Public Hearing on U.S. Trade Deficits

Public Hearing on U.S. Trade Deficits



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… 禄 Good morning, everyone, and
thank you for being here. We’re holding this hearing on the
president’s executive order 13786 date ed March 31st, 2017.
The executive order calls on the Department of Commerce and the
United States Trade Representative to prepare and
submit to the president an omnibus report on significant
trade deficits. This report is due to the
president by June 30th. Though we intend to submit it somewhat
before that. We’ve asked the public to
comment and to file comments that they have concerning the
causes of the trade deficit with the 13 trading partners that
have the largest trade deficit causes for the United States.
The purpose of today’s hearing is to receive public testimony
relating to the written comments we received. Approximately 150
organizations or individuals submitted public comments on a
range of topics and a range of trading partners
partners. Input was received from U.S. manufacturers, trade
associations, agriculture and fish groups, think tanks and
academia, foreign governments, business groups and individuals
individuals. The most common themes from these
submissions included trade value s, unfair competition, trade
agreements and currency. Among those comments concerning trade
barriers and unfair competition competition, the
most frequently referenced issue s were subsidy ies, regulatory
issues, tariffs and other im import restrictions. However, a
very diverse set of issues was raised by stakeholders as no one
issue was referenced in more than 25% of the submission
submissions. Before we begin this hearing, though, I
‘ll briefly summarize the background of this matter,
provide some procedure al and administrative instructions and
introduce other agency representatives joining me in
conducting the hearing. The main goal of this report is
to produce a comprehensive analysis of the economic
reality ies and details of America’s trading patterns. In
2016, our good trade deficit stood at about 735.5 billion, a slight
decrease from the 735.7 billion recorded in 2015.
A trade with China accounted for half of the deficit and Japan,
Germany and Mexico combined accounted for an additional
quarter. The last time the U.S. had a surplus was in 1975.
Long before cell phones and Internet. We set up 10 panels
today from organizations, companies, trading partners and
individuals who requested to testify. We put them by general
topic, but I suspect we’ll hear a lot of common themes. Each
panelist will be given five minutes to speak.
Please adhere to that. Because with so many people, it’s not
fair not to let everyone be heard.
The U.S. Government panel will then ask questions and will go
from there. We have a lot of speakers today, and I hope you
will find both the discussion and the testimony interesting.
We are streaming the hearing on online and doing a
transcript. So you’ll be able to review the testimony later.
Thank you again for being here. I now would like to ask the
honorable Congressman Lou Barletta to be the first speaker
. He represents the 11th district of Pennsylvania and
serves on a number of key committees in the House of
Representatives. Let’s give him a good welcome.
[Applause] 禄LOU BARLETTA: Thank you for
the opportunity to appear before you today. I’m pleased that
President Trump has recognized the need to address unfair trade
practices that are hurting the U.S. industry and United States
workers. I would like to speak about more commonly known as
Hard Call. Aftersight used in various industrial applications,
including steel and charcoal manufacturer has the highest
energy content of all coal. This means that it burns cleaner
and hotter than other types present throughout the United
States. Although it accounts for a small
portion of total domestic coal production, the industrial value
makes it a critical component in our national energy portfolio
. Further, as a president, recently acknowledge ed, steel
is directly tied to our national security. Given the unique
role in steel production, it is no stretch to say that our
ability to produce this coal is critical to protecting our home
land. It has been mine ed commercially in northeastern
Pennsylvania for more than 150 years. As a lifelong resident
of the region region, I have seen the decline of this
industry firsthand and witnessed the devastating effects it has
had on local communities that rely on the industry for their
livelihoods. While anthrocyte coal reserves in Pennsylvania
are among some of the largest in the world, last year of the
production of the United States anthrocyte accounted
accounted for 1.75% of the world ‘s consumption. Why is it that
American anthrocyte industry despite having abundant reserves
is not leading the globe in production? There are several
factors at play. First like many industry ies, anthrocyte
coal produce ers are the victims of unfair and predatory trade
practices by a few nations. For example, according to
reports in 2014, state support for the Ukrainian coal industry
amounted to 600 million. The subsidy ies in price
supports given to Ukrainian coal companies at that time had a
significant impact on domestic anthrocyte produce ers. In the
wake of suppressed prices we saw the closure of mines and loss
of good-paying American jobs. For those mines that managed to
survive this influx of foreign coal, most operators were unable
to hire new workers and invest in new equipment. I hope this
administration will immediately take action to address such
unfair practices and assure that American anthrocyte produce ers
are able to compete on an even playing field.
Second, even with sanctions to prevent cheating, foreign nation
s find ways around the rules by moving their goods throughout —
through third- third-party companies locate ed
in country ies that have trade agreements with the United
States. We know that last year roughly
37,000-tons of anthrocyte were shipped to the United States
from Switzerland. This is a little suspicious because
Switzerland has no known anthrocyte reserves.
Europe’s largest supply of anthrocyte is locate ed in the
dispute ed territory of Crimea, Ukraine and Russia. Clearly
something is going on behind the scenes.
It is therefore crucial that once duties are put in place to
address unfair trade practices, the administration remains
vigilant in ensure ing those duties are enforced.
Lastly, as a member of Congress Congress, one of the
things I consistently hear from businesses back home is about
how difficult it is to initiate a trade remedy case.
Most of the people I represent don’t have the spare time or the
millions of dollars for the legal expertise necessary to
pursue such a case. For these Americans, putting up
with foreign cheating is a way of life. And unfortunately it
it’s the reason many of these family owned businesses end up
closing their doors. The anthrocyte industry is no
different. Many of the operations in my district have
been owned by family ies for generations. They take pride in
ensure ing employees have a good living, the average mine er
wage is $50,000 plus benefits and they put any money that is
left over back into their businesses.
Hard-working Americans simply cannot afford to pursue cases
against Ukraine or other foreign governments. I hope that the
administration will take this into account as they look at way
s to address our trade deficits and unfair trade practices.
Again, I thank you for the opportunity to testify before
you today. I look forward to working with the administration
to address these issues so that we can provide relief for the
American anthrocyte industry. Thank you very much. [Applause] 禄 Good morning, everybody.
We’re going to proceed with the rest of the hearing, if Panel 1
could come on up, please. Panel 2, sorry. 禄 Good morning. We’re going to
get started with this panel, if I could ask the panelists to
introduce themselves and start with testimony.
禄 William Jones, president of Pennsylvania united technology
technologies. 禄 Roddey Doud chief executive
officer chart pipe foundry.
禄 Thank you very much, gentlemen for joining us today. Turn it
to the coalition to begin, please.
禄 Thank you. 禄 Could you pull the microphone
a little closer. 禄 Is that better? Okay.
Usually I don’t have a problem talking loud enough for people
to hear. I would like to thank the
Department of Commerce, the USD USDR, ITA and everyone for
the opportunity to speak before you today. And discuss
significant trade deficits in the problems they pose for U.S.
economy. , U.S. industry and American workers. As I
mentioned my name is Dan DiMicco , chairman of the coalition for
prosperous America that unites farm groups and interested
individuals representing over 2.8 million people. Before I
retired, I mentioned I was CEO of… we’ll go through that.
The specifics of that is that I I’ve had a lot of experience
dealing with the trade that goes on in the world, unfortunately.
American companies thrive in competitive markets, however,
today international competition is anything but fair. Our trade
deficit and goods is running about 750 billion a year,
approximately half of that deficit is accounted for by one
nation, China, as you heard Wilbur Ross, the secretary,
mention a minute another. Another quarter is accounted by
other companies. All of these nations benefit
from unfair advantages and are trading relationship which put
U.S. industry at a severe disadvantage and a cost million
millions of jobs over the last 20 years. The core
issue the previous year’s administration failed to
recognize is that many largest trading partners are operating a
mercantileistic business and economic strategy they identify
key industrial sectors where they intend to be world leaders
and net export exporters. The industry ies I’m talking
about include steel, aluminum, autos, chemicals, computers,
solar panels, and now semiconductors and airplanes.
The tools they use include billions of dollars of
government subsidy and drill I don’t understand of dollars in
currency ies to unfair levels. Taxes and tariffs, trade
barriers to keep our products out of the markets. These
nations have been highly successful capture ing large and
growing shares of the world market and the U.S. market of
many industries. In 16 years since 2000 China’s automobile
production has risen 1200% to make China the largest producer
producer. Tariffs on foreign vehicles,
approximately 10 times the rate of our tariffs on Chinese
vehicles. Some people will tell you this
is all about labor costs. I use a very highly technical term
called hogwash. It’s not true. And those same 16 years,
Germany, auto workers are paid today more than the U.S. auto
workers has increased its vehicle output by 10%. The
German market is protected by e euro exchange rate far too low
given productivity of German economy. Meanwhile here in the
United States auto industry employment is strong by no less
than 377,000 people since the start of this century or 29%.
According to CPA written testimony partial accounting of
direct subsidy ies subsidy ies paid by Chinese
governments amount to about 59 billion a year. The true figure
, industry ies taken into account is many times that. And
past month ago Chinese companies revealed long distance
airplane and new military aircraft carrier. Almost all of
these events Chinese government officials proudly call out the
goal of achieving self- sufficiency. Key understanding
here. Many products in industry . While American economists
speak of free trade and joy of depending on others for key
products. Our number-one trading partner speaks openly of
self- self-sufficiency as a goal.
What the Chinese don’t say is that they deliberately build
excess capacity in many industries driving down prices
in the west, giving them more market share and causing more
pain inside the western companies. What are the
effect effects on the United States? We have lost 5.8
million manufacturing jobs and 30% of the total since 2000.
Some 10 million Americans withdrawn from labor force and
see no hope finding a job with pay, conditions that meet
expectations. Entire communities are run down,
hanging on for dear life, families are struggling as
parties lose good jobs and turn to low pay part-time work. We
read about opioid epidemic addiction people escape to drug
drugs. The best place to start to
tackle these problems is with the trade deficit. A major
reduction in trade deficit is bi lateral and global, American
industries, American workers and American economy as a whole
whole. I would like to call your attention to four
facts that are direct result of our trade deficits. One,
accumulated deficits of the ‘ ’90s is over $13 trillion
accumulated. Since 2000, average GDP is — growth rate is
less than 2%. 60% plus of all the jobs create ed since 2008
are low wage low hour service jobs. Low wage, less than $18
an hour, low hours, less than 30 hours a week.
Finally, end result of a lot of this is household medium income
today is still less than it was in 1999.
Ladies and gentlemen, I thank you for your time.
禄 Thank you very much. Mr. Mr. Dowd from Charlotte Pipe
and Foundry Company, please. 禄 Yes, ma’am. Thank you,
members of the panel. We appreciate having the
opportunity to testify today. I’m the CEO of Charlotte pipe
and foundry, a privately held 116-year-old manufacturer of
cast iron pipe and fittings used in commercial and residential
plumbing systems, and we’re a proud member of the U.S. metal
casting industry. Which is the sixth largest industry in
America in the second largest supplier of castings in the
world after China. Our company is also the largest
producer of plastic pipe and plumbing fitting systems in the
United States. Metal castings are integral to
virtually all U.S. manufacturing activities. In the U.S.
castings are use ed to produce 90% of all manufacture ed
durable goods in nearly all manufacturing machinery. The
American foundry society of AFS AFS, is a major trade and
technical association nor the American metal casting industry
industry. This association has 8,000 members
representing metal casting firms, their suppliers
and customers. It is down from 2800 facility
ies in 2000. The simple math, a loss of 44%
of metal casting facility ies.
Our sector makes castings from iron. In addition to underpinnings,
energy transportation aerospace and defense industries,
countless sectors in the U.S. depend upon the existence of
metal castings including automotive, construction,
agriculture al, medical supplies , et cetera, et cetera.
American metal casting industry provides employment for more
than 190,000 people directly down from 250,000 in 2000. And
we support thousands of other jobs indirectly.
We are an energy intensive trade exposed industry that supports
a payroll of more than $9 million and sales of more than
$30 billion. Metal plastic plants are predominantly small
businesses with 80% of domestic metal cast casters having
fewer than 100 employees. U.S. metal casting facilities are
located in every state of the country, however the majority of
77% are locate ed in 10 states, Alabama, Illinois
Illinois, Indiana, Michigan, Ohio, Pennsylvania, Tennessee,
Texas, Virginia and Wisconsin. Iron foundry ies are a mainstay
of national defense. All sector s of the U.S. military are
reliant on iron castings for munitions, ships, tanks
tanks, trucks weapon systems and other vital operations.
Automobiles and other transportation equipment utilize
31% of all castings produced in the U.S. including engine block
s, crank shafts, cam shafts, et cetera. All of those are found
in military vehicles. Imported castings now comprise
nearly 25% of the market, and of that 25% of those imports are
coming from China. As a result of the increase in volume
unfairly create ed imports from China, the domestic iron
industry production sales and ability to maintain the
employment of its workforce have suffered as have industry
industry’s profitability. According to a
recent AFS survey, 88% of our members stated they were
negatively impacted by foreign competition with China being the
largest source of foreign im ports. For decades China has
pursued export oriented growth strategy which they rely upon
the United States and other markets to consume their exports
rather than increasing their internal consumption.
China’s metal castings industry remains government owned
primarily and controlled and heavily subsidized. China
continues to protect and increase by manipulate ing
currency, raw material markets and border measures for metal
castings. The U.S. must take aggressive
action to combat unfair trade practices to strengthening
manufacturing base which is critical to meeting national
security requirements. The 844 U.S. foundries since 2
2000 has led to substantial unemployment, loss of skilled
workers and capital investment and displacement of domestic
products by excessive imports. The import ation U.S. jobs are eliminate
ed, dramatically reducing the United States critically
important industrial base. The negative impact of foreign
competition on economic welfare of domestic iron foundry item is
clear. If this is allowed to continue U.S. manufacturers of
military equipment machinery could be forced to import
components from China and elsewhere.
We are pleased to see the Trump administration recognize the
close relationship between the economic welfare of our nation
and our national security and is considering making use of
existing enforcement in dispute resolution mechanisms such as
232 that are forward-looking proactively protect other key
sectors necessary for national defense, energy and
infrastructure. Thank you very much for this
opportunity to testify today. 禄 Thank you, Mr. Dowd. Now we
return to Leo Gerard from United Steelworkers, please
禄 Thank you very much. The United Steelworkers actually
represent about 800… [ stream offline ]
禄 You may get academics that present multinational
corporation apologists who are going to say that we shouldn’t
worry about these trade deficit deficits.
They’re all okay because we get a benefit from cheap stuff.
Well, if you don’t have a job, it don’t matter how cheap the
stuff is. Since 2008, 60,000 factories in this country are
closed. Since 2009, there’s been five separate discussions
with the Chinese over over- capacity in steel. In 2009 they
had produced about a little over 550 million-tons of steel
in five different sets of meetings between then and 2016.
Every time they promised they would reduce over-supply, over
overcapacity they went from 500 million-tons to 1.2
billion-tons. During that time, the steelworkers have filed
close to 75 trade cases of which we won almost every one. If
you look at the track record of the 388 orders filed for trade
violations at USTR, more than 50% of those were against China.
Now, if someone is going to tell you that the macroeconomics
of cheaper televisions warrants that, I would tell them that
they’re smoking something better than you can buy even in
Colorado. And then the reality is that
when we have the kind of trade deficits that Dan DiMicco
referred to, that is a huge wealth transfer, and anybody who
says that trade deficits are okay, I ask that you ask them
the questions, if trade deficits are okay, why doesn’t any other
nation want one? Why do other nations work to get
balanced trade? Why is it that only three that I
know of advanced industrial democracy are satisfied having
these substantial trade deficit deficits?
American, Canada and Great Britain, who all followed the
same economic model. All factories are closing and
workers are getting laid off. One of the things that we want
to be able to say is, well, with all due respect, those that
have been USTR, that have to enforce the trade laws, the
trade laws don’t work. I’m going to give you two examples.
In the paper sector we filed a case on coded free sheet paper,
the high gloss paper for catalog s. We succeeded in proving that
China in particular cheated on every set they could get. But
the company was still making some money on their other paper
products. So there was no remedy assigned.
We came back with the same case three years later. We now
succeeded. And we got a remedy remedy. But we lost 7,000
jobs. We filed a case on truck and bus
tires. We succeed. Had the help of the administration on a
421 case. We succeed and there ‘s a three-year declining remedy
. At the end of the third year within six months, the Chinese
put 50.7 million tires into the market, depressed the prices.
Where did those tires come from so fast? Why are we prepared to
be the Apaches for this. So that from the point of view of
the people I’m privileged to represent, trade deficits aren’t
economic indicators of cheap goods. Trade deficits are
economic indicators of lost jobs. I’ll make one more point.
Made a lot of publicity recently. Carrier. Decided to
move their operations from Indiana to Mexico, to Monterey.
They had the gall to tell the workers, it was nothing about
them. It was about that they would get the same product made
in Mexico for the total equivalent of $6 an hour versus
our 21 bucks an hour. What were they going to build in Mexico?
Furnaces. Do you really think Mexicans are going to buy a lot
of furnaces? Those furnaces are going to get
made in Mexico and shipped back to the U.S. and we have lost
1200 workers making the best furnaces on the planet.
The trade laws don’t work. And it’s important that as we look
at the trade deficits, that we look at how do we employ the
trade deficits so that there’s an ability to enforce and get a
conclusion. Not long ago, I guess or much longer ago,
Senator Doyle prepared a comment at the WTO, three strikes and
you’re out. I think we ought to start thinking about that. As
I said said, we file ed — we, the Union Union, file
these cases, and we won 81% of the time. That’s because they
cheat all the time. I’m going to leave two pass-outs with you,
one about the five years or five meetings of steel over
capacity and the other one is what the Chinese are currently
doing in steel and tire and aluminum, in glass and cement.
They’re producing domestic cally more than they can consume
because their objective objective, as Dan said is not
only export the product, but export unemployment through us.
I thank you for your time. Hopefully we’ll have a chance
for questions, but the members I’m privilege ed to represent,
many of the tens of thousands that have lost their jobs
because of these trade deals and trade deficits, to them a macro
economic view of trade policy doesn’t replace a job. And if I
can’t work, I don’t give a damn how cheap the TV set you’re
trying to get me to buy is. So thank you very much.
禄 Thank you, Mr. Gerard. And now Mr. Jones and united
technology ies, please. 禄 WILLIAM JONES: Thank you.
I’m William Jones, president of Pennsylvania united technologies
incorporated, medium sized manufacturer locate ed in
Pennsylvania. We thank secretary Ross and the
Department of Commerce and the national trade administration
for this opportunity to testify about the 2016 trade deficit,
and I also want to comment, I appreciate the comments of the
other three panelists. We have 620 employees that specialize in
high precision manufacturing solutions in many industries.
Our company would employ nearly twice as many people in family
sustaining jobs if it not for unfair trade.
The problem is not our inability to compete against foreign
produce ers. Unfair trade is the reason our company and all
manufacturers in America are losing market share to
competitors in China, Mexico Mexico, and even the EU.
In 2016 we lost at least $7 million of business to foreign
competitors, mostly from China, because of unfair trade. The
unlevel playing field is the main cause of the huge decline
of manufacturing in the U.S. and our over $500 billion trade
deficit in 2016. Special carve-outs recently
negotiate ed with China may slow the growth of U.S. trade
deficit, but this still does not level the playing field for
domestic manufacturers. To grow manufacturing in America again
and bring the balance of trade under control requires new and
better solutions. Since tax reform is on the table, the new
tax system must eliminate the disadvantage im imposed on us
by foreign border adjusted taxes , the BATs.
The BAT problem is a major cause of our company’s continuing
loss of electronics business to Mexico, China, and Europe as
well. Our foreign competitors pay no
tax when they sell in the U.S. Therefore no matter how low our
tax rate may be, we are significantly disadvantage ed
against foreign competitors here in our own backyard.
The same kind of thing occurs in foreign markets since nearly
all of them have a BAT. When we compete there, we pay both, our
U.S. taxes plus the foreign BA T.
But our competitors pay only once. Either their home BAT or
the other foreign BAT. A revenue neutral U.S. border
adjusted tax that is used to replace payroll taxes would be a
powerful boost to domestic manufacturing and the economic
growth and global competitive competitiveness of
the U.S. And it would go a long way toward rebalancing trade.
We also need an effective solution for illegal trade
subsidy ies beyond the reach of the current trade remedy laws.
Finally, one way or another, the Chinese government has managed
to delay its obligation under the IMF Article 4 to permit
currency to correct trade imbalances. Once their obvious
goal continue to run trade surplus, particularly with the
U.S. We are not protectional lists. We can compete with
foreign manufacturers on a level playing field. We look forward
to helping this administration to level the playing field to
bring U.S. trade back in balance . Thank you very much.
禄 Thank you very much. We’re going to proceed to the question
ing period of this panel. 禄 Could you bring the mic closer
? 禄 Sure. My name is Ann Driscoll
, Octobering secretary for industry and analysis for the
U.S. Department of Commerce and I will ask the panelists as they
— when they ask their first question to please introduce
themselves and turn it over for the first question to my
colleagues. 禄 Thank you very much. My name
is Steven Vaughn, general counsel for USTR. I want to
thank all the panelists. I know we really appreciate your
coming in. This is obviously a very important topic for the
administration. The president has asked us to assemble
information to put together a report on the issues with
respect to the trade deficits, and I really appreciate all your
powerful testimony and we thank you again. I have a question
for Mr. DiMicco. I appreciate the evidence that you have given
us regarding particularly a lot of the issues relating to China
. You also reference Japan, Germany, Mexico, South Korea,
and you gave a little bit of detail on that, but I would like
to invite you to, A, give us any other information that you
think is particularly relevant with respect to those countries.
And, B, talk to us a little bit about Japan and Germany and
why you think their trade balance ends up being so much
different from ours given they are also high wage developed
manufacturing countries. 禄DAN DiMICCO: Well, I’d like to
take the latter question first, if I could. The reason why Japan and
Germany don’t seem to suffer, evenr even though they are
developed high wage countries is because they are true
protectionists. And they use currency manipulation, either
direct or indirect. In the case of Japan, it is direct. In the
case of Germany Germany, it’s by virtue of the fact that
the euro is under- under-valued, because of the
diversity of economy ies in the E EU, many of which drive the
value of the euro down. When Germany was on its own two feet
feet, because they’re very efficient, productive,
successful economy, the currency would be stronger and they
wouldn’t lose that advantage they get by being involved with
the euro. That’s a fact. A lot of what goes on in Germany is
supported by state-owned banks, same thing happens in Japan.
The business community and the government are one when it comes
to generating economic growth and export activity both in
Germany and in Japan. That is not the case in the United
States. It is unfortunately not the case.
These are some of the things that allow them to
do better because of their high wage society. And as far as all
the other countries that I mentioned, as contributing to
the trade deficit, not certainly as much as China, but
significant. Japan and Germany for the reasons I just gave.
You heard us talk about the value-added cash, border
adjustment adjustable taxes. Not only do we have to
deal with them exporting it to our country and not having to
pay that tax, okay, but they get a rebate of the tax in their
home country. So basically what you see with border adjustable
type taxes that the rest of the world has and we don’t — we are
virtually the only one that doesn’t — is that exports are
subsidized to the tune of a value-added tax by the rebates
that they get. If they sold it in their own market they would
not get that. And the fact that when we ship our products in to
their countries, they put a 16 to 20% tax on our products.
Okay? So they’re subsidize ing the
exports and putting a tariff, which is what it is, on our im
imports. That’s not the way the system should work. And how
we’ve got negotiate ed that way we can talk about forever, but
we let them get away with that. That has to change. There has
to be a method to neutralize the tariff that goes on every
product, that comes into the United States or goes out of the
United States someplace else that makes it un uncompetitive
. Shortly after we signed NAFTA
what did they do, in good faith faith, raise the value-
added tax from 10 to 16%. Total ly undermined what NAFTA was all
about. Not only that, but massive amounts of product come
into Canada, Mexico and other countries, like you heard with
the coal coming through Switzerland where they don’t
have coal in the ground. Parts come into the United
States via China for automotive and go to Mexico and they came
directly into the United States States, would have
a tariff put on, because we won that case at the WTO, but they
circumvent and allude those things.
All of these countries do some of this to one extent or another
and benefit from these subsidy ies and tariffs that is
separate of other things they do in terms of non-fair barriers
which are many times are more difficult to deal with than
tariffs and taxes. I hope I answered your question
question. 禄 That’s extremely helpful.
Thank you very much .
禄 Thank you. I’m Doug Bell, deputy assistant secretary for
trade investment policy at the treasury department. On behalf
of the department, welcome you and all of the other future
speakers. We appreciate your taking the time today to share
your views with us. Mr. DiMicco, I also have a
question for you. You highlight ed the role of currency
manipulation. I was wondering if you can give
a sense for kind of the relative weight that you see or would
attribute currency issues relative to some of the other
factors that you have identified as trade barriers.
禄DAN DiMICCO: Over the past 15 years up until 2014-15, I would
have given that probably 50%. Of the problem. Now, as Wall
Street and the Wall Street Journal and my fellow alumni at
Ivy League colleges in the economics areas tell us, they’re
not currency anymore, which is hogwash, again, another highly
technical term. And they’re manipulate ing it.
They’re just making sure that it ‘s stronger, okay in
The reality is today we’re using a failed formula that the IMF
and elsewhere to measure currency manipulation and
relative value and under- under-valuation of currency ies.
And the CPA is going to put out a paper that discusses that
shortly and we’ll present it to Wilbur Ross next week and to the
administration. It has to do with what the baseline is for
determine ing manipulation and deficits. China has like a 3%
allowance for a trade deficit with us. Which makes no sense
in today’s world. But today, in my book, they’re
still manipulate ing the currency currency. Why?
Because it’s not flee-floating . They want to be a free market
economy and they’re not. They’re owned by the government,
manipulate ed by the government , driven by the government,
subsidized by the government, most of their big industries.
And what do they do today? Instead of pegging the currency
to the dollar the way they did since 1995 to 2015, they peg it
to a basket of currency ies, which the dollar is the major
makeup. In addition to that, they put in narrow trading range
that they allow the currency to move in. Whether they are
manipulate ing it to make it stronger or not, right, whatever
happens in that very narrow trading range is the equivalent
to me spitting in the ocean and raising the level of the ocean.
Until their currency — until they adopt true open market free
market principles, they, in my book are still manipulate ing
the currency and help you people understand why when this paper
comes out, but it’s still a major part of it. If you take a
look at the analysis we’re going to provide and outearned
s out there, including the world bank pricing parity index and
the somewhat jokingly Big Mac index, you’ll see the currency
today is still somewhere around 35 to 45% undervalued. But you
cannot with a straight face, although people do, I mentioned
who they are earlier, that they’re not manipulate ing the
currency, they certainly are and maintaining a strong under-
under-valuation and that is a killer.
So I would tell you today that that may be going on from 50% of
the problem to 35% of the problem, still a big part of the
problem. 禄 Thank you. We look forward to
seeing your paper as well. 禄
禄DAN DiMICCO: Thank you. 禄 Good morning, my name is Keith
, I’m the chief economist of the Department of State and I want
to thank you all for your testimony as well.
I have a question for you Mr. Mr. DiMicco, if I may. In
your written testimony, you note ed that many of the United
States largest trading parceners have high savings rates, which
in at least come cases you argue is attempts to suppress
consumption. I wonder, conversely, the United
States has a relatively low savings rate at about 19% in
gross terms. I wonder if you think that we should be making
attempts to raise the American savings rate and if we did so
what that might do to the trade deficit
禄DAN DiMICCO: It might surprise you I would say yes, but
totally different reasons you would be allude ing to. We need
to raise the savings rate by creating higher paying jobs and
less low service low pay jobs so people have the income to put
it in the bank and provide for their retirement in their
savings. Trade deficits destroy the earning capability
capabilities I discussed in my presentation for
the average American. The rich have gotten richer, which I am
one. The Wall Street bankers are doing very well. Either
side of the trade, okay? And the average U.S. worker does not
do well at all. And that’s why the election results turned out
to be what they were for President Trump winning.
I would tell you that it is the result of those savings rate —
the low savings rate is result of the massive trade deficits
and job destruction that we’ve had and income disruption that
we’ve had. Not the cause. I would also tell you that when
people said we’ve lot 5.8 million jobs due to the trade
deficit, you need to double or triple that, because what has
happened is we have — we should be creating jobs. We should
never have lost the 5.8 million or most of those and we should
have been creating more jobs because of our overall
productivity, improvements, gain s, like in the steel industry,
most efficient in the world. We should be creating more jobs in
the 20-year period not losing 5.8. And we didn’t do it. The
jobs we did create are low pay subsistence wages .
禄 I wanted to mention Dan’s comments but. Put a personal
touch to it. We have a little over 3,000
collective bargaining unions in America, steelworkers. Some are
done by sector, steel industry, paper industry, tire and rubber
. And every one of those negotiations in the last 10 to
12 years, at some point as we go through the bargaining, we end
up being told we have to compete with the Chinese. We have to
compete with the south Koreans. We have to compete with the
Mexicans. So we can’t do this. So if you look at it in real
terms, workers’ wages are flat since 1977. There’s been no
real appreciate ed wage growth. Yet when I was younger coming
up and they said when productivity goes up, wages go
up. Productivity has gone through the roof, whether it’s
the steel industry, tire and rubber, productivity has gone
through the roof and workers wages have been flat and there
there’s a good reason for it. It’s the growth and trade
deficits that have happened in every major sector of the
economy. One other thing, while the
Department of State is here, I asked the question a lot of
times, why did we need a trade deed with Columbia? Why did we
need a trade deal with South Korea? We need a trade deal
with Columbia because of Venezuela. We needed a trade
deal with South Korea because of North Korea and China. At the
same time we are killing our jobs. The South Koreans built a
brand-new state of the art mill for building drill pipe. U.S.
steel invested almost $300 million in a mill in Ohio. That
mill is shut down. The South Koreans don’t drill
one inch of drill in their country. That mill was built to
target America and they’re closing our pipe mills, our
drill mills. And we’ve said, that’s okay. We’ve tried to
follow trade case against them but there’s no measure ing stick
because we can’t measure what it would sell in their home
market because they don’t sell any. The trade laws in that
area don’t work. When you talk about savings rate, if you don’t
have a Jo you can’t save. If you get a job like Dan is
talking about, under 30 hours and slightly above minimum wage
not only can’t you save, you can barely make ends meet if you’re
lucky enough and probably not get to send your kids to college
anyway, so they have huge debt. You won’t get them there
anyway. So the erosion is like a cancer on the economy, these
growing trade deficits, and I ask the question again, if trade
deficits are so good, why doesn’t another nation want one
one? If we keep going this way way, if we keep going
this way for the next 25 years like the last 25 years, ask
yourselves what will America look like? If we keep de-
industrialize ing and giving a cross to the folks that cheat?
