[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]



 
                     STRENGTHENING U.S. LEADERSHIP


                     IN A TURBULENT GLOBAL ECONOMY

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 17, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-51
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]        






                    U.S. GOVERNMENT PUBLISHING OFFICE
                  
 99-730 PDF                  WASHINGTON : 2016       
____________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
  Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001                 
         

                           
                           
                           
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                    
                    
                    
                    
                    
                    
               Subcommittee on Monetary Policy and Trade

                   BILL HUIZENGA, Michigan, Chairman

MICK MULVANEY, South Carolina, Vice  GWEN MOORE, Wisconsin, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             BILL FOSTER, Illinois
STEVAN PEARCE, New Mexico            ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
MARLIN A. STUTZMAN, Indiana          JOHN C. CARNEY, Jr., Delaware
ROBERT PITTENGER, North Carolina     TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana                 PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona            DANIEL T. KILDEE, Michigan
FRANK GUINTA, New Hampshire          DENNY HECK, Washington
MIA LOVE, Utah
TOM EMMER, Minnesota









                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 17, 2015...........................................     1
Appendix:
    September 17, 2015...........................................    23

                               WITNESSES
                      Thursday, September 17, 2015

Sheets, Hon. Nathan, Under Secretary for International Affairs, 
  U.S. Department of the Treasury................................     4

                                APPENDIX

Prepared statements:
    Sheets, Hon. Nathan..........................................    24

              Additional Material Submitted for the Record

Sheets, Hon. Nathan:
    Written responses to questions for the record submitted by 
      Representative Huizenga....................................    29
    Written responses to questions for the record submitted by 
      Representative Guinta......................................    33
    Written responses to questions for the record submitted by 
      Representative Murphy......................................    36


                     STRENGTHENING U.S. LEADERSHIP



                     IN A TURBULENT GLOBAL ECONOMY

                              ----------                              


                      Thursday, September 17, 2015

             U.S. House of Representatives,
                           Subcommittee on Monetary
                                  Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 2128, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Members present: Representatives Huizenga, Mulvaney, Lucas, 
Pearce, Stutzman, Pittenger, Schweikert, Guinta, Love, Emmer; 
Moore, Foster, Himes, and Heck.
    Chairman Huizenga. The Subcommittee on Monetary Policy and 
Trade will come to order. Without objection, the Chair is 
authorized to call a recess of the subcommittee at any time.
    Today's hearing is entitled, ``Strengthening U.S. 
Leadership in a Turbulent Global Economy.''
    Before I go into my opening statement, we have been given 
notice that they are expecting votes on the Floor sometime 
between 2:20 and 2:35. I would suspect that means 2:55 to 3:05. 
I don't know, hopefully not. But hopefully, it will be more 
like 2:30. And we have one vote, a rule vote, and my intention 
is to take that quick time and have us all go vote and then 
come back so that we can finish up. I don't suspect that we 
will have gotten through everybody at that point.
    So with that, I would like to recognize myself for 3 
minutes to give an opening statement.
    The dictionary defines ``turmoil'' as a state of confusion 
or disorder. Unfortunately, that is the state of the global 
economy right now, it seems.
    For instance, for more than 3 decades China has claimed an 
average annual GDP growth of over 10 percent. However, in the 
last 3 years it has seen growth of less than 8 percent and the 
government has announced that it is now struggling to meet a 
target of 7 percent for the year.
    Last month, the People's Bank of China announced a surprise 
devaluation of their renminbi by 2 percent, sending major stock 
markets in Asia and Europe down and sparking fears of 
additional exchange rate devaluations in other countries. It 
was the largest devaluation in China's system in over 20 years.
    In the weeks following the devaluation, however, China 
spent up to $150 billion in foreign reserves to prevent the 
currency from sliding even further.
    Additionally, the MSCI Emerging Markets Stock Index has 
fallen by more than 15 percent since July, with Brazil's credit 
rating now cut to junk status.
    Europe is also in dire straits. This month, the European 
central bank announced a new round of quantitative easing. 
Meanwhile, concerns over Greece and the euro's future continue.
    In each of these cases, a slowdown has been precipitated by 
unsustainable debt and ill-advised government intervention in 
the economy.
    For years, China had depressed the value of the yuan to 
fuel its exports, only recently allowing its value to rise. 
Meanwhile, easy credit led local and regional governments to 
amass nearly $4 trillion in debt in China. With little ability 
to find productive investments at home or abroad, the Chinese 
have created speculative bubbles in real estate and stocks that 
only now are beginning to deflate.
    Europe meanwhile sees no end in sight to Greece's downturn, 
which continues to threaten the integrity of the entire 
eurozone. This summer, Greeks filed nearly $2 billion in 
arrears to the International Monetary Fund (IMF) and had to 
close banks to prevent capital flight. After negotiating a new 
rescue with eurozone governments, many of those voters who 
strongly opposed further bailouts, the country now has 
announced elections that may undermine its ability to carry out 
those reforms that it had just passed and accepted.
    This combination of debt and misguided policy abroad 
provides the United States with an opportunity to reorient 
international priorities. Three policy debates are of 
particular relevance to the Monetary Policy and Trade 
Subcommittee: first, inclusion of China's RMB in the IMF's 
basket of elite currencies; second, the IMF participation in 
the next European bailout of Greece; and third, the 
Transpacific Partnership and its role in expanding rules-based 
trade overseas.
    This hearing will explore these matters and some others and 
urge the Administration to advance a ``back to basics'' type of 
approach to economic policy, one that emphasizes fiscal 
responsibility and free markets.
    And with that, I yield back my time.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentlelady from Wisconsin, Ms. Moore, for 5 
minutes.
    Ms. Moore. Thank you so much, Chairman Huizenga, and 
members of the subcommittee.
    And I want to welcome you, Under Secretary Sheets.
    Mr. Chairman, this is absolutely a subject that deserves 
our close attention. And I want to thank you for convening this 
hearing today.
    We are in an increasingly global world, for all that means, 
both good and bad. And one extremely important thing I think 
that this Congress can control, although we cannot control 
everything, is that we could make an immediate, tangible, and 
lasting impact on the prestige and confidence of the U.S. 
global leadership, and that would be that we should immediately 
ratify the new IMF quota system.
    Mr. Chairman, I just learned--breaking news--that Chair 
Yellen has announced that there will be no interest rate hike 
as of right now. So, that is really important news.
    But I think that one of the things that we could do right 
now is to ratify this new IMF quota system. There is consensus 
agreement that it is the rational move to make at this time and 
there is no reason that we have not yet acted.
    U.S. leadership and engagement in economic policy is vital 
to the long-term interests of our country. Global economic 
stability, as we all know, is smart geopolitically.
    Congress' lack of action has hurt the United States' 
standing internationally. Further delay makes even less sense. 
And as the chairman has pointed out, China has made a lot of 
movements to fill a void, and we need to take action in this 
Congress, as well.
    I know that some have sought to tie approval of the quota 
system to other IMF reforms. But I respectfully disagree on 
that point. The quota system should be approved and then we can 
talk about IMF reforms.
    U.S. good-faith engagement in these multinational 
organizations is extremely fruitful as we can flex soft power 
and accomplish goals that are simply not realistic or 
counterproductive with the use of force.
    And I yield back the balance of my time.
    Chairman Huizenga. The gentlelady yields back.
    With that, the Chair recognizes the gentleman from 
Minnesota, Mr. Emmer, for 2 minutes for an opening statement.
    Mr. Emmer. Thank you, Mr. Chairman. Thanks for holding this 
important hearing.
    With the backdrop of Congress passing trade promotion 
authority and, U.S. Trade Representative negotiators laying the 
groundwork for historic trade agreements with Europe and the 
Pacific Rim, I am concerned that our Nation's interest in 
promoting and securing trade agreements, which are certainly 
important to both our economic opportunity and our national 
security, may collide with our sovereignty and other legitimate 
interests.
    Sluggish growth and the debt crises in European Union 
member states and the devaluation of China's currency threaten 
current market stability and pose serious risks to future 
multilateral trade deals like TPP or TTIP, as well as the 
insurance and regulatory frameworks that will comprise these 
agreements.
    I look forward to hearing the Under Secretary speak about 
how the United States is exercising its leadership to ensure 
our sovereignty, such as my home State's ability to regulate 
its insurance market further.
    I am particularly interested in what the Treasury is doing 
to leverage U.S. influence when it comes to the International 
Monetary Fund's consideration of the RMB as a basket currency, 
its systemic exemption policy, terrorism financing, 
remittances, and global bailouts.
    Mr. Chairman, thank you again for calling this hearing. And 
I yield back.
    Chairman Huizenga. The gentleman yields back.
    We will now turn to our witness. Today, we welcome the 
testimony of the Honorable Nathan Sheets, Under Secretary for 
International Affairs at the U.S. Department of the Treasury. 
Mr. Sheets previously worked as a global head of international 
economics at Citigroup. He also served for 18 years at the 
Federal Reserve in various capacities, and from 2006 to 2007 
was a senior advisor to the U.S. executive director at the the 
International Monetary Fund (IMF).
    Mr. Sheets, without objection, your written statement will 
be made a part of the record. And you will be recognized for 5 
minutes.
    But I should also mention that one of our Members has taken 
great pleasure in getting to know you by talking on local 
streets and in restaurants, and he has heard all the good stuff 
about your growing up in Mesa. So Mr. Schweikert is very 
pleased to start claiming you as one of his own. You grew up 
there, and then you were off to BYU, I believe, for your B.A., 
and then MIT for your Ph.D.
    Yes, too many letters. Sorry, Mr. Mulvaney wasn't following 
how many letters.
    But I do want to say thank you for your time and attention 
and your ability to be here today. You are now recognized for 5 
minutes to give your testimony.

