[Senate Hearing 107-203]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-203

       PNTR/WTO: A GOOD DEAL FOR U.S. SMALL BUSINESSES IN CHINA?

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

                               ROUNDTABLE

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 7, 2001

                               __________

              Printed for the Committee on Small Business






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                      COMMITTEE ON SMALL BUSINESS

                      ONE HUNDRED SEVENTH CONGRESS
                                 ------                                




                CHRISTOPHER S. BOND, Missouri, Chairman
              JOHN F. KERRY, Massachusetts, Ranking Member
CONRAD BURNS, Montana                CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
OLYMPIA J. SNOWE, Maine              JOSEPH I. LIEBERMAN, Connecticut
MICHAEL ENZI, Wyoming                PAUL D. WELLSTONE, Minnesota
PETER G. FITZGERALD, Illinois        MAX CLELAND, Georgia
MIKE CRAPO, Idaho                    MARY LANDRIEU, Louisiana
GEORGE ALLEN, Virginia               JOHN EDWARDS, North Carolina
JOHN ENSIGN, Nevada                  MARIA CANTWELL, Washington
               Emilia DiSanto, Republican Staff Director
               Paul H. Cooksey, Republican Chief Counsel
    Patricia R. Forbes, Democratic Staff Director and Chief Counsel
                                CONTENTS

                              ----------                              

                           Opening Statements

                                                                   Page
Bond, The Honorable Christopher S., Chairman, Committee on Small 
  Business, and a United States Senator from Missouri............     1
Kerry, The Honorable John F., Ranking Member, Committee on Small 
  Business, and a United States Senator from Massachusetts.......    53

                            Committee Staff
                           Panelist Testimony

Allen, Susan Au, President, U.S. Pan Asian American Chamber of 
  Commerce, Washington, DC.......................................    35
Bowe, Peter A., President. Ellicott Machine Corporation 
  International, Baltimore, MD...................................    10
Eisenhauer, David, President and Chief Executive Officer, SatCon 
  Technology Corporation, Cambridge, MA..........................    18
Hale, Peter, Director, Office of Policy Coordination, U.S. 
  Department of Commerce, Washington, DC.........................    46
Kapp, Robert A., Ph.D., President, The United States-China 
  Business Council, Washington, DC...............................    23

                 Alphabetical Listing of and Panelists

Brims, Kitty, Senior Associate Director, Trade Policy, National 
  Association of Manufacturers, Washington, DC...................     *
Coon, Dell, President, Kentucky Bloodstock Associates, Leesburg, 
  VA.............................................................     *
Cresanti, Robert, Senior Vice President of Government Relations 
  and Counsel, Information Technology Association of America, 
  Arlington, VA..................................................     *
Cowles, Adam, Assistant Director, International Affairs and 
  Trade, U.S. General Accounting Office, Washington, DC..........     *
Duggan, Marty, President and CEO, Small Business Exporters 
  Association, McLean, VA........................................     *
Freedenberg, Paul, Director of Government Relations, Association 
  for Manufacturing Technology, McLean, VA.......................     *
Goodwin, Robert, Jr., Executive Vice President and General 
  Counsel, Chindex International, Inc., Bethesda, MD.............     *
Griffen, Leslie, Director of Asian Affairs, U.S. Chamber of 
  Commerce, Washington, DC.......................................     *
Li, Dottie, Managing Director, TransPacific Communications, 
  Cheverly, MD...................................................     *
Meenan, James, U.S. Trade Advisor, Global Business Access, Ltd. 
  and the Small Business Trade Advisory Committee, Fairfax, VA...     *
Mueller, John D., Chairman, G&W Electric Company, and National 
  Electrical Manufacturers Association, Rosslyn, VA..............     *
Noah, Jeff, Director of Small and Medium Manufacturers, National 
  Association of Manufacturers, Washington, DC...................     *
Smith, Jean, Acting Administrator, Office of International Trade, 
  U.S. Small Business Administration, Washington, DC.............     *
Thomas, Kermit, Chairman, Banking Committee, National Black 
  Chamber of Commerce, Washington, DC............................     *
Weaver, Vanessa, Member of the Board of Directors, U.S. Export-
  Import Bank, Washington, DC....................................     *

                      Appendix Material Submitted

Kerry, The Honorable John F., Chairman, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Massachusetts, Snowe, The Honorable Olympia J., a United States 
  Senator from Maine, letter to Robert Zoellick, United States 
  Trade Representative...........................................   105
World Trade Organization: Status of China's Trade Commitments to 
  the United States and Other Members, May 2000, a Report to 
  Congressional Committees by the U. S. General Accounting 
  Office, submitted by Adam Cotes................................   106
Small and Medium-Sized Businesses Speak Out on Trade and 
  Investment with the People's Republic of China, results of a 
  survey by the U.S. Chamber of Commerce.........................   156
The Faces of Trade: Small Business Success Stories in China, a 
  report published by the U.S. Chamber of Commerce...............   168

----------
*Comments (if any) at various points between pages 10-103.

 
    FORUM: PNTR/WTO: A GOOD DEAL FOR U.S. SMALL BUSINESSES IN CHINA?

                              ----------                              - 
- -


                        WEDNESDAY, MARCH 7, 2001

                              United States Senate,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:33 a.m., in 
room SR-428A, Russell Senate Office Building, The Honorable 
Christopher S. Bond, Chairman of the Committee, presiding.
    Present: Senators Bond and Kerry.

  OPENING STATEMENT OF CHRISTOPHER S. BOND, CHAIRMAN, SENATE 
 COMMITTEE ON SMALL BUSINESS, AND A UNITED STATES SENATOR FROM 
                     THE STATE OF MISSOURI

    Chairman Bond. Good morning everyone and welcome. We are 
delighted to have you here today to talk about China. We were a 
little busy yesterday with matters on the floor which were of 
great interest to small business and to which we had a 
successful outcome.
    I regret to tell you that as we speak the Health, 
Education, Labor, and Pensions Committee on which I also serve 
is holding a markup, and that means I have to be there to vote 
the proxies. So I am going to get this operation started and 
leave the discussions to you all.
    We are very interested in this subject and delighted to see 
so many of you who come to talk about how PNTR and WTO 
membership is a good deal for U.S. small business in China. 
There's a question mark at the end of that title. I have a very 
strong view what the answer should be, but this is something 
that we want all of you to discuss.
    This is the second roundtable forum that we've had in the 
107th Congress and I appreciate the opportunity to be with you 
to start off the discussion of the opportunities and pitfalls 
of doing business in China. Our discussion is intended to 
examine the Federal Government programs and policies that are 
designed to help business to export their products and services 
to China.
    Back quite a few years ago when I was Governor of Missouri, 
I was a strong advocate for the development of export 
opportunities because I believed that the economy of my State 
would benefit from the opening of developing markets to U.S. 
products. We did trade missions to many countries including 
China.
    I will tell you parenthetically that I went there in 1984 
to set up a cooperative venture between agricultural 
activities, pork producers, feed manufacturers, animal health 
specialists who thought we had a great proposal to help improve 
the production of hogs in China. Hogs in China were 30 percent 
lean meat and 70 percent fat. Ours were just the opposite, 70 
percent lean, 30 percent fat. They wanted to find out how they 
could develop a pork industry more like the United States. That 
was fine.
    We met with the Bureau of Cereal Food, Oil, and Grain and 
they said we had to go to the Agricultural Minister, who said 
we had to go to the Minister of Foreign Affairs. That has only 
been 17 years and we are still waiting for a final report. So 
needless to say, the pork producers, feed manufacturers, and 
animal health specialists in Missouri are getting a little 
skeptical about the ability of the Chinese central government 
to carry through with their promises. We recognize that there 
are some problems that some of you who have had experience may 
be able to shed a little light on and how we can overcome those 
problems.
    But I started out working for the State of Missouri and I 
carried that commitment to the United States Senate. And 
because I believe it is critical that we in Congress recognize 
that unless our businesses, American businesses of all size, 
seize the opportunities provided by our trade agreements, then 
we are going to miss out on some tremendous opportunities. With 
a population of 1.3 billion people, the Chinese market is 
unquestionably becoming one of the most significant in the 
world and one that should not be ignored by U.S. small 
business.
    I know from having worked on the district export council 
during the time I was trying to earn an honest living in the 
real world that it is difficult to get small businesses to make 
that leap to get into the market. But I think the opportunities 
are there.
    I understand the Chinese government estimated that if 
China's economic growth is sustained for the coming decade then 
the economy could double by the year 2010. We only need to look 
at the current trade deficit we have with China to wonder 
whether or not we are doing all we can to take advantage of 
these opportunities. In the year 2000 we exported about $16.3 
billion of goods and services to China while importing $100 
billion from China; surpassing Japan as our largest trade 
deficit with any particular country.
    As all of you, I am sure are well aware, last year Congress 
approved the permanent normalization trade relations between 
the U.S. and China, but that approval was contingent on China's 
accession into the WTO. We are going to have a brief summary of 
where we stand before we begin the discussions. The 
negotiations between China and the WTO have continued at a 
slower pace than expected and it is possible that we may get an 
opportunity to vote again on extending normal trade relations 
again this year. We hope that is the last time we have to do 
it.
    China's accession to the WTO would mean that U.S. 
businesses will enjoy a more favorable trading climate with 
China than at almost any time in history. Many of the trade 
barriers erected by the Chinese government to protect domestic 
industry will be eliminated and import tariffs will be 
substantially reduced. At least that is what we hope. In 
addition, concern over weak legal protections, intellectual 
property laws that previously have bedeviled our trade 
relations between the U.S. and China, should be addressed.
    It appears to us that there are two distinct types of trade 
barriers that business must overcome to be successful in China. 
The first includes formal trade concerns which should be dealt 
with by China in the WTO. The second, however, are more subtle 
barriers that are not easily resolved.
    U.S. business owners who have been successful in China have 
told the Committee that their success has come in no small 
measure from their willingness to adapt to the Chinese business 
culture. Many businesses have found that by employing 
representatives on the ground in China they have been able to 
develop the personal and business relationships that are 
critical to doing business in China. The Chinese business 
culture emphasizes quanxi, or what we call connections, and 
reflects the importance of establishing personal relationships 
prior to the establishment of a business relationship.
    I also have spent time talking with American businesses, 
some of our major businesses doing significant transactions in 
China. They regretfully inform me that in the past they have 
seen that an executed, signed, sealed, and delivered contract 
in China is sometimes only a temporary pause in the 
negotiations over the details of the trade arrangement. Some of 
you may be able to shed light on that.
    The Federal Government has a lot of programs to help 
businesses become successful exporters, and the Committee is 
interested in knowing how these programs are being used. If 
small businesses are not utilizing the programs, what can we do 
to make it easier to use them. We are also interested in the 
Committee on policies and programs the Federal Government is 
not currently supporting and providing but should be.
    To help us understand these issues we have invited a panel 
of experts to join us. We have Peter Bowe, the president of 
Ellicott International in Baltimore, Maryland. Ellicott has 
been exporting dredging equipment to China since 1979. Mr. Bowe 
is able to talk about just how the business climate in China 
has changed since the end of the Cultural Revolution.
    We have Mr. David Eisenhaure, president and chief executive 
officer of SatCon Technology Corporation in Cambridge. It 
exports to China products that improve air quality.
    We also have Dr. Robert Kapp from the U.S.-China Business 
Council. Then we will hear from a frequent friend at the Small 
Business Committee, Susan Au Allen, president of the U.S.-Pan 
Asian American Chamber of Commerce. Finally, we will hear from 
Peter Hale, who is the acting director of the Office of Policy 
Coordination and International Trade Administration from the 
Department of Commerce.
    Before turning to our panelists, let me encourage everyone 
to take an active part in discussions. I hope that everyone 
will think about areas where the Small Business Committee can 
be of assistance by encouraging dialogue or by providing a 
voice for small business when Congress debates exporting 
issues.
    I might say for those of you who wish to speak, if you 
would set your nameplate up on the side we will be able to 
identify and call on you in order. We will be producing a 
formal transcript of today's forum and we will hold the record 
open for two weeks. We invite additional statements or 
information you would like to submit for the record. This forum 
is also being carried live via our committee's own web site.
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    Let me reiterate the invitation for those of you at the 
table and our guests in the audience who will have thoughts to 
add, please do so within that two-week period. If you are like 
I am, you will find that some of the best ideas that should 
have been added to this discussion probably will occur to you 
about 11:00 tonight. That is why we keep the record open so we 
can get that information.
    As I indicated, prior to starting the roundtable discussion 
I would like to call on Adam Cowles, who is the Assistant 
Director for International Affairs and Trade at the General 
Accounting Office, the GAO, to give us a brief update on the 
current status of China's accession to the WTO. Mr. Cowles, you 
might pull up that microphone or grab a microphone somewhere so 
we can get it recorded and so it will be carried on the web.
    Mr. Cowles. At GAO we have been doing work for the past 3 
years helping Congress track progress----
    Chairman Bond. Adam, would you grab that microphone and 
pick it up? I think you have to pick up the whole thing.
    Mr. Cowles. Actually, I am going to go over and----
    Chairman Bond. Okay. Steal one from Mr. Freedenberg, then.
    Mr. Cowles. Okay. I am going to do a little Vanna White 
thing here, too. Okay. I am going to whiz through this really 
fast, but just to give you an idea of where we are in the 
negotiations.
    First, you know that there are two parallel tracks in the 
negotiations: bilateral negotiations on market access issues 
like tariffs and services and non-tariff barriers like quotas 
and certain agricultural issues. Those are generally concluded 
with the exception of Mexico and a few clean-up issues, but I 
will get back to that. The multilateral negotiations are on how 
the WTO rules will apply to China, as many of you know there 
are still a few outstanding issues. I am not going to go into 
any detail about them, but the ones that you hear about in the 
news are subsidies, industrial and agricultural subsidies, what 
restrictions will apply, how trading rights will be phased in 
for the first 3 years of the agreement.
    There are some services issues left over from the bilateral 
negotiations on definitional issues, what the commitments will 
cover. There are some things on how product standards will be 
regulated in China, and there is a variety of others.
    So, well, what happens? These negotiations all conclude, 
and they result in an accession package, a document, an 
agreement that augments China's WTO commitments. And so the 
next working party meeting is scheduled for April.
    Now, hopefully, that means that those negotiations, if they 
are lucky, they can conclude and wrap them all up. But then 
they have lots of clerical work to do: drafting the final 
agreement, finalizing the language and things like that. The 
text is probably going to be over 100 pages long, and so they 
have a lot of, you know, nitty-gritty work to do to get that 
all done.
    So if the prognosis is that they can finish that by the 
first of May, if they are lucky, then what happens? Then the 
WTO members will review the final accession package, and this 
will most likely take about 2 months, in part because of some 
things that the EU has to go over. This is the time when the 
President is going to consult with Congress over the package 
and make all the necessary certifications under last year's 
PNTR legislation.
    So by the time that gets done, that will all be in--take 
you through June, and then the package--once all the members 
are ready to sign off on it, they will report it to the WTO 
General Council, which is the highest body in the WTO. Their 
next regularly scheduled meeting that would fit in with this 
scenario would be in mid-July. So they meet then to approve the 
package, and at that point, assuming they approve it, all the 
WTO members' roles are finished. The agreement, the terms and 
conditions of the agreement were finished up here when the 
package is reported out of the working party. There is no more 
negotiation. The terms and conditions are locked in forever.
    At this point, the General Council approves the package. 
The WTO members are all done with their rule, but yet China is 
still not a member. Well, what happens next? The burden then 
goes to China. The Chinese Standing Committee of the National 
People's Congress will meet to ratify China's acceptance, and 
they will complete the implementation steps that they feel 
necessary, because the day they walk into the WTO, they have to 
fulfill--you know, be willing to fulfill all of the commitments 
that they have signed on to.
    Now, what happens, though, is that the People's Congress 
meets about every 60 days, the Standing Committee, but they can 
call a special meeting for that. And so that takes you into--if 
you take a minimum of 30 days for that to call the 155 members, 
that takes you into August. And then when they deposit their 
articles of ratification at the WTO, there is then a 30-day 
waiting period that is imposed on China, and so that takes you 
into September. And that is all supposing that everything goes 
right and fast and good in the next meeting of the WTO.
    Then at that point, 17 years of negotiations are concluded, 
and a lot of people in this room are very happy. [Laughter.]
    Chairman Bond. Thank you, sir. So if everything works, if 
everything works right, that is the timetable we are looking 
at. Well, I guess we keep our fingers crossed.
    At this point let's turn to the presentations of our guest 
panelists. I am going to have to take my leave, but I will now 
call on Mr. Bowe to begin. Thank you all very much for being 
with us today, and I look forward to seeing the record of the 
proceedings. Thanks so much.

