2019 trade
policy agenda where many of you will be able to ask questions
at that time on trade policy as well.
I am going to start my questions with China. Like you, I
agree that China has not done enough to honor its WTO
commitments. Like you, I have been disappointed by China's lack
of respect for commitments it made to liberalize its economy
and play by the rules, exactly the same thing that Senator
Wyden has referred to. And I fully agree that countries like
China should not be able to self-identify.
How do you expect countries like China, India, and South
Africa to agree to reassess the WTO's approach to special and
differential treatment?
Ambassador Lighthizer. Well thank you, Mr. Chairman. First
of all, this is a major problem. It affects both ongoing
obligations, but it is even more of a problem when you look at
new negotiations, because, when we start off a new negotiation,
everyone immediately says, ``Oh, but these new rules we're
going to negotiate are not going to apply to us.''
And if you look at the European Union as one country, it
is--about 90 percent of the organization is in this category of
self-
declared special and differential treatment. And it is
countries like Korea and Saudi Arabia. I mean, it is rich
countries and big countries, and of course as you say, China.
It is a very difficult problem, because this is a consensus
organization.
So what we have proposed--and we have been complaining
about this for a long time--what we have proposed and we have
some support for is the idea that if you do not, for example,
notify your commitments, you have certain penalties in terms of
budget costs and the like.
In terms of the self-declaration, we put a proposal forward
where we are trying to get people to say that you cannot self-
designate if you are in the OECD, if you are one of the rich
countries in various criteria that are internationally
recognized. Now, the problem with that is going to be that it
has to be agreed to by all the members, and the people who are
taking advantage of it are not going to agree to it.
So it is a fundamental problem. It is something that we are
shedding light on. I think some other countries are starting
also to talk about it. There has even been the suggestion that,
well, maybe the United States just ought to self-designate
itself as a developing country, and then we are all treated the
same.
So if I knew the actual answer, I would give it to you.
What we are doing now is shedding light on it, telling people
what a problem there is, and we need to have new negotiations
making it clear that we are not going to give people other than
the truly poor nations of the world any kind of a benefit in
terms of the kind of obligations that we're undertaking.
The Chairman. I have referred to this trilateral process of
the United States, Japan, and the EU to address nonmarket-
oriented policies and practices of third countries that lead to
overcapacity and create unfair competition, while
simultaneously we are negotiating bilaterally with China
regarding very legitimate issues outlined in the section 301
investigation.
So explain those two coinciding processes. Do they inform
each other, or should we consider them two distinct processes
that will have independent outcomes?
Ambassador Lighthizer. Thank you, Mr. Chairman.
First of all, I consider them to be independent, but
related. So we have a trilateral group. It is the United
States, Japan, and the EU. We have had five meetings now. We
put out statements, and we tried to say what we are doing and
get people to have a similar understanding and similar actions
with respect to technology transfer, with respect to a variety
of trade cases that we have, with respect to investment in
their country where technology is scooped up by China.
So I think it has been very successful. It has brought
other people along, but the focus really has been the three of
us, and we are trying to come up with specific examples.
Separate from that is the 301 action. By U.S. law, that is
a separate process. We do tell the EU and Japan when we meet
what we are doing, and what the developments are, and the like.
But I think that it is a very serious problem. It is one that
we cannot just rely on the WTO for. We cannot just rely on this
trilateral group. We have to act unilaterally to the extent we
can.
And so they are independent, but we do report back and
forth, and we inform each other. And I think you have seen
developments in Japan and in Europe that have mirrored some of
the things we are doing as a result of this activity.
The Chairman. Senator Wyden?
Senator Wyden. Thank you, Mr. Chairman.
Ambassador Lighthizer, you were part of the Reagan
administration when the theme on enforcement was ``trust, but
verify.'' And that is particularly important when it comes to
any deal with China. And of course, you all are discussing a
China trade deal, in effect, on tariffs. And you know that I
feel very strongly that any deal with China needs to address
intellectual property, technology transfer issues, and be
enforceable.
So what I would like to do is have you state this morning,
on enforcement of any deal with China, do you intend to lift
the current tariffs, or will you condition the lifting of
tariffs on demonstrable progress on technology, IP, and the
major issues? I think we want to know what is going to be your
measure with respect to actually having enforcement, making
sure the Chinese will follow through on their commitments, and
whether you are going to lift the tariffs before you see hard
evidence--hard evidence, on the ground, that the Chinese are
changing.
Ambassador Lighthizer. Well yes, thank you very much,
Senator.
I would say first of all, I am involved in the negotiation,
and I am not going to talk about what we are doing in the
negotiation. Although, as you know well, I do not keep any
secrets from you, and I am happy to have that conversation on a
private basis in terms of precisely where we are on all
matters.
So I want it clear that I have you completely in my
confidence, and you know that. And we talk about all these
issues, but I am more reluctant to talk about them publicly, in
this environment, number one.
And then number two, you put your finger on what are, to
me, the key structural issues. There are some others, but these
are really, really important, and that is to say technology
transfer, theft of intellectual property, lack of protection of
intellectual property. And then there are some others; they are
subsidy issues and the like that I have talked to various
members about that are also fundamental. And there are some ag
and other issues that we're involved with.
But these real structural issues have to be addressed. And
in our negotiations, I would say they are being addressed, and
they are being addressed with precision. That is not to say
that we have come to conclusion, because we have not. But we
are making headway there.
Your point is that--and you have made it to me repeatedly
privately--none of it makes any difference if it is not
enforceable. We are going to have an enforceable agreement, or
the President will not agree to an agreement.
I should----
Senator Wyden. Let me just ask right at that point. Is it
your intent to make sure you see evidence of changes on the
ground before you lift the tariffs? I am not talking about any
particular item that is under discussion.
What I want to know is, what is going to be the test with
respect to lifting the tariffs? And is it your intent to say we
have to see evidence on the ground of real changes before we
lift the tariffs?
Ambassador Lighthizer. Well, I would say that is a subject
of negotiation. So I am not getting into it here in public, but
I do agree with you that we have to have real progress, and we
have to maintain the right to be able--whatever happens to the
current tariffs--to raise tariffs in situations where there are
violations of the agreement. And that is the core. If we do not
do that, than none of it makes any difference in terms of where
we are on the specific tariffs.
That is a matter of negotiation. And once again, I am happy
to talk to you about it.
Senator Wyden. We are not talking, Mr. Ambassador, about a
specific tariff, or intellectual property, or one particular
area or another one. I am trying to discern--and that is what
my constituents ask at home in Oregon. You are a former Staff
Director for this committee, so you know we have to be
responsive to our constituents.
They say, you know, we have been promised again and again
that there are going to be changes with respect to China. I do
not want you to have to get into a specific area right now with
me, and my colleagues are going to have their own questions.
What I want to see is what the test is for lifting the
tariffs. And I will tell you what my test is, just so you know:
my test is you are able to see evidence of real changes on the
ground, in the real world, before we lift the tariffs. And my
sense is, that is sort of what Bob Lighthizer has been
interested in, but we need to hear it from you. And I do not
suspect I will be the only Senator asking you today about your
test. But that is mine.
Thank you, Mr. Chairman.
The Chairman. Senator Roberts, and then Senator Stabenow.
Senator Roberts. That is the team.
Senator Stabenow. That is the team.
The Chairman. That is the Aggie team.
Senator Roberts. Yes.
Do not start my time until now, if you would please.
[Laughter.]
Bob, it is good to have you back. Senator Grassley, when
you were on this committee and were the only member of this
committee at that time when Bob was the top gun for Senator
Dole during those days, I was in the House. And whenever I
would have a question that I thought I could take the time of
Senator Dole for, he would always say, ``See Bob.'' So it is
good to see you back, sir.
I think that I had a sanitary and phytosanitary question
and a WTO question. And I think Senator Wyden put it very well.
Senator Wyden gets a little wound up, but he was born in
Wichita. He is a good guy.
But he said ``real progress on the ground'' and was talking
about jobs and continuing these tariffs. But there is tariff
retaliation. There is also price recovery with regards to farm
country.
We are still 50 percent off from last year, for goodness
sakes, in terms of farm income, farm revenue. We are still in a
very bad way. And so there is a lot of feeling out in farm
country, especially--and you know this forwards and backwards.
But what I want to ask is, in the last 2 years, the
administration has focused on bilateral trade agreements. The
United States has stepped away from major multilateral
agreements, including the Trans-Pacific Partnership. That is
still very popular out in farm country, if we would hitch our
wagon there.
Especially as it relates to the WTO agreement on the SPS
measures, do you see room for multilateral agreements to
advance the U.S. trade agenda and improve market access? And I
think you and I just visited about a particular country that we
think we ought to really focus on as opposed to the TPP, which
might be a little bit big to swallow right now.
Ambassador Lighthizer. Well, thank you.
So I would say, first of all, the President is very focused
on what is happening in farm country, as you know well. And we
have seen an unfortunate decline in farm income with some
bounce, but a basic decline for a long period of time. And it
is something that has to be reversed.
You are right: there has been retaliation that has had a
negative effect in farm country. But I always point out that,
particularly with respect to China, no one has a bigger upside
to opening up China than agriculture. We sell them, in a normal
year, $18 or $19 billion worth of product, less last year for a
variety of reasons.
But they import a lot of goods from a lot of other places
that they ought to be importing from the United States. So it
is a big, big upside for agriculture generally. And it is
something we are focused on.
On the question of TPP, as you know, we are in the process
of negotiating with Japan. I always tell people that there are
11 countries in TPP. We have FTAs with six of them. With
respect to the other five, 95 percent of the GDP is Japan. So
if we can get an agreement with Japan that is a good agreement,
that will go a long way towards having essentially the same
effect as being in TPP.
Personally, I did not like TPP for a lot of the same
reasons the President did not, but I will not go into those now
unless another member asks me to do it.
So I want to move forward on Japan. I think that is really
important for farmers. It is also important that we have a
deal, if we can get a good deal, with China, because that will
open up a lot of agriculture sales. But also we are focusing,
as you know well, very much on SPS issues, impediments to trade
across the board, which there are a lot of, but particularly in
China.
We are also spending a lot of time at the WTO working on
these issues. This is one of those areas where you are in a
committee, and you are doing the actual day-to-day work.
So it is a major focus of our activity. And if we end up
with a deal on China, and if we end up with a deal--at least an
agricultural deal--at an early time with Japan, I think there
is a bright light on the horizon for agriculture. And that
certainly is our objective, all while we are trying to take
care of these SPS issues, which we do sort of one at a time,
sometimes a little bit like peeling an onion, but one at a
time.
And the SPS issues, I should say, have been a major focus
of our discussions with China. We have gone through a whole lot
of their various--I do not want to say schemes, but processes
that keep U.S. agricultural products, and other agricultural
products, out.
Senator Roberts. I appreciate your answer. I yield back.
The Chairman. Senator Stabenow?
Senator Stabenow. Thank you very much, Mr. Chairman and
Ranking Member.
Ambassador, it is always good to see you, and I appreciate
that you have a lot on your plate, and I appreciate the work
you are involved in. I do have to, though, follow up to what my
chairman in the Agriculture, Nutrition, and Forestry Committee
was asking and your comment that President Trump is focused on
supporting agriculture.
I know we are not in a budget hearing, but for the record,
I just want to say that the budget came out yesterday. It has a
31-
percent cut in farm bill programs for rural America that was
overwhelmingly supported by the Senate, plus a 15-percent cut
to the USDA to be able to enforce and provide the farm bill
program. So I have a hard time believing that statement, with
all due respect, even though I understand your reason for
saying it.
Senator Roberts. Would the Senator yield on that?
Senator Stabenow. Yes, Mr. Chairman.
Senator Roberts. We are not cutting crop insurance. Get a
hold of the budget----
Senator Stabenow. Which is in the President's budget.
Senator Roberts. We are not cutting crop insurance to the
degree--they say it is reform. It is not--it would gut the
program, and that is the one thing that farmers, ranchers, and
growers all over the country said was the number one issue.
And I agree with the distinguished ranking member, the
former chairman of the committee. Thank you.
Senator Stabenow. Thank you.
So we realize we are not in the Agriculture Committee, but
that is important to say, just for the record, and to also say
that nobody has had a bigger downside from the administration's
actions on China than agriculture.
So let us talk about the WTO. We certainly have a lot to
talk about in terms of reform. And issues like China's non-
market economy status at the WTO will continue to be something
that many of us care about. And I want to talk specifically
about something you and I have talked a lot about related to
China, and that is currency manipulation, which we know is
uncompetitive and an unfair trade practice.
I also know that you know that Senator Portman and I had a
bipartisan amendment to address this that almost got included
in the TPA to add enforceable standards on this issue in trade
negotiations. Now the U.S. negotiated currency provisions in
USMCA--which is good--which were transparency and reporting
obligations, as well as commitments to market-determined
exchange rates.
The transparency portion has enforcement behind it, but not
the other commitment. So that is another issue.
And then with South Korea, when the agreement came before
us in previous Congresses, there was an understanding put in on
currency manipulation, though there does not seem to be
enforceability behind that.
So now we get to China. Can you shed some light for us on
what exactly it means when we hear that there is a currency
agreement with China? How does it compare with what has been
negotiated with the USMCA, and how far does it go in terms of
being enforceable?
Ambassador Lighthizer. Well, yes, thank you, Senator.
First of all, I would say we do not have an agreement with
China, as you know. So nothing is really done, and, as in these
kinds of negotiations, nothing is ever done until everything is
done.
Nonetheless, we have talked a lot about currency. I know it
has been a major factor for you and a number of other Senators.
Senator Schumer has also been a leader on this for a long
period of time.
As you say, we have what is the farthest-reaching
commitment on this ever in USMCA. And I just want to continue
to point that out, because the members will consider that at
some point. And that is a commitment not to have competitive
devaluation.
But as you say, it is not covered by the dispute process.
But the transparency provisions are. And our objective really
was not to stop currency problems with Mexico and Canada, as
you know, but to have it be like the model of how we are going
to be going forward.
We have had discussions with China. We have come, I think,
pretty close to agreement. And if we have an agreement, I
believe we will have a commitment not to have competitive
devaluation, and we will have a commitment to certain
transparency. And the terms, the actual terms of the
transparency, we will have to talk about, because they are
reasonably complicated.
And the Treasury Department, as you know, is very much
involved with us with advice from the Federal Reserve. But the
Treasury Department is very much involved with us. But as it
stands now, it is a provision. It has real commitments, and it
is enforceable under the agreement as it stands right now. So--
--
Senator Stabenow. Let me just--my time is running out.
It is a negotiation. And so the question I would have, as
just a quick follow-up is, did the United States have to
provide concessions on our end to be able to get to the point
of what you are talking about?
Ambassador Lighthizer. So let me say first of all, with
respect to the actual language, I am happy to sit down with the
Senator and just show you the language and you can tell me,
give me your opinion, and I would like to have your opinion,
because you are a leader in this area, number one.
Number two, yes, this is a negotiation. The focus of the
negotiation from the Chinese side is the removing of 301
tariffs. If that is the concession, then that is something that
is under debate. In addition, they have some specific market
access provisions that we also are considering.
The Chairman. Senator Cornyn, and then Senator Cantwell.
Senator Cornyn. Mr. Ambassador, let me ask you a question
about the USMCA, and then I would like to talk about the WTO
briefly.
According to my calculations, the administration could send
over the proposed USMCA for congressional action by mid-April.
And I just, one more time, want to encourage you--first of all,
to congratulate you and the administration for successfully
negotiating this deal, which I support, but also to encourage
you to keep working closely with us to make sure that what you
send us in mid-April is something we can pass. It is very, very
important, as you know, and so I look forward to working with
you on that.
And that is not a question. I guess that is a statement.
Secondly, let me just ask you a broad question about the
WTO. If in fact--I mean, this is like the Articles of
Confederation. It is a consensus organization. We found out
that did not really work very well for us, and it does not seem
to me that the WTO is working very well as currently
constituted.
You say it is not a negotiation forum. It is more a
litigation forum. But then, once the disputes are decided,
assuming we have an Appellate Body in place, then there is no
real compliance with what the WTO orders.
And if someone can game the system, a country can game the
system, by identifying themselves as a developing country and
reduce the number of items that they need to comply with--let
me just ask you the broad question. Why is the WTO still
relevant?
Ambassador Lighthizer. Well, thank you very much.
I mean, that is a fundamental question. Let me say first of
all, thank you for your comments about USMCA. I think it is the
best trade agreement we have ever negotiated, and I think that
is true with respect to most of the things that members have
come to me about, for a lot of reasons. And I do want to get it
up here as soon as we can, consistent with the prerogatives of
the House and the Senate. And we are working very hard to have
that get done.
So the next question is the basic question on the WTO,
because we had these conversations. What is the WTO? So it is
the Council of Ministers, and then it is something called the
General Council, which is like all the Ambassadors from the
various countries, and it is out there. And then it has a bunch
of committees. And those committees deal with everyday problems
on a regular basis, and they solve some of those problems, and
they interpret the negotiations, and they interpret the
agreements, and they avoid problems. And this is an important
function, because I think people tend to just look at the big
picture.
The fact is, things are going on on a regular basis that
are diffusing problems, interpreting things, and moving people
towards consensus. So there are good things going on there.
The problem that I have, as you say, is because of a
variety of changes that were made in the mid-1990s in the
Uruguay Round, it has morphed from really a forum where we
ought to be sitting down negotiating how to open up trade to a
litigation forum. And so you have lots and lots and lots and
lots and lots of litigation. And because of that, you find
people who will not make concessions because they realize if
they sue the United States, for example, they might have an
Appellate Body give them something that they would have to pay
for or could not otherwise get from the United States. And
there are lots of examples of this.
So it is a problem. And it is made more difficult by the
fact, as you say, that it is a consensus organization. How do
you end up moving a consensus organization forward when the
beneficiaries would have to concede their advantage? And that
is a fundamental problem.
So for me, one, the dispute settlement thing has to be
sorted out, and we can talk about that separately. But what we
have tended to see is--and I think the way forward for the WTO
is, you take small groups of countries that actually have
something in common, that are willing to take on extra
obligations, and those countries get together.
Like, for example, in the digital trade that the ranking
member spoke about. So you have a group, in that case it is 70,
and we can talk about whether it is being done properly or not.
And those people get together and they say, ``We will take on
extra obligations, and we will just exclude the rest of these
people from it.'' And you try to use that kind of, if you will,
sort of plurilateral approach.
So I guess I would say three things. One, we are doing some
real things there. It is not like it is just a waste of time.
There are real things going on on an everyday basis.
Two, we have the dispute settlement process, which we have
to worry about, which is quite troubling to me.
And then, three, we are probably moving more in the
direction of the negotiation forum of this plurilateral thing.
And there is another thing that is troubling to me that I
want to work with members on, and that is--I will be very quick
about this and talk about it more if someone else cares.
There is a situation where somebody joined the WTO in 1950.
They took on certain obligations. They can keep their tariffs
at a certain level. We find ourselves 70 years later--the whole
world has changed. They are big, they are rich, or whatever.
They still have locked in what they did in 1950, and there
is no way to get them to change it, because we are in the
position where we have, over a period of time, lowered our
tariffs way down. And it is hard to figure out a way to put
pressure on those people so that they will change their tariffs
and non-tariff barriers.
The Chairman. Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman.
I thank you and Ranking Member Wyden for holding this
hearing. I actually think this is the hard work of trade. And I
think--if you ask me, we could spend a lot of time on this
subject.
We should. We should spend a lot of time. In fact, I find
that more important to how we move for the future. But I come
from a part of the world where trade--we are one of the most
trade-
dependent States, and I guarantee we were trading with China
before Lewis and Clark showed up.
So we want access, and we appreciate all the things that
you just said. So I think I spend every day sending you a
letter about--whether it is cloud computing or agriculture,
access or--I do appreciate your trilateral meetings with Japan
and the European Union with the United States, because I think
that is something I agree with the administration on, that you
can continue to put pressure on the larger China discussion by
bringing more people to the table. I would be bringing more
people to the table.
On that point, I appreciate your testimony. I wanted to ask
you, given this discussion, and for somebody who wants market
access, and sees--I guess that is where I disagree with the
administration in this context. I appreciated that the last
President wanted to increase exports by 50 percent, and he set
that goal. He did not reach it, but I thought it was a great
goal and that we should keep doing that.
This committee pushed through that Trade Enforcement Trust
Fund in part of the Customs bill, and then you have been able
to use that Trade Enforcement Trust Fund to hire more lawyers
to successfully challenge China's tariffs on wheat and rice at
the WTO. Why is that not more the direction that we need to go?
If so much more of the economy is outside the United
States, and we are very good at growing things and
manufacturing things, why are we not spending more time winning
the day and putting the tools towards trade to win the day?
Ambassador Lighthizer. Let me see. First of all, I want to
commend you for your leadership on the Trade Enforcement Trust
Fund. It is extremely important to USTR. And when you look at
the enforcement things we do and how much of our budget is
spent on it--a small budget, but how much of the budget is
spent on enforcement is a matter of debate, right? Because
almost everything that I do I look upon, more or less, as
enforcement, as you know.
But that trust fund is the reason we can bring so many of
these cases. It is the reason we have people who speak Chinese
and can read the Chinese papers and the Chinese regulations and
help us interpret those and put those into legal filings and
briefs. So it is a real world benefit to us.
And I guess I do not--I agree with you and the committee
completely on the issue of enforcement. I do not think that the
enforcement is--I think enforcement is basically opening up
markets. And I think what the President has done, and what he
has had me do, in using some of these tools to take actions
against other countries--the real objective is to get market
access. It is to get reform.
So if you look at China as the principal example, our
objective is to get better access and reform in China, and
really to work with reformers who are in China who want to have
pressure to reform their own system. So the trust fund is
extremely important. We use it, I think, very efficiently. We
would be in dire straits without it, and we use it on
enforcement, and most of that enforcement is really directed at
getting more market access, whether it is the 301 kind of
action we are talking about or all the WTO cases. They are all
designed for that purpose.
I think relying solely on the WTO litigation has its flaws,
because you will win cases, as you know, and in fact, you are
the absolute expert on this issue of winning cases for years
and years and years and years and years and not getting real
outcomes. Having said that, in your particular case with
Boeing, we are close. I think we are close to getting a really
important outcome. But it has been a long time coming.
Senator Cantwell. Well, I guess I would say I look at this
as the first line of action. And when I look at the tariff
situation, I look at it as throwing down in such a major way.
This polysilicon issue with REC is a perfect example, not even
started by this administration; started by the last
administration. And I do not even know what year we are in,
year 6 or something. And I am not sure we have made--I am sure
it is on the table in your negotiations, and you are talking
about it. But that is where tariffs got us. We have fewer and
fewer employees at a polysilicon facility because we could not
come up with a path forward.
So I am just saying, to me, if us giving you funds helps
you hire the lawyers to bring up these cases and get them
going, then I am all for it. Because I just think so much more
of trade is going to be outside the United States, with
developing countries who are not going to necessarily play by
the rules. And making sure we call people out on that in the
broadest possible fashion to start that discussion, I just
think, is helpful in this access issue.
So thank you.
The Chairman. Senator Thune would be next, but Senator
Casey will take his place, and then after Senator Casey,
Senator Portman, unless Senator Thune returns.
Senator Casey. Thank you, Mr. Chairman.
Mr. Ambassador, thank you for being here, and thanks for
your service.
I appreciate the fact that, with your work, you have been
leading an effort to confront China, frankly in ways that are
overdue, and we are grateful for that. I am also grateful for
the time you have spent with individual members of the
committee, like me, to talk about these issues and to consult,
especially on China and the 301 investigation.
I want to start there with regard to the scope of the
negotiation so far. Based upon what you have said today--and I
think this is probably a pretty good list of the issues, and if
there is anything else, please add to this. In terms of the
scope, you talked about intellectual property, technology
transfer, agriculture, market access, currency--that is at
least five. And I am assuming state-owned enterprises are also
part of it, but is there anything else in terms of the scope of
your negotiation so far?
Ambassador Lighthizer. So I would say--just in terms of
scope, I would say that we mentioned currency, we have
mentioned most of the things here. One thing we have not
mentioned is services. The services--there are a lot of
specific access problems we have in the services. It is
extremely important to the U.S. economy and an area of real
genuine U.S. competitive advantage, we believe.
And I would say the final thing is non-tariff measures. And
non-tariff measures are--I do not want to say this, but sort of
a hodgepodge of a lot of different problems that we have. But
in that category for us is the very important issue of
subsidies that China uses, right now at least, to create excess
capacity in a whole variety of areas.
But there are a lot of other specific things under,
particularly services and non-tariff measures. But that is kind
of the universe.
Senator Casey. And second, I guess the goal, obviously, is
to enter into an enforceable agreement.
Ambassador Lighthizer. Yes, sir. Absolutely.
Senator Casey. And the basis of my question is really about
what the involvement of Congress would be in that. And so I
guess the question I want to ask about today with regard to
your commitment is, do you commit to give Congress ample time
to do three things: read, review, and evaluate this agreement
before entering the United States into this legally binding
agreement with China, if and when it would be in place?
Ambassador Lighthizer. So I would say first of all--as you
well know, Senator--this is not an agreement where we are using
TPA. And I know we have talked about that and you are aware of
that. So a lot of the obligations we would have under TPA, we
do not have to follow.
If we have an agreement--and once again, it is a big if--
this will be in the nature of settling a trade dispute that we
have, which trade dispute was brought under the auspices of
section 301.
So as we move forward, we will have an agreement. I am
happy to consult with members. There will by no means be
secrets in any of this, right? I mean, everything we have will
be open and public.
And as we move forward, I am happy to sit down with members
and show them. How we will make it public, I do not know yet.
But it will be a public agreement. It is in no way private.
When we enter into it, you know, will be when the President
decides that we have a package that, in his opinion at least,
is a great package.
And what I view as my obligation is to move forward with
Senators who are particularly interested in this, and sit down
with them on a regular basis, and tell them precisely where we
are on these various positions, and the precise language,
right? I mean, I cannot operate a negotiation in public, of
course. But I can certainly sit down with Senators who are
interested and show them exactly where we are on all these
provisions, and what we expect to do.
It is fair for you to say, ``Well, I want to know where you
are when you are close to getting an agreement.'' And it is
fair, and we will do that. We will undertake to make sure that
you are aware of that, and I will sit down with you when we get
to that point.
Senator Casey. Would the commitment then be--and I want to
characterize it the right way. But would you commit to formally
consulting with Congress?
Ambassador Lighthizer. I am not quite sure what that means.
I do not go a day without talking to three or four Senators or
members of the House, usually 10.
So I mean, I view myself as consulting on a regular basis
with Congress. I think the idea of saying, should we sit down
with the chairman and ranking member of this committee and Ways
and Means when we get very close to the end, I think that is a
very constructive thought. And I want to think about how best
to do that.
But in terms of you, personally, and your involvement, I
will sit down and tell you where we are. As we get forward, as
we get close, I will call you and say, ``We have to sit down
again.'' And, if you have time, we will do it, and I will go
through it with you. But it may be that it makes sense to do
something with the chairman and ranking member of the two
committees of jurisdiction in some organized way. And I want to
think about that. I think that is a very constructive thought.
The Chairman. Senator Portman, and then in 5 minutes, we
will turn it over to Senator Whitehouse.
Senator Casey. Mr. Chairman, could I make one more--not a
question, just one quick statement.
The Chairman. Yes.
Senator Casey. I want to make sure that as part of this,
both committee staff--and obviously our staff are engaged
directly, so I ask for your cooperation on that.
Thank you.
The Chairman. Yes. And then it will be Senator Whitehouse
after Senator Portman. I will be right back.
Senator Portman. Bob, thank you for being here again.
And on China, as you know, I appreciate the fact that you
are so focused on that, because it is incredibly complex,
incredibly important, and I strongly support us landing that
plane, and I hope you have success in doing it. Tell us today
what you think the timing is on China.
Ambassador Lighthizer. Well, thank you very much, Senator.
I appreciate the comments. I appreciate your leadership in this
area, and I walk by that picture every single day, and I look
at all these ugly former USTRs, and there you stand right in
the middle of----
Senator Portman. Yep. The ugliest of all. [Laughter.]
By the way, 13 years ago, I think I was sitting in that
exact seat when Chuck Grassley was chairman of this committee
talking about the WTO. So some things never change--I mean on
China.
Ambassador Lighthizer. So I would say we--Secretary Mnuchin
and I--were on the phone with China last evening. We are going
through a lot of issues--very, very complicated issues.
If we have an agreement it will be a 110/120 pages. It is
very, very detailed, very specific. As I say, I am happy to sit
down with members and talk it through, particularly members who
have specific issues.
We are working, more or less, continuously. Our staffs are
getting drafts back and forth. So this is a process that is
ongoing. I will be on the phone again with them tomorrow. As I
said, I was on the phone up to 9 o'clock----
Senator Portman. Your thought is by the end of this month?
Ambassador Lighthizer. Well, we will see. As you know
probably more than most members because of your experience, you
know I do not know when something is going to happen. We are
going to have a good result or we are going to have a bad
result before too long.
But I am not setting a specific time frame, and it is not
up to me. I work as hard as I can, and the President will tell
me when the time is up, or the Chinese will.
Senator Portman. So I noticed--I looked at the cases I had
filed in WTO when I was USTR. They were all about China. Every
single one involved China. And it continues to be our number
one issue on this committee.
On USMCA for a second, I think it is an improvement over
NAFTA. I think you have negotiated a good agreement. I am
supportive of it, as are a lot of my colleagues.
However, 232 is a problem, in two ways. One, it is tough
for them to ratify with the existing 232. Second, this 232 on
autos that is being considered--the President now has a report
from Commerce. I know that is not your leadership, but I would
hope that you would communicate back the importance of not
moving ahead with a 232 on autos, in part so that we can move
forward on other things like USMCA.
I cannot imagine with what I am hearing from the Canadians
and Mexicans already on steel and aluminum, that if we did
autos, we could have a successful completion of USMCA here on
the Hill, and that they would be able to ratify it. Any
response to that?
Ambassador Lighthizer. Well, I would say I will certainly
take back what you tell me to the President, as I always do.
The 232 car thing is complicated, and you probably more than
any other member know where my own position is, where I am, and
how I am working through it.
It is a very serious issue, the auto industry and what has
happened to the U.S. auto industry.
With respect to USMCA, and Canada and Mexico on cars, there
are provisions that will take them out of it, whatever we do.
But that does not in any way diminish your overall point. I
just want to make that technical point.
And on steel and aluminum, as you know, we are in
discussions with them and trying to find a way out of that
dilemma for them and for us.
Senator Portman. Finally, WTO, just quickly.
As you have expressed, there is a lot of frustration. You
listed five specific issues we need to address. Again, I
approve of every one of them. The reform agenda is incredibly
important.
It is a rules-based body that we cannot live without. In my
view, things would be even worse without having a WTO there.
Having spent many, many hours 50,000 feet over the Atlantic
trying to negotiate Doha, you know, back in the day--very
frustrating. We could not get that done.
It does not mean we should not move forward again with
these other agreements. You talked about e-commerce today. We
talked about the fisheries agreement. We did do a trade
facilitation agreement with China that was very positive.
Here is my question to you, and it is really a very simple
one. Is it time for us to look at the consensus idea fresh and
to say, ``Does consensus really work?'' I mean, there has
always been a fear among the major trading partners, including
us, that if it was not by consensus, that somehow we could be
disadvantaged. On the other hand, consensus is not working.
Let us just be honest. You cannot get 98 percent of the
trade in the world, all those countries, to agree on hardly
anything anymore, particularly as it relates to reforming
dispute settlement.
Is there any interest in looking at this issue and trying
to get some allies to join us in looking at whether it should
be not
consensus-based, but based on some sort of a--if it is not
majority, maybe it is a super-majority, to make decisions?
Ambassador Lighthizer. Well, that is a huge question, and
it was perfect timing. You got me to use up most of your time.
So, I mean, I am happy to get involved in that
philosophical argument. I do not ever want to be in a
position--to be honest, I would never recommend that we are in
a position where a majority of any countries get around and
say, ``We are going to make rules that will have a negative
effect on the United States.''
It is troubling to me that other countries would use this
consensus to protect--in an unfair way--their own economies. On
the other hand, I would never recommend anyone to say, let us
have two-thirds of the people in the world sit down and vote
and make rules that would have a negative effect on the U.S.
So to me, the consensus is like a--it is a dilemma. As long
as we are required to be in the consensus, well and good. I
just do not like other people having it. And my guess is, they
all have the same view. And so I think the solution is probably
to try to do something to reform the things we can reform, and
then move in the direction of, like you say, the e-commerce.
There are some things you can do on a plurilateral basis,
and make real headway on. And those things we ought to do.
Fisheries is kind of trickier, because if 80 percent of the
people say they are going to do something sensible on
fisheries, and the other 20 percent, like China for example, go
out and get--it is kind of trickier on fisheries.
But some things like digital trade are clearly a kind of
thing we can move on in a plurilateral way.
Senator Portman. Thank you, Chairman Grassley.
The Chairman. Senator Whitehouse?
Senator Whitehouse. Mr. Lighthizer, welcome.
Since you are talking about fisheries, we are headed for a
planet that will have more plastic waste in the oceans than it
will have swimming fish by 2050 if we keep things up. And with
the very energetic support of Senator Sullivan of Alaska, the
Congress passed the Save Our Seas Act on marine plastic debris.
It passed in the Senate unanimously. When we went up to the
oval office for the bill signing, the President lamented what
he called, I think, other countries using our beautiful oceans
as their waste dumps or their landfills. I do not remember the
exact words he used.
But the President was quite engaged on this. So you have
bipartisanship. You have the support of the President, and I
think we actually have a win-win here, because most of the
plastic waste flowing into our oceans comes from five
countries, five Asian countries that have been identified. And
90 percent of it comes from 10 rivers, which provides a really
specific focus for various methods of trying to avoid it.
The problem appears, more than anything else, to be a
failure of upland waste management in those countries. And so
something goes into the gutter, and then it goes into the
creek, and then it goes into the stream, then it goes into the
river, and maybe 2 years later it is in the ocean, because
nobody bothered to clean it up. And we have very good waste
management companies.
So because this is an overseas problem, we hope very much
that, because it has the President's support we believe, we
hope that you will be leaning in with these other countries in
the trade discussions that you have with them. Try to get them
to clean up their act on their own upland waste management,
because we pay the price of plastic-fouled seas, and they get
the benefit of not having to have their businesses and their
people pay for cleaning up their waste the way we do.
So, could you tell me where this falls in your world? Is
this something you have heard of before? Is this something that
is a priority for you? Is it somewhere in between? Where are
you on using your authority to try to solve this marine plastic
waste problem?
Ambassador Lighthizer. Well, thank you, Senator.
And thank you for your leadership too, because we have for
the first time, I believe ever in a trade agreement, a
provision on this in USMCA. And it----
Senator Whitehouse. ``To take measures to prevent and
reduce marine litter'' is the phrase. So I hope that that will
be enforced and there will be metrics for it.
But my opening question was more generally where this falls
as a priority for you.
Ambassador Lighthizer. So anything that the Senators of
this committee or members of the Ways and Means Committee,
other members of the Congress bring to me as a priority, is a
priority. So I guess I do not know quite how to rank it. It is
a priority if you say it is a priority. I bring up issues that
the members want me to bring up.
I have a lot of priorities, right? And I guess if I had to
rank them, I would say jobs for workers, ranchers, and farmers
is kind of like my first thing. And then I move--everything
else kind of flows from there. Those are the things that I
focus on.
Senator Whitehouse. Okay. Well, we will do what we can to
make sure that this stays high in the priority chain, and let
me ask you more specifically----
Ambassador Lighthizer. You have done a very good job.
Senator Whitehouse. Well, Senator Sullivan has done a
really good job. I want to give him credit, because he has
access to more doorways in the administration----
Ambassador Lighthizer. He has spoken to me about it.
Senator Whitehouse [continuing]. And he has knocked on
virtually all of them.