 STATEMENT OF THE HONORABLE NATHAN SHEETS, UNDER SECRETARY FOR 
     INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY

    Mr. Sheets. Thank you. Chairman Huizenga, Ranking Member 
Moore, and members of the subcommittee, thank you for the 
opportunity to testify today to discuss Treasury's role in 
promoting global economic growth.
    Earlier this month, I joined Secretary Lew at the G20 
finance ministers and central bank governors meeting in Ankara, 
Turkey. Discussions at the meeting focused on the recent 
turbulence in global financial markets, particularly in China, 
as volatility in its equity and currency markets has spilled 
over to markets globally.
    Fears of a slowdown in China have also raised concerns 
about the global growth outlook. Commodity producers have been 
especially vulnerable to lower Chinese demand.
    We discussed ways to boost global growth, including through 
strategic infrastructure investment and structural reforms, as 
well as the need to continue to strengthen financial, 
supervisory, and regulatory practices to reduce the risk of 
financial crises.
    As has been widely noted, the Chinese economy is undergoing 
a difficult but essential transition that if successful, will 
make growth there more reliant on domestic consumption and less 
reliant on exports and investment.
    The Chinese government has laid out a comprehensive set of 
economic reforms to move toward a more market-oriented, 
consumer-driven economy. These reforms are largely consistent 
with what the United States has long advocated.
    To ensure that the transition is managed in an orderly way, 
China must transparently communicate its policies and actions 
and allow the market to play a primary role in determining 
outcomes.
    Treasury has had sustained and robust engagement with China 
on its policies, including in the economic track of the 
strategic and economic dialogue. In light of recent 
developments, we are encouraging the Chinese authorities to 
accelerate the implementation of their reform agenda, while 
underlining that to bolster effectiveness, these reforms must 
be implemented in an orderly and transparent manner.
    Turning back to the global arena, our partners look to U.S. 
leadership to help formulate the international agenda. And we, 
in turn, rely on the international financial institutions to 
provide analytical, technical, and financial support to 
identify vulnerabilities, advance reforms, and smooth 
adjustment.
    The IMF has played and continues to play an important role 
in providing assistance to key strategic partners of the United 
States. For example, in Ukraine the IMF is currently supporting 
a program that aims to bolster the Ukrainian government's 
extraordinary reform efforts.
    The IMF has been a key partner in Europe's efforts to fight 
crisis in the region, preserve the integrity of the euro area, 
and frame a reform program for Greece that includes necessary 
adjustments, encourages growth, and puts debt on a more 
sustainable path. The United States and the IMF are actively 
supporting the need for further debt relief for Greece now.
    To ensure that the IMF remains at the center of the 
multilateral economic system, and that we maintain an important 
voice in it, the United States should promptly approve the 2010 
quota and governance reforms. Our interest in strengthening the 
Fund is based on hard-won experience that a well-resourced and 
effective IMF is indispensable to achieving our economic and 
national security interests. The proposed reforms are designed 
to strengthen the Fund's finances while preserving the U.S. 
veto by a comfortable margin.
    The Treasury Department also fosters growth and prosperity 
by working in partnership with the Multilateral Development 
Banks (MDBs), including the World Bank and the regional 
development banks. Like the IMF, the MDB's purposes firmly 
align with the interests of the United States, and they are 
vital tools for promoting security, economic growth, 
environmental sustainability, and poverty reduction.
    Finally, the Administration's trade agenda is also 
essential to our efforts to promote prosperity. We are working 
to secure a final Trans-Pacific Partnership agreement, or TPP, 
that unlocks export markets, establishes strong rules, and 
bolsters economic growth at home.
    TPP promises to help U.S. businesses reach customers in the 
world's fastest-growing region, deliver more and better jobs in 
the United States, and elevate trade and investment standards, 
including on transparency, fairness, innovation, labor rights, 
and the environment. And we very much look forward to 
continuing to work with you on these objectives.
    I am very happy to answer any questions that members of the 
subcommittee may have.
    [The prepared statement of Under Secretary Sheets can be 
found on page 24 of the appendix.]
    Chairman Huizenga. All right, thank you. We appreciate 
that.
    And the Chair now recognizes himself for 5 minutes.
    Mr. Sheets, I think it is difficult to find anyone who 
argues for the continuation of the IMF's systemic exemption to 
its exceptional access framework which bailed out Greece 
creditors without restoring economic growth or competitiveness 
to the country. But we keep getting mixed signals from the 
Administration on this.
    In an August 31st letter to me last month, Treasury said 
this systemic exemption was ``important to the IMF's role in 
providing support in most difficult crisis cases.'' But when 
Secretary Lew testified here in June, he said in response to 
one of my questions, ``I think exceptional access has serious 
questions. I have never pushed back on the kinds of questions 
you are asking''--in other words, questions about eliminating 
the systemic exemption--and again, he is saying, ``I am open to 
a serious conversation about it. I think looking forward, 
finding a way for the IMF to avoid having to use tools like 
that is in all of our best interests. And I would be happy to 
have that conversation.'' That was Secretary Lew.
    Previously, in fact just last month, IMF's former chief 
economist said, ``The reforms now being discussed at the Fund, 
namely the wider use of the debt reduction rescheduling option 
and the elimination of the systemic exemption, are really 
important.''
    In fact, even my good ranking member had said that she was 
``entirely open to considering the case for IMF reforms,'' 
which I am happy to hear.
    But Secretary Sheets, isn't it time to get rid of the 
systemic exemption?
    Mr. Sheets. This is an enormously important issue and one 
that is also particularly salient. Clearly, my sense is that 
given where the world was in the spring of 2010, using the 
systemic exemption was the right thing to do. There were severe 
spillover risks if Greece or Portugal or Ireland had been 
required to restructure their debt in that environment.
    Chairman Huizenga. But you would admit that they basically 
bent the rules or ignored the rules to make all that happen, 
correct?
    Mr. Sheets. The decision was made in accordance with the 
powers of the IMF Executive Board. And the IMF Executive Board 
very much felt that moving toward a debt restructuring in that 
environment would be inappropriate. So they established 
mechanisms that allowed these programs to go forward.
    Chairman Huizenga. I can take ``yes'' for that as an 
answer. But what about going forward?
    Mr. Sheets. Right.
    Chairman Huizenga. We know what happened in 2010, but it is 
the going forward I am concerned about. And I think there are a 
number of us who are concerned about IMF future bailouts of 
Greece, as they are very concerned.
    Mr. Sheets. And as you indicate, there is a very lively 
debate on this issue that is ongoing inside of the IMF. One 
proposal on the table is to further specify the conditions 
under which the systemic exemption could be used. But there are 
