[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
THE FUTURE OF APEC
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ASIA, THE PACIFIC AND
THE GLOBAL ENVIRONMENT
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
OCTOBER 14, 2009
__________
Serial No. 111-51
__________
Printed for the use of the Committee on Foreign Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
______
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COMMITTEE ON FOREIGN AFFAIRS
HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American CHRISTOPHER H. SMITH, New Jersey
Samoa DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey ELTON GALLEGLY, California
BRAD SHERMAN, California DANA ROHRABACHER, California
ROBERT WEXLER, Florida DONALD A. MANZULLO, Illinois
ELIOT L. ENGEL, New York EDWARD R. ROYCE, California
BILL DELAHUNT, Massachusetts RON PAUL, Texas
GREGORY W. MEEKS, New York JEFF FLAKE, Arizona
DIANE E. WATSON, California MIKE PENCE, Indiana
RUSS CARNAHAN, Missouri JOE WILSON, South Carolina
ALBIO SIRES, New Jersey JOHN BOOZMAN, Arkansas
GERALD E. CONNOLLY, Virginia J. GRESHAM BARRETT, South Carolina
MICHAEL E. McMAHON, New York CONNIE MACK, Florida
JOHN S. TANNER, Tennessee JEFF FORTENBERRY, Nebraska
GENE GREEN, Texas MICHAEL T. McCAUL, Texas
LYNN WOOLSEY, California TED POE, Texas
SHEILA JACKSON LEE, Texas BOB INGLIS, South Carolina
BARBARA LEE, California GUS BILIRAKIS, Florida
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
Richard J. Kessler, Staff Director
Yleem Poblete, Republican Staff Director
------
Subcommittee on Asia, the Pacific and the Global Environment
ENI F.H. FALEOMAVAEGA, American Samoa, Chairman
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
DIANE E. WATSON, California BOB INGLIS, South Carolina
MIKE ROSS, Arkansas DANA ROHRABACHER, California
BRAD SHERMAN, California EDWARD R. ROYCE, California
ELIOT L. ENGEL, New York JEFF FLAKE, Arizona
GREGORY W. MEEKS, New York
Lisa Williams, Subcommittee Staff Director
Daniel Bob, Subcommittee Professional Staff Member
Nien Su, Republican Professional Staff Member
Vili Lei, Staff Associate
C O N T E N T S
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Page
WITNESSES
Mr. Kurt Tong, Acting U.S. Senior Official to APEC, Bureau of
East Asian and Pacific Affairs, U.S. Department of State....... 21
Ms. Wendy Cutler, Assistant United States Trade Representative
for Japan, Korea and APEC Affairs, Office of the United States
Trade Representative........................................... 28
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Eni F.H. Faleomavaega, a Representative in Congress
from American Samoa, and Chairman, Subcommittee on Asia, the
Pacific and the Global Environment: Prepared statement......... 4
The Honorable Donald A. Manzullo, a Representative in Congress
from the State of Illinois: Prepared statement................. 7
The Honorable Diane E. Watson, a Representative in Congress from
the State of California: Prepared statement.................... 13
Mr. Kurt Tong: Prepared statement................................ 24
Ms. Wendy Cutler: Prepared statement............................. 31
APPENDIX
Hearing notice................................................... 52
Hearing minutes.................................................. 53
THE FUTURE OF APEC
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WEDNESDAY, OCTOBER 14, 2009
House of Representatives,
Subcommittee on Asia, the Pacific
and the Global Environment,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:13 p.m., in
room 2172, Rayburn House Office Building, Hon. Eni F.H.
Faleomavaega (chairman of the subcommittee) presiding.
Mr. Faleomavaega. At this time, I would like to call the
subcommittee hearing to order.
And I would like to have this opportunity for my opening
statement, and then will turn to my good friend and
distinguished colleague, the ranking member of our
subcommittee, Mr. Manzullo, for his opening statement.
In consultation with my good friend, the ranking member of
the subcommittee, we decided to hold this subcommittee hearing
concerning APEC and reference to the future of APEC and in
anticipation of the upcoming APEC meeting in the course of the
next month.
The Asia-Pacific Cooperation Forum will hold its annual
leaders' meeting next month in Singapore. The event will mark
the 20th anniversary of the advent of the organization, which
was created to reflect and enhance the economic dynamism and
growing ties among the countries of the Pacific Rim.
APEC's 21-member economies currently encompass 40 percent
of the world's population, 45 percent of its trade, 55 percent
of its gross domestic product, and 60 percent of the market for
U.S. exports. A large proportion of those exports, moreover,
are in high value-added products and services that produce good
jobs and good wages for American workers.
APEC is also the only significant regional economic
organization that includes the United States. Indeed, since its
inception, APEC has been central to U.S. efforts to liberalize
trade and enhance economic growth. And with the United States
hosting APEC in 2011, we will soon take the lead in forging the
organization's agenda. U.S. leadership cannot come at a more
important time. I say that because APEC has not yet fully lived
up to its potential, at least as envisioned by those who
launched the organization.
At the 1994 leaders' meeting in Indonesia, APEC released
its Declaration of Common Resolve, better known as the Bogor
Declaration. In that seminal document, the organization
committed itself to complete the achievement of free and open
trade and investment in the Asia Pacific no later than the year
2020.
The pace of implementation would take into account
differing levels of economic development among APEC economies,
with the industrialized economies achieving the goal of free
and open trade and investment no later than the year 2010 and
developing economies no later than the year 2020.
At every leaders' meeting since 1994, APEC has reaffirmed
its commitment to the ambitious goals of the Bogor Declaration.
Despite those annual gestures, however, it appears almost
certain that APEC will not--will not--meet its 2010 target. The
impending failure reflects, at least in part, APEC's operating
principle of consensus. While consensus can be a real strength
in tackling some of the most difficult issues, it can also
cause delay.
I hope that in Singapore APEC once again commits itself to
the Bogor goals and that, in following years, under the
leadership of Japan in 2010 and the United States in 2011, it
charts a clear and speedy pathway toward achievement.
As the Congressional Research Service has noted, and I
quote:
``The underlying notion of APEC's approach to trade and
investment liberalization is that voluntary commitments
are easier to achieve and more likely to be implemented
than obligatory commitments derived from agreements
negotiated by more traditional and potentially
confrontational methods. By establishing a common
vision or goal for the organization, the belief is that
future APEC discussions can make more rapid progress
toward the organization's goals by seeking consensus
views with which members are willing to comply.''
Realizing the Bogor Declaration is especially important for
the United States because of a proliferation of regional
organizations that do not include the United States since the
creation of APEC. For example, the East Asian Summit, ASEAN+3,
ASEAN+6, and the Shanghai Cooperation Organization were all
initiated without United States membership. The new government
in Japan, moreover, has proposed the creation of an East Asian
Community that will similarly exclude the United States.
The member economies of APEC have also established more
than 150 bilateral and plurilateral free-trade agreements among
themselves. Yet, only five of these FTAs include the United
States. And labor and environment and other critical provisions
in most of them are far less effective than they should be. We
would all be better off if we used APEC more aggressively to
transform this ``noodle bowl'' of agreements into an APEC-wide
Free-Trade Area of the Asian Pacific.
Beyond the trade and investment issues at its core, APEC
also provides its members a chance to engage on other matters
of importance, from climate change and human security to
disaster management. This year, for example, APEC will seek to
further the G-20 response to the global financial crisis.
And on the way to and from APEC, America's first Pacific
President will have the chance to visit Japan, China, and Korea
for summit meetings. As I have said before, we now have the
first President who knows where the Pacific Ocean is located.
In my view, APEC remains vital to America's interests in
the Pacific Rim. Today's witnesses are the U.S. Government's
two leading figures in the formulation of American
participation in APEC. I look forward to working with them and
hearing their comments in this afternoon's hearing.
I now would like to turn the time to my good friend, the
distinguished ranking member, the gentleman from Illinois, for
his comments.
[The prepared statement of Mr. Faleomavaega follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Manzullo. Thank you, Mr. Chairman.
First of all, I want to express our deepest condolences to
you and the good people of American Samoa for the immense pain
and suffering caused by the recent Pacific tsunami. Obviously,
our thoughts and prayers are with the fine people there. And we
sincerely hope the road to recovery can begin as soon as
possible.
Thank you for the opportunity to have this hearing. We have
a situation where APEC members account for almost half of all
international trade. They have a population of 2.7 billion
people. This is obviously an extraordinarily large market for
American good and services.
The 16th Congressional District, which I have the
opportunity to represent, has in excess of 2,000 manufacturers,
making everything from paper boxes to iron foundries and metal
stamping to custom gears. One out of four people in the largest
city of Rockford, Illinois, are directly involved in
manufacturing. So strengthening APEC is an important part of
enhancing U.S. exports. In fact, last year, Illinois companies
exported more than $33.5 billion worth of goods.
