[Senate Hearing 118-278]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 118-278

                        U.S. ECONOMIC SECURITY:
                    ADDRESSING ECONOMIC COERCION AND
                       INCREASING COMPETITIVENESS

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

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 26, 2023

                               __________


       Printed for the use of the Committee on Foreign Relations
       
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                  Available via http://www.govinfo.gov

                               __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
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                 COMMITTEE ON FOREIGN RELATIONS        

             ROBERT MENENDEZ, New Jersey, Chairman        
BENJAMIN L. CARDIN, Maryland           JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire          MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware         MITT ROMNEY, Utah
CHRISTOPHER MURPHY, Connecticut        PETE RICKETTS, Nebraska
TIM KAINE, Virginia                    RAND PAUL, Kentucky
JEFF MERKLEY, Oregon                   TODD YOUNG, Indiana
CORY A. BOOKER, New Jersey             JOHN BARRASSO, Wyoming
BRIAN SCHATZ, Hawaii                   TED CRUZ, Texas
CHRIS VAN HOLLEN, Maryland             BILL HAGERTY, Tennessee
TAMMY DUCKWORTH, Illinois              TIM SCOTT, South Carolina
                Damian Murphy, Staff Director          
       Christopher M. Socha, Republican Staff Director          
                   John Dutton, Chief Clerk          

                              (ii)        

  
                        C  O  N  T  E  N  T  S

                              ----------                              
                                                                   Page

Menendez, Hon. Robert, U.S. Senator From New Jersey..............     1

Risch, Hon. James E., U.S. Senator From Idaho....................     3

Fernandez, Hon. Jose, Under Secretary for Economic Growth, 
  Energy, and the Environment, United States Department of State, 
  Washington, DC.................................................     5
    Prepared Statement...........................................     6

Shambaugh, Hon. Jay, Under Secretary for International Affairs, 
  United States Department of the Treasury, Washington, DC.......     8
    Prepared Statement...........................................    10

              Additional Material Submitted for the Record

Responses of Mr. Jose Fernandez to Questions Submitted by Senator 
  Robert Menendez................................................    41

Responses of Mr. Jay Shambaugh to Questions Submitted by Senator 
  Robert Menendez................................................    43

Responses of Mr. Jose Fernandez to Questions Submitted by Senator 
  James E. Risch.................................................    45

Responses of Mr. Jay Shambaugh to Questions Submitted by Senator 
  James E. Risch.................................................    47

Letter to President Biden From Senator Risch and Senator 
  Cantwell, Dated May 19, 2022, Concerning Pursuing a Trade 
  Agenda in the Indo-Pacific.....................................    50

GAO Report, Dated May 2023, Concerning the World Bank Borrowers' 
  Contract Awards................................................    53

                                 (iii)

  

 
                        U.S. ECONOMIC SECURITY:
                    ADDRESSING ECONOMIC COERCION AND.
                       INCREASING COMPETITIVENESS

                              ----------                              


                        WEDNESDAY, JULY 26, 2023

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Robert 
Menendez, chairman of the committee, presiding.
    Present: Senators Menendez [presiding], Cardin, Shaheen, 
Coons, Murphy, Kaine, Merkley, Van Hollen, Duckworth, Risch, 
Ricketts, Young, and Hagerty.

          OPENING STATEMENT OF HON. ROBERT MENENDEZ, 
                  U.S. SENATOR FROM NEW JERSEY

    The Chairman. This hearing of the Senate Foreign Relations 
Committee will come to order.
    In today's world, when it comes to defending national 
sovereignty against rivals and adversaries, a country's 
economic resilience is as important as its military might, 
which is why the United States stands unrivaled.
    Despite the unprecedented global challenges in recent 
years, the United States economy is once again thriving. 
Inflation is easing. Wages are up. Unemployment is down.
    Yet, while we are an economic powerhouse with the 
creativity and innovation to drive peace and prosperity 
worldwide, we are too often on the sidelines in bolstering 
American investment and helping to strengthen economies in 
Africa, Asia, and the Western Hemisphere.
    Last April, I met with the former Foreign Minister of 
Panama, a nation that is no stranger to the threat of economic 
coercion from the People's Republic of China.
    She told me, ``No one doubts that the United States has the 
economic tools to punish its adversaries who violate the 
international rules-based order. But where are your tools for 
an affirmative global economic agenda that supports democratic 
governments?''
    It is a great question. Our nation has risen to the 
occasion in the past. We built the foundations of global 
economic integration in the Bretton Woods Institutions. We led 
the Marshall Plan to rebuild Western Europe after World War II, 
one of the most expansive and successful development projects 
ever.
    Our efforts lift people up and support the growth of strong 
middle classes which form the backbone of stable, market-
oriented democracies. Today, certain nations seek to use 
economic tools to exploit nations to further their own 
autocratic ambitions.
    We have to show our citizens and people all over the world 
that economic investment, diplomacy, and engagement can deliver 
real improvements in their daily lives, a stark contrast to 
authoritarian governments who use their economic power to 
punish and bully those who do not do their bidding.
    We must reimagine our diplomatic toolbox to fully harness 
our economic might and at the same time we need to secure 
vulnerable supply chains and counter the threats of economic 
coercion.
    Now, what makes economic coercion so insidious? In my view, 
it is not only the financial losses stemming, for example, from 
Beijing's retaliation against Taiwan's pineapple farmers or 
Norwegian salmon fishermen or Australian winemakers or 
Lithuanian chip makers or Canadian canola farmers, and it is 
not only the predatory lending that can burden governments with 
poor quality infrastructure at high costs, whether it is Sri 
Lanka's port contracts, Pakistan's electricity generation, or 
dams in Ecuador.
    The threat of economic coercion also has a destructive, 
unseen cost--self-censorship. Nations, businesses, and 
individuals see how Beijing has punished other countries and 
industries and they say to themselves, I better not step out of 
line. I better do what Beijing wants. Otherwise, they will come 
for me.
    How do we confront this? I appreciate the efforts of the 
Treasury Department and the State Department, but we have to 
find a way to do more with the tools we have at our disposal, 
and where we need new tools, we should seek them, whether it is 
export controls and sanctions or leveraging the power of 
international institutions to step up with financial support 
when our allies are under economic attack, or making our 
International Development Finance Corporation more focused and 
strategic, or funding initiatives like the Partnership for 
Global Infrastructure and Investment. Each of these efforts 
pack more of a punch when employed also in coordination with 
our allies and partners.
    Because of our economic interconnectedness, coercion 
against one nation has repercussions across the world, and that 
is why a coordinated response is so essential. In the wake of 
Putin's invasion of Ukraine, his attempt to blackmail Europe 
into submission with energy exports failed because we came 
together in a united collective effort, but more needs to be 
done.
    We need a comprehensive strategy rather than trying to 
tackle these issues in a piecemeal fashion. We need to 
formalize our economic alliances. We need mandatory 
appropriations for everything from building strategic 
infrastructure around the world to funding our Indo-Pacific 
strategy.
    In my view, above all, we need a whole-of-government 
approach to thinking about economic statecraft. It is not just 
the State Department's job, not just Treasury's job. It is all 
of our financial institutions, all of the other agencies, 
because the bottom line is we need to start putting our money 
where our mouth is.
    I look forward to hearing from our witnesses on how they 
think we can go about this task, and with that, let me turn to 
my dear friend, the ranking member, Senator Risch, for his 
comments.

               STATEMENT OF HON. JAMES E. RISCH, 
                    U.S. SENATOR FROM IDAHO

    Senator Risch. Well, thank you very much, Mr. Chairman.
    First of all, I want to associate myself with your remarks 
about how important economics is to the national security of 
the United States. I do not think that can be understated and, 
indeed, people first look to what their financial situation is 
when they make decisions about how they are going to proceed.
    I do not think we can underestimate the importance of 
economics in the lane that we operate in. With an aggressive 
Russia and China seeking to rewrite the rules and norms of the 
international system, our world is rapidly changing.
    Both seek to use economic coercion to pressure our friends 
and allies into concessions. U.S. policy must account for this 
rise of coercive economic practices and maintain our 
competitiveness in order to achieve what is best for our 
national interests.
    For years, Russia weaponized energy exports to an energy 
dependent and energy hungry Europe. In the lead-up to Russia's 
war against Ukraine, the Biden administration enabled this 
dependence by waiving bipartisan congressional sanctions 
against Nord Stream 2.
    Despite the war and Russia's throttling of gas supplies in 
Europe, the U.S. and our allies still attempt to maintain a 
consistent and strong approach to help the Europeans wean 
themselves off Russian gas.
    The good news is Europe now clearly recognizes its mistake 
and will never go back to that situation again. Over the past 
18 months, Russia has attempted to weaponize world grain 
supplies to hurt Ukraine.
    After exiting the Black Sea grain deal last week, Russia 
has bombarded Ukrainian grain ports nightly, destroying 
infrastructure and thousands of tons of food. According to the 
Financial Times, Russia plans to offer cheap food and 
fertilizer to grain-consuming countries at this week's Russia-
Africa summit in an attempt to gain support.
    Using a similar strategy, but different tactics and 
admittedly less ham-handed, China has leveraged its massive 
economy, global trade, and financial ties to achieve its 
political goals.
    We are all aware of instances of Chinese economic coercion 
against Taiwan, Vietnam, Canada, Australia, Lithuania, and many 
other countries through tactics like predatory lending or 
threatening market access and now China is directing its 
coercion at the United States.
    In May, the Chinese Communist Party ordered Chinese 
operators of critical information infrastructure to stop using 
Micron products because of unfounded security risks. Make no 
mistake, this is retaliation for U.S. policies designed to keep 
advanced technology out of the hands of China's military.
    Taiwan has long been a test bed for Beijing's coercive 
tactics. Xi Jinping is, of course, willing to use brute force 
to take Taiwan, but he would rather accomplish that through a 
combination of economic and political coercion.
    In addition to supporting Taiwan on defense, we must also 
work to address key economic vulnerabilities China would 
exploit in a future conflict. Understanding how China and 
Russia use economic coercion is critical to developing 
appropriate strategies and responses.
    We, with our friends and allies, must take steps now to 
reduce the supply chains dependence in sectors such as critical 
minerals and healthcare necessities. We need to grow our 
resilience by creating new trade and investment opportunities 
in friendlier countries so we can diversify and hedge against a 
sudden closing of Chinese markets and over the long term, we 
need to take steps to avoid a world where China dictates 
economic outcomes.
    Part of our successful strategy to guard against economic 
coercion hinges on a more robust U.S. trade agenda. Withdrawing 
from TPP was a huge mistake. Sitting on the sidelines of the 
follow-on agreement, the CPTPP, continues that mistake.
    China is going to push for entry into this agreement. U.S. 
allies warn me privately that the longer the U.S. stays out of 
the CPTPP, the harder it will be to keep China at bay.
    Do we really want another huge Pacific trade bloc to be 
controlled by China's interests and not our own? Of course not.
    What we are doing through the Indo-Pacific Economic 
Framework might help if there is real substance behind it, but 
it is not a substitute for embedding ourselves more deeply in 
the region's trade architecture with market access.
    I hope the Biden administration is thinking about that. I 
would like to enter into the record the letter Senator Cantwell 
and I wrote to the President on this very issue last year.
    China is trying to force countries to pick a side. We must 
give countries a choice to counter these efforts. Sitting on 
the sidelines does not help.
    With our friends and allies, we have a lot of resources to 
counter economic coercion. The question is whether we can 
effectively create the resilient architecture and support 
networks that deter malign behavior. Do we have the focus and 
the long-term will to use these tools effectively?
    Thank you very much. I think both the chairman and I, as he 
said in his opening statement, look forward to hearing answers 
to these questions.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Risch.
    Our witnesses today are Under Secretary of State Jose 
Fernandez and Under Secretary of the Treasury Jay Shambaugh.
    Under Secretary Fernandez was confirmed by the Senate as 
Under Secretary for Economic Growth, Energy, and the 
Environment on August 6, 2021. He leads the State Department's 
bureaus and offices that promote United States policies on 
climate change, clean energy, health, supply chain security, 
and other economic priorities.
    He is also the United States alternate governor to the 
World Bank, the European Bank for Reconstruction and 
Development, and the Inter-American Development Bank.
    From 2009 to 2013, he served as the Assistant Secretary of 
State for Economic, Energy, and Business Affairs, one of the 
bureaus he now oversees.
    Under Secretary Shambaugh was confirmed as the Under 
Secretary of the Treasury for International Affairs on December 
13, 2022. He leads Treasury's international economic policies 
regarding the International Monetary Fund, World Bank, G-7, G-
20, exchange rate issues, climate policies, and international 
financial regulation. You are not too busy.
    He served as a member of the White House Council of 
Economic Advisers from 2015 to 2017, earlier served in the 
staff of the CEA as a senior economist for international 
economics and then as its chief economist. He is currently on 
leave as a professor of economics and international affairs at 
George Washington University.
    Thank you both for appearing. Your full statements will be 
included in the record without objection, and I would ask you 
to try to summarize them in 5 minutes or so, so that the 
members of the committee can have a conversation with you.
    Secretary Fernandez, we will start with you.

STATEMENT OF HON. JOSE FERNANDEZ, UNDER SECRETARY FOR ECONOMIC 
 GROWTH, ENERGY, AND THE ENVIRONMENT, UNITED STATES DEPARTMENT 
                    OF STATE, WASHINGTON, DC

    Mr. Fernandez. Thank you, Chairman Menendez, Ranking Member 
Risch, and members of this committee for this opportunity to 
testify before you this morning.
    The People's Republic of China is a formidable competitor 
and is a prolific user of economic coercion. Xi Jinping's 
ambitions are clear. As he stated in 2020, Beijing seeks to 
manipulate global supply chains, make other nations dependent 
on the PRC, and use that dependency to exert leverage over 
them.
    My job is to counter that strategy through economic 
diplomacy, and we are making progress, but much remains to be 
done. What I would like to do in the remaining time is share 
three examples of our work.
    First, we are focusing on critical minerals supply chain 
vulnerabilities. Beijing has used state-directed industrial 
targeting and massive subsidies to dominate global mineral 
supply chains and its recent export restrictions on gallium and 
germanium reveal its coercive intent.
    We need to pursue new approaches to reduce dependence on 
this sector, but in responding we have two advantages, two 
advantages that the PRC lacks--our allies and our private 
sector.
    Last fall, I launched the Minerals Security Partnership to 
address this challenge. We now have 14 partners plus the 
European Union collaborating to find projects and bring them to 
market. Last month, India joined. MSP now has a pipeline of 
deals that we are working on together to develop.
    Second, thanks to many of you on this committee, thanks to 
Congress, we are using the CHIPS and Science Act's 
International Technology Security and Innovation Fund--ITSI, 
for short--to rewire global semiconductor supply chains, 
providing new American fabs with the international environment 
that they must have in order to succeed.
    We are targeting their needs at each step of the value 
chain, specifically securing minerals for our fabs, 
coordinating policy with our allies and partners so that we do 
not face a subsidy race, and expanding downstream capacity so 
that fabs have options for final processing.
    Third, we are working to combat PRC economic coercion. 
Beijing exploits economic vulnerabilities to threaten and 
coerce others into following its dictates, as you have both 
pointed out. Beijing's bullying undermines U.S. national 
security and the international rules-based order.
    We are not standing on the sidelines. Last year, I led the 
effort to support Lithuania, which faced PRC-based trade 
retaliation for opening a Taiwan representative office. Beijing 
canceled a $300 million export credit, so we worked with our 
Ex-Im Bank colleagues to provide a $600 million export credit 
alternative.
    We mobilized our embassies to find new markets for 
Lithuanian exports that were blocked by China. The Defense 
Department signed a reciprocal defense procurement agreement 
with Lithuania and other agencies and our government also 
provided support.
    Today, a year later, less than half of 1 percent--less than 
half of 1 percent of Lithuania's exports go to China and 
overall trade has rebounded as the gap from PRC coercion has 
been filled by others.
    At the State Department, we are now building a unit to help 
other countries that find themselves in a similar situation. We 
and our interagency partners are working with the G-7 to stand 
up a new counter coercion mechanism. This issue is one of my 
highest priorities and I am grateful for the committee's 
leadership and support on this effort.
    If you take one thing away from my testimony today, it is 
this: Diplomacy is not enough. We also need to provide concrete 
alternatives to the PRC and its proposed deals.
    When I joined the Department almost 2 years ago now, our 
diplomats in developing nations told me that if we did not put 
forward real economic alternatives in their countries, we 
simply would not be in the game.
    We cannot and we should not compete with the PRC dollar for 
yuan, but we must deploy resources to level the playing field 
enough to give our companies and to give our workers a fighting 
chance.
    That is why the Administration has asked for $6 billion in 
mandatory funding to out compete the PRC. We can compete. We 
can win, but we need your support to be more effective.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Fernandez follows:]

