[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

THE U.S.-CHINA ECONOMIC RELATIONSHIP
=======================================================================

HEARING

before the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

OCTOBER 25, 2011

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Serial No. 112-17

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Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

DAVE CAMP, Michigan, Chairman

WALLY HERGER, California SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas CHARLES B. RANGEL, New York
KEVIN BRADY, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky XAVIER BECERRA, California
DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, JR., Louisiana MIKE THOMPSON, California
PETER J. ROSKAM, Illinois JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania EARL BLUMENAUER, Oregon
TOM PRICE, Georgia RON KIND, Wisconsin
VERN BUCHANAN, Florida BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

Jon Traub, Staff Director

Janice Mays, Minority Staff Director

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C O N T E N T S

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Page

Advisory of October 25, 2011, announcing the hearing............. 2

WITNESSES

Under Secretary Lael Brainard, Under Secretary of International
Affairs, U.S. Department of Treasury........................... 41
Ambassador Demetrios Marantis, Deputy U.S. Trade Representative.. 48

THE U.S.-CHINA ECONOMIC RELATIONSHIP

----------

TUESDAY, OCTOBER 25, 2011

U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in Room
1100, Longworth House Office Building, the Honorable Dave Camp
[chairman of the committee] presiding.
[The advisory of the hearing follows:]

HEARING ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

Chairman Camp Announces Hearing on the

U.S.-China Economic Relationship

Tuesday, October 25, 2011

House Ways and Means Committee Chairman Dave Camp (R-MI) today
announced that the Committee on Ways and Means will hold a hearing on
the U.S.-China economic relationship. The hearing will take place on
Tuesday, October 25, 2011, in 1100 Longworth House Office Building,
beginning at 10:00 A.M.

In view of the limited time available to hear the witnesses, oral
testimony at this hearing will be from the invited Administration
witnesses only. However, any individual or organization not scheduled
for an oral appearance may submit a written statement for consideration
by the Committee and for inclusion in the printed record of the
hearing.

BACKGROUND:

The United States and China both have a significant stake in
restoring global economic health. Both countries have stressed the need
to maintain positive economic and financial relations and to fight
against trade protectionism. China's economic growth, and the resulting
increase in domestic consumption in China, has created a large market
for U.S. exports and created important opportunities for U.S.
companies, farmers, and workers.
However, there are a number of longstanding issues that have caused
friction between the United States and China. American companies,
farmers, and workers still face many barriers in China. These
longstanding problems include subsidies that distort competition; lack
of regulatory transparency; currency misalignment and a closed capital
account; harmful ``indigenous innovation'' policies; failure to
adequately protect intellectual property; and many other barriers to
U.S. exports and investment. These issues have been central themes in
bilateral dialogues, such as the Strategic & Economic Dialogue and the
Joint Committee on Commerce and Trade (JCCT), as well as multilateral
negotiations in the G20 and World Trade Organization.
The hearing will provide an opportunity for the Administration to
explain its response to China's trade-distorting practices and non-
tariff barriers that prevent U.S. companies from competing on a level
playing field.
In announcing this hearing, Chairman Camp said, ``The Chinese
market presents enormous potential for growing U.S. exports, which
support American jobs. But China purposefully makes it harder to sell
our goods and services, unfairly subsidizes its own companies, and
blatantly steals the intellectual property of American businesses.
China's distorting trade policies are deeply troubling and cannot be
allowed to stand. Its practices are costing U.S. jobs. China has
benefited greatly from globalization, and it must abide by the same
rules that afforded it that prosperity. The President and his
Administration should continue to press China to open its markets
through every available avenue. And when China has violated its
international obligations, the United States must aggressively enforce
its rights. I look forward to hearing the Administration's plan for
addressing China's persistent barriers to U.S. exports and investment
and exploring what should be done to ensure American employers and
workers are treated fairly.''

FOCUS OF THE HEARING:

The hearing will focus on the significant opportunities presented
by the Chinese market as well as the barriers that U.S. companies,
farmers, and workers continue to face. The hearing will explore the
Administration's plans to address China's persistent barriers to trade
and investment.

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Chairman CAMP. The committee will come to order. China is
both an opportunity and obstacle when it comes to our economy
and American jobs. While the Chinese market is a large and
rapidly growing destination for U.S. exports, China willfully
disregards its international obligations and impedes fair
commerce. Despite benefiting significantly from globalization
and a more integrated global economy, China remains stubbornly
closed to U.S. companies, farmers, ranchers, and workers.
The list of China's trade abuses is long. The record shows
that China blatantly steals the intellectual property of
American businesses, grossly subsidizes domestic industries,
prevents U.S. farmers and ranchers from exporting through
discriminatory regulations and practices that are not based on
science or international standards, blocks exports of rare
earth minerals, and intervenes in its currency market,
resulting in misalignment.
China has an important role to play in restoring global
economic growth. To do so, China must more rapidly rebalance
its economy away from export-led growth; this means sustaining
meaningful RMB appreciation of its currency and complying with
its obligations and commitments to open its Chinese markets to
U.S. exports of goods and services.
Yet some in Congress focus on legislation to address
currency manipulation as if it were a silver bullet. In doing
so, they miss the many issues we have with China. I look
forward to hearing from our two administration witnesses today
about the full set of economic issues we face in dealing with
China, including currency, and what the administration is doing
and what Congress should and should not do with regard to our
economic relationship with China. There is widespread agreement
that part of our China strategy must include resumption of our
bilateral investment treaty negotiations. Last year, Secretary
Geithner testified before this committee that he was ``very
much in favor of moving forward, and I think these agreements
have a very good record of protecting the interests of U.S.
companies and workers, and it would be good to put one in place
with China.''
A year later, the administration's lack of action is
perplexing. China has more than 70 BITs in place, bilateral
investment treaties in place, including with many of our
competitors. The EU recently announced that it would negotiate
its own investment agreement with China. But the administration
has been unable to form its negotiating position, allowing
special interests to hamstring our ability to create jobs. I
expect to hear from the administration today about when it
intends to resume negotiations.
At the same time, I applaud USTR for its recent actions.
Two weeks ago, the United States availed itself of WTO
procedures to counternotify over 200 Chinese subsidies to the
WTO, an important action that calls China out for its
malfeasance.
I hope this is just the beginning of USTR's actions on such
subsidies. Furthermore, last week, USTR again utilized the WTO
to publicly press China on its Internet censorship and
restrictions, which creates significant barriers to U.S.
services trade. And last month, the administration filed
another dispute settlement case at the WTO.
I look forward to hearing from the administration about its
efforts and the strategic and economic dialogue, the S&ED, and
the Joint Commission on Commerce and Trade. Those forums have
been important avenues for addressing Chinese practices. In
fact, in conjunction with last May's S&ED, I hosted a meeting
between Ways and Means Committee members and a delegation of
senior Chinese officials, led by Vice Premier Wang, China's
chief international economic official. Our Members raised many
of these important issues directly with the Chinese officials,
and we will continue to raise them at every juncture.
As the administration continues to engage with China
through the S&ED and the JCCT, it must pay more attention to
tracking China's commitments and ensuring proper follow-through
to implement them. In addition, I remain concerned that the
administration is using the wrong metrics to measure progress.
We must measure success not just in the number of laws and
regulations overturned, but whether removing these policies
will actually be effective and create U.S. sales and jobs. And
I know this is a bipartisan concern.
Looking forward, the administration must aggressively
pursue WTO violations when they occur. While we should not
hesitate to confront China directly, the administration should
also build strong coalitions to ensure maximum pressure and
meaningful change. Promptly implementing the trade agreements
with South Korea, Colombia, and Panama will provide us with an
important counterbalance in critical regions. China's influence
has grown beyond Asia, with significant Chinese investment in
Latin America, Africa, and around the world. The United States
must be globally engaged to counter this influence and ensure
that China's destructive practices are not exported.
I look forward to the testimony. Before yielding to the
ranking member, without objection, the opening statements of
all members will be included in the record.
At this time, I yield to Mr. Levin for his opening
statement.
Mr. LEVIN. Thank you very much.
American exports to China have been growing, and we need
that export growth to help create American jobs. But at the
same time, China exports four times as much as the U.S. exports
to China. China's exports increasingly compete in key areas
with American products, and China continues to erect barriers
to our exports. The current relationship is imbalanced, unfair,
and unsustainable. This trade deficit contributes to the jobs
deficit in America, and the American people want Congress to
take action to address it.
For many years now, the economic relationship between our
two large economies was built on a Chinese economy, structured
on its export platform, overwhelming the role and importance of
domestic Chinese consumption, with the U.S. economy
significantly built on its role as the major consumption market
for Chinese products. Sensing some of the perils in that
economic structure, a decade ago, when China entered the WTO,
some of us in Congress understood that inclusion of a major
nonmarket economy into a rules-based trading system presented
unprecedented challenges. To meet those challenges, we fought
for inclusion of tools to strengthen our hand in ensuring that
China played by the rules.
Unfortunately, the Bush administration and the Republican
Congress made clear early on they preferred a hands-off
approach to China. That was reflected in acquiescing and
China's making a mockery out of the special provision provided
for in China's WTO accession for an annual review of whether
China was meeting its obligations. Another vivid example was
the failure to use the safeguard against surges in Chinese
exports that harm U.S. industries and workers.
On four occasions, the ITC recommended relief. On all four
occasions, the Bush administration refused. Thousands of
American jobs were lost. Knowing the Bush administration
preferred a hands-off approach helped embolden China to
continue trade-distorting practices that target our market, our
companies, and our workers. Thankfully, the Obama
administration resurrected the 421 safeguard in the tires case.
The administration is trying to turn the ship in the right
direction. But the process is too slow and there still is too
much resistance in Congress and elsewhere.
The American people expect their representatives to
actively manage this trading relationship. They expect us to
fight for a level playing field for American companies and
workers. So I appreciate holding this hearing, asking the
administration its plans at today's hearing. But let us
remember that the Constitution gives Congress exclusive power
over foreign trade. That means Congress must act to help end a
variety of China's predatory trade practices. One of them is
China's currency manipulation. House Democrats insist on action
because it matters. Fred Bergsten recently described China's
currency policy as, ``by far the largest protectionist measure
adopted by any country since the Second World War, and probably
in all of history.'' He estimated that eliminating the
misalignment would, ``produce at least a million goods jobs,
mainly manufacturing.''
In recent years, some of our Republican colleagues have
come to agree about the seriousness of this problem. And last
fall, the House passed its currency bill with strong majorities
of both parties voting in favor, including myself and Chairman
Camp. Chairman Camp and other committee Republicans agreed with
us that substantial amendments made the bill, on its face,
consistent with our international obligations. The Senate has
now followed the House by passing legislation to address this
problem. Now it is the House's turn to act by once again
passing its bill, the Currency Reform for Fair Trade Act, which
is cosponsored by a majority of this Chamber, 230 Members.
Because currency is not China's only predatory and trade-
distorting policy, that cannot be an excuse for a refusal to
act on it. The House leadership must stop using that excuse.
Nor does acting on it mean not acting on other key issues,
intellectual property rights, indigenous innovation, trade-
distorting subsidies, discriminatory product standards, among
others. But it is alarming how difficult it is to move beyond
rhetorical support to bipartisan action. That is why I and 34
other Democratic Members this year sought an additional $3.2
million for USTR's China enforcement. Unfortunately, my
Republican colleagues were unwilling to join that request.
Last week, one industry, solar panel producers, decided
they could no longer wait for us to stand up for them and took
action on their own. Some will decry that action as
protectionist, feudal, or anti-consumer. I call it ``anti-
protectionist,'' standing up for American workers and for our
future.
This committee should consider other trade-relating
legislation. And for the record, there has been filed a package
of such bills. In short, the American people expect us to stand
up and to fight for them. They don't want us to take a hands-
off approach to American competitiveness on currency or other
issues. It is time to act.
[The information follows The Honorable Mr. Levin: Letter,
H.R. 639, H.R. 1518, H.R. 2722, H.R. 3057]
Letter

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H.R. 639

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H.R. 1518

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H.R. 2722

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H.R. 3057

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Chairman CAMP. Thank you. We will now turn to our panel of
administration witnesses. And I want to welcome Under Secretary
Lael Brainard, Treasury Under Secretary for International
Affairs, and Ambassador Demetrios Marantis, Deputy United
States trade representative. Thank you both for being with us
today.
You will each have 5 minutes to present your testimony with
your full written testimony being part of the record. Ms.
Brainard, we will begin with you. You have 5 minutes.

STATEMENT OF LAEL BRAINARD, UNDER SECRETARY FOR INTERNATIONAL
AFFAIRS, UNITED STATES DEPARTMENT OF THE TREASURY

Ms. BRAINARD. Chairman Camp, Ranking Member Levin,
distinguished Members of the Committee, thank you for the
opportunity to testify today on our economic relationship with
China.
Since the outset, President Obama has placed a high
priority on actively pursuing a more balanced and fair economic
relationship with China. With American households saving more
and with demand weak in Europe and Japan, our exports
increasingly will be directed at fast growing emerging markets
if we are to achieve the President's goal of doubling exports
in 5 years in order to create good jobs with good wages.
Indeed, over the next decade, China is expected to be the
single biggest source of demand growth in the global economy.
Since 2009, U.S. exports to China have grown nearly twice as
fast as our exports to the rest of the world and it is now our
third largest export market. We are seeing double-digit gains
in sectors ranging from agriculture to machinery to chemicals.
Yet despite this progress, the playing field is still
uneven. In order to derive a better balance of benefits from
trade and investment opportunities with China, we need to see
progress on three key challenges: First, China must shift to a
pattern of growth that can be sustained, drawing on homegrown
consumption rather than excessive dependence on exports.
This requires that China bring its exchange rate into
alignment with market fundamentals. Second, in many sectors in
which the United States is competitive globally, China must
address a range of discriminatory policies, including those
that favor domestic state-owned enterprises.
Third, China must address the rampant theft of intellectual
property that stymies innovation. On these issues, the
administration has worked tirelessly to make progress with
China, through fora such as the Strategic and Economic Dialogue
and the Joint Commission on Commerce and Trade, and we have
worked with international partners who share our concerns. When
engagement has proven insufficient, the administration has and
will continue to be aggressive in using safeguards, enforcement
actions, and trade remedies to address the particular problem,
consistent with our international obligations.
On the exchange rate, a faster rate of appreciation on its
own will not erase the trade deficit, but allowing the exchange
rate to fully adjust is the most powerful near-term tool
available to the Chinese Government to achieve two of its top
economic goals: Combating inflation and shifting the
composition of its demand towards domestic consumption.
At the G-20, surplus-emerging markets, such as China, have
committed to accelerate the rebalancing of demand and to move
towards more market-determined exchange rates through exchange
rate flexibility. There has been progress. China's trade
surplus has declined from 7.7 percent of GDP in 2008 to below 4
percent in 2010, and even further in the first half of this
year.
Since China resumed exchange rate adjustment in June of
last year, the currency has appreciated nearly 7.5 percent
against the U.S. dollar and closer to 10 percent in real terms,
adjusting for inflation. China's currency has appreciated
nearly 40 percent against the dollar over the past 5 years in
real terms. But the real exchange rate remains misaligned and a
faster appreciation rate is needed.
Second, at the most recent S&ED, after commitments made
during the January state visit of President Hu and the JCCT,
China pledged to rescind all of its government procurement,
indigenous innovation catalogs, including by provincial and
municipal governments. So far, the central government has
repealed four key measures that underpinned the indigenous
innovation product accreditation system and a number of local
governments have taken positive steps. Third, China has pledged
to increase inspections of government computers to ensure that
agencies use legitimate software and to improve its high level
government coordination and leadership mechanisms to enhance
long-term enforcement of intellectual property.
Opening up China's financial sector remains a key priority.
China now allows foreign banks to underwrite corporate bonds
and is creating more opportunities for financial services firms
to manage investments in China as well as to manage Chinese
investments abroad. And at the most recent S&ED China committed
to allow foreign firms to sell mutual funds, provide custody
service, and sell mandatory auto liability insurance. China's
current headline growth rate may look enviable right now, but
China faces daunting challenges in coming years. The way China
grew in the last two decades will not get them to the next
stage of development. With slowing labor force growth, massive
capital investment, with a misaligned exchange rate and
distortions in credit allocations and without improving the
environment for innovation, China could face what economists
call the middle income trap. We have a tremendous stake in
ensuring that China deals with those challenges in a way that
fundamentally reorients its growth pattern through greater
balance and fairer competition. I look forward to working with
members of this committee on those challenges.
Chairman CAMP. Thank you very much.
[The prepared statement of Ms. Brainard follows:]

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Chairman CAMP. Ambassador Marantis, I will now recognize
you for 5 minutes.