Mr. Chairman, I look forward to the hearing. And I would
ask that the rest of my opening statement be made part of the
record.
Mr. Faleomavaega. Without objection.
[The prepared statement of Mr. Manzullo follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Faleomavaega. I also would like to give an opportunity
to our other distinguished colleagues who are with us, if they
have an opening statement.
Mr. Sherman. Yes, Mr. Chairman?
Mr. Faleomavaega. The gentleman from California, Mr.
Sherman.
Mr. Sherman. First, I want to join the gentleman from
Illinois in expressing my concern and solidarity with the
people of American Samoa at this time. Just last week, I had
the opportunity to attend a meeting called by the subcommittee
on the condition in American Samoa, even knowing that the
chairman had critical things to do in American Samoa and could
not attend.
The second point I would like to make is that the United
States will be hosting the APEC conference in 2011, and I hope
that we will host it in Los Angeles. Not only do the ports of
Los Angeles and Long Beach handle over 40 percent of all cargo
containers entering the United States, but they handle close to
80 percent of the cargo containers entering or leaving the
United States going to the Pacific and going to the APEC
region. I don't think any other place in the United States
comes close.
Finally, I would like to comment about our trade with the
APEC region, which I hope you will not hold against my home
city, but I am very concerned about the trade deficit we have
with that region. I do not believe that that trade deficit
stems from a fair application of free-trade principles, and nor
do I think that we can achieve free trade by closing our eyes
to the actions taken by others and refusing to take any
aggressive action on ourselves and then turning to anyone who
does want to be aggressive and say, ``Oh, you just don't
understand the benefits of free trade.'' I do understand the
benefits of free trade. We do not have trade with many of the
members of APEC.
I would hope that you, before your next interaction with
the APEC representatives from China, will take a look at the
hearing that Ranking Member Royce and I of the Terrorism,
Nonproliferation, and Trade Subcommittee did that focused on
the outrageous and illegal actions taken by China that affect
those Americans doing business in China. I hope that you would
look at the field hearings done by the full committee, held in
the San Fernando Valley, where we focused on the gross abuse of
intellectual property in China.
And so, not only do we have this enormous trade deficit
with the region, and with China in particular, but it stems
again and again and again, when you peel away the veneer, from
unfair practices.
The best illustration of this, though, is the fact that,
because of the Chinese system, we can never know what happens.
Because here in the United States, if the Federal Government is
going to affect purchase decisions, it does so only through
printed regulations and statutes and tariff statues, et cetera.
Whereas, in China, the government can control the decision of
businesses without ever publishing anything. And then people
can come to us and say, ``Oh, it is a level playing field.'' It
is a level playing field if you ignore every unpublished
document and every unpublished oral statement.
But if I call somebody in my district and say, ``Hi, I am a
Congressman; I think you should buy the American product, not
the Chinese product,'' they will either giggle at me or they
will hold a press conference saying, ``Congressman trying to
intimidate local business.'' Since I have no capacity to
intimidate them, I think they would giggle.
Imagine a Chinese company. They can be instructed by the
government not to buy, because the government sits on their
board. But if that isn't sufficient, they can call an
individual business person and say, ``Sir, we know you won't
buy the American product because we look at your curriculum
vitae and we see you are well-educated. We would hate to think
you need re-education.''
So any oral statement like this, we can see the results of.
We can never bring any action because it is an oral statement
over the phone and we never know what happened. What we do know
is that the results are horrendous for the American people and
are getting more horrendous every year.
I know, during this recession, the degree to which we are
being destroyed is not at the same high rate as 2 years ago,
but every year we pile up an international debt that is
enormous. And I hope that APEC is an opportunity for us to
demand a system that gives us balanced trade. And the only way
you are going to do that is to threaten or actually deny access
to the U.S. market to those who use both detectable and
nondetectable methodologies to give us unbalanced results.
So I hope that you will take a look at those two hearings,
and I believe I have one other that I will send to you. You
have a lot of reading ahead.
Thank you very much.
Mr. Faleomavaega. I thank the gentleman for his comments.
And, at this time, I would like to turn the time to the
gentleman from California, Mr. Royce, for his opening
statement.
Mr. Royce. Thank you, Mr. Chairman.
And I want to welcome Mr. Tong. I very much appreciated
your availability to Members of Congress when the American
journalists were held in North Korea for those many months. We
appreciate that. Thankfully, that has been resolved.
As we will hear from our witnesses today, APEC is certainly
looming in terms of importance to the United States. It is the
only economic group where we have a seat at the table in one of
the world's most important economic regions. Five of our top
seven world trading partners are APEC members, so, certainly,
this forum holds great importance for the United States.
But if we are going to be taken seriously at APEC, it would
be prudent not to ignore the second-largest trade agreement
ever negotiated by the United States, and that is the Korea-
U.S. Free Trade Agreement. Both governments, not to mention one
of our witnesses, labored for months to get this deal done. And
I think turning our backs on KORUS, as we are, is a huge slight
to our ally, to South Korea, not to mention a missed economic
opportunity.
By all measures, the trade agreement negotiated by the past
administration and the Roh government helps both countries. The
United States gets better access to South Korean markets; South
Korea gets assurances that its favorable U.S. market access
will continue.
By one estimate, the KORUS FTA would increase trade $20
billion--that is from $80 billion to $100 billion--between our
two countries. And still there are few amongst the majority
that are calling for this agreement to be ratified; fewer still
among the leadership.
Despite these sentiments in Congress, Asia is changing.
China, not the United States, is now South Korea's largest
export market. The European Union has completed a free-trade
agreement of its own with South Korea. And India recently
signed a trade agreement with South Korea.
And, in these agreements, I think the upshot is the United
States loses. And what could be a win-win for the United States
in South Korea instead has become a situation where South Korea
is beginning to negotiate outside the U.S. market in terms of
trade liberalization.
And I would hope that during your opening testimony or
maybe later in your discussions you could comment on another
thought. And that is, it is my understanding there have been
over 500 public comments posted on the USTR Web site regarding
the KORUS FTA. And I would just like to ask the witnesses what
has been the general nature of these comments, have they
largely been in support, and how does your office plan on
responding to these comments?
And lastly, on the subject of China, I would just close
with the observation that I think that our own Commerce
Department has done an awful lot to lure United States
investors into China, where they have subsequently lost their
shirts. I can't tell you how many times those of us in southern
California have heard about the lack of rule of law in Shanghai
and Beijing and the consequences to U.S. investors. And I wish
that these cheerleading sessions done by the Commerce
Department weren't undertaken, because the upshot is the loss
for investors. And, certainly, we are not teaching the rule of
law to China.
I would suggest that an investor warning system, the likes
of which myself and Congressman Brad Sherman, my colleague from
California, have laid out the case for, would be championed by
those who wish to see some change of conduct. Because the
conduct that we are seeing out of China in no way reflects a
nation that intends to embark upon adopting the rule of law.
And the consequences are that they are undermining trade
agreements around the world. Frankly, if they are allowed to
get away with it, they are going to wreck the WTO.
And this requires action on our part when China violates
the basic norms of international commerce and international
law. And I think it is imperative that the U.S. begin to call
them on it. And it is equally important that we quit the
subsidization or the cheerleading in order to entice more
United States investment into China when the consequences are
so injurious.
I am familiar with different reports that have been done
around the world, in terms of return on investment in China.
Things look rosy until you try to get your money out. And I
can't tell you how many times we have heard cases of the basic
contracts being changed. And if you attempt to defend yourself
in Shanghai or in Beijing in any of these contracts and you are
an American company or an American investor, it is a farce.
So those would be my observations. And I thank the chairman
again for holding this hearing today.
Mr. Faleomavaega. I thank the gentleman for his comments.
And now the gentlelady from the State of California also,
for her opening statement, Ms. Watson.
Ms. Watson. Thank you, Mr. Chairman. And welcome back. And
I do hope that the island nation that you come from is faring
better than they were a few days ago. We certainly wish you
well. And I think we sent down a lot of help and assistance,
and you were there guiding that. So, thank you.
In 1994, in Bogor, Indonesia, APEC members agreed to
voluntarily move forward free and open trade and investment in
the Asia Pacific region by 2010 for developed nations and 2020
for developing nations. This vital 21-member organization
accounts for 55 percent of the world's gross domestic product,
45 percent of global trade, 40 percent of the world's
population, and among America's top trade partners.
However, APEC faces challenges. There are currently 70
bilateral and multilateral trade agreements being negotiated,
in addition to the 210 trade agreements that already exist. The
United States has been largely excluded from bilateral and
multilateral trade agreements in the Asia Pacific region.