    STATEMENT OF PETER A. BOWE, PRESIDENT, ELLICOTT MACHINE 
   CORPORATION INTERNATIONAL, BALTIMORE, MARYLAND, AND VICE 
         CHAIRMAN, SMALL BUSINESS EXPORTERS ASSOCIATION

    Mr. Bowe. Thank you, Mr. Chairman.
    I am Peter Bowe. I am speaking on behalf of not only 
Ellicott Machine but also on behalf of the Small Business 
Exporters Association, of which I am vice chairman. Ellicott 
makes dredges for port construction, harbor construction, land 
reclamation, mining, and environmental cleanup. We have been 
actively involved in exporting ever since we built all the 
dredges used in the original construction of the Panama Canal.
    However, our experience in China has been erratic until 
recently. In 1977, we sold a big dredge for a harbor 
development for $3 million. In 1985, we sold a $1 million 
dredge to western China for salt mining. That was it until a 
few years ago.
    However, the Chinese market for dredging equipment is the 
largest market in the world, but it has been dominated by our 
Dutch and German competitors, who have not only strong 
governmental advocacy on their behalf but special financing.
    What we did to get started in a more organized way was to 
participate as a sponsor of a public-private partnership in 
1996 between the State of Maryland and ten exporters. This 
partnership established an office in Shanghai focusing not only 
on those ten sponsors but all Maryland companies wishing to 
enter the China market.
    Our Chinese office, which was effectively subsidized by the 
State of Maryland, was still expensive. However, we persisted 
because we were committed to China, and we knew that it was not 
cheap to enter new markets like that. We have experience based 
on harder markets, like Vietnam and Egypt.
    Our Chinese office has been successful. In 1999, after 3 
years of effort, we had a $1 million sale for harbor dredging 
equipment, and last year we had a $300,000 sale of two small 
dredges for environmental cleanup. I think this latter sale is 
perhaps more interesting and significant than the larger-dollar 
sale because it shows that the Chinese are now willing to 
consider their environmental needs and spend money on that, as 
opposed to economic infrastructure projects, which we typically 
associate with China.
    PNTR will be helpful to Ellicott in two respects. First, 
lower duties on capital equipment are always advantageous in 
improving the competitiveness of new equipment compared to used 
equipment or locally manufactured equipment. Lower duties mean 
lower prices on imported equipment. It is that simple.
    Secondly, the next phase of our marketing plan in China 
involves the use of locally manufactured components with 
technology transfer, where we will use those components in our 
dredges. However, we are obviously reluctant to engage in 
technology transfer when there are issues and risks of 
intellectual property protection. PNTR will advance 
intellectual property rights protection and thus increase our 
comfort level in proceeding with this part of our plan.
    Based on these two points alone, we are strong supporters 
of PNTR, and based on that we predict that we will be doing a 
million dollars a year in China on a regular basis.
    However, this does not mean that issues for American 
exporters to China, especially capital equipment exporters, are 
solved or that the coast is clear for unrestricted export 
growth. The biggest issue we have to deal with is the 
unavailability of financing for American exporters comparable 
to what our foreign competition offers. Just this month, we 
lost a $4 million sale to a Dutch competitor for China who 
offered special financing. Attached to my written testimony is 
a copy of the Dutch ORET soft loan financing program for China. 
This program has led to the export of $450 million of Dutch 
exports to China over the last 11 years. That is from a country 
with just 17 million people. Think of what the French and 
Germans are doing.
    This financing includes a 35-percent grant element and 
sometimes more. Not surprisingly, the Chinese like that.
    The U.S. Ex-Im Bank has shown a special interest in the 
Chinese market by establishing an office there. We think that 
is a great idea. However, Ex-Im's restrictions on matching 
foreign tied aid loans such as the Dutch program, and now the 
risk of a reduced Ex-Im budget, make Ex-Im's financing far less 
attractive than what our competitors offer all the time. This 
will continue to be a big problem unless Congress agrees that 
we need to act as aggressively as our competitors do in the 
financing arena.
    In response to a specific question from the Small Business 
Committee staff, we prepared a list of five points that we 
think small businesses should consider when approaching the 
China market.
    Number one, translate marketing materials into Chinese. It 
is obvious, self-explanatory, but you have to do it.
    Number two, establish a presence in China. It can take many 
forms, and there are many ways of facilitating that. You can 
use the Foreign Commercial Service. There are 10 States with 
offices there, industry trade associations, but you have to do 
it.
    Number three, go there. Any exporter must take the trouble 
to visit China to see what the problems and opportunities are.
    Number four, introduce your product and services via 
seminars. We have found this is a great method to introduce new 
concepts and products. You invite Chinese people to come for a 
formal presentation.
    Number five, be patient and be prepared to spend some money 
to develop the market. This also means don't wait to act and 
don't be afraid to make mistakes. Everyone does. You have got 
to be prepared for several years of effort before you can 
achieve results.
    For capital equipment exporters, I would add a sixth point 
of understanding the importance of financing. You have to know 
what Ex-Im Bank can do, that is the primary U.S. agency 
involved, but you also have to know what your foreign 
competition is offering. China is a large market, but it is 
complicated and it is not for everyone.
    Thank you.
    [The prepared statement of Mr. Bowe follows:]
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    Mr. Conlon. Thank you.
    Mr. Eisenhaure.

 STATEMENT OF DAVID EISENHAURE, PRESIDENT AND CHIEF EXECUTIVE 
      OFFICER, SATCON TECHNOLOGY CORPORATION, CAMBRIDGE, 
                         MASSACHUSETTS

    Mr. Eisenhaure. Good morning. My name is David Eisenhaure, 
and I am the president of SatCon Technology Corporation in 
Cambridge, Massachusetts. I would like to thank the Committee 
and Senator Kerry for asking me to attend this forum and to 
have the opportunity to discuss with you SatCon's trading 
relationship with China.
    At SatCon, we manufacture reliable, affordable, and 
environmentally friendly power and energy management products 
for the global community. Our products are focused on 
alternative energy applications, distributed power generation, 
industrial automation, telecommunication, and specialty 
electronics. We are a qualified small business and employ 
approximately 350 people at six facilities located in 
Massachusetts, Maryland, and California.
    As a small business with current trade relations with 
China, I would like to explain the benefits that SatCon has 
derived from this relationship. First, China represents a 
significant market opportunity for the industrial automation 
and distributed power generation products that are being built 
by SatCon employees in its several divisions. Second, China is 
currently a source of materials for SatCon. These materials are 
incorporated into the products that SatCon sells back to China. 
Thirdly, as China grows its industrial base, it will benefit 
from the environmentally friendly products that SatCon 
produces.
    To elaborate on these points, China has been a source for 
cost-effective motor components such as motor magnets, which 
has allowed SatCon to grow its Magmotor Division in Worcester, 
Massachusetts, from approximately $1 million a year in revenues 
to $10 million in revenue over the last 3 years. This increase 
in sales has resulted in the creation of 50 new manufacturing 
jobs.
    Currently, SatCon imports approximately $750,000 of 
materials from China a year. This year, we estimate that we 
will sell approximately $3.5 million in finished products back 
to China. As we move forward in our trade relations with China, 
we will need to effectively balance imports with exports. We 
believe that we have been successful in that effort, having 
achieved approximately a 5:1 ratio of exports to imports while 
creating new jobs in the process. As China grows its industrial 
base, we expect to see increased sales of our industrial 
automation motors and machines to China, resulting in further 
job creation here in the United States.
    This industrial growth will also provide significant 
increased opportunities for SatCon's environmentally friendly 
distributed power generation and power quality products. This 
new product market for distributed, or on-site, power 
generation is being driven by the need to create remote 
electric power generation capability throughout the 
industrialized and non-industrialized world. Electric utility 
grids, where they exist, are becoming stressed by increased 
demand, and the creation of new utility grids is prohibitively 
expensive. In addition, the generation of electricity is the 
second leading contributor to air pollution worldwide.
    Distributed power generation offers an opportunity. Using 
fuel cells and clean burning microturbines, photovoltaics and 
wind turbines, on-site power generation offers an alternative. 
SatCon is building the power electronics, software, and 
controls that allow these systems to provide computer quality 
electricity for residential and commercial uses. The use of 
distributed power generation systems in China would represent 
billions of dollars in potential revenue to United States small 
businesses, including SatCon. Since these are new products and 
not displacement products, this new market will result in the 
creation of thousands of new jobs.
    Given the potential for increased air pollution with a 
growing industrial base in China, these environmentally 
friendly distributed power generation products could help 
reduce the impact of increased electric demand on the global 
environment.
    In closing, continuing our current import/export 
relationship with China is necessary to maintaining our 
existing revenue growth and job creation. Secondly, expansion 
of the market opportunity for increased sales of industrial 
motors and machines to support China's industrial growth 
represents additional increases in near-term revenue and job 
creation. And, finally, the billion-dollar market opportunity 
for distributed power generation represents significant growth 
for SatCon and other American small businesses. Therefore, we 
would recommend to this forum that we extend the permanent 
normal trade relationship with China.
    Thanks again to the Committee for allowing SatCon the 
opportunity to present its views on this important issue. If 
there are any questions about SatCon's trading relationship 
with China or any of the marketing opportunities I have 
discussed or the potential for distributed power generation, I 
would certainly be happy to address those.
    Thank you all.
    [The prepared statement of Mr. Eisenhaure follows:]
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    Mr. Conlon. Thank you.
    Dr. Kapp.