                Prepared Statement of Mr. Jose Fernandez

    Thank you, Chairman Menendez, Ranking Member Risch, and Members of 
the Committee for the opportunity to appear before you this morning.
    This hearing focuses on addressing economic coercion and increasing 
U.S. competitiveness. The People's Republic of China (PRC) is currently 
our biggest economic competitor and a prolific user of economic 
coercion. Under Xi Jinping's leadership, Beijing's ambitions are clear. 
As he stated in April 2020: Beijing's goal is to manipulate global 
supply chains, force other nations into dependence on the PRC, and then 
use that dependence to exert leverage over Beijing's trading partners. 
Countering that effort is an Administration priority. My job at the 
State Department is to do so through economic diplomacy. We are making 
good progress, but much work remains to be done. I would like to share 
three concrete examples with you today.
    First, we are working to address a vulnerability in critical 
mineral supply chains. Beijing has used a wide range of non-market 
policies and practices, driven by state-directed industrial targeting 
and including massive state funding, to dominate global mineral supply 
chains. Beijing's recent export restrictions on gallium and germanium 
expose some of these vulnerabilities. We need to pursue new approaches 
to address dependencies and vulnerabilities in the critical minerals 
sector, and we have an advantage they cannot match: our allies and 
partners. Last fall, I launched the Minerals Security Partnership (MSP) 
to address this challenge with key foreign counterparts. We are 
starting with minerals needed for the energy transition: lithium, 
graphite, and copper. We now have 14 partners--plus the European 
Union--working collaboratively to find possible critical mineral 
projects and bring them to market. Just last month, India joined. MSP 
now has a pipeline of projects, and we are working on them together.
    Second, thanks to Congress, we are using the CHIPS & Science Act's 
International Technology Security and Innovation (ITSI) Fund to re- 
wire global semiconductor value chains, providing the new domestic 
semiconductor manufacturing fabs here in the United States with the 
international environment they will need to succeed. We are targeting 
the critical needs at each step of the semiconductor value chain, 
specifically: securing the critical minerals our fabs need to make 
chips; coordinating policy with allies and partners so we don't face a 
subsidy race; and expanding downstream production capacity so fabs have 
diverse options for final-stage processing. This is critical work. 
Congress passed the CHIPS and Science Act last August, and we have been 
racing to stand up this effort.
    Those two initiatives are working to build diverse, secure, and 
resilient supply chains in critical minerals and chips--directly 
countering PRC efforts to dominate these same supply chains.
    Which takes me to the third effort I'd like to highlight--our 
effort to combat PRC economic coercion. Across the globe, Beijing 
exploits economic vulnerabilities of our allies and partners to 
threaten and coerce them into following its dictates. Beijing's 
bullying undermines U.S. national security and foreign policy interests 
and the rules-based international order. But we are not standing idly 
by. When nations face coercion, the United States is willing and able 
to help. I led the effort to support Lithuania, which faced trade-based 
retaliation by China for opening a Taiwan representative office, and to 
use that case to develop a toolkit of actions to directly support other 
partners facing PRC coercion. With Lithuania, we provided concrete 
support, economic and otherwise. Beijing canceled roughly $300 million 
in export credit to Lithuanian companies, so we worked with the U.S. 
Export-Import Bank (EXIM) to provide a $600 million U.S. alternative. 
We mobilized U.S. posts across the Indo-Pacific to find new markets for 
Lithuanian goods after Beijing blocked imports from Lithuania. The U.S. 
Department of Defense signed a reciprocal defense procurement agreement 
with Lithuania. Other agencies also provided support. Today, Lithuania 
has survived the PRC's pressure, and it is thriving. Less than 0.5 
percent of its exports currently go to the PRC, and its overall trade 
has rebounded as the gap from PRC coercion has been filled by other 
partners.
    Since then, we are building a unit at State to help other countries 
that take sovereign decisions Beijing may not like. We and our 
interagency colleagues are working closely with G7 countries to 
operationalize the new counter-coercion mechanism and ensure that, when 
the next case happens, we are ready to respond. This is one of my 
highest priorities, and I am deeply grateful for this committee's 
leadership and support on economic coercion.
    In closing, we are leveraging every diplomatic tool we have to 
bolster U.S. economic security. Across all initiatives, we are relying 
heavily on two comparative advantages the PRC cannot match: our 
innovative private sector, and our network of allies and partners.
    But diplomacy is not enough. We have to show up with concrete 
economic alternatives to what the PRC is offering countries around the 
world, particularly in Africa, the Americas, Southeast Asia, and the 
Pacific Islands. When I first joined the Department, our frontline 
diplomats in developing nations were blunt. They told me: there is a 
lot of talk about competing with the PRC in the developing world, but 
we have to walk the walk. If we aren't going to put forward real 
economic alternatives, we will not be in the game. Hectoring will only 
get us so far. We can't and shouldn't try to compete with the PRC 
dollar for yuan, but we do need to deploy concrete resources to level 
the playing field enough to get our companies in the game. That is why 
the Administration asked for $6 billion in mandatory funding to out-
compete the PRC. We want the U.S. in the game. We can compete and win, 
but we need your support to do that effectively.
    Investing in the Indo-Pacific is not only critical for the U.S. to 
compete and win, but also to strengthen partner economies and support 
their efforts in pushing back against the PRC's predatory tactics. With 
our budget request, we would create a new infrastructure fund that 
would allow us to out-compete China, providing credible, reliable 
alternatives while expanding markets and opportunities for U.S. 
businesses. We would also be able to create a new revolving fund at the 
U.S. International Development Finance Corporation (DFC) to boost 
equity investments to counter predatory lending offered by China, 
advance our foreign policy priorities, and create long-term sustainable 
development.
    These funds would also allow us to commit to long-term projects 
where we need funding upfront and where we need to show our unwavering 
commitment to our partners over a much longer period-of-time than 
discretionary funding, including the need to amend and extend the 
economic assistance provisions of the Compacts of Free Association with 
the Freely Associated States of the Federated States of Micronesia, the 
Marshall Islands, and Palau.
    Thank you, and I look forward to your questions.

    The Chairman. Thank you, Mr. Secretary.
    Secretary Shambaugh.

     STATEMENT OF HON. JAY SHAMBAUGH, UNDER SECRETARY FOR 
    INTERNATIONAL AFFAIRS, UNITED STATES DEPARTMENT OF THE 
                    TREASURY, WASHINGTON, DC

    Mr. Shambaugh. Thank you. Chairman Menendez, Ranking Member 
Risch, and members of the committee, thank you for the 
opportunity to testify here today.
    I want to share with you Treasury's perspective on 
addressing economic coercion and increasing U.S. 
competitiveness. Because the Secretary and I just came back 
from a trip to China, I will focus my opening remarks on our 
engagement with China and how Treasury uses our economic tools 
to promote U.S. national and foreign policy interests.
    The U.S.-China relationship is among the most consequential 
in the world and its trajectory will impact the lives and 
livelihoods of people in our countries and beyond.
    During the meetings with our counterparts, we had direct, 
substantive, and productive discussions. Secretary Yellen 
frankly and directly conveyed our areas of disagreement while 
opening up further dialogue as part of our effort to 
responsibly manage this relationship.
    Our Administration has three objectives in the U.S.-China 
economic relationship: protecting national security and human 
rights, pursuing a healthy economic competition, and 
cooperating on areas of mutual concern.
    First, the United States will not hesitate to take targeted 
actions to secure our national security interests and those of 
our allies and partners and we will protect human rights.
    When necessary, we will use a suite of tools to achieve our 
national security goals. It is our core mission to protect the 
American people from national security risks while also clearly 
communicating our position and intent to China to reduce the 
risk of misunderstanding.
    Second, we seek a healthy economic relationship with China 
that fosters growth and innovation in both countries. As 
Secretary Yellen has said publicly, we do not seek to decouple 
our economies. That would be disastrous for both nations and as 
a practical matter nearly impossible to do.
    We seek a fair and healthy economic relationship that 
benefits both countries and supports American workers and 
businesses, but healthy economic competition requires that 
American workers and businesses are able to compete on a level 
playing field.
    In Beijing, Secretary Yellen pressed her Chinese 
counterparts on unfair economic practices that undercut this 
goal. China continues to use an extensive range of nonmarket 
policies and practices including widespread government support 
to gain market share at the expense of foreign competitors on a 
scope and scale that is simply different from other major 
advanced economies.
    These policies and practices have harmed workers and firms 
in the U.S. and around the world. China has also in certain 
cases exploited its economic power to retaliate against or 
coerce its trading partners.
    We often refer to it as economic coercion when a country 
cuts off supplies of inputs, or stops buying goods from a 
country for political purposes, in particular when it is done 
in a nontransparent way or as punishment for diplomatic 
actions.
    We work frequently with our allies to both address 
instances of economic coercion or prepare for possible actions. 
For example, recent G-7 meetings have had extensive 
conversations on the topic.
    We have also been troubled by recent punitive actions that 
have been taken against U.S. firms in recent months, and we are 
closely following recently announced export controls by China 
on two critical minerals.
    Third, as the world's two largest economies, the U.S. and 
China need to cooperate on the urgent challenges of our day 
from climate finance to debt distress.
    On debt, for example, the international community's 
concerted engagement with China has yielded some dividends as 
we have seen progress with China in certain cases, but much 
more needs to be done.
    On climate finance, the U.S. and China co-chair the G-20 
Sustainable Finance Working Group, an example of how we can 
work together on important issues.
    Let me end on a broader point. Our ability to protect U.S. 
economic interest depends on our strong and reliable 
international leadership. This requires us to strengthen, not 
weaken, our engagement with our allies and partners, 
particularly low and middle income countries.
    It also requires us to fulfill our commitment to 
international financial institutions like the IMF and World 
Bank, which includes making sure we adequately fund them.
    Perhaps the most straightforward way to ensure that low 
income countries do not become dependent on loans from China or 
any other actor is to make sure there is a sufficient amount of 
high standards lending available to them. For example, through 
the IMF's Poverty Reduction and Growth Trust and Resilience and 
Sustainability Trust, we can provide an important counterweight 
to opaque lending.
    Countries want to work with us. They want to access capital 
via our markets and via major international financial 
institutions. They look elsewhere when those options are 
closed.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Shambaugh follows:]

                Prepared Statement of Mr. Jay Shambaugh

    Chairman Menendez, Ranking Member Risch, and Members of the 
Committee, thank you for the opportunity to testify before you today. I 
want to share with you Treasury's perspective on addressing economic 
coercion and increasing U.S. competitiveness. Because the Secretary and 
I just returned from a trip to China, I will focus my opening remarks 
on our engagement with China and how Treasury uses our economic tools 
to promote U.S. national and foreign policy interests.
    Earlier this month, I accompanied Secretary Yellen to China to 
build on President Biden's directive to deepen communication between 
our two countries and stabilize the relationship. The United States and 
China together represent 40 percent of the global economy. Our 
bilateral relationship is among the most consequential in the world, 
and its trajectory will impact the lives and livelihoods of people in 
our countries and beyond. During meetings with our counterparts, we had 
direct, substantive, and productive discussions. Secretary Yellen 
frankly and directly conveyed our areas of disagreement, while also 
opening up further dialogue as part of an effort to responsibly manage 
this relationship.
    Our Administration has three objectives in the U.S.-China economic 
relationship: protecting national security and human rights, pursuing 
healthy economic competition, and cooperating on areas of mutual 
concern.
    First, the United States will not hesitate to take targeted actions 
to secure our national security interests and those of our allies and 
partners, and we will protect human rights. Our Administration has 
clearly communicated our serious concerns to the PRC. When necessary, 
we will use a suite of tools to achieve our national security goals. It 
is our core mission to protect the American people from national 
security risks while also clearly communicating our position and intent 
to China to reduce the risk of misunderstanding.
    Second, we seek a healthy economic relationship with China that 
fosters growth and innovation in both countries. As Secretary Yellen 
has said publicly, we do not seek to decouple our economies; that would 
be disastrous for both nations, and as a practical matter, nearly 
impossible to do. To be clear: neither targeted national security 
actions nor attempts to build diversified supply chains represent 
decoupling. We seek a fair and healthy economic relationship that 
benefits both countries and supports American workers and businesses. 
Healthy economic competition requires that American workers and 
businesses are able to operate on a level playing field.
    In Beijing, Secretary Yellen pressed her Chinese counterparts on 
unfair economic practices that undercut that goal. China continues to 
use an extensive range of non-market policies and practices, including 
widespread government support, to gain market share at the expense of 
foreign competitors on a scope and scale different from other major 
economies. These policies and practices have harmed workers and firms 
in the U.S. and around the world.
    China has also, in certain cases, exploited its economic power to 
retaliate against or coerce its trading partners. We often refer to it 
as economic coercion when a country cuts off supplies of inputs or 
stops buying goods from a country for political purposes, in particular 
when it is done in nontransparent ways or as punishment for diplomatic 
actions. We work frequently with our allies to both address instances 
of economic coercion or prepare for possible actions. For example, 
recent G7 meetings have had extensive conversations on the topic. We 
also have been troubled by punitive actions that have been taken 
against U.S. firms in recent months. We are also closely following 
recently announced export controls by China on two critical minerals. 
While we are still assessing their impact, these actions reinforce the 
importance of our Administration's efforts to build resilient and 
diversified supply chains.
    Third, as the world's two largest economies, the U.S. and China 
need to cooperate on the urgent challenges of our day--from climate 
finance to debt distress. On debt, for example, the international 
community's concerted engagement with China has yielded some dividends, 
as we've seen progress with China in certain cases such as Zambia, 
Ghana, and Sri Lanka. More needs to be done. On climate finance, the 
United States and China co-chair the G20 Sustainable Finance Working 
Group, an example of how we can work together on important issues. The 
U.S. and China need to build on this existing cooperation to address 
global challenges.
    Let me end with a broader point. Our ability to protect U.S. 
economic interests depends on our strong and reliable international 
leadership. This requires us to strengthen--not weaken--our engagement 
with our allies and partners, particularly low- and middle-income 
countries. It also requires us to fulfill our commitment to 
international financial institutions like the IMF and World Bank, which 
includes making sure that we adequately fund them.
    Perhaps the most straightforward way to ensure that low-income 
countries do not become dependent on loans from China or any other 
actor is to make sure there is a sufficient amount of high standards 
lending available. Treasury is leading efforts to evolve the 
multilateral development banks to equip them to better address the 
challenges countries now face. Also, through the IMF's Poverty 
Reduction and Growth Trust and the Resilience and Sustainability Trust, 
we can provide an important counterweight to opaque lending. We already 
have appropriations from prior years for lending to these two trust 
funds, so providing lending authorization is an easy way to increase 
support for developing countries at no additional budget cost.
    Similarly, to promote U.S. interests in emerging and developing 
countries around the world, including in Africa and Latin America and 
the Caribbean, we must support institutions like the African 
Development Fund and IDB Invest, the Inter-American Development Bank's 
private sector arm.
    Countries want to work with us. They want to access capital via our 
markets and via major international financial institutions. They look 
elsewhere when those options are closed.
    Thank you, and I look forward to your questions.