STATEMENT OF AMBASSADOR DEMETRIOS MARANTIS, DEPUTY, UNITED
STATES TRADE REPRESENTATIVE

Mr. MARANTIS. Thank you Chairman Camp, Ranking Member
Levin, and members of this committee. I appreciate the
opportunity to testify today.
Since China joined the WTO in 2001, U.S. goods exports,
including semiconductors, aircraft, and chemicals, have
quadrupled. Agriculture exports are up 800 percent, led by
soybeans and cotton. Services exports are up nearly 300 percent
on growing sales of business, education, and financial
services. And American job-creating investment in China has
grown 400 percent. America's trade relationship with China has
tangible benefits, but just as real are the persistent concerns
that threaten to undermine the potential of this relationship.
Intellectual property theft in China costs U.S. companies $48
billion every year. China's industrial policies, like
indigenous innovation, discriminate against U.S. products,
services, innovators, and investors. China's subsidies raise
deep concerns and can lead to unfairly traded imports that
affect our trade deficit. Investment restrictions limit the
ability of U.S. companies to compete effectively in China and
to create jobs here at home. Unfair barriers to U.S.
agricultural imports hurt our beef, poultry, and pork
producers; and weak enforcement and lack of transparency
undermine U.S. exporters and investors. President Obama is
determined to make our relationship with China work better for
working Americans, to tap its potential to support American
jobs, and to grow our economy. This administration's
coordinated approach is focused on vigorous enforcement,
results-oriented dialogue, and strengthening global trade
roles.
First, enforcement. In the WTO, the Obama administration
has initiated five strategic and systemic disputes against
China. We challenged China's exports restraints on industrial
raw materials in a case unprecedented in size and importance.
For the first time since China joined the WTO, we accepted a
Section 301 petition which brought China to the WTO to answer
for prohibited subsidies in the wind sector. We have challenged
China's regulation of electronic payment services to address
the apparent creation of a homegrown monopoly that blocks
competition. We brought two WTO cases to address the apparent
misuse of trade remedy investigation to restrict U.S. exports
to China. And for the first time ever, we brought a Section 421
case and imposed duties to combat a surge of Chinese tire
imports.
The Obama administration will not hesitate to bring
additional enforcement actions as appropriate. But litigation
alone isn't enough. Results-oriented dialogue, like the Joint
Commission on Commerce and Trade and the Strategic and Economic
Dialogue, also yield swift and lasting benefits. Last year, as
Under Secretary Brainard mentioned, our engagement led to new
measures to increase legal use of software in China. We also
obtained China's agreement not to discriminate against foreign
intellectual property in its procurement policies and to
address agriculture concerns by eliminating unfair bans on our
poultry exports and some key restrictions on our pork. For this
year's JCCT, USTR continues to work intensively together with
the Commerce Department to secure results, focusing on
intellectual property rights, indigenous innovation, investment
restraints, industrial policy, and other issues. Aside from the
structured dialogue, we are also engaging China directly on its
adherence to trade rules regionally and globally. This month,
for the first time, as Chairman Camp mentioned, the United
States submitted in the WTO a subsidy counter-notification to
call China out on over 200 subsidies that it had not notified
as required.
Similarly, we have called on China to share detailed
information on measures that limit the supply of services over
the Internet and hinder the ability of our companies to
effectively compete. Outside the WTO, we are working to
strengthen trade rules across the global trading system through
efforts including the Trans-Pacific Partnership and Anti-
Counterfeiting Trade Agreement. The Obama Administration is
working hard so that the United States can compete with China
on a level playing field and so American businesses and workers
can prosper. Progress will occur if we recognize the value of
this relationship and address the challenges of the work ahead.
Thank you.
Chairman CAMP. Thank you very much for your testimony.
[The prepared statement of Mr. Marantis follows:]

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Chairman CAMP. I will start out with a question that I
would like both of you to address.
It is clear that for a long time, China has allowed
unacceptably high rates of piracy across all technologies. For
example, U.S. copyright industries estimate that 85 to 95
percent of members' copyrighted works in China are pirated. And
despite repeated assurances and promises from the Chinese that
they will step up enforcement, there still is a huge problem
there. And many members of this committee have heard from
employers that the losses to the U.S. are in the billion of
dollars. And they are not limited just to software and music
and movies, but other intellectual property as well. So when
those products are then exported to the U.S., they have an
unfair advantage over U.S.-made goods that follow the law. So
there is this sense that the Chinese are simply ignoring the
rules to their advantage.
What is the administration doing to address this major
barrier to trade between our countries? And does the
administration have the tools it needs to continue to do that?
So, Ambassador, if you want to start; and then Under Secretary
Brainard can respond.
Mr. MARANTIS. Thank you, Chairman Camp. This is a huge
problem. I.P. infringement, as you mentioned, causes
significant losses to the U.S. economy. In the copyright
industry alone, the ITC estimates that we lose $23 billion to
copyright piracy. This is a huge problem and this is a huge
priority. We are taking action on all fronts, through the JCCT,
through the S&ED, and we have actually made significant
progress over the past year. We have made progress on software
legalization. We have made progress in rolling back some very
problematic indigenous innovation measures. We have made
progress in securing commitments from China to step up its
enforcement of electronic journals, and to hold landlords
liable when their tenants sell counterfeit products. These
issues continue.
And as you point out, what is critically important is to
make sure that China is enforcing the good commitments that it
made over the past year. We are seeing in certain respects
implementation of these commitments, and where we are not, we
are pushing very hard to ensure that China does.
Chairman CAMP. And even the government is using pirated
software and pirated technologies. What progress are you making
on a government-to-government basis?
Mr. MARANTIS. Sure. So as part of the S&ED and the JCCT, we
focused on software legalization to address the issue that you
raise, the use of pirated software both in government agencies
as well as pirated software in state-owned enterprises. As part
of the various dialogues, China made commitments to institute
of software asset management program to budget for purchases of
legal software, to institute a pilot program for state-owned
enterprises, to ensure that these enterprises are using legal
software. We are making progress. We are beginning to notice a
small uptick in sales. But again, it is a real problem, and we
don't think China is doing enough. And this is a priority area
of work for us in this year's JCCT and S&ED.
Chairman CAMP. Do you feel you have the tools you need to
continue to address this problem?
Mr. MARANTIS. We have worked very hard to leverage our
resources across the U.S. Government in close cooperation and
coordination with the Department of Treasury, with the
Department of Commerce, and with our other agencies to make
sure that we use our resources in the most effective way
possible.
Chairman CAMP. Under Secretary Brainard, if you could
comment as well.
Ms. BRAINARD. I want to underscore the importance of this
issue.
Intellectual property really goes to the heart of America's
competitive advantage. And for us to be able to grow and to
continue to make sure that Americans have good jobs at good
wages, we need to be able to earn returns on those investments
and innovations around the world and importantly in one of our
fastest growing markets, in China.
We are working very tightly across the administration. We
have a very tight list of priorities that are developed in
consultation with you, in consultation with the business
community, with the labor community, and intellectual property
has been right at the top of the list alongside currency and
distortionary practices. And we have, as Ambassador Marantis
said, made some progress, very important progress in
dismantling the indigenous innovation preferences that were
being built into China's system, very important progress
initially in getting a high-level mechanism in place so that
the State council would be responsible for monitoring
enforcement at the local level. We need to get that renewed
because our business community thinks that has been helpful to
them. And some progress on the software legalization issue,
where we are just going to have to keep at it.
But the other thing I think ultimately that we have
emphasized in our discussions with the Chinese and in pushing
forward on these priorities, is that if they don't get this
right, they are not going to make it to the next level of
development. And I think increasingly, there is recognition
within China that they have to get a handle on their own lack
of enforcement and inability to achieve enforcement at the
local level in order for them to move away from a model that
has been very resource-intensive, very focused on labor force
and massive capital investment to a growth model that is more
like ours, very focused on innovation, on high value-added.
So we have I think a moment where their own growth
objectives and the key priorities we have for U.S. businesses
are going to move increasingly in the same direction. So we
think we need to work very closely with them to improve their
intellectual property protection.
Chairman CAMP. All right. Thank you.
Moving on to another issue. There is no doubt that China's
currency policy is a significant problem. And the real question
is, what should Congress do or not do about it? And last year,
when Secretary Geithner was here before the committee, he set
forth a two-part test and said that any legislation needed to
be, one, effective, and, two, consistent with our international
obligations. And in light of this test, Ms. Brainard, what is
the administration's view of the Senate bill, S. 1619, the
legislation that recently passed the Senate, as well as H.R.
639, Ranking Member Levin's bill?
Ms. BRAINARD. Let me just say first that the President
shares very strongly Congress' objective of taking aggressive
action to provide a level playing field with China for our
workers and our companies. We know they can compete
successfully with anyone in the world if the competition is
fair. The President shares very much the frustration of many
Americans with China's exchange rate. Despite recent progress,
China's exchange rate has been, will be among our very top
economic priorities, and we are going to continue to press
China to appreciate faster, consistent with market forces.
Aspects of pending legislation do, however, raise concerns
about consistency with our international obligations, and we
are discussing these issues with Members. Obviously if
legislation were to advance, those concerns should be
addressed.
Chairman CAMP. Is there any chance you could highlight for
this committee what those concerns are?
Ms. BRAINARD. I think we are very willing to engage and
have been engaging with Members on particular aspects of
legislation. We have been--and will remain, I think, reluctant
to discuss particular aspects of legislation because, of
course, at the end of the day, we want to make sure that we are
in a strong capacity to defend whatever legislation becomes
law. But again, I think, as you said earlier, you know, the
test for us, the simple test is, will we be able to have
something that is both effective and consistent with our
international obligations? And we are very willing to work with
Members of Congress on that front.
Chairman CAMP. All right. Mr. Levin may inquire.
Mr. LEVIN. Well, first of all, I think we need to provide a
sense of urgency to this issue. I think there is a tendency to
avoid that, to talk about progress and not to emphasize the
extent of the problem.
I remember when the predecessor USTR would come here with
charts showing how our exports were growing. There were never
any charts on the extent of imports that were coming in from
China that were so much larger than the number and the amount
of our exports there. We have a historically high trade deficit
with China. And I think to simply either shrug shoulders or
find excuses for inaction, neither is satisfactory for the
people of this country.
I will ask either of you, is there today a level playing
field with China? I think you can probably say ``yes'' or
``no.''
Mr. MARANTIS. Mr. Levin, you raised an urgent point. We
have an incredibly large trade deficit with China and there is
no one cause to that deficit and there is no one solution. But
we need to take action on a variety of fronts, imports as well
as exports. We have our trade remedy laws to deal with imports.
However, as you have pointed out, and as others have pointed
out to us, trade remedy laws kick in only after there is
injury. That is why it is incumbent upon us to address the
types of trade distorted policies inside of China, like
subsidies, that give rise to unfairly traded imports. We are
working on all fronts to do that. We filed a WTO case last year
on wind subsidies. The counter-notification that we filed just
earlier this month in the WTO is designed specifically to give
us more information so that we are able to assess the types of
trade distorted subsidies that give rise to unfairly traded
imports.
Mr. LEVIN. So I think your answer is, today there is not a
level playing field?
Mr. MARANTIS. We need to work to ensure that we have a
level playing field for our workers, our exporters; and working
on the issues that you have just mentioned is a critical aspect
of that.
Mr. LEVIN. Secretary Brainard.
Ms. BRAINARD. I think, Mr. Levin, we share very much your
sense of urgency, your sense that there is not a level playing
field, and that we need to work with China to accelerate the
pace of reform, accelerate the pace of appreciation, accelerate
the pace at which they tackle their inadequate protection of
intellectual property, their uneven market access.
Mr. LEVIN. Well, I really think we need to just say ``yes''
or ``no.'' I mean, there isn't a level playing field, and we
are endeavoring to bring it about, isn't that true? Yes?
Ms. BRAINARD. Yes.
Mr. MARANTIS. Yes, Mr. Levin.
Mr. LEVIN. The solar industry filed a petition recently,
and I think everybody in this country had better--we all need
to face up to it, including my colleagues on the Republican
side. Essentially that petition says, with this new energy
technology, that if we allow China to rig the playing field, we
are going to lose that industry. It was our technology. It was
our technology. And if we don't act, if we don't use our laws,
if we don't stand up for our producers, we are going to lose
them. And it is one example and it is why there is such
sensitivity in this country. It isn't bashing China. It is
essentially saying, play by the rules. Don't rig the playing
field. And I think everybody needs to start in our questions,
if I might say so today, understanding that there is not a
level playing field. It isn't the only cause of the deficit but
it is one of the causes. There isn't any single cause, whether
it is currency or others. But to say we don't act on any single
one because there are others is totally unacceptable.
Chairman CAMP. Mr. Johnson is recognized.
Mr. JOHNSON. Thank you, Mr. Chairman. Thank you both for
being here. We appreciate your presence.
And while I agree that the currency issue and IPR are two
items of great importance, I think there is another elephant in
the room that we need to talk about. I find it alarming our
deficit is being financed by countries such as China, our
biggest holder of U.S. Government debt. Equally important, a
former Chinese military official suggested the Chinese should
consider dumping U.S. treasuries in response to some of our
recent military decisions regarding Taiwan. While I believe
foreign investment in America shows that outsiders view our
country as a safe and solid investment, I have serious concerns
about the full implications of overleveraging our debt to
outside forces. I also feel the current level of transparency
regarding China's holding of U.S. Government debt is
inadequate.
To raise awareness of the threat to our economy and
national security from our exploding deficit and debt, I have
introduced the Foreign-Held Debt Transparency and Threat
Assessment Act. That bill will require a better accounting of
debt held by foreign countries and, more importantly, will
require the President to submit a plan to cut spending should
either a particular foreign creditor or the overall debt pose a
risk to the security interests of America. I feel we must not
let any other country hold our national and economic interests
hostage.
That being said, let me ask you two this simple question:
How big of a problem do you think it is that China holds so
much of our debt? And what steps do you think we should take to
address it? Either one of you first.
Ms. BRAINARD. Let me just say, as you mentioned, obviously
we have the deepest, most liquid government security markets in
the world, the deepest, most liquid financial markets in the
world; and I think for all those reasons, it is no surprise
that there is strong demand for U.S. securities both here and
around the world. That said, over time, we do have, as a
Nation, a big challenge in addressing our medium-term deficit
and debt path, and that is why the President has put on the
table additional measures, $4 trillion of measures over the
next 10 years that would help to put the debt on a declining
path relative the size of GDP, why the Budget Control Act was
so important. But of course, all of that is premised on the
very important near-term challenge of getting people back to
work and growing the economy, which is why so many provisions
in the Jobs Act are important.
So I could not agree with you more that, as a Nation, we
need to get on a path of declining debt, declining deficits
once our recovery is well secured. And we all, I think, want to
work together to accomplish that important goal.
Mr. JOHNSON. Thank you. Ambassador, do you have a comment?
Mr. MARANTIS. The only thing I would add is, on the trade
side, one of the fundamental aspects that we are working on is
how do we continue to boost our exports to China? It is
important to note that our export growth to China is faster
than any other region of the world. Our exports to China grew
32 percent last year versus to the rest of the world where it
has grown by 16.7 percent. So what we are doing with respect to
exports, both with respect to China and elsewhere, is a
fundamental part of the President's efforts to continue to
bring jobs to the American economy.
Mr. JOHNSON. Thank you. Let me ask you another question,
Ambassador. I understand China is in the process of instituting
an environmental certification program known as China Ross.
There are concerns that the program could become a barrier to
U.S. goods entering the market. What steps is USTR taking to
address these concerns?
Mr. MARANTIS. Mr. Johnson, I am not familiar with that
particular measure. We have an active environmental dialogue
with China in the JCCT and as part of the S&ED. And I will
follow up to get information on that particular measure that
you raised.
Mr. JOHNSON. I appreciate that. Thank you, Mr. Chairman.
Chairman CAMP. Thank you. Mr. Rangel is recognized for 5
minutes.
Mr. RANGEL. Thank you, Mr. Chairman. I have been on this
committee for so long that every time one of our
Representatives talk with the people in China, I can almost
write the press release myself: That they are cooperating, that
progress has been made; that we appreciate that the legislative
body is an independent agency. We don't encourage you to
legislate, but we are not opposed to anything that you might do
that could give us leverage. And whatever you want to do, it
can't hurt us because, after all, the Constitution does provide
for a separation of powers.
Having said all of that, if, indeed, as Congressman Levin
has said, that we can identify the technology that they are
stealing, that this is having a severe impact on our ability to
compete, why don't we just identify what it is and put a tariff
on that? The best they can do is take us to the WTO, where we
want to go anyway. Why can't we do that? Ambassador?
Mr. MARANTIS. Mr. Rangel, we have a whole variety of tools
at our disposal to make progress. And I don't dispute at all
with you that we have severe challenges in China that we need
to continue to work to address.
Mr. RANGEL. That is the speech I just gave. I am just
saying that, suppose we know that there is a technology that
they just put their finger up their nose and say, Hey, that is
pretty good. I am going to use it, and I am going to include it
in something that your people want to buy cheaper. And we say,
No, you don't. We are not going to buy back our technology. You
have got to pay for our research and development. And zap. And
it is going to be outrageous. They are going to be angry. And
if they are not angry, we score in the tariff. If they do get
angry, we are in the WTO. Now that is the same question I asked
just a minute ago. So you are not going to give me a chance to
ask the same question a third time.
Why can't we do it? I accept that you are a diplomat and we
are legislators. But you would not get angry with us if we
mandated it, right?
Mr. MARANTIS. Mr. Rangel, we have imposed duties, for
instance, in the Section 421 case.
Mr. RANGEL. Why can't we do more of it? Why can't we get
their attention? Why can't we cause a fight and not threaten a
trade war, but threaten to bring honesty, sincerity, and
equality to the World Trade Organization, where a lot of us
voted to allow them to get in because they promised to do these
things. Now, is the answer to that, you don't want to offend
them at the executive level? What is the answer? It just seems
so easy to do.
Name something that our manufacturers are particularly
concerned about. What technology does the whole world know that
they stole from us? Could you help me?
Mr. MARANTIS. Yes. On this very issue, Mr. Rangel, with
respect to electric cars right now----
Mr. RANGEL. Electric cars is good. They want partnerships
with it. We are afraid they are going to steal our technology.
If they did do that, then we put a ban on anything that looks
like our technology and a high tariff, ridiculously high. Then
what can they do about it? They either pay the tariff or go to
the WTO. Now there is something wrong with my argument. But I
am trying to find out, what is it?
Mr. MARANTIS. Mr. Rangel, we have our own international
obligations that we have to abide by. But we take action on
every front to counter whatever issue China puts in front of
us, whether it is in the area of green technology, whether it
is in the area of subsidies--and we have done, I think, a,
pretty good job, particularly over the past 2\1/2\ years, of
using our enforcement tools, like the 421----
Mr. RANGEL. We don't need any legislation. You are pretty
proud of the job you are doing diplomatically with China. And
so you are just listening to us rant and rave. But quite
frankly, you have got a handle on this thing, right?
Mr. MARANTIS. This is a cooperative endeavor between you
and us, and the concerns that you raise are the concerns that
we push with our Chinese counterparts.
Mr. RANGEL. So we don't need the Congress' input into this.
You are satisfied as every official, Republican and Democrat,
when they come back, that they have got a long way to go, but
they are making progress. And they do owe them a lot of money.
Mr. MARANTIS. Our consultations with you sets our agenda.
So this hearing today is an integral part of helping us inform
ourselves----
Mr. RANGEL. What do you think our attitude is bipartisanly
here, as it relates to Chinese currency and intellectual
property? What do you think it is?
Mr. MARANTIS. Very serious concern.
Mr. RANGEL. No. It is outrage.
Mr. MARANTIS. We share that. And that is why we are doing
everything we can and are using all of our tools on all issues
to make progress.
Chairman CAMP. The gentleman's time has expired. Mr. Brady
is recognized for 5 minutes.
Mr. BRADY. Thank you, Mr. Chairman. I will submit my
opening statement for the record.
Chairman CAMP. Without objection.
[The information follows: The Honorable Mr. Brady]

