models to perform simulations. each method has its strengths and weaknesses, but hopefully, taken together, they capture the plausible range of effects. the cbo recently used a range of approaches to analyze how the 2009 stimulus legislation has affected the economy. it estimated that, in the fourth quarter of 2009, the stimulus raised the level of gdp in the . .

now it is a year later. the economy is the midst of a moderate recovery. much of the stimulus spending is still coming on line, so it will continue to boost gdp for a time, but the effect will not be pronounced since we are comparing this year's level to last year's already boosted level. the cbo estimates that the effect on all level of gdp and the unemployment rate will peak

this year and then fade. so we cannot rely on the stimulus power -- to power an ongoing recovery. rather, what i am counting on is a handoff from government- prompted demand to private demand as we go forward. in the next few years, as the economy recovers, the budget picture should improve. tax receipts will rise and stimulus spending will wind down. so i am personally not alarmed by the current enormous deficits. i see them as transitory and recession-related. but i am very worried about the long-term structural deficit that will remain and will grow even after the output -- the output gap is closed.

as i mentioned, much of that long-term budget gap is related to the aging of the population and health-care cost trends. i was born a few years after world war ii, and people my age represent the leading edge of the baby boom. tens of millions of people are following close behind. and as a result, social security and medicare spending are projected to soar. the cbo currently estimates that social security and medicare will rise from about 8% of gdp in 2009, to 13% by 2035, and will eventually reach almost 20% of gdp by late this century, based on their benchmark assumptions about trends in health-care costs.

now many people are thinking about these long run deficits and they are considering alternative ways of reducing them. but what different solutions have in common is that they inevitably require ross as a society to make tough and painful choices. the recent protests in greece where a tough fiscal austerity program has been imposed make it clear just how difficult these decisions can be. there is one count on which budget deficit should plead innocent, and that is the charge that these deficits will ignite runaway u.s. inflation. i simply do not believe that is the case. concerns that deficits cause inflation have a long history.

in developing economies, there is plenty of evidence showing that deficits are often inflationary. the logic is that a government can pay for its purchases through taxes, borrowing, or money creation. in countries with limited ability to collect taxes and where financial markets may be poorly developed, printing money may be seen as the only way to pay for the activities of the government, and that often has a terrible consequences. however, in advanced countries with independent central banks, government deficits do not cause inflation either in the short run or in the long run. these links between fiscal deficits and inflation have been studied extensively and the evidence is clear.

japan is a case in point. that country has run enormous fiscal deficits for many years and its government debt has risen to very high levels. yet japan has been the recent textbook case of persistent deflation, not inflation. here's the rub. i have just asserted that there is no link between deficits and inflation in advanced countries with independent central banks. and that word independent deserves special emphasis, because it is essential to a central bank's inflation- fighting credibility. as long as monetary authorities have the freedom to fight inflation without interference, then deficits will not pull them off course. when we examine the evidence from around the globe, we

clearly see that independent central banks have been more successful in delivering lower inflation. indeed, the purpose of independence is to insulate central bank decision makers from pressures that might distract them from their core monetary policy objectives. under our system in the united states, the federal reserve is an independent body shielded from interference from other arms of government. it is assigned two objectives by law -- maximum sustainable employment and price stability. the president appoints members of the federal reserve board in washington and the senate confirms their nominations. the terms of fed governors were set at 14 years so that appointees to these posts would take the long view. in addition, a decentralized

system of regional federal reserve banks was established in order to insure that we hear a broad range of views from around the country when we set monetary policy, while at the same time buffering us from political pressure. well, why does independence matter? because the decision to raise the fed's short-term interest rate target may be unpopular. it raises the cost of funds for businesses seeking to borrow, invest, or higher, it leads to mock -- to higher mortgage rates, and it boost the cost of government borrowing. and here is the connection to deficits -- in the future, faced with large and persistent federal budget gaps, some people might hope that the fed would help finance all that fiscal red ink by boosting the money supply

and tolerating a higher level of inflation. an independent fed would find it much easier to stay focused on its statutory goals of maximum employment and stable prices. an independent fed would allow interest rates to rise if needed to address inclination very pressures and would resist calls to monetize the debt. by contrast, a central bank that was not independent might succumb to demands to keep rates low, even if the economy were in danger of overheating. to my mind, this is one of the greatest arguments for -- for preserving the fed's independence. i have seen vividly how independence works in practice. at meetings of the federal open market committee, but that body that makes these interest rate decisions, we have always framed

our debates exclusively in terms of how policy moves might affect our objectives of maximum sustainable employment and price stability. we do not take other considerations into account. if economic circumstances call for higher interest rates, we act appropriately. indeed, i have personally supported an increase in our target for the federal funds rate on 20 different occasions. that said, independence comes with responsibility. entirely appropriately, we are accountable to the government and to the country's citizens for our performance. in regular reports to congress as well as prompt releases of minutes of our meetings, in speeches and in other statements, we aim to provide the information congress and the

public need to understand how and why we came to our decisions. future fiscal deficits are not the only source of inflation worries these days. to some people, inflation dangers also lurk right on the federal reserve's own balance sheet. our special programs to stabilize the financial system and stimulate the economy have pumped up our balance sheet from its pre-crisis level of roughly $800 billion to its current size of more than $2 trillion. a big increase. in broad terms, the main way we expanded our balance sheet was by buying assets such as mortgaged-backed securities, paying for them by crediting the sellers, and ultimately the banking system with reserves --

that is, with deposits at the federal reserve. and those reserves are the electronic counterpart to cash. so why isn't creating all this money inflationary? why is in that setting up a situation in which too much money chases too few goods, as the saying goes? let me answer this in two ways. first, expanding the fed's balance sheet has not in fact lead to a surge in credit. lending has been quite restrained. banks have been cautious as they seek to return to financial health, and they are keeping much of the money created by this expansion in their accounts with the federal reserve. second, that balance sheet growth and money creation have taken place at a time when the economy has been operating with enormous slack due to

insufficient private demand for goods. in other words, the pressures pushing inflation lower than a rise from underutilization of the economy's resources have more than offset any upward pressure from our specialized programs. and the net result has been that inflation has trended down. no as the recovery proceeds, the fed will eventually have to make sure that this balance sheet expansion does not lead to inflation. this means that we have to get the timing right for tapering off and ending our expansionary programs. in other words, we need an exit strategy designed to remove some of the monetary accommodation now in place. the question of how we will go about that has been the focus of a lot of commentary.

let me outline for you how we are thinking about our exit strategy. traditionally the main tool of fed monetary policy is the federal funds rate, which is what banks charge each other for overnight loans. we a pushed that rate to 0% for all practical purposes. this is as low as it can go. such an accommodative policy is currently appropriate, in my view, because the economy is operating well below its potential and inflation is subdued. and consistent with that view, the fed's main policymaking body, but federal -- the fomc last week repeated its statement that it expects low interest rates to continue for an extended period. as i noted earlier, in addition to administering standard monetary policy remedies, but that has put in place an array

of unconventional programs to bolster the financial system and stimulate the economy. among other programs, these have included secured loans to banks and other financial institutions, and purchases of mortgage-backed securities guaranteed by agencies such as fannie mae and freddie mac. these programs were vital in preventing a complete breakdown. but as conditions improved, the needs for such extraordinary support diminished. accordingly, the fed is already closed many of its emergency lending programs and will soon be closing the rest. i don't believe this is yet the time to be tightening monetary policy. but as recovery takes firm root and economic output moves toward its potential, a time will come when it is appropriate to boost short-term interest rates.

the size of our balance sheet raises some technical issues as we begin this process, but these are manageable. when the time arrives to push up short-term interest rates, we will not have to sell off the assets we have acquired, thereby shrinking our balance sheet. we can instead boost short-term rates by raising the interest rate that we pay to banks on their reserves held at the fed. a hike in the rate we pay on these reserves will cause other short-term money market rates to rise in tandem, because banks would be and lip -- and willing to live in the money market at rates below what they can earn in their secure fed accounts. eventually i would like to see the federal reserve's balance sheet shrink toward more normal levels. and i would like the bulk of our

holdings to be treasury securities, as they were prior to the crisis. selling off some of our assets could play a role in the shift, but my expectation is that the fomc will reduce the size of our balance sheet only gradually over time. so the message i hope i have conveyed is that i do not think we are due for an outbreak of inflation, not in the short run as a result of the fed's economic stimulus measures, and not in the long run as a consequence of massive federal budget deficits. if the fed acts responsibly by unwinding its recession-fighting programs in a careful and deliberate manner, then we will avoid an upsurge of inflation in the near term. and as long as the fed remains an independent central bank free to pursue its objectives of

maximum employment and stable prices without interference, then there is no reason why it will not be able to keep prices stable in years to come. let me stop there and thank you very much. i would be happy to take a couple of questions. >> if you would wait to the microphone to come to you, dr. yellen will be taking a couple of questions. >> dr. yellen, i have two questions. what do you think the impact of the recent medical legislation? at second, do you think outsourcing production and all losses of state and local government jobs contribute to

long-term joblessness? >> thank you for the question. on the first question, with respect to the impact of the health-care package, i have not yet seen any very detailed analysis on the macro economic impacts, but from what i have seen, the cbo has scored from the spending perspective the overall package has slightly deficit-reducing it over the next eight years, and most of the provisions affect our spending and only very gradually over time. so my best guess without having done cbo analysis is that it will not have a significant impact over the next several years. on the question of state and local government spending?

and outsourcing more broadly thomjobs, that is a trend that e have seen in our economy which has been going on now over lerwick -- over a very long period of time, and not something recent. it is certainly attributed to shifts in the u.s. economy in terms of how labor is deployed across different sectors. but in terms of jobs, if you think about it, before the financial crisis unfortunately struck our country, the unemployment rate in the united states had fallen to extremely low levels. that was true in spite of the fact that exports had been a

long-term trend that we had seen. i have confidence that the u.s. economy, even with outsourcing and with trade rising substantially, we can continue to generate the demand for our goods and services to find jobs for all americans that are able and willing to work. there has been some thinking in recent years about the role that outsourcing might have played, along with technological change that has tended to favor skilled workers at the expense of less skilled workers, and it is have adverse consequences for wage inequality in this country, and for the distribution of income. and we've seen of the last several decades -- over the last

several decades, are rise in a gap of what skilled workers earn and what those with low skills earned. i think outsourcing, it certainly not the sole role, but some impact on that trend. on the state and local job situation, certainly states are being very hard hit. this year, i believe, will be even worse than last year. there has been some relief due to the economic stimulus package that had some money to cushion state and local spending, but there is a tough, tough time ahead for states and local governments, and that is one of the sources of drag, i fear, one recovery going

forward. >> dr. yellen, another two-part question. how should the value of u.s. > dollars factoring to this? and how has gdp been lowered overestimating the output gap? >> on the first, how should that impact monetary policy i would just say, in normal times, as long as the dollar's rudiments are moderate and not disruptive or abrupt, the dollar factors in the monetary policy by its

effects on the performance of the u.s. economy, and in particular on the two things congress has given the fed to care about, the jobs in the economy and will it control employment, and what does it mean for inflation? the decline in the dollar tends to stimulate demand and boost the spending in the economy by making our exports more competitive and imports less so , which moves people in this direction to produce goods. and this sense, the dollar boost exports, everything being equal. but the decline in the dollar can certainly raise the price of imported goods, an effect on the

consumer price index, and commodities can push up inflation as well. both need to be taken into account and are factored into account in times when the movement and the dollar may occur that are not disrupted. on your second question about gdp and what has happened to potential output, i guess i would say that the crisis has set several different effects on gdp. to some extent, it is causing a shift in demand and the need for workers to move across different sectors of the economy, particularly moving away from contracting sectors like construction and financial services sector, and while their

ships are going on, the so- called full employment rate, or natural unemployment, it could be boosted a little bit. some of my colleagues have said to me that those kinds of steps might have boosted so-called the polar unemployment rate to maybe 5.25% now. but even if it were as high as that for a time, it would be transitory. that is not the actual level of unemployment, up 9.7%. we could have a huge output gap. other factors that affect potential output how much

investment firms are doing, and this recession has been bad for investment capital formation is something that boost productivity, and the fact that investment is falling so much, although it is rising a bit, that has been a negative. but the overwhelming thing i see happening to productivity is that firms, as we got into this deep recession -- and this is what i hear from all of my business contacts -- they became heavily and totally focused on what to do in their firms to manage how they do business to boost productivity. not only did they lay off workers because their sales were falling and they needed the work, but my business contacts tell me they went back and thought about every business process they had and the

activities they did and restructured things in ways that were cost-cutting, and as the economy recovered, and i see some hopeful signs. temporary employment is going up. my business contacts say that it will be a long time before they hire workers. we need to get some real research, and then they would be able to hire workers. and they have done a lot to raise productivity. so productivity is not just a question of how much capital is there, but how or firms organized to do business, and the numbers show this out. over the last year we have had utterly remarkable surge in productivity. on the order of 7% or 8% as an

annual rate. that is really busting productivity -- boosting productivity, and from an output standpoint, there would be dredged from other places. >> ladies and gentlemen, please join me in thanking dr. janet yellen. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> we look for it to see you and thank you for joining us. -- we look forward to seeing you and thank you for joining us. >> tomorrow on "washington journal," a look at climate change legislation with lisa lerer. we will talk to jim jordan, and a reporter matt kelley on his story about the cost of the iraq reconstruction.

