[Senate Hearing 111-377]
[From the U.S. Government Printing Office]
S. Hrg. 111-377
STRENGTHENING THE TRANSATLANTIC ECONOMY: MOVING BEYOND THE CRISIS
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HEARING
BEFORE THE
SUBCOMMITTEE ON EUROPEAN AFFAIRS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
DECEMBER 9, 2009
__________
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Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin BOB CORKER, Tennessee
BARBARA BOXER, California JOHNNY ISAKSON, Georgia
ROBERT MENENDEZ, New Jersey JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania JOHN BARRASSO, Wyoming
JIM WEBB, Virginia ROGER F. WICKER, Mississippi
JEANNE SHAHEEN, New Hampshire JAMES M. INHOFE, Oklahoma
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
David McKean, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
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SUBCOMMITTEE ON EUROPEAN AFFAIRS
JEANNE SHAHEEN, New Hampshire, Chairman
CHRISTOPHER J. DODD, Connecticut JIM DeMINT, South Carolina
ROBERT MENENDEZ, New Jersey JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania BOB CORKER, Tennessee
JIM WEBB, Virginia ROGER F. WICKER, Mississippi
EDWARD E. KAUFMAN, Delaware
(ii)
C O N T E N T S
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Page
Burwell, Frances G., Ph.D., Vice President, Director of
Transatlantic Relations, the Atlantic Council, Washington, DC.. 27
Prepared statement........................................... 30
Hormats, Hon. Robert, Under Secretary of State for Economic,
Energy, and Agricultural Affairs, Department of State,
Washington, DC................................................. 5
Prepared statement........................................... 8
Howland, Charles, president and CEO, Warwick Mills, Inc., New
Ipswich, NH.................................................... 22
Prepared statement........................................... 22
Maibach, Michael C., President and CEO, European-American
Business Council, Washington, DC............................... 23
Prepared statement........................................... 26
Shaheen, Hon. Jeanne, U.S. Senator from New Hampshire, opening
statement...................................................... 1
Prepared statement........................................... 3
(iii)
STRENGTHENING THE TRANSATLANTIC ECONOMY: MOVING BEYOND THE CRISIS
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WEDNESDAY, DECEMBER 9, 2009
U.S. Senate,
Subcommittee on European Affairs,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. Jeanne
Shaheen (chairman of the subcommittee) presiding.
Present: Senators Shaheen and Risch.
OPENING STATEMENT OF HON. JEANNE SHAHEEN,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Shaheen. Good afternoon, everyone. We will begin in
hopes that we can get through a major portion of this
afternoon's hearing before we have any votes.
So, and we also very much appreciate Secretary Hormats
being here. We know that you have a tight schedule. So we will
get underway right away.
And I have an abbreviated statement, but we will file the
complete one for the record.
So the Senate Foreign Relations Subcommittee on European
Affairs meets today to examine the economic, trade, and
investment ties between the United States and Europe and to
assess opportunities for further integration, expansion, and
deepening of this critical partnership.
I want to welcome all of you here today. We have two
impressive panels, and we look forward to hearing from our
witnesses and engaging them in dialogue on this important
relationship.
Today, we are nearly 2 years into the worst economic
downturn certainly of my generation. Though we have begun to
see some positive signs, unemployment remains much too high,
and growth is still too stagnant.
We need to find additional ways to encourage investment and
create jobs here at home. As the global economy begins to
rebalance and the American consumer can no longer represent the
sole engine of growth, U.S. businesses will need to look
overseas for markets and investment.
Understandably, much of global attention has turned to the
rapidly developing economies like China, India, and Brazil. And
it is easy to forget that, by far, America's largest, most
vibrant, and perhaps its most critical economic relationship is
actually with Europe. It would be a mistake to neglect this
crucial partnership as we attempt to dig ourselves out of this
economic downturn.
The numbers really do speak for themselves. Representing
over 800 million people, the combined economies of the United
States and Europe generate a gross domestic product of $32.7
trillion, which accounts for over 50 percent of the world's
GDP.
As Governor of New Hampshire, I was able to witness
firsthand the critical nature of the transatlantic relationship
to communities and businesses throughout my State. I was the
first Governor to lead a trade delegation outside of North
America.
We traveled to England, Ireland, Germany, and Denmark on
missions which generated millions of dollars for New Hampshire
businesses. And we went to Europe because what we heard from
New Hampshire businesses was that is where the markets were.
In 2007, Europeans bought nearly 1 billion dollars' worth
of goods from businesses in my home State of New Hampshire, and
today, European countries represent 6 of the top 10 overseas
markets for New Hampshire goods. Obviously, I think what
happened in New Hampshire and what is good for New Hampshire is
good for the rest of the country.
It is not only goods and services crossing the ocean, it is
also investment dollars. For every $1 in goods traded across
the Atlantic, nearly $4 are invested between the United States
and Europe. Of the $5.2 billion invested in New Hampshire in
2006, $3.6 billion came from Europe.
Investment dollars from Europe means jobs right here in New
Hampshire and in the United States. European investment
supports tens of thousands of jobs in my home State, and an
estimated 7 million Americans countrywide are employed by
businesses affiliated with Europe.
So it is easy to see why the transatlantic economy has been
the anchor for global economic stability for so many years.
However, like any partnership that wants to remain relevant to
a rapidly changing world, we need to continue to foster and
adapt our relationship to meet present-day realities. We can't
take this relationship for granted or allow it to coast on
autopilot.
There are a number of areas where we can work to improve
integration and foster continued growth. First, as integrated
as our two economies are, there are still significant barriers
to businesses gaining access to overseas markets.
Nearly 95 percent of the world's customers are outside of
the country, but less than 1 percent of small- and medium-sized
businesses export to those markets. We need to improve this
imbalance and do a better job of helping small businesses gain
access to markets in Europe and elsewhere.
In addition, we need to make sure we are better organized
and coordinated at the Government level to help our businesses
compete abroad. We can also do more to revitalize the
Transatlantic Economic Council and try to harmonize the
differences in regulatory policies across the Atlantic in
support of American businesses.
Finally, as we continue to assist our businesses in gaining
access and investment overseas, we also need to do a better job
of enforcing our trade rules. The violation of trade agreements
from either side of the Atlantic hurts profits, hinders growth,
and adds to skepticism of the benefits of free trade.
At a time of ongoing economic uncertainty and significant
unemployment, it is critical that the United States seek ways
to expand and strengthen its economic relationship with Europe.
These ties will be critical to further prosperity, profit, job
growth, and jobs on both sides of the Atlantic.
[The prepared statement of Senator Shaheen follows:]
Prepared Statement of Hon. Jeanne Shaheen,
U.S. Senator From New Hampshire
The Senate Foreign Relations Subcommittee on European Affairs meets
today to examine the economic, trade, and investment ties between the
United States and Europe and to assess opportunities for further
integration, expansion, and deepening of this critical partnership. I
want to welcome all of you here today. We have two impressive panels,
and we look forward to hearing from our witnesses and engaging them in
dialogue on this important relationship.
Today, we are nearly 2 years into the worst economic downturn of
our generation. Though we have begun to see some positive signs,
unemployment remains much too high and growth is stagnant. We need to
find additional ways to encourage investment and create jobs here at
home. As the global economy begins to rebalance and the American
consumer can no longer represent the sole engine of growth, U.S.
businesses will need to look overseas for markets and investment.
Understandably, much of global attention has turned to the rapidly
developing economies, like China, India, and Brazil. It is easy to
forget that, by far, America's largest, most vibrant, and perhaps its
most critical economic relationship is actually with Europe. It would
be a mistake to neglect this crucial partnership as we attempt to dig
ourselves out of this economic downturn.
The numbers really do speak for themselves. Representing over 800
million people, the combined economies of the United States and Europe
generate a GDP of $32.7 trillion--which accounts for over 50 percent of
the world's GDP. Both the United States and Europe represent each
other's largest trading partners, and total trade between the two,
which now stands at over $600 billion per year, represents an
astounding 33 percent of the global trade volume.
As Governor of New Hampshire, I was able to witness firsthand the
critical nature of the transatlantic relationship to communities and
businesses throughout my State. I was the first New Hampshire Governor
to lead a trade delegation outside of North America. Searching for new
and expanded markets, we immediately looked to our friends across the
Atlantic. I traveled to England, Ireland, Germany, and Denmark on
missions which generated millions of dollars for New Hampshire
businesses. In 2007, Europeans bought nearly 1 billion dollars' worth
of goods from businesses in my State, and European countries represent
6 of the top 10 overseas markets for New Hampshire goods.
It is not only goods and services crossing the ocean, it is also
investment dollars. For every $1 in goods traded across the Atlantic,
nearly $4 are invested between the United States and Europe.
Transatlantic investment dollars totaled over $3 trillion in 2008 with
Europe investing nearly $1.4 trillion here in the United States. Of the
$5.2 billion invested in New Hampshire in 2006, $3.6 billion came from
Europe. Investment dollars from Europe means jobs right here in the
United States. European investment supports tens of thousands of jobs
in the State of New Hampshire, and an estimated 7 million Americans
countrywide are employed by businesses affiliated with Europe. The
volume of goods, services, and investment dollars crossing the Atlantic
lead to job creation, profit growth, and economic prosperity on both
sides of the ocean.
It is easy to see why the transatlantic economy has been the anchor
for global economic stability for so many years. The United States and
Europe share an economic and trade system based on common values, the
protection of intellectual property, and a commitment to the rule of
law. However, like any partnership that wants to remain relevant to a
rapidly changing world, we need to continue to foster and adapt our
relationship to meet present-day realities. We cannot take this
relationship for granted or allow it to coast on auto-pilot. There are
a number of areas where we can work to improve integration and foster
continued growth.
First, as integrated as our two economies are, there are still
significant barriers to businesses gaining access to overseas markets.
Nearly 95 percent of the world's customers are outside the country, but
less than 1 percent of small businesses export to those markets. We
need to improve this imbalance and do a better job of helping small
businesses which are responsible for half of all American jobs in the
private sector--to gain access to markets in Europe and elsewhere.
In addition, we need to make sure we are better organized and
coordinated in helping our businesses compete abroad. Currently as many
as 20 agencies are involved in trade and export promotion in the U.S.
Government, and we will need a more integrated, governmentwide approach
if we are to meet the needs of our businesses as they compete in Europe
and beyond.
Because tariffs remain low between the United States and Europe,
costly regulatory differences are widely recognized as the more
significant barriers to further integration and growth. We can do more
to try to harmonize the differences in regulatory policies across the
Atlantic in support of American businesses. A revitalization of the
Transatlantic Economic Council and a focus on future regulatory issues
before they become trade impediments can help spur integration and
promote business growth.
Finally, as we continue to assist our businesses in gaining access
and investment overseas, we also need to do a better job of enforcing
our trade rules. Though it is said that trade disputes between the
United States and Europe make up only 2 percent of commercial
transactions, it is important that we maintain and enforce, where
necessary, a commitment to a rules-based commercial relationship. The
violation of trade agreements--from either side of the Atlantic--hurts
profits, hinders growth, and adds to skepticism of the benefits of free
trade.
At a time of ongoing economic uncertainty and significant
unemployment, it is critical that the United States seek ways to expand
and strengthen its economic relationship with Europe. As the largest,
most vibrant trade relationship in the world, the economic, financial,
and investment ties between the United States and Europe continue to be
critical to prosperity, profit, job growth, and jobs on both sides of
the Atlantic.
We are pleased to have before us today two distinguished, high-
level panels to discuss these critical issues. I shall reserve my
introductions for the second panel until later. On our first panel, we
have the Honorable Robert Hormats, the current Under Secretary for
Economic, Energy, and Agricultural Affairs.
Under Secretary Hormats is the senior economic official at the
State Department and is responsible for formulating, coordinating, and
implementing international economic policies aimed at protecting and
advancing U.S. economic, political, and security interests. He
participates in international trade negotiations, supports U.S.
business in foreign countries, and participates in formulating U.S.
international sanctions.
Under Secretary Hormats has a long, distinguished career in the
public and private sectors. Formerly a vice chairman at Goldman Sachs,
he has also served throughout government in a variety of senior
positions at the State Department, the Office of the U.S. Trade
Representative, and at the National Security Council, where he was
senior economic advisor to Dr. Henry Kissinger, General Brent
Scowcroft, and Dr. Zbigniew Brzezinski.
He is well placed to give us the government's views with respect to
the transatlantic economic relationship, and we are pleased to welcome
him here today.
Senator Shaheen. Now, as I said, we have two panels today
before us, and we are very pleased to have such distinguished
representatives on each of those panels. I want to reserve my
introductions of the second panel for later because, as I have
said, we know that Secretary Hormats, who is currently the
Under Secretary for Economic, Energy, and Agricultural Affairs
at the State Department, has to leave. And we want to make sure
we get his testimony in and have the opportunity to have a real
dialogue.
Under Secretary Hormats is the senior economic official at
the State Department. He is responsible for formulating,
coordinating, and implementing international economic policies.
Secretary Hormats has a long, distinguished career in the
public and private sectors. Formerly a vice chairman at Goldman
Sachs, he has also served throughout Government in a variety of
senior positions at the State Department, the Office of the
U.S. Trade Representative, and at the National Security
Council, where he was senior economic adviser to Dr. Henry
Kissinger.
He is well placed to give us the Government's views with
respect to the transatlantic economic relationship, and we are
so pleased you could join us today.
Thank you very much for being here. I will turn the floor
over to you.
STATEMENT OF HON. ROBERT HORMATS, UNDER SECRETARY OF STATE FOR
ECONOMIC, ENERGY, AND AGRICULTURAL AFFAIRS, DEPARTMENT OF
STATE, WASHINGTON, DC
Dr. Hormats. Thank you very much, Madam Chair, for your
very kind introduction and for inviting me here to testify on
this extremely important subject.
In September, I appeared before the full committee in
conjunction with my nomination, and I am very grateful for the
consideration that you and your colleagues showed me during the
nomination process. I am honored by the trust that President
Obama, Secretary Clinton, and the Senate have placed in me in
giving me and providing me with this opportunity to serve our
Government.
I am very pleased to appear here today to highlight our
relationship with Europe as a key part of a robust global
economy. As you emphasized, this is an extremely important
economic relationship, and sometimes, with all the
conversations about China and the BRICs and other countries, we
tend to underestimate the importance of Europe. And I think in
your introductory remarks, you have emphasized that point very
strongly and very correctly that Europe is a huge market, the
biggest by far, for American products and a big source of
investment for New Hampshire and virtually every other major
State in our country.
And I would like to focus in my testimony on the importance
of our economic relationship with Europe and the potential that
the administration sees in using that relationship to boost
America's international competitive strength and create jobs in
the United States.
The European economic relationship is really today one of
the central drivers of the world economy. To put it in
perspective--and you have done so with a number of very
important statistics, and let me just add a few thoughts to
complement what you have said. The value of United States goods
and services exported to the EU is over five times the value of
our exports to China.
From 2000 to 2009, in contrast, over half of the total of
United States foreign direct investment was in Europe, while
the stock of United States foreign direct investment in Brazil,
Russia, India, and China, the so-called BRICs, combined in 2008
amounted to only 7 percent of total United States investment
stock in the EU.
So the proportion of our trade and the proportion of our
foreign investment that is in the EU is enormous compared to
all the rest of the world. And even when you add all the BRICs
together, the numbers vis-a-vis Europe are considerably
greater.
As a further illustration, the existing stock of United
States foreign direct investment in Ireland alone of $146
billion in 2008 was more than double the total United States
investment stake in Russia, India, and China combined, which
was $71 billion. In little Ireland, it is bigger than the stock
of investment in all those countries.
These percentages and figures are likely to change as the
economies of the BRICs grow and as their role in the world
commerce increases. But for the moment and for some time to
come, they will underscore the enormous economic importance of
Europe to the United States--to American jobs, exports,
profits, and overall prosperity.
