[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
TRANSATLANTIC POLICY IMPACTS OF THE
U.S.-EU TRADE CONFLICT
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HEARING
BEFORE THE
SUBCOMMITTEE ON EUROPE, EURASIA, ENERGY, AND THE ENVIRONMENT
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
June 26, 2019
__________
Serial No. 116-53
__________
Printed for the use of the Committee on Foreign Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available: http://www.foreignaffairs.house.gov/,
http://docs.house.gov, or http://www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
37-040PDF WASHINGTON : 2019
COMMITTEE ON FOREIGN AFFAIRS
ELIOT L. ENGEL, New York, Chairman
BRAD SHERMAN, California MICHAEL T. McCAUL, Texas, Ranking
GREGORY W. MEEKS, New York Member
ALBIO SIRES, New Jersey CHRISTOPHER H. SMITH, New Jersey
GERALD E. CONNOLLY, Virginia STEVE CHABOT, Ohio
THEODORE E. DEUTCH, Florida JOE WILSON, South Carolina
KAREN BASS, California SCOTT PERRY, Pennsylvania
WILLIAM KEATING, Massachusetts TED S. YOHO, Florida
DAVID CICILLINE, Rhode Island ADAM KINZINGER, Illinois
AMI BERA, California LEE ZELDIN, New York
JOAQUIN CASTRO, Texas JIM SENSENBRENNER, Wisconsin
DINA TITUS, Nevada ANN WAGNER, Missouri
ADRIANO ESPAILLAT, New York BRIAN MAST, Florida
TED LIEU, California FRANCIS ROONEY, Florida
SUSAN WILD, Pennsylvania BRIAN FITZPATRICK, Pennsylvania
DEAN PHILLIPS, Minnesota JOHN CURTIS, Utah
ILHAN OMAR, Minnesota KEN BUCK, Colorado
COLIN ALLRED, Texas RON WRIGHT, Texas
ANDY LEVIN, Michigan GUY RESCHENTHALER, Pennsylvania
ABIGAIL SPANBERGER, Virginia TIM BURCHETT, Tennessee
CHRISSY HOULAHAN, Pennsylvania GREG PENCE, Indiana
TOM MALINOWSKI, New Jersey STEVE WATKINS, Kansas
DAVID TRONE, Maryland MIKE GUEST, Mississippi
JIM COSTA, California
JUAN VARGAS, California
VICENTE GONZALEZ, Texas
Jason Steinbaum, Staff Director
Brendan Shields, Republican Staff Director
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Subcommittee on Europe, Eurasia, Energy, and The Environment
WILLIAM KEATING, Massachusetts, Chairman
ABIGAIL SPANBERGER, Virginia ADAM KINZINGER, Illinois, Ranking
GREGORY MEEKS, New York Member
ALBIO SIRES, New Jersey JOE WILSON, South Carolina
THEODORE DEUTCH, Florida ANN WAGNER, Missouri
DAVID CICILLINE, Rhode Island JIM SENSENBRENNER, Wisconsin
JOAQUIN CASTRO, Texas FRANCIS ROONEY, Florida
DINA TITUS, Nevada BRIAN FITZPATRICK, Pennsylvania
SUSAN WILD, Pennsylvania GREG PENCE, Indiana
DAVID TRONE, Maryland RON WRIGHT, Texas
JIM COSTA, California MIKE GUEST, Mississippi
VICENTE GONZALEZ, Texas TIM BURCHETT, Tennessee
Gabrielle Gould, Staff Director
C O N T E N T S
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Page
WITNESSES
Hamilton, Daniel S., Austrian Plan Foundation Professor, Johns
Hopkins University School of Advanced International Studies.... 7
Chorlins, Marjorie, Vice President, European Affairs, U.S.
Chamber of Commerce, Executive Director, U.S.-U.K. Business
Council........................................................ 32
Bown, Chad P., Reginald Jones Senior Fellow, Peterson Institute
for International Economics.................................... 44
Bromund, Theodore R., Senior Research Fellow in Anglo-American
Relations, Margaret Thatcher Center for Freedom, The Heritage
Foundation..................................................... 49
APPENDIX
Hearing Notice................................................... 72
Hearing Minutes.................................................. 73
Hearing Attendance............................................... 74
ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD
The Tranatlantic Economy 2019.................................... 75
TRANSATLANTIC POLICY IMPACTS OF THE U.S.-EU TRADE CONFLICT
Wednesday, June 26, 2019
House of Representatives
Subcommittee on Europe, Eurasia, Energy, and the Environment
Committee on Foreign Affairs
Washington, DC
The subcommittee met, pursuant to notice, at 3:13 p.m., in
room 2172 Rayburn House Office Building, Hon. William Keating
(chairman of the subcommittee) presiding.
Mr. Keating. The hearing will come to order. We want to
thank the witnesses for their patience. I will not thank you
too much so we can get right to the hearing. You know, these
roll calls are a democratic necessity, so here we go.
We are meeting today to hear testimony on the transatlantic
impacts of trade disputes between the United States and the
European Union. Without objection, all members will have 5 days
to submit statements, questions, extraneous materials for the
record, subject to the length limitation in the rules.
I will now make an opening statement and turn it over to
the ranking member for his opening statement and officially
start this part of the hearing.
I would like to welcome you to the hearing today to discuss
our trade policy toward Europe. I have been monitoring the
positive and lately negative developments in our trade
relationship with Europe for some time now, along with many of
our members. That is because I am a big believer in what we can
accomplish together as part of our transatlantic alliance and
that we also seize on our collective economic strength.
Together the EU and the U.S. represent nearly half the
world's GDP. We are each other's largest trading partner. We
have the leading services in terms of service economy globally,
and we represent well over half the global foreign direct
investments.
We represent a formidable economic base that should be
leading the world towards a better economic opportunity for
families in our communities back home, for greater prosperity,
for people in developing countries and in new democracies, and
for fairer trade rules for our businesses to compete on an even
playing field.
Regrettably, instead of continuing negotiations with the EU
toward a trade investment agreement, the President withdrew
from the talks that were ongoing and pursued a hardline
strategy of imposing tariffs on our allies that added insult to
injury by invoking national security as a justification for
imposing them, as if we were vulnerable to a national security
threat from our ally because they sell us steel and aluminum.
There are, as there have been for a long time, many real
trade issues to figure out in our relationship with the EU.
That is why we are negotiating an agreement with the EU and we
have been doing so back since 2016 and that is why we are again
negotiating. The only way out of this mess is to negotiate a
trade agreement, except this time around businesses are
teetering on the edge of closure as these tariffs continue.
This tariff policy completely ignores how integrated our supply
chains have become. It is not some foreign government footing
the bill for these tariffs either. It is our businesses and our
consumers. It is especially small and medium size businesses
who bear the brunt of it because they do not have an in-house
trade compliance field of experts that our larger corporations
have. They chose the safe route trading with our allies who
share our values, who share our business practices, and now
they are paying for it.
I hear from so many businesses back home, veteran-owned
businesses, small manufacturing companies, farmers. Our
cranberry industry was threatened by this as well. They are,
and I really mean this, desperately trying to navigate the
complex world of tariffs, exclusion from these tariffs,
regulatory agencies, and higher costs. So many are panicked
about going out of business altogether. I have talked to them.
They worry about forfeiting their market shares to companies in
other countries that have not pursued such a reckless path of
tariffs as we have.
So we are negotiating again with the EU, but in reality, we
are back to square one, except now, every day, middle class
Americans are footing the bill. We have missed out on two and a
half years when we could have been increasing our collective
economic strength to compete with China which is the only way
we are going to be successful in countering Chinese practices
through coordinated trade practices, constructed on shared
values that reflect fair wages, safe working conditions,
respect for intellectual property, rule of law, and
environmental responsibilities, but with unnecessarily taking
shots at our allies when we should be working with them more
closely, more closely than ever before to confront deeply
serious threats around the world. It does not strengthen our
hand in the face of adversaries like Russia and China to drive
unnecessary wedges between us and our allies.
So I am pleased to be holding this hearing today so that we
can hear from this expert panel on these issues. We have to
hear you today and learn why these issues are so important, why
there is a sense of urgency to negotiate a resolution to this
trade dispute with the EU and what steps we can take going
forward to get back to a place where our transatlantic economic
relationship is a stronger component of our overall alliance.