Several Asia-only organizations have been established. The ways
in which the U.S. can participate meaningfully in the region
has been reduced.
As markets in Asia and the Pacific continue to grow, the
demand for U.S. products will only grow, making APEC member
markets and APEC a critical part of America's economic
recovery. So I, too, want to be sure that we get to the time to
do some agreements with, particularly, South Korea.
We were there a few months ago, and we hope to be able to
get back together with them and come up with some kind of free-
trade agreement. They are urging us to sit down and talk about
it. As you know, we have not really had time, in terms of the
priorities we have been dealing with, to think about our trade
agreements.
So I look forward to hearing from our witnesses today, and
I do hope this subject will come up again in your subcommittee,
Mr. Chairman. Thank you.
Mr. Faleomavaega. I thank the gentlelady.
There seems to be a predominance of California members
participating.
Ms. Watson. I wonder why. I have all of Korea Town in my--
--
[The prepared statement of Ms. Watson follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Faleomavaega. But I again would like to give the
opportunity for another gentleman from California for his
opening statement, Mr. Rohrabacher.
Mr. Rohrabacher. The ``Pacific'' part of the definition
there in the title is very applicable, and that is why you see
more Californians.
Let me just note that, first and foremost, I would like to
identify myself with remarks dealing with concern about the
people of Samoa and the terrible tragedy that they have
suffered with the tsunami wave. Let us remember that at least
half of Samoa--there is an American Samoa and a non-American
Samoa--but at least half there are Americans. But our hearts go
out to them, whether they are American Samoans or non-American.
They suffered a great tragedy.
I remember visiting the islands with you, Mr. Chairman.
Such wonderful people. And such a sad thing that they have had
to go through such turmoil in their lives and loss of family
and places to work, et cetera. We need to do everything we can
to stick by them and to try to help them every bit as much as
what we did to help the people of New Orleans, for example,
when they suffered a natural disaster.
So my heart goes out to them, and I want to put that on the
record.
About some of the points that have been made, I find myself
in great consternation when I have to agree almost totally with
everything my Democrat colleague, Brad Sherman, said in his
opening statement. But I find his remarks and the remarks that
were made by my friend, Mr. Royce, to be especially poignant
and things that we should pay attention to.
My district includes both the ports of Los Angeles and Long
Beach. And, as we know, such a huge percentage of our
international trade comes through those ports. Unfortunately,
what we are talking about is 10 percent of all the containers
that go through the ports are going out of the ports, exporting
something that is an American product. Ninety percent is what
is coming in, especially coming in from the Asia Pacific
region, especially from China.
And so I would suggest that that intolerable situation
cannot be permitted to go on. The fact that we have been
unwilling to negotiate the type of trade arrangements that
would be mutually beneficial, rather than a transfer of wealth
and knowledge and technology and investment, especially to
China, speaks very poorly of our Government. Our Government has
not been representing the interests of the American people.
And what we have had, then, is a huge transfer of wealth
and power, especially to China, at a time when China has not
had one bit of liberalization of their political system. It is
still the world's worst human rights abuser. Yet we permit this
type of unfair transfer of wealth and trade and power to China
at the expense of the American people. Over a 10-year period,
that amounts to about $1 trillion of wealth transfer. There is
no excuse for that.
Who is watching out for the American people? It is supposed
to be us. And if we are not doing it and we are permitting that
type of scenario to continue, yes, the American people will
rise in a righteous anger and a justified anger that they are
not being represented by their own government; that 90 percent
of the containers coming through the ports are coming in, only
10 percent are going out.
That is after we have permitted the trade policies of China
to thwart American products, but encourage Americans to
transfer capital and investment to that country so that they
can manufacture those items there instead of having to import
them from our country. And then they end up exporting those
items to our country. It is a double insult.
There are some real problems. We are going through some
major changes. This great economic crisis that we are suffering
will lead to dramatic changes in policy because the American
people will demand it. And those on the other side of ``Lake
Pacific'' have to understand government here is going to start
changing its attitude toward the things we have been willing to
accept in the past, because our people will not tolerate a
major economic decline and suffering here while we permit
policies to exist that are unfair to us and lead to this major
transfer of wealth.
With that said, Mr. Chairman, I am looking forward to the
testimony, hearing more details. Thank you very much.
Mr. Faleomavaega. I thank the gentleman from California for
his comments.
First of all, I just want to note for the record that I
deeply appreciate the sentiments and the concerns of my
colleagues on the tragic disaster that occurred in my district
recently.
We had an earthquake that took place approximately 120
miles south of Samoa. It was on the Tonga Trench. And the
earthquake measured 8.3 on the Richter scale, producing a
shockwave that traveled about 500 miles an hour.
And what made this disaster so unique was the fact that,
for a period of 3 or 4 minutes, the earthquake caused a lot of
tremors and shaking on the islands in the surrounding area, but
it was only a matter of minutes, 5 or 10 minutes, that 20-foot
tidal waves showed up.
I have seen tidal waves before in my life, and usually what
happens is the water recedes, leaving the shorelines and the
reefs totally dry. And sometimes you get a mistaken notion; you
see fish flipping all over the place, thinking that it is okay
to start picking up the fish, when, in fact, that is when the
tidal wave is coming.
And the most tragic sense is that there was just simply no
way that anybody could properly prepare for it. It is not like
preparing for a hurricane or a typhoon that you anticipate in a
matter of hours. This took place in a matter of 15 minutes: The
earthquake in 3 or 4 minutes, and then 7 or 8 minutes later the
tidal wave shows up.
This is what made it very, I say, unique: Because I think
it was because of the distance. It was such a short distance
between where the epicenter of where the earthquake occurred
and where the Samoan Islands are.
At any rate, I do want to deeply thank my colleagues for
their expressions of concern. My people are in good spirits. I
have so many different stories. I have had to attend several
funerals in the process.
But one story that I thought was very interesting: We had
one of the 75 Peace Corps volunteers that came from the United
States. One gentleman came up to me and said, ``You know, what
is really unusual about your people, we are here supposedly to
help you, and instead your people ask me if I need food, if I
need water, if I need anything, so that they could take care of
us rather than the volunteers taking care of the people.''
But that is the nature of the Samoan people and their
culture, wanting to make sure that, regardless of what happens
to them, they will always be concerned for their neighbor and
people who have been so kind to come and to render assistance
and offer help for this.
And I do want to thank the President for his declaration on
the area, and that the FEMA officials and various Federal
agencies are there to give assistance. I do deeply appreciate
the prayers and the faith of the American people.
And, as I have said earlier in my statement on the floor--
it is the Chinese proverb--there are many acquaintances but
very few friends. And I do count my colleagues truly as friends
when the chips are down. And I can certainly also appreciate
when tragedies like this happen in other Members' districts,
and I can feel their pain and share their suffering and can
understand that life goes on. And I deeply appreciate your
comments and your expressions of concern.
For our hearing, we have two distinguished officials from
the administration. And I deeply appreciate your taking the
time for coming to testify before our subcommittee.
We have with us Mr. Kurt Tong, who is the acting U.S.
senior official for APEC, managing all aspects of U.S.
participation in that organization. Currently, he is the
director of Korean affairs for the Department of State, where
he is responsible for coordinating U.S. relations with both the
Republic of Korea and the Democratic People's Republic of
Korea.
Previously, he served as director of Asian economic affairs
at the National Security Council from 2006 to 2008. Prior to
that, he served as minister-counselor for economic affairs at
the U.S. Embassy in Seoul where he promoted U.S.-Korea
relations in the area of economics and trade policy and was
involved in the launch of the free-trade agreement negotiations
between the United States and South Korea.
Before arriving in Seoul, Mr. Tong was counselor for
environmental, science, and health affairs at the U.S. Embassy
in Beijing from 2000 to 2003. He was a first secretary,
covering macroeconomics and finance at the U.S. Embassy in
Tokyo, and also a visiting scholar at Tokyo University. His
early service experience included work at the Office of
Japanese Affairs at the State Department.
Mr. Tong holds a bachelor's degree, magna cum laude, from
the Woodrow Wilson School of Public and International Affairs
at Princeton University. He also studied graduate-level
economics at the U.S. Foreign Service Institute in Washington,
DC.
The gentleman is fluent in both Japanese and Mandarin, is a
member of the Senior Foreign Service and a recipient of the
2005 Herbert Salzman Award for Excellence in International
Economic Performance awarded by the State Department for
outstanding contributions in advancing U.S. international
relations in the economic field.
With us also is the gentlelady, Wendy Cutler, who currently
serves as Assistant U.S. Trade Representative for Japan, Korea,
and APEC affairs. Ms. Cutler became Assistant U.S. Trade
Representative for Japan, Korea, and APEC affairs in the Office
of U.S. Trade Representative in June 2004.
