[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
           EFFECT OF THE OVERVALUED DOLLAR ON SMALL EXPORTERS
=======================================================================

                                HEARING

                               Before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                     WASHINGTON, DC, JUNE 12, 2002

                               __________

                           Serial No. 107-61

                               __________

         Printed for the use of the Committee on Small Business








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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio                   DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MICHAEL PENCE, Indiana               STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                      Doug Thomas, Staff Director
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director












                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 12, 2002....................................     1

                               Witnesses

Chimerine, Dr. Lawrence, Economist...............................     1
Raimondo, Tony, President & CEO, Behlen Manufacturing Company....     4
Weskamp, Robert J., President, Wes-Tech, Inc.....................     6
Dollar, Wayne, President, Georgia Farm Bureau....................     8
George, Vargese, President & CEO, Westex International, Inc......    10

                                Appendix

Opening statements:
    Manzullo, Hon. Donald........................................    23
    Velazquez, Hon. Nydia........................................    25
Prepared statements:
    Chimerine, Dr. Lawrence......................................    27
    Raimondo, Tony...............................................    34
    Weskamp, Robert..............................................    43
    Dollar, Wayne................................................    52
    George, Vargese..............................................    62
Additional Information: Correspondence sent to committee on the 
  overvalued dollar..............................................    68














           EFFECT OF THE OVERVALUED DOLLAR ON SMALL EXPORTERS

                              ----------                              


                        WEDNESDAY, JUNE 12, 2002

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:02 a.m. in room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
(Chairman of the Committee) presiding.
    Chairman Manzullo. We are going to call the Committee to 
order. We have an eleven o'clock joint session to welcome John 
Howard who is the Prime Minister of Australia, and I really 
want to finish before that happens.
    I am going to waive the opening statement, move immediately 
into testimony on the effect of overvalued dollar. The title is 
Effect of Overvalued Dollar on Small Exporters, but it is 
really the effect of overvalued dollar on small businesspeople 
because we have people involved in manufacturing and other 
sales that do not export, but who are losing a share to people 
who do export into this country, to those customers that are 
normally those of the small manufacturers who have been 
displaced because of the high dollar.
    Let us move immediately to the testimony of Dr.--you have 
got to help me--Chimerine.
    [Chairman Manzullo's statement may be found in appendix.]
    Mr. Chimerine. Chimerine.
    Chairman Manzullo. Chimerine, President of Radnor 
International Consulting. We are going to put on the five-
minute clock, so we have plenty of opportunity for interaction 
afterwards.
    And, Doctor, we look forward to your testimony.

      STATEMENT OF LAWRENCE CHIMERINE, PRESIDENT, RADNOR 
                    INTERNATIONAL CONSULTING

    Mr. Chimerine. Thank you very much, and I will stick within 
the schedule. I am going to talk primarily about the 
macroeconomic impact or the overvalued dollar.
    Chairman Manzullo. Okay, if you could keep the microphone 
closer to your mouth, it is a lot easier to hear. Thank you.
    Mr. Chimerine. I am going to talk mostly about the 
macroeconomic impacts and the impacts on small businesses of 
both the trade deficit and the dollar.
    It was very fashionable in this country during the 1990s to 
argue that trade deficits do not matter because the economy did 
so well despite the fact that our trade deficit was rising to 
levels that we had never seen before.
    In my opinion, that was a temporary phenomenon. Trade 
deficits do matter. They did not in the nineties because 
domestic demand--consumer spending, housing, business spending 
for capital goods--rose so rapidly that they offset the 
increase of the trade deficit on the economy. In fact, some of 
the increase in the trade deficit was simply a reflection of 
how strong the U.S. economy was. It was sucking in more imports 
because demand was so strong.
    Plus, you know, there were some benefits from the 
overvalued dollar. It held inflation down a little bit, and 
held interest rates down which contributed to strong domestic 
economic growth.
    The situation is very different now. It is highly unlikely 
we are going to see domestic demand rise at the rate it did 
during the 1990s at any time in the near future. But the trade 
deficit continues to rise. This will make already slow economic 
growth much slower. In fact, you can argue that without a 
decline in the trade deficit to offset or negate some of the 
slower growth in domestic demand, the economy is going to go 
virtually nowhere for the next several years, or at best a slow 
and uneven recovery.
    So the trade deficit is a serious macroeconomic problem in 
the short term, because if it doesn't come down it will hold 
down our economic growth. It is also a problem in the long term 
because we are building up so much foreign debt because of 
these trade deficits. Sooner or later foreigners are going to 
decide they do not want to keep accumulating dollar assets. 
When that happens you will see a huge increase in our interest 
rates. So longer term it is a big threat to prosperity as well.
    We need to bring the trade deficit down, and the dollar is 
the key. There are a number of reasons why we have these large 
trade deficits, particularly the structural portion that does 
not relate to macroeconomic trends. For example, many markets 
are still closed overseas. Foreigners dump many products into 
the U.S. market. But right now the biggest factor is the 
misalignment of exchange rates. Everybody, I think, here knows 
the dollar is at least 25 to 30 percent overvalued against most 
currencies.
    I am not an advocate of a weak dollar, but I think 
sometimes we make the mistake of thinking, well, if you are not 
for a weak dollar, you are for a strong dollar. And the problem 
is the law of diminishing returns applies to exchange rates 
like it does to everything else. If the dollar keeps getting 
stronger and stronger, at some point the negative effect on 
trade flows, by holding down exports, and leading to increased 
import penetration displacing domestic production as well, 
these trade effects, which we have seen in large measure over 
the last couple of years, begin to outweigh the positive effect 
of the dollar on interest rates and inflation. We are going to 
have low inflation anyway. We do not need the dollar to keep 
getting stronger and stronger to hold down U.S. inflation. We 
have competition doing it in this economy.
    There is no doubt in my mind that we are far beyond the 
point where the dollar is a help to the U.S. economy. It has 
become a big negative through these trade effects, not only in 
the short term and through the macro effects, but it is hurting 
the long-term competitiveness as well. All the industries, 
particularly manufacturing and agriculture, that are being hurt 
by the strong dollar, do not generate the business volumes and 
the profits to afford to make the new investments they need to 
make to remain competitive in the long term. So it hurts the 
economy in the short term through trade flows, and hurts long-
term competitiveness.
    Small businesses are hurt the worst because they do not get 
the economies of scale, the benefits from having large 
operations where you can hold down average costs through 
economies of scale, and offset some of the disadvantage caused 
by misaligned exchange rates. So it is a problem for the 
macroeconomy, and an even bigger problem for small businesses.
    It is almost the equivalent of legalized dumping. I mean, 
the exchange rate advantage is so huge for foreign exporters 
that they can sell into the U.S. market at very low prices 
without even dumping, and they make fat profit margins in the 
process.
    What do we do about it? Very quickly, I think three or four 
things.
    Number one, we need to put more pressure on foreign 
countries to simulate their own economies, to grow out of the 
current malaise we are seeing, particularly in Western Europe, 
and in Japan, and in other parts of the world. Most of those 
countries are waiting for the U.S. economy to go up to lift 
their exports to bring them out of their recessions. We should 
make it clear to them that is no longer acceptable. They have 
got to stimulate domestic demand by cutting interest rates, 
cutting taxes, raising spending, or whatever other measures are 
appropriate; in Japan, fixing their banking problems more 
rapidly would be a help.
    Secondly, we have got to tell these countries, particularly 
Japan, Taiwan, China and others, that we are no longer going to 
tolerate their manipulation of exchange rates. Those central 
banks accumulate dollars at a huge rate to prevent them from 
hitting the exchange markets. It keeps the dollar overvalued, 
and their currencies undervalued, to help them export. That 
comes at our expense and we ought to make it clear that that is 
no longer acceptable.
    And finally, I think it is very, very important that in 
this country we watch our fiscal and monetary policy to make 
sure they are being implemented in a manner that is conducive 
to a more fair dollar, and conducive to a better trade balance 
than we have had in recent years.
    For example, in the next several years, if we keep running 
larger and larger budget deficits, it will increase our 
dependence on foreign capital, probably push the dollar even 
higher, and that would be counterproductive.
    So I think we need to look at our own policies, and we have 
got to make it clear to our foreign counterparts they have got 
to--they cannot just depend on the U.S. to lift everybody up, 
and they have also got to stop manipulating their exchange 
rates.
    Thank you, Mr. Chairman.
    [Mr. Chimerine's statement may be found in appendix.]
    Chairman Manzullo. Thank you, Doctor.
    Our next witness is Tony Raimondo; is that right?
    Mr. Raimondo. Thank you, Mr. Chairman.
    Chairman Manzullo. Okay. President and Chief Executive 
Officer of Behlen Manufacturing of Columbus, Nebraska. Where is 
Columbus.
    Mr. Raimondo. Columbus, Nebraska is about 70 miles 
northwest of Omaha.
    Chairman Manzullo. Okay. Look forward to your testimony.
    Mr. Raimondo. Thank you very much, Mr. Chairman.
    Chairman Manzullo. The complete statements of the witnesses 
and all the members will be made part of the permanent record, 
without objection.
    Go ahead.

