[Senate Hearing 116-516]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 116-516

                    WTO REFORM: MAKING GLOBAL RULES 
                       WORK FOR GLOBAL CHALLENGES

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

                                HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 29, 2020

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                     
                                     

            Printed for the use of the Committee on Finance

                             __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
46-497-PDF                 WASHINGTON : 2022                     
          
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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

                                  (ii)
                           
                           C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3

                               WITNESSES

Hillman, Jennifer A., senior fellow for trade and international 
  political economy, Council on Foreign Relations; and professor, 
  Georgetown University Law Center, Washington, DC...............     6
Graham, Thomas R., partner, Cassidy Levy Kent, Washington, DC....     8
Lane, Laura J., chief corporate affairs and communications 
  officer, UPS, Washington, DC...................................    10
Glauber, Joseph W., Ph.D., senior research fellow, International 
  Food Policy Research Institute, Washington, DC.................    11
Kuruc, Michele, vice president, ocean policy, World Wildlife 
  Fund, Washington, DC...........................................    13

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Glauber, Joseph W., Ph.D.:
    Testimony....................................................    11
    Prepared statement...........................................    35
    Responses to questions from committee members................    42
Graham, Thomas R.:
    Testimony....................................................     8
    Prepared statement...........................................    44
    Responses to questions from committee members................    44
Grassley, Hon. Chuck:
    Opening statement............................................     1
    Prepared statement...........................................    51
Hillman, Jennifer A.:
    Testimony....................................................     6
    Prepared statement...........................................    52
    Responses to questions from committee members................    77
Kuruc, Michele:
    Testimony....................................................    13
    Prepared statement...........................................    89
    Responses to questions from committee members................    95
Lane, Laura J.:
    Testimony....................................................    10
    Prepared statement...........................................   104
    Responses to questions from committee members................   107
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................   112

                             Communications

American Farm Bureau Federation..................................   115
Center for Fiscal Equity.........................................   116
Stewart, Terence P...............................................   123

 
                    WTO REFORM: MAKING GLOBAL RULES 
                       WORK FOR GLOBAL CHALLENGES

                              ----------                              


                        WEDNESDAY, JULY 29, 2020

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:17 
a.m., in Room SD-215, Dirksen Senate Office Building, Hon. 
Chuck Grassley (chairman of the committee) presiding.
    Present: Senators Crapo, Thune, Portman, Toomey, Cassidy, 
Lankford, Wyden, Carper, Brown, Whitehouse, Casey, Warner, 
Whitehouse, Hassan, and Cortez Masto.
    Also present: Republican staff: Nasim Fussell, Chief 
International Trade Counsel; Mayur Patel, International Trade 
Counsel; and Jeffrey Wrase, Deputy Staff Director and Chief 
Economist. Democratic staff: Joshua Sheinkman, Staff Director; 
and Jayme White, Chief Advisor for International 
Competitiveness and Innovation.

 OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM 
              IOWA, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order. I want to 
welcome our witnesses. Today, we are fortunate to have some 
very smart people who can provide insights on making an 
important institution--the World Trade Organization--work 
again.
    When the WTO works right, Americans benefit, plain and 
simple. For example, Americans are leaders in innovation and 
creativity. WTO rules allow us to reap the rewards of that 
leadership. When India refused to provide patent protection for 
American pharmaceutical and agricultural chemical products, we 
took India to the WTO--and we won.
    You often hear about how important the quote/unquote 
``global box office'' is for Hollywood. It has become lucrative 
because the WTO requires our trade partners to provide 
copyright protection and market access for our American films. 
Likewise, the WTO is very important for our farmers, who are 
the most efficient and productive in the world. If you watch my 
Cornwatch feed on Instagram, you will know that, thanks to 
technology, corn grown today is shoulder-high by July 4th, 
rather than knee-high like when I was a kid. And if you are not 
watching Cornwatch, you ought to.
    Unable to compete, though, some countries try to ban our 
farm products by falsely claiming that they are dangerous. I 
just spoke about this on the floor in my 1-minute speech after 
opening the Senate. So in the WTO, for the first time we had 
global rules that took on this form of protectionism by 
requiring food safety measures to be based on science.
    The WTO also ensures that our industrial companies have 
access to key resources. When China tried to use its control of 
rare earth metals and other minerals to pressure its neighbors, 
the WTO is where we joined with the European Union and Japan to 
take on China's bullying. Facing WTO retaliation, China lifted 
its export restraints.
    The WTO has also helped our broader foreign policy goals. 
Opening economies means more open societies. One story that 
needs more attention is how trade has led to more opportunities 
for women. I am glad that WTO members recognized at the last 
WTO ministerial to issue a document that was entitled 
``Declaration on Trade and Women's Economic Empowerment.'' The 
WTO needs to stay on top of that important issue.
    These are important successes. But we cannot live in the 
past. From 1947 to 1994, we had eight rounds of multilateral 
trade negotiations. That is a major global trade deal every 6 
years. The WTO is now 25 years old, but we have yet to see any 
major outcomes liberalizing trade. The President has said that 
we need dramatic change in the WTO. He emphasized to me that 
other countries' tariffs and barriers are too high. The 
President is right. No one expected the Uruguay Round to be the 
last global trading round, like it has turned out to be.
    Over the last 2 decades, countries like China and India got 
a lot richer, but they have refused to take on any more 
responsibilities. In fact, they both claim that they are 
entitled to special treatment in any future negotiations 
because they are developing countries. It does not even 
embarrass China to say that. So the notion that China and India 
should get the same consideration as a country like Cameroon is 
of course ridiculous. So I applaud the President for taking on 
this imbalance and pushing to make the WTO relevant.
    Today I want to have a thoughtful discussion about getting 
the WTO back on track. To me, that means a couple of things.
    First, the WTO needs to be an effective forum for 
negotiating agreements once again. That means not only 
concluding the fisheries negotiations, but also new agreements, 
including an ambitious agreement on commerce. When Congress 
ratified the WTO agreements, there was nothing like what we 
call the digital economy. Today it accounts for nearly $2 
trillion of the U.S. economy. Again, this is an area of U.S. 
leadership where we need rules to make sure we get a fair shake 
from our trading partners.
    Second, we have to fix dispute settlement. I absolutely 
believe that we need enforceable rules. It is much better to 
solve our trade disputes over legal briefs than through 
tariffs. However, WTO dispute settlement has been breaking down 
for a long period of time. Fifteen years ago, I warned at a 
hearing like this that the WTO Appellate Body was not enforcing 
rules; it was legislating new ones. I do not like that history 
has proven me right after 15 years.
    The WTO's Appellate Body ignored clearly written rules, 
like finishing cases in 90 days. Cases that should have taken 
months dragged on for years, of course frustrating our ability 
to get timely relief. At the same time, the Appellate Body 
started writing new rules that impinged on U.S. sovereignty, 
and maybe on other countries' sovereignty. For example, the 
Appellate Body has made it harder to use labeling to keep our 
consumers informed about the country of origin of their meat, 
or whether their tuna was harvested without hurting dolphins. 
Of particular concern, the Appellate Body has also made it much 
harder to use trade remedy measures at a time when we need them 
more than ever to confront China's state capitalism.
    I appreciate that what I am seeking is not going to be easy 
to get done, particularly when you have to get agreement among 
164 countries when you want a freer and fairer trading system. 
But I do not appreciate embracing protectionism as the 
alternative, because it can be extremely harmful in the long 
run.
    From 1929 to 1933, governments around the world raised 
barriers to trade--including our own with the disastrous Smoot-
Hawley tariffs. Two-thirds of the world trade was wiped out, 
and the Great Depression became much worse. World War II 
followed.
    We cannot repeat those mistakes. We are going to continue 
to do what we have to and what we have been doing since winning 
World War II, and that is simply, the United States will lead. 
U.S. leadership will require Congress to step up and fulfill 
our constitutional role in setting trade policy. Just as 
Congress set the objectives for negotiating the WTO agreements 
and approving those agreements, we are working now to secure an 
ambitious reform agenda that will make this institution fit for 
global challenges.
    That is why I am glad members are considering and debating 
solutions, and there may be more than one, but I want to point 
out what Senators Portman and Cardin are doing. They have 
introduced a resolution that has concrete proposals to reform 
the WTO. It has never been more important than it is today to 
ensure the World Trade Organization is equipped to take on the 
global challenges we face today.
    [The prepared statement of Chairman Grassley appears in the 
appendix.]
    The Chairman. Now, Senator Wyden, please.

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman. And we 
just looked up Cornwatch, and I was struck by the fact that, 
not only are you out there standing in the field, but a lot of 
that corn is taller than NBA players. I wanted you to know that 
we were paying attention to your counsel with respect to 
Cornwatch.
    Mr. Chairman, I am glad you are holding this hearing. I 
think it would be fair to say, if you walked into small towns 
in virtually all of the States that we are proud to represent, 
and you went to the local coffee shop, I do not think most 
people would be following the World Trade Organization 
discussion with any kind of specificity.
    The fact is, however, that the World Trade Organization, 
though little-known in those small towns, plays an enormous 
role in our ability to secure the kind of high-skill, high-wage 
jobs that we want for American workers, and it dramatically 
affects costs of goods and services. So this is an important 
issue, and it really comes down to the basic proposition of how 
you get a better deal for American workers and for American 
businesses.
    Now as we get into this discussion, there really are two 
different approaches. On the one hand, you have the Donald 
Trump approach, which is to pull back from the World Trade 
Organization, forfeit American economic power and stature to 
the Chinese Government, and cover up this set of weaknesses 
with a whole bunch of rhetoric about America-first and you do 
that at home, and it is just empty, and it is to deflect from 
the consequences of the damage done from walking away.
    In my view, this is the same losing playbook the Trump 
administration ran with respect to a proactive trade agenda in 
Asia and the Pacific; the same thing they did with walking away 
from the Paris Climate Agreement and the World Health 
Organization.
    It obviously will not do much of anything to protect 
American workers against trade cheats if Donald Trump hands the 
Chinese Government the levers of trade power. In fact, it would 
be a big win for the trade cheats who rip off American jobs in 
communities across the country.
    Fortunately, there now is a smarter approach to World Trade 
Organization reform based on addressing the areas where the 
Chinese Government routinely games the trade system at our 
expense. The rules that underpin the World Trade Organization 
were crafted more than 2 decades ago. And that was a period 
when China was essentially an economic middleweight. At that 
time, many hoped and predicted that joining the World Trade 
Organization would drive China further away from an abusive 
one-party control of government, economics, and society. That 
obviously is not happening.
    Today, China is an economic heavyweight. Much of its growth 
has come at our expense. That is because the Chinese Government 
has broken rule after rule after rule and violated the 
commitments it made 2 decades ago. It is also because 21st-
century World Trade Organization rules have totally failed to 
keep up with 21st-century technology. And the fact is--and we 
said it in the Finance Committee room some time ago--the fact 
is the Internet is now the shipping lane of the 21st century.
    As a result, there is now a long list of trade ripoffs that 
have wiped out millions of American jobs: subsidized state-
owned enterprises; intellectual property theft; forced tech 
transfers; the Great Internet Firewall; and government-led 
shakedowns of foreign investors. China uses those schemes and 
entities to strong-arm American businesses, steal our 
innovations, and rip off our workers.
    Under President Xi, the government tightened its grip on 
power. The Chinese Government identifies weaknesses in the way 
WTO operates, and other multilateral forums, and then it seizes 
on them to promote their self-interest.
    Fixing the WTO is also going to require addressing its 
Appellate Body, which hampers the application of U.S. trade 
enforcement laws to the detriment of our workers. There is a 
broad bipartisan interest in the WTO dispute settlement 
process, and that it needs to be fixed to clamp down on 
judicial overreach. And I think that is an important area to 
explore.
    Just a couple of other quick points, and I will wrap up.
    First, a long-running battle against unfair fishing 
subsidies has the potential to bear fruit. Going back years 
ago, my Pacific Northwest colleague and a member of the 
committee, Senator Crapo, and I held a hearing on this issue. 
That hearing was literally a decade ago. Senator Portman was 
involved in getting those talks off the ground, going back to 
the days when he served as the USTR.
    The bottom line is that an agreement that curbs fishing 
subsidies is going to protect jobs, fisheries, and promote 
sustainable oceans. Accomplishing those priorities is vital. 
Our oceans are key to making sure we stabilize the climate and 
are feeding people around the world. And obviously our oceans--
and my State essentially borders the Pacific Ocean--those 
oceans provide trillions of dollars in economic activity, if 
nations around the world can protect them.
    Second, WTO discussions around digital trade disciplines 
are at an early stage, but they are also vital to economic 
development and empowerment here and abroad. The United States 
needs to work with our allies to set the rules of the road and 
set the standard for the free flow of information and ideas.
    I believe, Mr. Chairman, you are sitting in the Finance 
Committee room. Nobody would have thought 2 decades ago about 
the role of the digital economy in promoting high-skill, high-
wage jobs. And the fact is, a digital economy drives 
everything. It drives agriculture. It drives health care. It 
drives one industry after another. And setting the standards 
for the free flow of information and ideas can be one essential 
part of the World Trade Organization going forward.
    There is no chance at all that the United States can get 
better outcomes--better outcomes on the issues that you talked 
about, Mr. Chairman, and the issues I have talked about--by 
handing our power to the Chinese Government and just walking 
away from the World Trade Organization. That is why Democrats 
and Republicans need to continue to try to find bipartisan 
common ground on these issues as an alternative to just pulling 
back from the World Trade Organization. We are in a position to 
lead on that debate.
    This is an important hearing today. Thank you, Mr. 
Chairman.
    The Chairman. Thank you, Senator Wyden.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. I appreciate that very much.
    So, on to the introduction of our guests, and I will ask 
you to testify in the way I am introducing you. Since we have 
some people virtually, I am not sure where to look.
    So let us start with Ms. Jennifer Hillman, who serves as 
senior fellow for trade and international political economy, 
Council on Foreign Relations. Ms. Hillman has had a 
distinguished career in law and politics and knows a lot about 
the WTO, having served as a member of the WTO Appellate Body. 
Also, as Commissioner at the International Trade Commission. 
Also, at the U.S. Trade Representative as their Chief 
Negotiator and General Counsel. And also, at one time a 
legislative director here in the U.S. Senate. She also 
practices teaching of law--I should not say ``practices''--at 
the Georgetown University Law Center.
    Thomas Graham has been chair of the WTO's Appellate Body; 
also, a partner at the law firm of Cassidy Levy Kent. He was 
one of the first lawyers to represent the U.S. respondents in 
global trade remedy cases. And at King and Spalding, he chaired 
the international trade practice. He served as Deputy General 
Counsel at USTR. He has taught also at Georgetown University.
    Ms. Laura Lane is chief corporate affairs and communication 
officer at UPS. Ms. Lane had a notable career in public 
service, again another person at USTR, negotiating market 
access commitments on trade and services with China as part of 
its accession to the WTO, and was U.S. negotiator for World 
Trade Organization financial services negotiations. She has 
also served many years in the U.S. Foreign Service.
    Dr. Glauber serves as senior research fellow, International 
Food Policy Research Institute. Dr. Glauber is an expert on 
crop insurance, disaster policy, and U.S. farm policy. He spent 
over 30 years at the USDA, including as Chief Economist. During 
that time, Dr. Glauber was Special Agricultural Envoy for USTR, 
where he served as Chief Agriculture Negotiator at those talks. 
Additionally, he served as an economic advisor on export and 
domestic subsidy reduction commitments as part of the Uruguay 
Round.
    Finally, we welcome Michele Kuruc, vice president of ocean 
policy at the World Wildlife Fund. Ms. Kuruc worked with the 
United Nations Food and Agricultural Organization, there 
specializing in enforcement technology and operations; also, 
advising on dealing with illegal fishing globally. She has also 
served as a lawyer at the National Oceanic and Atmospheric 
Administration.
    We look forward to hearing from all of you today. So we 
start, then, with Ms. Hillman.

 STATEMENT OF JENNIFER A. HILLMAN, SENIOR FELLOW FOR TRADE AND 
INTERNATIONAL POLITICAL ECONOMY, COUNCIL ON FOREIGN RELATIONS; 
AND PROFESSOR, GEORGETOWN UNIVERSITY LAW CENTER, WASHINGTON, DC

    Ms. Hillman. Thank you. I want to commend you, Mr. 
Chairman, Ranking Member Wyden, and this committee for focusing 
this hearing on the World Trade Organization, because now is 
the time when we need the WTO more than ever, with 
international trade itself and a number of trade-related 
issues. Whether it is trade-
related aspects of global health or climate change or labor, 
these issues cannot be addressed with a go-it-alone approach. 
They require multilateral rules and a multilateral system to 
enforce those rules.
    Unfortunately, the WTO is in deep trouble, unable to reach 
new agreements on critical issues such as fisheries, subsidies, 
or e-
commerce and--due to the decision of the United States to block 
appointments to its Appellate Body--without a binding dispute 
settlement system to enforce its rules.
    While reforms need to happen across all aspects of the WTO, 
as I have discussed in my written testimony, I want to focus my 
brief remarks this morning on the dispute settlement system. 
Ever since May 2017, when the United States began blocking the 
appointment of new members to the Appellate Body, our trading 
partners have been asking the question, is the U.S. goal to 
reform the Appellate Body or is it to destroy it? With the 
testimony to the Ways and Means Committee last month, 
Ambassador Lighthizer gave the answer. For the Trump 
administration, the goal is to kill the Appellate Body. 
Ambassador Lighthizer stated, and I quote, ``I don't feel any 
compulsion to have the Appellate Body ever come back into 
effect,'' end quote.
    For my part, I do not believe that decision is in the 
United States' interest or that it is consistent with the clear 
expressions of support for a reformed Appellate Body from 
members of Congress. U.S. concerns with the Appellate Body have 
been raised for many years but often ignored in Geneva. As 
such, the U.S. action to block all appointments got everyone's 
attention and resulted in an entire process, both in Geneva and 
elsewhere, to develop reforms--while giving the United States 
significant leverage to shape a revised WTO.
    But just when the rest of the world was prepared to move, 
the United States effectively shut itself off from the reform 
process. American refusal to suggest any way to fix the system, 
or even what fixes recommended by others would be acceptable, 
makes it less likely that the U.S. proposals in other areas 
will receive the attention that they deserve, given the lack of 
trust in American leadership at the WTO. This includes the U.S. 
plan to create specific criteria for what it takes to be 
considered a ``developing country,'' as well as its well-
supported proposal to put teeth into the reporting requirements 
for notifications and subsidies.
    In addition, American failure to engage in the debate on 
reform of the Appellate Body cedes American leadership to 
others. Already, the rest of the world is moving ahead without 
the United States in the area of dispute settlement. Twenty-two 
countries, led by the European Union and joined by China, 
Canada, Mexico, and others, have agreed to an arbitration 
process for conducting appeals. It is quite likely that from 
this Multi-Party Interim Appeal Arbitration Arrangement, or 
MPIA, will emerge new approaches to handling appeals, and the 
United States will not have been a part of that process and 
will have no ability to shape its direction.
    A loss of perceived leadership could also be damaging to 
U.S. efforts to reach a new agreement on everything from e-
commerce to new disciplines on fisheries subsidies, and perhaps 
most importantly, to address the disruption caused by China's 
increasingly Communist Party-dominated nonmarket economy.
    Fixing the Appellate Body is achievable. And in my written 
testimony, I have suggested a number of specific ways to do so. 
It is in the United States' interest to lead that process, 
because a strong mechanism for enforcing the rules makes it 
much more likely that countries will agree to new commitments, 
including commitments to reform other aspects of the WTO if 
they believe there is a system that will hold all countries to 
those commitments.
    It will also be important because other countries will take 
their existing obligations more seriously if there is a serious 
mechanism for enforcing them. Fixing the Appellate Body will 
also give the United States, and like-minded members of the 
WTO, more leverage over China, given the need for a 
multilateral approach if we are to have success in achieving 
structural and systemic changes in China. And it may well help 
improve the prospects for addressing the growing rift with the 
European Union over digital trade-
related issues such as data privacy, digital services taxes, 
and antitrust disciplines on large high-tech companies.
    I urge this committee to keep working for a reformed WTO 
that can take on the 21st-century trade problems we are all 
facing. Thank you.
    [The prepared statement of Ms. Hillman appears in the 
appendix.]
    The Chairman. Thank you very much. And now we go to Mr. 
Graham.

            STATEMENT OF THOMAS R. GRAHAM, PARTNER, 
               CASSIDY LEVY KENT, WASHINGTON, DC

    Mr. Graham. Thank you, Chairman Grassley, Ranking Member 
Wyden, members of the committee. Thank you for this opportunity 
to testify on WTO reform, which I believe has to be done and 
has to be done well if the WTO is to continue being relevant 
for international trade.
    I will ad lib for a moment in response to what Jennifer 
said. I agree certainly that there must be reform, and that the 
United States must be a leader in that reform. However, I 
believe that for 15 years, increasingly the USTR and the United 
States have been telling the rest of the world and WTO members 
what they thought was wrong with WTO dispute settlement, 
including in a 110-page paper last January that summarized the 
statements over the years.
    And still, during my tenure and my observation on the 
Appellate Body, the European Union and others continued simply 
to say, ``Tell us what you want. Tell us what you want.'' In my 
view, that was a failure to recognize the depth of the U.S. 
critique of the Appellate Body--which we can talk more about--
of dispute settlement in particular, and to be saying in 
effect, ``Come on, put a few chips on the table so that we can 
get going on negotiations.''
    So that is where I differ as to the blame that might be 
placed on the United States. I also differ on this: my 
interpretation of the U.S. position in the last 3 to 4 years 
has been that they prefer Appellate Body reform, but deep and 
serious reform, and they are willing to bring the Appellate 
Body to a halt unless the reform is engaged with. And I place a 
considerable amount of blame on the European Union in 
particular, and others, for not recognizing the sincerity and 
depth of the U.S. critique--which has been consistent over 
three administrations, Republican and Democratic, for the last 
15 to 20 years--and for not acknowledging or indicating its 
willingness to come to grips with it, and instead preferring, 
seemingly, easy or low-hanging fruit over procedural matters.
    And with that, I will wind up my ad lib in response and 
carry on with a few prepared remarks. In a nutshell, my views 
are that the WTO Appellate Body has strayed from the rules that 
U.S. negotiators helped to write, and that the Congress 
reviewed and approved, some 25 years ago. For 20 years spanning 
three administrations--Republican and Democratic 
administrations--the United States has consistently called out 
the Appellate Body for exceeding its role and has sought 
corrections.
    Many WTO members, including the European Union, have been 
slow to acknowledge the depth and bipartisanship of the U.S. 
critique, or to engage with it. Reforms of WTO dispute 
settlement and reforms in updating the WTO rules should be done 
together. There should be no rush to restart the Appellate 
Body, and certainly not to do so as a ``price'' for the U.S. 
having blocked appointments in recent years. That would be to 
give away our leverage and to acknowledge or indicate fault 
when fault also lies with those who have not indicated a 
willingness to engage with the depth of the U.S. critique.
    Dispute settlement also affects the rest of the WTO in the 
sense that if the Appellate Body or the dispute settlement 
system over-reaches, it discourages, or provides a disincentive 
for countries to negotiate, because some believe they can get 
through litigation what they could not get through 
negotiations. And it also forces the negotiating governments to 
believe that they have to cross every ``t'' and dot every ``i'' 
or their words are at risk of being distorted by the Appellate 
Body and the dispute settlement system.
    Over the years, as was indicated both by Chairman Grassley 
and Ranking Member Wyden, a large part of the U.S. critique has 
focused on Appellate Body decisions that weakened U.S. trade 
remedy laws, laws that address dumped or subsidized imports, or 
sudden increases of imports that injure U.S. manufacturers.
    A lot of these cases have involved imports from China, 
whether the Chinese prices are market prices, whether state-
owned enterprises or other Chinese companies with significant 
government involvement are conduits for Chinese government 
subsidies. China is the elephant in the room for WTO reform. It 
is a difficult fit in a WTO system of rules that was based on 
market competition. I do not readily see how the dispute 
settlement system can be reformed and the Appellate Body 
restarted until a core of WTO members comes to grips with how 
China fits within the system. And that is a question larger 
than the Appellate Body and dispute settlement.
    So I would encourage the United States to take a long view. 
Above all, I encourage U.S. negotiators--and this committee in 
its oversight--to resist requests for quick, first-stage 
agreements that would restart the Appellate Body before there 
has been a serious engagement on reform of the institution as a 
whole. I think that would be counterproductive for the goal of 
significant reform and updating, both by papering over 
differences, making it likely that the same problems would 
recur, and by giving away a big chunk of U.S. leverage.
    I do not agree with the arguments that the rest of the 
world is moving on without the United States and we will lose 
out. There is not going to be a WTO without the United States. 
They need us. And we have made our point now. It appears that 
others are more open to basic reform, and I think that we 
should proceed with all due speed, but together with reform of 
dispute settlement and reform of the institution and the rules, 
particularly with regard to China.
    I look forward to your questions.
    [The prepared statement of Mr. Graham appears in the 
appendix.]
    The Chairman. Okay; Ms. Lane?

    STATEMENT OF LAURA J. LANE, CHIEF CORPORATE AFFAIRS AND 
          COMMUNICATIONS OFFICER, UPS, WASHINGTON, DC

    Ms. Lane. Chairman Grassley, Ranking Member Wyden, and 
members of the committee, thank you for having me here today. 
My name is Laura Lane, and I am the chief corporate affairs and 
communications officer for UPS, a global leader in logistics. 
And I am truly honored to testify on the need for WTO reform.
    The subject of today's hearing is of great importance to 
UPS. We are proudly headquartered in Atlanta, GA. We serve more 
than 220 countries and territories in the world. We employ 
almost half a million people, and every day UPS moves 6 percent 
of U.S. GDP and 3 percent of global GDP.
    To begin, let me tell you why the WTO is so important for 
the American business community. The people we employ depend on 
the 99 percent of the global trade that takes place in 
countries that are WTO members. With 96 percent of the world's 
consumers outside the U.S., American exporters and UPS 
customers have benefited from a single set of rules as they 
have entered new markets. That predictability and certainty 
becomes even more important during a crisis.
    As an essential service provider, we at UPS saw how 
important it was for countries to be able to quickly adapt best 
practices, from e-signatures on Customs documents to expedited 
border crossings for our heroic cargo pilots. Time is critical 
in our business, and never more so than during a pandemic, 
where the ability to move across borders quickly saved time. 
And more importantly, it saved lives.
    Chairman Grassley, I could not agree with you more that we 
need the U.S. to lead in reforming the WTO. Because the fact of 
the matter is, the world has changed since 1995. We need the e-
commerce negotiations done and, most importantly, we need trade 
rules to become more just, inclusive, and fair. On the justice 
point, Jennifer Hillman is the expert. I would only add that we 
need disputes resolved more quickly. No one wants to wait for 
needed critical PPE to be delivered, and so too businesses do 
not want to wait for justice in the WTO.
    And the WTO needs to be a little more like UPS and deliver 
more in a timely manner. In the 25 years since the creation of 
the WTO, the members have only concluded one new agreement--the 
Plurilateral Trade Facilitation Agreement. Now that was a 
really important agreement for UPS because it eliminated 
inefficient border processes to the benefit of our customers.
    But what about e-commerce? That has provided a lifeline to 
customers and businesses alike during this pandemic. The WTO 
needs to reach a deal to foster and not frustrate digitally 
enabled trade.
    On the point of inclusion, the WTO has done some really 
great work addressing women in trade, and small businesses, but 
so much more needs to be done now, especially if we are going 
to help with economic recovery.
    No one knows better than this committee working on the 
stimulus package--and on multiemployer pension reform--that 
women and small businesses have been the hardest hit by COVID-
19. The fact of the matter is that small businesses, and 
particularly women, have just not benefited as much from trade 
as they should. Under U.S. leadership, why not incorporate the 
language from the USMCA into the WTO to create real platforms 
to actively support small businesses, and to say that 
discrimination on the basis of gender or any community is just 
not allowed?
    Finally, on the need for fairness, the coronavirus has made 
the intervention of governments in markets necessary, but the 
WTO needs to address the issues of industrial subsidies and 
market intervention by state-owned and state-sponsored 
enterprises. We need a modern definition of ``developed'' 
versus ``developing'' country status, as so many countries that 
were developing in the 1990s have clearly graduated to more 
developed country status. And how about the all-important issue 
of environment? That needs to be addressed in the WTO in a way 
that is fair for business and communities.
    Finally, we need a Director General who can get 
negotiations going again and drive reforms that deliver 
justice, inclusion, and fairness. Tackling all these issues as 
we recover from COVID-19 will define the next generation of 
American trade and global development, which is why we need to 
invest in reform now.
    As an essential service provider, UPS has a vital role in 
advocating for the needed reforms. And as united problem 
solvers, we are prepared to deliver policy solutions to 
accomplish that goal. Thank you for your time today.
    [The prepared statement of Ms. Lane appears in the 
appendix.]
    The Chairman. Thank you. Dr. Glauber?

STATEMENT OF JOSEPH W. GLAUBER, Ph.D., SENIOR RESEARCH FELLOW, 
  INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE, WASHINGTON, DC

    Dr. Glauber. Chairman Grassley, Ranking Member Wyden, and 
distinguished members of the committee, thank you for the 
opportunity to testify before this committee on the current 
state of agricultural trade and the World Trade Organization. I 
have submitted a longer statement for the record, but this 
morning I would like to summarize a few of the points I make in 
my written statement.
    First, U.S. agriculture has benefited greatly from the 
rules-based trading system established under the WTO. Many of 
you remember, like I do, the state of agricultural trade during 
the 1980s. Many markets were protected through high tariffs, 
limited quotas, or outright bans on imports. Variable levies 
were in place in many countries, which allowed countries to 
adjust tariff levels to protect domestic markets as world 
prices fell or rose. Domestic support to agriculture, 
particularly among the rich developed members, was large and 
growing. Producers in those countries made production decisions 
largely insulated from the world market. Governments propped up 
domestic prices by storing production in large public 
stockpiles and dumping surplus on export markets using export 
subsidies.
    The Uruguay Round agreement on agriculture brought 
substantial discipline to the areas of market access, domestic 
support, and export competition--and global agricultural trade 
has more than tripled in value and doubled in volume since 
1995. U.S. ag exports have risen to record levels over the 
period, largely without the aid of export subsidies or 
concessional sales, a far cry from the 1980s when, if you 
looked at a commodity like wheat, most of that went out under 
export subsidies or export credits or food aid, or a 
combination of those.
    Exports account for a larger share of U.S. agricultural 
production in large part because most population and demand 
growth is occurring outside of this country. These trends are 
forecast to continue in the future, but it is essential that a 
functioning, rules-based trading system is in place. I would 
say trade is essential for improving global food security 
because, as trade levels have grown, so too has the importance 
of trade in meeting domestic food needs. As population and 
incomes grow, food demand will increase in areas where 
productivity gains are not enough to meet the domestic food 
needs.
    Imports as a percent of consumption have been growing over 
the past 20 years and are expected to continue to grow in the 
future. That means a more open trading system will be necessary 
if we are to meet food security goals. The last 2 years have 
shown how disruptive trade wars can be. Unilateral trade 
actions, followed by counter-retaliations, have hurt exports 
and disrupted global supply chains that have been built over 
the last 20 years. The short-term costs have been large, with 
billions of dollars of lost producer revenue in the U.S. alone; 
but the long-run costs could be more costly if importers no 
longer trust you as a reliable trading partner. We have already 
seen increased soybean plantings in South America over the past 
2 years, with record exports of soybeans coming out of Brazil 
this year.
    Turning to the Appellate Body reform at the WTO, I think 
you have two excellent panelists here who can speak far more 
knowledgeably than I, but I would just say that the system 
itself has worked very well for U.S. agriculture.
    Over the period 1995 to 2019, the U.S. took some 43 cases 
against WTO members involving agricultural products. Of those, 
17 of those cases went to a panel. The others were resolved as 
part of the dispute settlement process and before they went to 
a panel. But of the 17 that went to panels, panelists agreed 
with 80 percent of the claims that we made. If you are looking 
at those cases involving the agreement on agriculture, it was 
more like 85 percent of the claims that the U.S. made against 
other members.
    Ironically, in the midst of the trade war with China, the 
WTO ruled in our favor on two cases first brought to the WTO in 
late 2016, one on domestic support for grain producers in 
China, and the other on China's administration of its TRQ for 
rice, wheat, and corn. I believe this demonstrates the efficacy 
of the dispute settlement mechanism and its importance to the 
rules-based trading system.
    Does the WTO need reform? Absolutely. It is now 25 years 
since its creation, and the world is a different place. 
Developing countries now account for a far greater share of 
world agricultural imports and exports. South-south trade alone 
accounts for almost one-
quarter of total agricultural trade. And while significant 
progress has been made in eliminating export subsidies and 
promoting trade facilitation, market access and trade-
distorting domestic support have seen little reform since the 
Uruguay Round.
    We have issues with the Appellate Body process that were 
articulated just earlier, and whether in particular the 
Appellate Body is overreaching in its decisions. These are all 
important issues that need to be addressed, but it would be a 
huge mistake to walk away from a system of rules that has 
offered so much. The U.S. has been a leader in helping create 
the global trading system that we know today, and we cannot 
shirk that responsibility in the future. We need to work with 
other like-minded members in helping to reform the WTO to meet 
the needs of the 21st century.
    Lastly, the challenges of meeting future food needs will 
require a concerted effort from governments to improve the 
functioning of food and agricultural markets. And the WTO can 
play an enormous role by reducing trade-distorting support, 
improving market access, ending distortions caused by export 
restrictions and subsidies, and perhaps most importantly, 
continuing to provide a forum to which members can bring and 
hopefully resolve trade disputes.
    Thanks very much, and I look forward to the questions.
    [The prepared statement of Dr. Glauber appears in the 
appendix.]
    The Chairman. Now, Ms. Kuruc.

