[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
TRADE WITH CHINA HELPS SMALL BUSINESS EXPORTERS WORK
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
MAY 16, 2000
__________
Serial No. 106-58
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
66-396 WASHINGTON : 2000
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA M. CHRISTIAN-CHRISTENSEN,
DAVID M. McINTOSH, Indiana Virgin Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
MICHAEL P. FORBES, New York DENNIS MOORE, Kansas
JOHN E. SWEENEY, New York STEPHANIE TUBBS JONES, Ohio
PATRICK J. TOOMEY, Pennsylvania CHARLES A. GONZALEZ, Texas
JIM DeMINT, South Carolina DAVID D. PHELPS, Illinois
EDWARD PEASE, Indiana GRACE F. NAPOLITANO, California
JOHN THUNE, South Dakota BRIAN BAIRD, Washington
MARY BONO, California MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
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SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS
DONALD A. MANZULLO, Illinois, Chairman
STEVEN J. CHABOT, Ohio CAROLYN McCARTHY, New York
PHIL ENGLISH, Pennsylvania RUBEN HINOJOSA, Texas
PATRICK J. TOOMEY, Pennsylvania CHARLES A. GONZALEZ, Texas
GRACE F. NAPOLITANO, California
Philip Eskeland, Senior Professional Staff Member
C O N T E N T S
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Page
Hearings held on May 16, 2000.................................... 1
WITNESSES
Crane, Philip M., a Representative in Congress from the State of
Illinois....................................................... 3
Alvarez, Aida, Administrator, Small Business Administration...... 4
Olson, James E., CEO, Olson Technologies, Inc., Allentown, PA.... 16
Gabbour, Jeffrey, Vice President, Prestige Enterprise
International, Cincinnati, OH.................................. 18
DeDocker, Sharon K., Vice President, Aqua-Aerobic Systems, Inc.,
Rockford, IL................................................... 20
Phelps, Robert, Owner-operator, Phelps Farms, Rockton, IL........ 22
Parker, Keith, Chairman and CEO, Summit Environmental
Corporation, Inc., Longview, TX................................ 25
APPENDIX
Opening statements:
Manzullo, Hon. Donald A...................................... 29
Prepared statements:
Crane, Philip M.............................................. 31
Alvarez, Aida................................................ 33
DeDocker, Sharon K........................................... 40
Olson, James E............................................... 45
Gabbour, Jeffrey............................................. 51
Parker, Keith................................................ 56
Phelps, Robert............................................... 61
Additional material:
Department of Commerce Report................................ 64
Chamber of Commerce Report................................... 82
GAO Study.................................................... 128
CRS Report................................................... 145
Senate Bill 2277............................................. 162
White House Press Release.................................... 164
Summary of U.S.-China Bill Bilateral WTO Agreement........... 167
The U.S.-China WTO Accession Deal............................ 173
SOCMA News Release........................................... 175
NAM Statement................................................ 176
TRADE WITH CHINA HELPS SMALL BUSINESS EXPORTERS WORK
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TUESDAY, MAY 16, 2000
House of Representatives,
Subcommittee on Tax, Finance, and Exports,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 10 a.m., in room
2360 Rayburn House Office Building, Hon. Donald A. Manzullo
(chairman of the Subcommittee) presiding.
Chairman Manzullo. The Subcommittee will come to order.
Good morning. I have a very short opening statement, and
Mrs. McCarthy has a very short opening statement, and then we
will proceed directly to testimony.
Trade with China helps small business exporters work. There
is a myth that a U.S.-China WTO agreement is only for big
multinational corporations who cannot wait to ship jobs to
Chinese workers. I want to dispel that myth right here and now.
Few people know that 82 percent of all direct U.S.
exporters to China are small- and medium-sized companies. These
exporters generated 35 percent of the dollar volume of all U.S.
exports to China in 1997. And out of every country in the
world, China ranks third as the largest growth market for small
business exporters.
Today, we will look behind the rhetoric and the trade
statistics to see if trade with China and, more specifically,
the recently negotiated U.S.-China World Trade Organization
Accession Agreement, benefits small business exporters.
Before the Subcommittee today is a mere fraction of the
real-life stories of the impact of China trade on small
business exporters. We all understand that international trade
is more than raw statistics. This hearing puts real faces
behind these statistics.
Who are these exporters? People like Sharon DeDoncker of
Aqua-Aerobic Systems, Inc. Sharon, I always mess your name up.
You can pronounce it and we will get it right for the record.
We have Sharon from Aqua-Aerobic Systems in Rockford, Illinois,
but she is not alone. Many more small- and medium-sized
companies throughout northern Illinois export to China. In
fact, China represents one of the fastest growing export
markets for Rockford, Illinois. Between 1993 and 1998, exports
from Rockford to China surged nearly 300 percent.
Small- and medium-sized companies throughout northern
Illinois stand to benefit from this agreement with China,
either directly as exporters or indirectly as suppliers to
exporters. Some of these companies include Coffee Masters of
Spring Grove; E.D. Entyre of Oregon; Clinton Electronics of
Loves Park; Abar-Ipsen Industries of Pecatonica; Modine
Manufacturing in McHenry, which supplies Chrysler's Jeep
Cherokee plant in Beijing; Seward Screw Products of Seward,
Illinois, which supplies more than 80 parts to Harley-Davidson;
Bergstrom Manufacturing of Rockford, a supplier to the
construction equipment manufacturer, Caterpillar; Cherry Valley
Tool & Machine of Belvidere, Kysor/Westram Corporation of
Byron, and Rockford Spring Company, who are all suppliers to
the agricultural equipment manufacturer, Case.
Simply put, this agreement is uniquely beneficial to small
business exporters. I commend this administration for reaching
this historic agreement.
I look forward to the testimony of our witnesses.
Mrs. McCarthy.
[Mr. Manzullo's statement may be found in appendix].
Mrs. McCarthy. Thank you, Mr. Chairman, for scheduling this
hearing to discuss the impact of the trade agreement reached
between the U.S. and China and American small businesses. I
would also like to thank Administrator Alvarez and Chairman
Crane, as well as our second panel of guest witnesses, for
taking time out of their busy schedules to be with us today.
As we all know, the United States reached a trade deal with
China in November of last year, allowing them to become a
member of the World Trade Organization. Next week, the House of
Representatives is scheduled to vote on granting China
permanent trade status in order to reap the benefits touted
within the trade agreement.
History has shown that isolationism does not sustain or
promote economic growth. Fair trade with other countries can be
extremely beneficial to both small and large businesses. This
was exemplified in recently passed legislation that promoted
trade with African and Caribbean countries.
However, the trade deal reached with China differs
significantly from the African trade proposal. Throughout the
past 10 years, the United States has engaged in an aggressive
trade policy with China. Unfortunately, the U.S. still suffers
a large trade deficit with China and encounters numerous trade
barriers when attempting to enter their markets. Although the
agreement reached between the United States and China removes
many of these barriers, I am still concerned over the
inefficient monitoring mechanisms needed to protect American
businesses and workers.
It is argued that China would fall under the same
disciplinary proceedings as other WTO member countries, but
this is a slow and daunting process that could take as long as
2 years before any action is taken. During that time, more
American jobs and businesses could be jeopardized because of
China's noncompliance.
While I believe in fair trade and supported normal trade
relations with China in the past, I have several reservations
about granting China permanent trade status. Providing small
businesses with new markets to export their goods and services
is one of the many factors we must address before making this
important step. Although trade with China presents several
concerns outside the realm of trade, I look forward to the
testimony from our distinguished guests on the impact on small
businesses.
I thank you, Mr. Chairman, and I look forward to the
testimony.
Chairman Manzullo. Thank you. Our first witness will be
Congressman Phil Crane, who is in the neighboring congressional
district to the one that I represent. He is the chairman of the
Trade Subcommittee on Ways and Means.
Mr. Crane.
STATEMENT OF HON. PHILIP M. CRANE, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ILLINOIS
Mr. Crane. Thank you, Mr. Chairman. I thought maybe it
would be ladies first, but I see it is age before beauty.
I thank you for inviting me to testimony before your
Committee in support of granting China permanent normal trade
relations and its importance to small businesses throughout the
United States. I would like to enter a copy of my statement
into the record.
Chairman Manzullo. Without objection.
Mr. Crane. Thank you, Mr. Chairman.
I want to share with you the results of a General
Accounting Office report I requested on the impact of
international trade on small- and medium-sized U.S. businesses.
But, first, I want to talk about the overall importance to our
country of granting China permanent normal trade relations.
Approving permanent normal trade relations with China will
create new jobs for a new economy. We are talking about more
American jobs, jobs paying a higher wage because export-related
jobs pay an average of 17 percent more than nonexport-related
jobs, according to the Department of Commerce.
[The information may be found in appendix.]
