[Senate Hearing 117-351]
[From the U.S. Government Publishing Office]
S. Hrg. 117-351
U.S.-CHINA RELATIONS: IMPROVING
U.S. COMPETITIVENESS THROUGH TRADE
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HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
APRIL 22, 2021
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
48-401-PDF WASHINGTON : 2022
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland RICHARD BURR, North Carolina
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania TIM SCOTT, South Carolina
MARK R. WARNER, Virginia BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 2
WITNESSES
Wessel, Michael R., Commissioner, U.S.-China Economic and
Security Review Commission, Washington, DC..................... 5
Kokas, Aynne, Ph.D., senior faculty fellow, Miller Center for
Public Affairs; and associate professor of media studies,
University of Virginia, Charlottesville, VA.................... 6
Willems, Clete R., partner, Akin, Gump, Strauss, Hauer, and Feld
LLP, Washington, DC............................................ 8
Baer, David, chief operating officer and general counsel, Element
Electronics, Winnsboro, SC..................................... 10
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Baer, David:
Testimony.................................................... 10
Prepared statement........................................... 49
Responses to questions from committee members................ 50
Brown, Hon. Sherrod:
Submissions for the record................................... 52
Crapo, Hon. Mike:
Opening statement............................................ 2
Prepared statement........................................... 54
Kokas, Aynne, Ph.D.:
Testimony.................................................... 6
Prepared statement........................................... 56
Responses to questions from committee members................ 63
Portman, Hon. Rob:
Submissions for the record................................... 52
Wessel, Michael R.:
Testimony.................................................... 5
Prepared statement........................................... 64
Responses to questions from committee members................ 68
Willems, Clete R.:
Testimony.................................................... 8
Prepared statement........................................... 76
Responses to questions from committee members................ 80
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement........................................... 86
Communications
American Farm Bureau Federation.................................. 89
Bradford/Hammacher Group of Companies............................ 92
Center for Fiscal Equity......................................... 94
Guardian Technologies............................................ 98
Lasko Products, LLC.............................................. 99
Rail Security Alliance........................................... 100
U.S.-CHINA RELATIONS: IMPROVING
U.S. COMPETITIVENESS THROUGH TRADE
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THURSDAY, APRIL 22, 2021
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10 a.m.,
via Webex, in the Dirksen Senate Office Building, Hon. Ron
Wyden (chairman of the committee) presiding.
Present: Senators Cantwell, Menendez, Carper, Cardin,
Brown, Casey, Crapo, Grassley, Cornyn, Thune, Portman, Toomey,
Lankford, and Daines.
Also present: Democratic staff: Sally Laing, Senior
International Trade Counsel; and Joshua Sheinkman, Staff
Director. Republican staff: Mayur Patel, Chief International
Trade Counsel; and Gregg Richard, Staff Director.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. I thank all of my colleagues. This is a very
hectic morning, and the Finance Committee is meeting to discuss
one of the most significant challenges facing the U.S. economy.
And that is the decades-long effort by the Chinese Government
to manipulate global competition in their favor by any means
necessary.
The Finance Committee is coming together to respond to this
challenge with Democrats and Republicans on the committee
working on new legislation that will take concrete steps to
boost America's competitiveness and level the playing field for
American workers and American businesses.
This is a bipartisan effort. Senator Crapo and I have been
talking in considerable detail about the core issues of how our
country can out-compete China, cracking down on the use of
forced labor, fighting censorship, protecting U.S. jobs by
rooting out the counterfeiters, shoring up supply chains
including semiconductors and medical products, and stepping up
trade enforcement and oversight.
This is going to be a significant bipartisan push on issues
that are front and center for the Senate Finance Committee.
I do want to thank Ranking Member Crapo and the many
members of the committee on both sides of the aisle who are
contributing and have key ideas on these issues. The
committee's proposal will be combined with bills from other
committees to form a larger package on building up U.S.
competitiveness.
This is a prospect I think both sides of the aisle can get
behind. The trade rip-offs and underhanded tactics of the
Chinese Government and enterprises have grown at our expense,
and they are well known: massive unfair subsidies that destroy
any level playing field, theft of innovative intellectual
property, shakedowns of
cutting-edge technology, policies that meddle in supply chains
and hurt our consumers and products, and use of forced labor--
absolutely reprehensible on its own, regardless of where it
fits into international trade.
With the Great Firewall and other sophisticated trade
barriers, the Chinese Government blocks 10,000 websites and a
host of American digital service providers. For the few allowed
to enter the Chinese market, the price of admission is
censorship.
The overall result is untold losses for American companies
and their workers. Homegrown tech giants rip off American
innovations and thrive in the absence of American competition.
Several of those homegrown firms have outgrown the Chinese
market, accessed U.S. financial systems, and invested in
American companies. The catch is, this is not just about
economic losses for America; these Chinese firms compete
unfairly and also export the government's intolerance of free
speech.
From solar panels to soybeans to software and everything in
between, America's workers, farmers, and our economy writ large
have been exposed to China trade cheating for too long. The
consequences are visible in Oregon and across the country.
Factories have shuttered. Towns have lost their beating
economic hearts. Fewer and fewer workers believe that it will
be easier for their families to get ahead in the future. In
short, America has spent 2 decades falling further and further
behind in a cold trade war. That did not change when it turned
hot several years ago.
The previous administration was right to throw out business
as usual on trade with China, but their strategy relied more on
what some might call Internet muscle and tough talk than
serious economic strength. The former President's mean tweets
and angry statements did not get results. The agreements the
Chinese Government signed mostly rehashed commitments it had
already made and broken in the past. Their core trade rip-offs
are ongoing.
So today this is about the Finance Committee building a
bipartisan coalition to take a different tack. We are pleased
to have an opportunity to address these important issues. We
have excellent witnesses. I will introduce them shortly. But
first let us hear from our friend, Senator Crapo.
[The prepared statement of Chairman Wyden appears in the
appendix.]
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you very much, Mr. Chairman. I
appreciate those remarks and your spearheading this effort to
make America as competitive as it can possibly be, particularly
with regard to China. I am glad to be working with you on
legislation to strengthen America's trade policies and
practices. That is a potent challenge to the United States on
several levels: economic, strategic, and moral.
Republicans and Democrats can and should work together to
formulate a China policy that can effectively confront these
challenges. There is no need for a Republican or a Democrat
policy on China, just an American policy. An American policy is
precisely that: it reflects the best of America. It reflects
our competitive spirit, our leadership in innovation, and
critically our values.
So how do we put such a policy into practice? It is simple:
stay true to what made the American experiment a success. In
terms of competitiveness, we should not close off our market or
engage in protectionism. China closes off its market and
provides distorted subsidies to create national champions. We
do not fear competition, we embrace it, because American
workers, farmers, and businesses have always confronted
challenges head-on, and that spirit will never dampen.
American companies become global champions, because the way
forward in a free market is to excel, and America excels like
no other in a fair fight. And to fight at its best, America
must focus on strengthening its competitiveness, which means we
need to be smart in our use of tariffs. We need to cut tariffs
on imports that support American manufacturing, or on goods
consumed by American consumers, especially the middle- and low-
income families.
We can achieve that through programs like the miscellaneous
tariff bill, and through thoughtful application of the section
301 tariffs on China. Our open market strengthens America
strategically.
President Eisenhower told Congress in 1958 that world trade
strengthens our friends and increases their desire to be
friends. World trade helps to lay the groundwork for peace by
making all free nations of the world stronger and more self-
reliant.
He was right. That is why it is important that we
reauthorize the Generalized System of Preferences program.
Developing countries that want to play by the rules should know
that the United States will be a reliable trading partner and a
fierce friend.
For example, there is no question that if most countries
are offered a choice between debt-trap diplomacy like China's
Belt and Road Initiative, or the opportunity to have access to
the U.S. market which is governed by the rule of law, they are
going to pick America. History is instructive in that regard.
In terms of innovation, we should pursue policies that
promote and reward creativity, such as strong intellectual
property protections. Many of us are rightly repulsed by
practices like China's technology theft and its Great Firewall.
But the answer is not to construct our own restrictions on data
and information, or to create some social credit score for U.S.
companies. The answer, like President Reagan said 3 decades
ago, is to tear down the wall.
We must directly target those actions that take aim at U.S.
companies. We must also negotiate and enforce strong rules
through new trade agreements, including at the World Trade
Organization.
Last, though perhaps most important, are our values.
China's human rights abuses are appalling. The communist regime
set its tone on human rights at its inception and it has not
improved since. Internationally, we must be sharper in our
engagement on human rights by rallying our allies to confront
these abuses, including forced labor and the suppression of
free speech.
What will bring down those abuses is not U.S.
disengagement, but facilitating the opportunity for the Chinese
people to engage themselves. Domestically, we have to stay true
to our processes. That means our approach is shaped by a course
that reflects our American tradition of building consensus
through dialogue and debate.
Whatever anyone may claim China has achieved through its
system, ask them if they would rather live in a world that
reflects its approach to its citizens or ours. Unlike any
government official in China, every member present today is
here because their constituents chose them through free and
fair elections. And each of our members has the right and
responsibility to bring their insights into the discussion.
This hearing is a part of that discussion, but it is not
the end of it. Moreover, it bears emphasis that Congress is
democracy at its best. Concentrating unfettered power in the
executive is China's approach, not ours.
Having Congress in the driver's seat on critical trade
policy decisions is not a weakness, it is a strength. Chairman
Wyden and I still have a lot of work ahead of us to right this
ship of state in the world's marketplaces, and I appreciate our
partnership in this effort. And we are working together--and
with members of our committee--to achieve that in a legislative
package that will strengthen America's competitiveness and
benefit its farmers, businesses, and innovators.
Thank you for organizing this hearing, Mr. Chairman. I look
forward to the testimony from our witnesses.
[The prepared statement of Senator Crapo appears in the
appendix.]
The Chairman. I thank my colleague. And I think, if there
is one issue that is central to this country's future, it is
being in a position to out-compete China. And I very much
appreciate the path that my colleague wants to take. We are
going to do this in a bipartisan way. The stakes are enormous,
and I thank him for his effort to build the bipartisan
coalition.
Let's go now to our witnesses. Mike Wessel is here. He is a
Commissioner of the U.S.-China Economic and Security Review
Commission. He has extensive experience. We met first decades
ago when he was working on Capitol Hill focusing on
international trade. He now heads a public affairs consulting
firm.
Then we will hear from Aynne Kokas, associate professor of
media studies at the University of Virginia and senior faculty
fellow at the Miller Center for Public Affairs. She has written
extensively about digital trade issues with China, including
China's censorship and digital policies and their impact on our
country.
Next up will be Clete Willems, a partner at Akin Gump,
where he advises multinational companies, investors, and trade
associations on international economic issues. And he is a
former Deputy Assistant to the President for International
Economics, and at the White House he was a trade negotiator.
Finally, we will hear from David Baer, chief operating
officer and general counsel for O'Shaughnessy Holding Company,
which owns Element Electronics. Element is an American consumer
electronics firm that assembles televisions in South Carolina
from primarily imported parts. They announced that they were
closing and laying off 126 workers in 2018 as a result of the
section 301 tariff imposed by the Trump administration.
We have an excellent group of panelists. Let's go first to
Mr. Wessel.
STATEMENT OF MICHAEL R. WESSEL, COMMISSIONER, U.S.-CHINA
ECONOMIC AND SECURITY REVIEW COMMISSION, WASHINGTON, DC
Mr. Wessel. Chairman Wyden, Ranking Member Crapo, members
of the committee, it is an honor to appear before you today. My
name is Michael Wessel, and I am a Commissioner on the U.S.-
China Economic and Security Review Commission. My testimony
today reflects only my personal views.
The Commission is a somewhat unique bipartisan body. We
report to and support Congress. In 7 of the last 10 years, we
have issued unanimous reports. Where it was not unanimous,
there was only one dissenting vote. Our bipartisanship is a
reflection of the broader political support for addressing the
challenges posed by the Chinese Communist Party.
China is not interested in abiding by international norms.
We should stop hoping for change and waiting for it to occur.
We need to accept reality and adopt the policies that are in
our best interest.
We need to make clear that in debating and addressing the
challenges posed by the policies of the CCP, we are not
disparaging the people of China. Rising anger and aggression
targeted at people of Asian descent here in the U.S. or around
the globe is unacceptable.
The Biden administration is engaged in a top-to-bottom
review of past actions, identifying its preferred path forward
and, importantly, what cooperation and coordination with our
allies is possible.
A multilateral approach is important, but it is not the
only approach. For years we sought multilateral cooperation but
got little help. To paraphrase an old saying, our allies were
willing to hold our coat while we bloodied our nose.
Our producers and our workers cannot wait for allies to
fully appreciate the impact of China's policies and develop the
will to act. The outsourcing and offshoring of jobs and
productive capacity to China has created unacceptable
vulnerabilities. Americans saw that clearly when we were unable
to obtain critical PPE supplies as COVID ravaged our country.
China has shown its willingness to politicize and indeed
weaponize its supplies of vital products.
At the end of 2020, U.S. corporations were sitting on more
than $5.5 trillion in cash and liquid assets. We need to send
stronger signals that we want them to invest those funds here
to expand production and create jobs. China's new 14th 5-year
plan increases support for indigenous innovation and continues
an expansive export strategy. Massive over-capacity will
continue. Huge subsidies, protectionist and predatory
practices, and legal and illegal actions will support their
efforts.
The CCP is seeking to advance research and development
indigenously. The pace of R&D expenditures by U.S. affiliates
in China has grown at a faster pace than domestic investments
by their U.S. parents. We need to alter that trend.
China's leaders are also desperate for foreign capital and
investment. Changes in international investment indices may
result in $400 billion or more of Western capital flowing into
Chinese equities. Bond index changes may spur another $200
billion going into China.
Some of our citizens' capital could be invested in
companies on the U.S. Entities List and DoD's list of companies
supporting China's military. There also appear to be
investments by U.S. persons in these companies after they were
put on these lists. That must stop.
We need to treat supply chains as integral components of
our national and economic security, as well as vital to our
critical infrastructure. In the 1980s, America faced
competitive challenges from Japan, although they pale in
comparison to those posed by China. In 1987, Congress and the
Reagan administration worked together to create SEMATEC to
reclaim America's momentum in the semiconductor sector.
In 1988, Congress passed the Omnibus Foreign Trade and
Competitiveness Act to advance America's ability to compete.
Now is the time to consider what steps America should take to
protect our interests and prepare for the future. Too much of
the focus of our China discussions has been about containing,
confronting, or decoupling. Many of the actions and policies of
the CCP directly challenge U.S. interests. We need to send a
strong signal to the CCP, to our companies, to our people, and
the world that we will stand up for our interests. We will
compete. We will invest. And we will win.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Wessel appears in the
appendix.]
The Chairman. I thank you, Mr. Wessel. And I like the fact
that you closed on the bottom line, which is out-competing
China.
Dr. Kokas, welcome.
STATEMENT OF AYNNE KOKAS, Ph.D., SENIOR FACULTY FELLOW, MILLER
CENTER FOR PUBLIC AFFAIRS; AND ASSOCIATE PROFESSOR OF MEDIA
STUDIES, UNIVERSITY OF VIRGINIA, CHARLOTTESVILLE, VA
Dr. Kokas. Chairman Wyden, Ranking Member Crapo, and
distinguished members of the Senate Finance Committee, it is an
honor to be here. My name is Aynne Kokas, and I am an associate
professor of media studies at the University of Virginia and a
senior faculty fellow at the Miller Center for Public Affairs.
My testimony reflects my personal views.
My remarks today will focus on three key points.
First, Chinese laws imperil U.S. tech investment in China
and around the world.
Second, Chinese firms with close government ties are
rapidly acquiring a wide range of U.S.-based digital media and
tech-sector entities.
Third, U.S. firms face pressure to self-censor as a result
of U.S. domestic financial pressure paired with Chinese
regulations.
With the growth of the Chinese market, U.S. national
interests and U.S. commercial interests have diverged. The
global tech sector is estimated to reach $5 trillion in 2021.
The U.S. is poised to make up 33 percent of that. The Chinese
market makes up 14 percent of the global tech economy, but it
also offers a tantalizing market growth opportunity for U.S.
firms, despite current market entry restrictions.
Further, disaggregating the tech economy from other sectors
like automotive, agriculture, and health care, becomes
increasingly difficult because of the role that digital
management platforms and data integration play in cross-
sectoral innovation. However, data security regulation in the
United States has historically followed sector-by-sector
oversight.
Chinese laws imperil U.S. tech sector investment. Unlike
the United States, China centralizes tech oversight across
sectors to provide a range of tools for the Chinese Government
to access corporate data and IT, including forced data
localization and corporate national security audits.
The July 2020 Hong Kong National Security Law permits the
Chinese Government to hold people and platforms liable for
crimes committed extraterritorially. This puts particular
pressure on firms that commit perceived transgressions such as
speaking out about Xinjiang and human rights, and by those who
offer education online at U.S.-based universities.
Chinese firms have acquired a wide range of U.S. tech and
media firms, enhancing both military and economic
competitiveness. These include social media platform TikTok,
gaming platform Fortnite, and many more.
Beyond games of entertainment, Chinese firms have acquired
companies with U.S. operations in the agriculture, health, and
manufactured goods sectors and beyond.
Further, Chinese firms can also acquire data from U.S.
firms through data broker agreements. Such acquisitions limit
U.S. economic competitiveness in data-driven industries where
the skills, talent, and data developed in the U.S. advance PRC
goals to grow the tech sector, particularly in data-driven AI.
U.S. firms face financial pressures to self-censor.
Hollywood studios are shifting content as a result of such
Chinese market access pressures, but they are the canary in the
coal mine. Other U.S.-based corporations have shut down the
speech of fans and employees to preserve access to the Chinese
market, as we have seen in the NBA and on the Hearthstone
gaming platform.
Delta and Marriott faced economic penalties do to listing
Taiwan as an independent entity. H&M stores were delisted from
Chinese map platforms for corporate speech about Xinjiang. The
list goes on.
National security concerns compete with the fiduciary
responsibilities of U.S. companies to grow. The U.S. Government
needs to restructure these incentives. My recommendations are
as follows.
First, improve U.S. tech sector competitiveness. Increase
U.S. Government investment in STEM through agencies like DARPA
and the Defense Innovation Unit, and through the adoption of
the Endless Frontier Act.
Continuing on Mr. Wessel's statement, it is important to
work actively against anti-Asian hate in the United States in
order to advance our mission for equality, but also to welcome
researchers and technologists to continue their current path to
grow their careers here, so they do not get trained here and
then return to China to build their careers.
Second, enhance U.S. global data oversight to prevent data
exfiltration to non-allies. Build out a national data privacy
framework across sectors to prevent consumer data exfiltration
to non-allied countries, and join agreements like the CPTPP,
formerly TPP, that already have data governance agreements.
Require enhanced reporting on how and when firms share data
with third-party providers. Limit the sale of U.S. consumer
data through efforts such as the Protecting Americans' Data
From Foreign Surveillance Act.
Finally, fund Chinese area studies. The lack of secondary
and tertiary social science education opportunities to learn
about China means that most business people entering the U.S.
workforce do not have a working understanding of China's
political system, to the detriment of U.S. national security.
Thank you for your time and attention. I welcome your
questions.
[The prepared statement of Dr. Kokas appears in the
appendix.]
The Chairman. Dr. Kokas, thank you very much for
exceptionally important testimony. We very much appreciate your
being here.
Our next witness will be Clete Willems. Where is Mr.
Willems?
Mr. Willems. I am here.
The Chairman. Please proceed, Mr. Willems.
STATEMENT OF CLETE R. WILLEMS, PARTNER, AKIN, GUMP, STRAUSS,
HAUER, AND FELD LLP, WASHINGTON, DC
Mr. Willems. Thank you, Senator.
Members of the committee, thank you for the opportunity to
testify today.
U.S.-China competition will define the trajectory of the
global economy and our collective security for generations to
come. Congress will play a critical role in determining the
outcome of this competition, and today I offer six suggestions
to best position the United States for success.
First, the United States must run faster, with policies to
encourage domestic innovation in strategic areas targeted by
China, such as artificial intelligence, semiconductors,
synthetic biology, 5G, and 6G, among others. I understand the
concerns raised by overall government spending levels, but
misdirected spending in certain areas should not deter us from
well-directed spending in areas critical to U.S. innovation
leadership, especially if this spending seeks to enhance the
strengths of the private sector instead of replacing it. More
R&D spending, public-private partnerships, and narrowly
tailored grant programs are a good idea.
Consistent with this, Congress should pass the Endless
Frontiers Act, fully fund the USA Telecommunications Act, and
CHIPS for America. Such policies will help us run faster, but
we are unlikely to run fast enough if we only focus at home.
Much of the revenue our companies use to fund innovation comes
from sales overseas, and the United States needs a proactive
trade agenda to open up markets and set standards in emerging
technologies.
We cannot sit on the sidelines while China implements the
RCEP and flirts with the CPTPP. Congress should renew Trade
Promotion Authority, encourage the administration to finalize
negotiations with the U.K. trade agreement, and plot a path
forward in the Indo-Pacific. If TPP is not viable, we should
consider sectoral agreements with TPP countries in areas like
digital trade.
Second, we must better coordinate with allies, including
with the WTO. The WTO's current rules do not adequately
constrain China's worst practices. Congress should encourage
the Biden administration to make ambitious WTO reform
proposals, starting with the trilateral initiative with the EU
and Japan. The U.S. must also better coordinate on defensive
measures like export control that maximize the impact and avoid
putting U.S. industry at a disadvantage to foreign competitors
not subject to such controls. Additionally, it should
prioritize the resolution of transatlantic disputes so we can
focus our energy on China.
Importantly, however, we should not give our allies a free
pass. They should be expected to stand up to China alongside
the United States and refrain from unilateral discriminatory
policies of digital services taxes, or the EU's Digital
Marketing Act.
Third, the United States should engage directly with China
for additional market access. Sales to China support American
farmers, workers, and businesses, full stop.
The Phase One deal was a good first step toward a level
playing field, with largely successful structural provisions on
IP, agriculture, and financial services. The United States
should now consider how to move on to Phase Two and obtain
structural commitments in other areas.
The administration should also reinstate a tariff exclusion
process to provide relief for products that cannot be sourced
elsewhere and are not core to China's Made in China 2025.
Fourth, the United States must not become China to beat
China. We should avoid policies that replicate the very same
practices we are condemning, which are inefficient and
undermine our credibility to rally an international coalition
to our side. More specifically, we should focus our policy on
flexibility, resiliency, and partnerships with trusted allies
instead of trying to make everything at home.
Similarly, access to our procurement markets should not be
restricted for all foreign actors, but instead traded for
reciprocal access to foreign markets. We should resist China's
approach of invoking national security unless truly justified,
and tread carefully when considering novel policies for
investment streams.
Fifth, the U.S. Government should closely align the private
sector on policy implementation, including efforts to eliminate
forced labor from supply chains. The U.S. Government must also
be willing to back U.S. companies in particularly difficult
policies like Chinese Government censorship, which is so
embedded in the current Chinese Government philosophy that no
company could be expected to navigate it on its own.
Finally, we must be clear-eyed about the China challenge
and the risk that certain policy choices entail. We should not
over-
legislate to appear tough, but adopt nuanced policy responses
calibrated to the threat posed, with clear, achievable
objectives.
If we decouple from China and blindly demagogue all China's
people, including many who share our concerns about their own
government, we could find ourselves on a dangerous path.
I hope that the policies I have outlined today will provide
a better alternative, and I look forward to your questions.
[The prepared statement of Mr. Willems appears in the
appendix.]
The Chairman. Thank you very much, Mr. Willems. We will
have questions in a moment.
Our next witness will be Mr. Baer. Welcome.
STATEMENT OF DAVID BAER, CHIEF OPERATING OFFICER AND GENERAL
COUNSEL, ELEMENT ELECTRONICS, WINNSBORO, SC
Mr. Baer. Good morning, Chairman Wyden, Ranking Member
Crapo, and members of the committee. My name is David Baer, and
I am the chief operating officer and general counsel of Element
Electronics. Thank you for giving me the opportunity to share
Element's story with the committee.
Element is the sole remaining mass producer of televisions
in America. Our factory is located in Winnsboro, SC. As
Chairman Wyden noted, Element's U.S. factory was on the brink
of closure until Congress's enactment of the MTB and approval
of an exclusion from the 301 tariffs completely reversed the
situation and leveled the playing field.
As a result, our U.S. factory rapidly grew. At the end of
2020, we were operating all of our eight production lines and
had over 520 team members working in our factory. Importantly,
our story is about community and people. At Element, we offer
living wages and benefits to our employees, over 90 percent of
whom are African American. Included in our written submission
is information about some of our employees and how they have
benefited from the ability of Element to offer good-paying jobs
in our community.
However, our success depends on two issues that are
completely beyond our control: the restoration of an exclusion
from the China 301 tariff, and restoration of the Miscellaneous
Tariff Bill.
The most expensive input in an LCD TV is the glass LCD
panel. These panels are not available in the U.S. Thus, we must
import them. However, we face a severe tariff inversion
situation when importing these panels.
The normal tariff on LCD panels is 4.5 percent, while the
tariff on the finished TV is 3.9 percent. Thus, the normal
tariff structure incentivizes the importation of finished TVs
over producing them in the U.S.
To make matters worse, imports of the same finished TVs
from Mexico are duty-free. TV producers in Mexico use the same
panels that Element imports and the same factory equipment that
Element uses, but Mexican producers import those LCD panels
duty-free and then export the finished TVs into the U.S. duty-
free.
The MTB provided temporary tariff relief to solve this
obviously unintentional tariff conflict. So, with the lapse of
the MTB, we are once again at a severe competitive disadvantage
relative to imports, particularly from Mexico.
In addition, we face an incremental 7.5-percent tariff on
LCD panels imported from China as a result of the section 301
tariffs. We agree that the U.S. must aggressively confront the
unfair actions of the Chinese Government. However, the U.S.
must do so in a way that does not inflict unintended harm on
American producers and workers who have no choice but to rely
on certain imports from China.
Recognizing the lack of U.S. production of LCD panels and
the dominance of China in the LCD panel market, Element
received an exclusion from the section 301 tariffs. Like the
MTB, that exclusion expired last December. Even with the
exclusion in place, Element worked to find non-Chinese
suppliers for LCD panels and, for a time, was successful in
sourcing LCD panels from sources outside of China.
Unfortunately, over the course of 2020, each of these non-
Chinese suppliers exited the LCD panel market for TVs as a
result of relentless unfair competitive pressure from China. As
a result, our factory is again primarily relying on imports
from China.
Because of the lapse in both the MTB and the 301 tariff
exclusion, we face a combined tariff disadvantage of 12
percent. Nobody can be expected to pay a premium of 12 percent
for a TV assembled here. This 12-percent tariff disadvantage
makes our factory in the U.S. uncompetitive, and we are
currently operating only four production lines, and employment
has dropped to 370.
Without a restoration of both the MTB and the 301
exclusion, Element will be forced to move production out of the
U.S. This will devastate our workers and our community.
Leveling the playing field through retroactively restoring both
MTB and the 301 exclusion will allow Element to successfully
compete against anyone.
Therefore, on behalf of Element Electronics, our team
members, and all their family members, I urge the Congress to
enact legislation that would retroactively restore the MTB. And
if the administration does not retroactively restore the
exclusions from the 301 tariffs, then Congress should enact
legislation that requires the retroactive restoration of these
exclusions.
Thank you very much for your time, and I am happy to take
any questions.
[The prepared statement of Mr. Baer appears in the
appendix.]
The Chairman. Thank you very much, Mr. Baer. This has been
an exceptional panel of witnesses. It is hard to know where to
start.
I think, Dr. Kokas, it is a question for you to start, and
then we will go to Mr. Wessel, but we want to hear from all of
you in these questions.
Doctor, it seems to me what you have done is spelled out
how China is using its economic might to export repression.
That is essentially what their agenda is all about--incredible
economic might--and they are using it to be able to export
repression around the world.
So start us off by saying what would be, say, the first two
steps, the first two bold steps you would urge the Finance
Committee to take to fight China's repressive digital
protectionism.
Dr. Kokas. There are many steps, but two key steps that I
would recommend would be to, first, change how U.S. exchanges
fund Chinese entities when they try to enter the U.S., when
they try to raise capital in the U.S.
So I've written about, for example, the case of ITE, which
grew from Baidu, after Baidu had raised capital on the U.S.
exchanges then became a domestic competitor with Netflix. This
is a classic example of how the U.S. actually funds the growth
of Chinese firms so they can become competitive with U.S.
firms.
Another thing I think is important along those same lines
is to increase the reporting requirements for how U.S. firms
share their data with China and with Chinese partners, as well
as how U.S. firms are investing within the Chinese market. So I
think additional reporting requirements there are really
important.
The other thing is to enhance the use of the Foreign
Corrupt Practices Act to make more robust the range of
different types of items of value that firms could receive from
the Chinese Government, looking specifically at market access.
The Chairman. That point is well taken. I am particularly
attracted to this idea of cutting off access to capital,
because I think that is just a no-brainier. We have to do that.
Thank you.
Mr. Wessel, I think Dr. Kokas has really kind of led us
into an area where you are really one of the authorities, and I
think it would be helpful if you would give the committee some
sense of the size and scope of the problem.
What is being lost in terms of value, in terms of lost
market access, stolen intellectual property rights and
displaced American jobs? What is lost when the Chinese cheat?
Mr. Wessel. Mr. Chairman, thank you for your question. That
really goes to the heart of why your committee and others are
looking at this issue. It is certainly our interest in the
rights, the repression, the other issues, the freedoms, that go
to the heart of our values, but our workers have been kicked in
the teeth because of the China trade relationship.
Just a couple of quick comments. The Economic Policy
Institute indicated that since the accession of China to the
WTO in 2018, 3.7 million jobs were lost. The majority of those
jobs were in the manufacturing sector.
In 2019, we ran a $134-billion advanced technology products
trade deficit. Those are products that, you know, we should be
excelling in, we do excel in. They are at the core of what you
and your colleagues are seeking to advance, but China, through
predatory and protectionist policies, has skewed the balance.
Finally, the Commission on the Theft of American
Intellectual Property, a bipartisan commission, has done great
work over the years. Their estimates--using their methodology,
I computed that in the last 5 years, there has been $2.4
trillion in U.S. IP that has been stolen. That IP supports
American jobs, American innovation, and our future.
If we continue to lose at that pace, we will see the
decimation of our tech sector, the continued hollowing out of
our manufacturing sector, and the loss of our standard of
living.
The Chairman. One last question--and we are going to have
to be prompt today, because we have so many members asking
questions. How should the committee strike the balance, Mr.
Wessel, between breaking down barriers that keep the Chinese
market closed to our goods and services, and building up our
R&D and domestic capabilities? How would you strike that
balance?
Mr. Wessel. Well, I would say it should be in equal
balance, but we have to get progress on both. Certainly, as has
already been talked about, our goal is to be able to sell
American competitive products in China based on their
competitiveness, not based on what China says they are willing
to accept that week, or that day.
But second of all, because China has been unwilling--and it
is evidenced in all their economic programs--we need to invest
in ourselves. We need to out-compete China. Americans can do
that. As you know, back in the 1980s, President Reagan, along
with the Democratic Congress, created SEMATEC. It was engaged
in the MOSS talks. We can walk and chew gum at the same time.
We cannot lose sight of doing both at the same time.
The Chairman. Very good. Thank you very much.
Next is Senator Crapo. And because it is going to be such a
hectic morning, followed by Senator Stabenow, Senator Grassley,
and Senator Cantwell.
Senator Crapo?
Senator Crapo. Thank you very much, Mr. Chairman.
I will go to you first, Mr. Baer. And I would like to ask
you to be brief in your responses because, as the chairman
indicated, we have a lot of ground to cover here quickly.
But I wanted to just highlight the section 301 tariff
exclusion issues that you so clearly pointed out are so
critical to your company, and the MTB reauthorization--two key
pieces of what we need to do in this committee right now.
You very clearly showed how our failure to reauthorize the
301 tariff exclusions for your company was very damaging, and
is very damaging. I just wanted to make a point here. Your
company is just one example in America. There are hundreds of
301 tariff exclusions that need to be reinstituted across this
country in industries of all different types. Is that not
correct?
Mr. Baer. Absolutely.
Senator Crapo. And the failure to be targeted in our
imposition of 301 tariffs is critical across our economy. And
just the same point, really, with regard to MTB
reauthorization. An overwhelming majority of the tariff lines
in the MTB are already subject to China section 301 tariffs.
And the MTB provides relief on the key inputs that you
described for your company with regard to manufacturing.
It is critical, again, not just for your company but across
our economy, in businesses large and small that need to be able
to stay strong and competitive. Is that not correct?
Mr. Baer. Yes, absolutely. I mean just for us, the
combination of the lapsed MTB and the 301 tariffs has cost over
150 jobs over the last few months.
Senator Crapo. Well, thank you. And that is just repeated
across our economy. It is one of the things that we critically
need to do in order to be as competitive and as strong as we
can be.
Mr. Willems, I would like to go to you for a couple of
questions. America's innovative industries, including its
digital technology companies, are the envy of the world. And I
am concerned that China is taking out its envy of U.S.
successes by creating new restrictive tools to target these
digital companies, and other
technology-related companies, and that other countries are
going to follow in this direction if we do not take some action
to stop that.
Do you agree? And what can we do about that?
Mr. Willems. Senator, I absolutely do agree. And I think
that the first thing we need to do is stand behind our
companies. Digital companies, technology companies in the
United States, they are our national champions. And if we are
going to really compete against China, we need to backstop
these companies against China's competitors.
I talked in my opening about a bunch of different ways to
do it. I think some of the incentives you all are looking at
are a great start. But we also need to engage directly with
China and push back on them.
I think that one thing that has not really come into the
discussion yet that is important, especially as we are looking
at third markets, and when we are looking at China exporting
its policies abroad, is creating international rule sets that
we can all collectively enforce against China. To me, that is
the way to push back on that. And I will finally just add,
again it is not just China. You are also right to be concerned
about places like Iran that are looking at various policies
that are quite troubling, and we need to stand up there as
well.
Senator Crapo. All right; thank you. And I appreciate your
help and input in helping us to identify these actions.
Again for your, Mr. Willems; I am interested in a point
that you made in your written statement. You wrote that we have
to remember that the export of non-sensitive items to China
allows its capital, essentially, to subsidize U.S. innovation
leadership.
I agree with that. Restrictions on non-sensitive items are
counterproductive because other countries will simply backfill
our orders to take our place in China's market.
