[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                   PROTECTING AMERICAN INNOVATION BY
                   ESTABLISHING AND ENFORCING STRONG
                          DIGITAL TRADE RULES

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON TRADE

                                 OF THE

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 20, 2024

                               __________

                          Serial No. 118-TR06

                               __________

         Printed for the use of the Committee on Ways and Means
         
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                                __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
57-161                      WASHINGTON : 2024                    
          
-----------------------------------------------------------------------------------              


                      COMMITTEE ON WAYS AND MEANS

                    JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania             MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut
DARIN LaHOOD, Illinois               EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio                  DANNY DAVIS, Illinois
JODEY ARRINGTON, Texas               LINDA SANCHEZ, California
DREW FERGUSON, Georgia               TERRI SEWELL, Alabama
RON ESTES, Kansas                    SUZAN DelBENE, Washington
LLOYD SMUCKER, Pennsylvania          JUDY CHU, California
KEVIN HERN, Oklahoma                 GWEN MOORE, Wisconsin
CAROL MILLER, West Virginia          DAN KILDEE, Michigan
GREG MURPHY, North Carolina          DON BEYER, Virginia
DAVID KUSTOFF, Tennessee             DWIGHT EVANS, Pennsylvania
BRIAN FITZPATRICK, Pennsylvania      BRAD SCHNEIDER, Illinois
GREG STEUBE, Florida                 JIMMY PANETTA, California
CLAUDIA TENNEY, New York             JIMMY GOMEZ, California
MICHELLE FISCHBACH, Minnesota        STEVEN HORSFORD, Nevada
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
                       Mark Roman, Staff Director
                 Brandon Casey, Minority Chief Counsel
                                 ------                                

                         SUBCOMMITTEE ON TRADE

                    ADRIAN SMITH, Nebraska, Chairman
VERN BUCHANAN, Florida               EARL BLUMENAUER, Oregon
DARIN LaHOOD, Illinois               DAN KILDEE, Michigan
JODEY ARRINGTON, Texas               JIMMY PANETTA, California
RON ESTES, Kansas                    SUZAN DelBENE, Washington
CAROL MILLER, West Virginia          DON BEYER, Virginia
LLOYD SMUCKER, Pennsylvania          LINDA SANCHEZ, California
GREG MURPHY, North Carolina          TERRI SEWELL, Alabama
GREG STEUBE, Florida                 BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota
DAVID KUSTOFF, Tennessee
                        
                        C  O  N  T  E  N  T  S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Adrian Smith, Nebraska, Chairman............................     1
Hon. Earl Blumenauer, Oregon, Ranking Member.....................     2
Advisory of September 20, 2024 announcing the hearing............     V

                               WITNESSES

Robert D. Atkison, President, Information Technology and 
  Innovation Foundation (ITIF)...................................     3
Olivia Walch, Chief Executive Officer, Arcascope.................    21
Evangelos Razis, Senior Manager, Workday.........................    27
Adrian Shahbaz, Vice President of Research and Analysis, Freedom 
  House..........................................................    38
Eric Gottwald, Policy Specialist on Trade & Economic 
  Globalization, AFL-CIO.........................................    44

                   PUBLIC SUBMISSIONS FOR THE RECORD

Public Submissions...............................................    77

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                   PROTECTING AMERICAN INNOVATION BY
                   ESTABLISHING AND ENFORCING STRONG
                          DIGITAL TRADE RULES

                              ----------                              


                       FRIDAY, SEPTEMBER 20, 2024

                  House of Representatives,
                             Subcommittee on Trade,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:05 a.m., in 
Room 1100, Longworth House Office Building, Hon. Adrian Smith 
[chairman of the subcommittee] presiding.
    Chairman SMITH. The subcommittee will come to order.
    Thank you, Ranking Member Blumenauer, subcommittee members, 
and our witnesses for being here today. I appreciate all of you 
taking the time to discuss the need for U.S. leadership in 
establishing and enforcing strong digital trade rules.
    Technology products are a crown jewel of American 
competitiveness. If our tech sector was its own country, its 
economy would be the eighth largest in the world, larger than 
even Canada or Russia. It employs 8.9 million Americans and 
pays 33 percent more than other industries on average.
    However, our status as an innovation powerhouse is under 
threat. In recent years, our strategic and economic rivals have 
sought to erode America's competitive edge through a series of 
discriminatory digital trade and tax measures targeting 
American companies. There is no question this is contrary to 
our national interest.
    This is why I was so concerned last October when the Biden 
administration announced it was no longer supporting core 
bipartisan digital trade rules in negotiations at the World 
Trade Organization and the Indo-Pacific.
    A recent poll found 86 percent of American voters believe 
it is important for the U.S. to lead in writing global rules 
for technology. Yet where we should be leading on technology 
rules, America is retreating. Where we should be arguing for 
our values in the face of digital authoritarians, we are 
silent. And where we should be working with allies, we are 
leaving like-minded partners out to dry.
    Even more concerning, it has been almost a year since USTR 
announced this policy change. Yet the administration has gone 
radio silent on what our digital trade policies should look 
like. Predictably, WTO partners have moved on without the 
United States.
    At USTR's insistence, digital trade is also off the table 
in ongoing negotiations with Kenya, despite the chance to set a 
gold standard with this important partner and developing 
nation.
    At the same time, it seems like our administration is out 
to lunch as foreign governments treat American companies like a 
piggybank by imposing new digital services taxes. It is 
unacceptable. Canada, one of our closest trading partners, is 
now collecting its DST with little response by the U.S. 
Government.
    Make no mistake, the new USMCA dispute against Canada's DST 
is a positive step, but it is too little, too late. We should 
have been ready to act immediately when Canada proceeded 
unilaterally, blatantly ignoring a series of warnings from 
Congress and our executive branch.
    Fecklessness on trade enforcement signals to foreign 
governments that aiming trade barriers at U.S. firms is fair 
game. Look no further than the European Union, which continues 
its regulatory assault against American Enterprise. For 
example, under the Digital Markets Act, six companies are 
designated for increased regulation as, quote, ``gatekeepers.'' 
Five are American, one is Chinese, and none are European. The 
Digital Services Act similarly targets American innovators.
    Yet the Biden administration has turned its head the other 
way and, in some cases, has even sent agency officials to 
assist the EU in implementing these laws. This sort of 
collusion to undermine American companies is simply 
unacceptable. Discriminatory actions against U.S. companies 
should be met with a firm response, not a helping hand.
    I will close with this: America needs to return to the 
table. We need to get back to negotiating smart trade 
agreements that support our innovators; agreements with real 
teeth. Further, the U.S. Government must have the will to 
enforce them. We need to make sure foreign governments know 
discriminatory actions will be met with a swift and decisive 
response from a government that supports its job creators.
    I now recognize Ranking Member Blumenauer for his opening 
statement.
    Mr. BLUMENAUER. Thank you, Congressman Smith, for planning 
and organizing today's hearings. I know it has been an 
incredibly demanding work period with everything that is going 
on, and I would like to thank our panelists for joining us in 
the waning days of the fall session here.
    In the interest of time, I will just briefly highlight a 
few topics that we will hear about today.
    I would like to start by commending the Biden-Harris 
administration for their leadership role in the recent 
extension of the WTO e-commerce moratorium. The United States 
was instrumental in getting all WTO members to agree to the 
extension, and it was not, I am told, an easy task. The e-
commerce moratorium supports American business growth and is 
critical to the digital economy.
    Extending the e-commerce moratorium was a big priority for 
the Ways and Means Committee. As the chairman mentioned, the 
digital economy is critically important to the United States. 
According to the most recent data, as is mentioned, there is a 
tremendous amount of value that is involved with this 10 
percent of the GDP, and the digital economy grew at over 7 
percent per year from 2017 to 2022.
    The impressive growth for the digital economy has created 
new opportunities for workers, for consumers, and business. The 
digital economy has enabled entrepreneurs, like Dr. Walch, one 
of our panelists, to start small businesses that operate 
globally. It has led to the introduction of new technologies 
and platforms that have helped to drive even more innovation, 
improve trade facilitation, and further conservation efforts, 
and provide important access to telemedicine. Today, the 
digital economy touches most industries, whatever size.
    But while the digital economy has created new opportunities 
and transformed certain industries, it has raised significant 
modern challenges. As Ambassador Tai has correctly noted, an 
increasingly digital and digitized economy challenges every 
realm of our individual and collective experience and requires 
careful consideration of the regulatory approach.
    On the one hand, we must create conditions for a company to 
innovate. And yet on the other hand, we must ensure the ability 
of governments to regulate the digital economy, especially with 
respect to personal data.
    In this regard, I am looking forward to hearing from Eric 
Gottwald today on some of these challenges both within the 
workplace, such as surveillance of workers, and outside the 
workplace, such as the erosion of personal privacy. I am 
concerned about that and look forward to hearing from our 
panelists.
    Finally, I will close by noting that policymakers have an 
obligation to approach digital trade policy thoughtfully and 
deliberately. We need to strike an appropriate balance 
furthering the growth of the U.S. digital economy and 
responding to the needs of our citizens and not having them 
shortchanged.
    I look forward to hearing from our witnesses on these 
issues. I appreciate, Mr. Chairman, your convening us, and look 
forward to a productive conversation.
    Chairman SMITH. Thank you to Ranking Member Blumenauer. I 
appreciate your participation as well.
    I would like to introduce our witnesses now. First, we will 
have Robert Atkinson. He is the president of the Information 
Technology and Innovation Foundation. We have Olivia Walch, who 
is the chief executive officer of Arcascope. We have Evangelos 
Razis, and he is the senior manager of Workday. We have Adrian 
Shahbaz, who is the vice president of Research and Analysis for 
Freedom House. And then we also have Eric Gottwald, who is the 
policy specialist on Trade and Economic Globalization for the 
AFL-CIO.
    Each of you will have five minutes. You will have your 
timer there that you can see. Once you see that yellow light, 
if you could bring the flight in for a smooth landing, we would 
all appreciate that.
    So, Dr. Atkinson, you are recognized for five minutes.