Mr. Crane. The choice facing us on normalizing trade
relations with China is historic, perhaps the most important
vote the House will cast this decade. The new trade agreement
with China is a one-way deal in our favor because it does not
increase access to the U.S. market for the Chinese.
The United States represents only 5 percent of the world's
population, while China is roughly 20 percent. We can sell only
a limited number of products and services within the United
States. In order to keep our economy growing, we have to have
access to a market the size of China's, not only as it exists
today, which is huge, but access, as it continues to grow into
the world's largest consuming market.
In a global economy, increasing trade with China is not
only the best way to keep our economy growing, but it is also
the best way to help improve the standard of living and human
rights conditions in China.
This is clearly a win/win for America and for China. While
we are all in agreement, we need to continue to keep the
pressure on the Chinese Government to improve human rights,
labor, and environmental conditions, giving the Chinese people
access to products and services, manufactured and created with
our standards, is the best way to improve conditions in their
country.
Mr. Chairman, as you know, small- and medium-sized
businesses are huge exporters of products and services. The
nonpartisan GAO study I requested shows that over 202,000
small- and medium-sized businesses in 1997 exported goods to
countries around the world, a figure nearly double the 112,000
companies that exported goods in 1992, just over a 5-year time
frame. I would like to enter the complete study into the
record. The study also found that companies with fewer than 500
employees accounted for 97 percent of all U.S. exporters in
1997, which is the most recent year that data is available.
[The information may be found in appendix.]
Mr. Crane. Some of the other highlights of the GAO study
include: exports by small- and medium-sized firms account for
one-third of the total value of exported U.S. goods. In 1997,
these businesses exported goods valued at $172 billion and
accounted for 31 percent of total U.S. exports. Ten years
before, small- and medium-sized firms exported $42 billion in
goods, or 26 percent of all U.S. exports that year.
Small- and medium-sized businesses represented the highest
shares of total U.S. exports in miscellaneous manufactured
goods, 66 percent; lumber and wood products, 64 percent; and
apparel, 51 percent. By value, U.S. goods exports rose from
$251 billion in 1987 to $689 billion in 1997. U.S. goods
exports increased from 5 percent of gross domestic product in
1987 to 8 percent of GDP in 1997. Similarly, U.S. service
exports rose from $99 billion in 1987 to $258 billion in 1997.
Since 1990, small businesses have created 75 percent of all net
new jobs.
This study shows that it is not just Wall Street that will
benefit from trade with China, but Main Street small businesses
started by American entrepreneurs that represent the heart of
our economy as well. For hundreds of thousands of these
businesses, expanded trade has meant more and better jobs,
higher wages, and better benefits for their employees. This
report is another indication that expanding trade with China
will open international markets even more to these diesel
engines of our Nation's economy.
In today's international marketplace, small- and medium-
sized businesses are no longer competing here in America, but
around the world. I hope my colleagues who remain undecided on
the upcoming vote on China will remember how vitally important
international trade is to small businesses and the thousands
they employ in their districts back home.
Thank you, Mr. Chairman.
Chairman Manzullo. Thank you, Mr. Chairman.
[Mr. Crane's statement may be found in appendix.]
Chairman Manzullo. Our next witness from the first panel is
Administrator Alvarez. She is the Administrator of the U.S.
Small Business Administration, a person with whom I have worked
on several projects and for whom I have the utmost respect. She
is quite scholarly, and I can tell you firsthand she is an
excellent administrator.
STATEMENT OF HON. AIDA ALVAREZ, ADMINISTRATOR, SMALL BUSINESS
ADMINISTRATION, ACCOMPANIED BY JIM WILFONG, OFFICE OF
INTERNATIONAL TRADE
Ms. Alvarez. Thank you so much. That is very kind, Mr.
Chairman.
Mr. Chairman, Ranking Member McCarthy, Chairman Crane and
distinguished members here, thank you for inviting me to
testify about America's small businesses and trade with China.
I can only echo what Chairman Crane just said about the
importance of international trade and the potential
opportunities with PNTR for small businesses.
The opportunities, as I said, are growing for small
business in the international trade arena. This Subcommittee is
well aware of that and the fact that the voice of small
business is often ignored in debates on issues of national
importance, particularly the permanent normal trade relations
for China, which is why we are here today. It is important to
note that in the aggregate, small business is big business for
this economy. It is the engine that drives the economic growth
in this country.
As we heard, 97 percent of all U.S. exporters are small
businesses, generating at least one-third of the revenues
produced by those exports. With specific focus on China, China
is actually the tenth largest export market for U.S. small
businesses. As you said, Mr. Chairman, small businesses account
for 82 percent--82 percent of the U.S. exporters to China; 35
percent of the revenues generated. And, the growth rate is
really impressive. From 1992 to 1997, for example, the number
of small businesses exporting to China increased 141 percent.
Clearly, China's growing market is creating unprecedented
opportunities for American entrepreneurs. We talked about where
a vast part of the world's population resides, and it is in
China.
I know that you will be hearing on the next panel testimony
from many small businesses that are already trading
successfully with China, but I am sure you will hear from them
that it has not always been smooth sailing. It is not easy to
be a small business trying to do business with China. For small
businesses, there are continuing problems with a lack of
published rules, high tariffs, requirements to have expensive
local partners, requirements to obtain multiple import and
business licenses.
What effect, if any, would permanent normal trade relations
have on U.S. small businesses? I can tell you from my
experience and in talking to small businesses around the
country that they believe PNTR would be a big win for them. In
fact, I would venture to say that small businesses may even
enjoy greater benefits relative to large companies.
For example, Boeing, which has a long-standing presence in
China, has the ability to deal directly with the government.
Not so for small businesses; small businesses historically have
not had that type of clout. With the Chinese Government
lowering barriers and opening up more business-to-business
contact, we anticipate that the playing field will be
significantly leveled for untold numbers of small businesses.
It is not just the owners who benefit from PNTR. We believe
that PNTR would also be a big win for the people who work for
small businesses. We know, for example, and we heard some of
those figures here this morning, small business exporters
experience 20 percent greater job growth. They pay wages that
are 17 percent higher, on average. They provide benefits that
are 11 percent higher, on average, than their nonexporting
counterparts.
Let me just highlight a few of the key aspects of the PNTR
agreement that will help U.S. small businesses. Under this
agreement, China will cut the average general industrial tariff
from 24.6 percent to 9.4 percent by 2005; lower information
technology tariffs from 13.3 percent to 0 by 2005--which is a
real key, given the number of small businesses involved in
information technology we see a lot of growth in that sector;
lower tariffs on key agricultural products from 31.5 percent to
an average of 14.5 percent by 2004, very important to many
small businesses that sell processed foods and other value-
added agricultural products; and eliminate the required use of
Chinese Government-approved middlemen to sell products in
China.
U.S. companies will have the right to import and export and
to have their own distribution networks in China to sell U.S.-
made products directly to customers; allow professionals and
service providers to operate within China in accordance with
WTO standards--an important development, since many of the
accounting law and engineering firms doing business in China
are small businesses. China must conform its standards and
inspection procedures to WTO norms, so that rules otherwise
obscure, will be published, making them more transparent for
businesses, which reduces the cost of compliance--there are
really savings involved in these reforms; simplify and make
uniform customs and licensing procedures, a move that will
reduce paperwork costs for small businesses significantly--
again, reductions in costs for these small businesses, allowing
them to do more; expand its obligation to protect intellectual
property, while at the same time providing injured parties
access to China's courts and the WTO dispute settlement system.
This is just a very quick overview of some of the benefits
to small businesses that would result from PNTR with China.
We have looked at this issue closely because China will
enter the WTO regardless of what action the United States
takes. Our markets are already open to China, and our
assessment is that we gain nothing by withholding PNTR. Our
trade representatives, Ambassador Barshefsky and her team, have
negotiated critical market-opening gains with China. We run the
risk of ceding those gains to other countries.
Congresswoman McCarthy made reference to this: We should
not underestimate the difficulty for China in implementing
these reforms. These are very difficult reforms for them to
implement, and they also need to overcome constituencies
opposed to these reforms.
Granting PNTR is our chance to support those in China who
seek to advance the type of market-oriented economic reforms
that we have been pressing China to adopt, while enabling
American small businesses to capitalize on the really
substantial trade liberalization commitments that China has
made.
I thank you for the opportunity to appear here today, and I
would be happy to take your questions.
Chairman Manzullo. I appreciate that very much. I also
appreciate your enthusiasm as to what is going on here.
[Ms. Alvarez's statement may be found in appendix.]
Chairman Manzullo. Congressman Crane, I have several
questions, but the one question I really want to zero in on is
your statement, with which I concur wholeheartedly, that the
U.S.-China WTO accession agreement is one-sided, in favor of
America.
Could you explain that?
Mr. Crane. Yes, indeed.