   STATEMENT OF TONY RAIMONDO, CHAIRMAN AND CHIEF EXECUTIVE 
             OFFICER, BEHLEN MANUFACTURING COMPANY

    Mr. Raimondo. Thank you. I will not repeat that then, my 
little overview.
    Yes, I am CEO of Behlen Manufacturing, a very diverse metal 
fabrication company. We are a medium-sized manufacture of pre-
engineered metal building, grain bins, dryers, we call them 
silos all around the world. We have got product in over 50 
nations, and I am very proud that we were a recipient of the 
President's E-Award.
    I wanted to commend you, Mr. Chairman, for holding this 
hearing on what is one of the most serious problems facing 
small and medium-sized manufacturers.
    As you know, I am also on the NAM board, National 
Association of Manufacturers, and representing, if I say SMM's, 
it is small, medium-sized manufacturers. We are among the best 
in the world. We have really done some tremendous things in the 
nineties as we have gotten globally more competitive than ever 
in America.
    We are innovative, productive and competitive in all 
respects as long as the playing field is level. Exports are 
important to small and medium-sized companies. In fact, we 
comprise 97 percent of all U.S. exporters and account for about 
one-third of all U.S. merchandise that is exported.
    Unfortunately, there is a major factor beyond our control 
that has tilted the global playing field against us and it is 
causing extremely serious harm in America's small and medium-
sized factories. The factor, as you know, is the overvalued 
dollar.
    After more than a decade of relatively stability the dollar 
started shooting up around 1997, and by February this year it 
has risen 30 percent. That rise has had a devastating effect on 
my firm's exports and on small and medium-sized manufacturers 
across the country. The dollar has since declined slightly 
against some major currencies, but still has a long way to go.
    Let me explain the effect on my company. We built our 
exports to a point at which in 1998 we had reached 15 percent 
of our volume. We were a little naive at that point in time. We 
set a goal for 20 percent. As the dollar continued to rise, I 
find my company today in the eight percent range, and we 
continue to be globally competitive. As the dollar began to 
appreciate significantly, we began losing out to foreign 
competitors not because they are more productive or began 
producing a better product, just because of the rising value of 
the dollar.
    Instead of continuing to grow, our exports have fallen. 
Behlen Manufacturing is not alone in this dilemma. Being on the 
board of directors of the NAM, National Association of 
Manufacturers, I met with several, and we have been inundated 
with letters, as you know, Mr. Chairman, and I can tell that 
this story is very, very typical.
    In our situation we have lost--we used to like to say that 
we had, at any given time 100 jobs in Columbus, Nebraska 
working on exports. Today we are lucky to have 50, and it is 
getting more difficult.
    The U.S. manufactured export goods have fallen at an 
amazing $140 billion in the last two years, principally because 
of the dollar's overvaluation. To put this loss in perspective, 
it is as large as the entire gain, that the NAM estimates, will 
come from the free trade area of the Americas when it is fully 
implemented 14 years down the road. So we are talking about 
big, big impacts.
    The SMM's share of that 140 billion decline is about 45 
billion that we have lost in exports. We cannot suffer that 
kind of huge loss without incurring severe setbacks in 
production and employment.
    In addition to the thousands of SMM's who are affected by 
the dollar impact on their exports, the are thousands more who 
are also, as you mentioned earlier, affected by unrealistically 
low import prices in domestic markets stemming from the 
overvalued dollar.
    Many smaller firms have written to the Committee. America's 
SMM's are not seeking an artificially cheap dollar. What we are 
asking for is recognition that the dollar has been allowed to 
become seriously overvalued and the overvaluation is imposing a 
very high cost on SMM's and on the entire economy as a whole. 
The dollar is distorted and needs to be restored to normal 
levels.
    Certainly a starting point must be the U.S. government to 
stop advocating a strong dollars when the dollar is already so 
overvalued, and to begin working actively to restore the dollar 
to normal levels. Whatever needs to be done should be done.
    The U.S. government should also object when other countries 
intervene in foreign currency markets to prevent their currency 
from adjusting to market-driven changes. I just spent two weeks 
in China while the dollar was somewhat softening, a very little 
amount, and every other day you would read about Japan taking 
steps to assure that their yen was not strengthening. It is a 
very, very high profile subject there, and we need to not 
coast, and be proud of our strong dollar. We need to get the 
right balance.
    Mr. Chairman, I hope you will lend your able and active 
support to working with your colleagues to see that the 
administration begins acting to end the dollar's overvaluation. 
I cannot think of anything more important that this Committee 
could do to assure--the future of our small and medium-sized 
manufacturing companies really are at stake. In this last 
recession many of them have gone out of business. It is really 
time. We have got to save a lot of jobs, Mr. Chairman, and we 
hope and we appreciate your help.
    [Mr. Raimondo's statement may be found in appendix.]
    Chairman Manzullo. Appreciate that. First we have to 
convince the Secretary of the Treasury----
    Mr. Raimondo. We understand.
    Chairman Manzullo [continuing]. To talk a little bit 
differently. Sometimes strong is not strong.
    Mr. Raimondo. Thank you.
    Chairman Manzullo. Our next witness is Bob Weskamp, 
President of Wes-Tech, speaking on behalf of his own business 
and on behalf of AMT, the Association for Manufacturing 
Technology.
    We look forward to your testimony.

