[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
PROTECTING AMERICAN INNOVATION BY
ESTABLISHING AND ENFORCING STRONG
DIGITAL TRADE RULES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TRADE
OF THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 20, 2024
__________
Serial No. 118-TR06
__________
Printed for the use of the Committee on Ways and Means
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
57-161 WASHINGTON : 2024
-----------------------------------------------------------------------------------
COMMITTEE ON WAYS AND MEANS
JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona JOHN B. LARSON, Connecticut
DARIN LaHOOD, Illinois EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio DANNY DAVIS, Illinois
JODEY ARRINGTON, Texas LINDA SANCHEZ, California
DREW FERGUSON, Georgia TERRI SEWELL, Alabama
RON ESTES, Kansas SUZAN DelBENE, Washington
LLOYD SMUCKER, Pennsylvania JUDY CHU, California
KEVIN HERN, Oklahoma GWEN MOORE, Wisconsin
CAROL MILLER, West Virginia DAN KILDEE, Michigan
GREG MURPHY, North Carolina DON BEYER, Virginia
DAVID KUSTOFF, Tennessee DWIGHT EVANS, Pennsylvania
BRIAN FITZPATRICK, Pennsylvania BRAD SCHNEIDER, Illinois
GREG STEUBE, Florida JIMMY PANETTA, California
CLAUDIA TENNEY, New York JIMMY GOMEZ, California
MICHELLE FISCHBACH, Minnesota STEVEN HORSFORD, Nevada
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
Mark Roman, Staff Director
Brandon Casey, Minority Chief Counsel
------
SUBCOMMITTEE ON TRADE
ADRIAN SMITH, Nebraska, Chairman
VERN BUCHANAN, Florida EARL BLUMENAUER, Oregon
DARIN LaHOOD, Illinois DAN KILDEE, Michigan
JODEY ARRINGTON, Texas JIMMY PANETTA, California
RON ESTES, Kansas SUZAN DelBENE, Washington
CAROL MILLER, West Virginia DON BEYER, Virginia
LLOYD SMUCKER, Pennsylvania LINDA SANCHEZ, California
GREG MURPHY, North Carolina TERRI SEWELL, Alabama
GREG STEUBE, Florida BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota
DAVID KUSTOFF, Tennessee
C O N T E N T S
----------
OPENING STATEMENTS
Page
Hon. Adrian Smith, Nebraska, Chairman............................ 1
Hon. Earl Blumenauer, Oregon, Ranking Member..................... 2
Advisory of September 20, 2024 announcing the hearing............ V
WITNESSES
Robert D. Atkison, President, Information Technology and
Innovation Foundation (ITIF)................................... 3
Olivia Walch, Chief Executive Officer, Arcascope................. 21
Evangelos Razis, Senior Manager, Workday......................... 27
Adrian Shahbaz, Vice President of Research and Analysis, Freedom
House.......................................................... 38
Eric Gottwald, Policy Specialist on Trade & Economic
Globalization, AFL-CIO......................................... 44
PUBLIC SUBMISSIONS FOR THE RECORD
Public Submissions............................................... 77
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PROTECTING AMERICAN INNOVATION BY
ESTABLISHING AND ENFORCING STRONG
DIGITAL TRADE RULES
----------
FRIDAY, SEPTEMBER 20, 2024
House of Representatives,
Subcommittee on Trade,
Committee on Ways and Means,
Washington, DC.
The subcommittee met, pursuant to call, at 9:05 a.m., in
Room 1100, Longworth House Office Building, Hon. Adrian Smith
[chairman of the subcommittee] presiding.
Chairman SMITH. The subcommittee will come to order.
Thank you, Ranking Member Blumenauer, subcommittee members,
and our witnesses for being here today. I appreciate all of you
taking the time to discuss the need for U.S. leadership in
establishing and enforcing strong digital trade rules.
Technology products are a crown jewel of American
competitiveness. If our tech sector was its own country, its
economy would be the eighth largest in the world, larger than
even Canada or Russia. It employs 8.9 million Americans and
pays 33 percent more than other industries on average.
However, our status as an innovation powerhouse is under
threat. In recent years, our strategic and economic rivals have
sought to erode America's competitive edge through a series of
discriminatory digital trade and tax measures targeting
American companies. There is no question this is contrary to
our national interest.
This is why I was so concerned last October when the Biden
administration announced it was no longer supporting core
bipartisan digital trade rules in negotiations at the World
Trade Organization and the Indo-Pacific.
A recent poll found 86 percent of American voters believe
it is important for the U.S. to lead in writing global rules
for technology. Yet where we should be leading on technology
rules, America is retreating. Where we should be arguing for
our values in the face of digital authoritarians, we are
silent. And where we should be working with allies, we are
leaving like-minded partners out to dry.
Even more concerning, it has been almost a year since USTR
announced this policy change. Yet the administration has gone
radio silent on what our digital trade policies should look
like. Predictably, WTO partners have moved on without the
United States.
At USTR's insistence, digital trade is also off the table
in ongoing negotiations with Kenya, despite the chance to set a
gold standard with this important partner and developing
nation.
At the same time, it seems like our administration is out
to lunch as foreign governments treat American companies like a
piggybank by imposing new digital services taxes. It is
unacceptable. Canada, one of our closest trading partners, is
now collecting its DST with little response by the U.S.
Government.
Make no mistake, the new USMCA dispute against Canada's DST
is a positive step, but it is too little, too late. We should
have been ready to act immediately when Canada proceeded
unilaterally, blatantly ignoring a series of warnings from
Congress and our executive branch.
Fecklessness on trade enforcement signals to foreign
governments that aiming trade barriers at U.S. firms is fair
game. Look no further than the European Union, which continues
its regulatory assault against American Enterprise. For
example, under the Digital Markets Act, six companies are
designated for increased regulation as, quote, ``gatekeepers.''
Five are American, one is Chinese, and none are European. The
Digital Services Act similarly targets American innovators.
Yet the Biden administration has turned its head the other
way and, in some cases, has even sent agency officials to
assist the EU in implementing these laws. This sort of
collusion to undermine American companies is simply
unacceptable. Discriminatory actions against U.S. companies
should be met with a firm response, not a helping hand.
I will close with this: America needs to return to the
table. We need to get back to negotiating smart trade
agreements that support our innovators; agreements with real
teeth. Further, the U.S. Government must have the will to
enforce them. We need to make sure foreign governments know
discriminatory actions will be met with a swift and decisive
response from a government that supports its job creators.
I now recognize Ranking Member Blumenauer for his opening
statement.
Mr. BLUMENAUER. Thank you, Congressman Smith, for planning
and organizing today's hearings. I know it has been an
incredibly demanding work period with everything that is going
on, and I would like to thank our panelists for joining us in
the waning days of the fall session here.
In the interest of time, I will just briefly highlight a
few topics that we will hear about today.
I would like to start by commending the Biden-Harris
administration for their leadership role in the recent
extension of the WTO e-commerce moratorium. The United States
was instrumental in getting all WTO members to agree to the
extension, and it was not, I am told, an easy task. The e-
commerce moratorium supports American business growth and is
critical to the digital economy.
Extending the e-commerce moratorium was a big priority for
the Ways and Means Committee. As the chairman mentioned, the
digital economy is critically important to the United States.
According to the most recent data, as is mentioned, there is a
tremendous amount of value that is involved with this 10
percent of the GDP, and the digital economy grew at over 7
percent per year from 2017 to 2022.
The impressive growth for the digital economy has created
new opportunities for workers, for consumers, and business. The
digital economy has enabled entrepreneurs, like Dr. Walch, one
of our panelists, to start small businesses that operate
globally. It has led to the introduction of new technologies
and platforms that have helped to drive even more innovation,
improve trade facilitation, and further conservation efforts,
and provide important access to telemedicine. Today, the
digital economy touches most industries, whatever size.
But while the digital economy has created new opportunities
and transformed certain industries, it has raised significant
modern challenges. As Ambassador Tai has correctly noted, an
increasingly digital and digitized economy challenges every
realm of our individual and collective experience and requires
careful consideration of the regulatory approach.
On the one hand, we must create conditions for a company to
innovate. And yet on the other hand, we must ensure the ability
of governments to regulate the digital economy, especially with
respect to personal data.
In this regard, I am looking forward to hearing from Eric
Gottwald today on some of these challenges both within the
workplace, such as surveillance of workers, and outside the
workplace, such as the erosion of personal privacy. I am
concerned about that and look forward to hearing from our
panelists.
Finally, I will close by noting that policymakers have an
obligation to approach digital trade policy thoughtfully and
deliberately. We need to strike an appropriate balance
furthering the growth of the U.S. digital economy and
responding to the needs of our citizens and not having them
shortchanged.
I look forward to hearing from our witnesses on these
issues. I appreciate, Mr. Chairman, your convening us, and look
forward to a productive conversation.
Chairman SMITH. Thank you to Ranking Member Blumenauer. I
appreciate your participation as well.
I would like to introduce our witnesses now. First, we will
have Robert Atkinson. He is the president of the Information
Technology and Innovation Foundation. We have Olivia Walch, who
is the chief executive officer of Arcascope. We have Evangelos
Razis, and he is the senior manager of Workday. We have Adrian
Shahbaz, who is the vice president of Research and Analysis for
Freedom House. And then we also have Eric Gottwald, who is the
policy specialist on Trade and Economic Globalization for the
AFL-CIO.
Each of you will have five minutes. You will have your
timer there that you can see. Once you see that yellow light,
if you could bring the flight in for a smooth landing, we would
all appreciate that.
So, Dr. Atkinson, you are recognized for five minutes.
STATEMENT OF ROBERT ATKINSON, PRESIDENT, INFORMATION TECHNOLOGY
& INNOVATION FOUNDATION
Mr. ATKINSON. Thank you, Chairman Smith and Ranking Member
Blumenauer and members of the subcommittee. It is a pleasure to
speak with you today about this key issue that you laid out.
What is undeniable is that the U.S. leads in this sector.
We have 37 percent of global market share in the IT and
information services market, and it is an incredibly valuable
market, and since, as you noted, pays high wages, key exports.
And that is why so many foreign governments, including core
allies like Canada, like Korea, and others, have targeted this
sector, targeted our businesses, both in a form of digital
protectionism so that they can grow their businesses. If they
can hobble ours, they think they can grow their businesses to
compete with ours, but also direct digital aggression. Limiting
our ability to do business, taking our business company money.
And we detail in my testimony a number of key areas. And it
is striking just how aggressive these areas are.
Number one, as people talk about, limiting cross-border
data flows.
Number two, government-driven import substitution, where
governments like the European Government are saying we don't
want to buy your IT services or cloud service, we want our own.
And yet Europe is running a $200 billion trade surplus with us.
And we are running a $2 billion trade surplus in digital with
them. So, essentially, they have a hundred times more trade
surplus with us in other areas than we do in digital, and they
won't even let us sell digital products and services to them,
which is what they want to do.