禄 I’d like to speak to that as well. When Dan presented the idea
that we have to be — from the opposing crew that somehow savings rates
are what causes the trade deficit, that’s about the most
obtuse, perverse idea I have ever heard of. And I go back
and I will support Mr. Mr. Gerard. You look at North
Carolina, the Chinese targets architecturals and furniture.
You can take a string and go into 75-mile radius around
Charlotte, North Carolina and you see empty mill after empty
factory after empty mill after boarded-up downtowns in these
small villages and towns, and, hell, no, they can’t save
because they don’t have a job. Now, my people can save.
They’re getting paid $30 an hour and 35% benefits. We don’t lay
off. They save a lot lot. I see their 401(k) savings rate.
But the deficit comes because we’re not running full, and the
Chinese — this is a great example. It doesn’t take an
economists to figure this out. Scrap iron or scrap steel is a
world commodity. Last month traded $322 a ton, roughly give
or take five bucks, compared on your exchange rate. 322. We
had finished goods, test iron, pipe, $422 a ton sale price.
So somehow — and they actually use pig iron over there, which
is more expensive — somehow that hunk of iron turned itself
into a finished group and was transported to a Chinese port
and put on 40-foot container which cost 2500 or $3,200 for a
40-foot container. Made its way over the Pacific through the
Panama Canal into the port of New York for $100.
Now, that don’t hunt, as we say down south. And something has
got to be done. And right now only recourse we have is plead
with your conscious, and then you file a dumping case. You
You’ve got to be on a gurney bled out before you can bring a
successful case at the commerce department. That’s why this 232
is the first. But it is so frustrate ing to go to commerce
and say — just to Bill’s comment about, you know, oh,
well, you’re still profitable. I mean, that’s just — that’s
even more perverse than this savings thing. I mean, do you
want — do you guys want us to deliver a dead factory to you in
thousands of unemployed people? That’s not right.
禄 The other piece of what Dan said that needs to be touched on
is the productivity. As productivity in the steel
industry has gone to astronomical levels anywhere
from half of man hour per ton to man hour and a half per per
ton, the American steel industry in the same period I’ve
been talking about, where I talked about the Chinese
increasing their capacity, the American steel industry went
from producing 125 million-tons to 85 million-tons. During that
time imports steel from China, South Korea, others, flooded our
market and we got none, hardly any of that productivity growth.
That was going on. We still consume more than 125
million-tons but we don’t make it anymore.
禄 If I can add one thing to that. Foundry industry that
Rod is talking about in China doesn’t make any profit. They
lose money. The steel industry in China for most of the last 15
years has made less money than new corp corporation and we have
not made a lot of money. In fact, they have made no money.
They lost money up until recently. That’s what we’re
dealing with. We’re dealing with competitors who don’t care
about profits. They don’t have shareholders to report to. They
just have the government to report to.
And we need laws an we need systems that allow us to negate
that crooked system, and if you think they’re never going to
cheat on the banking side and the finance side and on the
credit card side, listen, this is what they do. It works for
them. They’re not going to stop doing it until we make it so it
doesn’t work for them anymore. If the banks think they’re
going to have a field day in China, I will guarantee you that
they will lose out just like the manufacturing did and guess
what, it’s easy ier to shift information via electronic bytes
and data than it is to ship a ton of steel from China to here.
A lot less expensive. Things will happen faster on the
service side. When they get to that.
禄 Thank you very much. I would like to thank all the panelists
and. In an effort to stay on schedule we have to close down
the panel. I think the discussion could go on a long
time. Thank you very much for your time and thoughtful remark
remarks. 禄 Thank you for the opportunity.
[Applause] 禄 We’ll need to be expeditious
and keep the time schedule, so please the audience be
respectful of the time constraints we have.
I’m the U.S. Trade Representative for trade policy
and economics. Can I ask our second panel to introduce
themselves. 禄KATHIE LEONARD: Kathie
Leonard Leonard, Auburn Manufacturing. Andrew Nichols,
Elmet Technology, Brian O’Shaughnessy
O’Shaughnessy, Revere Copper Products.
禄 MARTIN RAPAPORT: Martin Rapaport, Rapaport Group
禄 Thank you for coming to panel today. We appreciate the work
you put into this and look forward to hearing your
testimony. Ms. Leonard. 禄KATHIE LEONARD: My name is
Kathie Leonard, president CEO and founder of Auburn
Manufacturing incorporated. We are a leading developer,
manufacturer and marketer of industrial textiles products.
AMI is headquartered in Maine. We are the largest U.S. producer
of industrial grade amorphous s ilica fabric or ASF, a type of
synthetic fabric used in welding and hotwork activity
activity. One of the major uses of ASF is for welding
protection during ship building or maintenance and repair of
naval ships performed either by the navy or by defense
contractors that have been awarded contracts by the navy.
Although AMI sales ASF directly for use by the navy, the
significant portion of sales have shifted away from the navy
to defense contractors. For years AMI has been losing
significant sales to Chinese im imports of ASF. Ultimately
in January of 2016AMI was compel compelled to file anti-
dumping countervailing duty petitions against ASF imports
from China. These investigations just
concluded in March 2017 with a finding that combine ed dumping
in subsidy levels of between 200 and 300% materials injured the
U.S. industry. Given our experience, AMI believes one of
the major causes of trade deficits with China is the in
injurorious dumping by Chinese companies and the subsidy
practices of the Chinese government. Nevertheless, other
unfair trade practices by China also cause imbalance trade.
One is the berry amendment. AMI has been fighting for years to
ensure that the berry amendment and the buy American act are
enforced properly with regard to acquisitions funded by the
Department of Defense. It requires funds appropriate ed to
the Department of Defense for procurement of synthetic fabric
or coded synthetic fabric among other items shall be used only
for procurement of such items produced in the United States.
AMI has experienced no issues with when the navy purchase
synthetic fabric for repair and maintenance of naval ships.
However, when the navy out outsources the same work to
defense contractors, the navy takes the position that defense
contractors do not need to comply with the berry amendment
or buy American requirements unless the synthetic fabric is
incorporate ed into a ship or being delivered to the navy as
an end product. That’s right. Everybody though
our tax dollars are being appropriate ed by DOD for the
repair and maintenance of a naval shim, according to the
navy defense contractors can purchase Chinese synthetic
fabric and that is what we believe has been going on in the
marketplace for many years. To me, this is an absolutely
absurd interpretation by the navy.
Obviously, when the navy allows defense contractors to thwart
the goals of the berry amendment , only China wins. This in turn
creates trade imbalances. In addition it drives smaller
businesses like mine out of business, causing further
defamation of the U.S. defense industrial base.
This administration happily recently issue ed an executive
order regarding buy American law s, including the berry amendment
. The mandate of executive order is for all agencies
including DOD to maximize the use of products and materials
produced in the United States given this mandate AMI urges
this administration to require defense Christianity force to
comply with the berry amendment and buy American domestic
preference requirements for any project funded by DOD that
include an item of synthetic fabric that is used in the
repair, maintenance, and building of naval ships.
Regardless of whether it is incorporate ed into the ship.
Finally a new other comments regarding trade practices that
result in increased deficits from China. First with regard
to marketing of the product. In the industrial fabric business,
we see all the time that Chinese goods are not properly
marked with country of origin. During the hearing before the
U.S. international trade commission in our ADCB case, a
major competitor testify ied that it
duds not tell customers the country of origin unless asked.
ITC confirmed that importers of Chinese product failed to
comply with the customs marking requirement to the end user.
In addition, in our comments we gave an example of a very recent
and blatant attempt to trans- ship ASF fabric already.
Obviously illegal schemes to change the country of origin
need to be shut down. In fact, it results in an understatement
of the true bilateral trade deficit with China.
Finally, now that the ADCDV orders are in place against
China we are worried that the same importers will switch to
other countries such as Beirut and Latviia, other produce ers.
These compete with imports from China, thus we encourage this
administration to self-initiate ADCDV investigations if it sees
that imports from these countries are replacing the
unfairly traded ASF imports from China.
Thank you very much for this opportunity to provide comments
on these important topics. 禄 Thank you very much. Mr.
Mr. Nichols 禄 ANDREW NICHOLS: Good morning.
I’m the CEO of Elmet technologies. Elmet is the last
fully integrated only U.S. owned and operated refractory
metals left in the United States.
I want to provide stable employment living wage jobs for
four generations of American workers numbering thousands of
unskilled work laborers through Ph.D. scientists and engineers
during our 90-year history.. Through our headquarters it’s
locate ed in Maine, about 70% of our products, balance of 30%
produced in Covington, Georgia. I’m pleased to have the
opportunity to testify today to be able to inform the commission
that the future of the 90- -year-old U.S. manufacturing
business is in jeopardy due to unfair practices of foreign
competitors and governments. These metals are critical to
enable ing technology in a wide variety of defense, aerospace,
medical, electronic, semiconductor, touch screen
display and lighting, automotive and medical applications. A
few examples. Tungsten are manufacture ed in heat syncs,
diodes and internal components for high reliability components
used in electronics. Mali is enable ing for all touch screen
displays. These products are used in manufacturing many
specialty metal alloys, high temperature forge ing dyes, wind
screens, advanced composites and weapon systems components
used in aerospace and defense. This is a big deal. These
materials are critical to aerospace and defense. The
products are the only materials able to withstand harsh
environments, processes used to produce certain micro-electron
ics. Tungsten are the enable ing
technologies of medical dying know tick, treatment therapy and
applications and devices, so many markets.
The manufacturers require specialize ed expertise,
processes and manufacturing assets due to extremely high
melting points and generally these products start with metal
powder followed by pressing to make ingets and chemical
processing to make mill products . And we go beyond that in
finished goods. The deficit rate with China is
largely result of systematic unfair trade practices by
Chinese produce ers and the government of China. The
Chinese government is encouraged and financed massive over-
building of capacity in our industry. The manufacture
manufacture of these products like Tungsten through the use of
government subsidies. The Chinese government directly
finances and sponsors research and development in these
materials through state-owned enterprises and large institute
institutes in order to accelerate Chinese position in
the world market. In addition, Elmet believes they
are selling Tungsten and products like wire sheet and
foil into the U.S. market at prices below their cost of
production. And in some cases Elmet believes the Chinese
produce ers sell their down stream mill products at prices
even lower than the price of the metal powder used as the
primary input. Unbelievable. As a result of over-capacity and
dumping, world prices for most products have fallen at least
40% in the last four years. Elmet faces an unlevel playing
field when attempting to sell products into China. We have
done so and we have been shut down. The combination of
Chinese 70% plus imports tariffs up 8% effective
effectively result in 25% trade barrier against U.S. products.
Conversely when Chinese produce producers sell products
into the U.S. market there is no VAT and the ordinary tariff
levels are very low. Chinese produce producers compete
unfairly by other means with help of U.S. and foreign-owned
companies that resell into the U.S. market. Elmet these resell
ers break over packages of im ported Chinese goods, repackage
with the country of origin label ed obscure or removed altogether
. Some products may be illegally shifted we’re third
countries. And in some cases U.S. import importers
illegally enter Tungsten under the wrong categories.
A Chinese import incorrectly identify as organic pigment in a
clear effort and knowledge ed effort to short-circuit the
customs clearance process. Finally, Elmet has ha difficult
competing for defense contracts in several instances. Much of
the Tungsten and products used in defense applications are
supplied by foreign competitors including European and even
Chinese suppliers suppliers into defense
applications. They make their products using below cost as
input. Unfortunately, our materials are
not classified as specialty metals for the purposes of our
amendment but they should be. As a result Elmet is not entitle
ed to domestic preference purchasing requirements under
the berry amendment. Other cases they have exploited
loopholes to get around requirements.
Elmet applauds the administration executive order
on buy American hire American. In order to close the loopholes
encourage requirements to flow down to defense contractors. In
our experience and in some cases contracting officers have
been reluctant to allow companies like Elmet to compete
for contracts because it’s easy easier for them to continue
purchasing through the foreign products that they have worked
with in the past a rather than giving domestic companies an
opportunity to bid. All the above unfair trade
practices contribute to the U.S. trade deficit in our industry.
I urge the administration to take all necessary steps to
level the playing field to ensure the continue ed survival
and viability of a secure U.S. supply base supported by
companies like ours. Thank you you.
禄 Thank you very much. Mr. Mr. O’Shaughnessy.
禄BRIAN O’SHAUGHNESSY: Thank you for allowing me to testify here
today for such an important undertaking. My name is Brian
O’Shaughnessy and I serve as chairman of Revere Copper
Products. My company was founded by Paul revere in 1801
and we believe we are the oldest manufacturing company in the
USA. Please do not confuse Revere with Revereware that
subsidiary was sold 30 years ago. Since the year 2000 over 30% of
the facility ies Revere shipped product to have shut down as
their production moved offshore offshore. There is no
time today to present my entire paper which explains some of the
mercantile strategies employed by trading country competitors.
Let’s not naively call them partners as the U.S. suffers the
large trade trade deficit deficits in the
history of the world, and associate ed tremendous loss of
employment. This is a list of what you’ll find in my paper. A
description of the most sophisticate ed vat system in
the world which the U.S. should adopt and how to make it work.
Why dumping cases need to impact entire supply chains. How
China’s non-market economy by scrap copper, a specific example
how the negative interest rates of foreign governments spur
their exports. How foreign acquisition of U.S. firms under
mine development of U.S. policy to solve the trade deficit.
Specifically examples of how U.S. national defense is
dependent on a strong U.S. manufacturing base. And how the business judgment
rule spur spurs offshore. And finally why multinationals
and banking firms should recuse themselves from directing U.S.
trade and monetary policy. Multinationals have marketing
channels in the USA and can increase earnings by offshore
production facility ies to mercantile economy ies.
Incentives are as powerful as they are designed to be.
Similarly, Wall Street investment firms benefit and
boast in financial statements that as much as 70% of earnings
are associated with their investment banking activity ies
with China. This should not be that surprise
ing. As the business judgment rule
requires U.S. corporations executives and boards of
directors to represent the best interests of their shareholders,
no stakeholders such as employees, communities or
country, but simply their shareholders. This directed
self-interest for public corporations must be changed.
Compare that requirement for public corporations with this
portion of Revere’s mission statement. “Our future will
consider equally our employees and our shareholders, our
customers and our country.” This confluence of interest
means what is best for a multi multinational company or a
Wall Street investment banker is not necessarily best for the
USA. The preparation of this omnibus report needs to weigh
the merits of advice on matters of international trade that
comes from such prejudicial sources.
I represent the best interests of Revere and employee owners.
Many of them members of the united auto workers union.
After all is said and done, what is best for Revere and employee
owners is best for the country. I would be glad to answer any
questions this morning and more than willing to answer follow-
follow-up questions as you prepare your report.
禄 Thank you very much. Mr. Mr. Rapaport.
禄 MARTIN RAPAPORT: My name is Martin Rapaport, chairman of the
Rapaport Group based in Las Vegas, Nevada. We have involved
in the diamond industry doing four things. We’re involved in
research, primary source of diamond price information for
the worldwide industry. We have over 20,000 clients in the area
. We run the largest diamond trading in the world with daily
listings and 1.2 individually listed diamonds. We work with
the gemlogical standards institute and the larger re
cycler in the world selling 5,700,000 pounds of diamonds
mostly coming from the United States to other markets around
the world. You talk about the diamond industry but about
Indiana, sometimes to get an understanding of the big picture
one must see a smaller picture. I’m going to talk about India
today and the diamond industry. First of all all, I am a
friend of India. We have 85 people working for us in India
and two different offices and I’m seeking rather than just sit
here and complain I’m here today to provide realistic
solutions and suggestions of what we should do about specific
problems. I’ll talk about four major
problems. First of all if we just take a — maybe a little
bit of background. The United States imports about $10 billion
of diamonds from India and we export about 5 billion back and
run a trade deficit of about $5.4 billion in 2016 in diamond
s, and that’s trading with India .
So there’s about a $5.5 billion trade deficit specifically with
India. Our overall trade deficit with
India is $24.3 billion, about 16% of our — let’s say about
23% of the overall trade balance , trade imbalance with India is
related to diamonds, gems and jewelry. Diamonds gem gems
and jewelry is also the largest export from India to the United
States. The four issues I would like to
speak to is first of all the trade — the import duties. It
It’s absurd. I don’t know how we got here, but when it
comes to jewelry, we charge 5.5% im import tax, the Indians
charge us 31.56. I don’t know how we could possibly, having
all the wonderful people working for us and the United States
Trade Representative and everybody, how did we ever get
this situation? In the case of polished diamond
diamonds to 2.56% charge and we’re at zero. I would
like to suggest that we go to zero/zero zero/zero. I
believe that India will be a major market for America. We
have 1.2 trillion — billion, sorry sorry — consumers
looking to buy our products and rapidly expanding economy. More
than 50% of the Indian population is about 25 or 26 and
under. This is a country we should be seeking to develop
stronger relationships with and what better way to do it than to
have a free trade policy of zero/zero taxes.
Second point is a national security interest point.
Diamonds come from all over the world and a lot of them come
from very, very troublesome areas of Africa. For example,
just this week we read about the United Nations sending troops
into areas of the Congo which are diamond mine ing centric.
Now, India imports diamonds. I want to emphasize, I’m not
against India, but India im imports diamonds from a lot of
different places, cuts those rough diamonds into polish and
exopod the polished diamonds to the United States. Who here
wants to buy a beautiful diamond engagement ring when the rough
for that diamond is possibly involve ed in money laundering
or terrorist. Not just the reputation of the
jewelry industry which employs millions of people around the
world but direct threat to the security of the United States of
America. So one of the things that I want us to do is to enter
into negotiations with the Indian government, empower the
United States Trade Representative to do this and to
talk about reasonable effective ways to ensure that the diamond
s being exported to the United States, those polish
polished diamonds — because that’s mostly what it is — are
not source ed from questionable areas where there is not a
reasonable compliance system in place for money laundering and C
TF, conflict in terrorist fighting. We need to do
something about this. I raise this issue. It’s about human
life. I’m not talking about the human rights issues, which are
also very important. Claims of the Kimberly process
resolve this issue are false. A third issue very interesting, a
few weeks ago the Indian customs decided to hold up $60
million of diamonds. Remember I said we work with the
gemological institute to grade diamonds in the United States.
We have them graded in the United States and bring them
back to India so the Indian community can sell the diamonds.
It’s really great for the Indian community.
$60million of diamonds held up for over 60 days. Missing the
jewelry shows. Pain. Literal pain. Somebody said, we can’t
control customs, we can’t do this and that. I’ve had
conversations with the United States Trade Representative who
works with India, and this is not an isolate ed, excuse me, we
made a mistake. Previous year we had a situation where customs
decided all diamonds coming back in India had to be measure
ed within 1/100th of a millimeter.
Maybe I can agree with them. I think we have to be realistic.
Countries have protectionist policies, national security or
domestic reasons, but we need to have a realistic relationship
with customs so when we negotiate something with the
Indians, the Indian government, there are clearly aligned with
custom regulations not arbitrarily changed on an on
going basis. This is very serious issue, because on the
ground — I also would like to recommend here that the USTR be
given real power. I hate to say it. I’m embarrassed, but when
the USTR calls — they just laugh at us. We’re a big joke
in India. We have no power. What I would like to call for,
when the trade representative says there’s an issue we should
be able to hold up imports into the United States of course
subject to controls of Congress and the administration. But if
the UST USTR has no power other than to to — I don’t
know, you can play around with the trade organization or what
have you, if he has no power, let’s stop fooling ourselves.
Customs in India should not be stopping the flow of diamonds
from the United States from India. Should not give a high
tariff rate especially when we are kind enough to give them a
5.6 billion trade surplus which is fine. I have no problem
doing business in a fair level playing field. Finally there is
something the United States can do. Dividends are double taxed
. One solution for American jewelers and people that would
like to do business with India is have factories in India, to
spread apart the world, to be able to do more international
business. But American companies such as ours cannot do
business in India when we are double — we can do business but
we are double taxed on dividends. This is something
that I ask of the United States government, not of the Indian
government. I ask the United States government to recognize
the idea that we should, in fact, provide a tax credit for
dividends that are paid to the Indian government in dividends.
So that’s the specific area. Four things, four solutions.
Zero/zero trade policy with India. We should establish a
committee, incorporate ing the private sector to negotiate with
India. And then I would just like to say, if I can, two more
words about the overall policy of the United States. I’m a
firm believer that we have to have values, and the values of
reciprocity have to be applied. It’s nice to have a value but
if you don’t apply it, it’s meaningless. We also have to
talk about America first and even India first. We have to
recognize our trade partners have priority ies. That will
put them in a position where they do have to implement
protectionist policies. And I’m not an expert in the world
trade organization, but I feel that we are balanced. Since you
tied my hands and feet and threw me in a swimming pool.
Very difficult to operate. I can’t reach out at higher levels
of government to make decisions about do we do bi bilateral
trade agreements. I’m calling on the Indian situation for a bi
lateral trade agreement, straight and simple. The idea
that everybody has to agree about everything before anything
can be done is a bad deal. It’s a bad idea. But then again
, we already have a culture, we have a world of interaction. So
this is over my head. Finally what I would like to say
is that our views shouldn’t be just to sit here and complain.
We have to come up with solution s. We have to make trade
relations with India cornerstone of how we reach out to the
world. The largest democracy in the
world, the greatest opportunity for us to move forward and to
develop a wonderful trade relations. After the terrorist
attacks in mum buy, I was scheduled to speak in India in
office. It was three weeks after attacks. My own people
were there in hotels getting shot at. And I went. I
traveled. I was the only — maybe two or three westerners
who actually participate ed. And it was only Indians. And I
was there. And so I had lunch with then chief minister. He’s
a reasonable man. He implement ed a scenario where he did demon
demonization, disallowed all the rupi notes. He’s a
commit committed person. So I believe we have a window of
opportunity now to create an incredibly favorable
relationship with India. I know a lot of issues, do we hire
people and military issues and strategic issues. But I say let
us take one piece of this business. Let’s take that
jewelry business, let’s create a good vibe. Let’s create a
momentum where we’re doing good business with India and I am
confident that this will grow and this will develop.
Thank you for giving me your time to discuss these important
issues. 禄 Thank you all very much. It
has been a diverse and informative and helpful panel.
Let me turn to the first question.
禄 Thank you all for your testimony. I’m filling the
duties of the deputy assistant secretary for manufacturing here
at the department. My question is for Ms. Leonard
and Mr. Nichols. 禄 I’m sorry? Can you hear me
now? You both mentioned the need for
specific actions to close loopholes in the Buy America
Berry Amendment laws for federal government projects to ensure
that only products made in the United States or by an American
manufacturer were used used. Can you provide any specifics
on the specific hoop holes to the buy American provision you
think should be addressed ?
禄KATHIE LEONARD: I’ll go first. I think the Berry Amendment
from my perspective with regard to textile is clear. The berry
amendment is clear. As I goat goated from it, it’s
synthetic fibers and fabrics. Where it has gone astray is when
it’s included or not included in contracts that are
made between Department of Defense and defense contractors.
Those become prime contractors and in my experience, what
happens there is that there’s no transparency in those
contracts. So when the defense contractor goes out to bid, and
there’s — as far as Buy American in the RFQs, but yet
yet — and it’s in the Berry, it has to be over $150,000 to be
Berry, to have Berry compliance come into play, so at that
point, that’s where we we — if we don’t get the — we’ll bid
on it and if we don’t get that contract there’s no transparency
to find out who got it. So there should be, I believe,
transparency in the contracting area. I’ll let you go next.
禄 ANDREW NICHOLS: I have three specific answers for you,
suggestions. The first one is provide more clarity. What we
find is — I don’t know that it it’s malice. I believe it’s
just ambiguity. There is a lack of clarity at the prime contact
force on this issue. So I’ve heard everything from, well, if
you consider the entire system, it’s greater than 50%, it is buy
American, so I don’t need to worry about the materials in the
system. That includes the labor I use on design. That
clearly doesn’t seem right to me given I have a family member
that is in the military, right? It doesn’t make sense. I don’t
want one of my family members working with a weapons system
partially made in China. It just doesn’t make sense. So
providing clarity through some kind of directive policy memo or
through the appropriate agency, you all would know that better
than me. And then I think getting clarity
on what the expectations are in terms of the systems and what
does it mean, right? How do you define that?
Because the devil is in the detail and the definitions. So
making it very clear that Buy American means this. Hire
American means that. We can give you specific ideas, if
that’s helpful to you on how we would do it.
We’re just one voice. The last one is, hopefully with the
coming into sequestration, funding will be available to
qualify U.S. suppliers. Many times what we hear is, I would
like to, I don’t have the money to do it, I don’t have any
choice. Recent example we qualified for a new weapons
system and worked with the prime — they really like ed what we
had to say, currently buying from a European supplier. We
quoted the job, proved to them we had the capability. They
came back and said, we were amazingly gettive as a U.S.
supplier versus European supplier, meaning we were lower
cost. We were told, we’d love to work with you, but guess what
, we have to put you out two years, because we’re going to be
a two-year order on the Norwegians and you can call us
back in 2019 or 2020. I may not be around to call them in 2020
if this continues. Again, I can give you more as well.
禄 Thank you very much. We’ll follow up.
禄 Good morning. My name is Peter and I am the associate
administrator for international trade at the small business
association. I want to thank each of you and your companies
for spending the time and the resources throughout the entire
process to be able to participate in the panel today.
Ms. Leonard, my question is for you.
At the SBA, our role is to help small businesses compete more
effectively against imports, and in your testimony you mentioned
examples of misleading labeling and trans- trans-shipment
on the part of China. What I wanted to know, do you have any
recommendations of actions you would like to see the U.S.
Government take to be able to better counter these market
distortions? 禄KATHIE LEONARD: As far as I’m
concerned, it’s in the enforcement of the laws
regarding labeling to the end user, okay?
That is the supply chain I think someone else mentioned, the
supply chain needs to be looked at. These materials are coming
into the U.S. They might have labels on them when they come
into customs, but then they are re-package ed and the labels
come off and these materials are then sold in the marketplace to
end users like large defense contractors that may or may not
know that the material is not U.S. made. So there has to be a
higher level of enforcement. At this point, I know that
during our anti- anti-dump ing case, I think 100 and — it
was like 90 — I think it was questionnaires that went out to
all the companies that are pre tending to be manufacturers.
And it turned out there’s really only a handful of real
manufacturers manufacturers. That’s because
there’s so much confusion in the marketplace because of labeling
and advertise ing. Anybody can put up a website with a picture
of a building and it looks like they’re just the same as me,
you know, that has two plants in Maine. We look exactly the
same. And so it causes a lot of market confusion. So that’s my
only thought on that, is that it’s enforcement by customs and
borders protection. 禄 Thank you .
禄 Good morning. Thank you all for appearing here today. And
for your interesting testimony. My name is Ann. I represent
the Department of Labor at international affairs bureau.
My question is directed at Mr. Mr. O’Shaughnessy. Thank
you for the interesting history of your company.
You note ed that the company predominantly supplies to U.S.
domestic companies but has shipped to some companies in
Asia. Can you tell us what led to those decisions and if any of
those Asian partners or trading partners, the subject of this
hearing, as well as the effects — any effects on the growth of
your company? 禄BRIAN O’SHAUGHNESSY:
Basically what happened in that case was an American company
moved offshore, to Asia, and they laid off thousands and
thousands of workers in the United States. And they got a
whole lot of new supply lines from Asia. One product that
they needed to make their product, the quality of the
Revere product was so high that even though it wasn’t patented,
there’s no one that can duplicate it.
So we are able to keep that market and indeed they have made
presentations to us showing if they bought this part from a
China — a supplier in China, that they would be able to buy
it 67% cheaper than our price. It’s interesting to me that if
we look at 40% currency manipulation in the 17% value-
added tax — excuse me, it was 57% cheaper, that it exactly
matched the difference between our cost and their cost. But
that’s why. It has to do more with our quality that we’re able
to do that. 禄 Will O’Shaughnessy, I have a
follow-up question for you as well.
You talked about the vat and I would be interested if you could
elaborate more on how you see that benefiting U.S. employment,
prosperity, and associate ed impact potentially on the trade
deficit. 禄BRIAN O’SHAUGHNESSY: Thank you
for the question. I was hoping one of you would ask that. You
know, the VAT goes back before the WTO, and basically the use
of a VAT was grandfathered because if you look at a
traditional vat, it applies to domestic production and applies
to imports and it’s rebate ed or not charge ed on exports. And
so where is the impact there on international trade? There is
none. However, over the years, many
mercantile ist economy ies have become very strategic about how
they use the VAT. One example, I remember being at a meeting of
the board of directors of the copper and brass fabricate
fabricators council, a copper trade industry
association here in Washington, and the presidents of all the
other fabricating companies like Revere, they were gathered
there and excited because China had just announced they would no
longer rebate the VAT on their exports of copper sheet and
strip and coil like Revere produces and the other ones all
produce. I explained to them, you don’t understand. The
rebate ing the VAT on the consumer product that they’re
shipping in, they’re trying to take the whole supply chain.
That’s more strategic thinking. The design of a VAT, in my
opinion, it’s — I mean, after you hear it, you’ll understand . The most efficient, if you im
imposed a VAT of say 12% in the United States, that would
pretty well match the income from payroll taxes. And so if
you applied the VAT to the payroll taxes or the proceeds of
the VAT were used to offset the payroll taxes, now you’ve
applied the VAT to domestic production but it’s offset.
So only imports then are left with the added cost.
And when you export, even though you’ve offset the cost of the
VAT, you rebate it anyway. So that’s a pure subsidy on exports
. Now, that’s what really smart
companies, like Germany and China do with their VAT. It’s
really, really strategic and it it’s really, really smart.
And it makes it work. And so the U.S. could do that, you can
put on a VAT of 12%, eliminate payroll taxes and then subsidize
ing exports and the im imports have to pay 12%. Here
is what is interesting. What would happen to the market?