It is critical for our business back home. It is critical for
our own economy. It is critical for projecting strength abroad
and pushing back against our adversaries. And frankly, it is
just common sense.
So with that, I would like to thank the witnesses for being
here and I turn it over to the ranking member for his opening
statement.
Mr. Kinzinger. Well, I thank the chairman and thank you all
for being here and being patient with us. We mentioned with the
votes.
I believe in free and fair trade and I believe that free
trade increases global security while creating jobs here in the
United States, those of which are net positives. For that
reason, it is important to support policies that encourages
global trade, open new markets, break down barriers in existing
markets, and establish rules that are fair to all participants.
I want to stress fair because that is where the main issue is.
Countries around the world, including some of our closest
allies, have taken advantage of the United States' willingness
to engage in free trade. They put up barriers, especially
giving their workers an unfair advantage over American workers.
Europe displays unbalanced favoritism to its manufacturing
sector, while European companies are typically allowed to bid
on certain U.S. Government contracts, U.S. manufacturers are
generally not offered the same opportunities.
Further compounding this issue are their subsidies for
their supply base in the form of a VAT, VAT tax rebates, and
other indirect measures. In response to these wrongs, President
Trump took action by using a Section 232 authority to place
tariffs on steel and aluminum. I recognize and share the
President's interest in protecting American workers,
innovation, and business from unfair trading practices.
Allowing a country like China to continue to steal American
innovations and inventions not only puts our economy at risk,
but also our national security.
However, I do not believe that aluminum and steel imported
from Europe poses a national security threat to our Nation. Any
tariffs imposed should be tailored to address individual
irregularities caused by biased trade practices.
Trade between the United States and Europe accounts for
nearly half of the global GDP. We are not talking about tariffs
amounting to pennies on the dollar or rounding errors. Any
major disruption in the transatlantic economy would be
devastating to the world. We must reduce the barriers put up by
both American and European leaders in the past to increase
competition and further attract the world's best talent to the
West.
In my district, the 16th District in Illinois, we are a hub
for manufacturing and agriculture. In fact, Illinois ranks
third in the Nation for the export of ag commodities with over
$8 billion dollars' worth of goods going overseas. And much of
that comes from my district.
I have heard from many industries affected by our trade
dispute with the EU. While the bottom line is being hurt, they
understand that unfair trade practices placed against American
industry hurts them more in the long run. They, like, me are
hopeful we can come to a quick and equitable resolution to
stand united against the main aggressor which is China.
The so-called 16+1 Initiative between China and many
Eastern and Central European nations have Beijing offering
developmental projects in exchange for increased cooperation.
China has executed over 350 mergers, investments, and joint
ventures across Europe. In many cases, they can access critical
information about how these systems work or even steal
sensitive intellectual property. More than half of China's
investment in Europe is in the largest economy, Germany, the
U.K., France, and Italy. What concerns me though is that these
are linchpins in our NATO alliance.
China has now passed the U.S. as Germany's largest trading
partner and they are closing the gap for Europe as a whole. We
have seen the Chinese invest over $70 billion in the United
Kingdom, trying to get a foot in the door and any anticipation
of a Brexit deal that sees the Brits leaving the EU.
Trade tension between the United States and Europe do not
signal the end of the transatlantic partnership. Our bond is
strong, forged by years of partnership and battling common
threats which have developed our shared values. We will not
always be 100 percent in agreement with the EU, but we will
always work together to ensure that our people are taken care
of and the world is a safer place for the next generation. I
cannot stress enough the need for the United States and the EU
to solve our differences quickly in order to develop a
transatlantic strategy to counter Chinese-maligned influence
and trade practices before it is too late.
And with that, Mr. Chairman, I look forward to the
conversation and I yield back.
Mr. Keating. Thank you, ranking member. I will now
introduce our witnesses briefly.
Dr. Daniel Hamilton is the Austrian Marshall Plan
Foundation Professor at Johns Hopkins University School for
Advanced International Studies and a former Deputy Assistant
Secretary of State for European Affairs.
Ms. Marjorie Chorlins is Vice President for European
Affairs at U.S. Chamber of Commerce and Executive Director of
the U.S.-U.K. Business Council. She is the former Principal
Deputy Assistant Secretary for Import Administration at the
Department of Commerce and we thank you also for submitting
your documents. Members will look at it as a State-by-State
breakdown of the effects of this.
Dr. Chad Bown is a Reginald Jones Senior Fellow at the
Peterson Institute for International Economics and a former
Senior Economist for International Trade and Investment at the
White House on the Council of Economic Advisors.
Dr. Theodore Bromund is a Senior Research Fellow in Anglo-
American Relations for the Margaret Thatcher Center for Freedom
at the Heritage Foundation.
We appreciate all of you being here today and look forward
to your testimony. Please limit your testimony to 5 minutes and
without objection your prepared written statements will be made
part of the record.
I will now go to Dr. Hamilton for his statement.
STATEMENT OF DANIEL S. HAMILTON, AUSTRIAN PLAN FOUNDATION
PROFESSOR, JOHNS HOPKINS UNIVERSITY SCHOOL OF ADVANCED
INTERNATIONAL STUDIES
Mr. Hamilton. Thank you, Mr. Chairman. I would like to
submit this testimony for the record and I have an appendix
which also does State-by-State breakdown which I would like to
add to that.
Mr. Keating. With no objection, so added.
Mr. Hamilton. Thank you. Thank you for the opportunity to
speak with you today about how U.S.-EU disputes over trade and
other issues are affecting U.S. foreign policy and broader
economic relations.
If we look at the kinds of tensions we are facing right now
across the Atlantic, there are three kinds of costs that we
have to think about. One are direct costs. As both you and the
ranking member have mentioned, we are facing steel and aluminum
tariffs which directly affect those industries on both sides of
Atlantic because of the dense commercial inter-linkages that
bind the U.S. and Europe together.
The car industry is facing potentially 25 percent tariffs
that the U.S. might impose on the European car industry which
will ricochet back into the American market. And it is really
always important to understand this dense inter-linkage of the
transatlantic economic space. To take the car industry, for
example, European companies directly support 173,000 U.S. jobs
here because of their investment. If one considers indirect
effects on hobs, including down stream suppliers, distributors
and other related companies, European companies support 420,000
U.S. jobs. About a quarter of the U.S. production in the auto
industry is by European companies in the United States,
contributing about $34 billion to U.S. GDP; many of those are
U.S. exports. So 60 percent of the cars produced by European
companies in the United States are made in the U.S.A. and they
are exported to the rest of the world. So the U.S. is their
platform for that.
And one of the features of the U.S. auto industry is its
innovation capacity. So European companies invest a lot in
innovation in the United States through the auto industry,
about $5.5 billion in R&D that they bring to the U.S. economy.
The auto trade is about 10 percent of transatlantic trade, so
if that goes south, that is a big chunk of our relationship.
And Europe is also, of course, a big customer for American
cars. About 20 percent of U.S. car exports go to Europe. So
that is a direct cost if we would go down this road of a
potential trade war.
That is just one example of how a particular industry would
be affected.
But there are many indirect and spillover costs because of
the distinctive nature of the U.S.-European economy. Again, we
are so deeply linked, not only by trade but by these investment
flows that are really the driver of the transatlantic economy
rather than trade. Trade follows investment, not the other way
around.
And so what is happening now is because of these tensions,
you can see in the numbers that this is starting to chill
investment coming into the United States from Europe. Investors
do not quite know should they invest right now. And because
Europe is by far the largest investor in the United States in
the world, about 68 percent of the $4 trillion in foreign
capital that comes to the United States comes from Europe. And
Europeans account for 76 percent of the world's investment in
the U.S. manufacturing industry, so really nobody else is
really investing in U.S. manufacturing except the Europeans and
then they produce here and as they export from here as U.S.-
manufactured exports.
And of course, they are the largest supplier of on-shored
jobs in America. We estimate that up to 16 million jobs on both
sides of the Atlantic are reliant on healthy commercial
intracton between the United States and Europe.