With respect to the U.S.-Mexico-Canada agreement and that
language about the obligation of each country to take measures
to prevent and reduce marine litter, what metrics are being
used to facilitate and enforce this provision? As you know, we
live in a world in which there is often very agreeable language
thrown into these agreements, and then there is never any
enforcement, never any metric, and it evaporates in practice.
What is the metric that will drive that ``prevent and
reduce marine litter'' provision?
Ambassador Lighthizer. Well, I would say first of all that
it is important that we, in fact, have it in there, that we
pass USMCA. So I will make that pitch, because people will be
disappointed if I do not.
I would say I think realistically the way this is going to
have to be enforced is like a lot of other provisions. That is
to say, people for whom this is a high priority are going to
have to come to me, or to the USTR, and say, ``We have a
problem; we have an enforcement problem.'' And then I am going
to have to bring consultations first, and then go through the
dispute settlement process with both countries.
And I certainly pledge to do that. I expect to do it, and I
expect members to hold me accountable for it, you know, for
doing that. I think also it is the kind of thing----
Senator Whitehouse. Well, my time is expired. So I will
just accept here your invitation to keep after you.
Thank you.
The Chairman. Senator Lankford?
Senator Lankford. Thank you, Mr. Chairman.
Well, thanks for being here again, and for the engagement
on this issue. WTO has just ruled against China that they have
consistently exceeded their ag subsidies that are allocated,
which they have done for years. That is something the United
States has worked with WTO on for several years now, have won
that.
And now the challenge is, if China appeals that and it goes
to the Appellate Body and we do not have enough individuals on
that Appellate Body once it goes into next year, what happens
then?
So my question for you is, where are we now that we have
just won a ruling from the WTO on ag subsidies with China and
where this goes if it goes to the Appellate Body and it extends
out past next year and we do not have enough people to have a
quorum there at that point?
Ambassador Lighthizer. So I would say first of all, with
respect to that case, it was a big case, as you know, a major
win, and we have another case that is floating out there, which
is also important--that is their tariff-rate quota management,
which I know you also are aware of and involved with.
So it is a major win. I should also say that in the context
of our discussions with China, we are trying to resolve this
case in a way that we think achieves our goals and avoids the
possibility of an Appellate Body decision. It is, of course,
not impossible that you go to the Appellate Body and lose the
case also.
So I would not necessarily assume that you are going to win
just because you go to the Appellate Body.
So my hope with respect to that specific case is that we
can work it out in the context of this negotiation. And we are
having those discussions, and that is my objective.
In terms of the general question of what do you do, how do
you get reform? That is a big question, as you know. And if you
are not willing to be bold and use the only leverage you have
with the WTO--which is to say that we will not approve the
appointment of Appellate Body members without reform--I do not
know any other way to do it.
And I could go through--I know you know well, the Appellate
Body does not follow its own rules. It is creating a
jurisprudence, and there was never any contemplation that this
would be part of this process, right? The whole--I should take
a step back for members who have not spent a lot of time with
this.
The notion was, you would have specific disputes decided by
a panel, and the Appellate Body would come in in 90 days and
say, okay fine. Is there a crisis here? If not, the panel would
decide; there would be no jurisprudence.
What has developed over time is in fact these things. The
Appellate Body takes years. They have developed their own
jurisprudence. So they will cite their own things. And the
effect of this has been to create obligations that we never
agreed to, and to take away rights that we bought.
So what you are saying is, what do you? Your creating a
problem to force reform has to have a short-term impact on an
important matter. I am saying I am trying to deal with that
matter in the context of these negotiations.
But that does not in any way obviate your more important
point.
Senator Lankford. But the bigger issue is, your opposition
is not to the Appellate Body. It is to how it is actually
operating. So the hope is to be able to get it back to
operating functionally and consistently and predictably, rather
than sporadically, and to be able to get it back to full
functioning.
Ambassador Lighthizer. Yes. I mean, we clearly need reform.
And there are a whole lot of things that I could talk about at
the appropriate time, whenever anybody asks me, that are major
problems. Every other country, or almost every other country,
has made the same point. It goes to why we are not a
negotiating body anymore, the WTO, but we are a litigation--I
mean, these are all sort of linked things.
I have, you know, three former WTO Directors-General who
even 15 years ago were saying this is a bad trend. It is a
problem, and we have to get away from it. It is a major, major
change from what the WTO was supposed to do. And the result is,
we do not have rounds. We are not making any real headway.
I mean, it is a very large, fundamental problem. And I
think it is generally recognized to be such by the thoughtful
members.
Senator Lankford. Right.
Ambassador Lighthizer. I mean members of the organization.
Senator Lankford. So let me bring one thing up quickly on
this, what you and I have talked about: the 301.
I do appreciate that in the first two tiers of 301 there
has been an exclusion process in place, that there has been a
dialogue, and you and I have discussed before that, if it moves
from 10-percent tariffs to 25-percent tariffs, there will be an
exclusion process at that point as well.
But I would tell you, some Oklahoma companies that do a lot
of trade and manufacturing are concerned that there may be a
point where the 10-percent tariffs are left in place, and there
is still no exclusion process. So there has been an exclusion
process for tiers 1 and 2, but there never would be for tier 3.
And I would just say that is inherently inconsistent for how we
have handled things in the past, and we can continue that
conversation in the future.
Ambassador Lighthizer. I appreciate that.
The Chairman. Senator Hassan?
Senator Hassan. Thank you, Mr. Chairman, and thank you, Mr.
Ambassador, for being here today.
The section 301 investigation undertaken by your office
into China's trade practices identified several serious
concerns facing American businesses and workers, to be sure.
You have stated previously, and again in this hearing, that
your office has made significant progress in securing an
agreement with China. However, we have yet to see any draft of
this agreement.
Ambassador Lighthizer, there are businesses in my State
that are having to make decisions now about their upcoming
investments and whether, for instance, to move their supply
chains. These are critical decisions that are going to impact
these businesses, their employees, and our economy for many
years to come.
What would you say to the businesses in my State that are
trying to make important decisions about the future of their
companies with little to no indication from this administration
on the status, not to mention the content, of a potential
agreement with China?
Ambassador Lighthizer. In the first place, I am, of course,
sympathetic to people who are in the real world and have to
deal with these matters. I am also sympathetic to the, in my
opinion, thousands of Americans who have lost their jobs
because of unfair trade practices by China. I am sympathetic to
all the companies----
Senator Hassan. I understand your sympathy. Sympathy does
not go very far, though, sometimes. So I am talking about
transparency in a process that would allow the American people
and American businesses to understand where we are with this.
Ambassador Lighthizer. So we are involved in a negotiation.
It is not going to be any more transparent than it is. It is
just the nature of a negotiation. It is not something you can
negotiate with another country in public.
I am happy to sit down, of course, with the Senator and go
over any of these matters. But I am not going to make public
statements about where we are and specifically talk about terms
and put text out, because I think it will make it more
difficult----
Senator Hassan. So could you at least give us a sense of
timetable and framework so that people would have a sense of--I
have businesses that need to make $50-million investments, or
not, depending on whether this agreement gets done in the next
month or not.
Ambassador Lighthizer. So I am happy to do that, Senator,
of course. In terms of time frame, our hope is that we are in
the final weeks of having an agreement, but I am not predicting
one. There still are major, major issues that have to be
resolved. And if those issues are not resolved in a way that is
beneficial to the United States, we will not have an agreement.
So it is one of those things. And there is nothing harder
to predict than when you are going to end a trade agreement,
right? These are sovereign countries that have their own
interests.
Senator Hassan. Right.
Ambassador Lighthizer. So I cannot predict success at this
point, but we are working hard, and we have made real progress.
Senator Hassan. And you think you are getting towards an
end point, one way or the other?
Ambassador Lighthizer. Yes, I think that is correct; yes.
And in terms of structure, because that is a fair statement,
what we want to do is have real provisions that specifically
and clearly preclude forced technology transfer. And that is
complicated, as you know well, because we spoke. And then it
goes down to the local level. And you know a lot about some of
the horror stories that American companies have had.
We also have to have real detailed protection for U.S.
intellectual--everyone, not just the U.S., but I care about the
U.S. intellectual property rights. China does not really have a
system to protect intellectual property. We have to have that
in place. And that could--just to give you a sense--that could
be what you would consider to be sort of 20 pages of statute.
Senator Hassan. Right.
Ambassador Lighthizer. I mean, it is difficult, complicated
stuff.
We have currency provisions, which I expect to be in there,
and I talked a little bit about that earlier. We will have
specific provisions with respect to various people who have--
various companies who have problems with access on services.
And there is a whole variety of these that we are dealing with
with members.
We will have a whole variety of issues on agriculture that
we are working our way through. And then we will have what are
called non-tariff barriers and non-tariff measures, which are
kind of a hodgepodge of complicated things.
Senator Hassan. Okay.
Ambassador Lighthizer. And then an enforcement provision.
So that is more or less the structure of it.
Senator Hassan. Thank you. And I appreciate that, and we
will likely follow up with you for a little bit more detail
around that.
I want to shift gears a bit and discuss another area of
negotiations where it is essential that China upholds its
promises. In December, President Trump tweeted that one thing
to come out of his meeting with President Xi in Buenos Aires
was President Xi's ``promise to me to criminalize the sale of
deadly fentanyl coming into the United States.''
Just last month you testified before the House Ways and
Means Committee that this is ``something that the President
views himself as having a commitment on'' and ``may very well
be something that we end up writing into this agreement.''
I have concerns that you seem to be backtracking from the
President's assurance that this would happen. Given the level
of importance this has for so many, will you commit that any
final agreement will include this step which the President has
touted as a game changer?
Ambassador Lighthizer. So let me say, Senator, first of
all, I am not backtracking from anything. Fentanyl is not
something that people talk about in trade agreements, right?
This is something that the President in a meeting with the
President of China raised, made a very big issue about. And the
President of China agreed with him.
And then the question is, do we write it in the trade
agreement? And my own preference would be that we do. But
whether it is in the trade agreement or not, the President of
the United States views himself as having a commitment, and he
views this as something that is going to happen.
Senator Hassan. I am over time, and I understand that. I
will say that it seems to me that you all are being pretty
creative in your use of the 301 process here with China. Almost
500 people died in 2017 and in 2016 from overdoses of opioids
in my State, most of which came from fentanyl. So I would ask
you to identify this as a priority.
Thank you, Mr. Chairman.
The Chairman. Senator Daines?
Ambassador Lighthizer. Could I just say, Mr. Chairman----
The Chairman. Yes.
Ambassador Lighthizer. I completely agree with you as a
personal matter, but more importantly, the President completely
agrees with you. He has exactly the same level of concern about
this as you do. I assure you, I will talk to him in the next
few days, and I am going to tell him that we had this
conversation.
The Chairman. Senator Daines?
Senator Daines. Thank you, Mr. Chairman.
Bob, good to have you up here today. So you know I spent
nearly 6 years working on the ground in China with Procter and
Gamble back in the 90s. I ran Asia-Pacific for a software
company for 5 years, most recently. I spent a lot of time
working on business and trade in the region. But if I think
about my home State of Montana--and there is an old saying in
business, ``The main thing is to keep the main thing the main
thing.''
Our number one economic driver in Montana is agriculture.
The number one cash crop for Montana is wheat. The number one
livestock is beef. The largest market for U.S. beef is Japan.
Eighty percent of Montana's wheat harvest goes overseas, most
of that to Japan.
So as we think about China in the moment, I applaud what
you are doing; taking on the issues related to intellectual
property, forced technology transfer, and so forth--that needed
to be done, Bob, and I am grateful for your leadership there.
My farmers and ranchers back home are very anxious, and they
want to see results.
So I think about the strategy as it relates to China, and
then, stepping back and thinking about TPP and Japan, I am
concerned at the moment about what is going on, and losing
market share in Japan specifically. TPP provided a great
opportunity for us to see significant tariff reductions. As you
know, moving beef tariffs, import tariffs in Japan, from 38
percent to 9 percent, to see a 45-
percent reduction in tariffs on wheat in Japan over a course of
9 years for wheat--these are huge markets.
And just yesterday, I was meeting with some of my barley
producers. They have now lost contracts. They have lost malt
barley contracts with Japanese clients, and they are very
concerned.
And so my plea is to move this to getting some results now,
because the results we are seeing at the moment are losing
market share. And when we lose that share to foreign
competitors, it is tough to get that back.
So the question I am asking here, then, for you is, when
can we expect negotiation to begin with Japan, because that is
a very important market for us. Now as part of helping the
efforts here to remove the beef import ban in China that had
been there for 16 years--we saw that removed. That is good
news.
And we need to get into the Chinese market long-term
because of, certainly, the huge potential here for Montana and
U.S. ag producers. But I want to come back to Japan for a
moment because it is such a huge market force today, and we are
starting to lose share. When can we expect to get a deal with
Japan?
Ambassador Lighthizer. First of all, on the broader
question of China, I appreciate our conversations and your
experience. It has been very helpful in terms of informing how
we are operating here.
So if we get a bad result, everybody will be blaming you
now because I said that. But you have been very helpful, and I
do appreciate your experience. That is number one.
Number two, on the issue of Japan, that is extremely
important. As you know, it is not just what is happening in the
market now. It is what is going to happen when TPP is fully
implemented----
Senator Daines. Right.
Ambassador Lighthizer [continuing]. Because we have a whole
variety of competitors there, but also the European agreement.
So we are--we have a real problem. We have a situation that is
not good now, and it is going to get bad very quickly.
Senator Daines. Yes. Well, that is the concern, Bob. As you
know, we are now behind in Japan because our other allies here
have signed agreements and are moving forward and receive the
benefits of the tariff reductions. It is going to put U.S.
producers at a significant disadvantage.
And again, my malt barley folks were in talking to me
yesterday, literally showing me contracts they have lost now in
Japan.
Ambassador Lighthizer. Well, I would say first of all, I
want to have my staff contact your staff. I want to get
information on the barley situation.
Senator Daines. Yes.
Ambassador Lighthizer. That kind of helps me make my case.
I would say we began the process of TPA some time ago. It takes
several months before you can get to the stage where you can
negotiate. We are at that stage now. We are talking to the--we
have spoken with--he calls it a prenegotiating, but we have
spoken a fair amount with the Japanese.
But this is a very high priority for me, and I think it is
something--let me take a step back. So it will take a while to
get an entire FTA, but my own view has been that we have to
take care of the agricultural part of it and some other
things----
Senator Daines. Right.
Ambassador Lighthizer [continuing]. So it is balanced at an
earlier stage. Some Senators probably will not like that. Some
will like it, but I think, because of the market situation in
Japan, we have to move in that direction.
I have talked to the chairman and the ranking member and
others about this, and some other Senators----
Senator Daines. I am out of time here, Bob. I think there
could be a parallel path here of continuing work with the
multilateral agreement here with Japan and a bilateral
agreement here in other places.
But anyway, I know you have a lot on your plate, but our
farmers and ranchers are concerned with the results they are
seeing here.
The Chairman. Senator Cassidy?
Senator Cassidy. Hey, Mr. Lighthizer, you have always been
so responsive, and you mentioned to Senator Portman you speak
to Senators on a regular basis. I am one of those. Thank you
very much.
One thing that is important to my State which has not yet
been discussed is India importing shrimp. And since the EU has
put phytosanitary restrictions upon Indian shrimp, they are
flooding the U.S. market, which is negatively impacting
domestic producers.
Now if it was fair trade, that would be fine. But they
subsidize--as you know--they subsidize their aquaculture. And
so that subsidy with the restrictions ends up disadvantaging
our folks disproportionately. I will note that if the EU finds
their shrimp unsanitary, I am a little reluctant to have that
shrimp in our State for health reasons. But that is almost a
side issue.
So with that kind of preamble and knowing that USTR just
announced the termination of India's GSP status last week, what
additional authorities would the administration consider, or
feel as if it needs, to address this shrimp dumping issue?
Ambassador Lighthizer. Well, I mean, I am generally aware
of the problem with shrimp. We have laws in place, as the
Senator knows, where you can bring cases, and this industry has
availed themselves of them at the Department of Commerce on
anti-
dumping. But also more importantly, in the case of India
countervailing duty cases, in the event that you can show
injury--and in this case, at least, there is a history where
the shrimp industry has been able to show injury.
If the Senator has specific ideas, I am happy to go
forward. Generally in a situation like this, you are better off
bringing litigation. As you know well, I brought a lot of this
litigation over the years, and it is a very effective remedy to
actual subsidies in this case.
I do not know anything about the sanitary issue. I am happy
to raise that with the Department of Agriculture, which I think
has jurisdiction over that. And I am happy to do that, and I
will do it to see whether there is some avenue with this being
overlooked.
Senator Cassidy. Now it seems as if, going to that point,
it just seems like knowing that, it is difficult to do this.
But it does seem a scenario in which a kind of all-of-
government response would be nice to have--FDA, for example,
looking at the phytosanitary aspect of it. I do not know if a
301 tariff would be adequate to get India's attention. But
India, so far, has not paid attention to this.
There are antibiotics and, allegedly, fecal material being
found in the farms where these shrimp are being grown. And
which, again, the EU finds objectionable. But to what degree
could we hope for a coordinated response where, for example--I
understand right now if there is a sanction, if the shrimp is
found to be contaminated, it is a business-to-business
transaction. This shipping business is then sanctioned.
On the other hand, it really should go back to the farmer,
because a farmer might be supplying several export businesses.
And if you just sample and find this one is bad, but you do not
sample this one, it is actually the originating farm which is
the issue. Again, it is phytosanitary, not trade-related. But
on the other hand, it ultimately involves trade, if you follow
what I am saying.
Ambassador Lighthizer. I do, Senator, and we are concerned
with phytosanitary standards. Usually we are on the other side
of it. We are objecting to other countries that are using them
artificially as a form of protectionism.
But in this case, I am happy to look into this. I do not
know what the Department of Agriculture does in this situation.
I am happy to look at it, and to the extent there are
countervailing duty cases, I am sure that the industry is
looking at them.
We have had trouble. As you know, we have given notice that
we are going to stop the GSP program for India, and it is
because largely there have been a very large number of trade
access problems that we have had on which they have shown
really no interest in making improvement.
So the President has given them notice, and that is going
to go forward unless there is some change in the situation.
This is an issue that I am happy to raise in that context.
Senator Cassidy. Sounds great.
One more thing. I have 30 seconds left. I will point out--I
understand the USMCA does have something I have been interested
in, which is trade-based money laundering. My understanding is
the USMCA does have new provisions allowing for the two
governments, Mexico and the United States, to collaborate more
effectively in terms of looking at the financial aspects of it;
if you will, correlating the invoice with manifest.
We would love to work with you on that, because I think
that is a way cartels move billions out of our country, and it
is something that, again speaking of all-of-government, seems
like it will take an all-of-government approach to address.
The Chairman. Senator Thune?
Senator Thune. Thank you, Mr. Chairman.
Thank you, Ambassador. You know we sat down a couple of
weeks ago and talked about trade and its importance to South
Dakota's economy, and to our State's ag producers in
particular. And as you know, I strongly support the
administration's efforts to correct long-standing and unfair
trade practices with countries around the world, especially
China.
But with two out of every three rows of South Dakota
soybeans being exported, I am deeply concerned about the impact
these retaliatory tariffs are having on our ag producers, which
is why I firmly believe it is important for us not only to
maintain the existing market access that we have, but to look
at expanding market access for agricultural producers.
And new or improved trade deals that help open markets,
like those that are being discussed with the EU and Japan, I
think would be a welcome and positive development for American
producers who continue to face low commodity prices. So we have
a lot of work to do with markets around the world, but I look
forward to continuing to engage with you on these and other
trade-related matters.
I wanted to bring up the EU. They are notorious, as already
has been alluded to, for imposing non-tariff barriers on
American agricultural products in an effort to protect their
domestic producers, something that I know troubles both you and
me. While I am hopeful that you will be able to gain
significant concessions from Europe, if history tells us
anything, the negotiation is not going to be easy.
So, given that ag seems to be a prerequisite for getting an
EU trade deal through Congress but that EU officials continue
to insist that agriculture is not on the table, tell me, just
kind of handicap, what you think the prospects for success are
in a deal with the European Union.
Ambassador Lighthizer. Well, thank you, Senator.
I would say I met with their trade commissioner last week
and went through a variety of issues. And one of the issues, of
course, was this--what you say--which is the United States
cannot have a trade agreement with Europe that does not deal
with agriculture. And their view is that they cannot have one
that does. So as you say, well, we are at a stalemate. We will
see how that develops.
But from my point of view, I am completely committed that
any FTA has to deal with agricultural products. We have an
enormous trade deficit. We have a trade deficit of $15 billion
a year in agricultural products with Europe, and it has nothing
to do with economics, or competitiveness, or quality of
products.
It has more to do with protectionism, in my judgment. And I
think we have to have some erosion of that, of those barriers.
So this is something we have talked about. From their point of
view, they have no mandate, because they have a variety of
member states that just will not give him a mandate. So they
have no mandate. They will not talk about it.
There are some issues that we do talk about that are like
in the aquatic area--nothing that would be of interest to you--
that are, because of peculiarities of where tariffs are, in the
industrial tariffs area. But on the basic agriculture issue, we
are at a complete stalemate with them.
So we are working on other areas, with the realization that
there is not going to be any FTA without agriculture, and that
is just the provision. It does not even matter whether we
showed--the Congress would never go along with us. So it would
not make any difference whether we conceded or not. We would be
a dead letter if we tried to come up here and do it. The
members have made that very clear.
Senator Thune. Thank you. I appreciate that and encourage
you to continue to take the hard line in dealing with them.
Section 232 tariffs--we talked a little bit about that
with, particularly, Canada and Mexico. Now that we have
concluded that deal, when do you see us intending to lift those
232 tariffs on Canada and Mexico?
Ambassador Lighthizer. So I am very much engaged in this
issue. I realize how important it is to members, both because
of the retaliatory tariffs but also because of the effects that
market access has on prices of downstream items in the United
States. It is something we are fully engaged on.
As you know, Senator, my view is that we have to have a
solution with Canada and Mexico that protects the President's
basic program, which he believes and I believe has been a very
successful program. That is on steel and aluminum. But I think
there is a sweet spot there that allows us to have a solution
that satisfies Canada and Mexico and also maintains the basic
integrity of the program.
And it is a very high priority. I have ongoing negotiations
with both of them on this subject. So you know, we are moving
forward. But I find myself constantly in the position of not
being able to predict when the end of negotiations is going to
be. But I can assure the Senator they do eventually end,
because a bunch of them have.
Senator Thune. All right, I am out of time. I will submit a
question, Mr. Chairman, for the record.
The Chairman. Senator Isakson?
Senator Isakson. Thank you, Mr. Chairman.
Ambassador Lighthizer, thank you so much for the 2 hours of
your time you have given us and the job that you are doing.
The problem I have is, after 2 hours of listening to a
bunch of members of the Senate, it is pretty hard for me to say
anything that is going to be memorable for you to take home. I
came up with something about five speeches ago.
I am going to talk to you about the four Cs of trade in
Georgia. Are you ready for this--cars, cans, cinema in China,
and chickens. Got that? Cars, cans, cinema in China, and
chickens.
Cars and cans obviously are big products in our State. We
are an agricultural State. A lot of food is sold, processed and
sold, in cans. A lot of beverages and soft drinks are done in
cans. The 232 tariffs have been tough. And you have heard me
talk about this before.
Do you have any idea--I am hearing concerns that they are
going to be replaced by some type of quota, or replaced by
other types of burdensome expenses, or just increase
themselves. Do you have any idea of the longevity of the
current treatment of 232 or whether we can expect to be able to
compete without that type of burden?
Ambassador Lighthizer. So, thank you. The cinnamon, I have
to confess that that is memorable now. But I guarantee, when I
think about chickens and I think about cars, you are one of the
ones I think about. So that I can guarantee, and there are a
couple of others on this committee whom I also think about a
lot on cars, but a couple others on chickens.
So I would say the President's view is--and I share this
view--the 232 tariffs on steel and aluminum are working, are
necessary. And I would say, particularly in the case of steel,
we would be in dire straits if we did not have them. Those
industries would be very vulnerable.
Having said that, it is a legitimate question as to what we
are going to do with respect to Canada and Mexico, which I
think is the core of your question. You raise this issue of
quotas. So the question becomes, how do you relieve the burden
of tariffs on steel and aluminum on Canada and Mexico and still
maintain the integrity of the program?
So there are a variety of tools that are available. One of
those tools is that you put in place a historic quota so the
product can come in under the normal course, not pay a tariff,
but that Mexico and Canada will not take advantage of the
program in a way where all the benefit of the program goes to
them instead of to the U.S. And all I am saying is, I think
there is a sweet spot there.
Quotas are not necessarily good or bad. It depends on the
level of the quota, right? If the quota is at the right level,
it is not troubling for your downstream people. If it is at the
wrong level, it is very troubling.
So what I am trying to do is just have a practical solution
to a real problem, and that is to say, get rid of the tariffs
on these two. Let them maintain their historic access to the
U.S. market, which I think will allow us to still maintain the
benefit of the steel and aluminum program. That is more or less
what I am trying to do, and it is something that we are working
on very hard at this point.
Senator Isakson. I appreciate that, and I appreciate your
attention to how much we care about chickens in Georgia. And I
will add one other factoid about China and chickens. The Asian
people love the feet. The Americans hate the feet. If we get
those markets more open, we get a product we are not getting
any money for in the United States--we will get a lot of money
for it in China and Asia.
It will be a good thing to have. So that is one thing to
keep in mind.
Ambassador Lighthizer. I appreciate that. I was aware of
it. And if we have a deal--if we have a deal; it is by no means
certain--there are a lot of important things that will have to
come into place for us.
The chicken farmers will be happy if we have a deal. That I
can guarantee.
Senator Isakson. And lastly on China and cinema--cinema,
not cinnamon. That is like movie cinema, motion pictures.
Georgia is where--most of the motion pictures produced in the
United States are now filmed in Georgia. It is a huge industry
in our State.
In China since 2012, there has been an agreement between
China and the United States that the United States would pay 25
percent to the Chinese for the movies they produce, and China
gets 75 percent. I want to just see if you have heard of any
talk of renegotiating our position on that or that agreement at
all in terms of motion pictures.
Ambassador Lighthizer. Thank you, Senator.
I apologize for mis-hearing you. Yes, I am aware that an
awful lot of movies are made in Georgia. Somebody brought that
to my attention. It is sort of an abnormally large number. It
is a big, big industry there. And yes, we are currently in the
process of renegotiating that split. What we have right now is
a very unfair situation.
There are some related issues that we are working on too,
but the split is probably the most important thing to the
producers, to the MPAA. And it is something we are actively
engaged in right now with the Chinese.
Senator Isakson. Thank you very much. Thanks for your
service too.
The Chairman. We are almost reaching 12 o'clock. We have 15
minutes here. Could you stay 15 minutes for the three Democrats
who have not asked questions? Can you do that?
Ambassador Lighthizer. Absolutely.
The Chairman. Okay. Senator Cortez Masto?
Senator Cortez Masto. Thank you, Ambassador. It is good to
see you, and I will be quick. I actually will not use all of my
time.
Specific to Nevada, 87 percent of our exports are by small
and medium-sized enterprises. Can you provide greater detail of
the USTR's role in opening foreign markets to the small and
medium-sized enterprises like those in Nevada? Those are the
companies I am hearing from, in particular, those small
enterprises that have been impacted by the 301 tariffs.
Ambassador Lighthizer. First of all, we have a full program
on small and medium-sized enterprises, SMEs. We have it in all
of our agreements. We have it in the USMCA. It is a regular
part of what we do, and there are a whole lot of pieces to it.
A lot of it is trying to alleviate paperwork and all these
sort of technical requirements which have a disproportionate
negative effect on small and medium-sized enterprises than they
do on big companies that can more easily deal with them.
I guess I did not get the question. Is the question what
effect are the 301 tariffs having on them?
Senator Cortez Masto. And how are we addressing them? I
mean, it is the number one impact I am hearing about from the
small businesses, the tariffs under 301.
Ambassador Lighthizer. So well, I mean, I do not know the
specific industry. I would have to hear the specific company.
You know we have 10-percent tariffs. There is no particular
carve-out for small and medium-sized enterprises. So those
tariffs are on those products and across the board. There is,
with respect at least to the 25-percent on the first $50
billion, the exclusion process.
And if small industries in your State are having problems
accessing themselves to the exclusion process, I am happy to
figure out a way to help them do that.
Senator Cortez Masto. Thank you. I appreciate that, and we
will reach out to you.
And then, one final question. I know--I think Senator Wyden
had talked about this, but I have also heard the enforcement
component of the U.S.-China trade negotiation is still poorly
developed. I am curious. Can you identify some of the
enforcement and verification mechanisms that you could envision
in a final deal?
Ambassador Lighthizer. So the question is, how would the
enforcement mechanism work? I think what you have to envision--
and once again, this is not something that is agreed to at this
point.
You have to assume that you have--I would say monthly
meetings at the office director level. This is what we are
talking about now, quarterly meetings at a vice minister level
and at least semiannual meetings at the actual minister level--
that companies come to us with specific problems and we try to
work our way through those problems, hopefully at the lowest
level going up.
And to the extent we get to issues that are substantial and
cannot be resolved, they are to be resolved at the level of the
Vice Premier and me. And if we get to the point that they still
cannot be resolved, then the United States would have the
right, or the reverse--any obligations they may have would have
to have the right--to unilaterally act to enforce change.
So anything short of that, in my judgment, is just what we
have right now. I am not foolish enough to think that we are
going to have an agreement--if we have one that is going to
solve all our problems, what we need to do is solve as many
problems as we can and put in place a framework so that we try
to have our differences within that framework on a going-
forward basis. And then over time, that will lead to a good
result.
So that is more or less what we are thinking. It is
probably what you would have thought too if we had sat--I mean,
it is a logical way to approach it, and that is what we are
trying to do.
Senator Cortez Masto. Thank you. I appreciate it.
Ambassador Lighthizer. Thank you, Senator.
The Chairman. Ten seconds to Senator Wyden, and then
Senator Brown, and then Senator Cardin.
Senator Wyden. Mr. Chairman, I would take my 10 seconds
after my colleagues, because they have been very patient.
The Chairman. Okay then, Senator Brown?
Senator Brown. No disrespect to the ranking member, but he
just took the 10 seconds. [Laughter.]
Before I get to my question, Mr. Chairman, I ask unanimous
consent to insert in the record a report entitled ``How the WTO
Undermines U.S. Trade Remedy Enforcement.'' I released it last
year with the Alliance for American Manufacturing. It details
the extent to which the legitimate use of U.S. trade remedy
laws has been attacked frequently and disproportionately by the
WTO. It clearly is not fair.
The Chairman. Without objection.
[The report appears in the appendix beginning on p. 39.]
Senator Brown. Thank you, Mr. Chairman.
We all know the elephant in the room on WTO is China.
Ambassador, good to see you. Thank you.
The statistic I am going to cite is from 2014. It has
probably not changed, certainly not significantly: 9 out of the
top 10 Chinese steel producers are state-owned. These state-
owned enterprises arguably have caused a steel global
overcapacity crisis. It is what has forced thousands of steel
workers to lose their jobs in the community you grew up in, in
fact.
The question is, do you expect these nine state-owned
enterprises to be operating ``business as usual'' even if an
agreement is reached with China?
Ambassador Lighthizer. Well, I would say first of all, I
want to salute your study on trade remedy enforcement at the
WTO. That is probably the biggest single area where the dispute
settlement process has failed to do what it was supposed to do,
where it has denied us obligations that we paid for and put in
place responsibilities that we never negotiated for.
And we could go through case after case after case. It is a
serious, serious problem. And there are a lot of people who are
not working right now because of this overreach by the dispute
settlement process.
I think the gist of your question, I believe, Senator, is
will there be provisions in here that will limit subsidies that
have created excess capacity and state-owned enterprises? And
by the way, also quasistate-owned enterprises, right, because
there is a blurring line.
But in actual state-owned enterprises, then the answer to
your question is ``yes.'' If we have a successful agreement,
there will have to be provisions in there that go directly to
the question that you are raising--that is to say, subsidies
which lead to excess capacity in competitive industries. And
that is something that we are negotiating and that I expect to
have in there.
Then the next question is--just because we are short of
time--are we going to enforce it? And of course, my objective
will be to enforce it. And whether or not it is as successful
as you want it to be will determine entirely how----
Senator Brown. Thank you. And as you know, as we have
talked about, that structural issue is as important as anything
in this relationship.
Ambassador Lighthizer. To me, it is most important. It is
the most important thing.
Senator Brown. Let me shift to something else. We have
seen--and you and I have talked about this too--a unique
phenomenon in this country over the last few decades where
companies will shut down production in Ashtabula or Mansfield.
They will take tax breaks, they will move overseas and reopen
factories in China, then ship their products back to American
customers. It has become the business plan for thousands of
American companies, again, unknown to history before a third of
a century ago.
If the U.S.--my question is this. Ambassador, if the U.S.
in these trade talks is trying to ease investment restrictions
and strengthen IP protections in China, does it not then follow
that you can end up creating more incentives for a
multinational corporation to close down their American
facilities, to lay off their American workers and open up new
factories? Doesn't the direction we are going in just
accelerate that trend?
Ambassador Lighthizer. Well, I do not believe that to be
the case. I think the way we are losing jobs in America is
because people are going there anyway for their own reasoning,
then their technology is being stolen, competitors are being
created. Those competitors are then not only wiping out the
U.S. industry, which went there--which happens, as you know,
over and over and over again--but also then coming in and
taking over the U.S. market.
So I see the other end of the stick. I hear what you are
saying, but to me the problem is forced technology transfer is
having a negative effect. And that is really where we are
losing the jobs.
I certainly am not--I do not salute the companies that go
over there. Obviously, I agree completely with you and your
interpretation of that.
And I also think that one of the--and you and I talked
about this many, many, many times. One of the unforeseen, but
clearly unforeseeable aspects of PNTR was it certainly created
the shift from the U.S. to manufacturing in China. And that is
basically what happened, and then an outgrowth of it was the
loss of all this technology because of these various practices.
Senator Brown. I do not entirely agree with you. Thank you
for your assessment. I do think that we have to be careful
about providing more incentives for companies to invert.
My last question will be quick, and it involves a bill I
have been working on with you, Chairman Grassley. A lot of this
stuff has been making it easier for U.S. companies to invest in
China.
We need to pay attention to Chinese investment in the U.S.
The Chinese government wants U.S. market share, of course. They
are using unfair trade practices to get it. They use strategic
investments to capture important parts of our supply chain. We
have seen this in food and transportation, especially. This
should be a major defensive concern for the U.S.
Senator Grassley and I have a bill, the Foreign Investment
Review Act--we have talked to you about it--to set up a process
to screen Chinese investment, not just for national security--
that is CFIUS--but to screen it for domestic security, if you
will, for American jobs, job growth.
I have asked you and Secretary Ross to support our
legislation. You have both said in this committee you will
support that legislation. We have not gotten much yet in the
way of actual support, and I would like your commitment today,
as part of your effort to get tough on China, to make our,
Senator Grassley's and my Foreign Investment Review Act a
legislative priority for your administration.
The Chairman. Short answer.
Ambassador Lighthizer. I do not make the priorities for the
administration. I completely agree with the sentiment in the
bill, as you know. But in terms of the priorities, somebody
higher than me makes priorities for the administration.
Senator Brown. But you know people invested.
Ambassador Lighthizer. I know you, Senator. [Laughter.]
The Chairman. Senator Cardin?
Senator Cardin. Mr. Ambassador, thank you very much for
your service.
As we look at the WTO at 25, some of us remember the
discussions leading up to WTO under GATT and the hope that we
would have not only change with WTO, but an evolutionary change
over time. And yet, in the last several ministerial meetings,
we have not seen much progress in regards to the evolution of
the WTO.
Do you expect at the next ministerial that we will have an
agenda for potential improvements of the WTO when it takes
place? I believe it is early next year.