Cloud center localization. You can't have your cloud data.
Center has to be there.
Mandated edge provider payments to ISPs. Basically what
they are doing over there is there are ISPs, there are telecom
companies, they are saying, hey, we have a good idea to raise
money. We will just force Amazon and Google and these other
companies to just pay us money. This is a complete violation of
how the internet has always worked.
Digital standards manipulation. Rather than relying on a
global or voluntary standards process that we have had for
decades, a lot of these countries are imposing their own
standards as a way to get competitive advantage.
Digital services taxes. Mr. Smith, you mentioned that--
Congressman Smith. What is important to understand that those
don't come from the companies, they come from our Treasury.
These companies that paid that get a tax credit against their
U.S. taxes. So they are just taking tax money from U.S.
taxpayers.
Aggressive antitrust against these companies. Massive
fines. Particularly the Europeans, billions and billions of
dollars of fines. Highest fines we have ever seen anywhere for
antitrust.
Taxing streaming platforms, and giving the money to
domestic companies.
And, finally, arbitrary privacy enforcement. Bringing
privacy cases that would never stand in the U.S. against
American companies.
So in light of all of that, it is critical that we need
strong pushback against these countries. And it is unfortunate
that USTR Tai made that decision to pull out of the WTO
negotiations and others to get, quote, policy space.
And I just want to close by saying, that really is not what
is at stake here. Congress has the ability to do virtually
anything in regulating the digital policy space. Virtually
anything, as long as it doesn't discriminate in favor of
American companies against foreign companies. So we could pass
an AI bill if we wanted to, and it wouldn't change anything
about our need to push back against foreign countries that are
using AI regulation to discriminate against American companies.
We could pass, and we should pass, a national privacy bill that
would not at all preclude us from pushing back against cross-
border data limitations.
And one of the key points that I think is lost in this
debate, regulation flows with the data. The idea that if you
move data offshore, you no longer have to comply with the
regulatory standards of that country, is just false.
The Canadian Government brought a case a few years ago
against an American company that was doing business in Canada
and the U.S. It took Canadian-person data, put it into the U.S.
and complied with U.S. law. Unfortunately, it broke the
Canadian law. Canadians sued the company, and they won in
court, as they rightly should have, because the American
company violated the laws of the country they were doing
business. So cross-border data flows do not mean that you can
have a get-out-of-jail free card.
Let me just close by saying, this is such an important
sector, as you noted, that if we don't take stronger action, we
are going to lose this sector. And we are going to lose the
jobs and the revenue and the exports that come with it.
So I am so pleased that you are doing this hearing because
it is such a critical issue. Thank you.
[The statement of Mr. Atkinson follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman SMITH. Thank you.
Dr. Walch, you are recognized for five minutes.
STATEMENT OF OLIVIA WALCH, CHIEF EXECUTIVE OFFICER, ARCASCOPE
Ms. WALCH. Chairman Smith, Ranking Member Blumenauer, and
members of the subcommittee, thank you for the opportunity to
speak today. My name is Olivia Walch, and I am the CEO and
founder of Arcascope, a Virginia-based company that makes
software to help people sleep better by targeting their
circadian rhythm.
If you have ever experienced jet lag, worked a night shift,
or simply woken up in the middle of the night and not known
why, you have experienced the tremendous impact that circadian
rhythms can have on your sleep, health, and overall well-being.
Our apps work by telling users what they need to do through
personalized plans for timing their eating, light exposure, and
caffeine, to start sleeping and feeling better faster.
In the time since our founding, we have had success helping
users sleep better all across the United States. But our users
are not just in the United States, and it is for that reason
that I greatly appreciate the opportunity to speak to you all
today.
Arcascope has users from countries around the world. Like
most small companies, we reach these users through an
infrastructure of service providers--for distribution,
authentication, analytics--and each of these handle user data.
The services range from as critical as handling how a user logs
in to as simple as just tracking if they clicked a button. We
have invested time, energy, and effort into engineering our
backend to carefully handle this data.
We can't afford to constantly reengineer the backend or
consult our lawyer in response to policy changes requiring us
to store data locally or pay countries specific tariffs. We
just lack the resources. After all, 2 weeks of my lawyer's time
is half an engineer's salary. If we were in a position where
the choices between redoing our backend or leaving a country
whose specific rules were a compliance challenge, we would
almost certainly just stop operating in that country.
And, of course, you can see the problem this poses for a
jet lag app. You don't want to take off from Dulles and not
have your app work in Delhi.
We already limit the data we collect because of compliance
headaches. If you land in Delhi and you want to know why we are
telling you not to drink coffee, I can't tell you without
having you go to settings and export a diagnostic report and
email it to us, which is a hassle. And it is caused by
disparate regulations we encounter around the globe.
If the fracturing of digital trade is allowed to continue,
I am confident that established third-party providers will sell
us compliance for a price, passing their costs on to us, and
further entrenching the already big players in the technology
space. Compliance with countless nation-specific digital trade
laws takes a lot of lawyers, and there aren't that many
companies with lawyers at the scale of Meta, Google, Amazon. We
are not one of those.
I want to briefly touch on the e-commerce moratorium,
source code disclosure, and data flows with my remaining time.
Digital goods are, essentially, information, which makes
them inherently different from trade and physical goods. And I
am grateful for the WTO e-commerce moratorium in place right
now which makes it so that digital goods are not subject to
tariffs in the same way physical goods are. And it is from this
place of gratitude that I call for strong U.S. leadership to
continue the moratorium and ultimately make it permanent.
As a startup, putting our proprietary innovations at risk
is putting our entire company at risk. Requirements to share
source code as part of operating in that country would mean
exposing our secret sauce to foreign regulators that probably
don't have our best interests in mind. Our only option would
again be to stop operating in a country that demanded that.
And it is easy to see how the imposition of localization
requirements would be stifling to products like our jet lag
app, but almost any business would be disrupted by barriers to
cross-border data flows. And despite the tendency to think of
tech as nice to have, like social media or streaming services,
data flows can be critical and life-sustaining.
My company's ambitions go far beyond our jet lag app. We
are the first mover in the field of consumer chronomedicine,
timing drugs so that they are maximally effective and minimally
toxic. Drugs like chemotherapy.
We work with researchers around the world, and we need to
be able to share data with each other. Innovation will happen
fastest if barriers to data flows across borders are kept as
frictionless as possible. There are good reasons for slowdowns
and sharing of health data to occur, like rigorous human
subjects and privacy protections. But inconsistent, nation-
specific, trade bureaucracy is not one of them.
U.S. small businesses like mine need strong leadership to
prevent rules like tariffs on digital goods, mandatory data
localization, enforced source code disclosure from hampering
our global growth.
With strong leadership on digital trade from the United
States, companies like Arcascope can continue to do what we do
best, which is build and compete on a global stage. And we can
continue to help you avoid jet lag on your next congressional
delegation.
Thank you for the opportunity to speak today, and I look
forward to your questions.
[The statement of Ms. Walch follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman SMITH. Thank you.
Mr. Razis, you are recognized for five minutes.
STATEMENT OF EVANGELOS RAZIS, SENIOR MANAGER, WORKDAY
Mr. RAZIS. Good morning, Chairman Smith, Ranking Member
Blumenauer, and members of the subcommittee. My name is
Evangelos Razis, and I am senior manager of public policy at
Workday, where I lead our policy efforts on data flows,
privacy, and AI.
Workday is a leading provider of enterprise cloud
applications for finance and H.R. Our software is used by more
than 10,000 organizations around the world and across
industries, including more than 60 percent of the Fortune 500.
There are 70 million workers in the Workday customer community,
and nearly 30 percent of all U.S. job openings are processed
using our software.
I commend the subcommittee for its bipartisan focus on
strong digital trade rules and would like to offer three points
for my written testimony.
First, digital trade rules are vital for cross-border data
flows, which Workday and our customers rely on to grow,
innovate, and do business. Workday can develop AI-powered
solutions here in the United States and deliver them to our
customers wherever they are in the world.
Chairman SMITH. Mr. Razis, could you pull your microphone a
little closer? Thank you.
Mr. RAZIS. Enterprises in every major industry, from
manufacturing to retail to financial services, rely on our
software platform to recruit, manage, train, and empower their
employees, complete payroll, process benefits, and manage their
finances. Unfortunately, barriers to the free flow of
information and digital services exports are growing abroad.
For cloud software companies like Workday and our
customers, data localization requirements are particularly
challenging. Unlike legacy systems, cloud software like Workday
runs on third-party infrastructure and is delivered through the
internet. Customers get the benefit of our software without
having to purchase, install, update, and manage it. This
business model was pioneered in the United States, and it
enables companies in every sector of the economy to access
innovative new technologies, including AI, securely and on
scale.
Second, strong digital trade rules complement and don't
preempt smart regulations. Workday sees incredible
opportunities for technology to unlock human potential, but we
also recognize that people won't use technology they don't
trust. For this reason, we support robust privacy protections.
And whether it is Federal privacy reforms or comprehensive
State privacy laws, one thing is clear, no leading U.S. privacy
framework runs afoul of strong digital trade rules because they
don't impose the kinds of data localization requirements and
data transfer restrictions that digital trade rules target.
Workday also supports smart regulation on high-risk uses of AI.
We have endorsed legislation here in Congress that would
advance meaningful AI governance.
As with privacy, AI frameworks like the first in the
Nation, Colorado AI Act, don't violate digital trade rules.
Why? Because they don't require foreign companies to transfer
source code as a condition for doing business. Put differently,
we don't face a choice of strong digital trade rules, rigorous
privacy protections, or smart AI regulation. We can and we
should choose all of the above.
Third, far from undermining domestic regulations, strong
digital trade rules support global regulatory cooperation and
better protect consumers. Under the USMCA and the U.S.-Japan
Digital Trade Agreement, which are the gold standards,
governments commit to having laws that protect privacy and
address fraudulent and deceptive practices online.
At a time when trade barriers are erected in the name of
privacy, cybersecurity, and other policy aims, digital trade
rules advance a vision of a trustworthy and open economy.
Like many, we were surprised by USTR's decision last year
to withdraw support for strong digital trade rules at the WTO.
U.S. leadership sets the tone around the world on data policy,
and USTR's decision cedes crucial ground on a growing number of
trade barriers abroad.
In closing, I am grateful for the opportunity to testify
before the subcommittee. Workday, as well as our customers and
their employees, benefit greatly from U.S. leadership in this
space. As you chart a way forward on digital trade, the
subcommittee can consider us a partner and ally in its efforts.
Thank you.
[The statement of Mr. Razis follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman SMITH. Thank you, Mr. Razis.
Mr. Shahbaz.
STATEMENT OF ADRIAN SHAHBAZ, VICE PRESIDENT OF RESEARCH AND
ANALYSIS, FREEDOM HOUSE
Mr. SHAHBAZ. Thank you.