STATEMENT OF ROBERT ATKINSON, PRESIDENT, INFORMATION TECHNOLOGY 
                    & INNOVATION FOUNDATION

    Mr. ATKINSON. Thank you, Chairman Smith and Ranking Member 
Blumenauer and members of the subcommittee. It is a pleasure to 
speak with you today about this key issue that you laid out.
    What is undeniable is that the U.S. leads in this sector. 
We have 37 percent of global market share in the IT and 
information services market, and it is an incredibly valuable 
market, and since, as you noted, pays high wages, key exports. 
And that is why so many foreign governments, including core 
allies like Canada, like Korea, and others, have targeted this 
sector, targeted our businesses, both in a form of digital 
protectionism so that they can grow their businesses. If they 
can hobble ours, they think they can grow their businesses to 
compete with ours, but also direct digital aggression. Limiting 
our ability to do business, taking our business company money.
    And we detail in my testimony a number of key areas. And it 
is striking just how aggressive these areas are.
    Number one, as people talk about, limiting cross-border 
data flows.
    Number two, government-driven import substitution, where 
governments like the European Government are saying we don't 
want to buy your IT services or cloud service, we want our own. 
And yet Europe is running a $200 billion trade surplus with us. 
And we are running a $2 billion trade surplus in digital with 
them. So, essentially, they have a hundred times more trade 
surplus with us in other areas than we do in digital, and they 
won't even let us sell digital products and services to them, 
which is what they want to do.
    Cloud center localization. You can't have your cloud data. 
Center has to be there.
    Mandated edge provider payments to ISPs. Basically what 
they are doing over there is there are ISPs, there are telecom 
companies, they are saying, hey, we have a good idea to raise 
money. We will just force Amazon and Google and these other 
companies to just pay us money. This is a complete violation of 
how the internet has always worked.
    Digital standards manipulation. Rather than relying on a 
global or voluntary standards process that we have had for 
decades, a lot of these countries are imposing their own 
standards as a way to get competitive advantage.
    Digital services taxes. Mr. Smith, you mentioned that--
Congressman Smith. What is important to understand that those 
don't come from the companies, they come from our Treasury. 
These companies that paid that get a tax credit against their 
U.S. taxes. So they are just taking tax money from U.S. 
taxpayers.
    Aggressive antitrust against these companies. Massive 
fines. Particularly the Europeans, billions and billions of 
dollars of fines. Highest fines we have ever seen anywhere for 
antitrust.
    Taxing streaming platforms, and giving the money to 
domestic companies.
    And, finally, arbitrary privacy enforcement. Bringing 
privacy cases that would never stand in the U.S. against 
American companies.
    So in light of all of that, it is critical that we need 
strong pushback against these countries. And it is unfortunate 
that USTR Tai made that decision to pull out of the WTO 
negotiations and others to get, quote, policy space.
    And I just want to close by saying, that really is not what 
is at stake here. Congress has the ability to do virtually 
anything in regulating the digital policy space. Virtually 
anything, as long as it doesn't discriminate in favor of 
American companies against foreign companies. So we could pass 
an AI bill if we wanted to, and it wouldn't change anything 
about our need to push back against foreign countries that are 
using AI regulation to discriminate against American companies. 
We could pass, and we should pass, a national privacy bill that 
would not at all preclude us from pushing back against cross-
border data limitations.
    And one of the key points that I think is lost in this 
debate, regulation flows with the data. The idea that if you 
move data offshore, you no longer have to comply with the 
regulatory standards of that country, is just false.
    The Canadian Government brought a case a few years ago 
against an American company that was doing business in Canada 
and the U.S. It took Canadian-person data, put it into the U.S. 
and complied with U.S. law. Unfortunately, it broke the 
Canadian law. Canadians sued the company, and they won in 
court, as they rightly should have, because the American 
company violated the laws of the country they were doing 
business. So cross-border data flows do not mean that you can 
have a get-out-of-jail free card.
    Let me just close by saying, this is such an important 
sector, as you noted, that if we don't take stronger action, we 
are going to lose this sector. And we are going to lose the 
jobs and the revenue and the exports that come with it.
    So I am so pleased that you are doing this hearing because 
it is such a critical issue. Thank you.
    [The statement of Mr. Atkinson follows:]
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    Chairman SMITH. Thank you.
    Dr. Walch, you are recognized for five minutes.

 STATEMENT OF OLIVIA WALCH, CHIEF EXECUTIVE OFFICER, ARCASCOPE

    Ms. WALCH. Chairman Smith, Ranking Member Blumenauer, and 
members of the subcommittee, thank you for the opportunity to 
speak today. My name is Olivia Walch, and I am the CEO and 
founder of Arcascope, a Virginia-based company that makes 
software to help people sleep better by targeting their 
circadian rhythm.
    If you have ever experienced jet lag, worked a night shift, 
or simply woken up in the middle of the night and not known 
why, you have experienced the tremendous impact that circadian 
rhythms can have on your sleep, health, and overall well-being. 
Our apps work by telling users what they need to do through 
personalized plans for timing their eating, light exposure, and 
caffeine, to start sleeping and feeling better faster.
    In the time since our founding, we have had success helping 
users sleep better all across the United States. But our users 
are not just in the United States, and it is for that reason 
that I greatly appreciate the opportunity to speak to you all 
today.
    Arcascope has users from countries around the world. Like 
most small companies, we reach these users through an 
infrastructure of service providers--for distribution, 
authentication, analytics--and each of these handle user data. 
The services range from as critical as handling how a user logs 
in to as simple as just tracking if they clicked a button. We 
have invested time, energy, and effort into engineering our 
backend to carefully handle this data.
    We can't afford to constantly reengineer the backend or 
consult our lawyer in response to policy changes requiring us 
to store data locally or pay countries specific tariffs. We 
just lack the resources. After all, 2 weeks of my lawyer's time 
is half an engineer's salary. If we were in a position where 
the choices between redoing our backend or leaving a country 
whose specific rules were a compliance challenge, we would 
almost certainly just stop operating in that country.
    And, of course, you can see the problem this poses for a 
jet lag app. You don't want to take off from Dulles and not 
have your app work in Delhi.
    We already limit the data we collect because of compliance 
headaches. If you land in Delhi and you want to know why we are 
telling you not to drink coffee, I can't tell you without 
having you go to settings and export a diagnostic report and 
email it to us, which is a hassle. And it is caused by 
disparate regulations we encounter around the globe.
    If the fracturing of digital trade is allowed to continue, 
I am confident that established third-party providers will sell 
us compliance for a price, passing their costs on to us, and 
further entrenching the already big players in the technology 
space. Compliance with countless nation-specific digital trade 
laws takes a lot of lawyers, and there aren't that many 
companies with lawyers at the scale of Meta, Google, Amazon. We 
are not one of those.
    I want to briefly touch on the e-commerce moratorium, 
source code disclosure, and data flows with my remaining time.
    Digital goods are, essentially, information, which makes 
them inherently different from trade and physical goods. And I 
am grateful for the WTO e-commerce moratorium in place right 
now which makes it so that digital goods are not subject to 
tariffs in the same way physical goods are. And it is from this 
place of gratitude that I call for strong U.S. leadership to 
continue the moratorium and ultimately make it permanent.
    As a startup, putting our proprietary innovations at risk 
is putting our entire company at risk. Requirements to share 
source code as part of operating in that country would mean 
exposing our secret sauce to foreign regulators that probably 
don't have our best interests in mind. Our only option would 
again be to stop operating in a country that demanded that.
    And it is easy to see how the imposition of localization 
requirements would be stifling to products like our jet lag 
app, but almost any business would be disrupted by barriers to 
cross-border data flows. And despite the tendency to think of 
tech as nice to have, like social media or streaming services, 
data flows can be critical and life-sustaining.
    My company's ambitions go far beyond our jet lag app. We 
are the first mover in the field of consumer chronomedicine, 
timing drugs so that they are maximally effective and minimally 
toxic. Drugs like chemotherapy.
    We work with researchers around the world, and we need to 
be able to share data with each other. Innovation will happen 
fastest if barriers to data flows across borders are kept as 
frictionless as possible. There are good reasons for slowdowns 
and sharing of health data to occur, like rigorous human 
subjects and privacy protections. But inconsistent, nation-
specific, trade bureaucracy is not one of them.
    U.S. small businesses like mine need strong leadership to 
prevent rules like tariffs on digital goods, mandatory data 
localization, enforced source code disclosure from hampering 
our global growth.
    With strong leadership on digital trade from the United 
States, companies like Arcascope can continue to do what we do 
best, which is build and compete on a global stage. And we can 
continue to help you avoid jet lag on your next congressional 
delegation.
    Thank you for the opportunity to speak today, and I look 
forward to your questions.
    [The statement of Ms. Walch follows:]
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    Chairman SMITH. Thank you.
    Mr. Razis, you are recognized for five minutes.

     STATEMENT OF EVANGELOS RAZIS, SENIOR MANAGER, WORKDAY

    Mr. RAZIS. Good morning, Chairman Smith, Ranking Member 
Blumenauer, and members of the subcommittee. My name is 
Evangelos Razis, and I am senior manager of public policy at 
Workday, where I lead our policy efforts on data flows, 
privacy, and AI.
    Workday is a leading provider of enterprise cloud 
applications for finance and H.R. Our software is used by more 
than 10,000 organizations around the world and across 
industries, including more than 60 percent of the Fortune 500. 
There are 70 million workers in the Workday customer community, 
and nearly 30 percent of all U.S. job openings are processed 
using our software.
    I commend the subcommittee for its bipartisan focus on 
strong digital trade rules and would like to offer three points 
for my written testimony.
    First, digital trade rules are vital for cross-border data 
flows, which Workday and our customers rely on to grow, 
innovate, and do business. Workday can develop AI-powered 
solutions here in the United States and deliver them to our 
customers wherever they are in the world.
    Chairman SMITH. Mr. Razis, could you pull your microphone a 
little closer? Thank you.
    Mr. RAZIS. Enterprises in every major industry, from 
manufacturing to retail to financial services, rely on our 
software platform to recruit, manage, train, and empower their 
employees, complete payroll, process benefits, and manage their 
finances. Unfortunately, barriers to the free flow of 
information and digital services exports are growing abroad.
    For cloud software companies like Workday and our 
customers, data localization requirements are particularly 
challenging. Unlike legacy systems, cloud software like Workday 
runs on third-party infrastructure and is delivered through the 
internet. Customers get the benefit of our software without 
having to purchase, install, update, and manage it. This 
business model was pioneered in the United States, and it 
enables companies in every sector of the economy to access 
innovative new technologies, including AI, securely and on 
scale.
    Second, strong digital trade rules complement and don't 
preempt smart regulations. Workday sees incredible 
opportunities for technology to unlock human potential, but we 
also recognize that people won't use technology they don't 
trust. For this reason, we support robust privacy protections. 
And whether it is Federal privacy reforms or comprehensive 
State privacy laws, one thing is clear, no leading U.S. privacy 
framework runs afoul of strong digital trade rules because they 
don't impose the kinds of data localization requirements and 
data transfer restrictions that digital trade rules target. 
Workday also supports smart regulation on high-risk uses of AI. 
We have endorsed legislation here in Congress that would 
advance meaningful AI governance.
    As with privacy, AI frameworks like the first in the 
Nation, Colorado AI Act, don't violate digital trade rules. 
Why? Because they don't require foreign companies to transfer 
source code as a condition for doing business. Put differently, 
we don't face a choice of strong digital trade rules, rigorous 
privacy protections, or smart AI regulation. We can and we 
should choose all of the above.
    Third, far from undermining domestic regulations, strong 
digital trade rules support global regulatory cooperation and 
better protect consumers. Under the USMCA and the U.S.-Japan 
Digital Trade Agreement, which are the gold standards, 
governments commit to having laws that protect privacy and 
address fraudulent and deceptive practices online.
    At a time when trade barriers are erected in the name of 
privacy, cybersecurity, and other policy aims, digital trade 
rules advance a vision of a trustworthy and open economy.
    Like many, we were surprised by USTR's decision last year 
to withdraw support for strong digital trade rules at the WTO. 
U.S. leadership sets the tone around the world on data policy, 
and USTR's decision cedes crucial ground on a growing number of 
trade barriers abroad.
    In closing, I am grateful for the opportunity to testify 
before the subcommittee. Workday, as well as our customers and 
their employees, benefit greatly from U.S. leadership in this 
space. As you chart a way forward on digital trade, the 
subcommittee can consider us a partner and ally in its efforts.
    Thank you.
    [The statement of Mr. Razis follows:]
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    Chairman SMITH. Thank you, Mr. Razis.
    Mr. Shahbaz.