In this capacity, she is responsible for developing and
implementing U.S. trade policies toward Japan and Korea. In
addition, she is responsible for developing and implementing
the United States trade and investment agenda in the Asia
Pacific Economic Cooperation forum.
Since joining USTR in 1988, Ms. Cutler has held numerous
positions, including assistant U.S. trade representative for
North Asian affairs, as well as for services, investment, and
intellectual property. She was the chief U.S. negotiator for
the U.S.-Korea Free Trade Agreement, which was signed on June
30, 2007.
She also negotiated bilateral agreements on a wide range of
sectoral issues, including telecommunications, insurance, and
semiconductors. She has extensive multilateral negotiating
experience as a U.S. negotiator for the 1997 WTO Financial
Services Agreement and the Uruguay Round Agreements on Rules of
Origin and Import Licensing.
Ms. Cutler received her master's degree in foreign service
from Georgetown University and her bachelor's from George
Washington University.
So we are deeply appreciative to both of you for being
here.
I just want to note a basic observation about APEC. It is
my understanding two basic things that come out of the
organization: One, it was never a formalized organization to
the extent that it is structured like you would a WTO or
others. It was more of, really, consultations. Whatever
principles that we agreed upon in the Bogor, Indonesia,
declaration, the principles that were outlined there for 2010
and 2020, again, were just principles, but it really bore no
enforcement mechanism that nations had to comply.
But one positive aspect about APEC, according to my
understanding, is that it was more of a forum which allowed
member states or heads of state to conduct side meetings or
agreements and whatever when they had the meetings.
I noticed that when we had the APEC meeting in Australia,
it was a disappointment to some of the Members when our
President was there and then all of a sudden he left quickly
without waiting there for the time that the meetings took place
with the other countries. And there was a disappointment in
other countries that our President had to leave so suddenly
without being there for the extent of the meetings that took
place in Australia. And I suspect that our President will be
going to Singapore as a participant on this APEC meeting.
With that, the committee would like to hear the testimonies
of our two distinguished witnesses.
Mr. Tong, would you like to begin?
STATEMENT OF MR. KURT TONG, ACTING U.S. SENIOR OFFICIAL TO
APEC, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT
OF STATE
Mr. Tong. Thank you very much. I have submitted some
written testimony.
Mr. Faleomavaega. Without objection. And any other related
materials both of you submit will be made part of the record.
Mr. Tong. Thank you very much.
Thank you, Mr. Chairman, Representative Manzullo, and
members of the subcommittee. It is an honor to appear before
you today, along with my colleague and friend, Wendy Cutler of
USTR, to talk about the Asia Pacific Economic Cooperation
Forum, or APEC.
One month from now, President Obama will make his first
trip to Asia since taking office and attend his first APEC
leaders' meeting in Singapore. The meeting will mark APEC's
20th anniversary, as well as the beginning of an important 2-
year period for U.S. economic relations with the Asia Pacific,
one that starts with Japan hosting APEC next year and
culminates with the United States hosting APEC in 2011.
Hosting APEC will be a tremendous opportunity for the
United States to promote U.S. business and investment
opportunities which will benefit American workers, farmers, and
businesses of all sizes. It will also be an important
opportunity for the United States to define a new 21st-century
economic policy agenda for the Asia Pacific region.
I would like to discuss with you today why APEC is such a
valuable asset to the United States and what we envision for
APEC in the years ahead.
APEC is strategically important to the United States
because it is the premier venue for economic engagement with
the Asia Pacific region. The 21 APEC members account for 55
percent of world gross domestic product, 45 percent of global
trade, and 40 percent of the world's population. Sixty percent
of U.S. goods exports go to APEC economies. Five of America's
top seven trading partners are APEC members.
APEC's role is particularly important in the current
economic environment. Although nations on both sides of the
Pacific have taken individual steps to respond to the economic
crisis, President Obama has emphasized that concerted action is
needed to get the global economy back on track and to pursue
the reforms needed to protect against future crises.
APEC is unique because it has the tools to promote policies
for long-term economic growth and ensure that all our citizens
have the opportunity to thrive in the global economy. It
promotes free and open trade and investment and tackles such
important issues as energy security, small-business
development, and preparing workforces to be globally
competitive.
APEC achieves this by emphasizing capacity-building and
practical solutions that yield tangible benefits at low cost.
These efforts are supported by U.S. foreign assistance
contributions and our recent establishment of a technical
assistance and training facility at the APEC secretariat.
I note that there has been a proliferation of pan-Asian
institutions, with more being proposed. The United States does
not want or need to be a member of every organization, and we
support Asia's efforts at multilateral cooperation. But given
the trans-Pacific nature of economic affairs, we believe that
truly effective regional economic institutions must include
members from both sides of the Pacific.
We also believe that these institutions must not only be a
forum for high-level dialogue, but must also be geared toward
producing tangible progress in addressing the challenges facing
the Asia Pacific region. On the economic front, we believe APEC
provides the best, most established mechanism for practical
cooperation and action.
Mr. Chairman, with Japan and the United States hosting APEC
back to back, we have a unique opportunity over the next 2
years to take APEC's work to the next level. To this end, we
are lining up major priorities and themes for 2010 and 2011.
First, concerning APEC's trade and investment agenda, I
will defer to Wendy Cutler to address this issue in detail. But
I would note America risks becoming disadvantaged economically
if we do not participate in the process of economic integration
that is already under way in the region.
Second, APEC can and should contribute to the promotion of
global economic recovery. With half of the G-20 being APEC
members, APEC has an important role in supporting and
implementing G-20 efforts to spur economic recovery and growth.
The G-20 and APEC can reinforce one another and lead to the
best results possible in a critical region.
APEC is already leading efforts to prevent future crises
and improve the region's business environment, including by
improving corporate governance and promoting regulatory reform.
APEC has also launched an initiative to make it faster,
cheaper, and easier to do business in APEC economies, covering
such areas as starting a business, obtaining credit, and
efficient conduct of trade.
Third, we are working with APEC members on robust efforts
to promote balanced, sustainable, and inclusive growth.
Regarding balanced growth, we see APEC reinforcing the G-
20's pledge to establish a pattern of global growth that is
more balanced by region and less prone to destabilizing booms
and busts.
Regarding sustainable growth, we see an increased role in
energy security and green development. APEC members are
examining ways to promote greater energy trade and investment,
liberalize trade and environmental goods and services, and
foster development of new energy sources and advanced
technologies.
Finally, regarding inclusive growth, APEC seeks to ensure
that all citizens have the opportunity to thrive in the global
economy. This includes fostering more adaptable workforces and
greater investment in education and worker training.
Finally, the United States believes that APEC can make a
vital contribution to human security, ensuring the resiliency
of economies against a multitude of threats. This means, for
example, enhancing food and product safety; bolstering regional
food security; protecting the region's financial and trade
systems from terrorist attack and abuse; and enhancing disaster
preparedness.
With the recent natural disasters in Samoa and Southeast
Asia, I want to especially highlight APEC's work on disaster
preparedness. APEC is fostering closer collaboration among
regional emergency management agencies; examining the impact of
climate change on disaster management; and helping
schoolchildren prepare for disasters. Going forward, APEC will
continue to strengthen public-private partnerships and
capacity-building for emergency preparedness.
I would like to conclude by underscoring the Obama
administration's commitment to the Asia Pacific region. The
United States brings tremendous capability and creativity to
bear on the enormous challenges that the region and the world
face today.
By hosting APEC in 2011, we have an opportunity to set the
agenda for the Asia Pacific region. Of course, the
administration cannot realize this vision without the strong
support of Congress. I look forward to consulting closely with
you on how APEC can further meet the needs of the American
people and make APEC 2011 a success for our country.
Thank you for this opportunity to testify, and I look
forward to answering your questions.
[The prepared statement of Mr. Tong follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Faleomavaega. Thank you, Mr. Tong.
Unfortunately, we have a series of votes, as I am sure both
of you are aware. I just wish there was a better way of
organizing these votes, but we do have a series of them. And
one of the pieces of legislation is in reference to the
resolution concerning my own district.
So, if it is all right with both of you, we need a little
delay in our hearing for about 15 or 20 minutes, and then we
will be back. I deeply apologize for this, but that is the
reality that we are faced with here in the Congress.
The committee hearing will be delayed for 20, 25 minutes.
All right? Thank you.
[Recess.]
Mr. Faleomavaega. While my colleagues continue to vote, I
would like to continue the subcommittee hearing at this time.
We have just completed the testimony of Mr. Tong and we
will now turn to Ms. Wendy Cutler for her testimony.