    The Chairman. Well, thank you both. We will start a series 
of 5-minute rounds and I will recognize myself and this is, 
really, for both of you.
    In the last 5 years, the PRC employed economic coercion 
against several of our closest allies and partners. When 
governments made decisions that the PRC did not like, Beijing 
pursued, as the secretary mentioned, an embargo on Lithuania.
    It levied tariffs and trade restrictions on Australian 
agricultural products--coal, beef, and timber. It imposed trade 
restrictions on Canadian products and even jailed two Canadian 
citizens. The list goes on.
    The People's Republic of China has also made efforts to 
intimidate and coerce the private sector, even threatening 
American companies if they did not lobby against legislation in 
the United States that Congress was promoting and that Beijing 
did not like.
    This is something that always drives me crazy, is when I 
have business people come and talk to me and basically they are 
espousing the views of another country. As I said to one of 
these business leaders, that is rather un-American.
    Given the gravity of these challenges, I would ask that you 
both clearly define the scope of the PRC economic coercion and 
the specific tactics that Beijing employs. What is our foreign 
policy playbook to address--you have each touched upon it--but 
to address PRC coercion?
    I know that this--what we are discussing is a broad policy, 
but the People's Republic of China is probably the biggest 
entity that uses economic coercion in a way that is really 
consequential to foreign policy and national interests.
    Mr. Shambaugh. Thank you for the question, Senator. When we 
think about economic coercion, we are thinking typically of 
practices where it is illegitimate or arbitrary use of economic 
restrictions, typically under false pretense.
    We often see it as it is a claim that it is a commercial 
dispute or it is something else, but it is really about a 
diplomatic action. We know that it is a pernicious force. I 
think your--in your opening remarks, you referred to the subtle 
economic coercion where it is not--we have the cases, we can 
all list them, as you say, but it is also countries that worry 
about being cut off, whether it is from inputs or foreign 
direct investment.
    I think when we try to deal with this, we do it in a 
variety of ways. I think one place we start is with analysis, 
trying to look at our own vulnerabilities to make sure we are 
not vulnerable to these types of coercion, and where we might 
and how we might address that, and so one way we can address 
that is through the efforts we have been taking to build out 
resilient supply chains to make sure that we are not vulnerable 
to a particular cutoff of a particular choke point, and that is 
a very important one for our own economic security.
    It also means as long as we are building out diversified 
supply chains that works for the rest of the world, as well to 
make sure that there are options outside of 100 percent 
dependency on China for a particular choke point of an input.
    I think we also do a lot of coordination. As I mentioned, 
the 
G-7 has taken up this issue quite strongly this year and tried 
to work through how we might coordinate in potential actions 
against one of us, but also, to your point earlier about your 
conversation with the Minister from Panama, how we can help our 
friends, which I think is crucial.
    I think we have also taken it up with the--what are 
referred as the five finance ministers, the finance ministers 
that are from the Five Eyes countries where we can share 
intelligence, and that lets us have these conversations in a 
more detailed way where we can do so using intelligence 
products as well.
    This is something Treasury takes incredibly seriously. We 
know it is a risk both to our ability to engage in foreign 
policy because they can threaten our friends, but also it can 
be a threat to our economy, and so we are working on it quite 
actively.
    The Chairman. I want to hear from Secretary Fernandez, but 
while I have you----
    Mr. Shambaugh. Sure.
    The Chairman. --one of the concerns I have is that we do 
not necessarily, from my perspective, use our vote--our voice 
and our vote at some of these international financial 
institutions in a way that I think is important.
    We saw the COVID pandemic and Russia's war of aggression 
against Ukraine exacerbate debt crises and create more 
unsustainable debt for low-income nations with many of them 
turning to the IMF as the lender of last resort. Ghana, Sri 
Lanka, Pakistan were just some.
    Also here in our hemisphere, we have countries who are 
coming out of the post-pandemic era and with other challenges, 
and we are not looking--I am not an advocate of forgiveness, at 
least--depends on the nation. I am an advocate, of course, of a 
smoothing out period of time so these people can get through 
it.
    Many of these nations, including those that are aligned 
with us in values and are democracies, say, but you leave us 
hanging. You are not an advocate of a smoothing out process so 
that I can meet my obligation, but do it in a way that does not 
create civil unrest in my country.
    I think about the Dominican Republic, as an example, who 
has problems with Haiti next door, who is aligned with us in 
terms of democratic values, but they are in the midst of a vise 
with the IMF.
    I would hope that we--I think Treasury has a very important 
role to play here, and it needs--from my perspective--needs to 
be more robust.
    Let me give Secretary Fernandez an opportunity to address 
the question. Then I will turn to Senator Risch.
    Mr. Fernandez. Thank you, Mr. Chairman.
    I would define--we would define economic coercion as when a 
country weaponizes the economic vulnerabilities of the target 
in order to punish it for the exercise of its sovereignty.
    As you noted, we have seen it certainly for the last 10, 12 
years starting with Korea and the last one was Lithuania. All 
of these actions have three things in common, I would say.
    Number one, they take advantage of a vulnerability of an 
economic dependency. Secondly, they are opaque. It is not as if 
the PRC says, we are going to impose coercion on you. They use 
phytosanitary reasons.
    Sometimes they do not even announce that they are imposing 
measures and that is quite common. They obfuscate, so the 
obfuscation piece is important.
    Third, the idea is to change behavior--to impose a cost for 
changing behavior. That is why I think--and you noted this in 
your remarks--that is why I think we will see this over and 
over again. Even when they are not used, just the threat of 
sanctions is a deterrence.
    In terms of a playbook, we are--we have put one together. 
It is a work in progress. It is--we learned from experience. We 
learned from Lithuania that Ex-Im Bank had tools, that DoD had 
tools, USDA had tools, Commerce as well.
    We have had several discussions with allies and partners on 
this. We have also had internal tabletop exercises just to 
prepare. We are learning as we go along and a couple of things 
we have learned is we need speed. This we cannot--this cannot 
be a 30-, 40-day exercise. There are governments that may fall 
if they are coerced.
    Secondly, we need flexibility. The types of measures that 
are taken by the PRC will depend on the country. It will depend 
on the sectors that they are targeting. We need to be able to 
be nimble.
    Something we have identified, for example, is what happens 
if you have agricultural goods that may be perishable--bananas 
on a dock waiting for permits. All of these are items that we 
would very much welcome working with your staff and everyone 
else's to make sure that we have got the tools, but this is 
something we are putting a lot of effort into together with our 
colleagues at Treasury and together with the G-7.
    The Chairman. Well, I appreciate that. Let me just make an 
observation. I very much hope that what we can do is have a 
whole-of-government approach that is planned versus simply 
reactive and, of course, one cannot foresee every possibility, 
but one can have a pretty good idea what the PRC does in broad 
bases.
    If we had a comprehensive all-of-government approach plan--
you mentioned several entities, not just Treasury and State, 
but Commerce, and our international financial institutions as 
well as our development institutions. That needs a cohesive 
all-of-government approach.
    I am glad you mentioned nimbleness because I have tried 
sometimes to intercede with the Administration when a country 
is really on the ropes, but they are aligned with us in values, 
and if we were on the basketball court, we would be losing 
really badly because we are far from nimble.
    I understand the interagency process, but that can be a 
death knell, at the end of the day, so----
    Senator Risch.
    Senator Risch. Thank you, Mr. Chairman.
    Just let me say I could not agree with the whole-of-
government approach more. We do get way too much piecemeal as 
we try to solve these problems.
    I made reference to a letter that Senator Cantwell and I 
sent to the Administration on May 19, 2022. I would like to 
include that in the record on this same subject.
    Obviously, our place on the West Coast is very vulnerable 
to the--what happens in the Indo-Pacific and this letter 
addresses that. I would like to put that in the record, please, 
Mr. Chairman.
    The Chairman. Without objection.

[Editor's note.--The information referred to above can be found 
in the ``Additional Material Submitted for the Record'' section 
at the end of this hearing.]