"washington journal" begins at 7:00 a.m. eastern time here on c-span. >> which president was buried wrapped in an american flag with a copy of the constitution and under his head? andrew johnson. find this and other presidential facts in our new book, "who is buried in grant's tomb?" >> i travel book, a guidebook, and an interesting work of biography of each of these presidents. you can tell a lot about people at the end of their lives. >> a resource guide to every presidential gravesite, the story of their final moments, and insight about their lives. now available at your favorite book seller. the 25% discount at the publisher's web site. taipan g type -- type in

grantstomb at checkout. >> sign up for scheduled e-mails c-span.org that. >> president obama met with the chairman of the committee's in charge of drafting financial regulation legislation today. chris dodd is joined by barney frank. they talk to reporters at the white house for about 15 minutes. >> a great day yesterday's for the country with the signing of the health care bill. the president was to move

forward with financial regulation, and chairman frank and i have been working for the last year-and-a-half on these matters. we have a banking committee bill on monday and a brother expedited markup. they decided to defer, and so we can get to the floor. senator shelby and i have talked about good ideas to bring to the table. we intend to get a reform package. we're going to end too big to fail. never again will americans have to bail out banks because they have an implicit guarantee from the government. will have a strong financial protection agency on mortgages and credit cards and financial activities. we want to have a systemic risk council to have that radar to see prices before they affect

the entire financial system. the country will strong regulations on over the counter derivatives. there's a lot more in these proposals. barney and i will work together in the closed -- in the days ahead. we want them and i'm confident that we can get a bill. i think the american people want us to address the largest and most significant crisis since the great depression caused by collapse of our financial system, either because regulators did not do their job or because there were no cops on the beat at all. i am very hopeful, in light of our conversations over the last number of days, that we can have a good, strong bill on the floor of the united states senate within the next month. and then to work with party during that process to get a bill to the president of the united states and have a bill signing ceremony before this congress adjourns.

>> i very much agree. one of the things that people should know that if you look at the house and senate versions of a major piece of legislation, we are closer on the set of rules than we usually are. and that is not an accident. we've been working with the obama administration, with the financial teams, and the basics are there. ending too big to fail. you go back to the problems of aig and lehman brothers, we dealt with those. one of the problems in 2008, the administration felt that they had only two choices. they could pay none of the dead or all of the dead. you had the opposite reaction with lehman brothers and aig. we resolve that. they're going to be dead panels enacted by that -- death panels enacted by congress, for the too big to fail firms. we will do the minimum that is needed to keep them from spiraling into a broader problem. there are a couple of

differences, but they are within reason. i've won a strong consumer protection agency that cannot be overruled on policy grounds. and there some areas that i think that the senate can be improved on. i was not -- i was on losing sight of a couple of votes on the floor. i hope will be different in the senate. in the house, it became partisan, not because we wanted it to be, but because the republicans made it that way. with the discipline that the conservative republicans are able to influence, the vote in the house before passing the amendment, every republican voted to kill every single amendment, not to fix it. that makes it hard to work together. i hope it will get better in the senate. here is the difference that makes me optimistic. when we were doing this last

year, health care was the number one issue on the agenda. there were other important agendas. when we come back from recess, the number one issue before the u.s. congress will be this bill in the united states senate. i think chairman dodd for the leadership and i know what he wants to do. obviously there will be some opposition, a lot of people lobbying against it, some republicans promising they will kill this thing, but i think we would get a good bill out of here, especially -- this is now the number one issue that the american public will be focusing on. and with every single issue in contention, i think we benefit from that. [inaudible] >> the leader has said that he would like to do that and i am always careful about setting target dates. i would think before then, if possible. i've had some very positive initial conversations with richard shelby. the ranking republican of the

banking committee. bob corker has been working on these matters. i don't think the republicans who do not want a just say no policy when it comes to major legislative initiatives, that like to be part of this debate and offer constructive ideas. i am much more optimistic, in light of what happened on health care. the outcome there has strengthened our hands and in reaching out to people who want to be part of the solution. [inaudible] >> i'm not done that yet. the last few days had been tied up with health care but i am clearly entered it in hearing what republicans and democrats on the committee have to say and becoming part of the solution so that we can have a strong bill. i am determined to get a strong bill. exactly what barney said, we are going in too big to fail and we're going have systemic risk and deal with exotic ever -- derivatives. we're going have a an agency in the bill.

this is all going to be part of the bill that the president will have on his desk for his signature. we welcome the but dissipation of those who want to be a part of crafting his. my door has been opened in the past and still is. >> a year ago there was a lot of skepticism about doing anything. some of you wrote premature rupture -- obituaries about it. this is constantly be moving. we have not been talking about the weather. but how -- how was still important. i again want to say that now the american public sees that this is no longer an insider game, i think the product will be better. [unintelligible] >> we have not gotten there yet. >> the bill is not passed. what you asking me?

why don't you ask me what the weather is going to be like on memorial day? i am not an almanac. we know some of the pressures will be in the importance of other issues. but regardless of how you do that dissolution and systemic risk, these important but they are not ideological issues, and they're things that can be worked out. as to what the issues will be, it depends on what will be in the final bill. >> [inaudible] is that what congress had in mind when it passed a tax break? >> you'll have asked all the tax committee -- remember, we do not have control over that period [unintelligible] >> chris has been doing health care and financial reform. i've only been doing for natural for. i know about obscure financial things and less about anything else than ever before.

[inaudible] >> let's not get ahead of ourselves. i am dealing now with the committee, 99 other senators. 22 on the banking committee. there are a lot more people to work with them listen to. on the subject matter and i welcome that. >> senator shelby and senator gregg said that this bill does not adequately address the emerging republican guards. >> any ideas that they have, those of us who want to make sure that that never happens again, so i'm willing to hear any ideas to make that -- a presumption is that if you end up in that situation, if you're going into receivership. anything we can do to strengthen that, i welcome. >> i like to address that.

one of the things that we've got criticized for is an amendment we adopted that empowers the administration, even to do secured creditors. the secured creditors have been told they are getting hair cut. you wind up putting the investors on notice. we want to make them very nervous and make them do that thinking before they invest. for example, we have this 10% reduction possibility for secured creditors. all of these things reinforce each other. [inaudible] >> we are dealing with those issues here. we think ashley protect taxpayers so that they do not end up writing a check. but that is a matter open to discussion. >> you're talking about a situation where hank paulson said that he had two choices, pay no body or pay everybody. they try paying nobody wet

lehman brothers, and ben bernanke said that the world is about to end. and aig, but that without any congressional input decided to pay everybody. we are giving them the power to pick and choose. that is a very important piece. there will not be the kind of dilemma that paulson said, pay everybody or pay nobody. the perception is that we are paying only those debts that are necessary to prevent a total spiraling downward. that is where it would be used, and that is hardly a bailout. there will be no more aig's. they can use the money to pay off some of the debts, but they are gone. the shareholders are gone, the ceo's are gone, everyone is wiped out. [inaudible] >> the bill was started during the bush administration. >> arnes said it well.

i would hope that after yesterday, those republicans who reluctantly went along with the just say no against everything are finally going to step up and save that is over where it. we did not get all elected to say no to everything. this is a major crisis and we want to be part of the solution. if the leadership tells us to vote no on everything, we're going to walk. i am more hopeful about that. i said that the door is open. i want people to bring good ideas to this table and if they have good ideas to strengthen this bill, i welcome it. >> i don't think you can take much comfort in this. every single thing about the bailout it started under george bush, but there was this terrible day, january 20, 2009, in which everything went wrong in america. unemployment started, deficits started, the war in afghanistan went bad, and there was a mass

amnesia that took hold of my republican colleagues. even though these things are inheritances from them, no. i hope what works is what senator dodd said. the american people don't think that the one under% rejection of any reform whatsoever, i think the republicans are smarter than that. >> if they do not add that that pat, we are going to get a bill. >> it is bottled up in the senate, would you rather not think pass at all or something which is somewhat compromised? >> i answered the question before you set it. we're going to get a bill. >> could be like bass, your mother your father? -- who do you like better, your mother or your father? [laughter]

>> up next on c-span, secretary of state hillary clinton meets with pakistan's foreign minister. a federal commission holds its hearings on china's regulation of the internet. then janet yellen, the head of the san francisco federal reserve, speaks on the u.s. economy. and then the american israel public affairs committee executive director speakes said its annual conference in washington. -- speaks at its annual conference and washing. a couple of live events to tell you about on our companion

network c-span3. the house oversight committee looks at home foreclosures at 10:00 a.m. eastern. at 2:00 p.m. eastern, secretary of state clinton and secretary of defense gates testified before the senate appropriations committee on war spending. >> this weekend on c-span2, on afterwards, former education secretary bill bennett examines america at the end of the 20th- century. is interviewed by walter -- he is interviewed by walter isaacson. throughout the weekend, look for highlights from the virginia festival of books. see the entire schedule online at our web site. >> the first and as series of high-level meetings between the united states and pakistan took place today at the state department. afterwards, secretary clinton and the foreign minister of

pakistan spoke with reporters for about half an hour. >> good afternoon. it is such a pleasure once again to welcome the foreign minister and his delegation to the state department for this latest round of our meetings and for this beginning of the u.s.- pakistan strategic dialogue, the first ever held at the ministerial level on both sides. that fact, along with the unprecedented participation of senior leaders across both of our governments, reflects the importance that we place on this relationship. these meetings are an opportunity to engage directly on the full range of issues that are matters of both common concern and shared responsibility, and to produce

concrete results. today we discussed our shared goals -- to protect our citizens and our countries from the violent extremism that threatens us both, to see pakistan prosper as a strong democracy in a stable region, to cooperate on issues that improve the daily lives of the pakistani people, and so much else. we have made it very clear that the strategic dialogue is in pakistan's interest and in the united states interest. and that is why what we're doing here today is so critical. i want to thank the foreign minister for his candor and his commitment to finding solutions to our common challenges. we have listened and we will continue to listen. and we want to demonstrate both by word and deed our respect for pakistan's concerns and ideas, and share our own.

this is a dialogue that flows in both directions. we recognize that our success will be measured in the results that our citizens see in their daily lives. this begins with security. we discussed pakistan's national security priorities, ongoing counterinsurgency operations, and long-term military modernization and recapitalization efforts. pakistan is on the front line of confronting the violent extremism that threatens us all. and pakistan civilians and security forces continue to bear the brunt of that fight. we respect the sacrifices that pakistan has made in combating terrorism -- terrorists who seek to undermine its stability and undo its progress. and we pay tribute to those who a fallen, both those in uniform and the many innocent civilians killed or injured.