   STATEMENT OF ROBERT A. KAPP, PH.D., PRESIDENT, THE UNITED 
        STATES-CHINA BUSINESS COUNCIL, WASHINGTON, D.C.

    I have put some thoughts down in outline form for the 
record and I don't want to retrace every step here. Let me just 
make a few points, and then we will move into discussion.
    The first is this: while it is important to focus on the 
particular characteristics of smaller companies and their 
needs, both domestically and internationally, it is worth 
remembering that when we are talking about business with China, 
small business is a subset of the broader category ``business'' 
itself. Most of the answers to the question ``Is WTO going to 
be good for small business?'' I think, are part of the more 
general answer as to whether WTO is going to be good for 
American business as a whole.
    Now, the PNTR matter is over. Congress has acted on that. 
The bloodletting and the hand wringing are finished; we are now 
at the point simply of asking ourselves, ``when China enters 
the WTO, what are the ways in which this is going to be helpful 
to American business as a whole and small business in 
particular?''
    My central points on that, leaving aside the early sections 
of my written outline, which work through a fair amount of 
China background, are contained in numbers VII and VIII.
    The reason WTO matters to American business is that it 
advances processes in China (processes already underway, but 
processes that have a long way to go) that are going to make 
China a better partner to the world in many ways, but 
particularly a better partner to the world on economic and 
commercial matters, and thus a better partner to America and a 
better partner to American business and, finally, to American 
small business.
    Several of the testimonies that we are hearing this morning 
do a great job of adducing all the things that make doing 
business with China difficult. Leaving aside the fact that it 
costs more to fly to China than it does to fly to Toronto and 
the fact that you have to deal with people who don't speak 
English: leaving all those obvious things aside, business with 
China is tough for most U.S. firms. It is tough for reasons 
that long pre-date the Communist revolution, but it is doubly 
tough because of the legacy that Maoism and Stalinism left 
behind in China.
    What we see in the WTO accession itself and in the 
agreements China has signed with us in November 1999 and with 
other countries in their bilateral WTO accession agreements, is 
an extraordinary range of commitments to changing the way in 
which government operates in the Chinese economy, and 
ultimately the way in which government relates to the citizenry 
of China itself.
    Therefore, what business, small or large, can legitimately 
hope for out of China's WTO accession is a progressive 
liberalization of the economy, a reduction of the stagnant 
interference of bureaucracy, a reduction of the opacity and the 
lack of understandability of commercial process in China, a 
gradual increase in reliance on publicly enunciated law, of 
processes that are indispensable to anybody who wants to do 
business over there but have remained opaque and highly 
personal to this time, and, indeed, the emergence, even more 
than we have already seen, of a genuine entrepreneurial culture 
and entrepreneurial class, if you will, in China.
    This set of agreements, mainly embodied in the
    Barshefsky-Shi Guangsheng agreement of November 1999, will 
over time improve the ways in which the business environment 
and the investment environment of China operate for American 
companies. For small firms, that is in a sense even more 
important than for big ones, because of the costs of time and 
money that go into dealing with this opaque system weigh so 
heavily on small firms with limited resources. But it is 
important for large companies with large investments and large 
transactions as well.
    Quickly, on a couple of recommendations:
    Congress needs to get behind the rule of law efforts of the 
United States with China right away. Congress has dawdled and 
come up with lots of reasons not to put any support into 
American programs to assist China in the development of a more 
effective and dependable and publicly transparent system of 
legal institutions for many, many years. And we need to get off 
the dime on that.
    The U.S.-China Business Council created a fund from our own 
companies to promote rule of law cooperation with China. We 
give small grants to Chinese and American applicants. It is a 
great program. We have given grants in women's legal services, 
labor rights law, legal services for the poor, as well as 
commercial and administrative law. But we are no substitute for 
the efforts and the resources that the U.S. Government has been 
considering putting forth in cooperation with China but has not 
yet delivered. This is the year for Congress to act.
    Many of the things that China needs as it grows its economy 
and protects its citizens from further environmental 
degradation and so forth, programs that are in their infancy, 
are potentially very important to American businesses, 
including small firms. But they lack the kind of commercially 
compelling quality that comes when you are selling a product to 
a consumer market, for example. And, therefore, when the United 
States reopens the Trade Development Agency with China; if the 
United States moves to re-engaging the Asian Environmental 
Partnership programs with China, providing this kind of support 
and development work and even financing in some cases for small 
American companies to get involved in sectors that are not 
slam-bang commercial sectors in China, this is going to be very 
important for American smaller companies as well. Environmental 
protection and environmental services are a classic case of 
that.
    We will go on in discussion, and I thank you for your time.
    [The prepared statement of Mr. Kapp follows:]
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    Mr. Conlon. Thank you, Dr. Kapp.
    Ms. Allen.

STATEMENT OF SUSAN AU ALLEN, PRESIDENT, U.S. PAN ASIAN AMERICAN 
             CHAMBER OF COMMERCE, WASHINGTON, D.C.

    Ms. Allen. Thank you. I, too, appreciate the opportunity to 
speak here on the question of whether giving permanent normal 
trade status to China and its accession to the World Trade 
Organization are good deals for U.S. small businesses.
    I think at this point there may be some conflicting 
interest between big businesses and small businesses, but I am 
here to speak on behalf of the American small businesses, most 
of whom I represent within my organization.
    I am the president of the U.S. Pan Asian American Chamber 
of Commerce, a 17-year-old trade association. We are not a 
single ethnic Asian group. We represent all Americans of Asian 
heritage.
    There are over 11 million Asian Americans in this country, 
and it is growing at 4 percent a year. Chinese Americans 
constitute the largest group of Asian Americans in this 
country.
    At this point, I would just like to digress because I will 
come back to this later. One of the questions posed at this 
forum is: What can we do to help small businesses to go into 
China? One thing to do is to hire people--I am not promoting 
myself, but hire people who are like me, who have lived here, 
pledged allegiance to this country, speak and write the 
language, and know the cultures and mores of China.
    One of the previous speakers mentioned that you have got to 
have a presence there. The presence you have there is 
important, particularly when you have somebody who you can 
trust.
    There are about 1 million Asian American-owned businesses 
in the country, and they produce about $267 billion worth of 
receipts every year.
    With that as a backdrop, let me share with you some of my 
views with respect to doing business in China in the context of 
China's accession to the WTO.
    Since Deng Xiaoping began economic reforms in December 
1978, China has come a long way, from a country with marginal 
trade and investment to a major economic player in the world 
economy. Today, China has a growing mixed economy and expansive 
global interests. It is the world's third largest economy and 
tenth largest trading country. It is the world's third largest 
user of mobile telephones, behind the United States and Japan.
    Despite the lure of a 1.3 billion population market, buyers 
beware. China is not an easy place to do business in, 
particularly for small businesses. Here are some of the 
reasons, and they are in my prepared statement, but I will just 
pick a few points.
    The tariffs are high. Non-tariff barriers are numerous. 
There are import licensing requirements; import quotas; 
restrictions and controls; standards and certification 
requirements; trading rights system; multiple, time-consuming 
approval procedures: quality licenses before granting import 
approval with testing based on standards and specs often 
unknown or unavailable to foreign investors and traders and not 
applied equally to domestic products--not an equal playing 
field--safety standards that treat imported products 
discriminatorily; local content requirements for exports; lack 
of regulatory transparency; and foreign exchange balancing 
requirements. That is non-tariff barriers.
    Corruption is pervasive. There are a lot of little Deng 
Xiaopings in China with great guanxis, relationships, 
connections. The gradual decentralization of power has created 
a system where local officials have vast flexibility to pursue 
their own economic interests and take advantage of the poorly 
enforced legal system for personal gain.
    As stated, laws are opaque and easily abused by officials; 
regulations are inadequate and could be changed without notice; 
assets are not appraised or are undervalued before 
transactions; intermediaries often levy unauthorized charges 
and use income from transfers before authorization is given. 
And China encourages the development of favored domestic 
industries through tax incentives and tariff exemptions, who in 
turn compete with foreign-owned companies who do not receive 
these similar treatments.
    Customs procedures are not applied uniformly throughout 
China. The same products can be dutied twice or three times. An 
inadequate transportation infrastructure is going to cost 
delays, good will, and customers and increase costs. And China 
also prohibits foreign firms from setting up straightforward 
distribution networks, which is the biggest problem in China; 
and restriction against foreign participation in distribution 
activities.
    Let me give you some anecdotes. PricewaterhouseCoopers 
conducted an international survey of business environments and 
recently published its Opacity Index. Opacity is defined as the 
lack of clear, accurate, formal, and widely accepted practices 
in broad areas where business, finance, and government meet.
    They looked at five areas that affect capital markets: 
corruption, the legal system, economic and fiscal policies, 
accounting standards and practices, and the regulatory regime. 
Overall, of major countries surveyed, China was the most opaque 
country, followed by Russia. On the other hand, Singapore fared 
the best, followed by the United States and Chile, who tied 
second.
    The Australian Financial Review reported in February that 
the China Securities Regulatory Commission is investigating 
shares price manipulation in the Shanghai and Shenzhen stock 
markets.
    The South China Morning Post in Hong Kong warned recently 
that the stock market manipulation and fraud cases have caused 
shudders among international investors, outside and within 
China. Rampant collusion, price manipulation, and insider 
dealing in the shares of the Shenzhen-listed China Venture 
Capital high-tech company exemplifies the risks inherent in 
investing in China. But these are all ignored during the very 
enthusiastic endorsement of the investor's market in China.
    From the small business sector perspective, if you talk to 
the small businessmen who are trading or investing in China 
now, they would tell you that new venturers are in for an 
extreme shock. First, unlike here in the United States, the 
notion of brisk Western-style business meetings that end in a 
handshake and the signing of a contract are foreign to the 
Chinese. For them, again, as stated earlier by the chairman, 
building acquaintance and friendship comes before hard 
commerce.
    Sometimes when the Chinese tell you it is okay to a 
problem, what they meant was they will look into it. They will 
not admit that they have a problem, and they do not tell you 
that they have a problem. They have a difficult time telling 
you that they have a problem. So here we often interpret the 
term ``okay'' as okay, they are going to take care of it, only 
to find later that the problem was not taken care of.
    Be that as it may, 1.3 billion people is a very, very 
attractive market; 1.3 billion pairs of Q-tips is a great 
market for Americans.
    There is no question that everybody is looking to this big 
market for whatever product and services they can promote and 
sell. So there are a few things to consider when we do business 
in China.
    Remember, the bureaucracy is there. Laws are not clear and 
inadequate. Corruption is there. Finding a reliable partner is 
crucial, and even if you find one, you should be one step 
behind him or her all the time. They could be bribed. 
Distribution is one of the biggest problems, as I said earlier. 
Getting import license clearance is a trying process. Being 
paid in the renminbi is a problem. I have often asked people 
who trade in China, ``Have you been paid yet?'' If they say 
``yes,'' I'd say, ``In what?''
    Air and noise pollution is a problem that affects your 
quality of life if you take my suggestion and go there, and go 
there often and stay there. Patience, patience, and cultural 
sensitivity, and polite insistence will go a long way toward 
solving problems.
    Mr. Conlon. Susan, in fairness to the other panelists, 
could you just finish up?
    Ms. Allen. I will. And, finally, when in China, observe the 
Chinese way. As we say here, when in Rome, do as the Romans do.
    Thank you.
    [The prepared statement of Ms. Allen follows:]
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    Mr. Conlon. Thank you, Ms. Allen.
    Mr. Hale.

