[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
 A RECORD TRADE DEFICIT, HOW CAN THE U.S. GOVERNMENT PREVENT A LOOMING 
                             TRADE CRISIS?

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON CRIMINAL JUSTICE,
                    DRUG POLICY, AND HUMAN RESOURCES

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 25, 1999

                               __________

                           Serial No. 106-95

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
63-185 CC                   WASHINGTON : 2000




                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
JOHN T. DOOLITTLE, California            (Independent)
HELEN CHENOWETH, Idaho


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                      Carla J. Martin, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Criminal Justice, Drug Policy, and Human Resources

                    JOHN L. MICA, Florida, Chairman
BOB BARR, Georgia                    PATSY T. MINK, Hawaii
BENJAMIN A. GILMAN, New York         EDOLPHUS TOWNS, New York
CHRISTOPHER SHAYS, Connecticut       ELIJAH E. CUMMINGS, Maryland
ILEANA ROS-LEHTINEN, Florida         DENNIS J. KUCINICH, Ohio
MARK E. SOUDER, Indiana              ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio           JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
DOUG OSE, California

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          Robert B. Charles, Staff Director and Chief Counsel
              Andrew Richardson, Professional Staff Member
                          Amy Davenport, Clerk
                    David Rapallo, Minority Counsel
                    Micheal Yeager, Minority Counsel



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 25, 1999...................................     1
Statement of:
    Chimerine, Dr. Lawrence, senior vice president and chief 
      economist, Economic Strategy Institute; Howard Lewis, vice 
      president, economic policy, National Association of 
      Manufacturers; Reginald Brown, director of marketing for 
      the Florida Fruit and Vegetable Association; and Barry 
      Solarz, vice president for tax & trade, American Iron & 
      Steel Institute............................................    44
    Copps, Michael J., Assistant Secretary for Trade Development, 
      Department of Commerce; and Johnnie E. Frazier, Acting 
      Inspector General, Department of Commerce..................   108
Letters, statements, et cetera, submitted for the record by:
    Brown, Reginald, director of marketing for the Florida Fruit 
      and Vegetable Association, prepared statement of...........    73
    Chimerine, Dr. Lawrence, senior vice president and chief 
      economist, Economic Strategy Institute, prepared statement 
      of.........................................................    48
    Copps, Michael J., Assistant Secretary for Trade Development, 
      Department of Commerce, prepared statement of..............   113
    Frazier, Johnnie E., Acting Inspector General, Department of 
      Commerce, prepared statement of............................   129
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................    16
    Lewis, Howard, vice president, economic policy, National 
      Association of Manufacturers:
        Prepared statement of....................................    66
        Understatement of Export Merchandise Trade Data..........    95
    Mica, Hon. John L., a Representative in Congress from the 
      State of Florida:
        Chart on TPCC agencies...................................     4
        Prepared statement of....................................     7
    Mink, Hon. Patsy T., a Representative in Congress from the 
      State of Hawaii, prepared statement of.....................    12
    Solarz, Barry, vice president for tax & trade, American Iron 
      & Steel Institute, prepared statement of...................    79




 A RECORD TRADE DEFICIT, HOW CAN THE U.S. GOVERNMENT PREVENT A LOOMING 
                             TRADE CRISIS?

                              ----------                              


                        THURSDAY, MARCH 25, 1999

                  House of Representatives,
Subcommittee on Criminal Justice, Drug Policy, and 
                                   Human Resources,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:07 p.m., in 
room 2247, Rayburn House Office Building, Hon. John L. Mica 
(chairman of the subcommittee) presiding.
    Present: Representatives Ose, Mink, Kucinich, Cummings, and 
Tierney.
    Staff present: Sharon Pinkerton, deputy staff diretor; 
Andrew Richardson, professional staff member; Glee Smith, 
counsel; Amy Davenport, clerk; David Rapallo and Michael 
Yeager, minority counsels; Courtney Cook, minority staff 
assistant; Jean Gosa, minority staff assistant; and Andrew Su, 
minority research assistant.
    Mr. Mica. The meeting of the Criminal Justice, Drug Policy, 
and Human Resources Subcommittee will come to order. I would 
like to welcome everyone this afternoon for our hearing 
entitled, ``Record Trade Deficit: How Can the U.S. Government 
Prevent a Looming Trade Crisis?'' I'd like to open with some 
comments, and then I'll be pleased to yield to our ranking 
member. We'll go ahead and proceed. I think our other members 
will be joining us shortly.
    I'm pleased again to extend a welcome to everyone today to 
discuss what I believe is one of the most critical topics, that 
is the U.S. trade deficit. The U.S. balance of trade which has 
long been ignored has reached alarming levels. I view this 
trade imbalance as one of the most critical issues facing our 
subcommittee, which now has oversight jurisdiction of the 
Department of Commerce, the U.S. Trade Representative's Office, 
the Export-Import Bank, the Trade Development Agency, and the 
Overseas Private Investment Corp.
    The end of the cold war and the resulting globalization 
have created a world in which trade issues have never been more 
important and are increasingly defining our global 
relationships. With a record high trade deficit, this is 
certainly an appropriate time for Congress and this 
subcommittee to begin exercising our oversight responsibility 
in this critical area.
    The news reports of banana wars, beef battles, and steel 
dumping cases clearly show the damage that occurs unless the 
U.S. Government is vigorous in advocating for U.S. commercial 
interests. The United States must reexamine its approach in 
order to aggressively promote exports while also taking steps 
to ensure complete enforcement of our laws against unfair trade 
practices.
    This hearing has been convened because I believe the 
current wave of global turbulence is beginning to hit our 
shores. The crisis of collapsing currencies which started in 
Asia has spread to Russia and Brazil. The United States should 
be a winner in the global economy, not a loser. Instead, in 
1998, the trade deficit reached a stunning all time high of 
$233 billion.
    This is a 50 percent increase over the previous year's 
deficit. Commerce Department officials have predicted that our 
1999 deficit could reach $300 billion. These numbers should 
serve as a wake-up call for the U.S. Government to do more to 
prevent what could be an impending disaster.
    Year in and year out, we are consuming more than we 
produce. Every year, billions of dollars go abroad and more and 
more foreign produced goods capture our markets. I don't 
believe this situation can endure without some serious 
consequences. Now, I realize that many of the economic 
indicators, such as unemployment and inflation, are positive, 
but this rosy picture also has some thorns.
    Recently, Alan Greenspan issued a warning about our soaring 
trade deficit. Let me quote him. He said, ``The widening of the 
current account deficits has some disquieting aspects, 
especially when viewed in the long term context.'' He then 
warned that our own currency is endangered by the continued 
deficit.
    The United States was once the world's greatest creditor 
nation. Now, we are its greatest debtor. In 1998, the American 
personal savings rate fell to a post-war World War II low of 
half a percent of disposable income. We spend 99.5 percent of 
our after tax income, according to a Newsweek article that was 
recently published.
    Another area of concern is manufacturing. There are now 
more Americans in government than in manufacturing jobs. Almost 
15 million jobs have been created since 1992, but only 4.3 
percent of these 629,000 are in manufacturing. Almost all the 
rest are in service industries and government.
    Perhaps the most disturbing element of the recent trade 
numbers issued by the Department of Commerce is that U.S. 
exports have actually fallen for the first time in 13 years. In 
the past, exports have been the engine of our economic growth. 
In the United States, 1 in 10 American workers owes his or her 
job to exports. On average, manufacturing jobs in companies 
that export pay at least 15 percent more than other 
manufacturing jobs, and also provide better benefits.
    In my previous private sector work, I assisted businesses 
in pursuing international trade opportunities, and I know how 
important these markets are to keeping business healthy and 
profitable. This work provided me with a good vantage point for 
seeing how competitive the international market is, and how 
important it is for U.S. business to know that the U.S. 
Government is an effective advocate for their products and 
services.
    In the 103d and 104th Congress, I joined Senator Roth in 
introducing legislation to create a Department of Trade. The 
goal of that legislation was to reorganize the 19 different 
Federal agencies with trade responsibilities into a single 
coherent Trade Department. This department could focus solely 
on the business of trade instead of being distracted as our 
Department of Commerce is now with the Census Bureau, Weather 
Service, and other activities that detract from what I think 
should be their primary purpose. Much of that legislation 
passed the House during the 104th session of Congress. The 
Senate did not pass the measures.
    I believe there is still much that can and should be done 
to reorganize our Nation's trade functions in an effort to 
better assist our U.S. companies as they compete overseas.
    [Chart shown.]
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T3185.001
    
    Mr. Mica. I have a chart that I used then to show the 
different agencies, 19 different Federal agencies and their 
principal bureaus, involved in trade promotion. It is, in my 
opinion, a design for disaster. It really doesn't accomplish 
what we could with the $2 billion-plus we will spend this year 
on this effort. And it is done in a disjointed fashion.
    The Trade Promotion Coordinating Council has remedied some 
communication problems, but administratively and functionally 
this is still a disaster. Without objection, we'll make a 
smaller copy of that as part of the record.
    Of course, while exporting more will certainly improve our 
deficit, we have to make sure that our laws against dumping are 
also rigorously enforced. The majority of our machine tools, a 
quarter of our steel, a third of our automobiles, and more than 
half our textiles are now foreign made. Why? A tidal wave, a 
tsunami of imports from Asia has, in fact, been hitting our 
shores. When all those cheap manufactured goods pour in, our 
own manufacturing base suffers.
    This is already happening in the steel industry, which has 
recently suffered almost 10,000 lost jobs. Not because the 
steel industry is inefficient. In fact, since the 1980's, the 
steel industry has poured $50 billion into modernization. The 
U.S. steel industry is more environmentally sensitive than its 
global counterparts. Yet, their work force shrunk by over two-
thirds during the last 25 years.
    Why? Because Russia, Japan, China, South Korea, Brazil, and 
Indonesia are all illegally dumping steel into our country to 
save their own steel industries. To add insult to injury, four 
of these countries are being bailed out of the crisis with IMF 
money, International Monetary Fund loans supported by our own 
U.S. tax dollars.
    Well, I strongly believe in free trade, but I also believe 
that free trade must be fair trade. Our two top deficit trading 
partners are Japan, with a $66 billion, and China with a $57 
billion surplus. These two countries alone represent half of 
our entire trade deficit. Clearly, the United States must 
develop a strategy to deal with these two countries.
    Part of the problem is explained by the fact that both of 
these countries erect unfair trade barriers. They are running 
huge trade surpluses at the expense of the United States while 
denying the United States, its companies and businesses access 
to their own markets. Even now, the administration is shaping a 
deal to have China enter the WTO, the World Trade Organization, 
and under favorable conditions to China. Our trade deficit with 
China is $1 billion a week.
    China, despite being the most populous country in the 
world, shows no signs of becoming a purchaser of United States 
goods. While China accounts for less than 2 percent of our 
global exports, the United States has been purchasing over 30 
percent of China's exports.
    January trade numbers demonstrate this problem. Exports to 
China in January totalled $779 million. That's down from $1.3 
billion in December 1998. This compared to China's imports to 
the United States during the same month of $5.56 billion.
    In other words, the ratio of United States/China imports to 
exports was 7 to 1 in January. We sell less to China than we do 
to Singapore which is a very tiny country, a small land area. 
We are, in fact, vulnerable to this situation. We get our 
competitive clocks cleaned when we conduct business in this 
manner with unfair trade practices and allowing one-sided trade 
agreements.
    The record deficit is certainly a result of imports 
outpacing exports. Today, we'll hear what's happening on both 
sides of that equation. Clearly, the U.S. Government must do a 
better job in addressing these critical issues if we are to 
prevent what I consider to be a potential trade meltdown. 
Today, we'll hear from Mr. Larry Chimerine, chief economist at 
the Economic Strategy Institute, about why the trade deficit 
matters and what the implications of a sustained trade deficit 
are for our country.
    Mr. Howard Lewis, vice president for economic policy for 
the International Association of Manufacturers, will comment 
about how our current trade situation has impacted 
manufacturers, and provide some suggestions about how the 
Federal Government can work more closely with the private 
sector to promote trade.
    We'll also hear from Mr. Reginald Brown, director of 
marketing for the Florida Fruit and Vegetable Association, and 
Mr. Barry Solarz who is vice president for tax trade for the 
American Iron and Steel Institute. He will outline how trade 
deficits and trade policies have injured their industry.
    Finally, we will hear from Assistant Secretary for Trade, 
Michael Copps, from the Department of Commerce, about the U.S. 
Government's role in promoting U.S. exports around the world. 
We'll also hear some recommendations from the Department's 
Inspector General, Johnnie Frazier, as to how the Department 
could more effectively do its job.
    Excuse me for that lengthy opening statement, but I wanted 
to get that on the record. I'm pleased now to recognize the 
distinguished ranking member, Mrs. Mink from Hawaii.
    [The prepared statement of Hon. John L. Mica follows:]
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    Mrs. Mink. Thank you, Mr. Chairman. I, too, want to join 
you in welcoming our distinguished witnesses for this 
afternoon. This subcommittee has oversight jurisdiction over a 
number of trade-related Federal agencies. It's important that 
we exercise this jurisdiction, which the House has granted to 
this subcommittee, and do whatever we can to ensure that laws 
that have been enacted and agencies that are operating to 
enforce these laws to promote our interests are working 
effectively. That is the responsibility of this subcommittee.
    I would like to yield the balance of my time to my 
colleague, Congressman Dennis Kucinich, for remarks he would 
like to make at this point in the record.
    [The prepared statement of Hon. Patsy T. Mink follows:]
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    Mr. Kucinich. Thank you very much, Mr. Chairman. Thank you, 
Mrs. Mink. Mr. Chairman, I thank you for calling this hearing. 
It's an extremely important topic. And you know, we all know, 
that Japan makes cars and that many Americans like to buy them, 
right? Well, the fact shows up in the trade deficit data, of 
course.
    But did you know that the same data show that Americans 
like to buy Canadian cars more than Japanese cars, and Mexican 
cars somewhat less than Japanese cars? Canadian cars? Mexican 
cars? Of course, there are no identifiable Canadian and Mexican 
brands of automobiles. So why the trade deficit data shows that 
Americans are importing more cars from Canada and Mexico than 
we sell to the Canadians and Mexicans? Those cars carry 
American brands, but they are now made in Mexico and Canada.
    The reason, members of the committee, is NAFTA, the North 
American Free Trade Agreement with Mexico. Since the North 
American Free Trade Agreement was passed, the United States 
trade balance with Mexico has gone from a surplus, where the 
United States sold more to Mexico than it bought, to a deficit.
    Mr. Chairman, a critical factor explaining this phenomenon, 
that this hearing is to probe, is NAFTA. Before NAFTA was 
implemented in 1994, the United States had a positive balance 
of trade of goods and services with Mexico. According to 
Department of Commerce data, in 1992 the United States trade 
surplus with Mexico was worth $5.4 billion. In 1997, 3 years 
after NAFTA the United States had a trade deficit with Mexico 
of about $19.5 billion. According to the United Auto Workers, 
three quarters of the U.S. trade deficit with Mexico is 
attributable to the auto sector.
    Go back to the example, then. What NAFTA did was make it 
easier for United States auto companies to close their American 
operations and to reopen them in Mexico. Today, U.S. auto 
makers frequently make vehicles in this way. An engine is 
manufactured in a plant in Ohio, then it is sent to Mexico for 
assembly in a truck. That counts as an export from the United 
States to Mexico. The fully assembled truck is then sent back 
to the United States, and that counts as an import from Mexico. 
The value of the assembled truck is greater than the engine, so 
balance of trade in this vehicle is in deficit. It adds to the 
U.S. trade deficit.
    At one time, the engine would have been sent from Ohio to 
Michigan where it would have been assembled into a truck in the 
United States and the production of the truck would not have 
added to the trade deficit.
    Now, this raises an important point. When Ohio produces an 
engine that is shipped to Mexico, the Department of Commerce 
considers that an export. And it is widely believed that all 
exports are good. But this case shows the fallacy of that 
proposition.
    Ohio's export of an engine to Mexico occurs because the 
assembly plant in Michigan was closed and reopened in Mexico, 
causing a loss in United States jobs. This export represents a 
deterioration of the U.S. economy. Auto companies choose to 
close their United States operations and reopen in Mexico 
because wages are so much lower there, because unions are not 
independent, because environmental laws are poorly enforced, 
and because NAFTA both lowered the tariff on products produced 
in Mexico and sent to the United States, and protected the 
investment of United States companies with laws that are 
equivalent to American property protection. NAFTA has 
aggravated the trade deficit with Mexico.
    The trade deficit with Mexico is a component in the overall 
United States trade deficit with the world. As is the case with 
Mexico, the United States trade deficit with the world is a 
drag on the United States economy. According to economist 
Charles McMillian,