Europe is the most important foreign source of jobs in the
United States. In 2007, European-owned firms employed roughly
two-thirds of the 5.5 million United States workers on the
payrolls of all foreign firms operating in the United States
combined. In fact, the majority of foreigners working for
European-owned companies outside of the EU are Americans.
Many corporate brands that Americans hold in high esteem
are European-owned. How many Americans know, for instance, that
Ben and Jerry's ice cream and Dove soap are owned by Unilever,
a U.K. firm? And many United States brands are highly popular
in Europe. Starbucks, for instance, has more outlets in London
than in Manhattan. As a New Yorker, I am surprised to hear
that, but apparently, that is the case.
We need to build on this strong transatlantic foundation,
given the importance of transatlantic trade and investment in
supporting high-quality jobs in the United States. I cannot
emphasize enough, as you have done in your opening statement,
the importance of making further efforts to remove barriers to
trade and investment between the United States and Europe. We
are doing this in several ways.
First, achieving a successful outcome in the WTO's Doha
Round remains a top priority for this administration.
Multilateral liberalization makes sense and can produce huge
dividends for the United States.
Second, the United States has every interest in promoting
strong market-based, rules-based approaches to economic
policies in third countries, including in particular Russia,
China, Brazil, and India, which are among the world's fastest-
growing economies.
The United States and Europe can both benefit if we work
together to promote the adoption of market principles
worldwide. A perfect example of the potential for EU-U.S.
collaboration in third countries is the joint effort the United
States and the European Union have undertaken to help China
improve the quality of the toys and other products it exports,
which is essential to the health and safety of our consumers in
this country.
The U.S.-EU Investment Dialogue, chaired by Treasury and
our IPR Enforcement Working Group, are other examples of our
joint work to promote better policies in third countries.
Third, in the bilateral economic relationship that we
enjoy, over the past 3 years, we have coordinated important
parts of our agenda with the EU through the Cabinet-level
Transatlantic Economic Council, the so-called TEC. The
Transatlantic Economic Council provides a way for our most
senior economic policymakers to cooperate and engage in joint
work on regulation, investment, intellectual property
protection, innovation, trade, and security.
The United States and the EU account for 40 percent of
world trade. Within this massive market, regulatory divergences
between the United States and Europe are the main impediments
to increased transatlantic economic commerce.
One way we are seeking to minimize the impact of regulatory
divergences on trade and investment is to examine closely our
respective approaches to regulation. A core function of the
Transatlantic Economic Council is to encourage our regulatory
agencies to collaborate when possible.
While differences in perspective and regulatory processes
will never be completely overcome, at this time when we most
need innovation, we should be ready to rely on each other for
ideas to address common problems.
Looking forward, we will be sharpening our focus on such
critical emerging sectors as nanotechnology and e-health. As we
work on the bilateral relationship, we have recently been
observing significant institutional changes on the European
side. I would like to highlight several areas for you that
could impact on the way we do business on economic matters.
First, the December 1 entry-into-force of the Lisbon treaty
has given the EU a permanent President of the European Council,
as well as a High Representative for Foreign Affairs and
Security Policy. Additionally, the European Parliament has
received increased powers under the Lisbon treaty in setting
the EU budget, in agricultural supports, and the exercise of
new parliamentary authority to approve or disapprove trade
agreements.
In so many of these areas impacted by the Lisbon treaty,
the relationships and the dynamics are being rewritten by the
EU as we speak. But the clear message of these changes is that
we will need to increase our engagement--both we in the
administration and U.S. legislators--with the EU's elected
legislators.
There is another institutional point worth noting. Despite
the changes I have described Member States' influence will
remain strong. While the Lisbon treaty has given agenda-setting
of EU meetings on foreign security affairs to the High
Representative, Catherine Ashton--the nation holding the EU
Presidency, which rotates every 6 months, will continue to lead
EU meetings of, for instance, Ministers of Energy, Environment,
and Agriculture.
The influence of the Member States in economic policymaking
will, therefore, remain strong. Those who would seek to
influence developments in the EU and the dialogue with the EU--
such as the distinguished Senators on this subcommittee and
those of us in the administration--will continue to find the
best results by engaging with the EU on all channels, through
the EU's high-level officials, through Member States, through
the commission, and with Members of the European Parliament.
A final institutional factor under Lisbon that will have
significant influence is the following. While the EU Member
States may transfer some authorities to the commission, they
will still have strong incentives to determine policies
affecting their own national firms. You may recall that the
shift of competence over trade policy to the commission led to
a long and difficult set of bilateral negotiations regarding
compensation over lost tariff advantages as the EU consolidated
its tariff schedule.
The transatlantic investment relationship is a good example
of an area where this shift of authority onto Brussels could
have significant consequences. The transatlantic investment
relationship, as you pointed out in your opening statement, is
enormous. It is currently valued at over $3 trillion, and its
impact on trade flows is evident from the fact that so much
U.S.-EU trade is intra-firm trade. Investor protections and
openness on both sides are generally high, but the relationship
is based on legal commitments with the Member States in the
OECD as well as an incomplete network of treaties of
friendship, navigation, and commerce and bilateral investment
treaties.
With greater competence now moving to the EU, we will want
to work with both Member States and the commission to ensure
that our investment relations, the foundation of the
transatlantic economy, remain strong. This last point on
transatlantic investment is perhaps the most important, and you
have emphasized it quite correctly in your opening statement.
We need to continue to look at what we do next not just to
continue, but to strengthen transatlantic investment flows.
Quite simply, additional investment between the United States
and Europe means additional high-quality, high-paying jobs for
many Americans.
I thank you again, Madam Chair and members of the
subcommittee, for the opportunity to appear before you on this
subject. And I very much look forward to answering your
questions on this important topic.
Thank you again.
[The prepared statement of Dr. Hormats follows:]
Prepared Statement of Hon. Robert D. Hormats, Under Secretary of State,
Economic, Energy and Agricultural Affairs, Department of State,
Washington, DC
Madame Chair, Senator DeMint, and members of the Senate Foreign
Relations Committee's Subcommittee on European Affairs. Thank you for
inviting me to testify today on this important subject. In September I
appeared before the full committee in conjunction with my nomination as
President Obama's Under Secretary of State for Economic, Energy, and
Agricultural Affairs. I am grateful for the consideration the committee
and the Senate showed me during the nomination process. And I am
honored by the trust the President, Secretary Clinton, and the Senate
have placed in me in my new position.
I am very pleased to appear here today to highlight our
relationship with Europe as a key part of our shared interest in a
robust global economy.
In my remarks today, I'd like to focus on the importance of our
economic relationship with Europe and the potential the administration
sees in using that relationship to boost America's international
competitiveness and create jobs in the United States. Enhancing our
trading relationship with Europe is one way to do this. Attracting more
foreign investment--which can produce high-quality jobs and bring us
new technologies--is another. We look forward to continued cooperation
with the Congress, our national Governors and Mayors, and the private
sector as we realize these goals.
the u.s.-eu economic relationship
The U.S.-European economic relationship is one of the central
drivers of the world economy. To put it in perspective, the value of
U.S. goods and services exports to the EU is over five times the value
of our exports to China. From 2000 to 2009, over half of total U.S.
foreign direct investment (FDI) was in Europe. The stock of U.S. FDI in
Brazil, Russia, India, and China (the BRICs) combined in 2008 accounted
for only 7 percent of the total U.S. investment stock in the EU.
As a further illustration, the existing stock of U.S. FDI in
Ireland alone of $146 billion in 2008 was more than double the total
U.S. investment stake in Russia, India, and China combined ($71
billion). These percentages and figures are likely to change as the
economies of the BRICS and other emerging economies grow and as their
role in the world commerce increases. But for the moment and for some
time to come, they will underscore the enormous economic importance of
Europe to the United States--to American jobs, exports, profits, and
overall prosperity.
Europe is the most important ``foreign source'' of jobs in America.
European-owned firms in 2007 employed roughly two-thirds of the 5.5
million U.S. workers on the payrolls of all foreign firms operating in
the United States combined. In fact, the majority of foreigners working
for European-owned companies outside of the EU are Americans.
Many corporate brands that Americans hold in high esteem are
European-owned. How many Americans know, for instance, that, Ben and
Jerry's ice cream and Dove soap, for example, are owned by Unilever, a
U.K. firm? And many U.S. brands are, of course, hugely popular in
Europe. Starbucks, for example, has more outlets in London than in
Manhattan.
We need to build on this strong transatlantic foundation as we
continue to construct new international economic rules and architecture
to meet today's challenges. This is why my colleagues and I in the
administration intend to take a very hands-on approach to developing
our economic relationship with Europe and with the EU in particular.
the potential of the transatlantic economic relationship
Given the importance of transatlantic trade and investment in
supporting high-quality jobs in the United States, I cannot emphasize
enough the importance of making further efforts to remove barriers to
commerce between the United States and Europe. And this is not only in
America's interest--it is in Europe's as well.
The United States and European Union need to work together on a
number of levels--in spurring multilateral liberalization in our
globalized world; promoting good economic policies in third countries,
especially the major emerging economies; and of course, in
strengthening our bilateral relationship.
Multilateral Liberalization
Achieving a successful outcome in the WTO's Doha Round remains a
top priority for this administration. Multilateral liberalization makes
sense. The United States and the EU have relatively open markets--we
want other markets to be more open as well. And the most efficient way
to achieve this is through the WTO. We need the Europeans to help us
promote an ambitious, balanced conclusion to the WTO talks.
Similarly, we want to work with our European partners and the
European Union on numerous other multilateral fronts: from devising a
new global financial regulatory and supervisory structure through the
G20 and Financial Stability Board, to promoting effective development
assistance with the EU as the world's largest donor, to improving
supply chain security through the World Customs Organization. And as
the climate change talks now going on in Copenhagen underscore, it is
incumbent upon us to find common ground with our European partners.
Third Countries
Even as we focus on achieving strong multilateral results, the
United States and the European Union have every interest in promoting
strong market-based, rules-based approaches to economic policies in
third countries, including in particular Russia, China, Brazil, and
India.
The United States and Europe can both benefit if we work together
to promote the adoption of market principles worldwide. Better economic
policies in third countries will raise growth and increase the openness
needed to generate U.S. exports and U.S. jobs. A perfect example of the
potential for U.S.-EU collaboration in third countries is the joint
effort the United States and EU have undertaken to help China improve
the quality of the toys and other products it exports, which is
essential to the health and safety of our consumers. The U.S.-EU
Investment Dialogue, chaired by Treasury, and our IPR Enforcement
Working Group are other examples of our joint work to promote better
policies in third countries.
Our work with third countries is most important in the case of
Russia, from which I just returned last Thursday. Russia has made the
transition to capitalism. But there is still significant state
intervention in the economy and other major distortions. It is in our
interest for Russia to be a prosperous economic partner and an active
stakeholder in a rules-based international trading system. Negotiations
have been underway for some time to enable it to join the WTO, and the
pace of those negotiations remains in Russia's hands. Success in those
negotiations, leading to Russia's membership, would enhance the
international flow of goods, farm products, and services, to the
benefit of Americans, Russians as well as other Europeans. To attract
the investment Russia needs to diversify and grow its economy, Russia
needs to make important improvements in its economic regime. It is in
our interest to see Russia succeed. Russian prosperity will not only
improve the lives of millions of Russians; it will also be good for
American trade and therefore for U.S. jobs.
We want to work with Russia to support reforms, promoting the
developing middle class and entrepreneurs. We also want effective
protection of intellectual property rights that do not disadvantage
American and foreign products and manufactured goods, and science-based
sanitary and phyto-sanitary rules that are consistent with
international standards and do not unfairly impede imports of U.S. farm
products. Many American companies are doing very well in Russia and we
want more to do so--supporting our prosperity and Russia's as well. And
many Russian companies are doing very well in the United States. We
seek a level playing field for both--to our mutual benefit and to
expand mutual commerce and investment. Our goal is a win-win situation
where Americans and Russians see closer economic ties with one another
as beneficial to one another. The Bilateral Presidential Commission
established by Presidents Obama and Medvedev is intended to achieve
that.
Europe depends on Russia for a significant amount of its energy
imports, while Russia derives much of its budget revenues from energy
sales to the West. This is an important relationship to which I know
this committee pays close attention. We want to work with all parties
to promote energy security. As part of this effort, we strongly support
greater interconnection among European countries, increased storage
facilities, as well as alternative supplies of gas to Europe, and are
working actively to help Europe to diversify its supplies. Senator
Lugar has spoken particularly strongly and effectively about this topic
as have others on this subcommittee. We welcomed the recent EU-Russia
agreement to establish an early warning mechanism on supply
disruptions. Our shared concern on energy security was one of the key
reasons the United States and the EU established the U.S.-EU Energy
Council, cochaired on the U.S. side by Secretaries Clinton and Chu, at
last month's summit. Ambassador Richard Morningstar is actively engaged
with his European counterparts to promote our common objectives in this
area. He also cochairs a U.S.-Russia subworking group focused on energy
security issues.
We need to work with Europe and the European Union to promote
private sector engagement in countries like Iraq and Afghanistan. Both
sides of the Atlantic have a direct interest in the development of
stable and prosperous societies in these countries. This will come only
with economic growth, which in turn will depend in large part on
private sector engagement through trade and investment relationships.
The United States and Europe are both doing many things to promote
trade and investment ties with Iraq and Afghanistan. This includes, for
instance, the EU's recent negotiations toward a Partnership Agreement
with Iraq and substantial aid to Afghanistan. But we can all do more.
The Bilateral Economic Relationship
As I noted at the beginning of my remarks, the transatlantic
economic relationship is our deepest and broadest by far. Given the
absolute size of our relationship, even small gains in any sector can
mean significant improvements in the lives of our workers.
For this reason the administration is focusing on things that can
be done to strengthen transatlantic economic ties. In the past 3 years,
we have coordinated important parts of our bilateral economic agenda
with the EU through the Cabinet-level Transatlantic Economic Council,
the ``TEC.'' The Transatlantic Economic Council provides a way for our
most senior economic policymakers to cooperate and engage in joint work
on regulation, investment, intellectual property protection,
innovation, and trade and security.
Similarly, given that services account for nearly 70 percent of
economic activity in both the United States and Europe, we are
searching for ways to break down transatlantic barriers in this area.
Different approaches to financial regulation, and ``incipient
mercantilism,'' could have huge deleterious consequences for us both.
Treasury, the SEC, and our other regulators are actively using the
U.S.-EU Financial Markets Regulatory Dialogue to find a way to avoid
this.
By many accounts, the most significant obstacles to trade between
the United States and Europe are largely the result of regulatory
divergences. Regulators in both Europe and the United States aim
essentially for the same results--strong protections for the health and
safety of our citizens, for our environment, and for our financial
system. The EU has sometimes imposed non-science-based measures on U.S.
agricultural and industrial exports, such as the bans on the use of
growth hormones in beef and pathogen reduction treatments for poultry,
restrictions on the cultivation and marketing of biotech products, and
various labeling schemes. We will continue to support the efforts of
USTR, USDA, and the Department of Commerce to encourage the EU to
remove these barriers to trade. It is important to ensure that in
achieving their regulatory goals the EU not also impose arbitrary
barriers or fail to comply with its international obligations.
One way we are seeking to minimize the impact of regulatory
divergences on trade and investment is to examine closely our
respective approaches to regulation. The Transatlantic Economic Council
has spurred new discussions on our respective approaches to risk
analysis, cost-benefit analysis, and the assessment of the economic
impact of regulation on economic activity. We have also discussed
regulatory approaches in particular sectors, including the food, drug,
chemical, automotive, and electrical/electronics sectors.
A core function of the Transatlantic Economic Council is to
encourage our regulatory agencies to collaborate, wherever possible. We
are working to create the expectation among our regulators that part of
their job is to cooperate with their transatlantic counterparts.