STATEMENT OF MS. WENDY CUTLER, ASSISTANT UNITED STATES TRADE
REPRESENTATIVE FOR JAPAN, KOREA AND APEC AFFAIRS, OFFICE OF THE
UNITED STATES TRADE REPRESENTATIVE
Ms. Cutler. Thank you, Mr. Chairman, for convening this
hearing today. I think I was here about 2 years ago when you
held your last hearing on APEC and I continue to applaud you
and the subcommittee putting the spotlight on APEC.
The Asia-Pacific region is a significant part of the global
economy and has become a driver of world economic recovery and
growth. In your opening remarks you underscored the importance
of the Asia-Pacific economies for global GDP and global trade.
And instead of going through these figures I just want to add
that the significance of APEC economies as U.S. export
markets--as U.S. exports to these economies have tripled over
the past 15 years and now account for 60 percent of all U.S.
sales abroad.
Along with the opportunities that this region presents for
the United States, there are also challenges. As the
developments in regional economic architecture in the Asia-
Pacific is moving toward the creation of Asia-only groupings,
the United States will increasingly be left out of key
decisions. Further, the continued proliferation of free trade
agreements in the Asia-Pacific--there are already over 150
agreements in place with about another 70 being negotiated--
have gone on without the United States.
Just this past week, of recent note, there has been an
announcement by China, Korea, and Japan to begin exploring a
trilateral free trade pact, and tomorrow Korea and the European
Union will be initialing a groundbreaking comprehensive FTA.
APEC is the only regional grouping in which the United States
is a member. Therefore, our strong and active participation in
this organization provides us with a unique opportunity to play
a leadership role in this region.
APEC has a number of other unique characteristics that make
it critical to the United States trade and economic agenda.
First, the region has benefited greatly from trade and, as a
result, APEC members are open to initiatives that lead to
further open markets. Second, the nonbinding voluntary nature
of APEC often allows economies to be more forward-leaning on
issues that would be difficult to reach consensus in other fora
such as the WTO. Third, APEC is a flexible institution which
allows it to take on more pressing and new cutting-edge 21st
issues as they emerge. APEC's members include major economies
such as China, Korea, Russia, and Japan, but also key
developing economies as well as ASEAN. And, finally, APEC is
the only such regional grouping to have members from both sides
of the Pacific.
The Obama administration views our hosting APEC in 2011 as
a critically important opportunity to take advantage of these
unique strengths of APEC to push forward a bolder vision to
promote economic recovery and growth and further strengthen
regional economic integration in the region.
In preparation for our host year, we have been pursuing a
forward-leaning agenda in 2009, including through initiatives
that will serve as building blocks for more ambitious outcomes
in 2010 and 2011. As my colleague, Kurt Tong, highlighted, APEC
has been instrumental in building support and endorsing G-20
outcomes.
APEC continues to work to support the multilateral trading
regime and the Doha development agenda specifically. In July
APEC Trade Ministers called for an ambitious and balanced
conclusion to the Doha Round and called on the establishment of
senior officials process that is currently underway in Geneva.
Accelerating efforts to strengthen regional economic
integration remains at the core of APEC's mission. And to this
end, the United States has emphasized making substantive
progress in key trade and investment issues as a way to address
specific barriers to doing business in the region. For example,
the United States, along with Australia, has launched an
initiative to promote trade and services, is taking steps to
facilitate trade in information and communications technology,
and is examining ways to reduce or eliminate barriers to trade
and investment in environmental goods and services. Making it
cheaper and easier for companies and particularly for small-
and medium-sized businesses to operate in the region is also
one of the priority areas in APEC.
APEC is working on simplifying and making trade
documentation and procedures more consistent and transparent
among APEC economies and is working to make information on
tariff rates, rules of origin, and other customs-related
information more accessible.
As Singapore's host year approaches its conclusion, we are
working closely with Japan to build on this work in 2010 and
2011. As part of that contribution, we will be contributing to
Japan's effort to assess whether the Bogor Goals agreed to in
1994 of free and open trade in the Asia-Pacific region have
been achieved.
Since 1994 APEC's commitment to free and open trade and
investment has resulted in tremendous economic growth,
reduction of trade barriers, and lifting millions out of
poverty. And as a result, we are looking forward next year to
telling a positive story on the role APEC has played toward
reaching the Bogor Goals.
Another priority for us going into 2010 and 2011 will be
focusing on how APEC's overall trade and investment agenda
benefits small- and medium-sized enterprises. This will be part
of USTR's recently announced larger effort to bolster trade
opportunities for SMEs in recognition of how highly important
these companies are to our economy. We will be looking to
further help SMEs by seeking to simplify complex and divergent
trade rules and reduce transaction costs. We will work to
ensure that the benefits of economic recovery and growth in the
region are extended to businesses of all size, and we will also
focus on making it easier to start a business in the region.
Finally, in 2010 and 2011, we will continue to work closely
with all stakeholders, including Congress and this
subcommittee, to ensure that the APEC agenda contains a well-
rounded, relevant, ambitious and inclusive set of priorities.
Within the United States, we have a longstanding and close
working relationship with the National Center for APEC, which
will be even more important as we prepare for hosting in 2011.
Congressional input and support will be critical, and we are
encouraged by the interest of this subcommittee as well as the
work of the House Caucus for APEC under the leadership of
Representatives Brady, Larson, Crowley, and Herger.
In conclusion, I want to thank you for holding this hearing
and remind everyone that in 1993 when the United States last
hosted APEC, it was a relatively new forum with only 14
members; yet, in recognition of the potential value of the
organization, the United States instituted a meeting at the
heads-of-state level where, for the first time an Asia Pacific
vision of stability, security, and prosperity for our peoples
was outlined. We hope that in 2011 when we host again, we will
use this opportunity to once again break new ground and put
APEC in the forefront of Asia-Pacific economic integration and
cooperation. Thank you.
Mr. Faleomavaega. Thank you very much.
[The prepared statement of Ms. Cutler follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Faleomavaega. I do have some questions and wanted to
start our dialogue. If my own personal experience is
symptomatic of how Washington has operated, I recall when I
first became a member of this committee over 20 years ago,
nobody wanted to be on the Asia-Pacific Subcommittee. The Asia-
Pacific Subcommittee and African Subcommittee were neglected.
The whole mentality, not only in the Foreign Affairs Committee,
but Washington itself, was focused on Europe and the Middle
East. As some observers have noted, we were still fighting
World War II in Europe.
That seems to be the mindset of how Washington was, and I
may be wrong, but that was my first impression when I became a
member of this committee. I would say it has only been in the
course of the last 3 or 4 years that this has changed
dramatically. I can probably say that maybe before then, but I
will say in my own personal experience, this has been the
situation.
And I note with interest, Mr. Tong, you mentioned, and I
want to emphasize again, the 21 APEC members account for 55
percent of the world's GDP, 45 percent of the global trade and
40 percent of the world population. Sixty percent of U.S. goods
exports go to APEC economies. Five of America's top seven trade
partners are APEC members. I think that in itself should give
some striking understanding and appreciation of our
relationship with the Asia-Pacific region or, for that matter,
as a member of this organization.
I also note with interest, Mr. Tong, you mentioned that
APEC is probably the only organization where we have the
People's Republic of China and Taiwan as full members. As you
know, in public forums regionally as well as even in the United
Nations, there is every effort made by the People's Republic of
China never, never to allow Taiwan to be an active participant.
Yet in APEC's membership, this is taken very well in terms of
how that situation is taken.
But I wanted to ask both of you--from both of your
testimonies, I hear a lot of positives. But I would like to
hear from you what are some of the downsides; or, you might
say, are there problems with APEC in its current situation not
just in terms of its operations but just in terms of are there
serious problems? Even though you have given such a magnificent
picture of how great APEC is, I would like to think that there
are problems within APEC, and I would like to ask you if there
are problems, I would like to hear from you. Or should I say
``challenges,'' if that's a better way of saying it?
Mr. Tong. If I could go first, I was actually going to
suggest we call them challenges because we certainly look
forward to trying to address these problems or challenges in
APEC.
I think I would like to mention two. One is the question of
the level of ambition, and I think several members spoke to
this, and the question of whether APEC is really living up to
its full potential as an organization. Given the considerable
importance of its membership, are we in fact doing all that we
can do within APEC? And I think it is really--it is a question
of whether the economies are looking for opportunities for
results. And the United States I think is recognized within
APEC as a leader in pushing for results-oriented approaches,
agreements and commitments, which, if not binding by law, are
binding at least in the sense of being commitments that are
being made in all seriousness and with the intention to fulfill
them. That's an important question. I think that a critical
question for 2010 and 2011 is: Can we, Japan and the United
States, lead the economies of the region in trying to be as
ambitious as possible within APEC?
To be honest, one difficulty that we face is the fact that
the global economy is not doing well right now. It is a tougher
environment for many of the economies to take on new
challenges, but it is an important one to face.
