June 21, 2017

Senate Finance Committee: The President’s Trade Policy Agenda and Fiscal Year 2018 Budget

 

Key Topics & Takeaways

  • Data Localization: Sen. Carper (D-Del.) expressed his “disappoint[ment]” that the Trans-Pacific Partnership (TPP) excluded financial services from data localization provisions, and urged the Administration to follow the directive under Trade Promotion Authority by ensuring that the financial services sector is treated the “same as every other sector.” U.S. Trade Representative Lighthizer “absolutely” agreed that the Administration intends to do so.
  • China Trade Talks: Lighthizer explained that the Administration is still trying to decide how the China trade talks will go forward after the 100-day process ends, but noted that the Comprehensive Economic Dialogue will continue. He touted the progress made during the bilateral trade talks thus far, and indicated that the Administration will continue to follow-up to make sure that China does what it has committed to do. He noted that the “pressure is still on” and assured the committee that this bilateral dialogue is an ongoing priority for President Trump.
  • Investor-State Dispute Settlement: Sen. Brown (D-Ohio) urged the Administration to remove the Investor-State Dispute Settlement (ISDS) from the North American Free Trade Agreement (NAFTA), arguing that it is a “corporate handout.” Lighthizer agreed that this issue is “troubling,” but noted that investors have a “right to have their property protected” so long as “sovereignty” is not undermined. He expressed his desire to “balance” both “valid” interests.

 

Witness

  • Robert Lighthizer, U.S. Trade Representative

 

Opening Remarks

Orrin Hatch (R-Utah), Chairman, Senate Finance Committee

In his statement, Hatch noted that the U.S. Trade Representative (USTR) office issued its Trade Policy Agenda before Robert Lighthizer took office. Hatch encouraged the Administration to prioritize: 1) building and maintaining a healthy economy for American workers, businesses and families; 2) increasing economic opportunities and holding foreign nations accountable when they “abuse” the system; and 3) focusing on trade, rather than advancing a social agenda as he believed the Obama Administration did. He also expressed concern about the use of national security tools to achieve trade goals.

 

Hatch highlighted the impending re-negotiation of the North American Free Trade Agreement (NAFTA) as a “unique opportunity” to improve the trading bloc to expand opportunities for American businesses, consumers and workers. He also suggested that the Administration address trade imbalances through “U.S.-led free trade agreements;” and maintained that robust enforcement mechanisms help rebalance trade, as well.

 

Robert Lighthizer, U.S. Trade Representative

Lighthizer testified that he aims to advance trade policy that puts American workers, farmers and ranchers, families, and businesses first, as well as bolster enforcement efforts. He explained that the agency requested increased funding in the amount of $57.6 million, a six percent increase over FY16 levels, which he said will be used in part to hire additional staffers to enforce trade agreements.

 

He highlighted progress made on: 1) renegotiating NAFTA; 2) developing a strong enforcement agenda; 3) lowering the nation’s trade deficit; and 4) opening markets for American businesses.

 

Lighthizer also underscored the current Administration’s efforts to reform the global trading system to make it more “fair and efficient,” such as by modernizing NAFTA. He noted that negotiations will begin after the 90-day waiting period on August 16th, and explained that the Administration intends to move “very quickly” to update the agreement. Lighthizer added that his office received more than 12,000 responses to their consultation on negotiating objectives for the agreement, and will hold public hearings over three days next week. To address transparency concerns, Lighthizer explained that the Administration’s negotiating objectives will be published on July 17th.

 

Lighthizer noted that the Administration aims to strengthen its enforcement efforts, and lamented that the U.S. has been a “chief target” of trade disputes at the World Trade Organization (WTO), which he said “makes no sense.” He stated that the Administration will “aggressively pursue” countries that violate trade rules with the U.S. whether through the WTO or otherwise.

 

Lighthizer also stated that the Administration aims to address the “chronic trading deficit,” which he said he believes “represents structural problems in global trade.” He argued that by making markets more “fair” and “free,” the U.S. will become more competitive and the trade deficit will decline.