     STATEMENT OF ROBERT J. WESKAMP, PRESIDENT, WES-TECH, 
  INCORPORATED; ON BEHALF OF THE ASSOCIATION OF MANUFACTURING 
                           TECHNOLOGY

    Mr. Weskamp. Thank you, Mr. Chairman.
    I am the president of Wes-Tech in the Chicago land area, 
and we manufacture products and services in and around the 
machine tool area. I am also a director of Ingersoll 
International, one of the largest machine tool manufacturers in 
the world.
    Today, I am testifying on behalf of AMT, which was formerly 
the National Machine Tool Builders Association. It happens to 
also be, commensurate with our 100 year anniversary. I 
appreciate the opportunity to testify before the Committee on 
the impact of the overvalued dollar on our industry.
    The strength of the dollar combined with the efforts of 
other nations to weaken their currencies have had a triple 
impact on the health of U.S. manufacturing technology industry, 
particularly for machine tool builders.
    Firstly, an overly-strong dollar hurts our export 
competitiveness in an economic environment that places more 
emphasis on the cost of the products than on the value of the 
product.
    Second, the price advantage provided to foreign competitors 
through the exaggerated strength of the dollar has led to 
increases in import penetration in the U.S. machine tool market 
over the past four years.
    Third, and perhaps the most insidious impact of the overly 
strong dollar, however, is the general decline in U.S. parts 
and components as more parts and components for U.S. products 
originate from offshore. In other words, many of our 
traditional customers are driven by the high dollar to purchase 
less expensive parts and components offshore instead of 
manufacturing those components and parts here in the United 
States.
    Those three factors have left the United States machine 
tool industry dramatically weakened, and this could have a very 
significant effect on the possibility of a rapid U.S. economic 
recovery.
    The impact on U.S. manufacturers has been more devastating 
at home and abroad. For example, exports of U.S. products have 
declined from the period of 1997 to 2001 by nearly 20 percent. 
The impact of the overly strong dollar has been even more 
dramatic at home. Import penetration of the U.S. machine tool 
market has grown 25 percent in just the last two years from 50 
percent in 1999 to 63 percent in 2001.
    My written testimony cites for examples where the overly-
strong dollar has hurt my company. In three of the examples, we 
lost large contracts with well established customers based 
solely on price to foreign competition. Our European 
competitors were able to offer products at prices that we 
simply could not match.
    In the last example, Wes-Tech actually won the contract 
that we were bidding on, but because of the pricing structure 
from the foreign competition we were forced to sell the project 
at such a low profit margin that in order to keep the customer 
and keep the business and protect our technology the pricing 
level drove us to a position of zero profit on the project. The 
bad news is that despite cost cutting, we could not turn a 
profit on the project, and in the long run zero profit as the 
norm is not a sustainable, workable strategy.
    Ingersoll is one of the largest machine tool manufacturers 
in the world. The overly-strong dollar and other problems faced 
by the machine tool industry have changed that. Ingersoll 
employment has continually declined and its employment level of 
a peak of 2200 has been reduced to 650. There is a very real 
possibility that Ingersoll will qualify as a small business by 
the end of 2002. Most of the employment cutbacks in the 
Rockford area have been through lay-offs as a result of this 
reduced business volume.
    This is not the first time that American manufacturers have 
faced the challenges of a strong dollar and its impact on price 
competitiveness. In the past, U.S. economic strength relative 
to our trading partners was the primary factor that led to a 
strong dollar. However, this time the dollar's relative 
strength is the result of poor industrial, fiscal and monetary 
policies by our largest trading partners in conjunction with 
intervention by them to weaken their own currencies. It is 
unfair to ask our manufacturers to compete in a global market 
that is artificially created by foreign governments.
    Two years ago the AMT issued a report highlighting the 
dramatic increases in manufacturing productivity accompanied by 
the machine tool industry during the past decade. These 
productivity increases enabled U.S. machine tool builders to 
keep pace with the dramatic decline in foreign machine tool 
prices created by the overly-strong dollar.
    But by mid-2001, even the most highly productive U.S. 
builders could no longer keep pace with the over-strengthening 
dollar; and companies began to experience the challenge in cash 
flow. Companies in business for more than a hundred years found 
themselves at the mercy of banks striving to reduce debt. The 
industry today is faced with an ever-increasing frequency of 
foreclosures.
    The U.S. Treasury must realize that its policy has not 
worked. Treasury claims it has ``sent a message.'' But our 
trading partners are not listening, and so a more direct 
warning needs to be sent. The official U.S. position ought to 
be that the dollar should reflect the underlying strength of 
the U.S. economy. That is most decidedly not the case today.
    And overly-strong dollar is ruining the U.S. machine tool 
industry and America's industrial base at large. If the 
American machine tool industry does not exist, where will 
America's defense companies go for their equipment? Would you 
dare put your classified projects offshore?
    The U.S. is rapidly losing machine tool capability and this 
is a serious threat to the backbone of our industrial strength. 
Mr. Chairman, we must not allow this to happen, and that is why 
I am pleased that you are holding this hearing to call 
attention to the continuing problems of the overvalued dollar.
    Thank you very much, Mr. Chairman.
    [Mr. Weskamp's statement may be found in appendix.]
    Chairman Manzullo. Thank you.
    The next witness is Wayne Dollar. Is that your real name?
    Mr. Dollar. Yes, sir.
    Chairman Manzullo. All right, I just wanted to make sure. 
President of the Georgia--you have had to live with that name 
ever since you were born, have you not? President of the 
Georgia Farm Bureau, statement of the American Farm Bureau 
Federation.
    And Wayne, I presume that you are speaking on behalf of the 
American Farm Bureau, and you are also a farmer; is that 
correct?
    Mr. Dollar. Correct.
    Chairman Manzullo. And we look forward to your testimony.

