THIRD IN A SERIES OF THREE HEARINGS ON THE PENDING, JOB-CREATING TRADE AGREEMENTS: SOUTH KOREA TRADE AGREEMENT
SUBCOMMITTEE ON TRADE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
April 7, 2011
Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
GEOFF DAVIS, Kentucky
|JIM MCDERMOTT, Washington
RICHARD E. NEAL, Massachusetts
LLOYD DOGGETT, Texas
JOSEPH CROWLEY, New York
JOHN B. LARSON, Connecticut
C O N T E N T S
PANEL 1: , Deputy U.S. Trade Representative, Office of the United StatesTrade Representative
PANEL 2:, Chairman, U.S.-Korea Business Council; President and Chief Executive Officer, William R. Rhodes Global Advisors, LLC; Senior Advisor to Citigroup, on behalf of the U.S.-Korea Business Council and the U.S.-Korea FTA Business Coalition
John A. Schoch, Jr., President and Chief Executive Officer, Profile Products LLC, on behalf of the United States Chamber of Commerce
Robert Holleyman, President and Chief Executive Officer, Business Software Alliance
Ambassador Thomas Hubbard, Senior Director for Asia, McLarty Associates, Former Ambassador to South Korea
BRADY ANNOUNCES THIRD IN A SERIES OF THREE HEARINGS ON
THE PENDING, JOB-CREATING TRADE AGREEMENTS: SOUTH KOREA TRADE AGREEMENT
U.S. House of Representatives,
Committee on Ways and Means,
The subcommittee met, pursuant to notice, at 10:02 a.m., in Room 1100, Longworth House Office Building, Hon. Kevin Brady [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
*Chairman Brady. Good morning, everyone. I would like to welcome you all, especially South Korean Ambassador Han, to today’s Trade Subcommittee hearing on the U.S.‑South Korea trade agreement. Today’s hearing is the third in our series of hearings on each of the pending trade agreements: Colombia, Panama, and South Korea.
As I have said at each of the previous hearings, I firmly believe that we should consider all of the three agreements by July 1st. I welcome the Administration’s announcement yesterday that it has reached agreement with Colombia. I look forward to quick movement on the action plan and to working with the Administration to ensure submission of all three agreements for Congressional consideration by July 1st. All three pending trade agreements are good agreements. The time to move forward with all three is now.
I know that many Democrats share our sense of urgency. With respect to the Korea‑U.S. trade agreement, we all know that the European Union South Korean trade agreement is expected to enter into force by July 1st. Implementation of agreements by other countries, and continued inaction on our agreement, will result in further missed opportunities to create American jobs. In fact, it will result in a decline in existing American jobs. We either move forward or we fall backward; the choice is ours. Staying still is just not an option.
The economic benefits of the pending trade agreements are overwhelming. The ITC, International Trade Commission, estimates that the three pending trade agreements together would increase U.S. exports by at least $13 billion, and add $10 billion to our GDP. And President Obama stated that such an increase in U.S. exports could support 250,000 jobs.
These benefits are enjoyed broadly. For example, the American Farm Bureau estimates that the U.S. farm exports to South Korea could increase by more than $1.8 billion each year. Moreover, 90 percent of all American companies exporting to South Korea are small and medium‑sized enterprises. Implementation of the agreement will lead to an additional $2.8 billion in exports for small and medium‑sized American companies.
This agreement, like the Colombia and Panama deals, would level the playing field for U.S. exporters. The average South Korean tariff for U.S. exporters is more than four times the average tariff that South Korean products face in the U.S. market. The agreement would address this imbalance.
The state‑of‑the‑art agreement, like Colombia and Panama, will address key non‑tariff and regulatory barriers, such as sanitary and psytosanitary barriers, requiring strong protection of intellectual property rights, requiring greater regulatory transparency, and encouraging greater regulatory harmonization and the use of international standards.
We cannot also overlook the fact that South Korea is a key ally in a critical region of the world. The U.S.‑South Korea trade agreement is important not only for its economic benefits, but also for our national security. Just today I received a letter signed by a number of former senior officials in trade and foreign policy, highlighting the key geostrategic role that Korea plays, and urging Congress to pass all three agreements as quickly as possible.
Without objection, I would like to enter that letter into the record.
[The information follows, The Honorable Mr. Brady:]
*Chairman Brady. Now that I have highlighted some of the benefits to the U.S.‑Korea agreement, I would like to set the record straight on a few points.
First, Republicans are very excited about moving forward on the Korean agreement, just as we are excited to move forward with the Panama and Colombia agreements. Our goal is simply to speed up the Latin American agreements to catch up with the Korean agreement! There is a sense of urgency for all them, as these trading partners are moving ahead without us, to conclude agreements with our competitors that do not include us.
Second, our view is that all three agreements must be considered. It is simply not a Republican view. Key Democrats, such as the chairman of the Senate Finance Committee, explicitly agree with this view. Strong bipartisan support for all three was also very clear from the strong statements of support that were issued yesterday in response to the Administration’s welcome announcement about Colombia.
Third, despite what some are saying, we have already started the bipartisan technical drafting work on the Korea agreement with this Administration. On March 7th, Chairman Dave Camp agreed to Ambassador Kirk’s written request to begin technical discussions on the draft implementing bill, noting that discussions between Congressional and Administration staffs were scheduled for later that day. Those technical discussions are ongoing, and we are awaiting responses to questions that staff on both sides of the aisle have raised with USTR. We are working constructively together to move forward in a timely manner to ensure that the draft implementing bill is complete and thorough.
At the same time, I would urge the Administration to work with us on this technical work for the Colombia and Panama agreements, too. Both Ambassador Kirk and Ambassador Shapiro have made clear that the resolution of any outstanding issues will not require changes to the text of the agreement. I believe we should start this technical work immediately to ensure that the drafting is complete and thorough, and the draft implementing bills are ready to go. We cannot waste any more time.
I would like to welcome all of our witnesses today, and thank them for being with us. I look forward to hearing the testimony of both panels.
At this time I would yield to Ranking Member McDermott for the purposes of an opening statement.
*Mr. McDermott. Thank you very much, Chairman Brady, for scheduling this hearing. Finally we are discussing a free trade agreement that is ready for congressional consideration right now, an FTA that will generate more than $10 billion in increasing U.S. exports, $11 billion in increased GDP, and as many as 277,000 new American jobs.
The Korean FTA brings economic benefits to each and every state in this union. In Texas, where Chairman Brady and Mr. Doggett live, estimates indicate that the FTA will increase 27,000 new jobs in a range of sectors from agriculture to transportation.
In Washington, where Mr. Reichert and I reside, we catch a lot of fish and produce a lot of agriculture and timber. The Korean FTA is expected to create 1,500 new jobs in those sectors alone.
In California, where Mr. Davis and Mr. Herger live, and where unemployment is 12.3 percent, it is estimated that the FTA will create 26,000 new jobs.
In Florida, Mr. Buchanan’s state, the state’s citrus growers and processors support the FTA, which would phase out steep tariffs on U.S. orange juice. And those additional exports would go through the port in Manatee he talks about in this committee.
In Illinois, where Mr. Schock lives, is the second‑largest soybean producer in the country. And under the FTA, soybean production will increase by $565 million to $850 million.
And we know that Congresswoman Jenkins is very concerned about beef. Nebraska, where Mr. Smith’s district is located, is another major producer. Well, under the Korean FTA, beef exports are expected to increase by $633 million.
It is clear that the FTA with Korea would produce a real economic boost, spurring economic growth all over the country. The Administration has been ready to move on the FTA for more than a month, and yet the Republican majority refuses to move, putting all of the FTA potential economic gains in California, Illinois, Florida, Texas, Kansas, Nebraska, and all over the United States, on hold.
The EU‑South Korea FTA goes into effect on July 1. Each day that the congress delays passage of the U.S.‑Korea FTA puts U.S. businesses and workers at a greater disadvantage, compared to their European counterparts. And the Republicans know this. Back in 2009, they argued that we should pass the flawed version of the FTA, even though the auto provisions weren’t fixed, to make sure that we did not fall behind the EU. The Republicans’ own estimates suggest that U.S. workers and businesses would lose $1.1 billion in exports to Korea, once the EU‑Korea trade agreement is fully implemented. Well, it is around the corner, my friends.
So, what is the hold up? Well, it cannot be Colombia any more. The President announced yesterday exactly what the Republicans have been demanding. If, despite the announcement, the Republicans continue to dither on Korea, then their motivation is just plain ugly politics. It is time to end that. There is too much on the line.
So, here is what I suggest. USTR Ambassador Ron Kirk should send the draft of implementing legislation to Congress immediately, and request the Ways and Means Committee to do a swift review and a mock mark‑up. After a reasonable period of consultation ‑‑ let us say three weeks ‑‑ the Administration should then formally submit the FTA, implementing legislation so that it could be introduced, and fast‑track procedures, including the specific time lines for consideration, initiated.
There is no reason that both the House and Senate cannot pass this meaningful agreement by Memorial Day, before it is too late for American families in business. It is time to get moving. I yield back.
*Chairman Brady. Thank you, Ranking Member McDermott. Today we have two panels of witnesses. On our first panel is a witness from the Administration, Ambassador Demetrios Marantis, deputy U.S. trade representative from the Office of the U.S. Trade Representative. Ambassador, welcome. We look forward to your testimony. I would ask that you keep your testimony to five minutes, and your written statement will be made part of the record.
I do want to take a moment to applaud the President, Ambassador Kirk, and the USTR negotiating team for improving what was a very solid agreement with Korea. But working with then‑Chairman Levin, Chairman Camp, and others in Congress in close consultation improved the Korean agreement. That was a significant achievement, and I very much appreciate your work on that.
At this point I would recognize you for five minutes.
STATEMENT OF DEMETRIOS MARANTIS, DEPUTY U.S. TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
*Mr. Marantis. Thank you. Good morning, Chairman Brady, Ranking Member McDermott, and members of the committee. It is a really exciting time to be involved in international trade right now, and it is a real honor for me to be here to testify before you on the U.S.‑Korea trade agreement.
Let me also welcome Ambassador Han, who is here. He has been my partner in crime for the past couple of years, as we have been trying to navigate the difficulties that we, together, faced.
Congress has the singular opportunity to pass the most economically significant trade agreement in nearly two decades. The U.S.‑Korea trade agreement will strengthen our trade and investment ties to Korea’s $1 trillion economy. It will bind a key ally closer to us, anchor our economy to the dynamic Asia‑Pacific region, and help us keep our edge over international competition. Most importantly, this agreement will create substantial export opportunities, establish strong enforcement provisions, and support tens of thousands of new export‑oriented jobs.
The Korea agreement is just the first example of how this Administration has worked to make our trade agreements better. The President has underscored his intention to present pending trade agreements to Congress once we have adequately addressed key outstanding concerns. In December we did so with Korea. This week, Panama has taken steps to complete work on outstanding tax and labor issues. And later today, the President will announce an agreement with Colombia on an action plan to address outstanding labor issues.
Congress must now work on passing a comprehensive trade policy, one that includes the pending trade agreements, trade adjustment assistance, our preference programs, and permanent normal trade relations with Russia.
The U.S.‑Korea trade agreement is ready to move today. The President and many of you had serious concerns about the deal signed in 2007. We heard you, and we took action. After extensive consultations with members of this committee and a wide range of stakeholders, the U.S. and Korea agreed last December to make Korea’s auto market more fair, open, and transparent. We leveled the playing field by addressing key non‑tariff barriers in Korea’s auto safety and environmental regulations. We encouraged green technologies by immediately cutting in half Korea’s tariffs on electric cars, and eliminating these tariffs within five years. We negotiated a tariff structure that will give American auto companies and their workers a chance to build more business in Korea before U.S. tariffs come down. And we negotiated a new special motor vehicle safeguard.
These commitments allow us to unlock the economic potential of the 2007 agreement. Immediately upon entry into force, this agreement eliminates tariffs on two‑thirds of U.S. agricultural exports to Korea. Within five years of entry into force, it removes tariffs on over 95 percent of consumer goods exports. And it provides significant market access to Korea’s $580 billion services market.
