[Senate Hearing 105-291]
[From the U.S. Government Publishing Office]
S. Hrg. 105-291
THE ROLE OF THE DEPARTMENT OF COMMERCE IN THE U.S. TRADE POLICY,
PROMOTION AND REGULATION, AND OPPORTUNITIES, FOR REFORM AND
CONSOLIDATION
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HEARING
before the
SUBCOMMITTEE ON
OVERSIGHT OF GOVERNMENT MANAGEMENT,
RESTRUCTURING, AND THE DISTRICT OF COLUMBIA
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
MARCH 20, 1997
__________
Printed for the use of the Committee on Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
39-503 cc WASHINGTON : 1998
_______________________________________________________________________
For sale by the U.S. Government Printing Office,
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOHN GLENN, Ohio
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
Hannah S. Sistare, Staff Director and Counsel
Leonard Weiss, Minority Staff Director
Michal Sue Prosser, Chief Clerk
------
SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND
THE DISTRICT OF COLUMBIA
SAM BROWNBACK, Kansas, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia
Ron Utt, Staff Director
Laurie rubenstein, Minority Staff Director and Chief Counsel to the
Minority
Esmeralda Amos, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Brownback............................................ 1
Senator Lieberman............................................ 2
WITNESSES
Thursday, March 20, 1997
Hon. John L. Mica, Representative in Congress from the State of
Florida........................................................ 4
Hon. Rick White, Representative in Congress from the State of
Washington..................................................... 7
Professor William H. Lash III, Director of the Law and Economics
Center, and Associate Dean, George Mason University School of
Law............................................................ 16
Edward L. Hudgins, Director of Regulatory Studies, Cato Institute 20
Edward J. Black, President, Computer and Communications Industry
Association.................................................... 23
Timothy J. Hauser, Deputy Under Secretary, International Trade
Administration, Department of Commerce......................... 34
Alphabetical List of Witnesses
Black, Edward J.:
Testimony.................................................... 23
Prepared statement........................................... 68
Hauser, Timothy J.:
Testimony.................................................... 34
Prepared statement........................................... 77
Hudgins, Edward L.:
Testimony.................................................... 20
Prepared statement........................................... 63
Lash, Prof. William H. III:
Testimony.................................................... 16
Prepared statement........................................... 51
Mica, Hon. John L.:
Testimony.................................................... 4
Prepared statement........................................... 45
White, Hon. Rick:
Testimony.................................................... 7
Prepared statement........................................... 48
APPENDIX
Prepared statements of witnesses in order of appearance.......... 45
Questions and responses for the record from Mr. Hauser submitted
by Senators Brownback and Lieberman............................ 84
THE ROLE OF THE DEPARTMENT OF
COMMERCE IN THE U.S. TRADE POLICY,
PROMOTION AND REGULATION, AND
OPPORTUNITIES FOR REFORM AND
CONSOLIDATION
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THURSDAY, MARCH 20, 1997
U.S. Senate,
Oversight of Government Management, Restructuring,
and the District of Columbia Subcommittee,
Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:35 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Sam
Brownback, Chairman of the Subcommittee, presiding.
Present: Senators Brownback and Lieberman.
Staff present: Ron Utt, staff director and Esmeralda Amos,
chief clerk.
OPENING STATEMENT OF SENATOR BROWNBACK
Senator Brownback. We will go ahead and get the hearing
started. Thank you all for joining us this morning. This is
going to be the second in our series of hearings on the
Department of Commerce. We looked first in last week's hearing
at some of the management issues and problems that have been
existing at the Department of Commerce, and some of the changes
we could make there. This hearing will be focused on the role
of the Department of Commerce in international trade policy and
promotion. We're going to be exploring that role with three
panels that we have present today.
The first panel will be two members of Congress who have
proposed a plan for consolidating the trade promotion and the
trade policy making functions within the Federal Government.
The second panel will look at the overall trade policy and
promotion structure within the Federal Government. And the
third panel will be the deputy undersecretary for international
trade for the Department of Commerce.
This has been an area of some focus for a period of years
in Congress. The Department of Commerce is just one of 18
agencies involved in trade policy making, and 19 involved in
trade promotion. And different agencies take different leads in
different subjects.
The U.S. Trade Representative's Office is the lead in trade
policy and negotiations. The ITC is the lead in import
protection, such as anti-dumping. Agriculture has the biggest
export promotion program, and the Customs Service is the lead
in enforcing our export laws.
Because of this, the Department of Commerce plays second
fiddle to many other agencies in the overall trade field.
I do have a letter here today from Senator Roth, who is a
member of this Subcommittee, and is unable to join us today
because he is chairing another hearing. He has been a long time
advocate of creating a consolidated Department of Trade. And I
just want to read one paragraph from Senator Roth's letter,
where he said this:
I appreciate your invitation to testify before the
Oversight Subcommittee on March 20, 1997 at the hearing to
examine the trade policy role of the U.S. Department of
Commerce.
As you know, I have advocated for many years the creation
of a Department of Trade which would unify the trade functions
of the Department of Commerce and the Office of U.S. Trade
Representative. In my opinion, a Department of Trade would
allow our government to pursue trade policy and negotiations
and to administer our trade laws in a more rational and
efficient manner.
So I'm sorry that Chairman Roth could not be here today,
but he is vitally interested and pretty focused on this subject
as well.
Our first panel will be two members of Congress, as I had
stated previously, who I will have an introduction for a little
bit later, and I'm delighted to have my former colleagues from
that historic 104th Congress joining us today.
But we'll be able to talk--gosh I get choked up thinking
about the 104th Congress. [Laughter.]
Senator Lieberman. So do I. [Laughter.]
Senator Brownback. We'll look forward to their testimony. I
do hope that this can be a discussion like around a kitchen
table about what we can and should do in this area of trade
promotion and trade policy development, because clearly we've
got a lot of players trying to do a lot of things, and if there
isn't direct duplication, there's a lot of overlap that's
taking place.
And I believe we can have a more effective trade policy and
save dollars for the taxpayers of America if done right and
done well. So I'll look forward to those presentations.
And with that, I will turn the mike over for an opening
statement to another member of that historic 104th Congress,
Senator Lieberman from Connecticut.
OPENING STATEMENT OF SENATOR LIEBERMAN
Senator Lieberman. Thank you, Mr. Chairman. It's my
pleasure to join with you in this morning's hearing on
international trade and the Commerce Department and to thank
you for the way in which you're going about this series of
hearings on the Commerce Department.
In the last couple of sessions there have been times when I
think some of us who have supported some of the activities over
there have felt that we were fighting on the question of
whether there ought to be a Commerce Department or there ought
to be any government role in trade or commerce. And undoubtedly
that will be part of the conversation here today. But my sense
is as you are going at it that we really want to see how best
government can work together with the private sector to support
American trade.
And I appreciate that, and to say the obvious, this is
not--the array of governmental programs supporting trade and
exporting are not necessarily the neatest and most orderly
alignment.
And, as we've learned in the private sector, nothing that
exists ought to be assumed to be the best way to go. And I
could even put it more to the point: very little that existed
five or ten years ago in the private sector exists as it was
then, so there's no reason we should have a sense of
defensiveness about the status quo in government. In fact, we
should have a decided sense of challenge and innovation about
it.
Exports are important to the American economy. If I may
look at this in a local or parochial sense, my own State
depends on exports and trade to a very substantial degree for
its own economic growth.
Connecticut, actually, has the highest per capital rate of
exports of any State in the United States. And those exports
tend to create higher paying jobs requiring more skilled
employees.
I was struck by a recent study that found--these are
National figures, not Connecticut, but they apply equally to my
State and all States--workers in exporting plants on average
earn 15 percent more than non-exporting plants.
Benefit levels are between 25 and 40 percent higher.
Exporting plants are at least 30 percent more productive than
non-exporting plants. Out of a list of 15 modern manufacturing
technologies, exports employed 40 percent of those working in
those industries.
And the failure rate in plants that are involved in
exporting is 30 percent less than those that are not. All of
this is by way of saying, in statistics, that we're in a global
economy. And to succeed in a global economy, you've got to be
sharp.
Skill counts a lot, particularly for a developed economy
like ours, and trading and exporting successfully.
Interestingly, the benefits that I've described, the
advantages tend to appear once a firm makes a commitment to
exporting, not necessarily after a long period of time in which
it's reached a certain level. Which is to say in another sense
that the benefits of exporting are not reserved only to the
large multi-national firms.
So acknowledging that trade is a good thing, or at least
advocating that position, the question then becomes what should
the role of government be with regard to trade. And I take for
my inspiration here this morning the somewhat battle scarred,
war-weary words of Jeff Gartner, who used to be undersecretary
of Commerce, during President Clinton's first term, but who has
now sought refuge in my home city of New Haven, Connecticut as
the dean of the Yale School of Organization and Management.
But Jeff said, having been involved in this, and I quote,
in the best of worlds, government ought to get out of this
business all together, which is to say the business of trade.
But the marketplace is corrupted by the presence of government.
So do you sit on the side and pontificate about Adam Smith, or
do you enter the fray.
That's an interesting way to phrase it. And obviously what
he has reference to is the enormous involvement of nations with
which our businesses compete in support of the trading efforts
of those businesses.
So I think there is an important partnering role for
government to play here with American business in promoting
exports. The Department of Commerce has performed an essential
role, I think, in helping American firms and workers take
advantage of the tremendous opportunities offered by the global
economy.
We're never going to achieve perfection here, but I think
there is a lot of room for improvement and hopefully together
on a bipartisan basis we can achieve that improvement. Part of
that is hearing the kind of testimony that we will hear this
morning.
Thank you, Mr. Chairman.
Senator Brownback. Thank you very much, Senator Lieberman.
We now have our first panel today, and we have with us
Congress John Mica from Florida, and Congress Rick White from
Washington, two States deeply involved in trade, and two
individuals who I know have personally been directly involved
in a great deal of trade activity, and have watched the trade
issue from various perspectives.
So I appreciate your personal perspectives, and your
perspectives as members of Congress. So, Congressman Mica, the
mike is yours.
TESTIMONY OF HON. JOHN L. MICA,\1\ A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF FLORIDA
Mr. Mica. Thank you, Chairman Brownback. It is indeed an
honor and privilege to be with you today on this side of the
Congress to talk about a subject on which you are really an
expert and a leader, one who in the last Congress helped
spearhead attention to this problem of how we compete in the
international marketplace, and how we organize our agencies of
government.
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\1\ The prepared statement of Mr. Mica appears in the Appendix on
page 45.
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In the spirit also of your request that we make this an
informal discussion, I would ask unanimous consent that my
formal statement which the staff, I'm sure, toiled many hours
on, be made part of the record.
Senator Brownback. Without objection.
Mr. Mica. And what I will do is proceed by just informally
addressing some of the issues that I think are of major concern
and that deserve our attention as a Congress. I would also be
remiss if I didn't recognize the leadership that Senator Roth
has played in this issue.
When I came as a freshman in 1992 one of my goals was to
find a way to reorganize our trade operations in the Federal
Government, and Senator Roth had been there for I think more
than a decade, or many, many years advocating similar changes
and reorganization.
So he is indeed a leader and knowledgeable on this side of
Congress, and I salute his efforts.
Let me tell you how I got involved in international trade.
I was actually sitting back where some of these folks are in
the back many years ago as a Senate staffer, and then let me
warn you all, too, that doesn't last forever, because you, too,
will find real employment. [Laughter.]
Mr. Mica. And when I did, I was cast out--you'll find 1 day
maybe your boss doesn't win. But I was cast out into the
private sector, and I got asked to help on an international
trade problem for one of the major corporations, and found
myself on a plane going to Venezuela sometime after 1985.
And I sort of got thrust into the world of international
business, and ended up representing many large firms--I'm sure
you'd recognize the names if I mentioned them--and many small
firms in overseas business.
And what stunned me was how ill armed and how ill aided our
American businesses are abroad. And it's not that we don't
spend a lot of money, or that we don't have a lot of folk
involved in trying to assist business. In fact, we have 19
agencies, Federal agencies, that spend $3.2 billion in that
effort.
And this chart isn't my chart, but I think one of our
colleagues, and it may have been Nick Smith, one of them put
this together. And it shows part of the problem. And this chart
shows the trade coordinating committees.
And the situation got so bad that some years ago they put
together a trade coordinating committee of all these agencies,
because the right hand didn't know what the left hand was
doing.
This trade coordinating committee is sort of a band-aid on
a very serious organizational, dysfunctional operation of our
Federal Government.
But this is how we conduct trade with all of these
agencies, again, in an expensive, uncoordinated fashion.
Now, is this important? Is this important? Last year our
merchandize trade deficit reached a staggering $166.6 billion.
Now, stop and think about it. I was thinking about it last
night, and I didn't research this, but probably for the first
time our National deficit has been exceeded by our trade
deficit. Stop and think about that.
This outflow of cash will eventually catch up with us,
because we're buying goods from other countries--and that means
fewer good paying jobs in our country, fewer economic
opportunities for all Americans.