What are some steps that we can do to make sure that our
approach is targeted? And how can we ensure that other
countries coordinate with us better on trade policy with China
to mitigate this backfill issue?
Mr. Willems. I think the area where this really has come up
is in the area of export controls, where the U.S. has taken
certain interim measures, none of which are justifiable,
against Chinese companies, but has not coordinated them. So you
have this situation where companies can export into China from
other markets the very same products that we can't. And so what
you really need to do is to coordinate better on a multilateral
basis. And if you do that, you are going to be more effective,
and you are not going to hurt the U.S. in the process. So I
would look there.
In terms of working with other countries, I think at the
end of the day we need to help them understand that it is in
their self-interest, and that the same challenges we are facing
with China are also affecting their markets. And I think we can
get on the same page and push back proactively, and that will
be a much more effective approach.
Senator Crapo. All right; thank you very much.
The Chairman. I thank my colleague.
Next is Senator Stabenow.
[No response.]
The Chairman. She has a very hectic morning.
Next, then, would be Senator Grassley.
[No response.]
The Chairman. Next, then, would be Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman; I appreciate it.
I also appreciate this panel and witness list. I think they
have covered a lot of ground. And as you know, we are working
in the Commerce Committee on the major portions of the R&D in
the Endless Frontiers Act. So I am glad to hear that everybody
thinks that is a key component of what we should do moving
forward.
And I am so glad to join my Team Northwest colleagues, the
chairman of the committee and the ranking member. I say that
because I think the Northwest does have a very, already
integrated view of the economies of the Pacific Northwest and
Asia.
So we already see the complexity of this challenge. That is
to say, the 301 tariff exemption expiring causes a great deal
of difficulty for a variety of sectors in our economy, a
variety of companies. And I think that belies the larger
question, which is, we already have such an integrated economy,
how do we move forward when we absolutely know we want better
behavior out of China as it relates to very important broad
public policies, whether that is IT theft, privacy issues, the
whole myriad of things?
So I think, Mr. Willems, your comments I totally agree
with: flexibility, redundancy, and partnerships. I definitely
see those as the opportunity for us to work together. But
besides the 301 exemption that my colleague, Senator Crapo,
mentioned, what other tools do we need to affect policy moving
forward? And my one concern is that somehow, we will go too far
and ourselves try to pick winners and losers. And by that, I
mean the Federal Government or some enabled aspect of the R&D
investment that we are talking about.
So supply chains are already complex. They are already
integrated. I like the idea of working with our partners, but
how do we--what are the cornerstones of those flexibility,
redundancy, resiliency, and partnership issues that we should
take forward?
Mr. Willems. Thank you, Senator. It is a great question,
and I am glad that we are like-minded on many things. You know,
I think the point I was really trying to make is that, when you
are looking at supply chains, you want to be thinking about the
positive incentives that you can create to make sure that you
can rely upon them in any sort of crisis situation.
And some of the things we are looking at in terms of
providing the different kinds of funding are R&D and tax
credits, to make sure that we have supply chains that are in
the United States. I am very comfortable with that. What I have
found that is less effective are the discriminatory aspects of
it.
Now in terms of your specific question on how we better
link them with some of these other countries, I think that you
need to be looking at creating standards that we would all
meet. And so, if we are talking about the pharmaceutical
sector, or we are talking about the technology sector, what are
standards that countries like the U.S., Japan, the EU, and
Korea all adhere to and that maybe differentiate ourselves from
China because they have more of an open model? And those are
the kinds of things where we can ensure that there are
linkages.
I think we can also look at--allies should all agree
together that, in crisis situations, we won't put export
restraints on each other. And we will have lower tariffs
between ourselves, so that we can better integrate those supply
chains.
I do think that part of the conversation has to be an
honest look at the fact that once COVID hit and we were in the
crisis situation, there were a lot of export restraints imposed
around the world. And so, if we have allies that we really
trust, and we have common standards between each other, I would
think that we could try to agree to some of that.
Senator Cantwell. Well, I think that is exactly where we
should go. In trade in general, I have been very involved in
increasing capacity building, increasing enforcement
capabilities at USTR, and I actually think here we just need to
bolster our trade strategy as it relates to these policies.
On Huawei, I think that is exactly what we should have been
doing, running around the globe getting like-minded countries
to say we are not going to allow technology exports from
countries that basically do not adhere to the rule of law of
keeping a government back door out of technology solutions.
Why would we let any government have a back door to
technology solutions, let alone one as big as the Chinese
market? So I just think we did not rally enough of our
international allies soon enough on that.
So what do we have to build here in the United States to
give us capacity? If that is 20 more people at the State
Department, count me in. Because 95 percent of consumers live
outside of the United States.
So we have to be building the capacity to have these
conversations on an international basis so that we can go to
China with a full panoply of markets, not just the U.S. market,
but a panoply of other markets, saying ``This is what it is
going to take to do business.'' And the sooner we get at those
longstanding U.S. principles that we know that a lot of our
allies agree on, I think the sooner we will really have the
kind of market power that we want to have with China in
implementing these policies.
I agree; I am not being naive. But at the same time, the
Northwest does look at them as a market. So we are not going to
just X them out either. So I think that this is the better
strategy.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague who is so knowledgeable
about these issues, and we definitely look forward to
partnering closely with her, and I thank her.
Next will be Senator Cornyn--oh, Senator Grassley is here.
Senator Grassley, please proceed. We called you earlier. Go
ahead.
Senator Grassley. Thank you very much. This is a very
important and needed hearing that you are sponsoring. Thank
you.
I want to talk about counterfeit goods from China and Hong
Kong, which have increased considerably in recent years. And so
my question, leading up to asking Mr. Wessel--as Americans
turned to e-commerce, criminals took advantage of innocent
consumers more than they did before e-commerce. I introduced
legislation last week to give the U.S. Customs and Border
Protection more authority to share information with rights-
holders on suspected counterfeit products. This bill would
allow the CBP to share information with its private-sector
partners, creating a much stronger network for counterfeit
detection. So now to my question.
In addition to information sharing between public and
private entities, how can Congress prevent the trade in
counterfeit products through trade policy? And how can the
information sharing across the public and private sector
benefit and secure U.S. trade?
Mr. Wessel. Thank you for your question, Mr. Grassley. And
thank you for your leadership on so many of these issues--the
Foreign Sovereign Immunities Act, and many others.
Your question is spot-on, because it is not just the
economic losses that come from counterfeit products, but it is
the real potential harm to American health and safety from many
of those products. Your legislation is an important anchor for
that approach. It needs to be supplemented by providing CBP the
resources to be able to support that policy. Because, as you
know, they often focus on the interdiction of other products
and concerns.
And finally, we just need an all-of-the-above strategy to
make our various e-commerce platforms, Attorneys General, and
others, aware of the problem and coordinated in their response.
Senator Grassley. Thank you.
According to USDA data, total exports of agriculture
products covered under the China Phase One agreement were
approximately $27 billion in 2020. That means the export target
of $33 billion was missed by $6 billion. Despite the missed
target, 2020 was the record for exports of agriculture products
covered by the agreement.
Mr. Willems, as one of the negotiators on the Phase One
deal with China, I appreciate hearing your perspective on the
deal. Recognizing the challenges of the global pandemic, do you
think China is living up to its commitment in Phase One? And
what steps in improving structural reform should the Biden
administration make sure China takes before they move to Phase
Two?
Mr. Willems. Thank you, Senator. It is a great question,
and I agree with the point that you made, which is that we have
seen record numbers of agriculture exports to China. And I
believe that the reason for that is the Phase One deal. And I
would emphasize--I know that there is a lot of attention often
paid to the purchasing chapter, and the targets that that set,
but I think it is much less important than the structural
commitments themselves.
And if you look at agriculture, the reason that we are
seeing record numbers is because there were 57 underlying
structural commitments that China made to actually change its
laws and regulations to allow in chicken, beef, and pork for
the first time in years, by changing their actual underlying
laws and regulations.
And that is juxtaposed against energy services and
manufacturing, where we did not have the underlying chapter and
therefore we were not anywhere close to our purchasing
commitments, and I think what that shows you is the importance
of the structural chapter.
And I would say, in agriculture China is doing a good job.
On IT, you can look at the national trade estimates that USTR
just put out. I think it is probably a B. You know, they did a
lot of what they said. There are a couple of things now in
progress that are incomplete.
There are additional financial services, so that has been
good. So I think, more or less they have done what they said
they were going to do. Obviously there are areas where they
have not fully followed through, and we need to put pressure in
there.
Moving on, what I would do is, I would look for additional
structural commitments. I would not focus as much on purchases.
And where I would start is with some of the text that got
scuttled in May 2019. As you all may remember, we were very
close to what was going to be a somewhat more comprehensive
deal with China.
Talks broke down for a variety of reasons, and we only got
about half of what we were negotiating. And there was stuff
left on the table on services and non-tariff barriers, and
additional things on forced technology transfer. I think I
would pivot there next, and then work with the allies on some
of the more structural things like SOEs and industrial
supplies.
Senator Grassley. Thank you. My time is up.
The Chairman. I thank my colleague.
Senator Cornyn is next.
Senator Cornyn. Thank you, Mr. Chairman. I want to thank
you and Senator Crapo for working together on a bipartisan
negotiation on the Confront and Compete Against China
legislation, including items that are particularly important to
me: censorship by foreign governments especially in digital
trade, which follows up on my work last year as chairman of the
Trade Subcommittee, working with Senator Casey; reasserting
congressional authority over trade negotiations through
additional oversight; the possible creation of a temporary
restraining order or a national security exclusion order on the
importation of goods obtained through trade secret theft by
foreign governments and state-owned enterprises; identification
of unacceptable risks to our supply chains and outgoing
investment to unreliable foreign adversaries in the event of an
emergency or national security; and finally, reauthorization of
the Generalized System of Preferences and Miscellaneous Tariff
Bill, and other tariff relief.
And finally, I would like to note that, while the United
States may not need an industrial policy per se, it is clear
that the entirety of the Chinese Government, from its military
to its blog posts, they have one that they are using against
us.
So, Mr. Willems, let me ask you a question, if I may,
please. You testified last year before the Trade Subcommittee.
Senator Casey and I led that effort on how foreign governments
like China and Russia use censorship to block market access and
cost companies billions of dollars, especially in the digital
trade space.
I am grateful that the current package currently being
negotiated by the chairman and ranking member includes
addressing foreign censorship as a key objective, at my
request. I simply do not think we can tolerate American
citizens being censored by foreign governments on our own soil.
So let me ask you, if I may, please, can you tell me your
thoughts on how we can better address this problem, addressing
censorship in the trade space?
Mr. Willems. Certainly, Senator. And thank you for your
leadership on several of these issues. I agree with all the
priorities that you highlighted.
On censorship in particular, this is a very significant
issue. And it is something that is appalling, but it is very
difficult for our companies on their own to push back on these
policies that are so embedded in this Chinese Government's
philosophy. And some of the ideas I believe that you are
considering that would have a government role, where the
government steps in and shields U.S. companies--I think that is
the right approach.
I know there was some talk of putting in place section 301,
or a mechanism like that, at USTR to focus on this, where the
U.S. Government would come in. They would investigate it and
come in and potentially try to push back against it. I think
those are the right ways to go.
I think it is challenging, again, for an individual company
to push back on this because of just the massive power of the
Chinese Government.
Senator Cornyn. Dr. Kokas, can you discuss how the Chinese
Government's censorship policies factor into the planning and
investments of American businesses?
Dr. Kokas. I have a few responses to this. One thing that
is really important is to enhance financial reporting of the
types of investments that we see by Chinese firms within the
U.S. So looking specifically at firms like Alibaba Pictures, or
Tencent Pictures, which produce films within the U.S. market
and are heavily funded by Chinese investments. So I think
enhancing financial reporting, particularly in content-
producing industries, is very important.
One of the other challenges that we face is that this is a
huge challenge for privately held corporations. So it is very
difficult to understand how much Chinese investment, and how
much Chinese influence, is occurring within privately held
media and tech companies.
So I think that one thing that could be interesting would
be to look at special reporting for privately held companies
about their level of Chinese investment, and their level of
data transfers.
Finally, something that is important to protect U.S.
companies is data privacy regulations at the national level.
And this is important because it will help protect the data of
U.S. companies from being transferred to China. Thank you.
Senator Cornyn. Thank you. I have been exploring the
creation of an authority that would place, in essence, a
temporary restraining order or national security exclusion
order under section 337 of the Tariff Act of 1930 that would
help block the importation of goods created through trade
secret theft by foreign governments or state-owned enterprises.
Mr. Wessel, could you discuss briefly the Commission's
work, the International Trade Commission's work, on confronting
intellectual property theft, and whether you think this concept
might be useful?
Mr. Wessel. Thank you for your question, Senator Cornyn. I
think it is vital. We have seen that the utility of section 337
is somewhat limited in terms of the ability to respond quickly:
the burden of bringing a suit, the discovery, and all the other
issues that go along with it. So some kind of blanket approach
that allows companies to earn their way out of it by proving
that they did not engage, rather than having to prove, which is
difficult, there are violations, I think has value and is
something that the ITC and Congress should seriously consider.
Senator Cornyn. Right now it seems like China steals
intellectual property with near impunity, and I would like to
see another tool available to the U.S. Government.
Mr. Willems, finally, can you share your experiences with
IP theft by China, and how you would view this new tool?
The Chairman. Mr. Willems, briefly. I think Senator Cornyn
is making some very important points. We just have 20-some
Senators to go. So please respond to Senator Cornyn's question
and then we can move on.
Senator Cornyn. I beg your pardon, Mr. Chairman. I did not
have a clock in front of me, so this is my last question.
The Chairman. I understand. These are important points you
are raising.
Mr. Willems. I think it is a good idea to explore other
ideas, and we can follow up on that later.
The Chairman. Very good. I look forward to working with my
colleague on that.
Senator Menendez?
Senator Menendez. Thank you. Thank you, Mr. Chairman.
Yesterday, the Senate Foreign Relations Committee, which I
chair, voted out, in a bipartisan fashion, the Strategic
Competition Act, 21 to 1--which is rare around here these days.
It is the first major proposal to bring Democrats and
Republicans together in laying out a strategic approach towards
Beijing. The bill ensures the U.S.'s position to compete with
China across all dimensions of national and international power
for decades to come. And I think we have to be clear-eyed and
sober about Beijing's intentions and calibrate our policies and
strategy accordingly.
So I look forward to the bill now coming to the floor. And,
Mr. Wessel, in your capacity--I do not know if you had a chance
to get a sense of the legislation, as a Commissioner on the
U.S. China Economic and Security Review Commission, but what do
you think about what we did in the bill? What would you like to
see that we did not do? How can we make it better? Those are
some of the questions I have for you.
Mr. Wessel. Thank you, Mr. Chairman, and I appreciate the
question. I appreciate your leadership and work on this issue
for so long. I will be honest. I was unable to track all the
amendments, but the underlying issues that the committee
reported, the discussion of it, I think indicates a very strong
base that deserves support.
One of the critical areas I think you addressed is
influence operations. And going to the previous question, that
really underlies a lot of the impact on our companies, our
workers, our researchers.
We have found academic researchers stifling their own, or
censoring their own discussions; journalists being forced to
censor their own discussions. And the impact of these influence
operations through the United Front Work Department, Confucius
Institutes, and other operations, I think has had a pernicious
effect.
Your requirement that universities report contributions
over a million dollars to determine what impact they may have
on free speech, research, et cetera, I think is a critical
component, along with many of the other provisions that the
committee adopted yesterday.
Senator Menendez. Well, thank you. We look forward to you
having a chance to review the totality, and any insights you
have, we welcome.
Would you say that--trade is obviously one of our
challenges with China, but isn't it much bigger than trade?
Mr. Wessel. It is much bigger than trade. Again, it goes to
the entire operation of markets: free speech, the overall
competitive equation in terms of what is happening to our own
workers here, for example. Just the threat of offshoring or
outsourcing has limited wage gains and has resulted in
companies deciding on certain investment postures. And so it
has had an overall negative effect.
And as you well know, in Africa and many other places, what
has been happening with the Belt and Road Initiative, through
debt diplomacy and other Chinese CCP actions, has corroded
international norms.
Senator Menendez. So it is fair to say that making
investments here at home, as China has made in their country,
is critically important in order that we not only confront
China but compete with China?
Mr. Wessel. I think it is vital. You know, I go back to
President Reagan, who was known as being a free-market
advocate, who supported SEMATEC and other investments in the
U.S. It is not choosing winners and losers in the overall
sense. It is choosing to make America the winner in this
process.
Senator Menendez. Let me just ask finally, when the U.S.
entered into the Phase One agreement with the Chinese
Government on trade and investment issues, China agreed to
purchase $100 billion in U.S. manufacturing, agriculture,
services, energy exports per year for 2 years following the
agreement.
We are now a year into this agreement, and Congress and the
general public have no idea whether China is meeting the terms
of the Phase One agreement. One hundred billion dollars for
U.S. manufacturing and agriculture is not exactly chump change
that we can afford to ignore.
Is there currently any way for Congress to know whether
China is following the terms of Phase One? Should we be putting
our trust that China is complying with Phase One? Because I do
not know that I will personally do that.
Mr. Wessel. I certainly would not. Again, I am a Democrat,
but I use the Reagan line, ``trust but verify.'' I think USTR,
Department of Commerce, and others have the ability to track on
a very granular basis what we are selling. But I also think it
is important to recognize that we should allow competitiveness
to choose what China buys, not simply what they choose.
So for example, Senator Grassley asked about Phase One. I
would like to see China open its market to crushed soybeans,
not just the underlying product. I want to see value-added
products, the best we have to offer getting in there, not just
the products that they want to buy at a commodity level that
often become industrial tourists--products that they transform
into products that come right back into our markets.
Senator Menendez. Well, I will close, Mr. Chairman, by just
saying I would like to know: have they complied? And this is
one of the reasons I think that our efforts to have an IG at
USTR are so important, and we would have greater insights at
the end of the day. Thank you very much.
The Chairman. Thank you, Senator Menendez. And I want to
know that information as well. So we will be working closely
with you.
Our next two panel members will be Senator Thune and then
Senator Carper. Yes, both of them are here.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman. Thanks for holding
this important hearing. Let me just say to begin with, that the
China that joined the World Trade Organization in 2001 was a
very different country than it is today. China is now the
world's second largest economy and a strategic competitor of
ours across multiple fields, particularly in key areas, if you
look at, for example, 5G, advanced technologies, artificial
intelligence, quantum computing. China is a military power in
the Asia-Pacific and has undertaken arguably the world's
largest infrastructure program, the Belt and Road Initiative,
across all corners of the globe.
Yet at the World Trade Organization, China continues to
self-designate as a ``developing country,'' just as they did in
2001, in order to justify lower levels of trade commitments.
Self-designating as a developing country not only provides
China with trade advantages vis-a-vis the U.S. and other
countries, but it undermines the institution of the WTO.
Mr. Willems, is it economically justifiable for China to
continue to self-designate as a developing country at the WTO?
And what steps should the United States take to accelerate WTO
reforms? And what would some of those reforms look like?
Mr. Willems. Thank you, Senator. I agree very strongly that
it does not make any sense for China to be classified as a
developing country. What a developing country does in the WTO
system is, it generally allows you to get away with lower
levels of commitment in negotiations. And it does not make
sense for the second largest economy in the world to say they
are not going to take on commensurate commitments to the United
States.
What the United States tried to do under the Trump
administration that I think was a good idea was to put in place
objective criteria which would graduate, if you met that
criteria. That includes things like being a member of the OECD,
having a significant proportion of global trade, being a member
of the G20. And when you apply those criteria to China, they
would graduate.
I think what you need to do here is you need to encourage
other countries to self-graduate. Korea is one that showed some
leadership here and said, ``You know what, we're not going to
call ourselves a developing country anymore.''
I think we need to push other countries to do that, and
then also push for more objective criteria over time. You know,
in terms of a broader WTO reform proposal, this is an area
where proposals need to be more forward-leaning. We need to get
proposals in there that deal with China's worst practices. The
trilateral with the EU and Japan is a great idea, but it needs
to get to an outcome that we can just put into the WTO. So we
really do need to prioritize that.
And I do think the U.S. should engage in dispute settlement
forums, which is an area that they did not engage in quite as
much as when I was part of the Trump administration. It does
not mean we give up the changes we need to see, but let's go
out there with some proactive proposals and see what we can do.
And I think there are a lot of ways that we can do that that I
would encourage this administration to pursue.
Senator Thune. Fifteen countries, including China, signed a
major trade deal last November. The deal calls it a Regional
Comprehensive Economic Partnership, or RCEP, to form the
world's largest trading block, and covers about a third of the
global GDP.
With RCEP now a reality, and America not a party to the
Trans-Pacific Partnership, what should be the top trading
priority for the United States to compete and lead in the Asia-
Pacific?
Mr. Willems, you can start with that, and then anybody else
who wants to comment on that.
Mr. Willems. Yes, I enthusiastically will jump in here and
say we need to get in the game in the Asia-Pacific. I
understand that Senators and others, including the former
President, may have had problems with TPP, but the answer to me
was not to walk away. The answer was to renegotiate those
aspects of it that we did not think were sufficient.
That is exactly what we did with USMCA in a strong
bipartisan consensus, and I think that was great. So let's do
that with TPP. But again, if that is not viable for some
reason, let's at least look at building block agreements with
countries in that region. I mean, digital trade is an area
where we can start; there is a lot of like-mindedness. Start
with building blocks in key sectors and then try to build it
over time.
So again, ideal for me would be the comprehensive TPP we
negotiated. But if that's not feasible, if we cannot do that
for some reason, let's at least start with building blocks with
TPP countries.
Senator Thune. Do we need to renew TPA?
Mr. Willems. Senator, I think it would be a good idea to
have that authority, because it gives us credibility at the
negotiating table, and it also makes sure that Congress has a
direct say in what the administration is doing.
Senator Thune. Thank you.
Mr. Chairman, my time has expired. Thank you.
The Chairman. Thank you, Senator Thune. We will be working
closely with you.
Senator Carper and Senator Portman are next.
Senator Carper?
Senator Carper. Thanks, Mr. Chairman. Welcome to all of our
witnesses.
I want to follow up on Senator Thune's line of questioning
and focus on TPP. I think one of the best ways we could have
moved forward in terms of trade in the last decade was the TPP.
And the idea that we pulled out of it, pulled out of a trading
block that included us and 12 other nations, 40 percent of the
world's trading, and we walked away from it? China was on the
outside, kept on the outside because of its bad behavior
issues, and we walked away. When I think of some of the dumbest
things that we have done in recent years in terms of trade,
that is high on the list.
I just wondered if each of you could, if you have not
already spoken--Mr. Willems has already spoken--but could each
of you take just a few minutes to share your thoughts on the
benefits of taking a multilateral approach to trade to remain
competitive with China?
And my second follow-up question to that would be, in your
view is there a possibility that negotiations can somehow
resume and put Humpty Dumpty back together again with respect
to TPP?
Mr. Wessel. Thank you, Senator Carper. Let me start
quickly. First of all, as I said in my testimony, multilateral
approaches are key. That is what we should be seeking. But at
the same time, we cannot wait for our multilateral partners to
wake up to the real challenge that China's economic and other
activities pose to them and their people. We have to act on our
own.
As to the TPP, let me--as my testimony also indicated, I
chair the staff chair of the Labor Advisory Committee. When
President Obama looked at the TPP early on, I was one of those
brought into the situation room to have a deep discussion about
what the architecture was going to be. And I think many of us
thought that engaging in that way could be helpful.
The ultimate agreement, though, which would have allowed 37
percent of a vehicle to qualify under the rules of origin, that
would have allowed Vietnam for example to comply with labor law
requirements by having a 5-cent minimum wage, and that would
suffice----
Senator Carper. Mr. Wessel, I am sorry. I am going to ask
you to hold it right there. Let's go to our other witnesses.
Thanks so much.
Same question.
Dr. Kokas. Thank you so much, Senator Carper. This is a
really important question, and I think, as I said in my
remarks, I think it is important to rejoin the CPTPP, as it is
now.
One thing that I would like to highlight is, the challenge
of multilateral agreements does not move us forward as quickly
as we could. In my research, one of the things that I have
identified is that there are multi-stakeholder tech standard
organizations, like the IETF or the ACSM, that have the
capacity to build out tech standards and do not require the
same level of overall coordination as a multilateral
organization.
Now the U.S. Government has held back from funding
participation in these organizations. However, that is not the
case with the Chinese Government. And I realize we do not want
to out-China China; however, it is important to have a voice at
the table for these crucial standard-making bodies. Thank you.
Senator Carper. Mr. Willems, you have already spoken a
little bit on this, so I am going to ask you to respond more
fully and directly to my question, if you would.
Mr. Willems. Sure. I thought what Mr. Wessel said was right
on. I think rules of origin for automobiles in the TPP
agreement might have been a tad too permissive. That is an area
that I might look at if I were to negotiate it. And there are
also areas that you could also look at.
The reality is that TPP now unfortunately--I think the
negotiations were more or less concluded in 2012 or 2013. So it
is a little bit outdated, and we have improved things through
the USMCA. So I think you would want to do more or less a side-
by-side in certain areas and figure out where we can benefit
from your collective bipartisan wisdom in the updates that you
helped the past administration make on USMCA and apply those to
TPP. Now we may not want to do everything. It is a different
set of countries, but I do think the rules of origin updates
are somewhere to look. And maybe you do not go quite as far as
in the North American market, but probably beyond where you
were before. And if you could pin that down, then I think you
could try to update some of the other areas and get an
agreement that the U.S. can return to.
Senator Carper. Thanks so much, Mr. Chairman. I suspect I
am out of time. Could I flag a question for the record with
respect to the section 301 tariff exclusion process?
The Chairman. Sure.
Senator Carper. I would ask the witnesses, for the record,
what should Congress do to reform its process in order to
provide greater certainty and predictability for American
companies?
Thanks, very much.
The Chairman. Senator Portman?
Senator Portman. Thank you, Mr. Chairman. And thanks to you
and Senator Crapo for holding this hearing, one, because it is
important to talk about our challenge with China, but most
importantly, because you are developing a package to look at
how we, in fact, do what you said at the outset, which is, and
I am quoting, ``Take concrete steps to level the playing field
for American workers.''
I could not agree with you more, and I think we have an
opportunity here with this broader legislation that is moving
to have the Finance Committee be involved in that.
So, as you know, Senator Brown and I introduced one
proposal recently to update our anti-dumping and countervailing
duty laws. And it is really an attempt to help with regard to
the real world out there as to how China is evading the
existing laws, which were strengthened in what's called the
Level the Playing Field law. This is our Level the Playing
Field Act 2.0, and it looks at these issues that I think every
single one of us has had to address.
Certainly we know about steel, where 15 years ago China had
about 15, 18 percent of the steel production in the world. Now
they have about half of it. And they are dumping it in various
places, and sometimes through third parties and third countries
that send it to the United States, and therefore avoid our
anti-dumping or countervailing duty laws.
Sectors like chemicals, ship building, cement, paper,
glass, aluminum, all face the same over-capacity issue. And
whether it is polyester textured yarn from North Carolina, or
lawn mowers from Nebraska, or metal file folders from Delaware,
or woven ribbons from Maryland, or xanthum gum from Oklahoma,
or woven sacks from Louisiana, every member of this committee
has been facing this one way or the other.
So our legislation would make it easier for manufacturers
to win cases when China moves its factories to new countries in
order to escape the application of U.S. trade remedies, and it
would give the Commerce Department new tools to go after
China's Belt and Road Initiative by accounting for trade-
distorting subsidies given by China to producers in other
countries.
So, Mr. Wessel and Mr. Willems, I hope you are familiar
with our legislation. We sent it to you for your analysis, and
we got some input from you. Do you both agree that this
committee should consider this Level the Playing Field 2.0
legislation to update our existing trade remedy laws and better
address the reality which is the global nature of China's non-
market behavior?
Mr. Wessel. Thank you, Senator Portman. Thank you for Level
the Playing Field Act 1.0, and 2.0. I think your legislation,
along with Senator Brown, is critical, especially as we face
the recovery out of the pandemic.
One of the critical provisions in the bill is to look at
profitability in a different way. We have companies that were
shut down during the pandemic. Now that they are restarting, if
they start earning a small profit, that could be used against
them as they try to fight massive subsidized and dumped
products by the Chinese who, as you know, have over-capacity in
solar, and aluminum, and steel, and countless other industries.
The provisions in your and Senator Brown's bill are the
tool chest that America needs to compete.
Senator Portman. Thank you.
Mr. Willems?
Mr. Willems. Yes, Senator, I appreciate your leadership on
this issue. Conceptually, I definitely agree with what you are
trying to do. And I do think that we need to find a way so we
are not constantly playing Whack-A-Mole as China uses subsidies
and over-production to avoid our duties.
If you look at third-country subsidization, and third-
country dumping, those are areas the European Union has also
been focused on. So I think it is a great opportunity for a
joint proposal there.
I will have to come back to you. I have not had a chance to
look at every specific of your new legislation, so I will get
back to you on that. But I love the idea overall. I would also
say, as I alluded to in earlier remarks, we have to do a better
job on this stuff with the WTO, and I would look to try to do
rules there. And then I would look to try to figure out a way
to reverse some past decisions that have undermined our ability
to counteract Chinese subsidies, such as the Public Body's
Decision as we call it, which hurt our ability to use
countervailing duties against state-owned enterprises.
It was wrongly decided, and I think we need to figure out a
way to fix that.
Senator Portman. Thank you. And thanks, Mr. Chairman.
The Chairman. I thank my colleague.
Next is Senator Cardin.
Senator Cardin. Mr. Chairman, thank you very much. Let me
thank all of our panelists. The U.S.-China trade issue is one
of the most important issues that we have to get right.
It is very challenging, when we look at the fact that we
are promoting market economies and China wants to dominate
through a government-controlled economy; when we want to
protect intellectual property and China wants to take
intellectual property and use it for their own advantage; that
we want to promote trade with other countries so that all
economies can do better; and where China is using their trade
leverage in an effort to promote their rules in regard to a
government-controlled economy.
So we have challenges. In 2015, I was responsible for
including in the Trade Promotion Authority, as a principal
negotiating objective, good governance and anticorruption. Now
obviously, we are not in a position to enter into a trade
agreement with China that would be, I think, strong on the
governance issue, but my question--and I will start with Mr.
Wessel--my question is, do we have adequate trade remedies and
tools today to deal with the corruption and the anticompetitive
nature of our relationship with China? Or do we need stronger
tools in order to put us on a level playing field as it relates
to governance issues and anticorruption issues?
Mr. Wessel. Thank you for your question, Senator, and for
your leadership in 2015 and beyond. I think that the short
answer is, we need new authorities. We need new tools, and we
need new enforcement measures.
There are some on the books that could be better enforced,
but when it comes to good governance, corruption--which goes to
the heart of many of the degrading policies around the globe--I
think a lot more can be done and should be done by Congress.
Senator Cardin. Well, I hope you will be--and all the
panelists will be--free in giving us suggestions as to what we
should be considering as we take up our relationship with
China.
I know we have our traditional trade remedies, but it seems
to me they were not created to deal with the circumstances of
good governance and corruption. So it would be helpful if you
could help us fine-tune our tools, or suggest new tools, in
order to deal with the challenges we have with China.
Look, I am for competition. But it has got to be on a level
playing field. And today it is not on a level playing field.
Mr. Wessel, I want to raise one additional issue as it
relates to China--as to how we use trade. China's activity in
the China Sea is anything but in our national security
interests, as they try to dominate the South China Sea. That
obviously affects the free flow of commerce and presents
national security threats. But it also affects trade directly.
So what should we be considering in our trade relations
with our allies and partners, and with China, to deal with
influencing China's nefarious activities in the China Sea?
Mr. Wessel. Well, Senator, thank you. I do not know that
there are any easy answers to that question. We have been
trying, as you know, for quite some time. China's decision to
ignore the UNCLOS decision on the nine-dash line and other
activities, their reef and rock rebuilding activities, as well
as the use of fishing boats as sort of a civilian militia
around many of these islands, and what they did with Vietnam in
terms of their oil rig--I think it is pernicious. It is
corrosive. And it is continuous.
And I think we need to engage in a much deeper relationship
with our partners there, and have a coordinated strategy to
address the trade and other impacts that we see.
Senator Cardin. Well, I will invite again all the panelists
to give us suggestions in this regard, because I want you to
know, as Senator Menendez mentioned, we passed, by an
overwhelming majority on the Senate Foreign Relations
Committee, a major bill as it relates to China.
One of the amendments that we could not consider, but would
have passed overwhelmingly, was Senator Rubio's amendment that
I was a co-sponsor of, that would have dealt with taking action
against China because of their activities on the China Sea
through the use of sanction-type activity.
We will use that. Sometimes that is a blunt instrument, and
it would be better if we had a more fine-tuned way of dealing
with China's activities in the China Sea. So I welcome your
thoughts. Otherwise, I think Congress will look for a more
direct way to respond to China's activities.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Cardin.
Next is Senator Toomey.
Senator Toomey. Thank you very much, Mr. Chairman. My first
question is for Mr. Willems.
The United States currently has 25-percent tariffs on steel
imports and 10-percent tariffs on aluminum imports from most
countries, including many close allies of the United States. As
you know, they were authorized by the Trump administration
under section 232 of the Trade Expansion Act of 1962.
In my view, this has alienated to some degree our allies,
who correctly view these tariffs as an unwarranted move to
protect the domestic industry, not a national security issue.
So my question for you is, do you agree with the view that the
imposition of these steel and aluminum tariffs under section
232 has undermined our country's ability to work with our
allies in confronting China's many objectionable practices?
Mr. Willems. Thank you, Senator. I have not been a strong
proponent of the 232 action that President Trump took. I was
very involved in the interagency process when we considered how
to move forward. I agreed with the President that there was a
very serious concern with Chinese excess capacity disturbing
global markets. But my view was that it was hurting Europe, it
was hurting Japan, it was hurting our allies around the world
just like it was hurting us.
And so I would have preferred a concerted solution where we
all worked together to isolate the bad practices coming out of
China. I think that would have been a better approach.
Senator Toomey. Thank you.
So, Mr. Chairman, I mean, I do not think there is any
question that the 232 tariffs weakened our ability to work with
allies to confront China. I would also argue that 232 steel and
aluminum tariffs have been harmful to the U.S. economy, by an
objective measure. They have cost us a lot of manufacturing
jobs--maybe as many as 75,000. They have increased steel and
aluminum prices and made U.S. exports less competitive. I would
argue it was a misuse of executive authority. Remember, the
Department of Defense determined that the steel and aluminum
tariffs were not necessary to meet defense requirements.