    Senator Risch. First of all, this is a question for each of 
you and this is an issue that I know the chairman is interested 
in, too. Other members of Congress have been and so far we 
have--we are working on it, but we are running into issues and 
that is the fact that most people in America do not understand 
that we have hundreds of thousands of U.S.--of Chinese 
nationals studying in our universities and colleges.
    In addition to that, China has pumped billions of dollars 
and continues into our universities and colleges, and this type 
of input gives them access to U.S. technology, both on 
developing technology and really on the ground floor of some of 
these things, and it causes us great concern.
    Look, we do not allow foreign countries, especially China, 
to contribute to our people who are running for political 
office, and there is a reason we do not. We do not want them to 
have the influence that money brings, and we have been trying 
to do the same thing with the colleges and universities. It is 
difficult. We are getting at least some transparency on this, 
but it needs a better handle than what it has.
    This ties right in with their ability to get into our 
economic institutions. I would like each of you to tell me what 
your thoughts on this might be, briefly, please. Secretary, 
starting with you.
    Mr. Fernandez. Thank you. I understand that concern. This 
is a little bit outside of my bailiwick at State, but I will 
say we have about--we almost--we have almost 300,000 Chinese 
students at any one time in the U.S. I would say----
    Senator Risch. We have--in China, we have under 2,000.
    Mr. Fernandez. Yes. It is a handful. It is even less than--
--
    Senator Risch. The Chinese students over here, I am told, 
are not studying ancient Greek history. They are----
    Mr. Fernandez. No. They tend to study STEM and STEM 
subjects, but let us also understand that the 80 percent or so 
of the engineering students or the science and technology 
students stay in the U.S. and they become part of the economy.
    This is a complex subject. This is one that I think we have 
to be clear-eyed about. On the one hand, our universities 
benefit from this kind of exchange. On the other hand, we have 
to be clear-eyed on the danger and this is something that we 
would welcome a much longer conversation on it.
    I have had--at the State Department, I have had Asian-
American groups come and talk to us about this issue. This is 
one that we welcome a conversation on.
    Senator Risch. Thank you.
    Mr. Shambaugh. Senator, I would just say I very much 
understand the concerns there. I would say I agree with you and 
hear less from my role at Treasury than--prior to Treasury, I 
was a professor--and that I agree there has been progress on 
transparency and funding, and I think--I agree that it is 
really important to make sure that there are not groups that 
are funding things, tilting viewpoints in ways that run counter 
to our interest in a nontransparent way.
    I agree with you there. I would agree with Under Secretary 
Fernandez that the people-to-people contact can be helpful to 
us also. I think it is actually useful for us to have Chinese 
people seeing what America is about. I think that is actually 
quite productive for us.
    I think the concerns around technology are very valid and 
ones that my understanding is that there is work to think 
through how one has to safeguard technologies because I think 
that is a serious concern.
    Senator Risch. Thank you.
    Secretary, you mentioned the critical minerals issue, which 
I think most everyone is coming to the realization that we have 
real issues in that regard, both as it relates to China and as 
it relates to Russia.
    You have probably seen the information in open source about 
the actions that Brazil is taking regarding lithium, and the 
other South American countries, and, of course, their 
connections with China seem to be growing. What are your 
thoughts on that?
    Mr. Fernandez. This is a perfect example of why we need to 
get more involved and why we have created the Minerals Security 
Partnership, 14 countries plus the EU, to work on a number of 
things--share information, invest, and finance work on 
recycling and also make sure that our calling card is the ESG 
principles.
    We actually have worked on a number of critical mineral 
projects in Brazil. A couple of them have gone forward. We have 
got to do more, and I think what we are doing now is we have a 
dialogue with Brazil.
    We have technical assistance that we provide to Brazil, and 
we intend, going forward with the new Brazilian administration, 
to explore ways to pursue critical mineral projects, going 
forward.
    Brazil could be a very valuable partner in finding critical 
minerals. Right now, those critical minerals for the most part, 
80 to 90 percent of them, come from the PRC. We have 
alternative sources. It is not only Brazil--Argentina, Chile, 
Peru. We have got to do more in this hemisphere.
    Senator Risch. My time is up. Thank you, Mr. Chair.
    The Chairman. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank both of 
you for your testimony today.
    I have been trying to listen-in virtually and appreciate 
the efforts that are being taken through the G-7 with respect 
to coordinating responses to economic coercion.
    Obviously, a lot more meat needs to be put on that bone, 
going forward. I appreciated, Mr. Fernandez, the example you 
gave of Lithuania, but, clearly, what we are trying to do is 
establish a multilateral mechanism so that we are not 
responding after the--well, we are prepared in advance to 
respond to economic coercion.
    Mr. Shambaugh, let me ask you about the U.S. role in 
international financial institutions because we have all 
witnessed China's engagement in many other countries that leads 
to debt traps.
    Obviously, U.S. investment through Ex-Im Bank and other 
tools is important, but so is--multilateral lending 
institutions play a huge role in this. Could you talk a little 
bit about how the United States is using its influence to make 
sure that those high standards loans are made available to 
countries as an alternative to China's debt trap diplomacy?
    Mr. Shambaugh. Sure. Thank you, Senator.
    I think it has been a huge priority of this Administration 
and of Treasury to do what we are referring to as evolve the 
multilateral development bank system to try to make them more 
responsive, more nimble, to make sure they are meeting 
countries where their needs are, and, frankly, to also make 
sure they use their balance sheet much more effectively so that 
they can substantially expand their presence and their lending 
to make sure that high standards lending is available to 
countries.
    This has been something we spend a lot of time on. I think 
there is also kind of more specific initiatives, some through 
the World Bank, actually cutting back to Senator Risch's 
question, about critical minerals of trying to use--have the G-
7 work together with the World Bank to help low income 
countries kind of prepare themselves, do project preparation to 
get things ready for lending there. It is called the RISE 
Initiative.
    There are a number of ways in which we are trying to make 
sure that countries are not dependent on Chinese lending, that 
they are not dependent, not just on the lending because of the 
problem it can bring, but because they are not dependent on 
Chinese direct investment at all so that they are not 
vulnerable to coercion where they could be cut off from 
something.
    I would say there is also the Partnership for Growth and 
Infrastructure Investment, or PGII, where the G-7, again, are 
trying to commit on their own, and also through the 
multilateral development banks to commit a lot of money for 
infrastructure investment in these countries so that they are 
not at risk of China either, making bad loans with bad 
collateral attached to it or just threatening to cut off loans.
    I think there is a huge scope for using the international 
financial institutions because they do present kind of to the 
world in the way we would like, which is high standards lending 
with transparency that operate in the interests of the 
countries involved.
    Senator Van Hollen. Well, no, I appreciate that and, 
obviously, the U.S. initiatives and multilateral initiatives, 
the infrastructure lending, infrastructure partnership you 
talked about.
    It does seem to me that we could better reform these 
international financial institutions so that they can also 
assist in the area you just talked about, preparing projects, 
because many of these countries just need a little bit of help 
on that, and China is often willing to step in to try to fill 
those gaps, so I appreciate that.
    We have all seen how China, through a concerted strategy 
for over 15, 20 years, sought to dominate the critical minerals 
business, not just extraction, but very importantly the 
processing piece of it and then processing the critical 
minerals and then trying to dominate the electric battery 
industry.
    Could you talk, Mr. Shambaugh, about the importance of the 
provisions in the Inflation Reduction Act in combating that 
whole effort--China's effort to corner the market entirely when 
it comes to electric batteries and critical minerals 
processing?
    Mr. Shambaugh. Sure. Thank you, Senator.
    The foreign entity of concern rule is one crucial part of 
this. It shows up in a number of pieces of legislation. I 
believe it is in the bilateral--bipartisan infrastructure law. 
It is in the CHIPS Act. It is in the IRA.
    It is something where incentives and tax incentives that 
could go to companies will only go to them if their supply 
chains are clear of foreign entities of concern, so businesses 
either operating out of China or that are under Chinese 
control.
    I think that is a way that we are providing very direct 
incentives to businesses to say, I should clean up my supply 
chain if I want to have access to the incentives, and that has 
provided a very clear financial incentive and we are seeing 
businesses respond.
    Senator Van Hollen. People are responding in a big way, 
right?
    Mr. Shambaugh. Yes, they are.
    Senator Van Hollen. Thank you. Thank you. Thank you, Mr. 
Chairman.
    The Chairman. Senator Ricketts.
    Senator Ricketts. Thank you, Mr. Chairman, and I would also 
like to thank our witnesses for being here today.
    Secretary Fernandez, you said in your opening remarks the 
People's Republic of China was a competitor. With all due 
respect, they are an adversary.
    President Xi has said that he wants to be the global 
dominating power by 2049. That means displacing us. We should 
take him seriously. They are an adversary.
    I want to talk specifically about Taiwan. They have a very 
consequential presidential election coming up January 13 of 
next year, and the PRC knows this and is looking to influence 
Taiwanese politics, and it is done--one of the ways they are 
doing it is through that economic coercion that you were 
talking about.
    They have launched an investigation into trade barriers on 
2,000 Taiwanese products and that investigation was supposed to 
end October 12, and now they have said it could go on until 
January 12, obviously a day before the Taiwanese go to the 
polls.
    Now, I know that the Administration has been working on a 
trade initiative, which is a good step. I was also proud to 
support the Taiwan trade agreement there, but Taiwan is still 
dependent on--about, I think, 25 percent of its exports go to 
the People's Republic of China and about 20 percent of its 
imports coming from that.
    What is the Biden administration doing to counter what 
China is doing to influence these presidential elections, to be 
involved in these politics, and also what is the Administration 
doing with regard to preventing this economic coercion?
    Mr. Fernandez. Thank you for your question. This is--this 
issue is a little bit personal to me. Actually, when I was 
assistant secretary, I was the highest ranked State Department 
official to visit Taiwan in the first term of the Obama 
administration.
    Taiwan is a constant reminder to the PRC that you do not 
have to trade personal freedom for economic growth. It punches 
above its weight. It is our ninth largest trading partner in 
our agricultural space. It is the sixth largest market for the 
U.S. Ninety percent of advanced semiconductors come from 
Taiwan.
    What we have been doing at the State Department is, first 
of all, I lead our dialogue with Taiwan and there we meet at 
least once a year. We talk economic coercion. We talk supply 
chains. We talk energy. We talk trade. We have also launched a 
science and technology dialogue.
    We are helping Taiwan weather these kinds of threats. Our 
colleagues at Treasury can talk about the tax situation. I know 
that the USTR is also discussing a trade agreement with Taiwan.
    I am committed to supporting Taiwan and that is what we are 
doing at the State Department.
    Senator Ricketts. You mentioned the negotiations with 
Taiwan and I know there is more work being done on the trade 
initiative. Has lowering tariffs on Taiwanese products been a 
part of those conversations?
    Mr. Fernandez. Sir, I am not privy to the details of that, 
but I know that that is one of the issues that Taiwan was 
planning to raise, but I do not know.
    Senator Ricketts. Yes. Obviously, that would be one of the 
things we could do to kind of lessen the economic coercion or 
the economic leverage that the People's Republic of China has 
on Taiwan.
    Mr. Fernandez. That is correct. They are--as I said, 90 
percent of our advanced chips right now come from Taiwan. They 
are also very interested in the IRA, the possibilities that are 
out there, and they are taking advantage of it.
    I think everything is on the table to support this kind of 
an effort.
    Senator Ricketts. Great.
    Let me switch gears on you just a minute. You mentioned 
Lithuania and, again, I think that is a great example of how 
the U.S. can counter the PRC's economic coercion.
    I was in Lithuania not too long ago, and we were speaking 
with the Foreign Minister Landsbergis, and he had mentioned 
that one of the things that the People's Republic of China was 
doing was not only targeting Lithuania, but, for example, I 
think he mentioned German car companies that were using 
Lithuanian parts.
    What is your analysis of this kind of secondary coercion on 
German companies and how effective it has been, and what kind 
of things can we do as the United States to counter it?
    Mr. Fernandez. Well, it shows the creativity of the PRC and 
this is something that was hard to predict. What they had done 
in the past is go after direct product. When they realized that 
this was not working with Lithuania, they ratcheted it up and 
they included components in automobiles or actually in any EU 
products.
    This got the EU into the act and what they did is they 
alienated the EU. The EU started a WTO case against the PRC 
that we joined. They also came out with an anti-coercion 
instrument, a piece of legislation on it.
    This backfired, but the lesson here is we cannot 
underestimate the ability of the PRC to look for weaknesses and 
I think we have got to prepare for that.
    Senator Ricketts. Yes. Thank you, Secretary Fernandez. 
Again, cannot underestimate them. That is why they are an 
adversary and [inaudible] better.
    Thank you, Mr. Chairman.
    The Chairman. Senator Coons.
    Senator Coons. Thank you, Mr. Chairman, Ranking Member.
    Thank you, Chairman Menendez, for leading this effort to 
focus on the tools that we need to help strengthen our ability 
to respond to economic coercion, coercion that targets 
countries that seek to achieve their own place in the world.
    You have done a lot of focusing on Lithuania here. I was at 
another hearing and I may have missed the conversation about 
Australia as well. There is many other cases of economic 
coercion.
    One of the things I think we need to do is to provide rapid 
and targeted support. In the case of Australia, which I have 
followed in some detail, it was mostly perishable agricultural 
products from lobster tails to beef that were the subject of 
abrupt changes in import patterns, and it can take quite a 
while for us to move to respond to economic coercion.
    Senator Young and I have introduced the bipartisan 
Countering Economic Coercion Act, which would provide new 
authorities for rapid and targeted support to allies and to 
punish countries carrying out malign behavior.
    My goal here, frankly, is when China causes economic pain 
for us, to be able to step in with support, creating time for 
supply chains to shift and markets to adjust.
    Under Secretary Fernandez, thank you for your leadership in 
coordinating the response to the use of economic coercion 
against Lithuania.
    What existing tools have been the most effective with 
economic coercion and, briefly, what additional tools would be 
most helpful?
    Mr. Fernandez. Thank you for your question and, really, 
thank you for your thought leadership on this. This is very 
much appreciated.
    A number of things that we learned along the way. One was 
that--one response was just to make sure that countries 
understood that we have their back. One of the first things we 
did with respect to Lithuania is Secretary Blinken and several 
other government--U.S. Government officials actually spoke out 
against coercion.
    Just the ability to support another country was something 
that was quite welcome and that did not take long. There was 
something we could do in a couple of days.
    I do agree with you that flexibility and speed are 
important and I think we have discussed it with your staff as 
well. We have tools. You have given us a number of tools and 
some of them actually we discovered along the way--Ex-Im, DoD, 
Commerce, USTA, and others.
    The issue of perishable goods is one that I noted earlier. 
I think there is some discussion. That is one that has been--
was used by the PRC with respect to Australia. Lessons--speed, 
flexibility, political support.
    We have also put together an economics--our economists--an 
economics vulnerability study that we can use to try and see 
what the PRC are targeted--is targeting, realizing that they 
are always going to throw us a curveball----
    Senator Coons. Thank you.
    Mr. Fernandez. --and so we have got to be prepared for 
that.
    Senator Coons. Thank you, Under Secretary.
    The FY24 State and Foreign Operations appropriations bill 
just got voted out of the Appropriations Committee by a broad 
bipartisan margin, and it includes a $560 million new economic 
resilience initiative to expand investments in critical 
minerals, to secure supply chains, and to invest in high-
quality infrastructure.
    It includes a $200 million account for Treasury to increase 
financing through international financial institutions for 
infrastructure that will help mitigate partner nation reliance 
on substandard or coercive lending.
    I would be interested, Under Secretary Shambaugh, if you 
have any comments for me about how we can increase our 
competitive engagement in this front and in particular one of 
the things I have been trying to fix is the Development Finance 
Corporation and the equity scoring, which limits its scope and 
reach.
    From your perspective, are there other authority gaps that 
you have identified where we could be doing more?
    Mr. Shambaugh. Thank you, Senator.
    I would say the account you mentioned would be incredibly 
helpful to us because it is flexible and as we have talked 
about being able to be nimble here, it is going to be very 
important.
    I think it is also because it lets us try to make countries 
less vulnerable to this. There is one thing to talk about how 
we are going to respond. Another thing is to make these 
countries less vulnerable to being cut off from China. To make 
sure that they do not need Chinese funding for their 
infrastructure, to make sure they do not need Chinese funding 
to keep their businesses going, is one of the things we can do 
and using the multilateral development banks, other 
international financial institutions, as well as, as you said, 
the DFC.
    These are all different ways we can make it that China does 
not have the tools to try to be creative, as Under Secretary 
Fernandez said, about how they extract pain on countries.
    Senator Coons. Thank you both. Thank you, Mr. Chairman. I 
look forward to working together on this.
    The Chairman. Thank you.
    Senator Shaheen.
    Senator Shaheen. Good morning. Thank you both for being 
here.
    As I said to you when I saw you, I very much appreciate 
your connections to Dartmouth. We assume that anybody who has a 
connection to Dartmouth is a Granite Stater, so we appreciate 
that.
    I was pleased in the appropriations process last year to 
support a small increase--not as much as I would have liked--
for the Foreign Commercial Service, and this year we are hoping 
to at least continue that flat funding.
    As a former governor who took trade missions overseas, I 
can tell you that I found the Foreign Commercial Service really 
helpful in terms of working with our businesses to improve 
economic activity and trade.
    How do you all work with the Foreign Commercial Service, 
since the Department of Commerce is not represented here this 
morning, and what is particularly effective in the work that 
you all do?
    Mr. Shambaugh. I could just say one place we definitely see 
their work at Treasury is through our engagement with the 
multilateral development banks where having Foreign Commercial 
Service team members working inside those executive directors' 
offices at every MDB is one way that we are able to make sure 
U.S. firms can bid on things coming out of the MDBs.
    More broadly, I would say it is to the ways Under Secretary 
Fernandez mentioned of just making sure countries know we are 
there as a partner, if they suddenly lose markets that there 
are people on the ground who are able to try to help them 
understand where they could export, whether it is to the United 
States or to other partners of ours, to show that we care, to 
show that we are partners to these countries.
    They are countries--as I mentioned, they very much want to 
work with us. They understand we are the better option to work 
with, and the key is that we have to be on the ground and we 
have to be able to be there.
    Mr. Fernandez. Thank you for the question.
    One thing I would add is the Foreign Commercial Service is 
active in many of our posts and they provide--and, really, as 
someone who came from the private sector, the value for the 
money is just incredible and especially important to small and 
medium enterprises.
    Large companies have their government relations types. They 
have their--they can get high-priced bankers and all that. 
Smaller companies do not have that option, and the knowledge, 
the experience, that they have is something that I have been 
astounded by. We need more of them.
    They are not in every post and some of the posts--I am 
thinking now in Africa--where we are in a struggle for--to 
improve the U.S. brand in these countries where China is making 
inroads. We need more of them, especially in countries where in 
the past we have ignored.
    Senator Shaheen. I certainly agree, and as we think about 
how do we best counter what the PRC is doing around the world, 
the fact that they now have more diplomatic embassies open than 
we do, that they have the kind of commercial activity that we 
are not combating as effectively as we need to, I think is 
really concerning.
    The telecommunications area is another place where I think 
we have seen challenges, and I know that we have worked with 
many of our allied partners to encourage them not to adopt 
Huawei and Chinese telecommunications networks.
    What more can we do to help countries that do not want to 
do that, that are looking to us, for example, the Development 
Finance Corporation?
    I have had legislation to try and encourage them to look 
particularly at Eastern European countries on supporting their 
telecommunications infrastructure. What more can we do? Should 
we be asking the DFC to do that? Either of you.
    Mr. Shambaugh. I would just say one thing we have to do is 
make these countries less vulnerable. They know it is a better 
option and if--whether it is the Partnership for Growth in 
Infrastructure Investment, whether it is MDB lending, whether 
it is things at the IMF like the PRGT, or Poverty Reduction and 
Growth Trust, places they know they can borrow and that they 
are not going to be dependent on China so that if they make a 
very smart choice in their technology sector and in their 
communications sector, they do not suddenly face blowback and 
lose investment, I think it is crucial that they know they have 
options from us so that they are not vulnerable to China.
    Senator Shaheen. Thank you.
    Mr. Fernandez. What I would add to that is, and this is a--
I commend you for focusing on this question. This is an 
important question that for a long time has been discussed.
    We have taken on the challenge by, first of all, talking to 
countries, informing them of the risks and the--and promoting a 
level playing field in the host countries.
    We have actually brought a couple of regulators to DC and 
told them about why we are concerned about untrusted vendors. 
That changes the dialogue. They go home and they realize what 
the problem is.
    Ex-Im Bank, we worked with. Ex-Im Bank clarified the tools 
on local content to support 5G purchases. Then we have also 
worked with individual companies to talk about opportunities.
    Right now, we are--at the TTC, we are putting together a 
list of countries that this year will have auctions--5G 
auctions--and what we are going to do with the European Union 
as part of the Trade and Technology Council and with a number 
of companies as well as with Japan and with Korea, is to work 
together to see how we can encourage our companies and support 
our companies.
    We can do more and we can do more in the short term and 
that is what I am looking forward to doing.
    Senator Shaheen. Just to clarify, we can do more and it is 
in our interest if we do more.
    Thank you. Thank you, Mr. Chairman.
    The Chairman. Senator Hagerty.
    Senator Hagerty. Thank you, Mr. Chairman, and good to see 
both of you here today.
    Under Secretary Fernandez, I would like to start with you, 
if I might, and share with you an experience that I have had. I 
think we let your team know that I would be checking in with 
you on this, but this has to do with something I experienced 
when I was serving as U.S. Ambassador to Japan in the region.
    It came to my attention that a deep-water shipyard, the 
Hanjin shipyard at Subic Bay, was under bankruptcy and as I 
read about it, the two bidders in the bankruptcy process were 
both Chinese names--I had my team check into it--both CCP-
affiliated bidders for this deep-water shipyard in a very 
strategic location in the South China Sea.
    That evening, I called up the Secretary of the Navy and I 
asked him if he wanted to be the secretary that got Subic Bay 
back for America--because I lived in the region when we lost 
it--or was he going to be the one that allowed it to go to the 
Chinese Communist Party?
    He said, I will do whatever we need to do. There was no 
existing infrastructure to deal with this. We had to be very 
creative, but working together with our State Department, of 
course, Japan, and the Philippines, and we had to go to all the 
way to Duterte to get this addressed.
    A long story--we are able to go in and deal with this, but 
what concerned me is that our existing government structures 
are not in a posture to be forward-leaning on these types of 
things.
    They were not even tracking this sort of activity and we 
really had to scramble, again, with multiple countries, with a 
private sector partner in Cerberus Capital, had to reach out to 
a former Vice President of the United States, Vice President 
Quayle, to get help with that.
    There were a lot of levers that it took and it eventually, 
after a long period of time, we were eventually able to bring 
that strategic asset back away from the control of the CCP and 
back into friendly hands.
    I wanted to find out your perspective, Under Secretary, and 
what we might have learned from that, and are there 
opportunities to be more forward-leaning to address these sorts 
of either opportunities or challenges, depending on how you 
perceive it?
    Mr. Fernandez. Thank you for your question and, really, 
thank you for reaching out on this. This is exactly the kind of 
cooperation that we are looking for.
    Look, we have talked about it already. Countries are 
looking for alternatives. We can hector them. We can talk about 
values, but at the end of the day, we must be able to provide 
some funding.
    We are working with the DFC on a number of items. We sit on 
the DFC board at the State Department streamlining their 
decision process. Sometimes--they are using American taxpayer 
dollars so they have to be careful, but there is a way to 
streamline it.
    They are looking at also some of their restrictions and the 
types of countries that they could invest in--upper middle 
income countries.
    There are some countries that qualify as UMIC countries and 
that is because they have a very wealthy capital and yet the 
countryside is quite poor. Those kinds of issues.
    Senator Hagerty. Yes. I was with the chairman in Uruguay. 
We had exactly this issue.
    Mr. Fernandez. Yes. That is----
    Senator Hagerty. It came up as we spoke with the President, 
who wants to do business with the United States, but our tool 
set is limited because we have been fairly prescriptive in 
terms of how it goes. I would just encourage you to find ways.
    Mr. Fernandez. Senator, if I may, that is one of the 
reasons why we have put together a budget request that provides 
for $6 billion over 5 years and long-term funding is important.
    As you know, you just do not go in once. You have got to 
have a long-term commitment to some of these projects and one 
of the items in that budget request is an infrastructure fund 
for strategic investors, investments that may not necessarily 
be commercial investments, but they are strategic and they have 
to be targeted, as well as a DFC equity fund that will allow 
the DFC to provide equity--and I do not lead that--on some of 
these projects.
    Senator Hagerty. I appreciate your continuing to look into 
that creatively. Senator Kaine was on that trip with me as well 
and I think we saw the real--a real open need there.
    I would like to turn to another issue that I think troubles 
a number of us, and that has to do with a GAO report that 
explained that CCP state-owned companies are participating in 
funding from the World Bank to do development projects from the 
World Bank, and during the period 2013-2022, the CCP secured 
roughly 30 percent of all World Bank funding.
    I have got a report here from the GAO and, Mr. Chair, I 
would like to submit it for the record, if I might.
    Senator Kaine [presiding]. Without objection.

[Editor's note.--The information referred to can be found in 
the ``Additional Material Submitted for the Record'' section at 
the end of this hearing.]

