Hearing on the Trans-Pacific Partnership
HEARING ON TRANS-PACIFIC PARTNERSHIP
SUBCOMMITTEE ON TRADE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
December 14, 2011
Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
GEOFF DAVIS, Kentucky
|JIM MCDERMOTT, Washington
RICHARD E. NEAL, Massachusetts
LLOYD DOGGETT, Texas
JOSEPH CROWLEY, New York
JOHN B. LARSON, Connecticut
JON TRAUB, Staff Director
C O N T E N T S
Ambassador Demetrios Marantis
Deputy U.S. Trade Representative, Office of the United States Trade Representative
Devry S. Boughner
Director, International Business Relations
on behalf of Cargill, Inc. and the U.S. Business Coalition for TPP
Angela Marshall Hofmann
Vice President, Global Integrated Sourcing and Trade
President, The Wessel Group
HEARING ON TRANS-PACIFIC PARTNERSHIP
U.S. House of Representatives,
Committee on Ways and Means,
The subcommittee met, pursuant to notice, at 10:03 a.m., in Room 1100, Longworth House Office Building, Hon. Kevin Brady [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
*Chairman Brady. Good morning, everyone. I would like to welcome all of you to our hearing on the Trans‑Pacific Partnership, or TPP, as it is known. I would like particularly to recognize Ambassador Beazley from Australia, Ambassador Forsyth from Peru, and Ambassador Moore, from New Zealand, who are joining us today. Welcome.
I am particularly excited about today’s hearing, because we can finally talk about a new trade initiative, one that will create jobs and increase our competitiveness. The recent passage of the Colombia, Panama, South Korea trade agreements was a tremendous achievement, one that has given the United States new momentum in the trade arena widely recognized around the world. We must now make the most of this new momentum to seek 21st century solutions, to streamline trade to end non‑tariff barriers, and inter-connect regulations across borders to reduce foreign regulatory barriers to our exports.
Focusing just on tariffs, import quotas and other traditional barriers to trade is no longer enough to fully open markets. We need to make the processes for selling U.S. products overseas cheaper, faster, and easier. Establishing high‑standard, market‑based rules of trade through new agreements will also create better leverage to get other countries like China to adopt such rules. That is why I strongly support the TPP negotiations.
Trans‑Pacific Partnership is a sure‑fire way to create U.S. jobs and expand opportunities for American workers, businesses, and farmers. It will allow American ingenuity to create jobs instead of relying on costly government programs to do so.
Like past successful trade agreements, TPP will open markets for U.S. goods, services, agriculture products and investment by knocking down tariffs and other trade barriers. It will also build on past work to eliminate differing standards that disadvantage us, discriminatory government procurement rules, non‑science‑based sanitary and phytosanitary standards, and inadequate protection of intellectual property rights. At the same time, where provisions and past agreements reflect a bipartisan consensus, such as those relating to labor, TPP should maintain that balanced approach to ensure continued broad support.
What makes the Trans‑Pacific Partnership a 21st century agreement is that it also tackles cross‑cutting and new emerging trade issues to streamline trade, and will define economic competition in the future. These issues include: improving foreign regulatory practices, recognizing the importance of efficient supply chains, increasing the role of small and medium‑sized businesses in international trade, and addressing market distortions by state‑owned enterprises.
The partnership will deepen our economic relations in the fast‑growing Asia‑Pacific region. The world’s most robust and dynamic economies are found in that part of the world. Plus, as a whole, the eight other countries currently in the Trans‑Pacific Partnership are already the fourth largest goods and services export market for America. Our future economic growth and prosperity depends upon our ability to trade and invest more throughout the Pacific. TPP will make sure that American workers, businesses, and farmers benefit from the Asia‑Pacific region’s rapid economic growth.
And I particularly look forward to hearing from our private‑sector witnesses about how TPP will create new opportunities for them, their workers, and everyone in their supply and production chains. That is why I want to see the talks finish quickly. Midyear would be my goal. I applaud the TPP negotiators for the incredible amount of progress they have already made, and their achievement in reaching the broad outlines of an agreement.
I am also glad that TPP leaders instructed negotiators at APEC last month to complete their work as quickly as possible. Some tough issues certainly remain, but we can’t slow down our efforts toward achieving a robust agreement. We can’t afford any needless delay to expand American export and create American jobs.
Another strength of TPP is that more Asia‑Pacific countries can join when they are ready to meet TPP’s high standards. Let’s not forget the United States was not an original member of the Trans‑Pacific Partnership, but was welcomed in when the Bush administration announced we were ready to join. We should seek new entrants from Asia, and also from the Americas. As a result, I welcome the announcements by Canada, Japan, and Mexico that they are considering joining TPP.
New members must be committed to meet TPP’s high standards and not lower its ambition or delay its conclusion, and must be willing to put all issues on the negotiating table. New members must also be willing to adequately resolve outstanding bilateral issues with the TPP countries. Some of these issues may be difficult. But allowing them to remain unresolved is contrary to the high standards and the high ambition of the Trans‑Pacific Partnership.
By the same token, we shouldn’t let past difficulties in resolving these issues keep us from seeking to resolve them now. Otherwise, we will forever be frustrated by the problems of the 20th century. The new TPP candidates have presented us with a moment of opportunity.
I understand that USTR has started to engage with Congress and stakeholders to identify the bilateral issues that need to be raised with Canada, Japan, and Mexico. I look forward to working closely with USTR as it seeks to resolve these issues.
I would like to welcome all of our witnesses today, and thank them for being with us. I look forward to hearing the testimony from both panels. At this time I will yield to the ranking member of the Trade Subcommittee, Mr. McDermott, for the purposes of an opening statement.
*Mr. McDermott. Thank you, Mr. Chairman. A month ago, Mr. Brady and Mr. Levin and I were in Honolulu, talking to TPP country officials. In our meetings I was struck by the urgency that so many representatives of other countries had for a strong agreement. I think we all see the potential in this agreement.
Asia‑Pacific countries, as you have heard, account for 40 percent of the global population, and together generate 56 percent of the global GDP in 2010. Indeed, my home state, Washington State, exports nearly 70 percent of its total exports to markets in Asia.
We have to do things right if we are to unlock the potential of TPP. We have to ensure that TPP lives up to its billing as a 21st century agreement. This is all the more important because, as President Obama said in Honolulu last month, “The TPP has the potential to be a model not only for Asia‑Pacific, but for future trade agreements.”
So, what does it mean to be a 21st century trade agreement? To me it means an agreement that can help create American jobs and promote American values. TPP must tackle the range of real‑world barriers to competition. This means not just tariffs and non‑tariff barriers, but also things like unfair competition from state‑owned enterprises.
In June, every Democratic Member of the Ways and Means Committee signed a letter to President Obama identifying state‑owned enterprises as one of the greatest of the 21st century challenges faced by U.S. businesses and workers, and urging robust SOE disciplines in TPP. Ensuring that the SOEs, state‑owned enterprises, compete on an even playing field with private actors has to be the critical component of any TPP agreement.
This is all the more important when countries like Japan ‑‑ that are seeking to enter into this. Japan is notorious for its range of methods it uses to close its markets to foreign competition. This includes special benefits for SOEs, such as the Japanese Post, as well as a host of tariff and non‑tariff measures in sectors ranging from agriculture to autos to pharmaceuticals.
USTR has just initiated a comment period to help in deciding whether Japan should be allowed at the negotiating table. I personally am one who think they ought to be at the table. I think we ought to have that opening. But that ‑‑ we will see what the comment period brings.
Some are skeptical that Japan will really open its markets. Skeptics think Japan will continue to use creative methods to keep out foreign goods and services, while taking advantage of other countries’ TPP trade concessions. This is clearly an unacceptable result. We need to make sure we do not end up there if we are to agree to Japan’s participation.
We also need to look carefully at the rules of origin that determine which products will get duty‑free treatment and create rules that help keep the maximum benefit of the FTA ‑‑ and thus, the greatest number of jobs ‑‑ in the TPP region.
We also need to incorporate and, where appropriate, build on the so‑called May 10th Agreement. That congressional executive agreement reflected state‑of‑the‑art thinking on a range of critical issues, including labor, environment, and intellectual property. May 10th has to be the basis for TPP and all other FTAs going forward.
Speaking as a physician with experience in LDCs, lesser‑developed countries, I think we got it pretty close to right in the May 10th Agreement on IPR access to medicines. We grafted language that ensured protection for innovation, but also ensured that life‑saving generics would be available in developing countries at the exact same time they become available in the United States. This is consistent with core American values. Lives are at stake. Poor people in poor countries shouldn’t have to die because they don’t have the affordable medicines we have here. And I have been very disappointed by the USTR’s move away from that policy. I think this reported change would be deeply flawed. Hopefully, USTR can address this issue in its testimony today.
The expectations are high for this agreement, as are the stakes. And I think we could overcome them, but we have a lot of work ahead of us. I look forward to working with the administration and our Republican colleagues to get there.
Thank you. I yield back the balance of my time.
*Chairman Brady. Thank you, Mr. McDermott. Today we have two panels of witnesses. First panel is composed of our witness from the Administration, Ambassador Demetrios Marantis, Deputy U.S. trade representative from the Office of the U.S. Trade Representative.
Ambassador Marantis, welcome. We look forward to your testimony. I especially appreciate you are willing to work with ‑‑ closely with Members across the aisle to discuss the very many complex issues in trade.
As always, I would ask you keep your testimony to five minutes. Your written statement, like those of all the witnesses, will be made part of the record. And you are recognized for five minutes. Welcome.
STATEMENT OF DEMETRIOS MARANTIS, DEPUTY U.S. TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
*Ambassador Marantis. Thank you, Chairman Brady. Thank you, Ranking Member McDermott, members of the subcommittee. It is a great honor to testify here today. And I would also like to acknowledge the presence of the TPP ambassadors here today who we have forged a wonderful working relationship with.
Two years ago today the Obama Administration notified Congress of our intention to enter into the Trans‑Pacific Partnership negotiations. Since then, we and our TPP partners, Australia, Brunei-Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam, have come far towards realizing an ambitious, cutting‑edge trade pact that promises to transform the economies in the Asia‑Pacific.
The TPP is a historic endeavor that embodies the Obama Administration’s vision for the American economy, the future of trade, and the United States’ central role in the Asia‑Pacific. The TPP holds the prospect of unlocking significant new opportunities for increasing exports that support higher‑paying jobs here at home. That is because the Asia‑Pacific includes some of the world’s most dynamic economies, representing more than 40 percent of global trade. The region is a key destination for U.S.‑manufactured goods, agriculture products, and services, last year accounting for over 60 percent of total U.S. goods exports, and nearly 3/4 of our total agricultural exports.
At the APEC meetings in Honolulu last month, the leaders of the nine TPP countries announced the broad outlines of an agreement. Without announcement, other countries publicly expressed interest in participating in this high‑standard agreement, including Canada, Japan, and Mexico. In a short time, the TPP has become the primary platform for regional economic integration, securing the United States’ role as a leader in the 21st century economy.
Negotiation of the TPP is an enormous undertaking, not only for the combined size of the countries participating, but also for the scope and ambition of the agreement itself. TPP partners are aiming to address a range of issues not covered in past agreements, including opportunities for small and medium‑sized businesses, green growth, and trade and investment distortions that can occur when governments provide special treatment to state‑owned enterprises.
The Obama Administration’s goal is to conclude an agreement that positions U.S. workers and businesses well to compete and win in the Asia‑Pacific, and we hope that advances made in the TPP agreement will serve as models for future trade pacts.
Just last week, our negotiators traveled to Malaysia to build on the substantial progress we have made to date, and to press ahead towards conclusion of the agreement. The nine TPP partners have already developed consolidated legal text for virtually every chapter, covering nearly all key trade and trade‑related issues. In some areas, text is almost complete. In others, further work is needed.