Ambassador Lighthizer. Yes, thank you, Senator. I mean, I
would say the expectations were very high in 1994 and 1995. We
went through this process. Part of what people saw was there
was this view that opening up trade in this way would lead to
democracy and greater growth, and we have not seen that. We
have seen entirely--we have seen protectionism and the like.
But having said that, I think we should not underestimate
the WTO. It has done a lot of good things. If we did not have
it, we would be, at least in my judgment, worse off. And a lot
of the everyday work gets overlooked that it in fact does.
What do I think the agenda will be when we have our
biannual meeting? I would say my hope is that, between now and
then, we tee up reform in a way that is important in the
dispute settlement process, and also in the way they run the
organization, that we reenergize the committees which are
involved, but we need more on that.
And then we have specific areas where--such as e-commerce--
we are going to have to do that, I think, on a plurilateral
basis. I do not think you are ever going to get a consensus and
then hope the plurilateral basis grows.
We have a real problem with agriculture, right? And moving
forward, because people do not want to commit themselves to any
real reform--the United States does. But other people do not
want to commit themselves to that. But that has to be a part of
whatever we do moving forward.
There is fisheries. There is just a whole----
Senator Cardin. And I hope that we deal with the problem of
nonmarket economies. You have talked about that a little bit,
about a level playing field. You have talked about enforcement.
I could also say a level playing field in regards to our anti-
dumping and countervailing duty laws that have been
disrespected.
To me there is an agenda that is consistent with this
administration's policies that I hope we can get in a manner
where we can make progress at the next ministerial.
Clearly, most of the questions today are centered on China,
and for good reasons. China is a member of the WTO, and there
are now active negotiations between our two countries.
I would hope that that could become a model on how to deal
with a nonmarket economy. So some of that we could take into
the WTO ministerial to try to deal with it.
Congress attempted to give direction under Trade Promotion
Authority with good governance issues because we were dealing,
in TPP, with nonmarket economies.
Senator Isakson mentioned the bilateral issue with China in
regards to motion pictures. Let me remind you Maryland is also
a large State for motion pictures, and we do hope that you can
resolve that conflict.
I also want to mention Mongolia for one moment and China,
because Mongolia qualifies for GSP, but most of its cashmere
products do not. And as a result, their cashmere usually ends
up in China, which is part of our trade challenge as to how
that cashmere ends up in the U.S. market.
So I would just urge you to work with us. There is some
legislation pending to try to give Mongolia the benefits of GSP
as it relates to cashmere.
Ambassador Lighthizer. I cannot say I spent much time on
that. But if it is something you are interested in, I certainly
am interested in it, and I will work with you on it.
Senator Cardin. I appreciate it.
Thank you, Mr. Chairman.
The Chairman. Senator Wyden for a short question.
Senator Wyden. Thank you, Mr. Chairman.
Ambassador, thanks for your time.
I would like for the record--because the chairman has been
correct in saying you are past the time you would give us. I
would like you to get us for the record, say within 10 days,
how you intend to take on the discriminatory anti-American
digital services taxes that are being pursued by European
countries. As you know, this is one of our most promising
economic sectors. It is okay to get that to us within 10 days?
Ambassador Lighthizer. Absolutely, but I would even--if the
Senator has time, I would like to sit down and talk to the
Senator about it too. I think this is one of those areas where
we can go down the tax, you know, OECD approach, and that is
fine. But I think that this is so important we may have to find
ourselves being somewhat more creative. And I would like to
work with the Senator, sort of in the creative realm.
Senator Wyden. Good enough. Thank you.
The Chairman. Questions for the record are due by March
26th. I thank you, Ambassador Lighthizer, for doing this,
particularly your coming now with your plate full of so many
different negotiations that are going on. It speaks about the
importance of reforming the WTO. And thank you for recognizing
the constitutional role of Congress in the national trade
agenda.
Thank you very much for coming. Thanks to my colleagues for
their attention.
[Whereupon, at 12:14 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Submitted by Hon. Sherrod Brown, a U.S. Senator From Ohio
FEBRUARY 2017
How the WTO Undermines U.S. Trade Remedy Enforcement
Authors:
Terence P. Stewart and Elizabeth J. Drake
Mr. Stewart is the Managing Partner of the Law Offices of Stewart and
Stewart.
Ms. Drake is a partner at the firm. This paper reflects the authors'
individual views.
First published February 2017 by the Alliance for American
Manufacturing
I. Introduction
On December 12, 2016, China filed a dispute at the World Trade
Organization (``WTO'') challenging the U.S.'s continued practice of
treating China as a ``non-
market'' economy in antidumping cases. China argues that it is entitled
to be treated as a market economy as of December 11, 2016 according to
the terms of China's protocol of accession to the WTO. The U.S.
disagrees that such a change in treatment is required, and it has
continued to find that an array of distortions in China's economy make
it ineligible for market economy treatment under U.S. law. While the
dispute may take a couple of years or more to reach resolution, it
could have far-
ranging implications. If the U.S. is required to use internal Chinese
prices and costs to determine the extent of dumping that is occurring,
it would result in unreliable dumping comparisons due to on-going
problems such as Chinese government restrictions on currency
convertibility, a lack of free bargaining over wages, and state control
over firms, the allocation of resources, and price and output
decisions. This would dramatically weaken the ability to effectively
remedy harmful Chinese dumping in the U.S. market.
Unfortunately, the current track record of the WTO does not bode well
for the outcome of this latest dispute. Since it was established in
1995, the WTO has repeatedly ruled against trade remedy enforcement,
both by the U.S. and other WTO members. The WTO has found at least one
violation of WTO rules in over 90 percent of the trade remedy disputes
it has ruled on to date--a remarkable record of violations given that
the WTO rules were negotiated by the members themselves. The U.S. has
been the disproportionate focus of these disputes. Since 1995, the WTO
has issued 38 separate decisions against U.S. trade remedy measures,
nearly five times the number of such decisions issued against any other
member.
As a result, WTO decisions are undermining the ability of the U.S. and
other countries to effectively enforce their trade remedy laws, laws
which provide the vital first line of defense for domestic industries
and workers injured by dumped and subsidized imports. There is mounting
concern that these decisions result from the failure of WTO dispute
settlement panels and the Appellate Body to respect some of the key
founding principles of the organization, including long-standing
recognition of the legitimacy of trade remedies and limitations WTO
members put on the proper role of the dispute settlement system.
This paper provides background on these founding principles and on the
WTO's record in trade remedy disputes. It summarizes some of the
important WTO decisions that have led the U.S. to revise its
determinations, alter its administrative practice, or amend its trade
remedy laws. The paper ends with recommendations to policy makers to
address these problems and help protect our trade remedy laws from
additional erosion. Unless the WTO changes its approach to trade remedy
disputes, it threatens to further undermine U.S. trade remedy
enforcement--as well as public confidence in the WTO system itself--in
the coming years.
II. The WTO's Role in Trade Remedy Disputes
The right of countries to effectively redress dumping and subsidization
is part of the foundation of the international trading system. Article
VI of the GATT states that dumping which injures a country's domestic
industry is ``to be condemned,'' and it permits parties to impose
antidumping and countervailing duties to offset the amount of dumping
and subsidization from which imports benefit. For decades, ensuring
countries can remedy unfair trade practices has provided a vital relief
valve as global trade has expanded and liberalized at a rapid pace.
Through successive rounds of negotiations, the GATT parties elaborated
additional rules governing countries' imposition of antidumping
(``AD'') and countervailing duties (``CVD''). In many respects, the
rules mirrored existing provisions in U.S. law. When Congress
implemented the Uruguay Round of trade agreements that established the
WTO, it modified U.S. trade remedy laws to ensure we would continue to
be in compliance with international rules.
One important feature of the WTO was the strengthening of the GATT
dispute settlement system. A standing Appellate Body was established to
hear appeals from dispute settlement panels. In addition, the WTO can
authorize members to take countermeasures against countries that are
found to be out of compliance, a step that previously required the
consent of the non-compliant party. To ensure the newly strengthened
system respects the sovereignty of WTO member states, the rules also
prohibit panels and the Appellate Body from adding to or diminishing
the rights and obligations in the covered agreements, and the right to
adopt interpretations of the agreements is reserved solely to WTO
members.\1\
---------------------------------------------------------------------------
\1\ Understanding on Rules and Procedures Governing the Settlement
of Disputes, Marrakesh Agreement Establishing the World Trade
Organization, Annex 2 arts. 3.2 and 19.2 (April 15, 1994), 1869
U.N.T.S. 401. See also Marrakesh Agreement Establishing the World Trade
Organization art. IX.2 (April 15, 1994), 1869 U.N.T.S. 154.
Members' trade remedy measures have been a disproportionate focus of
WTO disputes. Of the 160 disputes on which the WTO has issued final or
interim decisions since 1995, 73 of these disputes--or more than 45
percent of the total--have challenged a country's use of its trade
remedy laws.\2\ This focus on trade remedies is remarkable given that
such measures affect only a minuscule portion of world trade.
---------------------------------------------------------------------------
\2\ A list of these 73 disputes is attached at Annex I. The list
includes any WTO dispute where a panel and/or Appellate Body decision
has been adopted by the Dispute Settlement Body as of the date of this
writing. It also includes three disputes (DS442, DS471, and DS482)
where a panel report has been issued but an appeal remains pending
before the Appellate Body. The tally is based on the number of
decisions issued rather than the number of disputes, as a single
decision may cover a number of disputes filed regarding the same
underlying measure. Other disputes never result in a decision because
they are resolved in consultations or not further pursued by the
complainant. Such disputes that did not result in a panel or Appellate
Body decision are not included in the tally. The tally also does not
include decisions by compliance panels or arbitrators. For the purposes
of this white paper, disputes are included as involving trade remedies
if they concern antidumping measures, countervailing duty measures,
safeguard measures, and ancillary matters such as Customs enforcement
of trade remedies. The tally does not include disputes regarding
Section 301 of U.S. trade law or safeguards under the Agreement on
Textiles and Clothing.
Of the 73 decisions identified above, 42 have involved trade remedies
imposed by the United States. The U.S. has been the subject of nearly
five times as many trade remedy decisions as the second most frequent
respondent in such cases, the EU. This number is far out of proportion
to the U.S. share of global imports and its share of trade remedy
measures. From 1995 to 2015, the U.S. imported 14.17 percent of global
imports and imposed 12.73 percent of all trade remedy measures imposed
by WTO members.\3\ Yet the U.S.--one country out of the WTO's now 164
members--was the subject of 57.5 percent of the WTO's decisions in
trade remedy disputes.
---------------------------------------------------------------------------
\3\ Cumulatively from 1995 to 2015, the U.S. imported $34 trillion
worth of goods and all countries combined imported $240 trillion worth
of goods. WTO Statistics Database. From 1995 to 2015, the U.S. imposed
460 individual antidumping, countervailing duty, and safeguard
measures. All WTO members combined imposed 3,611 such measures during
the same period. See ``Anti-dumping Measures: By Reporting Member 01/
01/1995-31/12/2015,'' ``Countervailing Measures: By Reporting Member
01/01/1995-31/12/2015,'' and ``Safeguard Measures by Reporting
Member,'' available on the WTO website at: https://www.wto.org/english/
tratop_e/adp_e/AD_MeasuresByRepMem.pdf, https://www.wto.org/english/
tratop_e/scm_e/CV_MeasuresByRep
Mem.pdf, and https://www.wto.org/english/tratop_e/safeg_e/SG-
MeasuresByRepMember.pdf, respectively.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
The WTO has found the U.S. to be in violation of at least one aspect of
WTO rules in 38 of the 42 trade remedy decisions identified above, or
in over 90 percent of the cases.\4\ Some of the notable WTO decisions
that have eroded the effectiveness of U.S. trade remedy law and
practice are described in the next section.
---------------------------------------------------------------------------
\4\ See Annex I. Almost all cases involve more than one issue. Of
the 38 cases cited here, there are many in which the U.S. was found to
be in compliance in some respects and out of compliance in others. It
is beyond the scope of this white paper to provide an issue-by-issue
tally for each of the disputes. There are only four trade remedy cases
in which the U.S. was not found to be out of compliance with any of its
WTO obligations in any respect.
These decisions have prompted legal scholars to criticize dispute
panels, and especially the Appellate Body, for going beyond their
mandate and creating new rights and obligations beyond those contained
in the WTO agreements.\5\ The U.S. Trade Representative and other WTO
members have also repeatedly expressed concern about the Appellate
Body's failure to abide by these standards and its propensity for over-
reaching and gap-filling, to little avail.\6\
---------------------------------------------------------------------------
\5\ See e.g., Terence P. Stewart, et al., ``The Increasing
Recognition of Problems With WTO Appellate Body Decision-Making: Will
the Message Be Heard?'', 8 Global Trade and Customs Journal 390 (2013).
\6\ See id. at 393-394.
---------------------------------------------------------------------------
III. Selected WTO Decisions on U.S. Trade Remedies
1. Subsidies to Privatized Producers \7\
---------------------------------------------------------------------------
\7\ Appellate Body Report, United States--Countervailing Measures
Concerning Certain Products From the European Communities, WT/DS212/AB/
R, adopted January 8, 2003.
---------------------------------------------------------------------------
In response to a number of countervailing duty orders on various steel
products from Europe, the EU challenged the Department of Commerce's
practice of countervailing subsidies that had been provided to foreign
producers prior to their privatization. Commerce countervailed such
subsidy benefits as long as the pre-privatization producer and post-
privatization producer were the same legal person. The Appellate Body
found that the Department's privatization practice was inconsistent
with WTO rules. The Appellate Body instructed that a privatization that
occurred at arm's length and for fair market value should be presumed
to extinguish the benefit of any pre-privatization subsidies, though
the presumption could be rebutted if government distortions or other
market factors prevented the establishment of an accurate market price
for the transaction. Commerce revised its practice to conform to the
Appellate Body's decision, making it more difficult to countervail
subsidies provided prior to a privatization.\8\
---------------------------------------------------------------------------
\8\ See Notice of Final Modification of Agency Practice Under
Section 123 of the Uruguay Round Agreements Act, 68 Fed. Reg. 37,125
(Department of Commerce, June 23, 2003). The Department's practice was
also being challenged in appeals in the U.S. court system. Id. at
37,125.
---------------------------------------------------------------------------
2. Continued Dumping and Subsidy Offset Act \9\
---------------------------------------------------------------------------
\9\ Appellate Body Report, United States--Continued Dumping and
Subsidy Offset Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, adopted
January 27, 2003.
In 2000, Congress passed the Continued Dumping and Subsidy Offset Act
(``CDSOA''). The Act permitted domestic industries and workers who
supported AD and CVD orders to receive distributions of the duties that
were collected on imports that continued to be dumped and/or
subsidized. The purpose of the law was to remedy continued dumping and
subsidization that harmed domestic industries. In 2003, the Appellate
Body ruled that the WTO agreements did not specifically permit the U.S.
to distribute such duties to affected domestic industries. Congress
subsequently repealed the law.\10\
---------------------------------------------------------------------------
\10\ Deficit Reduction Act of 2005, Pub. L. No. 109-171,
Sec. 7601(a), 120 Stat. 4, 154 (2006).
---------------------------------------------------------------------------
3. Safeguards \11\
---------------------------------------------------------------------------
\11\ Appellate Body Report, United States--Safeguard Measures on
Imports of Fresh, Chilled, or Frozen Lamb Meat From New Zealand and
Australia, WT/DS177/AB/R, WT/DS178/AB/R, adopted May 16, 2001;
Appellate Body Report, United States--Definitive Safeguard Measures on
Imports of Certain Steel Products, WT/DS248/AB/R, WT/DS249/AB/R, WT/
DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R,
WT/DS259/AB/R, adopted December 10, 2003.
---------------------------------------------------------------------------
The WTO Agreement on Safeguards allows parties to impose temporary
global import safeguards where imports are increasing in such
quantities and under such conditions as to cause or threaten to cause
serious injury to the domestic industry. Not one WTO member's global
safeguard measure has ever been found to be in compliance with the
Agreement.\12\ In 1999, the U.S. imposed safeguards on imports of lamb
meat, and, in 2002, the U.S. imposed safeguards on surging imports of
steel products. The WTO found that the measures violated WTO rules in
various respects, including through a failure to identify unforeseen
developments and adequately address other conditions for the imposition
of safeguards, as well as due to alleged deficiencies in the
International Trade Commission's causation analysis. The U.S. ended
both the lamb safeguard measure and the steel safeguards before their
terms were otherwise set to expire.\13\
---------------------------------------------------------------------------
\12\ See Annex I. The China-specific safeguard the U.S. imposed on
passenger vehicle and light truck tires from China was found to be
consistent with U.S. obligations under China's Protocol of Accession.
Appellate Body Report, United States--Measures Affecting Imports of
Certain Passenger Vehicle and Light Truck Tyres From China, WT/DS399/
AB/R, adopted October 5, 2011.
\13\ Proclamation 7502 of November 14, 2001: To Provide for the
Termination of Action Taken With Regard to Imports of Lamb Meat, 66
Fed. Reg. 57,837 (November 19, 2001); Proclamation 7741 of December 4,
2003: To Provide for the Termination of Action Taken With Regard to
Imports of Certain Steel Products, 68 Fed. Reg. 68,483 (December 8,
2003).
---------------------------------------------------------------------------
4. Zeroing \14\
---------------------------------------------------------------------------
\14\ See, e.g., Appellate Body Report, United States--Laws,
Regulations, and Methodology for Calculating Dumping Margins
(``Zeroing''), WT/DS294/AB/R, adopted May 9, 2006; Appellate Body
Report, United States--Measures Relating to Zeroing and Sunset Reviews,
WT/DS322/AB/R, adopted January 23, 2007; Panel Report, United States--
Anti-Dumping Measure on Shrimp From Ecuador, WT/DS335/R, adopted
February 20, 2007; Appellate Body Report, United States--Final Anti-
Dumping Measures on Stainless Steel From Mexico, WT/DS344/AB/R, adopted
May 20, 2008; Appellate Body Report, United States--Continued Existence
and Application of Zeroing Methodology, WT/DS350/AB/R, adopted February
19, 2009; Panel Report, United States--Anti-Dumping Administrative
Reviews and Other Measures Related to Imports of Certain Orange Juice
From Brazil, WT/DS382/R, adopted June 17, 2011; Panel Report, United
States--Anti-Dumping Measures on Polyethylene Retail Carrier Bags From
Thailand, WT/DS383/R, adopted February 18, 2010; Panel Report, United
States--Use of Zeroing in Anti-Dumping Measures Involving Products From
Korea, WT/DS402/R, adopted February 24, 2011; Panel Report, United
States--Anti-Dumping Measures on Certain Shrimp and Diamond Sawblades
From China, WT/DS422/R and Add.1, adopted July 23, 2012.
Many commentators have criticized the Appellate Body's approach to
the zeroing cases. See Terence P. Stewart, et al., ``The Increasing
Recognition of Problems With WTO Appellate Body Decision-Making: Will
the Message Be Heard?'', 8 Global Trade and Customs Journal 390, 395-
396 n. 23 (2013) (citing articles critiquing the decisions).
---------------------------------------------------------------------------
In a series of cases, the EU, Japan, and other countries challenged an
important aspect of U.S. practice in antidumping cases. Under this
practice, the Department of Commerce did not give offsets or credits
for sales that were not dumped against those sales that were dumped.
Instead, it ``zeroed'' such non-dumped sales from the calculation of
the total amount of dumping. The goal of the practice, long upheld by
U.S. courts, was to ensure that non-dumped sales did not mask injurious
dumped sales. Commerce did include such non-dumped sales in the
denominator to determine the overall margin of dumping.
The WTO ruled that this practice was not allowed under WTO rules. These
rulings ignored the fact that capturing 100 percent of dumping had been
U.S. practice at the time the WTO agreements were negotiated, and that
the U.S. and others explicitly refused to agree to negotiating
proposals that would have prohibited the practice. WTO members
challenged the practice in over a dozen cases involving products
ranging from orange juice and shrimp to steel and bearings, requiring
Commerce to revise margins and revoke orders against specific countries
and companies.\15\ In the end, Commerce abandoned the practice of
zeroing both in investigations and in administrative reviews, and it
developed an alternative set of practices in efforts to continue to
unmask targeted dumping while complying with the WTO's decisions.\16\
---------------------------------------------------------------------------
\15\ See, e.g., Implementation of the Findings of the WTO Panel in
U.S.--Zeroing (EC): Notice of Determinations Under Section 129 of the
Uruguay Round Agreements Act and Revocations and Partial Revocations of
Certain Antidumping Duty Orders, 72 Fed. Reg. 25,261 (Department of
Commerce, May 4, 2007); Implementation of the Findings of the WTO Panel
in United States Antidumping Measure on Shrimp From Ecuador: Notice of
Determination Under Section 129 of the Uruguay Round Agreements Act and
Revocation of the Antidumping Duty Order on Frozen Warmwater Shrimp
From Ecuador, 72 Fed. Reg. 48,257 (Department of Commerce, August 23,
2007); Implementation of the Findings of the WTO Panel in U.S.--Zeroing
(EC); Notice of Determination Under Section 129 of the Uruguay Round
Agreements Act: Antidumping Duty Order on Stainless Steel Sheet and
Strip in Coils From Italy, 72 Fed. Reg. 54,640 (Department of Commerce,
September 26, 2007); Notice of Implementation of Determination Under
Section 129 of the Uruguay Round Agreements Act Regarding the
Antidumping Duty Order on Certain Cut-to-Length Carbon-Quality Steel
Plate Products From Japan, 73 Fed. Reg. 29,109 (Department of Commerce,
May 20, 2008); Notice of Implementation of Determination Under Section
129 of the Uruguay Round Agreements Act and Partial Revocation of the
Antidumping Duty Order on Polyethylene Retail Carrier Bags From
Thailand, 75 Fed. Reg. 48,940 (Department of Commerce, August 12,
2010); Notice of Implementation of Determination Under Section 129 of
the Uruguay Round Agreements Act and Revocation of the Antidumping Duty
Order on Diamond Sawblades and Parts Thereof From the Republic of
Korea, 76 Fed. Reg. 66,892 (Department of Commerce, October 28, 2011);
Notice of Implementation of Determination Under Section 129 of the
Uruguay Round Agreements Act and Revocation of the Antidumping Duty
Order on Stainless Steel Plate in Coils From the Republic of Korea; and
Partial Revocation of the Antidumping Duty Order on Stainless Steel
Sheet and Strip in Coils From the Republic of Korea, 76 Fed. Reg.
74,771 (Department of Commerce, December 1, 2011); Certain Frozen
Warmwater Shrimp From the People's Republic of China and Diamond
Sawblades and Parts Thereof From the People's Republic of China: Notice
of Implementation of Determinations Under Section 129 of the Uruguay
Round Agreements Act and Partial Revocation of the Antidumping Duty
Orders, 78 Fed. Reg. 18,958 (Department of Commerce, March 28, 2013).
\16\ See Antidumping Proceedings: Calculation of the Weighted-
Average Dumping Margin During an Antidumping Investigation; Final
Modification, 71 Fed. Reg. 77,722 (Department of Commerce December 27,
2006). See also Antidumping Proceedings: Calculation of the Weighted-
Average Dumping Margin and Assessment Rate in Certain Antidumping Duty
Proceedings; Final Modification, 77 Fed. Reg. 8101 (Department of
Commerce February 14, 2012).
---------------------------------------------------------------------------
5. Customs Bond Directive \17\
---------------------------------------------------------------------------
\17\ Appellate Body Report, United States--Measures Relating to
Shrimp From Thailand/United States--Customs Bond Directive for
Merchandise Subject to Anti-Dumping/Countervailing Duties, WT/DS343/AB/
R / WT/DS345/AB/R, adopted August 1, 2008.
In 2004, Customs and Border Protection issued a continuous bonding
directive with regard to billions of dollars of shrimp imports from six
countries that were subject to preliminary antidumping findings.
Importers were defaulting on hundreds of millions of dollars of duties
owed on similar agriculture and aquaculture products under existing
orders.\18\ In order to protect the revenue, the directive required
importers of shrimp from six countries to post bonds covering the full
amount of their preliminary duty liability rather than the usual ten
percent. The Appellate Body ruled that the directive violated WTO
rules, because there was insufficient evidence establishing that the
additional security was both reasonable and necessary. As a result of
the WTO decision, Customs rescinded the continuous bonding
directive.\19\
---------------------------------------------------------------------------
\18\ See id. at 71-72 and n. 194.
\19\ Enhanced Bonding Requirement for Certain Shrimp Importers, 74
Fed. Reg. 14,809 (CBP April 1, 2009).
---------------------------------------------------------------------------
6. Countervailing Duty Cases Involving China \20\
---------------------------------------------------------------------------
\20\ Appellate Body Report, United States--Definitive Anti-Dumping
and Countervailing Duties on Certain Products From China, WT/DS379/AB/
R, adopted March 25, 2011; Appellate Body Report, United States--
Countervailing Duty Measures on Certain Products From China, WT/DS437/
AB/R, adopted January 16, 2015; Appellate Body Report, United States--
Countervailing and Anti-Dumping Measures on Certain Products From
China, WT/DS449/AB/R and Corr.1, adopted July 22, 2014.
For a critique of the Appellate Body's approach in these cases from
former WTO officials, see Michel Cartland, Gerard Depayre, and Jan
Woznowski, ``Is Something Going Wrong in the WTO Dispute Settlement?'',
46 J. World Trade 979 (2012).
---------------------------------------------------------------------------
In 2006, the Department of Commerce determined that China's economy had
evolved sufficiently to allow the identification and measurement of
subsidies, and thus the application of countervailing duties to imports
from China. Commerce determined that China's economy was still too
distorted by state intervention to be treated as a market economy in
antidumping cases. China challenged dozens of Commerce determinations
in a series of cases, claiming various flaws in the countervailing duty
methodology and that adjustments must be made in antidumping cases for
so-called ``double remedies'' allegedly arising from the simultaneous
application of the CVD law and the non-market economy AD methodology to
imports from China.
The Appellate Body found the U.S. had violated WTO rules in several
respects. For example, with regard to subsidies provided by state-owned
enterprises, the Appellate Body ruled that majority government
ownership alone was insufficient to establish that such firms operated
like government entities and thus were capable of conferring subsidies.
It required Commerce to examine numerous other factors to determine
whether these entities in fact exercised government authority. Commerce
changed its practice to implement the decision.\21\
---------------------------------------------------------------------------
\21\ Implementation of Determinations Under Section 129 of the
Uruguay Round Agreements Act: Certain New Pneumatic Off-the-Road Tires;
Circular Welded Carbon Quality Steel Pipe; Laminated Woven Sacks; and
Light-Walled Rectangular Pipe and Tube From the People's Republic of
China, 77 Fed. Reg. 52,683 (Department of Commerce, August 30, 2012).
In addition, based on its interpretation of the word ``appropriate,''
the Appellate Body ruled that the U.S. had to make adjustments to AD
margins to account for any alleged ``double remedies'' that were found
to exist. Congress changed the law to require Commerce to make such
adjustments.\22\ The Department now routinely lowers AD cash deposit
rates on imports from China where it finds that some amount of the
subsidies found in a parallel CVD investigation likely passed through
to the Chinese export prices used in the AD calculations.
---------------------------------------------------------------------------
\22\ An Act to Apply the Countervailing Duty Provisions of the
Tariff Act of 1930 to Nonmarket Economy Countries, and for other
Purposes, Pub. L. No. 112-99, Sec. 2, 126 Stat. 265, 265-267 (2012).
---------------------------------------------------------------------------
7. Cross-Cumulation in Injury Determinations \23\
---------------------------------------------------------------------------
\23\ Appellate Body Report, United States--Countervailing Measures
on Certain Hot-Rolled Carbon Steel Flat Products From India, WT/DS436/
AB/R, adopted December 19, 2014.
---------------------------------------------------------------------------
For many years, the International Trade Commission has cumulated
subject imports from different countries that are subject to AD and CVD
cases on the same product in order to consider those imports in the
aggregate to determine whether they are causing material injury, or
threatening material injury, to a domestic industry. The Commission has
also done so in cases where some countries are subject to only an AD
investigation and/or other countries are subject only to a CVD
investigation. India challenged this practice of ``cross-cumulation,''
and the WTO found the practice was inconsistent with U.S. obligations.
While the Commission did not alter its general practice, it did
consider Indian imports individually in a revised injury determination
in order to comply with the WTO decision.\24\ The WTO ruling provides
an opening for additional challenges to the practice, and at least one
Commissioner has invited parties to brief the WTO decision in future
cases.\25\
---------------------------------------------------------------------------
\24\ See U.S. International Trade Commission, Hot-Rolled Steel
Products From India, Inv. No. 701-TA-405 (Section 129 Consistency
Determination), USITC Pub. 4599 (March 2016).
\25\ U.S. International Trade Commission, Polyethylene
Terephthalate (PET) Resin from Canada, China, India, and Oman, Inv.
Nos. 701-TA-531-532 and 731-TA-1270-1273 (Final), USITC Pub. 4604
(April 2016) at 35-39 (Separate Views of Commissioner F. Scott Kieff on
Cross-Cumulation).
---------------------------------------------------------------------------
8. Targeted Dumping \26\
---------------------------------------------------------------------------
\26\ Appellate Body Report, United States--Anti-Dumping and
Countervailing Measures on Large Residential Washers From Korea, WT/
DS464/AB/R, adopted September 26, 2016.
---------------------------------------------------------------------------
As explained above, in response to adverse WTO decisions, the
Department of Commerce abandoned zeroing and adopted alternative
methodologies to identify targeted dumping (as specifically authorized
in the WTO Anti-Dumping Agreement) and to ensure such dumping is not
masked by non-dumped sales. In 2016, the Appellate Body ruled against
the U.S.'s targeted dumping methodology in a case brought by Korea. The
Appellate Body found various flaws with the U.S. methodology, including
the way in which Commerce combined different calculation methodologies
when targeted dumping was found (a sub-issue never raised by Korea
itself). The U.S. is now in the process of determining how it might
implement the decision, whether implementation may require Congress to
make changes to U.S. law, and what options may remain available to the
U.S. to unmask and remedy targeted dumping going forward.
9. Non-Market Economy Antidumping Methodologies \27\
---------------------------------------------------------------------------
\27\ See Appellate Body Report, European Communities--Definitive
Anti-Dumping Measures on Certain Iron or Steel Fasteners From China,
WT/DS397/AB/R, adopted July 28, 2011. See also Panel Report, United
States--Anti-Dumping Measures on Certain Shrimp From Viet Nam, WT/
DS404/R, adopted September 2, 2011; Appellate Body Report, United
States--Anti-Dumping Measures on Certain Shrimp From Viet Nam, WT/
DS429/AB/R, adopted April 22, 2015. See also Panel Report, United
States--Certain Methodologies and Their Application to Anti-Dumping
Proceedings Involving China, WT/DS471/R, circulated to WTO members
October 19, 2016 (appeal in progress).
---------------------------------------------------------------------------
In a 2011 decision, the Appellate Body ruled that the EU was not
permitted to presume that entities in China were state-controlled and
require Chinese companies to demonstrate otherwise. The EU subsequently
changed its practice for investigating whether such state control
existed. In follow-on cases brought against the U.S. by Vietnam,
Vietnam challenged the Department of Commerce's practice for dealing
with entities that are not independent from the state in antidumping
cases on products from non-market economies. In those cases, panels
followed the earlier Appellate Body decision regarding the EU and found
that the U.S. was not allowed to employ a rebuttable presumption that
entities in such countries are state-controlled. In one case, the panel
ruled that the U.S. had to assign even to state-controlled entities the
average of dumping margins found for companies independent of the
state. Those cases were settled pursuant to a mutually agreeable
solution and were not implemented.
China made similar claims in a follow-on case brought against the U.S.
in 2013. In 2016, the panel echoed earlier rulings regarding the
impermissibility of the rebuttable presumption, but it made no findings
regarding the rates Commerce was allowed to apply. China has appealed
that latter finding to the Appellate Body, where it remains pending. If
China is successful, Commerce will have to struggle with how to address
foreign producers that are not independent from the government of China
(or Vietnam) in antidumping proceedings.
10. Price Comparability and Distorted Markets \28\
---------------------------------------------------------------------------
\28\ See Request for Consultations by China, United States--
Measures Related to Price Comparison Methodologies, WT/DS515/1, G/L/
1169, G/ADP/D115/1 (December 15, 2016); Request for Consultations by
China, European Union--Measures Related to Price Comparison
Methodologies, WT/DS516/1, G/L/1170, G/ADP/D116/1 (December 15, 2016).
See also Appellate Body Report, European Union--Anti-Dumping Measures
on Biodiesel From Argentina, WT/DS473/AB/R, adopted October 26, 2016.
---------------------------------------------------------------------------
As noted above, China has recently challenged the U.S.'s continued
treatment of China as a non-market economy under the AD law. China
filed a similar challenge against the EU on the same day. If the WTO
ultimately rules in China's favor in these cases, it would strip the
U.S. and the EU of an important tool they currently rely upon to
address distortions in China's economy when calculating dumping
margins.
An October 2016 Appellate Body ruling regarding AD measures the EU
imposed on biodiesel from Argentina (which it treats as a market
economy) could further limit the tools available to the U.S. if it is
required to treat China as a market economy notwithstanding continued
government interventions in the Chinese economy. In the biodiesel case,
the EU relied on alternative production costs to determine if dumping
was occurring, because Argentine producers' own production costs were
artificially depressed by a differential export tax that Argentina
imposed on soybeans, a key biofuel feedstock. The Appellate Body ruled
that the EU had to rely on the artificially depressed soybean costs
regardless of the Argentine government's distortions to those costs.
This decision could greatly restrict Commerce's ability to develop
alternative tools for addressing distortions in China's economy if it
is required to start relying on China's internal costs and prices in
its dumping determinations.
IV. Conclusion and Recommendations
For more than two decades, WTO decisions have put sustained pressure on
U.S. trade remedy law. Despite the long-standing international
recognition of the need for effective AD and CVD laws to remedy unfair
trade, and despite the safeguards members attempted to build into the
WTO dispute settlement system, the WTO has dealt numerous setbacks to
U.S. trade remedy enforcement. The U.S. has been the subject of far
more adverse trade remedy decisions than any other WTO member, and it
has suffered losses in 90 percent of WTO decisions to date.
As the U.S. has implemented these adverse decisions, it has had to not
only revise duties and/or revoke orders on individual products, it has
also had to change its administrative policies and, in some cases, ask
Congress to change domestic trade remedy laws. Legal scholars, various
administrations, and members of Congress have all expressed their
concern about the WTO Appellate Body's over-reaching in its rulings
against trade remedy enforcement. For years, Congress has identified
reining in the WTO dispute settlement system and preserving the ability
of the United States to rigorously enforce its trade remedy laws as key
trade negotiating objectives.\29\
---------------------------------------------------------------------------
\29\ See, e.g., Defending Public Safety Employees' Retirement Act,
Pub. L. No. 114-26, Sec. 102(b)(16)(C) and (17), 129 Stat. 319, 330-331
(2015) (setting out Congressional negotiating objectives for dispute
settlement and trade enforcement under the most recent grant of Trade
Promotion Authority).
Yet efforts to use WTO challenges to undermine U.S. trade remedy
enforcement continue. Until and unless the WTO changes its approach to
trade remedies, it will remain an inviting forum for those who wish to
further weaken the enforcement of U.S. antidumping and countervailing
duty laws in the years to come. The latest dispute filed at the end of
last year by China against the U.S. could eviscerate our ability to
effectively redress dumped Chinese imports that harm American
---------------------------------------------------------------------------
industries and workers.