    Senator Hagerty. China uses these funds to enmesh itself 
into local economies, to gain favor, and to gain advantage. 
These projects can complement their Belt and Road Initiative.
    Funds are fungible, and I can tell you from the standpoint 
of Tennessee taxpayers, there is a deep concern that we would 
allow the Chinese Communist Party to be able to access World 
Bank funding to the level that they have been able to do it.
    Under Secretary Shambaugh, I think you probably share this 
perspective, but do you believe that the CCP and that China has 
now met the conditions to graduate from their status as a 
developing country?
    Is there something that you can do to encourage the World 
Bank to get to that place that the CCP is not able to leverage 
World Bank funds as they have?
    Mr. Shambaugh. Thank you for the question, Senator.
    First, I do share your view here and your concerns and so I 
would say on the two different issues here, first, on whether 
China should be graduated and no longer receiving MDB funding 
directly to them, we absolutely agree.
    It is something that we raised with management of MDBs. The 
amount of lending going to China is declining. They have heard 
us on this issue, but in our view it is in no way declining 
fast enough and it needs to go to zero rapidly.
    One hundred percent share your views and we communicate 
this regularly to the management of the MDBs. On the specific 
issue of procurement where Chinese SOEs are receiving a lot 
with regards to the GAO report you mentioned, this is something 
Treasury has been working very hard on.
    What we have tried to push on all of the MDBs, on the one 
hand, is more of a value-based procurement method because this 
is one we think instead of looking only at the upfront cost, 
think of the true value to the project. That is something where 
U.S.----
    Senator Hagerty. Risk-weighted value, I might add.
    Mr. Shambaugh. Exactly. The U.S. firms, European firms, do 
really well on these metrics and if the MDBs use those type of 
scoring you would see a shift here.
    We also try very hard, and this goes to having Commerce 
employees in every MDB office, to make sure they can let U.S. 
firms know where there are projects so that U.S. firms are 
bidding because I think that same report shows that when U.S. 
firms are bidding, they win quite often. They win 70 percent of 
the contracts they bid on.
    We need to do more to get our firms in the game and we need 
to change the way the game is being scored to make sure that it 
actually does bring value to these countries, gets actual value 
out of the MDB funding, and gets it done in a way that matches 
our values better.
    Senator Hagerty. I think the opportunity is squarely in 
front of us. We checked with the former executive director of 
the World Bank. She advised us that the criteria are met to 
remove the CCP as a developing nation from this World Bank 
pool. I hope you will do everything in your authority to 
achieve that.
    Thank you, Mr. Chair.
    The Chairman [presiding]. Thank you.
    Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair, and thanks to our 
witnesses. I want to focus on Latin America, following up on 
Senator Hagerty's reference to our recent trip with the 
chairman to the Americas in April.
    It is one thing to talk about Chinese investment and 
coercion or competitiveness, but we got to have something on 
the table to counter it. The 34 countries in Latin America and 
the Caribbean--the Chinese Belt and Road Initiative are making 
significant investments in 21 of the 34 countries.
    A lot of the investment are dual-use investments that could 
be both for civilian, but also for military and national 
security purposes--nuclear, power, space stations.
    The Chinese have 40 port construction or upgrading projects 
in Latin America and the Caribbean, and I just struggle to see 
what this Administration is doing in Latin America that has any 
heft to it.
    Ecuador threw out a pro-China government in 2021, and 
elected a pro-U.S. President who, within a few months after his 
election, when we visited, and he said, you do not have the big 
checkbook that China does. I get it, but just do a trade deal 
with us.
    Ecuador is the only nation on the Pacific coast, from Yukon 
to Patagonia, that did not have a trade deal with the United 
States. They said, just add us into the Columbia trade deal. Or 
you just renegotiated NAFTA into USMCA with high labor and 
environmental standards. Democrats and Republicans supported 
that--add us into that, but just show us that if you cannot 
write us a big check like the Chinese can, at least you are 
interested in a pro-U.S. ally in South America.
    We did not do it. That government has collapsed. It is 
likely to go back to a pro-China government in the elections 
that would happen between now and the end of the year.
    We had 2 and a half years to try to show this erstwhile 
ally that wanted to lean toward the United States that there 
was some value in leaning that way, and we really did nothing. 
We did nothing and we probably have lost an opportunity there.
    Uruguay, a nation that has been a strong ally of the United 
States, had to practically beg to get the President, when he 
was in the United States, to have a few minutes with President 
Biden in the Oval Office.
    If we are not willing to pay attention and be responsive to 
allies in even modest ways, well, then we can lecture people 
all we want about not accepting Chinese largesse, but it is 
hardly a persuasive position.
    I have had meetings with the U.S. trade rep asking about, 
what about trade deals in the Americas? I get told that 
politically they are a bad idea, and I--and my response was, 
well, wait a minute, you are the trade rep. Let me worry about 
politics. I am the elected official. You are the trade rep. Why 
are not we exploring trade?
    What we are doing in the Americas is the--is APEP. The 
President announced America's Partnership for Economic 
Prosperity in June of 2022. That was 13 months ago.
    We have received in my office--I am chairman of the 
Americas Subcommittee--a list of countries participating an 
initial concept, but now we are being told that the 
Administration is pivoting APEP to a new revamped approach. We 
have gotten no information on the approach. No firm agreements 
have come out of APEP, no multilateral work on specific issues, 
no announced partnerships to compare.
    The President also announced the Indo-Pacific Economic 
Framework in May 2022, 1 month before APEP, and on that 
framework we have seen multiple rounds of talks. The 
Administration has launched a Workforce Development Partnership 
and recently the countries signed an initial agreement on a 
supply chain pillar, which I think can be very helpful.
    Why are we not in our own neighborhood investing more with 
nations that are our allies and want to deepen the relationship 
and allowing China to just run roughshod?
    Mr. Fernandez. Thank you for your question.
    The Chairman. I want to thank him for the question, too, 
and I echo all of his sentiments, and I am thrilled that there 
is a colleague other than me who cares about Latin America. I 
know Senator Hagerty does as well.
    Mr. Fernandez. I care, too, a lot, Senator. I have spent a 
lifetime working on Latin America.
    Look, I will let USTR deal with the trade issue. We have 
done a number of things that I am very happy we have been able 
to accomplish with Ecuador. We are working now on a port PGII. 
We had a historic debt-for-nature swap. Obviously, we could do 
more.
    On APEP, I co-lead that with our colleagues at USTR. We 
have been talking to countries and getting input from them. We 
now have a negotiator who is in Colombia right now making sure 
that what we offer--what we are talking about is something that 
is welcome. I take your criticism, but let me just, if I may, 
just point----
    Senator Kaine. Yes, I want you to push back if I am wrong. 
I want you to tell me if I am wrong or----
    Mr. Fernandez. Let me push back slightly and I realize that 
I do that at my peril, perhaps, but if--tariffs is not what is 
keeping Latin America from growing and the private sector from 
investing.
    If tariffs were all that it took, this would not be an 
issue. Twelve of the 20 FTAs that we have are with Latin 
America. Eight of the APEP countries have FTAs already. Our 
average MFN tariffs with Latin America are less than 1 percent.
    It is not about market access. It is about corruption. It 
is about lack of transparency. It is about lack of 
infrastructure. It is about health frameworks that do not work. 
It is government instability.
    Those are the things that we are trying to work on in APEP. 
We are looking at labor rights so the--so you do not have the 
instability, so you do not have the gangs. It is talking about 
rule of law so that investors can go in.
    Those are the things that we are going to focus on 
realizing that there are other things we could do as well, but 
I----
    Senator Kaine. I want you to focus on those things, but, 
look, if China's offer is, we are not demanding any reform, 
here is some money, here is an investment and our offer is, 
yes, once we help you improve all these aspects of yourself, 
then we are open to more interaction. That is just such an 
imbalance and we will fall farther and farther and farther 
behind.
    I am going to give one bit of good news here, and I am over 
time and I am sorry for that.
    The Chairman. [Inaudible.]
    Senator Kaine. Yes. The CHIPS Act had an international 
investment fund and there was just an announcement of a U.S.-
Costa Rica partnership because there are chips manufactured in 
Costa Rica.
    Actually, the plant that closed down went to China, 
reopened, and the U.S. is partnering with Costa Rica on that. 
That is a really good thing and Costa Rica is forward-leaning 
the Alliance for Democracy and Development.
    I can see some instances where we are strategically using 
resources, but I just feel the imbalance is so significant and 
it is going to get worse and worse and worse until we decide 
that we ought to prioritize our own neighborhood and make 
investments.
    I have a hard time understanding why this Indo-Pacific 
partnership has moved out a lot faster than APEP has. I am over 
my time, but just--I am going to ask this question every time I 
have got a State Department or USAID or Administration official 
before me in this setting until I start hearing not just plans, 
but results.
    Thank you, Mr. Chair.
    The Chairman. Well, thank you, Senator Kaine.
    Mr. Secretary, I have to say, and you know I have a great 
deal of respect for you. I have supported your nominations, but 
that answer--we want all those things to happen.
    If China comes in and says, here [puts binder on table], I 
have all this to offer you, and we come in and say, here [puts 
piece of paper on table], we are going to talk about your 
structural reforms--I do not know what world in which we are 
living in, but the world in which I have served in public life 
for 50 years tells me that if I am really in tough times, this 
[taps binder] is going to be a lot more appealing to me than 
this [taps paper].
    Now, we would have a lot more power to do this [holds up 
paper] if we had a little bit more of this [taps binder], and 
that is all we are saying here. We need--you cannot--I travel 
the hemisphere. I am so embarrassed because I cannot--when I 
meet these heads of states, I cannot tell them that they are 
wrong.
    I can tell them, look, you got a problem with corruption, 
you got a problem with your economy in terms of how you are 
conducting it, whether it is command or control, whatever, but 
I cannot honestly look at them in the face and say, you have 
all of these challenges, some of which are inherited, 
particularly by democratic-leaning presidents--Lasso in 
Ecuador, the President of Uruguay, others--and say, we want you 
to share our values [picks up binder], but all we have for you 
is this [puts paper on table].
    That is just not going to work, and so we need to do a lot 
better than that. All those things you said, we want those 
things. I do not want any country to get our largesse or 
assistance who is not willing to reform when reform is needed, 
but I would be a lot more capable of getting reform done if I 
am offering something with it, and that is not just as it 
relates to proactive. It is also with our financial 
institutions.
    For example, right now we have Argentina. Argentina can go 
various different ways. They have an economic challenge at the 
moment. They got somebody who I think is doing a pretty decent 
job of trying to right the ship and meet their 
responsibilities, but we are in the midst of creating pressures 
before an election that can dictate that the end--the persons 
we end up with are adversaries instead of allies. Just an 
example of how we have the wherewithal to do much better. I 
just--I commend it to Treasury. I spoke to Under Secretary 
Adeyemo. This is one example of many that we can be doing.
    Senator Young.
    Senator Young. Thank you, Chairman. I want to thank our 
witnesses for being here at such an important hearing.
    Under Secretary Fernandez, can you identify the specific 
Australian economic action that prompted China to block imports 
of Australian beef, wine, barley, and coal in 2020?
    Mr. Fernandez. [Inaudible] identify----
    Senator Young. The specific economic action, the economic 
action that prompted China to take those actions to block 
imports from Australia in 2020.
    Mr. Fernandez. I believe that--the one that I remember, 
Senator, is asking for an investigation of the origins of 
COVID-19.
    Senator Young. That is not an economic action. What 
economic action prompted that?
    Mr. Fernandez. I would have to go back and----
    Senator Young. Relatedly, can you identify the specific 
South Korean economic action that prompted China to boycott 
Hyundai and Kia and to stifle tourism to South Korea in 2016?
    Mr. Fernandez. You are testing my history now, but I think 
it is THAADs.
    Senator Young. Yes. Also not economic in nature. That is my 
point. I am not playing a game here. I am trying to illustrate 
through these cases that Chinese economic coercion is not about 
economics. It is about weaponizing economic interdependence in 
furtherance of geopolitical aims, right--geopolitics through 
other means.
    It is a policy to systematically deter, where possible, 
governments from exercising the full scope of their 
sovereignty. It is an assault on the liberal order, more 
broadly, by a state authoritarian government bent on shaping 
the 21st century to its ends, and failure to respond and to 
deter coercion begets more coercion. I think you would probably 
agree with that.
    We must see Beijing's actions not in isolation, but as part 
of a larger plan.
    Under Secretary Fernandez, as you noted, your office leads 
the Department's efforts to understand and develop responses to 
economic coercion like those cases I mentioned.
    How have you specifically utilized the frontline 
experiences and input of our State Department's diplomats in 
developing our Department's tools to counter economic coercion 
especially in countries that have recently experienced 
coercion?
    Mr. Fernandez. Thank you for your question. This has been 
one of my priorities, Senator, building on Lithuania, but also 
looking back on the history at how we put together a toolbox in 
order to address it, going forward, because as you well point 
out, it is going to happen again.
    Senator Young. Have you sought the input of frontline 
diplomats as you focused on that?
    Mr. Fernandez. Of course. I have been in a number of the 
countries you mentioned--as well as in Lithuania. We have had 
several consultations with allies and partners in the G-7 and 
other countries as well to see what they have so that we can 
coordinate because speed and coordination is important.
    We have had tabletop exercises internally in our own 
interagency--15 agencies. We were spending a--and we will 
continue to do this--we were spending a lot of time talking to 
both our allies and partners as well as some of the victims.
    Senator Young. Well, I think that is real important--and my 
time is very limited here--so those consultations because this 
is a hydra-headed threat and it continues to evolve.
    The PRC approach is evolving of late, especially in its 
more aggressive approach towards less vulnerable countries like 
the United States--large economy countries.
    This could be described as a--their most recent approach--a 
company-specific coercion versus a country-specific coercion. 
For example, the Chinese Communist Party has recently acted 
against Micron, a company, not a country.
    Given this shift, how--since you are in charge of this 
portfolio, sir, how are U.S. practices and responses evolving 
to counter this most recent shift by the Chinese?
    Mr. Fernandez. Well, I will tell you one of the things we 
have done specifically is we have spoken to business groups all 
the time. I have--and my personal belief--my statement is that 
they cannot bank on the--well, the PRC is banking on the fact 
that foreign investors will ignore the coercion to follow the 
siren song of markets and we have seen--for example, you can 
take the counter espionage law that has been passed by the PRC 
that expands the definition of espionage and what they have 
done to put in jail some consultants on the basis of counter 
espionage.
    This is an issue. We continue to talk to them. In the case 
of Micron, we think it also may be an attempt to dissuade other 
countries.
    Senator Young. Okay.
    Mr. Fernandez. We are--and our ambassador in the PRC in 
Beijing has reached out to--has been talking to the government 
about this and we are all over this.
    Senator Young. I believe you are attempting to answer my 
question. I do not feel satisfied that you have answered it, 
Mr. Under Secretary. Number one, about the consultation, how 
that has informed your toolkit of different economic coercion 
counter measures, and then number two, how you have responded, 
based on those consultations that you alluded to, by changing 
our strategy as the Chinese Communist Party has changed their 
approach to economic coercion. I think it is really important 
that you answer those at some point in short order.
    My time is--I am over time. The only thing I would say if 
the chairman will allow is I think we need to ensure--we need 
to do our work to empower the State Department, not just 
through additional resourcing, though I understand the 
importance of that, but ensuring there is an enduring legal 
framework to counter acts of economic coercion as 
administrations change. Who knows what will happen a couple of 
years from now?
    The bill that Senator Coons and I have put forward remains 
the only working piece of legislation this body has before it 
on countering economic coercion and we hope to involve the 
chairman and ranking member and working across the committee 
either through that legislative effort or another in fairly 
short order to empower the State Department to ensure this is 
an enduring and transparent effort.
    Thank you so much, Chairman.
    Mr. Fernandez. Senator, just briefly, I very much 
appreciate your comments. Everything is on the table. We have 
been working with your team on providing some comments to that 
piece of legislation and others, and we would very much welcome 
the opportunity to continue doing that.
    The Chairman. Thank you.
    Senator Merkley.
    Senator Merkley. Thank you all for joining us. Thank you, 
Mr. Chairman.
    I wanted to start by noting that last year's defense 
authorization bill included a bill that was rolled into it, a 
bill I had advocated for to establish an interagency task force 
called the China Censorship Monitor and Action Group and that 
task force would be responsible for addressing China's 
censorship and intimidation of American companies.
    According to the law, there were milestones for setting up 
this task force. It is supposed to have been implemented by 
now. Has it been?
    Mr. Fernandez. Thank you, Senator.
    That is somewhat outside of my responsibilities at the 
State Department. I will tell you that we have 
institutionalized a new focus on transnational repression at 
the State Department to protect Uyghurs and other targeted 
communities from harassment abroad.
    Some of the things we have done is we have issued visa 
restrictions against PRC nationals involved in transnational 
repression. That is the--I can go back and get further 
information on this.
    Senator Merkley. Yes. I do so appreciate the work on 
transnational repression because I am really championing a 
massive increase in our effort. Freedom of speech is not 
freedom of speech if people are threatening to harm those you 
love abroad if you exercise your right to share opinions.
    Because this is an interagency task force, I would ask both 
of you to go back and check on it because I think understanding 
how U.S. companies are being pressured is a very important part 
of our economic life and, certainly, of the dynamic in economic 
relations with China, and now we have Congress saying you have 
a responsibility set up and focus on this and share ideas 
between the agencies and it seems like a good idea and it is 
required by law.
    If both of you could check on that and then get back to me 
and let me know. Maybe this will serve as a little spark to 
make it happen.
    Mr. Fernandez. Appreciate it. Thank you.
    Senator Merkley. Thank you. Thank you. I appreciate that.
    Regardless of that interagency action group, I hope the 
Administration will work urgently to protect U.S. businesses 
from censorship, from intimidation, from coercion so that they 
can exercise the opinions that they would like to have. Do you 
all share that opinion?
    Mr. Shambaugh. I do.
    Mr. Fernandez. Could not agree more.
    Senator Merkley. I suspected. It has been really troubling 
to see the examples of PRC's Republic, the People's Republic of 
China's suppression of free expression in the United States in 
the film industry.
    We have seen it in universities and we have seen it in a 
host of other businesses including, for example, the response 
to a tweet by the Houston Rockets executive Daryl Morey, who 
endangered the NBA's business in China.
    It is my perception that this economic coercion strategy by 
China, which is not just about the U.S.--it is about a number 
of other nations as well--is getting more aggressive and more 
frequent.
    Is that--but what have you all--what have you all seen? Is 
it getting more aggressive and more frequent and is there hope 
for us to really accentuate strategies to respond to this?
    Mr. Shambaugh. Senator, I would agree that yes, it seems to 
be more frequent and more aggressive. I do think--I would echo 
one thing that Under Secretary Fernandez said before, though, 
which is in many cases I think it is starting to backfire.
    I think when it was an isolated incident it was easy enough 
for either a country or a company to say, well, that is over 
there and I am safe where I am, but the greater the frequency 
more people look and recognize what the risks are. I think it 
is why you see more businesses try to set up their supply 
chains in ways that they could pivot if they need to very 
quickly.
    It is why you see countries talk to each other about how 
they would deal with these issues and I think it is why both 
countries and companies are taking second thoughts about how 
they engage here.
    I think it is something that as we have been talking about 
today, we need to use a whole range of tools to make both 
countries and companies less vulnerable here and be ready to 
respond when there are actions like this.
    I also think it is something that China is doing damage to 
itself and as it tries to--as it worries about its own economy 
and tries to say they are a business friendly investment place 
that wants private investment to lead the way, these types of 
actions are not helpful and I think we--all we can do is make 
sure everyone is aware of that.
    Mr. Fernandez. It is backfiring, but it is our job to push 
back against it anyway, and I would add to your list Enes 
Kanter, another basketball player who also spoke out.
    Senator Merkley. Former Trailblazer, I might note.
    Mr. Fernandez. I am sorry?
    Senator Merkley. Former Trailblazer, it is important to 
note.
    Mr. Fernandez. Former New York Knick, as well. Thank you.
    Senator Merkley. Thank you. We have before the 
Congressional Executive Commission on China invited Enes to 
testify--Enes Freedom as he renamed himself, and it is a real 
example in that case of oppression coming from Turkey.
    In terms of doing business in China, do I--I have another 
question, but I am over my time.
    In June, China placed into action a new espionage law. It 
puts greater restrictions than before on U.S. companies' 
ability to operate in China, and I reflect back on--I visited 
China just before Xi came into power and there were a group of 
10 senators that Harry Reid led--bipartisan group--and the 
conversation very much was about a lightening of restrictions 
and by that I mean reporters were saying for the first time 
they were allowed to live where they wanted.
    They did not have to have a companion with them. They could 
actually walk behind a factory and see if they were dumping 
waste directly into the river. They could report on that. More 
tolerance for labor activists to report on abuses, more 
religious freedom, especially in the southern part of China.
    Now, under the last 10 years under Xi, it has been the 
other direction and in this case a real expansion of its 
definition of espionage and further limits on U.S. businesses.
    Have we seen this kick into action yet? How much should 