Chairman Smith, Ranking Member Blumenauer, members of the
subcommittee, it is an honor to testify before you today. My
name is Adrian Shahbaz. I am the vice president for research at
Freedom House. We are a nonprofit and nonpartisan organization
founded in 1941. Our mission is to protect and expand freedom
around the world.
I am grateful to this subcommittee for elevating the human
rights angle of digital trade. The protection of fundamental
freedoms is necessary for upholding a rule-of-law system that
protects innovation and enables both prosperity and security.
My remarks will draw on Freedom House's annual Freedom on the
Net report, which assesses internet freedom in over 70
countries.
We work with local experts to produce country reports and
scores on obstacles to access, limits on content, and rights
violations. The project is widely used by public and private
sectors to understand global regulatory developments, assess
operational and human rights risks, and set internal priorities
and policies.
Let me say we have been honored to have Members of Congress
from both sides of the aisle provide opening remarks at our
report launches.
A free and open internet is crucial, not only for political
participation and free expression, but also for commerce,
healthcare, and education. With the right tools, a
schoolteacher in my father's home country of Afghanistan can
access the same information and learning platforms as a student
in Washington, D.C. This is due to the way that the internet is
run as a global, decentralized network where information and
data flow across borders. But authoritarian governments are on
a campaign to change that, and in their own countries and on
the international stage, we see increased moves to divide the
global internet into national networks that are more easily
controlled.
For these reasons, we expressed concern 1 year ago when the
United States Trade Representative dropped support for cross-
border data flows at the World Trade Organization. The decision
risks further fragmenting the global internet by emboldening
authoritarian governments to enact data localization laws.
These laws require companies and other service providers to
store data about local residents on service within the country.
And while they are often passed another premise of growing the
digital economy or protecting users' privacy, research has
shown that data localization can actually hinder growth and
impair cybersecurity tools.
Our own research has found that these laws can have
negative implications for people's freedoms, particularly in
countries that are ranked partly free and not free in our
annual report. That is because data localization laws are often
used to force companies to comply with local security agencies,
including to censor nonviolent, political, social, and
religious speech, and to hand over personal data.
One of the clearest examples is China, which has received
the worst score in our net freedom index for 9 consecutive
years. Vague provisions and several laws mandate that the
companies collect and store their data within China's borders
and that companies assist the Chinese Government with national
security and intelligence efforts.
Given China's dismal human rights record, these laws put
companies at a high risk of complicity with serious human
rights abuses. The Chinese Communist Party considers all sorts
of nonviolent political, social, and religious expression as a
threat to national security. And we know that they rely on
technology companies to conduct mass surveillance of Uyghurs
and other persecuted ethnic and religious communities.
Chinese officials have also partnered with Russia to
reshape global cyber norms at the United Nations and other
fora. They seek to make the world safe for authoritarianism by
affirming the right to curtail the political rights and civil
liberties of their own people online and off.
If global norms shift further away from a freedom and
openness, there is a risk that data localization laws will
proliferate, companies in authoritarian countries will face
increased demands to comply with human rights abuses, and
billions of people around the world will become less free.
The United States plays a critical role in preserving a
free flow of information and data across borders. A necessary
condition, not only for the protection of freedom, but for
advancing innovation, prosperity, and security.
To ensure the United states continues its leadership role,
Congress should, one, urge the executive branch to advance the
goals outlined in the U.S. International Cyberspace and Digital
Policy Strategy; namely, to quote, ``develop shared mechanisms
that will help maintain an open, interoperable, secure, and
reliable internet, as well as trusted cross-border data
flows,'' end quote.
Second, continue to provide funding for digital tools and
assistance programs in countries where civic space is closed or
rapidly closing so that people can access independent sources
of information and protect themselves against unwarranted and
disproportionate surveillance by their governments.
And, third, pass legislation to improve transparency across
technology products and practices in the United States,
including content moderation and recommendation systems, as
well as the collection and use of data.
It is essential for the United States and other democracies
to promote an alternative model to digital authoritarianism
through both our foreign and domestic policies.
I will gladly answer any questions you may have. Thank you
for having me.
[The statement of Mr. Shahbaz follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman SMITH. Thank you, Mr. Shahbaz.
Mr. Gottwald, you are recognized for five minutes.
STATEMENT OF ERIC GOTTWALD, POLICY SPECIALIST ON TRADE &
ECONOMIC GLOBALIZATION, AFL-CIO
Mr. GOTTWALD. Good morning, and thank you, Chairman Smith,
Ranking Member Blumenauer, and members of the subcommittee, for
the opportunity to testify today.
I am here on behalf of the AFL-CIO and the more than 12.5
million union members who work in every State in every sector
of our economy.
Too often the digital trade discussion sounds like it has
no grounding in the physical world. It is buzz words, like
internet-enabled commerce, big data, and cloud computing. It is
all those things, but we should not lose sight of the fact that
decisions about the abstract things like global data flows,
algorithms, and artificial intelligence have profound
implication for workers around the world.
While the digital transformation has driven real gains in
communications, transportation, science, and beyond, it has
brought urgent challenges to the world of work. For example,
open global data flows have enabled the offshoring of tens of
thousands of good call center and back office jobs to places
like India and the Philippines, with low pay and poor working
conditions. Major platforms like Facebook and TikTok have
outsourced content moderation work to developing nations, where
hundreds of thousands of so-called ghost workers spend long
days tagging and coding off offensive images and other content.
Digital trade also powers the algorithmic management
software that increasingly hires, evaluates, monitors, and even
fires workers here in the United States. These technologies can
shortchange workers' earnings, expose workers to unsafe work
conditions on the job, infringe on the right to form unions,
and exacerbate employment discrimination. All these workers are
directly impacted by global digital commerce on the job, but
they are also impacted at home.
Big tech companies collect, combine, and can modify vast
troves of personal data that compromises everyone's security
and privacy. Our personal data is sold and resold by
unaccountable data brokers to entities in Russia, China, and
beyond. Meanwhile, the algorithms that power social media have
pushed online hate, political disinformation, and harmed the
mental health of young people.
Unfortunately, at a time when we need Congress to regulate
the digital economy, the USMCA digital language fits more like
a straitjacket than a well-tailored suit. For example, under
these rules, governments may not enact any measures that
restrict cross-border data flows, with no exception for
sensitive forms of personal information. In addition, there is
an absolute ban on data localization policies even for
legitimate purposes, like ensuring that citizens' sensitive
medical or financial information is kept onshore.
Supporters of these severe disciplines point to the
agreement's legitimate public policy exception to reassure
policymakers that they have retained their full right to
regulate. But upon closer examination, this simply isn't the
case. The public policy exception is taken directly from
existing WTO agreements where it has proven to be largely
ineffective. Just fewer than 5 percent of challenged government
policies have been upheld by trade dispute panels.
We are alarmed that bipartisan efforts to protect personal
data and address Big Tech's anticompetitive practices could run
afoul of these digital trade rules. This debate cannot be
framed as a binary choice between China's great firewall and a
totally unregulated global data marketplace where anything
goes.
It is time for a strategic reset to ensure that our digital
trade policy strikes the right balance between promoting open
data flows and securing data privacy and workers' rights.
Congress must be free to act to protect Americans' data
privacy in advance of our economic and national security
interest, even if those measures happen to restrict open global
data flows. Congress must preserve the ability of regulators to
meaningfully oversee the use of artificial intelligence,
management software in the workplace, to ensure that it is
consistent with our current labor and employment law. And we
must enact new laws to address emerging issues, such as
electronic workplace surveillance and the erosion of digital
privacy.
The Congress and the public should decide the rules of the
road for technology in the workplace and society. That cannot
be left up to big tech companies and unaccountable
international trade tribunals.
Thank you. I am happy to answer any questions.
[The statement of Mr. Gottwald follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman SMITH. Thank you. Thank you, Mr. Gottwald.
Thank you to our entire panel. I think we have a great
variety of perspectives here that I think are important to
include. It cannot be overstated how important this topic is.
So thank you for sharing your perspectives and your insight.
I think one of the coolest things about digital issues,
digital technology is that it has been, I think, a great
equalizer in so many different ways. We see technology perhaps
the backbone from a larger company, but it is a launching pad
for a small operation.
So, Dr. Walch, I don't know how many employees you have,
but I am guessing you started out smaller than you are now, and
that many, many other companies have as well.
I might say that, you know, American digital services or
digital services that originate in our country allow--you know,
they provide a launching pad for other small operations around
the world too. So it is discouraging that other countries,
other jurisdictions would even want to restrict that when
perhaps they are conceivably harming their own population.
But getting more specific here, I know that two years ago,
we as a country engaged with Kenya--well, actually before that
as well--launching negotiations for what is called the
Strategic Trade and Investment Partnership. So at that time,
USTR highlighted digital trade as a key priority in the
negotiations. However, digital trade has kind of dropped off of
that discussion. I find that particularly concerning.
But, Dr. Atkinson and Mr. Shahbaz, what would you say about
what I would think is a missed opportunity here, especially
when you look at opportunities across the continent of Africa
and the capacity that they can bring to the entire arena of
international trade? And I am just wondering if you could share
your perspective on that.
Mr. ATKINSON. Thank you. The ITI has just released a big
report up here in the Capitol on Wednesday looking at how
innovative Chinese firms are and what the competition we face
with China. And one of the main battlegrounds for that
competition, including in the digital space, is going to be in
places like Africa, South America, parts of Asia. And so I
think we have to think about Africa as a battleground. This is
similar to how we thought about it in the Cold War. We were
vigilant to make sure that African countries didn't go and side
with the Soviets.
So by walking away from digital trade engagement, I think
we are opening the door to the Chinese. They are spending
billions and billions of dollars in African countries to get
them to adopt the kinds of systems we heard about, the
surveillance systems and others. So if we don't engage with
countries like Kenya, I really worry that they are just going
to default to a country like China that is much more enabling
and supportive of what they are doing.
Chairman SMITH. Thank you.
Mr. Shahbaz.
Mr. SHAHBAZ. Thank you for the question.
I would say, you know, Africa is an incredibly diverse
continent, and you have democracies and autocracies there. I
would echo what Dr. Atkinson said here that when we have
interviewed several experts and those who are engaged in the
fight for freedom and for digital freedoms on the continent,
what they have shared is their fear, essentially, around data
localization laws; that if more governments are passing data
localization laws, that will put their very sensitive
information closer to the hands of security agencies. And this
information reveals one's political opinions, one's religious
beliefs, also sensitive information about our health, our
connections, and it is essentially a threat to privacy.
So what we have wanted to see happen is for the United
States to offer an alternative to the digital authoritarian
model that the Chinese Government has been promoting on the
continent. They have been undergoing trainings and investments
throughout the continent.
I think it is important that the United States' approach,
not only favors the free flow of information and data, but then
also worked with civil society and with government to make sure
that the operating system of democratic governance is actually
there in place, to make sure that whatever rules or
technologies that are then brought in in these countries is
essentially under the oversight of the people. Because we
essentially believe that democracy is the most important
technology here and many of these societies need in order to
make sure that technology is used to promote freedoms.