Nevertheless, the Commerce Department decided to recommend
the use of section 232 to target imports that do not threaten
national security. These tariffs have not accomplished any of
the stated goals. They have done nothing to decrease steel
over-capacity. They have had an absolutely minimum impact on
steel imports from China.
And worst of all, Mr. Chairman--and this is why I am
bringing this up--there is nothing we in Congress can do about
it. Now the Biden administration is in the process of reviewing
this, and I am hoping that they will recognize the domestic
economic damage and the global implications, and they will make
the right decision and lift these tariffs.
But the fact is, Congress has no choice but to sit on our
hands and passively wait on the administration to make a
decision in an area--that is to say, collecting taxes and
duties--that the Constitution delegates explicitly to us. And
that is why I think we need to reform the underlying statute to
reassert the responsibility that we have in this area.
If removing these tariffs is an important part of working
with our allies, and working with our allies is important in
combating China, then it should be the prerogative of this
committee to reform what I think is the excessive delegation of
authority. And we should do it in any legislation this
committee considers when dealing with China.
So as you know, Mr. Chairman, I introduced a bill last year
with Senator Warner. We had over 60 groups across a wide range
of diverse industries; we had a number of Democrats and
Republicans who co-sponsored the legislation on the committee
and off the committee. And the premise is simple. It just
restores responsibility over tariffs, which is to say taxes, to
Congress--where the Constitution actually puts it.
It does not take away the ability of the President to use
section 232 for legitimate national security purposes, it just
requires that Congress authorize that.
Colleagues, Congress is, after all, the first branch of
government, and we have explicit constitutional
responsibilities, and they include trade. I think we should act
that way. So I introduced this legislation when there was a
Republican in the White House. I continue to support it when
there is a Democrat in the White House, because for me this is
not about party politics. Irrespective of who the President is,
I think Congress should accept this responsibility.
We can take an important step in that direction, Mr.
Chairman, by including section 232 reform in the upcoming China
bill, and I hope we will do exactly that. Thank you.
The Chairman. I thank my colleague. As he and I have talked
about before, there is no question in my mind that Donald Trump
misused the tariff concept. What we are waiting to see is how
President Biden is going to look at it. And I am very hopeful
that we will see a fresh approach.
Next is Senator Brown.
[No response.]
The Chairman. And I do not see the Senator.
Next would be Senator Cassidy.
Senator Cassidy. Hello, everybody.
Commissioner, I am very interested in trade-based money
laundering; if you will, the partnering, if you will, or
coupling of the money laundering of illicit dollars with licit
trade and the way tens of billions of dollars have been moved
out of the United States annually.
Any sense of the magnitude by which this may be occurring
with trade with China?
Mr. Wessel. I apologize, Senator; I do not know. I can tell
you, though, briefly that last week the China Commission held a
hearing where we looked at China's aggressive expansion on
digital currency. And that has serious repercussions for money
laundering, lowering the ability or reducing the ability of our
sanctions regimes to work.
But as to money laundering directly, I will have to get
back to you after talking to our committee staff.
Senator Cassidy. Sounds great.
Mr. Willems, I really liked your testimony, because on the
one hand--you know, I have been bouncing between committee
hearings. I apologize to everybody. But I think you mentioned
the need to strike a balance.
You cannot be antagonistic, nor can you be a folding chair.
There has to be some sort of push-back. At the same time, there
has to be continued engagement, and you gave some particulars
there. So let me just kind of specifically mention that.
Again, I have this interest in international money
laundering. And it does occur to me, though, that that requires
the cooperation of both countries. You have to have
transparency into banking transactions. The Commissioner just
mentioned the potential for this cryptocurrency to facilitate
transactions for which inherently--they are crypto.
Do you have any kind of practical suggestions on how we
could engage the Chinese Government to cooperate with us on
money laundering--which, by the way, may be part of their
capital flight, and I gather capital flight is a major issue.
So I do think there is a vested interest.
So, any thoughts on that?
Mr. Willems. Well, I would certainly agree with your
overall concept, as reflected by my statement that engagement
needs to be part of our answer. I have not spent a ton of time
on money laundering issues, so I do not have a sophisticated
answer for you, but I do think that finding a way to work
together, through some of the international institutions and
other initiatives like the G20 that we are tangentially
involved with, those kind of things make sense to me.
We have to find ways to partner. Because even as we are
pushing back on the problems, trying to solve them together is
in our interest.
Senator Cassidy. I am not sure who this question is
directed towards. It has occurred to me that the labor
standards and the environmental standards in China are either
nonexistent or not enforced. Indeed, you could call it a
negative enforcement if you include slave labor.
And on the other hand, we have treaties with Mexico and the
CAFTA-DR that require labor and environmental standards. Now in
a sense, this turns out to be a subsidy to China, allowing them
to undercut the cost of production within one of these other
countries, because they do not have to comply. And the cost of
compliance inherently adds cost.
One, do you agree with that observation? And I open that up
to anyone who feels qualified to speak. And secondly, what do
we do about that? Because otherwise there will be a giant
sucking sound of business from Central America to China. And
when that occurs, people lose jobs, and they tend to migrate to
the United States.
Mr. Willems. Senator, I can jump in quickly and just say,
it is something I have written about a little bit in the past,
and I put forward a WTO reform proposal. And one of the ideas
there was to try to impart those kinds of standards into the
international rule set so that they do apply to China, just as
they apply to countries with which we have an FTA.
I agree with you, China should not have a leg up on us,
both allies and partners, through FTAs.
Mr. Wessel. Senator, yes, I agree with your comment a
thousand percent. The AFL-CIO, I believe in 2004, had filed a
301 petition regarding China's labor rights violation. The
petition was not accepted.
I think that needs to be updated, because I think, since
that time, we have all seen what effect China's failure to
promote labor rights, freedom, et cetera, has had on our own
workers. So I would suggest that we update that petition and
bring it forward, as we also look at doing what Clete is saying
about bringing this into the WTO. But until the WTO acts, we
cannot afford to allow the continued impact on our own people.
Senator Cassidy. Mr. Chairman, I yield back. Thank you.
The Chairman. Thank you, Senator Cassidy.
Next is Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Mr. Wessel, it is good to see you again. Would you agree,
Mr. Wessel, that China has never engaged in a good-faith effort
to reduce over-capacity?
Mr. Wessel. I would agree 100 percent; yes, sir.
Senator Brown. So, Senator Portman and I have recently
introduced legislation, I think you know, to strengthen our
anti-
dumping and countervailing duty, building on the Level the
Playing Field Act of 5 years ago, to challenge unfair trade
practices and reduce the impact of over-capacity and support
workers in Ohio and Oregon, and Senator Casey's Pennsylvania,
and all.
Do you agree this legislation will help support Ohio
steelworkers and protect U.S. jobs?
Mr. Wessel. Senator, I think it is not only Ohio
steelworkers, but workers all across the country. Because, as
you know, it is steel, it is aluminum, it is chemicals, it is
solar up in Senator Wyden's area. It is about 15 to 17 sectors
that are in over-capacity, and that decimates U.S. production
and employment.
So I think the tools you are talking about are vital, and
they reflect the changing nature of China's competition.
Senator Brown. So, walk through for the committee why the
Brown-Portman bill will help to create more of a level playing
field across those 17 industries?
Mr. Wessel. Well, as you know--and I think Clete just used
the comment Whack-A-Mole--China's over-capacity is like a
Whack-A-Mole problem. Not only do they change the nature of the
product, which then creates a new competitive pressure here,
but they are flooding other countries' markets with their core
products.
You will remember several years ago, oil country tubular
goods, we had a trade case against China. We successfully won
that. They then sent hot-rolled coil into Korea that was
transformed in a minor way. Korea uses no OCTG, but they
started shipping it to the U.S., and again we lost production
and employment here in the U.S.
That is just one example across hundreds, if not thousands,
of products. Each trade case takes about a year and a half for
the first results, and as much as five for a final, and costs
generally between $1.5 million and $3 million. But that does
not even talk about the injury that has occurred to the company
and the workers.
Many companies never come back, as you know, and you have
seen that in your State. So the tools you have provided in your
and Senator Portman's legislation would make it easier to
address serial dumping. It would make it easier in a situation
like today, where companies are just coming back to
profitability. But that can be used against them at the ITC.
So I would say, all of the tools you are providing are ones
that U.S. companies and workers need.
Senator Brown. Thanks, Mr. Wessel. I remember learning that
new acronym and having it burned into my brain, OCTG, as we
made those pipes in Ohio. We made them all over the country.
And we saw, as Mr. Willems said, the Whack-A-Mole show.
I remember when they went to Korea. And Korea had no
industry of that type, was at zero before that happened. So
thank you.
Chair Wyden and Ranking Member Crapo, thanks so much for
the hearing, first of all, for doing this, and for your ongoing
work to address China's anticompetitive trade policies,
combined with Brown-Wyden and all the things we have done
together and will continue to do together that are really
important.
As this committee moves forward with this bipartisan
legislation so American workers and manufacturers can compete,
I would like to ask you, Senator Crapo and Senator Wyden, to
work with me and Senator Portman to include our Eliminating
Global Market Distortions To Protect American Jobs as part of
this effort. We can together strengthen our trade remedy laws.
And I will give back time, but I ask unanimous consent to
include a few letters of support for this legislation in
today's record.
The Chairman. Without objection, so ordered.
[The letters appear in the appendix beginning on p. 52.]
Senator Brown. Thank you, and I yield back the rest of my
time, Mr. Chairman.
The Chairman. Thank you, Senator Brown, and we look forward
to working closely with you.
Next is Senator Lankford.
Senator Lankford. Mr. Chairman, thank you. And to our
witnesses, thank you as well for your work on this
exceptionally important issue.
I have to tell you, in this day and age I am amazed at the
number of American companies that are still looking to China to
do manufacturing, after all the intellectual property that they
have stolen, after their immense human rights abuses and what
they have done. And I am particularly astounded with the number
of American companies that will boycott States in the United
States, that will make public statements about different
things, but have no problem doing business in China, which has
one of the worst human rights records in the world; which
limits a free press and takes away any right to vote for any
individual in a meaningful way in China; which does
surveillance laws on their people; which violated their word on
Hong Kong, and said basically Hong Kong will have some sort of
autonomy until 2047. And then, when it was not convenient, they
just broke their word on that and consumed Hong Kong with their
surveillance network. They do forced abortions on individuals
and limit the number of children that families can have. They
limit free access to faith, free access to a free press, free
access to assembly.
All of those things are common in China, not to mention the
prison camps of the Uyghurs and the multitude of other issues
that they have done, as we have talked about, economically,
today. So there are serious issues with any companies doing
business in China. They need to be clear-eyed on the real risk
of having a communist government be your partner for your
business.
And it needs to be very clear for American companies that
are going to speak ill of America but seem to have no problems
with engaging in China and the things the Chinese Government
does there. So I would encourage companies to be awake as they
deal with their interactions with China.
Saying all that, there are a billion people there. There
are a lot of companies that want to do business with a billion
people and are engaged in that process. So I want to be able to
talk to some of the things that China is doing that we need to
pay attention to, and I would like to start with rare earth
minerals and critical minerals.
China has been very strategic in trying to isolate the
critical minerals market and rare earth minerals. We have,
quite frankly, allowed them by limiting production of critical
minerals here in the United States, and have just exported that
work to China to manage.
Now we are behind the eight ball in many ways on trying to
be able to catch up on those critical minerals that are needed
for solar panels, for batteries, for steel production, for so
many items in our cellphones--everything else.
So let me ask, Mr. Willems, do you have ideas on the
critical mineral side of things that we can continue to do to
be able to catch up and to be able to level the playing field
that we have abdicated to China?
Mr. Willems. Thank you, Senator, and I appreciate all of
your remarks. I will say, on critical minerals, I mean there
has been a lot of discussion in this administration. They have
a supply chain executive order. They are looking at this. I
think we are looking forward to their recommendation.
One thing I will say, though, if we are serious about this,
I really do think that permitting and being able to produce
these minerals in the United States has got to be a core part
of that. And I understand that some have environmental concerns
about that, but we need to find a way that we can do it in an
environmentally friendly way in the United States. Because
otherwise, I think we are tying our hands behind our back.
We cannot just subsidize our way out of this. I also would
really look at partnerships with other countries. Australia is
a country that has done a lot of work in this area. And I think
we should look at leveraging institutions like the Development
Finance Corporation to have joint partnerships and projects
with Australia.
So those are two ideas that I would put into the mix, and I
very much look forward to the results of the Biden
administration's review.
Mr. Wessel. Senator?
Senator Lankford. Go ahead.
Mr. Wessel. Senator, if I could just add quickly, the NDAA
that Congress just passed, I guess with a veto override earlier
this year, included a new provision that would expand rare
earth mineral utilization by DoD from mines to magnets. Prior
to that, the DoD was required to procure products, the final
products, from an allied country, essentially, but it allowed
Chinese rare earth minerals to be the underlying basis.
The new provisions should help get those four U.S.-based
mines back online. It is going to take a bit of time, but we
need to do that, with investments as well as broader
provisions.
Senator Lankford. I completely agree.
Mr. Willems, I want to follow up on a WTO question with you
as well. China talks about how they are co-equal to the United
States, and they are another world superpower, until it comes
to WTO. And then suddenly they shrink back and say, ``We are a
developing poor country, and we need extra subsidies, and we do
not need to pay our fair share in.''
What reforms need to be done to WTO? Because China has an
outsized influence in that, and a veto in the dialogue.
Mr. Willems. There are a lot of reforms that need to be
done by the WTO. I have a paper that I wrote on this, and I
would love to share that with you and talk further. I know we
are almost out of time, but I will say, to your point, the
developing country status is right at the top of the list.
If China claims that it is a co-equal partner in the global
community with the United States, it needs to treat itself like
one at the WTO. And we need to have objective criteria that
say, given their significant size and the power of their
economy, they have got to take on every single commitment that
the United States does.
Senator Lankford. Thank you. Thank you, Mr. Chairman. I
yield back.
The Chairman. I thank my colleague.
At this point, it is Senator Casey, and we are just going
to keep going. It has been a challenge, but Senator Crapo and I
are determined to make sure that everybody has a chance to get
heard on this crucially important topic.
Senator Casey?
Senator Casey. Mr. Chairman, thank you very much. I know we
are well into the vote, so I will try to be brief and try to be
under time.
Mr. Wessel, I will direct my question to you, maybe two
questions at the most. We have all seen too clearly the cost of
relying on China, which is a non-market economy, for our
Nation's critical capabilities, especially with respect to
personal protective equipment. We also have very little
visibility on what other vulnerabilities might exist with
respect to production dependencies in other sectors of our
economy.
Last month, the U.S.-China Commission held a hearing to
examine how U.S. capital investment in China props up the
Chinese Government's military-civil fusion and ultimately
compromises the U.S. national security. Some witnesses noted
that the U.S. does not have a mechanism to assess how
outsourcing by U.S. companies to countries of concern may
compromise our national security and the security of supply
chains that Americans depend upon.
Senators Cornyn, Stabenow, and I have a proposal to
increase visibility on vulnerable supply chains, to review
outbound--outbound--investment of critical capabilities to
foreign adversaries and non-market economies like China, to
assess and address dependencies and vulnerabilities of our
critical supply chains.
Mr. Wessel, do you agree the U.S. should establish outbound
investment review?
Mr. Wessel. I do. And I think the structure that you have
been advancing--I have talked to your staff--allows for the
flexibility in terms of viewing this, but will gain the
necessary information as well as control where critical
products are at risk.
Senator Casey. Well, thanks very much. I will propound
additional questions to you in writing. And I will conclude
with this, Mr. Chairman, in the interests of time.
I know that Ranking Member Crapo and his staff have raised
concerns with respect to elements of this proposal. I think it
is important the U.S. has visibility on vulnerable supply
chains, and also critical that we know when national critical
capabilities are being offshored for foreign adversaries.
I hope we can work together to reach a resolution on your
concerns. I think this is a critically important issue. And I
will yield back 2 minutes and 30 seconds because I know the
vote is on. Thanks very much.
Senator Crapo [presiding]. This is Senator Crapo. I believe
Senator Wyden has stepped out to go to the vote, so I am going
to go next to Senator Daines.
Senator Daines. Yes, thanks, Senator Crapo.
I spent over half a decade in China in the private sector.
We were launching, marketing, and selling American brands to
compete, back in the 1990s, against the state-owned enterprise
brands. And we beat them handily, by the way. It was nice to
see the American brands winning.
I have led a lot of codels to China, getting more U.S.
Senators engaged to understand what is going on on the ground
there, to see the innovation ecosystem that they are building
in China, and what that means for the United States and the
world.
I have seen first-hand the challenge and the repression
implemented by the Chinese Communist Party, as well as the need
to hold China accountable for its unfair trading practices and
existing commitments.
It is also essential, I believe, that the U.S. make needed
investments in research and development. How we run faster here
in America, in terms of global competitiveness and beating
China into these next-generation technologies, is we are truly
going to have to race to be more competitive and be more
innovative.
And that is why I strongly support Senator Young's Endless
Frontier Act. I appreciate his leadership on this issue, which
I think will help ensure the U.S. maintains its competitive
edge in scientific and technology innovation, supporting high-
tech jobs around our country, and right there in Montana.
I want to start with a question for Mr. Willems. In your
testimony, you highlight the importance of ensuring the U.S.
runs faster. I agree with that. As it relates to competing
against China, you reference the Endless Frontier Act as a good
start, which I agree with.
As Congress considers a proposal to ensure the U.S. remains
a global leader in innovation and technology, how should we
target investment to ensure that we expand upon the competitive
advantages a free market economy provides and do not displace
them?
Mr. Willems. It is a great question, Senator, and I do
think that that is an important point that I tried to make in
my opening, that the reason the U.S. has been the world's
leader for years in innovation is because of our free markets
and our market economy, which is different from China.
China has been successful in very targeted areas where it
has had a ton of money and therefore been able to develop
innovative technology. So I think what we do not want to do is
to just throw a bunch of money out the door and hope that we
beat them. I think we need to interface with the private sector
directly and say, ``Where in particular are you going? And how
can we help you get there?''
I think some of the things in the Endless Frontier Act that
talk about working with universities are critical. I think tax
credits for innovation for our companies are important, in
addition to the things that are in that bill.
Again, I think we need to, as we are moving forward--we
need to not abandon our principles, because they are the source
of our strength. And especially I think, if we are looking at
supply chains, we need to not become a closed-off society where
we aren't competing, working with others around the world. We
need to leverage each other, the things we bring to the table.
And 5G and 6G are good examples where we have not been able
to do everything at home in the United States. We have some
companies that are involved there, but we are going to need to
work with Japan and others.
So it is all about the positive incentives, and to realize
we cannot do everything ourselves, and we need to maximize our
abilities to have our companies work with others, work with----
Senator Daines. Mr. Willems, thank you. I am going to jump
in on the specific issue of polysilicon. It is a critical
component to nearly everything: semiconductors, next-generation
batteries, other technology essential for long-term
competitiveness and growing our economy.
For years, the U.S. polysilicon industry has been targeted
by China, and retaliatory tariffs are actually threatening a
lot of our high-wage manufacturing jobs in places like REC
Silicon in Butte, MT. What can be done to strengthen the U.S.
semiconductor and battery supply chain and reduce our
dependence on China for these critically important materials?
Mr. Willems. I do think that we need to fully fund the
CHIPS for America Act, which was included as part of the NDAA
last year. We authorized the program; let's fund that program.
I would also look at the tax incentives that were included
there that I think were left on the cutting room floor. That
would help for additional fabrication in the United States. We
also need to keep helping additional design in the United
States.
And the other thing on semiconductors, is we need--if we
are going to take export control measures against China, we
need to coordinate those with others. And we need to allow our
semiconductor companies to sell nonsensitive materials to
China. Because ultimately what that does is, that helps make
China subsidize our companies.
So look, on the most sensitive stuff, you may have to shut
the door. But on stuff that is not sensitive, let's let our
companies sell overseas so we put China in the position of
helping us----
Senator Daines. I am sorry to interrupt you, but could you
give a quick comment on--I am concerned about critical minerals
in China's control there. What risk does the U.S. face should
China restrict access to these critical minerals? And how can
we mitigate the threat? I know I am out of time, so you will
have to make it a quick answer.
Mr. Willems. Sure. They have done it before, and we sued
them at the WTO and won when they tried to do that. I think we
need to keep disciplines there internationally, but we also
need to partner with others to diversify our supply chains and
our source of supply. And I mentioned in an earlier question
that Australia would be a good partner on some of those things.
I would also look at Canada and others who have some resources,
as well as our own.
Senator Daines. Thank you.
Mr. Wessel. Just very quickly, on polysilicon, we should
act against the forced labor that is producing the polysilicon
in the Xinjiang region. It is something that has been raised,
and that could have a big impact as well.
Senator Daines. Thanks, Mr. Wessel. Thanks, Senator Crapo.
Senator Crapo. Thank you very much, Senator Daines. And I
am not sure if we have any Senators back from the votes yet, so
I am going to go through a few names here. And if none of the
Senators is back yet, I have a couple of questions of my own
that I did not get to ask before.
Is Senator Warner available?
[No response.]
Senator Crapo. Senator Young?
[No response.]
Senator Crapo. Senator Whitehouse?
[No response.]
Senator Crapo. Senator Sasse?
[No response.]
Senator Crapo. Senator Hassan?
[No response.]
Senator Crapo. Senator Barrasso?
[No response.]
Senator Crapo. Senator Cortez Masto?
I believe she is--I have been told she is close to----
Senator Cortez Masto. I am here; thank you.
Senator Crapo. Oh, good. Go ahead.
Senator Cortez Masto. Thank you, Mr. Chairman and Ranking
Member.
So this is a great conversation, and I so appreciate the
written testimony.
Let me start with the panel on technology competition. You
know, it is clear that competing with China in this technology
sector will entail a whole-of-government response. And that is
why I have been working on legislation to conduct a review
every 4 years that will collect, coordinate, and outline the
national posture on key technology issues.
I think by clearly identifying our goals, and appropriately
investing, we can ensure the United States is globally
competitive for decades to come. But my question is, what role
do you see technology development and innovation playing in the
broader global competition landscape? And would you agree that
it would be helpful to have a strategic posture across many
Federal agencies to be competitive on various technologies such
as 5G, AI, and green energy?
Let me open that up and maybe start with Mr. Willems.
Mr. Willems. Thank you, Senator. I think it is a good idea
for us to be more strategic and to coordinate better across the
agencies. I think that is an area that we have struggled with a
little bit in recent years, and I think making sure we have an
overall strategic plan is important.
I also like the idea that you are constantly updating
priorities, and you are constantly reviewing them. And I do
think this is where--the point I was making earlier--where
having the private sector come in and help us understand where
they are going and where they need help, is the way to do it.
You do not want to have a completely top-down approach
where the U.S. Government is deciding we are going to do X, and
then throw subsidies out the door. But we need to have this
constant feedback loop with our industries, so we know exactly
what they need. So that should be in there as well.
Senator Cortez Masto. Thank you.
Anyone else? Any other comments on this question?
Mr. Wessel. I would just say that I think it is spot-on. If
we look at what is happening now with the auto sector being
starved for semiconductors, that has resulted in production and
employment loss. Technology is now embedded in virtually all
our products--production processes and the products themselves.
So it is no longer some esoteric issue. It goes to the core of
America's competitiveness.
Senator Cortez Masto. Thank you.
And, Dr. Kokas, I see you had your hand up.
Dr. Kokas. Yes, I did. Thank you, Senator Cortez Masto. So
a national posture on tech issues is essential. In my
conversations with partners and allies in Japan, the European
Union, and Australia, one of their major critiques is that it
is very difficult to collaborate with the United States because
there is not a clear, affirmative vision of what U.S. tax
policy actually is.
The second issue that I would point out is the importance
of having aligned tech policy across different agencies for
cybersecurity purposes. So agencies like the Social Security
Administration have not historically had a large cybersecurity
mandate. However, they have, increasingly, data that could be
very useful in targeted hacks.
And finally, I think that it is particularly important to
look at a national policy in order to be able to deal with
Chinese acquisitions of global firms that gather data within
the United States.
So currently, the CFIUS process does not address that. I am
thinking specifically of Syngenta as the largest Chinese
acquisition outside of the U.S. They gather huge amounts of
U.S. agricultural data, but it was an acquisition of a Swiss
firm.
So by having strong U.S. tech policies, we can actually
identify which types of data, and which particular sectors, are
most important to address nationally and manage issues like
that that are not currently addressed in that process. Thank
you.
Senator Cortez Masto. Thank you. I so appreciate that.
Another area I want to focus on with all of you, while we
are here, is the technology standards. One key area we address
as we look at global competitiveness in technology is the
standard setting process, right? Standard specifications define
performance requirements for materials, products, and services
related to technologies around the world.
I believe it is critical that we absolutely look at this
for emerging technologies. The Chinese Government has already
established goals to set global standards for emerging
technologies like 5G and 6G, the Internet of Things, artificial
intelligence. And again, I am working on legislation to
establish this interagency task force that will develop really
a strategy for emerging technology standard setting to help us
affirm our leadership on this issue.
So I wonder if you would be willing to discuss the
importance of the U.S. involvement in standard setting, and how
critical it is at this point in time.
Dr. Kokas. Thank you, Senator Cortez Masto. Very briefly,
one thing that I think has received a lack of attention is the
participation of Chinese Government entities in multi-
stakeholder organizations.
We have discussed a lot about multilateral considerations,
and I think that is crucially important. However, these are
things that could immediately change on a dime. And when
bringing this up to colleagues in the Department of Commerce,
one of the things that they have highlighted is that this is a
U.S. policy decision.
I think that we are really leaving things on the table by
allowing Chinese regulators to participate actively in multi-
stakeholder organizations and professional organizations that
are really setting the standards based upon how the U.S. has
structured the global regulatory environment by putting
corporate interests first.
However, U.S. corporations currently have multiple
different masters, shall we say, and our interest is both in
their relationship with the Chinese Government and the U.S.
Government. By not sending U.S. Government entities to these
professional organizations, we are enabling the Chinese
Government to take leadership in crucial areas. I am thinking
particularly in facial recognition technology.
Senator Cortez Masto. Thank you. Thank you so much. I know
my time is up. Thank you for this great discussion today.
Senator Crapo. Thank you, Senator Cortez Masto.
I am going to check again. I understand several Senators
are on their way back. Are there any Senators who have not had
a chance to ask questions who are----
Senator Warner. Senator Warner.
Senator Crapo. Senator Warner, you are up.
Senator Warner. All right; thank you, Mr. Ranking Member,
Mister Almost Chairman.
Let me add--I am not going to ask a question on this, but I
want to echo what Senator Cortez Masto just asked and Dr.
Kokas's comments. This is an area where, candidly, I think
America went to sleep. We went for 50 years assuming for almost
every technological innovation, even if we did not invent it in
America, that we would set the standards, the protocol, the
procedures.
And you know, I see this in 5G--I was a telcom guy. We did
not flood the zone with our engineers and our technical people.
China is flooding the zone and, consequently, setting
standards. You mentioned facial recognition. I am fearful that
that is going to grow into AI across the board.
We have already seen China set standards on 5G. And the
standards are so important because it is not just about what
radio spectrum we use or what technical specs; it really does
creep into things like transparency and respect for human
rights.
I think it is so important. And if you look, China has even
got a document, China 2035, where they have laid out by issue
area where they hope to set the standards.
So, Dr. Kokas, I want to say, a corollary of that is where
U.S. companies are actually almost enabling--under the guise
that nobody can miss the Chinese market, they are willing to
sacrifice their values that they would never sacrifice in our
country or, for that matter, in virtually any other western
country, to kind of get access to this market.
I actually think sometimes helping China with censorship
surveillance, social control--a couple of years ago, I wrote
the Google CEO with Chairman Wyden about the company's efforts
to literally work with the Chinese Government to build a
surveillance-enabled search engine in China, totally counter to
anything Google has said about their values.
How do we address this entity where actual American
companies are willing and obliging Chinese efforts to advance,
not only their economic dominance, but the goals of the CCP.
And when I mention China, it is important to mention my
interest is with the CCP and Xi Jinping, and it is not with the
Chinese people or the Chinese diaspora, particularly Chinese
Americans. But shouldn't we--how do we hold U.S. companies
accountable to the kind of values they espouse here when they
then quietly are willing to work to advance the goals of the
CCP in terms of their surveillance state?
Dr. Kokas. So thank you so much, Senator Warner, and it is
a pleasure to answer the question, as a proud professor at the
University, and a proud Virginian.
So I think that this is a multi-pronged question, and there
is not one specific answer. One area where I think the U.S. can
make a huge difference is by passing a comprehensive data
privacy framework which prevents U.S. companies from exporting,
exfiltrating data to China, or Chinese companies that are
operating within the U.S. from exfiltrating data back to China.
I think this is essential, because it also strengthens
consumer privacy within the U.S. It also is truly important,
because we have a situation in the U.S. where companies are--we
have used the words Whack-A-Mole multiple times, but companies
are changing their privacy policies by the day.
As I write about these things, I have to have alerts for
when TikTok is changing their transparency policy. The
legislative calendar does not work at that pace. So there needs
to be legislation, and there needs to be reporting in place for
how companies are sharing their data abroad.
That's something we can do within the U.S. This is also
important because we do not know precisely the ownership
stakes, or the ownership relationships, of privately held
companies that have relationships with China. I am thinking in
particular of Epic Games and Fortnite that have huge amounts of
data, and we have no idea how they are sharing it. All that we
have reliance on is what the company says, and they say that
they do not share their data with their Chinese partners, but
there is really no way that I have to identify and actually
test that. But that is an important first step.
Senator Warner. I appreciate that, and I do appreciate the
work you have done and am proud that you are doing it at the
University of Virginia.
I just, in my last 25 seconds, want to make the case not
only to the panel--and Mr. Wessel has actually helped on some
of this. I believe the Chinese model, which I call kind of
authoritarian capitalism, is where they allow dramatic domestic
competition in emerging technologies, always then getting a
Chinese champion that emerges, dominates in the Chinese market,
and then that Chinese champion is advanced abroad.
We have seen that in the case of Huawei--the $100-billion
backstop. We see it in the case of semiconductors--$150-billion
investment. Many of us on this committee are working in a
bipartisan way to make a substantial investment in the
semiconductor industry--$50 billion in emerging appropriations
under the so-called CHIPS Act with my good friend John Risch
and many on the committee.
We need to make that law very shortly. We also need in an
area, I would argue where we are not only behind because we
don't even have an American player but could potentially lose
the game in 5G, to go beyond 5G to ORAN--Open Radio Access
Networks.
We have a similar type of emergency appropriation that is
broadly endorsed by American and other companies, about moving
to this more software-based system in ORAN. And I have gone too
long, so the pitch is to my colleagues. I would love to talk to
you more individually. I think this legislation will be the
second week of May, and I think sending a broad bipartisan
signal that America is willing to get back in the game in terms
of these cutting-edge technologies, standard setting, and also
the key research, is critically important.
And with that, I will yield, Mr. Chairman, or Senator
Crapo; but thanks for giving me the extra minute.
Senator Crapo. You bet. Thank you. And I appreciate your
focus and what you are saying.
Next is Senator Young.
Senator Warner. Senator Young has been a leader on this.
Let me just, as he comes on, give him a shout-out as well. He
has been the key leader on the underlying legislation.
Senator Crapo. Yes, he has been very strong on this.
[No response.]
Senator Crapo. I am going to go through a few more names.
Senator Whitehouse?
[No response.]
Senator Crapo. Senator Sasse?
[No response.]
Senator Crapo. Senator Barrasso?
[No response.]
Senator Crapo. Senator Warren?
[No response.]
Senator Crapo. Senator Scott?
[No response.]
Senator Crapo. We do expect a couple of those back right
away, and so while we are waiting for them, I have a question
for you, Mr. Willems, on the TRIPS Agreement.
When you were in the Trump administration, you were part of
the team that worked to stop forced technology transfers to
China. Some have argued that the TRIPS intellectual property
waiver would amount to exactly that, a forced transfer of MRNA
vaccine technology to China, and other vaccines, and would be
delivering a competitive advantage to countries that are
increasingly viewed as our adversaries, at taxpayer expense.
Do you agree? And how do you evaluate that?
Mr. Willems. Thank you, Senator. Unfortunately, I do agree,
and I am very concerned about the Biden administration's
consideration of a waiver of intellectual property protections
at the WTO, which ostensibly would help distribute more
vaccines for COVID around the world.
Look, I will be the first to say the more we can distribute
the vaccines around the world and help other people is great.
But the problem is, this is actually not the right way to do
it. IP has not been an impediment to vaccine distribution, and
we have actually had our companies do licensing agreements with
companies in India.
So the notion that IP is somehow causing a problem here is
wrong, and it really, I think, is just this longstanding effort
by India and others to undermine U.S. IP at the WTO.
And then to the specific point you made, let's keep in mind
that the technology that we are talking about, the MRNA
technology, this was something that was funded by DARPA, by our
Department of Defense, as a national priority that helped
facilitate the production of these vaccines. And the notion
that we would go to the WTO and basically say, technology
transfer of DARPA-funded research to China, which has
specifically identified this in its Made in China 2025 plan--
the fact that we would aid and abet Made in China 2025 is crazy
to me.
And so I really hope the administration realizes that is
not the right way forward. I think there are other things we
can look at. I think, you know, funding--funding distribution
is fine. If you are facilitating licensing agreements that are
done on voluntary terms, that is fine. But I think if we are
having an honest conversation about this, we also need to look
at our export policies and say, how do we export more of this
stuff from the United States?
I know a lot of Senators are familiar and are interested in
building a stronger domestic pharmaceutical sector, but let's
use this as an example. Let's help them send the vaccines
around the world and sanction our supply chain in America.
Senator Crapo. Thank you. Do any of the other witnesses
have an opinion on this issue that they would like to share?
Mr. Wessel. Senator, thank you for the question. I have
worked hard at this. I disagree with Clete's comments on a very
limited waiver for this product. I think we are facing such a
large problem globally that we have to bring this into line.
But we also need to do better about preventive measures, the
ability to make sure our early-warning systems are better, et
cetera. But I would do this as a one-off, but restrict it to
this product.
Dr. Kokas. Senator Crapo?
Senator Crapo. Yes?
Dr. Kokas. Just two quick points on this.
So first of all, I would like to agree with Mr. Wessel that
if we are not able to actually bring the COVID-19 pandemic
under control, there will not actually be a global economy, or
efficient global trade for us to discuss.