Consumers would have to pay 12% more. Well, no, because first
of all, our costs, like at Revere and other manufacturing
companies, they would be offset offset, so we don’t have
a price pressure to increase our price. We only have a market
pressure. The market pressure is relieved
somewhat because imports would now have a VAT tax on them of
12%. What would they do? Would they increase the price 12%?
No, they would eat probably about half on a macro-
macro-basis. Some would eat none and some eat all but they
eat about half the VAT cost. And they account for 12% of the
production. So it’s 1/8 of a half of 12. That’s the impact
on the consumer in the United States. So even the stuff you
hear, oh, put it on and it will hurt… but the other thing it
will do in the United States is is, if we had such a VAT, I
would immediately hire 10% more workers in my plant, and I can
immediately begin producing more product and this would happen
all across the United States, because Revere is a really good
indicator of manufacturing activity in the United States.
I met with Greenspan a couple times and it was interesting
what Revere did did, and these were private conversations
. As manufacturers and plants shut down we can ramp right up
over overnight and hire people and ship more. And you
can do that with a VAT. And if you want to ask a question about
how it — how VATs might be offset by currency and so on, I
‘ll go into that too, but we can do that later
禄 We probably don’t have time for that. Thank you very much
for your insights. 禄 Unfortunately, he is correct,
we are at the end of the panel. This has been really
informative and really helpful. Thank you all very much for
making the trip to Washington. Particularly of note my mom is
from upstate New York as well. And thank you all and we will
look forward to further conversations. [Applause] 禄 Thank you for coming and
participating in this hearing. I would like to start with the
macroeconomic panel. I would ask the panel to introduce
themselves and then we will start with Linda Dempsey as the
first panelist. 禄LINDA DEMPSEY: I’m Linda
Dempsey, vice president for international economic affairs
at the National Association of Manufacturers.
禄JOSEPH GAGNON: I’m Joe Gagnon Gagnon, Peterson
Institute for International Economics.
禄EVA HAMPL: Eva Hampl, investment and financial
services at the United States Council for International
Business. 禄ROBERT SCOTT: I’m Robert Scott
, Senior Economist at the Economic Policy Institute in
Washington. 禄 If you could get started.
禄LINDA DEMPSEY: Thank you for the opportunity to be here today
to share the views of the National Association of
Manufacturers canning the N , the oldest
manufacturing in the United States. We represent 14,000
manufacturers in all 50 states in every manufacturing sector
from consumer food and beverage products to transportation
medical devices and chemicals and major industrial
manufacturing, like the broader manufacturing sector, more than
90% of members are small and medium sized companies.
Building on the detailed submission, I want to focus on
four key points. First, exports are critical to manufacturing
success. Manufacturers in the United
States produce more than ever before, and more than half of
that output is exported, supporting more than 6 million
manufacturing jobs across the country, jobs that pay
substantially more than non- non-export related jobs.
I will talk about imports in a moment, but it is critical to
understand the role that exports play, including for our small
manufacturers. We have small manufacturers producing advanced
medical rehabilitation products in Maryland, fire trucks in
Ohio and Wisconsin. They produce more than they can sell
in the United States. Indeed several small businesses
have explained to me how the facts that they are able to
export has enable ed them to maintain payrolls in the United
States when our economy has slowed and U.S. demand is weak.
As the world’s most productive manufacturing sector and note
that productivity in manufacturing has increased 61%
since the year 2000, manufacturers in the United
States need opportunities to expand sales at home and abroad
to continue to grow and to continue to add jobs.
Second, manufacturing is certainly growing globally.
With hundreds of millions of new middle class consumers added to
the world economy and world trade and manufacturing goods
over $11 trillion, manufacturers in the United States have
greater opportunities than ever before.
Yet the expansion of the global middle class is due in
significant part to growth in manufacturing worldwide. In
some cases creating partners and customers overseas and other
cases creating competitors. The NAM has long called for
trade policies to promote open and fair trade because
businesses understand that fair market based competition without
government distortions makes us stronger. Just as free trade
among our 50 states promote ed a massive growth and innovation
of U.S. manufacturing. In many cases imports can
provide overall benefits from manufacturers and the economy by
providing necessary inputs to manufacturing processes, to
boost our competitive including particularly when imports
represent products not available or manufacture ed in the United
States. Yet as you heard this morning, some import competition
is fueled by foreign government market distorting, anti-
competitive and discriminatory trade practices that unfairly
disadvantage manufacturers, workers and communities across
America. In these cases, the NAM has long
supported robust U.S. Government action to address the
underlying causes of these distortions and full enforcement
of trade agreements and trade rules. Just last year the NAM
worked with other industry leaders in the steel and wire
industry ies to ensure enactment of a new anti-evasion
legislation. While this process is still being implemented and
needs improvement, it is a very strong step to make sure that
trade enforcement is more effective and timely.
Third, the trade deficit is a complicate ed measure that
arises from several factors. Including economic conditions,
standards of living, consumption and savings, exchange rates,
domestic tax, regulatory policies, and to some extent
international trade openness and barriers. Notably
Notably, though, trade deficits increase as the U.S. economy
grows and fall during periods of economic weakness.
Unemployment operates in the opposite direct. Unemployment
falls when the economy expands and the U.S. trade deficit
increases. Fourth, as manufacturers see it
it, many different indicators are relevant in assessing
individual trading relationship relationship. I
detailed many of those in my written testimony, from the
existence and implementation of trade agreements, trade and
investment flows, to the size and economy of our foreign
trading barriers and the partners, and the barriers they
impose. Consider, for example, the U.S. commercial
relationships with Canada and Mexico. These two countries are
outside purchasers of U.S. manufacturing goods any way you
put it. Together these two countries purchase more than our
next 10 foreign trading partners combined.
They are exports to these countries, make up the biggest
share of their worldwide import import, not to mention the
fact that these economies are much smaller than that of the
United States. Multi-facetted and comprehensive analyses are
critical for the assessment and the development of ways to
improve our trading relationship .
We look forward to working with Department of Commerce hand the
entire Trump administration to grow manufacturing in the United
States through robust trade policies that are focused on
first the negotiation of advanced trade agreements to
open markets, break down barriers and raise standards.
Second, modernization of U.S. trade tools to boost U.S.
competitiveness and, third, the implementation of more robust
trade enforcement consistent with the international rules
system that the United States is self-led in creating. Thank
you. 禄 Thank you. I would invite you
to deliver remarks. 禄JOSEPH GAGNON: Thank you for
giving me an opportunity to comment today. First, I would
say that it’s critical for you in drafting this report to
decide if it is to be about the causes of the overall U.S. trade
deficit or a catalog of unfair foreign trade practices that
distort trade balances in specific categories of trade.
If it’s the latter, then it would seem to have a lot of over
lap with the USTR’s comprehensive annual national
trade estimate report on foreign trade barriers. I’m going to
focus on the former topic, the overall trade deficit reflects
our net borrowing from the rest of the world, and U.S. net debt
to foreigners is rising at un unsustainable rate. We should
take steps to narrow the overall trade deficit and to stabilize
our international debt. I know in passing that focusing
on bilateral trade deficits does not help to understand the
overall trade deficit. For example, we have a bilateral
trade surplus with Singapore. But Singapore in turn has trade
surpluses with many countries with which we have trade
deficits. It’s a country’s overall trade balance that
ultimately matters. Singapore has one of the largest trade
surpluses supported to a large extent by currency manipulation
that holds the dollar up. It is a significant contributor to
the U.S. overall trade deficit despite the fact that we have a
bilateral surplus with them. Now, I don’t dispute that unfair
foreign trade practices do harm U.S. produce ers and you will
undoubtedly hear a lot about that today. But unfair foreign
trade practices have no measure able effect on the overall U.S.
trade deficits. To understand why, consider im
imposing a prohibitive tariff or outright ban on all U.S.
steel imports worth about $34 billion last year.
You might think this would narrow our trade deficit by $34
billion, but this policy also would cause the dollar to rise
about 1%, not a large amount. Yet it is enough to cause non-
steel imports to rise and all exports to fall by a combined
$34 billion, leaving the trade deficits unchanged.
Thus protection does help the protected industry both here and
abroad, wherever it occurs, but at the cost of all other
industry ies in that country. Two charts in my submitted
comments show the different measures of trade barriers have
no discernible coalition with trade balances across countries
countries. Countries with higher tariffs do not have
higher trade surpluses. So if trade barriers have no effect on
overall deficit, what does? My new book…
[ Laughter ] … talks about the most
important factor behind imbalances in recent years,
mainly currency manipulation by foreign governments. We
estimate that in 2007 at the peak of imbalances all of China
China’s surplus and 35% of the U.S. trade deficit could be
explained by currency manipulation, another 25% of
U.S. trade deficit was explained by the U.S. Government budget
deficit. Two charts in my submitted
comments display strong positive correlation of currency
manipulation and budget balances with trade balances across
countries. So why do these policy ies matter so much? The
key is that they affect savings and investment as others are
going to tell you at this hearing, we cannot have a trade
deficit unless we invest more in factories and houses than we
say, borrowing the difference from the rest of the world.
Government budget surpluses are part of natural savings so
budget deficits are negative savings, supporting trade
deficit. Currency manipulation is a flood into U.S. financial
markets of capital from foreign government
governments. This pushes the dollar up, causes the fed to
hold interest rates down, low interest rates encourage
investment in the U.S. and discourage savings, thus
supporting trade deficit. Although currency manipulation
is not nearly as widespread today as a few years ago, policy
actions we proposed, including countervailing intervention
would help immediately to narrow the trade deficit by pushing
the dollar down somewhat. A major factor holding the dollar
up right now is the market expectation that foreign
governments are waiting in the wings to resume buying dollars
if needed to maintain their trade surpluses. In the event
of any future pressure on the dollar, such official purchases
would allow private investors to unload portfolios with only
minor losses. This effective dollar put option makes dollars
less risky to hold keeping the dollar over overvalued. If
we eliminate expectations of future currency manipulation to
the policy actions we propose it would eliminate the dollar put
option I mentioned and this would cause the dollar to
decline immediately. Another thing that would help is
if the president and treasury secretary would formally
renounce the policy instead adopt an appropriate policy
keeping the U.S. trade balance reasonably close to zero.
Thank you. 禄 Thank you very much.
禄EVA HAMPL: Good morning and thank you for the opportunity to
testify here today. The United States Council for
International Business represents about 300 multi
multinational companies law firms and business associations
associations. Our core function is representing
U.S. business internationally, including the international
Chamber of Commerce, the OECD, international labor organization
and other UN organizations and agencies.
International trade and investment policy has long been
a primary focus of the work and with access to unparalleled
network of international partner business associations, we have
been a strong and consistent voice both here at home and
abroad for open and competitive trade systems. In that we have
supported an effort of various U.S. administrations to open
foreign markets and ensure a level playing field for U.S.
business. While ensure ing that trade and investment delivers
the widest benefit for most people here at home.
The administration should make a priority of removing barriers
of all kinds as well as unfair trade practices that undermine
American jobs as they compete for customers at home and around
the world. The three points I would like to
make here today are one bilateral trade balances are not
a useful metric to determine the economic health of the
United States. Two, services must be included when talking
about trade balances and trade deficits are much lower with
countries with which we have an FTA and three, as companies
today operate in global value chains, not simply bilateral
trade relationship domestic value added can, for example,
come from imports. On the specific issue of trade deficits
, particularly bilateral deficits with individual
countries, we support the view of mainstream economists that
trade deficits are product of broader macro macroeconomic
factors, not trade policy and the trade balance should not be
viewed as a straightforward indicator of a country’s
economic health. While it is useful to address
trade barriers that impede access for U.S. goods and
services exporters to specific markets, we should not set up
bilateral trade balances as the metric for successful trade
policy ies. It is also important to include
services trade in any analysis of trade balances, as I’m sure
you’re going to hear in more detail later today in the U.S.
services account for almost 80% of GDP and services jobs account
for more than 80% of private sector employment.
Accordingly, a trade policy focused solely on trade deficit
deficits in manufacturing is misleading.
Free trade agreements also play an important role focusing just
on U.S. trade with our 20 existing FTA partners in 2015
while the U.S. ran a merchandise trade deficit of $64 billion we
had a services surplus of $71.8 billion yielding overall trade
surplus of $7.8 billion. In contrast the largest deficits
were with countries with which the U.S. duds not have FTAs.
So they have been beneficial to the U.S. economy. In addition
to providing concrete economic benefits they serve the purpose
of raising the standards of the role of law in other markets to
approach those we have here in the United States.
FTAs therefore provide the opportunity for the U.S. to
write the global rules on issues that are important to our
businesses. The way business is done here at
home and around the world has also changed over the years.
Trade relationships are no longer simply bilateral in
nature, rather companies operate within global value chains
where the different stages of production processes are locate
ed across different countries. This also means that the value
added by any particular country on any particular good or
service has become more difficult to determine.
The OACD with whom we worked attempted to address this issue
in a joint initiative with the W TO called trade and value added
or TAVA. It covers 63 economy ies and 34 unique
industrial sectors including 16 manufacturing sectors and 14
services sectors. And provides insight into various issues
including domestic value added. In summary when it comes to
trade deficits, we have five recommendations for the
administration. One, examine the trade deficit within the
broader set of macroeconomic factors but determine and
include all the elements of trade in the analysis instead of
focusing solely on bilateral manufacture ed trade balances.
Two, work with experts in the U.S. Government and
international organizations and academia to get the best data
possible, to have a guide for best policymaking. We need much
better measurements of real trade flows and value added
including scale able supply chains and services. We need
better data on FTI flows both in word and out word.
Thirdly move aggressively to open foreign markets and
identify foreign trade barriers to increase U.S. exports and
improve our trade balance. We support the use of appropriate
enforcement tools including the WTO, bilateral and regional
trade agreements, U.S. trade law us and efforts to open those
markets and to combat illegal foreign subsidy ies and dumping
into the United States. Four, accelerate the U.S. Government
commercial diplomacy efforts to support U.S. companies competing
to win deals overseas and finally perform the U.S.
Government economic policy which includes tax reform, regulatory
reform, energy development, to bolster the competitiveness of
our firms allowing them to win more and bigger deals overseas.
That concludes my testimony today. There’s further detail
in my written comments. Thank you for the opportunity to
comment and I look forward to your questions.
禄 Thank you very much. Mr. Mr. Scott.
禄ROBERT SCOTT: Thank you for allowing me to testify today.
Executive order 13786 calls for review of trade policy and
potential harm to U.S. workers. This examination is welcome and
long overdue, however, the specifics of the review offered
by the president mean that it’s unlikely to provide any help to
American workers, in part because it asks the long
questions. The order requires the secretary
and agencies represented today to identify every form of use
and non- non-reciprocal trade practice that contributes
to trade deficit. . On a country by country and product
byproduct basis. But the trade deficit is not a product-by-
product or country-by-country problem as we’ve heard already
here on this panel. We know it is caused by and what should be
done about it. I want to address those broader causes
here briefly in my oral remarks and then more extensively in my
written submission. First, we know what the major
causes of the trade deficit are. Unfair trade, currency
manipulation and currency misalignment
misalign have placed commerce at an unfair disadvantage. As a
result increases in exports do support demand for domestic
produced goods and do increase domestic employment. I would
agree with that remark. It is also true that increased im
imports reduce demand for domestic cally produced goods
and reduce domestic employment and therefore changes in the
trade balance are the best overall measure of impact or
trade on the output of domestic goods by manufacturers and
employment in those industries. The consequences of unfair trade
include growing trade deficits with China and other surplus
countries and eliminate eliminated millions of jobs in
U.S. manufacturing. In the past two decades alone, as I have
shown in my prior research research. Overall we
lost about 5.2 million manufacturing jobs since January
of 1998, a decline of nearly 30%. In addition, although I
don’t have in my written statements, the loss of jobs to
unfair trade has had a tremendous depressing effect on
wages of not just manufacturing workers but all workers with
similar skills, essentially all non-college educate ed workers.
I can provide more details on that after the hearing if you’re
interested. Unfair trade has reduced U.S.
production capacity in manufacturing. And countries, as we already
heard from Joe this morning, countries engaged in systematic
currency manipulation, China and many other countries in Asia,
or which have remained persistently undervalued
exchange rates by other means, such as Germany are engaged in
behavior which is effectively exported unemployment in
manufacturing and other trade goods industries to the United
States other deficit countries and we lost millions of jobs as
a result in manufacturing and related industries.
Now, in my written testimony I address a number of specific
issues raised in the executive order on issues such as non-
non-market economy ies, the effects of over-capacity which
are significant, role of subsidies, the impacts of free
trade agreements and so on. I would like to address a couple
of specific points in the time I have remaining. In terms of
other factors, I think it’s important to recognize that the broad
patterns of widespread government intervention through
unfair trade, for example, creation of massive amounts of
overcapacity, in at least 20 major industries identified.
The widespread use of subsidies and dumping and other unfair
trade practices, not just problems in those industries.
They have had a pernicious effect on the cost of production
throughout any industries as a result of countries like China
have now achieved and essentially unfair advantage in
a wide range of industries that use these inputs, such as
automobiles and aircraft, other transportation equipment, all
kinds of equipment. So we can’t just use fair trade policies to
address these problems. We need a broader tool, as I say in
my statement, you can’t but the genie of unfair trade back in
the bottle by attacking unfair trade. You need a broader tool.
In my view that is currency realignment. I think it is the
only tool available broad and powerful enough to provide
redress for a generation or more pervasive widespread unfair
trade practices. And as I say in my statement, I
think as a result, products in specific trade policies are
unlikely to have a significant impact on U.S. trade deficits.
In part, the reason Joe has given, example steel industry, I
think it’s very relevant, in part because you just can’t
engage in enough unfair trade cases to significantly affect
the trade balance. The problem is too big and pervasive. We
need a broader tool. The trade deficit is also a
result of global trade imbalance s and I identify ten major
countries surplus countries that collectively have trade surplus
of about $1.5 trillion. This is three times as large as the
U.S. trade deficit. Those are the problem countries. I should
note as I point out in my statement, countries like Mexico
and Canada actually run global trade deficits. They’re not
contribute ors to our problem. Our trade problem is not a
bilateral problem. It is a global problem imbalances.
And lastly, on the issue of currency ies, I believe it’s
been shown that currency can be re realigned, major currency
ies last achieved following the plaza accord in 1985 and this is
the acceptingle most effective way to rebalance global trade
flows. Such an agreement is needed to increase a realigned
exchange rate of major surplus countries relative to the U.S.
dollar which is today heavily over overvalued. The dollar
gained almost 20% in real terms since mid 2014 alone or at
least that was true three days ago and dropped a bit since
then. But it still remains heavily over- over-valued,
and it’s been shown that even a 10% appreciation of a dollar
will have a large impact increasing U.S. trade deficit by
over $200 billion. So we need to get the dollar down in order
to rebalance trade. This will create millions of jobs not just
in manufacturing but all the industries that are support
supported by manufacturing . Manufacturing has large
multipliers. So I would conclude by noting
have two charts in my written statement that show the large
trade deficits and the close correlation between the trade
deficit of the United States and the real value to have U.S.
dollar. The dollar explains about at least I would say about
80% of the movement in the trade balance. If you want to
address trace deficit, the single most important factor is
realigning the U.S. dollar an I would concur what Joe suggest in
his book and we may need to be more aggressive in doing that.
Thank you 禄 Thank you very much, Mr.
Mr. Scott. I’m the acting assistant
secretary for industry and analysis at the Congress
department and we’re going to open up the questioning part of
our panel today. I’m going to turn it over to my colleague
from the safety department for the first question and ask the
panelist to introduce yourself the first time you speak.
禄 Thank you all for your testimony. I’m the chief
economist in the Department of State.
This is a question I would like to put to all of you, if any of
you would like to respond. We talked here, your testimony
about determine ing the aggregate trade imbalance.
The executive order that leads us to be here today, though,
really focuses much more on bilateral trade imbalances.
So economists often argue bilateral trade deficits may be
the result of structural factors such as simple comparative
advantage. Vertical supply chains, even demographic trends.
So I would like to ask if you have thoughts about the
importance of such factors in explaining U.S. bilateral trade
deficits. 禄LINDA DEMPSEY: Happy to give
it a start. Certainly from our perspective bilateral trade
deficits, overall trade deficits are a result of many factors,
not just one or two, not just trade distortion, although trade
distortions can play an impact, but of many factors, including
sizes of economy, price competition in those economy ies
and structural issues, and that is true with some of these
bilateral relationships as well. We see differential patterns
as we note ed in our testimony. We had some trade deficits with
countries that also have very significant manufacturing
investment in the United States States, we have a
manufacturing investment surplus that supports millions of jobs
in the United States, at the same time that we have a trade
deficit with some of those countries.
It is a complicate ed measure by far and from our perspective,
an individual country relationship and even an economy
-wide relationship such as the E U needs to look at multiple
factors, including the size and openness of these economy ies,
participation in the world economy. Our share of their
market in some of these countries we do far better and
other countries we don’t do very well at all, and why is that?
Trade agreements, there are multiple factors because of that
, and those are the types of issues that we would like to
work with all of you to improve our position in every single one
of those countries. 禄JOSEPH GAGNON: I’ll give one
quick example. We have a bilateral trade surplus with
Australia and Australia has a bilateral trade surplus with
China. If we were sitting in Australia now we would be
looking at bilateral trade imbalances and say China is
great, they’re buying all our stuff, they’re wonderful and the
U.S. is terrible because they have a big surplus and we have a
deficit with the U.S. , they must be acting badly. That
would be the wrong conclusion. 禄EVA HAMPL: I will just add
that I agree with what my colleagues have said so far. We
don’t dispute that bilateral trade deficits play a role or
that there are various factors involved, but that is why part
of my comments focused on the importance of collecting
additional data. We just do not feel these provide a complete
picture that provides the solution. If we want to find a
solution to problems that we can all agree we see and that exist
, we need to ask the correct question, and in our reviews,
simply talking about bilateral trade deficits just does not
provide a complete picture. 禄ROBERT SCOTT: I would agree
that we should be focusing more broadly on global trade flows,
but with respect to explaining the bilateral imbalances I think
a lot has to do with history. We chose to engage, for example,
in — to create the NAFTA agreement in 19 — 1994. That particular thing favored
create ed outsourcing. We lost thous of factories in the U.S. That was growing bilateral
trade deficit with Mexico. We had a balance trade with Mexico
before NAFTA went into effect. That went away. For better or
worse that agreement is history. It has taken place, factories
have moved, we can’t change that . We could improve that
agreement. For example, by raising the so-called domestic
content of production within the NAFTA countries that could help
all three countries and we could improve labor standards
that would help working people in all three countries. We make
choices and make policy decisions and NAFTA we made
choices that favored outsource outsourcing and
foreign invest investors. We could make choices that
favor jobs and workers in the United States. Those are policy
choices we do face. 禄 Thank you. I’d like to turn
it over to my colleague from the council of economic advisers.
禄 I’m a Senior Economist at the council of economic advisers. This is a question for all of
you, again. To the extent that trade deficits are due to macro
macroeconomic factors, what particular actions or policy,
some of which we already heard discussed a little bit today, do
you believe would be the most effective in reducing the
deficit? 禄LINDA DEMPSEY: Do you want to
start or you? 禄ROBERT SCOTT: I’m happy to
start. As I argued I think realignment of the dollar is the
single most effective tool. It can be used to reduce trade
deficits and increase employment in manufacturing and the rest
of the economy. I think that Joe has suggested two tools, one
tool actually talked about today, account of currency
intervention or the threat of that, the economist John Hanson
suggested the possibility of im posing what is called a market
access charge or a tax on capital inflows that reduce the
inflow of capital into the U.S. that would reduce the demand for
the U.S. dollar. That could be effective. I think it may be
necessary to go further. We may need to ban inflows of capital
from some countries such as China where it’s difficult to
distinguish between what is the activity private investors and
activity of the state. They could be investing here simply
to increase the value of a dollar or control of U.S. assets
. I think the simplest way to address that is simply ban some
of those purchases. Much more broadly I think of those tools.
禄EVA HAMPL: My final comments focused on recommendations for
the administration, I will elaborate on one or two of them.
We follow trade barriers very closely. Our companies are
having many issues in that space and one issue, for example, is
that of local localization. That is one of the trade
barriers that we have worked with international Chamber of
Commerce on to provide some policy and in order to combat
those policy ies just to name one of them, the second issue
would be on the enforcement side . There are many, many tools
that we have that we have in place that we can be using that
are not fully being utilized right now, including our trade
agreements or the WTO as well, and so we continue to work in
that direction with the tools that we already have, and that
would be a start. 禄JOSEPH GAGNON: I would say
that two policies seems to me that matter the most are
currency exchange policy and fiscal or budgetary policy . Our budget deficit is now
getting a little out of line with what other countries are
doing and this is starting to support our trade deficit, also
the state of the business cycle is encourage ing private capital
in. We could try to discourage that, as Rob said, through
capital measures. I wouldn’t propose that right away. The
other thing is that we probably should be a bit more activists
in our currency intervention policy. And as I said, in the
book, we recommend announcing a policy of — against the G20
countries at first, start with the big ones that matter.
They’re not currently manipulate ing currency ies. It’s a good
time to introduce a new policy that would say for the future
you have promised the G G20 statements not to hold your
currency — manipulate currency for competitor advantage, we’ll
hold you to that. If you do, we’ll counter intervene by equal
amount and neutralize whatever you do. I think that would be a
good first step and important. It might not be enough. We
could talk about further moves. I think we should have a
broader sense of what the purpose of foreign exchange
intervention is around the world . It should be to minimize
imbalances, and we need IMF to be the central place where these
discussions are held. And that’s where I would focus.
But widening the budget deficit at this point is certainly a
step in the wrong direction. 禄LINDA DEMPSEY: Let me answer
that more broadly, because I think there is, you know, a lot
of different ways, as I said, the trade deficit is a
complicate ed measure and therefore addressing it has
complicate ed implications but also how it correlates to jobs
and output in the United States is not as clear cut as explained
in detailed testimony testimony. I would say that
what we would like to see from a broader macroeconomic level is
the type of policy ies to improve U.S. competitiveness,
and I would start with items like tax reform and
infrastructure investment and regulatory — dealing with
regulatory red tape and a more robust trade policy as a piece
of all that addresses barriers, that addresses currency
manipulation but also keeps our market open to trade and
investment, which has been a huge strength for manufacturing
in this country. We have millions of jobs in this country
dependent on international trade, we see problems obviously
and challenges as I identified and we identified for country
after country, many of the same ones that my colleagues have
identified. But we need a much broader look at how our system
is — our entire economy is. In December my organization put
out 12 blueprints called ” “competing to win” on each and
every one of the innovations, workforce. Consider we have
350,000 jobs in manufacturing today that are unfilled, right?
So we don’t have — our companies aren’t able to find
workers that have the right skills. And some of it is STEM
STEM, the higher level. Some of it is electricians that
our companies can’t get to come to their factories in rural
America or different parts of America. We’ve got to deal with
all of this. Because by 2025 we are estimating over 2 million
jobs that will be open in manufacturing for which we will
have — we will not have the skilled workforce to meet. That
is a big structural issue that our economy needs to deal with.
All of these issues are really important as we think about it
from that broad macroeconomic level. If we can get our own
house in order, if we can get a tax policy, a comprehensive tax
reform, get our rate lower, deal with the issue for our small
businesses, capital cost recovery, R&D, all of that and
all the rest of these policies, then our country is on the right
track and we will, again, be producing the high quality jobs
across our sector and other sectors that we all really want
to do at the end of the day. 禄 Thank you very much. I think
we’re running out of time. This has been — I want to thank the
panelists for the very interest ing discussion we had and I wish
we could progress it, but we’ve run out of time. Thank you
very much. 禄 Thank you for coming. My name
is Steve Wilson, the deputy director of the fisheries office
of international affairs in seafood inspection and asked to
lead this panel today. If you please, would you please
start with the end here and introduce yourselves and your
affiliation. John Connelly with national fisheries senate.
禄 David Veal, American shrimp processors association.
禄 Danny Walker, Heartland Catfish Company.
禄 Thank you very much. Mr. Mr. Connelly, start with your
testimony. 禄 The National Fisheries
Institute represents harvesters in Alaska, America’s largest
fishery, importers supplement the catch and put fish in a form
that we eat, distributors retail and restaurant groups
that ultimately sell us the seafood we enjoy.
We are committed to ensure flow of fish to and from United
States because the two are link linked. To start with
supply and demand. The U.S. supply of fish cannot
meet demand. Let me role through some
number numbers. Because of benefits, doctors and
dietitians in the U.S. Government encourage Americans
to eat seafood two to three times per week. We need 13
billion pounds of seafood to meet that public health goal.
The American supply of fish is comprised of U.S. cod ingrown
fish plus imports minus exports exports.
The Magnus and Stevens act controls the catch of fish in
American waters to ensure we have fish now and for the future
. We catch about 2.5 billion pounds of seafood in American
waters, about 19% of the need. Our climate does not enable a
major production of farm fish other than catfish
catfish. Our region — other regions of the world have
climate for growing fish just as the U.S. has a better climate
for growing pork and exporting the product. And we would like
to see a powerhouse fish farming system offshore in the U.S.
there are lots of barriers. There are legal barriers and
states that have natural infrastructure for fish farming.
There are regulatory barriers for permitting, and there are N
NMBI barriers in coastal communities. We are not going
to grow our way out of a fish deficit.
In our company’s export fish, because other markets will pay
more for some fish or parts of fish than will Americans. We
export about a billion pounds of fish because Koreans will pay
for our row and North American and northern Europeans will pay
for genuine Alaskan Pollack and salmon. These represent a trade
deficit. Seafood is different. We do not have and never will
have the raw material fish needed to meet the demand.
So while this agenda calls — this agenda is a fisheries panel
, it may have been more appropriate to call it a seafood
panel, as the jobs in the seafood sector don’t stop at the
boat, at the water’s edge or on the docks.
Last week the Department of Commerce published data
indicating about 1.2 million jobs in America are in the
commercial — in and around the commercial seafood sector.
About 650,000 of those jobs result directly from domestic
domestically caught and processed fish.
But another 550,000 jobs result from processing, distributing
and selling fish from elsewhere elsewhere.