U.S. businesses be concerned about this? Are individuals facing 
the potential for risk if they express themselves freely under 
the argument that it is espionage or if they travel in the 
wrong place and so forth?
    Mr. Shambaugh. Senator, I would say we have seen a handful 
of cases where it has been employed. To a large extent, I would 
say it is still an ambiguous law and it is very nontransparent 
and it has not been used in a widespread fashion yet.
    We had--when I was in China with Secretary Yellen, we had a 
number of conversations with U.S. firms to understand how it 
might be impacting them yet. I think in most cases the answer 
was they are watching.
    There are a particular number of due diligence firms and 
consulting firms that have faced negative aspects of this where 
there have been arrests or investigations. It is something that 
we raised with the Chinese directly.
    It is something we discussed with--I discussed with China's 
Ambassador when I met with him, making clear that this is not 
how a country runs a business-friendly investment environment, 
and if they say they want investment from U.S. businesses, it 
is not our policies preventing that when they do things like 
this.
    We have tried to advocate for U.S. firms and to advocate 
for why policies like this are not productive for China or 
certainly run counter to our interests and we have engaged with 
U.S. firms quite a bit to understand exactly how it is being 
employed.
    The Chairman. Thank you.
    Mr. Fernandez. The only thing I would add to what the under 
secretary just said is it is ambiguous by design. Ambiguity has 
a deterrence and that is important to keep in mind.
    I said earlier that the PRC is banking on businesses 
being--following the allure of the market and it is a huge 
marketing and they want to see what they can do there.
    We have welcomed the warnings by the Chamber of Commerce. 
They have been very vocal on this and we have welcomed that. We 
have also issued a number of travel warnings as well.
    We will continue monitoring. This is why we need to work on 
diversifying supply chains and giving alternatives, not just to 
other countries, but also to our companies.
    Senator Merkley. Thank you. Thank you both very much.
    The Chairman. Senator Duckworth.
    Senator Duckworth. Thank you, Mr. Chairman. I would like to 
thank both Under Secretary Fernandez and Under Secretary 
Shambaugh for appearing here today.
    My first question, though, is for Under Secretary 
Shambaugh. You have spoken a lot recently about the importance 
of multilateral development banks including the World Bank and 
the necessity of modernizing them and fitting them to the 
challenges of today's world.
    I do want to follow up. I know Senator Van Hollen asked 
about this as well. I am going to be going to Manila here 
during the August break--Manila, Jakarta, Bangkok. I am going 
to be meeting with Chantale Wong and she is going to walk me 
through some projects in Manila itself.
    How would you assess the current relative strength of the 
Asian Development Bank in comparison with the PRC-led Asian 
Infrastructure Investment Bank?
    What are the weaknesses of the ADB compared to the AIIB, 
and what can we do to address these weaknesses, and are there 
any opportunities for us to perhaps adjust our participation so 
that we can be more effective?
    Mr. Shambaugh. Thank you for the question, Senator. I think 
it is an extremely important one.
    The Asian Development Bank plays a really important role to 
exactly this issue we have been discussing today of making sure 
there are high standards lending options available to countries 
so that they do not turn to options that are not as high 
standards and not in their interest.
    I would say in our efforts to evolve the multilateral 
development banks, much of that work started at the World Bank, 
but a big part of what we have been trying to do over the last 
few months and certainly over the next 6 months is to push that 
work out across all the multilateral development banks.
    We think there is a huge amount of opportunity at the Asian 
Development Bank in terms of using their balance sheet more 
effectively, which would expand the amount of lending they 
could do in a way that maintains their status and their ability 
to make lends at good rates, but do quite a bit more.
    We think there is a huge opportunity to push out that work. 
We also think making it a more nimble bank to change the way 
the operational incentives functions such that they can work 
better with countries on the needs they have. They can work 
towards global challenges better.
    We think there is a lot that can be done. You mentioned 
Ambassador Wong. We think she is terrific and doing a lot of 
work there and I think there is great opportunity and I am glad 
to hear that you are going because I think it will be a 
terrific visit.
    Senator Duckworth. Are there things that are pushing folks 
towards the AIIB as opposed to the ADB? Are there restrictions 
on ADB that they--why would a nation choose one or the other?
    Maybe they are not in direct competition with each other 
and especially when you think to places like the Pacific 
Islands, Palau, Marshall Islands, those kinds of places where 
there are very few resources, are there things that sort of 
advantage AIIB or maybe push them in desperation towards AIIB?
    Mr. Shambaugh. I think the key is the last word you used 
there. It is in desperation, honestly. I think it is--in my 
experience with almost any Finance Minister I have spoken to, 
and I have spoken to a lot in the last 12 months, they would 
much rather work with us or work with the international 
financial institutions of which we are a member.
    They are better run, they are cleaner, they are 
transparent, and they are high standards and that is what they 
would like to do, and so that is why when we talk about opening 
up more headroom and more lending room at the ADB, it is so 
important because the more funding it has available at very 
good rates for countries, the more likely they are to work with 
the ADB, which is a better option for them and it is more in 
our interest as well.
    I do not think it is something specifically--I will 
actually check with Ambassador Wong and our team if we think 
there is anything that is a block for some countries on ADB 
versus AIIB, but in my experience it has probably been a 
question of opportunity, and countries need funding. Many of 
these countries are locked out of private financial markets and 
so they are looking for funding where it is and making sure 
that we have high standards lending available is crucial.
    Senator Duckworth. Thank you. My second question is for 
Under Secretary Fernandez.
    I know you are working on the Minerals Security 
Partnership, which I think will be an incredibly powerful tool 
for a more sustainable and resilient critical minerals supply 
chain.
    As of now, participation in the Minerals Security 
Partnership in the Asia Pacific region is limited to Japan and 
South Korea. How does the State Department continue to deepen 
engagement on critical minerals in the Asia Pacific region 
beyond those countries and what are the criteria for expansion 
of the MSP in the Asia Pacific?
    I have had multiple conversations with nation leaders who 
feel like their minerals are being exploited by PRC-led firms 
and they want somebody else in there, whether it is Australians 
or other partnerships, and they feel very much limited that 
there is only one country really leading the effort.
    Mr. Fernandez. Thank you for the question. The MSP has been 
a priority of mine now for--since we started it in June of last 
year. India just joined and now we have 14 countries as well as 
the European Union.
    We reach out constantly to producing countries as well. We 
have spoken to a number of countries in the region. We are 
trying to also do more with Indonesia, which has a number of 
critical minerals that will be important, going forward.
    That is--what we do is we have had meetings at the United 
Nations with a number of these countries. I have traveled to 
Africa several times. I intend to go to Indonesia within--in 
the next 6 months and part of what I will do there is talk 
about the Minerals Security Partnership. We are in constant 
contact with the producing countries because that is where the 
struggle will be won or lost.
    Senator Duckworth. Thank you. Mr. Chairman, may I ask one 
additional question or am I out of time?
    The Chairman. Please go ahead.
    Senator Duckworth. Thank you, Mr. Chairman. I just want to 
follow up on that.
    In instances where critical minerals projects might face a 
choice, again, similar to my earlier question, when there is a 
choice between pursuing support through the MSP versus pursuing 
support through Chinese investments or PRC investments, what 
are the tools that we have at our disposal to persuade them 
that it is worth following our higher transparency, 
environmental, and labor standards and how do we win that 
competition?
    Mr. Fernandez. One of our tools is our combined--the 
combined strength of the allies and partners. We started doing 
it because we found that individually we were missing out on 
opportunities.
    With the 14 countries we are--on a weekly basis we discuss 
specific projects. We discuss specific ways for our financing 
entities to cooperate, also to get our private sector involved, 
but that is also part of the reason why we have proposed a $6 
billion, 5-year that we think will be transformational--a 
budget request and one of the things that we intend to do with 
that is find critical minerals.
    We are doing it also as part of the ITSI Fund, which is 
the--where the State Department received a 5-year, $100 million 
per year. That is transformational. We can do something in the 
long term.
    We are working now, but we could do more. I can just cite 
one example. South Korea has announced that they will devote 
$1.7 billion to critical minerals through the Minerals Security 
Partnership. That is the kind of commitment that we are looking 
for from our partners and that is why we put together our 
budget request.
    Senator Duckworth. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Cardin.
    Senator Cardin. Well, let me thank both of our witnesses 
and, Mr. Chairman, thank you for conducting this hearing.
    I have traveled with the chairman to countries in our 
hemisphere that were hooked into China's debt because there is 
no other option, they thought. The reason there is no other 
option is it did not make a lot of good business sense to do 
those types of debt financing and China was doing it not for 
the economics of it, but for the leverage that it would receive 
in those countries.
    It is not unique to our hemisphere. We see it all over when 
we see how many countries China now has debt--that hold debt 
and there is a lot of misgivings by these countries and they 
are clearly being used in coercion from China to do certain 
other policies that are against our national security 
interests.
    We could talk about critical minerals and the supply chain 
challenges--the questions that you just had--but we need a 
strategy that allows us to counter the coercive practices of 
China and certain other countries that are using their minerals 
to coerce national security issues and it has got to go beyond 
just the business sense of the transaction. That is the normal 
way we judge issues.
    If we leave it just to market forces, China is going to 
win. Russia is going to win, but if we are strategic in the way 
that we counter for a level playing field, then we can make a 
difference here.
    I know that there is legislation that has been filed by my 
colleagues. I am sure it has been talked about during this 
hearing, but I just really want to underscore the importance 
for U.S. leadership here. I know EU is doing things. We should 
be in the forefront in leadership.
    Give me some sense of confidence that we understand the 
challenge that we have and that we are not just going to use 
the traditional evaluation procedures or funding procedures, 
that we recognize that we have to fight this on a more level 
playing field than is currently being given to us through our 
adversaries.
    Mr. Fernandez. Senator, thank you for the question. That--I 
could not agree with you more.
    What is our competitive strength? Our partners, the 
ability--our ability to pursue high standards and in the 
Minerals Security Partnership, to take one example, we have 
actually published what we mean by environmental, social, and 
governance standards, what we mean about working with 
communities, observing labor rights and the like, and that is 
important and we cannot engage in the race to the bottom, 
frankly, because we just will not win. We have to raise the 
standards.
    Also, we have put together a budget request that has three 
components that go exactly to what you are talking about, 
creating an international infrastructure fund to work on 
projects that may not necessarily attract private investment 
and I use the example of the Pacific Islands, a small island--
incredibly strategic, but there is no market for--but that is 
part of our request.
    We have also talked about strengthening the DFC by 
including a $2 billion equity fund that they can do for equity. 
Right now, that is their most sought after type of investment 
and it is the most expensive, and so we need to do that as 
well.
    Then the last one is to focus on the Indo-Pacific. That is 
where the competition is the hardest with the PRC, and that is 
where we are asking for an Indo-Pacific focused fund that will 
work on submarine cables, roads, ports, 5G, and the like.
    Those are the things that we are aiming for because we will 
continue pushing our values, but we have got to back that up 
with funding.
    Senator Cardin. I agree. We have to be proactive in being 
there in the first instance, but then when the PRC is taking 
punitive action against a country because of its geopolitical 
stance that is consistent with U.S. policy, we certainly do not 
want them to be intimidated by PRC.
    How do we deal with reacting to those types of negative 
stands by PRC?
    Mr. Fernandez. We actually have a--and I will not mention 
the country for obvious reasons. We actually had a couple of 
countries that have come to us recently and said, we are not 
going to allow the PRC companies to enter our country for 
whatever reason--will you--what can the U.S. do.
    Well, one of the things we have done is we have economists 
that have put together vulnerability studies to try and 
forecast what the PRC is likely to do.
    That is the kind of cooperation that we are doing with 
countries as well as, as I mentioned earlier, working on our 
toolbox in case that the economic coercion materializes.
    Senator Cardin. Thank you. Thank you, Mr. Chairman.
    The Chairman. Well, thank you, Senator Cardin.
    I just have--since we are going to close out this record, I 
want to have a couple things for the record that I would like 
to accomplish. Let me go through them as quickly as possible.
    The United States is competing against an adversary who is 
willing to mobilize significant resources in a highly 
coordinated fashion in conjunction with their own state-owned 
enterprises, and when I travel, I hear that we need to be more 
agile. We have talked about that. We need better tools, more 
resources to be successful.
    Also, far too often, partisan brinkmanship damages our 
appropriations process and prevents us from making the 
investments necessary to effectively compete with the PRC. Our 
budgeting process thwarts the strategic long-term planning that 
Beijing employs.
    The Biden administration in its FY24 budget requested $6 
billion over 5 years in mandatory funding to ``outcompete 
China.'' The vast majority of these funds would go to the 
things that members on both sides have talked about--economic 
initiatives, including a new equity fund at the DFC, and an 
international infrastructure fund at the State Department.
    Secretary Fernandez, how critical are these resources to 
effectively compete with Beijing? What details can you give us 
as it relates to the mandatory funding proposal? What type of 
initiatives would be considered?
    Mr. Fernandez. Thank you for the question. This could be 
transformative. A 5-year program can allow us to make long-term 
commitments to countries and the best example I can give you 
right now is what you have done on the ITSI Fund where we have 
received $100 million for each of the next 5 years.
    We are working on that now to support our domestic 
semiconductor industry and by working on the international 
supply chains.
    Senator Kaine just talked about Costa Rica. We also just 
announced that Panama--and I do not know if the Ambassador 
mentioned this to you, but Panama just received an ITSI Fund 
grant for the same purpose.
    Going back now to the--to our request, it is 5 years, $6 
billion for three items, creating an international 
infrastructure fund to work on projects that may not 
necessarily attract at the start, private investors, and the 
best example which I gave earlier was a--what we are trying to 
do in the Pacific Islands on infrastructure. There is no market 
really to justify this at the beginning for a private investor, 
but our funding can be the seed money that pushes that forward.
    The second one is $2 billion for the DFC. The DFC gets 
constant requests for equity, and in my discussions with other 
governments they are not looking for additional loans. They 
would like to get equity which is--as a way of derisking the 
investment. That is another $2 billion.
    Then, thirdly, for the Indo-Pacific where we are in a great 
competition with the PRC and where infrastructure and U.S. 
investment has been lacking. We are looking at, as I said 
earlier, telecommunications, submarine cables, ports, roads, 
and the like.
    That is how we compete and that, going back to our 
discussion on Latin America where you had the two choices, our 
approach--our desire through this--through this budget request 
is to bulk up that second notebook that you had because just 
values--as I said earlier at the beginning, this has already 
started in my statement, values are not enough. We have got to 
put some money on the table.
    The Chairman. Well, I appreciate your answer. I am a 
supporter because you need to have longer-term strategic 
ability to compete with the Chinese and for other purposes as 
well. We will continue to work to try to get the Senate to be 
supportive.
    Secretary Shambaugh, earlier this year I introduced the 
Taiwan Tax Agreement Act with Senators Risch, Van Hollen, and 
Romney to provide the President with the authority to negotiate 
and conclude an avoidance of double taxation agreement with 
Taipei.
    The bill demonstrates the deep respect the United States 
shows Taiwan, approaching it like some of our closest partners, 
and is consistent with long-standing U.S. policy and practice 
for concluding agreements with Taiwan under the Taiwan 
Relations Act.
    I understand that Taiwan is the only top 10 trading partner 
of the United States without a tax agreement and the U.S. is 
the only G-7 country without a tax agreement with Taiwan.
    As you know, the Senate Finance Committee has a proposal 
that would unilaterally amend the U.S. tax code and deliver, in 
my view--and I am a member of that committee as well--but in an 
unprecedented manner, some relief, but still short of a 
comprehensive tax agreement with Taiwan.
    The Taiwan Government and the U.S. and Taiwan businesses 
have been clear that a comprehensive agreement is what is 
required.
    Additionally, the Finance Committee's approach may open up 
the United States and perhaps, more significantly, to Taiwan to 
challenges under the general agreement on tariffs and trade 
related to preferential tax treatment. A tax agreement would 
avoid all of that.
    Now, I have talked to Chairman Wyden. I think we have come 
to a conclusion to work together. Will you commit to working 
with the Senate on a joint approach that would, in accordance 
with the Taiwan Relations Act, show Taiwan the same respect we 
show other trading partners?
    Mr. Shambaugh. Senator, we absolutely commit to work with 
you. We very much share your goal to make sure that firms that 
are engaged between U.S. and Taiwan are not subject to double 
taxation.
    It is an incredibly important supply chain. It is an 
incredibly important trading relationship and it is important 
that we do not have double taxation issues, and I know the 
Office of Tax Policy has already been engaged with staff in the 
Senate to deal with this.
    They have also been engaged quite a bit with their 
counterparts in Taiwan to sort through where the issues lie and 
what needs to be done and I note that they would--they will 
absolutely be working with you. We at Treasury will be working 
with you to make sure we can resolve this.
    The Chairman. I appreciate that commitment.
    Now, finally, I am increasingly of the view that the United 
States has to lead in creating an economic alliance among like-
minded countries that can provide a framework to deter and 
respond to aggression by our adversaries.
    That can include military aggression, violations of 
sovereignty, economic coercion. In addition, this cooperation 
should seek to reduce vulnerabilities by deepening economic 
ties with our partners.
    I welcomed the G-7 leaders' statement calling for the 
creation of a new coordination platform on economic coercion to 
promote cooperation within and beyond the G-7 as a first step.
    At a time when our adversaries are all too willing to 
leverage the economic dependencies and vulnerabilities of other 
nations that we have talked about here, we need to rethink how 
we work with our allies and partners in this domain.
    I am currently drafting legislation that would direct the 
Administration to create a common economic defense mechanism 
that would not only counter economic coercion, but would build 
supply chain resilience with key allies, coordinate sanctions 
in response to military aggression and other destabilizing 
behaviors, as well as promote strong export controls with like-
minded partners and protect critical technologies and 
resources.
    I view this as a tool for democracies to collectively deter 
and respond to acts of aggression or coercion that is short of 
military action, but amplifies our effectiveness to a 
coordinated response--in essence, an Article 4 type provision 
of NATO, but an economic context, which I think can be 
extraordinarily powerful.
    Do you think that a coordinated mechanism of this type 
would enhance the U.S.' and our partners' ability to deter and 
respond to actions of our adversaries?
    Mr. Shambaugh. Senator, I can say that I would be happy to 
look into the specific mechanism you have in mind. I can tell 
you that these are issues we are deeply engaged in already 
because we agree that--I 100 percent agree with your sentiment 
here that this is an important issue.
    As I mentioned earlier, the finance ministers within the G-
7, as you mentioned, the leaders within the G-7, the finance 
ministers within the Five Eyes countries who can share 
intelligence, are actively engaged in sharing analysis and 
working together to think through how we would act both in 
terms of reducing vulnerability, as you say, for ourselves and 
our partners and also being ready to act, but happy to look 
into it, and I do not know if Under Secretary Fernandez has 
more.
    Mr. Fernandez. Thank you. Look, we welcome very much 
attention to this issue and we are engaged with your team on 
this and we very much welcome the ability and we look forward 
to doing so.
    A couple of nuances to keep in mind, Senator. Article 5 is 
a self-defense mechanism to deter or to respond to military 
aggression. As I mentioned earlier, economic coercion tends to 
be a lot more obtuse, obfuscated, so we got to keep those 
differences in mind, but absolutely, coordinating internally 
within the USG with our partners and allies and looking at this 
issue is something that we are very much interested in pursuing 
because, as I said earlier, it is going to happen again.
    The Chairman. I appreciate that. I think we could all agree 
that what the People's Republic of China did to Lithuania was 
economic coercion. I do not think we would have a problem 
coming together and saying there needed to be a response to 
that.
    We did. I was one of those who was urging the 
Administration early-on that needs--you need to have a response 
here because otherwise the message will be to others: do not 
stand up to the Chinese.
    That is an example of where, of course, you have to make a 
factual determination as to whether coercion has taken place, 
but there are plenty of examples where the coercion is so 
crystal clear that it would not take a lot to invoke such a 
provision. I will look forward to working with both departments 
on that.
    Let me close by saying two-thirds of the members of this 
committee have appeared at this hearing. That is a rarity. We 
get 10 percent. Sometimes we get half and we go ``woo-hoo.'' 
Two-thirds have appeared here, which just goes to speak to the 
importance that members on a bipartisan basis think about this 
issue.
    We look forward to working with you and engaging you as we 
proceed.
    Let me thank our witnesses for appearing before the 
committee. The record for this hearing will remain open until 
the close of business on Friday, July 28, of this year. Please 
ensure that questions for the record are submitted no later 
than that day.
    With the thanks of the committee, this hearing is 
adjourned.
    [Whereupon, at 12:01 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