So I think that there is a reason for the limited exception
here. But the other thing that I think is really important to
underscore that seems to be the focus of the committee hearing,
is that the MRNA vaccine technology emerged from the funding of
basic research in the United States. And advancing the funding
of basic research, not specifically applied research but basic
research, is essential in order to ensure American
competitiveness.
We do not know how long--it is a very long time horizon, so
there tends to be a focus on strictly applied technologies, but
this underscores the importance of not just funding things that
we can use within the next year or 2 years, but things that
build out our innovation ecosystem for the next 20, 30, 40
years. Thank you.
Senator Crapo. Thank you.
Mr. Willems. And if you would indulge me for just 20
seconds, I agree with Mr. Wessel on so many things, but I would
note that the proposal that India and others are making at the
WTO is not limited. They are basically asking to waive broad
portions of this intellectual property agreement, ostensibly
because of its vaccine issue, but really it is a much broader
proposal. And I think there are just better ways to do it. We
do not need to give our technology up to China and others who
facilitate exports to the United States.
Mr. Wessel. Again, I would do it as a one-off. I understand
the concerns and share those, because IP really goes to the
heart of America's competitiveness.
Senator Crapo. All right, thank you. Thank you both very
much.
Have we had--well, for example, I am told Senator Young is
coming back. Senator Young, are you back yet?
[No response.]
Senator Crapo. Any other Senators who have made it back
yet?
[No response.]
Senator Crapo. All right; I am going to go on with another
question then. This one is to you, Mr. Baer. One of the issues
with the section 301 exclusion process that I have seen, in
terms of companies coming to me and asking for help in trying
to get a 301 exclusion, is timeliness. It takes a significant
amount of time to get the 301 exclusions through the process
and put into place.
And now to have them expire and have to go through that
process again, I would think is a little disconcerting. Would
it be helpful to businesses like yours--and as we talked
earlier, issues across our country in this context--if there
were some kind of a timeline, or a time frame required for
responsiveness to these kinds of issues?
Mr. Baer. Yes, most certainly. You know, I certainly
understand the program, and it operates differently than
business. And you know, probably for very good reason. But
certainly, the length of time that some of these things have
taken has been a challenge for us, where we are almost to May
now and we are still trying to fight to get our exclusions
back.
So certainly some sense of timeliness, or at least
expectation of time frames, would be helpful.
Senator Crapo. All right; thank you.
Mr. Baer. Thank you.
Senator Crapo. Anybody else want to weigh in on the section
301 exclusion process or issues?
Mr. Willems. Sure, Senator. I would just say, I think the
administration should update the process as soon as possible.
We want to help our companies like Mr. Baer's. And I think
there are some changes we might want to make to it as well, to
make sure it is more transparent and actually works for
companies, and that they have some sense of certainty.
So I would strongly support what he just said.
Senator Crapo. All right; thank you very much. I still do
not see any Senators having made it back yet. Are there any?
[No response.]
Senator Crapo. Okay; I am going to go on to another
question then. And this is one I would like to throw out
generally. It is with regard to semiconductors.
Senator Wyden and I--and many of the others on this
committee and other Senators in the Senate--are very committed
to strengthening and improving America's competitiveness in the
semiconductor industry in response to Chinese anticompetitive
conduct and subsidization, as well as activities across the
globe in other countries.
One of the big things that has already been discussed about
that is the CHIPS Act, somewhere between $30 billion and $50
billion of direct grant support for the American semiconductor
industry. That is primarily a spending issue. It would really
be resolved, most likely, in one of the spending bills moving
on the Senate floor, or in the appropriations process.
But we have been looking very carefully at, within the
jurisdiction of the Finance Committee, what types of activities
or solutions would be helpful; for example, a development tax
credit or an R&D tax credit or some other type of ability to
incentivize the growth and the strengthening of our
semiconductor industry.
I would just like some of you who may have thoughts on this
to kind of free wheel with me here for a second and discuss
what we could do to go beyond the CHIPS Act to do what is
necessary to strengthen our semiconductor industry.
Mr. Wessel. Senator, I will take a crack at that, if I can,
and thank you for the great question. And certainly, the CHIPS
Act being fully funded is the first step. But this committee
has significant jurisdiction.
First of all, for example, in trade agreements the ability
to include these kind of technology products as part of content
requirements often is done more generally, and there are things
that could be done, as was done in part in USMCA, to look at
new technologies and how we can use procurement as a pull-
through. That is number one.
Number two, there is often what is called ``the valley of
death'' between research and deployment. And I think the
committee could look more at how we expand the deployment of
these technologies without running afoul of WTO's subsidy
protocols and disciplines.
The ability to test the development and deployment of
technologies, these chip fabs, as you know, as well as the
equipment used to produce semiconductors, are extremely
expensive. So taking something from the lab bench to the shop
floor to the clean room floor is a difficult process. I think
that is something where there are a lot of tax rules and other
provisions under the jurisdiction of Finance that could come
into play.
Mr. Willems. I would just add--I mean I do think, as you
alluded to, some of these tax credits that are within your
jurisdiction are the way to go. And in particular, if you look
at the semiconductor supply chain, there are some things we are
doing well, and there are some things we have not done as well,
and we really need to look at the foundries and fabrication of
semiconductors and find ways to actually manufacture in the
United States.
But I also will make a broader point here, which is that,
in addition to the specific targeted things for the industry,
we also need to look at the general condition of this business
in the United States, and that is the overall tax policy that
gets to how easy it is to make new facilities, site these
facilities in the United States, and it also looks at how well
you can export from America.
And as I alluded to before, when we are looking at export
control measures, we need to be careful that they do not make
it too difficult for us to send our products abroad. And we
need trade agreements so we have new markets for ourselves as
well.
So I think all those things are important.
Senator Crapo. Thank you. Anybody else?
[No response.]
Senator Crapo. All right, I am going to go--I am going to
ask again if any of our Senators have made it back.
[No response.]
Senator Crapo. For our witnesses, we have four votes going
on right now. And I am guessing that a lot of our Senators are
just feeling like they are caught up on the floor until they
get through this--oh, here is Senator Wyden. We can ask him how
to proceed.
Senator, can you hear me?
The Chairman. I can. I can.
Senator Crapo. We do not have any other Senators back, and
have not had anybody back for probably 5 or 10 minutes. And I
have run out of my questions. And so I do not know whether you
want to wrap up the hearing, or whether you expect other
Senators to come back, but the ball is returned to you.
The Chairman. Senator Crapo, let's make sure we have asked
staff about it. My understanding is, on both sides, our side
and your side, we gave a last call for Senators who would like
to participate.
So your side does not have any additional----
Senator Crapo. My understanding is, we are not aware of
anybody on our side who is asking to participate at this point.
The Chairman. Let me just check with our side. Nobody is
waiting.
Well, what I will do is--and I welcome you to as well,
Senator Crapo, if you would like to--I am just going to give a
short closing statement. And that also will give us a chance to
see if members come back.
I want to thank our witnesses. Terrific panel, because----
Senator Crapo. Senator Wyden, I have to--they are calling
me because I have to get back to this next vote, so I am going
to slip out now. You can wrap it up.
The Chairman. Perfect. Thank you, Senator Crapo.
I want to thank our witnesses, because you gave us exactly
the kind of information we need to get to the bottom line,
which is to out-compete China.
And my colleagues today have raised a variety of critical
issues with respect to our trading, our relationships, digital
trade, censorship, agriculture, theft of intellectual property,
monetary policy, the list goes on.
And to me, the diversity of topics shows that this is a
substantial, difficult, multi-pronged issue that China
presents. I appreciated Mr. Wessel describing the size of the
problem: $2.4 trillion in lost intellectual property, $134-
billion trade deficit in advanced technology, an estimated 3.7
million lost jobs since 2001.
Dr. Kokas described China's efforts to export repression.
That is how I would characterize it. And we always think about
exports--what they are doing is exporting repression through
their digital and censorship policies.
Mr. Willems and Mr. Baer captured the impact of these
anticompetitive practices in the United States.
So we look forward to working with all of you on a clear-
eyed and effective legislative response to these
anticompetitive practices. My view is, this legislation--and
the bipartisan approach we are pursuing--is an example of trade
done right. Because it says, at the center, we are going to
make sure that American workers have a chance to compete
fairly.
Now I believe Senator Stabenow of Michigan, for whom these
China issues are very important, is on her way to the hearing.
So I think at this point, with your leave, we will take a 5-
minute recess and we will wait for Senator Stabenow, because
these are important issues to her, and we will be back out of
here at the conclusion of her questions and will wrap up. So my
thanks to all of you.
[Brief recess.]
The Chairman. All right, I thank our guests for their
patience. Our colleagues are so interested in participating in
this. I believe Senator Bennet is ready to ask questions. Is
that true?
[No response.]
The Chairman. Senator Bennet?
[No response.]
The Chairman. I had been told at one point that Senator
Bennet was here, and Senator Warren was interested. Do we have
any Senators? This is almost like making a public appeal.
[No response.]
The Chairman. All right. What we will do is, we will recess
for an additional 5 minutes. And I think you can tell the end
is in sight, and we thank all of you very much for your
patience.
[Brief recess.]
The Chairman. To our witnesses, thank you all for your
exceptional patience. It has been a terrific hearing, and we
are going to adjourn, recognizing that, with the bedlam of
today, it is not possible to be everywhere at once. Our thanks,
and we are adjourning today. But as far as our involvement with
all of you, it is to be continued.
Thank you, very much.
Mr. Wessel. Thank you.
Mr. Willems. Thank you very much.
Dr. Kokas. Thank you.
Mr. Baer. Thank you.
[Whereupon, at 12:48 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of David Baer, Chief Operating Officer
and General Counsel, Element Electronics
Good morning, Chairman Wyden, Ranking Member Crapo, and members of
the committee. My name is David Baer, and I am the chief operating
officer and general counsel of Element Electronics. Thank you for
giving me the opportunity to share Element's story with the committee.
Element is the sole remaining mass producer of televisions in
America. Our facility is located in Winnsboro, SC and at the end of
2020 was operating at essentially full capacity. That means all eight
production lines were running and we had over 520 team members working
at the facility. This success shows that with a level playing field our
workers can out compete anyone. Importantly, our story is about
community and people--at Element we offer living wages and benefits to
our employees, over 90 percent of whom are African American. For many
of our employees, Element is literally a family business with multiple
generations working together at our facility. I have included in our
written submission information about some of our employees and how they
have benefited from the ability of Element to offer good-paying jobs in
our community.
However, the success of our employees and our community depends on
two issues that are completely beyond their control: the continuation
of tariff relief under the China 301 tariff exclusions and the
Miscellaneous Tariff Bill, otherwise known as the ``MTB.''
With respect to the MTB, it is important to understand that the
most expensive input into the LCD TVs produced by our team in South
Carolina is the glass LCD panel. These panels are not available in the
U.S. Thus, Element must import these panels. Element faces a severe
tariff inversion situation when importing these panels. The normal
tariff on LCD panels is 4.5 percent while the tariff on finished LCD
TVs is 3.9 percent. Putting a higher tariff on an essential part as
compared to the imported finished TV obviously incentivizes the
importation of finished TVs over U.S. production. To make matters
worse, imports of finished LCD TVs from Mexico are duty-free under
USMCA. TV producers in Mexico use the same panels that Element imports
and the same factory equipment that Element uses--but Mexican producers
import those LCD panels duty-free and then export the finished TVs into
the USA duty-free.
The 2018 MTB provided temporary relief for the tariffs on imported
LCD panels. Unfortunately, the MTB lapsed at the end of last year, and,
as a result Element is once again at a severe competitive disadvantage
relative to imports, particularly duty-free imports from Mexico.
In addition to the lapse in the MTB, Element is also now paying an
additional 7.5-percent tariff on any LCD panels imported from China as
a result of the section 301 tariffs. Element deals with the unfair
competitive pressures from imports from China every day. We have seen
firsthand how the Chinese Government subsidizes and controls Chinese
companies and the Chinese economy. The United States must aggressively
confront the actions and policies of the Chinese Government. However,
the United States must also be careful not to inflict unintended harm
on American producers and workers who have no choice but to rely on
certain imports from China.
Recognizing the lack of U.S. production of LCD panels and the
dominance of China in the LCD panel market, Element received an
exclusion from the section 301 tariffs. Like the MTB, that exclusion
expired last December. Even with the exclusion in place, Element worked
to find non-Chinese suppliers for LCD panels and for a time was
successful in sourcing LCD panels from sources outside of China.
Unfortunately, over the course of 2020 each of these non-Chinese
suppliers exited the LCD panel market for TVs as a result of relentless
unfair competitive pressure from China. Now, Element is once again
forced to rely on imports from China as we search for alternative
sources of supply, which do not currently exist.
As a result of the lapse in the MTB and the 301 tariff exclusion,
Element has gone from operating at full capacity and over 520 team
members at the end of the year to operating just 4 lines, and
employment has dropped to 370 team members. Although Element continues
to produce to meet its ever-increasing demand from its customers, it is
impossible to remain competitive in the face of an overnight 12-
percent tariff disadvantage to our competition, most of whom are using
Chinese materials assembled in Mexico. Without a restoration of the MTB
and the 301 exclusions, Element will be forced to move production out
of the USA. This will devastate our workers and our community.
Demand for Element TVs is strong. Just a few weeks ago, Element was
named Walmart's 2020 Supplier of the Year in the entertainment, toys
and seasonal category. However, no one can be expected to pay a premium
of 12 percent for a TV produced in the US. Leveling the playing field
through retroactively restoring the MTB and Element's exclusion from
the 301 tariffs will allow Element's employees to once again
successfully compete against anyone. Moreover, passing this bipartisan
legislation will allow Element and many other companies to get back to
doing what we do best--employing hundreds of hard-working Americans in
good paying jobs in a community that relies on Element as one of its
primary sources of economic growth. Therefore, on behalf of Element
Electronics, our team members and their families, I urge Congress to
enact legislation that would retroactively restore the MTB, and if the
administration will not use the authority it has to retroactively
restore the exclusions from the 301 tariffs, then Congress should enact
legislation that requires the retroactive restoration of these
exclusions.
Thank you for your time, and I am happy to answer any questions you
may have.
______
Questions Submitted for the Record to David Baer
Questions Submitted by Hon. Mike Crapo
Question. Under section 301 of the Trade Act of 1974, the previous
administration imposed four rounds of additional tariffs on
approximately two-thirds of Chinese imports to the United States.
However, to avoid undue harm to American consumers and manufacturers,
the USTR initiated a tariff exclusion process for certain Chinese
products subject to these additional tariffs.
Is it fair to say that without the exclusion from section 301
tariffs, Element Electronics would have had to cut back on employment--
in particular, on well-paying manufacturing jobs? If so, can you tell
me why?
Answer. Yes, that is very accurate. The most expensive and
significant component in the production of an LCD TV is the LCD panel.
China is the primary source of LCD panels as a result of Chinese
producers driving non-Chinese suppliers out of the market. As a result,
Element and all of our competitors in China and Mexico rely on LCD
panels produced in China. Element received an exclusion from the
section 301 tariffs for LCD panels and in combination with the benefits
of the MTB, Element increased production and employment. At the end of
2020 we employed over 520 team members and paid a living wage and
benefits. With the lapse of the section 301 exclusion and the MTB at
the start of 2021 and the resulting overnight imposition of an
additional 12 percent duty, Element's South Carolina plant became
uncompetitive, particularly against tariff free imports from Mexico. As
a result, we have had to reduce employment and production--we are now
down to only 370 team members. We will likely need to continue to
downsize our U.S. production in favor of foreign production without
retroactive reinstatement of our 301 exclusion and the MTB. The lapse
of the section 301 exclusion and the MTB has already caused the loss of
good paying jobs and the rapid retroactive restoration of the exclusion
and MTB is needed to prevent further job losses.
Question. An overwhelming majority of the tariff lines in the MTB
are already subject to China section 301 tariffs. Moreover, the MTB
provides relief on inputs key to U.S. manufacturing. Without MTB
renewal, U.S. manufacturers will spend additional money they could have
used on jobs and competitiveness.
Do you agree that failing to renew MTB legislation has already
adversely impacted manufacturers, and that every day Congress fails to
renew it is another day that hurts industry's ability to create U.S.
jobs?
Answer. I absolutely agree. Under the normal U.S. tariff structure,
Element faces a severe tariff inversion problem. The tariff on LCD
panels, the key component, is 4.5 percent while the tariff on finished
TVs is 3.9 percent. Thus, the normal tariff structure provides an
incentive to import finished TVs rather than produce them in America.
The situation is even more dire with regard to imports from Mexico,
Element's most significant competition. Imports from Mexico are duty-
free. The MTB levels the playing field for Element and puts our team
members on an equal footing with imports from Mexico and other
countries. If Congress were to prohibit imports from China from
benefiting from the MTB than Element would have no means to level the
playing field against imports from Mexico or other countries. Congress
would effectively be telling Element to move its production to Mexico.
The lapse of the MTB has already made our South Carolina facility
uncompetitive and we have had to lay off over 150 team members. Rapid
and retroactive restoration of the MTB and the exclusion from the
section 301 tariffs is needed to prevent further job losses.
______
Question Submitted by Hon. Thomas R. Carper
Question. Over the past several years, tariffs on China and
subsequent retaliatory tariffs have caused significant economic
disruptions for U.S. businesses and farmers. I have heard from many
constituent companies who have invested significant time, money, and
resources navigating the process for securing an exclusion from these
tariffs. However, unfortunately, these exclusions expired at the end of
last year, and no new exclusion process has opened. Recently, I joined
Senator Portman, and several of my Senate colleagues on both sides of
the aisle, to encourage USTR to re-start an exclusion process.
However, the last exclusion process was far from perfect, and left
many questions about speed, transparency, and fairness.
Moving forward, in your view, what should Congress do to reform
this process in order to provide greater certainty and predictability
to American companies?
Answer. Element was able to obtain an exclusion from the section
301 tariffs and as a result was able to rapidly grow and increase
employment. However, Element faced significant uncertainty with regard
to the status of its exclusion request once filed as we had no idea
when a decision would be made. In order to mitigate this uncertainty,
Element would request that if an exclusion process is restarted any
application for the restoration of a previously granted exclusion be
automatically approved at the outset of that process and new
applications are subject to clear timelines.
______
Question Submitted by Hon. Patrick J. Toomey
Question. Last December, the Trump administration declined to renew
the exclusion process for section 301 tariffs, further hurting American
businesses and consumers in the midst of a pandemic. Many businesses
already facing supply chain challenges related to COVID-19 have been
unable to quickly shift production to other countries or facilities
without compromising their procurement process or product quality.
Since January 2021, when the section 301 exclusion process lapsed,
CBP has assessed just under $9,000,000,000 in additional taxes on
American companies and consumers--yet the Biden administration has thus
far given no indication of a plan to reinstate the 301 exclusion
process.
How would small and mid-size businesses be helped by the
reinstatement of the section 301 product exclusions, especially during
this period of economic recovery?
Answer. Element is the quintessential American small business
success story. We moved LCD TV production back to the U.S. from China,
located our facility in Winnsboro, SC, a small town that suffered from
high unemployment, particularly among the African American community,
and grew from less than 100 team members to over 520 team members by
the end of 2020. Over 90 percent of our team members are African
American and we are able to pay a living wage and benefits. However,
the lapse of the exclusion from the section 301 tariffs has made our
facility and team members uncompetitive against imports, particularly
imports from Mexico. As a result, we have already had to lay off over
150 team members. The rapid and retroactive restoration of the
exclusion from the section 301 tariffs and the MTB is needed to prevent
further job losses.
______
Submitted by Hon. Sherrod Brown, a U.S. Senator From Ohio, and
Hon. Rob Portman, a U.S. Senator From Ohio
American Iron and Steel Institute et al.
April 19, 2021
The Honorable Sherrod Brown The Honorable Rob Portman
United States Senate United States Senate
503 Hart Senate Office Building 448 Russell Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Senators Brown and Portman,
As the trade associations representing America's steel producers,
fabricators and workers, we write to express our full support for the
Eliminating Global Market Distortions to Protect American Jobs Act of
2021 (S. 1187), introduced on April 15, 2021. We thank you for your
continued leadership and commitment on the critical trade issues
included in this legislation.
The steel sector is a core part of the U.S. manufacturing base and is
essential to our national and economic security. The U.S. companies and
their workers who produce and fabricate an array of steel products rely
on the availability and effectiveness of the U.S. antidumping (AD) and
countervailing duty (CVD) laws to counter the harmful impact of
unfairly traded imports into the U.S. market. These laws are our first
line of defense to offset unfair advantages enjoyed by our foreign
competitors who leverage their governments' financial largesse and
protected home markets to penetrate the U.S. marketplace at the expense
of our jobs and livelihoods. Your bill will vastly improve the ability
of these laws and the U.S. agencies charged with enforcing them to
address foreign efforts to circumvent the remedies Congress intended--
remedies that allow the industry to grow jobs, develop infrastructure
and serve an economy recovering from the ravages of the COVID-19
pandemic.
As Congress considers the steps needed to restore and sustain our
country's competitiveness in the years ahead, America must ensure that
there are fair and effective rules of commercial engagement--an
imperative that would be achieved by the enactment of this legislation.
Specifically, your legislation elaborates improvements to the structure
and application of the AD and CVD laws which will permit the
enforcement agencies to more certainly and swiftly address a range of
practices which undermine the relief from unfair trade practices that
U.S. industry has worked to secure. Passage of your bill is essential
if our country is to overcome the difficult challenges of global
economic competition which lie ahead.
Our industry's survival is imperiled by an immense global over-capacity
in steel production, capacity which is sustained through foreign
government subsidies, supports and other intervention and the
facilitation of aggressive export practices intended to dump that
excess production in others' markets. Until these kinds of market
distortions are no longer a factor in the global marketplace, the
United States will need the most effective trade laws and enforcement
regime possible to ensure that there is a level playing field where
U.S. steel and other manufacturing industries can compete and thrive.
Your bill will be instrumental in securing that goal.
The steel industry and its workers thank you for your leadership and
stand prepared to work with you to advance this legislation in the
117th Congress.
Sincerely,
Kevin M. Dempsey Philip K. Bell
President and CEO President
American Iron and Steel Manufacturers
Steel Institute Association
Roger B. Schagrin Laurence Lasoff
Executive Director and Counsel
General Counsel Specialty Steel Industry
Committee on Pipe and of North America
Tube Imports
Charles J. Carter, S.E., P.E.,
Ph.D.
President
American Institute of
Steel Construction
______
Cambria
``Cambria sincerely thanks Senator Portman and Senator Brown for their
meaningful and bipartisan efforts to strengthen and modernize America's
trade remedy laws,'' said Marty Davis, President and CEO of Cambria.
``As the largest domestic manufacturer of quartz slab surfaces, Cambria
has experienced firsthand the damages to our workers as a result of
unfair international trade practices by China. Cambria has long worked
with the U.S. Government to ensure a level playing field for our
industry, yet certain repeat offenders have routinely avoided
antidumping and countervailing duties by employing sophisticated
transshipping schemes. Passage of the Eliminating Global Market
Distortions to Protect American Jobs Act will equip authorities with
the necessary tools to protect American jobs and will ensure family-
owned companies such as ours remain competitive in the global
marketplace.''
______
Committee on Pipe and Tube Imports (CPTI)
900 Seventh Street, NW, Suite 500
Washington, DC 20001
P: (202) 223-1700
E: [email protected]
F: (202) 429-2522
April 21, 2021
The Honorable Sherrod Brown The Honorable Rob Portman
U.S. Senate U.S. Senate
Washington, DC 20515 Washington, DC 20515
Re: Eliminating Global Market Distortions to Protect American Jobs Act
of 2021
Dear Senators Brown and Portman,
We write on behalf of the U.S. steel pipe, tube and fittings producers
who are members of the Committee on Pipe and Tube Imports (CPTI) in 31
States with over 35,000 employees to express our support for the
Eliminating Global Market Distortions to Protect American Jobs Act of
2021, S. 1187. We thank you for your continued leadership and
commitment to ensure that U.S. trade laws remain strong and accessible
for the industry and its workers who rely on a level playing field.
The steel pipe, tube and fittings industry have successfully used the
trade laws to challenge unfair trade practices--which include over 100
antidumping (AD) and countervailing duty (CVD) cases over the past 3
decades. The remedies provided through the imposition of duties have
enabled these companies and their workers to recover and compete.
Our association has been a leading supporter of the trade laws and has
worked with Congress to ensure that these laws remain in place. We know
these laws are effective and we recognize that Congress should revisit
them to ensure they are consistent with the ever-changing patterns of
global trade.
As Congress considers the steps needed to restore and sustain our
country's competitiveness the CPTJ and its members plans to be part of
the Nation's economic recovery--from supplying the auto, construction
and energy sectors to being part of an innovative infrastructure
network. We agree that the provisions as outlined in S. 1187 provide a
critical framework to ensure these laws remain in place.
We encourage members in the Senate to join you in support of this
legislation as it moves through the legislative process.
Sincerely,
Roger B. Schagrin Tamara L. Browne
Executive Director and General
Counsel Director, Government Affairs
______
Kitchen Cabinet Manufacturers Association
1768 Business Center Dr., Suite 390
Reston, VA 20190
(703) 264-1690
https://www.kcma.org/
April 21, 2021
The Honorable Sherrod Brown The Honorable Rob Portman
U.S. Senate U.S. Senate
Washington, DC 20515 Washington, DC 20515
Dear Senators Brown and Portman,
As the country's leading trade association representing U.S. kitchen
cabinet manufacturers and their employees in hundreds of communities
across the country, we write to express our support for the Eliminating
Global Market Distortions to Protect American Jobs Act of 2021, S. 1187
which was introduced on April 15, 2021. We thank you for your continued
leadership and commitment to ensure that U.S. trade laws remain strong
and accessible for manufacturers impacted by unfair trade.
In recent years, the domestic kitchen cabinet manufacturers were hard
hit by unfairly traded imports from China. These imports resulted in
financial losses, production cuts and reduced employment for the
industry. The industry took action and filed AD/CVD petitions on
imports from China which concluded in March 2020 with the imposition of
AD and CVD duties. Our industry welcomed this decision and since that
time has worked hard to regain its footing in the market.
These petitions marked the industry's first experience using the trade
laws and we were very pleased with the results. We know these laws are
the first line of defense to counter unfair trade practices and we
remain committed to work with Congress to ensure they remain in place.
As Congress considers the steps needed to restore and sustain our
country's competitiveness the kitchen cabinet industry wants to be part
of that recovery. S 1187 includes important provisions which will
ensure access to these laws.
We encourage members in the Senate to join you in support of this
legislation as it moves through the legislative process.
Sincerely,
Betsy Natz, CEO
______
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
Thank you for those remarks, Mr. Chairman, and for spearheading
this effort to out-compete China, in particular. I am glad to be
working with you on legislation to strengthen America's trade policies
and practices.
China is a potent challenge to the United States on several
levels--economic, strategic and moral. Republicans and Democrats can--
and should--work together to formulate a China policy that can
effectively confront these challenges. Put plainly, there is no need
for a Republican or Democrat policy on China, just an American policy.
An American policy is precisely that: it reflects the best of
America. It reflects our competitive spirit, our leadership in
innovation, and critically, our values. So how do we put such a policy
into practice? Simple--stay true to what made the American experiment a
success.
In terms of competitiveness, we should not close off our market or
engage in protectionism. China closes off its market and provides
distortive subsidies to create national champions. We do not fear
competition; we embrace it, because America's workers, farmers, and
businesses have always confronted challenges head-on, and that spirit
will never dampen.
American companies become global champions because the way forward
in a free market is to excel, and America excels like no other in a
fair fight. And to fight at its best, America must focus on
strengthening its competitiveness, which means we need to be smart in
our use of tariffs. We need to cut tariffs on inputs that support
American manufacturing, or on goods consumed by the American consumer,
especially middle- and low-income families.
We can achieve that through programs like the Miscellaneous Tariff
Bill, and through thoughtful application of the section 301 tariffs on
China. Our open market strengthens America strategically. President
Eisenhower told Congress in 1958 that world trade:
. . . strengthens our friends and increases their desire to be
friends. World trade helps to lay the groundwork for peace by
making all free nations of the world stronger and more self-
reliant.
He was right. That is why it is important we reauthorize the
Generalized System of Preferences program. Developing countries that
want to play by the rules should know that the United States will be a
reliable trading partner and a fierce friend.
For example, there is no question that if most countries are
offered a choice between debt-trap diplomacy like China's Belt and Road
initiative, or the opportunity to have access to the U.S. market, which
is governed by the rule of law, they are going to pick America. History
is instructive in that regard. In terms of innovation, we should pursue
policies that promote and reward creativity, such as strong
intellectual property protections.
Many of us are rightly repulsed by practices like China's
technology theft and its Great Firewall. But the answer is not to
construct our own restrictions on data and information, or create some
social credit score for U.S. companies. The answer, like President
Reagan said 3 decades ago, is to tear down the wall. We must directly
target those actions that take aim at U.S. companies. We must also
negotiate and enforce strong rules through new trade agreements,
including at the World Trade Organization.
Last, but perhaps most important, are our values. China's human
rights abuses are appalling. The Communist regime set its tone on human
rights at its inception, and it has not improved since.
Internationally, we must be sharper in our engagement on human
rights by rallying our allies to confront these abuses, including
forced labor and the suppression of free speech. What will bring down
those abuses is not U.S. disengagement, but facilitating the
opportunity for the Chinese people to engage themselves.
Domestically, we have to stay true to our processes. That means our
approach is shaped by a course that reflects our American tradition of
building consensus through dialogue and debate. Whatever anyone may
claim China has achieved through its system, ask them if they would
rather live in a world that reflects its approach to its citizens--or
ours?
Unlike any government official in China, every member present today
is here because their constituents chose them through free and fair
elections. And each of our members has the right and responsibility to
bring their insights into the discussion. This hearing is part of that
discussion, but it is not the end of it.
Moreover, it bears emphasis that Congress is democracy at its best.
Concentrating unfettered power in the executive is China's approach,
not ours. Having Congress in the driver's seat on critical trade policy
decisions is not a weakness, it is a strength.
Chairman Wyden and I still have a lot of work ahead of us to right
this ship of state in the world's marketplaces, and I appreciate his
partnership in this effort. And we are working together, and with
members on the committee, to achieve that in a legislative package that
will strengthen America's competitiveness and benefit its farmers,
businesses, and innovators.
Thank you for organizing this hearing, Mr. Chairman. I look forward
to the testimony from our witnesses.
______
Prepared Statement of Aynne Kokas, Ph.D., Senior Faculty Fellow, Miller
Center for Public Affairs; and Associate Professor of Media Studies,
University of Virginia
Chairman Wyden, and distinguished members of the U.S. Senate
Finance Committee, it is an honor to be here. Funding from title VI,
the Fulbright U.S. student program, the East-West Center, the Woodrow
Wilson Center, the National Endowment for the Humanities, and the Kluge
Center at the Library of Congress, has been central to my ability to
research and teach about China at the University of Virginia and as a
student in public universities in California and Michigan. To maintain
American competitiveness, there is a crucial national security need to
fully fund the study of China by American students and scholars.
My remarks today will focus on five key findings:
1. U.S. corporate profit in key media sectors depends on access
to the Chinese market and adherence to Chinese regulations. This shapes
the U.S. digital landscape.
2. Chinese laws imperil U.S. tech investment in China.
3. Chinese firms with close Chinese Government ties are rapidly
acquiring a wide range of U.S.-based digital media and tech sector
entities.
4. Chinese financial interest in U.S. media firms is already
leading to censorship and disinformation.
5. The U.S. market's economic dependence on China is changing
how companies talk about censorship.
a note about self-censorship
For the past year, when receiving calls from journalists to discuss
this topic when I have been speaking with journalists about U.S.-China
media relations, some assumed that I would not want to go on the record
about my thinking due to the sensitive nature of this topic. The PRC
Government has increased reprisals against scholars, including
sanctions of Newcastle University professor Jo Finley Smith and German
academic Adrian Zenz. The environment for research about China has
deteriorated rapidly, as have extraterritorial threats to speech. I am
here speaking frankly and want to acknowledge the intensifying
pressures against doing so.
U.S. corporate profit in key sectors depends on access to the
Chinese market and adherence to Chinese regulations. This shapes the
U.S. digital landscape.
The global tech sector is estimated to reach USD 5 trillion in 2021
(Business of Technology 2021). The U.S. is poised to make up 33 percent
or USD 1.6 trillion of that (Business of Technology 2021). The Chinese
market makes up 14 percent of the global tech economy but it also
offers a tantalizing market growth opportunity for U.S. firms (Business
of Technology 2021). With the growth of the Chinese market, U.S.
national interest and U.S. commercial interests have diverged.
For example, the U.S. entertainment market size in key industries
is roughly the same size or smaller than China's market size. The
evolution of the commercial media industries makes this crystal clear.
The size of the Chinese gaming market is USD 41 billion versus USD 60.4
billion in the United States (Thomala 2021). In China there are 704.8
million social media users. The U.S. market, by contrast, is slightly
more than a third the size at 223.02 million (Tanovska 2021). China
overtook the U.S. theatrical distribution market in 2020 for the first
time ever (Davis 2021). This shapes the content production landscape
for media conglomerates creating multi-platform IP such as the Marvel
Cinematic Universe range of films, games, theme park rides,
merchandise, etc. (Kokas 2017). It is in the clear financial interest
of U.S. firms to serve the Chinese market.
Further complicating regulation, disaggregating the ``tech''
economy from other sectors like retail, entertainment, transportation,
health care, and others, becomes increasingly difficult because of the
role that digital management platforms and data integration play in
cross-sectoral innovation (Nambisan et al. 2017). However, data
security regulation in the United States has historically followed
sector-by-
sector oversight, with the Health Insurance Portability and
Accountability Act (HIPAA) as a prime example. Unlike the United
States, China has increasingly centralized its tech oversight to
include all sectors, and to provide a range of tools for the Chinese
government to access corporate data.
chinese laws imperil u.s. tech sector investment in china
U.S. tech firms are in an increasingly challenging political
landscape vis-a-vis China. In June 2017, China implemented the
Cybersecurity Law of the People's Republic of China (zhonghua renmin
gongheguo wangluo anquan fa), which now acts as the baseline for
present day guidelines (Standing Committee of the National People's
Congress 2016, Creemers, Triolo, and Webster 2018). The law requires
that data is stored within China and that organizations and network
operators submit to government-conducted security checks. What this
means in practice is that any firm that stores data in the PRC makes
that data accessible to the Chinese Government regulators, including
Apple, which moved the iCloud data for Chinese iCloud accounts to
Chinese Government-run servers in 2017. Such policies are contagious.