I think it is a vitally important thing for all of us to be
aware of when this vote comes up, Mrs. McCarthy. There are 135
member-nations in WTO right now. China's accession will add to
that number one more; there will be 136 members. If we do not
grant permanent NTR, 134 countries in the world will suddenly
have access to that market, with the incredible reduction of
tariff barriers that will occur, and the only exception will be
us.
We are the only ones that will not have access to that
market, and they will continue to have access to our market.
That is why, as I indicated--I mean, it is truly a win-win
proposition, but it is incredible in terms of what the
potential for increased U.S. exports amounts to in agriculture
alone. They are talking about $2 billion a year. I mean, it is
mind-boggling.
And that is not the only thing. I mean, in the auto
industry, I can't understand for the life of me why the auto
unions are expressing--I mean their leaders, at least--are
expressing opposition to this, because it lowers the tariffs on
U.S. auto exports 75 percent, and it eliminates quotas on U.S.
auto exports to China altogether.
I mean, there are so many provisions in this that are so
exciting to contemplate in terms of our expanded opportunities
that it truly--I mean, this is the most exciting opportunity,
and it has, though, implications beyond economic implications.
As you know, Taiwan has been up to speed and they have
sought accession too, and there was a general agreement that
Taiwan would come in after China, but that means immediately. I
mean, it is China, and then Taiwan, like that.
But there are some security problems, as you know, in that
area. For us to create a situation between ourselves and China
that distances our improved relations with them since Deng
Xiaoping led the crusade for Leninist capitalism, it is the
ultimate oxymoron, but he truly believed in free enterprise and
he started China down that path. Jiang Zemin embraces it,
Tenghui Lee is a total believer. He was unilaterally
privatizing state-owned enterprises. Now, that was not good
politics over there for him, but he believed in it.
These are the kinds of reforms we want to see accelerate,
and the best way to accomplish that is to have that contact,
that personal contact with them.
I was in China some years ago and Motorola, which has its
corporate headquarters in my district--Motorola was visiting
with the head of their plant over there in Shanghai, and he was
explaining to me that they have to maintain clean working
conditions for their employees; they have to pay overtime for
more than a 40-hour workweek; they have to provide health care
benefits to their employees. I said, did you bring all that
over from the United States? He said, no, those were the
guidelines that the Chinese Government imposes on all foreign
firms doing business over here. I thought, well, that is a
little unfair, because they are not imposing those same
standards on domestic businesses.
But I thought about it for a moment, and I thought, gee, if
I am working in some grungy Chinese plant and there are no
health care benefits, no overtime pay, no clean working
conditions, and Aida is working for Motorola and she is
enjoying all of those benefits, and at the end of the long day
we are having our Tsing-taos together, and I am moaning about
the working conditions and how terrible it is for me, it is
only natural Aida is going to say, Phil, why do you work there?
Come work for Motorola.
I am reminded, folks, that Ben Franklin made the
observation, A good example is the best sermon. We are
providing that kind of good example that does have a ripple
effect. I mean, it spreads out to help advance the civilized
values that we mutually embrace. Having that kind of a presence
there is a decided plus for us.
The other point I would make is to keep in mind that we
have been at full employment now for almost 5 years. There are,
according to Mr. Sweeney, I think, 6 million illegal immigrants
working in the United States right now, 6 million. And he is
trying to recruit them to join the AFL-CIO. We are in a
situation where we almost are required to import labor, because
of our problems in that regard. This will increase that kind of
pressure.
But the thing to keep in mind is that an increase in the
payment for those people that have jobs related to exports, the
figures that I quoted in my original statement of, on average,
a 17 percent higher pay rate than those people who are simply
working for jobs--I mean, doing jobs for our domestic economy.
Chairman Manzullo. Mrs. McCarthy.
Mrs. McCarthy. Thank you, Mr. Chairman. Again, the
testimony from both of you--as I said, this is going to be a
tough vote for an awful lot of members, because a lot of us do
feel both sides are right. I think that should be understood.
But we are talking about small business today, and I think that
is where I want to stay.
The SBA claims that small businesses will benefit from the
use of the WTO dispute settlement process. With small
businesses, will they have the direct access to the WTO dispute
settlement procedures?
Ms. Alvarez. I believe they will. Prior to the WTO meeting
in Seattle, we were engaged in conversations with the U.S.
Trade Representative's office and the Commerce Department,
because there is a strong interest on the part of the
administration, for example, to having an assistant secretary-
level person at USTR whose exclusive focus would be small
business; and we went to Seattle with that in mind. We saw
Congressman Manzullo there. The idea is that we need to
incorporate the small business interest at every level of the
process. I think that would ensure the right outcome.
Mrs. McCarthy. With my concern following that up, will our
small businesses be able to go through the procedures and the
red tape? We know that the WTO, sometimes takes years to have a
settlement one way or the other. Can our small businesses
sustain that as far as working with them?
Ms. Alvarez. Right now we have a relatively modest
international effort at the SBA. Nonetheless, it is effective.
We have an international trade loan program, we have an export
working capital program, we work with the Department of
Commerce and other agencies that promote U.S. export assistance
centers. We would have to add to our responsibility the kind of
assistance and counseling that is necessary to help these
businesses succeed.
I think that could happen. More and more, I see us working
together with other Federal agencies so that we can complement
what they do in other parts of the world, and I think that that
would extend to the China commitment.
Mrs. McCarthy. If I could ask one other question, the
administration claims that PNTR to China will benefit small
business subcontractors, supplying large U.S. companies, who,
in turn, will increase exports to China.
What will prevent these large companies from moving their
subcontracting needs to Chinese suppliers?
Ms. Alvarez. Right now, Boeing, which is a major exporter,
is also a major user of U.S. small businesses as
subcontractors. In the case of a company like Boeing--and there
are many others--we monitor their subcontracting relationships
with small business. They also do business with the Federal
Government, and if they want to be competitive vis-a-vis other
companies in gaining access to the Federal contracting market,
they have to have a very compelling subcontracting program,
because we have right now, by law, a requirement that 23
percent of all Federal contracts go to small business. So that
may be an indirect way to do it, but I can assure you that many
of these companies right now maintain a very active small
business subcontracting--U.S. small business subcontracting
capacity, because we are monitoring that.
Mrs. McCarthy. Well, I know we are monitoring that right
now. My concern is, once we are over there, especially with the
large corporations, and they have their foot there, I am still
concerned that our small businesses here could end up getting
hurt.
Ms. Alvarez. I think that is a fair concern.
Chairman Manzullo. If I could interrupt you, Mrs. McCarthy,
Congressman Crane has a meeting that he has to attend. I beg
the indulgence of the other members that don't have an
opportunity of questioning him. But you understand the vagaries
of the schedules we have here.
What I would like to do is, if you could just suspend for a
second, if anybody has a very quick question of Congressman
Crane.
Mr. Hinojosa, if you have a question? Do you have a
question you want to ask Mr. Crane?
Mr. Hinojosa. First, I want to thank both Congressman Crane
and Administrator Alvarez for coming to talk to us today.
Congressman Crane, do you have small businesses exporting
to China today?
Mr. Crane. Today, in my district? We had a Trade
Subcommittee hearing about 5 years ago in my district, and
Charlie Rangel was out there with me, and I have the corporate
headquarters in my district of Motorola, Sears, Ameritech,
United Airlines, Kemper Insurance, and right on my border are
Baxter & Abbott and AllState Insurance, so I know that my
district--and I think it is a bigger export district even than
Don's, and he has a biggee.
But Illinois was the first largest export State, so it was
exciting to hear testimony from these people. The revelation
that came out of that hearing was that better than 90 percent
of our Illinois exporters were businesses employing 500 or
fewer, and it was awesome, I mean to Charlie and to me.
In addition to that, though, I then--about a year later, I
had a fellow who came in doing business in the Persian Gulf,
and he handed me a folder and said, Congressman, this is a list
of businesses in your district doing businesses in the Persian
Gulf. Do you know how many there are?
I said, I haven't the vaguest idea.
He said, Over 150. He said, These are businesses employing
100 to 150 people.
I opened it up and I looked at the names of them. There was
not a single name of those over 150 businesses in my district
that I recognized. I never heard of them before--I mean, really
small businesses. But this is the awesome part of the role of
small business in international trade.
Well, you know, it has always been; the backbone of
business in our entire history has been small business. I mean,
the giants grew out of small businesses, but small business is
the real backbone. But it is an awesome figure.
The one unfortunate thing to me is that the message is not
being properly communicated by the heads of those businesses to
their employees about the importance of trade to our business,
and that translates into the importance in preserving your job.
When I talk about trade at a town meeting back home, people
start falling off to sleep. Oh, come on, let's talk about the
important things. I mean, it is sad. It is a sad, sad thing
that we are not properly getting the message out on the
importance of trade.
Mr. Hinojosa. Well, I asked that question because I wanted
to see if you or the Administrator could tell me how these
small businesses are financing their accounts receivables and
what kind of assistance they are getting in ensuring that there
is prompt payment for their goods or services, whatever they
may be exporting to China.