Policy makers should make it a priority to counteract these trends and
protect domestic trade remedy laws from further erosion. Possible steps
to consider, including both new efforts and the strengthening and
expanding of existing efforts, include:
u Vigorously defending U.S. trade remedy decisions at the WTO and
seriously considering whether and how to implement any adverse
decisions depending on the weakening effect they may have on
enforcement;
u Forming a coalition with other WTO members concerned about trends in
the dispute settlement system's trade remedy decisions to mount a
coordinated campaign to critique and reform the decision-making of
panels and the Appellate Body;
u Investing in efforts to educate other WTO members, particularly
developing countries, about the importance of trade remedies in the
international system and the economic contribution they make by
reducing market distortions and enabling balanced economic growth;
u Refusing to agree to the nomination or re-nomination of Appellate
Body members who have failed to adhere to the standard of review and
shown a willingness to overreach and ``interpret'' WTO agreements
rather than merely apply them as negotiated by the members;
u Protest any statements by the WTO Director-General and other WTO
officials that paint all trade remedy measures with a broad brush as
protectionist without acknowledging the historical recognition that
such measures play a key role in facilitating legitimate trade;
u Impressing on other WTO members that further expansion of WTO
agreements and routine implementation of adverse decisions is at risk
if the dispute settlement system is not effectively reformed to reduce
overreach by panels and Appellate Body members;
u Establishing an independent Commission of legal experts to determine
whether a WTO panel or the Appellate Body has exceeded its authority or
deviated from the applicable standard of review in making a decision
adverse to the United States, and creating procedures for Congress to
respond to Commission determinations with appropriate action regarding
U.S. negotiating positions and membership in the WTO;\30\ and
---------------------------------------------------------------------------
\30\ Former Senator Robert Dole (R-KS) introduced legislation that
would have established such a Commission in 1995, shortly after the WTO
came into existence, but the legislation was not enacted. See S. 16,
104th Congress (1995).
u Working with members of Congress, the media, and academia to build
strong public support for effective trade remedy enforcement that
strengthens the hand of U.S. negotiators in Geneva to underscore the
political importance of real reform in the WTO dispute settlement
---------------------------------------------------------------------------
system.
The world trading system depends on countries' ability to take rapid,
effective, and meaningful action against unfair dumping and
subsidization that is harming their manufacturers, farmers, ranchers,
and workers. That ability is currently being undermined by the WTO
dispute settlement system, contrary to the system's original design. A
strong and coordinated response by policy makers is needed to reverse
these troubling trends, preserve our trade remedy laws, and help
restore faith in the international trading system.
WTO Trade Remedy Decisions, 1995-2016
Sorted by Respondent Country
----------------------------------------------------------------------------------------------------------------
Dispute
# No. Respondent Complainant Short Name WTO Violation? Adoption
----------------------------------------------------------------------------------------------------------------
1 121 Argentina EU Footwear (EC) Yes 2000
----------------------------------------------------------------------------------------------------------------
2 189 Argentina EU Ceramic Tiles Yes 2001
----------------------------------------------------------------------------------------------------------------
3 238 Argentina Chile Preserved Peaches Yes 2003
----------------------------------------------------------------------------------------------------------------
4 241 Argentina Brazil Poultry AD Duties Yes 2003
----------------------------------------------------------------------------------------------------------------
5 22 Brazil Philippines Desiccated Cocnut No 1997
----------------------------------------------------------------------------------------------------------------
6 482 Canada Chinese Taipei Carbon Steel Welded Yes na
Pipe
----------------------------------------------------------------------------------------------------------------
7 414 China U.S. GOES Yes 2012
----------------------------------------------------------------------------------------------------------------
8 425 China EU X-Ray Equipment Yes 2013
----------------------------------------------------------------------------------------------------------------
9 427 China U.S. Broiler Products Yes 2013
----------------------------------------------------------------------------------------------------------------
10 440 China U.S. Autos (U.S.) Yes 2014
----------------------------------------------------------------------------------------------------------------
11 460 China EU HP-SSST Yes 2015
----------------------------------------------------------------------------------------------------------------
12 415 DR Costa Rica, et al. Safeguard Measures Yes 2012
----------------------------------------------------------------------------------------------------------------
13 211 Egypt Turkey Steel Rebar Yes 2002
----------------------------------------------------------------------------------------------------------------
14 141 EU India Bed Linen Yes 2001
----------------------------------------------------------------------------------------------------------------
15 219 EU Brazil Tube or Pipe Yes 2003
Fittings
----------------------------------------------------------------------------------------------------------------
16 299 EU Korea CVDs on DRAM Chips Yes 2005
----------------------------------------------------------------------------------------------------------------
17 337 EU Norway Salmon (Norway) Yes 2008
----------------------------------------------------------------------------------------------------------------
18 397 EU China Fasteners (China) Yes 2011
----------------------------------------------------------------------------------------------------------------
19 405 EU China Footwear (China) Yes 2012
----------------------------------------------------------------------------------------------------------------
20 442 EU Indonesia Fatty Alcohols Yes na
----------------------------------------------------------------------------------------------------------------
21 473 EU Argentina Biodiesel Yes 2016
----------------------------------------------------------------------------------------------------------------
22 60 Guatemala Mexico Cement I No 1998
----------------------------------------------------------------------------------------------------------------
23 156 Guatemala Mexico Cement II Yes 2000
----------------------------------------------------------------------------------------------------------------
24 98 Korea EU Dairy Yes 2000
----------------------------------------------------------------------------------------------------------------
25 312 Korea Indonesia Certain Paper Yes 2005
----------------------------------------------------------------------------------------------------------------
26 132 Mexico U.S. Corn Syrup Yes 2001
----------------------------------------------------------------------------------------------------------------
27 295 Mexico U.S. AD Measures on Rice Yes 2005
----------------------------------------------------------------------------------------------------------------
28 331 Mexico Guatemala Steel Pipes and Yes 2007
Tubes
----------------------------------------------------------------------------------------------------------------
29 341 Mexico EU Olive Oil Yes 2008
----------------------------------------------------------------------------------------------------------------
30 122 Thailand Poland H-Beams Yes 2001
----------------------------------------------------------------------------------------------------------------
31 468 Ukraine Japan Certain Passenger Yes 2015
Cars
----------------------------------------------------------------------------------------------------------------
32 99 U.S. Korea DRAMS Yes 1999
----------------------------------------------------------------------------------------------------------------
33 136 U.S. EU and Japan 1916 Act Yes 2000
----------------------------------------------------------------------------------------------------------------
34 138 U.S. EU Lead and Bismuth II Yes 2000
----------------------------------------------------------------------------------------------------------------
35 166 U.S. EU Wheat Gluten Yes 2001
----------------------------------------------------------------------------------------------------------------
36 177 U.S. Australia and New Lamb Yes 2001
Zealand
----------------------------------------------------------------------------------------------------------------
37 179 U.S. Korea Stainless Steel Yes 2001
----------------------------------------------------------------------------------------------------------------
38 184 U.S. Japan Hot-Rolled Steel Yes 2001
----------------------------------------------------------------------------------------------------------------
39 194 U.S. Canada Export Restraints No 2001
----------------------------------------------------------------------------------------------------------------
40 202 U.S. Korea Line Pipe Yes 2001
----------------------------------------------------------------------------------------------------------------
41 206 U.S. India Steel Plate Yes 2002
----------------------------------------------------------------------------------------------------------------
42 212 U.S. EU CVD Measures on Yes 2003
Certain EC Products
----------------------------------------------------------------------------------------------------------------
43 213 U.S. EU Carbon Steel Yes 2002
----------------------------------------------------------------------------------------------------------------
44 217 U.S. Australia, et al. Offset Act (Byrd Yes 2003
Amendment)
----------------------------------------------------------------------------------------------------------------
45 221 U.S. Canada Section No 2002
129(c)(1)URAA
----------------------------------------------------------------------------------------------------------------
46 236 U.S. Canada Softwood Lumber III Yes 2002
----------------------------------------------------------------------------------------------------------------
47 244 U.S. Japan Corrosion Resistant No 2004
Steel Sunset Review
----------------------------------------------------------------------------------------------------------------
48 248 U.S. Brazil, et al. Steel Safeguards Yes 2003
----------------------------------------------------------------------------------------------------------------
49 257 U.S. Canada Softwood Lumber IV Yes 2004
----------------------------------------------------------------------------------------------------------------
50 264 U.S. Canada Softwood Lumber V Yes 2004
----------------------------------------------------------------------------------------------------------------
51 268 U.S. Argentina Oil Country Tubular Yes 2004
Goods Sunset
Reviews
----------------------------------------------------------------------------------------------------------------
52 277 U.S. Canada Softwood Lumber VI Yes 2004
----------------------------------------------------------------------------------------------------------------
53 282 U.S. Mexico AD Measures on Oil Yes 2005
Country Tubular
Goods
----------------------------------------------------------------------------------------------------------------
54 294 U.S. EU Zeroing (EC) Yes 2006
----------------------------------------------------------------------------------------------------------------
55 296 U.S. Korea CVD Investigation on Yes 2005
DRAMs
----------------------------------------------------------------------------------------------------------------
56 322 U.S. Japan Zeroing (Japan) Yes 2007
----------------------------------------------------------------------------------------------------------------
57 335 U.S. Ecuador Shrimp (Ecuador) Yes 2007
----------------------------------------------------------------------------------------------------------------
58 343 U.S. India and Thailand Shrimp (Thailand), Yes 2008
Customs Bond
Directive
----------------------------------------------------------------------------------------------------------------
59 344 U.S. Mexico Stainless Steel Yes 2008
(Mexico)
----------------------------------------------------------------------------------------------------------------
60 350 U.S. EU Continued Zeroing Yes 2009
----------------------------------------------------------------------------------------------------------------
61 379 U.S. China AD and CVD Duties Yes 2011
(China)
----------------------------------------------------------------------------------------------------------------
62 382 U.S. Brazil Orange Juice Yes 2011
(Brazil)
----------------------------------------------------------------------------------------------------------------
63 383 U.S. Thailand AD Measures on PET Yes 2010
Bags
----------------------------------------------------------------------------------------------------------------
64 399 U.S. China Tyres (China) No 2011
----------------------------------------------------------------------------------------------------------------
65 402 U.S. Korea Zeroing (Korea) Yes 2011
----------------------------------------------------------------------------------------------------------------
66 404 U.S. Vietnam Shrimp I (Viet Nam) Yes 2011
----------------------------------------------------------------------------------------------------------------
67 422 U.S. China Shrimp and Sawblades Yes 2012
(China)
----------------------------------------------------------------------------------------------------------------
68 429 U.S. Vietnam Shrimp II (Viet Nam) Yes 2015
----------------------------------------------------------------------------------------------------------------
69 436 U.S. India Hot-Rolled Carbon Yes 2014
Steel Flat Products
----------------------------------------------------------------------------------------------------------------
70 437 U.S. China CVD Measures on Yes 2015
Certain Products
----------------------------------------------------------------------------------------------------------------
71 449 U.S. China CVD and AD Measures Yes 2014
(China)
----------------------------------------------------------------------------------------------------------------
72 464 U.S. Korea Washers Yes 2016
----------------------------------------------------------------------------------------------------------------
73 471 U.S. China AD Proceedings Yes na
Involving China
----------------------------------------------------------------------------------------------------------------
Note: Where a single decision involved more than one dispute number, only the first dispute number is listed.
______
Prepared Statement of Hon. Chuck Grassley,
a U.S. Senator From Iowa
Current plurilateral discussions on e-commerce and on fisheries
show promise, and I fully support continuing those efforts.
Next, the WTO is responsible for implementing and monitoring trade
agreements.
Finally, the institution serves as a forum for settling disputes
amongst its members over the meaning and application of WTO agreements.
As we approach the 25th year of operation for the WTO, it would be wise
to acknowledge that the United States has overall been a beneficiary of
the WTO dispute settlement process.
But we cannot overlook the serious challenges preventing the system
from working as we intended it to. And we can probably all agree that
updates and reforms would improve the effectiveness of the
organization.
The Appellate Body, which soon could lose a minimum quorum needed
to function, is in particular need of reform. The administration's
concerns about systemic and procedural problems with the Appellate Body
are not new, nor are they partisan.
Presidents on both sides of the aisle have raised concerns for many
years. The United States first refused to consent to new Appellate Body
appointments under the Obama administration, and the Trump
administration has maintained the same position.
It's unfortunate that this tactic is the only way the United States
has been able to get serious attention from other WTO members. I'm not
necessarily endorsing this approach, but now that we are here we can't
waste time lamenting the tactics. WTO members must take the United
States seriously and commit to meaningfully addressing our concerns.
The areas of much-needed reform are not limited just to dispute
settlement. The administration is right to point out that some WTO
members consistently fail to meet their obligations to accurately
notify the support they provide to domestic industries. That is simply
unacceptable.
The WTO also needs to address the treatment of state-owned
enterprises or SOEs. SOEs are becoming more prevalent in the global
economy. China is notorious for using SOEs to buy private companies
around the world and has used SOEs as a conduit for subsidizing its
industries.
The ability of WTO members to self-certify as a ``developing
country'' is another problem for the organization's long-term
credibility.
When my constituents ask me why China, the world's second largest
economy, gets to self-certify as ``developing,'' I can't explain it.
There are other countries, including OECD members that the
administration rightly points out have advanced economies, which still
declare themselves developing countries.
But we cannot have a hearing on the WTO without talking about
China. The fact of the matter is that China simply has not lived up to
the commitments it made when it joined the WTO. This is detailed every
year in USTR's annual report on China's WTO compliance. And we have
seen over the last decade or so that WTO rules have not effectively
constrained China's mercantilist policies and their distortion of
global markets.
So, there is a lot of work to do. And we cannot do this alone.
The U.S., Japan, and the European Union are discussing WTO reform
options through a trilateral process that also seeks to address
industrial subsidies and forced technology transfers.
Partnerships such as this one are critical to showing China that
the United States is not the only country complaining.
The world certainly has come a long way on trade policy in the last
century. I hope we learn from history and never repeat the
protectionist mistakes of beggar-thy-neighbor policies like the
infamous Smoot-Hawley tariffs. Yet, there are also many legitimate,
bipartisan issues we must address with some of our trading partners and
with the WTO.
To conclude, I probably do not need to remind many in this room of
the following fact. The Constitution gives Congress the power to impose
and collect taxes, tariffs, duties, and to regulate international
commerce. As chairman of this committee, I intend to assist President
Trump and Ambassador Lighthizer with their efforts at the WTO and in
seeking strong and enforceable trade deals. However, I do so with the
understanding that erecting new market barriers with tariffs and quotas
cannot be a long-term solution.
I'm looking forward to working in a bipartisan way with the members
of this committee and the Trump administration to ensure the United
States has sound and constructive trade policy that benefits our
country.
______
Prepared Statement of Hon. Robert E. Lighthizer, United States Trade
Representative, Executive Office of the President
Chairman Grassley, Ranking Member Wyden, and all the distinguished
members of this great committee, I am pleased for the opportunity to
testify before you this morning. You have asked me to come here today
to discuss the World Trade Organization. To begin, I should say that
the administration--like all members of this committee--wants an
effective international trading system.
Under President Trump's leadership, U.S. trade has surged. From
2016 to 2018, total U.S. exports grew by 12.8 percent. Over the same
period, total U.S. imports grew by 14.8 percent. Last year, Americans
exported almost $2.5 trillion worth of goods and services--an all-time
high. Meanwhile, the United States created 264,000 new manufacturing
jobs last year--the largest such figure in 21 years--and we had the
strongest economic growth of any country in the G7. These are
encouraging figures, but of course we want to do even better. We are
working with Congress on the USMCA, which should further spur
production and trade in this country. We continue to seek improved
trading rules with China, and we hope to make significant progress this
year with Japan, the European Union, the United Kingdom, and other
countries.
While we are encouraged by our bilateral activities, we would also
like to see more progress at a multilateral level. The WTO is a
valuable institution and offers many opportunities for the United
States to advance our interests on trade. As I have said before, if we
did not have the WTO, we would need to invent it.
The United States remains very active at all levels of the WTO,
from the committees where much of the practical work is accomplished,
to efforts to negotiate the new trade rules of the future. Last year
the Senate confirmed Ambassador Dennis Shea as our representative to
the WTO, and he has been tireless in advocating for U.S. interests. I
remain in regular and close contact with the very able Director-
General, Roberto Azevedo, with whom I have had extensive conversations
about the future of the WTO. I believe that he and his leadership team
are working very hard to help the WTO succeed.
Nevertheless, we have concerns about the organization. In many
ways, the WTO is not working as expected. We joined the WTO in the hope
that it would help us promote stronger and more efficient markets.
Unfortunately, those hopes have too often been disappointed. Let me
give you a few examples of why we are concerned.
First, the negotiating process at the WTO has largely broken down.
Under the old GATT system, from 1947 to 1994, there were eight
negotiating rounds--each of which led to lower tariffs and fewer trade
barriers among all GATT members. To this day, the basic rules that
govern global trade were negotiated under the GATT. But in the 24 years
since the WTO began operation, there has been no new significant
multilateral market access agreement. (There have been some helpful
agreements--such as the Trade Facilitation Agreement and the
Information Technology Agreement--that address specific aspects of
trade.)
The last major effort to reach such an agreement--the Doha Round--
collapsed in 2008, and has now been dead for more than a decade.
Despite all the dramatic changes that have taken place in the last
quarter-century--the rise of China, the evolution of the Internet, and
countless other developments--the WTO is still largely operating under
the same old playbook from the early 1990s. It is now out of date.
Second, much work remains to be done in terms of lowering tariffs--
primarily in countries that consider themselves developing. Numerous
WTO members continue to have very high ``bound'' tariff rates that
allow them to maintain tariffs significantly above the bound rates that
apply to the United States. For example, the average bound tariff rate
for all goods in the United States is 3.4 percent. In Brazil, it is
31.4 percent. In India, it is 48.5 percent. In Indonesia, it is 37.1
percent. It is not reasonable to agree that because the United States
agreed to such disparities many years ago--when economic and geo-
political conditions were very different--that we are stuck with them
forever. The rules on tariffs have to keep pace with the realities of
the global economy.
Third, too many WTO members are not living up to current
obligations. For example, members take on significant commitments to
provide regular notifications of subsidy programs and other information
critical to trading conditions around the world. Despite the clear
obligation to make such notifications, many of our trading partners--
including significant economies like China and India--have a very poor
track record of providing this critical information.
WTO members also have the option of declaring themselves to be
``developing countries'' for purposes of obtaining special and
differential treatment under WTO rules. The obvious purpose of such
treatment is to help truly disadvantaged countries. Absurdly, however,
many of the world's largest and richest economies--including China,
India, Turkey, and South Korea--have declared themselves to be
developing countries. Not only do such claims make a mockery of special
and differential treatment, they also make it difficult if not
impossible for members to come together on future market-opening deals.
Fourth, the dispute settlement process at the WTO is being used to
create new obligations to which the United States never agreed. Article
3.2 of the Dispute Settlement Understanding plainly states that
``Recommendations and rulings of the Dispute Settlement Body cannot add
to or diminish the rights and obligations provided in the covered
agreements.'' In other words, the dispute settlement process was never
intended to make new rules--it was designed solely to help members
resolve specific disputes between them.
These provisions were vital to the United States, because it was
essential that we not be burdened with obligations that were never
approved by this Congress. Over the last quarter century, however, the
United States has become the chief target of litigation at the WTO--and
we have lost the overwhelming majority of cases brought against us. In
other words, the WTO has treated the world's freest and most open
economy as the world's greatest outlaw. In so doing, the WTO's
Appellate Body has repeatedly created new obligations from whole cloth.
For example:
The Appellate Body has attacked U.S. countervailing duty
laws--thus making it easier for other countries to provide
market-distorting subsidies.
The Appellate Body has interpreted WTO rules in a manner
that puts our tax system at an unfair and illogical
disadvantage compared to that of many trading partners.
The Appellate Body has interpreted the Agreement on
Safeguards in a manner that significantly limits the ability of
members to use that vital provision.
The Appellate Body has interfered with the appropriations
process by limiting Congress's ability to spend money collected
through antidumping and countervailing duties.
For many years, U.S. administrations of both parties have warned
our trading partners of the potential harm resulting from such judicial
activism. We have also noted that in many instances, the Appellate Body
fails to follow basic, critical rules of operation to which all members
have agreed. Unfortunately, our concerns have been ignored. These
developments have greatly undermined the negotiating process at the
WTO. Why should any country negotiate with the United States if it
believes it can obtain whatever outcome it wants by suing us? The
administration is aggressively addressing each of these problems.
A year and a half ago in Buenos Aires, at the first WTO ministerial
conference held during this administration, I clearly set out our
position on all of these issues and I invited the WTO membership to
join us in fixing these problems. I would like to include in the record
a copy of the remarks I delivered at that meeting.
In spite of the serious challenges we face, the United States is
working diligently within the body of the WTO to negotiate new rules in
areas heretofore uncovered. To jump-start this negotiating process, we
have pushed for important outcomes in talks on digital trade and
fishing subsidies. We have highlighted the issue of unequal bound
tariff rates, and continue to press other members for additional market
access. We have put forward specific proposals to address the concerns
resulting from lack of notification and the abuse of developing country
status. And we have continued to press longstanding U.S. concerns
regarding the dispute settlement process. We have taken these steps not
to hurt the WTO--but to ensure that it remains relevant to a rapidly
changing world.
In sum, the WTO is an important organization that has developed
some serious problems. We have to work with our trading partners to
find solutions. I look forward to continuing to consult with members of
this committee in this effort.
______
Opening Plenary Statement of USTR Robert Lighthizer
at the WTO Ministerial Conference
December 11, 2017
I would like to start by thanking the government of Argentina for
hosting MC11, and Minister Malcorra, Director-General Azevedo, and
their staffs for their excellent work. We appreciate all the effort
over many months that go into creating a conference of this magnitude.
In the brief time I have, I would like to make a few basic points.
First, the WTO is obviously an important institution. It does an
enormous amount of good and provides a helpful negotiating forum for
Contracting Parties. But, in our opinion, serious challenges exist.
Second, many are concerned that the WTO is losing its essential focus
on negotiation and becoming a litigation-centered organization. Too
often members seem to believe they can gain concessions through
lawsuits that they could never get at the negotiating table. We have to
ask ourselves whether this is good for the institution and whether the
current litigation structure makes sense.
Third, we need to clarify our understanding of development within the
WTO. We cannot sustain a situation in which new rules can only apply to
the few and that others will be given a pass in the name of self-
proclaimed development status. There is something wrong, in our view,
when five of the six richest countries in the world presently claim
developing country status. Indeed, we should all be troubled that so
many members appear to believe that they would be better off with
exemptions to the rules. If, in the opinion of a vast majority of
members, playing by current WTO rules makes it harder to achieve
economic growth, then clearly serious reflection is needed.
Fourth, it is impossible to negotiate new rules when many of the
current ones are not being followed. This is why the United States is
leading a discussion on the need to correct the sad performance of many
members in notifications and transparency. Some members are
intentionally circumventing these obligations, and addressing these
lapses will remain a top U.S. priority.
Fifth, the United States believes that much can and should be done at
the WTO to help make markets more efficient. We are interested in
revitalizing the standing bodies to ensure they are focused on new
challenges, such as chronic overcapacity and the influence of state-
owned enterprises. Further, we are working closely with many members in
committee and elsewhere to address real-world problems such as SPS
barriers.
We believe that all of us are here primarily to represent our own
citizens to secure rules that will best help them. As President Trump
said in his U.N. speech, institutions like this function best when all
sovereign nations acting in their own best interest pull together and
find ways that permit us all to prosper.
Finally, the United States looks forward to working with all members
who share our goal of using the WTO to create rules that will lead to
more efficient markets, more trade, and greater wealth for our
citizens. Such outcomes will build public support not only for open
markets, but for the WTO itself.
I'd like to end where I began and thank the Director-General for all
his work and Minister Malcorra for their incredible work to produce a
successful MC11.
______
Questions Submitted for the Record to Hon. Robert E. Lighthizer
Questions Submitted by Hon. Chuck Grassley
Question. The original 81 charter members agreed to join the WTO,
voluntarily, seeing it as an improvement over the GATT.
What aspects of the WTO and the multilateral rules based system
that derived from the GATT most benefit the United States, U.S.
companies, and farmers? What improvements could be made to the WTO to
enhance those benefits?
Answer. The WTO provides multiple tools for the United States to
counteract trade concerns that negatively impact U.S. production and
jobs in manufacturing, agriculture, and services. The United States
aggressively utilizes these tools in an effort to ensure U.S. exports
have the same access and ability to compete on a level playing field
abroad that we allow imports here in the United States.
The WTO committee system enables the United States to build
coalitions or act alone to address and resolve other members' trade
actions that do not comply with their WTO obligations. For example, the
Sanitary and Phytosanitary (SPS) Committee is important to U.S. efforts
to prevent members from establishing and maintaining non-science based
measures that are inconsistent with international standards and that
block imports of safe U.S. agricultural products. The Technical
Barriers to Trade (TBT) Committee plays a key role in U.S. efforts to
reduce regulatory and other technical barriers, such as discriminatory
standards and unnecessary or duplicative testing requirements, in order
to increase exports of U.S. manufactured and agricultural goods. When
such efforts are not successful, and USTR assesses that a WTO member
may be in breach of its WTO obligations, the United States aggressively
uses the dispute settlement system to obtain a finding of WTO-
inconsistency to persuade that member to remove the barrier.
In addition, the WTO provides the United States with a platform to
export its views on trade policy.
That said, the WTO that we intended to create, and the WTO we seek,
is in key respects not the WTO we have today. This is not a new or
sudden development. For years, the United States and many other members
have voiced concerns with the WTO system and the direction in which it
has been headed.
First, the WTO dispute settlement system has strayed far from the
system agreed to by members. It has appropriated to itself powers that
WTO members never intended to give it. This includes where panels or
the Appellate Body have, through their findings, sought to add to or
diminish WTO rights and obligations of members in a broad range of
areas.
Second, the WTO is not well equipped to handle the fundamental
challenge posed by China, which continues to embrace a state-led,
mercantilist approach to the economy and trade. China's actions are
incompatible with the open, market-based approach expressly envisioned
and followed by other WTO members and contrary to the fundamental
principles of the WTO and its agreements.
Third, the WTO's negotiating arm has been unable to reach
agreements that are of critical importance in the modern economy.
Previous negotiations were undermined by certain members' repeated
unwillingness to make contributions commensurate with their role in the
global economy, and by these members' success in leveraging the WTO's
flawed approach to developing-member status.
Fourth, certain members' persistent lack of transparency, including
their unwillingness to meet their notification obligations, have
undermined members' work in WTO committees to monitor compliance with
WTO obligations. Their lack of transparency has also damaged members'
ability to identify opportunities to negotiate new rules aimed at
raising market efficiency, generating reciprocal benefits, and
increasing wealth.
The United States is at the forefront of the reform effort in
Geneva. We are working with a diverse group of members to advance a
proposal aimed at improving members' compliance with their notification
obligations. In February, we submitted a proposal to the General
Council to promote differentiation of development status in the WTO to
reflect today's realities.
We are pursuing reform-related discussions in other configurations,
as well. In December 2017, Ambassador Lighthizer and the trade
ministers of Japan and the EU announced new trilateral cooperation to
undertake measures to combat the non-market-oriented policies of third
countries. Discussions are continuing under the trilateral
configuration, focused on promoting market-oriented policies and
practices, preventing forced technology transfer from foreign companies
to domestic companies, and exploring possible new rules on industrial
subsidies and state-owned entities.
Question. The U.S. just won a case at the WTO against China related
to its subsidies for corn, wheat, and rice. Congratulations on that
victory, it is a great example of why we need the WTO. It is also an
example of how long these cases can take, as the case was initiated by
the Obama administration.
Will the administration continue pushing China to change its
domestic agriculture support system through the traditional WTO process
or the ongoing section 301 negotiations?
Answer. A WTO panel found that China provided trade-distorting
domestic support to its grain producers well in excess of its
commitments under WTO rules, and we will monitor China closely going
forward to ensure its compliance with panel rulings. The administration
will take whatever steps are necessary to enforce its trading rights,
and hold China accountable to the rules on global trade to help ensure
that American farmers compete on a level playing field in the global
market place.
Question. I want to commend you and your staff for U.S. leadership
at the WTO on a forward-looking e-commerce agenda. We were pleased to
see the United States join the announcement at the World Economic Forum
in Davos that countries would initiate negotiations on trade-related
aspects of e-commerce. Plurilateral negotiations have been an effective
way to achieve liberalization in goods in areas such as the Information
Technology Agreement (ITA).
What is the administration doing to ensure that a plurilateral path
will lead to a high-standard agreement on e-commerce that includes
strong rules on cross-border data flows, data localization, a
moratorium on e-commerce duties and trade facilitation? What are the
prospects for a high standard agreement if China is part of the
negotiation?
Answer. For the WTO digital trade initiative to be successful, it
will need to deliver commercially significant outcomes with the same
high-standard rules applicable to all participants. Accordingly, we are
advocating the high-standard rules and working closely with allies to
gain support for this approach, focusing in particular on key USMCA
digital trade outcomes. China's participation in any such negotiation
will, of course, add challenges and complexity; we need to ensure that
China's participation does not lower the level of ambition for this
initiative. Our intent is to have a high-standard, quality agreement
even if it means fewer countries participate.
Question. The rise of state-owned enterprises, (SOEs) has caused a
number of challenges for private industry and regulators. These market
participants often pursue political goals over market signals and have
advantages like access to low cost capital. The rules to define SOEs
are not easy to write, on top of the fact that many SOEs are opaque in
their operations.
What do you think are the most important factors the WTO should
consider for new rules to address the increasing role SOEs have started
playing in the global economy?
Answer. Any new rules addressing the growing importance of SOEs and
the
market-distorting behavior of state enterprises should ensure that such
entities are not advantaged by the government and act in accordance
with market principles. We need to consider stronger subsidy rules that
would prohibit government financing of entities unable to obtain
commercial financing on their own. SOEs should also be required to act
consistent with the normal commercial considerations of private
entities and not to discriminate in the purchase and sale of goods and
services.
______
Questions Submitted by Hon. Ron Wyden
Question. The digital economy is a major driver of economic growth
for Oregon, for the United States, and for the global economy. I
believe the Internet represents the shipping lane of the 21st century.
The state-of-the-art Digital Trade chapter of the revised NAFTA was
a major achievement and I think it serves as a template for the current
WTO talks on e-commerce, or digital trade. Some are concerned that the
inclusion of China in these talks could lead to a less ambitious
outcome given that China aggressively discriminates against non-Chinese
companies and manages a mass Internet censorship program known as the
Great Firewall.
Can you assure us that you will not accept a watered-down agreement
on e-
commerce just to keep China in it?
--Answer. The WTO digital trade initiative will only be successful
if it can deliver commercially significant outcomes for firms and
consumers in the digital sphere. We are working closely with allies to
gain support for high-standard outcomes based on the USMCA Digital
Trade Chapter, which we likewise view as a model for this negotiation
and future agreements. China's participation in any such negotiation
will, of course, add challenges and complexity; we need to ensure that
China's participation does not lower the level of ambition for this
initiative. Our intent is to have a high-standard, quality agreement
even if it means fewer countries participate.
Question. The U.S. and Japan are like-minded on digital trade
issues. Japan has worked alongside us in the WTO, in the TPP
negotiations, and elsewhere to push for strong digital trade rules.
Would you agree that having a high-standard digital trade agreement
with Japan--perhaps one that other like-minded countries could join
over time--would send a powerful message to the EU, China, and other
countries participating in the WTO e-commerce talks while also
establishing strong rules on digital trade?
Answer. In USTR's detailed negotiating objectives for a U.S.-Japan
Trade Agreement, released December 21, 2018, several digital trade
objectives were included, on issues such as customs duties, data flows,
and forced data localization. USTR's intention is to work with Japan to
develop high-standard digital trade provisions in the U.S.-Japan Trade
Agreement outcomes. Along with the USMCA digital trade provisions,
negotiations with Japan offer an opportunity to continue to set high
standards on these important issues going into WTO talks and other
trade discussions.
Question. The WTO ``moratorium'' against imposing customs duties on
electronic transmissions has helped American companies expand digital
trade worldwide. This moratorium is particularly important to me
because when I co-wrote the 1998 Internet Tax Freedom Act, I included a
provision directing the President to seek to remove global barriers to
e-commerce at the WTO, and the WTO moratorium on e-commerce duties was
agreed to that same year.
Today, however, I'm concerned that more countries seem to be taking
steps to reassess or undermine the moratorium at the WTO. This is a new
threat to America's digital trade and digital content.
What steps will you take to ensure that the moratorium is continued
at the WTO and that countries like India and Indonesia do not move
forward on imposing customs duties on streaming content, digital
downloads, and other content from the United States?
Answer. The WTO moratorium on imposing customs duties on electronic
transmissions, including content transmitted electronically, has over
the last 20 years supported the growth of the digital economy and has
been replicated in numerous bilateral and regional trade agreements.
The administration is working with a broad group of like-minded
countries to ensure the continuation of the moratorium and to address
potential challenges within the WTO membership. This moratorium also
will be part of our negotiating position in the WTO e-commerce talks.
Question. A number of European countries are moving ahead with
proposals to implement a tax on digital services that appears to be
designed to specifically target American companies. These digital
services tax proposals are discriminatory, which raises concerns about
whether they are compatible with WTO obligations. In January, Chairman
Grassley and I wrote to Secretary Mnuchin to let him know our concerns
about countries moving forward unilaterally to implement digital
services taxes.
How do you intend to take on these discriminatory, anti-American
taxes that are being pursued by European countries?
Answer. The administration shares your concern that proposals by
several countries to create new taxes on revenues from certain digital
services, including the proposed law currently under consideration by
the French legislature, are deeply flawed as a matter of policy and may
be designed to target U.S. companies. We publicly flagged concerns with
these taxes in our recent National Trade Estimate report. USTR is
looking seriously at all of the tools available to address such
potential trade barriers. We are engaged in the research and analysis
necessary to evaluate any actions that might be available under U.S.
law and any applicable trade agreements.
Question. U.S. cloud service providers support thousands of
American jobs and bring cutting-edge technology to markets all over the
world. But, in China, U.S. cloud service providers are now facing major
barriers that prevent them from operating or competing fairly.
China has proposed new regulations that would effectively require
foreign cloud service providers to turn over all ownership and
operations to a Chinese company. Moreover, these new restrictions would
force U.S. cloud service providers to give valuable U.S. intellectual
property to China. It seems to me that these are exactly the type of
unfair trade practices that you identified in the recent section 301
investigation of China.
What outcomes on cloud services are you seeking in the current
China discussions?
Answer. The administration places a high priority on the
elimination of foreign equity limitations, discriminatory licensing
requirements, and technology transfer requirements and incentives in
China, including in the cloud services sector. In this sector, we are
seeking commitments that permit U.S. firms to compete on a level
playing field with their Chinese competitors and that also reflect the
access that Chinese companies have today to offer cloud services in the
United States.
Question. The EU is taking a range of actions targeted at U.S.
technology companies and impeding digital trade. On March 26, 2019, the
European Parliament narrowly passed a copyright directive that diverges
from copyright norms. The directive may have broad economic and social
consequences.
These new rules substantially threaten digitally enabled services
that U.S. firms export annually to the EU, and will make it harder for
small and large American businesses and startups to compete in Europe.
The U.S. government's silence on this issue is deafening and there now
appears to be an open door to both a 'link tax' and attacks on open
platforms and the free speech they promote.
What steps will you take to ensure that implementation of ambiguous
language in the copyright directive at the member state level will not
result in additional barriers for U.S. service providers and online
collaboration?
How do you intend to ensure that Europe's misguided approaches to
copyright do not infect policy approaches by other countries, as has
been the case with geographic indicators?
Answer. USTR has been closely tracking the progress of the
Directive and has followed its development with great interest. We
intend to monitor the implementation of the Copyright Directive in the
member states of the EU, particularly with regards to provisions in the
Directive that may have an impact on U.S. suppliers in those markets.
We have already recognized in recent National Trade Estimate Reports
that measures requiring remuneration or authorization for short
excerpts of text may raise concerns. We will also be focused on
ensuring a fully transparent implementation process--one with ample
opportunities for all U.S. stakeholders to have opportunities to
provide input, in a public manner, about their concerns regarding
possible barriers to trade and any other concerns on the policy being
espoused by the Directive.
