___________________________

HEARING ON
THE U.S.-CHINA ECONOMIC RELATIONSHIP

Tuesday, October 25, 2011
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.

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The committee met, pursuant to call, at 10:00 a.m., in Room 1100, Longworth House Office Building, Hon. Dave Camp [chairman of the committee] presiding.

[The  advisory of the hearing follows:]

Chairman Camp.  The committee will come to order.  China is both an opportunity and obstacle when it comes to our economy and American jobs.  While the Chinese market is a large and rapidly growing destination for U.S. exports, China willfully disregards its international obligations and impedes fair commerce.  Despite benefiting significantly from globalization and a more integrated global economy, China remains stubbornly closed to U.S. companies, farmers, ranchers, and workers. 

The list of China’s trade abuses is long.  The record shows that China blatantly steals the intellectual property of American businesses, grossly subsidizes domestic industries, prevents U.S. farmers and ranchers from exporting through discriminatory regulations and practices that are not based on science or international standards, blocks exports of rare earth minerals, and intervenes in its currency market, resulting in misalignment. 

China has an important role to play in restoring global economic growth.  To do so, China must more rapidly rebalance its economy away from export‑led growth; this means sustaining meaningful RMB appreciation of its currency and complying with its obligations and commitments to open its Chinese markets to U.S. exports of goods and services. 

Yet some in Congress focus on legislation to address currency manipulation as if it were a silver bullet.  In doing so, they miss the many issues we have with China.  I look forward to hearing from our two administration witnesses today about the full set of economic issues we face in dealing with China, including currency, and what the administration is doing and what Congress should and should not do with regard to our economic relationship with China.  There is widespread agreement that part of our China strategy must include resumption of our bilateral investment treaty negotiations.  Last year, Secretary Geithner testified before this committee that he was “very much in favor of moving forward, and I think these agreements have a very good record of protecting the interests of U.S. companies and workers, and it would be good to put one in place with China.” 

A year later, the administration’s lack of action is perplexing.  China has more than 70 BITs in place, bilateral investment treaties in place, including with many of our competitors.  The EU recently announced that it would negotiate its own investment agreement with China.  But the administration has been unable to form its negotiating position, allowing special interests to hamstring our ability to create jobs.  I expect to hear from the administration today about when it intends to resume negotiations.

.  At the same time, I applaud USTR for its recent actions.  Two weeks ago, the United States availed itself of WTO procedures to counternotify over 200 Chinese subsidies to the WTO, an important action that calls China out for its malfeasance. 

I hope this is just the beginning of USTR’s actions on such subsidies.  Furthermore, last week, USTR again utilized the WTO to publicly press China on its Internet censorship and restrictions, which creates significant barriers to U.S. services trade.  And last month, the administration filed another dispute settlement case at the WTO. 

I look forward to hearing from the administration about its efforts and the strategic and economic dialogue, the S&ED, and the Joint Commission on Commerce and Trade.  Those forums have been important avenues for addressing Chinese practices.  In fact, in conjunction with last May’s S&ED, I hosted a meeting between Ways and Means Committee members and a delegation of senior Chinese officials, led by Vice Premier Wang, China’s chief international economic official.  Our Members raised many of these important issues directly with the Chinese officials, and we will continue to raise them at every juncture. 

As the administration continues to engage with China through the S&ED and the JCCT, it must pay more attention to tracking China’s commitments and ensuring proper follow‑through to implement them.  In addition, I remain concerned that the administration is using the wrong metrics to measure progress.  We must measure success not just in the number of laws and regulations overturned, but whether removing these policies will actually be effective and create U.S. sales and jobs.  And I know this is a bipartisan concern. 

Looking forward, the administration must aggressively pursue WTO violations when they occur.  While we should not hesitate to confront China directly, the administration should also build strong coalitions to ensure maximum pressure and meaningful change.  Promptly implementing the trade agreements with South Korea, Colombia, and Panama will provide us with an important counterbalance in critical regions.  China’s influence has grown beyond Asia, with significant Chinese investment in Latin America, Africa, and around the world.  The United States must be globally engaged to counter this influence and ensure that China’s destructive practices are not exported. 

I look forward to the testimony.  Before yielding to the ranking member, without objection, the opening statements of all members will be included in the record. 

At this time, I yield to Mr. Levin for his opening statement. 

Mr. Levin.  Thank you very much. 

American exports to China have been growing, and we need that export growth to help create American jobs.  But at the same time, China exports four times as much as the U.S. exports to China.  China’s exports increasingly compete in key areas with American products, and China continues to erect barriers to our exports.  The current relationship is imbalanced, unfair, and unsustainable.  This trade deficit contributes to the jobs deficit in America, and the American people want Congress to take action to address it. 

For many years now, the economic relationship between our two large economies was built on a Chinese economy, structured on its export platform, overwhelming the role and importance of domestic Chinese consumption, with the U.S. economy significantly built on its role as the major consumption market for Chinese products.  Sensing some of the perils in that economic structure, a decade ago, when China entered the WTO, some of us in Congress understood that inclusion of a major nonmarket economy into a rules‑based trading system presented unprecedented challenges.  To meet those challenges, we fought for inclusion of tools to strengthen our hand in ensuring that China played by the rules. 

Unfortunately, the Bush administration and the Republican Congress made clear early on they preferred a hands‑off approach to China.  That was reflected in acquiescing and China’s making a mockery out of the special provision provided for in China’s WTO accession for an annual review of whether China was meeting its obligations.  Another vivid example was the failure to use the safeguard against surges in Chinese exports that harm U.S. industries and workers. 

On four occasions, the ITC recommended relief.  On all four occasions, the Bush administration refused.  Thousands of American jobs were lost.  Knowing the Bush administration preferred a hands‑off approach helped embolden China to continue trade‑distorting practices that target our market, our companies, and our workers.  Thankfully, the Obama administration resurrected the 421 safeguard in the tires case.  The administration is trying to turn the ship in the right direction.  But the process is too slow and there still is too much resistance in Congress and elsewhere. 

The American people expect their representatives to actively manage this trading relationship.  They expect us to fight for a level playing field for American companies and workers.  So I appreciate holding this hearing, asking the administration its plans at today’s hearing.  But let us remember that the Constitution gives Congress exclusive power over foreign trade.  That means Congress must act to help end a variety of China’s predatory trade practices.  One of them is China’s currency manipulation.  House Democrats insist on action because it matters.  Fred Bergsten recently described China’s currency policy as, “by far the largest protectionist measure adopted by any country since the Second World War, and probably in all of history.”  He estimated that eliminating the misalignment would, “produce at least a million goods jobs, mainly manufacturing.” 

In recent years, some of our Republican colleagues have come to agree about the seriousness of this problem.  And last fall, the House passed its currency bill with strong majorities of both parties voting in favor, including myself and Chairman Camp.  Chairman Camp and other committee Republicans agreed with us that substantial amendments made the bill, on its face, consistent with our international obligations.  The Senate has now followed the House by passing legislation to address this problem.  Now it is the House’s turn to act by once again passing its bill, the Currency Reform for Fair Trade Act, which is cosponsored by a majority of this Chamber, 230 Members. 

Because currency is not China’s only predatory and trade‑distorting policy, that cannot be an excuse for a refusal to act on it.  The House leadership must stop using that excuse.  Nor does acting on it mean not acting on other key issues, intellectual property rights, indigenous innovation, trade‑distorting subsidies, discriminatory product standards, among others.  But it is alarming how difficult it is to move beyond rhetorical support to bipartisan action.  That is why I and 34 other Democratic Members this year sought an additional $3.2 million for USTR’s China enforcement.  Unfortunately, my Republican colleagues were unwilling to join that request. 

Last week, one industry, solar panel producers, decided they could no longer wait for us to stand up for them and took action on their own.  Some will decry that action as protectionist, feudal, or anti‑consumer.  I call it “anti‑protectionist,” standing up for American workers and for our future. 

This committee should consider other trade‑relating legislation.  And for the record, there has been filed a package of such bills.  In short, the American people expect us to stand up and to fight for them.  They don’t want us to take a hands‑off approach to American competitiveness on currency or other issues.  It is time to act. 

[The information follows The Honorable Mr. Levin: Letter , H.R. 639, H.R. 1518 , H.R. 2722, H.R. 3057]

Chairman Camp.  Thank you.  We will now turn to our panel of administration witnesses.  And I want to welcome Under Secretary Lael Brainard, Treasury Under Secretary for International Affairs, and Ambassador Demetrios Marantis, Deputy United States trade representative.  Thank you both for being with us today. 

You will each have 5 minutes to present your testimony with your full written testimony being part of the record.  Ms. Brainard, we will begin with you.  You have 5 minutes.

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

Ms. Brainard.  Chairman Camp, Ranking Member Levin, distinguished members of the committee, thank you for the opportunity to testify today on our economic relationship with China. 

Since the outset, President Obama has placed a high priority on actively pursuing a more balanced and fair economic relationship with China.  With American households saving more and with demand weak in Europe and Japan, our exports increasingly will be directed at fast growing emerging markets if we are to achieve the President’s goal of doubling exports in 5 years in order to create good jobs with good wages.

Indeed, over the next decade, China is expected to be the single biggest source of demand growth in the global economy.  Since 2009, U.S. exports to China have grown nearly twice as fast as our exports to the rest of the world and it is now our third largest export market.  We are seeing double‑digit gains in sectors ranging from agriculture to machinery to chemicals. 

Yet despite this progress, the playing field is still uneven.  In order to derive a better balance of benefits from trade and investment opportunities with China, we need to see progress on three key challenges:  First, China must shift to a pattern of growth that can be sustained, drawing on homegrown consumption rather than excessive dependence on exports. 

This requires that China bring its exchange rate into alignment with market fundamentals.  Second, in many sectors in which the United States is competitive globally, China must address a range of discriminatory policies, including those that favor domestic state‑owned enterprises. 

Third, China must address the rampant theft of intellectual property that stymies innovation.  On these issues, the administration has worked tirelessly to make progress with China, through fora such as the Strategic and Economic Dialogue and the Joint Commission on Commerce and Trade, and we have worked with international partners who share our concerns.  When engagement has proven insufficient, the administration has and will continue to be aggressive in using safeguards, enforcement actions, and trade remedies to address the particular problem, consistent with our international obligations. 

On the exchange rate, a faster rate of appreciation on its own will not erase the trade deficit, but allowing the exchange rate to fully adjust is the most powerful near‑term tool available to the Chinese Government to achieve two of its top economic goals:  Combating inflation and shifting the composition of its demand towards domestic consumption. 

At the G‑20, surplus‑emerging markets, such as China, have committed to accelerate the rebalancing of demand and to move towards more market‑determined exchange rates through exchange rate flexibility.  There has been progress.  China’s trade surplus has declined from 7.7 percent of GDP in 2008 to below 4 percent in 2010, and even further in the first half of this year. 

Since China resumed exchange rate adjustment in June of last year, the currency has appreciated nearly 7.5 percent against the U.S. dollar and closer to 10 percent in real terms, adjusting for inflation.  China’s currency has appreciated nearly 40 percent against the dollar over the past 5 years in real terms.  But the real exchange rate remains misaligned and a faster appreciation rate is needed. 

Second, at the most recent S&ED, after commitments made during the January state visit of President Hu and the JCCT, China pledged to rescind all of its government procurement, indigenous innovation catalogs, including by provincial and municipal governments.  So far, the central government has repealed four key measures that underpinned the indigenous innovation product accreditation system and a number of local governments have taken positive steps.  Third, China has pledged to increase inspections of government computers to ensure that agencies use legitimate software and to improve its high level government coordination and leadership mechanisms to enhance long‑term enforcement of intellectual property. 

Opening up China’s financial sector remains a key priority.  China now allows foreign banks to underwrite corporate bonds and is creating more opportunities for financial services firms to manage investments in China as well as to manage Chinese investments abroad.  And at the most recent S&ED China committed to allow foreign firms to sell mutual funds, provide custody service, and sell mandatory auto liability insurance.  China’s current headline growth rate may look enviable right now, but China faces daunting challenges in coming years.  The way China grew in the last two decades will not get them to the next stage of development.  With slowing labor force growth, massive capital investment, with a misaligned exchange rate and distortions in credit allocations and without improving the environment for innovation, China could face what economists call the middle income trap.  We have a tremendous stake in ensuring that China deals with those challenges in a way that fundamentally reorients its growth pattern through greater balance and fairer competition.  I look forward to working with members of this committee on those challenges. 

Chairman Camp.  Thank you very much. 

[The statement of Ms. Brainard follows:]

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

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

Mr. Marantis.  Thank you Chairman Camp, Ranking Member Levin, and members of this committee.  I appreciate the opportunity to testify today. 

Since China joined the WTO in 2001, U.S. goods exports, including semiconductors, aircraft, and chemicals, have quadrupled.  Agriculture exports are up 800 percent, led by soybeans and cotton.  Services exports are up nearly 300 percent on growing sales of business, education, and financial services.  And American job-creating investment in China has grown 400 percent.  America’s trade relationship with China has tangible benefits, but just as real are the persistent concerns that threaten to undermine the potential of this relationship.  Intellectual property theft in China costs U.S. companies $48 billion every year.  China’s industrial policies, like indigenous innovation, discriminate against U.S. products, services, innovators, and investors.  China’s subsidies raise deep concerns and can lead to unfairly traded imports that affect our trade deficit.  Investment restrictions limit the ability of U.S. companies to compete effectively in China and to create jobs here at home.  Unfair barriers to U.S. agricultural imports hurt our beef, poultry, and pork producers; and weak enforcement and lack of transparency undermine U.S. exporters and investors.  President Obama is determined to make our relationship with China work better for working Americans, to tap its potential to support American jobs, and to grow our economy.  This administration’s coordinated approach is focused on vigorous enforcement, results‑oriented dialogue, and strengthening global trade roles. 

First, enforcement.  In the WTO, the Obama administration has initiated five strategic and systemic disputes against China.  We challenged China’s exports restraints on industrial raw materials in a case unprecedented in size and importance.  For the first time since China joined the WTO, we accepted a Section 301 petition which brought China to the WTO to answer for prohibited subsidies in the wind sector.  We have challenged China’s regulation of electronic payment services to address the apparent creation of a homegrown monopoly that blocks competition.  We brought two WTO cases to address the apparent misuse of trade remedy investigation to restrict U.S. exports to China.  And for the first time ever, we brought a Section 421 case and imposed duties to combat a surge of Chinese tire imports. 