Mr. Crane. Well, I would yield to Aida on that one to
respond, if I may. But if that--is it for me, Mrs. Napolitano?
Ms. Napolitano. It would take several hours, sir, and I
yield to you.
Mr. Crane. Well, I will catch you on the floor. Thank you
so much.
Mr. Chairman, I appreciate it. Thank you.
Chairman Manzullo. Thank you, Mr. Crane.
Why don't you go ahead and answer the question here?
Ms. Alvarez. I know that Congresswoman McCarthy had also
asked----
Chairman Manzullo. Let's finish the answer to that
question.
Ms. Alvarez. The other thought, Congresswoman, is, I went
out to Washington State, I toured the Boeing plant, I met with
the people who are in charge of their small business activity,
and I met with some of these small businesses.
These are very sophisticated companies. The people who
perform work for these major companies, the small businesses,
have very specialized skills. These are not low-skilled
activity. There may be nothing to prevent this from happening
in China, but I don't know that they have the capacity, the way
we do, to generate--to produce small businesses that have the
level of sophistication that we do. Those are the businesses
that the ``Boeings'' and these other companies are hiring.
Part of it is an outgrowth of the reengineering of
businesses. When big businesses started to break up and
reconfigure themselves, they lost sophisticated workers who
went off and started their own companies--and then eventually
were actually hired back with their employees by these big
companies. This approach lends more flexibility to the
operations of the big business. Many big businesses decided
that they had core expertise, and that all of the other areas
that were required could be provided by small businesses; and
that is the sort of model that they are using in this country.
I just don't see these companies, not in the near term,
suddenly discovering that China has that kind of a capacity.
They will not discover that kind of capacity in China. I do not
believe so.
Mrs. McCarthy. Thank you.
I think this is really a complicated question, because even
as you answer, I start thinking for the future. I happened to
think of Japan after World War II when we helped them so much
and certainly they started copying everything that we did, and
pretty soon, they were competing with us tremendously; and for
a long period of time, we did lose jobs because of that.
I am really just trying to find my way through this,
because we are supposed to protect our small businesses. I want
to make sure that we are protecting our small businesses.
Because, gosh knows, you know, even if it is only 5 to 7 years
down the road--and I tend to think that certainly in China they
have extremely bright people, they are going to be educated,
they are going to be trained for jobs, and pretty soon we are
going to be competing with them.
Of course, on our end, I happen to think very strongly that
we have to take many of our workers and start upgrading them
now, not waiting for when they might lose jobs down the road.
So that is where I am coming from.
Thank you. I appreciate it.
Ms. Alvarez. Yes. I understand.
Chairman Manzullo. Congressman Hinojosa.
Mr. Hinojosa. Yes. I asked the question about how----
Ms. Alvarez. Financing.
Mr. Hinojosa [continuing]. The small businesses take care
of financing their accounts receivables and what type of
assistance do they get for prompt payment.
Ms. Alvarez. I think that is really a good question, and it
is certainly one of the challenges that we are facing at the
SBA. We have a couple of programs that are meant to assist
small business and financing, but we find that our programs are
actually underutilized, partly because nobody knows about them.
Many people, small businesses and the banking community, don't
know about them. We experience the same sort of frustration as
Congressman Crane expressed at the lack of interest or
awareness out there. That is why this hearing is so important.
We have an international trade loan program where we
guarantee loans up to $1.25 million for small businesses doing
international activity. We also have an export working capital
loan program in which we provide a 90 percent guarantee up to
$750,000.
There are different ways of financing transactions. The
export working capital program relies on accounts receivable,
and inventory for collateral. Under the international trade
loan program, the collateral is fixed asset-based. These
programs, however, I think are underutilized. Small businesses
tend to find financing in other ways.
Jim Wilfong is the head of our Office of International
Trade. Jim has been out there visiting with not only the small
businesses, but with the finance community, and exploring
precisely the question that you just asked.
Chairman Manzullo. Could you spell your name for the
record, please.
Mr. Wilfong. Jim Wilfong, W-I-L-F-O-N-G.
Chairman Manzullo. You need to bring the mike closer to
you.
Mr. Wilfong. Mr. Chairman, as the Administrator said, I
have been trying to really find out why small businesses have
not been using our programs or some of the Ex-Im programs for
small companies as well, and it is exactly as she described.
I called on one area in New England to make sure that I
could figure it out in one spot. I went to 15 banks, most of
them community banks, because a lot of small business people
are doing business there. Before I came to the Small Business
Administration, I was an exporter for 25, 30 years. I was doing
my business with community-based banks as well.
What I found is that they do not know about our programs.
For the most part, they do not know when they have exporters.
If I bring 20 to 30 relationship managers from those banks
together for each one of the banks, which we did, maybe one of
the people who was working there knew that they had an
exporter. So it is really a question of education.
They are financing these loans on second mortgages on their
houses and with credit cards; they are financing them with
irrevocable international letters of credit, wire transfers,
cash in advance, a whole host of different ways; but what would
really help them is if they really knew more about the export
working capital program that we have, which allows them to
finance on the basis of the transaction.
Ex-Im has the same program. We handle the smaller accounts
in small business, and they handle the larger ones. So I hope
that answers your question.
Mr. Hinojosa. Mr. Chairman, I want to share with the group
that yesterday morning at 7:30 a.m. I was in my district, and
thanks to the University of Texas Pan American at Edinburg,
Texas, we had a digital teleconference with China. We had 25
small businessmen and women from my district talking to about
12 businessmen and women from--I think they were all men, from
Shanghai; and we had a terrible connection, so that we could
not see them clearly, but we could hear them very clearly, and
they said that they were getting a good picture in China.
But I want to share with you that we talked for about an
hour, and it was to introduce ourselves to them and to find out
what kind of interest they had to bring American products and
what Chinese products they had to let us buy from them. So we
could not match the businesses on this first try.
In 30 days we hope to have another one of these digital
teleconferences and succeed.
But we did talk about the concerns that there was lack of
knowledge about--how do we get the product there, who finances
it, how are we going to be assured payment--the kinds of
questions that any small businessman who has never exported so
far would have.
Now, if we had sent merchandise to Mexico because we happen
to be in south Texas, adjacent to Mexico, then that is a lot
easier. But we just do not have a lot of experience. In looking
at some data that was provided to us this morning, I see that
in our metropolitan merchandise export totals from my
congressional area, there has only been $117,000 exported in
1998, which is peanuts, you know, for what is being sent to
other countries. So obviously, there is lack of information, as
the Administrator said, about what help is available.
I was very pleased that for the first time, we brought the
Department of Commerce together with the SBA representatives to
this meeting so that they could begin to share with our
participants in this teleconference that there are programs
like the Administrator mentioned, and we just need a lot of
help for other small businesses in regions of the country where
we do have the capacity to manufacture and to produce
agricultural products, and we are just not doing a good job. I
can only tell you, we are not doing a good job in workshops and
in some way making this help and assistance available.
I look forward to working with you to make it happen.
Ms. Alvarez. Yes. I couldn't have said it better. I totally
agree.
There has been an evolution, I believe. When I became the
Administrator 3 years ago, it was very clear to me that going
into the 21st century there were three areas that were of
necessary focus for small business: one, the incredible
diversity of the small business community; that means women and
minorities, which are among the fastest growing of new small
businesses. Secondly, the critical importance of technology for
small businesses to be competitive. It is not optional; it is
necessary. And third, there is a global marketplace for small
business.
Now, to me, that makes total sense, and all of my
experience bears that out, but frankly it is a new direction,
because we have not been positioned in the past to promote
these programs. We have been holding seminars and sessions; we
have embarked on agreements with other countries where there
are strategic alliances already in place at the level of the
President and the State Department and so forth, and where we
view our expertise is value-added to the peace process; and in
the course of that, we believe we will open doors for small
business, because it is all about people-to-people.
Next week, there are trade missions going to Egypt and
Mexico. We have played a key role in organizing those, working
with the Department of Commerce and our sister agencies. This
has not happened before, and it reinforces relationships, very
important relationships, that we have with Mexico and Egypt.
When we start to think big picture we see how to minimize
the cost to the taxpayer by maximizing connections across
agencies. And finally I do believe that when the President made
SBA a Cabinet-level agency, he was acknowledging the fact that
small business was a critical component of our economy.
Mr. Hinojosa. Administrator Alvarez, I want to say that one
thing you could do is inform all the members of the Small
Business Committee months in advance before these trade
missions, because I knew nothing about Egypt and Mexico trade
missions, and I have heard nothing in 3 years that I have been
in Congress about your missions. So we are not informed, the
left hand does not know what the right hand is doing.
Ms. Alvarez. We need to do a better job.
Mr. Hinojosa. I think you ought to send to Members Only, so
that it will come straight to our desks.