So to me it is as important and as vital as the National
deficit that we're facing. So we must really look at some way
to effectively organize. And the elements of this are trade
promotion, trade assistance, trade finance and trade
negotiation. Those are the elements, and getting them all
together.
So as you look at the Department of Commerce, you have a
small piece of this puzzle. Now, Senator Brownback, we all
remember the last Congress, and sometimes with mixed emotions.
But I introduced the reorganization bill with some of you on
the other side, again.
We reduced the number of committees in the House in the
last Congress to 18 committees. To show you how dysfunctional
this trade operation is, my bill was referred to 11 committees
of the House--11 out of 18. And I still don't know how we did
it, but we made it through all of these committees.
We actually had a draw. We had Mexican stand-offs. We had
all kinds of things, but we eventually got the proposal
forwarded, and I know the proposal made some progress here in
the Senate.
But because there are so many people that have a piece of
the pie, and they are all protecting their own turf, and they
want to continue the inefficiencies and the bureaucracies they
have created, we have literally created a monster that doesn't
function well, and maintains the status quo.
So that's what we have to contend with. It's a very, very
difficult undertaking.
And trade is just a small part of the Department of
Commerce. As you may recall, there are somewhere in the
neighborhood of 30,000 employees in the Department of Commerce.
If you identify those that deal with trade or business, you get
down to about 3,500. So it's a small piece of the Department of
Commerce puzzle.
I proposed a consolidation into a Department of Trade. I
take no pride in authorship. I'm willing to take almost any
arrangement that makes sense, and that's our challenge, to find
what makes sense, what can be most effective.
And to do this right, you've got to look at other
jurisdictions. As many of you may know--I don't know if the
staffers know this--of how much of the business overseas is
conducted. And that is one of the important arenas in our
embassies.
Our Foreign Commercial Service officers are located within
the embassies, but in the Department of State facilities. We
also have USAID now, which we should be looking at and others
should be looking at, which is now trying to justify its
existence by betting into trade promotion and assistance
overseas, creating another wing and another problem, and
entrenching themselves in this, and not always communicating.
And I could give you specific examples.
Our AID mission still far exceed anything we do with
Foreign Commercial Service assistance, and AID, I hate to say
it, is a post-World World War II mentality in providing this
assistance to folk and not providing a way to conduct business
and trade and build industries.
So we're still emphasizing this approach. You go to some of
our foreign posts and our AID mission is sometimes twice or
three times as big as the embassy staff.
And then, Senator Lieberman said, do we enter the fray. I
don't think we have a choice. The parameters have already been
set by our competition, and I have other charts here that show
that we are getting our pants beat when it comes to promotion
budgets.
For example, as a proportion of gross domestic product, UK,
France, Germany and Japan all just beat us. If you look at
other financing programs, we just get slaughtered. And when you
have government, industry and finance all working together--in
fact, in most countries there is now a seamless relationship
between some of these activities.
I have been in business. Some of you have been in business.
You can cut any business deal if you can finance the project
properly. And I could sit here the rest of the morning and tell
you where we got beat in financing, and also in the ability to
promote and assist our business.
Let me just say that I am not here to speak for big
business, but I think big business needs our attention and
needs the support of our government in this, because they are
competing, and these conglomerates are put together, and they
beat our pants in many instances.
Some of our big businesses can compete. What concerns me
also is our small business and medium business. Because the
United States has for many years relied on domestic markets,
the trade between Connecticut and Kansas has been good. The
trade between Washington and Florida has been good, and good
opportunities.
But those opportunities extend now beyond our borders. And
when you take the French and the Italians and the Japanese, and
around the world our major trading partners, they've been
trading internationally for centuries and centuries, while we
have grown from a domestic market activity.
So we are in this marketplace, we are in the fray, whether
we want to be or not. And the question is do we provide the
tools, the organization, the assistance to our medium, our
small and our large businesses.
And there is no question about it. The job opportunities
for the future, whether they're again in Connecticut, Kansas,
Florida, wherever, the promise and the statistics that support
it, good paying jobs, good economic opportunity for our folks.
The answer, too, isn't, you know--no disrespect to the
former Secretary of Commerce--isn't taking just a few business
folks around the world and helping them. That was a good idea.
It's good for our government to do that and hold hands.
But think of the thousands and thousands of medium and
small, even large businesses, that were left behind that didn't
get that opportunity. So just because some good was done in
these things, in this approach, that's not the answer, that's
not the defense. We have to be looking to the future.
Finally, our goal is to eliminate duplication, overlapping.
Make it mean, clean and lean. Give our business and industry
every tool possible to compete in the world. And I think if
Congress reorganizes these activities, it really has to go
beyond the scope, even of your Committee here, as I've outlined
a little bit today. The problem is greater than just your
jurisdiction.
So you're going to have provide leadership, and many
members of Congress have no idea how things are organized or
how they interlink to this problem. So I've spoken far beyond
the time allotted, but did want to make those points, and I
thank you for allowing me to be with you today.
Senator Brownback. Thank you, Congressman Mica. I
appreciate that presentation, and we'll have some questions in
a little bit.
Next we'll call on Congressman Rick White, good friend from
Washington, and who has also been involved in the trade field
from another perspective. And Rick, the mike is yours.
TESTIMONY OF HON. RICK WHITE,\1\ A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WASHINGTON
Mr. White. Thank you, Mr. Chairman, and Mr. Ranking Member.
I will say that I probably feel very much the same way that
soldiers of the Revolutionary Army felt in the late 1700's when
after fighting side by side with General Washington they
finally got to see him become President of the United States.
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\1\ The prepared statement of Mr. White appears in the Appendix on
page 48.
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And to address you as Mr. Chairman gives me very much that
feeling.
Senator Brownback. Oh, boy. You are kind.
Mr. White. I also would like to submit my statement for the
record, and won't make you go through my reading of it. But I
do have just a couple of points I'd like to make. I think we
probably all come from trading States and trading districts.
You know, the trading lanes of Puget Sound go right by my
house, and when I look out of my window at home, every day,
there is a ship on its way to China, or a ship on its way from
Japan coming to the ports of Puget Sound, taking apples or cars
or software or aircraft components in one direction or another.
Trade is very important to my District. It's very important
to our country. It's one of the foundations of our country's
prosperity right from the beginning. Yankee traders are one of
the things that got our country off in the right direction. So
I don't think any of us can misunderstand how important it is
to our economy.
I also think, if we're fair about it, none of us can really
disagree that the way we have organized our trade functions in
the Executive Branch now isn't the way we would do it if just
sat down right now with a blank sheet of paper and tried to
design the most efficient system possible.
As Congressman Mica pointed out, we have these trade
functions parcelled out in many, many different areas of the
Federal Government and the Executive Branch, and that's
probably not the right way to do it.
I introduced a bill last year that would take a small stab
at this problem. It was called the Trade Modernization Act, and
it basically would have consolidated in the United States Trade
Representative's Office most of the trade functions of the
Federal Government, certainly those at the Department of
Commerce, which, as I understand it, represent about 8 percent
of that Department's functions, not really a big percentage of
what they do. It's primarily a statistical function that is
being undertaken at the Department of Commerce.
It just makes sense to me, from an organizational
standpoint, to have those functions consolidated in one
Department of one agency, whose function is limited to
international trade. And I think that would be a big step in
the right direction, just from an organizational point of view.
I will say that the greater issue that we need to address,
and I think Senator Lieberman raised this point, is what is the
role that the Federal Government ought to play in promoting
trade. The quote was a very interesting one, whether it's
enough to sit back and pontificate about Adam Smith.
My own view, though, is that it's not--although we should
be engaged, the way we should be engaged is a little bit more
of an open question, in my mind, than perhaps in some others.
You know, I very clearly remember the year 1989, and the
whole discussion we had about high definition television at the
time. If you recall you could pick up the Wall Street Journal
at that time, and read a lot of hand wringing about how once
again the United States was losing out to the Japanese, because
the Japanese were organized, and they were all focused on one
particular form of high definition television.
And if we didn't adopt a trade policy like that, we were
going to find ourselves once again losing out to the Japanese
in their analog high definition television technology.
Well, the next year, Americans in our system of free
enterprise invented digital high definition television, and
that's why we're now the leaders in that area. And I make this
point simply to say that just because other countries in the
world feel that they have to subsidize their trade, and they
have to take the approach that they take to try to promote
their products overseas doesn't mean that we should give up our
tradition of free enterprise and Yankee trading because usually
if we're doing something right, it triumphs in the end.
And I would ask us to think very carefully about whether we
want a representative of the Executive Branch of our Government
focus simply on promoting trade, or being the salesman for
American products overseas.
My own view, coming from a District that represents Boeing
and Microsoft is that Boeing and Microsoft can do a heck of a
lot better job selling their products overseas than the Federal
Government can do in helping them.
And, really, we don't want those decisions on what products
should be bought to be based on political considerations. We
want to be able to compete in an open marketplace.
So, from my perspective, what the Federal Government ought
to be doing in terms of trade is fighting for open trading
policies around the world. That really should be the primary
function of the Federal Government, opening those markets, so
that our people can get in there and compete fairly in an open
market situation.
Because if we do, we'll win, and our country will prosper.
And I think if we go too far down the road of having the
political side get involved in these transactions, we find that
these decisions get made on a political basis, and frankly
that's not the strongest place where our country can compete.
We've got to compete on merit, on just the commercial
details of a deal. That's my view, and I know it's one that's
subject to some debate, but I think if we reorganize our trade
function a little bit with that in mind, that would help us be
more effective in the right way.
Now, one last comment. Human beings don't like change, and
it's a hard thing for any of us to do. And I think making this
sort of change in the existing administrative framework would
be a difficult thing.
Ambassador Barshafsky was in our Subcommittee yesterday,
and I had the opportunity to ask her some of these questions--
how would they react to giving her department a little more
umph in terms of international trade.
She didn't seem all that red hot on it, just to start off.
So I think we in Congress are going to have to think very
carefully for ourselves about how this ought to be done,
certainly in conjunction with the Executive Branch.
But it's a process that we really shouldn't avoid. I
couldn't agree more with Senator Lieberman, that we need to
take a fresh look at how our policy is organized, try to figure
out a better way to do it. And if we figure out a better way to
do it, we shouldn't let inertia and all our normal resistance
to change stop us from taking those steps.
So having said that, I applaud your Committee in looking
into this issue, and I think with Congressman Mica we would
both be delighted to answer any questions at this point.
Senator Brownback. Thank you both for your testimony and
your thoughtful insight as to what you would do in the bills
that you have put forward on this.
Let me ask you, Congressman White if I could, we look at
this and we say, OK, the real thing that we want to do is open
markets. Would you use the tools that we have now to open those
markets? Is that the way we should do those, or should we drop
back on a number of these tools and say we're only about
opening markets, and these tools really are inappropriate for
government.
I'm thinking of some of the export finance programs. I'm
thinking of some of the export promotion dollars. What would be
your perspective on that in a near term basis?
I think we all would agree that on a long term basis we
should be negotiating internationally through the WTO or other
means to remove all of these tools from the use of government.
And we should just say, this is inappropriate for the role of
government in an international setting.
What would you do on a near term basis until we get those
sort of international agreements?
Mr. White. That's really the crux of the question right
now, and it's one that we have struggled with a lot. I think
there is a role in the current international situation to
finance some of our exports.
I think a lot of our exports couldn't be made if you
didn't have some financing. But I do think our goal ought to be
to minimize that and to eliminate it over time, as you say.
My concern is more the idea of having the Federal
Government be the specific deal closer for certain sales that
might be negotiated in the private sector. That's where I think
we really get ourselves on the wrong side of this politics
versus commercial equation.
And I would just like to see us recognize that if you can
open markets, our companies are likely to succeed. They don't
need help in making the sale, but they do need help in doing
something that a private enterprise simply can't do, which is
to negotiate with another government, and get that government
to compete with us on a fair basis.
Senator Brownback. What do you think about that, Mr. Mica?
Should we be involved in the near term, in export financing?
And I want to add that AID being rolled into a Trade
Department, is a new twist from what I've seen previously.
Mr. Mica. Well, I don't think we have any choice. Just look
at the charts, what our competition is doing in finance, for
example. We must have programs. Ex-Im, there's some proposals.
I think even Mr. Kasich was talking about doing away with Ex-
Im.
And I shudder to think--Boeing, I would imagine many of
their planes--I don't know what the percentage is, but to
compete in this international market you have got to compete on
an equal footing.
My colleague talks about a wonderful world we would all
like to get to. But, you know, you have every day battles, and
we're fighting in the international markets, and we've got to
have the tools to do that.
And, again, I laud his lofty goals, but in the mean time
it's a dog fight. And if our folks are not well armed or
equipped, and they've got government support of these
activities--if it's research and development, they tie all
their aid packages into some economic development package.
I watched us lose Chile. Chile is a great market, one of
the outstanding in South America. And the biggest trading
partner with Chile is Japan. And the U.S. has been zeroed out.
And they have used financing there as a tool.
