[Senate Hearing 116-506]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 116-506

                      CENSORSHIP AS A NON-TARIFF 
                            BARRIER TO TRADE

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

                                HEARING

                               BEFORE THE

       SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL 
                            COMPETITIVENESS

                                 OF THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 30, 2020

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                     
                                     

            Printed for the use of the Committee on Finance

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
46-137 PDF                 WASHINGTON : 2021                     
          
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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
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
TIM SCOTT, South Carolina            ROBERT P. CASEY, Jr., Pennsylvania
BILL CASSIDY, Louisiana              MARK R. WARNER, Virginia
JAMES LANKFORD, Oklahoma             SHELDON WHITEHOUSE, Rhode Island
STEVE DAINES, Montana                MAGGIE HASSAN, New Hampshire
TODD YOUNG, Indiana                  CATHERINE CORTEZ MASTO, Nevada
BEN SASSE, Nebraska

             Kolan Davis, Staff Director and Chief Counsel

              Joshua Sheinkman, Democratic Staff Director

                                 ______

                 Subcommittee on International Trade, 
                  Customs, and Global Competitiveness

                      JOHN CORNYN, Texas, Chairman

MIKE CRAPO, Idaho                    ROBERT P. CASEY, Jr., Pennsylvania
JOHN THUNE, South Dakota             RON WYDEN, Oregon
ROB PORTMAN, Ohio                    DEBBIE STABENOW, Michigan
PATRICK J. TOOMEY, Pennsylvania      MARIA CANTWELL, Washington
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BILL CASSIDY, Louisiana              BENJAMIN L. CARDIN, Maryland
STEVE DAINES, Montana                SHERROD BROWN, Ohio
TODD YOUNG, Indiana                  MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  CATHERINE CORTEZ MASTO, Nevada

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

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

                               WITNESSES

Gere, Richard, chairman, International Campaign for Tibet, 
  Washington, DC.................................................     6
Cory, Nigel, associate director, trade policy, Information 
  Technology and Innovation Foundation, Washington, DC...........     8
Baltzan, Beth, fellow, Open Markets Institute, Washington, DC....    10
Willems, Clete R., partner, Akin, Gump, Strauss, Hauer, and Feld 
  LLP, Washington, DC............................................    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baltzan, Beth:
    Testimony....................................................    10
    Prepared statement...........................................    29
    Responses to questions from subcommittee members.............    37
Casey, Hon. Robert P., Jr.:
    Opening statement............................................     3
    Prepared statement...........................................    40
Cornyn, Hon. John:
    Opening statement............................................     1
    Prepared statement...........................................    41
Cory, Nigel:
    Testimony....................................................     8
    Prepared statement...........................................    43
    Responses to questions from subcommittee members.............    70
Gere, Richard:
    Testimony....................................................     6
    Prepared statement...........................................    86
    Responses to questions from subcommittee members.............    88
Willems, Clete R.:
    Testimony....................................................    12
    Prepared statement...........................................    89
    Responses to questions from subcommittee members.............    94

                             Communication

Center for Fiscal Equity.........................................    97

                                 (iii)

 
                      CENSORSHIP AS A NON-TARIFF 
                            BARRIER TO TRADE

                              ----------                              


                         TUESDAY, JUNE 30, 2020

                           U.S. Senate,    
           Subcommittee on International Trade,    
               Customs, and Global Competitiveness,
                                      Committee on Finance,
                                                    Washington, DC.
    The WebEx hearing was convened, pursuant to notice, at 2:31 
p.m., in Room SD-215, Dirksen Senate Office Building, Hon. John 
Cornyn (chairman of the subcommittee) presiding.
    Present: Senators Cassidy, Wyden, Menendez, Brown, Casey, 
and Cortez Masto.
    Also present: Republican staff: Andrew Cooper, Legislative 
Assistant for Senator Cornyn; Democratic staff: Livia 
Shmavonian, Legislative Assistant for Senator Casey.

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

    Senator Cornyn. The Senate Committee on Finance 
Subcommittee on International Trade, Customs, and Global 
Competitiveness will come to order.
    I know this seems a little strange with an empty room 
except for three witnesses live in front of me--and many of our 
colleagues are going to be joining us virtually--but I want to 
welcome all of you nonetheless to this important hearing.
    This subcommittee continues to do its work in exploring the 
unfair trade practices of foreign governments, especially China 
and Russia. The topic of censorship in China is a common one 
because of its growing effect on business in the United States, 
as well as culture. Last fall, for example, the National 
Basketball Association had its market access blocked in China 
because an individual American citizen, using a media platform 
not even allowed in China, expressed a political opinion.
    Now the topics have become much more important. A lack of 
timely, accurate information about the spread of COVID-19 due 
to Chinese censorship has contributed to the havoc wreaked on 
our economy and health, and indeed the pandemic.
    This story is nothing new. For some joining us today, 
Chinese censorship has long been growing, and it has long had a 
negative effect on people around the world, such as those in 
Tibet or the Uyghurs in China's Xinjiang Province.
    First, I want to set the scene for what censorship actually 
is, and a simple dictionary definition is a good place to 
start: ``The suppression or prohibition of any parts of media 
that are considered obscene, politically unacceptable, or a 
threat to security.''
    Today we will focus on how the use of censorship has become 
a barrier to global trade. When the World Trade Organization 
was founded, two exceptions to the principles of national 
treatment and most-favored nation were created. Those are for 
public morals and national security. Notably, there is no 
exception for a country to restrict trade because it deemed 
something politically unacceptable.
    With discussions over reforming the WTO, multilateral talks 
on e-commerce, and the prospect of the Phase Two bilateral 
trade deal with China progressing, this subcommittee is 
uniquely positioned to inform Congress, the public, and the 
executive branch on the use of censorship as a non-tariff 
barrier to trade.
    We will help determine if the suppression of information, 
data, goods, and services via digital media by countries like 
China constitutes a trade barrier in violation of the WTO, as 
well as multilateral and bilateral agreements and practices. If 
so, we will look to determine the economic damage caused; the 
human, cultural, business, and political ramifications; and 
what remedies are currently available or should be created to 
combat the unfair trade practice.
    On a bilateral basis, what is clear is the lack of 
reciprocity from countries like China or Russia and the United 
States. The Chinese Government spends billions of dollars to 
promote its propaganda overseas, a form of offensive 
censorship.
    For years, Russia has broadcast state propaganda in the 
United States, and has justly been designated as a foreign 
agent. The lack of reciprocity takes advantage of our system of 
free expression to promote these countries' agendas online, in 
media, entertainment, as well as our education system.
    Meanwhile, China and Russia do not grant the United States 
the same access to their markets or media. Instead, China has 
been expelling our media, having kicked out three Wall Street 
Journal and other reporters earlier this year over Chinese 
censorship of COVID-19. For centuries, countries blocked trade 
through physically restricting access to their ports. Today, 
the same thing happens, but with firewalls, filters, and 
outright restrictions to access.
    In fact, nearly 100 percent of global Internet traffic 
travels through a crisscrossing network of undersea cables that 
form the backbone of global digital trade. These cables are 
another front in the global technology race, with companies 
like Huawei Marine rapidly moving to control the media by which 
content and trade is censored.
    In the era of information, where data is the new gold, 
blocking or filtering of that traffic by nation-states is 
growing. The censorship is fragmenting our markets, culture, 
and understanding of one another.
    The Internet itself is becoming less global. Countries like 
China and Russia are not only building their own infrastructure 
to cut themselves off from the world, but exporting their 
authoritarian model to other nation-states through efforts such 
as the Digital Silk Road.
    It is imperative that Congress support our Nation in 
meeting this challenge, and that is why I am working together 
with all of our colleagues in the Senate and in the House to 
include parts of the CHIPS for America Act in the National 
Defense Authorization bill currently on the Senate floor.
    If we are forced to rely on China to build our networks and 
our technology, the world we know will be much less freer and 
open to express opinions and do business. This bill will help 
us create our own domestic production capacity for high-end 
semiconductors that underpin the technology we use in our daily 
lives. It will also let the United States remain a global 
leader in promoting free trade of goods, information, and 
speech.
    Finally, I look forward to discussing what remedies are 
available to address the abuse of censorship as a non-tariff 
barrier to trade. Last fall, a Chinese-American constituent of 
mine in Texas reported that he was censored here on American 
soil by the Chinese Government. His American WeChat account was 
shut down for supporting protests in Hong Kong.
    His response was, quote, ``If you have censorship in China, 
fine. But in this country? I am a Republican, but I suffer the 
same as Democrats. We are all censored.''
    I look forward to exploring this topic in the same 
bipartisan fashion in which we always hope to proceed. It is 
time for Congress to ask hard questions, and that is why we 
have called our panel of four experts here today to discuss 
this issue.
    I will now recognize Ranking Member Casey.
    [The prepared statement of Senator Cornyn appears in the 
appendix.]

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

    Senator Casey. Mr. Chairman, thanks very much for this 
hearing, and I want to thank our witnesses for being with us 
today.
    This is, as the chairman has noted, the third in a series 
of hearings held by the subcommittee outlining the Chinese 
Government's civil/military agenda, and efforts to influence 
the economic and geopolitical order in a manner that benefits 
their authoritarian and anticompetitive practices.
    Just yesterday, the Chinese National People's Congress 
passed a national security law for Hong Kong that significantly 
erodes Hong Kong's special status and, based on available 
reporting, will deny the people of Hong Kong the right to 
protest, the right to assemble, or the right to criticize their 
government.
    The U.S. Congress has been clear time and again: the 
citizens of Hong Kong must enjoy certain rights that are 
distinct from mainland China. An effort to undermine the status 
quo is an affront to the people of Hong Kong and decades of 
international agreements regarding the status of Hong Kong.
    As I have said before, when it comes to China, we must work 
with our allies to execute a clear and coordinated strategy. 
This applies to trade and to the Chinese Government's most 
recent efforts to erode the rights of the people of Hong Kong.
    Here in the United States at this time, we know that we are 
in the midst of a public health and jobs crisis--so much 
suffering all across our country. We have seen the cost, in the 
context of this pandemic, this public health crisis, of our 
reliance on a single-source supplier and, more to the point, 
our reliance on production from a non-market economy.
    Last year, Senator Cornyn and I began this effort by 
outlining the main issues related to market access to China. We 
then focused on specific initiatives and actions undertaken by 
the Chinese Government, starting with the Belt and Road 
Initiative. Today we turn our attention to censorship.
    The actions undertaken by the Chinese Government include 
direct barriers, such as blocking movies from entering their 
market or restricting content, to blocking Internet firms, to 
dictating content related to China's territorial and economic 
claims, to demanding action or inaction by businesses related 
to Taiwan, Hong Kong, Tibet, and the ongoing human rights 
abuses in Xinjiang.
    The Chinese Government has become increasingly assertive in 
its demands within and outside of its borders. Their mandates 
related to extraterritorial censorship are particularly 
troubling. The Chinese Government's response to a message of 
solidarity for Hong Kong by the General Manager of the Houston 
Rockets, for one example, brings to light the lengths the 
government will go to censor speech, no matter where in the 
world it occurs.
    The intended message sent by Beijing's disproportional 
response is clear: the Chinese Government can exert command and 
control over any enterprise operating in China, public or 
private. Simply stated, the Chinese Government is using its 
market power to study both speech of our firms and speech of 
our people. These actions are inconsistent with our principles, 
inconsistent with our values and those of our allies.
    The introduction of a corporate social credit system takes 
this activity to a new level. The actions undertaken by the 
Chinese Government are clearly restrictive and discriminatory. 
They are insidious and counter to the necessary conditions of a 
fair global economic system.
    Since this hearing was originally scheduled in March, we 
have seen all too clearly the costs of relying on China, a non-
market economy, for production of our Nation's critical 
capabilities, whether that is personal protective equipment or 
otherwise.
    I recently introduced the Market Economy Sourcing Act, 
which will begin to right-size the supply chains toward the 
United States and other market-oriented countries. But this is 
but one measure that must be adopted to refocus our trade rules 
in the global economic system.
    If we hope to sustain market-oriented principles for the 
next 100 years, we must take action now to ensure competition 
and market principles are not simply words in a textbook, but 
rather infused into our system of government and governance. 
When it comes to trade, we must be responsive and creative to 
address challenges and harness opportunity.
    There is no doubt Congress, citizens, and businesses must 
support and defend the economic security of the United States 
of America.
    I look forward to hearing today from our witnesses and 
discussing potential responses, including the required 
disclosure of these types of requests to the appropriate 
Federal entities, and trade rules that prevent free-riding from 
non-market economies.
    Thank you, Mr. Chairman.
    Senator Cornyn. Thank you, Senator Casey.
    [The prepared statement of Senator Casey appears in the 
appendix.]
    Senator Cornyn. Now I would like to take a few minutes to 
introduce our witnesses, and we look forward to hearing from 
all of you today. I ask all witnesses to summarize your written 
testimony and try to abide by the 5-minute rule. We will come 
back and ask more questions. All of your written statements 
will be made part of the record, without any objection.
    Our first witness is Mr. Richard Gere. He is chairman of 
the International Campaign for Tibet, headquartered in 
Washington, DC. Of course Mr. Gere is an internationally known 
actor, social activist, and philanthropist who has worked for 
more than 25 years to advocate for human rights of the Tibetan 
people and preserve the Tibetan culture. He is also co-founder 
of Tibet House U.S. and creator of the Gere Foundation. He has 
co-sponsored five historic visits to the United States by the 
Dalai Lama.
    Mr. Gere, I understand you had a recent addition to your 
family. Congratulations on your new son. Thank you for being 
here.
    Next I would like to welcome Nigel Cory, associate director 
for trade policy for the Information Technology and Innovation 
Foundation here in DC. Mr. Cory is an expert on data and 
digital trade issues in the global economy. He spent 8 years 
working for Australia's Department of Foreign Affairs and 
Trade, which includes positions covering global, economic, and 
trade issues among G20 countries, and at the World Trade 
Organization. He has also held diplomatic postings in Malaysia 
and Afghanistan.
    Third, I would like to welcome Beth Baltzan, a fellow in 
the Open Markets Institute here in DC. Ms. Baltzan currently 
focuses on the impact of monopoly power on trade and its 
consequences for national security. She previously served as 
Democratic counsel for the House Ways and Means Trade 
Subcommittee. She spent 6 years as an Associate General Counsel 
at the United States Trade Representative, where she 
participated in trade negotiations and litigated trade 
disputes. Ms. Baltzan spent 3 years detailed to the Senate 
Permanent Subcommittee on Investigations.
    And finally, I would like to welcome Mr. Clete Willems, who 
is a partner at Akin, Gump, Straus, Hauer, and Feld here in 
Washington, DC. Mr. Willems currently advises a variety of 
clients on international economic law and policy matters. 
Before he joined the firm, Mr. Willems served at the White 
House as Deputy Assistant to the President for International 
Economics. He has represented the United States as a key 
negotiator with foreign governments and has litigated more than 
30 WTO disputes. Mr. Willems worked here on Capitol Hill on the 
House Budget Committee and for the former Speaker Paul Ryan.
    Thank you very much for being here, Mr. Willems, and all of 
our witnesses.
    And, Mr. Gere, if you are there, please proceed with your 
opening statement.

STATEMENT OF RICHARD GERE, CHAIRMAN, INTERNATIONAL CAMPAIGN FOR 
                     TIBET, WASHINGTON, DC

    Mr. Gere. I am here, somewhere. This is all a bit bizarre. 
I certainly prefer this face-to-face, but let us engage each 
other anyhow.
    Chairman Cornyn, Ranking Member Casey, members of the 
committee, thank you so much for your introduction and inviting 
me to testify.
    It has been 35 years since I first testified in Congress, 
and that was on behalf of our Central American brothers and 
sisters--and then of course on Tibet for the last 30 years or 
so. Tibet has certainly been my compass that has helped me 
navigate through the world, and certainly through Washington, 
and probably through all of my life.
    This is the first time I have testified before the Senate 
since I last met with one of your greatest colleagues, John 
McCain. He was a good man. He was a good friend. He was a good 
friend of His Holiness the Dalai Lama, and of the Tibetan 
people. He certainly was the best of us. And like John McCain, 
and many of you I am sure, I hope that our government can 
deliver at its best, not only for the American people but for 
the millions of people all over the world who look to us, look 
to the United States and its democracy and its freedoms and its 
openness, as a source of inspiration and refuge while they live 
under oppression and violence.
    American leadership is at its best when it sets its view 
beyond the horizon and looks with balanced confidence at the 
challenges and the opportunities that lie ahead. But the rise 
of China in the world today is not something beyond our 
horizon. It is right here. It is right in front of us. It is in 
our face. And it effects our daily lives, our workplaces, our 
freedoms, our privacy, our health--obviously, we are finding 
out--our elections, and it will certainly shape the future of 
our world.
    After looking at the committee's work on the Chinese 
Government's plans since 1949 to replace the U.S. on the world 
stage and advance the communist party's authoritarian model 
everywhere in the world, I am happy to offer my experience to 
this existentially important conversation.
    The conversation about the future of our relationship with 
the Chinese is crucial, not only to the U.S.--and frankly, we 
have been tragically naive under both Republican and Democratic 
administrations--but it is equally crucial for our democratic 
allies.
    I have been involved in supporting the Tibetan people, and 
the vision of His Holiness the Dalai Lama for peaceful 
coexistence with the Chinese Government, for almost 40 years 
now. When it comes to China, we Tibet supporters have been in 
for the long haul, I would say. We knew that what was happening 
in Tibet would not stop there, and that China's 
authoritarianism would expand well beyond Tibet, as now we see 
in Xinjiang, now especially in Hong Kong, and beyond China's 
borders.
    Now clearly, we have no quarrel with the Chinese people. 
They are wonderful people. They are the same as us. We wish the 
Chinese people to enjoy development, and quality of life 
improvements, and opportunities, and joy and happiness for 
their families and for their children. But what I fear is the 
Chinese Communist Party's model of development that is 
predicated on control, dominance, and violence. Chinese leaders 
have often quoted an old Chinese proverb in private: ``Wai ru, 
nei fa''--``On the outside, be benevolent. On the inside, be 
ruthless.''
    I recall vividly a time in the 1990s when a very strong 
bipartisan coalition of members of Congress called on the White 
House many times to condition Chinese most-favored nation 
status on clear criteria that would protect the rule of law and 
human rights. That coalition, unfortunately, was defeated by 
powerful interests with short-sighted financial goals and a 
very naive understanding of China's 100-year plan, which they 
are probably 50 years ahead of already.
    Conventional wisdom was that by opening our markets to 
China, this would somehow, and by itself, produce meaningful 
political and social reforms. As we now know, the opposite has 
proven to be true, with more restrictions imposed, Communist 
Party control of religion, mass incarceration, crackdowns on 
all forms of dissent, including concealing critical information 
about the spread of the coronavirus.
    We also see the Chinese Government using economic policies 
to prey on weaker countries through the extremely dangerous 
Belt and Road Initiative, their long-term plan to control 
natural resources, supply chains, trade, ports, and sea lanes.
    The point I am trying to make here is that the 
environmental, human rights, and worker rights reforms we 
advocated for then would have also protected the larger 
economic interests of the U.S. and our allies now.
    Let me give an example. The U.S. opened its doors to 
Chinese products, Chinese investments, and various forms of 
Chinese cultural influence, including state media. We have even 
allowed state-sponsored Confucius Institutes to gain a foothold 
in our universities and Chinese companies like Huawei to spend 
large sums of money to lobby the U.S. and enter the U.S. 
markets.
    But as you also know, China does not reciprocate. Access to 
Chinese markets is limited. They do not allow American media to 
broadcast in China. This lack of reciprocity, fueled by an 
Orwellian system of state censorship, powerfully restricts the 
Chinese people's access to information and American and foreign 
media companies' access to one of the world's largest media 
markets. In fact, China has repeatedly insisted that U.S. tech 
companies accept strict censorship to gain access to its 1.4 
billion people
    Another example is freedom of movement. Americans have a 
strong interest and appreciation for Tibetan people, for their 
unique Buddhist culture and their fragile, very beautiful land. 
It is the roof of our world. It is the third pole. And it is 
the greatest source of the world's fresh water. But here is 
what happens in Tibet.
    The Chinese Government highly restricts access to Tibet for 
Americans, including journalists and politicians, like no other 
areas of China, while Chinese citizens face no such limitations 
when they visit the U.S. They go where they want.
    Now Congress recently took action and passed the Reciprocal 
Access to Tibet Act. This is a good, very rational and 
systematic response, and we hope the State Department will 
implement it soon, as required by law now. As an actor, which 
is why I am here, I think, I know you are interested in my 
experience in the entertainment industry and growing Chinese 
influence there.
    Well, I cannot say that my speaking out for human rights in 
China has directly affected my career. I am probably an unusual 
case, and we can talk about that more in the Q&A session. There 
is no doubt that the combination of Chinese censorship, coupled 
with American film studios' desire to access China's market, 
can lead to self-censorship and to avoiding social issues that 
great American films once addressed.
    Imagine Martin Scorsese's ``Kundun'' about the life of the 
Dalai Lama, or my own film ``Red Corner,'' which is highly 
critical of the Chinese legal system--imagine them being made 
today. It would not happen.
    As I conclude my remarks, I would like to call your 
attention to two bills in the Senate. The first is sponsored by 
Senators Cardin, Casey, Cornyn, Rubio, and Wyden and has 
already passed the House with overwhelming support. The Tibet 
Policy and Support Act strengthens U.S. policy in Tibet while 
addressing one key and overriding issue, the selection of the 
next Dalai Lama. This cannot be allowed to be controlled by the 
Communist Party, only by Tibetan Buddhists. I am sure that you 
support this basic principle, and I ask you to co-sponsor this 
bill and raise it with the Senate leadership for swift passage 
by the Senate Foreign Relations Committee.
    Now the second bill is the Mongolian Third Neighbor Trade 
Act introduced by Senators Sullivan and Cardin and co-sponsored 
by Ranking Member Wyden and Majority Whip Thune. This bill 
would grant a democratic and independent Mongolia better access 
to the U.S. market for cashmere products manufactured in 
Mongolia. We can go into this later. Mongolia is under 
extraordinary pressure and threat from China right now. This 
will greatly benefit Mongolia, create jobs for Mongolian women, 
and reinforce democratic institutions. It is a concrete way of 
strengthening democracy at a most critical time in the Indo-
Pacific and of helping Mongolia remain independent. I call on 
the Senate to pass this bill as well, as soon as possible.
    Thank you very much for your attention, and I look forward 
to your questions.
    [The prepared statement of Mr. Gere appears in the 
appendix.]
    Senator Cornyn. Thank you for joining us. We will hear the 
other opening statements and come back for some questions.
    Mr. Cory?

  STATEMENT OF NIGEL CORY, ASSOCIATE DIRECTOR, TRADE POLICY, 
 INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION, WASHINGTON, 
                               DC

    Mr. Cory. Thank you. Good afternoon, Senators. I greatly 
appreciate the opportunity to testify on the use of censorship 
as a non-tariff barrier to trade.
    Let me start by saying that it is important to acknowledge 
that China uses censorship as a disguised tool for 
protectionism. And censorship in the Chinese context means 
overly broad and discriminatory control over digital content, 
distribution platforms, infrastructure, and the firms involved. 
And this disguised protectionism has already cost the U.S. 
economy so dearly, but this cost will only rise if China is 
able to export its model of digital governance to other markets 
around the world.
    The United States needs the strongest strategy to push back 
on the direct trade impact of censorship in China, but also to 
prevent it from moving to other markets. Stakes are high. If we 
fail to act, the U.S. could lose its edge in the global digital 
economy. And this is especially the case, given censorship 
along with other disputes over Internet policy, as part of a 
broader troubling rise of so-called digital sovereignty.
    And while not alone, China is the world's leader in using 
overly broad and restrictive and discriminatory rules around 
content it deems illegal. China is advocating for its own 
model, but other countries are also attracted to it. And they 
are drawn to it for political reasons, because it provides them 
with control, but it also provides them with a protectionist 
tool because they lack the economic impact.
    And while censorship is not the only restrictive tool that 
China has used, it is a central one that has led to a 
generation of Chinese Internet consumers having an Internet 
experience that is completely different from most people in 
most countries around the world. And it is known that China 
uses the Great Firewall to block access to thousands of foreign 
websites, which is obviously a clear barrier to market access. 
But it is only one tool of many.
    It is less known that censorship is also a key factor that 
leads to U.S. firms being prohibited from operating in key 
Internet service sectors in how it plays a part in the opaque, 
discriminatory, and restrictive content review process for 
video games, movies, and TV. And it is also a key factor that 
limits or restricts their ability to connect to the global 
Internet, which essentially hinders their ability to use or 
develop software on a cross-border basis.
    Now, while the primary motivation for censorship in China 
is regime stability, it also gets the economic benefit. And the 
economic benefit to China and the cost to the United States is 
already significant, in that over the last 20 years a host of 
U.S. industries and firms have lost hundreds of billions of 
dollars in revenue. And while it is hard to calculate an exact 
cost, the Information Technology and Innovation Foundation 
conservatively estimates that, for example Google, which 
withdrew from the Chinese market in 2010, has lost in excess of 
$32 billion just over a 5-year period from 2013 to 2019.
    In contrast, Amazon and Microsoft cloud services, which are 
also severely restricted in China, are estimated to have lost 
over $1.6 billion just over a 2-year period from 2017 to 2018.
    And why should we care about this? Because this lost 
revenue of billions of dollars would otherwise have supported 
innovation and employment here in the United States. Now some 
U.S. policymakers want to exacerbate the impact of censorship 
in China by calling for U.S. firms to either leave China or 
stay out of China because they believe it is immoral to do 
business there.
    But the fact is that, with or without U.S. firms, China's 
Internet will remain censored. It has been essentially censored 
since they first connected to the Internet. But there should be 
no doubt that it is in America's economic and security interest 
that as many American firms as possible sell goods and services 
into the Chinese market. Every dollar's worth of digital and 
physical exports is a dollar that Chinese firms do not earn. 
And it is a dollar that U.S. firms can otherwise use to 
reinvest in research and development, and to support economic 
and employment opportunities here in the United States.
    It is also important to recognize that human rights and 
trade are not mutually exclusive. The U.S. Government should 
still obviously lead the charge around the world in advocating 
for human rights and democracy, both in China and elsewhere, 
but it should also be able to develop a more nuanced, detailed 
understanding of how it is playing out and develop a countering 
strategy to how China has deployed censorship in the way it 
has, and to ensure that it does not spread any further.
    As a consequence, we recommend to Congress that it ask the 
U.S. International Trade Commission for a detailed study into 
the impact of censorship, and this study could form the basis 
for new rules for the USTR to use in future trade agreements, 
and also to be used by the Department of Commerce. But it could 
also form the basis for a more holistic, global digital economy 
strategy that is needed to counteract China's effort to 
advocate for its own model, because there is a fierce debate 
underway at the moment over which direction countries should 
go, which approach they should take, and China's is obviously 
based on censorship and protectionism.
    Again, I thank you for the opportunity to testify, and I 
look forward to your questions.
    [The prepared statement of Mr. Cory appears in the 
appendix.]
    Senator Cornyn. Thank you. Ms. Baltzan?

              STATEMENT OF BETH BALTZAN, FELLOW, 
             OPEN MARKETS INSTITUTE, WASHINGTON, DC

    Ms. Baltzan. My name is Beth Baltzan, and I am a fellow at 
the Open Markets Institute. I have been a trade lawyer for 
nearly 25 years.
    As Senator Cornyn noted, I have worked at USTR, the Public 
Company Accounting Oversight Board, the Senate Permanent 
Subcommittee on Investigations, and the House Ways and Means 
Committee. All of these experiences inform my testimony today.
    In 1989, Francis Fukuyama published an influential article 
called ``The End of History.'' He argued that the imminent 
dissolution of the Soviet Union reflected the triumph of 
economic and political liberalism and that economic liberalism 
would pave the way for political liberalism globally. This view 
permeated the zeitgeist when we designed the WTO and when we 
let China into it.
    Developments in China have shattered that theory. Rather 
than democratizing as a result of its integration into the 
global economy, the Chinese Community Party has weaponized that 
integration, using its economic leverage to quash the rights of 
foreign citizens in their home countries.
    Economic liberalism has become a vector for political 
illibralism. Fukuyama has recognized his mistake, going so far 
as to identify Chinese state capitalism as the most salient 
ideological threat to democracy.
    When we look at the actual rules of globalization, we see 
how this came to pass. In designing the rules in the 1990s, we 
focused on liberalizing capital flows, believing that a laissez 
faire model would produce ideal economic and political 
outcomes. We did not guard against a government that would 
exploit that system with a fundamentally anticompetitive, zero-
sum strategy. It is that anticompetitive strategy, not natural 
comparative advantage, that has led us to be economically 
dependent on an authoritarian regime.
    It is wrong to say we could not have seen this coming. The 
founders of the multilateral trading system foretold this 
outcome and sought to prevent it. They designed a regime 
grounded in fair competition. Cheating through currency 
manipulation, labor rights suppression, or monopolistic 
behavior was prohibited. They presciently warned that without 
these rules, state-trading governments, uber-monopolists, would 
destroy free enterprise and democracy.
    These rules were memorialized in the Havana Charter signed 
in 1948 by over 50 countries, but it never entered into force. 
It is popular lore that an isolationist Congress rejected it, 
but that is not accurate. The charter failed because the 
American business community rejected it. We managed to 
forestall the immediate threat to democracy and free enterprise 
by keeping the Soviet Union out of the gap, but we did allow 
the PRC, a modern state-trading government, into the WTO, and 
prophesy now seems to be coming true.
    It is not too late to mitigate the risk. Addressing the 
CCP's ability to interfere in our civil liberties requires us 
to reduce its economic leverage over us. I offer five 
recommendations.
    First, we must address our supply chain dependency. So much 
has changed since early March when this hearing was first 
scheduled. People now understand in very real terms what it 
means to have a supply chain dependency on China. Fortunately, 
for the first time since the 1970s, the United States is having 
a conversation about strategic industrial policy. We need to 
identify critical sectors, map out supply chains, and ensure we 
have diverse sources not just of finished goods, but of 
components as well.
    Second, we must recognize that unless we reform the 
systemic global trading incentives, that it will be difficult 
for us to sustain supply chain diversification. As long as the 
rules tolerate anticompetitive inducements to offshore, we must 
anticipate that any newly rebuilt supply chains will eventually 
end up back where they started. Therefore, we need the right 
slate of reforms at the WTO. The narrow focus on subsidies is 
grossly insufficient to deal with the much more structural 
problem of the CCP's anticompetitive approach to trade.
    Third, and related to the question of sustaining supply 
chain diversification, we must keep an open mind about tariffs. 
Tariffs can be a useful tool for driving behavior. The United 
States has the lowest bound rate at the WTO. That low rate, 
coupled with anticompetitive CCP behavior, has made it 
particularly lucrative to offshore American production and 
export it back. Until we have achieved global reform, we must 
consider tariffs to be one way of incentivizing the sourcing 
need.
    Fourth, we should work with our allies but be realistic. 
Many of our allies simply do not yet see the CCP as a threat to 
economic and political freedom. However, supply chain 
diversification is one area where we can cooperate with 
countries that share our values.
    Fifth, we must accept that true market access in China is 
illusory. The CCP will give us exactly as much market access as 
they want to. The more we telegraph that we believe unfettered 
market access is possible, the more leverage they have over us. 
Being a market access demandeur puts us in a position of 
weakness and increases their ability to interfere with our 
civil liberties.
    Thank you for the opportunity to present these views.
    [The prepared statement of Ms. Baltzan appears in the 
appendix.]
    Senator Cornyn. Thank you very much. Mr. Willems?