For example, in 2018, Vietnam's National Assembly passed a law
requiring both foreign and domestic firms to store data generated in
Vietnam to be stored there (Jacob 2020).
The December 2019 ``Provisions on the Governance of the Online
Information Content Ecosystem'' (wangluo xinxi neirong shengtai zhili
guiding) asserts potential criminal or civil liability for consuming,
producing or sharing ``negative'' information (guojia hulianwang xinxi
2019, China Law Translate 2019). With U.S. universities now conducting
classes online in China, what this means in practice is that students,
teachers and universities can be surveilled, or held criminally or
civilly liable in China for information they access or share. It also
holds platforms civilly or criminally liable.
On July 3, 2020, the Standing Committee of China's National
People's Congress released a draft Data Security Law (shuju anquan fa)
(Rafaelof et al. 2020). The law makes industry, telecommunications,
natural resources, public health, education, defense, and finance
regulators accountable for monitoring data created in their respective
domains. The law also provides a basis for the establishment of a data
security review system that can review any activities that influence or
might influence national security data.
The July 2020 ``Law of the People's Republic of China on
Safeguarding the National Security in the Hong Kong Special
Administrative Region, colloquially known as the Hong Kong National
Security Law, permits the Chinese Government to hold people and
platforms liable for crimes committed extraterritorially, which puts
particular pressure on firms with large Chinese operations (The
National People's Congress 2020). What this means in practice is that
any individual or firm that is perceived by the Chinese Government to
violate China's national security could be held liable for those
crimes. This means that the Chinese Government has provided itself
legal cover to penalize U.S. firms for perceived transgressions
(ranging from listing Taiwan as a country to speaking out about
Xinjiang human rights abuses and beyond) not just in China, but outside
of China (BBC News 2018, Paton 2021). This same principle applies to
firms that offer education online to students in the United States, but
also maintain operations in China.
Chinese firms have acquired a wide range of U.S. tech and media
firms.
Chinese firms are rapidly acquiring U.S. media distribution
platforms in film, gaming, and social media. Entertainment platforms
operating in the United States such as social media entertainment
platform TikTok, and connected gaming platforms Fortnite, Call of Duty,
and League of Legends, among others are wholly or partially owned by
Chinese firms (see Figure 1 below). In these cases, beyond censorship
of content at the production stage, we are also seeing either actual or
potential censorship of public debate.
Chinese-owned social media platform TikTok was the most downloaded
app worldwide in Q1 2021 (Perez 2021). The platform has over 100
million U.S.-based users (TikTok 2020). It is now a backbone of the
U.S. tech economy, despite being owned by a Beijing-based firm.
Major gaming companies including Epic Games, Riot Games, and
Blizzard are partially or wholly owned by Chinese tech firm Tencent.
Blockbuster titles like Fortnite, League of Legends, and World of
Warcraft are now made by firms with at least partial Chinese ownership.
Together, these games account for nearly USD 4 billion in the U.S.
economy (Spangler 2020).
Figure 1: Timeline of Chinese Investment in Major U.S.-based Media and
Entertainment Firms
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsSuch acquisitions make an impact on U.S. economic statecraft,
where the skills and talent developed in the U.S. advance PRC goals to
grow the tech sector, and in particular, data-driven AI.
Even with the forced divestment of Grindr in June 2020 to San
Vicente Acquisition LLC as a result of CFIUS oversight (Wang, Alper,
and Oguh 2020), the data that the firm gathered during its ownership by
Beijing-based Bytedance remains vulnerable to Chinese oversight. Paired
with Chinese Government hacks of the Office of Personnel Management and
others, the strategic risk of extensive data integration, and the use
of U.S. consumer data to advance Chinese commercial and military AI
efforts, is already omnipresent.
Here I highlight key corporate acquisitions in the field of media
and entertainment. However, Chinese acquisitions of firms that generate
sensitive data in the U.S. occurs in the agricultural sector, the
health sector, the manufactured goods sector, and beyond as I detail in
my forthcoming book from Oxford University Press. In addition to
corporate acquisitions, Chinese firms can also acquire data from U.S.
firms through data broker agreements (Chen 2019).
Chinese financial interest in U.S. media firms is already leading
to censorship and disinformation.
These shifts in market power are changing our digital landscape
three ways.
Firms Change the Content They Produce
On the Disney+ platform, there is no content related to Hong Kong,
and controversial Disney property Kundun (1997) is not available on the
platform. In film, despite having a contract with the United States
Navy for logistical support, Sony censored Tom Cruise's iconic leather
pilot's jacket because it had a patch from Taiwan in the 1986 version
of the film. In 2019 the animated film Abominable, originally produced
in conjunction with DreamWorks Animation, but ultimately released by
China's Pearl Studios, included a contested nine-dash line naval
sovereignty claim in the South China Sea.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsWe are seeing shifts in the types of narratives and productions
that emerge from Hollywood as a result of interest in building a market
in China. Disney's Mulan was filmed in part in Xinjiang, with the
collaboration of government agencies there that have been involved in
carrying out human rights abuses against the Uyghur people. The film's
narrative of suppressing minorities from China's Western regions also
reflected Chinese government narratives that undergird Uyghur human
rights abuses (Kokas 2020).
Film production decisions support entire multi-platform media and
tech economic ecosystems. They feed into what we see on digital
platforms, as well as the types of related products that studios
produce including video games, theme park rides, toys, and even
educational materials. The development process is highly subjective; as
such it is very difficult to know when a project is modified or passed
on because of potential issues with the Chinese market. Emails released
through the Sony hack revealed multiple instances, most notably in the
cases of Pixels (2015), Robocop (2014), and Captain Philips (2013),
where studio executives discussed and/or implemented content changes
due to concerns about access to the Chinese market (Baldwin and Cooke
2015). Due to the Sony hack, we know that studio executives do take
this into account. However, the key challenge is that it goes against
the financial best interests of any studio executive to ever admit to
it. Moreover, it is easy to frame censorship as a business decision to
maximize market access, much like adapting any other product to local
preferences.
Firms Defend Censorship Due to Economic Interests
While such censorship or narrative decisions that favor the Chinese
market were concerning when the U.S. was the largest market in the
world, they become even more central with China as the world's largest
film market. This trend is likely to continue at least through 2021 due
to the sluggish return of the in-person U.S. entertainment sector due
to COVID.
We are already seeing a dramatic shift in terms of how leaders in
the U.S. media industries discuss censorship as a result of Chinese
market interests (Kokas 2018). In the Q&A session following promotional
meeting at the Consumer Electronics Show on January 6, 2016, Netflix
Chairman Reed Hastings referred to changes in content that the firm
might need to make in order to distribute their content in China as
``airplane cuts,'' diminishing the significance of a U.S. firm
censoring their content as a business decision for distribution to a
market of 1.3 billion people (Roettgers, 2016). In 2017, he followed up
by reinforcing that the U.S. and Chinese film industries have a
``shared future,'' underscoring the enmeshment of Hollywood's growth
imperative with the government-supported rise of the mainstream Chinese
film industry (MPAA's Charles Rivkin's Opening Address at the 2017
U.S.-China Film Summit, 2017).
Disney refrained from commenting on boycotts due to statements by
star Liu Yifei regarding Hong Kong or specifically addressing
criticisms that the film was shot in Xinjiang. Only a week after the
film's digital release, after Chinese authorities banned coverage of
the film in China, did Disney comment. The firm's Chief Financial
Officer, Christine McCarthy state, at a Bank of America conference, the
film caused ``a lot of issues,'' a statement which could also be
interpreted to mean financial issues for the company, particularly
given the context (Toh 2020).
Hollywood studios were, in many respects, a canary in the coal mine
with regard to the influence U.S. media and technology corporations are
facing with respect to content censorship. Other U.S.-based
entertainment corporations have shut down the speech of fans and
employees in an effort to curry favor with Chinese government officials
and preserve access to the Chinese market.
Blizzard, which is partially owned by Chinese tech firm
Tencent, shut down pro-Hong Kong speech by Ng Wai Chung (known as
Blitzchung) in its Hearthstone Esports champion's league for voicing
support of the 2019 Hong Kong protests. Blizzard then banned two
broadcasters who moderated the platform when he spoke out. When
pressed, the CEO responded with:
``Blizzard had the opportunity to bring the world together
in a tough Hearthstone esports moment about a month ago, and we
did not. We moved too quickly in our decision making, and then,
to make matters worse, we were too slow to talk with all of
you. When I think about what I'm most unhappy about, it's
really two things: The first is we didn't live up to the high
standards that we really set for ourselves, and the second is
we failed in our purpose, and for that, I am sorry, and I
accept accountability,'' failing to mention the company's
censorship in its apology (Blizzard President Addresses Hong
Kong Controversy--Blizzcon 2019, 2019).
When Houston Rockets general manager Daryl Morey tweeted out
support for the Hong Kong protests, the Chinese Government temporarily
stopped broadcast of key NBA games. The NBA shut down fan protests due
to the suppression of Morey's views.
Users have expressed concerns about TikTok shutting down
content related to like Uyghur detentions in China and democracy
protests in Hong Kong (BBC News 2019, Kuo 2019). Independent computer
security researchers at the Citizen Lab conducted research that was
inconclusive as to whether TikTok censors social media posts (Lin
2021). The report does note the possibility that the app could face
pressure due to parent company Bytedance's legal responsibilities as a
PRC-based firm (Lin 2021).
Firms Face Financial Pressure to Prioritize Chinese Market Growth
Commercial media and tech platforms in the United States shape
public discourse. China is an increasingly important market for
investors in endowments and pension funds that hold these firms that
also keenly watch for the growth of American blue-chip stocks. Those
with equities with China exposure are under pressure to maximize their
quarterly and annual performance, not just to enrich investment banks
or individual shareholders, but to back up overall stock market
performance. There is a fundamental tension between the national
security concerns of Chinese corporate influence over the U.S. digital
landscape and the commercial pressures U.S. companies face in an
increasingly competitive marketplace.
And yet, in these circumstances where media conglomerates have
increased pressure to grow, where media market growth is largely
occurring in China, the United States has also reduced public funding
for media. Thus, the prevailing voices in the media landscape are
heavily dependent on the Chinese market, and by extension, Chinese
regulators.
recommendations
My book Hollywood Made in China (University of California Press,
2017) and my forthcoming book on Chinese consumer data gathering in the
United States from Oxford University Press formed the basis for many of
the recommendations that I will share with you today. The books
represent the culmination years of fieldwork in China, including one
year funded by a U.S. student Fulbright grant. Below are three
recommendations to improve U.S. tech competitiveness through trade:
Improve U.S. tech sector competitiveness
Increase U.S. Government investment in the tech
sector both through research agencies like DARPA and the Defense
Innovation Unit and through the adoption of the Endless Frontier Act.
Enhance funding for STEM education at the
secondary and tertiary levels to increase the competitiveness of U.S.-
trained researchers.
Continue to support a robust framework for
skills-based immigration in the STEM fields, paired with transparent
pathways for immigration to support researchers who seek to remain in
the United States.
Work actively against anti-Asian hate in the
United States to create a hospitable environment for researchers and
technologists who immigrate to the United States.
Enhance U.S. and Global Data Oversight to Prevent Data
Exfiltration to Non-Allies
Enhance tech sector collaboration across
developed democracies as outlined in the Democracy Partnership Act.
Build out a national data privacy framework to
prevent consumer data exfiltration to non-allied countries following
the data adequacy standards established by the European Union and
Japan.
Companies treat data as an asset that they can
leverage for financing or sell. As such, it is reasonable to require
enhanced reporting on how and when firms share data with third-party
providers. This includes support for congressional efforts to increase
the rigor and transparency of financial reporting standards for U.S.-
based firms, through mechanisms like H.R. 1815, currently under
consideration in the Senate Committee on Banking, Housing, and Urban
Affairs.
Limit the sale of U.S. consumer data through
efforts such as the Protecting Americans' Data From Foreign
Surveillance Act.
Fund Chinese area studies so that executives can better
understand the implications of their business decisions related to
China. The lack of secondary and tertiary social science education
opportunities to learn about China means that most people entering the
U.S. workforce do not have a working understanding of China's political
system. This is in stark contrast to knowledge of college-educated
Chinese nationals about the United States.
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Kokas, Aynne. 2017. Hollywood Made in China. Oakland, CA: University of
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influence of the Chinese market on the American
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Kuo, Lily. 2019. ``TikTok `makeup tutorial' goes viral with call to
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Nambisan, S., K. Lyytinen, A. Majchrzak, and M. Song. 2017. ``Digital
innovation management: Reinventing innovation management
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Paton, Elizabeth. 2021. ``H&M responds to a firestorm in China over
Xinjiang cotton.'' The New York Times, 2021/03/31/,
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firestorm-in-china-over-xinjiang-cotton.html.
Perez, Sarah. 2021. ``Consumers spent $32B on apps in Q1 2021, the
biggest quarter on record.'' TechCrunch, March 31, 2021.
https://social.techcrunch.com/2021/03/31/consumers-spent-
32b-on-apps-in-q1-2021-the-biggest-quarter-on-record/.
Rafaelof, Emma, Rogier Creemers, Samm Sacks, Katharin Tai, Graham
Webster, and Kevin Neville. 2020. ``China's `Data Security
Law (Draft)'.'' Last modified July 2, 2020, accessed July
2, 2020. http://newamerica.org/cyber
security-initiative/digichina/blog/translation-chinas-data-
security-law-draft/.
Spangler, Todd. 2020. Fortnite Hauls in $1.8B in 2019, Digital Game
Revenue up 3 percent to $109B. Variety.
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renmin gongheguo wangluo anquanfa'' [Cybersecurity Law of
the People's Republic of China]. Beijing, PRC: ``Zhongguo
rendawang'' [China National People's Congress Network].
Tanovska, H. 2021. ``Social media usage in the United States.'' Last
modified February 25, 2021. https://www.statista.com/
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24, 2020. Accessed March 14, 2021. https://
newsroom.tiktok.com/en-us/tiktok-files-lawsuit.
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Wang, Echo, Alexandra Alper, and Chibuike Oguh. 2020. ``Winning bidder
for Grindr has ties to Chinese owner.'' https://
www.nasdaq.com/articles/exclusive-winning-bidder-for-
grindrhas-ties-to-chinese-owner-2020-06-02.
______
Questions Submitted for the Record to Aynne Kokas, Ph.D.
Questions Submitted by Hon. Ron Wyden
Question. While the Chinese Government's hacks of millions of
Americans' personal information have gotten plenty of attention, the
Chinese Government can also acquire Americans' data legally, including
by buying it from unregulated data brokers. This information can then
be used to supercharge espionage campaigns, including against U.S.
government officials.
Do you agree that the data-related threats posed by China extend
beyond data acquired through hacking, and would you support efforts by
Congress to restrict the export of Americans' personal data to
countries like China that are likely to exploit it to the detriment of
our national security?
Answer. There are a wide range of data-related risks posed by China
extending beyond data acquired through hacking. The key risks that I
see include the following:
Personal data acquired legally by Chinese firms operating in
the United States.
Personal data acquired legally by Chinese firms working in
business partnerships with U.S. firms.
Personal data acquired legally by firms of any national origin
operating in the United States and then sold to Chinese firms as part
of data broker agreements.
Personal data acquired legally by non-Chinese and non-American
firms that partner with or sell data to Chinese firms.
I think efforts to restrict the flow of data present significant
potential challenges in several key ways. First, it is expensive and
unwieldy to track where consumer data goes if the only intervention is
on preventing its movement. Second, because this is a digital
ecosystem, restricting data flows requires agreements with third
nations. Most countries have trade relationships with both the United
States and China, so it is difficult to assess which countries would
require data restrictions.
Question. Are there other measures that you believe would help
protect Americans' personal data from getting into the hands of hostile
foreign governments?
Answer. Developing a more robust data privacy system in the United
States is of the utmost importance. This includes limitations on the
type of data that all companies can gather, improvements in systems of
notification for consumers when companies gather their data, and
efforts to learn from fellow developed democracies like the European
Union and Japan about the strengths and weaknesses of their data
privacy regulations. An additional benefit of working with allies and
partners is establishing free data trade zones where policymakers can
be reasonably confident that data is not traveling (at least not
legally) to hostile third-party actors.
I strongly support the broad aims of the Protecting Americans' Data
From Foreign Surveillance Act, in that the export of data, and in
particular, the sale of data via data brokers, presents a significant
risk to American national security. The challenge remains how to limit
the sale to ``hostile'' countries. Digital ``swing states'' like
Brazil, Indonesia, South Africa, and others present a significant
challenge in that data sold to these countries don't have robust
digital oversight and also have trade relationships with the U.S. and
China. It is heartening to see a focus on solving these important
problems in the Senate.
Question. As you mentioned in your testimony, China's closed-off
Internet and censorship practices have impacts far beyond China's
territorial borders. The Great Firewall and content regulation affect
content creators and would-be exporters in the United States and around
the world. The Chinese government has also sought to build its global
influence through engagement and leadership at multilateral
institutions, such as the World Intellectual Property Organization
(WIPO) and international standards-setting organizations.
In your view, where are there opportunities for the United States
to increase engagement with our allies and at multilateral
institutions? How can the United States use this engagement to counter
the Chinese government's vision of the Internet and promote the values
of an open Internet, freedom of speech, and freedom of the press?
Answer. Yes. There are clear opportunities for the United States to
engage more actively not just in multilateral organizations, but in
international standards-
setting organizations and professional organizations where much of the
micro-level
policy-making for new standards occurs. It is important to address
these issues at multilateral institutions like the World Intellectual
Property Organization and the United Nations International
Telecommunications Union. However, perhaps even more challenging is
addressing standards-setting in professional and industry associations.
The U.S. Government does not, for the most part, participate in
standards-making efforts led by the private sector as a matter of
policy and principle. However, many organizations remain open to
government participation from other countries. There is also the
challenge of participation in industry associations by Chinese firms
with robust Chinese Communist Party committees and internal policy
influence, as well as more general pressure to comply with Chinese
Government audits and guidance as a condition of operating successfully
in the market.
______
Question Submitted by Hon. Maggie Hassan
Question. In addition to forcing U.S. businesses to transfer
technology, the Chinese Government also engages in intellectual
property theft. This is an issue for U.S. businesses with a presence in
China and for domestic U.S. companies that the Chinese Government
targets with cyberattacks.
For U.S. businesses with a presence in China, how do data
localization requirements--which require U.S. companies to store data
in China--affect their vulnerability to intellectual property theft?
Answer. Data localization requirements dramatically increase the
vulnerability of U.S. firms to intellectual property theft. Imagine the
equivalent, that a Chinese firm operating in the United States would be
forced to store their data on a U.S. Government server. We can use the
example of TikTok because of its recent prominence in these debates.
When the Trump administration sought to force a sale of TikTok, the
Chinese Government put algorithms developed through user data on its
export control list for national security reasons. The U.S. Government
and think tanks around the world have been trying to figure out
precisely what type of national security risk TikTok may or may not
pose. Now, imagine that all of their data was stored on a server that
the U.S. Government could directly access. Not only would it be
possible to determine with much greater precision the type of potential
security risk presented by the platform, it would also be possible to
leverage that export-
controlled algorithm to enhance corporate growth in the United States.
That is what is happening in China with data localization regulations.
Here I used an example in the tech sector. However, what is most
concerning about the data localization policies is that they apply
across sectors. Tech firms like Apple have sophisticated data security
operations in place and have still faced challenges. However, firms
across the value chain operate in China, many of which do not have
Silicon Valley-level data security budgets--from metalworking companies
to firms that license industrial processes and beyond.
______
Prepared Statement of Michael R. Wessel, Commissioner,
U.S.-China Economic and Security Review Commission
Chairman Wyden, Ranking Member Crapo, and members of the committee,
it is an honor to appear before you today to address this important
topic.
My name is Michael Wessel, and I am a Commissioner on the U.S.-
China Economic and Security Review Commission. I also serve as the
staff chair of the Labor Advisory Committee to the USTR and Secretary
of Labor. While my testimony is informed by these positions, my service
in Congress for more than 2 decades as a congressional staffer and
other work, my testimony reflects my personal views and are not on
behalf of any other entities.
The Commission was created by Congress in 2001 in conjunction with
the debate about the grant of Permanent Normal Trade Relations (PNTR)
to China, paving the way for its accession to the World Trade
Organization. The Commission was tasked with monitoring, investigating
and submitting to Congress an annual report on the national security
implications of the bilateral trade and economic relationship between
the United States and the People's Republic of China, and to provide
recommendations, where appropriate, to Congress for legislative and
administrative action.
The grant of PNTR ended the annual debate about whether to extend
most-
favored nation status to China. But as it passed PNTR, Congress created
the Commission because it did not want to forego the annual review of
our relationship with China. Since the creation of the Commission,
Congress has extended and altered our mandate as the U.S.-China
relationship evolved.
The Commission is a somewhat unique body: we report to and support
Congress. Each of the four congressional leaders appoint three members
to the Commission for 2-year terms. In 7 of the last 10 years, we have
issued unanimous reports. In the 3 years where it was not unanimous,
there was only one dissenting vote. In many ways, the evolving
challenges and opportunities posed by the relationship with China have
united us in our analysis. Our bipartisanship is a reflection of the
broader political support in this country for addressing the challenges
posed by the Chinese Communist Party's (CCP's) approach.
This hearing occurs at a critical time. Tensions with China have
risen as a result of its continued predatory trade policies, its
rampant human rights abuses in Xinjiang, Tibet and other parts of the
country, its illegitimate territorial claims and militarization in the
South and East China seas, its corroding of democratic rights and
freedoms in Hong Kong, its increased pressures on Taiwan, its Belt and
Road Initiative, its use of economic leverage and outright coercion
against U.S. allies like Australia, its efforts to direct and dominate
standards setting bodies, and its expansive political, economic,
security and diplomatic actions across the globe.
China is pursuing its own interests. It is not interested in
abiding by international norms. In fact China seeks to minimize these
norms and the universal values that underpin them by attempting to
recast them as ``Western.'' We should stop hoping and waiting for
change in the CCP's outlook or policies. Rather, we need to accept the
reality of China's approach and adopt the policies and responses that
are in our long-term best interest.
Let me start by making clear that in debating and addressing the
challenges posed by the policies of the CCP, we are not disparaging the
people of China. Rising anger and aggression targeted at people of
Asian descent here in the U.S. or around the globe is unacceptable. We
must be careful in our debates. But we must not allow the CCP efforts
to coopt these important discussions to advance its influence.
The Trump administration challenged China on many fronts. Now the
question is how to respond to China's plans and policies and what will
be the architecture underlying our approach for the future. The Biden
administration is engaged in a top-to-bottom review assessing past
actions, identifying its preferred path forward, and, importantly, what
cooperation and coordination with our allies is possible.
A multilateral approach is important. But it is not the only
approach. For years we sought multilateral cooperation on issues
ranging from China's over-capacity in steel, aluminum and other sectors
to China's efforts to dominate the global roll-out of 5G with Huawei
and ZTE equipment at its core, and in many other areas. To paraphrase
an old saying, our allies were willing to hold our coat while we
bloodied our nose.
Our allies now appreciate, to a greater extent, the challenge posed
by China's predatory and protectionist policies though they may still
hesitate to act or may have a different sense of urgency when it comes
to addressing these challenges. Our producers and our workers cannot
wait for our allies to fully appreciate the impact of China's policies
and develop the will to act--for their own interests and for their own
people.
The outsourcing and offshoring of U.S. jobs and productive capacity
to China has created some unacceptable vulnerabilities. Americans
experienced head-on the impact of this outsourcing last year with too
many unable to obtain critical personal protective equipment (PPE) to
protect themselves and those around them as COVID-19 ravaged our
country.
In 2019, before the pandemic, the U.S.-China Commission held a
hearing on the challenges posed by our growing reliance on China's
biotech and pharmaceutical products. Our reliance was built up over
many years as China's industrial policies created incentives, market
barriers and market access requirements that expanded their
capabilities often with the support of our own companies. We are, in my
view, unacceptably reliant on China for our active pharmaceutical
ingredients (APIs), which are some of the building blocks for the life-
saving and life-sustaining drugs our people take. The United States
sources 80 percent of its APIs from overseas, and a substantial portion
of U.S. generic drug imports come either directly from China or from
third countries like India that use APIs sourced from China.\1\
---------------------------------------------------------------------------
\1\ U.S. Food and Drug Administration, FDA at a Glance: FDA-
Regulated Products and Facilities, April 2017; U.S.-China Economic and
Security Review Commission, Hearing on Exploring the Growing U.S.
Reliance on China's Biotech and Pharmaceutical Products, written
testimony of Katherine Eban, July 31, 2019, 1.
We no longer make penicillin in this country, as we abandoned the
fermentation capacity for this drug years ago. We are dependent on
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China for many other critical drugs.
China's government has shown its willingness to politicize and
indeed, weaponize, its supplies of critical products. It threatened to
withhold rare earth products from Japan many years ago and did so
against the U.S. recently. As the world was grappling with devastating
effects of the global pandemic, China's government engaged in the so-
called ``mask diplomacy,''\2\ offering scarce PPE products to countries
in return for recognition and support of its policy objectives. It is
doing this again with regard to its supplies of COVID-19 vaccines.\3\
---------------------------------------------------------------------------
\2\ Mercator Institute for China Studies, ``The PLA's Mask
Diplomacy,'' in China Global Security Tracker No. 7, August 3, 2020,
https://bit.ly/2QlH2bc.
\3\ Yanzhong Huang, ``Vaccine Diplomacy Is Paying Off for China:
Beijing Hasn't Won the Soft-Power Stakes, but It Has an Early Lead,''
Foreign Affairs, March 11, 2021, https://fam.ag/3gqr36A.
We need to treat supply chains as integral components of our
national and economic security as well as vital to our critical
infrastructure. The past years have seen multiple warning shots across
the bow of our country ranging from inadequate supplies of PPE to rare
earth minerals and magnets to products like grain oriented electrical
steel vital to power transmission. Globalization has shown its limits
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and its risks and it's time to act.
We must confront the policies of the CCP. But we must not naively
expect them to change. We must compete. We must reduce our dependence
on China for vital supplies and technologies.
This is a critical time because many of our multinational firms,
which were essentially sidelined during the COVID-19 pandemic, are
beginning to plan for the future. Data from the Financial Accounts of
the U.S. (formerly the Flow of Funds report) indicate that at the end
of 2020, U.S. corporations were sitting on more than $5.5 trillion in
cash and liquid assets.\4\ Many of these companies are now making plans
for how to deploy those funds.
---------------------------------------------------------------------------
\4\ https://www.federalreserve.gov/apps/fof/
DisplayTable.aspx?t=l.102, lines 2-11.
My view is that they should be investing in production and job
creation here in the U.S. The allure of accessing China's market has
waned in significant ways, but companies are looking for a signal from
Congress and the administration as to the direction of future policy.
Congress has acted on a number of fronts in past years, including in
passing FIRRMA and the CHIPS Act, to make clear that we will respond to
predatory practices, we will preserve our key technologies and we will
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promote American competitiveness. That must be the path forward.
We need to send stronger signals that we want them to invest those
funds here to expand production and create jobs.
China recently adopted its 14th Five-Year Plan.\5\ Along with
supporting policies from the past, the CCP wants to for the future by
capturing leadership in technologies that will be foundational for the
next wave of innovation and growth. It wants to increase support for
indigenous innovation to meet the China's domestic needs while
continuing to have an expansive export strategy. General Secretary Xi
has termed this China's ``dual circulation'' strategy.
---------------------------------------------------------------------------
\5\ Karen M. Sutter, Michael D. Sutherland, ``China's 14th Five-
Year Plan: A First Look,'' Congressional Research Service, January 5,
2021, https://bit.ly/3dvpItg.
For the U.S. this means that China will continue to advance the
development of key sectors such as new materials, quantum computing,
biomedicine, artificial intelligence, electric vehicles and others. It
will support these sectors and technologies with massive subsidies,
protectionist and predatory practices and through legal and illegal
means. It will use an ``all of the above'' strategy to achieve its
---------------------------------------------------------------------------
goals.
U.S. goods trade with China continues to show a significant
imbalance. While the size of the U.S. goods trade deficit with China is
deeply troubling to me, more important has been the composition of that
trade deficit. The year 2020, of course, was an aberration. In 2019 the
U.S. ran a trade deficit in advanced technology products (ATP) with
China of $134.4 billion. That should be an issue of considerable
concern.
China continues to build up massive productive capacity that has
resulted in significant over-capacity in a growing number of sectors
beyond the steel and aluminum sectors that have, appropriately,
garnered attention. Chemicals, fiber optics, and other sectors are also
in over-capacity as a result of CCP policies. This over-capacity has
undermined the efforts of market-based companies in other countries to
compete and survive. In some sectors, such as steel, the CCP has made
repeated promises to reign in over-capacity, to dismantle operations
and to limit production. Each of those promises has been broken.
There have been international dialogues to try to address the
problem in steel fostered primarily at the Organisation for Economic
Co-operation and Development (OECD). China, however, never really
engaged in a good faith effort to reduce over-capacity; rather, it used
the forum to delay action. This is similar to how it approached many of
the talks within the Strategic and Economic Dialogue where engagement
was used by the CCP as an alternative to action.
The CCP is seeking to advance research and development (R&D)
indigenously, with the support of foreign firms and through a variety
of programs including the so-called ``Thousand Talents'' program. Many
foreign firms have dramatically expanded their R&D investments and
activities in China to respond to CCP policies and incentives, to
improve potential market access in China and to support their China-
based operations. The connection between R&D and production is well
known with operations often being located in proximity to each other.
The pace of R&D expenditures by U.S. affiliates in China has grown
at a faster pace than domestic investments by their U.S. parents.
According to a report issued by the U.S.-China Commission, expenditures
by U.S. multinational enterprises is China grew an average of 13.6
percent year-on-year since 2003, compared with 7.1 percent for all U.S.
multinational foreign affiliates and just 5 percent for multinational
parents in the U.S. in the same period.\6\ This acceleration of the
pace of investment in China, as opposed to in the U.S. by American-
headquartered companies must be addressed.
---------------------------------------------------------------------------
\6\ Kaj Malden, Ann Listerud, ``Trends in U.S. Multinational
Enterprise Activity in China, 2000-2017,'' U.S.-China Economic and
Security Review Commission, July 1, 2020, https://bit.ly/2QAQCHg.
Efforts by the CCP to promote ``cooperation'' should be viewed with
skepticism. The CCP is more interested in winning than in the
---------------------------------------------------------------------------
proverbial ``win-win''
At the same time, China's leaders are desperate for capital and for
foreign investment. China's debt-to-GDP ratio has increased at one of
the fastest paces of any major country, now estimated at 288 percent at
the end of Q3 2020.\7\ Although shadow banking has been somewhat
reigned in since 2016, massive debt is still out of control.
---------------------------------------------------------------------------
\7\ World Bank, From Recovery to Rebalancing: China's Economy in
2021, December 2020, 28. http://documents1.worldbank.org/curated/en/
297421610599411896/pdf/From-Recovery-to-Rebalancing-China-s-Economy-in-
2021.pdf.
China has pressured international benchmark index developers like
Morgan Stanley Capital International (MSCI) to include Chinese equities
in its emerging market index and increase the weighting of Chinese
issues. MSCI succumbed to the pressure. Unless the trendline changes,
the inclusion of Chinese securities by major international index
providers like MSCI, FTSE Russell, and others could lead an estimated
$400 billion or more of foreign capital to flow into Chinese
equities.\8\ Changes in bond indices may result in another $200 billion
of foreign capital flowing into China to purchase bond issues.
---------------------------------------------------------------------------
\8\ Bobby Lien and David Sunner, ``Liberalization of China's
Portfolio Flows and the Renminbi,'' Reserve Bank of Australia Bulletin,
September 19, 2019; Salley Chen, Dimitris Drakopoulos, and Rohit Goel,
``China Deepens Global Finance Links as It Joins Benchmark Indexes,''
International Monetary Fund Blog, June 19, 2019; MSCI, ``Assets in
Global Equity ETFs Linked to MSCI Indexes Reach All-Time High of $707
Billion,'' November 10, 2017; Joyce Chang, ``J.P. Morgan Perspectives:
China's Index Inclusion: A Milestone for EM as an Asset Class,''
JPMorgan.
The South China Morning Post earlier this week reported that
Citigroup is planning to apply for permission to ``open a new wholly-
domestic securities business in China. . . . The American bank plans to
apply by the second half of this year for licenses that would allow it
to underwrite domestic securities, engage in advisory services on local
deals and conduct trading for clients, as well as engage in stock
futures.''\9\
---------------------------------------------------------------------------
\9\ Chad Bray, ``Citigroup to seek licenses for new wholly-owned
securities business in China,'' South China Morning Post, April 19,
2021, https://bit.ly/3twGiOR.
Yet the CCP still refuses to allow the Public Company Accounting
Oversight Board (PCAOB) access to the work papers of major U.S.
accounting firms to ensure that the books and records accurately
reflect the facts. While any investment in a major Chinese company
bears additional risks due to the power of the CCP the fact that there
is no transparency should severely limit the scope of foreign
---------------------------------------------------------------------------
investment.
It is not just the issue of ``buyer beware,'' although some
observers argue that investors assume responsibility for their
investment and must bear that losses that may result. It is also the
potential risks to the U.S. taxpayer posed by these investments and
possible federal exposure. For example, capital losses can offset
capital gains under our tax laws--meaning that tax revenues would
essentially support losses on these equities and bonds. The Pension
Benefit Guaranty Corporation (PBGC) could potentially have to play a
role if investments in these kinds of issues degraded the economic
viability of a pension plan covered by the agency.
The Federal Thrift Savings Plan (TSP) had considered utilizing the
MSCI index that would open up investments in Chinese securities to
Federal employees and our men and women in uniform. These investments
may directly challenge our national and economic security interests.
Over the last several years, increasing numbers of Chinese companies
have been placed on the Entities List \10\ as well as on the Department
of Defense's list of companies supporting the People's Liberation
Army.\11\ Many of these companies are still included in some
international indexes and U.S. funds are still flowing to these
companies. Indeed, U.S. investors reportedly continued to invest in
these entity list and DOD-identified companies after they were publicly
identified as being on these lists.
---------------------------------------------------------------------------
\10\ Department of Commerce, Bureau of Industry and Security,
https://bit.ly/2QispFJ.