The administration should value as much the woman who right now
is processing imported shrimp in Brunswick, Georgia as in the
northern Pacific. They both create income for
American families and I guarantee they think their check
is worthwhile. Turning to disadvantages we now
face, I’d like to share an anecdote from the lobster
industry with whom we work. The Canadians and Europeans
recently completed a trade agreement which will eliminate
tariffs lobsters being sent to Paris or Rome or Madrid. But
Maine lobstermen will pay a tariff on their lobsters sent to
Europe. That means our folks are automatic price disadvantage
when selling to their market. This is not Canada’s fault.
This is not Europe’s fault. What we are likely to lose
business and only add to the trade deficit if the U.S.
Government does not act or expand our trade with Europe and
elsewhere. So while there will be calls for
more trade barriers to trade, the harvesters and processors we
represent ask the administration to think
carefully about that path and instead consider the jobs create
ed create ed in Georgia or Texas or Florida when
processing fish from elsewhere. We also ask administration to
act aggressively on trade agreements with Europe as Maine
lobstermen and fisherman fishermen are seeing
countries filling the market that we once so dominated.
Thank you. 禄 Thank you. Mr. Veal.
禄 DAVID VEAL: As I said, my name is my name is
David Veal, I’m the director of the shrimp processors
association. Processors account for vast majority of shrimp
produced and processed in the southern United States. We
represent firms across seven states which together provide
thousands of good jobs for our coastal communities. Our
workers understand the importance of strong trade
enforcement on their livelihoods . For decades our industry has
faced surge ing imports of shrimp produced overseas. 90%
of shrimp consumed in the U.S. is currently imported in volumes
continue to increase. Shrimp imported from India, Indonesia,
Thailand, Vietnam, Mexico, China , Malaysia, countries being
investigated today, account for 77% of the 4.5 billion deficit
the U.S. shrimp in 2016. While shrimp imports have seize ed
U.S. market share, our domestic produce ers have not been able
to achieve anything close to similar penetration in foreign
markets. In 2016, the U.S. im ported $297 worth of shrimp from
India, Indonesia, Thailand, Vietnam, Mexico, China, Malaysia
for every dollar we exported to those countries.
In the first three months of 2017 the U.S. imported $325
worth of shrimp for every dollar exported.
As a result our trade deficit in shrimp is substantial and
growing. The trade deficit in all seafood was $10.5 billion
last year, greater than the deficit of either raw iron,
steel or aluminum. The deficits in shrimp from
India, Indonesia, Thailand, Vietnam, Mexico, China, Malaysia
alone was 3.4 billion in 2016. And increased 44% since 2012.
The shrimp deficit is largely the result of a legal trade and
tax practices that encourage shrimp exports to the U.S. As
was fought hard to level the playing field to trade remedy
laws. Earlier this month the international trade commission
vote ed to continue an existing anti-dumping order on shrimp
from China, India, Thailand and Vietnam, commerce agreed that
revocation could lead to dump dumping margins as high as
112%. The orders have provided important discipline but import
imported shrimp continue to be dumped on our market due
to limited coverage in evasion. The orders also do not address
the unfair subsidies foreign shrimp produce ers receive from
their governments. Aqua culture crops up as an important source
of foreign exchange earnings and foreign produce ers, export
orientation has transformed shrimp from a luxury item to a
low priced commodity. Despite documenting millions in
subsidies, our industry has been unable to adequately — to seek
adequate relief under existing trade remedy laws. Government
subsidies continue to fuel increasing foreign production
which already dwarf domestic capacity. these practices are
exacerbate ed by value added taxes on imports, labor rights
and substandard health and safety laws in these countries.
Which place the U.S. producer at a competitive disadvantage.
Unfairly traded imports hinder hindered the growth and
stability of the domestic industry. We’re forced to
compete with imports in the market every day squeezing
profit margins and preventing much needed investment. Our
industry has already faced declining prices, landings,
employment and shipments without concrete measures to address
underlying distortions that drive the U.S. trade deficit in
shrimp, we’ll continue to struggle.
On behalf of the industry, we look forward to working with the
Department of Commerce and USTR in any other agency to address
all of the issues identified in the study in the omnibus report.
We thank you for the opportunity to participate today
and I look forward to your questions.
禄 Thank you. I’m going to butcher your name. Nicks.
禄 NAZAK NIKAKHTAR: Close enough . My name is Nazi nicks. On
behalf of the industry we appreciate the engagement on
this trade deficit issue. With me is Danny Walker, CEO of
heartland catfish, a large catfish producer and processor
in Mississippi. Production is concentrate ed in the southern
states of Mississippi, lams, Louisiana and Arkansas and
employs thousands of workers. It provides to U.S. consumers
food source in the USA, high quality products that Americans
can be proud of. Danny will testify about how the
catfish industry has been devastate ed by the unfairly
traded frozen filet products from Vietnam. In the year 2000
U.S. produce ers held over 90% of the domestic market share
here. Now they’re clinging on to the
17% they have left. And that market share is dwindle ing
every single year. The trust industry absolutely
has capacity to produce more and sell more products but shut out
of the market because of cheap Vietnamese imports. I want to
share additional remarkable statistics. Over 91% of the
seafood consumed by Americans is imported and overall seafood
deficit is over $11 billion. As trade deficits and natural
resources go, this is second only to crude oil. This means
over the years we have been allowing other countries to
displace our seafood industry. Our seafood deficit with Vietnam
in particular is $854 million. Almost half of that pertains to
catfish. That’s $387 million. What is causing the trade
deficit? Widespread distortions in
Vietnam’s economy have over overstimulate ed seafood
production and for nearly two decades directed the flee of
cheap Samese catfish filets into the U.S. market. These are
coming in as substantially less than American manufacturers’
costs. Our processors are among the most efficient in the world
but the industry can’t compete at such depressed prices.
Let me give you examples. The world Vietnamese catfish
filets collapsed since 1998 by 40% to a dollar and ten cents
per pound today. We see the same trend in the U.S. as price
prices of Vietnamese im ports again decline 40% of the
same period since 1998 to $1.34 per pound today. Samese over-
over-production has for a long time suppressed prices and
de destabilize ed the catfish industry both in the United
States and globally. Our produce ers are not only
struggling to survive on their own home turf because of the low
prices, but we can no longer export Vietnam has shut U.S.
produce ers out of the Vietnames e market and world market. This
is a direct result of Vietnames e government policies that en
courage over- over-production of catfish
products and it’s worked. Currency manipulation encourage
Vietnam seafood exports to skyrocket from $1.5 billion in
the year 2000 to $7 billion last year. That’s almost a 400%
increase. And this export trend is project
ed to grow even more in 2017. The Vietnamese government also
keeps costs low by owning and managing land, controlling the
prices of commodities, including fish feed, and through the
operation of numerous state- owned companies. Plus the
Vietnamese government has infused hundreds of millions of
dollars in the seafood sector to keep industry increasingly
export oriented. Vietnam now dominates 90% of the world’s
catfish market and 80% of the U.S. market. This share is
growing at an unrelent unrelenting pace. This type of
pervasive government intervention encouraged the
flooding of our markets and world markets with two products
and its distorted prices. And I ‘ll end on this note. Danny
Walker of heartland catfish will discuss the industry attempt
for relief for unfairly Vietname se imports through dump
dumping measures. I want to underscore an important fact.
Anti-dorping measures by the commerce department, over 75%
this year on dumped Vietnam product. That’s a lot of dump
dumping. although the measures have somewhat mitigate
ed the decrease in import prices , prices are in serious decline
nonetheless. This is because the oversupply
of cheap Vietnamese catfish worldwide depressed world price
prices and these depressed world prices have lowered the
benchmark prices the department uses for antidumping analysis.
So that the final duties ultimately calculate ed and im
imposed by the commerce department on Vietnam imports
are far less than otherwise would be. This in effect means
that Vietnam trade distorting policies have weakened the
United States ability to utilize its own trade remedy tools to
effectively combat unfair trade. Vietnam’s action actions
if unaddressed will destroy the catfish industry in a matter of
years. We can’t let this happen. The American seafood
industry is worth saving. We ask the U.S. Government to stent
this industry and hold Vietnam accountable from manipulate ing
the trading regime when assessing response to the
deficit with Vietnam. And we in tend to work with the
administration to find solution solutions. Thank you.
禄 Mr. Walker. 禄 DAVID VEAL: Good morning. 禄 Good morning. Thank you for
the opportunity to come and speak on behalf of the U.S.
farming catfish industry. I’m the CEO of Heartland Catfish
Company. We are a processor in the state of Mississippi. We
process whole live catfish into filets you buy at the grocery
stores and restaurants all across the United States.
Catfish is among the top ten most consumed seafood products
in the United States. I’ve been in the catfish industry over 30
years and have been the CEO of Heartland Catfish Company since
its inception in 1996. Our industry produces farm raised
catfish principally in Mississippi, Alabama, Arkansas
and Louisiana. We have come to Washington today to let you know
that our industry has been significantly harmed by Vietname
se imports of frozen fish filets and the trade deficit the U.S.
has with Vietnam. The U.S. catfish industry has
been struggling in the U.S. market due to the unrelenting
flood of unfairly low priced Vietnamese imports. Those im
imports cripple ed our industry. This industry is extremely
important to our states. It employs thousands of workers and
many economically vulnerable regions and poorest states in
the country. Our employees work tirelessly to make quality
products for customers and they deserve to be protected from
unfair trade. They deserve the opportunity to keep their jobs.
In the late 1990s, the Vietnamese catfish industry was
in its infancy. In 2000 the Vietnamese government decided to
bolster the industry and infused capital and granted tax
credits, extended preferential import programs to catfish
produce ers to increase production and dominate export
markets. Our industry filed an antidumping case against im
imports of frozen fish filets from Vietnam in 2002 because we
feared not being able to survive without the appropriate trade
relief. Since ’02 the Vietnamese government has
rapidly grown industry for exports. Its exports exploded
from 68 million pounds in 2002 to 3.7 billion pounds in 2016.
This is a 5,300% increase. Domestic production never
recovered from the initial blow of dumped Vietnamese imports and
production decreased over the same period from 100 million
pounds down to the current volume of 60 million pounds of
frozen filet Ms. We lost a significant portion of market
share to Vietnamese and thousand s of farming acres and jobs.
In 2000 the U.S. industry farmed 190,000 acres of catfish ponds.
Today we are down to 63,000 acres.
The Vietnamese government’s goal is to flood the U.S. market
with cheap agriculture products to completely disrupt our market
. It’s working. And they’re choke ing our industry. In 2000
we held over 90% of U.S. market share. Since then the industry
has contracted to a dangerously low level. We now hold only
17% of the U.S. market. 80% of the market is now dominate ed by
the dumped Vietnamese product. We are the verge of non-
existence. We know our markets are the most open in the world
but I want to emphasize the Vietnamese catfish industry has
taken advantage of our open borders. The Vietnamese
government has encourage ed produce ers to flood our markets
with cheap products and displace produce ers. At the
same time the Vietnamese shut us out of their markets entirely.
They lowered the prices of their products to levels far
below our cost of production. We can’t export to their markets
at such low price prices. We can’t export other markets
because the domination of Vietnamese products overseas
overseas. This isn’t fair competition and
we ask the administration to defend our industry against this
type of unfair trades. Finally I want to raise the
issue of Vietnamese industry dishonest participation in the
antidumping case. Although over the past year the commerce
department made important decisions to address the unfair
trade practices by the Vietnamese industry in the case
case, the Vietnamese have double ed down on their efforts
to gain the system in response. They have preengineered industry
participation in the commerce proceeding, misreport
misreported critical information to the agency and have used
various tactics to avoid paying antidumping duty tariffs to
customs. We are fighting tooth and nail to defend our industry
against assault by the Vietnamese on all those fronts.
The millions of pounds dumped Vietnamese product into the U.S.
market worsens trade deficit with Vietnam each year, while
trading relationship with Vietnam is important as is our
trading relationship with every country, the same must also be
said for the United States’ ability to guard its industries
against unfair trade and prevent such significant trade deficit
s. The status quo does not level the playing field for U.S.
industry ies. To be clear, there will be no
U.S. industry if cheating is un unabate ed and trade deficit
we have with Vietnam is un unaddressed.
We need and will continue to need our government to defend
our industry ies against Vietnamese predatory trade
practices. If we don’t fight back, our industry will become
extinct, workers in the Mississippi delta, Arkansas
delta, and the Alabama black belt deserve better and the
United States need to be able to grow its own food. Thank you.
禄 Thank you. We’ll move into the question phase of the
testimony. I’d like to start with our colleague from the
Department of State. Please, as you ask your questions,
introduce yourself. 禄 Sure. Hello, everyone. I’m
Carol from the economic bureau at the state department. Thank
you for your testimony. I have a broad question for the group.
Which barriers tend to be the most significant in terms of
hampering expansion of U.S. seafood exports? For instance,
does the U.S. industry compete on price where tarrifs would be
particularly important or meeting health and safety
regulations the biggest constraint? And what extent
does this differ agross the industry?
禄 I think I’m the exporter in the panel. I’ll start. And
non-tariff in Europe are a challenge, but five years ago we
had a situation which the scallop industry faced a
discriminatory barrier from the European Union working with
state USTR and others. We were able to overcome that. Just
last year, the lobster industry was facing a potential ban on
live exports — excuse me — exports of live North American
lobsters to the European Union based on concerns about invasive
species. Working with the government we were able to
convince Sweden to pull back from that — excuse me, European
Union and member states — we were able to do that. There are
non-tariff barriers that the commerce department and others
help us with, but the FETA, free trade agreement between Canada
and the U.S. will have a significant impact on shellfish
exports, any shellfish exports and salmon, particularly as the
lobster imports are going to have a difficult time, and not
only because of the basic agreement but also because of
some of the rules of origin that are associated with how lobster
is defined as to where it’s grown, where it’s harvest
harvested or packed or what is called crate ed.
So absence, as I’m meeting with the lobster industry next week,
unfortunately my answer will be until the U.S. Government acts
on some kind of agreement with Europe, we’re screwed, to be
blunt about it. And exports into Asia are primarily Alaskan
products, although if Europe does close down the lobster
industry is very likely to turn to China, which is a massive
market for our lobster industry. And European exports tend to
occasionally non-tariff barrier comes up, registration of
certain vessel types for fish meal or fish oil was an issue.
Russia obviously is a major concern of ours when they closed
out their market for us. So those are — primarily are non-
tariff barriers before for the F ETA work, obviously.
禄 I have a variety of things, and I think it probably depends
on the country we would be talking about or the region of
the world we’re talking about. They can range from everything
to tax barriers, particularly value added taxes, to issues
like sustainability and trace traceability, the kinds of
things that are require ed here in this country and in Europe.
I think the most difficult problem for us is the world
price of shrimp. With production and in particular in
European — or in Asian countries, the price worldwide
has been depressed and it is very difficult for a U.S.-based
firm to compete in price-wise with
Asian production. 禄 NAZAK NIKAKHTAR: Thank you
for your question. The U.S. catfish industry, the answer to
the question is quite simple. As I mentioned the trade deficit
with Vietnam on catfish products is 387 million. The
U.S. does not export any products, any catfish products
to Vietnam anymore. It used to. In early 2000. It stopped
exporting because the U.S. industry simply cannot compete
with the cheap product — cheap prices of the Vietnamese
products worldwide. As I mentioned the cheap prices are
driven by government policies. They’re cropping up industries
that otherwise shouldn’t be surviving. In the United
States, because of the unfair trade, we’ve lost number of
industries. Vietnam isn’t willing to lose any industries.
The government continues to in infuse capital to profit
industries and drive world price s lower when you have economic
conditions like that, it’s clear to see how the U.S. industry
can’t compete against in its home turf in the U.S. can’t
compete abroad. On the last one I mentioned before, we we’ve
tried to address — use dumping measures to address trade
distortion behavior, but the commerce department used the
surrogate value methodology where it looks third country
pricing in Vietnam because it’s still a state-controlled economy
, while the flood of Vietnam products worldwide has depressed
those prices too, so when commerce goes to third country
prices, the dumping margin it calculates is otherwise lower
than it otherwise should be. So the bottom line, we can’t
export to other countries. We can’t survive in our own home
market, and we don’t have — the trade remedy tools we’re using
right now are inadequate because of the actions of the
Vietnamese and flooding the market with cheap products and
driving the prices lower. 禄 I can speak to heartland
catfish companies, our exports are virtually zero. We do have
national chain accounts that will export some of our product
to their restaurants that they have in other countries, but
that is very minimal. And just a little bit in count goes.
Several years I went to China to look at China to see if they
could be a potential in that marketplace for U.S. farm-
farm-raised catfish. You know, we saw retail grocery stores in
that area that the entire store was nothing but U.S. product.
There was no other products in the entire chains of grocery
stores there. But the worldwide barrier price of Vietnamese was
so great that they could not consider U.S. farm-raised
catfish, the price difference was tremendous. So the
worldwide price is the single largest barrier that we have
where they’re looking at an industry that they want to
completely dominate entirely and prices where they’re going to
do it with. 禄 Thank you. Assistant trade representative
for policy and economics. Several testimonies mentioned
sub si addition of foreign agriculture as a factor behind
imports of a number of seafood products. Could you further
elaborate on the types of sub si addition? Do these expire? Do
they remain active? Can you tell me more about that topic?
禄 We’ve been looking at on behalf of the catfish industry,
we’ve been looking at sub sub si subsidy. We
mentioned a couple laws promulgate ed by Vietnam. So
the challenge with Vietnam is that certainly it’s not an —
the government isn’t open. It’s not transparent. So what we in
the U.S. have available to us is essentially the laws and the
rules that the Vietnamese promulgates which is restrict
restrictive because they withhold a lot of
information opinion With that said, in our paper, we
said — we mention a number of laws what the Vietnamese
government is doing is basically it’s putting a lot of money
into industry, a species of catfish, for simplicity I’ll
call “catfish” ,” basically putting a lot of money into
industry to help it operate to help reduce costs by the
government giving them a lot of extra money. It’s driving down
the input prices because it’s subsidize ing those industry ies
to to — feed is a huge driver in production cost of the
catfish, the actual fish, and hence the filets. They’re
subsidize ing those feed mills, feed produce producers
too and essentially giving them tax credits. They are giving
them production incentives, just by giving them sort of raw
money. And investing in those industries. They also have
state-owned enterprises that are funded by the state. So they
have extremely low costs. So it’s a — and in our paper we
talked about exports too, but in terms of what is happening in
the industry in Vietnam, it’s just infusing — it’s just a
blatant infusion of capital into these industry ies to prop them
up. Tax credit and just straightforward infusion of
money. 禄 In 2013, the American shrimp
industry filed a countervailing duty case against seven
countries, Ecuador and six southeast Asian companies. The
Department of Commerce ruled we we, in fact, were right, and
determined there was more than $200 million a year in trade
illegal subsidy ies in those seven countries. Unfortunately
the time period that the international trade commission
considered to determine damages included the deep water horizon
Horizon, and the subsequent increase, the short
age of gulf shrimp that year and that year year’s increase
in the shrimp prices distorted the economic economic —
the snapshot picture of economics for the gulf. Our
efforts to get them to change the review period were un
successful, so the trade commission rule ed that we did
not or had not suffered material damage from those countervail
ing duty cases. So far as I know, all of those and
additional subsidy ies are still in place.
We’ll be happy to get you the detailed information about those
subsidy ies that we identified. And what we know about whether
they’re still in place or not. We believe they are, and that
that — and that the effort of the level of sub subsidy
iation has increased. Supplements to a farmer to
produce shrimp to export subsidy ies. And everything in between
. In their defense, that is a
viable economic activity. The question is whether those
activity ies should devastate — and that’s what is happening.
Devastate a domestic industry that is on the receiving end of
the product that is produced. 禄 And I think to that point
another note to point out is that, you know, on one hand
somebody could look to say, why don’t you guys just bring
countervailing subsidy cases as the shrimp industry did, but the
big challenge there is that when that is on the table, the
Vietnamese government is going to withhold more and more
information. When the United States government and when the
United States industry doesn’t have access to adequate
information to bring case, that’s just throwing, you know,
good money after bad. Our hands are tied because the Vietnamese
government is not an open and transparent government so we
can’t effectively use the laws we have and the trade tools we
have to combat that because they withhold that information from
us. 禄 Thank you very much. My name
is Lori, I’m the deputy director for trade and regulatory reform
at the United States Agency for International Development.
Some of your testimonies mentioned labor issues as well
as health and safety standards. Can you elaborate on that,
please, and how these problems affect your industry ies?
Thank you. 禄 Labor is an issue that — obviously they have an
advantage on us with labor, but that is a small, small part of
the overall cost of production when you look at catfish. The
primary cost is the cost of the raw material. You know, our fee
that we feed our catfish is made of soybeans and corn since
2006 we’ve seen the price of soy beans and corn skyrocket. We
have seen the cost of feed that we feed our cattle, we feed our
chicken, our swine, our catfish, we feed our pangac
pangacees, we’ve seen that cost skyrocket. In turn the price of
U.S. farm raised catfish has gone up. We have to pass that
raw material on. The price of pangacees during that time has
gone down tremendously. There is no correlation between the
price of the raw material input inputs and the price of
the end product they produce. You know, if the price of crude
oil goes up 100%, the price I pay at the gas pump cannot go
down 50% and make sense. But that’s what we see in the
catfish industry. 禄 NAZAK NIKAKHTAR: I’ll add in
our paper we talk about child labor issues in Vietnam and we
provide a bit on that. And with respect to food safety, it
it’s a politicize ed issue about catfish product inspection with
the FDA and the USDA, and we don’t need to get into that, but
I will mention that recently the U.S. Government found — I
think it was 2,000 cartons of contaminate ed seafood
seafood — catfish filets that came from Vietnam. There are
issues — the issues are continuing with products that
have carcinogens and contaminant s banned by the U.S. Government.
That is an ongoing issue and we don’t see any decline in that
being a big issue for the health and safety of U.S.
consumers. 禄 For shrimp, that is a huge
issue for us, and I think we all know and agree about the forced
labor issue and child labor issue that has occurred in some
particularly southeast Asian countries. The health and
safety of the product is another — the level of inspection in
this country is abysmally low by FDA. And in the order of 1-2%
now, I think up to 2%. We see a — have seen, when the levels
increase from 1 to 2% this past year, a significant increase in
the amount of rejection for shrimp. Now, is it a major part
of it? No. As a consumer, any is too much. I think what we
would like to see is what we’ve always talked about, and
everybody talks about it, and that’s the level playing field.
If there are a set of rules and regulations that apply to food
production in this country, they need to apply to food
production everywhere. And we ought to expect everybody to
obey those and ensure that they obey those.
Every consumer, all of us here and our children have the right
to that. Not for somebody to tell us that it’s probably safe
or it’s not really bad for you. If the standards are there,
they’re there. And that ought to be the bottom line for us.
禄 Level playing field is complete red herring. Complete
red herring. FDA has regulated seafood for the last 25 or — 22
to 25 years under the process. It is a model that Congress
used for the implementation or the expansion of FISMA to all
other foods. HASUP requires domestic and im
imported processes to use the same models of analysis.
So the domestic catfish industry and the import catfish industry
has used HASUP for the last 20 years and to suggest that im
ported is substandard from a food safety standpoint, both
regulated by FDA which suggests the domestic catfish problem had
problems, regulated under the same process, same thing with
the shrimp industry. The domestic shrimp industry and the
domestic — excuse me import shrimp industry both operate
under HASUP, and the requirement s for affirmative controls, that
is the basis by which Congress expanded HASUP HASUP —
excuse me, expanded FI FISMA, and that’s the process. The
results are even more telling. CDC collects the data on
illnesses reported. They had 390,000 injury ies for
hospitalizations over a ten- ten-year period. About 10,000
were attributable to imported food. About 1200 were
attributable to imported seafood .
Now, .13% I will take those odds , .13%. Anything is wrong, any
illness is wrong, but to say this is an unlevel playing
field, this has been the same playing field since HASUP was
introduced. I would like the last word on this because I’ve
had to listen to this. 禄 NAZAK NIKAKHTAR: We’re happy
to supplement with facts should you require it, substantial
facts to address those comments. 禄 Thank you. Thank you. I’m
afraid we’re at the end of our question and answer period. I
thank the panel for coming and very much appreciate all the
comments. Thank you very much.>>
>>>> >>I would like to ask our
panelists to introduce themselves and then we will turn
to your testimonies. >>I’m bob Denin Bob
Denine, president and CEO of the renewable fuels association.
>>Ann Stukel. >>And I’m bob com Bob
Comings, with the rice reditation fede
ration. >>Thank you for your time
today. We will turn it over to you.
>>Thank you, I thank you for the opportunity to be here today
and to testify today on what I believe is a very timely hearing
on an important subject. I have provided a slide deck for
you and we have provided the department detailed comments.
I’m just going to TOUMP touch on a few it
ems today. So in October, of 2010, that is
when China launched its first anti-dumping investigation.
And our industry had participated in that
investigation process, we responded to their audits, we
spent millions of dollars in that process for the
that lasted about 18 months when, finally, in the summer of
1220 2012, China said, eh, we are going to have it go away. It was never official that they
had not found any incidents of dumping, but I think they
realized that, hey, they really did not our feed product and
poultry farmers in chine a China were asking the
government to put that aside. So trade continued to grow
again. and, in facts, farcts fact, by 2014,
distillers fee to China represented half of our total
exports of that product. Again, China decided that they
were importing too much U.S. feed, so Christmas time in 2014,
they sum sumayoraly summarily cut off
shipments from the U.S. and required a certification process
for MRI, a trait that farmers had used. It is a root worm
trait, it helps them produce, as efficiently as they are.
have. And root worm traits have been
available for years, one company had completed the certification
process, there was a real question scientifically as to
whether or not China could identify that trait, but,
nonetheless, they decided that they had found it. We couldn’t
replicate their finding, and trade began to drop off.
Then China decided that they would require a certification
process, and U.S. producers had to certify that, no, we didn’t
have that trait in our distille r’s feed. And ethanol producers
don’t necessarily know what traits are in the corn that they
are processing, and we didn’t have a mechanism to require
formers farmers to c ertify whether they used that
trait or not, so distiller’s fee exports to China eVAP
vaporated, by the fall of 201 4, there were no exports to
China. So he had gone from essentially a billion dollar exp
ort market to nothing because China said they could find a
trait that we couldn’t identify. China approved the use of MIR
and sales again began to grow. UK S exports, or imports, were
beyond what they were comforta ble with, they then embargoed
several distiller’s grain shipments without explanation,
SERFBLT several months later they then began an anti-d
umping investigation, which concluded last fall u with
, with a 33 percent anti-dumpin g duty imposed.
They then imposed an additional duty on top of that, and they
have essentially eliminated distiller’s feed opportunities
from the United States. We continue to fight that, we
have not seen any evidence of yet that there actually was
dumping. , and the process has been exoPRORT TRORD t
raordinarily one-sided and unfair.
And going to the last chart that I have, then, just to talk
about ethanol, because the story is very much the same. We were
building an ethanol export market for STHINE China,
last year it had been our third largest export MARPTH
market, and our fastest-growing narcotics market. We
exported about 200 million gallons ofeths nol ELTH
ethanol to China. In January, they decided without
WRARNG and without WRARNG warning and
without any process to impose a 30 to 40 percent tef tar
RF rif on U.S. ethanol. It has eviscerated the markets, we
market, we have not shipped a dropped drop
to China since. It is a source of great fusteration, our
industry, like many other industries that we testified
before you today, need access to markets. Farmers, who are
being asking asked to sell commodities below the cost
of production need fair and free trade, and I would maintain
that consumers across the globe need access to the lowest cost,
highest octane, highest performi ng motor fuels that are availab
le and U.S. ethanol is indeed one of those. So I thank you
for having these higher hearing, I thank you for your
commitment to the mission of addressing these very serious
issues, and we look forward to workingwealth you with
you in the future as we go about making sure that, you
know, farmers and ethanol produce RZ rs and biofuel
produce recalls across rs across the globe
have free and open access. Speaker: Thank you. Ms. Stekl?
KBLRBLSH Speaker: Thank you for having me
today, I’m Ann Stekl with the bi national biodiesel board,
we represent renewable diesel producers in the United States.
Our members include feed stock, feed stock processer
organizations, biodiesel suppliers, distributeers, and
technology processors. So anybody in the process is a
member of ours. As you may know, biodiesel is a
reNEEBL, newable, clean-b urning diesel replacement, made
from ingredients SAUCH as re such as recycled Greek
grease and animal fats. We share the concern between the
growing trade and goods deficit between the U.S. and Indonesia.
This is fueled by increasing volumes of unfairly traded
traded imports from Indonesia, it is impacting our
workers and the farmers that supply much of the feed stock
for our industry. The U.S. strayed trade deficit
with endo Indonesia is the highest it has ever been, reachi
ng 16. $16.2 million in bill billion, the
highest increase since 2014. This grows from imbalance
between policies that discourage COURJ courage c
ourage U.S. ecports exp orts and stimulate endo
Indonesian imPORLTs. Increased p
orts. Increased imports is a major
factor in this trade impall B ALF. balance. Biodiesel
is one of the top 14 products contributing to the trade
deficit. Between frequent 2014 and 2016, the
trade imbalance with respect to bipo bi to biodiesel
has grown 95 percent. The only other good on par is
sports footwear. It warrants close examination. Unfair trade
practices has causeed a a certainly of surge
of imports, and national sub sid iization by the indonesian
government, and these practices have threatened to continue
injureing U.S. biodiesel producers that we represent.
The in endo Indonesian government maintains a biodiesel
subsidy fund that gives grants to producers. subsidy this program OORPS
has has given billions in grants. The government emp
loyed other tactics, including a high tax on crude palm oil,
preferential finapsing finals nancing, and taxes
from supporters. By taking advantage of these subsidies
sidy ies, indonesian exp orters are taking a greater
share of our U.S. market. These count for a substantial
proportion of imported biodi esel. rs FNT financial
contribution has gone back, causing the U.S. to pull back in
expansion in what continues to be a growing market.
This situation is untenable and likely to worseen. Low capacity
utilization in Indonesia, 34 percent, leaves unused capacity
for increased production that can be exported to the U.S.
This threatens the U.S. biod iesel industry and its
availability to contribute to the U.S. energy security.
Action must be taken. If the administration commits
itself to rigorous in forcement of the anti-dumping and counter
veiling duty laws, and the inves tigations initiated by the
comRSS merce department, it will help protect TECKT
tect American manufacturers and workers in the biodiesel
industry, and help to restore the balance of strayed
trade. Thank you for the opportunity to testify. We look
forward to working with the administration to address this
important issue. Speaker: Thank you. Mr. Com
cummings? Speaker: Thank you, I welcome
the opportunity to appear before you to offer comments on an
important topic, the causes of significant trade deficits.