 STATEMENT OF CLETE R. WILLEMS, PARTNER, AKIN, GUMP, STRAUSS, 
              HAUER, AND FELD LLP, WASHINGTON, DC

    Mr. Willems. Mr. Chairman, Ranking Member, and members of 
the committee, thank you very much for the opportunity to 
testify today.
    China is expanding its use of censorship to promote 
national interests, with adverse consequences around the globe. 
This has been driven home for us by the suppression of 
information on the coronavirus and the impact that this has had 
in the United States.
    While censorship is just one of the many tools that has 
been used to promote the party's interest--and we have talked 
about others already today--it is something that has not been 
prioritized in policymaking, including the Phase One 
negotiations that I was a part of while I was in the 
administration, and therefore it is ripe for further 
exploration and action.
    China's censorship activities manifest themselves in many 
ways. One primary example is the Great Firewall, which 
restricts free speech through website blocking and filtering. 
According to USTR, China currently blocks over 10,000 websites. 
And as I have been getting ready for this hearing, I have seen 
other estimates that put that number closer to 20,000 or even 
30,000. China also controls domestic news outlets and directs 
them to avoid unfavorable stories on issues related to the 
economy and, of course, the coronavirus itself.
    China's indirect efforts to censor speech are equally 
troubling. During last year's NBA Twitter controversy, China 
retaliated against a single tweet by a single individual with a 
single team by prohibiting the broadcast of all games of all 
teams in China, which was a clear effort to intimidate those 
abroad who intended to speak out, and whoever wanted to do 
business in China.
    And this is just the tip of the iceberg. China's social 
credit scoring system will enable its regulators to 
comprehensively monitor and influence behavior in real time. 
Overall, China's policies enable it to suppress disfavored 
views, spread propaganda, and promote a business environment 
where only its companies can compete.
    China has also been encouraging other repressive regimes to 
adopt similar policies and has yet to back down in the face of 
U.S. pressure. After the State Department classified Chinese 
news outlets as foreign agents, China responded by expelling 
journalists from Beijing. And I find it particularly ironic 
that China's wolf warrior diplomats have taken to Twitter to 
influence global opinion on a site that is totally banned in 
China.
    At the WTO, the U.S. can seek to challenge China's 
restrictions on foreign Internet service providers under the 
service agreement which bans prohibitions on market access and 
discrimination. However, these rules were drafted before the 
Internet age, and they are not particularly specific when it 
comes to censorship, which could lead to uncertainty.
    China could also try to avail itself of certain exceptions 
such as public morals or national security. I believe that the 
U.S., on balance, has a strong case. But given the time and 
resources that it would take to bring a dispute and some of the 
uncertainty I mentioned, I think it is better to move in a 
different direction.
    So how should we deal with this issue? Let me give you a 
couple of ideas at the outset.
    First, we must consistently highlight China's nefarious 
policies and use the full power of government to seek change. 
Governments are better positioned than companies to push back 
against this behavior, and we should not expect our companies 
to do it alone, and we cannot even always expect them to do 
what we think is the right thing, on their own. They need the 
government behind them.
    Second, we must work with key allies to do the same. China 
will find it much more difficult to stir up anti-U.S. sentiment 
and excuse its behavior if others stand by our side. But those 
others must not hedge their bets, and they must not send the 
wrong signal to China by adopting similar policies. The EU's 
digital sovereignty agenda and the discussion of the European 
Firewall is a case in point.
    Third, I would apply the same advice to us. As we seek to 
counter the threat that is posed by China, we must be careful 
not to adopt the same policies that we are condemning, policies 
that stifle free speech or increase market access barriers. 
This will backfire economically, and it will cause us to lose 
moral high ground that is so important to building an effective 
international coalition.
    Fourth, we should pursue a broad WTO reform agenda with 
explicit rules on censorship, forced technology transfer, 
subsidies, intellectual property theft--and I think some of the 
ideas that Beth raised as well are worth considering. We should 
require China to take on the same obligations as the United 
States, and fix the dispute settlement system. The WTO is 
falling short of its objectives, no doubt, but abandoning the 
system that we, not China, helped to create would be a tragic 
mistake. China would like nothing more than to see the U.S.-
created system collapse.
    Fifth, we should negotiate a broader range of trade 
agreements with strong censorship provisions. This includes a 
revamped U.S.-EU-Japan trilateral, add-on digital trade 
chapters with existing FTA partners like Australia, a new 
Taiwan FTA, and a renegotiated TPP. Putting politics aside, the 
TPP provides a great opportunity to encircle China with 
policies that stand in contrast to its economic model. There 
are legitimate concerns about it, but it should be reformed 
just like NAFTA, which we are going to bring into force 
tomorrow, the new USMCA. Let us do the same thing on TPP.
    Sixth, we must pass new laws to protect U.S. companies so 
they can safely access a market of over a billion consumers. 
Ideas like protecting employees from being terminated for 
voicing opinions about foreign governments, prohibiting U.S. 
companies from complying with censorship requests, and 
disclosing pressure received from the Chinese Government, all 
deserve debate.
    Finally, we must not draw a false equivalence between the 
Chinese Government and its people. Many good Chinese citizens 
are suffering, with their voices muffled by the same policies I 
have just been describing. A commentary that was briefly posted 
online in China earlier this year, before it was deleted by the 
censorship police, stated: ``The openness of information is the 
best vaccine. Blocked ears and eyes are also a contagious 
disease, and no one can escape.''
    Thank you.
    [The prepared statement of Mr. Willems appears in the 
appendix.]
    Senator Cornyn. Thank you very much. We will proceed with a 
round of 5 minutes of questions per Senator.
    Mr. Gere, let me start with you, if I may. Your courage in 
confronting the Chinese Communist Party for its methods and 
tactics of censoring, retaliating, and punishing those with 
whom it disagrees is commendable. And I thank you for that.
    As China's economy has grown, though, we have seen more 
self-censorship. There is the censorship that can be imposed 
directly by the government, but there is also the practice of 
self-censorship by companies and individuals that want to do 
business in China. Can you describe how Chinese practices 
operate and how the magnitude has changed in parallel with the 
growth that it has experienced?
    Mr. Gere. Yes. Well, in my experience, certainly in the 
government diplomatic world I have seen over the last 40 years, 
China is not shy about letting everyone know that they do not 
like the Dalai Lama to be treated well and the Tibetans to be 
treated well.
    The three Ts that they freak out about are Tiananmen 
Square, Tibet, and Taiwan. And certainly they do call 
everyone--local, State, national, Federal, all over the world--
if any of those issues do come up. But I have seen over the 
last 30 or 40 years that countries and diplomats do self-censor 
now, that they take it upon themselves not to put themselves in 
a position where they are going to be reprimanded by the 
Chinese or that they are going to lack some kind of economic 
access.
    Norway went through a horrible period when Liu Xiaobo was 
given the Nobel Prize. They were cut out completely from trade 
with China. Moving on to movies, I see the same thing happening 
over these last years.
    As I said before, certainly you are not going to see any 
film made by a studio that was critical of China, because of 
investment, money coming in from China invested in U.S. films. 
But let me go back a little bit and understand how the film 
system works in China.
    There are only 34 international films that are allowed to 
be shown a year in China, and 12 of those, one-third of those, 
have to be an IMAX film or a 3D film, at minimum. So what they 
want is these high-profile ``tent-pole'' movies they are 
called, digital CGI films--you know, the Marvel movies, et 
cetera--which are consumed at a very high level in China, and 
entrepreneurs can make a lot of money. The two biggest 
distributing companies in China are state-owned. The film 
industry is owned by the state in China. So of course there is 
a lot of self-censorship.
    What would have been maybe a Chinese villain is now a North 
Korean villain in a movie. I mean some of it is quite silly. 
There is a movie, a high-profile movie, where I noticed Tom 
Cruise was walking through Shanghai and there was some 
underwear on a clothes line. The censor objected to that 
because it made Shanghai look like a less developed city, and 
it was removed.
    ``Christopher Robin'' was not allowed to be screened in 
China because there was some amusement that Winnie the Pooh 
looked like Xi Jinping, and it was refused entry into China. 
But yes, I see this in studios, and it came up even recently 
with me. There was a Hollywood script that takes place partly 
in China, and the producers of it at first balked at the idea 
of me being in the film. And then they were talked to--and 
actually they are supporters of the Dalai Lama in Tibet, and 
they took a deep breath and said, ``No, no, we are going to 
make the moral decision here.''
    So we are talking about making that film. Of course we will 
never be able to shoot it in Shanghai. I am not allowed to go 
to China. I do not even know now if I would be allowed in Hong 
Kong. I asked, point blank, to some very well-known actresses, 
friends of mine, Chinese actresses, if I could work with them. 
And they said, absolutely not. Their careers would be over in 
China, and they would never be allowed to work again.
    I have had other circumstances with very talented Chinese 
directors who--one was in tears with me, having to call me up 
and say that he could not work with me, that his career would 
be over and his family could not travel.
    So I mean, this is personal to a lot of people. My own 
career I cannot say has suffered at all because I don't make 
CGI-kinds of films. My films would not naturally be shown in 
China anyhow, except underground and on the black market. I 
know the film that I made, ``Red Corner,'' many years ago--of 
course we could not shoot it in Asia. We could not even get 
insurance because of me and the threat from the Community 
Party. But when it was shown, I did go to Hong Kong after that 
and, although it was not officially shown in China, as I was 
going up the elevator in the hotel there, the elevator operator 
looked up at the camera that was watching us in the elevator 
and, as I passed him at my floor, he said, ``Thank you for `Red 
Corner'.''
    Senator Cornyn. Well, there is that ubiquitous technical 
surveillance in a police state that----
    Mr. Gere. Well, we know that the budget for surveillance in 
China is larger than the military budget.
    Senator Cornyn. Thank you very much.
    Senator Casey, do you have some questions?
    [Pause.]
    Senator Cornyn. Senator Casey? I understand we have a 
little technology issue. Let me turn to Senator Cassidy----
    Senator Casey. Mr. Chairman, thanks very much.
    Senator Cornyn. Oh, there he is. Thank you. Go ahead, 
Senator Casey.
    Senator Casey. Mr. Chairman, thanks very much. I want to 
thank you for the hearing. I will start with Mr. Gere and then 
go to Ms. Baltzan.
    Mr. Gere, I want to first note for the record, because some 
other members of the Senate may not know this, but you have 
strong Pennsylvania roots personally, and then your family, 
both your parents, and I know that we want to note that for the 
record, and we appreciate that. I know that we always are 
welcoming people back who want to move back. But I want to 
thank you for that.
    I also want to thank you today for the great work that you 
have done calling attention to these issues over decades now in 
a manner that is the kind of sustained effort that those of us 
in Washington sometimes do not undertake. There has to be a lot 
more focus than we have brought to bear on these issues that 
relate to China. And you have been sounding the alarm for 
years.
    I wanted to start with your observations with regard to 
both the tactics and the strategy employed by the Chinese 
Government, especially over the last decade, to compel or to 
elicit actions from individuals or companies, or in some cases 
governments.
    So I guess it is a two-part question: your observations of 
both the tactics and strategies employed by the Chinese 
Government. And secondly, what is your advice for both firms 
here in the United States as well as the Congress?
    Mr. Gere. Am I on now? Can you hear me? Hello? Yes, good.
    Well, thank you for your kind words, and I have to say, 
yes, my mother and father both came from Susquehanna County--
Brooklyn, PA, which I do not think is any larger today than it 
was in the 1920s when they were born. It is a farming 
community, dairy farms. My father grew up milking cows by hand, 
early on. So I still have family there and consider that maybe 
my spiritual home.
    I think the big, overriding thing, from my point of view, 
is that we have to understand that China is playing the long 
game. They have been playing the long game. They do have a 100-
year plan, and they are way ahead. They were very clever. They 
realized they were coming from a very weak position, and they 
decided that they would be the cheapest place in the world to 
make products. And this was well thought-out from their side. 
They were not looking to make profits. What they were looking 
to do was own the markets, which they do at this point.
    We get our medicines from China. We get most of our 
manufactured goods from China. We get almost everything we buy 
in the store made in China. They own us in many ways. And 
certainly that, to them, is controlling the world, the world 
that we have bought into, which is one of, who is going to make 
the most money? We have made some huge mistakes along the line, 
very short-
sighted, very naive. They are much smarter than we are. They 
are much more patient than we are.
    They creep into power, as we back off, as we pivot away 
from Asia and we leave a vacuum. They fill it immediately. When 
we back off in the environmental world, they fill it in 
immediately. When we break up our alliances, they come 
immediately. They are making alliances with Italy right now. 
The Belt and Road is now ensconced in Italy. It should be the 
American Belt and Road. It is the Chinese Belt and Road.
    Again, it is long-term thinking. And especially now that 
they have made Xi Jinping Emperor for Life, this 100-year plan 
will be continuous. As we change administrations, as we change 
the focus of what we are doing, how we are thinking, how we 
approach the world, there are spaces and vacuums that are 
created, and the Chinese have taken them every single time. 
They creep into every open space.
    And I have talked to leaders all over Europe, all over 
Central America and Asia. I have said, ``Please, do not take a 
loan to build an airport or a port from the Chinese, because 
they will take that airport. They will take that railroad. They 
will take that port away.'' We have seen it in Sri Lanka, and 
we are going to see it in Italy.
    So I think the strategy for us is to step back and 
understand this long-term strategy for world dominance that is 
coming from the Chinese Communist Party. And part of that is 
talking to each other, having these alliances, relying on TPP, 
relying on real, honest relationships with the EU.
    This is a world of strong alliances that can confront what 
the Chinese are doing and win.
    Senator Cornyn. Senator Casey, I know you had a question 
for Ms. Baltzan.
    Senator Casey. I will go to that on the second round. Thank 
you.
    Senator Cornyn. Thank you. Senator Cassidy?
    Senator Cassidy. Thank you. Mr. Gere, you just said 
something--by the way, thank you all for testifying. Incredibly 
important hearing, and I thank you very much.
    And, Mr. Gere, you just mentioned creeping into power. I 
kind of like that, as they kind of, you know, creep into the 
vacuum. But I am trying to ask myself, how do we stop it?
    Now, Ms. Baltzan, I am struck by your testimony because it 
actually links their ability, the Chinese ability, to do 
digital censorship to the economic power that they are 
accruing. And it suggests that--I liked that whole exchange 
that you had in your testimony about how free trade by itself 
does not necessarily make things happen. It has to have other 
guard rails.
    I say that because I was recently told by Central American 
countries that the workers' rights, the human rights, and the 
environmental requirements we place upon them in order to 
conduct trade have increased their cost of production and put 
them at a competitive disadvantage for a company looking for a 
low-cost place to produce. Therefore, they go to China, which 
does not have the workers' protections, to say the least, the 
environmental protections, et cetera. And so it kind of slides 
that way, which, if you will, works against our interests in 
multiple fashions.
    Do you have a thought on that?
    Mr. Gere. Yes; is that to me? Or is that to----
    Senator Cassidy. Ms. Baltzan. Am I pronouncing your name 
correctly, ma'am?
    Ms. Baltzan. You did, thank you very much. Thank you very 
much.
    Yes, I think this is something that we see with Mexico as 
well. I think the answer to stopping this race to the bottom, 
which is fundamentally based on anticompetitiveness--these are 
anti-
competitive bases for trade--is to incorporate these standards 
at the WTO. And it is very surprising to me that, in light of 
not only these issues in Central America and Mexico and other 
places, but in light of Tazreen, the fire at Tazreen in 
Bangladesh, the collapse of Rana Plaza in Bangladesh, it 
surprises me that labor issues and environmental issues in this 
race to the bottom are not part of a WTO reform package.
    I did point out in my testimony that there were labor rules 
in the Havana Charter, which was supposed to be the governing 
document for the global trading system going back to 1948. If 
China were actually required to adhere to those rules like 
everyone else, then you would have the opportunity to mitigate 
the race to the bottom.
    Senator Cassidy. But let me ask you for a second, if you 
will. If we are--you mentioned the problem with our supply 
chains going through China. But they are going to be the lower 
cost as long as they are willing to sacrifice international 
environmental standards, labor rules, human rights, et cetera. 
Granted, Vietnam might be lower cost in some places based upon 
labor, but nonetheless, even that is a further race to the 
bottom.
    If we are talking about bringing supply chains back to more 
secure places and decreasing the economic growth of China by 
which they can coerce people into accepting their censorship, 
we really have to kind of take into accommodation that which 
you are describing now.
    Is that kind of the essence of--I am adding to it, but 
would you agree with that which I said?
    Ms. Baltzan. I think that is right. I think we need a race 
to the top, not a race to the bottom. And I think--you know, 
labor is part of section 301, so that could be on the table, 
not just IP, but section 301 on labor with respect to our 
negotiations with China as well. Why not?
    Senator Cassidy. Okay. That is very helpful. And I am 
sorry, I do not have my notes in front of me. I am not used to 
working remotely. The gentleman who spoke at the very end, I 
think you spoke of a need to confront this digital and 
censorship issue across the globe. But tell me again how the 
U.S. is to do that? How do we get, for example, Italy to not 
accept censorship when, according to Mr. Gere, Hollywood is 
effectively accepting censorship?
    Mr. Willems. So thank you for the question. What I was 
referring to in general was that I think we need a much more 
robust negotiating agenda, with a range of potential allies 
that is more explicit on the censorship question.
    We have made some progress in some trade agreements--the 
USMCA, the U.S.-Japan Digital Trade Agreement--where we talk 
about nondiscrimination and the free flow of information across 
borders, but I think we can go much further and much deeper and 
be much more explicit on censorship. And I think that doing so 
would actually help address some of the concerns that I have 
about a WTO dispute and some of the uncertainty that could be 
put into place by some of China's counter-argument.
    So I think a much broader trade negotiating agenda is the 
way to go.
    The other thing, though, on Italy that I think Mr. Gere was 
referring to was that Italy had basically signed up for some 
Belt and Road money. It happened about 2 years ago while I was 
in the administration. And I personally was involved in calling 
Italy and trying to get them to stop. The problem was, they 
were in an economic crisis. They wanted infrastructure, and 
China was offering it cheaply. It is a huge problem. We need to 
have an American alternative.
    We have tried to do that with the International Finance 
Corporation. I think it is a very helpful addition to the U.S. 
toolkit. But I would like to see us put even more money at that 
effort, and like to see us link up with other trading partners, 
and then have international standards on development 
financing--standards about transparency and accountability, 
standards that we meet, that Europe meets, and that China 
cannot.
    That is another area where I would like to go.
    Senator Cassidy. Thank you. I yield back.
    Senator Cornyn. Thank you very much. Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman, for holding this 
hearing. And thank you to all of our witnesses.
    You know, the movie industry's thirst for profits and for 
access to China's huge audiences makes it uniquely susceptible 
in many ways to the sort of self-censorship that the Chinese 
Communist Party, the CCP, likes to encourage others to impose 
on themselves.
    One-quarter of ``Aquaman's'' global box office came from 
China. Disney earned $600 million off of ``Avengers: Endgame'' 
in China. That is a lot of leverage. And the People's Republic 
of China is very clear that when it comes to movies, it wants 
products that are not only entertaining, but that align with 
the party's world view.
    So, Mr. Gere, can films that are not CCP propaganda pieces 
really get access to China, given the role of China in the 
global box office? What effect is China having on the movie 
industry overall?
    Mr. Gere. Yes; I mean, look, I do not think it is as dark 
as you were describing, in this moment. And there are certainly 
benign movies that are completely apolitical that have access. 
Those movies that you brought up are pure entertainment and 
politically neutral.
    I think those will never have a problem having access to 
1.4 billion Chinese viewers. But I do think that challenging 
films along the lines of ``All the President's Men'' or ``Red 
Corner,'' that I made, it is highly unlikely that these kind of 
films are going to be supported by Chinese investors. And 
especially if they say in advance, which they often do, that 
there is no way that that film will have access to the Chinese 
people.
    Senator Menendez. Yes. How about--and I get that those are 
rather benign--but even in the case of ``Top Gun: Maverick,'' 
whose producers removed references to the Japanese and 
Taiwanese flags at the request of the Chinese investor, China 
still has a lot of power to dictate their preferences. Is that 
not fair to say?
    Mr. Gere. It is very fair to say. But also it is very 
illustrative of their weakness. I mean, how silly is that? How 
completely ridiculous? The way that they are hypersensitive 
about the Dalai Lama, you know, the kindest, most generous man 
on the planet, who is consumed and saturated with love and 
compassion and forgiveness. The mere mention of his name makes 
them crazy.
    The problem is that communist parties everywhere lack 
legitimacy. And someone like the Dalai Lama, for instance, is 
legitimate. People love the Dalai Lama, for deep and powerful 
reasons. You do not love the Communist Party. You abide by it 
because it is powerful, and it controls you. But you do not 
love it.
    Legitimacy truly--true legitimacy comes from the heart, and 
that is really what they are afraid of: something that touches 
the heart, and through the heart a sense of right and wrong and 
decency. Anything that basically has that, that would challenge 
even the idea of a communist party, or of totalitarianism, or 
the kind of surveillance state that they have developed there, 
anything that challenges that even in a poetic way is going to 
make them crazy.
    Senator Menendez. Yes. I agree with you. How small is it of 
them to be worried about a Japanese or Taiwanese flag? But even 
something as small as that is something that the film makers 
were willing to submit themselves to. And so that is what 
worries me.
    And I agree with you on the Dalai Lama. And I so 
appreciated in my other role on the Foreign Relations 
Committee, what you have done in your long quest to have the 
recognition and the freedom of the Dalai Lama to do what he 
does as a spiritual leader of so many.
    But this is what I am concerned about. You know, we know 
what the Chinese are and what they do. I am concerned about 
their influence over us. I look at the fact that President Xi 
has declared that every foreign movie to be shown in China must 
be vetted by the Central Propaganda Department. And, depending 
on the content, the Ministry of State Security, the Ministry of 
Public Security, the Ethnic Affairs Committee, and the Bureau 
of Religious Affairs also may be involved.
    Now I do not think they are looking at lighting or 
cinematography or editing. I think they are looking to preempt 
themselves--and this is a challenge. I wonder, I wonder--and I 
say this to the panel--does this influence film makers' choices 
to preempt themselves from offending Chinese censors?
    What happens if the creative team is unwilling to make the 
sorts of changes that China wants?
    Mr. Gere. Well, you have different types of movies. And 
certainly a ``Top Gun'' kind of movie, that is not an art-film 
festival kind of movie. It is a mass-market entertainment. And 
I do not know that the changing of the flags on his uniform, 
you know, is a major blow to the soul of the film makers. It is 
not that kind of a film. I am not worried about those kind of 
films.
    I am worried about the rabbit hole that one goes down at 
this point. If all of our films become primarily financed by 
Chinese money, then clearly you are going to see films that are 
to glorify the Chinese Party in some way. But that is a ways 
down the rabbit hole.
    I think still, serious film makers are going to make the 
kind of films that they want to make. The commercial movies 
that you are talking about, you know, they want access to a 
mass market. And I cannot blame them for that. And minor 
changes along the way, it is hard for me to fault. I am more 
concerned about the soul of storytelling and movies and 
entertainment which are beyond the kind of Marvel movie kind of 
movie making.
    Now clearly you are not going to have Chinese villains 
anymore. That is not going to happen. That is done. It is going 
to be North Koreans. They are all going to be North Koreans 
from now on. But, you know, I always thought those were paper 
tigers anyhow. I never felt comfortable with that in any event.
    But as I mentioned in my original talk, the serious films 
looking deeply, profoundly at the situation in China will not 
happen now.
    Senator Menendez. Mr. Chairman, I just want to make one 
last comment, if I may.
    Senator Cornyn. Sure.
    Senator Menendez. I understand, Richard, what you are 
saying. But sometimes the soul is lost step by step and dollar 
by dollar.
    Mr. Gere. That is the rabbit hole I am afraid of, yes.
    Senator Menendez. Thank you, Mr. Chairman.
    Senator Cornyn. Thank you, Senator. Senator Cortez Masto?
    Senator Cortez Masto. Thank you. Thank you to the panel. I 
appreciate the conversation today.
    So let me approach it from this perspective, and let me 
turn to Hong Kong. American and European countries are 
receiving pressure from the Chinese Communist Party to endorse 
national security law and other CCP actions toward restricting 
freedom and civil liberties in Hong Kong. We know that.
    The pressure will almost certainly extend to other issues 
that CCP deems sensitive. But what we have also seen is the 
pressure on American companies who want to do business in China 
to change some of their, I do not know, policies, principles, 
some of their products in response to the pressure from China.
    So I guess my question to all the panelists is, what can 
Congress do to support American companies experiencing the CCP 
government pressure and propaganda? I mean, that is the 
challenge we have here. I sit on Banking and Housing as well, 
and we just had this discussion on how American companies are 
succumbing to the pressure put on by the Chinese Government.
    What do we need to be aware of here in Congress? And what 
can we do to support our American companies that want to get 
into that market, but at the same time stay true to our 
freedoms, our democracy, and who they truly are as a business?
    Mr. Gere. Yes, I just had one comment here, and it is to 
bring, again, the attention of reciprocity, international norms 
of reciprocity. We have to demand. We have given away way too 
much--way, way, way too much. We did not have to. The Chinese 
are sitting back in their chairs and going, ``Ah, we got what 
we wanted again. We got what we wanted again, again, and 
again.''
    Reciprocity, just the norms of international behavior, 
access to their markets, access to information, those are huge 
things to them--huge. But we can demand that there is 
reciprocity. Reciprocity of movement, you know? No one gets to 
Xinjiang. No one gets to Tibet. It is impossible. It is easier 
for a journalist--journalist friends of mine have told me this: 
it is easier to get into North Korea than into Tibet. 
Reciprocity, the norms of international behavior have to be 
demanded, and we cannot be drunk with those short-term goals of 
money. We cannot, because we have seen what it has done to us 
over the last 25, 30 years.
    Senator Cortez Masto. I appreciate that. Thank you. But let 
me ask you--well, let me open it up to the panel, because I 
think, Mr. Cory, earlier you said that the U.S. should ask the 
International Trade Commission for a study on China censorship 
and protectionism. So we get this study; then what do we do? 
And let me put it in this perspective. Once we have the study, 
is there an opportunity to bring in international organizations 
or other countries, or allies, or friends to really put 
pressure here and to focus on this reciprocity, or what we 
should be doing to address the censorship and protectionism?
    Mr. Cory. I think the study is a simple first step that 
sort of sends a clear signal that the United States recognizes 
that this is no longer some minor trade irritant, that this is 
a part of the strategic calculation with China. And what we 
have seen is that countries, like my home country of Australia, 
the United States, Canada, and the European Union, are all 
somewhere along a spectrum in waking up to what China and the 
Chinese Communist Party represents to their trade interests, 
their economic interests, but also their own political 
interests and values there.
    And so it sends that clear signal. And then it starts the 
process of outlining what are the corresponding steps that the 
United States can take? And that is multi-faceted. That is 
addressing the cases where Chinese Communist Party action is 
applied extraterritorially, outside of China, in the United 
States, in Australia, and elsewhere, documenting those. It is 
bringing the transparency to that.
    It is also setting up the mechanisms to talk with U.S. 
firms and industries that are in the impossible position of 
trying to stand up to the Chinese Communist Party to get a 
better understanding what exactly is going on. What are they 
asking for? How are they asking for it? What is the legal basis 
for that? Because only then does the United States have the 
information it needs to respond.
    But also, and importantly, I think the study would reflect, 
and the strategy that it should lead to is, that the United 
States cannot do this alone. It most definitely needs to lead 
the charge in making the case and pressing back against what 
China is doing, but the point has passed where the United 
States can do this on its own. Whether that point was 10 or 15 
years ago, it is a matter of fact now that the United States 
really does need to work with its like-minded value-sharing 
partners, especially the European Union, Japan, Australia, and 
others, in providing a collective response. Because that is 
really the best chance we have for affecting change in China 
and its effect outside of China.
    Senator Cornyn. Thank you, Senator Cortez Masto. We will 
now turn to Senator Wyden.
    Senator Wyden. Thank you very much, Mr. Chairman, and I 
appreciate all our guests being with us. And as ranking 
Democrat of the full committee, I take a great interest in 
this. Good to see you again, Mr. Gere, as well. Welcome.
    And I want to ask you all about something John Bolton wrote 
in his book--and of course he is the former National Security 
Advisor--and I am just going to read it to you.
    ``At the opening dinner of the Osaka G20 meeting in June of 
2019 with only interpreters present, Xi had explained to Trump 
why he was basically building concentration camps in Xinjiang. 
According to our interpreter, Trump said that Xi should go 
ahead with building the camps, which Trump thought was exactly 
the right thing to do. The National Security Council's top Asia 
staffer, Matthew Pottinger, told me that Trump said something 
very similar during his November 2017 trip to China.''
    So we have very knowledgeable witnesses on this panel, and 
I would just like to see if any of you believe that encouraging 
foreign leaders to build detention and forced labor facilities 
for religious minorities is anything but a repudiation of 
American values? Does anybody think that that is not the case, 
that this is a repudiation of American values?
    Mr. Gere. Yes, I mean it is--I do not know what crazy movie 
we are in all of a sudden. This is ``Dr. Strangelove.'' I 
cannot imagine there is another person in the U.S. Government 
or another person, an American citizen, who even remotely would 
believe what the President said, would feel that same way, that 
the concentration camps are the right way to go. It is 
appalling.
    Senator Wyden. Anybody want to add to that? I think that 
pretty much sums it up. It certainly does for me, and our 
family knows a lot about concentration camps as well.
    Okay; thank you very much, Mr. Chairman, Senator Casey. 
Good job--an incredibly important hearing, and I look forward 
to learning more about all that you have discussed. Thank you.
    Senator Cornyn. Mr. Willems, before we move to the next 
questioner, you had your hand up and wanted to make a comment 
on some earlier testimony or questions. Go ahead.
    Mr. Willems. Thank you very much. And let me just comment 
quickly on the last two questions. First on this question about 
the Osaka dinner. I was out of the administration by that time, 
so I have no first-hand knowledge of it. I can tell you that 
while I was in the administration, I did work closely with Matt 
Pottinger and Ambassador Bolton and others on trying to push 
back on the policies in Xinjiang. And I think that ultimately, 
you know, action has been taken there, as it should. What is 
going on in that region is appalling, and the U.S. and allies 
around the world need to stand up against it.
    The comment I also had just wanted to make on the previous 
question was about what we can do to help our companies. And I 
do think in particular we need to play a robust role at the 
governmental level. A lot of this conversation has been about 
how it is terrible that we are trying to access China's market, 
because that gives them more leverage.
    I might flip it another way and say that by having access 
to China's market, we are getting a lot of money that our 
companies can then pump into research and development to make 
sure that they are an innovation leader ahead of China.
    So another way to put it is that China is subsidizing our 
innovation. And I think if you look at our semiconductor 
industry, which you have paid a lot of attention to, they get 
30 to 40 percent of their sales in China. So that is an 
important source of revenue for them. I think we also need to 
do our part, like the CHIPS Act, but I think it is important 
not to only look at what the adverse consequences are of market 
access, but also to look at the positive ones.
    But in terms of helping our companies, I like the idea--I 
mentioned this in my opening--of disclosure, making our 
companies disclose when they are pressured by the Chinese 
Government. I think you should do that for forced technology 
transfer as well. It puts the onus on the U.S. law instead of 
on the company and therefore makes it much more difficult for 
China to retaliate, because the problem is not the U.S. 
companies; the problem is the U.S. Government. So bring it to 
us. We can stand up.
    A similar thing I would consider is prohibiting U.S. 
companies from complying with censorship requests with respect 
to the activities that they are conducting in our jurisdiction. 
And what I like about this is that it is reciprocal, as Mr. 
Gere was talking about. And Beth will be familiar with this, 
with her time at the PCAOB: the legislation that you all have 
been looking at to say it is unacceptable for Chinese companies 
to refuse access to our auditors who want to regulate their 
financial records.
    Now what those companies tell our regulators is, we cannot 
do it because of Chinese law. So let us do the same thing. Let 
us tell our companies they cannot comply with censorship 
because of U.S. law. And that is exactly what China is doing to 
us, so let us do it back to them.
    Just as it is unacceptable for them to say we cannot access 
the audits, it is also unacceptable for them to say they should 
censor our companies. And so let us use a robust response from 
the U.S. Government to help those companies.
    Senator Cornyn. Thank you for mentioning the CHIPS Act. 
This is a major bipartisan effort to bring high-end 
semiconductor manufacturing back onshore and to reduce 
dependence on China, as Ms. Baltzan pointed out in her 
testimony, in these supply chains of critical technology. Can 
you imagine if we did not have access to that and we did not 
have the capacity to build it here in America? Obviously, that 
is a huge vulnerability, and the virus has taught us many 
lessons, most of them painful, but some of them point to a much 
different path than we have traveled down before. We simply 
cannot continue to depend on China just because it is cheap, 
especially in some of these very sensitive areas.
    I think Senator Brown is next, if he is with us.
    [No response.]
    Senator Cornyn. Well, I understand that he is not able to 
be with us. So, Mr. Gere, let me just ask you. How much money 
does the Chinese Government invest in Hollywood? Do you have 
any way of quantifying that?
    Mr. Gere. I am probably not the person to ask. I was 
looking through some material last night, and there were some 
deals in the $250-million range. There were several in the 
hundred-million-plus range.
    Senator Cornyn. Well, we can run those numbers down. Let me 
ask you this. Last year I was very much involved in the effort 
to reform the Committee on Foreign Investment in the United 
States, but we were focused primarily on foreign investment in 
technology and start-ups.
    As you know, the Chinese Government does not observe any 
distinction between the private sector and their military. And 
in fact the private sector is compelled to share anything they 
have that the military wants with them and the communist party. 
But given what you have described about the self-censorship and 
the influence that China has on the sorts of movies that 
Hollywood makes, do you think we ought to be looking more 
broadly, beyond just technology, at other investments that 
China is making in the United States that help facilitate the 
path they are on?
    Mr. Gere. Well, I think they read us very well, as I said 
before. Their 100-year plan was to step back and really look at 
the rest of the world. And they saw the trajectory that the 
U.S. was on. If they could--money was the way. And they began 
by creating products that were manufactured the cheapest in the 
world, as we all know. And that created the situation where 
they controlled those markets that we are seeing, tragically, 
now with the medicines that they own, our pharmaceuticals.
    This is going to permeate everything in our society as long 
as money is our prime motivator. It was not for them. It was 
power and control. They gave up the money part of it early on 
to create control, understanding that that control would pay 
off decades later. And that is what they are reaping right now.
    I want to go back to something I think Mr. Cory said and 
emphasize it. The turn that this administration made that the 
U.S. should go it alone has been a huge mistake in terms of 
China. The only way we can counter China is if the U.S. and the 
EU--our European friends and allies, true friends and allies--
and Japan and India create a coalition that really understands 
what the Chinese are trying to do, and that we negotiate with 
them as a group, as democracies, free-market democracies, 
independent. That is the only way that we are going to make any 
real change here. And the U.S. Government, the U.S. Congress 
has done extraordinary things, but the U.S. cannot do it alone, 
and especially in this situation where it is ``America First'' 
and all those, frankly, kind of naive cliches.
    We are in a very interconnected world, and let us be 
interconnected with the best of the world. And the best of the 
world still exists. Our European brothers and sisters, Japan, 
India, the great democracies of the world, we can do this 
together and create the world we want, and counter the Chinese 
Communist Party.
    Senator Cornyn. Thank you. Senator Casey, do you have any 
other questions you would like to ask?
    Senator Casey. Mr. Chairman, I hope you can see and hear 
me.
    Senator Cornyn. We can see and hear you.
    Senator Casey. That is great. I was hoping at least for 
audio. But thanks so much for the hearing. I just had one 
question I wanted to ask earlier to Ms. Baltzan about the 
Havana Charter, which she gave some of the history of, the fact 
that it was signed by 54 countries but never went into force, 
and that there was opposition, at the time, from our business 
community.
    I guess I would ask you, in addition to the history and the 
significance of it, what is still relevant today, and in 
particular, how does it relate to conditions of trade, in terms 
of trade?
    Ms. Baltzan. Thank you so much for the question, Senator 
Casey. I think there has been this narrative that the 
foundation of the global trading system was about tariff 
liberalization and nothing else. And I think that narrative is 
false and extremely harmful.
    Some of the things Mr. Gere was talking about, about the 
philosophy we had in the 1990s about the conditions in which we 
created the WTO and let China in, are directly traceable to 
that misunderstanding of our own history.
    If you look at what was motivating the founders of the 
system--and we are talking about initially FDR and John Maynard 
Keynes, and then those who followed them--these were people who 
had lived through the Gilded Age. They had seen income 
inequality. They had seen nationalism. They had seen political 
instability. They had seen authoritarianism. And more 
importantly, they had seen how, particularly in Europe, 
authoritarian governments had been able to deploy concentrated 
economic power in the form of cartels and trusts to pursue an 
authoritarian agenda.
    And they were not just thinking about Italy and Germany in 
the past, they were looking ahead to the Soviet Union, and that 
was communist rather than fascist, but it was the same 
fundamental problem, which is this relationship between an 
authoritarian government and concentrated industrial 
production. And that is why so much of the Havana Charter is 
about making sure that you are protecting competition itself, 
because they believed that protecting competition was a way of 
protecting democracy.
    And somehow that entire line of thinking has been lost. So 
let us look at what we are confronting today. Is the Havana 
Charter relevant today? Well, it is a second Gilded Age. We 
have again problems with income inequality, and this goes to 
the issue with Senator Cassidy. You cannot just keep 
suppressing labor rights and expect not to have 
authoritarianism and a revolt by the working people.
    So if we want to deal with these structural issues, then we 
have to have a set of rules that promotes competition. We are 
seeing, again, a rise in industrial concentration. When we 
bring all this to bear and look at what is going on in China, 
in my view we see the emergence of the very thing that the 
founders of the global trading system were trying to prevent, 
which is an authoritarian government that is not only able to 
leverage industrial power to pursue its ends, but is actually 
able to use the multilateral trading system to execute that 
agenda.
    And I really want to point out something in your opening 
remarks that is important. This really is not about publicly 
owned versus privately owned. And the Havana Charter covers 
both.
    I am extremely concerned that we spend a lot of our time 
talking about state-owned enterprises in China, when the 
pivotal variable is not who owns what, it is the relationship 
between those industries and the government.
    Senator Casey. Thank you very much, Mr. Chairman.
    Senator Cornyn. Thank you, Senator Casey. Senator Cassidy, 
do you have another question?
    Senator Cassidy. I do.
    Senator Cornyn. We are sort of winding down here a little 
bit, but I want to give everybody who has another question an 
opportunity. Go ahead, please.
    Senator Cassidy. Ms. Baltzan, again I go back to your, I 
guess, thesis, that it is their economic power that allows them 
to exert this censorship. And again, I find that valid.
    So it is a little bit far afield from this hearing, but 
still you have raised it, so I am going to ask you. I agree, we 
should not allow people to use arbitrage of environmental laws 
or of workers' rights or of human rights, using slave labor, et 
cetera, in order to undercut the ability of a worker in the 
United States, for example.
    On the other hand, there is a tension there. If we have 
environmental laws that we really need and another nation does 
not, it would require everybody to have the same environmental 
laws and the same labor laws, even though obviously conditions 
in, say Central America are different than those in the United 
States. I say that as regards what is the minimum wage, for 
example.
    So if we are going to reexamine our trade relationship, I 
think everybody would agree--I do at least--that if we are 
going to demand a certain environmental standard for air 
pollution in the U.S.--and Chinese air pollution blows over to 
the U.S.--we should ask for the same environmental standard 
there. I get that.
    But going back to wage rates, do you concede that wage 
rates would also be required to have some sort of equivalency? 
Because otherwise our folks would be disadvantaged.
    Ms. Baltzan. I am actually very supportive of what is in 
the new NAFTA. I am supportive of the rules that have been 
enforceable in our trade agreements since 2007, which are core 
labor standards.
    This is not about setting a specific, prescriptive set of 
rules that every country must follow without regard to its 
development level. This is about setting a floor. And that is 
also what the founders of the system did in the Havana Charter.
    Senator Cassidy. Okay; and so if we had that floor as part 
of a trade agreement with China, that may be a remedy, if you 
will, knowing that that is easier said than done, but 
nonetheless that would be a potential remedy. Correct?
    Ms. Baltzan. Yes. I would use the WTO, and I would use 
section 301 to establish that.
    Senator Cassidy. Although in your testimony, you point out 
that since that is a consensus organization, that would be 
difficult to work through WTO.
    Ms. Baltzan. I think that is true. I think we should ask 
for it.
    Senator Cassidy. And if we fail there, because undoubtedly 
we will fail--what was it, the section 301 and anything else?
    Ms. Baltzan. I think there have been proposals, not in any 
concrete terms, but proposals about access to U.S. markets and 
having essential standards as part of our domestic regime. And 
I think those are worth considering.
    Senator Cassidy. Okay. Thank you very much.
    Senator Cornyn. Senator Cortez Masto, do you have an 
additional question?
    [No response.]
    Senator Cornyn. Senator Wyden, do you have any other 
questions you want to ask?
    [No response.]
    Senator Cornyn. Well, let me just say how much I 
appreciate--and I know we all appreciate your testimony here 
today.
    Mr. Gere, for what it is worth, I think we need to sort of 
get to a place where we recognize that administrations, whether 
they are Republican or Democrat, can have good ideas, and some 
not-so-good ideas. I know this administration seems to believe 
that bilateral trade negotiations are optimal, and I can 
understand why their argument is that if you do a multilateral 
trade agreement you are going to have to give up too much in 
order to get it. But there are benefits. And I think you 
described one of them, particularly dealing with China. We do 
need to work with our allies and to confront this challenge. 
One, because they are in the same situation we are in. They are 
being eviscerated economically and threatened militarily, and 
it is important for us to work with people who share our values 
to counter this incredible aggressive economic and military 
threat from China.
    So let me thank you for raising that point, and I think you 
will find a lot of people in Congress who share that view.
    So with that, let me thank all of you for joining us here 
today on this very, very important topic. We are going to have 
a deadline of 2 weeks for additional questions. It may be that 
Senators have some additional written questions they would like 
to ask, and we will keep the record open for 2 weeks. If the 
witnesses would be so kind as to respond to those, we would 
very much appreciate it.
    And with that, the Subcommittee on International Trade, 
Customs, and Global Competitiveness stands adjourned. Thanks so 
much.
    [Whereupon, at 4 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              

   Prepared Statement of Beth Baltzan, Fellow, Open Markets Institute
   economic liberalism, the chinese communist party, and free speech
    Those of us who remember the debate over whether the United States 
should grant China Permanent Normal Trade Relations (PNTR) status in 
2000 also remember the ultimate justification for it: integrating China 
into the global economic order would promote democracy there. This line 
of thinking was spurred on by the collapse of the Soviet Union in 1989-
1990. Works like Francis Fukuyama's ``The End of History?'' postulated 
that we might have reached the culmination of political evolution, and 
that political conflict would give way toward democracy--with economic 
liberalism as the driver. As Fukuyama noted, the imminent implosion of 
the Soviet Union seemed to be a ``an unabashed victory of economic and 
political liberalism.''\1\
---------------------------------------------------------------------------
    \1\ Francis Fukuyama, ``The End of History?'', The National 
Interest, Summer 1989 (https://www.embl.de/aboutus/science_society/
discussion/discussion_2006/ref1-22june06.pdf).

    Fukuyama himself had praised China's evolution toward liberalism as 
---------------------------------------------------------------------------
far back as 1989. At the time, he found little room for backsliding:

        the pull of the liberal idea continues to be very strong as 
        economic power devolves and the economy becomes more open to 
        the outside world. . . . The People's Republic of China can no 
        longer act as a beacon for illiberal forces around the 
        world.\2\
---------------------------------------------------------------------------
    \2\ Id., at 10.

    Precisely because we assumed the march toward economic and 
political liberalism to be inexorable, we failed to contemplate that 
any other outcome was possible--or to construct rules that would 
prevent any other outcome from occurring. Because of it, we are now 
witnessing the outcome opposite to the one the PNTR proponents believed 
---------------------------------------------------------------------------
would occur.

    As discussed further below, it is global economic integration that 
has given the Chinese government the economic leverage over the rest of 
us to advance an illiberal agenda. Thus, rather than having global 
economic integration incubate democracy and suppress autocracy, global 
economic integration has become a vector for autocratic suppression of 
democracy. Economic liberalism did not lead to political liberalism: it 
has led to political repression.

    There are various ways to address the threat the behavior the 
Chinese Communist Party poses to the system. The most critical is to 
reduce the CCP's ability to engage in this kind of behavior. That means 
reducing the amount of economic leverage China has over us, and our 
trading partners.

    More broadly, we must also reform the rules of globalization. The 
current reform proposals are woefully inadequate to address the scope 
of the problem. It is not clear that our allies yet share our concerns 
about the seriousness of threat. As a result, cooperation with allies 
alone is unlikely to suffice to address the problem, at least in the 
short-term.
           extraterritorial suppression of freedom of speech
    With increasing boldness, the CCP--the Chinese Government--has used 
its considerable leverage over global markets to attack the right to 
freedom of expression. For Americans, the most notorious examples have 
involved the NBA and ``South Park.'' Houston Rockets General Manager 
Daryl Morey had the temerity to support democratic protestors in Hong 
Kong, tweeting ''Fight for freedom, stand with Hong Kong.''\3\ This 
statement, which would be anodyne to a secure, non-authoritarian state, 
set off the CCP. The Chinese Government canceled broadcasts of pre-
season NBA games in China and ominously indicated that it was reviewing 
its relationship with the NBA.\4\ The Chinese broadcaster squarely 
addressed the free speech issue, stating that
---------------------------------------------------------------------------
    \3\ CNN Business, ``The NBA Faces a No-Win Situation in China. 
Here's What It Stands to Lose,'' October 8, 2019 (https://www.cnn.com/
2019/10/08/business/daryl-morey-tweet-nba-china/index.html).
    \4\ CNN Business, ``China Won't Show NBA Pre-Season Games as 
Backlash Over Hong Kong Tweet Grows,'' October 8, 2019 (https://
www.cnn.com/2019/10/08/media/nba-china-hong-kong-morey/index.html).

        We express our strong dissatisfaction and opposition to [NBA 
        Commissioner] Silver's stated support of Morey's right to free 
        speech. We believe any remarks that challenge national 
        sovereignty and social stability do not belong to the category 
        of free speech.\5\
---------------------------------------------------------------------------
    \5\ Id.

    Not surprisingly, the CCP's interpretation of the meaning of free 
---------------------------------------------------------------------------
speech is at odds with the very concept of it.

    When the CCP was ``offended'' by a ``South Park'' episode, the 
creators had a different response. They used the government's attitude 
to mock it--and the Morley critics. ``We, too, love money more than 
freedom.''\6\
---------------------------------------------------------------------------
    \6\ Katie Shepherd, ``We Too Love Money More Than Freedom: South 
Park Creators Issue Mock Apology Over Chinese Censorship,'' Washington 
Post, October 8, 2019 (https://www.
washingtonpost.com/nation/2019/10/08/south-park-creators-blast-china-
nba-over-censorship/).

    Though the apology was satirical, it drove home the issue: by doing 
business with China, Americans are too often forced to choose between 
money and freedom. This choice is fundamentally inconsistent with the 
premise under which Congress voted to give China PNTR. Economic 
liberalism was meant to pave the way for political liberalism, not to 
facilitate political repression through threats to withdraw market 
---------------------------------------------------------------------------
access.

    Chinese efforts to control speech about Hong Kong are the most 
well-known, but the third-rail subjects are much broader. They range 
from the Uyghurs, to Tibet, to Taiwan, to the nine-dash line, to COVID-
19. The episode with ``South Park'' should be no surprise: it has been 
an open secret for years that Hollywood cannot include Chinese bad guys 
in its movies. Judd Apatow explained how this came to be:

        I think it happened very slowly and insidiously. . . . You 
        would not see a major film company or studio make a movie that 
        has story lines which are critical of countries with major 
        markets or investors. The question becomes: what's the result 
        of all of this? The result is, there are a million or more 
        Muslims in reeducation camps in China, and you don't really 
        hear much about it.\7\
---------------------------------------------------------------------------
    \7\ Evan Osnos, ``The Future of America's Contest With China,'' New 
Yorker, January 6, 2020 (https://www.newyorker.com/magazine/2020/01/13/
the-future-of-americas-contest-with-china).

    The Chinese Government is obsessed with controlling information, 
and deploying it in furtherance of an agenda that uses increasingly 
Orwellian tactics. 2020 is the year the Chinese Government is set to 
execute its social credit system. The system is described as a 
``creepy'' take on a credit score, where the government's judgment of a 
citizen's social conduct is baked into a social credit score. The 
consequences of a bad score range from slowing the person's internet 
speed to banning him or her from flying to being named a bad 
citizen.\8\ Coupling the social credit system with the Chinese 
government's push into facial recognition, and the concept of being a 
private citizen will lose all meaning.\9\
---------------------------------------------------------------------------
    \8\ Alexandra Ma, ``China Has Started Ranking Citizens With a 
Creepy Social Credit System,'' Business Insider, October 29, 2018 
(https://www.businessinsider.com/china-social-credit-system-
punishments-and-rewards-explained-2018-4).
    \9\ Lily Kuo, ``China Brings in Mandatory Facial Recognition for 
Mobile Phone Users,'' The Guardian, December 2, 2019 (https://
www.theguardian.com/world/2019/dec/02/china-brings-in-mandatory-facial-
recognition-for-mobile-phone-users).

    For the time being, the social credit system seems to be a domestic 
enterprise. But if there was any doubt that the CCP is on the march to 
extend its control over domestic speech overseas, we need look no 
further than the revocation of the press credentials of three Wall 
Street Journal reporters.\10\ As a sign of the extreme direction in 
which the Chinese Communist Party is headed, the newspaper noted that 
it is
---------------------------------------------------------------------------
    \10\ Wall Street Journal, ``China Expels Three Wall Street Journal 
Reporters,'' February 19, 2020 (https://www.wsj.com/articles/china-
expels-three-wall-street-journal-reporters-11582100
355).

        the first time the Chinese Government has expelled multiple 
        journalists simultaneously from one international news 
        organization since the country began re-engaging with the world 
        in the post-Mao era.\11\
---------------------------------------------------------------------------
    \11\ Id.

    The Chinese Government's extraterritorial control of speech is not 
limited to Americans, either. The Swedes gave a freedom of speech award 
to a Chinese-born Swedish publisher under detention in China.\12\ The 
Chinese Government warned that Sweden would ``suffer the consequences'' 
for it.
---------------------------------------------------------------------------
    \12\ The Guardian, ``China Threatens Sweden After Gui Minhai Wins 
Free Speech Award,'' https://www.theguardian.com/books/2019/nov/18/
china-threatens-sweden-after-gui-minhai-wins-free-speech-award.

    Chinese diplomats have also escalated their decidedly undiplomatic 
barbs.\13\ The double standard is jarring. Anyone commenting critically 
on the CCP's conduct is subject to accusations of ``hurt feelings'' and 
retaliation. In the meantime, Chinese diplomats insult other countries 
with increasing abandon.
---------------------------------------------------------------------------
    \13\ The Straits Times, ``Diplomatic Outbursts Mar Xi's Plan to 
Raise China on the World Stage,'' March 7, 2019 (https://
www.straitstimes.com/asia/east-asia/diplomatic-outbursts-mar-xis-plan-
to-raise-china-on-the-world-stage).

    The Chinese Government's behavior takes on ever greater 
characteristics of the authoritarian heyday that Fukuyama believed was 
---------------------------------------------------------------------------
over.

    Ironically, by concluding that the fall of the Soviet Union meant 
we need not worry about becoming deeply integrated with a Communist 
country, we have facilitated the very integration that gives the CCP 
the leverage to impose its authoritarian views all over the world.

    How did this happen?
    a brief, relevant history of the negotiations to create the gatt
    Our appreciation of the true roots of the multilateral global 
trading system is a bit rusty. We have a vague notion that there were 
tariff wars in the 1930s, and that the architects of peace felt that a 
rules-based global trading system would promote harmony.

    What we remember less is that the Soviet Union was not part of that 
system. The Soviet Union was invited to join the talks but ignored the 
invitation.\14\ Without this communist presence, the negotiations 
focused on the construction of a system that would promote free 
enterprise.
---------------------------------------------------------------------------
    \14\ C. Donald Johnson, Wealth of a Nation, 2018, at 343.

    The architects, which included Franklin Roosevelt's lieutenants and 
the famous British economist John Maynard Keynes, did not, as is 
commonly understood, believe that tariff cuts alone would protect free 
enterprise. Instead, they believed the system needed a comprehensive 
set of rules that would promote fair competition in the global 
marketplace, ultimately reflected in the Havana Charter\15\ These rules 
included standard antitrust fare, such as antimonopoly provisions, as 
well as provisions to prevent labor arbitrage, cheating through 
currency manipulation, and destabilizing behavior by foreign 
investors.\16\
---------------------------------------------------------------------------
    \15\ United Nations Conference on Trade and Employment, Final Act 
and Related Documents, (Havana Charter) (https://www.wto.org/english/
docs_e/legal_e/havana_e.pdf).
    \16\ Beth Baltzan, ``The Old School Answer to Global Trade,'' 
Washington Monthly, April/May/June 2019 (https://washingtonmonthly.com/
magazine/april-may-june-2019/the-old-school-answer-to-global-trade/).

    These rules did not survive. The received wisdom is that they 
failed because Congress was in an isolationist mood and did not want to 
set up an International Trade Organization. But this received wisdom is 
incorrect. The rules failed because the American business community, 
including the Chamber of Commerce, the National Association of 
Manufacturers, and the National Foreign Trade Council, balked at the 
constraints on capital.\17\ They wanted tariff cuts without disciplines 
on their own freedoms. Some of the objections were thought to come from 
businesses affiliated with pre-war German cartels \18\--and ridding the 
economy of cartels was one of the principal goals of the Charter 
drafters. As the United States explained in its 1945 trade proposal,
---------------------------------------------------------------------------
    \17\ C. Donald Johnson, Wealth of a Nation, 2018, at 414, 430.
    \18\ Id., at 419.

        [t]rade may . . . be restricted by business interests in order 
        to obtain the unfair advantage of monopoly. . . . These 
        practices destroy fair competition and fair trade, damage new 
        businesses and small businesses, and levy an unjust toll upon 
        consumers. Upon occasion, they may be even more destructive of 
        world trade than are restrictions imposed by governments.\19\
---------------------------------------------------------------------------
    \19\ United States State Department, Proposals for Expansion of 
World Trade and Employment, November 1945 (https://
fraser.stlouisfed.org/files/docs/historical/eccles/036_04_0003.pdf).

    The Charter's negotiators--successful businessmen themselves--were 
exasperated by the short-sightedness of the business community's 
opposition. What the business community considered limitations on free 
enterprise, the negotiators considered essential elements of free 
enterprise. In advocating for the Havana Charter, which reflected the 
original U.S. trade proposal, State Department Adviser Will Clayton 
---------------------------------------------------------------------------
pointed out that:

        There are two roads we can take here. One leads in the 
        direction of free enterprise and the preservation of democratic 
        principles. The other road leads in the direction of Socialism 
        and state trading.\20\
---------------------------------------------------------------------------
    \20\ ``Why and How We Came to Find Ourselves at the Havana 
Conference,'' William L. Clayton, Adviser to the Secretary of State, 
State Department Bulletin, June 27, 1948.

    Compare this more nuanced view to the one handed down over 
generations: it is not trade by itself that produces a social good, but 
trade as part of a system of free enterprise. And, critically, free 
enterprise was not synonymous with ``laissez-faire,'' but rather with a 
suite of rules designed to impose restraint on the excesses of capital 
that, for example, led to the 1929 crash. That the system designed by 
the post-war architects was based on laissez-faire is unthinkable in 
light of the fact that Keynes himself repudiated such a system in 1926 
with his essay ``The End of Laissez Faire.''\21\ Keynes celebrated the 
American proposal, deeming it ``the blue prints for long term 
commercial . . . policy'' and ``the first elaborate and comprehensive 
attempt to combine the advantages of freedom of commerce with 
safeguards against the disastrous consequences of a laissez-faire 
system.''\22\
---------------------------------------------------------------------------
    \21\ John Maynard Keynes, ``The End of Laissez Faire,'' 1926 
(https://delong.typepad.com/egregious_moderation/2009/01/john-maynard-
keynes-the-end-of-laissez-faire-1926.html). ``The phrase laissez-faire 
is not to be found in the works of Adam Smith [or] Ricardo.''
    \22\ Quoted in Wealth of a Nation, at 332-33.

    In describing the two paths that lay ahead, Clayton was referring 
to the Soviet Union. But his words ring true with respect to the CCP 
today. State capitalism is the direct descendant of Soviet state 
trading. It is less focused on command and control over every aspect of 
the economy, but any sector of the economy is subject to command and 
control if the Chinese Government wants it to be. As finance scholar 
and Beijing resident Michael Pettis and his co-author Matthew Klein 
---------------------------------------------------------------------------
explain:

        [T]he Chinese party-state has enormous power to tell companies 
        what to do. Communist Party cells are embedded in most Chinese 
        companies, even the subsidiaries of non-Chinese firms. 
        Executives at many large companies, including those without 
        direct government ownership, are party members, which makes 
        them eligible for promotions and favors--and vulnerable to 
        party discipline. . . . The legal academics Curtis J. Milhaupt 
        and Wentong Zheng . . . note that private firms have ``little 
        autonomy from discretionary state intervention in business 
        judgment'' because ``the state exercises significant extra-
        legal control rights over private firms.'' . . . Executives can 
        simply be told to pick Chinese suppliers over foreign ones. . . 
        . The result is that, unlike most other countries, imports have 
        become less and less important to the Chinese economy since the 
        mid-2000s.\23\
---------------------------------------------------------------------------
    \23\ Matthew C. Klein and Michael Pettis, Trade Wars Are Class Wars 
(Yale University Press 2020), at 122.