Regulatory cooperation would not just benefit trade--it can also
promote more effective regulation. When we both face increased imports
from areas where regulatory systems are still weak, for example, we can
ill-afford to have our regulatory enforcement assets inordinately
focused on products from places we trust to be safe. And by
cooperating, we can increase the returns on the scarce public funds
devoted to our respective regulatory budgets. While differences in
perspective and regulatory processes will likely never be completely
overcome, at this time when we most need innovation, we should be able
to rely on each other for ideas to address common problems.
Looking forward, we will be sharpening our focus within the
Transatlantic Economic Council on promoting innovation in emerging
sectors, such as nanotechnology and e-health, which will be critical to
our competitiveness in a globalizing world. The TEC has recently
launched a high-level Innovation Dialogue to further these efforts.
Additionally, if the United States and European Union can agree on
common approaches among ourselves in some of these areas, they can
serve as a model for other nations. Together we can provide an
incentive for others to embrace our approaches rather than impose
standards that could be less rigorous or impede American and European
access to their markets.
Transatlantic Economic Council successes thus far include a major
statement on the importance to our economies of maintaining open
investment policies; significant simplification of administrative
procedures for transatlantic approval of new drugs, especially
``orphan,'' or low-demand, drugs; the EU's agreement to extend its
acceptance of dual labeling, in both metric and standard, for units of
measurement; steps to develop compatible standards to allow sharing of
electronic patient health records; and the U.S.-EU IPR Enforcement
Working Group.
We also place enormous weight on collaborating with our European
partners on developing energy technologies, both to reduce demand for
hydrocarbons and to cut greenhouse gas emissions. Last month we
inaugurated the U.S.-EU Energy Council, under the leadership of
Secretaries Clinton and Chu and their European counterparts. In
addition to its work on energy security, the Energy Council will seek
to stimulate transatlantic cooperation in energy research. It also will
look at the policy and regulatory issues that have the potential to
hinder trade, as our technology and responsible energy use continue to
progress. A prime example is the issue of interoperability standards
for the range of electronic devices communicating on the ``Smart
Grid,'' as we continue to modernize the electrical grids in the United
States and Europe.
Another promising area for transatlantic integration efforts is
aviation. The 2007 U.S.-EU Air Transport Agreement has been a major
success, benefiting airlines, travelers, shippers, communities, and the
broader economies on both sides of the Atlantic. The agreement expanded
Open Skies to all 27 EU Member States, stripping away protectionist
restrictions. Both sides committed in the agreement to second-stage
negotiations aimed at further liberalization. The second-stage
negotiations began in May 2008, and we have made progress across a
range of important issues, including security, regulatory cooperation,
and the role of the Joint Committee established by the 2007 agreement.
The sixth round is scheduled for January in Washington. Our goal is to
reach, in 2010, a second stage agreement that includes benefits for
both sides.
the institutional framework
The United States has a range of Cabinet- and sub-Cabinet-level
economic collaborative efforts with the Europeans. The United States
maintains a multifaceted, dynamic engagement with the EU on economic
topics in both bilateral and multilateral gatherings. We held the U.S.-
EU summit here in Washington November 3, at which President Obama
hosted his EU colleagues, Prime Minister Reinfeldt of Sweden and
European Commission President Barroso. The focus of their economic
discussion was on the challenges of responding to climate change and
promoting strong, sustained economic growth--as articulated by the G20
in Pittsburgh.
In the weeks since the U.S.-EU summit, we have seen significant
institutional changes on the European side. The ratification and
December 1 entry-into-force of the Lisbon Treaty has given the EU a
permanent President of the European Council as well as a High
Representative for Foreign Affairs and Security Policy.
These new positions, along with the European External Action
Service, the new diplomatic service that the EU is starting to build,
are designed to increase continuity and coherence in EU policy. Though,
in economic policy, the precise role and full impact of these
innovations remain to be seen particularly the role and impact of the
position held by President Van Rompuy.
The Lisbon Treaty brings other institutional changes that are worth
careful consideration by U.S. policymakers. One significant shift is
the increased role of the European Parliament in EU decisionmaking.
The European Parliament has received increased powers under Lisbon.
The changes that have received the most attention are the increased
powers and role of the European Parliament in the areas of justice and
home affairs. In the economic area, the European Parliament's increased
authority in setting the EU budget will also be an important factor.
Stronger European Parliament authority over agriculture policy, and the
exercise of new Parliamentary authority to approve or disapprove trade
agreements, will also be of high interest to the United States.
As with so many other areas impacted by the Lisbon Treaty, the
relationships and the dynamics are essentially being rewritten by the
EU as we speak. But the clear message of these EU institutional changes
for U.S. economic policymakers is that we will need to increase our
engagement--both we in the administration, and U.S. legislators--with
the EU's elected legislators. We have a reasonably strong understanding
of activities in key European Parliamentary committees, such as in work
on climate change, chemicals and pesticide regulation,
telecommunications, and a range of other areas. But more work remains
to be done, and the importance of that work will grow as the
Parliament's role grows.
Ties and contacts between U.S. and EU legislators should also
strengthen as the European Parliament's authority broadens. We in the
administration welcome interparliamentary engagement. Many members of
this subcommittee, as well as other Senators, have engaged in a range
of dialogues and detailed discussions with their European counterparts.
And on the House side, a number of Members, led by Representative
Shelly Berkley, have recently met with their European counterparts in
New York under the Transatlantic Legislators Dialogue.
A second institutional point is worth our attention. Although
Lisbon has given agenda-setting of intra-EU meetings on foreign and
security affairs to High Representative Catherine Ashton, the nation
holding the EU presidency, which rotates every 6 months, will continue
to lead EU meetings of, for instance, Ministers for Energy,
Environment, and Agriculture. The influence of the Member States in
economic policymaking will therefore remain strong. Those who would
seek to influence developments in the EU and dialogue with the EU--such
as the distinguished Senators on this subcommittee, and those of us in
the administration--will continue to find best results by engaging with
the EU on ``all channels.''' We need to continue to engage the EU
through its high-level officials, through the Member States, the
Commission, and the Parliament.
Certainly the EU has a unique and complex institutional structure
in Brussels. But I know the Europeans feel the same way when they visit
Washington and try to figure out how to talk with both ends of
Pennsylvania Avenue. The puzzlement Americans and Europeans may
sometimes feel when looking at the other's system of government,
however, cannot be allowed to deter us from doing everything we can to
ensure close collaboration on the range of policy issues--too much is
at stake.
Finally, a third institutional factor that will have significant
policy implications for the United States and for U.S. companies is
that EU institutions will gain additional authority over energy as well
as agriculture supports. This process will take time. While Member
States may transfer legal and policymaking authorities to the
Commission, they will still have strong incentives to determine
policies affecting their own national firms. You may recall that the
shift of competence over trade policy to the Commission led to long and
difficult bilateral negotiations of compensation over lost tariff
advantages as the EU consolidated its tariff schedule.
The transatlantic investment relationship is a good example of an
area where this change in competency from Member States to Brussels
could have significant consequences. The transatlantic investment
relationship is currently valued at over $3 trillion, and its impact on
trade flows is evident from the fact that so much U.S.-EU trade is
intra-firm. Support for the rights of American investors abroad, not
just in Europe but elsewhere as well, is an important objective of the
State Department and of other agencies. We see the Department of
Commerce and USTR as partners in this effort. The level of investor
protection and openness on both sides is generally high. However, the
relationship is based on legal commitments with the Member States in
the OECD as well as an incomplete network of Treaties of Friendship,
Navigation, and Commerce and Bilateral Investment Treaties. With
greater competence now moving to the EU, we will want to work with both
Members States and the Commission to ensure that our investment
relations, the foundation of the transatlantic economy, remain strong.
I thank you again, Madame Chair and members of the subcommittee,
for the opportunity to appear before you on this subject. I look
forward to answering your questions on this important topic.
Senator Shaheen. Thank you very much for that very
enlightening testimony.
And I want to start with the Transatlantic Economic
Council, which you referenced in your comments, and get your
assessment of that effort and how it is working. It was
designed to better harmonize, as I understand, the differences
in regulatory practices between the United States and the EU.
But how effective has it been?
Is there a way to make it more relevant? Should we forget
about it and try something else? Or what is the status?
Dr. Hormats. It is an interesting question, and we have
tried to improve it over a period of time. I think the answer
is that in a number of areas, it has demonstrated success. We
are working together very closely on the regulatory issues that
I mentioned. And while there are not very high tariffs between
the United States and the EU on most items, there are a lot of
differences in regulations, the way they are administered, and
the procedures.
One of the things we emphasized at the last set of
meetings, which I had the pleasure of attending, was to try to
do a much better job at harmonizing regulations, or at least
have mutual recognition where possible. Because while it is
true that there are regulatory differences between the United
States and the EU, there are much greater regulatory
differences between the EU and much of the rest of the world
and the United States and much of the rest of the world.
So if we can harmonize our relations, we do several things.
One, we improve trade flows or reduce trade barriers across the
Atlantic. Two, we set a higher standard for the rest of the
world. And three, if we do that properly, we can avoid other
countries imposing nationalistic regulatory policies which
restrict the access of our goods and of European goods and our
investment and European investment to their markets.
So we think this is an important area. There are other
areas where we are working together. Energy security is a very
important issue. We are particularly concerned, as are you and
other members of this committee, with the vulnerability of
Western Europe to a heavy dependence on a certain set of
suppliers and certain kinds of energy, natural gas. So to the
extent we can work with the Europeans on energy security
issues, that presents an opportunity as well.
Intellectual property protection, as I mentioned earlier,
is another area where we can work together. By and large, the
United States and Europe have quite good protection of
intellectual property. But many parts of the world don't. That
disadvantages American companies and European companies. And
many parts of our economy are finding piracy of intellectual
property to be an enormous problem.
European companies are finding the same kinds of
difficulties. To the extent we can use the TEC to improve
cooperation in this area, that is a plus. But I would also say
that we have to continue to improve it. This is the most
important and certainly in quantitative terms, but also for
many other reasons, the most important relationship.
And Fran is here, who has just done an excellent report on
this. We haven't had a chance to study it yet, but I can assure
you we will. And there are some very imaginative and thoughtful
recommendations in the report, and we will certainly take a
hard look at them because it does need continued efforts to
improve it. On both sides, we agree to do that, and we are
looking for new ideas.
So I can assure you that we are going to be taking a very
hard look at this, and I am sure we will be talking later.
Senator Shaheen. Yes, and we are looking forward to hearing
from her as well.
Dr. Hormats. She always has good ideas. So I am sure it
will be good testimony.
Senator Shaheen. Actually, I was thinking what I would
really like to do is put you all in a room and just have you
talk among each other.
Dr. Hormats. We can do that next week.
Senator Shaheen. Good. But the point you are making I think
is one that is an ongoing challenge, and that is how do we
better coordinate the various Government agencies and efforts
that are trying to work on this kind of an issue to work better
together and coordinate the relationship so that we have a
unified approach to how we are dealing, in this case, with the
EU-U.S. relationship?
Dr. Hormats. I agree with that. I think part of the
challenge is we have got so many agencies doing so many things
in Western Europe that coordination among them is very
important.
One of the things the TEC enables us to do, it focuses us--
you know, it focuses our various agencies on the TEC meeting so
that we have a lot of preparatory work prior to the meetings
that is focused on the issues that are going to be covered. And
to the extent it serves as sort of a catalytic agent for us, it
can be very helpful.
Senator Shaheen. We were having a conversation outside
before we came in about small business and the importance of
trying to provide some assistance to small business to access
international markets. And you talked a little bit about an
effort that you are thinking about, but I wanted to--wonder if
you could elaborate on that and talk about how we can do a
better job of helping our small businesses gain access to
European markets?
Dr. Hormats. Yes. Thank you very much for that question. I
think it is something that is very important to me, and I had
the pleasure of meeting your constituent, Mr. Howland, in the
other room, and companies such as his are very creative. There
is a lot of entrepreneurism going on in the United States. And
much of it is with small- and medium-sized enterprises, and
they could export a lot more.
There are a lot of inhibiting factors, and we were talking
about a few of them. First of all, it takes a long investment
of time and effort to understand how to export to various
markets. Most American companies that export, export to one or
two countries, and most of those are Canada or Mexico because
of proximity and the knowledge of those markets by Americans.
But to the extent companies can export to those countries,
they should, in most cases, be able to export to others. So one
of the things that I am going to try to do, as I mentioned, is
to sit down very shortly with the head of the Small Business
Administration and with people in the Chamber of Commerce and
other groups to figure out what we in the Government can do.
And the State Department, obviously, can't do it alone. We
have to work particularly with the Department of Commerce,
which is doing an excellent job in this area also. And figure
out ways that we can help small business to, first of all,
identify markets; second, get to understand how to crack those
markets; and three, utilize our Embassies, our State
Department, Civil Service, and Foreign Commercial Service
officials to provide the assistance they need.
And for small businesses, this is particularly important.
Bigger businesses have done it for a long time. Smaller ones
have not. So we are trying to figure out ways we can work with
them.
There are other things that are important. I met yesterday
with a coalition of services industries, and one of the things
that is important is when small businesses do try to crack
these markets, they have the financial services, the transit,
the communication services, the Fed Ex, UPS kind of services
that are needed to provide them opportunities to sell into
these markets. And many of these service companies have had a
lot of experience at these, in dealing with these emerging
markets.
And last, to deal with some of the bigger companies. Some
of the bigger companies have experience, but in order to
advance their own export potential, they would like to work
with smaller companies that have newer products. Where those
companies may, themselves, not be able to export to these
markets, bigger companies have an interest in working with them
to help them do so.
So on a number of fronts, we are going to try to make this
an effort. Secretary Clinton is quite interested in doing this.
So we are going to, over the next several months, really make
an effort to work closely with small businesses and help them
to do this. It can create jobs. It can help exports. It can
help in the overall rebalancing that we are talking about
internationally.
Senator Shaheen. And you mentioned the Qualcomm example
outside. Is there a role, do you think, a public role to work
with private companies like that to encourage them to think
about assisting the smaller businesses that they may be doing
business with?
Dr. Hormats. Absolutely.
Senator Shaheen. And how would you envision that working?
Dr. Hormats. Absolutely. I had the pleasure of meeting with
the CEO of Qualcomm this morning, and they are doing a lot of
very good work with American companies and helping them to
export, and also they are helping other countries to understand
how better to use things like cell phones to advance their own
internal commerce, which, in turn, helps us. To the extent
these countries can grow, it helps us as well.
So one of the thoughts I had was to work with large
companies, get them informally--and they are doing it to a
large degree already--but informally working with some of the
smaller companies to see where the two can actually find mutual
benefits. And also I think what is not as fully understood in
this country is how much many of the American high-tech
companies are already contributing to development in emerging
and poor economies.
Cell phones, for instance, are the delivery device for much
of the information that goes to rural India so people know
about the price of crops. They were telling me about one use of
cell phones where you can take a picture of, for instance, some
fruit that is blighted.
You send it in to a research center. The guy couldn't come
out from the research center to the small village. He takes a
look at it and describes what he thinks is wrong with it, sends
out the kind of spray that is needed to cure whatever is wrong
with the apple or the cherry or whatever is on the tree.
So there are ways you can use this technology to the
advantage of developing countries, which, in turn, promotes the
exports of American goods. And not just the cell phone, but
everything that goes into the cell phone, which, in many cases,
can be produced by smaller companies so that if they don't
export directly, they can export indirectly by providing
components to the final product.
So a lot of this is intertwined. And one of the things we
are trying to do is to work--and the State Department, as I
say, can't do it alone. But we can provide a sort of catalytic
role for companies like this and encourage them and shine a
spotlight on this so people--others know what they are doing
and can participate.