          STATEMENT OF MICHELE KURUC, VICE PRESIDENT, 
       OCEAN POLICY, WORLD WILDLIFE FUND, WASHINGTON, DC

    Ms. Kuruc. Yes. Thank you very much, Senator Grassley, 
Senator Wyden, and other members of the committee. My name is 
Michele Kuruc, and I work for the World Wildlife Fund. Thank 
you for having me here this morning.
    The details of what has transpired during 20 years of 
negotiations at the WTO on harmful fisheries subsidies is 
hardly a riveting story, but the inability to successfully 
conclude those negotiations and reach an agreement has been 
extremely frustrating. We have had to witness the concurrent 
decline in the health of the world's oceans, fueled in large 
part by harmful subsidies funding too many boats chasing too 
few fish. Our oceans are rife with illegal fishing, over-
fishing, and over-capacity. And each of those has its own story 
of failure.
    With illegal fishing, losses are valued at up to $36.4 
billion every year. With over-fishing, more than 80 percent of 
the world's fish stocks are already over-fished or at the 
maximum level for harvest. And with over-capacity, over 3 
million fishing vessels are estimated to fish in marine waters, 
and there are just not enough fish for all of them. Each of 
those damaging activities is furthered by subsidies. And after 
20 years, an agreement is overdue that puts an end to subsidies 
that perpetuate the attractive value proposition for these 
detrimental activities. And only the WTO can deliver that 
agreement.
    On a global level, the subsidies to fisheries are estimated 
at $35.4 billion annually. The top five subsidizing entities 
are China, the European Union, the United States, the Republic 
of Korea, and Japan. And while not all subsidies are considered 
harmful, about two-thirds are, with subsidies supplying fuel, 
gear, bait, tax breaks, and capacity enhancement for more and 
larger vessels contributing to declines in the entire sector's 
productivity and worsening the unsustainable downward spiral.
    As an example, local fishers off the coast of Africa and in 
the South Pacific must compete with much larger, subsidized 
foreign vessels, many fishing illegally. Inappropriate 
subsidies not only harm the environment, they directly promote 
unfair trade, and even contribute to geopolitical strategies on 
economic control.
    China has the world's largest distant water fishing fleet, 
a fleet that not only fishes in multiple oceans but is used to 
project Chinese maritime power. That fleet is also supported by 
subsidies, allowing these Chinese boats to roam the world's 
oceans and prey on weaker nations--and thwart many laws 
designed to keep fish stocks at sustainable levels. China is 
first in giving capacity-
enhancing harmful subsidies, supplying about one-quarter of 
that total.
    Subsidies often claim to be essential to help small-scale 
fishers, those in poverty, or to only impact fishing within one 
country's waters. But none of that really withstands scrutiny. 
Large-scale fishing operations receive 84 percent of subsidies 
globally, while small-scale operators receive only 16 percent. 
Subsidies also support illegal fishing activities and are 
believed to provide between $1.8 and $3.7 billion annually to 
facilitating unlawful behavior on our oceans.
    Harmful subsidies also undermine fisheries management. 
Funds that are harmful subsidies ought to be redirected to 
improving fisheries management, which is a far better 
investment. The World Bank estimates that effective management 
of global marine fisheries and subsequent recovery would yield 
at least $83 billion in additional revenues each year. In the 
United States, our own fisheries management is strong, but in 
many other countries, that is not the case. Continued poor 
fisheries management, coupled with subsidized over-fishing, is 
not only putting law-abiding fishers, including our own, at a 
commercial disadvantage, but it is also a recipe for large-
scale economic and biological disasters and compromised food 
security.
    The United States has established a high-ambition outcome 
in these negotiations and has held to that while discussing the 
proposals of others. We have excellent negotiators, and they 
should stay the course and determine when and if compromises 
are needed. But this issue is also about the strength and value 
of the WTO as an institution.
    Many who have been long-time WTO watchers in this space say 
they feel there is reason to be optimistic on successfully 
concluding the negotiations this time, as it is the closest 
they have come in over a decade. But we also need to address 
unfair trade practices, and this means import control rules 
that identify and prevent illegal fish products from entering 
our lucrative U.S. market. The U.S. Seafood Import Monitoring 
Program, known as SIMP, is a useful start, but it currently 
only covers 40 percent of our fisheries imports. Other major 
fishery importing countries are considering following the U.S. 
lead, and collectively we can shut off the illegal fish tap if 
we do it right and expand it to include all species.
    Notwithstanding the SIMP import screening, approximately $1 
billion in illegal fish products are still entering the United 
States. It is important for the U.S. to work to address unfair 
trade practices, both subsidies and illegal fishing, that harm 
the environment, fisheries, U.S. fishermen, and our seafood 
industry.
    Thank you very much, and that concludes my remarks.
    [The prepared statement of Ms. Kuruc appears in the 
appendix.]
    The Chairman. Thank you very much. And before I start 
questioning, since so many of our members are remote, if you 
are not going to ask questions, please notify me so I do not 
wait around to call names that do not need to be called.
    And secondly, since people are remote and you might not 
know when your 5 minutes are up, I might interrupt at 5\1/2\ 
minutes and say, ``Wind up.'' Do not consider it being rude, 
but I want to keep people from going on for 3 or 4 minutes 
after their 5 minutes are up like we had yesterday. The other 
thing is to kind of be careful about the 5-minute rule because 
we have votes, and I want to keep this meeting going while 
those votes are going on. So I hope that we will have other 
members willing to chair while I go vote.
    I am going to start with Dr. Glauber. You have done an 
impressive job in your research, demonstrating that global 
trade in agriculture has become a mess when these cases are 
before the WTO. We had high tariffs, export subsidies, and all 
types of protectionist barriers. I hope we are in a better 
situation now, but it obviously is not perfect.
    The last couple of years have been particularly hard for 
farmers, because of trade wars and several other challenges. 
What can we do, both in the short term and long term, at the 
WTO to improve global market access for our farmers? That is my 
first and maybe only question to you.
    Dr. Glauber. Thanks very much. One, I think it is very 
important to get this Appellate Body crisis resolved. I think 
that short of the negotiations, where I think we have been 
fairly successful in opening markets, is when we see a country 
not implementing their trade regime the way the rules state. We 
have been able to take cases and argue them successfully.
    I think the China cases are a good case in point, both on 
domestic support. We argued that they were over their domestic 
support limits, and the panel agreed with us. China is in the 
process of complying, although I note today I think the U.S. is 
raising this issue again with the dispute settlement body.
    The other one is in TRQ administration. China just was not 
filling the TRQs that they said they were going to open for us 
when they acceded to the WTO, not just to us but to other 
countries. So I think that is very, very important. We have 
seen progress there. We won that case. If you are looking at 
TRQs for wheat and corn this year, they are well on the way to 
being filled. Rice still lags, and so I think that is going to 
be something that will have to be closely followed.
    But I think those things are the immediate issues to get 
the Appellate Body resolved, because the last thing we need is 
to get either in a panel or a compliance panel or something 
where a country decides to appeal that ruling and then we are 
stuck.
    And then lastly, I think we do need to get back to the 
negotiating table. I think this has been the gist of a lot of 
the comments that others have made here. I think as a 
negotiator, it was very frustrating to see the Doha Round sort 
of collapse the way it did. I think there were a lot of things 
in there that were really important to push forward: gains in 
market access, gains in domestic support.
    I think, frankly, the Director General has done a good job 
of trying to gather what low-hanging fruit was left out of that 
agreement. So things like trade facilitation--which others have 
mentioned--is very, very important. It was very important to 
get export subsidies eliminated. But there are still a lot of 
distortions in the world, and I think we need to move forward.
    The Chairman. I am going to cut you off because I have time 
for just maybe one more question. But thank you very much for 
what you have done to answer my question.
    I go to Ms. Hillman. The blocking of the Appellate Body's 
positions started under the Obama administration, and maybe in 
my memory even goes back to some things that were done in the 
Bush administration. So it has continued of course under the 
Trump administration. So there is a bipartisan agreement, it 
seems to me, that the Appellate Body is not working properly.
    It is unfortunate that we have to do this, but I think it 
was the only way to get countries to focus on the issue. We 
have been raising it for several years without success. I am 
concerned that we will lose leverage at some point in getting 
dispute reform if we do not find a path forward. In particular, 
it seems a fair number of countries have signed up for the 
alternative to the Appellate Body, the Multi-Party Interim 
Appeal Arbitration Arrangement, I guess it is called. At some 
point, I am worried that it may become less ``interim'' because 
countries will stick to this alternative rather than reform.
    Do you think that that is the case? And is there anything 
in the multi-party arrangement that you think we ought to 
consider beneficial or concerning?
    Ms. Hillman. Well, thank you, Mr. Chairman.
    I think that the Multi-Party Interim Arrangement--those in 
it are emphasizing the word ``interim.'' In other words, their 
view is that this is only being done until the formal Appellate 
Body can be restored. But I do not think you are wrong in 
suggesting that if this continues to drag on and on, it will 
become the only alternative.
    The good that may come out of it is that I think those that 
are involved in it have heard very clearly the United States' 
complaints. And so I think their hope is that they can develop 
a system that addresses the U.S. concerns. In other words, the 
MPIA process will get appeals done in 90 days, will not create 
precedent, will again do a lot of the things that the United 
States has been complaining about; will not overreach, will not 
try to write rules that are not there. So I think those that 
are involved in it intend for it to be a model of how you can 
do an appeals process that is consistent with the rules as 
written, and that is also addressing, to some degree, the 
United States' concerns.
    That is the hope: that it could show the way, if you will, 
that this can be done. We will have to see how it works out, 
but implicit in your question, I think, is the problem for the 
United States, which is that we are not a party to it. And at 
this point, it does not look like we will be a party to it. So 
it is ceding the leadership for the reorganization of the 
dispute settlement system to others that will not include us. 
And to me that is a real worry, that the process will not 
involve U.S. leadership and U.S. input.
    The Chairman. I am going to have to submit the rest of my 
questions for answer in writing because, with these votes 
coming up, we will not have time to have a second round. My 
next question was going to be to Ms. Lane, but you will have to 
receive it in writing.
    [The questions appear in the appendix.]
    The Chairman. Senator Wyden, I am going to step out for a 
few minutes. Do you have any UC requests that you want me to 
consider before you start asking your questions?
    Senator Wyden. I do not, Mr. Chairman.
    The Chairman. Okay; and then after his 5 minutes are up, it 
is Senator Carper, just in case I do not return. But I am only 
going to be gone a short period of time. Go ahead, Senator 
Wyden.
    Senator Wyden. Thank you very much, Mr. Chairman.
    Let me start with you, Ms. Hillman. And thank you for your 
years of good work on the very complicated issues surrounding 
the World Trade Organization, particularly the Appellate Body.
    Let me tell you what I am most worried about with respect 
to the Trump approach, and be very specific about it. It seems 
to me the Trump approach would put us in the position of our 
losing rules we have, without getting the rules we need. And 
that is really a double-whammy against the cause of promoting 
America's role in a global economy. And let me be specific. 
What we have now with the rules is access to foreign markets 
for our farmers and ranchers, our service providers, and for 
manufacturers. What we need are rules to curb government 
subsidies that undermine our farmers and fishers, rules to 
ensure the free flow of information and ideas, and better 
overseas market access for American manufacturers.
    Tell me your reaction to that. And it just seems to me what 
you really laid out is the risk that what we fought for and 
obtained could be lost, and we would not get what we need for 
the future under this Trump approach. What would be your 
assessment of that?
    Ms. Hillman. I think that is entirely correct, because the 
concern is that, in the absence of having an Appellate Body, if 
we are trying to enforce the rules that we have, all a country 
needs to do if the United States brings a case--and again, we 
have discussed many of the cases--and wins that case and the 
other party that loses does not want to comply, in the world 
that we are in right now, all they need to do is file a notice 
of appeal and say, ``I am appealing that decision.'' And under 
the rules of the WTO, no one can then do anything while an 
appeal is pending. You are not allowed to then seek 
enforcement, or to take other actions while the appeal is 
pending. And in the absence of having enough Appellate Body 
members to form a quorum, that appeal could be pending forever. 
Which means no one actually then formally has to comply.
    So then the only way you can think about getting compliance 
is to start down the road of retaliating, putting on tariffs. 
And we get back into this tit-for-tat, I put tariffs on you, 
you then say I should not have put those tariffs on, you put 
tariffs on me, and we start making every single dispute at the 
WTO become its own little mini-trade war in which all we are 
doing is imposing tariffs on one another and not solving the 
underlying problems.
    The other part of what is implicit in your question is, we 
need American leadership to get those new rules that you are 
talking about. And right now, the perception is that the United 
States has to some significant degree walked away from the WTO 
and from leading the effort for reform, because it has 
effectively walked away from the reform of the Appellate Body 
and the dispute settlement system. It is not getting the 
attention and the traction and the support that it needs on 
some of its other proposals.
    Yes, the United States has been very engaged in the e-
commerce negotiations, but again the question is whether there 
is trust in that American leadership. And to the extent that we 
are walking away from our negotiations in other places, it is 
handing a lot of that leadership to others in the WTO. And 
that, I think, is damaging to the United States.
    Senator Wyden. Thank you, very much. And I want to hold the 
record open for you, Ms. Hillman, if you would like to amplify 
on this. Because to me, this seems bizarre even by the 
policymaking standards of Washington, DC, that you give up 
rules you have, not get what you need, and I think you laid it 
out. And if you would like to amplify it for the record, that 
would be very helpful. And I appreciate your leadership.
    I have one more minute, and I want to use it on this 
question of fisheries subsidies to Ms. Kuruc.
    Ms. Kuruc, as you know, this has been the longest-running 
battle since the Trojan War. Senator Crapo, a thoughtful member 
of the committee, and I have been looking at this issue for 
years. Jobs in the seafood industry and a healthy climate in 
the Pacific Northwest depend on healthy oceans.
    Can you elaborate on how the specific obligations proposed 
by the United States not only improve the health of our shared 
oceans, but also support the fishers and our seafood industry?
    Ms. Kuruc. Yes. Thank you very much for the question. I 
think that some of the primary positions that the United States 
has taken want to hold all countries to a higher standard, 
minimize the special and differentiated treatment for IUU 
fishing, for over-
fishing, for over-capacity, trying to make sure that there are 
not special sort of proxy rules that eliminate the territorial 
sea--in other words, the distance between the coast and 12 
miles--that somehow say some of these subsidy rules should 
apply in that area.
    There are a number of countries that are proposing all 
sorts of different exceptions--things like ``the green box'' 
that make it seem like there should be special situations that 
are exempt from these sorts of subsidy prohibitions. And I 
think that the U.S. recognizes that without all countries 
following the rules, the loopholes are just too great, and that 
they need to be held to a higher standard. But we know that in 
international negotiations, compromise is the name of the game. 
Consensus is how it works.
    And I think that smart and influential U.S. leadership, as 
has been shown in many other forums, regarding this issue would 
be the way that we bring others along. And this is another 
example, as others have been talking about, why U.S. 
leadership, that other countries have come to really depend on, 
is so critical in this situation as well.
    Thank you.
    The Chairman. Senator Carper?
    Senator Carper. Thanks. Again, to each of our witnesses, 
welcome. To the two ladies who are here in person, thank you 
for coming. And for those who are joining us remotely, we thank 
you as well. This is an important subject. And, Mr. Chairman, I 
am delighted that we are holding this hearing, and I am 
appreciative of the input. One of the things my colleagues hear 
me say from time to time, probably too often, is, ``if it is 
not perfect, make it better.''
    And there has been a lot of conversation today and before 
about the flaws in the current WTO system. And like this 
administration, and like past administrations, I believe the 
WTO must be reformed to better tackle today's global trade 
challenges. This includes reforms to address non-market 
economies like China. At the same time, I have long believed 
that a global rules-based trading system is important to 
provide certainty and predictability for American farmers, for 
businesses, and for workers, all of whom rely on keeping 
overseas markets open for American goods and services.
    One of the things I used to do, when life was more normal, 
is customer calls to businesses in Delaware, all over my State 
and, in fact, around the country. I always asked three 
questions. How are you doing? How are we doing--we in the 
Federal Government--and when I was Governor of Delaware, how 
are we doing in Delaware? And, what can we do to help you?
    And when I ask them, ``What can we do to help you?'' they 
say, almost without exception, ``Provide us with grealter 
certainty and predictability''--almost everybody says that.
    The U.S. led efforts to create a system that allowed for 
greater certainty and predictability after World War II. And we 
have ceded that leadership of the WTO now, and I think it is a 
mistake. It only benefits one country, and that is China, the 
other giant in the room.
    I would just ask if each of you could take just a couple of 
minutes to share your thoughts on how the U.S. has benefited 
from being a leader in multilateral institutions like the WTO. 
And if we could, I am going to ask Thomas--I like that name, 
Thomas--Thomas Graham, Thomas R. Graham. My middle initial is 
``R.'' So, Mr. Graham, why don't you go ahead and lead us off, 
please? Thank you.
    Mr. Graham. The U.S. has been a leader, obviously, over 60 
years or more in creating the GATT and building the WTO, in 
setting up, actually, the Appellate Body and putting the rules 
together. Since then, and recently--it is not my place or my 
role or wish to carry water for the Trump administration. 
However, on this point, we would not be having these talks--we 
might here--but the world would not be having talks about 
reforming the WTO, and reforming the dispute settlement system, 
had the United States not taken a very firm stand as it did 
recently, because the U.S. had been offering the same critique 
for many years. And many, the EU included, were pretty happy 
with the way things were, and were willing to talk about 
tinkering, but not basic reform.
    So that is why we are talking about basic reform----
    Senator Carper. Mr. Graham, I am going to ask you to hold 
it right there so some of our other witnesses have a chance to 
respond.
    Mr. Graham. Okay.
    Senator Carper. Thank you for that response. Ms. Hillman, 
please.
    Ms. Hillman. I would say the key benefit that all Americans 
get from the WTO is a fundamental principle that you cannot be 
discriminated against. In other words, the core basis of the 
WTO rules is that countries cannot discriminate on the basis of 
nationality.
    So no country can say, ``Well, I prefer goods from Europe, 
and therefore I am going to put a higher tax on goods from 
America.'' I mean, we benefit from that basic rule that you 
cannot be discriminated against--and that foreign goods cannot 
be discriminated against over domestic production. And it is 
the predictability and the certainty that your goods will 
trade, that you can count on your trading partners when you 
need them, that their goods will be able to move into your 
market without discrimination, as an absolute core bedrock 
principle of the WTO. I think we need more than ever to remind 
everyone that goods will move, that you can count on it, and 
that you will not be discriminated against.
    Senator Carper. Okay, hold it right there. That was 
excellent. That was an excellent, excellent response. Thank 
you.
    Let me turn to Ms. Lane, please.
    Ms. Lane. I just want to echo what Jennifer Hillman said 
but focus on one area that is specifically important for UPS, 
and that is the trade facilitation aspects of the WTO; that 
agreement that was struck that makes it easier to cross 
borders.
    We have so many small and medium-sized businesses that are 
challenged with some of the complexities of getting their goods 
across boarders. The Trade Facilitation Agreement, which was 
launched within the WTO, is so important for making it easier 
to do trade. When trade is simple and easier to do, more trade 
happens. Who benefits? The small and medium-sized businesses, 
which are the heart of the American economy. Thank you.
    Senator Carper. All right; thank you. Dr. Glauber, how has 
the U.S. benefited from being a leader in institutions like the 
WTO? That is my question.
    Dr. Glauber. Yes; thanks, Senator. And I would just say, if 
you looked at the history of the GATT, one thing that was 
evident is that agriculture was largely outside of it and we 
had very distorted markets. I think with U.S. leadership during 
the Uruguay Round, we brought agriculture within the WTO. We 
gave it disciplines on domestic support. And in fact I think 
these are disciplines--some of the work done on domestic 
support now is being looked at as a potential model for looking 
at industrials.
    So I think all that has resulted in enormous growth in 
trade, both exports and imports, and I think both U.S. 
consumers and U.S. producers have benefited from that.
    Senator Carper. Thank you all. Ms. Kuruc, I am going to ask 
you to answer that same question for the record, because my 
time has expired.
    The Chairman. Thank you. Is Senator Brown available 
virtually? Otherwise, I will go----
    Senator Brown. Yes, Mr. Chairman, I am. Yes, sir. Thank 
you.
    The Chairman. Go ahead, Senator Brown.
    Senator Brown. Thank you, Mr. Chairman, for this hearing. I 
really appreciate it. I enjoyed Senator Carper's questions.
    Ms. Hillman, I want to talk to you. I know you have 
extensive training and experience, including at the WTO, so I 
am going to focus my questions on you today.
    U.S. trade remedy laws help American workers fight against 
companies and countries who cheat, particularly Chinese state-
owned enterprises. For years I have expressed my concern that 
WTO and its constituents have undermined these important trade 
enforcement tools. And I would like a ``yes'' or ``no'' answer 
here. Do you agree the Appellate Body has unfairly targeted and 
weakened U.S. trade remedy laws, Ms. Hillman, yes or no?
    Ms. Hillman. Yes, I do.
    Senator Brown. Thank you. You served as a telemember of WTO 
from 2007 to 2011. Based on your experience, can you name one 
example when the WTO has purposely taken steps to expand worker 
rights either in the U.S. or elsewhere in the world?
    Ms. Hillman. On workers' rights, I think it is difficult, 
because there are not specific disciplines in the WTO, so there 
were not specific challenges related to workers' rights, at 
least not during my time at the WTO.
    Senator Brown. That is exactly right. I mean, I think 
that--I cannot think of a single time when the WTO purposely 
put workers at the center of its objectives, and I think that 
is a fundamental flaw in the organization.
    As you know, Senator Wyden and I, the ranking member, 
authored a provision in USMCA, the Brown-Wyden rapid response 
mechanism. Probably the USMCA would not have passed the House 
and Senate were it not for that, because it brought in a lot of 
support, because there is a lot of support in this Senate for 
allowing workers to report when a company has violated their 
labor rights and to see action within months if violations 
occur.
    We designed the provisions, I think you know, to ensure 
workers had a say on the enforcement of an agreement that will 
have a direct impact on their lives. WTO decisions affect the 
lives of workers in the U.S. and around the world, as you know.
    In what way did you or other members incorporate workers' 
interests when you considered cases before the Appellate Body? 
Did you reach out to unions or other advocates to hear how the 
decisions that you made might affect workers in the U.S. or 
around the world?
    Ms. Hillman. No, Senator, there is not really a process 
within the WTO dispute settlement. The disputes are government 
to government. So all of the presentations that are made before 
panels of the WTO and before the Appellate Body are made solely 
by governments. There are not direct witnesses. There is not 
the taking of direct testimony before the Appellate Body.
    The decisions are made on that record. So we were very much 
limited by what the governments chose to present in their 
disputes. And I would suggest that workers' issues, workers' 
rights, and workers' claims were rarely if ever raised by those 
governments.
    Senator Brown. Does that mean that you think Appellate Body 
reform should include putting workers more at the center of 
enforcement provisions?
    Ms. Hillman. Certainly it would be important for workers' 
rights and issues to be made a part of the consideration within 
the rules that are being applied. I am not sure how to do so 
directly; in other words, the dispute settlement system is 
simply applying the rules as they were written. And the issue 
that you are clearly pointing out is that the rules today do 
not include----
    Senator Brown. Would you support--I am sorry to cut you 
off, Ms. Hillman. Would you support rewriting provisions so 
that that can be the case?
    Ms. Hillman. Yes.
    Senator Brown. Okay; good. You have been quoted as saying 
critics of modern trade deals ask them to do too much. I am a 
critic of modern trade deals because I think they create a race 
to the bottom that undermines workers' economic security, which 
hurts our economic strength and national security.
    Do you agree with that, or disagree?
    Ms. Hillman. Again, I think there has to be an 
understanding of the link between what trade does and what is 
done on the domestic side. So I think a lot of what has not 
happened, particularly I would say in the United States, is the 
kind of long-term support for worker training, for worker 
development, that would allow American workers to remain as 
competitive as they need to and should be. And I think it is 
important that trade agreements and trade policy start to 
recognize the important link between trade and domestic 
policies affecting the competitiveness of our workers and their 
long-term training, health, and other matters.
    Senator Brown. But you are not saying that trade deals have 
cost us jobs--well, let me ask it another way. You are putting 
all of this on worker training, not on the way we write trade 
laws to advantage corporations over workers?
    Ms. Hillman. I think it is a more complicated question than 
that. So I am suggesting that I think the major benefit of 
trade agreements is to open new doors. And the question is, who 
walks through that new door once it has been opened? And I 
think it is very clear that those who walk through that door 
are those with capital and those with know-how. And so to that 
extent, I do think those who are lacking in capital and know-
how are disadvantaged by the fact that they are not readily 
able to walk through that new market access door that the 
agreement opens.
    Senator Brown. So low-skilled workers do not figure in 
trade agreements?
    Ms. Hillman. Again, I think they are left out.
    Senator Brown. They are left out.
    Ms. Hillman. They are left out. In other words, I think 
their considerations are not as readily taken into account, 
because when you open up that new market, which is what a trade 
agreement is supposed to do--open up a market for American 
goods, American services, American farm products--those who are 
able to take advantage of that new market access are those who 
are swiftly and readily able to take a walk through that market 
access door. And that often requires both capital and know-how.
    Senator Brown. So trade agreements--in closing. I will 
close, Mr. Chairman; thank you. Trade agreements, if they say 
they are about opening up markets, they are also agreeing for 
corporations to take advantage of cheaper, unskilled labor 
which out-competes, on a not-level playing field, more 
expensive labor in another country. And that is what has 
happened with many of the trade agreements and enforcement that 
I think you have been involved in.
    Thank you, Ms. Hillman. Thank you, Mr. Chairman.
    The Chairman. Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    In many parts of my home State of South Dakota, and 
probably some in your home State of Iowa, Mr. Chairman, WTO is 
a bad word. And that is because South Dakota ranchers feel like 
the WTO is not with them. And I would say, who can blame them, 
when the WTO has ruled against them in major disputes impacting 
their livelihoods, like the country-of-origin labeling case?
    Still to this day, it makes no sense to most South Dakotans 
why the T-shirt that they wear can say ``Made in Country Y,'' 
but in most instances, the beef that they eat cannot. So my 
question for this panel is--if you could answer it ``yes'' or 
``no,'' and then I have a follow-up question--do you believe 
that the WTO decides agriculture disputes involving the U.S. 
fairly? Ms. Hillman?
    Ms. Hillman. I think if you look in the main, the vast 
majority of the agriculture disputes that have been brought to 
the WTO by the United States, we have won those. So in general, 
the WTO has ruled in favor of the United States in the vast, 
vast majority of agriculture cases. I think the case that you 
are pointing out over country-of-origin labeling is one of the 
exceptions. And I would only point out that it does not happen 
to have been decided under the agriculture rules. That decision 
was decided under the technical rules--technical barriers to 
trade.
    And I would agree with you that there was a lot that was 
wrong in that decision. But in the main, I think the decisions 
have been in favor of American agriculture.
    Senator Thune. Dr. Glauber?
    Dr. Glauber. I would agree with Professor Hillman. I think 
that in the main, the U.S. has done very well with the dispute 
settlement process. We do not have time to talk a lot about the 
COOL ruling, but I would say this, that any beef cuts that are 
coming in from Canada or Mexico have the country-of-origin 
labeling. What that case was about was animals that came from 
Canada or Mexico coming into the U.S. being finished and then 
slaughtered, that they would have to have that labeling.
    I think there are some technical aspects of that agreement 
that I would disagree with, but again I think generally we have 
done very, very well at the WTO dispute settlement body.
    Senator Thune. Does anybody have a different view than 
that? If not, my follow-up question then is----
    Mr. Graham. Mr. Thune, could I say very briefly, I think 
agriculture has done well at the panel stage, the consultation 
and panel stage. Maybe less well at the Appellate Body stage, 
which is where the labeling decision we are talking about was 
made, and as Jennifer said, it was not made under the 
agriculture rules.
    And I think there were problems with that decision.
    Senator Thune. So how then do we fix the impression that 
these cases are being decided unfairly? Which, again, is 
certainly how most of my constituents feel. Maybe we have not 
been as affected by the decisions that have gone in our favor, 
but they certainly seem to go against us a lot.
    Congress has acted more than once to pass country-of-origin 
labeling, and it gets appealed. And it is very hard to explain 
why some products that come into the United States are labeled 
accordingly, but for something that we consume, that we eat, we 
cannot seem to get a ruling that recognizes that people in this 
country would like to know where in the world their beef is 
coming from.
    I mean, it is just--does anybody know how we change the 
perception or the impression that people have out there?
    Mr. Graham. May I start off on that? If we were to dig into 
the weeds a bit more in reform, there are two problems with 
regard to agriculture and other areas--I think particularly 
trade remedies as well--that the people on the Appellate Body 
deciding them do not have backgrounds in. And one thing we 
might consider for reform is somehow bringing to review panels 
a wider range of experience, or experience in some of these key 
areas. That is first.
    Second, I think, again in the weeds of reform particulars, 
we need a means of review that is more flexible than the ``up 
or down'' votes in the dispute settlement body. When the 
Appellate Body makes a decision, it will be approved and become 
official unless a consensus opposes it, and that has never 
happened. So it is virtually automatic. There needs to be a 
better means of reviewing decisions that are arguably flawed, 
or that a case can be made are flawed.
    Senator Thune. All right; let me quickly shift. Ms. 
Hillman, it was recently announced by the UK that it was 
following the U.S.'s lead and would be banning Huawei 5G 
technology from its networks. I am concerned that many of our 
other allies and trading partners may not be taking adequate 
steps to secure their 5G networks. And in addition to changing 
our domestic trade policies and laws, do you think there is 
potentially a role to be played by the WTO in advancing 
security of the global communications networks?
    Ms. Hillman. At this point, Senator, where the WTO would 
come into play is, where do you draw this line between trade 
and national security? And at this point, the rules in the WTO 
are simply to say that you are allowed to do a whole series of 
measures if you can justify them as being done under the terms 
of what is referred to as Article 21 of the GATT under the 
national security rules.
    So right now there are not per se rules that would affect 
this. But where the WTO may come into play is helping create a 
very clear line between what is a genuine national security 
risk versus what is a protectionist trade policy. Because China 
is going to want to say, ``No, everybody is doing this just for 
protectionist reasons.'' And what we need to make sure that we 
can do very clearly and without too much burden is to push back 
and say, ``No, this clearly falls within the national security 
exception,'' and therefore the efforts that the United States 
and others are doing to try to keep Huawei out are justifiably 
done for legitimate national security reasons. And we need to 
make that easy and quick in order to make that basic 
distinction between trade protectionism versus national 
security.
    The Chairman. Senator Portman, are you ready virtually?
    Senator Portman. Thank you, Mr. Chairman.
    The Chairman. Go ahead.
    Senator Portman. First of all, thank you and Ranking Member 
Wyden for holding this hearing. It is a really important 
matter, and I appreciate what you said at the outset, and 
Senator Wyden said at the outset, and I agree with you that WTO 
is incredibly important. But it is also broken. And we need to 
put these reforms through, and we need to do everything we can 
here in the Congress to try to come together with a consensus 
on this, because it is going to be challenging.
    To our witnesses, I appreciate your expertise.
    Ms. Kuruc, I was glad to see your cautious optimism that 
the new text circulating could possibly be successful on 
fishing subsidies. As Senator Wyden said, I worked on this 15 
years ago as USTR for President George W. Bush, and we thought 
we were close then. So it is an important issue for us both, an 
important issue for the oceans--and I was glad to hear that--
and we need to push as hard as we can to help with that.
    I am also pleased that we seem to be focusing on WTO reform 
today, Mr. Chairman, as we have successfully completed USMCA 
and China Phase One. It is time to turn to this multilateral 
issue that we face. And people are watching. I think the world 
is really watching what we are doing here in the United States 
Senate. In particular, the desire for reform I think cuts 
across party lines. I heard that this morning from both 
parties. I think it cuts across branches of government. I know 
the executive branch has concerns, as has been discussed.
    I sat right here before you, Mr. Chairman--and Senator 
Wyden by the way, who was on the committee at that time--in 
2006, and I criticized the WTO overreach by the Appellate Body 
on antidumping rules and on zeroing. So this is a longstanding 
concern that administrations have had, as you have indicated, 
through various parties. I see three major related, yet 
distinct, problems with the WTO.
    One thing is, as we have talked about today, the judicial 
activism by the Appellate Body. I think it has weakened the 
multilateral system. Second, clearly the WTO has been unable to 
negotiate these new agreements. And I worked hard on the Doha 
agreement, and people forget that there even was a Doha 
agreement. Those negotiations have stalled. And then third, 
both of these problems have made the WTO ineffective at 
addressing the challenge that China's non-market, I would say 
techno-nationalism has posed to the multilateral system. I 
think China, as was said earlier, is the huge issue that has to 
be addressed as part of these reforms.
    Mr. Graham, I turn to you first. Can you briefly explain 
how judicial activism by the Appellate Body has prevented 
members from addressing the issues we are seeing right now with 
regard to China?
    Mr. Graham. Thank you for that, Senator Portman. I 
appreciate that opportunity. And in fact, had you not asked the 
question, I would possibly have wanted to intervene on that 
point.
    Judicial activism, particularly in terms of filling gaps--
as we all know, gaps or ambiguities exist in agreements, often 
because the parties could not agree, and they agree not to 
agree on them. When the Appellate Body fills those gaps, it 
makes negotiations more difficult in the future, because 
negotiators worry about how those silences will be filled, and 
so they do not want to leave them. They have to cross every 
``t'' and dot every ``i,'' and they also are uncertain whether 
it is necessary to negotiate if the Appelate Body makes broad 
decisions. So there is an interaction between judicial activism 
and the difficulty of reaching agreements.
    Senator Portman. Thank you. I think we cannot look at these 
Appellate Body issues in isolation. In a way, it is the canary 
in the coal mine for the multilateral system, and I appreciate 
your work on that. I want to follow up with you after this 
hearing.
    Senator Wyden and Senator Grassley both talked about the 
need for reform, and that it could be bipartisan. The chairman 
noted that Senator Cardin and I have recently introduced a 
resolution that expresses support for the multilateral system 
and the need for a WTO, but also proposes some specific reforms 
such as exploring plurilateral agreements without MFN, which I 
think is helpful with regard to China; restoring the ability of 
members to use safeguards and trade remedies; and other changes 
basically to bring the WTO into the 21st century and strengthen 
the ability of WTO members to respond to China's non-market 
practices. The purpose of this resolution we have introduced, I 
think is really threefold.
    First, we want to get more specific about the concerns at 
WTO and put those out there. Second, we want to propose 
solutions so that the world sees that we are not just 
complaining, we have some specific solutions. And third, we 
want to make clear that we see the rebalancing of the WTO in 
favor of negotiating as the primary guide when considering the 
value of various ideas on WTO reform.
    We have worked with Chairman Grassley on this proposal. We 
have also worked with Ranking Member Wyden, and we also have 
worked with USTR, and we have appreciated the input from all of 
them. And we are certainly open to other ideas.
    So I would ask today, Mr. Chairman, that we hold a hearing 
on this--that is important--but also that we consider a markup 
in this next opportunity we have in September now. And I would 
like to be able to mark up a resolution in the fall. Again, 
Senator Cardin and I have one. Others may have other ideas.
    I believe it could receive overwhelming bipartisan support 
if done properly, and I think it could send a very strong 
signal in terms of the need for WTO reform, and then specific 
ideas as to how to do it.
    The Chairman. I will be glad to consider your request for a 
hearing. I have to see how our schedule of hearings is. I do 
not have it in my mind now, but we can surely consider what you 
have asked us to do.
    Senator Warner, virtually. Senator Warner?
    [No response.]
    The Chairman. Okay, then we will go to Senator Hassan.
    Senator Hassan. Well, thank you, Mr. Chairman, and to 
Ranking Member Wyden as well, for holding this hearing. And 
thank you to all of our witnesses for your expertise and your 
presence today.
    Ms. Hillman, I will start with a question for you. 
Shortcomings in the WTO's dispute resolution process have long 
affected the ability of the United States to respond to unfair 
trade practices across a whole variety of sectors. For example, 
the New Hampshire timber industry has struggled for decades 
with unfair practices that put it at a competitive 
disadvantage.
    Ms. Hillman, going forward, how can we reform the WTO to 
address past shortcomings and to ensure that the dispute 
resolution process does not hinder application of our trade 
remedy laws?
    Ms. Hillman. Thank you, Senator Hassan. I would say in 
general, I think the WTO dispute settlement system has been a 
significant net win for the U.S. in terms of the number of 
victories. And I outlined a lot of that in my testimony.
    But the area that you are talking about, you are absolutely 
correct. It is the one place in which the WTO Appellate Body 
has gotten it wrong and has clearly cut back on the U.S.'s 
ability to use antidumping and countervailing duties and 
safeguards. That is where the problem really lies.
    And to me, there are a couple of ways to think about it. 
One is, I think you could really consider creating an entirely 
separate appeals process made up solely of trade remedy experts 
who could hear the trade remedy cases, so that you have really 
brought a different level of expertise.
    The second way to do it is to think about a totally 
different standard of review, where you are basically telling 
the Appellate Body and the WTO dispute settlement system that 
when it comes to trade remedies, you need to give deference to 
the investigating authority, to the U.S. Commerce Department, 
to the U.S. International Trade Commission, to say if you have 
done a fact-based investigation where the facts show enough to 
show that, yes, there were dumped goods, yes, there were 
subsidized goods, then you should simply give an appropriate 
amount of deference to those investigating authorities and 
should not be easily, readily overturning the decisions that 
they have made.
    So I think there are ways to get at this. And your question 
goes right to the heart of it.
    The second part of your question, though, goes to the issue 
of softwood lumber, trading lumber, and timber, and there the 
problem is the disciplines on subsidies. And it really goes to 
the heart of the problem with China.
    The disciplines in the subsidy rules are simply not good 
enough. And so in that area, we do need to rewrite the 
underlying rules themselves. It is too hard to prove subsidy 
cases. It is too hard particularly in economies like China 
where you cannot get your hands on any of the data or any of 
the information. The evidentiary burden is too high and the 
remedy is not good enough.
    So your question goes to two really key issues of reform 
that are needed in WTO.
    Senator Hassan. Well, I appreciate that, because we 
obviously need to get at the subsidies issue generally. We also 
need to provide stability to the timber industry, as well as 
the other sectors that have been affected by the kind of 
shortcomings we have just talked about. So I appreciate it very 
much.
    Ms. Lane, I want to turn to you for a minute. The 
bipartisan U.S.-Mexico-Canada Trade Agreement which went into 
effect earlier this month created platforms to help small 
business exporters. As Congress considers WTO reforms, we 
should be focused on similar ways to support small businesses 
engaging in international trade.
    Ms. Lane, what recommendations do you have to support small 
exporters through WTO reforms?
    Ms. Lane. We need to definitely take some of the provisions 
that were included in the U.S.-Mexico-Canada Agreement and 
bring them into the WTO. We need to specifically have 
mechanisms that help understand the challenges that small 
businesses face, and provide the tools so that they can use 
them to be able to trade more.
    Everything starts at the borders and ends at the borders 
for so many small and medium-sized businesses, and that is why 
we are such champions of the Plurilateral Trade Facilitation 
Agreement, because it makes borders more efficient.
    But we need to be doing more to make those processes easier 
to follow. Just taking those processes electronic is a simple 
way that small businesses can be able to engage in more trade, 
but also, making the rules a lot more simple. We started to do 
that, and have captured that in the USMCA. Bringing all of 
those new provisions, plus the mechanisms that specifically 
focuses on the challenges of small businesses, into the WTO is 
going to foster so much trade for all of these great companies.
    Senator Hassan. Well, thank you for that. I have one more 
question, which is, what specific things do you think we could 
do to expand access to trade opportunity for women- and 
minority-owned small businesses?
    Ms. Lane. I am so glad you asked that question, because 
that is such an important issue, particularly for UPS. We know 
that empowering women and allowing them to trade is not just 
the right thing to do, it is a smart business decision. And 
that is why we have dedicated so many resources to our Women 
Exporters Program, really helping women be able to understand 
how to engage in trade, giving them the tools, and providing 
them the mentorship as well as great logistic services to get 
their products around the world.
    But what is really important is the legislation that you 
have introduced, and it is the Women's Global Empowerment 
Development and Prosperity Act. When we recognize that women 
are at the center of an important part of U.S. foreign policy, 
we do so much to lift up women around the world.
    The fact of the matter is, women in some parts of the world 
cannot own property in their own name. They cannot open a bank 
account to be able to conduct business. Sometimes they cannot 
even travel without permission to be able to go across borders 
and sell their products.
    If we can get the WTO to recognize that women are important 
for resiliency and economic recovery and eliminate that 
discrimination that just is out there and exists in too many 
countries' laws, then we can really be lifting up 50 percent of 
the world's population. Your leadership has been tremendous. 
And I would say to all of the members of the committee, the he-
for-she Senators, we need to stand by the Senator and get her 
legislation passed. Because when women are empowered, the women 
of the world win, and the world wins. Thank you.
    Senator Hassan. Thank you. And thank you for your 
indulgence, Mr. Chairman.
    Senator Carper [presiding]. You are quite welcome. You were 
worth waiting for.
    All right; I am going to try to figure out how to go 
forward here with the help of our staff. I understand that 
Senator Cassidy might be next in the lineup. Are you with us?
    Senator Cassidy. I am here.
    Senator Carper. We will hear from Senator Cassidy at this 
time.
    Senator Cassidy. Can you hear me, Mr. Chairman?
    Senator Carper. Yes, Dr. Cassidy. Please proceed.
    Senator Cassidy. I wondered why you were so lax upon 
Senator Hassan going long, but that is clearly because there 
was a change of chairmen.
    So thank you all. I have industry--I am from Louisiana. My 
rice farmers, my shrimpers, my fisheries are all concerned 
about the issues you have raised. And others have already 
discussed some of these specific concerns.
    But, Mr. Graham, there seems to be a macro issue here, 
which is that China continues to exploit certain aspects. They 
are a developing country, and yet they are the second largest 
GDP in the world. They are considered a recently seated 
country, even though they have been there 10 years. And it 
seems like we kind of make statements, this is what you should 
do, and either there is not compliance--Dr. Glauber I think 
said it at some point, they are in the process of complying--
but I am concerned that process sometimes takes a long time.
    So, to the macro issue, can WTO be an effective 
organization if China, as big as they are, just makes a 
decision that they are going to attempt to exploit every 
loophole and/or do whatever they can to thwart the ability of 
the WTO to rein in their unfair trading practices?
    Mr. Graham. It can be an effective instrument. Its 
effectiveness has been very limited so far because of what I 
would regard as poor dispute settlement decisions, largely by 
the Appellate Body, and by such things as the Chinese 
Government involvement in state enterprises--and Chinese prices 
sometimes being artificially low but treated as market prices 
for purposes of trade remedy laws. That is specific.
    Second, regarding China's general approach, I think those 
specifics are more important day-to-day than the question of 
whether they are a developing country or not. They get certain 
advantages by the latter, but the day-to-day effect is felt 
more in competition with them and advantages that they gain as 
a result of settlement dispute decisions.
    Long-term, whether China will join in with a fundamental 
reform of the rules, including the dispute settlement rules, to 
address those things, frankly remains to be seen. Recently 
there has been a statement by a Chinese representative that 
they did not like that view, but it remains to be seen. But it 
has to be done. The reform exercise has to be pursued, and then 
we will see.
    Senator Cassidy. Well, we are not patsies. We do not have 
``stupid'' written across our face, theoretically. So is your 
best guess that they will, if given the chance--or more the 
hope that we had when they originally came into the WTO--that 
if we act in good faith, they in turn will act in good faith as 
well?
    Mr. Graham. My best guess is that in the end they will come 
around. But my view is that we should not have ``stupid'' 
written across our face and unduly go easy on them or unduly 
stop short of reforms that need to be made with regard to them 
in order to bring them in. And that is where I think we are 
eyeball to eyeball.
    Senator Cassidy. Ms. Hillman, you obviously feel as if we 
have retreated unnecessarily from the process. And yet it does 
seem that, as I just described, China is intent upon exploiting 
everything they can to make it ineffective.
    So let me ask you the same question I just asked of Mr. 
Graham. Until we resolve an approach to China, is the WTO going 
to be as useful vis-a-vis China, since they are clearly--they 
have been mentioned over and over, whether it is fisheries or 
rice subsidies, in terms of my State and others. We have not 
even discussed some other things that are very pertinent. What 
would you say to that?
    Ms. Hillman. Well, my own view is that I think we need to 
do a better job of using the WTO to push back on China. I have 
long----
    Senator Cassidy. So let me ask. Again, we have heard about 
fisheries, that they are oversubsidizing. I looked at the WTO 
rules on worker rights, and there are core values that each 
country is supposed to agree to, including no forced labor, and 
China notoriously uses forced labor.
    And when Senator Brown was speaking about our trade 
agreement, I have recently learned that our environmental 
requirements and worker rights requirements within USMCA 
actually put Mexico at a competitive disadvantage relative to 
China because they do not allow any of that. And so therefore 
it is cheaper to produce in China as opposed to Mexico.
    So continue it, but with that context and my understanding.
    Ms. Hillman. So my own view is the best thing that we can 
do is to bring a very big, bold, and comprehensive coalition-
based case against China. Because an awful lot of what they are 
doing is a violation of the WTO rules. But the United States, 
and many other countries, have not pushed China to be held to 
the rules that it has agreed to.
    Some time ago I testified in front of the U.S.-China 
Security and Economic Commission to recommend exactly this, a 
big case against China that would include 12 specific 
violations, including the kind of subsidies that you are 
talking about--an entire list of complaints where China is 
violating the commitments that it made when it joined the WTO.
    Why do it in a big, bold case? Because I think there is 
safety in numbers in terms of having a whole coalition of 
countries going after China. I also think it would make it much 
harder for China to get out from under trying to comply with a 
very big case like that that touched on subsidies, intellectual 
property, technology transfers, some of the labor issues that 
you are mentioning, the agriculture issues that you are 
mentioning, the requirement that China have an independent 
judiciary reviewing trade decisions. There is an entire list in 
this where I think you could put together a case that would 
have 12 or 13 very substantial claims against China, and do 
that, and do it now.
    In other words, make the WTO----
    Senator Cassidy. Before we get cut off by our lenient----
    Senator Carper. I am afraid we are going to have to cut you 
off. Really quickly, Dr. Cassidy. Really quickly.
    Senator Cassidy. No, no, no, I was trying to take back 
because I knew that we had to move on. Thank you, Mr. Chairman. 
Thank you all.
    Senator Carper. All right; that is all right. Thanks.
    Okay, next, if she is ready, is Senator Cortez Masto. Are 
you there?
    Senator Cortez Masto. I am here, and thank you to the 
panelists. And I think, Mr. Graham, you wanted to respond, 
because it was a great question, so please go right ahead and 
respond to Senator Cassidy's question.
    Mr. Graham. Thank you for the opportunity. I wanted to 
respond to what Jennifer just said. I think it underscores the 
points that should be covered in a negotiation with China. How 
would such a case be brought now, even if there were a 
functioning Appellate Body? If it had been brought last year, I 
have no confidence that the Appellate Body would have come out 
correctly--it might have been 2 to 1, possibly. And the 
institution is not prepared or in shape to entertain anything 
like such a big, broad-based complaint.
    That underscores the need for reform. All of those things 
that Jennifer mentioned are things that need to be negotiated 
together with the rules and dispute settlements over, however 
long it takes. And there is no case to be brought now. There is 
no entity to bring it, and no likelihood of success. Thank you.
    Senator Cortez Masto. Thank you. Thank you for that. I do 
want to get to reform. I so appreciate this panel's 
conversation. I have been in Banking, so I may ask some 
repetitive questions here, but I do want to start with this. 
Senator Casey and I recently introduced the Women's Economic 
Empowerment in Trade Act, an important piece of legislation 
that is a first step for shifting the conversation to focus on 
workers' rights and the right of women to have equal protection 
under the law, particularly in the trade space.
    And, Ms. Hillman, I want to thank you. The Council on 
Foreign Relations recently hosted both of us on a virtual 
roundtable series to talk about women in foreign policy. We 
were able to discuss the role of women and the role they play 
in the trade economy. Thank you so much to the CFR for that 
great conversation.
    So let me start with you, as you specialize in U.S. trade 
policy and the law and politics of the WTO and international 
organizations. Would you care to make any comment or 
observation on the importance of elevating women in a global 
economy?
    I know Ms. Lane talked about it, but I would love for you 
to weigh in as well.
    Ms. Hillman. I do not think it can be overstated how 
important it is, because women make so many of the economic 
decisions around the world. Empowering women makes a huge 
difference.
    And again, I think you saw this in 2017 at the ministerial 
meeting of the WTO. There was an effort to create a women's 
initiative. And the fact is that the initiative passed and that 
so many countries joined it, and then following on from that 
there has been so much work done to understand why it is so 
much harder for women to fully engage in trade, and all of the 
things that Laura Lane just talked about.
    The idea that in so many countries women cannot own 
property, cannot open a bank account, cannot set up a business, 
cannot do a lot of these things when they are the drivers of 
the economy in so many other places, I think underscores how 
important it is to see the role that women need to play in the 
trading system.
    So I think all efforts to try to make sure that we are 
constantly aware of that are extremely important. And I think 
this message has been very, very well received at the WTO. 
There is much more of an effort to literally scrub through 
every single aspect of the WTO agreements to try to find out 
where the language may appear to be neutral when you read it, 
but when you think about what its implications are, you 
discover that it is actually having a drag on the ability for 
women to fully engage in trade.
    And that effort to rethink and rewrite an approach to the 
rules that is not just gender-neutral but is really taking 
onboard the impediments to women, I think is a serious effort 
at the WTO, and I think it needs to be underscored. And I 
applaud your efforts to be part of this process, and thank you 
for the legislation that you have introduced, because I think 
it is making an extremely important contribution.
    Senator Cortez Masto. Thank you. And I notice that my time 
is up, so I want to let others get questions in before the vote 
closes. Thank you all on the panel. I will submit the rest of 
my questions for the record. I so appreciate the conversation 
today.
    [The questions appear in the appendix.]
    Senator Carper. All right; thank you, Senator Cortez Masto.
    Senator Whitehouse, I think you are next.
    Senator Whitehouse. Great. Thanks so much, Mr. Chairman. 
Thank you all for being here.
    First, Commissioner Hillman, as we deal with climate 
change--which, by the way, thank you for having the temerity to 
mention it in your prepared remarks. This and the board room of 
Marathon Petroleum may be the only two buildings in the country 
where people do not have a sensible discussion about climate 
change. But if you look at climate solutions, and you look at 
what has been the prominent climate solution proposed on the 
Republican side, by corporate America, by the sort of 
libertarian-leaning think tanks and so forth, they all come to 
a price on carbon. In fact, today thousands of students around 
the country just issued a joint statement of student campus 
organizations supporting a price on carbon. So it has a real 
foothold here.
    The critique of it is that, well, the company in America 
that has paid a price on carbon is going to lose its business 
to the company in Canada or Mexico, right across the border, 
that does not have to pay a price on carbon. And the answer to 
that, of course, is a border adjustment that makes that 
correction.
    Is it possible to have border adjustments that solve the 
competitive problems created by a carbon price that happens in 
one country but not in another? And could such a border 
adjustment meet WTO muster?
    Ms. Hillman. Absolutely yes, Senator. And there is----
    Senator Whitehouse. To both questions?
    Ms. Hillman. To both questions. Yes, you can put a border 
adjustment on, and, yes, you can do a border adjustment that is 
fully consistent with the WTO.
    Senator Whitehouse. Thank you.
    Ms. Kuruc, if I could get you for a second on ocean stuff. 
My time is a little bit short, so some of this you may have to 
respond to for the record in writing, but there is a lot of 
bipartisan interest in oceans in Congress. I see it firsthand 
in the Senate.
    And we have issues where I think you would find enormous 
bipartisan support like the China fleet, about which you 
testified, which is out there ruining oceans and bullying 
neighbors and ignoring rules and boundaries, all well as acting 
as an instrument of policy of China.
    Generally we have done some good stuff on pirate fishing. 
We did all the pirate fishing treaties. We have done the Port 
State Measures treaty. We did the Port State Measures 
legislation, all of this by unanimous consent in the Senate, 
all Republicans and Democrats together.
    Could you let us know two things? One, what should we be 
pressing China on, because I think you have a ready audience 
for that. And two, what should the Oceans Caucus, our 
bipartisan oceans group here in the Senate, be looking at as 
the next steps on controlling pirate fishing, including 
enforcement? I know you said that is not all of it, but 
enforcement is a lot of it. We have these new technologies for 
satellite-based wake recognition software and so forth.
    So if you could, answer on those two things.
    Ms. Kuruc. Sure. Thank you very much, Senator Whitehouse. 
Quickly, just to say that, initially, I think one of the 
biggest things that China needs to do is be more transparent. 
They need to provide data. They need to provide information 
about all sorts of things that they are doing.
    Part of the reason that we do not know the full extent of 
so many of their activities is because they are sort of 
characteristically a very secretive society. They refuse to 
provide information. And this has just happened over and over 
and over again.
    Senator Whitehouse. Would you send me a proposal?
    Ms. Kuruc. Happy to.
    Senator Whitehouse. Great. And one last thing on plastics. 
We are trying to engage more and more on plastics. We just had 
a hearing in Appropriations where the Republican subcommittee 
chairman promised that he would support a fund for 
international ocean plastic cleanup.
    PROBLUE is out there already. What do you think, with 
respect to a plastics treaty, should be our next steps, given 
that so much of the plastic waste that gets thrown into the 
ocean comes from maybe a dozen countries and a dozen rivers? If 
we could clean up a dozen countries and a dozen rivers, we 
would really get way ahead of the problem.
    Ms. Kuruc. Yes; I completely agree. It is not only the 
cleanup. It is about curtailing the production, and making sure 
that there are facilities in those megaproducers to actually 
deal with all of the products that they do not have adequate 
facilities for disposing of, or recycling, or reducing.
    Senator Whitehouse. So if you--and I will throw in Ms. 
Hillman also, if you are interested--if you have ideas for us 
on what our best options are through the international treaty 
process for improving our international performance on ocean 
plastic waste, if you could send me that list as well along 
with your China transparency list, I would be grateful. And my 
time is up.
    Thank you. Thank you, Mr. Chairman.
    Senator Carper. Thank you for those questions. I very much 
approve that line of questioning. I am sure almost all of us 
do.
    Is there anyone else who would like to be recognized for a 
question to our witnesses?
    [No response.]
    Senator Carper. Hearing none, the chairman had to go vote. 
He was kind enough to ask me to sit in for him for the 
conclusion of this hearing.
    So I want to say to Mr. Graham, to Ms. Hillman, to Ms. 
Lane, to Dr. Glauber, to Ms. Kuruc, thank you very, very much 
for joining us today. We want to thank our colleagues who were 
able to be here in person and those who have joined us 
remotely. I thank our staffs for helping to make all this work, 
and it worked flawlessly, as far as I could tell.
    But we want to especially thank our witnesses for taking 
time out of what we know are busy schedules to come here to 
speak to us, to share your thoughts, and to respond to our 
questions. Your input on an extremely important topic is much, 
much appreciated.
    I would request that Senators with questions for the record 
please submit them by close of business on August 14th.
    And with that, this hearing is adjourned.
    [Whereupon, at 12:16 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


  Prepared Statement of Joseph W. Glauber,\1\ Ph.D., Senior Research 
          Fellow, International Food Policy Research Institute
---------------------------------------------------------------------------
    \1\ The views expressed are those of the author and do not reflect 
those of the International Food Policy Research Institute or the 
American Enterprise Institute. The American Enterprise Institute in a 
nonpartisan, nonprofit, 501(c)(3) educational organization and does not 
take institutional positions on any issue.
---------------------------------------------------------------------------
    Chairman Grassley, Ranking Member Wyden, and distinguished members 
of the committee, thank you for the opportunity to testify before this 
committee on the current state of agricultural trade and the World 
Trade Organization. I am currently a senior research fellow at the 
International Food Policy Research Institute and visiting scholar at 
the American Enterprise Institute. Prior to coming to IFPRI in 2015 I 
spent over 30 years at the U.S. Department of Agriculture, where I 
served as Deputy Chief Economist from 1992 to 2007 and Chief Economist 
from 2008 to 2014. In addition, from 2007 to 2008 I served as Special 
Doha Agricultural Envoy at the office of the U.S. Trade Representative, 
where I was the U.S. Chief Agricultural Negotiator in the Doha talks at 
the World Trade Organization.

    Global agricultural trade has seen tremendous growth since creation 
of the WTO in 1995 and U.S. agriculture has been a major beneficiary of 
the rules-based system that the United States and others helped create. 
The challenges to meet growing global food demand include population 
and income growth and supply uncertainties complicated by a changing 
climate, environmental pressures and water scarcity. All of those point 
to the increasing importance of trade and need for a more, not less, 
open trading system. A strong WTO is critical to helping meet future 
food needs.
           agriculture in a rules-based global trading system
    Today, almost 25 years after the creation of the WTO, many may have 
forgotten the state of the trading environment facing agriculture in 
the 1980s. D. Gale Johnson, a prominent University of Chicago 
economist, referred to it as a ``world in disarray.'' Many markets were 
highly protected through high tariffs, limited quotas, or outright bans 
on imports. Variable levies were in place in many countries, which 
allowed countries to adjust tariff levels to protect domestic markets 
as world prices fell or rose. Domestic support to agriculture, 
particularly among the rich developed members such as the U.S., Japan, 
and the EU, was large and growing. Producers in those countries made 
production decisions largely insulated from the world market. 
Governments propped up domestic prices by storing production in large 
public stockpiles, by maintaining high tariff barriers, or both. 
Governments dumped surplus production on export markets, using export 
subsidies and restitutions. This further distorted markets and harmed 
other exporters, often developing countries that had little or no means 
with which to protect their own producers and limited recourse within 
the General Agreement on Tariffs and Trade (GATT) to redress trade 
disputes.

    The Uruguay Round Agreement on Agriculture (AoA) brought 
substantial discipline to the areas of market access, domestic support, 
and export competition. Under the AoA, members agreed to convert non-
tariff barriers to tariff equivalents and, where necessary, to 
guarantee minimum access to domestic markets through the creation of 
tariff-rate quotas (TRQs). Developed countries were required to cut 
tariffs (the higher out-of-quota rates in the case of tariff quotas) by 
an average of 36 percent in equal steps over 6 years. Developing 
countries were required to cut tariffs by an average of 24 percent over 
10 years. Several developing countries also used the option of offering 
tariff ceilings in cases in which duties were not ``bound'' (that is, 
committed under GATT or WTO regulations) before the Uruguay Round.

    In the area of export competition, export subsidies were capped and 
then reduced in both value and volume. In Nairobi in 2015, WTO members 
agreed that developed countries would immediately remove export 
subsidies except for a handful of agriculture products and that 
developing countries would do so by 2018 (with a longer time frame in 
some limited cases).

    Finally, under the AoA, domestic support levels were bound and 
subject to reduction commitments (20-percent reduction over 6 years for 
developed countries and 13-percent cuts over 10 years for developing 
countries). Countries were encouraged to adopt support policies that 
had minimal production- and trade-distorting effects and that were 
exempt from reduction commitments (so-called green box policies).
                  growth in global agricultural trade
    Global agricultural exports have more than tripled in value and 
more than doubled in volume since 1995, exceeding U.S. $1.8 trillion in 
2018 (figure 1). Rapid growth over the period 2000-2010 was due largely 
to increases in commodity prices, reflecting the impact of several 
factors on agricultural commodity markets. These included a substantial 
expansion in biofuel consumption, higher energy prices, relative price 
effects associated with a weaker U.S. dollar, and shifts in consumption 
patterns in emerging economies such as China that favored meat, dairy 
and other high value products. Since 2013, large global harvests and a 
slowdown in the demand for biofuels have caused cereal and oilseed 
prices to decline from peaks reached in 2012-13. Yet while agricultural 
prices have declined somewhat since 2014, trade values and volumes have 
continued to climb. And while the coronavirus pandemic is expected to 
sharply curtail overall trade in manufactured goods, food exports will 
likely be less affected for the simple reason that people must eat.

[GRAPHIC] [TIFF OMITTED] T2920.001


    As trade levels have grown, so too has the importance of trade in 
meeting domestic food needs. In 2019, for example, one quarter of wheat 
consumed in the world was obtained from imports (table 1). Even for 
rice, for which in most countries consumption is overwhelmingly met 
from domestic production, globally import penetration more than doubled 
(from 4 percent to 9 percent) over that period. Soybean imports 
accounted for about one quarter of global consumption in 1995; by 2019, 
such imports accounted for about 43 percent of consumption. Import 
penetration for vegetable oils also increased at a similar rate. In the 
meat sectors, both beef and swine imports have increased relative to 
global consumption. Import penetration for chicken meat has remained 
relatively flat at 10 percent, but global chicken consumption has more 
than doubled since 1995. Import penetration rates for some dairy 
products such as butter and cheese are lower than rates in 1995 partly 
as a result of WTO export subsidy disciplines imposed on large dairy 
exporters like the United States and European Union who had previously 
used concessional sales and export subsidies to manage surpluses caused 
by high domestic price supports. Imports of skim and whole milk powder 
continue to grow in importance in global dairy trade and now account 
for 35 percent of global consumption.


                                     Table 1_Global Import Penetration Rates
                                  (Imports as Percent of Domestic Consumption)
----------------------------------------------------------------------------------------------------------------
                Commodity                  1995/1996   2000/2001   2005/2006   2010/2011   2015/2016   2019/20f
----------------------------------------------------------------------------------------------------------------
Corn                                             12%         11%         12%         11%         13%         15%
----------------------------------------------------------------------------------------------------------------
Rice                                              4%          6%          7%          8%          9%          9%
----------------------------------------------------------------------------------------------------------------
Wheat                                            17%         18%         18%         22%         24%         25%
----------------------------------------------------------------------------------------------------------------
Soybeans                                         27%         30%         31%         37%         44%         43%
----------------------------------------------------------------------------------------------------------------
Vegetable oil                                    34%         33%         39%         41%         41%         41%
----------------------------------------------------------------------------------------------------------------
Sugar                                            29%         31%         32%         31%         32%         29%
----------------------------------------------------------------------------------------------------------------
Cotton                                           33%         31%         31%         44%         32%         37%
----------------------------------------------------------------------------------------------------------------
Beef and veal                                    10%         11%         12%         12%         13%         15%
----------------------------------------------------------------------------------------------------------------
Chicken                                          10%          8%          9%         10%         10%         10%
----------------------------------------------------------------------------------------------------------------
Swine                                             4%          4%          5%          6%          7%          8%
----------------------------------------------------------------------------------------------------------------
Butter                                           18%          6%          6%          3%          3%          3%
----------------------------------------------------------------------------------------------------------------
Cheese                                           21%          7%          8%          7%          6%          6%
----------------------------------------------------------------------------------------------------------------
Milk powder                                      47%         29%         25%         27%         28%        35%
----------------------------------------------------------------------------------------------------------------
Source: USDA, Foreign Agricultural Service, PSD online. 2019/20f = forecast as of July 12, 2020.


    As global trade has grown over the past 25 years, an increasing 
share of exports and imports has come from developing countries. From 
1995 to 2016, the share of total food imports and exports accounted for 
by developing countries grew from 26 percent to 39 percent and from 31 
percent to 40 percent, respectively (table 2). If intra-EU trade is 
excluded, developing countries' imports and exports accounted for 
almost 60 percent of global food trade in 2016. South-South trade (that 
is, trade between developing countries) also increased, accounting for 
over 24 percent of total trade in 2018 compared to 12 percent in 1995.


       Table 2--Share of Total Food Trade by Developing Countries
------------------------------------------------------------------------
       Item           1995     2000     2005     2010     2015     2018
------------------------------------------------------------------------
Developing country   31.0%    32.5%    33.6%    38.4%    40.2%    40.2%
 share of total
 food exports
------------------------------------------------------------------------
Developing country   25.8%    28.2%    27.6%    35.6%    40.1%    39.9%
 share of total
 food imports
------------------------------------------------------------------------
South-South          12.2%    13.5%    14.9%    21.2%    23.7%    24.2%
 exports as
 percent of total
 food exports
------------------------------------------------------------------------
Source: UNCTAD, UNCTADStat 2020


    These trends are projected to continue over the next 35 years. The 
Food and Agricultural Organization of the United Nations projects that 
global food demand is expected to increase by as much as 50 percent 
from 2012-2013 levels by 2050, as trends in population growth, 
urbanization, and income growth are projected to continue, particularly 
in developing countries. Population projections by the United Nations 
suggest that 98 percent of the population growth expected between 2015 
and 2050 will likely come from developing countries, with Africa south 
of the Sahara accounting for more than 55 percent of that growth. With 
income growth rates and urbanization rates also projected to be higher 
in developing countries, much of the global demand growth for meats, 
dairy, fruits and vegetables, and processed food products will continue 
to come from these economies.
                        u.s. agricultural trade
    U.S. agricultural trade has benefited greatly from the rule-based 
system of trade ushered in by the WTO. U.S. agricultural exports 
totaled almost $137 billion in 2019 (figure 2). Exports have more than 
doubled since 1995, though they have remained relatively flat since 
2015, in part due to the trade war with China (see below). Agricultural 
imports have increased as well over the period, totaling $131 billion 
in 2019. Much of what the U.S. imports is either not grown much here 
(for example, coffee and cocoa) or is produced counter-seasonally (for 
example, asparagus and blueberries). Counter-seasonal imports have 
enabled U.S. consumers to purchase most fruits and vegetables year 
round, which has led to increased per-capita consumption of those 
foods, and have largely supplemented, not replaced, domestic 
production.

[GRAPHIC] [TIFF OMITTED] T2920.002


    Five markets--Canada, Mexico, China, Japan, and the EU (plus the 
UK)--account for about 60 percent of agricultural exports from the 
United States (figure 3). Twenty-five years ago, Japan and the EU were 
the number one and two markets for U.S. agricultural exports, followed 
by Canada, South Korea, Mexico and China. With implementation of NAFTA, 
Canada and Mexico became increasingly more important trading partners 
and by 2005 had surpassed the EU and Japan as the top U.S. agricultural 
export destinations. Since then, exports to the EU and Japan have 
remained relatively flat while that of Mexico and Canada have continue 
to grow. With the accession of China to the WTO in 2001, U.S. 
agricultural exports to China began to increase significantly. By 2012, 
China had surpassed Canada as top market for U.S. agricultural exports 
and remained as either the number one or number two export destination 
through 2017. In 2017, for example, the U.S. agricultural exports to 
China totaled $19.5 billion. Soybeans accounted for about $12.2 
billion, or 62 percent of the total. To put this in perspective, 
production from almost 1 in every 4 rows of soybeans harvested in the 
United States that year ended up in China where it was processed into 
protein feed for hog and poultry operations and soybean oil that was 
bought by China consumers.

[GRAPHIC] [TIFF OMITTED] T2920.003

                       a world again in disarray?
    Despite the substantial growth in global agricultural trade since 
1995, there are a number of cross currents that bode poorly for the 
world trading system.