The Obama administration will not hesitate to bring additional enforcement actions as appropriate.  But litigation alone isn’t enough.  Results‑oriented dialogue, like the Joint Commission on Commerce and Trade and the Strategic and Economic Dialogue, also yield swift and lasting benefits.  Last year, as Under Secretary Brainard mentioned, our engagement led to new measures to increase legal use of software in China.  We also obtained China’s agreement not to discriminate against foreign intellectual property in its procurement policies and to address agriculture concerns by eliminating unfair bans on our poultry exports and some key restrictions on our pork.  For this year’s JCCT, USTR continues to work intensively together with the Commerce Department to secure results, focusing on intellectual property rights, indigenous innovation, investment restraints, industrial policy, and other issues.  Aside from the structured dialogue, we are also engaging China directly on its adherence to trade rules regionally and globally.  This month, for the first time, as Chairman Camp mentioned, the United States submitted in the WTO a subsidy counter-notification to call China out on over 200 subsidies that it had not notified as required. 

Similarly, we have called on China to share detailed information on measures that limit the supply of services over the Internet and hinder the ability of our companies to effectively compete.  Outside the WTO, we are working to strengthen trade rules across the global trading system through efforts including the Trans‑Pacific Partnership and Anti‑Counterfeiting Trade Agreement.  The Obama Administration is working hard so that the United States can compete with China on a level playing field and so American businesses and workers can prosper.  Progress will occur if we recognize the value of this relationship and address the challenges of the work ahead.  Thank you. 

Chairman Camp.  Thank you very much for your testimony.

[The statement of Mr. Marantis follows:]

Chairman Camp.  I will start out with a question that I would like both of you to address. 

It is clear that for a long time, China has allowed unacceptably high rates of piracy across all technologies.  For example, U.S. copyright industries estimate that 85 to 95 percent of members’ copyrighted works in China are pirated.  And despite repeated assurances and promises from the Chinese that they will step up enforcement, there still is a huge problem there.  And many members of this committee have heard from employers that the losses to the U.S. are in the billion of dollars.  And they are not limited just to software and music and movies, but other intellectual property as well.  So when those products are then exported to the U.S., they have an unfair advantage over U.S.‑made goods that follow the law.  So there is this sense that the Chinese are simply ignoring the rules to their advantage. 

What is the administration doing to address this major barrier to trade between our countries?  And does the administration have the tools it needs to continue to do that?  So, Ambassador, if you want to start; and then Under Secretary Brainard can respond. 

Mr. Marantis.  Thank you, Chairman Camp.  This is a huge problem.  I.P. infringement, as you mentioned, causes significant losses to the U.S. economy.  In the copyright industry alone, the ITC estimates that we lose $23 billion to copyright piracy.  This is a huge problem and this is a huge priority.  We are taking action on all fronts, through the JCCT, through the S&ED, and we have actually made significant progress over the past year.  We have made progress on software legalization.  We have made progress in rolling back some very problematic indigenous innovation measures.  We have made progress in securing commitments from China to step up its enforcement of electronic journals, and to hold landlords liable when their tenants sell counterfeit products.  These issues continue. 

And as you point out, what is critically important is to make sure that China is enforcing the good commitments that it made over the past year.  We are seeing in certain respects implementation of these commitments, and where we are not, we are pushing very hard to ensure that China does. 

Chairman Camp.  And even the government is using pirated software and pirated technologies.  What progress are you making on a government‑to‑government basis? 

Mr. Marantis.  Sure.  So as part of the S&ED and the JCCT, we focused on software legalization to address the issue that you raise, the use of pirated software both in government agencies as well as pirated software in state‑owned enterprises.  As part of the various dialogues, China made commitments to institute of software asset management program to budget for purchases of legal software, to institute a pilot program for state‑owned enterprises, to ensure that these enterprises are using legal software.  We are making progress.  We are beginning to notice a small uptick in sales.  But again, it is a real problem, and we don’t think China is doing enough.  And this is a priority area of work for us in this year’s JCCT and S&ED. 

Chairman Camp.  Do you feel you have the tools you need to continue to address this problem? 

Mr. Marantis.  We have worked very hard to leverage our resources across the U.S. Government in close cooperation and coordination with the Department of Treasury, with the Department of Commerce, and with our other agencies to make sure that we use our resources in the most effective way possible. 

Chairman Camp.  Under Secretary Brainard, if you could comment as well. 

Ms. Brainard.  I want to underscore the importance of this issue. 

Intellectual property really goes to the heart of America’s competitive advantage.  And for us to be able to grow and to continue to make sure that Americans have good jobs at good wages, we need to be able to earn returns on those investments and innovations around the world and importantly in one of our fastest growing markets, in China. 

We are working very tightly across the administration.  We have a very tight list of priorities that are developed in consultation with you, in consultation with the business community, with the labor community, and intellectual property has been right at the top of the list alongside currency and distortionary practices.  And we have, as Ambassador Marantis said, made some progress, very important progress in dismantling the indigenous innovation preferences that were being built into China’s system, very important progress initially in getting a high‑level mechanism in place so that the State council would be responsible for monitoring enforcement at the local level.  We need to get that renewed because our business community thinks that has been helpful to them.  And some progress on the software legalization issue, where we are just going to have to keep at it. 

But the other thing I think ultimately that we have emphasized in our discussions with the Chinese and in pushing forward on these priorities, is that if they don’t get this right, they are not going to make it to the next level of development.  And I think increasingly, there is recognition within China that they have to get a handle on their own lack of enforcement and inability to achieve enforcement at the local level in order for them to move away from a model that has been very resource‑intensive, very focused on labor force and massive capital investment to a growth model that is more like ours, very focused on innovation, on high value‑added. 

So we have I think a moment where their own growth objectives and the key priorities we have for U.S. businesses are going to move increasingly in the same direction.  So we think we need to work very closely with them to improve their intellectual property protection. 

Chairman Camp.  All right.  Thank you. 

Moving on to another issue.  There is no doubt that China’s currency policy is a significant problem.  And the real question is, what should Congress do or not do about it?  And last year, when Secretary Geithner was here before the committee, he set forth a two‑part test and said that any legislation needed to be, one, effective, and, two, consistent with our international obligations.  And in light of this test, Ms. Brainard, what is the administration’s view of the Senate bill, S. 1619, the legislation that recently passed the Senate, as well as H.R. 639, Ranking Member Levin’s bill? 

Ms. Brainard.  Let me just say first that the President shares very strongly Congress’ objective of taking aggressive action to provide a level playing field with China for our workers and our companies.  We know they can compete successfully with anyone in the world if the competition is fair.  The President shares very much the frustration of many Americans with China’s exchange rate.  Despite recent progress, China’s exchange rate has been, will be among our very top economic priorities, and we are going to continue to press China to appreciate faster, consistent with market forces. 

Aspects of pending legislation do, however, raise concerns about consistency with our international obligations, and we are discussing these issues with Members.  Obviously if legislation were to advance, those concerns should be addressed. 

Chairman Camp.  Is there any chance you could highlight for this committee what those concerns are? 

Ms. Brainard.  I think we are very willing to engage and have been engaging with Members on particular aspects of legislation.  We have been ‑‑ and will remain, I think, reluctant to discuss particular aspects of legislation because, of course, at the end of the day, we want to make sure that we are in a strong capacity to defend whatever legislation becomes law.  But again, I think, as you said earlier, you know, the test for us, the simple test is, will we be able to have something that is both effective and consistent with our international obligations?  And we are very willing to work with Members of Congress on that front. 

Chairman Camp.  All right.  Mr. Levin may inquire. 

Mr. Levin.  Well, first of all, I think we need to provide a sense of urgency to this issue.  I think there is a tendency to avoid that, to talk about progress and not to emphasize the extent of the problem. 

I remember when the predecessor USTR would come here with charts showing how our exports were growing.  There were never any charts on the extent of imports that were coming in from China that were so much larger than the number and the amount of our exports there.  We have a historically high trade deficit with China.  And I think to simply either shrug shoulders or find excuses for inaction, neither is satisfactory for the people of this country. 

I will ask either of you, is there today a level playing field with China?  I think you can probably say “yes” or “no.” 

Mr. Marantis.  Mr. Levin, you raised an urgent point.  We have an incredibly large trade deficit with China and there is no one cause to that deficit and there is no one solution.  But we need to take action on a variety of fronts, imports as well as exports.  We have our trade remedy laws to deal with imports.  However, as you have pointed out, and as others have pointed out to us, trade remedy laws kick in only after there is injury.  That is why it is incumbent upon us to address the types of trade distorted policies inside of China, like subsidies, that give rise to unfairly traded imports.  We are working on all fronts to do that.  We filed a WTO case last year on wind subsidies.  The counter-notification that we filed just earlier this month in the WTO is designed specifically to give us more information so that we are able to assess the types of trade distorted subsidies that give rise to unfairly traded imports. 

Mr. Levin.  So I think your answer is, today there is not a level playing field? 

Mr. Marantis.  We need to work to ensure that we have a level playing field for our workers, our exporters; and working on the issues that you have just mentioned is a critical aspect of that. 

Mr. Levin.  Secretary Brainard. 

Ms. Brainard.  I think, Mr. Levin, we share very much your sense of urgency, your sense that there is not a level playing field, and that we need to work with China to accelerate the pace of reform, accelerate the pace of appreciation, accelerate the pace at which they tackle their inadequate protection of intellectual property, their uneven market access. 

Mr. Levin.  Well, I really think we need to just say “yes” or “no.”  I mean, there isn’t a level playing field, and we are endeavoring to bring it about, isn’t that true?  Yes?

Ms. Brainard.  Yes. 

Mr. Marantis.  Yes, Mr. Levin. 

Mr. Levin.  The solar industry filed a petition recently, and I think everybody in this country had better ‑‑ we all need to face up to it, including my colleagues on the Republican side.  Essentially that petition says, with this new energy technology, that if we allow China to rig the playing field, we are going to lose that industry.  It was our technology.  It was our technology.  And if we don’t act, if we don’t use our laws, if we don’t stand up for our producers, we are going to lose them.  And it is one example and it is why there is such sensitivity in this country.  It isn’t bashing China.  It is essentially saying, play by the rules.  Don’t rig the playing field.  And I think everybody needs to start in our questions, if I might say so today, understanding that there is not a level playing field.  It isn’t the only cause of the deficit but it is one of the causes.  There isn’t any single cause, whether it is currency or others.  But to say we don’t act on any single one because there are others is totally unacceptable. 

Chairman Camp.  Mr. Johnson is recognized. 

Mr. Johnson.  Thank you, Mr. Chairman.  Thank you both for being here.  We appreciate your presence. 

And while I agree that the currency issue and IPR are two items of great importance, I think there is another elephant in the room that we need to talk about.  I find it alarming our deficit is being financed by countries such as China, our biggest holder of U.S. Government debt.  Equally important, a former Chinese military official suggested the Chinese should consider dumping U.S. treasuries in response to some of our recent military decisions regarding Taiwan.  While I believe foreign investment in America shows that outsiders view our country as a safe and solid investment, I have serious concerns about the full implications of overleveraging our debt to outside forces.  I also feel the current level of transparency regarding China’s holding of U.S. Government debt is inadequate. 

To raise awareness of the threat to our economy and national security from our exploding deficit and debt, I have introduced the Foreign‑Held Debt Transparency and Threat Assessment Act.  That bill will require a better accounting of debt held by foreign countries and, more importantly, will require the President to submit a plan to cut spending should either a particular foreign creditor or the overall debt pose a risk to the security interests of America.  I feel we must not let any other country hold our national and economic interests hostage. 

That being said, let me ask you two this simple question:  How big of a problem do you think it is that China holds so much of our debt?  And what steps do you think we should take to address it?  Either one of you first. 

Ms. Brainard.  Let me just say, as you mentioned, obviously we have the deepest, most liquid government security markets in the world, the deepest, most liquid financial markets in the world; and I think for all those reasons, it is no surprise that there is strong demand for U.S. securities both here and around the world.  That said, over time, we do have, as a Nation, a big challenge in addressing our medium‑term deficit and debt path, and that is why the President has put on the table additional measures, $4 trillion of measures over the next 10 years that would help to put the debt on a declining path relative the size of GDP, why the Budget Control Act was so important.  But of course, all of that is premised on the very important near‑term challenge of getting people back to work and growing the economy, which is why so many provisions in the Jobs Act are important. 

So I could not agree with you more that, as a Nation, we need to get on a path of declining debt, declining deficits once our recovery is well secured.  And we all, I think, want to work together to accomplish that important goal. 

Mr. Johnson.  Thank you.  Ambassador, do you have a comment? 

Mr. Marantis.  The only thing I would add is, on the trade side, one of the fundamental aspects that we are working on is how do we continue to boost our exports to China?  It is important to note that our export growth to China is faster than any other region of the world.  Our exports to China grew 32 percent last year versus to the rest of the world where it has grown by 16.7 percent.  So what we are doing with respect to exports, both with respect to China and elsewhere, is a fundamental part of the President’s efforts to continue to bring jobs to the American economy. 

Mr. Johnson.  Thank you.  Let me ask you another question, Ambassador.  I understand China is in the process of instituting an environmental certification program known as China Ross.  There are concerns that the program could become a barrier to U.S. goods entering the market.  What steps is USTR taking to address these concerns? 

Mr. Marantis.  Mr. Johnson, I am not familiar with that particular measure.  We have an active environmental dialogue with China in the JCCT and as part of the S&ED.  And I will follow up to get information on that particular measure that you raised. 

Mr. Johnson.  I appreciate that.  Thank you, Mr. Chairman. 

Chairman Camp.  Thank you.  Mr. Rangel is recognized for 5 minutes. 

Mr. Rangel.  Thank you, Mr. Chairman.  I have been on this committee for so long that every time one of our Representatives talk with the people in China, I can almost write the press release myself:  That they are cooperating, that progress has been made; that we appreciate that the legislative body is an independent agency.  We don’t encourage you to legislate, but we are not opposed to anything that you might do that could give us leverage.  And whatever you want to do, it can’t hurt us because, after all, the Constitution does provide for a separation of powers. 

Having said all of that, if, indeed, as Congressman Levin has said, that we can identify the technology that they are stealing, that this is having a severe impact on our ability to compete, why don’t we just identify what it is and put a tariff on that?  The best they can do is take us to the WTO, where we want to go anyway.  Why can’t we do that?  Ambassador? 

Mr. Marantis.  Mr. Rangel, we have a whole variety of tools at our disposal to make progress.  And I don’t dispute at all with you that we have severe challenges in China that we need to continue to work to address. 

Mr. Rangel.  That is the speech I just gave.  I am just saying that, suppose we know that there is a technology that they just put their finger up their nose and say, Hey, that is pretty good.  I am going to use it, and I am going to include it in something that your people want to buy cheaper.  And we say, No, you don’t.  We are not going to buy back our technology.  You have got to pay for our research and development.  And zap.  And it is going to be outrageous.  They are going to be angry.  And if they are not angry, we score in the tariff.  If they do get angry, we are in the WTO.  Now that is the same question I asked just a minute ago.  So you are not going to give me a chance to ask the same question a third time. 