             Responses of Mr. Jose Fernandez to Questions 
                  Submitted by Senator Robert Menendez

    Question. U/S Fernandez, can you provide us a progress update on 
the PGII work? Are there any new authorities or resources you believe 
you need in order to ensure its continued success?

    Answer. The PGII Coordinator's Office (S/PGII) is focused on 
building out the economic corridor approach by strategically targeting 
and aligning U.S. and G7+ investments and looking for opportunities for 
private sector engagement. PGII's flagship investment is the 
development of the Lobito Corridor--a corridor initially consisting of 
Angola, the Democratic Republic of Congo (DRC) and Zambia to better 
connect the copper and cobalt region to the west. Work is ongoing to 
identify similar corridors in PGII priority areas: the Western 
Hemisphere and the Indo-Pacific.
    The additional resources needed to accomplish the goals of PGII are 
contained within the 2024 budget request. I welcome your support and 
advocacy for fulfilling that request.

    Question. How will the Administration's $2 billion mandatory 
funding request for an ``International Infrastructure Fund'' aid the 
work of the State Department in distinguishing the United States as the 
global infrastructure partner of choice?

    Answer. The International Infrastructure Fund (IIF) would allow the 
United States to provide credible, reliable alternatives to out-compete 
the People's Republic of China (PRC), while also expanding 
opportunities for U.S. businesses in strategically important countries, 
particularly in the Indo-Pacific and the Global South. The IIF will 
align with U.S. national security interests to secure clean energy 
supply chains, including critical minerals, trusted information and 
communications technology networks, and critical infrastructure with a 
focus on ports and railroads.
     The IIF will foster effective and transparent procurement 
processes, reduce predatory credit financing, and leverage private 
sector entities and likeminded partners to advance projects aligned 
with strategic priorities. It will also strengthen enabling 
environments, including through policy and regulatory reforms, to 
ensure resilient economic growth.

    Question. What has the Mineral Security Partnership done to counter 
Beijing's predatory practices on critical minerals and advance more 
U.S.-led mineral security partnerships?

    Answer. The Minerals Security Partnership (MSP) is a collection of 
14 like-minded partners that aims to catalyze public- and private-
sector investment in strategic mining, processing, and recycling 
projects that promote diversification of critical mineral supply 
chains, which are vital to the U.S. economy and U.S. national security. 
By leveraging U.S. private sector innovation and the United States' 
global partnerships, the MSP aims to support more responsible and 
better diversified critical minerals projects abroad and at home that 
can support the future energy needs of the U.S. economy.
    Historically, PRC extractive industry business models have turned 
into bad deals for landowners, governments, mine workers, and the 
communities surrounding PRC-owned mines. The Minerals Security 
Partnership (MSP) presents a different value proposition by supporting 
projects along the entire mineral value chain--including extraction, 
processing, and recycling--through financing, promoting high standards 
for responsible mining and processing, and engaging project operators 
and governments to champion projects that benefit all involved. This 
should give more options to countries hosting these resources.

    Question. Are there any new authorities or resources you believe 
you need in order to more effectively secure critical mineral supply 
chains?

    Answer. Funds requested for FY 2024 for the State Department would 
enable improved coordination and integration of U.S. Government 
investments into our international engagement strategy, allowing State 
to leverage the full diplomatic benefits of investments made by EXIM, 
DFC, USTDA and other agencies and encourage our like-minded partners to 
match our investments overseas. I support funding for a new Department 
of State and USAID climate and critical minerals initiative. This 
initiative was included in the President's Budget for Fiscal Year 
2024--which also requests additional staffing resources for the Bureau 
of Energy Resources to address critical minerals policy and additional 
assistance funds to secure resilient and transparent mineral supply 
chains for the just and clean energy transition.
    We also support increasing EXIM's and DFC's ability to support 
projects by providing more resources and reforming restrictive rules. 
For example, we support raising EXIM's default rate cap temporarily 
from 2 percent to 4 percent to provide greater flexibility, as 
requested in the President's FY 2024 budget, while DFC's equity 
investment capabilities can be expanded through a $2 billion revolving 
fund as proposed in the President's Out Compete China Proposal. 
Additional funding could include provisions that cut down on multiyear 
lead times for DFC and other financing mechanisms. Excessively long 
latency periods from project initiation to completion undercuts our 
ability to outcompete the PRC and build alternative supply chains.

    Question. Can you please lay out the specific steps you and the 
Administration are taking under the CHIPS Act and ITSI Fund to advance 
nearshoring in the Western Hemisphere?

    Answer. The Department identified the Americas as a priority region 
to diversify and secure the global semiconductor ecosystem, namely in 
the ``downstream'' or assembly, testing, and packaging (ATP) areas of 
the supply chain. After review, Panama and Costa Rica have been 
identified as partner countries for ITSI-funded capacity building/
technical assistance programs to improve regulatory frameworks and 
address workforce development needs. The Department is currently 
reviewing the possibility of expanding programming to additional 
partner countries in the Americas.
    The Department has recently notified Congress of its plans to 
engage with capacity-building programming to enhance Costa Rica and 
Panama's export controls and related technology protection instruments. 
This program is expected to begin in fiscal year 2024 and will ensure 
that we close any loopholes that our competitors may exploit to gain 
access to technology.
    We have heard from partners in the Western Hemisphere that they are 
interested in cultivating a semiconductor ecosystem, but lack industry 
contacts. To address this issue, the Department launched an OECD-led 
International Coordination Project with 29 economies to build data-
sharing coordination platforms and collaborate on industrial policies, 
including with Mexico, Colombia, Canada, Chile, and Costa Rica. This 
initiative will also include industry and academia. This project will 
reduce barriers to expand the semiconductor industry within the region.
    ITSI will also help partners harness the benefits of a vibrant 
digital economy underpinned by secure and trustworthy ICT 
infrastructure and services. The Department's engagement with Costa 
Rican authorities, for example, is expected to deliver a transparent 
regulatory framework as the foundation from which sustainable cross-
sectoral growth can develop.

    Question. Since the passage of the CHIPS Act, what are the major 
challenges hindering such efforts, and how can the United States better 
partner with governments in Latin America and the Caribbean, as well as 
multilateral development banks and the private sector, to advance these 
goals?

    Answer. Industry identified significant regulatory inefficiencies, 
such as duplications and long review and approval times, and a lack of 
sufficiently trained workforce as two semiconductor industry-specific 
impediments to expansion. ITSI programs in partner countries should 
address hurdles and streamline regulatory processes and build a 
sufficient workforce to enable expansion in the Americas. Industry also 
identified corruption, insufficient infrastructure, mismatched 
implementation timelines, disconnects between regional and central 
governments' policy commitment and priorities, and basic security as 
problematic.
    Additionally, meeting the requirements to obtain loans from 
multilateral banks can be a long, cumbersome, and complex process. 
Considerable costs for due diligence and legal and regulatory guidance 
increase the cost of investments and reduce the rate of return. In 
smaller markets, these up-front costs may render investment 
unattractive.
                                 ______
                                 

              Responses of Mr. Jay Shambaugh to Questions 
                  Submitted by Senator Robert Menendez

    Question. G20 COMMON FRAMEWORK: Zambia was the first country to 
default on its foreign loans during the pandemic. Roughly a third of 
its debt is owed to the PRC, which has long pursued debt restructuring 
through opaque deals and processes. In June, Zambia reached an 
agreement with its official creditors under the G20's Common 
Framework--including Beijing--to restructure its debt and restore long-
term sustainability. Do you view the PRC's role in Zambia's debt 
restructuring as constructive or an obstacle? What lessons have we 
learned from Zambia's experience that can be used in the future?

    Answer. We welcome the agreement reached by the official bilateral 
creditors, including China, to provide a debt treatment for Zambia. We 
hope that private sector creditors will finalize their negotiations 
with Zambia and reach a deal within IMF parameters and one that is 
comparable to the official bilateral creditors as soon as possible. A 
key lesson from the Zambia experience is that getting all bilateral 
creditors, including China, to contribute to debt treatment on a 
comparable basis is critical to achieving a fair outcome. However, it 
has been a very lengthy process and we should seek to learn from 
experiences to move faster in the future. We will continue to push for 
comprehensive and fair outcomes in future debt restructuring cases.

    Question. What is the United States doing to engage with Beijing 
more generally on issuing, restructuring, and relieving debt for other 
developing countries?

    Answer. Our top priority is to conclude the pending debt 
restructurings as quickly as possible to help debtor countries avoid 
unnecessary suffering and hardship due to unacceptable delays in their 
debt restructuring processes. Our direct engagement with our Chinese 
counterparts and coordinated efforts with our international partners 
have led recently to progress on outstanding debt restructuring cases. 
Most notably, China agreed on a debt treatment with the other bilateral 
creditors for Zambia and we are working closely with China and other 
creditors to complete the restructuring with the private sector. China 
has also committed to provide debt treatments for Ghana and Sri Lanka. 
We will continue to engage China directly and indirectly via 
coordinated pressure with our allies to push it to complete the 
remaining restructuring cases. Regarding multilateral forums, the 
United States pushes on this issue consistently at the G20 and within 
the IMF/World Bank-led Global Sovereign Debt Roundtable, alongside G7 
partners as well as emerging markets that agree the restructurings are 
moving too slowly.

    Question. Beyond helping countries pursue restructuring, what tools 
does the U.S. have to support countries in investigating, disputing, 
and mitigating the effects of debt incurred under opaque and damaging 
circumstances?

    Answer. The antidote to opaque and damaging loan contracts is 
strong debt transparency and management by the borrowers. The U.S. 
supports borrower countries in these efforts via bilateral assistance, 
including through the Treasury's Office of Technical Assistance (OTA), 
which helps borrowers strengthen the institutional, legal, and 
regulatory frameworks that enable robust debt transparency. Other 
available tools include the technical assistance and policy advice 
offered by the international financial institutions (IFIs), which help 
anchor borrower countries' reforms in these areas. The technical 
assistance provided by OTA is meant to serve as a complement to that 
provided by the IFIs to reinforce and close the remaining gaps in the 
support provided by IFIs.

    Question. AFRICAN DEBT CRISIS: Undersecretary Shambaugh, in April 
you stated that Treasury's immediate priority is to resolve pending 
requests from Ghana and Ethiopia under the G20 Framework. What is 
Treasury doing to ensure productive debt relief processes for these 
countries? How are we working with allies and partners, including the 
Paris Club, to push the PRC to participate in these negotiations fully 
and transparently?

    Answer. Treasury engaged heavily with our international partners, 
including the IMF, G7 allies, and Paris Club creditors, to press China 
to make a joint commitment with the other bilateral creditors to 
provide a debt treatment for Ghana. This joint commitment, successfully 
negotiated in May, allowed the IMF to move forward with approving a 
program for Ghana. Treasury also succeeded in compelling all bilateral 
creditors, including China, to form an official creditor committee 
(OCC) for Ghana and develop a debt treatment so that Ghana's IMF 
program can continue. As a creditor to Ghana, the United States will 
continue to push for completion of a timely and comprehensive debt 
treatment for Ghana through our active participation in Ghana's OCC 
meetings.
    While the United States is not a creditor to Ethiopia, we are 
pressing in the IMF, Paris Club, and G20 channels for progress on 
comprehensive and timely debt treatment for Ethiopia. Ethiopian 
authorities are in discussions with the IMF on a macroeconomic 
framework and debt sustainability analysis that could underpin both 
debt relief negotiations and an eventual IMF program.

    Question. The Secretary of State recently determined that Ethiopia 
is no longer engaging in a pattern of gross violations of human rights, 
paving the way for the United States to support IFI lending to the 
country. Yet the human rights situation across Ethiopia remains dire, 
and the government is alleged to have participated in the mass 
diversion of American food aid. I would add that Ghana's parliament is 
working to pass extremely harsh anti-LGBTQI legislation. How should we 
think about supporting debt relief for countries that engage in 
activities that are at odds with our values?

    Answer. The United States has various tools it can employ in 
support of multiple policy objectives in countries such as Ethiopia and 
Ghana. While we unequivocally support the promotion of human rights and 
LGBTQI+ inclusion, we do not view withholding U.S. support for debt 
relief as an effective or appropriate tool to achieve our human rights 
or food aid reform objectives in Ethiopia, nor to achieve our LGBTQI+ 
inclusion objectives in Ghana. U.S. support for debt relief is aimed 
primarily at our goals of promoting transparent, sustainable levels of 
debt to support inclusive growth in developing countries such as 
Ethiopia and Ghana, and of ensuring that official creditors, including 
China, as well as private sector creditors contribute fairly and 
expeditiously to relieve countries of unsustainable debt. We also note 
that withholding support for debt relief risks imposing further 
hardship on the people in these countries.

    Question. U.S. LEADERSHIP AT THE IFIS: I commend the Biden 
administration's efforts to rebuild American participation and 
influence in international financial institutions and multilateral 
development banks, including pushing for these organizations to evolve 
to meet the challenges of the 21st century. However, I believe more can 
and should be done to advance and secure these institutions against our 
adversaries' efforts to co-opt them or undermine them with poorly 
governed alternatives. U/S Shambaugh, how is the Administration 
leveraging the United States' influence at the international financial 
institutions to reform them and make better able to build prosperity, 
increase resilience, and counter efforts to weaken standards and norms?

    Answer. The United States is bolstering our leadership in the 
multilateral system, including in the IFIs. We see the IMF and 
multilateral development banks as providing critical sources of 
alternative financing to opaque Chinese overseas lending to help end 
poverty, boost inclusive and sustainable economic growth, and tackle 
global challenges. They are also key to helping countries improve debt 
transparency and management, and the IMF plays an instrumental role in 
pushing forward debt restructuring cases.
    Through U.S. leadership, the MDBs, starting with the World Bank, 
are implementing a comprehensive series of reforms that to evolve their 
mission, incentives structures, operational approach, and financial 
capacity to deepen to incorporate work on global challenges as a 
critical part of deepening their impact on reducing poverty and 
boosting sustainable, inclusive growth.
    Strong U.S. leadership at these institutions requires meeting our 
financial obligations to the institutions, putting in new resources, 
and having confirmed Executive Directors. We are pursuing an increase 
in IMF quotas that will lock in the voting share of the United States 
and our allies with no dilution, which will help to maintain our 
leadership at the institution into the future. We also seek an 
authorization to lend up to $21 billion to the Poverty Reduction and 
Growth Trust (PRGT), which provides low-income and vulnerable countries 
with concessional financing in the context of IMF programs focused on 
sound economic reforms. We are pleased to have nominated and selected 
Ajay Banga for the World Bank this year and to have supported Ilan 
Goldfajn at the Inter-American Development Bank at the end of last 
year.