So we have got to compete. AID had a purpose and a mission,
and I don't want to say AID is all bad. There are very good
programs in AID, and they are programs that should be
continued. But it's role should be dramatically changed.
I think the figure now is 16,000 people in AID, and about
7,000 in Foreign Commercial Service operations.
Senator Brownback. But you would eliminate AID and role the
remnants into trade?
Mr. Mica. I think that AID, its mission has changed. You
may want a smaller, downsized AID in some areas. But even that
mission should be more oriented to helping hand, to conduct
business, as opposed to just give-away programs. Now, there are
going to be give-away programs whether we like it or not.
But if you're going to assign personnel, I would rather
them having working in assisting our companies overseas. If you
all get to travel, go in and see what our Foreign Commercial
Service offices are doing. I do that, and I've traveled all
around the world. And they are ill-equipped. They are
understaffed.
Japan, UK, France, Germany--their embassies have turned
into trade missions. Their goal is no longer just diplomatic.
I will give the former Secretary of State some credit,
because he did begin to start making our embassies aware that
their mission is not just diplomatic. It is also one of
promoting trade. But there is a great variance between
embassies in their capabilities.
So if you're going to have assistance to our folks
overseas, I would rather see the resources there.
Now, communications today has also dramatically changed
access to information, whether it's trade assistance,
promotion, financing. And there are some efforts to put a lot
of this into some type of network that can be pulled up.
Even the private sector has several services where you can
get this information, and may even transcend what we're able to
do in government. But a lot of these folks can't talk to each
other.
I was down in Haiti, and they were looking for some citrus
products or something like that, and they got a Department of
Agriculture person trying to find out this information. I was
in Guatemala. Guatemala, their Foreign Commercial Service
office didn't have a modem so that you could transmit data
information back and forth.
I was in Russia, and we had--you could count all the
Foreign Commercial Service officers in Moscow on one hand. And
the AID building is as big as the Dirksen Building,
practically.
It's funny, because when I went to Moscow, I flew over and
we met with those folks, and I came back, and I turned on the
television. This was a couple of years ago. Things have changed
a bit since then, but on the TV was a broadcaster broadcasting
from Moscow, and he said tonight we're at the biggest trade
fair in the history of Moscow, and it was hosted by the
Japanese.
And here I had just come from our AID give-away mission,
which is our biggest enterprise, and the Japanese were doing a
trade fair. Things like that. And the government does support
these fairs and other things, actually assists businesses into
these markets.
Then what's amazing is if government provides this little
bit of help, then business takes over, and business--our
business can compete. Our business can beat the pants off
anybody. Our workers can produce products. And actually our
products are even sought overseas, but sometimes they aren't
bought. They're sought but not bought, because of the way we're
structured and the assistance we provide. So that's a long
answer.
Senator Brownback. A couple of real narrow questions, and
then I want to turn it over to Senator Lieberman.
Number one, you both fundamentally believe from your
private and public experience and perspective that the current
design of the system is fatally flawed and not producing the
way it should. Would that be fair?
Mr. White. Yes, but I mean fatally flawed may be going too
far. I think we can make significant improvements, and we ought
to try to do that.
Mr. Mica. Very expensively flawed. I always do the cost/
benefit analysis, and they fail.
Senator Brownback. Second question would be, do you both
agree that the primary function should be opening markets
overseas? Or is it promoting our products? Or can you not agree
on the primary function of our trade apparatus?
Mr. White. I was going to say I do think that should be our
primary function. That's the one thing the government can do
that the private sector can't, and I think if we organize
ourselves around the principle that that's what the Federal
Government ought to be doing, that will help us do that job
better than we're doing it right now.
That doesn't mean that for a period of time or recognizing
that we live in an imperfect world, there isn't some promotion
that should take place at the same time. But I just think we
make a mistake if we start to let that cloud our judgment about
what the real role of the Federal Government ought to be.
Mr. Mica. Well, I think that there is a role for the
Federal Government today, maybe for some time in the future,
for trade assistance, trade promotion, trade financing, and
certainly trade negotiation. And the role may vary. It may
change.
So we've got to be flexible, create something flexible. But
I know this is very costly, the way it's now structured. It's
not as effective as it should be, and it leaves a lot of people
behind, and it shouldn't.
Senator Brownback. Senator Lieberman?
Senator Lieberman. Thank you, Mr. Chairman. The discussion
and your testimony have been very helpful. And I appreciate the
questions that the Chairman asked at the end, which show the
consensus here, and I share it.
And that is that we are in a situation now where we do need
to have a trade promotion and financing role, but there is
nothing to be self-righteous about, to put it mildly, or
defensive in terms of trying to do better what we're doing.
I remember early on I got interested in this after I came
to the Senate. I remember meeting with a business in
Connecticut, and they were telling me they had just gone
through a negotiation, a competition, really, for a major
contract abroad. I believe it was in Asia. And they were
competing against a company from Asia and a company from
Europe.
And they said there were simultaneous negotiations going on
between the vendor and these three competitors. And they were
in a room alone. And in the other room was the Asian company,
plus the representative of their finance ministry and their
export financing agency. And the same was true of the European
company. And our company lost the competition.
That memory always sticks with me. So in a way that alters
the terms a little bit. The reality of the market is changed by
the activity of the other foreign governments. So it forces us
to try to help our businesses to compete in that marketplace.
Obviously as time goes on and we can reduce some of those--
and maybe we can--some of those activities by foreign
governments, we can do the same ourselves.
I am interested in what you said about USAID, and it's
something to think about. I haven't visited this topic for a
while, but early on while I was here, there was a movement
which was somewhat successful, and in some ways may account for
some of what we're seeing, what we called tied aid.
We were trying to set up standards where more of the
American foreign aid was tied to business opportunities for
American business as opposed to just giving away, and the whole
notion was that if we helped--well, the classic example--helped
invest with American foreign aid in their telecommunications
infrastructure, then they, whatever foreign country it was,
would continue to come back to American companies to supply and
maintain that structure.
So they are playing a trade support function in that sense,
and I had never thought before about how or whether we might
coordinate that with the other trade functions.
Let me ask a couple of questions. One is, as you know, in
1992, Congress created this TPCC, the Trade Promotion
Coordinating Committee, which has as its goal to do some of the
things that we're talking about here. And I wonder how you
would evaluate its record.
Mr. Mica. I view it, as I said in my testimony, as a band-
aid approach. There are much more fundamental problems. Again,
all these folk want to protect their turf. They are wonderful
people, and some of them do a great job.
But the thing is still dysfunctional. It spends a lot of
money. There is duplication, and there could be some
consolidation. There are many difficult questions in how you
restructure this, from the top all the way down to the bottom.
But it's our responsibility to bite the bullet and to put
it in some order that does a better job, more cost effectively.
And again, that's just a band-aid holding this together.
And what will happen, in some instances the private sector
is leaping ahead. Remember I talked about the communications?
There are some services now that are, in the private sector
they are providing better assistance than the government.
But when the right hand doesn't know what the left hand is
doing in government, you have a problem. Now, they may know,
but they want to protect their turf. So that provides some
temporary, band-aid approach.
Senator Lieberman. So you'd say that we need more than a
coordinating committee?
Mr. Mica. Oh, yes. No question about it. And a coordinating
committee can't do what we have to do, and that is, we've got
to go through and eliminate some of these positions. If you
look at some of the trade assistance areas, too, there is
duplication.
Through some communication, through spending a few bucks
and communicating, you can eliminate many of these positions.
We don't need that information. Putting some of that on line--
we have the capability of hooking up all of our embassies in
the world in instantaneous communications. Now, why can't they
have through that incredible technology that we have in
communications with our embassies have a link for trade and
instantaneous information?
Somebody in Kansas should be able to instantly find out
what the opportunities are in South Africa or in India. Some
little pieces of this are starting to be put in place, but not
in a good fashion.
There are little experimental things out there. But our
role as Congress is to put it together, make some tough
decisions. There have got to be some positions eliminated.
Another one, not in your jurisdiction, is go to an embassy
and start looking at the economic counselors that they have.
These are post-World War II statistics gatherers. I submit to
you today that most of the economic information that they have
is readily available or provided somewhere. So what are they
doing, these economic counselors?
And you will have in some embassies more economic folks
than you will have Foreign Commercial Service folks. And then
gain we look at AID. We look at what we're doing, and tied aid
is very important. Almost every country uses that approach--the
Japanese, the Canadians.
I was in Haiti, and represented some Florida industries
before the fall of the government there, and one of the things
we looked at was having the Florida folks upgrade the
utilities. Because you can't conduct business without
utilities.
And as it turned out, we wanted to have U.S. firms put in
the generating equipment, or work on that. When I came back, as
a member of Congress and went down to ask how's the power
generation project coming, the Canadians had got the project.
Well, the Canadians won the project--it's basically a tied aid
thing. Then they will be putting in the power things. The
telephone polls will be Canadian, the switches, all the
generation equipment.
So these things have a big impact in future business
opportunities, and we need to be devising a system that can
compete and give our folks at least a level playing field.
With that, there is a vote.
Mr. White. We have to go. Let me just comment on this
coordinating committee.
Senator Lieberman. Yes, go ahead.
Mr. White. Which is that it essentially prevents us from
doing what we really should do. It's adding another agency,
instead of really going through and organizing things on an
appropriate basis.
Senator Lieberman. Take 30 seconds, if you would, and
answer for me what I gather is the reflexive question about
your proposal to put all the trade agencies under the USTR. Is
it appropriate to combine both the trade negotiation advocacy,
opening up markets function with the promotion function?
Mr. White. I think so, because the fact is you're kidding
yourself if you think that function isn't consolidated in the
first place. I mean, when we're negotiating with a foreign
country, we're the United States and we're not the U.S. Trade
Representative, or somebody else.
And I think that conflict of interest exists. It's going to
go on whether we have it organized differently, and it really
just gives other countries an ability to play off one agency
against another.
We're really probably better from a functional standpoint
in having one agency responsible for making that particular
decision.
Senator Lieberman. Thank you very much.
Senator Brownback. Thank you very much. Good seeing you
again.
The next panel that will join us is Professor William Lash
from George Mason School of Law. He is an expert on
international trade and business issues. Dr. Ed Hudgins, an
expert in trade and regulatory issues at the Cato Institute.
And Mr. Ed Black, the president of the Computer and
Communications Industry Association, and that's an association,
obviously, very active in export issues.
Gentlemen, we've very pleased that you would join us today.
Sorry if there was a bit of a delay, but I hope you also found
the last panel somewhat enlightening. I think you just heard
from a couple of members of Congress who are some of the
leading thinkers about how we should be reorganizing our trade
functions to get the most out of it.
I was struck by one of their statements that now our
National trade deficit exceeds our National deficit. And
actually I think maybe Adam Smith may have more to say about
that than some others we will see.
But with that I believe we'll start, Professor Lash, with
you. As I said earlier, we can take your written testimony.
Happy to do that. I'd rather have a kitchen table discussion.
You proceed however you are comfortable. Thank you for being
here.
TESTIMONY OF PROFESSOR WILLIAM LASH III,\1\ DIRECTOR OF THE LAW
AND ECONOMICS CENTER, AND ASSOCIATE DEAN OF GEORGE MASON
UNIVERSITY SCHOOL OF LAW
Mr. Lash. Thank you, Mr. Chairman and Ranking Member. I
will refer to my written testimony, but I would also like to
comment on the excellent discussion by the previous panel.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Lash appears in the Appendix on
page 51.
---------------------------------------------------------------------------
I am in partial agreement with both of the previous
panelists. I have long advocated the approach of Senator Roth
and Representative Mica to a unified trade agency. However, I'm
more in sympathy with Representative White's approach for a
limited trade agency.
I also want to preface my statements by saying I am not
here just as an academic, which is always a negative comment in
this town. I am actually an exporter in my free time. I have
never once gotten any assistance from the Ex-Im Bank, OPIC or
the Department of Commerce.
The Department of Commerce's stated role is to promote job
creation and economic growth, sustainable development and
improved living standards for all Americans. Who could possibly
disagree with those statements?
Unfortunately, the Department of Commerce's actual
functions, particularly in international trade, have very
little to do with accomplishing these goals. The trade
functions, people have stated earlier, duplicate the efforts of
other agencies and States, and the private sector, while
engaging in a massive wealth transfer, and showing limited
results.
Secretary Daley has earlier appeared before this body, and
stated that the Department of Commerce will be continuing to
engage in aggressive export promotion. The Secretary stated
they have put $250 million in export promotion, resulting in
over $40 billion in overseas sales. He maintains that advocacy
for American exports is one of the prime responsibilities of
the Department of Commerce, and these efforts are paying off
dramatically, claiming that some $65 billion, including $38
billion in American content exports, were generated from these
advocacy efforts.
Those are very impressive claims made by the Secretary, but
in the words of a popular film today, I ask you to show me the
money. Nineteen agencies, as people have already stated, have
some role in promoting U.S. exports. While the Department of
Commerce controls only 8 percent of this budget.