    STATEMENT OF PETER B. HALE, DIRECTOR, OFFICE OF POLICY 
COORDINATION, UNITED STATES DEPARTMENT OF COMMERCE, WASHINGTON, 
                              D.C.

    Mr. Hale. Thank you. I welcome the opportunity to 
participate in this forum and congratulate the Committee on 
focusing on this topic, which I think is a very interesting 
one.
    I am the Acting Assistant Secretary for Market Access and 
Compliance at the Department of Commerce. Today, I am here 
representing the Commerce Department's International Trade 
Administration, which is comprised of my unit, the U.S. 
Commercial Service, the industry-oriented Trade Development 
Unit, and Import Administration.
    I would like to start with a quick look at China's economy 
and our trade figures. According to the Chinese Government, 
China's gross domestic product exceeded $1 trillion last year 
for the first time--a growth of about 8 percent over the 
previous year. Pretty impressive growth and a very impressive 
number.
    As Senator Bond indicated, our bilateral trade deficit with 
China has also reached a record level. Last year, it measured 
nearly $84 billion, with China overtaking Japan as our trading 
partner with which we have the largest bilateral deficit.
    On the positive side, however, although imports of Chinese 
goods by the U.S. continued to grow rapidly, last year was a 
good year for our exports to China. Our exports topped $16 
billion, a record number, which was up almost 24 percent for 
the year.
    Let me talk a little bit about numbers for small- and 
medium-sized businesses. In 1998, the most recent year for 
which we have detailed census data available, some 8,400 U.S. 
small- and medium-sized companies exported to China. This 
represented about 80 percent of the U.S. companies that were 
selling in China. Perhaps the most interesting number, however, 
is that small- and medium-sized companies accounted for over $3 
billion of our exports, or about one-quarter of the total by 
value. For an economy that most view as difficult--and I think 
we all agree has its difficulties--that is a pretty impressive 
number. Small businesses have done better in China than I think 
most of us would have expected.
    We in the Government, especially in the Department of 
Commerce, are paying quite a bit of attention to the needs of 
small business in the Chinese market, and especially in 
anticipation of China's membership in the WTO. We co-chair, 
with our Chinese counterpart, the U.S.-China Joint Commission 
on Commerce and Trade, a major bilateral forum for us to 
discuss commercial issues and commercial problems. The most 
recent session last spring paid special attention to the needs 
of small- and medium-sized enterprises, and we have moved ahead 
with a number of programs to support our small- and medium-
sized companies in the Chinese market. Following on after our 
commission meeting, we held what we called a virtual trade 
mission--in other words, via the Internet--with China last year 
in the information technologies area. Most of the 15 U.S. 
companies participating were small- and medium-sized, and took 
advantage of this new medium, at a very low cost for them. They 
didn't have to travel. They just had a session taped and then 
made available for Internet reaction from potential customers. 
They took advantage of this mission to expose buyers in China 
to their wares. We think it is going to be something that will 
be very popular and is going to be very successful.
    As you heard before, there are problems for companies, both 
big and small, trying to enter the Chinese market. We believe 
that for U.S. firms to prosper in this rapidly growing market, 
we must work very closely with the Chinese to ensure that China 
meets its new WTO obligations as it moves towards membership, 
including those negotiated in the bilateral agreement the U.S. 
signed with China last year. And we have taken a number of 
steps that will hopefully make this easier to happen.
    We developed a compliance initiative, working with other 
agencies around town, which the Congress funded last year, 
enabling us to sharply increase the staff and programs that we 
have available to focus on China and to enable us to work more 
closely with the Chinese to help them understand and implement 
the new obligations they will incur with WTO membership.
    We are increasing our staff in China. Our Commercial 
Service already has its largest overseas contingent in China, 
more than in any other country, and we are adding a couple of 
officers with explicit responsibility for working on compliance 
issues, with both the Chinese Government and with the American 
business community in China.
    In summary, we do believe the premise of this session that 
China's WTO accession will create new business opportunities 
for U.S. businesses, both large and small, and we think that 
with hard work, perseverance, and so on, that the rewards in 
the market as it opens with WTO membership will become very 
impressive.
    To be realistic, we do not expect all the problems to go 
away immediately. China, as you have heard from the other 
speakers, has a tremendous amount of change it has to do with 
laws, with regulations, with a lot of other things. They have 
had a good start. We are trying to work with them to make the 
process as smooth as possible, and we are optimistic that there 
will be many new and welcomed opportunities for small- and 
medium-sized firms.
    The basic question for this forum is: Will China's WTO 
accession be a good deal for small business? We believe the 
answer is yes if we continue to work hard to make it so.
    Thank you.
    [The prepared statement of Mr. Hale follows:]
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    Mr. Conlon. Senator Kerry.
    Senator Kerry. Good morning, everybody. I am glad to be 
with you. Thank you all for being here, and thank you 
particularly, panelists. Thank you, David Eisenhaure, for 
coming down from SatCon. We are glad to welcome you here. And, 
everybody, we thank you for your contributions.
    I apologize for not being here at the outset, and I also 
have to leave because we are having a Finance Committee hearing 
right now on the marginal rate cuts, obviously important to all 
of you, and to all of us as we try to sort out where we are 
going there. But our very able staff on both sides, Paul Conlon 
and John DaSilva, will be managing the process, and John will 
be here for me throughout your comments.
    Let me just say very quickly, I have had the privilege of 
being deeply involved in these issues as a member of the 
Foreign Relations Committee, where I sat for some 16 years. I 
am the ranking Democrat on the Asia Subcommittee, so I am 
constantly dealing with issues related to China and, indeed, 
the whole Far East, as well as for a number of years, until 
this year, when I shifted to the Finance Committee, I have been 
on the Banking Committee where we have done a lot of the export 
licensing and other kinds of issues that are critical to trade. 
And I am the only member of our delegation in Massachusetts who 
hung in there on fast track and who has supported every single 
one of the trade efforts to expand our capacity to take 
advantage of the global marketplace.
    I think increasingly what happened in Seattle and elsewhere 
has raised issues that we have to address, and, indeed, at the 
World Economic Forum this year, there was a significant, very 
significant level of discussion by all of the CEOs and 
companies and governments present to try to deal with the 
values that also have to be part of the trading regime.
    It is not going to do any of us any good to sort of think 
of trade exclusively in the context of the trading rules and 
regulations if a large part of the world isn't going to benefit 
by it. And it is going to be harder and harder to get 
governments to support those efforts if their populations 
aren't also benefiting.
    So everybody needs to think about how we go down the road 
from here in terms of transferring those values, as some have 
said, putting a human face on globalization, and I think for 
small business that is as much a consideration as it is for 
larger businesses. All of you will be ambassadors, so to speak, 
in this effort as you engage in your relationships in export 
and in trade.
    Enough said with respect to that. Let me just say that I 
want to emphasize obviously the degree to which I believe this 
is good for the long-term health of our economy. As you all 
know, export sector jobs are the higher-paying jobs, the higher 
value-added jobs of our society. It has contributed an 
astounding 30 percent of our domestic growth, providing 11 
million jobs. And it is going to grow. And anybody who thinks 
any nation is going to turn back the wave of international 
exchange of goods and services and culture and people simply 
doesn't understand or have a grasp on where we are heading. So 
it is going to play a larger role, and we need to be prepared 
for that and capable of taking advantage of it.
    Just to give you an example, in my State of Massachusetts 
export sales of merchandise totaled $17.1 billion in 1999, 
representing a growth rate of 3.9% over 1998 levels and nearly 
doubling the national average. And 86 percent of Massachusetts 
firms that exported in 1997-98 were small firms. And half of 
our exporters have less than 20 employees, just to give people 
a sense of the possibilities here and what we can do.
    I think we can do a lot more. Olympia Snowe and I joined 
together to ask Robert Zoellick to create a position of an 
Assistant Trade Representative specifically targeted on small 
business because we think we could do a great deal more to 
enhance the capacity of small business to be leveraged in this 
marketplace now. And, likewise, I have talked to Colin Powell 
and pressed very hard with both he and the Commerce Department 
to augment significantly the Foreign Commercial Service and 
other representatives that are abroad, because it has been my 
experience when I have been to Hong Kong or various other stop 
points in the Far East that we are losing extraordinary 
opportunities to marry small businesses with various business 
opportunities because we don't have the people on the ground, 
we don't have the facilities, and we haven't committed 
ourselves to do this.
    You know, foreign policy is not just the policy components. 
There is a huge economic component of it today, and we have to 
factor that more, I think, into our thinking, and maybe here 
you can discuss that a little bit, about ways we might be able 
to do that.
    I think those are sort of the key observations that I 
wanted to make, but I do think in the world of cyberspace, with 
the Internet and other things happening, there is just an 
enormous opportunity for us to be able to augment people's 
abilities to be able to get into some of these markets where 
heretofore they never thought they could. And a lot of that is 
education, and to some degree technical assistance, and we need 
to facilitate our own Government efforts to some degree to make 
it--to have a very clear menu for people, a very easy one-stop 
shop for people to be able to figure out how they can take 
advantage of this. And I think to whatever degree we can 
augment that here within the Small Business Committee.
    I think we should make it a major mission of our efforts 
this year, because there is far more growth for small 
businesses in export and in trade than many, many people sense. 
And that will significantly bolster our economy and even 
cushion us against, other downsides, other downturns in various 
other sectors of the economy, if you have got a lot of cottage 
industry, a lot of small effort going on that really is 
sustaining you with a broad-based job base. Moreover, it 
significantly augments small business growth and a lot of the 
value transfer that we are interested in having in some of 
these countries and ultimately increases their capacity to have 
economic stability and even political stability as a result. 
They go hand in hand.
    So I think this session is on the right track, and I thank 
all of you for taking the time to come here and be part of it. 
I appreciate it.
    I don't know, Paul, what you want to do now. Do you want to 
proceed to questions?
    Mr. Conlon. Actually, just to get everybody to introduce 
themselves, so, Mr. Goodwin, if you would like to start by just 
stating your name and what organization you are within, and 
then we can go around the table.
    Mr. Goodwin. I am Bob Goodwin. I am the executive vice 
president and general counsel of Chindex International. We are 
a health care company, both exporters and we own a hospital in 
Beijing as well.
    Ms. Griffin. My name is Leslie Griffin. I am director of 
Asian Affairs at the U.S. Chamber of Commerce, and thank you, 
Senator Kerry, for holding this hearing. It is of great 
importance to us.
    Ms. Li. My name is Dottie Li. I am the managing director 
for TransPacific Communications, a boutique public affairs and 
communication shop. We counsel folks, small business, large 
business, both U.S. and Chinese, Asian, what have you, when it 
comes to business dealing with U.S.-Asia-related issues.
    Mr. Meenan. I am James Meenan. I am with Global Business 
Access, and I am a member and past Chair of the Trade Advisory 
Committee to the Department of Commerce and USTR, and I want to 
thank you, Senator, for that legislation for USTR to appoint an 
assistant for small business. We have been working on that for 
a number of years and do find a major gap in that area of 
carrying small business issues into the trade negotiating 
field. Commerce does an outstanding job on the trade promotion, 
but it is the negotiation where we need representation.
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    Senator Kerry. Good.
    Mr. Mueller. I am Jack Mueller. I am chairman of G&W 
Electric Company in Blue Island, Illinois. We manufacture high-
voltage electrical equipment used in the distribution of 
electric power. We have been around since 1905. We are 
privately owned. We do about $50 million in sales, 35 percent 
of which is exported. We have exported to China over the past 5 
years about $15 million worth of equipment. Some of it goes 
direct to Chinese customers, utilities and others, numbering 
over 120. We started a Chinese manufacturing facility in 
Shanghai in 1996. We have 20 employees there, all of whom are 
Chinese nationals, and that facility has exported or has 
shipped about $2 million worth of product over the past 5 
years.
    Obviously, we have had a good experience in China. China's 
membership in WTO would be helpful to us to formalize primarily 
the legal system. Somebody asked me earlier if we are able to 
collect on our shipments, and while our receivables tend to run 
longer than elsewhere, we have had no particular problem in 