    Trade wars have threatened trade growth. The recent trade wars 
between the U.S. and China, Mexico, Canada, and other trading partners 
have been well documented by others.\2\ In 2018, in response to tariffs 
placed on China goods by the United States, China placed counter-
retaliatory tariffs on a number of U.S. agricultural exports, including 
soybeans. Total U.S. agricultural exports to China fell to $9.1 billion 
and soybean exports fell by almost 75 percent, to $3.1 billion, the 
lowest level since 2006. Brazil was a big beneficiary as China sourced 
most of its soybeans imports from them in 2018 and 2019, and while the 
United States was able to send some of its soybeans to markets that 
would have normally imported from Brazil, overall, U.S. soybean exports 
fell by $4 billion in 2018 and $3 billion in 2019.
---------------------------------------------------------------------------
    \2\ See Peterson Institute for International Economics, ``Trump's 
Trade War Timeline: An Up-to-Date Guide.'' Available at https://
www.piie.com/sites/default/files/documents/trump-trade-war-
timeline.pdf.

    U.S. farm receipts fell in 2018 and 2019 and the Trump 
administration responded by providing $28 billion to farmers and 
ranchers adversely affected by the trade actions. Those payments, 
combined with payments under the price and income support program and 
Federal crop insurance program, have significantly increased trade-
distorting support reported to the WTO. U.S. trade distorting support 
will likely exceed its WTO bindings ($19.1 billion) for 2019 (figure 
4).\3\
---------------------------------------------------------------------------
    \3\ Glauber, J.W., 2019. ``Agricultural Trade Aid: Implications and 
Consequences for U.S. Global Trade Relationships in the Context of the 
World Trade Organization.'' Washington, DC: American Enterprise 
Institute, https://www.aei.org/wp-content/uploads/2019/11/Agricultural-
Trade-Aid-1.pdf.

[GRAPHIC] [TIFF OMITTED] T2920.004


    Under the Phase One agreement signed in December 2019, China has 
agreed to import $36.5 billion in U.S. agricultural goods in 2020. Thus 
far, China agricultural imports from the U.S. through May totaled $7.5 
billion, suggesting that imports over the remainder of the year would 
have to be more than 2.5 times more per month than in the first five 
months. While outstanding sales to China have been substantial, it is 
unlikely that the $36.5 billion target will be met. Nonetheless, those 
sales, if completed, may bring U.S. agricultural export totals back to 
more historical levels. USDA will publish an updated forecast of U.S. 
---------------------------------------------------------------------------
agricultural exports in late August.

    Progress in multilateral negotiations since the Uruguay Round has 
been limited. While the Doha Development Agenda (DDA) was launched with 
much anticipation in 2001, members failed to reach agreement in July 
2008 and the trade agenda in Geneva has since advanced slowly. Serious 
efforts were made to renew the negotiations, but in the end, members 
have had to be content with harvesting the low-hanging fruit, such as 
trade facilitation and export competition. Although there have been 
significant accomplishments, they represent but a small portion of what 
was on the table during the DDA negotiations. In addition, negotiated 
settlements on the tougher issues, such as market access and domestic 
support, have become more difficult to obtain in isolation. The recent 
experience at the WTO's Eleventh Ministerial Conference in Buenos Aires 
highlights the difficulties of reaching a negotiated settlement on 
domestic support in isolation from, say, market access. Progress on 
disciplining export restrictions has also been stymied despite near 
unanimous agreement that export bans on humanitarian food aid should be 
prohibited.

    Appellate Body crisis threatens the WTO dispute mechanism. A 
landmark achievement of the Uruguay Round, and notably, the Agreement 
on Agriculture, was the full inclusion of agriculture in multilateral 
rules and disciplines. Since the birth of the WTO, a significant number 
of member countries have used the dispute settlement mechanism (DSM) 
for resolving the disputes in agriculture. The DSM has played an 
important role not only for those parties involved in the disputes, but 
also by helping member countries to better understand the WTO rules, 
and therefore help guide them in developing domestic policies and trade 
policies that are consistent with WTO requirements.

    U.S. agriculture has been a major beneficiary of the DSM. Over the 
period 1995-2019, the United States has brought 43 individual cases 
against WTO members involving an agricultural product; over the same 
period, 34 cases were brought against the U.S.. Those numbers have 
declined over time, with only 7 disputes initiated within the past 5 
years: 4 where the U.S. was the complainant and 3 where it was the 
respondent (figure 5). The greatest number of disputes were with WTO 
members who have been our largest trading partners (15 disputes with 
the EU, 11 disputes with Canada, and 6 with Mexico) although in recent 
years, as developing countries have accounted for larger share of 
global export and import, they have also accounted for a greater share 
of agricultural disputes.

[GRAPHIC] [TIFF OMITTED] T2920.005


    Of the 43 cases taken by the U.S. against other WTO members, a 
majority (26) of those were settled before going to a panel. Thus the 
WTO provides a forum where WTO members can resolve disputes without 
resorting to unilateral trade actions, which may ultimately be 
destructive and counterproductive. Of the 17 disputes that went to a 
panel, the panels agreed with 80 percent of the claims argued by the 
U.S. in those disputes. These include recent positive rulings for the 
U.S. in cases against China on agricultural subsidies and tariff rate 
quota (TRQ) administration.

    The United States has also been a respondent in 34 disputes 
involving agriculture, 19 of which went to a panel for adjudication. In 
those cases, the panels agreed with complainants' claims about 72 
percent of the time. Among the more prominent cases include the case 
brought by Brazil against U.S. cotton subsidies (DS267) and the 
disputes brought by Canada and Mexico against mandatory 
country-of-origin labeling (COOL) (DS384 and DS386).

    WTO members rely on dispute settlement proceedings to ensure 
transparency, clear rules on trade, and a fair system of trade for WTO 
member countries. Paralyzing the dispute settlement procedure would be 
a real loss to the global trading system. Beyond the immediate halt of 
proceedings, failure to make appointments could come at considerable 
costs to members' long-term objectives and the stability of the 
multilateral trading system. The food system is one critical place 
where consequences could land: disputes over food products that 
escalate or cause damage to the multilateral system could potentially 
have human costs for countries that rely on food trade, exacerbating 
hunger and hurting food producers' income opportunities. To avoid such 
economic and human costs, it is critical that WTO members find a 
resolution to the current Appellate Body crisis.
                               conclusion
    It is easy to be pessimistic about the future trade agenda of the 
WTO given the current state of global trade relations and threats of 
trade wars. Protectionist pressures have ebbed and flowed throughout 
history, however, and it is important to recall that within 4 years of 
passage of the Tariff Act of 1930 (more commonly known as the Smoot-
Hawley Tariff Act), the U.S. Congress passed the Reciprocal Trade 
Agreements Act of 1934, which in part led to the development of the 
GATT and the long period of trade liberalization that has followed to 
the present.

    The challenges of meeting future food needs will require a 
concerted effort from governments to improve the functioning of food 
and agricultural markets. The WTO can play an enormous role by reducing 
trade-distorting support, improving market access, ending distortions 
caused by export restrictions and subsidies, and perhaps most 
importantly, continue to provide a forum to which members can bring and 
hopefully resolve, trade disputes, rather than engaging in unilateral 
trade actions that can quickly escalate trade tensions. In the words of 
the Deputy Director General Alan Wolff, the WTO remains ``a place of 
hope, for the least developed, for the vulnerable, for the conflict-
affected, for the industrialized, for any country seeking economic 
advancement for its people, and that is a category that must include 
all.''\4\
---------------------------------------------------------------------------
    \4\ Wolff, A. Wm. 2020. ``Trade for peace is more than a slogan, it 
is hope for a better future.'' Speech given at a virtual event hosted 
by American University, July 17, 2020. Available at: https://
www.wto.org/english/news_e/news20_e/ddgaw_17jul20_e.htm

                                 ______
                                 
     Questions Submitted for the Record to Joseph W. Glauber, Ph.D.
               Question Submitted by Hon. Chuck Grassley
    Question. Your research has shown that WTO dispute settlement is 
very important for our farmers. One of the biggest problems we've faced 
is countries using junk science to keep our agricultural products out. 
The WTO included landmark disciplines on sanitary and phytosanitary 
measures, or SPS. The disciplines require these measures to be based on 
science.

    Can you tell us about the value of the SPS agreement to our 
agricultural industry? Do you think there is room to improve that 
agreement?

    Answer. The SPS agreement has provided a means by which WTO members 
can challenge another member's sanitary and phytosanitary regulations 
if they believe those regulations are not science-based. In general, 
Since 1995, there have been 49 consultations brought to the WTO 
regarding the SPS agreement. The United States has brought 11 disputes 
involving the SPS agreement, over half of which were successfully 
resolved without going to a panel.

    The SPS agreement needs to be modernized, ideally along the lines 
of what was agreed to in the TransPacific Partnership agreement and the 
USMCA. Those agreements reaffirm the importance of ensuring that 
sanitary and phytosanitary measures are based on scientific principals 
and that they are transparent. The agreements also provide for a 
consultative mechanism that serves to resolve disputes before reaching 
a stage where they result in a formal consultation in the WTO Dispute 
Settlement Body.

                                 ______
                                 
                 Question Submitted by Hon. John Cornyn
    Question. State-owned enterprises have emerged in the recent decade 
as a significant issue that threatens free and fair trade. It is a new 
concept for industrialized goods, but there are existing policies in 
place to address the issue of subsidies in places like the agriculture 
sector.

    The U.S. has not yet defined SOEs in the context of domestic law. I 
believe this is something we should explore to help inform the 
committee during the WTO reform debate.

    Can you discuss the issue of state subsidies leading up to the 
WTO's initiation and what WTO restrictions are currently in place as a 
result?

    Answer. For agriculture, SOEs have been more of a problem in the 
area of market access rather than domestic support. Agricultural 
producer subsidies are disciplined under the Agreement on Agriculture 
domestic support provisions. Those provisions have generally worked 
pretty well. Only a handful of agricultural subsidy cases have been 
taken to the Dispute Settlement Body. In 2016, The United States 
successfully challenged China's domestic support measures for wheat and 
rice.

    For non-agricultural industrial subsidies, a lot could be learned 
by looking at the Agreement on Agriculture. Those disciplines were 
established based on research by the OECD and others that classified 
support measures as to whether or not they were production and trade 
distorting. Criteria were established for what constituted ``minimally 
trade-distorting practices.'' If measures did not meet those criteria, 
they were classified as trade-distorting and subject to discipline.

    Market access has been a problem, particularly in the area of 
tariff rate quota (TRQ) administration when quota rights are allocated 
to SOEs. Such was the case in the recent WTO dispute brought by the 
United States against China over TRQ administration for wheat, corn, 
and rice. The WTO panel ruled in favor of the United States last year. 
Thus far, China TRQ fill rates for those commodities are above the pace 
of previous years and will likely be filled for wheat and corn.

                                 ______
                                 
             Questions Submitted by Hon. Patrick J. Toomey
    Question. So far, the U.S. has mainly relied on unilateral tariffs 
under section 301 to push for market-oriented reforms to the Chinese 
market, but these measures hurt Americans, while not having much effect 
on Chinese trade practices. But this is not the only way to try and 
encourage China to adopt reforms--the U.S. can also work with key 
allies and use the WTO rules to encourage China to adopt reforms.

    While the WTO may need reform in some key areas, the fact remains 
that it has historically been very successful when dealing with China. 
Uncovering China's WTO violations is challenging but it can be done, 
and the U.S. can use the WTO to hold China accountable, in particular 
in relation to the areas of intellectual property protection, forced 
technology transfer, and subsidies.

    How can the U.S. better utilize the WTO dispute settlement system 
in addressing the challenges with China's non-market trade policies?

    For those areas of contention that are not well covered by WTO 
rules, such as state-owned enterprises, how can the United States work 
with our allies within the WTO to develop new rules?

    What are the limits of the WTO in dealing with China, and how can 
the U.S. help facilitate reforms to strengthen it?

    Answer. I believe it is necessary for the United States to work 
multilaterally through the WTO to achieve a solution to these problems. 
The United States should use the dispute settlement process and work 
with other members to bring a case against China's business practices 
and their violations of intellectual property.

    In the area of industrial subsidies, much can be learned by looking 
at the Agreement on Agriculture. Those disciplines were established 
based on research by the OECD and others that classified support 
measures as to whether or not they were production and trade 
distorting. Criteria were established for what constituted ``minimally 
trade distorting practices.'' If measures did not meet those criteria, 
they were classified as trade-distorting and subject to discipline.

    Question. Maximizing the effectiveness of the WTO through American 
engagement and leadership is in the broad national interest as a means 
to provide greater economic stability and prosperity. Detractors say 
that the WTO system is ``rigged,'' but the fact remains that the United 
States has won 85.7 percent of the cases it has initiated before the 
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global 
trade, and foreign markets are critical to our agriculture, 
manufacturing, and service industries. Economists have found that the 
U.S. withdrawing from the WTO would lead to diminished trade growth, 
costly market and supply-chain disruptions, and the destruction of jobs 
and profits, especially in import- and export-dependent U.S. 
industries.

    Can you speak to the projected effects of withdrawing from the WTO?

    Do you believe that the resulting trade barriers from withdrawal 
from the WTO would compel some American companies either to downsize or 
move offshore?

    Answer. I believe withdrawal from the United States would have 
devastating consequences for U.S. agriculture. While we enjoy 
preferential bilateral trade agreements with a number of important 
trading partners most of those reflect mature markets where income 
levels are high and population growth is flat or even declining. Many 
of the regions with the largest growth potential for U.S. trade over 
the next 20 years are in Asia, Africa, and South America. Pulling out 
of the WTO would potentially adversely affect trade with those 
countries. Moreover, we would lose access to the WTO dispute settlement 
mechanism which provides a forum where trade disputes can be 
successfully adjudicated. Lastly, the United States needs to take a 
leadership role at the WTO to ensure that its direction in future trade 
negotiations reflect U.S. interests.

                                 ______
                                 
                Prepared Statement of Thomas R. Graham, 
                       Partner, Cassidy Levy Kent
    Chairman Grassley, Ranking Member Wyden, and members of the 
committee, thank you for the opportunity to testify today on WTO 
reform, which I believe must occur, and must be done well if the WTO is 
to continue playing an important role in international trade.

    My name is Tom Graham. I was a member of the WTO Appellate Body for 
8 years, from late 2011 until last December. I was twice chair of the 
Appellate Body, including during the final months of 2019, when the 
Appellate Body effectively came to an end. I am currently a partner in 
Cassidy Levy Kent, an international trade law firm in Washington and 
Ottawa.

    I will speak mainly about the need for reform of WTO dispute 
settlement, which I know first-hand. In a nutshell, my view is: that 
the WTO Appellate Body has strayed far from the rules that U.S. 
negotiators helped to write--and that the Congress reviewed and 
approved--some 25 years ago; that for 20 years, spanning three 
administrations--Republican and Democratic--the United States has 
consistently called out the Appellate Body for exceeding its role, and 
asked for corrections; that some WTO members, including the European 
Union, have not acknowledged or engaged with the seriousness and 
bipartisanship of the U.S. critique; and that until they do, and until 
basic and dependable reforms are made, there should be no tinkering 
with words, no ``restarting selections,'' no ``early harvest'' of AB 
reform.

    Why do I say that? The difference of views is long and deep, and it 
has intensified in recent years as a result of accelerating 
globalization and the rise of China as a leading exporter.

    The Walker Convergence Principles, which we'll probably discuss, 
can be a start, but only a start. They are the low-hanging fruit, 
dealing mostly with procedural matters, some in general terms. And they 
are just words, as are words of the WTO Dispute Settlement 
Understanding that arguably have been ignored or stretched, and words 
of Article 17.6(ii) of the Antidumping Agreement, which have been 
ignored.

    What's needed is a credible demonstration that our major trading 
partners understand the depth of the U.S. critique, accept that it is 
broadly and deeply held, and on that basis engage in negotiations aimed 
at updating the rules and reforming the Appellate Body.

    What is also is needed, I believe, is the for United States take a 
long view and not be in a hurry to resurrect the Appellate Body. That 
would only lead to papering over differences and reverting to the same 
problems. It is better to get it right, even if that means a long 
period of interim or ad hoc appellate arbitration systems.

    Nobel Prize-winning economist Paul Romer said ``a crisis is a 
terrible thing to waste.'' Let's not waste this opportunity to learn 
from the history of the Appellate Body, and to try to create something 
better, no matter how long that takes.

                                 ______
                                 
         Questions Submitted for the Record to Thomas R. Graham
               Questions Submitted by Hon. Chuck Grassley
    Question. Your experience with the Appellate Body is fairly recent, 
having served until December of last year. One troubling thing I have 
heard over the years is that the WTO's Secretariat exerted an unusual 
amount of control over Appellate Body members. Supposedly, it exerted a 
lot of pressure on members to avoid writing separate opinions or 
expressing disagreement. That's really troubling if true.

    The WTO is a member-driven organization. Members should be in the 
driver's seat, not bureaucrats. Moreover, the Appellate Body members 
themselves go through a vetting process by members, and are supposed to 
have integrity and impartiality under the rules. There's no such 
vetting for the Secretariat staff.

    Do you agree that the Appellate Body's Secretariat was acting 
beyond its mandate, or contributing to the overreach in various 
decisions?

    Answer. Yes, based on my 8 years as a member of the Appellate Body, 
I believe the AB Secretariat consistently acted beyond its proper role 
and contributed significantly to overreach and other problems, 
including rigid adherence to precedent, exceeding 90 days, long and 
unclear reports, and undermining national trade remedy laws.

    The reasons are threefold.

    First, the prevailing view among some past Appellate Body members 
and academics was that the AB was akin to a court of international law, 
authorized to interpret broadly and to create a body of international 
jurisprudence. The U.S. has consistently opposed that view arguing that 
the AB was intended only to help settle particular disputes by 
correcting serious errors of panels in applying the texts of the rules. 
I think the U.S. view is closer to the text of the WTO Dispute 
Settlement Understanding and the negotiating history.

    Second, the long-time Director of the AB Secretariat held the 
broader view and advocated it frequently. He edited staff papers that 
were sent to AB members, and participated actively in meeting in which 
AB members decided cases, or wrote decisions.

    Third, the structure of the Secretariat enabled over-stepping. The 
staff was a separate entity, headed by the Director, who edited staff 
papers that went to AB members, and wrote staff evaluations. In effect, 
that gave the Director, with the staff of about 15 lawyers, influence 
equal or sometimes greater than individual Appellate Body members, who, 
by contrast, were part-time, did not live in Geneva, and arrived 
shortly before work on cases began.

    Efforts by a few AB members to change things were mostly not 
successful, for various reasons.

    Question. What can we, the Congress, do to make sure Appellate Body 
members are sufficiently independent of the Secretariat?

    Answer. First, accept that the current standoff on dispute-
settlement is not about words or procedures--it is about the 
fundamental nature of the rules and dispute settlement.

    Second, remember that the U.S. critique is longstanding, 
bipartisan, and legitimate.

    Third, consider that the reluctance of major trading partners, 
including the European Union, to engage with the depth of the U.S. 
critique has been a primary reason for the U.S. blocking of 
appointments to the Appellate Body, and that the U.S. blocking is a 
reason that talk about dispute settlement reform is occurring.

    Accordingly, oppose any early, or separate, fix of the Appellate 
Body. Instead, support the U.S. insistence on genuine engagement with 
the question of what the WTO appellate entity is, what it is supposed 
to do, and whether it is necessary. And support the U.S. position of 
not being in a hurry. The discussion of dispute settlement reform needs 
to occur alongside discussions of WTO reform, no matter how long that 
takes.

    Fourth, if, in the future, as a result of reform discussions, there 
is to be a staff director for an appellate entity, confine the Staff 
Director's role to administration, and prohibit them from engaging in 
the substance of cases.

    Fifth, if an appellate entity results from future reform 
discussions, structure it so that members of the appellate entity have 
their own staff assistant(s), either by permanent assignment, or by 
choice case-by-case from a pool of staff. That is important to combat 
the problem of ``group-think,'' and encourage sharper views, clearer 
reports, and less reliance on precedent.

    Question. The Appellate Body has received a lot of attention about 
its shortcomings. However, I'm not sure the panel process is completely 
perfect. The initial panel process takes much longer than anyone 
anticipated. Compliance panels have an important task of deciding 
disputes in which a party has already found they've breached their WTO 
obligations. The rules provide those panels should issue decisions in 
90 days, but they almost never do.

    Do you think we need to look at reforming the panel process?

    Answer. Yes, there needs to be reform of the entire dispute 
settlement system, including panels, in order to address basic 
disagreements over what that system was intended to be. If there is to 
be an appellate entity, then basic, systemic reform of it also would 
improve the operation of panels. For example, de-emphasizing appellate 
precedents would simplify panels' analyses and reports. Narrower and 
more strictly textual appellate reports would reduce the incentive for 
WTO members to file speculative cases and attempts to get by litigation 
what they could not get by negotiation. Similarly, it would reduce the 
incentive for WTO litigants to make an excessive number of claims.

                                 ______
                                 
                Questions Submitted by Hon. John Cornyn
    Question. State-owned enterprises have emerged in the recent decade 
as a significant issue that threatens free and fair trade. It is a new 
concept for industrialized goods, but there are existing policies in 
place to address the issue of subsidies in places like the agriculture 
sector.

    The U.S. has not yet defined SOEs in the context of domestic law. I 
believe this is something we should explore to help inform the 
committee during the WTO reform debate.

    What can be done to rein in the practice of SOEs at the WTO's 
Appellate Body? How has the Appellate Body interpreted policies related 
to state-subsidies since the WTO's creation?

    Answer. I would like to start with the second part of your second 
question: How has the Appellate Body interpreted policies related to 
state-subsidies since the WTO's creation?

    The answer to this question is telling and bears on broader reform.

    The WTO rules do not use the term ``state-owned enterprises,'' or 
``SOEs.'' Instead, countervailable SOEs are included in the term 
``public bodies'': governments may impose countervailing duties on 
subsidies conferred by ``a government or public body.'' ``Public body'' 
should be a valuable concept--because it is broader than ``state-owned 
enterprise,'' extending to any entity that confers a benefit on behalf, 
or at the behest, of a government, regardless of the degree of 
government ownership.

    But the Appellate Body went seriously wrong on this subject. It's 
first decision required a public body to ``exercise, possess, or [be] 
vested with government authority,'' leading many to wonder whether, for 
example, China could not be held accountable for subsidies conveyed 
through Chinese companies unless those companies wrote regulations and 
operated like, say, Amtrack.

    That led to WTO litigators making broad claims about what 
constituted exercising, possessing, or being vested with government 
authority, in efforts to make reality fit the rigid standard. In later 
cases the AB played along, adding many other criteria, such as ``the 
legal and economic environment prevailing in the country,'' while 
keeping the ``exercises . . . government authority'' criterion, thus 
adding layers to the confusion.

    Finally, the United States expressly asked the AB to clarify the 
standard in an appeal by China challenging the Commerce Department's 
assessment of countervailing duties against Chinese imports, for 
benefits conferred by a Chinese ``public body.'' And in a 2-1 decision, 
the majority of AB members hearing the case considered clarification 
unnecessary and declined to amend the existing standard.

    In an anonymous dissent, one AB member called the original 
``exercises . . . government authority'' standard ``a mistake . . . 
that has sown confusion as participants and the Appellate Body have 
struggled to show how situational criteria fit with a rigid and 
limiting phrase.'' The dissenter said it is not necessary to show that 
a public body ``exercises, possesses, or is vested with government 
authority,'' and asked that future panels and AB members consider this 
proposed standard in comparison with, or instead of, the previous 
standard. The report containing these two views of the ``public body'' 
standard, identified as ``DS 437 Compliance,'' was released July 26, 
2019, and is publicly available.

    Second part of question: What can be done to rein in the practice 
of SOEs at the WTO's Appellate Body?

    First, make sure that the ``precedent'' described above, and all 
other past precedents, are nullified and that any reformed dispute 
settlement system starts over with a clean slate.

    Second, obtain from the WTO General Council an interpretation of 
``public body'' that omits the ``exercises, possesses, or vested with'' 
criterion and that leaves considerable discretion to national 
investigating authorities to determine on a case-by-case basis whether 
an entity is a ``public body,'' provided the determination results from 
an opportunity for differing views to be heard, and is supported by 
evidence and explained.

    Third, in broader WTO reform, carve out trade remedies 
(investigations of dumping or subsidization, and ``safeguards'' meaning 
sudden injurious increases in imports) for separate procedures. And 
require that the adjudicators in those separate procedures have 
significant familiarity with the subject of trade remedies, beyond 
academic familiarity.

    It may not be necessary to change the WTO rules on this subject, 
which are clear enough if correctly interpreted and applied.

                                 ______
                                 
             Questions Submitted by Hon. Patrick J. Toomey
    Question. So far, the U.S. has mainly relied on unilateral tariffs 
under section 301 to push for market-oriented reforms to the Chinese 
market, but these measures hurt Americans, while not having much effect 
on Chinese trade practices. But this is not the only way to try and 
encourage China to adopt reforms--the U.S. can also work with key 
allies and use the WTO rules to encourage China to adopt reforms.

    While the WTO may need reform in some key areas, the fact remains 
that it has historically been very successful when dealing with China. 
Uncovering China's WTO violations is challenging but it can be done, 
and the U.S. can use the WTO to hold China accountable, in particular 
in relation to the areas of intellectual property protection, forced 
technology transfer, and subsidies.

    How can the U.S. better utilize the WTO dispute settlement system 
in addressing the challenges with China's non-market trade policies?

    For those areas of contention that are not well covered by WTO 
rules, such as state-owned enterprises, how can the United States work 
with our allies within the WTO to develop new rules?

    What are the limits of the WTO in dealing with China, and how can 
the U.S. help facilitate reforms to strengthen it?

    Answer. Overall, the U.S. should be explicit about the fact that 
non-market economies, such as China, are a difficult fit in the GATT/
WTO system, which was designed as a framework for market competition.

    Question. How can the U.S. better utilize the WTO dispute 
settlement system in addressing the challenges with China's non-market 
trade policies?

    Answer. A series of Appellate Body decisions--on Chinese pricing, 
``public bodies,'' and U.S. conduct of verification audits in unfair 
trade cases--hinder investigations of Chinese imports by the U.S. 
Commerce Department and authorities in other market economy countries.

    At a minimum, nullify the status of those cases as precedents.

    Beyond that, I do not think it will be possible to address 
adequately the competitive challenges of China within the WTO dispute 
settlement system unless and until the WTO dispute settlement system is 
thoroughly reformed, together with reforms of the WTO itself.

    Question. For those areas of contention that are not well covered 
by WTO rules, such as state-owned enterprises, how can the United 
States work with our allies within the WTO to develop new rules?

    Answer. The rules on state-owned enterprises may be sufficient if 
they are applied and adjudicated correctly. The problem is that the AB 
has interpreted those rules in ways that have reduced their 
effectiveness. The existing rules permit the national authorities to 
hold SOEs responsible for countervailable subsidies; they permit 
national authorities to disregard distorted Chinese home market prices 
in calculating dumping or subsidization; and they permit national 
authorities to ask hard questions and conduct probing audits of 
information provided by exporters from non-market economies.

    Nullification of the precedential value of the AB decisions 
weakening those rules would be a start.

    I also said, in response to a question by Senator Cornyn, that the 
WTO General Council might use its power to make authoritative 
interpretations of the rules. Where necessary, in addition to 
nullifying harmful AB precedents, the U.S. could seek to join with 
allies to secure General Council interpretations making clear the 
intended operation of the trade remedy rules as they apply to 
competition from non-market economies. And, if and when basic reform 
negotiations occur, the U.S. should enlist others to address the 
problem of non-market economies through clarifications of the rules, if 
necessary.

    Question. How can the U.S. better utilize the WTO dispute 
settlement system in addressing the challenges with China's non-market 
trade policies?

    Answer. This goes to the heart of what is at stake in WTO reform.

    Over 15-plus years and three administrations--Republican and 
Democratic--the United States has been consistent and bipartisan in its 
critique of the Appellate Body. That critique, in essence, is that AB 
exceeded the modest role that was intended for it and written into the 
WTO Dispute Settlement Understanding, and assumed for itself the role 
of a court of international law, and that, in doing so, the AB weakened 
trade remedy measures in ways not intended by WTO negotiators.

    Whether one agrees with it or not, the U.S. critique is respectable 
as a matter of text, logic, and negotiating history. Former (non-U.S.) 
negotiators of WTO trade remedies agreements have been outspoken in 
expressing views similar to those of the U.S.\1\ Some WTO-member 
government representatives and many knowledgeable persons within the 
WTO building have quietly agreed with much of the U.S. critique. But 
others, including the European Union, many academics, and leadership of 
the AB Secretariat, have dismissed and disregarded the U.S. critique, 
apparently content with the AB as a more broadly empowered 
international court.
---------------------------------------------------------------------------
    \1\ See Cartland, DePayre, Woznowski, ``Is Something Going Wrong in 
WTO Dispute Settlement?'', Vol. 46 Journal of World Trade Law (2012).

    These differences have become more acute with the rise of 
competition from China and others with varying degrees of non-market 
---------------------------------------------------------------------------
policies.

    In my view, the United States should not engage in negotiations 
about reform--of the dispute settlement system or the WTO--until our 
counterparts are credibly willing to show understanding of the depth of 
the U.S. critique and to engage with it.

    And that engagement/negotiation should cover both WTO and dispute 
settlement reform, without considering dispute settlement reform to be 
an easier matter that can be resolved earlier. An agreement that did 
not to come to grips with basic differences would risk only papering 
over differences that would soon reemerge.

    Question. One area of concern that many have with the WTO is the 
current treatment of ``developing country status,'' or ``special and 
differential treatment.'' SDT was meant to help the poorest WTO members 
meet their obligations to the fullest extent possible, and gives 
``developing'' countries more time to implement obligations, 
preferential tariff schemes, and technical support from ``developed'' 
countries. However, nowhere in the WTO rules does it define what a 
``developing country'' is, and as a result, members practice self-
declaration, whereby they alone decide their development status.

    Thus, we are seeing that rapidly growing countries with significant 
global reach lay claim to these special rights, due to members' ability 
to ``self-declare'' their developing country status. This has led to a 
situation where more-advanced countries receive similar treatment to 
those that are much poorer, undermining the initial rationale for SDT 
to help those countries in most need with the transition to full 
compliance. Except for least-developed countries, SDT also does not 
differentiate between levels of development among developing countries, 
and as a result, the poorest countries are made worse off, while those 
that are economically better off receive a ``free ride'' from the rest 
of the multilateral trading system.

    Do you agree that the WTO should work to adopt a new evidence-
based, case-by-case approach to SDT to ensure both that the concerns of 
the poorest countries are addressed and that advanced developing 
countries carry their weight in the organization?

    Answer. Yes, I think the issue of SDT status is current and 
important. I agree that the WTO should work to adopt objective criteria 
that would enable members governments to decide on a case-by-case 
basis, in a way that respected the concerns of the least developed 
members, and differentiated those members from newly developed, or 
perhaps advanced developing members.

    This would be an appropriate subject for WTO reform negotiations.

    I also consider that until there are such criteria, the U.S. (and 
others) should be willing, where appropriate, to ``graduate'' WTO 
members from special and differential treatment. Such actions, if 
challenged, could usefully be tested in a reformed dispute settlement 
process.

    Question. Advocates of reforming the SDT have suggested looking at 
factors ranging from a country's economic measures (like economic 
production or per-capita income), social measures (human development 
index), or trade indicators (export levels, high-technology trade) to 
define whether it is ``developed.'' How can we best define ``developing 
country''?

    Answer. I don't claim any special knowledge of how these criteria 
and other factors should be used, but I'll say what I can.

    As you noted in your previous question, there are differing levels 
of ``developing countries.'' It would seem feasible to apply some 
combination of the criteria you mentioned to identify the ``least 
developed'' category. From there it gets more complicated. Can a 
country be developed in some ways, and not in others, considering the 
mobility of production and technology? When does a developing country 
graduate?

    This may get back to your previous question: should there be 
objective, evidence-based criteria, both for initial designation as 
``developing,'' and for graduation from developing status? Having such 
criteria may be a way to deal with the current problem of self-
designation without a clear way for others to disagree. Also, see my 
suggestion that, in the absence of objective criteria, the U.S. (and 
others), in appropriate circumstances, consider unilaterally regarding 
some countries as developed, leaving it to a reformed dispute 
settlement system to decide.

    Question. Maximizing the effectiveness of the WTO through American 
engagement and leadership is in the broad national interest as a means 
to provide greater economic stability and prosperity. Detractors say 
that the WTO system is ``rigged,'' but the fact remains that the United 
States has won 85.7 percent of the cases it has initiated before the 
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global 
trade, and foreign markets are critical to our agriculture, 
manufacturing, and service industries. Economists have found that the 
U.S. withdrawing from the WTO would lead to diminished trade growth, 
costly market and supply-chain disruptions, and the destruction of jobs 
and profits, especially in import- and export-dependent U.S. 
industries.

    Can you speak to the projected effects of withdrawing from the WTO?

    Answer. First, I don't think the U.S. should withdraw from the WTO. 
I also disagree with those who believe that Ambassador Lighthizer's 
goal is to withdraw from the WTO.

    Instead, I think the U.S. has been determined to force other WTO 
members to engage with deep reform of WTO dispute settlement, and was 
willing to bring the Appellate Body to a halt absent that engagement. 
That is not the same as intending to leave the WTO.

    The effects of withdrawing from the WTO--without any substitute--
might be similar to what you suggest. But would there be no substitute? 
Might there be a large plurilateral agreement among market economies, 
if most members of the current WTO could agree on reforms taking into 
account non-market competition, and some non-market economy members 
could not? (That idea was floated publicly recently by a highly 
respected former EU trade official.)

    In short, I don't think the U.S. is going to withdraw from the WTO. 
But if it did, we shouldn't assume that nothing would take its place.

    Question. Do you believe that the resulting trade barriers from 
withdrawal from the WTO would compel some American companies either to 
downsize or move offshore?

    Answer. There would possibly be a period of business and trade 
chaos, unless a ``substitute'' were quickly put into place. That could 
have the effects on American companies that you describe. But I don't 
think the U.S. is going to withdraw from the WTO.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell
    Question. The Boeing-Airbus cases at the World Trade Organization 
took 16 years.

    The WTO found that Europe provided illegal subsidies for the 
development of the A350 and the A380. Even after the cases ended, there 
are still concerns Europe is providing subsidies to commercial 
aircraft.

    As a result of these cases, the WTO authorized and the U.S. imposed 
tariffs on a range of European products from whiskey to European 
aircraft. Europe is preparing to impose tariffs on U.S. products as a 
result of its case.

    Recently, Airbus agreed to pay higher interest rates on the 
government loans it received to develop the A350. However, it remains 
to be seen if the dispute will now be considered settled or rounds of 
tariffs will be imposed.

    Clearly we must make sure that the Appellate Body is fully 
functional and has a quorum. But why does the WTO dispute process take 
such a long time? What reforms are needed to get disputes resolved more 
quickly? How can the WTO develop an expedited process?

    Answer. I think all parts of your first question--restarting the 
appellate process, why disputes take so long, reforms to speed it up, 
and how to develop an expedited process--are interrelated. So, I will 
try to respond to them together.

    In my view, WTO members need to agree on basic reforms if an 
appellate entity is to be recreated, and if they cannot agree, and it 
can't be recreated, that would not be a disaster. Other, simpler forms 
of dispute settlement could take its place. To restart the Appellate 
Body, as it was, too quickly, without dealing with its basic problems, 
would only lead to the same flaws that caused its demise.

    And that leads to your questions about lengthy disputes and 
expediting the process. The WTO Dispute Settlement Agreement says the 
following, with respect to the timing of panel reports, in Article 8, 
paragraphs 8 and 9:

        . . . the period in which the panel shall conduct its 
        examination, from the date that the composition and terms of 
        reference of the panel have been agreed upon until the date the 
        final report is issued to the parties to the dispute, shall, as 
        a general rule, not exceed six months. In cases of urgency, 
        including those relating to perishable goods, the panel shall 
        aim to issue its report to the parties to the dispute within 
        three months. . . . In no case should the period from the 
        establishment of the panel to the circulation of the report to 
        the Members exceed nine months. (emphasis added)

    And with respect to Appellate Body reports, Article 17.5 of the DSU 
says:

        As a general rule, the proceedings shall not exceed 60 days 
        from the date a party to the dispute formally notifies its 
        decision to appeal to the date the Appellate Body circulates 
        its report. . . . In no case shall the proceedings exceed 90 
        days. (emphasis added)

    These are stated as hard deadlines, with no qualifications. There 
is a reason the deadlines are short: they signify the limited nature of 
review and reports that are expected; that is, precise issues answered 
crisply.

    My view is that disputes take so long because panels and the 
Appellate Body have allowed them to do so, tolerating broader disputes, 
more numerous issues, and longer submissions than were foreseen when 
the WTO was created.

    It is often said that the deadline for AB reports is 90 days. In 
fact, as the text above shows, the DSU calls for appellate reports to 
be issued in 60 days, and ``in no case'' more than 90 days. It is hard 
to miss the relevance of these deadlines to the nature of appellate 
review that was intended by the negotiators.

    To summarize: reforming the dispute settlement process to return it 
to the limited role that is expressed in the DSU would itself result in 
faster, more concise decisions.

    Question. What reforms are needed to ensure that countries comply 
with final WTO rulings and end prohibited trade practices? What tools 
can countries use to get countries to come into compliance with WTO 
decisions and negotiate solutions?

    How should we be working with our allies and like-minded countries 
to seek these reforms?

    Answer. Overall, the record of compliance with final WTO rulings 
has been good. More recently, compliance is becoming more questionable.

    Legitimacy, in the form of respect for WTO dispute settlement 
decisions, is an important factor in securing compliance. Currently, 
that respect is being eroded by deep differences among WTO members 
about what the dispute settlement system is supposed to be: a limited 
means of resolving disputes according to the texts of agreements, or a 
broader court for creating a body of international law precedents. I 
believe negotiations that recognize, address, and deal with those 
differences will be needed in order to restore the legitimacy that 
helps to ensure compliance.

    And I believe we should continue to press our allies to acknowledge 
the deep differences, and to engage in those negotiations.

                                 ______
                                 
              Prepared Statement of Hon. Chuck Grassley, 
                        a U.S. Senator From Iowa
    Good morning. The committee will come to order. I want to welcome 
our witnesses. Today, we're fortunate to have some very smart people 
who can provide insights on making an important institution--the World 
Trade Organization, or WTO--work again.

    When the WTO works right, Americans benefit--plain and simple. For 
example, Americans are leaders in innovation and creativity. WTO rules 
allow us to reap the rewards of that leadership. When India refused to 
provide patent protection for American pharmaceutical and agricultural 
chemical products, we took them to the WTO--and won. You often hear 
about how important the ``global box office'' is for Hollywood. It's 
become lucrative because the WTO requires our trading partners to 
provide copyright protection and market access for U.S. films.

    Likewise, the WTO is very important for our farmers, who are the 
most efficient and productive in the world. If you watch my Cornwatch 
feed on Instagram, you'll know that, thanks to technology, corn grown 
today is shoulder-high by July 4th, rather than knee-high when I was a 
kid. If you're not watching Cornwatch, you need to. Unable to compete 
though, some countries try to ban our farm products by falsely claiming 
they are dangerous. The WTO marked the first time we had global rules 
that took on this form of protectionism by requiring food safety 
measures be based on science.

    The WTO also ensures that our industrial companies have access to 
key resources. When China tried to use its control of rare earth 
minerals to pressure its neighbors, the WTO is where we joined with the 
EU and Japan to take on China's bullying. Facing WTO retaliation, China 
lifted its export restraints.

    The WTO has also helped our broader foreign policy goals. Opening 
economies means more open societies. One story that needs more 
attention is how trade has led to more opportunities for women. I'm 
glad that WTO members recognized at the last WTO ministerial to issue a 
``Declaration on Trade and Women's Economic Empowerment.'' The WTO 
needs to stay on top of that important issue.

    These are important successes. But we can't live in the past. From 
1947 to 1994, we had eight rounds of multilateral trade negotiations. 
That's a major global trade deal every 6 years on average. The WTO is 
now 25 years old, but we have yet to see any major outcomes for 
liberalizing trade.

    The President has said we need dramatic change at the WTO. He's 
emphasized to me that other countries' tariffs and barriers are too 
high. He's right. No one expected the Uruguay Round to be the last 
global trading round. Over the last 2 decades, countries like China and 
India got a lot richer, but they've refused to take on any more 
responsibilities. In fact, they claim they are entitled to special 
treatment in any future negotiations because they are developing 
countries. The notion that China and India should get the same 
consideration as a country like Cameroon is ridiculous. So I applaud 
the President for taking on this imbalance and pushing to make the WTO 
relevant.

    Today, I want to have a thoughtful discussion about getting the WTO 
back on track. To me, that means a couple of things.

    First, the WTO needs to be an effective forum for negotiating 
agreements again. That means not only concluding the fisheries 
negotiations but also new agreements, including an ambitious agreement 
on e-commerce. When Congress ratified the WTO agreements, there was no 
digital economy. Today, it accounts for nearly $2 trillion of the U.S. 
economy. Again, this is an area of U.S. leadership where we need rules 
to make sure we get a fair shake from our trading partners.

    Second, we have to fix dispute settlement. I absolutely believe 
that we need enforceable rules. It's much better to solve our trade 
disputes over legal briefs than through tariffs. However, WTO dispute 
settlement has been breaking down for years. Fifteen years ago, I 
warned at a hearing like this one that the WTO Appellate Body wasn't 
enforcing rules, it was legislating new ones. I don't like that history 
proved me right.

    The WTO's Appellate Body ignored clearly written rules like 
finishing cases in 90 days. Cases that should have taken months dragged 
on for years, frustrating our ability to get timely relief. At the same 
time, the Appellate Body started writing new rules that impinged on 
U.S. sovereignty. For example, the Appellate Body has made it harder to 
use labeling to keep our consumers informed about the country of origin 
of their meat, or whether their tuna was harvested without hurting 
dolphins. Of particular concern, the Appellate Body has also made it 
much harder to use trade remedy measures at a time we need them more 
than ever to confront China's state capitalism.

    I appreciate that what I am seeking is hard: getting 164 countries 
to agree to a freer and fairer trading system. But I don't appreciate 
embracing protectionism as the alternative, because it can be extremely 
harmful in the long run. From 1929 to 1933, governments around the 
world raised barriers to trade--including our own, with the disastrous 
Smoot-Hawley tariff. Two-thirds of world trade was wiped out, and the 
Great Depression became much worse. World War II followed.

    We cannot repeat those mistakes. We're going to continue to do what 
we have been doing since winning World War II: lead. U.S. leadership 
will require Congress to step up and fulfill our constitutional role in 
setting trade policy. Just as Congress set the objectives for 
negotiating the WTO agreements and approving those agreements, we are 
working now to secure an ambitious reform agenda that will make this 
institution fit for global challenges. That's why I am glad members are 
considering and debating solutions, including Senators Portman and 
Cardin, who have introduced a resolution that has concrete proposals to 
reform the WTO. It has never been more important than it is today to 
ensure the WTO is equipped to take on the global challenges we face 
collectively today.

                                 ______
                                 
Prepared Statement of Jennifer A. Hillman, Senior Fellow for Trade and 
  International Political Economy, Council on Foreign Relations; and 
              Professor, Georgetown University Law Center
               the united states needs a reformed wto now
    The World Trade Organization (WTO) and with it the rules-based 
trading system is in deep trouble. In December 2020, the United States' 
blockage of appointments to fill vacancies on the WTO's Appellate Body 
left it without a quorum to decide any new cases, opening the door to 
countries avoiding compliance with rulings they do not like or find 
difficult to implement. Despite multiple calls for swift action, the 
WTO has not been able to reach an agreement to curb fishery subsidies 
that are contributing to depleting the world's supply of fish, or to 
write rules of the road for e-commerce and digital trade. Nor has the 
WTO been able to adopt new rules to address growing concerns over 
China's unfair trade practices ranging from intellectual property theft 
to forcing transfers of technology, or to extensive use of subsidies 
and state-owned enterprises (SOEs) in an economy increasingly dominated 
by the Chinese Communist Party. Also left undone are reforms to the 
operations of the WTO itself.

    Many of these problems were slated, perhaps optimistically, for 
resolution at its bi-annual ministerial meeting that was to have taken 
place in June 2020 in Kazakhstan but has been indefinitely postponed in 
the wake of the coronavirus pandemic. On May 14th, the Director General 
of WTO, Roberto Azevedo, announced he would be leaving his post 
prematurely at the end August 2020, leaving the WTO with the additional 
task of quickly selecting a new leader. As one of the candidates to 
fill DG Azevedo's shoes, Dr. Ngozi Okonjo-Iwaela, put it, ``Many people 
regard [the WTO] as an ineffective policeman of an outdated rulebook 
that is unsuited for the challenges of the 21st-century global 
economy.''\1\
---------------------------------------------------------------------------
    \1\ ``Reviving the WTO,'' by Ngozi Okonjo-Iwaela, Project 
Syndicate; June 22, 2020, https://www.project-syndicate.org/commentary/
reviving-the-world-trade-organization-by-ngozi-okonjo-iweala-2020-
06?barrier=accesspaylog.

    Yet now is the time when the United States and the world need the 
WTO more than ever. As the coronavirus wreaks havoc on the economies of 
virtually every country in the world, placing great strains on supply 
chains and raising doubts about whether countries can rely on their 
trading partners when they need them most, the global community must 
count on the system working as it should. Moreover, when a vaccine or 
treatment drugs for the coronavirus are developed, the lessons WTO 
members learned from the failures to efficiently and effectively 
distribute HIV/AIDS drugs 3 decades ago will be important reminders of 
the essential need for cooperation and use of WTO rules to ensure a 
quick and fair distribution of COVID-19 vaccines and medicines. With 
all of the uncertainty created by the coronavirus, the stability and 
predictability of the basic trading rules provided by the WTO are a 
critical port in the storm.
 I. WTO Reform Needs to Restore Balance to the System, Starting With 
        its Dispute Settlement System
    At its core, the WTO has three main pillars: (1) a negotiating 
pillar allowing the WTO to serve as the forum for the creation of new 
trade rules and trade liberalization accords applicable to its 164 
members; (2) an executive function, with the WTO serving as a central 
clearinghouse for tariff schedules, services commitments, non-tariff 
measures and subsidy notifications, along with supporting the important 
work of WTO committees; and (3) a dispute settlement arm designed to 
resolve disagreements over whether countries have lived up to their 
trade commitments. The collective work of the three has allowed the WTO 
to deliver on its promises of creating a rules-based global trading 
system with broadly declining barriers to trade in goods and services, 
while its dispute settlement system has held members accountable to 
follow those rules. This system has contributed immensely to global 
economic growth over the last 7 decades, improving living standards for 
billions of people. The eight rounds of trade negotiations since the 
WTO's precursor, the General Agreement on Tariffs and Trade (GATT) came 
into being have helped increase global trade more than 40-fold, from 
$58 billion in 1948 to more than $20 trillion today. Moreover, rules-
based global trade has helped underpin peace and security, because 
trading partners are more likely to resolve differences through 
negotiations than through armed conflict.

    But the system is now badly out of balance, as the negotiating 
process has broken down, unable to reach any major agreements other 
than the Trade Facilitation Agreement since the WTO was created in 
1995. The executive function has been hampered by the failure of many 
countries to provide timely notifications of their measures and by its 
limited power in WTO's member-driven system. The dispute settlement 
system, until its Appellate Body was upended in December 2020, was 
perceived to be very strong--with nearly 600 requests for consultations 
to resolve differences filed to date and countries throughout the world 
choosing to resolve their disputes at the WTO rather than through free-
trade agreement or bilateral dispute settlement mechanisms. But that 
strength has contributed to the lack of balance in the system, with 
USTR's Ambassador Lighthizer noting ``the WTO is losing its essential 
focus on negotiation and becoming a litigation-centered organization. 
Too often members seem to believe they can gain concessions through 
lawsuits that they could never get at the negotiating table.''\2\
---------------------------------------------------------------------------
    \2\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2017/december/opening-plenary-statement-ustr.

    The need and the desire for WTO reform is now well documented.\3\ 
But I believe the reform of the WTO needs to start with getting its 
dispute settlement system back on track. Why? Because the absence of a 
binding dispute settlement system means: (a) countries will be less 
willing to make new commitments, including commitments to reform other 
aspects of the WTO, if they do not believe there is a functioning 
dispute settlement system holding countries to those commitments; (b) 
countries take their existing obligations less seriously if there is no 
serious mechanism for enforcing them; (c) the United States and like-
minded members of the WTO lose considerable leverage over China given 
the need for a multilateral approach to achieve structural and systemic 
changes in China; (d) protectionism will continue to grow without a 
strong system to hold it in check; (e) the growing rift with the 
European Union over digital trade-related issues such as data privacy, 
digital services taxes, cross-border data flows, and competition/
antitrust disciplines on large high-tech companies will be harder to 
resolve; and (f) a negative impression of the functionality of WTO 
prevails, creating a drag on momentum for a broader reform agenda.
---------------------------------------------------------------------------
    \3\ ``We reaffirm our support for the necessary reform of the World 
Trade Organization (WTO) to improve its functions.'' G20 Leaders 
Declaration, G20 Summit, Osaka Japan, June 29, 2019; H. Res. 746, a 
Resolution to Support and Reform the World Trade Organization (WTO); S. 
Res. 651 (Portman-Cardin), Sense of Senate finding value and usefulness 
in WTO, but noting significant reforms at the WTO are needed.
---------------------------------------------------------------------------
 II. The United States Has Gained Far More Than it Has Lost From the 
        WTO and its Dispute Settlement System
    When the WTO was created in 1995, a top goal for the United States 
was a binding dispute settlement system to replace the previous GATT 
process, which could be easily circumvented, thereby allowing countries 
to dodge their trade commitments. What was created in its stead was a 
two-stage process to determine whether a country has violated the rules 
or otherwise undermined the bargain between countries. At the first 
stage, an ad-hoc panel assesses the facts and applicable WTO rules to 
determine whether a violation has occurred. The parties can then 
request that the panel's determination be reviewed by the Appellate 
Body, which has the power to either uphold or overturn the decision. 
The Appellate Body is composed of seven people, with a minimum of three 
required to rule on an appeal. Each member serves a 4-year term and can 
be reappointed once. The members serve on a part-time basis and are 
aided in their work by an increasingly powerful staff of full-time 
lawyers in its Secretariat.