also other approaches that are being articulated in that 
debate. And we very much look forward, as Secretary Lew said, 
to having a conversation with you and your staff on this issue.
    Chairman Huizenga. Okay. I want to move on a little bit to 
the exclusion of financial services in the negotiations, such 
as TPP and TTIP.
    I have been engaged in an ongoing dialogue with Treasury 
over its exclusion of the financial services sector. And as you 
well know, that is an extremely important thing, with a number 
of important issues including localization of information and a 
number of others.
    To date, your colleagues at Treasury have offered varying 
rationales for why Treasury refuses to support strong rules to 
ensure foreign investment. Foreign governments do not impose 
such restrictions, but I am very concerned that it is going in 
a different direction.
    I have weighed in on this issue, the Ways and Means and 
Finance Committees have weighed in, calling on you to--not you, 
you collectively--eliminate such localization requirements for 
all sectors, including financial services.
    Does the Administration, particularly Treasury, understand 
that the current discriminatory approach to addressing 
localization barriers will jeopardize existing support for 
trade agreements if it is not addressed?
    Mr. Sheets. This is another issue that I personally am 
working on quite intensively.
    Over the last 6 weeks or so, I have had the opportunity to 
speak in some detail with our various regulatory agencies as 
well as with USTR and the State Department on this.
    And the sense that we get is that in pursuit of financial 
stability and soundness of institutions, it is absolutely 
imperative that the regulators have unimpeded access to various 
books and records associated with the operations of foreign 
institutions in the United States.
    And it is not clear, if these institutions are not required 
to have books and records actually in the United States, that 
the regulators would have that unimpeded access. So it is a 
matter of regulation, it is a matter of supervision to ensure 
that these institutions are safe and sound. It is also a matter 
of law enforcement. So there are a number of issues at stake 
here.
    Chairman Huizenga. My time has expired.
    And with that, I recognize the gentlelady from Wisconsin 
for 5 minutes.
    Ms. Moore. Thank you so much, Mr. Chairman.
    And thank you again, sir.
    I was searching all over for it, but in your testimony you 
talked about the importance of the United States paying its 
share to the IMF. And I think I referred to that in my opening 
remarks.
    Other countries have developed other institutions to sort 
of get around the IMF because of our lack of participation. 
Could you just give us a little bit, just sort of fill in the 
blanks of what we could expect if these other multinational 
development organizations take off and the IMF and the United 
States uses its influence in this sphere?
    Mr. Sheets. As you say, a strong, well-resourced IMF is 
very much in U.S. national interests, U.S. security interests, 
and so forth.
    These are institutions that we led the establishment of 70 
years ago. And if we walk away from these institutions or fail 
to live up to the leadership role that we have, it is at our 
peril.
    One of the risks, as you articulate, is that other 
countries that feel, at present by the governance structure, 
underrepresented could initiate other institutions in which we 
have less voice or institutions whose goals and objectives are 
less consonant with those of the United States.
    Similarly, as you say, at least arguably, we have seen that 
over the last year or two with the establishment of the Asia 
Infrastructure Investment Bank, the AIIB, led by the Chinese 
and the establishment of the new development bank known as the 
BRICS Bank by the four BRICs emerging market economies.
    So I think the risk that you highlight is a real one. And 
it underscores how essential it is that we continue to play a 
leadership role in the IMF. And quite frankly, it is the 
leadership role that the rest of the world wants us to play. 
They look to us for leadership. So the quota reforms achieve a 
number of objectives.
    Ms. Moore. Okay. I was looking through my notes here to try 
to find out what the yuan, the RMB is being considered. The 
Chinese really want it included in the SDR. And obviously, the 
Chinese are meeting the first criterion of being a major 
exporter and the second criterion, with regard to having its 
currency sort of freed up or being free, is not being met. But 
there are indications that they are close.
    Supposedly, the readjustment on August 10th, I think I was 
in China at the time, and their explanation was that they were 
trying to square it more with the actual market forces.
    What is your opinion of whether or not this movement, which 
erased $5 trillion out of the world economy, is in fact or is 
not in fact moving the RMB closer to actual market conditions?
    Mr. Sheets. This is a complex set of issues. On the one 
hand, they have through this announcement incorporated some 
features into their exchange rate regime that does make the 
currency more market-determined and more market-oriented.
    Ms. Moore. Be careful of what we pray for, huh?
    Mr. Sheets. Exactly.
    Ms. Moore. We might get it.
    Mr. Sheets. They were moving in that direction.
    But at the same time, it is important that they take these 
steps in a well-telegraphed, very clearly communicated way. And 
I think that what we saw in that move was a step toward market 
determination that was done in a way that raised uncertainties 
about what the objective was.
    And I think going forward as China becomes a more market-
determined, market-oriented economy, it is going to be 
imperative that the Chinese authorities take steps to 
communicate their intentions, their views, and to explain why 
it is they are doing what they are doing.
    Had they explained up front more clearly that it was about 
exchange rate reform as opposed to other kinds of objectives, I 
think the market response would have been more positive.
    Ms. Moore. Thank you.
    Thank you. My time has expired. I yield back.
    Chairman Huizenga. The gentlelady yields back.
    With that, the Chair recognizes the vice chairman of the 
subcommittee, Mr. Mulvaney from South Carolina, for 5 minutes.
    Mr. Mulvaney. I thank the gentleman.
    And Dr. Sheets, thank you.
    I will move very quickly into the 2012 reauthorization of 
the Export-Import Bank. The last time the bank was 
reauthorized, Treasury was obligated by law to do some things 
specifically regarding negotiations on export credit facilities 
overseas in the airline industry.
    I had submitted to the Treasury some questions for the 
record after Secretary Lew testified here back in March. You 
all were very kind, by the way, and responded, and I have the 
responses.
    First things first. At the end of one of your questions, 
you said that there was a list attached of your engagements to 
events, and that list was, I think, inadvertently left off. If 
you could give us that, that would be great.
    In the details, though, that you provided us, you gave us a 
list of things that I asked you, when have you done this? The 
law requires you to start negotiations, to begin discussions on 
getting out of this business of mutually disarming with the 
other countries that have export credit facilities. And I asked 
you to tell me what you had done along those lines.
    I want to go over some of your responses.
    One of the things you said was that ahead of discussions at 
the Organisation for Economic Co-operation and Development 
(OECD) in March on possible reforms to arrangement guidelines 
for determining interest rates, Treasury staff held several 
conference calls with OECD members to advocate a U.S. proposal 