in our discussions today, i underscored the commitment of united states to stand with pakistan as it confronts its challenges. and the foreign minister and i also reaffirmed our support for the people and government of afghanistan as they continue to rebuild their country after decades of war and to overcome violence and insurgency. but our relationship extends far beyond security, as does the scope of this dialogue. as demonstrated by the landmark kerry daschle lugar-berman legislation, which supports pakistan's economic and social development goals with $7.5 billion in assistance over five years, the united states is committed to advancing the long- term aspirations of the pakistani people for a more peaceful and prosperous future. presidents the dari, prime minister gillani, and foreign minister qureshi deserve our

thanks for their work to make that a reality and to ensure that its benefits reach the pakistani people. i also want to get for a manner -- foreign minister qureshi personal credit, not just for launching this credit, but for ensuring that we make tangible process -- tangible progress and produce real results on matters of importance. our working groups were hard at work today. first we are cooperating to boost economic development on a number of tracks. saisecretary -- deputy secretary lew will sign a letter of intent to upgrade significant road infrastructure in the northwest. we are taking concrete steps to help pakistan boost corn exports -- exports of agricultural products and to improve agricultural infrastructure. as the foreign minister said today in our opening dialogue,

60% to 70% of the people of pakistan rely on agriculture. and therefore we ignore agriculture at our peril. you cannot have prosperity if you do not go to where the people live and work, how they make an incumbent, how they feed themselves and their families. and we are working for greater market access to our markets for pakistani products. we continue to collaborate on plans for new water projects, and we're looking for to the completion of a transit trade agreement between pakistan and afghanistan that we believe will benefit both countries. as i told the foreign minister, we appreciate pakistan renewed commitment to sustained economic reforms that will provide a foundation for long-term prosperity. we're working get -- wet -- we are working together to ensure that pakistan is have access to affordable and reliable power, which is essential to funding economic development. when i was in islamabad in october, we announced a

signature energy program, and tomorrow usaid administrator shah and secretary of water and power rafi will sign implementation agreements for three thermal power station rehabilitation projects that will provide more electricity to more people. we also discussed the importance of working on a multiyear basis with regard to resource planning. i was pleased to inform the foreign minister that our goal is a multiyear security assistance package, including foreign military financing based upon identified mutual strategic objectives, which would further strengthen our long-term partnership with pakistan. we of course will work closely with congress to further development -- develop this commitment. united states also remains committed to social protection efforts, such as the benazir bhutto income support program for families in vulnerable areas. and we will launch a woman in development agenda in our next

rounds in islamabad. finally i am pleased to announce the approval of flight access for pakistan international airlines to chicago, via barcelona, making it easier for business travelers and families to strengthen the ties between our two countries. we've covered a lot of ground today, but there is so much more to be done. we're going to be working very hard. our sectoral tracks are going to be meeting again tomorrow and then over the next months in islamabad. we're going to be working on people to people contacts and programs. so again, minister qureshi, i thank you for your leadership. i thank you for the open, engaged, and results-oriented discussions that we began today. and as i did this morning, i want to speak directly to the

people pakistan, and and i have been privileged to visit your country over the years, including last fall as secretary of state. i have learned from your rich history and culture and i have experienced firsthand the warmth of your hospitality and the strength of your communities. the dialogue we seek is not only with the government of pakistan, but would you the pakistani people. and it is a dialogue that i hope will continue growing richer and broader. and we thank you for your attention and your friendship. minister qureshi. >> madam secretary, thank you. today i am a happy man and a satisfied man. i am satisfied because you have finally agreed to many of the things that we have been sharing over our discussions in the last two years.

i suggested to madam secretary that if you want this relationship to become a partnership, you have got to think differently, if you have got to act differently, and you have to upgrade all level of our engagement. and she agreed, and thank you for that. i suggested to her a new format of our engagement when she was in islamabad, and ambassador holbrooke was there -- a three- tiered structure of engagement, ministerial level, policy steering group to meet biannually to follow through, and then to expand the sectoral track. the original -- i will not call it strategic -- but the original dialogue that we had in 2006,

2007, it and 2008 had only four tracks. and madam secretary, on my request, has agreed to expand the track from four to 10. and why have we expanded those tracks? we have expanded those tracks to make this relationship people to people. i wanted to bring in areas that affect the lives of the ordinary people of pakistan. and when i say i am happy today, i am happy because i feel i have contributed and raid directing this relationship -- in redirecting this relationship in line with the aspirations of the people of pakistan. the people of pakistan expected a different kind of approach. the people of pakistan expected a democracy to treat a democracy differently, and you have done so. and that is why i am satisfied

and that is why i think we're going to move from a relationship to a partnership. we've been talking about the engagements of the past. how was this engagement different from the past? i think we have done three to four things which are important, and i wanted to register them. one, we have upgraded the dialogue. two, we have given it a new structure, a new format of engagement. we have put in place a mechanism which would ensure follow-up. because we can meet -- if there is no follow-up, there will be no results. and i want this dialogue to be a result-oriented dialogue. thirdly, we have expanded the sectoral tracks, as i said.

and fourthly, we have and you have -- your administration has provided the resources to implement what we agreed on. now if we could agree to, we could have great ideas. but if you do not have the money to implement those ideas, they would be dreams. i want these dreams to be converted to reality, and i think that is happening, and i can see that happening. i also a happy to share with you that we've discussed a number of things. we have discussed issues like market access. and i have shared with the secretary how important it is for stabilizing pakistan is economy. and one of the ways is through expanded trade, and that can come through market access. the roz legislation has been

pending. and i must thank you and your administration for having agreed to give it priority. i understand the health bill took a lot of your attention and a lot of your time, but i think it is behind this. and we have to move on the, and i think the roz legislation is going to be a priority legislation in the days to come. the cso up funding -- this ecsf funding, at times, has friends and allies we have been prickling over >> and cents. we've agreed to put in place a mechanism which is mutually acceptable, which is transparent, which takes into account accountability, but that delivers and delivers in time.

we agreed in this interaction that the substantial sum will be paid to pakistan by the end of april and the remainder will be settled by the end of june. we of also agreed to work with the congress. congress is important. >> yes. >> and i was at the congress -- and let me share it with you. let me share it with you. i saw a qualitative difference in my engagement with the congress yesterday, because i remember when i came here for the first time as foreign minister two years ago, everyone said, you signed the swat deal? capitulation. surrender. i said, hold on, hold on, that is a tactic. wait until you see the results. and we've demonstrated the results. the people of pakistan, the armed forces of pakistan, have shown the resolve, the determination, and the commitment. and we will win. and we are going to win in the struggle, because the feed is not an option that we are planning for.

and inshallah, by the grace of god, we had a clear objective, we have a plan, we have a strategy, and that strategy is working. and today we have a partnership, and hopefully this partnership will turn the tide in our favor, hopefully in our mutual favor. >> thank you so much. [inaudible] >> madam secretary, this is for you. pakistan says it would like that a real partnership with united states with all the perks that come with that. are you prepared to discuss a civilian nuclear deal such as the one that india has with pakistan? and then, foreign minister qureshi, what is currently on your wish list to do all that you need to do in terms of making the border region more secure with afghanistan? .

we are committed to helping pakistan meet their real energy needs. i am particularly pleased we are moving forward with $125 million to pakistan for energy sector projects, the assistance program announced in october. we have followed through. we don't just make announcement s and forget about them and move on. this dialogue is helping us build a kind of partnership that

make progress over time on the most complicated of issues. >> we have taken a number of steps that have improved the border situation. today, if we look at the posts we have along the border, and compared with the posts across the border, if you look at the troops deployed on the western border, this is unprecedented. if you look at the steps taken, if you look at the impact of the successful military operations have had on border movements, you would realize what relief they have provided across the

border. successful operations in pakistan and against the taliban have had a significant impact in afghanistan, and they acknowledge that. president karzai was over and we have had discussions and acknowledged the contribution pakistan has made. he acknowledged contributions the democratic government has made in relations with afghanistan. we have talked about military hardware. you have to realize we are operating in a completely different theater, the western border. the terrain is completely different, and i am glad to share with you the degree to fast track our requests on the transfer of military equipment to pakistan.

all of these will make a qualitative difference in border management. >> madam secretary, [inaudible] >> thank you for asking that question. that is really at the heart of what we hope to achieve. because i agree with you, we have had a relationship that goes back to the very founding of pakistan.

we have had very many positive experiences. but to be historically accurate, we have had setbacks and stresses in our relationship. i believe strongly it is important to the united states and pakistan to remain connected and working together for the betterment of both our people. will we have disagreements? of course. we have disagreements with all of our friends from time to time, yet we don't want anything to disrupt or divert our attention from building this relationship into a partnership, as the foreign minister has said, a partnership that stands the test of time. as part of that, we want to ensure that our key medication about our work together, our out reach extends far beyond our government. we want our private sector working together much more closely. we think are many great

opportunities for joint ventures and investments, but frankly, we have work to do to explain the opportunities that exist. we want our universities and academic institutions working together. we want to spend time on improving agriculture and health care and so much else. we have an exciting presentation between our information and technology representatives about what can be done with greater investment in technology and who benefits from that more than the individual pakistani who gets information from a cellphone that helps with mobile banking or provides health-care information? >> tele-madison. >> exactly. we are very excited because we see this as ultimately about bettering the lives of people. that is what got me into politics. i know that is what motivates

his desire. we really are looking for more ways to create those in our actions and exchanges between our people because that is what this is about. >> could i respond to what you said? i shared with you as a fellow pakistani that the mood was completely different. it was different. i was at the senate and house. it is 180 degrees different. we have turned the corner. today, there is confidence, no questions, no suspicions. there was recognition of what we had already done, the association of what we have already done. the other thing, the civil military relations in pakistan are excellent. the fact that the army chief was

part of the delegation that was here, the fact he was sitting on the same -- sitting at the same table, is unheard of in the past. today, the secretary mentioned the private sector. let me share with you. today at the state department, we had a conference about the public-private partnership. [laughter] >> welcome back to washington, mr. foreign minister. this question is for both of you. given that you are seeking improved relations between pakistan and afghanistan, and to

ask about reconciliation of the taliban -- i want to ask about reconciliation of the taliban and what kind of role that you envision for them helping to mediate and what that could do for the security of pakistan? secretary clayton, if i might commodore commit assault -- secretary clinton, if i might, secretary mitchell is meeting with them. >> as far as the reconciliation, we have discussed it with president karzai. pakistan is very clear. we want this to be our own process. now, it is their choice. if they feel we can contribute and help, we are more than willing to help. but we leave it to them.

we have had discussions. i invited the foreign minister to come to islamabad for discussions on the reintegration process. he has accepted my invitation and we will talk about it. our feelings are very simple. we want a peaceful, stable, friendly afghanistan, period. >> with respect to your question to me, we are engaged in ongoing discussions, and senator mitchell, as you pointed out, is very actively part of that. i think that it is very clear, our goal is the resumption of negotiations, the launching of the proximity talks as soon as possible. >> and the reconciliation

letter? >> i agree with what the foreign minister said. >> you assure the people of pakistan of security-related issues, but many and pakistan believe the u.s. is supporting pakistan because their real interest is only to confine the taliban and al qaeda. when it comes to the issues confronting pakistan, americans seem reluctant to pledge a real role. how'd you sure it -- how do you assure the people of pakistan this is more than just related to taliban and india. >> i think it is important to recognize that the united states has positive relationships with both pakistan and india, and we certainly encourage a dialogue between india and pakistan.

the issues that are part of that dialogue need to be addressed, and resolution of them between the two countries is certainly in everyone's best interests. but i want to underscore that our goal in the obama administration is to make clear that we're going to be a partner with pakistan going forward on a full range of matters. we cannot dictate pakistani foreign policy or indian foreign policy, but we can encourage, as we do, the in-depth discussions between both countries that we think would benefit each of them with respect to security and development. >> can i also respond? in the discussions we have had,

we underscored the importance of reviving the bilateral track. in the last few years, the bilateral track was undercut because of the current situation. we have refocused on the bilateral track. that means our relationship goes beyond palace then -- goes beyond palestine. our long-term interests lie east of palestine. that is to be understood. as far as india is concerned, they are a sovereign country, and we respect that. we respect that. i think we're very clear on that.