 STATEMENT OF WAYNE DOLLAR, PRESIDENT, GEORGIA FARM BUREAU; ON 
         BEHALF OF THE AMERICAN FARM BUREAU FEDERATION

    Mr. Dollar. Thank you very much for that introduction. I 
wished you had said I am from Ochlocknee, Georgia.
    Chairman Manzullo. And he is from Ochlocknee, Georgia.
    Mr. Dollar. I am testifying on behalf of American Farm 
Bureau which is the nation's largest agricultural organization 
and our members produce about each and every product and 
commodities you can name. And we certainly appreciate the 
opportunity of being here, and we feel like the exchange rate 
is the single most important of all the things that we are 
talking about today.
    Our farmers and ranchers are losing export sales for the 
past three years because the dollar is pricing the product out 
of the market both at home and abroad. Agriculture is one of 
the most trade-dependent sectors of our economy. Our sectors 
maintain a trade surplus for over two decades, but that surplus 
is shrinking. One of the primary factors affecting our 
declining trade balance is the strong value of the dollar.
    We are also deeply concerned about countries that engage in 
currency devaluations in order to gain an export advantage for 
their producers. The real trade-weighted exchange rates for 
agricultural exports from our major competitors have exhibited 
a long-term trend of depreciation against a dollar, contrary to 
market fundamentals. This trend has persisted over several 
decades, leaving it hard to conclude that this is not a 
deliberate monetary policy of these and other governments.
    The U.S. agriculture relies on exports for one-quarter of 
its income. In addition, about 25 percent of agriculture 
production in the United States is destined for a foreign 
market. With a strong dollar, we have the double challenge of 
our products being less competitive in foreign markets while 
products from other countries are more competitive in the U.S. 
market.
    There is a strong relationship between the value of the 
dollar and the domestic price of our commodities. As the value 
of the dollar rises, foreign buyers must spend more of their 
currency to purchase our exports which causes them to decrease 
their consumption of U.S. commodities or buy from our 
competitors instead. The resultant drop in consumption drives 
U.S. commodity prices down even further.
    The increase and strength of the dollar and steady 
depreciation of the currencies of our major export competitors 
have had a profound impact on our ability to export. In fact, 
the rising depreciation of the dollar is one of the primary 
reasons why the agriculture economy did not experience economic 
prosperity that most other sectors of the U.S. enjoyed between 
1995 and 1999.
    The USDA estimates that 14,000 plus jobs are lost for every 
one billion dollars decline in agriculture exports. As a 
result, agriculture employment lost 87,000 jobs between 1997 
and 2000, a period wherein the real agricultural exchange rate 
was rising rapidly and U.S. agricultural exports were stagnant.
    For some commodities, the rising value of the dollar has 
directly contributed to the export competitiveness of our 
foreign rivals. The strong dollar enables our competitors to 
expand their production and gain market share at our expense. 
Let me give you a few commodity-specific examples.
    Beef, since 1995, the dollar has appreciated 42 percent 
against the currency of beef-producing countries.
    Fruits, from 1995 to 2000, U.S. import of fruits and nuts 
jumped 33 percent largely due to the dollar's 18 percent gain 
with respect to the currency of foreign suppliers of these 
commodities to the United States. Corn, the U.S. dollar 
appreciated 39 percent; soybeans, you saw an increase.
    And let me say in conclusions American farmers are the most 
productive in the world. However, the comparative advantages of 
producers generally enjoy are mitigated by the rising 
appreciation of the dollar. Exchange rate issues are certainly 
increasing in importance for our sector. If these issues are 
not resolved by microeconomic policies, there will be a 
continued pressure to find solutions in a traditional foreign 
policies.
    Effective long-range financial planning at the farm and 
ranch level and the overall economic health of U.S. agriculture 
depends on more stable exchange rates that do not overvalue the 
U.S. dollar against our competitors' currency.
    Thank you, sir.
    [Mr. Dollar's statement may be found in the appendix.]
    Chairman Manzullo. Well, thank you.
    I was on an airplane, and I asked for some peanuts. And the 
flight attendant brought over some pretzels. And I said I am 
allergic to pretzels. And she looked at me. It was funny then. 
[Laughter.]
    Mr. Dollar. Ninety-eight percent of the people want 
peanuts, but Delta thinks that eight percent is more important 
than 92.
    Chairman Manzullo. Is that what it is? It is not just 
Delta, it is United. That is all you get nowadays is peanuts, 
and you always--you equated airline trips with a bag of peanuts 
like going to the circus, you know.
    Our next witness is--we have been through this before, Mr. 
George, on your first name. It is Vargese.
    Mr. George. Vargese.
    Chairman Manzullo. Not even close. Vargese. Oh, Vargese. 
Okay, Vargese George. He is president and CEO of Westex 
International. I think you have testified before us a couple of 
different times, and I--twice before, and I finally learned how 
to pronounce your last name.
    And speaking on behalf of your company and all the Small 
Business Exporters Association, look forward to your testimony. 
And could you pull that microphone up as close as you can? 
Thank you.

  STATEMENT OF VARGESE GEORGE, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, WESTEX INTERNATIONAL, INCORPORATED; ON BEHALF OF SMALL 
                 BUSINESS EXPORTERS ASSOCIATION