    Trade is a clearly defined and routinely measured component 
of the Nation's economy, gross domestic product. By definition, 
GDP consists of four components: first, personal consumption; 
second, gross private investment; third, government 
expenditures; fourth, net exports trade. Statistically, 
international trade has been a constant drag on the U.S. 
economy since 1982 with accumulated losses to the U.S. economy 
of $1.6 trillion over the past 15 years.
    Far from accounting for any of the country's GDP growth 
during the first 6 years of the Clinton administration, net 
trade losses reduced real GDP by an average of--this is a 
negative--$126 billion or minus 1.8 percent of GDP per year. By 
definition, a trade deficit means that a county's domestic 
firms produce less than it's consumers buy. That is, at it's 
most basic level, trade deficit's mean that trade is reducing 
not expanding the overall market of U.S.-based firms and 
workers.

That's the end of the quote from Mr. McMillian.
    I would, at this point, submit for the record, with the 
Chair's unanimous consent, this report published this month by 
this distinguished economist, from which I took that quote. In 
conclusion, could we submit this report?
    Mr. Mica. Without objection, we will submit that and 
include it into the record.
    Mr. Kucinich. Thank you, Mr. Chairman. In conclusion, a 
growing trade deficit represents a drag on the U.S. economy, 
NAFTA has added to the trade deficit. NAFTA is therefore a 
problem for the U.S. economy. Thank you, Mr. Chairman.
    [The prepared statement of Hon. Dennis J. Kucinich and the 
report referred to follow:]
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    Mr. Mica. I thank you, Mr. Kucinich, for a very interesting 
opening statement. The information you have provided, as it 
relates to how we calculate exports and imports, particularly 
with this question of export for assembly and then reentry, is 
something the subcommittee needs to look into further.
    I'm pleased to recognize, at this time, the gentleman from 
California, Mr. Ose, for an opening statement.
    Mr. Ose. Thank you, Mr. Chairman. I thank you for calling 
this hearing. As you know, California has a tremendous interest 
in trade. With respect to agriculture, as it affects my 
district directly, I am most interested in hearing the 
testimony today. This is one subcommittee meeting I would not 
miss. So I thank you.
    Mr. Mica. I thank the gentleman. And I'd like to again 
welcome our panel. As you may know, this is an investigations 
and oversight subcommittee of Congress, and in that vein, we 
have a policy of swearing in all of our witnesses. So, if you 
would not mind, please stand and raise your right hands?
    [Witnesses sworn.]
    Mr. Mica. All of the witnesses answered in the affirmative. 
We welcome each and every one of the panelists today. Thank you 
for your participation and we look forward to your testimony. 
Let me say at the outset that we try to limit the oral 
testimony to 5 minutes. If you have lengthy statements or other 
materials that you would like made part of the record, we will 
do that upon request and unanimous consent. We'll also leave 
the record open for an appropriate number of days, at least 10 
days to complete that. Without objection, so ordered.
    With that, I would like to recognize Mr. Larry--tell me the 
correct pronunciation?
    Dr. Chimerine. Chimerine, Mr. Chairman.
    Mr. Mica. Chimerine.
    Dr. Chimerine. But it's been butchered before.
    Mr. Mica. All right. Even a little name like ``Mica'' has 
been butchered, but we're pleased to have you. You are with the 
Economic Strategy Institute. Sir, welcome and you are 
recognized.

STATEMENTS OF DR. LAWRENCE CHIMERINE, SENIOR VICE PRESIDENT AND 
  CHIEF ECONOMIST, ECONOMIC STRATEGY INSTITUTE; HOWARD LEWIS, 
   VICE PRESIDENT, ECONOMIC POLICY, NATIONAL ASSOCIATION OF 
 MANUFACTURERS; REGINALD BROWN, DIRECTOR OF MARKETING FOR THE 
FLORIDA FRUIT AND VEGETABLE ASSOCIATION; AND BARRY SOLARZ, VICE 
   PRESIDENT FOR TAX & TRADE, AMERICAN IRON & STEEL INSTITUTE