Why can’t we do it?  I accept that you are a diplomat and we are legislators.  But you would not get angry with us if we mandated it, right? 

Mr. Marantis.  Mr. Rangel, we have imposed duties, for instance, in the section 421 case. 

Mr. Rangel.  Why can’t we do more of it?  Why can’t we get their attention?  Why can’t we cause a fight and not threaten a trade war, but threaten to bring honesty, sincerity, and equality to the World Trade Organization, where a lot of us voted to allow them to get in because they promised to do these things.  Now, is the answer to that, you don’t want to offend them at the executive level?  What is the answer?  It just seems so easy to do. 

Name something that our manufacturers are particularly concerned about.  What technology does the whole world know that they stole from us?  Could you help me? 

Mr. Marantis.  Yes.  On this very issue, Mr. Rangel, with respect to electric cars right now ‑‑

Mr. Rangel.  Electric cars is good.  They want partnerships with it.  We are afraid they are going to steal our technology.  If they did do that, then we put a ban on anything that looks like our technology and a high tariff, ridiculously high.  Then what can they do about it?  They either pay the tariff or go to the WTO.  Now there is something wrong with my argument.  But I am trying to find out, what is it? 

Mr. Marantis.  Mr. Rangel, we have our own international obligations that we have to abide by.  But we take action on every front to counter whatever issue China puts in front of us, whether it is in the area of green technology, whether it is in the area of subsidies – and we have done, I think, a, pretty good job, particularly over the past 2‑1/2 years, of using our enforcement tools, like the 421 ‑‑

Mr. Rangel.  We don’t need any legislation.  You are pretty proud of the job you are doing diplomatically with China.  And so you are just listening to us rant and rave.  But quite frankly, you have got a handle on this thing, right? 

Mr. Marantis.  This is a cooperative endeavor between you and us, and the concerns that you raise are the concerns that we push with our Chinese counterparts. 

Mr. Rangel.  So we don’t need the Congress’ input into this.  You are satisfied as every official, Republican and Democrat, when they come back, that they have got a long way to go, but they are making progress.  And they do owe them a lot of money.

Mr. Marantis.  Our consultations with you sets our agenda.  So this hearing today is an integral part of helping us inform ourselves ‑‑

Mr. Rangel.  What do you think our attitude is bipartisanly here, as it relates to Chinese currency and intellectual property?  What do you think it is? 

Mr. Marantis.  Very serious concern. 

Mr. Rangel.  No.  It is outrage. 

Mr. Marantis.  We share that.  And that is why we are doing everything we can and are using all of our tools on all issues to make progress. 

Chairman Camp.  The gentleman’s time has expired.  Mr. Brady is recognized for 5 minutes. 

Mr. Brady.  Thank you, Mr. Chairman.  I will submit my opening statement for the record. 

Chairman Camp.  Without objection. 

[The information follows: The Honorable Mr. Brady]

Mr. Brady.  I want to congratulate Ambassador Marantis for the hard work the U.S. Trade Representative Office did with the White House with Republicans and Democrats in Congress to pass the recent sales agreements with Korea, Colombia, and Panama.  If anyone in America wonders if Republicans and Democrats can work with this President to pass a real jobs bill, this was the real proof that we can.  And there is bipartisan support in Congress that China, and agreement that China must play by the rules, that their currency must appreciate.  But that is not the only trade barrier our companies and workers face in China. 

If you listen to our agriculture, our manufacturing, our technology services, even the defense industries, there is a broad range of barriers that are as important, or perhaps to them more important that we tear down.  On the agriculture silos, sanitary standards, manufacturing, IPR‑directed subsidies, Earth subsidies, directed lending technology, indigenous innovation services, regulatory barriers, defense, rare and raw earth materials, on and on and on, our companies tell us they can’t get through those trade barriers. 

I think it is a mistake to have a currency‑only focus from Congress, that we need to tear down all those trade barriers.  And I would think we need to be smart about addressing the currency issue.  We want to make sure we follow our own obligations.  Second, we make sure it doesn’t undermine our efforts to tear down the full range of barriers that we face in China. 

And then finally, to make sure legislative efforts don’t boomerang back and actually cost American jobs.  So we need to be smart about the approach.  And I am not sure every problem has a legislative solution. 

Under Secretary Brainard, implicit in the criticism you are hearing today is the belief that the White House is not doing enough; that in effect, Congress is saying, we can’t wait for the White House on China.  Do you think, given your testimony on the broad range of issues you tried to address in a number of different forms ‑‑ and as you said, you have made real progress on some of these issues ‑‑ do you think that criticism of the White House is fair? 

Ms. Brainard.  Let me just say Mr. Brady that since day one, making the U.S.‑China economic relationship work better for American workers, for American companies, for American farmers has been a top priority for the President, and it has been a top priority across the entire administration.  I would say that we have a more coordinated effort than I think we have ever seen before.  We, at every moment, have a very tight list of priorities because we know that if we go after 20 things, we probably won’t get one.  If we go after four at a time, we will get them done and move to the next.  And we work very consistently with the White House. 

When the President meets with President Hu, he goes through the list of issues.  When we meet with our counterparts, we are always synched up with USTR, with Commerce, with the State Department, we work very closely, and we have made progress.  We are as frustrated as Members here are, and as many Americans that we hear from about, concerns as we travel the country.  But as you said, we are also making progress.  We have very important stakes in terms of the export markets that we have penetrated effectively in China. 

China is our third‑largest export market.  That would not have happened without an aggressive enforcement approach, without fully using the trade remedies, the safeguards.  As Mr. Levin said earlier, the first time ever use of 421.  So we use the tools we have available to us very aggressively.  We plan to continue to do that.  We want to continue to work in a way that is effective, that is consistent with our international obligations. 

Mr. Brady.  Under Secretary, may I ask that ‑‑ and thank you for that summary.  It was very clear in your testimony as well.  Does the White House support the Senate currency legislation as it stands today? 

Ms. Brainard.  The White House supports very strongly the goal of the legislation, which is to create a more level playing field for our workers and our firms.  The White House shares very strongly, as do I, the frustration with the pace of currency appreciation has not been sufficient to bring China’s currency into full alignment with market fundamentals.  Aspects of the legislation that do, however, raise concerns about consistency with our international obligations.  And as I said earlier, we are working with Members of Congress.  If the legislation were to advance, we would want to see those addressed. 

Mr. Brady.  I am not trying to push.  But respectfully, as the legislation stands today, as it came out of the Senate, is the White House supporting that legislation? 

Ms. Brainard.  The White House is very much supporting the goal of the legislation.  There are aspects of the legislation that raise concerns about international consistency. 

Chairman Camp.  The gentleman’s time has expired.  Mr. Stark is recognized. 

Mr. Stark.  Thank you, Mr. Chairman.  Secretary Brainard, have you heard about the Bridge to Nowhere?  No?  Ambassador, have you ever heard about the Bridge to Nowhere? 

Ms. Brainard.  Yes. 

Mr. Stark.  Yes, you have?  He is nodding yes.  Well, have you ever heard about the bridge from Nancy Pelosi’s congressional district to my congressional district?  It is a $6.4 billion bridge that replaces the San Francisco Bay Bridge.  Have you ever been to San Francisco?  Have you seen the Bay Bridge?  It is a monument, right?  Well, there is a new one, plopped right down there, coming into my district.  It has used 43,000 tons of steel.  It had a 525‑foot tower, 28 steel deck sections.  And that was made in Shanghai.  And another Shanghai company made a mile‑long cable for the bridge.  All of this work was done in China, using Chinese engineers, Chinese welders, Chinese steel.  And some of those laborers earned as much as a couple dollars a day.  They outsourced the project to China.  Outsourcing it reportedly saved us Californians $400 million.  That is kind of nice.  But doesn’t the President’s job bill include spending for our Nation’s highways and bridges?  Yes?  Speak up.  Is that correct? 

Mr. Marantis.  Yes, sir.  Yes. 

Mr. Stark.  Secretary, we do plan to spend money, do we not?  Isn’t that in the plan of the administration, to put people to work?  Yes?  You don’t know? 

Ms. Brainard.  Of course.  Yes. 

Mr. Stark.  You are saying yes.  Okay.  Thank you.  Well, does the President intend then to insist on a “buy American” clause?  Could I hear the administration or the Treasury’s position on that? 

Ms. Brainard.  I actually ‑‑ I am very familiar with the President’s plans to ‑‑ and proposals to move forward with much stronger infrastructure spending.  I think the Buy America issues are still ones that would be addressed in consultation with Congress.  Obviously, we have had Buy America provisions in the American Recovery Act in ways that were consistent with our international obligations.  So there is precedent there. 

Mr. Stark.  Well, what do our international obligations have to do with this darn bridge being built in my district and putting all of these Americans out of work? 

Ms. Brainard.  Obviously, we are signatories and huge beneficiaries of the Government Procurement Agreement under the WTO.  So, of course, our previous Buy American provisions in the American Recovery Act were consistent with that. 

Mr. Stark.  If China were in the WTO, could they still sell us bridges under the government procurement agreement? 

Ms. Brainard.  One of the key priorities with China is actually to bring them into the Government Procurement Agreement.  But they are not currently protected by it because they are not signatories. 

Mr. Stark.  They don’t seem to need any protection in San Francisco.  They are doing quite well by all by themselves, thank you very much, without much interference from the administration.  And I guess, I go back to my question, you know, I hear a lot of talk from the President about this, that and the other thing, but no action.  No action.  And the labor unions in my district are disappointed in the President’s lack of action.  A lot of talk.  No action. 

What about insisting on Buy American?  Would that be a good thing for the administration to do, in your opinion? 

Ms. Brainard.  Let me just reiterate that I can’t speak to the particular path forward, but I will say that there are mechanisms that Congress has passed with strong support from the President that provided for Buy American in the context of the American Recovery Act that were consistent with our international obligations. 

Mr. Stark.  But they are not being enforced, are they? 

Ms. Brainard.  Yes. 

Mr. Stark.  Where?  What Buy American have we ever in the last month or two insisted on? 

Ms. Brainard.  I don’t know whether there is a particular provision in the last month or two, but I am happy to check and come back to you on that. 

Chairman Camp.  The time has expired.  Mr. Tiberi is recognized. 

Mr. Tiberi.  Thank you very much, Mr. Chairman, and thank you both for being here today.  I think the chairman did a really good job of outlining the concern and frustration in a bipartisan way that members of this committee have and this Congress have regarding the overall issue of our relationship with China, and I look forward to one day to the Secretary and the Ambassador coming to talk to us as well. 

Let me just kind of, I guess, dovetail on what Mr. Brady and Mr. Rangel were saying with both of you.  Under Secretary, you mentioned sharing that frustration, and you also mentioned that the administration supports the goal of the legislation and that we are as a country making progress. 

That part, I think, there is not a lot of belief up here that we are actually making progress.  In fact, in my district in central Ohio, a manufacturer who has been doing business with China for over a decade is so frustrated, not with just currency, by the way, that is probably actually kind of down the line, so frustrated with China that they are actually taking their investment out of China and moving to another Asian country because of their frustration.  Some of that is occurring as well. 

So, my question to you is, you in response to Mr. Rangel and in response to Mr. Brady mentioned, Under Secretary, that you share the goals of the legislation.  You believe that you all have the tools necessary to deal with this administratively with the international community, with the WTO.  Why aren’t we moving quicker?  Is there a concern of retaliation? 

Ms. Brainard.  Well, let me just say, Congressman, first of all, that the phenomenon you mentioned with companies reconsidering their investment in China is more widespread than just companies from your district.  That increasingly, I think, we are going to find China, and this has been the finding both of the recent Boston Consulting Group study and a KPMG study, China is going to face challenges of its own.  It has got a slowing labor force growth and ultimately very soon a declining labor force, a very rapidly rising wage cost, passive capital over investment, a very poor environment for innovation, for entrepreneurship, a very distorted credit allocation system, and a misaligned exchange rate that is preventing them from fundamentally reorienting their economy towards unleashing the very substantial potential of domestic consumption that they have in China. 

Mr. Tiberi.  Does the administration have the tools necessary to deal with these concerns? 

Ms. Brainard.  We, I think, are doing what we can.  We are working with those within China who can see that they need to move, that they need to move faster.  There are, within the Chinese system, obviously, those that fundamentally understand how market exchange rates should work and want to move in that direction.  So we are directing our engagement with them to try to help strengthen those who want to push for faster appreciation, faster rebalancing of the economy, a more level playing field. 

Mr. Tierney.  Do you need more tools from us? 

Ms. Brainard.  And so we are using the tools that we have.  Again, you know, to the extent that there are mechanisms that would be effective, that would be consistent with our international obligations, obviously we would be very interested in consulting with you on those and those will remain the kind of key tests. 

Mr. Tierney.  Can you deal with this legislation that passed the Senate?  Can you deal with that without legislation in an administrative way? 

Ms. Brainard.  We are working very hard to try to push forward on the exchange rate front.  Obviously, the legislation that has been pending does, I think, articulate, try to advance a very important goal. 

Mr. Tiberi.  Thank you. 

Ambassador, a quick question.  So if this legislation passes, is there a concern from the administration that there will be retaliation, that when my constituents visit a toy store, a department store, an electronics store, that the cost of goods to them in this tough economy will go up? 

Mr. Marantis.  I think, as Under Secretary Brainard said, there are aspects of the legislation that raise concerns about consistency with our international obligations, and if it were to move forward, we would want to address those. 

Mr. Tiberi.  Would it cause that concern from the administration, products going up to our constituents, costs of products because of tariffs or a trade war? 

Mr. Marantis.  I think there are always concerns regardless of what action we take, whether it is on this front or whether it is IP or whether it is with respect to our 421, concerns have always been raised that the Chinese may retaliate.  But we need to use the tools that we have to address concerns so that we make progress. 

Mr. Tiberi.  Thank you. 

Chairman Camp.  The time has expired.  Thank you. 

Mr. McDermott is recognized. 

Mr. McDermott.  Thank you, Mr. Chairman. 

I come from Seattle, and we are the fourth largest exporter in the United States.  We are the closest port to Asia.  Half our exports go to China.  And one of our little companies is Microsoft.  The CEO, Mr. Ballmer, noted that Microsoft revenues from China are about 5 percent as compared to the revenues from the United States, even though we have an equal number of computers.  That means that 95 percent of those PCs that are going to China, they are not putting any software on them or else they are stealing it.  That is the only way you explain what is going on.  The Software Alliance says that 78 percent of all PC software in China is pirated.  That is a polite word for steal, stolen, okay? 