    The United States was the strongest proponent of creating an 
Appellate Body. Since the WTO rules provide for a nearly automatic 
adoption of panel reports, the United States sought a process to 
overturn any erroneous panel decisions before they became binding 
obligations. While appeals were expected to be rare and limited to 
narrow questions of law, access to the Appellate Body was considered 
essential both to ensure that countries could challenge decisions by ad 
hoc panels that they believed were wrongly made and to bring a measure 
of consistency across disputes over similar legal texts.

    The WTO dispute settlement system succeeded initially. An 
increasing number of WTO members used it. Compliance with its 
decisions, while not perfect, was considered good. For its part, the 
United States filed more complaints than any other country, prevailing 
in 91 percent of these cases. However, the expectations that appeals 
would be rare and narrow proved to be wrong. Nearly 70 percent of panel 
reports have been appealed and the average appeal can raise a dozen or 
more claims, many of them going far beyond narrow legal questions.

    More than a decade ago, the U.S. began raising concerns that 
extended far beyond dashed expectations to cover a range a both 
procedural and substantive concerns. In February 2020, the Trump 
administration released a report cataloguing them in significant 
detail. But there are two major flaws with that report. First, it 
ignores the more than 100 hundred cases the United States won, 
providing greater market access for American exporters. Second, it 
provides no ideas or plan to fix the problems it carefully spells 
out.\4\
---------------------------------------------------------------------------
    \4\ United States Trade Representative, ``Report on the Appellate 
Body of the World Trade Organization.'' February 2020, https://
geneva.usmission.gov/wp-content/uploads/sites/290/AB-
Report_02.11.20.pdf.

    The U.S. wins from the WTO dispute settlement system have been 
considerable and must be kept in mind when assessing the United States' 
decision to strike down the Appellate Body. These victories for U.S. 
---------------------------------------------------------------------------
exporters are set forth in Annex A to this statement and include:

        In 1999, the United States challenged certain Indian 
restrictions on imports of auto parts. The panel determined, among 
other things, that India's measures illegally created a disincentive to 
import certain auto parts in favor of Indian products. U.S. exports of 
auto parts to India when the case was filed were $840,000; their 2019 
total is $21.9 million. (DS175)
        In 2002, the United States challenged two restrictions on the 
sale and transport of wheat in Canada. A WTO panel found that Canada's 
laws gave an unfair advantage to Canadian versus American wheat. In 
2005, Canada amended its rules to comply with the WTO ruling. U.S. 
exports of grain and wheat to Canada rose from $3.57 million when the 
case was filed to $41.5 million in 2019. (DS 276)
        In 2003, the United States challenged Mexico's decision to 
impose anti-
dumping duties on U.S. long-grain rice and beef. The panel found that 
Mexico's anti-dumping measures violated the requirements of the WTO's 
Agreement on Anti-Dumping. U.S. exports at the time the case was filed 
were $13 million (long-grain rice) and $581 million (beef). After 
compliance with the ruling, U.S. exports rose in 2019 to $36.3 million 
(long-grain rice) and $744 million (beef). (DS 295)
        In 2006, the United States successfully challenged China's 
tariffs on U.S. auto parts, contending that China's 25-percent tariffs 
on finished autos was being illegally applied to auto parts, for which 
China's tariff was 10 percent. U.S. exports of auto parts to China when 
the case was filed totaled $532 million; in 2019 they had risen to 
$1.52 billion. (DS 342)
        In 2007, the United States challenged India's imposition of 
additional duties on, among other items, wine and distilled spirits. 
The Appellate Body found that the additional duties were in excess of 
India's commitments and must be removed. U.S. exports of wine and 
distilled spirits to India were $2.5 million in 2007; in 2019, they had 
risen to $7.5 million. (DS 360)
        In 2010, the United States challenged Philippine taxes on 
distilled spirits, which were found to discriminate against imported 
spirits. U.S. exports were $16.3 million in 2010 but have risen in 2019 
to $108.2 million. (DS 403)
        In 2016, the United States challenged China's administration 
of tariff-rate quotas (TRQs) on wheat, rice, and corn. The Panel ruled 
that China's TRQs did not meet the WTO requirements of transparency, 
predictability and fairness and that China's practice inhibited the 
TRQs from being fully utilized. While it is too early to know the exact 
trade effects of the ruling. USDA estimates that if China's TRQs had 
been fully used, it would have imported as much as $3.5 billion in 
corn, wheat and rice in 2015 alone. (DS 517)
 III. The United States Should Seek to Reform Rather Than Destroy the 
        Appellate Body
    Ever since May 2017 when the United States began blocking any 
process to appoint new members to the Appellate Body, our trading 
partners have been asking the question: is the U.S. goal to reform the 
Appellate Body or to destroy it? With his testimony to the Ways and 
Means Committee on June 17th, Ambassador Lighthizer gave the answer: 
for the Trump administration, the goal is to kill the Appellate 
Body.\5\ I do not believe that decision is in the United States' 
interest or that it is a decision that should be left entirely to the 
U.S. Trade Representative to make, particularly given the clear 
expressions of support for a reformed Appellate Body from members of 
Congress.\6\
---------------------------------------------------------------------------
    \5\ Inside U.S. Trade, June 17, 2020. USTR: If WTO Appellate Body 
never comes back, ``that would be fine.'' Ambassador Lighthizer: ``I 
don't feel any compulsion to have [the Appellate Body] ever come back 
into effect.'' See also, https://waysandmeans.house.gov/legislation/
hearings/2020-trade-policy-agenda, AB remarks at 2:28:40-2:30:40.
    \6\ H. Res. 746, Resolution to Support and Reform the World Trade 
Organization (WTO); S. Res. 651 (Portman-Cardin), Sense of Senate.

    First, I believe that the United States won more than it lost from 
having a binding dispute settlement system and that the concerns that 
the United States has with the Appellate Body can be fixed. This view 
is shared by a wide variety of those in the business and agriculture 
communities in the United States and by our trading partners. Attached 
as Annex B to this testimony are letters and statements from some of 
---------------------------------------------------------------------------
those constituencies expressing support for a reformed Appellate Body.

    Second, failure to come forward with any plan to fix the system 
risks squandering the leverage created by paralyzing the Appellate 
Body. The United States has now garnered the attention of the world. An 
entire process, led by New Zealand's Ambassador and Permanent 
Representative to the WTO, David Walker, was created at the WTO to 
address U.S. concerns. Numerous outside groups, including, for example, 
the Ottawa Group, led by Canada and made up of 12 other WTO members, 
such as the EU, Australia, Brazil, Japan, Mexico, Korea and others, 
have met regularly to devise Appellate Body reforms. So far, the United 
States has not been willing to indicate what reforms, if any, would be 
acceptable and Ambassador Lighthizer's recent testimony suggests that 
none would be. American refusal to engage in the process risks branding 
the United States' concerns as illegitimate and an attempt to destroy 
not just the Appellate Body, but the WTO itself. Moreover, perceived 
United States intransigence on Appellate Body reform makes it less 
likely that its proposals in others areas, including its plan to create 
specific criteria for countries to qualify as ``developing'' in order 
to be eligible for special and differential treatment \7\ or its 
proposal to put teeth into the reporting requirements for subsidies and 
other notifications,\8\ will receive the attention they deserve given 
the lack of trust created by the U.S. approach to the Appellate Body.
---------------------------------------------------------------------------
    \7\ WT/GC/W.764/Rev. 1, November 25, 2019.
    \8\ JOB/GC/204/Rev. 2, June 27, 2019.

    Third, destroying the Appellate Body presumes that the United 
States will fare better in a system based on power and a willingness to 
retaliate rather than a rules-based system. For me, this is a dangerous 
road to travel. It is premised on a belief that the United States will 
always come out ahead because it can impose unilateral tariffs on 
countries that do not comply with adverse rulings but presumes other 
countries will not do the same to the United States. Yet we have seen a 
wide range of countries retaliate against the United States' unilateral 
tariffs on steel and aluminum, while China has not hesitated to apply 
tit-for-tat tariffs to American exports in response to our section 301 
duties. Most recently, China has taken a page from the American book in 
applying a non-market economy methodology for calculating anti-dumping 
duties to U.S. exports of n-propanol in light of what China claims are 
substantial subsidies to U.S. oil, gas and coal industries and overall 
non-market conditions in the U.S. energy and petrochemical sectors.\9\ 
If the United States blocks the adoption of panel reports that it does 
not wish to comply with, other countries are likely to do the same when 
it is the United States that has prevailed.\10\
---------------------------------------------------------------------------
    \9\ https://ielp.worldtradelaw.net/2020/07/the-us-is-now-a-non-
market-economy-anti-dumping-ruling-by-china.html.
    \10\ Already, the United States has blocked the adoption of a panel 
report (DS436, U.S.-Carbon Steel India) by filing a notice of appeal. 
Under the WTO's Understanding on Dispute Settlement, no action can be 
taken with respect to an appeal that is pending (DSU Article 16.4). In 
the absence of a quorum of Appellate Body members, an appeal will pend 
indefinitely. The U.S. has also indicated that it would not comply with 
another decision (DS505 U.S.-Supercalendared Paper) because it was 
issued by Appellate Body members whose terms had expired before the 
completion of the report.

    Finally, failure to engage in the debate to reform the Appellate 
Body cedes American leadership to others. Already, the rest of the 
world is moving ahead without the United States in the area of dispute 
settlement. Twenty-two countries, led by the European Union, have 
agreed to use an arbitration process for conducting appeals.\11\ This 
Multi-Party Interim Appeal Arbitration Arrangement (MPIA) is based on 
the premise that ``a functioning dispute settlement system of the WTO 
is of the utmost importance for a rules-based trade system'' and that 
``an independent and impartial appeal stage must continue to be one of 
its essential features.''\12\ It is quite likely that from the MPIA 
will emerge new approaches to handling appeals, but the United States 
will not have been a part of that process and will have no ability to 
shape its direction. In other areas of WTO reform, the perception that 
the United States is not genuinely interested in finding solutions and 
that it may well treat other issues as it has treated the Appellate 
Body--ultimately taking the view that there is no reform that would be 
satisfactory--will allow other WTO members, including China, to seek 
the leadership spot historically occupied by the United States. A loss 
of perceived leadership could be damaging to U.S. efforts to reach an 
agreement on new rules for e-commerce or new disciplines on fishery 
subsidies or a new set of rules to address the disruption caused by 
China's increasingly Communist Party-dominated, non-market economy.
---------------------------------------------------------------------------
    \11\ The 22 countries are Australia, Benin, Brazil, Canada, China, 
Chile, Colombia, Costa Rica, Ecuador, the European Union, Guatemala, 
Hong Kong, Iceland, Mexico, Nicaragua, New Zealand, Norway, Pakistan, 
Singapore, Switzerland, Ukraine, and Uruguay.
    \12\ https://trade.ec.europa.eu/doclib/docs/2020/april/
tradoc_158731.pdf.
---------------------------------------------------------------------------
 IV. A Fix for the Appellate Body Is Achievable if We Act Now
    The unwillingness of the United States to engage in negotiations to 
fix the Appellate Body frustrates many because the problems raised are 
ones that can be addressed. A solution that improves the efficiency of 
the Appellate Body and responds to U.S. concerns involves adopting a 
specific set of operating principles, establishing a new oversight 
committee to ensure adherence to those principles, and placing term 
limits on the legal staff to bring in fresh thinking and a better 
distribution of power between adjudicators and staff.

    Adopt an amended version of the Walker principles. New Zealand's 
Ambassador and Permanent Representative to the WTO David Walker was 
appointed in February 2019 to ``seek workable and agreeable solutions 
to improve the functioning of the Appellate Body.'' On November 28, 
2019, he set forth specific principles designed to address U.S. 
concerns.\13\ The principles require the Appellate Body to make its 
decisions in ninety days and for Appellate Body members to leave 
promptly at the end of a second term of office, to treat facts as facts 
(not subject to appeal), to respect the more deferential standard of 
review for antidumping investigations, to address only issues raised by 
parties and only to the extent necessary to resolving the dispute at 
hand so that its opinions are not advisory, to take previous Appellate 
Body or panel reports into account only to the extent they are relevant 
and not as precedent, and to ensure that its rulings do not add to the 
obligations or take away any rights of the parties as contained in the 
WTO rules. Collectively, the Walker principles are designed to make the 
Appellate Body more efficient by shortening its time frames and its 
reports while doing what the United States has demanded--return to the 
rules as written in 1995. Unreserved adoption of the principles by WTO 
members would demonstrate widespread member agreement that the 
Appellate Body has a limited mandate to resolve only legal questions 
raised on appeal in strict accordance with WTO rules.
---------------------------------------------------------------------------
    \13\ https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-
DP.aspx?language=E&Cata
logueIdList=257689,255861,253985,253661,253388,251873&CurrentCatalogueId
Index=0&Full
TextHash=371857150&HasEnglishRecord=True&HasFrenchRecord=False&HasSpanis
hRecord=
False.

    If the specific provisions of the Walker Principles do not go far 
enough for the United States, then stricter versions of them can and 
should be negotiated. Two recent papers commissioned by the National 
Foreign Trade Council (NFTC), for example, suggest specific ways to 
enhance the Walker principles.\14\
---------------------------------------------------------------------------
    \14\ https://www.nftc.org/newsflash/
newsflash.asp?Mode=View&articleid=4219&Category=All, https://
www.nftc.org/newsflash/
newsflash.asp?Mode=View&articleid=4228&Category=All.

    Establish an oversight committee and audit to ensure compliance. To 
build trust that the Appellate Body will adhere to the Walker 
principles, the WTO should convene an oversight committee at least once 
a year and when requested. The oversight committee could be made up of 
the chairs of the lead WTO committees--its General Council, Council for 
Trade in Goods, Council for Trade in Services, Council for Trade-
Related Aspects of Intellectual Property Rights, and the Dispute 
Settlement Body, with the chair of the Dispute Settlement Body 
appointing four additional independent trade-law experts to the 
committee to ensure a proper representation of expertise. The 
committee's sole task should be to assess whether the Appellate Body 
has adhered to the Walker principles, either over the course of a given 
year or, when asked, in an individual case. In part, this oversight 
committee would help address the primary query raised by the United 
States when the Walker principles were presented: why should we believe 
the Appellate Body will adhere to them when it did not adhere to the 
language of the Dispute Settlement Understanding (DSU)? It will be the 
oversight committee's job to ensure that the Walker principles are 
followed and that the Appellate Body is called out quickly should it go 
---------------------------------------------------------------------------
astray.

    Limit the service of members of the Appellate Body Secretariat to 
no longer than 8 years--the maximum length of time of an Appellate Body 
member. The root cause of many U.S. concerns rests not just with the 
Appellate Body members themselves, but with its Secretariat--
particularly the lawyers who work for the Appellate Body as a whole. 
Over time, the Secretariat has gained experience and expertise that 
often is greater than that of the Appellate Body members, who serve on 
a part-time basis for a maximum of 8 years. Secretariat lawyers, on the 
other hand, devote all of their time over many years to working on 
appeals and are steeped in (and potentially wedded to) past decisions. 
Adopting a mobility principle would allow staff rotations throughout 
other WTO offices, bring new perspectives to appeals, reduce the 
tendency to treat past decisions as precedent, and help restore an 
appropriate balance of power between the Appellate Body members and the 
Secretariat staff. It would also send a strong signal of an end to 
business as usual. If mobility alone were not sufficient, others have 
suggested that each Appellate Body member could be appointed a clerk 
that would ensure that Appellate Body reports reflect their specific 
views and not necessarily the views of the Secretariat as a whole or 
its leadership.\15\
---------------------------------------------------------------------------
    \15\ See, for example, the NFTC paper, ``Resolving the Appellate 
Body Crisis: Proposals on Precedent, Appellate Body Secretariat and the 
Role of Adjudicators,'' June 5, 2020, https://www.nftc.org/newsflash/
newsflash.asp?Mode=View&id=236&articleid=4228&category=All.

    These reforms would make the Appellate Body more efficient while 
addressing U.S. concerns. For the United States, it is critical that 
the Appellate Body respect the current language of the WTO's Dispute 
Settlement Understanding. The Walker principles require just that. But 
the United States needs assurance that the mindset of the Appellate 
Body has been changed and that, this time around, the rules will be 
respected. The creation of an oversight process ensures that the 
Appellate Body will be judged on its consistency with the Walker 
principles, while injecting an additional measure of political 
oversight over the functioning of the Appellate Body. Staff rotation 
brings fresh thinking along with a renewed focus on completing appeals 
in accordance with the needs of WTO members.
 V. Appellate Body Reform as Momentum for Overall Reforms of WTO
    While the United States has refused to negotiate amendments to the 
Appellate Body, it has been leading the charge on two other 
institutional reforms: (1) the ability of countries to self-declare 
themselves to be ``developing countries'' eligible for the WTO's 
``special and differential treatment,''\16\ and (2) the lack of timely 
compliance with requirements to notify the WTO of changes in trading 
regimes or levels of subsidies. In addition, the United States has been 
among those pushing hard to complete pending negotiations to curb 
fishery subsidies and create new rules on e-commerce. All will be 
difficult to bring to a final conclusion if the United States is not 
trusted as being genuinely interested in reform and if other WTO 
members remain skeptical of the value of reaching new agreements if 
those deals cannot be enforced because the Appellate Body has been 
paralyzed.
---------------------------------------------------------------------------
    \16\ WT/GC/W/757/Rev. 1, December 9, 2019.

    The surest way for the United States to achieve its various goals 
is to work to reform the Appellate Body first--both as a sign of good 
faith and because a reformed Appellate Body is in the United States' 
interest. An improved but functioning Appellate Body could also form 
the core of a broader package of WTO reforms. For example, the United 
States could agree to unblock the appointments to a reformed Appellate 
Body while the rest of the WTO members accept clear criteria defining 
which countries can be considered ``developing'' for purposes of the 
WTO's special treatment. A deal along these lines give everyone 
something they want. The United States gets both reforms to the 
Appellate Body and a guarantee that countries that are large enough or 
rich enough to be in the OECD or the G20 cannot claim special 
privileges as developing countries while the rest of the world gets a 
functioning but improved binding dispute settlement system that leaves 
in place special privileges for those countries that really need it. 
But such a process is unlikely to start unless and until the United 
States indicates which of the many ideas for reforming the Appellate 
Body could form the basis for a bargain.
VI. Conclusion
    Given the global economic pain from the coronavirus pandemic and 
the likely emergence of a post-pandemic wave of protectionism, the 
world needs a strong and effective WTO more than ever. Successfully 
confronting a rising China with its state-run economy also requires a 
fully functioning WTO. The best way to achieve that is to start by 
fixing the dispute settlement system which underpins the rules-based 
trading system. Doing so will require U.S. leadership that moves beyond 
simply tearing the Appellate Body down. Now is the time to rebuild it. 
A revitalized dispute settlement system can then serve as a catalyst to 
broader reforms of the WTO itself.

                                Annex A

WTO Dispute Settlement Cases in Which the United States Succeeded in Demonstrating Violations of WTO Obligations
                                             by Trading Partners \1\
----------------------------------------------------------------------------------------------------------------
                                       Date
      Case            Title          Requested                Summary                         Effects
----------------------------------------------------------------------------------------------------------------
Japan DS 8       Taxes on         7/7/1995        The complainants claimed that   Japan eliminated
 (with EU \2\     PAlcoholic                       spirits exported to Japan       discriminatory taxes and all
 and Canada DS    Beverages                        were discriminated against      tariffs on distilled spirits.
 8, 10 and 11)                                     under the Japanese Liquor Tax   U.S. distilled spirits
                                                   Law which created a system of   exports to Japan were $138
                                                   internal taxes with a           million in 2019.
                                                   substantially lower tax on
                                                   ``shochu'' than on whisky,
                                                   cognac and white spirits. The
                                                   Panel and the Appellate Body
                                                   concluded that the Japanese
                                                   Liquor Tax Law is
                                                   inconsistent with the GATT,
                                                   by taxing vodka in excess of
                                                   shochu and by taxing
                                                   different liquors at
                                                   different rates to as to
                                                   afford protection to domestic
                                                   production.
----------------------------------------------------------------------------------------------------------------
EU DS 26         Measures         1/26/1996       The U.S. claimed that measures  Settlement reached in 2009 for
                  Concerning                       taken by the EU restricting     quota of 45,000 tons of non-
                  Meat and Meat                    or prohibiting imports of       hormone-treated beef exports
                  Products                         meat and meat products from     to the EU; agreement updated
                  (Hormones)                       the U.S. because they were      in 2019 to ensure U.S. access
                                                   produced using hormones are     to 35,000 of the 45,000 tons,
                                                   inconsistent with the SPS       estimated at $420 million in
                                                   Agreement. The Panel found      U.S. beef exports.
                                                   that the EC ban on imports of
                                                   meat and meat products from
                                                   cattle treated with any of
                                                   six specific hormones for
                                                   growth promotion purposes was
                                                   inconsistent SPS Agreement.
                                                   The Appellate Body upheld the
                                                   Panel's finding that the EU
                                                   import prohibition was
                                                   inconsistent with Article 5.1
                                                   of the SPS Agreement's
                                                   requirement that measures be
                                                   based on a risk assessment,
                                                   which the EU hadnot done.
----------------------------------------------------------------------------------------------------------------
Canada DS 31     Certain          3/11/1996       The U.S. challenged Canadian
                  Measures                         restrictions on imports of
                  Concerning                       certain periodicals, which
                  Periodicals                      prohibited ``special
                                                   editions,'' and imposed a tax
                                                   equal to 80 percent of the
                                                   value of all the
                                                   advertisements contained in
                                                   the split-run edition, along
                                                   with different postal rates
                                                   for domestic versus foreign
                                                   periodicals. The Appellate
                                                   Body found the quantitative
                                                   restrictions, tax, and postal
                                                   rates to be in violation of
                                                   Canada's commitments under
                                                   the GATT and its taxes
                                                   favorable postal rates to be
                                                   discriminatory.
----------------------------------------------------------------------------------------------------------------
India DS 50      Patent           7/2/1996        The U.S. challenged India's
                  Protection for                   lack of patent protection for
                  Pharmaceutical                   pharmaceutical and
                  and                              agricultural chemical
                  Agricultural                     products in India. The Panel,
                  Chemicals                        as confirmed by the Appellate
                                                   Body, found that India has
                                                   not complied with its
                                                   obligations under the TRIPS
                                                   Agreement by failing to
                                                   establish a mechanism that
                                                   adequately preserves novelty
                                                   and priority in respect of
                                                   applications for product
                                                   patents for pharmaceutical
                                                   and agricultural chemical
                                                   inventions, and by failing to
                                                   establish a system for the
                                                   grant of exclusive marketing
                                                   rights.
----------------------------------------------------------------------------------------------------------------
Argentina DS 56  Measures         10/4/1996       The U.S. challenged
                  Affecting                        Argentina's imposition of
                  Imports of                       minimum specific import
                  Footwear,                        duties on textiles and
                  Textiles,                        apparel, which were subject
                  Apparel and                      to either a 35-percent ad
                  other times                      valorem duty or a minimum
                                                   specific duty (whichever was
                                                   higher) and other measures by
                                                   Argentina. The Panel found
                                                   that the minimum specific
                                                   duties imposed by Argentina
                                                   on textiles and apparel were
                                                   in excess of those provided
                                                   for in Argentina's tariff
                                                   schedule. At the DSB meeting
                                                   on 22 June 1998, Argentina
                                                   announced that it had reached
                                                   an agreement with the U.S.,
                                                   whereby Argentina would
                                                   reduce the statistical tax to
                                                   0.5 percent by 1 January
                                                   1999, and cap specific duties
                                                   on textiles and apparel at 35
                                                   percent by 19 October 1998.
----------------------------------------------------------------------------------------------------------------
Indonesia DS 59  Certain          10/8/1996       The U.S. joined the EU and
 (with EU DS 54   Measures                         Japan in contesting
 and Japan DS     Affecting the                    Indonesia's National Car
 55)              Automobile                       Program. The claim was that
                  Industry                         Indonesia's exemption for
                                                   ``national vehicles'' and
                                                   components thereof from
                                                   customs duties and luxury
                                                   taxes was discriminatory and
                                                   violated the WTO's investment
                                                   and subsidy rules. The Panel
                                                   found that Indonesia was
                                                   discriminating against
                                                   imports in violation of
                                                   Articles I and II:2 of GATT
                                                   1994, along with related
                                                   violations of the WTO's TRIMs
                                                   Agreement and the SCM
                                                   Agreement
----------------------------------------------------------------------------------------------------------------
Japan DS 76      Measures         4/7/1997        The U.S. challenged Japan's
                  Affecting                        quarantine measures applied
                  Agricultural                     to imports of certain
                  Products-II                      agricultural products because
                                                   Japan required that every
                                                   variety of product be
                                                   separately tested and subject
                                                   to quarantine even if the
                                                   treatment has proved to be
                                                   effective for other varieties
                                                   of the same product. The
                                                   Panel and the Appellate Body
                                                   found that Japan's varietal
                                                   testing of apples, cherries,
                                                   nectarines and walnuts is
                                                   inconsistent with the
                                                   requirements of the SPS
                                                   Agreement.
----------------------------------------------------------------------------------------------------------------
Korea DS 84      Taxes on         5/23/1997       Korea internal taxes on         U.S. distilled exports to
 (with the EU     Alcoholic                        certain alcoholic beverages     Korea have grown to over $13
 DS 75)           Beverages                        were challenged as violating    million in 2019. The U.S. is
                                                   Korea's national treatment      Korea's third largest source
                                                   obligations (GATT Article       of imported distilled
                                                   III:2) because the taxes        spirits.
                                                   imposed on like imported
                                                   alcoholic beverages were
                                                   higher than domestically
                                                   produced ones. The Panel
                                                   found that Korea has taxed
                                                   the imported products in a
                                                   dissimilar manner, that the
                                                   tax differential was more
                                                   than de minimis, and is
                                                   applied so as to afford
                                                   protection to domestic
                                                   production, in violation of
                                                   Korea's GATT obligations.
----------------------------------------------------------------------------------------------------------------
India DS 90      Quantitative     7/15/1997       U.S. claimed that quantitative
                  Restrictions                     restrictions (QRs) on imports
                  on Imports of                    of a large number of
                  Agricultural,                    agricultural, textile and
                  Textile and                      industrial products and the
                  Industrial                       way in which the QRs were
                  Products                         administered by India
                                                   violated India's obligations
                                                   under the of GATT 1994, the
                                                   Agreement on Agriculture, and
                                                   the Agreement on Import
                                                   Licensing Procedures. The
                                                   Panel agreed with the U.S.
                                                   finding the measures to be
                                                   inconsistent with India's
                                                   obligations under Articles XI
                                                   and XVIII11 of GATT 1994, and
                                                   for agriculture products,
                                                   inconsistent with Article 4.2
                                                   of the Agreement on
                                                   Agriculture.
----------------------------------------------------------------------------------------------------------------
Canada DS103     Measures         10/8/1997       The U.S. challenged Canada's    Export Value of Milk to
                  Affecting the                    export subsidies for dairy      Canada; HS0401, HS0402; 1998
                  Importation of                   products and the                total: $1.6 million; 2019
                  Milk and the                     administration by Canada of     total: $42.5 million
                  Exportation of                   the tariff-rate quota on
                  Dairy Products                   milk, claiming the measures
                                                   distort markets for dairy
                                                   products and adversely affect
                                                   U.S. sales of dairy products.
                                                   The Appellate Body upheld one
                                                   of the Panel's narrow
                                                   findings: that Canada's value
                                                   limitation set at Can $20 for
                                                   each importation was
                                                   inconsistent with the GATT
                                                   schedule of concessions, as
                                                   there was no mention of such
                                                   value limitation in Canada's
                                                   schedule.
----------------------------------------------------------------------------------------------------------------
Australia DS126  Subsidies        5/4/1998        The U.S. challenged
                  Provided to                      Australia's provision of
                  Producers and                    prohibited export subsidies
                  Exporters of                     to Australian producers and
                  Automotive                       exporters of automotive
                  Leather                          leather, including subsidies
                                                   provided to Howe and Company
                                                   Proprietary Ltd. (or any of
                                                   its affiliated and/or parent
                                                   companies), which allegedly
                                                   involve preferential
                                                   government loans of about
                                                   $A25 million and non-
                                                   commercial terms and grants
                                                   of about $A30 million. The
                                                   Panel found that some, but
                                                   not all, of the subsides were
                                                   prohibited subsidies on the
                                                   grounds that the payments
                                                   were ``tied to'' export
                                                   performance.
----------------------------------------------------------------------------------------------------------------
Mexico DS132     Anti-Dumping     5/8/1998        The U.S. claimed that Mexico's  Export Value of HFCS to
                  Investigation                    anti-dumping duties on high-    Mexico; HS170260, HS170250;
                  of High-                         fructose corn syrup (HFCS)      1998 total: $58.2 million;
                  PFructose Corn                   grades 42 and 55 were imposed   2019 total: $422.9 million
                  Syrup (HFCS)                     without conducting a proper
                  from the                         investigation. The U.S.
                  United States                    contended that the manner in
                                                   which the application for an
                                                   anti-dumping investigation
                                                   was made (regarding
                                                   retroactivity, explanation of
                                                   determination, and
                                                   provisional measures), as
                                                   well as the manner in which a
                                                   determination of threat of
                                                   injury was made, were
                                                   inconsistent with various
                                                   articles of the Anti-Dumping
                                                   Agreement. The Panel and the
                                                   Appellate Body agreed with a
                                                   number of the U.S.
                                                   complaints.
----------------------------------------------------------------------------------------------------------------
Korea DS161      Measures         2/1/1999        The U.S. challenged a Korean    Export Value of Beef to Korea;
                  Affecting                        regulatory scheme that          HS201, HS202; 1999 total:
                  Imports of                       discriminates against           $330.5 million; 2019 total:
                  Fresh, Chilled                   imported beef by, among other   $1.77 billion
                  and Frozen                       things, confining sales of
                  Beef                             imported beef to specialized
                                                   stores (dual retail system),
                                                   limiting the manner of its
                                                   display, and otherwise
                                                   constraining the
                                                   opportunities for the sale of
                                                   imported beef. The Panel and
                                                   the Appellate Body, found
                                                   that Korea's dual retail
                                                   scheme discriminated against
                                                   imported beef and that sales
                                                   opportunities were denied.
----------------------------------------------------------------------------------------------------------------
Canada DS170     Term of Patent   5/6/1999        The U.S. challenged Canada's    On 12 July 2001, Bill S-17
                  Protection                       failure to provide a patent     came into force which brought
                                                   term of no less than 20 years   Canada's Patent Act into
                                                   from the filing date for the    conformity with its
                                                   patent for all future and       obligations under the TRIPS
                                                   certain pre-existing patents,   Agreement.
                                                   as required by the TRIPS
                                                   Agreement.
----------------------------------------------------------------------------------------------------------------
European Union   Protection of    6/1/1999        The U.S. challenged the EU's
 DS174 (with      Trademarks and                   lack of protection of
 Australia)       Geographical                     trademarks and geographical
                  Indications                      indications (GIs) for
                  for                              agricultural products and
                  Agricultural                     foodstuffs, claiming that EC
                  Products and                     Regulation 2081/92 does not
                  Foodstuffs                       provide national treatment
                                                   with respect to geographical
                                                   indications and does not
                                                   provide sufficient protection
                                                   to pre-existing trademarks
                                                   that are similar or identical
                                                   to a geographical indication.
                                                   The Panel agreed with the
                                                   U.S. that the EU's GI
                                                   Regulation does not provide
                                                   national treatment and that
                                                   the TRIPS Agreement does not
                                                   allow unqualified coexistence
                                                   of GIs with prior trademarks.
----------------------------------------------------------------------------------------------------------------
India DS175      Measures         6/2/1999        The U.S. contested certain      Export Value of Included Autos
                  Affecting                        Indian measures requiring       and Auto Parts to India;
                  Trade and                        manufacturing firms in the      HS8703, HS8706, HS8707; 1999
                  Investment in                    motor vehicle sector to         total: $840,000; 2019 total:
                  the Motor                        achieve specific levels of      $21,850,000
                  Vehicle Sector                   local content, neutralize
                                                   foreign exchange, and limit
                                                   imports based on the previous
                                                   year's exports. The Panel
                                                   determined that India had
                                                   acted inconsistently with the
                                                   indigenization requirement,
                                                   had limited imports in
                                                   relation to an export
                                                   commitment, and created a
                                                   measure to disincentivize
                                                   purchases of imported
                                                   products and discriminated
                                                   against imported products.
----------------------------------------------------------------------------------------------------------------
Mexico DS204     Measures         8/17/2000       The U.S. challenged Mexico's
                  Affecting                        adoption or maintenance of
                  Telecommunicat                   anti- competitive and
                  ions Services                    discriminatory regulatory
                                                   measures, its toleration of
                                                   certain privately established
                                                   market access barriers, and
                                                   its failure to take needed
                                                   regulatory action in the
                                                   basic and value-added
                                                   telecommunications sectors.
                                                   The Panel ruled that Mexico
                                                   had violated its GATT
                                                   commitments.
----------------------------------------------------------------------------------------------------------------
Japan DS245      Measures         3/1/2002        The U.S. challenged Japan's     Export Value of Apples to
                  Affecting the                    restrictions on imports of      Japan; HS080810; 2002 total:
                  Importation of                   apples which Japan claimed      $101,000; 2019 total:
                  Apples                           were necessary to protect       $792,000
                                                   against the introduction of
                                                   fire blight. The Appellate
                                                   Body upheld the Panel's
                                                   finding that Japan's
                                                   phytosanitary measure imposed
                                                   on imports of apples from the
                                                   U.S. was maintained ``without
                                                   sufficient scientific
                                                   evidence,'' and that the Pest
                                                   Risk Assessment conducted by
                                                   Japan failed to evaluate the
                                                   likelihood of entry,
                                                   establishment, or spread of
                                                   fire blight specifically
                                                   through apple fruit.
----------------------------------------------------------------------------------------------------------------
Canada DS276     Measures         12/17/2002      The U.S. challenged actions by  Export Value of Grain and
                  Relating to                      the Canadian Wheat Board and    Wheat to Canada; HS1001,
                  Exports of                       the treatment accorded to       HS1007; 2002 total: $3.57
                  Wheat and                        grain imported into Canada,     million; 2019 total: $41.48
                  Treatment of                     claiming Canada and the         million
                  Imported Grain                   Canadian Wheat Board (entity
                                                   enjoying exclusive rights to
                                                   purchase and sell Western
                                                   Canadian wheat for human
                                                   consumption) gave unfair
                                                   treatment to domestically
                                                   produced grain by restricting
                                                   the mixing of imported and
                                                   domestic wheat and by capping
                                                   the maximum revenues that
                                                   railroads can receive on the
                                                   shipment of imported grain.
                                                   In 2005, Canada amended its
                                                   laws and regulations to bring
                                                   Canada into compliance with
                                                   the ruling.
----------------------------------------------------------------------------------------------------------------
European Union   Measures         5/13/2003       The U.S. challenged the EU's
 DS291            Affecting the                    1998 moratorium on the
                  Approval and                     approval of biotech products
                  Marketing of                     because it restricted imports
                  Biotech                          of agricultural and food
                  Products                         products from the U.S. The
                                                   Panel found that, by applying
                                                   the moratorium, the European
                                                   Communities had acted
                                                   inconsistently with its
                                                   obligations under the SPS
                                                   Agreement because the de
                                                   facto moratorium led to undue
                                                   delays in the completion of
                                                   EC approval procedures.
----------------------------------------------------------------------------------------------------------------
Mexico DS295     Definitive Anti- 6/16/2003       The U.S. contested Mexico's     Export Value of U.S. Long
                  Dumping                          definitive anti-dumping         Grain White Rice to Mexico;
                  Measures on                      measures on beef and long       HS100630; 2003 total: $13.8
                  Beef and Rice                    grain white rice as well as     million; 2019 total: $36.3
                                                   certain provisions of           million
                                                   Mexico's Foreign Trade Act     Export Value of U.S. Beef to
                                                   and its Federal Code of Civil   Mexico; HS0201; 2003 total:
                                                   Procedure. The Panel upheld     $581.7 million; 2019 total:
                                                   all of the U.S. claims          $743.7 million
                                                   concerning both the injury
                                                   and the dumping margin
                                                   determination of the Mexican
                                                   investigating authority in
                                                   the rice investigation,
                                                   applying judicial economy
                                                   with respect to some other
                                                   related claims.
----------------------------------------------------------------------------------------------------------------
Mexico DS308     Tax Measures on  3/16/2004       The U.S. challenged Mexican     Export Value of Soft Drinks to
                  Soft Drinks                      taxes on soft drinks and        Mexico; HS220210; 2004 total:
                  and Other                        other beverages that use any    $9.9 million; 2019 total:
                  Beverages                        sweetener other than cane       $15.7 million
                                                   sugar. The tax measures
                                                   concerned included: (i) a 20-
                                                   percent tax on soft drinks
                                                   and other beverages that use
                                                   any sweetener other than cane
                                                   sugar (``beverage tax''),
                                                   which is not applied to
                                                   beverages that use cane
                                                   sugar; and (ii) a 20-percent
                                                   tax on the commissioning,
                                                   mediation, agency,
                                                   representation, brokerage,
                                                   consignment and distribution
                                                   of soft drinks and other
                                                   beverages that use any
                                                   sweetener other than cane
                                                   sugar (``distribution tax'').
                                                   The Appellate Body the taxes
                                                   were levied in excess of
                                                   taxes levied against like
                                                   domestic products, were
                                                   applied in a dissimilar
                                                   manner to provide protections
                                                   to domestic production, and
                                                   gave imported like product
                                                   less favorable treatment.
----------------------------------------------------------------------------------------------------------------
European Union   Selected         9/21/2004       The U.S. challenged the EU's
 DS315            Customs                          convoluted administration of
                  Matters                          laws and regulations (25
                                                   different agencies due to one
                                                   for each EU member state)
                                                   pertaining to the
                                                   classification and valuation
                                                   of products for customs
                                                   purposes and its failure to
                                                   institute tribunals or
                                                   procedures for the prompt
                                                   review and correction of
                                                   administrative action on
                                                   customs matters. The US
                                                   claimed the EU's process is a
                                                   violation of its obligation
                                                   to administer its customs
                                                   laws in a uniform manner. The
                                                   Panel and the Appellate Body
                                                   found certain specific
                                                   violations but did not rule
                                                   on the EU system as a whole.
----------------------------------------------------------------------------------------------------------------
European Union   Measures         10/6/2004       The United States challenged a  ``In 2018, the U.S. requested
 DS316            Affecting                        series of subsidies provided    authority to impose
                  Trade in Large                   by the EU and four of its       countermeasures commensurate
                  Civil Aircraft                   member states in support of     with the adverse effects that
                                                   Airbus as violations of the     the EU subsidies continued to
                                                   SCM Agreement. The measures     cause and a WTO arbitrator
                                                   included: the provision of      found that the annual adverse
                                                   financing for design and        effects to the United States
                                                   development to Airbus           amounted to $7.5 billion per
                                                   companies (``launch aid'');     year.'' USTR Report
                                                   the provision of grants and
                                                   government-provided goods and
                                                   services to develop, expand,
                                                   and upgrade Airbus
                                                   manufacturing sites for the
                                                   development and production of
                                                   the Airbus A380; the
                                                   provision of loans on
                                                   preferential terms. The
                                                   Appellate Body upheld the
                                                   Panel's finding that certain
                                                   subsidies provided by the
                                                   European Union and certain
                                                   member state governments to
                                                   Airbus are incompatible with
                                                   Article 5(c) of the SCM
                                                   Agreement because they have
                                                   caused serious prejudice to
                                                   the interests of the U.S. On
                                                   2 October 2019, the U.S.
                                                   requested authorization from
                                                   the DSB to take
                                                   countermeasures with respect
                                                   to the European Union and
                                                   certain member States
                                                   (Germany, France, Spain, and
                                                   the United Kingdom) at a
                                                   level not exceeding, in
                                                   total, U.S. $7,496.623
                                                   million annually.
----------------------------------------------------------------------------------------------------------------
Turkey DS334     Measures         11/2/2005       The U.S. challenged Turkey's    Export Value of Rice to
                  Affecting the                    import restrictions on rice,    Turkey; HS1006; 2005 total:
                  Importation of                   contending that Turkey          $38.8 million; 2019 total:
                  Rice                             requires an import license to   $2.7 million
                                                   import rice but fails to
                                                   grant such licenses at
                                                   Turkey's bound rate of duty.
                                                   The Panel found that Turkey's
                                                   action constitutes a
                                                   quantitative import
                                                   restriction and a practice of
                                                   discretionary import
                                                   licensing which is
                                                   inconsistent with the
                                                   Agreement on Agriculture. The
                                                   Panel also concluded that
                                                   Turkey's requirement that
                                                   importers must purchase
                                                   domestic rice in order to be
                                                   allowed to import rice at
                                                   reduced-tariff levels under
                                                   the tariff quotas
                                                   discriminated against
                                                   imported rice.
----------------------------------------------------------------------------------------------------------------
China DS342      Measures         3/30/2006       The U.S. challenged China's     Export Value of U.S. Auto
 (with the EU     Affecting                        imposition of a 25-percent      Parts to China; HS8708; 2006
 and Canada)      Imports of                       ``charge'' on imported auto     total: $532 million; 2019
                  Automobile                       parts ``characterized as        total: $1.52 billion
                  Parts                            complete motor vehicles.'' If  ``The value of subsidies made
                                                   the number or value of          available to auto and auto
                                                   imported parts in the           parts manufacturers in China
                                                   assembled vehicle exceeded      between 2009 and 2011 was at
                                                   specified thresholds, the       least $1 billion.'' USTR
                                                   regulations assess each of      Report
                                                   the imported parts a charge
                                                   equal to the tariff on
                                                   complete automobiles
                                                   (typically 28 percent) rather
                                                   than the tariff applicable to
                                                   auto parts (typically 10-14
                                                   percent). The Appellate Body
                                                   upheld the Panel's findings
                                                   that the measures were in
                                                   violation of China's
                                                   obligations under the GATT
                                                   because they imposed an
                                                   internal charge on imported
                                                   auto parts that was not
                                                   imposed on like domestic auto
                                                   parts and because they
                                                   accorded imported parts less
                                                   favorable treatment than like
                                                   domestic auto parts by, inter
                                                   alia, subjecting only
                                                   imported parts to additional
                                                   administrative procedures.
----------------------------------------------------------------------------------------------------------------
India DS360      Additional and   3/6/2007        The U.S. challenged India's     Export Value of Wine and
                  Extra-                           ``additional duties'' or        Distilled Products to India;
                  Additional                       ``extra additional duties''     HS2204, HS2208; 2007 total:
                  Duties on                        that India applied to           $2.5 million; 2019 total:
                  Imports from                     imports, including wines and    $7.5 million
                  the United                       distilled products (HS2204,
                  States                           2205, 2206 and 2208). The
                                                   Panel concluded that the U.S.
                                                   has failed to establish that
                                                   the Additional Duty on
                                                   alcoholic liquor is
                                                   inconsistent with Article
                                                   II:1(a) or (b) of the GATT
                                                   1994 and that it has also
                                                   failed to establish that the
                                                   SUAD is inconsistent with
                                                   Article II:1(a) or (b) of the
                                                   GATT 1994. The Appellate Body
                                                   reversed the Panel to find
                                                   that India's additional
                                                   duties, to the extent that
                                                   they imposed higher duties on
                                                   imports than on domestic
                                                   products, were a violation of
                                                   India's GATT obligations.
----------------------------------------------------------------------------------------------------------------
China DS362      Measures         4/10/2007       The U.S. challenged China's
                  Affecting the                    protection of intellectual
                  Protection and                   property rights, focusing on
                  Enforcement of                   four issues: (1) the
                  Intellectual                     thresholds that must be met
                  Property                         in order for certain acts of
                  Rights                           trademark counterfeiting and
                                                   copyright piracy to be
                                                   subject to criminal
                                                   procedures and penalties; (2)
                                                   goods that infringe
                                                   intellectual property rights
                                                   that are confiscated by
                                                   Chinese customs authorities,
                                                   in particular the disposal of
                                                   such goods following removal
                                                   of their infringing features;
                                                   (3) the scope of coverage of
                                                   criminal procedures and
                                                   penalties for unauthorized
                                                   reproduction or unauthorized
                                                   distribution of copyrighted
                                                   works; and (4) the denial of
                                                   copyright and related rights
                                                   protection and enforcement to
                                                   creative works of authorship,
                                                   sound recordings and
                                                   performances that have not
                                                   been authorized for
                                                   publication or distribution
                                                   within China. The Panel
                                                   concluded that, to the extent
                                                   that the Copyright Law and
                                                   the Customs measures as such
                                                   are inconsistent with the
                                                   TRIPS Agreement, they nullify
                                                   or impair benefits accruing
                                                   to the U.S. under that
                                                   Agreement.
----------------------------------------------------------------------------------------------------------------
China DS363      Measures         4/10/2007       The U.S. challenged China
                  Affecting                        over: (1) certain measures
                  Trading Rights                   that restrict trading rights
                  and                              with respect to imported
                  Distribution                     films for theatrical release,
                  Services for                     audiovisual home
                  Certain                          entertainment products (e.g.,
                  Publications                     video cassettes and DVDs),
                  and                              sound recordings and
                  Audiovisual                      publications (e.g., books,
                  Entertainment                    magazines, newspapers and
                  Products                         electronic publications); and
                                                   (2) certain measures that
                                                   restrict market access for,
                                                   or discriminate against,
                                                   foreign suppliers of
                                                   distribution services for
                                                   publications and foreign
                                                   suppliers of audiovisual
                                                   services (including
                                                   distribution services) for
                                                   audiovisual home
                                                   entertainment products. The
                                                   Appellate Body upheld the
                                                   Panel's conclusion that the
                                                   provisions of China's
                                                   measures prohibiting foreign-
                                                   invested entities from
                                                   engaging in the distribution
                                                   of sound recordings in
                                                   electronic form are
                                                   inconsistent with China's
                                                   market access and national
                                                   treatment commitments of the
                                                   GATS and violated China's
                                                   Accession Protocol commitment
                                                   to grant non-discretionary
                                                   trade rights.
----------------------------------------------------------------------------------------------------------------
European Union   Tariff           5/8/2008        The U.S. challenged the EU
 DS375            Treatment of                     (and certain of its member
                  Certain                          states) over their tariff
                  Information                      treatment of certain
                  Technology                       information technology
                  Products                         products. The Panel upheld
                                                   the U.S. claim that the
                                                   European Union (EU) violated
                                                   its WTO tariff commitments by
                                                   imposing duties as high as 14
                                                   percent on three high-tech
                                                   products. For all three
                                                   products at issue--flat panel
                                                   computer monitors,
                                                   multifunction printers, and
                                                   certain cable, satellite, and
                                                   other set-top boxes--the
                                                   Panel concluded that the EU
                                                   tariffs were inconsistent
                                                   with its obligations.
----------------------------------------------------------------------------------------------------------------
China DS394      Measures         6/23/2009       The U.S. contested China's
                  Related to the                   restraints on the export
                  Exportation of                   (export duties, export
                  Various U.S.                     quotas, minimum export price
                  Raw Materials                    requirements, etc.) of
                                                   various forms of raw
                                                   materials (bauxite, coke,
                                                   fluorspar, magnesium, etc).
                                                   The Appellate Body upheld the
                                                   Panel's finding that China's
                                                   measures violate China's
                                                   Accession Protocol, could not
                                                   be counted as general
                                                   exceptions under the GATT
                                                   1994, and that China failed
                                                   to publish promptly its
                                                   decision regarding an export
                                                   quota.
----------------------------------------------------------------------------------------------------------------
Philippines      Taxes on         1/14/2010       The U.S. claimed that the       Export Value of Distilled
 DS403            Distilled                        Philippines taxes on            Spirits to Philippines;
                  Spirits                          distilled spirits               HS2207, HS2208; 2010 total:
                                                   discriminate against imported   $16.3 million; 2019 total:
                                                   distilled spirits by taxing     $108.2 million
                                                   them at a substantially
                                                   higher rate than domestic
                                                   spirits. The Panel found that
                                                   because imported spirits are
                                                   taxed less favorably than
                                                   domestic spirits, the
                                                   Philippine measure, while
                                                   facially neutral, is
                                                   nevertheless discriminatory
                                                   and thus violates the
                                                   obligations under the first
                                                   and second sentences of
                                                   Article III:2 of the GATT
                                                   1994. The Appellate Body
                                                   upheld the Panel's finding
                                                   that each type of imported
                                                   distilled spirit at issue--
                                                   gin, brandy, rum, vodka,
                                                   whisky, and tequila--made
                                                   from non-Pdesignated raw
                                                   materials, is ``like'' the
                                                   same type of distilled spirit
                                                   made from designated raw
                                                   materials and that the
                                                   Philippine taxes constituted
                                                   impermissible discrimination.
----------------------------------------------------------------------------------------------------------------
China DS413      Certain          9/15/2010       The U.S. challenged China's     ``By industry estimates, the
                  Measures                         restrictions permit only a      U.S. stands to gain 6,000
                  Affecting                        Chinese entity (China           jobs related to EPS.'' USTR
                  Electronic                       UnionPay) to supply             Report
                  Payment                          electronic payment services
                  Services                         for payment card transactions
                                                   denominated and paid in
                                                   renminbi in China. The Panel
                                                   found each of these
                                                   requirements to be
                                                   inconsistent with China's
                                                   national treatment
                                                   obligations under Article
                                                   XVII of the GATS. It found,
                                                   through these requirements,
                                                   that China modifies the
                                                   conditions of competition in
                                                   favor of CUP and therefore
                                                   fails to provide national
                                                   treatment to EPS suppliers of
                                                   other members, contrary to
                                                   China's commitments. in
                                                   respect of this alleged
                                                   across-the-board requirement.
----------------------------------------------------------------------------------------------------------------
China DS414      Countervailing   9/15/2010       The United States challenged
                  and Anti-                        China's investigation and
                  Dumping Duties                   decision to impose CVD and AD
                  on GOES                          duties on Grain Oriented Flat-
                                                   Rolled Electrical Steel
                                                   (GOES) from the United
                                                   States. The Panel and the
                                                   Appellate Body found that
                                                   China had committed a number
                                                   of procedural and substantive
                                                   errors that rendered their
                                                   CVD and AD decisions
                                                   inconsistent with the WTO's
                                                   AD and SCM Agreement.
----------------------------------------------------------------------------------------------------------------
China DS427      Anti-Dumping     9/20/2011       The U.S. contested China's AD   Export Value of Boiler
                  and                              and CVD measures on broiler     Products to China; HS020713,
                  Countervailing                   products from the U.S.          HS020714, HS050400; 2011
                  Duty Measures                    contending that China acted     total: $236.2 million; 2019
                  on Broiler                       inconsistently with the Anti-   total: $235.1 million
                  Products from                    Dumping Agreement in its       ``In 2009--the year before
                  the United                       determination of the cost of    China imposed the duties--the
                  States                           production of the foreign       United States exported over
                                                   like product for the purposes   613,000 metric tons of
                                                   of constructing normal value,   broiler meat to China.
                                                   by (i) improperly rejecting     Exports fell almost 90
                                                   the cost allocations kept in    percent after the imposition
                                                   the normal books and records    of the duties.'' USTR Report
                                                   of the U.S. respondents; (ii)
                                                   applying its own allocation
                                                   methodology that did not
                                                   reflect the costs associated
                                                   with the production and sale
                                                   of the products under
                                                   consideration; and (iii)
                                                   allocating the costs of
                                                   producing certain products
                                                   (blood and feathers) to the
                                                   other products one of the
                                                   respondents produced. The
                                                   Panel upheld the complaint.
----------------------------------------------------------------------------------------------------------------
India DS430      Measures         3/6/2012        The U.S. contested India's SPS  Export Value of Meat and Meat
                  Concerning the                   restrictions imposed on the     Products to India; HS02; 2012
                  Importation of                   importation of various          total: $94,000; 2019 total:
                  Certain                          agricultural products,          $741,000
                  Agricultural                     including meat and meat
                  Products                         products, egg and egg powder,
                                                   and milk and milk products,
                                                   from the U.S. purportedly
                                                   because of concerns related
                                                   to Avian Influenza (India's
                                                   AI measures). The Appellate
                                                   Body agreed with the Panel
                                                   that its finding, that
                                                   India's AI measures were
                                                   inconsistent with commitments
                                                   under the Sanitary and
                                                   Phytosanitary Agreement
                                                   because they were not based
                                                   on an international standard
                                                   or a risk assessment,
                                                   arbitrarily and unjustifiably
                                                   discriminated between members
                                                   where identical or similar
                                                   conditions prevailed, and
                                                   were significantly more
                                                   restrictive that required to
                                                   achieve India's appropriate
                                                   level of protection. On 7
                                                   July 2016, the U.S. requested
                                                   the authorization of the DSB
                                                   to suspend concessions or
                                                   other obligations pursuant to
                                                   the DSU because India has
                                                   failed to comply with the
                                                   recommendations and rulings
                                                   of the DSB in this dispute
                                                   within the reasonable period
                                                   of time for India to do so.
----------------------------------------------------------------------------------------------------------------
China DS431      Measures         3/13/2012       The U.S. challenged China's
                  Related to the                   restrictions on the export of
                  Exportation of                   various forms of rare earths,
                  Rare Earths,                     tungsten and molybdenum.
                  Tungsten and                     China had three types of
                  Molybdenum                       restrictions: export duties,
                                                   export quotas, and trading
                                                   rights. The Panel found that
                                                   the export duties and trading
                                                   rights requirements were a
                                                   violation of China's
                                                   Accession Protocol that could
                                                   not be justified under
                                                   Article XX of the GATT.
                                                   However, the quotas were not
                                                   determined to be in
                                                   violation.
----------------------------------------------------------------------------------------------------------------
China DS440      Anti-Dumping     7/5/2012        The U.S. challenged China's AD  ``In 2013, the United States
                  and                              and CVD duties on certain       exported $64.9 billion of
                  Countervailing                   automobiles from the U.S. The   autos, with $8.5 billion of
                  Duties on                        AD duties ranged from 2.0       those exports, or 13 percent
                  Certain                          percent to 21.5 percent, and    of the total, going to China.
                  Automobiles                      the CVD duties ranged from      China's unjustified duties,
                  from the                         6.2 percent to 12.9 percent.    which ranged up to 21.5
                  United States                    The specific products           percent, affected an
                                                   affected by the duties are      estimated $5.1 billion worth
                                                   American-made cars and SUVs     of U.S. auto exports in 2013.
                                                   with an engine capacity of      . . .'' USTR Report
                                                   2.5 liters or larger. The
                                                   Panel found that MOFCOM erred
                                                   in its determination of the
                                                   residual anti-dumping and
                                                   countervailing duty rates for
                                                   unknown exporters of the
                                                   subject product, by
                                                   improperly determining that
                                                   U.S. exports were causing
                                                   injury to domestic Chinese
                                                   industry and improperly
                                                   analyzing the effects of U.S.
                                                   exports on prices in the
                                                   Chinese market.
----------------------------------------------------------------------------------------------------------------
Argentina DS444  Measures         8/21/2012       The U.S. challenged: (i) the    ``The following U.S. States
                  Affecting the                    requirement to present for      represented the largest share
                  Importation of                   approval of a non-automatic     of exports to Argentina in
                  Goods                            import license: Declaracion     2013, each exporting over
                                                   Jurada Anticipada de            $180 million in goods that
                                                   Importacion (DJAI); (ii) non-   year: Texas, Florida,
                                                   automatic licenses required     Louisiana, California,
                                                   in the form of Certificados     Illinois, South Carolina,
                                                   de Importacion (CIs) for the    Michigan, New York, Georgia,
                                                   importation of certain goods;   North Carolina.'' USTR Report
                                                   (iii) requirements imposed on
                                                   importers to undertake
                                                   certain trade- restrictive
                                                   commitments; and (iv) the
                                                   alleged systematic delay in
                                                   granting import approval or
                                                   refusal to grant such
                                                   approval, or the grant of
                                                   import approval subject to
                                                   importers undertaking to
                                                   comply with certain allegedly
                                                   trade-restrictive
                                                   commitments. With respect to
                                                   the DJAI requirement, the
                                                   Appellate Body upheld the
                                                   Panel's findings that this
                                                   requirement constitutes a
                                                   restriction on the
                                                   importation of goods and is
                                                   therefore inconsistent with
                                                   Article XI:1 of the GATT.
----------------------------------------------------------------------------------------------------------------
India DS456      Certain          2/6/2013        The U.S. challenged India's     Export Value of Solar Cells
                  Measures                         domestic content requirements   and Modules to India;
                  Relating to                      under the Jawaharlal Nehru      HS854140; 2013 total: $15
                  Solar Cells                      National Solar Mission          million; 2019 total: $15.7
                  and Solar                        (``NSM'') for solar cells and   million
                  Modules                          solar modules. The Panel
                                                   found that the DCR measures
                                                   are trade-related investment
                                                   measures covered by the TRIMs
                                                   Agreement and that they were
                                                   inconsistent with both the
                                                   GATT 1994 and the TRIMs
                                                   Agreement. On 19 December
                                                   2017, the U.S. requested the
                                                   authorization of the DSB to
                                                   suspend concessions or other
                                                   obligations pursuant to
                                                   Article 22.2 of the DSU on
                                                   the grounds that India had
                                                   failed to comply with the
                                                   DSB's recommendations and
                                                   rulingswithin the reasonable
                                                   period of time.
----------------------------------------------------------------------------------------------------------------
Indonesia DS478  Importation of   5/8/2014        The U.S. challenged 18          ``In 2016, exports of the
 (with New        Horticultural                    measures imposed by Indonesia   horticultural products and
 Zealand DS       Products,                        on the importation of           animal products affected by
 477)             Animals and                      horticultural products,         Indonesia's imports totaled
                  Animal                           animals and animal products.    $170 million. . . . These
                  Products                         Most of these measures (17)     restrictions cost U.S.
                                                   concerned Indonesia's import    farmers and ranchers millions
                                                   licensing regimes for           of dollars per year in lost
                                                   horticultural products and      export opportunities in
                                                   animals and animal products.    Indonesia.'' USTR Report
                                                   The challenge also included    ``In 2015, U.S. exports of
                                                   Indonesia's conditioning of     affected horticultural
                                                   importation of these products   products to Indonesia
                                                   on the sufficiency of           exceeded $87 million,
                                                   domestic production to fulfil   including $28 million of
                                                   domestic demand. The Panel      apples and over $29 million
                                                   found that all 18 measures at   of grapes. U.S. exports of
                                                   issue were prohibitions on      affected animals and animal
                                                   importation or restrictions     products totaled $26 million
                                                   having a limiting effect on     in 2015.'' USDA Press Release
                                                   importation and thus
                                                   inconsistent with the GATT.
                                                   On 2 August 2018, the U.S.
                                                   requested the authorization
                                                   of the DSB to suspend
                                                   concessions or other
                                                   obligations pursuant to
                                                   Article 22.2 of the DSU on
                                                   the grounds that Indonesia
                                                   had failed to comply with the
                                                   DSB's recommendations and
                                                   rulings within the reasonable
                                                   period of time.
----------------------------------------------------------------------------------------------------------------
China DS511      Domestic         9/13/2016       The U.S. challenged China's     ``In 2015, China's `market
                  Support for                      provision of domestic support   price support' for these
                  Agricultural                     in favor of agricultural        products is estimated to be
                  Producers                        producers, in particular, to    nearly $100 billion in excess
                                                   those producing wheat, India    of the levels Chinacommitted
                                                   rice, Japonica rice and corn.   to during its accession.''
                                                   The Panel first determined      USTR Report
                                                   all components necessary to
                                                   compute China's market price
                                                   support for wheat, Indica
                                                   rice and Japonica rice before
                                                   finding that China's level of
                                                   domestic support in each of
                                                   the years 2012-2015 exceeded
                                                   its 8.5-Ppercent de minimis
                                                   level of support for each of
                                                   these products.
----------------------------------------------------------------------------------------------------------------
China DS517      Tariff Rate      12/15/2016      The U.S. contested the manner   ``USDA estimates that if
                  Quotas for                       in which China administers      China's TRQs had been fully
                  Certain                          its tariff rate quotas,         used, it would have imported
                  Agricultural                     including those for wheat,      as much as $3.5 billion worth
                  Products                         short- and medium- grain        of corn, wheat and rice in
                                                   rice, long grain rice, and      2015 alone.'' USTR Report ``
                                                   corn. The Panel concluded      ``AgResource calculates that
                                                   that China's TRQ                China did not secure and
                                                   administration as a whole is    import an estimated $45
                                                   inconsistent with its           billion of world corn/wheat
                                                   obligations to administer       over the past 16 years.''
                                                   TRQs on a transparent,          Farm Foundation
                                                   predictable, and fair basis,
                                                   to administer TRQs using
                                                   clearly specified
                                                   requirements and
                                                   administrative procedures,
                                                   and to administer TRQs in a
                                                   manner that would not inhibit
                                                   the filling of each TRQ.
----------------------------------------------------------------------------------------------------------------
India DS541      Export Related   3/14/2018       The U.S. challenged India's
                  Measures                         provision of export subsidies
                                                   under five sets of measures:
                                                   the Export Oriented Units,
                                                   Electronics Hardware
                                                   Technology Park and Bio-
                                                   Technology Park (EOU/EHTP/
                                                   BTP) Schemes; the Export
                                                   Promotion Capital Goods
                                                   (EPCG) Scheme; the Special
                                                   Economic Zones (SEZ) Scheme;
                                                   a collection of duty
                                                   stipulations described in
                                                   these proceedings as the Duty-
                                                    Free Imports for Exporters
                                                   Scheme (DFIS); and the
                                                   Merchandise Exports from
                                                   India Scheme (MEIS). The
                                                   Panel found the subsidies to
                                                   be inconsistent with India'
                                                   obligations under the ASCM.
                                                   India is in the process of
                                                   appealing.
----------------------------------------------------------------------------------------------------------------
\1\ While this list is intended to be comprehensive, it is possible that cases have been inadvertently left off
  of this list. The list does not include cases that were resolved through a mutually agreed upon settlement or
  means other than a dispute before a WTO panel.
\2\ Throughout this document, the European Union (EU) and the European Communities (EC) shall be designated as
  ``EU'' even though the EC did not formally become the EU until the adoption of the Maastricht Treaty in 1992.