    When this approach is married with the corporate emphasis on short-
term returns, it becomes easier to see how the Chinese Government has 
achieved such leverage in the global marketplace that it can control 
---------------------------------------------------------------------------
the speech of private citizens thousands of miles away.

    When China joined the WTO, its allure for manufacturers and service 
providers (mainly banks) was both the size of its market, and the size 
of its low-wage workforce. The combination--along with a chronic 
currency manipulation regime that made it even more lucrative to 
manufacture products in China and export them back to the United 
States--lured capital to China's shores.

    But it was not just the size of the market, or the cheapness of the 
labor that led to the rapid rise of China as an economic powerhouse 
after PNTR, shown in the graph below.\24\
---------------------------------------------------------------------------
    \24\ Visual Capitalist, ``70 Years of Economic Development and 
Policy in the People's Republic of China'' (https://
www.visualcapitalist.com/china-economic-growth-history/). A time-lapse 
version is also available that shows China's position in the global 
economy compared to others.

[GRAPHIC] [TIFF OMITTED] T3020.001


    The interventionist nature of the Chinese Government also played a 
critical, and underappreciated, role. It is typical to ascribe the 
Chinese economy's rise to the simple operation of Ricardo's comparative 
advantage. However, in exploring how China has risen to the top of the 
lithium ion battery industry, The Wall Street Journal has done an 
excellent job of demonstrating how incorrect that premise is.\25\ The 
economic rise is not through comparative advantage, but a combination 
of subsidies and forced joint ventures. While the Journal's article was 
limited to batteries, the underlying model is prevalent. It has been 
used in other industries, and will be used in still others. The 
increasing awareness of the Made in China 2025 initiative is awakening 
policymakers and defenders of the global trading system to the 
comprehensive nature of the threat.\26\
---------------------------------------------------------------------------
    \25\ Trefor Moss, ``The Key to Electric Cars Is Batteries. One 
Chinese Firm Dominates the Industry,'' Wall Street Journal, November 3, 
2019 (https://www.wsj.com/articles/how-china-positioned-itself-to-
dominate-the-future-of-electric-cars-11572804489).
    \26\ U.S. Chamber of Commerce, Made in China 2025: Global Ambitions 
Built on Local Protections (https://www.uschamber.com/sites/default/
files/final_made_in_china_2025_report_full.
pdf).

    Why do companies participate in these forced joint ventures? The 
---------------------------------------------------------------------------
size of the market and the size of the low-wage workforce.

    If we examine the approach of the Chinese Government to the global 
marketplace from a broader lens, we start to see the common thread 
across its behavior. China, Inc. is, at its core, a monopoly. It is not 
a monopoly of a particular company, or in a particular sector: it is a 
monopoly of a country that both wishes to be autarkic in terms of 
domestic consumption, and mercantilist in terms of taking advantage of 
export markets to generate revenue. This, of course, is at odds with 
the very purpose of the multilateral trading system, which rejects both 
autarky and mercantilism.
                               but japan
    Many trade experts remain relatively unconcerned by the behavior of 
the Chinese Government. According to this view, similar arguments were 
made about Japan in the 1980s. The Japanese economy eventually 
sputtered; this is presumed to be the path Chinese economy will follow.

    The increasing aggression of the Chinese Government illustrates the 
radical differences between the Japan of the 1980s, and the China of 
the 2020s. Japan's ambitions in the 1980s, which were mercantilist in 
nature, centered around economic development. Like China, Japan used 
export-led growth to move through the manufacturing value chain, 
creating significant domestic wealth. That economic ambition was not, 
however, coupled with grand geopolitical ambitions.

    By contrast, as its behavior in the South China Sea, Taiwan, and 
Hong Kong indicates, the CCP indeed does have grand geopolitical 
ambitions. Moreover, the size of China's economy is orders of magnitude 
larger than that of Japan. Japan's economy at its peak has been around 
$5 trillion; China's today is nearly three times that size.\27\
---------------------------------------------------------------------------
    \27\ Id.

    Finally, a state capitalist economy with an authoritarian 
government is able to deploy subsidies of a size that would be more 
difficult to justify in a system with checks and balances. Authors 
Pettis and Klein, in describing CCP control over business, take the 
position that ``the Chinese economy may be fundamentally incompatible 
with the spirit of any rules-based trading system.''\28\
---------------------------------------------------------------------------
    \28\ Klein and Pettis, Trade Wars Are Class Wars, at 121-22.

    It is critical to factor in that the United States is now 
profoundly dependent on supply chains in China in a way that was not 
the case with Japan in the 1980s. COVID-19 has illustrated the point 
vividly, as Americans have been plagued with shortages of personal 
---------------------------------------------------------------------------
protective equipment because of a dependency on Chinese production.

    It is not only PPE, however. One review of the transcripts at the 
USTR section 301 hearings reveals an extraordinary list of products 
that witnesses claimed could not be made outside of China.\29\ It is 
not simply that these goods cannot be made in the United States; it is 
that, according to these witnesses, they cannot be made anywhere but 
China. This is not a recent development: supply chain concentration in 
China has been a problem for at least the better part of a decade.\30\
---------------------------------------------------------------------------
    \29\ Matt Stoller, ``Bible Lobbyist: We Can't Print Bibles in 
America Anymore'' (https://mattstoller.substack.com/p/bible-lobbyist-
we-cant-print-bibles).
    \30\ Matt Stoller, ``How America Could Collapse,'' The Nation, July 
21, 2011 (https://www.thenation.com/article/archive/how-america-could-
collapse/); Barry Lynn, ``A Glitch in the Matrix,'' Foreign Policy, 
September 12, 2012 (https://foreignpolicy.com/2012/09/12/a-glitch-in-
the-matrix/).

    This situation is serious enough that it has gotten the attention 
of the Pentagon. In a report on the industrial base, the Department of 
Defense identifies areas in which we have become dependent on China as 
the sole source of some materials essential to national defense.\31\ 
According to the report:
---------------------------------------------------------------------------
    \31\ ``Assessing and Strengthening the Manufacturing and Defense 
Industrial Base and Supply Chain Resiliency of the United States,'' 
Report to President Donald J. Trump, September 2018 (https://
media.defense.gov/2018/Oct/05/2002048904/-1/-1/1/ASSESSING-AND-
STRENGTHENING-THE-MANUFACTURING-AND%20DEFENSE-INDUSTRIAL-BASE-AND-
SUPPLY-CHAIN-RESILIENCY.PDF)

        China is . . . the sole source or a primary supplier for a 
        number of critical energetic materials used in munitions and 
        missiles. In many cases, there is no other source of drop-in 
        replacement material and even in cases where that option 
        exists, the time and cost to test and quality the new material 
        can be prohibitive--especially for larger systems (hundreds of 
        millions of dollars each).\32\
---------------------------------------------------------------------------
    \32\ Id., at 36.

    Part of the reason we have not, historically, concerned ourselves 
with supply chains is because our approach to trade for decades has 
emphasized ``efficiency''--low cost--as virtually the only relevant 
value. But, as we are now finding out, efficiency is in fact not the 
only value in a global trading regime. Redundancy has value too. This 
is why information technology systems have backups. It is not 
necessarily ``efficient'' in a dollars-and-cents calculation--until the 
---------------------------------------------------------------------------
day the system crashes.

    Trade policymakers are now in the process of finding out what IT 
workers have known for decades: redundancy is critical.

    Because of the size of the Chinese economy, its geopolitical 
ambitions, our extreme supply chain dependency, and the Chinese 
Government's willingness to exert that power in ways inimical to the 
interests of democratic societies, the CCP poses a threat that is 
simply not analogous to Japanese economic ambitions in the 1980s.
                               solutions
    The CCP's leverage over the speech of American citizens comes in 
large part from its economic leverage over the United States. Abating 
the Chinese Government's economic leverage over us in turn abates its 
leverage over our exercise of our constitutional rights. There are 
different approaches that can be adopted to diminish that leverage.

    Some of these approaches will involve coordinating with our allies, 
be it at the WTO or through other mechanisms. However, we must be 
cognizant that the WTO is a consensus-based organization. That means 
all WTO members would be expected to agree to any new rules. As a 
member, China has the ability to frustrate the negotiations, 
particularly if it has the backing of other like-minded members (or 
Belt-and-Road beneficiaries). China has already rejected U.S. subsidy 
reform efforts.\33\
---------------------------------------------------------------------------
    \33\ ``China: U.S. Proposal Merely `Scene Setting' for Desired 
Subsidy Rules,'' Inside U.S. Trade (March 3, 2020) (https://
insidetrade.com/daily-news/china-us-proposal-merely-`scene-setting'-
desired-subsidy-rules)

    In addition, as many experienced American trade negotiators are 
aware, our allies are not necessarily as concerned--yet--about 
addressing the problematic behaviors of the CCP. Prior efforts to 
cooperate, including the Global Steel Forum, have produced little to 
---------------------------------------------------------------------------
nothing in the way of real results.

    We cannot afford to rely exclusively on collaboration with allies 
to address to threat the CCP now presents. It will take a mix of 
strategies.

    The following priorities stand out, though these are by no means 
exhaustive:

       Promote redundancy in supply chains. Although there are mixed 
feelings about the section 301 tariffs, one benefit is that they have 
been moving supply chains out of China, and to other countries.\34\ 
Among the countries benefiting are those with values more akin to our 
own, including Mexico.
---------------------------------------------------------------------------
    \34\ Austen Hufford and Bob Tita, Wall Street Journal, 
``Manufacturers Move Supply Chains Out of China,'' July 14, 2019 
(https://www.wsj.com/articles/manufacturers-move-supply-chains-out-of-
china-11563096601).

        We must be more deliberate, however. For example, building on 
the Pentagon's efforts, we should examine supply chains and identify 
alternatives for those that are important to the U.S. economy and the 
welfare of the American people. We can then work to mitigate any 
outsized dependence on the Chinese Government. In light of COVID-19, 
pharmaceuticals and PPE are areas that have emerged as a priority. In 
addition, Senators Cornyn and Warner have introduced legislation to 
restore semiconductor manufacturing in the United States.\35\ In 
considering supply chain diversification, we can and should seek to 
collaborate with allies, so that we are not swapping one supply chain 
dependency for another.
---------------------------------------------------------------------------
    \35\ Creating Helpful Incentives to Produce Semiconductors for 
America Act (https://www.cornyn.senate.gov/node/5599).

        Although the concept of industrial policy was out of vogue for 
the past 40 years, there was a strong bipartisan consensus in favor of 
it in the 1970s. Supporters included Pete Peterson, after whom the 
Peterson Institute is named,\36\ and David Rockefeller.\37\ Even Alan 
Greenspan considered that the United States might need to revive the 
wartime Reconstruction Finance Corporation; in the strange bedfellows 
department, the AFL-CIO agreed.\38\ COVID-19, in exposing the depth of 
our dependence on the CCP, has reignited the discussion.
---------------------------------------------------------------------------
    \36\ One Peterson Institute fellow, Simon Johnson, has coauthored a 
book that reexamines U.S. industrial policy during World War II, which 
sets out a detailed proposal for a modern version. See Jonathan Gruber 
and Simon Johnson, Jump Starting America, 2019.
    \37\ Judith Stein, Pivotal Decade, 2011, at 39, 75.
    \38\ Id., at 103, 250.

        However, to ensure that we address the true scope of the 
problem, we must understand all the ways in which the trading system 
facilitates supply chain concentration in China. One area, for example, 
is the rules of origin in bilateral and regional trade agreements. TPP 
in some cases permits 70 percent of a good to come from China, yet the 
good trades preferentially under the agreement. In fact, there are 
goods in which the content is likely much higher. Even NAFTA, which has 
stronger rules (because it was it written in the 1990s) allows 
significant Chinese content; this is equally true even of the new auto 
rules under the USMCA, which allow lithium ion batteries from China to 
be incorporated into a USMCA car. Senator Casey has introduced 
legislation to address the systemic flaw with our approach to rules of 
origin.\39\
---------------------------------------------------------------------------
    \39\ Market Economy Sourcing Act (https://www.casey.senate.gov/
download/market-economy-sourcing-act).

       Negotiate comprehensive reforms to the rules of globalization 
to preserve competition. Even if we succeed in diversifying supply 
chains, it will be difficult to sustain that diversification unless the 
rules of globalization themselves are reformed. Otherwise, the same 
incentives that led to offshoring and concentration in the first place 
will lead to offshoring and concentration again. Therefore, reforms 
must address the fundamentally anticompetitive behaviors at the heart 
of the problem: monopolistic conduct, currency manipulation, and labor 
---------------------------------------------------------------------------
and environmental arbitrage.

        To address monopolistic behavior, this paragraph from the 
Havana Charter is a useful starting point:

                 Each member shall take appropriate measures and shall 
                co-operate with the Organization to prevent, on the 
                part of private or public commercial enterprises, 
                business practices affecting international trade which 
                restrain competition, limit access to markets, or 
                foster monopolistic control, whenever such practices 
                have harmful effects on the expansion of production or 
                trade. . . .\40\
---------------------------------------------------------------------------
    \40\ United Nations Conference on Trade and Employment, held at 
Havana, Cuba, April 1948, at 63 (https://www.wto.org/english/docs_e/
legal_e/havana_e.pdf).

        These rules cover both private and public commercial 
enterprises and allow us to avoid the pointless debate over whether a 
---------------------------------------------------------------------------
particular company is state-owned or not.

        The Havana Charter also had rules to guard against labor 
arbitrage. With respect to currency manipulation, the Charter set out a 
mechanism for dispute settlement that included fact-finding by the 
International Monetary Fund.

        Rethink our asks of the CCP during the ongoing negotiations. 
Some of the priority asks of the CCP are at odds with the goal of 
reducing Chinese economic dominance and indeed would increase CCP 
leverage over us. For example, the Chinese Government's lack of respect 
for intellectual property rights is one of the reasons companies choose 
not to produce there. By improving the investment climate in China, we 
are doubling down on our excessive dependence on a hostile 
authoritarian government. Democrats and Republicans both agreed to 
nearly eliminate investor-state in the new NAFTA, for example, under 
the rationale that it was not the role of U.S. trade policy to 
facilitate offshoring. The same rationale applies to intellectual 
property in China.

        We should instead use the talks to discuss labor and 
environmental arbitrage.\41\ It is not because labor and environmental 
issues are ``social'' issues, as has been the traditional perception. 
Rather, the Chinese Government suppresses these rights in order to 
create a false comparative advantage, and that is bad for American 
workers and American businesses. Indeed, it is bad for every country in 
the world that has to compete with Chinese production of industrial 
goods. Part of the reason Mexico, for example, has a history of labor 
rights suppression is because its workers compete with Chinese workers. 
Mexico is our ally, and our neighbor; we should create a trading system 
that does not put Mexico at a disadvantage when it agrees to respect 
labor rights.\42\
---------------------------------------------------------------------------
    \41\ Andy Green and Daniella Zessoules, ``U.S. Trade Policy in 
North American, China, and Beyond,'' Center for American Progress, 
February 27, 2019 (https://www.americanprogress.org/issues/economy/
reports/2019/02/27/466705/u-s-trade-policy-north-america-china-beyond/
).
    \42\ Beth Baltzan and Jeff Kucik, ``NAFTA's Replacement Gives Labor 
Some Shelter From Globalization's Storms,'' Foreign Policy, January 16, 
2020 (https://foreignpolicy.com/2020/01/16/usmca-mexico-canada-trump-
workers-democrats-naftas-replacement-gives-labor-some-shelter-from-
globalizations-storms/).

---------------------------------------------------------------------------
        And it is also bad for Chinese workers.

        This is reason enough to revive the Charter's rules on labor 
rights, and to expand them to include environmental rights, as part of 
the WTO reform agenda. 54 countries agreed to enforceable labor rights 
in 1948. There is no reason not to support them today.
                               conclusion
    The optimism that prevailed after the demise of the Soviet Union 
led some to believe that authoritarian state trading regimes would 
never surface again. According to Fukuyama, following his view that we 
were potentially reaching the end of history:

        The state that emerges at the end of history is liberal insofar 
        as it recognizes and protects through a system of law man's 
        universal right to freedom, and democratic insofar as it exists 
        only with the consent of the governed.\43\
---------------------------------------------------------------------------
    \43\ Francis Fukuyama, ``The End of History?'', at 3.

    Although the founders of the GATT had the foresight to devise rules 
to frustrate the ability of state trading systems to thrive, precisely 
because of the threat they pose to free enterprise and democracy, the 
American business community persuaded Congress to reject them. Our 
failure to know our own history--or the hubris of believing it did not 
matter--meant that we did not think to revive them either when the WTO 
---------------------------------------------------------------------------
was formed, or when China joined.

    Ironically, then, we are now living through the very outcome the 
founders of the system sought to prevent. If the Chinese Government 
continues on its present path, which is to bend others to its will, we 
may well end up with a global trading system that more closely 
resembles state capitalism than free enterprise. The loss of free 
speech we are witnessing seems merely to be a harbinger of the loss of 
other freedoms, too.

    We are not powerless to act, but it does require us to part company 
with the theories of trade that have predominated over the past 25 
years. Trade does not produce peace by itself. Rather, trade fosters 
peace when the rules are designed to promote peace.

    Fukuyama has more recently revisited his views. Commenting that the 
``unregulated markets'' associated with Thatcherism had in many ways a 
``disastrous effect,'' he went on to comment that the only ``plausible 
systemic rival to liberal democracy'' is Chinese state capitalism.

        The Chinese are arguing openly that [state capitalism] is a 
        superior [model] because they can guarantee stability and 
        economic growth over the long run that democracy can't.\44\
---------------------------------------------------------------------------
    \44\ George Eaton, ``Francis Fukuyama Interview: Socialism Ought to 
Come Back,'' The New Statesman, October 17, 2018 (https://
www.newstatesman.com/culture/observations/2018/10/francis-fukuyama-
interview-socialism-ought-come-back).

    The system we thought would breed democracy has instead facilitated 
a rival ideology that threatens democracy itself. Fukuyama has the 
integrity--and the courage--to revisit his assumptions, and to 
---------------------------------------------------------------------------
recognize his mistake.

    We must do the same.

                                 ______
                                 
           Questions Submitted for the Record to Beth Baltzan
                Questions Submitted by Hon. John Cornyn
    Question. In the past, countries blocked access to their markets by 
closing or limiting maritime ports to the trade of goods. So too, 
today, can nations block the trade of information, services, and even 
goods by using firewalls and filters. The infrastructure of our global 
Internet runs through a maze of roughly 300 undersea cables that 
connect the continents and countries that use them.

    How do our international trade agreements and laws apply to a 
digital product traveling through an undersea cable in comparison with 
the shipment of a good into a port?

    Answer. Our trade agreements recognize that digital products may be 
considered goods or services. To avoid having to resolve which, our 
agreements now refer to them as ``digital products.'' In that way the 
agreements focus on the treatment of the products, not the method of 
delivery.

    The WTO rules were negotiated before the modern digital trade era 
emerged, and thus the rules are crafted somewhat differently for goods 
and services. Columbia Professor Tim Wu provides an excellent overview 
\1\ of the various rules that may apply.
---------------------------------------------------------------------------
    \1\ https://scholarship.law.columbia.edu/cgi/
viewcontent.cgi?article=1879&context=faculty_
scholarship.

    In both instances, the obligation to provide national treatment 
applies. However, any analysis of services obligations depends on 
specific, affirmative commitments that WTO members made on a sectoral 
basis. As Professor Wu explains, this is where the analysis of a 
---------------------------------------------------------------------------
member's obligations can become complicated.

    Question. Do our agreements need to be updated to reflect this area 
of digital trade and what conversations are currently ongoing 
internationally, multilaterally, and bilaterally?

    Answer. The problem may have less to do with the rules themselves 
than the fact that the global trading system was originally designed on 
the basis that authoritarian state trading governments, such as the 
Soviet Union, were not part of the system. Authoritarian state 
capitalist governments were admitted in an era in which, as my 
testimony indicated, economic liberalization would pave the way for 
political liberalization. We now realize that theory was flawed, but it 
is proving nearly impossible to change the global trading rules because 
individual members can block these efforts.

    While some call for WTO members to accommodate alternative economic 
models, such as state capitalism, doing so would be a fundamental 
rejection of the vision of the founders of the multilateral trading 
system, who believed that free enterprise was an integral part of 
democracy, and that state trading would destroy democracy.

    In this regard, the use of censorship as a trade barrier is a 
symptom of a much deeper problem.

    The WTO is engaged in e-commerce negotiations. However, it is 
unlikely that those who deploy censorship as a barrier to trade will 
agree to any efforts to craft rules to discipline the behavior, the 
United States may, if it chooses to confront this issue directly, 
consider domestic legal provisions. Section 301 provides the executive 
branch with broad authority to address behaviors by trading partners 
that are unreasonable or discriminatory and burden or restrict U.S. 
commerce.

    It is important to recognize, as I suggested in my testimony,\2\ 
that liberalizing trade in cross-border data, and prohibiting data 
localization, runs the risk of having all the data end up in China. At 
present, our trade agreement rules do not prevent such an outcome. The 
agreements do, however, provide room for the signatories to agree on 
data storage rules that would protect against this outcome.
---------------------------------------------------------------------------
    \2\ https://waysandmeans.house.gov/sites/
democrats.waysandmeans.house.gov/files/documents
/BaltzanWrittenTestimony.pdf.

    Question. What remedies are currently available under our trade 
---------------------------------------------------------------------------
laws to confront censorship as a trade barrier?

    Answer. WTO rules prohibit import bans and quotas with respect to 
goods. WTO rules on services require national treatment. Depending on 
the nature of the trade barrier, there is an argument that using 
censorship as a non-tariff barrier can breach either the provisions 
covering import bans in goods, or the national treatment provisions for 
services. A WTO member could explore bringing a claim grounded in one 
or both of those provisions.

    However, any member accused of breaching those obligations can 
avail itself of a defense. GATT Article XX(a) provides as follows:

        Subject to the requirement that such measures are not applied 
        in a manner which would constitute a means of arbitrary or 
        unjustifiable discrimination between countries where the same 
        conditions prevail, or a disguised restriction on international 
        trade, nothing in this Agreement shall be construed to prevent 
        the adoption or enforcement by any contracting party of 
        measures:

        (a) Necessary to protect public morals. . . .

    Thus, a member could argue that any censorship measures were 
necessary to protect public morals. A panel would then evaluate whether 
the exception applied. It is difficult to predict how a panel might 
rule. In any event, the Appellate Body is currently not functional, and 
as a result, there would be no final adjudication until dispute 
settlement finality is restored. The WTO did just issue a decision on 
the U.S. invocation of the public morals exception in a dispute with 
China, finding against the United States.

    Question. As the Internet becomes more fractured, should we be 
having a conversation about flagging data from countries that do not 
reciprocate access to markets? This would be similar to how the Law of 
the Sea requires vessels to flag their ships.

    Answer. If the Internet continues to become more fractured, then 
the old model--that liberalization would minimize the relevance of 
individual nationalities as we moved toward free flow of goods and 
services--will no longer be as relevant. In that context, flagging data 
is one way to begin to recognize the reality that the nationality of 
digital products matters, and it would begin to establish pathways for 
executing strategies of requiring reciprocity should the United States 
choose to do so.

    Question. The World Trade Organization has two core principles. The 
first is national treatment, which requires a country to treat domestic 
and international products the same. The second is most-favored nation 
that requires a nation to treat all countries under the WTO equally. 
There are two exceptions to these principles for public morals and 
national security. These exceptions, intentionally or not, align well 
with the definition of censorship which allows for the blocking of 
media due to obscenity or security. The third piece in that definition 
is content deemed ``politically unacceptable.'' The WTO does not 
provide for an exception to that one.

    Was the topic of censorship raised during the negotiations over 
GATT and eventually the WTO and what conclusions were reached?

    Answer. As my written testimony indicates, the GATT was originally 
created with the understanding that the Soviet Union and other state 
trading countries would be excluded. In general, the contracting 
parties were democratically-oriented. As a result, the rules were 
designed with democratic governance in mind, and the founders did not 
see a need to protect against censorship and other tools of 
authoritarianism.

    As my written testimony also indicates, the WTO was created after 
the collapse of the Soviet Union, when policymakers tended to believe 
that economic liberalization would produce political liberalization. 
Therefore, WTO rules similarly do not include protections against 
censorship and other tools of authoritarianism because the assumption 
was that political liberalization was to some degree inevitable.

    As referenced above, Professor Tim Wu wrote an article in the 
Columbia Law Review in 2006 that explains the analytical complexities 
of censorship, and Internet filtering more generally, and concludes 
that censorship was not to be considered a trade barrier in the WTO, 
including with respect to China's accession (https://
scholarship.law.columbia.edu/cgi/
viewcontent.cgi?article=1879&context=faculty_
scholarship). However, Wu also explains that the WTO dispute settlement 
system sometimes adapts the rules to contemporary circumstances. This, 
of course, is one of the longstanding U.S. criticisms of the dispute 
settlement system: that it does not adhere to bargain struck by the 
parties, but rather deploys its own judgment instead.

                                 ______
                                 
             Questions Submitted by Hon. Benjamin L. Cardin
    Question. The Third Neighbor Trade act proposes improved economic 
and trade ties between the United States and Mongolia, chiefly by 
lowering barriers on the import of Mongolian cashmere.

    What other initiatives can the United States take to expand 
bilateral economic ties for mutual benefit?

    Answer. The challenge in this regard is, to some, extent, 
geographical. Any effort to expand bilateral economic ties must in fact 
be for mutual benefit, rather than providing a greater benefit to 
Mongolia's immediate neighbors. As I testified before the House Ways 
and Means Trade Subcommittee earlier this month, GSP and other 
preference program beneficiaries are typically under pressure from 
textile and apparel importers, and non-GSP beneficiaries, to request 
relaxed rules of origin. While this approach is often presented as a 
job creator in GSP beneficiaries, weak rules of origin mean that most 
of the benefits flow to non-beneficiaries. In my testimony, I also 
explained that our existing model of preference program does not 
adequately reflect the goal of inclusive prosperity, and we may 
therefore need to consider new rules for these programs that are 
designed to promote the creation of a middle class in the beneficiary 
countries. One of the proposals is to include an environment criterion, 
to begin to protect developing countries against the practice of 
advanced economies' exporting their polluting industries as part of a 
broader investment strategy grounded in environmental arbitrage.

    It is also worth exploring ways to encourage more integrated 
production among beneficiaries themselves. Can Mongolian semi-finished 
products be finished in, for example, beneficiary countries in the 
Caribbean, rather than in non-beneficiaries such as China? Can they be 
finished in the United States?

    Question. What other opportunities exist for Mongolia to diversify 
its economy sustainably and break away from over reliance on extractive 
industries?

    Answer. One of the unfortunate outcomes of some of our preference 
programs is that the principal exports under them may be raw materials. 
This has not been the goal of the programs, and the United States has 
struggled for some time to devise incentives to use the programs to 
diversify away from, for example, extractive industries.

    When Congress renewed the African Growth and Opportunity Act in 
2016, one way of promoting diversification and better use of the 
program was to encourage each beneficiary to develop an AGOA strategy. 
Many beneficiaries were in fact unaware of the scope of the benefits 
under AGOA and would often ask for product expansion to include goods 
that were in fact already covered. Mongolia might likewise benefit from 
a review of the preferences available under GSP, and whether it is in a 
position to better take advantage of the program.

    Mongolia might also consider new compacts with the Millennium 
Challenge Corporation.

                                 ______
                                 
           Prepared Statement of Hon. Robert P. Casey, Jr., 
                    a U.S. Senator From Pennsylvania
    This hearing is the third of a series of hearings held by the Trade 
Subcommittee outlining the Chinese Government's civil-military agenda 
and efforts to influence the economic and geopolitical order in a 
manner that benefits its authoritarian and anticompetitive practices.

    Just yesterday, the Chinese National People's Congress passed a 
national security law for Hong Kong that significantly erodes Hong 
Kong's special status and, based on available reporting, will deny the 
people of Hong Kong the right to protest, assemble, or the right to 
criticize their government.

    The United States Congress has been clear time and time again: the 
citizens of Hong Kong must enjoy certain rights that are distinct from 
mainland China, and efforts to undermine the status quo is an affront 
to the people of Hong Kong and decades of international agreement 
regarding the status of Hong Kong.

    As I've said before: when it comes to China, we must work with our 
allies to execute a clear and coordinated strategy. This applies to 
trade and to the Chinese Government's most recent efforts to erode the 
rights of the people of Hong Kong.

    Here in the United States, we are in the midst of a public health 
and jobs crisis. We have seen the cost of our reliance on a single 
source supplier, and more to the point, our reliance on production from 
a non-market economy.

    Last year, Senator Cornyn and I began this effort by outlining the 
main issues related to market access in China. We then focused on 
specific initiatives and actions undertaken by the Chinese Government, 
starting with the Belt and Road Initiative.

    Today, we turn our attention to censorship. The actions undertaken 
by the Chinese Government include direct barriers, such as blocking 
movies from entering their market or restricting content, to blocking 
Internet firms, to dictating content related to China's territorial and 
economic claims, to demanding action or inaction by businesses related 
to Taiwan, Hong Kong, Tibet, and the ongoing human rights abuses in 
Xinjian.

    The Chinese Government has become increasingly assertive in its 
demands within and outside of its borders. Their mandates related to 
extra-territorial censorship are particularly troubling. The Chinese 
Government's response to a message of solidarity for Hong Kong by the 
general manager of the Houston Rockets, brings to light the lengths the 
government will go to censor speech, no matter where in the world it 
occurs.

    The intended message sent by Beijing's disproportional response is 
clear: the Chinese Government can exert command and control over any 
enterprise operating in China--public or private. Simply stated, the 
Chinese Government is using its market power to stifle speech of our 
firms and people. These actions are inconsistent with our principles; 
they are inconsistent with our values, and those of our allies.

    The introduction of the corporate social credit system takes this 
activity to a new level. The actions undertaken by the Chinese 
Government are clearly restrictive and discriminatory. The actions 
undertaken by the Chinese Government are clearly insidious and counter 
to the necessary conditions of a fair global economic system.

    Since this hearing was originally scheduled in March, we have seen 
all too clearly the cost of relying on China, a non-market economy, for 
production of our Nation's critical capabilities.

    I recently introduced the Market Economy Sourcing Act, which will 
begin to right-size supply chains towards the United States and other 
market-oriented countries. This is but one measure that must be adopted 
to refocus our trade rules and the global economic system.

    If we hope to sustain market-oriented principles for the next 100 
years, we must take action now to ensure competition and market 
principles are not simply words in a textbook, but rather infused into 
our system of government and governance.

    When it comes to trade, we must be responsive and creative to 
address challenges and harness opportunities.

    There is no doubt Congress, citizens, and businesses must support 
and defend the economic security of the United States of America.

    I look forward to hearing from our witnesses and discussing 
potential responses, which, in my view, should include the required 
disclosure of these types of requests to the appropriate Federal 
entities, and trade rules that prevent free-riding from non-market 
economies.

                                 ______
                                 
                Prepared Statement of Hon. John Cornyn, 
                       a U.S. Senator From Texas
    I want to welcome my colleagues, the witnesses joining us here 
today in person and virtually, and those who are tuned in to hear about 
the important and pressing topic of ``Censorship as a Non-tariff 
Barrier to Trade.'' This subcommittee continues its work in exploring 
the unfair trade practices of foreign governments--and especially China 
and Russia.

    The topic of censorship in China is commonplace in the news because 
of its growing effect on American businesses and culture. In the fall 
of last year, the National Basketball Association (NBA) had its market 
access blocked in China because a single American citizen (using a 
media platform not even allowed in China) expressed their political 
opinion.

    Now the topic has become much more important. The lack of timely, 
accurate information about the spread of COVID-19 due to Chinese 
censorship has contributed to the havoc wreaked on our economy and 
health.

    This story is nothing new for some joining us today. Chinese 
censorship has long had a growing, negative effect on people around the 
world, such as those in Tibet or the Uyghurs in China's Xinjiang 
province.

    First, I want to set the scene for what ``censorship'' actually is. 
A simple look at the dictionary states it is ``the suppression or 
prohibition of any parts of media that are considered (1) obscene, (2) 
politically unacceptable, or (3) a threat to security.''

    Today, we will focus on how the use of censorship has become a 
barrier to global trade.

    When the World Trade Organization was founded, two exceptions to 
the principles of national treatment and most-favored nation were 
created. These are for public morals and national security. Notably, 
there is no exception for a country to restrict trade because it deems 
something ``politically unacceptable.''

    With discussions over reforming the WTO, multilateral talks on e-
commerce, and the prospect of a Phase Two bilateral deal with China 
progressing, the subcommittee is uniquely positioned to inform 
Congress, the public, and the executive branch on the use of censorship 
as a non-tariff barrier to trade.

    We will help determine if the suppression of information, data, 
goods, and services via digital media by countries such as China 
constitutes a trade barrier in violation of WTO, multilateral, and 
bilateral agreements and practices. If so, we will look to determine 
the economic damage caused; the human, cultural, business, and 
political ramifications; and what remedies are currently available or 
should be created to combat the unfair trade practice.

    On a bilateral basis, what is clear is the lack of reciprocity 
between countries like China or Russia and the U.S. The Chinese 
Government spends billions of dollars to promote its propaganda 
overseas, a form of offensive censorship. For years, Russia has 
broadcast its state propaganda in the U.S. and, as a result, the 
President required it to register as a foreign agent. The lack of 
reciprocity takes advantage of our system of free expression to promote 
these countries' agendas online, in media, entertainment, and our 
education system.

    Meanwhile, China and Russia do not grant the U.S. the same access 
to their markets or media. Instead, China is expelling our media, 
having kicked out three Wall Street Journal and other reporters earlier 
this year over Chinese censorship of COVID-19.

    For centuries, countries blocked trade through physically 
restricting access to their ports. Today, the same happens with 
firewalls, filters, and outright restrictions to access. In fact, 
nearly 100 percent of global Internet traffic travels through a 
crisscrossing network of undersea cables that forms the backbone of 
global digital trade. These cables are another front in the global 
technology race, with companies like Huawei Marine rapidly moving to 
control the media by which content and trade are censored.

    In the era of information, where data is the new gold, the blocking 
or filtering of that traffic by nation-states is growing. This 
censorship is fragmenting our markets, culture, and understanding of 
one another.

    The Internet itself is becoming less global. Countries like China 
and Russia are not only building their own infrastructure to cut 
themselves off from the world, but exporting their authoritarian model 
to other nation-states through efforts such as the Digital Silk Road.

    It is imperative that Congress support our Nation in meeting this 
challenge. That's why I am working with my colleagues this week to 
include parts of the CHIPS for America Act in the National Defense 
Authorization. If we are forced to rely on China to build our networks 
and technology, the world we know will be much less freer and open to 
express opinions and do business.

    This bill will help us create our own domestic production capacity 
for semiconductors that underpin the technology we use in our daily 
lives. It will also help the U.S. remain a global leader in promoting 
the free trade of goods, information, and speech.

    Finally, I look forward to discussing what remedies are available 
to address the abuse of censorship as a non-tariff barrier to trade.

    Last fall, a Chinese-American constituent in Texas reported that he 
was censored here on American soil by the Chinese Government. His 
American WeChat account was shut down for supporting protests in Hong 
Kong. His response was, ``If you have censorship in China, that's fine, 
but in this country? I'm a Republican, but I suffer the same as 
Democrats. We are all censored.''

    I look forward to exploring this topic in the same bipartisan 
fashion in which censorship affects us all. It is time that Congress 
ask the hard questions, and that is why we called our panel of four 
experts here today to discuss this issue.

                                 ______
                                 
  Prepared Statement of Nigel Cory, Associate Director, Trade Policy, 
            Information Technology and Innovation Foundation
    Good afternoon, Senator Grassley, Senator Cornyn, and members of 
the committee; thank you for inviting me to testify. I am Nigel Cory, 
associate director, trade policy, with the Information Technology and 
Innovation Foundation (ITIF). ITIF is the world's top-ranked think tank 
for science and technology policy. We advocate for policies that 
accelerate innovation and boost productivity in order to spur growth, 
opportunity, and progress. As part of that mission, my area of focus 
encompasses barriers to digital and high- tech trade with China and 
other countries around the world.
         overview: censorship as a non-tariff barrier to trade
    The U.S. lead in the digital economy is under threat as a growing 
number of countries enact overly restrictive and discriminatory laws 
and regulations around digital content they identify as illegal in ways 
that becomes barriers to trade. Explicit content review processes are 
the most visible aspect, but it also includes content distribution, 
Internet, and connectivity services as these play a crucial role in 
managing and controlling information, especially online. China is by 
far the worst offender. U.S. firms have lost significant revenue by 
being blocked or inhibited from accessing and operating in the Chinese 
market. The impact has been especially damaging given that for many 
companies' their market access has been denied during a critical, 
formative period of economic growth in China. This has not only reduced 
U.S. company global market share but provided Chinese competitors with 
a protected market from which to launch competitive challenges in other 
regions, such as South America, the rest of Asia, and Africa. Alongside 
China's other protectionist measures, this also means that a generation 
of Chinese consumers have grown up without knowing that their Internet 
and consumer experience is completely different than what is available 
in most other countries. They have little or no idea about Google, 
Twitter, Facebook, or other U.S. firms and their products, even as 
Chinese government officials and party ``apparatchiks'' use these 
platforms to spread propaganda in the United States.\1\
---------------------------------------------------------------------------
    \1\ Li Yuan, ``A Generation Grows Up in China Without Google, 
Facebook or Twitter,'' New York Times, August 6, 2018, https://
www.nytimes.com/2018/08/06/technology/china-generation-blocked-
internet.html.

    The economic impact is not trivial. A host of U.S. industries and 
firms, in sectors ranging from Internet services to cloud computing, 
video games, and movies, have likely lost hundreds of billions of 
dollars in revenues due to Chinese censorship and related market 
restrictions. Importantly, these revenues would have supported 
innovation and job creation in the United States, while limiting 
Chinese firms' ability to grow and capture global market share. While 
it is not possible to calculate an exact figure, ITIF conservatively 
estimates (based on market-share comparisons) that Google, which 
withdrew from the Chinese market in 2010, subsequently lost $32.5 
billion in search revenue from 2013 to 2019, while Amazon and 
Microsoft's cloud services (IaaS, which is restricted in China) lost a 
combined $1.6 billion over the 2-year period from 2017 to 2018. As the 
China market continues to rapidly grow, these losses will also grow 
significantly. And it is important to remember that this was all during 
a time when China was already running significant trade surpluses with 
---------------------------------------------------------------------------
the United States.

    U.S. firms and their increasingly digital goods and services are 
susceptible to non-tariff barriers in the form of both at-the-border 
and behind-the-border laws and regulations. The Great Firewall of China 
represents a rare case where U.S. digital exports face a barrier at the 
border. Meanwhile, behind this clear market access barrier, U.S. firms 
face a complicated, opaque, and changing regulatory framework tied to 
content moderation and information control that together makes for a 
very difficult and different business environment. Moreover, in many 
cases, China's approach to censorship is unwritten, with enforcement 
often being arbitrary and delegated to private firms. This is in large 
part a conscious decision to avoid WTO sanctions which would be much 
easier to put in place if the rules are on paper. Ever changing 
political sensitivities in China make it even more challenging to 
figure out what is expected of foreign firms. As we recently saw when 
China blocked NBA games, the Chinese Communist Party (CCP) is also 
increasingly assertive in punishing foreign firms for actions or speech 
that occurs outside of China. Censorship is obviously a major factor in 
China's decision to prohibit foreign firms from operating in key 
sectors (for example, by not giving them licenses or allowing foreign 
equity stakes in local firms) and through onerous, unpredictable, and 
discriminatory content-review processes, such as for video games and 
movies. Taken together, China's approach to censorship is clearly 
restrictive and discriminatory towards foreign firms and their goods 
and services.

    Because China (and other countries) rely on a range of legitimate 
public policy goals to provide a justification for their approach to 
censorship--such as public safety, morals, cybersecurity and national 
security--the United States and other governments have been reluctant 
to challenge Chinese practices. Trade-related concerns over censorship 
are also just one of many issues in the U.S.-China trade relationship. 
While the primary motivation for censorship may be political, by making 
life hard or simply keeping U.S. firms out of China, the government 
gets the added benefit of supporting China's innovation mercantilism 
strategy by protecting local firms from foreign competition. Over time, 
this has greatly re-shaped trade and market dynamics in China to the 
detriment of U.S. firms and the U.S. economy.

    Whatever the stated motivation for its approach to censorship, 
China sees it as essential to achieving the most important goal of 
all--regime stability. But the implications go far from China's 
domestic politics. Chinese President Xi Jinping has outlined his vision 
for ``cyber sovereignty,'' a concept in which each country is free to 
set its own rules and exercise absolute control of the Internet within 
its own borders.\2\ Thus far, the United States and other countries 
that support an open and rules-based global digital economy have failed 
to respond to the situation in China where it has enacted a censorship 
system that acts (whether intentionally or inadvertently) as a non-
tariff barrier to trade (as in China). Other countries view the ``China 
model'' of digital development as a success and one they want to 
replicate, in part, because it has used censorship for political and 
economic ends. At the multilateral level, the trade rules of the global 
economy (as under various World Trade Organization (WTO) agreements) 
allow countries to enact restrictions based on a range of broad 
exceptions for public morals, public order, privacy, and national 
security. But when those are used as disguised barriers to trade, as is 
clearly the case in China, then trade rules at the WTO and elsewhere 
should provide a clear path for countries to challenge the misuse of 
these exceptions.
---------------------------------------------------------------------------
    \2\ For example: Chinese President Xi Jinping's speech to the 
National Propaganda and Ideology Work Conference, August 2013, 
``Western anti-China forces have constantly and vainly tried to exploit 
the Internet to `topple China.' . . . Whether we can stand our ground 
and win this battle over the Internet has a direct bearing on our 
country's ideological and political security.'' Quote taken from: James 
Griffiths, The Great Firewall of China: How to Build and Control an 
Alternative Version of the Internet (London: Zed Books, 2019).

    Some U.S. policymakers exacerbate the impact of Chinese censorship 
and mercantilism by calling for U.S. firms to leave or stay out of 
China by saying that it's immoral to do business there.\3\ In many 
companies' case, they rightly say that the U.S. companies would have to 
comply with Chinese censorship rules. But while telling companies like 
Google to stay out China might allow advocates to assert moral 
authority, it would have no actual beneficial effect on free speech and 
human rights: China's Internet users would still face a censored 
Internet. Yet it would give companies like Baidu (the main Chinese 
search engine company) the vast Chinese market, and they would use 
those revenues to continue innovating and expanding into markets all 
around the world, ultimately taking market share and jobs from American 
technology companies.
---------------------------------------------------------------------------
    \3\ Wesley Rahn, ``Is Google selling out for access to China's 
massive tech market?'', Deutsche Welle, October 19, 2018, https://
www.dw.com/en/is-google-selling-out-for-access-to-chinas-massive-tech-
market/a-45961894.

    There should be no doubt that it is in America's long-term economic 
and security interests that U.S. companies sell as many goods and 
services to China as possible. Every dollar's worth of digital and 
physical exports from the United States to China is a dollar that 
Chinese firms do not make--and it is a dollar American firms can use to 
reinvest in R&D and support employment in the United States. We should 
be encouraging, rather than berating, U.S. firms to engage in the 
Chinese market (not including, obviously, selling directly to the 
Chinese military) for we are locked in a critical competition for 
global technology leadership with them. Walking away from the China 
market only gives China a leg up in that competition. It is time that 
our policy vis-a-vis U.S. information services and digital content 
exports to China be based on national interest, not national 
---------------------------------------------------------------------------
moralizing.

    None of this means that the U.S. Government shouldn't continue 
supporting human rights, free speech, and democracy around the world--
it most clearly should. Congressional representatives, U.S. Government 
agencies, and successive U.S. administrations have dedicated funds and 
attention to how censorship affects these issues over the last decade. 
Whether this is the State Department's global Internet freedom 
programs, U.S. Government advocacy on Internet governance at the 
International Telecommunications Union, or U.S. Government membership 
of the Freedom Online Coalition of like-minded countries, all these 
ensure that U.S. values are being promoted.\4\ The point here is that 
the onus should be on the U.S. government to keep leading the case to 
promote U.S. values around the world.
---------------------------------------------------------------------------
    \4\ Summarized: Patricia Moloney Figliola, ``Internet Freedom in 
China: U.S. Government Activity, Private Sector Initiatives, and Issues 
of Congressional Interest'' (Congressional Research Service, May 18, 
2018), https://www.hsdl.org/?view&did=811017. It is important to also 
ensure that the U.S. State Department should use a dispassionate 
analysis and pursue true violations of Internet freedom, such as 
political persecution: Robert D. Atkinson and Michael McLaughlin, 
``Freedom Is Not Free License: Freedom House's Flawed Measurement of 
`Internet Freedom' '' (The Information Technology and Innovation 
Foundation, June 8, 2020), https://itif.org/publications/2020/06/08/
freedom-not-free-license-freedom-houses-flawed-measurement-internet.