Despite Secretary Daley's assertion that the Department of
Commerce is at the forefront of trade promotion efforts, nearly
75 percent of export promotion expenditures are made by the
Department of Agriculture.
Regardless of ideology, economists generally agree that
it's virtually impossible to verify these claims of trade
promotion. Even Bob Shapiro, of the Progressive Policy
Institute, and a former economic advisor to President Clinton,
admits there is no economics to this argument. Shapiro
correctly recognizes that what is going on is nothing more than
a wealth transfer of taxpayer monies.But that's at the expense
of industries who don't have the clout. You're simply shifting
things around.
American exports are competitive in global markets because
of the productivity and ingenuity of American entrepreneurs and
workers. It is insulting to the many successful large and small
exports who succeed without federally financed export
assistance.
The fan rooting for his team while watching the game on TV
may take pride in the victory, but he can't be so delusional to
think that he actually scored the winning touch down.
The International Trade Administration, part of the
Department of Commerce, is the home of the Big Emerging Market
Initiative. The ITA will help exporters find distributors,
refine their export strategy, set prices, find language
interpreters, and refine their information needs--everything
but build the product and design for you as well, it appears.
It also assumes that no one else could accomplish these
tasks. Regional banks, consultants, and, dare I say, attorneys,
and chambers of commerce are also capable of filling this role,
and do so on a daily basis.
Information regarding trade leads are generated by industry
groups and private news services. When I mentioned my
industry--I work in the cable industry as director of a cable
network--we get our leads frankly by going to cable shows. The
cable operators from Argentina or Chile are there. Not the
Department of Commerce.
And again it's a minimal expense, because the cable shows
are typically held in places like D.C. and New York. This may
not be true for all industries, but the information is out
there, Senator.
The ITA, frankly, is unfairly competing with private
service providers. At a time when even the poorest of our
citizens are being forced to become more self-reliant, the
Department of Commerce cannot continue to offer these needless
subsidies.
The Department of Commerce, ITA, has also been touting the
effectiveness of the National Export Strategy for the past
several years. The NES, as many of you are aware, targets
specific countries as Big Emerging Markets for export
penetration.
These BEM's are Mexico, Argentina, Poland, Brazil, China,
Indonesia, India, South Africa and Turkey. I don't think any
exporter ever needs the Department of Commerce to tell him that
China and India are big emerging markets. Simply looking at any
book on economics or picking up the Wall Street Journal will
tell you that is where the growth is.
Similarly, the NES targets specific sectors. Under the
BES--I love the acronyms--the Big Emerging Sector initiatives.
These targeted sectors include aerospace, telecommunications,
information technologies, environmental technologies, and
infrastructure industries.
Let's take an area like aerospace. Export finance or export
promotion is not going to be what makes Boeing or McDonnell-
Douglas successful. They will continue their success, and,
again, since Boeing is the number one player in the aerospace
market, and McDonnell-Douglas is number three, you could do
more for these companies simply by relaxing of anti-trust
controls, rather than export finance or export promotion.
I think if you had representatives of these companies
before you, and gave them a trade-off, we'll make this sure
this merger goes through, or we will give you some export
finance, I would be hard pressed to think that they would not
take the former.
The bottom line, Senator, the importance of big emerging
markets and sectors should be made by businessmen, not
bureaucrats. The government has no role in picking winners and
losers, and I'm sure Dr. Hudgins will comment further on that.
As former GATT Director General Peter Sutherland once
noted, once bureaucrats become involved in managing trade
flows, potential for misguided decisions rises greatly. As the
former panel mentioned, HDTV is a stellar example of industrial
policy gone awry.
Also the National Export Strategy, while promoting
subsidized loans and guarantees for exports, will support non-
market, non-finance based considerations in selection of loan
recipients. The NES not only selects based on where they think
there will be growth. For example, environmental technologies
have been targeted for special consideration, not simply
because it's a market with great demand globally, but because a
political decision has been made that we want to promote
environmental technologies above others.
Under this plan, the Department of Commerce will make
export financing readily available to environmental technology
firms, while, quote, identifying suitable markets for
environmental products. This glaring attempt at industrial
policy and managed trade empowers the government to select a
designated sector for market development and subsidization.
I know people always say, we must join the fray and not
spout off Adam Smith. And I was a long detractor of now-Dean
Garten. I hope I have not forced him into academia, though.
But I must point out this constant belief, this mantra of,
everyone else is doing it. If I was an 18-year-old, or a 20-
year-old young man in China or in Europe or Japan, I'd find my
prospects for advancement far less than they are in the U.S.
Obviously this idea of managed trade is not what is leading
productivity and success. At the same time, for everyone to
talk about the great--how we are being overspent by the
Japanese and the Europeans, well, that means we are winning.
Because we're the leading exporter with less money being
spent on export promotion. Obviously they are the ones who are
losing out on this.
Now, getting back to the question of redefining or
reorganizing various trade functions, some of the ITA's
function is informational rather than export finance or
subsidies. These functions can be provided, if necessary, by
other agencies.
For example, overseas commercial attaches should be
detailed to the Department of State. The attaches currently
report to the U.S. ambassador anyway, who is an official of the
Department of State.
I also find that since many States--Kansas, Connecticut,
Massachusetts, to name just a few--have their own trade
promotion activities, with offices in Europe, Latin America and
the Pacific Rim. State governors and officials, even mayors of
large cities--even Marion Barry managed to find his way to Hong
Kong, I believe--routinely travel abroad to promote exports of
their State.
The Department of Commerce should not be duplicating these
efforts. As we seek to shrink big government and return power
to the States, we should extend the same courtesy and model to
export promotion.
The ITA is also actively involved and promotes itself as
the guardian of United States firms suffering from unfair
competition from foreign producers. By this I am referring to
the anti-dumping laws. The Department of Commerce is the
designated administering authority, and conducts the
investigation to determine whether or not dumping is likely to
take place.
The ITC, my former agency, considers the question of
injury. Commerce's role is to determine whether or not the
imports under investigation are sold in the U.S. at less than
fair value. The role of the ITA as a political body, versus
independent agencies like the ITC, is not conducive to an
atmosphere of trust and integrity in our anti-dumping laws.
The Department of Commerce, again, has many functions. So
does ITA. While engaged in market negotiations and export
promotion on the one hand, how could I be perceived as giving
people a fair shake in determining dumping margins? We really
can't underestimate that.
I can tell you from personal experience that the dumping
margin is probably the most important factor in determining
whether or not an affirmative finding will be found.
Since cases are not typically brought by healthy
industries, a sizable dumping margin found by the Department of
Commerce will get you a 75 percent chance of finding an injury.
The bifurcated nature of the investigation can have no
rational, political or economic basis. If the ITC is
determining the condition of the American industry, and the
final question of injury, I have always found it curious as to
why the Department of Commerce was engaged in that
determination.
Other functions of the Department of Commerce, such as
pursuing market access, implementation of the General Agreement
on Tariffs and Trade--GATT--and the World Trade Organization--
WTO--while monitoring trade agreements, can best be handled by
the USTR.
If the USTR is charged with negotiating most of these
agreements, shouldn't implementation be linked with monitoring
of these agreements?
The Department of Commerce, Bureau of Export
Administration, BXA, safeguards our National security by
monitoring and controlling the export of potentially dangerous
dual-use technologies. But BXA is not the sole arbiter on
export control issues. The Department of State has a major
voice in implementing the Arms Control Munitions Act.
Five years ago, an interagency report prepared by the
Departments of Commerce, State, Defense and Energy, recognized
the error of the decentralized control of export regulation.
The report concluded, consolidating these functions under the
appropriate official will provide not only the proper
oversight, but also a more efficient and effective approach for
tracking referred applications and examining export trends.
If export controls are truly a matter of foreign policy,
let BXA join the Department of State, and let there finally be
one voice on export controls. If Congress believes that export
controls are a matter of National security, let BXA and the
arms control function of State be jointly transferred to the
Department of Defense.
BXA is slated to have responsibility for export control
under the Chemical Weapons Convention, if ratified by the
Senate. As a major new export control initiative, this role
would seem more properly suited to the Department of Defense.
A plurality of exporters polled by the U.S. Chamber of
Commerce, indicated that they have seen no changes in export
markets due to the administration's export policies. Export
promotion and finance activities cannot be the dispositive
factor in export success.
Interest rates, currency rates, and infrastructure are far
more significant in determining export success. Similarly, the
Congressional Research Service similarly concluded that U.S.
economic policy and the domestic supply and demand of capital
will continue to determine the level of trade and employment
for the economy.
To boost exports, government relaxation of onerous Cold War
export regulations will be far more successful and frankly less
expensive than relying on government trade promotion.
An estimated $30 billion in increased exports is expected
as we relax export controls on certain computer equipment.
Billions more in exports are exports when telecommunications
sales are similarly eased.
Export promotion activities, be they advocacy, financial
subsidies, or informational, should be left to the States or
private sector. And this notion of governments competing, and
the Department of Commerce as our champion should be frankly
banished to the scrapbook of economic history.
Thank you for your time.
Senator Brownback. Thank you, Professor Lash. I appreciate
that presentation. We'll have some questions later.
Dr. Hudgins, we would appreciate your testimony. The mike
is yours.
TESTIMONY OF EDWARD L. HUDGINS,\1\ DIRECTOR OF REGULATORY
STUDIES, CATO INSTITUTE
Mr. Hudgins. Thanks a lot. I'm going to depart a little bit
from my written remarks, and do as you suggested, to suggest
some general guidelines for how to reorganize the Department of
Commerce.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Hudgins appears in the Appendix
on page 63.
---------------------------------------------------------------------------
First of all, there really are two approaches to trade and
economics. The one that seems to fascinate a lot of people is
typified by MITI in Japan, but I think actually a better case
is found in Western Europe. This is the notion that governments
can help industries directly, pick winners and losers, help in
exports, et cetera.
I point out that in Western Europe unemployment is over
twice as high as in the United States, around 12 percent; job
creation is virtually zero; under-employment is a very serious
problem.
The industries in Western Europe are now becoming non-
competitive. Germany is not building plants in Germany any
more. They're building them in South Carolina, and they're
building them in the Czech republic and lots of other places.
Essentially those corporate welfare systems are collapsing,
and I think if they don't make some major changes, quite
frankly, you will see in Western Europe a slow motion version
of what happened in Eastern Europe--that those systems will
fall apart within the next decade without major reforms.
The notion that we should copy such a failed system I think
is a serious mistake. Japan has a similar system, perhaps not
quite as bad. But again, to the extent that Japan has had
success, it has not been primarily because of their government
promotion policies.
MITI tried to stop Honda from going into the auto business.
MITI tried to keep the Japanese auto makers from expanding the
numbers and kinds of models that they had. If you look at a lot
of the MITI advice, for example, you find that it was a mixed
bag to say the least.
The point is that if we are concerned that Western Europe
and the governments of Western Europe are, as it were, outdoing
us in getting involved in the economy, I would say yes they
are, and that's why they are collapsing.That's why in Western
Europe, unemployment--and everyone unemployed tends to be
unemployed for approximately a year. In the United States it's
maybe two or 3 months.
Their systems are not systems that we should copy. We
should run as fast as we can in the opposite direction.
The other approach is a more market approach, and that's
what I think we should take.
Before we get into detail, the trade functions of the U.S.
Government fall into three categories. One is market openings,
such as negotiating free trade areas, such as the recent
Uruguay Round that created the World Trade Organization. These,
I think, are valid functions of government. They are, of
course, performed principally by the USTR, and while I might
disagree with some of the content of the negotiations, I think
it's a valid function. The USTR does a pretty good job.
The second function that the U.S. Government is involved in
is trade restrictions, that is, preventing Americans from
disposing of their own property, specifically from purchasing
products from other countries.
This, I think, as I say, is an infringement on the
liberates of Americans, and should not be a matter for the U.S.
Government. Unfortunately, we do have trade restrictions.
We have anti-dumping laws, which I consider simply to be
protectionism under a different name. I don't consider the
anti-dumping laws to have any basis in economic theory,
especially when you are not talking about a government directly
helping another industry. We can get into that a little bit
later.
That, of course, is a function that is in part performed by
the Commerce Department and part performed by the International
Trade Commission, and I think it's an unfortunate function.
The third is export promotion, which I will go on the
record of saying I don't think it's the government's business.
Let me give you some of the reasons and concerns that I have
here.
First of all, it is important how we think about trade and
exports. No doubt the Commerce Department members and members
of all the other agencies that we've seen that are involved in
export promotion can point to the fact that they have given
money or assistance to some particular industry, that the
people in that industry have used the money well or prospered
in some way.
But if you drop money out of a plane over Washington,
everyone who picks up money, number one, is going to be glad
they got it, and, number two, they're going to probably use it
for something of which we approve.
That does not necessarily make good public policy. I think
we have to go a little bit beyond that.
There is no indication that I have seen that government
picking winners and losers, either directly through the kind of
subsidies the Department of Commerce passes out, or in terms of
helping exporters is any better than what the private sector
does on its own, and what they could do with their own money.