                                Annex B

    Statements by U.S. Stakeholders Regarding the WTO Appellate Body

 U.S. Chamber of Commerce CEO Thomas J. Donohue, in his annual State of 
                    American Business address (1/9/2020):

        Staying engaged in the world also means remaining committed to 
        the multilateral organizations and trading arrangements that we 
        helped build. If the World Trade Organization didn't exist, 
        we'd have to create it. Its rules protect American business 
        from unfair treatment and protectionism. Safeguarding this 
        institution and its dispute settlement system should be an 
        urgent international priority. Let's not shutter the WTO 
        Appellate Body. Such drastic action doesn't serve America's 
        interests. America must be involved, not isolated.

 Letter to President Trump signed by 26 business and agriculture 
                    groups:

        We urge your administration to embrace the plan to renovate the 
        WTO appeals process outlined below. The proposal seeks to 
        reform the Appellate Body in a manner consistent with concerns 
        raised by USTR. . . .

        USTR has resisted negotiating reforms to the WTO appeals 
        process until other countries acknowledge that the Appellate 
        Body has strayed beyond its mandate. The Walker Principles were 
        developed with the purpose of restoring proper functioning to 
        the Appellate Body. By adopting them along with the related 
        enforcement measures and term limits for the secretariat, WTO 
        members would be agreeing with the United States that the 
        Appellate Body has overreached.

        We urge your administration to strike while the iron is hot by 
        stating prior to December 10 that the goal of the United States 
        is not to kill the Appellate Body, but rather to reform it. The 
        statement should clarify that adoption of the reform plan would 
        end U.S. opposition to the appointment of new Appellate Body 
        members.

Signed December 6, 2019 by:

Americans for Prosperity, American Craft Spirits Association, American 
Soybean Association, Center for Freedom and Prosperity, Citizens 
Against Government Waste, Coalition of American Metal Manufacturers and 
Users, Competitive Enterprise Institute, Computing Technology Industry 
Association (CompTIA), Consumer Choice Center, The Fashion Accessories 
Shippers Association, The Fashion Jewelry and Accessories Trade 
Association, FreedomWorks, Gemini Shippers Association, Institute for 
Policy Innovation, International Dairy Foods Association, The LIBRE 
Initiative, National Corn Growers Association, National Council of 
Farmer Cooperatives, National Retail Federation, National Taxpayers 
Union, North American Association of Food Equipment Manufacturers, 
Retail Industry Leaders Association, R Street Institute, Taxpayers 
Protection Alliance, USA Poultry and Egg Export Council, U.S. Grains 
Council.

https://www.rstreet.org/wp-content/uploads/2019/12/WTO-AB-coalition-
letter-to-president-2019-12-06.pdf

National Foreign Trade Council:

        [A] fully functioning and binding dispute settlement system is 
        essential to the credibility and functioning of the global 
        trading system. WTO members must resolve this crisis 
        immediately and agree on a way forward that addresses the 
        legitimate concerns that have been raised. Those members who 
        have raised these concerns have a unique responsibility to put 
        forward specific reform proposals that would enable the AB to 
        resume operating and perform its function more effectively.

http://www.nftc.org/default/trade/WTO/2019-NFTC-Strengthening-the-
WTO.pdf

 Letter to President Donald J. Trump signed by 10 business and trade 
                    association groups:

        We strongly urge you to state publicly that the goal of the 
        United States is not to kill the Appellate Body, but rather to 
        reform it. We further urge you to develop a reform proposal as 
        quickly as possible and present it to WTO members, while 
        indicating that adoption of such measures would lead to 
        restarting the Appellate Body appointment process. This 
        approach would maximize leverage for reform. That leverage is 
        likely to decrease significantly if the Appellate Body stops 
        functioning; some countries already have agreed to use 
        arbitration procedures in lieu of formal appeals. The Appellate 
        Body will go dormant in December unless new members are 
        approved promptly. By acting expeditiously, the United States 
        could lead a process of constructive change. Doing so would 
        help to strengthen worldwide business confidence. This would 
        serve the best interests of the many American companies and 
        workers that earn all or part of their livelihoods from 
        international trade.

Signed October 23, 2019 by:

Americans for Prosperity, The LIBRE Initiative, American Legislative 
Exchange Council, ALEC Action, Center for Freedom and Prosperity, 
Coalition of American Metal Manufacturers and Users, Competitive 
Enterprise Institute, National Taxpayers Union, Precision Metal forming 
Association, R Street Institute.

https://mk0xituxemauaaa56cm7.kinstacdn.com/wp-content/uploads/2019/10/
WTO-AB-letter-to-president-10-23-2019-2.pdf

                                 ______
                                 
       Questions Submitted for the Record to Jennifer A. Hillman
               Questions Submitted by Hon. Chuck Grassley
    Question. The Appellate Body has received a lot of attention about 
its shortcomings. However, I'm not sure the panel process is completely 
perfect. The initial panel process takes much longer than anyone 
anticipated. Compliance panels have an important task of deciding 
disputes in which a party has already found they've breached their WTO 
obligations. The rules provide those panels should issue decisions in 
90 days, but they almost never do.

    Do you think we need to look at reforming the panel process?

    Answer. Yes. Both panels deciding initial cases and panels 
reviewing compliance with rulings from the Dispute Settlement Body 
(DSB) are taking longer than initially contemplated. The reason for the 
lengthy proceedings varies from case to case but is often a combination 
of significantly more complex complaints with many separate claims; a 
lack of staff to begin working on cases as soon as they are filed due 
to the much higher case load than expected when the WTO dispute 
settlement system was put in place; scheduling difficulties with 
panelists who sit on panels in addition to demanding, full-time jobs 
elsewhere; and the parties themselves--often involving the use of 
private outside counsel seconded to a government delegation--filing 
long, complicated submissions accompanied by voluminous exhibits. A 
recent study shows that the average number of claims raised in panel 
requests stood at eight during the first 5 years of the WTO (1995-2000) 
but had risen to 23 claims per dispute for those cases filed between 
2009 and 2013.\1\ As a result, panel reports are longer and the 
requirement that they be issued in English, French, and Spanish adds 
additional translation time. While an effort to increase staffing and 
pressure from the WTO Secretariat on parties and the process has 
recently reduced time frames for panel reports, more could be done to 
streamline the process if the WTO members would agree to limit their 
own submissions, both in length and in number of claims, and if 
additional measures are taken to ensure that adequate Secretariat 
resources are devoted to the panel process. Further attention to 
additional reforms to improve the efficiency of the process is 
certainly warranted.
---------------------------------------------------------------------------
    \1\ https://www.graduateinstitute.ch/sites/internet/files/2018-11/
Busier%20than%20ever%20
%20New%20CTEI%20working%20paper%20on%20WTO%20Dispute%20Settlement.pdf?_g
a=2.1
53752760.1037896462.1600707205-2132530211.1600707205.

    Question. You have a very unique perspective. Your career has 
included being an ITC Commissioner, General Counsel at USTR, and an 
Appellate Body member. You oversaw U.S. application of trade remedy 
laws, the negotiation and defense of U.S. international commitments 
regarding those laws, and judged in Geneva how to apply WTO rules. You 
---------------------------------------------------------------------------
know this ground A-Z.

    Congress feels strongly that the Appellate Body has overreached in 
interpreting WTO obligations concerning trade remedies.

    What can be done to undo some of that overreach, and make sure it 
doesn't happen again? Do we need to look at the underlying agreements; 
how the dispute settlement system works; or something else?

    Answer. The most effective way to address the issue of overreach in 
assessing trade remedies--anti-dumping duties, countervailing duties, 
and safeguards--would be both changes to the dispute settlement system 
itself along with either definitive interpretations of certain key 
provisions in the trade remedy agreements or changes to the underlying 
agreements to ensure a more appropriate standard by which panels review 
the actions of investigating authorities such as the Department of 
Commerce and the U.S. International Trade Commission.

    In terms of changes to the functioning of the dispute settlement, I 
have previously laid out three reforms to the WTO's Appellate Body that 
would restore the system to what was envisioned when the WTO was 
created in 1995.

    1. Adopt the Walker principles. New Zealand's Ambassador and 
Permanent Representative to the WTO David Walker was appointed in 
February to ``seek workable and agreeable solutions to improve the 
functioning of the Appellate Body.'' On November 28, 2019, he set forth 
specific principles designed to address the six U.S. concerns spelled 
out by USTR in its submissions to the DSB: (1) the practice of 
Appellate Body members staying on after their term has expired to 
finish an appeal that began while they were still in office; (2) the 
failure to complete appeals in the required 90 days; (3) the Appellate 
Body exceeding its authority in reviewing and sometimes overruling 
factual findings by panels, despite a mandate that appeals be limited 
to issues of law; (4) the Appellate Body's issuance of statements or 
interpretations not necessary to resolve a dispute; (5) the elevation 
of the significance of past decisions to near-binding precedent; and 
(6) the Appellate Body overstepping its bounds by reaching decisions 
that go beyond the text of the agreements themselves, potentially 
taking away rights or adding to U.S. obligations.

    The principles require the Appellate Body to make its decisions in 
90 days and for Appellate Body members to leave promptly at the end of 
a second term of office, to treat facts as facts (not subject to 
appeal), to respect the more deferential standard of review for 
antidumping investigations, to address only issues raised by parties 
and only to the extent necessary to resolving the dispute at hand so 
that its opinions are not advisory, to take previous Appellate Body or 
panel reports into account only to the extent they are relevant and not 
as precedent, and to ensure that its rulings do not add to the 
obligations or take away any rights of the parties as contained in the 
WTO rules. Collectively, the Walker principles are designed to make the 
Appellate Body more efficient by shortening its time frames and its 
reports while doing what the United States has demanded--return to the 
rules as written in 1995. If adopted with unreserved acknowledgement by 
the European Union and other skeptics, it would demonstrate widespread 
member agreement that the Appellate Body has a limited mandate to 
resolve only legal questions raised on appeal in strict accordance with 
WTO rules.

    2. Establish an oversight committee and audit to ensure compliance. 
To build trust that the Appellate Body will adhere to the Walker 
principles, the WTO should convene an oversight committee at least once 
a year and when requested. The oversight committee could be made up of 
the chairs of the lead WTO committees--its General Council, Council for 
Trade in Goods, Council for Trade in Services, Council for Trade-
Related Aspects of Intellectual Property Rights, and the Dispute 
Settlement Body, with the chair of the Dispute Settlement Body 
appointing four additional independent trade-law experts to the 
committee to ensure a proper representation of expertise. The 
committee's sole task should be to assess whether the Appellate Body 
has adhered to the Walker principles, either over the course of a given 
year or, when asked, in an individual case. The WTO should convene an 
oversight committee.

    3. Limit the service of members of the Appellate Body Secretariat 
to no longer than 8 years--the maximum length of time of an Appellate 
Body member. The root cause of many U.S. concerns rests not just with 
the Appellate Body members themselves, but with its Secretariat--
particularly the lawyers who work for the Appellate Body as a whole. 
Over time, the Secretariat has gained experience and expertise that 
often is greater than that of the Appellate Body members, who serve on 
a part-time basis for a maximum of 8 years. Secretariat lawyers, on the 
other hand, devote all of their time over many years to working on 
appeals and are steeped in (and potentially wedded to) past decisions. 
Adopting a mobility principle would allow staff rotations throughout 
other WTO offices, bring new perspectives to appeals, reduce the 
tendency to treat past decisions as precedent, and help restore an 
appropriate balance of power between the Appellate Body members and the 
Secretariat staff. It would also send a strong signal of an end to 
business as usual.

    To these changes, I would recommend an additional change to the 
dispute settlement system with respect to trade remedy actions because 
the lion's share of the United States' complaints about the WTO dispute 
settlement system and its Appellate Body have stemmed from rulings 
related to trade remedies. Therefore, my recommendation would be to 
treat appeals of trade remedy decisions differently--either by creating 
a specialized Appellate Body chamber to hear them or by eliminating--or 
at least temporarily--freezing appeals from panel decisions in trade 
remedy cases.
              a. special appellate body for trade remedies
    One option would be to create a special Appellate Body to hear only 
appeals of trade remedy decisions. This special appellate institution--
call it the Rules Appellate Body--could be made up of members chosen in 
large part because of a strong background in trade remedy law. The 
selection process for members and the procedures of this Rules 
Appellate Body could largely mirror those of the current Appellate 
Body--and given that about half of all WTO disputes have been over 
trade remedy matters, the workload of this Rules Appellate Body and of 
the existing Appellate Body would be about even, so having 
complimentary bodies of equal size would make sense.

    A variation on this theme could be to simply add two or four 
additional members to the existing Appellate Body who have deep trade 
remedy expertise and insist that any three-member division hearing an 
appeal of a trade remedy case would have to be made up of at least two 
of these trade-remedy expert Appellate Body members.
       b. moratorium on appeals from trade remedy panel decisions
    A second approach to trade remedy disputes would be to establish a 
moratorium on appeals from panel decisions--or even just to amend the 
rules to make panel decisions on trade remedy matters final. The theory 
behind such an approach is two-fold. First, panels examining trade 
remedy decisions are already playing an appellate role and therefore 
don't need a second or third level of review. Every trade remedy 
measure that comes before the WTO's dispute settlement system must be 
based on an investigation conducted by the investigating authorities in 
each country--so there is already a factual record that has been 
compiled and an existing decision that applies the law--including the 
WTO rules--to those facts to reach a conclusion that trade remedies are 
justified in the particular case at issue. As such, it may be 
appropriate to allow the panel's decision to stand in for an appellate 
report, and not subject such panel reports to further review.

    The second reason for a ``no appeals of trade remedy panel 
reports'' approach is that most of the controversial decisions of the 
Appellate Body have been in the trade remedy area, so eliminating 
appeal rights in this limited arena may suggest a major enough change 
to break the current impasse over Appellate Body appointments. If so, 
it would allow the process to move forward, to keep the Appellate Body 
up and running for all non-trade remedy appeals and would maintain the 
current consensus-based approach to the appointment of Appellate Body 
members.

    In terms of change to the underlying rules, I would recommend 
seeking a definitive interpretation of certain key phrases using the 
process set forth in Article IX.2 of the Marrakesh Agreement 
Establishing the WTO. For example, a definitive interpretation could be 
sought to the meaning of ``public body'' under the Agreement on 
Subsidies and Countervailing Measures (ASCM) that would have the effect 
of overruling the Appellate Body's decision that a ``public body'' is 
an entity that exercises a governmental function, or the language in 
the Agreement on Safeguards to clarify that it is not necessary to read 
the phrase ``unforeseen developments'' into the requirements for 
imposing a safeguard. Alternatively, changes could be sought to add a 
clear standard by which investigating authorities' decisions were 
reviewed by panels to ensure an appropriate amount of deference to the 
expertise and discretion of national authorities conducting trade 
remedy investigations.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
    Question. The Trump administration has a track record of turning 
its back on international institutions, and does not seem in a hurry to 
seriously engage in WTO reform. You have had a long career representing 
U.S. trade interests. You administered U.S. trade remedy laws--laws 
that protect American workers--at the independent International Trade 
Commission and you also spent some time at the WTO on the Appellate 
Body.

    From your experience, do you agree there are real problems with the 
Appellate Body, where it has disregarded rules that apply to it, and 
creates new obligations to the detriment of the United States, 
particularly with respect to U.S. trade remedy laws that are in place 
to protect American workers?

    Answer. Yes. It is in the area of trade remedies in particular 
where the dispute settlement system has rendered a number of decisions 
that were contrary to the legitimate expectations of the United States 
at the time that the Uruguay Round Agreements Act was being considered 
and passed by the Congress. Whether it is the series of disputes in 
which the Appellate Body outlawed the previously long-standing practice 
of ``zeroing'' in the calculation of anti-dumping margins, or the 
decision to read into the WTO's Safeguards Agreement a requirement that 
safeguards can only be imposed if there is evidence that the increase 
in imports occurred as a result of ``unforeseen developments,'' or the 
decision to determine that the entities that are capable of providing 
subsidies are only those entities which engage in ``governmental 
functions,'' it is clear that the decisions that are at the heart of 
the United States' substantive concerns about the WTO Appellate Body 
are those in the trade remedy arena, where as you note in your 
question, the decisions of the Appellate Body have worked to the 
detriment of the application of U.S. trade remedy laws. As noted in my 
answer to Senator Grassley above, addressing the problem would best be 
done both through changes to the dispute settlement system and through 
changes (either through definitive interpretations or actual amendments 
to the existing texts) to the underlying trade remedy agreements--the 
Agreement on Safeguards, the Agreement on Subsidies and Countervailing 
Measures, and the Agreement on Antidumping.

    Question. The Trump administration is walking away from the 
enforcement tools at the WTO. There are virtually no new U.S. offensive 
cases, and there is no movement on reform.

    Do you think adequate reforms are achievable to ensure that the WTO 
agreements operate as they were originally intended, and could you give 
some concrete examples of what those reforms would be?

    Answer. Yes. I believe the Trump administration's failure to 
utilize the WTO as a tool to go after trade barriers and unfair 
practices by our trading partners coupled with its destruction of the 
Appellate Body without any plans to fix it have left the United States 
in a much weaker position. The Obama administration filed 22 cases, 
including 13 against China, to protect the right of American exporters 
to overseas markets under WTO rules. The Trump administration, by 
contrast, over the course of 4 years has filed only two new cases 
(except those complaining about retaliatory tariffs put on in response 
to unilateral U.S. tariffs) with one of the two directed at China. As 
outlined in my answer to Senator Grassley above, I believe the WTO 
Appellate Body could be fixed with three specific actions--the adoption 
of the Walker Principles to address specific U.S. concerns about the 
Appellate Body; the creation of an oversight process to ensure that the 
Appellate Body adheres to those Principles; and a rotation of staff 
serving Appellate Body members. These actions could be supplemented by 
changes to the approach to trade remedies as also noted in my response 
to Senator Grassley. Collectively, these reforms would allow the WTO 
dispute settlement system to function as originally intended, giving 
the United States a proper forum to enforce our trading rights.

    Question. In addition to the impasse in dispute settlement, the 
negotiating function of the WTO has also produced few results in recent 
years. The areas in critical need of updating include disciplines 
addressing subsidies and state-owned enterprises. We have learned that 
existing disciplines just are not enough to address the depth of the 
market-distorting practices that countries such as China engage in to 
the detriment of U.S. workers and businesses.

    What do you see as the path for addressing these issues at the WTO?

    Answer. You are correct that among the biggest weaknesses of the 
WTO is the inability to discipline subsidies or to rein in the 
practices of China's state-owned enterprises. The failure largely stems 
from three flaws in the WTO rules:

    (1) The definition of a subsidy is too narrow. Right now, subsidies 
are defined as financial contributions by a government or public body 
that confer a benefit and are specific to a given company or sector. 
With the Appellate Body's further narrowing of the term ``public body'' 
to include only those entities performing a governmental function, 
China's state-owned enterprises were effectively carved out of 
discipline under the WTO's Agreement on Subsidies and Countervailing 
Measures (ASCM).

    (2) The evidentiary burdens are too high in terms of proving the 
existence of a subsidy, the benchmark against which the contributions 
can be compared in order to show that a benefit has been provided, or 
that a subsidy is specific.

    (3) The remedies are ineffective. Under the WTO rules, there are 
two remedies against subsides: (a) the application of countervailing 
duties if the subsidized imports are coming in to the U.S. market or 
(b) an adverse effects ruling if U.S. companies are competing with 
subsidized imports in third-country markets. The problem with 
countervailing duties (when they can be shown despite the definitional 
and evidence problems noted above) is that they can push subsidized 
goods out into other markets, which keeps world prices low and does not 
address the underlying unfairness and over production caused by the 
subsidies in the first place. The problem with an adverse effects 
ruling is that WTO remedies are prospective only, so China only has to 
remove the effect of the subsidy on a going-forward basis, which is 
often far too late to do much good for American companies competing 
with subsidized products.

    The best path for addressing these problems is one that includes 
working with our allies that share American concerns over China's 
unfair practices. For example, good work has begun as part of a 
trilateral cooperative process with Japan and the European Union to 
develop new disciplines on subsidies.\2\ What is needed now is American 
leadership that can be trusted by Japan and the EU to finalize the new 
rules to the benefit of all, then developing sufficient leverage with 
respect to China coming from all three parties to push China to accept 
the new rules and finally working to bring them into the WTO system.
---------------------------------------------------------------------------
    \2\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2020/january/joint-statement-trilateral-meeting-trade-
ministers-japan-united--and-european-union.

                                 ______
                                 
                 Question Submitted by Hon. John Cornyn
    Question. I recently held a hearing on the Trade Subcommittee that 
focuses on censorship as a non-tariff barrier to trade. Countries like 
China censor American digital content, block our tech companies from 
operating in the country, and retaliate against American firms. More 
and more, our companies are self-censoring to do business in China.

    Meanwhile, we allow Chinese-owned companies like Tik Tok and others 
to operate in the U.S. freely. There is a clear lack of reciprocity. 
One witness testified that censorship has cost three tech companies 
alone over $34B in lost revenue. In the past, countries used to block 
their maritime ports to stop the trade of goods. Today, countries do 
the same using firewalls and filters to block data and digital trade 
flowing through an underwater network of submarine cables.

    Can you discuss how the WTO Appellate Body has treated censorship 
in the past and how it might do so going forward, especially as it 
relates to the exceptions for things such as public morals and national 
security?

    Answer. There have been few cases brought before the WTO where the 
Appellate Body has ruled on the issue of censorship, the most notable 
being the 2007 case between the United States and China concerning 
publications and audiovisual products.\3\ In that case, the U.S. 
challenged a series of Chinese measures regulating activities relating 
to the importation and distribution of certain publications and 
audiovisual entertainment products, contending that China's 
restrictions violated a number of commitments China made when it joined 
the WTO providing a right for American films, music, books and 
publications to be exported to, distributed and sold in China. China 
claimed that some of its restrictions, including censorship, were 
``necessary'' to protect the public morals of Chinese citizens (GATT 
Article XX(a)), but the panel and the Appellate Body rejected China's 
defense. However, because this case did not raise the basic question of 
whether Internet censorship is a trade barrier or a violation of the 
WTO rules, there has not yet been a definitive ruling on the issue you 
raise.
---------------------------------------------------------------------------
    \3\ https://www.wto.org/english/tratop_e/dispu_e/cases_e/
ds363_e.htm.

    Going forward, I believe a strong case could be made that China's 
practices violate its national treatment and MFN obligations to treat 
all foreign companies the same and no worse than it treats Chinese 
companies because China's censorship policies are not applied even-
handedly. Foreign companies, particularly American companies, are 
treated worse than Chinese companies, which violates China's basic non-
discrimination obligations. Similarly, China's guidelines for what can 
and cannot be published or posted on-line and its basic censorship 
rules are not transparent or published, which may also be a violation 
of China's obligations under GATT Article X and GATS Article III. In 
addition to bringing a WTO dispute against China's practices, the 
United States could lead an effort for clear rules related to 
censorship to be included as part of the e-commerce/digital trade 
---------------------------------------------------------------------------
negotiations currently underway at the WTO.

                                 ______
                                 
             Questions Submitted by Hon. Patrick J. Toomey
    Question. So far, the U.S. has mainly relied on unilateral tariffs 
under section 301 to push for market-oriented reforms to the Chinese 
market, but these measures hurt Americans, while not having much effect 
on Chinese trade practices. But this is not the only way to try and 
encourage China to adopt reforms--the U.S. can also work with key 
allies and use the WTO rules to encourage China to adopt reforms.

    While the WTO may need reform in some key areas, the fact remains 
that it has historically been very successful when dealing with China. 
Uncovering China's WTO violations is challenging but it can be done, 
and the U.S. can use the WTO to hold China accountable, in particular 
in relation to the areas of intellectual property protection, forced 
technology transfer, and subsidies.

    How can the U.S. better utilize the WTO dispute settlement system 
in addressing the challenges with China's non-market trade policies?

    Answer. To address the wide array of concerns with China, I believe 
the best approach would be a big, bold, comprehensive case at the WTO 
filed by a broad coalition of countries that share the United States' 
substantive concerns about China.

    First, a broad and deep WTO case represents the best opportunity to 
bring together enough of the trading interests in the world to put 
sufficient pressure on China to make it clear that fundamental reform 
is required if China is to remain a member in good standing in the WTO. 
The U.S. needs to use the power of collective action to impress upon 
both China and the WTO how significant the concerns really are. The 
United States simply cannot bring about the kind of change that is 
needed using a go-it-alone strategy. A coalition case also has the 
potential to shield its members from direct and immediate retaliation 
by China.

    Second, a comprehensive WTO case would restore confidence in the 
WTO and its ability to address fundamental flaws in the rules of the 
trading system. As U.S. Ambassador Dennis Shea put it, ``If the WTO 
wishes to remain relevant, it must--with urgency--confront the havoc 
created by China's state capitalism.''\4\ If the WTO can be seen to be 
able to apply or, where necessary, amend its rules to take on the 
challenges presented by China's ``socialist market economy'' framework, 
then faith in the institution and its rules-based system can be 
enhanced, for the good of the United States and the world.
---------------------------------------------------------------------------
    \4\ Statement as delivered by Ambassador Dennis Shea, Deputy U.S. 
Trade Representative and U.S. Permanent Representative to the WTO, WTO 
General Council, Geneva, May 8, 2018.

    The idea of bringing a broad, coalition-based case against China--
both for specific violations and for its nullification and impairment 
of legitimate expectations that the United States and the other members 
of the WTO had at the time China joined the WTO--was endorsed in a 
recommendation to the Congress contained in the U.S.-China Economic and 
Security Review Commission's November 2018 Report to Congress.\5\ The 
Commission specifically recommended that Congress examine whether USTR 
``should bring, in coordination with U.S. allies and partners, a `non-
violation nullification or impairment' case--alongside violations of 
specific commitments--against China at the World Trade Organization 
under Article 23(b) of the General Agreement on Tariffs and Trade.''\6\
---------------------------------------------------------------------------
    \5\ https://www.uscc.gov/sites/default/files/annual_reports/
2018%20Annual%20Report%20to
%20Congress.pdf.
    \6\ Commission Recommendation 2, page 21, Executive Summary and 
Recommendations, 2018 Report to Congress of the U.S.-China Economic and 
Security Review Commission.

    Question. For those areas of contention that are not well covered 
by WTO rules, such as state-owned enterprises, how can the United 
---------------------------------------------------------------------------
States work with our allies within the WTO to develop new rules?

    Answer. As noted in my answer to Ranking Member Wyden above, I 
agree with you that the rules do not do a good job of addressing the 
problems created by China's large and growing state-owned enterprises. 
As noted above, I believe that the trilateral cooperative process with 
Japan and the European Union represents a good start in the process of 
developing new disciplines on subsidies and state-owned enterprises.\7\ 
What is needed now is American leadership that can be trusted by Japan 
and the EU to finalize the new rules agreed to as part of the 
trilateral process, then developing sufficient leverage with respect to 
China coming from all three parties to push China to accept the new 
rules and finally working to bring them into the WTO system.
---------------------------------------------------------------------------
    \7\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2020/january/joint-statement-trilateral-meeting-trade-
ministers-japan-united--and-european-union.

    Question. What are the limits of the WTO in dealing with China, and 
---------------------------------------------------------------------------
how can the U.S. help facilitate reforms to strengthen it?

    Answer. The biggest limits for the WTO in dealing with China is 
that the WTO can only apply rules that have been agreed to, and the 
enforcement of those rules often requires countries to bring disputes 
before the WTO dispute settlement system. The problem now is two-fold: 
(1) as a result of the U.S. blocking appointments to the WTO Appellate 
Body, there is no longer a binding dispute settlement system that can 
hold China to the commitments it has already made--if the U.S. brings 
and wins a case against China, China can avoid a formal requirement to 
comply by filing an appeal to the non-existent Appellate Body; and (2) 
the WTO does not have effective rules to address some of the systemic 
problems with China, particularly its use of subsidies and state-owned 
enterprises, the increasing levels of control over the economy by the 
Communist Party of China, and the lack of anti-trust/
competition or bankruptcy laws that would impose market-based 
disciplines over the Chinese economy. Addressing those issues will 
require new rules to be negotiated and agreed upon by WTO members, at a 
time when reaching any new trade agreements has been very difficult.

    Question. There have been two recent cases at the WTO that have 
challenged the broad applicability of GATT Article 21, the ``national 
security exception'' in the WTO.

    A new ruling (July 2020) by the World Trade Organization in a case 
brought by Qatar against Saudi Arabia, stated that Saudi Arabia cannot 
use national security as an excuse for failing to protect the 
intellectual property of Qatari rights holders from rampant piracy of 
their broadcast rights for sports, movies, and television programming. 
Additionally, a 2018 case between Russia and Ukraine clarified the 
limits of ``national security'' as a defense for breaking WTO rules 
against unjustified tariff barriers to trade, stating that any such 
claim should be ``objectively'' true, relating to weapons, war, 
fissionable nuclear materials or an ``emergency in international 
relations.'' Notably, the panel in the Russian transit case--as 
mandated by the WTO treaty--drew on the ``customary rules of 
interpretation of public international law'' in noting that treaties 
must be upheld in ``good faith'' by those that are parties to them. On 
this basis, the panel in that case concluded that governmental actions 
for which a national security exception is claimed must ``meet a 
minimum requirement of plausibility in relation to the proffered 
essential security interests.''

    Under international law, these two panel rulings apply only to the 
parties to these disputes and to the measures addressed in them, so 
they would not directly impact the United States. However, do you 
believe that these rulings used sound reasoning, and should discourage 
countries from the increasing trend of misusing a ``national security'' 
justification for policies that have little to do with national 
security?

    Answer. I hope so. At its core, the decision in the Russia-Ukraine 
dispute (DS512) found that invoking the national security exception for 
violations of the GATT (GATT Article XXI) requires a demonstration that 
justified ``essential security'' measures must fall within one of the 
three classes listed in the text of Article XXI(b): (i) fissionable 
materials; (ii) arms, ammunition, and implements of war; or (iii) 
measures taken in a time of war or other emergency in international 
relations. It also found that the phrase permitting a country to take 
any action which ``it considers necessary for the protection of its 
essential security interests'' gives wide latitude to countries to 
determine for themselves what it is in their essential interest, but 
that the phrase it still bounded by principles of good faith. I believe 
the reasoning behind both of these interpretations is sound and likely 
to be followed.

    The decision in the Qatar-Saudi Arabia dispute over Saudi Arabia's 
refusal to prosecute those pirating sports broadcasts from legitimate 
operators in Qatar included an agreement by both parties to follow the 
reasoning and the analysis in the Russia-Ukraine dispute noted above. 
Because the national security language in Article XXI(b) and in TRIPs 
Article 73 that was at issue in the Qatar-Saudi dispute is exactly the 
same, I believe the reasoning is fairly widely accepted, including the 
limits placed by the requirement to act in good faith, which precludes 
the use of the security exception as a means to circumvent WTO 
obligations.

    Question. One area of concern that many have with the WTO is the 
current treatment of ``developing country status,'' or ``special and 
differential treatment.'' SDT was meant to help the poorest WTO members 
meet their obligations to the fullest extent possible, and gives 
``developing'' countries more time to implement obligations, 
preferential tariff schemes, and technical support from ``developed'' 
countries. However, nowhere in the WTO rules does it define what a 
``developing country'' is, and as a result, members practice self-
declaration, whereby they alone decide their development status.

    Thus, we are seeing that rapidly growing countries with significant 
global reach lay claim to these special rights, due to members' ability 
to ``self-declare'' their developing country status. This has led to a 
situation where more advanced countries receive similar treatment to 
those that are much poorer, undermining the initial rationale for SDT 
to help those countries in most need with the transition to full 
compliance. Except for least-developed countries, SDT also does not 
differentiate between levels of development among developing countries, 
and as a result, the poorest countries are made worse off, while those 
that are economically better off receive a ``free ride'' from the rest 
of the multilateral trading system.

    Do you agree that the WTO should work to adopt a new evidence-
based, case-by-case approach to SDT to ensure both that the concerns of 
the poorest countries are addressed and that advanced developing 
countries carry their weight in the organization?

    Answer. Yes.

    Question. Advocates of reforming the SDT have suggested looking at 
factors ranging from a country's economic measures (like economic 
production or per-capita income), social measures (human development 
index), or trade indicators (export levels, high-technology trade) to 
define whether it is ``developed.'' How can we best define ``developing 
country''?

    Answer. I am not certain of the best approach, as whatever approach 
is ultimately adopted will need to developed in a consultative process. 
It is most likely that a combination of all three factors would have 
the greatest chance of garnering more support. Currently, the WTO rules 
do provide a definition for least-developed countries that follows the 
United Nations determinations. Those UN designations are based on GNI 
per capita, the UN's human assets index that takes into account the 
prevalence of undernourishment, child and maternal mortality ratios, 
secondary school enrollment and adult literacy rates, and economic 
vulnerability. I believe the criteria for determining developing 
country status should focus more on economic and trade-related factors 
than those used by the UN to determine which countries qualify as 
least-developed.

    Question. Maximizing the effectiveness of the WTO through American 
engagement and leadership is in the broad national interest as a means 
to provide greater economic stability and prosperity. Detractors say 
that the WTO system is ``rigged,'' but the fact remains that the United 
States has won 85.7 percent of the cases it has initiated before the 
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global 
trade, and foreign markets are critical to our agriculture, 
manufacturing, and service industries. Economists have found that the 
U.S. withdrawing from the WTO would lead to diminished trade growth, 
costly market and supply- chain disruptions, and the destruction of 
jobs and profits, especially in import- and export- dependent U.S. 
industries.

    Can you speak to the projected effects of withdrawing from the WTO?

    Answer. Withdrawing from the WTO could have a number of effects, 
the largest of which could be discrimination against American goods, 
services, and intellectual property once other countries are no longer 
bound by the WTO rules against discrimination on the basis of origin 
(MFN and national treatment requirements). An additional significant 
effect could be the increase in chaos and confusion over what rules 
apply to American exports, particularly if other countries chose to 
impose different tariffs or different regulatory measures or different 
customs procedures to American exports. Withdrawal from the WTO would 
also cede U.S. leadership to others, most notably China. The U.S. would 
no longer be at the table when new rules are developed, for example, 
with respect to digital trade and e-commerce.

    Question. Do you believe that the resulting trade barriers from 
withdrawal from the WTO would compel some American companies either to 
downsize or move offshore?

    Answer. Yes. At their core, the WTO rules provide protection from 
discrimination based on the origin of a good, service or intellectual 
property right. If the United States withdraws from the WTO and other 
countries decide to discriminate (or even threaten to discriminate) 
against all things American, U.S. companies would have to consider the 
cost to them of paying additional tariffs or being subject to different 
regulations or to the loss of IP rights in determining whether they can 
continue to operate with their goods, services or IP rights carrying a 
``Made in America'' designation. Which industries would move and how 
quickly would depend on other countries responses to a U.S. withdrawal 
from the WTO, but the mere possibility of being closed out of other 
markets because of a U.S. base of operations could prompt companies to 
center their operations elsewhere.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    Question. Over time, the World Trade Organization (WTO) has 
deviated from its mission of negotiation and become plagued with 
inefficiencies resulting in a lack of oversight over unfair trade 
practices. While the WTO of years past contributed to increased 
prosperity for the United States and other nations, the WTO of today 
has enabled unfair trade practices particularly from China to cause 
significant economic harm to American job creators and workers.

    How has the WTO been insufficient in identifying, curbing, and 
preventing China's use of unfair trade practices like IP theft and 
forced digital transfer practices?

    Answer. The problems in addressing IP theft and forced digital 
transfer practices stem from a combination of an unwillingness to 
challenge China through formal dispute settlement procedures, failures 
on the part of the WTO to insist that China make timely notifications 
of its subsidy and other trade-distorting practices, and insufficiency 
of some of the rules themselves. The reluctance to bring specific 
disputes against China may be due to concerns over retaliation by 
China, the difficulty of obtaining sufficient evidence that can be 
disclosed without inviting further retaliation, and the increasing 
length of time it takes to complete WTO dispute settlement proceedings.

    Question. How would you classify the WTO's inability to halt unfair 
trade actions? Is this a result of systemic and pervasive flaws? Or, 
should each failure be reviewed independently on a case-by-case basis?

    Answer. A case-by-case analysis would give a better understanding, 
as the reasons for the failure to confront China vary by industry (some 
industries are more able to take on China if they are more confident 
that China would not retaliate against them), by the nature of the 
unfair trading practice (the rules for subsidies, as noted above, are 
far less effective than rules in other areas) and by the underlying WTO 
rules and commitments made by China when it joined the WTO (some are 
quite specific while others are too vague to be clearly enforceable). 
But underneath almost all of them is the pervasive and growing role of 
the Communist Party of China in the economy of China in both overt and 
subtle ways that is almost impossible to address through changes to the 
trading rules.

    Question. To what extent are administrative issues responsible for 
the failed oversight of WTO, and should reform efforts center on these 
or a more comprehensive strategy to improve the WTO?

    Answer. At its core, the WTO has three main pillars: (1) a 
negotiating pillar allowing the WTO to serve as the forum for the 
creation of new trade rules and trade liberalization accords applicable 
to its 164 members; (2) an executive function, with the WTO serving as 
a central clearinghouse for tariff schedules, services commitments, 
non-tariff measures and subsidy notifications, along with supporting 
the important work of WTO committees; and (3) a dispute settlement arm 
designed to resolve disagreements over whether countries have lived up 
to their trade commitments. The problem is that the system is now badly 
out of balance, as the negotiating process has broken down, unable to 
reach any major agreements other than the Trade Facilitation Agreement 
since the WTO was created in 1995. The executive function has been 
hampered by the failure of many countries to provide timely 
notifications of their measures and by its limited power in WTO's 
member-driven system. The dispute settlement system, until its 
Appellate Body was upended in December, was perceived to be very 
strong--with nearly 600 requests for consultations to resolve 
differences filed to date and countries throughout the world choosing 
to resolve their disputes at the WTO rather than through free-trade 
agreement or bilateral dispute settlement mechanisms. But that strength 
has contributed to the lack of balance in the system, with USTR's 
Ambassador Lighthizer noting ``the WTO is losing its essential focus on 
negotiation and becoming a litigation-centered organization. Too often 
members seem to believe they can gain concessions through lawsuits that 
they could never get at the negotiating table.''

    As a result, the reform efforts need to involve a comprehensive 
strategy to restore the balance rather than a focus solely on 
administrative issues.