to make the arrangement's interest rate mechanism more market 
reflective.
    You then said you had met separately with them later in 
April on the same topic.
    Not exactly a response, though, is it, Dr. Sheets? Interest 
rate was not part of the 2012 reauthorization, was it?
    Mr. Sheets. If I may, more recently, specifically on the 
issue that you raise, I have had consultations with my 
colleagues in the Airbus countries. So both the German finance 
ministry and the German economics ministry, the U.K. Exchequer 
and the French ministry of finance.
    So we are in ongoing conversations specifically on working 
together with the Airbus--
    Mr. Mulvaney. Okay. Let me ask, when did those--you said 
you met with or talked with the Germans, the French, and the 
Britains?
    Mr. Sheets. Three of those four meetings were face-to-face.
    Mr. Mulvaney. Okay.
    Mr. Sheets. And the German economics ministry was on the 
phone.
    Mr. Mulvaney. Of those four meetings, what was the 
earliest?
    Mr. Sheets. They were all around the time of the Ankara 
meeting, so it has been within the last 3 weeks or so, all 4 of 
them.
    Mr. Mulvaney. In the last 3 weeks, okay, so after these 
answers were prepared for my office.
    Mr. Sheets. Correct. That is why it is not referenced.
    Mr. Mulvaney. I will look forward to another time when I 
have more than a few minutes to talk to you.
    Mr. Sheets. Yes, we have been very busy since April.
    Mr. Mulvaney. You would agree with me that a discussion on 
interest rate mechanisms is not really responsive to the 2012 
mandate. You are required to talk to them about getting out of 
the export credit business, and that is not really interest 
rates. I am not trying to bait you; it is just not really 
responsive.
    Mr. Sheets. Yes. Our sense, though, is if you have a higher 
sear, that will increase the charges associated with going 
through export credit agencies, which would then motivate 
people to go to the private sector for the lending.
    Mr. Mulvaney. Right. Let me ask you this way then: When you 
met in March and had discussions in April with the OECD 
participants, did you specifically discuss export credit 
arrangements?
    Mr. Sheets. I wasn't at the meeting, and I don't recall, 
but we did talk about this financing issue.
    Mr. Mulvaney. In another area, when I asked for specifics, 
you say in July of 2014 Secretary Lew, you, and other senior-
level officials utilized the U.S.-China strategic economic 
dialogue to press the Chinese counterparts on U.S. negotiating 
priorities. And you gave me five or six other circumstances and 
you mentioned U.S. negotiating priorities.
    Was extricating ourselves from the export credit business 
part of our negotiating priorities?
    Mr. Sheets. I would say the answer to that is yes, and we 
have continued those conversations with the Chinese over the 
last year-and-a-half. I personally have met with officials, 
including the finance minister of China, folks from the PBOC 
and the president of the Chinese ex-im bank, and had those 
conversations, including mechanisms to--
    Mr. Mulvaney. When did you meet with the chairman of the 
Chinese ex-im bank?
    Mr. Sheets. I believe that was in a July visit.
    Mr. Mulvaney. July what?
    Mr. Sheets. In July of 2015.
    Mr. Mulvaney. Why isn't that on the list of things that I 
asked about?
    Mr. Sheets. Because this is a response--when is this 
response? I had understood it was in April.
    Mr. Mulvaney. I have a May 2015 meeting on this list, but 
not a July 2015 meeting.
    Mr. Sheets. Right. I think--when did we send it to you?
    Mr. Mulvaney. I don't know. Let me ask my last question and 
we can come back--
    Mr. Sheets. I apologize. We will make sure that it is 
comprehensive.
    Mr. Mulvaney. A specific question that is more up to date 
and more timely, this week GE announced that they may have to 
move jobs out of this country because they are trying to bid on 
a job in Indonesia with a state-owned enterprise. I have 
received the bid request from the Indonesian power company and 
it specifically requires that PLN shall finance using 30 
percent equity, 70 percent debt, an export credit agency shall 
cover at least 50 percent of the debt of financing. It goes on 
to say the government of Indonesia won't guarantee the loan.
    Has Treasury ever talked to other members of the OECD, 
other working groups that you have about getting rid of these 
sorts of requirements in their state-owned bid requests?
    Mr. Sheets. Not specifically on that issue, but we have 
worked and I have spoken to senior officials in India about 
increasing their dialogue and participation in the 
International Working Group, which is designed to extend these 
export credit rules in the OECD to the emerging markets and 
would thus have the effect you articulate.
    Mr. Mulvaney. I appreciate the patience.
    Why do you think that a state-owned company would require--
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Mulvaney. --your export credit financing as part of 
their bid request?
    Mr. Sheets. Well, my understanding is--
    Mr. Mulvaney. It is cheaper, isn't it?
    Mr. Sheets. --that they are doing it because it creates 
jobs in their economy.
    Mr. Mulvaney. But why are they requiring export credit 
participation in their financing? It is cheaper, isn't it, than 
private financing?
    Mr. Sheets. I would think in India it is, and we are trying 
to bring them into the system of export credit that has existed 
in the OECD and through our work in the IWG.
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Mulvaney. I appreciate the patience. Thank you, Mr. 
Chairman.
    Chairman Huizenga. Just a quick announcement. They called 
votes a few minutes ago. We have 3 votes and I expect that will 
probably take about 30 minutes.
    We are going to grant a question period for Mr. Foster, and 
what we would like to do after Mr. Foster is to take a short 
break, and then have us reconvene approximately 30 minutes 
after that. So immediately after that final vote, if you could 
please cast your vote and then get back here, I would 
appreciate it.
    With that, the gentleman from Illinois is recognized for 5 
minutes.
    Mr. Foster. Thank you, Dr. Sheets, for being here today.
    First, I would like to heartily endorse your support of the 
IMF. The point that you made about the benefits to the United 
States regarding the IMF's role in mitigating the 2010 eurozone 
crisis were exactly on point.
    When U.S. markets dropped by $2 trillion, the average 
American lost $6,000 which, at least to my constituents, is not 
a small amount of money.
    And I would like to add also that those who bemoan what 
they call the lack of U.S. leadership around the world and then 
take positions that directly undercut that, like opposing the 
IMF quota and governance reforms, really could benefit from a 
healthy reexamination of their logic.
    My question is, in the debate over the trade promotion 
authority, I expressed my concerns that any free trade 
agreement that did not address currency manipulation would 
allow one of our trade partners to improve its own balance of 
trade by manipulating its currency to make its exports cheaper 
and its imports more expensive.
    And I was disappointed that the TPA ultimately contained 
only a best-efforts clause as a negotiating objective.
    Now, one of the principal, perhaps the principal objection 
that we heard from the Administration to stronger language was 
that it would preclude our own domestic monetary policy 
practices, such as quantitative easing. But I actually disagree 
with this.
    I think that there are tests that many have delineated, 
including Dr. Bergsten's work at the Peterson Institute, that 
provided a very clear framework for applying the IMF 
requirement of intent while providing for short-term domestic 
intervention.