    Mr. George. Thank you, Chairman Manzullo, Representative 
Velazquez, members of the Committee. Good morning.
    Again, my name is Vargese George. I am the CEO of a 
Washington, D.C.-based export company, and I employ 18 people.
    We have been supplying products and materials for the 
United States for construction products and also the MRO, which 
is maintenance, repair and operation supplies, to worldwide 
clients over the last 20 years.
    I had the privilege of testifying before this Committee 
several years ago, and I am happy to be back. Today, I am also 
representing the Small Business Exporters Association. SBEA is 
the nation's oldest and largest nonprofit association of small 
and mid-sized exporters. SBEA is also the international trade 
arm of the 65,000 member National Small Business United.
    As this Committee is surely aware, the number of small 
business exporters have tripled to more than 200,000 in the 
last 20 years. Like the other witnesses in this morning's 
hearings, we at Westex and at SBEA are deeply concerned about 
the high valuation of the dollar compared to other currencies.
    The high price of dollar has been a significant factor in 
my company's loss of over $2 million worth in sales during the 
last one year alone. It has been especially costly to us in the 
Middle East and South Asia. We make our offers all in dollars 
because, like most small exporters, we can not assume--absorb 
the exchange risk and the losses resulting after the deal is 
made. But with the dollar's high cost, we have seen our 
overseas customers switching their purchases to my competitors 
from Europe as well as in the Far East.
    We also have been hurt when foreign governments step into 
projects when we are bidding to offer extremely generous terms 
of finance, and though the dollar has dropped a bit in recent 
months, especially against the Euro, the government still must 
do all it can to assure that the U.S. products remains 
competitive in the global market.
    At the highest levels our government leaders must work with 
their foreign counterparts to assure that the dollar is not 
artificially overvalued, and that other currencies are not 
being pushed below their true value.
    But having said that, we should not try to drive the dollar 
down by painting a darker picture of the American economy than 
the facts warrant. That could come back and haunt us.
    Still, we can certainly observe that economic conditions 
improving in the Euro zone and perhaps even in Japan now, there 
are other steps the government could take to exporters also. We 
need to catch up with the European Union in signing trade 
agreements with the other countries. Tariffs and trade barriers 
are falling for European exports, and that is complicating the 
problem of the high dollar.
    In the past eight years, the EU has signed more than 30 
trade agreements, it has 15 more in process, compared to just 
two minor ones that the U.S. has signed. Now both the EU and 
Japan are targeting Latin America, one of the largest markets 
for U.S. goods and services. The U.S. needs to respond with 
more trade agreements of its own.
    Now, what can we exporters do about the high dollar? For 
one thing, we can offer packages to offset the losses due to 
high value of dollar; packages that include service agreements, 
value-added services, software training, and follow-up visits.
    America's foreign competitors are not nearly as good at 
this as we are, but most of all U.S. exporters need to be able 
to offer foreign buyers better financial terms. Giving buyers 
more generous payment terms is a time-honored way to deal with 
the price increases. Whether those increases are caused by 
rising raw material costs, currency fluctuations or other 
factors, but exporters, especially small exporters, cannot 
offer financing on their own. Yet trade financing is hard for 
us to obtain.
    In contrast to Europe and Japan, and other Far Eastern 
countries, most American banks are unfamiliar with the trade 
financing. The relatively few banks that do offer it usually 
seek only big businesses and large export transactions, and no 
one is aggressively trying to change that. Small businesses--
SBA and Ex-Im do what they can, but export finance dealers that 
extend beyond than six months are especially hard for small 
exporters to obtain.
    Chairman Manzullo. How are you doing on time there? You are 
two minutes over?
    Mr. George. I am over. I will be done--can I get one more 
minute? Thirty seconds?
    Chairman Manzullo. Yes, I want to conclude by 11 so do it 
in 30 seconds.
    Mr. George. Ex-Im is supposed to respond to this when it 
occurs and meet those subsidies head on.
    There are some good news, in the horizon. The Bush 
administration's recent National Export Strategy Report calls 
for several important initiatives. Most of all, it would 
harmonize the government's many export promotion programs and 
focus more on customer service for exporters.
    Chairman Manzullo, SME Exporter Working Group has come up 
with some good ideas too like developing partnership between 
large exporter and domestic suppliers, and giving companies a 
single government point of contact for all export-related 
customs and needs.
    So, yes, the high dollar has brought us serious problems, 
but there are also some promising developments in the horizon.
    Thank you for the opportunity.
    [Mr. George's statement may be found in appendix.]
    Ms. Velazquez. Thank you, is it Mr. Chimerine?
    Mr. Chimerine. Right.
    Ms. Velazquez. Okay. The trade deficit is financed by 
foreign investment. Why are international investors still 
investing in the U.S. if the manufacturing sector is having 
trouble remaining competitive?
    Mr. Chimerine. Well, I think there are two reasons. Number 
one, the U.S. economy was outperforming every other economy 
during the 1990s. Investments made in the U.S. economy were 
generating a higher rate of return.
    And secondly, interest rates have been higher in the United 
States than in other parts of the world, so they are investing 
here either to earn profits on their investments or interest on 
their investments. For at least for the last 10 years or so 
prospects were better in the United States in both cases, so I 
think that's the biggest reason.
    You know, the dollar has also been looked at as a safe 
haven. It is the most--it is the safest currency, it is the 
safest economy. But let me tell you, if we keep relying more 
and more on foreign debt, you know, at some point they are 
going to need their savings to invest in their own countries.
    Ms. Velazquez. Okay.
    Mr. Chimerine. You cannot depend on foreign investment 
forever to flow into the United States like it did in the 
nineties. And if we have big deficits at the same time, it will 
create huge pressure on interest rates and hurt the U.S. 
economy.
    Ms. Velazquez. Thank you.
    Mr. George, only one percent of all small businesses 
export. Besides the overvaluation of the dollar, what else 
limits United States small businesses that have marketable 
products from becoming exporters?
    Mr. George. One of the key things that I always thought to 
be the problem is there are not enough American designs 
overseas. The foreign competitors, especially from U.K. and in 
Europe and Japan, they are very active in putting their designs 
and specifications into these markets.
    So when you have a project or an infrastructure project 
designed around a certain specification, the products follow, 
and I think that is the key drawbacks that I see when I travel. 
There are not enough American designed projects overseas, 
especially in the infrastructure.
    So what we can do is on a proactive basis we can encourage 
the design, engineering design firms, and the architectural 
firms to be a little more proactive by helping them to 
participate in international trade shows as well as meeting 
clients face to face even before these projects are on the 
drawing board. Then the products will follow and there will be 
opportunities for small business exporters.
    Ms. Velazquez. Would you like to comment on that?
    Mr. Chimerine. Sure. I think there is another factor and I 
think someone on the panel mentioned it earlier, and that is 
the export financing and promotion programs in this country are 
just a fraction of what most other countries have. It puts us 
at a tremendous disadvantage, particularly for smaller 
companies who need that kind of financing. The Ex-Im Bank is a 
good example of that.
    The trade deficit is a multi-dimensional problem. One of 
them, in my opinion, is the export financing programs.
    Ms. Velazquez. Thank you.
    Mr. George, how receptive are commercial banks to small 
exporters' needs for access to capital?
    Mr. George. They are not very receptive, mostly because of 
there are not enough dollars to support their involvement.
    Ms. Velazquez. So what are the implications of an exporter 
having to rely on the Ex-Im Bank and the SBA?
    Mr. George. A lot of transactions die without seeing the 
light of the day because there is not any banks involved in it.
    Ms. Velazquez. In particular, what are the effects of the 
lack of adequate medium-term loans for small business 
exporters?
    Mr. George. I did not hear that.