Now, I listened to your testimony, and, you know, by the way, when Mr. Brady tries to nail you in the corner about whether the President will sign this bill before we pass it out of the House, that is the Speaker’s hiding behind that.  The Speaker isn’t asking the President about all these EPA changes, will the President sign those bills before he passes them out of here.  He does what the Constitution says, is the Congress acts and the President decides how he is going to respond to it.  He can veto it. 

The same is true on currency.  The House is sitting and hiding behind the fact they can’t get the President to say, oh, yeah, I am eager to sign it.  He doesn’t have to say that.  He votes last.  Remember that. 

But when you sit here and talk, I listened to all the things you have said.  You said it is our highest priority, this trade problem with China.  It is only after injury can we act.  Ha.  When will you notice the injury?  Well, I guess you have noticed it.  Then you said, we are using all our tools and we have to be consistent with our international obligations.  That sounds like fancy words for we don’t want to do it. 

Now, what you are getting from this committee on both ends of the dais is where is the enforcement?  You say, well, there is a little up‑tick.  I heard that.  There is a little up‑tick in the amount of currency or whatever.  When are you going to start ‑‑ you don’t think there is a war?  Are you afraid to start a war? 

They have declared war on our software industry and you are sitting back ‑‑ I feel, I mean, maybe you don’t see Chinese celebrations like I do in Seattle all the time.  They have a dragon that comes out made out of paper and everybody waves it around and it jumps around and firecrackers go off.  You remind me of that tiger, jumping around, meaning nothing.  There is a brunch of firecrackers over in the bushes, but nothing is going on.  And you say you don’t need anything from us.  When is this piracy going to stop?  When is it going to get down to 75 percent is pirated, or 50 percent, or 40, or 30?  Or is all hope lost?  It sounds to me what you are saying, we are doing everything we can and nothing is happening.  So what do we do? 

I would like to hear you tell me how it is going to get better with all these tools you said we have, and we are doing everything we can, and there has been an injury.  So when? 

Mr. Marantis.  Mr. McDermott, this administration has been vigorous in terms of enforcement.  We filed five WTO cases.  We have done a 421.  We have accepted a 301 case.  On the issue that you raise on software, it is a huge concern.  And what I have outlined in my testimony is that we have made progress with China.  Is it enough?  No, not by any stretch of the imagination. 

Mr. McDermott.  Tell me how much progress you have made if 78 percent is still being pirated? 

Mr. Marantis.  Mr. McDermott, the changes in China are not going to happen overnight, and we have to make progress on a step‑by‑step basis and we are doing that. 

Mr. McDermott.  The industry has been around for 15 years.  Come on.  What is “overnight?” 

Mr. Marantis.  And in the last year, China has made more substantial commitments in this area than they have ever before.  But you are absolutely right. The proof is in the pudding, and it is all about enforcement.  And has China done everything it promised us to do?  No, they haven’t fully implemented their 2010 JCCT commitments, and we are on them and we are working in close cooperation with the industry to make sure that they do implement their commitments. 

We keep pushing and we are going to use all the tools that we have.  It is an urgent priority.  Piracy rates are unacceptable.  The losses to our industry are unacceptable. 

Chairman Camp.  Time is expired.  Mr. Davis is recognized. 

Mr. Davis.  Thank you, Mr. Chairman. 

I would like to move into the strategic realm if we could for a moment and then get your insight, first Ambassador Marantis.

I wonder if you could speak to China’s bilateral and regional trade agenda.  I am particularly interested with the geopolitics.  China is doing some very, obviously important things for their own strategic priorities in terms of growing to protect trade relationships, their access to routes on the ocean, what they are doing with Navy, investing in countries that are resource rich, anticipating some of these demographic and environmental inevitabilities that are going to take place. 

I was wondering if you could comment on their influence and impact in the region based on these agreements, and also if you could compare China’s trade relationships in the region to ours, just to highlight the differences and where you think they are going to ultimately end up. 

Mr. Marantis.  Thanks, Mr. Davis.  China has been extraordinarily active in the region, including trade and investment agreements, and that is why it is incumbent upon us to do what we are doing – which is to increase our engagement in the Asia Pacific region. 

We are doing this through a whole variety of fronts.  We are doing it in the context of APEC.  We are doing it in the context of the Trans‑Pacific Partnership.  We are doing it in the context of our bilateral trade and investment work that we do with our partners.  It is a real challenge.  

Our competitive share in the Asia Pacific has declined as China’s competitive share in the region has increased.  When I was testifying before this committee with respect to Korea, we used to be the number one ‑‑ we used to have the number one share of Korea’s market.  We now are number three. 

As our rates in Korea’s market went from 21 percent to 9 percent, China’s went from 7 to 17.  We have got to reverse that trend.  And that is why it was so important for Congress to pass, and the President to sign, the U.S.-Korea Trade Agreement last week, and that is why the initiatives we are pursuing, for instance, in the Trans‑Pacific Partnership, are really vital to maintaining our economic competitiveness in the region as China continues to conclude more and more agreements with partners in the region. 

Mr. Davis.  Secretary? 

Ms. Brainard.  Well, I think that the dynamic that you are pointing to is very real.  I think the passage of the U.S. Korea Free Trade Agreement puts us in a much stronger position in the region because we are now in a position where many potential trade partners with much stronger disciplines in areas like intellectual property, investment, exchange rates, now will see us as a potential free trade partner.  The Trans‑Pacific Partnership discussions that are underway I think are critically important for that reason. 

As we move to build stronger disciplines and stronger trade relationships with surrounding countries, that is part of the overall strategy to pull China to where we want to be in terms of intellectual property, market‑based exchange rates, a level playing field.  So it is a critically important part of the overall U.S. strategy in the region. 

Mr. Davis.  I would ask just a follow‑up from your perch at Treasury.  You mentioned the challenges that China will be facing due to demographics, environment, a number of other issues.  Let’s fast‑forward to 2030.  And I know it is always dangerous to ask people to make predictions, but just from a standpoint of we have plenty in the United States that are pronouncing again the doom of America, as was happening in regards to our relationship with Japan competitively back in the 1980s. 

If you would fast‑forward 15 or 20 years, what do you think the relationship looks like if we stay generally on the current paths of policy? 

Ms. Brainard.  It is, as you said, very risky to project into the future, but I will say we have our challenges.  China has some challenges.  I would far rather have our challenges.  I have huge confidence in the resilience of this economy, in the strength of our entrepreneurial culture, our innovative capacity, our dynamism, our ability to adapt. 

China, again, while their current growth rate looks enviable, it is going to need to move to where we want them to be on intellectual property, on market‑based exchange rates, on level playing fields, in order to overcome the very substantial challenges they face in the coming years. 

Mr. Davis.  Thank you.  I yield back, Mr. Chairman. 

Chairman Camp.  Thank you. 

Mr. Neal is recognized. 

Mr. Neal.  Thank you very much, Mr. Chairman. 

For our panelists, for those of us, as Mr. Rangel noted, who have been on focus with this issue for a long time, the question would be what does Nick Brady, Lloyd Bentsen, Bob Rubin, Paul O’Neill and Tim Geithner, all have in common?  And that is that they have assured this committee that they could manage the Chinese currency issue without congressional intervention. 

Now, the medical technology industry, they are very concerned about price controls that the Chinese government has proposed.  It reduces market access for small and medium‑sized companies.  China pledged to open its mandatory third‑party liability auto insurance market to foreign insurers.  It talked about it, but haven’t really made much progress on it.  And the United States International Trade Commission recently published an important report on the effects of intellectual property theft on the U.S. economy. 

Those numbers are pretty staggering across‑the‑board in terms of job loss.  In the financial sector, as you know, because of forced partnerships, they have diminished the enthusiasm that they once impelled in front of this committee for a normal trading relationship.  That enthusiasm that was previously there has caused some of them to not only retreat, but to leave, because they have found that the impediments to growth have been so limited. 

Actually, I have offered four quick questions there, but I want to revert to the frustration that my friend, Mr. Tiberi, mentioned a few moments ago until suggesting that the frustration is really bipartisan in nature, and it has been the repeated assurances of successive administrations, Democrat and Republican, who have suggested just leave it alone, which raises the suspicion here that the reason that we have been fairly tepid in our response has been because they hold an awful lot of American debt. 

Would you like to hold forth on those questions? 

Mr. Marantis.  On the trade and investment front, Mr. Neal, we share the frustration that you have expressed, the bipartisan frustration.  We have got to make more progress in our relationship with China.  It is clear.  There are issues that you raise with respect to IP, with respect to investment restrictions, with respect to slow liberalization of the financial services sector, and it is our job to keep China’s feet to the fire on this, and as Congress is doing, keeping our feet to the fire to ensure that the commitments that we tell you we are securing from China we are actually securing implementation of. 

I am not going to sit here and pretend that everything is great and rosy.  It is not.  But we are making progress and working with you.  We will continue to do so. 

Mr. Neal.  The problem with sovereign capitalism is that if you suggest that you can only accept a partnership up to 49 percent of the corporation, the difficulty is that it allows our trading relationship to be diminished because they get all of the best technology advancements, research and development, and then they control the outcome.  And it causes not only great consternation for American companies, but at the same time, it also limits their ability to grow in a market that they once believed was the panacea for many of their opportunities.  Would you care to comment, either one of you? 

Mr. Marantis.  Yes.  And at the same time, though, I don’t want to diminish the fact that we are deriving benefit from this relationship, as well, in terms of our exports across the board. 

Mr. Neal.  No question.  That is not in dispute.  But what I heard Ms. Brainard say that they have allowed their currency to appreciate by seven percent over the last 5 years, a decade, not really a note of accomplishment, is it? 

Ms. Brainard.  No.  Let me just state that China’s currency has appreciated against the dollar 40 percent over five years, 10 percent ‑‑ 

Mr. Neal.  You used the number 7 percent, I thought. 

Ms. Brainard.  Seven percent in nominal terms over the last 15 months; 10 percent adjusted for inflation, which, of course, is the meaningful measurement.  They are moving.  Our exports are growing faster to China than to anywhere else in the world, nearly twice as fast.  The third largest export market.  We are seeing progress.  It is not adequate, but we are seeing progress. 

And I just have to say, we are up here with you, with your staff, with your constituents, every day, working on what our priorities are together as Americans, vis‑à‑vis our trade partners, in particular China.  We have been working aggressively.  We have taken more enforcement cases.  We have taken a 421, which the previous administration chose not to do.  We have a host of trade remedies across a variety of products that are imported from China, and we will continue to work very aggressively with you to pursue American interests.  We are very committed to doing that. 

Mr. Neal.  Thank you, Mr. Chairman. 

Chairman Camp.  Thank you.  Dr. Boustany is recognized. 

Mr. Boustany.  Thank you, Mr. Chairman, and thank you both for being here today. 

My home State of Louisiana is a maritime state and we depend very heavily on trade and exports.  In fact, we have gone from eighth among the 50 States to fourth just in the past year, and over the past 2 years, we have seen annual growth in exports to China ranging around 50 to 55 percent.  Significant growth.  And China now is our number one export market and increasingly we are seeing small businesses, mid‑sized firms involved in this. 

There has been discussion about whether or not we have the necessary tools in place during the course of this discussion today.  One thing that has not come up except for the chairman’s mention of it in his opening comments is that of the Bilateral Investment Treaty and getting a status report on what is going on with this now.  This is clearly an important tool.  We know that the EU is, at least, approaching or in negotiations now with China.  China has some 70 BITs in place now. 

What is going on on our end?  Secretary Geithner, at the very beginning of the year, testified in front of this committee and emphasized that it is a very important piece we need to put in place, and yet we haven’t heard much back from the administration on this issue.  So could you bring us up‑to‑date? 

Mr. Marantis.  Sure.  As you point out, a high standard BIT can very much help level the playing field for our investors.  President Obama and President Hu, at the summit earlier this year, reaffirmed their commitment to negotiating a BIT.  We have engaged in six rounds of technical consultations with them.  We have not yet completed our BIT review, and I know that there is frustration amongst some that ‑‑ 

Mr. Boustany.  What is the holdup there? 

Mr. Marantis.  There are a variety of things that we are looking at.  We want to make sure that the BIT is able to address the challenges, new challenges that our investors face, including in markets like China that are dominated by state‑owned enterprises.  We are working hard on it and we hope to complete it. 

Mr. Boustany.  Thank you.  Secretary Brainard, do you want to comment on this? 

Ms. Brainard.  No.  I would just say that we have a history of bilateral investment treaties, advancing the interests of American workers and companies.  Obviously we have enormous interest in getting high standard protections for Americans in China.  The question, of course, is whether and when China going to be able to come to the high level of standards that we would want to pursue.  That is, I think, what we have to ascertain before we can really move forward in a more accelerated pace on the Bilateral Investment Treaty.  We want to make sure it is a good deal for our workers and companies. 

Mr. Boustany.  Shifting gears, when President Hu was in Washington, there was a discussion about delinking indigenous innovation from government procurement.  And I was in China in April, had conversations with the vice premier there about that same issue.  He said done.  We have taken care of it.  But my understanding is that there has been uneven application of this into the provinces and so forth. 

What kind of progress are we really making with this and what are our metrics?  How are we monitoring it? 

Mr. Marantis.  We are not done, but we are making progress.  The Chinese side made a number of commitments on indigenous innovation last year, including the one that you mentioned at the summit last January.  

As Under Secretary Brainard mentioned in her opening testimony, China has repealed already four measures with respect to its product accreditation system.  At the state and the local level, in some provinces and in some municipalities, they have stopped implementation of measures that are on the books.  This is a huge priority for us in this year’s JCCT to ensure that the commitments that they made, i.e., getting rid of these measures, are actually implemented. 

Mr. Boustany.  So looking at the WTO government procurement agreement progress, clearly China is dragging its feet, and I know that has been a top priority in these discussions.  So work continues, I suppose. 

Mr. Marantis.  Yes.  And again, as Under Secretary Brainard mentioned, this was a big priority for us in the S&ED and in the JCCT.  We expect by the end of this year, as President Hu committed to President Obama, that China will submit a revised offer that will include, for the first time, coverage of sub‑central entities, which will be an important advance. 

Mr. Boustany.  Do we expect that by the end of the year from China? 

Mr. Marantis.  We do. 

Mr. Boustany.  Thank you.  I yield back. 

Chairman Camp.  Thank you. 

Mr. Becerra is mention recognized. 

Mr. Becerra.  Thank you, Mr. Chairman.  Thank you very much for being here. 