And we've mentioned the case of the high definition
television. I will remind you that in the 1960's and early
1970's the U.S. Government spent $960 million on a supersonic
transport that we were absolutely convinced we needed to remain
competitive in the world.
Of course, we didn't make a supersonic transport. The
French and the British got stuck with one. They haven't
recovered their development costs. They don't run the thing at
a profit. It was a big flying turkey.
This is the problem with having government involvement.
Now, let's take a closer look at the trade issue. One of the
serious problems I have with how we reorganize trade functions
is that free trade does not become managed trade.
This has been the trend in the last few years. Not where we
tried to get a foreign government to remove a trade barrier
that they should remove, but where we tried to do bureaucrat to
bureaucrat management of trade flows.
For example, the recent complaints about semi-conductors
are to me a key example. What you found is that the
administration argued that because the United States controlled
40 percent of the world market and only 25 percent of the
Japanese market, that indicated that they were doing something
unfair and that they should guarantee us a market share.
Well, you can turn it around and point out that the
Japanese control about 40 percent of the market, just a little
less as well, but only have 20 percent of the U.S. market. So
the Japanese, using the same logic, could say that we are being
unfair.
In fact, in the high valued microprocessor chips, the U.S.
suppliers control something like 70 percent of the Japanese
market. The point is you see a lot of this attempt to use
numbers to manage trade rather than to do what I think the U.S.
Government should be doing, that is, creating free trade and
removing real barriers. That is something I am very concerned
about.
I will make two more remarks. First of all, I want to say
something about the problem of corruption, which has been one,
of course, that Commerce Department has been associated with
recently.
In a sense, you have two forms of corruption. Classical
corruption sees a government official give some special favor
to a citizen, maybe they expedite a license, they give them a
special government loan or contract, in return for some direct
remuneration.
There is another form of corruption that I call
institutional corruption that we see especially in Western
Europe, and unfortunately in this system as well. The corporate
welfare state, by its nature, breaks down the separation
between government and the private sector, between political
and economic power.
Government is expected to help this interest group, this
business, this sector directly. What you get as a result is a
form of institutional corruption that differs from what you see
in Third World countries only in the form of remuneration.
Politicians and bureaucrats will get, of course, political
support. They will get the prestige of helping the people and
so forth. But the mechanics is the same.
So when I hear that the Department of Commerce officials
have been involved in straight out shakedowns of foreign
businessmen, in a sense it doesn't surprise me, because that's
the nature of the system.
And I think that that has to seriously be taken into
account when you look at how to reorganize Commerce and
whether, in fact, you want to copy one of the system that we
see in other countries.
The final thing I will say about reorganization, yes, we
have a lot of bureaucratic sprawl. That's the nature of
bureaucracies. Everybody wants to get involved and show how
they're helping the people. But I'm concerned that when you
reorganize, you insulate the market opening functions that are
currently performed by the U.S. Trade Representative, that is,
negotiating free trade areas and so forth, from some of the
other functions.
It will detract from America's effectiveness and
credibility if the same Department and agency that is saying we
want you to remove a trade barrier is also saying we would like
you to give some special preferences to U.S. goods, we would
like some kind of managed trade arrangement, by the way we
think your businesses are dumping in the American market, and,
by the way, we're also the guys who are handing money or
assistance to some of our businessmen.
I worry that if we mix those functions together, it is
going to take away from the effectiveness of our trade
negotiators. And, as I have said, I don't think we should be
involved in some of those other functions anyway. But that's
the one thing I would emphasize as a guideline in
reorganization.
I will end there and welcome your questions.
Senator Brownback. Thank you very much.
We will now hear from Mr. Ed Black, president of the
Computer and Communications Industry Association, which is very
active in exports.
TESTIMONY OF EDWARD J. BLACK,\1\ PRESIDENT, COMPUTER AND
COMMUNICATIONS INDUSTRY ASSOCIATION
Mr. Black. Thank you very much, Mr. Chairman. I'm happy to
be here. Senator Lieberman, as well. I appreciate this
opportunity to testify. Our industry certainly has a great
interest in global trade, and a lot of involvement.
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\1\ The prepared statement of Mr. Black appears in the Appendix on
page 68.
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We represent a cross section of small, medium and large
companies with both computer, telecommunications, hardware,
software and services backgrounds.
First of all, let me just say I will not give a very long
statement. I will submit it for the record. I have a few
prepared comments to make now, and lots of notes on what people
have said before me to comment on, but I'll hold those.
I believe many others will provide a lot of impressive
statistics to the Committee showing how many new jobs and how
much of our economic growth that we have experienced is related
to international trade, and not just growth totally, but the
amount, the percentage of our economy and the jobs related
thereto.
Our industry is a very globally competitive industry, and
we're growing stronger. Effective competition in global markets
is essential for our industry's health and survival. We're
attracting many competitors, which is fine. We are wary of some
energetic efforts, however, by other governments to bolster our
competitors in ways which might be unfair.
We can succeed, but we do need to have the proverbial level
playing field.
We're also wary of too much government involvement. We
recognize there are areas where government and the Commerce
Department can play a particularly important role, and we
welcome those areas.
We think this is a pragmatic decision that should be made,
not ideological. We want and need a healthy and open global
market place.
We have years of experience, frankly, being critical of
government and Commerce in many areas. But in contrast to some
of the earlier comments that have been made, we don't think the
current system is broken. We are succeeding tremendously, our
companies are, our industry is, and many other industries are
succeeding quite well.
I'll comment on the trade deficit. Comparing it to the
budget deficit is like comparing apples and oranges. The trade
deficit, I think almost everyone will admit, is largely a
function of macro-economics. Right now the vitality of the
American economy is sucking up products both from by U.S.
companies and imports from overseas.
I think it would be very inappropriate to use that as a
measure somehow of the unhealthiness of the trade system and
our structure of government.
We are sometimes nervous when we hear discussion of the
role of government as an enforcer, or regulator or attacker, at
times. But even language calling the government a partner has
made us nervous.
I think we see the need for an ally, and at times a
catalyst and a stimulator. There are things government can do
to leverage limited resources that do have a tremendous pay off
for our economy. We see trade promotion, advocacy and
assistance functions in this light.
We urge that attempts to change structures be based on
making sure that any fixes don't damage the many programs that
are supporting some pretty successful outcomes. ``Penny-wise,
pound-foolish'' is a saying that many in industry admit has
applied to some of our decisions when streamlining.
And we urge government to learn from us. The structure of
government is important. Though many in business, frankly,
don't often focus on structure, our main concern is: Are
important functions being effectively carried out, are programs
helpful or harmful, are programs responsive to the real world
of the private sector?
To the extent that we can save or retarget resources that
are being inefficiently used or redundant, that's certainly
desirable. But it's important primarily that well run programs
be structurally in places where they work.
They can be in different agencies. There is no one magic
formula how to structure. I think it is very important that we
have good communication and coordination between those
different structures.
In that regard, I found the chart that was shown
fascinating. And I have worked with John, and I'm going to have
to get a copy.
But what is important in government that is missing from
some of the proposals relating to structure is location because
of the policy role--not the operational role. It's really the
function of government to be an advocate of different concerns,
and that's where we find the structural differences are so
strong.
I think everybody has mentioned export controls, and I will
come back to that. And that is where policy and function are
tied very closely together.
Over the years we have watched many reorganization plans in
the trade area. We have seen some partially implemented, and,
frankly, many have had a lot of alluring effects.
But under analysis, and sometimes just because of political
pressure, most have wound up losing their appeal, and frankly
if we felt the system was broken, I would be more intensely
involved in finding the solution.
But as I said, I'm not sure we feel--it's not neat, without
a doubt. It's messy. But is it--and I heard dysfunctional. Is
it really? I'm not sure I see the harm. I don't see how it's
hurting us. We are booming. We are succeeding in many ways.
I'm not sure it's broken. Congress deserves no small amount
of credit for the better working of our system, because the
Export Enhancement Act, passed by Congress, created the TPCC
process for coordination. It has worked to a great degree in
taking what was then a very disorganized effort, and making it
into a much more coordinated and cohesive one.
There is always a danger when you have so much diversion
and you start coordinating that you wind up with group decision
making, and as a result have no real accountability. This is an
area I would urge the Committee to stay focused on.
I think it's important that agencies be given principal
responsibility. They don't have to all be in the same agency.
But you do want to know who is responsible for pieces of it, so
that they can be held accountable.
We have to applaud, looking at what's happened the last
several years, what Commerce has done with the Congressional
mandate to coordinate. We think there's been strong leadership,
and from all indications Secretary Daley is committed to
continuing that, and we welcome it.
We think Commerce can lead, but making sure our policies
are aimed at opening markets, promoting exports, enforcing
existing trade agreements, being a strong advocate for the free
enterprise system, with other governments and within our own.
As a country, we need to be able to identify, understand,
respond to developments in global business and developments
undertaken by foreign governments, whether it's bribery,
product standards, technology, financing, or export promotion.
I will end with one area where we have had such long,
historically consistent problems that it deserves mention, and
that is the export licensing, export administration, both
policy creation and licensing.
We have more agencies involved now in the interagency
license review process than we did at the height of the Cold
War. I think accountability has suffered greatly as a result.
The only thing that saved, our industry is that so much has
been finally decontrolled that was not effectively
controllable, that the pinch is not as bad as it used to be.
But there are still areas where that hurts.
There was a reference to BXA possibly being at State or
Defense. No. Please. Don't do that to us.
I'll leave the other points--I'd love to have a chance to
dialogue on a number of the interesting points that have been
raised. Thank you very much, Mr. Chairman.
Senator Brownback. And thank you, Mr. Black, for giving of
your time to come here and speak with us. And since Mr.
Lieberman endured all of my questions at the start of the
earlier panel, I am going to let him go first on this set of
questions here. So, Senator Lieberman.
Senator Lieberman. Thank you, Mr. Chairman. That is very
gracious of you. I did not really consider it to be an
endurance test. But you're nice to let me go first. I
appreciate it.
Mr. Black, you said something that is slightly off the
focus of the hearing, but I found it so intriguing I just
wanted to engage you on it for a moment, which is your caution
to us not to overreact to the size of the trade deficit,
because, as you say--or you're interpreting it as a sign of our
economic strength, which is to say that we are consuming a lot,
including a lot from abroad.
So how do we judge the trade deficit? Does it have any--you
know, we don't like to be in deficit on anything. It's our
nature. It's almost as if we're losing a competition. So what
value does it have to us?
I mean, interestingly, Congressman Mica, I believe, did
exactly what most of us in Congress would do, which is he
talked about the importance of trade, and then he said that we
have a problem. And the indicator of the problem is the trade
deficit.
How would you use the deficit, if at all?
Mr. Black. I appreciate that. I think the deficit has such
a negative connotation as a word. I think that is part of the
problem. And I think somehow over the years we have come to
think of exports as good and imports as bad.
We're in a global business. We import, export, invest,
source all over the place. There can be deficit situations that
can be unhealthy. You need to look at the numbers to see if it
is a sign of some kind of structural weakness.
Senator Lieberman. In our own economy.
Mr. Black. In any economy. You need to look at what we're
doing, and exports and imports are a relevant factor. But a
deficit, per se, depending on which industries are strong, what
your natural resources are, a whole bunch of factors. And a
deficit may not indicate any weakness whatsoever. It may be
just a sign of strength.
The fact that we import things that people want is really a
way of enriching the American public. It's wealth creation.
Pick the classic, VCR's--we don't make them here.
We could shut off all the VCR's and we'd have a positive
impact on the trade deficit. But would we be helping any
American citizen? No. So the numbers themselves are just
misleading. You need to look at what they mean.
What we look at are the overall trade number, and the trade
has grown dramatically. It has fueled our economic growth, and
trade includes imports and exports. It's both.
Most of CCIA's companies are multinationals. On the
computer side, especially, 40 to 50 percent of our revenue
comes from exports. So I think exports are good.
We also are huge importers of products, of components, of
sourcing. It's just too integrated. Global economic trade is
too complex to use simplistic trade deficit numbers which are
real tempting to want to use.
But they should not be controlling. I'm seeing a lot of
head nodding.
Senator Lieberman. You're saying that what we really should
be looking at--and obviously this question of whether the trade
deficit is related to domestic structural economic weaknesses,
but also more relevant is the--if I can put it this way--the
absolute numbers on trade. Are we exporting more, particularly?
Mr. Black. Again, and not saying imports are bad. We can
get that tendency, but we are exporting a lot, and what we're
exporting is a huge percentage of high value manufactured
products. We're not just a natural resource exporter. So it
shows strength.
Senator Lieberman. That's very interesting to me. Let me
come back to our focus here. In your testimony you have
basically taken the if it ain't broke don't fix it. We're doing
well for the reasons you've just stated.
I presume that Mr. Hudgins and Mr. Lash might say that,
yes, we are doing well, but it's not because of the government
support for trade. But I'll come to that in a minute, but let
me ask you if you would for a little more detailed evaluation
of the TPCC, the Trade Promotion Coordinating Committee.