that area. And I am also here representing the National 
Electrical Manufacturers Association (NEMA). NEMA heartily 
supports the WTO effort.
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    Mr. Noah. My name is Jeff Noah. I am the director of Small 
and Medium Manufacturers at the National Association of 
Manufacturers. What a lot of people may not know is that NAM, 
10,000 of its 14,000 members are small and medium 
manufacturers, so we do have a strong interest in WTO.
    Ms. Smith. I am Jean Smith, the Acting Assistant 
Administrator for the Office of International Trade at the 
Small Business Administration.
    Mr. Thomas. Kermit Thomas, chairman of the Banking 
Committee of the National Black Chamber of Commerce.
    Ms. Weaver. My name is Vanessa Weaver. I am a member of the 
Board of Directors of the U.S. Export-Import Bank. Last year we 
did about $15 billion in support of 2,500 export sales, 86 of 
which were for small businesses. I am going to do as much as I 
can this year and next year and every year I am there to help 
small businesses.
    Ms. Brims. I am Kitty Brims with the National Association 
of Manufacturers, and I would just like to thank you again for 
holding this and let you know that the NAM has also put 
together a compliance program to monitor our business with the 
Chinese.
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    Mr. Coon. My name is Dell Coon. I am president of Kentucky 
Bloodstock Associates. It has nothing to do with Count Dracula. 
I buy and sell thoroughbred race horses. I truly have a small 
company. There is myself and 11 associates. Last year we did 
$122 million in business, 80 percent of which was export.
    Everybody was talking about the patience that you have to 
have in dealing with the Chinese, and I would like to tell you 
a true story. There was a former Minister of China that 
previously had been a history professor at Beijing University. 
He was in Paris being interviewed by Paris Match, the 
publication, and he was asked--and I will paraphrase it--Mr. 
Minister, since you are a world-renowned historian, what do you 
think the net result of the French Revolution was? And his 
answer was: It is too early to tell. [Laughter.]
    That will give you an idea of the resilience you have to 
have when dealing in China. To give you an idea of the scope of 
the thoroughbred business--many of you have been to Hong Kong--
the largest tax contributor in Hong Kong is the Hong Kong 
Jockey Club, the race track, and it is Hong Kong's second 
largest employer.
    Mr. Cowles. I am Adam Cowles from the U.S. General 
Accounting Office, and we have spent the last 3 years tracking 
progress in the negotiations, and we will be spending the next 
4 years, after China gets in, tracking China's compliance with 
its WTO commitments.
    Mr. Cresanti. I am Robert Cresanti with the ITAA, the 
Information Technology Association of America, and the World 
Information Technology and Services Alliance, here representing 
our constituency, which consists of about 500 members, about 
two-thirds of which are small businesses.
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    Mr. Duggan. I am Marty Duggan, Small Business Exporters 
Association. I want to say thank you to the Committee for 
getting on to this issue. We testified for a number of years 
regarding the trade deficit. It was the Chairman who mentioned 
that our trade deficit was in the neighborhood of $100 billion. 
And if you go back to 1986, it was $1 billion. And there has 
been these incremental jumps ever since, and nobody has really 
done an awful lot about it, especially the Congress. And I 
think that--I testified, I think, 4 or 5 years in a row before 
the Ways and Means Committee, and the only thing I changed was 
the deficit numbers.
    So we are doing $16 billion a year. That is wonderful. But 
we have still a long way to go to kind of level the playing 
field. And it is nice to see that there was some balance in the 
presentations with people who have been on both sides of the 
China question.
    I think we have a difficult task ahead of us, and I would 
hope that the Congress would become more involved.
    Thank you.
    Mr. Freedenberg. I am Paul Freedenberg. I am director of 
Government Relations with AMT, the Association for 
Manufacturing Technology. We have 370 members, many of them in 
Massachusetts, ranging from $2 million in sales up to $1 
billion. And we build machine tools, measuring devices, and 
manufacturing software.
    And China, outside Mexico and Canada, China is our largest 
export market, and that is despite very large barriers, both 
put out by the Chinese and by the U.S. Government, in the area 
of tech transfer.
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    Mr. Conlon. I am going to start by just posing a question 
to Mr. Eisenhaure and Mr. Bowe. We have heard a lot in the last 
hour or so about some of the pitfalls and the difficulties of 
doing business in China. But given the fact that the business 
climate in China is improving dramatically and will get better 
because of the WTO agreement, how much do you expect your 
business activities in China to grow over the next coming 
years?
    Mr. Eisenhaure. We are quite satisfied with our 
relationship with China at the present time. We import about 
$750,000 a year in raw materials and semi-finished 
subassemblies. We export to China about $3.5 million. That is 
new sales that have occurred in the 3 years. We would expect 
that sales to grow at about 50 percent a year.
    You know, we put quite a bit of effort into our 
relationship with China. We visit about three times a year. We 
have a Chinese-owned trading company that represents us there. 
One of the key things, just reflecting on some of the other 
things the panelists mentioned, we have a Chinese nationalist 
who works for us as our head of engineering who has been very 
helpful in personalizing our relationship with the Chinese 
counterparts.
    You know, from our point of view, we are a small business, 
we will take any help that we can get. But, you know, what we 
would like to be sure of is that the playing field is level 
between ourselves and some of our friends in Great Britain and 
Germany who compete with us in the commercial marketplaces.
    Mr. Conlon. Mr. Bowe.
    Mr. Bowe. We are serving both the port construction markets 
and environmental markets. So from the port construction side, 
obviously we want to see Chinese trade grow, both imports and 
exports. That creates an infrastructure pressure leading to 
demand for our products.
    We are selling both to central government and regional 
government entities, virtually all governmental entities. We 
have over a dozen active prospects we are working on now, 
where, say, 2 years ago it would have been zero or just a 
handful.
    So looking at us as a project company, not so much a 
product company, we see sustained opportunities over the 
intermediate term.
    Mr. Conlon. I want to start the roundtable discussion 
portion of this by bringing up the issue of how effective have 
the existing export policies and programs of the Federal 
Government been in assisting the small businesses who wish to 
export. And if there are specific areas we need to improve, 
what are they? With regard to China specifically, but also it 
has an impact on other exporting to other markets.
    Mr. Goodwin.
    Mr. Goodwin. We have encountered the tied aid problem in 
the U.S. and with the subsidized financing from our competitors 
in China. And so there is many a sale that we have lost because 
the buyers were able to get Dutch financing or Norwegian 
financing at subsidized rates.
    We have used Ex-Im programs. We even had a tied aid loan a 
number of years ago. But it is a very difficult proposition. 
The U.S. Ex-Im Bank is reluctant to use that program to match 
foreign subsidized loans, and that is one area where we are 
concerned when we see in the press talk about cutbacks in Ex-Im 
rather than the other way around from a small business 
perspective.
    Mr. Conlon. If you would put your card up on the side, then 
I know to call on you in order. Let's start with Mr. Mueller 
and work our way down.
    Mr. Mueller. When we first started to export into China 
about 15 years ago, we utilized the services of the Commerce 
Department and the State Department to help us in finding 
representation and getting established through trade shows and 
so forth.
    When we established our manufacturing facility in Shanghai, 
we also used these people to assist us in making contacts as to 
location of facility and so forth.
    It has been a good experience. We have had very little 
problems with the acceptance of our product. While we are a 
small company, our products tend to be the technology leaders 
in the market segments in which they operate. So that the 
Chinese customers, electric utilities primarily, have been very 
interested in obtaining our products, primarily by export from 
the United States into China.
    Interestingly, when we established a manufacturing 
facility, in order to more tailor our products to Chinese needs 
and to be closer to our customers, initially our Chinese 
customers were reluctant to buy from that facility because of 
their concerns about quality and so forth. And when the 
facility became ISO 9001 certified, that helped to alleviate 
that concern.
    So it seems a little strange that local manufacturing was 
perceived to be less desirable than imports. But as I say, in 
the past year or two, that has gone away.
    Our Chinese manufacturing facility in no way, however, 
attracts more exports. Actually, our exports from the United 
States into China, either direct customers or to our own 
facility, have increased at between 30 and 50 percent each year 
for the past 4 years. And we expect that to continue.
    Mr. Conlon. Mr. Meenan.
    Mr. Meenan. Thank you. Thanks for holding this session 
today, most timely as well.
    You have my remarks already for the record. I would just 
like to synthesize a bit. The usual traditional support 
programs of the U.S. Government have been good up to the point 
they have gone. But I think the Government has to look beyond 
the box, outside of the traditional that they have done.
    We have been negotiating trade agreements extensively, 
obtaining good agreements and understandings, but that is only 
the very first step. The Trade Compliance Center is going to 
have a lifetime build-up of work with USTR turning these out at 
such a rapid pace, and the need, as Dr. Kapp has pointed out, 
for the structural changes that need to be done is the key that 
you are trying to get to. The rest is only the understanding.
    It was raised during Ambassador Zoellick's confirmation 
hearing in the written portion as to looking to other 
institutions, third parties such as the international financing 
institutions, to provide packages of technical assistance and 
training possibly to the mid-managers in these countries so 
that when you enter a negotiating cycle--and don't wait until 
you conclude--start talking to these people, and the training--
which will help bring them on board as to what the reforms are 
that you are trying to do and get into place. And I would hope 
that China in this case would be a classic example where the 
Asian Development Bank, the World Bank, and the UN through its 
UNDP and other programs could start working with the mid-
managers early on, both with best practices and other 
interventions, both training and technical assistance, and 
tapping the various resources to help move this whole process 
along.
    The export promotion programs of the Small Business 
Administration, the Gold Key efforts of the Department of 
Commerce are all good, but for them to work properly, you have 
to have the basic ground rules in place and the rule of law. 
And this is where the earlier technical assistance, if you 
want, the liberal aid for trade sort of approach, needs to be 
integrated more between the USTR that is negotiating it and 
then for the Compliance center that is going to try to make it 
real. I think it would be a lot easier if the U.S. Government 
got a handle on this whole situation a lot earlier in the 
process.
    Thank you.
    Mr. Conlon. Thank you.
    Ms. Griffin.
    Ms. Griffin. Yes, I was going to say, over the last several 
years the U.S. Chamber has done a number of surveys and reports 
on the question of small business experiences in China, and in 
the 1997 survey we did, over 15 percent listed the lack of 
Overseas Private Investment Corporation programs in China, the 
fact that OPIC is now restricted, as hindering their business 
in China. And a number of them noted that they had used that as 
an active part of their market entry strategy in other 
countries and were not able to do so in China. And I wanted to 
ask that both a June 1997 survey that we did that covers this 
whole area of Government promotion programs in China and the 
2000 report we did on small business success stories in China 
please be entered into the record. And I would note that a 
couple of the companies that we featured in our small business 
report are here today, including Peter Bowe of Ellicott and Bob 
Goodwin of Chindex.
    Mr. Conlon. I have my copy here.
    Mr. Kapp.
    Mr. Kapp. I am particularly glad to be here because this 
subject takes me back to my residence in the State of 
Washington where, for many years, I was involved in trade 
association and business association work in an environment 
where there were three or four very large companies and a great 
many small firms. There wasn't really anybody in the middle in 
the State of Washington.
    I do have a little bit of a sense of ``deja vu all over 
again'', as Yogi said. The structural problem is--and please 
correct me if you feel differently--that small businesses are 
often the fountains of creativity and initiative and 
inventiveness in American business, but their pockets aren't 
very deep. And the time and money it takes to get started in a 
market like China, which is clearly more difficult than, say, 
Canada, is hard for small businesses to afford. You have to put 
up money up front, you have to travel, you have to have 
``guanxi'' or ``good relationships'' before the money begins to 
flow back.
    And so the search for remedies is always underway, and a 
Congress which runs in biennial terms sometimes kind of loses 
track of how long that search has been going on. The search is 
always to figure out how to bridge the gap between the limited 
resources of smaller firms and the world-wide opportunities 
that they could enjoy. Often this comes back to state efforts. 
State Departments of Commerce can be very helpful. With regard 
to the reference to the Maryland-China Council and the 
establishment of the Maryland trade office, Washington State 
also has a trade office in Shanghai; these things are all part 
of it.
    Part of this has to do with market opening, taking people 