While many issues have yet to be resolved, our negotiations have benefitted tremendously from unprecedented collaboration between the administration and Congress. The administration has closely consulted with Congress on each U.S. negotiating proposal, and your guidance and input have played an integral role as we have developed our negotiating positions.
In particular, I would like to thank Chairman Brady, Ranking Member McDermott, and Ranking Member Levin for coming to Honolulu during the November APEC meetings. Your presence underscored to our TPP partners the seriousness and commitment of the United States across all the government. In the coming months, as we work to conclude the agreement, we will need your support and continuing advice even more.
We know that our efforts to build the TPP today can help drive the growth of our economy, and support jobs for Americans far into the future. We look forward to working together closely with you to achieve this goal.
Thanks again, and thank you for the opportunity to be before you today.
[The statement of Ambassador Marantis follows:]
*Chairman Brady. Mr. Ambassador, thank you very much. Your testimony demonstrates the enormous potential value of TPP, both from an economic standpoint and an engagement standpoint.
In light of all those potential benefits, it is clear we want to move this agreement forward as quickly as possible. My goal would be midyear of next year. What is USTR doing to stay on a steady time table? What can Congress do to help you stay on a steady, brisk time table, going forward?
*Ambassador Marantis. Thank you, Chairman Brady. I think the reality is success breeds a lot more work. And the success that we were able to achieve in Honolulu with the TPP leaders announcing the broad outlines of an agreement and their commitment to accelerate the pace of the negotiations has meant that we are working very hard right now with our TPP partners to schedule additional negotiating rounds, to schedule additional bilateral and regional negotiations so that we can meet the goals our leaders set for us.
We have a lot of the work done, in terms of U.S. proposals on the table. But we are going to enter a very difficult period now, where we try to bring these negotiations to closure. And as we have over the past year, consulting very closely with you on developing our proposals, we are going to need to work very closely with you in honing them to make sure we bring these negotiations to a conclusion as quickly as we can.
*Chairman Brady. Thank you. Second and final question ‑‑ there is an area of concern I want to highlight. While the TPP provides important opportunities for a broad range of industries and, again, beyond the border and state‑owned enterprises and regulatory coherence, trade facilitation, our most recent trade agreements provide a proven means for handling certain other critical issues.
For example, I would urge the Administration to follow the approach in our recent agreements relating to labor, so as to avoid increasing controversy. If the administration seeks to expand the scope of commitments beyond the compromise embodied in the recent trade agreements, it could seriously undermine support for the TPP and jeopardize congressional approval of the agreement.
Is the Administration planning to put forward a proposal on labor that goes beyond the approach taken in our recent trade agreements?
*Ambassador Marantis. Chairman Brady, as with every element of TPP, whether it is labor or intellectual property, services, SPS measures, we are trying to ensure that the TPP addresses the concerns that workers and businesses face in the 21st century economy. So we have looked very closely at the obligations of what we have done in the past. We have received input from you, we have received input from stakeholders. And our goal in all of our chapters is to move the ball forward, and do so in a way that is consistent with U.S. law.
We have not yet tabled a proposal on labor. We are in active consultation with this committee now, and hope to table our labor proposal before the end of the year.
*Chairman Brady. The point I think I would like to drive home is that we have just completed three very important trade agreements, with very strong ‑‑ not overwhelming ‑‑ bipartisan support. So we know where the consensus lies. My concern is that should the labor text go beyond the May 10th Agreement it would create, first, unnecessary controversy. Secondly, I think it would undermine support among the TPP’s strongest advocates. And, in the end, I am afraid it could seriously jeopardize congressional approval of a final deal.
And I appreciate you listening, as you do, to our serious concerns about this area. With that, I would recognize Mr. McDermott.
*Mr. McDermott. Thank you, Mr. Chairman. Yesterday I picked up a piece of paper and I was really pleased, because I see USTR has “enthusiastically” ‑‑ this is a quote ‑‑ “called for supporting extension of AGOA.” And you are going to the WTO summit. I hope that that goes. We are working with the Senate to try and get a bill through that they won’t amend over in the Senate. There is a little bit of paranoia on this side that if we send a bill to the Senate, sometimes it comes back differently than we had anticipated. So we are working to try and make that possible.
I would like to take the rest of my time to explore with you the whole Japanese question. I had a delegation of people ‑‑ the agriculture minister and other people ‑‑ yesterday from Japan. I had this morning the ambassador of the embassy came in to talk about what is going on and all this. I would like to hear how you think things will develop in our ‑‑ if Japan is brought in.
First of all, is it your position that you would like Japan to be in the negotiation? And secondly, if they are, how do you think it will proceed, dealing with the issues that are clearly different than dealing with Brunei and Malaysia and Vietnam?
And there are some long‑standing issues with Japan. I would like to hear you talk a little bit about that for us.
*Ambassador Marantis. Sure. Thanks, Mr. McDermott. And thank you very much for your support of extending third‑country fabric in AGOA until 2015. You know, this is a big priority of ours, and we look forward to working with you, with this committee, and with the Senate in getting it done as quickly as we can.
On Japan Canada, and Mexico announced that they were interested in participating in the TPP. That means that we need to begin a process here domestically with you and our stakeholders so that we can determine whether or not Japan, in this instance, is prepared to take on the high‑standard commitments that we expect in the TPP, and that we are negotiating with our eight other counterparts.
*Mr. McDermott. Could I clarify one thing?
*Ambassador Marantis. Sure.
*Mr. McDermott. Would it be your intention that there be an agreement reached with the first nine countries, and then Japan negotiations became a part of it? Or would it be Japan making 10 from the very start?
*Ambassador Marantis. I think it is too soon to tell. The way I sort of ‑‑ I think we see this proceeding ‑‑ there are two parallel tracks. There is the track that we are on with our TPP countries right now, accelerating, our negotiations with a view to try to conclude this as quickly as possible.
And then, there is a track with the applicant countries, like Japan, Canada, and Mexico, where we need to work with you and stakeholders, again, to decide if they are, willing and able to address our concerns and to meet the high‑standard commitments we expect.
At some point those tracks theoretically will merge. But the question of when that will happen will largely be dictated by the substance of the consultations that we have, you know, both with you, as well as with the Japanese, the Canadians, and the Mexicans.
*Mr. McDermott. It would seem, just listening to the chairman’s suggestion that he would like to see it all done perhaps by midyear, that it would not be possible to get everybody in the umbrella by midyear. Is that a fair assessment?
*Ambassador Marantis. Again, Mr. McDermott, it is hard to tell. We will get our submissions back from the public from our Federal Register notice on Japan, Canada, and Mexico on January 13th. We have already begun our outreach to stakeholders. We have already begun to begin our consultations with the committee. And we will just ‑‑ we will have to see where we are as the months progress, and see how quickly our trading partners are able to address the concerns that are identified in the public submission process.
*Mr. McDermott. And then, tell me ‑‑ I raised the issue of IPR and drugs. Tell me why you are ‑‑ why you have different language, or why you think we should have different language in TPP, as opposed to what we put in Peru and some other agreements.
*Ambassador Marantis. Sure. I mean I just want to underscore this administration’s commitment to using trade policy to drive access to medicine in a way that fosters innovation. That was the goal of May 10th, and we very much uphold and affirm that goal.
The approach that we are taking in TPP, though different from ‑‑ different in language from May 10th, is very much as effective, we believe, in terms of driving access to medicines in the developing world. What we have tried to do, Mr. McDermott, is we have tried to create increased legal certainty and predictability for generics, as well as for innovative producers, so that they get into the market in a developing world as quickly as possible. And the goal that we have is to propel the TPP countries to the front of the line for important innovative products, as well as the generic competition that follows.
So, we think that the proposal we have made, both in the IP chapter, but as well as in other areas of the agreement with respect to tariffs, customs, you know, trading rights, and distribution, provides, really, the best way to drive access to medicines in the developing world as quickly as possible in a way that achieves the balance that we sought to achieve in May 10th. That fosters innovation, as well.
*Mr. McDermott. Thank you.
*Chairman Brady. Mr. Davis?
*Mr. Davis. Thank you, Mr. Chairman. I request unanimous consent to submit two documents for the hearing record.
First is a statement from the Burley Tobacco Growers Cooperative Association, which includes the many tobacco producers from Kentucky, requesting the administration defend the economic interests of American farm families by ensuring that tobacco and tobacco products are not excluded from the TPP.
The second document is a copy of a letter the Kentucky delegation sent to Ambassador Kirk with the same request.
Ambassador Marantis, I would like to ask you about the second document that I submitted for the record. On October 7th of this year, the Kentucky delegation sent a letter to Ambassador Kirk opposing USTR’s consideration of excluding products from the TPP, specifically tobacco. I, along with congressional delegations from seven other states who sent similar trade letters, received a response that stated the Office of the U.S. Trade Representative is “still developing our negotiating position for the TPP.”
The TPP is often described as an ambitious 21st century trade agreement, but I want to ensure it is also a comprehensive agreement. I was wondering if you could provide any additional insight or updated information regarding USTR’s position on the potential exclusion of tobacco or any other products from the TPP.
*Ambassador Marantis. Sure, Mr. Davis. We ‑‑ I don’t have a lot of new news for you. We have received an enormous amount of input on this issue from all across the spectrum, and we haven’t made any decisions yet. But as we continue to review the input and to determine how to best approach this issue, we will definitely do so, in close consultation with this committee.
*Mr. Davis. Well, I would close by just sharing that the one concern that I have on this matter is Kentucky produces over a quarter of the nation’s tobacco and a 9.5 percent unemployment rate in our state. If there were to be an exclusion, it would be devastating.
Could you give us some assurance that you would work with us and ‑‑ on the committee and the Congress, to be updated appropriately as you develop this position, and include us in the dialogue?
*Ambassador Marantis. Yes, sir.
*Mr. Davis. I appreciate that. I would like to move on to another subject, briefly. With the expanding interesting in joining the TPP, I think it is an important validation of a broader goal of the agreement to create a free trade area for the Asia‑Pacific region. And this effort will have significant commercial benefits, but it could also have an important effect on China’s expanding influence. TPP would help to deepen trade ties with key allies in the Pacific and serve as a counterweight to Chinese influence.
What role, in your opinion, does TPP play in our China strategy, and China’s growing influence, both in Asia and in Latin America to our south?
*Ambassador Marantis. We view TPP as a platform for regional integration in the Asia‑Pacific. And as we have started out with this group of like‑minded countries, we hope to expand it to include other countries in the Asia‑Pacific.
We have learned a lot from our trade relations in the region over the past number of years, and that is why we have included some new and innovative proposals in the TPP to address concerns that have come up with the nine, but also more broadly.
For instance, we have included state‑of‑the‑art provisions on state‑owned enterprises in order to ensure that the competitive distortions that state‑owned enterprises could put in the international trade and investment regime are accounted for.
Similarly, we have also included provisions to address issues that have arisen with respect to indigenous innovation, in order to ensure that countries don’t require standards, a specific standard, as a condition for investing in that country.
So, we have learned a lot in close consultation with you, as well as just what our exporters have faced in the region. And that is why we are trying to develop the TPP as a, you know, innovative 21st century agreement that could grown and expand and include other countries in the region.
*Mr. Davis. Great. Thank you very much. We look forward to working with you.
And I yield back, Chairman.
*Chairman Brady. Thank you. Mr. Reichert?
*Mr. Reichert. Thank you, Mr. Chairman. And welcome, Ambassador. First of all, I want to just, again, say thank you. The last time you were here we expressed our appreciation. I don’t think we can say this enough to you and your staff. Thank you so much for all your hard work.