Are there any changes you would make in the apparatus of
governmental promotion, financing for trade?
Mr. Black. Over the years I have probably advocated some.
And I'm not sure I wouldn't still feel that, given the
capability to make changes, I would. I think one of the best
ways, and what I've tried to convey is a structure to think
about it, which is to accomplish positive goals as the core
rationale.
In that context, the way we spend--first of all, what we
spend in this area as a country--and I think some of the
congressmen made the point--it's relatively small compared to
other countries. But even given that as a set number, the way
in which we distribute our resources throughout the trade
bureaucracy is not necessarily a sensible one.
I represent manufacturing interests. But clearly, if you
look at the trade promotion dollars, agriculture which is
important, but nevertheless a more limited part of our economy,
gets a huge percent. And that's a trade allocation issue.
Maybe if there was a structural change so that those
decisions were made in one place, it would force more of a
rationalization. I think that's a big one.
A lot of the others--again, USTR is worthy commenting on,
because it's mentioned so prominently. And it's been really
tempting over the years, and I have toyed with wanting to
combine Commerce and USTR.
But WTR is liked by many in the business community because
it is lean and mean and quick. You can really cripple it if you
start making it run a bureaucracy.
For anyone to not think there is tremendously important
coordination between the Commerce functions of information
gathering, support for negotiations, they worked very closely
with the USTR, they're part of the same effort.
But the USTR people, senior people, very skilled people,
are not burdened with the management of that structure. And I
think it enhances their ability. I'm actually a little nervous
right now. They're getting into the trade enforcement world.
And I'm not sure they should. Stay negotiators.
Senator Lieberman. Let me ask just one question, and I
don't want to burden you, Mr. Chairman, to Mr. Hudgins and Mr.
Lash. Let me really frame it in terms of the anecdote I gave
with this Connecticut company competing with an Asian and
European company. Simultaneous negotiations. They're in the
room alone, the Connecticut company.
The other guys have their finance--a representative of the
finance ministry and export-import bank. And we lose. So what
do we say--what would you say to that American company?
Mr. Lash. Well, it's kind of hard to counsel a person who
loses, and there's a lot of reasons why someone loses. And the
dispositive reason was you were there with a deputy assistant
commerce secretary from MITI, and that's why they got the deal,
I find that argument kind of hard to swallow, Senator.
Senator Lieberman. Well, let me reframe it. My sense of
what they were saying to me was that the reason they lost was
that the other countries, in this case, particularly, were
offering financing for the purchase.
Mr. Lash. There are a lot of private sector financing. I've
done a lot of writing about Ex-Im Bank and export finance.
There is private sector financing available. I think now if
you're talking about tied aid, that's a different story. But if
we're talking purely--and OECD has come out against tied aid--I
think if you want to come out and get aggressive in those
markets, we should bring these two questions to OECD, and bring
the Japanese and the Europeans to the carpet.
And we've been very successful about----
Senator Lieberman. Because of their tied aid.
Mr. Lash. Because of their tied aid programs. And not try
to duplicate that. Now, former Secretary of Commerce Brown was
always advocating more tied aid, saying the way to beat tied
aid is to counter with tied aid. I think the real question is
let's use the mechanisms we have built.
But I think the question of losing out on a particular
sale, or having government financing available, there are so
many regional banks. Twenty years ago, I think you would have a
very good--I think it's an absolutely true story, where there
might be difficulty is getting financing.
But now you've got so many regional banks coast to coast
that have export offices that are willing to help small
exporters--I've had students, second year law students,
obviously not business people, walk in to regional banks and
get export finance, for small products. Fish ponds for Germany,
thinks like that.
So it can be done. The idea of two wrongs making a right is
not true in global business. And it's certainly not true in
other sectors.
Senator Lieberman. Mr. Hudgins, do you want to give a brief
response, and then I'll yield to the Chairman.
Mr. Hudgins. Yes. I agree generally with what Bill has
said. I would just add a couple of other points. In any given
situation, you can point to examples where an American company
might lose out because there literally is a MITI person there
saying, and by the way, we will give you finance or some other
thing.
Perhaps it's cold comfort to say that this does not imply
that it would be an advantageous thing if we could counter
subsidy for subsidy, MITI or any other government form of aid.
That means that we're going to lose out occasionally. We
do, in fact, have most of our companies getting private finance
and doing pretty well in the world market. I would say, by the
way, this also argues for us looking a little bit more at our
financial deregulation here. I've been following also the
issues of banking deregulation that would make it much easier
for us to do certain things that we would like.
Remember, in other countries, they are not burdened by some
of the regulations that we are, in terms of their banking
sector, so I would certainly look to that.
What I don't want to do is create what I consider to be a
failed and failing system that the other countries have in
order to deal with any given case where, yes, unjustly and
unfortunately American companies might lose out because there
is a foreign subsidy of which I disapprove.
By the way, I also think that that's something for a future
World Trade Organization negotiations. I would like to see us
negotiate away the ability of governments to do what our
government does, what MITI does and what the Europeans do. And
I hope that will be on the agenda in the future.
Senator Lieberman. Mr. Black.
Mr. Black. I guess I, as somebody representing businesses,
that's unilateral disarmament. Sorry, we don't want to do it.
We have to play in the world, and we're doing real well. And
academic--I mean, it's ivory tower.
Senator Lieberman. OK. Thank you. Very interesting and
lively discussion.
Senator Brownback. Thank you. Mr. Black, would you agree
with Congressman White that our primary mission on trade should
be opening markets? Or would you disagree with that statement?
Mr. Black. I think it's an essential one. I'm not sure how
beneficial, if you want to try to figure priorities. It is one.
I think there are other important roles, as well, however. And
I think the U.S. Government, again, I'm not trying not to be
philosophical or ideological. I think there are real positive
benefits that come from a variety of government programs and
activities.
Senator Brownback. So you don't have a primary mission for
trade functions?
Mr. Black. Oh, I think opening--when we face closed
markets, they are tremendously burdensome, and yes, they have
got to become very important. We have had a lot of success in
opening many markets. There are limits. We've had a lot of
success. We're very big supporters of what we have done
internationally. And I am not facing the same problems as I
did. I don't mean to say there are no problems out there, but
our companies are not facing the same intensity of closed
markets that we did 15 years ago in many places in the world.
Senator Brownback. So it's one of many needs, is that what
you say? One of equal and many needs?
Mr. Black. It's a very important one, but not the only one.
Senator Brownback. OK. And they would all be roughly equal
in your estimation?
Mr. Black. No. It's hard to subdivide.
Senator Brownback. Here's what I'm driving at, and you can
dispute this, but it seems to me that we in government have
frequently tried to do everything, and we end up doing most
things poorly then.
And I really feel like we ought to do fewer things,
probably as your business community does, but do them better.
So I'm trying to focus in on, OK, what are the fewer things we
should do. But if you dispute that, that's fine. I don't have
any problem with that.
Mr. Black. I really am in sync with your emphasis on
wanting to try to get to a simplified, let's call it one stop
shop approach.
Senator Brownback. No, that's not it. Not one stop shop.
It's one specialized shop doing a very good job, or two
specialized shops. But not 15 doing everything, is what it's
been.
Mr. Black. And I guess I would go to the private sector
metaphor, which is when you do global business as a company,
you don't just do it alone. You go to banks, you go to
accountants, you go to lawyers, you go to freight forwarders. I
might say a freight forwarder is a less important function. The
trouble is you've got to use them. It's an essential function,
even though it's a less important one.
So I guess what I would--I'm not sure I'd say I support the
status quo, and every single program and agency is vital or
important. No, I'm not saying that at all. I'm very willing to
look for unnecessary and inefficient, duplicative programs.
But I'm not starting out with the assumption that they have
no value.
Senator Brownback. Neither am I.
Mr. Black. I know. I'm not suggesting that. I'm just saying
I want to look at them one by one, and not in an abstract
sense.
Senator Brownback. And you're not willing to prioritize.
That's fine. If you would prioritize the functions, it would
help us, but if you're not, that's fine.
Mr. Black. The USTR function, most of the Commerce
functions we find valuable. BXA and export controls are
negative in many ways. The USTR function is very important. Ex-
Im, and OPIC, they're more specialized, but for whom they
serve, they have a great deal of value.
Within the State Department, economic counselors I think
have a little wider role than was described here. I think there
is a danger there of maybe overlapping with the Foreign
Commercial Service, and maybe that's one to look at. I think
the Foreign Commercial Service has an important role there. But
I think there is a different function, and maybe it shouldn't
be allowed to overlap too much, but there is a different
function, and maybe there for State.
A lot of the other agencies who are involved--you've got
Energy--they focus on their narrow piece. I think you could
make an argument that maybe you take the similar functions in
different specialized subject matter agencies, whether it's
Energy, Agriculture, whatever, and put them into a cohesive
group. That's intellectually conceivable, and it might work in
a practical way.
I don't see it as a huge gain. It might work. It might make
sense. I'm just not sure that I don't see--I don't see a
tremendous positive force or gain by doing it.
But I would be open to think about specific possibilities
along that line.
Senator Brownback. OK. If later you want to come back with
a priority list----
Mr. Black. I'd be glad to.
Senator Brownback. That's what we obviously have to do. We
have been spending money like there's no tomorrow, but those
days are ending. And you've been real critical of these
functions in the past. Last year, in the House Commerce
Committee your testimony was very critical of international
trade functions.
You said international trade is an increasingly important
part of our economy, and should be an area where functions are
consolidated, not dispersed. There are significant linkages and
synergies which can result from the various international trade
operations and programs working closely together.
Which perhaps is not inconsistent with what you're saying
today. It would be very helpful to the Subcommittee if you had
a design consistent with this statement and todays testimony,
of how we could pull some of these functions together. That
would help us. Because that's ultimately what we're going to be
looking for.
And I think it would help you folks, too.
Mr. Black. I'd be willing to participate. Over the years,
and in past legislative efforts, we've made that effort. The
difficulty, quite honestly why I am somewhat reserved here, is
that usually they foundered on some very big, important
political rocks.
The agriculture community being the most obvious. I didn't
mean to target them for any reason, but the truth is it's a
very significant--it wants to be treated separately from the
rest of the American economy, and it's got the power to make it
happen.
And as long as you leave that side out of the equation, I
mean, everything else becomes awkward.
Senator Brownback. Well, give us your proposal as you would
create the world if you could do it.
Dr. Hudgins, you were saying that trade opening, that is an
appropriate function of government, but trade restrictions,
export promotion are not? That's basically what you are saying?
Mr. Hudgins. That is correct.
Senator Brownback. The earlier panel, Congressman White
would certainly agree with you. But, it seemed like to me, he
also was saying, we have to use functions two and three to get
to function one. In other words, in today's environment, in
today's world, functions, trade restrictions and export
promotion are necessary until we get trade openings.
And Congressman Mica was basically saying, look, I'd rather
we just do trade openings, but we need these next two functions
to get us there, given the global situation. And Congressman
White was saying, well, I'd rather not, but I think maybe near
term we're going to have to.
What's your response to that suggestion, that if you just
focused trade functions on opening markets, you're going to
need tools two and three to get that done?
Mr. Hudgins. Well, first of all, I would question both. In
terms of the export promotion, again, I've been critical of it,
because I don't think it's the main reason why America is the
world's largest exporter, the world's largest economy, and we
have the highest GDP per capita, I think, than any other
country in the world.
Not because we spend a few million here and a few million
there promoting exports. It's because of the quality of our
products, and it's the kind of system we have. It's those sorts
of things.
In terms of market openings, I don't see that as a good
thing either. I think that the countries that have--actually,
if you take a look at two indexes of economic freedom, one done
by the Fraser Institute in Canada, but in cooperation with Cato
and others; another done by the Heritage Foundation--and both
of those indexes indicate that the countries with the freest
economies are the most prosperous. And I believe the
correlation holds for open markets.
So the point is that the countries that have the more
closed markets are the economies that are crippling themselves.
They are the ones that need free trade in a sense more than we
do. Our markets are pretty open right now.
So I know that the leverage argument is what you usually
hear. Well, we will drop our trade barriers in exchange for
doing the same thing with the others. And, by the way, that
works fairly well with free trade areas. If you have a country
that's really honest about doing on a bilateral basis.
But, remember, I consider that where we do have our markets
closed, we're harming Americans. We're restricting the liberty
of Americans to dispose of their property. We're restricting
the freedom of businesses that might need quicker access to
certain inputs.
So I don't consider it a good thing to withhold freedom
from Americans for this purpose. I think what you're seeing, as
I mentioned in my remarks, is that the global trend is towards
either freer markets, more open markets, and deregulation at
home, or more managed trade, in which point the countries that
try to stay with the old system are going to collapse.
That's going to happen in any case, I think. So while I see
the argument in favor of using our trade barriers to leverage
open other markets, I would say that it should not be made an
essential thing. If we can use them because we have them, and
they are unfortunate, that's fine and dandy. I'm happy to see
it. But let's not push that too far.