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Mr. BRADY. I want to congratulate Ambassador Marantis for
the hard work the U.S. Trade Representative Office did with the
White House with Republicans and Democrats in Congress to pass
the recent sales agreements with Korea, Colombia, and Panama.
If anyone in America wonders if Republicans and Democrats can
work with this President to pass a real jobs bill, this was the
real proof that we can. And there is bipartisan support in
Congress that China, and agreement that China must play by the
rules, that their currency must appreciate. But that is not the
only trade barrier our companies and workers face in China.
If you listen to our agriculture, our manufacturing, our
technology services, even the defense industries, there is a
broad range of barriers that are as important, or perhaps to
them more important that we tear down. On the agriculture
silos, sanitary standards, manufacturing, IPR-directed
subsidies, Earth subsidies, directed lending technology,
indigenous innovation services, regulatory barriers, defense,
rare and raw earth materials, on and on and on, our companies
tell us they can't get through those trade barriers.
I think it is a mistake to have a currency-only focus from
Congress, that we need to tear down all those trade barriers.
And I would think we need to be smart about addressing the
currency issue. We want to make sure we follow our own
obligations. Second, we make sure it doesn't undermine our
efforts to tear down the full range of barriers that we face in
China.
And then finally, to make sure legislative efforts don't
boomerang back and actually cost American jobs. So we need to
be smart about the approach. And I am not sure every problem
has a legislative solution.
Under Secretary Brainard, implicit in the criticism you are
hearing today is the belief that the White House is not doing
enough; that in effect, Congress is saying, we can't wait for
the White House on China. Do you think, given your testimony on
the broad range of issues you tried to address in a number of
different forms--and as you said, you have made real progress
on some of these issues--do you think that criticism of the
White House is fair?
Ms. BRAINARD. Let me just say Mr. Brady that since day one,
making the U.S.-China economic relationship work better for
American workers, for American companies, for American farmers
has been a top priority for the President, and it has been a
top priority across the entire administration. I would say that
we have a more coordinated effort than I think we have ever
seen before. We, at every moment, have a very tight list of
priorities because we know that if we go after 20 things, we
probably won't get one. If we go after four at a time, we will
get them done and move to the next. And we work very
consistently with the White House.
When the President meets with President Hu, he goes through
the list of issues. When we meet with our counterparts, we are
always synched up with USTR, with Commerce, with the State
Department, we work very closely, and we have made progress. We
are as frustrated as Members here are, and as many Americans
that we hear from about, concerns as we travel the country. But
as you said, we are also making progress. We have very
important stakes in terms of the export markets that we have
penetrated effectively in China.
China is our third-largest export market. That would not
have happened without an aggressive enforcement approach,
without fully using the trade remedies, the safeguards. As Mr.
Levin said earlier, the first time ever use of 421. So we use
the tools we have available to us very aggressively. We plan to
continue to do that. We want to continue to work in a way that
is effective, that is consistent with our international
obligations.
Mr. BRADY. Under Secretary, may I ask that--and thank you
for that summary. It was very clear in your testimony as well.
Does the White House support the Senate currency legislation as
it stands today?
Ms. BRAINARD. The White House supports very strongly the
goal of the legislation, which is to create a more level
playing field for our workers and our firms. The White House
shares very strongly, as do I, the frustration with the pace of
currency appreciation has not been sufficient to bring China's
currency into full alignment with market fundamentals. Aspects
of the legislation that do, however, raise concerns about
consistency with our international obligations. And as I said
earlier, we are working with Members of Congress. If the
legislation were to advance, we would want to see those
addressed.
Mr. BRADY. I am not trying to push. But respectfully, as
the legislation stands today, as it came out of the Senate, is
the White House supporting that legislation?
Ms. BRAINARD. The White House is very much supporting the
goal of the legislation. There are aspects of the legislation
that raise concerns about international consistency.
Chairman CAMP. The gentleman's time has expired. Mr. Stark
is recognized.
Mr. STARK. Thank you, Mr. Chairman. Secretary Brainard,
have you heard about the Bridge to Nowhere? No? Ambassador,
have you ever heard about the Bridge to Nowhere?
Ms. BRAINARD. Yes.
Mr. STARK. Yes, you have? He is nodding yes. Well, have you
ever heard about the bridge from Nancy Pelosi's congressional
district to my congressional district? It is a $6.4 billion
bridge that replaces the San Francisco Bay Bridge. Have you
ever been to San Francisco? Have you seen the Bay Bridge? It is
a monument, right? Well, there is a new one, plopped right down
there, coming into my district. It has used 43,000 tons of
steel. It had a 525-foot tower, 28 steel deck sections. And
that was made in Shanghai. And another Shanghai company made a
mile-long cable for the bridge. All of this work was done in
China, using Chinese engineers, Chinese welders, Chinese steel.
And some of those laborers earned as much as a couple dollars a
day. They outsourced the project to China. Outsourcing it
reportedly saved us Californians $400 million. That is kind of
nice. But doesn't the President's job bill include spending for
our Nation's highways and bridges? Yes? Speak up. Is that
correct?
Mr. MARANTIS. Yes, sir. Yes.
Mr. STARK. Secretary, we do plan to spend money, do we not?
Isn't that in the plan of the administration, to put people to
work? Yes? You don't know?
Ms. BRAINARD. Of course. Yes.
Mr. STARK. You are saying yes. Okay. Thank you. Well, does
the President intend then to insist on a ``buy American''
clause? Could I hear the administration or the Treasury's
position on that?
Ms. BRAINARD. I actually--I am very familiar with the
President's plans to--and proposals to move forward with much
stronger infrastructure spending. I think the Buy America
issues are still ones that would be addressed in consultation
with Congress. Obviously, we have had Buy America provisions in
the American Recovery Act in ways that were consistent with our
international obligations. So there is precedent there.
Mr. STARK. Well, what do our international obligations have
to do with this darn bridge being built in my district and
putting all of these Americans out of work?
Ms. BRAINARD. Obviously, we are signatories and huge
beneficiaries of the Government Procurement Agreement under the
WTO. So, of course, our previous Buy American provisions in the
American Recovery Act were consistent with that.
Mr. STARK. If China were in the WTO, could they still sell
us bridges under the government procurement agreement?
Ms. BRAINARD. One of the key priorities with China is
actually to bring them into the Government Procurement
Agreement. But they are not currently protected by it because
they are not signatories.
Mr. STARK. They don't seem to need any protection in San
Francisco. They are doing quite well by all by themselves,
thank you very much, without much interference from the
administration. And I guess, I go back to my question, you
know, I hear a lot of talk from the President about this, that
and the other thing, but no action. No action. And the labor
unions in my district are disappointed in the President's lack
of action. A lot of talk. No action.
What about insisting on Buy American? Would that be a good
thing for the administration to do, in your opinion?
Ms. BRAINARD. Let me just reiterate that I can't speak to
the particular path forward, but I will say that there are
mechanisms that Congress has passed with strong support from
the President that provided for Buy American in the context of
the American Recovery Act that were consistent with our
international obligations.
Mr. STARK. But they are not being enforced, are they?
Ms. BRAINARD. Yes.
Mr. STARK. Where? What Buy American have we ever in the
last month or two insisted on?
Ms. BRAINARD. I don't know whether there is a particular
provision in the last month or two, but I am happy to check and
come back to you on that.
Chairman CAMP. The time has expired. Mr. Tiberi is
recognized.
Mr. TIBERI. Thank you very much, Mr. Chairman, and thank
you both for being here today. I think the chairman did a
really good job of outlining the concern and frustration in a
bipartisan way that members of this committee have and this
Congress have regarding the overall issue of our relationship
with China, and I look forward to one day to the Secretary and
the Ambassador coming to talk to us as well.
Let me just kind of, I guess, dovetail on what Mr. Brady
and Mr. Rangel were saying with both of you. Under Secretary,
you mentioned sharing that frustration, and you also mentioned
that the administration supports the goal of the legislation
and that we are as a country making progress.
That part, I think, there is not a lot of belief up here
that we are actually making progress. In fact, in my district
in central Ohio, a manufacturer who has been doing business
with China for over a decade is so frustrated, not with just
currency, by the way, that is probably actually kind of down
the line, so frustrated with China that they are actually
taking their investment out of China and moving to another
Asian country because of their frustration. Some of that is
occurring as well.
So, my question to you is, you in response to Mr. Rangel
and in response to Mr. Brady mentioned, Under Secretary, that
you share the goals of the legislation. You believe that you
all have the tools necessary to deal with this administratively
with the international community, with the WTO. Why aren't we
moving quicker? Is there a concern of retaliation?
Ms. BRAINARD. Well, let me just say, Congressman, first of
all, that the phenomenon you mentioned with companies
reconsidering their investment in China is more widespread than
just companies from your district. That increasingly, I think,
we are going to find China, and this has been the finding both
of the recent Boston Consulting Group study and a KPMG study,
China is going to face challenges of its own. It has got a
slowing labor force growth and ultimately very soon a declining
labor force, a very rapidly rising wage cost, passive capital
over investment, a very poor environment for innovation, for
entrepreneurship, a very distorted credit allocation system,
and a misaligned exchange rate that is preventing them from
fundamentally reorienting their economy towards unleashing the
very substantial potential of domestic consumption that they
have in China.
Mr. TIBERI. Does the administration have the tools
necessary to deal with these concerns?
Ms. BRAINARD. We, I think, are doing what we can. We are
working with those within China who can see that they need to
move, that they need to move faster. There are, within the
Chinese system, obviously, those that fundamentally understand
how market exchange rates should work and want to move in that
direction. So we are directing our engagement with them to try
to help strengthen those who want to push for faster
appreciation, faster rebalancing of the economy, a more level
playing field.
Mr. TIERNEY. Do you need more tools from us?
Ms. BRAINARD. And so we are using the tools that we have.
Again, you know, to the extent that there are mechanisms that
would be effective, that would be consistent with our
international obligations, obviously we would be very
interested in consulting with you on those and those will
remain the kind of key tests.
Mr. TIERNEY. Can you deal with this legislation that passed
the Senate? Can you deal with that without legislation in an
administrative way?
Ms. BRAINARD. We are working very hard to try to push
forward on the exchange rate front. Obviously, the legislation
that has been pending does, I think, articulate, try to advance
a very important goal.
Mr. TIBERI. Thank you.
Ambassador, a quick question. So if this legislation
passes, is there a concern from the administration that there
will be retaliation, that when my constituents visit a toy
store, a department store, an electronics store, that the cost
of goods to them in this tough economy will go up?
Mr. MARANTIS. I think, as Under Secretary Brainard said,
there are aspects of the legislation that raise concerns about
consistency with our international obligations, and if it were
to move forward, we would want to address those.
Mr. TIBERI. Would it cause that concern from the
administration, products going up to our constituents, costs of
products because of tariffs or a trade war?
Mr. MARANTIS. I think there are always concerns regardless
of what action we take, whether it is on this front or whether
it is IP or whether it is with respect to our 421, concerns
have always been raised that the Chinese may retaliate. But we
need to use the tools that we have to address concerns so that
we make progress.
Mr. TIBERI. Thank you.
Chairman CAMP. The time has expired. Thank you.
Mr. McDermott is recognized.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
I come from Seattle, and we are the fourth largest exporter
in the United States. We are the closest port to Asia. Half our
exports go to China. And one of our little companies is
Microsoft. The CEO, Mr. Ballmer, noted that Microsoft revenues
from China are about 5 percent as compared to the revenues from
the United States, even though we have an equal number of
computers. That means that 95 percent of those PCs that are
going to China, they are not putting any software on them or
else they are stealing it. That is the only way you explain
what is going on. The Software Alliance says that 78 percent of
all PC software in China is pirated. That is a polite word for
steal, stolen, okay?
Now, I listened to your testimony, and, you know, by the
way, when Mr. Brady tries to nail you in the corner about
whether the President will sign this bill before we pass it out
of the House, that is the Speaker's hiding behind that. The
Speaker isn't asking the President about all these EPA changes,
will the President sign those bills before he passes them out
of here. He does what the Constitution says, is the Congress
acts and the President decides how he is going to respond to
it. He can veto it.
The same is true on currency. The House is sitting and
hiding behind the fact they can't get the President to say, oh,
yeah, I am eager to sign it. He doesn't have to say that. He
votes last. Remember that.
But when you sit here and talk, I listened to all the
things you have said. You said it is our highest priority, this
trade problem with China. It is only after injury can we act.
Ha. When will you notice the injury? Well, I guess you have
noticed it. Then you said, we are using all our tools and we
have to be consistent with our international obligations. That
sounds like fancy words for we don't want to do it.
Now, what you are getting from this committee on both ends
of the dais is where is the enforcement? You say, well, there
is a little up-tick. I heard that. There is a little up-tick in
the amount of currency or whatever. When are you going to
start--you don't think there is a war? Are you afraid to start
a war?
They have declared war on our software industry and you are
sitting back--I feel, I mean, maybe you don't see Chinese
celebrations like I do in Seattle all the time. They have a
dragon that comes out made out of paper and everybody waves it
around and it jumps around and firecrackers go off. You remind
me of that tiger, jumping around, meaning nothing. There is a
brunch of firecrackers over in the bushes, but nothing is going
on. And you say you don't need anything from us. When is this
piracy going to stop? When is it going to get down to 75
percent is pirated, or 50 percent, or 40, or 30? Or is all hope
lost? It sounds to me what you are saying, we are doing
everything we can and nothing is happening. So what do we do?
I would like to hear you tell me how it is going to get
better with all these tools you said we have, and we are doing
everything we can, and there has been an injury. So when?
Mr. MARANTIS. Mr. McDermott, this administration has been
vigorous in terms of enforcement. We filed five WTO cases. We
have done a 421. We have accepted a 301 case. On the issue that
you raise on software, it is a huge concern. And what I have
outlined in my testimony is that we have made progress with
China. Is it enough? No, not by any stretch of the imagination.
Mr. MCDERMOTT. Tell me how much progress you have made if
78 percent is still being pirated?
Mr. MARANTIS. Mr. McDermott, the changes in China are not
going to happen overnight, and we have to make progress on a
step-by-step basis and we are doing that.
Mr. MCDERMOTT. The industry has been around for 15 years.
Come on. What is ``overnight?''
Mr. MARANTIS. And in the last year, China has made more