Ms. Alvarez. There are a lot of channels that we go
through, and it does not get to you.
Chairman Manzullo. Thank you very much.
Congresswoman Napolitano.
Ms. Napolitano. Thank you, Mr. Chairman, and I beg your
indulgence for a minute because I will have to go to a markup
quickly.
Ms. Alvarez, since I sit on Small Business and I ask all
kinds of questions and I am very involved in providing access
to SBA for my district, my concern has been, in the past,
because in California we did a survey a while back, that NAFTA
had adversely impacted small business.
Now, if that is so, what has the SBA done to be able to--if
we are going to be working on China, if the WTO is given to
China, the PNTR, as SBA, what is the administration going to be
doing to prevent the same type of negative impact to small
business that was experienced because of NAFTA?
Ms. Alvarez. Well, we are just asking Jim if we had
statistics on it. There is no question that during my tenure, I
was brought into this issue of the impact of NAFTA on small
business. I think we could have done a better job.
When I was brought into it, we started playing a very
active role in trying to help displaced workers, for example,
set themselves up as entrepreneurs, if that was their interest,
and we started giving them priority in terms of loans, which
they might not have had prior to that initiative.
We view the overall effect of NAFTA as very positive. I
myself have gone on trade missions to Mexico with U.S. small
businesses, largely from California and Texas, and they have
all been very enthusiastic about the access that NAFTA has
created for them.
Ms. Napolitano. I understand that, and that is not really
where I was going.
I think maybe what my concern is, is that--and you did
slightly hit upon the retraining issue for entrepreneurships--
but, then again, the small businesses that lost because of
NAFTA, whose employees are unable to locate jobs, comparable-
paying jobs, and thus, it becomes a problem of unemployment in
our districts, such as mine that is still losing jobs.
It is unfortunate that we have not set forth a program
involving SBA, Labor and Education, to be able to do just that,
those employees, those companies, those secretaries that are
affected negatively. They should have something to benefit them
out of the benefits of any trade agreement, and that is one of
my biggest concerns, because that is where I am coming from.
Ms. Alvarez. I totally agree with you. I think we need to
do a better job of that, and I think it needs to be coordinated
across agencies. The fact is that as you look at patterns, what
often happens is, people lose a job; and then they actually
migrate somewhere else and find a better-paying job. We have
seen studies that show that, but it means they leave your
district, it means that the action is somewhere else, given
their skills set.
But in the meantime, we need to do a better job of
retraining people, I agree.
Ms. Napolitano. One other quick question. Because of NAFTA,
of course, right after--it is given to us that as a result of
NAFTA, the Mexican peso was devalued, so consequently it
eliminated any benefits from the lowering of the tariffs.
What will happen with WTO--with PNTR? Do you think that the
yuan might be devalued and thus negate any benefit to our
American companies?
Mr. Wilfong. I am not a currency expert, but I do not think
so. I don't think that that is going to happen, because the
peso was traded on the international currency markets and I
don't believe that the Chinese yuan is traded that way. I don't
think--it is not traded over the counter that way, so I don't
think that that is a factor at this point.
Ms. Napolitano. Thank you, Mr. Chairman.
Chairman Manzullo. Do any other members have a follow-up
question for Commissioner Alvarez?
Thank you very much.
Ms. Alvarez. Thank you very much. I appreciate the
opportunity.
Chairman Manzullo. All right. Let's have our second panel.
We want to get started as soon as possible because of other
committee meetings that are taking place.
We have our second panel, and what I would like to do is to
have Congressman Toomey introduce Mr. Olson from Olson
Technologies, and then we will start our testimony with him.
Mr. Toomey. Thank you, Mr. Chairman. I want to thank you
for allowing me the opportunity to recommend Mr. Olson to this
Committee, and I want to thank Mr. Olson for coming to
Washington today to be with us. I know you have a very hectic
schedule, running a thriving business.
I want to say just a couple of words about Olson
Technologies that Mr. Olson may not get a chance to tell us,
and that is that this is an amazing success story in the Lehigh
Valley, right in the heart of the Lehigh Valley of
Pennsylvania, which is in my district and in the city of
Allentown, which has often been characterized as an area which
experienced and lived through the decline of heavy industry,
which very, very fortunately--some would say miraculously--has
been largely offset by an emerging high-tech service sector and
an export-oriented part of our economy. So the economy
generally is thriving.
But Mr. Olson and Olson Technologies are in some ways the
exception because they still represent heavy manufacturing in
the heart of an old industrial city, and they are doing a
wonderful job, and they are very successful and they are
thriving I think largely due to the fact that they recognize
that the future and their success depends on innovation and
expanding markets, which Mr. Olson is going to talk to us about
today, and not trying to turn the clock back and erect walls
and barriers to prevent trade and to protect narrow sectors of
the economy.
So I am just delighted that Mr. Olson was able to come down
here today. His company is, as I say, a great success story,
and I welcome and look forward to his testimony and that of the
other members of this panel.
Thank you, Mr. Chairman.
Chairman Manzullo. Okay. We are going to get this timer
going here. We would like to limit your testimony to 5 minutes.
Mr. Olson, please.
STATEMENT OF JAMES E. OLSON, CHIEF EXECUTIVE OFFICER, OLSON
TECHNOLOGIES, ALLENTOWN, PENNSYLVANIA
Mr. Olson. Good morning. My name is James Olson. I am the
CEO of Olson Technologies in Allentown, Pennsylvania. I would
like to thank Chairman Manzullo and Congressman Toomey and all
of the members of the Subcommittee on Tax, Finance and Exports
for inviting me here to come and testify in support of
Permanent Normal Trade Relations with the People's Republic of
China.
Olson Technologies is a small manufacturer located in
eastern Pennsylvania, in downtown Allentown. The company was
founded in 1862, and was purchased by the present management in
1984. We employ 47 people and our shop floor is currently
represented by the United Steel Workers of America.
One segment of business produces large-diameter butterfly
valves for infrastructure projects around the world. These
large-diameter valves range from 42 inches in diameter to 12
feet in diameter, and they are used primarily in controlling
water in electrical power plants, wastewater treatment plants,
and fresh water drinking plants.
Olson Technologies has been involved in international trade
for over 25 years. Our international business started with what
I affectionately call ``piggybacking'' with large Fortune 500
companies who secured international projects around the world,
and we supplied the valves for them. We would secure a contract
to supply a complete set of valves, sold and delivered here in
the United States, and the Fortune 500 companies would, in
turn, install them in the countries. This business has amounted
to about 10 percent of Olson Technology's overall sales and at
times has risen to as high as 25 to 30 percent of our business.
Today, Olson Technologies can point with pride to having
installed large-diameter valves at numerous Korean nuclear
power plants, Pakistani power plants, power plants in Thailand
and in a number of other countries throughout the world. Our
need to piggyback with Fortune 500 has lessened to some degree,
and we now compete directly for infrastructure projects in the
international market.
Because of my company's experience in dealing in the
international market and in dealing with China, I support
permanent normal trade relations with China. Our experience
relating directly to China involves buying products from
Chinese foundries and from Chinese machine shops and shipping
them into this country. We also build in our shop these large-
diameter butterfly valves to the specific Chinese national
standard, which is a technical standard we have to meet in
China, and then turn around and ship them into China.
Because of this experience, we believe full membership in
the permanent normal trade relations with China will provide
Olson Technologies with a number of concessions that we don't
currently have, but our Chinese valve companies do have these
concessions. One of these concessions would lower the tariffs
on our products so that we could compete more favorably in the
Chinese infrastructure market.
Another concession would remove restrictions on having our
own sales force, which would be able to operate in China and
free us from using a restrictive Chinese sales force.
Finally, these concessions would allow me to set up my own
distribution and communications inside China to assist in
getting my products directly to the markets.
Of course, these concessions wouldn't really mean much if
China wasn't such a large, growing economy. In the next 25
years, I believe China is going to build out its
infrastructure, the same way as other emerging countries around
the world have. This will mean a large increase in power plant
projects and a large need for the large-diameter valves
produced by my company.
It will also mean building wastewater treatment plants, and
the specific valves that are designed in my company that the
Chinese do not have the technology for. This will all mean
building numerous plants and the need for valves.
In the next 25 to 30 years, the production increase at
Olson Technologies could be anywhere from 25 to 150 percent.
This would mean new hires in Allentown, increased business with
our suppliers, and a general boost to the economy for Olson
Technologies.
As I mentioned before, Olson Technologies has had
experience in dealing with China in both purchasing and
selling. Over the past 10 years, at least, China has had more
favored terms in selling their products in the United States,
and a number of my valve company associates have suffered from
the importing of valves into the United States. I am sure many
of them are also now purchasing machine parts and castings made
in China at very favorable prices.
In conclusion, I would like to state that the recent loss
of a large bid for the Beijing water treatment plant number 9
was a very low point in my U.S.-China relationship, but the
future of infrastructure built out and improving conditions for
the Chinese with new plants and products makes the prospect of
doing business in China extremely exciting.