Senator Shaheen. We actually just had a conversation
earlier at a hearing about Afghanistan around the cell phones,
the potential use of cell phones in Afghanistan. So it is a
very interesting----
Dr. Hormats. Yes. It is remarkable.
Senator Shaheen [continuing]. Prospect.
Dr. Hormats. It is. It is.
Senator Shaheen. I want to go back to energy, which you
raised a little earlier. And again, as you mentioned in your
written testimony, the administration launched the U.S.-EU
Energy Council during the summit in November. And I know that
energy security and clean energy is a priority for this
administration, for you in your new position, and there are
areas that I think are particularly critical for future
business growth. They will have a significant impact on our
economy as we transition to a new energy economy.
And I wondered if you could outline the kinds of
opportunities that you think exist and then the obstacles to
promoting development of these critical energy businesses? And
maybe you could also, if you would, address whether you think
there is--what is going to happen in Copenhagen this week and
next will have an impact on how you see this issue playing out
in the U.S.-EU markets?
Dr. Hormats. Sure. Well, I am delighted you focused on the
energy portion of it because that is increasingly important in
terms of several areas of the energy scene. One is energy
security, as I mentioned. We are all interested in more secure
supplies of energy.
The Western Europeans in particular have felt very
vulnerable in some cases because they are highly dependent on
Russian natural gas. Now I think--having just been to Russia
last week, and I have put a little bit of this in my written
testimony, I think there is a greater degree of cooperation
between Russia and the EU now than there has been in the past.
They have established an early warning system that will
identify the potential for energy supply disruption, and that
means the EU and the Russians will be working very closely on
that, and I think that is a plus. And by and large, my
conversations in Russia suggest that the Russians really wanted
to be seen as a reliable supplier.
On the other hand, as with any commodity, anything at all,
diversification is extremely important. And therefore, we are
very supportive of the efforts of the Europeans, the Western
Europeans to have diverse sources of energy, diverse channels
for delivering energy.
And there is the notion of the southern route with the
potential Nabucco pipeline, which, as you know, Senator Lugar
has been very interested in supporting, and a lot of members of
this committee have recognized the importance of a pipeline or
a source of energy that can take natural gas from the Caspian
Sea and move it into Western Europe as an alternative to
Russian gas, just because diversification is a positive thing.
It is a positive thing for us. It is certainly a positive thing
for Europe.
Now what has happened in the gas market is quite
interesting. Because the United States is now producing a lot
more natural gas, we are relying a lot less on liquefied
natural gas, which is imported. And a lot of that is going to
Europe so that there is more diversification in European gas
supplies by this additional liquefied gas coming in.
And if you add other potential sources from the Caspian,
the so-called southern route, the Europeans will have greater
potential for diversifying. That is one area.
Second is energy efficiency. We all need to improve the
efficiency of our energy. Working together with the EU on
energy technology is something that is extremely important.
Those are the kinds of areas where we think with American
science and American companies working together, we can
actually make a considerable amount of progress.
On the Copenhagen question, I haven't been as closely
involved in that as Todd Stern and some of the others. So I
think I will hold off on answering that question because they
are right in the middle of negotiations now, and I just don't
know how they are going to come out.
But I will say that however they come out, one of the
things that we need to do--one would hope they come out very
successfully, and we are certainly working toward that end. But
however they come out, the United States and Europe still need
to concentrate to a greater degree on energy efficiency, clean
energy, working together to develop new energy technologies.
There are a wide range of things we can do together, and we
have a common interest. We are both dependent--Europe, most of
Europe more heavily so than the United States--on imported
energy, and we want to rely as much as we can on domestic
primarily clean energy.
Senator Shaheen. Thank you. I am trying to get you to wade
into Copenhagen, but----
Dr. Hormats. Yes. We are in the middle of it. So I sort of
reserve until we have a clear idea of what we are going to come
out with.
Senator Shaheen. I want to switch to some of the
enforcement challenges because, obviously, enforcement issues
remain a concern to a lot of businesses that do work abroad.
And though, as you have indicated, it is not as much an issue
in our relationship with the EU as with some other countries,
there are still challenges there. And I have had some companies
complain that we have not had a consistent U.S. policy when it
comes to enforcing trade policies and that we need to be more
focused on the potential impacts to American business of
companies abroad that don't abide by our trade policies.
And I wonder if you could talk about what kind of a
priority that is for the State Department and how we work
together with the Office of the Trade Representative, with
Commerce, to address the issue of enforcement and how important
you see that is for American businesses?
Dr. Hormats. Well, I think enforcement is critically
important. It is important for two very fundamental reasons,
one of which is that American companies who find their rights
abridged by, or their access to markets abridged by, actions by
other countries expect correctly the Federal Government of the
United States to support them in their efforts to correct that
situation.
And second, because we would like to develop agreement in
the Doha Round, the WTO round. We would like to work together
as, you know, the President made an announcement when he was in
Asia about reinvigorating the TPP talks, more engagement in
those. If we are going to be credible with the American people
in negotiating trade agreements, we have to be credible in
enforcing those agreements. Otherwise, we won't have the kind
of support we need to conclude them if they think we are going
to conclude them and not follow up.
So that, on both counts, they are very important. And I
would say that we--the State Department and USTR, Ambassador
Kirk, who has done a superb job, we are working with them and
very supportive of them in these efforts. Every time I go
anywhere, every time the Secretary of State goes anywhere, and
other senior officials, we make very strong points in support
of American companies that are, A, experiencing trade
difficulties in individual countries and, B, in terms of
support for American exporters.
For instance, in Russia just last week, I made a number of
points. The Russians had agreed in 2006 with the United States
to do a number of things to reduce barriers in the agriculture
field, beef and poultry and pork. And there were a number of
areas in which the progress has not been as good. In some
cases, there is a concern even about backtracking with respect
to higher tariff rate quotas on pork and poultry--or lower
tariff rate quotas, in fact, lowering the quota, which would
harm our exports.
So, basically, what we are trying to do is figure out in
every country we go to the kinds of issues we need to raise to
ensure that our trade interests are put into effect, and we
push what we are trying to get these countries to do and push
our trade agenda. And that is something we do in every country.
All the talking points for the Secretary, for myself, and
anyone else focus on these to a very substantial extent because
we know they are important exports and we know they are
important to credibility.
And in doing these things, in developing these points and
taking these initiatives, we work very closely with the U.S.
Trade Representative. With respect to the EU, for instance,
there are a number of things that we have done. We
successfully, for instance, reached a compromise agreement with
the European Union on hormone beef after a series of bilateral
talks. This is something that is now leading to an increase in
the exports of hormone beef to Western Europe.
So the other part of the problem is that we still have
issues with the EU on such things as the exports of biotech
corn and corn products, particularly animal feed. So we are
working to--these are just individual examples. But we are
trying to enforce and promote our interests and make sure that
what we believe to be our legitimate trade rights under the WTO
or the guide before it, or under bilateral agreements, are
enforced.
So this is a very high priority, both in terms of our
economy and in terms of our credibility as a country and in
terms of the credibility of the whole trade negotiating
process.
Senator Shaheen. Good. Thank you.
I especially appreciate hearing that. We had a situation
with a company in New Hampshire that had a longstanding issue,
not with the EU, but with Japan, that----
Dr. Hormats. I recall that. It came up in my hearing. So--
--
Senator Shaheen. Yes, I think it probably did.
Let me also ask about the restrictions that we have on
exports, companies. ITAR is one of those that is challenging as
we think about defense and security items. And is there a way
to work toward a more open defense market?
And I am sure that Dr. Burwell will get into this a little
bit on the second panel, but is this something that State can
help take a look at so that we can ensure that we are not
restricting everybody in the defense industry, regardless of
how critical their product is to national security?
Dr. Hormats. Yes. This is a very significant question
because the world has changed a lot since the cold war, and
technology has changed a lot even since last year. So what we
are in the process of doing is taking another look at a number
of products.
Obviously, there are some areas where there is a strong
national security argument, and there won't be any loosening
and may be some tightening. But in many cases, there are
products that are on the list that should be reviewed in terms
of, one, are they readily available on the shelves of P.C.
Richard or some other store? And--or readily available from
other countries, and therefore, a unilateral American embargo
on the export would not serve very much purpose.
So we are going to take a look at this and hopefully
modernize the process and bring it up to date. This is
obviously important. It is important to review these things
periodically anyway, but particularly, given the fast pace of
technology, the spread of technology, the wider availability of
a lot of things. We obviously have to look at these things and
review these lists on a fairly regular basis.
And I think that that is fair to exporters. It also means
that we can concentrate the work and the efforts of our people
on the high priorities, and they don't have to worry about
things that are less important and are available on the
drugstore shelves or anywhere else in the world.
Senator Shaheen. And is that something that you think State
will take the lead on?
Dr. Hormats. State will certainly work with the other
agencies. There are several agencies. Obviously, the Defense
Department will be critical. The Department of Commerce will be
critical. State will certainly play a very strong role in this
process, for sure.
Senator Shaheen. Thank you.
And my final question has to do with the concern about
making sure that we have all of the nominees in the key
positions that we need in order to get this work done.
Dr. Hormats. Yes.
Senator Shaheen. And I know that the nominee to be the
Deputy U.S. Trade Representative with trade responsibility for
WTO and the EU was nominated in April, has been voted out of
committee, and yet is being held up. And I wonder if you could
just speak briefly to the challenges it creates in terms of
addressing some of the issues that have been raised today to
not have in place a full team of people who can do the work?
Dr. Hormats. Well, it does make things more difficult. If
you don't have people in place who are responsible for the
kinds of things that you have just mentioned, WTO and Europe,
and both are very important, and both are very important
priorities.
So the sooner those jobs can be filled, the better for our
country and for addressing the very kinds of issues that you
and I have been discussing for the last several minutes. These
are the kind of people who are needed and we have a very able
person who has already been trained for this job. These things
can help the process along.
And I would simply say that the sooner these jobs can be
filled with the kind of quality people who have been nominated
for them, in this case, a very high qualified person, it would
certainly help the process.
Senator Shaheen. Well, thank you. Thank you very much.
Dr. Hormats. My pleasure. Thank you for having me.
Senator Shaheen. I think we are getting you out of here on
time.
Dr. Hormats. I appreciate that, and I look forward to
seeing you again. Thank you for inviting me up.
Senator Shaheen. Yes. We look forward to continuing to work
on these issues as we try and strengthen this relationship and
our exports.
Dr. Hormats. I look forward to it, and I will follow up
with Fran's paper, too.
Senator Shaheen. Good. Thank you very much.
I will ask then our second panel if they could come
forward?
Welcome to our second panel. I understand that we are not
going to have any votes until after 4 p.m. So we should be all
set with getting through your testimony and our questions
before the votes occur. Again, we have three more very
impressive witnesses to further delve into these issues.
First on our panel is Dr. Frances Burwell. Dr. Burwell is
currently the vice president and director of transatlantic
relations and studies at the Atlantic Council of the United
States. Her areas of expertise include U.S.-EU relations and
the development of the European Union's foreign, defense, and
economic policies.
Most recently, she worked with Dr. Daniel Hamilton from the
Johns Hopkins University Center for Transatlantic Relations on
a new report that we have already heard about, outlining ways
to strengthen the U.S.-EU partnership. The publication,
entitled ``Shoulder to Shoulder: Forging a Strategic U.S.-EU
Partnership,'' has already been met with wide acclaim. The
subcommittee looks forward very much to hearing more from you,
Dr. Burwell.
We also have joining the panel Dr. Michael Maibach, the
president and CEO of the European-American Business Council,
where he has served for over the last half decade. It sounds
very impressive when we say it that way. I think you have been
there for little more than 5 years. Is that correct? Seven
years, OK.
Founded in 1989, the council includes 70 global companies,
both European and North American-based enterprises. The council
has offices in both Washington and Brussels and is committed to
promoting transatlantic investment, innovation, and
integration. And prior to his current position, Mr. Maibach
worked for over 18 years at Intel Corp., where he became an
industry leader in a number of important policy initiatives.
And we are very happy to have you here today as well.
And finally, I want to introduce from New Hampshire, Mr.
Charles Howland, who is the president of Warwick Mills. And I
should point out to all of us here how much we appreciate your
getting here in a snow storm in New Hampshire. So thank you
very much.
Warwick Mills is a New Hampshire-based company founded back
in the late 1800s that has developed itself into a world leader
in innovative textile engineering and cut-resistant fabrics for
use in advanced protective garments. Warwick holds 14
international patents in protective materials, and in 2008, the
company was awarded the Export Achievement Award from the U.S.
Department of Commerce in recognition of the firm's growth into
the global marketplace. And Warwick Mills does a significant
amount of business in Europe, where it exports many of its
products overseas to the United Kingdom, Netherlands, Germany,
and France.
Mr. Howland is well placed to offer this subcommittee a
unique perspective on the transatlantic economy and how the
U.S. Government can better support and sustain the efforts of
small- and medium-sized businesses in their efforts to expand
into overseas markets. We applaud you and Warwick Mills for
your success and look forward to hearing your insights into
what has worked and what hasn't.
And I will ask you to begin, and then Mr. Maibach, and we
will finish with Dr. Burwell.
Mr. Howland.
STATEMENT OF CHARLES HOWLAND, PRESIDENT AND CHIEF ENGINEER,
WARWICK MILLS, INC., NEW IPSWICH, NH
Mr. Howland. Thank you very much for that introduction.
I would just like to say a few things about our perspective
on international trade. In particular, our most important
relationships, of course, are in Europe.
The EU is a critical trading partner for American
companies. In our own case, we have product lines whose primary
market is the EU. As a small business, we exist on the value of
our innovations. We must innovate to thrive.
To make a commercial success out of our inventions, we must
have access to markets that are deep and sophisticated. Europe
is at the top of the list in these characteristics.
In the technology and materials sector, products are very
targeted and must conform to regional standards and
specifications. These are not commodity offerings, and the
basis for competitive advantage is in advanced engineering.
Programs of this type allow us to manufacture in New Hampshire
at a profit.
At a national level, we are engaged in a debate about how
to retain and expand manufacturing employment. On the ground, a
few small manufacturers have found a new business model. This
model is based on developing best-in-class technology products
and selling them into specialty markets where they can command
a premium. In Europe, customers understand this value
proposition, operate on a clear legal basis, and respect
intellectual property.
Maintaining the required levels of R&D investment is an
ongoing challenge for small companies. Taking a concept through
to revenue production is not a sure thing. We have found that
keeping both domestic and European requirements as objectives
doubles our potential for success.
The current, more realistic valuation of the dollar is
helpful. The return to a bilateral foreign policy and
constructive engagements with the Europeans on issues such as
climate change are all important. However, the key to trade
with Europe is to build and maintain technical leadership in
the engineering of our products.
There are some issues with Federal policy that we would
like to comment on. The SBIR/STTR program coming out of the DOD
is enlightened. However, the DOD program is focused solely on
internal domestic needs for new technology and cannot drive
exports because of ITAR controls.
We propose that the U.S. Commerce Department should get
involved and become a full participant in the SBIR program. The
Department of Commerce focus would be on the development of
export products and the creation of manufacturing jobs.
[The prepared statement of Mr. Howland follows:]
Prepared Statement of Charles Howland, President and Chief Engineer,
Warwick Mills, Inc., New Ipswich, NH
At Warwick we have a few thoughts with respect to transatlantic
trade. The EU is a critical trading partner for American companies. In
our own case we have product lines whose primary market is in the EU.
As a small business we exist on the value of our innovations. We must
invent to thrive. To make a commercial success out of our inventions we
must have access to markets that are deep and sophisticated. Europe is
at the top of the list in these characteristics.