on relatively inexpensive acquaintance-making missions, trade 
shows and so forth. A lot of it has to do with financing. These 
topics that have come up today on financing are the same topics 
that were being raised in the State of Washington and in the 
local export councils 20 years ago.
    The Committee might even want to look back over the last 10 
or 15 years and try to come up with the core, enduring, 
unrelenting, unyielding problems that have been at the center 
of the small business international trade agenda for 20 years 
or more now, to see whether those can begin to be addressed in 
a more systematic way, because this is not new material.
    Mr. Conlon. Thank you, Dr. Kapp.
    Mr. Freedenberg.
    Mr. Freedenberg. We have had very good experience with 
Commerce Department support in China. I think they have an 
excellent group on the ground. And we have--as I said, China is 
our largest overseas market, but we have had less success with 
Ex-Im Bank because most of our exporters are small.
    I was on Senate Banking Committee oversight for Ex-Im 20 
years ago, and we had the same problem. It is an ongoing 
problem, and it is always going to be fixed. And we have always 
supported Ex-Im. We see it as becoming supportive for small 
business. But it hasn't yet become such, and that is a real 
problem for us because of all the competitive export financing 
that is all around the world.
    So that is an area that needs work, and the fact that the 
Congress funded the administrative overhead to a larger extent 
last year is good, because they need more people in order to 
service the small businesses. It is much easier to serve large 
business than small business, and it is more labor-intensive, 
but it is not something which they have been able to be 
successful at doing in China or in most of the rest of the 
world.
    Mr. Conlon. Mr. Duggan.
    Mr. Duggan. I think for small business the two major 
problems are information about the various markets that are 
available to them and financing. I was reviewing some old 
correspondence that goes back to the start of our organization 
11 years ago, and you go down the list and every damn one of 
them is a major problem today. Nothing has changed.
    As Paul said and as others have said before me, the need 
for involvement, for the realization by the policymakers as to 
what types of problems are faced by U.S. exporters versus their 
competitors, nobody seems to either have the time or the 
inclination to pay enough attention to these issues. There are 
a number of people out there or countries out there that are 
eating our lunch.
    Canada, for God's sakes, 28 million people, their credit 
facility for exports has over 800 employees. The Ex-Im Bank has 
somewhere just over 400.
    I think that, if we are going to take advantage of the 
opportunities that the ingenuity of the companies around this 
table have to offer, we have got to get serious about trade. 
And I think that we can talk about this thing, but nothing 
seems to happen. And I think that we better get off the dime 
and, you know, to have a 25 percent or 24 percent cut in the 
Ex-Im budget, Ex-Im is probably the lowest financed credit 
agency in the world, of the major countries, at least, and here 
we are going to cut 24 percent of their budget. We are going to 
go back over probably close to 20 years when Ex-Im was doing 
well under $10 million a year. That is not being very serious 
about the problems that we face internationally.
    Mr. Conlon. Mr. Coon.
    Mr. Coon. Mr. Meenan had mentioned something a minute ago 
about the Gold Key Program, and I think that is your bailiwick, 
Mr. Hale. You have two employees working for you that I would 
like to congratulate, and that is April Redmond and Sue Burns, 
who did an incredible job for me in China.
    Mr. Hale. Thank you very much.
    Mr. Coon. If any of you have not utilized the Gold Key 
service, take a look at it. It can pay you great dividends for 
not much of an investment.
    Mr. Conlon. Something I read recently sounded pretty 
interesting, and that was the American Chamber of Commerce in 
China conducted a study of its member companies' experiences in 
China. And they found that while most companies are profitable, 
only a small percentage earn profits in China superior to those 
in other markets.
    Now, the companies cited various different reasons for why 
that was so, mostly due to regulatory issues, a lot of which 
will be solved by the WTO agreement. But the one significant 
problem that they noted was the need for broader financing 
options.
    How successful have the SBA and Ex-Im Bank programs been in 
addressing the financing needs of small businesses? And what 
else should they to effect--what should we do to effect some 
meaningful improvement in that? And I can throw that open to 
the panel or any of the participants.
    Mr. Bowe.
    Mr. Bowe. I don't want to be redundant, but are you talking 
about financing for the importer or financing for the 
exporters?
    Mr. Conlon. Exporter.
    Mr. Bowe. But you need both. Ex-Im's programs for small 
business I think are dramatically improved over recent years 
with something called the Working Capital Guarantee Program, 
and that can be used to finance inventory and receivables 
related to export business, including China business. The issue 
that you are hearing a number of panel members mention is that 
there is also the need for financing on the buy side, that is, 
the importer in China, and that is where Ex-Im Bank is falling 
short because our competition is offering programs which 
clearly affect the purchasing decisions of our customers. And 
that is a policy decision, as Marty Duggan has mentioned, that 
Congress needs to grapple with and get off the position of, 
well, it is not what we prefer to do. The problem is it is the 
reality of all of our competition.
    Mr. Conlon. Mr. Goodwin.
    Mr. Goodwin. Not to get too arcane about the intricacies of 
how the Ex-Im program works, but the problem is, from our point 
of view, that when we face subsidized competition in China--in 
other words, we have a company that is selling a European 
product or something that has financing for the buyer at 
subsidized rates, we are unable to get Ex-Im to match that 
until the entire process has been completed. They have a policy 
that they will match foreign subsidized loans if you can prove 
it exists, but that decision on matching only occurs after that 
loan has been notified to the OECD.
    There is an international agreement among the developed 
nations through the OECD to notify any subsidized loans. So Ex-
Im waits until that notification is made. When you wait until 
the notification is made, the deal is closed.
    And so we can wait and prove the foreign subsidized loan 
exists, but by the time we are able to get Ex-Im's attention on 
it and the loan is actually notified by the foreign country, 
the deal is closed. And so it is a meaningless exercise, 
frankly.
    And there has been no effort to creatively figure out how 
European countries are able to undertake their programs with 
the existence of the same OECD agreement on their side, but the 
U.S. Government is reluctant or unable to be creative in the 
same way that the Europeans have been.
    Mr. Conlon. Mr. Duggan.
    Mr. Duggan. As Peter used to say, the thing that--before 
Ex-Im would react, you had to produce the dead body. And that 
is exactly what you are saying. I always liked that term, ``the 
dead body,'' because they wanted the documentation that just 
wasn't available. And by the time you reacted or they reacted, 
the deal was long gone.
    I think within the last couple of years, Ex-Im has 
dramatically improved their performance, but the number of 
companies--and there are somewhere in the neighborhood of 
180,000 small businesses that are exporting, Ex-Im is serving 
somewhere in the neighborhood of maybe 3,000, at the most.
    Jean Smith is here from SBA. I don't know how many SBA is 
serving, but at one point it was a hell of a lot less than the 
thousands. So I think that we have been woefully negligent in 
this one area.
    Mr. Conlon. Mr. Meenan.
    Mr. Meenan. Our advisory committee for small minority 
business has been looking at this for a few years now. We have 
called in some of the delegated-authority banks from Ex-Im, 
that work with Ex-Im. We have had Jean over a few times as well 
as others to talk about it, because they seem to be at a 
plateau, stuck for the last few years, of a couple thousand 
transactions. At first we thought if they put more delegated 
authority out there and pushed it out to more of the banking 
institutions and not keep it in Washington, the process, that 
might help facilitate it. But then, again, we found that the 
banks were reluctant to take up on it. So there has been a gap 
between the Ex-Im, SBA, and the banks willing--as Jean knows, 
one signed on for a new program and then got cold feet when it 
came down to really moving it.
    We have also invited the Federal Reserve to come, and they 
are doing a study now on availability of credit to small 
businesses. But their initial findings were positive insofar as 
credit scoring was going, negative insofar as some bank 
practices. The report is still not out, but there were some 
practices that don't necessarily favor certain institutions or 
geographic areas and what have you.
    So there is a gap, I think, between the Federal programs, 
it seems, and the banks and their willingness under the terms 
that are provided to really move it. So, as such, the last few 
years we looked at it, it has been at around 1,600 to 2,000 
transactions for small businesses, and given the number out 
there, that is fairly limited for Ex-Im and SBA.
    So, again, you need to look, not to beat it over the head, 
beyond the box somehow. We need to break this ceiling that we 
are bumping up against and find new ways to energize it. It is 
even going to be more difficult with the budget cuts that this 
Administration has put through on SBA and Ex-Im, and 
particularly as to the added fees in that that they now have to 
be charging, which will even discourage the banks and the users 
even more.
    With that, I would like to ask Jean from her perspective, 
SBA, with the budget cuts and what have you, how attractive 
will your package be now or in the future as it has been in the 
past. Sorry to put you on the spot. [Laughter.]
    Ms. Smith. Well, nothing is in stone yet, but we have had 
to react somewhat to the new budget for next year, and there 
have been some scenarios in place, as I said, you know, and it 
will all come out in the wash by this fall. But some of the 
proposed scenarios would do exactly as you said. In order to 
get close to a zero subsidy rate for the loan programs, we have 
no choice but to increase fees.
    On the export side of that, it probably is going to be 
quite marked an increase in those fees. We currently have a 
quarter percent guarantee fee that exists for loans under 12 
months, which is our Export Working Capital Program. I don't 
know--some of the scenarios I have seen raise it to as much as 
1 percent. So on a $1 million deal, which is our cap, it would 
go from $2,500 to a fee of $10,000. So that is fairly 
significant.
    So you are right. In terms of our efforts to increase 
volume and access by small businesses to these guarantee 
programs, probably that ability will be somewhat curtailed or 
our guarantee program will be less attractive--let me put it 
that way--to many banks because of those fees.
    Mr. Conlon. Mr. Bowe.
    Mr. Bowe. Speaking further on the Ex-Im and the tied aid 
for China, a couple of comments of what I would call the 
mechanics, the problems of the mechanics, that is, trying to 
respond, to match what a foreign competitor has done. I think 
there is even a deeper philosophical problem that relates to 
the marketing side of it.
    The document I attached in my written testimony was a 
translation of a Chinese document on how to access soft loans 
from foreign countries, in this case Holland, and it describes 
what naturally becomes a collaborative relationship between the 
Chinese Government and the Dutch Government and how Chinese 
institutions can access this financing and, therefore, proceed 
with their projects.
    So the Ex-Im approach or the congressionally mandated 
approach of matching tied aid presupposes that, but for 
financing, everything else being equal, the Chinese or whoever 
would buy from an American supplier. With this kind of long-
term relationship building, that is not the case. The Chinese 
would not necessarily welcome an American offer at the last 
minute of financing. They would say, wait a minute, we have 
been meeting--it says we have been meeting in Beijing and the 
Hague twice a year to develop the projects which will be 
financed with this type of program. So coming in at the last 
minute really disrupts these relationships.
    We have heard other testimony today about guanxi, the 
relationship building. This is true in other countries around 
the world. So it is not just a mechanical problem. It is a 
philosophical marketing problem that until the U.S. decides 
that it is something that we want to do, the matching tied aid 
concept is destined to be unwelcome by the foreign government 
recipients that we are trying to help.
    Mr. Conlon. If we could narrow the discussion a little bit, 
just to talk a little bit about if there is one thing that we 
in the Committee can do, what would that be? If there is one 
policy or program we should go after, where is that going to 
be? Where should we concentrate our resources? Dr. Freedenberg?
    Mr. Freedenberg. Since I have some perspective on this, 
about a 20-year perspective on it, this is an argument that has 
been ongoing. If you wanted one word, it would be money. It has 
to do with the fact that Congress--each new Administration 
decides to cut corporate welfare. Ex-Im Bank is corporate 
welfare by usually OMB's definition. It is fairly much of a 
syllogism. The problem is you need--and that is why these sorts 
of hearings are very important. But you need to educate the 
rest of the Congress on this issue. It is always seen as some 
sort of a special subsidy that only goes to U.S. business, and 
the perspective of it being one-sixth of what our industrial 
competitors offer is never brought forward, that is one-sixth 
as a percentage of our GDP versus, say, France or Britain or 
other industrial--or certainly the Japanese.
    So that is really where it comes. Then the rest of these 
programs, these problems follow from that. We have to be very, 
very frugal with our tied aid because we have so little of it. 
We have to be very frugal with helping small business because 
we have so little money and so little staff. And all of this 
sort of cascades down from the lack of funds. So you can change 