pakistan has been willing to engage, and i am confident two years down the line, i am confident this relationship -- i am confident that india will revisit its policy, and very soon. >> thank you all very much. [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> tomorrow, a look at potential climate change legislation. we will talk to congressman jim jordan about the government's mortgage modification program, and usa today reporter matt kelley about the cost of iraq. construction. that begins at 7:00 a.m. eastern time on c-span. >> which president was buried wrapped in an american flag and a copy of the constitution under his head?

andrew johnson. find these and other presidential facts in calc- span's new book, "who is buried in grant's tomb?" >> it is a biography of each of these presidents and a lot of people. >> a resource guide to every presidential gravesite, the story of their final moments, and insight about their lives. now available at your favorite book seller, or get a 25% discount at the publisher's web site, out publicaffairsbooks.com. type in "grant's tomb" at checkout. >> sign up for our scheduled alert emails at c-span.org. >> a federal commission that

monitors civil rights abuses in china heard from executives and internet companies google and go daddy about problems they have had operating in china. both companies experienced a tax that they suspect have originated in china. google recently announced it would no longer comply with chinese government censorship laws. this is one hour, 50 minutes. >> this is a hearing of the congressional executive commission on china. the subject of the hearing is google and internet control and china. mmission on china. the subject is google and internet control in china, the nexus between human rights and trade. let me stipulate at the outset that china is a big part of this world of ours, a big part of the world economy. we'll have a significant impact on our country and our future

going forward. the internet in china is a very interesting subject. today we're told china has 400 million internet users, the most in the world and that chinese citizens now have opportunities to shop online and communicate with one another and the outside world. the chinese government to its credit has invested heavily in intranet infrastructure and sought to bridge the divide between rich and poor. that's good news. there's some news that's not so good. we hear always that china wishes to be treated as a full and respected member of the international community. i'm all for that. but full respect for countries, i'm in favor of that. but let me just say respected

countries do not sensor their people, lock up citizens without trials or without rights and respected countries don't fear new ideas. too often too many are reluctant to talk about what is really happening. there are some good signs in china, i think. there are opportunities in china that didn't exist before. there are some good things happening, but not in every area. truth is, today there are more than 1,000 people that are sitting in chinese prisons. this committee has the largest database of chinese prisoners, human rights prisoners, that exists in the world. we keep that database. it has thousands of names in it with 1,000 confirmed individuals now in chinese prisons denied the most basics of human rights. trust is in china, free political speech is censored.

the dispute with google that exists is only the latest in china's history of trying to control the information that's available to its citizens. information is not to be feared and ideas are not enemies to be crushed of the truth is china too often wants a one-way relationship with the world. they want to participate in the global marketplace. they want to make and export products. the world buys them and sends the money back to china. china enjoys that participation. too often it wants that to be the entirety of its participation. the truth is the world is made up of more than just products. the world is not just commercial. there is also a marketplace of ideas in the world. that's what this google dispute is really all about, and the internet dispute is about. it's what the chinese senso cen

are battling. china wants to participate in the marketplace of good but keep ideas out their country controlled by themselves. respected countries don't pick and choose to participate in only slivers of the world. they don't fear ideas or people or speech. they don't throw their citizens in jail without giving them basic rights. respecting people's rights to speak and think as they wish are fundamental. and this dispute that has developed now with respect to the internet, and the press with respect to a company called google is a dispute that brings us a central location with which to discuss. what is happening in china? why is it happening? what responsibilities do we believe the chinese have with respect to the free flow of information. only when china respects human

rights, only when china allows the free flow of ideas, when they continue throwing people in prison for speaking and thinking freely, only thing will they be treated as a respected member of the international community. i know that is a very critical statement of china. i want china to be a country that succeeds in exhibiting greater human rights for the citizens. we've had hearings of this committee in which we've had testimony of relatives of those who have been seized on the streets of china to be put in prison, not to be seen again. from the darkest cells in the farther rest reaches of countries like china, there are prisoners, i believe, who will be heartened by the fact that there are those of us who ask these questions. and so today we have this hearing to try to understand

what is it about the internet, about china, about google, about go daddy, about all of these issues that now develop over the free flow of ideas, the marketplace of ideas that moves around the world at the speed of light. i wanted to say at the start of this hearing that we asked the chinese embassy as we always have if they would like to send a representative to appear before us today. they declined as they always have. they did, however, send a statement and i want to move now to have that statement included in the hearing record. it is the first time they have done so, and i want to include that. without objection we'll do so. >> it's in your packet. we'll include it in the record. there will be much in the statement of which we will disagree, but i want it as part

of the formal hearing record. i want as part of the hearing record the prisoner list that is in your packet today. and a submission of a testimony for the record by rebecca mckennon visiting fellow for information policy at princeton university. so without objection, i'll include both of those. if we have comments, opening comments by others, i'd be happy to recognize them. >> thank you, mr. chairman. as ranking member of the commission, i applaud you for holding this very important rearing, internet freedom. as we know reporters without borders documents in china alone at least 72 people are known to be imprisoned for internet postings. the victims of the chinese governments assaults on internet freedom include the entire chinese people denied their right to freedom of expression, denied access to information and often self-censoring out of fear. even beyond this chinese

government include other peoples, tyrannized by others, technologies and techniques of internet repression, cuba, vietnam, belarus and sri lanka. we have seen some i.t. companies want to do the right thing. yahoo! established a much stricter policy governing its interactions with governments, especially vietnam. yesterday we had a hearing, and i chaired it, in the tom lantos human rights commission on human rights in vietnam and they have put personally identifiable information out of the hands of vietnam. even while we were meeting a member of the human rights watch committee or organization got an e-mail that dr. song, and i met with his wife in vietnam, obviously another country but borrowing from china, and he had just had his house invade after

spending four years in prison for posting on the internet what is democracy downloaded from u.s. embassy in hanoi translated. for that so-called crime, he got a jail sentence. yesterday they raided his home. but yahoo! has learned from that and put that personally identifiable information outside the reach of secret police. google's transformation has been perhaps the most impressive over these couple of years. in 2006 i chaired the first hearing on internet freedom called internet china, tool for freedom or suppression. the hearing responded to yahoo!'s cooperation with chinese internet police tracking down a journalist who is still serving a ten-year prison term for disclosing state secrets, that is e-mailing to the u.s. chinese governments orders on whatnot to say on the 15th anniversary of tiananmen square. google, yahoo! microsoft, among others, cisco as well, testified

at the hearing, which broke new ground on the issue of internet freedom. since '06 we've had meetings with google executives. they have taken actions on their own accord, realizing, i believe, that the view that somehow the internet would transform and open up china when the chinese secret police and government censors took over it was precisely the opposite. a remarkable historic action, an important boost for millions of chinese human rights activists, mark palmer will testify in a few moments and tell us how some 11,000 of the most influential people in china have signed on to charter '08, not unlike charter '77 in the czech republic or blockade 406, it is a statement of human rights principles. well, every one of those people, every one, and i believe by extension the chinese public,

are greatly heartened by what google has done. despite the fact they have gotten pushed back from some, especially microsoft, and we want bo this last week at a hearing, they need to get with the program and join with the side of human rights rather than enabling tyranny, which regrettably they are doing now. today go daddy, the largest domain registrar announced in its submitted testimony that it has decided to discontinue new domain names at this time out of concern for security of individuals affected by the chinese government's new requirement for domain registration. it's the first company responding to the example of chinese government's censorship. google fired a shot around the world and a second american company answered the call to defend the rights of the chinese people. go daddy deserves to be praised. it's a powerful sign that

american it comes want to do the right thing in repressive companies. godaddy and google deserves more than praise for doing the right thing in china. they deserve the government's support. not lip service but tangible, meaningful support. we want to see american i.t companies doing the right thing but we don't want them to have &@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ the bill will require i.t. companies doing business in china out what is that is censored. it will assure that radio free asia and voice of america are not censored. i was at in internet cafe right before the beijing olympics and tried to access in that cafe one prohibited word after another, and i even tried to find out what they were saying about

torture before the united nations. what did i get? i got what he said about guantanamo bay, not china, which was a scathing u.n.-backed report about torture and the people's republic of china. would also hold them to account those, once they have been designated as an internet- restricted country, the companies would put personally identifiable information out of reach of the secret police to protect dissidents and others who want to build a new china that is free and unfettered. build a new china that is free and unfettered from the tyranny that currently exists. i would hope members of this distinguished panel might touch on the issue of the global online freedom act but also, obviously, on china, which is why you're here.

we thank you so much for taking the time to give us the benefit of your wisdom. >> are there others that wish to make statements? thank you very much, senator. normally forego the opportunity to speak, but i think this is truly a singular moment. let me make it clear that not here to criticizes any company. i'm here to praise google in its singular action, its unique action in favor of internet freedom and the tremendous example that it sets for others. it is heartening to hear that godaddy has decided to be number two. and two points define a line, three points define a plane and pretty soon you have a cascade going. of course i agree with the chinese government that every chinese person and entity ought

to obey the laws of the jurisdiction. it is clear to me that google is in full compliance with chinese law as far as its council can determine. and there is a difference between compliance and complicity. and one can comply. and at great cost and risk do so in a manner which is consistent with the values of the internet and silicon valley culture. i think that what we need to do, what we need to do is to encourage the better angels of our nature, whether it is in corporate culture or in chinese culture. one of the reasons why i think it's important for me personally to come here is to demonstrate that there is no historic or cultural incapability, and no

genetic incapability in advocating for and living a life of democracy for any particular culture or people. i want to solution google's contribution to this ongoing debate. i want to encourage those in china because it is a large complex society. those in china in favor of both the rule of law and the enlargement of this fear of civic freedom. i want to encourage everyone in the internet culture, which i believe is a very, very open culture that believes in the competition of information and ideas to express themselves so that more and more organizations, businesses, will follow google's example. of course every company is different and will come to their

own conclusions. but i think that in the divide or on the divide between compliance and complicity, history will judge and one should be careful to be on the right side of history. >> mr. chairman, thank you for hosting this bicam ral, bipartisan commission today. it's the first one i've had an opportunity to attend as a new senator. i want to add my voice in thanking google for the great work it's doing. i want to applaud them as well as godaddy we heard about today. i want to say to the government of china, the message has to be with great power comes great responsibility. they have a responsibility to allow their people to live freely. to have the information you need. we know that information, free information, is the beginning of the end of repression.