Let me make sure we are clear on what we are talking about with regard to currency manipulation.  There are three major issues that I can tell from a country manipulating its currency to its advantage.  One, it artificially raises the prices of our exports to that market, in this case, we are talking China; two, it suppresses the prices of Chinese imports into the United States; and, three, that manipulation of their currency places U.S. exporters at a very competitive disadvantage vis‑à‑vis Chinese exporters into other country markets. 

So, whether it is unfair competition of Chinese imports coming in looking like a cheaper product because of the currency downgrade, or whether it is our products to China costing more because the currency in China is valued at less, or whether it is our American companies trying to compete with Chinese exporters in another country, in either case we lose. 

So would either of you disagree with those three points that I just raised with regard to the issue of currency manipulation? 

Ms. Brainard.  Let me just ‑‑

Mr. Becerra.  And I don’t want a treatise.  I just want to know if you agree that those are three distorting effects of currency manipulation?

Ms. Brainard.  Let me just say that China’s exchange rate has appreciated against the dollar over the last 15 months more much rapidly than it has against any other country in the world, I think in part, because ‑‑

Mr. Becerra.  Ms. Brainard, I understand that point.  I am just trying to find out if the problems with currency manipulation are as I have just stated.  Maybe there are others, but I have noted three ‑‑

Ms. Brainard.  I think when we look at misalignment of the exchange rate, failure to ‑‑

Mr. Becerra.  Let me move on to a different question if you are not going to answer that one.  I am just trying to find out if you disagree that the problems with manipulating currency causes us issues because the country that is doing the manipulation is taking advantage of an artificially suppressed currency value.  Okay. 

The issue becomes one of whether we are willing to take action.  Some have raised the specter of a trade war, that, oh my goodness, if we were to try to take some concerted steps to stop China from manipulating its currency, which, by the way, a recent survey of economists said, 96 percent of them said that they believe that China was indeed suppressing its currency’s value, but that this trade war might damage us.  On the other hand, there is some, and I agree with these folks, who say we already see a trade war underway, and it is a one‑sided trade war where only one side is fighting, and that is the Chinese. 

I don’t blame the Chinese.  They are doing everything they can as aggressively as they can to help make their country prosperous, and to the degree that any country lets them, that is that other country’s fault.  I don’t blame the Chinese for trying to lift themselves up.  They should go to it as best they think.  But if there are rules out there in the world, and if we are abiding by those rules, we should try to make sure that we fight on the same terms, to make them abide by those rules. 

Another point.  If an American wishes to buy a toy for his or her child in this country and it cost a few extra cents more to buy that toy because we have asked China to live by the rules, or we forced China to live by the rules, I think that is actually pretty good, because the chances are we may see a few more of those toys or cups or whatever else it might be with a label that says “made in America,” because these days, most of those things aren’t made in America, and unfortunately, some 1 to 2 million Americans the estimates will tell us that don’t have their jobs today because of China’s currency manipulation. 

Now, is it true that China exports four times as much to us as we export to them, Ambassador? 

Mr. Marantis.  Our trade deficit with China is $273 billion.  Last year we exported roughly $92 billion, and I don’t have the number in front of me of what China ‑‑ I think they exported $65 billion to us. 

Mr. Becerra.  So almost a four to one advantage that the Chinese have over the U.S. when it comes to exports.  Now, if the Chinese were to say if you want to engage in a trade war, we are going to go at it, they stand to lose four times as much as we do, because they send four times as much to us as we send to them.  I doubt that they are going to want to engage in a war when they stand to lose four times as much as we do. 

So the bottom line is, we have got the Senate which took a 63‑35 vote to support legislation to deal with currency manipulation, we have a House where a majority of the members have supported the legislation that can’t get through the House, and it is time that we do something.  So it is either do nothing or do something, and I think members here are saying let’s do something.  So we appreciate your being here and look forward to having something passed through.

Chairman Camp.  Before I go to Mr. Roskam, I just have one question, Mrs. Brainard.  On October 15, the Treasury Department was scheduled to submit its biennial report on China’s currency to the Congress, but it did not.  When can we expect that report? 

Ms. Brainard.  We issued the last report mid‑May, and we postponed the report, as you know, because we are engaged in a series of very important summits where we will have an opportunity, the President will have an opportunity to continue to press this issue with President Hu.  So we want to give those processes a chance to move forward, in particular, G‑20, APEC and East Asia Summit, which go through the middle of November. 

Chairman Camp.  The middle of November.  Thank you.  Mr. Roskam is recognized for 5 minutes. 

Mr. Roskam.  Thank you, Mr. Chairman. 

Mr. Chairman, I am going to resist the temptation to yield my time to Mr. Rangel, although I think he was pretty well articulating the frustrations that members on both sides of the aisle are feeling that issue.  I don’t know if I am going to get to a question, so relax, and if my voice goes up at end it will be a question, but maybe more of a statement. 

But it seems to me that we are really dealing with a nation, China, that from an economic point of view, is predatory and they are operating in their interests.  Mr. Becerra a minute ago said that he understood their motivations.  But it is predatory and it is game‑on in terms of how they are approaching this. 

I have got a situation ‑‑ we have talked at length so far about currency manipulation.  I have a manufacturer in suburban Chicago, Fellowes Manufacturer, the manufacturer of bankers boxes and shredding equipment and so forth, that has been through a shameful nightmare.  It is like the wild west from an intellectual property point of view, highly manipulated.  The Chinese officials have been yea‑yeaing American official also for months and months and months, and Fellowes Manufacturing is really no better off than it was today. 

I was with Congressman Smith earlier this year, along with Congressman Sensenbrenner and Congressman Rush, and we were in West Africa, and one of the things that became clear to us, and particularly to me, was the way in which the Chinese are pursuing natural resources around the world.  Not going in with the best interests of other nations oftentimes the way the West does.  Instead, going in to grab hold and to control and to manipulate natural resources in complicity with governments that are doing shameful things in some cases, not in West Africa, but in other venues around the world. 

So I think that there is a couple of things that we need to do.  One is we need to have clear relationships with our allies.  One would be to move forward, and we have not talked about this today, but the nature of the security relationship with Taiwan, for example.  We need to be sending a very strong signal that the F‑16‑CD sales should move forward.  The administration hasn’t agreed on that.  But I think that this is an area where we send a very clear, strong message that tells China what?  It tells China we going to stand with our friends.  We are not going to create ambiguity with long‑time strategic allies in the region. 

I think another thing that we can do, and you alluded to this a minute ago and we have different views on how to do this, but the deficit issue is massive.  Mr. Johnson mentioned this in his opening remarks.  I sat last year with a South Korean official, one of their legislative leaders.  I had a very lengthy conversation.  At the end of the conversation I said, what advice would you give to the United States as we interact with China?  You have been living in a relationship with China on the Korean peninsula for centuries and centuries and centuries.  What advice would you give?  And with no sense of irony, this South Korean official said, and I am paraphrasing, well, Congressman, the first thing I would do is I would stop borrowing their money.  That is for sure. 

So I think we create this vulnerability where 47 percent of our debt is held by foreign interests, and the Chinese are playing a very, very big role there.  And I think there is things that we can do proactively to take on this threat. 

So, getting towards a question, I suppose, and that is this:  Chairman Camp mentioned earlier some of the economic components to the intellectual property issues, and Mr. McDermott alluded to this a minute ago when he talked about Microsoft. 

Microsoft’s CEO came in to see me several months ago basically laying out the same thing, and these numbers are staggering.  The U.S. International Trade Commission recently conducted an analysis that would determine the economic impact of IP protection in China if it were done the same as we do it in the U.S.  It would increase sales by $21 billion and it would create 2.1 million jobs.  Now, think about that.  2.1 million jobs in the U.S. created if China simply honored the same commitments that we have. 

What is the metric by which the administration is figuring whether it is succeeding or failing?  Well, you can’t answer that, because I used up all of your time.  Maybe we could continue this exchange, because I think it is very important. 

Thank you, Mr. Chairman. 

Chairman Camp.  Thank you. 

Mr. Thompson is recognized. 

Mr. Thompson.  Thank you, Mr. Chairman.  Thank you for having the hearing and thank you to both witnesses for being here. 

I am interested, Ambassador, specifically on some agricultural issues that are happening in this unlevel playing field relationship we have with the Chinese.  A lot of ag goods face some pretty stiff barriers, arbitrary bans, ever‑changing safety measures.  Wine, in particular, which is very important to my State and my district, they face a 14 percent tariff for bottled wine, a 20 percent tariff on bulk, and that is on top of a 10 percent consumption tax and a 17 percent value added tax.  So you add this all up, and it is about a 50 to 60 percent hit to the wine industry. 

In addition to that, these guys are still involved in some pretty dishonest practices.  They continue to use this “Nava Valley” label.  About every week I get complaints from people where they have some sort of California designation on their wine labels.  They drain California wine bottles and refill them with their wine.  They take our bulk wine and water it down with wine that they have. 

Now, I know you just got back from a round of trying to negotiate some better dealings with the beef guys.  And I want to know what you are going to do to help improve all of the ag trade issues, specifically wine, and what are you going to do to get them to quit violating the law and ignoring of the rules that are in place.  And I am talking about this wine stuff that I have talked to you guys about, I have talked to the past administration about, and it just seems to be getting worse all the time. 

Mr. Marantis.  Thanks, Mr. Thompson.  Agriculture is an interesting story.  On the one hand, our exports are growing phenomenally.  China has just become our number one export market.

Mr. Thompson.  I am not interested.  We can stipulate all that.  We covered it in the past.  I am talking about specifically these issues. 

Mr. Marantis.  We have serious problems with China on agriculture, on sanitary and phytosanitary measures, and on opaque, non‑transparent measures put in place that either block our exports or somehow tamper with them. 

Ambassador Siddiqui, who is my colleague at USTR, the chief agriculture negotiator, and USDA’s Acting Under Secretary Michael Scuse were in Beijing last week to go through the range of issues that we have with China on the agriculture front.  I will get back to you to let you know on the wine issues specifically that you raised on where we are with them. 

Mr. Thompson.  Please do.  I would like to know specifically about those two issues.  One of them is just a blatant violation of the rules and the law, and I would like to know how we are going to monitor this and make sure it stops, because it has been an ongoing issue.  It is not just with this administration, but with the past administration as well. 

The other question I have is the solar industry in this country has just filed an illegal subsidies case against China.  They are selling solar cells here at below market prices, and I am told it is because of very, very lucrative Chinese grants, discounted raw materials, discounted costs on prices on land, power, water and export assistance levels that are far beyond what the WTO allows.  And this is technology that we developed and invented here in our country, and yet we are just getting overrun by Chinese imports.  Our American businesses and our renewable energy industry is going to do nothing but suffer under the weight of this very unfair and weighted practice. 

What can we do to deal with this and what are the pro specs of this case moving forward? 

Mr. Marantis.  On green subsidies specifically, I think one of the problems we are having is lack of transparency in being able to actually know what specific kinds of subsidies China is providing.  That is why at the WTO, earlier this month, we filed a counter-notification to basically call China out on over 200 subsidies that it is providing, many of which are in the green technology sector.  That will help us to be able to assess the legality, the WTO consistency, of these measures, and help determine what steps we should take to address these very real problems. 

Mr. Thompson.  And you will keep the committee posted so we know what we can do, because this is an emerging technology that is really important in getting our economy going and we really need to take whatever efforts we can to make sure this is resolved. 

Mr. Marantis.  Absolutely, Mr. Thompson. 

Chairman Camp.  Thank you.  Mr. Gerlach is recognized. 

Mr. Gerlach.  Thank you, Mr. Chairman. 

Ambassador, going through your testimony, I wanted to really ask you a few more specific questions based on what you have in here, and you were very good about outlining what you call five key challenges to our trade relationship with China, including intellectual property theft, indigenous innovation policy problems, China’s subsidies of their industries, the Chinese ban on foreign investment for state‑owned enterprises, and barriers to ag imports.  All of those are very important problems we have. 

How are you measuring the frequency or the quantity or the number of unfair trading activities in those various areas over a specific period of time?  How are you measuring that in all of those areas? 

Mr. Marantis.  The way we measure it is really in consultation with you all as well as our stakeholders, who will help us identify and prioritize the problems that they are facing in the variety of baskets. 

Mr. Gerlach.  Do you get individual complaints?  Can a company that faces some problem or some barrier fill out a form at your office complaining about a certain problem they have experienced, and do you collect those complaints, and if so, how do you investigate the validity of those complaints? 

Mr. Marantis.  It is done in close cooperation with other agencies.  Companies, SMEs, labor unions, business associations will raise problems with us, with the Commerce Department, with the Treasury Department, and we will work together on an interagency basis to be able to identify the specific issue and then determine what are our best steps to do so. 

Mr. Gerlach.  How many complaints or problems have been identified to date relative to intellectual property? 

Mr. Marantis.  There are a lot. 

Mr. Gerlach.  How many?  100?  1,000? 

Mr. Marantis.  I would say they would fall into five categories: software legalization, Internet piracy, counterfeiting, trade secrets, and then there is sort of the basket of other – that mainly our IP complaints will fit into. 

Mr. Gerlach.  And how many of those would you estimate exist in terms of complaints, all those total? 

Mr. Marantis.  How many specifically? 

Mr. Gerlach.  Yes. 

Mr. Marantis.  I don’t know, Mr. Gerlach.  A lot.  There are really serious concerns in each one of those areas.  On trade secrets ‑‑ 

Mr. Gerlach.  You certainly may not be prepared with a specific number and I appreciate that.  Can you give me a ballpark estimate?  More than five, more than 100, more than 1,000?  How many of those kind of complaints, intellectual property, are out there? 

Mr. Marantis.  Oh, I think again it will range, as for the different problem, on the software side, there are huge problems with respect to piracy.  On the trade secret side, we have heard ‑‑ 

Mr. Gerlach.  How about how many?  Can you estimate how many? 

Mr. Marantis.  I would say upwards of 50. 

Mr. Gerlach.  How about in the indigenous innovation policy category? 

Mr. Marantis.  The indigenous innovation policy category, the good news there is that we have rolled back a lot of the new problems, and the new problem that is coming up in indigenous innovation that we really need to address this year is with respect to electric cars. 

Mr. Gerlach.  Okay.  How about in their subsidy policies and in their ban of foreign investment and in the agricultural import area.  How many problems are existing that you are investigating and trying to get a handle on? 

Mr. Marantis.  Sure.  On subsidies, our counter-notification identified 200‑plus subsidies that we want more information on from the Chinese to determine what our next step should be.  On agriculture, the key problems that we face are in the area, I would say, of beef, pork, poultry ‑‑ 

Mr. Gerlach.  California wine. 

Mr. Marantis.  Apples, strawberries, wine. 