Question. In February, President Trump announced that the U.S. and
China had reached an agreement on currency manipulation as part of the
ongoing negotiations.
How does this currency agreement with China differ from the
currency chapter in the renegotiated NAFTA?
Will all of the obligations in the currency agreement be
enforceable?
If so, will those obligations be enforceable by China against the
United States?
Answer. The Secretary of the Treasury is responsible for evaluating
the currency practices of the United States' major trading partners.
With respect to the China negotiations, the talks are still underway,
but address a range of issues including, currency practices. The aim is
to reach agreement to refrain from competitive devaluations in currency
and to agree to a certain level of transparency that would be
enforceable under the agreement.
Question. Fishing and fisheries play an important role in the
Pacific Northwest economy, and we need to ensure that other countries--
like China--play by the rules to ensure a fair playing field for
Oregon's fishing industry. Preventing overfishing and illegal fishing
is also critical to protect our ocean environment. That's why I was
glad to see that the new NAFTA has an environmental chapter with strong
commitments to address fisheries subsidies.
At the WTO, members have been negotiating some form of a
comprehensive agreement on fisheries subsidies since the Doha
Ministerial Conference in 2001. Today, our coastal State economies and
our environment can't afford to wait too long to achieve an enforceable
fish subsidies agreement.
Do you agree that we should have an aggressive negotiating schedule
to wrap up this agreement within the next year, assuming we can achieve
a high-standard agreement? If so, what steps are you taking towards
that goal?
Answer. The Trump administration supports strong prohibitions on
harmful fisheries subsidies, including those that contribute to
overfishing and overcapacity and those that support illegal fishing
activities. The recently concluded USMCA Environment Chapter contains
the strongest set of internationally agreed obligations to prohibit
harmful fisheries subsidies, and provides an important benchmark for
the WTO negotiations. Establishing these prohibitions in the WTO so
that they apply to all WTO members, including the largest subsidizers,
will help level the playing field for the U.S. fishing industry. To
help advance the WTO negotiations, the United States recently joined
Australia in tabling an innovative new proposal that would further
limit and reduce the fisheries subsidy programs of some of the largest
players in the seafood sector, including China and Indonesia. While
there is an aggressive WTO negotiating schedule and we are making
progress, we still have a long way to go to achieve meaningful
disciplines on the most harmful fisheries subsidies due to
intransigence on the part of some of the most problematic actors. I
look forward to working with you and other members and stakeholders as
we advance these negotiations.
Question. The United States has an American advantage in trade in
services. The U.S. service sector supports millions of American jobs
and is at the forefront of innovation, especially in digital services.
Last year, I asked you whether you had a strategy to revive the ``Trade
in Services Agreement'' negotiations in Geneva, and you responded that
you were still evaluating options for expanding U.S. services exports.
What are your plans to resume these negotiations, which could
complement the work in the WTO e-commerce negotiations?
Answer. The administration places a high priority on continuing to
expand U.S. services exports and services trade, recognizing that
services are a key driver of our economy. The USMCA includes a number
of state-of-the-art provisions that will help to expand U.S. services
exports, including in the area of digital trade. Those high-standard
digital trade provisions serve as a template for the U.S. position in
the WTO e-commerce negotiations and in future U.S. agreements. We
continue to evaluate other potential negotiations to further expand
U.S. services exports.
Question. Last summer (August 30, 2018), President Trump threatened
to withdraw from the WTO if it doesn't ``shape up.''
Has the WTO shaped up since then in the President's view?
Please describe any request to you by the President to (1) examine
implications or consequences of a U.S. withdrawal from the WTO and/or
(2) take any actions or steps to initiate or advance U.S. withdrawal
from the WTO.
Answer. The WTO that we intended to create, and the WTO we seek, is
in key respects not the WTO we have today. This is not a new or sudden
development. For years, the United States and many other members have
voiced concerns with the WTO system and the direction in which it has
been headed.
First, the WTO dispute settlement system has strayed far from the
system agreed to by members. It has appropriated to itself powers that
WTO members never intended to give it. This includes where panels or
the Appellate Body have, through their findings, sought to add or
diminish WTO rights and obligations of members in a broad range of
areas.
Second, the WTO is not well equipped to handle the fundamental
challenge posed by China, which continues to embrace a state-led,
mercantilist approach to the economy and trade. China's actions are
incompatible with the open, market-based approach expressly envisioned
and followed by other WTO members and contrary to the fundamental
principles of the WTO and its agreements.
Third, the WTO's negotiating arm has been unable to reach
agreements that are of critical importance in the modern economy.
Previous negotiations were undermined by certain members' repeated
unwillingness to make contributions commensurate with their role in the
global economy, and by these members' success in leveraging the WTO's
flawed approach to developing-member status.
Fourth, certain members' persistent lack of transparency, including
their unwillingness to meet their notification obligations, have
undermined members' work in WTO committees to monitor compliance with
WTO obligations. Their lack of transparency has also damaged members'
ability to identify opportunities to negotiate new rules aimed at
raising market efficiency, generating reciprocal benefits, and
increasing wealth.
The United States is at the forefront of the reform effort in
Geneva. We are working with a diverse group of members to advance a
proposal aimed at improving members' compliance with their notification
obligations. In February, we submitted a proposal to the General
Council to promote differentiation of development status in the WTO to
reflect today's realities.
We are pursuing reform-related discussions in other configurations,
as well. In December 2017, Ambassador Lighthizer and the trade
ministers of Japan and the EU announced new trilateral cooperation to
undertake measures to combat the non-market-oriented policies of third
countries. Discussions are continuing under the trilateral
configuration, focused on promoting market-oriented policies and
practices, preventing forced technology transfer from foreign companies
to domestic companies, and exploring possible new rules on industrial
subsidies and state-owned entities.
Question. Section 125 of the Uruguay Round Agreements Act states
that congressional ``approval'' of U.S. participation in the WTO
``shall cease to be effective if, and only if'' a joint resolution
withdrawing congressional approval is enacted by Congress.
Would you agree that, per the Uruguay Round Agreements Act, the
president may not withdraw the United States from the WTO without the
approval of Congress?
Answer. As noted in the Statement of Administrative Action
accompanying the Uruguay Round Agreements Act (URAA), and approved by
Congress along with the Act, section 125 establishes an expedited
procedure permitting Congress, following the submission of every fifth
annual report required by section 124, to adopt a joint resolution
revoking congressional approval of the WTO Agreement. The provision
creates a mechanism that will permit periodic congressional review of
U.S. participation in the WTO. Section 125 specifies the procedural
rules that apply to consideration of any such joint resolution,
including time limits for action, automatic discharge provisions, and
rules for consideration of the joint resolution in both Houses.
Question. While much has changed in the global economic scene since
the inception of the WTO, the WTO's rules have not been updated to
adapt to these changes. For example, the WTO does not seem to have
mechanisms to address China's failures to adopt more market-oriented
policies and to stop government intervention in business activities. I
am glad to see you working with allies, like the EU and Japan, on some
of these issues, but ultimately, the adoption of new rules will require
the consensus of all WTO members.
How do you see the WTO being able to adopt these kinds of critical
rule changes when the institution currently require the unanimous
consent of all WTO members to adopt changes?
Answer. Our long record of leadership at the WTO makes us clear-
eyed about the challenges ahead. In our assessment, members are in the
early stages of grappling with our collective failure to confront
problems that have been growing for years. The United States is
committed to working with like-minded members to address our concerns
with the functioning of the WTO. Some of this work will happen in
Geneva, as we and other like-minded members put forth concrete
proposals and work to build support for our ideas across the
membership. Some of this work will happen in other configurations, such
as our trilateral cooperation with the EU and Japan and our bilateral
engagements. We of course are committed to meaningful action regardless
of the WTO membership's willingness to act. Ultimately, all members
must recognize it is in their self-interest to address the current
issues at the WTO if the organization is to function properly.
Question. Changes to the dispute settlement process have been
sought for many years by multiple administrations. While I appreciate
that the U.S. has been successful in drawing attention to the need for
reform, some question how the reforms can be instituted before
December, when the Appellate Body will no longer have the number of
panelists it needs to do its job. While I am not a fan of all of the
decisions coming out of the WTO dispute settlement system, the U.S. is
its biggest user--with a relatively high success rate.
What way forward do you see for these issues to be resolved so that
the U.S. will agree to the appointment of new Appellate Body members?
Where will a non-functioning dispute settlement system leave the
cases that the U.S. has brought, including the case brought against
China concerning the protection of intellectual property rights?
In the event that the Appellate Body ceases to have the minimum
number of members needed to act, what options will this leave the U.S.
and others who want to ensure that other members live up to their
obligations?
Answer. For many years, and in multiple Administrations, the United
States has repeatedly expressed concerns with the WTO Appellate Body's
activist approach, which has involved overreaching on procedural
issues; interpretative approach; and findings on substantive matters.
In short, the Appellate Body has failed to apply the WTO rules as
written and agreed to by the United States and other WTO members.
During 2018, the United States made a series of statements at DSB
meetings detailing the Appellate Body's disregard for the rules set by
WTO members, and the Appellate Body's attempts to add to or diminish
rights or obligations under the WTO Agreement. The issues addressed
included the Appellate Body's disregard for the mandatory 90-day
deadline for appeals, the Appellate Body's unauthorized review of panel
findings on domestic law, the Appellate Body's issuance of advisory
opinions on issues not necessary to resolve a dispute, the treatment of
prior Appellate Body reports as precedent, and allowing persons to
serve on appeals after their Appellate Body term has ended.
The United States also has been expressing deep concerns for many
years with the Appellate Body's overreach in areas as varied as
subsidies, antidumping and countervailing duties, standards under the
TBT Agreement, and safeguards. Such overreach restricts the ability of
the United States to regulate in the public interest or protect U.S.
workers and businesses against unfair trading practices.
The responsibility to address these problems is not that of the
United States alone, rather, it is the collective responsibility of all
WTO members to ensure the proper functioning of the WTO dispute
settlement system, including the Appellate Body.
Regardless of the progress in reforming the dispute settlement
system, the United States will remain committed to fulfilling its
obligations under WTO Agreement, while rejecting efforts by the WTO
Appellate Body to create new obligations to which WTO members have not
agreed. We likewise expect U.S. trading partners to continue to fulfill
their own obligations under the WTO Agreement. In the event that a
member fails to fulfill its commitments, I will continue to use
existing tools under U.S. law to enforce U.S. rights under the WTO
Agreement.
Question. Last November, Senator Stabenow and I sent you and
Secretary Ross a letter about the economic impact of the rules of
origin for autos in the revised NAFTA agreement. The president has said
that this agreement will ``incentivize billions of dollars in new
purchases of U.S.-made automobiles'' and create ``far more American
jobs.'' USTR's fact sheet says that the new rules will ``transform
supply chains to use more United States content.'' I share your support
of a strong auto manufacturing sector in the United States, but I have
not yet seen any quantitative analysis that backs up these assertions.
Will you commit to providing this critical analysis to members of
Congress so that we can fully understand the potential impact of these
changes?
Answer. Over the past months, I have frequently discussed auto
rules of origin with members of Congress and explained how they will
benefit U.S. autoworkers and the industry. Earlier this month, we
provided Senate Finance trade staff with a white paper containing
additional quantitative analysis and provided them with a briefing on
the basis of our estimates.
Question. How do you square these projected positive impacts on the
U.S. auto sector with the Commerce Department's investigation about how
future imports of automobiles and auto parts constitute a national
security threat?
Answer. The President is considering the findings of the Department
of Commerce's report. As you know, at the time we signed the USMCA, we
also had an exchange of letters with Mexico and Canada regarding
automobiles.
Question. The revised NAFTA includes some clear improvements over
the status quo, especially in the Digital Trade chapter. But I remain
concerned about the deal's enforceability. The agreement does not
resolve all of the flaws in the state-to-state dispute settlement
chapter in the current NAFTA. This includes loopholes that allow
parties accused of violating their obligations to delay or even block
the formation of a panel. Under NAFTA, no dispute settlement panel has
been formed since 2000, and the dispute settlement system generally has
been ineffective as a tool to ensure compliance with the agreement.
Without effective enforcement, American workers, farmers, and
businesses will not see the benefits of this new deal.
Recent trade agreements have avoided the NAFTA loopholes with
improved dispute settlement procedures. For example, the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP) closed
these loopholes, ensuring that parties cannot unreasonably delay or
avoid the formation of a panel. Both Mexico and Canada have ratified
the CPTPP.
Would you be opposed to clarifying that the text of Chapter 31 of
the revised NAFTA is not meant to allow panel blocking?
Answer. The text of Chapter 31 of the United States-Mexico-Canada
Agreement (USMCA) is not meant to allow panel blocking. Indeed, panels
have been successfully formed under Chapter 20 of the NAFTA (its
precursor). As we move forward with congressional consideration of the
USMCA, we look forward to discussing this and any other issues related
to enforcement with you and your colleagues.
Question. Many members of Congress, myself included, are concerned
about Mexico's enforcement of its new labor obligations under the
revised NAFTA. Under this agreement, Mexico agreed to pass key labor
reform legislation to implement those commitments by January 1, 2019.
As of March 26th, Mexico still has not passed this legislation.
How can we have confidence that Mexico will enforce the new labor
commitments in the revised NAFTA when Mexico still has not passed the
necessary legislation to put the reforms into effect?
Answer. The administration has worked very closely with the
Government of Mexico to ensure that Mexico's labor legislation meets
the obligations of the USMCA Labor Chapter and Annex, and is enacted
before the trade agreement is considered by the U.S. Congress. On April
29, 2019, Mexico's Congress passed legislation that complies with its
USMCA labor commitments, and I am committed to working with you and
other members of Congress to discuss options and policy tools for
monitoring the implementation of these important reforms.
Question. Recent OECD studies suggest that over half of Mexico's
labor force is employed in the informal economy. Jobs in the informal
economy are not formally regulated by the Mexican government. As a
result, Mexico's commitments in the Labor Chapter of the new NAFTA--
including its commitment to adopt regulation on acceptable minimum
wages and hours of work--will not extend to workers in Mexico's
informal economy.
How do you expect Mexico to fully enforce its labor laws given the
high proportion of workers employed in the informal economy?
Answer. The Mexican Congress has passed labor reform legislation
that provides workers with fundamental labor protections, whether they
have formal employment contracts or not. For example, workers have the
right to join authentic unions and engage in true collective bargaining
with their employer, and Mexico's labor authorities are obligated to
ensure the protection of these rights regardless of an employer's
status in the formal economy. The USMCA labor obligations also include
specific commitments for Mexico to create specialized administrative
and judicial bodies to implement and enforce fundamental labor rights.
Question. In which ways do you expect the new NAFTA to promote and
expand Mexico's formal economy?
Answer. The USMCA will increase formal sector employment by
requiring the elimination of undemocratic unions and collective
bargaining agreements that ``protect'' employers from real collective
bargaining. Authentic unions and collective bargaining will allow
Mexico's workers to demand that employers provide wage benefits and
other formal employment benefits such as affiliation to social safety
nets, which in Mexico include government sponsored pensions and health
care. This will improve the respect for labor rights of Mexican
workers, and level the playing field for workers in the United States
who will no longer compete against exploited workers in Mexico.
Question. Please address the following inconsistencies between U.S.
law and the revised NAFTA text:
Definition of a biologic: U.S. law exempts chemically synthesized
polypeptide from the definition of a biologic (PHS Act Sec. 351(i)(1)).
Drugs that fall into this class are used by patients who, for example,
are living with cancer and diabetes, two diseases that already cause a
significant economic burden. The new NAFTA text's definition of a
biologic (20.F.14.2) does not exempt drugs in this class, increasing
the cost for patients.
Please explain this inconsistency and why this class of drugs would
not be exempted, as they are in U.S. law.
Answer. U.S. law is fully consistent with the USMCA IP Chapter
provisions, and nothing in the newly negotiated USMCA will require
changing U.S. laws on pharmaceutical intellectual property rights. The
plain meaning of the treaty text is that Article 20.49 of the USMCA
describes biologics as including products ``produced through
biotechnology processes,'' as distinguished from ``chemically
synthesized'' products, such as chemically synthesized polypeptides.
Question. Market vs. Data Protection: Article 20.F.14 of the
revised NAFTA refers to Article 20.F.13.1 and states that a party must
``provide effective market protection through the implementation'' of
that article. Although this provision refers to ``market protection,''
Article 20.F.13.1 refers to data protection, and to a period of 5-year
data protection. This could appear to conflict with the 4-year ``data
protection'' period under the Biosimilars Act (PHS Act
Sec. 351(k)(7)(b)) preventing a BLA submission. Furthermore, to the
extent this provision allows for a 10-year period of ``data
protection'' prohibiting a BLA submission, it could conflict with the
Biosimilars Act.
Please explain these inconsistencies.
Answer. U.S. law is fully consistent with the USMCA IP Chapter
provisions, and nothing in the newly negotiated USMCA will require
changing U.S. laws on pharmaceutical intellectual property rights.
Articles 20.49 and 20.48 are without prejudice to a party's ability to
stipulate a period of time during which an application for a follow-on
biologic product that relies on the innovator's safety and efficacy
data may not be submitted and do not conflict with the cited provisions
of the Public Health Service Act.
Question. Expanding biologic exclusivities: The new NAFTA also has
the potential to conflict with the way FDA has interpreted the
transition rules under the BPCIA governing biologics approved as NDAs.
Footnote 46 of the agreement includes its own transition rules for
biologic products, which allows biologic applicants to seek approval on
or before March 23, 2020 under the procedures set forth in Article
20.F.13.1 (and thus be eligible for, or subject to, 5-year and 3-year
exclusivity) under certain circumstances. But footnote 46 does not
state whether new biologic applications submitted during this period
will be eligible upon approval for 5-year exclusivity under Article
20.F.13 only, or if they will also be eligible for 3-year exclusivity
under Article 20.F.13, or if they will also be eligible for 10-year
exclusivity under Article 20.F.14. Therefore, there is a concern that
the revised NAFTA could conflict with the way FDA interprets the
transition rules under section 7002(e) of the BPCIA if footnote 46 were
interpreted such that a new biologic sponsor may be eligible for
exclusivities available under both Article 20.F.13 and Article 20.F.14,
and thus entitled to both 5-year exclusivity under one pathway and at
least 10 years of exclusivity under another (though these would likely
overlap), and also to 3-year exclusivity for each new indication,
formulation change, or method of administration.
Please explain the inconsistency between the transitions rules as
described in the BPCIA and in the revised NAFTA text.
Answer. U.S. law is fully consistent with the USMCA IP Chapter
provisions, and nothing in the newly negotiated USMCA will require
changing U.S. laws on pharmaceutical intellectual property rights. We
have a robust interagency process, including with the Department of
Health and Human Services, with respect to developing and negotiating
FTA provisions. In particular, the USMCA IP Chapter is consistent with
the Biologics Price Competition and Innovation Act, as well as FDA's
interpretation of that act.
Question. Last week, President Trump met with President Bolsonaro
of Brazil at the White House. According to a joint statement, President
Trump noted his ``support for Brazil initiating the accession procedure
to become a full member of the OECD,'' and President Bolsonaro agreed
that ``Brazil will begin to forgo special and differential treatment in
World Trade Organization negotiations.'' Brazil currently maintains
high tariffs and restrictive trade policies. Previously, the United
States withheld support for Colombia's OECD accession until Colombia
agreed to remove certain trade irritants subject to enforceable dispute
resolution under our bilateral free trade agreement.
Please describe any specific commitments that the United States
made to Brazil with regard to Brazil's OECD accession.
Please describe what specific commitments Brazil has made to
address key barriers to trade with the United States.
Answer. When President Trump and President Bolsonaro of Brazil met
on March 19, 2019, President Trump welcomed Brazil's ongoing efforts
regarding economic reforms, best practices, and a regulatory framework
in line with the standards of the Organization for Economic Cooperation
and Development (OECD). President Trump noted his support for Brazil
initiating the accession process to become a full member of the OECD.
Any decision by the OECD on its enlargement, including on which
countries will next be invited to begin the OECD accession process,
requires consensus of all 36 OECD members.
The United States has high expectations for any country seeking
OECD membership. We intend to bilaterally deepen our engagement with
Brazil, including through our bilateral dialogue mechanism and look
forward to Brazil demonstrating in action its commitment to open its
market to U.S. goods. Importantly, it should be noted that Brazil
agreed to forgo seeking special and differential treatment in current
and future trade negotiations, which we would expect of any aspiring
OECD member.
Question. The Trade Enforcement Trust Fund (TETF) was established
by Congress specifically to provide resources needed to support trade
enforcement efforts. USTR's FY 2020 Budget Justification Summary notes
that ``USTR collaborated with OMB to propose language in the FY 2020
Budget that will fix ongoing technical issues with the TETF that
prevent the Fund from functioning as intended.''
Describe the challenges you face with the current approach to
funding the TETF.
Answer. The proposed language fixes a minor technical issue with
the TETF's execution. Congress appropriates funding from the TETF each
year. As it currently operates, any unspent funding cannot be used
after the year of its appropriation, but continues to count against the
TETF's $30 million cap for 5 years. While the presence of unspent
funding does not prevent USTR from using its FY19 appropriation, there
are implementation challenges in obligating the appropriation without
hitting the cap.
Describe the technical issues, as well as the proposed fixes,
referenced in the Budget Justification Summary.
Answer. As noted, USTR continues to have discussions with
congressional staff and OMB as to how to improve the TETF. The FY 2020
budget recommends removing investment authority from the TETF. This
will allow unused funding in the account to expire preventing prior
year unobligated funds from counting against the $30 million cap.
______
Question Submitted by Hon. Pat Roberts
Question. As we have discussed previously, agriculture faces a
number of non-
tariff barriers to trade. Often, sanitary and phytosanitary (SPS)
measures are used by other countries to conceal protectionist trade
policies, ultimately, discriminating against U.S. agriculture products
and hindering market access. The WTO is one mechanism the United States
has successfully used to further its SPS goals.
At this time, against the backdrop of largely dormant WTO activity
on multi-
lateral market access, how can USTR advance the United States' SPS
agenda at the WTO? Is our current best option largely limited to
bringing SPS cases against certain trading partners, such as the EU,
when they fail to abide by sound science on issues such as pesticides
and biotechnology?
Answer. The administration is pursuing an active agenda to advance
U.S. interests on SPS in the WTO. In many countries, regulatory
barriers lacking scientific justification block farmers' access to safe
tools and technologies. We have initiated a series of joint activities
with other WTO members on the safe use of biotechnology and pesticides
as a means to support all farmers, including small holders. In 2018, 13
countries supported an international statement on agricultural
applications of precision biotechnology to foster the use of the new
tools, including genome editing. We joined with five African and Latin
American countries on a WTO initiative regarding regulatory responses
to the destructive pest fall armyworm. In recent years, we have built a
coalition of over 30 countries to raise concerns with the EU's
hazard-based approach to pesticides. We are also working with other
countries to advance implementation by WTO members of regionalization
measures for animal and plant health. We will continue to use the WTO
in new and creative ways to advance U.S. interests on SPS.
______
Questions Submitted by Hon. Johnny Isakson
Question. Mr. Ambassador, during the hearing, you heard me discuss
my unease with the current status of the section 232 tariffs on steel
and aluminum as well as my concern that the 232 tariffs will be removed
in name only and replaced with a quota system. In response to my
comments, you mentioned that it was your hope to remove the steel and
aluminum tariffs on Canada and Mexico and replace them with a different
mechanism that will protect the integrity of the program without
hurting American companies downstream. I believe that import quotas
often lack transparency and may run counter to the administration's
monumental effort to re-establish free trade between the U.S., Canada,
and Mexico.
Can you offer more details on what this future program will look
like? What will USTR do beforehand to ensure that Americans aren't
unduly hurt by this program?
Answer. As I noted during the hearing, our objective in discussions
with Canada and Mexico is to find an alternative to the section 232
tariffs that addresses the threatened impairment of U.S. national
security caused by imports of steel and aluminum. The types of issues
we are considering in these discussions include the need to avoid
import surges and prevent transshipment; the need to reduce excess
production and capacity in overseas markets; and possible mechanisms
for contributing to increased capacity utilization in the United
States. From the outset, the section 232 steel and aluminum measures
have been constructed in a manner that is mindful of the needs of
consumers of these products. At the time he imposed the section 232
tariffs, the President authorized the Secretary of Commerce to provide
exclusions from the tariffs for articles for which there is a lack of
sufficient U.S. production; in August of last year, the President
extended this authority to enable the Secretary to provide exclusions
from steel and aluminum quotas imposed under section 232. These
considerations will continue to guide the administration's approach to
the program.
Question. Similarly, I have serious concerns over the
administration's potential move to use section 232 to impose tariffs on
U.S. automobile imports. Recently, the President was asked whether
autos and auto parts pose a national security risk, and his response
was simple: ``Well, no.''
Do you agree with that answer? If so, would you agree with me that
section 232 is not an appropriate tool for imposing tariffs on autos?
Answer. The Secretary of Commerce, who helps administer section
232, has submitted his section 232 report on the national security
implications of automotive imports to the President. The President is
reviewing the analysis and will determine any appropriate course of
action.
Question. I remain concerned that USMCA does not address an
important issue affecting a large portion of Georgia's agriculture
economy. Georgia's fruit and vegetable growers, as well as other
seasonal growers, are constantly dealing with targeted subsidized
imports of fruits, vegetables, and other perishables from Mexico. Due
to the seasonal nature of these businesses as well as the very short
window in which they are able to sell their products, Georgia's fruit
and vegetable farmers don't qualify for U.S. AD/CVD mechanisms since
they're unable to demonstrate adequate injury as defined by current
U.S. law. In turn, our trade deficit in fruits and vegetables with
Mexico continues to widen as more and more Georgia producers are forced
to shut down their operations. I have heard from growers in my State
who oppose moving forward with USMCA without an effective mechanism to
contest these unfair practices.
Can we count on you and the administration to address this issue in
the coming months?
Answer. This issue is not addressed in existing U.S. law or the
current NAFTA. However, the administration is exploring ways to assist
the fresh fruit and vegetable industry and address the challenges it is
facing from Mexican imports.
Question. Georgia is the second largest cotton-producing State in
the country. Like many other members of the U.S. agriculture community,
the Chinese government has targeted the cotton industry with
retaliatory tariffs and Georgia's farmers and Georgia companies using
their products are suffering the consequences. I'm happy to hear that
market access for U.S. agriculture products is at the forefront of your
negotiations with the Chinese Government, and I applaud your efforts to
prioritize such an important sector in Georgia's economy.
To what extent has cotton been discussed in these meetings?
Answer. The U.S.-China economic relationship is very important, and
the Trump administration is committed to reaching meaningful, fully-
enforceable commitments to resolve structural issues and addressing our
persistent trade deficit to improve trade between our countries. China
has committed to resolving outstanding issues in our agricultural trade
relationship, including through immediate purchases of a wide variety
of U.S. agricultural products, such as cotton. The U.S. cotton industry
has longstanding relationships in the Chinese market, and we are
optimistic the proposed Agreement, if reached, would help maintain and
strengthen these relationships for the long term.
Question. As the number one forestry State in the country, Georgia
depends on fair market access for timber products and the 25-percent
tariff on exports of U.S. southern yellow pine imposed by China is
causing unnecessary strain for my State's foresters and the markets
they supply. In the absence of a fair trade agreement, my constituents
are losing market share to foreign competitors on a daily basis.
Will immediate removal of this tariff, along with other tariffs on
U.S. timber exports, be part of any agreement you strike with the
Chinese?
Answer. The goal of the section 301 investigation is to change
China's unfair and market-distorting behavior. China should have
responded to the findings in the section 301 investigation and the U.S.
tariff actions by undertaking the necessary economic and policy reforms
needed to end its trade-distortive practices. Instead, China retaliated
with tariffs on U.S. products. The administration is pressing China to
remove those retaliatory tariffs entirely.
______
Questions Submitted by Hon. Rob Portman
Question. At the hearing you noted your concerns about moving away
from consensus at the World Trade Organization (WTO) because doing so
could come back to haunt the United States in the future. To get
philosophical for a moment:
When you think about reform how do you balance the conflicting
desire for progress with the need to preserve sovereignty? What
heuristics should be used to evaluate whether the present need to
accomplish something outweighs the need to mitigate against future
blowback?
Answer. We cannot conceive of any form of sustainable progress that
would require us to relinquish sovereignty. Any attempt to identify
U.S. priorities must begin with a thorough understanding of U.S.
national interests and an articulated strategy to advance them,
particularly where competing objectives are in play. On that
foundation, the value of consensus-based or joint action can be
evaluated in terms of their efficacy in advancing U.S. interests and
their likelihood of success.
Question. Some provisions of the Uruguay Round commitments are very
obvious. Yet, the meaning of some Uruguay Round commitments has drifted
from the commitment's original--or even plain--meaning towards
judicially created meaning.
Do you believe that this is because of some inherent flaw in the
drafting of the Uruguay Round documents? Or is it because of human
error-either intentional or not-that new meaning has been imbued to
what was agreed to in the Uruguay Round? What does this mean for the
ability of WTO reformers to secure new written commitments to which
parties textually adhere? How do you propose Uruguay Round parties
develop, or write, new commitments that are impervious to judicial
drift?
Answer. Negotiating and drafting international trade agreements is
certainly a difficult task that must be undertaken with great care.
Reliance on certain long-standing principles can be helpful, but new
commitments must be written with great precision and clarity, bearing
in mind the principles of treaty interpretation that may be
subsequently employed. We must also ensure, however, that those called
upon to interpret written text must not add to or diminish the rights
and obligations as agreed upon by the negotiating parties.
Additionally, we must ensure that relevant international institutions
are not empowered in a way that infringes on U.S. sovereignty.
Question. The Information Technology Agreement (ITA) provided that
it would only enter into force when participants whose economy totaled
90 percent of world trade in covered products joined the agreement.
Critical mass requirements that are this high can give countries like
China a de facto veto over the creation of future plurilateral
agreements.
Should plurilateral agreements have lower critical mass
requirements? Are there other critical mass requirements--other than
just a percentage of global trade--that should be considered?
Answer. As part of our effort to improve the functioning of the
WTO, we are thinking carefully about a number of pertinent issues,
including the requirements for plurilateral negotiations. We are
interested in exploring options for WTO members that want to advance
negotiated outcomes to do so. A current example of this is the WTO
digital trade initiative, in which we are exploring options for moving
forward in this important area on a plurilateral basis.
We note that ``critical mass'' requirements are often features of
so-called ``open'' plurilateral agreements, and they are negotiated
among the parties with the objective of minimizing the risk of free
ridership that is inherent to such agreements.
Question. Although expired, provisions related to dark amber
subsidies contained a rebuttal presumption that such subsidies caused
serious prejudice.
Do you believe that the resuscitation of rules for dark amber
subsidies are still relevant at today's WTO?
Answer. Bringing back the dark amber category of subsidies is an
interesting idea. While a rebuttable presumption may not be a panacea,
it may be helpful in identifying some of the more egregious subsidy
types and providing for a more easily obtainable remedy.
Question. To be effective, any commitments reached as part of
current negotiations with China must be enforceable. Now expired,
section 421 was a China-
specific safeguard that was created--pursuant to China's World Trade
Organization (WTO) Accession Protocol--as an extraordinary trade
enforcement tool designed to guard against increased imports from
China. While not a panacea for enforcement, the resuscitation of
section 421 may have a useful place back in our trade enforcement
toolkit.
Do you believe that section 421 should be revived? Do you believe
that, in order to be WTO-compliant, the revival of section 421 must be
accompanied by China's consent? Do you believe section 421 can be
revived unilaterally under U.S. law and without China's consent? Is
section 421 currently part of the scope of talks with China?
Answer. Section 421 of the Trade Act of 1974, as amended, was
created specifically to implement the anti-surge mechanism established
under the Protocol of Accession of the People's Republic of China to
the WTO. According to the terms of the Protocol, the anti-surge
mechanism expired on December 10, 2013--12 years after the date of
entry into force of the Protocol for China. Section 421 has not been
part of our current discussions with China on the enforcement
mechanism. I am always interested in discussions with Congress
regarding additional enforcement tools.
Question. As you know, the President has received the report
pursuant to the section 232 investigation into the national security
threat posed by imports of autos and auto parts.
Have you seen the report? Do you concur in its findings? Do you
concur in its potential recommendations for import restrictions?
Answer. The Secretary of Commerce, who helps administer section
232, has submitted his section 232 report on the national security
implications of automotive imports to the President and the President
is reviewing the analysis and will determine the appropriate course of
action. I am not in a position to comment on its findings and
recommendations. As you know, at the time we signed the USMCA, we also
had an exchange of letters with Mexico and Canada regarding
automobiles.
Question. The 301 exclusion process is helpful for some companies
to seek a refund of the duties paid on tariffed imports from China.
Will USTR continue to operate the exclusion process during
negotiation and successful implementation of any agreement with China
in order to give U.S. companies using the exclusion process a chance
for retroactive relief?
Answer. We are working on exclusions for the products on the $34
billion and $16 billion tariff lists and will continue to do so. We
will consult with your office if there are any new developments.
Question. China was the third largest export market for the U.S.
dairy industry in 2017. However, current counter-retaliatory tariffs
are squeezing dairy market access. Dairy is roughly a $10 billion
market in China with most of that access going to the European Union
and New Zealand because of the new tariffs faced by U.S. dairy
exporters.
In current negotiations with China, is market access for dairy part
of the talks, either in terms of expanding market access through
reduction of tariffs and nontariff barriers, or increasing Chinese
purchases of U.S. dairy exports?
Answer. We continue to negotiate with China to achieve greater
market access for U.S. exports and fair and reciprocal treatment for
U.S. farmers, and businesses. We seek substantial and immediate
purchases of a wide variety of U.S. agricultural products, such as
dairy, as well as the removal of technical and regulatory barriers that
impede such purchases.
Question. USTR proposed a welcome and bold agenda in terms of new
trade negotiations, and USMCA contains a high-quality digital trade
chapter. Provisions like those in USMCA are all the more important as
digital protectionism increases around the world.
Is USTR prepared include digital trade within stage one talks with
Japan, should negotiations with Japan take a staged approach? Do you
agree that the early negotiation of high-quality digital trade
provisions in a U.S.-Japan agreement would help set a needed example
for subsequent WTO talks potentially commencing later in 2019, and for
other discussions?
Answer. In USTR's detailed negotiating objectives for a U.S.-Japan
Trade Agreement, released December 21, 2018, several digital trade
objectives were included, on issues such as customs duties, data flows,
and forced data localization. USTR's intention is to work with Japan to
develop high-standard digital trade provisions in the U.S.-Japan Trade
Agreement outcomes. Along with the USMCA digital trade provisions,
negotiations with Japan offer another opportunity to set high standards
on these important issues going into WTO talks and other trade
discussions.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. In your written testimony, you stated, ``if we did not
have the WTO, we would need to invent it.'' As you know, one of the
primary reasons why the United States championed the WTO as a successor
to the GATT was because the GATT lacked an enforceable dispute
settlement system. As a result, GATT member countries--notably the
U.S.--resorted to unilateral trade actions, including liberal use of
section 301 tariffs, to pry open markets and enforce global trade
rules.
The Uruguay Round addressed this flaw in the GATT system by
establishing a binding dispute settlement function, including the WTO
Appellate Body. I am concerned that the WTO's dispute settlement
mechanism will soon fail to function if the administration continues to
block the appointment of judges to the WTO's appellate panel.
The Appellate Body currently has just the bare minimum of three
judges required to hear an appeal. The terms for two of these judges
expire on December 10, 2019. If these terms are permitted to expire
without any new judges installed, any country that loses a WTO dispute
settlement case could block the ruling against them by appealing to the
Appellate Body. And because the winning country may not retaliate under
WTO rules until after the Appellate Body has completed its review of an
appeal, the entire ruling would be effectively blocked. This result
would functionally take us back to the days of the GATT, when dispute
settlement compliance was essentially voluntary.