One needs to understand this deep inter-linkage between the
investment and the trade. European investment is diverse. It is
in all the 50 States. The data we provide to you as the
addenddom to the testimony shows that. It generates income and
jobs for U.S. workers, sales for local suppliers and
businesses, extra revenues for local communities through taxes,
a lot of capital investment, and R&D as I mentioned.
I see Congressman Wilson is here. My example I always use
is BMW. And it just shows you, the story just tells you all you
need to know. So BMW in Munich has built this plant in
Spartanburg which is now bigger than its plant in Munich. Yes.
And what they do is they produce the engines and front bumper
assemblies in Munich and then they send them to Spartanburg to
assemble the final car. And then they export to the rest of the
world, making BMW actually the No. 1 U.S. car exporter by
value. But what happens? You take the engine from Munich. You
send it to the United States. You pay a 2.5 percent tariff to
put it in Spartanburg. You export it back to Europe. You pay
another 10 percent tariff to get it back to Europe and then if
we add another 25 percent, it is just not making a whole lot of
sense to the people of Spartanburg. It is not about the
Europeans. It is about the people in Spartanburg.
So rather than imposing additional tariffs, we should be
dismantling all of them. That is the premise of the
negotiations that could start if we get going, between the U.S.
and EU. And the key is to keep the investment flowing because
that is actually what is driving all of this. The trade is sort
of just on the top of the investment. So if you shut it down,
you are shutting down jobs, innovation, and Spartanburg and the
whole region, and the whole distribution channels that flow
past Spartanburg. I have many examples in the State of
Massachusetts and others.
The last costs I just want to mention are opportunity costs
because what is happening is we are missing opportunities for
more jobs and growth across the Atlantic by fighting each other
instead of looking at the bigger picture. I think both of you
have mentioned how important that relationship is.
The fact that we are squabbling about these tariffs
overshadows the really important fact that actually the United
States and the EU agree on what to do about China. We agree
that China has a problem. Europeans agree with us about China's
assault on intellectual property, on forced technology
transfer, and all the things that we are having trouble with
the Chinese. Unfortunately, instead of joining forces we are
distracted and divided by our own squabbles over tariffs. So we
are not harnessing the leverage we could have to get China into
compliance with WTO norms and other aspects of the rules-based
order. This is a significant opportunity cost we are missing
out on.
[The prepared statement of Mr. Hamilton follows:]
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Mr. Keating. Thank you.
Ms. Chorlins.
STATEMENT OF MARJORIE CHORLINS, VICE PRESIDENT, EUROPEAN
AFFAIRS, U.S. CHAMBER OF COMMERCE, EXECUTIVE DIRECTOR, U.S.-
U.K. BUSINESS COUNCIL
Ms. Chorlins. Thank you, Mr. Chairman, Ranking Member
Kinzinger. I appreciate the opportunity to testify before you
today.
As you said, Mr. Chairman, the transatlantic economy
remains by far the most successful bilateral commercial
partnership in the world. There are innumerable opportunities
to build on that partnership and equally grave risks if the
tensions continue to escalate.
In June 2018, the Trump administration imposed tariffs on
imports of EU steel and aluminum on national security grounds,
despite the fact, as you mentioned, that most EU countries are
NATO members and treaty allies of the U.S. When the steel and
aluminum tariffs were announced, Chamber CEO Tom Donahue said,
``These new unlawful tariffs will directly harm American
manufacturers and provoke widespread retaliation from our
trading partners.'' Unfortunately, those predictions have come
true.
Meanwhile, the looming threat of 25 percent tariffs on
imports of autos and auto parts is of grave concern. We trade
nearly ten times as much in the auto sector as we do in steel
and aluminum across the Atlantic. Again, quoting the Chamber
CEO, ``The U.S. Chamber strongly opposes the administration's
threats to impose tariffs on auto imports in the name of
national security. The U.S. auto industry is prospering as
never before and these tariffs risk overturning all of this
progress.''
While the final decision on auto tariffs has been postponed
for 6 months, the threat continues to erode trust between
Europe and the U.S. Where the United States has been applying
these tariffs on our friends and allies, the EU has been
negotiating new market opening agreements. Brussels has
concluded agreements with Japan and Canada and upgraded its
existing agreement with Mexico. In a growing number of
countries, European exporters actually enjoyed better access
than U.S. companies.
When it comes to China, the U.S. Government, the Chamber,
and Europe are indeed aligned on the challenges, but pursuing a
unilateral tariff-driven approach is not the optimal way to
effect lasting change in China. A coordinated approach would be
much more powerful.
Another flash point concerns tax policy. Several European
countries are considering digital services taxes that would
disproportionately affect American companies. An informed and
inclusive discussion on modernizing the international tax
system is occurring at the OECD. Unilateral European actions
erode trust and undermine prospects for an international
agreement.
The Chamber was among the earliest and most vocal
proponents of the Transatlantic Trade and Investment
Partnership negotiations. We do regret that those talks were
not concluded, but continue to believe that progress can and
indeed, must be made.
Last July, President Trump and European Commission
President Juncker announced new talks intended to lower
transatlantic tariffs, remove non-tariff barriers, and enable
closer cooperation on shared challenges. We are very encouraged
that the administration has returned to the negotiating table.
The Chamber has flagged several ways the two sides can
boost economic growth, create good jobs and enhance
competitiveness through a reinforced partnership. Our
recommendations were submitted for the record today, but let me
highlight just a few.
First, while the Chamber advocates for comprehensive trade
agreements that address not just trade and goods, but also
services, investment, procurement, and other issues, tariffs on
industrial goods have recently been the chief focus of U.S. and
EU officials. Elimination of tariffs could boost U.S. exports
to the EU by as much as $50 billion, according to just one
study.
Second, U.S. and EU policymakers should continue to promote
regulatory cooperation. The two sides should try to establish
common standards where none exist and where both sides are
considering new rules. The emergence of autonomous vehicles is
but one instance where the two sides can and should
cooperative.
The U.S. and EU should also pursue mutual recognition of
existing regulations in the many cases where our different
approaches meet common regulatory objectives. We do understand
that any conversation about trade with the EU must tackle
politically sensitive issues such as agriculture. It is well
understand, indeed, that a trade-liberalizing agreement that
does not cover agriculture is a political nonstarter in
Congress.
As we develop strategies on cybersecurity and artificial
intelligence, the two sides should continue to develop common
approaches that reflect our shared values and commitment to
transparent stakeholder engagement. Both sides also must take
steps to ensure the internet remains globally connected and
interoperable. Our inter-dependent digital economies and
securities depend on the ability to move data across borders
efficiently and safely. The privacy shield which facilitates
cross border data flows while protecting personal privacy must
be reaffirmed.
The U.S. and Europe also should work closely with
stakeholders to incentivize circular economy investments and
promote resource efficiency. Transatlantic cooperation will
make it easier for American and European firms to lead the way
in addressing resource challenges and a changing climate while
fostering economic growth.
Finally, transatlantic defense and security cooperation
remains a cornerstone of our alliance. In light of a fast
changing global security environment, including cyber attacks
and disinformation campaigns, transatlantic cooperation remains
essential. As the EU boosts its own strategic capabilities, its
efforts must complement and be coordinated with NATO's
priorities. Any new European defense project must allow for
fair and transparent competition including for American
companies.
Mr. Chairman, transatlantic trade tensions are occurring
against the backdrop of several noncommercial disagreements
that also have significant economic spillover effect. We
encourage the subcommittee to engage actively with the
administration and with the European policymakers to address
these issues collaboratively.
In sum, there can be no effective resolution of our shared
economic challenges without robust and constructive engagement
between the U.S. and Europe.
Thank you very much.
[The prepared statement of Ms. Chorlins follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Keating. Dr. Bown.
STATEMENT OF CHAD P. BOWN, REGINALD JONES SENIOR FELLOW,
PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS
Dr. Bown. Thank you, Mr. Chairman, ranking member, and the
subcommittee for the invitation to be here today.
Several actions taken by the Trump administration over the
last 2 years have severely strained trade relations between
Europe and the United States, weakening the transatlantic
backbone of the global rules-based trading system. But an even
more worrisome threat to that relationship may be in the
offing. It comes in the form of the President's warning that he
may impose trade restrictions on tens of billions of dollars of
imports from Europe of automobiles and automobile parts
contending that they threaten America's national security. The
national security threat is fanciful and Congress should amend
existing statutes to constrain the executive branch's abuse of
this power on trade.