    Those criteria are, first, did the nation have foreign 
exchange reserves greater than 6 months of goods and services 
imports?
    Second, did the foreign exchange reserves grow rapidly over 
the period in question?
    And third, was the current account in significant surplus 
relative to the GDP over that period?
    Those seem to me like workable criteria that could and 
should be included.
    And so my question to you is simply, do you believe that 
quantitative easing, as we exercised it during the crisis and 
its aftermath, would have failed these criteria? What would 
have prevented, if those were the criteria, what would have 
gone wrong in regard to the quantitative easing and other 
monetary policy?
    Mr. Sheets. As a matter of fact, in the WTO discussions, 
there were assertions from some emerging market economies that 
quantitative easing policies were currency manipulation, 
notwithstanding the fact that it was carefully constructed and 
delineated toward achieving the Federal Reserve's dual mandate.
    So I think that is a meaningful risk. I think there are 
other risks as well in that having--
    Mr. Foster. Now the risk you are referring to is that other 
people would complain about, other countries would complain 
about it, or that actually we would set up objective criteria 
and then find that we chaffed under those objective criteria?
    Mr. Sheets. And then it would potentially bring it in to 
trade adjudication channels that could be difficult.
    Mr. Foster. But if, for example, they were the three 
criteria that Dr. Bergesten has outlined, if those were the 
criteria, would anything have gone wrong? Would there have been 
any case in any court for--it seems pretty clear to me that we 
would have been far from being out of compliance with those and 
that there would have been no problem.
    Mr. Sheets. It is hard to speculate as to how that might 
have proceeded. Certainly, it is a risk factor.
    Similarly, having the United States behave in a unilateral 
fashion in terms of enforceable currencies, I think would 
create increased uncertainties in global financial markets and 
also damage our bilateral relationships.
    The Treasury and the Administration are firmly opposed to 
countries doing anything that approaches currency manipulation. 
We just feel pretty strongly that there are other mechanisms 
that are better to respond than enforceable currency 
provisions.
    Mr. Foster. Do you believe that any of these have been 
effective? That is the question.
    If I look over the last 15 years, it seems to me that China 
and other countries have gotten away with murder. And as 
someone who represents an area with a strong manufacturing base 
that has been gutted for no good reason, I actually question 
the fact that we have not had effective response to currency 
manipulation.
    Mr. Sheets. When I look at the global economy today, my 
sense is that the mechanisms that we are using through 
bilateral engagement, this is the leading issue that we talk 
about when we sit down with our international counterparts, 
through the G7 and the G20 where we just reiterated strong 
language in terms of how countries should manage their exchange 
rates is powerful.
    And consistent with that, over the last 5 years we have 
seen a very substantial, real appreciation of the Chinese 
currency.
    So I think that these mechanisms are powerful and we are 
working to bolster them and to do more. As I said, we are 
foursquare against anything that smacks of currency 
manipulation and are ready to proceed vigorously on that front.
    Mr. Foster. Okay. Well, I am not yet convinced of its 
effectiveness. Thank you.
    Chairman Huizenga. The gentleman's time has expired.
    With that, we will be taking a short recess and reconvene 
immediately following votes, which for information and all the 
Members' awareness, we expect to be about 30 minutes.
    So with that, we are at recess.
    [recess]
    Chairman Huizenga. The hearing will come to order. We 
appreciate your patience, Mr. Secretary. We concluded with the 
Member from Illinois. I now recognize the gentleman from New 
Mexico, Mr. Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman. And thanks, Mr. 
Secretary, for being here today.
    As we think about China and admission to the SDR, a couple 
of questions come up. In your testimony, you talk about them 
being more reliable, less consumption, less on exports and 
investment.
    Now my opinion of the Chinese economy is that the failure 
has been that they have just misled the entire world for the 
last 20 or 30 years, that they have shadow firms building 
entire cities that don't have a purpose, with no one living in 
them, so then basically looking like they are keeping activity 
going. And that doesn't sound like they have been relying upon 
exports and investment; they have been relying on deception.
    So I guess my question is, do you think that China is ready 
to be admitted to the SDR? To the currency, there?
    Mr. Sheets. The IMF as you suggest, is in the midst of a 
review of its SDR basket. The IMF conducts these reviews once 
every 5 years.
    There are two key conditions: One regarding global trade--
China satisfies that--
    Mr. Pearce. I am aware of those. I am asking what is the 
position of this Administration--
    Mr. Sheets. --and the other one is the freely usable 
condition. The Chinese have taken some steps over the last 6 to 
12 months--
    Mr. Pearce. No, I am just asking for your opinion. Are they 
or are they not ready? Does that currency fit the requirements? 
And will we support that? Or are we, the United States, not 
supporting it?
    Mr. Sheets. My bottom line is that the IMF technical staff 
are engaged in a review to determine whether or not the Chinese 
currency satisfies those conditions.
    Mr. Pearce. Basically then, the Administration is not going 
to go into this with an opinion; you are going to rely on the 
IMF staff and whatever they say, yes or no.
    Mr. Sheets. We are going to wait for that technical review 
to conclude. And based on that review and broader judgment, we 
will decide whether or not to support this and the IMF 
Executive Board.
    Mr. Pearce. Okay. Thank you.
    Now, in response to Ms. Moore, you had talked about the 
other nations having some judgment on our unwillingness or 
inability to convey some approval of the reforms. And then in 
response, you said that has been one of the reasons that a 
couple of other banks have formed--worldwide banks have formed 
another--so my opinion is, and it may be incorrect, is that 
those currencies formed as we were deeply engaged in 
quantitative easing and those comments that those countries 
were making is that you continue to print or create currency 
out of thin air, and we are not going to stand for it, we are 
going to start trading in something other than dollars.
    So is that a valid point of view? It is not reflected in 
your testimony, but is it a valid point of view that it was not 
simply a response to our unwillingness to act on the reforms?
    Mr. Sheets. I think that there are a number of factors at 
work that have motivated the advent of the New Development Bank 
and the AIIB. As I said, I think one of them is an element of 
frustration in terms of having sufficient voice in the existing 
institutions, particularly the IMF. And this governance reform 
would have been an important part and will be, once approved, 
an important step toward improving the voice in governance in 
the IMF.
    Mr. Pearce. Okay. So one of the comments that you make is 
that China needs to be more market-oriented. Is a too-big-to-
fail policy market-oriented?
    Mr. Sheets. My sense is that both here in the United States 
and within the context of the FSB, we have worked vigorously to 
end too-big-to-fail.
    Mr. Pearce. I didn't ask if you tried to--I appreciate that 
you are trying to stop it.