  STATEMENT OF ADRIAN SHAHBAZ, VICE PRESIDENT OF RESEARCH AND 
                    ANALYSIS, FREEDOM HOUSE

    Mr. SHAHBAZ. Thank you.
    Chairman Smith, Ranking Member Blumenauer, members of the 
subcommittee, it is an honor to testify before you today. My 
name is Adrian Shahbaz. I am the vice president for research at 
Freedom House. We are a nonprofit and nonpartisan organization 
founded in 1941. Our mission is to protect and expand freedom 
around the world.
    I am grateful to this subcommittee for elevating the human 
rights angle of digital trade. The protection of fundamental 
freedoms is necessary for upholding a rule-of-law system that 
protects innovation and enables both prosperity and security. 
My remarks will draw on Freedom House's annual Freedom on the 
Net report, which assesses internet freedom in over 70 
countries.
    We work with local experts to produce country reports and 
scores on obstacles to access, limits on content, and rights 
violations. The project is widely used by public and private 
sectors to understand global regulatory developments, assess 
operational and human rights risks, and set internal priorities 
and policies.
    Let me say we have been honored to have Members of Congress 
from both sides of the aisle provide opening remarks at our 
report launches.
    A free and open internet is crucial, not only for political 
participation and free expression, but also for commerce, 
healthcare, and education. With the right tools, a 
schoolteacher in my father's home country of Afghanistan can 
access the same information and learning platforms as a student 
in Washington, D.C. This is due to the way that the internet is 
run as a global, decentralized network where information and 
data flow across borders. But authoritarian governments are on 
a campaign to change that, and in their own countries and on 
the international stage, we see increased moves to divide the 
global internet into national networks that are more easily 
controlled.
    For these reasons, we expressed concern 1 year ago when the 
United States Trade Representative dropped support for cross-
border data flows at the World Trade Organization. The decision 
risks further fragmenting the global internet by emboldening 
authoritarian governments to enact data localization laws. 
These laws require companies and other service providers to 
store data about local residents on service within the country. 
And while they are often passed another premise of growing the 
digital economy or protecting users' privacy, research has 
shown that data localization can actually hinder growth and 
impair cybersecurity tools.
    Our own research has found that these laws can have 
negative implications for people's freedoms, particularly in 
countries that are ranked partly free and not free in our 
annual report. That is because data localization laws are often 
used to force companies to comply with local security agencies, 
including to censor nonviolent, political, social, and 
religious speech, and to hand over personal data.
    One of the clearest examples is China, which has received 
the worst score in our net freedom index for 9 consecutive 
years. Vague provisions and several laws mandate that the 
companies collect and store their data within China's borders 
and that companies assist the Chinese Government with national 
security and intelligence efforts.
    Given China's dismal human rights record, these laws put 
companies at a high risk of complicity with serious human 
rights abuses. The Chinese Communist Party considers all sorts 
of nonviolent political, social, and religious expression as a 
threat to national security. And we know that they rely on 
technology companies to conduct mass surveillance of Uyghurs 
and other persecuted ethnic and religious communities.
    Chinese officials have also partnered with Russia to 
reshape global cyber norms at the United Nations and other 
fora. They seek to make the world safe for authoritarianism by 
affirming the right to curtail the political rights and civil 
liberties of their own people online and off.
    If global norms shift further away from a freedom and 
openness, there is a risk that data localization laws will 
proliferate, companies in authoritarian countries will face 
increased demands to comply with human rights abuses, and 
billions of people around the world will become less free.
    The United States plays a critical role in preserving a 
free flow of information and data across borders. A necessary 
condition, not only for the protection of freedom, but for 
advancing innovation, prosperity, and security.
    To ensure the United states continues its leadership role, 
Congress should, one, urge the executive branch to advance the 
goals outlined in the U.S. International Cyberspace and Digital 
Policy Strategy; namely, to quote, ``develop shared mechanisms 
that will help maintain an open, interoperable, secure, and 
reliable internet, as well as trusted cross-border data 
flows,'' end quote.
    Second, continue to provide funding for digital tools and 
assistance programs in countries where civic space is closed or 
rapidly closing so that people can access independent sources 
of information and protect themselves against unwarranted and 
disproportionate surveillance by their governments.
    And, third, pass legislation to improve transparency across 
technology products and practices in the United States, 
including content moderation and recommendation systems, as 
well as the collection and use of data.
    It is essential for the United States and other democracies 
to promote an alternative model to digital authoritarianism 
through both our foreign and domestic policies.
    I will gladly answer any questions you may have. Thank you 
for having me.
    [The statement of Mr. Shahbaz follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman SMITH. Thank you, Mr. Shahbaz.
    Mr. Gottwald, you are recognized for five minutes.