    Dr. Chimerine. Thank you very much, Mr. Chairman. Since I'm 
going to try to stick to your time criteria, let me focus on 
two or three issues this afternoon. I'm an economist, I'm not a 
trade policy expert. My colleagues here can talk more about 
specific trade policy issues better than I can. What I'd like 
to cover this morning are the two, I think, central macro 
economic issues reflecting trade.
    No. 1, does it matter? And I think you made reference to 
this in your comments earlier. It disturbs me greatly. Quite 
frankly, even a large part of the economics profession, and 
other policy analysts, are arguing ``so what?''--that the 
economy is doing great anyway and trade deficits are 
irrelevant.
    Second, even before that issue, many of them say not only 
that it doesn't matter but that it's a sign of strength. They 
argue that it's good we're running this big trade deficit, 
because it reflects the fact that our economy is strong and 
other economies are not doing as well around the world, so why 
be concerned about it? I think both arguments are not only dead 
wrong but very disturbing, and creating a sense of complacency 
regarding trade that is very dangerous from a long term 
perspective.
    Let me start with what causes the trade deficit. It is true 
that the trade deficit is now rising--it is essentially going 
off the chart, as you mentioned, because of macro economic 
conditions around the world, largely, the recessions in Asia 
and in other emerging market countries around the world, and 
slower growth in Europe. All of this is holding down our 
exports.
    Second, the overvalued dollar, or the sharp increase of the 
value of the dollar against many currencies, is triggering 
rising import penetration which is displacing domestic 
production in the United States. That combination is pushing 
the trade deficit up dramatically. But I think it's important 
not to forget the fact that we've had a persistent trade 
imbalance now for almost 20 years, regardless of relative macro 
economic conditions.
    We had large trade deficits even when Asia was thriving and 
booming, and even when the dollar was a lot weaker. It does 
vary somewhat year to year, but we have been running a large 
trade deficit every year now for almost 20 years regardless of 
macro economic conditions, oil prices, exchange rates, and some 
of these other economic determinants of trade flows. This is a 
serious persistent problem.
    In my judgment, it largely reflects structural factors 
which have caused a persistent structural trade imbalance in 
the United States. And periodically, much as now, we get macro 
economic factors which add to it. But the real problem is the 
structural trade deficit, and without going into a lot of 
detail, it reflects a number of factors.
    First is the export-led growth strategies that most of Asia 
has employed in recent decades, including closed markets, tying 
their currencies to the dollar at favorable exchange rates, and 
other characteristics of those economies designed essentially 
to generate growth by exporting primarily to the United States. 
They all subsidize their exports with preferential tax policies 
and other subsidies.
    Some of them require U.S. companies to produce in that 
market to sell there. And they employ a whole variety of other 
what we call ``unfair trade practices,'' primarily practices 
which limit access to their markets and which give them an 
advantage in exporting to the United States and other markets. 
These are the factors, in my judgment, that are the root cause 
of our trade deficit.
    Now, you'll hear many macro economists say that that is not 
the case, that we have a trade deficit because we don't save 
enough. This is an outgrowth of that famous identity that, 
roughly speaking, the trade deficit is the difference between 
investment and savings. It is often argued that our low savings 
rate is why we have a big trade deficit.
    That's like saying the reason a company is losing money is 
because their revenues are lower than their costs. It tells you 
absolutely nothing about what's going on; whether revenues have 
fallen, whether the cost structure is too high, whether they 
are losing market share, et cetera.
    Similarly, that identity can reflect a number of forces. In 
fact, some of our low savings rate, in my judgment, reflects 
the trade imbalance which puts downward pressure on wages and 
jobs in the United States, thus lowering savings. It is not 
automatic that causality goes from savings to trade. It's a 
two-way relationship. So it does not in any way undermine the 
argument that we do have a significant structural trade 
deficit.
    These same economists will tell you that the reason that 
now we have a trade deficit is that the economies overseas are 
very weak. Well, earlier they said that all that matters is how 
much we save. Well then, you can't come back 2 days later and 
say that the recessions overseas are affecting our trade 
deficit. It is a combination of a number of factors, but there 
is this large structural component.
    They will also argue that, if anything, we should be happy 
about the unfair trade practices which exist overseas. They 
argue that dumping is good for the United States--it's like a 
gift to consumers--without telling us what it does to the 
production side of the economy? It's nice to have lower prices, 
but if you don't have a job it doesn't really matter very much. 
Of course, they also argue that if other countries have closed 
markets, it's their consumers that are hurt, not us.
    But what about the U.S. companies that cannot sell into 
those markets? What about the global economies of scale they 
lose by having limited access to foreign markets, and how does 
that affect their competitiveness in the long term? So all 
those oversimplifications, in my judgment, misrepresent the 
real trade problems, or causes of the trade deficit in the 
United States.
    Does it matter? I think it matters greatly. Admittedly, the 
economy is relatively strong right now. Domestic demand is 
particularly buoyant, housing activity is at a very high level. 
But it is not preordained that the domestic economy is always 
going to be so strong, that it's always going to offset the 
drag from trade. We have had many times over the last 20 years 
when that was not the case. But it's the long term 
consequences, some of which you mentioned in your opening 
statement, which bother me even more.
    As we continue to run these trade deficits year after year, 
our foreign debt is piling up, increasingly sucking more income 
and dividends out of the system on a long term basis. 
Eventually, foreigners are going to decide they have enough 
dollar assets.
    When that's the case, we'll see sharp downward pressure on 
the dollar exchange rate, a sharp increase in interest rates, 
and it will slow long term economic growth. And, of course, as 
I said a moment ago, it has a significant impact on the 
competitiveness of the industries that are directly affected. 
It is an important issue that needs to be addressed.
    What do we do about it? Very briefly, I think you said so 
yourself, Mr. Chairman, in your opening remarks, there is no 
one magic bullet. I think it requires a multitude of trade 
policies all designed, No. 1, to provide more access to foreign 
markets, and No. 2, to limit unfair import penetration in the 
United States.
    This has to start with trade policies aimed at opening 
foreign markets--which this administration, to its credit, has 
tried to do probably more than any other administration over 
the last five or six decades, I wish with more success, but 
nonetheless, they have made the effort.
    It means enforcing and tightening existing trade laws in 
the United States, particularly anti-dumping, which is more 
important now than ever because overcapacity breeds dumping, 
and we are awash in overcapacity in most manufactured goods and 
commodities around the world because of the crisis overseas.
    It means, in my judgment, increasing funding for programs 
which will improve U.S. competitiveness and increase our access 
to foreign markets. I'm talking about export financing and 
promotion programs, which we underfund in this country relative 
to our trading partners, and which represent a small part of 
our budget. In fact, we could increase these ten-fold and use 
up only a small part of our budget surplus.
    You know, I think the biggest threat to prosperity in this 
country is trade and competitiveness. I think we get much more 
bang from the buck with selected tax cuts and expenditure 
increases designed to improve our competitiveness and give us a 
more fair shake in global markets, than we would with big tax 
cuts for example.
    And it probably implies looking at a number of other 
things. Strengthening the dispute resolution mechanism in the 
WTO and a number of other programs designed, in my judgment, to 
accomplish the twin goals of equal access overseas and limiting 
unfair penetration of U.S. markets. Thank you.
    [The prepared statement of Mr. Chimerine follows:]
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    Mr. Mica. Thank you for your testimony. I'd like to 
recognize Mr. Howard Lewis, vice president, economic policy of 
the National Association of Manufacturers. Welcome sir, and you 
are recognized.
    Mr. Lewis. Thank you Mr. Chairman, members of the 
subcommittee. I have a longer statement which I'd like to have 
added to the record.
    Mr. Mica. Without objection that will be made part of the 
record.
    Mr. Lewis. I'll pare down my remarks today to try to keep 
it within your 5 minute limit. Let me begin my testimony this 
afternoon with a discussion of the U.S. trade deficit.
    Right now, as Larry has indicated, the United States is 
running U.S. record trade deficits. Last year these deficits 
reached $169 billion. This year they expect to exceed that by a 
considerable amount. To say the least, the trade deficit is a 
complex and large subject.
    To a great extent right now the deficits reflect the 
difference in growth rates between the United States and very 
weak economies overseas. It also reflects some significant 
swings in exchange rates that we've seen over the past several 
years.
    So the first point I really want to make is there are some 
very large economic forces at play here. In my testimony today 
I'd like to draw your attention to two points about the trade 
deficit.
    First, in looking at the deficit, people have tended to 
concentrate, quite rightly, on the import side of the ledger 
and ignore what's happening on the export side. Given the 
nature of this deficit that we're running at this time, this is 
a big mistake, and let me explain why.
    Overall imports grew last year by about 5 percent or $52 
billion. At the same time exports actually fell seven-tenths of 
1 percent, $6 billion. Well, a lot of people say, ``Isn't that 
what happens when you run a record trade deficit? Imports go up 
exports go down.'' Not necessarily. You've got to look at the 
specific case.
    For example, if you go back to 1987, which is the last time 
we were running a record trade deficit, in that year imports 
grew by about 12 percent or by about $57 billion. But exports 
also grew in that year by roughly $45 billion. So in 1987, the 
last record trade deficit, you had, and I put this in quotes, 
``only'' a $12 billion swing. That is in sharp contrast to what 
you've seen this time or this past year where you have a 
negative $58 billion swing.
    So the importance of exports here is important but I don't 
want to be misunderstood here either. There is no doubt that 
recent import surges in steel, semi-conductors, and other 
industries have had a serious impact on American workers and 
firms. This should not be down played for 1 minute.
    But it is equally important to recognize the impact that 
this decline in U.S. exports have had on American workers and 
firms. Export expansion has powered 30 percent of the economic 
growth in this country over the last 15 years and this source 
of growth has now dried up. What is more, jobs connected with 
these exports are precisely the types of jobs that we want to 
see more of in this country.
    In comparison to non-exporters, plants that export grow 
jobs 18 percent faster, are 10 percent less likely to go out of 
business, pay on the average 15 percent more, and provide 
benefits 40 percent higher. We should pay attention, in other 
words, when this type of job begins to dry up and that is 
precisely what has happened since mid 1997.
    The second point I want to make about the trade deficit may 
come as something of a surprise. While there is no doubt that 
we are running a record trade deficit, these deficits probably 
aren't as big as we think they are. The information on why this 
is so has been sitting on the Census Bureau website for 2 years 
now.
    Basically, we have known for some time that just in the 
area of merchandise trade, I'm not even talking about services, 
just in the area of merchandise trade we under count U.S. 
exports by somewhere between 3 to 10 percent. In 1998, that 
would have amounted to between $20 and $67 billion in exports 
or would have reduced the U.S. trade deficit by somewhere 
between 10 and 40 percent.
    The fact that we might be able to reduce the trade deficit 
by up to 40 percent by just getting the numbers right obviously 
doesn't mean that we don't need aggressive policies that open 
markets and promote trade, just the opposite. On the other 
hand, anyone who is concerned about the efficiency and the 
effectiveness of government, as this subcommittee is, should be 
worried by the fact that we don't have the ability to collect 
accurate data upon which to make our policy decisions. 
Incidently, there apparently is no under counting in the import 
area. You get those numbers right.
    Let me just skip quickly, Mr. Chairman, to the discussion 
of export promotion. I do want to say though that the biggest 
point I'm making about the trade deficit right now is the fall 
off in our U.S. exports. Some people who are looking at the 
trade deficit and looking at these massive macro economic 
factors that are driving these deficits may view the issue of 
export promotion as relatively unimportant in the scheme of 
things. I don't share this view.
    What the U.S. Government does in these areas can have a 
major impact on U.S. export in specific industries in specific 
countries. For example, over the next 2 years the Export-Import 
Bank will probably support $6 billion to Korea, in exports to 
Korea. That represents a significant share of exports to that 
market which is still the 10th largest economy in the world.
    Next year, U.S. semi-conductor companies will start selling 
a chip for use in ordinary personal computers and laptops that 
exceeds the super computer control levels that Congress put in 
place last year. Recently, an executive from a high tech 
company began his testimony in the Senate Finance Committee by 
saying, ``If I had known at my company's founding what I know 
today about U.S. international tax rules, I would have advised 
that parent company be established outside the United States.''
    Finally, when Congress decided last year to require 
commercial satellites be placed on the Arms Export Control List 
it significantly and, I admit, probably unintentionally raised 
taxes on U.S. commercial satellites anywhere in the world, due 
to the differences between the tax law treatment of defense and 
commercial exports. The point I'm making here is that this 
stuff is really important and we should pay a lot of attention 
to the policies in this area, not only to the policies in this 
area but also to how they are implemented.