And I don’t think we can repeat this enough, either, in the success of the Korean agreement, Colombia, and Panama, the 250,000 jobs that are estimated to be created right here in the United States, the improvement to environmental standards across the world, the improvements to labor standards across the world, and also the great concern we have and the benefits that these trade agreements bring to our national security interests. So a lot broader than just, you know, economic partnerships here. I think most folks understand that. So I appreciate your hard work.
I wanted to focus on a couple of things that have sort of been touched on. One, the chairman mentioned. How can we help? How can Congress help you move your time line?
And I just wanted to ask a question that relates to the President’s Export Council, which I happen to be a member of, and whether or not you have had an opportunity to see the letter they provided, giving their thoughts and ideas and input into TPP.
*Ambassador Marantis. Yes, sir. And you know, with that and all of the outreach that we have done to stakeholders, it has very much helped us shape where we are on TPP.
Mr. Reichert, thank you very much for your offer and your consistent support of what we do. This committee has been fantastic to work with at the Member level and the staff level. And the unprecedented amount of collaboration that we have had on the TPP has enabled us to get to a point where the President was able, in Honolulu, to announce the broad outlines of the agreement.
With the commitment that you all have, we are going to need it over the course of the next 6, 8, 9, 12 months to get this done. We have got a lot of hard work to do and a lot of really tough decisions to make. But we have established a great track record of congressional-executive collaboration, and I look forward to continuing it.
*Mr. Reichert. Great, thank you. I wanted to touch on the services market, again highlighting the fact that with the Korean agreement we have opened up a $560 billion services market for the United States to sell American. And my question is: How will the TPP agreement create a level playing field for our service providers in those countries that want to be partners?
*Ambassador Marantis. Services is a key market access priority for us across the board. And there are a number of services barriers in the region that we need to address head‑on. For instance, in the area of financial services, our service providers face obstacles in terms of being able to get licenses to offer their services. Or their limitations on the amounts of branches that our service providers can have in particular markets.
We also face high equity limitations, which inhibit our ability to provide services through a commercial presence. So that is just one example of the many issues that we hope to get at in our services market access negotiations.
We are working also in the area of electronic commerce, to enhance the electronic delivery of services, where we have some really new, interesting, innovative proposals that help to ensure access to data, and that also ensure that our trading partners don’t erect barriers or requirements that would require a server to be located in a particular jurisdiction, which in some way would inhibit the electronic delivery of services.
So, there is a lot of work we are doing on both the market access side and on the non‑tariff barrier side to ensure that we get greater access to the services market of that important region.
*Mr. Reichert. And one last point: intellectual property rights. Mr. McDermott touched on that briefly specific to medicines. I want to stress the fact that I think the language in the Korean agreement, Colombia, Panama were strong had strong intellectual property right language. We don’t want to see weaker version of that language, as we look at TPP. I think that would hurt our relationship, friendship, and partnership, and the agreement that we have with the three previous countries that I just mentioned.
And are you looking at, hopefully, the same language when it comes to intellectual property rights?
*Ambassador Marantis. On pharmaceuticals specifically, we are, working to seek the balance between driving access to medicines in the developing world in a way that fosters innovation.
On the other provisions in IP we are doing some new innovative things to protect IP protection. We, for instance in the area of trade secrets, are requiring criminal penalties for trade secret theft. We are trying to strengthen our approach to trademarks and geographic indications to address concerns that our agriculture industry has raised with us. We are trying to do new things in the area of promoting criminal penalties for counterfeiting and piracy offenses that threaten health and safety.
So, there is a lot of new, good work that we are doing to make sure that our IP chapter stands alongside the other IP chapters that we have negotiated in the past.
*Chairman Brady. Thank you. Mr. Neal?
*Mr. Neal. Thank you, Mr. Chairman. Mr. Ambassador, 60 years ago plus, if you were traveling through New England you would have noted that it was the footwear capital of the United States. Not necessarily real high‑wage jobs, but it had a steady ladder of opportunity for a generation of immigrants and others who had come to New England. And, in many instances, families by two or generations had worked in that respective industry.
New Balance is still there. And it is certainly a name with international reputation. And as we look at growing foreign imports, particularly from Vietnam, how can we be assured that, in your role, that you are going to continue to not only monitor tariff issues, but what is the administration’s position on making sure that, if necessary, that those tariffs remain in place to keep New Balance and what is left of that industry competitive in a marketplace where it is much more difficult to compete?
*Ambassador Marantis. Thank you, Mr. Neal. We have been in close touch with the industry on this issue. As we are seeking comprehensive market access for TPP, we have very real sensitivities, including in the area of rubber footwear. And what we need to do, and are doing, is to work in very close consultation with them and with you as we determine how to best address issues of sensitivity as in the rubber footwear sector. And so, we are committed to working with you and with the industry to do so.
*Mr. Neal. And Mr. McDermott and Mr. Reichert both mentioned biosciences. As you know, that is terribly important to Massachusetts. And that whole notion of intellectual capital and how it is protected is also a very important consideration, as we go forward.
And I won’t ask you to repeat the answers that you have given previously, but ‑‑ as much as to point out how important it is to the millions of jobs across the country, many of those jobs centered in Massachusetts.
Thank you, Mr. Chairman.
*Chairman Brady. Thank you, Mr. Neal. Mr. Herger?
*Mr. Herger. Thank you, Mr. Chairman. Again, I want to join, Mr. Ambassador, in thanking you for the work that you and the administration have been doing, particularly of late, on moving these trade agreements further, and working with us. Incredibly important to our nation in this economic downturn that we are experiencing.
In his State of the Union Address earlier this year, President Obama said, “The first step in winning the future is encouraging American innovation,” and he noted that “our free enterprise system is what drives innovation.” One of the sectors that he went on to emphasize in his address was biomedical research.
In fact, research and development in the U.S. biopharmaceutical industry is critical to the future of our economy. Biopharmaceutical firms in the United States invested over $65 billion in R&D in 2009, and supported 4 million U.S. jobs. Almost half‑a‑million of those jobs are in my home state of California. These are very good, high‑paying jobs, and they depend on strong intellectual property rights for drugs that our R&D workers develop.
It is strong IPR protections, including data protection, that make it commercially sustainable for our biopharmaceutical firms to invest so substantially in R&D “five times more relative to their sales than the average U.S. manufacturing firm,” according to the Congressional Budget Office.
If the President is right, that the first step in winning the future is to encourage American innovation, I believe we need to press for the same high standards in IPR protections in TPP countries as we provide here at home to protect the hard work and valuable production of our R&D workers, including biopharmaceutical R&D workers.
Mr. Ambassador, would you agree with this?
*Ambassador Marantis. Mr. Herger, without a doubt, biologics are a vital area of innovation. In the TPP we have not yet made a specific proposal with respect to data protection for biologics. There are differing views on this issue. There are differing views, in fact, on this committee about how to handle that issue.
What we are doing is we want to engage in more discussion with our TPP trading partners, as well as with Congress, to determine what the best approach should be for this.
*Mr. Herger. Well, again, with this being so important, I would encourage you to take a very strong stand in this area.
I would like to turn quickly to Japan. I believe Japan’s interest in joining the TPP creates an opportunity to address a number of barriers to U.S. exports. I have heard from a number of industries, including agriculture, autos, and insurance about Japan’s persistent barriers.
For example, rice, which is extremely important to my congressional district in northern California, faces a tariff that hovers around 700 percent. Could you describe what steps the administration is taking to address the outstanding concerns about Japan’s discriminatory policies?
*Ambassador Marantis. Sure, Mr. Herger. We are seeking, in the context of the TPP, a comprehensive agreement, recognizing that there are sensitivities. But with respect to the various issues we face with Japan, we are in the process now, through our public consultation process, getting feedback. And we will have to work very closely with you and with our stakeholders to determine how to best address the concerns that are raised.
I fully anticipate hearing concerns like those you just raised from our agriculture industry. Our services industry has longstanding concerns. Our manufacturing industry has longstanding concerns. And the challenge that we are going to face with Japan is how to determine how to best address those in this context.
*Mr. Herger. Thank you very much. That is very helpful. I look forward to working with you and Chairman Brady on these efforts.
*Ambassador Marantis. Thanks, Mr. Herger.
*Chairman Brady. Thank you, Mr. Herger. Mr. Buchanan?
*Mr. Buchanan. Yes. I want to thank Chairman Brady for holding this important hearing today. And also, thank you, Ambassador, for being here. We are here today ‑‑ I think one of the biggest reasons is talk about jobs. In Florida, my home state, we have over 10 percent unemployment. I believe trade is a good way for Florida to increase jobs. And we are home to 14 ports in Florida, with about $68 billion in economic activity. So we really think that is a great opportunity for us to grow, in terms of exporting.
My question, Ambassador, is the TPP is described as a pathway to broader Asia‑Pacific regional economic integration. How will this help create jobs, increase exports, and grow our economy?
*Ambassador Marantis. Mr. Buchanan, you hit it on the head. I mean this agreement is all about jobs, and trying to create the high‑paying jobs that depend on export opportunities.
We are doing a lot of things that are new and different in the TPP to try to ensure that we further enhance our export opportunities in this very important region. We are doing, traditional stuff like trying to reduce tariff barriers. But what I think is very new and unique in the TPP is the work we are doing on behind‑the‑border measures, specifically to address non‑tariff barriers.
For instance, in the area of SOEs, we are trying to eliminate the competitive distortions that SOEs may put in the international trading regime. We are negotiating sector‑specific annexes in the agreement to address non‑tariff measures in specific sectors like cosmetics and medical devices.
We are negotiating new and innovative obligations in the area of agriculture non‑tariff measures to ensure that our trading partners are more transparent when they regulate food safety, as well as ensure that their risk analyses are more grounded in science.
So, there is just a whole range of things we are doing throughout this agreement to get at the behind‑the‑border obstacles that have really proved most meddlesome to our exporters.
*Mr. Buchanan. Let me ‑‑ I want to jump on another question quickly. My time is running out.
Ambassador, China, as we all know, is an 800‑pound gorilla in the room. I just got back from Beijing. We have a lot of issues with the Chinese that need to be addressed. How does the TPP agreement help us in the Asian region, as it relates to our relationship with China?
*Ambassador Marantis. I think the TPP, as a platform for regional integration, establishes the model of what the United States and our fellow TPP countries would view as the best approach towards conducting international trade. And that includes through the range of obligations on tariff and non‑tariff measures that we are putting in place.
So, in a sense, it is really creating a model for how trade should be conducted in such an important region.
*Mr. Buchanan. Thank you, Mr. Chairman. I yield back.
*Chairman Brady. Thank you. Mr. Doggett?
*Mr. Doggett. Thank you, Mr. Chairman. And thank you, Ambassador, for your testimony.
On the issue of tobacco that was raised earlier, this administration has been a leader in trying to prevent the continued efforts of the tobacco industry to addict our children at home. And I would hope, in terms of good public policy, it would follow the same objective abroad.
But my question is a more narrow one. While I would never object to your consulting with anyone, I assume that whether the issue is flavoring of product in Canada or the excellent efforts, in my opinion, of Australia to prevent addiction with its packaging laws, that a first objective of USTR is to comply with existing law, longstanding law, that prevents you from being involved in the promoting, the sale, or export of tobacco, tobacco products, or to seek the reduction or removal by any foreign country of restrictions on the marketing of tobacco or tobacco products.
And USTR does attempt to comply with that law, does it not?
*Ambassador Marantis. Yes, sir.
*Mr. Doggett. And with reference to the labor issue that Mr. Brady asked at the opening of the hearing, I, of course, as you know, take a different position, that the agreement to which he refers sets the minimum established by the prior Bush‑Cheney Administration, and that this administration, both with President Obama’s comments and also by Ambassador Kirk’s comments, indicated an interest in assuring that labor rights, the rights of workers, were protected, and working conditions.