No evidence supports the argument that imports of
automobiles and parts from our closest European allies threaten
America's national security. In fact, invoking Section 232 of
the Trade Expansion Act of 1962 by declaring such a threat to
justify trade restrictions would damage the U.S. economy,
create uncertainty, poison trust, instill massive disruption
through both retaliation and copycat behavior relying on this
same flimsy rationale.
Three reasons demonstrate why imposing trade restrictions
on European automobiles and parts would disrupt the American
economy. First, American consumers would be hit by price hikes.
Fiats, Volkswagens, and Volvos, amongst other brands, would
become more expensive. And the reduced competition would
inevitably raise prices of all cars regardless of the make and
model.
Second, the American manufacturing base would lose access
to imported auto parts that it needs to produce cars for both
domestic consumption and export. Imported parts are vital for
American-based auto plants to keep costs low for high-quality
cars made in States like Alabama, Tennessee, and South
Carolina. The facilities in these and other States makes some
of America's most successful exports. Restricting trade in
these parts would hurt these factories and their workers.
Third, Europe will retaliate. The European Union has
announced it would impose counter tariffs on U.S. exports, a
credible threat because it did so last year when President
Trump imposed tariffs on their exports of steel and aluminum.
Those European tariffs hit more than $3 billion worth of U.S.
exports, hurting American farmers and businesses. It would be
surprising if you have not already heard complaints from your
districts. Among those suffering are corn farmers and makers of
bourbon and whiskey, cosmetics, motor boats and yachts, peanut
butter, playing cards, and motorcycles. I can name dozens of
other products affected by that retaliation.
The example of Harley-Davidson illustrates the futility of
the Trump administration's tariffs. Harley has announced in a
Securities and Exchange Commission filing that Europe's counter
tariffs mean it can no longer afford to produce motorcycles in
the United States for sale in Europe. Harley-Davidson and many
other U.S. manufacturers know that 95 percent of their
customers live outside of the United States' borders. By making
it more expensive to make products for those customers, the
Trump administration is forcing these companies to transfer
manufacturing to some other country not hit by these cost
increases.
Imposing trade restrictions on European autos would also
exacerbate three additional policy concerns. First, such a step
would likely end bilateral trade negotiations between the U.S.
and the EU including talks on several vital issues such as
regulations that constitutes the largest barrier to existing
trade. Despite President Trump's colorful anecdotes, the
tariffs the EU applies on imports from the United States are
not one sided. They are comparable, in fact, to the average
tariff the United States applies on imports from Europe,
especially for manufactured products. But these non-tariff
barriers to trade can only be tackled through regulatory
cooperation. The process of doing so began under the Obama
Administration through the Transatlantic Trade and Investment
Partnership negotiations.
The Trump administration has, to its credit, continued some
elements of that process. And a deal on conformity assessments
would be an important next step for transatlantic trade, but
new auto tariffs and counter tariffs would strangle that
progress just as it holds promise of achieving results.
Second, imposing these tariffs would escalate tensions,
impeding cooperation in other areas of vital joint interests.
More, not less, cooperation is urgently needed between Europe
and the United States on e-commerce, the internet, data
localization, cybersecurity, a potential digital services tax,
and many other hugely important areas of the new economy. The
United States cannot afford to squander or disrupt any effort
toward protecting consumers and businesses in the increasingly
technologically sophisticated marketplace.
Third, the tariffs would further exacerbate the Trump
administration's failure to take up the offer by Europe and
other allies to resolve issues of mutual concern in other trade
areas. The most serious, of course, is the administration's
decision to confront its closest economic partners, including
Japan as well as Europe, rather than enlisting them to put
collective pressure on China. Going it alone on China may be
doomed to fail.
But also important is the administration's disengagement on
many issues that desperately need to be addressed to reform the
World Trade Organization. Its current refusal to appoint new
members to the WTO's appellate body is undermining a dispute
resolution framework that has helped many U.S. businesses far
more than it has set them back.
In sum, President Trump's threats to impose tariffs on
imports of autos and parts from Europe must be taken seriously
by Congress, if economically costly tariffs on steel and
aluminum in 2018 make that current threat creditable. And
frankly, Congress never intended Section 232 to be used for
this purpose. Thus, Congress should legislate changes to
Section 232, as well as the International Emergency Economic
Powers Act, to require the President to seek its approval
before imposing new trade restrictions in the name of national
security.
Congress must recover from the administration its
constitutional prerogative to reshape these laws so that they
can no longer be abused. The executive branch should not be
imposing costs and unnecessary uncertainty on the American
economy, further eroding American policy leadership and hurting
U.S. global economic and foreign policy interests by
circumventing the authority of Congress to establish trade
policy as the Constitution prescribed.
[The prepared statement of Mr. Bown follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Keating. Dr. Bromund.
STATEMENT OF THEODORE R. BROMUND, SENIOR RESEARCH FELLOW IN
ANGLO-AMERICAN RELATIONS, MARGARET THATCHER CENTER FOR FREEDOM,
THE HERITAGE FOUNDATION
Dr. Bromund. Thank you, Mr. Chairman, ranking member. The
views that I express in this testimony are my own and should
not be construed as representing any official position of The
Heritage Foundation.
The U.S. imposition on tariffs on steel and aluminum
imports from the EU in 2018, was both unwise policy and unwise
economics. The EU retaliations, coupled with threats of
additional U.S. tariffs in recent months in imports of cars in
the EU are equally unwise. But as previous episodes and its
intermittent conflict show now that the policy impacts of these
tariffs nor their novelty should be exaggerated. The frequency
and history of U.S.-EU trade tensions strongly implies that
today's conflicts are likely to fade over time.
Unfortunately, they are likely to be replaced by new
conflicts, some of which may already be visible. These tensions
have in the past been caused or exacerbated by U.S.
administrations with a strong commitment to free trade and to
major U.S. post-war institutions such as NATO. There is
therefore no reason to assume that these trade tensions today
will inevitably lead to wider policy impacts beyond the realm
of trade.
Thus, while we should work vigorously to lessen today's
conflicts, there is no need for panic. What is lacking today in
the EU as much as in the United States is leadership to make
the simple and clear case for economic freedom. We need to
emphasize the benefits that flow from free trade and free
investment and we need to emphasize the fact that economic
freedom means much more than just free trade.
A history of U.S. trade diplomacy with EU over the past
decade is deeply ironic. The Obama Administration's
Transatlantic Trade and Investment Partnership, the TTIP, were
in favor with European leaders until they were pushed to reject
it by their own outraged public. The Trump administration's
tariffs, on the other hand, are opposed by European leaders but
have not raised nearly the same level of public opposition in
Europe that TTIP did.
Today, it appears that a big deal like TTIP is
unsustainably unpopular in Europe, while smaller industrial
goods only deal is unacceptable to the United States because it
omits agriculture. The result, sadly, is that there is no easy
resolution to be had of the U.S.-EU trade conflict.
However, the history of TTIP strongly suggests that the
most dangerous thing the U.S. can do now is to respond to the
current conflict by advocating the negotiations of a major
U.S.-EU trade deal in the style of TTIP. There is no reason to
believe that an effort to revive TTIP would not fan the same
anti-Americanism that killed TTIP. Although the hostility
engendered by TTIP by both sides of the Atlantic was deeply
unfortunate, TTIP's approach was also, in my view, flawed
because tariffs between the U.S. and the EU are already
generally low, the majority of the gains in TTIP would have
come from reducing non-tariff barriers, NTBs, between the U.S.
and the EU. TTIP's approach was to reduce the burdens imposed
by differing U.S. and EU regulations over the short run or
relying on regulatory harmonization over the long run. In time,
the number of harmonized regulations would have grown and the
amount of regulatory competition between the U.S. and the EU
would have declined. But while reducing the burdens of
differing regulations would have been good for today's
businesses, it would have been less good for tomorrow's
businesses. The harmonized regulations would have tended to
prevent new competitors from entering the harmonized
transatlantic market. Harmonization around a costly standard of
regulations may eliminate the burden caused by a lack of
harmonization, but it does not eliminate the burden of the
regulations themselves.