 

Ron Wyden (D-Ore.), Ranking Member, Senate Finance Committee

Wyden emphasized several issues where NAFTA needs improvement, such as on currency manipulation and digital commerce. He asserted that digital trade is “worth fighting for” and argued that the U.S. “cannot accept protectionist approaches to the Internet.” Wyden also expressed “real doubts” that the Administration will fail to successfully negotiate an updated NAFTA, but encouraged meaningful consultations with Congress and the American public as negotiations move forward.

 

Question and Answer

Intellectual Property Rights

Lighthizer indicated that protecting American intellectual property rights (IPR) is an “extremely high priority” and acknowledged that the current NAFTA is “deficient” in this area. He stated his intent to make the modernized NAFTA a “model agreement” in this area and promised not to “bring an agreement back that does not satisfy the Committee” on IPR.

 

Digital Commerce

Lighthizer noted that there are “real differences” across NAFTA countries on de-minimus levels for e-commerce. He noted that the current agreement lacks a digital commerce chapter and expressed his desire to negotiate a model agreement on e-commerce issues.

 

Future of NAFTA

Wyden asked how the Administration would proceed if it is unable to re-negotiate NAFTA quickly and obtain the concessions it seeks. Lighthizer dismissed reports that the Administration imposed an “arbitrary” deadline by which negotiations should be finalized, and reiterated that they seek a “transformative,” “high standard” agreement. If the talks result in a “total stalemate,” he said, the Administration will consult with this committee on next steps.

 

Currency Manipulation

Lighthizer agreed with Sen. Debbie Stabenow’s (D-Mich.) characterization of currency manipulation as one of the most “harmful” trade barriers in the 21st century. He noted that he has been an “outspoken critic” of currency manipulation for several years.

 

Market Economy Status

Lighthizer stated that the decision whether to treat China as a market economy is the most “serious” issue currently being litigated by the U.S. at the WTO. He contended that a “bad decision” would be “cataclysmic” for the WTO, and claimed that “without question” China is “not a market economy.”

 

China Trade Talks

Lighthizer explained that the Administration is still trying to decide how the China trade talks will go forward after the 100-day process ends, but noted that the Comprehensive Economic Dialogue will continue. He touted the progress made during the bilateral trade talks thus far, and indicated that the Administration will continue to follow-up to make sure that China does what it has committed to do. He noted that the “pressure is still on” and assured the committee that this bilateral dialogue is an ongoing priority for President Trump.

 

Investor-State Dispute Settlement

Sen. Sherrod Brown (D-Ohio) urged the Administration to remove the Investor-State Dispute Settlement (ISDS) from NAFTA, arguing that it is a “corporate handout.” Lighthizer agreed that this issue is “troubling,” but noted that investors have a “right to have their property protected” so long as “sovereignty” is not undermined. He expressed his desire to “balance” both of these “valid” interests.

 

Data Localization

Sen. Tom Carper (D-Del.) expressed his “disappoint[ment]” that the Trans-Pacific Partnership (TPP) excluded financial services from data localization provisions, and urged the Administration to follow the directive under Trade Promotion Authority by ensuring that the financial services sector is treated the “same as every other sector.” Lighthizer “absolutely” agreed that the Administration intends to do so.

 

China Technology Issues

Sen. Maria Cantwell (D-Wash.) expressed concern about draft regulations in China that would adversely impact U.S. cloud service providers. Lighthizer agreed that it is an “extremely important problem,” but not surprising considering how China often creates unfair advantages in several sectors of the economy to ensure that China will be the “dominant power.” Lighthizer added that the Administration takes this “very seriously” and views it as a “threat to U.S. commerce.” He pledged to continue raising this issue with Beijing and pursuing enforcement actions, if they have the tools to do so.

 

National Security Issues

Sen. Claire McCaskill (D-Mo.) noted that the ongoing 232 review process on aluminum and steel imports is a “highly unusual” examination of trade issues as a national security threat. While she agreed with the goal of making the U.S. aluminum and steel sectors competitive, she expressed concern about the downstream impacts on other imported materials. Lighthizer noted that conventional tools “don’t seem to” address the excess capacity issues in the steel and aluminum sectors, and he explained that there is a national security issue if the U.S. no longer produces these materials.

 

Additional information on this hearing can be accessed here.