\11\ Department of Defense, section 1237 of FY99 NDAA Communist
Chinese military companies list, https://bit.ly/2QispFJ.
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conclusion
In the 1980s, America faced competitive challenges from Japan.
While those challenges, in retrospect, pale in comparison to those
posed by China, there are lessons to be learned. Japan was dominating
the automotive sector. Japan was dramatically expanding its leadership
in semiconductors. Japan had closed its market to U.S. products in key
sectors, including telecommunications, electronics, pharmaceutical and
medical equipment, and forest products. The Reagan administration
initiated the Market-Oriented Sector Selective (MOSS) talks to address
Japan's anticompetitive practices. Voluntary restraint agreements were
adopted.
In 1987 Congress and the administration worked together to create
SEMATECH to reclaim America's momentum in the semiconductor sector.
SEMATECH was a non-profit consortium of 14 U.S.-based semiconductor
firms that pooled resources and revitalized U.S. R&D in advanced chip
manufacturing.
Following these and other initiatives, Congress considered and
passed the Omnibus Foreign Trade and Competitiveness Act of 1988 (Pub.
L. 100-418) that included a broad array of provisions to advance
America's ability to compete. It was an act that updated existing
authorities, and created new ones, to give America the tools needed to
compete in new sectors and to address new challenges.
Now is the time to consider what steps America should take to
protect our interests and prepare for the future. Too much of the focus
of our China discussions has been about containing, confronting, or
decoupling. Many of the actions and policies of the CCP directly
challenge U.S. interests. We need to send a strong signal to the CCP,
to our companies, to our people, and the world that we will stand up
for our interests, we will compete, we will invest, and we will win.
______
Questions Submitted for the Record to Michael R. Wessel
Question Submitted by Hon. Ron Wyden
Question. China's investments in infrastructure--both its own and
other countries'--are well known. The Chinese Government has
prioritized building roads, bridges, rail, ports, and digital systems
that support the economy, trade, and the movement of people. Through
its Belt and Road Initiative, the government has also used
infrastructure as a literal inroad to access developing countries'
markets and engage in soft-power diplomacy.
In the United States, our infrastructure investments have lagged
behind. As a result of chronic underfunding of infrastructure, State
and local governments have struggled to perform routine maintenance,
let alone invest in new projects that would create jobs, foster
economic opportunity, and help us develop a more modern, sustainable,
and resilient infrastructure system. I am hopeful that in the 117th
Congress, we can finally pass a robust, comprehensive infrastructure
package that will set a new standard for investing not only in
traditional projects like rail, roads, bridges, and ports, but also
broadband and human services infrastructure like child care and elder
care.
In your view, how would increased Federal investment in
infrastructure of all kinds support trade and improve American
competitiveness with China?
Answer. Investments in physical and human infrastructure can
dramatically enhance America's competitiveness overall and support our
efforts to compete directly with China. The investment deficit in U.S.
infrastructure has not only hobbled our ability to support exports via
our ports and airports but has driven up the cost of doing business as
companies have had to deal with transportation impediments such as
crumbling roads and bridges. Our inadequate broadband impedes the
education of our people and access to resources and information. Our
failure to provide infrastructure supporting child care and elder care
diminishes our educational attainment for our kids, reduces the
productivity of our families and saps the resources of our Nation.
Investments in infrastructure, broadly defined, would have a
significant positive impact on our Nation's international
competitiveness.
______
Questions Submitted by Hon. Mike Crapo
Question. With regard to your discussion of diversifying supply
chains away from China, many argue that such a dialogue must include
addressing the expiration of the Generalized System of Preferences
(GSP) program. The effect of its expiration raises material costs for
American manufacturers and is significant for U.S. companies. GSP's
expiration also imposes a general detrimental impact on exports from
developing countries.
Would you agree then that the GSP's expiration tends to make China
more competitive?
If so, in your opinion, is today's combination of GSP expiration
and section 301 tariffs contributing to the problematic supply chain
shifts seen in recent years?
Answer. The expiration of GSP is expected to be a short-term issue
as Congress reviews the underlying authority and what changes are
appropriate. I do not believe that China is advantaged during this
period.
Question. New research recently released jointly by the World Bank
and World Trade Organization concludes that liberalized trade policies:
(1) increase women's wages, (2) increase economic equality between
genders, and (3) create better jobs for women.
Given this, if the goal is to promote women's equality as part of
the United States trade agenda, should Congress consider expanding the
products eligible for beneficial tariff treatment in programs like the
GSP?
Answer. The products eligible for beneficial tariff treatment under
programs like the GSP should be reviewed and updated but, in my view,
that should be with an eye towards reducing the scope of products
covered to identify those that truly achieve the goals of GSP and to
eliminate product coverage for items that undermine U.S. production and
jobs. In terms of trade equity for women, I believe that legislation
such as that authored by Senator Casey, the Women's Economic Employer
in Trade Act (S. 4008) should be part of the committee's efforts.
______
Questions Submitted by Hon. Thomas R. Carper
Question. Over the past several years, tariffs on China and
subsequent retaliatory tariffs have caused significant economic
disruptions for U.S. businesses and farmers. I have heard from many
constituent companies who have invested significant time, money, and
resources navigating the process for securing an exclusion from these
tariffs. However, unfortunately, these exclusions expired at the end of
last year, and no new exclusion process has opened. Recently, I joined
Senator Portman, and several of my Senate colleagues on both sides of
the aisle, to encourage USTR to re-start an exclusion process.
However, the last exclusion process was far from perfect, and left
many questions about speed, transparency, and fairness.
Moving forward, in your view, what should Congress do to reform
this process in order to provide greater certainty and predictability
to American companies?
Answer. Since the imposition of tariffs under section 301 and
section 232, I believe that there has been renewed attention on the
need to secure our domestic supply chains. Reversing more than 30 years
of outsourcing and offshoring will take time and there will be some
market problems in the process. But the COVID-19 pandemic and the
inability of America to provide the necessary products for our people,
the current problems in the auto sector from semiconductor production
outsourcing and other supply chain problems all are the result of
flawed trade policies. Exclusions should not be the normal course of
business and should be time-limited, where they are provided, to spur
the development of domestic capacity. Clearly, America is not going to
meet all of its domestic needs and we must continue to engage the
world. At the same time, we must ensure we can meet the critical needs
of our people. The Biden administration's work on supply chains should
help provide the necessary framework for Congress to consider.
______
Questions Submitted by Hon. Sherrod Brown
ip theft
Question. In March 2018, USTR finalized an investigation into
Chinese forced technology transfer and IP theft and issued a report
that found that ``the act, policies, and practices of the Government of
China related to technology transfer, IP, and innovation covered in the
investigation are unreasonable or discriminatory and burden or restrict
U.S. commerce.''
We must do more to protect against foreign adversaries that target
the IP of U.S. manufacturers and firms, deter those Chinese firms that
may consider engaging in IP theft, and send a clear signal that there
will be serious repercussions going forward for Chinese actors that
engage in this misconduct.
In addition to the various other trade and legal tools available to
American firms to combat IP theft by China, do you think it would be
helpful for Congress to provide the President and future
administrations with additional tools, including sanctions against
those determined to have been involved in IP theft, to help deter and
address IP theft by Chinese actors?
Answer. Existing actions to deter IP theft by China have had only
limited impact. Hundreds of billions of dollars of U.S. intellectual
property is lost each year, injuring our Nation's companies and their
workforce. We should strengthen our resolve in terms of using all
available tools as well as provide additional tools including sanctions
against individuals and companies participating in, supporting or
directing the theft of our IP.
active pharmaceutical ingredients
Question. In your testimony you argue that the U.S. is unacceptably
reliant on China for our active pharmaceutical ingredients and for many
critical drugs.
Senator Cassidy and I are working on bipartisan legislation to
create an active pharmaceutical reserve here in the U.S. to provide
some resiliency to our supply chain and help protect against any
potential threats in the figure--whether they be public health threats
like the COVID-19 pandemic, natural disasters, or even politicized
threats.
In addition to the President's recent executive order on America's
supply chains steps, are there steps Congress should take to ensure
supply chain resiliency and reduce our dependence on China for critical
goods like essential medicines?
Answer. The COVID-19 pandemic exposed our Nation's unacceptable
vulnerabilities in terms of pharmaceutical and medical supplies. The
dependence of the U.S. on China has reached a critical point where it
is not only a health security threat, but a national security threat as
well. Expanding our Nation's ability to respond to crises is
imperative. Creating a an API reserve could be an important component
of a strategy. We must also assess what our reliance is for a broad
range of life-saving and life-sustaining drugs and enhance our ability
to secure supplies of all the necessary ingredients via domestic
sources or trusted and secure allies. We must also ensure that the
development of biosynthetic medicine in this country has the support
that is needed.
______
Questions Submitted by Hon. Maggie Hassan
Question. The Chinese Government uses anti-competitive pricing and
trade policies to gain an edge in manufacturing products that are
critical for our economic and national security. As you testified to
the Senate Committee on Commerce, Science, and Transportation last
year, these unfair policies affect multiple supply chains across
critical industries--including medical supplies, steel, aluminum, solar
cells, and rare earth minerals.
Among the Chinese Government's various predatory pricing
strategies, which would you highlight as broadly affecting the security
of multiple critical U.S. supply chains?
Answer. The security of critical U.S. supply chains in a number of
products has been adversely impacted by an array of policies promoted
by the Chinese Communist Party. Most important has been the financial
support provided to favored industries and sectors in China that have
fueled dumping and subsidies that have injured market-based suppliers.
In addition to the financial support, China has utilized performance
requirements, market access impediments and many other tools to advance
its goals.
Question. I am working on a bipartisan basis to promote R&D
investment in the United States, including through bipartisan tax
legislation with Senators Young, Cortez Masto, Portman, and Sasse. The
U.S.-China Economic and Security Review Commission's 2020 report
highlights trade restrictions used by the Chinese Government to require
U.S. companies to localize manufacturing--which ultimately leads to
greater R&D investment in China.
Can you explain how these unfair trade restrictions have affected
the levels of R&D investment in the U.S. and China? What are the
implications of these manufacturing restrictions for U.S. economic and
national security?
Answer. The policies of the CCP have, in too many instances,
essentially required U.S. companies to set up manufacturing operations
in China as a condition of gaining market access. In addition, the
subsidies, performance requirements and predatory and protectionist
policies initiated by the CCP have created other incentives for U.S.
companies to locate there. There is also a clear and direct
relationship between manufacturing and the associated R&D that goes on.
A 2020 report prepared by the staff of the U.S.-China Economic and
Security Review Commission, based on publicly available data, indicated
that U.S. companies increased the rate of R&D investments in China at a
significantly higher pace than the R&D investments made in their
domestic operations here in the U.S. We have already seen the
devastating consequences of the offshoring of manufacturing production
to China. The long-term implications for our economic and national
security from the migration of R&D are also significant and requires
not only further scrutiny, but action.
Question. Many U.S. companies operating in China have been subject
to technology licensing requirements that the Chinese Government
effectively uses to obtain the products of R&D by U.S. businesses.
How has forced technology transfer affected the competitiveness of
U.S. companies and the ability of the U.S. to maintain a leading edge
in innovative industries?
Answer. The CCP's technology acquisition strategies have had a
devastating impact on U.S. competitiveness. It is a tribute to the
ingenuity, creativity and spirit of our companies and their workforce
that America continues to be a leader in so many sectors. But that
leadership has been corroded by the CCP's policies. In the last 5 years
alone, the U.S. saw almost $2.4 trillion in IP stolen. The bipartisan
Commission on the Theft of American Intellectual Property in its 2021
update indicated that IP industries support more than 45 million U.S.
jobs. The CCP's policies and programs are putting U.S. leadership in
innovative industries in serious jeopardy.
______
Questions Submitted by Hon. Elizabeth Warren
Question. COVID-19 may have highlighted the problem--but it didn't
create it. Even before the pandemic, experts were sounding the alarm on
a critical supply chain weakness: our Nation's overreliance on foreign
countries for drugs, and the active pharmaceutical ingredients--or
``APIs''--needed to make them. Today, the United States imports nearly
80 percent of APIs from foreign countries-- including China. As a
result, the drugs that millions of Americans rely on to treat
conditions like high blood pressure and kidney disease aren't
manufactured in the U.S.--and even when those drugs are manufactured
here, they rely on key materials sourced from one of our geopolitical
adversaries.
The U.S. has some restrictions in place that should theoretically
prevent our overreliance on China for pharmaceutical products. For
example, the Department of Defense is only supposed to buy drugs from
countries that comply with the Trade Agreements Act--which doesn't
include China. But despite this requirement, about 25 percent of
pharmaceutical ingredients used in military hospitals originate from
China. How is China able to subvert these rules?
Answer. The Trade Agreements Act of 1979, to which China is not a
signatory, requires that pharmaceutical products used in military
hospitals be purchased from signatory countries. Unfortunately, the
CCP's industrial policies have resulted in China often being the sole
source of supply of API's that are used in products produced in China
or in other countries. India, for example, is heavily reliant on China
for its APIs. If non-TAA-compliant products are not available, DOD is
authorized to waive the requirements of the Act and procure those
goods.
Question. What are the consequences of our inability to
domestically produce critical drugs for U.S. national security and
competitiveness?
Answer. To some degree, we have already seen the potential impact
of being unable to produce critical drugs and medical products for
national security and competitiveness. For example, the sidelining of
the Aircraft Carrier USS Theodore Roosevelt due to a COVID outbreak is
a real-world example of how a pandemic can impact our national
security. While there were other factors contributing to the sidelining
of the carrier, proper equipment, vaccine and therapeutics might have
diminished the threat. The CCP has shown its willingness to
``weaponize'' supplies and also use them for diplomatic advantage. Our
dependence on China, rather than having domestic capabilities to
produce a wide- range of products is a serious national security and
competitiveness threat.
Question. We can't expect to compete with China when we're so
dependent upon it for lifesaving drugs-- and meanwhile, our
overreliance on China poses serious national security risks, sells out
American workers, and makes American patients less safe. That's why
President Biden has committed to onshore API manufacturers, and why
I've worked closely with Senator Smith and Senator Rubio to rebuild our
domestic drug supply chain. Senator Rubio and I have a bill requiring a
review of foreign investment in the U.S. drug supply chain and its
impacts on domestic manufacturing. And Senator Smith and I have a bill
that makes a $5 billion investment to manufacture critical drugs and
APIs here in the U.S.--and supports the market for these drugs by
requiring our government agencies to buy them.
Would a review of our supply chain and a $5-billion investment in
domestic drugs (plus the Federal Government's commitment to purchase
them), help strengthen the U.S.'s economic competitiveness with respect
to China?
Answer. There is no doubt that investments in our domestic ability
to produce drugs and their components, coupled with ensuring that the
demand for domestically produced products will exist resulting from
Federal purchases, would have a dramatic positive impact on reshoring
medical supply chains.
______
Questions Submitted by Hon. Todd Young
Question. In your testimony, you shared perspective on the
dangerous level of reliance on Chinese manufacturing for many
necessities in our lives. Penicillin, semiconductors, minerals--these
are just a few items on a lengthy list.
The pandemic has exposed the risk associated with a supply chain
fully dependent on China--and we've seen the Chinese use this to their
own advantage.
I know the administration has started a top-down review of the
supply chain, but I think we need something more permanent, more
comprehensive, and more accessible.
This can be achieved through aggregated demand mapping for
industries critical to our economic health, national security, and
public safety. I have raised this before the committee and am actively
working on legislation to require construction of a database to achieve
this.
With that in mind, what value do you see in creating a
comprehensive understanding of our supply chain vulnerabilities? Should
the United States also be concerned with supply chain diversions to
nearby countries that are actually still intertwined with China?
What strategies can we use to help businesses actively seeking to
divert their supply chains from China and back to the United States
where possible?
Answer. A comprehensive understanding of our supply chain
vulnerabilities across a broad range of products critical to our
economic health, national security and public safety is a common-sense
approach. The COVID pandemic should be a wake-up call to expedite the
development of such an assessment and it should be updated on a
continuous basis.
The CCP has shown its desire to influence the policies and
approaches of countries intertwined with China, such as those
participating in the Belt and Road Initiative and those questioning the
CCP's approach to Taiwan, Hong Kong, and on other matters. We should
evaluate supply chains that are at risk of China's influencing the
policies of those countries and take appropriate actions to protect
U.S. interests.
There are a broad array of strategies that the U.S. can adopt to
help business actively diver their supply chains back to the U.S.,
where possible. In part, the CCP's actions have been a wake-up call to
our business leaders about the risks to their businesses operating in
China and, indeed the safety and security of their personnel working in
country. The U.S. must do more to invest here in ensuring that our
people have the skills needed, that our research and development
resources are robust, that our infrastructure supports our economy and
that we use the power of Federal procurement to ensure that American
tax dollars are used to promote American production and jobs. These are
just a few of the policies that are needed.
Question. It is estimated that roughly 55 percent of Americans own
stocks--with most investing through professionally managed funds.
In today's marketplace, it is unsurprising that a mix of
investments would be allocated to international markets; however,
Chinese companies have been growing considerably, and it is difficult
to discern the complete picture of their influence in financial
markets.
It is very possible that American investments are contributing to
the health of the Chinese financial system, but the true extent is
unknown. The U.S. should seek strategies to both identify potential
risks to our financial viability and ensure American investors enjoy a
stable environment.
Should we be concerned about this, and how can we help business
community combat integration from malign Chinese actors whose proceeds
and profits funnel back to the Chinese military?
Answer. The CCP has actively engaged in increased efforts over the
past several years to access sources of foreign capital. As an example,
reportedly pressure was put on MSCI to allow Chinese ``A'' shares to be
included in its emerging market index and to increase the ``weighting''
of those shares. Testimony before the U.S.-China Economic and Security
Review Commission indicates that this and other actions may result in
more than $400 billion in international capital going into Chinese
equities and another $200 billion into Chinese bonds.
The administration has the legal authority to identify companies
that pose a threat to U.S. national security interests and place them
on an Entity List and has recently identified Chinese companies
assisting the People's Liberation Army. Evidence indicates that U.S.
persons have invested in these entities after their being listed by the
U.S. Government as the only existing limitation is on doing trade with
these companies. Investments post identification should be prohibited
and existing investments should be unwound. Other policies should be
evaluated to ensure that U.S. companies are not aiding and abetting
companies advancing the capabilities of the Chinese military, that
support human rights abuses, and engage in other acts that are counter
to U.S. interests.
Question. From my lens on the Foreign Relations Committee and on
this committee, I see China's actions and intentions from different
angles.
The rate of Chinese investment in other countries is growing
exponentially, and we see nations making concessions like supporting
China politically or allowing unfettered access to their resources.
While it is no secret that Chinese influence extends to nearby
countries in the region--like Vietnam, Thailand, Indonesia--this
influence is hitting closer to home, particularly in the Northern
Triangle of Central America.
Given the increasing unrest in Central America that has been
driving scores of people to overwhelm our borders, the last thing these
countries need is unrepayable debt from China.
Should China escalate levels of foreign direct investment in
Central America, as we know they plan to do, what is at stake for the
national and economic security of the United States?
Answer. The CCP has expanded its economic, diplomatic and military
relations across the globe. We must carefully assess their foreign
direct investment in Central America, as well as the Caribbean and the
rest of this hemisphere to determine what their intentions are, what
the implications of their investments are and how we should respond, if
at all. In many of its investments in other areas of the world, we have
seen their investments foster ``debt-trap'' diplomacy, as well as
fueling corrupt activities. These and other concerns demand greater
attention wherever they arise, but certainly are even deeper when they
occur in our own back yard.
______
Questions Submitted by Hon. John Barrasso
Question. You noted in your testimony the importance of a
multilateral approach to addressing the challenges we face with respect
to China. Referring to previous American efforts in this area, you
noted: ``. . . our allies were willing to hold our coat while we
bloodied our nose.''
I think that's an accurate assessment.
Can you elaborate on how we can work with our allies to put maximum
pressure on China to achieve lasting and meaningful change in how they
conduct business in the international markets?
Answer. During the Trump administration, and as evidenced by the
early approach of the Biden administration, I believe the U.S. has
shown the CCP and the world that the predatory actions of the CCP will
not be tolerated. The willingness to confront the CCP's actions and act
on behalf of U.S. interests must be the clear approach going forward
and the consistency of that approach should hopefully incent other
nations to join in the effort to curtail the CCP's unacceptable
approaches. The CCP is looking to take advantage of opportunities and
we must deny them those opportunities when the challenge and threaten
U.S. interests.
Question. And how does the EU-China investment agreement impact our
ability to work with our allies in Europe to counter China's
manipulative market practices and human rights abuses?
Answer. The EU-China investment agreement raises a number of
questions about how we may be able to work with our allies in Europe,
although the path forward is still in question. We must engage our
allies in Europe to challenge China's manipulative market practices and
human rights abuses where we can. At the same time, if our allies are
unwilling to find cooperative strategies, we must advance U.S.
interests.
Question. The WTO was formed to establish a trading system based on
``open, market-oriented policies'' per the 1994 Marrakesh Agreement
which established the organization. Despite modest improvements,
China's markets are not ``open.'' Their policies are not ``market-
oriented.'' China is no longer a ``developing nation'' despite its WTO
status.
Market-distorting subsidies, intellectual property theft, forced
technology transfer, forced labor, and industrial over-capacity in
China aren't anomalies. They are the cornerstones of China's economic
policy.
Is there any reason to believe the WTO currently has the necessary
tools or the will to address the challenges the world is facing with
respect to China?
Answer. The World Trade Organization could certainly do more with
its current tools to address the predatory and protectionist policies
of China, but those efforts will presumably fall short for a number of
reasons. First, the Appellate Body is in serious need of reform and has
exceeded its authority on a number of significant matters. Second is
that the Appellate Body has, at the same time, constrained its ability
to address China's practices by imposing unnecessary burdens which
impede the ability to promote market-based practices. Finally, as the
WTO is a consensus-based organization, it is difficult to believe that
China will ever agree to meaningful disciplines and enforcement
measures regarding its activities.
Question. What WTO reforms are needed to make it a more effective
``cop on the beat'' with respect to China?
Answer. See above; however, it is difficult to see that the WTO
would be an effective ``cop on the beat.'' Market-based actors must
develop a set of rules which they can abide by and effectively enforce,
which also limit China's ability to game the system.
Question. Chinese over-capacity of steel, aluminum, cement,
chemicals, and numerous other industrial inputs is part of a broader
strategy to drive down prices and put international competitors out of
business. Chinese state-owned enterprises (SOEs) and export subsidies
hurt American businesses and workers. In Wyoming, our soda ash
producers and steel pipe and tubing producers know firsthand how
difficult it is to compete with China in the marketplace.
Where should the U.S. focus our efforts to counter China's export
subsidies and over-capacity?
Answer. In past years the effort to address China's export
subsidies and over-capacity has focused on multilateral dialogue. China
initially refused to participate in the talks but when pressure rose,
they finally agreed to come to the table. As expected, however, they
delayed action and sought to create a debate as to whether they really
was a problem, as they continued to amass further capacity and injure
industries and workers in the U.S. and around the globe. Multilateral
engagement is vital that lead to effective disciplines with automatic
enforcement measures.
Question. What can Congress do to make U.S. companies competitive
when they are forced to compete directly with China's SOEs?
Answer. The CCP has proffered enormous benefits on its SOEs ranging
from subsidies to domestic market preferences to outright theft of
intellectual property from their competitors, in addition to many other
practices. It's a tribute to the strength, ingenuity, and creativity of
our companies and their workforce that we have been able to withstand
many of the attacks on their markets and their operations. Our
companies should not have to compete directly against China's SOEs
without the support of our government. We can adopt automatic self-
initiation enforcement measures to more effectively respond to dumping
and subsidies. We can provide greater resources to fight cyber and
human espionage. We can expand ``war chest'' funding at some of our
agencies to support our companies, where appropriate. We must also
develop stronger multilateral measures to respond to the unfair acts of
the CCP's SOEs on a coordinated basis.
Question. The Chinese Communist Party continues to commit terrible
human rights abuses. The Uyghurs, a religious and ethnic minority in
China, have experienced brutal repression at the hands of the Chinese
Government. They continue to be subjected to torture, imprisonment, and
forced labor.
At least 1 million Uyghurs have been put in internment camps by the
Chinese Communist Party. Around 100,000 Uyghurs and ethnic minority ex-
detainees have reportedly been used as forced labor in textile and
other industries in China.
How effective have U.S. actions been at addressing the human rights
abuses and the use of forced labor?
Answer. Unfortunately, it has only be of late that the existing
tools to address human rights abuses and the use of forced labor
against the Uyghurs have been utilized. They need to be expanded to
include other products and consideration of a region-wide WRO must be
initiated. In addition, it is important to recognize that the Uyghurs
are not the only population in China that is under attack nor are these
abuses limited to being perpetrated by the CCP. Enforcement of
internationally recognized human rights, including workers' rights,
must be a higher priority.
Question. What more should the United States do on transparency and
enforcement?
Answer. The CCP has denied any abuse of human rights and the use of
forced labor. Yet they have blocked access to any form of inspection to
verify the allegations that have been made. This lack of transparency
should shift the enforcement burden to create a rebuttable presumption
that the alleged abuses are, in fact, taking place. Multiple
parliaments and experts have identified the actions against the Uyghurs
as genocide, and the world must act.
______
Prepared Statement of Clete R. Willems,
Partner, Akin, Gump, Strauss, Hauer, and Feld
Chairman Wyden, Ranking Member Crapo, distinguished members of the
committee, thank you for the opportunity to appear before you today to
discuss how to improve U.S. competitiveness vis-a-vis China. The U.S.-
China competition will define the trajectory of the global economy for
generations to come. The Government of China's efforts to dominate
today's industries and those of the future with unfair trade practices
pose a serious threat to long-term U.S. competitiveness and leadership.
Likewise, the Government of China's efforts to export its non-
democratic model of censorship, propaganda, and surveillance around the
world pose a serious threat to our values and way of life. Democrats
and Republicans must work together to counter this threat and ensure
the United States remains more economically competitive and globally
influential than China for years to come.
During today's hearing, I will offer suggestions on how to best
achieve this objective based on my experience negotiating with China on
the Phase One deal and in persuading U.S. allies to adopt robust policy
responses on China in multilateral fora, including the World Trade
Organization (WTO) and Group of Seven (G7). Some of my ideas are
derived from the China strategy that I helped develop as part of the
National Security Council (NSC) and National Economic Council (NEC). I
will also draw on my experience helping companies navigate China's
market and adjust to recent U.S. policy on China, although the comments
I provide are solely my own.
Ultimately, Congress--along with the administration, the private
sector, and key U.S. allies and trading partners--will all play a
critical role in determining the outcome of the U.S.--China
competition. I hope my suggestions today help provide elements of a
roadmap that leads to success.
``run faster'' with domestic innovation incentives and trade agreements
First, winning this competition undoubtedly requires the United
States to ``run faster.'' In particular, the United States should adopt
policies to encourage domestic innovation, especially in critical areas
that China is targeting due to their strategic importance, such as
artificial intelligence, semiconductors, synthetic biology, 5G and 6G,
among others.\1\ I share the concerns of some policymakers about
overall government spending levels, but misdirected spending in certain
areas should not deter us from well-directed spending in other areas
critical to continued U.S. innovation leadership.
---------------------------------------------------------------------------
\1\ The Endless Frontiers Act and Executive Order on America's
Supply Chains (EO14017) target many of the appropriate sectors.
Appropriately directed government spending should enhance the
strengths of the U.S. market-led economic system and strengthen the
U.S. private sector instead of attempting to replace it. The Endless
Frontiers Act and other legislation that focuses on research and
development, public-private partnerships, collaboration with
universities, and narrowly tailored grant programs are a good start.
Congress should also fully fund the USA Telecommunications Act and
CHIPS for America Act as well as consider tax incentives to spur
innovation for critical industries.\2\
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\2\ This includes the tax components of the CHIPS for America Act
(S. 3933 in the 116th Congress). The tax components of this package
could also be broadened to include design.
Such policies will help us ``run faster,'' but we are unlikely to
run ``fast enough'' if we only focus at home. Much of the revenue our
companies use to fund innovation is derived from sales overseas, and
the United States should negotiate trade agreements that break down
barriers to American goods and services. The United States cannot
afford to sit on the sidelines while China implements the Regional
Comprehensive Economic Partnership (RCEP) and considers the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(CPTPP). Our inaction puts U.S. companies at a disadvantage, depriving
them of revenue that could be used to fund greater innovation. We also
miss the chance to set standards in key areas like technology transfer,
subsidies, state-owned enterprises (SOEs), and digital trade that
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promote our economic model over China's.
Congress should renew Trade Promotion Authority, encourage the
administration to finalize the U.S.-U.K. trade agreement, and plot a
path to new agreements in the Indo-Pacific region. If a comprehensive
agreement with our former TPP partners is not viable, we should
consider targeted sectoral agreements with TPP countries in areas like
digital trade and build on that approach over time.\3\ Concurrently, we
should robustly implement the U.S.-Mexico-Canada agreement, which was
enacted by Congress with historic bipartisan support.
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\3\ See, e.g., Wendy Cutler and Joshua P. Meltzer, ``Digital trade
deal ripe for the Indo-Pacific,'' available at: https://
www.brookings.edu/opinions/digital-trade-deal-ripe-for-the-indo-
pacific/.
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better coordinate with allies
Second, any effective China policy requires better coordination
with U.S. allies. In addition to negotiating and implementing bilateral
and regional trade agreements, we should coordinate on WTO reform and
other efforts to set global rules and standards for emerging
technologies and critical industries.
The United States has used the WTO to address harmful Chinese
policies, including export restraints on rare earth metals \4\ and
licensing of intellectual property on non-market terms, among
others.\5\ But despite successes like these, the WTO has not
effectively constrained many of China's practices and is falling short
of its mandate to widely promote market-oriented free and fair trade.
The WTO does not include agreements governing forced technology
transfer or SOEs, it allows China to claim ``developing country
status'' and gain a negotiating advantage despite its global stature,
and dispute settlement proceedings take too long and have undermined
our ability to use trade remedies to counter China's massive industrial
subsidies.
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\4\ China--Measures Related to the Exportation of Rare Earths,
Tungsten, and Molybdenum (United States), WT/DS431.
\5\ China--Certain Measures Concerning the Protection of
Intellectual Property Rights (United States), WT/DS542.
Congress should encourage the Biden administration to make
ambitious proposals to fix the WTO's problems as soon as possible,
including through its trilateral initiative with the EU and Japan,\6\
plurilateral agreements on e-commerce and other issues, and robust
dispute settlement reform proposals that would restore the system's
functionality in exchange for meaningful changes. My paper
``Revitalizing the WTO'' lays out potential reform proposals in
detail.\7\
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\6\ Joint Statement of the Trilateral Meeting of the Trade
Ministers of Japan, the United States, and the European Union, January
14, 2020, available at: https://ustr.gov/about-us/policy-offices/press-
office/press-releases/2020/january/joint-statement-trilateral-meeting-
trade-ministers-japan-united-states-and-european-union.
\7\ See, e.g., Clete Willems, ``Revitalizing the WTO,'' available
at: https://www.atlanticcouncil.
org/wp-content/uploads/2020/11/Revitalizing-the-WTO-Report_Version-
11.6.pdf.
The United States must also better coordinate with allies on
defensive measures taken in relation to China. Many recent export
control actions are justified, but due to a lack of multilateral
coordination there are reports of production shifting to other
countries without similar measures in place.\8\ In the future, such
controls should be coordinated to maximize impact and avoid putting
U.S. industry at a disadvantage to foreign competitors. Such measures
should also be narrowly tailored to allow exports for non-sensitive
items to ensure American goods and services can compete globally and
support jobs at home. To the extent that Chinese companies continue to
purchase such non-sensitive items from U.S. technology companies, this
puts China in the position of subsidizing U.S. innovation leadership.
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\8\ See, e.g., Stu Woo, ``The U.S. vs. China: The High Cost of the
Technology Cold War,'' Wall Street Journal, October 22, 2020, available
at: https://www.wsj.com/articles/the-u-s-vs-china-the-high-cost-of-the-
technology-cold-war-11603397438.
The United States should also prioritize resolving disputes with
allies, such as the longstanding WTO disputes related to Large Civil
Aircraft,\9\ section 232 tariffs on steel and aluminum, and digital
services taxes. Resolving these disputes will require flexibility on
both sides, but such flexibility is worthwhile if it allows us to avoid
wasting time and energy fighting each other that is better spent on
building trust and coordinating on China.
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\9\ European Communities and Certain Member States--Measures
Affecting Trade in Large Civil Aircraft (United States), WT/DS316;
United States--Measures Affecting Trade in Large Civil Aircraft--Second
Complaint (European Union), WT/DS353.
Importantly, this does not mean the United States should not
leverage existing measures or give countries a free pass on policies
that harm U.S. interests. For example, in exchange for lifting its
section 232 tariffs on steel and aluminum, the United States should ask
partners to commit to actions to reduce the impact of Chinese excess
capacity on global markets, track transshipment, and limit import
surges into the United States. Likewise, on digital services taxes, the
United States should continue to move forward with its section 301
investigations until others agree to drop unilateral measures that
unfairly target U.S. companies for revenue while exempting domestic
competitors. The United States should also not tolerate policies like
the EU's proposed Digital Marketing Act, which is both discriminatory
and includes elements would force U.S. companies to turn over their
technology.\10\ Mechanisms like the proposed U.S.-EU Trade and
Technology Council could be used to resolve differences on digital-
related issues and set standards for future technologies.
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\10\ Proposal for a Regulation of the European Parliament and of
the Council on contestable and fair markets in the digital sector
(Digital Markets Act), available at: https://eur-lex.europa.eu/legal-
content/en/TXT/?qid=1608116887159&uri=COM%3A2020%3A842%3AFIN.
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further engage with china bilaterally
Third, the United States should engage directly with China to press
for additional market access openings and modifications to China's
policies. Sales to China support American farmers, businesses, and
workers. Just as China harnessed U.S. consumption and growth to grow
its economy, so too the United States should benefit from increased
consumption and a level playing field in the second largest economy in
the world.
The Phase One deal did not fix all of our problems with China, but
it helped achieve important structural reforms to China's intellectual
property laws, substantially reduced barriers to U.S. agricultural
exports, begun to pry open the financial services sector, and condemned
the policy of forced technology transfer. According to the Trump and
Biden administrations, China has met the majority of its structural
commitments \11\ and U.S. agricultural exports to China are at record
levels.\12\ The Phase One deal is also one of the only bilateral
dialogues currently in place and thus one of few existing mechanisms to
discuss and potentially solve problems. For these reasons, it is in the
strong U.S. interest to maintain the deal.