it's the beginning of the end of tyranny. it is our responsibility, representing the government of this country, to insist upon that, whether it's in venezuela or yesterday at former opposition leader who ran for president, was arrested in the last television network in venezuela is afraid of being shut down, whether it's in cuba where there's no free speech, where today the ladies in white are protesting the arrest of political prisoners in the death of zapata who died. his mother is being arrested for protesting the death of her son. whether it's in china where political prisoners are taken for the simple alleged sin of posting on the internet and the chance to bring new ideas to this huge and important country in the world. with great power comes great responsibility. so i thank you, mr. chairman,

for calling this -- and chairing this hearing today and look forward to the testimony of the witnesses. >> senator, thank you very much. anybody else want to make a statement, a very brief statement? all right. let me begin with allen davidson, a u.s. -- director of u.s. public policy with google, head of policy prior to joining google center for democracy and technology, an adjunct profferer inch technology. trained as a computer scientist, holds degrees in mathematics and computer science from mit and jd degree from yale law school. let me join others on this panel who have complimented google for its decision, a difficult and courageous decision, one that's absolutely direct. thank you for being here. you may proceed. i will say to all the witnesses your entire statement will be

made part of the permanent record and you may summarize. >> thank you, mr. chairman. chairman dorgan and members of the commission, thank you for inviting google here today and thank you for your commitment to a free and open internet. and thank you for your very supportive comments just now. they are very meaningful to our company at this time. haass summer a woman was shot on the streets of tehran during protests during the iranian elections. no film crew witnessed her death. no reporter was there to cover her story. but a bystander with a cell phone captured it on video. that video was posted on youtube, and it was watched by literally tens of millions of people around the world. despite the government crackdown on communications, nada's tragic death became a galvanizing force for international outrage. this is the essence of expression online. unexpected, unpredictable but

capable of capturing the minds and hearts of millions of people around the world. it is for this reason that growing restrictions of speech online demand a commitment from companies, civil societies and governments together to protect internet freedom. i'd like to make three points. first censor ship is a problem not isolated to one country or one region. as secretary clinton recently expressed, the impact on human rights in the global marketplace is profound. at google we've experienced this firsthand. in the last few years more than 25 different governments have blocked youtube and blogger. youtube has been blocked in turkey for over two years because of videos that allegedly insult turkishness. in 2009 during elections in pakistan, government ordered them to block opposition videos on uyoutube, then our experience

in china, immeasurable in china and the internet. that leads me to the second point, the situation in china has led google to implement a new approach there. in mid december we detected a highly sophisticated attack on corporate infrastructure originating in china. while google is frequently a target of attacks, it soon became clear it was not a routine incident. at least 20 companies from a range had been targeted. it was unusually sophisticatedw a principle but unsuccessful goal of accessing gmail accounts. entirely separate from these attacks the accounts of dozens of gmail users, advocates of human rights in china had been compromised through malware and phishing attacks. these led us to announce in january that we no longer felt

comfortable censoring our search results in china. earlier this week we stopped censoring our search site in china. visitors visiting google.cnn, we're offering simple search in chinese designed specifically for users in china. figuring how to make good on our search to stop censoring, we believe it's a sensible solution to the challenges we face. we very much hope the chinese government respects our decision although we're well aware any time its great firewall could prevent users from accessing our services. indeed we've already seen intermittent censorship of search queries on our hong kong site. our third point is that government should do more to protect internet freedom around the world. internet, government, nonprofit groups have a shared responsibility to protect a free

and open internet. we strongly support the global network initiative. unique of investors, internet create standards for engagement of privatesey. more members are needed to reach potential. no single company and no single describe can tackle internet censorship on its own. government action is needed. specifically we believe that internet freedom must become a major plank of our foreign policy. free flowing information should be diplomacy, assistance and engagement on internet rights. internet censorship should be part of our trade agenda as we lay out in our testimony. they should be transparent when they make demands to censor or make demands about users. google supports efforts of congress and the administration to fund technical solutions to counter censorship. in conclusion i want to thank you for your continued leadership in the fight against censorship online.

we look forward to working with you to maximize ideas and promote freedom around the world. thank you. >> mr. davidson, thank you very much. we appreciate your testimony. next we'll hear from christine jones, executive vice president, general council and vice president of the go daddy group. she's responsible for all legal affairs of the go daddy group as well as domain services, network abuse, government regulations, compliance and legal departments. previously an attorney specializing in private commercial litigation and before that worked for the los angeles district attorney's office. in addition to being a lawyer miss jones is a cpa with degrees from auburn and whittier law school. miss jones, welcome. >> thank you, mr. chairman, and members of the commission. for a few years now we've noticed that from time to time it's not possible to access go daddy.com in china. we're not sure why. one could infer it's because we register and host human rights and other websites deemed improper by chinese officials but we've never actually been

told the reason. regardless, every time it happens, millions of chinese nationals who try to visit our website, or the websites of our customers are disappointed to find chinese censorship has kept them from free access to the internet site of their choice. this is frustrating as you might imagine. i'm not going to dwell on that. instead i want to briefly touch on five issues more explained in my written testimony, specifically monitoring and surveillance of internet activities in china. attacks originating in china, spam, payment fraud. and finally what we feel the u.s. government can do to help alleviate some of these issues. then i'd be happy to answer any questions you may have. so first, china's examination of internet activities of its citizens has increased in recent months and i mean very recently. let me give you an example, and this congressman smith places

into what you talked about in the opening statement. we've been offering the domain extension for several years. for instance, chairman dorgan.cn. in the beginning the authority called in december of last year, they announced we would have to start collecting a photo i.d., in color, from had this shoulders, a business id, and they it signed registration paper. in february, cn nic announced we would have to have increased documentation for all registrations. in other words, we would have to retroactively apply the rules. if we fail to provide it, the domain names were going to stop working. keep in mind, some of these had

pointed to fully functioning web sites for as long as six years. we were immediately concerned about the motives behind the increased level of registration verification required. did not make sense to us that the identification procedures that had been sufficient since 2005 were apparently no longer sufficient, from china standpoint, and no convincing rationale for increased documentation was ever provided to us. standpoint. and no convincing rational for the increasing documentation was provided to us. we were also concerned by the nature of the requirement. in other words, at the time the affected chinese nationals registered their domain names, they weren't required to provide the photo id or business identification or other identification now required by cn nik. because the new requirement was to be retroactively applied to

registrants who previously registered their website, like i said in some cases years before, it and the new procedures was based on a desire by chinese authorities to exercise increased control over the subject matter of domain names registered by chinese nationals. now, go daddy has been registering domain names since the year 2000. we serve as an accredited registrar for dozens of domain name extensions. we have 40 million domain names under management, by far the most of any company in the history of the internet. we've done this a lot. this is the first time any registry has ever asked us to retroactively obtain information on individuals who registered a domain name through our company, the first time. we're concerned for the security of the individuals affected by cn nik's new requirement. not only that, but we're

concerned about the chilling affect we believe the requirements could have on new domain name registrations and therefore the free exchange of ideas on the internet. for these reasons, as you mentioned, congressman, we decided to discontinue offering cn domain names at this time. well, however, continue to manage dot-cn domain names for our customers, those people whose identifications are in the process of being revealed to chinese officials. second, i want to touch on attacks first mentioned by google. we've repelled dozens of extremely serious attacks on systems that host our customer's websites. attacks that existed in china.

that includes the number we had to get involved in. that doesn't include the attack where our systems automatically averted the attack. the recent cyber attacks on go daddy and google are troubling but they are not new. they reflect a situation that do daddy has been combating for many years. third, on the spam issue we found an overwhelming majority of websites hosted in spam in china, service providers choose to ignore complaints of spam and other types of illegal activity. we see no assistance from chinese officials to combat this problem. in fact, it seems to be the opposite. the force of the chinese government appears to be used to justify the activities as those who engage in spam as a business model as opposed to stopping it. fourth, on payment fraud, there is significant payment fraud originating in china. the payment fraud trend associated with china-based users include white space used

of compromise u.s. and uk credit cards, for example, as well as gift cards, other online payment forms like ali pay, the chinese version of paypal. substantial payment fraud originating in china. again, no action by chinese officials to help us combat that problem. fifth and finally we want to talk about what we think the u.s. government can do to help us. our primary mission at go daddy is to promote secure, easy access to internet people around the world and we wholeheartedly agree on that principle. we're also committed to ending the improper use of the internet, including for the invasion of personal privacy or limit freedom of expression. it's a big problem. we hope the u.s. government will use its influence with authorities in china to increase chinese enforcement activities related to internet abuse while

encouraging free exchange of ideas, information and trade. this would include the retraction of china's recent policies relating to dot-cn domain names. we were encouraged there was a briefing to discuss internet global freedom caucus which will promote freedom in china and other countries. we're following closely congressman smith's online freedom legislation which purports to put u.s. government on the side of u.s. companies and human rights activists as they deal with government. we applaud you for that of course we're sincerely grateful to this commission's attention to these important issues. we understand there's no silver bullet but we are proud to be part of the process. thank you. of. >> miss jones, thank you very much. next we'll hear from the chairman of human rights in china and chairman of university school of law. she's testified on a variety of

human rights issue before congress and eu government body. she's led human rights in china, organization in consultations with companies doing business in investing in china. in 2007, "the wall street journal" named her as one of the 50 women to watch for their impact on business. welcome, and you may proceed. >> thank you, mr. chairman. and i want to thank the members of the commission for your solidarity, your leadership and support for a very difficult struggle and challenges to promote free expression in china. i would like to request the spire written statement to be entered into the record and i'd like to use the written time to first comment on some of the responses that the chinese government officials have made over while we were sleeping last night echoed in some statements. first i'd like to focus on a case and then open for

discussion and welcome your questions. as the comprehensive and strong report and state department country report for china and recent u.n. human rights review of china absolutely demonstrates, the human rights violations in china are serious, systematic and widespread. and on top of the economic and political and increasing soft power leverage of china, china is exerting enormous control over expression on the internet through this state of the arts technology. its state secrets and security system to the police and security apparatus and the resulting self-censorship. all of this has been extensively mapped, inventoried in these reports. rebecca's submitted testimony does a good map-out of the technology, so i won't take any

time on that. the chinese responses on google's decision -- and this is obviously a story still in progress as attested to the headlines this morning and it's a very complex story, so i think this is ongoing. but there are three things that the official response says. after an initial effort to accuse google of being a cia operative, that didn't last very long, the responses have essentially been a combination of an effort to retorically repackage the google decision. and secondly, stating the obvious, asserting they are acting in accordance with law. and thirdly making some ludicrous statements like there is no censorship in china and the internet is fully opened, et cetera, saying there's no impact on china's international image or u.s. china relations of this very important development.

clearly google as a major economic player is very important and has an impact not only on internet, which is global but also has an impact on the development of the i.t. sector on innovation and security in china so it's extremely important for the region. so what's at issue here, in addition to the role of the marketplace of ideas, it is really about whether china is really ready and willing to be immature, responsible member of the international community, one that respects its international obligations, including human rights obligations as well as its under the w.t.o. and other trade obligations. it's unclear from the vagueness of the chinese answers to date to the key question whether google's actions are in compliance with chinese law actually goes hand in hand with

the mantra that any foreign company doing business in china has to comply with local chinese law. ironically google's decision does comply with chinese law, particularly chinese law and the constitution that protects human rights and constitution provisions that protect freedom of expression and freedom of privacy. so i think that is important to keep in mind that, nfc, what chinese law i'll be talking about when we say companies have to comply with chinese law. chinese law is also quite complex. the cross border impacts referred to by representative smith, i just wanted to add to that that the experience of hic's own staff, our own staff illustrate that the chinese authorities' repressive attacks at home both low tech and high-tech extend to chinese nationals and human rights offenders abroad. such tactics include blacklisting, surveillance, and even inhumane denials of

permission to return to china for family funerals. this is neither part of a harmonious society and it is not chinese. additionally the chinese authorities have been very active, and increasingly so, in preventing independent human rights groups from succeeding to apply for u.n. accreditation, so we welcome the u.s. government's renewed commitment to engage with the human rights system at the u.n. my written testimony outlines some of the ways in which human rights in china is focusing on supporting chinese lawyers, activists, journalists, writers, other defenders specifically through our technology initiatives. one of them we distribute 200,000 electronic news letters every two weeks into china that publishes chinese writers, news, censored news and discussion. essentially we get in about 75 to will 0%, that's the

censorship plateau. there's other youtube and twitter references are successful even though youtube is blocked, 26 to 30,000 poem reach youtube and some protest videos posted on our youtube station have gotten thousands of hits. let me move quickly to the case that is an example of the frontline for struggle of freedom of expression. we welcome the list. this is extremely important that features and lists individuals who because of their internet activities are paying a heavy price. he's a prominent intellectual, a longtime advocate of political reform and democracy and human rights and an outspoken critic of the chinese communist regime and key drafters and organizers of charter '08. in front of the fults full glare

of international attention outside the courtroom on christmas day a court convicted him of inciting power and sentenced him to prison and deprivation of political rights. what was this for? six essays in addition to charter '08 that he had published online between 2005 and 2007. now, our publication, which we brought here for members of the commission, took the six articles and all of the legal documents and translated and asked the question, so what does constitute inciting subversion of state power in china. these were the six essays. the dictatorial -- they said this is a fallacious concept.