    Question. What policies can the United States take to proactively 
seek to reform the Appellate Body to ensure a productive, transparent 
dispute resolution process?

    Answer. As noted above in response to the question from Chairman 
Grassley, I believe the United States should seek a package of reforms 
that includes the adoption of the Walker principles to address specific 
U.S. concerns about the Appellate Body, the creation of an oversight 
process to ensure that the Appellate Body adheres to those principles 
and a rotation of staff serving Appellate Body members. These actions 
could be supplemented by changes to the approach to trade remedies as 
also noted in my response to Senator Grassley. Collectively, these 
reforms would allow the Appellate Body to function in a manner 
consistent with the original intent of the United States when it 
championed its creation and would give the United States an effective 
forum to enforce our trading rights.

    Question. As problems with the WTO's lack of oversight and 
inability to be effective have increased, the United States has rightly 
brought these issues to light. However, other member nations have not 
treated these infractions with the same vigilance and tenacity. There 
is tremendous value in a multilateral response to hold China 
accountable and nations could be persuaded to unite common interests 
into a broader and more powerful complaint. Specifically, strategies 
can include making a general IP challenge, addressing trade secret 
theft and forced technology transfer, and countering subsidies.

    How can the United States work with other member countries in order 
to bring forward comprehensive and fact-based claims against China's 
unfair trade practices?

    How does China seek to undermine the United States' relationships 
with other countries? How should the United States combat increased 
investments or threatened retaliation?

    What strategies can the United States use to build multilateral 
support for broad-based challenges to China?

    Answer. As noted above in the response to Senator Toomey, I believe 
the best approach would be a big, bold, comprehensive case at the WTO 
filed by a broad coalition of countries that share the United States' 
substantive concerns about China. The case could include over a dozen 
specific allegations of violations by China of its commitments under 
its protocol of accession to the WTO or the WTO rules themselves (as 
spelled out in my testimony before the Senate Foreign Relations 
Committee),\8\ along with a non-violation claim under Article XXIII of 
the GATT, focused on the myriad ways in which China's economy fails to 
meet the Marrakesh Declaration that the WTO was designed as a world 
trading system ``based upon open, market-oriented policies.''
---------------------------------------------------------------------------
    \8\ https://www.foreign.senate.gov/imo/media/doc/
112718_Hillman_Testimony1.pdf.

    Most WTO disputes have as their goal a ruling by the Dispute 
Settlement Body that the measures complained about violate one or more 
provisions of the WTO Agreements, after which the responding party 
brings its measures into compliance, often by removing or amending the 
offending measures. Here, while one of the goals of a big coalition-
based case would be to seek certain specific rulings of violations by 
China across more than a dozen areas, the goals would be much broader: 
(1) to seek a common understanding of where the current set of rules 
are failing and need to be changed (with disciplines on subsidies at 
the top of that list); (2) to begin the process of scoping out exactly 
what those rule changes would look like to accommodate the views of the 
broader WTO membership; (3) to seek recognition from China of where and 
to what degree its economic structure can or cannot fit within a fair, 
transparent and market-based trading system; and (4) to give China the 
opportunity to make a choice that is its sovereign right to make--
whether it wants to change its system to one that does fit within the 
---------------------------------------------------------------------------
parameters of the WTO or not.

    The hope would be that both China and the coalition of parties to 
the dispute would appreciate that the trading system is better off with 
China as part of it, that the WTO rules are in some places and in some 
ways part of the problem and need to be changed, but that tinkering at 
the margins will not suffice.

    Question. One area of significant concern with the WTO's failure to 
issue corrective action is China's subsidization of its domestic 
manufacturing. This undercuts U.S. businesses and manipulates the 
global market. The campaign, ``Made in China 2025,'' was created under 
the guise of advancing innovation in technology, but is really 
government-sanctioned subsidies to businesses that purchase government-
approved goods from domestic suppliers. This subsidy regime has and 
continues to have negative effects on foreign competitors--this is a 
violation of WTO obligations. Personally, I have heard from a number of 
constituent businesses in Indiana who suffer loss of market share 
because of an inability to compete with artificially low prices from 
China.

    What tools at the WTO can be used to address Chinese subsidization 
of their domestic manufacturing?

    How should the United States use the functions at the WTO to 
correct this consistent and manipulative behavior from China?

    If the Chinese are not held accountable from a multilateral 
consensus, what will the future hold for American manufacturers?

    Answer. As noted above in my response to Ranking Member Wyden's 
question, I believe that among the biggest weaknesses of the WTO is the 
inability to discipline subsidies or to rein in the practices of 
China's state-owned enterprises. Fixing the problem likely requires a 
change in the rules around subsidies themselves and a better mechanism 
to hold China to account for its failures to rein its subsidies and to 
expand the reach of its state-owned enterprises.

    One possible option is for WTO members to create categories of 
``permitted'' or ``green light'' subsidies that would fall outside the 
scope of the ASCM disciplines, ``red light'' or prohibited subsidies, 
and ``amber light'' subsidies for all others. Doing so would provide 
policy space for members to negotiate the types of subsidies in each 
category, particularly for ``green light'' subsidies, which could 
include those that promote the public good or are directed at 
addressing climate change. Establishing an amber box--which would 
include subsidies that likely distort production and trade--would 
require a commitment by members to limit their total spending on such 
subsidies, with the largest subsidizers potentially committing to 
reduce their amber light subsidies over a set time period.

    A second option is to expand the list of prohibited subsidies. 
Because prohibited subsidies have both a clearer and faster remedy than 
merely actionable subsidies, expanding their list could add teeth to 
the ASCM. Currently, ASCM Article 3 limits prohibited subsidies to 
export subsidies or subsidies contingent on the use of domestic 
products over imports. If certain subsidies that are considered more 
trade distortive, such as those leading to substantial global 
overcapacity, could be defined and added to Article 3, it would 
strengthen the ASCM.

    Changes are also necessary to redefine ``government or public 
body'' and to address the evidence problem by establishing a set of 
rebuttable presumptions for countries that believe they have suffered 
as a result of another member's subsidies.

    Failure to adopt new rules and new mechanisms to hold China to 
account will leave U.S. companies competing against low-priced, 
unfairly trading imports and will keep prices in the world suppressed 
due to the overproduction emanating from China's heavily subsidized 
industries. Achieving meaningful disciplines on China will require 
working with our allies, as pressure from the U.S. alone will not be 
sufficient, either to establish new rules or to enforce them.

                                 ______
                                 
             Questions Submitted by Hon. Sheldon Whitehouse
    Question. Professor Hillman, as a former member of the WTO's 
Appellate Body, you are well-placed to discuss what sorts of trade 
regulations would pass muster with the WTO.

    Could a carbon border adjustment could be constructed in such a way 
so as to be WTO-compliant, and if so, what would such a regime look 
like?

    Answer. Yes. The United States has a right under applicable WTO 
provisions to assess a carbon-related tax or a charge on imports--a 
carbon border adjustment (CBA)--provided such a CBA does not exceed the 
amount of the tax imposed on similar U.S. products. The key is to 
structure any CBA as a straightforward extension of the domestic 
climate policy to imports and to ensure that the amount of the CBA 
imposed on the imported goods does not exceed the amount of the tax on 
the domestically produced products. If so designed, there should be few 
questions about the measure's consistency with the WTO rules. Even if 
questions were raised, the United States would have strong defenses 
within the WTO system (Article XX of the GATT). And even if those 
defenses were somehow to fail, the United States would be able to make 
adjustments should some aspect of its carbon tax system be found 
wanting. A non-discriminatory tax enacted in good faith to address 
climate change should readily pass muster with the WTO.

    Question. Some have expressed concern that a carbon fee would 
disadvantage American heavy industry.

    Could a carbon border adjustment be designed in such a way so as to 
protect American heavy industry, and if so, what would such a border 
adjustment mechanism would look like?

    To the extent that Chinese heavy industry is on average more 
carbon-intensive than U.S. heavy industry, would a carbon border 
adjustment provide U.S. industry with an advantage over Chinese 
industry exporting to the U.S.?

    Answer. Yes, a CBA can be designed to ensure that energy-intensive 
American industries are protected from unfair competition from 
industries in countries that have no carbon tax or carbon-pricing 
system in place or are made using a more 
carbon-intensive process. The easiest and fairest way to do so is to 
assess the tax (both the domestic tax and the CBA tax on imports) on 
the basis of the amount of greenhouse gas (GHG) emissions consumed in 
the production of the product being made or imported. If the tax were a 
set amount per ton of GHG consumed per ton of product produced, then 
U.S. producers with a more carbon-efficient process would pay a 
domestic tax that is less per ton of product produced than the amount 
of the tax that would be paid by importers per ton of product imported 
if those imports were made using a more carbon-intensive process.

    Question. The European Union is considering implementing a carbon 
border adjustment regime.

    Could the EU do so in compliance with WTO rules, and if they did, 
would U.S. exporters to the EU be obligated to pay the border 
adjustment fee?

    Answer. Yes, it is possible, but will be extremely difficult, for 
the EU to impose a WTO-consistent border adjustment fee on imports to 
the EU from the United States. The reason that it will be so difficult 
is that the EU does not impose a carbon tax on its own EU producers. 
Instead, the EU has an emissions-trading system (ETS) in place that 
requires EU companies to reduce emissions by set amounts; if they 
cannot do so, they must purchase emissions-trading permits. The problem 
is that for a border adjustment fee to be lawfully applied, the EU must 
show that the amount of the import fee is equivalent to what EU 
companies effectively pay under the ETS. However, objective standards 
do not exist either to determine the equivalent price of the EU's ETS, 
or to provide credit based on an equivalent price for the portfolio of 
policies in nations that export GHG-intensive products to the EU. In 
addition, ETS requirements are applied to production facilities in the 
EU, while a CBA would be applied to imported products, making a 
comparison between the two to ensure equivalence very difficult. 
Moreover, the ETS does not prescribe a specific price for emissions 
allowances; rather it establishes a market-based process that results 
in a variable, at times volatile, allowance price for emissions. 
Devising objective methods to address the time-dependent allowance 
price and assign it to a fixed import charge for specific products 
would also be extremely challenging.

    Question. If the U.S. implemented a carbon price equal to or 
greater than the average price for EU emissions allowances, would U.S. 
exporters still have to pay the EU border adjustment fee?

    Answer. The answer depends on whether the EU's border adjustment 
scheme provides for such an offset but the initial descriptions of the 
EU's scheme suggest that an offset will be included.\9\ If that is the 
case, then yes, the adoption of a carbon tax in the United States 
should exempt U.S. exports to the EU from the EU's CBA.
---------------------------------------------------------------------------
    \9\ https://www.bcg.com/publications/2020/how-an-eu-carbon-border-
tax-could-jolt-world-trade.

    Question. Together with Senators Schatz, Heinrich, and Gillibrand, 
last year I reintroduced the American Opportunity Carbon Fee Act. My 
bill includes a border adjustment mechanism to protect U.S. 
---------------------------------------------------------------------------
manufacturers.

    In your view, is my bill WTO-compliant, and would it protect U.S. 
manufacturers from unfair foreign competition?

    Answer. Yes, I believe your bill is WTO-compliant, and yes, it 
would protect U.S. manufacturers from unfair competition from foreign 
producers that do not face a comparable carbon tax or carbon pricing 
system. While some initial methodological issues will arise, I believe 
that the tools and the data to demonstrate that an import fee imposed 
as a border adjustment in your bill is equivalent to the amount of the 
tax effectively paid by U.S. producers of similar goods exist such that 
an equivalence demonstration can be made. It is a showing of comparable 
taxes being paid by U.S. producers and importers that is necessary to 
demonstrate WTO compliance. Because your bill assumes that both the tax 
paid by U.S. producers and the tax paid by importers is based on the 
amount of GHG emissions burned in the production of a particular good, 
more energy-efficient U.S. producers will pay a smaller carbon tax per 
ton of product produced than comparable imports made by a foreign 
manufacturer that burns more GHGs to product the same ton of a given 
product. As such, your bill protects U.S. manufacturers from having to 
compete directly with goods produced in countries that do not impose a 
carbon tax or other carbon pricing system.

                                 ______
                                 
         Prepared Statement of Michele Kuruc, Vice President, 
                   Ocean Policy, World Wildlife Fund
    The details of what has transpired during 20 years of negotiations 
at the World Trade Organization (WTO) on harmful fisheries subsidies is 
hardly riveting storytelling. But the inability to successfully 
conclude the negotiations and reach an agreement to date has been 
extremely frustrating, as we've had to witness the concurrent decline 
in the health of the world's ocean, fueled in large part by harmful 
subsidies funding too many boats chasing too few fish. Our oceans are 
rife with illegal fishing, (estimated at 36.4 billion USD per year 
\1\), overfishing (more than 80 percent of the world's fish stocks are 
overfished, or at capacity \2\) and overcapacity (over 3 million 
fishing vessels are estimated to fish in marine waters and there are 
not enough fish for all of them \3\). All those detrimental activities 
are furthered by subsidies.
---------------------------------------------------------------------------
    \1\ 2017, Transnational Crime and the Developing World. Global 
Financial Integrity.
    \2\ 2020, State of the World's Fisheries and Aquaculture, FAO.
    \3\ Id.

    On a global level, subsides to fisheries are estimated to be 35.4 
billion USD \4\ annually. The top five subsidizing entities are China, 
the EU, the U.S., Republic of Korea, and Japan.\5\ Not all subsidies 
are considered harmful, cause damage to fish stocks, or thwart 
sustainability. But those which are considered harmful comprise the 
majority, with $22.2 billion classified as harmful.\6\ These harmful 
subsidies take many forms such as fuel, tax breaks, and capacity 
enhancement, which drives overcapacity of fleets and overfishing, and 
worsen the unsustainable, downward cycle. Many examples of the damaging 
impacts of these subsidies are found in the attachment to this 
statement.
---------------------------------------------------------------------------
    \4\ 2019, Updated Estimates and Analysis of Global Fisheries 
Subsidies, U. Rashid Sumalia, Marine Policy.
    \5\ Subsidizing the Extinction of Fish and Fisheries, U. Rashid 
Sumalia, webinar presented at The Link Between Fisheries Subsidies at 
the WTO and Small-Scale Fisheries, Pew Charitable Trusts, July 13, 
2020.
    \6\ Id.

    Inappropriate subsidies not only harm the environment, they 
directly promote unfair trade and even contribute to geopolitical 
strategies of economic control. China, for example, has the world's 
largest distant water fishing fleet--a fleet that in multiple oceans is 
used not only for fishing but for projecting Chinese maritime power. 
That fleet is supported by subsidies allowing these Chinese boats to 
roam the world's oceans to prey on weaker nations and flaunt many laws 
designed to keep fish stocks at sustainable levels and available to 
support our collective future. China gives more capacity-enhancing 
(harmful) subsidies than any other nation. Of the $22.2 billion in 
annual harmful subsides, China supplies about one-quarter.\7\
---------------------------------------------------------------------------
    \7\ Subsidizing the Extinction of Fish and Fisheries, U. Rashid 
Sumalia, webinar presented at The Link Between Fisheries Subsidies at 
the WTO and Small-Scale Fisheries, Pew Charitable Trusts, July 13, 
2020.

    Subsidies are often claimed to be essential to help small-scale 
fishers, those in poverty, or only impact fishing within one country's 
waters. None of that withstands scrutiny. Large-scale fishing 
operations receive 84 percent of subsidies globally while small-scale 
operators receive only 16 percent.\8\ Subsidies artificially expand the 
number of vessels and fuel overcapacity, contributing to declines in 
the entire sector's productivity and making it harder for those who 
depend on fishing to support their livelihoods, especially those 
already struggling at the margins. Subsidies support illegal fishing 
activities as well and are thought to provide 1.8-3.7 billion USD \9\ 
to do so.
---------------------------------------------------------------------------
    \8\ Id.
    \9\ https://www.economist.com/leaders/2017/12/19/a-shameful-
failure-to-tackle-overfishing.

    Harmful subsidies undermine fisheries management. And, we will not 
enforce our way out of these problems. Robust enforcement is certainly 
an important tool, but an agreement is needed that puts an end to 
subsidies that perpetuate an attractive value proposition for 
overfishing and overcapacity. Only the WTO can deliver that agreement. 
Funds that fuel harmful subsidies ought to be re-directed to improving 
fisheries management, a far better investment. Research on subsidies 
reform using 30 case studies worldwide indicates that reorienting 
subsidies away from capacity-enhancement, and/or conditioning them on 
specific sustainable performance metrics had the best economic and 
ecological outcome in terms of fishery performance.\10\ The World Bank 
estimates that effective management of global marine fisheries and the 
recovery of fish stocks would yield increased revenues of $83 billion a 
year. In the United States our own fisheries management is strong but 
in many other parts of the world this is not the case. But continued 
poor fisheries management coupled with subsidized overfishing is not 
only putting law abiding fishers at a commercial disadvantage but is a 
recipe for larger-scale economic and biological disasters and 
compromised food security.
---------------------------------------------------------------------------
    \10\ Andres M. Cisneros-Montemayor et al. Strategies and rationale 
for fishery subsidy reform. Marine Policy 69, 229-236. 2016.

    Status of negotiations. After COVID-related delays, a chair's text 
was recently distributed which is seen by many as a good basis for 
moving forward and text-based negotiations will resume in September, 
in-person and virtually. Although the talks are behind the initial 
December 2019 deadline, linked to the UN's Sustainable Development 
Goals, they may conclude by the end of 2020 or they may await the 
ministerial-level political negotiation that is likely to be back on 
the schedule in the first half of 2021.\11\
---------------------------------------------------------------------------
    \11\ July 21, 2020, Inside Trade.com, WTO to Start Text 
Negotiations in Fall; U.S. sees ``missing pieces.''

    Prospects. And if we end up with an agreement, what sort of 
agreement might it be? There are many issues that are unresolved around 
key definitions, the scope of an agreement, what and who may be covered 
and who decides major determinations, application of various formulas 
and timing issues. The United States has established a high ambition 
outcome and has held to that while listening to and discussing the 
proposals of others. This is a characteristic of U.S. leadership, but 
the next few months will likely determine whether WTO members can come 
away with an effective agreement or not. Many who have been long-time 
WTO watchers in this space say they feel there is reason to be 
optimistic on successfully concluding the negotiations this time, as 
this is the closest they've come in over a decade to actually reaching 
---------------------------------------------------------------------------
an agreement.

    Role of the U.S. We have excellent negotiators and they should stay 
the course and determine when and if compromises are needed. But this 
issue is also about the strength and value of the WTO as an 
institution. The WTO is specifically mandated to end harmful subsidies 
generally, and, after 20 years of preparatory debate, it is uniquely 
postured to put the kibosh on harmful fisheries subsidies in 
particular. But only continued and strong U.S. leadership can bring the 
WTO to delivering this long overdue result. And the time is now to pay 
attention to this issue once again.

    We also need to address unfair trade practices, and this means 
import control rules that identify and prevent illegal fish products 
from entering our lucrative U.S. market. The U.S. seafood import 
monitoring program (SIMP) is a useful start, but it only includes 40 
percent (by volume and value, it includes 13 species) of our 
imports.\12\ Other major importing countries are considering following 
the U.S. lead, and collectively we can shut off the IUU tap if we do it 
right, and expand SIMP to include all species in our program's 
coverage. Notwithstanding the SIMP import screening, approx. $1 billion 
in IUU products are still entering the U.S. Further, a consistent 
interpretation of IUU in U.S. regulations needs to be applied that will 
allow the U.S. more tools to address countries that are intransigent 
bad actors. It is important for the U.S. to work to address unfair 
trade practices--subsidies and IUU fishing--that are harming the 
environment, fisheries and U.S. fishermen and our seafood industry.
---------------------------------------------------------------------------
    \12\ 81 FR 88975, Final Rule, Seafood Import Monitoring Program, 
December 9, 2016.
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                  ending harmful fisheries subsidies: 
               it is vital for the wto to take action now
    The crisis of depletion affecting fisheries worldwide is one of the 
defining environmental and social challenges of our times.

    The well-documented harmful impact of certain forms of fisheries 
subsidies on the environment and the health of fish stocks, and the 
consequences for the economic stability of fishing communities, has 
been subject of discussion within the WTO for 2 decades. It is now high 
time for WTO members to take effective action to secure healthy oceans 
and sustainable livelihoods for the years to come.\13\
---------------------------------------------------------------------------
    \13\ Through Sustainable Development Goal 14.6 the global community 
has committed to banning harmful fisheries subsidies by 2020. SDG 14.6: 
``By 2020, prohibit certain forms of fisheries subsidies which 
contribute to overcapacity and overfishing, and eliminate subsidies 
that contribute to IUU fishing, and refrain from introducing new such 
subsidies, recognizing that appropriate and effective special and 
differential treatment for developing and least developed countries 
should be an integral part of the WTO fisheries subsidies 
negotiations.''

    Over a billion people depend on fish as their primary source of 
protein and a hundred million are directly dependent on fishing for 
their livelihoods. But the productivity of wild capture fisheries has 
been flat since the late 1980s despite dramatic growth in global 
fishing capacity. One-third of assessed global fish stocks are now 
overfished,\14\ promoted by subsidies and exacerbated by illegal, 
unreported and unregulated (IUU) fishing. Another 60 percent of stocks 
are fished at levels that can no longer support increases in catch, 
meaning that well over 90 percent of stocks are either fully fished at 
their biological limits or are overfished.
---------------------------------------------------------------------------
    \14\ SOFIA 2018, FAO.

    Massive global subsidies help drive this depletion because they 
provide economic incentives for fishing even when it is not profitable. 
Subsidies also fund the overcapacity that undermines best efforts to 
fish sustainably and to limit bycatch and habitat destruction. Because 
of the largely unconstrained pressures on the ocean's resources, each 
dollar of taxpayer funds used to support fishing today places enormous 
costs on the environment and the well-being of future generations.
                the need to curtail fisheries subsidies
    Recent analysis of the extent of global subsidies indicates that 
over $22 billion was spent in 2018 on capacity-enhancing subsidies, 
representing an astounding 17 percent of the value of the fish 
caught.\15\ Fuel subsidies topped the list at nearly $8 billion.\16\ 
China alone provides over 25 percent of the capacity-enhancing 
subsidies provided globally, followed by Japan and the EU with over 9 
percent each. Other significant subsidizing countries include Korea, 
Russia, the United States, and Thailand.
---------------------------------------------------------------------------
    \15\ FAO Status of World Fisheries. 2016 fisheries production was 
$130 billion.
    \16\ Sumaila, R. et al. Updated estimates and analysis of global 
fisheries subsidies. Marine Policy 109 (2019) 103695, https://doi.org/
10.1016/j.marpol.2019.103695.

    Recent research comparing mapped vessel movements against the cost 
of labor and fuel suggests that as much as 54 percent of high seas 
fishing may be unprofitable in the absence of government subsidies.\17\ 
The high seas fleets of China (35 percent of high seas catch), Taiwan 
(12 percent) and Russia (4 percent) are all operating at a loss. 
Nonetheless, industrial fishing on the high seas is a relatively small 
portion of global fishing, accounting for only 6 percent of all fishing 
activity.\18\ The vast majority of fish are found and caught within 
countries' national jurisdictions.\19\
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    \17\ Sala et al., Science Advances June 6 2018. The economics of 
fishing the high seas, http://advances.sciencemag.org/content/4/6/
eaat2504.full.
    \18\ Ibid.
    \19\ An estimated 88 percent of marine catch is from within 
national jurisdictions. U. Rashid Sumaila, Vicky W.Y. Lam, Dana D. 
Miller, Louise The, Reg A. Watson, Dirk Zeller, William W.L. Cheung, 
Isabelle M. Cote, Alex D. Rogers, Callum Roterts, Enric Sala, and 
Daniel Pauly. Winners and losers in a world where the high seas is 
closed to fishing. Scientific Reports 5, 8481. 2015.
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               the harmful effects of fisheries subsidies
    A report by the Organisation for Economic Co-operation and 
Development (OECD) found subsidies that reduce the cost of fishing 
through financial support for fuel, gear, or bait expenditures, are the 
most likely to increase both legal and illicit fishing effort, 
potentially leading to stock depletion.\20\
---------------------------------------------------------------------------
    \20\ Martini, R. and Innes, J. ``Relative Effects of Fisheries 
Support Policies,'' OECD Food, Agriculture, and Fisheries Papers No. 
115. 2018, http://dx.doi.org/10.1787/bd9b0dc3-en.

    Fuel subsidies encourage the wasteful use of fuel. They also 
maintain uneconomic and environmentally destructive fishing practices, 
such as deep-sea trawling, and distort the competition between large-
scale, fuel-intensive fishing vessels and small-scale vessels using 
passive gear. To the extent that fishing capacity remains in use 
because of these fuel subsidies, the necessary restructuring of the 
sector through capacity reductions is prevented. In turn, the chronic 
excess capacity that exists in most countries creates powerful 
interests in support of ongoing subsidies and continued high fishing 
---------------------------------------------------------------------------
quotas, leading to persistent overfishing.

    Examples of the negative impact of fisheries subsidies abound. In 
the Mediterranean, one of the world's richest bluefin tuna fisheries 
was shut down in the 1990s, being the target of overfishing by heavily 
subsidized fleets, and only with recent management measures in place 
have slowly recovered; in the North West Atlantic, the historic cod 
fishery was closed after years of subsidized overfishing; in the 
Western and Central Pacific and the Indian Ocean, tuna and other 
valuable stocks face increased pressure as subsidized competition 
pushes fleets into fisheries far from their traditional grounds; off 
the coasts of Africa and in the South Pacific, local fishermen compete 
with subsidized foreign vessels, many fishing illegally.

    In Ghana, subsidized foreign fishing vessels engage in a practice 
known as saiko, where large canoes meet illegal trawling vessels to 
trade for slabs of frozen bycatch to sell in local markets. Although 
the practice is illegal and undercuts local jobs, the lucrative saiko 
business attracts foreign vessels due to the prevalent challenges of 
enforcement.\21\
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    \21\ EJF and Hen Mpoano (2019). Stolen at sea. How illegal 
``saiko'' fishing is fueling the collapse of Ghana's fisheries.

    In Suriname, fishermen, fisherfolk organizations, legislators, and 
NGOs have expressed their concern about overfishing and the impact that 
factory trawlers will have on their stocks. Collectively they have 
successfully prevented the introduction of factory trawlers in 
Surinamese waters.\22\
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    \22\ See e.g., September 4, 2019, http://www.starnieuws.com/
index.php/welcome/index/nieuw
sitem/54397.

    An analysis undertaken by WWF Mexico found no evidence to prove 
that fisheries subsidies are helping Mexico develop its industry.\23\ 
While subsidies were key to increasing the size of the fleet and 
continue to support its operation, catch levels have remained constant 
for the last 2 decades, which means the industry is less productive per 
vessel and workers make less money. Furthermore, the greatest share of 
subsidies is given to the wealthier participants in a fishery, instead 
of the low-
income fishers in coastal communities. For example, in Mexico one 
quarter of beneficiaries receive 80 percent of fisheries fuel subsidies 
and industrial fishing entities receive 70 percent of modernization 
subsidies. Overall, capacity and effort-enhancing subsidies are 
decreasing fisheries productivity, encouraging overfishing and 
threatening livelihoods in coastal communities.
---------------------------------------------------------------------------
    \23\ Reforming Harmful Fisheries Subsidies: Making the Economic 
Case for Mexico. WWF. April 2019.
---------------------------------------------------------------------------
 Government Subsidies Can Fuel Massive Increases in Fleet Capacity and 
        Support IUU Fishing
    Large subsidies have led to an expansion of fishing capacity and 
effort in many regions of the world. For example, government subsidies 
in China have supported China's distant water fleet (DWF) when the 
operations may not otherwise be viable,\24\ largely through subsidies 
for fuel that comprise a significant share of income for China's 
distant water vessels. Operators also receive tax exemptions under the 
DWF-connected ``going out'' programs, ship construction subsidies 
provided by provincial governments and tax breaks provided by coastal 
Chinese provinces and cities to support local fishing companies.\25\
---------------------------------------------------------------------------
    \24\ Greenpeace. Give a Man a Fish--Five Facts on China's Distant 
Water Fishing Subsidies, https://www.greenpeace.org/eastasia/PageFiles/
299371/FINAL_The%20problem%20with%20
China%27s%20distant%20water%20fishing%20industry%20subsidies_.pdf.
    \25\ Ibid. Half the cost of DWF vessels may be covered by 
provincial governments, with Shandong and Fujian provinces 
commissioning two-thirds of China's more than 600 new DWF vessels built 
between 2012 and 2014.

    Subsidies to the fishing industry provided by the central 
government alone reached nearly $22 billion between 2011 and 2015, 
almost triple the amount spent during the previous 4 years.\26\ 
Evidence that these subsidies supported illegal fishing by DWF fleets 
in West Africa--including using illegal nets, shark finning and fishing 
without a license--recently prompted the Chinese Ministry of 
Agriculture to sanction three DWF companies by canceling the subsidies 
and removing the fishing permits.\27\
---------------------------------------------------------------------------
    \26\ NYT, April 30, 2017. China's appetite pushes fisheries to the 
brink, https://www.
nytimes.com/2017/04/30/world/asia/chinas-appetite-pushes-fisheries-to-
the-brink.html.
    \27\ Greenpeace press release, March 9, 2018. Chinese companies see 
subsidies canceled and permits removed for illegal fishing in West 
Africa, https://www.greenpeace.org/international/press-release/15209/
chinese-companies-see-subsidies-cancelled-and-permits-removed-for-
illegal-fishing-in-west-africa/.

    In 2016, the Argentine coast guard sank a Chinese trawler fishing 
in its territorial waters,\28\ and Chinese vessels were detained by 
Indonesia and South Africa. Since 2016, in an effort to combat IUU 
fishing by its DWF, China reportedly has canceled =90 million in 
subsidies for 264 vessels.\29\
---------------------------------------------------------------------------
    \28\ https://www.reuters.com/article/us-argentina-defense-china/
argentina-coast-guard-sinks-chinese-trawler-fishing-illegally-
idUSKCN0WH2QL.
    \29\ Greenpeace press release March 9, 2018.
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                       subsidies for iuu fishing
    Estimates vary by country and region, but have revealed substantial 
and widespread IUU fishing, valued at between $10 and $23.5 billion per 
year and accounting for 13 percent to 31 percent of global marine 
catch. The Economist estimates that, based on the extent of IUU fishing 
and of global subsidies, about $1.8-$3.7 billion of government 
subsidies a year may support illegal fishing activity.\30\
---------------------------------------------------------------------------
    \30\ https://www.economist.com/leaders/2017/12/19/a-shameful-
failure-to-tackle-overfishing.

    Subsidies granted to illegal fishing vessels, operators and owners 
magnify the damage caused by IUU fishing and hamper ongoing global 
efforts to curtail IUU fishing activity. IUU fishing operators have a 
lower cost of production than legitimate fishers because they avoid 
some or all of the rules on catch, monitoring, labor, safety and health 
that fishing vessels face. Subsidies compound the problem to make IUU 
---------------------------------------------------------------------------
fishing even more profitable.

    Despite national, regional and global efforts, IUU fishing remains 
widespread. Much more needs to be done to combat it effectively. The 
WTO has a special role to play in curtailing the economic benefits of 
IUU fishing by eliminating the subsidies that promote it.

Penalties and Sanctions on IUU Fishing Are Often Inadequate to Deter 
                    Further IUU Fishing

        The absence of severe penalties, combined with limited 
enforcement, makes IUU fishing a lucrative option. One study found that 
maximum penalties should be increased considerably--by as much as 24 
times--compared to current levels, if they are to have a deterrent 
effect on IUU fishing.*
        Very few countries have levels of fines that are effective 
deterrents to IUU activities. Fines and penalties across many legal 
systems concluded that they are often based on the ``ability to pay.'' 
Given that fishers often have little income compared to the societal 
costs of their action and that the true owners of vessels are often 
disguised, this often works against the deterrence effect.

* Sumaila, U.R., Alder, J., and Keith, H. (2006). Global scope and 
economics of illegal fishing. Mar. Policy 30, 696-703.

                    the benefits of subsidies reform
    At the national level, instead of subsidizing increased capacity 
and effort in their EEZs, a far more rational policy to maximize 
government return on investments in the sector would be for countries 
to (re-)allocate funds to effectively manage their own fishing grounds 
and ensure a careful balance of fleet capacity and fisheries resources. 
This is also vital to ensure sustainable livelihoods in the long term.

    Research on subsidies reform using 30 case studies worldwide 
indicates that reorienting subsidies away from capacity-enhancement, 
and/or conditioning them on specific sustainable performance metrics 
had the best economic and ecological outcome in terms of fishery 
performance.\31\ In fact, the World Bank estimates that effective 
management of global marine fisheries and the recovery of fish stocks 
would yield increased revenues of $83 billion a year.\32\
---------------------------------------------------------------------------
    \31\ Andres M. Cisneros-Montemayor et al. Strategies and rationale 
for fishery subsidy reform. Marine Policy 69, 229-236. 2016.
    \32\ World Bank 2017.

    Fisheries management is critical for sustainability but subsidies 
for vessels and operations provide a strong incentive to undermine any 
attempt to control fishing activities. Ending harmful fisheries 
subsidies is apre-requisite for long-term sustainable fisheries 
management.
                               conclusion
    Harmful subsidies fund a vicious cycle, supporting fishing when it 
is not economically viable and creating domestic constituencies for bad 
policies that lead to unsustainable exploitation of fisheries.

    Countries must address subsidies reform at the national level, and 
some are, but the WTO is the only body that can take meaningful action 
to curtail harmful fisheries subsidies at a global scale. By curtailing 
subsidies that drive overcapacity and overfishing and support illegal 
fishing vessels, WTO disciplines can undercut ongoing economic support 
for activities that destroy our oceans and the livelihoods of millions.

    WTO members have made a commitment to fulfil Sustainable 
Development Goal 14.6 by adopting an agreement on comprehensive and 
effective disciplines on harmful fisheries subsidies by December 2019. 
It is time to live up to that promise.
                ending harmful fisheries subsidies \33\
---------------------------------------------------------------------------
    \33\ http://awsassets.panda.org/downloads/
WWF_briefing_WTO_Fisheries_Subsidies_MC11_
2017.pdf.
---------------------------------------------------------------------------
    WWF calls for a broad scope of prohibitions on fisheries subsidies. 
These include prohibitions on, at a minimum, subsidies that increase 
fishing capacity or effort, as well as subsidies that contribute to IUU 
fishing, including subsidies for capital costs including vessel 
construction and modernization, subsidies to operating costs, subsidies 
that allow fishing on stocks that are overfished and subsidies that 
contribute to IUU fishing vessels, operators, or owners.

    A limited scope of prohibitions--for example prohibitions only 
relating to subsidies linked to overfished stocks, to IUU fishing 
activities, to high-seas fisheries, and/or prohibitions subject to 
relatively large potential exemptions--would not be enough to address 
the harm to fish stocks and fishing communities caused by widespread 
subsidies.

    WWF supports appropriate conditions and flexibilities for 
developing and least developed countries to implement the disciplines, 
but there should be no blanket exemption for small-scale fisheries and 
any exemption for subsistence fishing should be on the basis of socio-
economic imperatives rather than vessel size.

    New measures are also necessary to increase transparency on 
fisheries subsidies programs and to increase compliance by making 
reporting requirements enforceable under WTO law.
                 prohibiting subsidies for iuu fishing
    Strong rules are necessary to address all significant fisheries 
subsidies programs affecting wild capture fisheries, including 
subsidies for IUU fishing in international waters as well as within 
EEZs.\34\
---------------------------------------------------------------------------
    \34\ WWF supports proposals to use the FAO International Plan of 
Action (IPOA) on IUU as a starting reference for defining IUU fishing 
and applying potential disciplines to vessels or operators found to be 
engaged in IUU fishing based on national determinations and/or those of 
the Regional Fisheries Management Organizations (RFMOs) or 
Arrangements.

    Any WTO agreement on fishing subsidies must have, as a fundamental 
obligation, the requirement that members include in national 
legislation a prohibition on subsidies for IUU fishing activities. 
Furthermore, to limit support for the full scope of illegal fishing 
activity it is essential that subsidy disciplines go beyond listed 
---------------------------------------------------------------------------
vessels to prohibit subsidies to:

      (a)  Operators who are involved in the ownership,\35\ management 
and operation of a vessel engaged in IUU fishing activities; and
---------------------------------------------------------------------------
    \35\ This is particularly important given the global phenomenon of 
vessels flying flags of convenience and associated challenges in 
identifying these vessels' beneficial owners.

      (b)  IUU activities within EEZs, based on national determinations 
by the flag or subsidizing state, as well as under the national laws of 
coastal states where IUU fishing may be occurring.\36\
---------------------------------------------------------------------------
    \36\ Given the often very complex nature of IUU activities and 
associated subsidies, notification of such types of activities to the 
WTO should be part of a suite of measures agreed upon to make a 
prohibition on IUU subsidies effective.

    Given the nature of IUU fishing and the particularly pernicious and 
distorting nature of its subsidization, no exceptions to such a 
---------------------------------------------------------------------------
prohibition should be allowed.

                                 ______
                                 
          Questions Submitted for the Record to Michele Kuruc
               Questions Submitted by Hon. Chuck Grassley
    Question. I find it deeply frustrating that the fisheries 
negotiations have dragged on for so long. An ambitious outcome would 
save governments money and conserve fisheries that are on the verge of 
collapse.

    Lately, I have been hearing two arguments on why the negotiations 
have proven so complicated. First, there is a European argument that we 
don't want to restrict ``good subsidies.'' I haven't seen anything to 
suggest what would constitute a good subsidy in light of what we're 
trying to restrict, which is subsidies to illegal, unreported, and 
unregulated fishing (IUU).

    What are your thoughts on these claims?

    Answer. The mandate that the WTO is tasked to deliver on commits it 
to eliminating subsidies to IUU fishing as well as prohibiting 
subsidies that contribute to overfishing and overcapacity. The second 
component is the most critical in terms of impact on the environment: 
harmful subsidies incentivize overfishing by artificially reducing the 
costs of the activity. This is the same in developing or developed 
countries. While the science is clear on what constitutes a ``bad'' and 
``good'' subsidy, politics muddies the waters. If governments want to 
support their fishing communities in a truly sustainable manner, they 
should redirect support away from fishing activity and towards fishers 
themselves. Both the European Union and India have a problem of 
overfishing in their waters (the Mediterranean for example; India is 
trying to encourage its fishers to move out of fishing near shore 
waters because they are so overfished). The European Union is currently 
considering the reintroduction of subsidies for vessel construction, 
which it banned in 2004, recognizing that these were harmful. The 
European Union also provides its fishing industry with a fuel 
detaxation subsidy. India provides its fishers with fuel subsidies.

    It is overfishing that is exacerbating poverty. Fuel subsidies have 
been shown by the OECD to be a highly inefficient form of support for 
fishers. One of the rationales behind the call for ``flexibility'' is 
to allow poorer nations to build their fleets to compete with the 
biggest fishing nations. However, poorer nations will never be able to 
compete with the top five biggest subsidizers who between them provide 
more than 50 percent of all harmful subsidies worldwide.

    What both arguments demonstrate is the need for elimination of 
harmful fisheries subsidies through a multilateral agreement that 
levels the playing field across the board and triggers a paradigm shift 
in how governments manage our precious ocean resources.

    With respect to the desired outcome of the fisheries subsidies 
negotiations referred to above, WWF believes it is essential that a WTO 
agreement is comprehensive, a prohibition of subsidies that contribute 
to IUU fishing is a bare minimum but it must go well beyond, and 
include clear disciplines on harmful subsidies contributing to 
overfishing and overcapacity. This is also what is mandated by the WTO 
mandate adopted in December 2017 (and SDG 14.6).

    A number of WTO members, including the EU, are proposing a so-
called ``green box'' approach in their draft text on a prohibition of 
subsidies contributing to overcapacity and overfishing, which does not 
include subsidies contributing to IUU.

    While fisheries subsidies that support fishery resource 
conservation and improved fisheries management can in principle have 
some positive impact on the sustainability of fisheries, others that 
are proposed to be included in green box proposals, are at least 
ambiguous in nature and should not be per se exempted.

    Some of the proposals with the green box approach include broad 
categories of subsidies such as, subsidies to improve safety on board, 
which could entail fleet renewal or vessel modernization measures that 
increase the de facto capacity of a vessel to catch fish, even if 
capacity measured in GT or kW is not increased; or an increase is 
mandated to be compensated by a withdrawal of capacity elsewhere. 
Safety on board can be improved by other means than fleet renewal or 
vessel modernization. A more effective way to secure jobs and safety at 
sea would be to invest in crew and community schemes rather than in 
vessels and machinery, e.g., crew safety training, life-saving 
equipment, rescue services and lifelong learning and acquisition of new 
professional skills linked to safety.

    Beneficial subsidies, a.k.a. good subsidies, if correct, are those 
that (i) ensure that fishing activities are environmentally sustainable 
in the long term, by increasing research and data collection on the 
status of fish stocks and health of the marine environment to inform 
sustainable fisheries management; and (ii) contribute to a healthy and 
productive marine environment, supporting thriving ecosystems, abundant 
fish stocks and, thus, sustainable livelihoods, by enhancing control 
and monitoring capacities, effectively enforcing legislation, 
mitigating negative environmental impacts of fishing activities and 
reducing illegal, unreported, and unregulated (IUU) fishing.

    The extent to which certain types of subsidies may be exempted from 
the disciplines--possibly with certain conditions attached- will 
ultimately depend on the design and scope of the prohibitions 
themselves. A green box that is not designed carefully and includes 
broad categories of subsidies will very likely create loopholes and 
undermine the effectiveness of the disciplines.

    Question. The other point is the Indian argument that developing 
countries need flexibility, and should be allowed to give bigger 
subsidies. I've never heard of someone saying that their poor economic 
conditions means they should be allowed to spend more on bad behavior.

    Answer. Subsidies to small-scale operators are an incredibly small 
proportion of global fishing subsidies overall, which overwhelmingly go 
to commercial industrial fishing operators. Despite this, WWF believes 
that evidence that small-scale fisheries receive a relatively small 
share of global subsidies is not a reason to provide an exemption to 
provide capacity- or effort-enhancing subsidies. Rather, it suggests 
the need for subsidies reform at national level to ensure that when 
governments spend money on their fisheries sectors, they do so wisely 
and in ways that encourage healthy and profitable fisheries (e.g., 
through improved fisheries management, surveillance and enforcement) 
and/or enable the establishment of alternative livelihoods, 
coordinating government expenditures with sustainable resource 
management and economic and social development strategies.

    Nevertheless, if a WTO agreement to end harmful Fisheries Subsidies 
is to be effective, it must address the existing issues of overfishing, 
overcapacity and IUU fishing globally. As such, it is appropriate that 
developing countries (such as India) show some level of ambition in 
disciplining their harmful fisheries subsidies, and more intense, 
mechanized fisheries within these countries that utilize more harmful 
fisheries subsidies in particular, are subjected to some level of 
disciplining. The current Indian proposal argues that developing and 
least developed countries should be exempted from disciplining harmful 
fisheries subsidies within their territorial waters, and disciplines 
should extend to the EEZ only for large scale fisheries if certain 
criteria are met. This argument is built on the premise that developing 
and least developed countries have mostly ``small scale fisheries'' in 
comparison to more developed nations.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
    Question. An outcome on fisheries subsidies negotiations is long 
overdue. As far back as 2010, I held a hearing on fisheries as the 
chair of the Subcommittee on International Trade to highlight the 
critical economic and environmental importance of safeguarding our 
marine environment. Jobs in the seafood industry in Oregon depend on 
healthy oceans, but it has an impact on the climate and ocean-dependent 
ecosystems. Unfortunately, many of the major fishing countries have not 
shown a willingness to sign on to the high-ambition proposals of the 
United States.

    Illegal, unreported, and unregulated (IUU) fishing undermines the 
fisheries management systems that countries do have in place to ensure 
the sustainability of fisheries stocks. In your view, is there any 
justification for countries to object to the prohibition on providing 
subsidies to those that participate in IUU fishing?

    Answer. When it comes to combating IUU fishing, the WTO has a 
special role to play in curtailing the economic benefits of IUU fishing 
by eliminating the subsidies that promote it. The WTO is the only body 
that can take meaningful action to curtail harmful fisheries subsidies 
at a global scale.

    By curtailing subsidies that drive overcapacity and overfishing and 
support illegal fishing vessels, WTO disciplines can undercut ongoing 
economic support for activities that destroy our oceans and the 
livelihoods of millions. WWF believes that we need to limit support for 
the full scope of illegal fishing activity. Disciplines to illegal, 
unreported and unregulated (IUU) fishing should not have carve outs. 
While some proposals have referenced a baseline to identify vessels 
using RFMO blacklists, it is essential that subsidy disciplines go 
beyond blacklisted vessels, because of the weaknesses and limits in 
those processes. Given the nature of IUU fishing and the particularly 
pernicious and distorting nature of its subsidization, no exceptions to 
a prohibition ending subsidies supporting IUU fishing should be made.

    Question. The United States is proposing a cap on fisheries 
subsidies. Currently, there is no limit on what countries can spend on 
market-distorting subsidies that artificially incentivize overfishing. 
Many developing countries argue against such caps and a variety of 
countries have proposed so-called green boxes that would exempt certain 
subsidies.

    What would be the impact of caps on fisheries subsidies on 
developing countries? How would proposed green boxes undermine the 
effectiveness of subsidy caps?

    Answer. The priority is to design disciplines that obligate the 
biggest subsidizers to take on the greatest responsibilities. Some of 
the biggest subsidizers are developing countries. The U.S. capping 
approach is designed to ensure that even the biggest developing country 
subsidizers make reductions (i.e., China, South Korea).

    A potential green box approach applied to a quantitative 
restriction in terms of a subsidy cap would likely mean that the amount 
of funds allocated to green boxed types of subsidies would be deducted 
from the total amount of subsidies provided by a country that would be 
subject to a cap. Whether the amount of funds allocated to green boxed 
types of subsidies would be deducted before or after the cap would be 
determined.

    Green boxes have the potential to undermine the impact of the 
entire agreement by rendering prohibitions meaningless. Green boxes 
need to be carefully designed so as not to create loopholes or 
circumvention of disciplines. The current draft of the chair's text has 
only a placeholder for the green box--no proposed language. Designing 
the prohibition is the first step, then the green box. Having said 
that, examples of the types of subsidies that have been proposed for 
inclusion in a green box are: widely recognized beneficial subsidies 
(management, stock assessments), subsidies for natural disaster relief, 
subsidies for improving health and safety on board vessels, subsidies 
for implementing international agreements, subsidies for research, 
development and innovation that aim at ensuring sustainable fishing, 
including the reduction of negative impact of fishing on the marine 
environment. Broad, vague language allows a ``catch all'' that can 
serve as a loophole.

    It's critical that green boxes are carefully designed with clear 
language. Both the capped approach and the green box are currently 
flawed. If a green box amount is deducted before a cap baseline is 
established, this potentially lowers the cap and might put a country at 
an advantage not having to cut as much as they would need to without 
the green box deduction. A combination of approaches that reflects 
these limits may be needed for the most effective approach.

                                 ______
                                 
             Questions Submitted by Hon. Patrick J. Toomey
    Question. So far, the U.S. has mainly relied on unilateral tariffs 
under section 301 to push for market-oriented reforms to the Chinese 
market, but these measures hurt Americans, while not having much effect 
on Chinese trade practices. But this is not the only way to try and 
encourage China to adopt reforms--the U.S. can also work with key 
allies and use the WTO rules to encourage China to adopt reforms.

    While the WTO may need reform in some key areas, the fact remains 
that it has historically been very successful when dealing with China. 
Uncovering China's WTO violations is challenging but it can be done, 
and the U.S. can use the WTO to hold China accountable, in particular 
in relation to the areas of intellectual property protection, forced 
technology transfer, and subsidies.

    How can the U.S. better utilize the WTO dispute settlement system 
in addressing the challenges with China's non-market trade policies?

    For those areas of contention that are not well covered by WTO 
rules, such as state-owned enterprises, how can the United States work 
with our allies within the WTO to develop new rules?

    What are the limits of the WTO in dealing with China, and how can 
the U.S. help facilitate reforms to strengthen it?

    Answer. WWF supports effective and fair trade rules that protect 
the environment and workers. Specific reforms at the WTO, though, are 
outside the area of expertise of WWF.

    There are other tools available to the U.S. to address issues of 
China and their impact on global fisheries. The most effective 
solution, and a more durable one than tariffs, to combat international 
illegal fishing and prevent illegal products from entering the U.S. 
market, or any market, is to establish catch documentation and 
traceability requirements that improve the transparency of fishing 
operations and help industry and government better identify the legal 
origin of products that are imported into our market. Within the U.S., 
NOAA's Seafood Import Monitoring Program (SIMP) allows the U.S. to 
provide these types of tools, to better detect and prevent illegal 
imports from entering the U.S. market.

    The absence of comprehensive coverage for all seafood imports in 
SIMP, however, (only approximately 40 percent by volume and value are 
covered by SIMP today) is a serious impediment to establishing the 
legal origin of fish products entering the U.S. market. Illegal fishing 
and seafood fraud are pervasive problems that exist in virtually all 
foreign fisheries; they are not limited to the 13 species currently 
covered by SIMP. Even with the current coverage of products under SIMP, 
the majority of seafood imports to the U.S. are not covered. This gap 
provides an easy pathway for billions of dollars' worth of illegal 
products to continue to enter the U.S. With the limited number of 
covered species, the current implementation of the program provides an 
incentive for mislabeling between SIMP-covered and non-SIMP products.

    Another tool, is the U.S. system for ensuring country level 
compliance with respect to IUU fishing, derived from mandates in the 
High Seas Driftnet Fishing Moratorium Protection Act (HSDFMPA). This 
act requires NOAA to provide a biennial report to Congress that 
includes a list of nations with vessels engaged in IUU fishing, fishing 
that results in bycatch of a protected living marine resource, or that 
have vessels that fish for sharks on the high seas without equivalent 
conservation protections as the U.S. The Act also requires that the 
U.S. consult with listed nations on addressing the problems identified 
in the listing and that the United States provide positive or negative 
certifications to Congress depending on whether the problems have been 
resolved in the next biennial report. If a country is negatively 
certified, the U.S. may invoke sanctions.