I will look forward to what you put on the table about labor rights. And the concern that I have to date is that it is not clear that the international labor organization fundamental or core standards are incorporated into TPP, nor is it clear that there is an enforcement mechanism that has improved over prior agreements.
This is, of course, the first major agreement that this administration is negotiating on its own, rather than inheriting from a prior Administration. And I would just urge you to give meaning to the statements of the President and the trade ambassador to have enforceable standards, and standards that are meaningful and comprehensive.
And the same thing is true with reference to the environment. As you know, a very big concern of mine, in TPP you are dealing with a number of very environmentally sensitive areas across Asia, that those standards be as enforceable as any other provision of the agreement, and that they deal with the tremendous challenges that exist across the Pacific, with reference to the environment. And I hope you will give priority to that.
You and I have discussed in your previous testimony before the committee the whole question of investor state. And that becomes relevant in these other areas since Philip Morris, for example, has attempted to use bilateral investment agreements to thwart legitimate public health efforts in some other countries.
With reference to Australia, to date have any problems been detected for U.S. investors in relying on the Australian court system, as provided in the free trade agreement with Australia, as distinguished from the investor state arbitration panels that are used in a number of other agreements?
*Ambassador Marantis. I am not aware of any, sir.
*Mr. Doggett. Do you know of any reason, or do you have any evidence to suggest that the mature court system of New Zealand would not be just as effective as the Australian courts have been in protecting the rights of American investors?
*Ambassador Marantis. I am not aware of any.
*Mr. Doggett. Well, I would hope you would look to the court systems where there are mature systems, rather than always opting for the investor state approach. Does ‑‑ with reference to investor state and, for that matter, with other issues, the many other issues, doesn’t the TPP contemplate the fact that there are many different systems ‑‑ Vietnam versus New Zealand ‑‑ and not necessarily apply exactly the same provision to all countries within TPP on all issues?
*Ambassador Marantis. We are trying to negotiate single standards for everything across the board in TPP the idea of this agreement is being a regional agreement that other countries, both developed and developing, will join.
*Mr. Doggett. So you would expect the same labor standard, the same environmental standard for all the countries?
*Ambassador Marantis. Yes, sir.
*Mr. Doggett. And you don’t expect to see any exceptions or alternative approaches suggested for any individual countries?
*Ambassador Marantis. No, sir.
*Mr. Doggett. On any issues?
*Ambassador Marantis. No, sir. We are trying to create a single standard throughout.
*Mr. Doggett. Thank you.
*Ambassador Marantis. Thank you.
*Chairman Brady. Thank you, Mr. Doggett. Mr. Smith?
*Mr. Smith. Thank you, Mr. Chairman. And thank you, Ambassador, for your presence here today, and certainly the efforts of USTR to promote U.S. products.
Can you provide an update on Japan and beef access?
*Ambassador Marantis. Sure. I mean this is obviously a longstanding issue of all of ours. It is something that we continue to work on, and continue to push the Japanese Government on, at every opportunity.
*Mr. Smith. Okay. So have there been many changes, or any progress made? And certainly perhaps maybe addressing how the U.S. is actually assessing Japan’s interest in joining the TPP, certainly in the context of beef.
*Ambassador Marantis. Sure. There is no new news on beef at this point, but this is a priority issue for us, and continues to be. And I would expect that we will hear from you and other stakeholders as we move this process forward.
There are a lot of issues that I expect will come up with respect to Japan throughout the economy, whether it is in the manufacturing sector, or the services sector or the agriculture sector, and we are going to have to determine how best to address the concerns, once we have had an opportunity to go through them as we work with Japan towards their TPP aspirations.
*Mr. Smith. Yes. I mean we know that there are often times non‑science‑based phytosanitary measures that are applied in ‑‑ certainly in a non‑transparent manner to the U.S. products. And so the WTO rules on sanitary and phytosanitary measures do help solve this problem, but they often are not enough.
How would the TPP agreement ensure that these illegitimate sanitary and phytosanitary measures do not keep out U.S. ag products.
*Ambassador Marantis. I am really excited about what we are doing in the sanitary and phytosanitary provisions in the TPP for exactly the reason that you just said.
We are trying to beef up the SPS provisions beyond what we have in the WTO in a variety of ways. One is to increase transparency, so our stakeholders can be more involved in the rulemaking processes conducted by our trading partners. The second is we are trying to ensure that the risk analyses that are done in support of SPS measures are grounded in science. Third, we are working to facilitate trade by harmonizing export certification processes on specific commodities, based on tough, science‑based standards.
And so, through a combination of these things, we hope to really buttress the SPS provisions in this agreement, so they are, in fact, high‑standard, 21st century, and deal with the types of non‑tariff agriculture measures that our exporters face.
*Mr. Smith. So do you see this being consistent or paralleling WTO rules, or would it go beyond?
*Ambassador Marantis. I think it will go beyond.
*Mr. Smith. Okay, thank you.
*Ambassador Marantis. Thanks.
*Mr. Smith. I yield back.
*Chairman Brady. Thank you. Ms. Jenkins?
*Ms. Jenkins. Thank you, Ambassador, for being here. And thank you, Chairman Brady, for holding this hearing. I love the “beef up” pun. Very appropriate for the beef producers in our area.
The animal health industry develops groundbreaking medicines, vaccines, and feed additives that enhance livestock and pet health. The Kansas City animal health corridor is home to many animal health companies, as well as grant universities, which include Kansas State University, the Kansas State University Veterinary College, the University of Kansas, and the University of Kansas Medical Center.
The companies and universities invest heavily in research and capital to develop new animal drugs and treatments. In fact, it is estimated that, on average, it takes 7 to 10 years, and up to $100 million to bring a new product to market. For this reason, not only is access to new markets important to the future success of this important industry, but strong data protections are also critical to protect the integrity of the products.
Therefore, first, I would like to know what measures the administration will be taking to ensure that strong data protections exist in the agreement. And second, is the standard adopted in the Korean free trade agreement, which is a minimum of five years for non‑biologics once a new product is licensed in a participating country, an option?
*Ambassador Marantis. Thanks, Ms. Jenkins. On the data protection issue, this is one of the components of our pharmaceutical access window proposal. And the way it would work would be if an innovative company launches its product within a certain amount of time, they would benefit from certain high‑standard IP protections.
We haven’t yet negotiated the amount of time with our trading partners, nor have we negotiated what the specific high‑standard IP protections would be. But data protection is among those that we are talking about, and the five‑year term in that regard.
So, the way it would work, again, it would be kind of a carrot‑and‑a‑stick approach. If an innovative company comes in within a certain amount of time, they would benefit from high‑standard protections. But if they don’t come in during that particular access window, then they would be subject to whatever provisions that country would provide. There would be no guarantee.
*Ms. Jenkins. Okay. I look forward to working with you. I yield back, thanks.
*Ambassador Marantis. Likewise.
*Chairman Brady. Thank you. Mr. Schock?
*Mr. Schock. Thank you, Mr. Chairman. Thank you, Ambassador, for being here. I appreciate your comments earlier about the need for strong intellectual property, and your desire to position U.S. companies to compete among these Asia‑Pacific countries.
I am specifically interested in a letter that I led with over 100 Members of Congress. Sixteen of those Members that signed the letter were members of this committee, the Ways and Means Committee that we wrote to the President this past summer regarding the importance of ensuring a high standard of intellectual property for the U.S. biopharmaceutical industry in the TPP agreement. This is especially important for me in my home state. The pharmaceutical industry supports over 4 million jobs in the U.S., 167,000 jobs just in my home state of Illinois.
As I mentioned, there is strong bipartisan support for the U.S. law, which currently provides 12 years of regulatory data protection for innovative biological medicines. I and my over‑100 colleagues firmly believe that it is critically important that the administration continue to push U.S. law as the model for the TPP.
My question to you is: What is the administration doing to ensure that the U.S. position on intellectual property protection for biologics with TPP is consistent with the current 12‑year regulation, U.S. law ‑‑ or guarantee, I should say?
*Ambassador Marantis. We have not tabled a proposal on this issue yet. And without a doubt, biologics, it is a vital area of innovation ‑‑
*Mr. Schock. When you say you haven’t “tabled” it, what does that mean?
*Ambassador Marantis. We don’t have a proposal on data protection for biologics at this point. What we are doing right now is we are trying to discuss this issue with our TPP partners before we decide how to approach it. There are differences also amongst this committee on exactly how to handle data protection for biologics. And so we are just ‑‑ we are trying to get more discussion and have more information before we decide how to approach it in the context of TPP.
*Mr. Schock. Do you believe that it will be consistent with current U.S. law, or is there any reason why it wouldn’t be?
*Ambassador Marantis. I think it is an open question, in terms of how to handle it. The Affordable Care Act mandates 12 years of data protection for biologics. The administration’s budget assumes seven years of data protection for biologics. There are differences in opinion between members of this committee on how to handle it. Our trading partners have their own views. So, we are still in the process of gathering information before we decide how to best approach this.
*Mr. Schock. Well, I would like to be on the record, as well as my over‑100 colleagues, I think, in supporting current U.S. law. And all I would say is that the President’s budget did not pass. To his credit, the Affordable Health Care Act did. And that is why we have a 12‑year guarantee. And I think it is important that we continue to maintain that for jobs in our country, as well as these companies’ ability to compete overseas.
So, I hope that we can ‑‑ the administration and you, Ambassador, decide to be consistent with the 12‑year guarantee for these pharmaceutical biologic IPs. Thank you.
*Chairman Brady. Mr. Crowley is recognized.
*Mr. Crowley. Thank you, Ambassador Marantis. New York is home, as you know, to much of the service industries in the country today ‑‑ insurance, legal services, technology, tourism, et cetera. How do you see the services industries benefitting or not benefitting from TPP? And how would that affect U.S. job growth?
*Ambassador Marantis. It is a huge potential market for U.S. services. And there are lingering barriers in the region that we need to address throughout the services sector, whether it relates to lingering equity limitations, or branching restrictions licensing restrictions in the areas of financial services in the area of express delivery services or telecom services. There is a lot that we hope to gain through our market access negotiations in the services sector. And it will be a big win for jobs, given that we are a net services exporter, and have a net services surplus. And access to, you know, new markets like Vietnam and Malaysia will be of great benefit to our service providers.
*Mr. Crowley. Like many of my colleagues, I am intrigued by Japan now, and its interest. We are looking very closely at the possibility of them entering into the TPP.
On the one hand, we are talking about a $5 trillion economy that has yet to really even begin to reach its potential, in terms of purchases within the United States. Japan is also a very strong ally of the United States, one of our closest allies in the world, and a country that I think is appreciated by many Americans. A strong Japan helps create a strong U.S. is the sense that we have.
On the other hand, it is undeniable that Japan has historically used non‑tariff barriers, as you have been hearing from my colleagues, and other restrictions to limit U.S. exports in many areas.
Do you have a sense as to why Japan is interested in joining TPP now? And what are we looking for from Japan to determine whether they are willing to address many of these outstanding issues? Is there a sense that there is a real willingness to address the closed markets in Japan? For instance on autos, on insurance, using Japan Post as an example? What is your sense?
And really, why do you think they are choosing now to enter, when this has been discussed for a while?
*Ambassador Marantis. I think Japan ‑‑ and not just Japan, but Canada, Mexico, and others ‑‑ have noticed the unbelievable promise of the TPP, in terms of growing jobs and creating new market access and export opportunities in the world’s most dynamic region. And I think the success that the President had at APEC in Honolulu in announcing the broad outlines of an agreement really catalyzed Japan, Canada, Mexico, and others to look at the TPP as being an essential part of their strategy for creating economic growth in their economies.
And we welcome that interest. You know, two years ago, when we started this process, we were very clear that we wanted to begin this negotiation with this group of like‑minded countries, but to expand it to include other countries throughout the Asia‑Pacific region.