Senator Brownback. Mr. Lash, would you care to respond to
that same question?
Mr. Lash. Yes. I definitely believe that opening markets
should be the primary, and, in fact, the sole function of the
Department of Commerce international trade area. But again I
strongly believe it should be shifted to the USTR.
The export promotion activities are at best peripheral. If
you look at the number of corporations that are succeeding in
exports, and case studies, and see that they are doing it
without any help whatsoever from export promotion, but that
what has been important has been market opening initiatives.
And those initiatives which establish an open market for
U.S. exporters are where you'll see the consensus. It's
interesting, this whole debate, on corporate welfare, which I
don't like that term, but it's the term people have been using,
obviously, export promotion.
You'll see everyone from Cato and Heritage joining with
Ralph Nader. And that's about as strange bedfellows as you can
get. But when you talk about market opening, you see a
differing consensus. You see a broader consensus across the
spectrum, and no criticism.
So export promotion is an activity that is hard to find an
advocate for export promotion, unless someone is already on
line for that gravy train. For market access, I think you'll
find that most Americans will say that's an important role.
Mr. Hudgins. I would just add one other thing to follow up.
When you talk about corporate welfare, that is a serious
problem. I also think that the danger, one of the dangers of
using our leverage is managed trade, which as I say is the
drift we seem to be having.
If it's true market openings, I'm 100 percent in favor of
it. If it's managed markets, bureaucrat to bureaucrat, that's
the thing that I'm very concerned about.
Senator Brownback. I would invite the two of you, as I have
with Mr. Black, to design a new Federal trade organization. If
you had a blank sheet of paper, and these assets, how you would
design it today for us.
I want to thank the panel for joining us today. It's been
very illuminating, and I appreciate very much the discussion.
Mr. Hudgins. Thank you.
Mr. Black. Thank you very much.
Mr. Lash. Thank you.
Senator Lieberman. Thank you.
Senator Brownback. The next presenter will be Mr. Timothy
Hauser, deputy undersecretary for international trade at the
Department of Commerce. We appreciate Mr. Hauser being present
here today. I don't know if you've been able to be present to
hear the earlier testimony. We had proposals from two members
of Congress, and then the current panel, looking at the current
design.
Our intent in this hearing is to look at sensibility and
functionality of the trade promotion and export market opening
functions within the Federal Government, and try to make some
sort of sense out of that. We appreciate your being here with
us today and your testimony and the mike is yours.
TESTIMONY OF TIMOTHY J. HAUSER,\1\ DEPUTY UNDERSECRETARY,
INTERNATIONAL TRADE ADMINISTRATION, DEPARTMENT OF COMMERCE
Mr. Hauser. Thank you, Mr. Chairman. It's my pleasure to be
here. Thank you, Senator Lieberman, for joining us. What I
would like to do this morning if I may is to talk basically
about how the Federal Government is organized to help American
firms and workers compete and win in an increasingly
competitive global marketplace.
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\1\ The prepared statement of Mr. Hauser appears in the Appendix on
page 77.
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In particular, I appreciate the opportunity to speak with
you about what the Commerce Department is doing, how we have
focused in recent years on doing it better, and also what we
are doing on an interagency basis to streamline, improve and
enhance the export promotion services we provide for American
business, particularly small and medium sized business.
If I may, Mr. Chairman, I'd like to submit my full
statement for the record and briefly summarize, and then would
welcome your questions and pick up on some of the other issues
you've raised with the previous panel.
Senator Brownback. Without objection, so ordered.
Mr. Hauser. Mr. Chairman, the administration has made it a
top priority to leverage Federal resources and focus our
capabilities to help U.S. firms, both small and large, take
full advantage of business opportunities overseas.
Exporting is not just critical to the United States. It is
absolutely critical to our long term economic growth. In 1970,
the value of trade was about 11 percent of America's GDP. Today
it is about 25 percent.
In 1996, over 11 million jobs depended on exports. By the
year 2000, that number could rise to as many as 16 million
American jobs linked to exports. Over the past 4 years, exports
have accounted for a third of total U.S. economic growth, with
export related jobs growing several times faster than overall
employment.
Moreover, various studies have shown that these export
related jobs pay 13 to 18 percent more than average U.S. wages.
The conclusion is clear: the more we shift into globally
competitive sectors where exports are part of the picture, the
more we will increase our own standard of living. Exports are
fundamental to the health of the U.S. economy.
Our job in the International Trade Administration of the
Department of Commerce is to promote American exports, to help
them build and expand upon this tremendous growth. The
International Trade Administration is composed of four integral
parts, which work together to provide market information and
export promotion services to the business community while
guaranteeing a level playing field for our businesses at home.
And since I know, Mr. Chairman, that you have a particular
interest in management and management issues, let me as I
describe what our program areas do, and frankly having heard
some of the previous testimony, Mr. Chairman, some of the other
panelists may not have had a clear fix on what it is we're
doing, I'd also highlight the efforts we have taken over the
past 4 years within Commerce to do it better.
Our premier export promotion unit is the Foreign Commercial
Service. It consists of over 90 offices across the United
States, and 134 offices, at last count, in about 70 countries
around the world. This is our delivery arm. It reaches out and
provides our programs and services directly to the business
community, whether at home or overseas.
To improve this service delivery, we have in recent years
totally revamped our domestic field network into a series of
inter-connected offices--we call them hubs and spokes--arranged
around the central office that provides full service
information, often in conjunction with the Ex-Im Bank, the
Small Business Administration, local trade partners--whether
they be chambers of commerce or other State government trade
promotion organizations, to get our information out where the
businesses are.
In addition, we have mounted a major effort to combine the
two personnel systems that we had heretofore had. Our
commercial officers overseas are foreign service officers. Our
domestic offices have historically been tapped and staffed with
civil service employees.
We believe to have a fully well rounded, responsive corps
of trade experts. We want to rotate people. A person will learn
the domestic side, in the domestic office. They might have a
tour overseas to cover business transactions from all ends.
That way we increase our expertise to help the business
community.
Our second program area is our trade development unit. It
is a unique source of industry-specific expertise in the
Executive Branch. Trade development works closely with trade
associations, as well as small businesses, to insure that our
programs respond to the needs of the variety of industries, the
full range of industries, in the United States.
With its trade information center, a 1-800 number, we open
our doors to provide trade advice free to anybody across the
country who is interested. In the past 3 years, we have built
up within trade development a very effective advocacy unit,
plugged in across the Federal trade promotion establishment,
plugged in to our agencies overseas, to go to bat when asked by
American businesses, competing in foreign competition where a
foreign government is playing a role.
Our third program area within the International Trade
Administration has been totally refocused over the past year.
Previously known as International Economic Policy, it has been
renamed and refocused on market access and compliance.
The administration has negotiated 200-plus trade agreements
over the past 4 years. We want to work hand in glove with the
U.S. Trade Representative's Office to insure that our
businesses are getting the full effect of those agreements.
Through the market access and compliance unit, which is
arranged on a country and regional basis, and our newly
established, within existing resources--no new money went into
this--compliance center, with a powerful database covering our
major trade agreements, we think we can take a very proactive
role in ensuring that foreign governments provide what they
negotiated to us, whether it's in sectors ranging from autos to
semiconductors to you name it.
Our fourth program area is not part of the trade promotion
apparatus at Commerce, Mr. Chairman. It is our Import
Administration. It provides the very essential service of
enforcing our anti-dumping and countervailing duty laws.
The philosophy is quite simple. By enforcing those laws,
Import Administration defends a level playing field for
American businesses at home. It prevents unfairly traded goods
from disadvantaging our companies in our domestic market, and
in so doing is a powerful support and a basis for our being
able to conduct a free trade policy.
This past summer, we reorganized the Import Administration
to eliminate two levels of management, get people out of
bureaucratic chairs, signing forms, putting them to work on
trade cases, legitimate grievances brought by U.S. industry.
We have also looked at how we process cases. We used to
have two units. One would handle a case through the decision-
making stage. Once an anti-dumping order, our duty was imposed,
a second unit would then pick up on it.
Now, we believe that the people who might work on a steel
case or a semiconductor case from the beginning, will carry it
through to whenever that dumping order is on the books and when
it is ultimately sunsetted. The point being, the same experts,
the same people who know these industries, will be intimately
involved.
Mr. Chairman, the overwhelming majority of the work we do
in the International Trade Administration is aimed at helping
small and medium sized businesses undertake their first, or in
sometimes their second or third overseas sale.
This in turn translates into helping thousands of companies
break into new export markets every year. I put in my written
testimony a number of examples. Let me just highlight one here
in terms of the kind of stuff we do.
Carrier Vibrating Equipment, a Louisville, Kentucky, small
manufacturer of conveyor belt systems has seen its exports grow
from 10 percent to 30 percent of its total sales since 1990, as
a result of aggressive marketing and interest on the part of
the firm.
Government doesn't do this alone. We're partners with the
private sector, as well as direct assistance from the
International Trade Administration's Louisville office. Carrier
has now growing sales in South Korea, China, India, and other
Pacific Rim countries. They plan to add 15 to 20 new employees
to its 100 person payroll right now--again, directly as a
result of this foray into foreign markets.
As I say, there are other examples in my written statement.
I believe the common denominator in each of these success is
the role we have played in providing information and assistance
in foreign markets, something that most of these small
businesses simply do not have the resources to provide for
themselves.
They don't have the money to send a representative
overseas, open up an office. But they can use the resources of
the Federal Government to provide to fill this information gap.
Why are small businesses the key? In looking at some data,
it is estimated that small businesses account for about 25
percent of manufacturing output in the United States, but only
about 12 percent of exports. There is a serious exporting gap,
and concomitant lack of additional jobs that could be filled if
we could help introduce these firms into the foreign markets.
And I think this is at the heart of why we are engaged in
the export promotion business. Now, we don't do this alone in
the Commerce Department, Mr. Chairman. To help ensure that the
entire Federal Government is working together to promote U.S.
exports, Congress, in its wisdom, through the Export
Enhancement Act of 1992, created the interagency Trade
Promotion Coordinating Committee, abbreviated TPCC, gave it a
mandate to review, analyzed, streamline and better coordinate
Federal export promotion efforts.
In response, we developed, at the President's direction,
the Nation's first ever National export strategy. A blueprint,
and we've now gone through 4 years of these reports, to
increasing jobs, and economic growth through exports.
Since its inception in 1993, under Secretary Brown's
leadership--the statute designates that the Commerce Department
chair the TPCC--we have gone through the whole gamut of U.S.
Government export promotion programs, and through our series of
reports can identify a large number of success. Again, largely
aimed at small and medium sized firms.
It wasn't always like this. What we looked at when we were
launching the TPCC early in 1993 was an array of complaints and
problems brought to our attention by the private sector. We
heard horror stories, particularly across the country, of
potential exporters wanting to get information, running around
town.
They would go to a Commerce Department office here for
market access information, trade leads, trade data. Then in the
quest for finance, which is the major concern of America's
small businesses thinking about exporting, they would run
across town and hopefully they could find the Small Business
Administration office.
They may then get diverted through a number of calls to the
Ex-Im Bank or other agencies in Washington. We also heard, in
addition to problems domestically, that our companies were
being increasingly disadvantaged in overseas markets by very
aggressive efforts of our European, Japanese and other trading
partners.
Other countries were using trade distorting tied aid linked
back to purchases from the home country, or other forms of
political and economic pressure on the government side. You
work with our country's firm on this kind of deal, and we'll
work with you on developing an airport, or on private sector
side, the tendency of firms in other countries to engage in
bribery and related practices which are simply illegal in the
United States.
The sum total of all of these practices was the loss of
billions and billions of dollars in potential overseas sales.
Given those conditions, their lack of access to financing,
there was a busy agenda for the Trade Promotion Coordinating
Committee to address, and we believe we're making good progress
in doing this.
What we did, in the best spirit of government reinvention,
was take a hard look at what we did, and in the current budget
climate it was not a look that suggested we should go out and
demand more money. Rather it was a focus on how can we work
harder, smarter, better than anybody else, and leverage what
the government was doing to improve our services.
We have had a fairly impressive list of achievements, Mr.
Chairman, over the course of the last 4 years. Let me just give
you a couple of highlights. We'd be glad to share with you and
your staff our full set of National Export Strategy reports.
One, we have reduced potentially trade distorting tied aid
offers by almost $5 billion annually by refocusing what the Ex-
Im Bank does in this area. Two, within the Commerce Department,
working with the interagency process, we have significantly
liberalized outdated export controls on high technology
products, freeing about $42 billion in exports from licensing
requirements, while still effectively protecting our National
security.
Three, we have created an advocacy center, and an
interagency advocacy network--Commerce, State, the posts and
missions overseas--to work to help our firms win major overseas
contracts. We estimated we have supported about 300 projects
with a total estimated export value over the life of these
projects of about $50 billion.