    NOAA's efforts, though, have been narrowly focused on violations 
that occur in U.S. waters or of regulations of the Regional Fisheries 
Management Organizations (RFMO) of which the U.S. is a member. The 
United States' limited interpretation of IUU in this context, which 
runs counter to the existing legal definition as found in several acts 
listed below, results in an ineffective deployment of what could be a 
powerful tool, and a limitation when working with countries like China 
to curb their illegal fishing. To address these limits, the U.S. should 
apply the existing legal definition of IUU, as codified through 
Maritime SAFE Act of 2019 \1\ and the Illegal, Unreported, and 
Unregulated Fishing Enforcement Act, to the HSDFMPA process. This 
definition should be interpreted broadly to apply to all IUU fishing, 
regardless of where it occurs, and to include forced labor violations 
to allow the U.S. to address the most egregious actions of our trade 
competitors.
---------------------------------------------------------------------------
    \1\ The Maritime SAFE Act was included in the National Defense 
Authorization Act for Fiscal Year 2020, Public Law 116-92, sec. 3531-
3572.

    Question. Maximizing the effectiveness of the WTO through American 
engagement and leadership is in the broad national interest as a means 
to provide greater economic stability and prosperity. Detractors say 
that the WTO system is ``rigged,'' but the fact remains that the United 
States has won 85.7 percent of the cases it has initiated before the 
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global 
trade, and foreign markets are critical to our agriculture, 
manufacturing, and service industries. Economists have found that the 
U.S. withdrawing from the WTO would lead to diminished trade growth, 
costly market and supply-chain disruptions, and the destruction of jobs 
and profits, especially in import- and export-dependent U.S. 
---------------------------------------------------------------------------
industries.

    Can you speak to the projected effects of withdrawing from the WTO?

    Answer. The absence of a forum at the WTO to negotiate on fishing 
subsidies would complicate efforts to establish an agreement and create 
much needed reforms. However, beyond that, this is outside of the area 
of expertise for WWF to comment on.

    Question. Do you believe that the resulting trade barriers from 
withdrawal from the WTO would compel some American companies either to 
downsize or move offshore?

    Answer. Any future considerations for decisions concerning U.S. 
participation in the WTO would be speculative and beyond the area of 
expertise for WWF.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell
    Question. Fishing is very important to Washington State. Commercial 
fishing and the seafood industry accounts for 15,900 jobs at an average 
annual wage of $67,600 in my State.

    In total, the fishing industry is a central part of Washington 
State's $30 billion maritime economy.

    Fisheries in the United States are governed by the scientific and 
conservation principles of the Magnuson-Stevens Fishery Conservation 
and Management Act.

    This act requires us to follow the best available science, which 
ensures healthy fish stocks for future generations. At times, though, 
this results in additional costs associated with scientific investment, 
bycatch reduction tools and accountability measures such as observer 
coverage.

    It is important that negotiations consider the high scientific bar 
our fishermen are held to, because our industry must have a level 
playing field. It isn't fair that our fisherman are forced to compete 
with illegal fishing by countries like Russia, China and India.

    Given the global downturn because of the coronavirus pandemic, do 
you expect illegal, underreported and unregulated fishing to increase?

    Answer. Impacts of the coronavirus have led to the loosening of 
some restrictions in some fisheries--particularly related to management 
measures for the monitoring, control, and surveillance (MCS) of 
fisheries. Some fisheries, for example, have temporarily removed 
requirements for observers on vessels and have extended fishing 
seasons. The removal of key MCS elements, such as human observer 
coverage, bans on at-sea transshipment, port inspection, and high seas 
boarding and inspection would weaken the links that maintain the 
verifiability of fishing-related activities throughout the seafood 
supply chain. It would open the door to increased illegal, unreported 
and unregulated (IUU) fishing and, in doing so, could undermine the 
recovery and resilience of many important fish stocks globally. It is 
important that fisheries managers take these impacts into consideration 
when developing emergency measures, particularly at a time when 
approximately 33 percent of global fish stocks are overfished and 
illegal fishing worldwide is reported to already account for up to 
$36.4 billion in catch, or one in five wild-caught marine fish.

    WWF believes that fishery managers should take the following suite 
of practical actions that could be applied in short order as a 
complement to any measures that reduce oversight of fisheries during 
the COVID-19 pandemic to reduce the likelihood of IUU fishing: (1) 
ensure that any steps to relax, suspend, or remove requirements for 
observer coverage on fishing and carrier vessels, high-seas boarding 
and inspection, and/or port inspection, or other form of physical 
oversight, are limited only to the period of emergency resulting from 
COVID-19 and based on expert advice related to human health and safety 
risks, and a date is set for when these suspensions or alternative 
measures will be reviewed; (2) require vessels whose observer coverage 
requirements have been waived to collect, record, and report all the 
observer-provided data; (3) prioritize the development of electronic 
reporting and electronic monitoring technologies, standards, and 
programs for use on fishing and carrier vessels, which would allow EM 
to complement human observers, or if necessary, replace them now or in 
similar situations in the future; (4) immediately increase VMS polling 
rates for affected vessels to no less than hourly, which will allow 
vessels' positions to be verified from port-to-port and therefore 
enable contact tracing; (5) immediately require the broadcast of AIS 
data from suitably equipped fishing vessels and carrier vessels as a 
complement to VMS; (6) immediately ban manual reporting in the case of 
VMS failure and require vessels that do not report on VMS, experience a 
VMS ``failure,'' or cannot broadcast on AIS to immediately stop fishing 
and return to port, while ensuring this does not convey a 
disproportionate effect on developing States; (7) require reporting to 
port State authorities prior to vessels making port visits, including 
advance notice of desired entry accompanied by data on the catch 
onboard and vessel history, interactions with other vessels and 
carriers and previous port access, which would allow port States to 
make more informed decisions with respect to entry requests; (8) 
publish a list of authorized transshipments, including their time and 
location, that occur during the emergency period; (9) dedicate 
additional resources to the analysis of VMS and AIS data, to support 
port States in carrying out necessary risk assessments; and (10) 
increase port inspections and strengthen cooperation and information 
sharing with port authorities of other relevant coastal States.\2\
---------------------------------------------------------------------------
    \2\ WWF et al. 4/7/20. NGO Letter to RFMOs on relaxing certain 
conditions during COVID-19 pandemic.

    Question. Could you discuss more about it would mean for Washington 
State's commercial fishing if the WTO negotiation on fisheries is 
further delayed or fails? What do we know about the specific costs that 
---------------------------------------------------------------------------
will be borne by our commercial fishing sector?

    Answer. Subsidies allow for lower operating costs and thus allow 
for subsidized cheaper priced products to be trade internationally and 
to compete with U.S. exports around the world, and with domestic 
catches as imports within the U.S. This creates an unfair economic 
advantage for foreign subsidized fishermen and puts U.S. domestic 
fishermen, who aren't receiving subsidies at a competitive 
disadvantage. So Washington fishermen are forced to unfairly compete 
with cheaper subsidized and sometimes illegal products both as exports 
being traded internationally, and in the domestic market as cheaper 
imports compete with the catches of U.S. commercial fishermen.

                                 ______
                                 
             Questions Submitted by Hon. Sheldon Whitehouse
    Question. Could you let us know two things? One, what should we be 
pressing China on? Because I think you have got a ready audience for 
that.

    Answer. China is the world's largest fishing country, the world's 
largest seafood processing country, and the world's largest importer 
and exporter of internationally traded seafood. However, China lacks 
many needed controls on its processing sector, its fisheries management 
methods and controls on its fleet, both domestic and distant water: 
including adequate monitoring of its fleet, transparency in its fleet's 
size, capacity, location, activities, catch, etc. Appropriate catch 
documentation and traceability requirements are needed to ensure that 
the fish landed, processed, and traded in, to and from China are from 
legal operations. As a result, China is a sort of black box where 
legally and illegally sourced fish are mixed, where illegal fish may be 
essentially ``laundered'' in the processing countries, in China or 
elsewhere and subsequently enter international trade as a ``legal'' 
product of the exporting nation. Chinese re-processing of seafood 
products is staggering in its scale, highly complex in its patterns of 
sourcing, and characterized by lack of transparency and traceability. 
An absence of species-specific commodity codes for exported products, 
and a growing trade of unspecified frozen fish imports create problems 
in identifying and tracking fish products imported into China and 
processed for re-export.\3\ Third-country intermediaries (e.g., Chinese 
products exported to Canada and then exported from Canada to the United 
States) also generate problems in traceability of seafood products from 
China.
---------------------------------------------------------------------------
    \3\ Clarke S. Understanding China's fish trade and traceability. 
Traffic East Asia. 2009, http://www.trafficj.org/publication/
09_understanding_china_fish.pdf

    The U.S. should press China to adopt comprehensive catch 
documentation and traceability requirements to ensure that the fish 
coming into--and often out of--the country are from legal sources. 
China should move to adopt and implement the Port States Measures 
Agreement and work with other countries, particularly in jurisdictions 
where its vessels are allowed to operate, to put in place the same 
measures. The U.S. should also establish requirements that imports from 
China and other countries meet fisheries management standards 
comparable to the U.S. under Magnuson-Stevens, and restrict entry of 
those products that fail to meet the same sustainability requirements 
---------------------------------------------------------------------------
as U.S. fishermen.

    China, however, is not the only problem country. Many other 
Southeast Asian countries (Vietnam, Thailand, etc.) are also growing as 
processors for fishery products exported to U.S.. Sometimes under the 
ownership of Chinese nationals. The readily available and simplest 
solution to the continued presence of illegal fishery imports into the 
U.S., from China and other countries, is for Congress to push the 
administration to expand the existing Seafood Import Monitoring Program 
to cover all fishery imports from all countries.

    Question. And two, what should the Oceans Caucus, our bipartisan 
oceans group here in the Senate, be looking at as the next steps on 
controlling pirate fishing, including enforcement. I know you said that 
is not all of it, but enforcement is a lot of it. We have these new 
technologies for satellite-based wake recognition software and so 
forth.

    Answer. While promising new technologies are being established to 
better monitor, control, and surveil fishing operations, these need to 
be combined with systems and requirements to document and verify legal 
catches and their movement through supply chains. The most effective 
solution to combat international illegal fishing and prevent illegal 
products from entering the U.S. market, or any market, is to establish 
electronic catch documentation and traceability requirements that 
improve the transparency of fishing operations and help industry and 
government better identify the legal origin of products.

    The need and demand for fast, reliable, and innovative systems for 
collecting, storing, communicating, and sharing fisheries data has 
increased. Comprehensive electronic vessel tracking, electronic 
monitoring, electronic reporting of catch and bycatch, and electronic 
traceability technologies have been developed and employed in many 
fisheries, and electronic systems are moving towards integrated 
electronic fisheries information systems. The benefits of integrated 
electronic fisheries information systems include improved compliance 
and reporting, improved fisheries sustainability, improved quality in 
stock assessment, improved traceability and catch quality, and improved 
industry profitability. In many fisheries, it is logistically more 
feasible, cost effective, and safer to use electronic monitoring and 
reporting to collect catch and bycatch data. The status of electronic 
fisheries information systems and use in major exporting countries is 
limited and non-existent in many fisheries.\4\ Helping countries to 
develop and build these systems is a key factor to establishing 
successful fisheries management that can verify the legal origin of 
fish products as they move through supply chains and trade.
---------------------------------------------------------------------------
    \4\ For more information and a review on the status of electronic 
fisheries information systems for the largest fishing countries please 
see: Sylvia G, Harte M, Borberg J. 4/23/2020. ``Status of Electronic 
Collection and Reporting of Key Information in Major Fisheries,'' 
https://www.worldwildlife.org/publications/status-of-electronic-
collection-and-reporting-of-key-information-in-major-fisheries.

    Within the U.S., NOAA's Seafood Import Monitoring Program (SIMP) 
allows the U.S. the foundation for a tool that can be further developed 
to better detect and prevent illegal imports from entering the U.S. 
market. As stated earlier, the absence of comprehensive coverage for 
all seafood imports in SIMP, is a significant challenge to successfully 
blocking the entry fish products entering the U.S. market. Congress 
should work to ensure that the SIMP requirements apply to all imports 
of seafood and that strong verification measures are adopted to prevent 
illegal seafood from entering the U.S. Robust implementation of the 
Program is also needed to ensure that information requirements, 
including for key data elements related to labor practices, can 
effectively identify the legal origin of products, and prevent the 
entry of illegal products. As currently implemented, SIMP does not 
clearly require an importer of record to provide certain key data 
elements, such as the Unique Vessel Identifier (UVI), or authorization 
to fish, at the time of entry into U.S. commerce. Moreover, it is 
unclear if standard auditing procedures for SIMP-derived data includes 
data validation as well as confirmation of collection. Without 
transparency about audit procedures and how SIMP data are being 
verified, confidence in the program's efficacy will undermine support 
for the program and impair importers' ability to get the necessary 
---------------------------------------------------------------------------
documentation from their suppliers.

    To address some of these challenges, additional measures to 
strengthen SIMP are needed, including additional data requirements for: 
reporting on the location of catches to the smallest management unit 
that exists, and jurisdiction; the automatic identification system 
(AIS) unique identifier (MMSI number) for the fishing vessel; the 
chain-of-custody records, including transshipment, processors, storage 
facilities, or distributors back to the vessel; the beneficial owner of 
the fishing and transshipment vessels; refined harmonized tariff 
schedule (HTS) codes that are more 
species-specific and differentiate between wild-caught and farmed 
product; and external review, verification, and certification of the 
catch information by an independent third-party (and/or competent 
authority responsible for management of the catch). The data elements 
and information collected under SIMP should be reviewed and screened 
automatically by computer database systems, with algorithms developed 
and based on risk factors for IUU, by NOAA and Customs targeting to 
more rapidly and effectively identify and screen products that may be 
of possible IUU origin.\5\
---------------------------------------------------------------------------
    \5\ NOAA has an international fisheries analysis team as part of 
the Office of Law Enforcement, and this should be part of their remit, 
to enumerate on a regular basis the list of ``red flags'' that should 
trigger a deeper screen by CBP.

    To be truly effective, SIMP must be formally embedded as an 
operational enforcement tool relied on by NOAA's Office of Law 
Enforcement and Customs and Border Protection with clear procedures for 
actionable intelligence and information transfer. These gaps hamper 
NOAA's ability to proactively identify at-risk shipments. The failure 
of SIMP to cover all species, to effectively verify the information 
currently provided, and to require all key data elements at the time of 
entry as required in the regulations are serious impediments to 
establishing the legal origin of all fish products entering the U.S. 
market. Given that in-port inspection capacity is profoundly limited, 
NOAA's leadership in making the SIMP as robust, efficient, and 
sophisticated as possible is essential if the program is to achieve its 
objective of ``ensuring that imported fish and fish products derived 
from illegal harvest of species designated to be at risk of illegal 
fishing or seafood fraud can be excluded from entry into U.S. 
commerce.''\6\
---------------------------------------------------------------------------
    \6\ NOAA Fisheries, Seafood Important Monitoring Program Final 
Regulatory Impact Review and Final Regulatory Flexibility Analysis at 
18 (2016).

    The U.S. should also apply the existing legal definition of IUU, as 
codified through Maritime SAFE Act of 2019 \7\ and the Illegal, 
Unreported, and Unregulated Fishing Enforcement Act, to the High Seas 
Driftnet Fishing Moratorium Protection Act (HSDFMPA) process that 
requires NOAA to identify a list of nations with vessels engaged in IUU 
fishing process. This definition should be interpreted broadly to apply 
to all IUU fishing, regardless of where it occurs, and to include 
forced labor violations to allow the U.S. to address the most egregious 
actions of our trade competitors. Congress should work to also make the 
certification and sanctions authority more reflexive such that NOAA 
must act. For countries identified and not subsequently positively 
certified, the U.S. should restrict importation of fish and fish 
products not only from the vessels engaged in IUU fishing, given how 
easily they can change names and flags, but more broadly from vessels 
flagged to that nation. At the same time, the U.S. may wish to step up 
its efforts to provide technical assistance to those countries to help 
them develop needed capacity.
---------------------------------------------------------------------------
    \7\ The Maritime SAFE Act was included in the National Defense 
Authorization Act for Fiscal Year 2020, Public Law 116-92, sec. 3531-
3572.

    Furthermore, forced labor, human trafficking, child labor, and 
other major human rights violations often co-occur with IUU fishing. As 
with IUU fishing, violations of labor laws and standards also lower the 
costs of production and depress the price of the product, giving those 
goods an unfair economic advantage when competing with legal U.S. 
products caught under stronger labor protections. Faced with this 
reality, it is important that the U.S. provides strong import controls 
and, expanded transparency, and oversight to safeguard against both IUU 
fishing and labor abuses, helping to bring greater transparency to 
opaque supply chains and level the playing field for U.S. fishermen. 
The U.S. has some programs and authorities designed to combat IUU 
fishing and human trafficking in supply chains already. These include 
SIMP as well as the Tariff Act.\8\ Congress should ensure that the 
agencies are using existing authorities effectively to ensure that all 
products entering into the U.S. market are not produced through IUU 
fishing or with forced labor. Congress should also direct the agencies 
to pursue additional tools under these authorities, including 
requirements for importers to formally share their due diligence 
approach and management systems with regards to forced labor in their 
supply chains. Congress should also encourage effective interagency 
collaboration, to better connect anti-IUU related processes with 
expertise around forced labor, including taking advantage of the 
existing State Department Trafficking in Persons report process and 
internal agency knowledge, the Department of Labor's List of Goods 
produced with forced and child labor, and other similar efforts.
---------------------------------------------------------------------------
    \8\ Tariff Act sec. 307 as amended by the Trade Facilitation and 
Trade Enforcement Act: ``[A]ll goods, wares, articles, and merchandise 
mined, produced, or manufactured wholly or in part in any foreign 
country by convict labor or/and forced labor or/and indentured labor 
under penal sanctions shall not be entitled to entry at any of the 
ports of the United States, and the importation thereof is hereby 
prohibited.''

    Congress should also support efforts in other countries to put in 
place and enforce sustainable fisheries management and labor rights 
systems. Similarly, increased investment in integrated risk analysis 
and detection systems with a focus on IUU and labor abuses in the 
seafood trade should be made a priority for the CBP's Commercial 
Targeting and Analysis Center (CTAC). CTAC already serves this mission 
but needs to be better supported and integrated with SIMP and other 
---------------------------------------------------------------------------
available tools.

    Question. What do you think with respect to a plastics treaty 
should be our next steps, given that so much of the plastic waste that 
gets thrown into the ocean comes from maybe a dozen countries and a 
dozen rivers. If we could clean up a dozen countries and a dozen 
rivers, we would really get way ahead of the problem. So if you have 
ideas for us on what our best options are through the International 
Treaty process for improving our international performance on ocean 
plastic waste, if you could send me that, I would be grateful.

    Answer. Thank you for your question and your incredible leadership 
in the plastics space, including through enactment last Congress of 
Save our Seas and passage this Congress in the Senate of Save our Seas 
2.0. Your leadership on this issue has significantly increased 
visibility of the bipartisan interest in reaching meaningful solutions. 
It has also had direct impacts on the water and in communities around 
the world.

    As to your question, you are right to point out the global nature 
of this problem. While the U.S. works to better address materials 
production, disposal, and reuse here at home, we need to strengthen our 
position as global leaders. We have been pleased to see support for 
international action through movement of a variety of vehicles through 
Congress, including Save our Seas 2.0, the Break Free From Plastic 
Pollution Act, the PLASTICS Act, ongoing conversations around 
establishment of an international trust fund, and others. WWF would 
like to see Congress encourage the administration to support 
establishment of an international binding agreement and to support U.S. 
accession to the Basel Convention. We envision an international binding 
agreement moving through either UNEA or UNGA. On the second element, as 
the U.S. ideally works toward accession to Basel, we hope that Congress 
will push the administration to establish strong criteria to govern 
export of waste from the U.S.. As we work toward reducing our materials 
footprint here in the U.S., the government must ensure that operators 
don't evade improvements here at home simply by exporting waste to 
nations least able to manage it. Existing bilateral agreements for the 
export of waste should be strengthened and criteria developed and 
implemented for establishment of new agreements. And, finally, 
ungoverned export of waste must not become an element of the Kenya Free 
Trade Agreement currently under discussion. Solving the plastics 
pollution crisis demands that we both remove plastic that exists in our 
environment and shift to a responsible materials management system that 
enables reuse and recyclability. Instituting extended producer 
responsibility, where producers of plastic have significant 
responsibility--financial and/or physical--for the treatment or 
disposal of post-consumer products, is the key to ensuring that the 
systems-level changes that are needed are accountable, while also 
funding desperately needed investment in infrastructure with proper 
oversight.

                                 ______
                                 
              Question Submitted by Hon. Thomas R. Carper
    Question. How has the U.S. benefited from being a leader in an 
institution like the WTO?

    Answer. U.S. participation and cooperation in international 
institutions is needed to address global problems--such as fishing 
subsidies, IUU and overfishing, climate change, biodiversity and 
habitat loss, and many other challenges that go beyond the jurisdiction 
of one country. The U.S. could benefit by being a leader to include 
greater protections for the environment and for workers to create 
needed change within institutions like the WTO.

                                 ______
                                 
                 Prepared Statement of Laura J. Lane, 
        Chief Corporate Affairs and Communications Officer, UPS
    Chairman Grassley, Ranking Member Wyden, and members of the 
committee, thank you for having me here today. My name is Laura Lane, 
and I am chief corporate affairs and communications officer at UPS, and 
I am honored to appear before you today to testify on the future of the 
World Trade Organization (WTO) on behalf of UPS. UPS is a global leader 
in logistics, offering a broad range of solutions including 
transporting packages and freight; facilitating international trade, 
and deploying advanced technology to support the world of business 
through our smart, multimodal logistics network.

    The subject of today's hearing is one of great importance to UPS. 
While headquartered in Atlanta, UPS serves more than 220 countries and 
territories worldwide, and every day, our almost half a million 
employees move 6 percent of U.S. GDP and 3 percent of global GDP. UPS 
is committed to continuing to find new ways to operate more 
efficiently, cost effectively and sustainably--for our customers, the 
environment, and the communities we serve around the world.

    At UPS, though, we are situated at the intersection today of many 
different trends including changing global trade and investment flows; 
digital modernization that is transforming business models; and the 
economic effects of the COVID-19 pandemic. UPS is in a unique position 
given the breadth of our operations and our important role as an 
essential service provider in the response to the pandemic to provide 
insights on the WTO reforms needed and the specific policy 
recommendations to promote greater justice, inclusion and fairness in 
the multilateral trading system.

    From our perspective, the WTO serves as a cornerstone of the global 
rules-based trading system and has helped accelerate growth and 
development for decades. However, the world has changed since 1995, and 
reforms to the WTO are needed to ensure that it remains relevant into 
the future. In 1948, the first year of the General Agreement on Tariffs 
and Trade (the precursor to the WTO), world trade was $58 billion, and 
today it is well above $20 trillion. That growth was only possible 
because of the trading rules that were put in place to foster greater 
trade and investment flows.

    That growth in economic opportunity is why the WTO is so important 
for the American business community. Ninety-nine percent of global 
trade takes place in countries that are members of the WTO. Based on 
the most recent data available, 65 percent of U.S. trade in goods and 
services takes place on WTO terms, while the other 35 percent occurs in 
the countries covered under our 14 free trade agreements (FTAs). Those 
14 FTAs use the WTO rules as a foundation. The WTO, therefore, creates 
the basis for the common set of predictable and transparent rules that 
allow an American worldwide company like UPS to serve our customer and 
consumers everywhere around the world.

    As 96 percent of the world's consumers are outside the U.S., 
American exporters have benefited from having a single set of rules as 
they have entered new markets. And, as the world has gone digital, 
these opportunities have expanded as consumers anywhere in the world 
can now reach American companies by the click of a mouse or a tap on 
their smartphone. Those clicks have been especially important for 
people everywhere around the world abiding by stay at home orders to 
get through the current pandemic. If the WTO were to cease to exist, we 
would go back to a world where any nation could change the rules at a 
moment's notice, creating great uncertainty and dramatically slowing 
trade and investment flows.

    As we have all seen, that predictability and certainty becomes even 
more important during a crisis. As an essential service provider 
facilitating the movement of critically needed supplies during the 
COVID-19 pandemic, we at UPS saw how important it was for countries to 
adopt best practices. For example, UPS saw some countries move quickly 
to accept e-signatures on customs documents; other countries created 
green lanes designated for rapid cargo-specific movements; and many 
countries removed or modified mobility limitations for essential 
workers like our heroic air cargo crews. Time is of the essence in our 
business, and never more so than during a pandemic where the ability to 
move across borders quickly saved time and more importantly, it saved 
lives.

    As the WTO looks at potential reforms to ensure it remains an 
engine of growth, we would like to see that the best practices we have 
seen adopted throughout the crisis to facilitate the movements of goods 
and services become permanent realities. We need the e-commerce 
negotiations completed so that digital trade rules apply globally. We 
also need the trade rules rebalanced and modernized to become more 
just, inclusive and fair to support economic recovery. And maybe, most 
importantly, we need the US leading these reforms.
          bringing timely reforms and modernization to the wto
    In many respects, justice delayed is justice denied. While I defer 
to those on this panel who are more expert in this area, I would argue 
that reform is needed to ensure that disputes are resolved more 
quickly. No one wants to wait longer than needed for critical PPE to be 
delivered; so too no business wants to wait too long for justice to be 
rendered in the WTO.

    I would also argue that the WTO needs to take a page out of the UPS 
shipping manifests and deliver more in a timely manner. In the 25 years 
since the creation of the WTO, the members have concluded only one new 
agreement--the plurilateral Trade Facilitation agreement. UPS strongly 
supported this pact, which eliminates inefficient border procedures and 
improves transparency via digital practices at borders.

    But we have seen too many dramatic changes in the past 25 years, 
and the WTO has not been able to move fast enough. That's why we are 
strong supporters of the current Joint Statement Initiatives (JSIs), 
which allow trade negotiations among coalitions of willing members to 
occur more quickly in the WTO. These agreements allow countries to opt 
in to negotiations on topics such as e-commerce; domestic regulations 
of services; investment facilitation; micro, small, and medium-size 
enterprises (MSMEs); and women and trade.

    Focusing on one of these, in particular, is the JSI on e-commerce, 
covering digital trade including data flows and data localization 
policies, as well as border processes for e-commerce. During the COVID-
19 pandemic, we have seen how e-commerce has provided a lifeline to 
consumers and businesses alike. From our vantage point, the time has 
come for governments and international organizations such as the WTO to 
foster, and not frustrate, digitally enabled international trade.

    Given our customer base, we know a company no longer needs to be 
big to be global. There are an estimated 25-30 million formal SMBs in 
the world, which contribute up to 60 percent of total employment and up 
to 40 percent of national income in emerging economies, according to a 
World Bank report. Connectivity through the Internet has enabled even 
micro-enterprises to sell products and services to consumers across 
borders. However, their full potential is unrealized if they cannot tap 
into new global markets.

    In that regard, trade rules have traditionally been written for 
traders who send ocean and air containers, not small parcels. The 
significant growth of e-commerce in a short span of time brings us into 
new territory in which too many governments around the world have 
sought to restrict its reach based on concerns related to:

        The surge in import volume and its impact on customs staffing, 
as well as the ability to catch illegal and harmful packages;

        New foreign competition for domestic retailers that may not be 
covered by domestic sales tax or other regimes; and

        E-commerce users' lack of understanding or application of a 
country's existing trade rules.

    While these concerns are important for policy consideration, UPS 
sees them as opportunities for governments to address the complexities 
of the process and create greater opportunities for e-commerce growth. 
An important area for WTO modernization and reform, therefore, should 
be focused on simplifying the import process for low value goods and 
recognition that the rules for moving ocean containers should not be 
the same for e-commerce packages.

    The following, therefore, are practical suggestions to form the 
basis for a new modern e-commerce policy framework within the WTO:

        Leverage new technology solutions to reduce administrative 
burdens and streamline border processes for low-value shipments;

        Simplify and harmonize returns processes and duty and tax 
drawback procedures;

        Implement simplified VAT processes for imports of low-value 
goods; and

        Provide for electronic submission of customs declarations 
prior to arrival of goods to allow pre-arrival processing and immediate 
release at the border.

    The digital economy and the global e-commerce boom are creating 
unprecedented and unique opportunities for governments and business to 
work together to craft an environment that will create jobs and support 
economic recovery, especially now as countries navigate through the 
economic downturns caused by the COVID-19 pandemic.
        promoting greater trade inclusion for women and micro, 
                   small, and medium-size enterprises
    True economic recovery will depend on fostering greater inclusion 
in trade. In that regard, the WTO has done some great initial work on 
Women in Trade and MSMEs but so much more needs to be done now. Women 
and small businesses have been the hardest hit by COVID 19. The WTO, 
therefore, has a critical role to play in helping with their recovery 
efforts.

    Despite the fact that trade negotiations open new markets, 
obstacles to women and minority engagement in international business 
render the full benefit of new trade agreements unrealized and the 
economic potential limited. Facilitating full engagement in trade 
through equal opportunities, therefore, is all about promoting 
prosperity that will be widely shared by all trade partners through 
increased exports, more jobs, greater consumer choice, and a broader, 
more diversified supplier network.

    The fact of the matter is that SMEs and particularly women have 
just not benefited as much from trade as they should. While women make 
up 40 percent of business owners in the U.S., we see globally that only 
1 in 5 women-owned businesses export. The WTO has to do more to ensure 
that there is no discrimination that prevents women and women-owned 
businesses from trading globally.

    UPS has engaged trade negotiators for the past year regarding ideas 
we have for commitments governments could make to foster greater 
farness and inclusion, particularly for women. These recommendations go 
beyond the sharing of best practices, and include codifying anti-
discrimination language in future trade agreements. We have suggested 
that every member can start by making non-discrimination commitments in 
their General Agreement on Trade in Services (GATS) schedules so that 
restrictions on a women's ability to own property in our own name, open 
a bank account to run her business or move freely across borders to 
market her goods are explicitly prohibited.

    We also support the ongoing negotiations on domestic regulations 
that seek to eliminate discrimination on the basis of gender for the 
granting of licenses or recognition of qualifications for the provision 
of services. For example, in some countries, governments still will 
only grant licenses to be truck drivers or pilots to men. UPS believes 
our greatest strength comes from the diversity of our people across our 
network, coming from both our men and women drivers and pilots who are 
committed to delivering everywhere in the world. We believe that the 
WTO's trade rules should reflect that reality and provide that 
opportunity for men and women alike.

    The WTO could go even further and incorporate the language in the 
USMCA that creates platforms to actively support small and medium sized 
business as they engage in trade and that includes disciplines that 
explicitly prohibit the ability of any of the contacting parties from 
discriminating on the basis of gender.
 fairness as the basis for a modern trading system in a post-covid-19 
                                 world
    Finally, on the need for fairness, the coronavirus has required 
extensive government intervention in markets. Going forward, therefore, 
WTO members will need to address better the issues of industrial 
subsidies and state-owned and state-
sponsored enterprises to prevent market-distorting measures from 
negatively impacting global competition.

    The WTO members also need to come up with a more modern definition 
of developed versus developing country status, as too many countries 
that were developing in the 1990s have clearly graduated to more 
developed country status. The Trade Facilitation Agreement provides a 
model for how to address this fairness question. How we address 
questions of the environment through the lens of fairness from a 
developing versus a developed country perspective is also going to be 
an important issue for the WTO.

    Finally, we need a Director General who can deliver reforms that 
bring greater justice, inclusion, and fairness to the global trading 
system. In order for the WTO to be properly positioned for the future 
and implement those needed reforms, strong leadership is required, not 
only from the members, but also from the top of the WTO itself.
                               conclusion
    Tackling all of these issues will shape economic recovery and 
define the next generation of trade and investment opportunities for 
America in the world, which is why we need to invest now in reform of 
the WTO as an institution. COVID-19 will undoubtedly have a substantial 
and lasting effect on the global economy, and the WTO must be prepared 
with the necessary policy changes for the future.

    As an essential service, UPS has a vital role in advocating for 
reform so that the WTO fosters a more just, inclusive and fair trade 
system that truly delivers economic opportunity for all. Thank you for 
your time today.

                                 ______
                                 
          Questions Submitted for the Record to Laura J. Lane
               Questions Submitted by Hon. Chuck Grassley
    Question. I want to thank you for your service to the country in 
Rwanda as a Foreign Service officer during the genocide. You have spent 
so much time trying to protect and empower people in your career that 
it warrants emphasis.

    Trade is something that can empower people too. In particular, I 
think an important development is that women's participation in the 
workforce has increased drastically as we've removed trade barriers 
around the world, including through the WTO. I think that removing 
barriers even further will continue to increase opportunities for 
women.

    As we pursue a reform agenda at the WTO, what are the types of 
things we should be doing to making sure that trade is inclusive, and 
to make societies more open and free?

    Answer. Thank you. I was proud to serve our country in all of my 
tours of duty. In that regard, my time in Rwanda was definitely a 
seminal moment in my career and underscored the importance of many of 
the key values that have formed the basis for my trade advocacy 
efforts.

    Throughout my career, I have seen the largely untapped potential 
women can have in building businesses and transforming communities and 
the extensive barriers to realizing that potential that women face 
around the globe. Before the COVID-19 pandemic, UPS was very focused on 
helping women-owned businesses and women entrepreneurs to engage in 
global trade. We saw that only one in five women-owned businesses 
exported, and we knew that companies that export, pay more, employ more 
people, and are generally more successful. We also knew that women-
owned businesses did more to put money and resources back into their 
communities, and that they build resilience as a result.

    Unfortunately, before the pandemic hit, only approximately 5 
percent of working-age women in OECD countries were owners of 
established businesses (i.e., a business more than 42 months old), 
while 3 percent were owners of new businesses (i.e., a business less 
than 42 months old) and another 5 percent were actively trying to start 
a business. These few but definitely empowered women entrepreneurs and 
women business owners not only succeeded for themselves, they also 
helped their communities.

    Understanding these realities, UPS has been keenly focused on 
helping these business owners as we view our role as not only to 
connect companies with customers, but to connect communities. With 
COVID-19 and the economic effects of the crisis, specifically on women 
and women-owned businesses, we now see our role as more important than 
ever in helping to foster economic recovery and improve the health of 
communities everywhere.

    In our view, a key way to promote increased prosperity is by 
unlocking the potential and power of women entrepreneurs and ensuring 
they can trade their products around the world. We believe women's 
economic empowerment isn't just the right thing to do--it's the smart 
thing too. In many economies, women disproportionally face obstacles to 
owning and growing their own businesses despite the significant 
economic payback their empowerment brings in terms of job creation and 
poverty alleviation. New global commercial trends such as e-commerce--
which have become especially critical during the pandemic--have allowed 
companies of all sizes to tap into international business and trade 
like never before, spurring job growth and stability for their domestic 
economy.

    UPS, therefore, has worked to advance a ``women in trade'' trade 
agreement, initially as part of what was supposed to be the 2020 WTO 
Ministerial Conference in Kazakhstan, to build upon the 2017 Buenos 
Aires Declaration and transfer some of the provisions in that 
declaration into concrete trade obligations. While many view trade as 
gender-neutral, and trade agreements and trade provisions as not 
written so as to favor men or women, the facts show that the benefits 
do not flow equally. This reinforces the need to be more deliberate 
with regard to how to implement and execute trade agreements.

    As just one example among many, in the WTO's domestic services 
regulation agreement currently being negotiated, there is a provision 
around how licenses and authorizations are given in-country for service 
workers, and ensuring that there is no discrimination with regard to 
how licenses are given. However, there are still provisions on the 
books in certain countries that limit who can do certain jobs based on 
gender and anachronistic views of the roles of men and women in any 
economy. Women in too many countries still can't own property in their 
name or open bank accounts without male co-signers. Certain trade-
related standards are written in ways that advantage men and products 
exclusively used by women often carry higher tariffs for no 
demonstrable reason. Addressing each of these issues requires a more 
deliberate analysis of trade through a gender lens.

    UPS also believes that countries should be more thoughtful in 
promoting diversity in supply chains; this will be especially important 
during the COVID-19 recovery phase. During the COVID-19 crisis, many 
companies learned that some of their supply chains were not as 
resilient or diversified as they needed to be. Evidence from the 2008 
financial crisis suggests that women-led businesses are not necessarily 
more vulnerable than men-led businesses. However, COVID-19 has 
presented new unique challenges, hitting women the hardest.

    More specifically, in developing economies where 70 percent of 
women's employment is in the informal economy, these women have few 
protections against dismissal or coverage for paid sick leave. In 
addition to working in the informal economy, women are more likely than 
men to work in social sectors--such as services industries, retail, 
tourism, and hospitality--that require face-to-face interactions. These 
sectors have been the hardest hit by social distancing and mitigation 
measures.

    According to the International Monetary Fund (IMF), in the United 
States, unemployment among women was two percentage points higher than 
men between April 2020 and June 2020. Because of the nature of their 
jobs, teleworking is not an option for many women. In fact, in the 
United States, about 54 percent of women working in social sectors 
cannot telework. In low-income countries, at most only about 12 percent 
of the population is able to work remotely. By looking at employment 
and trade through a gender lens and understanding the economic 
realities of how women are employed, governments around the world would 
do well to be deliberate about how they help rebuild supply chains so 
as to truly support COVID-19 recovery and not leave 50 percent of the 
world's population behind in those efforts.

    Question. One of the few agreements that was concluded under the 
WTO was the Trade Facilitation Agreement. It went into force in 2017, 
and is designed to remove red tape and delays to moving goods.

    In your view, how has the Trade Facilitation Agreement fared? Are 
there things we should be pressing our trading partners to better 
implement? Are there disciplines in that agreement that we need to see 
if we can strengthen as part of improving the WTO?

    Answer. The WTO's Trade Facilitation Agreement (TFA), which was 
completed in December 2013, helps enable a world trading economy by 
making it easier for smaller businesses and entrepreneurs to engage in 
trade. As we look at updating trade facilitation policies and 
regulations for cross-border goods movements, we should try to further 
simplify the import process for low-value shipments and recognize that 
the rules for moving ocean containers should not be the same as those 
for a box with a pair of sneakers, as is currently the case. While the 
TFA creates the basis for streamlined and predictable border clearance, 
there are additional, more ambitious measures governments can take to 
specifically support the significant growth of e-commerce. A few 
practical suggestions for facilitating trade through a more robust e-
commerce policy framework include:

        Leveraging new technology solutions to reduce administrative 
burdens and streamline border processes for low-value shipments;

        Simplifying and harmonizing returns processes at the borders, 
including simplifying duty and tax drawback procedures;

        Encouraging a critical mass of countries to implement 
simplified processes to collect duties or taxes (GST, VAT, etc.) on 
low-value goods to enable more U.S. exports; and,

        Providing for electronic submission of customs declarations 
prior to arrival of goods by all modes of transport to allow pre-
arrival processing and immediate release at the border.

                                 ______
                                 
                  Question Submitted by Hon. Ron Wyden
    Question. As you note in your testimony, trade policy must expand 
economic opportunities for women, minority communities, and other 
underrepresented groups. Digital trade is a key component to reducing 
barriers to entry. In the past year, I have met extraordinary women in 
Oregon leveraging the Internet to create small businesses and engage in 
international trade. Paula Barnett, who was a witness before this 
committee, exports her jewelry using services like the ones UPS 
supplies. Rebecca Alexander came with me to mark the passage of the 
USMCA Implementation Act and highlight the importance of the digital 
provisions. She founded AllGo, an online community for plus-size people 
that relies on user reviews, comments, and photos for its very 
existence.

    How does digital protectionism threaten the ability of U.S. micro 
and small businesses to access foreign markets, and what obligations 
are critical to breaking down these barriers?

    Answer. Digital trade is a key component to reducing barriers to 
engage in international trade and promote inclusive growth. E-
commerce's greatest advantages are its less intensive capital and 
skills requirements and its lower costs for customer engagement for 
small and medium-sized businesses (SMBs). This is especially important 
for women who often shoulder the primary responsibility of unpaid care 
work and need a means of engaging in economic activity that allows them 
to care for their families, but also earn a livelihood.

    Unfortunately, the domestic market's digital infrastructure--or 
lack thereof--and the strength of a country's trading regime can be 
overwhelming obstacles to any entrepreneur's entry into international 
commerce. Digital connection (access to the Internet and secure online 
payment technology) is integral to boosting exports especially for 
SMBs, but many countries do not have this strong foundation. According 
to the WTO, just two percent to 28 percent of most countries' offline 
SMBs engage in exporting, compared to 97 percent of internet-enabled 
SMBs. Even after building a reliable digital connection, a strong 
rules-based trade foundation is also needed. Specifically, it is 
important in this regard to implement the WTO's Trade Facilitation 
Agreement to reduce the time, cost, and complexity of trade for SMBs, 
including simplified and harmonized customs procedures.

    Data protection and a secure operating environment based on the 
rule of law are particularly important. If digital protectionism exists 
in the country where American SMBs are exporting or considering 
exporting, they run the risk of having less protection of their data 
and the risk of not having a safe environment to collect payments or do 
business with potential local partners. Protecting the flow of data, 
such as with language similar to Chapter 19 of the USMCA, generates 
more confidence for SMBs to take the risk of expanding their business 
online and exporting their products or services.

    The COVID-19 pandemic has added another layer of complexity by 
disrupting the social and economic order and accelerating the shift to 
e-commerce due to physical distancing. Considering that consumer 
behaviors change daily due to COVID-19, retailers and SMBs are forced 
to reinvent how they do business, which means more adoption of e-
commerce to sell their products and a need for an efficient digital 
infrastructure. Government participation can be pivotal in creating or 
improving the digital framework to boost access to e-commerce tools and 
improving the ability to more meaningfully engage in cross-border e-
commerce that will support global inclusion growth, advance economic 
recovery, and market resiliency.

    Systematic collaboration among global policymakers and stakeholders 
will be required to establish the digital framework that will 
facilitate this access. In shaping this framework, governments must 
cooperate with the private sector to create conditions to increase 
opportunities for SMBs to access markets and encourage their 
participation. This will be particularly necessary as all industries 
are vulnerable to COVID-19 supply chain disruption, with the most 
affected being those with few sourcing options for critical components 
and/or lower inventory levels.

    Finally, UPS, in partnership with the Women20, wrote a policy paper 
to be presented to the G20 in October. In this document, we emphasize 
that the public, private, and civil sectors can narrow the global 
gender divide by promoting digital connectivity and programs that 
support women-owned and women-led businesses' engagement in e-commerce. 
Policymakers, specifically, must codify these protections and promote 
practices that ensure all businesses can flourish in the new e-commerce 
ecosystem.

                                 ______
                                 
                 Question Submitted by Hon. John Cornyn
    Question. I recently held a hearing on the Trade Subcommittee that 
focused on censorship as a non-tariff barrier to trade. Countries like 
China censor American digital content, block our tech companies from 
operating in the country, and retaliate against American firms. More 
and more, our companies are self-censoring to do business in China.

    Meanwhile, we allow Chinese-owned companies like TikTok and others 
to operate in the U.S. freely. There is a clear lack of reciprocity. 
One witness testified that censorship has cost three tech companies 
alone over $34 billion in lost revenue. In the past, countries used to 
block their maritime ports to stop the trade of goods. Today, countries 
do the same using firewalls and filters to block data and digital trade 
flowing through an underwater network of submarine cables.

    As we hopefully reform and update the WTO, it is clear that e-
commerce must be a part of the discussion. How can we address the issue 
of censorship as a barrier to trade in the context of WTO reform?

    Answer. Actions by governments to create ``cyber sovereignty'' 
through broad censorship of content must be more forcefully opposed by 
the U.S. and WTO members. Though the WTO allows members to enact 
censorship laws that support public policy goals--safety, morality, 
cyber, and national security--the grant of such broad authority is 
often over-used, preventing the legitimate flow of goods and services 
by foreign firms.

    UPS supports U.S. and allied efforts to introduce more discipline 
into the use of such exceptions through strengthening the WTO's 
standards for transparency in digital rules, and supporting reforms for 
the domestic regulation of services. We further support U.S. efforts to 
partner with allied countries to promote trust in digital markets 
through bilateral and regional agreements, and recommend against the 
use of ``cyber sovereignty'' by the U.S. when aimed at restricting the 
market access of our trading partners.

                                 ______
                                 
             Questions Submitted by Hon. Patrick J. Toomey
    Question. So far, the U.S. has mainly relied on unilateral tariffs 
under section 301 to push for market-oriented reforms to the Chinese 
market, but these measures hurt Americans, while not having much effect 
on Chinese trade practices. But this is not the only way to try and 
encourage China to adopt reforms--the U.S. can also work with key 
allies and use the WTO rules to encourage China to adopt reforms.

    While the WTO may need reform in some key areas, the fact remains 
that it has historically been very successful when dealing with China. 
Uncovering China's WTO violations is challenging but it can be done, 
and the U.S. can use the WTO to hold China accountable, in particular 
in relation to the areas of intellectual property protection, forced 
technology transfer, and subsidies.

    How can the U.S. better utilize the WTO dispute settlement system 
in addressing the challenges with China's non-market trade policies?

    Answer. Now is the time to rely more on the WTO in our trading 
relationship with China, and not less. The ability of the WTO to 
resolve disputes between members in fair and lasting ways is critical 
to improving our bilateral relationship with China. We support the 
efforts to return the WTO to its full operating capacity by re-
constituting the Appellate Body and addressing the concerns of WTO 
members, including the U.S., regarding the purpose and effectiveness of 
this essential function. We agree that the dispute settlement process 
as previously constituted has not supported the role it was intended to 
serve, but believe that many of the reforms being recommended, once 
implemented, can form the basis for more effective and timely dispute 
resolution between trading partners, including China.

    We also support getting the WTO and its member countries back to 
the negotiating table, to negotiate agreements in new areas such as e-
commerce, and to write rules on those practices and policies that 
members believe are unfair and counter to the WTO. The dispute 
settlement panels cannot and should not make new rules--the members 
need to do that via negotiation.

    Question. For those areas of contention that are not well covered 
by WTO rules, such as state-owned enterprises, how can the United 
States work with our allies within the WTO to develop new rules?

    Answer. WTO rules on subsidies and countervailing measures need to 
be enhanced. We applaud the work already underway by the U.S. to 
partner with like-minded countries in reforming the capabilities for 
the WTO to address non-market behavior. The trilateral statement by the 
U.S., EU, and Japan is a good step forward. From the perspective of 
UPS, we would like to see the scope related to subsidies and pricing in 
the services sector more clearly defined.

    Question. What are the limits of the WTO in dealing with China, and 
how can the U.S. help facilitate reforms to strengthen it?

    Answer. The WTO has been limited by certain structural legacies 
that impact its ability to address competition issues more directly, 
i.e., the requirement for consensus in multilateral negotiations. In 
order to reform the organization and strengthen its ability to tackle 
new trade issues, the U.S. must continue to work with like-minded 
members such as Japan, Australia, and Canada to advance productive 
changes in the standards for transparency and reporting, negotiations, 
and dispute settlement. By committing to a broad agenda of updates and 
reforms, we can ensure the WTO serves the interests of today by 
advancing a more fair, inclusive and accountable trade agenda.

    Question. Maximizing the effectiveness of the WTO through American 
engagement and leadership is in the broad national interest as a means 
to provide greater economic stability and prosperity. Detractors say 
that the WTO system is ``rigged,'' but the fact remains that the United 
States has won 85.7 percent of the cases it has initiated before the 
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global 
trade, and foreign markets are critical to our agriculture, 
manufacturing, and service industries. Economists have found that the 
U.S. withdrawing from the WTO would lead to diminished trade growth, 
costly market and supply-chain disruptions, and the destruction of jobs 
and profits, especially in import- and export-dependent U.S. 
industries.

    Can you speak to the projected effects of withdrawing from the WTO?

    Answer. While the WTO is certainly not perfect, it provides a 
fundamental level of consistency and certainty upon which the global 
trading system is based. Now more than ever, with the full effects of 
the COVID-19 pandemic on the economy still unknown, American businesses 
are in need of the stability and clarity provided by the WTO.

    Withdrawing from the WTO would be devastating for U.S. businesses 
and the already hard-hit U.S. economy. Sixty percent of U.S. trade is 
conducted using the WTO rules, with the remainder covered by bilateral 
and regional free trade agreements (FTAs). Even for the remaining 40 
percent of countries, many of the provisions in such FTAs reference or 
build upon existing WTO rules. Withdrawing allows countries around the 
world to no longer abide by WTO commitments and levy tariffs and other 
barriers to trade against the U.S. By not remaining in the WTO, not 
only will it be harder for U.S. businesses to operate internationally 
from a financial perspective, but the U.S. will also be left out of 
fundamental trade debates happening at the WTO on issues such as e-
commerce, domestic regulation on services, and diverse and inclusive 
trade. UPS remains committed to the success of the organization and 
advocates against withdrawing from the WTO.

    Question. Do you believe that the resulting trade barriers from 
withdrawal from the WTO would compel some American companies either to 
downsize or move offshore?

    Answer. With 3 percent of the global gross domestic product (GDP) 
traveling through our network every day, UPS has unique insight into 
the difficulties of international trade. Even with the predictability 
currently provided by the WTO, there are still numerous hurdles 
preventing SMBs from expanding internationally, including the cost of 
exporting and the complex and outdated nature of the process. While 
there is no way to know for sure how the private sector would react, 
withdrawing from the WTO and the resulting tariff increases would 
create prohibitive hurdles to export for SMBs and encourage larger 
multinational companies to relocate their supply chains outside the 
U.S. to operate in WTO member economies where they would not face the 
same financial and regulatory burdens.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon

    The Finance Committee meets today to discuss how to fix the WTO to 
get a better deal for American workers and businesses.

    In my view, this whole debate comes down to a choice between two 
different approaches. On one hand, you've got the Donald Trump 
approach: pull back from the WTO, forfeiting our economic power and 
stature to the Chinese Government, and covering up that weakness with a 
whole lot of empty ``America First'' rhetoric on the airwaves here at 
home. It's the same losing playbook the Trump administration ran on the 
Trans-Pacific Partnership, the Paris Climate Agreement, and the World 
Health Organization. It obviously won't do much of anything to protect 
American workers against trade cheats if Trump hands the Chinese 
Government the levers of power. In fact, it'd be a big win for the 
trade cheats.

    Fortunately, there's bipartisan interest in a smarter approach to 
WTO reform, based on addressing the areas where the Chinese Government 
routinely games the system at our expense.

    The rules that underpin the WTO were crafted more than 2 decades 
ago, when China was an economic middleweight. At that time, many hoped 
and predicted that joining the WTO would drive China further away from 
abusive, one-party control of government, economics, and society. That 
obviously did not happen.