posted on epic times with five links. the many articles, he describes the post mao regime. unlike totalitarianism, this regime is more skillful in pragmatic flexible control to maintain stability but it's a loyalty that's bought by the could it be that is only party- led it democracy. not only challenges the critique of the party but also the chinese people. they said note authoritarian state stayed in power because of the power of the ruler. finally, the last articles, changing the regime by changing to society, the negative aspects of the rise of dictatorships, the article exposes the extreme level of corruption and lack of

accountability that continues to persist, thousands of children kidnapped and used as slaves. what is important, the verdict it cites the number of clicks each particle got. each article ranged from 57 to 5000 clicks. that is on websites censored and china. . 57 to 506. that means,000. inciting subversion roughly between 57 to 5,000 clicks on websites that can't china, he h convicted for 11 years. so this says a great testament about the insecurity of those in power. but it also is a testament to but it also is a testament to the pow necessity of freedom of expression. i know my time is up so let me just quickly say quick things that perhaps we can pursue in questioning.

one on individual cases. the cecc, political prisoner database is extremely important. we'd urge the commission to link your advocacy work on behalf of these cases with decisions that have been reached by international, independent expert bodies. shutao who is still in prison received an arbitrary decision. we press that you would ask for his release in the fact this was an independent body. we would urge the already expanding specific areas of the uses of technology, expanding uncensored platforms, developing more anti-circumvention forms and promoting expanded use of the social networking tools. and in terms of the companies we would say to provide and promote more encouraging companies to

join in initiatives. and we especially appreciate the letter from senator durbin to 30 technology companies urging them to join the global network initiative of which human rights in china was one of the founding participants. the google decision this week really illustrates the possibility of moving beyond an either/or entality. and of thinking that the choices are stay and censor or leave the country. because technically it hasn't left the country. this is a -- we don't know if this one country, two-systems move will actually work. but technically google is still in china and google has been able to act in a principle way. whether this will work is uncertain. as sergei brin has stated, the future is a long time. >> thank you for your testimony. next we'll hear from mr. edward black the president and ceo of computer and communications industry association. he's been president and ceo of that organization since 1995. he serves on and previously

chaired the state department's advisory committee on international communications and information policy. also served in the office of secretary of both the commerce department and the state department. holds a ba from newlandburg college and a jd from the washington college of law. mr. black, good to see you. you may proceed. >> thank you, mr. chairman, and the members of the commission. it's an honor to be here today. i have a chance to deftify on this very important subject of internet freedom in china. for too long, the u.s. business community has had insufficient support from the u.s. government in responding to other nations' efforts to censor or spy on their citizens and to interfere with the reasonable flow of services, products and information. companies are on the front lines in the battle for internet freedom, but when they are confronted with foreign government demands, the governments that represent these companies must lead in the defense of internet freedom and free trade. our nation founded the internet.

our government should have been and now needs to be out there promoting multilateral international understanding in order to maximize freedom of the internet. totalitarian regimes depend on controlling the flow of information. the internet is no exception, and it is a tempting target to turn into a tool of state control. we must protect internet openness from those who want to use it for repression and for many seemingly noble, well-meaning efforts to control specific content or monitor internet traffic that also may chip away at its openness. my testimony today is designed to focus on human rights aspects of censorship, on the trade aspects and the underlying principle of internet freedom. the internet can be the greatest tool in history for people to gather information, communicate and do many other things that's

the human race has tried hard to improve over the years. or the internet can be among the greatest tools for political repressi repression. depending on how it is used, if we fail to take actions, others may pervert the internet and finally bring about the orwellian future we thought we had avoided. one win which governments perpetually spy, surveil, censor and control and say they are doing it for our own good. the u.s. government midwest consistently treat internet freedom as a priority human rights issue in its dealings and communications with foreign governments. we're here today partly because of the high-profile battle of google in china. but the number of companies and countries impacted are far greater. there are few easy answers for companies as they try to bring their technology services and communication tools into nations that have different rules about free speech and freedom of expression. without the backing of their own government, companies often are faced with the unappealing

decision to follow local laws or else exit the market. staying and engaging can in some cases, offer appealing choices to citizens in a request of country so the choices are not always simple or easy. as a trade issue, censorship has been ignored. the united states is an information economy. the u.s. companies are leading vendors of information products and services. filtering american content and services has the effect of filtering american competition and combatting it should also be on the much to our trade agenda. restrictions of internet traffic affect trade in a number of ways. they -- such restrictions may constitute a nontariff barrier. may be an unfair rule of origin. may be a violation of the principle of national treatment. the violation of the wto very strong rules on transparency and access and administrative review

of regulations has had no impact in the world of internet review and regulation. there must be a trade remedy when a country blocks access to a u.s. website and the advertising on those sites is also being blocked and a trade in the products and services advertised are interfered with. the european union, by the way, should be praised at this point because in 2008, they passed overwhelmingly a resolution recognizing internet censorship as a trade barrier. the vote was 571-38. there needs to be further implementation of that resolution but it was an important step in the right direction. some steps that we think can be taken to promote internet freedom. first of all, the u.s. government should, on an ongoing basis, investigate cases when internet censorship is brought to their attention.

the ustr, the state department and the commerce department all have responsibility to raise internet restrictions in the dealings they have with countries on many issues around the world on an ongoing basis. our nation has missed the opportunity to use existing trade agreements to constrain internet restrictions, censorship and surveillance. the ustr should be highlighting internet censorship in its trade reports. in 2006, the ustr issued a report billed as a top to bottom review of u.s./china trade relations. the report discussed simple infringement of intellectual property, which we don't support, yet did not mention internet censorship policies. the ustr has a very important annual -- special 301 review process focuses on identifying intellectual property problems around the world. i think we should replicate that process for internet freedom. and violation thereof. the ustr should review foreign

government restrictions on the internet, taken in the name and censorship or otherwise and seek ways to take appropriate action. we need to negotiate provisions that promote internet commerce, openness and freedom in our trade agreements and in other agreements. i will not go into details of supporting gni but it's a great initiative and we do actively support it. i want to make another point. the internet freedom begins at home as well. the u.s. must lead by example. we need to encourage censorship and surveillance ourselves. we need to restrict intrusive such as depack and inspection and think twice before attempting to block content which we perceive as unsavory. once openness erhodess, it's very hard to get it back. and when we go abroad advocating these principles, we cannot go with dirty hands. our credibility is critical if we are to be an articulate advocate in the international community. if our government leads a fight for international freedom by

example, at home and negotiations around the world, it can support u.s. companies who are trying to ethically compete in challenging markets. in conclusion, let me just say that china's policy of coerce censorship has become a matter of global public concern. if the u.s. government does not push internet freedom to the top of our priority list now, foreign governments all over the globe will conclude that they are free to pick off individual companies, intimidate them into submissi submission. we need to elevate this issue to the much to our diplomatic and trade agenda. we must be consistent with our own internet freedom policies and fight for internet freedom as a common principle so other nations understand our commitment to curbing censorship of the internet and threats to internet freedom in whatever form they manifest. thank you. >> mr. black, thank you very much. finally, we will hear from ambassador mark palmer. ambassador palmer served in the u.s. state department from 1964 to 1990 and was formally deputy

soviet of state for the soviet union. he was instrumentinal the establishment of the national endowment for democracy and currently is president of capital development company llc and vice chairman of the center for communications health and the environment. a graduate of yale and a widely cited author. mr. ambassador, welcome. >> thank you, senator. french diplomats actually try to speak last in the hope that they will be remembered best, so i am glad to be speaking last. my written testimony emphasizes in the outset my optimism about china. i think having served and lived in communist countries a good part of my life that we often underestimate what's going on among elites, and we know what's going on among the public. 400 million of whom are on the internet. even hu jintao brags he's on the internet. i think it's a mistake for us to assume that this very strong

reaction to the admirable actions of google or go daddy now, that that's the end of the story. i think there's a lot going on in china that we should be optimistic about. but i want to focus in my oral remarks today on a story. i want to tell a story. some of the students who were present on tiananmen square during 1989 came to the united states and earned doctoral degrees from leading american yes universities. they realized the potential of this the internet in china and were urged by chinese still in china to use their computer skills. they have developed a system of software and servers which over the past decade has grown to be the world's largest circumvention system, providing for roughly 90% of anti-censorship traffic in china and worldwide. about a million chinese today

and hundreds of thousands of iranians are using this system. it works through the distribution of encrypted, secure free software and by constantly switching ip addresses, up to 10,000 times per hour on dedicated servers located across the world. they have built and staffed this system with volunteer labor and virtually no financial support from anyone else. the major limitation on this global internet freedom consortium's ability to serve even much larger numbers of users and to bring down the firewall altogether is simply money. they have had to make hard choices between serving a surge in iranian users last summer and fall and reducing their availability to chinese users as their servers were crashing. gift needs to buying many more servers and finally to be able to serve full-time staff, competing with and staying ahead of over 50,000

we spend $800 million annually on old media and we spend $1.7 billion on democracy programs. surely we can and should spend $100 million per year on a system or systems to circumvent internet censorship and bring down this firewall. realizing the enormous success of this global internet freedom consortium and its potential, a bipartisan group of your colleagues of senators and congressmen appropriated $15 million in 2008 to begin to scale up this system and any other which could demonstrate proven ability to circumvent internet syrup -- censorship in china, iran, and elsewhere. and in 2010, another $30 million was appropriated. in my 26 years within the state department and 20 years outside working on democracy and human

rights, i have never been more convinced of the power of any innovation to help those still living in one of the world's remaining dictatorships, half of them chinese, to the lip -- to liberate themselves. the ability to liberate themselves. and i also have never been more appalled -- i repeat appalled -- at the state department's refusal to do what is so clearly in the national interests of the united states. inflation rant and repeated violation, my old home, the state department, has refused to use the appropriated funds to scale up an existing successful circumvention system. state department staff level officials have made a mockery first of secretary rice's and now of secretary clinton's frequently voiced and sincere commitments to help ensure freedom of the internet. let us take just one dimension of american national interest. there is a profoundly false understanding of the

google/china issue, as if google must lose its china market because it no longer accepts google.cn censorship. if the united states acts in the manner that we seek and people in china can access google.com, whether in hong kong or here, you should sell your stock short and watch google pick up support from iran, syria and elsewhere. google is in a fight and a martyred defeat will not help the cause. it, too, should be pressing the state department and working with gif. if it does so, its franchise throughout the world will not be merely a wounded victim but pose society access to the internet. fortunately, five of your colleagues here in the state wrote to senator clinton on january 20th. senators brownback, casey, kyl and spector and they in the

strongest possible terms have said enough is enough to the state department. that they have to begin to fund the existing circumvention systems and senator brownback placed holds on four senior state department nominations and took it off when some agreed to talk. they were willing to put the holds back on if within a week we don't get a serious indication they are engaging and are going to respect the wifl this congress on this critical national issue. let me just conclude by urging this commission, which does such wonderful work that you join your colleagues in urging the state department to do what we all agree with, which is to circumvent this censorship. thank you, mr. chairman. >> ambassador palmer, thank you very much. and we will do just that. we appreciate your testimony and your appearance. i'm told there are four votes that have just begun in the u.s.

house. and what i'd like to do with the consent of my colleagues is to recognize the three house members for a series of lightning round questions before they have to rush out of here. i do want to have them have the opportunity. >> thank you very much, mr. chairman. i really appreciate it. miss hom you mentioned the outrageousness of the chinese government saying that there was no censorship on the internet when tien was near town during the clinton administration, made the same statement that no one died at tiananmen square. we put together a hearing like you, mr. chairman, invited the chinese to testify. he was a no-show. we even had a people's daily editor say how he saw and witnessed people dying. hopefully it's so laughable and so embarrassing to the beijing leadership that such outrageous statements will cease. the universal periodic review last done on february 9th of '09 on china, it only takes, as you know, one-third -- one-third of the member states on the u.n. human rights council to call for a hearing on any country.

the u.s. government should call for that, vis-a-vis china to look at this. it can be done. it would bring the great spotlight on what they are doing on the internet and other human rights abuses. your thoughts on that and i have so many questions, but i'll -- we don't have time. so i'll just leave it at the one. >> thank you, mr. chairman. i just want to ask one question of the witnesses. and that is for each of you, whether it's google or go daddy or the organizations that you represent if you have one, two or three things that we could do that the federal government could do in an operational way, i'd very -- to help you in each of your respective efforts, different efforts, i would be very interested in hearing your responses. i suspect ambassador that i know what your top one will be.