U.S.A. rice is the global at advocate of the U.S. rice
industry to promote and protect TECKT tect rice producers
, millers, and allied business es. It contributes $34 million
in annual economic activity, it provides jobs and income for
rice producers and processors, and for all involved in the
volume alue chain, contribu ting 128,000 jobs. The U.S.
rice industry is open to intern ational trade, half of each
year’s rice crop is exported, and 85 percent of all the rice
that is consumed donestically mestically is produced
in the U.S. Our members have offensive and defensive market
interest in the majority of the 13 SCUNT countries listed
ain the TH in the federal register.
The industry is efficient, with exports exceeding imports by an
average of $1 1 $1.2 billion. Rice is one of the most heavily
protected crops in terms of domestic support, border prot
ection, and export controls. A majority of the listing of the
countries in the federal register notice, including
India, Japan, China, Taiwan, n intervene heavily in the rice
market and the result is restricted access for U.S. rice
and unfair computation in foreign markets.
U.S. rice joined with other groups to look at the export
policies of several advanced developing countries, including
China, innedia, and SX India, and VEETt
SX and Vietnam. That report, and NAUL low-
SX and follow up analysis, found flagrant
violation of the country’s WTO obligations in the form of
excessive PRORDer support producer
supports, with the effect of boosting domestic rice pro
duction. The impact of China’s policies
is significant and relevant. China’s domestic support of rice
prices has disdort torted the internal market, with PR
IGES PRISEZs prizes well prices
well above world levels. The result is a surge of imparts,
Z ports, China is an exp orter of 2 to 3 million tons.
U.S. exporters are unavail able able to take
advantage of this demand because China officials will not
sign a U.S.-son ino protocol yield about yields, even
though it it was it was agreed on in between
2014. Perhaps 50 metric tons per year
initially, growing to 250,000 tons. Chine a’s inaction is
contribute to the U.S. trade deficit.
The U.S. international trade commission in April of 2015
published the results of a comprehensive study called rice:
Global competitiveness of the U.S. industry, at the request of
the committee on ways and means .
The U.S. examined rice policies in many countries of
interesttide today and reached a similar conclusion to
U.S.A rice analysis. The export would have been 1.3
metric tons higher if tar RFs and rifs aps were not
put in place. These agreements are key to the
rice industry andry reducing trade deficits.
When there are good trade agreem ents, increased exports follow.
Look at the Uruguay agree agreements, the establishment
of the WTF, NA and NATO. NAFTA made mex Mexico the
number one exporter for rice. The U.S.-columb u LUM B
lumbia deal created a new market for U.S. exports.
Strong use of dispute settlement mechanisms are key to prie
sthooding produci ng exports.
Without the right to enforce the rules through binding dispute
settlement, it would be difficult or impossible to
address XHAEN many of the obstacles standing in the way of
increased exports. U.S. rice exports in isolation
will not SAEVL solve the trade deficits identified in the
federal register notice in the subject of today’s hearing.
Action by the U.S. government to support exports from America’s
highly efficient agriculture sector is an important part of
the solution. This means that first and foremost comprehensive
trade agreements, that open m arkets and provide for commer
cially-meaningful access. Rigorous enforcement goes hand
in hand with trade agreements, these policies are essential to
achieving the level playing fiel d of free and fair trade, which
U.S. rice and agriculture seek. Thank you for your time.
Speaker: I would like to thank the panelists for their comments
today and will turn time over to my colleagues on the panel
here to ask questions, ask each of THERT them to introduce
themselves when they address the panel. We will start with
our colleague from USGR. Speaker: EdGres SRKS Gr
essor with USGR. Mr. Cummings, some of our major exports are
those with free trade agreements , such as Mexico and Columbia,
can you talk about the features of those aGRUMENTs g
reements that are BENL beneficial and give a QUAUNL
Tification quantification as to how much
they helped the industry. Speaker: Well, Mr.Gress G
ressor, each agreement is dif ferent for each of the countries
involved, and they reflect generally, however the sensi
tivity of rice in the countries that we have a trade agreement
with. Rice is sensitive in most countr
ies, and the trade agreements that result tend to have very
specific provisions for rice, they tend to be very heavy on
ter tarrif quotas and prov ide for long phase-outs of dutie
s before we get to free trade. The most recent agreement is
with Columbia, a phase out of 18 orphony year ez 19
years, and it is dependent on a tar RF- Purchase ri
rif free quota that a llows the U.S. to export
competitively. So, we have on the one hand TRQs
that are used in the CAFTA agreement, in Mexico, in NAFTa,
it NAFTA, it was a 10-year phase out of duties. In
Mexico mex Mexico, you are facing a smaller industry.
So while politically sensitive, it had less the political impact
than the industry in Columbia. agreement and the opening that
happened there, we are dealing with initially two, and then
followed by Taiwan when it joine d the organization.
Countries that were very high income had very high costs of
production, and a lot of politi cal protection for rice, also
heavy involvement by the governm ents of those countries. SO
THAT AGREEMENT SET UP A SYSTEM WHERE BY GOVERNMENTS IN EACH
COUNTRY WERE COMMITTED TO IMPORT A SET AMOUNT OF RICE FROM WTO
MEMBERS. AND SO, WE ARE DEALING IN THAT
CASE WITH STATE ACTORS, WHOSE I NTEREST IS PROBABLY — THEIR
LAST INTEREST IS PROBABLY DEALI NG WITH FOREIGN SUPPLIERS, THEIR
FIRST INTEREST IS TO THEIR OWN CON STITCH WBTS WANT
CH STITUENTS. THAT SETS UP A CONSTANT VIGILANCE TO MAKE
SURE THOSE AGREEMENTS ARE IMPLE MENTED.
SO I WILL STOP THERE, I DON’T K NOW IF I ANSWERED THE WHOLE
QUESTION, IF THERE ARE PARTS I DIDN’T, PLEASE LET ME KNOW.
>> SPEAKER: THANK YOU. I HAVE A
QUESTION FOR MS. STECK STEKL.
IT IS OUR UNDERSTANDING THAT INDONESIA’S MARKET SHARE IN THE
U.S. OF THE BIODIESEL FUEL PULL DECREASED IN 2016. ARE THE EGIN
AL ELIGIBLE EPA EXPORTERS THAT YOU CITRIX CITE AT
INCREASED CAPACITY IN 20PHONY IS?
>> 17? >> 17?
>>I REFERENCED 2014-2016, AND THOSE ARE THE ELIGIBLE REPORTERS
THAT CAN USE THE U.S. PROGRAM THROUGH EPA.
>>GOOD, YES, MR. DINAN. YOU STATED CHINA IS ‘S DISCRIMIN
ATORY POLICIES HAVE ADVERSELY AFFECTED U.S. EXPORTS OF ETHANOL
AND DISTILLED GRAINS. YOU ALSO ASKED THAT REFORM OF THESE
POLICIES BE INCLUDED IN ANY POTE NTIAL UPCOMING TRADE NEGOTIATIO
NS WITH CHINA. WHAT SPECIFIC CH ANGES ARE YOU SEEKING TO ADDRESS
THESE CUNTD KINDS OF TRADE-DISORTED TORTING PRACT
ICES? SPEAKER: WELL, WE ARE LOOKING
FOR ACCESS. SO WHEN CHINA WILL, YOU KNOW, ANYTIME IT LEAVES
BELIEVES BELIEVES U.S. IMPORLT PORTS ARE TOO
HIGH, OR THEIR OWN DOMESTIC CORN AND FEEDS ARE GROWING, THEY —
YOU KNOW, SOMEWHAT ARBITRARILY SHUT OFF TRADE U AND SOME
, AND SOME CONSISTENCY. YOU CANNOT PLAN AS AN INDUSTRY,
AS A BUSINESS, WITH WHEN ONE WHEN ONE OF THE
MAJOR TRADING PARTNERS CAN UNIL ATERALLY, AT A MOMENT’S NOTICE,
JUST DECIDE, NO, WE ARE GOING TO CLOSE THE DOORS.
SO, YOU KNOW, WE JUST NEED SOME CONSISTENT AND ENFORCEABL E REGULATIONS THAT WILL ALLOW US
TO COMPETE. >> .
SFEEKER: SPEAKER: GOOD AFTERNOON, I’M LOR
I BROCK WITH THE UNITED STATES NATIONAL DEVELOPMENT. MR. CUMM
INGS, YOU STATED THE NEED FOR COMPREHENSIVE TRAITED
TRADE AGREEMENTS THAT WILL RED UCE THE DEFICIT. DO IS THERE
A PREFERENCE, OR DO YOU HAVE AN IDEA FOR THE BILATERAL OR MULTI
-LATERAL, WHEN WHAT ARE THE BENEFITS OF ONE OVER THE OTHER
IN THE INDUSTRY? >>
SPEAKER: SORRY, I DID NOT HEAR THE END PART OF THE QUESTION.
SPEAKER: DO YOU FEEL THERE’S A PREFERENCE FOR YOU BETWEEN THE
BI-LATERAL OR USING THE MULTI-L ATERAL SYSTEMS FOR THE TRADE
AGREEMENTS. SPEAKER: AS AN INDUSTRY, WE HAVE
BENEFITED FROM BOTH, I WOULD S AY.
SO I THINK THAT, I DON’T THINK THAT WE ARE HOLDING FASTLY TO
ONE OR THE OTHER, EITHER BI-L ATERAL OVER MULTI-LATERAL. WE
ARE LOOKING FOR NEGOTIATIONS, WHICH HAVE THE OPPORTUNITY TO
BRING REAL ACCESS FOR OUR INDUS TRY AND FOR AGRICULTURE.
I THINK THAT’S DEPENDENT UPON THE NEGOTIATING CIRCUMSTANCES AT
HAND, AND SO WE DON’T, FRANKLY, GET TOO HUNG UP ON ONE OR THE
OTHER. WE ARE FIND OF LOOK KIND OF LOOKING AT
WHERE WE ARE GOING IN, AND DOES IT LOOK LIKE ALL OF THE PARAM
ETERS ARE THERE, ALL THE INGR EDIENTS ARE THERE, TO PROVIDE
FOR A SUCCESSFUL OUTCOME ON THE OTHER HAND END. SPRAEF
SPEAKER: SPEAKER: THANK YOU.
SPEAKER: OKAY, I THINK WE HAVE REACHED NEAR THE END OF OUR PANE
L. WE WILL THANK THE PANELISTS FOR EACH OF THEIR TESTIMONY AND
TIME, WE LOOK FORWARD TO THE CONTINUING THE DIALOGUE
WITH THEM. THANK YOU. SPEAKER: THOUR THANK YOU
VERY MUCH. SPEAKER: THANK YO U. …
… …
… … #
… … …
… 禄 Good afternoon. I’d like to
thank you all both for the comments you’ve already put in
and for coming today to give your testimony. This is our
next panel on manufacturing. So just for structure of the panel
, if we could I would like to ask that each of you to briefly
introduce yourself, your name, where you’re from. Just go down
the line. And we’ll start back at the beginning. You can give
your testimony and then we will move to questions.
禄 PAUL CICIO: Paul Cicio, president of industrial energy
consumers of America. 禄 KEVIN DEMPSEY: Kevin Dempsey
Dempsey, senior vice president public policy general
counsel for American Iron and Steel Institute
禄 CELESTE DRAKE: Celeste Drake Trade Policy Specialist for AFL
AFL-CIO. 禄 STEPHEN EZELL: Hi, I’m
Stephen Ezell, vice president of Global Innovation Policy Information Technology and
Innovation Foundation. 禄 MARC FASTEAU: Marc Fasteau,
coalition for prosperous America .
禄 JESSE GARY: I’m Jesse Gary. Century Aluminum.
禄 I’m part of the manufacturing division. And I think we’ll
introduce ourselves as we do the questioning so we can get right
to the testimony. 禄 Good afternoon, my name is
Paul Cicio, president of the Industrial Energy Consumers of
America. And we are a trade association, member companies,
energy intensive and trade exposed.
We have combined revenues of over a trillion dollars and
employ 1.6 million people. The price of natural gas and
electricity largely determine the ability of these companies
to compete, especially with foreign companies who are often
state-owned enterprises and subsidized by their countries.
The purpose of this testimony is to thank President Trump for
his support of the manufacturing sector and to warn the
administration that further approvals to increase exports to
non-free trade countries is a terrible mistake mistake.
It will cost manufacturing jobs and exports.
Approval of exports to non-free trade countries, reward them for
not having a free trade agreement or fair trade
agreement. It reduces the administrations
leverage in negotiating bilateral fair trade agreements
that opens markets for U.S. manufacture ed goods and reduces
and actually eliminates the natural gas cost advantage that
domestic manufacturers have. Total export approvals have
grown significantly to 96% of 2016 consumption. Let me repeat
that. What has already been approved for free trade and non-
free trade equals 2016 consumption of gas in the United
States. This is a stunning significant amount of natural
gas. And the Trump administration has signaled
support for many more approval s approvals.
Decisions being made today approve — decisions being made
today to approve more export volumes for periods up to 30
years, once these approvals are locked in legally, it’s too late
to stave off future potential crushing demand and higher price
s. The Obama administration failed
to legally conduct public interest determinations under
the natural gas act by not addressing cumulative negative
impacts of LNG export volumes to free trade and non-free trade
volumes. It is for this reason that we
are advocate ing to the Trump administration to halt approval
approvals and create a safety valve for domestic
consumers. The Natural Gas Act reflects the
full intent of Congress and consistent with President Trump
Trump’s view for America First.
It is timely to note that at this very moment the Australian
government is restricting LNG exports to address their
domestic shortages of natural gas. The Australian government
failed to put in consumer safeguards in place and as a
result LNG exports have driven up domestic prices. Australian
manufacturing company competitiveness has been greatly
damage ed and power companies in Australia have switched from
gas to coal. Key points. Number one, the LNG
market is not a free market market. It’s not a fair
market market. Buyers of LNG are state-owned enterprises
or they are electric utility ies or gas utility ies of these
countries that can pass all of their costs on. They are
insensitive to price unlike U.S. manufacturers.
Number two, EIA data confirms that the so-called 100-year
supply of natural gas is a myth. EIA says there’s only 53 years
of supply. At current demand. Number three, EIA data confirms
that already approved LNG export volumes to non-free trade
countries only, 19 point cumulative demand, only 33 years
away, consumes up to 80% of U.S. technically recoverable
natural gas resources. Point number four, EIA, AEO2017
is predicting Henry hub natural gas prices increase 51%. And
118% by 2025. And this price forecast only assumes 10BCF a
day of LNG exports. Number five. EIA2017 combine ed
with the October 2015DOE LNG export report suggests that LNG
exports accelerate consumption of low cost shell natural gas
with a breakeven cost all the way up to $20 by 2050.
Lastly, number 6, October 2015D October 2015DOE
LNG export study concluded that LNG exports increased domestic
prices, lowers natural gas price s for our foreign manufacturing
competitors, especially in Asia. A lose-lose for manufacturing.
Thank you again for this opportunity to speak with you.
禄 Thank you very much. 禄 KEVIN DEMPSEY: Thank you.
Again, I’m Kevin Dempsey with the American Iron and Steel
Institute, the trade association for the U.S. steel industry
also represent iron or ore produce ers. The U.S. steel
industry today employs about 140,000 people. That’s down
some 14,000 people in just the last two years because of a
number of very significant unfair trade practices.
The United States runs significant trade deficits in
goods with many foreign countries. While there are many
factors that influence international trading patterns
and deficit levels of principle concern to AISI are foreign
practices including subsidy ies and trade distorting policy ies
that have fueled repeated surges of dumped and subsidized steel
imports into the U.S. as well as policy ies and practices that
burden or restrict U.S. exports of steel and steel-
steel-containing goods. I would like now to review our
comments with respect to several countries with whom we have
significant trade deficits in goods.
We must start with China, where significant trade distortions
have caused by Chinese government policies contribute
to a massive trade imbalance that has impacted the American
steel industry both in terms of direct trade in steel and in
terms of the significant number of imports of steel containing
manufacture ed goods that have disrupted the entire steel
supply chain in the United States and reduced domestic
demand for steel in the United States.
The large volume of Chinese steel exports in recent years
has been fueled by massive Chinese steel over capacity,
which is the direct result of distorted Chinese industrial
policies and wide range of subsidy ies.
In the case of Korea, we are concerned about both the large
auto trade deficit, given the American steel industry’s role
as a major supplier to the U.S. auto industry, but in addition
we’re concerned about the significant U.S. steel trade
deficit with Korea that has been driven by large volumes of dump
ed and subsidized steel im imports. While there have been
a number of orders imposed on Korean steel products,
unfortunately the level of relief granted in many of these
cases has been too small to have a significant effect on the
volume of Korean imports. In addition part of the Korean
steel trade problem, we believe is related to China, as the
Korean steel market has been flooded with imports of cheap
Chinese steel products that have distorted their own market and
market prices and have fuel fueled exports of dumped down
downstream steel products where Korean produce ers are
taking Chinese products for the processing and exporting on to
the U.S. With respect to Japan, the large
U.S. trade deficit in auto parts — in auto products has
been a significant matter of concern to industry. As you
know there are a variety of non- tariff barriers that traditional
ly impede ed access to the Japanese auto market, and also a
significant trade deficit in steel with Japan as Japan has
been a significant exporter of dumped steel products into the
U.S. and we have had great deal of difficulty exporting much
steel to the Japanese market. A new player in terms of trade
deficits in steel is Vietnam, where we saw a very significant
increase in the steel trade deficit just last year in 2016,
as steel imports from Vietnam increased dramatically, growing
by over 330% in just the one year.
Part of this — of the increase in Vietnamese imports we believe
is due to Chinese efforts to circumvent the anti
antidumping and countervailing duties on steel sheet products
from China by shipping those Chinese steel products through
Vietnam for further minor processing, but in addition the
Vietnamese government also has an explicit industrial policy
plan to promote the growth of its own steel industry and to
increase its exports. Similarly, in India, the U.S.
steel trade deficit is due to some more Indian government
policies to provide protection and support to its domestic
steel industry, the Indian industry operates in a highly
protected and controlled environment characterized by
high tariffs on steel imports, substantial subsidy ies,
government control over prices and state allocation of resource
s through its ministry of steel, the Indian government has
developed a series of national steel policies coordinate ing
government assistance and dramatically increasing steel
production. Finally, turning to our North
American neighbors with respect to Mexico, we’d like to note
that while the U.S. has a bilateral trade deficit,
significant portion of that deficit is due to trade in
automotive automobiles and machinery to steel intensive
goods categories where American steel is a major input.
In fact, the United States had a steel trade surplus with Mexico
of $1.7 billion in 2016 and U.S. steel exports to Mexico
have averaged $4.2 billion a year over the last three years.
Mexico is, in fact, the U.S.’s second largest steel export
market African da. — African da.
Finally with respect to Canada, we know this is top market for
U.S. manufacture ed goods primarily and American steel.
Exports steel to Canada have averaged $5.5 billion a year for
the last three years and we run a small trade deficit in steel
products in value terms with Canada as well. I think this
reflects the strength and balance of the U.S.-Canada
relationship and strength of supply chains.
Thank you for the opportunity to testify and I would be happy to
answer any questions. 禄 Thank you.
禄 CELESTE DRAKE: Mr. Chairman, members of the committee, good
afternoon. I appreciate the opportunity to testify on the
causes of significant U.S. trade deficits. I submitted written
testimony and will highlight particular issues here for the
record. The federation of America’s
trade union, we assist 12.5 million working men and women to
exercise their voice in the workplace. We work globally to
ensure that governments and firms respect fundamental labor
rights and enact sustain sustainable growth policy
policies to promote broadly shared prosperity. For decades
U.S. workers have been battered by near-sighted U.S. trade
policy that responds to the insatiable desires of global
corporations that use the U.S. as a flag of convenience to
access ever-lower labor costs, ever-fewer regulations and risk
free profits. U.S. trade and tax policies, shunting the risk
risks of trade on families. Racking up record trade
deficit deficits, U.S. trade policies have utterly
failed to support decent family wage jobs and a growing middle
class in the U.S. The large sustained structural U.S. trade
deficit both with the world and with individual countries
including China, Japan, Germany, Ireland, Vietnam, Mexico, Korea
and Canada, cost jobs, pushes down U.S. wages and contributes
to our historically high ine inequality. To put it in visual
terms that many can relate to, inequality in the U.S. is far
worse than that portrayed in the recently ended PBS series “Dowt
on Abby” .” Working poor are far worse off that servants.
Trade deficit with China alone cost 3.4 million jobs from 2001
to 2015. Most in manufacturing. Manufacturing jobs are
especially valuable because of their multiplier effect and role
when combined with sufficiently dense trade unions as an
effective pathway to the middle class.
This job led to labor market with more slack than it should
have, making it harder for workers to organize and collect
collectively bargain for better wages. Even in industry
ies that don’t directly lose jobs to im import competition.
The importance of labor unions to build ensure prosperity and
more inclusive economy has been given a nod in U.S. trade policy
even as other rules were put in place in NAFTA, CAFTA and U.S.
Korea and other deals that made it harder for workers to form
unions and raise wages. We urge the U.S. Government to reverse
the cycle, working with Congress you have the power to reform
U.S. trade and economic policy ies in ways to reduce trade
deficit, create jobs and raise wages.
These same policy ies will help address the secular stagnation
that is still holding back demand and economic growth
globally. The single most important thing
the U.S. can do to reduce the trade deficit with Mexico is to
raise Mexico’s wages. This means not only updating and
strengthening the labor provisions in NAFTA but other up
grades to reduce excessive corporate power, including
eliminating investor to state dispute settlement, adding new
provisions that prevent tax base erosion, protecting public
interest regulations and promoting public infrastructure
investment. To address $347 billion trade deficit with China
, the most important thing the U.S. Government can do is
address currency manipulation and misalignment. This would
affect our trade balance not only with China but with other
Pacific countries whose currency values are strongly influenced.
While it is true that China’s most recent interventions have
been to prop up rather than reduce the value, in addition we recommend
the administration pursue comprehensive and vigorous trade
enforcement including but not limited to dumping, illegal
subsidy ies and labor and environmental regulations,
strictly hold China to world trade organization obligations
including regarding state-owned and state-supported enterprises
enterprises. Market access, national treatment, and
intellectual property obligations. Address China’s
overcapacity, particularly in steel and aluminum, which
present threats to both our economic and national security.
Ensure China continues to be classified as a non-market
economy. And implement a comprehensive manufacturing
policy here, including support for advanced manufacturing,
infrastructure, worker training training, clean energy
initiatives and export promotion and eliminating tax policy ies
that reward companies for moving U.S. jobs offshore.
I thank the committee for its time and would be pleased to
answer any questions you have.>> Thank you.
禄 STEPHEN EZELL: Good afternoon . I’m Stephen Ezell with the
Information Technology and Innovation Foundation, a non-
profit non-partisan economic think tank here in Washington.
I commend the administration for undertaking a serious
investigation of the causes of U.S. trade deficits, which for
too long have been dismissed as a problem by the prevalent
Washington consensus. Long- Long-term trade deficit,
like a large federal debt, represent a debt that future
generations of Americans must repay. Also see challenges to
U.S. competitive competitiveness as well as
possibly the presence of system systemic unfair trade
practices by America’s trade partners. As it undertakes its
investigation, I would commend the administration to keep three
core focuses, first of trade sectors, event technology
technologies and third innovation mercantile ist.
First we urge you to consider trade balances not just in goods
but across all sectors which compete in international
marketplaces and sold to non- non-residents othe nation,
not just manufacturing but also services sectors like software
and the Internet and content like music, movies and video
games. Second, the investigation should
recognize that not all trade deficits are create ed equally
and place primary focus on countries aggressively using
unfair innovation mercantile ist trade practices to disrupt
global markets and disadvantage U.S. competitors. This means a
substantial focus on China. A country single handedly
responsible for 50% of the U.S. goods trade deficit in 2016 and
46% of the aggregate U.S. global trade deficit in goods over the
past eight years. America’s 347 billion trade deficit in
goods with China in 2016 is five times greater than the level
with Mexico and far more than the pittance of a $13 billion
deficit with Taiwan or Switzerland last year.
China represents a systemic threat both to the U.S. economy
and to the entire international economic system. The country
fills every form of mercantile mercantilist
imaginable, from technology transfer as a condition of
market access to massively subsidize ing industries, sector
s like solar to glass to steel to auto parts.
Moreover and more importantly, China fundamentally rejects the
notion of comparative advantage on which global trade is based.
And it seeks absolute advantage in virtually all advanced
technology industries. Nowhere is this more clear than China’s
national integrated circuit strategy, which calls by 2025
for the development of a completely closed loop
semiconductor manufacturing development ecosystem within
China and explicitly calls for having U.S. export in China 50%
in ten years and eliminating entirely by 2035. This is a
country that wants to close access to U.S. and other foreign
competitors while maintaining for itself un unfettered
access to global markets. That’s not sustainable. More
than that, as colleagues have note ed, China China’s use
of unfair mercantile ist policies compels other nations
in the region to feel they have to emulate these policy ies in
order to keep up with China’s growth.
And while unfair, these policy policies have had a clear
effect. China has surpassed the United States now as the world
‘s largest exporter of high technology products with 24%
global share, and shockingly in 2011, the U.S. im imported
560% more advanced products from China than export
exported to that country. That trade imbalance as my
colleague said has led to 3.4 million jobs being lost in the
U.S. economy, three quart quarters in manufacturing, over
the past decade. We’d also like to add that the
focus needs to be not just on trade deficits but trade
barriers and we should go after countries, mercantile ist
policies whenever they affect America’s advanced industries
whether we run trade deficit with those countries or not. so
Canada and its promise doctrine doctrine, which has led
to the invalid addition of 25 pharmaceutical patents over the
past decade, this caused U.S. pharmaceutical companies $1
billion in lost sales. Finally, we hope this analysis
leads to better trade and manufacturing policy on the part
of the U.S. We would call for the creation of a national trade
sector component strategy that looks holistic cally how to
improve policy to bolster the trade sectors.
Two more points. We think that a new tool to
understand the effects of other companies mercantilist policies
can tillist practices on America ‘s economy is needed. We should
create these and putted them together
to identify the countries doing harm to the U.S. economy.
Finally while we do have allies with some faults like Canada,
Japan and Europe, we have to recognize we need to work with
these companies in the future to develop trade agreements and
collectively push back against unfair practices of China.
Thank you. 禄 MARC FASTEAU: Thank you very
much for the opportunity to present CPA’s views on the over
overvaluation of the U.S. dollar and its effect on the
trade deficit. The U.S. dollar is over-valued at least 26%
against the trade weighted basket of non-U.S. dollar
currency ies and even more against other particular major
currency ies. This over-valuation is a major
cause of the trade deficit and makes imports cheaper and makes
our exports more expensive. It It’s important to note that
this effect is greatest on manufacturing companies and
their jobs since manufacture ed goods are the largest component
of the trade deficit, approximately $750 billion in
2016. So the gains from ending this
evaluation would be very large. For example, a 20% de-valuation
would increase net exports by about 3% of GDP or $560 billion
based on 2016 economy. Well, why is the dollar over-
over-valued? Several causes. Really that’s a key
point. One is currency manipulation. You You’ve
heard a lot about that. China did it on a massive scale from
2004 to 2014. Japan also. Many other countries continue to do
it today. Maybe not the major ones, but this is a tactic. It
is very likely to resume when these countries want to offset
increases in the values of their currency or for one reason or
another want to push the value of their currency ies down
further. It’s not off the table.
Another very important and not that well recognized cause of
dollar over-valuation is private capital flows into the U.S.
security ies markets. Foreigners consistently buy more
U.S. dollar denominate ed security ies than they sell and
to do so they sell their own currency ies to buy dollars, so
they can buy these securities. What this does is create buying
pressure that drives up the dollar against all other
currency ies. Private capital inflow is very
large from 2000 to 2010, it was 3.8 times larger than the
amounts that foreign central banks spent to drive up the
dollar and from 2010 to 2015, the average net private inflow
was $150 billion a year while during this period central banks
were not buying, they were actually selling over 100
billion of U.S. securities a year.
So this is a big factor. Now, why are these private
capital flows taking place? First of all, the dollar is the
leading reserve currency in the world, and this makes it
enormously attractive store of value for investors. Secondly
the U.S. securities markets are the largest and the most liquid
liquid. Pi their too safest in terms of the rule of
law and especially attractive in period periods like now
when interest rates are liar and rising fast faster in the
U.S. than in other markets. What are the policy implication
implications of this picture?
I mean, the big takeaway is that we need an array of tools to
deal with dollar over over- over-valuation. No single
tool or policy is going to get it done. We need manipulation
by particular companies, we need countervailing duties. We
should treat it as a countervail ing subsidy under the WTO rules
and also a threat to national security under U.S. domestic
trade law. The key here is to be proactive
proactive. Impose the countervailing duty, then defend
its legality. Not the other way around. The other way
around is prescription for remedy ies that come far too
late while damage continues to take place.
Another technique we need to have in the toolkit is
countervailing currency intervention. This is very
simply, when other countries hold and horde U.S. currency or
go into the market to buy dollars to push the dollar up,
either our fed or treasury can do exactly the same thing. It
It’s permissible under relatively new changes in the I
IMF rules and it’s something we should be prepared to do, and I
think someone suggested on an earlier panel we should signal
that we’re prepared to do this under the proper circumstances.
Finally, for systemic over- over-valuation due to private
capital flows, we should strongly consider something
called a market access charge. This proposed by John Hanson,
former world bank economist and expert on this.
Here is how it would work. It would charge each foreign buyer
of a U.S. dollar security from a U.S. resident a small
percentage of the purchase price. This would lower the
effective yield for the buyer of the security, making it less
attractive and thereby reducing demand for U.S. dollars. This
would mean less buying pressure on the dollar and that would
cause its value to fall against all other currency. This is
systemic remedy rather than targeted at a particular country
or currency. The charge would start small,
say, 50 basis points, and adjust up or down as needed to move
the trade deficit in the right direction.