Now, you suggested not going beyond APEC operations. There
is also a challenge in terms of just how the nitty-gritty of
the organization runs; that even in an organization as young as
APEC, which has only existed for about 20 years, there is a
tendency for things to become bureaucratic and stodgy in terms
of how things are done. And I think that we are committed to
try and make sure that the focus is on the results rather than
the process and that APEC in its operations is efficient and
speedy.
Mr. Faleomavaega. Ms. Cutler.
Ms. Cutler. Well, I wholeheartedly agree with all the
challenges that Kurt put forward, and I would just like to add
two more. One, I think APEC could do a better job at setting
its priorities and streamlining its work. I have worked on APEC
now for about 6 years, and I still find there are different
working groups I have never even heard of. A lot of times these
groups are easy to establish, but they are hard to shut down.
And also I think if you look at some of the statements that are
put out after these meetings, there are pages and pages of
different work programs. So I think setting priorities could
help.
Second, I think we could do a better job with what I call
follow-through or implementation on initiatives we have agreed
on and arrangements we have endorsed. And this is an area that
we are trying very hard to work on to make sure that if in 1
year an initiative is announced and APEC economies agree to the
initiative, that next year we can have a discussion on follow-
through and actually ask economies to present how they have
lived up to these commitments--nonbinding commitments.
Mr. Faleomavaega. I notice that both of you have made
comments of the fact that next year Japan is going to host the
APEC conference and the following year the United States is
going to host the conference. Does that sound like some kind of
a conspiracy going on here with the two most powerful
economies? It sounds like they want to dominate the APEC
organization by having this little conspiracy going here.
I note with interest that you said that this is a golden
opportunity for the United States and Japan to make APEC a more
effective organization in terms of its trade and investment
policies. Do you consider this as a grand scheme on the part of
the United States and Japan to dominate APEC?
Mr. Tong. Well, I certainly hope that our partners, the
other 19 economies in APEC, don't view this as a negative that
Japan and the United States are hosting back to back. I think
APEC has done very well in the years where the most capable
economies or the wealthiest economies have led. It has also
done very well in years when developing economies have led APEC
as the host, because they throw themselves into it with full
enthusiasm and great vigor.
I think actually that the other economies look to the next
2 years with Japan--and also the current year with Singapore--
but the next 2 years with Japan and the United States in the
chair with anticipation; that they actually are looking forward
to us helping set the direction and lead efforts and follow
through.
Mr. Faleomavaega. Ms. Cutler, I hate to impose on you. Go
ahead, please.
Ms. Cutler. I would just add that the United States, we
hosted in 1993; Japan hosted in 1995. It is kind of our turn
again. Indonesia hosted in 1994 and they are going to be
hosting again in 2013. So there is some logic to these hosting
years.
Mr. Faleomavaega. I note with interest also that I am just
curious; how do the economies of the Asia-Pacific region
compare to the European Union and our trade relations with
these two regions of the world? I don't have the figures in my
hand, but I am just curious; is our trade with the Asia-Pacific
region greater than the Europeans and Europe at this point in
time? You can submit it as part of the record.
Mr. Tong. I will have to get back to you with the exact
numbers but my impression is it is larger.
Mr. Faleomavaega. It is larger.
Mr. Tong. I think we said 60 percent of the exports go to
Asia-Pacific economies so my hunch is that is the case, but I
will check and make sure.
Mr. Faleomavaega. Don't we currently have about $600
billion in trade with the European countries?
Mr. Tong. They are also extremely important.
[The information referred to follows:]
Written Response Received from Mr. Kurt Tong to Question Asked During
the Hearing by the Honorable Eni F.H. Faleomavaega
U.S. trade with the Asia-Pacific is greater than with Europe.
In 2008, total U.S. trade with Europe in goods was $642 billion. If
both goods and services are included, U.S.-Europe trade was roughly
$953 billion.
In comparison, U.S. goods trade with APEC member economies,
including Canada and Mexico, was $2.1 trillion in 2008. U.S.-APEC trade
in both goods and services was $2.2 trillion in 2007, the latest year
that we have data available for both categories.
Mr. Faleomavaega. I have some more questions, but I am very
glad that I have my good friend and colleague here with us, the
gentleman from California, Mr. Rohrabacher, for his questions.
I will wait for the second round.
Mr. Rohrabacher. Thank you very much.
Here we are in the middle of an economic crisis. The
American people are justifiably asking some questions about
economic policies that perhaps they weren't asking about
before. So let me just go over some questions for you.
Have the rules of the trade game been unfairly tilted
against the American people, especially concerning China, over
these last 20 years?
Ms. Cutler. With respect to China, it is really the rules
of the WTO that govern our trade relationship with them, in
addition to additional bilateral agreements that we have
reached with them. In our view, the rules--let us just say we
are putting great emphasis on enforcing these rules and making
sure that China like other WTO members lives up to its
obligations.
Mr. Rohrabacher. So your answer is no, the rules are fair
and we are trying to enforce them, and to the degree that we
haven't enforced them, it wouldn't be fair to the American
people. But the basic rules of trade between China and the
United States have been fair to the people of the United
States.
What about you?
Mr. Tong. We are certainly trying to make sure that the
interests of the American people are protected and promoted as
much as humanly possible in the trade relationship with China.
I think several of the members pointed out that there are rules
which are agreed upon between nations, including in the WTO,
and then there are rules which sometimes operate in practice
beyond those which are formally agreed. And certainly our
intention is to make sure that all of the rules that we
negotiate are favorable to the American worker.
There is a problem with rules being made in either an ex
officio way or informally. I think Representative Sherman was
referring to informal guidance which was given by the Chinese
Government--its different entities, maybe different levels of
government--to businesses which can make it more difficult for
U.S. businesses to compete in the Chinese environment, and
certainly that is an issue of concern to the United States.
Mr. Rohrabacher. So there is an informal factor rather than
actual rules of the game that is working against the American
people, but the rules you think are fundamentally fair?
Mr. Tong. Well, I think the intention is to try to make
sure that to the extent possible in our discussions government
to government, that there is not a situation where the playing
field was tilted against the American businesses.
Mr. Rohrabacher. Is the Chinese currency undervalued? And
if the answer is yes, which everybody in the world seems to be
saying, how long has it been undervalued?
Mr. Tong. I think the Treasury Department would make sure
that I get fired if I comment on that topic. So I am sorry. I
would have to ask you for your next opportunity to ask someone
from the Treasury Department.
Mr. Rohrabacher. Do you have any opinion on that, or should
we have another set of government officials? Okay.
Let us just note that every information that I have
received indicates that it is undervalued, has been undervalued
for a long time, and the American people have suffered because
of our willingness to permit that basic element of trade to
continue. And why haven't we acted upon it? Maybe it is because
we have some very corporate elite, rich Americans who are
benefiting from the China trade at the expense of the American
people, and they have a great deal of influence as to what
policies we push; like, for example, pushing on the Chinese and
laying down the law that we are not going to permit this unfair
valuation of their currency at the expense of the American
people.
Mr. Faleomavaega. Will the gentleman yield?
Mr. Rohrabacher. Certainly.
Mr. Faleomavaega. I would just like to add to the
gentleman's concerns and questions here, I would like to ask
you if you could submit the names and the number of U.S.
companies that are doing business right now in China. And as
part of the Chinese exports that I recall 2 years ago, $340
billion of exported goods to the United States, how much of
that percentage was produced by American companies who do
business in China? I think that is pretty much in terms of the
concerns of the gentleman.
[The information referred to follows:]
Written Response Received from Mr. Kurt Tong to Question Asked During
the Hearing by the Honorable Eni F.H. Faleomavaega
The United States government does not keep statistics on the number
of U.S. companies doing business currently in China. I would recommend
inquiring with private sector organizations such as the U.S.-China
Business Council and the U.S. Chamber Commerce as to whether they have
such data. The United States government also does not have the raw data
available that would be needed to calculate statistics on the amount of
Chinese exports that are actually produced by American companies who do
business in China.
Mr. Rohrabacher. So we end up with 90 percent of the
containers that go through the Port of Los Angeles and Long
Beach, which I represent, are coming in and only 10 percent are
going out, and there is a reason for that. That didn't just
happen. That is based on policies that have been established
for these last 20 years. And I focus on 20 years, because it
was 20 years ago when the Communist Party of China, who
controlled the Beijing government at that time, slaughtered the
democratic movement in Tiananmen Square.
How much investment have U.S. capitalists put into China
over these last 20 years?
Mr. Tong. I would need to get back to you for the exact
figure on that. I believe it is a considerable investment. I
would point out that the investment that American companies put
into China, much of it supports, as you have noted, imports
back to the United States; much of it also supports exports
from the United States.