but i'll look forward to hearing. and i just want to take one moment to say that i couldn't help but notice that four out of our five witnesses are legally trained. and there's a lot of criticism at times about the litigious nature of america's society. and i just want to say that my response to that has been in the international context, show me a society where there are more attorneys than generals and that's probably going to be a democracy. show me the reverse and the story is not so good. so everything has its price. mr. chairman? >> thank you. and i can think of a country that's been led by a teacher. they haven't had the need for military since they started. so on behalf of teachers, i think that we can all learn. i guess my mother says it best.

you got two eyes, two ears and one mouth. use them accordingly. and my question would be mr. smith's question to mr. edward black and to ambassador martin palmer. in closing, i would like to thank for a nice well-balanced presentation for us to be able to listen, learn and act. thank you. >> just very briefly. the chinese statement submitted for the record cites international norms that they feel we ought to -- they ought to and you as like google and go daddy ought to live up to. and your views on the global online freedom act if you could provide us with that. i'd appreciate it. >> let me thank my colleagues from the house. they're active participants in this commission and we're sorry they have to go to vote. but appreciate your being here. mr. davidson, can you tell us a little about how this works with the chinese coming to an

american company saying we need your cooperation in censoring certain things. what types of information have authorities asked be censored? how do they instruct? how do they deliver the information of what they want censored? can you give us some organic notion of how this works? >> let me try and give a general notion because in some ways actually we are not actually permitted to talk about all of the requests that we get. and they are given to our employees in china. >> prevented by the chinese? >> right. i'd be happy to characterize it. >> are you permitted to do it outside of china? >> we actually don't share a lot of information outside of china about what's happening. and so it's a very -- it puts us, and i think that gets to the heart of it in a very difficult position which is there's not very much transparency at all

about what's being requested and whether it's being requested of everybody. whether there are special requests or not. and i think -- and that places us in a terribly difficult position. i'd say outside observers have been able to derive quite a bit about the kinds of requests that come. and i think you can see that they are far ranging, political in nature and quite different from the kinds of results. we've had other hearings that have shown the differences in the results that one gets from a censored version of the large search engines, including ours, and the uncensored versions. and so i think that's part of why we ultimately felt that we  needed to make this change is because, you know, the lack of transparency particularly makes it extremely difficult. >> well, i admire the judgment. i've indicated that to you. what i'm trying to send when you go to china to do business, is there someone in china that says, all right. you're here now. you're on chinese soil. we do business the chinese way.

and here's a set of written instructions. and by the way, in order to do business here, you'll follow them to the letter. is it -- is there something in write something place that describes to your company what your obligations are under what they perceive to be chinese law? >> you know, we operate under a license in china. and i think in part the problem that i think we have all -- the companies that operate there are trying to address in things like the gni is dealing with the fact that the requests can be brought and that the -- there isn't always -- they don't always appear to be operating through the rule of law. and so it's not like getting a court order from a u.s. judge. and so i think that part of the concern is that we would like there to be more transparency and a clearer process than there has been.

so, you know, i could leave it to others that have had this experience as well to try and chime in. >> you indicated there was substantial increased chinese government activities, december of last year and february of this year. was there any discussion by the chinese authorities about what -- why they were doing this or, in fact, admission that they were increasing activities or just chinese say, all right. here are the new rules? >> no, in fact, if i could briefly respond to your question earlier, we wish there was a rule book. we wish there was the book that you could sit on the table and say, here's what you have to do. but to our knowledge, that doesn't exist. we just from time to time get a directive. in this case, two days before the new rule came out, we got a communication that said, oh, by the way, we're going to change the rules. we're not really sure what the rules are going to be yet but we're going to change them. two days later we got the new rules and we were supposed to implement them a few days after

that. so there's not really a build-up. there's not any indication. as i said earlier, when our website gets shut down in china, we never get told why. we'd love to know why. we'd like for them to tell us what the rules are, but it's impossible to find out because they simply won't answer the question. >> have you had intellectual property stolen? i think google has. you indicated that attacks have been made on your system repeatedly. have you had intellectual property stolen? >> well, i'm not exactly sure what you mean by intellectual property. it could be a broadly defined term. we do know that a lot of the ip that's stolen comes from websites that are hosted in china. but most of the attacks on our system are designed to disable websites of our customers. those tend to be human rights sites, tiananmen square anniversary sites, website blogs that discuss tibetan monks.

any of the things that the chinese government deems inappropriate. they rarely ask us to shut down counterfeit goods, for example, or other ip violations because, frankly, i think they support that. now have we had software or other information in our system stolen? not yet. >> thank you. ambassador palmer, why do you think the state department is so delinquent in addressing this issue of the circumvental systems that, you know, for some funding exists but the state department seems to have little interest? what's your sense of the motives? i mean you works down there for how many -- 16 years you worked in the state department? >> 26. >> 26. i'm sorry. what could explain the state department's behavior at this point? >> one state department official was quoted in "the washington post" saying that the chinese authorities in beijing would be -- would to be use my

previous word appalled, would be outraged if the global internet freedom consortiums systems were financed by the state department. so it's clear from talking to my friends, both in the state department and in the white house, that one of the concerns that's led to this is concern about the chinese reaction. >> so this is an old story, isn't it? don't offend them. we see this -- we see this routinely in trade negotiations. but it's an old story. and now surfaces with respect to this issue. >> and then there's another issue, i believe. and that is that the department didn't ask for this money, didn't want this priority. it feels put upon. it still doesn't recognize that we have this long-term challenge in front of us that's going to require year after year major resources of financing and human talent. and they are just not into that yet. they haven't made that

transition conceptually. >> ms. hom, you, at least with respect to one chinese citizen, put a human face on the victims here. the request of go daddy to describe who these people are, names, photographs, et cetera, i assume that what the chinese are attempting to do with that is to intimidate and to track down@@@ tracked down, sent to prison, for internet crimes gresham's -- transgressions? >> the overall lack of transparency about the numbers in the criminal justice system and other camps, it is very

difficult because we do not have the information being reported in that way. however, if you love the look -- if you have looked like we of look to the internet, you didn't list of individuals foreign sentiment -- incitement to state power or state secrets, it is clearer that the great majority of them will engage in these activities on the internet. will have engaged in these activities on the internet. and the revised state secrets law that was released in june but not passed made it perfectly clear that the state's secrets law provisions applies to the internet. so the proposed revisions to the state secrets law is more restrictive but makes it quite clear that activities of disseminating, acquiring information on the internet will be covered by the state secrets

law, which, as you know, can retroactively classify a piece of information or a communication as a state secret with very serious consequences. >> mr. black, you are involved in, among other things, a substantial amount of commercial transactions by your member companies. and i'm wondering whether the censorship and regulation of the internet in china has an impact and if so, how, on companies that wish to sell goods in china. >> yes, we are convinced that this is an ilportent aven impor pursue. not only because it's important but because future trade agreements we will negotiate will be able to deal with some of these issues and an already established legal framework. but companies, inside i think the easiest example is any website, frankly, that is blocked, that website in a modern internet era has a variety of companies. could be automobile companies, could be, you know, proctor and

gamble who advertise there, who have -- are thereby unable to adequately reach an audience if they are blocked. there could be, if you have a magazine article, if you go to a businessweek site and there's an article in "businessweek" that is politically untenable. all of the advertisers in "businessweek," all those companies would in fact, have their ability to do commerce affected. we think the reality is you have electronic commerce is a multi -- many, many multibillion-dollar business, perhaps in the trillion-dollar business, i believe. so if you have a significant impact on the communication of data and information to products and services, you are going to be having a significant impact on trade, yes. >> mr. black, is there a tension for you to come and speak here on these issues. there some are in the business community. not all, but there some are who think, you know what?

it's a whole lot better for us to kind of tone it down a little bit, be quiet, hope things improve, don't be critical because the fact is china is a big market and the chinese government can do just like that and change your opportunity to access that market. so is there a tension for you to come out and speak out. talking about a tension with respect to your constituency and your foundation or your association, rather? >> well, i think it's clear that within the private sector there are many companies which also internally are divided on how to deal with doing business in regimes where local laws conflict with our values. but i think there's -- >> but overtime, if i might interrupt you there have been many occasions in this country where we say, business is business. the rest, deal with later. business is business and human rights is separate. >> i think these issues are way beyond internet and technology issue and affect all business. but i guess i'd probably put a good word in for the technology

and internet world that i really do think the culture of our sector of the industry is one of openness and freedom, and i think there's a greater willingness, therefore, to say that is what we are about. we are not just about selling something. but we are about bringing the -- this tremendous, great industry to advance people's well-being. but, yes. you are absolutely correct. there are certainly a constant pressure. not necessarily on me, but internally in the dialogue about how to deal with this, with the reality that it can have a significant impact on stockholders, on the ability of a company to survive. >> i want to ask the question of google. and perhaps go daddy as well. you both now announce that you are changing the way you operate there. and what are the -- i'm going to ask google a couple of things. number one, i assume some think you are just daft, right? what are you thinking about? you are there. you do business.

you don't like it, but you follow the local customs. tough luck. so to stop crying and stop moving and you are setting a bad example for those who decide business is business. you are messing things up for us within the chinese market. is there some of that? >> well, i think every company has to make its own decisions about how to operate. this has been -- i we think made no secret this has been a difficult decision and process for google. and we went into the market originally hoping that we could make a big difference. we were pleased, i think, initially, about some of the changes we were able to bring to the market and ultimately over time, as we described in our testimony, we came to a different conclusion about what was right for our business. our hope -- we've gotten some good feedback, and our hope is that this is a process where other companies will also get vivi involved. we need more help in the gni. our long-term hope is the same

hope we've had that we can offer our services in china. >> tell me how you think this plays out at this point. you are an executive at the big, successful, growing, worldwide company. and we read the news at the moment, right up to as ms. hom indicated, right up to the moment. so we know what has happened so far. we know about the discussion on the move to hong kong. tell me how you see this playing out in the end stage. >> we've been very clear also. we don't know how it will play out. we have moved our servers to hong kong. >> can you give me the best and worst case? >> sure. i think one of the better case scenarios is that people in china are able to access our uncensored search engine based in hong kong and have access to all the information that it provides. i think a bad case scenario would certainly be that that search engine is blocked outright and other services are as well. and that others rush in to fill the void with censored products that don't provide a lot of

information to chinese users. and our hope is that over time it will be more of the former. >> all right. one final question. i'm going to call on senator lemieux. ms. jones, the decision go daddy has made, that's a very recent decision, i assume, announced today. tell me the judgment that went into that. is it related to google? tell me the jmtudgment. you've talked about the attacks. you've talked about the increasing demands by the chinese government. all of that has happened recently, so this puts you to a decision-making point here? >> with all due respect to google it didn't really have anything to do with them. this was a decision we made in our own right based on our experience of having to contact chinese nationals, collect their personal information and grudgingly return it back to chinese officials. we just made a decision that we didn't want to act as an agent of the chinese government. and that's really why we stopped

offering the dotcn domain name. we wish there were a better way to negotiate -- in fact, i read a book once called "take this job and ship it." and i remember there was a discussion in it about unequal playing field in negotiations between the united states and other countries. and i think we ought to revisit that discussion because we can't let them be strong and us be weak all the time. we just have to stop it. and then we'll start offering dotcns again. >> are you recommending people read that book? >> sure. >> full disclosure. that's a book i wrote, but it is, i think, it does raise the questions of the kind of negotiations that should exist. senator limiux, let me ask you to inquire. >> i think we all should read that book. it's a great idea. again, i want to commend you, mr. davidson and ms. jones, your companies for the work you're doing.