Thank you.
Chairman SMITH. Thank you.
Dr. Atkinson, I know that there has been criticism of
strong digital trade rules saying that there is a concern about
the right to regulate, perhaps--for our country to regulate.
Do you think that there are any provisions in our trade
agreements that would prevent Congress from passing new
legislation on topics such as artificial intelligence or data
privacy?
Mr. ATKINSON. There absolutely are not. I would disagree
with what Mr. Gottwald said. He mentioned, for example, open
data flows lead to offshoring. That is about U.S. policy. That
is not--if we want to just not do that, we could.
Digital trade leads to employee oversight. No. Employee
oversight, which oftentimes is a good thing, is about a
domestic issue. If you want to regulate how technologies
monitor their employee, you have every right to do that. It is
not going to violate any trade agreement.
Privacy. You know, I go back to this key point. We can and
should have a national privacy bill, but it doesn't mean that a
company doing business here can't move the data to a server or
a cloud center in Ottawa or in Montreal. There is nothing that
makes that--that impedes what you want to do.
The only thing that would impede what you want to do is if
you decide you wanted to--if Congress wants to put in place
laws that intentionally discriminate against foreign companies.
That is what you cannot do. That is the tie that binds, if you
will.
So, no, Congress could easily pass AI rules, as long as the
AI rules and regulations don't discriminate against foreign AI
companies in favor of American AI companies. But if you want to
pass a law that says that AI has to have special privacy rules,
or that algorithms have to be disclosed, or whatever you might
want to do, you can do that.
Chairman SMITH. Thank you.
I will now move to Mr. Blumenauer as ranking member for his
questions.
Mr. BLUMENAUER. Thank you, Mr. Chairman.
Mr. Shahbaz, in your testimony, you say it is essential for
the United States and like-minded allies to offer an
alternative to the authoritarian model of digital governance.
We should better safeguard people's rights and data while still
protecting the global internet. And you identify a half dozen
specifics.
Can you elaborate on what the one or two priorities would
be to be able to accomplish that objective?
Mr. SHAHBAZ. Thank you. It is a great question, and I think
is it one where the United States has made progress over the
past several administrations.
So I would just point to the longstanding bipartisan
support for global internet freedom programs, which have really
made a difference throughout the African continent, as well as
around the world, to provide people with greater access to
information.
Congress funds programs that provide virtual private
networks and other types of circumvention tools that allow for
people in closed environments to, let's say, jump the
censorship of their local government and prevent their activity
from being under close surveillance. So I would say that
promoting circumvention tools is one aspect of that.
A second part is what I alluded to, which is a more
democratic model for digital governance. So what we are seeing
around the world is that China, Russia, Iran, other
authoritarian governments, are privileging a state-centric view
of how the internet should be run. And that goes against the
fundamental multi-stakeholder model of internet governance.
There are conversations that are happening right now as we
speak around internet governance. There is a U.N. cyber crime
treaty that is deeply troubling. It has certain provisions that
are deeply troubling that would allow for authoritarian
governments to collaborate by sharing data about people who are
suspected of crimes in their countries. So there is quite a bit
that the United States should also be doing multilaterally.
I would say a fundamental point here is really the support
for civil society. Because what distinguishes democracy, and
what the United States is doing from what China is doing, is
working not only with governments or with security agencies to
protect countries and protect national security, but it is also
working with civil society organizations in a lot of these
countries to make sure that they have a voice at the table. And
we have seen that pay dividends.
When many countries have introduced legislation for data
localization requirements, it has been actually civil society
organizations that have been at the table, raising a ruckus
locally, through the media, through conversations with
legislators there, to then push back against very far-reaching
laws that would essentially cut the countries off from the rest
of the global internet.
Thank you.
Mr. BLUMENAUER. No, thank you.
Mr. Gottwald, in your testimony, you noted that employers
are increasingly using automative systems to monitor or
discipline workers, largely without the input of workers or
their unions. I hope we could get a little more granular in
terms of what this means and how we can speak out and take
action to protect the rights of workers.
We took a CODEL to Colombia looking at the implementation
of our FTA in dealing with call centers. It seemed to me that
there are some gaps here that we might be able to do something
with. Would you elaborate on your point?
Mr. GOTTWALD. Thanks for that question.
If we step back, I think everybody has recognized, since
the pandemic hit and telework became more and more popular,
there is a lot more awareness about the deployment by employers
of, you know, these digital workplace surveillance tools. Some
of these are quite creepy, to be candid with you.
If you are working from home and your employer is
monitoring not just key strokes but potentially even using the
camera to biometrics and things, and it is very--it is a little
disturbing. So I can understand why Congress is focused on
this. Utterly appropriate.
I will just say that, in our experience, workers are almost
never aware that this software is being deployed by the
employer. Sometimes the trade unions, if there is a trade
union, are unaware of it as well. Although I will say this: Our
trade unions are more and more making this subject of use of AI
management software or surveillance software part of collective
bargaining. And I think that is a very positive trend. I think
that, you know, it influences the workplace so profoundly. And
workers need to know what kind of data is being collected by
the employer and what is being done with that data. Is it being
sold and shared, resold? I mean, there is a lot to unpack here.
I am glad you mentioned the call center workers. They face
special challenges. We have heard from call center--organized
call center workers that employers sometimes use this
monitoring soft--quality monitoring software, which is fine.
But what will happen in practice is it will punish people with
non-English--non-native English speakers. They speak English
well enough, but their accent--they might have a slight accent
this way or that way--and they are probably well understood by
the person on the other side of the line, but the software is,
you know, knocking them for, you know, for having an accent
that is a little bit outside the box.
Mr. BLUMENAUER. Thank you.
Mr. GOTTWALD. The last thing I would say is, in Colombia,
that company, I believe you--was Teleperformance, large French
company that does a lot of outsourcing work for call centers
for the Big Tech companies. That Teleperformance company has a
horrible track record on workers' rights. A complaint was filed
by French unions at the OECD really laying out the challenges
in this area.
And, Mr. Blumenauer, I can follow up in written remarks to
give more flavor there.
Mr. BLUMENAUER. I would appreciate that.
Thank you, Mr. Chairman.
Chairman SMITH. Thank you.
I will now move to Mr. LaHood, followed by Mr. Kildee.
After Mr. Kildee, we will move, as is tradition, two to one for
the questions.
Mr. LaHood, you are recognized for five minutes.
Mr. LaHOOD. Thank you, Mr. Chairman. And thank you for
having this important hearing today.
I want to thank all of our witnesses for your really
valuable testimony here today on a very important topic.
In our increasingly interconnected world, the trade of
digital goods and services is essential for American growth,
innovation, and global leadership. Digital trade is more than
buying and selling of goods online. It encompasses a global
flow of data, ideas, and talent.
In 2022, digital trade encompassed more than $2.5 trillion
of U.S. economic activity, and represents the fastest growing
segment of global trade.
As the co-chair of the Digital Trade Caucus here in
Congress, I am increasingly concerned about the proliferation
of restrictive and oftentimes discriminatory digital regulatory
frameworks and laws which risk curtailing American digital
competitiveness.
In recent years, we have seen close trading partners,
including Canada, Australia, Korea, and the EU, enact
regulatory frameworks or levy digital service taxes that risk
unfair treatment of American businesses.
While laws like the EU's Digital Marketing Act, the DMA, or
Digital Services Act, DSA, are intended to create fairer
digital landscape and simulate domestic competition, in
practice, they often discriminate against U.S. companies,
posing challenges that stifle innovation and competition.
I think it is also important to remember the U.S. leads the
world in technology. We lead the world in digital competition.
We need to be much more aware of that when we look at what
Europe and a number of other countries are doing.
In 2023, the European Commission identified six gatekeeper
platforms to be subject to regulation under the DMA or face
fines equating to more than 10 percent of their global
revenues. Of those six companies, five are American and one is
Chinese. Isn't that ironic that none of the ones that are
headquartered in Europe were a part of that.
In my view, efforts to regulate these American companies
can and will lead to a chilling effect, discouraging further
U.S. investment in Europe. In fact, a newly released report
from the European Commission on the future of EU competition
notes that the complexity and risks associated with the EU's
regulatory approach may undermine developments in emerging
technologies like AI and quantum computing.
Further, I and many others have been critical of the Biden
administration's failure to promote a strong alternative that
advances American digital trade interest abroad with our like-
minded allies and trading partners. Instead, this
administration continues to send mixed messages by walking back
long-held bipartisan and really nonpartisan digital trade
proposals as outlined by the WTO, pushing a narrative that
encourages these discriminatory digital frameworks to flourish.
And that is troubling.
I will get to my question here. Dr. Atkinson, given the
ongoing regulatory approach by the EU, is it possible to find
common ground with our counterparts in Europe in terms of
digital trade? If so, what tools should Congress consider to
address these regulatory challenges?
Mr. ATKINSON. Well, Congressman, you alluded to what is
known now as the Draghi report that just came out, former
President of Italy. Very important report because, for the
first time, there is a high level of recognition that Europe is
shooting itself in the foot with these policies. So whether
that really changes or not, I don't know.
I am very skeptical that we can get agreement or even close
the gap with the Europeans, absent being tough. I think the
Europeans understand they can get away with this, and they have
been getting away with it constantly. And there has been no
pushback, there has been no penalties. In fact, we have engaged
with the tech and trade council and had these conversations.
There is no penalties.
So I think the Europeans, as a rational actor, would say,
yeah, why not. Let's keep punishing American companies. Let's
keep taking their money. I mean, they can fund the--I am kind
of exaggerating--they can fund the European Commission budget
just off the fines of American companies.
So I think the only way to do that is to say there will be
consequences if you keep doing this. We could bring a 301 case,
for example. We could penalize them on other areas. I lay that
out in my testimony. So I think absent getting tough, they are
just not going to respond.
Mr. LaHOOD. The bottom line is we have many tools in the
toolbox to put deterrence in place and hold the Europeans
accountable. Is that fair.
Mr. ATKINSON. We have many tools in the toolbox. We could
add a few more. Yes, that is absolutely--that is absolutely--I
would agree with that.
Mr. LaHOOD. Thank you. I yield back.
Chairman SMITH. Thank you.
I now recognize Mr. Kildee from Michigan.
Mr. KILDEE. Thank you, Chairman Smith and Ranking Member
Blumenauer. And especially thanks to the witnesses for being
here for this really important conversation.
Many of us on this committee, and the Biden-Harris
Administration, by the way, have been committed to creating a
fair playing field for American workers to compete in the
global and increasingly digital economy.
One way to help workers stay competitive, of course, is by
ensuring that U.S. international trade agreements specifically
uphold workers' rights. Our agreements that cover digital trade
should not be any different. We need strong, enforceable labor
standards in these agreements to avoid the inevitable race to
the bottom when it comes to the treatment of workers.