substantial commitments in this area than they have ever
before. But you are absolutely right. The proof is in the
pudding, and it is all about enforcement. And has China done
everything it promised us to do? No, they haven't fully
implemented their 2010 JCCT commitments, and we are on them and
we are working in close cooperation with the industry to make
sure that they do implement their commitments.
We keep pushing and we are going to use all the tools that
we have. It is an urgent priority. Piracy rates are
unacceptable. The losses to our industry are unacceptable.
Chairman CAMP. Time is expired. Mr. Davis is recognized.
Mr. DAVIS. Thank you, Mr. Chairman.
I would like to move into the strategic realm if we could
for a moment and then get your insight, first Ambassador
Marantis.
I wonder if you could speak to China's bilateral and
regional trade agenda. I am particularly interested with the
geopolitics. China is doing some very, obviously important
things for their own strategic priorities in terms of growing
to protect trade relationships, their access to routes on the
ocean, what they are doing with Navy, investing in countries
that are resource rich, anticipating some of these demographic
and environmental inevitabilities that are going to take place.
I was wondering if you could comment on their influence and
impact in the region based on these agreements, and also if you
could compare China's trade relationships in the region to
ours, just to highlight the differences and where you think
they are going to ultimately end up.
Mr. MARANTIS. Thanks, Mr. Davis. China has been
extraordinarily active in the region, including trade and
investment agreements, and that is why it is incumbent upon us
to do what we are doing--which is to increase our engagement in
the Asia Pacific region.
We are doing this through a whole variety of fronts. We are
doing it in the context of APEC. We are doing it in the context
of the Trans-Pacific Partnership. We are doing it in the
context of our bilateral trade and investment work that we do
with our partners. It is a real challenge.
Our competitive share in the Asia Pacific has declined as
China's competitive share in the region has increased. When I
was testifying before this committee with respect to Korea, we
used to be the number one--we used to have the number one share
of Korea's market. We now are number three.
As our rates in Korea's market went from 21 percent to 9
percent, China's went from 7 to 17. We have got to reverse that
trend. And that is why it was so important for Congress to
pass, and the President to sign, the U.S.-Korea Trade Agreement
last week, and that is why the initiatives we are pursuing, for
instance, in the Trans-Pacific Partnership, are really vital to
maintaining our economic competitiveness in the region as China
continues to conclude more and more agreements with partners in
the region.
Mr. DAVIS. Secretary?
Ms. BRAINARD. Well, I think that the dynamic that you are
pointing to is very real. I think the passage of the U.S. Korea
Free Trade Agreement puts us in a much stronger position in the
region because we are now in a position where many potential
trade partners with much stronger disciplines in areas like
intellectual property, investment, exchange rates, now will see
us as a potential free trade partner. The Trans-Pacific
Partnership discussions that are underway I think are
critically important for that reason.
As we move to build stronger disciplines and stronger trade
relationships with surrounding countries, that is part of the
overall strategy to pull China to where we want to be in terms
of intellectual property, market-based exchange rates, a level
playing field. So it is a critically important part of the
overall U.S. strategy in the region.
Mr. DAVIS. I would ask just a follow-up from your perch at
Treasury. You mentioned the challenges that China will be
facing due to demographics, environment, a number of other
issues. Let's fast-forward to 2030. And I know it is always
dangerous to ask people to make predictions, but just from a
standpoint of we have plenty in the United States that are
pronouncing again the doom of America, as was happening in
regards to our relationship with Japan competitively back in
the 1980s.
If you would fast-forward 15 or 20 years, what do you think
the relationship looks like if we stay generally on the current
paths of policy?
Ms. BRAINARD. It is, as you said, very risky to project
into the future, but I will say we have our challenges. China
has some challenges. I would far rather have our challenges. I
have huge confidence in the resilience of this economy, in the
strength of our entrepreneurial culture, our innovative
capacity, our dynamism, our ability to adapt.
China, again, while their current growth rate looks
enviable, it is going to need to move to where we want them to
be on intellectual property, on market-based exchange rates, on
level playing fields, in order to overcome the very substantial
challenges they face in the coming years.
Mr. DAVIS. Thank you. I yield back, Mr. Chairman.
Chairman CAMP. Thank you.
Mr. Neal is recognized.
Mr. NEAL. Thank you very much, Mr. Chairman.
For our panelists, for those of us, as Mr. Rangel noted,
who have been on focus with this issue for a long time, the
question would be what does Nick Brady, Lloyd Bentsen, Bob
Rubin, Paul O'Neill and Tim Geithner, all have in common? And
that is that they have assured this committee that they could
manage the Chinese currency issue without congressional
intervention.
Now, the medical technology industry, they are very
concerned about price controls that the Chinese government has
proposed. It reduces market access for small and medium-sized
companies. China pledged to open its mandatory third-party
liability auto insurance market to foreign insurers. It talked
about it, but haven't really made much progress on it. And the
United States International Trade Commission recently published
an important report on the effects of intellectual property
theft on the U.S. economy.
Those numbers are pretty staggering across-the-board in
terms of job loss. In the financial sector, as you know,
because of forced partnerships, they have diminished the
enthusiasm that they once impelled in front of this committee
for a normal trading relationship. That enthusiasm that was
previously there has caused some of them to not only retreat,
but to leave, because they have found that the impediments to
growth have been so limited.
Actually, I have offered four quick questions there, but I
want to revert to the frustration that my friend, Mr. Tiberi,
mentioned a few moments ago until suggesting that the
frustration is really bipartisan in nature, and it has been the
repeated assurances of successive administrations, Democrat and
Republican, who have suggested just leave it alone, which
raises the suspicion here that the reason that we have been
fairly tepid in our response has been because they hold an
awful lot of American debt.
Would you like to hold forth on those questions?
Mr. MARANTIS. On the trade and investment front, Mr. Neal,
we share the frustration that you have expressed, the
bipartisan frustration. We have got to make more progress in
our relationship with China. It is clear. There are issues that
you raise with respect to IP, with respect to investment
restrictions, with respect to slow liberalization of the
financial services sector, and it is our job to keep China's
feet to the fire on this, and as Congress is doing, keeping our
feet to the fire to ensure that the commitments that we tell
you we are securing from China we are actually securing
implementation of.
I am not going to sit here and pretend that everything is
great and rosy. It is not. But we are making progress and
working with you. We will continue to do so.
Mr. NEAL. The problem with sovereign capitalism is that if
you suggest that you can only accept a partnership up to 49
percent of the corporation, the difficulty is that it allows
our trading relationship to be diminished because they get all
of the best technology advancements, research and development,
and then they control the outcome. And it causes not only great
consternation for American companies, but at the same time, it
also limits their ability to grow in a market that they once
believed was the panacea for many of their opportunities. Would
you care to comment, either one of you?
Mr. MARANTIS. Yes. And at the same time, though, I don't
want to diminish the fact that we are deriving benefit from
this relationship, as well, in terms of our exports across the
board.
Mr. NEAL. No question. That is not in dispute. But what I
heard Ms. Brainard say that they have allowed their currency to
appreciate by seven percent over the last 5 years, a decade,
not really a note of accomplishment, is it?
Ms. BRAINARD. No. Let me just state that China's currency
has appreciated against the dollar 40 percent over five years,
10 percent----
Mr. NEAL. You used the number 7 percent, I thought.
Ms. BRAINARD. Seven percent in nominal terms over the last
15 months; 10 percent adjusted for inflation, which, of course,
is the meaningful measurement. They are moving. Our exports are
growing faster to China than to anywhere else in the world,
nearly twice as fast. The third largest export market. We are
seeing progress. It is not adequate, but we are seeing
progress.
And I just have to say, we are up here with you, with your
staff, with your constituents, every day, working on what our
priorities are together as Americans, vis-a-vis our trade
partners, in particular China. We have been working
aggressively. We have taken more enforcement cases. We have
taken a 421, which the previous administration chose not to do.
We have a host of trade remedies across a variety of products
that are imported from China, and we will continue to work very
aggressively with you to pursue American interests. We are very
committed to doing that.
Mr. NEAL. Thank you, Mr. Chairman.
Chairman CAMP. Thank you. Dr. Boustany is recognized.
Mr. BOUSTANY. Thank you, Mr. Chairman, and thank you both
for being here today.
My home State of Louisiana is a maritime state and we
depend very heavily on trade and exports. In fact, we have gone
from eighth among the 50 States to fourth just in the past
year, and over the past 2 years, we have seen annual growth in
exports to China ranging around 50 to 55 percent. Significant
growth. And China now is our number one export market and
increasingly we are seeing small businesses, mid-sized firms
involved in this.
There has been discussion about whether or not we have the
necessary tools in place during the course of this discussion
today. One thing that has not come up except for the chairman's
mention of it in his opening comments is that of the Bilateral
Investment Treaty and getting a status report on what is going
on with this now. This is clearly an important tool. We know
that the EU is, at least, approaching or in negotiations now
with China. China has some 70 BITs in place now.
What is going on on our end? Secretary Geithner, at the
very beginning of the year, testified in front of this
committee and emphasized that it is a very important piece we
need to put in place, and yet we haven't heard much back from
the administration on this issue. So could you bring us up-to-
date?
Mr. MARANTIS. Sure. As you point out, a high standard BIT
can very much help level the playing field for our investors.
President Obama and President Hu, at the summit earlier this
year, reaffirmed their commitment to negotiating a BIT. We have
engaged in six rounds of technical consultations with them. We
have not yet completed our BIT review, and I know that there is
frustration amongst some that----
Mr. BOUSTANY. What is the holdup there?
Mr. MARANTIS. There are a variety of things that we are
looking at. We want to make sure that the BIT is able to
address the challenges, new challenges that our investors face,
including in markets like China that are dominated by state-
owned enterprises. We are working hard on it and we hope to
complete it.
Mr. BOUSTANY. Thank you. Secretary Brainard, do you want to
comment on this?
Ms. BRAINARD. No. I would just say that we have a history
of bilateral investment treaties, advancing the interests of
American workers and companies. Obviously we have enormous
interest in getting high standard protections for Americans in
China. The question, of course, is whether and when China going
to be able to come to the high level of standards that we would
want to pursue. That is, I think, what we have to ascertain
before we can really move forward in a more accelerated pace on
the Bilateral Investment Treaty. We want to make sure it is a
good deal for our workers and companies.
Mr. BOUSTANY. Shifting gears, when President Hu was in
Washington, there was a discussion about delinking indigenous
innovation from government procurement. And I was in China in
April, had conversations with the vice premier there about that
same issue. He said done. We have taken care of it. But my
understanding is that there has been uneven application of this
into the provinces and so forth.
What kind of progress are we really making with this and
what are our metrics? How are we monitoring it?
Mr. MARANTIS. We are not done, but we are making progress.
The Chinese side made a number of commitments on indigenous
innovation last year, including the one that you mentioned at
the summit last January.
As Under Secretary Brainard mentioned in her opening
testimony, China has repealed already four measures with
respect to its product accreditation system. At the state and
the local level, in some provinces and in some municipalities,
they have stopped implementation of measures that are on the
books. This is a huge priority for us in this year's JCCT to
ensure that the commitments that they made, i.e., getting rid
of these measures, are actually implemented.
Mr. BOUSTANY. So looking at the WTO government procurement
agreement progress, clearly China is dragging its feet, and I
know that has been a top priority in these discussions. So work
continues, I suppose.
Mr. MARANTIS. Yes. And again, as Under Secretary Brainard
mentioned, this was a big priority for us in the S&ED and in
the JCCT. We expect by the end of this year, as President Hu
committed to President Obama, that China will submit a revised
offer that will include, for the first time, coverage of sub-
central entities, which will be an important advance.
Mr. BOUSTANY. Do we expect that by the end of the year from
China?
Mr. MARANTIS. We do.
Mr. BOUSTANY. Thank you. I yield back.
Chairman CAMP. Thank you.
Mr. Becerra is mention recognized.
Mr. BECERRA. Thank you, Mr. Chairman. Thank you very much
for being here.
Let me make sure we are clear on what we are talking about
with regard to currency manipulation. There are three major
issues that I can tell from a country manipulating its currency
to its advantage. One, it artificially raises the prices of our
exports to that market, in this case, we are talking China;
two, it suppresses the prices of Chinese imports into the
United States; and, three, that manipulation of their currency
places U.S. exporters at a very competitive disadvantage vis-a-
vis Chinese exporters into other country markets.
So, whether it is unfair competition of Chinese imports
coming in looking like a cheaper product because of the
currency downgrade, or whether it is our products to China
costing more because the currency in China is valued at less,
or whether it is our American companies trying to compete with
Chinese exporters in another country, in either case we lose.
So would either of you disagree with those three points
that I just raised with regard to the issue of currency
manipulation?
Ms. BRAINARD. Let me just----
Mr. BECERRA. And I don't want a treatise. I just want to
know if you agree that those are three distorting effects of
currency manipulation?
Ms. BRAINARD. Let me just say that China's exchange rate
has appreciated against the dollar over the last 15 months more
much rapidly than it has against any other country in the
world, I think in part, because----
Mr. BECERRA. Ms. Brainard, I understand that point. I am
just trying to find out if the problems with currency
manipulation are as I have just stated. Maybe there are others,
but I have noted three----
Ms. BRAINARD. I think when we look at misalignment of the
exchange rate, failure to----
Mr. BECERRA. Let me move on to a different question if you
are not going to answer that one. I am just trying to find out
if you disagree that the problems with manipulating currency
causes us issues because the country that is doing the
manipulation is taking advantage of an artificially suppressed
currency value. Okay.
The issue becomes one of whether we are willing to take
action. Some have raised the specter of a trade war, that, oh
my goodness, if we were to try to take some concerted steps to
stop China from manipulating its currency, which, by the way, a
recent survey of economists said, 96 percent of them said that
they believe that China was indeed suppressing its currency's
value, but that this trade war might damage us. On the other
hand, there is some, and I agree with these folks, who say we
already see a trade war underway, and it is a one-sided trade
war where only one side is fighting, and that is the Chinese.
I don't blame the Chinese. They are doing everything they
can as aggressively as they can to help make their country
prosperous, and to the degree that any country lets them, that
is that other country's fault. I don't blame the Chinese for
trying to lift themselves up. They should go to it as best they