The question, though, Mr. Crowley, as you raise, going forward is we are through our consultation process with you and with our stakeholders going to have to best determine how we will ensure that Japan, Canada, Mexico, and whoever else is interested, is up to the task of meeting the high standards that we expect and that we are setting in the TPP agreement.
*Mr. Crowley. You mentioned Japan. Sorry, you mentioned Canada and Mexico. I wasn’t here for the NAFTA vote. I have been on record saying I would have voted no for that agreement, given the lack of inclusion of labor standards, as well as environmental standards.
We have come a good distance since then, in particular the May 10th Agreement. And that has been included in subsequent agreements. If Mexico and Canada join in the TPP, am I correct that they would be required to join the labor and environmental provisions outlined in the May 10th Agreement, or even go further?
*Ambassador Marantis. I mean the intention would be with any country with which we have FTAs Mexico, Canada, or Australia, Singapore, et cetera ‑‑ is that the provisions of the TPP, would exist alongside provisions of the currently existing FTAs, except in places where there is a conflict. And typically it is the agreement that is concluded later in time that would supersede the agreement that was concluded earlier in time, unless you negotiate something other.
So, that would be our expectation.
*Mr. Crowley. Thank you. And I yield back the balance. Thank you, Ambassador.
*Chairman Brady. Thank you. Mr. Larson?
*Mr. Larson. Thank you, Chairman Brady. And thank you, Ranking Member McDermott, for this hearing. Ambassador, thank you for your service to the country.
Most of my colleagues have gone over a number of the salient points I want to address in general terms, and ‑‑ but if you could for me, first with respect to biologics, which you have already iterated are so important to this administration, et cetera, I just would like to be assured that in the negotiation process, especially as we look at the 12 years that is involved in the issue of patent rights, et cetera, that the administration is going to negotiate for that up front, and not save that to the end. Is there any ‑‑ do you have any sense of that?
*Ambassador Marantis. Mr. Larson, we haven’t yet made a decision on how to address the biologics issue. We need more, I think, discussion with our TPP partners, as well as Congress, in terms of how to figure out how to approach it in the context of the negotiations.
*Mr. Larson. Well, I hope that the administration ‑‑ I think, as you listen to the Members here ‑‑ get a strong sense of the importance of ‑‑ as you have underlined yourself, how important and vital this issue is. And I hope that it is not left at the tail end of negotiations, but used as important leverage as an incredible manufacturing and growth sector for us here in the country, as the President underscored as well in Hawaii.
And second, building upon Mr. Crowley’s comments, I come from a insurance capital of the world, and ‑‑ we like to think ‑‑ and also ‑‑ so it is vitally important here, with respect to Japan and the whole Japan Post issue that has been so critical. I know the administration is aware of this, but we would again like to see the administration resolve these issues going in.
And can you give me any assurances as to where we stand with creating that kind of level playing field that should be there for everyone in a global economy, and certainly within the TPP?
*Ambassador Marantis. Sure, Mr. Larson. I mean this is a very important issue. Creating a level playing field for our providers of insurance, banking, and express delivery services is critical. This has been a high‑priority issue for us with Japan for a number of years, and we continue to raise it with our Japanese counterparts at every opportunity.
*Mr. Larson. I thank you, Ambassador. I thank you for your service. And again, I thank Mr. Brady, Mr. McDermott, and yield back my time.
*Ambassador Marantis. Thanks.
*Chairman Brady. Thank you. Dr. Boustany?
*Mr. Boustany. Thank you, Mr. Chairman, for holding this hearing. And Ambassador Marantis, thank you. And thank you to all your team for the great work that is being done.
I co‑chair the U.S.‑China working group in the House, and I was traveling in China back in April. And in meetings with senior Chinese officials I always emphasized that the United States of America is a Pacific nation, both geographically, but Pacific in the meaning of the word itself: we want peace. And my definition of all of that is free trade and unfettered navigation on our sea channels, our sea lanes.
And this agreement is strategically important. I am very pleased you are going forward with it. It gives the United States leverage and credibility. And I think that is at the heart of American competitiveness in the 21st century, job creation.
And I have seen it in my own state of Louisiana, where we have ‑‑ you know, Louisiana is a maritime state. We are on the Gulf of Mexico. We are a leader in trade. We are consistently in the top 10 in exports. We are also an energy‑producing state. But we have seen 45 percent growth in this year, much ‑‑ in exports, much in the Asia‑Pacific region for Louisiana with our Gulf Coast location. Our number one export destination is China. Our third most important export destination is Japan.
And so, opening these markets, having leverage in our negotiations to create jobs ‑‑ one out of five jobs in Louisiana is related to trade ‑‑ is critically important. Our 45 percent growth in exports is on top of a previous year, where we saw 54 percent growth in exports.
And so, as we look at this, whether it is agriculture ‑‑ and my friend, Mr. Herger from California talked about rice; I have rice growing in my district ‑‑ these tariffs and non‑tariff barriers are of utmost importance. But as we engage in this, and finalize this agreement, I want to talk a ‑‑ I want to ask you to describe a little bit more in depth about the dispute mechanism and enforcement dealing ‑‑ given that we are going to be dealing with some very diverse legal systems.
You know, we ‑‑ a global presence for U.S. firms is critically important for the 21st century for job creation and for our economic growth. But as part of that, we have to make sure that, as we deal with state‑owned enterprises and so forth, we need good, solid enforcement mechanisms and dispute settlement mechanisms.
And so if you could describe a little bit of that and the work that you are doing, I would be grateful.
*Ambassador Marantis. Sure, Mr. Boustany. You are absolutely right. An agreement isn’t worth very much if it isn’t enforced. And what we are working to do in the TPP is to ensure that the provisions are all subject to very strong, robust, enforceable dispute settlement provisions. And that includes the whole spectrum of issues in TPP, including tariff commitments, labor commitments, environmental commitments, IPR commitments, services commitments, so that we have, you know, an agreement that looks great on paper, and it also is great in reality.
*Mr. Boustany. When you mention the, you know, criminal penalties for IP infractions and for piracy, counterfeiting, can you go into a little more detail about how you see this working when we get to the end game?
*Ambassador Marantis. Sure. For instance, one of the innovations in our IP chapter will be to require that each country adopt criminal penalties to deter the theft of trade secrets. So what that will mean we would be looking to our TPP partners to make sure that they have measures on the books so that if there is an instance of trade secret theft we would have recourse or our industry would have recourse to criminal penalties.
Should they not place those measures on the books, we, as the United States, would have recourse to TPP dispute settlement to ensure that those measures actually get adopted.
*Mr. Boustany. Thank you. I yield back.
*Chairman Brady. Thank you, Doctor. Mr. Paulsen?
*Mr. Paulsen. Thank you, Mr. Chairman. And also, thank you for leading this hearing.
I want to compliment you, Ambassador, and the administration, for working with Congress to move these trade agenda items forward. I hope we are going to continue on that path with TPP, which I am very excited about, hearing the time line, which we want to hopefully try and stay connected to.
I was going to ask some questions on biologics, as well as some of the health medicine issues, but I will ask a different question, because U.S. market access on textiles and apparel is also a key issue in the TPP. And opening markets for this sector will support the millions of U.S. apparel and retail workers whose jobs do rely on trade. And I have a state who has many headquartered retail companies, as well as consumers across the country that will benefit from a new approach on textiles and apparel that, I think, recognizes the businesses realities in the supply chain from production on down.
And I recently led a bipartisan letter to Ambassador Kirk that shared the view that it is time to update U.S. policy on textiles and apparel, and that letter was signed by 30 Members of the House, 15 Republicans, 15 Democrats.
And can you talk a little bit about what USTR and the administration has done to evolve our position and promote policies that will facilitate trade and apparel so it is flexible, easy to enforce, as well as simple to use? And what is the administration’s objective in the TPP apparel for ‑‑ position for ‑‑ in terms of apparel for TPP?
*Ambassador Marantis. Sure. We have a very interesting opportunity in the TPP in the textile and apparel sector. You know, we were negotiating with Vietnam, which is our second‑largest supplier right now. What we are trying to do in the TPP is to maximize opportunities for us while we address the very real sensitivities that we have in the textile sector.
And so, the way we are going about doing that is we have put forward a package that we hope will best encourage trade, investment, and production in the TPP region. And that package includes four elements. There is the market access element, where we will seek market access from our TPP countries, and where we will be able to source, you know, goods, textile and apparel products, from them.
We also have the yarn forward rule of origin that we have put forward, that, you know, there has been, I think, debate over. But we believe that the yarn forward rule of origin has a demonstrated record of success in attracting an investment and helping, again, ensure that we can encourage production and trade within the region.
The third element we have put forward is a safeguard to ensure that we have recourse to a safeguard, should there be ‑‑ increased imports cause serious damage to our industry.
And the fourth element, which is very important ‑‑ and this was something that we discussed in great detail in the Korea process ‑‑ was to ensure that we have strong customs procedures to ensure that we combat transshipment, and that the benefits of whatever we are doing in the textile and apparel sector go to the TPP countries and not to third parties.
So, it is a package. And we think the package will best encourage production and trade in the region.
*Mr. Paulsen. Well, I just want to compliment you, because I think we need to absolutely focus on the trade and apparel side, as well as achieving that state‑of‑the‑art agreement that really does have ‑‑ become the gold standard, if you will, among ‑‑ agreements among a lot of these countries.
And I yield back, Mr. Chairman.
*Chairman Brady. Thank you, Mr. Paulsen. Ambassador, thank you for your testimony today. I want to add my appreciation and congratulations on the passage of the three agreements ‑‑
*Ambassador Marantis. Thank you.
*Chairman Brady. ‑‑ recent agreements, the hard work that you continue to put in on our trade agenda, along with Ambassador Kirk and the entire USTR trade team.
We really look forward to working with you on a bipartisan basis, both on TPP, which we see as a very strong agreement, but as well as a very strong proactive strategic trade agenda for the United States.
Again, thank you for being here today. As you know, Members have some time, may submit questions for the record. If they do, I hope you would respond promptly, as you always do. And again, thank you.
*Ambassador Marantis. Thanks, Chairman Brady.
*Chairman Brady. I would like to welcome our second panel to step forward.
Today we are joined by three witnesses on our second panel. Our first witness will be Ms. Devry Boughner, director of international business relations, Cargill, Incorporated. She is also testifying on behalf of the U.S. Business Coalition for the Trans‑Pacific Partnership.
After her we will hear from Ms. Angela Marshall Hofmann, Vice President, Global Integrated Sourcing and Trade for Wal‑Mart Stores, Incorporated.
And our third witness will be Mr. Michael Wessel, President of the Wessel Group.
We welcome all of you. We look forward to your testimony. I would also like to ask our witnesses keep their testimony to five minutes. Ms. Boughner, your written statement, like those of all the witnesses, will be made part of the record. And you are recognized for five minutes.
STATEMENT OF DEVRY S. BOUGHNER, DIRECTOR, INTERNATIONAL BUSINESS RELATIONS, ON BEHALF OF CARGILL, INC., AND THE U.S. BUSINESS COALITION FOR TPP
*Ms. Boughner. Thank you very much, Chairman Brady and Ranking Member McDermott, and members of the Trade Subcommittee. Thank you for the opportunity to appear before you on the importance of the Trans‑Pacific Partnership to the American economy. My name is Devry Boughner, and I am testifying today on behalf of Cargill, and on behalf of the U.S. Business Coalition for TPP, which is a multi‑sector coalition of U.S. businesses supporting the negotiation of and ultimate passage of a comprehensive, high‑quality, commercially‑meaningful agreement with key economies of the Asia‑Pacific region.