   STATEMENT OF ERIC GOTTWALD, POLICY SPECIALIST ON TRADE & 
                ECONOMIC GLOBALIZATION, AFL-CIO

    Mr. GOTTWALD. Good morning, and thank you, Chairman Smith, 
Ranking Member Blumenauer, and members of the subcommittee, for 
the opportunity to testify today.
    I am here on behalf of the AFL-CIO and the more than 12.5 
million union members who work in every State in every sector 
of our economy.
    Too often the digital trade discussion sounds like it has 
no grounding in the physical world. It is buzz words, like 
internet-enabled commerce, big data, and cloud computing. It is 
all those things, but we should not lose sight of the fact that 
decisions about the abstract things like global data flows, 
algorithms, and artificial intelligence have profound 
implication for workers around the world.
    While the digital transformation has driven real gains in 
communications, transportation, science, and beyond, it has 
brought urgent challenges to the world of work. For example, 
open global data flows have enabled the offshoring of tens of 
thousands of good call center and back office jobs to places 
like India and the Philippines, with low pay and poor working 
conditions. Major platforms like Facebook and TikTok have 
outsourced content moderation work to developing nations, where 
hundreds of thousands of so-called ghost workers spend long 
days tagging and coding off offensive images and other content.
    Digital trade also powers the algorithmic management 
software that increasingly hires, evaluates, monitors, and even 
fires workers here in the United States. These technologies can 
shortchange workers' earnings, expose workers to unsafe work 
conditions on the job, infringe on the right to form unions, 
and exacerbate employment discrimination. All these workers are 
directly impacted by global digital commerce on the job, but 
they are also impacted at home.
    Big tech companies collect, combine, and can modify vast 
troves of personal data that compromises everyone's security 
and privacy. Our personal data is sold and resold by 
unaccountable data brokers to entities in Russia, China, and 
beyond. Meanwhile, the algorithms that power social media have 
pushed online hate, political disinformation, and harmed the 
mental health of young people.
    Unfortunately, at a time when we need Congress to regulate 
the digital economy, the USMCA digital language fits more like 
a straitjacket than a well-tailored suit. For example, under 
these rules, governments may not enact any measures that 
restrict cross-border data flows, with no exception for 
sensitive forms of personal information. In addition, there is 
an absolute ban on data localization policies even for 
legitimate purposes, like ensuring that citizens' sensitive 
medical or financial information is kept onshore.
    Supporters of these severe disciplines point to the 
agreement's legitimate public policy exception to reassure 
policymakers that they have retained their full right to 
regulate. But upon closer examination, this simply isn't the 
case. The public policy exception is taken directly from 
existing WTO agreements where it has proven to be largely 
ineffective. Just fewer than 5 percent of challenged government 
policies have been upheld by trade dispute panels.
    We are alarmed that bipartisan efforts to protect personal 
data and address Big Tech's anticompetitive practices could run 
afoul of these digital trade rules. This debate cannot be 
framed as a binary choice between China's great firewall and a 
totally unregulated global data marketplace where anything 
goes.
    It is time for a strategic reset to ensure that our digital 
trade policy strikes the right balance between promoting open 
data flows and securing data privacy and workers' rights.
    Congress must be free to act to protect Americans' data 
privacy in advance of our economic and national security 
interest, even if those measures happen to restrict open global 
data flows. Congress must preserve the ability of regulators to 
meaningfully oversee the use of artificial intelligence, 
management software in the workplace, to ensure that it is 
consistent with our current labor and employment law. And we 
must enact new laws to address emerging issues, such as 
electronic workplace surveillance and the erosion of digital 
privacy.
    The Congress and the public should decide the rules of the 
road for technology in the workplace and society. That cannot 
be left up to big tech companies and unaccountable 
international trade tribunals.
    Thank you. I am happy to answer any questions.
    [The statement of Mr. Gottwald follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman SMITH. Thank you. Thank you, Mr. Gottwald.
    Thank you to our entire panel. I think we have a great 
variety of perspectives here that I think are important to 
include. It cannot be overstated how important this topic is. 
So thank you for sharing your perspectives and your insight.
    I think one of the coolest things about digital issues, 
digital technology is that it has been, I think, a great 
equalizer in so many different ways. We see technology perhaps 
the backbone from a larger company, but it is a launching pad 
for a small operation.
    So, Dr. Walch, I don't know how many employees you have, 
but I am guessing you started out smaller than you are now, and 
that many, many other companies have as well.
    I might say that, you know, American digital services or 
digital services that originate in our country allow--you know, 
they provide a launching pad for other small operations around 
the world too. So it is discouraging that other countries, 
other jurisdictions would even want to restrict that when 
perhaps they are conceivably harming their own population.
    But getting more specific here, I know that two years ago, 
we as a country engaged with Kenya--well, actually before that 
as well--launching negotiations for what is called the 
Strategic Trade and Investment Partnership. So at that time, 
USTR highlighted digital trade as a key priority in the 
negotiations. However, digital trade has kind of dropped off of 
that discussion. I find that particularly concerning.
    But, Dr. Atkinson and Mr. Shahbaz, what would you say about 
what I would think is a missed opportunity here, especially 
when you look at opportunities across the continent of Africa 
and the capacity that they can bring to the entire arena of 
international trade? And I am just wondering if you could share 
your perspective on that.
    Mr. ATKINSON. Thank you. The ITI has just released a big 
report up here in the Capitol on Wednesday looking at how 
innovative Chinese firms are and what the competition we face 
with China. And one of the main battlegrounds for that 
competition, including in the digital space, is going to be in 
places like Africa, South America, parts of Asia. And so I 
think we have to think about Africa as a battleground. This is 
similar to how we thought about it in the Cold War. We were 
vigilant to make sure that African countries didn't go and side 
with the Soviets.
    So by walking away from digital trade engagement, I think 
we are opening the door to the Chinese. They are spending 
billions and billions of dollars in African countries to get 
them to adopt the kinds of systems we heard about, the 
surveillance systems and others. So if we don't engage with 
countries like Kenya, I really worry that they are just going 
to default to a country like China that is much more enabling 
and supportive of what they are doing.
    Chairman SMITH. Thank you.
    Mr. Shahbaz.
    Mr. SHAHBAZ. Thank you for the question.
    I would say, you know, Africa is an incredibly diverse 
continent, and you have democracies and autocracies there. I 
would echo what Dr. Atkinson said here that when we have 
interviewed several experts and those who are engaged in the 
fight for freedom and for digital freedoms on the continent, 
what they have shared is their fear, essentially, around data 
localization laws; that if more governments are passing data 
localization laws, that will put their very sensitive 
information closer to the hands of security agencies. And this 
information reveals one's political opinions, one's religious 
beliefs, also sensitive information about our health, our 
connections, and it is essentially a threat to privacy.
    So what we have wanted to see happen is for the United 
States to offer an alternative to the digital authoritarian 
model that the Chinese Government has been promoting on the 
continent. They have been undergoing trainings and investments 
throughout the continent.
    I think it is important that the United States' approach, 
not only favors the free flow of information and data, but then 
also worked with civil society and with government to make sure 
that the operating system of democratic governance is actually 
there in place, to make sure that whatever rules or 
technologies that are then brought in in these countries is 
essentially under the oversight of the people. Because we 
essentially believe that democracy is the most important 
technology here and many of these societies need in order to 
make sure that technology is used to promote freedoms.
    Thank you.
    Chairman SMITH. Thank you.
    Dr. Atkinson, I know that there has been criticism of 
strong digital trade rules saying that there is a concern about 
the right to regulate, perhaps--for our country to regulate.
    Do you think that there are any provisions in our trade 
agreements that would prevent Congress from passing new 
legislation on topics such as artificial intelligence or data 
privacy?
    Mr. ATKINSON. There absolutely are not. I would disagree 
with what Mr. Gottwald said. He mentioned, for example, open 
data flows lead to offshoring. That is about U.S. policy. That 
is not--if we want to just not do that, we could.
    Digital trade leads to employee oversight. No. Employee 
oversight, which oftentimes is a good thing, is about a 
domestic issue. If you want to regulate how technologies 
monitor their employee, you have every right to do that. It is 
not going to violate any trade agreement.
    Privacy. You know, I go back to this key point. We can and 
should have a national privacy bill, but it doesn't mean that a 
company doing business here can't move the data to a server or 
a cloud center in Ottawa or in Montreal. There is nothing that 
makes that--that impedes what you want to do.
    The only thing that would impede what you want to do is if 
you decide you wanted to--if Congress wants to put in place 
laws that intentionally discriminate against foreign companies. 
That is what you cannot do. That is the tie that binds, if you 
will.
    So, no, Congress could easily pass AI rules, as long as the 
AI rules and regulations don't discriminate against foreign AI 
companies in favor of American AI companies. But if you want to 
pass a law that says that AI has to have special privacy rules, 
or that algorithms have to be disclosed, or whatever you might 
want to do, you can do that.
    Chairman SMITH. Thank you.
    I will now move to Mr. Blumenauer as ranking member for his 
questions.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    Mr. Shahbaz, in your testimony, you say it is essential for 
the United States and like-minded allies to offer an 
alternative to the authoritarian model of digital governance. 
We should better safeguard people's rights and data while still 
protecting the global internet. And you identify a half dozen 
specifics.
    Can you elaborate on what the one or two priorities would 
be to be able to accomplish that objective?
    Mr. SHAHBAZ. Thank you. It is a great question, and I think 
is it one where the United States has made progress over the 
past several administrations.
    So I would just point to the longstanding bipartisan 
support for global internet freedom programs, which have really 
made a difference throughout the African continent, as well as 
around the world, to provide people with greater access to 
information.
    Congress funds programs that provide virtual private 
networks and other types of circumvention tools that allow for 
people in closed environments to, let's say, jump the 
censorship of their local government and prevent their activity 
from being under close surveillance. So I would say that 
promoting circumvention tools is one aspect of that.
    A second part is what I alluded to, which is a more 
democratic model for digital governance. So what we are seeing 
around the world is that China, Russia, Iran, other 
authoritarian governments, are privileging a state-centric view 
of how the internet should be run. And that goes against the 
fundamental multi-stakeholder model of internet governance.
    There are conversations that are happening right now as we 
speak around internet governance. There is a U.N. cyber crime 
treaty that is deeply troubling. It has certain provisions that 
are deeply troubling that would allow for authoritarian 
governments to collaborate by sharing data about people who are 
suspected of crimes in their countries. So there is quite a bit 
that the United States should also be doing multilaterally.
    I would say a fundamental point here is really the support 
for civil society. Because what distinguishes democracy, and 
what the United States is doing from what China is doing, is 
working not only with governments or with security agencies to 
protect countries and protect national security, but it is also 
working with civil society organizations in a lot of these 
countries to make sure that they have a voice at the table. And 
we have seen that pay dividends.
    When many countries have introduced legislation for data 
localization requirements, it has been actually civil society 
organizations that have been at the table, raising a ruckus 
locally, through the media, through conversations with 
legislators there, to then push back against very far-reaching 
laws that would essentially cut the countries off from the rest 
of the global internet.
    Thank you.
    Mr. BLUMENAUER. No, thank you.
    Mr. Gottwald, in your testimony, you noted that employers 
are increasingly using automative systems to monitor or 
discipline workers, largely without the input of workers or 
their unions. I hope we could get a little more granular in 
terms of what this means and how we can speak out and take 
action to protect the rights of workers.
    We took a CODEL to Colombia looking at the implementation 
of our FTA in dealing with call centers. It seemed to me that 
there are some gaps here that we might be able to do something 
with. Would you elaborate on your point?
    Mr. GOTTWALD. Thanks for that question.
    If we step back, I think everybody has recognized, since 
the pandemic hit and telework became more and more popular, 
there is a lot more awareness about the deployment by employers 
of, you know, these digital workplace surveillance tools. Some 
of these are quite creepy, to be candid with you.
    If you are working from home and your employer is 
monitoring not just key strokes but potentially even using the 
camera to biometrics and things, and it is very--it is a little 
disturbing. So I can understand why Congress is focused on 
this. Utterly appropriate.
    I will just say that, in our experience, workers are almost 
never aware that this software is being deployed by the 
employer. Sometimes the trade unions, if there is a trade 
union, are unaware of it as well. Although I will say this: Our 
trade unions are more and more making this subject of use of AI 
management software or surveillance software part of collective 
bargaining. And I think that is a very positive trend. I think 