the processes, but without the funds, you are not going to get 
very far. And I am afraid, you know--I hate to say it, but, you 
know, here we go again.
    I helped Senator Heinz draft a debate on this with David 
Stockman back in 1982, and I could change the dates and it 
would be exactly the debate you are going to have this year 
over Ex-Im Bank. So I am--perhaps ``discouraged'' would be the 
word.
    Mr. Conlon. Mr. Kapp.
    Mr. Kapp. A couple of quick points. I think Paul 
Freedenberg is onto something very basic here, but there is one 
little China wrinkle that takes this back from the general 
theme of how small business makes its way in the global economy 
to the subject specifically of business with China. And that is 
that the relationship with China is so politically sensitive 
these days, and particularly on the Hill, that it is impossible 
fully to separate an approach to China as a national policy 
problem on the Hill from anything you do on the economic side.
    Now, our view, obviously, is--and I say this often to 
Chinese colleagues--that if there is not a strong and vibrant 
economic and commercial relationship between the United States 
and China, holding the whole relationship together is going to 
be much, much harder. The economic constituencies in this 
country that believe that a stable and productive relationship 
with China is both in their interest commercially, and also in 
the national interest are the glue politically, that holds 
things from flying apart far more dangerously in the debate 
over U.S. relations with China.
    I guess what I am saying is that if this is a China forum, 
part of the answer to what can be done has got to be related to 
the whole demeanor of the Congress and the whole demeanor of 
the U.S. Government with regard to relations with China. If 
relations with China are going to heck in a hand basket, 
anyway, and the whole relationship turns sour, it is going to 
be difficult to craft the kinds of measures that would help 
small businesses or help big businesses or one sector or 
another in the Congress with China. And, therefore, this 
probably needs to be seen in a more comprehensive way with 
regard to this particular bilateral relationship.
    One other quick point on the question of programs. Programs 
are important. Small businesses have limited resources. I would 
differ a little with Marty on the notion that what is lacking 
is information. One of the problems now is that there is so 
much information--certainly with regard to China, there is so 
much information out there, especially thanks to the Web, that 
a small business with only one person who does all 
international business for the company is going to have a hard 
time just getting its hands around the mass of information that 
is available.
    I differ a little with Senator Kerry on the notion of one-
stop shopping, a term which has been around, again, for a very 
long time. We used to have companies in Seattle who would say, 
``I don't want to have to go from the Washington Council on 
International Trade Office across town or down the street to 
the Export Assistance Center of Washington because I don't want 
to have to make two stops.'' And my reaction to that small 
business person was ``If you don't want to make two stops, you 
better not go to China, because there is a certain amount of--
--
    [Laughter.]
    Mr. Kapp. Well, let's just say that international business 
imposes certain things on you, whether you are big or little.
    So one of the problems perhaps that remains and might be 
thought about in terms of educational efforts over time along 
with the question of how to deliver the services and minimize 
the hassle quotient for small businesses with few people and 
limited funds, is how to help little businesses develop realism 
about what it takes to plunge in at all, certainly with China. 
Indeed, when I worked in the State of Washington, we sometimes 
had to drag small businesses kicking and screaming into even 
being interested in international markets because domestic 
markets were so much easier to deal with and so much more 
compelling.
    In other words, this is a two-way street, and there is some 
responsibility on the shoulders of smaller companies as well. 
Obviously the companies here today have understood that and 
have borne the responsibility extremely well and successfully.
    Mr. Conlon. Mr. Eisenhaure.
    Mr. Eisenhaure. There is one thing about small businesses, 
you have to kind of go after targets of opportunity. You know, 
forcing yourselves into new markets by buying your way in, is a 
way to not be a small business but to be out of business. You 
know, if you are trading in a particular marketplace and your 
competitor from Great Britain or Germany has essentially the 
same product, has the same cost basis, and he has free money, 
you kind of aren't in that business anymore. There is not much 
you can do about that. It is impossible to compete with.
    On the other hand, there are differing things that you can 
provide edges to small business. Right now we sell more product 
to China than to any other country other than the U.S. One 
thing you might do with funds you already have available is 
provide a commercialization program credit as part of the SBIR 
program so that companies which have a positive trade 
relationship with China could get some extra commercialization 
credit for that. You know, a $750,000 SBIR award will 
substantially change the balance of competitiveness compared to 
a foreign company if you are introducing a new product into one 
of these marketplaces.
    Mr. Conlon. Ms. Li.
    Ms. Li. I would like to add a little to what Bob just said, 
managing U.S.-China relationship. David Lumpton, who is the 
director of China studies at the Nixon Center here in D.C., 
wrote a book called ``Same Bed, Different Dreams: Managing 
U.S.-China Relationship'' from a broader perspective. For those 
of us here who speak Chinese, that is ``Teng Chang Imon.''
    From a smaller perspective--I guess that is another reason 
we are here--for smaller business, especially the ones who are 
hoping to get to China, in addition to facing the political and 
business obstacles, we have the so-called cultural barrier, 
which is absolutely crucial. A few speakers did allude to that 
a little bit. I just want to add a few comments to that.
    A client of ours said to me once, before they became our 
client, they said, Dottie, it is like stepping into a field of 
land mines blindfolded, going to China. I think some of you may 
have had that feeling in the past when you first started going 
to China. A bilingual person doesn't always make a translator 
or an interpreter. Peter mentioned the translation of your 
materials presented to your Chinese counterparts. You can't 
always get a person who speaks Chinese. I was born and raised 
in China, but you have to be trained to be a translator or an 
interpreter. There are a lot of cultural nuances that need to 
be translated, not just within the text but also within the 
dialogues and the conversations. And your guanxi with your 
government officials, what have you, the cultural contents are 
just crucial. We give training courses to companies three days, 
sometimes, if we have to, four hours, but just those so-called 
crash courses will help people, maybe a small step in reaching 
your goals, to deal with the Chinese, as difficult as they 
might be.
    Mr. Conlon. Mr. Mueller.
    Mr. Mueller. I think to your earlier question of what 
should the Committee do, obviously number one is to push WTO. I 
do think that it would be desirable, if it is possible, to 
lower the heat of the rhetoric that is applied to China's 
domestic policies and activities. In addition, obviously, 
funding Ex-Im directed at small businesses is another thing, 
and really finally, assuming WTO is approved, that the 
compliance issues have to be addressed and the staffing of 
personnel in various U.S. Government departments to facilitate 
that enforcement and compliance is critical.
    The agreements are meaningless unless compliance is 
encouraged.
    Mr. Conlon. Ms. Griffin.
    Ms. Griffin. I was going to pick up on something Mr. 
Eisenhaure said about the way your company makes use of 
imports. I think another problem on the Hill sometimes is there 
is a sense that exports are good and imports are bad. And 
realizing that we do have an enormous trade deficit that is 
going to continue to be a political issue, I just think that 
folks should realize that imports play a very important role. I 
think of a company we featured in an earlier version of our 
success stories. It was a company that exported seeds from 
China, and in the course of getting those seeds to the ultimate 
processing plant in the United States, they created jobs for 
some of the trucking companies that took those seeds to the 
plants and the people that cleaned those seeds and processed 
those seeds. And I just think there needs to be a greater 
comfort level with the import side of the U.S.-China 
relationship.
    Mr. Conlon. Mr. Hale.
    Mr. Hale. I would just like to respond and comment on a 
couple of points that have been made.
    We certainly agree very strongly that there is going to be 
a great need to watch China's compliance with the WTO 
agreement, and, you know, as I think I noted in my comments or 
my remarks earlier, the Congress did give us and State 
Department and USTR and Agriculture some extra resources this 
year for exactly that purpose.
    We are getting those resources in place and think we have a 
handle on what is going to happen. The catch is until they are 
members of WTO, there isn't anything they have to comply with. 
So we are doing a lot of wheel-spinning at the moment.
    Just a couple quick observations. Marty, in response to 
your point on information, I would like to mention that we have 
set up what I think is a reasonably good all-in-one-place web 
site on China, commercial opportunities and doing business 
information under the new Commerce-wide export.gov, add slash 
China to get to the China thing. If you can get past the rather 
corny opening picture of a door opening, which my staff thought 
was hilarious and I haven't been able to get rid of yet, the 
information is pretty good.
    I also want to note just in passing that while some of our 
financial programs and some of the others, there have been some 
complaints about how they operate in China, I do want to note 
that the Trade Development Agency did open its doors for 
business in China the first of this year and have had a couple 
of things come in already, and they are running around 
wondering how they are going to do everything that comes 
through their door.
    Finally, the Commerce Department has over 100 Export 
Assistance Centers around the country, many of which have reps 
from other U.S. Government and State and local government 
export assistance units on the same site. They are primarily to 
serve small business, and they serve, hundreds of thousands a 
year, hopefully productively, getting more and more into the 
export business.
    Thank you.
    Mr. Conlon. Mr. Coon mentioned earlier about the Gold Key 
Program. Could you describe that?
    Mr. Hale. Yes. The Gold Key Program is basically if a U.S. 
company wants to explore market opportunities in, say, Beijing 
or Shanghai or something, and Commercial Service in our 
embassies or consulates, provides a hand-holding services, a 
place to hold meetings and making of appointments for them. In 
other words, the Gold Key to opening the market in Shanghai.
    It is a service-for-fee operation, but it is very modest. 
It varies a little bit from place to place. But it is an 
opportunity to draw on the expertise of our people on the spot 
to try and find appropriate business partners or buyers or 
sellers for you and provide a place for your meetings, and so 
on and so forth.
    You can learn more about it or sign up through any of our 
Export Assistance Center regional offices.
    Mr. Coon. If I can add, the cost on it runs between $150 
and $225.
    Mr. Duggan. They just doubled it.
    Mr. Coon. Really? When did it go up?
    Mr. Duggan. It went to about $500.
    Mr. Hale. It is higher--you know, of course, it varies 
according to what sort of service you are looking for. Multiple 
days are cheaper than per day. Yes, we have had to raise the 
fees. I don't know for sure what they are, and my Commercial 
Service guy I think has left. But they have been raised, but 
they are still far cheaper than, you know, renting a hotel room 
or doing your own meetings. It is a tremendous saver because 
basically you arrive in, in this example, Shanghai and you get 
a day--you know, whatever your schedule is. The first day you 
want to work, your appointments are largely ready to go, or at 
least ready to start setting up. The facilities are all there 
and so on.
    But we increasingly are having to charge, you know, cover a 
significant portion of the costs of the add-on services. Not 
the basics, but the add-on services we do.
    Mr. Conlon. Thank you, Mr. Hale.
    Ms. Allen.
    Ms. Allen. Well, this is an educational process for me, 
too, because most of the small businesses that I deal with do 
not know and do not obtain government subsidy, and that 
corporate pork just resonates on old memories.
    We are not here to ask for government subsidies. We are 
just here to ask for the Government's to help to create a 
climate that will be hospitable to the small businesses that we 
represent.
    What I hear today is, well first of all, we spent a 
substantial time on financing. We talked about how the Dutch, 
the Canadian, and British Governments subsidize their companies 
in doing business with China. And I suppose those subsidies go 
to huge corporations who I do not represent.
    I can see on this issue there are two ways to approach the 
problem. One is for a head-of-state to head-of-state dialogue. 
This is an impossible task, but this is something we can talk 
about, for our President or our Secretary of State or Secretary 
of Commerce to talk to their counterparts in these foreign 
countries and say, hey, this is not fair, you are subsidizing 
your corporations, you are using your taxpayers' money, but we 
do not want to take our small business and our taxpayers to 
subsidize corporations just so they could sell to China.
    Here at home, if we have effective Ex-Im Bank export 
programs and SBA programs for export, I would like to know more 
about it, because in the last 17 years that I have been 
involved with this trade association, very few information has 
been forthcoming.
    Second, with regard to the barriers I talked about earlier, 
one of the major barriers is--and we talked about compliance. 
You can hit their heads with a hammer about compliance, but if 
there is no place to enforce it, if there is no place to 
enforce any court order, whether in the United States or 