    This testimony provides a detailed analysis of censorship in China, 
including how it uses the Great Firewall and other censorship-related 
restrictions to prohibit market access and trade. I will explain how 
this censorship is a significant and growing non-tariff barrier to U.S. 
trade, how it has negatively affected a number of leading U.S. firms 
and sectors, and by extension how it impacts U.S. jobs and the U.S. 
economy. I will then provide a conservative estimate as to the large 
and growing impact censorship has had on search (Google) and cloud 
(Amazon), and the limited utility of trade law to challenge Chinese 
censorship. It then provides recommendations for U.S. policymakers to 
pressure China to revise its approach to censorship, even if it doesn't 
cease the practice, so that it doesn't act as a model of digital 
protectionism that other countries try and replicate, and so that it 
provides meaningful market access to U.S. firms.
       china's use of censorship: broad, complicated, and opaque
    China's Communist Party has centralized, strengthened, and expanded 
the censorship mechanisms it uses in an attempt to protect itself at 
home and abroad.\5\ In recent years, this has been driven by a broader 
political crackdown under Chinese President Xi Jinping. It is one part 
of President Xi goal for China to become a ``cyber superpower,'' which 
includes being free and independent from foreign technology (which has 
obvious trade implications) and objectionable content that may threaten 
his and the CPP's control of China. But the implications extend 
internationally--China wants to (re)write the rules for global cyber 
governance.\6\ China's model is at odds with those of many other 
countries that recognize the value provided by an open, innovative, and 
global digital economy.\7\ In essence, China is pushing an alternative 
to the current mostly open Internet.\8\ While there are most definitely 
economic and commercial considerations, ultimately--China's Internet 
management system is about control and the goal of maintaining order. 
However, the focus of this testimony will be on the trade and economic 
impact on U.S. firms and the U.S. economy.
---------------------------------------------------------------------------
    \5\ Matthew D. Johnson, ``Safeguarding socialism: The origins, 
evolution and expansion of China's total security paradigm'' (Sinopsis, 
a joint project between AcaMedia z.u. and the Department of Sinology at 
Charles University in Prague, June 11, 2020), https://sinopsis.cz/en/
johnson-safeguarding-socialism/.
    \6\ Samm Sacks, ``Beijing Wants to Rewrite the Rules of the 
Internet,'' The Atlantic, June 18, 2018, https://www.theatlantic.com/
international/archive/2018/06/zte-huawei-china-trump-trade-cyber/
563033/; (translation) ``Xi Jinping: Accelerating the Independent 
Innovation of Network Information Technology and Making Unremitting 
Efforts Towards the Goal of Building a Network Power,'' Xinhua, October 
9, 2016, http://www.xinhuanet.com/politics/2016-10/09/c_1119682204.htm.
    \7\ Nigel Cory, ``Why China Should Be Disqualified From 
Participating in WTO Negotiations on Digital Trade Rules'' (The 
Information Technology and Innovation Foundation, May 9, 2019), https:/
/itif.org/publications/2019/05/09/why-china-should-be-disqualified-
participating-wto-negotiations-digital.
    \8\ Michael McLaughlin Daniel Castro, ``The Case for a Mostly Open 
Internet'' (The Information Technology and Innovation Foundation, 
December 16, 2019), https://itif.org/publications/2019/12/16/case-
mostly-open-internet.

    Censorship in China is a broad, complicated, and opaque system 
involving a range of actors, laws and regulations, and social, 
economic, and political interests. At the individual level, these come 
together and result in considerable self-censorship given people 
realize the potential negative consequences of crossing the many 
unclear lines on what may or may not be allowed. In this way, China's 
---------------------------------------------------------------------------
pursuit for censorship has resulted in significant societal changes.

    As to the formal structure of censorship, the State Internet 
Information Office (established in 2011) is reportedly responsible for 
Internet censorship.\9\ However, censorship is a much broader endeavor. 
The United States Trade Representative (USTR) states that Chinese 
government officials from as many as 12 separate agencies are involved 
in monitoring and filtering Internet traffic that enters China, 
focusing primarily on the content that they deem objectionable on 
political, social, religious, or other grounds.\10\
---------------------------------------------------------------------------
    \9\ ``China sets up State Internet information office,'' Xinhua, 
May 4, 2011, at http://www.chinadaily.com.cn/china/2011-05/04/
content_12440782.htm.
    \10\ United States Trade Representative (USTR), 2018 Report to 
Congress on China's WTO Compliance (Washington, DC: USTR, February 
2019), https://ustr.gov/sites/default/files/2018-USTR-Report-to-
Congress-on-China%27s-WTO-Compliance.pdf.

    While it is only one part of China's broader censorship machine, 
the Great Firewall is central. Typically, China says that a firm has 
used ``illegal content''--a catch-all explanation for censorship. 
Attempts to access a blocked site from China typically results in a 
connection error as the Chinese nameservers--address books that match 
up website names to their digital locations--is unable to correctly 
retrieve the IP address of the requested website. This form of 
nameserver corruption has been often used by the Chinese government to 
block platforms.\11\ There are reportedly over 10,000 websites blocked 
in China.\12\ In the first half of 2018 alone, China's regulator the 
Cyber Administration of China (CAC) said it had shut down or revoked 
the licenses of more than 3,000 websites.\13\
---------------------------------------------------------------------------
    \11\ Yuan Yang, ``China blocks Bing access in curb on last foreign 
search engine,'' FT, January 24, 2019, https://www.ft.com/content/
714ac466-1f64-11e9-b126-46fc3ad87c65.
    \12\ Gerry Shih, ``China adds Washington Post, Guardian to `Great 
Firewall' blacklist,'' The Washington Post, June 8, 2019, https://
www.washingtonpost.com/world/china-adds-washington-post-guardian-to-
great-firewall-blacklist/2019/06/08/5ae4fb76-8a56-11e9-b1a8-
716c9f3332ce_story.html.
    \13\ ``Online Censorship in China,'' GreatFire.org, https://
en.greatfire.org/analyzer; Yuan, ``A Generation Grows Up in China 
Without Google, Facebook or Twitter.''

    While state agencies obviously play a key role, Chinese private 
firms play a crucial role. Government agencies rely on the state 
control of the main telecommunication companies (China Telecom, China 
Unicom and China Mobile) to enforce blocks and other censorship and 
information control measures. Another crucial group of firms are the 
members of China's Cross-border Data Telecommunications Industry 
Alliance, which sets out common self-discipline measures for firms 
involved in managing cross-border data traffic.\14\ However, the 
implementation of censorship is decentralized to a much broader range 
of private firms who act as crucial intermediaries.
---------------------------------------------------------------------------
    \14\ ``Notice on Invitation to Membership and Overseas Observers of 
China Cross-border Data Telecommunications Industry Alliance,'' China 
Academy of Information and Communication Technology, September, 2018, 
http://www.caict.ac.cn/english/news/201809/t20180920_271372.
html.

    Tech firms, especially China's ``big three'' Internet firms Baidu, 
Alibaba, and Tencent, are critical intermediaries in enacting 
censorship in Chins. These firms do so, in part, as they have to manage 
content as part of their license to operate.\15\ China's new counter-
terrorism law also requires companies to monitor user behavior to 
ensure public safety.\16\ Another law on ``mobile Internet application 
programs'' requires app providers to monitor online content and keep 
records of user violations and report them to the relevant government 
authorities.\17\ In many areas, this role is strictly limited to 
Chinese firms as China prohibits foreign investment in ``Internet 
publishing'' (providing the public with publications through the 
Internet).\18\ Chinese laws also prohibit people and firms from 
developing or hosting tools that could be used to circumvent its data 
and content control measures.\19\
---------------------------------------------------------------------------
    \15\ State Council, Telecommunications Regulations of the People's 
Republic of China. Decree of the State Council of the People's Republic 
of China No. 291, September 25, 2000.
    \16\ Standing Committee of the National People's Congress, Counter-
terrorism Law of the People's Republic of China, Order of the President 
of the People's Republic of China No. 36, December 27, 2015.
    \17\ Cyberspace Administration of China (CAC), Administrative 
Provisions on Information Services of Mobile Internet Application 
Programs, June 28, 2016; Library of Congress, China: CAC Releases New 
Rules on Mobile Apps, July 26, 2016.
    \18\ State Administration of Press, Publication, Radio, Film and 
Television (SAPPRFT) and Ministry of Industry and Information 
Technology (MIIT), Administrative Regulations for Online Publishing 
Services (``Online Publishing Regulations''), February 14, 2016; 
Heather Timmons and Zheping Huang, ``Beijing is banning all foreign 
media from publishing online in China,'' Quartz, February 18, 2016, 
https://qz.com/620076/beijing-is-banning-all-foreign-media-from-
publishing-online-in-china/; United States Trade Representative (USTR), 
2018 Report to Congress on China's WTO Compliance; Albert C. Tan and 
Frank S. Wu, ``New Regulations on Internet Publishing in China: Foreign 
Capital Prohibited,'' Haynes and Boone website, March 30, 2016, https:/
/www.haynesboone.com/Alerts/new-regulations-on-internet-publishing-in-
china.
    \19\ ``Ninth Amendment to the Criminal Law,'' China Law Translate, 
July 7, 2015, http://www.chinalawtranslate.com/criminallawam92/
?lang=en.

    Chinese tech firms often have thousands of content moderators to 
remove censored content. These moderators look for code words or slang 
that people use to try and get around censorships as well as memes that 
deal with subjects that the government doesn't want people to 
access.\20\ There are also censorship ``factories'' in China that 
fulfil these duties for firms. For example, one such firm is 
Beyondsoft, which has a service (called Rainbow Shield) that has 
compiled over 100,000 basic sensitive words and over three million 
derivative words, with about one-third related to political content, 
followed by words related to pornography, prostitution, gambling, and 
knives.\21\
---------------------------------------------------------------------------
    \20\ Javier C. Hernandez, ``Chinese Citizens Evade Internet Censors 
to Remember Liu Xiaobo,'' New York Times, July 14, 2017, https://
www.nytimes.com/2017/07/14/world/asia/china-liu-xiaobo-censorship-
internet.html; Amy Qin, ``Ridicule Turns to Affection as Chinese Social 
Media Embraces Jiang Zemin,'' New York Times, October 20, 2015, https:/
/sinosphere.blogs.
nytimes.com/2015/10/20/jiang-zemin-china-toad-xi-jinping/; Michael 
Wines, ``A Dirty Pun Tweaks China's Online Censors,'' New York Times, 
March 11, 2009, https://www.nytimes.com/2009/03/12/world/asia/
12beast.html.
    \21\ Li Yuan, ``Learning China's Forbidden History, So They Can 
Censor It,'' New York Times, January 2, 2019, https://www.nytimes.com/
2019/01/02/business/china-internet-censor.html.

    China's censorship system, and the criteria it uses, are opaque and 
unpredictable, which together create considerable market and policy 
uncertainty. China's regulatory authorities frequently take actions 
that appear to be arbitrary, rarely issue lists of banned search terms 
or banned sites, and provide little or no justification or means of 
appeal when they block access to all or part of a website. Furthermore, 
while non-state actors often take explicit guidance from government 
authorities, they also take an educated guess to block services and 
material that they think the government would consider offensive or 
sensitive. China's online crackdowns are often cyclical, especially in 
the lead-up to key CCP meetings. The unclear and imperfect application 
of censorship means that firms and content moderators face the 
challenge of adapting to Chinese users reverting to slang words and 
memes when communicating on Chinese social media apps like Weibo, QQ, 
and WeChat. In many ways, the opaque, evolving, and decentralized 
nature of censorship is one of the factors that makes it easier for 
China to avoid a legal challenge at the WTO as many parts of its 
censorship model is through informal administrative guidance or 
unguided intermediary action.\22\
---------------------------------------------------------------------------
    \22\ Martina F. Ferracane and Hosuk Lee-Makiyama, ``China's 
technology protectionism and its non-negotiable rationales'' (The 
European Centre for International Political Economy, 2017), https://
ecipe.org/wp-content/uploads/2017/06/DTE_China_TWP_REVIEWED.pdf.
---------------------------------------------------------------------------
           censorship in china is a significant and growing 
                    non-tariff barrier to u.s. trade
    China's use of censorship affects both market entry and operations 
in China and the provision of digital services and products from 
overseas. This section outlines how China's use of censorship acts as a 
significant barrier to trade for many U.S. firms and their goods and 
services, while also showing how a smaller subset of U.S. tech firms 
have successfully managed to enter and compete.

    In analyzing the trade and economic impact of censorship in China 
it's important to note that even if China was fully open to U.S. firms 
and their goods and services that they would not necessarily be able to 
gain the market share they have in the United States and elsewhere 
around the world. Chinese firms are robust competitors. But U.S. firms 
may be better than local firms in some areas, in part, as they're able 
to draw on their experience and technologies developed and used 
elsewhere around the world that Chinese firms have not yet developed. 
But the point is that U.S. firms should have market access and clear, 
predictable, and consistent rules around illegal material so that they 
could at least compete on level terms in China.

    Drawn by the world's largest smartphone market and an increasingly 
wealthy population deeply intrigued by new technologies, just about 
every American tech company has taken a shot at China. But outside of 
LinkedIn, AirBnb, Apple, and a group of older companies like IBM, 
Microsoft, and Intel, few have a major presence in the country 
today.\23\ While U.S. firms may not hold the same market shares as they 
do in the United States and other foreign markets, it's not hard to 
expect that a greater number and range of U.S. firms would have some, 
probably sizable, market share in China if there was better market 
access.
---------------------------------------------------------------------------
    \23\ Paul Mozur and Carolyn Zhang, ``Silicon Valley Giants Confront 
New Walls in China,'' New York Times, July 22, 2017, https://
www.nytimes.com/2017/07/22/technology/in-china-silicon-valley-giants-
confront-new-walls.html.

    However, success is far from assured. It's also getting more 
challenging to achieve, in part, as President Xi and CPP have become 
even more sensitive to content and action that they deem offensive or 
illegal. Foreign firms understand that doing business in China is 
contingent on the firm doing its best to not offend the CCP, both in 
words and deeds in China and elsewhere around the world. The economic 
and trade tradeoff with censorship is increasingly clear with an 
assertive CCP: entering China means you get access to a huge and 
dynamic market, but the government gets to hold you accountable for 
offending it. When there are few or no legal limits (whether domestic 
or trade law-related) to the Chinese government's reaction, then 
---------------------------------------------------------------------------
foreign firms are obviously at a major disadvantage.

    Censorship in China is much broader than website blocking. It no 
doubt plays a role in China's decision to prohibit wholly or partially 
owned foreign firms from key sectors. For example, China uses licenses 
to strictly control who can offer value-added telecommunication 
services, such as voice-over-Internet protocol calls, online database 
storing and searching, electronic data exchange, online data processing 
and transactions processing, domestic multiparty communication 
services, virtual private network (VPN) services, and video 
teleconferencing and who can interconnect these services with public 
telecommunication networks.\24\ Similarly, foreign ownership in basic 
telecommunication services (fixed line, mobile, and broadband) is 
capped at 49 percent.\25\
---------------------------------------------------------------------------
    \24\ United States Trade Representative (USTR), Section 1377 Review 
on Compliance With Telecommunications Trade Agreements (Washington, DC: 
USTR, 2015), https://ustr.gov/sites/default/files/2015-Section-1377-
Report_FINAL.pdf.
    \25\ State Council, Provisions on Administration of Foreign-
Invested Telecommunications Enterprises. Decree of the State Council of 
the People's Republic China No. 333, December 11, 2001.

    As it relates to blocking, most of the foreign online services, 
apps or intermediaries that China blocks are rarely revised and lifted 
(as the list above shows). Firms that have their web services 
temporarily blocked typically find that this is simply a prelude to a 
total and permanent block. The impact of being blocked is cumulative in 
its trade impact as for many services that are already blocked, if they 
add innovative new services and products, the block is automatically 
extended. For example, China's initial blocking of foreign search 
engines has expanded to encompass many email, cloud storage, and other 
services. This shows that even if there was a specific politically or 
socially offensive article to prompt a block, the extension of this 
block to new services makes it much more impactful from a trade and 
---------------------------------------------------------------------------
economic perspective.

    The status of a range of key U.S. and foreign firms and services 
blocked or throttled in China.

        Amazon

            Twitch (a live video streaming service) has been blocked 
since September 2018.\26\
---------------------------------------------------------------------------
    \26\ Shannon Liao, ``Twitch is now blocked in China,'' The Verge, 
September 20, 2018, https://www.theverge.com/2018/9/20/17883736/twitch-
china-block-app-store.

            Local marketplace Amazon.cn shut down in 2019, due to a 
small market share (not due to being blocked). Amazon focuses on 
``cross-border commerce.''\27\ China is among the small number of 
countries where Amazon Prime Video is not available.\28\
---------------------------------------------------------------------------
    \27\ Arjun Kharpal, ``Amazon is shutting down its China marketplace 
business. Here's why it has struggled,'' CNBC, April 18, 2019, https://
www.cnbc.com/2019/04/18/amazon-china-marketplace-closing-down-heres-
why.html.
    \28\ Patrick Frater, ``Why China Is Absent From Amazon Prime 
Video's Global Rollout,'' Variety, December 14, 2016, https://
variety.com/2016/digital/asia/why-china-is-absent-from-amazon-prime-
videos-global-rollout-1201941851/.

---------------------------------------------------------------------------
        Box.com

            There appears to be a soft block on Box's cloud and sync 
services. Users who have Box pre-installed (e.g., travelers) can 
generally use the service, or through a China-specific link. Box 
appears to work best for those who are visiting rather than long-term 
residents.\29\
---------------------------------------------------------------------------
    \29\ ``Accessing Box From China,'' Box Community website, May 18, 
2018, https://community.box.com/t5/Archive-Forum/Accessing-Box-from-
China/td-p/56552.

---------------------------------------------------------------------------
        Dropbox

            First blocked in May 2010.\30\ Temporarily restored in 
February 2014, but then blocked again in June 2014.\31\
---------------------------------------------------------------------------
    \30\ Matthew Humpries, ``China has blocked Dropbox,'' Geek.com, May 
11, 2010, https://www.geek.com/news/china-has-blocked-dropbox-1235291/.
    \31\ Catherine Shu, ``Dropbox Now Accessible for the First Time in 
China Since 2010,'' TechCrunch, February 17, 2014, https://
techcrunch.com/2014/02/17/dropbox-now-accessible-for-the-first-time-in-
china-since-2010/; Michael Kan, ``China cuts access to Dropbox,'' PC 
World, June 19, 2014, https://www.pcworld.com/article/2365540/china-
cuts-access-to-dropbox.html.

---------------------------------------------------------------------------
        Facebook (further details below)

            Main Facebook website was blocked in 2009. Instagram was 
blocked in September 2014. WhatsApp was blocked in September 2017.\32\
---------------------------------------------------------------------------
    \32\ Hannah Kuchler, ``WhatsApp blocked in China ahead of Communist 
Party Congress in October,'' FT, September 25, 2017, https://
www.ft.com/content/685b02c6-4f37-3d69-97f1-38bf7eafeb9d.

            Operates an online advertising unit for Chinese customers 
to target foreign markets. In 2018, China was the second-largest source 
of foreign revenue for ad spend on Facebook.\33\
---------------------------------------------------------------------------
    \33\ George P. Slefo, ``Report: China, despite ban, is Facebook's 
second-largest ad market,'' AdAge, May 15, 2018, https://adage.com/
article/digital/china-facebook-s-largest-market/313524.

---------------------------------------------------------------------------
        Google (further details below)

            Temporarily blocked in 2002, but was later re-opened. 
However, Google decided to withdraw its search engine from China in 
2010 and direct all traffic to google.com.hk (which is blocked in 
China).\34\ Google also operates an online advertising unit in China.
---------------------------------------------------------------------------
    \34\ https://www.google.com.hk is 100 percent blocked in China, 
GreatFire.org website, https://en.greatfire.org/https/
www.google.com.hk.

            YouTube was blocked on and off in the late 2000s before 
---------------------------------------------------------------------------
being permanently blocked in March 2009.

            Also blocked: Gmail, Google Drive, Google Docs, Google 
Play, Google Translate, Google Calendar, Google Picasa, Google Groups, 
Google Keep, Google Voice, Google Wallet, Google Earth, Google Earth, 
Google Chrome homepage, Google Code, Google Blogspot, and Google 
Feedburner.\35\
---------------------------------------------------------------------------
    \35\ ``Google disrupted prior to Tiananmen anniversary; Mirror 
sites enable uncensored access to information,'' GreatFire.org website, 
June 2, 2014, https://en.greatfire.org/blog/2014/jun/google-disrupted-
prior-tiananmen-anniversary-mirror-sites-enable-uncensored-access.

---------------------------------------------------------------------------
        Microsoft (further details below)

            Microsoft OneDrive was blocked in 2014.\36\ Bing was the 
last major U.S. search engine blocked in China in January 2019.\37\
---------------------------------------------------------------------------
    \36\ Kaylene Hong, ``Little trouble in big China: Flickr, OneDrive, 
Line and Kakao Talk suffer accessibility issues,'' TheNextWeb, July 4, 
2014, https://thenextweb.com/asia/2014/07/04/little-trouble-in-big-
china-flickr-onedrive-line-and-kakao-suffer-downtime/#.tnw_FFQ06QZk.
    \37\ Yuan Yang, ``China blocks Bing access in curb on last foreign 
search engine,'' FT, January 24, 2019, https://www.ft.com/content/
714ac466-1f64-11e9-b126-46fc3ad87c65.

---------------------------------------------------------------------------
        News services

            The Washington Post, The Guardian, Bloomberg, The New York 
Times, Reuters, The Wall Street Journal, BBC Chinese, Chosun Chinese, 
and Google News are all blocked in China.\38\
---------------------------------------------------------------------------
    \38\ For example: Shih, ``China adds Washington Post, Guardian to 
`Great Firewall' blacklist,'' The Washington Post.

---------------------------------------------------------------------------
        Other search engines

            DuckDuckGo, Baidu Japan, Baidu Brazil, Yahoo Hong Kong, 
and Yahoo Taiwan are all blocked in China.\39\
---------------------------------------------------------------------------
    \39\ Paige Leskin, ``Here are all the major U.S. tech companies 
blocked behind China's `Great Firewall,' '' Business Insider, October 
10, 2019, https://www.businessinsider.com/major-us-tech-companies-
blocked-from-operating-in-china-2019-5#duckduckgo-18.
---------------------------------------------------------------------------
        Pinterest

            Blocked in 2017.\40\
---------------------------------------------------------------------------
    \40\ Sherisse Pham, ``China adds Pinterest to list of banned 
sites,'' CNN Business, March 17, 2017, https://money.cnn.com/2017/03/
17/technology/pinterest-banned-china/.

---------------------------------------------------------------------------
        Reddit

            Blocked in August 2018.\41\
---------------------------------------------------------------------------
    \41\ Alice Truong, ``Users in China found Reddit blocked over the 
weekend,'' Quartz, August 13, 2018, https://qz.com/1354441/china-
blocked-reddit-but-access-is-returning-for-some-users/.

---------------------------------------------------------------------------
        Slack

            Access has been inconsistent for years, despite not being 
completely blocked.\42\ China, along with a number of countries have 
recently blocked certain online services, including AWS, which hosts 
Slack, making it very difficult for such services to access those 
markets.\43\
---------------------------------------------------------------------------
    \42\ `` @SlackHQ: While we do not block Slack in China from our 
end, we do know that our content delivery network is very often blocked 
in China, and so accessing Slack there is somewhat inconsistent,'' 
Twitter, February 27, 2018, https://twitter.com/slackhq/status/
968526959213
936640?lang=en.
    \43\ ``Slack Technologies filing to the United States Securities 
and Exchange Commission (SEC),'' WEC website, May 31, 2019, https://
www.sec.gov/Archives/edgar/data/1764925/000162828019007428/slacks-
1a3.htm.

---------------------------------------------------------------------------
        Snapchat

            Unclear when first blocked, but Snap has a small research 
office in China despite the block.\44\
---------------------------------------------------------------------------
    \44\ Leskin, ``Here are all the major U.S. tech companies blocked 
behind China's `Great Firewall' ''; Sherisse Pham, ``Why Snapchat's 
owner is hiring in China,'' CNN Business, December 21, 2016, https://
money.cnn.com/2016/12/21/technology/snapchat-china-spectacles-shenzhen-
office/.

---------------------------------------------------------------------------
        Twitter

            Blocked in June 2009.\45\
---------------------------------------------------------------------------
    \45\ Paul Mozur, ``Twitter Users in China Face Detention and 
Threats in New Beijing Crackdown,'' New York Times, January 10, 2019, 
https://www.nytimes.com/2019/01/10/business/china-twitter-censorship-
online.html.

    The impact of China's censorship and blocking of U.S. firms varies 
along a spectrum: from a minor, periodic constraint on service access 
to a severely degraded connection that essentially makes it unviable 
from an operational or commercial perspective to a complete block. 
China has gradually been ratcheting up the restrictions so that it is 
more often at the restrictive end of the spectrum. Frequent blocking 
and unlocking of websites (and VPNs) can make it hard for firms to have 
confidence they will have the communication services they need for day-
to-day operations and international trade.\46\ U.S. firms also report 
that pushing all traffic through the Great Firewall adds transmission 
delays that can significantly degrade the quality of the service, to 
the point where it's commercially or operationally unacceptable (thus 
cutting off market access).\47\ In a similar way, China has 
``throttled'' access to foreign websites in order to make them so slow 
as to be unusable. Throttling is often a precursor to being blocked 
completely. For example, before Google got fully blocked, it was 
throttled for a long time, which had the effect of making it appear as 
if Google's search engine was slow and buggy. Furthermore, in 2007, 
China temporarily re-directed all China-based requests for Google, 
Yahoo, and Microsoft to Baidu.\48\
---------------------------------------------------------------------------
    \46\ United States Trade Representative (USTR), 2018 Report to 
Congress on China's WTO Compliance.
    \47\ Ibid.
    \48\ Victoria Ho, ``China accused of rerouting search traffic to 
Baidu,'' CNET, October 22, 2007, https://www.cnet.com/news/china-
accused-of-rerouting-search-traffic-to-baidu/.

    The case of Microsoft's Bing is typical. When it was blocked in 
January 2019, Bing was the only major foreign search engine left in 
China. News reports quote anonymous sources that stated that China 
Unicom, one of China's major state-owned telecoms companies, had 
received an order from the government to block Bing for ``illegal 
content.''\49\ Attempts to access cn.bing.com from China resulted in a 
(nameserver) connection error. As of December 2018, Bing held a 2-
percent market share in China (far behind Chinese industry leader 
Baidu, with 70 percent), but it enjoyed a niche market for English-
language searches.\50\
---------------------------------------------------------------------------
    \49\ Yuan Yang, ``China blocks Bing access in curb on last foreign 
search engine,'' FT, January 24, 2019, https://www.ft.com/content/
714ac466-1f64-11e9-b126-46fc3ad87c65.
    \50\ Ibid.

    Google has been one of the major casualties of China's approach to 
censorship and digital protectionism. It entered China in 2006 with a 
local search engine, under an arrangement with the government that 
required it to purge search results on banned topics.\51\ In a first 
for Chinese users, Google placed a notice that content had been removed 
when users searched for it, but this apparently wasn't popular with 
regulators.\52\ From 2006 to 2010, Google China fought skirmishes with 
the Chinese government over content restrictions.\53\ Google struggled 
to comply with ever-tightening censorship requirements and a far-
reaching hacking attack (known as Operation Aurora) that targeted 
everything from Google's intellectual property to the Gmail accounts of 
Chinese human rights activists.\54\ So, in 2010, Google shut down its 
search engine. China's state-controlled media quoted a State Council 
Information Office official saying that ``Google has violated its 
written promise it made when entering the Chinese market by stopping 
filtering its search service and blaming China in insinuation for 
alleged hacker attacks.''\55\
---------------------------------------------------------------------------
    \51\ Miguel Helft and David Barboza, ``Google Shuts China Site in 
Dispute Over Censorship,'' New York Times, March 22, 2010, https://
www.nytimes.com/2010/03/23/technology/23google.
html.
    \52\ Matt Sheehan, ``How Google took on China--and lost,'' 
Technology Review, December 19, 2018, https://www.technologyreview.com/
s/612601/how-google-took-on-china-and-lost/.
    \53\ Ibid.
    \54\ Kim Zetter, ``Google Hack Attack Was Ultra Sophisticated, New 
Details Show,'' Wired, January 14, 2010, https://www.wired.com/2010/01/
operation-aurora/.
    \55\ Helft and Barboza, ``Google Shuts China Site in Dispute Over 
Censorship.''

    At this time, Google trailed its main Chinese rival, Baidu.com, 
with 33 percent market share to Baidu's 63 percent.\56\ China has since 
blocked the full suite of Google services (as listed above). In August 
2018, media reports suggested that Google was working on a secret 
prototype of a new, censored Chinese search engine, called Project 
Dragonfly.\57\ In mid-December 2018, Google suspended its development 
efforts, in part due to political opposition in the United States.\58\ 
China has gone so far as to block Google Scholar, a benign search 
engine for academic literature that many researchers rely upon. Lack of 
access to this service clearly inhibits China's broader innovation 
goals.\59\ Media reports stated that Google Scholar was on a priority 
list to be allowed back through the Great Firewall, but this hasn't 
happened.\60\
---------------------------------------------------------------------------
    \56\ Ibid.
    \57\ Ryan Gallagher, ``Google's Secret China Project `Effectively 
Ended' After Internal Confrontation,'' The Intercept, December 17, 
2018, https://theintercept.com/2018/12/17/google-china-censored-search-
engine-2/.
    \58\ Ibid.
    \59\ Dennis Normile, ``Science suffers as China's Internet censors 
plug holes in Great Firewall,'' Science, August 30, 2017, https://
www.sciencemag.org/news/2017/08/science-suffers-china-s-internet-
censors-plug-holes-great-firewall.
    \60\ Nectar Gan, ``Is Google another step closer to being unblocked 
in China?'', South China Morning Post, March 12, 2017, https://
www.scmp.com/news/china/policies-politics/article/2078173/google-
another-step-closer-being-unblocked-china.

    Since 2010, Google has maintained only limited connections and 
entry points into China. It has an active business distributing online 
ads for desktop computers and mobile applications, and Chinese makers 
of smartphones use its Android mobile device software. Google has setup 
a research center that focuses on artificial intelligence (AI), but the 
focus will be on developing AI for global products.\61\ In 2018, 
Google's revenue in Greater China (which includes mainland China as 
well as Hong Kong, Macau, and Taiwan) grew more than 60 percent to more 
than $3 billion.\62\ In 2018, Google indirectly accessed China via a 
$550 million investment in prominent Chinese online retailer JD.com. As 
part of this, Google and JD.com formed a strategic partnership where 
the latter connects its supply chain and logistics expertise with the 
Google Shopping platform.\63\ JD.com also setup a Google Express site 
in March, 2019.\64\ Together, the partners aim to compete with Amazon 
and Alibaba, especially in fast-growing south east Asian markets.\65\ 
However, the Google Shopping portal is blocked in China.
---------------------------------------------------------------------------
    \61\ Carlos Tejada, ``Google, Looking to Tiptoe Back Into China, 
Announces A.I. Center,'' New York Times, December 13, 2017, https://
www.nytimes.com/2017/12/13/business/google-ai-china.html.
    \62\ Yunan Zhang and Juro Osawa, ``Google's Ad Sales From China Are 
Booming,'' The Information, February 27, 2019, https://
www.theinformation.com/articles/googles-ad-sales-from-china-are-
booming.
    \63\ Karim Temsamani, ``A strategic partnership with JD.com,'' 
Google in Asia Blogpost, June 18, 2018, https://www.blog.google/topics/
google-asia/partnering-jdcom/.
    \64\ Josh Horwitz, ``Chinese e-commerce company JD.Com launches 
store on Google shopping site,'' Reuters, March 5, 2019, https://
www.reuters.com/article/us-jd-com-google/chinese-e-commerce-company-jd-
com-launches-store-on-google-shopping-site-idUSKCN1QM13Y.
    \65\ Krystal Hu, ``How Google is revamping its e-commerce business 
with JD.com's help,'' Yahoo Finance, August 9, 2019, https://
finance.yahoo.com/news/how-google-is-revamping-its-ecommerce-business-
with-j-dcoms-help-183825490.html.

    Facebook's main social network site was blocked in 2009, followed 
by Instagram in 2014, and Whatsapp in 2017. But this has not stopped 
Facebook from repeated attempts to access the market.\66\ In 2016, 
Facebook started developing software tools for third parties to use to 
abide by censorship laws as it relates to stories and topics that may 
appear on the social network.\67\ In 2017, Facebook developed a photo-
sharing app called ``Colorful Balloons'' that was released through a 
separate local company (without carrying the firm's name).\68\ In 2018, 
there were media reports that Facebook had gained approval to open a 
subsidiary in the Chinese province of Zhejiang, which Facebook said it 
would use for research. But then the registration disappeared and 
references to the subsidiary were partly censored in Chinese media. 
Media report state that the approval was rescinded after a disagreement 
between officials in Zhejiang and the Cyberspace Administration of 
China, which was angry that it had not been consulted more closely.\69\ 
This incident underscores how much of a challenge it is for Facebook--a 
global social network-- to get into China in any meaningful way. It 
also highlights how U.S. firms seeking to enter the market must 
navigate multiple, often opaque rules and laws within a system in which 
cities, provinces, and national government agencies all vie for 
influence and can make key decisions.
---------------------------------------------------------------------------
    \66\ Paul Mozur, ``In China, Facebook Tests the Waters With a 
Stealth App,'' New York Times, August 11, 2017, https://
www.nytimes.com/2017/08/11/technology/facebook-china-moments-colorful-
balloons.html.
    \67\ Mike Isaac, ``Facebook Said to Create Censorship Tool to Get 
Back Into China,'' New York Times, November 22, 2016, https://
www.nytimes.com/2016/11/22/technology/facebook-censorship-tool-
china.html.
    \68\ Mozur, ``In China, Facebook Tests the Waters With a Stealth 
App.''
    \69\ Paul Mozur, ``China Said to Quickly Withdraw Approval for New 
Facebook Venture,'' New York Times, July 25, 2018, https://
www.nytimes.com/2018/07/25/business/facebook-china.html.

    Facebook is now limited in how it can operate in China. Facebook 
has setup an experience center through a Chinese advertising partner 
(Meet Social), where potential customers learn how to advertise on 
Facebook to access customers elsewhere around the world. In 2019, Meet 
Social reportedly expected $1 billion to $2 billion in ad sales on 
Facebook and Instagram.\70\ In total, Facebook's revenue from Chinese-
based advertisers reached an estimated $5 billion in 2018, or about 10 
percent of its total sales.\71\
---------------------------------------------------------------------------
    \70\ Paul Mozur and Lin Qiqing, ``How Facebook's Tiny China Sales 
Floor Helps Generate Big Ad Money,'' New York Times, February 7, 2019, 
https://www.nytimes.com/2019/02/07/technology/facebook-china-
internet.html.
    \71\ Ibid.

    Apple has major operations in China. In the 2019 financial year, 
Apple made $44bn of revenues in Greater China during, mostly from 
selling iPhones.\72\ However, to do so it had to agree to Chinese user 
data in the country and to remove offensive apps, such as news and VPN 
apps, from its app store. Apple removed 805 apps in China from 2018 to 
2019.\73\ Most recently, Apple removed the app game ``Plague'' 
following the coronavirus outbreak.\74\
---------------------------------------------------------------------------
    \72\ ``Apple's Chinese troubles,'' The Economist, February 20, 
2020, https://www.economist.com/business/2020/02/20/apples-chinese-
troubles.
    \73\ Masha Borak, ``Apple removed 805 apps in China from 2018 to 
2019,'' Abacus News, January 29, 2020, https://www.abacusnews.com/tech/
apple-removed-805-apps-china-2018-2019/article/3047325; Nick Statt, 
``Apple's iCloud partner in China will store user data on servers of 
state-run telecom,'' The Verge, July 18, 2018, https://
www.theverge.com/2018/7/18/17587304/apple-icloud-china-user-data-state-
run-telecom-privacy-security.
    \74\ Jay Peters, ``Plague Inc. pulled from the App Store in China 
amid coronavirus outbreak,'' The Verge, February 27, 2020, https://
www.theverge.com/2020/2/27/21156162/plague-inc-pulled-china-ios-app-
store-coronavirus.

    While standard iPhone services like iMessage work in China, many 
paid offerings that help Apple generate revenue from services related 
to its devices aren't available in China. Only 6 months after launching 
in China, Apple closed the iTunes Store (Apple Books, Apple TV, Apple 
News, and iTunes Movies) in April of 2016.\75\ While the Chinese 
Government initially approved Apple's introduction of the services, for 
whatever reason, this changed a few months later when the State 
Administration of Press, Publication, Radio, Film and Television 
demanded it be closed.\76\ China's blocking extends to newer services 
like Apple TV+ video streaming, the Apple Card, Apple Arcade, and the 
News+ subscription.\77\ While China is a huge market for Apple and its 
smart devices, its ability to earn from associated services is severely 
constrained. This puts a sort of cap on its current and future 
profitability.\78\
---------------------------------------------------------------------------
    \75\ Paul Mozur and Jane Perlez, ``Apple no longer immune to 
China's scrutiny of US tech firms,'' The New York Times, April 22, 
2016, https://www.cnbc.com/2016/04/22/apple-itunes-movies-ibooks-store-
shut-down-in-china.html.
    \76\ Ibid.
    \77\ Yoni Heisler, ``Some of Apple's most ambitious services still 
aren't available in China,'' BGR, November 7, 2019, https://bgr.com/
2019/11/07/apple-services-china-apple-tv-plus-arcade-not-available/.
    \78\ Ibid; Mark Gurman, ``iPhones Are Big in China, But Apple's 
Services Play Gets Mired in Censorship,'' Bloomberg, November 7, 2019, 
https://www.bloomberg.com/news/articles/2019-11-07/apple-tv-apple-
arcade-other-apple-services-blocked-in-china.

    LinkedIn is among the few prominent foreign tech platforms that are 
legally allowed in China and that have been successful in the market. 
In 2014, LinkedIn agreed to censor content when it decided to enter 
China.\79\ In 2019, LinkedIn's transparency report shows that it 
received two requests for member data from China's government (this 
contrasts with 663 for the United States in the same time period) and 
17 requests for content removal (of which it took action on 14).\80\ 
Part of LinkedIn's success is that it formed a partnership with two 
influential Chinese venture capital investment funds to create a 
separate China operation, who were also able to build a good 
relationship and communication channel with the Chinese government.\81\ 
It also focused on the specific characteristics of the Chinese market. 
It hired local staff who, in part, created a stand- alone app to bring 
LinkedIn, a service built around email and computers, to China's 
smartphone-dependent population.\82\ But even here, it has to adapt to 
the fact that Chinese users rely on messaging apps and not email, 
thereby pitching it against WeChat and other larger social networks. 
LinkedIn isn't trying to compete against the ``super apps'' like 
WeChat, but to grow as a career development platform.\83\ Despite all 
these challenges, it has found a market with tens of millions of users 
(reported at 47 million in 2019).\84\ While its success may be modest, 
it is indicative of what should be possible for other U.S. firms if 
given the chance to enter and compete in China.
---------------------------------------------------------------------------
    \79\ Derek Shen, ``Introducing LinkedIn's Simplified Chinese Beta 
Site,'' LinkedIn Official Blog, February 24, 2014, https://
blog.linkedin.com/2014/02/24/introducing-linkedins-simplified-chinese-
beta-site; Paul Mozur and Vindu Goel, ``To Reach China, LinkedIn Plays 
by Local Rules,'' New York Times, October 5, 2014, https://
www.nytimes.com/2014/10/06/technology/to-reach-china-linkedin-plays-by-
local-rules.html.
    \80\ ``Government Requests Report,'' LinkedIn Transparency website, 
https://about.linkedin.com
/transparency/government-requests-report.
    \81\ Paul Mozur and Vindu Goel, ``To Reach China, LinkedIn Plays by 
Local Rules,'' New York Times, October 5, 2014, https://
www.nytimes.com/2014/10/06/technology/to-reach-china-linkedin-plays-by-
local-rules.html.
    \82\ Mozur and Carolyn Zhang, ``Silicon Valley Giants Confront New 
Walls in China.''
    \83\ Zhang Erchi and David Kirton, ``LinkedIn's China President 
Wants to Make Better Use of Career Site's Global Reach,'' June 24, 
2019, https://www.caixinglobal.com/2019-06-24/linkedins-china-
president-wants-to-make-better-use-of-career-sites-global-reach-
101430839.html.
    \84\ Ibid; and Mozur and Carolyn Zhang, ``Silicon Valley Giants 
Confront New Walls in China.''

    While Airbnb (the home sharing site) is not directly involved in 
censorship related activities and content, it's indirect involvement 
and compliance and cooperation with local laws and government agencies 
has contributed to its success in China. It's among the few clear 
examples where a foreign technology firm can be successful when given 
the opportunity to compete on fair terms. For Airbnb, China is a 
critical source of both outbound customers (Chinese tourists traveling 
overseas) and local hosts for domestic and foreign tourists. As of 
October 2016, more than 3.5 million Chinese travelers used Airbnb 
listings around the world.\85\ Airbnb faces stiff competition from 
Chinese rivals, such as Tujia.com and Xiaozhu.com, which also comply 
with the same requirements as Airbnb. Airbnb used these outbound 
Chinese tourists and its global network (which it's local competitors 
don't have) to build up its domestic operations in China. In 2018, 
Airbnb reported that 91 percent of total nights booked within China 
were booked by locals.\86\ Airbnb has also introduced premium services 
and expanded into many second and third-tier cities.
---------------------------------------------------------------------------
    \85\ ``Supporting our community in China,'' Airbnb website, https:/
/blog.atairbnb.com/supporting-our-community-in-china/.
    \86\ Tyler Sonnemaker, ``An Airbnb cofounder explained the strategy 
behind its success in China, a market where most U.S. companies have 
failed,'' Business Insider, June 14, 2018, https://
www.businessinsider.com/airbnb-cofounder-china-strategy-success-
focused-outbound-travel-2020-2.

    Airbnb set up local operations to both abide by local laws and to 
ensure its services were tailored to the market. In 2016, Airbnb setup 
a new business entity to manage operations in China. It has moved to 
store its data in China and has canceled bookings during politically 
sensitive events (such as China's National People's Congress).\87\ In 
March 2018, Airbnb stated that it will comply send customer details to 
Chinese government authorities to abide by local regulations that 
require foreigners to register their accommodation with police (hotels 
have done this for a long time).\88\ Listings and non-China operations 
are not affected by these requirements. In November 2019, Airbnb's 
China president Tao Peng highlighted that localizing its platform is 
the key to success in China. It has changed its local name (to Aibiying 
in Chinese) and doubled its staff (to 500) in Beijing, in part, to 
build a customized version of its platform to better suit local 
preferences, such as the use of WeChat Pay and Alipay.\89\ Airbnb wants 
to find a home in the notoriously difficult and cloistered market, and 
thus far, it has done a pretty good job of doing so.\90\
---------------------------------------------------------------------------
    \87\ Pei Li and Cate Cadell, ``Airbnb to start sharing Chinese host 
information with government,'' Airbnb, March 28, 2018, https://
www.reuters.com/article/us-airbnb-china/airbnb-to-start-sharing-
chinese-host-information-with-government-idUSKBN1H41JJ; Tara Francis 
Chan, ``Airbnb has removed listings in Beijing and canceled bookings 
during China's annual parliament because it wants to be `good 
neighbors,' '' Business Insider, March 5, 2018, https://
www.businessinsider.com/airbnb-removed-china-listings-during-national-
peoples-congress-2018-3.
    \88\ ``What do I need to know in order to sign up for an Airbnb 
account as a resident of China, or if I change my residence to 
China?'', Airbnb website, https://www.airbnb.com/help/article/1035/
what-do-i-need-to-know-in-order-to-sign-up-for-an-airbnb-account-as-a-
resident-of-china-or-if-i-change-my-residence-to-china.
    \89\ Sam Shead, ``Airbnb China president: Localization is key if we 
want to be successful in the country,'' CNBC, November 19, 2019, 
https://www.cnbc.com/2019/11/19/airbnb-china-president-localization-
abiyang.html.
    \90\ Jessi Hempel, ``Airbnb Wants to Find a Home in China,'' Wired, 
August 21, 2010, https://www.wired.com/story/airbnb-china-market/.