that, you know, it influences the workplace so profoundly. And 
workers need to know what kind of data is being collected by 
the employer and what is being done with that data. Is it being 
sold and shared, resold? I mean, there is a lot to unpack here.
    I am glad you mentioned the call center workers. They face 
special challenges. We have heard from call center--organized 
call center workers that employers sometimes use this 
monitoring soft--quality monitoring software, which is fine. 
But what will happen in practice is it will punish people with 
non-English--non-native English speakers. They speak English 
well enough, but their accent--they might have a slight accent 
this way or that way--and they are probably well understood by 
the person on the other side of the line, but the software is, 
you know, knocking them for, you know, for having an accent 
that is a little bit outside the box.
    Mr. BLUMENAUER. Thank you.
    Mr. GOTTWALD. The last thing I would say is, in Colombia, 
that company, I believe you--was Teleperformance, large French 
company that does a lot of outsourcing work for call centers 
for the Big Tech companies. That Teleperformance company has a 
horrible track record on workers' rights. A complaint was filed 
by French unions at the OECD really laying out the challenges 
in this area.
    And, Mr. Blumenauer, I can follow up in written remarks to 
give more flavor there.
    Mr. BLUMENAUER. I would appreciate that.
    Thank you, Mr. Chairman.
    Chairman SMITH. Thank you.
    I will now move to Mr. LaHood, followed by Mr. Kildee. 
After Mr. Kildee, we will move, as is tradition, two to one for 
the questions.
    Mr. LaHood, you are recognized for five minutes.
    Mr. LaHOOD. Thank you, Mr. Chairman. And thank you for 
having this important hearing today.
    I want to thank all of our witnesses for your really 
valuable testimony here today on a very important topic.
    In our increasingly interconnected world, the trade of 
digital goods and services is essential for American growth, 
innovation, and global leadership. Digital trade is more than 
buying and selling of goods online. It encompasses a global 
flow of data, ideas, and talent.
    In 2022, digital trade encompassed more than $2.5 trillion 
of U.S. economic activity, and represents the fastest growing 
segment of global trade.
    As the co-chair of the Digital Trade Caucus here in 
Congress, I am increasingly concerned about the proliferation 
of restrictive and oftentimes discriminatory digital regulatory 
frameworks and laws which risk curtailing American digital 
competitiveness.
    In recent years, we have seen close trading partners, 
including Canada, Australia, Korea, and the EU, enact 
regulatory frameworks or levy digital service taxes that risk 
unfair treatment of American businesses.
    While laws like the EU's Digital Marketing Act, the DMA, or 
Digital Services Act, DSA, are intended to create fairer 
digital landscape and simulate domestic competition, in 
practice, they often discriminate against U.S. companies, 
posing challenges that stifle innovation and competition.
    I think it is also important to remember the U.S. leads the 
world in technology. We lead the world in digital competition. 
We need to be much more aware of that when we look at what 
Europe and a number of other countries are doing.
    In 2023, the European Commission identified six gatekeeper 
platforms to be subject to regulation under the DMA or face 
fines equating to more than 10 percent of their global 
revenues. Of those six companies, five are American and one is 
Chinese. Isn't that ironic that none of the ones that are 
headquartered in Europe were a part of that.
    In my view, efforts to regulate these American companies 
can and will lead to a chilling effect, discouraging further 
U.S. investment in Europe. In fact, a newly released report 
from the European Commission on the future of EU competition 
notes that the complexity and risks associated with the EU's 
regulatory approach may undermine developments in emerging 
technologies like AI and quantum computing.
    Further, I and many others have been critical of the Biden 
administration's failure to promote a strong alternative that 
advances American digital trade interest abroad with our like-
minded allies and trading partners. Instead, this 
administration continues to send mixed messages by walking back 
long-held bipartisan and really nonpartisan digital trade 
proposals as outlined by the WTO, pushing a narrative that 
encourages these discriminatory digital frameworks to flourish. 
And that is troubling.
    I will get to my question here. Dr. Atkinson, given the 
ongoing regulatory approach by the EU, is it possible to find 
common ground with our counterparts in Europe in terms of 
digital trade? If so, what tools should Congress consider to 
address these regulatory challenges?
    Mr. ATKINSON. Well, Congressman, you alluded to what is 
known now as the Draghi report that just came out, former 
President of Italy. Very important report because, for the 
first time, there is a high level of recognition that Europe is 
shooting itself in the foot with these policies. So whether 
that really changes or not, I don't know.
    I am very skeptical that we can get agreement or even close 
the gap with the Europeans, absent being tough. I think the 
Europeans understand they can get away with this, and they have 
been getting away with it constantly. And there has been no 
pushback, there has been no penalties. In fact, we have engaged 
with the tech and trade council and had these conversations. 
There is no penalties.
    So I think the Europeans, as a rational actor, would say, 
yeah, why not. Let's keep punishing American companies. Let's 
keep taking their money. I mean, they can fund the--I am kind 
of exaggerating--they can fund the European Commission budget 
just off the fines of American companies.
    So I think the only way to do that is to say there will be 
consequences if you keep doing this. We could bring a 301 case, 
for example. We could penalize them on other areas. I lay that 
out in my testimony. So I think absent getting tough, they are 
just not going to respond.
    Mr. LaHOOD. The bottom line is we have many tools in the 
toolbox to put deterrence in place and hold the Europeans 
accountable. Is that fair.
    Mr. ATKINSON. We have many tools in the toolbox. We could 
add a few more. Yes, that is absolutely--that is absolutely--I 
would agree with that.
    Mr. LaHOOD. Thank you. I yield back.
    Chairman SMITH. Thank you.
    I now recognize Mr. Kildee from Michigan.
    Mr. KILDEE. Thank you, Chairman Smith and Ranking Member 
Blumenauer. And especially thanks to the witnesses for being 
here for this really important conversation.
    Many of us on this committee, and the Biden-Harris 
Administration, by the way, have been committed to creating a 
fair playing field for American workers to compete in the 
global and increasingly digital economy.
    One way to help workers stay competitive, of course, is by 
ensuring that U.S. international trade agreements specifically 
uphold workers' rights. Our agreements that cover digital trade 
should not be any different. We need strong, enforceable labor 
standards in these agreements to avoid the inevitable race to 
the bottom when it comes to the treatment of workers.
    This could mean enshrining internationally recognized 
worker rights by outlining the ILO's declaration of fundamental 
rights and principles that work, as well and importantly, 
creating, monitoring in enforcement mechanisms as we have seen 
in other trade agreements.
    So, Mr. Gottwald, coming back to you, and you have made 
mention of some of this both in your written testimony and in 
answers to questions here. But I wonder if you could elaborate 
a bit on what these labor standards that I suggest and others 
have might look like. And if you have examples, model examples 
of such standards that might already exist. Could you comment?
    Mr. GOTTWALD. Thank you, Representative Kildee. Yeah, this 
is a great question. If we look at the digital economy, it was 
mentioned before, it is now--you know, it sort of bled into the 
normal comment--the line is not clear what is digital and what 
is not anymore. I think everybody knows that.
    So if we look at the U.S.-Japan agreement, for example, 
that was a standalone digital agreement. The problem from our 
point of view is that, if you look at the text, there is--
nowhere in the text does it say ``worker,'' ``labor rights,'' 
anything, because it is a standalone deal.
    So I think certainly for these standalone deals, USTR needs 
to develop some clear labor standards and benchmarks. Much of 
that, as you mentioned, can be borrowed from our existing trade 
deals.
    Mr. KILDEE. Right.
    Mr. GOTTWALD. And based on these 1998 ILO fundamental 
principles and rights, right? And these principles and rights, 
by the way, this is the baseline, right? This is the baseline 
of respect for workers. No child labor, no forced labor. The 
right to organize a union, right to be free from discrimination 
at work. I mean, these are the rules that everybody has already 
agreed to play by at the ILO. So totally appropriate to put 
those in there and have all the parties to these digital trade 
deals agree that they are going to uphold these rules, 
including with workers from the digital sector and the services 
sector, that is really critical.
    I would also say that, to your point on monitoring 
enforcement, I think we need to get a little more creative on 
monitoring enforcement for the services sector and the digital 
trade sector. USMCA with the Rapid Response Mechanism, hugely 
forward, tremendously effective for targeting employers and 
facilities who are benefiting from USMCA shipping goods across 
the border. A bit more challenging with services in digital.
    Mr. KILDEE. Right.
    Mr. GOTTWALD. Right. Because it is not--sometimes it is not 
goods going across the border, it is data. So--but smart people 
over at USTR, smart people in Congress, we can figure it out. 
And I appreciate you raising it.
    Mr. KILDEE. Well, thank you for that.
    I wonder if I could just quickly turn to the issue of 
digital services taxes. We know that there was a discriminatory 
DST implemented by Canada in June.
    Mr. Atkinson, I ask you to comment. Congressman Estes and I 
have been working together on this, condemning foreign DSTs and 
how they harm businesses. And you mentioned a couple of times 
that there are ways we can push back. And I wonder if you might 
just specifically suggest some ideas that you might have as to 
how to do that. I mean, obviously, you mentioned, relative to 
other circumstances, the use of 301.
    Do you have ideas on specific ways, other than just raising 
the issue, specific techniques or mechanisms that we might be 
able to use to push back, particularly in this issue that we 
are having with Canada?
    Mr. ATKINSON. Thank you. No, that is the key issue, 
particularly because Canada's tax is retroactive. So they are 
going to try to get as much money out of that as possible.
    I wouldn't--I think Canada to me is different than Europe, 
because I think we have a lot more leverage. I think the Cana--
I am born in Canada. I am a dual citizen, and----
    Mr. KILDEE [continuing]. On the border, they are friends, 
but we do have our issues.
    Mr. ATKINSON. They know more about our politics than I 
think we do sometimes.
    Mr. KILDEE. I think that is true.
    Mr. ATKINSON. Very sensitive to being friends with us. So I 
think we have a lot of leverage if we were strong in pushing 
back and there was, you know, a leader-to-leader meeting and 
saying, no, if you do that, we can't.
    If that doesn't work, I mean, one of the ideas that we--I 
laid out in the testimony is an idea from Gary Hufbauer, I 
think at the Peterson Institute, which would be to pass a law 
that would allow us to tax their companies in the same way. I 
guarantee if we were to do that, we would get their attention 
immediately. They think they can get a free lunch out of this 
with no penalties to their own companies. Whereas, I think if 
we said you do that, we are going to tax a bunch of your 
companies that are doing business in the U.S.
    Mr. KILDEE. Thank you, Doctor. I really appreciate the 
testimony.
    I yield back.
    Chairman SMITH. Thank you.
    I now recognize, from Kansas, Mr. Estes.
    Mr. ESTES. Thank you, Mr. Chairman. And thank you to all 
our witness for being here today.
    You know, a week ago, I led our U.S. Innovation Tax Team to 
a listening tour of what some people call Silicon Valley, 
others call Tech Valley, in California. While our focus was on 
encouraging innovation through sound stable tax policies, it 
didn't take long for the discussions to also include 
intellectual property, the theft of intellectual property, and 
extraterritorial foreign taxes.
    Bad policies like the TRIPS waiver enforced tech transfers, 
disincentivized small startups and major corporations from 
innovating, testing, and developing, and manufacturing here in 
the United States. And they counter the good policies that we 
could restore or strengthen, like immediate research and 
development expensing in the foreign-derived intangible income 
or FDII.
    The TRIPS waiver has put us on a slippery slope. We now 
have countries at the WTO proposing more forced tech transfers, 
localized operations, and data localizations, in short, the 
complete abandonment of U.S. digital trade priorities.
    As one startup told me, it is easy to get a shop set up or 
to move research and development to another country that has 
more favorable policies, as opposed to punitive ones, and that 
is not good for our country.
    Policies that hurt innovation hurt all Americans because 
they slow the economy, reduce jobs, and give foreign 
adversaries a competitive advantage.
    Another major area of concern, as we talked about before, 
is the digital services taxes, or DSTs. We have witnessed 
countries like France and Canada specifically target U.S. 
companies to fill their coffers with these disastrous 
extraterritorial taxes.
    One company I talked to used the phrase, ``it is a bold 
grab of U.S. money,'' and it is costing Americans billions of 
dollars.
    Dr. Atkinson, OECD's Pillar One was supposed to provide 
clarity and stability around DSTs, but instead the Biden-Harris 
negotiators put America last, and as we have talked about 
earlier, DSTs are proliferating.
    How do we--I know Mr. Kildee had asked some about other 
provisions we could do, but are there some equitable offsets to 
discourage foreign countries from thinking they can get away 
with transferring U.S. dollars? When you mention taxes, are 
there other things we could do as well?
    Mr. ATKINSON. Thank you. This is--I think the first thing 
to recognize is that pillar one is basically institutionalizing 
DSTs. That is all it is. Pillar one says you can do a DST; you 
just have to do it according to these rules. If your profit 
rate is above ten percent, we get to tax 25 percent of those 
profits, but only for certain-sized companies even if you--so I 
think the U.S. administration and Congress needs to come out 
and say, no, there is no logic behind pillar one.
    OECD says the logic behind pillar one is because now we are 
trading things across borders that we didn't trade before in 
services. Well, by that logic, we should have--we should be 
taxing any company that sells anything in the U.S., even though 
they don't have an operation here.
    So I don't know. Maybe there is some French water that 
comes across the border. Well, we should tax Perrier. I mean, 
