U.S. Tools to Address Chinese Market Distortions
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HEARING ON U.S. TOOLS TO ADDRESS CHINESE MARKET DISTORTIONS HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ONE HUNDRED FIFTEENTH CONGRESS SECOND SESSION FRIDAY, JUNE 8, 2018 Printed for use of the United States-China Economic and Security Review Commission Available via the World Wide Web: www.uscc.gov UNITED STATES-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION WASHINGTON: 2018 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ROBIN CLEVELAND, CHAIRMAN CAROLYN BARTHOLOMEW, VICE CHAIRMAN Commissioners: HON. CARTE P. GOODWIN HON. JAMES TALENT DR. GLENN HUBBARD DR. KATHERINE C. TOBIN ROY D. KAMPHAUSEN MICHAEL R. WESSEL HON. JONATHAN N. STIVERS DR. LARRY M. WORTZEL The Commission was created on October 30, 2000 by the Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Public Law No. 106-398, 114 STAT. 1654A-334 (2000) (codified at 22 U.S.C. § 7002 (2001), as amended by the Treasury and General Government Appropriations Act for 2002 § 645 (regarding employment status of staff) & § 648 (regarding changing annual report due date from March to June), Public Law No. 107-67, 115 STAT. 514 (Nov. 12, 2001); as amended by Division P of the “Consolidated Appropriations Resolution, 2003,” Pub L. No. 108-7 (Feb. 20, 2003) (regarding Commission name change, terms of Commissioners, and responsibilities of the Commission); as amended by Public Law No. 109- 108 (H.R. 2862) (Nov. 22, 2005) (regarding responsibilities of Commission and applicability of FACA); as amended by Division J of the “Consolidated Appropriations Act, 2008,” Public Law Nol. 110-161 (December 26, 2007) (regarding responsibilities of the Commission, and changing the Annual Report due date from June to December); as amended by the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015, P.L. 113-291 (December 19, 2014) (regarding responsibilities of the Commission). The Commission’s full charter is available at www.uscc.gov. ii June 21, 2018 The Honorable Orrin Hatch President Pro Tempore of the Senate, Washington, DC 20510 The Honorable Paul Ryan Speaker of the House of Representatives, Washington, DC 20515 Dear Senator Hatch and Speaker Ryan: We are pleased to notify you of the Commission’s June 8, 2018 public hearing on “U.S. Tools to Address Chinese Market Distortions.” The Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Pub. L. No. 106-398 (as amended by the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015 § 1259b, Pub. L. No. 113-291) provides the basis for this hearing. At the hearing, the Commissioners received testimony from the following witnesses: Chad Bown, Ph.D., Reginald Jones Senior Fellow, Peterson Institute for International Economics; former Senior Economist for International Trade and Investment, White House Council of Economic Advisors; Linda Dempsey, VP, International Affairs and Economic Policy, National Association of Manufacturers; Celeste Drake, Trade and Globalization Policy Specialist, AFL-CIO; Jennifer A. Hillman, Professor from Practice, Georgetown Law School; former Member, WTO Appellate Body; Lee Branstetter, Ph.D., Professor of Economics and Public Policy, Carnegie Mellon University; former Senior Economist for International Trade and Investment, President’s Council of Economic Advisor; Mark Cohen, head of the Asia IP Project, University of California at Berkeley; former Senior Counsel, U.S. Patent and Trademark Office; Willy Shih, Ph.D., Robert and Jane Cizik Professor of Management Practice in Business Administration, Harvard Business School; and Graham Webster, China Digital Economy Fellow at New America; Senior Fellow, Paul Tsai China Center at Yale Law School. This hearing explored U.S. policy options available to address Chinese market distortions. The first panel, “A Coordinated Policy Response to Chinese State Capitalism,” addressed industrial policy challenges like subsidies, price distortions, and investment restrictions. The second panel, “A Coordinated Policy Response to China’s Techno-nationalism,” focused on challenges from China’s push to develop domestic-led intellectual property, including technology transfer, IP or data theft, and restrictions on cross-border data flows. We note that the full transcript of the hearing is posted to the Commission’s website. The prepared statements and supporting documents submitted by the participants are now posted on the Commission’s website at www.uscc.gov. Members and the staff of the Commission are available to provide more detailed briefings. We hope these materials will be helpful to the Congress as it continues its assessment of U.S.-China relations and their impact on U.S. security. The Commission will examine in greater depth these issues, and the other issues enumerated in its statutory mandate, in its 2018 Annual Report that will be submitted to Congress in November 2018. Should you have any questions regarding this hearing or any other issue related to China, please do not hesitate to have your staff contact our Congressional Liaison, Leslie Tisdale, at 202-624-1496 or [email protected]. Sincerely yours, Robin Cleveland Carolyn Bartholomew Chairman Vice Chairman cc: Members of Congress and Congressional Staff iii CONTENTS JUNE 8, 2018 U.S. TOOLS TO ADDRESS CHINESE MARKET DISTORTIONS Opening Statement of Commissioner R. Glenn Hubbard (Hearing Co-Chair) .........................................................................................................6 Prepared Statement ...........................................................................................................8 Opening Statement of Commissioner Jonathan Stivers (Hearing Co-Chair) .........................................................................................................9 Prepared Statement .........................................................................................................10 Panel I: A Coordinated Policy Response to Chinese State Capitalism Panel I Introduction by Commissioner Jonathan Stivers (Hearing Co-Chair) .......................................................................................................11 Statement of Chad Bown, Ph.D. Reginald Jones Senior Fellow, Peterson Institute for International Economics; former Senior Economist for International Trade and Investment, White House Council of Economic Advisors .......................................................................................................12 Prepared Statement .........................................................................................................15 Statement of Linda Dempsey VP, International Affairs and Economic Policy, National Association of Manufacturers ........................................................................................................................................35 Prepared Statement .........................................................................................................38 Statement of Celeste Drake Trade and Globalization Policy Specialist, AFL-CIO ...................................................53 Prepared Statement .........................................................................................................55 Statement of Jennifer A. Hillman Professor from Practice, Georgetown Law School; former Member, WTO Appellate Body ...............................................................................................................................71 Prepared Statement .........................................................................................................75 Panel I: Question and Answer............................................................................................98 Panel II: A Coordinated Policy Response to China’s Techno-nationalism Panel II Introduction by Commissioner R. Glenn Hubbard (Hearing Co-Chair) .....................................................................................................119 Statement of Lee Branstetter, Ph.D. Professor of Economics and Public Policy, Carnegie Mellon University; former Senior Economist for International Trade and Investment, President’s Council of Economic Advisors .......................................................................................................................120 Prepared Statement .......................................................................................................123 iv Statement of Mark Cohen Head of the Asia IP Project, University of California at Berkeley; former Senior Counsel, U.S. Patent and Trademark Office ................................................................137 Prepared Statement .......................................................................................................139 Statement of Willy Shih, Ph.D. Robert and Jane Cizik Professor of Management Practice in Business Administration, Harvard Business School .............................................................................................156 Prepared Statement .......................................................................................................159 Statement of Graham Webster China Digital Economy Fellow at New America; Senior Fellow, Paul Tsai China Center at Yale Law School ...........................................................................................170 Prepared Statement .......................................................................................................173 Panel II: Question and Answer ........................................................................................188