I therefore urge your support for permanent normal trade
relations with China for the benefit of Olson Technologies and
other mid- and small-sized manufacturers.
Thank you, Mr. Chairman.
[Mr. Olson's statement may be found in appendix.]
Chairman Manzullo. Thank you very much. I am going to try
to calm down these troops outside in line for the
Appropriations Committee. I will be right back.
[Brief pause in the proceedings.]
Chairman Manzullo. Mr. Chabot, do you want to introduce the
next witness?
Mr. Chabot. Yes. We have a witness that we are very pleased
to have here from Cincinnati, Ohio, Mr. Jeffrey Gabbour, who is
Vice President and co-owner of Prestige International, Inc. It
is a private enterprise based in Cincinnati, Ohio, and it was
established in 1977, I understand. Its former name was Robbins
International, Inc.
The Prestige Robbins Group is a group of manufacturers and
exporters of quality residential commercial hardwood floors,
and they also have special designer parquets that are often
used in commercial, as well as specialized sports systems for
multipurpose sports applications. They are used in school
gymnasiums, health clubs, recreation facilities, sports
centers, et cetera.
They have headquarters in Cincinnati, and they also have
manufacturing facilities in Michigan, Wisconsin, Tennessee,
North Carolina and Arkansas.
Mr. Gabbour understands and speaks a number of languages--
French, English, Japanese, Italian, and reads Spanish as well.
He is responsible for manufacturing and overlooking businesses
in 55 countries worldwide and working with over 210
distributors and representatives. He is responsible for
managing the continued growth of the company and ensuring
future development of business within new territories of trade.
He has traveled in mainland China 10 times in the past 10
years and has engaged in business with China since 1976.
We are very pleased to have him here and we look forward to
hearing his testimony, and we welcome him here.
STATEMENT OF JEFFREY L. GABBOUR, PRESTIGE ENTERPRISE
INTERNATIONAL, CINCINNATI, OHIO
Mr. Gabbour. Thank you, Congressman. That was half my
speech.
Chairman Manzullo, Mr. Chabot and other distinguished
members, I really appreciate this forum to voice our views and
experience, and appreciate that people really want to hear from
us and what PNTR means to small businesses like ourselves.
Our company was set up almost 25 years ago as an export arm
to a large U.S. manufacturing firm that was set up in 1896. Our
small firm represents 20 percent of overall sales. That means
80 percent of the manufacturing is supported within the U.S.
market, the other 20 percent is due to international markets.
Our main growth has really been throughout Asia. That is really
what spearheaded us in our wave of growth, except for China.
China has really been left out of our mix. It only makes
up, currently, 1 percent of our overall sales. Why? For two
reasons: tariff barriers and nontariff barriers. So I am going
to do my best to share some personal experience on what we have
done in China for the past 15 years and what PNTR means to us.
Until now, we have had a number of hurdles for import
contracts. In order for us to do business in China currently,
we have been constantly asked to move our operations over to
China, meaning to move our operations, whether it be from
Cincinnati or Arkansas, and to manufacture in Shanghai,
Beijing, Hubei and other provinces.
They have asked us to invest. They have asked us to
transfer technology. When we do refuse, then they see where we
can use local content. They will actually break up our product
and say, why don't we have 30 percent of your content be
supplied from local Chinese companies?
Our main objective is to use 100 percent North American raw
materials and to manufacture 100 percent made in USA goods.
Now, the reason--another reason for this, and this will
answer a question that Mrs. McCarthy had--is that we maintain
certain industrial standards on our products. We have to meet
certain ASTM, FIBA, different association standards. Therefore,
we guarantee that all of our subcontracts will be delegated to
American factories, because these factories are accredited and
certified to manufacture under standards. And that has been our
main point, why we can't have local content, because as soon as
we have local content, then we lose certification.
Right now, China is pushing to meet certain international
standards. We are in the building industry, and they are trying
to meet certain international building codes. Our most
successful example was in 1997 when we supplied the China
national games, their version of the Olympic games. It took us
4 years to promote a three-stadium project. It took numerous
meetings, numerous trips to China.
What is the moral of this story, of us being able to supply
these projects? Is that after the supply of this job to the
government sector, they have actually changed their views on
the building industry and building codes and how to build
future facilities, again, in the sports industry.
So we feel, even as a small business, we have actually made
an impact on a certain industry, and because these were
national games, we had people from every single province in
China, who attended the national games in Shanghai. So now we
started getting inquiries from Xi'an and Hubei and other
regions because of what we were able to do in one region.
We have a business philosophy, whether it be for China or
international, we call it the ``planting seeds philosophy.'' We
went into China really in 1980 when very few American companies
were going there. People thought we were crazy to go there. Our
idea at that time was to plant seeds, to set a foot in the
door, to try to change and influence ideology on our products.
We have proven that after 10, 15 years of patience, we were
able to write our first contract in Mainland China. That is why
we are a big supporter of PNTR, because whether changes will
take place today or 10 years from now, all we are doing is
planting seeds. Without the seeds, we will not be able to
influence what kind of business we can do in China.
By lowering the tariffs and also eliminating some of the
nontariff barriers, it is going to allow business-to-business--
it is going to allow face-to-face meetings. Numerous times I
have met with my Chinese counterparts who want to import our
goods because they base it on technical merit, but so many
times what is the stopping block is that the tariffs are too
high. We are eliminated anywhere from $2 million to $5 million
contracts because of this.
Now, in closing, I would just like to state that the irony
of all of this is that China is actually welcoming our American
products into the market, and by voting no, we would basically
be putting sanctions on ourselves.
So I strongly urge Members of Congress--and I hope you can
understand the point of view of a small business and how it
does impact our community and our people and our families.
Thank you very much.
Chairman Manzullo. Thank you very much.
[Mr. Gabbour's statement may be found in appendix.]
Chairman Manzullo. I have the pleasure of having two
constituents here at this hearing, but I guess that is my
prerogative when you are chairman. But aside from prerogatives,
it is also the area of expertise.
I have asked Sharon DeDoncker from Aqua-Aerobics to
testify. Sharon has been at Aqua-Aerobics for almost 30 years.
Bob Phelps, who is a local farmer, to will testify, too.
We will start first with Sharon. Sharon is Vice President
for International Sales at Aqua-Aerobics in Rockford. Their
international sales and market activities are about $45 million
a year, dealing with wastewater treatment equipment.
Sharon, we welcome your testimony.
STATEMENT OF SHARON K. DeDONCKER, VICE PRESIDENT/INTERNATIONAL,
AQUA-AEROBIC SYSTEMS, INC., ROCKFORD, ILLINOIS
Ms. DeDoncker. My name is Sharon DeDoncker, and I am Vice
President of International Sales with Aqua-Aerobic Systems; and
I am here today as part of the U.S. Chamber of Commerce PNTR
support group.
Aqua-Aerobic Systems is a privately owned company in
Rockford. We manufacture and market equipment used for water
and wastewater treatment. We sell both to municipalities and to
industries. The company has been in business since 1969. We
have annual sales of $45 million and we employ 135.
The U.S. market is a mature market for our product, so if
we are going to grow, we have to really look at the
international market. We have assigned our resources
accordingly into that area. Currently, international sales are
about 10 to 15 percent of our business, but we are looking at a
growth to 20 percent of our business within the next 2 years.
One of the best markets for our products is the China market.
In 1997, China spent $7.2 billion on their environment,
making it one of the best markets for U.S. environmental
technology products. We have aggressively pursued this market.
Over the last year, we now have a rep who works full-time
in that area dedicated to China. We have taken part in
technology exchange groups. I have been to China three times
myself last year, working on relationship-building. Our
technical staff has worked with local engineers on writing
designs and specifications. We have also hosted many groups at
our plant in Rockford, and we worked with the government
officials of Rockford's sister city in Changzhou. In other
words, we believe in China and we have invested accordingly.
We are a typical small company with very limited resources.
If we are successful in an area, it is because we use resources
outside of our plant, such as government resources, and that
has been crucial to our success in these areas and maintaining
business there. But I have to believe, if PNTR does not pass,
that the resources for supporting government activities in
China will also be limited, which is a real shame for small
companies like us since we really desperately need the
government's support to maintain our efforts in foreign
countries.
We have not been active in China that long, probably only 2
years that we have been aggressively working that market. In
that 2 years, though, we have started to see success already.
Just last year, we booked a $2.8 million job which we will be
shipping next month. That one job will represent 6 percent of
our company's total bookings for this year.
One benefit that we like about China is that it is so
large. Not only are there a lot of projects there for us, they
are huge projects compared to what we normally do. A small
project there starts at half a million, and for us, $1 million
in additional sales equates to an additional employee.