TTIP's flaws, however, do not mean the Trump administration
has chosen precisely the right approach. Its zero tariffs, zero
NTBs, zero subsidies goal is the correct one and its commitment
to an ambitious U.S.-U.K. free trade area post-Brexit is
laudable, but it has not found a successful diplomatic strategy
to convince the EU to negotiate a genuinely zero, zero, zero
agreement and includes agriculture. Furthermore, its chosen
instrument of tariffs is both damaging to the U.S. consumer and
raises wider concerns about its commitment to the U.S.'s post-
war supports for free trade.
The zero, zero, zero goal and that wider commitment would
have more credibility if the administration can point to a
major negotiating success that involved a new trading partner,
not merely the renegotiation of existing U.S. trading
agreements. It is therefore good that the U.S. has emphasized
its support for a U.S.-U.K. FTA which offers a single best
opportunity to negotiate an ambitious new agreement.
While tariffs do matter, greater risk to free trade and
thus the economic growth are non-tariff barriers, an area where
the U.S. is not guiltless, but where EU regulations poses
greater risk. The U.S. should firmly adopt the position that
the only acceptable level of tariff protection is zero. It
should also move rapidly to negotiate ambitious free trade
areas with partners such as the U.K. after Brexit would share
its understanding that regulation imposes costs that are just
as real and much larger than the tariffs on which the current
U.S.-EU trade tensions have focused. Thank you very much.
[The prepared statement of Mr. Bromund follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Keating. Thank you, Dr. Bromund. I will now take this 5
minutes to ask my own questions. There is some differences of
opinion, there is some differences to be worked out with the EU
and the United States, but in my mind there is one thing that
just is without question and perhaps the most serious problem
that we have that we are addressing in the current climate now.
And it can be summed up in one word, uncertainty. Uncertainty.
The tariffs that have been imposed and the stops and go and the
threats for escalation have done nothing but create an
uncertain environment. That has a tremendous cost economically
as Dr. Hamilton mentioned in terms of opportunity and it has
enormous costs in terms of the relationship and a coalition
that is there that is also based on security.
So if you could take just a second and comment on the real
danger of creating this uncertainty and the damage that it is
doing.
Dr. Hamilton.
Mr. Hamilton. Thank you, Mr. Chairman. As I mentioned, I
agree with you fully and we see that in the numbers if you look
at trends of investment coming into the United States from
Europe, which I mentioned is by far the largest investor in the
United States. Over the last couple of years European-souced
investment into the United States has been going down. When you
talk to many of those companies they say they do not quite know
whether they should make that commitment, given the great
uncertainty characterizing the U.S. domestic situation. And
that has considerable impact on local communities in terms of
all the spillovers that I mentioned.
There is a second issue related to uncertainty, and that is
we do not know where the transatlantic relationship is going.In
a world economy that has had to accommodate four billion new
workers in recent decadesm and in whic rising powers do not
necesserily agree with the rules-based orders that we created
together with Europem the window is simply closing on our
ability to shape these rules if we squences this moment. Time
is not neutral.
Mr. Keating. And there is a vacuum, if I could interrupt.
There is a vacuum that is there that will probably be filled
with China and countries that do not share those concerns. Is
that correct?
Mr. Hamilton. We spend our time squabbling with each other
rather than turning to each other to make sure we are the
rulemakers and not the rule takers. That is where the stakes
are these days.
Mr. Keating. If I could, too, I just want to hit another
issue--I do not exactly share the same views as Dr. Bromund on
these factors. Another concern about the relationships, that is
what made me think of this. I think if we pursue even though
logistically it cannot be done, I do not think from a practical
basis right off the bat, but even the discussion of talk of,
for instance, splitting off and doing a bilateral agreement
with U.K., U.S. to try and deal with the Brexit issue and turn
our back in the process on 80 percent of our exports, the rest
of Europe. I think that creates a problem, serious problem,
going forward, too.
Ms. Chorlins, would you like to comment on that?
Ms. Chorlins. Mr. Chairman, I agree with you completely,
specifically with respect to the idea of a U.S.-U.K. free trade
agreement, you are absolutely right. Practically speaking,
until we know the terms of the U.K.'s departure from the EU,
and the nature of its future relationship, it is really
impossible for the U.S. to negotiate a new relationship with
the U.K.
Uncertainty is indeed the greatest concern that the
business community has. We have that in the context of Brexit
in the U.K. and we also have it in the context of the direction
of the transatlantic relationship. This affects investment
decisions. This affects supply chains. This affects movement of
people. This affects movement of data. All of these are
significant concerns and are best addressed when we are working
together to address common challenges.
Mr. Keating. I have got just about a minute left, so
quickly, I would like to follow on Dr. Bown directly, to get
the feelings briefly of, within a minute or half a minute, of
the rest of the panel, but in any way could this be justified,
this tariff imposition on national security concerns?
Dr. Bown?
Dr. Bown. No. It is impossible, I think, to come up with a
rationale.
Mr. Keating. Dr. Bromund?
Dr. Bromund. No.
Mr. Keating. Ms. Chorlins?
Ms. Chorlins. No.
Mr. Keating. Dr. Hamilton?
Mr. Hamilton. No.
Mr. Keating. And I must tell you, I have had private
conversations with many of our European leaders, extraordinary
number of conversations, frankly, in the last several months
and I must tell you, I think we miss this at home sometimes,
they are disappointed and they are hurt about this
relationship. They are carrying through with their NATO
commitments in terms of working with us and trying to make good
on promises which I think they will continue to do. But it has
a real effect and it has an effect on the people that these
officials represent which is a problem going forward, too.
I have gone over my time and I would like to recognize the
gentleman from Indiana, Mr. Pence.
Mr. Pence. Thank you, Chairman Keating and Ranking Member
Kinzinger and thank you all, witnesses, for being here today.
Dr. Bromund, in reading your prepared testimony, I was
relieved to learn that the sky is not falling. It turns out
that the United States and our European friends have had trade-
related disagreements in the past. These disagreements span
both Republican and Democratic administrations. I think we
sometimes lose sight of these past disagreements when talking
about the here and now. It is important to remember that the
trading relationship between two of the world's largest and
most complex economies is bound to have some principal
disagreements, but this should not be confused as a fundamental
change in our fantastic relationship.
Moving into specifics, you mentioned agriculture in your
prepared testimony. You said EU Trade Commissioner Cecilia
Malmstrom has said agriculture will certainly not be part of
these negotiations. This is a redline for Europe.
I come from an agriculture area. This position has
obviously frustrated our trade negotiators. This is something I
am very concerned about for the farmers, not only in my
district, but across the United States. Building on this, you
highlight a YouGov poll conducted in 2016 that found only 1 in
5 Germans think TTIP is a good thing, down from 55 percent in
2014. As you state, only half of the German public considered
free trade a good idea and a quarter rejected it completely.
Dr. Bromund, my question is how can we address the EU
protectionism in agricultural policies that disproportionately
affect American farmers?
Dr. Bromund. Thank you very much for your question, Mr.
Pence.
I view European agricultural protectionism as a major
barrier to the negotiation of a successful U.S.-EU trade deal.
And I share your profound reservation that the EU has taken
agriculture off the table in the ongoing trade negotiations
with the United States.
I am obviously no apologist for U.S. tariffs and U.S.
protectionism. I view U.S. tariffs, as I have said, as the
wrong move to make, and I view U.S. and EU regulatory
protectionism with an equally distrustful eye.
However, it is vital in trade negotiations writ broad that
we keep positive momentum going. The chairman has alluded to
the dangers of uncertainty. I share his concern about
uncertainty, but uncertainty is much more tolerable if we are
moving in a positive direction. Right now, unfortunately, the
U.S. stand on tariffs, coupled with the U.S. stand on
agriculture makes positive momentum extremely difficult to
achieve.
In agriculture, I am in favor of trusting to sound science.
U.S. food is bountiful. It is for sale. And it is safe. We
should lose no opportunity to emphasize the scientific clarity
of the findings that U.S. agriculture is a boon to the United
States and a boon to the world and we should try our best to
encourage Europe to take agricultural trade on the basis of
sound science, not on the basis of panic, fear-mongering, and
the anti-Americanism of the sort which did so much damage to
the TTIP negotiations.