there is no logic behind why you would single out digital.
    So I think--I think, again, we have to do two things. One 
is I like that idea of mirror taxes. Fine, you are going to do 
that; we are going to tax you--we are going to tax you just as 
much, if not more. We need to make it clear that they can't 
take U.S. taxpayer money.
    I think the second thing would be there is a whole set of 
things we can do around--around trade enforcement that we 
should say, fine, you are going to do that, we will do this. 
And I think at the end of the day, it is just a power play. We 
have to show that we are not going to let them take--take our 
money.
    Mr. ESTES. Mr. Shahbaz, for years we have had major 
concerns about CCP stealing intellectual properties. As we have 
talked about advancing technologies such as AI, are you 
concerned about China and that they continue to ransack our 
intellectual property and why it is important for tech like 
this to be fostered in the United States instead of China?
    Mr. SHAHBAZ. Thank you for the question. We are concerned 
about generally the Chinese Communist Party and the 
government's influence here in the United States, the ways that 
it conducts espionage, transnational repression, as well as 
malign political influence. That is where we think it is 
incredibly important to do two things.
    One is to stand up laws that protect--essentially, promote 
resilience here in the United States, resilience for companies, 
resilience for individuals who may face attacks from--from the 
Chinese government and its affiliates. We also do think that it 
is incredibly important to show why technologies that are 
developed in the United States and why the United States 
governance system is very different to that in China.
    I think that is an incredibly important message that also 
sells well to our partners in our countries around the world, 
those in other markets that are looking to goods. They want to 
understand why it is that they should be purchasing U.S. 
technologies rather than those that are manufactured in China.
    Obviously, there are some economic considerations where 
perhaps they may be going for the technology that is the 
cheapest. But I think that is where the United States can play 
on its competitive advantage as a democracy, to show that, 
well, listen, our technology isn't stealing your data. It is 
not--you know, when there is a smart city that is built by 
Huawei in Africa or other technologies where Chinese companies 
are developing the infrastructure, there have been reports that 
that data is being slowly trickled back to China so that it can 
be used for Chinese intelligence purposes or for corporate 
espionage.
    So I think it is very important for U.S. companies to show 
that, you know, that is not part of the game. You know, what 
differentiates U.S. companies--and this is what I am arguing 
that we should be promoting--is that we are going to be 
safeguarding your data. You know, this data is going to be 
under the oversight of--you know, of the strictest 
cybersecurity safeguards.
    That, I think, is how we differentiate ourselves from the 
Chinese Communist Party. Thank you.
    Mr. ESTES. Thank you. And I want to thank all the 
witnesses. I know there is a lot more I would like to discuss, 
but just to close out, I do think that government, both in 
Congress and the administration, needs to actively defend U.S. 
innovators and job creators against these assaults.
    I yield back, Mr. Chairman.
    Chairman SMITH. Thank you, Mr. Estes. I now recognize Mrs. 
Miller from West Virginia.
    Mrs. MILLER. Thank you, Chairman Smith and Ranking Member 
Blumenauer. And thank you all for being here today to talk 
about this important issue.
    I have already heard several of our close allies mention, 
specifically Korea, they may soon pass online platform laws and 
regulations that would make it difficult for our U.S. companies 
to operate in their country. And I am very concerned that such 
an important strategic ally like the Republic of Korea is 
pursuing economic policies that target and discriminate against 
U.S. technology companies while welcoming state-owned Chinese 
companies with open arms.
    Chinese firms are the fastest growing tech companies in 
Korea with many leveraging strategic partnerships with Korean 
monopolies who have a strong influence in Korea's legislature. 
And as a result, there are proposed bills and regulations that 
would inadvertently grant Chinese players an advantage over 
U.S. firms, supercharging the growth of China's own national 
champions in Korea.
    The U.S. is holding up our end of the technology alliance 
by providing Korean companies billions of U.S. taxpayer funds 
in the form of chips grants and EV and battery subsidies. I 
just kind of find it really concerning that the Korean 
government is, in turn, treating American interests in this 
manner, and I am concerned about the national security 
implication of the ill-advised economic discrimination and 
would urge them not to go down this path, but, instead, 
continue our important technology partnership and the goals 
that are established in our free trade agreement.
    Our trade agreement with Korea is the second largest free 
trade agreement by trade flows second only to the USMCA. It is 
extremely concerning to me that our two biggest FTAs are both 
facing obstacles in the world of digital trade.
    And I am planning to introduce legislation that focuses on 
the strength and importance of the United States and the 
Republic of Korean alliance with the intention to stop the 
Korean government from implementing these blatantly 
discriminatory laws that will cause an unnecessary irritant to 
such a vital relationship, and I do look forward to working 
with the committee to pass this type of important legislation.
    Dr. Atkinson, would you please explain how China wins 
should Korea pursue economic discrimination policies against 
the United States, and why are Chinese firms seeking to 
drastically increase their Korean user base, and do you believe 
that Korea is assisting them in their growth?
    Mr. ATKINSON. Thank you, Congresswoman. One of the key 
things about Korea, I was just--I spent a lot of time in Korea. 
They invite me over to talk and the like.
    And the last time I was over there with my family, I tried 
to use Google maps to figure out where to go, and I can't. I 
could use a Korean app company, which actually I had to do; I 
had to download. And they say it is national security.
    It has nothing to do with national security. It is the fact 
that they wanted to favor their own domestic map companies, 
their own domestic players. That is what they are doing now by 
copying the European DMA.
    And what they want to do is they want to be able to pass a 
law that would require American companies to turn over data to 
be interoperable to do other kinds of things that would benefit 
Korean companies, but they can't write the laws so blatantly 
that admits that. So it would benefit Korean companies, but it 
would also benefit Chinese companies.
    And so they are willing to make that tradeoff because they 
think it is going to benefit their companies more. It will hurt 
our companies. So it is almost like--it is almost like, you 
know, getting attacked not directly. So they are not trying to 
benefit Chinese companies. They are trying to benefit Korean 
companies.
    But you are absolutely right, this will benefit Chinese 
companies and make them stronger. I would put Korea, again, in 
the same category as I put Canada. They need us a lot more than 
we need them.
    They are dependent upon us, not just for military, but they 
are so focused right now on building technology partnerships--I 
just spoke at two conferences here that the Korean government 
put on. They want technology partnerships with us. And we are 
going ahead and saying yes, but I think there has to be a quid 
pro quo with that.
    Yeah, we want technology partnerships with you so we can 
both be stronger against the Chinese, but we are not going to 
do partnerships with you if you do these kinds of 
discriminatory things.
    Mrs. MILLER. What are the national security concerns 
related to U.S. foreign policy in the Indo-Pacific? Should the 
U.S. be less economically tied to our strategic ally as they 
grow closer to China?
    Mr. ATKINSON. So the fundamental question, I think, in the 
Indo-Pacific is, are these countries going to gradually move 
over into the China orbit, or are they going to stay in the 
Western Democratic market orbit. And that is--we are going to 
know that in 20 years. That will be decided.
    And by letting the Koreans, sort of, have it both ways--the 
Koreans don't want to pick. They want to have really close 
relationships with the Chinese because they know Chinese are 
predatory and retaliatory. They will hurt the Korean companies. 
They have done that before.
    But we need to let them know that they can't have it both 
ways. They have to pick. We are their defender. They need to be 
on the side of the allies and democracy. So I think it is a 
critical, critical issue that we make them choose and choose 
us.
    Mrs. MILLER. Thank you. I guess I need to yield back my 
time. I am not finished, though. Thank you.
    Chairman SMITH. We will try to circle back around if we 
can.
    I now recognize Ms. DelBene for five minutes.
    Ms. DelBENE. Thank you, Mr. Chairman, and thanks to all our 
witnesses for being here. This is a really important 
conversation.
    Ever since I arrived in Congress, I have been advocating 
for a federal consumer data privacy law. Every day millions of 
Americans' personal information is at risk, and we have to put 
people back in control of their data. And this has been crystal 
clear in debates around reproductive health data, TikTok, AI, 
and on and on and on.
    Ambassador Tai has maintained that one of the reasons that 
the U.S. has paused digital trade talks is that they may limit 
the policy space needed to address domestic policy issues, like 
privacy. Her argument is that, by entering into digital trade 
agreements, the U.S. is giving up its ability to regulate 
domestically.
    That said, if we step back from the negotiating table until 
Congress acts, we run a serious risk of harming the very 
objectives, such as defending American companies, protecting 
privacy, and supporting a free and open internet, that have 
been core to U.S. policy for many years.
    So, Mr. Razis, I guess I will start with you. Does the U.S. 
entering into trade agreements prevent Congress or the 
administration from legislating or regulating on important 
issues domestically?
    Mr. RAZIS. Thank you for the question, Congresswoman.
    In short, no. We don't see any tension between privacy 
protections and strong digital trade rules.
    Many of the privacy frameworks either that have been 
proposed here--and we agree, Federal privacy reform is long 
overdue--or, you know, one of the 19 comprehensive State laws 
that have been enacted have no tension with either USMCA or the 
U.S.-Japan agreement. That is because those laws or bills don't 
enact data localization requirements. They don't restrict the 
free flow of transfers of information.
    And, importantly, within USMCA, there is a pretty clear 
language that if there should be any tension in the future 
between domestic regulation and international trade agreements, 
U.S. law prevails.
    Ms. DelBENE. Thank you. And I don't think other nations 
take the same approach on their own either, which also puts us 
in a weaker position if we aren't moving forward.
    I also, you know, wanted to talk a little bit about 
intellectual property. Obviously, protecting intellectual 
property--our intellectual property from adversaries and 
competitors is essential to keeping our edge and protecting the 
livelihoods of small business owners across the country, and 
that is why the U.S. has historically opposed source code 
disclosure as a condition of doing business in a trading 
partner country, and we included this production in the broadly 
bipartisan USMCA.
    Dr. Walch, how would you respond to a requirement to 
disclose your company's source code to a foreign government as 
a condition of doing business?
    Ms. WALCH. Thank you so much for the question.
    We would just leave. Part of it is because there is data in 
our back end that was collected in very carefully controlled 
IRB-approved studies on human subjects in the U.S. Those people 
consented, and we protected that very carefully. It is also our 
edge. It is what gives us a head start globally.
    If we had to disclose our models and somebody could just 
take them and skip all of the work we did and also have access 
to models trained on U.S. citizen data, that would be just a 
no-go. It almost certainly would not be worth it for a company 
of six people, like my company, to operate in a place that 
requires us to give up our secret sauce.
    Ms. DelBENE. And, of course, if your source code was 
exposed, as you said, others could potentially access that, 
too, going forward.
    Ms. WALCH. That is exactly right.
    Ms. DelBENE. So it is--I think this is another conversation 
we talk about kind of the policies we need to put in place to 
make sure we are in a strong position. Privacy, obviously, 
critically important that we move domestically, but also 
looking at issues to make sure we are protecting IP are going 
to be important, too.
    I just want to thank all of you for being here on this 
important subject.
    And I yield back, Mr. Chairman.
    Chairman SMITH. Thank you. I now recognize Mrs. Fischbach 
for five minutes.
    Mrs. FISCHBACH. Thank you very much, Mr. Chair.
    And it seems like every time we discuss the Biden-Harris 
Administration's actions on the world stage, we hear the same 
thing, the Biden Administration keeps walking away from 
discussions where America's voice is needed, and we should be 
an active participant.
    I hear it from agricultural producers across my district, I 
hear it from manufacturers in my district, and today we are 
here to talk about the administration's failure to protect U.S. 
interests in our digital economy.
    Foreign governments seem to recognize that our current 
administration will do little to respond to measures that 
explicitly or implicitly discriminate against American 
companies. In some cases government agencies, like the Federal 
Trade Commission, are even sending American officials to help 
implement policies that directly undermine America's leadership 
and innovation.
    Mr. Atkinson, what sort of impact does that have on other 
countries considering similar barriers?
    Mr. ATKINSON. Thank you, Congresswoman.
    Historically, if it wasn't for U.S. leadership, the world 
economy would be vastly more protectionist, it would be vastly 
more distorted because it has been U.S. leadership that has 
been, if not explicitly, then implicitly holding up countries 
to a higher standard. They know that if they do this, they are 
sinning. And nobody really wants to sin; at least you don't 
want to admit you are sinning.
    And so the fact that the U.S. has led in all sets--sorts of 
areas--we led in telecom deregulation globally, we led in IP, 
we led in digital--that did lead a lot of countries both to 
resist doing bad things, but also to say, wait a minute, if the 
U.S. is doing this and they are the leaders, maybe we should be 
doing that as well.
    And what is so troubling, I think, about USTR's decision--
and, by the way, I would add that was really a unilateral 
decision. Both State and commerce, in my understanding, did not 
support that decision. Both the State Department and the 