think. But if there are rules out there in the world, and if we
are abiding by those rules, we should try to make sure that we
fight on the same terms, to make them abide by those rules.
Another point. If an American wishes to buy a toy for his
or her child in this country and it cost a few extra cents more
to buy that toy because we have asked China to live by the
rules, or we forced China to live by the rules, I think that is
actually pretty good, because the chances are we may see a few
more of those toys or cups or whatever else it might be with a
label that says ``made in America,'' because these days, most
of those things aren't made in America, and unfortunately, some
1 to 2 million Americans the estimates will tell us that don't
have their jobs today because of China's currency manipulation.
Now, is it true that China exports four times as much to us
as we export to them, Ambassador?
Mr. MARANTIS. Our trade deficit with China is $273 billion.
Last year we exported roughly $92 billion, and I don't have the
number in front of me of what China--I think they exported $65
billion to us.
Mr. BECERRA. So almost a four to one advantage that the
Chinese have over the U.S. when it comes to exports. Now, if
the Chinese were to say if you want to engage in a trade war,
we are going to go at it, they stand to lose four times as much
as we do, because they send four times as much to us as we send
to them. I doubt that they are going to want to engage in a war
when they stand to lose four times as much as we do.
So the bottom line is, we have got the Senate which took a
63-35 vote to support legislation to deal with currency
manipulation, we have a House where a majority of the members
have supported the legislation that can't get through the
House, and it is time that we do something. So it is either do
nothing or do something, and I think members here are saying
let's do something. So we appreciate your being here and look
forward to having something passed through.
Chairman CAMP. Before I go to Mr. Roskam, I just have one
question, Mrs. Brainard. On October 15, the Treasury Department
was scheduled to submit its biennial report on China's currency
to the Congress, but it did not. When can we expect that
report?
Ms. BRAINARD. We issued the last report mid-May, and we
postponed the report, as you know, because we are engaged in a
series of very important summits where we will have an
opportunity, the President will have an opportunity to continue
to press this issue with President Hu. So we want to give those
processes a chance to move forward, in particular, G-20, APEC
and East Asia Summit, which go through the middle of November.
Chairman CAMP. The middle of November. Thank you. Mr.
Roskam is recognized for 5 minutes.
Mr. ROSKAM. Thank you, Mr. Chairman.
Mr. Chairman, I am going to resist the temptation to yield
my time to Mr. Rangel, although I think he was pretty well
articulating the frustrations that members on both sides of the
aisle are feeling that issue. I don't know if I am going to get
to a question, so relax, and if my voice goes up at end it will
be a question, but maybe more of a statement.
But it seems to me that we are really dealing with a
nation, China, that from an economic point of view, is
predatory and they are operating in their interests. Mr.
Becerra a minute ago said that he understood their motivations.
But it is predatory and it is game-on in terms of how they are
approaching this.
I have got a situation--we have talked at length so far
about currency manipulation. I have a manufacturer in suburban
Chicago, Fellowes Manufacturer, the manufacturer of bankers
boxes and shredding equipment and so forth, that has been
through a shameful nightmare. It is like the wild west from an
intellectual property point of view, highly manipulated. The
Chinese officials have been yea-yeaing American official also
for months and months and months, and Fellowes Manufacturing is
really no better off than it was today.
I was with Congressman Smith earlier this year, along with
Congressman Sensenbrenner and Congressman Rush, and we were in
West Africa, and one of the things that became clear to us, and
particularly to me, was the way in which the Chinese are
pursuing natural resources around the world. Not going in with
the best interests of other nations oftentimes the way the West
does. Instead, going in to grab hold and to control and to
manipulate natural resources in complicity with governments
that are doing shameful things in some cases, not in West
Africa, but in other venues around the world.
So I think that there is a couple of things that we need to
do. One is we need to have clear relationships with our allies.
One would be to move forward, and we have not talked about this
today, but the nature of the security relationship with Taiwan,
for example. We need to be sending a very strong signal that
the F-16-CD sales should move forward. The administration
hasn't agreed on that. But I think that this is an area where
we send a very clear, strong message that tells China what? It
tells China we going to stand with our friends. We are not
going to create ambiguity with long-time strategic allies in
the region.
I think another thing that we can do, and you alluded to
this a minute ago and we have different views on how to do
this, but the deficit issue is massive. Mr. Johnson mentioned
this in his opening remarks. I sat last year with a South
Korean official, one of their legislative leaders. I had a very
lengthy conversation. At the end of the conversation I said,
what advice would you give to the United States as we interact
with China? You have been living in a relationship with China
on the Korean peninsula for centuries and centuries and
centuries. What advice would you give? And with no sense of
irony, this South Korean official said, and I am paraphrasing,
well, Congressman, the first thing I would do is I would stop
borrowing their money. That is for sure.
So I think we create this vulnerability where 47 percent of
our debt is held by foreign interests, and the Chinese are
playing a very, very big role there. And I think there is
things that we can do proactively to take on this threat.
So, getting towards a question, I suppose, and that is
this: Chairman Camp mentioned earlier some of the economic
components to the intellectual property issues, and Mr.
McDermott alluded to this a minute ago when he talked about
Microsoft.
Microsoft's CEO came in to see me several months ago
basically laying out the same thing, and these numbers are
staggering. The U.S. International Trade Commission recently
conducted an analysis that would determine the economic impact
of IP protection in China if it were done the same as we do it
in the U.S. It would increase sales by $21 billion and it would
create 2.1 million jobs. Now, think about that. 2.1 million
jobs in the U.S. created if China simply honored the same
commitments that we have.
What is the metric by which the administration is figuring
whether it is succeeding or failing? Well, you can't answer
that, because I used up all of your time. Maybe we could
continue this exchange, because I think it is very important.
Thank you, Mr. Chairman.
Chairman CAMP. Thank you.
Mr. Thompson is recognized.
Mr. THOMPSON. Thank you, Mr. Chairman. Thank you for having
the hearing and thank you to both witnesses for being here.
I am interested, Ambassador, specifically on some
agricultural issues that are happening in this unlevel playing
field relationship we have with the Chinese. A lot of ag goods
face some pretty stiff barriers, arbitrary bans, ever-changing
safety measures. Wine, in particular, which is very important
to my State and my district, they face a 14 percent tariff for
bottled wine, a 20 percent tariff on bulk, and that is on top
of a 10 percent consumption tax and a 17 percent value added
tax. So you add this all up, and it is about a 50 to 60 percent
hit to the wine industry.
In addition to that, these guys are still involved in some
pretty dishonest practices. They continue to use this ``Nava
Valley'' label. About every week I get complaints from people
where they have some sort of California designation on their
wine labels. They drain California wine bottles and refill them
with their wine. They take our bulk wine and water it down with
wine that they have.
Now, I know you just got back from a round of trying to
negotiate some better dealings with the beef guys. And I want
to know what you are going to do to help improve all of the ag
trade issues, specifically wine, and what are you going to do
to get them to quit violating the law and ignoring of the rules
that are in place. And I am talking about this wine stuff that
I have talked to you guys about, I have talked to the past
administration about, and it just seems to be getting worse all
the time.
Mr. MARANTIS. Thanks, Mr. Thompson. Agriculture is an
interesting story. On the one hand, our exports are growing
phenomenally. China has just become our number one export
market.
Mr. THOMPSON. I am not interested. We can stipulate all
that. We covered it in the past. I am talking about
specifically these issues.
Mr. MARANTIS. We have serious problems with China on
agriculture, on sanitary and phytosanitary measures, and on
opaque, non-transparent measures put in place that either block
our exports or somehow tamper with them.
Ambassador Siddiqui, who is my colleague at USTR, the chief
agriculture negotiator, and USDA's Acting Under Secretary
Michael Scuse were in Beijing last week to go through the range
of issues that we have with China on the agriculture front. I
will get back to you to let you know on the wine issues
specifically that you raised on where we are with them.
Mr. THOMPSON. Please do. I would like to know specifically
about those two issues. One of them is just a blatant violation
of the rules and the law, and I would like to know how we are
going to monitor this and make sure it stops, because it has
been an ongoing issue. It is not just with this administration,
but with the past administration as well.
The other question I have is the solar industry in this
country has just filed an illegal subsidies case against China.
They are selling solar cells here at below market prices, and I
am told it is because of very, very lucrative Chinese grants,
discounted raw materials, discounted costs on prices on land,
power, water and export assistance levels that are far beyond
what the WTO allows. And this is technology that we developed
and invented here in our country, and yet we are just getting
overrun by Chinese imports. Our American businesses and our
renewable energy industry is going to do nothing but suffer
under the weight of this very unfair and weighted practice.
What can we do to deal with this and what are the pro specs
of this case moving forward?
Mr. MARANTIS. On green subsidies specifically, I think one
of the problems we are having is lack of transparency in being
able to actually know what specific kinds of subsidies China is
providing. That is why at the WTO, earlier this month, we filed
a counter-notification to basically call China out on over 200
subsidies that it is providing, many of which are in the green
technology sector. That will help us to be able to assess the
legality, the WTO consistency, of these measures, and help
determine what steps we should take to address these very real
problems.
Mr. THOMPSON. And you will keep the committee posted so we
know what we can do, because this is an emerging technology
that is really important in getting our economy going and we
really need to take whatever efforts we can to make sure this
is resolved.
Mr. MARANTIS. Absolutely, Mr. Thompson.
Chairman CAMP. Thank you. Mr. Gerlach is recognized.
Mr. GERLACH. Thank you, Mr. Chairman.
Ambassador, going through your testimony, I wanted to
really ask you a few more specific questions based on what you
have in here, and you were very good about outlining what you
call five key challenges to our trade relationship with China,
including intellectual property theft, indigenous innovation
policy problems, China's subsidies of their industries, the
Chinese ban on foreign investment for state-owned enterprises,
and barriers to ag imports. All of those are very important
problems we have.
How are you measuring the frequency or the quantity or the
number of unfair trading activities in those various areas over
a specific period of time? How are you measuring that in all of
those areas?
Mr. MARANTIS. The way we measure it is really in
consultation with you all as well as our stakeholders, who will
help us identify and prioritize the problems that they are
facing in the variety of baskets.
Mr. GERLACH. Do you get individual complaints? Can a
company that faces some problem or some barrier fill out a form
at your office complaining about a certain problem they have
experienced, and do you collect those complaints, and if so,
how do you investigate the validity of those complaints?
Mr. MARANTIS. It is done in close cooperation with other
agencies. Companies, SMEs, labor unions, business associations
will raise problems with us, with the Commerce Department, with
the Treasury Department, and we will work together on an
interagency basis to be able to identify the specific issue and
then determine what are our best steps to do so.
Mr. GERLACH. How many complaints or problems have been
identified to date relative to intellectual property?
Mr. MARANTIS. There are a lot.
Mr. GERLACH. How many? 100? 1,000?
Mr. MARANTIS. I would say they would fall into five
categories: software legalization, Internet piracy,
counterfeiting, trade secrets, and then there is sort of the
basket of other--that mainly our IP complaints will fit into.
Mr. GERLACH. And how many of those would you estimate exist
in terms of complaints, all those total?
Mr. MARANTIS. How many specifically?
Mr. GERLACH. Yes.
Mr. MARANTIS. I don't know, Mr. Gerlach. A lot. There are
really serious concerns in each one of those areas. On trade
secrets----
Mr. GERLACH. You certainly may not be prepared with a
specific number and I appreciate that. Can you give me a
ballpark estimate? More than five, more than 100, more than
1,000? How many of those kind of complaints, intellectual
property, are out there?
Mr. MARANTIS. Oh, I think again it will range, as for the
different problem, on the software side, there are huge
problems with respect to piracy. On the trade secret side, we
have heard----
Mr. GERLACH. How about how many? Can you estimate how many?
Mr. MARANTIS. I would say upwards of 50.
Mr. GERLACH. How about in the indigenous innovation policy
category?
Mr. MARANTIS. The indigenous innovation policy category,
the good news there is that we have rolled back a lot of the
new problems, and the new problem that is coming up in
indigenous innovation that we really need to address this year
is with respect to electric cars.
Mr. GERLACH. Okay. How about in their subsidy policies and
in their ban of foreign investment and in the agricultural
import area. How many problems are existing that you are
investigating and trying to get a handle on?
Mr. MARANTIS. Sure. On subsidies, our counter-notification
identified 200-plus subsidies that we want more information on
from the Chinese to determine what our next step should be. On
agriculture, the key problems that we face are in the area, I
would say, of beef, pork, poultry----
Mr. GERLACH. California wine.
Mr. MARANTIS. Apples, strawberries, wine.
Mr. GERLACH. The reason I asked for some broad estimate of
all this, because I also notice in your testimony that to date
we have only, as a country, brought 12 complaints, WTO
complaints against China, and all of these complaints being
raised, from Members of Congress to those in the private
sector, to all the work you are doing in your agency and all
the other agencies, a total of 12, total?
Mr. MARANTIS. The WTO is one way that we resolve problems.
We also resolve a vast amount of problems through the JCCT and
the S&ED. So there are different tools that we use depending on
what the problem is. In the WTO, our disputes that we have
filed usually go at strategic and systemic issues, but we also
try to solve the nitty-gritty problems that our businesses will
have through the JCCT.
Mr. GERLACH. Well, you are making efforts obviously to do
that, but it sounds as if those efforts may not be as
productive as they ought to be when you continue to get the
number of complains that you get. And then ultimately to really
bring this to a high level of adjudication in the WTO, our
country has only filed 12 complaints since that organization
was founded. It doesn't seem like a lot of aggressive action on
our part.
Chairman CAMP. Thank you.
Mr. Pascrell is recognized.
Mr. PASCRELL. Thank you, Mr. Chairman.
Mr. Chairman, it has become quite obvious if you listen to
both sides of the aisle that we are pretty much in agreement.
Just check the questions that have been asked. I want to
identify myself and associate myself with the gentleman from
Pennsylvania who just asked his questions. It is pretty
difficult to get answers. But it was no different 10 years ago,
8 years ago, 6 years ago on these issues. So if you keep it up
in the air, you don't know the specific answer, nobody knows
what is really going on.
But I think we can conclude, I don't think this is
hyperbole, and I want to thank the panelists for being here
today, that we have become China apologists. And I remember the
issue when I first came into the Congress when Chris Smith, my
brother from New Jersey, a Republican, was pursuing the path of
intolerance of religious differences in China. Some people paid