Underpinning these new export opportunities are the Korea agreement’s state‑of‑the‑art provisions to protect and enforce intellectual property rights, reduce red tape, and eliminate regulatory barriers to U.S. exports. This agreement contains the highest standards for protecting labor rights, promoting the environment, and ensuring that key domestic labor and environmental laws are enforced.
Taken together, these additional export opportunities mean more jobs for Americans. The tariff reductions on goods alone will lead to significant increases in U.S. exports to Korea that will support over 70,000 U.S. jobs. More services exports to Korea will support tens of thousands of additional jobs. And fewer non‑tariff barriers and stronger rules will support even more.
We remain committed to further opening beef markets across Asia, including Korea, consistent with international science. In the meantime, the U.S.‑Korea agreement, when implemented, will progressively reduce Korea’s 40 percent beef tariff, and enable U.S. beef producers to build upon the exponential growth of exports to Korea.
Working with you, this Administration addressed outstanding concerns with this agreement. Working with you, we made significant improvements that will have real benefits to our auto industry, its workers, and our economy. And working with you, we can now move forward. Now is the time to act on this agreement so American families can realize the many benefits of the U.S. trade agreement. Working together, let us move this agreement without further delay.
Thank you, Mr. Chairman.
[The statement of Mr. Marantis follows:]
*Chairman Brady. Ambassador, thank you very much. You have set out your testimony, a very strong case for this agreement for a number of reasons. There are ‑‑ I would like to talk about two concerns that I have heard raised by critics I would like your help in addressing.
First, some folks are concerned about how the agreement might affect the textile industry. I know this agreement includes state‑of‑the‑art provisions to address major concerns such as trans‑shipment, a surge in imports, and enforcement. It also includes a strict rule of origin.
So, the first question is, does this agreement benefit textile and apparel manufacturers in the U.S.? And how would the provisions I mentioned address concerns raised by them?
And when you finish that, I would like to ask about the Kaesong industrial area, and some of the provisions in the bill, as well.
*Mr. Marantis. Thanks, Mr. Chairman. Seventy‑five percent of U.S. textile and apparel exports to Korea would receive duty‑free treatment immediately upon implementation of the agreement. That is really important, because Korea is becoming a larger destination for U.S. textile and apparel exports.
Right now, Korea is our tenth largest market. Last year alone, our textile and apparel exports to Korea increased by 45 percent. So, getting this agreement in force now is very important, particularly when you think about the EU and its textile exports, and the competition that we face in that market.
But as you mentioned, Chairman Brady, textiles is a sensitive sectors in the U.S., and there are very important provisions in this agreement that address that.
First, we have delayed staging of certain sensitive products, in terms of when the U.S. will reduce its tariffs. In some cases, that staging extends as long as 10 years.
Second, as you mentioned, we have a very important rule of origin that the industry supports strongly, which is the yarn forward rule, which basically says products cannot receive preferential treatment unless the yarn and the fabric is produced in either South Korea or the United States.
Third, we have a special textile safeguard in the agreement that allows us to address instances when increased imports may cause serious damage to the industry producing like or directly competitive products.
And, finally, as you mentioned, the agreement contains very strong provisions on trans‑shipment. It allows for increased information sharing between U.S. and Korea customs authorities. It allows U.S. customs authorities to conduct verification activities in Korea. And if there is ever a problem, CBP, our customs authority, has the authority to take penalty actions, including denial of entry of goods. And that just builds upon the provisions that CBP already does, in terms of post‑import verifications and other mechanisms it uses to prevent trans‑shipment.
*Chairman Brady. Thank you. Very helpful. Second, some have expressed concerns that products produced in the Kaesong industrial complex, which is located in North Korea but operated jointly by North and South Korean workers, they are concerned they would be treated as products originating from South Korea under the agreement. I understand that the agreement specifically requires legislative action ‑‑ in other words, an Act of Congress ‑‑ before products from Kaesong are permitted to enter the United States.
Please describe what the effect of this requirement is, and please describe whether products from Kaesong could receive benefits under the agreement.
*Mr. Marantis. Thank you, Mr. Chairman. There has been a lot of confusion on this issue. And let me be very clear. Goods produced in Kaesong do not receive any benefits under the U.S.‑Korea trade agreement. Any change to how Kaesong is treated under the agreement would require Congress to pass, and the President to sign, legislation.
So there is nothing in this agreement that provides any benefits to Kaesong. In fact, the word “Kaesong” does not even appear in the agreement.
*Chairman Brady. And if there were to be any change that ‑‑ literally, Act of Congress, signed by a President, before ‑‑
*Mr. Marantis. Yes. Any recommendations that ‑‑ there is a committee that is established under the agreement for outward processing zones that can make recommendations. Any ‑‑ if we choose to act on those recommendations, the only way to do so is to come here and seek legislative authority from Congress. So Congress has the final word. It would have to pass a law, and the President would have to sign that law into force.
*Chairman Brady. Thank you for putting that confusion to rest. Appreciate it.
Ranking Member McDermott?
*Mr. McDermott. Thank you. I want to begin by apology. I moved Mr. Davis from Kentucky to California. That is a severe insult to him, and I apologize publicly.
*Mr. Davis. Well, I thank the gentleman for pointing that out. I reminded folks that I live in the United States, not in California. So I appreciate and thank him.
*Mr. McDermott. I would like to ask you a question, because I think there is a whole lot of misunderstanding about Kaesong. And I have been there on one of my trips to Korea.
And I would like you to explain to the committee what Kaesong is really all about and why the South Koreans have created this. There is a lot of mythology floating around. It would be nice to have somebody give some facts about why they created it, what they are doing with it, what the intention is, and so forth.
*Mr. Marantis. Sure, I would be happy to. As you mentioned, Mr. McDermott, there is a special industrial zone over the border in North Korea called Kaesong, which South Korea launched in 2003, as an effort to encourage reforms in North Korea. And it is an industrial complex that produces, you know, a wide variety of goods.
You know, ties between North and South Korea have deteriorated, as we all know. And, as a result of that, South Korea has banned new investment in Kaesong since May 2010.
*Mr. McDermott. And the industries were from South Korea and the workers were?
*Mr. Marantis. North Korean workers.
*Mr. McDermott. Who then went back into the community with knowledge about how the free enterprise system might work.
*Mr. Marantis. Correct. I mean the idea behind Kaesong, you know, when it was originally launched, was to help to provide, you know, new exposure for North Korean workers as to, you know, business practices in South Korea and, you know, as part of an effort to encourage reforms in North Korea.
*Mr. McDermott. It was also in anticipation that at some point there may be a reunification between North and South Korea, and in having workers understand the situation they are coming into. It is not like Germany, where there were three West Germans for every East German. In this case, it is a huge number of people coming into the economy, and they want to try to transition, or at least begin the process of transitioning. Is that correct?
*Mr. Marantis. Yes, sir.
*Mr. McDermott. I yield back the balance of my time.
*Chairman Brady. Thank you, sir. The gentleman from Kentucky is recognized.
*Mr. Davis. I thank you, Mr. Chairman. Ambassador, South Korea is more than a key trading partner. It is also a key geo‑strategic ally in Asia. Currently, there are more than 28,000 American troops stationed in the country, and our militaries regularly conduct joint exercises. Our geo‑strategic relationship is important, not only to counteract the threat from North Korea, but also dealing with China’s military ambitions and security, in general, in the Pacific Rim.
Could you discuss the broader geo‑strategic significance of this agreement?
*Mr. Marantis. Thank you, Mr. Davis. And Korea, as you mentioned, is a critical strategic ally of the United States. And what we are doing, as part of the free trade agreement, is helping to bolster the economic pillar of the U.S. strategic relationship.
A strong, prosperous South Korea is very much in the strategic interest of the United States, which is why negotiation, conclusion, and ratification, and entry into force of this agreement is a win‑win for both of us. It is good for both the South Korean economy and the U.S. economy. And, as a result, it is a good tool to help bolster a very important ally.
*Mr. Davis. Thank you. Just as a follow‑up, given what you have just said, I was wondering if you could also address how this is any different from the geo‑strategic considerations and importance of our partnership with Colombia, particularly given the fighting, its narcotrafficking, the influence of Hugo Chavez in the region.
*Mr. Marantis. Sure. I personally do not work on Latin America and Colombia issues, so I do not have a lot to say. But you know, in a very similar way, Mr. Davis, Colombia is a very ‑‑ an important strategic ally in the region. And, you know, working on the free trade agreement is a way to help, again, strengthen Colombia’s economy in a volatile region.
*Mr. Davis. Okay. Thank you very much. I yield back the balance of my time.
*Chairman Brady. Thank you. The chair recognizes Mr. Reichert.
*Mr. Reichert. Thank you, Mr. Chairman. I, first of all, want to thank you, Ambassador, and Ambassador Kirk and the entire USTR team. And also special recognition to Ambassador Han, who we have been working closely with, too. And excited about the upcoming vote to come soon.
I want to mention how much of an honor and a pleasure it has been to work with the export initiative group, and their commitment to doubling exports, and I think finally recognizing the importance of passing trade agreements to accomplish that goal. As I have said many times in our trade hearings, from 1995 through 2007, I think, is the last time we doubled our exports, and we passed 9 trade agreements. So, I think everyone is recognizing the value there, the possible loss of jobs if we do not pass these agreements.
So, I really want to focus on the jobs issue, because sometimes there is some misinformation that gets out there, and some opponents, I think, may skew the numbers just a little bit.
But just with the Korean Agreement, the first estimate was 70,000 jobs that could be created, as you mentioned in your testimony. Senator Wyden has completed a study that estimates the job gain would be almost 280,000, which includes our services industry, which, as you know, is about 80 percent of our economy now.
So, what is your view on some of the organizations that say we are going to lose 160,000 jobs versus the 70,000, the 280,000, the loss of market share as the EU and Canada and China and others come? We want to sell American. I mean that is the goal, right? Sell American across the world. So what do you say to those people who are saying that we are going to lose jobs with these agreements?
*Mr. Marantis. Thank you, Mr. Reichert. I mean, to start off, the study that suggests that there is going to be 160,000 jobs lost is just plain wrong. That study does not even use the Korea agreement as a model as it is examining the Korean agreement. It extrapolates from other sources to draw conclusions which we believe are not accurate. That study also relies on, you know, what we think is not, you know, appropriate methodology, in terms of linking an increase in trade deficits to job losses.
First of all, the ITC has been very clear that the trade deficit ‑‑ it predicts that our trade deficit, our $4 billion trade deficit that we currently have with Korea will be reduced by the agreement by anywhere between $3.3 billion and $4 billion. And you know, assuming a link between trade deficits and job losses is not really supported by historical evidence. During the Great Depression, a time where we had very high employment, we ran trade surpluses. In the 1990s, when we were operating at very close to full employment, you know, we ran large trade deficits.
But to your point, sir, is this agreement is all about jobs. And the export opportunities, the $10 billion to $12 billion in annual exports that this agreement is going to create in goods trade alone, will produce ‑‑ a conservative estimate on our part ‑‑ 70,000 jobs. And that is just goods trade. That is not when you look at services trade and other areas.
*Mr. Reichert. Well, I appreciate your recognition of that falsehood on the loss of jobs. And one of the things I think that the USTR and the export council is looking at is educating people across the country as to the benefits of trade. Because even, believe it or not, the longshoreman, whose paycheck is 100 percent dependent upon trade, is ‑‑ or some are against trade.
So, the last question I want to ask real quick, you know the environment is very important to all of us, and especially for those of us in Washington State it is very important to us. The language in the Colombian agreement, Panama agreement, and the Korean agreement, aren’t they exactly the same, as it relates to the environment?
*Mr. Marantis. Yes, sir. We have the most high standard environmental provisions in Korea, Colombia, Panama, as well as in the Peru agreement. And I am happy to go into as much agonizing detail as you want. But we are very proud of the text of the environmental ‑‑
*Mr. Reichert. And Korea has made great progress there, am I correct?
*Mr. Marantis. Yes, sir.
*Mr. Reichert. Yes. Thank you, Mr. Chairman. I yield back.
*Chairman Brady. Thank you. Mr. Neal is recognized.
*Mr. Neal. Thank you, Mr. Chairman. Mr. Ambassador, it is always easy to talk about the benefits or the shortcomings of trade in the generic. It is more difficult, as you know, in the specific.