    Ms. Velazquez. What are the effects of the lack of adequate 
medium-term loans for small business exporters?
    Mr. George. Because of lack of financing, people are 
reluctant to get into exports. You know, we do not have an 
export environment. We go and talk to the banks, and they will 
ask you to give you three years worth of financial statements, 
but it has to be transaction financing that we are looking for, 
not the individual's worth or the company's worth.
    Transaction financing is what we are missing.
    Ms. Velazquez. Thank you.
    Mr. Raimondo, do manufacturers experience any benefit at 
all from the high value of the dollar?
    Mr. Raimondo. From a manufacturing point of view, I would 
say that all we have done, as I mentioned, we were at 15 
percent, we thought we were going to go to 20 percent in the 
1997 time period. All we have done is lost jobs and I cannot 
think from a manufacturing company any value of a higher 
dollar.
    Ms. Velazquez. What about an increased ability to buy 
foreign materials?
    Mr. Raimondo. In our case, we are metal fabricator. We have 
not pursued buying product overseas.
    Ms. Velazquez. Any comment on this question?
    Mr. Chimerine. Well, I think what happens is that, as you 
suggest, some individual companies can now purchase materials 
or components less expensively overseas. That may be good for 
them, but it is not good for the country and the economy 
because ordinarily they would be buying them in the United 
States.
    Chairman Manzullo. Okay, let us go to Mr. Akin.
    Ms. Velazquez. Thank you.
    Chairman Manzullo. Thank you.
    Mr. Akin. Thank you, Mr. Chairman.
    Just a question for anybody, if you had a magic wand, what 
would you change?
    A number of you have used the phrase that we have the 
dollar may be artificially high in terms of foreign currency. 
What would you do to change that? Is that the sort of thing 
that we should basically put more money into the money supply? 
Or how would you do that? Just one sentence from whoever wants 
to answer that.
    Mr. Chimerine. Well, I do not think you can do it with one 
policy, but one of the things I think, looking back over the 
last several years, that should have been changed is that we 
should have been putting much more pressure on foreign 
governments to stimulate their own economies instead of 
adopting export-led growth strategies, and usually those 
exports are targeted to our market.
    I think if we would have had stronger economic growth in 
foreign countries because of policies they implemented, not 
only would that help our exporters sell into stronger markets, 
but one of the reasons the dollar has been so strong is, you 
know, is that most investors look at those economies and have 
very little confidence in them.
    So you would have had two things happen: stronger growth in 
those countries, and probably stronger currencies overseas, and 
our exporters would have benefited from both. I think that 
pressure has to be put on foreign countries on a regular basis, 
make it clear to them we are not going to accept, you know, 
their strategies of exporting to the United States as their 
only economic policy.
    Mr. Akin. But from a practical point of view, what does 
that mean you are going to do? Put some tariffs when they try 
to export at a low cost, something that they have subsidized we 
are going to put more tariffs on that? Or are you saying we 
need to really push the--we should have been engaging in more 
treaty negotiation earlier? What are you saying?
    Mr. Chimerine. I think it is some of all of those. I am not 
advocating tariffs, but one thing I believe is telling them, if 
this keeps up, that we are going to intervene more in foreign 
exchange markets, and we have got more resources than most of 
them do, and if their policies are not aimed at stimulating 
their own economies, but only to export to the United States, 
keep their currencies undervalued to help them do that, we are 
going to have to offset that, and one way is with foreign 
exchange market intervention.
    So I am not advocating direct tariffs, but there are things 
we can do to make it more difficult for them, and to put more 
pressure on them to look inside their own economies as a way of 
bolstering those economies.
    Mr. Akin. Thank you. Thank you, Mr. Chairman.
    Chairman Manzullo. Mr. Baird.
    Mr. Baird. Briefly, our nation is returning to deficit 
spending. How do you anticipate that will impact the value of 
the dollar and interest rates and foreign exchange?
    Mr. Chimerine. I will take a crack at that.
    I do not think in the short term it is that big of an issue 
because the economy is very soft, and you would expect to have 
fiscal deficits in the short term when you have a recession, or 
just coming out of a recession. If anything, it would not have 
bothered me to have some more short-term tax cuts, for example, 
to stimulate the economy.
    The issue is the longer term. Five years from now, if the 
economy has recovered, and we have got big budget deficits 
again like we had in the eighties and early nineties, I think 
that would be counterproductive. It will put upward pressure on 
our interest rates, which tends to attract more foreign 
capital, which pushes up the value of the dollar. And it is the 
smaller and middle-sized manufacturers and farmers who take it 
in the neck when that happens.
    Chairman Manzullo. Mr. Bartlett.
    Mr. Bartlett. Thank you very much.
    Dr. Chimerine, you mentioned that trade deficits do matter. 
I have had a concern for a long while that these big trade 
deficits, over $400 billion last year, that is more than a 
billion dollars a day of trade deficit, at least to some 
extent, represents wealth moving from this country to other 
countries. Now, if what you are buying is a bridge that will be 
here for a hundred years, and to some lesser extent, a car that 
may be here 10 or 12 years, you may argue that it is not simply 
a transfer of wealth. But if you look at our hundred plus 
billion dollar trade deficit with China, if you think about 
what you buy that is made in China, a big percent of that is on 
the county landfill by the end of the year, is it not?
    So to the extent that we are buying consumable goods, help 
me understand why this big negative trade deficit is not a 
problem or why I should not be concerned?
    I am really concerned, and it was Mr. Weskamp who mentioned 
the machine tools in defense. We cannot have the world's best 
defense and best military without the best scientists, 
mathematicians, and engineers, and without the best 
manufacturing. But just help me understand from a simple 
economic viewpoint why I should not be concerned about $400 
billion trade deficits.
    Mr. Chimerine. I cannot because I think you should be very 
concerned about it since I am, and I think some of the problems 
have been expressed very clearly by the panel this morning.
    I mean, I do not think you can have a healthy economy in 
the long term without a very vibrant manufacturing sector, 
including smaller companies where a lot of the new innovations 
come from. A lot of the increases in R&D, and new product 
development, comes in manufacturing. It is our manufacturing 
base that is essentially being put out of business. That is 
essentially what that $400 billion trade deficit means.
    It means our internationally-oriented companies--our 
exporters and our companies that are competing with imports--
are getting hurt very, very badly. Their survival is at stake. 
I think the U.S. economy will be much worse off if we do not 
have a healthy industrial sector in the future, and that is 
what we are talking about. It is a very serious issue, and I 
think those economists or others who sort of poo-poo it, they 
may have been right for awhile in the 1990s, but that was an 
extraordinary set of circumstances where we had huge growth in 
domestic demand. We are not going to have that again. As a 
result, in both the short and long-term, our big trade deficit 
and the fact that it is continuing to rise is a very serious 
economic problem.
    Mr. Bartlett. I have been concerned. I am not an economist, 
but I was a producer of wealth. Is it not true that in our 
society we have those who are consumers and those who are 
producers of wealth?
    I now regrettably am a consumer of wealth. I do not produce 
wealth anymore in this job, but at one time I did do that as a 
farmer, as a small businessperson building houses and so forth. 
To me, I think that the only two segments of our society that 
produce wealth are manufacturers and farmers. And you know, I 
do not understand how we can maintain a viable economy if all 
we are doing is providing service.
    So if you push this to an absurdity and if all we do is cut 
each other's hair, clearly that is not a viable economy. Now I 
know that is pushing service-based economy to an absurdity. But 
you know, should we not be concerned about the loss of 
manufacture?
    Mr. Chimerine. Yes, we should be very concerned about it 
and that is my point. Again, you have heard this expression 
from others, you know, computer chips or potato chips, what is 
the difference, they are all chips. I think there is a big 
difference. I do not think we can have as healthy an economy 
only producing potato chips or hair cuts or other services. We 