    Three years ago, Mr. Chairman, and I'll just briefly 
conclude here, the NAM's chairman of our Small Business 
Committee urged us to get back into the business of running 
trade missions. As I point out in my longer testimony, this a 
bit of going back to the future for us since the NAM was 
founded in 1895 to do precisely this.
    However, we weren't sure how to get back to the future, and 
we found a lot of help in the U.S. Department of Commerce in 
their Matchmaker Program. Through the Matchmaker Program we 
basically have created a very effective public-private 
partnership. It's an export program. They've got the product, 
U.S. Government can deliver a superior product in the way of a 
trade mission overseas. We've got the customers. And the trick 
is to marry these two up.
    We've started these programs in Mexico and Europe and we 
hope to do some more later this year and more. They really are 
roll-up-your-sleeves trade missions, they aren't vacation 
junkets. For example, in our Mexico mission the United States 
Commercial Service in Mexico will set up some place between 300 
to 400 meetings for our 20 participants that will be going down 
there. That's a lot of work.
    The more I have worked in this practical side of U.S. trade 
policy, the more impressed I have become with the ability of 
our Commercial Service to even deliver these products. For 
example, when I was in Southeast Asia, I actually talked to 
commercial officers who could not make long distance phone 
calls, who could not make long distance phone calls from our 
Embassy. I have seen the antiquated equipment that people have 
in the Government offices.
    Just the other day, I was listening to the head of the 
Eximbank discuss how to improve his agency. Along with some 
complex matters on the Bank's portfolio, he had some straight 
forward recommendations, including putting all the export 
financing agencies in one building, upgrading Eximbank's 
technology and stationing Export-Import Bank officials 
overseas.
    I was struck by how doable these suggestions were in 
comparison to many of the issues we deal with here in 
Washington. Making phone calls, using modern technology, 
putting staff where they are needed, all steps that are 
absolutely essential to the efficiency and effectiveness of any 
export advocacy program whether in Eximbank, TDA, OPEC or 
Commerce.
    Mr. Chairman, this concludes my testimony. I will be glad 
to answer any questions.
    Mr. Mica. Thank you, Mr. Lewis. I'll now turn to Mr. 
Reginald Brown, director of marketing for the Florida Fruit and 
Vegetable Association. You are recognized and welcome, sir.
    [The prepared statement of Mr. Lewis follows:]
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    Mr. Brown. Thank you and good afternoon. We commend you for 
holding this hearing. The issues at stake are very intensely 
held by our members and we have had some very interesting 
experiences with trade over the last 4 or 5 years in our 
industry. I'd like to just take an opportunity to walk through 
some of those experiences with you this afternoon. And, 
hopefully, have the written testimony submitted into the 
record, and move forward from there.
    Mr. Mica. Without objection, your lengthy statement will be 
made part of the record.
    Mr. Brown. Florida is geographically located in an area of 
the country that allows us to produce many of the commodities 
that the American consumer eats in the winter time. Our primary 
competitor historically is the Mexican vegetable industry and 
primarily the State of Sinola in Western Mexico.
    After the North American Free Trade Agreement was enacted, 
we fell under the gun, if you will, as the identified 
sacrificial lamb or lost soul in the process of trade. We got 
into a situation where the Mexican industry was building up 
their capacity to produce. They were ready for the lower 
tariffs that the treaty offered to the Mexican producers, and 
got themselves in position to take a greater share of the 
American market away from the Florida production system.
    You add into that the fact that immediately after the 
passage of NAFTA, the peso fell in half. We ended up with a 
great, huge dam that was originally the North American Free 
Trade Agreement that suddenly burst under the pressure of the 
peso devaluation. We were absolutely submerged under a sea of 
imported product.
    During the 5 years or 4 years that we've been dealing with 
this issue, from about 1991 through about 1997, 1998, I'll give 
you some idea of what happened in the shift in competitive 
position between the two countries. In the production of 
cucumbers in 1990 and 1991, Florida represented about 47 
percent of the domestic market during the period that we 
competed with each other. Currently, Florida holds about 23 
percent market share. It fell roughly in half.
    In the production of squash to feed the American public, we 
held approximately 27 percent market share and that fell to 13 
percent. In the production of eggplants, we held about 48 
percent share and that fell to 21 percent. In the production of 
peppers, we held a 63 percent share and it fell to 50 percent 
during that period of time.
    Now, the great tomato wars we've all heard so much about 
and we've all been to battle over in various trade remedy 
opportunities that we were offered through the trade laws of 
this country, that particular industry has fallen from a 65 
percent share to a 47 percent share. If the other crops we 
talked about just prior to that had the strength that the 
tomato industry had, they had a much more pervasive case in 
terms of the amount of market share that was lost due primarily 
to the peso devaluation and the very favorable anticipated 
situation with the North American Free Trade Agreement. This is 
a severe problem for our industry in terms of the import surge.
    On the export side, we have yet to manage to enter any 
fresh citrus into Mexico. They continue to hold up some 
artificial barriers in the farm by the sanitary areas that 
permit the entry of citrus into Mexico. And we feel very 
strongly that being in the fresh produce industry we are 
believers in free trade, but we've got to have fair trade.
    The issue revolves around the fact that we don't seem to be 
able to play the game in both directions as well as we should. 
We are currently working on export markets around the world. We 
have made some progress with small penetration into the 
Japanese market with the United States tomatoes. We are 
continuing to try to make penetration into the Chinese market, 
but the Chinese are holding very high tariff barriers on the 
perimeters of their country, and they are also holding up the 
traditional weapon of choice, unsubstantiated by the sanitary 
restrictions that prevent the entry of United States products 
to China. These are the kinds of problems concerns that our 
industry has dealing with trade issues.
    The purpose of the meeting today is how can the U.S. 
Government more effectively promote trade? Well, being from 
kind of the bottom of the pile, down where the producer makes 
something from the land and where food is made in this country, 
that is on the farm, we just think you ought to do a better job 
of negotiating good deals because the deals that we've 
experienced to date have not been good for us.
    Our negotiators need to be more aggressive in looking out 
for the interests of U.S. industries domestically from 
countries importing into the United States, and also more 
aggressive in opening doors and knocking down product sanitary 
barriers in other parts of the world.
    The United States needs to look at a system in future trade 
negotiations of a request and offer type of approach to tariff 
reductions, not a unilateral tariff reduction process. We need 
to look very seriously at exemptions for commodities that are 
sensitive in the negotiation process that would give those 
industries adequate protection from foreign imports.
    We need to look at safeguard mechanisms that are crafted 
for sensitive items that are functional. We've had some offered 
that have been enacted into trade treaties that have not 
worked, and we have tested them to the extent we were able to 
and found them to be ineffective. We need to look at mechanisms 
that deal with ways of dealing in major trade disruptions when 
they occur due to currency devaluation and currency 
manipulation.
    We also need to look at domestic trade relief statutes that 
give adequate protection for regional or crop-specific 
seasonality issues so we can use our current trade laws, under 
201 and 202 and our dumping cases, for those industries that 
are very narrowly based and very much focused in the targets of 
importing countries. We do appreciate the effort the Department 
of Commerce has given to the industry in the suspension 
agreement with the Mexican tomato producers in dealing with our 
industry in Florida, but we look forward to hopefully having 
more success with trade agreements.
    Hopefully, if we can have some success, we will not see a 
future in which the ability to produce many of these products 
is no longer available in this country. I thank you for the 
opportunity to speak.
    [The prepared statement of Mr. Brown follows:]
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    Mr. Mica. Thank you for your testimony, sir. Now, I'd like 
to recognize Mr. Barry D. Solarz, vice president for trade and 
tax at the American Iron and Steel Institute. You are 
recognized, sir.
    Mr. Solarz. Thank you Mr. Chairman. Given the time limits, 
I will summarize my remarks and ask that the full text of my 
statement be submitted into the record.
    Mr. Mica. Without objection, the full text will be made 
part of the record, thank you.
    Mr. Solarz. Thank you. I will first summarize the steel 
trade situation, the key lessons to be learned from the case of 
steel. Then I will focus on what, for us, is the single most 
important thing the Government can do in both the short and 
long run to address this country's large, and as Larry 
Chimerine has correctly pointed out, persistent trade deficit--
and that is to improve the effectiveness of U.S. trade laws and 
trade law enforcement.
    In 1998, U.S. steel imports exceeded exports by a record 36 
million tons and the U.S. steel trade deficit was a record 
$11.7 billion, or nearly 7 percent of our total record trade 
deficit last year. As a result, America's steel trade crises is 
now at the center of our public debate about the future of U.S. 
trade policy and the case of steel deserves close review in any 
examination of our overall trade deficit.
    Since 1980, U.S. steel producers have reduced inefficient 
capacity by 30 percent, reduced employment by 60 percent, 
invested nearly $60 billion in modernization, more than doubled 
labor productivity and emerged as a world class industry once 
again.
    Yet, what has occurred in U.S. steel trade over the past 
year turns free trade theory on its head. In what some might 
call a triumph of inefficiency, dumped and subsidized imports, 
often from less efficient, heavily polluting foreign 
competitors, have caused serious injury to technologically 
advanced, internationally competitive, environmentally 
responsible U.S. steel companies and their highly skilled 
employees.
    So instead of these being the best of times for our new and 
world class America steel industry, U.S. steel import market 
share hit an all time record 37 percent in November 1998. This 
is happening because major foreign competitors have not made 
the kind of hard and painful adjustments that U.S. steel 
companies and employees have made.
    Foreign steel cartels, closed markets, currency 
manipulation, government subsidies and dumping have remained 
pervasive in world steel trade. A number of key steel producing 
countries abroad have experienced a collapse of their currency 
and domestic steel demand. These countries have all tried to 
export their way out of trouble, at the same time.
    Due to the collapse of Asia and other major export markets, 
they've all simultaneously targeted the large, strong and open 
U.S. market with record imports at cutthroat illegal prices. 
The result is a supply driven crisis that has caused the United 
States to become the world's steel dumping ground.
    Accordingly, the case of steel does hold important lessons 
for the future of U.S. trade policy. The case of steel shows us 
that we need to ensure, as Larry Chimerine has been pointing 
out, two way free and fair trade.
    We also believe that we need to establish a new consensus 
on U.S. trade policy. We need to ensure more burden sharing by 
other major industrial nations, especially the European Union 
and Japan. We need to ensure that the IMF focuses on increasing 
domestic demand in countries in crisis and not just on 
encouraging them to export their way out of difficulty.
    We need, as Larry has mentioned, to treat our trade deficit 
as though it matters because it's costing thousands of good 
manufacturing jobs and, over time, is a recipe for industrial 
stagnation and decline. We need to address the import as well 
as the export side of the trade ledger in our policies.
    In some contrast to what Howard Lewis has said on this, we 
do feel that there has often been a greater focus put on export 
promotion than on what is going on in terms of unfair trade in 
the U.S. market.
    That, Mr. Chairman, brings me to my final point. Mr. 
Chairman, most important of all, we need to ensure that U.S. 
trade laws are as strong as the World Trade Organization allows 
and that U.S. trade laws and trade agreements are vigorously 
enforced. The case of steel shows once again that even the most 
competitive U.S. industry can be destroyed by foreign unfair 
trade.
    It shows that even when demand is strong, as it is, world 
class U.S. mills can suffer significant lay offs, short work 
weeks, severe price depression, production cuts, and lost 
orders. It shows why the United States needs to ensure that 
trade is fair and rule based. It shows why the United States 
needs to negotiate forcefully with other governments engaged in 
unfair trade.
    It shows also, unfortunately, in the recent announcement of 
bilateral agreements giving dumped steel from Russia a 
guaranteed United States market share over the strong objection 
of United States trade law petitioners, that U.S. trade policy 
principles and the health of key U.S. industries can still be 
sacrificed to, ``higher foreign policy interests.''
    It shows one more thing. Where the rules are not being 
enforced, and the trade laws are not as effective as they 
should be, Congress should take immediate steps to strengthen 
our trade laws in WTO consistent ways. My written statement 
contains attachments that provide additional information on 
this critical issue for steel and the U.S. economy. AISI 
appreciates this opportunity to provide comments on the U.S. 
trade deficit and the case of steel.
    [The prepared statement of Mr. Solarz follows:]
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    Mr. Mica. Thank you for your testimony. I'll lead with some 
questions, if I may.
    Mr. Chimerine, I was particularly interested in the opening 
statement by my colleague, Mr. Kucinich, from Ohio, who talked 
about what he labeled improper trade accounting. He described 
one particular situation dealing with the manufacture of 
automobiles.
    Do you feel we properly count today, and should we take a 
look at how we calculate our trade deficit? Then, based on his 
statement, it sounds like the trade deficit could be even worse 
than what is reported, is that correct?
    Dr. Chimerine. It's very hard to say, Mr. Chairman. I think 