Singapore or Japan, for the Chinese merchants or our Chinese 
counterparts to pay the fines, those arguments are meaningless. 
We are just padding the lawyers' pockets, and I am one of them.
    With regard to information, yes, we have a lot of 
information. There is plenty of information in print and in 
cyberspace. Just go to cyberspace. There is plenty of it. You 
don't have to worry about that.
    There are lots of consultants who are working for law 
firms, and for accounting firms. They are full of information 
about how to do business, where to go, and what to avoid. They 
are there.
    I think what we have here is we are facing a climate in 
China that is still not conducive to the small businesses. As 
Dr. Kapp mentioned, the small businesses do not have the deep 
pockets that the big businesses have. They cannot put somebody 
like McDonald's and General Motors in China for 5 years living 
in a hotel and wait for the opportunity, because they have got 
to produce their widgets here at home and they have got to make 
their payroll.
    One thing, though, I must say is that the Chinese people 
love American products. They love them. The question is how do 
we get it to them without having to go through all that 
bureaucratic morass.
    The situation in China has changed substantially in the 
last 20 years. One way the Government can help is to encourage 
more exchanges, of business executives and legal scholars so 
that they will be more educated to the rule of law. It will 
become part of their life, part of their conversation. Because 
in China, if you talk to the little people, the common people, 
the small businesses, they appreciate the rule of law. Of 
course, everybody will walk away from it when it is to their 
advantage, but, actually, they love it. They love to have it.
    Finally, we honestly believe that joining the WTO will help 
China because it will put China on the spot. Once again, the 
question is: Are we going to be able to hold China's feet to 
the fire and make them comply with it or give them the leeway 
they have been receiving all these years? Because they have 
been given preferential treatment. If we can do that, it will 
go a long way for small businesses and big businesses.
    Finally, I have spoken to small businesses, and they say it 
is easier now for small businesses to go to China because all 
you need to do is to go to find your counterpart, a small 
business, to do business with. Don't aspire to work for or go 
for the multi-billion-dollar company. Go work with your 
counterpart, because you understand each other's problem and 
you can actually make a deal, because both parties want to make 
a deal.
    Mr. Conlon. Thank you, Ms. Allen.
    Mr. Hale, maybe you would like to just let everyone know 
how the Commerce Department would deal with, you know, trade 
dispute issues when China does accede into the WTO, what the 
process is, and if someone has a particular problem, who do 
they go to or how does that work?
    Mr. Hale. Okay. We set up about a year ago--and I think Mr. 
Meenan already has referenced it--something called the Trade 
Compliance Center. I have got some brochures on the thing here. 
It was basically aimed at watching foreign countries' 
compliance with trade agreements. Let's talk China specifically 
now.
    If a company encounters a problem, you know, it looks like 
business is going ahead and all of a sudden they run into some 
sort of a problem, which appears to be prohibited, let's say, 
under the WTO agreement, I think the first thing that we would 
do, probably through our Commercial Service reps in Beijing, is 
approach the Chinese Government, our counterpart Ministry, 
MOFTEC, Ministry of Foreign Trade and Economic Cooperation, 
which I think we have developed a very good working 
relationship with, and say, hey, company X says that they have 
run into this problem, we think that this violates, say, the 
intellectual property rights clauses in the WTO, and could you 
help us--you know, first of all, take a look and see if the 
company's complaint is accurate and see what happens.
    We have actually been doing quite a bit of this without the 
agreement with the MOFTEC people on what we would call a 
general market access problem. Many of these we find can be 
solved right away. A certain percentage, a quick visit from 
someone from the central government, and the problem is solved. 
And others, frankly, we discover there is a problem on the U.S. 
side also, and it is a misunderstanding. You know, the Chinese 
partner was waiting for this, the U.S. partner was waiting for 
that, neither knew what the problem with the other was, bring 
them together, it is solved.
    There are going to be some that aren't going to be 
solvable. Hopefully, they can be worked out, increasing levels, 
eventually reaching our Secretary to their Minister. If we 
can't do it and it is, say, a WTO violation, we will go over to 
USTR and request that a formal dispute settlement process be 
started with WTO in Geneva. So there are all different steps on 
this.
    How it is going to work under the WTO we don't know. 
Indications are that China does not want to get into, is not 
going to want to get into a lot of very formal dispute 
settlement procedures. They are complicated. They are drawn 
out. And you need a lot of sophistication to defend yourself. 
So we have the feeling that many of the problems are going to 
be able to be worked out at the working level, and hopefully 
even some in anticipation of problems, with the--I guess for 
lack of a better word, the training that we have been doing, 
both government to government and trying to encourage more and 
more academic, private sector, other organizations. You know, 
the WTO obligations China is going to incur run this huge 
gamut, and let's touch base with all agencies in Beijing and 
through the provinces.
    It is not going to be easy. There are going to be, some 
real problems left over, but hopefully there will be enough 
goodwill between the governments to solve or the will to do it.
    Mr. Conlon. Mr. Meenan.
    Mr. Meenan. Back to your question as to what this Committee 
could do, I would suggest in the context on the financial side, 
the financing and the budget, that while the Administration is 
concerned about corporate welfare, you may want to question 
whether they are throwing the baby out with the bath water, and 
that the small business programs of the Ex-Im, OPIC, TDA, SBA, 
and that are in their infancies in getting growth. You are only 
talking about a couple thousand transactions a year equating to 
maybe a couple aircraft sales. So why penalize these programs 
while they are taking on the overall cuts on that organization?
    So for this Committee, I would urge you consider 
recommending to your appropriators that they put a firewall up 
against the small business programs. I don't want to put one 
group against another and say whose ox is going to get gored 
the most. These programs are a drop in the bucket in their 
overall programs. And I would suggest that this Committee, in 
looking out for the interest of the small businesses for which 
they are receiving some benefits, but not the lion's share of 
these organizations who are facing these cuts, that different 
marching orders be provided in either a firewall or other 
protective fire gear be provided so these programs can at least 
survive. With the increased fees are they are talking of in 
other areas, it may be the death toll for a good number of 
these. And we have already gone through a year or so at one 
point when SBA had significantly reduced the subsidy rate and 
they were out of business, in effect, for that period until 
Congress could right what they had done wrong. So I would 
suggest now that the appropriators are looking at cutting the 
budgets further here for Ex-Im, OPIC, and TDA, the Committee 
may wish to consider setting a firewall up to protect these 
infant programs that are helping fund small businesses.
    Chairman Bond. I have returned from the Health, Education, 
Labor, and Pensions Committee markup. It has all the earmarks 
of being a 100-hour markup, so I have taken this break to come 
back and join you.
    Let me call on Mr. Kapp for the last comment.
    Mr. Kapp. Senator, I am almost sorry you came in the door 
just now because I am about to say something that applies not 
only to this Committee but to the Senate as a whole.
    Chairman Bond. That would be a good point to make.
    Mr. Kapp. The question that Paul had asked that got us 
focused was, what would we recommend for this Committee to do. 
I was going to say every member of this Committee is a member 
of the U.S. Senate. The U.S.-China relationship is at a very 
delicate moment now. The Vice Premier, Qian Qichen, will be 
here in two weeks for meetings with the highest figures in our 
executive branch and our legislative branch in an effort to try 
to assess the likely course of U.S.-China relations. There are 
lots of difficulties out there, as we all know.
    One of the things that the Chinese care a lot about is what 
everybody in the business called ``capacity building,'' that 
is, whether it is China or other less developed countries, 
assisting such countries in the training and the development of 
cadres of manpower, financial regulators, impartial judges, all 
sorts of manpower and personnel power building efforts in which 
developing countries have great needs if they are to build 
internationally compatible economic environments.
    I would urge that the Congress in particular try to put 
some emphasis on an agenda of positive and cooperative 
programmatic work with the Chinese over the years to come. If 
we don't make the positives happen, the negatives will swallow 
us. And a classic case coming out of a meeting like this would 
be some effort to really initiate--and, for that matter, if it 
could only be done politically up here, get congressional 
ownership of--a programmatic effort over a period of years to 
work with the Chinese on the development of the administrative 
talent and the technical talent with which the Chinese economy 
will be all the more hospitable to small business.
    You know, when small business gets over there and they feel 
as though they are walking through a minefield with a blindfold 
on, it is because they are talking to people half the time who 
are not competent to do their jobs. And the Chinese are not 
immune--in fact, they are receptive--to working with countries 
such as our own on this kind of personnel capacity building. I 
would like to think that Congress might go forward, in a sense 
put its best foot forward, on something like that. Long term, 
it is going to make a great deal of difference to all business, 
including small business.
    Chairman Bond. I think that is a point that is very well 
made. Certainly based on my recommendations, I think that that 
is clearly a great need. From my visits to China, I have made 
some disparaging remarks about the difficulties, but if there 
is one thing that I did gain from my visits to China, and to 
other countries in the region, frankly, it is the desire to be 
able to develop the structure, such as the one that we have in 
this country, to ensure that businesses flourish.
    On a broader scale, I don't know how many of you have read 
Tom Friedman's latest book, ``Lexus and the Olive Tree.'' There 
is some very, very exciting news that the concept of democracy, 
human rights, and free market capitalism are really winning the 
debate worldwide. And that is a positive. But going along with 
it is the need to have the right kind of structure, and that 
means things not only like having the right kind of regulators, 
but it is having a system of property laws that respect 
contracts and respect property rights and has bankruptcy laws 
that a lot of countries haven't had the willpower to implement. 
When you get a crippled basket case, you are better off 
shutting it down.
    We had an experience with our Resolution Trust Corporation 
which was one of the most difficult things I had to deal with 
when I first got here. It was not pleasant to go around closing 
down savings and loans, but after we got them closed down, we 
took a hit. But coming back out of that, we saw what benefit it 
has to our country, and countries like Thailand and Korea, 
which are dealing with crippled major enterprises, need to have 
a structure for dealing with it.
    I spent some time on my last couple of visits to Southeast 
Asia--I was particularly interested in biotechnology, which has 
been one of my interests. And there was a crying need for 
scientific information, for the right kind of regulatory 
structure to ensure that genetically modified foods or other 
plant products can be regulated in that country so that the 
citizens of those countries know that they have somebody from 
their country who is competent to make those decisions.
    So I think your point is well taken. It is clear that 
Congress will be putting a foot forward. It may be the triumph 
of hope over experience to think that we will put the best foot 
forward. But I think that is a point well made.
    I also understand that the major recommendations you made 
are, number one, to ensure proper funding for Government 
offices that ensure compliance by China with the multilateral 
and bilateral trade agreements, and, second, to ensure proper 
funding for financing programs, SBA and places like the Export-
Import Bank. I signed a letter recommending that, and I 
appreciate very much your advice in that area.
    I think the discussion today should help this Committee in 
our efforts to ensure that Congress takes the right steps, not 
just to enhance trade with China but with other markets around 
the world. This is where the opportunities for small business 
lie. It is very difficult to take that step, but we need to 
continue to push to do it.
    I think the Federal Government does have a critical role as 
an advocate for U.S. businesses, but also in helping small 
businesses develop their markets and break them out of their 
habit of thinking about the next-door neighbor being their 
market. That market may be overseas. We need to eliminate trade 
barriers, but the internal barriers, the inertia, the fear of 
the unknown, the fear of moving out, is one of the things that 
we need all of you, the organizations you work with and 
represent, to help us pursue.
    As I indicated, the discussions here today will be 
transcribed, and we will look forward to the comments in the 
next 2 weeks. We will make it available to the members of this 
Committee and other committees.
    I thank all of you for participating, and we look forward 
to continuing to work with you in this and other areas. And if 
there is no further business to come before the meeting, we 
will adjourn. Thank you.
    [Whereupon, at 11:43 a.m., the Committee was adjourned.]
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