But I do think one of the compelling parts of the argument, obviously, is what our competitors are doing to establish free trade agreements across the globe.
And would you comment, perhaps, on what would happen if this were to fall by the wayside, given what European Union is now doing, in seeking greater opportunities for growth through these FTAs?
*Mr. Marantis. Thank you, Mr. Neal. Yes, it is a ‑‑ it would be a big problem. I mean the EU trade agreement enters into force on July 1st. The longer that agreement is in force with the Korea agreement not being in force, the longer EU exporters have a competitive edge over our exporters in that market. And the EU is very competitive with us in all sectors: manufacturing, agriculture, and services. And it is very hard to regain market share once you lose it, or once another competitor actually gets a leg up.
What is very disturbing, as well, are statistics. Our market share in Korea has eroded over the past 10 years. In 2003 we were the largest ‑‑ had the largest import share in Korea at 21 percent. Now we are at nine percent. We are behind Japan and China, and the EU is very quickly catching up. And if their agreement goes into effect and ours does not, we will likely be eclipsed by the EU.
So, now it is very important that we get this passed, entered into force, so that our exporters can take advantage of the huge competitive opportunities that the agreement provides.
*Mr. Neal. How does this help gain a stronger foothold for the United States in Asian markets?
*Mr. Marantis. Again, it is a question of, I think, reversing a trend of erosion that we have seen, not just in Korea but throughout the Asia‑Pacific region. This agreement is critical to that. The negotiations we are doing in the trans‑Pacific partnership, the nine‑country regional trade agreement that we are doing in the Asia‑Pacific is critical to that goal. We need to be in the game very seriously in Asia, in the Asia‑Pacific region. It is the most dynamic part of the world, and it is the part of the world where we stand to gain competitive export opportunities and the jobs that are supported by those export opportunities.
*Mr. Neal. And lastly, I know that your portfolio does not include South America. But might you speak to the issue of what China is attempting to do in much of South America now, particularly in Brazil and other countries?
*Mr. Marantis. Sure. Again, we face, you know, in Latin America, as we do in other parts of the world, the risk that China and other economies are going to take advantage of opportunities that should be ours. You know, we have seen an erosion in market share in the Asia‑Pacific, as an example, and the potential for that is very real in Latin America, as well.
So, we need to seize, you know, the opportunities that are in front of us, get our manufacturers, our service providers, and our farmers and ranchers into those markets, so they can sell their made‑in‑America and grown‑in‑America products.
*Mr. Neal. I thank you. Thank you, Mr. Chairman.
*Chairman Brady. Thank you. Mr. Herger is recognized.
*Mr. Herger. Thank you, Mr. Chairman. And again, I want to thank you for representing a state and an area that is very dependent ‑‑ California ‑‑ heavy agriculture. In an area that I represent we are very grateful for the work that you are doing.
And I would like to follow up with my friend from Massachusetts’s question, if I could. Since our three pending trade agreements were signed almost four years ago, our trading partners have rushed ahead of us to negotiate bilateral and regional agreements that benefit their exporters and workers to the detriment of ours. The most obvious effect relates to tariff advantages that our competitors enjoy over us, which we have seen play out in Colombia, causing significant harm to our agricultural exports.
But there are other effects, as well. For example, the European Union has trade agreements that generally require its trading partners to adopt protections for geographic indications of origin, such as various cheese from the EU and member states. This could prevent U.S. companies from producing competing goods outside such EU regions from using those same geographical terms when marketing or selling their products in EU trading partner countries. This is a particular problem in the South Korean market.
Mr. Ambassador, could you please discuss what the Administration is going to address this geographic indication market access barrier that will be imposed on us by the EU‑South Korea trade agreement, and more broadly, the effect on our efforts to export certain products to these markets?
*Mr. Marantis. Thanks, Mr. Herger. I had the pleasure of visiting Sacramento a couple of months ago, and did a great round table that your staff put together with agriculture producers in your district on Korea and on the TPP agreement. So thank you again for that.
*Mr. Herger. Thank you for coming.
*Mr. Marantis. No, it was great. The dairy industry is a great example of why this agreement is terrific. You know, the dairy exporters will benefit from reduced tariffs and expanded TRQs. They are concerned, as are we, about the geographic indication issue that you raised.
You know, as you mentioned, in the Korea‑EU agreement, Korea has agreed to protect certain terms as geographic indication, terms that, you know, are used in common parlance, and terms that our dairy exporters either use now in Korea or are planning to use in Korea. It is an issue. When the EU‑Korea agreement concluded ‑‑ we have raised, you know, serious concerns with Korea on that issue, and we continue to do so.
*Mr. Herger. Thank you. The American Farm Bureau estimates that agricultural exports to South Korea could increase by $1.8 billion per year if the agreement were implemented. South Korea is already the fifth largest export market of U.S. agricultural products. Immediately upon implementation, almost two‑thirds of the U.S. farm products exports would become duty‑free. The agreement would also address non‑tariff regulatory barriers to agricultural trade by creating a specific committee to address sanitary and psytosanitary matters, which would encourage greater regulatory harmonization and the use of international standards and guidelines.
Mr. Ambassador, could you please discuss how this agreement, like the Colombia and Panama agreements, address specific barriers to U.S. agricultural exports, and which sectors might stand to benefit the most?
*Mr. Marantis. Yes, sir, with pleasure. You know, as with many provisions in this agreement, what is so important in the agriculture sector is that the agreement levels the playing field.
Right now we face average tariffs in Korea in the agriculture sector of nearly 54 percent, whereas our average tariff in the ag sector is 9 percent. So this agreement going into force levels the playing field for our farmers and ranchers, and does so in a way that provides incredible export opportunities, you know, throughout the sector: beef, you know, almonds, pistachios, cherries, asparagus, pork. You name it, it is great for our ag sector.
But it is not just about tariff barriers. As you mentioned, it is also about non‑tariff measures. As you mentioned, there is a committee to address sanitary and psytosanitary measures. But another key non‑tariff measure that this agreement will work on is in the area of transparency. And it is often times very difficult for small businesses, for small farmers and small ranchers to really have a good sense of what the regulatory environment is in a country, in a trading partner. And that is often a deterrent to actually export there.
This agreement has unprecedented provisions on transparency that will help us really get at non‑tariff measures that have, in the past, impeded our exports.
*Mr. Herger. Again, thank you.
*Chairman Brady. Thank you. Mr. Buchanan is recognized.
*Mr. Buchanan. Yes. Thank you, Mr. Chairman, for holding this important hearing. And thank you, Ambassador, for being here today.
Let me just ‑‑ I was looking at a letter that ‑‑ I guess from former Secretaries of States, Defense, Commerce, as well as USTA, that was placed in the file earlier by Mr. Brady, our chairman. They were pointing out a couple of things.
One, they said the movement ahead would help us to have a leadership position in trade in Asia, but also be a positive effect that would go beyond the Korean Peninsula. And what they were referring to, they said passage of this could also relieve some of the growing concerns that we have about China’s growing influence in the region. And I think they are absolutely right. Could you give us your thoughts and ideas from that standpoint?
*Mr. Marantis. Yes. What a great letter, by the way, you know, supported by a whole array of various former officials in different communities.
The issue that you raise with respect to China really deals with the importance of our being in the game in the Asia‑Pacific region, and assuring that we maintain a competitive edge over our competitors. And that is exactly what this agreement does. By leveling the playing field in the manufacturing, agriculture, and services sector, it allows us to participate more in the Korean market, and to reverse the erosion of market share that we have seen in Korea, where China has eclipsed us and Japan has eclipsed us as, you know, top importers.
So, this is part and parcel of an overall strategy to increase U.S. engagement in the Asia‑Pacific region to the benefit of all of us.
*Mr. Buchanan. My second point is I was looking at the U.S. Chamber. They said that the United States, if we did not ‑‑ not just this, but the others we could lose up to 380,000 jobs and 40 billion export sales. And I think they were looking at all three of the trade agreements. But what is ‑‑ a state like ‑‑ that I represent, Florida, one of the positive things in Florida ‑‑ we have 14 ports ‑‑ is exports. And I think we are up 15 or 20 percent and that continues to grow, and people are very concerned about these agreements not getting done quickly, because it is going on.
But what is the net effect, in terms of jobs, or from the Administration’s standpoint, with this new agreement being put in place, the Korean Agreement?
*Mr. Marantis. This agreement, as you mentioned, it is all about jobs, it is all about creating new export opportunities and those jobs that are supported by those export opportunities. In Florida we are going to see, you know, tremendous benefits in the agriculture sector, fruits, vegetables, we are going to see key benefits in the logistics sector, in the transportation sector. We are going to see key benefits in the area of machinery, electrical equipment, chemicals, all exports that are important to Florida’s economy.
So, for Florida, as for other states in the United States, this agreement is going to be a huge export boon. And, as a result, it is going to be a huge job boon.
*Mr. Buchanan. But do you have any numbers that you have put together, in terms of the country, the impact it will have, overall, on new jobs or new job opportunities, as a result of getting this agreement done?
*Mr. Marantis. Yes, sir. We have specific numbers for Florida. I do not have them in my head, but we will get them to you right after the hearing.
*Mr. Buchanan. I am looking for the U.S. Do you have a number ‑‑
*Mr. Marantis. Yes.
*Mr. Buchanan. ‑‑ off the top for the U.S.?
*Mr. Marantis. For the U.S., for goods alone, a conservative estimate is it will create 70,000 new jobs. It is harder to have a specific number on services, just because the economic data is more difficult to analyze. But we estimate that the ‑‑ that access to Korea’s $580 billion services market, and the new export opportunities that this agreement will create, will produce an additional tens of thousands of jobs in the services sector.
And then there are other job gains to be had by reduction of regulatory barriers and other non‑tariff barriers. So there is a significant job ‑‑
*Mr. Buchanan. So, Korea alone, we are looking at 100,000‑plus jobs that this agreement will mean to America.
*Mr. Marantis. Yes, sir. And again, we are being conservative. Senator Wyden worked with the ITC on a study. The ITC did technical assistance for Senator Wyden. And that study estimates a 230,000‑job benefit from the agreement.
You know, we are being a little bit more conservative, but our number is a minimum.
*Mr. Buchanan. Thank you. And I yield back.
*Chairman Brady. Thank you. Mr. Doggett?
*Mr. Doggett. Well, thank you very much. Just on the ITC issue that you were just mentioning, so has the ITC done a new estimate in contrast with its 2007 estimate concerning the job growth that can be expected under this agreement?
*Mr. Marantis. No, sir. The ITC ‑‑
*Mr. Doggett. Are you requesting them to do so?
*Mr. Marantis. We are not, largely because many of the trade statistics are basically the same that they were in 2007.
*Mr. Doggett. But you do not accept their conclusion that it would have a negligible effect on jobs.
*Mr. Marantis. Oh, no. We have taken their conclusion that it will grow our exports by $10 billion to $12 billion to have the figure that the agreement will produce, at a minimum, 70,000 jobs.
*Mr. Doggett. Well, I understand, having written this, you believe it will create many jobs. I am just a little confused about what part of the ITC you are accepting and what you are not.
They concluded, before you made these changes in the agreement, that it would have negligible effect on jobs, and it would actually cause a U.S. goods trade deficit. You do not agree with either of those conclusions, do you?
*Mr. Marantis. Sir, I believe that the ITC report said that on the ‑‑ our bilateral trade deficit, which is a $4.4 billion trade deficit now, would be reduced by $3.3 billion to $4 billion, which is consistent with our analysis.
*Mr. Doggett. You do not expect to ask the ITC for any re‑evaluation or updating of their data?
*Mr. Marantis. We do not.
*Mr. Doggett. Okay. When do you think we will get the Korea trade agreement?
*Mr. Marantis. We are ready, as Ambassador Kirk has mentioned. I actually have a draft copy of the implementing bill with me. We are ready to engage. We have started engaging in technical discussions. We are ready to engage in technical discussions on the actual text.
*Mr. Doggett. Is it your testimony that without the changes that were secured that you have testified about with some pride today, that it would have been a mistake for Congress to ratify the Korean trade agreement as originally authored?