it could go either way. I think Howard Lewis has earlier 
indicated that in some sense, in some ways, we're probably 
understating our trade deficit. We probably do miss some 
exports and do not count some exports that we actually make.
    But I must tell you, I don't think I would change the 
equation very much. If we added $50 billion or took $50 billion 
off the reported trade deficit, it's the same story. The 
fundamental trend is we have a huge and persistent trade 
imbalance. It is largely structural, at least on an average 
basis. Sometimes, there are short term forces that make it 
larger or smaller.
    To me that's the overriding issue. While I'm not the first 
to advocate measures to improve the quality of our statistics, 
and I agree that the trade statistics in particular tend to be 
inaccurate and very erratic, I think the real issue is the fact 
that under any circumstances, no matter how we measure it, we 
have serious trade problems that are going to have sizable long 
term consequences. I think that ought to be our primary focus.
    Mr. Mica. My next question deals with the consequences. Mr. 
Lewis testified that for the first time since 1987, we've seen 
this huge explosion of, I think you've described it, in 1987 a 
different situation but in 1998 we ended up with not only----
    Mr. Lewis. A negative trade, $1 billion swing in our----
    Mr. Mica. Right. The drop, or the increase in our trade 
deficit but a decrease in exports. What's going to happen if 
that continues? You can both comment. You are the economist, we 
want to give you multiple answers.
    Dr. Chimerine. I don't know if that's good or bad, Mr. 
Chairman, but I'll answer it. Clearly over the last 30 or 40 
years, in fact, probably the entire post-war period, world 
trade has grown at a rate faster than overall economic growth, 
probably close to double the rate of GDP growth on a global 
basis.
    So there has been a consistent trend where both the level 
of exports and the level of imports in most countries, 
including the United States, have been rising relative to our 
GDP. That's even happened in prior recessions.
    What happened in prior recessions, particularly overseas 
recessions, is that the trend in exports continued but it was 
temporarily dampened by the recessionary conditions in some of 
our trading partner countries. But that wasn't large enough to 
completely obliterate the trend, it just slowed the process.
    Now we have such extraordinarily depressed conditions in 
Asia, which was the most rapid growth region of the world, and 
it's spreading to other parts of the world, as you yourself 
mentioned, particularly Latin America. Those pressures have 
been so huge that we actually have negative growth in exports. 
But as Howard mentioned, it's a relatively small decline, which 
tells you how powerful the upward movement, the upward trend 
is, given how serious the economic recessions are currently in 
other parts of the world.
    With respect to the increase in the trade deficit over the 
last several years, the last year and a half in particular, 
while some of it is coming on the import side, for reasons 
Barry Solarz mentioned, clearly the export part of the equation 
is being dramatically dampened by overseas economic conditions. 
When you add that to what was already a baseline $100 or $150 
billion a year trade deficit, we're already up to $250 or close 
to $300 billion.
    So, clearly, the drop off in exports is troubling. Some of 
it, hopefully, is temporary as a result of the recessionary 
conditions overseas.
    Mr. Mica. Did you want to respond, Mr. Lewis?
    Mr. Lewis. Yes, I think two points. One is something that 
Larry brought up in his testimony, the impact of this if we 
continue to see this lack of growth in exports. The impact is 
that right now the economy is being carried by consumer 
spending, construction, and so on. That's not going to go on 
forever. At some point, this important source of growth that 
we've seen in the past is going to really--or the lack of it is 
going to really hit home. So that would be the sort of big 
macro economic point on exports.
    If I could just comment. I would be glad to submit the 
report on the under counting of U.S. exports. It seems to be an 
ideal topic for this subcommittee. But just to give you one 
illustration of why this is taking place, the Government 
doesn't actually count exports under $2,500. They use a model 
that is either 10 or 15 years old, I forget, and basically try 
to estimate how much is happening.
    Well, I don't know how many Fed Ex trucks and UPS trucks I 
probably passed in the taxi cab on the way up here, but they 
are an illustration of exactly why we have this problem. It's 
that business and the way we do business around the world has 
vastly changed. Just-in-time inventory means that you have 
millions of shipments under this threshold level of $2,500.
    It's the way people do business now. It's the type of thing 
where there are clearly, as Larry points out, really big 
problems we need to deal with. But we also should get the 
numbers right so that we know what's going on. I'd be glad to 
submit this report if it would be of interest to the committee?
    Mr. Mica. I think it would be of interest, and we would be 
glad to make it a part of the record, without objection. I want 
to be fair to my colleagues. I'd like to yield to Mr. Kucinich.
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    Mr. Kucinich. Thank you very much, Mr. Chairman. Thank you 
to all the panelists for your participation. I've read your 
testimony. It's critical for this discussion that the chair has 
facilitated.
    For Mr. Solarz, you've correctly said that foreign steel 
exporters have violated U.S. trade law. Preliminary 
determination has been made, as you know, by the Department of 
Commerce, but I'd like you to comment on the effect of 
devaluation of foreign currencies and what that's had on making 
cheaper steel made in Korea, Brazil, Japan and Russia.
    First of all, what I'd like to know is this: if Korea, 
Brazil, Russia, Japan, did not illegally subsidize their steel, 
wouldn't it be true that a devaluation of the currency of those 
nations by 60 or 80 percent would cause their steel to be able 
to greatly underprice American steel?
    Mr. Solarz. It's actually a slightly more complicated 
question than maybe even you are assuming in asking it. I'll 
give you one example which is Russia, where nobody can figure 
out what the costs and what the prices are, and the workers 
aren't paid for months at a time. You have trading companies 
going in there and taking 10 cents on the dollar, taking steel 
by the boat load from that country and essentially dumping it 
at prices that haven't been seen in the U.S. market in decades.
    Russia came into the U.S. market as a price leader. What 
then happened was that the Japanese came in and the Japanese 
announced that ``We will meet the Russian prices. And steel 
consumers, you can have Japanese quality at Russian prices,'' 
which broke the back of this market and essentially created 
anarchy in it.
    Now, we do have some experience with this issue of the 
relationship between exchange rate changes and unfair trade 
case findings. However, it might be better to put this question 
to Mr. Copps. After all, this was an issue at the very 
beginning when cases were filed against Japan, which at the 
time had a weaker currency against the dollar than it has now. 
A lot of people were expressing the point of view that with the 
yen to dollar exchange rate, it would be very difficult to find 
a significant dumping margin vis a vis Japan.
    But as we've seen in the recent preliminary margin 
determinations by the Department of Commerce, significant 
dumping margins were found in the case of Japan. Russia, of 
course, is a very different situation because of its non-market 
economy nature. The Department of Commerce has to look to a 
surrogate free market producer in order to come up with dumping 
comparisons.
    Mr. Kucinich. Well, let me do a followup question. Isn't it 
true that export-led growth policies are helped by devalued 
currencies because exports are made cheaper when the currency 
is devalued?
    Mr. Solarz. Absolutely. We and others at this table have 
expressed concerns about the exchange rate issue. I know at 
least two of us at this table, if not three, have mentioned the 
term ``currency manipulation.'' I believe there has been a long 
history----
    Mr. Kucinich. I saw that in your testimony.
    Mr. Solarz [continuing]. There has been a long history of 
that certainly in the case of South Korea and other countries 
as well. We did express, in both the oral and written 
testimony, significant concerns about the position that the IMF 
took with respect to a number of countries in crisis, at least 
at the beginning, with these really counterproductive austerity 
measures----
    Mr. Kucinich. Mr. Chairman, Mr. Solarz just put his finger 
on what I think is part of the core problem here. Would you say 
it's true then that these so called structural adjustment 
policies and austerity mechanisms promoted by these 
international financial institutions such as the IMF were meant 
to promote or they lead to export-led growth.
    Mr. Solarz. Yes, Congressman Kucinich. We and many other 
manufacturers have expressed concerns about this and the 
agricultural sector probably did as well. When we expressed our 
concerns about this, we did it in the context of a supporter of 
the IMF aid packages.
    We were a supporter of the IMF aid package for South Korea, 
for example, and actually saw in that aid package the possible 
seeds for the first time in decades of eliminating some of 
those structural barriers and anti-competitive practices in the 
South Korean economy that United States trade policy for the 
last several decades has had no success at all in chipping away 
at.
    Mr. Kucinich. I understand. There is a conundrum here and I 
just wondered, you know, it seems to be true that the U.S. 
trade deficit, at least the recent surge in imported steel, 
could be aggravated by export-led growth policies promoted by 
the IMF? You know, we're looking at the same mechanisms here. 
Would you agree with that?
    Mr. Solarz. Yes. We would agree that in this kind of 
environment it certainly made things worse for our industry and 
it really does no favor for the county in crisis either because 
it is our view, and I know that Dr. Chimerine shares it, that 
these countries descended into crisis essentially because they 
followed that ``Japan, Inc.'' model of over-investing and over-
exporting, and they all turned to exporting at the same time, 
and the whole thing was not sustainable for the long run.
    Mr. Kucinich. So as we look at this, would you say that 
export-led growth policies promoted by the IMF can cost the 
United States in the form of import surges and trade deficits?
    Mr. Solarz. Yes.
    Mr. Kucinich. And would you recommend to Congress--and, Mr. 
Chairman, this is how, I mean, this hearing is so important--
before it gives the IMF more funding as it did last year, that 
Congress demand that the IMF stop promoting export-led growth 
at the expense of U.S. manufacturing?
    Mr. Solarz. We certainly felt that the IMF should have put 
greater stress on trying to rebuild domestic demand in the 
countries in crisis. Just as we believe that----
    Mr. Kucinich. Instead of propelling export-led growth.
    Mr. Solarz. Absolutely. Just as we believe that ultimately 
the only long term solution for the Russian economy is to 
rebuild domestic demand. I wish I could show you now a chart 
that would show what domestic steel production and consumption 
was around 1990 in the former Soviet Union.
    You had about 165 million tons of production and about 170 
metric tons of consumption. Today, you are looking, in Russia 
alone, steel consumption in the order of 17 million tons. There 
has been a complete collapse of that economy and domestic steel 
demand, and ultimately, to rebuild it has got to be the 
solution.
    Mr. Kucinich. Mr. Chairman, here you see in this one panel 
you know American manufacturing which we're very proud of, 
which has been the mainstay of this country's growth in so many 
ways, through two world wars and more, and the steel industry 
which has been the core of that along with automotive and 
aerospace, and of course this part of agriculture, the fruit 
and vegetable industry, and they all have been in trouble 
because of these trade policies.
    Each testimony presented here by the gentlemen has been 
very valuable and it points out the importance of this hearing. 
I want to tell the chairman how much I appreciate that he has 
taken the time to address this issue.
    Mr. Mica. Thank you.
    Dr. Chimerine. Mr. Chairman, can I make a comment?
    Mr. Mica. Yes, go ahead.
    Dr. Chimerine. I think several of us have pointed this out 
already. When the history of this recent crisis, the economic 
and financial crisis in Asia is written, I think it will become 
clear that the fundamental cause of the crisis is the way these 
economies have been structured, or the economic strategy 
they've had in place in some cases for several decades and 
others for 10 or 15 years which, as Congressman Kucinich 
mentioned, is essentially to structure their economies to 
generate export-led growth.
    They are all trying to copy the Japanese model in one way 
or another. The cause of the crisis in my judgment is that not 
everybody can grow by exporting at the same time. Somebody has 
to buy something and it can't always just be us. They are all 
targeting the U.S. market. When Japan did it by itself, it was 
successful. There isn't enough in the United States to support 
everybody at the same time so it led to overcapacity and over 
investment, and so forth.
    Where the IMF has entered, in my judgment, is over the last 
18 months in the way they addressed the crisis. They made it 
worse by insisting on huge austerity measures as a condition 
for the financing programs they put in place, which created 
more downward pressure on economies that were already 
collapsing, and which No. 1 has aggravated the global over 
capacity problem in steel and just about everything else.
    Second, because their domestic economy has been squeezed 
down even further by IMF insistence on high interest rates, and 
tax increases, and whatever, it's forced them even more to look 
to exports for growth. Now luckily, a little too late in my 
opinion, the IMF has backed off and is now trying to be more of 
an instrument of growth in that region instead of austerity.
    But what we should have insisted on when we debated the IMF 
funding issue here in the United States was, No. 1, that they 
back away from austerity and, No. 2, that they insist on 
meaningful long term reforms that will give us more access to 
those markets and move them away from just exporting their way 
to economic growth.
    Now, again, this is gradually happening but had it been 
recognized sooner, I think the crisis would have been far less 
severe than turned out to be. And it wouldn't have spread as 
much to other parts of the world, and some of the negative 
effects on U.S. industries and U.S. trade probably would have 
been considerably less.
    Mr. Kucinich. Mr. Chairman, if you would yield just for a 
second, and think about this in these terms. When one of our 
constituents, who is perhaps a steel worker, gets a notice at 
work telling him that he's laid off in a steel mill that has 
invested $40 to $50 million or more in improving its ability to 
produce but has already had reductions in work force, but 
everybody is ready to go and sell their product, and then I 