With passage of the PNTR, we feel our sales to China can
grow at a rate of 20 percent a year and sales to this area
could represent 50 percent of our international sales in a very
short period of time.
Passage of PNTR is very important to Aqua-Aerobic Systems.
In fact, it is crucial to our continued work in this area. If
it does not pass, there are just too many obstacles for us to
overcome, and it is very possible that we will decide to
totally suspend our activity in this area. Not only would we
lose out on the largest market in the world for our product,
but we would lose the time and the money that we have already
invested in this area.
The key reason why this is important to us is the price
issue. China has agreed to significantly reduce tariffs as a
condition of WTO membership. However, without PNTR, China can
deny the tariff reductions to U.S. companies while continuing
to grant them to the other WTO members. We are talking about
reductions in the range of 10 to 15 percent. If you are a
salesperson, no matter how well you do, this is a really
difficult obstacle to overcome; 10 and 15 percent is a huge
difference.
We need equitable tariffs to maintain our price
competitiveness with other international companies, which we
can get if PNTR is granted. Without having an equal playing
field, we cannot be a viable participant in this market.
The U.S. is the largest producer of water and wastewater
treatment equipment in the world, and China has a tremendous
need. The government there is developing and enforcing
pollution regulations, so with passage of PNTR, we can take
advantage of this need. Without passage, no U.S. company can
benefit, while our international competitors can.
As I said, we are typical of U.S. small companies. We need
the same backing that our international competitors get from
their governments. We need passage of this measure in order to
compete on an equal basis with our international competitors.
I would like to thank you for giving me this opportunity to
express our support of passage of PNTR. Thank you.
Chairman Manzullo. Sharon, thank you very much.
[Ms. DeDoncker's statement may be found in appendix.]
Chairman Manzullo. Our next witness is Bob Phelps who lives
in Rockton, Illinois, in Winnebago County. He has farmed the
family farm since 1974 in partnership with his dad. Bob holds a
Bachelor of Science degree in Agricultural Economics from the
University of Illinois. He is a member of the Illinois Farm
Bureau board of directors. He is also local school board member
and former president. He is a graduate of the Illinois
Agricultural Leadership program in 1992, and was a member of
the McCoy Fellowship, the American Council on Germany, in 1996.
He is here today instead of planting his crops.
Bob, we welcome your testimony.
STATEMENT OF ROBERT ``BOB'' PHELPS, OWNER-OPERATOR, PHELPS
FARMS, ROCKTON, ILLINOIS
Mr. Phelps. Thank you very much, Mr. Chairman and members
of the Committee.
Chairman Manzullo. Bob, are the crops in, or is it still
too wet to get them in?
Mr. Phelps. We have been planting. In fact, I think
somebody is planting at home today. So hopefully tomorrow we
will finish, I think.
Chairman Manzullo. If you could pull the mike closer to you
while you testify. Thank you, Bob.
Mr. Phelps. Again, Congressman Manzullo, members of the
Committee, I appreciate the opportunity to come before you and
present today.
My name is Robert Phelps and I am a family farmer. My
family has farmed for five generations in Rockton Township
north of Rockford, Illinois. We primarily raise corn and
soybeans and feed beef cattle. We also raise lesser amounts of
wheat and alfalfa.
I am sure you have all heard the numbers surrounding the
granting of permanent normal trade relations to China. The
amount we export in agricultural commodities, their value, the
number of people affected both here and there, and the tariffs
and their expected reductions have all been examined and
reexamined, and I am not going to reiterate them here. They are
all with merit, and they are all important to me.
While I personally do not export a product, the vast
majority of my grain and oilseeds do enter the export channel.
I know very well the importance of expanded markets and what
happens to farm prices when markets are taken away or their
existence threatened. History has shown that when markets are
removed through embargoes, increased tariffs, or the threat of
retaliation, farm prices drop.
For me, this issue is all about incentives and choices. I
am one of the early links in the food chain and for the last
few years, I have been selling a product to the next link in
that chain for a price that is at or below my cost of
production. In any other industry, I could establish my price
received based on costs and reasonable return on my investment,
but in agriculture, I can only accept or reject a bid offered
me, a bid independent of those costs or returns. This is
certainly not conducive to profitability.
Additionally, I currently have few, if any, meaningful
noneconomic incentives to produce that food product.
Regulations and restrictions from various agencies and units of
government that I must comply with are increasing, all bearing
a cost with no means of recovery, while my foreign competitors
face far fewer barriers. The majority of my net income in the
past few years has come from the government, not the
marketplace.
I listen to Alan Greenspan tout the growth of the American
economy while rural America stagnates. All of these factors
weigh very heavily as I try to economically justify producing
food for a growing world.
I believe it is time for a real incentive. There are, in
fact, 1\1/3\ billion of them, the people in the People's
Republic of China.
Producing a product that someone wants, is willing to pay
for, and having the increased market access that we talked
about during the discussion surrounding the creation of the
1996 farm bill is an incentive. Creating enough demand to
result in a price for my product that moves toward
profitability and away from government subsidization is an
incentive for all involved. Increased trade is the safety net
we need.
Nobody can predict how much commodity prices would rise
with the granting of permanent normal trading relations with
China, but increased market access will certainly positively
shift the demand curve. If the increased access and resulting
demand can generate a modest 5-cent increase in the price of a
bushel of corn, a 10-cent increase in the price of a bushel of
soybeans, it would, for me, generate enough income to equal the
amount that my wife and I pay towards 1 year of our daughter's
college education, or it could be used to pay down long-term
debt more quickly, or to replace equipment in a more timely
fashion.
I might add, it would also offset the cost of last year's
interest rate hikes by the Fed and they are talking about that
again today. In any case, those dollars are immediately pumped
back into the economy. The ripple effect is profound. Every
penny per bushel that comes from the marketplace is a penny per
bushel that the Federal Government does not have to provide
when prices are below loan rates.
I believe another incentive for me would be the knowledge
of an improved standard of living for the 1\1/3\ billion
Chinese, primarily in the form of better nutrition. The demand
for pork and beef in their diets will have a very positive
impact on their nutritional well-being. We enjoy in this
country an abundant, diverse, safe and affordable food supply.
There is no reason the citizens of China should not as well.
Earlier I mentioned choices, and I realize that I do have
choices. I have the choice of what I grow on my land or how it
is used based on what the market tells me. One choice I have is
the option of growing houses, and much of my land is well
suited for them. I live in a high-demand area for rural real
estate, real estate that satisfies the desire of those who want
a place in the country.
I also have the option or choice of producing food for
people who need it.
Granting permanent normal trade relations to China gives me
an incentive to make the choice of using my land for food
production. I think that is the right choice. It is the best
way I know how to wisely use our resources for the outcome and
benefit of a worldwide society.
Again, thank you for providing me the opportunity to
present my views.
Chairman Manzullo. Thank you very much, Bob.
[Mr. Phelps' statement may be found in appendix.]
Chairman Manzullo. I have to run off to the Banking
Committee. I am asking Congressman Chabot if he would come over
and chair the rest of the hearing. I don't know if I will have
an opportunity to come back. If I don't, again, I want to thank
you for coming out, and we really appreciate your interest in
traveling all the way to Washington to tell us your life story.
Mr. Chabot [presiding]. Thank you for the witnesses'
testimony so far.
Our next and final witness on this panel is Mr. Keith
Parker. Mr. Parker achieved the honor rank of Eagle Scout at
the age of 13. He is the last 4-sport letterman to graduate
from Longview High School, Longview, Texas, and is a member of
the LHS Athletic Hall of Fame. He had a college scholarship in
three sports and later spent 3 years playing professional
football as a tight end.
Mr. Parker in his professional career is a licensed
financial planner with expertise in finance and tax planning,
and has earned numerous industry sales awards. He first met Dr.
Mohsen Amiran in 1994 and purchased the patent rights to this
new fire technology in April of 1998, while Summit was in the
registration phase with the Securities and Exchange Commission.
He has arranged and attended several nationally recognized
demonstrations where FlameOut has been certified according to
industry-recognized ratings, Federal Aviation standards and
military specifications.
Mr. Parker has been known to set himself afire, put a
blowtorch to his arm, or even hold a 5,300 degree piece of
magnesium in the palm of his hand to demonstrate the fast-
acting and lifesaving benefits of FlameOut. He has dedicated
his life to showing the world an entire line of environmental
products whose benefits are totally environmentally friendly.
Keith Parker founded Summit Environmental Corporation.
Mr. Parker is a pre-law graduate of Texas A&M University,
where he majored in both political science and behavioral
psychology. He continued his pursuit of higher education at
Southern Methodist University and Southwest Texas University
with graduate studies in tax law, estate planning and
philosophy.
We welcome you here, Mr. Parker. We would like to hear your
testimony.
STATEMENT OF B. KEITH PARKER, CHAIRMAN AND CEO, SUMMIT
ENVIRONMENTAL CORPORATION, INC., LONGVIEW, TEXAS
Mr. Parker. Thank you, Mr. Chairman and distinguished
members.