attention. Some people did not. Administrations on both sides
were a little reluctant to be difficult or tough, say a lot of
tough words. But as you pointed out in your questioning, action
is more important.
Secondly, I think that both sides of the aisle also, and
correct me if I am wrong, believe that we need to reestablish
Article I, Section 8. The rush to get into free trade
agreements has minimized the power of the House of
Representatives, not only the Ways and Means Committee, but it
has minimized our power in trade deals. It is interesting when
you see people who want to be fundamentalists about the
Constitution of the United States, when it comes to trade, all
of a sudden they have amnesia, or maybe something else.
So this is serious. This is a very important problem. We
are dealing with a county that subsidizes many of its
industries.
Last evening, last evening, Mr. Marantis, a friend of mine
who is in the marble business in New Jersey, Paterson, New
Jersey, one T, called me and said something that he had told me
at least 10 times in the last 6 or 7 years, and that is that he
can no longer survive in his business. He can no longer compete
with China. He has a good product. He tried everything
possible. So what I have concluded, and maybe I am wrong, maybe
I am right, it doesn't matter who the President is, not only
doesn't the Congress control trade agreements, the President
doesn't control trade agreements.
It is very interesting in the Chamber of Commerce, and my
Chambers of Commerce and I get along very well, they are making
the decisions about the big cats, and those small businesses
which are across the landscape of the greatest country of the
world have suffered the consequences. Suffered.
In fact, the trade deficit, I have heard you both say,
things are getting better. Well, we had, in August, a $29
billion trade deficit, the highest we have ever had. And if you
go back to testimony in the past, you will hear the same kind
of things, things are getting better. Things are getting
wonderful. We are making changes. That is all we have heard.
Our trade deficit with China has ballooned from $84 billion in
2001 to $278 billion, and we are losing jobs continually.
Now, this idea about getting our product into China sounds
wonderful, but if you don't change the currency and keep up
with the times, it means nothing. And you were asked
specifically from people from both sides of the aisle specific
questions, and all I heard was ``I share your frustration.''
I am not frustrated, I want you to know that, and you are
not going to get me frustrated. We are out of excuses. We
haven't sent this legislation, we haven't sent that legislation
to the President.
Let me ask you this question, Ms. Brainard--Dr. Brainard--I
am sorry. How fast do you believe our exports to China could
have grown had Chinese consumers, Chinese consumers, had the
increased international purchasing power that would come with
an accurately valued currency? I want to hear this. Or do you
simply want to say you share my frustration? I don't have any
frustration. I asked a question.
Mr. HERGER [presiding]. The gentleman's time has expired,
but I would request if the Under Secretary could respond in
writing to the gentleman?
Ms. BERKLEY. Mr. Chairman, are we down to 3 minutes apiece?
Mr. HERGER. No, we are at 5 minutes, and I think the
gentleman's time went about 25 seconds over.
Mr. PASCRELL. I was just asking could I get a response?
Mr. HERGER. Could you respond in writing to the gentleman
and to the committee, please.
Mr. PASCRELL. She can't tell us verbally?
Mr. HERGER. Pardon?
Mr. PASCRELL. She can't respond now?
Mr. HERGER. Each one of us has 5 minutes, and you went
about 5 minutes and 20 seconds. So we are trying to hold it
down so each member having the same amount of time.
The gentleman, Mr. Buchanan, is recognized for 5 minutes.
Mr. BUCHANAN. I want to thank Chairman Camp and our
witnesses for being here today.
I represent Florida, and we are very, very excited in
Florida about the past three trade agreements. There might be
some question--it was bipartisan, but there might be some
people that feel it was fair. In general, looking at it myself
and obviously in Florida, a lot of people thought they were
pretty fair in terms of what each country exported to each
other. I think there is just a general feeling, I have seen it
for a lot of years. I was in China back 6-7 years ago, in
Beijing, but there is just a general feeling, that sense of
free trade, but it is not fair. It is not just here on the
panel.
I have been in business 30 years. I have heard it from a
lot of businesses all over the country. I did a town hall, my
last town hall a couple of days ago, and it gets brought up.
This sense of there is not the fairness, that we are being
played as a country, a lot of people feel that strong about it,
and I think it is something we have to get a lot tougher on.
We touched on the idea of intellectual properties, and
someone made that point, and that is what I was going to say. I
was there with the U.S. Chamber, the CEO at the time, he is
still CEO today, and we were there 7 or 8 years ago. We were
talking about intellectual property back then and it was
gigantic problem. So this isn't a Democratic administration or
a Republican, we just have not done a very good job, in
general, of getting this thing where it gets some sense of
fairness.
I can just tell you, it is not, like I said, just the
business community or just Members of Congress. Everybody sees
it other than we just don't seem to deal with it and take any
action. And as I mentioned, my colleague mentioned earlier, if
we were able to equalize that a little bit just on the
intellectual properties, we are talking about 2 million more
jobs in America, and I think the number is $67 billion
additional in exports in terms of the report that came out of
The New York Times.
One question that got brought up, and I don't know if it
was answered, because I remember leaving that room and as an
American, I really didn't feel very good about when we were
pressing them on some of the issues that got brought up today,
intellectual property and other things. We were with the vice
premier in China at the time, and someone looked out as we were
walking out, we were pressing them pretty good on behalf of the
U.S. Chamber and the business community, and he said, well, we
are buying your debt.
And I guess one of the questions I have is how much of a
factor is the fact that we owe $1.6 trillion to the Chinese in
terms of our ability to get tougher on some of these issues? I
know you touched on it, but I would like to hear it from Madam
Secretary, your feeling. As this debt continues to grow there
and become a bigger concern, how much of a problem is that in
terms of negotiating with the Chinese? We can start with you,
Madam Secretary.
Ms. BRAINARD. Let me just say, we are pursuing our strong
interest in a faster rate of appreciation exchange rate in a
very clear eyed and direct manner and will continue to do so.
Our Treasury securities, very attractive to holders in this
country, holders all around the world. As you know, deepest,
most liquid financial markets in the world. And, you know, over
the medium term, obviously as a country, we are going to face
this challenge that we need to start grappling with now of
living within our means and seeing our debt-to-GDP fall. And
that is why the President has put forward some proposals. We
have the supercommittee meeting right now to come forward with
some proposals on a bipartisan--those are absolutely critical
things to do.
Mr. BUCHANAN. Let me ask you, because we are limited on
time. Ambassador, would you like to add? How much of a factor
is that? Does that impede our ability to get tougher on
negotiation and get the sense of fairness? How big of a factor
do we owe to the Chinese $1.6 trillion?
Mr. MARANTIS. Mr. Buchanan, enforcement is our number one
priority. The concerns are broad, and I know that there is
tremendous frustration on this committee. We share it as well.
We do everything that we can with the tools that we have in
front of us to address the challenges. The challenges in IP, as
you point out, are vast. Yes, we are making progress. No, it is
not enough. We have got to continue pushing and pushing and
pushing at every level, and we will continue to do so.
Mr. BUCHANAN. And Madam Secretary, what can the Congress do
to help you be more successful quicker? I think that a lot of
people just feel like there is not enough progress being made.
These deficits continue to skyrocket. Everybody is concerned
about that. And I guess my time has expired. I yield back.
Mr. HERGER. Mr. Blumenauer is recognized for 5 minutes.
Mr. BLUMENAUER. Thank you very much, Mr. Chairman.
Your words are echoing in my ears. I love the fact that
enforcement is your number one priority. That is, in fact, why
I supported putting China in the WTO so that we would be able
to actually fight to have a level playing field.
Now, I must admit that I am mystified that we are still--
your answer to my friend Mr. Stark's question about how we are
shipping hundreds of millions of dollars of business to the
Chinese, that they are able to use, evidently, the procurement
regime when they are not a signatory.
Now, can you tell me exactly why we have to give them
special rights when they are not a signatory to the agreement?
Which, if memory serves me correctly, they promised to promptly
ratify. Why do we have to give reciprocity when they are not
doing what they said they would do?
Mr. MARANTIS. You are correct, Mr. Blumenauer. We do not
have obligation towards China with respect to government
procurement. And we won't until they join the government
procurement agreement. It is in our interest that they join it
as quickly as possible so that they don't discriminate against
us and we have access to their huge procurement market. But no,
we don't have obligations.
Mr. BLUMENAUER. So we could deny them contracts like the
Bay Bridge?
Mr. MARANTIS. Again, we don't have obligations to China. We
don't have a nondiscrimination obligations to China for
government procurement.
Mr. BLUMENAUER. I would like to just have, if I could, some
sort of written assessment of where exactly we are in this
drama that has been going on for years which they promised they
would do, and then get a sense of what we could do to just deny
them access to government projects unless and until they are a
signatory. But since I am a little slow on the uptake on this,
I would benefit by having that in writing.
Mr. MARANTIS. We will get that for you, Mr. Blumenauer.
China promised in 2001 that they would join the government
procurement agreement as soon as possible. It is 10 years
later. We are still waiting for China's second revised offer,
which it promised by the end of the year. We have to get its
accession to the government procurement agreement right, and
that means coverage of sub-central entities and----
Mr. BLUMENAUER. I am looking for it in writing. What I
would like to have in there is what prevents, or how can we
deny them access to government procurement in this country
unless and until they do what they said they would do 10 years
ago.
Ms. BRAINARD. Can I just note that, as I was saying
earlier, under the Buy American provisions in the American
Recovery Act, in fact, they were not eligible because they are
not signatories. I think that the bridge in question was built
without Federal funds, and that explains the difference there.
But we will look into that and get you specifics on that. But
under Buy America, because they are not signatories, they are
disadvantaged. There is no reciprocity there.
Mr. BLUMENAUER. The bridge in question is linked to Federal
investments. And I think we ought to look a little more broadly
at who benefits and who loses from this so that we don't have
some people at the local level doing things on the cheap that
actually disadvantages American workers and ultimately
disadvantages China because everybody is going to be better off
if we play under the rules.
But I would like to turn to one other area because we are
watching an awful lot of effort--I mean, would identify very
strongly with my friend Mr. Thompson's observations about the
solar industry. But there is one area that I am particularly
interested in pursuing, and that is how we give you appropriate
resources so it doesn't fall to an individual union or business
to do something that appears to me to be the responsibility of
government to make sure that our trade laws are enforced. I
noticed with interest an amendment that added a little bit of
money to help do that. But can you give me a sense of what do
we need to do so that you can, in fact, have the resources and
we don't put this burden on a union for a company?
Mr. MARANTIS. Thanks, Mr. Blumenauer. You are absolutely
right. We need to make sure that we have adequate resources to
address the really tough challenges that we face in China. I
think the President's budget reflects that. And what we do, as
you know, small little USTR is we work to leverage our
resources with other agencies. We work very closely with the
State Department, with the Treasury Department, with the USDA,
with the Department of Commerce, to try to maximize our ability
to solve problems for America's workers, service providers,
farmers, ranchers et cetera.
Mr. BLUMENAUER. Thank you, Mr. Chairman. This is one area
that I hope the committee's oversight could extend to make
sure--you know, the notion that it is a little, tiny USTR.
Well, the Federal Government is bigger than any company or
union. And I think we need to make sure that the resources are
there to make sure that these trade laws are in place.
Mr. HERGER. I thank the gentleman. The gentlelady from
Kansas, Ms. Jenkins, is recognized for 5 minutes.
Ms. JENKINS. Thank you Mr. Chair. And I thank Chairman Camp
for having you all in today. Thanks for being here.
Currently there is a 50 percent cap on foreign ownership
and life insurance in China. Life insurers. Though the cap is
not inconsistent with China's WTO commitments, by lifting the
foreign direct investment cap, companies can more easily bring
in capital to hire workers, deploy world-class service
platforms, and invest in Chinese capital markets. Lifting a cap
also would allow foreign insurers to increase their capital in
a life insurer in China, even if a Chinese partner were not in
a position to increase its own capital.
Has the Chinese Government shown any sign that they would
be willing to raise the FDI cap in life insurance? And is
lifting that cap a priority for the U.S. Government?
Mr. MARANTIS. Thank you for raising that. We are frustrated
with the remaining restrictions that China imposes in the
foreign investor sector. Insurance is one important area. China
recently issued its foreign investment catalog, and we were
very disappointed that it didn't go farther in lifting many of
these restrictions. We work together in the context of our
investment forum with China. We have an insurance dialogue with
China and we have our JCCT where we push exactly the issues,
Ms. Jenkins, that you raised so that we can make progress.
Ms. JENKINS. Thank you. Madam Secretary?
Ms. BRAINARD. I would just say that life insurance is one
particularly egregious example. Of course, you are right, that
this is their WTO commitment. But we are pushing them across
financial services to go beyond their WTO commitments. And you
know, they have said that they want to open up their services
sector, expand it. We have the strongest, most competitive
financial services insurance providers in the world. And so we
are going to keep pushing really hard on these equity caps.
Ms. JENKINS. Thank you. Along that same line, at the
conclusion of the Strategic and Economic Dialogue back in May,
China pledged to study and push forward the opening of the
mandatory third-party liability auto insurance market. And
despite this public commitment, we have heard nothing about the
issue since the S&ED. As you know, China is now the world's
largest automobile market. Liability insurance for drivers is
mandated, but it remains closed to non?Chinese companies. What
steps have the Chinese taken towards fulfilling this
commitment? And what metrics is the U.S. Government using to
evaluate this process?
Ms. BRAINARD. The press reporting is that the China
Insurance Regulatory Commission has actually put forward a
proposal to follow through on that commitment to the State
Council. We haven't seen it yet. We are obviously going to
follow up and try to get a copy of that as soon as we can. But
we will continue to raise it in every bilateral discussion we
have. And obviously, this will be prominent also in the JCCT.
Ms. JENKINS. Okay. And China's 12th 5-year plan calls for a
4 percent growth in services GDP over 5 years to 47 percent of
the total GDP. Mr. Ambassador, I think you mentioned that;
however, in China's draft foreign investment catalog, there was
very little in the way of service investment liberalization. Of
the 32 industries listed in that encouraged catalog, only three
are directly related to investment in services. And a few
aspects of those services industries included in the encouraged
list are new to the 2011 catalog from the previous 2007
catalog.
Recognizing that U.S. economic growth and domestic job
growth rely in significant measure on access to key
international service markets, including China's, what can the
U.S. Government do to encourage China to permit more U.S.
investment in its domestic services industry?
Mr. MARANTIS. One of the positives in their revised catalog