This could mean enshrining internationally recognized
worker rights by outlining the ILO's declaration of fundamental
rights and principles that work, as well and importantly,
creating, monitoring in enforcement mechanisms as we have seen
in other trade agreements.
So, Mr. Gottwald, coming back to you, and you have made
mention of some of this both in your written testimony and in
answers to questions here. But I wonder if you could elaborate
a bit on what these labor standards that I suggest and others
have might look like. And if you have examples, model examples
of such standards that might already exist. Could you comment?
Mr. GOTTWALD. Thank you, Representative Kildee. Yeah, this
is a great question. If we look at the digital economy, it was
mentioned before, it is now--you know, it sort of bled into the
normal comment--the line is not clear what is digital and what
is not anymore. I think everybody knows that.
So if we look at the U.S.-Japan agreement, for example,
that was a standalone digital agreement. The problem from our
point of view is that, if you look at the text, there is--
nowhere in the text does it say ``worker,'' ``labor rights,''
anything, because it is a standalone deal.
So I think certainly for these standalone deals, USTR needs
to develop some clear labor standards and benchmarks. Much of
that, as you mentioned, can be borrowed from our existing trade
deals.
Mr. KILDEE. Right.
Mr. GOTTWALD. And based on these 1998 ILO fundamental
principles and rights, right? And these principles and rights,
by the way, this is the baseline, right? This is the baseline
of respect for workers. No child labor, no forced labor. The
right to organize a union, right to be free from discrimination
at work. I mean, these are the rules that everybody has already
agreed to play by at the ILO. So totally appropriate to put
those in there and have all the parties to these digital trade
deals agree that they are going to uphold these rules,
including with workers from the digital sector and the services
sector, that is really critical.
I would also say that, to your point on monitoring
enforcement, I think we need to get a little more creative on
monitoring enforcement for the services sector and the digital
trade sector. USMCA with the Rapid Response Mechanism, hugely
forward, tremendously effective for targeting employers and
facilities who are benefiting from USMCA shipping goods across
the border. A bit more challenging with services in digital.
Mr. KILDEE. Right.
Mr. GOTTWALD. Right. Because it is not--sometimes it is not
goods going across the border, it is data. So--but smart people
over at USTR, smart people in Congress, we can figure it out.
And I appreciate you raising it.
Mr. KILDEE. Well, thank you for that.
I wonder if I could just quickly turn to the issue of
digital services taxes. We know that there was a discriminatory
DST implemented by Canada in June.
Mr. Atkinson, I ask you to comment. Congressman Estes and I
have been working together on this, condemning foreign DSTs and
how they harm businesses. And you mentioned a couple of times
that there are ways we can push back. And I wonder if you might
just specifically suggest some ideas that you might have as to
how to do that. I mean, obviously, you mentioned, relative to
other circumstances, the use of 301.
Do you have ideas on specific ways, other than just raising
the issue, specific techniques or mechanisms that we might be
able to use to push back, particularly in this issue that we
are having with Canada?
Mr. ATKINSON. Thank you. No, that is the key issue,
particularly because Canada's tax is retroactive. So they are
going to try to get as much money out of that as possible.
I wouldn't--I think Canada to me is different than Europe,
because I think we have a lot more leverage. I think the Cana--
I am born in Canada. I am a dual citizen, and----
Mr. KILDEE [continuing]. On the border, they are friends,
but we do have our issues.
Mr. ATKINSON. They know more about our politics than I
think we do sometimes.
Mr. KILDEE. I think that is true.
Mr. ATKINSON. Very sensitive to being friends with us. So I
think we have a lot of leverage if we were strong in pushing
back and there was, you know, a leader-to-leader meeting and
saying, no, if you do that, we can't.
If that doesn't work, I mean, one of the ideas that we--I
laid out in the testimony is an idea from Gary Hufbauer, I
think at the Peterson Institute, which would be to pass a law
that would allow us to tax their companies in the same way. I
guarantee if we were to do that, we would get their attention
immediately. They think they can get a free lunch out of this
with no penalties to their own companies. Whereas, I think if
we said you do that, we are going to tax a bunch of your
companies that are doing business in the U.S.
Mr. KILDEE. Thank you, Doctor. I really appreciate the
testimony.
I yield back.
Chairman SMITH. Thank you.
I now recognize, from Kansas, Mr. Estes.
Mr. ESTES. Thank you, Mr. Chairman. And thank you to all
our witness for being here today.
You know, a week ago, I led our U.S. Innovation Tax Team to
a listening tour of what some people call Silicon Valley,
others call Tech Valley, in California. While our focus was on
encouraging innovation through sound stable tax policies, it
didn't take long for the discussions to also include
intellectual property, the theft of intellectual property, and
extraterritorial foreign taxes.
Bad policies like the TRIPS waiver enforced tech transfers,
disincentivized small startups and major corporations from
innovating, testing, and developing, and manufacturing here in
the United States. And they counter the good policies that we
could restore or strengthen, like immediate research and
development expensing in the foreign-derived intangible income
or FDII.
The TRIPS waiver has put us on a slippery slope. We now
have countries at the WTO proposing more forced tech transfers,
localized operations, and data localizations, in short, the
complete abandonment of U.S. digital trade priorities.
As one startup told me, it is easy to get a shop set up or
to move research and development to another country that has
more favorable policies, as opposed to punitive ones, and that
is not good for our country.
Policies that hurt innovation hurt all Americans because
they slow the economy, reduce jobs, and give foreign
adversaries a competitive advantage.
Another major area of concern, as we talked about before,
is the digital services taxes, or DSTs. We have witnessed
countries like France and Canada specifically target U.S.
companies to fill their coffers with these disastrous
extraterritorial taxes.
One company I talked to used the phrase, ``it is a bold
grab of U.S. money,'' and it is costing Americans billions of
dollars.
Dr. Atkinson, OECD's Pillar One was supposed to provide
clarity and stability around DSTs, but instead the Biden-Harris
negotiators put America last, and as we have talked about
earlier, DSTs are proliferating.
How do we--I know Mr. Kildee had asked some about other
provisions we could do, but are there some equitable offsets to
discourage foreign countries from thinking they can get away
with transferring U.S. dollars? When you mention taxes, are
there other things we could do as well?
Mr. ATKINSON. Thank you. This is--I think the first thing
to recognize is that pillar one is basically institutionalizing
DSTs. That is all it is. Pillar one says you can do a DST; you
just have to do it according to these rules. If your profit
rate is above ten percent, we get to tax 25 percent of those
profits, but only for certain-sized companies even if you--so I
think the U.S. administration and Congress needs to come out
and say, no, there is no logic behind pillar one.
OECD says the logic behind pillar one is because now we are
trading things across borders that we didn't trade before in
services. Well, by that logic, we should have--we should be
taxing any company that sells anything in the U.S., even though
they don't have an operation here.
So I don't know. Maybe there is some French water that
comes across the border. Well, we should tax Perrier. I mean,
there is no logic behind why you would single out digital.
So I think--I think, again, we have to do two things. One
is I like that idea of mirror taxes. Fine, you are going to do
that; we are going to tax you--we are going to tax you just as
much, if not more. We need to make it clear that they can't
take U.S. taxpayer money.
I think the second thing would be there is a whole set of
things we can do around--around trade enforcement that we
should say, fine, you are going to do that, we will do this.
And I think at the end of the day, it is just a power play. We
have to show that we are not going to let them take--take our
money.
Mr. ESTES. Mr. Shahbaz, for years we have had major
concerns about CCP stealing intellectual properties. As we have
talked about advancing technologies such as AI, are you
concerned about China and that they continue to ransack our
intellectual property and why it is important for tech like
this to be fostered in the United States instead of China?
Mr. SHAHBAZ. Thank you for the question. We are concerned
about generally the Chinese Communist Party and the
government's influence here in the United States, the ways that
it conducts espionage, transnational repression, as well as
malign political influence. That is where we think it is
incredibly important to do two things.
One is to stand up laws that protect--essentially, promote
resilience here in the United States, resilience for companies,
resilience for individuals who may face attacks from--from the
Chinese government and its affiliates. We also do think that it
is incredibly important to show why technologies that are
developed in the United States and why the United States
governance system is very different to that in China.
I think that is an incredibly important message that also
sells well to our partners in our countries around the world,
those in other markets that are looking to goods. They want to
understand why it is that they should be purchasing U.S.
technologies rather than those that are manufactured in China.
Obviously, there are some economic considerations where
perhaps they may be going for the technology that is the
cheapest. But I think that is where the United States can play
on its competitive advantage as a democracy, to show that,
well, listen, our technology isn't stealing your data. It is
not--you know, when there is a smart city that is built by
Huawei in Africa or other technologies where Chinese companies
are developing the infrastructure, there have been reports that
that data is being slowly trickled back to China so that it can
be used for Chinese intelligence purposes or for corporate
espionage.
So I think it is very important for U.S. companies to show
that, you know, that is not part of the game. You know, what
differentiates U.S. companies--and this is what I am arguing
that we should be promoting--is that we are going to be
safeguarding your data. You know, this data is going to be
under the oversight of--you know, of the strictest
cybersecurity safeguards.
That, I think, is how we differentiate ourselves from the
Chinese Communist Party. Thank you.
Mr. ESTES. Thank you. And I want to thank all the
witnesses. I know there is a lot more I would like to discuss,
but just to close out, I do think that government, both in
Congress and the administration, needs to actively defend U.S.
innovators and job creators against these assaults.
I yield back, Mr. Chairman.
Chairman SMITH. Thank you, Mr. Estes. I now recognize Mrs.
Miller from West Virginia.
Mrs. MILLER. Thank you, Chairman Smith and Ranking Member
Blumenauer. And thank you all for being here today to talk
about this important issue.
I have already heard several of our close allies mention,
specifically Korea, they may soon pass online platform laws and
regulations that would make it difficult for our U.S. companies
to operate in their country. And I am very concerned that such
an important strategic ally like the Republic of Korea is
pursuing economic policies that target and discriminate against
U.S. technology companies while welcoming state-owned Chinese
companies with open arms.
Chinese firms are the fastest growing tech companies in
Korea with many leveraging strategic partnerships with Korean
monopolies who have a strong influence in Korea's legislature.
And as a result, there are proposed bills and regulations that
would inadvertently grant Chinese players an advantage over
U.S. firms, supercharging the growth of China's own national
champions in Korea.
The U.S. is holding up our end of the technology alliance
by providing Korean companies billions of U.S. taxpayer funds
in the form of chips grants and EV and battery subsidies. I
just kind of find it really concerning that the Korean
government is, in turn, treating American interests in this
manner, and I am concerned about the national security
implication of the ill-advised economic discrimination and
would urge them not to go down this path, but, instead,
continue our important technology partnership and the goals
that are established in our free trade agreement.
Our trade agreement with Korea is the second largest free
trade agreement by trade flows second only to the USMCA. It is
extremely concerning to me that our two biggest FTAs are both
facing obstacles in the world of digital trade.