In the technology and materials sector products are very targeted
and must conform to regional standards and specifications. These are
not commodity offerings and the basis for competitive advantage is in
the advanced engineering. Programs of this type allow us to manufacture
in NH at a profit. At a national level we are engaged in a debate about
how to retain and expand manufacturing employment. On the ground a few
small manufactures have found a new business model. The model is based
on developing best in class technology products and selling them into
specialty markets where they can command a premium. Europe customers
understand this value proposition, operate on a clear legal basis, and
respect intellectual property.
Maintaining the required levels of R&D investment is an ongoing
challenge for small companies. Taking a concept through to a revenue
product is not a sure thing. We have found that keeping both domestic
and European requirements as objectives doubles our potential of
success. The current more realistic valuation of the dollar is helpful.
The return to a bilateral foreign policy and constructive engagement in
with the Europeans on issues such as climate change are all important.
However the key to trade with Europe is to build and maintain technical
leadership in the engineering of our products.
There are some issues with Federal Policy that we would like to
comment on. The SBIR/STTR program coming from the DOD is an enlightened
program. However the DOD program is focused solely on internal domestic
needs for new technology and can not drive exports because of ITAR
controls. We propose that the U.S. Commerce Department should get
involved and become a full participant in the SBIR program. The DOC
focus would be on development of export products and the creation of
manufacturing jobs.
Warwick Mills is based in New Ipswich, NH, and is a manufacturer of
advance protective garments and flexible composites with high cost of
failure. Established in 1888, Warwick engineers these protective suits
and systems from concept, through prototype, and into production.
Engineering and manufacturing operations include lab testing, research
and development, material production, laminating, and final assembly.
In 2008, Warwick Mills was Awarded Export Achievement Certificate
from the United States Department of Commerce which recognized the
firm's recent growth in the past 5 years in the global marketplace. A
significant portion of this achievement was due to Warwick's strong
export business in Europe, particularly Great Britain, Netherlands,
Germany, and France. In addition to Warwick's premier position in stab-
resistant body armor technology in Europe, the company has a broad line
of protective materials found industrial suits, gloves, and a tire
components including the antiflat component is the largest-selling
bicycle tire in Europe. Warwick's line of TurtleSkin Gloves provides
the highest level of puncture, stab, and protection from hypodermic
needles, nails, wire, glass fragments, metal shards, wood splinters and
cuts, meeting the rigorous EU standards requirements.
One of Warwick's largest customers worldwide has been the
Netherlands National Police. Beginning in 2005, Warwick began a
collaboration with Ten Cate, a Dutch manufacturer, and BSST, a German
manufacturer, and together won a contract to supply the Netherlands
National Police force with stab and ballistic body armor, to date which
has reached over 90,000 body armor units. This award came after the
three companies successfully answered a second call for proposals
issued to the European market.
Warwick holds 14 international patents in protective materials. The
company produces TurtleSkin protective materials and products for
applications requiring advanced levels of puncture and cut protection,
as well as durability and performance. Warwick's staff participate in
ASTM and ISO standards committees both in North America and in Europe.
Senator Shaheen. Thank you very much.
Mr. Maibach.
STATEMENT OF MICHAEL C. MAIBACH, PRESIDENT AND CEO, EUROPEAN-
AMERICAN BUSINESS COUNCIL, WASHINGTON, DC
Mr. Maibach. Good afternoon, Madam Chairman. And thank you
very much for having me. It is an honor.
And I want to compliment Chad Kreikemeier on your staff. He
is a fine professional and very easy to work with. We
appreciate it.
Senator Shaheen. Thank you.
Mr. Maibach. The EABC was founded 20 years ago. We
represent 70 companies--40 U.S. and 30 European-based global
companies. Our companies possess cutting-edge competitive
skills in the service of customers across the globe.
These skills include how to successfully collaborate with
commercial and governmental partners across national and
sectoral lines to drive economies of scale, to promote
innovation, and meet the needs of customers in ways made
possible often because of partnerships. These are the kind of
skills, insights, and best practices U.S. officials must also
hone to keep our Nation competitive in an exceptionally
competitive world.
The strategic skills I'm referring foster transnational
regulatory collaboration in ways which enhance investment and
innovation. The pressure to hone these skills is coming from
the forces of globalization. Of course, globalization has been
with us since at least Columbus and Magellan. However, ever
since the Berlin Wall came down, globalization has been
tumbling faster and faster through the streets of every nation,
through the boardrooms of every enterprise, and through the
halls of every government.
Today globalization is being driven by twin strategic
events. First, when the Berlin Wall came down China decided to
embrace capitalism. This change in China caused India to throw
open its doors to global markets, as it hadn't in the past.
Overnight, we had almost 3 billion new capitalists competing
with our country and with the West. Economic forces of historic
proportions were then set in motion.
Compounding the impact of China and India have been several
accelerants of change. Moore's Law of Computing has combined
with Metcalf's Law of Networks to create the transnational
tsunami we call the Internet. Since 1947, the WTO has expanded
from 23 to 139 nations, tearing down centuries-old barriers to
trade, investment, innovation, and competition. And the world's
population has doubled since John F. Kennedy was President.
In summary, everything is changing everywhere, very, very
quickly. The world's vertical chessboard has been flipped onto
a horizontal axis. This means that every enterprise and every
government survives and thrives in part because of the quality
of its ``horizontal partnerships.'' This is really ``the
century of alliances.''
Government-to-government, company-to-company, and
government-to-industry collaboration are now fundamental to
economic success in the 21st century. The United States and
Europe represent only 11 percent of the world's people, but
account together for over half the world's trade, investment,
and GDP. The same percentages goes for air travel, health care
spending, and capital flows. This is clearly a very wealthy,
successful part of the world. And Americans and Europeans are
more than anything else investment partners. For every dollar
traded across the Atlantic, $4 is invested. Enterprises attempt
to sell everywhere, but only invest where the risk is low and
the laws and commercial regulations are clear and enforceable.
Seventy percent of the investment that comes into the United
States is invested by European companies, and over half the
investment into Europe is invested by American companies. There
is twice as much United States investment in Ireland than all
of China. There is more Dutch investment in Texas than in
China. The European investment in China is only 4 percent of
their total investment portfolio in this country, only 4
percent. And together, the United States and Europe drive the
world's standards, regulatory regimes, and best practices. And
we have for several decades.
The fact is that the United States and Europe are at the
heart of the global economy. In 2007, Chancellor Merkel,
Presidents Bush and Barroso created the Transatlantic Economic
Council. They recognized that global regulatory cooperation
must begin with transatlantic collaboration. This is the TEC's
mission and its promise.
It has yet to reach the potential of its promise, and this
needs to change and in 2010. We have, at the EABC, a five-point
prescription for TEC's success.
No. 1: Select ``yes-yes'' policy projects that will enjoy
strong, sustained government support and collaboration. By
this, I mean projects where the bureaucracies on both sides of
the Atlantic want to have success. Without that, you won't move
forward. And at an early and in a continuous way, we have to
have the buy-in and active support of legislative leaders on
both sides of the Atlantic.
No. 2: Select policy projects that can be accomplished in 1
to 4 years.
No. 3: Appoint senior United States and European Union
career officials as Policy Project cochairs. These are people
with 10, 20, even 30 years of experience in the bureaucracy,
not a political appointee who will come and go in less than 2
years.
These cochairs must enlist the active involvement of key
industry groups with whom they work. Our phone needs to ring in
industry, whether it is the U.S. Chamber, NAM, the EABC, or
some other associations. We need to be put to work as partners
by the two governments in a way we have not been asked to do.
No. 4: Semiannual TEC meetings must become ``performance
reviews'' for Policy Project cochairs. United States and
European Union legislators must be involved in those reviews.
The cochairs need to be called in and asked for their roadmaps
to success and how they are doing on their roadmap timelines.
And No. 5: The annual U.S.-EU leaders summit between
President Obama and President Barroso and whomever has the EU
Presidency in that particular semester must include a report of
TEC deliverables. These leaders have to expect results. These
are deliverables that are business operational for wealth
creation, innovation, and investment.
Finally, we have five recommendations for the TEC agenda
I've just described. No. 1: e-Accessibility. Create a global
standard--starting across the Atlantic--for sight and hearing
impaired people to be on the Internet and not be locked in a
silo in one country or the other. Everybody wants to set this
global standard. The EABC has been working for 7 years on this.
No. 2: e-Health. We have $20-$30 billion in the stimulus
package for the digitization of health records. But we must
have e-Health interoperability--not only between Americans, but
across the Atlantic and around the world. This is not only for
the direct benefit of patients, but interoperability for all
related products, services, hardware and software so that we
can globalize those sales to serve billions of patients. Also,
diseases are on the move, as well as patients.
No. 3: Accounting convergence. U.S.-EU cooperation is now
nearly successful. We have IFRS recognition here in the United
States. We plan to move away from U.S. GAAP to a global
standard of 130+ countries now suing the IFRS standards.
No. 4: Carbon accounting standards. We are starting to talk
about ``cap and trade,'' as well as other regulatory regimes.
Our companies want to have common metrics when they work with
global customers. They must have the same carbon metrics in
every country to advance innovation and success. If DHL
delivers a package in the United States, they have to be able
to measure the ``carbon footprint'' of that package delivery
the same way they do in France, Germany, or any other market.
And finally: Nanotechnology. This is a highly important
competitive advantage for our country and for the nations of
Europe. We have to have nano research and regulatory
cooperation.
So these are our ideas on how to improve the TEC
performance in support of our success as a country. And these
are five ideas of what the TEC should focus on.
Thank you.
[The prepared statement of Mr. Maibach follows:]
Prepared Statement of Michael Maibach, President and CEO, European
American Business Council, Washington, DC
Good afternoon, Madam Chairwoman and Senators. Thank you for
inviting me. It is an honor to be here. My name is Michael Maibach,
president and CEO of the European-American Business Council. We were
founded in 1989 and have offices in Washington and Brussels. We
represent 70 global companies, including 40 U.S. and 30 European-based
enterprises.
Our companies possess cutting edge, competitive skills in the
service of people across the globe. These skills include how to
successfully collaborate with commercial and governmental partners
across national and sectoral lines to drive economies of scale, promote
innovation, and meet the needs of customers in ways only possible
because of these partnerships. These are the kind of skills, insights,
and best practices U.S. officials must hone to keep us competitive in
an exceptionally competitive world.
The strategic skills I'm referring foster transnational regulatory
collaboration in ways which enhance investment and innovation. The
pressure to hone these skills is coming from the forces of
globalization. Of course, globalization has been with us since at least
Columbus and Magellan. However, ever since the Berlin Wall came down
globalization has been tumbling faster and faster through the streets
of every nation, through the board rooms of every enterprise, and
through the halls of every government on the planet.
Today globalization is being driven by twin strategic vectors:
First--China: After the Berlin Wall came down China embraced
capitalism. This change in China caused India to throw open its doors
to global markets, as well. Over night the world had 3 billion new
capitalists competing for the future. Economic forces of historic
proportions were set in motion.
Compounding the impact of China and India have been several
accelerants of change: Moore's Law of Computing has combined with
Metcalf's Law of Networks to create the transnational tsunami we call
the Internet. Since 1947 the WTO has expanded from 23 to 139 nations--
tearing down centuries--old barriers to trade, investment, innovation,
and competition. And the world's population has doubled since John
Kennedy was elected President.
In summary, everything is changing, everywhere, very, very quickly.
The world's vertical chess board has been flipped on to a horizontal
axis. This means that every enterprise and every government survives
and thrives in part because of the quality of its ``horizontal
partnerships.'' Government-to-government, company-to-company and
government-to-industry collaboration are now fundamental to economic
success in the 21st century.
The United States and Europe represent only 11 percent of the
world's people, but together account for over 50 percent of the world's
trade, investment and GDP. The same goes for air travel, health care
spending, and capital flows. And Americans and Europeans we are more
than anything investment partners. Seventy percent of foreign
investment in the United States comes from European firms. And over 50
percent of the foreign investment into Europe is done by U.S. firms.
There is twice as much U.S. investment in Ireland as in all of
China. European investment in China is only 4 percent of their total
U.S. investment portfolio. And together the United States and European
Union drive the world's standards, regulatory regimes and best business
practices in business and government. The fact is that the United
States and Europe are at the heart of the global economy.
In 2007 Chancellor Merkel and Presidents Bush and Barroso created
the Transatlantic Economic Council. They recognized that global
regulatory cooperation must begin with transatlantic collaboration.
This is the TEC's mission and its promise. It has yet to reach the
potential of its promise. This needs to change--now.
We have a 5 point prescription for TEC's success:
1. Select ``Yes-Yes'' Policy Projects that will enjoy strong,
sustained government support. This must include early and
continuous buy-in from U.S. and EU legislative leaders.
2. Select Policy Projects that can be accomplished in 1-4
years.
3. Appoint senior career U.S. and EU officials as Policy
Projects cochairs. They must agree on a roadmap for success
that includes timelines for progress. And they must enlist the
active involvement of key industry groups such as the EABC.
4. Semiannual TEC meetings must become performance reviews
for Policy Project cochairs. U.S. and EU legislators must be
involved in these reviews.
5. The annual U.S.-EU Leaders Summit must include TEC
deliverables. Presidents Obama and Barroso must expect results
that have business operational value.
Finally, the EABC recommends that the 2010 TEC Agenda include 5
Policy Projects:
1. e-Accessibility: A global standard for sight and hearing
impaired.
2. e-Health: A global standard for health IT records and
systems.
3. Accounting Convergence: A single global accounting system
(IFRS).
4. Carbon Accounting Standards: A single global standard.
5. Nano-Technology: U.S.-EU research and regulatory
cooperation.
Thank you for your interest in our views.
Senator Shaheen. Thank you very much.
Dr. Burwell.
STATEMENT OF FRANCES G. BURWELL, PH.D., VICE PRESIDENT,
DIRECTOR OF TRANSATLANTIC RELATIONS, THE ATLANTIC COUNCIL,
WASHINGTON, DC
Dr. Burwell. Thank you very much, Madam Chairwoman. Thank
you for this opportunity to appear before you.
I am honored. I truly welcome your interest in a subject--
the transatlantic economy--that is often ignored but is a vital
part of U.S. prosperity. I would like to make a few remarks
regarding U.S.-EU economic relations and then talk about
proposals for making that relationship stronger.
As a number of people here today have mentioned, the United
States and the European Union make up more than half of global
GDP. Even though we can expect growth rates to be fairly flat
next year, the size and attractiveness of the United States and
European Union markets will continue to make them leaders in
the global economy, especially in the shaping of global
standards and regulations.
The EU, with its 27 Member States unified in one trading
bloc, is the top trading partner of the United States, and it
is also the top investment partner of the United States with 12
million jobs on both sides of the Atlantic supported by this
investment. I realize there is much talk of the United States
and China as the new G2, but I hope that this brief recitation
makes clear that it is the United States and the European Union
that is the real G2.
That said, the financial crisis has fully demonstrated the
importance of the emerging economies. As we integrate these
countries as new leaders in the global economy, it is even more
important that the transatlantic partners work closely
together. Not all the emerging economies share our views on the
importance of markets and rule of law, as Secretary Hormats
pointed out before, and yet these must be reinforced in the
aftermath of the crisis.
This is an especially propitious moment to focus on
transatlantic economic relations. The new Lisbon treaty moves
trade and investment policy more strongly away from the Member
States and to the European level, although it will undoubtedly
take some time for everything to shake out. It gives new
decisionmaking power in these areas to the European Parliament,
much more equivalent to the U.S. Congress.
This is especially important because most obstacles to
transatlantic trade and investment are now regulatory obstacles
rather than traditional tariffs and quotas. The Congress and
Parliament now both play a central role in determining whether
U.S. and EU regulatory policy is compatible or contradictory.
To strengthen the transatlantic economy, we would recommend
a three-pronged strategy. These recommendations draw on two
reports, ``Shoulder To Shoulder,'' which you kindly and
graciously mentioned before, and ``Resetting the Transatlantic
Economic Council,'' which has been done with the Bertelsmann
Foundation Washington office, as well as the Atlantic Council.