Cargill is in the international food business, and we are invested in 63 countries, and trade with well over 130. And Cargill is in full support of the TPP. TPP underpins Cargill’s business purpose of nourishing people. And the agreement, if done right, will address regional food security concerns, and trade barriers will be eliminated so that food can move unencumbered from places of surplus to places of deficit. TPP will feed hungry people.
U.S. food and agricultural exports to the Asia‑Pacific region totaled approximately 83 billion in 2010, and accounted for 72 percent ‑‑ I will repeat that again, 72 percent ‑‑ of total U.S. agricultural exports to the world; clearly a significant region. And every $1 billion of agricultural exports supports 9,000 jobs, including transportation, workers, food processors, packers, longshoremen, and I would also like to say women, sales, and marketing representatives.
Cargill’s U.S. businesses export a variety of agricultural and food products to the growing Asia‑Pacific region. Last year, the total value of Cargill exports to Asia‑Pacific exceeded $11 billion. An example; Asia represents annual revenue of $700 million to Cargill’s U.S. meat businesses today, supporting nearly 32,000 jobs, unionized jobs, in communities in Texas, Illinois, Iowa, Kansas, Colorado, and Nebraska. And we have many other examples.
Given the race that is going on between countries to lock in trade agreements across Asia, it is critical that the United States conclude a commercially‑meaningful agreement as soon as reasonably possible. And there are three key elements that we believe would make TPP a commercially‑meaningful agreement.
First, make the TPP a comprehensive undertaking. That means that the agreement includes all products, all sectors, in all TPP economies. This means, for example, that Australia must agree to investor state dispute settlement. Malaysia must open its government procurement market. Singapore and Vietnam must open their financial markets. And the United States must not exclude any agricultural products or seek to effectively exclude textile and apparel.
Second, TPP must address and provide new solutions to longstanding trade barriers. It must incorporate high standards for intellectual property and investment protection, transparency, competition policy, provisions to ensure that the Internet works without interference for companies to take full advantage of TPP, and science and risk‑based sanitary and phytosanitary ‑‑ known as SPS ‑‑ standards.
Third, TPP must include the right subset of Asia‑Pacific economies. The inclusion of Japan in TPP is critical in defining this agreement as “commercially significant”. On December 5, 2011 [sic], 63 U.S. food and agricultural organizations sent a letter to Secretary Vilsack and Ambassador Kirk, urging the Obama Administration “to work quickly and closely with Japan to smooth the way for Japan’s full participation in TPP.”
In summary, Cargill supports the administration’s efforts to move forward with TPP negotiations with a goal of completion no later than mid‑2012. And we look forward to the long tradition of bipartisan support required to pass significant trade agreements of the past 50 years, including the most recent 3 ‑‑ and congratulations and thank you on those.
We are counting on TPP that ensures availability and reliable access to food in the region, and promotes U.S. competitiveness and new economic opportunities for our industry and for our country.
Thank you again for the opportunity to share Cargill’s views and the Coalition’s views with you today. And I am willing to answer any questions and respond to any inquiries that you may have.
[The statement of Ms. Boughner follows:]
*Chairman Brady. Thank you, Ms. Boughner.
Ms. Marshall Hofmann is recognized.
STATEMENT OF ANGELA MARSHALL HOFMANN, VICE‑PRESIDENT, GLOBAL INTEGRATED SOURCING AND TRADE, WAL‑MART STORES
*Ms. Hofmann. Good morning, Chairman Brady, Ranking Member McDermott, and members of the subcommittee. My name is Angela Marshall Hofmann, and I am vice‑president of Global Integrated Sourcing and Trade at Wal‑Mart. I am very honored to be here today to discuss Wal‑Mart’s views on the Trans‑Pacific Partnership negotiations. As one of the chairs of the business coalition for TPP, Wal‑Mart strongly supports these negotiations. And I am pleased to outline today our goals for the negotiations, as well as our views on new applicants to the trade pact.
By way of background, Wal‑Mart serves customers and members more than 200 million times per week at over 9,800 retail units under 69 different banners in 28 countries in the Americas, Asia, Europe, and Africa. With fiscal year sales of 419 billion, Wal‑Mart currently employs over 2.1 million associates worldwide.
Although Wal‑Mart only has a retail presence in two of the TPP countries ‑‑ the United States and Chile ‑‑ we source a significant range of products from the majority of the TPP partners. Moreover, the region represents an important platform for retail growth in the future. Therefore, Wal‑Mart supports a high‑standard, 21st century TPP agreement that will foster new trade and investment, and create a potential platform for economic integration across the Asia‑Pacific region.
Today I would like to share with you our overall goals for the TPP, which include a comprehensive agreement with no product or sector exclusions, a common set of rules of origin that allows for trade between and among all TPP partners, high‑standard service and investment agreements that provide market access and protection for retail and distribution rights, and finally, expansion of the TPP to include new partners in the region. Specifically, we are enthusiastic about TPP as a vehicle to address emerging trade challenges through new disciplines on issues such as global supply chains and regulatory convergence.
One of the areas where we see great promise is the new horizontal focus on supply chains. Until recently, trade agreements have not looked at supply chains in a holistic manner. Rather, commitments have been made, sector by sector, without full consideration how each sector ‑‑ for example, express delivery, maritime or trucking services ‑‑ can impact the operation of the entire supply chain, from the point of production to distribution. We are, therefore, supportive of the establishment of a commitment to review and address supply chain issues in the TPP.
We also encourage negotiators to seek ambitious commitments in this area that recognize the need for a comprehensive, interdisciplinary approach, and an action‑oriented work program with clear benchmarks to track enhanced efficiency of TPP supply chains.
As I have stated, we are very encouraged that USTR has billed TPP as a 21st century agreement. For Wal‑Mart, this means ensuring that there are no product or policy exclusions, and that the agreement truly fosters trade among all TPP partners through workable rules of origin for all products.
Specifically in the areas of textile and apparel, we urge TPP negotiators to consider rules of origin that reflect today’s modern dynamic global value chains that support apparel production. As it sounds today, textile and apparel are treated differently than other products, and negotiators have insisted on restrictive rules of origin which require materials of garment to originate and assemble in‑country in TPP in order to receive tariff‑free treatment. Past FTAs with TPP countries have shown that such all‑or‑nothing approach does not truly spur new exports or new apparel trade. These rules are simply not workable, and do not take into consideration the modern realities of apparel production. We simply do not believe you can have a 21st century agreement with 18th century rules of origin.
Finally, we believe that the true potential of the TPP will only be realized if membership can be expanded beyond the current parties to create a comprehensive Trans‑Pacific agreement. Wal‑Mart supports the proposed inclusion of Japan, Mexico, and Canada, where we also have a strong retail presence and sell a number of U.S. exports.
We agree with the administration and Congress that all new members must adhere to a high‑standards agreement and must not slow down the momentum of the negotiations. However, we believe that there should be a clear and efficient mechanism for new countries to accede to the TPP.
Finally, thank you for the opportunity to present our views before this committee. We strongly believe that TPP represents an important opportunity to create a new dynamic trade agreement in one of the most important regions in the world. Thank you, and I am happy to answer any questions you may have.
[The statement of Ms. Marshall Hofmann follows:]
*Chairman Brady. Thank you, Ms. Marshall Hofmann.
Mr. Wessel, is recognized.
STATEMENT OF MICHAEL WESSEL, PRESIDENT, THE WESSEL GROUP
*Mr. Wessel. Thank you, Mr. Chairman, Ranking Member McDermott, and other members of the committee. It is a pleasure to be here before you this morning. My name is Michael Wessel, and I am president of the Wessel Group, a public affairs consulting firm. I want to highlight the disclaimer that I am speaking today in my own capacity, and not on others’ behalf.
The TPP represents the first trade agreement initiated by the Obama Administration. While much of the trade among the current TPP participants is already covered by free trade agreements, that does not minimize the scrutiny and attention that these negotiations deserve. This is highlighted by the recent announcements that Japan, Canada, and Mexico are interested in joining the agreement.
The template that is being developed will affect not only our trade and investment policies with the TPP countries, but in many other policy areas, as well. Our goal must be to maximize employment and opportunity, first for U.S. workers and secondarily for workers in the TPP countries. If it results in simply maximizing profits for companies, many of which are increasingly globalizing their supply chains, it will sadly be another trade agreement that fuels our trade deficit, promotes overseas investment, contributes to joblessness, and widens the income gap that exists in this country and in others.
An agreement, properly constructed, can be a force for progress. But that requires updating and reforming the existing approach, and much work remains to be done to achieve that goal.
With the short amount of time I have today, let me focus on a couple of key areas. The potential disciplines that will cover state‑owned enterprises, SOEs, represent perhaps the most important area for new disciplines in the TPP. Vietnam’s economy is dominated by SOEs. But it is not only the disciplines that will cover these markets that are important. It is also the effect the disciplines will have on non‑TPP countries ‑‑ most importantly, China.
SOEs, broadly defined, are of concern in three separate areas: their activities in their home market, their activities in third‑country markets, and their activities in our market. Let me focus on their potential activities here, in the U.S.
What are the goals of SOEs when they come to our market? Is it to engage in activities that conform to our laws, goals, and principles? Are they seeking to benefit from the skills, quality, productivity, and creativity of our workforce and operate as good corporate citizens? SOEs, by definition, are interested in promoting the interests of their home country, and are all too often guided by state interests, rather than commercial interests.
Why does this matter? Let’s consider a Chinese SOE. Chinese SOEs benefit enormously from below‑market‑rate financing by state‑owned banks at rates well below what American companies pay. Many of these loans may not have to be repaid at all. How does a commercial entity here in the U.S. compete with the U.S.‑based operations of an SOE that sets up shop here?
If a Chinese SOE exports a product here that injures a company and its workers, we have existing trade remedies to address the impact. But if they invest in a greenfield operation here, and as a result of having little or no cost of capital can undermine the competitiveness of an existing U.S. manufacturer, there is no existing remedy in U.S. law to address that harmful activity.
On top of that, in certain circumstances, they might have standing under our trade laws to challenge an action by a domestic producer here against unfairly‑traded products from overseas. This is a real problem, and one that will grow over time.
Yes, we want the jobs. But will those investments cost us more jobs at existing facilities? Will they source the inputs that they utilize from existing U.S. suppliers or from their home market? Will SOEs establish token presences in the U.S. market to benefit from the legal standing we give to domestic manufacturers, while keeping almost all employment in their protected home market?
There are many ways that disciplines on SOEs can be developed as part of the TPP talks. The best approach would be to ensure that all transactions are based on commercial considerations. Where that is not the case, an effective remedy should be made available to the private sector to fight for its interest when an SOE is operating here in our market, not one that depends on dispute resolution within the context of an agreement and on the U.S. Government’s willingness to act. Our trade laws need to provide that SOE’s right to block action by injured parties here in the U.S. can be severely restricted.
Rules of origins, is another critical area of the negotiations. The goal of any agreement must be to maximize production and sourcing within the signatory countries, and to limit the benefits of the agreement to third parties ‑‑ what I call leakage. We should not be entering into trade agreements where substantial amounts of the benefits are available for inputs or products sourced from non‑signatory countries.
Mr. Chairman, there are many other issues, as you and the other Members well know, that are important to the TPP negotiations and which have been raised here this morning: workers rights; the potential treatment of new entrants, such as Japan, Mexico, and Canada; currency. The list goes on. Over the coming months, I hope and expect that there will be a full discussion of all these issues, as Congress works with the administration on these negotiations. Thank you.
[The statement of Mr. Wessel follows:]
*Chairman Brady. Thank you to each of the witnesses for your insight and your testimony. We will be conducting, with Mr. McDermott’s permission, a second round of three‑minute questions so that all the members of the panel have the opportunity to ask our witnesses questions.