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\11\ Interim Report on the Economic and Trade Agreement Between the
United States of America and the People's Republic of China:
Agricultural Trade, U.S. Department of Agriculture, October 2020,
available at: https://ustr.gov/sites/default/files/assets/files/
interim-report-on-agricultural-trade-between-the-united-states-and-
china-final.pdf; see also 2021 National Trade Estimate Report on
Foreign Trade Barriers, March 31, 2021 (discussing China's
implementation of the Phase One Deal at length), available at: https://
ustr.gov/sites/default/files/files/reports/2021/2021NTE.pdf.
\12\ See, e.g., USDA China data: https://www.fas.usda.gov/regions/
china.
In addition to continuing with Phase One, the United States should
consider whether there is a viable path to Phase Two. China is
admittedly unlikely to fully address issues like industrial subsidies
or state-owned enterprises (SOEs) in a bilateral context, but we can
make additional progress that benefits U.S. industry and workers. As a
starting point, I recommend harvesting the text on services, non-tariff
barriers, and forced technology transfer \13\ on which the U.S. and
China were making progress before negotiations on a more comprehensive
deal broke down in May 2019.
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\13\ The Forced Technology Transfer chapter of the Phase One deal
does not include all of the components that the United States and China
were originally negotiating.
Any Phase Two deal should also focus on structural issues instead
of purchases. Although the Phase One agricultural purchasing
commitments helped spawn record sales to China, this is because the
purchasing commitments are coupled with a robust underlying structural
chapter that requires China to actually change its laws. The purchasing
commitments on manufacturing, services, and energy have not fared as
well because of the lack of a corresponding structural chapter. As this
illustrates, it is the structural commitments that matter, not the
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purchasing ones.
Another benefit to a Phase Two deal is that it could lead to a
tariff reduction on certain Chinese imports and U.S. exports. To be
clear, I supported the initial imposition of the 301 tariffs on China
to create leverage to persuade China to drop its unfair trade
practices. But there is no question that existing U.S. tariffs--and
China's corresponding retaliation--are having an adverse impact on U.S.
businesses, farmers, and workers. This is especially true with respect
to those that obtain production inputs from China that cannot be
sourced elsewhere or who have lost market share in China to
international competitors. Therefore, it is in our interest to seek
additional changes in China's policy (and Chinese tariff relief) in
exchange for U.S. tariff relief. In this regard, it is important to
recall that section 301 statute indicates that tariffs imposed pursuant
to it are not intended to be permanent, but to temporarily provide the
United States leverage to achieve negotiated outcomes.\14\
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\14\ 19 U.S.C. Sec. 2411(b) specifies that action under the statute
is taken ``to obtain the elimination of [the] act, policy, or
practice'' that ``is unreasonable or discriminatory and burdens or
restricts United States commerce.''
At the same time, the Biden administration should also consider
reinstating a tariff exclusion process to provide relief for products
that cannot be sourced elsewhere and are not core to China's Made in
China 2025 ambitions. This will make a policy that maintains leverage
over China more economically sustainable over the long term.
don't become china to beat china
Fourth, the United States must avoid the impulse to ``become China
to beat China.'' More specifically, we must not adopt policies that
replicate the same Chinese practices we are condemning. Such policies
will be inefficient at best, and at worst will harm our economy and
credibility to rally an international coalition in our favor. The
strength of the U.S. economy and the core of our innovation leadership
comes from our market-based system and rules-based trade that rewards
entrepreneurialism, fair competition, and the rule of law. This should
not be sacrificed.
For example, in an attempt to respond to supply chain challenges,
we should not seek to source all products domestically. We should also
not double down on procurement policies that discriminate against
foreign products and services. These evoke core elements of the Made in
China 2025 plan. Supply chain efforts should instead focus on positive
incentives like increased spending and tax credits combined with
efforts to improve supply diversity, flexibility, redundancy, and
partnership with trusted partners and allies. Similarly, access to our
procurement markets should not be restricted for all foreign actors,
but instead traded for reciprocal access to foreign markets. This can
help promote the same levels of economic growth as Buy American while
saving taxpayer dollars in the process.
The United States should also resist invoking ``national security''
to support broad trade barriers unless it is truly justified. Indeed,
China's expansive view of national security as it applies to its
economy underpins many of the policies the United States finds most
problematic and was a common excuse as to why China could not meet U.S.
demands during negotiations on the Phase One deal. Invoking national
security in questionable circumstances and against key allies gives
China carte blanche to justify a whole range of policies with
questionable national security claims while at the same time
undermining the WTO legal architecture.
Congress should also tread carefully when considering novel
policies like outbound investment screening regimes that would
significantly expand the role of government in company investment
decisions.\15\ Broad interventions into how U.S. companies operate and
invest abroad risk mirroring the distortive role the Government of
China often plays in the allocation of resources by its companies. Such
a regime could also impair the ability of U.S. businesses and workers
to compete globally from the United States and advantage their
competitors in foreign countries not subject to similar restrictions
and reviews.
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\15\ America LEADS Act, S. 4629, 116th Congress, as introduced,
section 411.
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consult closely and continuously with the private sector on policy
choices
Fifth, the U.S. Government and private sector should closely align
on efforts to address the challenges posed by China. It is entirely
reasonable for the U.S. Government to set standards about U.S. company
behavior in China, including that U.S. companies not utilize forced
labor in their supply chains or directly support companies affiliated
with China's military. However, U.S. policymakers should consult
closely with industry on such action to receive input on how to best
design any measures and provide businesses with time to adjust to
changes in U.S. policy. The Biden administration's efforts to reach out
to numerous U.S. companies during its 100-day supply chain review is a
welcome development, and hopefully the policies derived from that
effort fully reflect industry input.
The U.S. Government should also be willing to back U.S. companies
facing particularly difficult Chinese government policies, such as
Chinese government censorship, an issue I had the opportunity to
testify on before this committee last year.\16\ Some of the ideas that
I shared at that time remain relevant, but I would also endorse other
ideas, such as a Special 301 on censorship activities.\17\ This is a
good example of the U.S. Government adopting a core role in pushing
back on a policy that is so embedded in the current Chinese
Government's philosophy that no company could navigate it sufficiently
on its own.
---------------------------------------------------------------------------
\16\ Clete R. Willems, Testimony before the Senate Committee on
Finance, Subcommittee on International Trade, Customs, and Global
Competitiveness, hearing on ``Censorship as a Non-Tariff Barrier to
Trade,'' June 30, 2020, available at: https://www.finance.senate.gov/
imo/media/doc/30JUN2020WILLEMSSTMNT1.pdf.
\17\ America LEADS Act, S. 4629, 116th Congress, as introduced,
section 415.
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be clear-eyed about the china threat and the risks
from certain policy choices
Finally, we must be clear-eyed about the extent of the threat posed
by China and the risk that certain policy choices entail. If we over-
legislate on this issue in a way that undermines our long successful
market economy principles and view every single Chinese action and
Chinese company as a threat, we could unintentionally undermine our
greatest strengths and even bring ourselves to the brink of conflict.
Yes, China's Made in China 2025 plan and subsequent 5 year plans
threaten U.S. innovation leadership in critical industries of the
future, but the health of China's economy as a whole appears more
tenuous. As numerous analysts have pointed out, China's economic growth
data is unreliable and China remains heavily reliant on inefficient
SOEs.\18\
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\18\ See, e.g., Shehazd H. Qazi, ``The Great Chinese Rebound? Not
So Fast,'' Barron's, January 26, 2021, available at: https://
www.barrons.com/articles/the-great-chinese-rebound-not-so-fast-
51611622798.
Further, while China's plans for Military-Civil Fusion are truly
concerning,\19\ not every company in China is a Communist Chinese
Military Company (CCMC). Indeed, some very prominent Chinese companies
appear to be quite out of alignment with their government at the
moment.
---------------------------------------------------------------------------
\19\ See ``Military-Civil Fusion and the People's Republic of
China,'' U.S. Department of State, available at: https://www.state.gov/
wp-content/uploads/2020/05/What-is-MCF-One-Pager.pdf.
As a result of factors like these, U.S. policy-makers should adopt
nuanced policy responses that are calibrated to the threat posed and
intended to achieve clear objectives instead of overly-broad approaches
that may do more harm than good. Indeed, if we seek to fully sever ties
with China and blindly demagogue all Chinese entities and people,
including the many that share our concerns about their own government's
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policies, we could find ourselves on a dangerous path.
One important lesson that I learned as a negotiator on the Phase
One deal with China, witnessing Chinese Government officials openly
arguing with each other in front of our delegation, is that China is
not a monolithic country. Much like the United States, China is
composed of individuals with very different perspectives and companies
with very different relationships with their government. To ensure that
our policies lead to our desired outcomes, we need to develop clear
standards to help discern between different groups of individuals and
companies in China so we can continue to engage with and to build up
those who share our values and can help promote long-term peace,
prosperity, and a level playing field between our countries. That is
better than many of the alternatives.
I look forward to continuing to work with the committee on all of
these important objectives.
______
Questions Submitted for the Record to Clete R. Willems
Questions Submitted by Hon. Mike Crapo
Question. America's innovative industries, particularly its digital
technology companies, are the envy of the world. My concern is that
China is taking out its envy of U.S. successes by creating new
restrictive tools to target these innovators--and that other countries
will follow in this direction.
Do you agree?
Answer. Yes. I share your concerns about actions that China and
other countries around the world are taking to target U.S. digital
technology companies. Many of China's actions are longstanding and
extremely broad in scope, such as censorship, forced technology
transfer, and discrimination in favor of ``national champion''
companies, including through market access limitations on foreign
companies. Together, these polices often have the effect of preventing
U.S. digital technology companies from being able to offer their
products or services in China at all.
Unfortunately, the European Union is also targeting U.S. digital
technology companies, including through digital services taxes that
single out American companies for revenue while excluding domestic
competitors. The current Commission is also advocating a digital
sovereignty agenda that includes proposals like the Digital Markets
Act. This proposal is targeted at U.S. companies like digital services
taxes, but also includes provisions that would require U.S. companies
to turn over trade secrets, user data, and algorithms to competitors.
Finally, numerous other countries around the world are including
digital services taxes outside of the context of the multilateral OECD
negotiations.
Question. What can we, in Congress, do about it?
Answer. First, Congress should be vocal about its concerns about
these policies. That helps strengthen the administration's hand in
dealing with our trading partners. Congressional leadership on digital
services taxes in particular has been very helpful in illustrating to
the EU that neither political party in the United States will tolerate
the unfair targeting of U.S. companies for revenue.
Second, Congress should take legislative action that strengthens
the administration's hand in dealing with these issues. This includes
ideas like a Special 301 to address censorship and an investigation
into the EU's proposed Digital Markets Act.
Finally, Congress should discuss with the administration how to
create international rules at the WTO and in FTAs to deal with issues
like censorship, propaganda, data localization, and the targeting of
user data, among other key issues, to prevent China from promoting its
model of governance around the world. An Indo-Pacific digital trade
strategy is a good place to start.
Question. I am interested in the point made in your written
statement about how U.S. exports of non-sensitive items to China put
China in the position to subsidize U.S. innovation leadership. The
implication is that overly restricting non-sensitive items may not only
deny our companies a safe path of needed capital for innovation, today,
but also deny these same companies market access to China in the
future, and even for pure off-the-shelf items. As other countries move
in to backfill non-
sensitive U.S. orders, these new foreign relationships with China may
eventually take the place of the U.S. in the China market, generally.
What are some steps the United States can take to make sure our
approach to restricting non-sensitive items is targeted and safe?
How can we ensure that other countries coordinate with us better on
export restrictions and trade policy with China, to mitigate the
backfilling problem?
Answer. The United States should lay out clear objectives before
taking export control actions and ensure that the measures adopted are
designed to achieve that objective without unintended consequences. For
example, to the extent that there are concerns that a certain company
could use a particular technology to threaten U.S. national security,
the measure adopted should be designed to prohibit the export of that
item to that company from the United States or a third country. That
likely will involve coordinating with that third country either
directly or by restricting the item in one of the many multilateral
export control fora. At the same time, the measure should not
necessarily apply to the export of all other items to that company to
the extent that those other items do not raise similar concerns. When a
foreign entity continues to purchase non-sensitive items from a U.S.
company that provides additional revenue for the U.S. company to use
for research and development and maintain an innovation advantage.
Question. You served in the Trump administration as part of the
team that worked to stop forced technology transfers to China. Some
have argued that the TRIPS intellectual property waiver would amount to
exactly that--a forced transfer of mRNA vaccine technology to China and
other countries--and ``would be delivering a competitive advantage to
countries that are increasingly viewed as our adversaries, at taxpayer
expense.''
Do you agree?
Answer. The Biden administration's goal of ensuring a vaccine
supply to the rest of the world is laudable, especially at a time when
much of the world is suffering from COVID-19. However, I am very
concerned with the Biden administration's recent decision to negotiate
on a TRIPS waiver for vaccines at the WTO. Even proponents of this
policy recognize that it will not result in more vaccine production
during 2021, and it has numerous adverse consequences.
First, there is no evidence that intellectual property rights have
been an impediment to vaccine production and distribution. Numerous
U.S. and EU companies have already voluntary licensed technologies to
companies capable of production in foreign countries, such as the Serum
Institute in India. Larger problems at the moment appear to be the
imposition of export restraints on vaccines and the raw materials
needed to produce them as well as the lack of idle manufacturing
capacity capable of producing vaccines using this novel technology.
Solutions should be addressed toward these issues instead of IP. To
make matters worse, some in industry have expressed concerns that the
negotiations on the TRIPS waiver could actually reduce vaccine
production by increasing the global scramble for raw materials,
including by entities not yet capable of producing vaccines.
Second, such a policy will enable countries like China to violate
U.S. mRNA patents without any repercussion, bringing them closer to
their Made in China 2025 objective of dominating the global market for
biotechnology and undermining longstanding bipartisan efforts to push
back against China for IP theft. It is also important to recognize that
mRNA technology is not only limited to vaccine production, but could
have broad application in many other areas.
Third, this policy also appears to threaten our attempts to build
an alliance with the EU at the WTO. Indeed, the early response from our
European allies makes clear that they were not consulted with before
the Biden administration announced its new policy, undermining recent
efforts to cultivate the alliance to better push back on China's unfair
practices.
Congress should encourage the Biden administration to abandon this
misguided path and instead seek to export vaccines from the United
States. This would help address legitimate concerns about needing to
help the rest of the world respond to the COVID crisis without the same
adverse consequences. At the same time it would also help achieve the
bipartisan objective of further strengthening the biopharmaceutical
sector and supply chain in the United States.
______
Question Submitted by Hon. Thomas R. Carper
Question. Over the past several years, tariffs on China and
subsequent retaliatory tariffs have caused significant economic
disruptions for U.S. businesses and farmers. I have heard from many
constituent companies who have invested significant time, money, and
resources navigating the process for securing an exclusion from these
tariffs. However, unfortunately, these exclusions expired at the end of
last year, and no new exclusion process has opened. Recently, I joined
Senator Portman, and several of my Senate colleagues on both sides of
the aisle, to encourage USTR to re-start an exclusion process.
However, the last exclusion process was far from perfect, and left
many questions about speed, transparency, and fairness.
Moving forward, in your view, what should Congress do to reform
this process in order to provide greater certainty and predictability
to American companies?
Answer. First and foremost, Congress should work with the
administration to make sure that an exclusion process is reinstated so
that the many exclusions that were originally granted as a result of a
lack of domestic availability are quickly reinstated and made
retroactive.
Second, in moving forward with the consideration of new exclusions,
Congress should consider four enhancements: (1) greater transparency
about the rationale for decisions; (2) additional due process, such as
having a hearing following written comments; (3) eliminating time
restrictions on exclusion requests and instead adopting a ``rolling
process''; and (4) including an appeals process.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. Key to the U.S.-China relationship is working with
allies, and one of the most important ways that the United States can
address the China threat is by pursuing negotiations on new free trade
agreements (FTAs). China is aggressively pursuing new trade deals, and
in this past year has joined the Regional Comprehensive Economic
Partnership (RCEP) and has pursued a comprehensive agreement on
investment with the European Union (EU). The Biden administration, in
contrast, has said that the United States will not pursue or sign any
new trade agreements until the U.S. makes ``major investments in
American workers and our infrastructure.''
Pursuing new FTAs would not only have beneficial economic effects--
supporting domestic manufacturing through increasing manufacturers'
market access--but would also have strategic implications. Reciprocal
free trade agreements with a country like Taiwan would not only be a
boon for our domestic manufacturers, but would also be important for
our national security.
What do you think are our biggest opportunities for pursuing new
strategic free trade agreements, and how can such agreements be written
to combat the threat of Chinese unfair trade practices?
Answer. As I noted in my testimony, it is critical for the United
States to adopt an offensive trade agenda that seeks to open new
markets for U.S. workers and businesses and create rules that promote
U.S. free and open market-based solutions over Chinese alternatives.
Such a strategy should include bilateral, plurilateral, and
multilateral agreements.
Among the different options, I believe that Congress and the Biden
administration should prioritize the Indo-Pacific region where China's
influence is the strongest and where the U.S. commitment to greater
economic engagement has been called into question by our withdrawal
from the TPP. Ideally, the United States should attempt to negotiate
with CPTPP countries on changes to the agreement necessary for the
United States to rejoin. To the extent that this is not politically
possible, the United States could instead negotiate building block
agreements with CPTPP countries in priority areas like digital trade.
Congress and the administration should also prioritize the
completion of negotiations with the United Kingdom and Kenya. As I
understand it, our negotiations with the United Kingdom were quite
advanced during the Trump administration and this work should not go to
waste, especially in light of the close relationship between the United
States and United Kingdom and the potential for a ``gold standard''
agreement in numerous areas. I would also continue to prioritize Kenya
given China's efforts to gain influence in the African continent.
Finally, the WTO is also critical to any effective China strategy.
The Biden administration should build on the numerous proposals made by
the Trump administration to address problems with the negotiating
function, including the U.S.-EU-Japan trilateral work, and complement
them with new proposals to improve the dispute settlement function.
Question. If the United States wants to encourage a free and open
Indo-Pacific and counter Chinese influence in the region, do you agree
that accomplishing that task will include working with like-minded
countries in the region, like Taiwan, to liberalize trade?
Answer. Yes, I believe that greater economic engagement with Taiwan
holds great promise and the United States should consider an FTA.
However, this will require Taiwan to address longstanding concerns
about U.S. market access for agricultural products such as beef and
pork to illustrate their commitment to a substantive trade deal. To the
extent that the administration is not ready to move into full FTA
negotiations with Taiwan, I would also endorse recent comments by
Ambassador Tai to try to expand the economic relationship in other
ways. For example, any efforts at joint standard setting in critical
technologies or linking U.S. supply chains with key allies and partners
should include Taiwan.
Question. President Trump's Phase One deal with China achieved some
gains in discouraging China's problematic behavior as it related to
investment, intellectual property protection, and forced technology
transfer, but it kept in place the vast majority of the section 301
tariffs. It also lacked any reforms of some of the most significant
unfair trade practices--China's industrial subsidies and general
preferential treatment of state-owned enterprises.
While it is important to ensure that our trading partners live up
to their international trade commitments, I am concerned about the use
of tariffs as a primary remedy. Do you believe that tariffs are the
best mechanism to address Chinese unfair trade practices?
What policy alternatives can the Biden administration instead
utilize to better target bad actors?
Answer. I believe that targeted tariffs can help create leverage to
address trade concerns as envisioned by both section 301 of the 1974
Trade Act and WTO rules. At the same time, I agree that there are
limits to the use of this tool and that at some point additional
tariffs may become more harmful than good.
For example, Lists 1 and 2 of the section 301 action against China
were narrowly targeted toward products that were substitutable or a
core part of Made in China 2025. In other words, these tariffs were
designed to be more harmful to China than to the United States, and in
light of this, they were helpful in getting China to the negotiating
table and leading to the Phase One deal. On the other hand, subsequent
tariff lists were not as well targeted and in many cases are
significantly harming U.S. companies. In light of this, I agree with
you that the Biden administration (and other U.S. administrations in
the future) should consider alternatives to tariffs.
Overall, when considering alternatives to tariffs, the United
States should consider measures that are more harmful to foreign
companies than U.S. ones or that are reciprocal to the type action that
the United States is attempting to address. Certain tax measures, fees
on services, or other types of limits on investment or market access
may be worth considering. Ultimately, however, the goal of all of these
measures should not be to create a lasting trade barrier but to
persuade the other country to change its unfair practices.
______
Questions Submitted by Hon. Todd Young
Question. For years, digital trade and the cross-border flow of
data has been at the forefront of global trade agreements with e-
commerce growing at an exponential rate.
Unfortunately, the global digital economy is complex and it can be
difficult to advance U.S. interests unilaterally. As we work on future
trade negotiations, the U.S. will need to focus on protecting key
national interests, but also work cohesively with our international
allies.
Can you speak to the importance of implementing a national strategy
focused on maintaining U.S. global tech leadership by pursuing a
digital trade agenda that holds China accountable, but also supports
businesses dependent on e-commerce?
Answer. To be successful, any strategy that aims to improve U.S.
competitiveness in digital trade should have an offensive and defensive
component. Key elements of ``offense'' should include the adoption of
additional incentives in the United States, such as the Endless
Frontier Act; lower tax rates and less burdensome regulation to create
an overall more conducive climate for innovation in the United States;
joint standard-setting on emerging technologies with key allies through
the EU-U.S. Trade and Technology Council and other forums; and the
pursuit of trade agreements with key partners, including through the
WTO. In this regard, I would prioritize digital trade agreements with
the Indo-Pacific region and the e-commerce negotiations at the WTO.
Question. Last year, China and 14 other Asia-Pacific nations signed
the Regional Comprehensive Economic Partnership, which in some
instances will bind China to rules for digital commerce.
With that said, China has been developing its own legal frameworks
for governing digital rules, and as the world's second-largest economy,
they still have an advantage when negotiating terms for future trade
deals with emerging nations.
Therefore, it remains in our strategic interests for the U.S. to
assert oversight over China's digital rule-makings and to make sure our
allies in the Asia-Pacific are not negatively pressured by China's
presence.
If the U.S. were to continue developing a plurilateral digital
trade agreement with Japan that builds off current principles, would
this effectively add geopolitical pressure for China to adhere to
international standards?
Answer. Yes. Although I was a proponent of the bilateral Phase One
negotiations with China and believe that there is merit in Phase Two,
we will realistically only effectively pressure China to adhere to
international standards on key digital issues through a coordinated
plan with like-minded allies. Consistent with this we should seek a
plurilateral agreement in the Indo-Pacific region with robust digital
trade provisions and WTO negotiations on the same issues.
______
Questions Submitted by Hon. John Barrasso
Question. The WTO was formed to establish a trading system based on
``open, market-oriented policies'' per the 1994 Marrakesh Agreement
which established the organization. Despite modest improvements,
China's markets are not ``open.'' Their policies are not ``market-
oriented.'' China is no longer a ``developing nation'' despite its WTO
status.
Market-distorting subsidies, intellectual property theft, forced
technology transfer, forced labor, and industrial over-capacity in
China aren't anomalies. They are the cornerstones of China's economic
policy.
Is there any reason to believe the WTO currently has the necessary
tools or the will to address the challenges the world is facing with
respect to China?
What WTO reforms are needed to make it a more effective ``cop on
the beat'' with respect to China?
Answer. I do not believe that the WTO has all of the necessary
tools to constrain China's unfair trade practices. Indeed, the WTO
lacks rules covering many of the issues raised in your question such as
forced technology transfer, industrial subsidies, state-owned
enterprises, and forced labor. It is also unacceptable for China to
claim ``developing country'' status and therefore seek a lower level of
obligation than the United States in ongoing negotiations. China is the
second largest economy in the world, the world's leader in certain
sectors, and aspires to improve its global stature. Consistent with
this, China should be treated the same as the United States at the WTO.
The WTO's dispute settlement system is also in need of reform. It
takes too long for countries to get a resolution, and in certain
disputes the WTO has adopted reports that undermine the ability of the
United States and others to use trade remedies to push back against
China's unfair practices.
I have written extensively about how to update the WTO to better
deal with China and am happy to continue to engage with you on these
ideas: https://www.atlanticcouncil.org/in-depth-research-reports/
report/revitalizing-the-wto/.
Question. The Phase One agreement negotiated by the Trump
administration was very important to American exporters. Wyoming's
farmers, ranchers, and energy producers applauded the deal.
While agriculture purchases have been positive for U.S. agriculture
exports to China, American energy exporters, services and manufacturing
industries are still waiting for China to fulfil their commitments. You
mentioned the importance of coupling structural commitments with
purchase commitments in order for Phase One and future agreements with
China to bear fruit.
What can we do today in Congress to ensure China meets its Phase
One purchase obligations with respect to energy, services, and
manufacturing?
And is it wise to proceed with a Phase Two agreement prior to China
meeting its commitments under the Phase One deal?
Answer. As I noted in my testimony, one of the primary reasons that
China's purchases of U.S. agricultural goods hit record levels in 2020
despite the COVID pandemic was the extensive set of structural
commitments included in the Phase One Deal, with which China appears to
have largely complied. There are not similar underlying commitments for
energy or manufacturing and the services commitments are much less
extensive than for agriculture.
Moving forward, I believe that the United States should continue to
press China to meet all of the commitments in the agreement, but to
press for structural commitments in the energy, services, and
manufacturing areas. This will help ensure that China's increased
commitments are predicated primarily on market forces instead of state
intervention. This should be an overarching goal of the United States
with respect to China's economy.
I do not believe that enforcing Phase One and negotiating Phase Two
should be mutually exclusive. We can hold China accountable for the
commitments it has made while not standing idle on trying to achieve
additional successes for U.S. workers and businesses with respect to
the many market access barriers that still exist. In fact, substantial
progress was made during the Phase One negotiations with respect to
additional market access openings in manufacturing and services, among
other areas. We should build off of that progress in a potential Phase
Two deal.
Question. Chinese over-capacity of steel, aluminum, cement,
chemicals and numerous other industrial inputs is part of a broader
strategy to drive down prices and put international competitors out of
business. Chinese state-owned enterprises (SOEs) and export subsidies
hurt American businesses and workers. In Wyoming, our soda ash
producers and steel pipe and tubing producers know firsthand how
difficult it is to compete with China in the marketplace.
Where should the U.S. focus our efforts to counter China's export
subsidies and over-capacity?
What can Congress do to make U.S. companies competitive when they
are forced to compete directly with China's SOEs?
Answer. Addressing issues with China's export subsidies and over-
capacity will require a multi-pronged effort that includes:
(1) Pressuring China on these issues bilaterally, including
through a potential Phase Two deal. The United States had been
negotiating text with China on these issues before talks broke down in
May 2019.
(2) Working with close allies and partners to pressure China
directly. For example, as a condition for removing U.S. steel and
aluminum tariffs on the EU, the EU should commit to efforts to address
Chinese excess capacity.
(3) Creating high standard trade agreements that include
provisions prohibiting export subsidies, over-capacity, and other of
China's most unfair trade practices.
(4) Working through multilateral institutions to address these
issues. This includes a revamped Global Forum on Steel through the OECD
and bringing disciplines on these issues into the WTO. The trilateral
work with the EU and Japan holds promise with respect to the WTO, but
the three parties need to expedite work on text.
Question. The Chinese Communist Party continues to commit terrible
human rights abuses. The Uyghurs, a religious and ethnic minority in
China, have experienced brutal repression at the hands of the Chinese
government. They continue to be subjected to torture, imprisonment, and
forced labor.
At least 1 million Uyghurs have been put in internment camps by the
Chinese Communist Party. Around 100,000 Uyghurs and ethnic minority ex-
detainees have reportedly been used as forced labor in textile and
other industries in China.
How effective have U.S. actions been at addressing the human rights
abuses and the use of forced labor?
What more should the United States do on transparency and
enforcement?
Answer. To date, it is unclear whether U.S. actions have resulted
in a dramatic change in China's appalling practices in the Xinjiang
region.
In order to better address this problem, the United States should
coordinate any subsequent sanctions-related action with allies,
building off recent efforts to work with the EU, U.K., and Canada. The
United States should also closely work with the private sector to
determine how to best root out forced labor from supply chains to
ensure that measures are effective and not overbroad.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
The Finance Committee meets this morning to discuss one of the most
significant challenges facing the U.S. economy: the decades-long effort
by the Chinese Government to manipulate global competition in their
favor by any means necessary.
The Finance Committee is coming together to respond to this
challenge. Democrats and Republicans are working on new legislation
that will take concrete steps to boost this country's competitiveness
and level the playing field for American workers and businesses.
That bipartisan effort will get right at the core issues of how our
country can out-compete China. Cracking down on the use of forced
labor. Fighting censorship. Protecting U.S. jobs by rooting out
counterfeits. Shoring up supply chains, including semiconductors and
medical products. Stepping up trade enforcement and oversight. This
will be a significant bipartisan push on issues that are front and
center for this committee.
I want to thank Ranking Member Crapo and many members of the
committee who've contributed. The committee's proposal will be combined
with bills from other committees to form a larger package on building
up American competitiveness. That's a prospect I think both sides of
the Senate ought to be able to get behind.
The trade rip-offs and underhanded tactics the Chinese Government
and enterprises have employed to grow at our expense are well known.
Massive, unfair subsidies that destroy any level playing field. Theft
of innovative intellectual property. Shakedowns of cutting-edge
technologies. Policies that meddle in supply chains and hurt American
consumers and producers. The use of forced labor, which is absolutely
reprehensible on its own, regardless of where it fits into trade.
With the Great Firewall and other sophisticated trade barriers, the
Chinese Government blocks 10,000 websites and a host of American
digital service providers. For the few allowed to enter the Chinese
market, the price of admission is extreme censorship.
The overall result is untold losses for American companies and
their workers. Homegrown Chinese tech giants rip off American
innovations and thrive in the absence of American competitors. Several
of those homegrown firms have outgrown the Chinese market, accessed the
U.S. financial system, and invested in U.S. companies. The catch is,
this isn't just a matter of economic losses for America. These Chinese
firms competing unfairly also export their government's intolerance of
free speech.
From solar panels to soybeans to software and almost everything in
between, America's workers, farmers, and our economy writ large have
been exposed to China's trade cheating for far too long. The
consequences are visible in Oregon and all across the country.
Factories have shuttered. Towns have lost their beating economic
hearts. Fewer and fewer American workers believe it'll be easier for
their families to get ahead in the future than it was in the past.
In short, America has spent 2 decades slowly falling further and
further behind in a cold trade war. That didn't change when it turned
hot over the last 4 years.
The previous administration was right to throw out business as
usual on trade with China, but their strategy relied more on what some
people might call ``Internet muscles'' and tough talk than serious
economic strength. The former President's mean tweets and angry
statements didn't get results. The agreements the Chinese government
signed mostly rehashed commitments it had already made and broken in
the past. Its core trade rip-offs are ongoing.
It's time to take a different tack. And today's hearing will help
shape fresh approaches to address China's cheating.
I'm pleased to have this opportunity to discuss these important
issues today. The committee is joined by an excellent panel of
witnesses, and I look forward to Q&A.
______
Communications
----------
American Farm Bureau Federation
600 Maryland Avenue, SW, Suite 1000W
Washington, DC 20024
p. 202-406-3600
f: 202-406-3605
https://www.fb.org/
The agriculture related parts of the U.S.-China Phase One Agreement
resulted in U.S. agricultural export growth and improved economics for
U.S. farmers and ranchers in 2020. The expanded sales to China in the
agreement have had a direct impact on the domestic production,
processing, and transportation of agricultural goods. The product-
specific obligations and regulatory commitments in the agreement are
providing new opportunities for growth in many agricultural export
categories. A full execution of the Agreement is important for the
future ofU.S. agriculture.
The Agreement was signed on January 15, 2020 and entered into force on
February 14, 2020. China committed to purchase on average at least $40
billion annually and $80 billion in total of U.S. food, agricultural
and seafood products over 2 years. According to the Agreement, these
purchases by China will be on a commercial basis at market prices and
purchases may reflect seasonal marketing patterns.
The purchase commitments cover the calendar years 2020 and 2021. Annex
6.1 of the Agreement identifies the products included in the
commitment.
Phase One laid out a plan for China to purchase $12.5 billion in
agricultural products above what they purchased in 2017, which was
chosen as a baseline because it was the last ``normal'' year of trade
between China and the United States before the retaliatory tariffs. In
2017, the U.S. exported $20.8 billion in products covered by the
agreement to China. This would imply that in 2020, China would have to
import $33.4 billion in U.S. agricultural products to fully meet the
terms of the agreement. This is equivalent to a 60% increase over 2017
exports. The agreement also laid out that over the course of 2020 and
2021, total exports of U.S. agricultural products to China would
increase by $73 billion, which is equivalent to $80 billion in Chinese
imports once shipping and freight are added.
According to USDA data, total exports of agricultural and related
products covered under the agreement reached approximately $27.2
billion in 2020, an increase of $6.3 billion over 2017 levels,
equivalent to a 30% increase. This, of course, means the export target
of $33.4 billion was missed by over $6 billion. Despite the missed
target, 2020 was a record year for exports of agricultural products
covered by the agreement, in nominal dollars.
Though U.S. agricultural exports overall missed the target of a 60%
increase over 2017 levels, some specific products had increases. For
example, the following products all set new nominal export levels to
China in 2020: pork ($2.1 billion), poultry ($761 million), tree nuts
($705 million), hay ($445 million), beef ($304 million), peanuts ($239
million) and pulses ($51 million). Meanwhile, exports of some other
products, though they did not set records, exceeded 2017 levels: corn,
at $1.2 billion, was 693% above 2017 levels and wheat, at $570 million,
was 62% above 2017 levels. Soybean exports, the largest agricultural
commodity exported to China, were $14.2 billion.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsIn 2020 U.S. agricultural exports reached a new record of $27.2
billion and the U.S. share of total Chinese agricultural imports
rebounded from the levels seen in 2018 and 2019. However, the U.S.
still only has 14% of the total Chinese agricultural import market of
nearly $170 billion. In calendar year 2019, U.S. agricultural exports
to China (including distilled spirits, fish products and ethanol which
are included in the agriculture product category in this agreement)
totaled $14.2 billion, compared to $10.4 billion during the same period
in 2018.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsIt is useful to compare the actual performance in 2020 to the
targets included in the Phase One Agreement. According to U.S. Trade
Representative fact sheets,\1\ ``China has agreed to purchase and
import on average at least $40 billion annually of U.S. food,
agricultural, and seafood products, for a total of at least $80 billion
over the next 2 years.'' Further, in Chapter 6 of the agreement,\2\
some guardrails around the $40 billion average are added: ``For the
category of agricultural goods identified in Annex 6.1, no less than
$12.5 billion above the corresponding 2017 baseline amount is purchased
and imported into China from the United States in calendar year 2020,
and no less than $19.5 billion above the corresponding 2017 baseline
amount is purchased and imported into China from the United States in
calendar year 2021.'' Finally, the fact sheet adds, ``on top of that,
China will strive to import an additional $5 billion per year over the
next 2 years.''