*Mr. Marantis. I think the changes that we made have enabled us to be able to present this to you and unlock the potential of the 2007 agreement.
*Mr. Doggett. So you think that without them it would have been a mistake to ratify it?
*Mr. Marantis. I think we have made a very good agreement better.
*Mr. Doggett. So you were for it before you made the changes.
*Mr. Marantis. The ‑‑ I mean there were key outstanding concerns that many members of this committee had. And in order for us to be able to go forward, you know, we worked very closely with members of this committee and stakeholders throughout the country to address those concerns that ‑‑
*Mr. Doggett. And any time during those negotiations of the agreement did USTR seek any changes in the investor provisions?
*Mr. Marantis. No, we did not.
*Mr. Doggett. And the investor provisions are, therefore, exactly as they were negotiated by the Bush administration?
*Mr. Marantis. They are very strong and solid investor provisions.
*Mr. Doggett. I understand you think they are good, and that is why you did not change them. But they are exactly, verbatim, what the Bush administration negotiated?
*Mr. Marantis. Yes.
*Mr. Doggett. And with reference to the comments that President Obama made back during the campaign about seeking to ensure that those provisions were not used to undermine public safety or public interest in forums outside U.S. courts, there are no changes that have been made as a result of those policy statements. It is still possible for U.S. health and safety and environmental laws to be challenged in arbitration panels, is it not?
*Mr. Marantis. Sir, when this Administration came into office, we did an exhaustive review of this agreement, including the investment provisions.
*Mr. Doggett. And ‑‑
*Mr. Marantis. And based on that review, we are confident that we can ‑‑
*Mr. Doggett. I understand you have testified you are satisfied with it. You have made no changes in it from the Bush era. But it is possible to challenge U.S. health and safety laws by a foreign investor who thinks that it constitutes a taking ‑‑ not in our courts, but in an arbitration panel. Isn’t that correct? It may not prevail, but it is possible for them to do that.
*Mr. Marantis. It is possible. We have been subject to very few challenges in the past, and we have never lost.
*Mr. Doggett. Thank you very much.
*Mr. Marantis. Thank you, sir.
*Chairman Brady. Thank you. The chair recognizes Ms. Jenkins.
*Ms. Jenkins. Thank you, Mr. Chair. Thank you for holding this hearing.
Thank you for being here. I so appreciate your energy and enthusiasm this morning. Mr. Ambassador, it is clear that the U.S. agriculture producers and exporters will lose valuable markets if these trade agreements are not passed, certainly hurting farmers, ranchers, and other workers in the agriculture sector.
But I think it is also important to focus on all of the businesses that support our agriculture sector, ranging from the companies that provide machinery, fertilizer, seed, and other supplies to farmers and ranchers, as well as small, local companies that build the farmer’s silo and cut his or her hair.
How do you see these agreements affecting all of these businesses, and really, the entire community in rural America?
*Mr. Marantis. That is a great question. I mean this is ‑‑ this issue ‑‑ we are ‑‑ by creating the export opportunities that we do in this agreement, whether it is in the ag sector or the manufacturing sector, we are creating demand for the finished product. And by creating demand for the finished product, we are creating demand for the downstream product, the small and medium‑sized enterprises that supply, you know, large airplanes that we sell to Korea, or the suppliers, like you were saying, the feed suppliers that will supply our farmers and ranchers.
So, by creating new export opportunities for the finished product, we are creating new opportunities for suppliers and the jobs that those suppliers create.
*Ms. Jenkins. Great, thank you. Along that same line, it is abundantly clear that the three pending agreements will increase exports of U.S. ag products, greatly helping our farmers and ranchers. However, I understand that these agreements will also open up markets for processed food products and other goods that incorporate the bounty of America’s farmers and ranchers, and reflect the real value added in the United States.
Could you just please comment on how passing these agreements will help these important businesses and their workers, and how passing the three pending agreements would help meet the goal of the President’s national export initiative to double U.S. exports?
*Mr. Marantis. That is a very important point, as well. This is ‑‑ this agreement benefits our raw agricultural exporters, as well as exporters of processed products, as well. And the key thing it does is that it levels the playing field, so that we have more opportunities to sell to Korea’s $1 trillion market across the board.
You know, in your state, wheat, soybeans, beef, feed corn, those are all products that are going to benefit tremendously from this agreement, and will allow us to really boost our relationship and our exports to Korea’s gigantic market.
We are really excited about the opportunities that this presents in all of your states and in all of your districts. And to the extent to which anyone wants any really specific information on how this will benefit your district, your state, you know, sort of down to, you know, the most specific level, we are very happy to provide that.
*Ms. Jenkins. Excellent. Thank you. Mr. Chairman, I yield back.
*Chairman Brady. Thank you. Mr. Crowley is recognized.
*Mr. Crowley. Ambassador, welcome. Thank you, Mr. Chairman, and thank you, Mr. McDermott, as well. Let me also thank Chairman Camp and Ranking Member Levin for their work on the Korean free trade agreement and bringing us to where we are today.
Ambassador, you say you have the draft with you, or a draft with you. Has that been issued to the subcommittee?
*Mr. Marantis. Not yet. We have been dotting our I’s and crossing our T’s. And we have done that, and we have got a ‑‑
*Mr. Crowley. It has not been given to the full committee either, then, if the subcommittee has not got it.
*Mr. Marantis. Correct.
*Mr. Crowley. What is the intention, in terms of ‑‑ you brought it with you today. Is it going to be shared with the committee today?
*Mr. Marantis. We are ready to do so whenever the committee ‑‑
*Mr. Crowley. Has the committee asked for it? Has the chairman asked for it, or has the chairman of the committee asked for it yet, or the leadership of the House asked for it yet?
*Mr. Marantis. There have been a number of questions that we have been going back and forth on, in terms of how certain provisions will work with both staffs. And I think we have answered those questions in the text, and we are ready to share it, you know.
*Mr. Crowley. Has anyone asked for it yet?
*Mr. Marantis. Not yet.
*Mr. Crowley. No one from the House of Representatives has asked for the draft?
*Mr. Marantis. Not yet. We have been continuing our work on it, and we are proud to have it here with us today.
*Mr. Crowley. I appreciate that. I just would note that no one has asked for it at this point, and it is still out there. So thank you for that.
In terms of ‑‑ I come from New York City. So, if you could, just give me a sense of the financial services end. You talked broadly about services. But if you could, specifically talk about the opportunities that this agreement will present for that specific sector, financial services, in Korea. Can you comment on that?
*Mr. Marantis. Sure. I mean this agreement provides new market access opportunities in the financial service sector in eliminating many restrictions to supplying those services in Korea that existed, whether those restrictions were in the form of capital requirements or a certain percentage that you needed to hold.
But also in your district, you know, this is a great win for the chemical sector, the machinery sector, and the electric equipment sector as well, where current tariffs in those areas ‑‑ I think 80 percent of them ‑‑ will be eliminated immediately upon entry into force. And for your chemicals exporters, they are facing tariffs as high as 50 percent.
So, in terms of, you know, on the manufacturing side, there is a huge benefit for your district, as well as in the financial services sector.
*Mr. Crowley. I appreciate it. I wish there was more manufacturing going on in my district than services at this point. But clearly, the services end is very, very important to the city of New York, and obviously to the state of New York, as well.
There has been a great deal of discussion about the lack of movement on trade by the Administration. But we really are in the midst of a major trade agenda right now. Would you agree with that?
*Mr. Marantis. This is an unbelievably exciting time to be involved in international trade. We have got so much going on, whether it is in the context of these trade agreements, whether it is the trans‑Pacific partnership, whether it is the work we are doing on enforcement, whether it is the work we are doing to address a lot of the problems we have in our relationship with China. You know, there is so much going on that I think everybody at USTR’s head is spinning.
*Mr. Crowley. So maybe you can dispel some of the rumors that there is kind of a quagmire here, we are not moving out, and we are stuck in the mud, we are not moving out of this. That is kind of not really true. Is that correct?
*Mr. Marantis. No, that is incorrect. We have got a lot going on in all regions of the world, on all issues from, you know, trade expansion to enforcement.
*Mr. Crowley. One aspect of trade that I would like to know if you have a comment on is the issue of trade adjust ‑‑ assistance, and the lack of movement here. Can you make any comment on that?
*Mr. Marantis. Yes. We need to engage in a conversation with Congress about how we are going to move a comprehensive trade agenda forward. You know, that includes the FTAs, but that also includes, as you said, trade adjustment assistance, it includes renewal of our preference programs, and it includes securing PNTR for Russia.
*Mr. Crowley. Do you have any observation about why you think TAA has stalled here?
*Mr. Marantis. I mean TAA has been a critical component of our trade policy for years, and we ‑‑
*Mr. Crowley. I know that. But you won’t make any comment as to why you think it may have stalled here?
*Mr. Marantis. Well, we are looking forward to getting it renewed as quickly as possible.
*Mr. Crowley. I thank you, and I yield back the balance of my time.
*Mr. Marantis. Thank you, Ambassador. Let me understand the process. With a trade agreement like this, before the text is sent to Capitol Hill, you engage in technical discussions with the key committees, where members of both the majority and minority party go through, word for word, the agreement, ask questions.
And, as I understand it ‑‑ for example, the discussions today from both the majority and minority ‑‑ ask questions, inquire as to how the supplemental agreement, you know, coincides with the original text. That is the normal process, isn’t it, before the actual text is sent to the Hill?
*Mr. Marantis. Yes. I mean the great thing about this is this is a congressional‑executive partnership. And so we will, you know, sit down together, you know, have drafting sessions on what the implementing bill will look like. I mean, again, we have a draft of that here that we are looking forward to going through with you, you know, which will then lead towards the mock mark‑up that this ‑‑ that the committee will have.
But there are a lot of questions. You know, we, I think, have answers to all of them, and are eager to get rolling.
*Chairman Brady. Great-
*Mr. Crowley. Will the chairman yield for a moment, Mr. Chairman?
*Chairman Brady. Absolutely.
*Mr. Crowley. Just ‑‑ I brought that subject up because the notion that the Administration is dragging its heels, I wanted to clarify that the Administration is not holding back this agreement, and that the House has not yet asked for it. That was the point I was trying to make, that the House ‑‑ that the President and the Administration are not dragging their heels on this.
*Chairman Brady. Great, and I agree and appreciate that. We simply want thorough, complete technical discussions, and follow ‑‑ again, the consultation is very important. Thank you.
*Mr. Smith. Thank you, Mr. Chairman, and thank you, Ambassador, for sharing your expertise and insight with us today. And I guess I would ‑‑ reflecting on the prior statement, it is quite obvious that the Administration is advocating for this trade agreement, so much so that it leaves a lot of us to wonder exactly what the status is, perhaps, of the other two, although there is progress with the Colombia trade agreement and I am grateful for that.
But let me also say that I appreciate USTR. That operation is very impressive, in terms of engaging on the issues, and responsive. And I am grateful.
But if we could look at this issue, I think we have to, in terms of looking at all three trade agreements and the synergy that can be created, as we speak. As you said, this is an exciting time for trade. Let us take advantage of that.
And it is not just ‑‑ although I appreciate your speaking to the advantages for American agriculture, and the opportunities associated with this particular trade agreement, as well as the others ‑‑ but, you know, there are other sectors that can benefit, as well.
Can you speak to the synergy at all, though, about all three trade agreements that we are looking at right now? It is not always that we have an opportunity like this to send, I think, a terrific message, geopolitically or geostrategically, around the world of how we can engage, and we appreciate our friends in, often times, hostile regions of the world. Can you speak to that synergy that can exist?
*Mr. Marantis. Yes. I mean all of these trade agreements are about, you know, two primary things: economic growth and job creation. And, you know, I think people think it is trite to say, but it is very true: 95 percent of the world’s consumers live outside of the United States. And in order for our economy to grow, we have got to export to them. And in order for us to be able to create jobs, we need to take advantage of those export opportunities.
And that is what our trade policy is about, it is about fostering economic growth. It is about creating opportunities, and it is about creating jobs.
*Mr. Smith. Thank you. Also, you know, it is interesting ‑‑ and, as I am sure you are aware ‑‑ and we have heard a little bit earlier this morning that often times there is kind of a twisting of information out there of what can be accomplished with various trade agreements.