mean you start to see how this whole system kind of unravels.
    Mr. Mica. If you want to see your constituent unravel, tell 
him that his tax dollars have gone to Washington to support 
policies that help unravel his economic status.
    Mr. Kucinich. Exactly.
    Mr. Mica. And that would upset him or her. I appreciate the 
gentleman's comments. I would like to recognize the gentleman 
from Massachusetts, Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman, for your remarks and 
Mr. Kucinich yours. Members of the panel, thank you for joining 
us and sharing with us your views today. I would like to shift 
gears just a little bit, if I could, and talk about offsets.
    I notice, Mr. Chimerine, in your testimony you alluded to 
the impact that the requirement of some governments that we 
shift technology to them in return for our ability to sell over 
there, causes us some pain, not only the technology but in the 
aerospace industry in particular, shipping and training of 
labor in order to build the project--sometimes building a 
facility in another country for them and that's only with 
regard to the direct offsets, we talk about the indirect 
offsets and the havoc that's been reaping.
    You made a comment on page 13 of your testimony that I 
thought was interesting. One of the things you said we had to 
do was that the U.S. Government had to prevent foreign 
countries from insisting on technological transfers as a 
condition for selling in their markets. How do we do that?
    Dr. Chimerine. That's a good question.
    Mr. Tierney. No, no, no. You've got to give us answers 
here.
    Dr. Chimerine. Since I've dominated the time up here, I'm 
going to suggest you ask my three colleagues. And all of them, 
quite seriously, are probably better able to be more specific 
on that than I am. But I find it an extremely serious problem, 
particularly with China. China is very clever, as all of us 
have mentioned, or several of us. They insist that you shift 
some production to those markets as a condition of selling 
there. They force you to take on partners, they force you to 
transfer technology.
    I don't know the specific best way to deal with this, but I 
must tell you that increasingly I've become of the opinion, I'm 
a free trader, I believe strongly in two-way free trade, but--
----
    Mr. Tierney. But you are fast becoming a fair trader, 
right?
    Dr. Chimerine. No, but the problem is that we have one-way 
free trade. And the reason support for free trade in this 
country is eroding despite the strong economy, is I think most 
people, maybe not the academic economics community, but I think 
most other people, realize this is not right, it's not fair, 
and it's not in our national interest.
    I'm becoming increasingly of the opinion, like we're now 
doing in the case of, you know, bananas, and the beef hormone 
situation with Europe, that in order to bring about equal 
access overseas, to stop the unfair trade practices you are 
talking about, we're going to have to limit access to our 
market. That's the only thing they seem to understand.
    And whether you put offsets in, or strengthen anti-dumping, 
negotiate individual trade agreements with the Japanese or 
others, which we don't even have the staff at USTR and Commerce 
to monitor and enforce, I'm not sure it's even worth it any 
more. I think the only thing that seems to work is when we 
limit access to our market to force them to back away from some 
of the trade practices that are onerous.
    But whether that's something we could do with offsets, or 
tightening anti-dumping laws, or all of these things, all of 
which I support, I don't know the precise best way to do it nor 
do I know whether they are going to really work anymore.
    Mr. Tierney. I would like to share that with the rest of 
the panel since----
    Mr. Lewis. I would like to make one comment about how to 
deal with this problem of basically trade-related investment 
measures. You want to invest here, you've got to bring over 
such and such technology, you've got to export so much out of 
this country, et cetera. I mean that's been going on a long 
time, it's been going on in Mexico.
    In fact, I think one of the stronger points of NAFTA was 
the TRIMS provision which prohibits the use of trade-related 
investment measures. If we could have a similar strong trade-
related investment measures around the world, we probably would 
begin to address your problem.
    Mr. Tierney. Of course we exempted aerospace from some of 
the agreements----
    Mr. Lewis. And I think that too we've got to distinguish 
between offsets in the military area and offsets in the 
commercial area. I was primarily talking about what goes on in 
the commercial area. But I think it's a very serious problem. 
The other point that I'd like to just touch on here, and again 
it seems to me very relevant to this subcommittee, and Mr. 
Brown and Mr. Solarz raised it, and that's implementation of 
trade agreements.
    Basically, we go out and negotiate these treaties over 8, 
10 years. Everybody is exhausted at the end of them. We drag 
back here, we go through a big fight in Congress, we get it 
ratified, everybody is collapsing, and then we go onto the next 
one. I'm kidding around a little bit here, but I think the need 
to pay attention to how these things are implemented, not only 
by the United States, but also how we could strengthen the 
international trade systems monitoring of the implementation.
    I've recently become more and more fascinated with this 
question after talking with some colleagues who simply have 
discovered in certain countries tariffs that should have been 
reduced weren't reduced, simply because nobody made them, 
nobody checked.
    Now, admittedly, you can't go around the world checking a 
zillion tariffs, but there are certainly ways that you can do 
this in terms of, at the risk of sounding boring, standard 
accounting procedures. You don't go in when you are doing an 
audit and count every single sale that ever took place. You 
take sampling and you examine.
    So if you go in and you find out that country ``X'' has not 
reduced their tariff in 500 out of 1,000 cases, then you've 
probably got a problem. And the implementation is really 
critical. And I know the Department of Commerce has been taking 
some steps to strengthen their work in the trade compliance 
area here that I think this subcommittee should probably look 
at. Thank you.
    Mr. Tierney. Mr. Solarz, so you have any comments you want 
to share on that issue. I'm not forcing you to do it, but if 
you had something I didn't want to prevent you from doing it.
    Mr. Solarz. Well, I certainly agree with the comment made 
about ultimately, for better or worse, the U.S. market, this 
wonderful large market, is a point of leverage. But in making 
that comment, I would not suggest at all that we need to do 
anything that would in any way violate our WTO or international 
commitments.
    What we are saying in our testimony is, we've got laws on 
the books, they can be improved, and they can be improved in 
ways that are consistent with existing international trade 
rules. And one of the big problems is that these rules and laws 
in the United States are not always strictly enforced.
    And, again, the most recent example of our concern in this 
regard are these agreements on steel, these bilateral 
agreements on steel with respect to Russia. Yes, the Department 
of Commerce talks about significant declines, tremendous 
declines from 1998 levels, in terms of these agreements.
    But we would point out and so would the petitioners, both 
the unions and the companies that filed the Hot Roll Case 
against Russia, that Russia currently, and you see it with 
these preliminary anti-dumping margins, is in no position to be 
selling any of this steel in the United States market. It 
cannot sell this steel at a competitive fair price consistent 
with our laws and international trade rules.
    Unfortunately, for foreign policy reasons, our Government 
has decided that the law in this case was not good enough in 
terms of application of anti-dumping law, and so they took 
advantage of another aspect of the law and have announced this 
agreement to at least provide them some guaranteed market for 
dumped, and I will underline again ``dumped'' steel.
    And that's one way, Mr. Chairman, that we can reduce the 
trade deficit--and that is to prevent future occurrences of 
suspension agreements in trade cases over the objection and in 
this case over the strong objection of U.S. petitioners.
    Mr. Tierney. Let me get back to the offsets for 1 second, 
if I may, Mr. Chairman? The comment was made that we have to 
take some action, that maybe we have to use the fact that we 
are a big market to do that. Whenever I mention that to the 
aerospace industry types they get apoplectic.
    Mr. Solarz. I know.
    Mr. Tierney. You can't do this, you go down the line. And 
yet they talk about being in a prisoner's dilemma. That they 
don't really want to do the offset business but, my God, these 
companies demand it. Negotiations haven't gotten us very far, 
frankly.
    It's the European nations, the Netherlands, and countries 
like that are probably more problematic in this area than the 
Asian countries. So if we're not going to have much success at 
negotiating, do we have to do something a little bit more 
harsh? Do we have to move in that direction? What do we say to 
these industrialists who want to keep telling us about their 
prisoner's dilemma but don't really want to make any other 
recommendations?
    Dr. Chimerine. Well, I think obviously many of them are 
concerned. I'm sure in the case of commercial aircraft, that 
our major aircraft manufacturer worries that if we push this 
too hard the business will go to Airbus because they don't 
fight them as hard on technology transfer and other issues, 
there is that risk. And this is probably why we haven't 
addressed the issue.
    Every time we do something like this, somebody objects 
because they feel they are going to be hurt by it or lose 
something by it. For example, there are steel users in this 
country who are fighting strengthening the dumping laws to help 
the steel industry or other measures that would help the steel 
industry.
    Mr. Tierney. Do we have something to counter that with, do 
we have----
    Dr. Chimerine. Well, you know to me it really comes down to 
what's in the national interest. And over the long term, we 
have to address the issue of the trade deficit. It's going off 
the charts, it's going to cause serious problems. As my 
colleagues mentioned, it already affects the composition of our 
output. We lose high paying jobs, even when the economy is 
strong, and in the long term it's probably going to weaken the 
economy. To me that has to be the overriding objective.
    And if somebody gets hurt in the short term as a result of 
the strong measures, if it strengthens the economy in the long 
run, we're all better off. But it's a very difficult political 
issue, and if it was easy we'd have done it by now. I don't 
have any brilliant new insights, unfortunately.
    Mr. Tierney. I want to thank all of the panel members, and 
thank you, Mr. Chairman.
    Mr. Mica. Thank you. One of the problems we seem to have is 
that we no longer have clear U.S. interests in the various 
industries or activities. U.S. interests have been plummeted by 
foreign interests and have become part and parcel to the 
foreign interests--whether it's Florida growers, or I remember 
the days in which we had pure Florida orange juice or fruit and 
vegetable operations.
    Now those folks are investing overseas and they no longer 
are interested in preserving U.S. interests. Steel has now 
become internationalized. In just about every activity, we see 
some U.S. investments, and there is no longer the clear outcry 
for any action. If you take some action, you don't have the 
support for sustaining or following through with it, which is 
part of the problem.
    I think the testimony of this panel boils down to three 
areas--we need tougher trade negotiation, we need tougher 
enforcement of existing laws on trade, and then enhanced 
promotion and support for U.S. activities. Plus, I think we may 
need to revisit some of the policies that now finance 
international financial organizations that undo our position, 
which is an interesting new phenomena.
    Dr. Chimerine. Mr. Chairman, can I make one other point?
    Mr. Mica. Yes.
    Dr. Chimerine. I think there is one other issue that all of 
us here would agree with, and that's tightening the WTO.
    Mr. Mica. China, if you look at this chart up here the 
second one you can't see, China is now No. 2 after Japan. They 
are part of the problem and they are also asking for admission 
into WTO. Do you want to comment?
    Dr. Chimerine. Yes. My concern really is that a lot of the 
trade practices that everyone here today mentioned, including 
you, Mr. Chairman, and Congressman Tierney and others on the 
panel, are really not under the WTO's jurisdiction. I mean, 
they are good at looking at tariffs, but they've got very 
limited jurisdiction over some of these other unfair trade 
practices. That has to be changed.
    And, second, in my opinion, there has to be a mechanism so 
that if the WTO finds Europe or somebody else in violation of 
WTO rules, there are strong penalties imposed by the WTO. Right 
now, it's probably not working toward U.S. interests because it 
doesn't address a lot of these issues, it doesn't have the 
power. The Europeans are now ignoring the findings. So I think 
we ought to work in that direction, in addition to everything 
else.
    And, last, to your point, and I know Howard mentioned this, 
and I guess I did too, we need to beef up our trade monitoring 
and enforcement group here in the United States. We negotiate 
all these trade agreements. I can remember all the agreements 
we negotiated with Japan on an industry by industry basis as 
part of the framework talks.
    They haven't done half or more of the things that they 
promised to do. And nobody seems to monitor them, nobody seems 
to do anything about it. So beefing up that aspect, which is 
not expensive, would be a very good starting point, I think.
    Mr. Tierney. I think the chairman covered this, thank you.
    Mr. Mica. I want to thank you. This is the first of our 
hearings to look at this problem. We appreciate your providing 
us with testimony and look forward to working with you as we 
pursue this matter, we think it's very important. This panel is 
excused.
    I'd like to call our last panel. We have two people 
testifying, Mr. Michael J. Copps, Assistant Secretary for Trade 
Development in the Department of Commerce and Mr. Johnnie E. 
Frazier, Acting Inspector General of the Department of 
Commerce.
    We're pleased to have both of you gentlemen join us, and 
hopefully respond to the topic that we have at hand that's so 
important, dealing with the record trade deficit the United 
States is experiencing. As I mentioned to our other panelists, 
this is an investigations and oversight subcommittee of 
Congress and we do swear in our witnesses.
    So, if you wouldn't mind standing, please raise your right 
hands?
    [Witnesses sworn.]
    Mr. Mica. Thank you. We welcome both of you. Let the record 
reflect both of the witnesses answered in the affirmative. 
We're pleased, again, to have you join us, to have your 
testimony. And we do have a policy of allowing lengthy 
statements being submitted for the record.
    We ask you that you try to use your open time of 5 minutes, 
we give a little where there are only two witnesses on a panel, 
and we will put lengthy statements in the record. Mr. Copps, 
you are recognized.