The first element of this is to reduce the barriers that
still exist between the United States and European Union to
create a barrier-free transatlantic market. We would suggest
several initiatives to this end.
First, a tariff-only free trade agreement that would
eliminate duties on industrial and agricultural products traded
across the Atlantic. This would provide an important positive
political impulse, even though most tariffs are already very
low.
It is likely to have significantly more domestic political
support, including from unions, than many other FTAs currently
under consideration. I realize this is likely to sound very
controversial, and I would be happy to talk about it more in
the questions.
Second, we should initiate transatlantic negotiations to
reduce barriers in certain sectors, particularly services.
Services is a huge part of the United States and European Union
economies, and our service sectors are increasingly linked.
Three, we should invite others to join these initiatives if
they are willing to take on the responsibilities and
obligations. This should not be a ``Fortress Atlantique,'' but
rather should be the building block for wider and continued
liberalization of the global economy.
Four, we should remove remaining barriers to investment
while developing reasonable and compatible guidelines for
national security along the lines of CFIUS. In the past, it has
been the nation states--the Member States in Europe--who have
had that responsibility, but it is now possible that we could
do this on an EU-wide level, making it actually practical.
We should boost regulatory cooperation by identifying
essentially equivalent regulations that we can recognize
mutually. We should focus on regulation in areas of new
technology where there is not a lot of existing regulation, and
we should provide regulatory agencies with the resources and
incentives to cooperate internationally. Congress in this area
has a real opportunity to take leadership in ensuring that
companies operating on both sides of the Atlantic do not face
conflicting regulatory environments.
The second major element in deepening the transatlantic
economy would be to launch an effort to create green economies
with an emphasis on innovation that will create jobs and
prosperity. Again, we would suggest several steps in that
direction.
No. 1, supporting transatlantic innovation in the energy
field by working with the EU to establish financial support for
research and for commercializing new technologies, if required.
We should also work together to encourage greater energy
efficiency, including joint development of smart grids and
carbon capture and storage technologies.
Two, we need to address the potential conflict between
climate policy and trade. The United States and European Union
should work with our G20 partners so that new trade obstacles,
such as border charges, are not levied on carbon-intensive
imports. It may be that new trade negotiations are required to
avoid that type of barrier.
Three, we should implement the commitment at the October
2009 TEC meeting to establish a U.S.-EU innovation dialogue.
And four, we should ensure that the new U.S.-EU Energy
Council develops a forward-looking and focused agenda.
The final element in deepening the U.S.-EU economic
relationship is to reinvigorate the Transatlantic Economic
Council. The TEC needs to focus on strategic issues or it will
fail to engage key policymakers in the White House, Cabinet
departments, and on the Hill.
The next TEC meeting in spring 2010 is crucial. To maintain
its focus, the ministerial-level TEC should be supported by a
series of subcouncils or working groups that can focus on
specific issues. Every effort should be made to resist having
the TEC dominated again by issues such as chlorine-washed
chicken.
The TEC should focus on strategic issues in three areas.
One, promoting economic recovery and growth, with a focus on
building a green economy and boosting innovation.
Two, coordinating approaches to global economic governance.
In effect, the TEC should become the place where the United
States and the European Union coordinate informally prior to
G20 meetings.
Three, the TEC should advance efforts to create a barrier-
free transatlantic market, as described earlier, including by
pursuing several regulatory projects. Mike has described some
of them. And a special emphasis might be given to emerging
industries, where little regulation yet exists.
Finally--and this comment applies not just to TEC, but
beyond. We must expand the circle of those engaged in managing
the U.S.-EU economic relationship, particularly bringing in key
legislators and the Transatlantic Legislators Dialogue. None of
the obstacles that need to be addressed--tariffs, regulatory,
investment barriers--can be addressed without the cooperation
of legislators.
The TLD needs to be reinvigorated. Representative Berkley
has been doing a great job, but I think she cannot do it just
based on the House. It might interest you to know that in our
report, ``Shoulder to Shoulder,'' we recommended that the chair
of the Europe Subcommittee of Senate Foreign Relations become
the cochair of the TLD.
TLD members and key committee chairs should be integral
members of the TEC, as should their colleagues from the
European Parliament. Legislators could develop a regular review
mechanism for identifying pending legislation that has a
transatlantic impact and could report that to the TEC.
The fact that the European Parliament is opening an office
in Washington in the new year offers an opportunity for greater
legislative consultation and dialogue on key issues affecting
the transatlantic economy.
Thank you for your attention, and I look forward to your
questions.
[The prepared statement of Dr. Burwell follows:]
Prepared Statement of Frances G. Burwell, Vice President and Director
for Transatlantic Programs and Studies, Atlantic Council, Washington,
DC
Madam Chairwoman, Senator DeMint, other distinguished members of
the subcommittee, thank you for this opportunity to appear before you
to discuss this important topic. I am honored. I truly welcome your
interest in a subject--the transatlantic economy--that is often ignored
but is a vital part of U.S. prosperity. Moreover, this interest is
especially timely, as there are now opportunities to deepen the
transatlantic economic relationship and take on a key role in leading
the global economy away from the financial crisis.
The transatlantic economy--the combined market of the United States
and the European Union--is the core of the global economic system. Even
after the financial crisis, the United States and the EU together
comprise 54 percent of global GDP. Their markets represent mature,
service-oriented economies that have been the major engines for
innovation in both markets and technology for the last few decades. And
because of the size and attractiveness of their markets, the United
States and the EU (along with its Member States) play a major role in
shaping global standards and regulations.
Recently, much of the policy community has been focused on China as
an economic partner of the United States. While China is clearly an
increasingly important member of the global economy, along with a
number of other emerging economies, the reality is that China's
economic interactions with the United States are generally not of the
same magnitude as those of the EU. In terms of trade, for example,
China imported 85 billion dollars' worth of goods and services from the
United States in 2008, and exported $348 billion. That same year, the
EU as a whole (and the EU is a single trading zone) imported $467
billion in goods and services from the United States. and exported $521
billion. And while the U.S. trade deficit with China totaled $262
billion, the trade deficit with the EU was $54 billion. The U.S. EU
investment relationship is even more dominant. In 2008, U.S. EU
investment into the United States totaled $1.4 trillion, or just over
60 percent of all foreign investment in the United States. U.S.
investment in the EU totaled $1.6 trillion, or 51 percent of U.S.
investment abroad. That same year, U.S. investment in China totaled
only $46 billion (one-third of what the United States invests in
Ireland, for example) and Chinese investment into the United States was
only $1.2 billion.
The fact that the U.S.-EU economic relationship is so focused on
investment has an important consequence--because investment is about
supporting or establishing companies, it is also about creating jobs.
While high trade levels raise fears of jobs leaving, high investment
levels usually mean the creation of more jobs. Today, about 12 million
jobs in the United States, and an equal number in Europe, are the
result of transatlantic investment.
The financial crisis of 2008 demonstrated that such close economic
integration can have its downside. Weaknesses in one country can be
transferred swiftly to its economic partners, as demonstrated by the
collapse or near collapse of several European banks that had invested
in U.S. subprime mortgages. The result has been weaker economies in
both the United States and Europe, with unemployment in both now at
close to 10 percent (although in Europe, this represents a lower
increase and has less of an impact, because of the more extensive
social safety net). Both the U.S. and EU are now moving out of
recession, but OECD forecasts call for slower growth on both sides of
the Atlantic next year (2.5 percent in the United States and 1.15
percent in the eurozone.
An argument can certainly be made that the United States should
strengthen its partnership with rising economic powers such as China,
and not worry about the future of its economic relations with Europe.
After all, the financial crisis fully demonstrated the growing
importance of the BRIC countries. They have moved into the management
structures of the global economy by joining the G20, as befits their
growing share of the world economy. They also seem to be recovering
more quickly from the financial crisis than either the United States or
the EU, and expectations for next year are for a larger increase in GDP
growth than either of the transatlantic partners will experience.
However, there is little to suggest that U.S. exports to China will
increase anytime soon. Thus, if the current U.S.-China relationship is
any indication, an increase in U.S.-China trade is most likely to lead
to an even greater trade deficit. The fact that European Commission
President Jose Manuel Barroso recently visited Beijing to discuss a
revaluation of the yuan--almost immediately after President Barack
Obama's visit with the same ambition--shows whose interests are more
closely aligned with those of the United States.
China, and the other emerging economies, will undoubtedly become
more important partners of the United States and Europe in the future.
Their economies will evolve, and trade will become less significant as
investment and services become a larger part of their portfolio. But as
China adapts to WTO rules and as the BRICs take on a larger role in
global economic management, the U.S. and EU would be best served by
working closely together. They should send consistent messages to the
BRICs about the need to strengthen markets and openness in their own
economies. In an era of globalization, the impact of standards and
regulations goes far beyond national boundaries, and the United States
and EU will want to work together to ensure that such rules (governing,
for example, regulation of financial services, or handling of chemical
substances, or accounting standards) are consistent with their
preferences and economic systems. Clearly, at least some of the
emerging economies have very different views of markets and adherence
to contracts and rules than is the norm in the United States and
Europe. This is not to say that the U.S. and Europe always agree, but
their general approaches are far more similar when compared to others.
The BRICs should also be encouraged to think beyond their own interests
as they carry out their evolving responsibilities as global economic
leaders. The U.S. and EU can best send these messages by reinforcing
and enhancing the openness in their own economies--rejecting the
temptation of protectionism--and by assuming a strong role in leading
the global economic recovery.
To do this, and to speed their recovery from the financial crisis
itself, the U.S. and Europe must reinvigorate and strengthen the
transatlantic economy. This will require a two-pronged approach:
Reducing the barriers that still exist between the United
States and the EU to create a ``Barrier Free Transatlantic
Market.'' By removing as many of the obstacles as possible that
inhibit even greater transatlantic investment and trade, the
United States and EU can spur growth within the private sector
while reinforcing the creation of highly paid, high-skilled
jobs. By addressing together future areas requiring regulation
and standards, the U.S. and EU can boost corporate efficiencies
by providing one set of rules, while moving toward ensuring
that global regulations reflect their policy preferences. In no
way is such a transatlantic deepening intended to be a
``Fortress Atlantique,'' however. Others can--and should--be
integrated into these efforts as they are willing to take on
the obligations and responsibilities.
Leading an effort to create green economies, with an
emphasis on innovation that will create jobs and prosperity.
The financial crisis offers not only hardship, but also an
opportunity. By erupting just as the U.S. and EU were looking
for ways to cooperate in reducing the environmental impact of
our high energy consumption, including carbon emissions, the
crisis can give impetus to efforts to build a new type of
economy. Based on significantly less energy consumption and on
creating less pollution, this economy will require innovation
and new investments in technology and infrastructure if it is
to become a reality. These in turn should create new jobs and a
revitalized prosperity for the transatlantic partners. It will
also allow developing countries to grow economically without
automatically following the patterns of high-energy consumption
that have plagued the current industrialized economies, and
thus benefit all of us who require a more sustainable
environment.
Today is an auspicious time to begin an effort to take the
transatlantic economic relationship to the next level. For the last 2
years, we have been in a form of political limbo, with the defeat of
the Lisbon treaty in Ireland, the U.S. Presidential campaign and then a
rather lengthy transition, and then a European Parliament election, the
passage of Lisbon, and selection of a new European Commission. This
phase is now drawing to a close. The Lisbon treaty, which took effect
on December 1, moves some key economic powers to the Union institutions
from the Member States. The European Parliament will now have
decisionmaking powers in trade and agriculture, as well as in more
areas related to energy and investment. Indeed, investment, which has
been primarily a matter for the individual Member States, will move to
some extent to the Union level, making it easier for the United States
to identify its partner in discussing that issue. In addition, Lisbon
gives the Union its own legal personality, making it easier to conclude
agreements that do not have to be approved by all 27 Member States. By
February, we hope that the new European Commission will be in place and
it will be time to get down to business. In another important
innovation, the European Parliament will open a small office in
Washington with the aim of increasing cooperation with the Congress;
such cooperation could be especially fruitful in the projects
identified below.
building a barrier free transatlantic market \1\
Removing the remaining barriers to a truly open U.S.-EU market will
require a multistage effort to reduce remaining tariff barriers,
overcome regulatory obstacles, remove investment restrictions, and
align future standards. It will be controversial and difficult; the
remaining barriers persist precisely because they have been the most
difficult to remove. Transatlantic trade disputes in recent years have
increasingly been about regulatory obstacles, such as the unwillingness
of many European countries to import genetically modified foods, and
these issues have become extremely sensitive. Moreover, responsibility
for areas such as regulation and investment are often split between the
EU and Member States in Europe and between Federal and State (or even
local) governments in the United States, so just figuring out who
should be involved in discussions can be a real challenge.
---------------------------------------------------------------------------
\1\ This section and the following one draw on the recently
released report ``Shoulder to Shoulder: Forging a Strategic U.S.-EU
Partnership,'' by Daniel S. Hamilton and Frances G. Burwell. Issued by
the Center for Transatlantic Relations at SAIS and the Atlantic Council
of the U.S. in December 2009, the report represents a collaborative
project among five European think tanks, CTR, the Atlantic Council, and
CSIS. It is available at the Web sites of most of these institutions,
including www.acus.org.
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In recent years, the effort to reduce barriers in the global
economy has focused on the Doha Development Round. There will be those
who argue that a transatlantic initiative will undercut the Doha Round,
and privilege the United States and Europe. In reality, the DDR has
been stalled because of disagreements between the industrialized
economies and those emerging economies that are reluctant to improve
access to their own markets. Any transatlantic initiative should be
open to others once it is established, and it may actually provide some
important leverage to move the Doha Round forward. For both the United
States and the EU, the goal should be to pursue the transatlantic and
the multilateral efforts to a successful conclusion. But the Doha
Round, even if successfully concluded, will not address the most
central issues in the U.S.-EU economic relationship. Mutual recognition
or harmonization of regulations, tax differences, competition policies,
divergent standards for products--these are all central to the U.S.-EU
market but are not included in Doha. Their importance reflects how
integrated that market is already, in that it is not external barriers,
such as tariffs, but domestic policy choices, such as consumer product
safety standards, that have a significant impact.
To move toward a Barrier Free Transatlantic Market, the U.S. and EU
should:
Announce a joint commitment to work toward a ``tariff only''
Free Trade Agreement, eliminating all duties on traded
industrial and agricultural products, as an important
intermediate goal. Given that most transatlantic tariffs are
low and often simply have nuisance value, a focused tariff-only
free trade agreement could be achieved relatively quickly. It
is likely to enjoy a broader base of domestic political
support. The U.S. AFL-CIO has long championed a transatlantic
free trade agreement, for example, and would likely accept a
goods-only version. It is likely to have immediately beneficial
effects on investment, profits and jobs, since two-thirds of
U.S.-EU trade is intra-firm; i.e., companies trading
intermediate parts and components among their subsidiaries on
both sides of the Atlantic. Tariffs on agriculture have always
been the major problem, but with agricultural trade growing
across the Atlantic, now may be the time to take a bold step
forward. Where agricultural tariffs are high, phase-out periods
could be longer. Moreover, European and American agricultural
sectors would still remain implicitly protected by a range of
nontariff barriers that are far more important, lessening the
political concerns that might accompany a complete
liberalization.
Once such a deal is negotiated, the U.S. and EU should
invite others to join in certain sectors or in the overall
arrangement. If a critical mass of participants develops,
benefits should be extended to all WTO members on an MFN basis.
This approach was successful in negotiations leading to the
1997 International Telecommunications Agreement. This may
create incentives for many other countries who would like full
access to the transatlantic market to lobby major developing
countries such as India and China to join, as other countries
are only likely to benefit after those major economies agree.
Initiate transatlantic negotiations aimed at reducing
barriers globally in certain sectors, starting with services.