    Both Airbnb and LinkedIn (among other cases above) shows that 
foreign firms can successfully compete against Chinese competitors even 
when there are local requirements related to data and content that are 
significantly different to other major markets. They've found an 
equilibrium between the laws of their home market and Chinese laws, 
while still being successful. These experiences provide a blueprint, 
and perhaps a cautionary lesson, for other foreign tech firms wanting 
to enter China, but also to policymakers in recognizing what approach 
is most effective in regard to both trade and human rights.\91\
---------------------------------------------------------------------------
    \91\ Mozur and Goel, ``To Reach China, LinkedIn Plays by Local 
Rules.''
---------------------------------------------------------------------------
                case study: zoom and censorship in china
    Zoom--the video-chat service that operates in more than 80 
countries--recently tripped two major landmines that demonstrate how 
U.S. companies need to establish clear boundaries between operations 
involving China and other markets given how censorship requests in the 
former can quickly spillover to the later. No doubt, Zoom has made 
mistakes, but it has admitted and addressed many of these in an effort 
to operate by local laws in China and elsewhere.\92\ It made these 
challenging adjustments while expanding from 10 million meetings a day 
in December 2019 to doing 200 million meetings a day in March 2020.\93\ 
Its experience provides useful lessons for other U.S. firms and 
policymakers.
---------------------------------------------------------------------------
    \92\ Bill Marczak and John Scott-Railton, ``Move Fast and Roll Your 
Own Crypto: A Quick Look at the Confidentiality of Zoom Meetings,'' The 
Citizen Lab, University of Toronto, April 3, 2020, https://
citizenlab.ca/2020/04/move-fast-roll-your-own-crypto-a-quick-look-at-
the-confidentiality-of-zoom-meetings/; Eric Yuan, ``A Message to Our 
Users,'' Zoom blog post, April 1, 2020, https://blog.zoom.us/wordpress/
2020/04/01/a-message-to-our-users/.
    \93\ Ibid.

    Zoom is headquartered in San Jose, CA and is listed on the NASDAQ. 
It has over 2,500 employees, with about 1,400 in the United States, 
with the remainder overseas, including about 700 at subsidiaries in 
China (doing research and development work).\94\ While not every mid-
sized U.S. technology company uses China-based research and 
development, hundreds of multinational firms have R&D centers in 
China.\95\ The main zoom website (zoom.us) and international app appear 
blocked in China, but there are reportedly several third-party services 
that allow access in China (e.g., zoom.cn, zoomvip.cn, 
zoomcloud.cn).\96\ Zoom's local service and app (https://zoom.com.cn) 
has reportedly been (generally) reliable and popular for users in calls 
between China and the outside world, including in reaction to COVID-
19.\97\
---------------------------------------------------------------------------
    \94\ ``Form 10-K: Zoom Video Communications, Inc. Annual Report to 
the Securities and Exchange Commission (for the year ending January 31, 
2020),'' Zoom website, https://investors.zoom.us/static-files/09a01665-
5f33-4007-8e90-de02219886aa.
    \95\ Capucine Cogne, ``Is Zoom crazy to count on Chinese R&D?'', 
TechNode, April 13, 2020, https://technode.com/2020/04/13/is-zoom-
crazy-to-count-on-chinese-rd/.
    \96\ ``[Translation] Zoom suspended in China,'' Sohu, September 9, 
2019, https://www.
sohu.com/a/339796981_115035.
    \97\ Karen Chu, ``Why are people in China using Zoom?'', South 
China Morning Post, June 18, 2020, https://www.scmp.com/abacus/tech/
article/3089667/why-are-people-china-using-zoom; Emma Lee, ``China's 
Zoom users switch to local version after blockage,'' TechNode, 
September 19, 2019, https://technode.com/2019/09/19/chinas-zoom-users-
switch-to-local-version-after-blockage/.

    In April 2020, Zoom encountered significant public scrutiny when 
the University of Toronto's Citizen Lab released a report that showed 
that Zoom meeting encryption keys were sent via China-based servers and 
that it used non-industry standard cryptographic techniques that may 
mean calls could be intercepted (which raised concerns about China's 
laws concerning encryption key disclosure).\98\ Zoom's CEO responded, 
stating that the firm added sever capacity in China as part of its 
efforts to rapidly scale capacity in response to COVID-19-related 
demand, during which it failed to fully implement geo-fencing best 
practices.\99\ As a result, certain non-China related meetings may have 
been routed through these servers in China, when they otherwise would 
not have. Zoom has removed these servers from the list of backup 
servers for users outside of China. It also enacted new safeguards and 
internal controls to prevent unauthorized access to data, including by 
staff, regardless of where data gets routed. Most recently, it updated 
its encryption protocols and that it will introduce end-to-end 
encryption for all calls (for both free and paid services, but it will 
be an optional feature as it limits some meeting functionality).\100\ 
Zoom services generally store data in the United States, though it 
stores data locally where required or when customers choose to have 
their data stored outside of the U.S. (in their geographic 
vicinity).\101\
---------------------------------------------------------------------------
    \98\ Marczak and Scott-Railton, ``Move Fast and Roll Your Own 
Crypto: A Quick Look at the Confidentiality of Zoom Meetings''; Rogier 
Creemers, Paul Triolo, and Graham Webster, ``Translation: Cybersecurity 
Law of the People's Republic of China,'' New America blog post, June 1, 
2017, https://www.newamerica.org/cybersecurity-initiative/digichina/
blog/translation-cybersecurity-law-peoples-republic-china/.
    \99\ Eric Yuan, ``Response to Research From University of Toronto's 
Citizen Lab,'' Zoom blog post, April 3, 2020, https://blog.zoom.us/
wordpress/2020/04/03/response-to-research-from-university-of-torontos-
citizen-lab/.
    \100\ Kari Paul, ``Zoom will provide end-to-end encryption to all 
users after privacy backlash,'' Guardian, June 17, 2020, https://
www.theguardian.com/technology/2020/jun/17/zoom-encryption-free-calls; 
https://blog.zoom.us/end-to-end-encryption-update/.
    \101\ [Archived] ``Zoom: Privacy Policy,'' March 29, 2020, http://
archive.fo/5gKKh#selection-2299.271-2299.426.

    Zoom encountered another major issue when it briefly blocked, and 
then restored, accounts of Chinese human rights activists (including 
Zhou Fengsuo) who wanted to use the platform to organize a public 
commemoration of the 1989 Tiananmen Square crackdown.\102\ Mr. Fengsuo 
is an American who lives in the United States. China asked Zoom to 
terminate four meetings scheduled to be hosted on Zoom and three 
accounts (one in Hong Kong and two in the United States) hosting the 
calls. Zoom canceled the three meetings that involved participants from 
mainland China.\103\ It reportedly did this mid-event. U.S.-based staff 
reviewed meeting metadata (such as IP addresses) to determine which 
meetings had China-based participants. Zoom terminated the meetings as 
(at that time) it did not have the ability to remove specific 
participants from a meeting or block participants from a certain 
country from joining a meeting. It states it did not provide any user 
information or meeting content to the Chinese government.\104\
---------------------------------------------------------------------------
    \102\ Paul Mozur, ``Zoom Blocks Activist in U.S. After China 
Objects to Tiananmen Vigil,'' New York Times, June 11, 2020, https://
www.nytimes.com/2020/06/11/technology/zoom-china-tiananmen-square.html.
    \103\ ``Improving Our Policies as We Continue to Enable Global 
Collaboration,'' Zoom blog, June 11, 2020, https://blog.zoom.us/
wordpress/2020/06/11/improving-our-policies-as-we-continue-to-enable-
global-collaboration/.
    \104\ Ibid.

    While reactive and incomplete, Zoom's response and approach is the 
right one in that it wants to manage operations so that they abide by 
laws in each jurisdiction. This approach is comparable to every other 
multinational firm in the world--just because a firm is foreign owned 
does not make it immune from local laws, even if those laws are ones 
that most Americans would disagree with. The degree and type of 
segregation obviously depends on the nature of local laws, which in the 
case of Internet-related firms in China, is becoming significant. Firms 
are enacting administrative and technical firewalls between China and 
non-China operations. This is the case for U.S. and other foreign firms 
in China, but also Chinese firms that operate overseas. For example, 
Chinese tech firm Bytedance separates its two key services (Douyin 
inside of China and TikTok outside of China) to minimize cross-border 
interaction on either platform. It recently implemented restrictions on 
China-based employees from accessing the code bases for overseas 
products.\105\ Zoom rightly committed to ``not allow requests from the 
Chinese government to impact anyone outside of mainland China.''\106\ 
It has developed technology to remove or block participants based on 
their country, which will allow the firm to take a much more granular 
action in response to requests from local authorities when they 
determine that certain activity on the platform is illegal in that 
country.
---------------------------------------------------------------------------
    \105\ Chen Du, ``Exclusive: ByteDance Cuts Domestic Engineers' Data 
Access to TikTok, Other Overseas Products,'' PingWest, June 7, 2020, 
https://en.pingwest.com/a/6875.
    \106\ ``Improving Our Policies as We Continue to Enable Global 
Collaboration,'' Zoom blog.

    Zoom has also committed to release a transparency report that 
details information related to requests for data, records, or 
content.\107\ As you'd expect, given the need to follow local laws, 
U.S. technology companies frequently turn over private information 
requested by home and foreign governments, including those in the 
United States. Businesses other than Zoom routinely submit to Chinese 
government censorship demands in China, though there have been few 
public, high-profile cases involving cross-border issues like this one 
(besides Yahoo in 2005).\108\
---------------------------------------------------------------------------
    \107\ Zoom's privacy policy notes that: ``In certain limited 
circumstances, courts, law enforcement agencies, regulatory agencies, 
or security authorities in those other countries may be entitled to 
access your personal data.''
    \108\ ``Chinese journalist Shi Tao, jailed for 8 years after Yahoo 
gave up his identity, gets early release,'' Reuters, September 9, 2013, 
https://www.scmp.com/news/china/article/1306818/chinese-journalist-shi-
tao-jailed-eight-years-after-yahoo-gave-his.

    The onus should be on the United States government and like-minded 
countries that value and advocate for human rights--not firms like 
Zoom--in China, whether by engagement, negotiation, or confrontation. 
As Zoom stated: ``It is not in Zoom's power to change the laws of 
governments opposed to free speech. However, Zoom is committed to 
modifying its processes to further protect its users from those who 
wish to stifle their communications.''\109\ The time has long since 
passed, if it ever existed, where an individual U.S. firm could change 
Chinese government policy through such a public challenge or 
withdrawal.
---------------------------------------------------------------------------
    \109\ Gerry Shih, ``Zoom censors video talks on Hong Kong and 
Tiananmen, drawing criticism,'' Washington Post, June 11, 2020, https:/
/www.washingtonpost.com/world/asia_pacific/zoom-censors-video-talks-on-
hong-kong-and-tiananmen-drawing-criticism/2020/06/11/0197dc94-ab90-
11ea-a43b-be9f6494a87d_story.html.

    For those policymakers and advocates that want Zoom to leave China 
or cut off services on moral grounds, they also need to recognize that 
there are clear negative tradeoffs: Zoom is currently a rare channel of 
relatively low-friction communication through the Great Firewall and 
the myriad barriers to in-person meetings. The company, and everyone 
else, should weigh the importance of that connectivity in deciding how 
to best deal with the underlying challenge that is China's approach to 
human rights.\110\
---------------------------------------------------------------------------
    \110\ As raised by Graham Webster in: ``China's Zoom Bomb: A 
ChinaFile Conversation,'' China File, June 16, 2020, https://
www.chinafile.com/conversation/chinas-zoom-bomb.
---------------------------------------------------------------------------
     censorship's impact on market access for u.s. content creators
    U.S. content creators face major market access and operational 
issues that are directly and indirectly related to censorship. The 
explicit censorship review process is just the tip of the iceberg in 
terms of market restrictions U.S. content creators face in China. 
Indicative of this, the International Intellectual Property Alliance 
reported that the ability of U.S. producers to compete in the Chinese 
marketplace for all audiovisual content was even more drastically 
curtailed during 2019, with licensing opportunities on all distribution 
platforms significantly hampered, through opaque regulations, obscure 
content review processes, and a ``soft ban'' on new or never released 
U.S. imports.\111\ This has effectively prevented access by U.S. 
content creators and distributors to one of the largest consumer 
markets in the world.
---------------------------------------------------------------------------
    \111\ ``China: 2020 Special 301 Report on Copyright Protection and 
Enforcement,'' The International Intellectual Property Alliance, 
February 6, 2020, https://www.iipa.org/files/uploads/2020/02/
2020SPEC301CHINA.pdf.

    The formal content review process that every movie and television 
show goes through in China is based on vague and non-transparent 
criteria, which are applied inconsistently, which together create an 
unpredictable and burdensome market access restriction.\112\ Reviewers 
may require various changes, such as edits in the script, obfuscated 
translation, and title changes. Sometimes the censors simply don't 
respond, thus denying access. Furthermore, U.S. content creators have 
to submit full seasons of television shows (rather than as episodes are 
developed), which also delays distribution, instead of allowing advance 
registration and rolling approval for content as it's finalized. U.S. 
films are also often locked out from prime release dates.
---------------------------------------------------------------------------
    \112\ United States Trade Representative (USTR), 2018 Report to 
Congress on China's WTO Compliance.

    The discriminatory and restrictive conditions that U.S. content 
creators face in China are similar to other sectors in that this review 
mechanism is combined with other restrictions that exclude them (but 
not domestic firms) from key services in the Chinese market. The State 
Administration of Press, Publication, Radio, Film and Television 
(SAPPRFT) and other Chinese regulatory authorities have taken actions 
to prevent the cross- border supply of online video services (no doubt, 
they'd inevitably cite some censorship-related rationale if pressed), 
which may implicate China's WTO commitments relating to video 
distribution.\113\ SAPPRFT also requires that video platforms all be 
state-owned, thus preventing foreign suppliers from qualifying for a 
license to distribute content. At the same time, several Chinese 
companies (including Alibaba) appear exempt from some 
requirements.\114\ Furthermore, China also doesn't allow foreign firms 
to hold a majority share in entities engaged in the production and 
publication of audiovisual content.
---------------------------------------------------------------------------
    \113\ United States Trade Representative (USTR), 2018 Report to 
Congress on China's WTO Compliance.
    \114\ Ibid.

    China uses explicit quotas to limit U.S. market access to their 
theatrical film sector. Since 1994, China has placed a quota (at that 
time it was 10) on the number of foreign films that can be shown in 
Chinese theatres. In 2002, the quota increased to 20. In 2009, the 
United States won a WTO trade dispute challenging China's restrictions 
on foreign films (that they only be imported through a few government-
designated intermediaries) at the WTO.\115\ In 2012, the United States 
and China negotiated an increase in the quota from 20 to 34.\116\ The 
2012 agreement also allows foreign movie makers to keep a bigger share 
of the box office takings, increasing from 13 percent to 25 percent. A 
rate that is significantly lower than in market-based economies. This 
quota mainly affects the major U.S. studios. A few dozen foreign 
independent films also get approved for release each year. Both sides 
agreed to re-negotiate the quota 5 years after this 2012 revision, but 
there hasn't been any further progress as the issue got rolled into the 
broader U.S.-China trade war.\117\ The formal quota comes on top of an 
unofficial policy of manipulating the market to ensure Chinese movies 
account for a 60-percent box office share.\118\ On top of all of this, 
studios have had problems getting paid for what they are allowed to 
distribute in China. For example, a Motion Pictures Association-
requested audit of the Chinese box office in 2016 showed that Chinese 
cinemas underreported box office numbers by 9 percent, which given the 
revenue sharing arrangement, meant U.S. studios were underpaid by about 
$40 million.\119\
---------------------------------------------------------------------------
    \115\ Keith Bradsher, ``WTO Rules Against China's Limits on 
Imports,'' New York Times, August 12, 2009, https://www.nytimes.com/
2009/08/13/business/global/13trade.html.
    \116\ Rogier Creemers, ``China increases foreign movie quota, so 
what does it solve?'', China Copyright and Media blog, April 23, 2012, 
https://chinacopyrightandmedia.wordpress.com/2012/02/20/china-
increases-foreign-movie-quota-but-what-does-that-mean/.
    \117\ Pei Li and Michael Martina, ``Hollywood's China dreams get 
tangled in trade talks,'' Reuters, May 19, 2018, https://
www.reuters.com/article/us-usa-trade-china-movies/hollywoods-china-
dreams-get-tangled-in-trade-talks-idUSKCN1IK0W0.
    \118\ Patrick Frater, ``U.S. and China Struggle Over Film Quotas,'' 
Variety, February 9, 2017, https://variety.com/2017/biz/asia/u-s-and-
china-struggle-over-film-quotas-1201979720/.
    \119\ Matthew Dresden, ``China Box Office Audit Results Are In--Now 
What?'', China Law Blog, October 10, 2017, https://
www.chinalawblog.com/2017/10/china-box-office-audit-results-are-in-now-
what.html.

    The impact of China's censorship and market restrictions on U.S. 
movie exports has grown more costly over time. Before COVID-19 hit, 
China was on track to overtake the United States as the world's largest 
movie market in 2020.\120\ While U.S. movie-ticket sales (pre-COVID) 
are relatively flat, China's have more than tripled since 2011.\121\ 
China has become an important market delivering profits that support 
Hollywood's blockbuster franchise offerings. Overseas box office 
revenue is what often turns somewhat new and ambitious films (like 
Interstellar or Life of Pi) into blockbusters. The Hollywood releases 
that break out in China are generally the same ones that succeed 
globally.\122\ While China cannot be counted upon to bail out big-
budget movies that bomb in the United States, U.S. content producers 
wants to (at least) be able to count on potential revenue to justify 
the budgets that keeps the industry growing.
---------------------------------------------------------------------------
    \120\ ``Strong revenue growth continues in China's cinema market,'' 
PWC China, June 17, 2019, https://www.pwccn.com/en/press-room/press-
releases/pr-170619.html?mod=article_inline.
    \121\ Erich Schwartzel, ``Hollywood's New Script: You Can't Make 
Movies Without China,'' Wall Street Journal, April 18, 2017, https://
www.wsj.com/articles/hollywoods-new-script-you-cant-make-movies-
without-china-1492525636?mod=article_inline.
    \122\ Scott Mendelson, ``Box Office: `Wolf Warrior 2's $600M+ 
Success Should Terrify Hollywood,'' Forbes, August 10, 2017, https://
www.forbes.com/sites/scottmendelson/2017/08/10/as-wolf-warrior-2-tops-
600m-what-chinas-box-office-blockbuster-means-to-hollywood/
#17981d101f61.

    In a similar way, the State Administration of Press and 
Publication's (SAPP) opaque, unpredictable, and restrictive Chinese 
censorship has affected the approval and distribution of video games. 
In 2018, China stopped all game license reviews, which severely 
affected both domestic and foreign firms and game distributors (due to 
a restructuring of departments and new rules for video game 
oversight).\123\ While the actual content being censored is often not 
political (such as intimacy, pornography, and violence), the criteria 
is often vague and unevenly enforced. For example, ``anything that 
harms public ethics or China's culture and traditions'' and ``anything 
that violates China's constitution'' are both prohibited in Chinese 
videogames. Once SAPP started reviewing game licenses again after a 
nine-month hiatus, it quickly approved nearly 1,000 games, which 
included 30 foreign games.\124\
---------------------------------------------------------------------------
    \123\ Rick Lane, ``China freezes all game license approvals,'' PC 
Gamer, August 15, 2018, https://www.pcgamer.com/china-freezes-all-game-
license-approvals/; Shannon Liao, ``Apple blames revenue loss on China 
censoring video games,'' The Verge, January 29, 2019, https://
www.theverge.com/2019/1/29/18202812/chinese-censorship-hurt-apples-
bottom-line.
    \124\ ``Nearly 1,000 games have received a license since the 
restart of game approvals in China,'' Niko Partners, 2019, https://
nikopartners.com/nearly-1000-games-have-received-a-license-since-the-
restart-of-game-approvals-in-china/.

    An anomaly in China's restrictive approach to video game censorship 
is Steam (owned by Valve, an American video game developer), which 
remains accessible (without a VPN) to Chinese users. With Steam, only 
community features like forums and adult games on the platform are 
blocked.\125\ Indicative of the opportunity for foreign firms if 
they're able to abide by Chinese law and operate in these censored 
sectors, it's become incredibly valuable for Steam: it has an estimated 
40 million Chinese players and hundreds of game developers. Indicative 
of how local Chinese developers can benefit from working with global 
platforms like Steam, many local games have been very successful.\126\ 
In 2018, Valve announced that it was going to partner with a local firm 
and develop a China-specific Steam platform.\127\
---------------------------------------------------------------------------
    \125\ Andy Chalk, ``Steam Community access has been blocked in 
China,'' PC Gamer, December 19, 2017, https://www.pcgamer.com/steam-
community-access-has-been-blocked-in-china/.
    \126\ ``The rise of Chinese games on Steam,'' ResetEra, January 18, 
2019, https://www.resetera.com/threads/the-rise-of-chinese-games-on-
steam.94371/.
    \127\ Chris Tapsell, ``Valve talks Steam China, curation and 
exclusivity,'' EuroGamer, August 21, 2019, https://www.eurogamer.net/
articles/2019-08-21-valve-talks-steam-china-curation-exclusivity.

    Having clear and predictable access to China's video game market is 
a huge issue as China overtook the United States as the world's largest 
video-game market in 2016.\128\ As an industry, video games are now 
worth three times as movies globally.\129\ However, China is a daunting 
market for foreign firms--93 percent of total spend on Apple's iOS 
mobile operating system in China is spent on Chinese games, which is 
more localized than any other country, including Japan or South 
Korea.\130\ This shows that even without restrictions, U.S. firms would 
have their work cut out given local preferences, complex distribution 
systems, and how successful Chinese game developers and platforms have 
been, but they (again) should have the opportunity to compete on the 
same terms as local developers.
---------------------------------------------------------------------------
    \128\ ``Europe Meets China--How the Games Industry Is Evolving,'' 
Atomico, June 1, 2017, https://www.atomico.com/europe-meets-china/.
    \129\ Ibid.
    \130\ Ibid.
---------------------------------------------------------------------------
      case study: github: where china's censorship found a limit 
                and model for moderation and engagement
    GitHub--the largest public code repository in the world that allows 
developers to collaborate on projects--presents an interesting case as 
to the potential limits of censorship given how it affects China's 
broader digital development goals. GitHub (owned by Microsoft) is a 
U.S.-based global company that provides hosting for software 
development. It's known as a critical repository for open source code, 
providing the vital digital infrastructure on which much of the 
multibillion-dollar software business depends. While Microsoft does not 
publish GitHub's financial information, if the number of developers is 
a guide, China is its second most important market after America, and 
one of the fastest growing.\131\
---------------------------------------------------------------------------
    \131\ ``Microsoft's GitHub mulls expansion in China,'' The 
Economist, December 6, 2019, https://www.economist.com/business/2019/
12/06/microsofts-github-mulls-expansion-in-china.

    On January 21, 2013, GitHub was blocked in China due to DNS 
hijacking. The blocking of GitHub gained greater attention in the 
country after the former head of Google's China operations, Kai-Fu Lee, 
posted about it on Sina Weibo (China's version of Twitter), where it 
was re-tweeted over 80,000 times.\132\ He made the case that ``blocking 
GitHub is unjustifiable, and will only derail the nation's programmers 
from the world, while bringing about a loss in competitiveness and 
insight.''\133\ The block was lifted on January 23, 2013. However, 
access to GitHub from China can still be slow and unreliable. More 
recently, Chinese programmers have used GitHub to complain about 
working conditions in China's tech sector.\134\ It also remains a 
popular platform for creating and sharing anti-censorship software 
tools within China.\135\ However, in this case, China did not block 
Github. This placed Microsoft, which has extensive operations in China, 
in a potentially difficult situation given it has introduced a tailored 
version of Microsoft Office for Chinese government use. Microsoft also 
owns LinkedIn.\136\ GitHub has already received notices from China's 
government to remove content. In 2019 it received five notices from 
China's Ministry of Public Security to take down content related to 
Falun Gong (a religious group).\137\
---------------------------------------------------------------------------
    \132\ Michael Kan, ``GitHub unblocked in China after former Google 
head slams its censorship,'' ComputerWorld, January 23, 2013, https://
www.computerworld.com/article/2493478/github-unblocked-in-china-after-
former-google-head-slams-its-censorship.html.
    \133\ Ibid.
    \134\ Yuan Yang, ``China tech worker protest against long working 
hours goes viral,'' FT, April 3, 2019, https://www.ft.com/content/
72754638-55d1-11e9-91f9-b6515a54c5b1.
    \135\ Emily Feng, ``GitHub Has Become a Haven for China's Censored 
Internet Users,'' NPR, April 10, 2019, https://www.npr.org/2019/04/10/
709490855/github-has-become-a-haven-for-chinas-censored-internet-users.
    \136\ Mozur and Goel, ``To Reach China, LinkedIn Plays by Local 
Rules.''
    \137\ Yuan Yang, ``GitHub keen to open subsidiary in China,'' FT, 
December 9, 2019, https://www.ft.com/content/4c1f2d1c-1a63-11ea-97df-
cc63de1d73f4.

    Similar to other U.S. firms, GitHub is looking to open a subsidiary 
in China. In December 2019, media reports stated that GitHub was moving 
to setup an office in China.\138\ In response to a question about 
China, GitHub CEO Nat Friedman reportedly said that ``on net,'' the 
company's approach ``is that we want to lean towards more access to 
GitHub for every developer, even in countries that aren't democratic, 
even in teams that are doing things that we might disagree with.''\139\ 
While a GitHub subsidiary in China will make it easier for it to censor 
individual projects, such as Great Fire products, it would probably 
provide greater regulatory and market certainty for the firm.
---------------------------------------------------------------------------
    \138\ ``Microsoft's GitHub mulls expansion in China.''
    \139\ Colin Lecher, ``GitHub CEO discussed `evolving' position on 
China in private all-hands meeting,'' The Verge, October 10, 2019, 
https://www.theverge.com/2019/10/10/20908713/github-ceo-china-
transcript-leak-microsoft.
---------------------------------------------------------------------------
    china's pursuit of censorship and information control restricts 
              business connectivity to the global internet
    China's censorship and information control efforts extend to 
restrictions over all forms of connectivity, including how U.S. firms 
use virtual private networks (VPNs) to allow intra-firm networks and 
operations and cross-border sales and service. In the last few years, 
China has tightened regulations and restrictions around these VPNs, 
which seriously affects the reliability and quality of connections to 
the global Internet for China-based U.S. firms and their staff.

    China has a track record of targeting individuals (consumers) 
wanting to use VPNs (such as by shutting down Chinese VPN providers). 
As mentioned, China targets the development and distribution of these 
services, often via intermediaries such as app stores and cloud storage 
providers.\140\ Interestingly, periodic clamp-downs on VPNs (which are 
relaxed afterwards) show that Chinese authorities realize that there is 
some need for balance in how they restrict VPNs as they are used by 
government officials, academics, researchers, and others as a lifeline 
for must-have global services (such as allowing Chinese government 
officials to access and use Twitter or for researchers to access 
academic literature).
---------------------------------------------------------------------------
    \140\ Paul Mozur, ``Apple Removes Apps From China Store That Help 
Internet Users Evade Censorship,'' New York Times, July 30, 2017, 
https://www.nytimes.com/2017/07/29/technology/china-apple-
censorhip.html; ``@Star_VPN: We just received notice that @Apple 
removing all the @VPN apps from the @China app store,'' Twitter, July 
29, 2017, https://twitter.com/star_vpn/status/891191888547651584; Paul 
Mozur, ``Joining Apple, Amazon's China Cloud Service Bows to Censors,'' 
New York Times, August 1, 2017, https://www.nytimes.com/2017/08/01/
business/amazon-china-internet-censors-apple.html.

    Restrictions on VPNs are also a barrier to the cross-border sale, 
development, service, and use of software. U.S. software firms are 
reportedly finding it increasingly difficult to license and sell 
software to users in China (or existing customers that want to use the 
same software when setting up in China, such as multinationals) that 
rely on VPNs as these connections are increasingly poor and unreliable. 
Similarly, some U.S. venture capital firms and software developers are 
reportedly avoiding China-based investments or partners as poor 
connectivity with the global Internet makes it uncertain whether the 
firm would be able to scale globally even if their software product is 
---------------------------------------------------------------------------
valuable.

    Many U.S. and foreign firms use VPNs for corporate purposes to 
connect locations and services inside of China with the rest of the 
world and to protect their communications from hacking and government 
surveillance.\141\ These firms typically use their own global VPN 
infrastructure to connect users and business units around the world 
(such as via Multiprotocol Label Switching (MPLS)). In 2018, China 
started managing and limiting the connections that U.S. firms use so 
that they maintain oversight of this connectivity. It enacted new 
regulations that forced firms to buy and use expensive licensed VPN 
services, which are from one of China's three state-own 
telecommunication firms: China Telecom, China Unicom, and China 
Mobile.\142\ The Ministry of Industry and Information Technology said 
these restrictions are in accordance with goals and provisions set out 
by the government created Cross-
border Data Telecommunications Industry Alliance.\143\
---------------------------------------------------------------------------
    \141\ United States Trade Representative (USTR), 2018 Report to 
Congress on China's WTO Compliance.
    \142\ Yuan Yang and Lucy Hornby, ``China disrupts global companies' 
web access as censorship bites,'' FT, January 16, 2018, https://
www.ft.com/content/80e50a6c-fa8a-11e7-9b32-d7d59aace
167; Linda Musthaler, ``An SD-WAN service that gets around the Great 
Firewall of China legally,'' Network World, November 3, 2019, https://
www.networkworld.com/article/3451384/a-vpn-service-that-gets-around-
the-great-firewall-of-china-legally.html; (English translation) 
``Notice of the Ministry of Industry and Information Technology on 
Cleaning Up and Regulating the Internet Network Access Service 
Market,'' Ministry of Industry and Information Technology of the 
People's Republic of China, January 22, 2017, accessed via the Wayback 
Machine Internet Archive, https://web.archive.org/web/20190203073845/
http://www.miit.gov.cn/n1146290/n43
88791/c5471946/content.html.
    \143\ ``Notice on Invitation to Membership and Overseas Observers 
of China Cross-border Data Telecommunications Industry Alliance,'' 
China Academy of Information and Communication Technology.

    These restrictions were especially disruptive to businesses that 
depended on their VPNs for access to cloud services and data security. 
They can also be more expensive and unreliable, while exposing 
communications to government surveillance. Indicative of this, the 
Financial Times reported that an American non-profit group and a 
British company told them that their company-built VPNs had been 
blocked, disrupting their ability to do business.\144\ It also reported 
another representative from an American Fortune 500 company as saying 
that it had become increasingly difficult to access blocked websites 
from their Beijing office, which similarly uses a corporate VPN.\145\
---------------------------------------------------------------------------
    \144\ Yang and Hornby, ``China disrupts global companies' web 
access as censorship bites.''
    \145\ Ibid.

    With these restrictions in place, U.S. firms have a few options to 
maintain connectivity with the rest of the Internet--each with their 
own disadvantages. Firms can use a managed IPSec VPN (one of two common 
VPN protocols) from one of the Chinese telecommunication firms. But 
this means that all outbound traffic is forced through the Great 
Firewall. This allows the provider to block restricted traffic (which 
of course is hardly ideal for firms) and causes connectivity 
performance issues (i.e., delays in websites loading).\146\ Where firms 
setup private connections (such as private leased VPN lines), Chinese 
regulations state that ``the basic telecom operators shall establish a 
centralized user archive and specify that the lines are leased for the 
purpose of internal office use only and shall not be used to connect 
data centers or service platforms at home or abroad for 
telecommunication services.''\147\
---------------------------------------------------------------------------
    \146\ Musthaler, ``An SD-WAN service that gets around the Great 
Firewall of China legally.''
    \147\ ``Annex 1 (Word Document) of Notice on Invitation to 
Membership and Overseas Observers of China Cross-border Data 
Telecommunications Industry Alliance,'' China Academy of Information 
and Communication Technology, http://www.caict.ac.cn/english/news/
201809/P0201809
20452814498554.doc.

    Otherwise, a foreign firm may use an authorized MLPS circuit from 
within China to outside (such as to Hong Kong or Singapore) where it 
then connects into the firm's existing VPN network. However, this is 
very expensive, takes a long time to deliver, and is bandwidth-
constrained. A typical Chinese MPLS circuit is somewhere south of 20 MB 
of bandwidth, and it could cost $15,000 to $20,000 for a single 
circuit.\148\ Similarly, ``where multinational companies lease 
international private lines to build their own office networks, 
qualified third parties (including enterprises with licenses for 
domestic IP-VPN services and fixed-network domestic data transmission 
services) may be entrusted to provide outsourcing services such as 
system integration and maintenance and management.''\149\ Some 
providers have recently developed a software defined wide-area network 
(WAN) that is supposedly compliant with China's new regulation, which 
provides supposedly seamless and high-speed access between intra-China 
and international networks.\150\ But these still provide the Chinese 
government with access and oversight over these data transfers.\151\
---------------------------------------------------------------------------
    \148\ ``Annex 1 (Word Document) of Notice on Invitation to 
Membership and Overseas Observers of China Cross-border Data 
Telecommunications Industry Alliance.''
    \149\ ``Annex 1 (Word Document) of Notice on Invitation to 
Membership and Overseas Observers of China Cross-border Data 
Telecommunications Industry Alliance.''
    \150\ ``Annex 1 (Word Document) of Notice on Invitation to 
Membership and Overseas Observers of China Cross-border Data 
Telecommunications Industry Alliance''; ``SD-WAN Service for China,'' 
Teridion website, https://www.teridion.com/china; Teridion, ``Teridion 
Introduces Industry's First Compliant Cloud-Based Global SD-WAN Service 
to Mainland China Delivering High-Performance and Cost-Effective 
Access,'' news release, October 24, 2019, https://www.businesswire.com/
news/home/20191024005256/en/Teridion-Introduces-Industry%E2%80
%99s-Compliant-Cloud-Based-Global-SD-WAN.
    \151\ ``Annex 1 (Word Document) of Notice on Invitation to 
Membership and Overseas Observers of China Cross-border Data 
Telecommunications Industry Alliance.''

    At the heart of these restrictions is the Chinese government's 
drive to control content it deems illegal. It tries to create a very 
narrow and controlled lane for business-specific connections, while 
strictly prohibiting the potential use of these connections for broader 
dissemination to the public. Beyond the examples above, this approach 
extends to those few, limited, and restricted U.S. cloud providers in 
China. China restricts and manages how cloud service operators connect 
their China-based cloud service platform servers with the overseas 
network, which must be done through the international Internet service 
portal approved by the Ministry of Industry and Information Technology 
(MIIT), rather than private lines, VPNs or other channels.\152\ No 
matter the connection, the Chinese government wants to have visibility 
of the network and the data.
---------------------------------------------------------------------------
    \152\ Ibid.

    These restrictions give Chinese authorities the capability to 
oversee and control flows of commercial information and data, but it 
does not mean that they're necessarily examining company traffic (if 
there's no specific reason for China's government to be focusing on a 
firm's communications). Obviously, firms with sensitive intellectual 
property may have legitimate fears about how these rules raise the risk 
of inadvertent disclosures given China's aggressive and comprehensive 
cyber theft of trade secrets. There are other ways and tools for U.S. 
firms to mitigate this risk, such as encryption. However, the U.S. 
government and firms should be concerned as China's restrictions over 
commercial connectivity services that are needed for day-to-day trade 
and business operations are unique, complicated, and act as yet another 
regulatory hurdle for U.S. firms to clear in seeking to simply enter 
and operate in China.
    the cost of chinese censorship to u.s. search and cloud services
    U.S. firms have lost significant revenue by being blocked or 
inhibited in accessing the Chinese market, especially during such a 
transformative stage of growth in China's economy. In 2019, China had 
nearly 800 million Internet users (an increase of 25 million from 
2018). The average download speed of mobile broadband has increased six 
times in the last 5 years.\153\ The OECD's (narrow) definition of the 
digital economy estimates it represents 6 percent of GDP in China as 
compared to 8 to 10 percent in South Korea and Japan.\154\
---------------------------------------------------------------------------
    \153\ Xiaoxia, ``China has 854 mln Internet users: report,'' Xinhua 
Net, August 30, 2019, http://www.xinhuanet.com/english/2019-08/30/
c_138351278.htm.
    \154\ Longmei Zhang and Sally Chen, ``China's Digital Economy: 
Opportunities and Risks'' (Washington, DC: The International Monetary 
Fund, January 17, 2019, https://www.imf.org/en/Publications/WP/Issues/
2019/01/17/Chinas-Digital-Economy-Opportunities-and-Risks-46459.

    While China's overall digitalization still lags advanced economies, 
China has emerged as a global leader in key new digital industries. In 
e-commerce China accounts for over 40 percent of global transactions, 
and the penetration of e-commerce (in percent of total retail sales) 
stands now at 15 percent, compared to 10 percent in the United States. 
On fintech, Chinese companies account for more than 70 percent of the 
total global valuations. The value of China's consumption-related 
mobile payments by individuals totaled US$790 billion in 2016, 11 times 
that of the United States. On cloud computing, Alibaba cloud computing 
has set up 14 data centers globally, with overseas cloud computing 
revenues growing at 400 percent.\155\
---------------------------------------------------------------------------
    \155\ Ibid.

    There have been few attempts to quantify the trade impact of 
China's censorship in part because any estimate is fraught with 
difficulties and assumptions. For example, China's digital ecosystem--
with key ``super apps'' providing a single portal for a range of 
integrated services--has evolved in a way that is very different to the 
United States. This evolution has largely taken place since Google and 
other major U.S. firms were blocked, so it's impossible to know how 
market share would be divided if Google were able to remain. In many 
regards, China is one of the most competitive places for consumer 
services and technology. So the factors that affect a U.S. firm's 
market share are beyond the impact that censorship has on U.S. firms' 
---------------------------------------------------------------------------
market access and operations.

    To develop an estimate of the economic impact of China's censorship 
on U.S. firms, ITIF chose South Korea as a comparator market for U.S. 
search firms (Google), while the Asia Pacific region was used for 
estimating revenues and market share for cloud service providers 
(Amazon and Microsoft). See the appendix for data. South Korea was 
chosen as its digital economy has evolved in a way that is somewhat 
similar to China, while obviously being substantially different to that 
of the United States. Like other Asia Pacific countries, users in Korea 
access the Internet primarily through their mobile phones (mobile first 
culture). This meant that app and service developers had to find a way 
to provide a variety of services in the simplest way possible, which 
led to the development of ``super apps.'' While super apps exist in the 
United States, the single aggregation of features never took center 
stage the same way as in China and Asia, such as with WeChat.\156\
---------------------------------------------------------------------------
    \156\ Julber Osio, ``China Leads Rise of Mobile `Super Apps,' '' 
S&P Global Market Intelligence, August 9, 2019, https://
www.spglobal.com/marketintelligence/en/news-insights/blog/china-leads-
rise-of-mobile-super-apps; Coco Liu, ``Super apps: WeChat, Go-Jek and 
rivals battle to do it all in Asia,'' Nikkei Asian Review, September 2, 
2019, https://asia.nikkei.com/Business/Industry-in-focus/Super-apps-
WeChat-Go-Jek-and-rivals-battle-to-do-it-all-in-Asia.

    In search, South Korea's local search service Naver had 77-percent 
market share in 2007, while Google had only 1.7-percent. At this stage 
Google did not have as much Korean language content to refine its 
search services.\157\ Another data source (comScore) from 2009 gives 
Naver 62 percent and Google 7.3 percent.\158\ However, over time Google 
seized greater market share. However, we realize that other sources 
give Google and Naver very different market shares. Nielson's 
KoreanClick 2018 gives Naver around 39 percent of mobile search market 
share, compared to 29 percent for Google.\159\ However, Nielson relies 
on unique user counts while Stat Counter utilizes total page views, 
with page views serving as a much better proxy for ad revenue, and 
suggesting that Korean Google users are significantly more active than 
Naver users.
---------------------------------------------------------------------------
    \157\ Barry Schwartz, ``Naver, the Google of South Korea,'' Search 
Engine Land, July 5, 2007, https://searchengineland.com/naver-the-
google-of-south-korea-11627.
    \158\ ``Search engine market share around the world updated August 
2009,'' Chandler Nguyen blog, August 1, 2009, http://
www.chandlernguyen.com/blog/2009/08/01/search-engine-market-share-
around-the-world-updated-aug-2009/.
    \159\ Ibid.

    Google's main revenue source is advertising through Google sites 
and its network, such as Google Search and Google Maps. Revenue comes 
via from ads served through its advertising programs, such as AdSense 
for example. Assuming revenue is a proportionate measure for search 
volume (and ad revenue), if Google's search market share hadn't fallen 
from the 37 percent it held in 2010, it would have made a total of 
$32.5 billion more in the period 2013 to 2019 (Appendix A).\160\ If it 
had mirrored South Korea, where it held a similar market share to China 
(39 percent) and trailed the domestic firm Naver in 2010, but later 
became dominant, Google would have made $61.3 billion more over the 
same period.\161\ These estimates suggest that without Chinese 
interference, Google would have earned between $7.7 and $17.2 billion 
more in search revenue in 2019 alone, a 5 to 11 percent increase of 
Alphabet's $162 billion 2019 global revenue.\162\
---------------------------------------------------------------------------
    \160\ For Search: Google's current revenue is estimated by 
multiplying its market share of Chinese search engines with the total 
revenue of search engine companies in China for each year. As 
comparisons, we assume that total search engine revenue is unchanged 
and repeat the calculations for Google maintaining its 2010 market 
share of 37 percent and experiencing the same market share growth as it 
experienced in South Korea.
    \161\ iReasearch, ``Revenue of Search Engine Companies in China 
2013-2020,'' April 1, 2019, http://www.iresearchchina.com/content/
details7_53447.html; statscounter, Search Market Share (China and South 
Korea, 2010-2019), accessed February 27, 2020, https://
gs.statcounter.com/.
    \162\ ``Alphabet Revenue 2006-2019 GOOG,'' https://
www.macrotrends.net/stocks/charts/GOOG/alphabet/revenue.

    In the cloud service sector, we focused on Infrastructure as a 
Service (IaaS) and used the Asia Pacific as the comparator. IaaS is a 
form of cloud computing that provides virtualized computing resources 
over the Internet. IaaS is highly scalable and allows businesses to 
purchase resources on-demand and as-needed instead of having to buy 
hardware outright. Amazon Web Services (AWS), Cisco Metacloud, 
DigitalOcean, Google Cloud, Microsoft Azure, and Rackspace are popular 
---------------------------------------------------------------------------
IaaS providers around the world.

    Just using a simple direct estimation, if Amazon and Microsoft had 
the market share in China for IaaS that they did in the Asia Pacific 
region overall, they would have made $516 million and $140 million 
more, respectively, in 2017 and 2018 (Appendix B).\163\ It's easier to 
do a direct comparison for IaaS as it is a neutral service platform and 
is not affected by different cultural and design preferences. Of 
course, China makes up half of the region's spending on IaaS, so just 
using their market shares in the rest of Asia Pacific, suggests that 
these two firms they would have earned $1.03 billion and $571 million 
more, respectively.
---------------------------------------------------------------------------
    \163\ For cloud services: Amazon's and Microsoft's Infrastructure 
as a Service (IaaS) market shares in China are compared to their market 
shares in the overall Asia Pacific region, estimating the revenues each 
company would earn if they held their regional market share within 
China. Additionally, the Chinese market is subtracted from the Asia 
Pacific region to estimate the market share each company holds in the 
rest of the region, which are once again substituted for the Chinese 
market shares; China Internet Watch, ``Alibaba Cloud owns 43 percent 
China's public cloud market in 2018,'' February 12, 2019, https://
www.chinainternetwatch.com/28150/public-cloud-h1-2018/; China Internet 
Watch, ``China public cloud (IaaS) to reach US$6.21 bn in 2018; Amazon 
fastest growth,'' October 10, 2018, https://www.chinainternetwatch.com/
26900/public-cloud-iaas-2018/; Business Wire, ``Alibaba Cloud Ranked 
First in Asia Pacific(*) by Gartner Market Share: IT Services in IaaS 
and IUS,'' April 24, 2019, https://www.businesswire.com/news/home/
20190424005371/en/; IDC, ``New IDC Forecast Reveals Asia/Pacific* 
Spending on Public Cloud Services to Reach USD 76.1 Billion by 2023,'' 
August 7, 2019, https://www.idc.com/
getdoc.jsp?containerId=prAP45431219.