it occurs to me that if there were attacks on the bricks and mortars of these businesses and we believed that a government was behind them, we'd be acting a lot differently. and we need to be cognizant of the fact that this is not just something out in the ether. it is the way that you do business. and we treat it differently when it's in the ether than we do if it was bricks and mortars. mr. davidson, i want to ask you about these cyberattacks in mid-december of 2009. and learn more from you about what happened and where you think those attacks were directed from. >> well, sure. we've tried to lay it out a little bit in our public statements and in our testimony. i'd be happy to amplify it further afterwards if it's helpful for you and your office. and i guess i would best characterize it as quite sophisticated and very unusual. and as we try to explain and as

ms. jones has explained, companies like ours are attacked all the time but this was quite different because of the sophistication, because of the fact that we discovered that other companies had been targets, and that we also knew that part of the target -- part of the target seemed to be the ability to access gmail accounts and we knew gmail accounts had been compromised for folks who were affiliated with human rights groups in china or working on chinese issues. so that was very disturbing to us. and i think that's part of why we felt it was so important to make a change in our policy. but this was really part of an ongoing process over the course of a year. >> do you believe the chinese government was behind the attacks? >> we have no evidence and we have not said that we believe this -- that we have no evidence this is a state sponsored attack. we may never know. google may never know who ultimately was behind this attack. but that's partly why this is about a totality of

circumstances over the course of a year, where google was blocked. youtube has been blocked in china since march. the green dam activities over the course of a summer. public attacks on google and the media. this cyberattack in december. and i think taken altogether, we felt it was time for a change in our policies. >> i can see your legal training in your response to that question. >> i am a fallen engineer, if that counts for anything. >> senator, on that point, the statement that was put out by google, we have january 12th, talks about the theft of intellectual property. >> right. >> it was not just google, but a couple dozen other companies. but also part of the investigation, if i can quote, the attack on google, quote, we have discovered the accounts of dozens of gmail users who are

advocates of human rights appear to have been routinely accessed by third parties and so on. when you ask whou who might have been responsible, the obvious question is, who would have had an interest in this sort of thing. it appears to the outsider, at least, that only the chinese government would have this kind of interest. >> i am not asking you to answer that because i'm sure you don't want to. >> let me ask ms. jones if -- and you described there were cyberattacks on go daddy as well? >> yeah, our attacks -- the december attack, of course, we were involved in that. as i said, we've had a couple of dozen since the first of the year as well. what stood out to us about the december attack again was the sophistication, the level of organization, the way the traffic was routed to us. we don't know who did it, but we

will go so far as to say it was quite sophisticated and there were resources behind it from somewhere. the difference between the attack on our system and the attack on google's system appears to be the google attack was aimed at infiltrating e-mail accounts. the attack on our system is designed to disable websites that somebody doesn't like. >> yes, sir. >> i don't want to be too cute with my answer, sir, and i would just say, it is actually a very complex environment there. there are lots of different groups that operate. nationalist groups, groups that do things. and so i really -- it really was the -- it is the case that we don't know. and it is also the case that i think there were a whole set of circumstances, starting with the fact that in 2006 we would be continually evaluating these circumstances and doing business. that led to our decision. but i'll leave it to others to draw their own conclusions. >> let me ask that question of

miss hom if she has an opinion as to where these attacks are coming from. >> i think it's important not to get fixed on the question of whether it's the chinese government behind the attacks. it is true that in a number of these attacks, particularly against human rights groups, including tibetan groups and the real issue is what is the responsibility of the government? i would say that it is important that china has an obligation to investigate and to ensure that the attacks are fully responsible. he said it wasn't complex -- it was a complex environment. the i.t. internet area, there is a lot of turf battles in the ministry of public security and

state security. in negotiations, it is not even clear at the negotiating table, it is a complex negotiation because it is not seriously one voice on the other side of the table. i think that means that it is really important, this discussion about cyber attacks, because the technical solutions that have been developed are not only access, we need saved, secure, an anonymous access, access that ensures that our anonymity is not compromised. anonymous access. access that ensures our identity is not compromised. therefore iwould add to ambassador palmer's call for the need for more development of the technology, which we do for a suite of technology tools. i don't think any one of these tools is going to work. and drl and the state department

has issued and has closed an rfp for the development of new mobile technologies. it is very limited pot. a lot of folks who have applied are going through the process. and i would urge that there needs to be a lot more resource put into the development of the technology solutions. and it is extremely important because in light of some of the questions that senator dorgan was asking, it is not just governments that are trying to play the let's freeze the dear deer in the headlight game. like if we stay and don't antagonize anyone, we might be safe. the donor community is doing the same thing. they are trying to maintain their presence in china so they are moving out of supporting anything that will be perceived as sensitive or directly supporting human rights in a way that they think is sensitive. so i do think there is a very important role and a need for support for that kind of technology development, which i would say is both the government coming in as well as the private

sector can come in and support this kind of development. >> mr. black or ambassador palmer you care to take a shot at that? >> [ inaudible ]. we think to the extent you cannot -- you can't have technological assets to bring to bear in this battle, that's great. and i think it's important and valuable. it is -- nevertheless, going to be a difficult fight when you are fighting a government with the tools available. so we again do think it's important to engage at the governmental level. what i would suggest, without -- and we all recognize, i think, china has the most sophisticated firewall and technological assets that they bring to bear in this area and make it more difficult. therefore, they are the one we want to focus on. i would suggest, while not defocusing on china, that we also focus on some other countries where we may have the greater opportunity to use leverage and create some precedence that then can be

turned back and used on others. we have burma, tunisia, thailand, uzbekistan, vietnam, egypt, turkey, iran and i have a longer list of countries who are doing very clear things which we think are violations of not just internet freedom conceptually but could be actionable under trade agreements. i understand the u.s. government is reluctant to pick a big fight, maybe bring a trade case against china or do other things. but some of these countries we may well have some influence with. they are members of the wto. those rules can work for us at times, and i would urge, and i think if we create a pattern of precedence and create in essence a climate that makes china even more clearly the outrider, the outliar on this, i think in the long run, that may well be more effective. confrontation may work sometimes. we also know -- we all know

confrontation sometimes makes it harder to do things. but coming in from the side and from other places globally, i think it's an avenue that really can actually begin to make some progress. >> ambassador? >> on the question of who is doing this, it seems to me, clearly, obviously, the chinese government. if you look at the history of censorship and of this kind of intervention in many countries, dictatorships, it's always the government. who else is, as you said, senator, who's got the interest? this is a sophisticated large scale effort. it's clear that beijing is doing this as a matter of government policy. on the question that ms. hom touched on, and that is, is there sort of a solution, a technological solution. i think the answer to that is, no, there isn't a single. but the state department now, which i find really quite wonderful is saying that they want to do venture capital. i am a venture capitalist.

i have been running and own a venture capitalist firm for the last 20 years. there is a role for venture capital in this field. i mean, it is true that in order to keep up with the engineering skills in beijing, the chinese skill in this, that the communists are abusing, we are going to have to keep innovating ourselves. but it's also true in the investment world that there are products that already exist that you want to get behind with large-scale investments because they are proven and beyond the r&d phase. they are beyond the venture capital phase. and that's the case with the global internet freedom consortium which is already serving altogether several million people on a daily basis. and if they only had the servers, they could serve 50 million to $100 million people on a daily basis. it would be criminal in my judgment, to wait to find some brand new sexy little thing out there that you know, may take five more years to develop and

not go ahead right now. we should not devote 100% to the existing, i would be opposed to that. but spend serious money to scale up an existing proven system or the only other potential competitor is tore which was partially developed by the united states government. tor has about one-tenth as many users. that's not insignificant either. there may be two build-up possibilities that exist today along with the r&d stuff. >> thank you ambassador. thank you for your candor. it seems to me that it's hard to imagine, mr. chairman, there could be an entity inside of china that was not controlled by the chinese government that would be sophisticated enough to bring these attacks forward. i have one last question, if i may, that i wanted to direct to our friends from google. and that is you have a lot of employees, as i understand it, in china. and i want to know if -- because i saw how this announcement was

made on the blog and there seems to be reference to your employees. do you have a concern about their safety? >> of course we have a concern. and that's why -- >> beyond the normal concern you have for employees. >> sure. that was important to us. that's why we made this announcement in january but we only -- we took action this week. it was important for us to do this in an orderly fashion that was really sensitive to the employees we have on the ground. we made it clear in our announcement that these decisions have been made entirely by google executives in the united states without the involvement of our employees in china. and i think, you know, going forward, our hope is that they'll continue to be there and that they'll continue to be able to contribute. we have some fantastic engineers. we have an r&d center and a sales force there. and we'd like to continue to grow that great group of employees. but we oar we will be watching the situation on the ground very carefully. >> mr. chairman, i want to thank

you again. i think you've brought a lot of light and attention to this issue by chairing this hearing today. i want to thank all the witnesses for being here. as i said in my opening statement, with great power comes great responsibility. and we need for the chinese government to stand up and not have the censorship anymore. i believe that the internet is going to be the greatest tool of the modern time to promote communication and eventually democracy throughout the world. and i applaud both of your companies again for the good work that you are doing. >> senator, thank you very much. mr. ambassador, when you began today, you said some encouraging things about china. and most, however, the rest of this hearing has been rather discouraging when we're talking about internet freedom, censorship, people going to prison. so tell me again, what do you see -- you've watched diplomatic issues and worked in the state department 26 years.

what do you see going forward here? i mean, it's pretty clear, it seems to me nerve the room, however critical one might be of china, and i'm plenty critical of china, all of us understand that things in china are marginally better. things have improved over the last 25 years, in a number of areas. however there are many other areas where you still have the authoritarian fist of a regime that wants to protect itself. and as you answer this, let me ask you, looking at the regimes in eastern europe that prevented their citizens from hearing and seeing what was happening in the rest of the world, that changed my understanding is, it changed with the video cassette recorder when the vcrs came in and video cassettes could be moved around the world. people in their living rooms in eastern europe could run a cassette and watch a movie or so

programming. and it was very -- it was impossible, not very difficult, and possible for those governments to prevent information from getting to people. the internet, of course, is, you know, the video cassette recorder on supersteroids, right? so it seems to me that as effective as the chinese government is, and we're talking about, you know, the concerns about that effectiveness and shutting down free expression, free speech and so on, it seems to me that it is not logical to assume that they can continue to be successful at this. so give me your impression of that. i'm sorry for the lengthy question. >> no, i think that's absolutely right. they will not succeed. it is simply impossible in a modern society, which china increasingly is a modern society, an extraordinary society, which has been transformed in the last generation. it's a totally different country. it is impossible. we learned, and i was -- i spent much of my foreign service career living in eastern europe. we learned the power of rock 'n' roll, not only video cassettes,

but rock 'n' roll. kids are kids. and they don't want this nonsense. they are skeptical of the political leaders. and they are the children of the leaders. and the nephews and nieces. and over the dinner table, they tell some homely truths to the people who live in the leadership of china. so i see so much evidence that we're basically winning. i mean, when you have 11,000 people with their own names sign charter 08, which is the most important written document in modern chinese history, not since they founded modern china has there been a piece of paper more explicit, clearer and more powerful. 11,000 of the leading people in the country. what we learned in eastern europe is among elites, when things look so dark, among elites there is a whole lot of firment going on. i just reading jao jong's book when he was the commerce secretary of the communist party at tiananmen. he dictated in secret his memoirs before he died.

it's called "prisoner of the state." and i would recommend everybody to read it because he and his predecessor, who was the previous general secretary of the communist party, after all. i mean, the top party official in the country. both of them wanted ultimately complete democracy in china with everything that we call a democracy. so when you got really senior people now, you know, you can see what their thinking was. i am certain that today you have all kinds of people who recognize that this oppression of google is a mistake. and they don't want it. and eventually they will be the rulers of the country. >> let me, in conclusion, ask a question of both google and go daddy. the decisions you have now made, are these decisions for the moment, interim decisions? are there things that chinese government can do that would convince you that that decision should be modified or changed?

give me your assessment of where you are now relative to conditions in china and what the chinese government might or might not do that would change these decisions. >> well, i would say, our hope is what it's always been which is to be able to offer our services and access to information to our users in china. and if we were able to -- if tomorrow we were able to offer an uncensored verse yoc eed ver search engine in china, we would welcome that. but throughout our conversations, the chinese government has indicated that's not a negotiable point. so we are where we are. our hope is that the way we've done -- the solution that we've put forward, operating out of hong kong, will be a way that will give people access to information and over time they will. if i could actually just to amplify the point that the ambassador just made, just to be a little -- to just say that i think we do have a little bit of a hard road ea