Mrs. McCarthy, I would like to thank you for your comment
earlier about the access for resolution to disputes, because
that is a concern of a small company like Summit Environmental.
I think Summit Environmental represents the true spirit of
entrepreneurship in the United States. As my resume says, I am
a licensed financial planner. I was in that business for 25
years until I met Dr. Mohsen Amiran in 1994, and the man
changed my life because of a product that he developed that I
learned about.
In 1992, at the Geneva Peace Conference, a fire-fighting
agent, which is the most popular agent that was ever developed
in the world called Halon, was banned because it depletes the
ozone and its toxic runoff gets into the groundwater. The
United States Environmental Protection Agency under the Clean
Air Act set up a program called Significant New Alternative
Policy, and Dr. Amiran's formulation was the first product ever
approved under the program as a replacement for Halon.
Through the long and the short, I founded in 1997 Summit
Technologies, which was our initial company, and then in 1998,
after going through the SB-2 process, our registration was
approved as a public company, Summit Environmental Corporation.
Today, because of the technology we own the patent rights
to, we are dealing with the Federal Aviation Agency on
replacement of all of the Halon fire extinguishers on board,
commercial aircraft, which is a mandated replacement through
what is called the minimum performance standards.
We are in current tests with the United States Navy, Naval
Research Laboratories' misting system for passenger cabins for
this product.
As you have heard in my resume, I have set myself on fire.
This is truly a unique product because it prevents reignition.
Once fuel has come in contact with this product, it molecularly
reorganizes the hydrocarbon chain and renders it nonflammable.
We are currently dealing with the Naval Warfare Center at
Patuxent River for the development of another product we have,
a turbine cleaner for jet engines that is being tested on the
F-16, and we have an absorbent for cleaning up all types of
semiliquids and liquids which has U.S. EPA, Department of
Agriculture, World Health Organization, California Title 22
approvals. So we are--this is the process that we have entered
into.
We do our marketing through Strategic Alliance Partners,
and all of these contracts with the Federal Aviation Agency and
the United States Navy have come about because of our strategic
alliance with a company called International Aero, which is the
largest reconfiguration company for commercial aircraft in the
world.
In 16 short months after becoming public, we have been able
to forge agreements in 48 countries for the acceptance of our
product. Tested just recently, we received the approval of the
Forestry Service and the State Fire Department in the
Government of Chile. But all of these countries, which are
included in my paper submitted as an exhibit--despite all of
these 48 countries, is the situation that we run into with
China. We have had four attempts that have failed. I would like
to just kind of cover those, because they are issues that have
been talked about today.
China wants the manufacturing of finished goods domiciled
in order to keep their own citizens employed. They request
review of patent-pending files under the disguise of verifying
their existence. However, when qualifications such as no tape
recorder, no cameras, no note pads, no computers, pens,
pencils, pads, et cetera, are added, they are no longer
interested in seeing if we have a patent pending.
An increasing line of handouts with regards to requests for
monthly retainers have come from a myriad of Chinese citizens
within the United States, professing to give us introductions
which we have no way of verifying whether that introduction
will lead to another introduction for another retainer.
The infusion of your own company's capital is often
requested as a sign of good faith. Of key importance to Summit
is obviously the market size vs. population growth, the product
needs and environmental issues which center around the fact
that modern firefighting, as it is known today, began in the
Province of Hainan in China. We feel like we could be
recognized very easily with this technology there.
In answer to Mr. Hinojosa's question earlier about
financing, we are forced to deal with either irrevocable
letters of credit or 50 percent deposits and the balance due on
shipping to ensure that the financial stability of our company
stays intact because, like I said, we are a young public
company.
I thank you for the opportunity to address the Committee.
Thank you.
Mr. Chabot. Thank you very much.
[Mr. Parker's statement may be found in appendix.]
Mr. Chabot. We may be able to get in if we limit our
questions to about 3 minutes or so, finish this up before we go
over to vote, if that would be okay with others.
Mrs. McCarthy. I have an amendment coming up, so that means
I have to be at the Rules Committee probably by 12 o'clock.
Mr. Chabot. Okay. I will tell you what I will do. We will
limit our questions to 3 minutes, and I will defer to you and
let you go first.
Mrs. McCarthy. I thank you for that.
This is very hard for me, because I think I have been a
fighter for my business people, and I will continue to do that.
But I guess I have just so many questions, but I think, you
know, here we are dealing with business. On one of my other
committees we deal with national security, and then I deal with
human rights issues. So, I mean, I have to be honest with you.
For 7 months, I have probably met with over 80 different
groups, almost all businesses, trying to get my way through
this issue. So it is probably with a very heavy heart--no
matter how I vote, it is going to be a hard vote for me,
because as I said earlier, I think both sides are right, and I
also think there are some things wrong. So I just want to say
that.
My question, I am going back to you, Mr. Olson, because my
concern again--and you are in the high-tech industry--so from
your testimony, you stated that companies such as yours will
effect numerous changes in human rights, working conditions,
environmental and a number of other social concerns if PNTR is
granted to China.
Can you give me some examples of how Olson Technologies can
effect these changes?
Mr. Olson. Thank you, Congresswoman.
Yes, I feel that the potential of sending some of my people
in my plant over for repair of valves and for the installation
of valves into the People's Republic of China--that would
include sending over some United Steel Workers--I think would
have a major impact on the potential changes in what they see
and the way they deal with the Chinese.
I also feel that the valves that we make go into the kind
of projects that I think need to be built in China and will be
built in China, and that the increase of that potential for
valves will bring us in closer contact with the Chinese where
we have to go over and install, set up, turn them on, actually,
when the plant gets started; and I think that the continuous
interface with the Chinese will effect those kinds of changes.
Mr. Chabot. Thank you. The gentlewoman's time has expired.
I am going to keep my questions and comments brief.
I have given a lot of thought to this, as well, on both
sides, and it is my determination that it is in the best
interests of this country that we do approve permanent normal
trade relations, and it is my intention to vote accordingly.
But one of the things that I think that the business
community needs to do a better job of is actually educating the
work force, the people that work in the plants, the people that
work on the line, because they are getting a lot of
information, especially from the unions on one side of this,
and I don't know that the business community has done as good a
job as we need to to educate the workers about how many future
jobs are dependent upon trade and how the American standard of
living is dependent upon trade, and just how important it is.
Mr. Gabbour, especially since you are from my district, I
would be interested to hear anything you might have to say
about how we can better get the work force into this whole
process and make sure that they understand how significant
trade is to actual jobs in this country.
Mr. Gabbour. Thank you. Actually, I have very specific
examples regarding this. Many years ago when the U.S. economy
was not doing so well, I remember the phone calls from the
various plants to our small office in Cincinnati asking us
whether we had any new international orders, because if we did
not, then they would have to shut down the plant 2 days a week
and only operate 3 out of 5 days a week. The biggest problem
with that was the morale of the people, letting them go home 2
days out of the week and not getting paid for it, because there
was just simply not enough work to be done.
When the Asian economy really started taking off, our
orders started coming in and we kept those plants, not just in
Ohio, but in Michigan and Wisconsin and Arkansas, running at
full capacity, because we could not even keep up with the
orders. Most of them were coming from the thriving economies
like Thailand, Korea and Japan, all but China. And what was
devastating to us is that every time we looked at projects in
China, they were in the range of, like I said, anywhere from
half a million to 2 million, up to $5 million that we simply
did not have access to because people could not afford our
products.
So we have directly seen how it has impacted the work
force, even within our own industry, not just the 15 people
that work in our headquarters, but there are 1,000 workers that
are directly and indirectly related in our field that are
affected by this. And because of the Asian economy thriving, we
kept the plants running at full capacity.
Now that the U.S. market has come back, we are at full
capacity still, and now we cannot even keep up with orders, and
we are still making up 20 percent.
Mr. Chabot. Thank you very much.
Mr. Hinojosa. Only 5 minutes left to vote and we do not
want to miss it.
I just want to commend you because your presentation was
excellent, and I am encouraged because the area that I
represent does not trade with Asia, and I am convinced that
what I learned in China was that there is a great deal of need
for lots of services, especially environmental services like
what you all represent--medical services, medical equipment,
those were some of the things that stood out in what they are
asking for. I just hope that the day will come soon, and Don
Manzullo says he will make it happen, that we could put you on
a video teleconference to visit with some of our business
people in south Texas so that they can see examples of those
who are successfully trading with China and that maybe that
might be a way in which we could turn things around for an area
like ours.
Mr. Chabot. Thank you very much.
Mr. Hinojosa. We thank you for coming and we appreciate
your time.
Mr. Chabot. We thank the panel for their testimony here
this afternoon. This is a very important issue, and you have
made an important contribution to Congress as it deals with
this issue.
At this time, we are adjourned.
[Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]
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