Mr. Gerlach.  The reason I asked for some broad estimate of all this, because I also notice in your testimony that to date we have only, as a country, brought 12 complaints, WTO complaints against China, and all of these complaints being raised, from Members of Congress to those in the private sector, to all the work you are doing in your agency and all the other agencies, a total of 12, total? 

Mr. Marantis.  The WTO is one way that we resolve problems.  We also resolve a vast amount of problems through the JCCT and the S&ED.  So there are different tools that we use depending on what the problem is.  In the WTO, our disputes that we have filed usually go at strategic and systemic issues, but we also try to solve the nitty‑gritty problems that our businesses will have through the JCCT. 

Mr. Gerlach.  Well, you are making efforts obviously to do that, but it sounds as if those efforts may not be as productive as they ought to be when you continue to get the number of complains that you get.  And then ultimately to really bring this to a high level of adjudication in the WTO, our country has only filed 12 complaints since that organization was founded.  It doesn’t seem like a lot of aggressive action on our part. 

Chairman Camp.  Thank you. 

Mr. Pascrell is recognized. 

Mr. Pascrell.  Thank you, Mr. Chairman. 

Mr. Chairman, it has become quite obvious if you listen to both sides of the aisle that we are pretty much in agreement.  Just check the questions that have been asked.  I want to identify myself and associate myself with the gentleman from Pennsylvania who just asked his questions.  It is pretty difficult to get answers.  But it was no different 10 years ago, 8 years ago, 6 years ago on these issues.  So if you keep it up in the air, you don’t know the specific answer, nobody knows what is really going on. 

But I think we can conclude, I don’t think this is hyperbole, and I want to thank the panelists for being here today, that we have become China apologists.  And I remember the issue when I first came into the Congress when Chris Smith, my brother from New Jersey, a Republican, was pursuing the path of intolerance of religious differences in China.  Some people paid attention.  Some people did not.  Administrations on both sides were a little reluctant to be difficult or tough, say a lot of tough words.  But as you pointed out in your questioning, action is more important. 

Secondly, I think that both sides of the aisle also, and correct me if I am wrong, believe that we need to reestablish Article I, Section 8.  The rush to get into free trade agreements has minimized the power of the House of Representatives, not only the Ways and Means Committee, but it has minimized our power in trade deals.  It is interesting when you see people who want to be fundamentalists about the Constitution of the United States, when it comes to trade, all of a sudden they have amnesia, or maybe something else. 

So this is serious.  This is a very important problem.  We are dealing with a county that subsidizes many of its industries. 

Last evening, last evening, Mr. Marantis, a friend of mine who is in the marble business in New Jersey, Paterson, New Jersey, one T, called me and said something that he had told me at least 10 times in the last 6 or 7 years, and that is that he can no longer survive in his business.  He can no longer compete with China.  He has a good product.  He tried everything possible.  So what I have concluded, and maybe I am wrong, maybe I am right, it doesn’t matter who the President is, not only doesn’t the Congress control trade agreements, the President doesn’t control trade agreements. 

It is very interesting in the Chamber of Commerce, and my Chambers of Commerce and I get along very well, they are making the decisions about the big cats, and those small businesses which are across the landscape of the greatest country of the world have suffered the consequences.  Suffered. 

In fact, the trade deficit, I have heard you both say, things are getting better.  Well, we had, in August, a $29 billion trade deficit, the highest we have ever had.  And if you go back to testimony in the past, you will hear the same kind of things, things are getting better.  Things are getting wonderful.  We are making changes.  That is all we have heard.  Our trade deficit with China has ballooned from $84 billion in 2001 to $278 billion, and we are losing jobs continually. 

Now, this idea about getting our product into China sounds wonderful, but if you don’t change the currency and keep up with the times, it means nothing.  And you were asked specifically from people from both sides of the aisle specific questions, and all I heard was “I share your frustration.” 

I am not frustrated, I want you to know that, and you are not going to get me frustrated.  We are out of excuses.  We haven’t sent this legislation, we haven’t sent that legislation to the President. 

Let me ask you this question, Ms. Brainard ‑‑ Dr. Brainard ‑‑ I am sorry.  How fast do you believe our exports to China could have grown had Chinese consumers, Chinese consumers, had the increased international purchasing power that would come with an accurately valued currency?  I want to hear this.  Or do you simply want to say you share my frustration?  I don’t have any frustration.  I asked a question. 

Mr. Herger.  [Presiding.]  The gentleman’s time has expired, but I would request if the Under Secretary could respond in writing to the gentleman? 

Ms. Berkley.  Mr. Chairman, are we down to 3 minutes apiece? 

Mr. Herger.  No, we are at 5 minutes, and I think the gentleman’s time went about 25 seconds over. 

Mr. Pascrell.  I was just asking could I get a response? 

Mr. Herger.  Could you respond in writing to the gentleman and to the committee, please. 

Mr. Pascrell.  She can’t tell us verbally? 

Mr. Herger.  Pardon? 

Mr. Pascrell.  She can’t respond now? 

Mr. Herger.  Each one of us has 5 minutes, and you went about 5 minutes and 20 seconds.  So we are trying to hold it down so each member having the same amount of time. 

The gentleman, Mr. Buchanan, is recognized for 5 minutes. 

Mr. Buchanan.  I want to thank Chairman Camp and our witnesses for being here today. 

I represent Florida, and we are very, very excited in Florida about the past three trade agreements.  There might be some question ‑‑ it was bipartisan, but there might be some people that feel it was fair.  In general, looking at it myself and obviously in Florida, a lot of people thought they were pretty fair in terms of what each country exported to each other.  I think there is just a general feeling, I have seen it for a lot of years.  I was in China back 6‑7 years ago, in Beijing, but there is just a general feeling, that sense of free trade, but it is not fair.  It is not just here on the panel. 

I have been in business 30 years.  I have heard it from a lot of businesses all over the country.  I did a town hall, my last town hall a couple of days ago, and it gets brought up.  This sense of there is not the fairness, that we are being played as a country, a lot of people feel that strong about it, and I think it is something we have to get a lot tougher on. 

We touched on the idea of intellectual properties, and someone made that point, and that is what I was going to say.  I was there with the U.S. Chamber, the CEO at the time, he is still CEO today, and we were there 7 or 8 years ago.  We were talking about intellectual property back then and it was gigantic problem.  So this isn’t a Democratic administration or a Republican, we just have not done a very good job, in general, of getting this thing where it gets some sense of fairness. 

I can just tell you, it is not, like I said, just the business community or just Members of Congress.  Everybody sees it other than we just don’t seem to deal with it and take any action.  And as I mentioned, my colleague mentioned earlier, if we were able to equalize that a little bit just on the intellectual properties, we are talking about 2 million more jobs in America, and I think the number is $67 billion additional in exports in terms of the report that came out of The New York Times. 

One question that got brought up, and I don’t know if it was answered, because I remember leaving that room and as an American, I really didn’t feel very good about when we were pressing them on some of the issues that got brought up today, intellectual property and other things.  We were with the vice premier in China at the time, and someone looked out as we were walking out, we were pressing them pretty good on behalf of the U.S. Chamber and the business community, and he said, well, we are buying your debt. 

And I guess one of the questions I have is how much of a factor is the fact that we owe $1.6 trillion to the Chinese in terms of our ability to get tougher on some of these issues?  I know you touched on it, but I would like to hear it from Madam Secretary, your feeling.  As this debt continues to grow there and become a bigger concern, how much of a problem is that in terms of negotiating with the Chinese?  We can start with you, Madam Secretary.

Ms. Brainard.  Let me just say, we are pursuing our strong interest in a faster rate of appreciation exchange rate in a very clear eyed and direct manner and will continue to do so. 

Our Treasury securities, very attractive to holders in this country, holders all around the world.  As you know, deepest, most liquid financial markets in the world.  And, you know, over the medium term, obviously as a country, we are going to face this challenge that we need to start grappling with now of living within our means and seeing our debt‑to‑GDP fall.  And that is why the President has put forward some proposals.  We have the supercommittee meeting right now to come forward with some proposals on a bipartisan ‑‑ those are absolutely critical things to do. 

Mr. Buchanan.  Let me ask you, because we are limited on time.  Ambassador, would you like to add?  How much of a factor is that?  Does that impede our ability to get tougher on negotiation and get the sense of fairness?  How big of a factor do we owe to the Chinese $1.6 trillion? 

Mr. Marantis.  Mr. Buchanan, enforcement is our number one priority.  The concerns are broad, and I know that there is tremendous frustration on this committee.  We share it as well.  We do everything that we can with the tools that we have in front of us to address the challenges.  The challenges in IP, as you point out, are vast.  Yes, we are making progress.  No, it is not enough.  We have got to continue pushing and pushing and pushing at every level, and we will continue to do so. 

Mr. Buchanan.  And Madam Secretary, what can the Congress do to help you be more successful quicker?  I think that a lot of people just feel like there is not enough progress being made.  These deficits continue to skyrocket.  Everybody is concerned about that.  And I guess my time has expired.  I yield back. 

Mr. Herger.  Mr. Blumenauer is recognized for 5 minutes. 

Mr. Blumenauer.  Thank you very much, Mr. Chairman. 

Your words are echoing in my ears.  I love the fact that enforcement is your number one priority.  That is, in fact, why I supported putting China in the WTO so that we would be able to actually fight to have a level playing field. 

Now, I must admit that I am mystified that we are still ‑‑ your answer to my friend Mr. Stark’s question about how we are shipping hundreds of millions of dollars of business to the Chinese, that they are able to use, evidently, the procurement regime when they are not a signatory. 

Now, can you tell me exactly why we have to give them special rights when they are not a signatory to the agreement?  Which, if memory serves me correctly, they promised to promptly ratify.  Why do we have to give reciprocity when they are not doing what they said they would do? 

Mr. Marantis.  You are correct, Mr. Blumenauer.  We do not have obligation towards China with respect to government procurement.  And we won’t until they join the government procurement agreement.  It is in our interest that they join it as quickly as possible so that they don’t discriminate against us and we have access to their huge procurement market.  But no, we don’t have obligations. 

Mr. Blumenauer.  So we could deny them contracts like the Bay Bridge? 

Mr. Marantis.  Again, we don’t have obligations to China.  We don’t have a nondiscrimination obligations to China for government procurement. 

Mr. Blumenauer.  I would like to just have, if I could, some sort of written assessment of where exactly we are in this drama that has been going on for years which they promised they would do, and then get a sense of what we could do to just deny them access to government projects unless and until they are a signatory.  But since I am a little slow on the uptake on this, I would benefit by having that in writing. 

Mr. Marantis.  We will get that for you, Mr. Blumenauer.  China promised in 2001 that they would join the government procurement agreement as soon as possible.  It is 10 years later.  We are still waiting for China’s second revised offer, which it promised by the end of the year.  We have to get its accession to the government procurement agreement right, and that means coverage of sub‑central entities and ‑‑

Mr. Blumenauer.  I am looking for it in writing.  What I would like to have in there is what prevents, or how can we deny them access to government procurement in this country unless and until they do what they said they would do 10 years ago. 

Ms. Brainard.  Can I just note that, as I was saying earlier, under the Buy American provisions in the American Recovery Act, in fact, they were not eligible because they are not signatories.  I think that the bridge in question was built without Federal funds, and that explains the difference there.  But we will look into that and get you specifics on that.  But under Buy America, because they are not signatories, they are disadvantaged.  There is no reciprocity there. 

Mr. Blumenauer.  The bridge in question is linked to Federal investments.  And I think we ought to look a little more broadly at who benefits and who loses from this so that we don’t have some people at the local level doing things on the cheap that actually disadvantages American workers and ultimately disadvantages China because everybody is going to be better off if we play under the rules. 

But I would like to turn to one other area because we are watching an awful lot of effort ‑‑ I mean, would identify very strongly with my friend Mr. Thompson’s observations about the solar industry.  But there is one area that I am particularly interested in pursuing, and that is how we give you appropriate resources so it doesn’t fall to an individual union or business to do something that appears to me to be the responsibility of government to make sure that our trade laws are enforced.  I noticed with interest an amendment that added a little bit of money to help do that.  But can you give me a sense of what do we need to do so that you can, in fact, have the resources and we don’t put this burden on a union for a company? 

Mr. Marantis.  Thanks, Mr. Blumenauer.  You are absolutely right.  We need to make sure that we have adequate resources to address the really tough challenges that we face in China.  I think the President’s budget reflects that.  And what we do, as you know, small little USTR is we work to leverage our resources with other agencies.  We work very closely with the State Department, with the Treasury Department, with the USDA, with the Department of Commerce, to try to maximize our ability to solve problems for America’s workers, service providers, farmers, ranchers et cetera. 

Mr. Blumenauer.  Thank you, Mr. Chairman.  This is one area that I hope the committee’s oversight could extend to make sure ‑‑ you know, the notion that it is a little, tiny USTR.  Well, the Federal Government is bigger than any company or union.  And I think we need to make sure that the resources are there to make sure that these trade laws are in place. 

Mr. Herger.  I thank the gentleman.  The gentlelady from Kansas, Ms. Jenkins, is recognized for 5 minutes. 

Ms. Jenkins.  Thank you Mr. Chair.  And I thank Chairman Camp for having you all in today.  Thanks for being here. 

Currently there is a 50 percent cap on foreign ownership and life insurance in China.  Life insurers.  Though the cap is not inconsistent with China’s WTO commitments, by lifting the foreign direct investment cap, companies can more easily bring in capital to hire workers, deploy world‑class service platforms, and invest in Chinese capital markets.  Lifting a cap also would allow foreign insurers to increase their capital in a life insurer in China, even if a Chinese partner were not in a position to increase its own capital. 

Has the Chinese Government shown any sign that they would be willing to raise the FDI cap in life insurance?  And is lifting that cap a priority for the U.S. Government? 

Mr. Marantis.  Thank you for raising that.  We are frustrated with the remaining restrictions that China imposes in the foreign investor sector.  Insurance is one important area.  China recently issued its foreign investment catalog, and we were very disappointed that it didn’t go farther in lifting many of these restrictions.  We work together in the context of our investment forum with China.  We have an insurance dialogue with China and we have our JCCT where we push exactly the issues, Ms. Jenkins, that you raised so that we can make progress. 

Ms. Jenkins.  Thank you.  Madam Secretary? 

Ms. Brainard.  I would just say that life insurance is one particularly egregious example.  Of course, you are right, that this is their WTO commitment.  But we are pushing them across financial services to go beyond their WTO commitments.  And you know, they have said that they want to open up their services sector, expand it.  We have the strongest, most competitive financial services insurance providers in the world.  And so we are going to keep pushing really hard on these equity caps. 