 STATEMENTS OF MICHAEL J. COPPS, ASSISTANT SECRETARY FOR TRADE 
 DEVELOPMENT, DEPARTMENT OF COMMERCE; AND JOHNNIE E. FRAZIER, 
        ACTING INSPECTOR GENERAL, DEPARTMENT OF COMMERCE

    Mr. Copps. Thank you very much for inviting me here today 
to talk about the compelling necessity to encourage American 
exports. It's always good to come home, and as someone who 
worked on Capitol Hill for nearly 15 years I'm grateful for the 
opportunity to be with you. I share your concern about the 
level of the trade deficit for 1998, and the prospect that it 
will go even higher this year.
    My job is not so much to analyze trade deficits as to do 
something about them. My job is to work day in day out with the 
private sector to grow American exports in the global 
marketplace. I spend my time not debating whether America 
should be part of the global economy--that decision was made 
irreversibly long ago--but working to ensure that America does 
well rather than poorly as a participant in that global 
economy.
    Mr. Chairman, my prepared remarks do delve briefly into the 
trade deficit problem, and I ask permission at this time to 
include that statement at the conclusion of these remarks.
    Mr. Mica. Without objection, so ordered.
    Mr. Copps. But let me use these precious few minutes I have 
to tell you about how we at the International Trade 
Administration at the Department of Commerce are trying to get 
that deficit down. Trade promotion is an effective tool to 
shrink the deficit. Can it do it by itself? I think I prefer to 
let the economists debate that one.
    What I do know is that if we as a Nation can mobilize our 
resources to take advantage of the opportunities of world 
commerce, that deficit will shrink significantly. And I would 
deem that a substantial contribution to the Nation's well 
being. In its early days the Clinton administration developed 
and began implementing a coordinated National Export Strategy 
in pursuit of increased exports.
    The National Export Strategy is continuously updated by the 
interagency Trade Promotion Coordination Committee which was 
given new life and vitality by the administration to unify 
previously fragmented and duplicative Government export 
programs. Secretary of Commerce, William Daley chairs this 
important group.
    The TPCC combines the resources of some 20 cabinet, 
independent, and White House organizations to initiate creative 
export promotion programs. This effort is not just desirable, 
it is imperative to counter the aggressive export promotion 
programs of other countries, programs targeted to put U.S. 
exporters at significant disadvantage and to put U.S. workers 
out of jobs.
    The Department of Commerce is the lead agency in carrying 
out most of the export promotion elements of the strategy with 
the notable exception of the large agricultural export program. 
Commerce's activities are relatively low in cost because we 
rely heavily on the expertise of the ITA country and industry 
experts in advising, assisting and advocating for our 
exporters, but they are important and critical nevertheless.
    Our export promotion strategy aims to match the 
aggressiveness of our competition, and it is marked by personal 
involvement at the highest level. In fact, I'm appearing before 
you because my boss, Secretary of Commerce Daley is in Korea 
today on one leg of a trade mission through Asia. And my 
immediate superior, Under Secretary for International Trade, 
David Aaron, is similarly engaged in Central America. Their 
mission objective is to advocate on behalf of U.S. business.
    These are just two of a number of missions either completed 
or planned during this year, and designed both to promote 
exports and to remove impediments to our exports. Secretary 
Daley has been to 35 countries championing U.S. business in the 
2 years that he has been our Secretary of Commerce.
    Let me take just a moment to provide a broad overview of 
the Department of Commerce's International Trade Administration 
because I believe we are well organized to play the lead role 
in implementing the Nation's National Export Strategy. I often 
liken ITA to four legs on a table. One leg is our United States 
and Foreign Commercial Service, a globe spanning operation of 
1,400 employees dedicated to helping U.S. business, 
particularly small or medium-size business, export.
    Here at home the Commercial Service has 105 Export 
Assistance Centers counseling U.S. firms on the steps needed to 
enter the export market and to succeed in it. These are one-
stop shops. That is, they offer access not only to the 
resources of the Department of Commerce but to those of the 
Small Business Administration, the U.S. Export-Import Bank, and 
a range of other U.S. Government agencies. And they work with 
and are often located near State and private groups charged 
with the same mission.
    Overseas the Commercial Service has 140 international field 
offices. The commercial officers stationed abroad advise U.S. 
companies on opportunities, help them with project bidding, 
arrange meetings, provide interpreters, collect valuable market 
information. Last year the Export Assistance Centers helped to 
bring about export sales worth nearly $2 billion.
    My shop is Trade Development a second leg of the ITA table. 
And it's a unique place in our Government that deals every day 
with the private sector--with U.S. companies and trade 
associations--to identify opportunities for the full range of 
U.S. businesses. We make sure that America is putting its best 
foot forward. We deploy the coordinated strength of the private 
and public sectors in a world where other countries learned 
that lesson long ago. Our industry expertise spans the gamut 
from basic industries to high tech.
    And we're also the home of the Advocacy Center. And I'm 
proud of that Advocacy Center because advocacy is really a 
hallmark of the administration's National Export Strategy. Your 
government and mine, far more than ever before, is directly and 
aggressively advocating on behalf of U.S. business. There is 
not a time when the President, the Vice President, or a Cabinet 
member goes out of the country to meet a foreign potentate or 
trade minister, or whatever, that that Cabinet member doesn't 
have in his or her briefcase a list of specific U.S. business 
projects, commercial projects, that they are expected to 
advocate for when they get there.
    The Advocacy Center works with the Government agencies and 
the private sector to get its job done. This is a startling 
change in attitude, and I don't say that as a partisan 
statement because I've been in this town long enough, and I've 
watched enough administrations of both parties come and go, 
standing blithely off on the sidelines while leaders from other 
countries aggressively promoted their home products and walked 
off with the contracts and walked off with the jobs too. U.S. 
business suffered and U.S. jobs were lost. That doesn't happen 
any more.
    And over the 5 years that we've had our little Advocacy 
Center down at the Department of Commerce, we can count some 
420 competitions in which our efforts assisted--and business 
will acknowledge our efforts assisted--their successful winning 
of the contracts. Those awards translated into $60 billion of 
U.S. content and support, probably somewhere on the order of 
800,000 U.S. jobs. It seems to me that in this time of soaring 
trade deficits, advocacy is more important than ever and we 
ought to be putting more effort into advocacy.
    We also have in Trade Development, where I work, the Trade 
Information Center, that's the 1-800-USA trade number where 
small and medium-size businesses can call to take the first 
step in accessing the global economy. We've received 85,000 
telephone calls last year, 90 percent of them from small 
business. We had 475,000 inquiries.
    Market Access and compliance is another leg of the ITA 
table. And this follows up the discussion you just had with the 
private sector because this is where we are trying to focus on 
identifying and eliminating trade barriers, and in making sure 
that we have compliance with our trade agreements. And this is 
really the high priority of Secretary Daley and Under Secretary 
Aaron.
    Whenever we discover restrictions on our access to a 
foreign market, we try to move aggressively. We have a new 
Trade Compliance Center in ITA. We have put together a far 
reaching data base so that there will be a place where all the 
trade agreements are available for business. And if a business 
has a complaint, or a trade association, or has knowledge of 
where a trade agreement is not being adequately enforced, then 
they work with the Trade Compliance Center.
    We work to try to solve those problems. And if enforcement 
becomes necessary, we coordinate with USTR. Now, this is a 
relatively new effort in the past couple of years, but as I 
said I know of no higher priority that the Secretary and Under 
Secretary Aaron have.
    The Market Access and Compliance Center also, let me just 
mention for 1 minute, has a regional focus. Where our Trade 
Development has a sector focus. Trade Development deals with 
different business sectors. Market Access and Compliance has a 
regional focus so they have specific commercial knowledge on 
Russia, China, Latin America, Europe, what have you.
    Then the fourth and final leg of the ITA table--and these 
legs are all necessary to support ITA--is the Import 
Administration. The Import Administration enforces laws and 
agreements to prevent unfairly traded imports. The most 
prominent recent example has been the determination that 
certain countries were dumping rolled steel products and a 
countervailing duty should be imposed to safeguard the U.S. 
steel industry. That's a high visibility issue. Secretary Daley 
was up here the day before he left on his trip testifying 
before Congress as he has done many, many times before.
    At the core of the National Export Strategy is a commitment 
to involve particularly America's small and medium-sized 
businesses in exporting. We are part of a global economy, as I 
said before. We're not going to make a decision whether we're a 
part of it. That decision was made for us. The decision is: do 
we get in there and participate well or do we drop the ball and 
participate poorly?
    SMEs are the locomotive of this country in creating jobs, 
in creating opportunity. And if our future is indeed in that 
global marketplace, we have to make darn sure the small and 
medium-sized enterprises are given the tools to go there and 
compete. Some of the most dynamic exporters we have in this 
country, and about 30 percent of our goods overseas are 
accounted for by SMEs, are the SME exporters really pushing the 
edge of the envelope in accessing foreign countries.
    Let me conclude with just a quick comment, talking up 
public sector and private sector partnering. I want to talk 
that up because it works. I've worked in the public sector for 
close to 20 years. I've worked in the private sector running a 
Washington office for a major corporation and as a senior 
official of a trade association. Having worked in the private 
sector, I know that the private sector cannot get the job of 
trade development done alone in a world where investment 
climate and procurement decisions and all the rest are made by 
government. Government has to be part of the equation.
    Having worked in Government for a number of years, I know 
that Government can't solve the problems alone. You need the 
innovation, the creativity and the expertise of the private 
sector. The reason I came back to Government and joined this 
administration 5 years ago was to bring the public sector and 
the private sector partners together in some innovative and 
creative ways, get everybody around the table, leverage off one 
another's strengths, so that when decisions are made overseas 
about business deals and trade agreements that everybody is 
there, everybody has an input, and that the strategic decisions 
of the United States are informed by a good strong commercial 
perspective.
    I hope you can tell I feel very strongly about that because 
I do. I'm a true believer that the only way this country is 
going to prosper and progress in the global economy is by using 
all of our resources. And I include in that the active 
cooperation with Capitol Hill, the executive branch, the 
States, the local governments and the private sector too.
    I could go on. You've already been very generous in 
according me this much time. So why don't I cease and desist at 
this point, but I will look forward to having some further 
discussion with you in a couple of minutes. Thank you.
    Mr. Mica. Thank you. We will defer questions until after 
we've heard from Mr. Frazier, the Acting Inspector General of 
the Department of Commerce. He will probably be commenting on 
the report released, I believe last week, on the International 
Trade Administration and it's efforts to improve and be better 
prepared for export challenges of the 21st century. Mr. Frazier 
you are welcomed and recognized.
    [The prepared statement of Mr. Copps follows:]
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    Mr. Frazier. Thank you, Mr. Chairman. Mr. Chairman and 
members of the committee, I am pleased to be here this 
afternoon to discuss some of the Inspector General's work 
related to the effort by the Department of Commerce, primarily 
the International Trade Administration, to promote U.S. 
exports.
    Much of our work within ITA has concentrated on the United 
States and Foreign Commercial Service, the Department's largest 
and most visible export promotion unit. My testimony will also 
include IG observations relevant to export promotion efforts by 
other parts of Commerce. And, finally, I will briefly highlight 
some of our observations on how certain trade promotion 
activities are or should be coordinated among various Federal 
agencies with trade promotion responsibilities.
    International trade is vital to the health of our Nation's 
economy as reported in the Trade Promotion Coordinating 
Committee's 1997 export strategy, our exports support 11 
million U.S. jobs. In 1998, the United States exported $931 
billion in goods and services. However, the Nation's 1998 trade 
deficit, as reported by the census Bureau, was $469 billion. 
More recent figures suggest that the Nation's trade deficit 
continues to climb.
    Obviously, there are many economic and other factors that 
have an impact on the trade deficit. While leaving that debate 
to expert economists, policymakers and others, I do believe 
that we in the Office of Inspector General have seen more than 
enough to convince us that notwithstanding some significant and 
lingering concerns, the Department of Commerce is aggressively 
promoting U.S. exports.
    As we conduct our reviews of ITA operations and activities, 
we routinely ask questions geared to determining how ITA can 
more effectively and efficiently pursue its export promotion 
responsibilities. The answers we find are varied, sometimes 
complex, but always insightful. For example, one long standing 
concern of ours is that ITA's organizational structure, as it 
has been managed, has allowed fragmented and duplicative 
approaches to providing trade promotion services. Realizing the 
agency's organizational problems, both the previous and current 
Under Secretary have prepared reorganization proposals in 
response to these problems.
    The United States and Foreign Commercial Service is the 
Department's principal and most visible promotional 
organization, with a global network of offices strategically 
located in more than 220 cities worldwide. It has long been 
clear to us that both congressional and executive branch 
officials recognize the need for the Department to concentrate 
its efforts on helping individual U.S. exporters, primarily the 
smaller ones.
    This direction is clearly stated in the Trade Act of 1988. 
Given the specificity of the act's objectives, it is no 
surprise that much of our work is concentrated on how well 
United States and Foreign Commercial Service is fulfilling its 
trade promotion responsibilities.
    One specific example, No. 4, and I'll point to the chart 
here [indicating visual aid on tripod] gets to the substance of 
what many U.S. firms need and want, actual trade leads and an 
introduction to key contacts in a foreign country. The United 
States and Foreign Commercial Service fulfills this requirement 
in a variety of ways, most notably through its gold key 
service, agent distributor services, and matchmaker program.
    During our various reviews of United States and Foreign 
Commercial Service offices many clients have told us that these 
services are some of the most valuable export assistance 
services available. Other exporters have told us how these 
services can work better.
    And, finally, although ITA is clearly the lead Commerce 
agency in the area of trade promotion, it is not the only 
Commerce agency that plays a role in the advancement of U.S. 
exports. For example, Commerce's National Institute of 
Standards and Technology plays a key role in ensuring that U.S. 
firms have a competitive opportunity, if not an advantage, in 
the global marketplace through its work on measurement and 
standards issues.
    NIST currently has representatives in Saudi Arabia, 
Belgium, Mexico, Brazil, and India. Commerce also has the lead 
for the Government's Trade Promotion Coordinating Committee. 
The committee was first created in 1990. The Secretary of 
Commerce was designated as the chairman of the committee, which 
included senior level representatives from 18 Federal agencies, 
now expanded to 20.
    The committee's mission is to ensure that the Federal 
Government is doing all that it can to help U.S. companies 
export. The committee has made some progress toward 
establishing a governmentwide strategy for export promotion 
activities.
    In an earlier report on the Department's trade promotion 
efforts, we reported concerns about the lack of adequate 
interagency coordination. Since that review, the committee has 
established a secretariat to improve the coordination between 
the U.S. Government agencies on Federal trade promotion 
efforts.
    We believe that the Coordinating Committee can be an 
effective tool for better addressing coordination problems 
between the foreign affairs agencies located in missions 
overseas, problems that we have too often seen. This completes 
my summary statement, and I'll be very glad to answer any 
questions you may have.
    [The prepared statement of Mr. Frazier follows:]
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    Mr. Mica. Thank you for your testimony. I do have several 
questions. First, part of your report, and I'll just read from 
some of it, states that ``many of the problems in ITA's 
management of its programs and operations point to periodic 
voids in leadership and general direction of the individual 
units.'' Is this something that has been remedied, or is this 
something you have identified and are continuing to resolve?
    Mr. Frazier. I'd surely like to think that the 
reorganization proposals that are currently being explored by 
the Department will address this issue. This is something that 
GAO raised as early as 1990. In 1991, they raised it again, I 
think. And we raised it in 1993 as a problem, saying, 
basically, that the way that agency is structured and has been 
managed has allowed many of the units to virtually compete with 
one another.
    And that could be healthy on many occasions, but at the 
same time, if it's not very clear as to who has the lead 
responsibility in a given area, we think that the competition 
can be unhealthy and counterproductive.
    As we completed our most recent work, the report that you 
are holding there, we interviewed most of the senior managers 
in ITA, again, asking the question, ``How can we make the 
organization stronger, better suited, better prepared to help 
U.S. exporters?'' And one of the things that we constantly 
heard was ``to make certain that it was clear as to who had the 
primary responsibility in the area of trade promotion.'' In 
ITA, Trade Development and the United States and Foreign 
Commercial Service had the primary responsibilities along those 
lines.