And we know that we have a global economy, for obvious reasons. And we see U.S. companies perhaps expanding to countries overseas, closer to some of those markets that you just highlighted. Do you see any of that changes?
Now, companies are often times criticized for doing so, which is unfortunate, because that makes U.S. companies stronger, when they can expand closer to various markets worldwide. Can you speak to whether or not that would be changed, or viewed any different, with respect to expansion?
*Mr. Marantis. No. Thanks for raising that point. I mean I think it is important to remember that our investment, U.S. investment in foreign markets is job‑creating. Forty‑five percent of U.S. exports are associated with our firms who are investing overseas. Twenty‑two million American jobs depend on U.S. firms who have investments overseas. That is why the investment provisions of our agreements are important, because they level the playing field for our investors, who often times face very difficult challenges in the legal regimes of foreign markets.
So, through our investment provisions in these agreements, it actually brings our trading partners up to the very high level of investment protection that we provide domestically for ourselves and for foreign investors.
*Mr. Smith. Okay. Also we have heard a lot about agriculture already. Could you perhaps highlight some of the opportunities in the manufacturing sector, if you could?
*Mr. Marantis. Absolutely. As ‑‑ generally, speaking broadly, you know, the agreement levels the playing field in the manufacturing sector, as it does in the ag sector. Korea’s average tariff in the manufacturing sector is around 6.8 percent. You know, ours is about two percent ‑‑ ours is about three percent. So, once the agreement goes into force, you know, 95 percent of Korea’s tariffs will be eliminated in the first 5 years of this agreement. And that is going to be a huge boon for our manufacturing sector, including in the area ‑‑ you know, our chemicals exporters, our machinery exporters.
And now that we have been able to do what we did in December, this agreement is now better for our auto exporters, who are going to have new opportunities to sell, you know, our high‑quality U.S. cars in Korea’s market.
*Mr. Smith. Okay. Thank you. And I appreciate those numbers that you mentioned, because I think it also points to the fact that when tariffs that our companies face there are higher than what their companies face here, actually we gain more. So thank you, Mr. Chairman.
*Chairman Brady. Thank you. Mr. Rangel is recognized.
*Mr. Rangel. Thank you so much, Mr. Chairman, and thank you, Mr. Ambassador. I am so pleased to see that the strong objections that some of us had under previous agreement have been adjusted.
And I think you are saying in your testimony that there is no outstanding issue now that you know of that could cause a large number of Members to be critical of it?
*Mr. Marantis. Yes, sir. We worked very hard with you, with Mr. Levin, Mr. Camp, Mr. Brady, your staffs, to address, you know, the key outstanding ‑‑ one of the key outstanding concerns that was out there in the auto sector. And we are so grateful for the work that we were able to do together to make this better, and to allow for us to be sitting here today, you know, together, urging for passage of this agreement.
*Mr. Rangel. One of the feelings that a lot Americans have ‑‑ and it is reflected by their representative ‑‑ is that when you say “trade” you mean loss of jobs. And I do not think we have done a pretty good job, in terms of showing that jobs can and are being created.
You made a very generous offer to the gentlelady from the majority that you would share with her the impact in her district. And, as Mr. Crowley said, even though we are from New York City, we are concerned with the whole state.
For the life of me, I do not know why, especially with the Colombian agreement, where there is just so many arguments for the jobs that would be created, why none of that is shared with us. Are you familiar at all with the Colombian agreement, and where the manufactured goods that are needed would be coming from? We know the companies names, and of course I do not know where they are located. But I have been impressed by the names of the manufacturing companies. Wish they were in New York, but nevertheless, if it is the United States, that helps me.
Do you go through anything like that in your office?
*Mr. Marantis. Yes, sir. We are developing ‑‑ we have, complete for Korea, an analysis on a state‑by‑state, on a sector‑by‑sector basis, that really goes into great detail. We are in the process of developing those for Colombia and Panama as well, but they are extremely helpful documents. I actually think, for Korea purposes today, USTR’s website now has a special page on it, on the Korea agreement, that has all of these specific facts on ‑‑ again, on a sector‑by‑sector and a state‑by‑state basis.
*Mr. Rangel. And the environmental concerns that the Government of Korea ‑‑ we are satisfied that our automobiles are just as safe and environmentally approved as anything that the Koreans are producing. Is that right?
*Mr. Marantis. Yes, sir. We have very strong ‑‑ our federal motor vehicle safety standards have the highest safety standards, you know, in the world. Our environmental regulations are the highest standards in the world. And what we have done, in terms of safety and environment, is we have ensured that Korea’s regulations do not place a disproportionate burden on our exporters, while at the same time ensuring the highest level of safety and environmental protection.
*Mr. Rangel. Did you answer the question whether or not we can expect the Korean free trade agreement to come by itself, or whether it is going to be included with a whole group of agreements?
*Mr. Marantis. That is a conversation we need to have with Congress, in terms of how we move forward on the President’s comprehensive trade agenda, which includes the pending FTAs, which includes trade adjustment assistance, renewal of our preference programs, as well as securing PNTR for Russia.
*Mr. Rangel. Are beef exporters satisfied with the changes in the provision, as it relates to exporting of beef?
*Mr. Marantis. The Korea agreement addresses the key barrier that our beef exporters have faced, which is the 40 percent tariff on U.S. beef. You know, implementation of the agreement will allow our exporters to build on the phenomenal growth in their sales that they have seen over the past few years. Last year I think exports increased by 140 percent.
We still have concerns with respect to beef that Korea has not fully opened its market to beef from cattle over 30 months. It is something that we are going to continue our work with the Koreans on.
*Mr. Rangel. Take my word for it. All the work that you could possibly do in identifying potential jobs in our communities, in our state, and more specifically, in our congressional district, it works, and it is needed.
Thank you so much, Mr. Chairman.
*Chairman Brady. Thank you, Chairman. Mr. Larson?
*Mr. Larson. Thank you, Chairman Brady. Ambassador, in your testimony you state that the U.S.‑Korea trade agreement will result in the removal of tariffs on over 95 percent of made‑in‑America industrial and consumer good exports. Specifically, you cite the benefits to the U.S. aerospace industry and its workers. This is especially important to my district, in East Hartford, Connecticut, which is the home of a number of aerospace‑related companies, including Pratt & Whitney, Hamilton Sundstrand, Command, Aero Gear, to name just a few.
Can you please provide a bit more clarity on how this deal would benefit American aerospace industry, and the skilled workers employed in these companies? And further, can you discuss how a delay in enacting the deal would impact these aerospace companies? I ask, because the EU’s agreement with Korea will be going into place shortly, and many of the world’s top aerospace companies are headquartered in Europe.
*Mr. Marantis. Thank you, Mr. Larson. I had the pleasure of visiting Pratt & Whitney with your staff about six months ago, and so thank you for that opportunity.
Aerospace is a great example; 92 percent of our aerospace exports will go duty free, upon implementation of the agreement. The remaining eight percent will phase out in three years. This is very important, as you mentioned, for EU purposes, as well. The EU has a very competitive aerospace industry with ours. If their agreement goes into effect in July, as it does, as it is, and ours does not go into effect for, you know, a long time thereafter, we are going to lose a competitive advantage. And EU exporters of aerospace and other products will have a competitive advantage over ours, and will get a foothold in Korea’s market.
That is why it is critically important that we move this agreement to conclusion as quickly as possible to make sure that exporters of aerospace and, you know, all other products are able to really get that competitive leg up in Korea’s market before too much time passes.
*Mr. Larson. Thank you, sir.
*Chairman Brady. The gentleman yields back? Mr. Kind?
*Mr. Larson. I yield back.
*Mr. Kind. Thank you, Mr. Chairman. Thank you for having this hearing. Mr. Ambassador, thank you. And I would like to just commend you and Ambassador Kirk, the entire U.S. TR team, as well as the Obama Administration, for slowing the process down a little bit with these important trade agreements, and seeing if we can get a better deal. And, from my perspective, the additional work that went in to some of the, shall we say, loose ends in regards to Korea, there was significant progress to where it was and where we are today. The same thing is occurring with Colombia and Panama as well, and I think that was exactly what was necessary, in order to make, as you describe, good agreements even better. And that is how I view this.
But we also need to be clear that, you know, trade right now in a time of tough economic times, in an economy that is under‑performing here in the United States, it is a tough sell. I just met with numerous labor leaders back in Wisconsin last week who are adamantly opposed to the Korean trade agreement, under the impression that it does not go far enough when it comes to labor standards, environmental standards, those type of things, and they are afraid this might result in a race to the bottom.
If you had an opportunity to address them, what can you point to specifically in regards to the Korea trade agreement, as it relates to labor and environment, to try to dispel them of this notion that it is not as tight or not as good as we could hope to see?
*Mr. Marantis. Thank you. This agreement provides the highest level of labor and environmental protection that we have had in the history of trade agreements, as does Colombia and Panama, as well.
This agreement requires both parties to adopt and maintain laws that are consistent with the five core ILO labor standards. It requires the parties to effectively enforce those laws, as well as laws that relate to acceptable conditions of work, like minimum wage. It requires parties not to waive or derogate from the provisions to achieve a trade or investment advantage. And the standards on the environmental side are equally as high.
We are very proud on what we have done on labor and environment in these provisions. And, you know, working specifically with a partner like Korea, who, you know, with an advanced economy and advanced labor relations regime, a GDP per capita of $20,000, we have got a good partner on this. And, you know, we are looking forward to putting these provisions into place, because they provide us ‑‑ when in place, they will provide us with a further mechanism to address any labor or environmental‑related concerns that should arise.
*Mr. Kind. And I know your office has been responsive to our request, too, as far as more detailed information in this regard. And we are trying to do our own economic analysis, as far as the impact in Wisconsin. Still a large manufacturing state. We have got many large manufacturers in my congressional district, from 3M to train company, to Hutchinson Cummins, who all view this as a real net positive for them, and the products that are being right in ‑‑ also agriculture production is key to our state.
But there is one sector that has really been struggling the last couple of years, and that is dairy production, our dairy farmers. Is there something here in Korea that we can offer the dairy industry of America, too, as ‑‑
*Mr. Marantis. Yes. It is a great agreement for dairy, in that it reduces tariffs and expands tariff rate quotas. For instance, upon implementation, our dairy exporters will see duty‑free tariff rate quotas for a number of products: cheese, butter, certain milk powders. This is a great agreement for dairy.
And again, like, you know, for other sectors, the sooner we get it into force, the sooner they will be able to benefit.
*Mr. Kind. And you said there is ‑‑ still, hopefully, some progress is going to be made on beef. Is there something more tangible you can ‑‑
*Mr. Marantis. Yes. I mean, on beef, the key thing is when ‑‑ as soon as the agreement goes into force, we begin to eliminate the 40 percent tariff on beef. And that has really been ‑‑ that is really important, particularly as Australia is in the process of negotiating an FTA with Korea. We do not want to have our beef exporters put at a competitive disadvantage to Australia. Korea’s tariff is high, 40 percent. And as it lowers for us before Australia, we are going to get a competitive leg up in the market.
We do continue to have concerns, though, with lingering restrictions on beef and cattle over 30 months. It is something we are working on, you know, with Korea, as well as with our other Asian trading partners, Japan and China, as well. And we expect to make progress.
*Mr. Kind. Let me ask you one final question. We are running out of time, but I think in order to have an honest conversation with the American people, trade is a two‑way street. There are going to be benefits flowing the other way.
Let me ask you a question that you do not hear from many Members of Congress in that, when we are looking at these trade agreements. But what is in it for Korea? Why is Korea interested in entering into this trade agreement when we already have pretty low tariffs and pretty easy market access to what they are producing?
*Mr. Marantis. We are a very important market for, you know, for countries around the world. We are the biggest consumer market.
What this agreement does for Korea, it really locks in a preferential regime for Korea, for Korean exporters to be able to benefit from, you know, the wide consumer market that we have here. So we like to call it ‑‑ again, it is a trite expression to say it is a win‑win, but it really is.
You know, we get significant benefits in Korea, and Korea gets significant benefits, being able to access our huge market more competitively than some of its competitors.