Ms. Jenkins.  Thank you.  Along that same line, at the conclusion of the Strategic and Economic Dialogue back in May, China pledged to study and push forward the opening of the mandatory third‑party liability auto insurance market.  And despite this public commitment, we have heard nothing about the issue since the S&ED.  As you know, China is now the world’s largest automobile market.  Liability insurance for drivers is mandated, but it remains closed to non‑Chinese companies.  What steps have the Chinese taken towards fulfilling this commitment?  And what metrics is the U.S. Government using to evaluate this process? 

Ms. Brainard.  The press reporting is that the China Insurance Regulatory Commission has actually put forward a proposal to follow through on that commitment to the State Council.  We haven’t seen it yet.  We are obviously going to follow up and try to get a copy of that as soon as we can.  But we will continue to raise it in every bilateral discussion we have.  And obviously, this will be prominent also in the JCCT. 

Ms. Jenkins.  Okay.  And China’s 12th 5‑year plan calls for a 4 percent growth in services GDP over 5 years to 47 percent of the total GDP.  Mr. Ambassador, I think you mentioned that; however, in China’s draft foreign investment catalog, there was very little in the way of service investment liberalization.  Of the 32 industries listed in that encouraged catalog, only three are directly related to investment in services.  And a few aspects of those services industries included in the encouraged list are new to the 2011 catalog from the previous 2007 catalog. 

Recognizing that U.S. economic growth and domestic job growth rely in significant measure on access to key international service markets, including China’s, what can the U.S. Government do to encourage China to permit more U.S. investment in its domestic services industry? 

Mr. Marantis.  One of the positives in their revised catalog was their lifting of ownership restrictions for hospital and clinics.  And that was a big advance.  But they have not gone nearly as far as we want them to go in the area of service sector liberalization.  It is an important priority for us across sectors, whether it is financial services, express delivery, or telecom.  This is one of the issues, one of the many issues, that we continue to press for more progress – both on the ability of our service suppliers to supply services from here to China, as well as our service suppliers to be able to invest in China with a majority‑owned ownership structure that supplies services in that market. 

Ms. Jenkins.  Thank you.  I yield back. 

Mr. Herger.  The gentlelady from Nevada, Ms. Berkley, is recognized for 5 minutes. 

Ms. Berkley.  Thank you, Mr. Chairman.  And thank you both for being here.  We appreciate it.  The unemployed workers in my State of Nevada can’t afford for Washington to continue to sit on its hands, especially in the face of the illegal trade tactics of the Chinese government.  This is fairly simple to me.  The unfair practices of the Chinese government are cheating American workers out of their jobs.  Since 2001, just by the manipulation of their currency, that has cost approximately $2.8 million American jobs.  In my home State of Nevada, who has been hit particularly hard by our economic recession, we have lost nearly 15,000 jobs due to the Chinese currency manipulation.  That is unacceptable.  My State has the highest unemployment rate in the Nation. 

Every day, I hear from people who say they have never missed a day of work in their lives, yet they have lost their jobs and now they are losing their homes and they are looking to us for help.  They need our country’s leaders to focus every day on job creation and getting the economy back on track.  That means to me that we have to fight against policies that continue to shift good‑paying American jobs overseas, that continue to harm our American workers.  I call on our leadership in Congress to drop its opposition to closing taxpayer‑funded loopholes that encourage corporations to ship American jobs overseas.  That is not enough.  We all need to fight the Chinese government’s unfair tactics that are cheating American workers out of their jobs. 

The Chinese government is not just supporting their Chinese businesses.  They own them.  They are them.  And they are manipulating their currency to help the companies that they control to the extreme disadvantage of American corporations and businesses.  The idea that we are somehow afraid of a trade war with the Chinese is a joke to me.  We are already in a trade war with the Chinese, and I am afraid that we are losing this war.  We need to stand up on behalf of the unemployed workers in Nevada and the Nation as a whole and say, Enough is enough.  We can’t do this anymore.  You can’t do this anymore.  And this is why I urge the Congress and our administration, who you are here representing, to change course, stand up to the Chinese government on behalf of American workers and American businesses.  I think we need to stop worrying about what the Chinese government’s reaction is going to be, stop standing up for the Chinese government, and start fighting to create jobs for American workers here and home. 

The U.S. has lost $23 billion, estimated, on pirated software and intellectual property theft on counterfeit products by the Chinese.  We have lost countless billions more on their currency manipulation and countless billions more on trade distorting measures that are not contained in the other two.  You said earlier that you are using all of the tools available to you to fight for American workers, to fight for our economy, to stand up to the Chinese.  I think there is a common belief that we are not doing enough.  What tools do you need from us that can help you, that can add to your arsenal so that you can protect our economy and the American workers and businesses from the overt illegal tactics of the Chinese government?  What can we do to help you to help us? 

Mr. Marantis.  Thank you.  Let me give you a really concrete example of one of the tools that we have and how we have used it. 

Ms. Berkley.  No.  I want to know what we can do to give you more tools that you can use to actually do the job. 

Mr. Marantis.  I think the cooperation that we have ‑‑ this hearing is an example of something that is very important.  It is very important for our counterparts in China to hear that Congress and the administration are working hand in hand to address the concerns, whether it is on IP, whether it is on subsidization.  Oftentimes I think that our counterparts don’t ‑‑ they don’t see the fact that the Congress and the administration have to work in very close consultation and cooperation to actually make progress.  And that is why we are here today and that is why we appreciate that you are having this hearing today, because it is important also for our Chinese counterparts to hear your concerns so that when we are in front of them, we are doing it on behalf of you. 

Ms. Berkley.  With all due respect, Mr. Ambassador, I have been here in Congress 13 years.  For a number of those years and in this very hearing room, they have heard us loud and clear.  I think at this point, they think talk is cheap and that we are not going to enforce appropriate trade policies and rules.  What do you need from us to make them listen and understand that we mean business?  And that is why I like that Senate bill. 

Mr. Herger.  The gentlelady’s time has expired.  Mr. Paulsen is recognized for 5 minutes. 

Mr. Paulsen.  Thank you.  And thank you for being here to testify and answer questions. 

I just want to follow up a little bit on the line of questioning we have already had.  We know China is the third largest export market.  That is where the opportunities are for American companies to do well.  But it is pretty clear that the Chinese government is not taking seriously its responsibility of trade freely and trade fairly.  And it is our hardworking American innovators that cannot make the most of the opportunities to engage in the opportunity in China to trade because of these regulatory obstacles, the subsidies, the IP protection rights that are not protected, indigenous innovation, the service sector restrictions, the currency misalignment, and on and on and on. 

I do have a question that is directed at the medical device industry.  The medical device industry is very concerned about the price controls that are being proposed by the Chinese government.  And this is an industry where we are still a net exporter, where there is a lot of innovation happening here in the United States.  And what do you view the actions that we will take to make sure that we will stave off, I guess, the Chinese government’s proposal in this area that is going to strictly control the pricing of imported medical devices?  This includes devices that are manufactured and invented and made here in the United States.  Especially since these same devices in China would be subject to less stringent price controls under this proposed policy.  Mr. Ambassador. 

Mr. Marantis.  Thanks, Mr. Paulsen.  We have two, I think, serious issues on the medical device front.  You raise one and that is price controls.  Over the past number of years, China has been poised to impose price controls on medical devices.  We have been successful over the past 5 years in staving them off.  In August, China released a proposal that suggested that it will soon implement price controls in the sector.  We are working very hard to encourage the Chinese government to put a pause on that so that they don’t do so.  The other issue that we are working on in the medical device sector has to do with redundant regulatory requirements. Right now, China is requiring that in order to get approval in China’s market for a new medical device it has to have prior approval for from our own FDA. That causes unreasonable delay in our view.  It is another priority area that we are working on in the medical device area. 

Mr. Paulsen.  Ms. Secretary, any further comment on that? 

Ms. Brainard.  This is an area that the USTR takes the lead, but we work across the administration in support of this short list of priorities. 

Mr. Paulsen.  Mr. Ambassador, do you feel that you have the tools necessary to focus attention on those products?  There has been a 5‑year delay.  Now there has been a new proposal in August and that you are hoping to have them pause again.  But do you feel that you have the tools necessary to make sure that we are getting their attention on this? 

Mr. Marantis.  We, together with the Commerce Department, have been very vigorous in terms of medical ‑‑ on the medical device front.  We just had an interaction with our counterpart just the other week. Under Secretary Sanchez and I both pushed this issue with our Chinese counterparts, and we will continue to do so. 

Mr. Paulsen.  Just one follow‑up question.  You have heard, I think, increasing concerns from the American business community that supports export opportunities.  But they are concerned about backtracking on the past improvements that we have made with China opening up its economy.  Do you believe that China has been backtracking on the improvements that it had made once in opening up its economy? 

Mr. Marantis.  I think our general view is, after China joined the WTO, there was a real push in China to implement its WTO obligations.  I think things have slowed down, and we are facing new systemic challenges in China that we haven’t faced before.  That is why we are trying to target our WTO disputes on key strategic and systemic issues like our export restraints case or like the creation of an apparent homegrown monopoly to provide electronic payment services.  So I think the issues have become a lot more complex over the years.  But we are again, moving on all cylinders to fight those. 

Mr. Paulsen.  Thank you.  I yield back, Mr. Chairman. 

Mr. Herger.  The gentleman yields back. 

Mr. Berg from North Dakota is recognized for 5 minutes. 

Mr. Berg.  Thank you, Mr. Chairman.  I, too, want to thank the panel for being here.  Obviously, this has been an interesting hearing with a lot of concerns, a lot of passion.  I wanted to really focus in on the IP. 

Recently, the International Trade Commission had a report and it really provided some pretty compelling evidence.  They found that the IP infringement in China costs as much as $100 billion in sales and exports, as we heard earlier here, over 2 million jobs in the U.S. 

Really, my question gets to, what action are we taking with this information?  I guess that is my first question. 

Mr. Marantis.  So we have been moving, using all of our tools to make progress.  Let me give you a very concrete example.  We have something that we issue at USTR called the notorious markets report which identifies problem, counterfeit, and pirate markets either online or physically.  Following the release of last year’s notorious markets report in February, which identified Baidu, which is China’s big Internet search engine as providing links to pirated Web sites, Baidu entered into a licensing deal with U.S. music labels and is now offering legal content on its site.  That was a huge advance.  And it is an example of how we are trying to use the various tools that we have at our disposal creatively to address real problems. 

Mr. Berg.  I guess, Mr. Chairman, just to follow up, do you have all the tools necessary to address these issues?  Or having worked through this, there are some gaps? 

Mr. Marantis.  I mean, I guess the way I would answer that is, we really need resources to address the very real problems we have with China.  The President’s budget reflects those priorities, and that is why we work so closely with our interagency colleagues and our stakeholders and the business community and our labor unions to make sure that we are able to bring all of our resources to bear and make maximum use of them to address the very real problems we face. 

Mr. Berg.  So kind of more specifically then, you are feeling you have the accurate tools to address this? 

Mr. Marantis.  I think we have a lot of important tools that Congress has given us over the years, and we work to make maximum use of them. 

Mr. Berg.  Let me ask it this way:  If there were one or two other things that you would like, what would that be? 

Mr. Marantis.  I would like for us to be able to continue to make more and more progress on these issues.  But I do think we have adequate tools to address the concerns – whether it is in the IP space, or whether it is in the subsidy space. 

Mr. Berg.  Mr. Chairman, I will yield back. 

Mr. Herger.  I thank the gentleman.  The gentleman yields back. 

The gentleman from New York, Mr. Crowley, is recognized for 5 minutes. 

Mr. Crowley.  Mr. Chairman, I yield to the gentleman from New Jersey. 

Mr. Pascrell.  Thank you, Mr. Crowley.  Thank you, Mr. Chairman. 

Mr. Chairman, I want to bring to your attention as well as Under Secretary Brainard and Ambassador Marantis, who have been generous with their time today, that on November 15, a report will be forthcoming from an organization that was created by the Congress of the United States 10 years ago.  That organization is the U.S.‑China Economic and Security Review Commission.  They report directly to the Congress of the United States, a creature of the Congress. 

Last year in their report, very specific about what was recommended to the Congress to do in responding to the currency problem.  That is a report that re‑establishes again and again the significance of the Congress under Article I, Section 8 of what our duties and responsibilities are.  And we have to look into how currency and export subsidies are hurting the workers in this country.  Time and time again, that report has been pretty specific. 

I have one other final question, if I might get this in.  Does Customs need more tools to properly deal with the problem of Chinese goods being transshipped to South Korea?  Pretty specific.  10 seconds. 

Mr. Marantis.  We work very closely with the Department of Homeland Security on this issue, to make sure that the issue that you raised, Mr. Pascrell, that there is no opportunity for transshipment for goods from China through South Korea has been addressed. 

Mr. Crowley.  Reclaiming my time, Mr. Chairman.  That is a New Jersey minute. 

Mr. Chairman, I appreciate today’s hearing.  But you know, this is the first hearing we have had in 10 months on China in this committee.  The first hearing we have had.  I know we are a legislative mill here.  We have passed and enacted into law less than 50 bills and we haven’t had time to discuss what I think is probably the most critical relationship in the world today, the relationship between the United States and China. 

The fact is, some of our commercial relationships to China are beneficial to America.  Our services exports to China are in a surplus and that is a good thing.  But our overall trade relationship with China needs to continue to be rebalanced. 

One of the frustrations we have here on the committee is, we constantly hear from American companies that are getting the runaround from China’s authorities.  The previous administration under President Bush did not take serious action, I don’t believe, whatsoever, to defend American industries when it came to China.  Even when there was evidence that American companies weren’t getting a fair shake, there just wasn’t a sense of urgency about trade enforcement.  I use the tire dumping as an example.  And I want to thank this administration for at least moving in a strong way towards enforcement with China. 

Now Ambassador Kirk has mentioned to us that that they have already run out of funds when it comes to translative services with China.  Is that correct, Ambassador? 

Mr. Marantis.  I am not sure, Mr. Crowley.  I would have to check. 

Mr. Crowley.  Well, if you could find out for us, because I think that is critical for this committee to understand and for the Congress to understand that our USTR needs to have every tool in its quiver so that it can address the issues of challenging the Chinese when they go off‑track and hold them accountable at the WTO.  And I think that is a critical and very, very important point.  And if we can get back from the administration, we need to help you help us and the American people by giving you the tools you need to fight this. 

Now Ambassador Marantis, I was very pleased USTR challenged China’s prohibition on foreign suppliers for processing payment card transactions in China in order to create what is known as a national champion.  Can you discuss why this case violates China’s WTO commitments and what the status of that case is, if you can briefly? 