And I am planning to introduce legislation that focuses on
the strength and importance of the United States and the
Republic of Korean alliance with the intention to stop the
Korean government from implementing these blatantly
discriminatory laws that will cause an unnecessary irritant to
such a vital relationship, and I do look forward to working
with the committee to pass this type of important legislation.
Dr. Atkinson, would you please explain how China wins
should Korea pursue economic discrimination policies against
the United States, and why are Chinese firms seeking to
drastically increase their Korean user base, and do you believe
that Korea is assisting them in their growth?
Mr. ATKINSON. Thank you, Congresswoman. One of the key
things about Korea, I was just--I spent a lot of time in Korea.
They invite me over to talk and the like.
And the last time I was over there with my family, I tried
to use Google maps to figure out where to go, and I can't. I
could use a Korean app company, which actually I had to do; I
had to download. And they say it is national security.
It has nothing to do with national security. It is the fact
that they wanted to favor their own domestic map companies,
their own domestic players. That is what they are doing now by
copying the European DMA.
And what they want to do is they want to be able to pass a
law that would require American companies to turn over data to
be interoperable to do other kinds of things that would benefit
Korean companies, but they can't write the laws so blatantly
that admits that. So it would benefit Korean companies, but it
would also benefit Chinese companies.
And so they are willing to make that tradeoff because they
think it is going to benefit their companies more. It will hurt
our companies. So it is almost like--it is almost like, you
know, getting attacked not directly. So they are not trying to
benefit Chinese companies. They are trying to benefit Korean
companies.
But you are absolutely right, this will benefit Chinese
companies and make them stronger. I would put Korea, again, in
the same category as I put Canada. They need us a lot more than
we need them.
They are dependent upon us, not just for military, but they
are so focused right now on building technology partnerships--I
just spoke at two conferences here that the Korean government
put on. They want technology partnerships with us. And we are
going ahead and saying yes, but I think there has to be a quid
pro quo with that.
Yeah, we want technology partnerships with you so we can
both be stronger against the Chinese, but we are not going to
do partnerships with you if you do these kinds of
discriminatory things.
Mrs. MILLER. What are the national security concerns
related to U.S. foreign policy in the Indo-Pacific? Should the
U.S. be less economically tied to our strategic ally as they
grow closer to China?
Mr. ATKINSON. So the fundamental question, I think, in the
Indo-Pacific is, are these countries going to gradually move
over into the China orbit, or are they going to stay in the
Western Democratic market orbit. And that is--we are going to
know that in 20 years. That will be decided.
And by letting the Koreans, sort of, have it both ways--the
Koreans don't want to pick. They want to have really close
relationships with the Chinese because they know Chinese are
predatory and retaliatory. They will hurt the Korean companies.
They have done that before.
But we need to let them know that they can't have it both
ways. They have to pick. We are their defender. They need to be
on the side of the allies and democracy. So I think it is a
critical, critical issue that we make them choose and choose
us.
Mrs. MILLER. Thank you. I guess I need to yield back my
time. I am not finished, though. Thank you.
Chairman SMITH. We will try to circle back around if we
can.
I now recognize Ms. DelBene for five minutes.
Ms. DelBENE. Thank you, Mr. Chairman, and thanks to all our
witnesses for being here. This is a really important
conversation.
Ever since I arrived in Congress, I have been advocating
for a federal consumer data privacy law. Every day millions of
Americans' personal information is at risk, and we have to put
people back in control of their data. And this has been crystal
clear in debates around reproductive health data, TikTok, AI,
and on and on and on.
Ambassador Tai has maintained that one of the reasons that
the U.S. has paused digital trade talks is that they may limit
the policy space needed to address domestic policy issues, like
privacy. Her argument is that, by entering into digital trade
agreements, the U.S. is giving up its ability to regulate
domestically.
That said, if we step back from the negotiating table until
Congress acts, we run a serious risk of harming the very
objectives, such as defending American companies, protecting
privacy, and supporting a free and open internet, that have
been core to U.S. policy for many years.
So, Mr. Razis, I guess I will start with you. Does the U.S.
entering into trade agreements prevent Congress or the
administration from legislating or regulating on important
issues domestically?
Mr. RAZIS. Thank you for the question, Congresswoman.
In short, no. We don't see any tension between privacy
protections and strong digital trade rules.
Many of the privacy frameworks either that have been
proposed here--and we agree, Federal privacy reform is long
overdue--or, you know, one of the 19 comprehensive State laws
that have been enacted have no tension with either USMCA or the
U.S.-Japan agreement. That is because those laws or bills don't
enact data localization requirements. They don't restrict the
free flow of transfers of information.
And, importantly, within USMCA, there is a pretty clear
language that if there should be any tension in the future
between domestic regulation and international trade agreements,
U.S. law prevails.
Ms. DelBENE. Thank you. And I don't think other nations
take the same approach on their own either, which also puts us
in a weaker position if we aren't moving forward.
I also, you know, wanted to talk a little bit about
intellectual property. Obviously, protecting intellectual
property--our intellectual property from adversaries and
competitors is essential to keeping our edge and protecting the
livelihoods of small business owners across the country, and
that is why the U.S. has historically opposed source code
disclosure as a condition of doing business in a trading
partner country, and we included this production in the broadly
bipartisan USMCA.
Dr. Walch, how would you respond to a requirement to
disclose your company's source code to a foreign government as
a condition of doing business?
Ms. WALCH. Thank you so much for the question.
We would just leave. Part of it is because there is data in
our back end that was collected in very carefully controlled
IRB-approved studies on human subjects in the U.S. Those people
consented, and we protected that very carefully. It is also our
edge. It is what gives us a head start globally.
If we had to disclose our models and somebody could just
take them and skip all of the work we did and also have access
to models trained on U.S. citizen data, that would be just a
no-go. It almost certainly would not be worth it for a company
of six people, like my company, to operate in a place that
requires us to give up our secret sauce.
Ms. DelBENE. And, of course, if your source code was
exposed, as you said, others could potentially access that,
too, going forward.
Ms. WALCH. That is exactly right.
Ms. DelBENE. So it is--I think this is another conversation
we talk about kind of the policies we need to put in place to
make sure we are in a strong position. Privacy, obviously,
critically important that we move domestically, but also
looking at issues to make sure we are protecting IP are going
to be important, too.
I just want to thank all of you for being here on this
important subject.
And I yield back, Mr. Chairman.
Chairman SMITH. Thank you. I now recognize Mrs. Fischbach
for five minutes.
Mrs. FISCHBACH. Thank you very much, Mr. Chair.
And it seems like every time we discuss the Biden-Harris
Administration's actions on the world stage, we hear the same
thing, the Biden Administration keeps walking away from
discussions where America's voice is needed, and we should be
an active participant.
I hear it from agricultural producers across my district, I
hear it from manufacturers in my district, and today we are
here to talk about the administration's failure to protect U.S.
interests in our digital economy.
Foreign governments seem to recognize that our current
administration will do little to respond to measures that
explicitly or implicitly discriminate against American
companies. In some cases government agencies, like the Federal
Trade Commission, are even sending American officials to help
implement policies that directly undermine America's leadership
and innovation.
Mr. Atkinson, what sort of impact does that have on other
countries considering similar barriers?
Mr. ATKINSON. Thank you, Congresswoman.
Historically, if it wasn't for U.S. leadership, the world
economy would be vastly more protectionist, it would be vastly
more distorted because it has been U.S. leadership that has
been, if not explicitly, then implicitly holding up countries
to a higher standard. They know that if they do this, they are
sinning. And nobody really wants to sin; at least you don't
want to admit you are sinning.
And so the fact that the U.S. has led in all sets--sorts of
areas--we led in telecom deregulation globally, we led in IP,
we led in digital--that did lead a lot of countries both to
resist doing bad things, but also to say, wait a minute, if the
U.S. is doing this and they are the leaders, maybe we should be
doing that as well.
And what is so troubling, I think, about USTR's decision--
and, by the way, I would add that was really a unilateral
decision. Both State and commerce, in my understanding, did not
support that decision. Both the State Department and the
Commerce Department were surprised by that decision and did not
agree with that decision. So it is not as if the entire
administration has backed away, although that is the--de facto
the case.
So by us not pushing forward and insisting that these
countries abide by these new rules around digital, we are
basically sending a message that gives them carte blanche
ability to go ahead and do whatever they want because they know
that we are not standing up for that anymore. And if we are not
standing up for it, why would they bother to take the political
risk in their own countries to stand up for that?
Mrs. FISCHBACH. Thank you very much.
Mr. Razis, why is it important that the U.S. not only
defend policy provisions that are beneficial to our digital
companies, but how can we do a better job in shaping the
vision?
Mr. RAZIS. Congresswoman, thank you for the question.
I think we can start by continuing to export gold standard
rules like those we find in the USMCA and the U.S.-Japan
Digital Trade Agreement. But there is even maybe a more basic
step that can start, which is using the National Trade
Estimate, for example, in order to catalog data localization
requirements and other digital trade barriers that U.S.
exporters face.
Now, historically, the NTE has been a really valuable tool
for not just U.S. businesses and policymakers for understanding
the data localization requirements and other barriers that
foreign countries have enacted, but also for sending a signal
to our partners that these sorts of practices are unacceptable.
Unfortunately, the most recent NTE, I think we saw about 70
percent drop in the data localization requirements that were
referenced and about 80 barriers that were removed from the
report altogether. Now, unfortunately, those barriers didn't
disappear. They are still there, and they are still challenging
U.S. exporters.
So I think even a basic step, such as fulfilling the
congressional mandate around the National Trade Estimate, would
be a good place to start.
Mrs. FISCHBACH. Thank you very much.
And, Dr. Walch, I am so sorry, I am running out of time.
But you talked a little bit about--I believe with Ms. DelBene--
about what would happen with the overregulation, and I just was
wondering if you had anything to add to that. She was, I think,
asking specifically about some things, but I was generally--
with this overregulation, what does that do for your company?
Ms. WALCH. Thank you so much for the question.
So we are a team of six. I don't have an in-house lawyer.
And every time I talk to my external representation, I am
watching the clock.
Overregulation means that we will rely on him even more,
and that is a big burden on us. It is not a big burden on the
likes of Google or Meta. They are drowning in lawyers.
Mrs. FISCHBACH. Thank you very much. We made it. I had two
seconds left. Thank you so much.
I yield back.
Chairman SMITH. Thank you. I now recognize Ms. Sanchez for
five minutes.
Ms. SANCHEZ. Thank you to Ranking Member Blumenauer and Mr.
Chairman for holding this important hearing.
I represent part of Los Angeles County and, obviously, it
is a large creative and technology industry hub of Southern
California. And I am very committed to ensuring that our trade
policy uplifts U.S. digital businesses and the workers that
support them.
Digital has to be part of our engagement with our trading
partners, and I also recognize that our trade policies need to
be modernized. We can't just rely on the same old trade models
that we have been using for decades. I think our digital trade
agenda should consider how foreign adversaries, like Russia and
China, manipulate and weaponize American data to harm our
democracy.