The max charge would not be enough to discourage long-term
investment or foreign direct investment, but it would reduce
short-term trading that adds little or no economic value to
the U.S. economy. It has several other virtues, one of
the main ones is that unlike a lot of other policy measures, it
would be geared directly to what really matters, which is
the trade balance, not some intermediate financial
indicator. So you move it and you see what
happens and you adjust it, either slow it down and increase
the effect or you get close enough to balance and we know it
‘s never going to be zero, but if you get within, say, a 1%
range, it would go directly to zero.
Another good thing about it is there’s no need to prove
manipulation, which is very tricky under IMF rules. No name
ing and shame ing, the United States simply adjusting its own
currency toward balance. And finally it would produce a
large pot of revenue that could be used for any non-recurring
government purpose because over time, four or five years, one
would hope this goes pretty close to zero.
So this is — I only hit some of the high points in my testimony
, because limitations of time. I’d be happy to answer any
questions that you have. Thank you.
禄 JESSE GARY: Good afternoon. My name is Jesse Gary, executive
vice president and general counsel of Century Aluminum.
Century is the largest producer of aluminum in the United
States. On behalf of my 1800 colleagues I would like to thank
you for the opportunity to testify today.
This hearing on trade deficits comes at a critical time for the
domestic aluminum industry. Century is one of only two
primary produce ers in the U.S. in Kentucky and South Carolina.
Five years ago there were 14 aluminum smelters in the United
States and today there are five five. Just last year there
are three U.S. aluminum refine ers providing smelters, today
there is one. U.S. jobs and primary aluminum
production have fallen nearly 60% since 2013. And conditions
have only worsened since. This unfortunate situation is
largely the result of rapid unnecessary government driven
capacity expansions by aluminum produce ers in China.
Starting in 2001 when China joined the WTO, Chinese
government planners made a strategic decision to develop an
aluminum industry using state support. The result has been an
extraordinary buildup of aluminum production that exceeds
demand in China and elsewhere. Chinese aluminum production
skyrocketed growing more than 1200% from 2000 to 2015. This
rate continue ed to increase since. Chinese produce ers are
now responsible for by far the largest share of aluminum
production in the world and based purely on commercial
considerations this would not have been possible without the
intervention of the Chinese government.
Like other industry ies in China , it’s aluminum produce ers rely
on substantial illegal financing from Chinese
government control controlled banks. Despite poor
financial performance and weak balance sheets these un
uncompetitive zombie companies receive credit further fueling
China’s massive aluminum producing capacity.
For example, Hong Cho a private aluminum producer located in Ha Handao province
. In only a few years it’s gone from a textile company to the
world’s largest aluminum producer. It was only able to
do this with massive government subsidy ies. After a report
earlier this year indicate ing that the company had been
fabricate ing financial statements for years through
under-reported costs and government subsidy ies, the
equity was suspended and forced to meet certain debt obligations
. Rather than let debt-ridden
company fail, however, the Chinese government through state
-owned and controlled banks provided with sizable government
bailouts. Equity is still suspended today.
It’s been well-documented in the press, they are not alone as
countless other state-owned enterprises continue to be
propped up by the Chinese government.
The result of this enormous government support has been a
significant trade imbalance in aluminum between the U.S. and
China. Primary aluminum demand is driven primarily by the
consumption of semi-finished aluminum products such as sheet
and extrusions. In China, much of this consumption is driven by
government directed stimulus programs particularly in the
construction sector, but production increased far faster
than demand in China, leading to growing volumes of Chinese
aluminum exports. Each ton of finished aluminum
exported by China replaces a ton of primary aluminum that would
otherwise have been produced in the rest of the world.
In the United States, imports of Chinese semi-finished aluminum
products increased nearly 200% from 2008 to 2015.
Over the same period U.S. primarily aluminum production
saw more than 40% and fallen further since. United States
was the fourth largest aluminum producer globally as recently as
2013. It was the tenth largest producer last year and this
year it will be the 13th largest . This is all despite the U.S.
being the second largest consumption market of primary
aluminum in the world. Chinese over-production has
crashed aluminum prices. As a global commodity, aluminum price
s ultimately reflect total global supply and demand for the
metal regardless where it is produced sold or store ed.
As a result China’s unnecessary and unjustified production
expansion has depressed an suppressed aluminum prices both
inside and outside of China. These trends have a huge
negative impact on the U.S. aluminum industry, which has
seen dramatic declines in capacity, production, revenue
and employment. U.S. produce ers of key inputs to aluminum
filters are suffering as well. In other words, adverse effects
of Chinese aluminum over- over-production are severe and
being felt throughout the value chain in the U.S.
In January of this year, the U.S. Trade Representative
requested WTO dispute consultation with China
concerning the massive and injurious subsidy ies that the
Chinese government provides to primary aluminum produce ers.
Century welcomes this case as a promising step to address
harmful effectings of Chinese aluminum over-production and
illegal subsidization. The key of this case is it directly
addresses root cause problem facing our industry, namely the
illegal financial subsidy ies and other state support that
enable enables the Chinese over- over-production.
Since the case was filed aluminum prices stabilize ed and
some what increased. However, more action is needed.
Almost immediately after the case was filed, the Chinese
government responded with new environmental restrictions to
cut production. Yet China is showing no real signs of cutting
production just by the recent commitments to do so.
Significant additional capacity has come online since these
announcements were made, and Chinese aluminum capacity is
predicted to grow by 12 million-tons over the next few
years. Just to give scope, that’s 20% of the current
worldwide market. A significant percentage of this
production was directly or through circumvention will un
undoubted doubtedly target ed in U.S. market if left un
restrained. . Century greatly appreciates the
work being done by USTR and the Department of Commerce to better
understand the factors contributing to U.S. significant
trade deficit with China and other countries, until Chinese
over-production effectually address, over-
over-production will persist and workers continue to suffer.
Appreciate your time. Thank you.
禄 So we’ll proceed to questions questions. We do have
limited time, so I think we’re going to try to get the panelist
s each to get a question in and hopefully get a question to each
of you. So I’ll lead off, and if the
questioners could just state their agency and names so that
we have it for the record. So Mr. Cicio, for you in your
testimony you refer to estimates of impacts financial gas
exports on U.S. national gas exports and crisis and how this
impacts U.S. consumers as well as manufacturing in general.
Do you have any estimates of how liquefied natural gas exports
have impacted or will impact the overall trade deficit ?
禄 PAUL CICIO: We do not have a study. The only studies that
exist today are studies done under the Obama administration,
the Obama administration did three study ies as they
considered approvals. But each of these studies, as I have said
in my testimony, failed to account for estimate ed export
volumes to free trade country ies and non-free trade
countries. They only did a study on non- non-free trade
export volumes, and so they did not capture the potential
economic impact to manufacturing jobs to the U.S. economy at
large. They only got a small piece of it. So there’s been no
study and this is why we are asking for a halt. Let’s do the
appropriate public interest determination study that is
called for under the Natural Gas Act, combine those volumes and
then make decisions from there. 禄 Thank you.
禄 Hello, I’m Carol from the economic bureau at the state
department. I have a question for Mr. Dempsey. How do you
view the approach to engaging China multilaterally on steel
overcapacity, specifically ily the G20 global forum on steel
excess capacity? 禄 KEVIN DEMPSEY: Thank you. We
view the G20 process the global forum on steel over-
over-capacity as a very critical part of the effort that needs
to be taken to address the underlying problem for the
global scale industry, which is the massive over-
over-capacity. So we’re very pleased that, you know, that
group was set up and that there is very broad support for the
U.S. Government position from a number of our allies, from the
European Union, from Japan, from Latin America. Really from
most parts of the world. So I think it’s a very positive forum
, however, it has its limitations. To date, China has
really resisted even share sharing of data in the context
of the global forum, and has slowed progress in that effort.
So we’re certainly interested in doing everything we can to
make that process as effective as it can be. I don’t think we
view the global forum by itself as sufficient to solve the
problem. So for us we certainly want to continue and redouble
efforts working with our allies on the global forum to address
the underlying excess capacity problem. But I think at the
same time we need to continue with the strong enforcement of
U.S. trade laws and in particular keeping remaining
treatment of China as a non- market economy and en
encourage ing trade partners and key countries to do the same.
And also as I mentioned in my testimony, the problem is, while
we are direct trade cases against China have reduced the
amount of Chinese exports directly to the U.S. , they have
not had a big impact on global Chinese exports. Chinese
exports topped over 100 million metric tons for the last two
years. Vast majority is going elsewhere and is leading to
further processing and then the downstream products. So I think
it’s critical for us also in multilaterally to be working
with our trading partners to en encourage as many of them as
possible to also exercise their rights under the WTO to use
their trade laws to address Chinese exports to those
markets. It’s only, I think with that collective effort
we’re going to be able to solve what is truly a global problem.
禄 Thank you. Next question from my colleague.
禄 Good afternoon. My name is Ann. I’m here representing the
U.S. Department of Labor at the bureau of international labor
affairs specifically. My question is directed at Ms.
Ms. Drake. In your testimony you reference labor rights abuse
s in particular in China and Mexico. Can you elaborate on
that, in particular what through sectors in industries and how
it affects your member membership most specifically?
禄 CELESTE DRAKE: Absolutely. So the situations are very
different in China and Mexico and in Mexico the major problem
are the sew-called protection contracts or protection unions,
and really what it is are employer dominate ed unions.
They’re not unions. They come in often before the plant is
built, before the first person is hired. They sign a contract
between the false union and employer and say here is our
contract. usually what it says is pay the minimum wages, abide
by national law. And then when workers get there and they say,
wait a minute, we’re being paid starvation wages we need to
organize to do more, the problem is under Mexican law they can’t
because the law says you have a union, there’s nothing you can
do. And that really has worked with other rule of law problems
that pervade Mexico to keep wages down there.
In China, the problem is there there’s the all China
confederation of trade unions, which is really a branch of the
government and, again, doesn’t function as an independent trade
union that represents workers or worker interests. And so the
government puts down strikes which workers start because the
government sanctioned training doesn’t represent them. The
government doesn’t make sure that laws against child labor,
labor minimum wages, worker safety are enforced, all these
things, and all of these are really against international
norms. They’re against obligations and U.S. free trade
agreements where those free trade agreements exist, like in
Mexico. And they push down wages and make it harder for
workers here to organize and lift their wages here. And what
we have found is that when workers in the U.S. try to do so
, even, you know, barring other deficiency ies in U.S. labor law
, the employers say, if you do this, we will move your job to
another country where it’s cheaper. And that’s a real
threat because workers have seen it happen.
So it really works to suppress U.S. wages.
禄 Thank you. A question from U USTR,
please.>>Steven Ezell, you wrote in
your statement, contrasting deficits with different partner
partners and suggesting different effects on the U.S.
economy, for example the deficit of China versus the deficit
with — in a more integrated supply chain relationship with
Mexico. Could you elaborate a bit on the different effects you
see in these relationships on U.S. economy? 禄 STEPHEN EZELL: So the intent
of that was to recognize that we have integrated supply chains
in North America stretch stretching from Mexico to Canada
for a number of advanced technology ies, whether it’s
information communicationings technology products to
semiconductor to automotive, there’s a complementaryty there
between the ability to have partners in Mexico do the
assembly on the high technology products that we’re developing
in the United States. So what we can see developing here is
integrated value chain for advanced technology products
where we can be competitive together. I think the challenge
we face broadly in a number of advanced technology industries
is that supply chain chains have been completely hauled out
and gone to Asia. If you look at things like the ability to
manufacture a kin Dell in North America or the ability to make
folks, production equipment and system systems and
competency, expertise to do that in North America has been
completely off offshore ed to Asia. What we should think
about in America to constitute the supply chains is by leverage
ing the competency competencies and skills and
attributes that regional trading partners can bring to bear so
that we strategic cally look to bring back to North America some
of these industrial supply chains that we have actually
lost to Asia. And I would make one final point. You know, it’s
said few people have the imagination for reality, and I
think it’s important for the administration to understand
that China is fundamentally using trade and economic
policies that those of us coming from the United States and
traditionally neoclassical background just don’t imagine
the conception or possibility of using things like industrial
policy. When China came out with its MLP, its multiyear plan
for science and technology technology, it took
America four years to identify the existence of this document
and get it translate ed in English and understand its
intent to capture shared advanced technology industries.
So we needed more assets within the government, like national
industrial intelligence council that would look out for the
world and see what the effect of otherapy country’s strategies
on technology in the markets are and how they can respond to
that. 禄 Thank you.
禄 I am with the Department of Treasury. My question is for
Mr. Fasteau. In your submission you mention that the USOD
evaluation against currency is a major cause of U.S. trade
deficit and I was interested to know how you would assess how
large of a contribution currency is versus other contributing
factors such as trade barriers in the overall U.S. trade
deficit. 禄 MARC FASTEAU: Well, it’s been
estimate ed by several economists, I think, including
Mr. Scott and a few others to be — and Fred Bergstein at the
Peterson institute to be the largest single cause, and the
number if I recall is something over 50%. So very large indeed
indeed. Now, the related issue, which
you hear about a lot is, well, what about bilateral deficits?
Should we be concerned? What lies behind the question is
, overall, you want multi multilateral balance. There are
structural reasons why trade between two countries is often
without any barriers and full comparative advantage trading
will not come into balance even though overall balance for if
country. However, when we have surpluses
like China’s with the United States, it’s cleaned of like
pornography. — it’s kind of like pornography. You know when
trade barriers are having effects. So it’s a combination
of things. We definitely have to look at the — go after by
individual countries and we have to deal with the structural
over-valuation of the dollar, and we have to go after the
thousands of non- non-tariff trade barriers. They’re listed
every year, 500 or so, this panel and this group could come
up with another 30 if we worked at it ten minutes. And that’s
the way it works. The U.S. and the UK are the only two
countries who really believe in free trade. As Stephen just
said, others believe in industrial policy. They believe
in national champions. We would be very unhappy if we
balance trade by selling a whole huge lot of commodity ies
and just bought our advanced technology elsewhere. That’s a
long-term prescription for becoming a colony.
禄 I have a question for you, Mr. Gary. So you spoke a great
deal of over-capacity in China in your testimony. Do you have
estimates on the degree of aluminum over-capacity in China
China’s sector as it currently stands?
禄 JESSE GARY: Yes, we do and I would be happy to provide
specific details and additional testimony in other manners. But I think that the key maybe
to look at in terms of whether we’re looking at a point in time
in terms of the over- over-production within China now
or going forward is the problem is large and the problem is
worsening quite quickly. So they had a net exports of
aluminum over 4 million-tons last year. So just to give you
an idea of scope again, that’s about 7.5, 8% of world
production they’re exporting out of China. So that’s one
measure of over- over-production. The other
issue is that despite that over over-production, they are
continuing to grow their capacity at freighter rates than
their own demand growth. So their supply growth continues to
be double digit growth while demand growth is quickly
following from the high single digits to the mid single digits.
And so when we look at China, who has no comparative advantage
in aluminum, in fact, the largest input cost making
aluminum, which is energy, they’re paying, you know, close
to anywhere from 50, 60, 70, 80% higher than other producing
regions in the world, we look at this and it doesn’t make any
sense. There’s no reason for them to be continuing this over
overproduction, these net exports, and it’s a net negative
for the world as a whole. 禄 Thank you very much. So I’d
like to thank you all for coming today, both for your written
testimony and your time and attention of this today. Thank
you very much. Our members employ 30,000 U.S.
production workers in dozens of manufacturing facility ies
throughout the United States, usually in rural areas. The AE
AEFTC is a subcommittee within the AEC that serves as
the petitioning coalition of U.S. extrude ers. I would like
to thank you all for the opportunity to testify before
you today on significant trade deficits with respect to the
aluminum industry. Our members know firsthand the importance
of strong U.S. trade law enforcement. It was only a few
years ago that the U.S. extrusion industry was on the
verge of collapse due to dumped and subsidized Chinese
extrusions. As a result we successfully filed a trade case
and gained much needed relief. For years we were the first and
only segment of the aluminum industry to successfully
petition the U.S. Government for relief from unfair trade.
While orders has been extremely effective in helping our
industry get back on its feet, the domestic industry is once
again facing rising levels of im ports into the United States,
largely as a consequence of China’s rising over-capacity.
Despite slowing home market demand, China’s primary aluminum
industry has continue ed to expand fueling additional growth
in the Chinese extrusion industry. In 2015 the Chinese
had a surplus of over 3.8 million short tons of extruded
aluminum. It is no surprise then that China’s global exports
grew 50% between 2011 and 2015. These exports will only continue
to increase given current and future capacity expansions,
including Chinese produce er recent commissioning of 99 new
aluminum extrusion press lines which will double its aluminum
extrusions capacity. Because China has flooded other global
markets with this excess aluminum extruded capacity, we
have also seen an increase in third country exports of
extruded aluminum to the United States from Indonesia, Malaysia,
Vietnam and elsewhere in recent years.
U.S. imports have extruded aluminum grew by 95% between
2011 and 2015 and are on the rise.
Desperate to reenter the market Chinese producers are
increasingly turning to circumventing to do it. They
are evading duties by making minor alterations to the
products and trans-shipping through other countries and
smuggling them into the United States.
The Wall Street Journal has reported on these schemes noting
that Chinese aluminum extrusion s may be entering the United
States marked as the product of Mexico or Vietnam. In response
to a petition from the U.S. extrude ers, commerce is
currently investigating whether certain Chinese produce ers
produce ers are circumventing the orders. In
addition to these circumvention schemes the massive excess
Chinese aluminum capacity and production is also causing a
recent surge in im ports from Indonesia, Malaysia
and Vietnam. As we recently note ed during the sunset review
before the international trade commission, the recent surge of
imports from these three countries have consistently
under-sold the domestic industry and begun to gain a greater
share of the U.S. market. In 2015 imports from these three
sources under-sold the domestic industry by as much as $400 per
ton. This product is likely a mix of trans-ship and circumvent
ed Chinese extrusions and displaced Indonesia, Malaysian
and Vietnamese products making matters worse for the domestic
industry as the U.S. delivery premium for obtaining aluminum
billet. As production as declined the U.S. industry has
been forced to import greater quantities of primary aluminum
billet and this caused the regional premium to increase.
Last two years the Midwest premium increased by 70%. As a
result U.S. aluminum extrude ers extrude ers have
become less competitive against imports of low price Malaysian,
Indonesian and Vietnamese extruded aluminum where the
Chinese aluminum continues to depress aluminum prices and
premiums outside the U.S. In closing, no other factor so
greatly affects the global competitiveness of the U.S.
industry than over- over-capacity. China’s
staggering aluminum capacity has resulted in a significant
influx of extruded aluminum im imports from third countries.
A dramatic decline in domestic primary aluminum production and
overall decline in global aluminum pricing, all of which
directly and adversely impacted the United States aluminum trade
deficit with China, Indonesia, Malaysia and Vietnam
Vietnam, unless aggressive action is taken to address this
over-capacity, this deficit will widen and the domestic industry
and its workers will continue to suffer. Thank you.
禄 Thank you. 禄OWEN HERRNSTADT: 禄 ZACH MOTTL: I’m Zach Mottl, I
own and operate Atlas Tool and Die Works, a precision
manufacturer involved in sheet metal fabrication, machine ing
and turning, as well as other manufacturing services.
My company Atlas, we serve ed the telecom industry for nearly
100 years. Going back to Western Electric Company in
early 1900s in Chicago. We grew and evolved with that industry
and in addition most of the technology behind the phone and
Internet devices we enjoy and use today was developed at Bell
Labs funded by the U.S. Government or at the time when
the phone industry was a monopoly funded by the American
people, all the technology that was developed. In the USA we
enjoyed the best and most add vanned equipment in the world
and our telecom networks were second to none. We spread
advanced technology around the world and caused a global
economic boom as a result. However, today, at Atlas our
business is nearly gone in that sector and the once high-flying
technology equipment companies, they’re on the ropes. Merging,
consolidate ing and attempt to gain market share and gain
scale. I believe — and this is the
subject matter for today — this is because number one, global
telecom firms offshore production. Number two, China
required technology transfer as a condition of manufacturing
there. And number three, China used that technology and know-
know-how to grow their own telecom industry at expense of
U.S. and other telecom companies . Over the years Atlas made
housings, covers, brackets, enclosures and all the metal
components in the phone industry and in 1900s we made housings
for mechanical phone switches and later housings for
electronic switches for AT&T and later housings and components
for optical switches. In the ‘ ’90s and the the000s we
were a small company feeding into the telecom industry. Nearly every one of atlas
companies had some piece of the business in the telecom industry
and for atlas it was 80% of our business. Parts were designed,
made and assemble ed and tested in the USA USA. The work
was always considered advanced manufacturing, high tech and
exactly the kind of jobs and work that would remain part of
the U.S. manufacturing industry industry. But it
started in the ’90s when the Chinese government welcomed and
support supported contract manufacturing for the
telecom industries. The companies they started moving
their component and sub component manufacturing to China
, the chips and boards and little parts and pieces. And
then they did that take advantage of cheap manufacturing
and cheap labor prices, also all kinds of subsidy ies given
to build the plants and get started there, low cost of
capital as well. However, what accelerate ed the problem was in
2000 when the tech bubble burst . There was over-capacity and
it drove those global telecom companies to push down costs to
survive. So the Chinese government along the way, they
always engage in a program of forced technology transfers as a
condition of doing business there. The more we move there
the more we taught and gave them our secrets how to make these
advanced networks. They could also dangle the lure of an
opportunity to build the new tiniest telecom network, right?
That was going to be our next big growth market for all the
established telecom equipment companies. Instead, though,
what happened was this transfer transferred technology
provided Chinese companies the means to create and subsidize
their own homegrown telecom network because they knew how to
make the parts and pieces. They started manufacturing phone
switches. Later the company expanded to building
telecommunication networks and provided operational consulting
services and equipment to enterprises both within China as
well as globally. Now, they have become a major competitor.
They have now merged with Nokia Nokia, Tell Labs is again
and Sycamore, Nortel bankrupt and gone. Telecom deals we were
part of and supposed to make equipment for, they were going
to make the product in U.S. and sell it in China as late as
2008, those were scuttle ed. After the Chinese decided to
make it themselves, and the phenomenal growth was aided by
the tech transfer and embedded by global companies so desperate
to cut costs. Now they have been prevented by doing business
by the United States government because the house intelligent
committee issued a report describing the company as a
national security threat. U.S. and EU officials accused the
company receiving subsidy ies to undercut competition yet they
have a large and growing market outside the U.S. and branched
from switches and now they make smart phones and all kinds of
things. They’re direct competitors subsidized against
our industry. So today the formerly large and robust supply
chain in the U.S. it’s almost again. My company has a very
small remaining legacy portion of our business in the sector.
Used to be 80% and now less than 5% of the business. Most of
the manufacturing and assembly along with innovation and
research and development it it’s moved to China. A little
bit of assembly has gone to Mexico. My company Atlas, if we
maintained at the pre-2008 levels we saw or go back to pre
pre-2000 levels we would have 40% more workers if not
more. As a result of the comprehensive decades long
scheme to attract foreign companies, force technology
transfer and subsidize the growth of low cost homegrown
industries, the advanced technology trade deficit with
China is exceedingly large. Good paying American jobs have
been lost and America is starting to lose its ability to
innovate and build future components, subcomponents and
communications products for future of the global telecom
industry. I don’t blame the established companies who look
to protect their bottom line and did what the shareholders asked
them to do. Instead, I blame the U.S. Government for failing
to see what was happening and to protect our crowned jewel
companies from a predatory government that used the lure of
cheap labor and potential government contracts to snatch
technology and jump start their own homegrown competitors.
These Chinese companies, they have no need for profit.
Instead they need to create employment. How can global
companies that must maintain a healthy bottom line compete with
that? I worry for Boeing and Airbus, the Chinese have flown
their first jet. Predatory governments can subsidize losses
for decades until the industry is in their control. Telecom
was an early mover to China starting in 1990s. Since then
many more industries have followed. Because we can look
back and see what happened to the telecoms over the past 30
years years, I ask that we take action now and prevent the
same mistakes in other industries. Thank you for your
time today. 禄 Thank you very much .
禄 Thank you for receiving our testimony today. You have a
copy of my prepared remarks. I’m going to provide a summary
focusing on a couple of key points for you. And it’s an
honor to represent the Alliance for American Manufacturing here
today. First, do trade deficit deficits have real
economic elements? You have heard plenty of testimony
including from Dr. Robert Scott to suggest that they do. I want
to offer additional evidence in that respect. David Otter, and
others are argued that the increase in U.S. imports from
China which accelerate ed after 2 2000 was a major force behind
manufacturing employment reductions and that through
input output linkages and general equilibrium effects it
appears to significantly suppressed overall U.S. job
growth. Research shows that net job losses of 2-2.4 million
workers stemming from the rise of import competition from China
over the period 1999 to 2011. By contrast, one who has done
research looking at the impact of automation on net employment
effects discovered over a 17- year period, that automation
displaced fewer than 700,000 manufacturing jobs. So the idea
that productivity and automation have been the driver
drivers of U.S. manufacturing job loss since 2
000 are seriously misguided. In addition, trade deficits have
jeopardized American innovation. In 2016 the U.S. a
amassed an $83 billion advanced technology product trade
deficit with the rest of the world.
China alone enjoyed a $120.7 billion bilateral surplus in
advanced technology products in the United States. Professors
at the Harvard Business School have been able to determine that
the loss of productive capacity has in fact stifle ed U.S.
innovation in areas that face im port competition more recently
Otter and his authors note ed similar impacts on U.S. industry
. So it’s not only employment effect effect. It’s an
innovation effect that can have profound impacts on our
competitiveness in the future. And last, if you haven’t seen it
, I would commend your attention to research by Justin Pierce
of the federal reserve and Peter Shod that found that U.S.
employment losses have been largely attributable to products
for which China benefited under the terms of its 2001 agreement
to the WTO and the European countries did not suffer a
similar steep decline in their manufacturing sectors after
China’s accession to the WTO. The next question I want to ask,
does the U.S. have leverage to address trade deficits with our
partners? And I would argue that we most certainly do.
The United States has considerable economic leverage
to shrink trade deficits most notably the $347 billion trade
deficit with China last year. U.S. exports to China account
for less than 1% of our GDP, so we’re not particularly leveraged
in the Chinese market market. Banks hold less than a
percent of their assets in China and multinational companies
derive less than 2% of their revenue there. I should say
U.S.-based multi multinational companies. By
contrast China could not live without the U.S. consumer market
, which is the destination for a good chunk in consumer goods up
to 20% of its exports. Have trade deficits beyond China
also had impact on the U.S. economy? Again, I would argue
that they have. With respect to South Korea, the argument was
made during the passage of the U.S.-Korea Free Trade Agreement
that would support up to 70,000 U.S. jobs and export American
goods up to 10 to $11 billion. Instead we see an expanding U.S.
trade deficit with South Korea up to $15.1 billion and between 2011
and 2015 resulted ing in the estimate ed
estimate ed displacement of nearly 95,000 job opportunities
opportunities. I can give you one concrete
example. Korea exports a product called oil country
tubular goods, currently subject to dumping orders. Korea has
no domestic market for that product. They export the entire
bulk of it. And it is heavily subsidized by the state. It
displaced extraordinary number of steelworkers and resulted in
the closure of pipe and two mills in the United States at
the same time our opportunities in that sector were expanding.
With respect to Japan, trade deficit with Japan fueled by
monetary policy ies and customary business relationships
is estimate ed to have eliminate ed nearly 900,000 U.S.
jobs as the deficit with Japan reached $78.3 billion in 2013.
Next I want to speak to some of the causes of the trade deficit
with China because it was purely for market reasons that would
indicate there’s just a competitive challenge that the
United States has. I argue it goes much deeper than that.
First you heard testimony with respect to China’s capacity and
indeed China has massive industrial over-capacity in
steel, in aluminum, glass, other industrial commodity sectors in
addition to high tech areas like semiconductors. Despite
repeated promises to reduce this capacity a recent report shows
that despite China China’s claims to be making progress
that net steel making capacity actually increased in China from
2015 to 2016. Second, China’s advantage is
aided by persistent dumping in subsidy ies that are well-
well-documented in the USTR’s national trade estimate report
for China. So I will not go into it here other than to say
our system is much more responsive. Once an industry
initiates a case and once a lot of damage has been done,
irreversible damage has already been done.
Third, China’s advantage is aided by non-compliance of labor
and environmental standards. And I can speak to a specific
incidence within the steel industry. China’s non-
non-enforcement of its already weak pollution controls with
respect to NOX and SOX and particulate matter has given the
Chinese steel making industry an estimate ed $2 billion of net
advantage over U.S. produce ers who face modern environmental
regulations. The next area — and Zach touch
touched on this a bit where China enjoys an anti-
anti-competitive advantage is through its cyber theft. We
believe it is critical for the government to provide support
when foreign interest steal American trade secrets to
manufacture products abroad and send them to the United States.
There are currently military officers that face indictment in
the western district of Pennsylvania in China for
stealing material from companies such as U.S. Steel, westing
house, ATI and other leading manufacturers.
The Chinese economy is also very state-driven. Over half of its
leading steel firms are owned directly or indirectly by the
Chinese government. And they face no or low cost of capital
as opposed to American firms who answer to shareholders and
quarterly earnings reports. The government in China has
actively misaligned and manipulate ed its currency and
obviously fluctuates from year to year, but it has been a
consistent tool in the Chinese toolbox to gain an advantage
that distorts the market. I want to ask two additional
questions and answer them. Is there precedent for
extraordinary measures being taken by a U.S. Government to
deal with imbalances like this? And the answer is clearly yes
beginning with the Nixon administration which imposed 10%
import surcharge and dramatically altered U.S.
monetary policy in the face of a trade deficit that is much
smaller as a percentage of GDP that we face with the rest of
the world right now. The Reagan administration
established voluntary restraint agreements with respect to steel
and automobiles. It instituted aggressive tariffs on items
such as motorcycles and semiconductors, and negotiate ed
a broad currency agreement with Japan and Western Europe known
as the plaza accord. The Bush and Obama administrations have
also taken some actions as well with respect to requests from
the steel industry as well as bolstering our domestic
automotive industry in the face of a global crisis. So there is
clearly the precedent for administrations to engage in a
wide variety of manners. Now which tools do I believe would
work with respect to China and the trade deficit in particular
particular? First priority ize trade enforcement
and self- self-initiate cases to reduce the burden on
U.S. industry. Obviously large companies have the resources to
hire both economists and trade lawyers to adjudicate cases.