    Collectively, ITIF's estimates losses for the search and cloud 
sectors suggest that these companies would have made $5.8 to $10.6 
billion more in 2017 and $7.5 to $14.3 billion more in 2018 (Appendix 
C).\164\
---------------------------------------------------------------------------
    \164\ The tables in the appendix summarize the results estimating 
the revenues of U.S. cloud and search companies in China in different 
scenarios and provide estimates of cumulative losses. The high and low 
assumptions for each are different. For search, we assume Google 
maintained a consistent market share and then assume they beat out 
Baidu like they beat out Naver in Korea. For cloud, we assume cloud 
companies receive the market share equivalent to the average in the 
Asia Pacific region including China, and then receiving the market 
share equivalent to the regional average excluding China.
---------------------------------------------------------------------------
             u.s. firms should be allowed, and encouraged, 
                   to operate inside a censored china
    The trade and economic implications of the Great Firewall and 
Chinese censorship more broadly, combined with other digital 
protectionism, undermines U.S. firms and the U.S. economy overall. This 
is problematic for America's position as the world's leading innovator. 
Most technology-based industries have high barriers to entry. In 
sectors that rely on AI, for example, firms spend hundreds of millions, 
and years of effort, developing ever more sophisticated technical 
capabilities. The initial investment can be quite high. While fixed 
costs are extremely high, marginal costs are low as firms can deploy 
their services over the Internet to many markets around the world.

    If U.S. innovation industries lose market share to unfairly 
competing firms supported by their innovation mercantilist governments, 
it means two things. First, sales fall. This is true because global 
sales are largely fixed, and if a mercantilist-supported competitor 
(unfairly) gains market share, the market-based competitor loses share. 
Second, because profits decline more than sales, it is now more 
difficult for the market-based innovator to reinvest revenues in the 
next generation of products or services, meaning that the mercantilist-
supported entrant has an advantage in creating the next generation of 
products. Also, to the extent the United States continues to lose 
technological capabilities to China, U.S. technological advantage in 
defense over China will diminish, if not evaporate, as U.S. 
capabilities whither and Chinese ones strengthen.

    U.S. policymakers are obviously well within their rights to protest 
against China's approach to human rights, such as freedom of 
expression, which is affected by censorship. This can, and should, 
continue to be done directly by the U.S. government with the Chinese 
government and in relevant international forums. The United States has 
benefited tremendously from a global trading system that allows firms 
and people from all political systems and belief systems to improve 
their standard of living through greater trade and innovation. However, 
with limited exceptions (such as facilitating genocide, war crimes, or 
some other heinous international crime), unilaterally holding U.S. 
firms accountable for the values of the country they operate in is not 
what has defined U.S. trade and foreign policy. Moreover, it works 
against U.S. economic interests, especially the goal of leading China 
technologically and economically.

    As Google stated in a blog from when it withdrew in 2010, 
``filtering our search results clearly compromises our mission'' but, 
as it added, ``failing to offer Google search at all to a fifth of the 
world's population, however, does so far more severely.''\165\ This is 
a fair assessment of the tradeoff. Obviously, U.S. firms have the right 
to decide whether to enter or stay out of China for whatever reason. 
People talk about the decision about whether U.S. firms should enter 
(or reenter) the world's largest, and one of its fastest growing 
digital markets, and whether they will have to compromise the 
principles and values of the United States. While firms like Google may 
or may not have had more leverage to negotiate a better deal back in 
2010 (as compared to today), the situation in relation to governance 
intention and capability has clearly changed and solidified around 
censorship and the control of information in China and between China 
and the rest of the world. Under any rational business calculation, it 
would be impractical to expect one of the world's largest Internet 
companies to stay out of the world's largest digital economy, 
especially when U.S. firms have shown that they can operate under the 
Chinese government's intrusive rules.\166\
---------------------------------------------------------------------------
    \165\ Andrew McLaughlin, ``Google in China,'' January 27, 2006, 
https://googleblog.blogspot.com
/2006/01/google-in-china.html.
    \166\ Farhad Manjoo, ``Google Tried to Change China. China May End 
Up Changing Google,'' New York Times, https://www.nytimes.com/2018/08/
22/technology/google-china-conventionality.html.

    A realistic approach should recognize that it is far more 
constructive to recognize a government's right to regulate content 
online and debate about how these content moderation frameworks, even 
if for political speech purposes, are designed and enforced. This 
should be a legitimate part of the political and economic response in 
ensuring that rules are clear, provide sufficient time for action, 
build in notification processes, are no more onerous than necessary, 
---------------------------------------------------------------------------
and are as precise as possible.

    A key, and fair, concern is that changes U.S. firms make to abide 
by Chinese censorship laws affect their actions and the goods and 
services they provide in other markets around the world. Recent cases 
with the NBA being penalized in China for remarks from one coach in the 
United States is not only evidence of China's sensitive and punitive 
nature, but its extra territorial application of censorship in 
selectively targeting people and firms for what they say and do in the 
United States. However, this is extraterritorial application of 
domestic law is not unique to China. Privacy regulators in Europe have 
tried to dictate what information U.S. firms make available to people 
in Europe, but also the rest of the world, through their ``right to be 
forgotten'' requirement that gives European Union citizens the power to 
demand that data and information about them be deleted. Germany 
requires social networks to remove Nazi symbols. In 2017, the Supreme 
Court of Canada upheld orders for Google to ``de-index'' a website, and 
asserted the jurisdiction of Canada's courts over Internet 
intermediaries in other countries. The United States should focus on 
ensuring that U.S. firms only apply these rules in local jurisdictions 
and come up with other tools to counteract its spillover into the 
United States.
overly broad censorship and trade law: applicable, but largely untested
    Trade law allows countries to enact censorship for a range of 
reasons, such as pornography, gambling, and faith-based objections, but 
these must be necessary and proportionate. This raises the prospect for 
a WTO dispute case based on the claim that China's approach to 
censorship is overly broad, restrictive, and discriminatory as it can 
unfairly restrict the domestic and cross-border supply of a service.

    For as long as there has been international trade rules, there have 
been exceptions, including for countries to enact measures to protect 
public morals. Back in 2006, academics like Tim Wu from Colombia 
University realized that countries were not considering the trade law 
implications of overly broad online censorship.\167\ A 2009 WTO trade 
dispute (initiated by the United States) represents the clearest 
example of how trade law can address issues like censorship. This case 
involved trading rights and distribution services for audiovisual 
entertainment products. China sought to justify restrictions on foreign 
firms involved in importing and distributing books, movies, and other 
``culturally sensitive'' materials because it wanted to protect public 
morals and control content. China claimed that control of cultural 
content is a matter of fundamental importance, which was recognized as 
legitimate by the WTO dispute panel.\168\ However, the panel's overall 
verdict showed how China's desire to control online content does not 
enable it to ignore WTO rules.\169\
---------------------------------------------------------------------------
    \167\ Tim Wu, ``The World Trade Law of Internet Filtering,'' 
Columbia University Law School, May 3, 2006, http://dx.doi.org/10.2139/
ssrn.882459.
    \168\ ``DS363: China--Measures affecting trading rights and 
distribution services for certain publications and audiovisual 
entertainment products,'' World Trade Organization website, https://
www.wto.org/english/tratop_e/dispu_e/cases_e/ds363_e.htm.
    \169\ Ibid.; ``Testimony: Commercial Espionage and Barriers to 
Digital Trade in China,'' Matt Schruers, Computer and Communications 
Industry Association, June 15, 2015, https://www.uscc.gov/sites/
default/files/Schruers%20Testimony.pdf.

    The European Center for International Political Economy (ECIPE) 
report Protectionism Online: Internet Censorship and International 
Trade Law presents a detailed and convincing case that a WTO dispute 
panel might rule that China's permanent blocks on search engines, 
photo-sharing applications, and other services are inconsistent with 
the General Agreement on Trade in Services (GATS) provisions, even with 
the exceptions for morals and security.\170\ Less resourceful 
countries, without means of filtering more selectively, and with a 
censorship system based on moral and religious grounds, are more likely 
to be able to defend broader censorship blocks in the WTO. But the 
exceptions do not offer a blanket cover for the arbitrary and 
disproportionate censorship that still occurs despite the availability 
to the censoring government of selective filtering.
---------------------------------------------------------------------------
    \170\ Fredrik Erixon, Brian Hindley, and Hosuk Lee-Makiyama, 
``Protectionism Online: Internet Censorship and International Trade 
Law'' (The European Center for International Political Economy, 2009), 
https://ecipe.org/wp-content/uploads/2014/12/protectionism-online-
internet-censorship-and-international-trade-law.pdf.

    Article XX of General Agreement on Tariffs and Trade (GATT) and 
article XIV of GATS contain many relevant rules that govern the 
potential use of censorship. GATT permits governments to take measures 
``necessary to protect public morals.'' GATS permits measures 
``necessary to protect public morals or to maintain public order.'' 
However, Article XX of GATTs outlines that, ``subject to the 
requirement that such measures are not applied in a manner which would 
constitute a means of arbitrary or unjustifiable discrimination between 
countries where the same conditions prevail, or a disguised restriction 
---------------------------------------------------------------------------
on international trade.''

    However, as ECIPE explains, trade law sets limits to a country's 
use of censorship for moral reasons. The conditions under which these 
provisions can be applied tend to be quite strictly applied.\171\ GATS 
article XIV is even annotated by a footnote stating that the paragraph 
may only be invoked where a ``genuine and sufficiently serious threat 
is posed'' to a ``fundamental interest'' of society.\172\ They need to 
be deemed ``necessary'' when evaluated under a factor-based test. Such 
factors include: the relative importance of the objective pursued by 
the measure; the contribution of the measure to that objective; the 
trade-restrictiveness of the measure; and the existence of ``reasonably 
available'' alternative measures.\173\
---------------------------------------------------------------------------
    \171\ Ibid.
    \172\ Ibid.
    \173\ See e.g., Appellate Body Report, EC--Seal Products, para. 
5.169; Columbia--Textiles (AB), para. 5.74. (``As we have noted, in 
most cases, a panel must then compare the challenged measure and 
possible alternative measures that achieve the same level of protection 
while being less trade restrictive. The Appellate Body has explained 
that an alternative measure may be found not to be `reasonably 
available' where `it is merely theoretical in nature,' for instance, 
where the responding member is not capable of taking it, or where the 
measure imposes an undue burden on that member, such as prohibitive 
costs or substantial technical difficulties''). ``WTO Analytical Index: 
Jurisprudence: Article XX,'' World Trade Organization, https://
www.wto.org/english/res_e/publications_e/ai17_e/gatt1994_art20_jur.pdf.

    Given it has never been tested in a WTO dispute, it is unclear how 
the necessity test relates to the footnote under article XIV. This 
would be an extremely difficult question for a WTO dispute panel to 
answer once faced with questions about how to assess and respond to the 
threat from certain online content.\174\ As it relates to 
proportionality, a WTO dispute panel would take into consideration the 
capabilities of the state in considering whether a measure was 
reasonable and whether there is a genuine alternative for the desired 
level of protection. The burden of proof is on the complainant to prove 
such a measure actually exists.\175\ On this factor alone, it seems 
clear that active filtering is far less trade restrictive than a total, 
permanent ban of a site and service. There's also the related aspect of 
proportionality and discrimination in that censors in China tend to 
block entire foreign websites, while a domestic site may simply be 
asked to remove individual pages.
---------------------------------------------------------------------------
    \174\ Erixon, Hindley, and Lee-Makiyama, ``Protectionism Online: 
Internet Censorship and International Trade Law.''
    \175\ Asbestos and audiovisuals cases: ``WTO Analytical Index: 
Jurisprudence: Article XX,'' World Trade Organization, https://
www.wto.org/english/res_e/publications_e/ai17_e/gatt1994
_art20_jur.pdf.

    The growing importance of digital content to trade makes it 
important to challenge and (hopefully) rectify China's overly expansive 
use of censorship as an NTB. A case brought before the WTO over 
censorship would inevitably prompt a debate about sovereignty and the 
scope of trade-related issues under the WTO, but it's a fair debate 
given the original negotiators of GATT and GATS envisaged limits to how 
countries could use public morals and other exceptions as disguised 
forms of protectionism. There needs to be a debate about where and how 
to draw the lines against disproportionate, arbitrary, and opaque 
censorship. As ECIPE notes in conclusion, although the dispute 
settlement mechanism of neither the WTO nor other trade instruments 
could be used to eliminate Internet censorship, they might limit the 
use of its more commercially damaging forms.\176\
---------------------------------------------------------------------------
    \176\ Erixon, Hindley, and Lee-Makiyama, ``Protectionism Online: 
Internet Censorship and International Trade Law.''
---------------------------------------------------------------------------
                            recommendations
    On March 8, 2000, former U.S. President Bill Clinton gave a speech 
that touched on China's accession to the WTO, the Internet, and 
censorship in China:

        Membership in the WTO, of course, will not create a free 
        society in China overnight or guarantee that China will play by 
        global rules. But over time, I believe it will move China 
        faster and further in the right direction, and certainly will 
        do that more than rejection would. . . . Now there's no 
        question China has been trying to crack down on the Internet. 
        Good luck! That's sort of like trying to nail jello to the 
        wall. But I would argue to you that their effort to do that 
        just proves how real these changes are and how much they 
        threaten the status quo.\177\
---------------------------------------------------------------------------
    \177\ ``Full Text of Clinton's Speech on China Trade Bill,'' New 
York Times, March 9, 2000, https://archive.nytimes.com/www.nytimes.com/
library/world/asia/030900clinton-china-text.ht
ml?mcubz=2.

    The United States would be ill served to simply wait and hope China 
realizes the futility of its approach to censorship; the 20 years shows 
that this is extremely unlikely. The United States will need to double 
down and keep pushing for it as the track record shows limited and 
uneven progress. Meanwhile, the stakes for U.S. firms and the broader 
economy only increase given China's economic growth. Given this, it's 
worth pursuing a fresh assessment of the issue and options to develop a 
targeted, detailed, and broader strategy to that (at least) U.S. firms 
can enter and operate on level terms in China. In line with this, there 
are a number actions Congress and the administration can take to reduce 
the economic impact of censorship on the U.S. economy. In addition to 
the below, ITIF has called for a broader range of institutional and 
policy changes to better respond to Chinese innovation mercantilism, 
such as in the reports Constructive, Alliance-Backed Confrontation: How 
the Trump Administration Can Stop Chinese Innovation Mercantilism and 
Why and How to Mount a Strong, Trilateral Response to China's 
Innovation Mercantilism.\178\
---------------------------------------------------------------------------
    \178\ Nigel Cory and Robert D. Atkinson, ``Why and How to Mount a 
Strong, Trilateral Response to China's Innovation Mercantilism'' (The 
Information Technology and Innovation Foundation, January 13, 2020), 
https://itif.org/publications/2020/01/13/why-and-how-mount-strong-
trilateral-response-chinas-innovation-mercantilism; Nigel Cory, Robert 
D. Atkinson, and Stephen Ezell, ``Stopping China's Mercantilism: A 
Doctrine of Constructive, Alliance-Backed Confrontation'' (The 
Information Technology and Innovation Foundation, March, 2017), http://
www2.itif.org/2017-stopping-china-mercantilism.pdf.
---------------------------------------------------------------------------
 congress should ask the united states international trade commission 
        for a detailed study into the trade impact of censorship
    For such a significant trade issue, there is a surprising lack of 
data and research done on the impact of censorship in China and 
elsewhere on U.S. firms. To help fill this gap, the Senate Finance 
Committee should ask the United States International Trade Commission 
(ITC). The ITC has done and continues to do valuable research on global 
digital trade and barriers to U.S. firms.\179\ Congress should ask ITC 
to author an in-depth investigation into the trade implications of 
censorship around the world, with a specific focus on China. This 
analysis should include more detailed modeling estimates about the 
trade impact of China's overly broad, onerous, and restrictive approach 
to censorship.
---------------------------------------------------------------------------
    \179\ ``USITC: Ongoing 332 Investigations,'' United States 
International Trade Commission website, https://www.usitc.gov/
research_and_analysis/what_we_are_working_on.htm; Nigel Cory, ``Post-
Hearing Written Submission: Investigations Global Digital Trade 1 (No. 
332-562) and Global Digital Trade 2 (No. 332-563)'' (The Information 
Technology and Innovation Foundation, March 29, 2018), http://
www2.itif.org/2018-testimony-global-digital-trade.pdf; United States 
International Trade Commission (USITC), Global Digital Trade I: Market 
Opportunities and Key Foreign Trade Restrictions, USITC Publication 
4716, (Washington, D.C.: USITC), https://www.usitc.gov/publications/
industry_econ_analysis_332/2017/global_digital_trade_1_
market_opportunities_and.htm.
---------------------------------------------------------------------------
        push ustr to develop new trade law provisions to target 
           the countries use of censorship for protectionism
    The United States should develop a digital trade policy response to 
China's use of censorship as a barrier to trade. USTR addresses some 
components in the United States-Mexico-Canada trade agreement and the 
``Digital Two Dozen'' which formed the basis for U.S. negotiations in 
the Trans-Pacific Partnership.\180\ However, USTR and other U.S. 
Government agencies (such as the Department of Commerce) need to ensure 
that U.S. trade policy addresses the individual elements as part of a 
holistic and broader global digital economy agenda. USTR's recently 
released 2020 Trade Policy Agenda and 2019 Annual Report details 
individual digital provisions that relate to censorship, but without a 
broader context or strategy to address the use of censorship and other 
non-tariff barriers to digital trade as part of the growing trend 
towards ``digital sovereignty'' in China, Europe, India, and elsewhere 
around the world.\181\
---------------------------------------------------------------------------
    \180\ Nigel Cory and Stephen Ezell, ``Comments to the U.S. 
International Trade Commission Regarding the United States-Mexico-
Canada Agreement'' (The Information Technology and Innovation 
Foundation, December 17, 2018), https://itif.org/publications/2018/12/
17/comments-us-international-trade-commission-regarding-united-states-
mexico; ``The Digital 2 Dozen,'' Office of the United States Trade 
Representative, https://ustr.gov/about-us/policy-offices/press-office/
reports-and-publications/2016/digital-2-dozen.
    \181\ United States Trade Representative (USTR), 2020 Trade Policy 
Agenda and 2019 Annual Report (Washington, DC: USTR, February 28, 
2020), https://ustr.gov/sites/default/files/
2020_Trade_Policy_Agenda_and_2019_Annual_Report.pdf.

    The United States should prioritize these digital and censorship 
issues as part of Phase Two trade talks with China. Thus far, China has 
not made substantive or enforceable commitments on e-commerce or 
digital trade as part of its trade agreements. China sees e-commerce 
through the lens of traditional trade, where e-commerce platforms sell 
physical goods that need facilitation through customs, while the United 
States, Japan, and many other nations see it much broader, encompassing 
both purely digital products and the digitally enabled delivery of 
goods and services.\182\ However, in the event that China refuses to 
change its restrictive approach to data governance and digital trade, 
the United States should focus its efforts on enacting ambitious news 
rules at the WTO's e-commerce negotiations to ensure that data 
localization does not become the norm around the world.
---------------------------------------------------------------------------
    \182\ Nigel Cory, ``Why China Should Be Disqualified From 
Participating in WTO Negotiations on Digital Trade Rules'' (The 
Information Technology and Innovation Foundation, May 9, 2019), https:/
/itif.org/publications/2019/05/09/why-china-should-be-disqualified-
participating-wto-negotiations-digital.
---------------------------------------------------------------------------
        send a clear message that u.s. technology firms should 
                 be encouraged to enter chinese markets
    All too often policymakers have sent clear messages to U.S. 
technology companies that entering the Chinese market is greedy, 
immoral, and un-American. The fact that U.S. firms operate in China now 
does not mean that they support the CCP, just as it doesn't imply that 
U.S. firms working in other authoritarian countries support those 
regimes.\183\ Pressuring U.S. companies to not serve the Chinese market 
may feel good as a virtue signal, but not only will it do nothing to 
improve the situation, it will hurt the interests of the United States 
as it will cut off technology services exports.
---------------------------------------------------------------------------
    \183\ Alice Su, ``The question of `patriotism' in U.S.-China tech 
collaboration,'' Los Angeles Times, August 13, 2019, https://
www.latimes.com/world-nation/story/2019-08-12/china-us-tech-patriotism-
ethics-ai.

    Forcing U.S. companies to not serve that market will do nothing to 
change the situation on the ground in China. China is not a small 
country that would be susceptible to boycotts. Furthermore, it's 
impossible, and unrealistic, to expect U.S. firms to stand up to the 
Chinese Government. It should be clear by now that foreign firms are 
not going to change China's censorship regime. Even if foreign firms 
responded as a group, it'd be unlikely to change Chinese Government 
policy. If they left, it'd likely just create further space for 
increasingly competitive Chinese firms to fill. This obviously doesn't 
prevent firms from deciding to not operate in China, as they're free to 
do. The basis for action lies with the U.S. Government, and its like-
---------------------------------------------------------------------------
minded partners, to advocate for their human rights values in China.

    Over the long term, not supporting U.S. firms in China risks losing 
the crucial ability to develop and shape the technologies that'll form 
the basis of economic competitiveness. U.S. innovation thrives when its 
firms are able to enter and compete in as many markets as possible. 
Arthur Kroeber, the managing director of Gavekal Dragonomics (a 
research firm in Beijing) makes this clear in a New Yorker article: 
``Total revenue of U.S. companies and affiliates in China in 2017, for 
1 year, was $544 billion. What's the chance these numbers can go down 
80 or 90 percent? Almost no chance. We can remove a few of those 
tangles, but the cost to the U.S. economy of removing them all would be 
unacceptably high.''\184\
---------------------------------------------------------------------------
    \184\ Evan Osnos, ``The Future of America's Contest With China,'' 
The New Yorker, January 6, 2020, https://www.newyorker.com/magazine/
2020/01/13/the-future-of-americas-contest-with-china.
---------------------------------------------------------------------------
                               conclusion
    In recent years, Chinese officials have not only continued to 
defend China's approach to censorship and ``Internet sovereignty'' but 
called it a successful model that other countries should adopt. Beyond 
the political, there are clear economic and trade implications as many 
other countries would no doubt be attracted to China's censorship 
model, in part, as it protects local firms from U.S. competitors. In 
this way, China's model plays into other countries strategies for local 
digital protectionism (just like in China) or even as the European 
Union has recently proposed, ``digital sovereignty'' (to protect EU 
firms against both Chinese and U.S. technology firms). The Unites 
States needs to develop a better response to counter China's use of 
censorship as an NTB, as well as its use in other countries that may 
seek to replicate it. U.S. firms shouldn't (again) have to sit out 
critical formative stages of digital development in mature or emerging 
markets, only to watch local firms gain an unfair advantage and a 
protected home market to use as a launch point to compete in third- 
country markets and in the United States.

APPENDIX A: SEARCH

    Google's current revenue is estimated by multiplying its market 
share of Chinese search engines with the total revenue of search engine 
companies in China for each year. As comparisons, the estimate assumes 
that total search engine revenue is unchanged and repeat the 
calculations for Google maintaining its 2010 market share of 37 percent 
and experiencing the same market share growth as it experienced in 
South Korea.

[GRAPHIC] [TIFF OMITTED] T3020.002


Sources:

      iReasearch, ``Revenue of Search Engine Companies in China 2013-
2020,'' April 1, 2019, http://www.iresearchchina.com/content/
details7_53447.html.
      statscounter, Search Market Share (China and South Korea, 2010-
2019), accessed February 27, 2020, https://gs.statcounter.com/.

APPENDIX B: CLOUD SERVICES

    For cloud services: Amazon's and Microsoft's Infrastructure as a 
Service (IaaS) market shares in China are compared to their market 
shares in the overall Asia Pacific region, estimating the revenues each 
company would earn if they held their regional market share within 
China. Additionally, the Chinese market is subtracted from the Asia 
Pacific region to estimate the market share each company holds in the 
rest of the region, which are once again substituted for the Chinese 
market shares.

[GRAPHIC] [TIFF OMITTED] T3020.003


Sources:

      China Internet Watch, ``Alibaba Cloud owns 43 percent China's 
public cloud market in 2018,'' February 12, 2019, https://
www.chinainternetwatch.com/28150/public-cloud-h1-2018/.
      China Internet Watch, ``China public cloud (IaaS) to reach 
US$6.21 bn in 2018; Amazon fastest growth,'' October 10, 2018, https://
www.chinainternet
watch.com/26900/public-cloud-iaas-2018/.
      Business Wire, ``Alibaba Cloud Ranked First in Asia Pacific(*) 
by Gartner Market Share: IT Services in IaaS and IUS,'' April 24, 2019, 
https://www.
businesswire.com/news/home/20190424005371/en/.
      IDC, ``New IDC Forecast Reveals Asia/Pacific* Spending on Public 
Cloud Services to Reach USD 76.1 Billion by 2023,'' August 7, 2019, 
https://www.idc.com/getdoc.jsp?containerId=prAP45431219.

APPENDIX C: AGGREGATE IMPACT

    This table summarizes the results estimating the revenues of U.S. 
cloud and search companies in China in different scenarios and provide 
estimates of cumulative losses. The high and low assumptions for each 
are different. For search, the estimate assumes Google maintained a 
consistent market share and then assume they beat out Baidu like they 
beat out Naver in Korea. For cloud, the estimate assumes cloud 
companies receive the market share equivalent to the average in the 
Asia Pacific region including China, and then receiving the market 
share equivalent to the regional average excluding China.

[GRAPHIC] [TIFF OMITTED] T3020.004


                                 ______
                                 
            Questions Submitted for the Record to Nigel Cory
                Questions Submitted by Hon. John Cornyn
    Question. Our Nation's technology companies are increasingly being 
blocked from access to the Chinese market. Meanwhile, the Chinese 
Government is subsidizing its own technology development through 
companies such as Huawei. Some technology companies are censored 
entirely out of the market. This has caused billions of dollars in 
damage to our economy and contributed to our Nation's outsized trade 
deficit with China. The cost has to be much more.

    What kind of barriers do tech companies face in entering the 
Chinese market and what are the short- and long-term costs?

    What should we be focusing on to ensure censorship is removed as a 
barrier to digital trade as talks on a Phase Two deal progress?

    Answer. China is the leader in digital protectionism. The impact on 
U.S. firms can be categorized as either direct or indirect:

        The direct blocking of market access via the Great Firewall, 
restrictive and discriminatory licensing arrangements, and other market 
access restrictions.

        The direct blocking of digital content (movies, TV shows, and 
video games) via opaque, restrictive, and/or discriminatory content-
review processes.

        The indirect impact on how U.S. firms can operate and compete 
in China by forcing all Internet traffic through the Great Firewall, 
which degrades or cuts off data connectivity with the global Internet. 
For example, this hinders the cross-border sale and service of 
software.

        The direct impact on how U.S. firms can use corporate virtual 
private networks (VPN) to connect to intra-firm networks outside of 
China, which can undermine connectivity, be expensive, and potentially 
expose corporate communications to Chinese government agencies.

        At the macro level, there is the direct impact of U.S. firms 
being excluded from China during a formative period of rapid growth in 
China's digital economy. This leads to the indirect and long- term 
impact that Chinese firms use their protected domestic market to grow 
and become competitive, before taking market share from U.S. and other 
foreign firms in third-country markets.

    The Great Firewall of China represents a rare case where U.S. 
digital exports face a barrier at the border. Most of the foreign 
online services, apps, or intermediaries that China blocks are rarely 
revised and lifted (as the list above shows). Firms that have their web 
services temporarily blocked typically find that this is simply a 
prelude to a total and permanent block. The impact of being blocked is 
cumulative in its trade impact, as for many services that are already 
blocked, if they add innovative new services and products, the block is 
automatically extended. For example, China's initial blocking of 
foreign search engines has expanded to encompass many email, cloud 
storage, and other services. This shows that even if there was a 
specific politically or socially offensive article to prompt a block, 
the extension of this block to new services makes it much more 
impactful from a trade and economic perspective. ITIF's Senate 
testimony outlines the long list of major U.S. tech firms that have 
been blocked by the Great Firewall over the last 2 decades.

    The trade impact of censorship in China is much broader than 
website blocking via the Great Firewall of China. Behind this clear 
market access barrier, U.S. firms face a complicated, opaque, and 
changing regulatory framework tied to content moderation and 
information control. China's use of censorship affects both market 
entry and operations in China and the provision of digital services and 
products from overseas.

    Moreover, in many cases, China's approach to censorship is 
unwritten, with enforcement often being arbitrary and delegated to 
private firms. This is in large part a conscious decision to avoid 
disputes at the World Trade Organization, which would be much easier to 
put in place if the rules were on paper.

    The trade-related impact of censorship no doubt plays a role in 
China's decision to prohibit wholly or partially owned foreign firms 
from key digital sectors. For example, China uses licenses to strictly 
control which parties can offer value-added telecommunication services, 
such as voice-over-Internet protocol (VOIP) calls, online database 
storing and searching, electronic data exchange, online data processing 
and transactions processing, domestic multiparty communication 
services, VPN services, and video teleconferencing and as well as 
limiting what parties can interconnect these services with public 
telecommunication networks.\1\ Similarly, foreign ownership in basic 
telecommunication services (fixed line, mobile, and broadband) is 
capped at 49 percent.\2\
---------------------------------------------------------------------------
    \1\ United States Trade Representative (USTR), Section 1377 Review 
on Compliance With Telecommunications Trade Agreements (Washington, DC: 
USTR, 2015), https://ustr.gov/sites/default/files/2015-Section-1377-
Report_FINAL.pdf.
    \2\ State Council, Provisions on Administration of Foreign-Invested 
Telecommunications Enterprises. Decree of the State Council of the 
People's Republic China No. 333, December 11, 2001.

    In terms of how China's approach to censorship and protectionism 
affects how U.S. firms operate (in terms of connectivity) in China, it 
varies along a spectrum: from a minor, periodic constraint on service 
access to a severely degraded connection that essentially makes it 
unviable from an operational or commercial perspective to a complete 
block. Frequent blocking and unlocking of websites (and VPNs) can make 
it hard for firms to have confidence they will have the communication 
services they need for day-to-day operations and international 
trade.\3\ U.S. firms also report that pushing all traffic through the 
Great Firewall adds transmission delays that can significantly degrade 
the quality of the service, to the point where it's commercially or 
operationally unacceptable (thus cutting off market access).\4\ In a 
similar way, China has ``throttled'' access to foreign websites in 
order to make them so slow as to be unusable. Throttling is also often 
a precursor to being blocked completely. For example, before Google was 
fully blocked in 2010, it was throttled for a long time, which had the 
effect of making it appear as if Google's search engine was slow and 
buggy.
---------------------------------------------------------------------------
    \3\ United States Trade Representative (USTR), 2018 Report to 
Congress on China's WTO Compliance (Washington, DC: USTR, 2019), 
(Washington, DC: USTR, 2015).
    \4\ Ibid.

    The economic impact of being kept out of China due to censorship 
and protectionism is significant. A generation of Chinese consumers 
have grown up without knowing that their Internet and consumer 
experience is completely different than what's available in most other 
countries. They have little or no idea about Google, Twitter, Facebook, 
or other U.S. firms and their products, even as Chinese Government 
officials and party ``apparatchiks'' use these platforms to spread 
propaganda in the United States.\5\
---------------------------------------------------------------------------
    \5\ Li Yuan, ``A Generation Grows Up in China Without Google, 
Facebook or Twitter,'' New York Times, August 6, 2018, https://
www.nytimes.com/2018/08/06/technology/china-generation-blocked-
internet.html.

    As detailed in ITIF's written testimony, a host of U.S. industries 
and firms, in sectors ranging from Internet services to cloud 
computing, video games, and movies, have likely lost hundreds of 
billions of dollars in revenues due to Chinese censorship and related 
market restrictions.\6\ Importantly, these revenues would have 
supported innovation and job creation in the United States, while 
limiting Chinese firms' ability to grow and capture global market 
share. While it is not possible to calculate an exact figure, ITIF 
conservatively estimates (based on market-share comparisons) that 
Google, which withdrew from the Chinese market in 2010, subsequently 
lost $32.5 billion in search revenue from 2013 to 2019, while Amazon 
and Microsoft's cloud services (IaaS, which is restricted in China) 
lost a combined $1.6 billion over the 2-year period from 2017 to 2018. 
As the China market continues to rapidly grow, these losses will also 
grow significantly. Beyond this more-immediate impact, the longer-term, 
indirect impact is that is has provided Chinese competitors with a 
protected market from which to launch competitive challenges in other 
regions, such as South America, the rest of Asia, and Africa. This cost 
will only grow as the global digital economy grows.
---------------------------------------------------------------------------
    \6\ Nigel Cory, ``Testimony: Censorship as a Non-Tariff Barrier to 
Trade'' (The Information Technology and Innovation Foundation, June 30, 
2020), https://itif.org/publications/2020/06/30/testimony-us-senate-
subcommittee-trade-regarding-censorship-non-tariff.

    The United States needs to prioritize and seek as part of bilateral 
negotiations with China: clear, meaningful, and enforceable commitments 
on market access for a range of Internet services; fair, transparent, 
and predictable digital content review processes for movies, TV shows, 
and video games; and rules to protect the free flow of data and digital 
goods. The United States has the model trade law provisions to use for 
these issues (such as its other modern trade agreements, including the 
U.S.-Mexico-Canada (USMCA) free trade agreement). The main thing is 
that the United States needs to prioritize these tech and digital 
issues as they are of far greater size and significance (in terms of 
economic productivity, innovation, and competitiveness) as compared to 
---------------------------------------------------------------------------
agricultural and commodity exports.

    The United States also needs to develop new trade rules to ensure 
China does not seek to apply its censorship laws and regulations extra-
territorially. It's one thing for U.S. firms to abide by local laws and 
regulations around censorship and content moderation in China, but it's 
completely different--and unacceptable--for them to change their 
operations or content outside of China. Alongside this, the United 
States should explore new domestic transparency and policy tools to 
identify, track, and respond to cases where China seeks to enforce its 
censorship on U.S. firms outside of China (detailed below in response 
to Senator Grassley's question).

    Question. The ongoing pandemic has accelerated the vulnerability of 
America's ability to produce its own critical equipment and supplies. 
One area of special focus is the semiconductor space. It underpins 
everything in the digital trade space--from 5G to the equipment we use 
to work from home. I recently introduced the CHIPS for America act that 
incentivizes the production of semiconductors back home. This will not 
only help us be prepared for the future but allow the U.S. to remain 
the global defender of free speech online.

    Can you talk about the global Internet landscape today and where 
you see it going in the future?

    Specifically, I am concerned about China's export of its 
authoritarian model of a closed off Internet to the world. What are 
China and other countries doing to support authoritarian regimes via 
digital trade and infrastructure?

    Answer. There are three major models for digital governance in the 
world today. Along a sliding scale of restrictiveness (from low to 
high), there's the United States' and the Asia-Pacific Economic 
Cooperation's Cross-Border Privacy Rules (CBPR) risk-based approach to 
data regulations; the European Union's (EU's) onerous and restrictive 
precautionary principle-based General Data Protection Regulation (GDPR) 
and emerging restrictions around artificial intelligence; and finally, 
China's sovereignty-based model of digital control and 
protectionism.\7\
---------------------------------------------------------------------------
    \7\ Nigel Cory, ``Cross-Border Data Flows: Where Are the Barriers, 
and What Do They Cost?'' (The Information Technology and Innovation 
Foundation, May 1, 2017), https://itif.org/publications/2017/05/01/
cross-border-data-flows-where-are-barriers-and-what-do-they-cost; Nigel 
Cory, ``China and the United States: Digital Protectionism vs. Digital 
Free Trade'' (The Information Technology and Innovation Foundation, 
October 18, 2019), https://itif.org/publications/2019/10/18/china-and-
united-states-digital-protectionism-vs-digital-free-trade; Nigel Cory, 
``Why China Should Be Disqualified From Participating in WTO 
Negotiations on Digital Trade Rules'' (The Information Technology and 
Innovation Foundation, May 9, 2019), https://itif.org/publications/
2019/05/09/why-china-should-be-disqualified-participating-wto-
negotiations-digital.

    China provides a master class in how to enact behind-the-border 
barriers to digital trade in order to give local firms and products an 
unfair advantage, especially as it relates to digital products, cross-
border data flows, and the intellectual property (IP) closely 
associated with digital trade (such as protections for source code and 
algorithms).\8\ In contrast to the United States and many others, China 
treats local data storage as the norm and data flows as the exception, 
asserting that data privacy and cybersecurity are associated with 
location and control.\9\ Data localization is a central theme of 
China's data governance framework. For example, China's cybersecurity 
law requires personal data and ``important data''--a vague term 
encompassing data related to China's national security, economy, and 
other public interests--held by key information communications and 
technology (ICT) operators to be stored within China. This is in 
addition to existing data localization measures for health, mapping, 
and financial data and other data-restrictive policies.\10\ Against 
this backdrop, China has made few substantive commitments on digital 
governance in its trade agreements, especially on data flows. Nor has 
it signed on to other international data transfer mechanisms, such as 
the CBPR.\11\
---------------------------------------------------------------------------
    \8\ Cory, ``Why China Should Be Disqualified From Participating in 
WTO Negotiations on Digital Trade Rules''; Cory, ``Cross-Border Data 
Flows: Where Are the Barriers, and What Do They Cost?''; Stephen Ezell, 
``ITIF Filing to USTR on Section 301 Investigation of China's Policies 
and Practices Related to Tech Transfer, IP, and Innovation'' (The 
Information Technology and Innovation Foundation, October 25, 2017), 
https://itif.org/publications/2017/10/25/itif-filing-ustr-section-301-
investigation-chinas-policies-and-practices.
    \9\ Cory, ``Why China Should Be Disqualified From Participating in 
WTO Negotiations on Digital Trade Rules.''
    \10\ Cory, ``Cross-Border Data Flows''; Nigel Cory, ``The Ten Worst 
Digital Protectionism and Innovation Mercantilist Policies of 2018,'' 
Information Technology and Innovation Foundation, January 28, 2019, 
https://itif.org/publications/2019/01/28/ten-worst-digital-
protectionism-and-innovation-mercantilist-policies-2018; Nigel Cory, 
``The Worst Innovation Mercantilist Policies of 2017,'' Information 
Technology and Innovation Foundation, January 22, 2019, https://
itif.org/publications/2018/01/22/worst-innovation-mercantilist-
policies-2017; Robert Atkinson and Nigel Cory, ``Comments: Circular of 
the State Internet Information Office on the Public Consultation on the 
Measures for the Assessment of Personal Information and Important Data 
Exit Security,'' Information and Technology and Innovation Foundation, 
May 11, 2017, http://www2.itif.org/2017-china-handling-data.pdf; 
Martina F. Ferracane and Erik van der Marel, ``Patterns of Trade 
Restrictiveness in Online Platforms: A First Look'' (European Center 
for International Political Economy, January 2019), https://ecipe.org/
publications/pat-terns-of-trade-restrictiveness/.
    \11\ Cory, ``Why China Should Be Disqualified From Participating in 
WTO Negotiations on Digital Trade Rules.''

    In separating itself from the global Internet over the last 2 
decades, China is a major contributor to the fragmentation of the 
global Internet, but its impact is much broader as it provides a poor 
model of governance--in terms of technology and policies--for other 
countries to emulate. China's success in exporting its model of digital 
control is most evident in similarly authoritarian countries, such as 
---------------------------------------------------------------------------
Iran, Russia, Venezuela Vietnam, and elsewhere.

    These countries' eager embrace of China's model is sad evidence 
that the global Internet is increasingly fragmented as countries--
across every stage of development--have erected barriers to a seamless 
global digital economy. This includes enacting data-residency 
requirements that confine data within a country's borders, a concept 
known as ``data localization.''\12\ It also includes requiring only 
local firms to manage certain types of data and using arbitrary app or 
content review processes to ban foreign providers and content.
---------------------------------------------------------------------------
    \12\ Cory, ``Cross-Border Data Flows: Where Are the Barriers, and 
What Do They Cost?''.

    China's overall approach of restricting and controlling the 
Internet has also no doubt provided some sort of permissions structure 
that countries use when enacting broad and arbitrary restrictions on 
their countries' use and connection to the global Internet. For 
example, in 2018 alone, at least 25 nations throttled down users' 
bandwidth, shut off their mobile or broadband Internet services 
altogether, or blocked access to mainstream Internet sites or 
applications.\13\
---------------------------------------------------------------------------
    \13\ Berhan Taye, ``The State of Internet Shutdowns Around the 
World'' (Access Now, July 2019), https://www.accessnow.org/cms/assets/
uploads/2019/07/KeepItOn-2018-Report.pdf.

    Many countries like China's model of digital protectionism as they 
like how it has kept out leading U.S. tech companies and led to the 
emergence of local tech firms, like Alibaba and Baidu. This makes it 
easy for China to export its restrictive model and the key technologies 
that facilitate it. However, enacting China's full range of 
restrictions is beyond the capacity of most nations, so many developing 
countries (but also parts of the EU) pick and choose parts of China's 
model when it suits them to either allow control over digital content 
or tilt the local market in favor of domestic firms. This is especially 
the case in India, but Brazil, Indonesia, Nigeria, Vietnam, Russia, and 
---------------------------------------------------------------------------
others have also sought at times to emulate parts of China's approach.

    However, it's important to note that China is not the only model 
that contributes to the fragmentation of the global Internet. The EU's 
GDPR is problematic because it pushes for harmonization and tries to 
make foreign countries responsible for enforcing European data privacy 
standards instead of using domestic regulations to hold companies 
responsible for breaches of European data privacy laws. The GDPR 
imposes a general prohibition on transfers of EU personal data to all 
but a small group of foreign countries it has determined (as part of an 
opaque and ad hoc process) provide an ``adequate'' level of protection 
equal to data protection at home. A critical flaw in the European 
Union's approach is the mistaken logic that this 
country-by-country assessment approach is effective in promoting better 
data privacy and protection by companies that manage personal data.\14\
---------------------------------------------------------------------------
    \14\ See Robert Atkinson, ``Don't Just Fix Safe Harbor, Fix the 
Data Protection Regulation,'' Euractiv, December 18, 2015, https://
www.euractiv.com/section/digital/opinion/don-t-just-fix-safe-harbour-
fix-the-data-protection-regulation/.

    Furthermore, the EU's top-down approach is ultimately untenable, as 
differences in social, cultural, and political values, norms, and 
institutions are behind countries not regulating privacy the same way. 
For example, given the country's approach to data protection and 
privacy, it is inconceivable China would ever be deemed ``adequate'' 
from a European perspective. Yet, the fact that Europe has not applied 
to China the same standards it applies to the United States with regard 
to EU personal data highlights the arbitrary nature of its 
approach.\15\
---------------------------------------------------------------------------
    \15\ For example, a report for the European Parliament on data 
protection in China states that there is ``no common ground . . . found 
between two fundamentally different systems both in their wording and 
in their raison d'etre.'' The report takes a relativist approach by 
saying China's culture and approach to human rights means the European 
Union should treat China differently when it comes to trade and privacy 
issues, despite the fact that ``China does not have a general data 
protection act but traces of data protection may be found in a 
multitude of sector-specific legal instruments.'' Paul de Hert and 
Vagelis Papakonstantinou, ``The Data Protection Regime in China'' 
(Brussels: report for the European Parliament's Policy Department for 
Citizens' Rights and Constitutional Affairs, October 2015), http://
www.europarl.europa.eu/RegData/etudes/IDAN/2015/536472/
IPOL_IDA(2015)536472_EN.pdf.

    Ultimately, success will depend on whether the United States and 
like-minded digital trade allies can work with, and convince, the many 
undecided countries in the middle--those that have not yet chosen which 
model they want to follow--that theirs is the best approach from both 
an economic and regulatory perspective. The United States and its like-
minded trading partners--Australia, Canada, Chile, Japan, Mexico, New 
Zealand, Singapore, the United Kingdom, and others--which want global 
norms around new technology to reflect their values and trading 
practices, need to proactively engage with each other and the many 
undecided countries regarding their preferred model. New digital trade 
rules are definitely needed to prohibit and roll back the growing range 
of barriers to digital trade, but these are insufficient on their own 
to create frameworks that allow firms to engage in seamless digital 
trade and data-driven innovation across borders.\16\ The United States 
also needs to use its trade agreements and economic statecraft 
(resources and programs managed by the U.S. Agency for International 
Development (USAID), the State Department, the Department of Commerce, 
and others) to help build new norms and rules around data and digital 
trade.
---------------------------------------------------------------------------
    \16\ Cory, ``Testimony: Censorship as a Non-Tariff Barrier to 
Trade''; Cory, ``Cross-Border Data Flows: Where Are the Barriers, and 
What Do They Cost?''; Nigel Cory, ``Response to the Public Consultation 
for the European Commission's White Paper on a European Approach to 
Artificial Intelligence'' (The Information Technology and Innovation 
Foundation, June 12, 2020), https://itif.org/publications/2020/06/12/
response-public-consultation-european-commissions-white-paper-european.