I want to talk ‑‑ ask Ms. Boughner or Ms. Marshall Hofmann. Two unique characteristics of this agreement. One, it is a plug‑and‑play agreement where other markets, other countries, after it is concluded, can plug into the agreement, should they meet high standards and the ambition of the agreement. Second unique characteristic is it really focuses on a 21st century view of trade, where it is not simply enough to open the door, to create market access, relax import quotas. But too often we find beyond that door a series of hurdles, obstacles, and fences that slow down trade, deny access, drive up the costs. TPP focuses on streamlining that trade, facilitation of trade.
Could you both remark on the importance of that focus on facilitation, and how American companies might benefit from lowering those barriers beyond the door, and streamlining the process, going forward? Ms. Boughner? Ms. Marshall Hofmann?
*Ms. Boughner. Well, thank you, Chairman Brady. You are absolutely right about the plug‑and‑play component, and the importance of getting this agreement ‑‑ as we are using the terminology ‑‑ 21st century, such that if additional economies in Asia choose to join, they are joining a club with a very high standard.
As it relates to trade facilitation, maybe I can give a couple examples from the food and agriculture sector, and then have Angela address it from their perspective.
In particular, what we are finding more and more is that the 21st century trade barriers go beyond just tariffs, as you are well aware. They go to the behind‑the‑border issues. And in our case, it would be situations where each country is applying their own food safety standards, or their own regulatory applications or approvals for ingredients, et cetera.
What we see as a great facilitator for trade, and for taking some of those pinch points out of the supply chain would be to get a common agreement on food safety standards, and sanitary and phytosanitary standards. As the ambassador mentioned earlier, looking at ways to enhance the risk assessment processes, increasing the transparency of the processes, all of these would facilitate trade of food and agriculture products in a way that it is not happening today.
And we would like to add a new one to the mix. In particular, it is when there is a disagreement on a standard being applied at the port or at the border ‑‑ for example, a vessel being stopped for some reason ‑‑ that there is some sort of oversight. And I don’t like to use the word “dispute settlement mechanism,” but there is some sort of TPP oversight that can quickly, rapidly come in and assess the ‑‑ assess whether or not some of these standards are being based on sound science, and quickly address the issue to make sure trade is facilitated and gets on track within a matter of days, not a matter of months or, as we have seen, years.
*Chairman Brady. Thank you. And I am running out of time. Ms. Marshall Hofmann?
*Ms. Hofmann. I would similarly echo that what we are seeing in the 21st century now is a movement away from your traditional tariff barriers. We are seeing many more of the non‑tariff barriers, regulatory requirements, testing, and other utilization that makes it very difficult for us to take, say, an individual U.S. exporter and be able to serve all of our retail markets.
So, we are keenly interested in simplifying several of the rules of origin that would allow us to further help build some of these export platforms into the retail markets.
*Chairman Brady. Thank you. And so, at the end of the day, not only are there more open markets, the goal is to move those goods and services without delay and at lower cost. Correct?
*Ms. Hofmann. That is correct.
*Chairman Brady. That is the goal. Thank you. Mr. McDermott?
*Mr. McDermott. Thank you, Mr. Chairman. I thank the witnesses for coming.
Mr. Wessel, I know your history enough to know that you have been around a while. So you remember some of the things that have gone on in the past. And in your testimony you said almost nothing about Japan. Would you please talk about Japan for three minutes?
*Mr. Wessel. I would be happy to. And thank you for that question. Yes, I have been around maybe too long, and remember the history of the 1980s, was recalling to somebody the other day that at one point Japan blocked the export of U.S. skis to their market, because they said their snow was different. And so we have had a long 30‑plus year history of intractable problems in Japan.
When one looks at our auto trade deficit, the vast bulk of it is with Japan. We welcome their cars here. And, in fact, the Members here know, when we had the cash for clunkers bill, the Japanese autos were allowed in. When Japan put their program in, they refused to allow foreign cars access to the benefits of their program.
Over many years, we have tried to address the Japan problem. And they are a great friend and ally, but they have a keiretsu system, they have a closed market that benefits their people. It is not tariffs that are the major problem, usually. It may be in rice and some other areas, but it is a system of interlocking, homogenous attitude towards imports that, in the past, had to be broken down with what was called the market‑oriented, sector‑specific talks, where there were actually targets.
We talked about earlier, you know, a plug and play approach. The chairman mentioned that. I am all for plug and play approach, if it works. But I don’t know that a one‑size‑fits‑all agreement works with Japan. I think we need to have them prove in advance that they are willing to accept the responsibilities of an agreement, with all that that means, meaning us and other TPP partners getting access before we give them enhanced access to our own market.
*Mr. McDermott. I yield back the balance of my time.
*Chairman Brady. Thank you, Mr. McDermott. Mr. Davis?
*Mr. Davis. Thank you, Mr. Chairman. I appreciate the witnesses coming, especially Cargill and Wal‑Mart. I am much more familiar with Wal‑Mart’s internal operations, information technology and supply chain from my 20‑plus years of business experience in supply chain integration. And certainly your company set a worldwide standard of innovation in this area.
But one thing that I would like to do, though, is go a little bit deeper. I have no doubt that your two businesses will do fine, whatever the final framework in this is, because of the innovation and also scale. But when we come to small and medium‑sized enterprises, I think of my friend, Dan Janka, who leads MAG Industrial Automation Systems in Hebron, Kentucky; Dave Barnes, who leads Tv One in Erlanger, Kentucky; and Steve Barnett, who leads Indy Honeycomb in Covington, Kentucky. All three of those businesses work extensively across the TPP region.
And what I would like you all to comment on is examples of how this will benefit the small and medium‑sized enterprises that you work with in your supply chain, here in the United States.
*Ms. Boughner. Thank you very much for the question. And certainly appreciate the opportunity to dispel the myth that just because we are large, that we will be okay. What I always like to remind people of is that here in the United States Cargill is a collection of 675 local facilities, where our local production managers are duking it out every day to cover their profit, to make sure that their P&L, their profit and loss, turns out on the right side.
And one example that I can give to you that links our investments and our exports to SMEs would be in Ottumwa, Iowa, whereby we have a program, a special export program for pork, where it involves about 4,000 head per day that we are tailoring for the Asia‑Pacific market. That plant, in particular, is linked to local suppliers that are supplying our facility with inputs, local distributors, and also our local employees.
And so, when we think of ourselves as maybe large organizations, we do need to break it down, because these have community impacts. So I could submit several examples, if you would like afterward, of our facilities throughout the United States that are impacting SMEs, if that would be something you would be interested in.
*Mr. Davis. That would actually be very helpful.
*Ms. Boughner. Thank you very much.
*Mr. Davis. Ms. Marshall Hofmann? We have about 30 seconds left here on the clock.
*Ms. Hofmann. I will speak quickly. Just to give you one example, actually, utilizing one of the TPP partners of Chile. We have been actually able to work with our private brand on diaper production to help them target a specific consumer segment in Chile, and we are now exporting that product from a Waco, Texas facility into Chile.
We have also worked with several other of the small businesses to help them meet a specific market niche, or help them better understand a specific consumer need in the market. So there is ample room to grow with these partners in each of the countries.
*Mr. Davis. Great. Thank you very much. Yield back.
*Chairman Brady. Thank you, Mr. Davis. Mr. Reichert.
*Mr. Reichert. Thank you, Mr. Chairman. I want to focus a little bit on the jobs issue, too, and the small businesses.
There is an educational process that needs to take place, obviously, throughout this country as to the benefits of trade. What are your companies doing, individually, to help spread the word that trade is a good thing? For example, I meet with longshoremen quite frequently. They are against trade agreements, even though their paycheck is 100 percent related to trade, right? If they weren’t unloading ships and loading ships, they wouldn’t have a job.
So, how do we get past that, and what are you doing to support the idea that trade is a good thing for America and ‑‑ to Mr. Wessel’s point, and I think that both of you made ‑‑ creating jobs here in America? That is what we want to do. What are you each doing?
*Ms. Boughner. I will give you a couple examples. It starts with our employees, first. We have an internal trade education program called “Trade Works” ‑‑ we actually have the trademark on it ‑‑ whereby we are educating our 55,000 U.S. employees on the benefits of trade. Just as you cited the longshoremen, often some of our employees are confused about the facts. And so it starts at home.
In addition, we are bringing the facts forward, Congressman. Sixty percent of our plant and maintenance workers are union in our animal protein facilities. We were not letting the myths stand in front of the facts. And so we are comparing this to a national average of 7 percent among companies. So we are unionized, and we support free trade. We don’t believe trade is about ‑‑ is an “or,” trade or jobs. We believe it is trade and jobs.
*Mr. Reichert. Yes.
*Ms. Hofmann. And yes. At our company, we ‑‑ of our 2.1 million associates, the vast majority of those associates are affiliated with the supply chain. So whether it is our logistics division, our global distribution centers, or certainly those in our operational units around the world, we have a keen sense of how trade can benefit our organization.
I would also say we have been actively participating in a number of the business coalitions here in Washington, and we are starting to do that as well into the states where our key suppliers are also benefitting from exports and the key product categories that have seen growth in their jobs and opportunities.
*Mr. Wessel. Congressman, much of my testimony was talking about some of the risks. There are certainly great benefits from trade. There are also a lot of risks that often go understated.
One of the problems that we have had going into these negotiations is the ‑‑ working with many stakeholders’, is actually the lack of data and the lack of analysis. When Mexico began or looked at joining the NAFTA agreement, they commissioned 99 sector surveys to look at what the challenges and opportunities were for their producers and their workers. Alcoholic beverages, farm products, you know, telecom, autos, up and down the spectrum we haven’t done any of that.
As you know, at the end of the process we get an ITC study that looks at the macro benefits, but doesn’t really allow this committee and others to do a deep dive to understand the challenges, the market opportunities, and how we best respond to that. I think we need to have a better data dive, if you will, at the front end.
*Mr. Reichert. Thank you.
*Chairman Brady. Thank you, sir. Mr. Herger?
*Mr. Herger. Thank you, Mr. Chairman. Ms. Boughner, could you ‑‑ why is it important for TPP rules on sanitary and phytosanitary measures to go beyond WTO rules?
*Ms. Boughner. Well, first and foremost, the WTO rules do set a very high standard and expectation that countries comply with the agreement on sanitary and phytosanitary measures. And that means that countries commit to what we call the three sisters: international standards in the IPPC; the OIE, which is the Organization of International Epizootics; and Codex.
So, we are still continuing to use international forums. It would complement it. But where this agreement goes beyond it is to actually get countries to commit to processes of ‑‑ and agree on those processes ‑‑ around areas like regulatory coherence, application of standards by industry.
And an example that I can give you is we are all well aware of what has happened with the animal protein trade over the years. Each country ‑‑ I have been to our plant in Dodge City, Kansas, where I see my facility managers have to stop the line each time this one goes to Japan, this one goes to Korea, this one goes to China. And what this agreement will do is it will create an opportunity for ‑‑ and every time we stop that plant, it is $1,600 a minute. So what this agreement will do is it will take out some of those inefficiencies, and countries will agree on a set of standards.
And then, as Ambassador Marantis mentioned, they are going to actually hold their ‑‑ these countries’ feet to the fire that these risk assessments, these practical risk assessments, are based on sound science. So I think, with this collective group of countries, they are going to commit to not only upholding the WTO, but going beyond with some of these practical measures.
*Mr. Herger. I want to thank you very much. And I have to emphasize what Mr. Congressman Reichert commented. I think we have so much work to do with the businesses we work with, that they ‑‑ work as many of you are doing ‑‑ that their employees are aware of the jobs that are being created. Because we are really taking a beating, as we know, in the public media. The American public is not aware of how incredibly crucial trade is to us, and that we work on and pursue these trade agreements for the very reasons that you have just mentioned.
So thank you very much. And, Mr. Chairman, I yield back.