Do you believe that the WTO can continue to function effectively
without a binding dispute settlement system? If so, why?
I understand your concerns about Appellate Body overreach and
jurisprudence. Hypothetically, if we were to eliminate all WTO judicial
precedent and return to the rules as written in 1995, how would this be
implemented? Would every single dispute settlement decision that has
already been rendered, including for countries that have fully
complied, be unwound? What happens to those rulings that have been
favorable to U.S. interests?
Answer. Our position is that the WTO dispute settlement system
should operate as specified in the WTO Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU). These are the
rules agreed to by WTO members in the Uruguay Round, and the rules
which were approved by Congress in the Uruguay Round Agreements Act.
The DSU states that that panels and the Appellate Body must apply
customary rules of interpretation of public international law in
interpreting the WTO Agreement. Those customary rules start with the
text of an agreement, and do not provide for reliance on any
interpretations made by an adjudicator in a prior dispute. Furthermore,
the WTO Agreement explicitly reserves authoritative interpretations to
the WTO Ministerial Conference or WTO General Council. And the DSU
explicitly notes that the dispute settlement system operates without
prejudice to this interpretative authority.
The DSU makes clear that the dispute settlement system was created
not to adopt binding interpretations, but rather to assist in resolving
specific disputes between members. As envisioned by WTO members, the
dispute settlement system can usefully serve this role, without any
sort of binding precedent. Rather, in each dispute, a panel must make
an objective assessment of the matter before it, based on the facts and
arguments presented by the WTO members involved in the dispute. Of
course, it is important to note that even if the United States wins a
case at the WTO, countries frequently do not comply with the results.
Question. Prior to the WTO, the U.S. regularly used section 301 to
enforce GATT rulings. However, as part of the ``grand bargain'' to set
up the WTO, which included the WTO's binding dispute settlement system,
the U.S. agreed not to use section 301 to address trade violations that
fell within the scope of WTO commitments. In other words, the U.S.
must--not may--address violations of WTO commitments through the WTO's
Dispute Settlement Understanding (DSU).
This legally binding commitment is codified in the Statement of
Administrative Action (SAA) that accompanied the Uruguay Round
implementing legislation. The SAA states that in such cases ``that
involve an alleged violation of a Uruguay Round agreement or the
impairment of U.S. benefits under such an agreement,'' the U.S. Trade
Representative will ``invoke DSU settlement procedures.''
You have asserted that the WTO is not equipped to deal with Chinese
trade policy practices. While this may be true in some cases, there are
other problematic Chinese practices identified in your agency's section
301 report that do, in fact, appear to be explicitly covered by WTO
disciplines.
Has USTR determined that China's IP abuse falls outside the scope
of the WTO's Trade-related Aspects of Intellectual Property Rights
(TRIPs) Agreement? If so, how did USTR reach this conclusion? Has USTR
determined that China's practice of technology transfer falls outside
the scope of its commitments in China's Accession Protocol and the
Binding Working Party Report? If so, how did USTR reach this
conclusion?
Is your agency concerned about a possible domestic legal challenge
to the administration's use of section 301 on the basis that 301
tariffs are being used to enforce trade commitments already covered by
the WTO?
Has USTR prepared any legal memoranda to justify its unilateral use
of section 301 against China's trade practices? If so, please explain
how USTR justified its current use of Section 301 in such documents.
Answer. When we initiated the 301 investigation in August 2017, we
had not yet determined which of the issues could be addressed through
WTO dispute settlement, or rather would be addressed bilaterally under
section 301 procedures.
In the course of the investigation, we received extensive public
input, including in a public hearing at which U.S. stakeholders and
Chinese representatives appeared. No stakeholder suggested any concrete
means to address the issues under investigation through WTO
proceedings. We also conducted our own research, drawing on the
expertise of a wide range of government agencies.
After careful review, I determined that three of the four issues
under investigation involved Chinese Government-directed conduct that
could not be addressed through application of WTO rules, and thus would
be addressed bilaterally. Those three issues are China's use of
multiple types of government approval processes to require or pressure
foreign investors to transfer technology to Chinese partners; China's
government-directed or government-financed investments in U.S. firms
for the purpose of obtaining cutting edge technology; and China's
government-directed or government-supported cyber-theft of technology
from U.S. computer networks and U.S. firms. It should not be surprising
that these types of issues are not directly addressed by WTO rules. The
WTO Agreement--unlike, for example, the USMCA--does not have extensive
investment obligations. And with regard to cybertheft, the WTO
Agreement was negotiated before the Internet era.
The fourth issue under investigation is that the Government of
China interferes in the ability of U.S. firms to set market-based terms
for licensing technology and intellectual property. For this issue, we
identified a set of technology regulations (TIER) that apply to private
parties, and discriminate against foreign owners of intellectual
property. After careful review, we determined that we could address
these aspects of China's TIER regulations through a WTO challenge under
the TRIPs Agreement. Accordingly, we launched a WTO dispute challenging
the TIER regulations in March 2018 before taking any bilateral action
under section 301.
Question. Enshrined at Article 1 of the GATT is the ``most-favored
nation'' (MFN) principle, which was also adopted by Congress in 1922 as
official U.S. trade policy. MFN is a simple principle stating that WTO
member countries cannot charge different countries different tariff
rates for the same product. This principle helps guarantee non-
discrimination against U.S. exports, has facilitated a long-term
reduction in global trade barriers since the 1940s, and has promoted
efficiency across the global trading system.
The administration is currently supporting legislation, the United
States Reciprocal Trade Act (H.R. 764), that would upend this basic
principle. Although I recognize that the ultimate goal of this
legislation is to reduce tariff barriers, I have concerns that it would
simply amount to ``dumping rocks in our harbors because other nations
have rocky coasts.'' In addition, it is misleading to criticize other
nations for imposing high, protectionist tariffs on specific products,
when the U.S. engages in the same exact practice.
Please provide some examples of specific products for which the
U.S. has a ``reciprocally'' higher tariff than those of many of our
trading partners.
Answer. We clearly do not enjoy reciprocal tariff treatment among
our trading partners. The United States has more than 11,000 tariff
lines in its Harmonized Tariff Schedule, and in relation to any other
trading partner, it is likely that there are some U.S. tariff rates
that are higher. For example, the U.S. most favored nation (MFN) duty
rate for tungsten powders (HS 8101.10) is 7 percent; China's duty rate
is 6 percent; the EU and India rates are both 5 percent. The U.S. duty
rate for bovine carcasses (HS 0201.10) is 26.4 percent; Kenya's duty
rate is 25 percent; and China's is 20 percent.
However, thanks to FTAs and preference programs such as the
Generalized System of Preferences (GSP) and the African Growth and
Opportunity Act (AGOA), not all U.S. imports of these products are
actually subject to MFN tariffs. In addition, some higher duty rates
are on tariff lines for goods that do not necessarily have a high
demand in the United States, such as cornbrooms with a duty rate of 32
percent and cathode-ray television tubes at 15 percent.
Finally, U.S. tariffs are applied at the rates the United States
bound at the World Trade Organization (WTO) as a result of the Uruguay
Round in 1994, and our overall average bound and applied tariff rates
are both 3.4 percent. Many of our trading partners apply tariff rates
that are lower than their bound rates, which means that they can raise
those tariff rates at any time and remain within their WTO commitments.
For example, Brazil's average bound rate is 31.4 percent, China's is 10
percent, India's is 48.5 percent, and South Africa's is 19.2 percent.
Unlike other trading partners, the United States has maintained
consistent MFN tariff rates since the Uruguay Round, resulting in more
predictability for traders and importers.
Question. If the United States were to enact H.R. 764 and suddenly
stop ignoring its MFN commitments, what kind of retaliation would U.S.
exporters face from our trading partners? Would such retaliation be
justified or not on the basis of our WTO commitments under Article 1 of
the GATT?
Answer. The United States Reciprocal Trade Act would provide an
important tool to bring foreign countries to the negotiating table and
to reduce their tariffs and non-tariff barriers on U.S. products. While
the United States has one of the most open economies in the world,
other countries impose high tariffs and other trade barriers that drive
up our trade deficit and make it difficult for our farmers and
manufacturers to do business. We would not consider retaliation for
seeking fair trade deals to be justified.
Question. I have been clear in my view that the President does not
have the unilateral power to terminate NAFTA without the consent of
Congress. As you know, Article I, Section 8 of the Constitution
explicitly vests Congress with trade responsibilities, and there is no
explicit language anywhere in U.S. statute that delegates to the
executive the ability to unilaterally withdraw from trade agreements.
If Congress fails to ratify USMCA, will you recommend to the
President that he unilaterally withdraw from NAFTA?
If so, has your agency developed any internal legal documents to
justify such a withdrawal attempt? Please provide a copy of any such
memoranda.
Answer. I am optimistic that, working together with the
administration, Congress will approve the USMCA, as it represents a
significant improvement over the current situation. Therefore, I prefer
not to speculate about what could happen under a different scenario.
______
Questions Submitted by Hon. Tim Scott
Question. I want to flag an emerging concern in Canada that
directly impacts our U.S. insurers and reinsurers. Despite strong
concerns from the U.S. insurance industry and the Canadian insurance
industry, I understand that Canada's financial regulator is moving
forward with plans to severely restrict cross-border reinsurance trade.
This would only make it more difficult for U.S. insurers to do business
in Canada.
Not only would those measures harm the U.S. insurance industry and
reduce our insurance trade surplus with Canada, it would raise concerns
about inconsistency with Canada's commitment under the WTO General
Agreement on Trade in Services (GATS) and best practices for insurance
regulation.
Has USTR been in touch with the Canadian authorities to protest the
direction Canada is headed?
Do you see a path forward for working with the Canadian authorities
to make sure that insurance trade flows between the U.S. and Canada
aren't adversely effected by these measures?
Answer. The administration is aware of industry concerns with
respect to proposals to change aspects of insurance regulation in
Canada. We are continuing to monitor the situation and for potential
market access consequences for U.S. firms, and look forward to staying
in touch with members of Congress on this issue.
Question. While we wait to see an outcome from the proposed
President's summit with President Xi later this month, constituents in
South Carolina continue to face not only tariffs imposed by this
administration, but our farmers face Chinese retaliatory tariffs on
cotton and soybeans, just to name a few.
So as South Carolinians wait to see if there's a resolution, this
brings me to another concern. The U.S. has two pending WTO disputes
against China on ag products.
As you pursue these cases, what assurances can you give us that the
U.S. will find a favorable outcome?
Because, if you are successful, China would have to vastly reduce
subsidies and reform its TRQ regime to comply, in both cases creating
new opportunities for U.S. farmers to export to China.
How do you expect them to comply?
Answer. On February 28, 2019, a WTO panel issued a report in favor
of the United States, finding that China provided trade-distorting
domestic support to its wheat and rice producers well in excess of its
commitments under WTO rules. On April 18, 2019 a WTO panel issued
another report in favor of the United States challenge to China's
administration of its tariff-rate quotas (TRQs) for wheat, corn, and
rice, finding that China is acting inconsistently with its obligations
to administer TRQs on a transparent, predictable, and fair basis, using
clearly specified procedures that will not inhibit the quotas from
filling. In both cases, we will work bilaterally and multilaterally to
ensure China respects WTO rules so that China's domestic support and
TRQ administration measures no longer impede imports of U.S.
commodities.
______
Questions Submitted by Hon. Debbie Stabenow
Question. In the hearing, you testified that China has requested
that we make some additional concessions aside from addressing the 301
tariffs, including specific market access provisions.
Can you specify what sectors or products are being considered for
this additional market access?
Answer. The goal of the section 301 investigation is to change
China's unfair and market-distorting behavior. The focus of our
negotiations from China's perspective is dealing with the 301 tariffs.
As I noted in the hearing, China has raised other market access
requests, but from the U.S. perspective, our overarching focus in the
negotiations is assuring that China undertakes the necessary economic
and policy reforms needed to end its trade-distortive practices.
Question. Thank you for your ongoing efforts to address the
challenges Michigan's cherry industry is facing with imports from
Turkey. My understanding is that USTR has been pressing Turkey
specifically on their export subsidies for processed agricultural
products, including processed fruit.
Is USTR aware of export subsidies for processed specialty crops in
other countries? Will you consider including a review of such programs
in the next National Trade Estimate Report?
Answer. We are aware of four countries, which have notified to the
WTO export subsidies for certain processed specialty crops: Norway,
Turkey, Switzerland, and Colombia. As a result of the WTO Ministerial
meeting in 2015, WTO members agreed to eliminate export subsidies for
agricultural products. Developed country members were to have
eliminated export subsidies in December 2015, developing country
members were to have done so by December 31, 2018. That WTO decision
had certain exceptions for certain countries, including for processed
products where a country had a notified export subsidy for a specified
period prior to 2015. Developed country members, including Norway and
Switzerland, with those programs have until 2020 to eliminate the
export subsidy, and developing country members, including Turkey and
Colombia, have until 2022 to eliminate export subsidies for products or
groups of products for which they have notified export subsidies for a
specified period. USTR will carefully monitor implementation of these
commitments, and will be sure to take appropriate steps to address any
concerns. We welcome any specific information that the Senator or
stakeholders may have as well for further investigation.
Question. As you are aware, the administration recently entered
into an agreement with Qatar, where in addition to being more
transparent, they also agreed they had no plans for additional 5th
freedom flights. However, Qatar purchased a 49-percent stake in Air
Italy to perform 5th freedom flights into the United States using
aircraft leased from Qatar Airways. I have long been concerned about
unfair competition U.S. aviation workers face from carriers like Qatar
Airways.
What action has the administration taken and what further action is
the administration considering in order to make sure that Qatar abides
by the agreement?
Answer. The administration takes seriously concerns regarding the
Gulf carriers and state-support for airlines. We continue to be
committed to ensuring fair competition for U.S. airlines in
international markets. Last year, the Department of Transportation
concluded understandings with both Qatar and the United Arab Emirates
(UAE) that committed their governments to improve financial
transparency of their airlines, move to arms-length dealing between
state-owned enterprises, and ensure that subsidies were not providing
their airlines the ability to launch new services that would not
otherwise be financially viable. To follow up on those understandings,
an interagency delegation led by the Department of State met with
Qatari counterparts on January 10, 2019. Similar follow-up meetings
with the UAE are now being scheduled to take place in June. The
administration is aware of the concerns raised about Air Italy and is
scrutinizing this issue.
Question. Thank you for your engagement on polysilicon market
access issues with China. I want to reiterate the grave situation our
U.S. polysilicon industry faces because of this long-standing issue. It
is critical, for jobs in Michigan and across the country, that a
resolution be reached that reopens market access for U.S. polysilicon
producers.
Can you provide an update on your discussions with Chinese
officials on the issue of polysilicon market access?
Answer. When President Trump announced section 201 safeguard relief
for U.S. manufacturers of solar cells and modules in 2018, he committed
that ``[t]he U.S. Trade Representative will engage in discussions among
interested parties that could lead to positive resolution of the
separate antidumping and countervailing duty measures currently imposed
on Chinese solar products and U.S. polysilicon. The goal of those
discussions must be fair and sustainable trade throughout the whole
solar energy value chain, which would benefit U.S. producers, workers,
and consumers.'' USTR has been engaged in discussions with U.S.
stakeholders in an effort to find a solution that is beneficial to both
the U.S. solar industry and the U.S. polysilicon industry, and which
would be acceptable to China. USTR also is pressing our concerns
specifically about China's duties on U.S. polysilicon as part of the
negotiations launched by Presidents Trump and Xi on December 1, 2018.
______
Questions Submitted by Hon. Robert Menendez
Question. Ambassador Lighthizer, during the hearing you stated that
USTR is hoping to obtain an enforcement mechanism that would require
periodic meetings at the Office Director level, Vice-Minister level,
and Minister level to work through specific problems that companies
bring to USTR's attention that may be in violation of the agreement.
You further stated that if the two sides cannot agree on a resolution,
it is your view that the U.S. should retain the right to act
unilaterally to encourage China to address the issue.
If you do reach a final agreement with the enforcement mechanism
you described, how will USTR prioritize which issues to solve in a
situation where multiple U.S. firms are asking the administration to
address multiple different problems?
In instances where a problem cannot be resolved through these
meetings, how would you decide how and when to pursue unilateral
action?
How do you intend to keep Congress apprised of potential violations
and enforcement actions?
How does this enforcement mechanism differ from past dialogues,
such as the Joint Commission on Commerce and Trade, the Strategic and
Economic Dialogue, and the Comprehensive Economic Dialogue, that also
provided periodic opportunities for U.S. officials to seek resolution
of troubling Chinese practices raised by U.S. firms?
Answer. If an agreement were to be reached between the United
States and China, it will have to be one that is enforceable. In my
testimony, I described a mechanism in which there would be monthly,
quarterly, and semiannual meetings with counterparts at China,
including at the vice-premier level to address issues. To the extent
that there are issues that cannot be resolved at the vice-premier
level, then the United States would have the right to act unilaterally
to enforce. This mechanism I described did not exist in past dialogues.
I and my staff will continue to consult with Congress, as we always
have, on issues related to potential violations and enforcement
actions. We will prioritize issues on a case-by-case basis. We intend
to monitor compliance closely and take strong enforcement measures when
necessary.
Question. Ambassador Lighthizer, a key component of the U.S.-China
trade talks is to have the Chinese government and Chinese firms respect
the intellectual property (IP) that's been developed and patented by
U.S.-based companies. And with this comes a desire from many U.S.-based
companies who are engaged in the research and development of standard
essential patents (SEPs) related to advanced wireless technology to
have their IP properly licensed by Chinese original equipment
manufacturers (OEMs) who use this American technology in the devices
they sell in the U.S. and around the world. Ambassador, I'm sure you'd
agree that by not paying proper license fees, Chinese OEMs are taking
advantage of the work done by U.S. companies. By implementing this
technology into the devices they sell to make billions of dollars of
profits, these Chinese OEMs are effectively stealing U.S. technology.
What specific language are you seeking to secure in this potential
trade agreement with China to protect these US-based companies and to
ultimately require Chinese OEMs to sign and abide by proper license
agreements for American wireless SEP technology?
If a Chinese OEM does not sign a proper license agreement with an
American owner of SEP technology, how will USTR use your proposed
enforcement mechanism to hold the Chinese firm accountable and to
ensure that such a Chinese OEM is not allowed to sell infringing
product in the U.S.?
Answer. The talks thus far have covered a wide range of issues,
including the need for stronger protection and enforcement of
intellectual property rights in China. For a constructive process, we
will not discuss specifics or negotiate publicly. For these
negotiations to be successful, China must demonstrate real structural
changes across the range of unfair policies and practices that yield
actual, verifiable, and enforceable results. This includes in the area
of IP rights. We are encouraged by our negotiations with China and will
continue to work with them in good faith. However, we will not
compromise on achieving greater market access for U.S. exports and fair
and reciprocal treatment for U.S. businesses.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. Mongolia describes the United States as its most
important ``third neighbor,'' but United States-Mongolia trade is
substantially lower than many other bilateral trading relationships,
and trade has declined in recent years. Agriculture is Mongolia's
second most important sector, with its livestock sector accounting for
87 percent of the country's agricultural production and roughly one-
third of the working population; however this sector has been heavily
impacted by challenges associated with climate change.
Since the 1940s, the annual mean air temperature in Mongolia has
risen at three times the global rate. Average precipitation is
declining and extreme weather disasters are more frequent, posing acute
challenges for livestock herding in the country. In 2017, an estimated
700,000 of the country's livestock population were killed due to the
post-drought extreme winter phenomenon known as ``dzud.'' This
phenomenon is unique to Mongolia and has increased in frequency and
severity in recent years, causing a rise in livestock mortality and
diminishing livelihoods for herders, which has led to widespread rural
poverty and a contraction in the national economy.
Mongolia would greatly benefit from preferential treatment for
United States imports of certain Mongolian products--particularly
cashmere--to help address some of the economic impacts of the dzuds.
Currently, the U.S. buys nearly all of its cashmere products from
China, which imports the majority of its raw cashmere from Mongolia.
Do you see an opportunity to extend to Mongolia a WTO waiver that
would help address some of these impacts, similar to the waiver
extended to Nepal in the wake of the April 2015 earthquake and
aftershocks?
Answer. Single-country preference programs contravene rules at the
WTO requiring non-discriminatory treatment of countries benefiting from
preferences. As a result, with regard to Mongolian cashmere, the United
States would be required to seek a waiver from its existing WTO treaty
commitments. Securing approval for a WTO waiver would be challenging,
as it requires consensus from the full WTO membership (164 economies).
Following passage of the Nepal program, an increasing number of
countries have approached USTR requesting their own single-country
preference programs, based on arguments that their countries also face
unique circumstances and are strategic partners of the United States.
Question. If yes, do you see an opportunity to offer trade
preferences specific to Mongolia's livestock industry? To its cashmere
industry in particular? If no, will you please elaborate on why you
don't think Mongolia should be eligible for certain trade preferences?
Answer. As we understand it, Mongolia is not seeking trade
preferences for its livestock, but rather for textile products, such as
sweaters and jackets, that are made of the cashmere wool harvested from
its livestock.
Mongolia is currently designated as a beneficiary developing
country under the U.S. Generalized System of Preference (GSP) program,
and it therefore has the right to export about 3,500 products duty-
free, in addition to the 4,000 tariff lines already duty-free on a
most-favored-nation basis. In 2018, Mongolia exported to the United
States only 10 of the 3,500 GSP lines, with 97 percent of the $3.2
million value coming in a single product (tungsten concentrate). It
would be useful to explore the reasons for Mongolia's limited current
use of the GSP program and attempt to address them.
Question. How else can USTR help mitigate impacts of climate change
on Mongolia's agricultural sector?
Answer. USTR does not have responsibility for climate policy. The
question on climate policy more appropriately should be directed to
other administration officials.
______
Questions Submitted by Hon. Sherrod Brown
Question. You and I share concerns about the WTO and its failure to
discipline China's unfair trade practices. I am particularly troubled
that the WTO has tolerated China's market-distorting state-owned
enterprises.
As part of the U.S.-China trade negotiations, is the U.S. seeking
commitments from China to convert its state-owned enterprises into
private companies? If so, over what time frame?
Answer. Under President Trump's leadership, the United States is
committed to working toward a more fair and reciprocal trade
relationship with China. In the current negotiations with China, we are
seeking to address a wide range of unfair trade practices, including
those involving state-owned enterprises. I am committed to working with
you and other members of Congress to discuss the policy tools available
to address these important issues, including section 301 of the Trade
Act of 1974.
Question. I'd like to know the extent to which China's WTO
commitments are part of the negotiations.
Is the U.S. seeking commitments from China to drop it non-market
economy case against the U.S. and the EU (DS515 and DS516)? Is the U.S.
asking China to self-designate as a developed country under the WTO as
part of the negotiations? Is the U.S. asking China to provide a
comprehensive list of subsidy programs as part of their concessions in
any agreement? Additionally, are you seeking any commitments from China
to stop bringing WTO cases against our legitimate use of trade remedy
laws? If the answer to any of these questions is no, why not?
Answer. Under President Trump's leadership, the United States is
committed to working toward a more fair and reciprocal trade
relationship with China. In the current negotiations with China, we are
seeking to address a wide range of unfair trade practices, including
those that create or support non-market forces. I am committed to
working with you and other members of Congress to discuss the policy
tools available to address these important issues, including section
301 of the Trade Act of 1974.
Question. I am concerned that there has been an emphasis on the
one-time purchases of agriculture commodities in the U.S.-China trade
negotiations. I want the Chinese to buy American soybeans, preferably
from Ohio, but the connection between one-time agricultural purchases
and ongoing intellectual property violations or unfair trade practices
is unclear to me.
How did one-time agriculture purchases come to be part of the
negotiations? Did the U.S. ask China to make the purchases or did China
offer them as a concession? Do you believe negotiations on agricultural
purchases have come at the expense of negotiations on other, more long-
term changes China could make?
Answer. As President Trump and President Xi agreed in Buenos Aires
on December 1, 2018 the United States and China are engaged in high-
level discussions to work toward a fair and reciprocal trade
relationship between our two countries. Our current discussions focus
on numerous, critical structural, regulatory and technical issues,
embedded in many sectors in China, including in agriculture. The
discussions seek to address the tremendous imbalance in our trade
relationship, which results in part from these structural issues.
Question. I understand that the Chinese government stopped using
the term Made in China 2025 after criticism from the U.S., perhaps to
garner good will in the talks.
Does the administration believe the Chinese government has
abandoned its plans to become globally dominant in the Made in China
2025 sectors?
Answer. We see no evidence that China has abandoned the substance
of the Made in China 2025 industrial plan. Addressing the market-
distorting and harmful forces created by industrial plans like Made in
China 2025 is a key component of our ongoing bilateral negotiations
with China.
Question. China's lax labor and environmental standards amount to
subsidies for any corporation who does business there. USTR's most
recent report on China's WTO compliance discusses the fact that the
Chinese government denies workers the right to organize and
collectively bargain and, in doing so, places significant
``institutional restraints,'' as you call them, on wage rates.
Given that China's denial of worker rights is in effect a subsidy,
what commitments are you seeking from the Chinese government in the
trade talks to protect workers' right to collectively bargain and to
stop suppressing workers' wages?
Answer. Under President Trump's leadership, the United States is
committed to working toward a more fair and reciprocal trade
relationship with China. In the current negotiations with China, we are
seeking to address a wide range of unfair trade practices. Although we
are not currently directly addressing labor standards, I am committed
to working with you and other members of Congress to discuss options
and policy tools for addressing these important issues.
Question. I know you have said that you do not think an agreement
between the U.S. and China will need congressional approval because it
will be an Executive Agreement; however, the scope of the potential
agreement you described during the hearing seems very broad.
Are you of the belief that any agreement with the Chinese will be
considered an Executive Agreement, regardless of its scope? Further,
will you commit to giving the members of this committee, and their
staffs, the opportunity to read and review it before the U.S. enters
into it?
Answer. Consultation with Congress is an important part of
addressing the challenge from China. My staff and I have frequently
sought input from members of both the House and the Senate during the
course of the section 301 investigation and during this phase of
negotiation with China. Any resulting agreement would reflect that
input. The current negotiations with China are an attempt to reach an
executive agreement that would be entered into under the existing
authority of the President and USTR.
______
Questions Submitted by Hon. Robert P. Casey, Jr.
Question. Ambassador, the United States is not alone in concerns
about China's practices, such as forced technology transfer and
outright theft of intellectual property.
Can you discuss how you are engaging with our allies at the WTO and
more broadly to address China's behavior?
Answer. The administration works extensively with our allies and
trading partners to confront shared challenges with China at the WTO.
As I noted in the hearing, I think the way forward for the WTO is to
take small groups of countries that have something in common and work
together. For example, I meet regularly with my counterparts in the
European Union and Japan to address nonmarket-oriented policies and
practices of third countries that lead to severe overcapacity, create
unfair competitive conditions for their workers and businesses, hinder
the development and use of innovative technologies, and undermine the
proper functioning of international trade, including where existing
rules are not effective.
Question. Mexico has a long history of intimidation of democratic
unions and union organizers. In January, 2019 Jose Luis Solorio Alcala,
the former General Secretary of the Union of Workers of Honda of
Mexico, was arrested, as I understand, without due process. Given
Mexico's long history of union intimidation, I am concerned by that
these recent actions may portend Mexico's level of commitment and
adherence, in spirit and in law, to labor law reforms and practices.
I would appreciate your providing any relevant information
pertaining to your engagement with Mexico on their practices following
this arrest.
Answer. The administration has been monitoring the case of Mr.
Solorio Alcala and the U.S. Embassy in Mexico City has informed us that
he was freed on bail in March, and is currently appealing the charges
against him with the support of the Union of Workers of Honda. USTR
will continue to monitor the situation along with the U.S. Department
of Labor, and my staff and I would be happy to keep you updated on this
matter as we receive more information. We are also encouraged by the
progress of labor reform through the Mexican Congress.
______
Questions Submitted by Hon. Mark R. Warner
Question. A key pillar of the rules-based global trading system is
transparency so that trading partners and their firms have
predictability and certainty in another country's legal and regulatory
system. Unfortunately, China's opaque and often vague regulatory system
is a maze to navigate, with ambiguous legal provisions often providing
a pretextual basis for sweeping enforcement measures meant to protect
domestic firms or force technology transfer from U.S. firms. China's
poor record of adhering to its transparency obligations as a WTO member
has only exacerbated this problem.
How is China failing to obey its transparency obligations under the
WTO and what are the impacts on U.S. firms and investors? Does the U.S.
have a concerted strategy to respond to China invoking their anti-
monopoly laws on a pretextual basis to force U.S. technology firms into
unfair licensing or technology transfer agreements?
In the digital economy, China's regulatory regime is even more non-
transparent--with multiple agencies with overlapping jurisdiction
regulating Internet commerce and U.S. firms subject to dynamically
changing edicts.
What is the effect of China's opaque and often arbitrary
implementation of Internet regulations on western firms' ability to
compete?
Answer. China's systematic lack of transparency continues to have
wide-ranging effects on U.S. business in China. In the current
negotiations with China, the United States is committed to addressing
this and other structural issues and unfair trade policies and
practices, including the many ways in which U.S. companies are
pressured to transfer technology to Chinese companies. U.S. suppliers
of Internet-based services do not receive fair and reciprocal access to
China's market. China's Internet regulatory regime is restrictive and
non-transparent and adversely affects a broad range of commercial
services activities conducted via the Internet, including retail
websites, search engines, audio-visual and computer gaming services,
and electronic mail and text. Complicating matters further, this regime
is overseen by multiple agencies without clear lines of jurisdiction.
U.S. suppliers continue to encounter major difficulties in attempting
to offer Internet-based services, both through a commercial presence
and on a cross-border basis.
Question. China's trade practices threaten the U.S., our allies,
and the global trading system. The administration has been trying to
deal with China's unfair trade practices through section 301 tariffs
and unilateral negotiations. You have been critical of WTO as an avenue
to address our problems with China. A recent USTR report stated, ``It
is unrealistic to expect success in any negotiation of new WTO rules
that would restrict China's current approach to the economy and trade
in a meaningful way.'' However, diplomats and trade officials say that
the U.S.'s unilateral actions are also violating WTO rules because it
is imposing tariffs without first adjudicating its grievances. China
has consistently violated WTO rules, and its retaliation to the U.S.'s
section 301 tariffs continues this trend. However, if the globe also
perceives the U.S. as violating WTO rules, the WTO's value and
relevance come into question.
Do you believe that negotiating with China to deal with its unfair
trade practices--such as forced technology transfer--is more effective
unilaterally or in concert with our allies?
Answer. I believe that combating China's unfair trade practices is
something we need to do both unilaterally and in concert with our
allies and trading partners. We are using section 301 enforcement tools
where Chinese practices are problematic but not covered by the WTO
agreements. In other instances, we have used the WTO dispute settlement
system where appropriate. In addition, the administration works
extensively with our allies and trading partners to confront shared
challenges with China. For example, I meet regularly with my
counterparts in the European Union and Japan to address non market-
oriented policies and practices of third countries that lead to severe
overcapacity, create unfair competitive conditions for their workers
and businesses, hinder the development and use of innovative
technologies, and undermine the proper functioning of international
trade, including where existing rules are not effective. Additionally,
within the USMCA, the United States, Mexico, and Canada set forth high
standards aimed at combating non-market practices such as currency
manipulation and state-sponsored subsidies. The administration will
continue to actively engage with our allies and trading partners on
these shared challenges.
Question. In your testimony before the committee, you outlined your
problems with the WTO and countries' ability to flout the rules,
stating that the administration is currently ``shedding light'' on the
WTO's issues such as those countries that self-designate as developing
nations. You suggested some countries are coming around to the U.S.
view that WTO reforms are needed. You also highlighted the trilateral
partnership with the EU and Japan as a successful example of a
multilateral approach that is dealing with China's forced technology
transfer and other trade abuses.
What changes are needed to WTO rules to address the myriad ways in
which China provides subsidies to its companies (whether through non-
market energy sources, cheap financing, or official practices that
discriminate against foreign competition)?
Can you provide an update on the status of the trilateral
partnership with the EU and Japan and elaborate more specifically on
actions that may have resulted from the five meetings?
Answer. It is our view that the WTO rules need to be significantly
strengthened by clearly identifying particularly egregious subsidy
types and establishing much tougher rules for such subsidies that will
act as a deterrent and make obtaining a remedy in dispute settlement
far less burdensome.
In the most recent meeting of the trilateral partnership, Ministers
confirmed that market-oriented conditions are fundamental to a fair,
mutually advantageous global trading system; instructed their staff to
finalize trilateral text-based work in industrial subsidies; and, in
the area of force technology transfer, confirmed their agreement to
cooperate on enforcement, on the development of new rules, on
investment review for national security purposes and on export
controls.
Question. The administration has declared that ``strategic
engagement with like-minded trading partners'' is a central part of the
U.S. strategy on China. This administration has imposed section 232
steel and aluminum tariffs on our closest allies and frequently
criticized them. The administration is threatening further action under
section 232 on autos and auto parts, an issue of grave concern to the
EU and Japan. Further, last year the President stated the EU is perhaps
``as bad as China'' when it comes to upholding the rules-based trading
system. Our allies, including EU Trade Commissioner Cecilia Malmstrom,
have criticized the U.S.'s steel and aluminum tariffs and warned action
on autos could undermine U.S.-EU cooperation. Meanwhile, last week,
Italy became the first G7 nation to sign up for China's Belt and Road
Initiative, signaling that some EU nations are moving closer to China.
Does the imposition or threat of tariffs on our allies under
section 232 affect their willingness to work with the U.S. on China
issues?
Answer. The President's actions under section 232 of the Trade
Expansion Act of 1962 to address the threat to national security
presented by certain imports are not preventing our allies from working
with us in any area where our interests align. This includes allies
working with us in various configurations on the fundamental challenges
posed by China's array of non-market industrial policies and other
unfair competitive practices aimed at promoting and supporting its
domestic industries while simultaneously restricting, taking advantage
of, discriminating against, or otherwise creating disadvantages for
foreign companies and their goods and services.
Can you speak to the threat that China's Belt and Road Initiative
poses to the U.S.'s alliances and our ability to address China's unfair
trade practices?
Answer. In recent years, China also has been exporting its non-
market economic model to other countries through its Belt and Road
Initiative. As is now well known, China invokes this initiative and
offers to build large infrastructure projects in countries throughout
Asia and other parts of the world, especially in strategically located
or developing countries. China claims that the Belt and Road Initiative
is open to all, but virtually all projects are financed by Chinese
banks, run by Chinese state-owned enterprises, and built by Chinese
workers. The Belt and Road Initiative is especially important to the
Chinese Communist Party, which has incorporated the Belt and Road
Initiative into its Constitution and has called for using this
initiative to develop relations with surrounding countries through
discussion, collaboration, and unity. However, Belt and Road Initiative
projects are often opaque, one-sided, and divisive. These projects
generally ignore market principles and fail to adhere to
internationally accepted best practices in financing, infrastructure
development and government procurement. Too often, these projects also
create unsustainable debt burdens for the recipient countries. For
these reasons, the Belt and Road Initiative threatens to have a
chilling effect on other countries' ability to speak out and challenge
China's unfair trade practices.
Do you agree with the President that the EU is ``as bad as China''
when it comes to upholding the rules-based trading system?
Answer. Despite this significant trade volume, U.S. exporters in
key sectors have been challenged by multiple tariff and non-tariff
barriers for decades, leading to chronic U.S. trade imbalances with the
EU. For example, in 2018, the U.S. trade deficit in goods with the EU
was $169.3 billion. Further, the EU has been slow to comply with
certain WTO cases where the U.S. prevailed. Following the joint
statement issued by President Trump and European Commission President
Jean-Claude Juncker following their July 25, 2018 meeting, the United
States and the EU have been working on ways to reduce barriers,
increase trade, and strengthen their trade relationship to the benefit
of all American and European citizens. In its discussions with the EU,
the United States seeks to support higher-paying jobs in the United
States and to grow the U.S. economy by improving U.S. opportunities for
trade and investment with the EU.