was their lifting of ownership restrictions for hospital and
clinics. And that was a big advance. But they have not gone
nearly as far as we want them to go in the area of service
sector liberalization. It is an important priority for us
across sectors, whether it is financial services, express
delivery, or telecom. This is one of the issues, one of the
many issues, that we continue to press for more progress--both
on the ability of our service suppliers to supply services from
here to China, as well as our service suppliers to be able to
invest in China with a majority-owned ownership structure that
supplies services in that market.
Ms. JENKINS. Thank you. I yield back.
Mr. HERGER. The gentlelady from Nevada, Ms. Berkley, is
recognized for 5 minutes.
Ms. BERKLEY. Thank you, Mr. Chairman. And thank you both
for being here. We appreciate it. The unemployed workers in my
State of Nevada can't afford for Washington to continue to sit
on its hands, especially in the face of the illegal trade
tactics of the Chinese government. This is fairly simple to me.
The unfair practices of the Chinese government are cheating
American workers out of their jobs. Since 2001, just by the
manipulation of their currency, that has cost approximately
$2.8 million American jobs. In my home State of Nevada, who has
been hit particularly hard by our economic recession, we have
lost nearly 15,000 jobs due to the Chinese currency
manipulation. That is unacceptable. My State has the highest
unemployment rate in the Nation.
Every day, I hear from people who say they have never
missed a day of work in their lives, yet they have lost their
jobs and now they are losing their homes and they are looking
to us for help. They need our country's leaders to focus every
day on job creation and getting the economy back on track. That
means to me that we have to fight against policies that
continue to shift good-paying American jobs overseas, that
continue to harm our American workers. I call on our leadership
in Congress to drop its opposition to closing taxpayer-funded
loopholes that encourage corporations to ship American jobs
overseas. That is not enough. We all need to fight the Chinese
government's unfair tactics that are cheating American workers
out of their jobs.
The Chinese government is not just supporting their Chinese
businesses. They own them. They are them. And they are
manipulating their currency to help the companies that they
control to the extreme disadvantage of American corporations
and businesses. The idea that we are somehow afraid of a trade
war with the Chinese is a joke to me. We are already in a trade
war with the Chinese, and I am afraid that we are losing this
war. We need to stand up on behalf of the unemployed workers in
Nevada and the Nation as a whole and say, Enough is enough. We
can't do this anymore. You can't do this anymore. And this is
why I urge the Congress and our administration, who you are
here representing, to change course, stand up to the Chinese
government on behalf of American workers and American
businesses. I think we need to stop worrying about what the
Chinese government's reaction is going to be, stop standing up
for the Chinese government, and start fighting to create jobs
for American workers here and home.
The U.S. has lost $23 billion, estimated, on pirated
software and intellectual property theft on counterfeit
products by the Chinese. We have lost countless billions more
on their currency manipulation and countless billions more on
trade distorting measures that are not contained in the other
two. You said earlier that you are using all of the tools
available to you to fight for American workers, to fight for
our economy, to stand up to the Chinese. I think there is a
common belief that we are not doing enough. What tools do you
need from us that can help you, that can add to your arsenal so
that you can protect our economy and the American workers and
businesses from the overt illegal tactics of the Chinese
government? What can we do to help you to help us?
Mr. MARANTIS. Thank you. Let me give you a really concrete
example of one of the tools that we have and how we have used
it.
Ms. BERKLEY. No. I want to know what we can do to give you
more tools that you can use to actually do the job.
Mr. MARANTIS. I think the cooperation that we have--this
hearing is an example of something that is very important. It
is very important for our counterparts in China to hear that
Congress and the administration are working hand in hand to
address the concerns, whether it is on IP, whether it is on
subsidization. Oftentimes I think that our counterparts don't--
they don't see the fact that the Congress and the
administration have to work in very close consultation and
cooperation to actually make progress. And that is why we are
here today and that is why we appreciate that you are having
this hearing today, because it is important also for our
Chinese counterparts to hear your concerns so that when we are
in front of them, we are doing it on behalf of you.
Ms. BERKLEY. With all due respect, Mr. Ambassador, I have
been here in Congress 13 years. For a number of those years and
in this very hearing room, they have heard us loud and clear. I
think at this point, they think talk is cheap and that we are
not going to enforce appropriate trade policies and rules. What
do you need from us to make them listen and understand that we
mean business? And that is why I like that Senate bill.
Mr. HERGER. The gentlelady's time has expired. Mr. Paulsen
is recognized for 5 minutes.
Mr. PAULSEN. Thank you. And thank you for being here to
testify and answer questions.
I just want to follow up a little bit on the line of
questioning we have already had. We know China is the third
largest export market. That is where the opportunities are for
American companies to do well. But it is pretty clear that the
Chinese government is not taking seriously its responsibility
of trade freely and trade fairly. And it is our hardworking
American innovators that cannot make the most of the
opportunities to engage in the opportunity in China to trade
because of these regulatory obstacles, the subsidies, the IP
protection rights that are not protected, indigenous
innovation, the service sector restrictions, the currency
misalignment, and on and on and on.
I do have a question that is directed at the medical device
industry. The medical device industry is very concerned about
the price controls that are being proposed by the Chinese
government. And this is an industry where we are still a net
exporter, where there is a lot of innovation happening here in
the United States. And what do you view the actions that we
will take to make sure that we will stave off, I guess, the
Chinese government's proposal in this area that is going to
strictly control the pricing of imported medical devices? This
includes devices that are manufactured and invented and made
here in the United States. Especially since these same devices
in China would be subject to less stringent price controls
under this proposed policy. Mr. Ambassador.
Mr. MARANTIS. Thanks, Mr. Paulsen. We have two, I think,
serious issues on the medical device front. You raise one and
that is price controls. Over the past number of years, China
has been poised to impose price controls on medical devices. We
have been successful over the past 5 years in staving them off.
In August, China released a proposal that suggested that it
will soon implement price controls in the sector. We are
working very hard to encourage the Chinese government to put a
pause on that so that they don't do so. The other issue that we
are working on in the medical device sector has to do with
redundant regulatory requirements. Right now, China is
requiring that in order to get approval in China's market for a
new medical device it has to have prior approval for from our
own FDA. That causes unreasonable delay in our view. It is
another priority area that we are working on in the medical
device area.
Mr. PAULSEN. Ms. Secretary, any further comment on that?
Ms. BRAINARD. This is an area that the USTR takes the lead,
but we work across the administration in support of this short
list of priorities.
Mr. PAULSEN. Mr. Ambassador, do you feel that you have the
tools necessary to focus attention on those products? There has
been a 5-year delay. Now there has been a new proposal in
August and that you are hoping to have them pause again. But do
you feel that you have the tools necessary to make sure that we
are getting their attention on this?
Mr. MARANTIS. We, together with the Commerce Department,
have been very vigorous in terms of medical--on the medical
device front. We just had an interaction with our counterpart
just the other week. Under Secretary Sanchez and I both pushed
this issue with our Chinese counterparts, and we will continue
to do so.
Mr. PAULSEN. Just one follow-up question. You have heard, I
think, increasing concerns from the American business community
that supports export opportunities. But they are concerned
about backtracking on the past improvements that we have made
with China opening up its economy. Do you believe that China
has been backtracking on the improvements that it had made once
in opening up its economy?
Mr. MARANTIS. I think our general view is, after China
joined the WTO, there was a real push in China to implement its
WTO obligations. I think things have slowed down, and we are
facing new systemic challenges in China that we haven't faced
before. That is why we are trying to target our WTO disputes on
key strategic and systemic issues like our export restraints
case or like the creation of an apparent homegrown monopoly to
provide electronic payment services. So I think the issues have
become a lot more complex over the years. But we are again,
moving on all cylinders to fight those.
Mr. PAULSEN. Thank you. I yield back, Mr. Chairman.
Mr. HERGER. The gentleman yields back.
Mr. Berg from North Dakota is recognized for 5 minutes.
Mr. BERG. Thank you, Mr. Chairman. I, too, want to thank
the panel for being here. Obviously, this has been an
interesting hearing with a lot of concerns, a lot of passion. I
wanted to really focus in on the IP.
Recently, the International Trade Commission had a report
and it really provided some pretty compelling evidence. They
found that the IP infringement in China costs as much as $100
billion in sales and exports, as we heard earlier here, over 2
million jobs in the U.S.
Really, my question gets to, what action are we taking with
this information? I guess that is my first question.
Mr. MARANTIS. So we have been moving, using all of our
tools to make progress. Let me give you a very concrete
example. We have something that we issue at USTR called the
notorious markets report which identifies problem, counterfeit,
and pirate markets either online or physically. Following the
release of last year's notorious markets report in February,
which identified Baidu, which is China's big Internet search
engine as providing links to pirated Web sites, Baidu entered
into a licensing deal with U.S. music labels and is now
offering legal content on its site. That was a huge advance.
And it is an example of how we are trying to use the various
tools that we have at our disposal creatively to address real
problems.
Mr. BERG. I guess, Mr. Chairman, just to follow up, do you
have all the tools necessary to address these issues? Or having
worked through this, there are some gaps?
Mr. MARANTIS. I mean, I guess the way I would answer that
is, we really need resources to address the very real problems
we have with China. The President's budget reflects those
priorities, and that is why we work so closely with our
interagency colleagues and our stakeholders and the business
community and our labor unions to make sure that we are able to
bring all of our resources to bear and make maximum use of them
to address the very real problems we face.
Mr. BERG. So kind of more specifically then, you are
feeling you have the accurate tools to address this?
Mr. MARANTIS. I think we have a lot of important tools that
Congress has given us over the years, and we work to make
maximum use of them.
Mr. BERG. Let me ask it this way: If there were one or two
other things that you would like, what would that be?
Mr. MARANTIS. I would like for us to be able to continue to
make more and more progress on these issues. But I do think we
have adequate tools to address the concerns-whether it is in
the IP space, or whether it is in the subsidy space.
Mr. BERG. Mr. Chairman, I will yield back.
Mr. HERGER. I thank the gentleman. The gentleman yields
back.
The gentleman from New York, Mr. Crowley, is recognized for
5 minutes.
Mr. CROWLEY. Mr. Chairman, I yield to the gentleman from
New Jersey.
Mr. PASCRELL. Thank you, Mr. Crowley. Thank you, Mr.
Chairman.
Mr. Chairman, I want to bring to your attention as well as
Under Secretary Brainard and Ambassador Marantis, who have been
generous with their time today, that on November 15, a report
will be forthcoming from an organization that was created by
the Congress of the United States 10 years ago. That
organization is the U.S.-China Economic and Security Review
Commission. They report directly to the Congress of the United
States, a creature of the Congress.
Last year in their report, very specific about what was
recommended to the Congress to do in responding to the currency
problem. That is a report that re-establishes again and again
the significance of the Congress under Article I, Section 8 of
what our duties and responsibilities are. And we have to look
into how currency and export subsidies are hurting the workers
in this country. Time and time again, that report has been
pretty specific.
I have one other final question, if I might get this in.
Does Customs need more tools to properly deal with the problem
of Chinese goods being transshipped to South Korea? Pretty
specific. 10 seconds.
Mr. MARANTIS. We work very closely with the Department of
Homeland Security on this issue, to make sure that the issue
that you raised, Mr. Pascrell, that there is no opportunity for
transshipment for goods from China through South Korea has been
addressed.
Mr. CROWLEY. Reclaiming my time, Mr. Chairman. That is a
New Jersey minute.
Mr. Chairman, I appreciate today's hearing. But you know,
this is the first hearing we have had in 10 months on China in
this committee. The first hearing we have had. I know we are a
legislative mill here. We have passed and enacted into law less
than 50 bills and we haven't had time to discuss what I think
is probably the most critical relationship in the world today,
the relationship between the United States and China.
The fact is, some of our commercial relationships to China
are beneficial to America. Our services exports to China are in
a surplus and that is a good thing. But our overall trade
relationship with China needs to continue to be rebalanced.
One of the frustrations we have here on the committee is,
we constantly hear from American companies that are getting the
runaround from China's authorities. The previous administration
under President Bush did not take serious action, I don't
believe, whatsoever, to defend American industries when it came
to China. Even when there was evidence that American companies
weren't getting a fair shake, there just wasn't a sense of
urgency about trade enforcement. I use the tire dumping as an
example. And I want to thank this administration for at least
moving in a strong way towards enforcement with China.
Now Ambassador Kirk has mentioned to us that that they have
already run out of funds when it comes to translative services
with China. Is that correct, Ambassador?
Mr. MARANTIS. I am not sure, Mr. Crowley. I would have to
check.
Mr. CROWLEY. Well, if you could find out for us, because I
think that is critical for this committee to understand and for
the Congress to understand that our USTR needs to have every
tool in its quiver so that it can address the issues of
challenging the Chinese when they go off?track and hold them
accountable at the WTO. And I think that is a critical and
very, very important point. And if we can get back from the
administration, we need to help you help us and the American
people by giving you the tools you need to fight this.
Now Ambassador Marantis, I was very pleased USTR challenged
China's prohibition on foreign suppliers for processing payment
card transactions in China in order to create what is known as
a national champion. Can you discuss why this case violates
China's WTO commitments and what the status of that case is, if
you can briefly?
Mr. MARANTIS. This is a very important case because it is
emblematic of concerns we see in China generally-its efforts to
create a homegrown national champion, a monopoly to supply a
particular service. We have worked really hard in developing
and in bringing the electronic payments case. It is now before
a WTO panel, and we would expect a ruling from the WTO some
time next year.
Mr. CROWLEY. I thank the gentleman.
Mr. Chairman, I think it is important--coming back to the
original point. I know my time is coming to an end--that we
need to help this administration. They are confronting enormous
challenges when it comes to making sure and ensuring that the
Chinese are playing in a fair way when it comes to the WTO and
the commitments that they have made.
I didn't support WTO for China nor do I support PNTR for
China. But now that we are in the situation, we need to make
sure that our administration, regardless of party affiliation,
has the resources and tools, including translative services, so
that we can do this in a fair and balanced way and one that