Mr. Pence. I could not agree more with you, Doctor.
Thank you, Mr. Chairman. I yield my time.
Mr. Keating. I thank the gentleman. The chair recognizes
the gentleman from Maryland, Mr. Trone.
Mr. Trone. Thank you, Mr. Chairman, and thank you to the
witnesses for coming out today.
Dr. Hamilton, the European Commission will soon experience
a change in leadership. Although it is not yet clear which
candidate will win the presidency, given those dynamics between
the U.S. and the EU, how realistic of a timeframe do you see
for trade negotiations to be concluded during President Trump's
current term in office?
Mr. Hamilton. I think they are very low for a number of
reasons. As you mentioned, one reason is this Commission is
ending. It ends in the fall, so whoever we are negotiating with
will not be the current person. They are all packing their
bags. I would call the European Commission's current strategy
``rope-a-dope''. If you are in the boxing ring and you are
getting beat up and you are waiting for the bell to ring to
prolong the match, you just throw your opponent up against the
ropes, as you dance alond the rope and keep prolonging for
time. And I think basically that is what the Commission is
doing. This Commission is not going to be the partner to finish
the deal and we do not know what comes after that.
If I may add to Dr. Bromund's statement and what was just
said, we also have just the fundamental disagreement of what
the negotiation is supposed to be about. The Europeans do not
want agriculture. I would share his view it is a non-starter
with the Congress, certainly, to have anything unless
agriculture is included.
The Trump Administration, however, does not want to include
government procurement and that is the EU's major ask. The EU
resists including agriculture in the negotiations, the US
resists including public procurement. And with the tariff
threat looming, prospects for progress on an agreement are
slim.
Mr. Trone. So quickly, President Obama, very popular with
many of our European partners despite ups and downs in the
transatlantic relationship, and yet the TTIP, of course,
failed.
President Trump, much less popular in Europe, any potential
U.S. trade deal play out given these dynamics at all and does
this popularity matter?
Mr. Hamilton. I think it does. I think the idea, if I may
be frank, of concluding a trade deal with President Trump is
not going to gain a lot of European support, not just in terms
of public opinion, but on very specific issues and with
specific countries. The French in particular did not sign up
for the mandate the EU gave to the Commission to negotiate
right now. They are adamant that they are not going to agree to
any trade deal with any country that has not signed the Paris
Climate Change Agreement. So they are now blocking what they
can within the EU. That is just one example of that.
And so I think the time to negotiate these things just
takes so long. This Commission is going to transition toward
the end of the year. We will be in our election season. I just
do not see a prospect that this is going to happen during the
remainder of this congressional term or Presidential term.
Mr. Hamilton. Dr. Bown, I am concerned about linkages
President Trump has made between trade tariffs and sometimes
unrelated political issues like his surprise announcement early
this month to put tariffs on Mexico for their failure to stop
migration into the U.S. While he has since pulled back on that
threat, I think this approach is counterproductive, confusing,
especially with our allies.
My question is how does this impact U.S. Government's
ability to negotiate trade deals going forward and are our
trade partners wary of agreeing to any concession knowing the
President might add new, unrelated demands at the eleventh
hour?
Dr. Bown. I think that is exactly the problem. By
essentially reneging on the agreement which was close to what
happened with Mexico, tying it to something that was completely
not trade related, a serious issue, but not related to trade,
that in a very real sense undermined the value of Mexico
conducting the USMCA negotiations in good faith with the Trump
administration. And partners around the world watch that, saw
that, and said you know, we may be wary to negotiate a trade
deal with this administration in the first place, but this
gives us even less comfort because anything that we might
negotiate with them could then be taken away.
Mr. Hamilton. One last question quickly there. The German
Federation of Industries has started referring to China as a
systematic, systemic competitor. Does that change their
alliance, their stance toward China and does that open up an
opportunity for us to work more closely with the Europeans to
make progress vis-a-vis China, Dr. Bown?
Dr. Bown. I think there are real opportunities for
additional cooperation with Europe. I think to its credit, the
Trump administration by highlighting these concerns with China
has raised them globally. And I think the Europeans are in a
very different place than they were two or three or 4 years ago
on a lot of these issues and there are now opportunities that
we really should not be wasting.
Mr. Hamilton. Thank you.
Mr. Keating. The chair now recognizes a gentleman who has
been waiting a long time for this hearing because he can speak
first hand of so many of its effects potentially, the gentleman
from South Carolina, Mr. Wilson.
Mr. Wilson of South Carolina. Thank you, Mr. Chairman, and
thank each of you for being here today, and indeed, I have
appreciated the reference to BMW. It is incredible. I was there
for the ground-breaking for BMW and the subsequent nature of
this last year they achieved $10.4 billion in exports from the
United States around the world. And you had referenced how
significant it was, but it is a multi-billion of export and
then our State has so benefited from foreign investments.
In my home community, we have Michelin Corporation has
their largest tire manufacturing facilities in the world and to
be exported out of the Port of Charleston also. And this goes
along with Continental Tire of Germany. And now South Carolina
is the leading manufacturer and exporter of tires of any State
in the union beginning just 30 years ago with zero. So we see
the benefit.
And I want to thank each of you for your--for the input you
have had here today.
Ms. Chorlins, what would be the potential impact of auto
tariffs on the U.S. auto industry? Would we feel as much pain
as the Europeans do?
Ms. Chorlins. Thank you for your question, Congressman. I
think it is important to state at the outset that indeed there
is no domestic constituency for these proposed auto tariffs. I
think my colleagues on the panel have identified the potential
costs in terms of the increased price of cars and auto parts.
They have talked about the potential for job loss and unfair
competition.
It is important to understand that as compared to steel and
aluminum, imposing tariffs on autos and auto parts would amount
to a tenfold increase in the impact of potential trade
barriers. So I think that it goes without saying that the
impacts would be felt far and wide.
I want to underscore though just one point and that is that
while we are spending a lot of time talking about these
potential tariffs, it is important to recognize that Europe is
not above reproach in its trade practices and I just want to
make sure that members of the subcommittee do understand that
there are several issues, legitimate issues, that we have to
address in doing business with Europe and that is why we think
these negotiations are so critically important.
Mr. Wilson of South Carolina. And Dr. Bromund, where do
things currently stand on Brexit? Is there a role for the U.S.
to play to encourage the successful conclusion to the Brexit
dilemma?
Dr. Bromund. Thank you, Congressman. The U.S. should exert
all of its energies to encourage both the United Kingdom and
the European Union to come to a speedy resolution of this
dilemma. It seems clear from the U.K.'s successive votes on
Prime Minister May's withdrawal agreement that there is no
domestic basis in U.K. for passing this withdrawal agreement
through the House of Commons. It is therefore likely that the
U.K. will either exit EU without a deal or that the basis for a
new deal will have to be negotiated. If the former, the no deal
scenario was true, and U.K. opens itself up as a negotiating
partner for FTA with the United States, an opportunity we
should seize. However, if there is an opportunity for a
satisfactory negotiated exit for the U.K. from the European
Union, this is something the United States could, and I believe
should use its good offices to seek both sides to persuade and
to accept.
Mr. Wilson of South Carolina. And Dr. Bromund, at the
beginning of the year the U.K., France, and Germany announced a
new channel for non-dollar trade between the EU and Tehran in
order to bypass U.S. sanctions of Iran called INSTEX. What are
the ramifications of setting up such a mechanism and what has
been the consequence?
Dr. Bromund. The immediate ramifications in financial terms
have been relatively small. However, the broader implications
of this measure are significant. One of the U.S.'s most
important tools in international relations broadly defined, I
am not talking here simply about a trade, is the power of the
U.S. dollar and the centrality of the U.S. as a financial
market and a global investment market. Measures like this
European measure threaten to circumvent the U.S. ability to
achieve foreign policy objectives by using the power of the
dollar and the centrality of the U.S. in investment markets.
And this can only have a negative effect on the U.S.'s ability
to achieve its foreign policy objectives in areas far divorced
from trade.
Mr. Wilson of South Carolina. Thank you very much. And
thank you, Chairman Keating.