Such negotiations may trigger plurilateral negotiations to
include other partners. An initial transatlantic initiative can
be a building block for more global arrangements. On both sides
of the Atlantic, services now make up more than half of GDP,
and the output of the protected services sectors is larger than
that of protected agricultural and manufacturing sectors. A
targeted opening of services could present vast opportunities
to firms and huge gains to consumers. The main market for the
growth in U.S. service-sector exports has been Europe, not the
Asia-Pacific region. U.S. service-sector exports to the EU have
tripled since 1995, reaching $198 billion in 2008--$62 billion
more than the U.S. earned from exporting services to countries
in the Asia-Pacific region. EU service-sector exports to the
United States have also tripled--from $46 billion in 1995 to
$152 billion in 2008.
Remove remaining barriers to mutual investment, while
developing reasonable and compatible guidelines for national
security reviews. Ownership restrictions on marine shipping,
airlines, and infrastructure should be removed in most cases.
In those situations where national security considerations
might apply, there should be an appropriate review process.
CFIUS, in the United States, has no EU equivalent, although
several Member States do have similar processes. Although
implementation is likely to remain with the national
authorities, the U.S. and EU, together with the Member States,
should develop guidelines for allowing foreign investment to
flourish with reasonable national security safeguards. In time,
such guidelines might become a global standard as other
countries grapple with the balance between prosperity and
security.
Creating an open transatlantic market for air transport by
allowing cabotage and removing restrictions on foreign
investment. At the 2009 U.S.-EU summit both sides confirmed
their intention to reach an air transport agreement that would
essentially achieve this goal. Both sides should commit to
completing this agreement in 2010. There are estimates that a
full open-skies agreement could boost transatlantic travel by
up to 24 percent, save consumers more than $6 billion annually
and increase economic output in related industries by at least
$9 billion a year. The impact of this one single sectoral
agreement could have the equivalent economic boost on the U.S.
and EU economies as the entire Doha Round.
Boost bilateral regulatory cooperation by identifying
``essentially equivalent'' regulations for mutual recognition,
focusing on regulatory cooperation relevant to new
technologies, and ensuring that regulatory agencies have the
resources and incentives to cooperate internationally. Since
``behind the border'' regulatory differences pose the most
significant barriers to transatlantic commerce, the
transatlantic partners should seek to address these differences
with far greater urgency and attention. As indicated, there is
considerable potential to create jobs, stimulate investment,
and boost trade. U.S. and EU regulators generally have the same
high standards for protecting the welfare of our consumers, our
environment and our financial systems. This commonality of
regulatory purpose implies that we can trust one another's
regulatory systems. In October 2009 the U.S. and EU agreed to
take ``steps that could lead toward greater compatibility of
effective and economically beneficial regulation and that could
promote economic integration.'' The U.S. and EU have identified
key sectors, including labeling, energy efficiency, and
nanotechnology, where both sides will seek to develop
compatible approaches to regulation. To go farther, the High
Level Regulatory Cooperation Forum should be tasked to provide
specific recommendations to the spring 2010 meeting of the
Transatlantic Economic Council aimed at achieving mutual
recognition of compatible regulatory regimes in individual
regulated sectors (toys, engines, automobiles, electrical
products, etc.). If agreement can be reached that both sides
are seeking ``essentially equivalent'' outcomes in terms of
health, safety, etc., in such areas, then the legislative
process on both sides should accept the regulatory decisions
and standards of the other side. The process for reaching this
decision should be in the hands of U.S. and EU regulators, who
would always have the right to withdraw the automatic approval
for products approved by the other. In addition, regulators and
legislators on both sides of the Atlantic should focus on
emerging areas of technology that will require regulation but
where persistent disputes do not yet exist. Areas such as
nanotechnology, e-health records, RFID, and ``green''
technologies may be easier to regulate cooperatively before
differences emerge. Furthermore, financial resources must be
available that allow regulators to engage in sustained, face-
to-face dialogue with international partners. Such resources
should not compete with the regulating agencies' core mandates
for budget and staff resources.
building a green economy for innovation, jobs, and prosperity
A transatlantic ``green economy'' offers an opportunity to
encourage innovation and revitalization of key economic sectors, while
fostering greater energy and environmental sustainability. By using the
opportunity of the financial crisis to motivate governments, firms, and
individuals to change their established patterns of consumption and
behavior, we can not only promote economic recovery, but also reduce
carbon emissions.
Both the United States and Europe bring real value to such an
endeavor. The United States was long the leader in innovative, market
driven environmental solutions, including the cap-and-trade system for
sulphur dioxide. The U.S. has an outstanding track record in turning
innovation into profitable ventures, given the right economic
incentives. In recent years, Europe has become the world leader in
promoting energy efficiency standards in buildings, and has pledged to
make renewables 20 percent of its energy mix by 2020. At the November
2009 U.S.-EU summit, the parties demonstrated their commitment to
energy sustainability and security by establishing a new Energy Council
to pursue such efforts in a cooperative and coordinated framework.
To begin building such a green economy, the U.S. and EU should: \2\
Boost energy innovation by creating a U.S.-EU Clean Energy
Bank and a Transatlantic Energy Innovation Fund. The Clean
Energy Bank, which would be open to others, would underwrite
the risks of developing new, commercially viable technologies.
It would help commercialize new technologies, some of which
might be developed under the Innovation Fund. That fund would
support joint research and development to accelerate the
introduction on new technologies for electric mobility (car
technology, batteries, infrastructure); super smart grid;
renewable energy development and deployment; carbon capture and
storage; and energy efficiency.
---------------------------------------------------------------------------
\2\ In addition to ``Shoulder to Shoulder,'' this section also
draws on ``A Shared Vision for Energy and Climate Change: Establishing
a Common Transatlantic Agenda,'' by John Lyman, in ``Shoulder to
Shoulder,'' the companion edited volume to this report, and on
``Transatlantic Cooperation for Sustainable Energy Security: A Report
of the Global Dialogue between the European Union and the United
States,'' by Franklin Kramer and John Lyman (Washington DC: CSIS,
2009).
---------------------------------------------------------------------------
Encourage enhanced energy efficiency, including the joint
development of smart grid and carbon capture and storage
technologies. The U.S. and EU must harmonize emerging
regulatory frameworks on these two technologies to ensure that
standards reinforce interoperability and compatibility. They
should work together to develop the capacity to protect smart
grids from cyber attacks and initiate a number of joint carbon
capture and sequestration projects. They should collaborate on
establishing energy efficiency standards, including setting
higher standards for appliances, making standards associated
with building products more consistent, and agree that only
products with the highest efficiency ratings be eligible for
public procurement.
Head off the looming collision between climate policy and
trade. Failure to coordinate these two key components of the
broader system could both imperil the climate change talks and
stimulate major new trade conflicts. It is untenable
politically to enact cap-and-trade systems that impose costs on
companies operating in the U.S. or Europe only to have them
shift jobs and pollution to countries such as China or India,
which are reluctant to embrace binding emission reductions. Yet
potential remedies, such as imposing additional "border
charges" on carbon-intensive imports and subsidizing domestic
producers, could lead to retaliation or WTO challenges that
might undermine climate and trade agreements. The U.S. and EU
should demonstrate leadership by working with G20 partners to
develop a ``Green Code'' of multilateral trade disciplines and
consider new trade negotiations to address these potential
commercial and climate trade-offs.
Implement the commitment at the October 2009 TEC meeting to
establish a new U.S.-EU innovation dialogue to accelerate
efforts to spur growth, productivity and entrepreneurial
activity, including by sharing best policy practices and ways
of improving the policy environment for innovative activities
in both markets. The Dialogue will establish with stakeholders
a work program identifying priority areas and sectors for
action, including innovation policy, information and
communication technologies, advanced technologies, health
information technology, and clean energy technologies.
Ensure that the new U.S.-EU Energy Council develops a
focused agenda and effective working groups. At the 2009 U.S.-
EU summit, a ministerial-level U.S.-EU Energy Council was
established to deepen the dialogue on strategic energy issues;
improve energy security; promote cooperation in achieving
climate change goals; and further strengthen research
collaboration on sustainable and clean energy technologies.
This is a broad agenda, and much will depend on the working
groups addressing some key issues where progress can be made
(such as smart grids, carbon capture and storage, etc.). The
Energy Council does have a regulatory role, and this should
work cooperatively with the Transatlantic Economic Council
rather than becoming competitive. The Energy Council must also
provide for active involvement of U.S. and European legislators
and the business community.
reinvigorate the transatlantic economic council\3\
To achieve these aims of building a barrier-free transatlantic
market and a transatlantic green economy, the U.S. and EU must
reinvigorate the Transatlantic Economic Council as the premier forum
for discussions about the transatlantic economic relationship. Created
as a result of a German initiative in 2007, the TEC brings together the
principal Cabinet officers, White House officials, and European
Commissioners for a meeting twice per year. In its initial conception,
the TEC was to provide political impetus to solve regulatory issues
that could not be resolved by the High-Level Regulatory Cooperation
Forum and other bodies. Over the past 2 years, however, the TEC became
overly focused on preexisting trade disputes, to the point that its
last meeting during the Bush administration was dominated by the U.S.-
EU dispute over chlorine-washed chickens. The first TEC under the Obama
administration was used primarily to set a general agenda for the next
few years, including pledging to initiate an innovation dialogue. But
many of those attending from the European side were effectively ``lame
ducks'' as the new European Commission had not yet been announced, with
the exception of Commission President Barroso. In spring 2010, the TEC
meeting will include new European Commissioners. Commissioner Karel de
Gucht, who has held the development portfolio, will have the trade and
investment portfolio, which now includes the TEC. With the U.S. and EU
having finished their government transitions, the spring 2010 meeting
presents a golden opportunity to revamp the TEC by making both
substantive and institutional changes.
---------------------------------------------------------------------------
\3\ This section draws on ``Shoulder to Shoulder: Forging a
Strategic U.S.-EU Partnership and also on Resetting the Transatlantic
Economic Council,'' a report of the Atlantic Council of the U.S. and
the Bertelsmann Foundation (Washington DC, 2009, available at
www.acus.org).
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In terms of agenda, the TEC should focus on strategic issues in
three areas:
Promoting economic recovery and growth, with a focus on
building a green economy and boosting innovation. The TEC
should ensure that government interventions are well-
coordinated, mutually supportive, and of limited duration. The
TEC should help coordinate ``exit strategies'' if necessary,
and be a watchdog on protectionist impulses.
Coordinating approaches to global economic governance,
effectively becoming an informal G2 for U.S.-EU discussions
prior to the G20 meetings. With the weakening of the G8, there
are few fora left where the U.S. and EU can develop a strategic
approach to the new, larger institution and the issues of
global economic management.
Advancing efforts to create a barrier-free transatlantic
market, including through pursuit of several regulatory
``lighthouse'' projects. These could include financial services
regulation, e-health regulation, intellectual property rights,
and many others. Of particular interest might be those emerging
industries and technologies where little regulation yet exists.
To address these issues effectively, the TEC must:
Maintain a strategic focus. This might be best accomplished
by establishing a two-level TEC; the ministerial-level Council
that will usually address issues on a strategic level, and a
series of sub-Councils at the next level down to deal with
specific issues.
Expand the circle of those engaged, especially by bringing
in key legislators and the Transatlantic Legislators' Dialogue.
The very dense nature of transatlantic economic relations means
that many constituencies are affected. None of the obstacles
that need to be overcome--tariffs, regulatory, investment
barriers--can be addressed without the cooperation of the
business community or legislators. In the past, both the
Congress and the European Parliament have passed measures that
created barriers to transatlantic economic interaction;
Sarbanes-Oxley is a prominent but not isolated example. Given
the new range of powers the Parliament will receive under
Lisbon, it is even more important than ever that both the
Congress and European Parliament be an integral part of the
TEC. Legislators could develop a regular mechanism for
identifying pending legislation that might have an
extraterritorial impact and that should be examined more
closely. By providing such a report regularly to the TEC and
engaging key committee chairs in regulatory issues of their
jurisdiction, legislators could become an essential part of the
TEC dialogue.
Senator Shaheen. Thank you very much.
And I am going to start with where you ended and ask you a
little bit more about how you see the Lisbon Treaty affecting
the U.S.-EU relationship, and do you think that there was a
message in the EU selecting Catherine Ashton, a former EU Trade
Minister, as the first-ever High Representative for Foreign
Affairs and Security?
Did you take that as a signal that there was increased
interest on the part of EU governments in letting the--EU
member governments in letting the EU take the lead on trade and
economic issues?
Dr. Burwell. No, but I did not take it as not doing that
either. I would take it as quite separate. I think the
selection of President Van Rompuy and High Representative
Ashton really had to do with a lot of internal EU bargaining.
Certainly, there are those, and I would argue this, that
the relatively low profile of these two individuals prior to
their appointment--and that has nothing to do with their
competence or how they will handle their jobs--is indicative of
at least some heads of European countries wanting to remain the
lead interlocutors with the United States.
However, I think that in the selection of Catherine Ashton,
the EU picked someone who met some criteria that was set. There
has been a great deal of discussion, as you may know, about the
gender balance among the new European leaders. They did pick
someone who has, from my inquiries, an excellent reputation
here in Washington with the economic officials with whom she
has dealt and someone who is known for being very positive in
terms of transatlantic relations.
They had to expect that she would, as she has in her
initial statements, say very good things about the
transatlantic relationship. So I think that we certainly can
look forward to working with Ms. Ashton--with Catherine
Ashton--and working very closely with her in a very positive
transatlantic environment.
Senator Shaheen. You and Mr. Maibach both talked--had a
number of very specific recommendations for the Transatlantic
Economic Council, and I wonder if you have specific thoughts
about how we should approach adopting some of those very
specific recommendations, and either of you?
Dr. Burwell. Well, we were in Brussels last week, Dan
Hamilton and myself, my coauthor, and we met with the chief de
cabinet of Commissioner Karel de Gucht, the Belgian
Commissioner, who currently has the development portfolio, but
in the new commission will have the trade portfolio.
Interestingly, the trade portfolio now also includes
investment and also includes responsibility for the TEC. So we
have kind of directly put forward our recommendations. They
were interested to hear them. I mean, obviously, he is not in
the job yet. He hasn't had his hearing yet. So there is no
commitment there.
But I do think that my impression is that on both sides of
the Atlantic, the people involved in the TEC are actively
looking for ways to reinvigorate it. The last TEC meeting, most
of the European participants were lame ducks, in effect, except
for President Barroso. So I think that the next one is the one
where everyone kind of expects to see real plans for a new,
reinvigorated TEC. And I think they are looking to institutions
not only the Atlantic Council, but certainly the European-
American Business Council and others, such as the TABD, for
suggestions as to how they might best move forward.
Senator Shaheen. Thank you.
Mr. Maibach.
Mr. Maibach. Yes. That is a good question, and I agree with
some of the things that were just said.
I'd add that the TEC could be more fully staffed. If you
are in the White House supporting the G20 and G8 talks, as well
as all the other responsibilities that Mr. Froman and his
colleagues have, they should be appointing senior-level civil
servants to support TEC goals, if you will. Delegate that to
those departments' key tasks. They must then become accountable
for their work.
And then enlist industry support and expertise in the work
of those departments, whether it is Commerce, Energy, State, et
cetera. And then the White House adopts more of an oversight
role rather than having the responsibility for the tasks
themselves. I think delegation is going to be a key for the TEC
here.
Also, one or two people might be assigned to the TEC work,
for example, on the U.S. side, from OMB. We see a White House
that has so many things going on that they can probably use a
few extra hands on some of these things.
Senator Shaheen. Thank you.
Before I get to Mr. Howland, I am going to ask if either of
you would like to speak to the role that you think small
businesses can play in expanding and deepening the
transatlantic economy, either or both?