Mr. Rohrabacher. Right. And it also suggests what? Very
limited exports for the first couple of years and setting up a
factory, and then a long-term drain on the financial resources
which are being taken from the pockets of American workers who
have been put out of work and now are in the pockets of, yes, a
few capitalists who can now make a bigger profit, American
capitalists, and Chinese elites as well, as perhaps the Chinese
people. But who is watching out for the American people?
So it is considerable. Is $1 trillion, do you think that it
would be $1 trillion worth of investment or is that just way
too high?
Mr. Tong. I think it would be most responsible for us to
get back to you with an exact figure, because there is a
question of stock investment and flow investment and how much
of it is double-counted. So we will certainly give you that.
[The information referred to follows:]
Written Response Received from Mr. Kurt Tong to Question Asked During
the Hearing by the Honorable Dana Rohrabacher
According to the U.S. Bureau Economic Analysis, the total stock of
U.S. foreign direct investment (FDI)--that is, the total accumulated
amount of U.S foreign investment in China--in 2008 was $45.7 billion.
In 1989, U.S. FDI stock in China was $436 million.
Mr. Rohrabacher. That would be very helpful. How about the
value of tech transfer that we have had, where American
taxpayers over these last four decades have spent hundreds of
billions of dollars developing new technologies that just end
up being sent to increase the manufacturing capabilities of
China? What is the value of the tech transfer? Have there been
any estimates on that?
Mr. Tong. Again, for an exact figure we can get back to
you.
Mr. Rohrabacher. I would certainly appreciate that.
[The information referred to follows:]
Written Response Received from Mr. Kurt Tong to Question Asked During
the Hearing by the Honorable Dana Rohrabacher
The State Department does not keep statistics on the amount of
technology transfers between U.S. and Chinese companies. I note that
the Obama Administration is committed to fostering development of new
technologies, including green technologies, here in the United States
that create jobs for Americans. The administration is also committed to
ensuring that American workers and businesses stay competitive in the
global economy, including through technological innovation.
Mr. Tong. Turning back to APEC,I would point out, and
perhaps Wendy can elaborate on this, there is an intense effort
within APEC to try to tighten intellectual property rights
protection. It is one of the major agenda items for the
economies within APEC. We have had some progress.
Mr. Rohrabacher. That is intellectual property theft. But I
was just talking about in terms of actual tech transfer where
it might not be theft. It might just be our corporations that
have benefited by government research contracts over the years,
taking the results of that research and putting it to use for
the benefit of people who are our competitors.
But speaking about property theft, what is the estimate on
the value of the intellectual property theft in China every
year? None? What about----
Mr. Tong. Well, I believe industry have done calculations
on that and certainly we can provide that information.
[The information referred to follows:]
Written Response Received from Mr. Kurt Tong to Question Asked During
the Hearing by the Honorable Dana Rohrabacher
The private-sector International Intellectual Property Alliance
(IIPA) estimates that the amount of U.S. trade losses due to copyright
piracy in China of business software and music totaled $3.5 billion in
2008. They also estimate that 79 percent of business software and 90
percent of records and music are pirated in China.
Mr. Rohrabacher. Okay. Is China the country that--we have
spies, we have economic spies that we have here, as well as
military and other national security spies, but is not China
the number one country--that when we find these economic spies,
is not China the number one country that is engaged in economic
espionage?
Mr. Tong. That again is something I would need to get back
to you on, and probably in a classified forum, for an accurate
estimate.
[The information referred to follows:]
Written Response Received from Mr. Kurt Tong to Question Asked During
the Hearing by the Honorable Dana Rohrabacher
The State Department is not in a position to give a response to
this type of intelligence-related question. I would recommend that you
seek information from the FBI or the intelligence community.
Mr. Rohrabacher. Okay. Over these last 20 years when we
have had a massive flow of capital and know-how and value and
wealth transferred to China, have there been any government
policies on the part of the United States that encouraged this
flow? For example, have there been any programs of the United
States Government that provided loan guarantees or any other
type of, let us say, support for large capitalists to go into
China and invest?
Mr. Tong. My understanding is that the Export-Import Bank
of the United States is active in China, but the Overseas
Private Investment Corporation is not active.
Mr. Rohrabacher. So the Export-Import Bank. How about IMF
and the World Bank, which of course most of their money comes
from us anyway? Do they support projects of American
capitalists investing there in China?
Mr. Tong. IMF I don't know. World Bank and certainly also
the Asian Development Bank are very active in China in
investing in infrastructure development, environmental
protection, and other areas.
Mr. Rohrabacher. Right. Okay.
Mr. Chairman, let me just note that the American people are
suffering from a nonnatural disaster. Your people in Samoa just
went through a catastrophe; it was a tidal wave based on an
earthquake. They are suffering tremendously, as we have
recognized at the beginning of this.
The American people are going into a time of suffering and
hardship not because of a natural catastrophe, but because the
policies that have been put in place have led to this. The
Chinese Government now owns--what is the Chinese debt that they
own half of ours?
Mr. Faleomavaega. Almost $1 trillion.
Mr. Rohrabacher. Almost $1 trillion of debt.
Mr. Faleomavaega. Not debt, but investments in the United
States.
Mr. Rohrabacher. Well, that is what it is going to turn out
to be, that they own a lot of----
Mr. Tong. U.S. Government Treasuries.
Mr. Rohrabacher. They will own a lot now. Where did that $1
trillion come from? Yes, they bought bonds. But I would suggest
that we have given at least $1 trillion worth of financial
support in building up an economic power to a country that is
headed by people who are the worst human rights abusers in the
world and have not had one bit of liberalization in their
political process. This hoping for the best by making China
prosperous and powerful has not worked, and I would hope that
the questions that I offered today--and I look forward to your
research and reply because I really could use those figures. I
hope that alerts us to the fact that our Government has not
been--Republican and Democrat administrations have not been
watching out for the interests of the American people and now
we are paying a horrible price for that.
Thank you very much, Mr. Chairman.
Mr. Faleomavaega. I thank the gentleman for his comments
and questions and I hope that our good friends, the witnesses
this afternoon, will provide us with the data that he has
requested.
Ms. Cutler, I notice with interest that you had mentioned
about the proliferation of trade agreements that seems to be
going around, 70 trade agreements, free trade agreements
currently being negotiated, and that is on top of 150 other
free trade agreements. And it is interesting that I think we
only have 5 free trade agreements in place, which brings to
bear my next question.
I noticed that you were actively engaged in the free trade
agreement negotiations with South Korea, and I know this became
one of the big political issues in last year's Presidential
campaign. As a strong supporter of the free trade agreement
with South Korea, I noticed also there was some concern about
auto parts and the automobile trade we have with South Korea.
Can you comment on where we are now with our free trade
agreement with Korea?
Ms. Cutler. We are currently undertaking a review of the
Korea FTA. As part of this review we have had numerous meetings
with various stakeholders including the auto companies and the
UAW. We also issued a Federal Register notice in August and
received over 300 comments, and we are now looking through
these comments. There has been overwhelming support for the
agreement based on the comments, but I would also note that
there are areas of concern noted by some of the submissions,
particularly by two of the automotive companies and the UAW and
other workers groups.
We are now looking at the various suggestions that have
been put forward of ways to address concerns. We are thinking
of our own ways to address concerns, and we will be consulting
intensively with our stakeholders and Congress, and we hope to
reengage with Korea in the near future with a package of
recommendations to build on the existing agreement.
Mr. Faleomavaega. Given our experience with NAFTA, two
basic issues always seem to come up whenever we talk about
trade agreements--labor standards and environmental standards.
And it seems that South Korea is pretty much transparent when
it comes to those fundamental issues.
I have also noticed allegations--and I don't know if there
is any truth in this and would like your comment--that some
600,000 Korean cars are purchased here in America versus some
7,000 American cars purchased in Korea. Is there any truth to
that allegation?
Ms. Cutler. First, with respect to the environment and
labor, Korea does have some very strong protections in both
areas. And Korea also, as part of the FTA, agreed to the May
10th bipartisan package of 2007, so that is part of the
agreement.
With respect to automotive trade, yes, there is a huge
imbalance. Hundreds of thousands of cars are sold by Korean
companies here in the United States and our success in
penetrating the Korean market has met with impediments. The
current agreement does provide provisions to get rid of Korea's
tariffs immediately on autos. It also provides a series of
provisions on nontariff measures.
However, based on comments, concerns, and discussions since
we concluded this deal 2 years ago, it is apparent that more
can be done and should be done in the automotive sector to help
level the playing field for U.S. companies and workers in this
important sector.