*Mr. Kind. Thank you. Thank you, Mr. Chairman.
*Chairman Brady. Thank you. Mr. Paulsen is recognized.
*Mr. Paulsen. Well, thank you, Mr. Chairman. And, Mr. Ambassador, let me just start by thanking you and Ambassador Kirk and Ambassador Han for all of the success in moving this outstanding opportunity for job growth, which is really what it is about, is about jobs and economic growth, but also new sales, new customers. And that is the message we all need to communicate bipartisanly, to really see this successfully move forward. And I know the votes are there. It is going to happen, as well as the opportunity for all three trade agreements.
Let me just ask you a question really quick, because we focused a lot about manufacturing and the services industry, as well. I know that U.S. industries that depend on intellectual property rights employ millions of American workers and they support very high‑paying jobs. And it is absolutely estimated now that there is a broad range of U.S. industries that depend on intellectual property rights. They count for about 60 percent of U.S. exports and drive nearly 40 percent of U.S. economic growth.
And our trade agreements, including the pending ones now before us, set very high standards for protecting United States intellectual property rights abroad that help support U.S. innovations, U.S. entrepreneurship, U.S. competitiveness and jobs. Do you agree with this assessment, and could you please give a couple of examples maybe of how these pending trade agreements with South Korea and the other agreements protect our intellectual property rights to the benefit of U.S. workers and the U.S. economy?
*Mr. Marantis. Thanks for raising that. I mean IP is a critical chapter of this agreement, as it is with Panama and Colombia, and we have some pretty incredible IP protections in this, across industry, you know, in the area of copyrights, trademark patents, as well.
It is ‑‑ you know, the agreement strengthened deterrents against criminal acts of commercial scale piracy. It really beefs up our ability to enforce provisions against piracy, against counterfeiting. It goes much farther in the area of combating Internet piracy, as well. In the area of trademarks these agreements have state‑of‑the‑art provisions that, you know, recognize sound marks and scent marks, and also have, again, very strong deterrent and enforcement provisions. It extends the term of protection for certain copyrighted works, consistent with U.S. law and emerging international standards.
I mean I can go on and on. It streamlines and strengthens customs procedures to increase the efficiency of border enforcement, to deter, you know, counterfeit products, you know, at our border.
So these ‑‑ the intellectual property provisions in the Korea agreement in particular, which I know best, but also in Colombia and Panama, are really state of the art.
*Mr. Paulsen. Well, thank you. And I just raise that because that is an issue I often hear from my small manufacturing and medium manufacturing companies back home, not to mention others, that really are concerned about protecting our innovative ideas here in the United States. And so this is something that sort of gets glossed over. And it is an opportunity to really enhance and protect that. So I just want to thank you for that.
And we heard a lot of examples here from the Members on the Committee of how our own individual districts or states will benefit under this agreement. And I just know that is going to be the continued case, Mr. Chairman, as you work with the Administration on bringing the other agreements forward, as well. Thank you. I yield back.
*Chairman Brady. Thank you. Mr. McDermott is recognized.
*Mr. McDermott. Thank you, Mr. Chairman. I would like to reclaim just a moment of my time to clarify something.
If I understand correctly, we have the Korean FTA draft implementing legislation here. I just want to make it clear the Democrats want you to send it up here today. It is time to move the ball and get the FTA moving with this. Let us not play this game about who asked who play back and forth. If you have got it, send it. Let us move it.
*Chairman Brady. The excitement is mounting, Ambassador.
*Chairman Brady. Thank you for being here. I want to thank you for your testimony. And thank the Members for their thoughtful questions on both sides of the aisle. And let me note, as well ‑‑ Ambassador knows this ‑‑ the Members may submit questions for the record. And if they do, I hope you will respond promptly. And again, thank you for the insight today, and your time.
I would like to welcome our second panel to step forward today. We are joined by four witnesses.
Our first witness will be Mr. Bill Rhodes, Chairman of the U.S.‑Korea Business Council. He is also Chairman and CEO of William R. Rhodes Global Advisors, and Senior Advisor to Citigroup. He is testifying on behalf of the U.S.‑Korea Business Council and the U.S.‑Korea FTA Business Coalition.
After him we will hear from Dr. John Schoch, President and CEO of Profile Products, LLP, who is also testifying on behalf of the U.S. Chamber of Commerce.
Our third witness will be Mr. Robert Holleyman, president and CEO of the Business Software Alliance.
And last we will hear from Ambassador Thomas Hubbard, who served as the U.S. Smbassador to South Korea from 2001 through 2004, and now is Senior Director for Asia at McLarty Associates.
We welcome all of you, and we look forward to your testimony. I would also ask that our witnesses keep their testimony to five minutes.
Mr. Rhodes, your written statement, like those and all the witnesses, will be made part of the record, and you are recognized for five minutes. Welcome.
STATEMENT OF WILLIAM RHODES, CHAIRMAN, U.S.‑KOREA BUSINESS COUNCIL, PRESIDENT AND CHIEF EXECUTIVE OFFICER, WILLIAM R. RHODES GLOBAL ADVISORS, LLC, SENIOR ADVISOR TO CITIGROUP, ON BEHALF OF THE U.S.‑KOREA BUSINESS COUNCIL AND THE U.S.‑KOREA FTA BUSINESS COALITION
*Mr. Rhodes. Thank you, Chairman Brady, Ranking Member McDermott, and members of the subcommittee, for giving me this opportunity to talk to you and testify on the KORUS FTA, which I will refer to as KORUS, going forward.
I serve as the chairman of the U.S.‑Korea Business Council, which is an affiliate of the U.S. Chamber of Commerce, and is a leading business organization promoting the bilateral U.S.‑Korea commercial relationship. The Council is secretariat for the U.S.‑Korea FTA business coalition, which represents nearly 1,000 companies, businesses, and agricultural organizations and chambers of commerce that support the approval of the pending trade agreement with Korea.
I am also senior advisor to Citigroup and president of ‑‑ CEO of William R. Rhodes Global Advisors. I am chairman emeritus of the Council of the Americas, the Americas Society, and a professor at large at Brown University. In wearing all these hats, I am a vigorous proponent of trade liberalization and, in fact, was one of those early on who urged the U.S. and Korean governments to launch the negotiation of a free trade agreement.
The approval and implementation of the U.S. economy agreement with South Korea, along with agreements with Colombia and Panama are among the most important actions that the U.S. Congress can take to achieve President Obama’s goal of doubling U.S. exports in five years, and creating new jobs and economic opportunities in communities across the country, and in building an infrastructure that promotes regional prosperity and stability.
On that note, I want to applaud the action of the Obama and Santos administrations for having reached agreement on the labor action plan which will also allow the Colombia FTA to move forward and be considered by Congress. We have also seen important progress which has been made on Panama so that agreement can also be moved forward in the future. All of these agreements are important for American growth and job creation.
But given the specific hearing today, I want to talk about the U.S. business community, and how it sees the Korean agreement, specifically, and especially the benefits to U.S. economic and geostrategic goals.
This groundbreaking agreement will bring significant benefits to American workers, business, farmers, consumers, and U.S. economy. The scale and breadth of U.S. trade with South Korea, 1 trillion economy with 49 million consumers, that is already the seventh largest U.S. export market and trading partner ‑‑ this makes KORUS the most commercially significant bilateral U.S. trade agreement in nearly 2 decades.
I believe we are close to the finish line on KORUS, but I think we can all agree it has been a long and winding course. We recognize that concerns raised by U.S. stakeholders with respect to certain measures, and KORUS needed to be addressed in order for the agreement to move forward.
We applaud the tireless efforts of the White House and Blue House, the office of U.S. Trade Representative, and I must say Ambassadors Kirk, Marantis, and Wendy Cutler have done a first rate job here, and Members of Congress and the Korean trade negotiator counterparts, for identifying the solutions that we have finally come to.
The new provisions reached in December added powerful new momentum for moving the KORUS agreement forward. KORUS is the centerpiece of America’s international economic engagement. The United States International Trade Commission, USITC, estimated in September 2007 that the agreement could increase U.S. exports to $10 billion to $11 billion annually. President Obama has said on many occasions that it would add 70,000 U.S. jobs if this ‑‑ when this agreement is approved.
An updated statement of potential economic effects of the agreement prepared in January of this year, January 2011, by the USITC economic staff, at the request of the Senate Finance Committee Trade Subcommittee estimated that the agreement could generate as many as 280,000 jobs. Moreover, Korean companies are expanding their investment in the United States, and have created thousands of American jobs in manufacturing, as well as distribution and supplier networks across our country.
By reaffirming the openness of the U.S. market and the attractiveness of the United States as a destination for investment, and by lowering barriers to U.S. exports in the Korean market, Korea has the potential to accelerate all these job‑creating opportunities that I have mentioned.
But the agreement cannot solely be quantified, in terms of bilateral economic impact. KORUS also has significant implications for the U.S. national economic security and geostrategic priorities, both in Asia‑Pacific and globally.
[The statement of Mr. Rhodes follows:]
*Chairman Brady. Mr. Rhodes, if I may, we are going to adhere to the five‑minute limit on initial statements. I do have questions I would like to ask you when we conclude.
And, just for the panel’s information, we have been called to vote. I would like to work through Mr. Schoch’s testimony, break for the three votes, and then we will reconvene immediately after the last vote is taken.
So, Mr. Rhodes, thank you very much for your testimony. Mr. Schoch, you are recognized.
STATEMENT OF JOHN A. SCHOCH, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER, PROFILE PRODUCTS, LLC, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE
*Mr. Schoch. Thank you, Chairman Brady, Ranking Member McDermott, and distinguished members of the Ways and Means Committee on Trade. My name is John Schoch, and I am president and CEO of Profile Products LLC, headquartered in Buffalo Grove, Illinois. I am testifying today on behalf of the U.S. Chamber of Commerce, the world’s largest business federation, representing the interests of more than three million businesses of all size, sectors, regions, as well as state and local chambers and industry associations.
I am pleased to have this opportunity to talk about the important benefits of passing the pending free trade agreements for American jobs and U.S. economic growth and, specifically, how the U.S.‑Korea free trade agreement, known as KORUS, will boost Profile’s exports and generate greater employment opportunities for our company’s manufacturing facilities around the country.
For over 50 years, Profile Products has been a leading producer of the market’s broadest line of erosion and sediment control products, turf establishment products, and complementary accessories to control erosion and accelerate seed germination. We also manufacture the industry’s best‑selling inorganic soil amendments for sports field, golf course, and landscape applications. With approximately 200 employees and 4 manufacturing facilities, 2 sales offices, and personnel domiciled around the country, Profile is able to manufacture and market its entire line of products from the United States.
Profile manufacturers its products in four rural towns throughout the country: Blue Mountain, Mississippi; Conover, North Carolina; Limestone, Tennessee; and Sanger, California. These communities understand that the number of people that we employ is directly related to the volume of orders our company receives. So, as our exports grow, so will the hours of production, and the number of employee shifts we need to operate in order to complete those orders. Today I am proud to say that our products are represented in more than 50 countries around the world.
While many Americans believe that trade only benefits large, multi‑national corporations, the reality is more than 97 percent of U.S. exporters are small and medium‑sized enterprises, or SMEs. In 2008, almost 21,000 U.S. companies exported $34.8 billion worth of merchandise to Korea alone. Of the total exporters, 18,500, or over 89 percent, were SMEs.
Profile is one of the many U.S. SMEs that benefitted from exporting to Korea’s dynamic market. In fact, Korea is our single largest export market, making up 12 percent of our total international sales revenue. Since 2009, Profile has sold more than 2,000 tons of our products into Korea. Several golf courses in Korea, including the prestigious Jack Nicklaus Signature Golf Club, feature Profile’s products.
As global demand for Profile’s innovative solutions has increased, so too has the effect of global sales on our company’s workforce. In 2010, 13 to 14 percent of our sales came from overseas orders. We anticipate that number to grow to 15 to 17 percent of our total sales in 2011. If you do the calculation, that means approximately 28 of our 200 employees are employed as a direct result of the company’s exports.