Mr. Keating. I thank the gentleman. The chair now
recognizes the vice chair of the committee, Ms. Spanberger from
Virginia.
Ms. Spanberger. Thank you, Mr. Chairman, and thank you to
our witnesses for being here today.
Following up on the line of questioning and discussion that
we have heard so far just for level setting, on February 17,
2019, the Secretary of Commerce transmitted to the White House
a report on his investigation into the effects of imports of
automobiles and certain automobile parts on the national
security of the United States under Section 232 of the Trade
Expansion Act. And on June 14th, President Trump sent a letter
to Congress stating that he concurred with the secretary's
finding that automobiles and certain automobile parts are being
imported into the United States in such quantities and under
such circumstances as to threaten and impair the national
security of the United States.
So I share some of the concerns that have been expressed
here today, notably, 232 emerged out of the cold war--under the
cold war, has typically been used against oil and petroleum.
And when we look at auto related trade accounts, auto related
trade accounts were only 8 percent of bilateral trade between
the United States and the EU and we see such an impact on U.S.
jobs. I am struggling and challenged with this notion of how
this national security determination has been made.
And so my question for you as experts, former U.S.
officials as well, and in your current role, Ms. Chorlins, for
example, with the U.S. Chamber, is it clear to you what
criteria was used to assign a national security threat to the
automobile imports?
Ms. Chorlins. Thank you for the question, Congressman.
Because the report has not been made public, it is impossible
for us to know the exact criteria that were used. I think what
we can say is that the administration has made it clear that
especially with the case of steel and aluminum tariffs and
presumably with the auto tariffs as well, or the threat of auto
tariffs, that this is indeed designed to develop or create
negotiating leverage, to bring our trading partners to the
table and to force concessions from them.
So in terms of the actual criteria, I am afraid I do not
have specifics for you.
Ms. Spanberger. And how does that create a challenge in
your current role, for example, in trying to advocate on behalf
of U.S. businesses being privy to those sorts of relationships
between the United States and the EU having this lack of
understanding related to the 232 tariffs that the United States
has imposed?
Ms. Chorlins. Well, I think as the other panelists have
suggested, the tremendous uncertainty is of grave concern
certainly to the American business community. Mainly what we
would like to see is for the U.S. and Europe to actually make
progress on the areas that they have agreed to discuss so they
have talked about reducing non-auto industrial tariffs. We
think that kind of conversation should go forward. They have
talked about improvements regarding conformity assessments and
mutual recognition agreements. It is our understanding that
those conversations are happening at a technical level. Those
sorts of somewhat arcane measures are nonetheless of great
significance to American businesses. So we would like to see
these existing talks go forward. We would love for them to be
more comprehensive to include not just industrial goods, but
also as I said earlier services, investment, and procurement,
but we recognize that we have limited opportunities here and we
feel like we should leverage this momentum.
Ms. Spanberger. Thank you. And Dr. Hamilton, I would like
to pose a question to you given your previous background with
the Department of State in an issue that has been important for
many of us here is ensuring that we are asserting our Article 1
authorities.
Do you have an opinion, sir, on what role Congress should
play in overseeing Section 232 tariffs, particularly given the
foreign policy implications of such decisions and frequently
the--in this case, the national security reasoning for the
implementation of such tariffs?
Mr. Hamilton. Thank you for the question. I agree with Dr.
Bown's comments. Constitutional authority for commerce rests
with the Congress, and Congress should uphold that authority.
The topic under discussion is an example of a commercial issue
with national security implications, which indicated that this
committe is an appropriate deliberative forum for the
challenges it poses. It is the constitutinal prorogative of the
Congress to assert its rule and its rights, not just conduct
oversight. As Dr. Bown said, this should be examined very
closely and there should be a congressional role here whenever
the executive is trying to encroach upon these rights.
Regarding your other question, the uncertainty impact
extends to other areas. You mentioned the national security
implication of this had been done before with oil and gas.
Well, we are now in a new position with oil and gas. We are
trying to sell it to the Europeans, but you can imagine if
there is uncertainty about us as a reliable supplier, what that
will do then to our ability now to create this new channel of
transatlantic commerce. The Trump Administration is making
essentially the same charge about the Russians not being
reliable suppliers when it comes to providing Europe with oil
and gas. Well, you can imagine the Europeans might be asking
themselves well, are you reliable either?
Ms. Spanberger. Thank you very much. I yield back.
Mr. Keating. The chair thanks the gentlelady for your
questions and particularly bringing up Congress' role because
we have another role, too, in Congress, and that is
representing a jurisdictional district, territories, and
regions of the United States. If you look at the materials that
have been forwarded to the committee breaking that down by
State, you will see the importance of that from a State-by-
State basis. Thank you for the question and your responses.
The chair recognizes the gentleman from Mississippi,
Representative Guest.
Mr. Guest. Thank you, Mr. Chairman. Dr. Bromund, I want to
start by following up a little bit on what Congressman Pence
was speaking about as it relates to agriculture. Mississippi is
a large producer of agricultural products. American poultry has
been banned in the EU. American Farm Bureau statistics tell us
that we have $11 billion deficit with the EU as it relates to
agricultural products. The average U.S. tariff for imported
agricultural products is roughly 5 percent. For the EU, the
average tariff on imported agricultural products is roughly 3
times higher, at 14 percent. We know that trade negotiators on
behalf of the EU have said that agriculture will not be part of
these negotiations, that this is what they describe as a
redline.
You say in your written testimony on page 4 and 5, you talk
a little bit about some of those. You say that eliminating
tariffs for non-automobile industrial goods would be a major
gain for the U.S. economy and EU, but so would an end to the
EU's agricultural protectionism. And you list both France and
Belgium as two of the major driving factors behind their
reluctance to include that in current negotiations.
And so I guess my question to you, Dr. Bromund, what can we
do to make sure that we are applying the necessary pressure on
our friends in the EU that they are seriously considering
opening up their agricultural industry to American products?
Dr. Bromund. Thank you for the question, Congressman. I
would point out that EU and this began even before the European
Union came into existence as the EU, EU agricultural
protectionism has two fundamental sources. First, there is the
long-run impact of the Common Agricultural Policy which rests
on the political importance of agricultural constituencies in
the European Union. Although, of course, the relative size of
the EU agricultural sector has declined over the years as it
has in the United States, this still represents an important
political constituency in the EU and we need to recognize that
fact without for a moment excusing the protectionism that flows
from it.
Second, and this is unfortunately more recent, there is a
broad based and very popular political campaign in the European
Union against U.S. agricultural exports. This was, in my
judgment, the single most important factor behind the European
rejection of TTIP, the belief that opening up the EU markets
through TTIP to U.S. agriculture would be bad for EU consumers
as well as, less importantly, bad for EU agricultural
producers.
What I am afraid these two things have in common is they
only be resolved by EU European political leadership. We need
to make it very clear that just as I condemned U.S. industrial
protectionism through steel, aluminum, and potentially car
tariffs, we expect to EU political leaders to show the same
level of support in condemning their own protectionism. We
cannot negotiate, politically speaking, an industrial free
trade goods agreement without also negotiating politically in
the United States an agriculture free trade agreement. For us,
those two things are politically inseparable and I would add
they are both economically beneficial for us and EU consumers.
So I think we have to exercise, we have to call on European
political leaders to exercise significant political leadership
as the Congress is trying to do in this U.S. case to push
European agricultural producers and to push EU agricultural
consumers to recognize that importing U.S. agricultural goods
is a good thing, a healthy thing, and an important thing for
the wider health of the U.S.-EU trade relationship.
Mr. Guest. Do you believe the EU leaders understand the
importance of opening up agriculture as at least a negotiating
point for any future agreements?
Dr. Bromund. I have no doubt they understand its
importance. That is why the French refuse to do it.
Mr. Guest. And one final question, Dr. Bromund, just kind
of changing gears, you say on page 9 of your written statement,
you say that today it is becoming commonplace that the world
will be divided into spheres of trading influence, either a
Chinese sphere and a Western one or a U.S. sphere, a European
one, and a Chinese one.
Can you expand on that just very briefly?