    The United States also needs to do a better job of articulating and 
advocating for its preferred model of risk-based, permission-less 
innovation. The U.S. model should be based on the fact that modern 
technology, especially the Internet and cloud data storage and 
processing, means that each country's domestic regulatory regime for 
data (such as for privacy) needs to be globally interoperable given 
that each country faces the same challenge in applying its laws to 
firms that may transfer data between jurisdictions.\17\ An 
interoperable system would focus on ``global protections through local 
accountability.'' The principle idea is that a country can enforce its 
rules on any foreign or domestic organization with legal nexus. 
Moreover, a country can enforce its rules on these organizations based 
on how they handle the data they collect, even if that data handling 
occurs abroad or with a third party. This accountability-based approach 
is shared by most nations, after all, including for data privacy, 
including the United States. For example, foreign companies operating 
in the United States must comply with the privacy provisions of the 
Health Insurance Portability and Accountability Act (HIPAA), which 
regulates U.S. citizens' privacy rights for health data--even if they 
move data outside the United States. And, if a foreign company's 
affiliates overseas violate HIPAA, then U.S. regulators can bring legal 
action against the foreign company's operations in the United States.
---------------------------------------------------------------------------
    \17\ Nigel Cory, Robert Atkinson, and Daniel Castro, ``Principles 
and Policies for `Data Free Flow With Trust' '' (The Information 
Technology and Innovation Foundation, May 27, 2019), https://itif.org/
publications/2019/05/27/principles-and-policies-data-free-flow-trust.

    The United States has already embedded the rules that support this 
model in its trade agreements, such as the USMCA and the United States-
Japan digital trade agreement. But the country needs to be far more 
---------------------------------------------------------------------------
proactive in advocating for its preferred model.

    One idea to do this would be to negotiate an ambitious digital 
trade agreement with its ``Five Eyes'' partners (Australia, Canada, New 
Zealand, and the United Kingdom). Just as the United States works with 
them on intelligence sharing and to standardize operating practices and 
technical specifications for defense equipment and operations, it 
should seek to build out a trade and innovation framework, doing the 
same for digital trade. It should seek to do likewise with other 
similarly ambitious partners such as Chile, Japan, and Singapore. An 
easy way for the United States to engage with a broader range of 
ambitious countries would be to join the Comprehensive and Progressive 
Agreement for Trans-Pacific Partnership (CPTPP).
    china's efforts to export its restrictive approach to standards
    China's model is not just censorship and restrictions on data. 
China is increasingly trying to export its own restrictive standards as 
part of an effort to unfairly influence international standards-setting 
organizations, potentially giving its firms an advantage in gaining 
global market share and influence in new and emerging technologies. 
This involves international technical standards for AI, robotics, self- 
driving vehicles, the Internet of Things, and other new technologies. 
Standards are one part of Chinese President Xi Jinping's plans for 
China to become a ``cyber superpower.''\18\
---------------------------------------------------------------------------
    \18\ For example, the CCP's ``Office of the Central Cyberspace 
Affairs Commission'' depicted China's tech giants' growing global 
market share, the spread of Chinese standards, and increasing influence 
on discourse and legal norms as part of the same effort. Thomas Eder, 
Rebecca Arcesati, and Jacob Mardell, ``Networking the `Belt and Road'--
The future is digital'' (The Mercator Institute for China Studies, 
August 28, 2019), https://www.merics.org/en/bri-tracker/networking-the-
belt-and-road; (translation) ``In-depth implementation of General 
Secretary Xi Jinping's strategic thinking of network power, solidly 
promote network security and informationization,'' Central Information 
Office network theory study group, September 15, 2017, http://
www.qstheory.cn/dukan/qs/2017-09/15/c_1121647633.htm; Elsa Kania et. 
al, ``China's Strategic Thinking on Building Power in Cyberspace'' (New 
America, September 25, 2017), https://www.newamerica.org/cybersecurity-
initiative/blog/chinas-strategic-thinking-building-power-cyberspace/.

    Standards are an important (but often overlooked) component of 
global trade, as they foster economies of scale by making it relatively 
easy for firms to produce a good or service to a mutually accepted 
standard across markets. China pursues indigenous (i.e., China-
specific) technology standards (both at home and internationally) 
because it believes it will advantage China's domestic producers while 
blocking foreign competitors and reducing the royalties Chinese firms 
pay for foreign technologies.\19\
---------------------------------------------------------------------------
    \19\ Stephen J. Ezell and Robert D. Atkinson, ``The Middle Kingdom 
Galapagos Island Syndrome'' (The Information Technology and Innovation 
Foundation, December 15, 2014), https://itif.org/publications/2014/12/
15/middle-kingdom-galapagos-island-syndrome-cul-de-sac-chinese-
technology.

    At home, China provides a clear example of how country-specific 
standards can be used to act as a barrier to trade for high-tech goods 
and services.\20\ As ITIF's report ``The Middle Kingdom Galapagos 
Island Syndrome: The Cul-De-Sac of Chinese Technology Standards'' 
argues, China has made the development of indigenous technology 
standards, particularly for ICT products, a core component of its 
industrial development strategy.\21\ Most recently, in 2018, China 
introduced a new standardization law that will likely favor local firms 
and their goods and services, as it references ``indigenous 
innovation'' while failing to reference either its WTO commitments 
(thereby raising questions about WTO compliance) or its acceptance of 
existing international standards (approved by the various standards-
development organizations (SDOs)).\22\ Indicative of China's approach, 
a report by the German think tank, the Mercator Institute for China 
Studies (MERICS), shows that Chinese standards for basic smart 
manufacturing correlate with about 70 percent of relevant international 
standards--which falls to around 53 percent for key smart manufacturing 
technology standards, and to 0 percent for standards relating to cloud 
computing, industrial software, and big data.\23\
---------------------------------------------------------------------------
    \20\ Office of the United States Trade Representative (USTR), 
``2018 National Trade Estimate Report on Foreign Trade Barriers'' 
(Washington, DC: USTR, 2018), https://ustr.gov/sites/default/files/
files/Press/Reports/2018%20National%20Trade%20Estimate%20Report.pdf.
    \21\ Stephen J. Ezell and Robert D. Atkinson, ``The Middle Kingdom 
Galapagos Island Syndrome: The Cul-De-Sac of Chinese Technology 
Standards'' (Information Technology and Innovation Foundation, December 
2014), https://itif.org/publications/2014/12/15/middle-kingdom-
galapagos-island-syndrome-cul-de-sac-chinese-technology.
    \22\ Cory, ``The Ten Worst Digital Protectionism and Innovation 
Mercantilist Policies of 2018.''
    \23\ Bjorn Conrad, Jaqueline Ives, Mirjam Meissner, Jost Wubbeke, 
and Max Zenglein, ``Made in China 2025'' (MERICS, August 12, 2016), 
https://merics.org/en/report/made-china-2025.

    The United States needs to pay greater attention to China's efforts 
to export its restrictive domestic standards as part of efforts to 
influence SDOs. Thus far, China's approach to international standards--
focusing on a large number of submissions, often of relatively poor 
quality--has not been overly successful, indicating SDOs are largely 
working as intended. However, as the MERICs report explained, ``The 
ongoing reform of [China's] standardization system and the revision of 
the standardization law point to a liberalization and 
internationalization.''\24\ This transition, from inward-looking 
protectionism to outward-facing ambition, represents both an 
opportunity and a threat. There is an opportunity to better integrate 
the Chinese market with the rest of the world through unified, globally 
standardized technologies and equipment. However, there is also 
evidence China has and will attempt to unfairly influence international 
standards-setting bodies to ensure Chinese technology is at the heart 
of (i.e., considered essential to) the international standard.
---------------------------------------------------------------------------
    \24\ Ibid.

    For example, the United States needs to monitor where China's 
government and its firms use their own restrictive domestic standards 
as the basis for efforts to influence standards in third countries via 
government-to-government engagement, foreign investment projects, and 
commercial contracts (such as those associated with its ``Belt and Road 
Initiative'' (BRI)). One of the three main motivations of the ``Digital 
Silk Road'' (the digital component of BRI) is to leverage the strength 
of China's ICT sector to spread its domestic standards.\25\
---------------------------------------------------------------------------
    \25\ Thomas Eder, Rebecca Arcesati, and Jacob Mardell, ``Networking 
the `Belt and Road' '' (MERICS, August 28, 2019), https://merics.org/
en/analysis/networking-belt-and-road-future-digital.

    The United States also needs to be vigilant for where China tries 
to unfairly coerce its own and foreign firms (such as those relying on 
financing from China for projects) in supporting votes on standards 
that favor its local companies and their standards, rather than 
supporting the best technological solution, such as for 5G technology 
standards. In particular, the United States should remain wary of 
attempts by the Chinese government to direct Chinese firms to support a 
particular proposal for key technologies. The Chinese state media 
report ``Lenovo 5G Incident Shows Need for Chinese Companies to Cease 
Mindless Competition'' is indicative of this scenario, wherein Lenovo 
was forced to make a public apology after supporting U.S. firm 
Qualcomm's proposal, rather than Huawei's, for a key coding method for 
5G data transmissions.\26\
---------------------------------------------------------------------------
    \26\ Ben Sin, ``The Key for Huawei, and China, in 5G Race Is a 
Turkish Professor,'' Forbes, July 27, 2018, https://www.forbes.com/
sites/bensin/2018/07/27/the-key-for-huawei-and-china-in-5g-race-
against-the-u-s-is-a-turkish-professor/#5f335880222b; Xiao Xin, 
``Lenovo 5G incident shows need for Chinese companies to cease mindless 
competition,'' Global Times, May 16, 2018, http://www.globaltimes.cn/
content/1102630.shtml.

    China is also seeking to export its model through state-supported 
or private-
sector-led foreign investment projects. China could potentially use 
commercial contracts and operations as part of a ``bottom-up'' strategy 
to build acceptance and use of restrictive Chinese standards for new 
and emerging technologies in markets around the world. China's 
government and firms follow provisions that stipulate projects must use 
Chinese standards and equipment, thereby ``socializing'' them in 
foreign markets and standards agencies. China has used this approach 
most extensively for projects involving heavy industry (e.g., oil, gas, 
and infrastructure), but is expected to take a similar approach with 
---------------------------------------------------------------------------
ICT-related projects.

    China complements this with top-down efforts by the government as 
part of engagements with specific countries and regions on digital-
economy issues. For example, in 2017, standards were part of China's 
Digital Economy International Cooperation Initiative, which it launched 
as part of its BRI engagement with Egypt, Laos, Saudi Arabia, Serbia, 
Thailand, Turkey, and the United Arab Emirates.\27\ In other words, 
Lenovo decided it was in its interest to support the Qualcomm standard, 
but the Chinese Government overruled it.
---------------------------------------------------------------------------
    \27\ Guo Yiming, ``Digital economy cooperation to empower Belt, 
Road,'' China News, December 4, 2017, http://www.china.org.cn/world/
2017-12/04/content_50083923.htm.
---------------------------------------------------------------------------
             semiconductors: supporting the technology at 
                the heart of the global digital economy
    The United States needs to do much more to develop and advocate for 
its preferred model in terms of building an open, rules-based, and 
innovative digital economy. But it's much more than digital trade and 
data governance. Ensuring continued American leadership in the world's 
most important industry--semiconductors--is a critical component.\28\ 
Put simply, a country's leadership in the global digital economy starts 
with its leadership in semiconductors. American leadership in 
semiconductors is not pre-ordained, and others crave it--especially 
China, whose $150 billion National Integrated Circuit strategy seeks to 
dispossess the United States of its world-leading position, while 
ideally eliminating all imports ofU.S. semiconductors by 2035.\29\
---------------------------------------------------------------------------
    \28\ Stephen Ezell, ``New legislation required to secure U.S. 
semiconductor leadership,'' The Hill, June 30, 2020, https://
thehill.com/opinion/technology/505054-new-legislation-required-to-
secure-us-semiconductor-leadership.
    \29\ John VerWey, ``Chinese Semiconductor Industrial Policy: Past 
and Present'' (United States International Trade Commission, July 
2019), https://www.usitc.gov/publications/332/journals/
chinese_semiconductor_industrial_policy_past_and_present_jice_july_2019.
pdf.

    The Creating Helpful Incentives to Produce Semiconductors 
(``CHIPS'') for America Act introduced by Senators John Cornyn (R-TX) 
and Mark Warner (D-VA) and the American Foundries Act of 2020 
introduced by Senators Tom Cotton (R-AR) and Chuck Schumer (D-NY) go a 
long way toward ensuring this. Between them, the proposed legislation 
would expand Federal investment in semiconductor research and 
technology development, introduce incentives to locate semiconductor 
manufacturing facilities in the United States, and provide expanded tax 
credits for investment in the sector. ITIF strongly supports the 
legislation, which has since been merged as part of the National 
Defense Authorization Act (NDAA) process, and encourages Congress to 
fully appropriate funding in the legislation to the maximum extent 
envisioned. As important as any of this, the CHIPS Act also represents 
congressional and bipartisan recognition that the United States is 
engaged in a fierce contest for leadership in technologies of the 
future--from biotech and clean energy, to 5G, AI, quantum, and 
semiconductors--and that effective government policy--innovation 
policy, not industrial policy--can empower and enable America's private 
---------------------------------------------------------------------------
sector to continue to lead in this critical industry.

    Some of the important proposals of the CHIPS Act include its 
commitment to a total of $12 billion for semiconductor research, 
including $3 billion for a new National Semiconductor Technology Center 
to research and prototype advanced semiconductors, and its proposal to 
create a new Manufacturing USA Institute for Semiconductor 
Manufacturing. It will encourage both U.S. and foreign semiconductor 
manufacturers to locate new fabs here, with a $10 billion Federal 
matching grant for State/local incentives to attract manufacturers. 
This will help level the playing field with other nations' incentives, 
and--unlike China's practices--would be entirely WTO-consistent.

    While national, including U.S., policies to spur semiconductor R&D 
and production are important, it's also important to recognize that 
self-sufficiency cannot and should not be the goal. The increasing 
expense, complexity, and scale required to innovate and manufacture 
semiconductors means that no single nation can afford to go it alone. 
ITIF's recent report ``An Allied Approach to Semiconductor 
Leadership,'' outlines why the United States needs to work with a like-
minded set of nations committed to open trade and fair economic 
competition to collaborate in ways that collectively empower the 
competitiveness of their semiconductor industries.\30\
---------------------------------------------------------------------------
    \30\ Stephen Ezell, ``An Allied Approach to Semiconductor 
Leadership'' (Information Technology and Innovation Foundation, 
September 17, 2020), https://itif.org/publications/2020/09/17/allied-
approach-semiconductor-leadership.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    Question. Critics charge that U.S. businesses should simply not do 
business in China because of Chinese Government censorship. The problem 
I have with that is that it doesn't change the fact that the Chinese 
Government is still going to impose censorship on its people regardless 
of whether we do business there or not. If we're not there, the Chinese 
people would simply have to resort to buying goods and services from 
Chinese firms that are likely more inclined to accept censorship. I'm 
interested in figuring out how to protect American businesses.

    What steps should American companies take when entering the Chinese 
market to minimize the risk that they'll fall prey to Chinese 
Government censorship practices?
                                overview
    Answer. The United States and its firms should do four key things 
to minimize the impact of censorship in China: ensure U.S. firms take 
reasonable steps to separate operations in China from others around the 
world; the U.S. Government--not U.S. firms--should lead the effort to 
advocate for free speech and democracy in China; the U.S. should 
develop tools to identify and counteract any ``spillover'' whereby 
Chinese censorships impacts U.S. firms, goods, and services in the 
United States (as well as extra-territorial access to data); and the 
United States should work with like-minded, value-sharing partners to 
develop new trade and economic arrangements as part of broader efforts 
to develop a better, alternative model for digital governance.
         ensure u.s. firms enact administrative and technical 
            firewalls between china and non-china operations
    If WTO rules and global norms around international trade and 
commerce fully applied in China, U.S. and other foreign firms would be 
able to operate in China and other markets in a fairly seamless manner. 
Sadly, the last 2 decades show that China simply decides to ignore or 
breach the many rules that otherwise create a clear and fair framework 
for international trade and investment. It means that U.S. and other 
foreign firms have to enact clear administrative and technical 
firewalls between China and non-China operations in order to minimize 
the growing risks that they'll be accused of breaking local laws. The 
degree and type of segregation obviously depends on the nature of local 
laws, which, in the case of Internet-related firms in China, is 
becoming major risk for many firms.

    The U.S. Government should expect, and respect, when U.S. firms do 
this to abide by legitimate local laws, such as data privacy and 
censorship (even if the U.S. Government dislikes the laws themselves). 
Firms do this as it shows that they're committed to following the laws 
of the country in which they operate, while minimizing potential risks 
in other countries, including back in the United States. Advocating for 
U.S. firms to ignore local laws in China is to essentially support 
anarchy. U.S. policymakers expect Chinese firms to do the same in the 
United States. Until the United States can negotiate new and improved 
commitments for its firms in China, U.S. policymaker should not be 
surprised when U.S. firms segregate their operations to help, in part, 
ensure that Chinese censorship is contained to China. However, this 
expectation obviously should not extend to U.S. firms abiding by 
activities that breach U.S. and international laws around egregious 
human rights issues, such as playing a role in, or benefiting from, the 
mass detention camps China operates for ethnic minorities in 
Xinjiang.\31\
---------------------------------------------------------------------------
    \31\ Austin Ramzy and Chris Buckley, `` `Absolutely No Mercy': 
Leaked Files Expose How China Organized Mass Detentions of Muslims,'' 
New York Times, November 16, 2019, https://www.nytimes.com/interactive/
2019/11/16/world/asia/china-xinjiang-documents.html.

    Take Apple, Airbnb, and Zoom as examples. Apple has major 
operations in China. In the 2019 financial year, Apple made $44 billion 
of revenues in Greater China, mostly from selling iPhones.\32\ However, 
to do so it had to agree to host Chinese user data rules in the country 
and to remove offensive apps (as requested by government authorities), 
such as news and VPN apps, from its Chinese app store. Apple removed 
805 apps in China from 2018 to 2019.\33\
---------------------------------------------------------------------------
    \32\ ``Apple's Chinese troubles,'' The Economist, February 20, 
2020, https://www.economist.com/business/2020/02/20/apples-chinese-
troubles.
    \33\ Masha Borak, ``Apple removed 805 apps in China from 2018 to 
2019,'' Abacus News, January 29, 2020, https://www.abacusnews.com/tech/
apple-removed-805-apps-china-2018-2019/article/3047325; Nick Statt, 
``Apple's iCloud partner in China will store user data on servers of 
state-run telecom,'' The Verge, July 18, 2018, https://
www.theverge.com/2018/7/18/17587304/apple-icloud-china-user-data-state-
run-telecom-privacy-security.

    Airbnb setup local operations to both abide by local laws and to 
ensure its services were tailored to the market. In 2016, Airbnb setup 
a new business entity to manage operations in China. It has moved to 
store its data in China and has canceled bookings during politically 
sensitive events (such as China's National People's Congress).\34\ In 
March 2018, Airbnb stated that it will send customer details to Chinese 
Government authorities to abide by local regulations that require 
foreigners to register their accommodations with police (hotels have 
done this for a long time).\35\ Listings and non-China operations are 
not affected by these requirements. In November 2019, Airbnb's China 
president Tao Peng highlighted that localizing its platform is the key 
to the company's success in China.
---------------------------------------------------------------------------
    \34\ Pei Li and Cate Cadell, ``Airbnb to start sharing Chinese host 
information with government,'' Reuters, March 28, 2018, https://
www.reuters.com/article/us-airbnb-china/airbnb-to-start-sharing-
chinese-host-information-with-government-idUSKBN1H41JJ; Tara Francis 
Chan, ``Airbnb has removed listings in Beijing and canceled bookings 
during China's annual parliament because it wants to be `good 
neighbors,' '' Business Insider, March 5, 2018, https://
www.businessinsider.com/airbnb-removed-china-listings-during-national-
peoples-congress-2018-3.
    \35\ ``What do I need to know in order to sign up for an Airbnb 
account as a resident of China, or if I change my residence to 
China?'', Airbnb website, https://www.airbnb.com/help/article/1035/
what-do-i-need-to-know-in-order-to-sign-up-for-an-airbnb-account-as-a-
resident-of-china-or-if-i-change-my-residence-to-china.

    Zoom provides a case study in why (and how) U.S. firms need to 
separate and contain their operations in China from the rest of the 
world. It (rightly) faced considerable criticism in how it was dealing 
with Chinese users and user data. In April 2020, Zoom encountered 
significant public scrutiny when the University of Toronto's Citizen 
Lab released a report that showed that Zoom meeting encryption keys 
were sent via China-based servers and that it used non-industry 
standard cryptographic techniques that may mean calls could be 
intercepted (which raised concerns about China's laws concerning 
encryption key disclosure).\36\ Zoom responded, removing these servers 
from the list of backup servers for users outside of China. It also 
enacted new safeguards and internal controls to prevent unauthorized 
access to data, including by staff, regardless of where data gets 
routed. Most recently, it updated its encryption protocols and said 
that it will introduce end-to-end encryption for all calls (for both 
free and paid services, but it will be an optional feature as it limits 
some meeting functionality).\37\
---------------------------------------------------------------------------
    \36\ Marczak and Scott-Railton, ``Move Fast and Roll Your Own 
Crypto: A Quick Look at the Confidentiality of Zoom Meetings''; Rogier 
Creemers, Paul Triolo, and Graham Webster, ``Translation: Cybersecurity 
Law of the People's Republic of China,'' New America blog post, June 1, 
2017, https://www.newamerica.org/cybersecurity-initiative/digichina/
blog/translation-cybersecurity-law-peoples-republic-china/.
    \37\ Kari Paul, ``Zoom will provide end-to-end encryption to all 
users after privacy backlash,'' Guardian, June 17, 2020, https://
www.theguardian.com/technology/2020/jun/17/zoom-encryption-free-calls; 
https://blog.zoom.us/end-to-end-encryption-update/.

    Zoom encountered another major issue when it briefly blocked, and 
then restored, the accounts of Chinese human rights activists 
(including Zhou Fengsuo) who wanted to use the platform to organize a 
public commemoration of the 1989 Tiananmen Square crackdown.\38\ Mr. 
Fengsuo is an American who lives in the United States. China asked Zoom 
to terminate four meetings scheduled to be hosted on Zoom and three 
accounts (one in Hong Kong and two in the United States) hosting the 
calls. Zoom canceled the three meetings that involved participants from 
mainland China.\39\ Zoom rightly committed to ``not allow requests from 
the Chinese Government to impact anyone outside of mainland 
China.''\40\ It has developed technology to remove or block 
participants based on their country, which will allow the firm to take 
a much more granular action in response to requests from local 
authorities when they determine that certain activity on the platform 
is illegal in that country.
---------------------------------------------------------------------------
    \38\ Paul Mozur, ``Zoom Blocks Activist in U.S. After China Objects 
to Tiananmen Vigil,'' New York Times, June 11, 2020, https://
www.nytimes.com/2020/06/11/technology/zoom-china-tiananmen-square.html.
    \39\ ``Improving Our Policies as We Continue to Enable Global 
Collaboration,'' Zoom blog, June 11, 2020, https://blog.zoom.us/
wordpress/2020/06/11/improving-our-policies-as-we-continue-to-enable-
global-collaboration/.
    \40\ ``Improving Our Policies as We Continue to Enable Global 
Collaboration,'' Zoom blog.
---------------------------------------------------------------------------
       develop mechanisms to identify, and respond to, cases of 
       extra-territorial censorship (and access to data) by china
    The U.S. Government should focus on ensuring that U.S. firms only 
apply local laws--like those for censorship and government requests for 
data--in local jurisdictions and come up with tools to counteract it if 
it spills over into the United States. Recent cases with the NBA being 
penalized in China for remarks from one coach in the United States is 
not only evidence of China's sensitive and punitive nature, but also 
its extra-territorial application of censorship in selectively 
targeting people and firms for what they say and do in the United 
States. This is unacceptable. However, there are few mechanisms and 
details about the true extent of the issue and few tools for the United 
States to use in response. As a first step, the U.S. Congress should 
discuss the issue of extra-territoriality in today's global digital 
economy and enact transparency arrangements to better understand the 
extent of the key issues (censorship and access to data).

    The new national security law in Hong Kong is the latest and 
clearest example of the challenge that U.S. policymakers need to 
respond to, as it targets content removal and access to data on a 
potentially global basis.\41\ While observers don't yet know how China 
will use the new law (Macau has had a similar law in place for 11 years 
and there have been no enforcement cases), there's the potential for it 
to be used on a global basis as it applies to offences committed 
outside Hong Kong and it allows authorities to ask the publisher, 
platform, host, or network service provider to remove or restrict 
access to ``illegal content'' or produce information about a user.\42\ 
Furthermore, investigations into national security crimes can be deemed 
a state secret, any trials may be heard in closed court, and tech 
companies may be forbidden from disclosing what the police ask them 
for.
---------------------------------------------------------------------------
    \41\ ``Silicon Valley weighs whether to leave Hong Kong,'' FT, July 
8, 2020, https://www.ft.com/content/9c06e9df-0ca2-485b-8afe-
98e51f529373; Bill Bishop, ``One country, one Internet?; TikTok; 
Gaokao; Floods in China; U.S. FBI head on China.'' Sinocism, July 7, 
2020, https://sinocism.com/p/one-country-one-internet-tiktok-gaokao.
    \42\ Articles 38 and 43.

    Hong Kong is important to U.S. tech companies, in part, as it's 
often their base for marketing their global advertising services to 
customers in mainland China. In 2019, Hong Kong's government made just 
over 5,500 requests for user data and just over 4,400 requests for 
removal of content.\43\ Microsoft, Facebook, Telegram, Twitter, 
LinkedIn, and Zoom have suspended processing of requests for data from 
Hong Kong government authorities. While admirable, this does not 
absolve them of complying with the law.\44\ The Hong Kong and Chinese 
government would surely retaliate against these firms if they did this.
---------------------------------------------------------------------------
    \43\ ``Council question: Requests made to information and 
communication technology companies for disclosure and removal of 
information,'' May 6, 2020, https://www.charlesmok.hk/legco/council-
question-requests-made-to-information-and-communication-technology-
companies-for-disclosure-and-removal-of-information/.
    \44\ Newley Purnell, ``Google, Facebook and Twitter Suspend Review 
of Hong Kong Requests for User Data,'' Wall Street Journal, https://
www.wsj.com/articles/whatsapp-to-suspend-processing-law-enforcement-
requests-for-user-data-in-hong-kong-11594034580.

    The potential extraterritorial application of domestic law for 
Internet-related issues is not unique to China. Privacy regulators in 
Europe have tried to dictate what information U.S. firms make available 
to people in Europe, but also to the rest of the world, through their 
``right to be forgotten'' requirement that gives European Union 
citizens the power to demand that data and information about them be 
deleted. Germany requires social networks to remove Nazi symbols. In 
2017, the Supreme Court of Canada upheld orders for Google to ``de-
index'' a website, and asserted the jurisdiction of Canada's courts 
---------------------------------------------------------------------------
over Internet intermediaries in other countries.

    The United States needs to identify and respond to cases where 
China (and other governments) try to enforce censorship (as well as 
access to data) overseas. Some of these cases (like the NBA case) are 
easy to identify, but there may well be others. There is a lack of 
transparency about the extra-territorial application of Chinese 
censorship and requests for data. Some recent draft legislation in the 
U.S. Congress provides some ideas for analysis and potential action.

    For example, it's misguided to force firms to publicly disclose 
where their data is stored, such as in China, (as Congressman Jeff 
Duncan's (R-SC) TELL Act does) as labeling and treating all firms from 
China as guilty does not address the underlying question about 
countries respecting each other's sovereignty.\45\ It's one thing for 
these firms to be held accountable for any breach of U.S. laws in the 
United States, but it's another to assume (without evidence) that 
Chinese firms (and U.S. firms with operations in China) are 
automatically breaching U.S. law. Using such a broad brush could also 
easily be reused by China or other nations to discriminate against U.S. 
firms given the Snowden revelations. The same applies to Congressman 
Adam Kinzinger's (R-IL) Internet Application Integrity and Disclosure 
Act's requirement for websites or apps owned by the Chinese Communist 
Party or any Chinese firm to be made clear.\46\
---------------------------------------------------------------------------
    \45\ ``Duncan Introduces the `TELL' Act,'' Press Release, May 26, 
2020, https://jeffduncan.house.gov/media/press-releases/duncan-
introduces-tell-act.
    \46\ ``H.R. 6942 (IH)--Internet Application Integrity and 
Disclosure Act,'' https://www.govinfo.gov/app/details/BILLS-
116hr6942ih.

    There is a potential policy path ahead. Senator Cory Gardner (R-CO) 
and Senator Jeff Merkley's (D-OR) bill (S. 2743) establishes the China 
Censorship Monitor and Action Group (an interagency taskforce) to 
develop and maintain a public database describing all punitive actions 
taken by the People's Republic of China toward U.S. companies that 
involve economic or diplomatic retaliation for the exercise of free 
speech by those companies.\47\ It would meet and report to Congress 
periodically, including an annual report.
---------------------------------------------------------------------------
    \47\ ``S. 2743--A bill to establish the China Censorship Monitor 
and Action Group, and for other purposes,'' https://www.congress.gov/
bill/116th-congress/senate-bill/2743/text.

---------------------------------------------------------------------------
    There are some ways this bill could be improved:

        Focus on the extra-territorial enforcement of censorship and 
requests for data: It should not seek to punish U.S. firms for having 
to abide by censorship laws in China.

        Bring transparency to the vagueness of China's laws: At the 
heart of the issue is the lack of transparency about how China applies 
its laws extraterritorially in both seeking to remove content and 
access data stored in another jurisdiction. The transparency mechanism 
is a good idea, but it should include coverage of both issues.

        Broad open source research, (voluntary) firm engagement, and 
cross-checking of details: U.S. agencies should use both public and 
confidential sources to gather information about relevant cases. 
However, reporting by firms should be voluntary and confidential (in 
order to protect U.S. firms from retaliation in China). Any cases 
should be verified to avoid companies submitting anecdotal stories 
about other firms (like their competitors) that may not be correct and 
otherwise smear their reputation. Sensitive reporting could be covered 
in unidentified general, aggregated analysis.

        Cover cases involving U.S. trading partners: Any U.S. 
reporting mechanism should use publicly available information to detail 
cases of extra-territoriality involving firms in U.S. trading partners.
       do more with value-sharing, digital free trade partners: 
             ``dato'' and ``five eyes'' trade negotiations
    China's approach to human rights is abhorrent. Its use of digital 
protectionism runs counter to U.S. interests and values. The U.S. 
government should directly make the case to the Chinese Communist Party 
that it improve its approach to both issues and to also highlight them 
in international forums as part of broader efforts to build 
international pressure on China to change its policies. However, the 
United States needs to be putting similar energy and attention into 
developing an alternative model of trade that better reflects its 
values.

    On April 4, 1949, compelled by the threat of Soviet military 
aggression, the United States and 11 other nations formed the North 
Atlantic Treaty Organization (NATO), a security pact holding that an 
attack against any of the signatories would be considered an attack 
against them all. Today, Chinese economic aggression requires that the 
United States and its allies form a NATO for trade.\48\ In many ways, 
this would be an extension of the ``Five Eyes''-based model detailed 
above, given that Australia, Canada, New Zealand, and the United 
Kingdom also share similar political, economic, and social values. 
However, it could obviously be expanded beyond this to the many other 
trading partners that are also finding themselves in China's cross-
hairs for economic retaliation due to cases whereby China thinks it's 
been ``unfairly'' singled out over action they've taken against China.
---------------------------------------------------------------------------
    \48\ Robert Atkinson and Clyde Prestowitz, ``China's reaction to 
the pandemic shows why the U.S. and its allies need a NATO for trade,'' 
The Washington Post, May 20, 2020, https://www.washingtonpost.com/
opinions/2020/05/20/chinas-reaction-pandemic-shows-why-us-its-allies-
need-nato-trade/.

    The campaigns of intimidation usually begin with claims of 
victimhood and accusations that any criticism smacks of racism or of 
efforts to deflect attention away from the critics' domestic failures. 
But if that fails to produce the desired obsequious result, China 
quickly moves to direct economic threats. Australian Prime Minister 
Scott Morrison found this out when he did nothing more than call for a 
formal inquiry into China's actions at the outset of the pandemic. In 
response, Beijing threatened a boycott of Australian universities and 
tourist operators as well as trade sanctions against Australian beef 
and wine.\49\ Likewise, when Sweden supported human rights victims in 
China, Beijing's ambassador responded, ``For our enemies, we have 
shotguns.'' The ambassador threatened that China would restrict Swedish 
exports. When Germany considered banning procurement of 5G gear from 
the Chinese telecom giant Huawei due to security concerns, China's 
ambassador in Berlin abandoned any pretext of global trade rules, 
asking: ``Could German cars be deemed unsafe by Chinese 
authorities?''\50\
---------------------------------------------------------------------------
    \49\ Gerry Shih, ``Bristling at calls for coronavirus inquiry, 
China cuts Australian beef imports,'' The Washington Post, May 12, 
2020, https://www.washingtonpost.com/world/asia_pacific/bristling-at-
calls-for-coronavirus-inquiry-china-fires-trade-salvo-at-australia/
2020/05/12/29c53058-93fe-11ea-87a3-22d324235636_story.html.
    \50\ Joseph de Weck, ``China's COVID-19 Diplomacy Is Backfiring in 
Europe,'' Foreign Policy Research Institute, April 21, 2020, https://
www.fpri.org/article/2020/04/chinas-covid-19-diplomacy-is-backfiring-
in-europe/.

    Such an organization would be broader than just new digital trade 
rules. It could become a new approach under which democratic, rule-of-
law nations agree to come to each other's economic aid against an 
outside adversary. This new organization--call it the Democratically 
Allied Trade Organization (DATO)--should be governed by a council of 
participating countries, and if any member is threatened or attacked 
unjustly with trade measures that inflict economic harm, DATO would 
quickly convene and consider whether to take joint action to defend the 
member nation. Success would depend upon DATO members not engaging in 
economic aggression against each other, as the Trump administration 
regrettably did in 2018 when it imposed tariffs on Canadian and 
---------------------------------------------------------------------------
European steel products.

    DATO nations should cooperate to deter individual episodes of 
Chinese economic aggression against individual members and to provide a 
mutual defense umbrella against broad Chinese policies that harm all 
nations--particularly mercantilist policies such as the ``Made in China 
2025'' initiative, which is crafted with a goal of achieving global 
dominance in strategically important technologies. Given the United 
States' still-indispensable role in defending freedom globally, only it 
can lead in establishing a DATO. The next administration, whether it be 
Republican or Democratic, should embrace the idea. Any democratic 
government, including Taiwan, should be welcome to join, but all must 
be prepared to take the steps necessary to enact a DATO decision, or 
lose the right to membership.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    Question. As noted in your testimony, China has currently blocked 
over 10,000 websites and has shut down another 3,000 websites in 2018. 
I see a troubling nexus between a booming tech sector and an 
inability--or severely restricted ability--to access the Chinese 
market. In my home State of Indiana, we have seen multiple tech 
companies choose us to open business, which creates jobs and 
opportunity for families in need. These exciting trends have also led 
to career pathways and better business collaboration and partnership 
that is truly engrained in our communities. Because of brazen 
censorship in China, much uncertainty faces the tech sector when trying 
to predict access to international markets. This has an impact on 
entrepreneurship and job creation.

    What do barriers like the Great Firewall mean for the future of the 
digital economy? More specifically, how could these barriers impact job 
creation?

    Answer. As per the response to question 2 from Senator Cornyn 
(above), China represents one of the biggest threats--both in terms of 
its digital protectionism, but also its broad use of censorship and 
surveillance--to the U.S. goal for an open, rules-based, and innovative 
global digital economy. Its approach at home is obviously problematic 
for U.S. firms (and runs counter to U.S. values), but the broader risk 
is that it represents a model that other countries want to emulate. As 
countries grapple with the challenge of adapting local laws and 
regulations to the Internet and other new digital technologies to 
address (in many cases, legitimate) concerns over data privacy, 
security, and other issues, they're looking for models to follow.

    Policymakers in some countries are simply misguided in 
inadvertently considering or enacting restrictive policies like data 
localization. This is understandable to an extent, given there is no 
one way to address many of these issues, and these issues can be 
complicated. However, policymakers in many countries are using debates 
around legitimate policy objectives (like privacy and cybersecurity) as 
cover to pursue other China-like political or economic objectives, such 
as digital protectionism and censorship.

    The challenge for the United States and other value-sharing, free 
trade-
supporting partners is to both demonstrate the best approach at home 
and to work together in advocating in third-party countries how they 
should follow their policy model--and not China's. This is a 
complicated and challenging task given the constantly changing nature 
of technology and given that it involves a broad range of government 
agencies, but it'll be essential if the United States wants to build a 
global digital economy around its human rights and trade values.

    Ultimately, if the United States does not lead the charge in 
advocating and helping other countries adopt its preferred policy 
model, it'll undermine the major role that global markets play in 
supporting job creation in firms across the country, as data and 
digital technologies become central to their ability to compete and 
innovate. As ITIF's report ``Cross-Border Data Flows Enable Growth in 
All Industries'' highlights, the global Internet matters greatly to 
agriculture, manufacturing, retail, services, and every other sector of 
the economy.\51\ If these companies' ability to enter and operate 
across markets becomes restricted, it would restrict their ability to 
support well-paying jobs back in the United States.
---------------------------------------------------------------------------
    \51\ Daniel Castro and Alan McQuinn, ``Cross-Border Data Flows 
Enable Growth in All Industries'' (Information Technology and 
Innovation Foundation, February 24, 2015), https://itif.org/
publications/2015/02/24/cross-border-data-flows-enable-growth-all-
industries.

    Indeed, the economic evidence shows the importance of foreign 
operations and sales to the U.S. economy. Dartmouth University 
Professor Matt Slaughter has found that ``investment at U.S. parents 
and foreign affiliates also tend to complement each other.'' He cites 
research that finds that ``a 10-percent increase in 
foreign-affiliate employee compensation causes an average response of a 
3.7-percent increase in that affiliate's U.S. parent employee 
compensation. Growth in affiliates tends to bring growth in parents as 
well.''\52\ In other words, preventing American companies in China from 
using Chinese apps or Internet platforms to gain access to Chinese 
customers will directly hurt U.S. workers back home.
---------------------------------------------------------------------------
    \52\ Matthew Slaughter, ``How U.S. Multinational Companies 
Strengthen the U.S. Economy'' (Business Roundtable and The United 
States Council Foundation, 2009), https://www.
uscib.org/docs/foundation_multinationals.pdf.
---------------------------------------------------------------------------
        the global digital economy and american competitiveness
    Question. How can market access for the digital economy improve 
America's global competitiveness? If we continue to see Chinese actions 
that escalate and uphold censorship practices, how can Congress and the 
administration work with American firms to ensure we retain a 
competitive advantage?

    Answer. The openness of the global Internet has been instrumental 
in helping U.S. firms become leaders in the global digital economy. 
Open market access provides critical economies of scale for U.S. firms 
to use the Internet to access more customers via a relatively small 
investment footprint (e.g., a single global ICT system), thus earning 
them revenues they can use to support U.S. jobs, R&D, and other 
investments.

    In no small part due to China, the nearly default openness of the 
Internet has been shrinking bit-by-bit over the last 20 years as 
countries realize that the digital economy is central to the battle for 
technological and economic competitiveness and that they can use non-
tariff barriers to favor local firms and products over foreign ones. 
The EU and countries like China realize that current trade rules at the 
WTO are non-existent, woefully out-of-date, and/or not enforced as it 
relates to the digital economy, so they can get away with enacting 
barriers at home, while still allowing their local firms to take 
advantage of countries that remain committed to the rules-based global 
trading system.

    U.S. firms have long championed new digital trade rules to provide 
protected, enforceable market access. The United States has enacted, 
and continues to pursue, digital trade rules in new bilateral trade 
negotiations and as part of e-commerce negotiations at the WTO. But 
it's incumbent upon firms and the U.S. Congress and government to 
continuously revise and update digital trade objectives given the 
changing nature of technology and the barriers trade partners are 
enacting. For example, U.S. digital trade strategy is currently based 
on USMCA, but this is based in large part on the discussions that 
immediately followed the Trade Promotion Authority as provided by the 
Bipartisan Congressional Trade Priorities and Accountability Act of 
2015. USTR and the U.S. International Trade Commission hold 
investigations and hearings into specific issues and negotiations, but 
this would benefit from broader, higher level direction and discussion. 
The U.S. Congress needs to continuously push for new hearings about the 
latest state of digital trade and new ideas for U.S. trade and economic 
policy.

    For example, Congress could go further by holding hearings about 
what the United States should be doing (in terms of a holistic 
strategy) to support its overall model of digital trade and 
development. As China and the EU's own models have evolved, so too has 
the need for the United States to develop a more-comprehensive response 
to better push back on those parts that don't align with U.S. values 
and interests (whether this is censorship, data-driven innovation, and 
digital free trade).

    However, a more comprehensive U.S. strategy for an open, rules-
based, and innovative global digital economy won't mean as much without 
a supportive domestic innovation agenda, including in advanced-industry 
production. For many decades after WWII, the United States could afford 
its ad hoc innovation strategy which mostly worked by throwing massive 
amounts of money at defense and space spending (in the early 1960s, the 
U.S. Federal Government invested more in R&D than all other nations', 
public and business funding, combined). But after 3 decades of 
declining government support for R&D as a share of GDP, the U.S. 
strategy of winning innovation through overwhelming ``force'' can no 
longer work.

    The United States needs to be strategic. Thankfully there is a 
growing consensus from both Democrats and Republicans that the Federal 
Government needs to play a stronger role in that process. First, as 
ITIF has long argued, the United States needs to recognize the nature 
of the challenge and the need for a detailed response. One place to 
start would be to pass the Senate Global Economic Security Strategy Act 
of 2019, introduced by Senators Young (R-IN), Merkley (D-OR), Rubio (R-
FL), and Coons (D-DE).\53\ Further, ITIF's report ``The Case for a 
National Industrial Strategy to Counter China's Technological Rise'' 
provides the ``why, what, and how'' of a national industrial strategy--
explaining why advanced industrial competitiveness is important, 
particularly vis-a-vis China; what is the nature of the U.S. advanced 
industry competitiveness challenge and why markets acting alone are not 
enough to address the challenge; what a strategy should look like, both 
institutionally and substantively, and how policymakers should approach 
developing one; and finally, why common objections to such a strategy 
are misguided.\54\
---------------------------------------------------------------------------
    \53\ Robert Atkinson, ``How the U.S. Government Falters on Support 
for Innovation,'' Innovation Files Post, August 28, 2019, https://
itif.org/publications/2019/08/28/how-us-government-falters-support-
innovation.
    \54\ Robert Atkinson, ``The Case for a National Industrial Strategy 
to Counter China's Technological Rise'' (Information Technology and 
Innovation Foundation, April 13, 2020), https://itif.org/publications/
2020/04/13/case-national-industrial-strategy-counter-chinas-
technological-rise.

    America needs a national strategy that fortifies traded-sector 
technology industries that are ``too critical to fail,'' such as 
advanced machinery, aerospace, biopharma, electrical equipment, 
semiconductors and computing, software, transportation, and more.\55\ 
To develop and implement a national industrial strategy, the Federal 
Government will need to significantly strengthen its institutional 
capabilities to conduct thorough sectoral analysis. This is because 
when it comes to industrial strategy, America's institutional 
structures are holdovers from the Cold War era while our thinking 
remains stuck in the 1990s' free- market, globalist-based Washington 
Consensus. Congress should also act in four key areas: support for R&D 
targeted to key technologies, tax incentives for key building blocks of 
advanced production, financing for domestic production scaleup, and 
adding a competitiveness screen for regulation. Congress should task 
the administration with creating a national advanced industry strategy, 
as Senators Chris Coons (D-DE), Jeff Merkley (D-OR), Marco Rubio (R-
FL), and Todd Young (R-IN) have proposed.
---------------------------------------------------------------------------
    \55\ Ibid.

    Question. In examining Chinese strategies to insert censorship, the 
use of the social credit system should not be overlooked. China has 
developed a systemized process for determining how much or how little a 
business adheres to government-
sanctioned ideals and principles. The social credit system then rewards 
or punishes a business by increasing or restricting market access. This 
seems obvious that the Chinese Government is simply picking winners and 
losers, which is not what we, as Americans, believe to be the role of 
the Federal Government. Adhering to the Chinese Government's rules has 
its benefits--ability to conduct business and secure market access. 
But, companies who secure market access are not guaranteed it, and can 
---------------------------------------------------------------------------
lose it at any time as we have seen in numerous circumstances.

    In your opinion, how should American businesses consider the 
implications of participating in the social credit system when trying 
to secure access to the Chinese market? Does the social credit system 
provide meaningful stability or certainty to businesses that are simply 
trying to expand on a global playing field?