Mr. Maibach. Yes. One of the things that we have had since
1981 in the United States is the R&D Tax Credit. It expires
every 3 years. It should be made permanent. And the U.S. credit
does not include two things that many credits around the world
do include:
No. 1, the U.S. credit doesn't include joint R&D between
companies. And two, it does not include joint R&D between
companies and universities. As a matter of fact, the OECD ranks
the U.S. credit as the 17th most valuable R&D credit in the
world. The U.S. credit was No. 1 in 1990.
If you are a big company and you are doing some joint R&D
with a small business, that doesn't count toward the credit.
This is something Congress could do to help small business
right away. If IBM does more joint R&D with enterprises that
you have never heard of, it might really help those smaller
firms.
That is one idea that might be very useful. I will leave it
at that.
Senator Shaheen. Dr. Burwell.
Dr. Burwell. My comment would be that, first off, I very
much agree with what Mr. Howland said about small and medium
enterprises being engines of innovation, and I think that it is
extremely healthy for the relationship for American small and
medium enterprises, small businesses to be present in Europe,
not just because of the jobs that they then create back here
and the investment possibilities. But because some of us who
have watched some of the major European economies--particularly
the German, but not just that--over the last few years have
seen how difficult it can be for their small businesses with a
few exceptions, such as some of the specialized German
steelmakers and things like that.
It is harder for them often to get loans, things of that
nature, and I think there is an illustrative value, if I can
put it that way, to have American small business active on the
global marketplace.
Senator Shaheen. Thank you.
Mr. Howland, can you talk a little bit more about some of
the obstacles that your business faced, and you faced, as you
were trying to get into the European market? You had a good
list when you were talking earlier with Under Secretary
Hormats.
And can I ask you to turn your microphone on?
Mr. Howland. Sorry. I think the first point that is hard
for people who are immersed in this conversation to realize is
a small business person has absolutely no clue to begin an
export program because we don't have a generational
understanding of export businesses.
If you live in Luxembourg, you have been exporting for five
or six generations at a minimum if you have a business. And
that culture creates an understanding of the process and the
resources that are available. To small entrepreneurial American
businesses, this is a mystery. This is a closed book.
And it takes a number of years at a minimum even to
understand the resources of the U.S. Commerce Department, the
Commercial Service, what the embassies can do for you. And I
think you can't underestimate that unknown is a barrier to
entry into export. And unless you can break that down and
create some kind of portal to begin that process, people are
going to defer it because the domestic market is big enough for
a small business to appear to be the first priority.
And that is a mistake small business people make, but it is
inevitable given these other barriers.
Senator Shaheen. And you talk about a portal. Can you be a
little more specific about ways in which you think Government
could be helpful as small businesses are thinking about how to
export?
Mr. Howland. Small business, everyone who works in a small
business wears multiple hats. You don't get to specialize in
this. As a consequence, you are always pressed to complete all
of your responsibilities.
The reason I raise this proposal of using the Small
Business Innovation and Research grant program is it is a fully
competed program, and the way that would work is, a topic is
like a contest. And the way that program works is very smart
people write topics for proposals. That will unleash an
outpouring of excellent proposal ideas. It creates the
innovative process; gets it started.
And it creates a focus for the small business player and a
justification and a reason for pursuing an idea that they no
doubt already have but need a focus to get that going. And the
process, if it was worked through Commerce, would give a
perfect opportunity for Commerce to show that small business
person what the rest of the resource package is. Because unless
you have been involved in the export process, you don't know
about it.
Senator Shaheen. Thank you.
Senator Risch.
Senator Risch. I am going to pass. Thank you.
Senator Shaheen. OK. I want to go back, and for any of you,
to the question that I asked Under Secretary Hormats about
coordination of Government agencies and efforts to look at
trade, particularly when it comes to the European market.
Do you think there are ways that we should be coordinating
better the efforts, and how would you--you have talked about
the TEC. Are there other things that we ought to be looking at
that would better coordinate some of those efforts, for anyone
who would like to address it?
Dr. Burwell. Let me say something about two not apparently
related processes. One is along with the TEC, we now have the
new Energy Council. The Energy Council has three mandates. One
is energy security. One is research and technology, and another
one is energy-related regulatory.
And that last one in particular overlaps significantly with
the TEC, and we need to deconflict that in some way. There are
different institutions involved right now in these two
councils. And so, I think we need to have an honest
conversation about do they both claim the regulatory mandate
and do they find a way to do that together, or does the
regulatory mandate go in one or the other? And what are the
consequences in terms of who belongs to--which agencies belong
to which of the councils?
The other challenge that I think that we have, and I am
sure that we need additional coordination between State,
Commerce, et cetera. But I think since so much depends upon
regulatory agencies right now in this relationship that one of
the things we really need to focus on is how do you take a
regulatory agency like the FDA with the Consumer Product Safety
Commission or something like that, which is domestically
focused, and where the political oversight is really focused on
protecting American consumers, environment, and encourage them
to take the time and give them the budget to actually travel
overseas.
We have hosted meetings on U.S.-EU energy technology issues
and discovered that EPA, for example, or at least certain
offices of EPA, have an extremely limited budget for overseas
travel. And something as simple as that makes it extremely
difficult for them to even think about coordinating with the
EU.
I think if Congress were to, in some of the reports that it
requires from these agencies, ask them what they are doing to
coordinate abroad and provide them with the resources, frankly,
to do that, resources that don't compete with the resources
they already have--so they are robbing Peter to pay Paul--I
think that would be of enormous help.
Senator Shaheen. Well, can you talk a little bit more about
you suggested a barrier-free transatlantic market and a place
where we might start. Can you talk a little bit more about how
you see that working? And as you know and as you pointed out,
that is an issue that often raises controversy when we are
talking about barrier-free trade.
Dr. Burwell. I think the big difference to understand or
distinction to understand is that the United States and the
European Union economies are both mature, service-oriented
economies. This is not the same thing as doing a free trade
agreement or a no tariffs agreement, if I can put it that way,
with a country that has workers who are paid significantly less
than American workers or where health and safety standards are
significantly less.
In fact, you can certainly argue that in some areas,
European regulations are much stricter. It is probably about
equal overall. The current trade between the United States and
the European Union--a lot of it is intra-firm trade, or it is
between major firms and their subcontractors. So by doing away
with the tariffs on the goods that go back and forth, you
actually would make it more efficient for many of those
companies that are European and American for the most part.
On agriculture, we actually--when we were discussing this
particular recommendation, we discussed agriculture quite a
lot. There is more agricultural trade now across the Atlantic
of more variety. And it seemed to us that there are certainly
some very sensitive products, and you could have a longer time
period before you removed all of the barriers, all the tariffs
on those.
Our proposal does not get rid of regulatory obstacles
necessarily at that stage. So it would still be possible if you
have different health and safety standards on certain foods,
for example, to maintain those barriers. Eventually, we would
hope that we would find a regulatory solution to that, too,
that there would be some agreement on that.
But as a first step, to think about a tariffs-only free
trade agreement between the United States and the European
Union I think would make a political statement that we want to
move forward and deepen the relationship. It would provide a
small bump for the economies, not a huge bump. But I think it
would send the right type of political statement, and I think
it is, at this point, doable.
Senator Shaheen. Mr. Howland, would that have been helpful
to you? And then I am going to ask Mr. Maibach what your
thoughts are and where you think the European-American Business
Council would be on that?
Mr. Howland. I think that small business and big business
doesn't always have exactly parallel views of some of these
trade issues. In particular, regulation and specifications, you
know,
the diversity of European requirements is actually an advantage
and an opportunity for a small business. A very large
requirement that would be EU-wide is going to be competed so
aggressively
by a large business it will probably exclude small business
opportunities.
It is not a--please, I don't want to suggest that in
markets like energy and agriculture, your goals are still
appropriate, but the diversity of the European market. I mean,
we find that working standards issues, regulatory issues is
extremely cooperative. We can be invited to a standards group
as an ISO participant. The Europeans are not exclusionary.
I don't have the same experience, however, that I think we
are probably not as inclusive of Europeans as they are of us.
And I think that will be a bad thing long term if we don't
remedy that.
Senator Shaheen. Mr. Maibach.
Mr. Maibach. Yes; thank you.
I have two comments. One is about the TEC and regulatory
collaboration. Regulations can either be barriers or they can
be enablers of innovation. By having products become
horizontally available across borders, if you will. That is one
point.
The other one I wanted to make is--and this is
underappreciated, I think, in Congress. Tax policy is really
trade policy in many ways. I will give you some examples.
The EABC has copies of our study in the back of the room
called ``The Atlantic Century'' that we issued earlier this
year. The United States has the highest corporate tax rate in
the world. We are tied with the Japanese at 39 percent. Ireland
has about a 9-percent rate. It depends on the numbers you look
at, but ours is very high.
We are also the only country in the world with
international taxation of foreign profits. This is related to
the U.S. foreign source tax credit sometimes called the
``deferral issue'' that was raised again this year as a
possible source of U.S. revenue. Taxation occurs wherever the
sale is. But if you are going to tax the money when it comes
back to the USA, it will not usually be repartiated. It will
stay where it is and be reinvested.
If you are a small business person, you look at that and
say, ``Is this really worth it?'' Because I don't have a plant
to invest it in, I have to bring profits back to the United
States. Am I going to pay the differential between the highest
corporate tax rate in the world and wherever I am selling
abroad?
The third thing is we have no ``VAT forgiveness'' because
we don't have a VAT. If you are an exporter, in most every
country in the world you have a value added tax--VAT. And if
you export, you don't have to pay it. We don't do it that way
here. I don't think we can get into this topic right now, but
that certainly is an export promotion Tax Code feature that we
don't have.
And we usually use 5-year depreciation on capital
investments. I spent 18 years in the semiconductor industry. If
you build a chip fab in most countries, they allow you to
expense it in 1-year depreciation rather than 5. U.S. tax
treatment is a major disincentive to export out of this
country.
And finally, the value of the U.S. R&D Credit that I
mentioned. I think we ought to double it from 20 to 40 percent.
That would make the U.S. credit the nineth most valuable R&D
Credit in the world, rather than No. 17. And we must extend it
to include university collaborations, as well as company-to-
company collaboration.
So there are lots of things in the Tax Code we can improve
to create wealth. The average corporate tax rate in the OECD--
29 industrial nations--is 28 percent. That is 11 percent lower
than the U.S. corporate tax rate. So we don't have a climate
here for treating capital to enhance exports and innovation
that we should.
Senator Shaheen. Thank you.
Before we close, and I do think we are getting into a vote
time here shortly. But Mr. Howland, you talked a little bit in
your written testimony about the ITAR regulations, and they
came up with Under Secretary Hormats.
Can you expand on what you think some of the challenges
those ITAR regulations are for American businesses? And, I
don't know, either Mr. Maibach or Dr. Burwell, if you would
have anything that you would like to add with respect to
whether we should look at reforming those ITAR regulations?
Mr. Howland. I think that your first panelist really
identified the issue that they are, like many things, a
regulatory framework that is really cold war. And it covers the
waterfront, everything involved.
And as we have pointed out, it is a very peculiar situation
when you know that competitive products are offered by your
European competitors in a very free trade environment, and your
products can't be exported without license, it is a peculiar
situation when the regulation is just simply obsolete. It is
not pertinent to the current situation.
And even where a license is possible, that licensing
process is not a straightforward one. It is not--particularly
for small companies--it is not an easy thing to execute.
Commerce-related licenses are more straightforward, and
anything that has to go to State, the kind of rule of thumb is,
``Boy, do we really want to try to do that?'' It is an
unintended barrier.
Senator Shaheen. Thank you.
Dr. Burwell. The commission has recently passed a new
directive on defense procurement, which will go into effect
over the next few years in the Member States. And this creates
open tenders. There cannot be any discrimination among European
firms for certain parts of defense procurement by ministries of
defense, et cetera.
In the past, there wasn't necessarily open procurement, and
U.S. companies did very well just simply networking and having
good products. With ITAR having caused, shall we say, some
discomfort among European MODs, I mean, in making it difficult
for them to use products, et cetera, there may be--the
political dynamic is that if ITAR continues to be difficult,
there may be less incentive to make sure that a European--no
discrimination against European firms also means no
discrimination against United States firms as this directive
takes effect.
So I think that we are at a point where not only because of
the difficulties that it poses for our companies, such as Mr.
Howland, but also because of the political dynamic that it
creates across the Atlantic, that it probably is a good time to
revisit ITAR.
Senator Shaheen. Thank you.
Mr. Maibach, did you want to add anything to that?
Mr. Maibach. I agree with what has already been said. I
think that we have to collaborate with our allies. I think all
through the 1980s and 1990s, we learned with export control,
certainly in semiconductor technology, that drawing lines just
around the United States when these technologies move
everywhere so quickly does not work. Semiconductors are like
water these days. You can get them in a greeting cards.
You must focus just on key technologies. Usually, they are
multiple technologies combined in a final product, rather than
just a chip or a single software program. Let's say a
supercomputer. Who makes those? You have to advance mutual
enforcement of those rules with your allies, if you wish to
have a positive impact. If you don't do this together, you
probably are not going to be successful. You are just going to
hurt your own companies.
And so, whether it is NATO or some other venue, we probably
ought to have much more collaboration on what we are going to
control and agree on that. And as Fran said, we want the
European market to become a true single market. Most companies
say that they have 27 European markets for defense. They would
like to have a single market, and we would like to have that,
too.
This might be a way, as Europe changes, to foster new ways
for NATO to advance collaboration more deeply.
Senator Shaheen. Thank you.
And finally, Mr. Maibach, I couldn't get Under Secretary
Hormats to comment on Copenhagen, but given that you raised
carbon metrics, maybe I can get you to comment on it. You did
point out that that would be helpful for companies as they
think about the U.S. market since they are operating in the EU
market, where they do have metrics.
Can you talk about how your member companies are looking at
the negotiations in Copenhagen and what they hope might be the
outcome of those negotiations?
Mr. Maibach. Well, we have 70 companies, and we have at
least 37 opinions, I would imagine. I think what I have learned
in some 25 years in industry is that incentives and
collaboration work a lot better than regulation and taxation
for motivators of change.
And to that point one of the great things about the United
States and its wealth creation machine for 200 years is--if you
allow for collaboration to be fairly free and have incentives,
you can make money. You can use tax credits, et cetera. If you
allow for that to happen, and you get a lot of clues from and
industry insights into how to make that happen, you will be
more successful than something designed by a regulatory
committee and imposed.
The reason is because there are so many differences in
business models. I was talking yesterday to an executive of a
Midwest electric utility. He was saying that because their
plant configuration--one nuclear plant, several coal plants--
versus some on the coasts who have more nuclear and less coal--
that a one-size-fits-all cap and trade bill is so much more
difficult on his particular State and how they have configured
their utility than in other states.
So one-size-fits-all, whether it is Copenhagen or a U.S.
congressional act, is very different than incentives for people
who agree on key goals but who are allowed to get there their
own way. In summary, I would say that providing incentives to
reach targets, the cap part, I think there is a lot of
unanimity about that. ``I would like to move 20 percent down
over 5 years.''
Allowing people to have different ways to get there and
rather than use a unidimensional system is going to be helpful
because some are going to pay a lot more in taxes than others
based on the regulatory world in which they live.
That may not be very helpful. But I think the more you
listen to industrial groups, the more you will allow innovation
to get out of this mess rather than regulation. So I would
focus on incentives.
Senator Shaheen. Thank you.
Would either of our other panelists like to comment on
that? You are going to take a pass. Smart. [Laughter.]
Well, thank you very much.
This has been very enlightening. We look forward to
continuing to work with each of you as we think about how to
better promote our transatlantic relationship between the
United States and the EU.
So thank you all very much for being here.
The hearing is adjourned.
[Whereupon, at 4:05 p.m., the hearing was adjourned.]
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