Question. On March 4, 2019, the administration notified Congress of
their intent to terminate GSP (Generalized System of Preferences) for
India and Turkey. These changes will not take effect until at last 60
days after the notification. The administration stated that India and
Turkey no longer comply with the statutory eligibility criteria. The
U.S. launched an eligibility review of India's compliance with the GSP
market access criterion in April 2018. According to USTR, ``India has
implemented a wide array of trade barriers that create serious negative
effects on U.S. commerce.'' The withdrawal of these duty concessions
will mean Indian exports of eligible products to the U.S. will become
more expensive. According to the Confederation of Indian Industry, U.S.
importers saved $894 million in 2017 under the GSP benefits from India.
Can you explain the timing of this announcement so close to India's
national election and how the administration is using the suspension of
GSP preferences as leverage in our trade negotiations? Given the U.S.
designation of India as a major defense partner, how does the
revocation of GSP impact our larger strategic partnership with India
and will this decision have repercussions for our defense partnership?
Answer. Based on a thorough United States government review of
India's compliance with the GSP market access criterion, the President
determined that India is not meeting the statutory criteria for GSP
eligibility. Despite intensive engagement with the Government of India
since April 2018, India has not assured the United States that it will
provide U.S. exporters with equitable and reasonable access to its
market. Nevertheless, USTR continues to press India to resolve an array
of trade barriers so that it can meet the GSP eligibility criteria.
On March 4, 2019, the President notified Congress and the
Government of India of his intent to terminate GSP benefits for India.
By statute, India's removal from the GSP program may not take effect
until at least 60 days after the notifications to Congress and the
Government of India. Once the 60-day period is over, the President can
implement his decision by issuing a presidential proclamation or
executive order. The exact timing of India's removal from the GSP
program, therefore, is for the President to determine.
As you mentioned, the United States has a strategic and defense
partnership with India. I encourage you to discuss these aspects of the
relationship with the Secretaries of State and Defense. In my view, it
is important that we do not give trade preferences to countries that do
not meet the statutory criteria set out by Congress, including the
criterion to provide equitable and reasonable market access. That is
unfair to U.S. workers, farmers, ranchers, and businesses.
Question. The digital economy is increasingly inseparable from the
wider global economy. In the last 2 decades, there has been an
exponential growth in U.S. and global e-commerce. E-commerce is one
area in particular where American innovation has flourished. In 2018,
the U.S. joined a group of 76 countries--including China--to announce
negotiations on a set of e-commerce rules to establish a multilateral
legal framework to make it easier and safer to buy, sell, and do
business online.
Can you provide a status on the negotiations and the U.S.'s
objectives for them? Can you also give an update of Chinese commitments
to observe intellectual property protections--including against
counterfeit goods sold online?
Answer. Throughout 2018, the United States participated in
exploratory work at the WTO on the possibility of a plurilateral
digital trade negotiation. In January 2019, the United States joined 75
other economies in confirming our intention to launch negotiations. We
are now preparing for these negotiations, working closely with allies
to gain support for high-standard outcomes based upon the USMCA Digital
Trade chapter, which we view as a model for this negotiation and future
agreements.
We are encouraged by our negotiations with China and will continue
to work with them in good faith. The President promised to fix the
broken trading relationship and end the theft of American innovation,
and he is committed to seeing that through. We need to see China
implement their commitments and create conditions for fair competition,
including through structural reforms.
The state of intellectual property (IP) protection and enforcement
in China, and market access for U.S. persons that rely on IP
protection, reflect China's failure to implement promises to strengthen
IP protection. China has failed to take decisive action to curb the
widespread manufacture, domestic sale, and export of counterfeit and
pirated goods. While the proportion of counterfeit and pirated goods
and services is difficult to assess precisely, a Chinese government
agency has reported that more than 40 percent of goods that were
purchased online during a survey were ``not genuine.'' Although some
leading online sales platforms claim to have streamlined procedures to
remove offerings of infringing articles, right holders report that the
procedures are still burdensome and that penalties do not deter repeat
infringers, including those selling compromised log-in credentials
online. Given the scale, IP infringement in China's massive online
markets causes deep losses for U.S. right holders involved in the
distribution of a wide array of trademarked products.
Question. Fintech represents one of the most dynamic and innovative
areas in the U.S. with traditional and emerging companies, alike,
developing innovative new solutions to make payments faster, easier,
and more mobile. China made commitments to open its electronic payments
market in 2006, a commitment that was remade following a WTO ruling in
2012. However, no foreign electronic payment providers are able to
operate in China to this day. At the same time, one of the largest
pharmacy chains in the U.S. has just announced a deal to roll out
Alipay at thousands of pharmacies across the United States.
Do you believe the U.S. is operating on a level playing field when
Chinese electronic payments platforms are rolling out across the U.S.
at the same time that U.S. firms are still barred from the Chinese
market? Fintech innovation depends on network effects and scale. If
U.S. companies cannot enter China, the world's largest market for
digital payments, does this give Chinese electronic payment incumbents
an advantage globally?
Answer. I agree that U.S. companies do not enjoy a level playing
field in China with respect to electronic payments. The United States
is fully engaged on this issue and has been working closely with
relevant stakeholders to ensure a level-playing field for retail
electronic payment services suppliers in China, as well as other
foreign markets. It is a priority for this administration that China
complies with and implements its obligations, including its WTO
obligations, in the electronic payment services sector. We welcome the
opportunity to stay in touch with members of Congress on this important
issue.
Question. Throughout its history, U.S. strategy has involved
developing closer relationships with like-minded trading partners. This
approach must be part of an effort to counter China's mercantilist
economic policies. With regards to the Internet, there are increasingly
two versions that are being promoted. The first, led by China, centers
on harnessing technology for surveillance and social control. The
second model, long championed by the U.S., is based on a free and open
Internet, with user trust and security included as important
objectives. China's model poses significant risks for the future of the
Internet. If data cannot flow freely, 21st-century commerce cannot
occur.
A perceived failure to maintain sufficient data protection
standards has jeopardized transatlantic data flows in the past. As we
see our allies harmonize around a set of data security and privacy
principles, is having consistent privacy and data security rules in the
U.S. helpful in digital trade?
Might adopting a common, pragmatic set of data security and privacy
commitments--the kind that free and open societies and market economies
can comply with but that closed and state-driven economies would have a
hard time abiding by--offer a useful basis for countering China's
control of digital technologies?
Answer. The administration supports continued work with like-minded
trading partners in support of high-standard rules on digital trade
that facilitate the expansion of an open digital economy that serves as
a key driver of U.S. and global economic growth, while also ensuring
flexibility to address evolving challenges in areas such as data
privacy and security. The USMCA Digital Trade Chapter serves as the
strongest template to date for such rules in the WTO and in future
agreements. In addition, the United States has long supported
frameworks such as the NIST Cyber Security Framework and the APEC
Cross-Border Privacy Rules System that offer effective approaches to
ensure security and privacy in conjunction with the movement of data
across national borders.
Question. Increasingly, countries are considering opportunities to
enhance data protection and privacy regulations worldwide. For example,
the EU recently moved forward with the General Data Protection
Regulation. However, approaches like data localization requirements--
while pretextually based on privacy concerns--can pose major barriers
to trade.
Do you agree that countries can promote data security and privacy
without imposing onerous data localization requirements?
Answer. Data localization is in no way essential to the protection
of data and, in fact, onerous data localization requirements can add
additional points of attack to a network, thereby reducing the level of
security around data. The United States has long supported frameworks
such as the NIST Cyber Security Framework and the APEC Cross-Border
Privacy Rules System, which offer effective approaches to ensure
security and privacy in conjunction with the movement of data across
national borders.
Question. Reports suggest the WTO is expected to issue a ruling
this month on the invocation of Article 21's ``national security''
justification relating to a Russia-Ukraine border dispute case. The
U.S. position is that in a WTO dispute a claim of national security
cannot be challenged. If the U.S. position wins out, it is essential to
the basic functioning of the WTO that each country restrain itself in
what it deems vital to its national security interest. National
security cannot simply mean ``the economic well-being'' of the country,
otherwise, the exception will swallow the rule and undermine the
international framework for trade.
Do you agree that it is important for countries to demonstrate
restraint in what they term vital to their national security? Do you
believe that domestically, Congress should pass legislation that
provides a definition for ``national security''--that extends beyond
simply the economic well-being of the country--so that U.S. tariffs
imposed in the name of national security are not flouting international
rules?
Answer. Across multiple administrations, the United States has made
clear that it and other WTO members each have the right to determine
what it considers in its own essential national security interests.
This has been the understanding of the United States for over 70 years,
since the negotiation of the General Agreement on Tariffs and Trade
(GATT). That understanding has been shared by every WTO member whose
national security action was the subject of complaint. Despite this
understanding, certain WTO members are urging the WTO to review a
member's determination of its own national security interests. Such a
decision by the WTO to second-guess a member's national security
determinations would threaten serious damage to the multilateral
trading system.
Question. There is broad consensus that rules shielding Internet
platforms from liability for user-generated content were pivotal in
facilitating the innovative digital economy we now enjoy. At the same
time, the speed with which these products have grown and come to
dominate nearly every aspect of our social, political, and economic
lives has obscured the shortcomings of their creators in anticipating
the harmful effects of their use. Such protections can, in fact, limit
our ability to make platforms internalize many of the negative
externalities currently borne by users and society stemming from their
exploitation and misuse.
At a time when there are increasingly domestic concerns with the
moral hazard of broad safe harbors, is it appropriate to include
similarly broad safe harbors in our trade agreements? Will you work
with me and other members on the committee to ensure our trade rules
balance the competing priorities of enabling innovation while at the
same time ensuring platform accountability protections? Would it be
possible to address concerns with the consequences of a sweeping safe
harbor on platform accountability through a side letter?
Answer. The administration is committed to working with you and
other members of Congress to ensure that efforts to address online
harms are not constrained by trade rules. We believe that there is an
important role for a (non-IP) safe harbor as part of a comprehensive
set of rules on digital trade, as demonstrated by the outcome of the
USMCA negotiations. But we agree that any such rules should allow for
the development of domestic measures promoting platform accountability
and USMCA reflects this. We would be pleased to work with you and other
members of Congress as you develop ideas in this area to ensure that
our trade agreement proposals are consistent with and complement your
goals.
Question. In your opening statement, you highlighted the ``surge in
U.S. trade'' under this administration, noting that total exports and
imports have grown by 12.8 percent and 14.8 percent, respectively. The
President has focused heavily on trade deficits as a measure to gauge
our trade relationships with other countries and on shrinking U.S.
trade deficits with other countries. Despite this focus, the U.S. trade
deficit in goods hit an all-time record in 2018, growing by 10 percent
according to recent Commerce Department data.
Can you explain why the trade deficit has grown despite the
administration's efforts to decrease it? If other factors such as the
U.S.'s economic growth have contributed to the growth of the trade
deficit rather than the administration's trade policies, do you
continue to believe that trade deficits are one of the most important
metrics in measuring whether other countries' trade relationships with
the U.S. are beneficial?
Answer. Trade deficits remain an important metric because in trying
to shrink the deficit, we are working to ensure that American farmers
and workers have places to sell their products or services,
competitively. Trade rules are an important factor in our trade
balance, along with issues such as currency, foreign tax regimes, and
others. The administration's trade policies are contributing to the
strong economy, along with other factors such as tax reform and rolling
back of burdensome regulations.
______
Questions Submitted by Hon. Catherine Cortez Masto
intellectual property theft
Question. Finance Committee staff relayed to our team that the
enforcement component of the U.S.-China trade negotiations is still
poorly developed. In addition, recent public comments from Chinese
government officials indicate that they are not willing to fully police
IP theft issues in China.
In the current trade talks with China, what do the enforcement and
verification mechanisms look like? Would you condition removing section
301 tariffs on seeing verifiable progress on IP theft?
Answer. I am happy to discuss the enforcement component in the
U.S.-China negotiations as well as conditions for removing tariffs with
you privately in more detail. As a general matter, enforcement of U.S.
interests under a potential U.S.-China agreement will be done through
intense consultations and, where necessary, unilateral action by the
United States. The theft of American IP is something that needs to be
addressed, and as I've indicated, we are making progress in
negotiations on this and other structural issues.
section 232, steel and aluminum tariffs
Question. As you know, there are a number of legislative proposals
about the President's power to impose tariffs for national security
reasons, including from a number of my colleagues on this committee.
Chairman Grassley even called for the section 232 steel and aluminum
tariffs on Canada and Mexico to be removed before Congress considers
passage of the new NAFTA. Both Canada and Mexico have retaliated
against the U.S. tariffs by slapping duties on U.S. farm goods and
other exports. Even while calling the steel and aluminum tariffs
necessary to protect national security, the President has touted them
as leverage in negotiating a new NAFTA. The same could be said about
using threats of 232 tariffs on autos as leverage in trade discussions
with the EU and Japan.
How do you think that the President's use of section 232 tariffs
has affected your negotiations with like-minded countries on WTO reform
proposals?
Answer. As I testified, USTR is actively engaged at all levels of
the WTO and is working with other member states to address what we see
as systemic issues, such as concerns with the Appellate Body. These
issues have resulted in an organization that works very differently
from how it was intended to work. USTR sees the Department of
Commerce's and the President's section 232 national security
investigations as a separate issue and independent of our goals at the
WTO.
301 tariffs with china impact on small and medium-sized enterprises
Question. In Nevada, a significant proportion of previous foreign
direct investment has come in the areas of renewable energy. I am
concerned that the President's rhetoric, and decisions like pulling the
United States out of the Paris Climate Agreement, have signaled to
companies that the United States is less friendly to foreign direct
investment, directly affecting our State economy.
Does the administration commit to continue efforts to increase
foreign direct investment, including in the renewable energy sectors
and small enterprises?
Answer. The administration recognizes the importance of foreign
direct investment in supporting economic growth in Nevada and across
the United States. The administration supports efforts to increase
foreign direct investment that benefits the U.S. economy and U.S.
workers, including investment in small and medium-sized enterprises and
the renewable energy sectors. The Paris Climate Agreement is not
related to our investment climate. Indeed, the U.S. economy is growing
and many economic indicators are at all-time highs.
Question. In Nevada, 87 percent of our exports are by small and
medium-sized enterprises. Can you provide greater detail of USTR's role
in opening foreign markets to small and medium sized enterprises, like
those in Nevada or those impacted by the 301 tariffs? Will the
administration commit to continue efforts to increase foreign direct
investment, including in the renewable energy sectors and small
enterprises?
Answer. Small businesses are the backbone of the U.S. economy.
Tariff and non-tariff barriers in foreign markets can
disproportionately burden the over 280,000 U.S. small businesses
exporting from across the 50 States. Across our policy activities, we
are continuing to better integrate small and medium-sized enterprise
(SME) issues and priorities into U.S. trade policy activities, increase
our agency outreach to small businesses, and improve coordination
across U.S. trade policy and promotion activities relating to SMEs.
Issues of particular interest to U.S. SMEs include SME chapters in new
and modernized trade agreements such as USCMA, to help ensure that SMEs
have the online tools and resources they need to navigate foreign
markets, and an ongoing SME Dialogue, open to participation by SMEs to
provide views and information to government officials on the
implementation the agreement to help ensure that SMEs continue to
benefit. USTR is also working to address SME priorities such as digital
trade issues, customs and trade facilitation measures, reduction of
regulatory barriers, and protection of intellectual property rights
abroad with trading partners around the world. USTR also supports
efforts to increase U.S. foreign direct investment that benefits the
U.S. economy and U.S. workers, including investment by SMEs in the
renewable energy sectors.
chinese internet censorship as trade barrier
Question. In the USTR's 2016 annual report, the office listed
Chinese government Internet censorship as a trade barrier for the first
time. The report argued that ``China's filtering of cross-border
Internet traffic has posed a significant burden to foreign suppliers,
hurting both Internet sites themselves, and users who often depend on
them for their business.'' Technology companies have complained about
censorship, but it is unclear whether the Trump administration is
including the issue in the current trade talks with China.
Is the administration discussing Chinese Internet censorship, and
the challenges it poses for U.S. businesses operating in China, as a
part of the current trade talks?
Answer. The administration continues to be concerned about China's
Internet-
related restrictions, such as restrictions on cross-border transfers of
information and restrictions on access to certain websites, among other
restrictions, as is explained in USTR's 2019 National Trade Estimates
Report. The administration is seeking to address many of China's
Internet-related restrictions as part of the current negotiations with
China.
u.s. technology companies operations in china
Question. In your conversation with Ely Ratner, he indicated U.S.
technology companies have historically been resistant to incorporating
``American values'' of freedom of information into their operations in
China.
In your trade talks with China, are you looking at how we can
support American companies that seek to operate in China, but still
uphold American values like freedom of speech and privacy in their
global operations? Do you agree that American companies that rely on
the U.S. government to enforce trade rules and protect their
intellectual property should support American values like freedom of
speech and privacy in their operations abroad?
Answer. Under President Trump's leadership, the United States is
committed to working toward a fair and reciprocal trade relationship
with China. In the current negotiations with China, we are seeking to
address a wide range of unfair trade practices. The benefits of a
successful agreement will ideally accrue to all U.S. companies. I would
be pleased to work with you and other members of Congress to discuss
how we can best promote American values in our trade agenda.
non-binding agreements on section 232 country exemptions
Question. Last spring, the administration announced agreements with
Australia, Argentina, and Brazil that would exempt those countries from
section 232 tariffs on steel and/or aluminum. As you know, under the
Case-Zablocki Act, the Department of State must send Congress the text
of any international agreement--including an oral agreement--to which
the United States is a party no later than 60 days after the agreement
enters into force. When my colleagues on this committee wrote to the
State Department to request the text of these agreements, State
responded that these agreements are not legally binding international
agreements. Instead, they are ``political or personal'' agreements, and
therefore the administration does not have to share the text with
Congress.
Why did USTR not pursue binding agreements with these countries?
Do you anticipate that future agreements to lift section 232
tariffs on imports from specific countries will be concluded as legally
binding international agreements?
If not, would you still commit to send the text of these agreements
to Congress?
Answer. By statute, the Secretary of Commerce helps administer
section 232. The administration will continue to act consistent with
the Case-Zablocki Act in respect of any agreements concluded with
foreign countries that fall within its scope.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
This morning, the Finance Committee is going to take a hard look at
one of the big issues facing this country with respect to jobs and
trade. It is long past time to fix what's wrong with the World Trade
Organization.
In my view, that process begins with China. China became a member
of the World Trade Organization in December 2001. Based on nearly 2
decades of evidence, it's clear that the agreements that allowed China
to join fell far short.
The rules that underpin the WTO were crafted more than 2 decades
ago, when China was an economic middleweight. At that time, multiple
States within the United States had economies larger than China's.
During the debate on China entering the WTO, many predicted membership
would drive China further away from one-party control of government and
economics. And China made specific commitments dealing with economic
reforms as a precondition of WTO membership. That was the basis on
which the Congress granted China normalized trade relations with the
U.S. legislation I supported.
Today, China is an economic heavyweight, second only to the United
States and continuing to grow rapidly. Much of that growth has come at
our direct expense--and in violation of WTO rules and the commitments
it made in 2001. Subsidized state-owned enterprises. Intellectual
property theft. Forced tech transfers. The Great Internet Firewall.
Government-led shakedowns of foreign investors. China uses those
schemes and entities to strong-arm American businesses, steal American
innovations, and rip off American jobs. And particularly under
President Xi, the government has tightened its grip on power. For our
purposes in today's hearing, the Chinese government identifies
weaknesses in the WTO system, and it seizes on them to further its
economy's explosive growth.
The United States and our economic allies have not done enough to
crack down on those abuses. As I said a moment ago, WTO rules date back
to a time before the Internet was the center of gravity for
international commerce and when smartphones were still science fiction.
It shouldn't be any surprise that those rules can't keep up with
China's modern-day trade rip-offs.
There is bipartisan interest in addressing that problem, and
today's hearing needs to advance real solutions. I'm hopeful that the
talks currently happening with respect to digital trade rules will
finally drag the WTO into this century. I know Ambassador Lighthizer
shares that perspective.
On another topic, I'm also hopeful about reaching an agreement with
respect to unfair fishing subsidies. This is a long-running battle at
the WTO. Senator Crapo and I held a subcommittee hearing on the issue
all the way back in 2010. The bottom line is that an agreement that
curbs fishing subsidies will protect jobs in our fisheries and promote
sustainable oceans, and accomplishing both of those priorities is
vital.
I'll close on this. Workers in Oregon and around the United States
are justifiably fed up with cheating by China and other countries. And
when the WTO proves too slow to stop the cheats, or when it announces
decisions that clash with its founding principles and goals, lawmakers
aren't just going to grin and bear it.
At the same time, it's important for the United States to fight for
the economic system that we helped create after World War II--one that
built strong democratic alliances, faced down the Soviet Union, and
helped reduce violent conflict around the world. Sometimes the Trump
administration, and particularly the President himself, signals to our
allies that they're not interested in defending that system from
attackers and cheats.
That's why updating the WTO is an issue where the administration
cannot fall short after a lot of tough talk, which has too often been
the pattern on trade policy. An effective, fair, and enforceable trade
system is our best defense against China's often underhanded economic
tactics. And there are members on both sides of this committee who are
eager to make progress on this issue, so today's hearing is an
opportunity to find common ground.
I want to thank Ambassador Lighthizer for being here today. I look
forward to working with him on this and more.
______
Communications
----------
Center for Fiscal Equity
Statement of Michael G. Bindner
Chairman Grassley and Ranking Member Wyden, thank you for the
opportunity to submit these comments for the record to the Committee on
Finance. Attachment One repeats selected comments from the Ways and
Means Committee's hearing on U.S. China Trade from February 27, 2019
and from this Committee's hearing on the U.S. Trade Policy Agenda from
March 2018. As usual, we will preface our comments with our
comprehensive four-part approach, which will provide context for our
comments.
A Value-Added Tax (VAT) to fund domestic military spending and
domestic discretionary spending with a rate between 10% and 13%, which
makes sure very American pays something, including Carbon and Asset
Sale VATs.
Personal income surtaxes on joint and widowed filers with net
annual incomes of $100,000 and single filers earning $50,000 per year
to fund net interest payments, debt retirement and overseas and
strategic military spending and other international spending, with
graduated rates between 5% and 25%.
Employee contributions to Old-Age and Survivors Insurance (OASI)
with a lower income cap, which allows for lower payment levels to
wealthier retirees without making bend points more progressive.
A VAT-like Net Business Receipts Tax (NBRT), which is
essentially a subtraction VAT with additional tax expenditures for
family support, health care and the private delivery of governmental
services, to fund entitlement spending and replace income tax filing
for most people (including people who file without paying), the
corporate income tax, business tax filing through individual income
taxes and the employer contribution to OASI, all payroll taxes for
hospital insurance, disability insurance, unemployment insurance and
survivors under age 60.
Regulatory capture theory is essential to explain how international
trade associations work, from NAFTA to the WTO. Capture theory, which
is part of the Public Choice School of economics, is associated with
George Stigler and others. While it is usually associated with national
and state regulation, such as the Food and Drug Administration and the
late, great Interstate Commerce Commission, it is equally applicable
here. It is similar to what we all learned as Iron Triangles or Issue
Networks.
The gist of the theory is that, while regulation is initially
promulgated for the public good, relationships between government and
regulated industries grow symbiotic. This occurs because professional
expertise is often industry specific. This expertise is interchangeable
in regulated industries, regulatory staff, on K Street, the academy and
congressional staff. Campaign contributions often grease the skids of
communication. Regulation always begins with private sector resistance
until relationships are established. Eventually, regulatory agencies
are co-opted by industry and the resistance stops. While there is still
an oppositional dynamic, by and large capture helps steer the
regulatory ship.
Capture is so complete in trade that industrial panels are often the
most important part of modern trade agreements. In NAFTA, these take
the form of Chapter 19 Panels. These panels wield super-national
authority, allowing them to over-ride governmental actions which are
seen as contrary to free trade as the industry sees it. Such industrial
favoritism is likely the glue that gets trade agreements past
congressional approval. While treaties are part of federal supremacy in
Article IV of the Constitution, ceding this authority to industry is
likely beyond what the framers would have expected--and they were often
mercantilists. Of course, the U.S. Constitution may itself be an
instance of regulatory capture.
The impact of capture is very real barriers to entry, both for
professionals and for newer companies. Larger firms dominate small
ones, who must find a link to an existing larger company in order to
even function. While regulations favoring small businesses attempt to
steer such relationships, especially by introducing affirmative action
into such decisions, these actions are also captured by industry.
There is no need to drain the swamp. The swamp seems just fine where it
is. Indeed, calls to do so under the banner of populism are likely to
give temporary advantage to industry, but it will later adjust (if it
is even really changed), with changes in Administration and the
benching of its team of rookies.
Many would say that the status quo is unsustainable, others like it
perfectly well. Progressives and Democratic Socialists call for bigger
and better regulations. The far-left simply considers this an
improvement of the same cage. The social democracies of northern Europe
have developed a cozy relationship with their capitalists, but have no
idea how to transition to true employee sovereignty, which is the
ultimate goal of socialism. The answer is that you cannot do deep
reform through the deep state. The obstacles are too great.
The only alternative to regulatory capture and industrial domination is
not to better regulate capitalism, but to overcome it--not through
revolution (which simply turns the party bureaucrats into capitalists),
but to occupy capitalism from within. This starts with transforming
employee-owned firms. The answer is not change to employee culture over
a monthly dinner and pep rally or training line workers to read
financial statements. This is also a creating a better cage.
Real change will come from matching corporate governance to corporate
ownership. Hierarchical management structures from capitalism are
discordant. They do not deliver on the promise of ownership. Employee
ownership, to work, must embrace true democracy in both management and
the decision to expand the scope of the enterprise from better
production to matching production to consumption, also by democratic
decision-making. This will start with how leadership is consumed as a
good (leading to open auction for executive jobs with the final choice
between the low bidders determined by election).
Employee ownership will continue from decisions on the cafeteria menu
to local sourcing and farm ownership, building or buying apartments for
younger workers, as well as single family units and abandoning outside
finance for retirement and home mortgages with no interest loans. Such
features will attract workers and firms to this model to something more
than the monthly chicken dinner.
Currently, employee ownership is undertaken with smaller companies
rather than major industries. It will not remain there when ownership
is transformed. Larger enterprises will convert franchisees to managers
and absorb their employees, extending union membership and board
representation. Consultants paid through 1099 employment with only one
client also be added to the employing firm.
The NBRT/SVAT reforms can facilitate the expansion of ownership on a
fairly rapid basis, with rates set high enough to pay for obligations
to current retirees and the transition to ownership. While the employee
contribution to Old-Age and Survivors insurance will continue to be
linked to income, the employer contribution will become part of the
SVAT, with employer contributions credited to each employee without
regard to wage.
Ownership rights and benefits can also be extended to overseas
employees, both subsidiaries and in the supply chain, preventing
international trade from being used to arbitrage wages in a race to the
bottom, raising the standard of living for overseas workers and ending
the need for international trade agreements. Industrial and workers
interests will be identical to each other and to the national interest
of all parties. International organizations could be an honest broker
to estimate wages at an equivalent standard of living rather than based
on currency trading. See Attachment One for more detail.
It can go even faster if employers can reduce such taxation by making
current employees, former employees and retirees whole as if they had
worked under the proposed system from the start. If our proposed high
income and inheritance surtax is adopted (where cash from inheritances
and estate asset sales are considered normal income), some of the
proceeds can be used to distribute the Trust Fund to speed employee
ownership, as well as ESOP loans. Note that heirs, sole proprietors and
stock holders who share to a broad-based ESOP will avoid taxation on
that income, including our proposed 25% VAT on asset sales.
Expediting ownership with the assistance of tax reform will end the
need for NAFTA and the WTO (unless national governments balk at
allowing international employee ownership). Even then, the need for
such organizations, and for government in general, will eventually fade
away.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
Attachment One: Value-Added Taxes (March 2018), Employee Ownership and
Trade (February 2019)
The most immediate impact on trade is our proposed goods and services
tax, which will finance domestic military and civil spending. Exported
products would shed the tax, i.e., the tax would be zero rated, at
export. Whatever VAT congress sets is an export subsidy. Seen another
way, to not put as much taxation into VAT as possible is to enact an
unconstitutional export tax.
The NBRT/Subtraction VAT could be made either border adjustable, like
the VAT, or be included in the price. This tax is designed to benefit
the families of workers, either through government services or services
provided by employers in lieu of tax. As such, it is really part of
compensation. While we could run all compensation through the public
sector and make it all border adjustable, that would be a mockery of
the concept. The tax is designed to pay for needed services. Not
including the tax at the border means that services provided to
employees, such as a much-needed expanded child tax credit--would be
forgone. To this we respond, absolutely not--Heaven forbid--over our
dead bodies. Just no.
The NBRT can have a huge long-term impact on trade policy, probably
much more than trade treaties, if one of the deductions from the tax is
purchase of employer voting stock (in equal dollar amounts for each
worker).
For too long the mere mention of Personal Retirement Accounts has been
like holding a lightning rod in a thunderstorm. Democrats forget that
the attack on George W. Bush for doing so had no impact on the 2004
election. Turnout was juice by support for the war in Iraq, the defense
of traditional marriage and the non-existence of the response to the
Swift Boat Veterans for Truth-speak (the continuation of the Birther/
Tea Party/MAGA/Russia right-wing conspiracy). The 2006 win was because
of the bad management of the Iraq War and rampant Majority corruption.
Engaging in real debate rather than obstruction could have given us
insured accounts holding employer voting stock voted by union proxies
with equal employer tax credits funded on an uncapped payroll or
consumption tax, such as the NBRT.
Personal Accounts would not be used for speculative investments or even
for unaccountable index fund investments where fund managers ignore the
interests of workers. Accounts invested in index funds do not have that
feature, although they do serve to support American retirees who
because of them have a financial interest in firms utilizing foreign
labor, particularly low-wage Chinese labor.
The USA accounts proposed by President Clinton had the same feature,
although as a supplement to the Social Security benefit rather than a
partial replacement, although this feature would be muted by enactment
of value added taxes. The flaw in using foreign investment to make up
for lost worker revenue is that eventually foreign workers either
radicalize or become consumers and demand their own union rights.
The tendency for consumerism to follow industrialization is why
globalization is a poor substitute for expanding the domestic
population, as the Center proposes with its expanded Child Tax Credit,
which we propose as an offset to the NBRT.
It would be better for all concerned if American workers were already
in an ownership position due to repeal of the Taft-Hartley Act
prohibitions on concentrated pension fund ownership and the enactment
of personal retirement accounts. We can turn the tide for workers and
encourage employee-ownership (aka cooperative socialism) now through
Democratic means as part of a Green New Deal.
Over a fairly short period of time, much of American industry, if not
employee-owned outright (and there are other policies to accelerate
this, like ESOP conversion) will give workers enough of a share to
greatly impact wages, management hiring and compensation and dealing
with overseas subsidiaries and the supply chain--as well as impacting
certain legal provisions that limit the fiduciary impact of management
decision to improving short-term profitability (at least that is the
excuse managers give for not privileging job retention).
Employee-owners will find it in their own interest to give their
overseas subsidiaries and their supply chain's employees the same deal
that they get as far as employee-ownership plus an equivalent standard
of living. The same pay is not necessary, currency markets will adjust
once worker standards of living rise.
Over time, this will change the economies of the nations we trade with,
as working in employee owned companies will become the market
preference and force other firms to adopt similar policies (in much the
same way that, even without a tax benefit for purchasing stock,
employee owned companies that become more democratic or even more
socialistic, will force all other employers to adopt similar measures
to compete for the best workers and professionals).
Eventually, trade will no longer be an issue. Internal company dynamics
will replace the need for trade agreements as capitalists lose the
ability to pit the interest of one nation's workers against the
others'. This approach is also the most effective way to deal with the
advance of robotics. If the workers own the robots, wages are swapped
for profits with the profits going where they will enhance consumption
without such devices as a guaranteed income.
______
Statement Submitted by Terence P. Stewart
Law Offices of Stewart and Stewart
2100 M Street, NW, Suite 200
Washington, DC 20037
(202) 785-4185
[email protected]
Introduction
The World Trade Organization came into existence in January 1995 amidst
much hope with a greatly broadened membership, a significantly
broadened mandate, including services, trade-related aspects of
intellectual property, the reintegration of textiles, and the start of
reform in the agricultural sector, and a more binding dispute
settlement system.
As of March 2019, the WTO has grown to 164 members with an additional
22 countries or customs territories undergoing a lengthy accession
process. However, the WTO is now, and has been for at least a decade,
in serious trouble.
In a world of rapid technological change, the WTO can be characterized
as operating on rules developed in the last century where the ability
to change has proven very elusive with an ever expanding membership of
countries and territories with very different economic systems and
various levels of development and a decision system premised on
consensus.
Admittedly, there have been some successes in the 24-year history of
the WTO in terms of completed negotiations, such as some sectoral
successes on liberalization (e.g., the Information Technology Agreement
and its expansion), the creation of one new agreement (Trade
Facilitation Agreement), and an agreement to the phase out of
agricultural export subsidies. Yet, the organization has not been able
to (1) advance broad-based liberalization, (2) address developments in
technology and commercial realities over the last 24 years, (3) update
the rules of the organization, (4) complete a review of the dispute
settlement understanding that has been underway for more than two
decades, or (5) adequately address the challenges posed by important
members such as China with state directed economic systems and massive
domestic subsidy programs.
While many countries have sought some forward movement through an
expanding web of bilateral and regional agreements, most view the WTO's
multilateral negotiating function as seriously challenged if not
largely dysfunctional. The center of the system has not been able to
effectively function because the negotiating arm of the WTO has been
largely broken due to a changing power structure within the WTO
membership and a continued lack of agreement amongst the major players
on relative responsibilities to move the trading system forward.
Members have shown a relatively poor record of complying with
notification requirements and providing complete information for those
notifications that are made, seriously undermining the core need of
transparency for members to understand the actions of others and
weakening the committee work programs.
Many members view the dispute settlement system as the ``jewel'' of the
WTO, but it is in a present crisis flowing from an inability to address
long-standing concerns about the functioning of the panels and the
Appellate Body (AB) versus the Dispute Settlement Understanding (DSU)
and how to address concerns that the Appellate Body has created rights
and obligations not agreed to by the members.
While the concerns in the dispute settlement area are long-standing for
the United States and have been voiced by many others over the years,
the crisis has been brought to a head by the United States over the
past two years through use of the WTO's consensus requirements--the
same consensus requirement that has effectively blocked reform in the
past is now blocking the launch of a process to replace Appellate Body
members whose terms have expired. With a DSU requirement that appeals
be heard by three AB members, with the AB membership down to three at
the present time, and with two of the remaining three AB members having
terms that expire on December 10, 2019, the crisis is here with a
clearly defined time frame to keep the dispute settlement system
functioning.
The question on the table now is whether the WTO members can reform and
renew the WTO rule book to address current realities.
With the current U.S. Administration determined to right what it views
as a flawed system, WTO members find themselves under increased
pressure to address (1) long-standing concerns with the dispute
settlement system, (2) the balance and current relevance of existing
bilateral and plurilateral agreements to which the U.S. is a party, and
(3) the long-running concerns with the lack of progress in China's
reforms and the distortions its policies are creating for the global
trading system. The Trump Administration has made it clear that it will
shake up the system to obtain focus and action on matters viewed as
important to the United States. While this approach has upset many
trading partners and much of the business community, the reality is
that many pressing problems have been festering for long periods--in
some cases, decades--and prior approaches have not actually achieved a
change in structure or behavior.