---------------------------------------------------------------------------
\1\ https://ustr.gov/countries-regions/china-mongolia-taiwan/
peoples-republic-china/phase-one-trade-agreement/fact-sheets.
\2\ https://ustr.gov/sites/default/files/files/agreements/
phase%20one%20agreement/
Economic_And_Trade_Agreement_Between_The_United_States_And_China_Text.pd
f.
There are several key elements in USTR's statement. One is the
reference to U.S. agricultural imports of ``on average at least $40
billion.'' This element is important because it does not commit China
to import $40 billion each year, but rather gives China flexibility for
different levels of imports in 2020 and 2021; these could be
significantly different. The key to understanding the Chapter 6
component is knowing that U.S. agricultural exports to China in 2017
---------------------------------------------------------------------------
were $20.9 billion.
USTR's fact sheet \3\ sheds some light on how $40 billion could be
achieved in the Phase One Agreement. The fact sheet states that
``products will cover the full range of U.S. food, agricultural, and
seafood products.'' When agriculture-related products, like distilled
spirits, ethanol, and fish products, are included it is easier to reach
the export goal, but $27 billion is still short of $40 billion.
---------------------------------------------------------------------------
\3\ https://ustr.gov/sites/default/files/files/agreements/
phase%20one%20agreement/Phase_
One_Agreement-Ag_Summary_Long_Fact_Sheet.pdf.
A continuing concern is the retaliatory tariffs China may apply on
nearly 100% of U.S. ag exports. Though the Phase One Agreement does not
address the tariffs, China currently offers importers exemptions to
their retaliatory tariffs on nearly 700 types of goods from the United
---------------------------------------------------------------------------
States, including farm and energy products.
The USTR fact sheet points out that ``China and the United States
recognize that purchases are to be made at market prices based on
commercial considerations.'' Between this language and the high-level
view of China's imports, it seems clear that the U.S. is going to have
to work to reach $40 billion in agricultural exports. In order to
achieve this level of agricultural exports, the U.S. will have to win
market share away from other competitors and the product mix may be
different from what the U.S. has exported in the past. Market share
will be won on a product-by-product basis, with different competitors
for each product.
In the Phase One Agreement, China has also committed to eliminate
market access barriers, shorten the time for products to get to market,
increase transparency and encourage the use of international standards.
In biotechnology, the approval process will be more transparent,
predictable, efficient and science based. The approval process will
take no more than 24 months, and China's evaluations will be based on
international standards.
The Agreement streamlines and establishes time frames for regulatory
actions by China for meat, poultry, seafood, dairy, infant formula,
rice, potatoes, nectarines, blueberries, avocadoes, barley, alfalfa
pellets, hay, feed additives, distillers' dry grains (DDGs) and pet
food. China and the U.S. have begun to open their markets to bilateral
trade in poultry products. For beef, China has eliminated cattle age
requirements, recognized the U.S. beef traceability system, and
recognized international standards for cattle production. Facility
registrations are being streamlined so that imports from U.S.-inspected
and approved facilities with the proper certificates are allowed.
Over 3,500 U.S. processing facilities have been approved for export to
China. China has also committed to implement food safety measures that
are science-based and risk-based. For fruits, vegetable and plant-based
feed products, China will finalize phytosanitary protocols for
potatoes, nectarines, blueberries, avocadoes, barley, alfalfa hay
pellets and cubes, almond meal pellets and cubes, and timothy hay.
Following the 2019 U.S. win in a WTO case brought against their
administration of tariff-rate quotas (TRQs), China is obligated to
improve corn, wheat, and rice TRQ allocation methodology and will not
inhibit the filling of TRQs.
Conclusion
During the first year of the Phase One Agreement, U.S. agricultural
exports to China have significantly increased from $14.7 billion in
2019 to $27.2 billion in 2020. The missed target for China purchases in
2020 also has implications for 2021, given that the Phase One Agreement
for purchases of agricultural products involve a 2-year commitment. To
achieve the 2-year, $73 billion commitment, U.S. agricultural exports
to China in 2021 will need to reach about $45.8 billion. Going forward,
the U.S. will need to use the expanded access provisions in the
Agreement to compete for market share, and the product mix will be more
diverse from what the U.S. has exported in the past.
______
Bradford/Hammacher Group of Companies
9333 North Milwaukee Avenue
Niles, Illinois 60714-1393
May 6, 2021
U.S. Senate
Committee on Finance
Our companies consist of The Bradford Exchange and Hammacher Schlemmer,
headquartered in Illinois with offices in Florida, Ohio and New York.
Hammacher was founded in 1848 and Bradford in 1973. Bradford has about
600 employees, and Hammacher about 125, all in the United States.
Bradford also has some employees outside the U.S. We are 100% employee
owned, and regarding our workforce, over 60% of our employees are
female.
Bradford is the largest affinity direct marketer of art-based products
in the U.S. We specialize in creating and direct marketing jewelry,
collectibles, home decor, giftware, checks, coins, apparel and
handbags. We offer unique, high quality products not available
elsewhere. We sell through direct mail, print media, direct response
mailers, catalogs, and eCommerce. Nearly all of our products are custom
designed by us, and approximately 76% are manufactured in China. We
serve the middle class with the average age of our customer being 60
with an average household income of $64,000.
Giving is one of the Bradford's core values, and for decades our
employee-owned company has come together to help those less fortunate.
We traditionally sponsor an annual holiday food drive in December to
support the hungry in the Chicagoland area, and promote events such as
toy drives to benefit needy children. Our employee blood drive is also
another fundamental social impact initiative that we carry out every
year to support our community. In addition, Bradford routinely donates
to the following associations, programs and causes:
Associations and Programs
The Greater Chicago Area Food Depository
The Niles Food Bank
Toys for Tots
POW Association
Firefighters Association
Animal Welfare Groups
Abused Children Association
Medical Research and Support
Down Syndrome Research
Breast Cancer Research
Cerebral Palsy Research
Leukemia Research
AIDS Research
ALS Research
Nursing Association
We believe that domestic competitiveness translates to social equity
and community impact. To that end, free trade is vital to us. We buy
approximately 45 million dollars of products from outside the U.S.
annually. Due to our complex global supply chain, many of these items
must be imported from China.
When tariffs were imposed in 2019, we promptly started phasing out our
Chinese production, moving much to Indonesia, Cambodia, India and
Mexico. It took some time, but we were making progress, with
limitations due to the artistic and intricate nature of our products.
Then COVID-19 hit. Global production was substantially curtailed.
However, because of its nationwide shut down, China was able to quickly
control COVID spread and reopen its factories. Indonesia, Cambodia,
India and Mexico were not. Thus, from January through March of 2021,
more of our products have come from China. When production resumes in
Indonesia, Cambodia, India and Mexico, we plan to continue shifting
production away from China, but, given the massive resurgences
happening in southeast Asia, that could be some time. Shifting all
production away from China is unfeasible because of the following
reasons.
First, most of our products require complex, costly tooling. We do not
have the tens of thousands of dollars per product and many months to
have new tooling made and delivered to factories in other countries.
Second, many of our products are handcrafted and hand painted. They
require sophisticated artisans. We have spent many years helping
factories in China develop the talent required for our products. We are
not aware of any countries other than China that have the artists with
the skills and in the numbers necessary to make many of our products.
Third, many of our products are licensed by major entertainment
businesses such as Walt Disney or Major League Baseball. Those
licensors require us to use only certified factories. The certification
process can take many months to verify that the factories have policies
that ensure fair labor practices. To our knowledge there are few
certified factories in other countries that make many of the products
that we sell.
Fourth, where possible we have moved production of our product to
countries other than China and relocated final assembly of product to
the U.S. where practical. Yet, production of the majority of our
products remains in China, and there are no sources of supply in the
United States to make the quantity and quality that we need. In fact,
for many of our products, there are no such sources of supply anywhere
else in the world other than China.
Lastly, if the tariffs are continued, the price of our products to
consumers will be substantially higher--essentially a tax on the
consumer. No revenue would be generated for U.S. companies, and no jobs
would be created in the U.S.
One additional point. One of our suppliers has told us that our price
will be going up because a U.S. sourced chemical is used in the
product, and China is retaliating by increasing tariffs on USA origin
chemicals. Some of those chemicals are from major U.S. manufacturers
(such as Dow Chemical). If we reduce our purchases of products from
China, the U.S. chemical companies will have reduced sales. These
retaliatory tariff actions are a viscous cycle.
Outside of these critical points as it relates to our import model,
there are other macro policy considerations to bring to bear given the
tone of the Biden Administration. On February 24th, President Biden
signed an executive order to conduct a review of American supply chains
in order to better understand reliance on foreign manufacturing.
Notably, the order focuses on high- priority supply chains, including
semiconductors, high-capacity batteries, rare earth metals, and medical
supplies.
The executive order includes two distinct phases. The first phase
includes a 100-day review process of high-priority supply chains,
including semiconductors, high-capacity batteries, rare earth metals,
and medical supplies. Following this review, the second phase of the
order expands the review process to include a wider range of sectors,
including the production of equipment for defense, public health,
energy, and transportation. One year after the order is issued, the
task force will submit recommendations to the administration, such as
diplomatic agreements or trade-route edits. It is believed the
executive order is largely focused on providing the Biden
Administration with a greater understanding of the United States'
reliance on Chinese exports.
None of our imported products fall within the President's critical
supply chain framework.
In sum, we urge Congress to advise the United States Trade
Representative (USTR) to do the following:
(1) To renew Section 301 tariff exclusions that were granted,
(2) To permit the filing of Section 301 tariff exclusion requests
for exclusion requests that were not granted, and
(3) To refrain from placing Section 301 tariffs on American
companies that are providing affordable jewelry, dolls, electric
trains, festive articles, clocks, music boxes and decorative plates to
average Americans.
Significantly, there should be special treatment for companies that are
employee owned. We care about our business because we care about our
employees and community--that's what makes us different. Without your
support, the survival of potentially hundreds and possibly thousands of
jobs in the United States could be at risk.
We thank you for this opportunity to submit a Statement for the Record
and welcome any forum to discuss further how we can be of service to
the American economic recovery.
Thank you.
Sincerely,
Richard Tinberg
President
______
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael G. Bindner
Chairman Wyden and Ranking Member Crapo, thank you for the opportunity
to submit these comments for the record to the Committee on this topic.
The exit of Donald J. Trump from the White House almost instantly
improved our trade relationship with China. Since both sides want to
return to normal, it should happen rather quickly. Let us not do so too
quickly. There are significant human rights abuses that should be
addressed before we dot the i's and cross the t's. Let us not waste a
good crisis to deal with the plight of the Uygurs. If not now, when?
See our attachment, which contains our prior comments on slave labor
and supply chains.
While competitiveness is a good thing, justice is a better thing.
Consumers may have to pay a bit more for goods produced at home and
abroad, but there are worse things.
The Chinese economy depends on migrant labor, with rural migrants going
to the coasts to work, but taking their social service systems with
them. Peasants do not receive the same benefits as workers from urban
China. They are sitting on a time bomb.
Eventually, these migrants will object to the locality system imposed
upon them and demand the same level of pay, benefits and consumerism as
is earned by those designated as urban. When this occurs, the valuation
of the Yuan will occur, assuming that the Chinese Communist Party
survives. We do not make this assumption, however.
Chinese workers are not the only ones getting the short end of the
stick in international trade. The CEO/Donor Class attack on unions for
the past 30 years trades ``competitiveness'' for worker rights. It has
taken its toll on the American worker in both immigration and trade.
Cheap goods and food are part of the equation, but not the only part.
Tax policy is a major driver. That has been facilitated by decreasing
the top marginal income tax rates so that when savings are made to
labor costs, the CEOs and stockholders actually benefit. When tax rates
are high, the government gets the cash so wages are not kept low nor
unions busted. As Chinese workers are not allowed to unionize, the
working class in both nations become expendable factor in production
rather than human beings.
Increasing marginal tax rates will help. I am confident that a second
reconciliation will make that happen, although the proposed rate
increases on the richest taxpayers are not large enough to make a major
difference. Until there is basic change in the economy, anything this
Committee does will be a mere Band-Aid.
True competitiveness for workers can only come from ownership and
control of not only the shop floor, but also supply chain decisions. If
labor rates for overseas subsidiaries provide the same standard of
living received by American workers in the same jobs (with more equal
pay scales between them), there will be no thought of competitiveness.
If common ownership includes common consumption, global price
competition effects will be muted.
The question is how to get there. Merely encouraging worker investment
in the market is not enough. It must be targeted toward direct control
of the workplace.
The USA accounts proposed by President Clinton had the same feature,
although as a supplement to the Social Security benefit rather than a
partial replacement, although this feature would be muted by enactment
of value added taxes. The flaw in using foreign investment to make up
for lost worker revenue is that eventually foreign workers either
radicalize or become consumers and demand their own union rights.
The tendency for consumerism to follow industrialization is why
globalization is a poor substitute for expanding the domestic
population. Increases to the Child Tax Credit (and adding
refundability) in the American Recovery Plan Act were a good first
step, but we stop walking too soon. These changes need to be made
permanent and sustainable. Government distribution of the benefit is
fine when attached to unemployment and disability insurance payments.
Workers need the money regularly, as part of pay. In the short term,
the quickest way to distribute money is to offset pre-payment of these
credits as part of wages against quarterly income tax payments by
corporate and individual filers. In the long term, comprehensive tax
reform is required. Our current proposal is included in a second
attachment.
An employer-paid subtraction VAT is the best means for distribution of
the child tax credit in real time. This will decrease resistance to
larger credits and, along with funding either public or private health
care (as another credit), will end much of the incentive to resort to
franchising, the gig economy and 1099 employment to dodge requirements
for direct employment of full-time workers.
Separating out taxation of capital gains and income into an asset
value-added tax will end the need for all but the wealthiest workers to
file income taxes at all. Ending direct filing should be a bipartisan
goal. For a while, it certainly helped Mike Huckabee when he proposed
it in 2008. Expanding provisions to avoid taxation of capital gains to
all shareholders who sell to qualified ESOPs will kick start employee
ownership.
Another essential step toward employee control is repeal of the Taft-
Hartley Act prohibitions on concentrated pension fund ownership. Once
we are farther down that road, we can discuss how changing the flow
social insurance payments might speed up the process. Seen from the
perspective of employee owners, there will be less resistance.
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).
As previously stated, employee owners will find it in their own
interest to give their overseas subsidiaries and their supply chain's
employees the same deal that they get as far as employee ownership plus
an equivalent standard of living. The same pay is not necessary,
currency markets will adjust once worker standards of living rise.
Over time, this will change the economies of the nations we trade with,
as working in employee-owned companies will become the market
preference and force other firms to adopt similar policies (in much the
same way that, even without a tax benefit for purchasing stock,
employee-owned companies that become more democratic or even more
socialistic, will force all other employers to adopt similar measures
to compete for the best workers and professionals).
China could end its peasant labor system in advance of revolution.
Hopefully quick adoption of our suggestions to expand employee
ownership is more likely than revolution in China. If not, trade wars
and rumors of trade wars will always be with us, along with the damage
they do to both the financial markets and the real economy.
Eventually, trade will no longer be an issue. Internal company dynamics
will replace the need for trade agreements as capitalists lose the
ability to pit the interest of one nation's workers against the
other's. This approach is also the most effective way to deal with the
advance of robotics. If the workers own the robots, wages are swapped
for profits with the profits going where they will enhance consumption.
This is the type of competitiveness we should be fostering.
I have not forgotten about the need to increase marginal rates.
Separate consumption, employer, asset and high salary taxes will stack
payments and remove shelters, which is something the current system
does not do.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
Attachment from Finance: Fighting Forced Labor: March 18, 2021
. . . The other issue with China, as well as south Asia and the global
south, is defacto slavery. Boycotting the products of slavery worked in
fighting the Confederacy. The mass migration of slaves had more of an
impact. A boycott of Xinjiang cotton and tomatoes is problematic during
a pandemic, but generally it cannot succeed as a stand-alone action.
Even though it may hurt in the short run, we should still do it.
To make a boycott work, we cannot do it alone. At minimum, Islamic
nations must join in as well and start linking the cause of the Uygurs
to the New Silk Road. The ethnic Turkmen range from modern Turkey to
Xinjiang, so a little solidarity on their part could go a long way. If
we do go this route, the whole effort to interfere in Iran must end. We
cannot be with South Asian Muslims on some things and expect solidarity
with them on others.
On the moral front, I am not sure we have room to talk. We hold
migrants in stark conditions prior to deportation. If you doubt it,
visit Lewisburg Federal Prison. Also stop in the Federal Prison
Industries factory while you are there. Visit any food processing plant
with large immigrant workforces (send people undercover) and see how
many workers were trafficked and how local law enforcement reacts when
they decide they want to leave. Examine the plight of sex workers in
the United States and see how many of their pimps have arrangements
with local police.
Our best weapon is our example. As long as slavery exists in the United
States, our moral voice is compromised. Again, I am not saying to
ignore this situation. I am saying to go ``All In'' to really fight
slavery. Also, call it slavery. On the same subject, examine the
Chinese treatment of peasant workers at their factories. There is a
two-level society, and American consumers benefit from this. Our
commitment to abolishing slavery cannot live only in the fringes.
This is not to say that loopholes cannot be closed, although we must
stop our own unfair trade practices as well. American food should not
show up in countries just before harvest when doing so depresses the
price of local agricultural products. Poverty begets slavery. Making
others poor is an invitation to exploitation.
Poor farmers can either be individual or tenant farmers who are
essentially peons. The drive for lower food prices for American
consumers comes at a human cost. This is especially true when only one
buyer dominates the market, as is sometimes the case for export to
America (if not often). Poor factory workers never have access to
collective bargaining. This factor also drives down wages in American
factories--often those with immigrant labor bearing the brunt of bad
working conditions, poor wages and lax enforcement. The major
difference is that being blacklisted in the United States for
attempting to organize is rarely deadly, as it can sometimes be
overseas.
Improved enforcement takes money and the willingness to accept higher
food prices. More inspectors with more authority are needed at home and
abroad. Government or third party inspection is vital to make sure work
is safe, fairly compensated and able to organize. We cannot expect
worker protection in China or Guatemala if we do not insist on it in
North Carolina and Alabama.
Attachment--Tax Reform, Center for Fiscal Equity, March 5, 2021
Individual payroll taxes. These are optional taxes for Old-Age and
Survivors Insurance after age 60 for widows or 62 for retirees. 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 $85,000 to reduce benefits
paid to wealthier individuals and a $16,000 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 $85,000 per
year, will range from 6.5% to 26%. 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 26% rate is
between the GOP 24% rate (including ACA-SM and Pease surtaxes) 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.
Summary
This plan can be summarized as a list of specific actions:
1. Increase the standard deduction to workers making salaried
income of $425,001 and over, shifting business filing to a separate tax
on employers and eliminating all credits and deductions--starting at
6.5%, going up to 26%, in $85,000 brackets.
2. Shift special rate taxes on capital income and gains from the
income tax to an asset VAT. Expand the exclusion for sales to an ESOP
to cooperatives and include sales of common and preferred stock. Mark
option exercise and the first sale after inheritance, gift or donation
to market.
3. End personal filing for incomes under $425,000.
4. Employers distribute the child tax credit with wages as an
offset to their quarterly tax filing (ending annual filings).
5. Employers collect and pay lower tier income taxes, starting at
$85,000 at 6.5%, with an increase to 13% for all salary payments over
$170,000 going up 6.5% for every $85,000--up to $340,000.
6. Shift payment of HI, DI, SM (ACA) payroll taxes employee taxes
to employers, remove caps on employer payroll taxes and credit them to
workers on an equal dollar basis.
7. Employer paid taxes could as easily be called a subtraction
VAT, abolishing corporate income taxes. These should not be zero rated
at the border.
8. Expand current state/federal intergovernmental subtraction VAT
to a full GST with limited exclusions (food would be taxed) and add a
federal portion, which would also be collected by the states. Make
these taxes zero rated at the border. Rate should be 19.5% and replace
employer OASI contributions. Credit workers on an equal dollar basis.
9. Change employee OASI of 6.5% from $18,000 to $85,000 income.
______
Guardian Technologies
26251 Bluestone Blvd.
Euclid, OH 44132
May 6, 2021
U.S. Senate
Committee on Finance
Guardian Technologies (``Guardian'') is a consumer products company
that develops and sells consumer durables for mass retail to improve
the home environment. These products include air purifiers, humidifiers
and dehumidifiers, fans, heaters, diffusers, and therapy lights.
Guardian was founded in 2005 and is headquartered in Cleveland, Ohio.
The company employs 25 full-time workers in Cleveland and 30 to 60
part-time workers on a seasonal basis. To reach American consumers,
Guardian works with brick-and-mortar and online retail partners,
including Amazon, Costco, Best Buy, Walmart, Target, Home Depot, and
Kohl's.
Guardian's GermGuardian brand portfolio includes the company's various
air purification units. The GermGuardian air purifiers incorporate UV-
C, HEPA filters, and other technologies to reduce harmful microscopic
particulate in the air. UV-C light helps reduce airborne bacteria,
viruses, mold spores, and works with Titanium Dioxide to reduce
volatile organic compounds. Guardian has partnered with The Association
of Home Appliance Manufacturers (AHAM) and all GermGuardian air
purifiers are notably AHAM verified.
The COVID-19 pandemic has greatly affected the demand for air purifiers
for a variety of different indoor environments. Guardian has a
longstanding history producing these purifier units and is proud to be
contributing to this critical supply chain. While demand has increased
for air purifiers, the market has also been flooded with foreign
products that have made false claims and provided consumers with a
lower quality product. In 2019, GermGuardian products held the greatest
unit brand share in the industry. In 2020 Levoit, a Chinese competitor,
overtook GermGuardian to be the top product in the marketplace. Though
Guardian currently imports technologies from China, as part of Lasko
Products, a century old American company, they are proud to support
American jobs and American manufacturing. Levoit is a pure-play Chinese
company with a shell company headquartered in California that provides
little to no economic impact for the country's manufacturing base.
These foreign purifiers also often fail to meet the AHAM verification
standards of clean air environments.
Guardian Technologies represents an American company providing American
solutions to the pandemic response efforts with air purification
products for government buildings, schools, and small businesses.
The Miscellaneous Tariff Bill (MTB) will provide Guardian Technologies
much needed duty relief on many products critical for the United
States' economic recovery following the COVID-19 pandemic. Without the
MTB, Guardian will find itself at a disadvantage to its Chinese
competitors and will lose its ability to maintain current U.S.
employment levels.
American businesses, consumers, and government entities are currently
being encouraged and incentivized to purchase and utilize air
purification units for indoor spaces in order to aid in the reopening
of American schools and businesses. However, these same purification
units are being unfairly targeted by Section 301 tariffs. It is
counterintuitive for these products to both be targeted by tariffs upon
their import and granted consumer relief once distributed in the United
States. This inefficient structure disproportionately burdens Guardian
Technologies and similar American air purification businesses.
In sum, we urge Congress to advise the United States Trade
Representative (USTR) against placing Section 301 tariffs on American
companies that are providing critical products for reopening the
American economy and are at an unreasonable competitive disadvantage
with Chinese finished product imports. In addition, the swift passage
of the MTB will ensure that our business can get baseline support for
operations during the pandemic.
We thank you for this opportunity to submit a Statement for the Record
and welcome any forum to discuss further how we can be of service to
the American economic recovery.
Sincerely,
Brian Zollar
Director of Business Development
______
Lasko Products, LLC
820 Lincoln Avenue
West Chester, PA 19382
U.S. Senate
Committee on Finance
Lasko Products, LLC (``Lasko'') is a 115-year-old U.S. company and one
of the only remaining U.S. manufacturers of portable fans and other
similar small appliances. The company is headquartered in West Chester,
Pennsylvania and employs more than 1,000 U.S. workers, including more
than 800 production workers at its plants in Texas, Tennessee, and
Pennsylvania. Lasko sells more than 15,000,000 fans and 5,000 heaters
in the United States annually. We are the largest manufacturer of fans
and heaters in the United States, by far.
Our company has a proud tradition of diversity in the workplace and
community involvement. More than 57% of Lasko's workforce is comprised
of minority workers and the company is proud to provide competitive pay
and benefits to its workforce. Lasko has donated twenty acres of soccer
fields in Franklin, Tennessee to the local YMCA youth soccer program.
Lasko's presence in West Chester, Pennsylvania is also evidenced by the
Oscar Lasko YMCA and the Lasko Tower at the Chester County Hospital.
Lasko's U.S. workers manufacture a variety of components, assemble
internally made and externally sourced components, package finished
fans and distribute these products to Lasko's customers. Whenever
practical, Lasko uses U.S.-sourced components and raw materials, such
as steel and resin.
Lasko's products are built from a variety of components, including
steel box fan bodies, plastic fan bodies, fan blades, bases, grills,
and a variety of small parts. The company manufacturers many of these
components at its U.S. facilities and has invested heavily in a variety
of American made machinery and tooling at each of its plants. As
Lasko's sales of domestically manufactured products have grown in
recent years, the company has invested in increasing manufacturing
capacity, resulting in increased U.S. employment. We have actively
hired new employees throughout the past year's COVID-19 pandemic and
continue to do so today.
Lasko's U.S. made products compete primarily with Chinese-manufactured
products. Lasko's retailer customers will purchase from Chinese
manufacturers instead of Lasko when the price differential is as low as
$0.10 to $0.20 per unit. As a result, Lasko operates on very low
margins and relies heavily on sourcing high quality/
low-cost components, efficient manufacturing processes, high volume,
high inventory levels, and strong customer service to compete. It is
often said that ``pennies matter'' when it comes to remaining
competitive with Chinese manufacturers.
The Miscellaneous Tariff Bill (MTB) will provide Lasko much needed duty
relief on motors and other important components, a critical input for
Lasko's fan manufacturing operations. Without the MTB, Lasko will find
itself at a disadvantage to its Chinese competitors and will lose its
ability to maintain current U.S. employment and production levels.
There is also notably an ongoing Section 301 tariff on heaters imported
from China that negatively impacts Lasko's products. While all
manufacturers face this same tariff, Chinese manufacturers are given
government rebates in return, enabling them to provide aggressive
pricing without passing on the tariff cost to American consumers in the
marketplace. This rebate and resulting pricing give Chinese companies a
disproportionate advantage in the US marketplace for the same imported
good.
If Lasko loses any of its major retailer customers to Chinese
manufacturers, the company may be forced to shrink or close its U.S.
manufacturing facilities. This could result in the loss of hundreds of
U.S. manufacturing jobs. Further, if Lasko is forced to close plants or
reduce operations, there will be a significant ripple effect on local
economies, jobs, suppliers, service providers and a multitude of
related industries that support Lasko's operations in the United
States. As a result, Chinese manufacturers would also increase their
U.S. market share. Clearly, this would not be consistent with the
developing trade policies of this administration.
In sum, we urge Congress to advise the United States Trade
Representative (USTR) against placing Section 301 tariffs on American
companies that (1) have a substantial manufacturing footprint and
legacy in the United States, (2) have demonstrated meaningful supply
chain shifts out of China since the Section 301 investigation, (3) are
at an unreasonable competitive disadvantage with Chinese finished
product imports, and (4) demonstrate stewardship in diversity, equity,
inclusion and community investment. In addition, the swift passage of
the MTB will ensure that our business can get baseline support for
operations during the pandemic.
We thank you for this opportunity to submit a statement for the record
and welcome any forum to discuss further how we can be of service to
the American economic recovery.
Very Respectfully,
Ed Vlacich
Chief Executive Officer
______
Rail Security Alliance
1341 G St., NW, 6th Floor
Washington, DC 20005
202-466-5053
Arpil 27, 2021
Introduction
The Rail Security Alliance (RSA) is a coalition of North American
freight railcar manufacturers, suppliers, unions, and steel interests
committed to ensuring the economic and national security of our
passenger and freight rail systems. On behalf of our coalition, thank
you for the opportunity to submit a statement for the record before the
committee to communicate to you the work of RSA and the importance of
protecting U.S. competitiveness and North American manufacturing jobs
in critical industries such as rail. Given the hearing will examine
challenges facing global competition with China and strengthening
America's trade policies, we wanted to give you an update on the
domestic freight rail industry and challenges they are facing.
As way of background, RSA was formed in response to the merging of
China's two rail manufacturers into one massive 100% state-owned
enterprise (SOE), the China Railway Rolling Stock Corporation (CRRC).
CRRC, by their calculation, controls roughly 83 percent of the global
rail market, with the intent to ``conquer'' the remaining 17 percent,
per the company's own public acknowledgment.\1\ As a state-owned
enterprise, CRRC has access to unlimited state funding that allows them
to win rail contracts around the world by underbidding competitors.
CRRC has made aggressive and alarming incursions into the U.S. rail
market using state-backed financing, below-market pricing, and other
anti-competitive tactics and has used the lingering economic effects of
the COVID-19 pandemic to continue its domination of global market
share. Alarmingly, CRRC was named one of 20 companies by the Department
of Defense that it says is owned or controlled by China's People's
Liberation Army.\2\ CRRC has won four U.S. metropolitan transit
contracts--through severely underbidding its competitors by way of
unlimited financing from the Chinese government--in Boston, Chicago,
Los Angeles, and Philadelphia.
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\1\ @CRRC_global, ``Following CRRC's entry to Jamaica, our products
are now offered to 104 countries and regions. So far, 83% of all rail
products in the world are operated by #CRRC or are CRRC ones. How long
will it take for us conquering the remaining 17%?'' Twitter, January
11, 2018. https://twitter.com/CRRC_global/status/951476296860819456.
\2\ U.S. Deputy Secretary of Defense David L. Norquist Letter to
Senator Tom Cotton, June 24, 2020. https://www.cotton.senate.gov/files/
documents/Sen%20Cotton%20NDAA%20FY%201999
%20Sec%201237%20Response%2006242020.pdf.
---------------------------------------------------------------------------
Threat of CRRC to the Freight Rail Industry
The North American freight industry is not immune to the advances by
CRRC either. Their current foothold in the U.S. transit industry
creates an opportunity to pivot into freight rail assembly, a subsector
of rail not protected by the same Buy America requirements as transit
rail. CRRC has attempted to enter the U.S. freight rail manufacturing
sector with a joint venture, Vertex Rail, in North Carolina.
Fortunately, that effort failed. CRRC also launched American Railcar
Services, with a separate assembly facility headquartered in Miami, FL,
and maintaining its assembly operations in Moncton, New Brunswick. This
venture also failed.
Our concerns regarding CRRC's transition from transit railcar
manufacturing to freight railcar manufacturing is best highlighted by
the recent experience of the rail industry in Australia. CRRC entered
the Australian freight rail market in 2008, and within less than 10
years, decimated the sector. The result was four domestic suppliers
being forced out of business and the rail market left solely to
CRRC.\3\ We risk the same in the United States if this industry is not
protected. We applaud action already taken by Congress in supporting
the rail industry such as its passage of the Transit Infrastructure
Vehicle Security Act (TIVSA), but more needs to be done to ensure this
vital industry survives the pandemic and can stay competitive with
China.
---------------------------------------------------------------------------
\3\ Oxford Economics, Will We Derail U.S. Freight Rolling Stock
Production?, May 2017, at 16.
The COVID-19 pandemic has had devastating effects on the U.S. economy
and has greatly impacted the freight railcar manufacturing and supply
industry. Freight railcar orders and backlog are plummeting due to the
effects of the pandemic, with 65,000 jobs at risk if the U.S. domestic
railcar manufacturing industry collapses.\4\ According to industry
experts, tens of thousands of jobs in the freight rail industry have
already been furloughed or lost due to the massive slowdown in
production and the cancelation of orders, with the potential for even
more significant losses if immediate action is not taken to stabilize
the industry. Downstream effects will be felt in every sector that
supplies the freight railcar industry, from iron and steel
manufacturers to factory equipment suppliers. We do not want to lose
these domestic industries and end up becoming reliant on countries such
as China for these materials.
---------------------------------------------------------------------------
\4\ Ibid, at 4.
We urge Congress to act to protect over 65,000 American freight rail
manufacturing jobs. Given current economic conditions, the U.S.
industry remains concerned that CRRC could see this as a prime
opportunity to move into the U.S. market more aggressively and pursue
breaking into the freight market. Representatives Schneider and LaHood
have introduced legislation, H.R. 2289, that would provide short-term
investment tax credits to encourage the replacement or modernization of
North America's freight railcar fleet with higher-capacity, more fuel-
efficient vehicles. This legislation aids in the stabilization of jobs
in the railcar manufacturing industry in response to the COVID-19
pandemic and includes proper safeguards to ensure that CRRC does not
take advantage of federal taxpayer dollars.
Ensuring American Freight Industry Stays Competitive
While the RAILCAR Act is an important step to jumpstart the industry
after the effects of the pandemic, more is needed. Over the past few
years, RSA has worked closely with Obama Administration, Trump
Administration, and now Biden Administration to educate them on the
threats of Chinese SOEs in the rail sector. We appreciate efforts to
take some measures to curb these threats including placing Section 301
tariffs and the U.S. Trade Representative's (USTR) investigations into
China's technology transfer and intellectual property theft in this
sphere. We also applaud the fact that USTR has put tariffs on most rail
parts from China. While important, these steps are not enough to put an
end to CRRC's goal of dominating our rail sector and permanent policy
action is needed.
RSA is in the process of working with leaders in Congress in drafting
much needed legislation with input from industry stakeholders and
bipartisan support in Congress. The legislation would put North
American content standards in place, prohibit sensitive technology from
Chinese SOEs from riding on freight railcars and ensure freight
railcars are manufactured or assembled in North America. We urge
Congress to act to help to protect the freight industry from foreign
dominance and ensure the industry remains viable for generations to
come. Permanent solutions will help to ensure the North American
freight rail market remains competitive and requires those in the
industry to play fairly.
Thank you again for the opportunity to submit testimony and we stand
available as a resource if you have any questions.
Respectfully submitted,
Erik Robert Olson
Vice President