Mr. Faleomavaega. Is there a possibility to separate the
automotive issue? It seems to be the basic obstacle in agreeing
to many other provisions of the proposed free trade agreement
which are very positive to the extent that we are looking at
possible exports from the United States of over $11 billion as
a benefit not only to the American workers but to companies
that want to export to Korea. Is there a possibility of looking
at this separately if this is really the main impediment to the
agreement? I was just wondering if the administration is
viewing that rather than continuing to put the auto issue as
part of the--almost like \1/10\ of 1 percent of the other
provisions of the FTA that are both in agreement by both
countries.
It seems to me that we are putting on hold the bigger part
for something that is just specific and maybe it takes more--it
will take more time to negotiate because, as you said, this--I
don't know if it is because of the tariffs that the Korean
Government puts on our vehicles when we export to Korea. There
is a claim that the tariffs that they put in as an offset of
some of the things that we export to Korea, especially
agricultural products. This is something that comes into the
meat industry or the beef. You know, I think Korea is one of
the biggest consumers of beef in the world, and I was just
curious if we are going to continue to have the auto industry
to hold the benefits that could be given to the American people
as well as the workers and the businesses who will benefit from
this free trade agreement.
Ms. Cutler. Our focus now is on understanding and trying to
address the concerns put forth by the automotive industry but
not limited to the automotive industry. The submissions to our
Federal Register notice are public, and if you have time to
comb through hundreds and hundreds of them you will see that
there are other concerns as well.
With respect to beef, the comments do suggest that our beef
industry is now pleased with the inroads they have made into
the Korean market. But some other concerns have been raised
more generally with respect to nontariff measures. In any
event, we are looking through all of these concerns. We are
trying to come up with a package of proposals which will level
the playing field, address the remaining issues so we would be
in a position to move this agreement forward in Congress.
Mr. Faleomavaega. Well, that was our hope as well. But it
seemed to have been that the previous administration had really
moved to get the free trade agreement for some other exchanges
that took place at the time when this proposed free trade
agreement was brought for public review.
I wanted to note also that you had commented about APEC and
its ability to cope with the global financial crisis. Will this
be one of the issues that will be taken up in our meeting in
Singapore, Mr. Tong?
Mr. Tong. Yes. I definitely think this will be a major
topic for the leaders as well the finance ministers to meet a
few days previous to the leaders meeting in Singapore. Our
expectation is that both the finance ministers and the leaders
will review some of the outcomes of the Pittsburgh G-20 summit
and, we hope, endorse the principles agreed to in Pittsburgh
and take on commitments as an Asia-Pacific region to implement
those approaches to economic growth and recovery. But I think
it is going to be a major theme in Singapore.
Mr. Faleomavaega. Touching upon the issue that my friend
from California had covered earlier, I note with interest that
for years Russia and China had been moving or proposing to the
global community about having international currency rather
than using the dollar as the international currency of
exchange. What is your comment on that?
Mr. Tong. I am always real cautious about matters related
to the currency, but I think that what we are finding is
happening on the ground in actuality is that, while there is
some discomfort in some economies to the very prominent role
played by the U.S. dollar in the international financial
system, that there is also a sense of reality and a sense of
the continued importance of the U.S. dollar. So sometimes there
is a tradeoff between reality and aspiration on that front.
Mr. Faleomavaega. I don't know about reality and a
tradeoff. But let me just ask you, in the advent of the recent
economic crisis, ironically a country that happens to be the
most stable economy happens to be China, which is not even a
capitalist country other than the fact that they implemented
free market principles since the time of Deng Xioping. It think
it was in 1978.
What I wanted to note with interest is that on the failure
of our own economic institutions, for lack of regulation
perhaps, for lack of just greed perhaps in corporate America.
And yet somehow we just continue skipping over and not really
admitting to ourselves there are some very serious moral and
ethical questions raised about how we have gone on doing
business, which has completely impacted our economy in a most
serious way.
And I think this probably bears on what China and other
countries are saying: That if this is the kind of example that
is causing economic instability around the world because of our
conduct and what we have done, do you think that perhaps the
idea of an international currency, with some sense of
stabilization efforts, to make sure that the world economic
crisis doesn't have another repeat of history, with what we are
going through right now?
Mr. Tong. I am not sure whether a change in the way that
international currencies are handled would improve things or
not. But I will say that we have heard quite a bit from the
Asia-Pacific economies over the past year, concern about the
United States economy. It is sincere concern. They have the
best interests, for the most part, in seeing the U.S. economy
recover, and, fortunately, we are starting to see some signs of
recovery. But we have heard from the Asia-Pacific economies
great concern.
We have also heard some relief that the U.S. Government has
tackled the problems of our domestic economy head-on and done
our best efforts to try and achieve a rapid recovery in the
U.S. economy and a return to growth.
You mentioned the role that the Chinese economy has played
in the global macro-economy. I think it is fair to say that
continued Chinese growth has been a source of stability and has
assisted the Asia-Pacific region in getting through this past
year and returning toward recovery. And our hope is that as the
Chinese economy becomes increasingly consumer-oriented and
takes a more balanced approach toward its future growth, that
that role can continue and can continue in a way that also
addresses some of the concerns that we have about the trade
balance and the way that our economic relationships with China
are structured.
That is a concern that many economies share as they look
toward China: Both a sense of the opportunity which China has
created through its rapid growth, but a sense of hope that the
Chinese will restructure their economy in a way that is
beneficial to everyone.
Mr. Faleomavaega. Ms. Cutler? I didn't mean to put you on
the spot there.
Your sense on the Bogor goals of free and open trade and
investment in the Asia-Pacific region by 2010 and 2020: Are
they realistic goals or are they just a dream?
Ms. Cutler. They were goals that were agreed to in 1994.
The industrialized countries, APEC economies, are scheduled to
announce in 2010 how far they have come to achieving them, and
we in the United States believe we have made important progress
and great progress toward achieving these goals.
The trade landscape in 1994 was very different than it is
today. So it is hard to compare what leaders meant when they
agreed to those goals in 1994 to what the environment is and
all the issues that now come under the trade and investment
rubric.
So we think we have a good story to tell. We believe a
number of our other 2010 colleagues have a good story to tell.
And we hope, then, that next year under Japan's leadership, we
will have a successful review of Bogor, and then we can discuss
what we need to do to further our trade and investment
liberalization objectives looking ahead.
Mr. Faleomavaega. In my recent meetings with President Lee
and several other leaders of South Korea--as you know, South
Korea is perhaps one of our closest allies in this region. And
to the extent that they have shared with me their concern to
the effect that it is not just about free trade, it is not just
about having a free trade agreement, it is about a partnership
that cuts through not just economics, but the whole region is
looking at how our country is treating this democracy or this
country that has always been our strongest supporter
militarily, economically, and in every way.
And I just wanted to pass that message on to the
administration that this proposed free trade agreement now--
that has been 2 years in the making--that it is not going to
continue on for another 4 years of continued negotiations. It
does negatively reflect on our inability to say are we really--
do we really have the political will to make this free trade
agreement as a good result and seeing that we are serious about
our commitments to our friends?
And I sincerely hope that in the coming months, Ms. Cutler,
as you have said, that you continue the negotiations, that we
don't continue the negotiations for the next 2 years and still
with no result. It will bring about tremendous disappointment.
And I just want to say that they are anxiously waiting,
hopefully, not only as a benefit to them but certainly as a
benefit to our country as well. And I sincerely hope that
something positive will come as an outcome of your continued
efforts to work out the differences or the problems that we
have faced in that proposed free trade agreement.
I truly want to thank both of you for being here. I hope
and wish both of you all the best in the upcoming APEC
conference. I understand the President also plans to visit
China, and maybe even Indonesia where he was raised.
It was very interesting at the height of the last year's
Presidential campaign, there was a national blog going on, and
that I was a specially appointed agent of Barack Obama who went
to Indonesia, which I did. I went to Indonesia and I also
visited the school that he went to when he was a young man, and
that my mission, as a special agent of President Obama, was to
make sure that there was no record whatsoever indicating that
he was born in Indonesia.
And I just wanted to let you know that confirmation for
those who still think that President Obama is not a naturalized
citizen--I get to the point where not only it becomes absurd
and this whole thing about, well, why doesn't he show his birth
certificate? I think maybe if you go see the application when
he filed for the Presidency, I am sure there is an indication
of where he was born, which happens to be the Kapiolani
Hospital in Honolulu, in the State of Hawaii, if they really
are that serious and wanted to know where he was born.
If anybody could find out that he falsely filled those
applications to become President of this great country, I would
be the first person that would like to shake that person's hand
to say that he falsely filled out that application to become
President of this great Nation of ours.
Again, I commend both of you for your tremendous work and
service to our country. Thank you so much for being here.
The hearing is adjourned.
[Whereupon, at 4:36 p.m., the subcommittee was adjourned.]
A P P E N D I X
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