*Chairman Brady. Thank you, Mr. Herger. Mr. Buchanan?
*Mr. Buchanan. Yes. Thank you, Mr. Chairman. I ‑‑ you know, I was reading the other day, or someone mentioned to me yesterday that a lot of the growth is going to be in this part of the world in the next 5, 10, 20 years. So, as it relates to trade barriers, some of these countries are a little more open, some have much more aggressive trade barriers.
How do you see, by moving this agreement forward as it relates to these countries, the TPP countries, moving that forward and reducing some of these barriers through trade agreements will create jobs? Because, at the end of the day, this is about creating jobs in America. We want something that works for everybody that is not only free trade, but fair trade.
But removing some of these barriers is ‑‑ how do you see that creating jobs?
Yes, you can start first. And take about 30 seconds. We ‑‑
*Ms. Boughner. Sorry, I tend to be long‑winded.
*Mr. Buchanan. ‑‑ don’t have much time.
*Ms. Boughner. I love this topic. As I mentioned, Congressman, every $1 billion of export is linked to about 9,000 jobs in the agriculture sector. So when you think about ‑‑ and I mentioned Japan ‑‑ when you think about Japan, and just the opportunity to tap into that market, and reduce some of these ‑‑ what we see as 100 percent tariffs and regulatory barriers, et cetera, for every $1 billion, that means 9,000 jobs. I can’t think of a more compelling statistic for you.
*Mr. Buchanan. That is a good point. Ms. Hofmann?
*Ms. Hofmann. And just quickly, we have seen this as we grow into the retail space into new markets, whether it has been in the CAFTA countries or several of our new trading partners. We also were able to provide a better growth platform for exports. So we are very optimistic about having a high‑level standard that also ensures a level playing field across the countries in the Asia‑Pacific ‑‑
*Mr. Buchanan. Mr. Wessel, real quick.
*Mr. Wessel. I would say the flip side of the $1 billion of exports creating 9,000 jobs is that every $1 billion of a trade deficit displaces 9,000 jobs, as well. We can’t just do this as a referee calling one side’s score.
Expanding exports is key. The President has said that is part of his national export initiative. This committee works hard on it. We need to do better to make sure that we can balance the results, not only making sure that we have the liberal trade that we have always had here, but get much greater access with certain results in ‑‑ among our trading partners.
*Mr. Buchanan. Again, I want to thank the witnesses today. And I yield back, Mr. Chairman.
*Chairman Brady. Thank you. Mr. Smith?
*Mr. Smith. Thank you, Mr. Chairman. Very briefly, if the panel could comment in terms of the comparison of opportunity and potential in these small number of countries, certainly in comparison to some other trade agreements that have already passed, my concern is, you know, often times we hear about trade agreements, you know, you take current policy in many cases ‑‑ you know, status quo, basically ‑‑ which I find unacceptable, and not just because I represent a lot of beef producers in rural Nebraska, and how that product has been tossed about in Asia, but because in the bigger picture, I mean, I think it is important to note that for every country we have a trade agreement already established, we have a trade surplus. I learned that in the run‑up during the debate to the last three trade agreements.
And so, I think it is very compelling. But if you could, speak to, you know, going beyond the status quo and how we can improve our trade policies through trade agreements, and also in terms of opportunity in comparison to other trade agreements.
*Ms. Boughner. I will just ‑‑ I will give you one statistic on the comparison, and that is it is the access to the population. At the moment, the current TPP economies account for about 500 million people. So that is ‑‑ that goes well beyond any agreement we have had. And then, if we start to add significant economies ‑‑ Japan, Canada, and Mexico ‑‑ that will get us to 779 million.
So, when we think about the fact that nearly 80 percent of the world’s growth is outside of the United States, let’s think about the fact that we could get to nearly 800 million consumers through this agreement, if it is done right.
*Mr. Smith. Very good. Mr. Wessel.
*Mr. Wessel. I think the agreement has the opportunity, as a template, to set what our trade policies are, going forward. Again, this is a ‑‑ as they called it ‑‑ a 21st century trade agreement, and hopefully will upgrade the disciplines in a number of areas, and make sure that there is an enforcement regime to back that up.
In the past, unfortunately, we have negotiated agreements that have not been well enforced. And, therefore, the benefits have not been fully achieved. It is a template, going forward. We need to get it right. Even though the number ‑‑ the four countries that we do not have TPP agreements with represent a fairly small volume of trade in the scheme of things, it is a template. So, you know, it is important.
*Mr. Smith. Ms. Marshall Hofmann?
*Ms. Hofmann. And I would just quickly add I think the one unique opportunity here is that this would be an agreement without product or sector exclusions. In some of the agreements that we have seen recently, while very well‑intended, we have not been able to leverage the benefit of the agreement for either the countries involved or the producers involved.
*Mr. Smith. Very good. Thank you. I yield back.
*Chairman Brady. Thank you, Mr. Smith. Ms. Jenkins?
*Ms. Jenkins. Thank you, Mr. Chair, and thank you all for joining us today. And thanks for the shout‑out to Dodge City, Kansas.
*Ms. Boughner. You are welcome.
*Ms. Jenkins. I am from the great state of Kansas. Just a couple of quick questions for Ms. Boughner and Marshall Hofmann.
Could you just give us some examples of new and emerging trade challenges that you face, and how the TPP can address them?
*Ms. Boughner. Sure. One I will raise is on the technology front. And I do believe that you referenced that earlier. What the TPP will do and what we are supporting as part of the TPP is to create an innovative technologies working group that would establish a forum to address trade issues related to technology and food and agriculture.
These are new ‑‑ the technology will continue to evolve. And so this agreement needs to continue to be able to be dynamic enough to address the advances and the innovations that the American industry is making. And so, technology would be one area.
As I mentioned earlier, dispute settlement mechanism for sanitary and phytosanitary measures, which would allow a rapid response to some of these non‑science‑based application of standards. And rules of origin, which Angela mentioned earlier, as well, going well beyond to make sure that those rules of origin are really about rules of origin, and not coded ways to protect particular interests in particular countries.
*Ms. Jenkins. Okay, thank you. Ms. Marshall Hofmann?
*Ms. Hofmann. And I would just touch briefly on, in addition to the market access for goods, we also have the services side. So we are seeing some markets where you will have performance requirements, you will have hiring and management requirements, or economic means tests that also could be addressed through the TPP.
*Ms. Jenkins. Okay, thank you. I yield back.
*Chairman Brady. Thank you. Mr. Schock?
*Mr. Schock. Thank you, Mr. Chairman. Ms. Boughner, I appreciate your company’s investment in my district. We have one of the largest pork‑producing facilities in the world. I had the opportunity of recently visiting that facility. Quite impressive.
And so, I want to speak to not only your investment in my district, but also to hopefully your investments around the world, and perhaps even more investments you and other companies might make as a result of TPP in some of these Asia‑Pacific countries.
The International Trade Commission staff recently found that investment abroad by U.S. service firms generate over 700,000 jobs in the United States, supporting those investments overseas. In addition, we know that a global presence by U.S. firms is essential in maintaining our number one status, globally, as the most competitive economy to be a hub. A global presence by U.S. firms helps them sell our exports around the world. And the more we export, the more jobs we create here at home.
Given the importance of U.S. firms having a global presence, I would like to ask you whether Cargill and the U.S. Business Council on TPP believe that the U.S. investors need the protection of investor state dispute settlements in all these TPP countries.
*Ms. Boughner. Thank you for the question, Congressman, and for rightfully recognizing that U.S. investment actually drives new opportunities such as trade. And, in fact, U.S. companies overseas, our investment actually accounts for 45 percent of all U.S. exports. So that should not go unstated.
And certainly one of our main priorities in this is to receive investor state dispute settlement protection. Not just dispute settlement, but investor state protections. And I can’t think of why we wouldn’t want to do that. Why wouldn’t we want to protect our American investments overseas, if we know, indeed, as Mr. Wessel mentioned, that there are other forces out there like SOEs, and places and spaces where we may face unfair competition or unfair action by governments.
So, we certainly believe ‑‑ and we know it is a difficult lift. We know that particular countries do not want the investor state provision included. But I can’t see how the United States would accept an agreement without that provision.
*Mr. Schock. Mr. Wessel?
*Mr. Wessel. If I could just make a quick comment ‑‑ and going back to my earlier comment about needing to have a broad debate about the data, the ITC study that is referred to was a staff study and not open to critique. And looking at some data in preparation for the hearing, I saw that multi‑national companies more than doubled their exports of services to their foreign affiliates at the same time that they reduced their U.S.‑based employment by 1.9 million.
So, we have to really go deeper and understand, again, what our competitive challenges and our opportunities are, and understand where we need to go in the future.
*Ms. Boughner. Actually, we have increased our employment year on year since the two largest trade agreements, NAFTA and when WTO was implemented. We have actually increased our employment 1,000 employees year on year.
And so, again, I think the facts state it for itself. It is not trade or jobs, it is trade and jobs. And investment. Thank you.
*Mr. Schock. Excellent points. Excellent points. Thank you, I agree.
*Chairman Brady. Thank you. Mr. Paulsen, you have the final question.
*Mr. Paulsen. Thank you, Mr. Chairman. And first of all, I should mention that Cargill is headquartered in my district, just a few miles from my home, actually. And I want to compliment you for your leadership, not only in educating your employees in the opportunities for trade and your participation in trade around the world that grows jobs, but also for being out front in hosting Ambassador Han this summer, actually, with the South Korean agreement, as that was going forward. And I think you have really laid out the case.
Everyone on the panel has laid out the case of why southeast Asia is so important, why TPP is so important, Mr. Chairman, because I think some of our colleagues don’t understand or appreciate that southeast Asia is going to be the center of economic gravity in the near future for a lot of future jobs.
And maybe you can just elaborate. Anyone on the panel. I know that many of you face significant barriers in China. And even though China is not a part of TPP, how does establishing these strong rules in TP help us address China’s barriers? On the panel?
*Mr. Wessel. Let me just take that quickly, in that the U.S. has always had a fairly consistent approach to trade and rules, that we may upgrade the rules as we move forward trade agreement to trade agreement, but there is a consistent application.
What we do on SOEs, what we do on indigenous innovation, IPR, and many other issues is going to set the enforcement template, as well as the legal policies that we use, transfer pricing, which is a subject under the jurisdiction of this committee.
So, this is vital to addressing the China challenge, long term, creating better rules than we currently have, more automaticity to enforcement, and certainty and consistency, in terms of the application of our law.
*Ms. Boughner. What I think, Congressman, it does is really creates a system of peer pressure in the region. And I absolutely agree that if we get the provisions right, and some of these new additions that we are making, it is going to create a system where other countries are going to want to be in the club. And, as that happens, China will ask itself the question. Everyone is already asking the question.
So it is critical we get this right, because I do think that this TPP system of peer pressure will come to bear and come to benefit the U.S.
*Mr. Paulsen. Ms. Hofmann, anything to add before we close?
*Ms. Hofmann. And just a final note, too. With both operations that are ‑‑ a growing retail presence and a sourcing presence with China, we see this as an opportunity to simplify the rules, to have better access, and to clarify the expectations for a 21st century agreement.
*Mr. Paulsen. Thank you, Mr. Chairman.
*Chairman Brady. Thank you. I want to thank the Members for their thoughtful questions. And let me note for our witnesses that Members may submit questions for the record. If they do, I hope you will respond promptly.
Our witnesses today made clear the Trans‑Pacific Partnership offers significant benefits. We need to move ahead as quickly as possible. We should also welcome new members to the TPP, as long as they will meet the Trans‑Pacific Partnership’s high standards, and not delay the partnership’s progress, can adequately address outstanding bilateral issues.
With that, the committee is adjourned.
[Whereupon, at 12:05 p.m., the subcommittee was adjourned.]
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