    Question. RECENT IMF LOANS: We saw the COVID-19 pandemic and 
Russia's war of aggression in Ukraine exacerbate debt crises and create 
more unsustainable debt for low-income nations, with many turning to 
the International Monetary Fund as the lender of last resort. Recently, 
Ghana, Sri Lanka, and Pakistan were all approved for $3 billion 
arrangements with the IMF to help alleviate their economic crises. U/S 
Shambaugh, how is the Treasury Department thinking about the current 
debt risk in the developing world? Is there a concern that the impacts 
of these recent crises could spillover and become a larger contagion?

    Answer. Elevated debt vulnerabilities among developing and emerging 
market economies remain concerning, and Treasury continues to monitor 
these risks closely. However, as of now, we do not foresee any material 
risk of a systemic debt crisis. Debt crises continue to be contained 
among borrower countries where debt vulnerabilities have been years in 
the making. As the countries in debt distress have limited connections 
to the global financial system, the risk of a larger contagion is 
likely to continue to remain small. This does not make the individual 
cases any less important for the countries themselves and their 
populations, but the risk of broader contagion appears to be contained.
                                 ______
                                 

             Responses of Mr. Jose Fernandez to Questions 
                  Submitted by Senator James E. Risch

    Question. What are the likely ways the PRC could inflict economic 
coercion on Taiwan in an attempt to take control of it or as a 
precursor to aggression?

    Answer. The PRC has in the past restricted Taiwanese imports to the 
Chinese market, such as last year's restrictions on citrus fruits and 
fish imports, and occasionally its own exports to Taiwan, such as 
cutting off supply of natural sand to Taiwan as a reaction to House 
Speaker Nancy Pelosi's August 2022 visit. The Administration is working 
with likeminded allies and partners and engaging with Congress on the 
use of our existing tools and to consider developing new ones as needed 
to deter and counter the use of coercive economic measures.

    Question. How are the United States and Taiwan cooperating today to 
strengthen Taiwan's resilience to PRC economic coercion?

    Answer. Under Secretary for Economic Growth, Energy, and the 
Environment Jose W. Fernandez is leading efforts with Taiwan via the 
U.S.-Taiwan Economic Prosperity Partnership Dialogue (EPPD) to enhance 
coordination to counter economic coercion and strengthen Taiwan and 
U.S. supply chain resilience, under the auspices of the American 
Institute in Taiwan and the Taipei Economic and Cultural Representative 
Office in the United States.

    Question. Several U.S. businesses, including Micron and Bain, have 
been subjected to various coercive campaigns from China. How is State 
engaging with these companies, and how are these experiences shaping 
the U.S. Government's responses to economic coercion?

    Answer. We are concerned about what appears to be an emerging 
pattern of PRC actions involving U.S. and foreign companies that 
undercuts Beijing's narrative of a welcoming environment for foreign 
investment, open trade, and rules-based market activity. State 
routinely engages with firms to better understand the market impact of 
PRC actions, including both their short-term and long-term 
implications.

    Question. Several U.S. businesses, including Micron and Bain, have 
been subjected to various coercive campaigns from China. What are your 
thoughts regarding the European Union's recently approved ``Anti-
Coercion Instrument'' (ACI)? What lessons can the U.S. learn from the 
ACI?

    Answer. The Department and EU External Action Service (EEAS) have 
collaborated under the U.S.-EU China Dialogue to strengthen assessment, 
preparedness, resilience, deterrence, and responses to economic 
coercion. The progress the EU has made to advance the Anti-Coercion 
Instrument (ACI) is notable and the Department will continue evaluating 
that tool as our European partners work to finalize and implement it. 
In parallel, we will continue to work with the EU to strengthen 
responses to economic coercion against other partners, as agreed at the 
G7 Summit in Hiroshima on 19-21 May.

    Question. How does the Department currently apply the 
Administration's International Energy Engagement Guidance in Europe? 
Does this differ from how you apply it in other parts of the world?

    Answer. The goal of the International Energy Engagement Guidance is 
to refocus U.S. Government support to cleaner, resilient, and reliable 
low-emissions energy projects around the world. This shift is not only 
critical for increasing investment to address the climate crisis, but 
to improve countries' abilities to participate in energy markets of the 
future. In some cases where low-carbon options are unavailable, 
engagement on a carbon-intensive energy project may still be necessary 
to advance U.S. international energy policy goals. The process for 
evaluating those exemptions is consistent across regions, but the 
regional context impacts the assessment.
    Our policy supports Europe's energy security by reducing dependence 
on Russian energy sources, including by accelerating the clean energy 
transition and supporting increased U.S. energy exports to Europe. This 
is reflected in implementation of the guidance, the application of 
which is consistent across the world, while recognizing that specific 
use-cases will require a tailored approach consistent with the EEG.

    Question. Which countries globally have requested U.S. assistance, 
dialogue, or other support with natural gas development, market 
development, technology, or other areas? What has the U.S. done in 
response to those requests? Please be specific.

    Answer. The Department of State continues to provide U.S. 
assistance, dialogue, and support to countries transitioning their 
energy sectors and seeking to take advantage of clean energy 
technologies as well as carbon management and methane abatement to 
reduce the negative impacts of fossil sources. The support is provided 
in areas where the U.S. Government has technical and financial 
expertise and ability, and where U.S. private sector entities are 
developing international preeminence. The Interim International Energy 
Engagement Guidance is designed to support projects that advance 
decarbonization, but includes specific exemptions for engagements in 
which geostrategic considerations or lack of alternatives due to energy 
access barriers merit consideration. The existence of clean energy 
alternatives varies by country.
    In March 2022, the United States and the EU announced a joint task 
force on energy security that includes targets for U.S. LNG exports to 
Europe in order to assist European states rapidly ending dependence on 
Russian natural gas. The Task Force further prioritizes U.S.-EU 
cooperation to accelerate clean and renewable energy sources, such as 
offshore wind and clean hydrogen, as well as technologies and measures 
that reduce energy demand and increase energy efficiency in order to 
accelerate the clean energy transition.
    The Department of State is working hard to increase clean energy 
options in developing markets through programs such as the Clean Energy 
Demand Initiative and working with other U.S. Government agencies on 
Just Energy Transition Partnerships. For example, in the Philippines, 
the Department of State and the U.S. Agency for International 
Development are working with the Philippines Department of Energy to 
get U.S. companies to invest in clean energy development and 
procurement for their suppliers. The Department continues to provide 
diplomatic support to U.S. companies to ensure they get fair access and 
treatment in their procurement efforts across the world and across the 
energy space.

    Question. How many requests to work on ``carbon-intensive'' 
international energy engagements have been submitted to the Department 
of State? How many have been approved? How many have been disapproved, 
and on what ground?

    Answer. The Department of State does not fund infrastructure 
projects and engages on technical assistance efforts that improve 
governance and procurement practices. Therefore, most cases rest with 
other agencies. Since the implementation of the Interim International 
Energy Engagement Guidance in November 2021, the Department of State 
has formally received only one exemption request, which is currently 
under review and deliberation. Many of the questions we receive include 
identifying opportunities and U.S. companies in the clean energy space 
that can compete in government tenders around the world.
                                 ______
                                 

              Responses of Mr. Jay Shambaugh to Questions 
                  Submitted by Senator James E. Risch

    Question. TAIWAN: What are the likely ways the PRC could inflict 
economic coercion on Taiwan in an attempt to take control of it or as a 
precursor to aggression?

    Answer. Taiwan's significant economic relationship with the PRC 
makes it challenging to identify precise methods of future economic 
coercion. Mainland China is Taiwan's largest trading partner, 
accounting for over one-third of Taiwan's exports and approximately 
one-fifth of Taiwan's imports in the first half of 2023. In the past, 
they have used trade restrictions and other, covert methods against 
Taiwan. For example, following then-Speaker Nancy Pelosi's visit to 
Taiwan last August, China suspended imports of certain types of fish 
and citrus fruits from Taiwan and cut exports of sand to the island. In 
April 2023, the PRC announced a probe into Taiwan's import restrictions 
on 2,455 products. In December 2023 and prior to Taiwan's January 2024 
elections, the PRC announced their determination that Taiwan imposed 
unfair trade barriers and responded by raising tariffs on imports of 12 
Taiwanese chemical goods.

    Question. How are the United States and Taiwan cooperating today to 
strengthen Taiwan's resilience to PRC economic coercion?

    Answer. The United States remains committed to increasing Taiwan's 
resilience to economic coercion. The American Institute in Taiwan and 
the Taipei Economic and Cultural Representative Office in the United 
States last year signed the first agreement of the U.S.-Taiwan 
Initiative on 21st Century Trade, which is intended to strengthen and 
deepen the bilateral trade relationship. The first agreement creates 
more transparent and streamlined regulatory procedures that can 
facilitate investment and economic opportunities in both markets, 
particularly for small- and medium-sized enterprises, which constitute 
the majority of businesses in the United States and Taiwan. USTR 
continues to lead negotiations on additional trade areas under the 
initiative's negotiating mandate, including most recently from August 
14-18, 2023, where representatives from the United States and Taiwan 
exchanged views on proposed texts covering agriculture, labor, and the 
environment.
    The IRA and CHIPS Acts provide additional opportunities for 
Taiwanese businesses to invest in the United States, rather than the 
PRC. The United States can also provide technical assistance to promote 
cybersecurity and operational resilience for broader economic 
resilience efforts. And, as you know, the Treasury Department continues 
to engage with other federal agencies, Congressional staff, and 
counterparts in Taiwan to develop a method to effectively address 
double taxation concerns raised by businesses in both the United States 
and Taiwan.

    Question. PREDATORY LENDING: Treasury estimates that 44 countries 
owe debt equivalent to more than 10 percent of their GDP to Chinese 
lenders. What steps are we taking to increase transparency and curb 
this predatory lending?

    Answer. Enhancing debt transparency is a top priority for the U.S. 
Treasury. We continue to push both debtors and creditors to make 
meaningful improvements to their transparency efforts in the 
international fora, including notably at the IMF, World Bank, G7, and 
G20. We have been pressing the IMF and World Bank to strengthen their 
surveillance of non-traditional debt instruments that have emerged from 
non-Paris Club creditors, including China, over the past decade. We 
also have been pushing the IMF and World Bank to strengthen their 
conditionalities on debt transparency and management as part of the 
financial support they provide to their members. In the G7 and G20, we 
continue to urge creditors newer to the multilateral debt restructuring 
process, including China, to act as responsible lenders by adopting and 
implementing best practices on transparent and sustainable financing.
    We also need to provide countries with a high-quality alternative 
through the international financial institutions. That is why we 
continue to seek Congressional authorization to lend to the Poverty 
Reduction and Growth Trust (PRGT), which provides low-income and 
vulnerable countries with concessional financing in the context of IMF 
programs focused on sound economic reforms and promoting debt 
sustainability. The Administration's request to boost concessional 
financing at the World Bank is another strong example where our 
policies and budget can impact the availability of high standards 
lending.

    Question. Is the Common Framework working? If not, what can we do 
better?

    Answer. Treasury is working with creditors, debtors, and 
international financial institutions to provide timely and 
comprehensive debt treatments together with other official bilateral 
creditors under the G20 Common Framework. Our top priority is to 
conclude the pending debt restructurings as quickly as possible, in a 
fair, comprehensive, and transparent manner as well as to help debtor 
countries avoid unnecessary suffering and hardship due to unacceptable 
delays in their debt restructuring processes.
    Our coordinated efforts with our international partners have led 
recently to progress on outstanding debt restructuring cases. In June, 
the official creditor committee announced an agreement on a debt 
treatment for Zambia under the G20 Common Framework and is working with 
Zambia to finalize its restructuring with other creditors. 
Additionally, in both the cases of Ghana and Sri Lanka, China agreed to 
join official bilateral creditors in providing the financing assurances 
needed for approval of their IMF programs.
    However, the Common Framework cases are progressing too slowly. It 
will be important for the international community to build on the 
positive momentum by maintaining pressure on China to deliver on the 
commitments it made to provide timely debt relief, as China often slows 
down the pace of discussions. China is often the largest official 
bilateral creditor in debt restructuring cases. Without China's full 
participation, debtor countries face the risk of receiving only a 
partial debt treatment that would not durably address their debt 
sustainability challenges. This would also impair the debtor country's 
future development and growth prospects by perpetuating the uncertainty 
around the debtor's restructuring process. We are using the G20, the 
Global Sovereign Debt Roundtable, our engagements at the Paris Club, as 
well as bilateral engagement with China to try to speed up the 
resolution of cases in the Common Framework.

    Question. TREASURY ATTACHES: How does the Treasury Department 
determine which countries and posts get Treasury attaches and which do 
not?
    The Treasury attache position currently in place at the U.S. 
Embassy in Bern, Switzerland, is set to terminate at the end of fiscal 
year 2023. Switzerland has been cited as a nation of concern for money 
laundering and evasion of sanctions against the Russian Federation. I 
recently sent a letter with Chairman Menendez to Secretaries Yellen and 
Blinken outlining my surprise that this was not already a permanent 
position given Switzerland's outsized importance in the trade and 
financial sectors, as well as my concern about the prospect of losing 
this position at such a critical time.

    Answer. Treasury finds great value in its attache program and works 
hard to make smart decisions about how to deploy its limited resources 
as each individual attache post costs, on average, $777,000 per year, 
including personnel and non-personnel expenses. The Treasury attache 
program is designed to serve the Offices of International Affairs and 
the Terrorism and Financial Intelligence, which jointly manage the 
program. While many positions have been long established and remain of 
great value to Treasury and to our State Department colleagues, when 
the Department is evaluating where to move or add a position, a variety 
of factors are taken into account including but not limited to: where 
the foreign counterpart is of particular strategic interest; areas 
where Treasury senior official engagement is high; and post-crisis 
environments with high priority Treasury engagement.

    Question. Why has Switzerland not made that list prior to this 
fiscal year?

    Answer. The choice of where to place an attache is a deliberate 
process that considers a number of factors. While certain national 
security priorities in FY 2023 led Treasury to establish a temporary, 
TFI funded, position in Bern during FY 2023, that position was tied to 
funding that has expired and there are no plans to permanently fund a 
position in Bern.

    Question. Does Treasury consult with the State Department Sanctions 
Coordinator on these decisions?

    Answer. The selection of where Treasury attaches are placed is 
coordinated within Treasury between IA and TFI, and between the 
Treasury and State Departments per a memorandum of understanding 
between those departments governing the attache program. TFI is in 
close coordination with the Office of the Sanctions Coordinator on the 
full range of sanctions issues.

    Question. Given the concern about Switzerland's policies on 
sanctions enforcement, and particularly their potential impact on the 
Russia sanctions regime write large, is Treasury recalibrating its 
thinking on keeping an attache in Bern and permanently funding the 
position, at least for the foreseeable future?

    Answer. The Office of Terrorism and Financial Intelligence 
established a position in Bern with funding from the Ukraine 
Supplemental for FY 2023. That funding expired at the end of FY 2023. 
There are no plans to permanently fund a position in Bern.

    Question. If and when the Administration will need to send 
additional supplemental budget requests for Ukraine to Congress, for 
fiscal year 2024, is Treasury planning to include funding for this 
position for the remainder of fiscal year 2024?

    Answer. Treasury has not received any funding from a Ukraine 
Supplemental or otherwise that would support the permanent 
establishment of a position in Bern. The Ukraine Supplemental funding 
with which the TFI established a position in Bern during FY 2023 
expired at the end of FY 2023. There are no plans to permanently fund a 
position in Bern.

    Question. Will you commit to look into ways that Treasury or the 
State Department could permanently fund this position?

    Answer. The Treasury Department has a deliberate process for 
selecting the posts to which it assigns its very limited personnel as 
attaches, and this selection process includes consultations between 
both the Offices of International Affairs and TFI to determine where 
the Department can have the most impact from its investments of money 
and personnel in the program.

    Question. Will you commit to consulting with the State Department 
Sanctions Coordinator on placement of attaches in the future to ensure 
these positions are placed in countries and posts where their utility 
to U.S. foreign policy would be maximized?

    Answer. The selection of where Treasury attaches are placed is 
coordinated within Treasury between IA and TFI, and between the 
Treasury and State Departments per a memorandum of understanding 
between those departments governing the attache program.

  Letter to President Biden From Senator Risch and Senator Cantwell, 
  Dated May 19, 2022, Concerning Pursuing a Trade Agenda in the Indo-
                                Pacific

                                Submitted by Senator James E. Risch
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


              GAO Report, Dated May 2023, Concerning the 
                 World Bank Borrowers' Contract Awards

                                  Submitted by Senator Bill Hagerty
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


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