Commerce Department were surprised by that decision and did not 
agree with that decision. So it is not as if the entire 
administration has backed away, although that is the--de facto 
the case.
    So by us not pushing forward and insisting that these 
countries abide by these new rules around digital, we are 
basically sending a message that gives them carte blanche 
ability to go ahead and do whatever they want because they know 
that we are not standing up for that anymore. And if we are not 
standing up for it, why would they bother to take the political 
risk in their own countries to stand up for that?
    Mrs. FISCHBACH. Thank you very much.
    Mr. Razis, why is it important that the U.S. not only 
defend policy provisions that are beneficial to our digital 
companies, but how can we do a better job in shaping the 
vision?
    Mr. RAZIS. Congresswoman, thank you for the question.
    I think we can start by continuing to export gold standard 
rules like those we find in the USMCA and the U.S.-Japan 
Digital Trade Agreement. But there is even maybe a more basic 
step that can start, which is using the National Trade 
Estimate, for example, in order to catalog data localization 
requirements and other digital trade barriers that U.S. 
exporters face.
    Now, historically, the NTE has been a really valuable tool 
for not just U.S. businesses and policymakers for understanding 
the data localization requirements and other barriers that 
foreign countries have enacted, but also for sending a signal 
to our partners that these sorts of practices are unacceptable.
    Unfortunately, the most recent NTE, I think we saw about 70 
percent drop in the data localization requirements that were 
referenced and about 80 barriers that were removed from the 
report altogether. Now, unfortunately, those barriers didn't 
disappear. They are still there, and they are still challenging 
U.S. exporters.
    So I think even a basic step, such as fulfilling the 
congressional mandate around the National Trade Estimate, would 
be a good place to start.
    Mrs. FISCHBACH. Thank you very much.
    And, Dr. Walch, I am so sorry, I am running out of time. 
But you talked a little bit about--I believe with Ms. DelBene--
about what would happen with the overregulation, and I just was 
wondering if you had anything to add to that. She was, I think, 
asking specifically about some things, but I was generally--
with this overregulation, what does that do for your company?
    Ms. WALCH. Thank you so much for the question.
    So we are a team of six. I don't have an in-house lawyer. 
And every time I talk to my external representation, I am 
watching the clock.
    Overregulation means that we will rely on him even more, 
and that is a big burden on us. It is not a big burden on the 
likes of Google or Meta. They are drowning in lawyers.
    Mrs. FISCHBACH. Thank you very much. We made it. I had two 
seconds left. Thank you so much.
    I yield back.
    Chairman SMITH. Thank you. I now recognize Ms. Sanchez for 
five minutes.
    Ms. SANCHEZ. Thank you to Ranking Member Blumenauer and Mr. 
Chairman for holding this important hearing.
    I represent part of Los Angeles County and, obviously, it 
is a large creative and technology industry hub of Southern 
California. And I am very committed to ensuring that our trade 
policy uplifts U.S. digital businesses and the workers that 
support them.
    Digital has to be part of our engagement with our trading 
partners, and I also recognize that our trade policies need to 
be modernized. We can't just rely on the same old trade models 
that we have been using for decades. I think our digital trade 
agenda should consider how foreign adversaries, like Russia and 
China, manipulate and weaponize American data to harm our 
democracy.
    And we also have to consider how AI and automation reshape 
the workplace as well. There is a lot of moving parts to this.
    For instance, while robots have long been used in high-wage 
markets, we now see them in more lower-wage ones. And a study 
by the ITIF found that China's manufacturing sector, for 
example, uses 12 times more robots than that of the United 
States. And that is not driven by market forces, but it is 
driven by the Communist Party's generous subsidies.
    And that puts our American manufacturing and our American 
manufacturing workers, which already face an uneven playing 
field, at a bigger disadvantage in global trade. So with the 
rise of new technologies, we need to ensure that our policies 
prioritize American workers instead of leaving them behind.
    Mr. Gottwald, in your written testimony, you touched on the 
importance of protecting the economic security of the more than 
five million workers in the creative industries, such as motion 
pictures, television, and music, which I always say are--our 
biggest export is our American culture.
    Can you expand on how digital trade policy can better 
ensure that these workers get the compensation and the 
recognition that they are due?
    Mr. GOTTWALD. Thank you, Congresswoman Sanchez.
    This is a great question, and it raises very important 
issues for our union creative professionals, many of whom earn 
collectively bargained pay and contributions to their health 
insurance from the sales and licensing of the copyrighted works 
that they help create. So intellectual property rules are quite 
important for these workers, their union members, their 
affiliated AFL-CIO.
    So a worker centered digital trade policy, you know, has to 
extend and address the stolen or unlicensed use of copyrighted 
content on digital platforms and avoid replicating the outdated 
and overbroad copyright safe harbor exclusions that exist in 
some U.S. laws. So one is, you know, let's not do further harm 
by exporting that model which isn't working here.
    And, in addition, they need to address the dangers and 
downsides to AI that you mentioned, including image-based 
sexual abuse misappropriation for commercial gain and the 
proliferation of deepfake videos and other abuses that happen 
and affect these creative professionals. So thank you for that.
    Ms. SANCHEZ. Yes, thank you.
    Mr. Atkinson, the U.S. film, television, and streaming 
industries supports over 816,000 jobs in California and about 
$101.7 billion in wages, and I am particularly concerned that 
some of our closest trade partners are proposing measures that 
would discriminate against U.S. creative industries.
    For example, Australia may require U.S. streaming companies 
to invest 10 percent of their revenues in Australian content, 
and Canada wants U.S. streaming companies to subsidize local 
Canadian news production. These policies could negatively 
impact my state's and our country's creative industries and the 
broader U.S. economy.
    Could you offer, in the closing seconds that we have, some 
insight into how these mandates conflict with Australia and 
Canada's FTA obligations to the United States?
    Mr. ATKINSON. Thank you.
    I wouldn't use the word would. I would use the--could. I 
would use the word would. I don't think there is any question 
that we will have less investment in our creators because of 
these rules, because of these tax grabs.
    Both of our trade agreements should be able to address 
that. And, again, it requires the USTR, if it is willing to 
first go over there and negotiate tough within their back 
pocket to say, we are going to bring a case. Under USMCA 
arbitration we could bring a case, under the U.S.-Australia we 
can bring a case. We just have to let them know that we are not 
going to do this.
    By the way, I would add one other thing where I think I 
agree with my colleague from the AFL-CIO. We need to make sure 
that the trade agreements that we have protect creators and 
allow for site blocking, which is something we have long 
supported. That we should not allow these foreign websites that 
are basically pirate sites to be accessible here, and we should 
have our trade agreements encourage that with other countries 
as well.
    Ms. SANCHEZ. Thank you.
    And I yield back.
    Chairman SMITH. Thank you. I now recognize the gentleman 
from Tennessee, Mr. Kustoff.
    Mr. KUSTOFF. Thank you, Mr. Chairman. Thank you to the 
witnesses for appearing today.
    Mr. Razis, if I could with you, as it relates to Workday, I 
understand your company helps to find and hire workers. Can you 
talk about how Workday helps U.S.-based companies compete 
globally by providing them with tools to recruit and manage 
talent across the borders in a competitive digital trade 
environment?
    Mr. RAZIS. Congressman, thank you for the great question.
    Workday's business is to help other businesses do well. And 
so when our customers succeed, we succeed.
    In terms of specifics around talent management, a thing 
that we are very excited about at Workday is a skills-based 
approach to talent. So we are leveraging AI and other digital 
technologies to help our customers understand what skills that 
their existing workforces have, what skill gaps there are in 
their current workforce that they can grow and help their 
workers identify, be it in manufacturing, be it in retail or 
other sectors, and then to identify new sources of talent as 
well.
    And so when our customers are able to leverage Workday 
products in the AI, especially that is driven there, they are 
better situated to adapt to new changes in the labor market.
    Mr. KUSTOFF. Thank you.
    If I can, to follow up maybe, can you talk about how 
current barriers and regulatory challenges, like the digital 
service tax, affect Workday's ability to invest in innovation 
and workforce development here in the United States?
    Mr. RAZIS. Of course. So while the digital services taxes 
are addressed at companies that tend not to be Workday--so we 
are a business-to-business enterprise, and so--rather than a 
consumer-facing one.
    That said, it speaks to a larger problem and the costs of 
foreign trade barriers. So in order to overcome a market access 
barrier like a data localization requirement that requires time 
and money that could otherwise be invested in additional head 
count or innovation--and that is--again, that comes with 
economic costs in addition to the variety of other costs 
associated with market access barriers.
    Mr. KUSTOFF. Thank you. I appreciate the fact that all of 
you have five minutes to make statements and your written 
statements are maybe longer than that.
    If I could, Dr. Atkinson, with you--because you had a very 
thorough written statement. Maybe if I can ask you about U.S. 
Trade Representative Tai's decision to withdraw from, as you 
say, key digital trade negotiations at the WTO.
    Can you explain why she did that, why she withdrew from 
those negotiations, and does it make any sense to you?
    Mr. ATKINSON. So I have not talked to Ambassador Tai, so I 
will only give you what I can see, sort of, from the outside.
    I think there are two factors. And I would add, by the way, 
I think in the Biden Administration there are forces on sort of 
the more openness to trade, and there are forces on the less 
openness to trade. This is not an administration that has one 
view. I think that is the challenge. As I said, there are folks 
in commerce who are really pushing for this. There are folks at 
State who are pushing for this.
    I think there are two forces. I think that Ambassador Tai 
and certain people in the administration, they talk about 
putting a pause on trade opening and having a middle-class-
oriented trade and worker-centered trade. I don't think pause 
is what--I think pause is a euphemism. I think what they want 
is a moratorium, if not a rollback.
    And they see digital as being this expansive new area and I 
think, in their view, if they can stop digital trade or slow it 
down, this could all be--do good.
    Now, why do they want to do that? Because there is no 
question that trade puts limits on our ability. So, for 
example, we can't tax corporations at 80 percent because they--
we could do it for domestic companies. They just raise prices.
    But for our foreign--our companies that are trading, if we 
raise taxes super, super high, they would lose global market 
share, they would cut workers. So globalization puts--as Tom 
Friedman once said in his book, they have golden handcuffs. 
They do limit what we can do domestically, not in any 
legalistic sense. But if we wanted to, sort of, impose really 
terrible regulations, they can do that. So I think that is 
point number one.
    I think point number two is there are certain progressives 
in the Senate in particular who really, really have an animus 
towards large corporations. They want to sue big corporations, 
they want to break them up, and they have this narrative that 
the U.S. economy has become increasingly concentrated, which is 
a hundred percent false. And I am happy to share that data from 
the U.S. Census Bureau that shows that simply is not the case.
    But in any case, they are having a real animus and a jihad 
almost against large corporations and big tech in particular.
    And I think this was the view, well, if we--somehow, if we 
go down this path, we are going to limit our ability to break 
up Google or break up Facebook or sue them. So I think those 
were the two components of the logic.
    Mr. KUSTOFF. Thank you.
    I will yield back.
    Chairman SMITH. Thank you. I now recognize Mr. Panetta from 
California.
    Mr. PANETTA. Thank you, Mr. Chairman. I had an opening, but 
I want to follow up on that statement--that eloquent statement. 
Thank you, Mr. Atkinson for that statement.
    But, I mean, does--what about, like, when it comes to 
global leadership, does the fact that the U.S. participation or 
lack of, does that also create a vacuum in global leadership, 
especially when it comes to digital trade rules that could be 
filled by policies proposed by other trading partners such as 
Russia or China?
    Mr. ATKINSON. Absolutely. Absolutely, Congressman.
    The Chinese have a completely--obviously, they have a 
different vision of governance and government and global 
governance, and they want to impose their vision and their 
system on the world. I think Russia is sort of their sidekick, 
if you will. And this is, basically, a battle for influence.
    I have been in countries where the State Department has 
invited me in, and I see the role of China in these countries. 
I see China way more active in these countries than we are.
    So by us walking away, we are, essentially, giving the 
Chinese a green light for them to go into these countries and 
say, hey, look, our system is better. I have talked to Chinese 
companies who say one of the things that they are really 
selling, if you will, is we can go in there and give you a 
turnkey system in an African country that they call safe 
cities.
    Well, what they mean by that is complete total monitoring, 
complete data collection. They are able to put people into jail 
for whatever reason you want, and they are selling that system. 
Where are we? Where are we? Why aren't we in that country 
saying, by the way, if you do that, it is going to hurt your 
innovation. And, by the way, it is against human rights. So I 
100 percent agree with you.
    Mr. PANETTA. Exactly. Mr. Shahbaz, where would you be on 
that statement?
    Mr. SHAHBAZ. I do think it is critical, and I would say 
that there is two parts to this. So thank you for the question, 
Congressman.
    On the one hand, we do need to make sure that there isn't a 
vacuum. We do know that the Chinese Communist Party has 
invested quite a bit, and there was a point where almost a 
majority of U.N. agencies were led by Chinese nationals. So I 