And we also have to consider how AI and automation reshape
the workplace as well. There is a lot of moving parts to this.
For instance, while robots have long been used in high-wage
markets, we now see them in more lower-wage ones. And a study
by the ITIF found that China's manufacturing sector, for
example, uses 12 times more robots than that of the United
States. And that is not driven by market forces, but it is
driven by the Communist Party's generous subsidies.
And that puts our American manufacturing and our American
manufacturing workers, which already face an uneven playing
field, at a bigger disadvantage in global trade. So with the
rise of new technologies, we need to ensure that our policies
prioritize American workers instead of leaving them behind.
Mr. Gottwald, in your written testimony, you touched on the
importance of protecting the economic security of the more than
five million workers in the creative industries, such as motion
pictures, television, and music, which I always say are--our
biggest export is our American culture.
Can you expand on how digital trade policy can better
ensure that these workers get the compensation and the
recognition that they are due?
Mr. GOTTWALD. Thank you, Congresswoman Sanchez.
This is a great question, and it raises very important
issues for our union creative professionals, many of whom earn
collectively bargained pay and contributions to their health
insurance from the sales and licensing of the copyrighted works
that they help create. So intellectual property rules are quite
important for these workers, their union members, their
affiliated AFL-CIO.
So a worker centered digital trade policy, you know, has to
extend and address the stolen or unlicensed use of copyrighted
content on digital platforms and avoid replicating the outdated
and overbroad copyright safe harbor exclusions that exist in
some U.S. laws. So one is, you know, let's not do further harm
by exporting that model which isn't working here.
And, in addition, they need to address the dangers and
downsides to AI that you mentioned, including image-based
sexual abuse misappropriation for commercial gain and the
proliferation of deepfake videos and other abuses that happen
and affect these creative professionals. So thank you for that.
Ms. SANCHEZ. Yes, thank you.
Mr. Atkinson, the U.S. film, television, and streaming
industries supports over 816,000 jobs in California and about
$101.7 billion in wages, and I am particularly concerned that
some of our closest trade partners are proposing measures that
would discriminate against U.S. creative industries.
For example, Australia may require U.S. streaming companies
to invest 10 percent of their revenues in Australian content,
and Canada wants U.S. streaming companies to subsidize local
Canadian news production. These policies could negatively
impact my state's and our country's creative industries and the
broader U.S. economy.
Could you offer, in the closing seconds that we have, some
insight into how these mandates conflict with Australia and
Canada's FTA obligations to the United States?
Mr. ATKINSON. Thank you.
I wouldn't use the word would. I would use the--could. I
would use the word would. I don't think there is any question
that we will have less investment in our creators because of
these rules, because of these tax grabs.
Both of our trade agreements should be able to address
that. And, again, it requires the USTR, if it is willing to
first go over there and negotiate tough within their back
pocket to say, we are going to bring a case. Under USMCA
arbitration we could bring a case, under the U.S.-Australia we
can bring a case. We just have to let them know that we are not
going to do this.
By the way, I would add one other thing where I think I
agree with my colleague from the AFL-CIO. We need to make sure
that the trade agreements that we have protect creators and
allow for site blocking, which is something we have long
supported. That we should not allow these foreign websites that
are basically pirate sites to be accessible here, and we should
have our trade agreements encourage that with other countries
as well.
Ms. SANCHEZ. Thank you.
And I yield back.
Chairman SMITH. Thank you. I now recognize the gentleman
from Tennessee, Mr. Kustoff.
Mr. KUSTOFF. Thank you, Mr. Chairman. Thank you to the
witnesses for appearing today.
Mr. Razis, if I could with you, as it relates to Workday, I
understand your company helps to find and hire workers. Can you
talk about how Workday helps U.S.-based companies compete
globally by providing them with tools to recruit and manage
talent across the borders in a competitive digital trade
environment?
Mr. RAZIS. Congressman, thank you for the great question.
Workday's business is to help other businesses do well. And
so when our customers succeed, we succeed.
In terms of specifics around talent management, a thing
that we are very excited about at Workday is a skills-based
approach to talent. So we are leveraging AI and other digital
technologies to help our customers understand what skills that
their existing workforces have, what skill gaps there are in
their current workforce that they can grow and help their
workers identify, be it in manufacturing, be it in retail or
other sectors, and then to identify new sources of talent as
well.
And so when our customers are able to leverage Workday
products in the AI, especially that is driven there, they are
better situated to adapt to new changes in the labor market.
Mr. KUSTOFF. Thank you.
If I can, to follow up maybe, can you talk about how
current barriers and regulatory challenges, like the digital
service tax, affect Workday's ability to invest in innovation
and workforce development here in the United States?
Mr. RAZIS. Of course. So while the digital services taxes
are addressed at companies that tend not to be Workday--so we
are a business-to-business enterprise, and so--rather than a
consumer-facing one.
That said, it speaks to a larger problem and the costs of
foreign trade barriers. So in order to overcome a market access
barrier like a data localization requirement that requires time
and money that could otherwise be invested in additional head
count or innovation--and that is--again, that comes with
economic costs in addition to the variety of other costs
associated with market access barriers.
Mr. KUSTOFF. Thank you. I appreciate the fact that all of
you have five minutes to make statements and your written
statements are maybe longer than that.
If I could, Dr. Atkinson, with you--because you had a very
thorough written statement. Maybe if I can ask you about U.S.
Trade Representative Tai's decision to withdraw from, as you
say, key digital trade negotiations at the WTO.
Can you explain why she did that, why she withdrew from
those negotiations, and does it make any sense to you?
Mr. ATKINSON. So I have not talked to Ambassador Tai, so I
will only give you what I can see, sort of, from the outside.
I think there are two factors. And I would add, by the way,
I think in the Biden Administration there are forces on sort of
the more openness to trade, and there are forces on the less
openness to trade. This is not an administration that has one
view. I think that is the challenge. As I said, there are folks
in commerce who are really pushing for this. There are folks at
State who are pushing for this.
I think there are two forces. I think that Ambassador Tai
and certain people in the administration, they talk about
putting a pause on trade opening and having a middle-class-
oriented trade and worker-centered trade. I don't think pause
is what--I think pause is a euphemism. I think what they want
is a moratorium, if not a rollback.
And they see digital as being this expansive new area and I
think, in their view, if they can stop digital trade or slow it
down, this could all be--do good.
Now, why do they want to do that? Because there is no
question that trade puts limits on our ability. So, for
example, we can't tax corporations at 80 percent because they--
we could do it for domestic companies. They just raise prices.
But for our foreign--our companies that are trading, if we
raise taxes super, super high, they would lose global market
share, they would cut workers. So globalization puts--as Tom
Friedman once said in his book, they have golden handcuffs.
They do limit what we can do domestically, not in any
legalistic sense. But if we wanted to, sort of, impose really
terrible regulations, they can do that. So I think that is
point number one.
I think point number two is there are certain progressives
in the Senate in particular who really, really have an animus
towards large corporations. They want to sue big corporations,
they want to break them up, and they have this narrative that
the U.S. economy has become increasingly concentrated, which is
a hundred percent false. And I am happy to share that data from
the U.S. Census Bureau that shows that simply is not the case.
But in any case, they are having a real animus and a jihad
almost against large corporations and big tech in particular.
And I think this was the view, well, if we--somehow, if we
go down this path, we are going to limit our ability to break
up Google or break up Facebook or sue them. So I think those
were the two components of the logic.
Mr. KUSTOFF. Thank you.
I will yield back.
Chairman SMITH. Thank you. I now recognize Mr. Panetta from
California.
Mr. PANETTA. Thank you, Mr. Chairman. I had an opening, but
I want to follow up on that statement--that eloquent statement.
Thank you, Mr. Atkinson for that statement.
But, I mean, does--what about, like, when it comes to
global leadership, does the fact that the U.S. participation or
lack of, does that also create a vacuum in global leadership,
especially when it comes to digital trade rules that could be
filled by policies proposed by other trading partners such as
Russia or China?
Mr. ATKINSON. Absolutely. Absolutely, Congressman.
The Chinese have a completely--obviously, they have a
different vision of governance and government and global
governance, and they want to impose their vision and their
system on the world. I think Russia is sort of their sidekick,
if you will. And this is, basically, a battle for influence.
I have been in countries where the State Department has
invited me in, and I see the role of China in these countries.
I see China way more active in these countries than we are.
So by us walking away, we are, essentially, giving the
Chinese a green light for them to go into these countries and
say, hey, look, our system is better. I have talked to Chinese
companies who say one of the things that they are really
selling, if you will, is we can go in there and give you a
turnkey system in an African country that they call safe
cities.
Well, what they mean by that is complete total monitoring,
complete data collection. They are able to put people into jail
for whatever reason you want, and they are selling that system.
Where are we? Where are we? Why aren't we in that country
saying, by the way, if you do that, it is going to hurt your
innovation. And, by the way, it is against human rights. So I
100 percent agree with you.
Mr. PANETTA. Exactly. Mr. Shahbaz, where would you be on
that statement?
Mr. SHAHBAZ. I do think it is critical, and I would say
that there is two parts to this. So thank you for the question,
Congressman.
On the one hand, we do need to make sure that there isn't a
vacuum. We do know that the Chinese Communist Party has
invested quite a bit, and there was a point where almost a
majority of U.N. agencies were led by Chinese nationals. So I
think it is very important and it has been great to see the
effort that was made, for example, to ensure that it was an
American citizen who beat, I believe it was either a Russian or
a Chinese national, to lead the ITU, the International
Telecommunications Union.
I do think it is great as well that we have stood up now,
the Bureau for Cyberspace and Digital Policy, in order to make
sure that the United States is active at multilateral fora and
through bilateral relations to make sure that we are making the
case.
And then I do think--the second point here is what it means
domestically. And I think that this has been something that has
been pointed out by the other witnesses, is that we need to
make sure that our foreign policy is also in line with our
domestic policy. And that means that people don't think of the
United States as a place that is this kind of anarchy, right?
Because I do think that there is this impression that some
of the harms that have come about inevitably from
digitalization haven't been adequately handled by--by domestic
regulation or whatever it might be or by companies in some
ways.
So I do think it is important that the U.S. leads also
through a domestic framework that protects rights of Americans,
whether that is on privacy, whether that is on ensuring greater
transparency. Because, on the other hand, you do have China
that, while all of their legislation on personal data helps for
domestic surveillance, they are selling that as a great way of
protecting privacy for Chinese citizens.
So I do think it is important that the United States leads
with a rights-respecting vision, and that is the counterweight
to what China is offering. Thank you.
Mr. PANETTA. Outstanding.
I am going to yield back the remainder of my time, one,
because we have votes; I want to give other members time. Two,
because those two statements, I think, say it all. Thank you,
gentlemen.
Chairman SMITH. Thank you. I now recognize Mr. Steube for
five minutes, from Florida.