Dr. Bromund. This is now a commonplace observation. The
idea that the future of the world rests with great powers or
great trading spheres, potentially a U.S. one, a European one,
and a Chinese one, or else a U.S. and European one combined
versus a Chinese sphere. This is an outcome that we should do
everything in our power to avert.
U.S. strategy in the cold war did not rest around trying to
create a bipolar world between the U.S. and the USSR. In the
cold war, we fought for freedom for our allies, as much as
freedom for ourselves. It is profoundly not an American
interest for the world to be divided up into two or three
economic trading spheres of influence. We want the broadest
freedom for ourselves and we want broad freedom for our allies,
even to the extent that they may, on occasion, disagree with us
as they have in the past, as they are now, and as they will
undoubtedly do in the future. But the idea of a world divided
up, George Orwell style, into three competing trading
continents is a profoundly unappealing and I would say un-
American one. We should do everything in our power to preserve
certainly our own trading freedom and our own prosperity, but
also the trading freedom and prosperity of our allies as well.
Mr. Guest. Thank you. Mr. Chairman, thank you. I yield
back.
Mr. Keating. Thank you. The chair recognizes a leader in
transatlantic relationships, the gentleman from California, Mr.
Costa.
Mr. Costa. Thank you very much, Mr. Chairman. This is an
important hearing for the subcommittee.
Taking your thesis, which I tend to agree with, Dr.
Bromund, it seems to me that yet when you look at the United
States and Canadian economies with Europe, we still constitute
over half the world's economy. And when you talk about rules-
based systems, you know, integrity and respect for law, a
judiciary system for appeals of these cases, we have far more
in common with our transatlantic relationship, Canada and us,
than these other parts of the world. And frankly, we have the
ability still to write the rules for the 21st century in terms
of a world-based economy and I think we should not lose sight
of that opportunity notwithstanding our current differences.
I think the politics that we are both aware of in Europe
and here have to be played out. Do you think that ultimately
the procurement issue in Europe and the agricultural issues
here ultimately constitute the basis for some sort of a
compromise as we, at some point, move to the position of
renegotiation, some version of a TTIP, both Mr. Bromund and Dr.
Hamilton, and anyone who would like to opine.
Dr. Bromund. It is an intriguing idea. Unfortunately, the
question is what are the relevant constituencies in the EU and
the United States? In the United States, the opposition to
opening up government procurement rests on the idea that U.S.
taxpayer funds should be directed to benefit U.S. consumers and
U.S. corporations. In the EU, the opposition to opening up
agricultural markets to U.S. competition rests partly on EU
agricultural producers, but also on a sector of EU----
Mr. Costa. I realize that, but let's give examples of what
reality is. When you look at the automobile market, we are
playing both sides, both Europeans and the U.S. When you look
at the issues of our new strike joint fighter, you know, the
Europeans are buying it. We are manufacturing it and you have
got parts being made in Europe. I mean the reality is is that
when Europeans come to America, they can go to any of our major
grocery stores and find all the wonderful cheeses that are
produced in Europe as well as the European wines. That is the
reality.
So I mean how we get past that in terms of--I get the
politics in France and in Italy and in all the other countries
when it comes to Parma, our Gorgonzola, or all those kinds of
nice naming items.
So therefore, my question is the Commission and the
commissioners negotiate the trade agreements. The Parliament
ultimately has to pass. We are not as familiar with their
system as we should be, I think.
Under the next new European Commission, I think we ought to
try to figure out a way to break through this in terms of the
politics and to get our own committees that have the
jurisdiction in these areas, even with the European
Parliamentary committees and having hearings here and having
hearings there in Europe to meet with these constituencies. Do
you think there would be some mileage in that, Dr. Hamilton?
Mr. Hamilton. Absolutely. Congressman, you know from your
great work that there is a great appetite for it on the
European side. The EU Caucus here could play a role, the
Transatlantic Legislators' Dialogue plays a role. There are a
number of things that could be done.
One idea would be simply when you are considering
legislation on each side of the Atlantic that might affect the
other, whether you sort of have an early warning type of
mechanism so you can understand what the potential legislation
coming down the road might be, and understand how that might
affect each other. That could be just a video conference with
your colleagues. You would not have to necessarily fly
everywhere. I think modern technology allows sort of these
parliamentary-type exchanges now on fundamental, substantive,
legislative ideas that could help things.
Mr. Costa. Well, once that commission gets formed, I think
we have got to figure out a way to get out of the box here
because--let me ask another question. They have completed an
agreement with Canada and now with Mexico and they are
negotiating with the Mercosur countries. Do you think those
successful conclusions of those treaties offer a template for
us, once we are ready to sit down and have a real negotiation
again?
Mr. Hamilton. I do not because I think we are--we would be
the pioneers. We would be negotiating something that is far
beyond what any of these other agreements have been which
always contain lower standards than what we have.
I think you are right that the critical thing to me seems
to be these two issues. The US wants the EU to open up its
agriculture market; the EU wants the US to open up its public
procurement market. Each has a problem. The Federal Government
often is not the real answer on public procurement because many
U.S. States actually do not subscribe to a lot of international
standards on opening up public procurement markets. So somehow
our States would have to go along with this. That is very hard.
On the European side, instead of just thinking market
access which is, I agree, a problem, one can think about the
types of things you mentioned, that there are a lot of
regulatory issues where we can agree to certain standards on
health and safety that I could see us moving forward on in the
agricultural area that is beyond just the trade piece of
things. So I do think if the will is there, there is a
possibility.
The problem we have is we have a limited mandate on both
sides now or we are arguing about it. For the trade agreement
to be WTO compliant, it has to cover substantially all trade.
Well, the current negotiation will not do that. So that was the
original idea behind the TTIP which was to say ``let's put it
all together so that there is enough room for some tradeoffs on
both sides.'' We were 97 percent of the way there in January
2017.
Mr. Costa. We have made a lot of progress.
Mr. Hamilton. We have and I think we can come back to some
of that in the future.
Mr. Costa. I think we are going to have to and your
definition of bilateral, because I know the president attempted
to do as Chancellor Merkel tried to explain that the European
Union is one entity and we are one entity, so that is
bilateral.
Mr. Hamilton. That is right.
Mr. Costa. That is my definition of bilateral. Do all of
you agree that is a definition of bilateral? OK. It seems to
me.
My time has expired and we need to continue this
conversation, Mr. Chairman, and I look forward to working with
you as we figure out ways with the Constitution. And this is
part of the problem. After the elections, they are reorganizing
now and only 250 of the returning members of the European
Parliament out of 761 which means over 500 of them are brand
new, and so we are going to have to have some time and patience
as we work through this aspect and with a new Commission as
well.
Mr. Keating. The chair would like to thank the witnesses
for adjusting their schedule because of the roll calls and the
delay that ensued from that. And thank you for your very well-
informed testimony. This is something that we will have to
pursue not just as a subcommittee, but as a full committee, and
as a Congress.
The opportunities here are enormous. The challenges are
great. It is unfortunate--I would have liked to have seen,
frankly, what would have happened if TTIP had been in the front
end, instead of TPP when there was a lot more commonality of
thought and I think we could have really had the thing moving
and it picked up a lot of momentum. We are not there because of
circumstances we could not control, but the greater good for
the U.S., the greater good to our allies in Europe, is so
enormous, not just an economic benefit, but also in our shared
values and the environment, the shared concern we have for
that, intellectual property being guarded, having a rule of
law, and a belief in fair wages and safe working conditions,
all these values that we share together are great. But I would
say this, that in the absence of us moving forward in this area
of mutual benefit there will be indeed a vacuum and that vacuum
will be filled with countries and entities that do not share
those same values and it will not have the beneficial effect.
So to me, I know the challenges, but the penalties that are
there and what is going to happen if we do not move forward
ourselves and what we will be facing is a far greater concern.
So I hope we can continue this discussion. I hope we can
move forward as a Congress and Parliament and engage the
business community to be a part of this. It is necessary. And
move forward. There will be a little rebranding. TTIP probably
will be a thing of the past, but I believe if we work together,
we will have success. So thank you for your words here today,
your testimony and if there are any other questions, we will
followup. This hearing is adjourned.
[Whereupon, at 4:30 p.m., the subcommittee was adjourned.]
APPENDIX
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