    How should American companies be more vigilant in evaluating the 
risks associated with entering the Chinese market and participating in 
this government-
sponsored ranking system?

    Answer. ITIF has not commented on the impact of China's social 
credit system.

    Question. Adverse action taken against American enterprise can 
impact our relationship with other countries as well. In fact, China 
has imposed the same censorship retaliation on other countries for 
adhering to our rules or aligning with free speech and free market 
principles. Chinese influence also transcends into other international 
markets; other nations have taken proactive action by using censorship 
as a regulation tool for e-commerce and digital markets.

    How can the United States proactively work with other international 
partners on e-commerce regulation, particularly by not using censorship 
as a default strategy to protect domestic enterprises?

    How should Congress think about the broader effects of Chinese 
censorship on the U.S. relationships with other international countries 
when designing trade policy?

    Answer. As per the answers to questions from Senator Cornyn and the 
question from Senator Grassley, the United States will need to develop 
new censorship-
related trade rules to ask for in its negotiations for a Phase Two deal 
with China, to embed these in its other trade agreements (thus building 
defenses against the spread of China's use of censorship for 
protectionism), and to advocate for like-minded trading partners to do 
the same (thus helping build a new global norm). As a world leader in 
the global digital economy, U.S. firms have faced the brunt of China's 
use of censorship for protectionism. However, they're far from alone. 
But, thus far, other countries have not prioritized the issue and 
developed a plan and policies to respond to it (both in China and 
elsewhere around the world).

    Given that censorship may relate to legitimate content moderation 
concerns online (whether related to inciting violence and terrorism, 
fraud, intellectual property theft, or other valid issues), the United 
States should work with value-sharing trade partners and international 
organizations (such as the Organisation for Economic Co-operation and 
Development (OECD)) on how to build a policy framework that balances 
these objectives alongside free speech and other related values, while 
also including clear guidance and a fair legal process for both firms 
and users to navigate what can be a tricky issue.

    This is important as the United States needs to be able to present 
an alternative set of policies for countries to use to address their 
legitimate concerns about illegal material online so that they don't 
feel they have to resort to overly broad censorship policies, like in 
China. Having a better, alternative framework to account for legitimate 
content moderation concerns would make it harder for countries to 
misuse censorship or content moderation as a disguised trade barrier 
given there is a clear alternative that is non or least trade 
restrictive.

                                 ______
                                 
             Prepared Statement of Richard Gere, Chairman, 
                    International Campaign for Tibet
    Chairman Cornyn, Ranking Member Casey, members of this committee, 
thank you for your introduction and for inviting me to testify today. I 
think it's been 35 years since I first testified in Congress--first, on 
behalf of our Central American brothers and sisters, and then of 
course, on Tibet and China for the last 30 years.

    Tibet is the compass that orients me and navigates me through the 
world and through Washington and through life.

    I have always had enormous respect and admiration for so many of 
the Senators I have met and worked with over these years, many of whom 
have wholeheartedly supported this cause in which I've been deeply 
involved, and which the American people certainly care do about, in 
particular, the well-being of His Holiness the Dalai Lama and the 
Tibetan people and their extraordinary culture. I do thank you for 
that. And the American people thank you for that.

    This is the first time I've testified since I last met with one of 
your greatest colleagues. Allow me for a moment, to pay homage to 
Senator John McCain. He was a good man and a good friend of His 
Holiness and of the Tibetan people. We spoke deeply of their plight. I 
respected him enormously and want to remember him for his principled 
leadership against authoritarianism, corruption, and short-sighted 
ignorance here and around the world. His was a life of bravery, 
integrity and dignity throughout . . . until the very end.

    He was the best of us.

    Like John McCain--and many of you--I hope that our government can 
deliver at its best, not only for the American people, but also for the 
millions all over the world who have looked to the United States--and 
its democracy--as a source of inspiration and refuge, while they live 
under oppression and violence. American leadership is at its best when 
it sets its view beyond the horizon, and looks with balanced confidence 
to the challenges and opportunities that lie ahead. We can help others 
and help ourselves. That's what we do. That's why we've been loved and 
admired. We can inspire again.

    But the rise of China in the world today is not something far off. 
It is not beyond our horizon. It is right here in front of us, and 
affects our daily lives, our workplaces, our freedoms, our privacy, our 
health, our elections and will certainly shape the future of our world. 
China's 100-year marathon to world dominance is almost complete and 
certainly well-ahead of schedule.

    So, when I received the invitation from Senators Cornyn and Casey, 
I was pleased to see that this issue is now taken seriously not only by 
committees that deal with foreign policy or human rights--which is 
where I have traditionally testified--but by the Finance Committee, and 
by others.

    After looking at the work this committee has done over the last few 
years, reflecting strategically and profoundly on what the Chinese 
Government has been planning to do since 1949--that is, to replace the 
U.S. on the world stage and advance its authoritarian model 
everywhere--I thought I would offer my experience and whatever 
contribution I can make to this existentially important conversation.

    The conversation about the future of our relationship with China, 
as well as our past missteps, is crucial not only for the United 
States--and frankly, we have been tragically naive for a very long 
time, under both Republican and Democratic administrations--but it is 
equally crucial for our democratic allies all over the world to 
understand this. It is crucial for India and Japan, for central Asian 
democracies like Mongolia or fragile democracies like Nepal and Bhutan, 
for all of Europe, for African countries, Australia and South America, 
where Chinese influence has been growing exponentially, while ours 
diminishes and recedes.

    And please believe me that unless we join forces with our 
democratic friends and allies all over the world, unless we cherish and 
strengthen them, and their democratic visions, China's very patient and 
opportunistic strategy to divide and conquer will continue and most 
certainly prevail.

    As you know, I have been involved in supporting Tibet, the people 
of Tibet, and the vision of His Holiness the Dalai Lama for peaceful 
coexistence with the Chinese Communist Party for almost 40 years now. 
When it comes to China, we Tibet supporters have been in for the long 
haul. We knew what was happening in Tibet would not stop there, and 
that China's authoritarian influence would expand well beyond Tibet, 
well beyond the Uyghurs in Xinjiang, well-beyond the people of Hong 
Kong, beyond its borders with Mongolia, Nepal, India, Bhutan, Myanmar--
the whole world.

    We have no quarrel with the Chinese people. We wish them to enjoy 
the same development and quality-of-life improvements that we have 
here. Of course, they deserve that. What I fear is a model of 
development led by the Chinese Communist Party that denies their own 
people their basic freedoms and is predicated on control, dominance and 
violence. Chinese leaders have often quoted an old Chinese proverb in 
private: ``Wai ru, nei fa''--``On the outside, be benevolent. On the 
inside, be ruthless.''

    I recall vividly in the 1990s, when a strong bipartisan coalition 
of members of Congress called on the White House many times--both 
Democrat and Republican administrations--to condition China's most-
favored nation status for trade relations, on clear criteria and 
benchmarks that would protect the rule of law and human rights. But 
that coalition was defeated, frankly, by powerful interests with 
shortsighted financial goals and a naive understanding of China's 100-
year plan.

    The conventional wisdom was then--and some important people still 
feel this way now, although they are clearly in the minority--that by 
opening our markets to China, this would somehow and by itself--thanks 
to the rise of a vast Chinese middle class--produce meaningful 
political and social reforms in China. As we know, the opposite has 
proven to be true, with more restrictions imposed, Communist Party 
control of religion, mass incarceration, crackdowns on all forms of 
dissent, and freethinking, including--and this is just the latest 
example--concealing critical information about the spread of the 
coronavirus. We have also had the unanimous proclamation of Xi Jinping 
as Chairman for life by the Chinese Communist Party--the new Emperor. 
We see the Chinese Government increasingly using its economic policies 
to prey on weaker countries in every part of the world, through the 
dangerous Belt and Road Initiative, their long-term plan to control 
natural resources, supply chains, trade, ports, and sea lanes.

    The point I'd like to make is that those rule of law reforms, those 
environmental, human rights, and workers' rights reforms that we 
advocated for in China in the 1990s would have also protected the 
larger economic interests of the United States and our allies if they 
had been made part of those deals. Instead, China won and gave up 
nothing in return.

    Let me give you an example. The United States has largely opened 
its doors to Chinese products and investment, but also to various forms 
of Chinese cultural influence, including their state media. We've even 
allowed State-sponsored Confucius Institutes to gain a foothold in our 
universities. As I speak, the Chinese company Huawei has already spent 
a huge amount of money on lobbying here in the United States so that it 
can enter the American market, with the economic and security dangers 
that you are all aware of. But as you know, China does not reciprocate. 
It limits access to its markets in key sectors, and does not allow any 
American media to broadcast within China. This lack of reciprocity, 
fueled by an Orwellian system of state censorship--far beyond what 
Orwell imagined--limits both the freedom of access to information by 
the Chinese people, and the right of American and other foreign media 
companies to engage one of the largest media markets in the world. 
Surveillance and managed information are the Party imperative.

    China has repeatedly insisted that major U.S. tech companies accept 
strict censorship to be allowed access. How can we continue to accept 
this as normal? How is this sustainable? How is it in our interest or 
ultimately, in the interest of a growing Chinese middle class 
completely dominated and controlled by the Chinese Communist Party?

    Another example is freedom of movement. Americans have a strong 
interest and appreciation for the Tibetan people, their unique Buddhist 
culture and their beautiful, fragile land; it is the roof of our world. 
It is the Third Pole. It is the greatest source of the world's fresh 
water.

    But here's what happens in Tibet: the Chinese Government highly 
restricts access to Tibet, especially for American citizens. This 
includes diplomats, journalists, politicians--like no other areas of 
China--while Chinese citizens face no such limitations when they visit 
the United States. Journalist friends have told me it is easier for 
them to get into North Korea than Tibet.

    This complete lack of reciprocity in U.S.-China relations, one that 
is not limited to economic issues, as the current administration has 
rightly pointed out, but one that extends to key civil liberties and 
human rights, and unfairly targets legitimate U.S. interests.

    Congress recently took action and passed the Reciprocal Access to 
Tibet Act with strong bipartisan support, a bill that requires the 
State Department to target Chinese officials who are responsible for 
blocking Americans from having access to Tibet. This is a good 
systematic response, these are smart sanctions, and we hope the State 
Department will implement it soon as required by law.

    As an actor, I know you are interested in hearing more about my 
experience in the entertainment industry and the growing Chinese 
influence there. While I cannot say that my speaking out for human 
rights in China has directly affected my career--I may well be an 
unusual case (we'll speak of that later)--there is no doubt that the 
combination of Chinese Government censorship coupled with the desire of 
American studios to have access to China's market--soon to be the 
largest movie market in the world--and vast Chinese financing 
possibilities, can lead to self-
censorship and to not engaging social issues that great American films 
and American studios once addressed. Imagine Martin Scorsese's 
``Kundun'' or my own film, ``Red Corner,'' being made today. It simply 
would not happen.

    I urge the United States, along with its true friends and allies, 
to continue to engage with China while standing strongly on the 
fundamental issues of reciprocity, basic human rights, freedom of 
expression, and freedom of religion.

    As I conclude my remarks, I would like to bring your attention to 
two bills that are before the Senate right now and ask for your serious 
consideration and support. The first bill--sponsored by Senators 
Cardin, Casey, Cornyn, Rubio, and Wyden, among others--passed the House 
with overwhelming support in January. It is the Tibetan Policy and 
Support Act and overall strengthens U.S. policy on Tibet, while 
addressing in particular one key issue: the selection of the next Dalai 
Lama which, cannot be allowed to be controlled by the Chinese Communist 
Party, but only by Tibetan Buddhists. I am sure you all support this 
basic principle, and the fact that we even have to pass legislation 
about this speaks volumes about the approach of the Chinese Government 
toward Tibet and its people--and its lack of respect for religion in 
general.

    I want to thank those who have already signed on and for those who 
have not yet, I am asking you to cosponsor this bill and raise it with 
Senate leadership for a swift passage.

    The second bill is the Mongolia Third Neighbor Trade Act, which 
would grant a democratic and independent Mongolia better access to the 
U.S. market for cashmere products manufactured in Mongolia and would 
not displace one American job. Today, our Nation imports its cashmere 
almost exclusively from China--although it's mostly Mongolian. This 
will greatly diversify the Mongolian economy, deepen trade ties between 
our two countries, create countless jobs for Mongolian women and 
reinforce its democratic institutions. The bill is a concrete way to 
strengthen democracy, workers' rights and free market capitalism in the 
region at a most critical time in the Indo-Pacific.

    I applaud Senators Cardin and Sullivan for authoring this bill, as 
well as Ranking Member Wyden and Majority Whip Thune for being 
cosponsors.

    Entirely surrounded by Russia and China, this legislation is the 
strongest tool Washington has to help Mongolia remain an independent 
democracy. I ask this committee and the full Senate to support this 
bill as soon as possible.

    Thank you each for your attention and the opportunity to testify. I 
look forward to your questions.

                                 ______
                                 
           Questions Submitted for the Record to Richard Gere
             Questions Submitted by Hon. Benjamin L. Cardin
    Question. The Third Neighbor Trade Act proposes improved economic 
and trade ties between the United States and Mongolia, chiefly by 
lowering barriers on the import of Mongolian cashmere.

    What other initiatives can the United States take to expand 
bilateral economic ties for mutual benefit?

    What other opportunities exist for Mongolia to diversify its 
economy sustainably and break away from over reliance on extractive 
industries?

    Answer. Mongolia is perhaps the last chance to have a successful, 
working democracy in Central Asia--and is likely the only impediment to 
China's expansionist designs in the entire region. You are well-aware 
of the extraordinary pressures the Mongolians deal with every day as 
they continue to defy geopolitical odds and actively try to forge 
strong relationships with the West, and most especially the United 
States.

    In President Battulga, the United States may be seeing the last 
opportunity to give priority to a significant democratic point of view, 
and create a genuine partner in an area that the United States has 
invested little energy thus far. These are extremely important 
questions you ask which require much more study and discussion. I hope 
they will also be posed to the witnesses I testified alongside.

    The United States could adopt a three-tiered approach to produce 
tangible results in expanding bilateral economic ties.

    In the short-term, passing the Third Neighbor Trade Act would be a 
huge gesture toward Mongolia. The economic impact of the bill will be 
significant for Mongolia with little, if any, impact on the United 
States. It will not only help the Mongolian people remain economically 
independent, it will send a strong signal to China. I think any 
expertise and or guidance the United States might be able to lend to 
Mongolia's development of a legislative framework to support greater 
foreign investment would also be of benefit to both short and long term 
health of the country.

    In the mid-term, the U.S. International Development Finance 
Corporation (DFC) might consider investing in Mongolia's nascent 
industries like its blossoming information technology industry, AI and 
new types of financial services as well as its banking and capital 
markets. Unlike other countries in the region involved in China's Belt 
and Road Initiative, Mongolia is the strongest democracy in the belt 
and eager to cooperate with American companies because of our high 
standards and accountability. If we can demonstrate our commitment to 
advancing democratic governance, this will empower Mongolia's vibrant 
civil society and not only help keep the national discourse focused on 
an arc toward greater accountability but will increase resiliency 
against Chinese-funded corruption and interference.

    In the long-term, it might be prudent for the United States to sign 
a Free Trade Agreement (FTA) with Mongolia as the only functioning 
democracy in the Asia-
Pacific region and as an active contributor of troops in NATO 
operations. The strategic and symbolic importance of an FTA would 
ensure that China does not succeed in isolating or economically 
marginalizing Mongolia while simultaneously helping Mongolia rebalance 
its power and remain a critical counter to Chinese Government influence 
in the region.

                                 ______
                                 
           Prepared Statement of Clete R. Willems, Partner, 
                Akin, Gump, Strauss, Hauer, and Feld LLP
    Chairman Cornyn, Ranking Member Casey, distinguished members of the 
committee, thank you for the opportunity to appear before you today to 
discuss ``Censorship as a Non-Tariff Barrier to Trade.'' Your attention 
to this issue is warranted. China continues to expand the use of 
censorship to promote national interests, with adverse implications for 
the United States, other countries, and Chinese citizens themselves. 
This has recently been driven home by the global impact of China's 
suppression of information related to the coronavirus. While that issue 
remains critical, it is also worthwhile to consider the role of 
censorship in the context of international trade. To date, 
international trade rules, negotiations, and policy responses have 
largely focused on other issues, making a thorough discussion of this 
matter long overdue.

    At the outset, I would like to clarify that I am appearing before 
you today in my personal capacity. Although I served in the White House 
from April 2017 until April 2019, including in the role of Deputy 
Assistant to the President for International Economics, Deputy Director 
of the National Economic Council, and as one of the negotiators on the 
U.S.-China Phase One trade deal, my testimony does not represent the 
administration's position. It also does not necessarily align with the 
positions of Akin Gump's many clients. Indeed, the views I am sharing 
are solely my own.

    In my opening remarks, I will focus on three issues: (1) the scope 
of the problem, as exemplified by the many types of Chinese censorship; 
(2) applicable international trade rules, which are somewhat non-
specific and untested; and (3) potential ideas to help begin addressing 
the serious problems caused by censorship.
     the scope of china's ``explicit'' and ``implicit'' censorship
    China is far from the only country to use censorship to achieve 
government objectives. Pervasive censorship is a serious problem in 
Cuba, Iran, North Korea, and many other countries. But the economic and 
geopolitical impact of China's practices stand alone. We are also at a 
critical moment with respect to the U.S.-China relationship. The Trump 
administration's willingness to take tough trade action on China has 
completely changed the dynamic between our two countries. I was proud 
to be part of the team that helped shape a much more clear-eyed and 
realistic policy toward China's economic aggression over the past few 
years, and I am glad that congressional policymakers are now focusing 
on multiple aspects of China's many unfair trade practices. To help 
better inform this effort, my testimony centers almost entirely on 
China.

    Censorship is one of many tools that China uses to make it more 
difficult for U.S. companies to access its market. China also restricts 
market access through tools like tariffs, equity caps, and onerous 
licensing requirements. And it heavily subsidizes favored companies to 
create national champions in industries it deems strategic, including 
technology and the Internet. As a result, addressing censorship alone 
will not solve all of our market access problems with China. But it is 
an area that has not been adequately prioritized and is ripe for 
additional policymaking.

    China's censorship activities manifest themselves in many ways, 
both explicitly and implicitly. China imposes explicit censorship 
through laws and other actions that restrict free speech on the 
Internet. China's ``Great Firewall'' utilizes a variety of techniques 
to block access to websites and content deemed objectionable. According 
to USTR's 2019 Report to Congress on China's WTO Compliance, ``China 
currently blocks most of the largest global sites . . . and more than 
10,000 sites are blocked, affecting billions of dollars in business, 
including communications, networking, app stores, news and other 
sites.''\1\ The report goes on to state that ``[e]ven when sites are 
not permanently blocked, the often arbitrary implementation of 
blocking, and the performance-degrading effect of filtering all traffic 
into and outside of China, significantly impair the supply of many 
cross-border services, often to the point of making them unviable.''\2\
---------------------------------------------------------------------------
    \1\ Office of the United States Trade Representative, 2019 Report 
to Congress on China's WTO Compliance, March 2020, p. 50, available at: 
https://ustr.gov/sites/default/files/2019_Report_
on_China%E2%80%99s_WTO_Compliance.pdf.
    \2\ Id at 50.

    Additionally, China controls the major press instruments in China--
both on- and off-line--and suppresses views inconsistent with the 
Party's objectives. The leading news agencies in China are unambiguous 
instruments of the government. As a result, the U.S. State Department's 
recent decision to treat these agencies as foreign government 
functionaries, subject to similar rules as diplomats stationed in the 
United States, is entirely appropriate.\3\ Predictably, China's 
response was not to provide the news agencies with more freedom, but to 
expel journalists from The Washington Post, The New York Times, and The 
Wall Street Journal from China, thereby further limiting the number of 
free voices in the country.
---------------------------------------------------------------------------
    \3\ U.S. Department of State, ``Senior State Department Officials 
on the Office of Foreign Mission's Designation of Chinese Media 
Entities as Foreign Missions,'' Special Briefing, February 18, 2020, 
available at: https://www.state.gov/senior-state-department-officials-
on-the-office-of-foreign-missions-designation-of-chinese-media-
entities-as-foreign-missions/. U.S. Department of State, ``Designation 
of Additional Chinese Media Entities as Foreign Missions,'' press 
statement, June 22, 2020, available at: https://www.state.gov/
designation-of-additional-chinese-media-entities-as-foreign-missions/.

    This is just one recent example of China's decision to double down 
on policies of suppression and control. The latest U.S.-China Economic 
and Security Review Commission Report highlighted China's growing 
censorship of economic news, noting that ``[i]n the past year, Beijing 
has directed media outlets to avoid stories on declining consumer 
confidence, local government debt risks, and other unwelcome economic 
news.''\4\ In December, China promulgated a new Internet censorship law 
prohibiting online content providers from making, reproducing, or 
publishing information that could harm the nation's honor and 
interests, disseminate rumors, or insult others, among other vaguely 
defined terms.\5\ And of course, too many sources to count have 
highlighted China's suppression of information related to the 
coronavirus.\6\
---------------------------------------------------------------------------
    \4\ U.S.-China Economic and Security Review Commission, ``2019 
Report to Congress,'' November 2019, p. 50, available at: https://
www.uscc.gov/sites/default/files/2019-11/2019%20Annual
%20Report%20to%20Congress.pdf.
    \5\ State Internet Information Office, ``Provisions on the 
Governance of the Online Information Content Ecosystem,'' Chapter I, 
Article 6, December 15, 2019, English translation available at: https:/
/www.chinalawtranslate.com/en/provisions-on-the-governance-of-the-
online-information-content-ecosystem/.
    \6\ E.g., Foreign Affairs, ``China's Coronavirus Information 
Offensive,'' April 22, 2020, available at: https://
www.foreignaffairs.com/articles/china/2020-04-22/chinas-coronavirus-
information-offensive; NPR, ``Critics Say China Has Suppressed and 
Censored Information in Coronavirus Outbreak,'' February 8, 2020, 
available at: https://www.npr.org/sections/goatsandsoda/2020/02/08/
803766743/critics-say-china-has-suppressed-and-censored-information-in-
coronavirus-outbrea; Wall Street Journal, ``China's Virus and 
Propaganda Draw Backlash,'' February 25, 2020, available at: https://
www.wsj.com/articles/chinas-virus-censorship-and-propaganda-draw-
backlash-11582632006.

    China's implicit censorship efforts are equally troubling, with an 
impact beyond China's borders. The best example is perhaps last 
summer's NBA Twitter controversy. After Daryl Morey, general manager of 
the Houston Rockets, tweeted an image with the slogan ``Fight for 
Freedom, Stand with Hong Kong,'' China ceased its cooperation with the 
Rockets, suspended the broadcast of NBA games, and pressured the NBA to 
fire Mr. Morey.\7\ To put it another way, in retaliation for a single 
tweet by a single individual associated with a single NBA team, China 
prohibited the broadcast of all games by all teams in China. And it 
sought retaliation against an individual who simply shared an opinion 
widely held in the United States. Clearly, China did not intend its 
response to be proportional, but sought to intimidate others from 
exercising their free speech rights outside China out of fear of 
jeopardizing a Chinese business interest. Undoubtedly, China's tactics 
have worked and other U.S. executives with China exposure have since 
refrained from expressing their opinion in the United States out of 
fear of repercussions in China.
---------------------------------------------------------------------------
    \7\ E.g., New York Times, ``NBA Commissioner: China Asked Us to 
Fire Daryl Morey,'' October 17, 2019, available at: https://
www.nytimes.com/2019/10/17/sports/basketball/nba-china-adam-
silver.html.

    Unfortunately, this may be just the tip of the iceberg. China is in 
the process of implementing another form of ``implicit'' censorship 
through its social credit scoring system for individuals and 
corporations. The details of the system for corporations is not well 
understood, but it appears to be a state-run data-sharing and 
algorithmic scoring mechanism that enables regulators to 
comprehensively monitor and influence corporate behavior in real-time 
across China's business ecosystem.\8\ Good ratings are expected to lead 
to better tax rates, lower inspection rates, and better access to 
public procurement opportunities, while bad ratings could make it more 
difficult to get loans, buy real estate, or even lead to blacklisting. 
And among the many criteria is certain to be whether a company and its 
employees pay fealty to the Communist party line. Equally troubling are 
recent reports that China may start monitoring U.S. companies operating 
internationally, and in particular, within the Belt and Road Initiative 
countries.
---------------------------------------------------------------------------
    \8\ European Chamber of Commerce in China and Sinolytics, ``The 
Digital Hand: How China's Corporate Social Credit System Conditions 
Market Actors,'' August 28, 2019, available at: https://
www.europeanchamber.com.cn/en/publications-corporate-social-credit-
system.

    The economic impact of these many forms of censorship is impossible 
to quantify, but the greatest impact to date is likely on lost market 
share in China for U.S. technology companies that provide Internet or 
mobile device services, such as search, social networking, and 
communications. Some U.S. companies have tried to navigate China's 
pervasive set of laws, while others have abandoned the market 
completely. In this regard, it is worth observing that some of the 
Chinese national champions that have benefited from a ban on U.S. 
competition, such as Baidu, had revenues of roughly $15 billion in 
2018,\9\ despite offering a much narrower set of products than would-be 
competitors. Clearly, U.S. companies should be and could be reaping 
this type of benefit if allowed to compete fairly.
---------------------------------------------------------------------------
    \9\ Macrotrends, ``Baidu Revenue 2006-2019,'' available at: https:/
/www.macrotrends.net/stocks
/charts/BIDU/baidu/revenue.
---------------------------------------------------------------------------
                  wto provisions addressing censorship
    The WTO does not have explicit rules governing censorship per se, 
but there are at least some rules that may be applicable. However, 
these rules are untested with respect to issues like censorship on the 
Internet, which adds uncertainty to any challenge.

    The most likely avenue for a WTO claim against China's restrictions 
on U.S. Internet services providers is under the General Agreement on 
Trade in Services (GATS). In particular, the United States could allege 
that China violates prohibitions on market access (because it bans U.S. 
service providers from conducting certain activities)\10\ and non-
discrimination (because it treats China-based Internet service 
providers different than foreign-based providers),\11\ among other 
potential complaints. The nature of China's activities clearly lend 
themselves to these claims.
---------------------------------------------------------------------------
    \10\ WTO General Agreement on Trade in Services (GATS), Art. XVI.
    \11\ GATS Art. XVII.

    One complication could arise from the fact that many of the 
specific types of services China prohibits on the Internet did not 
exist at the time that the GATS agreement was negotiated, which could 
allow China to argue that its behavior with respect to these activities 
falls outside WTO rules. The United States made a similar argument in 
defense of its regulation of online gambling in its WTO dispute with 
Antigua and Barbuda and lost,\12\ which suggests that the United States 
should win this threshold question here. However, there is some risk 
for the U.S. position in light of the WTO's lack of precedent and U.S. 
complaints that the decision in the U.S.--Gambling dispute was a clear 
case of WTO overreach.
---------------------------------------------------------------------------
    \12\ Appellate Body report, United States--Measures Affecting the 
Cross-Border Supply of Gambling and Betting Services (Antigua and 
Barbuda), WT/DS285/AB/R, adopted April 20, 2005.

    If the United States prevails on its fundamental GATS claim, China 
could still seek to defend its behavior by relying on certain WTO 
exceptions. The GATS public morals exception permits members to deviate 
from WTO commitments where such action is ``necessary for public morals 
or to maintain public order''\13\ and the measure taken is not more 
trade restrictive than necessary to achieve that goal, taking certain 
factors into account. China sought to defend restrictions on the 
distribution of foreign films in the China--Publications and 
Audiovisual Products dispute on this basis and lost, but that decision 
was predicated on the determination that China's measure was an 
ineffective means of achieving its goal.\14\ It may be somewhat more 
difficult to make such a determination with respect to a policy that 
clearly does permit the Chinese Government to promote its party's 
objectives by suppressing contrary views. That said, the United States 
could argue that China's policy is more restrictive than needed, which 
would help defeat this defense.
---------------------------------------------------------------------------
    \13\ GATS Art. XIV(a).
    \14\ Appellate Body report, China--Measures Affecting Trading 
Rights and Distribution Services for Certain Publications and 
Audiovisual Entertainment Products (United States), WT/DS363/AB/R, 
adopted January 19, 2010.

    If China loses on the public morals exemption, it could also 
theoretically invoke national security as a defense.\15\ Unlike the 
public morals defense, the United States consistently argues that the 
national security exception is self-judging,\16\ which could allow 
China's assertion to go unchallenged. While such an argument might seem 
like a stretch, China increasingly equates any threat to the 
government's policies and Communist party control writ large as threats 
to national security.
---------------------------------------------------------------------------
    \15\ GATS Art. XIV bis.
    \16\ See, e.g., First Written Submission of the United States of 
America, United States--Certain Measures on Steel and Aluminum Products 
(China), WT/DS544, June 12, 2019 (making this argument with respect to 
a similar national security exception under the General Agreement on 
Tariffs and Trade (GATT)).

    Therefore, while a WTO dispute has serious merit, existing rules 
may be ambiguous enough to give the United States pause. The United 
States would also be rightly concerned that for political reasons, the 
WTO may be hesitant to issue an ``explosive'' ruling that declares a 
core tenet of China's government policies in breach of WTO rules, 
especially in the absence of more explicit direction from WTO members 
on the topic.
                   recommendations for moving forward
    In light of the foregoing, what is the best way to begin to deal 
with this difficult and under-developed trade issue? This is something 
we all need to further consider, but as a starting point, I would like 
to share a few ideas to help start the conversation.

    First, the U.S. Government must consistently highlight the 
pervasive nature of China's activities and make clear that this 
behavior is unacceptable and inconsistent with global norms. This means 
that both the administration and Congress should forcefully denounce 
all forms of Chinese censorship--explicit, implicit, and in-between--at 
every opportunity and at the highest levels. Governments are better 
positioned by virtue of their size and role in society to push back 
against intimidation than individual companies who fear damaging 
retaliation. China may complain, noting that the United States is 
interfering in its internal affairs. But as China increasingly seeks to 
impose its model of censorship on American companies and export it to 
the rest of the world, the United States is justified in advocating for 
a clear alternative.

    Second, the U.S. Government should strongly encourage key U.S. 
allies to do the same. Countries that share U.S. values on free speech, 
such as the European Union (EU) member states, must not equivocate on 
this topic, and must not hedge their bets with respect to the type of 
world that they want their citizens to live in. China will find it more 
difficult to ignore critiques of its behavior or stir up anti-U.S. 
nationalism to excuse it if other major countries stand by theU.S. 
side. At the same time, the EU and others must also be very careful not 
to adopt Internet policies, such as data localization and other forms 
of Internet control, that drift closer to the Chinese model, thereby 
sending the wrong signal to China's policymakers about what is 
acceptable. A recent report from the EU Parliament that advocates for a 
European Firewall and glowingly speaks of China's efforts to promote 
innovation through its own firewall is particularly disconcerting.\17\
---------------------------------------------------------------------------
    \17\ ``New Developments in Digital Services,'' European Parliament, 
study prepared for the IMCO Committee by the Policy Department for 
Economic, Scientific and Quality of Life Policies, May 2020, available 
at: https://www.europarl.europa.eu/RegData/etudes/STUD/2020/6487
84/IPOL_STU(2020)648784_EN.pdf.

    Third, this same advice goes for the United States. As we seek to 
counter the economic threat posed by China, we must be very careful not 
to adopt the very same policies we are condemning. Policies that stifle 
free speech in the United States or increase market access barriers 
through tariffs or discrimination would directly contravene the 
policies that made American democracy and the American economy the envy 
of the world in the first place. These policies will not only backfire 
on us economically, but they will also cause us to lose the moral high 
ground that is so important to building an international coalition to 
---------------------------------------------------------------------------
effectively push back on China.

    Fourth, the U.S. government should consider how to better address 
these issues at the WTO as part of a much broader reform initiative. In 
particular, if USTR's lawyers do not believe that the current rules 
support a winning dispute on censorship-related issues, they should 
advocate for explicit rules on this topic in the context of the e-
commerce negotiations. The United States should also seek to include 
new rules on forced technology transfer, industrial subsidies, and 
intellectual property theft, require China to classify itself as a 
developed country that must commit to the same rules as the United 
States, and improve the dispute settlement system so it can be used 
more effectively by the United States to challenge China's bad 
behavior. To be clear, the WTO is not meeting our expectations at the 
moment, but abandoning the system that we (not China) helped create 
will not solve our problems. In fact it may be exactly what China 
desires. After all, a reformed rules-based international trading system 
that paints China as an international outlier remains the most 
promising way for us to pressure China to change its behavior, and 
China would like nothing more than to see the U.S.-created system 
evaporate.

    Fifth, the United States should also expand its efforts to include 
provisions banning censorship in a broad range of FTAs, especially with 
countries on China's periphery. The United States has begun moving in 
this direction with the United States-Mexico-Canada Agreement (USMCA) 
digital trade chapter and U.S.-Japan Digital Trade Agreement, but these 
provisions could be strengthened and new negotiating partners 
identified. In this regard, the United States should seek more explicit 
anti-censorship provisions in the context of the U.S.-EU-Japan 
trilateral, negotiate enhanced digital trade agreements with existing 
FTA partners, consider an FTA with Taiwan, and begin negotiating the 
terms of its reentry into the Trans-Pacific Partnership (TPP). Putting 
politics aside, the longer the United States ignores the TPP, the 
longer it ignores an opportunity to encircle China with policies that 
oppose its economic model. The United States should immediately state 
that it will seek to renegotiate the terms of reentry and condition 
this reentry on the inclusion of provisions banning censorship, 
stronger provisions governing additional pernicious Chinese practices, 
and other changes the United States deems necessary.

    Sixth, the United States must find better ways to help protect the 
interests of U.S. companies that want to access a market of over one 
billion people, but have been pressured into censoring their activities 
or have been retaliated against for voicing their opinion. One idea 
that has been floated by members of Congress is legislation to protect 
employees from being terminated for voicing opinions about foreign 
governments.\18\ Another idea that has been discussed is to prohibit 
companies from complying with certain Chinese laws or requests for 
censorship, at the very least with respect to their activities in our 
jurisdiction. A related idea is to require U.S. companies to disclose 
any pressure received from the Chinese government to censor their 
activities.\19\ This last idea, which could also theoretically be 
applied to other pressures like forced technology transfer, could help 
insulate U.S. companies from specific retaliation by focusing the blame 
on U.S. law. Ideas like this deserve debate, but the full implications 
on U.S. business interests should be considered before they are 
adopted.
---------------------------------------------------------------------------
    \18\ H.R. 5830, ``Preventing Foreign Censorship in America Act,'' 
introduced February 10, 2020.
    \19\ S. 2743, ``To establish the China Censorship Monitor and 
Action Group, and for other purposes,'' introduced October 30, 2019.

    Finally, we must be very careful in our policymaking efforts with 
respect to both censorship issues and China more broadly not to draw a 
false equivalence between the Chinese Government and its people. Many 
good Chinese citizens have suffered for years under these troubling 
policies, and their views and interests should in no way be equated 
with that of the Chinese Government. Indeed, many Chinese people tried 
earlier this year to speak out with respect to the coronavirus only to 
have their voices muffled. A Chinese commentary briefly posted online 
before being deleted stated: ``These days, everyone's saying the 
openness of information is the best vaccine. Blocked ears and eyes are 
also a contagious disease, and no one can escape.''\20\ And in the 
words of Dr. Li, the late Chinese doctor who was reprimanded by police 
for raising early awareness of the disease, ``I believe a healthy 
society should not have just one voice.''\21\ We need to be clear that 
our concern is with the unfair practices of the Chinese Government, not 
the Chinese people, and do everything we can to empower reformers in 
Chinese society to improve the country that they live in.
---------------------------------------------------------------------------
    \20\ The Wall Street Journal, ``China's Virus and Propaganda Draw 
Backlash,'' February 25, 2020.
    \21\ Id.

                                 ______
                                 
         Questions Submitted for the Record to Clete R. Willems
                Questions Submitted by Hon. John Cornyn
    Question. The World Trade Organization has two core principles. The 
first is national treatment, which requires a country to treat domestic 
and international products the same. The second is most-favored nation 
that requires a nation to treat all countries under the WTO equally. 
There are two exceptions to these principles for public morals and 
national security. These exceptions, intentionally or not, align well 
with the definition of censorship which allows for the blocking of 
media due to obscenity or security. The third piece in that definition 
is content deemed ``politically unacceptable.'' The WTO does not 
provide for an exception to that one.

    Can you discuss these concepts and how they apply to the practice 
of censorship in conjunction with our trade laws?

    Answer. As the question notes, the WTO agreements most relevant to 
censorship--include exceptions to normal WTO disciplines for measures 
``necessary to protect public morals''\1\ or ``necessary for the 
protection of [a member's] essential security interests.''\2\ 
Theoretically, either or both of these exceptions could be invoked by 
China in a WTO dispute involving its censorship practices.
---------------------------------------------------------------------------
    \1\ Article XIV(a) of the GATS; Article XX(a) of the GATT 1994.
    \2\ Article XV of the GATS; Article XXI of the GATT 1994.

    With respect to the public morals exception, past WTO panel and 
Appellate Body decisions have indicated that this exception is not 
unfettered and the same logic used in those disputes could be used to 
undermine a defense by China. More specifically, past reports have 
noted that this exception cannot be used to justify an otherwise WTO-
inconsistent measure if that measure is either not ``necessary'' to 
achieve the WTO member's goal of protecting public morals, is applied 
in a manner that constitutes ``a means of arbitrary or unjustifiable 
discrimination between countries where the same conditions prevail,'' 
or is ``a disguised restriction on international trade.''\3\ Many 
factors go into the legal analysis of these various requirements, but 
one key one is to examine whether the measure is more trade restrictive 
than necessary to achieve its intended goal and whether there are other 
less trade-restrictive alternatives that would suffice. In this 
instance, the United States would have a strong argument that China's 
broad ban on all different types of free speech and outright 
prohibitions on certain applications and communications tools is much 
more restrictive than necessary to achieve its goal.
---------------------------------------------------------------------------
    \3\ E.g., Appellate Body report, China--Measures Affecting Trading 
Rights and Distribution Services for Certain Publications and 
Audiovisual Entertainment Products (United States), WT/DS363/AB/R, 
adopted January 19, 2010.

    The exception for ``essential security interests'' presents a more 
challenging situation. The United States has consistently argued that 
this exception is self-judging and not subject to WTO scrutiny. 
Therefore, unless the United States changed this longstanding view, 
such a defense by China would be fatal to the U.S. claim. Other 
countries, however, have argued that WTO adjudicators should actually 
examine essential security claims, and a WTO panel in a recent dispute 
involving Russia and Ukraine agreed. In that dispute, the panel 
examined whether there was an ``emergency in international relations,'' 
whether the action was taken ``at the time of'' that emergency,'' and 
whether there was a plausible relationship between the measures and the 
emergency, among other factors.\4\ It is easy to see how the WTO might 
actually decide against China if it applied the same logic given that 
these measures were not adopted in response to any sort of emergency in 
international relations. But even going down this path is risky given 
the sensitivity of the issue for China and longstanding U.S. views on 
the justicability of ``essential security interest'' issues in the 
first place.
---------------------------------------------------------------------------
    \4\ See panel report, Russia--Measures Concerning Traffic in 
Transit (Ukraine), WT/DS/512/R, adopted April 26, 2019.

    With respect to the question of political acceptability, it is 
accurate that there is no relevant exception under WTO rules. 
Presumably, China would invoke one of the two aforementioned examples, 
if not both, and defend its measures on those grounds instead. In such 
a dispute, the United States could argue that China's invocation of 
``public morals'' is not its true objective, but rather that it is a 
question of ``political acceptability,'' which is not subject to an 
exception. However, the United States has historically been hesitant to 
have an international adjudicator question the motives of a particular 
member so may not believe that making such an argument is in its 
---------------------------------------------------------------------------
institutional interests.

    Question. What should be done as conversations on e-commerce and 
WTO reform progress to ensure censorship is not used as a trade barrier 
in the future?

    Answer. In a negotiation involving China, such as the current e-
commerce negotiations, it may be difficult to gain consensus on rules 
prohibiting censorship per se as China would clearly see such rules as 
being targeted at its practices. As an alternative, the United States 
and other like-minded members could instead pursue disciplines that 
guarantee market access for mobile applications or other types of 
digital services that China currently bans or prohibit discrimination 
with respect to such services.

    Another option that the United States should consider is to more 
explicitly ban censorship in negotiations that do not involve China. 
This could help create a global standard on censorship that others 
eventually try to multi-lateralize, putting China in a very defensive 
position where it is either seen as an international outlier by other 
countries, forced to compromise, or forced to make concessions on other 
issues as a trade-off.

                                 ______
                                 
               Question Submitted by Hon. Chuck Grassley
    Question. China's censorship regime is just one more way that the 
Chinese economy profoundly differs from other WTO members. China 
refuses to accept the rules that govern a free-market because they 
threaten a closed society.

    Are there WTO rules that could potentially reign in some of China's 
censorship practices? If not, what type of rules could we negotiate to 
tackle this issue?

    Answer. It may be possible to conceive a challenge to China's 
censorship practices using existing WTO rules. For example, as noted in 
my testimony, the United States could allege that China violates 
prohibitions on market access (because it bans U.S. service providers 
from conducting certain activities)\5\ and non-discrimination (because 
it treats China-based Internet service providers different than 
foreign-based providers),\6\ among many other potential complaints. As 
also noted, however, these claims could be difficult to sustain because 
the services rules under which the United States would be challenging 
China were negotiated in advance of the Internet age, which has 
significantly altered the primary means through which China exercises 
censorship, as well as issues with potential WTO exceptions. Thus, to 
avoid these problems, new rules could be negotiated that are much more 
explicit on prohibiting censorship outright, or at very least, that 
clearly apply to discrimination and market access when it comes to the 
use of the Internet or other products that China censors.
---------------------------------------------------------------------------
    \5\ WTO General Agreement on Trade in Services (GATS), Art. XVI.
    \6\ GATS Art. XVII.

                                 ______
                                 

                             Communication

                              ----------                              


                        Center for Fiscal Equity

                        14448 Parkvale Road, #6

                       Rockville, Maryland 20853

                      [email protected]

                      Statement of Michael Bindner

Chairman Cornyn and Ranking Member Casey, thank you for the opportunity 
to submit these comments, which will put this matter into long-term 
context.

Limiting information is the most important element of restraining free 
markets and competition. When western capitalists do this, it is called 
public relations. When Chinese state capitalists and the Communist 
Party of China do it, it is called censorship. In both environments, it 
is a difference in intensity, but not in kind.

Product faults, wage and salary conditions, internal security matters 
(both, whether law enforcement is involved or a part of the 
conspiracy), product pricing and other ``trade secrets'' show that 
Capitalism is toxic everywhere it is tried.

The question of Tibet and the Yugurs, the treatment of families on our 
southern border, workers in the fields and food plants (and their 
children) whether documented or not, in congressional offices and on 
the casting couch all show how rampant censoring reality can be.

The sad fact of the matter is that while there are some owners and 
executives who are not aware of what is behind the veil, it is more 
common that executives and co-workers know what is happening in their 
organizations, companies and societies, as well as those of their 
competition (both corporate and international). It is only the public 
that is in the dark, or worse, who look the other way.

What keeps all of this in play is shame. It is cultural in China and 
Asia, but it is also so in all parts of America. With shame as a 
societal agreement, censorship is self-enforcing. This is why 
progressives embrace diversity and openness. With these, shame and 
censorship are impossible.

Economic empowerment makes shame easier to defeat, although workers and 
their organizers can be co-opted. It is part of the human condition.

The best disinfectant is empowering the individual, from whistleblowers 
in the Intelligence Community to a protestor challenging a tank in 
Tiananmen Square. Individuals change cultures. With the conviction of 
Harvey Weinstein, we know that the darkness can never win.

Another inevitable development is more democracy and ownership in the 
American workplace. Mutual empowerment leads to open information, the 
end of both shame and the cover that shame brings. What starts here 
must spread.

To protect themselves from job loss from their own supply chain and 
subsidiaries, employee-owned firms and cooperatives will assure that 
overseas workers have the same standard of living and workplace 
democracy that they enjoy, thus subverting authoritarianism in the 
Global South and East. Change in American companies cannot come from 
governmental action.

While there will always be organizations that hide their dirty linen, 
this usually comes from less democracy, not more.

American workers must seek the change they want but are afraid to ask 
for. The existing cooperative and employee-owned sector is the best 
place to start, but it will only come from below. Management never 
likes change. As Frederick Douglass once said, ``Power concedes nothing 
without a struggle.'' It is courage which ends both shame and 
censorship.

    Thank you for the opportunity to comment. As always, we are 
available to answer questions from members and staff and to provide 
direct testimony.

                                   [all]