    I am just asking a plain question, is it market-oriented? 
It doesn't seem to me to be. But again, you may have a 
different opinion. I am willing to hear it, but I am not 
hearing it so far, and I am running out of time.
    Mr. Sheets. Yes.
    Mr. Pearce. I guess the accompanying question with that is, 
is quantitative easing market-oriented? And so we are holding 
China to standards that we are not willing to hold ourselves 
to, and I think that is an alarming thing.
    I see I am about out of time, but you can spend the rest of 
the time answering. Thank you.
    Mr. Sheets. Yes. In both instances, I would characterize it 
as economic policy, monetary policy on the one hand and efforts 
to achieve and pursue financial stability on the other.
    That said, as I indicated, both the FSB internationally and 
domestically here at home, we have worked to end too-big-to-
fail.
    Mr. Pearce. Thank you, Mr. Chairman.
    I appreciate it, Mr. Secretary.
    Chairman Huizenga. The gentleman's time has expired.
    And with that, we will go to Mr. Schweikert of Arizona for 
5 minutes.
    Mr. Schweikert. Thank you, Mr. Chairman.
    I have sort of a little follow-up, but maybe with a 
slightly different angle. I think actually in this very room 
before the remodel a few years ago we were talking about how 
frustrated we were with China not making its currency subject 
to market forces, the artificial peg, undervaluing. So in some 
ways, isn't the movement right now what we have been demanding 
of China?
    And the fact of the matter is, the slide in their currency 
value as they were starting to expand, let us call it expanding 
the peg, it is an easier way to understand, also the fact that 
market forces now are actually looking at the realities of the 
Chinese economy, foreign currency reserves, other than just the 
data put out by China?
    Mr. Sheets. As you say, certain elements of this recent 
reform do make the Chinese renminbi more market-oriented and 
more market-determined. As I emphasized, along with that they 
need to be more transparent.
    Another comment that I think is very important is that 
given some of the uncertainties about the Chinese economy and 
ongoing capital outflows, we have seen some downward pressure 
on the renminbi. And it is imperative that when those pressures 
shift, the Chinese allow the exchange rate to appreciate.
    So in order to be flexible, it needs to be flexible in both 
ways.
    Mr. Schweikert. Within that, won't the Chinese economy in 
some ways be punished because they don't provide enough 
information, they are thought to step in and engage 
intervention? And that is actually part of my next question. 
But they are going to pay a risk premium for currency traders 
because of the lack of sunshine, the lack of honest data, and 
the fear that they are going to intervene on either side of the 
up-or-down.
    Mr. Sheets. I feel that the lack of transparency about the 
policies that they have pursued created additional uncertainty 
about the outlook for the Chinese economy which, very much as 
you say, would manifest itself in Chinese financial markets and 
perhaps to some extent redound back into weaker economic growth 
for China.
    Mr. Schweikert. But ultimately, would you not agree, a true 
market-sensitive, let us call it floating, currency coming out 
of China would be good for the United States?
    Mr. Sheets. Yes.
    Mr. Schweikert. Okay. Second thing. In our own sovereign 
debt situation, I have a personal fixation coming very soon, if 
we do not demonstrate to the world here is our debt management 
plan to get through the reality of the 30-, 40-year demographic 
bubble, Baby Boomers, as they are retiring, we need to be 
telling the world how we are going to manage this skyrocketing 
debt that as we saw on congressional budget in their document 
say 2018 it is game on, the debt starts to explode.
    For the protection of the value of U.S. currency, for the 
protection of the value of our currency as being sort of the 
benchmark, do we not have to telegraph to the world, here is 
our debt management plan?
    I have ideas of long-term bonds, and a couple of other more 
technical things, at least to telegraph that we are taking this 
seriously because right now this Administration has not been 
taking it seriously.
    I know that is hard because you work there. But am I wrong 
that we are going to have to start telegraphing to the world 
our debt management future?
    Mr. Sheets. I need to defer to my colleagues, including the 
Secretary, on issues related to debt management. That is not 
part of my portfolio.
    But certainly it is also the case that having confidence in 
U.S. policy and confidence in U.S. securities is a critical 
input for there to be confidence in the U.S. dollar.
    Mr. Schweikert. It comes right up against this area 
especially.
    And in the last 50-some seconds, as we are also working on 
our relationships in regard to money-moving currencies, how 
much fixation do you see in the countries you deal with on also 
eliminating bad actors from using our infrastructure? I am 
concerned many of us, I think even the chairman have discussed 
of SWIFT in others of our financial backbone being used by 
whether it be Iran, whether it be drug cartels, or just bad 
actors. How often does that come up in your conversations with 
our--
    Mr. Sheets. This is a crucial issue that manifests itself 
in the so-called de-risking and correspondent banking 
discussions and also in discussions associated with remittance 
flows.
    And I think there are two core objectives that we are 
working to achieve and, in some sense, to balance. On the one 
hand, to ensure the ongoing efficiency of the financial system 
and protect the ability of the financial system to effectively 
intermediate and for flows to move from one part of the system 
to the other.
    On the other hand, it is imperative that we protect the 
soundness, the integrity, and make sure that it is not abused 
by bad actors.
    Mr. Schweikert. Dr. Sheets, we have gone over time.
    Thank you, Mr. Chairman.
    Chairman Huizenga. The gentleman's time has expired.
    With that, we will go to the gentleman from Minnesota, Mr. 
Emmer, for 5 minutes.
    Mr. Emmer. Thank you, Mr. Chairman.
    And thank you to the Under Secretary for being here today.
    Just some insurance questions, I guess, first. With regard 
to all of the international insurance regulatory standards, but 
especially capital standards, including the higher-loss 
absorbency, HLA, do you support requiring international bodies 
to wait until the United States has established its standards 
and then insist that the U.S. standard be recognized as at 
least one way to comply?
    Mr. Sheets. I see the ongoing work on international 
standards for insurance as being constructive. It helps achieve 
financial stability and a level global playing field. So I 
think having that work ongoing is constructive and useful.
    However, it is also important that I emphasize that these 
international groups that are doing this work, like the 
International Association of Insurance Supervisors (IAIS), 
which includes our insurance regulators, that the international 
groups do not have authority, they do not have any jurisdiction 
within the United States.
    So they make recommendations and then depending on which 
part of the code it is, either the Federal Reserve in its role 
as looking at the systemic institutions, or the State insurance 
regulators, would make a decision about how and in what way 
they are going to implement these international 
recommendations.
    Mr. Emmer. Speaking of the IAIS, the organization recently 
voted to shut out observers, including U.S. industry and 
consumer representatives from its working group meetings. Are 
Treasury representatives working to reopen those meetings? And 
how about with regard to the closed-door meetings of the 