    Today, China is an economic heavyweight. Much of its growth has 
come at our expense. That's because the Chinese Government has broken 
rules and violated the commitments it made 2 decades ago. It's also 
because 20th-century WTO rules have totally failed to keep up with 
21st-century technology.

    As a result, there's a long list of trade ripoffs that have wiped 
out millions of American jobs. Subsidized state-owned enterprises. 
Intellectual property theft. Forced tech transfers. The Great Internet 
Firewall. Government-led shakedowns of foreign investors. China uses 
those schemes and entities to strong-arm American businesses, steal 
American innovations, and rip off American workers.

    Under President Xi, the government tightened its grip on power. The 
Chinese Government identifies weaknesses in the WTO system and other 
multilateral forums, and it seizes on them to further its own self-
interests.

    Fixing the WTO is also going to require addressing its Appellate 
Body, which hampers the application of U.S. trade enforcement laws to 
the detriment of American workers. There is a broad bipartisan view 
that WTO dispute settlement must be fixed to clamp down on judicial 
overreach.

    I'll close with a few other important parts of this debate. First, 
a long-running battle against unfair fishing subsidies has the 
potential to bear fruit. Senator Crapo and I held a subcommittee 
hearing on the issue all the way back in 2010. Senator Portman was 
involved in getting these talks off the ground all the way back when he 
served as USTR.

    The bottom line is that an agreement that curbs fishing subsidies 
will protect jobs, fisheries, and promote sustainable oceans. 
Accomplishing these priorities is vital. Our oceans are key to 
stabilizing the climate and feeding people all around the world. And 
our oceans provide trillions of dollars in economic activity, if 
nations around the world can protect them.

    Second, WTO discussions around digital trade disciplines are at an 
earlier stage, but they're also vital to economic development and 
empowerment here and abroad. The U.S. needs to work with our allies to 
set the rules of the road and set the standard for the free flow of 
information and ideas.

    On both of those issues, there's no chance at all that the U.S. can 
get a better outcome by handing our power to the Chinese Government and 
pulling back from the WTO. That's why Democrats and Republicans need to 
continue working together on these issues. I believe this committee is 
in a position to lead on that debate. And I look forward to our 
discussion today.

                                 ______
                                 

                             Communications

                              ----------                              


                    American Farm Bureau Federation

                  600 Maryland Avenue, SW, Suite 1000W

                          Washington, DC 20024

                             p 202-406-3600

                             f 202-406-3606

                          https://www.fb.org/

    The American Farm Bureau Federation, a general farm organization, 
submits these comments for the hearing on ``WTO Reform: Making Global 
Rules Work for Global Challenges.''

    The World Trade Organization needs to continue to operate even more 
effectively to implement rules-based trade agreements on behalf of its 
members. While reforms are needed in the institution, the U.S. can most 
effectively accomplish those changes as a leader of the organization.

    The Uruguay Round Agreements and the dispute-settlement functions 
of the WTO have worked to provide a more stable world trading 
environment for U.S. agriculture. With more than 20 percent of overall 
agricultural production destined for foreign markets, U.S. agriculture 
is heavily dependent on exports. The 164-member WTO operates to provide 
a rules-based environment for continued growth in markets for America's 
farmers and ranchers, and the mill ions of American jobs--most of them 
off the farm--that are linked to and dependent on U.S. agriculture.

    The implementation of U.S.-supported agreements through the WTO 
remains necessary to achieve progress on a wide variety of 
international agricultural trade concerns. Agriculture's future 
continues to lie in expanding access to foreign markets and eliminating 
barriers to our exports.

    Active participation by the U.S. will help ensure that necessary 
reforms are developed and implemented. Areas for reform include the 
operation of the Dispute Settlement System, which is important for 
enforcing a binding rules-based framework to resolve trade disputes. 
Reform is also needed in the use of special and differential treatment, 
especially for those nations that have moved into a developed economy 
status. There also needs to be real improvement in securing timely 
notifications of trade distorting actions. Negotiations among the 
members to address and solve challenges to world trade are a critical 
reason for having a WTO. This function needs to be revitalized and 
reenergized as the defining feature of the organization. With proper 
institutional change the WTO will continue to play an important and 
even more effective role in the future for the United States and the 
other member nations.

    The trade agreements in the WTO also provide an essential framework 
for the construction of bilateral and multilateral trade agreements. 
Along with tariff reduction and elimination to expand the opportunities 
for agricultural trade, the Agreement on Sanitary and Phytosanitary 
Standards (SPS) provides a set of standards to improve national efforts 
in this area.

    Non-tariff trade barriers can take the form of ``standards'' that 
are not based on science but are used to restrict trade. The SPS 
Agreement must be strengthened to bring the world's agricultural and 
food trade fully into the realm of science-based decision making.

    Farm Bureau supports efforts to increase agricultural trade through 
agreements that reduce and eliminate tariffs and non-tariff trade 
barriers.

    The U.S. follows a risk-assessment approach for food safety. The 
European Union is guided by the ``precautionary principle,'' which 
holds that where the possibility of a harmful effect has not been 
disproven, non-scientific risk management strategies may be adopted.

    The utilization of the ``precautionary principle'' by the EU has 
led to many substantive standards that impede agricultural trade, such 
as longstanding EU barriers against conventionally raised U.S. beef, 
ongoing restrictions against U.S. poultry and pork, and actions that 
limit U.S. exports of goods produced using biotechnology. The use of 
geographic indications as a trade barrier must be ended.

    For U.S. agriculture, the improvements to the SPS Agreement involve 
the use of science-based decision making and removing non-science-based 
approaches to risk assessment. In particular, the European Union's use 
of the ``precautionary principle'' as a reason to restrict certain U.S. 
agricultural products highlights the need to reform the areas of the 
SPS Agreement that allow for the use of precaution instead of science. 
We support a science-based approach to risk management and the use of 
science-based international standards, and we oppose the precautionary 
principle as a basis for regulatory decision-making.

    The use of the ``precautionary principle'' is inconsistent with the 
WTO SPS Agreement and is used as a basis for scientifically unjustified 
barriers to trade. Both the U.S. and the EU adhere to the World Trade 
Organization's SPS Agreement, which states that measures taken to 
protect human, animal or plant health should be science-based and 
applied only to the extent necessary to protect life or health. Unless 
these trade barriers are properly addressed within negotiations, they 
will continue to limit the potential for agricultural trade. Scientific 
standards are the only basis for resolving these issues.

    Any future WTO negotiation on agriculture must be dedicated to 
trade liberalization for all countries, must improve the opportunities 
for trade and must be designed to work on the issues currently 
important to agricultural trade. Focusing our efforts on improving 
science-based decision making in the SPS Agreement and expanding market 
access through the elimination of tariff and non-tariff trade barriers 
will yield real benefits for agricultural trade for all countries.

    The World Trade Organization, as an agreed upon basis for rules-
based trade among the nations, has shown its benefits over the decades. 
Now is the time to move ahead with a series of reforms that will 
increase its usefulness to trade and economic growth.

                                 ______
                                 
                        Center for Fiscal Equity

                      14448 Parkvale Road, Suite 6

                          Rockville, MD 20853

                      [email protected]

                    Statement of Michael G. Bindner

Chairman Grassley and Ranking Member Wyden, thank you for the 
opportunity to submit these comments for the record to the Committee on 
Finance. Please see our comments to the Committee from March 2019, 
``Approaching 25: The Road Ahead for the World Trade Organization,'' 
which are attached, and its attachment on Employee Ownership. See also 
the latest version of our tax reform plan, which has expanded to 
include an Asset VAT. To square the circle, our comments to the Trade 
Subcommittee of Ways and Means on Global Competitiveness were sourced 
by the March 2019 hearings and dealt with the interaction of tax reform 
and trade.

Our previous comments explain Regulatory Capture Theory (no agency 
succeeds unless it is captured by the industries it regulates--this is 
especially the case for trade policy) and how employee-ownership gets 
beyond both government regulation and the need to undertake it to 
protect workers from capital, while saving both American jobs and 
making overseas jobs create the American standard of living for 
overseas workers.

Our tax reform plan shows how to get there through both an asset VAT 
and personal accounts funded as credit to an employer-paid subtraction 
VAT. We also explain how to turn from tariffs to credit invoice value 
added taxes (zero rated at the border). The SVAT (not zero rated) is a 
vehicle for tax credits for each child, for health care and for 
educational expenses. Both are an alternative to personal income tax 
filing. Small government libertarians like both, big business 
libertarians like neither. They want tax filing to remain painful while 
assuring that those with tax shelters can avoid the sure taxation of 
invoice VAT.

One year ago, the House Budget Committee did a series of hearings on 
the impact of climate change, to which we also commented. The gist of 
our comments to the first hearing is that carbon value added taxes 
(which is a carbon tax that is receipt visible rather than buried in 
the product price) would help fight warming. These follow hearings from 
those held in May 2019 by the Ways and Means Committee.

To get the maximum global effect, they would not be border adjusted. To 
go to the right place, subsidies for families would come through our 
employer-paid subtraction VAT, with carbon VAT funding environmental 
research and serve as an incentive to reduce emissions. Such a tax has 
no chance of passage, however, unless the alternative of a more robust 
regulatory program is the alternative industry wishes to avoid. There 
is no such program offered by this administration, although the next is 
showing promise.

The second of the hearings dealt with environmental consequences within 
the United States from ``Coast to Heartland.'' If the WTO ever has the 
power to unilaterally act on climate change issues, there is a 
certainty that they have been captured by industry. The other 
alternative would require that they become such a powerful 
international body that QAnon will dedicate a page to them.

Whether or not it is captured, the WTO, as an international 
organization, is an assembly of sovereigns rather than a sovereign 
assembly. Campaign finance reports show how sovereign assemblies can be 
captured as well (no offense intended, at least not much). For such 
organizations to have any weight at all, they would require direct 
election by citizens. Until all member nations have a decent respect 
for human rights and contested elections, including our own regarding 
voter suppression efforts, there can be no such international assembly. 
Let us hope that the police actions in the Ranking Member's home state 
are not reflective of future attempts at electoral mischief.

In my comments on coast to heartland, I addressed the problems of food 
and of sea level inundation in Asia and Micronesia and how it will 
produce a surge in migration inland and to our borders. I will develop 
them further here, rather than simply attaching them.

Given recent incidents leading to marches on police brutality, as well 
as the general poverty among the newly arrived, I am not sure why 
anyone wants to migrate here, but they still do. It may be the air 
conditioning (which is part of the climate change problem). The irony 
is that the anarchists at some of the recent marches, rather than the 
local protestors, cut their teeth protesting against the WTO, World 
Bank and IMF, starting in Seattle.

Domestically, inundation impacts families who have been there for 
generations, vacationers and the very wealthy. Flood insurance has 
provided the last with no incentive to support remediation efforts. We 
pay, they rebuild. If we capped repayments at $200,000, (assuming 
Congress could get away with it), the wealthy would have skin in the 
game and support remediation. Of course, this has little to do with the 
work of the WTO.

The literature on WTO reform is concerned with the role of developing 
countries and of data, depending on who is writing the report. Tax 
policy experts want corporate data reported internationally (see the 
work of Joshua Meltzer of the Brookings Institution, who should be a 
future witness on this topic).

Food is a huge issue in trade reform. American international food 
programs tend to have aid show up just before the harvest. While it 
does feed the people when in most need, it also tends to depress the 
sale price of domestic crops. In other words, these policies often 
benefit the Chairman's home state of Iowa more than the recipients of 
food aid.

The way we grow our food in America is effective in that very little 
work produces a lot of food, but it leads to environmental degradation 
in terms of soil loss, chemicals used and waste produced by factory 
farms. If there were a subsidized market for farm waste to be converted 
to fertilizer, even though it may be more expensive than other nitrogen 
sources, progress could be made--especially if the result can be 
exported--although as the world's workers are made wealthier by 
capitalism, they will eat more meat and create enough of their own farm 
waste.

Current vegetable based ``meat'' alternatives are all the rage, but 
they are not healthy for people with carbohydrate issues (which is most 
Americans). Cloned meat is an expensive and unsatisfying experience, at 
least until cloned blood, bone and fat are created and added, with 3D 
printing processes turning the result into a better facsimile of a 
steak or real ground beef.

In the current economy, this is unlikely. Unless a methane tax is 
assessed against farmers, to go along with carbon taxation, such 
developments will never pass--at least not until global warming becomes 
extreme or processes become much cheaper than they are now. Fear of 
nuclear war or COVID type viruses may also spur the development of 
alternative sources for protein. As we are finding out, fear sells.

The other way to spur alternative food production, such a printed 
cloned meat, is space exploration. Currently, potential Mars missions 
include how to do space food. A billion dollars in defense research and 
development transferred to NASA can create what the market will not 
touch. Shifting NASA from the Other Independent Agencies appropriation 
to the Defense subcommittee would make such transfers easier to manage. 
Cutting the defense budget to increase other high-tech jobs rather than 
the amorphous demand for social and educational spending is much more 
palatable.

If there is no necessity, there will be no invention. The environmental 
necessity of shifting away from current animal husbandry is not as 
obvious unless you believe in animal rights, live near a factory farm 
or wish to fish the Severn River. The clean water crisis makes the 
problem more acute. The person who made a billion shorting the housing 
market is now working on investments having to do with water.

As your last witness will likely mention, agricultural runoff may be a 
major problem for the oceans (I am sure stronger language will be 
used). Like COVID, much of the impact of humans on the ocean is 
probably misunderstood. There is much more ocean to explore than we 
have to date and it appears that life there is very robust. A major 
function of life is adaptability. Even on the ocean floor, we have 
microbes that eat oil. The human environment is at risk. The planet 
seems to take care of itself rather nicely.

Space exploration will make artificial and closed loop environmental 
food production both feasible and cheap. In a capitalistic society, it 
may not be cheap enough. In a world in which fresh water is probably 
the biggest planetary challenge, one that climate change may 
exacerbate, the capability to grow your own food, including meat, and 
process your own water, may be attractive. Interest costs for a home, 
let alone an environmentally efficient home, are far in excess of the 
actual price of the structure, making it a non-starter in a capitalist 
economy. Only a cooperative economy will produce the demand for 
alternative food production and the means to both build and finance it.

A state socialist economy cannot produce anything but weapons and 
vodka. A voluntary cooperative economy can produce everything. State 
action, however, along with developmental aid, has a high potential for 
success in dealing with desalinization. In the short term, simply 
getting fresh water and effective sewage is a bigger short-term 
challenge, as is corruption. Corruption also interferes, although the 
current administration is showing that the developing world has no 
monopoly on corruption.

Be that as it may, significant international investment, particularly 
with government sponsorship, is essential in producing cheap clean 
water. Plastic water bottles create pollution in the ocean, may raise 
estrogen levels in men and are not as tasty as a good glass of Army 
Corps of Engineers processed water in the national capital region. The 
very idea makes one thirsty. That thirst should not be held hostage to 
capitalist schemes when public works solutions are available. Capture 
by industry of the WTO and/or the United States Senate must not get in 
the way of an essentially free glass of water.

For both information and development, cooperative economic systems are 
superior to such bodies as the WTO, World Bank or the USDA Foreign 
Agricultural Service. A public sector economic research agency, either 
U.S. or international, could be helpful in comparing prices and 
standards of living from nation to nation. The price of a hamburger in 
China is not the price of a hamburger in Iowa or Washington, DC 
(Douglass Commonwealth, if you please).

Economists calculate purchasing power parity, although determining the 
common market basket will be contentious. Whether industry and finance 
will allow it is an even more relevant question. A monthly report on 
PPP would need a variety of market baskets: one for subsistence of the 
poor, one for factory labor--both union and non-union states and 
households, one for the professional class and not one for the rich--
for whom money is no object and who buy for prestige as much as usage.

Ideally, PPP information would have as big an impact on currency prices 
as the operations of the public banking system (i.e., the Federal 
Reserve, European Central Bank, etc.). Perfect competition requires 
perfect information. Capitalism, however, seeks to make information a 
private good. Keeping wage and cost information secret is why 
capitalism can exist at all. If workers knew what their real productive 
value is, they would be paid better. If consumers knew the underlying 
price of goods, they would pay less. Expecting the WTO or Federal 
Reserve to provide international information on these very things is 
very unlikely, given the reality of capture by regulated interests.

Employee-owned firms, as described in the attachments, would have an 
incentive to know and use PPP information. Indeed, capitalist firms 
would not have such an incentive. Capitalist firms make money on the 
margins and play one side against the other. Employee-owned 
international firms would maximize worker/member well-being. Wages 
would be set by PPP levels, which ``overvalues'' foreign labor and thus 
protects domestic workers from labor arbitrage.

Employee-owned firms are also more likely to be early adopters of 
advanced food production techniques, which take the most essential 
goods, food and water, out of the marketplace and into the home. Think 
of how many fewer hours one could work without having to buy your own 
food or pay interest on everything from homes to student loans! This is 
even before considering the fact that most cooperativists are also very 
likely to be environmentalists as well. It seems to be a package deal.

International employee-ownership makes economic development 
unnecessary. While capitalism, because it takes low skill and low need 
workers into more skilled workers and consumers is a powerful engine 
for development. There is no argument about that. Our contention, 
however, is that given the option to get the same job in a well-run 
employee-owned enterprise, there would be no contest. Capitalism would 
fail, as would government.

I have two final points, ones that are not found in any previous 
comments for the record.

Point One: Discussions of trade are about labor, who does it and who 
buys it. Not my idea. It is the essence of Marxism. Marx was as much 
about social relations as he was about the mechanics of production. The 
implication for the WTO is that any reform of trade rules must also 
involve rules governing migration (again, going back to our 
environmental refugees from Micronesia).

The current Administration does not understand either one of these with 
any clarity. The two areas where the President has the freest hand are 
also where he has made the most mistakes. Any reform of trade should 
both cut any President's wings and must relate the two more closely. 
WTO talks must also be migration talks or they are flying blind.

Point Two: I had hoped that the COVID slowdown and the current solar 
minimum might have had an impact on short-term warming. Maybe it has 
overall. The prior certainly impacted wildlife management and cleared 
the air when America was shut down. The current heat wave, however, has 
proven that short-term factors and local factors may be two very 
different thing. Still, it would be interesting to see if there is any 
impact on planetary temperature data.

It begs the imagination to assume that long-term carbon and methane 
usage are the only factors affecting climate change. If we can prove 
that short-term climate changes exist (we know that volcanoes have an 
impact already), we can make our models better. This assumes we can 
recover from the damage inflicted on our public scientific 
infrastructure by the current Administration.

The Center for Fiscal Equity's left-wing bias is well known, but the 
Trump presidency has forced us to make it obvious. Please note that our 
biases are also on the libertarian side. Please keep this in mind when 
making lists of witnesses.

Thank you for the opportunity to address the committee. We are, of 
course, available for direct testimony or to answer questions by 
members and staff. We also do Zoom.

 Attachment--Finance: ``Approaching 25: The Road Ahead for the World 
                    Trade Organization,'' March 12, 2019

Regulatory capture theory is essential to explain how international 
trade associations work, from NAFTA to the WTO. Capture theory, which 
is part of the Public Choice School of economics, is associated with 
George Stigler and others. While it is usually associated with national 
and state regulation, such as the Food and Drug Administration and the 
late, great Interstate Commerce Commission, it is equally applicable 
here. It is similar to what we all learned as Iron Triangles or Issue 
Networks.

The gist of the theory is that, while regulation is initially 
promulgated for the public good, relationships between government and 
regulated industries grow symbiotic. This occurs because professional 
expertise is often industry specific. This expertise is interchangeable 
in regulated industries, regulatory staff, on K Street, the academy and 
congressional staff. Campaign contributions often grease the skids of 
communication. Regulation always begins with private sector resistance 
until relationships are established. Eventually, regulatory agencies 
are co-opted by industry and the resistance stops. While there is still 
an oppositional dynamic, by and large capture helps steer the 
regulatory ship.

Capture is so complete in trade that industrial panels are often the 
most important part of modern trade agreements. In NAFTA, these take 
the form of Chapter 19 Panels. These panels wield super-national 
authority, allowing them to over-ride governmental actions which are 
seen as contrary to free trade as the industry sees it. Such industrial 
favoritism is likely the glue that gets trade agreements past 
congressional approval. While treaties are part of federal supremacy in 
Article IV of the Constitution, ceding this authority to industry is 
likely beyond what the framers would have expected--and they were often 
mercantilists. Of course, the U.S. Constitution may itself be an 
instance of regulatory capture.

The impact of capture are very real barriers to entry, both for 
professionals and for newer companies. Larger firms dominate small 
ones, who must find a link to an existing larger company in order to 
even function. While regulations favoring small businesses attempt to 
steer such relationships, especially by introducing affirmative action 
into such decisions, these actions are also captured by industry.

Many would say that the status quo is unsustainable, others like it 
perfectly well. Progressives and Democratic Socialists call for bigger 
and better regulations. The far-left simply considers this an 
improvement of the same cage. The social democracies of northern Europe 
have developed a cozy relationship with their capitalists, but have no 
idea how to transition to true employee sovereignty, which is the 
ultimate goal of socialism. The answer is that you cannot do deep 
reform through the deep state. The obstacles are too great.

The only alternative to regulatory capture and industrial domination is 
not to better regulate capitalism, but to overcome it--not through 
revolution (which simply turns the party bureaucrats into capitalists), 
but to occupy capitalism from within. This starts with transforming 
employee-owned firms. The answer is not change to employee culture over 
a monthly dinner and pep rally or training line workers to read 
financial statements. This is also a creating a better cage.

Real change will come from matching corporate governance to corporate 
ownership. Hierarchical management structures from capitalism are 
discordant. They do not deliver on the promise of ownership. Employee 
ownership, to work, must embrace true democracy in both management and 
the decision to expand the scope of the enterprise from better 
production to matching production to consumption, also by democratic 
decision-making. This will start with how leadership is consumed as a 
good (leading to open auction for executive jobs with the final choice 
between the low bidders determined by election).

Employee ownership will continue from decisions on the cafeteria menu 
to local sourcing and farm ownership, building or buying apartments for 
younger workers, as well as single family units and abandoning outside 
finance for retirement and home mortgages with no interest loans. Such 
features will attract workers and firms to this model to something more 
than the monthly chicken dinner.

Currently, employee ownership is undertaken with smaller companies 
rather than major industries. It will not remain there when ownership 
is transformed. Larger enterprises will convert franchisees to managers 
and absorb their employees, extending union membership and board 
representation. Consultants paid through 1099 employment with only one 
client also be added to the employing firm.

The NBRT/SVAT reforms can facilitate the expansion of ownership on a 
fairly rapid basis, with rates set high enough to pay for obligations 
to current retirees and the transition to ownership. While the employee 
contribution to Old-Age and Survivors insurance will continue to be 
linked to income, the employer contribution will become part of the 
SVAT, with employer contributions credited to each employee without 
regard to wage.

Ownership rights and benefits can also be extended to overseas 
employees, both subsidiaries and in the supply chain, preventing 
international trade from being used to arbitrage wages in a race to the 
bottom, raising the standard of living for overseas workers and ending 
the need for international trade agreements. Industrial and workers 
interests will be identical to each other and to the national interest 
of all parties. International organizations could be an honest broker 
to estimate wages at an equivalent standard of living rather than based 
on currency trading.

It can go even faster if employers can reduce such taxation by making 
current employees, former employees and retirees whole as if they had 
worked under the proposed system from the start. If our proposed high 
income and inheritance surtax is adopted (where cash from inheritances 
and estate asset sales are considered normal income), some of the 
proceeds can be used to distribute the Trust Fund to speed employee 
ownership, as well as ESOP loans. Note that heirs, sole proprietors and 
stock holders who share to a broad-based ESOP will avoid taxation on 
that income, including our proposed 25% VAT on asset sales.

Expediting ownership with the assistance of tax reform will end the 
need for NAFTA and the WTO (unless national governments balk at 
allowing international employee ownership). Even then, the need for 
such organizations, and for government in general, will eventually fade 
away.

 Attachment--Value-Added Taxes (March 2018), Employee Ownership and 
                    Trade (February 2019)

The most immediate impact on trade is our proposed goods and services 
tax, which will finance domestic military and civil spending. Exported 
products would shed the tax, i.e., the tax would be zero rated, at 
export. Whatever VAT congress sets is an export subsidy. Seen another 
way, to not put as much taxation into VAT as possible is to enact an 
unconstitutional export tax.

The NBRT/Subtraction VAT could be made either border adjustable, like 
the VAT, or be included in the price. This tax is designed to benefit 
the families of workers, either through government services or services 
provided by employers in lieu of tax. As such, it is really part of 
compensation. While we could run all compensation through the public 
sector and make it all border adjustable, that would be a mockery of 
the concept. The tax is designed to pay for needed services. Not 
including the tax at the border means that services provided to 
employees, such as a much-needed expanded child tax credit--would be 
forgone. To this we respond, absolutely not--Heaven forbid--over our 
dead bodies. Just no.

Personal Accounts would not be used for speculative investments or even 
for unaccountable index fund investments where fund managers ignore the 
interests of workers. Accounts invested in index funds do not have that 
feature, although they do serve to support American retirees who 
because of them have a financial interest in firms utilizing foreign 
labor, particularly low-wage Chinese labor.

The tendency for consumerism to follow industrialization is why 
globalization is a poor substitute for expanding the domestic 
population, as the Center proposes with its expanded Child Tax Credit, 
which we propose as an offset to the NBRT.

It would be better for all concerned if American workers were already 
in an ownership position due to repeal of the Taft-Hartley Act 
prohibitions on concentrated pension fund ownership and the enactment 
of personal retirement accounts. We can turn the tide for workers and 
encourage employee-ownership (aka cooperative socialism) now through 
Democratic means as part of a Green New Deal.

Over a fairly short period of time, much of American industry, if not 
employee-owned outright (and there are other policies to accelerate 
this, like ESOP conversion) will give workers enough of a share to 
greatly impact wages, management hiring and compensation and dealing 
with overseas subsidiaries and the supply chain--as well as impacting 
certain legal provisions that limit the fiduciary impact of management 
decision to improving short-term profitability (at least that is the 
excuse managers give for not privileging job retention).

Employee-owners will find it in their own interest to give their 
overseas subsidiaries and their supply chain's employees the same deal 
that they get as far as employee-ownership plus an equivalent standard 
of living. The same pay is not necessary, currency markets will adjust 
once worker standards of living rise.

 Attachment--Tax Reform, Center for Fiscal Equity, February 21, 2020

Individual payroll taxes. These are optional taxes for Old-Age and 
Survivors Insurance after age 60 (or 62). We say optional because the 
collection of these taxes occurs if an income-sensitive retirement 
income is deemed necessary for program acceptance. Higher incomes for 
most seniors would result if an employer contribution funded by the 
Subtraction VAT described below were credited on an equal dollar basis 
to all workers. If employee taxes are retained, the ceiling should be 
lowered to $75,000 reduce benefits paid to wealthier individuals and a 
floor should be established so that Earned Income Tax Credits are no 
longer needed. Subsidies for single workers should be abandoned in 
favor of radically higher minimum wages.

Wage Surtaxes. Individual income taxes on salaries, which exclude 
business taxes, above an individual standard deduction of $75,000 per 
year, will range from 6% to 36%. This tax will fund net interest on the 
debt (which will no longer be rolled over into new borrowing), 
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the 
result of battlefield injuries, including mental health and addiction 
and eventual debt reduction. Transferring OASDI employer funding from 
existing payroll taxes would increase the rate but would allow it to 
decline over time. So would peace.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes, 
dividend taxes, and the estate tax. It will apply to asset sales, 
dividend distributions, exercised options, rental income, inherited and 
gifted assets and the profits from short sales. Tax payments for option 
exercises and inherited assets will be reset, with prior tax payments 
for that asset eliminated so that the seller gets no benefit from them. 
In this perspective, it is the owner's increase in value that is taxed. 
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will 
fund the same spending items as income or S-VAT surtaxes. This tax will 
end Tax Gap issues owed by high income individuals. A 24% rate is 
between the GOP 20% rate and the Democratic 28% rate. It's time to quit 
playing football with tax rates to attract side bets.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

      Health insurance or direct care, including veterans' health care 
for non-
battlefield injuries and long-term care.
      Employer paid educational costs in lieu of taxes are provided as 
either 
employee-directed contributions to the public or private unionized 
school of their choice or direct tuition payments for employee children 
or for workers (including ESL and remedial skills). Wages will be paid 
to students to meet opportunity costs.
      Most importantly, a refundable child tax credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee-ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits. Distributions from such corporations will be 
considered salary, not dividends.

Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on 
purchase invoices. The rate varies according to what is being financed. 
If Medicare for All does not contain offsets for employers who fund 
their own medical personnel or for personal retirement accounts, both 
of which would otherwise be funded by an S-VAT, then they would be 
funded by the I-VAT to take advantage of border adjustability. I-VAT 
also forces everyone, from the working poor to the beneficiaries of 
inherited wealth, to pay taxes and share in the cost of government. 
Enactment of both the A-VAT and I-VAT ends the need for capital gains 
and inheritance taxes (apart from any initial payout). This tax would 
take care of the low-income Tax Gap.

I-VAT will fund domestic discretionary spending, equal dollar employer 
OASI contributions, and non-nuclear, non-deployed military spending, 
possibly on a regional basis. Regional I-VAT would both require a 
constitutional amendment to change the requirement that all excises be 
national and to discourage unnecessary spending, especially when 
allocated for electoral reasons rather than program needs. The latter 
could also be funded by the asset VAT (decreasing the rate by from 
19.5% to 13%).

As part of enactment, gross wages will be reduced to take into account 
the shift to S-VAT and I-VAT, however net income will be increased by 
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will 
replace pass-through and proprietary business and corporate income 
taxes.

Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility, 
which allows comparison shopping based on carbon content, even if it 
means a more expensive item with lower carbon is purchased. C-VAT would 
also replace fuel taxes. It will fund transportation costs, including 
mass transit, and research into alternative fuels (including fusion). 
This tax would not be border adjustable.

                                 ______
                                 
                 Letter Submitted by Terence P. Stewart

                             August 4, 2020

U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

This statement is submitted for the record in the above identified 
hearing. My name is Terence P. Stewart. I practiced law in Washington, 
DC for roughly 40 years, focused on trade remedy and GATT/WTO matters. 
While I retired last August, I have written extensively on the 
challenges posed to the United States by the WTO dispute settlement 
system and currently author a blog entitled, Current Thoughts on Trade. 
The link to the blog is https://currentthoughtsontrade.com.

When the World Trade Organization came into existence in 1995, many in 
Congress were concerned about potential loss of sovereignty if the WTO 
dispute settlement system created rights or obligations that were not 
contained in the WTO agreements. As early as the Trade Act of 2002, 
Congress insisted on action by the Administration to address problems 
in trade remedy cases where the WTO Appellate Body was perceived to 
create obligations that the U.S. had never agreed to.

Blockage of filling vacancies in the WTO Appellate Body by the United 
States has led to WTO Members, after nearly twenty years of U.S. 
concerns, finally recognizing the problems of concern to the United 
States (and some other countries). While proposals have been put 
forward by other countries at the WTO to address many of the procedural 
issues raised by the U.S., there has not been agreement by major 
trading partners that gap filling and eliminating discretion where 
agreements have ambiguity must be addressed. Similarly, to achieve the 
rebalancing of rights and obligations that were agreed during the 
Uruguay Round, countries must come to grip with how to correct prior 
decisions that resulted in a change of rights and obligations actually 
negotiated. Finally, on the procedural issues, the U.S. has concerns 
that fixes proposed won't actually provide certainty that the Appellate 
Body will change its practices. Thus, parties need to consider how to 
make the provisions of the Dispute Settlement Understanding enforceable 
by the WTO Members.

I have in several blog posts reviewed efforts by the WTO to address 
U.S. concerns and have provided thoughts on how the proposals could be 
made enforceable and how the core issues of overreach can be corrected 
both going forward and in the context of prior decisions. I provide the 
most recent post below, https://current
thoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-
thoughts-on
-how-to-address-u-s-concerns/.

            WTO Appellate Body Reform--Revisiting Thoughts 
                    on How to Address U.S. Concerns

In a November 4, 2019 post, I reviewed a draft General Council Decision 
that had been presented by Amb. David Walker to the General Council on 
addressing some of the concerns presented over the last several years 
by the United States with the functioning of the WTO's Appellate Body. 
The United States has been blocking the process for selecting new 
Appellate Body members until its longstanding concerns are addressed. 
See WTO's Appellate Body Reform--The Draft General Council Decision on 
Functioning of the Appellate Body, https://currentthoughtsontrade.com/
2019/11/04/wtos-appellate-body-reform-the-draft-general-council-
decision-on-functioning-of-the-appellate-body/.

The Appellate Body ceased to have at least three members on December 
11, 2019 at which point it could not hear new appeals. Moreover, only 
appeals that had gone through hearings were handled after December 
10th, with the last report released last month.

The United States released in February a lengthy Report on the 
Appellate Body of the World Trade Organization which provides a 
detailed review of the purpose of dispute settlement in the WTO and the 
development of major departures from the agreed language of the Dispute 
Settlement Understanding by the Appellate Body over the first twenty-
five years of the WTO's existence. The report was reviewed in an 
earlier post. See https://ustr.gov/sites/default/files/
Report_on_the_Appellate
_Body_of_the_World_Trade_Organization.pdf; USTR's Report on the WTO 
Appellate Body--An Impressive Critique of the Appellate Body's 
Deviation from Its Proper Role, https://currentthoughtsontrade.com/
2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-
critique-of-the-appellate-bodys-deviation-from-its-proper-role/.

While a number of WTO Members have joined together in supporting an 
interim arbitration approach, there has been no apparent ongoing effort 
to find a resolution to the continuing impasse. Indeed, the interim 
arbitration approach adopted by the EU, Canada, China and others in the 
view of the U.S. extends and in some cases exacerbates the longstanding 
concerns the U.S. has had with the Appellate Body and exceeds the 
proper role of arbitration.

There have been any number of proposals by academics, former government 
employees and others on what is needed to reform the Appellate Body to 
deal with U.S. concerns. The National Foreign Trade Council 
commissioned a multi-part report on Resolving the WTO Appellate Body 
Crisis from Bruce Hirsch, a former USTR official with significant 
responsibilities for dispute settlement matters. See Resolving the WTO 
Appellate Body Crisis, Proposals on Overreach (December 2019), http://
www.nftc.org/default/trade/WTO/Resolving%20the%20WT0%20Appellate%20Body
%20Crisis_Proposals%20on%20Overreach.pdf; Resolving the WTO Appellate 
Body Crisis Volume 2, Proposals on Precedent, Appellate Body 
Secretariat and the Role of Adjudicators (June 2020), http://
www.nftc.org/default/Trade%20Policy/WTO_
Issues/Resolving%20the%20WTO%20AB%20Crisis%20vol2%2006042020.pdf. His 
two papers make an important contribution to those interested in 
finding a forward path on restoring a second stage to the WTO's dispute 
settlement system.

Specifically, Mr. Hirsch's two papers address a number of important 
issues with suggestions presented for possible approaches to help move 
the WTO dispute settlement system back to what was agreed to in the 
Dispute Settlement Understanding which became operative in 1995 when 
the WTO was created.

The NFTC press releases on the two papers provides the following 
summary of proposals in each paper. From the December 17, 2019 press 
release:

The paper includes six key proposals:

1.  Enforce the 90-day time frame for appeals;
2.  Prohibit advisory opinions, and further elaborate the circumstances 
constituting advisory opinions;
3.  Clarify that DSU Article 3.2 does not justify expanding or 
narrowing the reach of WTO provisions or filling gaps in WTO coverage;
4.  Clarify that customary rules of interpretation of public 
international law do not justify gap-filling and expanding or narrowing 
the reach of WTO provisions;
5.  Affirm that Article 17.6(ii) of the Antidumping Agreement must be 
given meaning, by clarifying that the provision reflects the principle 
just described, that WTO adjudicators may not expand or narrow the 
meaning of broad provisions and general terms; and
6.  Direct the Appellate Body to reject party arguments that expand or 
narrow the reach of agreement provisions or fill gaps in agreements.

From the June 5, 2020 press release:

Specifically, the paper outlines 3 proposals that will help ``reflect 
the goal of making the Appellate Body operate as Members expected in 
1995:''

1.  Clarify that Appellate Body reports do not create binding 
precedent;
2.  Replace the Appellate Body secretariat with clerks seconded from 
the WTO secretariat; and
3.  Guidance on the Role of Adjudicators.

The two papers are an effort to help WTO Members focus on moving 
forward on bringing the Appellate Body's role in the Dispute Settlement 
system back to its intended limited function.

The first paper which deals with the critical issue of overreach also 
takes in issues such as advisory opinions and adherence to the timeline 
for completing appeals (absent party consent) which Mr. Hirsch views as 
often interrelated. If there is a problem with the first paper it is in 
not addressing how to restore balance to WTO Members by correcting 
prior cases where overreach occurred. This has been an issue of some 
importance to the United States and is critical in a number of 
agreements where there has been a pattern of decisions changing rights 
and obligations.

In a prior post from November 12th, I reviewed the large number of WTO 
Members who have expressed concern about the Appellate Body creating 
rights or obligations not contained in the WTO Agreements. See 
Background Materials on WTO Appellate Body Reform Challenges--The 
Critical Issue of ``Overreach,'' https://currentthoughtsontrade.com/
2019/11/12/background-materials-on-wto-appellate-body-reform-
challenges-the-critical-issue-of-overreach/.

The second paper by Mr. Hirsch addresses a number of important issues 
although only the issue of precedent is on the list of concerns raised 
by the United States. However, Mr. Hirsch makes a strong case that the 
structure of the Appellate Body Secretariat has likely contributed to 
the development of problematic issues such as precedent, and his 
recommendations make a lot of sense and would return control of the 
Appellate Body process to Appellate Body members.

Mr. Hirsch notes that there is a lack of trust amongst WTO Members, 
which certainly reflects the current environment. His proposals are all 
focused on what he perceives to be a view with which all Members should 
be able to agree--reform the Appellate Body to ensure it performs the 
limited role articulated in the Dispute Settlement Understanding. I 
agree with both his observation on the lack of trust (and the need to 
develop trust through actions) and what the objective of reform can and 
should be. I differ only in what type of actions Members can take to 
ensure compliance by the Appellate Body with the limited role it is to 
play in dispute settlement.

His two papers do not suggest that all issues raised by the U.S. have 
been addressed in his papers (not clear if there are additional papers 
yet to be released). Nor is it the intention of his papers to suggest 
language amendments to the draft General Council Decision put forward 
by the then facilitator to the General Council, Amb. David Walker (NZ).

As an aid to readers, I have copied my November 4, 2019 recommended 
modifications to the draft General Council Decision below. The 
intention of my edits to the draft Decision was to provide changes 
reflecting the underlying purpose of the DSU that would be enforceable 
by the parties to disputes and to suggest an approach to deal with 
overreach that would deal with the past cases and not simply the future 
disputes. As one of the objectives of the U.S. is restoring the balance 
that was agreed to in the negotiated texts, I believe any resolution of 
the Appellate Body impasse has to identify a path forward on past 
decisions. The next paragraph and the modified draft General Council 
Decision are copied verbatim from my November 4th post. There are 
obviously many excellent ideas in papers from experts like Mr. Hirsch. 
My suggestions may add some flavor or different options on a number of 
issues that need to be addressed.

                   Excerpt from November 4, 2019 Post

What follows is my personal effort to identify some consequences of 
actions that have long concerned the United States. Obviously, only the 
U.S. can determine what will address its concerns. But possibly some of 
the following suggestions, if part of any final package, could address 
some of the ongoing and longstanding U.S. concerns. The text, other 
than what is both in bold and underlined, is the draft General Council 
Decision that is contained as an Annex to Amb. Walker's October 15, 
2019 report to the General Council. Job/GC/222. Only one number has 
been deleted--``6'' (60 days has been changed to 90 days under the 
first topic).

 DRAFT GENERAL COUNCIL DECISION ON FUNCTIONING OF THE APPELLATE BODY

The General Council,

Conducting the function of the Ministerial Conference in the interval 
between meetings pursuant to paragraph 2 of Article IV of the Marrakesh 
Agreement Establishing the World Trade Organization (the ``WTO 
Agreement'');

Having regard to paragraph 1 of Article IX of the WTO Agreement;

Mindful of the work undertaken in the Informal Process of Solution-
Focused Discussion on Matters Related to the Functioning of the 
Appellate Body, under the auspices of the General Council;

Recognizing the central importance of a properly functioning dispute 
settlement system in the rules-based multilateral trading system, which 
serves to preserve the rights and obligations of Members under the WTO 
Agreement and ensures that rules are enforceable;

Desiring to enhance the functioning of that system consistent with the 
Understanding on Rules and Procedures Governing the Settlement of 
Disputes (the ``DSU'') ;

Decides as follows:

Transitional rules for outgoing Appellate Body members

Only WTO Members may appoint members of the Appellate Body.

The Dispute Settlement Body (the ``DSB'') has the explicit authority, 
and responsibility, to determine membership of the Appellate Body and 
is obligated to fill vacancies as they arise.

To assist Members in discharging this responsibility, the selection 
process to replace outgoing Appellate Body members shall be 
automatically launched 180 days before the expiry of their term in 
office. Such selection process shall follow past practice.

If a vacancy arises before the regular expiry of an Appellate Body 
member's mandate, or as a result of any other situation, the Chair of 
the DSB shall immediately launch the selection process with a view to 
filling that vacancy as soon as possible.

Appellate Body members nearing the end of their terms may be assigned 
to a new division up until 90 days before the expiry of their term.

An Appellate Body member so assigned may complete an appeal process in 
which the oral hearing has been held prior to the normal expiry of 
their term if completing such appeal is consistent with Article 17.5 of 
the DSU or any mutually agreed extension by the parties.

                                90 Days

Consistent with Article 17.5 of the DSU, the Appellate Body is 
obligated to issue its report no later than 90 days from the date a 
party to the dispute notifies its intention to appeal.

In cases of unusual complexity or periods of numerous appeals, the 
parties may agree with the Appellate Body to extend the time-frame for 
issuance of the Appellate Body report beyond 90 days. I Any such 
agreement will be notified to the DSB by the parties and the Chair of 
the Appellate Body.

Failure to complete the appeal within 90 days of the notification of 
intent to appeal, or such other time as the parties agree to, shall 
result in the appeal terminating with no decision. In such situations 
the Dispute Settlement Body will consider adoption of the panel report 
but rights of the complaining party under Articles 21.6 and 22 of the 
DSU shall not apply.

The Appellate Body will supply the Dispute Settlement Body with a 
description of steps taken by the Division to complete any such appeal 
within 90 days and any modifications to Appellate Body procedures and 
practice that will be pursued by the Appellate Body to ensure such 
failure to comply with the 90 day rule is not repeated.

1 Such agreement may also be made in instances of force majeure.

Municipal Law

The ``meaning of municipal law'' is to be treated as a matter of fact 
and therefore is not subject to appeal. Where the Appellate Body 
nonetheless addresses the meaning of municipal law in an Appellate Body 
report, either party may request that the paragraphs of the Appellate 
Body report dealing with such issue or issues and any conclusions drawn 
there from be stricken, and the Appellate Body will reissue the 
decision without such paragraphs forthwith. Compliance with the 90 day 
requirement will be measured from the date of the revised decision.

The DSU does not permit the Appellate Body to engage in a ``de novo'' 
review or to ``complete the analysis'' of the facts of a dispute.

Consistent with Article 17.6 of the DSU, it is incumbent upon Members 
engaged in appellate proceedings to refrain from advancing extensive 
and unnecessary arguments in an attempt to have factual findings 
overturned on appeal, under DSU Article 11, in a de facto ``de novo 
review.'' Where Article 11 is invoked by a Member seeking review on 
appeal of whether the panel failed to make an objective assessment, any 
other party may file an objection. The Appellate Body will consider the 
claim only in extraordinary circumstances of facial bias in the 
assessment by the panel. A Member raising such a claim that is 
dismissed will be assessed costs to the Member who filed an objection.

Advisory Opinions and Appellate Body Economy in Decisions

Issues that have not been raised by either party may not be ruled or 
decided upon by the Appellate Body. Where issues not raised by either 
party are addressed in the Appellate Body report, the addressing of 
such issues constitutes the provision of an advisory opinion and is 
inconsistent with DSU Article 17.12. Either party may request that the 
paragraphs of the Appellate Body report dealing with such issue or 
issues and any conclusion based thereon be stricken, and the Appellate 
Body will reissue the decision without such paragraphs forthwith. 
Compliance with the 90 day requirement will be measured from the date 
of the revised decision.

Consistent with Article 3.4 of the DSU, the Appellate Body shall 
address issues raised by parties in accordance with DSU Article 17.6 
only to the extent necessary to assist the DSB in making the 
recommendations or in giving the ruling provided for in the covered 
agreements in order to resolve the dispute. The Appellate Body's 
indicating that other issues raised need not be addressed to resolve 
the dispute satisfies the requirements of DSU Article 17.12.

Precedent

Precedent is not created through WTO dispute settlement proceedings.

Consistency and predictability in the interpretation of rights and 
obligations under the covered agreements is of significant value to 
Members.

Panels and the Appellate Body should take previous Panel/Appellate Body 
reports into account to the extent they find them relevant in the 
dispute they have before them. The Appellate Body shall not reverse a 
panel decision on any issue solely on the basis of the panel not 
conforming to a prior Appellate Body report where the panel has 
identified different factual and/or legal issues.

``Overreach''

As provided in Articles 3.2 and 19.2 of the DSU, findings and 
recommendations of Panels and the Appellate Body and recommendations 
and rulings of the DSB cannot add to or diminish the rights and 
obligations provided in the covered agreements. In a large number of 
Panel and Appellate Body reports, one or more parties and/or third 
parties have raised concerns about the Panel or Appellate Body adding 
to or diminishing the rights and obligations contrary to Articles 3.2 
or 19.2 of the DSU.

To clarify situations where rights and obligations are being added to 
or diminished, Panels and the Appellate Body will not fill gaps in 
agreements, construe silence to indicate obligations or construe 
ambiguities in language of existing agreements to require a particular 
construction. Any such actions by a Panel or by the Appellate Body is 
inconsistent with Articles 3.2 and 19.2 of the DSU.

Any party to an Appellate Body report that raised at the DSB meeting 
considering adoption of the Appellate Body report concerns about the 
creation of rights or obligations inconsistent with Articles 3.2 or 
19.2, will have 90 days from the adoption of this General Council 
decision to request a review of the Appellate Body decision. Such 
request will be for the limited purpose of having the Appellate Body 
determine whether on the specific issues raised where the party 
complained of creating rights or obligations the clarification of 
meaning provided in this General Council decision would result in a 
changed decision on the particular issue. The Appellate Body will 
render decisions on all such requests within 90 days and will accept no 
additional briefing or argument from parties. Where the report would 
have been different on one or more particular issues, it is sufficient 
for the Appellate Body to so indicate. Where the same decision on an 
issue would have been made, the Appellate Body shall provide a detailed 
explanation.

Panels and the Appellate Body shall interpret provisions of the 
Agreement on Implementation of Article VI of the General Agreement on 
Tariffs and Trade 1994 (``antidumping agreement'') in accordance with 
Article 17.6(ii) of that Agreement. Any party to an Appellate Body 
report that raised at the DSB meeting considering adoption of the 
Appellate Body report that Article 17.6(ii) was not applied in 
interpreting the antidumping agreement, will have 90 days from the 
adoption of this General Council decision to request a review of the 
Appellate Body decision. Such a request will be for the limited purpose 
of having the Appellate Body determine whether a different outcome on 
one or more issues would have resulted had the Appellate Body applied 
Article 17.6(ii) of the antidumping agreement. The Appellate Body will 
render decisions on all such requests within 90 days and will accept no 
additional briefing or argument from parties. Where the report would 
have been different on one or more particular issues, it is sufficient 
for the Appellate Body to so indicate. Where the same decision on an 
issue would have been made, the Appellate Body shall provide a detailed 
explanation.

Regular dialogue between the DSB and the Appellate Body

The DSB, in consultation with the Appellate Body, will establish a 
mechanism for regular dialogue between WTO Members and the Appellate 
Body where Members can express their views on issues, including in 
relation to implementation of this Decision, in a manner unrelated to 
the adoption of particular reports. Such mechanism will be in the form 
of an informal meeting, at least once a year, hosted by the Chair of 
the DSB.

The Appellate Body Secretariat will prepare and circulate to the DSB at 
least 60 days in advance of such a meeting a document which reviews:

(a) for any Appellate Body member whose term is or has expired in the 
last 12 months, assignments to appeals within 90 days of the end of the 
term and any appeals on which the AB member continued to work after his 
term expired and whether such continuation was authorized by the 
parties to the appeal;

(b) the time from notification of intent to file an appeal to the AB 
decision in each case filed in the last 12 months (and for the first 
such report and any subsequent reports where appeals are not current 
with the 90 day requirement) to an AB report (or revised report where 
paragraphs are requested to be deleted as addressing issues not raised 
by any party) and copies of any write-ups filed where reports were not 
filed within 90 days;

(c) a list of AB reports where paragraphs were requested stricken and 
time from request to rerelease of AB report;

(d) a list of requests for review in appeals pursuant to Article 11 of 
the DSU of panel decisions as not being an objective assessment, how 
each request was resolved, and for such claims that were not properly 
filed whether costs were paid by the party raising the issue;

(e) the number of AB reports where parties requested review based on 
statements made at prior DSB meetings that rights or obligations were 
being added to or diminished and/or that Article 17.6(ii) of the 
antidumping agreement was not applied or was applied inappropriately, 
timing of resolution by the Appellate Body and the number of issues 
where a different decision was rendered.

Where the Appellate Body has been unable to comply with the 
requirements of the DSU as clarified by this General Council Decision, 
it is expected that the Appellate Body Chairman will present at the 
informal meeting the action plan being pursued by the Appellate Body to 
achieve full compliance with the terms of the DSU and this Decision.

To safeguard the independence and impartiality of the Appellate Body, 
clear ground rules will be provided to ensure that at no point should 
there be any discussion of ongoing disputes or any member of the 
Appellate Body other than as it relates to compliance with this General 
Council Decision.

                               Conclusion

There are many reforms needed to bring the WTO into the 21st century 
and permit the organization's rules to address the trade distorting 
practices of all Members. The dysfunction of the dispute settlement 
system is but one area where reform is urgently needed.

            Sincerely,

            Terence P. Stewart

                                   [all]