This was not government doing it alone. We supported the
business community's efforts. But where, on a project, in a
country in the Middle East, the government of France may have
been bringing pressure to bear, the government of Japan may
have been pressing for its companies, we have stepped in as
well to put the support of the U.S. Government behind our
highly competitive firms.
We have only done so when we are asked. We did not go out
and dig up things to do. It is when an American company comes
to us, looks for assistance, meets a full set of criteria we
have prepared, that we will then go to bat for them.
Another major accomplishment has been completing this
National network of export assistance centers to provide one
stop shopping. We have put under the same roof Commerce, Ex-Im
and SBA.
So a company in Columbia, Ohio is not driving around
Columbus. He comes to one office, he gets full service support
for his efforts to go overseas. Last year we estimated that
these centers helped with a total of over 8,000 export
actions--meaning about 4,000 different U.S. firms have been
able to step into foreign markets with our assistance.
We have also, as I have said several times, focused our
efforts on small and medium sized firms, through enhanced
information services, putting information on line, on the
Internet, and looking at our financing mechanisms. We have also
for the first time, working closely with the Office of
Management and Budget, pulled together a comprehensive export
promotion budget to identify how we are spending our export
promotion dollars and ensuring that we do so in the right way
by establishing performance measures to judge their
effectiveness.
This cooperation, this synthesis of the agencies involved
in export promotion is probably reflected--I'll tell you one
other story about a company, Mr. Chairman. A small company,
Bricmont Contractors, in Murray, Pennsylvania, is a small
manufacturer of industrial furnaces.
Bricmont first tapped the Commerce Department in 1992. It
was thinking about a deal in Mexico. They had never done any
international work, but said let's dip our toe in the water of
exporting and see what happens.
The Mexican company required financing, and it turns out
that Bricmont's competitors in this particular deal, the
Germans, the Italians and the French, were all assured export
financing from their governments. We, through the interagency
network that we have set up under the Trade Promotion
Coordinating Committee, introduced them to the Ex-Im Bank and
the Trade And Development Agency, which provides grants for
feasibility studies, to help our firms get into foreign
markets.
Bricmont got the necessary financing, they got the deal in
Mexico, and since then they have expanded--they have already
now done $10 million worth of contracts in Korea, in India.
They are looking at opportunities in Europe and Russia.
The company has gone from a position where none of its
business in 1992 was export drive to the point where it's 60
percent now. Again, government didn't do it. The aggressive
management and sales force at Bricmont did, but we provided
some help along the way.
Let me briefly conclude, Mr. Chairman, with what we're
looking at on our agenda for the coming year. In our last
report to Congress, we highlighted a strategy to respond to one
of the greatest problems we are facing in world market--the
practices our competitors use, legal and illegal, to succeed in
the fastest growing economies.
One example is trans-national bribery. Since 1994, we
estimate that bribery has been used by foreign firms in at
least 139 international commercial contracts, with a value of
about $64 billion. Through the TPCC, we developed a strategy to
reduce these practices, because out of these 139 contracts, we
can document that the U.S. lost at least 36 as a result of
foreign bribery.
So we now have initiatives in the multi-lateral development
banks, in the World Trade Organization, in the Organization for
Economic Cooperation and Development to eliminate the practice
of bribery.
In some countries it's still a tax deduction, a legitimate
tax deduction. We also want this criminalized. We want to raise
the world to our standards so our companies compete on a firm
footing.
Another emerging area of incipient trade barriers which
inhibit American exports is the use of commercial standards.
Here the response has been our attempt to negotiate mutual
recognition agreements. Otherwise, European country may go into
a developing market like Saudi Arabia, introduce a European
standard for a particular electrical device--the three plug
standard. Our companies are permanently disadvantaged, because
we still do things on a two plug standard.
We want to eliminate this competitive advantage other
countries are setting up by providing technical assistance to
countries developing standard systems, and working to
internationalize standards so that we can all participate.
On another front, we are moving forward on new finance
mechanism for small business. Last year, the Ex-Im Bank and SBA
launched two initiatives to improve the ability of small
businesses to obtain trade finance, and we will be following
through on them this year.
Senator Brownback. Mr. Hauser, I think Mr. Lieberman's
going to have to leave here in a minute, so if you could
summarize here quickly, we'd appreciate that.
Mr. Hauser. I will, Mr. Chairman. I will conclude with the
point that our competitors are investing more and more of their
resources to help their firms succeed in these critical
markets.
Let me give you one last number. In 1995, as a proportion
of GDP, the United States spent 3 cents per $1,000 of exports,
while France spent 18 cents, and Canada 33 cents. I'm sorry,
per $1,000 of GDP, on their export promotion efforts.
We need to work harder, smarter to meet this foreign
competition. We believe that we must continue to streamline and
improve our services, and develop new strategies to meet the
foreign competition.
I will stop at that, that our mission basically is where we
started--exports and job creation.
Senator Brownback. Thank you, Mr. Hauser. Senator
Lieberman?
Senator Lieberman. Thank you, Mr. Chairman. I have two
things, one is to thank you for your testimony which I think
has been very helpful, and comprehensive, and shows how much
progress we've made.
You made an interesting point which I took to be the answer
to the charge about winners and losers, that basically the
Commerce Department is not making choices. The Commerce
Department is responding to requests from American businesses
that see a market opportunity in trying to help them achieve
that market opportunity, and obviously I presume making an
evaluation yourselves about the opportunity.
The question I would like to ask, and I really, with
apologies, am going to ask you if you would answer this just
for the record, because I regret I can't stay. Picking up the
spirit that you evoked about more streamlining, which is how,
and acknowledging that you feel that the TPCC has been very
helpful, as you've documented, how do you respond to the
statement that 19 agencies across the government is a lot of
different agencies in a lot of different places, supporting the
trade function.
Isn't there a better way to organize this? Maybe you might
say it's in Commerce. Some others here have said it would be in
the USTR. But do we continue to gain by that multiplicity of
places?
And then I suppose the second question, if you would answer
for the record, is what you would change if you could change,
about the way we're spending the money.
I think the whole tone of this hearing is not that the
government should leave the field, but how can we more
effectively and more cost effectively be players in the field
of international trade.
Mr. Hauser. I would be happy to respond to that.\1\
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\1\ The questions and responses of Mr. Hauser appears in the
Appendix on page 00.]
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Senator Lieberman. Thank you, Mr. Chairman, for your
kindness.
Senator Brownback. Thank you, Senator Lieberman. I
appreciate that very much.
I, too, may have to just submit a couple of questions in
writing, unless you have specific answers for some of these
questions.
Thank you for your testimony, and thank you for your
thoroughness in going through these functions. We are wrestling
with some key issues here.
Do you have macro numbers of what has happened as a result
of U.S. Government investment in export promotion? You cited a
number of anecdotal situations of companies you have helped,
and I while I don't doubt that they've done very well with you
support. But what I am curious about are macro numbers.
Your investment, our investment, the taxpayer's investment
in the U.S. export promotion program has yielded what
percentage increase in our exports, or total export dollar
increase? Do you have that number available?
Mr. Hauser. Mr. Chairman, and I realize your time
constraint, as I mentioned, in the TPCC, we have, through OMB,
developed a trade promotion budget. We're trying to, consistent
with the will of Congress and the Government Results and
Performance Act, develop performance measures.
For 1995, we spent about $3 billion on export promotion. We
believe that that effort resulted in U.S. export sales of about
$68 billion. These are measures in flux, Mr. Chairman. I would
not tell you that they are letter perfect to the fourth decimal
place, but we believe data like that show that we get a very
healthy pay back for the taxpayer's dollars.
Senator Brownback. But for the investment of this $3
billion, that $68 billion in sales would not have occurred?
Mr. Hauser. Again, Senator, it's so imprecise that I would
not say precisely but for, but I would say we believe we played
a significant role in contributing to.
Senator Brownback. OK. You mentioned Canadian and French
investment in export promotion at the end of your testimony.
Could you produce for us macro numbers on the increase in
exports--their percent of export increase--over the past 5
years as they have increased their export promotion?
And here is what I am getting at. You're citing basically
Western European industrialized country models as they have
increased their investment in export promotion. Now, I am sure
you would say, then, or I hope the data shows a concomitant
increase in then in their export over and above what it would
have normally been.
I would like to see that compared to China's export
promotion budget over the last 5 years and their increase in
exports that they have taken place. I mean, have the Chinese
gone like this, investment in export promotion? And is that the
reason that they are getting increases in sales?
Because that really goes to the comments of an earlier
panel, they said that basically this is a corporate welfare
system in Western Europe and we would be hard pressed to follow
that model.
I want to see what are the macro numbers associated with
that. Because as you look at our own macro numbers, here, I was
looking, 1993, total spending on Federal trade promotion, since
1993, total spending on Federal trade promotion has fallen by
45 percent, U.S. Government, while exports over the same period
have risen by 21 percent.
And 13 percent better than the overall economy. So while we
have been spending less on export promotion investment, our
export sales have been going up.
I think most of us would think, now, this is more a
function of overall economy, overall competitiveness of our
businesses. You'd probably agree with that. Our businesses have
been fighting hard lately, and you provide a valuable role for
a number of businesses.
I've been in this business before. I was secretary of
agriculture in Kansas. I've worked with people in export sales,
internationally. I used to work at the U.S. Trade
Representative's Office. I've been on the Ex-Im Bank Advisory
Board for 2 years.
I've been in this and I've seen this. Still, my great
suspicion is that if we gin up our economy and do things better
here that we get far more in exports than if we invest another
dollar in export promotions.
That's my great suspicion. And I would like to see macro
numbers that dispute that, if you have those, or that support
that--I would appreciate those as well.
Mr. Hauser. Mr. Chairman, we'll take a look. Obviously as I
mentioned we are in the initial throes of being able for the
first time to catalogue what we're doing and looking at what
the possible effects are.
Getting the data on foreign spending is something that we
have been pursuing for several years. I will see what we have,
but I fear we could not have a trend line that might be
directly correlated to outputs.
But we will look at it, Senator, and get back to you.
Mr. Hauser. Let me address another point, though. I think
implicit in your statement, one, yes, obviously macro forces
are a major determinant of export sales. Growth abroad, lack of
growth abroad, opening of foreign markets, which is something
we work on on the policy side, something you would remember
from USTR.
The point is not that we're looking for more resources,
given the current budget climate. The fact that our export
spending has declined is very much a result of the current
budget climate. We all realize there are constraints on what
we're doing.
So what we're looking at is ways to work harder, work
smarter at the margin to maximize what we get out of the
limited money available for export promotion.
And it was a phrase the late Secretary Brown always used:
to not do so would be unilateral disarmament, given what other
governments are doing. One of the wry ironies of the U.S.
having come up with a focused export strategy, we looked at
what the competitors were doing.
We can't emulate them. There is not that kind of money.
There are conflicting program priorities, but as we have become
more aggressive, we set up an advocacy center, we opened some
offices overseas that small businesses can use, all of a
sudden, the Europeans are back looking at our owners manual.
If we can open an information center in China, the
Europeans will come in and focus on one. They saw Ron Brown,
Mickey Kantor taking trade missions, they've heightened their
attention to it.
The bottom line is, and we'll try to quantify for you sir
as best we can what they're doing. They are doing it and that
is something, the involvement of other governments, that a firm
on its own cannot counter. That is the legitimate role of
government.
Senator Brownback. Well, I am just asking are the Europeans
the right model to follow, or are the Chinese the right model
to follow.
And that is why I'm asking you for macro numbers. If at the
same time that we have reduced our export promotion investment,
the French and Canadians have increased their export promotion
investment, I would like to see what their export sales have
done during that same period of time relative to what ours did.
Mr. Hauser. I would suspect, sir, and we will look at it,
that there is probably not definable numbers with regard to
what China is doing. Part of China's obvious export success in
this fantastic growth is we have a fully open market. Their
stuff is coming in. We are getting China to be our second
largest trade deficit, an issue that my boss, Stu Eisenstat,
raised when he was in China a couple of weeks ago, an issue the
Vice President will take on.
The Chinese market is not open. There are tremendous
restrictions, including the right to get in to try to trade
there to begin with. So a lot is coming in. We want to level
the playing field to ensure that we get our goods into China
and enforce our agreements.
For example, last year we concluded the Intellectual
Property Agreement, again because the Chinese were not living
up to the terms of the previous agreement. So there are other
factors contributing, Senator.
Senator Brownback. I think the other factors are
significant. And if you could provide a written response, I
would appreciate your analysis as to which would do more for
our exports, cutting capital gains in half and indexing them
for inflation, or investing in export promotion. That would
seem to me to be something the Department of Commerce would be
very interested in analyzing.
If you have a macro analysis on that I'd love to see it.
So thank you very much. I do appreciate your time and your
willingness to present. We are going to be taking a very hard
look at this, and where we actually get the greatest yield for
these dollars. I appreciate it very much.
Mr. Hauser. We appreciate your interest, Mr. Chairman, and
we would be pleased to work with you on it.
Senator Brownback. Thank you very much. The hearing is
adjourned.
[Whereupon, at 11:56 a.m. the Subcommittee was adjourned.]
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