Financial Stability Board, same question?
    Mr. Sheets. We are represented, the Treasury is represented 
in the IAIS, the Federal Insurance Office, and State regulators 
are represented in the IAIS.
    Mr. Emmer. And I hate to interrupt, but it is limited time. 
Are you working to open those meetings to the industry and 
consumer representatives?
    Mr. Sheets. We are working to make those institutions as 
transparent as possible, including releasing documents and 
explanations and so on and so forth. And we see that as being a 
very constructive step toward increased transparency.
    Mr. Emmer. Is that a yes, Mr. Under Secretary, yes you are 
working on it? I understand you are trying to make it more open 
and transparent.
    Mr. Sheets. We are working to get to a similar outcome, but 
we are taking a somewhat different route than the one you just 
articulated.
    Mr. Emmer. Okay. The IMF issued a report in July 
criticizing the United States for the way its State insurance 
regulators are designated or elected and calling for a national 
insurance regulatory body.
    To what extent did Treasury provide resources for this 
report? And does the Treasury agree with those comments?
    Mr. Sheets. I am not aware of the extent to which we were 
involved in commenting on this.
    Certainly, the IMF is an independent body or the IMF does 
independent research, so it would not be the case that anything 
they said would for us have a ratification from the U.S. 
Treasury.
    And the recommendations there are the IMF's; they are not 
the U.S. Treasury's.
    Mr. Emmer. All right. Would the Treasury support the 
termination of the Financial Sector Assessment Program (FSAP) 
reviews of the U.S. insurance regulatory system?
    Mr. Sheets. We just went through one of those FSAPs. It is 
a very resource-intensive proposition for insurance in the 
sector, more broadly.
    My instinct is that the FSAP is--it occurs once every 5 
years--probably a useful exercise for all of us to go through.
    Mr. Emmer. To what extent does the Treasury conduct cost-
benefit analyses with regard to positions it takes on insurance 
regulatory issues in international bodies?
    Mr. Sheets. We are always analyzing pros and cons, costs 
and benefits. I am not sure that I have a formal document that 
I can generate.
    But another important point is that as these international 
frameworks are developed, once they move to the point of 
actually being implemented by State regulators and by the 
Federal Reserve and others, there will, at that point, be more 
detailed cost-benefit and impact analysis done.
    Mr. Emmer. Thank you. Very quickly in the seconds I have 
left, changing course, what if any role is the Treasury 
Department playing in coordination with the State Department in 
the Cuba Steering Committee to normalize banking relationships 
with Cuba?
    As I understand it, to date only one bank has a 
relationship in Cuba, and I want to know what the Treasury is 
doing.
    Mr. Sheets. Let me get back to you on that. As far as I 
know, we have no formal role in that group, but I would want to 
check that.
    Mr. Emmer. Thank you.
    I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    With that, we will go to the gentleman from North Carolina, 
Mr. Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Secretary Sheets, regarding the snapback provisions, it is 
my understanding that the Europeans are going in flocks right 
now to Iran, their trade ministers and various individuals, 
looking for agreements with Iran. Is it reasonable to assume 
that snapback provisions will really be, at that period of 
time, something that we could expect given China and Russia 
and--the world has changed and there is a clear reluctance, it 
seems to me, to join in?
    It seems that there has been a lot of communication that we 
will just go into snapback, but is that really likely? Wouldn't 
you agree that this is really not something we should be 
believing that this will occur?
    Mr. Sheets. Those issues related to Iran sanctions are 
outside of my purview as the Under Secretary for International 
Affairs.
    Mr. Pittenger. Okay.
    Mr. Sheets. And I should defer to the Secretary and to 
acting Under Secretary Szubin.
    Mr. Pittenger. Very good.
    Mr. Sheets. I very much apologize for that, but I should 
be--
    Mr. Pittenger. All right. Let us talk about the IMF 
systemic exemption. Could you enlighten us where the 
Administration stands with that? The IMF, the systemic 
exemption that there has been some discussion about.
    Mr. Sheets. Yes, and what about the systemic exemption?
    Mr. Pittenger. There have been a lot of mixed signals from 
the Administration about it. I would just like some 
clarification on it.
    Mr. Sheets. Yes, okay. My sense is that the systemic 
exemption was put into place in response to significant 
economic and financial risks in 2010. Had we pressed forward 
with debt restructuring of those peripherals at that point, 
there would have been a significant risk of contagion at a 
point when the global economy was just starting to recover from 
2008-2009.
    That said, also recognize that there is an ongoing 
conversation, an animated conversation going on about this 
inside the IMF. And we are open to various ideas. One is to 
further specify criteria that we need to be satisfied in the 
event of the systemic exemption. But there are other ideas.
    And as I mentioned to Chairman Huizenga, I would be very 
happy to work with you and your staffs on this issue going 
forward. It is a very important issue.
    Mr. Pittenger. It certainly is. Would you be able to 
address some issues related to terrorism financing? There are 
46 banks in Iran that will come under SWIFT authority in 
transfer of funds. And certainly, it should be of concern to 
all of us that $100 billion will be received by Iran from 
repatriated oil profits and how that money could be processed 
through the international financial system.
    What efforts are being made right now through the Treasury, 
FinCEN and other departments to track this money?
    Mr. Sheets. Again, I have to defer those questions to my 
colleagues. I very much apologize for that.
    Mr. Pittenger. Okay. I yield back.
    Chairman Huizenga. The gentleman yields back.
    With that, we are--do you need a minute? All right.
    Mr. Heck, then, if that is all right, we are going to go to 
our side, and then we will come to your side.
    With that, we will recognize the gentleman from Indiana, 
Mr. Stutzman, for 5 minutes.
    Mr. Stutzman. Thank you, Mr. Chairman.
    And thank you, Mr. Sheets, for being here.
    I want to talk a little bit about what is going on in the 
Middle East. Do you support sanctions relief for individuals 
and groups known to sponsor terrorism?
    Mr. Sheets. Again, I think it is necessary for me to defer 
those questions to my colleagues. I apologize.
    Mr. Stutzman. Who would those colleagues be?
    Mr. Sheets. Secretary Lew, and then acting Under Secretary 
Adam Szubin, who had his confirmation hearing today, would be 
the two principals, and then acting Under Secretary Szubin's 
staff.
    It is in the TFI cone of the Treasury.
    Mr. Stutzman. Okay. Can you talk a little bit then about 
the new financing options that they will have as a result of 
the Iran deal?
    Mr. Sheets. Similar. I regretfully cannot answer that.
    Mr. Stutzman. Okay, all right. Let us talk about the TPP 
then a bit. Could you give us an update on TPP and how the 
negotiations are going? I am interested in your take.
    Mr. Sheets. Absolutely, thank you. I see TPP as being 
enormously important for the U.S. economy. It links our economy 
and our firms to the fastest-growing region in the world and 
many rapidly growing countries.
    Moreover, it establishes rules of the road for 
international trade that emphasize transparency and openness 