To apply pressure on trading partners and the system, the
Administration has utilized laws that have been on the books for long
periods of time but seen little use or, where used, very limited
application (e.g., Section 232 of the Trade Expansion Act of 1962, as
amended) or pursued long-standing business concerns through a detailed
examination of the practices of China under Section 301 of the Trade
Act of 1974, as amended. Finally, the U.S. has used one of the few
levers available in the WTO to obtain the attention of other members--
holding up the start of a replacement process for Appellate Body seats
following the end of terms for existing AB members to get focus on the
myriad problems the U.S. (and other WTO members) have raised over time
about the operation of the Dispute Settlement System and, in
particular, the Appellate Body.
Much has been written on the ongoing impasse in the WTO on the
Appellate Body selection process and U.S. issues. The U.S.
Administration has made clear that its concerns involve both procedural
and substantive issues and that it wants those issues addressed before
a return to starting the selection process. The U.S. has repeatedly
outlined, in its 2018 and 2019 Trade Policy Agendas, the nature of its
concerns and has provided detailed statements in various DSB meetings
that review the serious concerns the U.S. has and its determination to
see them addressed. While many members have had grievances about the
system over time and some undoubtedly agree with some or all of the
U.S. concerns, most WTO members have been pressing for the filling of
AB vacancies first and addressing U.S. concerns (and other concerns)
over time.
U.S. Concerns Regarding WTO Dispute Settlement
For more than a year, the United States has blocked the initiation of a
process to replace Appellate Body members whose terms have expired. The
U.S. has blocked AB appointments to focus WTO members on the need to
negotiate new rules that address U.S. concerns about the AB's
operations and limit the scope for judicial overreach, which the U.S.
characterizes as systemic issues. The U.S. has blocked the AB
appointment process until members address these systemic issues. In the
most recent DSB meeting, the U.S. again said that its concerns had not
yet been addressed:
As the United States has explained at recent DSB meetings, for
more than 15 years and across multiple U.S. Administrations,
the United States has been raising serious concerns with the
Appellate Body's disregard for the rules set by WTO Members.
Through persistent overreaching, the WTO Appellate Body has
been adding obligations that were never agreed by the United
States and other WTO Members.
* * *
The United States has raised repeated concerns that appellate
reports have gone far beyond the text setting out WTO rules in
varied areas, such as subsidies, antidumping duties, anti-
subsidy duties, standards and technical barriers to trade, and
safeguards, all restricting the ability of the United States to
regulate in the public interest or protect U.S. workers and
businesses against unfair trading practices.
And as we explained in recent meetings of the DSB, the
Appellate Body has issued advisory opinions on issues not
necessary to resolve a dispute and reviewed panel fact-finding
despite appeals being limited to legal issues. Furthermore, the
Appellate Body has asserted that panels must follow its reports
although Members have not agreed to a system of precedent in
the WTO, and continuously disregarded the 90-day mandatory
deadline for appeals--all contrary to the WTO's agreed dispute
settlement rules.
And for more than a year, the United States has been calling
for WTO Members to correct the situation where the Appellate
Body acts as if it has the power to permit ex-Appellate Body
members to continue to decide appeals even after their term of
office--as set by the WTO Members--has expired. This so-called
``Rule 15'' is, on its face, another example of the Appellate
Body's disregard for the WTO's rules.\1\
---------------------------------------------------------------------------
\1\ See statements by the United States at the meeting of the WTO
Dispute Settlement Body, February 25, 2019, at 12; https://
geneva.usmission.gov/wp-content/uploads/sites/290/Feb25.
DSB_.Stmt_.as-deliv.fin_.public.pdf.
Thus, there currently is no consensus to even begin a process to fill
---------------------------------------------------------------------------
the vacant AB posts.
In its 2019 Trade Agenda, the U.S. Trade Representative (USTR) states:
Throughout 2018, USTR representatives repeatedly made clear
that the dispute settlement process at the WTO has strayed far
from the system agreed to by WTO Members, and has appropriated
to itself powers that WTO Members never intended to give it. .
. .
The key point is that the WTO Appellate Body has repeatedly
sought to create new obligations not covered in the WTO
agreements. . . . The United States cannot be held responsible
for obligations to which its elected officials never agreed.
Thus, efforts by the Appellate Body to create new obligations
are not legitimate.
These concerns are not new. For many years, and in multiple
Administrations, the United States has repeatedly expressed
concerns with the WTO Appellate Body's activist approach and
overreaching on procedural issues, interpretative approach, and
substantive interpretations. This approach fails to apply the
WTO rules as written and agreed to by the United States and
other WTO Members.\2\
---------------------------------------------------------------------------
\2\ See Office of the U.S. Trade Representative, 2019 Trade Policy
Agenda at 25-26 (emphasis added); https://ustr.gov/sites/default/files/
2019_Trade_Policy_Agenda_and_2018_Annual_
Report.pdf.
In addition to these substantive concerns with the interpretation of
WTO agreements by panels and the Appellate Body and their failure to
strictly apply and adhere to the text of WTO agreements as negotiated
and agreed to by members, the U.S. has raised, over many years,
procedural concerns with the AB' s apparent disregard of DSU rules. The
2018 Trade Policy Agenda summarized five particular areas of concern
where the U.S. believes the AB has disregarded the applicable rules.\3\
---------------------------------------------------------------------------
\3\ See Office of the U.S. Trade Representative, 2018 Trade Policy
Agenda at 24-28; https://ustr.gov/sites/default/files/files/Press/
Reports/2018/AR/2018%20Annual%20Report%20I.pdf.
1. 90-day deadline for completing appeals: Since at least 2011,
the U.S. and other members have been concerned about the AB's
increasing disregard of the mandatory 90-day deadline for deciding
appeals. Article 17.5 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU) requires the Appellate Body
to circulate its report within 90 days of the notice of appeal. Despite
the 90-day deadline, the AB has assumed the authority to take whatever
time it considers appropriate. Since 2011, the AB has exceeded the 90-
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day limit in about 80 percent of appeals.
2. AB members continuing to serve after their terms have expired:
The AB has taken actions to ``authorize'' a person who is no longer an
AB member to continue hearing appeals. The U.S. contends that the AB
lacks the authority to deem someone who is not an AB member to be a
member. The AB has claimed that Rule 15 of its Working Procedures
authorizes it to ``deem'' as an AB member one of its own members whose
term has expired. The U.S. argues that Rule 15 is inconsistent with the
requirements of the DSU.
3. Advisory opinions on issues not necessary to resolve a dispute:
The dispute settlement system is intended to achieve a ``prompt
settlement'' of disputes between WTO members. The U.S.'s concern is
with the tendency of WTO reports to make findings that are unnecessary
to resolve a dispute or on issues not presented by the parties in the
dispute. Such unnecessary statements have been described as in the
nature of ``obiter dicta.'' Panels and the AB have, on numerous
occasions, made unnecessary findings or rendered ``advisory opinions''
which have contributed to delays in concluding an appeal.
4. AB review of facts and domestic law: The U.S. is concerned
about the AB's approach to reviewing facts. DSU Article 17.6 limits an
appeal to ``issues of law covered in the panel report and legal
interpretations developed by the panel.'' The AB, however, has
consistently reviewed panel fact-finding under different legal
standards, and has reached conclusions not based on a panel's fact
findings or on undisputed facts. The U.S. also objects to the AB
undertaking to review, as a matter of law rather than fact, the meaning
of a member's domestic (municipal) law.
5. AB reports as precedent: The U.S. objects to assertions that AB
reports effectively serve as precedent and that panels must follow
prior AB decisions absent ``cogent reasons.'' The U.S. believes that
this assertion has no foundation in the DSU and is not consistent with
WTO rules. Under the WTO agreements, there is one and only one means
for adopting binding interpretations of the obligations which members
agreed to--WTO Agreement Article IX: 2.
WTO Reform Efforts
In addition to the U.S., a number of other countries have begun to
discuss the need for WTO reform. Some seek to address the challenges of
consensus decision-making in such a large group. Others are more
focused on addressing new issues that have arisen over the last 24
years. Some note the need to update the WTO's rule book. And many
question the need for reform at all.
Some notable initiatives aimed at reforming WTO rules include:
Trilateral Initiative by U.S., EU, and Japan
The United States, the European Union, and Japan have initiated
trilateral discussions concerning the development of new trade and
investment rules to deal with the economic impact of countries with
state driven economic policies, such as China's. In December 2017, the
U.S., EU, and Japan began a joint initiative at the Buenos Aires
Ministerial. At that time, the three WTO members issued a joint
statement in which they agreed to strengthen their commitment to ensure
a global level playing field.\4\ Their joint statement said that
``severe excess capacity in key sectors exacerbated by government-
financed and supported capacity expansion, unfair competitive
conditions caused by large market-distorting subsidies and state owned
enterprises, forced technology transfer, and local content requirements
and preferences are serious concerns for the proper functioning of
international trade, the creation of innovative technologies and the
sustainable growth of the global economy.'' To address these critical
concerns, the three countries ``agreed to enhance trilateral
cooperation in the WTO and in other forums, as appropriate, to
eliminate these and other unfair market distorting and protectionist
practices by third countries.''
---------------------------------------------------------------------------
\4\ See Joint Statement by the United States, European Union, and
Japan at MCI 1, December 12, 2017; https://ustr.gov/about-us/policy-
offices/press-office/press-releases/2017/december/joint-statement-
united-states.
In a follow-up to their initial joint statement, on September 25, 2018,
the U.S., EU, and Japan released a trilateral statement \5\ addressing
a range of issues, including (1) Concerns with Non-Market-Oriented
Policies and Practices of Third Countries; (2) Industrial Subsidies and
State Owned Enterprises; (3) Concerns with Forced Technology Transfer
Policies and Practices of Third Countries; (4) Discussions on WTO
Reform (e.g., sponsoring transparency and notification proposals,
strengthening regular committee work, and urging advanced WTO members
claiming developing country status to undertake full commitments); (5)
Digital Trade and E-Commerce; and (6) Cooperation on Other Issues.
---------------------------------------------------------------------------
\5\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2018/september/joint-statementtrilateral.
---------------------------------------------------------------------------
EU Proposals for WTO Modernization
In September 2018, the European Commission (EC) released a concept
paper \6\ presenting the European Union's (EU) proposals on a
comprehensive approach for WTO modernization and reform, in pursuit of
making the WTO more relevant, adaptive, and effective. The EU paper
focuses on three subjects: (1) rulemaking and development; (2) regular
work and transparency; and (3) dispute settlement.
---------------------------------------------------------------------------
\6\ Press release: European Commission presents comprehensive
approach for the modernisation of the World Trade Organisation,
September 18, 2018; http://europa.eu/rapid/press-release_IP-18-
5786_en.htm. EU Concept Paper: http://trade.ec.europa.eu/doclib/docs/
2018/september/tradoc_157331.pdf.
With respect to rulemaking and development, the EU paper states that
the overall objective for modernization is to update the rules and to
---------------------------------------------------------------------------
create the conditions for the rules to be updated.
Regarding the WTO's regular work, the EU paper's goal is to ensure
transparency in member notifications, resolve specific trade matters
without litigation, and incrementally adjust the WTO rulebook, where
necessary.
With respect to dispute settlement, the EU paper proposes that dispute
settlement reform be addressed in two stages: procedural issues first
and substantive issues second. Thus, the EU proposes to first address
the concerns the U.S. has raised at DSB meetings in which it has
blocked Appellate Body appointments (i.e., 90-day requirement; Rule 15;
advisory opinions; municipal law; precedent; term of AB member), and
only after that address substantive issues such as AB overreach.
Canada Discussion Paper and Ottawa Meeting
On September 25, 2018, Canada circulated a blueprint for reform titled
``Strengthening and Modernizing the WTO: Discussion Paper,''\7\ with
the goal of seeking an alliance of like-minded countries to restore
confidence in the multilateral trading system and discourage
protectionist measures and countermeasures. The Canadian paper focused
on three specific areas for reforming the WTO: (1) to improve the
efficiency and effectiveness of the monitoring function by, for
example, improving the notification and transparency of domestic
measures; (2) to safeguard and strengthen the dispute settlement system
by diverting some issues from adjudication, streamlining adjudicative
proceedings, and updating appellate review; and (3) to modernize the
trade rules for the twenty-first century by addressing such trade
practices as digital trade, international investment, domestic
regulations, state-owned enterprises, industrial subsidies and trade
secrets, and considering the development dimension of reform.
---------------------------------------------------------------------------
\7\ See Communication from Canada, JOB/GC/201 (September 24, 2018);
http://international.gc.ca/gac-amc/campaign-campagne/wto-omc/
discussion_paper-document_travail.aspx?
lang=eng.
In October 2018, trade ministers from Canada and 12 other ``like-
minded'' WTO members met in Ottawa to discuss the issue of WTO reform
and ways to strengthen and modernize the WTO, in particular the papers
issued by the EU and Canada regarding WTO modernization and reform. The
countries represented in Ottawa were Canada, EU, Japan, Switzerland,
Norway, Australia, New Zealand, Singapore, Korea, Brazil, Chile,
Mexico, and Kenya. Neither the U.S. nor China was invited to the Ottawa
meeting. The meeting focused on the EU and Canadian discussion papers
and addressed three issues: dispute settlement reform, the WTO's
negotiating function, and WTO monitoring and transparency. Although
neither the U.S. nor China was invited to the Ottawa meeting, it was
noted that it will be impossible to achieve WTO renewal without support
from China and the U.S.
Proposals to Improve Transparency and Strengthen
Notification Requirements
In October 2017, the U.S. proposed reformed procedures to improve
compliance with notification obligations by WTO members.\8\ The U.S.
proposed that members reaffirm existing notification obligations and
recommit to providing complete and timely notifications under the WTO
Agreements. On November 1, 2018, the U.S., together with Argentina,
Costa Rica, the EU, and Japan, circulated a similar proposal.\9\ Noting
the chronic low level of compliance with notification requirements, the
proposal urged members to reaffirm existing notification obligations
and recommit to providing complete and timely notifications under the
WTO Agreements, encouraged members to file counter-notifications in
response to delinquent members, and proposed consideration of various
degrees of sanctions for failing to notify according to the level of
delinquency. The proposed penalties for noncompliance would range from
increased financial contribution requirements, non-qualification for
WTO bodies, additional reporting requirements at General Council
meetings, and disregard of the member's questions at trade policy
reviews. A member's severest penalty would be a designation of inactive
status applied after failing to file notifications by more than two,
but less than three, years. The proposal also provides for exemptions
from penalties for developing members that lack the capacity to fulfill
notification requirements if they request assistance and support for
capacity building from the Secretariat.
---------------------------------------------------------------------------
\8\ See Procedures to Enhance Transparency and Strengthen
Notification Requirements Under WTO Agreements, communication from the
United States, JOB/GC/148, JOB/CTG/10 (October 30, 2017).
\9\ See Procedures to Enhance Transparency and Strengthen
Notification Requirements Under WTO Agreements, communication from
Argentina, Costa Rica, the European Union, Japan, and the United
States, JOB/GC/204, JOB/CTG/14 (November 1, 2018).
---------------------------------------------------------------------------
Proposals to the General Council Meeting of December 12,
2018
On November 23, 2018, two documents were circulated to WTO members for
consideration at the December 12, 2018 General Council meeting
proposing amendments to the WTO's DSU with the intention of addressing
the concerns raised by other WTO members about the functioning of the
WTO's dispute settlement system.
The first document (WT/GC/W/752) was submitted by the EU, China,
Canada, India, Norway, New Zealand, Switzerland, Australia, Korea,
Iceland, Singapore and Mexico and addresses a number of issues that the
U.S. has raised in DSB meetings as deviating from existing WTO DSU
obligations. It addressed 5 issues: (1) transitional rules for outgoing
Appellate Body (AB) members; (2) the 90-day deadline for AB reports;
(3) the meaning of municipal law as an issue of fact; (4) findings
unnecessary for the resolution of the dispute; and (5) the issue of
precedent.
The second document (WT/GC/W/753), filed by the EU, China and India
addresses other issues that the EU has raised on the operation of the
AB. The proposal addresses 4 procedural or institutional issues: (1)
the independence of AB members (proposing to set the term of an AB
member to one term of 6/8 years); (2) the AB's efficiency and capacity
to deliver (proposes to increase the number of AB members from 7 to 9);
(3) transitional rules for outgoing AB members (proposing to permit an
expired AB member to continue up to 2 years or until replacement); and
(4) the launch of the AB selection process (proposing an automatic
launch).
The U.S. has rejected these proposals. U.S. Ambassador Shea noted that
although these proposals to some extent acknowledged U.S. concerns,
they did not effectively address them, but rather appeared to endorse
changing the rules to accommodate and authorize the very approaches
that have given rise to members' concerns.\10\
---------------------------------------------------------------------------
\10\ Statements by the United States at the meeting of the WTO
General Council, December 12, 2018, at 1; https://geneva.usmission.gov/
wp-content/uploads/sites/290/Dec12.GC_.Stmt_.
items_.7.and_.8.as_.delivered.clean_.pdf.
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Proposals by Honduras and Taiwan to Break AB Impasse
Honduras recently circulated four communications for discussion a
number of proposals to address various U.S. concerns about AB
practices. One submission proposed various alternatives to the 90-day
deadline for AB reports, limiting the length of written submissions,
and permitting remand to the original panel.\11\ A second submission
addresses Rule 15, that is, the criteria for determining when AB
members may continue serve beyond their terms and who makes that
determination.\12\ The third submission addresses the following AB
issues: advisory opinions; obiter dicta in decisions; addressing
questions that are not necessary to settle a dispute; addressing
arguments that have not been raised by the parties; adopting an
erroneous standard of review; and interpreting the covered agreements
so as to add or diminish the rights and obligations of members under
the DSU and other WTO agreements.\13\ The fourth submission addresses
possible approaches to the issue of precedent, or ``stare decisis'' in
AB decisions.\14\
---------------------------------------------------------------------------
\11\ Fostering a Discussion on the Functioning of the Appellate
Body, communication from Honduras, WT/GC/W/758 (January 21, 2019).
\12\ Fostering a Discussion on the Functioning of the Appellate
Body, communication from Honduras, WT/GC/W/759 (January 21, 2019).
\13\ Fostering a Discussion on the Functioning of the Appellate
Body: Addressing the Issue of Alleged Judicial Activism by the
Appellate Body, communication from Honduras, WT/GC/W/760 (January 29,
2019).
\14\ Fostering a Discussion on the Functioning of the Appellate
Body: Addressing the Issue of Precedent, communication from Honduras,
WT/GC/W/760 (February 4, 2019).
In February 2019, Taiwan submitted a communication \15\ in which it
identified a ``gap'' between what the members had intended the AB to be
and what it actually is today. Taiwan proposed that members begin
discussions immediately to develop guidelines for the AB's future
functioning. These guidelines should clarify DSU provisions and any
``explicit or implicit boundaries'' that members intended to impose on
the AB, as well as ``harmonize'' any potential conflicts among DSU
provisions. Taiwan also proposed that, should the consensus on the
guidelines be reached, members should immediately agree to initiate the
AB selection processes to fill the current vacancies.
---------------------------------------------------------------------------
\15\ Guideline Development Discussion, communication from the
Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu to the
General Council, WT/GC/W/763 (February 13, 2019).
---------------------------------------------------------------------------
U.S. Proposal Regarding Developing Country Status
On February 15, 2019, the U.S. submitted a proposal regarding
developing country status.\16\ The submission proposed criteria for
determining whether a member was entitled to claim developing country
status. The proposal states that a WTO member ``will not avail [itself]
of special and differential treatment in current and future WTO
negotiations'' if: (1) it is a member of the Organization for Economic
Cooperation and Development (OECD), or has begun the accession process
to the OECD; (2) it is a member of the Group of 20 (G20); (3) it is
classified as a ``high income'' country by the World Bank; or (4) it
accounts for no less than 0.5 per cent of global merchandise trade
(imports and exports). In an earlier submission, the U.S. argued that
``self-declaration has severely damaged the negotiating arm of the WTO
by making differentiation among Members near impossible. By demanding
the same flexibilities as much smaller, poorer Members, export
powerhouses and other relatively advanced Members . . . create
asymmetries that ensure that ambition levels in WTO negotiations remain
far too weak to sustain viable outcomes.''\17\
---------------------------------------------------------------------------
\16\ Draft General Council Decision--Procedures to Strengthen the
Negotiating Function of the WTO, WT/GC/W/764 (February 15, 2019).
\17\ An Undifferentiated WTO: Self-Declared Development Status
Risks Institutional Irrelevance, communication from the United States,
WT/GC/W/757/Rev. 1 (February 14, 2019) at para. 4.5.
---------------------------------------------------------------------------
U.S. Priorities in WTO Reform
In the 2019 Trade Policy Agenda, USTR identifies the U.S.'s priorities,
noting that ``WTO reform must include the following components'':\18\
---------------------------------------------------------------------------
\18\ See Office of the U.S. Trade Representative, 2018 Annual
Report at 101-102; https://ustr.gov/sites/default/files/
2019_Trade_Policy_Agenda_and_2018_Annual_Report.pdf.
The WTO must address the unanticipated challenges of non-market
economies. The United States is working with the European Union and
Japan under a trilateral process to address these challenges through
the development of new multilateral rules and the use of other
---------------------------------------------------------------------------
measures.
WTO dispute settlement must fully respect Members' sovereign
policy choices. The WTO's dispute settlement system, particularly the
AB, has strayed extensively from original understandings; the U.S. has
consistently urged the dispute settlement system to adhere to these
original understandings.
WTO Members must be compelled to adhere to notification
obligations. Poor adherence to notification obligations has starved the
WTO of vital information on the implementation of existing obligations
and has contributed measurably to a lack of progress in negotiations.
The United States has presented a proposal to impose consequences for
failure to meet notification obligations and has been joined by a
number of co-sponsors in support of this work.
The WTO's treatment of development must be revamped to reflect
current global trade realities. While ``least-developed countries''
(LDCs) are defined in the WTO using the United Nations criteria, there
are no WTO criteria for what constitutes a ``developing country.'' Some
more advanced developing countries have ``self-declared'' as developing
countries, thus availing themselves of all ``special and differential''
treatment afforded to developing countries. The United States submitted
a paper in January 2019 outlining the challenges this situation
presents for the WTO.
Thus, USTR states that:
If the WTO is to reclaim its credibility as a vibrant
negotiating and implementing forum, Members must begin to
seriously tackle these structural reform issues facing the
institution. In looking ahead to the period before the Twelfth
Ministerial Conference in 2020, the United States believes that
Members should begin the process of identifying opportunities
to achieve accomplishments, even if incremental ones, and avoid
buying into the predictable, and often risky, formula of
leaving everything to a package of results for Ministerial
action. The United States is working through various WTO
standing committees to advance reform ideas. Whether the issue
is notifications, agriculture, or the digital economy, the WTO
will impress capitals and stakeholders most by simply doing
rather than posturing for the next Ministerial Conference (MC).
To remain a viable institution that can fulfill all facets of
its work, the WTO must focus its work on structural reform,
find a means of achieving trade liberalization between
Ministerial Conferences, and must adapt to address the
challenges faced by traders today.\19\
---------------------------------------------------------------------------
\19\ See Office of the U.S. Trade Representative, 2018 Annual
Report at 102; https://ustr.gov/sites/default/files/
2019_Trade_Policy_Agenda_and_2018_Annual_Report.pdf.
---------------------------------------------------------------------------
Conclusion
As reviewed above, there is increasing discussion by various WTO
members that after nearly twenty-four years of existence reform is
needed if the WTO is to remain relevant to the needs of a growing
membership and a rapidly changing business environment. Many
substantive and procedural issues will need to be addressed to make the
organization responsive to 21st century needs of the membership and to
keep the dispute settlement system functioning but in the manner agreed
to by members when the WTO was created. Any serious efforts to achieve
a consensus on the need for reform is a positive development, and
proposals put forward by any member should be viewed as an important
contribution to frame the debate.
Thus, the hopeful news is that many WTO members have moved into a mode
of looking for potential solutions that will permit the WTO to regain
relevance, address the past quarter century of changes, renew utility
of the committee process through improved transparency and restore the
dispute settlement system to one that respects the balance between the
rights of members and the limited role of panels and the Appellate
Body.
But there are many uncertainties that could doom any reform efforts.
The likelihood that the WTO membership will succeed in agreeing to any
meaningful reforms is not great outside of a real crisis as consensus
is required. Most agree that there is a crisis in the WTO with the
possible reduction of the Appellate Body below the minimum number
needed to hear appeals. Whether even that type of crisis will result in
the reforms being discussed by Washington, Brussels, Ottawa and other
capitals is an unknown. The large WTO membership and complexity of many
issues among countries of significantly varied sizes and economic
development has made forward movement at the minimum extraordinarily
time consuming, if possible at all. The position staked out by China,
India, South Africa, and Venezuela to the U.S. proposal to revamp
developing country selection--immediate rejection--argues that the WTO
will not succeed in broad reform in the short term. The potential
collapse of the Appellate Body may result in a more limited resolution
of the dispute settlement system challenges, although correcting for
the series of WTO AB overreach issues that have created obligations
never agreed to will be the most difficult challenge there. Moreover,
many of the problems that have developed with the Dispute Settlement
system reflect an ineffective system of checks and balances. With the
WTO unable to use the tools that do exist to correct problematic
actions of the Appellate Body, the Appellate Body has locked in
erroneous actions versus having the legislative or executive functions
of the WTO to rebalance the system.
In short, 2019 will be a critical year in the multilateral trading
system, with an, at best, clouded outlook for success. The U.S.
deserves credit for fleshing out longstanding concerns and for helping
lay out important reform initiatives to update the rulebook. Time will
tell whether there is a collective desire for reform in fact to keep
the WTO relevant to the world's businesses, workers and communities.
______
United States Council for International Business
1400 K Street, NW, Suite 525
Washington, DC 20005
202-371-1316 tel
202-371-8249 fax
www.uscib.org
March 12, 2019
The Honorable Charles Grassley The Honorable Ron Wyden
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office 219 Dirksen Senate Office Building
Building Washington, DC 21510 Washington, DC 20510
Re: ``Approaching 25: The Road Ahead for the World Trade
Organization,'' hearing of the Senate Finance Committee on March 12,
2019
Dear Chairman Grassley,
Dear Ranking Member Wyden,
As World Trade Organization (WTO) member governments move forward this
year with efforts to reform the WTO, the United States Council for
International Business (USCIB) has issued recommendations on how
business can support the WTO and its efforts to improve the
organization. The WTO is a cornerstone of the global rules-based
trading system and has helped spread growth and development for
decades. The WTO's existing agreements, such as those on intellectual
property rights, sanitary and phytosanitary measures, and technical
barriers to trade, provide practical commercial benefits for business
because they establish global frameworks of rules designed to
facilitate international trade.
The continued existence and effectiveness of the WTO is vital to U.S.
business. USCIB recommendations focus on addressing subsidies and other
market-distorting support provided to state-owned enterprises (SOEs),
the establishment of new rules for current issues such as digital trade
and customs processes on electronic transmissions, and ensuring a
properly functioning appellate body, among others.
Please find enclosed our submission for the record on this important
issue of the future of the WTO. If you have any questions or wish to
discuss the matter further, please do not hesitate to reach out.
Sincerely,
Peter Robinson Charles R. Johnston
President and CEO Managing Director, Citi Global
Government Affairs
U.S. Council for International
Business USCIB Board Member and Chair, Trade
and Investment Committee
______
Statement for the Record
The World Trade Organization (WTO) is a cornerstone of the global
rules-based trading system and has helped spread growth and development
for decades. The WTO's existing agreements, such as those on
intellectual property rights, sanitary and phytosanitary measures, and
technical barriers to trade, provide practical commercial benefits for
business because they establish global frameworks of rules designed to
facilitate international trade.
The WTO's continued existence and modernization, including an effective
dispute settlement system, are necessary for American and global
stability and prosperity. There are valid concerns about the adequacy
of WTO rules to deal with 21st century issues, and about the need for
improvements to the WTO's dispute settlement system. These concerns
should be addressed through agreements/clarifications/modifications
that enhance the credibility of the WTO and strengthen it as an
institution.
USCIB members strongly support the WTO and its activities that have
contributed to the dynamic growth of global trade by opening markets,
combatting protectionist measures, driving new agreements such as the
Trade Facilitation Agreement, assisting developing countries with
capacity building to better benefit from open trade, and enabling
business to pursue new avenues for driving global economic growth.
Our recommendations for modernizing the WTO should not in any way be
read as questioning the business support for WTO. Instead, they are
intended to highlight areas for action that would strengthen the
ability of the organization to more effectively meet the demands of a
changing world as it deals with the rapid evolution of technology that
can quickly reshape the way companies do business and operate globally.
USCIB believes that effective WTO dispute settlement is a critical part
of the global rules-based trading system. And, the U.S. has been a
major beneficiary--bringing and winning more cases than any other WTO
member. In fact, the U.S. has prevailed in over 90% of the complaints
it filed. As noted above, a first principle is that the outcome of
discussions to modernize the WTO must be focused on enhancing the
effectiveness of the WTO dispute settlement system, not undermining it.
USCIB urges the Member States, as they continue to discuss
modernization and improvements of the WTO and its underlying
agreements, to be mindful that among the WTO Member States, private
entities conduct the transactions that constitute trade and investment.
Therefore, the private sector has a direct stake in the rules that will
be the outcome of the government-to-government discussions and,
accordingly, private sector comments and recommendations should be
actively solicited and given careful consideration by the Member
States. With this in mind, below are USCIB recommendations for reforms
and/or new negotiations at the WTO that we believe would modernize the
WTO and enhance the effectiveness of the WTO rules and institution.
USCIB looks forward to a continuing dialogue with the Member States, in
greater detail, as the process unfolds.
More Effectively Addressing Subsidies and State-Owned Enterprises
Improve transparency and compliance with requirements for
notification of subsidies by creating incentives for Member governments
to fully comply.
Establish new rules to more effectively address subsidies and
other market-
distorting support provided to and through state-owned enterprises
(SOEs). Examples of other market distorting support that should be
covered include government waivers of permits such as for environment,
construction, and labor.
Clarify what constitutes a ``public body'' and how to assess
whether a Member government exercises meaningful control over an
enterprise. Restrict government support to SOEs used to enhance SOE
economic performance.
Make the most harmful types of subsidies that are currently
permissible subject to stricter rules by expanding the list of
prohibited subsidies.
Ensure that rules for dispute actions related to subsidies and
other market-
distorting support provided to SOEs allow for clear and effective
remedies.
Pursuing New Rules for Current Issues
Establish new rules covering digital trade, including data flows
and data localization policies, as well as a permanent ban on applying
customs duties and other customs processes on electronic transmissions.
Promote further integration of services and investment into the
international trading system.
Demonstrate leadership on emerging areas of trade practice such
as regulatory cooperation.
Address behind the border discriminatory practices by
reinforcing national treatment obligations (that do not unreasonably
burden foreign direct investment) and developing strong domestic
regulation disciplines ensuring non-discriminatory and transparent
regulatory and enforcement processes in the services and non-services
sectors.
Refocus efforts on advancing cross-border movement of people and
the rules needed to maximize measures that promote an inclusive and
efficient labor market.
SOEs often get special permitting and other benefits not
available to privately-owned competitors. This practice should be
disciplined as a non-tariff barrier to both entry and like services.
Modernizing WTO Rules and Implementation
Increase negotiating flexibility at the WTO by making it easier
for Members to pursue plurilateral agreements. The WTO Secretariat
should be given more authority to support various negotiating processes
and implementation of such agreements.
Improve transparency and notification by creating incentives for
Members to provide required notifications and applying sanctions for
willful and repeated noncompliance with notification rules.
Improve effectiveness of pre-litigation problem resolution by
developing rules that require Members to give substantive replies
within set timeframes to written questions from other Members or trade
concerns raised in a WTO Committee meeting.
Revise rules for special and differential flexibilities to
better reflect development realities while ensuring they are available
to those Member countries that actually need them.
Reach agreement on measures to ensure that the national security
exception is not applied in ways that undermine the key WTO provisions
for opening trade.
Commit greater resources to the work of the most effective WTO
committees while also deactivating those committees that are no longer
needed or are inactive.
Treat forced localization as a WTO-illegal performance
requirement.
Ensuring Properly Functioning Appellate Body
While the dispute settlement system has been effective,
improvements are needed to ensure its continued effectiveness and
support among members. Steps should be taken to improve the operation
of the WTO dispute settlement process and address the member
differences over the activities of the Appellate Body (AB).
The WTO members should review and agree on rules dealing with
the scope of what can be decided by the Appellate Body, the timing of
cases, and the limits of actions by judges after their term has
expired.
Members should ensure that the AB has the resources, staff and
financial, needed to deal with a growing number of cases being brought
by member countries.
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U.S. Global Value Chain Coalition
These comments are being filed on behalf of the U.S. Global Value Chain
Coalition--a coalition of U.S. companies and associations--that is on a
mission to educate policymakers and the public about the American jobs
and the domestic economic growth our companies generate through their
global value chains.
Global value chains include those jobs we traditionally associate with
creation of a product--such as those in a factory or on a farm--as well
as those positions involved in the conceiving of and delivery of those
products--such as design, marketing, research and development,
logistics, compliance, and sales. Simply put, the global value chain
accounts for all the jobs that add value to the good or service sold in
the global marketplace. These positions are essential to the creation
or sale of a good or ser vice. Moreover, these jobs are primarily here
in the United States and are usually high-paying, accounting for much
of the value that is paid at the register.
Thank you for holding this important hearing on the World Trade
Organization (WTO).
As the organization that helps set and enforce global trading rules,
the WTO has emerged as an important enabler of international trade
during the past quarter century. Building on the work of the General
Agreements on Tariffs and Trade (GATT), the WTO ushered in an
unparalleled period of widespread prosperity at home and abroad as
trade liberalization fostered U.S. and global job creation. Now, more
than ever before, Americans reap the benefits of global trade--either
through the jobs that are directly supported by these trade links or
through access to the goods and services that those links now enable.
Global value chains--which employ tens of millions of Americans--
underpin these benefits.
Not surprisingly, the WTO (sometimes in partnership with the
Organization of Economic Cooperation and Development (OECD)), has
focused on global value chains to understand how they operate. As it
notes:
Today, companies divide their operations across the world, from
the design of the product and manufacturing of components to
assembly and marketing, creating international production
chains. More and more products are ``Made in the World'' rather
than ``Made in the UK'' or ``Made in France.'' The statistical
bias created by attributing the full commercial value to the
last country of origin can pervert the political debate on the
origin of the imbalances and lead to misguided, and hence
counter-productive, decisions . The challenge is to find the
right statistical bridges between the different statistical
frameworks and national accounting systems to ensure that
international interactions resulting from globalization are
properly reflected and to facilitate cross border dialogue
between national decision makers.
Through its Global Value Chain portal, the WTO now publishes a wide
array of reports and a wealth of statistical resources on the positive
impact of global value chains. Through these rich data and analytical
tools, including the global value chain statistical profiles for each
country, the OECD/WTO Trade in Global Value Added data base, and the
GVC indicator data base, policy makers in the United States and
throughout the world can now better understand the positive economic
contributions of global value chains. For example, we now know that
nearly two-thirds of traded goods are made with components from at
least two different countries. In the United States, our ability to
export is increasingly dependent on our ability to import and our
ability to partner with other countries, including intermediate
markets. Such realizations hold important ramifications to the trade
policy debate we are now conducting in the United States.
The WTO's contributions are qualitative as well. Last October, WTO
Director General Azevedo led a workshop on women in global value
chains. Among other things, the workshop noted that women and woman-
owned businesses face many barriers in accessing and participating in
global value chains. Lowering those barriers and bringing about great
participation by woman--through information, technology, and access to
finance--would provide tremendous gains to individuals, to communities,
to nations, and the global economy.
As we build the work plan for the WTO for the next quarter century, we
need to ensure that continued research into global value chains is a
core element. As we become increasingly dependent upon utilization of
such global value chains for our own prosperity, and look for ways to
increase participation in them, it is vital that the WTO further its
capacity to help us increase our own understanding.
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