Mr. Marantis.  This is a very important case because it is emblematic of concerns we see in China generally – its efforts to create a homegrown national champion, a monopoly to supply a particular service.  We have worked really hard in developing and in bringing the electronic payments case.  It is now before a WTO panel, and we would expect a ruling from the WTO some time next year. 

Mr. Crowley.  I thank the gentleman. 

Mr. Chairman, I think it is important ‑‑ coming back to the original point.  I know my time is coming to an end ‑‑ that we need to help this administration.  They are confronting enormous challenges when it comes to making sure and ensuring that the Chinese are playing in a fair way when it comes to the WTO and the commitments that they have made. 

I didn’t support WTO for China nor do I support PNTR for China.  But now that we are in the situation, we need to make sure that our administration, regardless of party affiliation, has the resources and tools, including translative services, so that we can do this in a fair and balanced way and one that helps to benefit the American people.  I thank you, and I yield back the balance of my time. 

Mr. Herger.  The gentleman yields back.  And I would say that I agree with the gentleman from New York.  I know Chairman Camp does.  And I might mention, just as a quick response, we have had Ambassador Kirk here.  We have had Secretary Geithner.  We have had FTAs so trade has come up numerous times here on this committee. 

With that, I yield 5 minutes to the gentlelady, Mrs. Black. 

Mrs. Black.  Thank you, Mr. Chairman.  Again, I thank both of you for being here today.  I know you have had a lot of conversation about currency misalignment and subsidies and protecting IP, all of these are very important.  But I want to turn our attention to something that hasn’t been spoken about.  And that is that China has been restraining exports on rare earth minerals to the United States and Japan.  Of course, this type of action does raise serious concerns and issues underneath the WTO agreements. 

Just last week, China’s largest rare earth producer suspended production of rare earth minerals for 1 month in a very transparent effort to maintain artificially high prices.  The United States has worked well with all of our allies, in particular, Japan and Europe, to address this issue in the past, but this new action, of course, is very concerning.  And if you could provide us an update on what is currently being done on this issue? 

Mr. Marantis.  Yes.  And we are very concerned about China’s export restraint policy, which affects numerous raw materials, including rare earths.  We have been cooperating very closely with other trading partners on this particular issue to raise it with the Chinese at the highest levels.  We are raising this in the context of the JCCT.  We are working very closely with third parties.  And we are in the process right now of conducting some extensive research in an effort to consider next steps.  On a separate track, we have a WTO case that we filed on export restraints.  These don’t affect rare earth specifically, but they affect other raw materials.  We won that case before the WTO panel, and it is pending before the appellate body right now.  And that is another example of a huge WTO challenge that tackles systemic problems that we face in our relationship with China.  And export restraints is an example of that. 

Mrs. Black.  Ms. Brainard, do you want to comment on that as well? 

Ms. Brainard.  Just to agree with the importance of this issue and to say that it is something that has caught our attention from the very start.  As Ambassador Marantis said, we have a cross‑agency working group focusing on this issue.  The WTO challenge I think was very significant.  And more broadly, I think USTR has taken WTO enforcement actions very strategically in those areas where the judgment is that it will have the biggest overall impact in setting precedent for other barriers.  So the win that we had in that area, I think, is extremely important and hopefully that will help accelerate progress on rare earths issue. 

Mrs. Black.  Well, that was the second part of my question, so I appreciate your answering that.  And from that, I take it that maybe we will be able to move quickly on this and actually be able to bring some resolution to what is going on here with our rare earth minerals.  Do you feel that way, Ambassador? 

Mr. Marantis.  This is a key priority for us.  And as I mentioned, we are in the process of actively gathering facts so that we can consider what our next steps will be. 

Mrs. Black.  Thank you.  I yield back my time. 

Mr. Marantis.  Thanks. 

Mr. Herger.  The gentlelady yields back.  Mr. Marchant is recognized for 5 minutes. 

Mr. Marchant.  Thank you, Mr. Chairman.  As I travel around my district, one of the big subjects that comes up among my constituents is our trading relationship with China.  The perception is that trade with China is a one‑way street, with China sending hundreds of billions of dollars of goods and services to the United States and with us sending very little back. 

The general belief among my constituents is that China has more control of our trading environment and our economy than we have.  My staff has done some research in the last few days and found out some very interesting things about the three counties that I represent.  We got most of these figures from the U.S.‑China trading council.  In Dallas, Denton, and Tarrant Counties, its estimated growth in exports to China has rose 454 percent in the last 10 years.  In these three counties, the top exports to China in 2010 were $513 million in chemicals; manufacturing, $511 million; computers and electronics, $441 million; machinery, $215 million; and transportation equipment was $129 million. 

How will the efforts of Congress to intervene in the valuation of the Chinese currency, how will that affect these exports that are coming out of my district into China?  I would like for both of you to answer, please. 

Ms. Brainard.  Well, Mr. Marchant, I think your district is fairly representative of many parts of the country that have seen double‑digit growth in exports in just the last 2 years to China across a very wide range of sectors.  And China, by many estimates, is expected to be the biggest, fastest growing source of demand in the global system.  So as we are working to expand jobs, as we are working to grow our economy, exports are going to be a bigger piece of that than has been true in any previous recovery, and exports to China figure permanently.  Nonetheless, we have quite substantial challenges in terms of an unlevel playing field, in terms of a misaligned, persistently misaligned currency. 

So we are going to continue to get up every day and stand up to China and make sure that China moves faster in reforming its system, in allowing its exchange rate to move to reflect market forces, to put in place fairer trade practices.  I think we can do that in a way that is smart.  We can do it in part by working with other trade partners.  And that is why consistency with our international obligations is helpful.  We can do it by recognizing China is not a monolithic system.  There are interests in China that get it, that imports from the U.S. are a very good thing; that giving their consumers greater purchasing power through an aligned exchange rate is a good thing.  So we are going to try to work smart as we pursue these goals. 

Mr. Marchant.  I don’t have a lot to add other than to underscore the point that Under Secretary Brainard made about how important China is for us for our exports.  As I mentioned earlier, our exports to China grew 32 percent last year versus 16.7 percent to the rest of the world.  So our exports to China are growing faster than they are to any other region of the world.  And we face extreme challenges, as we have discussed today at this hearing.  But our exports to China are a very important aspect of the President’s goal of realizing, through the National Export Initiative, his goal of doubling exports over the next 4 years. 

Mr. Marchant.  Thank you, Mr. Chairman.  I yield back. 

Chairman Camp.  The gentleman yields back.  Mr. Reed is recognized for 5 minutes. 

Mr. Reed.  Thank you, Mr. Chairman.  And it is getting lonely up here.  But you are at the finish line so that is the good news. 

I want to focus on maybe a little area that hasn’t been given as much attention today.  But I do firmly believe that the United States must confront China whenever it violates its international obligations.  But I don’t believe we can just play defense when there is a violation.  We need to play offense.  And a good way, in my opinion, to do that is to adopt free trade agreements and really push the trade agenda so that we have an open world market that is fair and operating under those agreements.  South Korea obviously is a classic example of that.  And right now, we are dealing with the TPP, and I believe that agenda and those negotiations need to go forward. 

So I am very interested, Ambassador, in knowing what you view or what the USTR views as the role of free trade bilateral agreements with China, negotiation with China, what role that plays in dealing with this issue. 

Mr. Marantis.  It is very important that we are actively engaged on the trading and investment front throughout the Asia Pacific region, in part to counter the competitive erosion that we have experienced over the years.  I am really excited about, as you mentioned, the TPP. Our negotiators are in Lima this week conducting the ninth round of TPP negotiations as we lead to accomplish what the trade ministers from the TPP countries have asked us to accomplish by the APEC leaders meeting in Honolulu – which is to achieve the broad outlines of a TPP agreement. 

We are well on track to do that.  We have negotiating texts on a whole variety of subjects:  goods, services, intellectual property, the environment, labor.  And just for this round, we tabled the first ever text on state‑owned enterprises, which goes to address some of the very concerns we were talking about today regarding the competitive distortions that state‑owned enterprises put in the international marketplace. 

Mr. Reed.  But outside TPP and the negotiations going on there ‑‑ and I would agree those negotiations are going down the right path ‑‑ but what specifically are we doing in regards to relations with China, getting them to negotiate and a bilateral investment treaty, getting into the issue of Taiwan and the trade investment framework that those discussions have ceased, my understanding is, well over a year ago.  Where are we going with it?  What is the vision, from your perspective, sitting in the Trade Office as to where we are going with that agenda? 

Mr. Marantis.  Sure.  We are moving on multiple fronts.  On China, President Obama and President Hu reaffirmed their commitment to concluding a bilateral investment treaty negotiation.  We just had negotiations just last week with India with respect to a bilateral investment treaty that we are negotiating with them.  We are moving, for example, with the Philippines in concluding agreements on trade facilitation.  It depends on the different economy in the region, but there is a lot going on on each. 

Regionally, the United States is hosting APEC and we have been trying to push some very ambitious outcomes in our APEC hosts here.  That will culminate in just a few weeks in Honolulu at the APEC leaders meeting, where we are focusing on promoting regulatory cooperation, where we are promoting initiatives in green growth, and where we are promoting addressing next generation trade unions. 

Mr. Reed.  Ambassador, do you see any barriers, for example, to the Chinese bilateral investment treaty where the President and President Hu have agreed to set that as an agenda?  Any barriers there that you see?

Mr. Marantis.  It is going to be a tough negotiation.  There are a lot of very difficult issues that our investors face.  And the purpose of the BIT will be to level the playing field for our investors in China.  And their issues, you know, regarding market access, with respect to transparency, performance requirements, they are going to be very tough to negotiate with the Chinese.  But, it is something we are committed to doing because it is the right thing to do for our investors and for the jobs in the United States. 

Mr. Reed.  And how are the Chinese negotiations?  Have they been coming to the table, acting in good faith and moving the agenda forward? 

Mr. Marantis.  Both sides are committed to the negotiations. 

Mr. Reed.  Okay. 

Mr. Marantis.  Thanks. 

Mr. Reed.  I have two seconds.  Do you want to say anything? 

Ms. Brainard.  I just think the passage of the U.S.‑Korea free trade agreement, we are sort of back in the game in the region and it is extremely important that we can develop a trade agreement through the Trans‑Pacific Partnership that is highest standard in that region of the world.  I think, as you said, that is our strongest suit in terms of having a good offense because ultimately, China is going to want to come to where those disciplines are. 

Mr. Reed.  Amen.  With that, I yield back, Chairman.  Thank you. 

Mr. Herger.  The gentleman yields back. 

With that, I would like to close with a comment and a question to Ambassador Marantis.  I believe our approach in dealing with China should focus on how we can create the most jobs here in the United States.  The International Trade Commission has done numerous reports on the impact that Chinese trade barriers have on our exports and jobs.  We have heard the ITC’s analysis that if China were to raise their protection of intellectual property rights to U.S. standards, 2.1 million jobs would be created.  Additionally, the ITC has reported that reducing China’s tariff and nontariff barriers to U.S. agricultural goods would lead to an additional $3.9 billion to $5.2 billion in U.S. agricultural exports to China.  These new exports would support tens of thousands of good paying American jobs.  I believe the record is pretty clear that Americans have a lot to gain if we can remove China’s barriers and sell more American goods and services in China. 

Now let’s contrast that to our recent experience with adding tariffs to cheap imports from China.  In 2009, the administration imposed punitive tariffs on imported low‑end tires from China under section 421 of the Trade Act.  Part of the argument behind instituting this tariff is that it would create tire manufacturing jobs in the United States.  However, the data from the U.S. Bureau of Labor Statistics shows that tire manufacturing employment is down 10 percent in the first half of this year compared with the same period in 2009 prior to the tariffs.  In terms of job creation, Ambassador Marantis, I would like to hear your thoughts on what the better strategy is, playing offense and focusing on how we can increase our exports into China by removing their barriers, or playing defense and trying to keep out imports from China by slapping them with higher tariffs?  Which strategy is more effective at creating jobs here in the United States? 

Mr. Marantis.  Mr. Herger, we have got to act on all fronts.  We have got to act in terms of breaking down market access barriers.  But also when we see an injurious surge like we did in the tire case, we need to act because it actually helps to promote jobs.  The statistics I have actually show that before the remedy was imposed in September 2009, there was net job loss in the industry.  After we imposed the remedy, there has been net job creation in the industry.  There have been 11 announcements of new investments in the tire industry worth $2 billion since September 2009.  And I think the anticipated employment gains are estimated at 3,000 jobs.  So we have got to work to ‑‑ I agree.  We have got to work to knock down our market access barriers on the export side.  But when we see an injurious surge of imports that cause market disruption, we shouldn’t hesitate to use the tools that we negotiated in China’s WTO accession as the administration did in the tires case. 

Mr. Herger.  Well, I thank you for your comment.  And again, I think the point that is bipartisan is that this is a serious issue.  The American public takes it as a serious issue.  We know we have some major discrepancies, and we urge you.  And we, as a Congress ‑‑ I believe, in a bipartisan manner ‑‑ are more than willing to work with you very strongly.  I think the point that I would like to make and I think many would like to make that it is very important that we stay on offense. 

Mr. Levin.  Mr. Chairman, will you yield?  I want to say something. 

Mr. Herger.  I will yield. 

Mr. Levin.  You finish and then I will say something. 

Mr. Herger.  Well, I was just going to adjourn then. 

Mr. Levin.  Well, then, I will say something. 

Mr. Herger.  The gentleman is recognized. 

Mr. Levin.  This hearing is not bipartisan, to try to attack the effort on 421.  Four times, the Bush administration failed to act, although the ITC recommended it.  This administration acted on the tire inflow from China, and it has had a positive impact for the United States, for its companies and for its workers.  And so for you to take some data, it is simply incorrect to say that the 421 action was a mistake.  And there is no use of sitting around here and asking for more enforcement and then attack an effort by this administration to, indeed, enforce our trade policies.  So I don’t know where you got the data.  I think the Ambassador has correctly set the record straight.  It is just reckless to take out after the tire 421 effort.  It was an important decision this administration made. 

Mr. Herger.  I would like to conclude.  Again, we need to be aggressive ‑‑

Mr. Levin.  They are being aggressive. 

Mr. Herger.  ‑‑ in a positive way.  And the only point being made is that we consider everything we are doing. 

I think this has been a very helpful hearing.  I want to thank our witnesses for appearing.  Again, I would like to thank both of you.  Please be advised that members may have written questions they will submit to you.  Those questions and your answers will be made a part of the hearing record. 

And with that, the hearing is adjourned. 

[Whereupon, at 12:50 p.m., the committee was adjourned.]

Member Opening Statements

The Honorable Mr. Brady
The Honorable Mr. Levin
Letter
H.R. 639
H.R. 1518
H.R. 2722
H.R. 3057

Member Questions For The Record

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