helps to benefit the American people. I thank you, and I yield
back the balance of my time.
Mr. HERGER. The gentleman yields back. And I would say that
I agree with the gentleman from New York. I know Chairman Camp
does. And I might mention, just as a quick response, we have
had Ambassador Kirk here. We have had Secretary Geithner. We
have had FTAs so trade has come up numerous times here on this
committee.
With that, I yield 5 minutes to the gentlelady, Mrs. Black.
Mrs. BLACK. Thank you, Mr. Chairman. Again, I thank both of
you for being here today. I know you have had a lot of
conversation about currency misalignment and subsidies and
protecting IP, all of these are very important. But I want to
turn our attention to something that hasn't been spoken about.
And that is that China has been restraining exports on rare
earth minerals to the United States and Japan. Of course, this
type of action does raise serious concerns and issues
underneath the WTO agreements.
Just last week, China's largest rare earth producer
suspended production of rare earth minerals for 1 month in a
very transparent effort to maintain artificially high prices.
The United States has worked well with all of our allies, in
particular, Japan and Europe, to address this issue in the
past, but this new action, of course, is very concerning. And
if you could provide us an update on what is currently being
done on this issue?
Mr. MARANTIS. Yes. And we are very concerned about China's
export restraint policy, which affects numerous raw materials,
including rare earths. We have been cooperating very closely
with other trading partners on this particular issue to raise
it with the Chinese at the highest levels. We are raising this
in the context of the JCCT. We are working very closely with
third parties. And we are in the process right now of
conducting some extensive research in an effort to consider
next steps. On a separate track, we have a WTO case that we
filed on export restraints. These don't affect rare earth
specifically, but they affect other raw materials. We won that
case before the WTO panel, and it is pending before the
appellate body right now. And that is another example of a huge
WTO challenge that tackles systemic problems that we face in
our relationship with China. And export restraints is an
example of that.
Mrs. BLACK. Ms. Brainard, do you want to comment on that as
well?
Ms. BRAINARD. Just to agree with the importance of this
issue and to say that it is something that has caught our
attention from the very start. As Ambassador Marantis said, we
have a cross?agency working group focusing on this issue. The
WTO challenge I think was very significant. And more broadly, I
think USTR has taken WTO enforcement actions very strategically
in those areas where the judgment is that it will have the
biggest overall impact in setting precedent for other barriers.
So the win that we had in that area, I think, is extremely
important and hopefully that will help accelerate progress on
rare earths issue.
Mrs. BLACK. Well, that was the second part of my question,
so I appreciate your answering that. And from that, I take it
that maybe we will be able to move quickly on this and actually
be able to bring some resolution to what is going on here with
our rare earth minerals. Do you feel that way, Ambassador?
Mr. MARANTIS. This is a key priority for us. And as I
mentioned, we are in the process of actively gathering facts so
that we can consider what our next steps will be.
Mrs. BLACK. Thank you. I yield back my time.
Mr. MARANTIS. Thanks.
Mr. HERGER. The gentlelady yields back. Mr. Marchant is
recognized for 5 minutes.
Mr. MARCHANT. Thank you, Mr. Chairman. As I travel around
my district, one of the big subjects that comes up among my
constituents is our trading relationship with China. The
perception is that trade with China is a one-way street, with
China sending hundreds of billions of dollars of goods and
services to the United States and with us sending very little
back.
The general belief among my constituents is that China has
more control of our trading environment and our economy than we
have. My staff has done some research in the last few days and
found out some very interesting things about the three counties
that I represent. We got most of these figures from the U.S.-
China trading council. In Dallas, Denton, and Tarrant Counties,
its estimated growth in exports to China has rose 454 percent
in the last 10 years. In these three counties, the top exports
to China in 2010 were $513 million in chemicals; manufacturing,
$511 million; computers and electronics, $441 million;
machinery, $215 million; and transportation equipment was $129
million.
How will the efforts of Congress to intervene in the
valuation of the Chinese currency, how will that affect these
exports that are coming out of my district into China? I would
like for both of you to answer, please.
Ms. BRAINARD. Well, Mr. Marchant, I think your district is
fairly representative of many parts of the country that have
seen double-digit growth in exports in just the last 2 years to
China across a very wide range of sectors. And China, by many
estimates, is expected to be the biggest, fastest growing
source of demand in the global system. So as we are working to
expand jobs, as we are working to grow our economy, exports are
going to be a bigger piece of that than has been true in any
previous recovery, and exports to China figure permanently.
Nonetheless, we have quite substantial challenges in terms of
an unlevel playing field, in terms of a misaligned,
persistently misaligned currency.
So we are going to continue to get up every day and stand
up to China and make sure that China moves faster in reforming
its system, in allowing its exchange rate to move to reflect
market forces, to put in place fairer trade practices. I think
we can do that in a way that is smart. We can do it in part by
working with other trade partners. And that is why consistency
with our international obligations is helpful. We can do it by
recognizing China is not a monolithic system. There are
interests in China that get it, that imports from the U.S. are
a very good thing; that giving their consumers greater
purchasing power through an aligned exchange rate is a good
thing. So we are going to try to work smart as we pursue these
goals.
Mr. MARCHANT. I don't have a lot to add other than to
underscore the point that Under Secretary Brainard made about
how important China is for us for our exports. As I mentioned
earlier, our exports to China grew 32 percent last year versus
16.7 percent to the rest of the world. So our exports to China
are growing faster than they are to any other region of the
world. And we face extreme challenges, as we have discussed
today at this hearing. But our exports to China are a very
important aspect of the President's goal of realizing, through
the National Export Initiative, his goal of doubling exports
over the next 4 years.
Mr. MARCHANT. Thank you, Mr. Chairman. I yield back.
Chairman CAMP. The gentleman yields back. Mr. Reed is
recognized for 5 minutes.
Mr. REED. Thank you, Mr. Chairman. And it is getting lonely
up here. But you are at the finish line so that is the good
news.
I want to focus on maybe a little area that hasn't been
given as much attention today. But I do firmly believe that the
United States must confront China whenever it violates its
international obligations. But I don't believe we can just play
defense when there is a violation. We need to play offense. And
a good way, in my opinion, to do that is to adopt free trade
agreements and really push the trade agenda so that we have an
open world market that is fair and operating under those
agreements. South Korea obviously is a classic example of that.
And right now, we are dealing with the TPP, and I believe that
agenda and those negotiations need to go forward.
So I am very interested, Ambassador, in knowing what you
view or what the USTR views as the role of free trade bilateral
agreements with China, negotiation with China, what role that
plays in dealing with this issue.
Mr. MARANTIS. It is very important that we are actively
engaged on the trading and investment front throughout the Asia
Pacific region, in part to counter the competitive erosion that
we have experienced over the years. I am really excited about,
as you mentioned, the TPP. Our negotiators are in Lima this
week conducting the ninth round of TPP negotiations as we lead
to accomplish what the trade ministers from the TPP countries
have asked us to accomplish by the APEC leaders meeting in
Honolulu--which is to achieve the broad outlines of a TPP
agreement.
We are well on track to do that. We have negotiating texts
on a whole variety of subjects: goods, services, intellectual
property, the environment, labor. And just for this round, we
tabled the first ever text on state-owned enterprises, which
goes to address some of the very concerns we were talking about
today regarding the competitive distortions that state-owned
enterprises put in the international marketplace.
Mr. REED. But outside TPP and the negotiations going on
there--and I would agree those negotiations are going down the
right path--but what specifically are we doing in regards to
relations with China, getting them to negotiate and a bilateral
investment treaty, getting into the issue of Taiwan and the
trade investment framework that those discussions have ceased,
my understanding is, well over a year ago. Where are we going
with it? What is the vision, from your perspective, sitting in
the Trade Office as to where we are going with that agenda?
Mr. MARANTIS. Sure. We are moving on multiple fronts. On
China, President Obama and President Hu reaffirmed their
commitment to concluding a bilateral investment treaty
negotiation. We just had negotiations just last week with India
with respect to a bilateral investment treaty that we are
negotiating with them. We are moving, for example, with the
Philippines in concluding agreements on trade facilitation. It
depends on the different economy in the region, but there is a
lot going on on each.
Regionally, the United States is hosting APEC and we have
been trying to push some very ambitious outcomes in our APEC
hosts here. That will culminate in just a few weeks in Honolulu
at the APEC leaders meeting, where we are focusing on promoting
regulatory cooperation, where we are promoting initiatives in
green growth, and where we are promoting addressing next
generation trade unions.
Mr. REED. Ambassador, do you see any barriers, for example,
to the Chinese bilateral investment treaty where the President
and President Hu have agreed to set that as an agenda? Any
barriers there that you see?
Mr. MARANTIS. It is going to be a tough negotiation. There
are a lot of very difficult issues that our investors face. And
the purpose of the BIT will be to level the playing field for
our investors in China. And their issues, you know, regarding
market access, with respect to transparency, performance
requirements, they are going to be very tough to negotiate with
the Chinese. But, it is something we are committed to doing
because it is the right thing to do for our investors and for
the jobs in the United States.
Mr. REED. And how are the Chinese negotiations? Have they
been coming to the table, acting in good faith and moving the
agenda forward?
Mr. MARANTIS. Both sides are committed to the negotiations.
Mr. REED. Okay.
Mr. MARANTIS. Thanks.
Mr. REED. I have two seconds. Do you want to say anything?
Ms. BRAINARD. I just think the passage of the U.S.-Korea
free trade agreement, we are sort of back in the game in the
region and it is extremely important that we can develop a
trade agreement through the Trans-Pacific Partnership that is
highest standard in that region of the world. I think, as you
said, that is our strongest suit in terms of having a good
offense because ultimately, China is going to want to come to
where those disciplines are.
Mr. REED. Amen. With that, I yield back, Chairman. Thank
you.
Mr. HERGER. The gentleman yields back.
With that, I would like to close with a comment and a
question to Ambassador Marantis. I believe our approach in
dealing with China should focus on how we can create the most
jobs here in the United States. The International Trade
Commission has done numerous reports on the impact that Chinese
trade barriers have on our exports and jobs. We have heard the
ITC's analysis that if China were to raise their protection of
intellectual property rights to U.S. standards, 2.1 million
jobs would be created. Additionally, the ITC has reported that
reducing China's tariff and nontariff barriers to U.S.
agricultural goods would lead to an additional $3.9 billion to
$5.2 billion in U.S. agricultural exports to China. These new
exports would support tens of thousands of good paying American
jobs. I believe the record is pretty clear that Americans have
a lot to gain if we can remove China's barriers and sell more
American goods and services in China.
Now let's contrast that to our recent experience with
adding tariffs to cheap imports from China. In 2009, the
administration imposed punitive tariffs on imported low-end
tires from China under Section 421 of the Trade Act. Part of
the argument behind instituting this tariff is that it would
create tire manufacturing jobs in the United States. However,
the data from the U.S. Bureau of Labor Statistics shows that
tire manufacturing employment is down 10 percent in the first
half of this year compared with the same period in 2009 prior
to the tariffs. In terms of job creation, Ambassador Marantis,
I would like to hear your thoughts on what the better strategy
is, playing offense and focusing on how we can increase our
exports into China by removing their barriers, or playing
defense and trying to keep out imports from China by slapping
them with higher tariffs? Which strategy is more effective at
creating jobs here in the United States?
Mr. MARANTIS. Mr. Herger, we have got to act on all fronts.
We have got to act in terms of breaking down market access
barriers. But also when we see an injurious surge like we did
in the tire case, we need to act because it actually helps to
promote jobs. The statistics I have actually show that before
the remedy was imposed in September 2009, there was net job
loss in the industry. After we imposed the remedy, there has
been net job creation in the industry. There have been 11
announcements of new investments in the tire industry worth $2
billion since September 2009. And I think the anticipated
employment gains are estimated at 3,000 jobs. So we have got to
work to--I agree. We have got to work to knock down our market
access barriers on the export side. But when we see an
injurious surge of imports that cause market disruption, we
shouldn't hesitate to use the tools that we negotiated in
China's WTO accession as the administration did in the tires
case.
Mr. HERGER. Well, I thank you for your comment. And again,
I think the point that is bipartisan is that this is a serious
issue. The American public takes it as a serious issue. We know
we have some major discrepancies, and we urge you. And we, as a
Congress--I believe, in a bipartisan manner--are more than
willing to work with you very strongly. I think the point that
I would like to make and I think many would like to make that
it is very important that we stay on offense.
Mr. LEVIN. Mr. Chairman, will you yield? I want to say
something.
Mr. HERGER. I will yield.
Mr. LEVIN. You finish and then I will say something.
Mr. HERGER. Well, I was just going to adjourn then.
Mr. LEVIN. Well, then, I will say something.
Mr. HERGER. The gentleman is recognized.
Mr. LEVIN. This hearing is not bipartisan, to try to attack
the effort on 421. Four times, the Bush administration failed
to act, although the ITC recommended it. This administration
acted on the tire inflow from China, and it has had a positive
impact for the United States, for its companies and for its
workers. And so for you to take some data, it is simply
incorrect to say that the 421 action was a mistake. And there
is no use of sitting around here and asking for more
enforcement and then attack an effort by this administration
to, indeed, enforce our trade policies. So I don't know where
you got the data. I think the Ambassador has correctly set the
record straight. It is just reckless to take out after the tire
421 effort. It was an important decision this administration
made.
Mr. HERGER. I would like to conclude. Again, we need to be
aggressive----
Mr. LEVIN. They are being aggressive.
Mr. HERGER [continuing]. In a positive way. And the only
point being made is that we consider everything we are doing.
I think this has been a very helpful hearing. I want to
thank our witnesses for appearing. Again, I would like to thank
both of you. Please be advised that members may have written
questions they will submit to you. Those questions and your
answers will be made a part of the hearing record.
And with that, the hearing is adjourned.
[Whereupon, at 12:50 p.m., the committee was adjourned.]

Member Opening Statements

The Honorable Mr. Brady

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The Honorable Mr. Levin

Letter

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H.R. 639

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H.R. 1518

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H.R. 2722

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H.R. 3057

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Member Questions For The Record

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