    And my understanding is that they are moving now to make it 
very clear that MAC, the Market Access and Compliance Unit will 
primarily concentrate on policy issues as opposed to competing 
with TD and with the United States and Foreign Commercial 
Service. So, with a little luck, Mr. Chairman, the new 
proposals, some of the changes that are being discussed, should 
address a lot of those long-standing problems.
    Mr. Copps. Could I add just a comment?
    Mr. Mica. Yes, go right ahead.
    Mr. Copps. I think that a lot of the challenge in making an 
organization like ITA run efficiently is management rather than 
simply organization. And I think for various reasons over the 
past few years we have had some long management intervals 
between Assistant Secretaries.
    One of them was killed with Secretary Brown, as you may 
remember. Others left and I say this non-partisanly, because it 
takes a long time to get nominations through the White House 
and through the Congress too. But I think right now we have a 
management team in ITA that's the best that I've seen in the 
5\1/2\ years that I've been there.
    We have team players heading Market Access and Compliance, 
the Foreign and Commercial Service, Trade Development, and 
Import Administration, all working under Ambassador Aaron. So I 
think that some of the management challenges are in the process 
of being met. And with the modest organizational realignment 
that is being contemplated, I'm optimistic about where we are 
going.
    Mr. Mica. Well, there are always two questions. One is--can 
personnel make the administrative changes that are necessary to 
accomplish the goal? The second is, should the structure be 
changed organizationally to accomplish the goals?
    From the testimony of Mr. Frazier, I believe he said, this 
seems to be a recurrent problem, whether we've had Republicans 
or Democrats in charge in the Department. And he cited, as I 
recall from his testimony, 1990 and 1993 problems, that this 
has been looked at. In his testimony and also in his summary, 
he cites, ``ITA's current organizational structure as it has 
been managed has encouraged fragmented and often duplicative 
approaches to providing trade promotion services and support to 
U.S. firms.''
    So Congress also has a responsibility and an oversight 
requirement to see that there is a structure in place that will 
accomplish our objectives. Mr. Frazier, it does not appear that 
has occurred. What is your comment and the point you are making 
here?
    Mr. Frazier. Let me add a couple of things here. One, we go 
back to 1993 when we issued a similar report to the one that 
you have, where we first surfaced this issue, reported on it. 
As I indicated, GAO had previously raised the issue as did 
consultants brought in by ITA.
    One of the problems that we found back in 1993 was that 
there were many, many political appointees throughout ITA who 
came and went with such frequency as to not provide in our 
judgment the kind of continuity needed. It was almost like a 
revolving door on many occasions. One of the things that I'm 
aware of that Secretary Daley did last year was to reduce the 
number of political appointees occupying some of the positions 
in ITA. And I think that has made a big difference because you 
aren't going to have those kinds of voids that we were 
experiencing in the early 1990's. So I'm hopeful that that will 
make a difference.
    The other thing is that I think that the Secretary has said 
that he and Ambassador Aaron are working to come up with some 
kind of a modified structure that will deal with these issues. 
And, again, part of it is the commitment of the various leaders 
in ITA to agree to work together. But, again, I would point to 
the one caveat that we put in our statement, ``as it has been 
managed.''
    A lot of this has to do, as I think Mike points out, with 
management. If you get the kind of leadership that is necessary 
to make people do what they are supposed to do, make it very 
clear what you expect of them, and hold them accountable for 
those responsibilities, then I think that some of these 
problems can in fact be addressed without a major 
reorganization, per se.
    Mr. Mica. Well, again, you talk about personnel. In your 
recommendations you say that, at a minimum, we should aim to 
reduce the overlapping administrative and programmatic 
functions and remove organizational barriers that inhibit 
internal coordination and cooperation. Now, that is one aim.
    I'd like you to address a second. First, can these be done 
administratively? Second, are there any legislative remedies 
that should be examined?
    Mr. Frazier. I think that all of them, quite candidly, can 
be dealt with from a leadership management perspective. Part of 
it is that you are going to annoy a few people as you take away 
certain responsibilities and tasks that people have always 
enjoyed doing.
    It's interesting because we find that if we talk to trade 
specialists in one part of ITA who are very excited about the 
work that they do helping exporters, they like the idea of 
working directly with exporters. But if that's not their 
primary duty, somebody has to tell them ``You cannot 
concentrate on it.'' You can get a lot of satisfaction from 
seeing people have success.
    The people in Market Access an Compliance, that's not their 
primary responsibility. They have to move away from that. That 
has been difficult for some people to accept. So, again, I 
think that these are all issues that if properly managed, with 
the proper leadership, can be handled.
    Mr. Mica. Further beyond the internal operation of ITA, 
your report touches upon some of the activities between various 
U.S. agencies operating to promote U.S. exports. You do talk 
about some instances of overlapping--failure to communicate on 
projects, inefficient operations, you call it ``embarrassing 
overlap.'' Do some of these uncoordinated activities that are 
legislatively mandated need to have the attention of Congress 
as far as reorganization?
    Mr. Frazier. Mr. Chairman, in theory the Trade Promotion 
Coordinating Committee can play a major role here, if they lay 
out certain basic guidelines, if you will, requiring agencies 
to take certain simple basic actions when they are working 
overseas. You know, we spend a lot of time inspecting our 
commercial operations overseas. And as part of that process, we 
invariably go and meet with representatives from other foreign 
affairs agencies that are overseas.
    For example, the Foreign Agricultural Service, USIA, and 
others. And if we go in and find out that they are working on 
various projects and they have not coordinated with one 
another, we think that that is such a disservice to U.S. 
exporters. If we find, for example, folks who are working with 
the Foreign Agricultural Service and yet not working with our 
people to sell farm equipment and other things that would 
support what the FAS is doing, that's a problem.
    And I guess the thing that makes it all the more 
significant is that when we find examples of where it's working 
exceptionally well, and we see how beneficial that can be, it's 
all the more reason that it's essential that this cooperation 
exists overseas.
    Mr. Mica. Assistant Secretary Copps, we heard in the other 
panel some recommendations for some simple implementation of 
minor conveniences, such as being able to make long distance 
telephone calls. Can those things be addressed?
    Mr. Copps. I was not here to hear what the specific 
suggestion was about long distance telephone calls, so I'm not 
aware of that.
    Mr. Mica. Again, the inadequacy of some of the equipment. I 
visited one of our--I always try to visit our embassies, our 
Foreign Commercial Service operations, if I can get past the 
massive security and even as a Member of Congress I always feel 
like I've accomplished something. But then you see sometimes 
the inadequately equipped offices. One office did not have a 
telephone modem.
    The witness testified that the office wasn't permitted to 
make long distance calls. Seeing that they are dealing with 
international trade promotion, don't you think that would be 
considered a bare necessity to conduct business?
    Mr. Copps. I think they would not only be desirable but 
that they would be essential. And I would be happy to raise 
this with Assistant Secretary Awilda Marquez. She is the 
Director General of the United States and Foreign Commercial 
Service. They have a large commitment, just as we all do in 
ITA, to become the digital department and the modern 
communications department.
    We are looking right now at trying to make much more 
massive use of technology such as video conferencing, and the 
Internet, and e-commerce. We have to do that just to continue 
on doing the job that we're doing. Our budgets for travel and 
things like that are constantly tight so we have to find new 
and more effective ways to reach out to do things.
    Mr. Mica. Do our Foreign Commercial Service operations in 
the various countries now all have websites?
    Mr. Copps. I'm not aware of the fact if each office has 
one, but I know that the Foreign Commercial Service has an 
extensive commitment to websites, as do we all in the 
Department of Commerce.
    I think if you will go to the ITA Home Page and look at the 
resources and the information that is there on every industry, 
on every country, an market analysis for every country, that 
you'd be quite impressed by what you see.
    Mr. Mica. Would it be possible to check back with the 
committee and provide us with information on the number of our 
posts, where we have posts or a Foreign Commercial Service 
officer, and if they have webpages in those countries? I think 
one of the most important things in conducting business is 
having basic information.
    Probably the easiest way to access that information today 
is through existing technology, particularly for medium and 
small businesses. Usually the large businesses can hire their 
own research or acquire the basic knowledge. But I would 
appreciate if you would report back to us on that.
    Mr. Copps. I will be delighted to do so and get the 
information from the FCS and I know I can report from our shop, 
in TD, that all of our offices have their own websites, their 
own industry sector information, and how to's on exporting.
    Mr. Mica. What about the 105 U.S. centers, do they all have 
websites?
    Mr. Copps. I would think so but I will check on that----
    Mr. Mica. In the not too distant past, unfortunately, we 
did find that there were offices that did not have websites, 
and did not have sufficient computer equipment. When the 
earlier witness spoke of the concern about going into an 
overseas post that could not make long distance phone calls 
because they had exceeded their budget, if you will, they were 
running out of money and they could not return calls. We 
reported on some of that probably 18 months ago. I would like 
to think that a lot of that has been addressed, but it was 
clearly one of the problems.
    If you go to our report on the Export Assistance Center, 
that's the 105 centers that you were just referring to, in that 
report, and again that was 3 years ago, we were very troubled 
by the fact that many of the sites did not have the information 
technology capabilities, websites, and things that were 
necessary. We could not believe going into an office that could 
not access the Internet, for example. So it was something that 
we were concerned about.
    In the report that you have, one of our recommendations is 
that ITA get a better handle on its information technology 
issues even with the possibility of consolidating some of 
those. You would go in one part of ITA and they would have 
state-of-the-art equipment, then you go down the hall and there 
would be something less desirable, we'll say. And the other 
thing is that we were concerned that many of the systems were 
not interactive. And, again, that's some of the things that can 
be fixed in house.
    I am pleased to report we have assurances from ITA 
management that all of the recommendations in our report are 
being addressed. I think there was one recommendation in there 
that they disagreed with, and we are going to pursue it also.
    I have further questions and I'll be submitting them to you 
and also the Secretary. I'd like to yield to the gentleman from 
Ohio, Mr. Kucinich.
    Mr. Kucinich. Thank you, Mr. Chairman. I have two questions 
for Mr. Copps. But welcome to both of you gentlemen. Thank you 
for the work that you are doing for the country and I'm very 
grateful for your participation.
    Mr. Copps. Thank you.
    Mr. Kucinich. The administration had repeatedly defended 
NAFTA and advocated for NAFTA's expansion to the Caribbean and 
Africa by citing the growth of United States exports since 
NAFTA was enacted. I don't know if you were here, Mr. Copps, 
when I was making my remarks. But I pointed out in my statement 
that Ohio's export of an engine to Mexico occurs because the 
assembly plant in Michigan was closed after NAFTA and reopened 
in Mexico, causing a loss of United States jobs. This export 
represents a deterioration of the U.S. economy.
    Furthermore, when the truck assembled in Mexico comes back 
to the United States, it adds to the trade deficit. Therefore, 
the trade deficit reflects a deterioration of the U.S. economy. 
If the administration had advocated the passage of NAFTA by 
claiming it would increase the trade deficit, my guess is that 
Congress would not have passed it. My question is this: with 5 
years of experience now with NAFTA, don't you have to agree 
that a growing trade deficit with Mexico is causing the 
opposite reaction in the United States economy than the net 
growth the administration promised?
    And if the administration promises economic growth and 
Congress passes NAFTA expansion to the Caribbean and Africa, 
why should the Congress believe the administration based on 
NAFTA's track record in causing a growing trade deficit, if you 
could give a stab at that?
    Mr. Copps. Well, I think we would probably have a small 
element of disagreement on the overall thrust of NAFTA. I 
realize when you get a devotee and an opponent of NAFTA 
together, it's sometimes difficult to find common ground. But--
--
    Mr. Kucinich. Well, you could stick with the facts and see 
where it takes you.
    Mr. Copps. All right. My conclusion is that NAFTA is 
working for America. It is leveling the field of play that was 
previously tilted toward Mexico. In 1993, the United States 
faced some pretty significant tariff barriers and non-tariff 
barriers. In 1999, most of those tariffs are gone. A lot of the 
licensing requirements and other non-tariff barriers are gone 
too. In 5 years our U.S. exports have gone up something on the 
order of 92 percent. Even last year, up another 11 percent.
    When the Asian crisis came along, I think thanks to NAFTA, 
Mexico was not in a position to raise tariffs against the 
United States which it might otherwise have done. You know, 
I've seen reports like one from the Dallas Federal Reserve 
which did a study concluding NAFTA actually reduced our trade 
deficit with Mexico. I'm not an expert on that report, but I 
know that there is some lively discussion that's----
    Mr. Kucinich. Actually, I have that available, Mr. Copps. 
Before NAFTA was implemented in 1994, the United States had a 
positive balance of trade on goods and services with Mexico. 
Now, according to the Department of Commerce data, this is 
where we get it from, in 1992 the United States trade surplus 
with Mexico was about $5.4 billion. In 1997, 3 years after 
NAFTA, the United States had a trade deficit with Mexico worth 
$19.5 billion.
    Based on the facts that I get from the Department of 
Commerce, I would take issue with the assertion that NAFTA has 
been good for the United States with respect to its balance of 
trade or imbalance of trade with Mexico.
    Mr. Copps. Well, I understand what you are saying. And, 
again, I think we would have to go back to some of the 
fundamentals and what it is that caused the massive 
dislocations and difficulties that Mexico had. My 
interpretation is that NAFTA probably helped us weather those 
and was a positive contribution. Your interpretation of that is 
obviously very different.
    Mr. Kucinich. Thank you very much.
    Mr. Copps. Thank you.
    Mr. Mica. I thank the gentleman. I was just relaying to 
staff that when I came to Congress in 1993 from the private 
sector, I had been involved in international trade. I visited 
many of our embassies and our Foreign Commercial Service 
offices around the world in that capacity, and one of the first 
things I did upon taking office was to, I think, write all of 
the Foreign Commercial Service offices and Ambassadors around 
the world with my own little inquiry.
    It wasn't quite as detailed as the IG's reports, but just 
trying to assess what we were doing and where we were on 
assisting trade promotion. After the State Department contained 
itself from an apoplectic fit about my unilateral action, we 
were able to agree on how the information could be gathered, 
which we did gather. I found our efforts, as I suspected, just 
from the samples that I had been involved in personally 
observing, that there were some serious deficits.
    Unfortunately, it does not appear that we have made a whole 
lot of progress even on some simple matters. We have changed 
some faces. I do, before I close however, want to become 
complimentary. I rarely do this of the Clinton administration. 
You might listen to this, Dennis, but I will say at the highest 
levels the administration has attempted to inject itself in the 
trade promotion and I commend them for that. They have done 
that very well on repeated occasions. Even, I remember, in the 
private sector, when we couldn't get the Republican top folks 
to do the same thing, so I am very complimentary in that 
regard.
    However, it seems that we are still in a bit of chaos, 
disorganization, and a lack of reforms at lower levels. And I 
think the IG's report does detail some of that. I am not 
interested in bashing the agency, but in our capacity we are 
going to conduct some rigorous oversight.
    We would be glad to sit down with the Department and others 
and look at these reports and see what we can do to bring about 
some corrective measures. So that's the intent of this first 
hearing, and what we will be seeing in the coming months and 2 
years.
    Mr. Copps. Could I just respond to that for 1 second?
    Mr. Mica. Yes.
    Mr. Copps. I have over the years very much welcomed your 
open-minded approach to this. You may not recall, but I recall 
that we had the opportunity to have some discussions on ITA 
reorganization during the great dismantlement debates of a few 
years back, and I appreciated your willingness to listen and we 
have very much appreciated the suggestions you made.
    I'm not here to suggest that our organization is perfect or 
that the implementation is perfect. And we depend on my 
colleague, Mr. Frazier, and on the oversight of subcommittees 
like yours, and as much as anything, on the creative input of 
our partners in the private sector to critique both our 
performance and our organization. But I just want you to 
understand that when all these debates go on, as Teddy 
Roosevelt said, ``We're in the arena.''
    And we are in one heck of an international competition 
right this minute and we are out there doing our job. And I 
want to reflect on all of the employees of Department of 
Commerce who I think, by and large, are committed to getting 
the job done, are working hard, are making a contribution to 
public service and are I think aware of the very high stakes 
involved for the American people and the American worker and 
American industry as we try to succeed in the global economy.
    Mr. Mica. I thank you both for your testimony and for your 
participation. As I said, we will leave the record open for at 
least 10 days for any additional comments. We look forward to 
working with you in a cooperative effort to see how we can all 
do a better job. Thank you. There being no further business 
before the subcommittee, this meeting is adjourned.
    [Whereupon, at 4:30 p.m., the subcommittee was adjourned.]

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