There are dozens if not hundreds of small firms that face
similar barriers that don’t enjoy that luxury. Second
priority ize reducing global industrial over
over-capacity by setting objective criteria and clear
timetables and consequences for countries that have persistently
large over- over-capacity in key industrial sectors like
steel. Next maintain China’s non-
non-market economy status for purposes of anti-dumping and
countervailing Kewpie proceeding s. Deter and penalize
manipulation by supporting legislation to tree currency
manipulation as a subsidy under domestic trade Laos and moreover
consider benefits of broader currency agreement to rightly
value the U.S. dollar at a much more competitive level with our
trade competitors and partners. Next priority ize manufacturing
job creation in trade agreements. Even the USITC and
reports that were supportive of the transpacific partnership
note ed that the agreement was projected to cost manufacturing
jobs over a ten-year period and also increase our trade deficit
and manufactured goods. Reducing the trade deficit and
increasing manufacturing jobs in multilateral and bilateral
trade agreements must be the strong priority. This can be
accomplished through stronger rules of origin as we move
forward as well as for stronger and much more ag impressive
enforcement mechanisms that the U.S. and its industry could
deploy. And finally, examine the impact
of Chinese state-owned investment not only on exports
and imports but also when that competition comes to the United
States and how that impacts markets here. I would close
with that and thank you again for your time and attention
today. 禄 Thank you very much. 禄 FRANK YANG: Thank you. My
name is frank Yang, VP of business developing and
marketing and co-founder for Stion Corporation, a solar panel
manufacturing in Mississippi and also participate ed last two
years as a member of commerce committee. Here today to highlight the
significant trade imbalance in solar panel manufacturing and
importance of preserving U.S. presence in this sector.
Unlike some other companies that manufacture solar in the U.S.
or have done so in the past, Stion does 100% manufacturing in
the Hattiesburg, Mississippi and pro cures supplies from U.S.
suppliers as well. We have 170 employees in that facility in a
town of 45,000 people and the average wage is $67,000 per year
, more than twice the average wage in the state of
Mississippi. U.S. solar manufacturing high
pay high skilled jobs in the U.S. economy and solar
represents today the largest source of new energy generation
in the U.S. not just renewables but all forms of generation, 14
gigawatts store ed in 2016. Unfortunately, over 90% of solar
panels installed in these projects are imported. Over 60%
come from China and most of the remainder come from southeast
Asian facility ies set up by Chinese manufacturers to avoid
tarrifs. Artificially low pricing by Chinese vendors
forced more than 100 solar manufacturers into bankruptcy
between 2009 and 2017 including recent announcements by solar
world and Seneva which had manufacturing facility ies in
the U.S. In the past year because of over-supply and
access of inventory from China as well as slowdown in utility
scale project market there, average selling prices for panel
s in the industry has declined by over 40% in just the last 12
months alone. Solar panels along with invert
inverters represent greater than 50% of the total
system cost of any solar power plant. These are also the most
technologically advanced components in an installation.
So if U.S. manufacturing were to disappear completely, which is
a significant threat today based on the economic conditions in
the industry, we would face significant energy dependence
and security risks, particularly on federal government projects.
Overall, the solar industry began to grow rapidly in the
early 2000s. Chinese government provided hundreds of billions
of dollars in low interest loans an subsidy ies to manufacturers
and restructured numerous times to keep companies in business. Stion is the last manufacturer
housing majority of manufacturing capacity in the
U.S. We would recommend that per the recent executive order
issue ed by President Trump concrete actions be taken
immediately to tighten loopholes and buy American clauses for
federal government projects where products made in the U.S.
can be used. This is a simple and common sense tactic for the
government to immediately assist the situation. And we also en
encourage the Department of Commerce to continue evaluating
competition and pricing in the U.S. solar market. Including
the implications of using U.S. tax dollars to buy product from
China produced in factories that have poor environmental and
human rights track records. We also would ask you to kindly
consider other corrective actions if they may be necessary
given the competitive threats in our industry today. Thank
you. 禄 Thank you very much.
禄 Distinguished panelists, good afternoon. My name is Falan
Yinug from the Semiconductor Industry Association. On behalf
of SIA, thank you for the opportunity to testify today.
Semiconductors or microchips are the brains of modern electronic
products. They enable advances computing commercial and non-
commercial applications. Semiconductor technology has
made virtually all sectors of the U.S. economy from farming to
manufacturing more effective and efficient.
The U.S. semiconductor industry is a worldwide leader with U.S.
companies commanding about half of global market share in 2016.
The U.S. industry has sustained this leadership position for
nearly two decades. Semiconductors are America’s
fourth ranked export product and more than 80% of U.S.
semiconductor sales are to overseas customers.
The industry directly employs nearly a quarter of million
people in the United States and supports more than a million
additional jobs throughout the U.S. economy.
In addition, the U.S. semiconductor
semiconductor industry is one of the world’s most advanced
manufacturing sectors. In short, the U.S. semiconductor
industry is a key driver of U.S. innovation, technology
leadership, and economic strength. I would like to make three main
points. One, semiconductors are one of the country’s top
exports and United States maintained overall trade surplus
in semiconductors for the past 20 years.
Two, the U.S. trade surplus in semiconductors is likely under
understated and therefore the U.S. trade balance may be
amiss leading metric solely for determine ing competitive of the
U.S. semiconductor industry. Three, to maintain U.S.
leadership in a semiconductor industry, the United States must
work to enhance the competitive ness of the industry as well as
curb unfair trade practices. The U.S. currently has a trade
surplus in semiconductors as it consistently has had for the
past 20 years. Reflecting industry strong industrial base
in technological leadership position, United States has
consistently maintained overall trade surplus in semiconductors
for the past 20 years. Also, the United States maintains
semiconductor trade surplus with the 13 countries combined
identified in the Federal Register notice and current
bilateral semiconductor trade surpluses with six of the 13
countries identified in the notice.
In addition, for those countries identified in the Federal
Register notice where the United States has a current bilateral
trade deficit in semiconductors, these deficits are due mainly
to structural, industry and supply chain factors rather than
mercantile mercantilist reasons, and in
many cases these would be trade surpluses if bilateral trade
were measure ed on a value-added basis.
Second, the U.S. trade surplus in semiconductors is likely
understated and therefore the U.S. trade balance may be a
misleading metric solely for determine ing the competitive of
the U.S. semiconductor industry.
The semiconductor fabrication process is uniquely global and
disaggregate ed with distinct production stages including
design, front-end fabrication and back-end assembly test and
packaging that can occur in multiple countries.
Given this globalize ed manufacturing ecosystem, trade
statistics can often distort or even omit where value is create
created along these stages of production.
For instance, the U.S. trade balance in semiconductors does
not consider the following factors: First, the value added
in semiconductor design which U.S. semiconductor companies
lead this is not captured in semiconductor goods trade at all
. Second, significant share of the
value of U.S. semiconductor im ports is actually create ed in
the United States and earlier stages of semiconductor
production such as design as well as front-end fabrication.
Third, U.S. semiconductor im imports are often products from
a U.S. semiconductor firm not a foreign competitor.
We recommend you look beyond the trade balance exclusively and
adopt a holistic approach to assessing the competitive
competitiveness of the U.S. semiconductor industry.
Also, to capture more accurately all forms of semiconductor
production that take place in the United States States,
especially semiconductor design, SIA recommends the U.S.
Government implement goods producer or FGP initiative which
it planned to do for the 2017 economic census census.
Third, maintain U.S. leadership in the semiconductor industry
the administration and Congress must work together to adopt a
competitiveness and innovation agenda.
Such an agenda would include the following components.
Free and open trade. Creating a pro-competitive tax code.
Increasing federal investment in precompetitive basic research.
Strengthening America’s semiconductor workforce, and
ensure ing America America’s trade partners provide
fair access to markets in compliance with global trade
rules and norms. In conclusion, SIA appreciates
the opportunity to provide its input regarding executive order
13786 on significant trade deficits and we look forward to
working with the administration on policy ies that will advance
the competitiveness of the U.S. semiconductor industry
禄 Thank you very much. I’m going to turn to questions. And
so I’ll lead off and then we’ll get all of this in.
Mr. Henderson let’s start with you and actually a question
where we ended the discussion on the last panel. You talked a
lot about over-capacity in China ‘s aluminum sector. Do you have
estimates what the over- capacity looks like now or
looking into the future? 禄 JEFF HENDERSON: Well, the
number that I cite ed in my testimony was 3.8 million-tons
of excess extrusion capacity in China. 3.8 million-tons. And
that is before the announced acquisition of 99 new extrusion
presses by Jong Wong the largest in China. To give that scale,
there’s about 400 extrusion presses in the United States
right now. With one purchase order they captured enough to
take on that much more. So there’s no indication from what
we can see that their capacity build is stopping.
禄 Thank you very much. I’d like to turn to a question from
treasury. 禄 I’m from the Department of
Treasury. My question is for you, Mr. Mottl. You mentioned
in your statement the decline in employment in your company from
pre-2008 levels, and also some of the changes in your industry
that started in the 1990s. Could you describe a bit how
your business changed prior to 2008 and what role you believe
economic events like the recession versus trade barriers
have played on your business since then?
禄 ZACH MOTTL: That’s a great point. I want to clarify, my
employment has started to grow again because we found new
markets in new industries. We’re in the aerospace industry
and defense industry and medical industry, but I worry that the
same story that happened to me, we’ve been 100 years and seen a
couple industries come and go and I’m worried about the ones
I’m in now, if they go, where will I find the next industry?
But I will also say that, you know, in 2008 we were unusually
busy because, while other companies were suffering because
of the deal that I mentioned where we were being telecom
equipment they planned to sell to China that then got scuttle
ed. So when that ended in 2008 we had another significant hit.
So throughout our 100-year history we pretty much had
steady growth and employment growth and it changed in the
late ’90s. The ’90s were great for a lot of people industry ies
made money and didn’t have to try too hard. But we had been
making money really well and drawing up to that point, but
when the tech bubble burst for us, that’s when things really
changed. Again, you heard from the other folks here there were
a lot of other things happening geopolitically. China was
admitted to the World Trade Organization so I think all
those things came together and putting pressure on my business
now. So we have grown but profits are
strained still. You know, there ”s a lot of competition
and I just think if we could have not lost those industries
my employment would be perhaps 1.5 to two times what it is now
and certainly my profits would be a lot healthier. Thank you.
禄 Thank you. State department. 禄 Thank you. I’m Carol from the
economic bureau at the state department. My question is for
Mr. Paul. You discussed the importance of trade enforcement
but noted the cost and time with bringing a case. Can you
identify the most burdensome parts of the process and if
possible could you quantify these costs?
禄 SCOTT PAUL: Thank you. It varies depending on the case and
number of appeals and the level of economic analysis that is
required, but there is — we often get cold calls into our
office from small and mid-size businesses saying, how can I —
how can we do this? And there is some ombudsman service
available through the commerce department but it only goes so
far. The challenge with an industry getting together a
trade case and adjudicating the whole way through is one of
timing. The injury has to have occurred, and so you’re catch
catching industry ies in a down cycle because of that.
So they’re going to have to spend resources in a time of
increased scarcity on filing a case.
Second is the amount of time that it takes to produce relief
in cases like this. Which can often extend into a year or two
depending on the type of action that is taken.
I note that the commerce secretary was quoted in a news
source within the last couple of weeks saying that the commerce
department was looking at self- initiating a greater number of
cases, and I think that both from a — both from an efficacy
point of view and also from a practicality point of view,
that’s a long overdue step. A last barrier is that if you
were in an industry that is somewhat globalize ed, it is
often a complicate ing factor in terms of getting industry
engagement in a particular case where there may be different
points of views among the member companies. And, again, that’s
something where an intervention through an administrative action
can make a different. The barrier for some small shops
that — even smaller than Zach ‘s shop can be extraordinary
once they — I’d be happy to submit more information about
that because it varies quite a bit but a considerable an
stackcal that many face — considerable obstacle that many
face 禄 Question from labor.
禄 Good afternoon. I’m from the international affairs bureau at
the U.S. Department of Labor. My question is for Mr. Yang.
I’m interested in your estimate of total number of jobs lost in
the solar manufacturing due to harmful practices by trading
partners and then relatedly on the flip side how might that
compare against the gain in solar panel installation
maintenance due to lower price s prices.
禄 FRANK YANG: Yeah, that’s a really good question. So I
think if you look at the solar industry dating back to the
inception really in 1978 with the solar here in the U.S. , one
point the U.S. had over 90% of manufacturing in the industry.
If you look at our industry today, which is, you know, 14
gigawatts annually in size, you know, that size of all the
product we’re manufactured in the U.S. , you know, that would
create well over 10,000 jobs in manufacturing.
And I know that there have been some reports that in the case of
the solar industry as a whole employees today over 250,000
Americans, you know, that number certainly has some truth to it
but a lot of the installation jobs are seasonal and I think
these people would otherwise find work and not actually
working full time in the solar industry industry. I
think our view is not only the manufacturers panels but install
s of systems, I think there’s a happy medium for equilibrium
here in the U.S. where the prices are fair and plenty of
room for install installers and project developer
, you know, including our own, to operate a healthy business
and provide economical clean energy. But I think that the
industry cost structure in terms of manufactured product needs
to become more rational because it’s a cost inventory data
coming out from China today is not very accurate and not very
transparent and as a result I think it’s very hard to
determine, you know, how that impacts pricing in the market.
So I think, you know, to answer your question, the net impact on
, I think, full- full-time skilled labor would absolutely
be, you know, positive. You know can, I think you could look
at sort of the cost of kilowatt hour of power in any of the
markets to estimate what the impact may be in terms of the
market going down, if there is a rise in price. But I think
ultimately, you know, these technology ies, whether it’s
solar or Tesla, you know, all these technologies have the
potential to be cost competitive in the U.S. at a rational cost
structure. So I think it’s about enable ing that
opportunity and creating a window for those products to
even get into the market. 禄 Thank you.
All right. U.S. Steel. 禄 You spoke in your testimony
about the importance of enforce enforcing global trade
rules and norms, and in the written testimony you’re also
discussing the role of trade agreements in the semiconductor
industries export performance. Can you give more detail on
those things? What do you think the major enforcement
challenges are and more basically, what role have
agreements played and can they play in the future in the
industry’s export success? 禄 FALAN YINUG: Sure. I think because of both the
semiconductor industry’s global manufacturing process as well as
the fact that over 80% of semiconductors fail abroad, free
and open markets are essential for the semiconductor industry.
We advocate ed very strongly on behalf of agreements in the
past that have had a very important impact in the regard.
I would particularly note the…
Which occurred a couple years ago. A lot of technology
products are moving faster in terms of their development, in
terms of where they’re classified in the HS system,
frankly. So to maintain zero tarrifs and free and open
markets, it’s important to be sure that the tariffs and non-
non-tariffs agreements continue to be looked at and be
lowered. I think — because over 80% of
our sales are abroad, markets such as China are very important
. China is the largest single country in the semiconductor
market and so being sure that they abide by their agreements
under the WTO in particular maintaining market access is
critical for our companies to have free access to that market.
I think we often have said that the U.S. semiconductor industry
is welcome to all competition and happy to compete but we want
to be sure that the playing field is equal and balanced and
that’s what we’re trying to ensure.
禄 Thank you. Additional follow
follow-up questions? Thank you for your time and
input. It’s very valuable to us. Appreciate you coming out
today. 禄 Thank you.
[Applause] … 禄 Hi, am the deputy assistant
secretary of commerce for global markets and I gives me pleasure
to welcome you to testify today and thank you too for our
members in the audience who stuck it out through a long day.
This is the ninth and second to last session and we are
grateful to have your perspective on country specific
issues. So I’m going to ask each panel
panelist, starting from the embassy of Thailand to go
through and introduce yourself biographically and then we’ll
return to you to present your testimony. And I would like to
ask that you all keep an eye on the time. We asked that your
remarks not exceed ten minutes, so that leaves time for
questions and our intent is to ask each of you at least one
question. So with that, please allow me to
once again thank you all for being here and we may start with
introductions. 禄PRAYOTH BENYASUT: Good
afternoon. I am Prayoth Benyasut and
minister of the office of commercial affairs at the
embassy in Washington, D.C. Thank you.
禄PETER CHOW: Thank you. I’m Peter Chow, from city university
in New York. 禄LOTTA DANIELSSON: I’m Lotta
Danielsson with the Taiwan Business Council, a non-profit
membership based organization that works to advance trade and
business relations between the U.S. and Taiwan.
禄NANCY KIM: Good afternoon, I’m Nancy Kim representing the
Korea International Trade Association.
禄BRIAN POMPER: I’m Brian Pomper , I serve on the Alliance for
Fair Trade with India. 禄 Thank you. May we begin with
the first testimony. 禄PRAYOTH BENYASUT: Thank you.
This is Prayoth Benyasut and thank you for the opportunity to
talk to you about the trade deficit testimony of Thailand.
Thailand has provided extensive written comments to the
Department of Commerce and UST USTR. My testimony today
will therefore summarize a few of the important points made
therein. First, Thailand wishes to
retaliate the consensus appear appearing in many U.S.
Government publications that cross-bilateral trade affect
countries in economic relationship. For example, global value
chains, trading activities such as the trade of food and commodity ies between two
countries. This is especially true for
Thailand given that 59% of our export in 2011 was actually
foreign content, about 8% of U.S. origin, and that many U.S.
companies import goods from Thailand for export or further
manufacturing. In any event, the Thailand trade deficit, only 18,920,000,000 U.S. dollars or
only 2.6% in comparison to the overall U.S. trade deficit. When compared to the GDP, which
is 18.56 trillion U.S. dollars, the U.S. trade deficit to
Thailand is still .01%. Beyond the balance, the U.S.-
U.S.-Thailand relationship , we are one of the allies and
we incorporate to our 1833. The 2002 trade and
investment framework agreement. Thai investors are investing , and Thailand into the U.S.
grew dramatically between 2010 and 2016. And 49Thai investment projects
support jobs and growth. You may have heard about Chicken of
the Sea, Red Lobsters and many other Thailand goods
across the U.S. However, U.S. market remain
steady about 1% since 2001. U.S. exports to Thailand have
recently lagged U.S. exports to the rest of the world. These
trends expand not by unfair trade practice by the lack of
U.S.-Thailand FDA decreasing U.S. investment in Thailand and
our sub-par economic growth. First of all, it is critical to
understand that Thai exports to the U.S. do in fact complement
and contribute to U.S. goals and jobs. This is the most rate ed
by three categories of Th Thai products that make up more
than half of the trade balance. Finally, Thailand wishes to note
effects about our trade regime. Thailand is a free market
economy and tariff and non- non-tariff measures are fully
aligned. Thailand has trade agreements
with 17 trading partners . Indeed about half of Thailand’s Thailand’s… range
from zero percent to five percent. Approximately 30% are… Second, Thailand is undertaking
serious unilateral change and economic reform efforts on
tariff and non-tariff measures. Dumping and subsidization,
including… [ 禄PETER CHOW: Thank you for the
opportunity to be here. Taiwan economic partnership.
Taiwan graduate from the screen in 1989. Therefore, the Taiwan with the United
States has been shrinking, cut to more than one one-half by
2015. And the main reason for this is
because of its own structure, imbalance, and that is Taiwan has… And the other point to realize
is U.S. has substantial trade surplus with Taiwan.
If we look at the commodity structure of the bilateral trade
between U.S. and Taiwan, Taiwan export to U.S. consistently
more than 50% are in parts and components. Parts in the
components. And this will be very complementary to the U.S.
industry trade and employment. In the book which I published
and stated in my statement I used the index of the… for the purpose of export, to
under undervalue currency. The best way — Taiwan has trade
surplus, but one of the best way to reduce Taiwan surplus,
overall surplus is to encourage investment, therefore Taiwan
surplus will be reduced. And because United States and
Taiwan has a strong complementary trade relationship
, one of the best way would be to have those countries to be
trade treaty ies, whatever you call it. , to en encourage
Taiwan’s business confidence to boost U.S. U.S. investment
and investment over oversea. And a trade treaty
with Taiwan it will increase two way, in which you create more
job opportunity for American workers and to improve U.S.
exports. In simulations, I set up a
computer generate ed model under the assumption that the U.S. ,
and only 20%, general tariff on the commodity trade, only 20% of
the de-regulation of the receives sector between U.S. and
Taiwan. It creates substantial
employment, 20 increase in GDP for the economy economy.
Because the simulation, I offer and I’d be happy to share that
simulation with anybody. So with the top constraint I
would argue that Taiwan is not a rival to U.S. economy. Taiwan
is a partner for the U.S. Taiwan is closely aligned for
the American people. So therefore bilateral trade
treaty between U.S. and Taiwan is going to further strengthen
the economic partnership between these two countries. Thank you
very much for listening. 禄 Thank you very much. And now
we turn to another testimony on Taiwan.
禄LOTTA DANIELSSON: Thank you so much for the opportunity to be
here today. The U.S. Taiwan trade relationship is
significant given its relative size and population, Taiwan
plays an out-sized role in both global trade and as a partner
for the United States. Over the last several decades
Taiwan has gone a general lowering of tariffs and
dismantling of trade barriers. Taiwan is a member in good
standing of the WTO. It’s generally not engaging in unfair
or discriminatory trade practices. It’s not punishing
the United States particularly with its rules and regulations,
and it’s working towards liberal ize ing domestic trade policies
and improving transparency. Now, there are still problems,
of course, in the U.S. Taiwan trade relationship, poor exports
from the U.S. to Taiwan has been an irritant for a while and
will continue to be so it looks like and of course the USTR
tracked others as well. But the Council believes that
these issues can be resolved and there’s still — they’re being
discussed under the trade investment framework agreement
talks, and that is our primary mechanism for trade dialogue and
we believe this can be resolved .
It’s true that the U.S. has run a trade deficit with Taiwan for
the last 30 years. Now, the size of that trade deficit has
remained relatively constant despite the fact that overall
trade has grown. And the current deficit falls pretty
well within the traditional historical range as well.
The U.S. trade deficit in goods has its root causes, as Dr.
Dr. Chow talked about, in the fact that Taiwan is such an
important link in the U.S. — in the supply chain for U.S.
companies, particularly the technology sector. Take
integrated circuits, for example . U.S. companies like Apple,
Qualcomm and NVIDIA that contracted with Taiwan companies
, and the Taiwan side manufactures, tests and package
packages integrated circuits to spec. They are
shipped to the country for further packaging and marketing
here. So a large portion, as Dr. Chow indicated, of Taiwan
exports to the U.S. are these types of intermediate goods,
computer components, car parts, fasteners and so on, and that
ultimately go into U.S. made products. They are not
competing with them as finished goods.
So despite the consistent trade deficit, we believe that the
U.S.-Taiwan trade and commercial relationship is absolutely
mutually beneficial. It is not a zero sum game. It It’s not
where we have to count exports to Taiwan as wins and imports as
losses, and also the trade deficit with Taiwan should not
be the only gauge for how important or how beneficial the
relationship with Taiwan is to the U.S. economy.
Many of the components in this overall relationship don’t get
factored into the official trade deficit data. As Dr. Dr.
Chow mentioned, trade and services, for example, trade
surplus as well as technology licensing where Taiwan is the
top ten source of intellectual property payments to the United
States. U.S. businesses, which is the
constituency that I represent, they recognize the importance of
Taiwan as a market for their goods and services as a value-
value-added technology and innovation partner as well
as a source for foreign investment in the U.S.
Hundreds of Taiwan companies already have investments in the
United States and important sectors such as financial
services, technology, biotech. And these are investments not
just in plants and production locations but they also have
various venture capital investments in the U.S.
including tech start-ups. Our relationship with Taiwan
generally promotes the economic growth of the United States. It
supports U.S. jobs across the country and across a number of
industries, including in important sectors such as
defense and aerospace. Business-to-business
transactions and relationships with Taiwan have contribute ed
to the fact that U.S. companies have emerge ed as global leaders
in high tech and cutting-edge technologies such as the
Internet of Things, cloud computing, wearables, virtual
reality and so on. So the extent of U.S.-Taiwan
trade and commercial relationship has been and will
continue to be a bedrock of the overall bilateral U.S.-Taiwan
trade relationship which is also excellent, and where Taiwan is
an important national security partner for the United States in
the region. Thank you. 禄 Thank you very much. Turning
to Korea. 禄NANCY KIM: Good afternoon.
I’m here today to provide testimony on behalf of the Korea
International Trade Association known as KTA. It is an
association of 71,000 Korean company with diverse trading
interests in the U.S. and globally. On behalf of our
member companies I would like to express support for the
relationship between Korea and United States generally and
Korea U.S. free trade agreement. It is a belief that it has
been a positive force in knitting or countries together
economically to the benefit of both economy ies. We believe
that the United States United States
trade deficit with Korea must be viewed in the context of
increasingly close and mutually beneficial relationship between
our two economy ies. Let me provide a few specifics.
The adoption of porous in 2012 brought about a significant
increase in trade between our two countries while overall
world trade decreased by 13% since 2011, trade between U.S.
and Korea increased by 12% buck bucking the global trend.
The increase in overall trade has in fact been at least as
beneficial to the United States as to Korea.
If you look at the share of Korean imports accounted for by
U.S. merchandise, that has increased by 2.14% from 8.5% in
2011 to 10.64% in 2016. So U.S. companies are
increasing their exports to Korea. Meanwhile the Korean share of
U.S. imports increased by only 0.62% to only 3.19% of the U.S.
market share. The U.S. companies have been able to
especially be competitive in industries such as automobile
industry, pharmaceutical industry and the agriculture al
products as as a result of implementation of the free trade
agreement. To be sure the account balance is characterized
by a trade surplus from Korea’s point of view and a U.S. — and
a deficit from the U.S. point of view.
However, this is largely the result of structural differences
between the two economy ies. As well known, a country’s
current account balance is result of savings minus
investment. Where savings exceeds investment the account
is in a surplus and whereas if investment exceeds savings the
account is in a deficit. The U.S. is a higher consumption
economy than Korea with savings falling short of investment
meaning that structurally it’s gone in account deficit. Korea
is a high savings economy with savings exceeding investment.
Although Korea’s economy is changing, various conditions
have led to Korean companies favoring investment overseas
over domestic investment. The United States has been a
beneficiary of Korea’s relatively high overseas
investment in the form of Korean investment in the United States
economy, which I think totaled $40 billion last year.
Second, manufacturing in Korea has been a much more important
part of the economy that has been the case in the U.S. In
Korea, the manufacturing industry accounts for over 30%
of its GDP while in the U.S. manufacturing makes up only 12%.
In contrast, service industry ies account for a higher percent
of the U.S. economy than they do of the Korean economy. Thus
while Korea rank ranks fourth among industrial economy
ies in manufacturing competitiveness, it ranks only
80th in the financial services sector. As a result the U.S.-
U.S.-run deficit with Korea in the manufacturing sector but
it runs a substantial surplus in the services sector.
Aside from these structural differences, as mentioned, the
economic cycles of the Korean and U.S. economies are not
precisely synchronize ed. While the U.S. enjoyed sustained
period of economic growth since the Great Recession of 2009,
Korean economic growth has been relatively sluggish. This
disparity spur the United States appetite for imports generally
while dampening Korea Korea’s ability to import. This
will not always be the case. We believe when the economy ies
of the countries are in different phases. The United
States economy were under- performing while the Korean
economy were in robust growth the performances of the two
countries account balances will be quite different.
Overall, we believe that the increased growth in U.S. trade
resulted from chorus is positive for both countries.
Korea’s exports to U.S. and investment in America have had
positive effects on American industrial production jobs and
exports. It has in short been a win-win situation.
KETA hopes that the United States will resist the
temptation to engage in protection measures such as
artificial tariff and trade barriers and instead look at the
trade balance between our two countries and the proper
positive light as evidence of a growing partnership that is
creating jobs and contributing to economic growth in the United
States as well as Korea. Thank you.
禄 Thank you. We now turn to our final panelist.
禄BRIAN POMPER: Thank you. And I apologize in advance for what
allergy ies have done to my voice voice. I have to
cough. Good afternoon my name is Brian Pomper. I serve as the
executive director of the Alliance for Fair Trade with
India or AFTI. It is a coalition of trade associations
that works to improve the U.S.- U.S.-India commercial
relationship by supporting increased action to address
barriers to trade and investment U.S. companies are facing in
Indian. AFTI serves as a mechanism for engaging with U.S.
policymakers on these issues. The diverse membership is
comprised of organizations representing a range of U.S.
industries adversely impacted by India’s discriminatory trade
practices and policies. In light of the mandate I’m here to
urge the administration to take action to rectify India trade
barriers and secure market access for U.S. companies in
India reciprocal to market access that Indian companies
currently enjoy in the United States.
When Indian prime minister took office in 2014AFTI was hopeful
he would usher an openness that would benefit the United States
and India. He vowed to give the world a favorable opportunity
to trade with India India. He pledge ed to improve
regulatory landscape for the protection of intellectual
property rights in India. But after years of significant U.S.
investment and bilateral talks the government has not take the
requisite steps to translate promises into concrete actions.
The government has taken welcome steps to overhaul the tax code
and open sectors to more foreign investment but American
businesses continue to face an evolve ing array of trade
barriers both longstanding and new.
New price controls that target agriculture al biotechnology and
medical devices leading some — leading American companies to
withdraw advance products from the Indian market entirely. New
rules that band patents for computer-related inventions.
Measures in Indian law that add an onerous and unnecessary
criterion for the patent ability of medicines. Unrealistic
security and testing requirement s, that is fully implemented,
could close India to U.S. exports of information and
computer technology equipment. Wide- Wide-ranging tariffs
above 100% on autos, textiles, distilled spirits and other
products and new tariffs in tended to protect domestic
industry. And weak copyright protection policy ies and
enforcement that harm U.S. and Indian property rights holders
alike. These trade barriers are denying
the benefits of the bilateral trade relationship to the United
States. At the same time, India takes full advantage of
open and fair U.S. markets to grow its exports. India is
depriving U.S. companies a fair opportunity to access the Indian
market and receive full value of its products once they enter
the Indian market. India im ports less from the United
States than from much smaller economy economies like
Singapore and the United Arab Emirates. A few years ago the
commission did a pair of studies on the U.S.-India trade
relationship. The commission found that if India were to
level the playing field and match American standards on
tariff, tariff investment and property rights, U.S. exports to
India would rise by two-thirds. In sum Indian does to the
provide U.S. businesses a fair opportunity to access or operate
in the Indian market. That hurts U.S. companies, limits
U.S. exports and depress depresses U.S. job creation. at
the urge of the administration to priority ize India in review
of bilateral trade deficits and to take action to rectify India
India’s trade and investment barriers, including a
robust special 301 action plan to address deficiency ies in
India’s domestic IP environment. Thank you for allowing me to
present these views. On behalf of AFTI I’m happy to answer
questions 禄 I would like to thank the
panelists for coming today and making such thoughtful
presentations. We will now turn to some questions. I will
invite each of the panelists on the U.S. Government side to
reintroduce themselves if they haven’t had a chance — I will
ask them to all reintroduce themselves, those that have
spoken earlier, but we have some new ones.