While our company has achieved considerable success in Korea and other markets, one of the greatest challenges we face is the complex array of foreign barriers to American exports. These include both tariff and non‑tariff barriers. Free trade agreements like the pending trade deal with Korea will remove these barriers and create new opportunities and economic benefits for U.S. businesses through tariff elimination, greater market access, more efficient customs regimes, stronger intellectual property protections, and other market‑opening provisions. For Profile, this would mean being able to sell our products to Korea at a significantly lower‑landed price. Tariffs on our products currently range from three to eight percent. With passage of KORUS, those tariffs would be eliminated immediately.
In addition, Korea has been a particularly challenging market for Profile, in terms of trademark and patent infringement. KORUS will provide protections for intellectual property, similar to those in the U.S.
So, in conclusion, in support of the job‑creating market‑opening deal with Korea and our other trading partners, I respectfully urge Congress to boost exports and generate jobs through swift approval of the U.S.‑Korea free trade agreement, and the pending trade deals with Colombia and Panama. The time for action is now.
Thank you very much for the opportunity to speak today.
[The statement of Mr. Schoch follows:]
*Chairman Brady. Thank you, Mr. Schoch. Mr. Holleyman, Ambassador, if you will hang tight with these votes, I apologize, we will be back just as soon as it is over. And the committee is recessed until then. Thanks.
*Chairman Brady. The Subcommittee on Trade will reconvene. Thank you again for your patience, all of you.
Mr. Holleyman, you are recognized for five minutes.
STATEMENT OF ROBERT HOLLEYMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BUSINESS SOFTWARE ALLIANCE
*Mr. Holleyman. Mr. Chairman, Ranking Member McDermott, thank you for holding this hearing today and inviting the Business Software Alliance to testify. I am pleased to have this opportunity to express BSA’s strong support for speedy approval of the U.S.‑Korea free trade agreement.
Reducing software theft and ensuring fair and open access to overseas markets are essential to the software industry. We support the KORUS FTA because it advances both of these goals.
Korea has already demonstrated the capacity and the will to reduce software piracy through sustained high levels of enforcement. We expect that once KORUS is implemented fully, these efforts will continue and improve, as long as Korea’s implementation of one element of KORUS, which I will discuss in a moment, does not disrupt our current effective anti‑piracy efforts.
Mr. Chairman and members of this subcommittee, the U.S. is just emerging from a deep economic crisis. Our country’s ability to export and create jobs is going to be a key factor in our growth. The software industry in the U.S. already enjoys a $39 billion trade surplus with the rest of the world. And that is not surprising, when you consider that $.60 of every dollar spent on software around the world comes back to U.S.‑based software companies. Our industry is well‑positioned to contribute even more to the positive side of our trade balance for this country.
The biggest barrier we face today in markets is end user piracy, when otherwise legal businesses use software as a tool of production, but do not pay for it. It is vitally important to have strong copyright and enforcement provisions in all FTAs. And a number of provisions in KORUS help protect the intellectual property of U.S. businesses operating in Korea. They include: requiring that government agencies use only legal software; protection for temporary reproductions; protection against circumvention of technological measures; and the exclusive right to make works available online.
The KORUS FTA also includes numerous obligations that provide for strong enforcement of intellectual property rights, including statutory damages and service provider liability. Each of these elements is also included in the pending agreements with Panama and Colombia, which is why we support those agreements as well.
Korea is a story of progress. Let me take a moment to share a little of that story. The BSA and I have been fighting software theft in Korea for 20 years. About 10 years ago Korea made an explicit commitment to the U.S. that it would conduct a high volume of actions against businesses who use illegal software on a sustained basis. Korea’s efforts, as a result of that commitment to the U.S., have driven the piracy rate down by nearly 10 points over the past decade, while software sales have increased by more than 40 percent.
A key factor of this progress has been the element of Korean law that permits right holders to bring criminal complaints against end user piracy, and withdraw those complaints when there is an agreement reached with the offending party. And that element may be repealed as part of FTA implementation in Korea.
Software piracy remains a substantial problem in Korea, with rates double those here in the U.S. The KORUS FTA must build on the successful efforts taking place today under existing law, and expand upon those in ways that will continue to bring software theft down. Most importantly, Korea must continue to commit to maintain vigorous and undiminished criminal enforcement efforts against business end user piracy. We urge this committee to help ensure that happens.
In conclusion, the KORUS FTA is an important agreement with a major trading partner. It includes world class IPR protections and ensures open markets for IT services and Commerce. We urge the Congress to approve the KORUS FTA, and also to play a role in its successful implementation. Thank you.
[The statement of Mr. Holleyman follows:]
*Chairman Brady. Thank you, Mr. Holleyman.
STATEMENT OF THOMAS HUBBARD, SENIOR DIRECTOR FOR ASIA, MCLARTY ASSOCIATES, FORMER AMBASSADOR TO SOUTH KOREA
*Mr. Hubbard. Thank you, Mr. Chairman. It is indeed an honor for me to be here today, and I appreciate your inviting me here.
As a career foreign service officer for nearly 40 years, I spent a lot of time in the various foreign affairs and armed services committees. This is the first time I have testified to the Ways and Means Committee, and I am honored to be in the big time.
*Chairman Brady. Well, we are honored to have you here.
*Mr. Hubbard. My colleagues here today have made very clear that the Korea‑U.S. free trade agreement is a critical step forward for American job creation and ensuring U.S. economic competitiveness in Asia. I would like to stress that this trade agreement is also an important investment in the overall U.S.‑South Korea alliance at a time when heightened tensions on the Korean Peninsula require our solidarity with our allies in the south, and it will also be a strong manifestation of the U.S. commitment to remain a major presence in Asia.
Sixty year ago the U.S. stood with the Republic of Korea in countering aggression from the Communist north. That bloody conflict, which cost the lives of more than 35,000 Americans, has yet to result in a permanent peace. North Korea continues to challenge the world through its nuclear weapons programs, and its recent attacks on the south have reminded us of the military threat and raised deep concerns throughout northeast Asia.
The Korean Peninsula remains a very dangerous place. However, there has been a successful spectacular success story amidst ongoing tensions. South Korea has risen to be the world’s 14th largest economy, a vibrant democracy, and a valued ally for the United States in a critical region.
Moving ahead with KORUS will also be a concrete demonstration that the United States is prepared more broadly to lead on trade in Asia. This is a signal that all of our partners in the region want to see. The economies of Asia are in the process of integration and are now trading more with each other than they are with the United States. Bilateral and regional free trade agreements are proliferating, and the ROK is in the vanguard. We cannot afford to wait on the sidelines while the region pursues agreements that leave us out.
KORUS will give us special access to the Korean market, enhancing our ability to compete with China, Japan, and India, and Europe, even as it strengthens Korea’s ties to the United States. And I think KORUS may also provoke wider liberalization. Approval of KORUS will lend impetus, among other things, to the effort to develop the trans‑Pacific partnership and move beyond that to an Asia ‑‑ a free trade zone of the Asia‑Pacific.
But the economic benefits are just part of the equation. Strategic interests are also overwhelming at a time when the U.S. is dealing with a host of new security threats, including North Korea’s nuclear weapons program.
This free trade agreement will strengthen our strategic partnership with an important Asian ally that shares our belief in democracy, and has stepped up to the plate with military contributions in various places in the world. One of South Korea’s primary goals in seeking the free trade agreement with the United States is to broaden and strengthen its relationship with its ally at a time when rapid changes in East Asia, including China’s rapid rise, have provoked significant changes in power relationships in Asia.
We strongly share the Republic of Korea’s interest in solidifying and broadening this critical alliance. And a failure to approve KORUS would be exactly the wrong signal to North Korea and to our allies and friends in Asia, who want us to remain strongly engaged.
As Chairman Rangel knows as well as any of us, Americans and South Koreans shared blood together to prevent a Communist takeover of the entire peninsula 60 years ago. We still stand together in facing the many challenges from the north. The FTA with Korea will strengthen America’s relationship with our long‑time ally, and enhance our presence and influence in a very critical region. Thank you.
[The statement of Mr. Hubbard follows:]
*Chairman Brady. Ambassador Hubbard, thank you so much. Appreciate the testimony.
Mr. Schoch, you are a real‑life example of how small business can compete and win in these growing markets, and how removing those barriers can help make those sales ‑‑
*Mr. Schoch. Yes, sir.
*Chairman Brady. ‑‑ at a time when every sale counts.
*Mr. Schoch. Yes, sir.
*Chairman Brady. Mr. Holleyman, you laid out both the progress that has been made, but also how that has expanded in this agreement with intellectual property protections, key to millions of jobs in one of our most dynamic industries growing in America. Thank you for that testimony.
I wanted to ask Mr. Rhodes and Ambassador Hubbard to ‑‑ both of those testimonies build up to the bigger picture on this trade agreement. I would like Mr. Rhodes and Mr. Hubbard to sort of expand on the geostrategic benefits of this. Clearly, South Korea is a critical ally. This strengthens the agreement ‑‑ strengthens that relationship. But it also strengthens America as a counterweight to China in that region, both in trade and other areas.
Clearly, Asia‑Pacific region is blowing and going. They are moving ahead, whether we are engaged or not. They would like us there as a counterweight to China in many areas. But, frankly, they are not waiting for us to engage. They are moving ahead without us.
So, I would like, Mr. Rhodes, Ambassador Hubbard, expand upon those ‑‑ well, how critical it is that this not fail, as an agreement. More critically, what the benefits are for us as we move ahead.
*Mr. Rhodes. Thank you, Chairman Brady. I think it is critical. I think that, given the situation in North Korea, as we have seen by the Cheonan and the shelling of the island over the last months and the problem of the nuclear situation there, it is critical for that.
Also, I think you pointed out very correctly, China is watching this agreement very, very carefully. And so, I think, as a demonstration in that area, I think our allies all over Asia are watching this. And, as you know, there was a thought at one time of putting a northeast Asian economic group together ‑‑ Japan, China, and Korea ‑‑ which would have left the U.S. out. And so I think it is very important, along with this EU Agreement that is coming on board, that we stand up with Korea and all the benefits that we have all talked about on U.S. exports to Korea.
So, it is a win‑win on both strategic, as well as economic. Thank you.
*Chairman Brady. Thank you, Mr. Rhodes. Ambassador?
*Mr. Hubbard. Well, Mr. Chairman, several people today have mentioned that the United States in 2003 was South Korea’s leading trading partner in the world. Now it is number four, with China in the lead. If you go around the East Asia region, you will find that China has moved into first place almost everywhere you look. And they are uncomfortable with that.
The other countries of Asia are looking to this agreement as an indication of whether the United States is committed to the region, whether we are committed to lead on trade liberalization in the region. And they are all hopeful that we will approve KORUS as quickly as possible, as a sign of our continued commitment there.
*Chairman Brady. Right. Great point. Thank you, Ambassador.
Ranking Member McDermott?
*Mr. McDermott. Thank you, Mr. President. Mr. Holleyman, I do not have any real questions, because we all agree on the need to move this thing. But since I have got you sitting here, I have got a question.
I know that you are interested in Korea today, but I am going to ask you a question about China. At the end of last year, as part of the joint commission on commerce and trade, China’s committed to a number of things to address software piracy in China. Just before that meeting, almost every member of the Ways and Means, including all the current subcommittee members on the Democratic side, wrote a letter expressing the need to “measure progress on greater U.S. market access into China, and protection of U.S. intellectual property rights by objective criteria,” such as increased exports to and sales in China.
And almost four months have passed since then. Is there any measurable criteria or any statistics you can give us that will help us understand if this had any impact whatsoever?
*Mr. Holleyman. Thank you, Mr. McDermott, for that question. Unfortunately, as of today, there is nothing that I can say, in terms of measurements of increased sales from my members that I have learned that would tell me that there has been any market improvement on the status that existed when Members of the committee sent that letter.
And I want to thank you for doing that, because that was enormously important. I know that the White House has made this an important issue. Your colleagues in the Senate have as well. But we have not seen the kind of measurable progress that was expected, I know, by members of this committee, and that was hoped for by our industry.
*Mr. McDermott. Is there anything at all hopeful you can say about the relationship with respect to China in this area?
*Mr. Holleyman. Well, I think the hopeful thing I can say is that the nature of the commitments, if fulfilled, should result in the kind of increased sales where we are happy for sales. So, this is a case where we do not need additional commitments. In fact, the commitments around business software are quite specific. What we need is full implementation.