need a very balanced economy, led by a vibrant, strong 
manufacturing base, because that is where a lot of the wealth 
is created. That is where your highest paying jobs are created. 
That is where much of our R&D and product innovation and 
productivity comes from, and that is exactly the point.
    And with a trade deficit of $400 billion, and rising, 
largely because of the overvalued dollar, we are jeopardizing 
manufacturing. We are seeing jobs lost there daily, and it is 
not healthy for the U.S. economy. I agree with you completely.
    Mr. Bartlett. I know that there are some in our society who 
benefit from an overvalued dollar, but on balance I think that 
the dollar, the value of the dollar, is best determined by 
market forces, not by us or some other country artificially 
manipulating where it is.
    Chairman Manzullo. Would you yield?
    Mr. Bartlett. Yes, sir.
    Chairman Manzullo. What does the United States do when in 
the past two weeks Japan has intervened four times to make sure 
the yen does not get stronger?
    Mr. Bartlett. What we ought to do, I think, is cry foul, 
and we have not done that.
    Chairman Manzullo. Besides crying foul?
    Mr. Bartlett. Well, of course, two-thirds of all the U.S. 
dollars, what are there, about $600 billion in circulation and 
two-thirds of those are circulating outside our country, so 
obviously the most force that can be brought to bear on the 
value of the dollar is outside this country. We are fairly 
limited because we have only about one-third of all the dollars 
in circulation.
    Mr. Chimerine. I am not sure the numbers are that dramatic, 
but we have the resources to counter----
    Mr. Bartlett. We have some resources and we are not using 
them, that is true.
    Mr. Chimerine. The leverage we have is the size of our 
market, and the fact that most of those economies are very 
dependent on the U.S. market. If the situation gets bad enough, 
quite frankly, taking some measures in the short term to limit 
their access into the U.S. economy might be in order, if they 
continue to manipulate to gain advantages in foreign exchange 
markets.
    The foreign exchange market is simply not free. That is the 
point. These currencies are deliberately being manipulated by 
foreign governments, either by accumulating lots of dollars in 
their domestic companies when the importers are selling off 
dollars to raise their own currency to pay their workers. If 
that was hitting the marketplace, the dollar would be nowhere 
as strong as it is now.
    And then secondly, if for some reason the dollar does 
weaken, they run out there and intervene, and we have allowed 
this to happen, in my opinion, for too long.
    Mr. Bartlett. Thank you very much, Mr. Chairman.
    Chairman Manzullo. Thank you.
    I have several questions. Is there any violation of the WTO 
or perhaps there should be when a country such as Japan 
intervenes to make sure that its dollar does not change? I 
mean, to me that is no different than a subsidy.
    Anybody want to tackle that question? When Japan intervened 
four times in the past couple of weeks.
    Mr. Chimerine. I think one of the problems with the WTO, 
and I am a very big supporter of it, and in the next trade 
round, is that a lot of what we would call unfair trade 
practices, such as currency manipulation, keeping markets 
closed, false inspection requirements as a way of limiting 
imports, all these things are generally not handled that well 
in the WTO.
    The WTO deals primarily with tariffs, reducing tariffs, but 
it does not deal a lot with the unfair trade practice issues. 
It is very hard, therefore, to take a case like this, where 
Japan is intervening or anybody else is, or manipulating their 
exchange rates any other way, take it to the WTO and expect to 
get any relief. And part of that also is it takes years. The 
damage is being done in the interim.
    So, you know, I wish the international trade rules dealt 
specifically with that issue. Right now they really do not, and 
therefore I think we have to address the issue ourselves.
    Chairman Manzullo. I mean, we could have all the hearings 
we want and write all the books and everything, but when a 
foreign government can simply intervene in order to keep its 
currency weak, you know, that is a subsidy. I mean, you would 
think that there could be an action, a 201 action brought 
against the country as a whole, and as for countervailing 
duties in that particular situation.
    Mr. Raimondo. Mr. Chairman.
    Chairman Manzullo. Yes.
    Mr. Raimondo. I have gotten feedback that it is a violation 
of the IMF, International Monetary Fund agreement, and it would 
be very good to talk to Treasury about that.
    Chairman Manzullo. Well, that would, but, you know, we are 
not dealing with the IMF money. That is only the countries that 
you dump it into, such as when we dumped money into Russia and 
then Brazil, and in South Korea, with particular nations on 
that, but that is an interesting aspect of it.
    Here we are getting beat up internationally and there is 
nothing we can do about it. So somewhere along the line we have 
to do something.
    Let me ask, Doctor, when was the last time the United 
States intervened in the foreign exchange market?
    Mr. Chimerine. Gosh, I would have to look back, Mr. 
Chairman. We did it aggressively with cooperation of other 
governments, as you know, in the 1980s when the dollar reached 
levels similar to where it is now. There was the Plaza Accord, 
you might remember.
    Chairman Manzullo. That was the rubber room that Reagan put 
people into?
    Mr. Chimerine. I think on a selective basis we may have 
done some intervening in the 1990s. I just do not remember.
    Ms. Velazuez. It was 1985.
    Mr. Chimerine. Excuse me?
    Ms. Velazuez. 1985.
    Mr. Chimerine. 1985.
    That was the last time we engaged in really aggressive 
intervention to bring down--at that time it was an overvalued 
dollar similar to where it is right now, and it was led by the 
United States, and we sort of forced other countries to go 
along with us, and that kind of approach would be in order 
right now again, in my judgment.
    Chairman Manzullo. Well, we would have to convince the 
Secretary of the Treasury and the president that would be in 
the best interest.
    Mr. Chimerine. I think the Secretary of the Treasury, 
irregardless of what he might say publicly, deep down knows 
that you cannot put our manufacturers at a 25 and 30 percent 
disadvantage and expect them to do well.
    Chairman Manzullo. Let me follow up on that. We had a 
meeting with the Secretary of Commerce yesterday. The area that 
I represent, Rockford, Illinois, Ingersoll used to have close 
to 3,000 employees. And it is being hammered by a number of 
forces. It will be under 500 probably within the next year, and 
that is the high price of steel.
    And Mr. Raimondo, you deal obviously in buying steel for 
your products. What are you experiencing in terms of increases 
in the price of steel?
    Mr. Raimondo. On a personal basis our company is 
experiencing 15 to 30 percent price increases in the last four 
months. It is an absolute nightmare.
    Chairman Manzullo. And in fact we met with the Secretary of 
Commerce, and small businesses are getting no relief. They are 
getting zero relief based upon what is obviously a political 
move that is hurting immeasurable the small business people.
    I do not know how the small manufacturers in this country 
can hang on with that steel policy. I am going to be doing a 
series of special orders. I am going to be making a lot of 
noise, a tremendous amount of noise about what is going on to 
the small manufacturing companies that are--in fact, the larger 
ones too. They are getting hit big time by these increases, and 
the steel that you use, is that a common steel? It is not a 
specialty steel?
    Mr. Raimondo. Yes, we use a variety of mostly common steel 
both hot-rolled and cold-rolled. And as an independent 
individual of a company, I would sure like to participate 
because in the environment we have where pricing powers are in 
the big retails, in the small and medium-sized manufacturers 
are having a really extremely difficult time. When you stack up 
the dollar and now the steel increases in the 20 and 30 percent 
ranges, it is a tremendous squeeze, Mr. Chairman.
    Chairman Manzullo. And the steel that you are buying, do 
you know if it is manufactured domestically or internationally? 
I presume you buy it from a broker?
    Mr. Raimondo. No. Actually, the majority of what we buy is 
from the large mills, the U.S. Steels, the National Steels, the 
Bethlehem Steels, and course we buy a substantial amount from 
the mini-mills, Nucor and what have you.
    Chairman Manzullo. Okay, so you are buying directly, and 
you said 15 to 30 percent?
    Mr. Raimondo. Depending on the type of steel, yes, 15 to 30 
percent.
    Chairman Manzullo. Okay. Mr. Weskamp, you are involved in 
manufacturing also?
    Mr. Weskamp. Yes, Mr. Chairman.
    Chairman Manzullo. Is this affecting you?
    Mr. Weskamp. To a lesser extent. Really what affects us 
predominantly is not the cost of raw materials, it is more an 
issue of pricing and business volumes, offshore competition. 
The difference that we find in pricing is such that it is 
driven not by one component of raw material content in a 