Mr. STEUBE. Thank you, Mr. Chairman.
From the Industrial Revolution to the digital revolution,
America has been the beacon of creativity and technological
innovation and advancement. But this leadership is at risk from
policies both at home and abroad.
The Biden-Harris Administration's abdication of leadership
on this issue has been appalling, and I do not have confidence
that Kamala Harris' very detailed policy proposal of joy will
be good for American digital competitiveness.
Across the globe, including from our allies, we see bad
actors stealing our intellectual property, implementing
protectionist policies, stifling data security and privacy and
imposing unreasonable barriers that disadvantage American
companies. It is essential that we establish and enforce robust
digital trade rules to protect American companies, both large
and small, from unfair digital practices overseas.
Under the Trump administration, strong progress was made on
digital trade in the United States-Mexico-Canada Agreement.
USMCA took important steps on e-commerce, algorithms, cyber
security, cross-border data flow, prohibiting data
localization, and consumer protection. It is important to have
strong digital policy. It is equally important that the
executive branch enforce these agreements and Congress provide
rigorous oversight while responding to the need of policy
changes.
I applaud the efforts of Chairman Jim Jordan, whom I sit
with on the Select Subcommittee on the Weaponization of the
Federal Government to engage with the European Union, which is
attempting to impose its own censorship regime on American
citizens and companies. The EU is pushing authoritarian
policies that will interfere with the American democratic
process, and the Biden-Harris Administration is turning a blind
eye, perhaps because it will help them politically.
The EU's ever-expanding regulatory censorship effort seeks
to impose censorship based on what a European official may deem
to be, quote, harmful or disinformation. Failure to comply with
the European authoritarians would impose significant fines on
American companies that can amount to billions of dollars.
Mr. Atkinson, can you talk about the censorship and anti-
competitive practices that the EU is imposing on American
companies?
Mr. ATKINSON. Yes. Thank you, Congressman.
There is no question that the EU has a different standard
of speech than the United States does. And we see that now in
Britain where there have been people who have been prosecuted
in the last two months for simply making posts on social media
that are legal but not favored by the government. We would, I
hope, never do that in the United States.
We have a tradition of free speech. I forget who said it,
but I think it might have been Justice Brandeis, the best
disinfectant is more sunlight. The answer to hate speech is
free speech.
One of the problems with that regime is that the Europeans
don't really have digital platform companies. And so if they
are going to go after companies for doing this kind of thing,
they are going to go after American companies by default. And
what is most troubling about that is the massive fines that
they can impose. They could, essentially, bankrupt an American
company if they wanted to for just allowing speech that is
legal in our country.
And, by the way, I would add this--another component is,
one of the key things about speech on the internet is American
companies, by and large--maybe with the exception of X, because
they have a different view, which is their view; that is fine.
But the other American platform companies, they do try to
respect domestic rules about speech.
And so it is not like they are saying, oh, we are not going
to monitor or filter any speech in Europe. They are doing the
best they can. And we can argue whether we like that or not,
but they are trying to comply with those rules. And the fact
that they can be subject to such onerous fines for making a
best effort, I find that quite troubling.
It would be one thing if the companies were just thumbing
their nose at the--you know, we are not going to abide by your
rules at all, screw you. All right. But they are not doing
that. They are doing the best they can, and it is an incredibly
difficult process when you are seeing millions and millions of
pieces of content on your site every day.
Mr. STEUBE. Mr. Razis, am I pronouncing that correctly?
Under the Trump administration, we had a massive overhaul of
U.S. trade policy. Can you talk about the effect of the USMCA,
that it had on important areas of concern, like data flow, data
localization, and algorithms?
Mr. RAZIS. Congressman, thank you for the question.
USMCA, which, you know, we are certainly pleased to see the
bipartisan support around USMCA in a lot of these disciplines
has--really is the gold standard. It is the 21st Century rule
book when it comes to the digital economy right now.
And so to your point, it safeguards the ability of
companies to transfer data across borders securely. It allows--
it prohibits data localization requirements, and it protects
American exporters, like Workday, from arbitrary and
discriminatory requirements to transfer source code or
algorithms to foreign governments as a condition for market
access.
Workday has about 75 percent of its business based here in
North America, and so we are certainly beneficiaries of USMCA.
However, we are certainly looking to export more into new
markets and would benefit from the protections within USMCA and
the U.S. Japan agreement.
Mr. STEUBE. Thank the witnesses for being here today. My
time has expired.
Chairman SMITH. Thank you. I now recognize Mr. Schneider
from Illinois.
Mr. SCHNEIDER. Thank you, Mr. Chairman. And I will be quick
because I know we have to get to votes, but I want to thank the
witnesses for joining us today and showing your perspectives.
The expansion of digital trade and digital innovation has
literally transformed every industry across our economy. As a
result, trading digital goods and services has helped create
jobs, expand opportunities for small and family businesses, and
cultivate innovation in communities across our country.
Just in Illinois, my state, the digital economy supports
more than 300,000 jobs and represents nearly $3.7 billion in
digital exports. The digital economy is an important part of
our trade infrastructure, and the United States must remain the
leader when writing the rules of the road for the future of
digital trade.
The expansion of digital trade and the digital economy has
accompanied an international discussion around taxing the
revenues and profits earned by multinational corporations.
While the Organization for Economic Cooperation and
Development, OECD, continues its work to reach a consensus on
an inclusive digital services tax framework, individual
countries have put in place unilateral measures to protect
their tax base.
Like many of my colleagues on this committee, as we have
discussed today, I am concerned about Canada's decision to move
forward with a digital services tax that unfairly punishes
American companies. I applaud the Biden Administration for
standing up to--up for American businesses and initiating
consultations with Canada through the disputes settlement
chapter in the U.S.-Mexico-Canada Agreement, and I hope we can
continue working together on this important issue.
The U.S. must ensure that competing proposals that impact
the digital economy do not undermine American workers, American
businesses, or American national security. We cannot seek grant
or adversaries on digital trade. Instead, we should lead the
way on global technology advancement. I am confident that we
can find our seat at the table and work with our allies to
establish strong equitable trade digital standards to protect
American leadership and innovation.
And with that, I want to ask--well, I have three questions.
I am going to focus on one just for time. Mr. Atkinson, in my
district I am home to many of the leaders in biopharmaceutical
and bioscience sectors, what I call life science corridor
through my district. We lead the country; we lead the world.
These companies are developing and deploying the next
generation of innovative technologies.
Can you discuss how strengthening digital trade laws can
improve protections for intellectual property, specifically in
the context of medical or life science innovation and discuss
the scope of impact if the United States does not provide
adequate protections for this important industry?
Mr. ATKINSON. Absolutely. In two ways. One is the
biopharmaceutical sector is increasingly data-driven, as you
know, using algorithms to develop new kinds of treatments and
devices, and a lot of that is going to be cross-border. It is
going to be taking patient data from various places, again,
totally anonymized. We have to make that point clear. They
don't care about the name of the data. They just need to know,
does this person have heart disease, what are the indications.
So, number one, we need to be able to protect that.
The other is this question of data exclusivity. It is
particularly for biologics, large molecule drugs where the
patent protection is different. We need to make sure that when
we sign trade agreements that we have 12 years of data
exclusivity. Because what other countries are doing, they want
less data exclusivity, a shorter period of time so they can
basically take the molecule that we have developed and then
sell it in our market more quickly than they would otherwise
when it expires. Both of those issues, to me, are critical.
Mr. SCHNEIDER. Great. And I agree that it is critical. Like
I said, we have talked a lot about Canada. We can talk more. We
have other issues. This is a critically important issue for our
country, for national security.
For the sake of time, Mr. Chair, I am going to yield back
my time so we can get Mr. Feenstra in.
Chairman SMITH. Thank you. I now recognize the gentleman
from Iowa, Mr. Feenstra.
Mr. FEENSTRA. Thank you, Mr. Chair. Thank you witnesses for
being here.
Obviously, we know that we lead the world in innovation
when it comes to digital innovation. We also understand that we
are seeing other countries impose intellectual property taxes
on what we have. Germany has imposed a tax on intellectual
property. Canada announced in June that it would retroactively
impose discriminatory taxes going back two years. I mean, DST
is absolutely at the forefront now of being taxed.
So my question is this. Dr.--Mr. Atkinson, do you see
similar types of discriminatory taxes being applied towards
Chinese companies or other countries? So--yeah. Are we the only
ones here?
Mr. ATKINSON. So I don't think they have designed their
systems explicitly to say let's go after the Americans, partly
because they--you know, there was that statement that an EU
official made. It was one of those things you are only supposed
to say in private, but he said it in public.
Mr. FEENSTRA. Exactly, yes.
Mr. ATKINSON. Gave the game away.
Mr. FEENSTRA. Yes.
Mr. ATKINSON. I think he regrets saying that now.
Mr. FEENSTRA. But it came out, and it was real.
Mr. ATKINSON. It came out, and it was very real.
Mr. FEENSTRA. Yes.
Mr. ATKINSON. The issue is why it seems like it is coming
at us. Our companies are bigger, and they are more successful.
And so they set the thresholds where these regulations, where
these taxes and other things kick in. They set the thresholds
in a way that pick up a lot of American companies, but the
Chinese are just not big enough in those markets yet.
We are very big in Europe, we are very big in Australia, we
are very big in Canada. The Chinese aren't yet, the Alibabas,
the Baidus, and the like. And so if they were big, they would
get wrapped in--wrapped up in this. They are just not big
enough, so it is a de facto attack on U.S. companies.
Mr. FEENSTRA. Got you. We can do 301 investigations, we can
do countermeasures. I get all that.
But the administration, with Janet Yellen and Treasury, I
mean, do you see any sense that they are standing up and
fighting against these imposed taxes from Canada and from
Germany?
Mr. ATKINSON. I think there is some pushback in the
negotiations with regard to Canada. I don't see it with regard
to Europe. And I think it is--it is a long-standing problem
that U.S.--the U.S. foreign policy establishment in government
prior--and the military establishment prioritizes foreign
policy and military over U.S. economic competitiveness and
technology competitive issues.
Their view, in my opinion, is let's not rock the boat.
There is this conflict in Ukraine. We are just going to turn a
blind eye to this.
Mr. FEENSTRA. We have become the piggy bank, literally the
piggy bank, and really no one is fighting, you know, for just
fairness. That is all we want is fairness. And that is not
happening.
Thank you. And I yield back.
Chairman SMITH. Thank you. Thank you for yielding back.
Thank you, again, to all of our witnesses. Sorry we have to
run out of here because of votes, but I think we will make it.
Please be advised that Members will have two weeks to
submit written questions to be answered later in writing. Those
questions and your answers will be made part of the formal
hearing record.
With that, the subcommittee stands adjourned. Thank you
again.
[Whereupon, at 10:52 a.m., the subcommittee was adjourned.]
PUBLIC SUBMISSIONS FOR THE RECORD
=======================================================================
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]