I will also mention one thing in contrast with Korea. Korea has undertaken 40 to 50 criminal cases a month on a sustained basis against businesses using illegal software, and that has helped bring the piracy rate down, and we want to continue to do that. By contrast there has never been a criminal action in Korea ‑‑ I’m sorry, in China ‑‑ against a commercial enterprise using pirated software. China would indicate that that is not permitted under their law. And so it is not a surprise that the piracy rates in China, in terms of percentage of market, are double what they are in Korea. And, of course, the value keeps rising as the Chinese market grows.
So, I think that the continued interest and pressure from this committee and from the Administration ‑‑ I know President Obama has personally engaged on this ‑‑ but to show concrete results from China, not just commitments, will be critical.
*Mr. McDermott. I think it is important for people to understand the Koreans keep their promise and work at it and bring cases. And, unfortunately, that is not happening in China.
I try to understand what their thinking is. Can you explain? Do they do it just more slowly, and some day they will do it? Or is it simply they make a commitment and then throw it in the waste basket and walk out of the room?
*Mr. Holleyman. Yes, I mean we have certainly seen some efforts around creating budgets for purchase of legal software by the government, some administrative enforcement. But there is nothing that is of sufficient magnitude to provide a deterrence in the marketplace against businesses using illegal software or, indeed, for the government to use only legal software.
By contrast, Korea, which used to have periodic campaigns ‑‑ 2 or 3 months of a crackdown and then they would stop ‑‑ about 10 years ago committed to the U.S. Government that they would do 40 to 50 end-user software cases a month, and that was sustained. And that has been the key to bringing piracy down in Korea, what we think is key, going forward, to future progress. We see periodic minor campaigns in China, but nothing on a sustained basis.
And so, Korea, I think, really is the model for what China should be doing.
*Mr. McDermott. Thank you very much.
*Chairman Brady. Thank you. Mr. Davis?
*Mr. Davis. Thank you, Mr. Chairman. Ambassador Hubbard, KORUS has been strongly endorsed by many experts as a means of enhancing our economic and national security relationships between the two countries. President Obama has referred to our relationship with Korea as the lynch pin of a security in Asia policy.
Considering the United States maintains over 28,000 troops on the Peninsula right now, Ambassador, I was wondering if you could discuss, from your personal perspective and experience, how the passenger of KORUS will strengthen our relationship with this key ally, and how trade agreements more broadly ‑‑ like Colombia and Panama ‑‑ will have significant geostrategic impact, as well.
*Mr. Hubbard. Thank you, Mr. Davis. I ‑‑ basically, this agreement, this trade agreement, in my view, will both broaden and strengthen the alliance that we have had for the last 60 years.
You know, military arrangements, military alliances, do not stand alone, even when you face a threat as palpable as the North Korean threat is to South Korea. They need to be given content through people‑to‑people ties, and we do have wonderful people‑to‑people ties with Korea. They need to be given content through trade relations. They need to be given content through special relationships of all kinds. For example, one of the things that was very, very important to Korea in recent years was to get on the visa waiver program, as kind of a symbol of their relationship with us.
Koreans, like other countries, need constant assurances that we are with them, that we understand their issues, their problems, we value the relationship. And at this stage, passage of this FTA, I think, is the best way we can give those assurances. And this is really a time when we need it, after the attacks on South Korea and the other issues that are concerning them.
*Mr. Davis. Would you say that when the United States delays on passing agreements after they have been largely negotiated, that that can have an adverse effect on our long‑term national security and geostrategic goals in a region of the world?
*Mr. Hubbard. Yes, indeed. I think the Koreans have disappointed in the delays in passing this agreement. Korea is a democracy, a functioning democracy, and I think they understand democracy in our country, and why it has been delayed. But over time, you know, a failure to fulfill governmental commitments of this kind does have a negative impact on the broader relationship, and we should get moving on this.
*Mr. Davis. Would you agree that same principle applies in the ‑‑ with the Colombia agreement, as well?
*Mr. Hubbard. Yes, indeed.
*Mr. Davis. Okay, thank you.
*Mr. Hubbard. I strongly support that agreement.
*Chairman Brady. Thank you. The chair recognizes Chairman Rangel.
*Mr. Rangel. Thank you, Mr. Chairman. I do not want to beat a dead horse, but no one works more closely with the Koreans than I do. And I am certain that they would rather have an agreement where they have the votes for it, no matter how long it takes, rather than not to have it.
Having said that, I think we all agree that it is good for our country, it is good for Korea, has all types of economic, political, national security reasons why we should support this agreement, especially after certain provisions were improved so that we can get the votes that are necessary in order to get it passed.
Having said all that, I think all of you would agree with me that the major obstacle that we have in the country and in the Congress is the belief that this agreement, as all trade agreements, will lose jobs. And, of course, most of us believe that the evidence would support otherwise. But it is difficult to explain to people without showing them what it means to our country, our region, our industries, and of course, our congressional districts.
So, if I could just say if someone challenged you, Dr. Rhodes ‑‑ and we go down the line ‑‑ and said that they knew specifically that we would lose jobs here, besides saying they are wrong, are you able to tell where these jobs will be located to any degree that the person walking away ‑‑ say, “Well, I will check that tomorrow and I will get back to you?”
*Mr. Rhodes. I think ‑‑ and you and I have discussed this before ‑‑ I think at the Chamber we have been very specific on making trips throughout the United States to various areas, pointing out where job growth will take place. And I think that we could do a better job ‑‑ you can always do a better job ‑‑ but I think we have made a real effort to do so.
And I was just in Dallas last night, giving a talk to a group. And the question came up exactly on that. And so, I think we do have facts and figures in areas where these jobs are being created. And so, I think our job is to get out there and sell it even more, as you and I have discussed in the past.
*Mr. Rangel. But you would not be able to tell, say, a guy from New York exactly where to go for ‑‑ so that I can go to the recipients of this agreement and tell them, “Look for an increase in jobs in this area.”
*Mr. Rhodes. We will give you a list. Yes, we do. I will give you a list. We will make sure you get a list today.
*Mr. Rangel. That is great. Is there anyone that can give a little more specifics? Or generally, would you accept what Dr. Rhodes has said is the general answer?
*Mr. Hubbard. I agree with Mr. Rhodes, and will help him put that together.
*Mr. Rangel. You know, I have been impressed with the number of jobs that are going to be made available under the Colombian free trade agreement.
And just to test the knowledge of the Members of Congress, I asked them, “Do you really believe that Caterpillar and other earth‑moving machinery will be one of our greatest exports?” They said there is no question about it. It is a mining country, and there is growth there, and they really want to buy from us.
Then I ask the next question, “Do you know where Caterpillars are made?” Nobody knows. It just seems to me that there is a big gap. Because if they were made in my district, you would have heard from me, loud and clear, “Give us a break, give us jobs, let us expand.” And yet I do not remember anyone ever going to the floor, saying ‑‑ with the exception of those from Michigan with the Korean agreement, which took a little time to reach, but we did ‑‑ but I do not remember people saying, “I do not like trade generally, but this agreement is going to help my people in my district.” And if you have any of those clippings around your office, you can send those in to me, as well.
Mr. Chairman, thank you so much.
*Chairman Brady. Thank you, Chairman, very much. Mr. Reichert, to close this out?
*Mr. Reichert. Thank you, Mr. Chairman. I want to touch on some of Mr. Rangel’s comments. I totally agree with the gentleman in his observation that there really needs to be a concerted effort regarding education about the number of jobs that are created through these agreements.
And again, as I said earlier in ‑‑ during the first panel discussion, this is all about selling American products. And so, we should all in America be about selling American. And, as was also stated earlier, 95 percent of our market is outside our borders.
So, we should really work hard. And again, this export council is looking at ways that we might be able to help in really beating the drum on the number of jobs that are created by these trade agreements and, of course, the other obvious benefits.
I would like to touch on with Ambassador Hubbard, first of all, thank you for your years of service to our country. And happy to have you here today. I am interested in your views on the importance of approving the Korean agreement and solidifying America’s presence in the Asia‑Pacific region. Mr. Davis touched on it just a little bit, as far as security goes. But how does finally coming to an agreement with Korea impact our ability to negotiate further trade agreements with other countries around the world?
*Mr. Hubbard. First and foremost, Mr. Reichert, it establishes a very good precedent and standard. This is a very high‑quality agreement. Frankly, it is of higher quality than most of the agreements that have been reached within Asia and within the Asia‑Pacific. And so this will be a standard that all other agreements can be measured ‑‑
*Mr. Reichert. Would it also ‑‑ would this affect our ability in the TPP efforts, also?
*Mr. Hubbard. Yes. Very much so. I think this ‑‑ you know, I think it relates to TPP in a couple of ways. One, our partners in the TPP are looking at KORUS as a signal of whether the United States can be counted on to do the sensible thing in its own interest. And that will have its impact.
Secondly, it will help improve the standards of the TPP. I think eventually, based on KORUS, that Korea will probably also want to join TPP at a later time, as might Japan.
*Mr. Reichert. Sure.
*Mr. Hubbard. And that will all strengthen our posture in Asia.
*Mr. Reichert. So there is a bright light shining on us right now, as to our success, right?
*Mr. Hubbard. Exactly.
*Mr. Reichert. Yes, sir.
*Mr. Hubbard. Exactly.
*Mr. Reichert. What about intellectual property rights in the region? How do you think the Korean agreement might affect those as we look at ‑‑ of course everyone mentions China, it is the most obvious offender.
*Mr. Hubbard. Well, Mr. Holleyman obviously knows more about that than I do. But, again, it sets a very good standard. Korea’s enforcement sets a good standard. And you know, I think other countries are going to bear that in mind as we move forward.
*Mr. Reichert. Mr. Holleyman, would you like to respond to that, please?
*Mr. Holleyman. Certainly. The KORUS really provides the strongest levels of protection of intellectual property of any U.S. free trade agreements. Those are mirrored in substantial part in Colombia and Panama. Locking those in place will ensure not only tools against fighting piracy, but as new Commerce and services come aboard like software as a service and cloud computing, it will ensure that that next wave of computing technology has unfettered access to the Korean market.
So, it is critical. What we need on the IP side is to ensure that existing practices of high‑volume sustained criminal actions against the enterprise end users of pirated software, will be maintained in Korea going forward, and that existing procedures that allow right holders to successfully resolve actions against those corporations when they become legal customers can be maintained. And that is a key element in implementation, where we urge this committee’s continued attention.
*Mr. Reichert. Great. Thank you. I yield back, Mr. Chairman.
*Chairman Brady. Thank you, Mr. Reichert. I want to thank the Members for their thoughtful questions.
And let me note for our witnesses how much we appreciate your testimony. Members may submit questions for the record. And if they do, I hope you will respond promptly. I know you will.
And our witnesses today, who come from all parts of industry and job creation, as well as our geopolitical role, made clear the pending trade agreement with South Korea, as well as with the pending agreements with Colombia and Panama, offer significant benefits. Not moving forward will only harm American interests and the ability of American workers, businesses, and farmers to compete in these markets as our competitors move ahead.
As I said earlier, I am excited about moving forward on the South Korea Agreement. And just as I am excited to move forward with Panama and Colombia, I hope we will continue the constructive bipartisan technical work on the Korean agreement, and begin the work on the Latin agreements, to ensure that these draft implementing bills are complete and thorough, and ready to move forward in a timely manner. I strong believe we should consider all three agreements by July 1st, and I hope we will continue to work together to make that happen.
But for now, the committee is adjourned.
[Whereupon, at 12:45 p.m., the subcommittee was adjourned.]
MEMBER SUBMISSION FOR THE RECORD
SUBMISSIONS FOR THE RECORD
Beam Global Spirits and Wine Inc
California Chamber of Commerce
US Korea Business Council and US Korea FTA Business Coalition
US Chamber of Commerce
California Coalition for Free Trade
Wine Institute and Wine America
The Advanced Medical Technology Association
American Manufacturing Trade Action Coalition
American Apparel and Footwear Association
US Industrial Fabrics Institute
California Association of Winegrape Growers
National Cattlemens Beef Association
International Trademark Association
National Skills Coalition