project. We have been involved in on-line bidding with foreign 
competition, and just to see how far it would go we went down 
to our cost, and we are still underbid by over five percent. 
And a typical margin we work on is 25 to 30 percent. We dropped 
30 percent. That is not the cost of raw material. There is 
something else going on, and it is more dollar-based.
    Chairman Manzullo. Mr. Raimondo, you build, is it 
agricultural silos? Is that it?
    Mr. Raimondo. Yes, grain bins that are called silos 
overseas. We also do pre-engineered metal buildings that we 
export overseas.
    Chairman Manzullo. Okay. If it cost you a dollar to 
manufacture, you know, one unit, how much of that dollar is 
represented by the cost of your steel?
    Mr. Raimondo. Fifty percent, sir.
    Chairman Manzullo. Fifty percent.
    Mr. Maimondo. In the case of the grain--that is in the 
buildings. The grain bins is 60 percent plus.
    Chairman Manzullo. So you are being hit really hard on it.
    Mr. Maimondo. Very hard.
    Chairman Manzullo. Now there is something the American 
government can do about the price of steel. That is not 
theoretical. I am looking at the economist over there and he 
says theoretical. You know, we deal in theories because it is 
very difficult on the issue of the high dollar.
    But would you all agree that the price of steel is 
something the administration can do something about?
    Mr. Maimondo. They already have, just the wrong way.
    Chairman Manzullo. They went the wrong way on it.
    Do you have, Mr. Raimondo, in your business, you stated 
that you did not have a foreign competitor that makes that type 
of grain bin, is that correct?
    Mr. Maimondo. No, we do have foreign competitors.
    Chairman Manzullo. Oh, you do?
    Mr. Maimondo. Yes, we do.
    Chairman Manzullo. Okay.
    Mr. Maimondo. Yes, we do. We had a project in Algeria that 
we won this last winter before the steel price increases, but 
we just know with the dollar we priced it so it would be at a 
break even winter project, a $2 million project in Algeria. We 
beat out the Italians and the French.
    Chairman Manzullo. Okay.
    Mr. Maimondo. And I suspect next year--we survived the 
dollar by basically not having profit. And with the steel 
situation, we will not even be in that competition next year.
    Chairman Manzullo. Is there an overseas competitor that 
actually builds grain bins in the United States?
    Mr. Maimondo. No, sir.
    Chairman Manzullo. Okay.
    Mr. Maimondo. They build them in Italy, in Spain and in 
France.
    Chairman Manzullo. Okay. Mrs. Velazquez, do you have any 
further questions?
    Ms. Velazquez. No, I do not.
    Chairman Manzullo. Okay. I do have another question.
    We have been working on this for some time and the 7(a) 
loan rate that has been fixed, which we believe is too high. 
One of the things that we have noticed and we held an informal 
round table on the high cost of capital, one of the theories 
that is used to bring down a strong dollar is to decrease 
interest rates. That is--interest rates have been decreased as 
far as you can, but that decrease is not being passed on to the 
American manufacturer.
    Anybody want to comment on that?
    Mr. Maimondo. We find that at the NAM to be absolutely 
true. We have plotted that. In fact, this last week it showed 
the deterioration in the Wall Street Journal of the banking 
loans to small and medium-sized manufacturers and business in 
total, and if they do, they raise the interest rates and put 
you in a different class, which they do a lot, they simply have 
been rejecting major industry segments like the printing 
industry or like the building industry where the banks just 
have decided they do not want to participate in those 
industries, in this type of economy. They have really tightened 
up their portfolios.
    Chairman Manzullo. Mr. Dollar, I have been talking to my 
farmers back home. We have a very large agricultural community. 
In fact, we have three potato chip factories, and we also have 
Honeywell that makes micro chips.
    So one, you can work at Honeywell in order to earn enough 
money to buy the potato chips, so it's chips equals chips.
    But what we have been hearing from the folks at the Farm 
Bureau, and my wife and I have a small cattle operation 
ourselves, is that the increase in the cost of implements, 
farming equipment as a result of the increase in steel prices.
    Have you been talking to your colleagues? If you are lucky 
enough to be in a position to buy new equipment, have you been 
hearing those rumors coming through about any increases in the 
cost of new farm equipment?
    Mr. Dollar. No, we do not think it is rumors. We think it 
is reality, and everybody is hanging on.
    Chairman Manzullo. Could you bring the microphone closer to 
you? The other microphone, okay.
    Mr. Dollar. We do not think it is rumor. We think it is 
reality. Prices are up for everything except what you are 
getting out of your commodity. It cannot continue. The 
equipment is getting older and older, and I do not know whether 
steel is the total cost or not, but it has added cost, and 
there is nothing. You are just living off the past. You are 
using up all of your surplus, you are using up assets, and our 
farmers are in a lot of trouble, and I really--we talk about, 
you know, a level playing field. We can produce with anybody. 
But when your commodities as of today are depressing prices of 
some 50, 60, 70 years ago, there is just no way you can 
continue going this way. We are in trouble.
    Chairman Manzullo. I guess this would not apply to you so 
much, Mr. Dollar, but to those who are involved in 
manufacturing, do you know of any company in the United States, 
because I am starting to see this back home, Rockford, Illinois 
is a city of 150,000. It has 1,000 factories. It led the nation 
in unemployment in 1981 at 25.9 percent. We have about a 33 
percent manufacturing base as opposed to about an 18 percent 
manufacturing base.
    And one of the problems that we encountered when I spoke 
before the International Trade Commission a few weeks ago on 
a--what was it--on a 332 petition, section 332 petition, which 
is to measure the impact of Chinese imports on the tool and dye 
industry and the molding industry, is the fact that the Bureau 
of Labor Statistics, our own Federal Government that keeps 
track of data does not understand manufacturing. They listed 
Rockford, which is the tool and dye center of the world, as 
having only 570 employees directly related to the tool and dye 
industry, and there are probably 570 factories. They are small 
factories that are involved in that.
    And I think a challenge to NAM, to AMT and the other 
organization is we have to do a massive education system to the 
federal government.
    We had Dr. Ferguson here a few weeks ago who is just 
beneath Dr. Greenspan, and we queried him about--we had a 
hearing on the rumors out to increase interest rates, which is 
wonderful. Now there is a rumor out to increase minimum wage. 
It is just wonderful the things that are happening to the small 
businesspeople in this country. And we have a tremendous 
respect for Dr. Ferguson. He is a great American.
    And he said that the manufacturing segment is only one of 
the indicators. And I said, Doctor, have you ever had the feel 
of machine oil on your hands, or smelt the odor, smelt the odor 
of machine oil. He said, no, he said, but invite me to your 
district and I will be there. And we are trying to get him to 
come out because we really believe that one of the reasons 
manufacturing in this country has taken such a hit is that the 
people making the decisions do not understand the nature of 
manufacturing.
    When your own--when the Federal Government says only 550 
jobs in Rockford, Illinois are related to the tool and dye 
industry, there is a huge disconnect. There is a total lack of 
information, and as a result of that when people say, well, 
only 550 jobs are affected, we estimated somewhere directly 
between 10,000 and 15,000 jobs. I know because I hear from 
those guys almost daily as to what is going on.
    Well, this has been a very interesting hearing. Mrs. 
Velazquez, did you have any concluding remarks?
    Ms. Velazquez. No, thank you, Mr. Chairman.
    Chairman Manzullo. Thank you for participating.
    Ms. Velazquez. Mr. Chairman, I would ask unanimous consent 
for my opening remarks to be entered into the record.
    [Ms. Velazquez's statement may be found in appendix.]
    Chairman Manzullo. Without objection that shall be done.
    We want to thank you for coming. We want to hear from you 
other than at these hearings. If you know of a company that is 
closing shop because of the high dollar and the high price of 
steel, let us know about it immediately. If you know of a 
company that is doing that and moving its operations to China, 
let us know about that also because that means that the very 
policies that our government is trying to prevent, they are 
actually causing because of lack of intervention of the dollar 
and the whole scenario that is being painted with regard to the 
tariffs and steel.
    Thank you for coming. This hearing is adjourned.
    [Whereupon, at 11:10 a.m., the Committee was adjourned.]


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