and rules of the road where U.S. firms will be able to compete 
fairly and, I think, flourish.
    The negotiations met with a fair amount of success and 
progress during the negotiations in late July. The USTR and our 
international counterparts are working vigorously to get this 
agreement concluded as soon as possible.
    I don't think we have any eminent, specific date by which 
we will be concluded. I think soon we will be at a place where 
we will be done.
    Mr. Stutzman. Are you hearing any reluctance from countries 
in the negotiations related to agricultural products or 
automobiles, medical device industry that it would affect? Are 
you hearing anything as far as related to those three?
    Mr. Sheets. I think that those are ongoing issues where 
various of our counterparties in TPP would have several of 
those issues that would be open and concerned. But that is 
where the negotiations are at this stage. It is working through 
those now.
    Mr. Stutzman. Can you share what their concerns would be 
thus far?
    Mr. Sheets. Our work has been more in the financial sector 
specifically. But for Japan, it is autos and agricultural. For 
New Zealand, say, it is dairy. For Canada, it is agriculture. I 
would say that those are some examples of ongoing issues.
    Mr. Stutzman. How about manufacturing? Anything that you 
know of related to manufacturing?
    Mr. Sheets. Over and above the issues on autos, I haven't 
heard as much about manufacturing.
    Mr. Stutzman. Okay. What about autos? What are you hearing 
on autos?
    Mr. Sheets. Of course, that is an ongoing issue of 
discussion with the Japanese.
    Mr. Stutzman. Okay. Could you talk quickly about Ukraine 
and the concern that we have about foreign aid falling into the 
wrong hands?
    Mr. Sheets. I think what has been happening in Ukraine over 
the last 18 months is truly, truly extraordinary. That on the 
one hand, there have been enormous stresses there as a result 
of the security situation.
    On the other hand, we have seen the government move forward 
with a vigorous reform program that has put in place many of 
the kinds of things that the international community, the Fund 
has been asking the Ukrainians to do for several decades.
    As a result of the vigor of this program, the IMF has 
provided support, the international partners have provided 
support, and the situation in Ukraine appears like it might be 
approaching a point of stability.
    I should finally note that an important part, an important 
tier of the reform program is an anti-corruption drive where 
they are working to make the government more reliable and 
trustworthy in a number of different dimensions.
    Mr. Stutzman. Okay, thank you.
    I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    With that, we will go to Mr. Heck from Washington State for 
5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    Mr. Sheets, thanks very much for being here.
    I think we are party to at least three agreements that 
affect our biggest export industry, namely aircraft sales: the 
OECD agreement; the aircraft sector understanding; and the home 
market agreement between us and the Airbus countries, which 
says we won't provide export credit on sales into each other's 
countries.
    As I understand it, however, there are no enforcement 
mechanisms on any of these. They are so-called gentlemen's 
agreements.
    But it has always seemed to me that there is also no 
incentive to cheat, because everyone has export credit 
agencies, or did, and anyone who cheats and provides subsidies 
would suddenly find other countries providing subsidies in 
response.
    But now that we don't have an export credit agency, it 
seems like we lack this ability. If the Airbus countries want 
to provide deeply discounted export credit to sell planes into 
the United States, sir, do we have any tools to stop them and 
protect American jobs now that we have shut down our export 
credit agency?
    Mr. Sheets. I broadly agree with the argument you made that 
by not having an Ex-Im Bank we have much less leverage in our 
discussions and our interactions with the rest of the world on 
issues with respect to export credits.
    And specifically, as this body knows well, the Treasury has 
a mandate to take steps globally to reduce, with an eye toward 
eliminating, export credits. But it is very difficult to do it 
if we don't have any leverage in those discussions.
    Mr. Heck. Do we have any tools to deter or disincentivize 
their export credit agencies deeply discounting now that we 
have no direct retaliatory entity or potentially retaliatory 
entity?
    Mr. Sheets. We are very much dependent on our argumentation 
and our relationships. But the direct tool that we would use is 
now gone.
    Mr. Heck. Unless you disagree, I will conclude that you 
have just indicated that we are being put at a competitive 
disadvantage.
    I want to change to IMF. And I am curious as to whether you 
know whether U.S. cooperation with the Asian Infrastructure 
Investment Bank will be discussed with President Xi during his 
upcoming visits and what possible forms of cooperation that 
might take.
    Mr. Sheets. I am not sure what exactly is on the agenda. 
But I can say that in our bilateral discussions with the 
Chinese, the functioning of the AIIB is one of the issues that 
we discuss. And we take that opportunity very much to 
underscore that for the AIIB to contribute constructively to 
the global environment, it needs to operate according to the 
best practices that have been established by the multilateral 
development banks over the last 70 years for issues of 
governance and transparency and environment and social 
inclusion and so on and so forth.
    These are points we make repeatedly, and I think these are 
points that we have some evidence to believe that the Chinese 
are starting to hear, based on the documents that this 
institution is generating.
    Mr. Heck. Do you think there is any reason to believe that 
failure to adopt IMF reform may have contributed, directly or 
indirectly, materially or immaterially, to the creation of AIIB 
and the BRICS Bank?
    Mr. Sheets. I do think that was a factor, that these 
emerging market economies wanted a greater voice in the 
international institutions and the international architecture. 
And the 2010 quota reforms gives them that larger voice. But 
without it, they are left to seek opportunity to have an impact 
through other mechanisms, including through the creation of 
these new institutions.
    Mr. Heck. What further consequences might there be if 
America fails to embrace the otherwise broadly recommended 
reforms? How else might we be disadvantaging ourselves in terms 
of an ability to provide a leadership role?
    Mr. Sheets. My sense is that a strong IMF that is led 
meaningfully by the United States is very much in U.S. economic 
and national security interests. And to the extent that we are 
not leading, then the IMF is going to go in other directions.
    And it is imperative. The world looks for our voice, and it 
is an opportunity for us to take steps to ensure that the IMF 
is moving in directions that we see as being most compatible 
with global economic, financial stability and other 
considerations that we have.
    Mr. Heck. Thank you, sir.
    Chairman Huizenga. The gentleman's time has expired.
    And again, my apologies for that little delay. We would 
have loved to have been able to do a second round. But I know 
you had a target time of about 4:00 and we want to be 
respectful of that.
    So I would like to thank our witness today for his 
testimony.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    And with that, this hearing is adjourned.
    [Whereupon, at 4:05 p.m., the hearing was adjourned.]

                            A P P E N D I X



                           September 17, 2015


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]