So with that, we’ll turn first to my colleague from USTR to ask
the first question from the government of Thailand.
禄 Thank you. I join in thanking all of you for your testimony
today ed Dresser, representative for policy and economics. A
question for the doctor. You mentioned one of the long
lasting monument of diplomacy. Can you tell us a bit about how
the treatment of U.S. business under the treaty compares to the
treatment of Thailand’s free trade agreement partners under
the respective agreements. 禄PRAYOTH BENYASUT: I think this
one is the treaty — we have a long story with the U.S. and I
think this one is the thing that maybe gives the U.S. investor
into Thailand, but in detail I can provide later with this one
with Thailand. I think it will facilitate our investor between
the two countries, especially the U.S. into Thailand. But on
the Thai side we have study ied something and we found that
because the U.S. have the federal and state level, so in
some sense, I mean mean, in some states, you have different
laws, rules, regulations, so I think for Thailand maybe we are
looking for the benefit on that. But for the U.S. side, because
Thailand is a kingdom, there’s no state of federal — we have
just the kingdom. So I think from your side you can enjoy the
treaty as… 禄 Thank you very much.
禄PRAYOTH BENYASUT: Thank you. 禄 I’ll turn to my colleague from
the treasury department.>> Thank you. My name is Wan C
hang Department of Treasury. Thank you for your submissions
and testimony. I have one question for Professor Chow.
Taiwan had a long history of intervention to resist new
Taiwan dollar appreciation. In your opinion, why do you think
the central bank would intervene in such asemi-finished aluminum
metric manner over time? 禄PETER CHOW: It was economy,
currency and evaluation, which you call the currency
depreciation for Taiwan. In fact, the same company may im
port the ingredient from abroad in export. If currency was
under-valued, then the companies had to pay more to im import
or to export. I I this is a question that
can apply to a economy like Taiwan, and from economic point
of view it would be much, much better to go through the market
forces to determine what is the exchange rate, you know,
particularly U.S. dollar with Taiwan currency. And I think
that the market can tell us and the business men much more information, any government
manipulation. So Taiwan understands, and the market will
determine. I’m not here as the government.
I’m here as an independent scholar from the city University
of New York, but the Central Bank may
intervene into the foreign exchange market. One reason for
that is because Taiwan is relatively small market,
relatively small to others. And it’s a major function for
the Central Bank to mitigate the validity of the exchange rate
and not to jeopardize the business confidence on
investment. So I think that is a normal
function. I want to engage on Central Bank and Q1 and Q2
and Q3 and the globalization. So I think as an academic
observer, I would say that the Central Bank in Taiwan should be
considered as one of… And I don’t want to get into
that, but, in fact, the government of the Central Bank
was… Thank you very much.
禄 I’ll turn to my colleague from the state department
禄 . My question is for Ms. Ms. Danielsson. Ms. Danielsson
Ms. Danielsson, you’re written testimony you
note ed while Taiwan is working towards liberalize ing domestic
regime some market protections remain. Could you please
explain which market protections remain and how your member
firms are affected by them. 禄LOTTA DANIELSSON: There are
definitely agriculture al market protections. I’m sure your
colleague from USTR has a much better idea. The issue of the
agriculture al market is certainly one of the big ones.
There are others, but I believe like other issues, and I know
that the current government of Taiwan has moved the office of
trade negotiation away from just under the ministry of economic
affairs and moved it into an executive level agency. And
that they are working on some of the issues that we see with the
U.S. And they are — obviously there’s a lot of agriculture al
businesses the U.S. who are see ing Taiwan as a large market and
they are being affected by some of the protectionist measures
that Taiwan has in place. Again, though, I do think that
we are confident that we can work through them. 禄 I’ll ask the next question for
Ms. Kim. What are the legal or regulatory issues that make it
challenging for you as exporters to access the Korean market?
禄NANCY KIM: Legal and regulatory challenges. With the implementation of
Chorus and tariff and trade barriers, U.S. exporters have
faired very well in being able to increase exports to Korea and
various industries such as auto and wheel and pharmaceutical
and agriculture al products I mentioned, but also a reduction
in non-tariff barriers and Korea has opened its market to U.S.
law firms, legal services, and to U.S. companies and insurance
and financial services, and U.S. companies in telecommunication
s. So a lot of those have been enable ed by legal and
regulatory changes made by the Korean government. As well as
Chorus has provided greater protection for intellectual
property rights. So that has resulted in an increase in
services to the U.S. — to Korea . U.S. services going to Korea,
such as in software and movies and films and you have seen —
that’s why U.S. has ha trade surplus in services with Korea. And as a result as well there
has been an increase in bilateral investment between the
two companies which has create ed a greater integration and
global value chain. I hope that answers your
question. 禄 It’s helpful, but we still
hear a number of complaints from time to time, so I was
wondering if you’re aware of any of those, if you could touch on
those for work that we still remain to accomplish despite
having the Chorus. 禄NANCY KIM: I think with any
free trade agreement there are always issues that need to be
worked out and as far as I’m aware there have been over 30
works groups and committees that have met and been able to
address a lot of these issues. And some of these issues are
still ongoing and still need to be addressed. But the Chorus
was implemented five years ago and not all of these barriers
have been phased in. So there are still some barriers that
need to be phased in, I believe a ten-year process when all the
barriers will be reduced. Thank you.
禄 Thank you. I have a question now for Mr. Pomper. In your
written submission you note ed that India’s imposition of
unique standards contribute to put U.S. commerce at an unfair
disadvantage. Could you provide some of the examples of
standards, regulations and guidelines issue ed by Indian
regulators which unfairly impact specific U.S. products and
companies? 禄BRIAN POMPER: Sure, there are
quite a few. I have details in my written testimony. There are
— well, the guidelines are computer-related invention. I
think make it very difficult to patent software in India.
That’s harmful to U.S. export exporters. I would say
the existence of regulation of section 3 (d) of the patent act
act. It makes it easy for competitors of U.S. innovative
biopharmaceutical company to attack patents in India and I
think this is a clear example of something that would be extra
trips. There are three requirement in trips for
compatibility and this 3D mechanism is a fourth
requirement, which I think the United States should get. There
are also requirements for label s ingredients in things like
distilled spirits that are outside of the norm, outside of
international standards. There are security — testing
requirements that have been — I would say threatened in India
for years. Every April 1st it seems they’re due to come into
effect and delayed another year year. This is what I
referenced in my oral testimony testimony, but if they
were fully impacted, what those requirements are that any ICT
product exported to India, regardless whether it was tested
for safety and reliability in international lab like an Under
writers Laboratory, that sort of thing, would also have to be
tested in an Indian facility. I believe India would have
nowhere near the capacity to test all the IC ICP products
going into India. This is not something fully in place yet but
it threatens and hangs over the ministry.
The last thing I’ll say is that India recently, in the last six
months maybe, eight months, has raised tariffs on a variety of I
CT products in ways that many believe violate their commitment
s under the information technology agreement.
These are all where the United States is a competitive exporter
and the impact on U.S. companies trying to invest in
and export are an advantage. 禄 Thank you. Did you want to
ask an additional question ?
禄 This has been an interesting session.
禄 Can I make a comment? Can I make a comment about the
agriculture al?
As a trade economist, I understand that agriculture al
is very, very sensitive political politically.
So I pay more attention to it. My understanding, U.S.
department, Taiwan import nearly 331 million of agriculture
product from the U.S. and U.S. agriculture surplus with Taiwan
Taiwan. Those are the two factors. And number three,
Taiwan government will purchase more of American agriculture
product . And also, in general, the
agriculture product in Taiwan puts a lot of pressure on the
farmer, but the government is willing to, you know, make a
friendship with the U.S. by doing some of the adjustment to
accommodate the farmers. So therefore my observation is
that you as government, even the Department of Agriculture al
representative, you can incyst that in — … 禄 We’re ready to go, so let’s
start. Let me welcome you to the
Department of Commerce and to actually the very last panel of
the day of hearings into the origins and causes and solution
solutions to the U.S. trade deficit. This is a panel
that is devote ed to services. I am Maureen Smith. I am the
director of the Office of Supply Chain and Professional
and Business Services here in the depreciate — of commerce.
So I’m going to listen attentive ly to your statements. May I
suggest we start with at the same time from the coalition of
service industry ies industries. I’m going to ask in
view of the time constraints we are under today that you limit
your statement to ten minutes each. Thank you .
禄CHRISTINE BLISS: Thank you very much. I really appreciate
the opportunity to appear before all of you from the Department
of State, Department of Commerce, USTR and treasury.
And it’s a pleasure to be able to meet with all of you today
and to testify on behalf of the Coalition of Service Industry
ies Industries, and CS I, as you probably know or may
not know is the leading industry association devote ed
exclusively to promoting international objectives with
respect to the U.S. services sector. Our members include the
broad spectrum of the services industry ies from IT and
communication services to financial services to
distribution, to express delivery to professional
services. And my testimony today is going
to explain why services is not only to — fundamental to the
U.S. and global economy ies, but why it is a critical component
of U.S. trade policy in our view. And must be included in
our view to get a more comprehensive view of the U.S.
economy. CSI definitely recommends a more
holistic view that includes all types of trade flows, including
services, to more accurately represent the impact of trade in
the economy. I will also highlight a few specific
examples just to illustrate how pervasive the influence of
services is across the economy. As I indicated, we are concerned
by — that an exclusive focus on manufactured goods
deficits will not produce results that will promote the
competitiveness of the American economy as a whole. This narrow
focus completely excludes services, which is a major part
of the U.S. economy that accounts for over 75% of the
American workforce and nearly 80% of US GDP. More
specifically nearly 10 million U.S. jobs are tied to U.S.
services exports and investment investments, which
means they are dependent on trade. Services jobs that are
in trade tradeable sectors which account for roughly 40% of
U.S. services sectors require a higher level of education and
have higher earning potential than average manufacturing jobs
and wages. In 2016 the average hourly
earnings in business and professional services was $30
and 72 cents per hour compared to an average manufacturing wage
of $25.99 per hour. So expanding services exports in
investment can be an important source of high wage U.S. jobs.
Services, including including digitally enable ed
services are a critical fabric of the U.S. economy and allow
every single economic sector from manufacturing to
agriculture to be more productive, to reach more
customers in more foreign markets and to ultimately create
higher wages and greater opportunities for all Americans
Americans. Simply you cannot grow it, make
it, move it, buy it, or sell it without services.
Looking beyond the typical examples, services are
everywhere. And where I would like to begin is with the U.S.
automative sector. If you look there specifically, 50% of the
cost of manufacturing is attributable to services. On
the manufacturing shop floors generally moving beyond the auto sector, companies both large
and small are depending increasingly on software and
services such as predictive analysis, machine learning and
cloud services to produce and deliver better and more
efficient products to their customers.
In the medical sector, telecommunications technology
ies enable providers to serve patients in remote areas while
big data analytics support public health authorities in the
fight against contagious diseases. Medical equipment
manufacturers are bundling their products with services and
selling them as integrated solutions.
In the agriculture sector, farmers rely on crop insurance
in the face of weather-related risks and new technologies are
embedded in their farm machinery from tractors to enable them to
collect realtime information to keep their crops healthier and
to produce greater yields. And in the energy space, wind
turbines are controlled and monitored by a systems of sensor
s linked by cloud technology ies.
Those are just a few examples, and I think they’re good ones
because there are areas where I think we’re all very familiar
with activities but we don’t necessarily associate services
with those activity ies. The United States is the world
world’s largest exporter of services and as a leader in
services trade, in fact, the United States has maintained an
overall trade surplus since 1970, and in 2016 U.S. services
exports measured approximately 754 billion and United States
had a total services trade surplus of 249 million.
And the picture for U.S. international competitiveness in
services is brighter still when one consider services supplied
by foreign affiliates of U.S. companies.
In 2014 the companies supplied services worth more than $1.5
trillion, more than twice the value of services delivered on a
cross-border basis. All of which supports significant
employment in the United States States.
This impressive growth in services is also accountable end
part due to emergence of Internet and arise of cross-
cross-border data flows. Data flows have grown 45 times since
2005 and will have grown by another nine times by 2020.
Now I want to look to some of the specific markets that were
identified in the Federal Register notice.
And I will note that the United States holds a services trade
surplus with every one of those markets with the exception of
India and Thailand. Over the last two decades U.S.
services surplus with these markets have increased or
deficits have turned to surplus surpluses. For instance,
since 1999 the U.S.-China services trade surplus has seen
a 28- 28-fold increase. Over the last decade the United
States has turned its services deficit with Taiwan into a
surplus owing to strong growth in intellectual property and
financial services. Looking to Canada, neighbor to the north,
U.S. services surplus with Canada has nearly quadruple ed
since 1999 and indeed because of strong services growth owing to
NAFTA the U.S. service efficiency surplus offset the
U.S. goods deficit meaning the United States has an overall
trade surplus with Canada of 12.5 billion.
With Mexico, the United States has nearly 8 billion services
trade surplus, and Korea, U.S. services export growth is more
than triple U.S. services im import growth, meaning that
since 2007 U.S. trade services has grown by 198%.
Despite this promising picture with many of the prominent
markets I just mentioned, impediments still exist. In
China, for example, there are many severe restrictions on
foreign firms, which include limitations on data flows,
equity cap restrictions and bands on foreign investment.
And with China soon to be implemented cybersecurity law,
which is slate ed to go into effect on June 1st, there’s
significant concern that these existing discriminatory barriers
to U.S. service providers will be even amplified and made
worse. Further, draft China regulations
combined with existing Chinese laws would force U.S. cloud
service providers to transfer valuable intellectual property
to the Chinese government, surrender use of brand names and
hand over operation and control of their businesses to a
Chinese company in order to operate in China.
And in many instances, in addition to these, China uses
national security concerns as a justification from imposing such
restrictions on foreign firms. And CSI members seriously
believe that this overarching issue of national security as
implemented through China cybersecurity law is not
effectively addressed it will undercut virtually most existing
services if not other commitments as well in the trade
arena. With respect to India, one of
the few countries with whom the United States holds a services
trade deficit, it maintains data localization requirements on
cloud providers, investment cap limits, notably in the insurance
sector, and significant barriers on telecommunications.
And that’s not a comprehensive list but I think it effectively
highlights some of the major restrictions. In turning
elsewhere around the globe even with European Union, while we do
have a very, very significant trade and investment flow in
services there are limitations on data flows and regulatory
barriers that encumber U.S. service providers.
CS it’s written testimony goes into greater detail on these and
other barriers. In closing, U.S. services sector
has a large and positive role in the U.S. economy and
international trade flows which we believe should be included in
the administration’s current analysis. Expanding U.S.
services exports and investments are supporting and creating
U.S. jobs and perpetuate ing U.S.
trade surplus surpluses. Digital trade flows and
digitally enable ed services are multiplying this effect.
Promoting services trade and investment flows not only
ensures continue ed growth and competitiveness of the services
sector but also the competitive competitiveness of
manufacturing and agriculture sectors as well.
It’s for these reasons that CSI believes that the U.S. services
and trade flows should be a key component of U.S. trade policy.
Thank you. And I’ll be happy to address any questions that you
have. 禄 Thank you very much. We’re
going to hold our questions until — after we’ve heard from
our other panelist this afternoon. So if you would
introduce yourself, please, and 禄JOCELYN MOORE: Good afternoon
afternoon. My name is Jocelyn Moore, senior vice
president of public policy and government affairs at the
National Football League. The N FL appreciates the opportunity
to present testimony in connection with the omnibus
report on significant trade deficits. My testimony this
afternoon will address Canada discriminatory actions against
the NFL and interference with NFL intellectual protocol rights
. It may come as no surprise to you but the Super Bowl is the
most watched television program not only in the United States
but also Canada and has tremendous value to Canadian
broadcasters. As such the licensing of the Super Bowl in
Canada is a source of important revenue for the NFL and its
member teams and players. Given its broad and avid fan base,
Canada is a key market and component of NFL strategic
initiative to grow the game internationally.
In 2015, however, Canada took the remarkable step of severely
restricting ability to secure advertise ing revenue in Canada
for the Super Bowl broadcast only.
In taking this step, Canada has violate ed copyright protections
owed to the United States under the North American free trade
agreement. Although the previous
administration raised this issue with Canada several times
times, Canada refused to withdraw discriminatory measure
regarding the Super Bowl and the NFL has already suffered
significant damage to the value of its intellectual property
rights. The NFL welcomes this
administration’s commitment to addressing unfair trade
practices and requests the inclusion of Canada’s
discriminatory action towards the Super Bowl in the omnibus
report on significant trade deficits.
While copyright owners typically control the distribution of
their copyright copyrighted works, NAFTA allows
local Canadian cable companies under certain conditions to re
retransmit U.S. broadcast signals as well as distant
Canadian broadcast signals without permission. To
compensate for this anomaly Canada’s regulations require
Canadian cable companies at the request of the local Canadian
broadcaster of the programming to replace the US or distant
Canadian broadcast signal with the local Canadian broadcast
signal when the same program is shown at the same time.
This decades old practice known as simultaneous substitution
enables the local Canadian broadcaster to sell Canadian
advertise ing across all channel s broadcasting that program at
the time. Simultaneous substitution protected U.S. and
Canadian copyright owners who license their programming to
Canadian broadcasters as well as the Canadian lie senee s of
such programming who pay for the rights to broadcast the program
in Canada. In 2015 regulators reviewed the
simultaneous substitution policy and in January 2015 announced
plans to maintain simultaneous substitution for all programs
except the Super Bowl. This un expected and arbitrary decision
denies the NFL the ability to generate revenue from its
Canadian copyright license in the Super Bowl in the same ways
as Canadian owners of copyright in other programs.
Canada’s discrimination against the NFL clearly violates the
intellectual property protection s guarantee ed in NAFTA
NAFTA. First, NAFTA guarantees that
U.S. copyright owners will be treated no less favorably than
their Canadian counterparts. As note ed, Canada’s decision
significantly impairs the rights of a U.S. copyright holder, DNS
L in ways that the rights of Canadian copyright owners are
not, namely the ability of the NFL to generate revenue from its
Canadian copyright license. As such Canada’s action is
inconsistent with NAFTA’s national treatment requirement.
In addition, NAFTA requires member governments to permit
transfer of intellectual property rights and to allow
transferees of these rights to enjoy fully the benefits derived
from those rights. Canada, however, is depriving
the NFL Canadian licensee of the right to simultaneous
substitution which is a significant benefit that derives
from its copyright license in the super Super Bowl.
Canada’s action thus violates NAFTA copyright
protections for this additional reason.
Canada has consistently appeared on annual reports prepared by
the U.S. Trade Representative identifying countries neglecting
trade and intellectual property obligations. Canada’s
discrimination against the NFL has been cite ed in the two most
recent reports. Canada sometimes attempts to
justify its discriminatory measures as permissible to
protect its cultural industry ies industries. Such
justification would be unfounded in this instance, more
over, it would not prevent the United States from exercising
its reciprocal rights under NAFTA.
In fact, in the mid 1990s, the United States invoked these
reciprocal rights when Canada tried to block Country Music
Television from operating in Canada. In the case of Country
Music Television this forceful action prompted Canada to
abandon its discriminatory measure.
Canada’s recent actions directed at the Super Bowl and the Super
Bowl alone resulted in an immediate, direct and dramatic
drop in audience for NFL’s exclusive rights holder in
Canada in February 2017. The Canadian audience for Super Bowl
51 broadcast was down nearly 40% from the 2016 audience. In
light of the costly and NAFTA inconsistent discrimination
against a U.S. copyright holder, Canada’s recent actions clearly
warrant inclusion in the omnibus report on significant
trade deficit. In Canada persists in discriminatory
conduct NFL would urge administration to exercise its
full — the full complement of U.S. rights under NAFTA.
Thank you again for this opportunity to present the views
of the National Football League. I would be happy to
answer any questions. 禄 Thank you very much. Now, we
will have some questions from our panel. Our first round of
questioning is for the coalition of service industries and
Christine Bliss, I’m going to ask my colleagues to introduce
themselves and then to pose their questions starting with
Department of Treasury. 禄 Hi, my name is Wan Chang,
Department of Treasury and my question is that you’ve observe
observed that the United States records a healthy trade
surplus in services trade. Which I guess that the current
trading conditions are relatively favorable. Is this
surplus assured or do you see any risks on the horizon that
could create a more hostile environment for services trade? 禄CHRISTINE BLISS: I want to be
clear. Are you talking about the total U.S. global service
trade surplus or talking about country specific? I just want
to make sure I heard your question clearly.
禄 I guess both. 禄CHRISTINE BLISS: Okay. Well,
I would say that while I think that the — you know, as I said
said, the U.S. is basically the most competitive service
supplier in the world. We’re not resting on our laurels in
that regard, so we’re always concerned about the certainty of
having continue ed market access around the world and gain
ing new market access. We’re also continuing to be
trouble ed by certain trends that we see — probably one of
the most recent ones is the proliferation of data local
localization requirements. Which has become an increasingly
important issue really across the board in services, because
of the degree to which digital services are now predominate ing
and supporting not only services itself but other sector
s as well. So I would say, you know, moving
on the horizon, certainly that’s one trend that we’re very
concerned about. Two, I would say that we are
broadly concerned about the importance of United States
maintaining its leadership role in supporting and observing
multilateral, bilateral regional trade rules and we are
concerned that the surplus that we now enjoy in services could
be jeopardized if the U.S. were to withdraw from that particular
position, particularly in the global stage and arenas such as
the WT WTO. And thirdly, I think that we see very important
areas of opportunity ies where we want to see binding
international agreements that don’t currently exist. We may
have actual access now but it’s not necessarily bound, and I’m
thinking the Asia-Pacific region in particular, and so I think
what we see looming on the horizon is while services has
made significant inroads in the Asia Pacific markets we would
like to see that mound and not just as a matter of day-to-day
practice. So I think those are the ways
principally we remain concerned concerned. We don’t
see that it’s necessarily a sure thing.
禄 Thank you very much. USTR. 禄 I think actually your answer
covered a lot of the question I was going to ask, so I’ll pass.
Thank you. 禄 Thank you. My turn then. Do you know of any analyses
that shows that liberalizing services trade leads to
increased manufacturing trade? And if so, can you talk a little
bit about the mechanism behind and the magnitude of that
relationship? Does the effect differ across service industry
ies? 禄CHRISTINE BLISS: The studies
I’m familiar with and the areas CSI have done specific research
generally document the relationships between services
and manufacturing, so they document the ways that services
support manufacturing activity activities. I don’t
know that those studies necessarily point to specific
increases in manufacture ed exports. I think they generally
talk about the value of services as an input overall to
manufacturing. They talk about the percentage of labor in terms
of services, jobs, as an input to manufacturing. For example,
I think the OECD is a good example of that. They just did
a recent study on global value chains. And documented there
among OECD countries that the percentage of input in
manufacturing that actually are services jobs can range as high
as 60%. So I’m not aware specifically of
a study that shows because of that services input there is an
increase, but I can certainly say that is
the case that a lion’s share of manufacturing activity and
particularly high end manufacturing activity would
have great difficulty taking place if those services were not
supplied, and increasingly digital related services.
禄 Thank you very much. That’s very helpful. Department of
State. 禄 Hello, I’m Carol from the
economic bureau at the state department. You note ed that
the United States has a services trade deficit with one country
on the list that we were reviewing, and that’s India. Many consider India to be a
center for outsource ing, particularly in the technology
sector. Should we be concerned that the global U.S. services
surplus will disappear as a result of outsource ing? 禄CHRISTINE BLISS: Are you
thinking in relation to India specifically?
禄 Starting with India but could go beyond.
禄CHRISTINE BLISS: No, I don’t think it’s a trend. Certainly
there are activity ies that can be performed globally, because
they’re tradeable services, so there are services that can be
performed across-border basis, but I don’t think that you would
find that generally those kinds of outsource services are
services that tend to be necessarily the higher end,
higher wage jobs. So I think for — particularly
that 40% of business and professional services that we’re
very focused on and the trade here, where the higher wage jobs
exist, I think that, you know, that our view is for the most
part U.S. companies, U.S. services companies are pretty
uniquely and competitively situate ed, so they’re either
providing those services from the United States or as the
market dictates they’re providing them as a result of
investments in a foreign country . But they’re providing
investments there because otherwise the service could not
be provided, just because of the nature of the service.
So, no, I don’t think we would view outsourcing as a
particularly trouble ing phenomenon in terms of a loss of
U.S. competitiveness or a loss of U.S. jobs that couldn’t
otherwise be replaced by competitive and new jobs being
create ed in the services sector .
And on that, if I can just — it ‘s not directly related to your
question, but I think it’s an important point.
I know that one of the often repeated arguments with respect
to the services sector is, well well, jobs that are being
create ed are low wage low end jobs. And that’s why one of the
things that we want to make very clear is that when we’re
talking about the importance of services to U.S. trade policy,
we are very specifically target targeted at that 40% of
U.S. services sectors that do have tradeable services and
where wages are significantly higher.
禄 Thank you very much. And my colleague from USTR.
禄 You mentioned the potential of data localization policy ies to
reduce exploits of services. Do you think that potential
exists on a larger scale, data localization, hold back overall
U.S. exports in agriculture and other areas?
禄CHRISTINE BLISS: I would say it certainly has the potential
to be as cripple ing in services sectors as it is in
manufacturing to the extent that you might be engaged in an
activity where you would want to be transmitting, store ing,
processing data in the United States and keep it in the United
States, and that’s what is very interesting about it. Because
many companies have — U.S. companies have their serve
servers located in the United States and would like to keep
them there. So foreign data localization work against that
trend. So it does complicate things if you have to have a
server in every country where you’re doing business if there
is some aspect that involves processing or storage of data.
So financial services is certainly, I think, the
strongest example, where it can have adverse impact, but I think
there are other sectors as well in things like logistics where
there can be an equally damaging effect, and I would put
manufacturing in that category as well and to give you an
example, in manufacturing, where there’s a sensor embedded in a
particular piece of a manufacturer’s equipment, if you
can’t process the data that is being generate generated
by that sensor except by a server that is locate ed in
foreign territory, again, that can complicate or make operation
of that piece of equipment more expensive.
禄 Thank you. 禄 Thank you very much. And now
our panel has some questions for Ms. Moore from the NFL. And
I’m going to start, if I may. Today’s hearing is about the
causes of significant deficits with our trading partners. It’s
a reasonable expectation, I think, that in the future there
will be hearings to discuss trade negotiating priority ies
such as the concerns you raise. in your statement. Could you
please tell us about the role that the NFL plays in supporting
and promoting U.S. manufacturing jobs.
禄JOCELYN MOORE: Sure. I think in terms of the National
Football League we obviously have thousands of direct and
indirect jobs. And so we support manufacturing not only
in local communities where we are, you know, building stadium
stadiums and all the parts that go into those stadium
s, and we actually have several stadiums under construction
right now, but we also have a number of, you know, indirect
jobs that are create ed. So I don’t have a downfiable number
right now but we’re in the thousands of jobs per community
that are being create ed or that are existent around our NFL
facility ies. And the other thing I would say, not just
stadiums. It’s practice facility ies, the headquarters
for our teams. We actually do create a significant number of
jobs per community. 禄 Thank you very much. My
colleagues. 禄 Thank you. I think from your
testimony it appear more Canadians saw commercials for
U.S. products than in years past . Some may say increased
exposure has benefited U.S. firms and could lead to
increased U.S. exports. Do you agree? How do you respond?
禄JOCELYN MOORE: I think the opposite is true in many
instances. There are a number of U.S. companies that advertise
during the Super Bowl Bowl, their products, whether brick
and mortar stores or products aren’t available in Canadian or
maybe they have different regulatory requirements, where
healthcare products are concerned. And so I think most
Canadians would say, you know, there was an advertisement for
either a product or a store that I actually don’t have access to
. I can’t get in my car and drive to this particular store
or pick up this particular product product, so why
am I seeing these ads? More importantly, I think if you talk
to the folks who are really focused on the economy in Canada
, they would say, well, what about the products, you know,
that we do manufacture in Canada and the community there? So
not trying to make an argument for the Canadian economy over
the U.S. economy, but I would say most most — a good
number of our ads are for products that may not be
available in Canada so one would beg the question, why are those
ads there? I would underscore the point by saying, our
exclusive rights holder in Canada sold advertise ing in
Canada, which is a challenge under our contract. That is how
our contract was negotiated and that’s how it was intended
under simultaneous substitution that the Canadian rights holder
could sell it in Canada because they’re in Canada and they’re
not able to do that. So I think it’s a challenge.
禄 Thank you. Do any of my colleagues have
follow-up questions? Let me invite our panel today,
do either of you have additional comments to make?
禄CHRISTINE BLISS: Actually, there’s one, and it’s to — it
it’s a question, because we addressed in our written
testimony and also in my oral statement, but I think it’s with
emphasis and that is probably the best illustration of the
impact of data — foreign data localization requirements and a
potential adverse impact, is with respect to cloud — the
increasing use of cloud technology. And that’s where I
think your point about how would it affect manufacturing, I
think that’s where it really could hit hard in the
manufacturing sector to the extent that there is increasing
reliance on use of cloud technologies, particularly by
small companies that may not have their own data storage
capacity. So I just want to throw that
example out there because I think it’s maybe the clearest
one. 禄 Thank you.
禄JOCELYN MOORE: I have two follow-up comments on the
question about jobs. I would just underscore the jobs create
created in the construction sector, but I would
also say in the new economy we do have a number of start-ups
that we helped to fund and support, whether it’s in the
medical research area where we’re looking at technology
around player health and safety. We support a number of grants
that go to start-ups. We have competitions regarding helmet technology and a number
of technologies that create an incentive for companies to
innovate around player health and safety. Those are a couple
of examples and we’d be happy to follow up with the panel with
more detailed manufacturing numbers.
The second point I would make is for us, this is really about
business certainty. We have —

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