think it is very important and it has been great to see the 
effort that was made, for example, to ensure that it was an 
American citizen who beat, I believe it was either a Russian or 
a Chinese national, to lead the ITU, the International 
Telecommunications Union.
    I do think it is great as well that we have stood up now, 
the Bureau for Cyberspace and Digital Policy, in order to make 
sure that the United States is active at multilateral fora and 
through bilateral relations to make sure that we are making the 
case.
    And then I do think--the second point here is what it means 
domestically. And I think that this has been something that has 
been pointed out by the other witnesses, is that we need to 
make sure that our foreign policy is also in line with our 
domestic policy. And that means that people don't think of the 
United States as a place that is this kind of anarchy, right?
    Because I do think that there is this impression that some 
of the harms that have come about inevitably from 
digitalization haven't been adequately handled by--by domestic 
regulation or whatever it might be or by companies in some 
ways.
    So I do think it is important that the U.S. leads also 
through a domestic framework that protects rights of Americans, 
whether that is on privacy, whether that is on ensuring greater 
transparency. Because, on the other hand, you do have China 
that, while all of their legislation on personal data helps for 
domestic surveillance, they are selling that as a great way of 
protecting privacy for Chinese citizens.
    So I do think it is important that the United States leads 
with a rights-respecting vision, and that is the counterweight 
to what China is offering. Thank you.
    Mr. PANETTA. Outstanding.
    I am going to yield back the remainder of my time, one, 
because we have votes; I want to give other members time. Two, 
because those two statements, I think, say it all. Thank you, 
gentlemen.
    Chairman SMITH. Thank you. I now recognize Mr. Steube for 
five minutes, from Florida.
    Mr. STEUBE. Thank you, Mr. Chairman.
    From the Industrial Revolution to the digital revolution, 
America has been the beacon of creativity and technological 
innovation and advancement. But this leadership is at risk from 
policies both at home and abroad.
    The Biden-Harris Administration's abdication of leadership 
on this issue has been appalling, and I do not have confidence 
that Kamala Harris' very detailed policy proposal of joy will 
be good for American digital competitiveness.
    Across the globe, including from our allies, we see bad 
actors stealing our intellectual property, implementing 
protectionist policies, stifling data security and privacy and 
imposing unreasonable barriers that disadvantage American 
companies. It is essential that we establish and enforce robust 
digital trade rules to protect American companies, both large 
and small, from unfair digital practices overseas.
    Under the Trump administration, strong progress was made on 
digital trade in the United States-Mexico-Canada Agreement. 
USMCA took important steps on e-commerce, algorithms, cyber 
security, cross-border data flow, prohibiting data 
localization, and consumer protection. It is important to have 
strong digital policy. It is equally important that the 
executive branch enforce these agreements and Congress provide 
rigorous oversight while responding to the need of policy 
changes.
    I applaud the efforts of Chairman Jim Jordan, whom I sit 
with on the Select Subcommittee on the Weaponization of the 
Federal Government to engage with the European Union, which is 
attempting to impose its own censorship regime on American 
citizens and companies. The EU is pushing authoritarian 
policies that will interfere with the American democratic 
process, and the Biden-Harris Administration is turning a blind 
eye, perhaps because it will help them politically.
    The EU's ever-expanding regulatory censorship effort seeks 
to impose censorship based on what a European official may deem 
to be, quote, harmful or disinformation. Failure to comply with 
the European authoritarians would impose significant fines on 
American companies that can amount to billions of dollars.
    Mr. Atkinson, can you talk about the censorship and anti-
competitive practices that the EU is imposing on American 
companies?
    Mr. ATKINSON. Yes. Thank you, Congressman.
    There is no question that the EU has a different standard 
of speech than the United States does. And we see that now in 
Britain where there have been people who have been prosecuted 
in the last two months for simply making posts on social media 
that are legal but not favored by the government. We would, I 
hope, never do that in the United States.
    We have a tradition of free speech. I forget who said it, 
but I think it might have been Justice Brandeis, the best 
disinfectant is more sunlight. The answer to hate speech is 
free speech.
    One of the problems with that regime is that the Europeans 
don't really have digital platform companies. And so if they 
are going to go after companies for doing this kind of thing, 
they are going to go after American companies by default. And 
what is most troubling about that is the massive fines that 
they can impose. They could, essentially, bankrupt an American 
company if they wanted to for just allowing speech that is 
legal in our country.
    And, by the way, I would add this--another component is, 
one of the key things about speech on the internet is American 
companies, by and large--maybe with the exception of X, because 
they have a different view, which is their view; that is fine. 
But the other American platform companies, they do try to 
respect domestic rules about speech.
    And so it is not like they are saying, oh, we are not going 
to monitor or filter any speech in Europe. They are doing the 
best they can. And we can argue whether we like that or not, 
but they are trying to comply with those rules. And the fact 
that they can be subject to such onerous fines for making a 
best effort, I find that quite troubling.
    It would be one thing if the companies were just thumbing 
their nose at the--you know, we are not going to abide by your 
rules at all, screw you. All right. But they are not doing 
that. They are doing the best they can, and it is an incredibly 
difficult process when you are seeing millions and millions of 
pieces of content on your site every day.
    Mr. STEUBE. Mr. Razis, am I pronouncing that correctly? 
Under the Trump administration, we had a massive overhaul of 
U.S. trade policy. Can you talk about the effect of the USMCA, 
that it had on important areas of concern, like data flow, data 
localization, and algorithms?
    Mr. RAZIS. Congressman, thank you for the question.
    USMCA, which, you know, we are certainly pleased to see the 
bipartisan support around USMCA in a lot of these disciplines 
has--really is the gold standard. It is the 21st Century rule 
book when it comes to the digital economy right now.
    And so to your point, it safeguards the ability of 
companies to transfer data across borders securely. It allows--
it prohibits data localization requirements, and it protects 
American exporters, like Workday, from arbitrary and 
discriminatory requirements to transfer source code or 
algorithms to foreign governments as a condition for market 
access.
    Workday has about 75 percent of its business based here in 
North America, and so we are certainly beneficiaries of USMCA. 
However, we are certainly looking to export more into new 
markets and would benefit from the protections within USMCA and 
the U.S. Japan agreement.
    Mr. STEUBE. Thank the witnesses for being here today. My 
time has expired.
    Chairman SMITH. Thank you. I now recognize Mr. Schneider 
from Illinois.
    Mr. SCHNEIDER. Thank you, Mr. Chairman. And I will be quick 
because I know we have to get to votes, but I want to thank the 
witnesses for joining us today and showing your perspectives.
    The expansion of digital trade and digital innovation has 
literally transformed every industry across our economy. As a 
result, trading digital goods and services has helped create 
jobs, expand opportunities for small and family businesses, and 
cultivate innovation in communities across our country.
    Just in Illinois, my state, the digital economy supports 
more than 300,000 jobs and represents nearly $3.7 billion in 
digital exports. The digital economy is an important part of 
our trade infrastructure, and the United States must remain the 
leader when writing the rules of the road for the future of 
digital trade.
    The expansion of digital trade and the digital economy has 
accompanied an international discussion around taxing the 
revenues and profits earned by multinational corporations. 
While the Organization for Economic Cooperation and 
Development, OECD, continues its work to reach a consensus on 
an inclusive digital services tax framework, individual 
countries have put in place unilateral measures to protect 
their tax base.
    Like many of my colleagues on this committee, as we have 
discussed today, I am concerned about Canada's decision to move 
forward with a digital services tax that unfairly punishes 
American companies. I applaud the Biden Administration for 
standing up to--up for American businesses and initiating 
consultations with Canada through the disputes settlement 
chapter in the U.S.-Mexico-Canada Agreement, and I hope we can 
continue working together on this important issue.
    The U.S. must ensure that competing proposals that impact 
the digital economy do not undermine American workers, American 
businesses, or American national security. We cannot seek grant 
or adversaries on digital trade. Instead, we should lead the 
way on global technology advancement. I am confident that we 
can find our seat at the table and work with our allies to 
establish strong equitable trade digital standards to protect 
American leadership and innovation.
    And with that, I want to ask--well, I have three questions. 
I am going to focus on one just for time. Mr. Atkinson, in my 
district I am home to many of the leaders in biopharmaceutical 
and bioscience sectors, what I call life science corridor 
through my district. We lead the country; we lead the world. 
These companies are developing and deploying the next 
generation of innovative technologies.
    Can you discuss how strengthening digital trade laws can 
improve protections for intellectual property, specifically in 
the context of medical or life science innovation and discuss 
the scope of impact if the United States does not provide 
adequate protections for this important industry?
    Mr. ATKINSON. Absolutely. In two ways. One is the 
biopharmaceutical sector is increasingly data-driven, as you 
know, using algorithms to develop new kinds of treatments and 
devices, and a lot of that is going to be cross-border. It is 
going to be taking patient data from various places, again, 
totally anonymized. We have to make that point clear. They 
don't care about the name of the data. They just need to know, 
does this person have heart disease, what are the indications. 
So, number one, we need to be able to protect that.
    The other is this question of data exclusivity. It is 
particularly for biologics, large molecule drugs where the 
patent protection is different. We need to make sure that when 
we sign trade agreements that we have 12 years of data 
exclusivity. Because what other countries are doing, they want 
less data exclusivity, a shorter period of time so they can 
basically take the molecule that we have developed and then 
sell it in our market more quickly than they would otherwise 
when it expires. Both of those issues, to me, are critical.
    Mr. SCHNEIDER. Great. And I agree that it is critical. Like 
I said, we have talked a lot about Canada. We can talk more. We 
have other issues. This is a critically important issue for our 
country, for national security.
    For the sake of time, Mr. Chair, I am going to yield back 
my time so we can get Mr. Feenstra in.
    Chairman SMITH. Thank you. I now recognize the gentleman 
from Iowa, Mr. Feenstra.
    Mr. FEENSTRA. Thank you, Mr. Chair. Thank you witnesses for 
being here.
    Obviously, we know that we lead the world in innovation 
when it comes to digital innovation. We also understand that we 
are seeing other countries impose intellectual property taxes 
on what we have. Germany has imposed a tax on intellectual 
property. Canada announced in June that it would retroactively 
impose discriminatory taxes going back two years. I mean, DST 
is absolutely at the forefront now of being taxed.
    So my question is this. Dr.--Mr. Atkinson, do you see 
similar types of discriminatory taxes being applied towards 
Chinese companies or other countries? So--yeah. Are we the only 
ones here?
    Mr. ATKINSON. So I don't think they have designed their 
systems explicitly to say let's go after the Americans, partly 
because they--you know, there was that statement that an EU 
official made. It was one of those things you are only supposed 
to say in private, but he said it in public.
    Mr. FEENSTRA. Exactly, yes.
    Mr. ATKINSON. Gave the game away.
    Mr. FEENSTRA. Yes.
    Mr. ATKINSON. I think he regrets saying that now.
    Mr. FEENSTRA. But it came out, and it was real.
    Mr. ATKINSON. It came out, and it was very real.
    Mr. FEENSTRA. Yes.
    Mr. ATKINSON. The issue is why it seems like it is coming 
at us. Our companies are bigger, and they are more successful. 
And so they set the thresholds where these regulations, where 
these taxes and other things kick in. They set the thresholds 
in a way that pick up a lot of American companies, but the 
Chinese are just not big enough in those markets yet.
    We are very big in Europe, we are very big in Australia, we 
are very big in Canada. The Chinese aren't yet, the Alibabas, 
the Baidus, and the like. And so if they were big, they would 
get wrapped in--wrapped up in this. They are just not big 
enough, so it is a de facto attack on U.S. companies.
    Mr. FEENSTRA. Got you. We can do 301 investigations, we can 
do countermeasures. I get all that.
    But the administration, with Janet Yellen and Treasury, I 
mean, do you see any sense that they are standing up and 
fighting against these imposed taxes from Canada and from 
Germany?
    Mr. ATKINSON. I think there is some pushback in the 
negotiations with regard to Canada. I don't see it with regard 
to Europe. And I think it is--it is a long-standing problem 
that U.S.--the U.S. foreign policy establishment in government 
prior--and the military establishment prioritizes foreign 
policy and military over U.S. economic competitiveness and 
technology competitive issues.
    Their view, in my opinion, is let's not rock the boat. 
There is this conflict in Ukraine. We are just going to turn a 
blind eye to this.
    Mr. FEENSTRA. We have become the piggy bank, literally the 
piggy bank, and really no one is fighting, you know, for just 
fairness. That is all we want is fairness. And that is not 
happening.
    Thank you. And I yield back.
    Chairman SMITH. Thank you. Thank you for yielding back.
    Thank you, again, to all of our witnesses. Sorry we have to 
run out of here because of votes, but I think we will make it.
    Please be advised that Members will have two weeks to 
submit written questions to be answered later in writing. Those 
questions and your answers will be made part of the formal 
hearing record.
    With that, the subcommittee stands adjourned. Thank you 
again.
    [Whereupon, at 10:52 a.m., the subcommittee was adjourned.]

      

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