[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 deg.
 
``WILL WE HAVE AN ECONOMIC RECOVERY WITHOUT A STRONG U.S. MANUFACTURING 
                                BASE?''

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, APRIL 9, 2003

                               __________

                            Serial No. 108-8

                               __________

         Printed for the use of the Committee on Small Business


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


                                 ______

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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Aldonas, Hon. Grant, U.S. Department of Commerce.................     5
Ryan, Hon. Timothy J., U.S. Representative, Ohio.................    16
Harbour, Ron, Harbour and Associates, Inc........................    18
Jasinowski, Jerry, National Association of Manufacturers.........    20
Trumka, Richard, AFL-CIO.........................................    21
Freedenberg, Paul, Association for Manufacturing Technology......    23
Czinkota, Michael R., Georgetown University......................    25
Sandy, David, MS Willett, Inc....................................    27
Anderberg, Eric, Dial Machine, Inc...............................    29

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    39
    Velazquez, Hon. Nydia........................................    42
    King, Hon. Steve.............................................    45
Prepared statements:
    Aldonas, Hon. Grant..........................................    47
    Harbour, Ron.................................................    57
    Jasinowski, Jerry............................................    60
    Trumka, Richard..............................................    66
    Freedenberg, Paul............................................    70
    Czinkota, Michael R..........................................    83
    Sandy, David.................................................   114
    Anderberg, Eric..............................................   122

                                 (iii)


 HEARING ON ``WILL WE HAVE AN ECONOMIC RECOVERY WITHOUT A STRONG U.S. 
                         MANUFACTURING BASE?''

                              ----------                              


                        WEDNESDAY, APRIL 9, 2003

                  House of Representatives,
                        Committee on Small Business
                                                   Washington, D.C.
    The committee met, pursuant to call, at 2:08 p.m. in Room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
presiding.
    Present: Representatives Velazquez, Graves, Gerlach, 
Chocola, King, Udall, Ballance, Christian-Christensen, 
Napolitano, Acevedo-Vila, Majette, Marshall
    Chairman Manzullo. Good afternoon and welcome to this 
hearing of the Committee on Small Business. We have been 
advised that at 2:30 there is going to be a series of three 
votes, which will give us about a half an hour of exciting time 
on the floor, and you guys will not have anything to do here 
for a while. Obviously, we will try to get in as much testimony 
as possible before then.
    I especially welcome those who have come some distance to 
participate. Today, we are going to talk about manufacturing. 
Most Americans do not fully realize the importance of 
manufacturing in America. The message I want to get across 
today is that manufacturing matters to everyone in a big, big 
way.
    Let me be blunt about why we are having this hearing and 
why we will have a series of hearings to follow. Our domestic 
manufacturing base is being hollowed out right before our own 
eyes, and it is other American companies that are doing it. We 
are fast becoming a nation of assemblers, and even that may 
disappear soon. Most Americans, including many in Congress, 
brush off manufacturing as being passe.
    It is happening also in the service sector. The February 
3rd edition of Business Week had on it this cover: ``Is Your 
Job Next? A new round of globalization is sending upscale jobs 
offshore. They include chip design, engineering, basic 
research, even financial analysis. Can America lose these jobs 
and still prosper?'' That is Business Week.
    At the rate we are going, 3.3 million jobs will move 
overseas by 2015. The title in today's Washington Times 
editorial says: ``More Troubling Jobless News.'' We have lost 
over 1.4 million, mostly manufacturing, jobs just since 
September 11th. Even the service industry is short 200,000 jobs 
since 9/11. It is time to wake up. If we keep losing our 
manufacturing jobs, we will not have much of a service sector 
to worry about. Once our manufacturing base disappears, so do 
other economic sectors.
    Engineers, your typical high-paid, white-collar jobs, are 
moving overseas. Boeing laid off 5,000 engineers in favor of 
lower-cost, Russian engineers, and you wonder what is going to 
be the next shoe to drop in the loss of our engineers in this 
country. GM and Ford are forcing their suppliers to move 
overseas to keep contracts. Those businesses will be hiring 
their engineers from overseas. Guess what? Many engineering 
jobs exist because of manufacturing.
    Here are some facts, and they are not good. Two-thirds of 
reemployed manufacturing workers earn an average of 12 percent 
less in their new job. One-quarter earn less than 30 percent or 
more. Foreclosures hit a record high last quarter in places 
hardest hit by the manufacturing downturn, especially the 
Midwest and the Southeast, in part because the manufacturing 
sector has lost more jobs during the last economic downturn 
than any other sector. On March 31, Fortune reported that 10 
percent of all U.S. spending is consumed on cars and related 
services. How many cars and other related services can two 
million unemployed people buy?
    These are just two examples of how our economy is 
integrated and rests on the health of the manufacturing sector. 
From July 2000 through March of 2003, we have lost over 2.2 
million manufacturing jobs, or nearly 12 percent. Manufacturing 
employment has now contracted for 32 straight months.
    On April 1, 2003, the purchase manager's index, PMI, was 
set at 46.2 percent, its lowest reading since November of 2001. 
Analysts had predicted the index would fall to 49. Any number 
below 50 suggests that manufacturing is failing to grow. Orders 
to U.S. factories fell 1.5 percent in February, the worst 
showing in five months. According to an April 2nd Census report 
on manufacturer shipments for February, new orders declined 4.9 
billion, shipments were down 5 billion, and unfilled orders 
decreased 1.1 billion, down for six consecutive months. On top 
of that, GM and Ford announced double-digit cutbacks in 
production. That means less work and even more layoffs for 
those supporting the auto industry. The tool-and-die industry 
is heavily dependent on new product introduction with the 
automotive industry absorbing nearly 50 percent of the tooling.
    One of the issues driving this train is the tremendous 
pressure Wall Street puts on corporate America. I think if we 
look behind the layers, we will find companies forced to drive 
up stock values to make their quarterly estimates doing 
whatever they have to do to drive down the costs and increase 
margins. Do not get me wrong. That is the essence of 
capitalism. The problem is that this is short-term planning. It 
is tunnel vision, and these decisions made in a vacuum have a 
monstrous effect on everyday America.
    The second problem we face is having no statistics on how 
much domestic content is actually in support of U.S. 
manufacturing goods, and no one is being held accountable for 
it. Today, ``manufactured'' does not necessarily mean made in 
the USA. All it has to be is assembled here, and that is what 
is becoming of our industrial base, with the exception of 
bonded goods going to Mexico through NAFTA and NAFTA content in 
automobiles. We just do not know how much of a product exported 
from the United States represents foreign material.
    Our office has put together a presentation that outlines 10 
major factors working against small manufacturers, who are the 
core of our industrial base. You will see they are fighting 
against high regulatory and tax burdens, overvaluation of the 
dollar, and low-cost labor, among others. For example, Chinese 
hourly compensation costs for tool makers and tool designers 
are \1/12\ of those in the U.S., and those in Taiwan are \1/3\. 
Sixty percent of this nation's 43 million uninsured are small 
business owners, their employees, and families.
    The district that I represent, Rockford, Illinois, is home 
to the heaviest per capita concentration of machine tool-and-
die companies in the nation. The Washington Post calls Rockford 
``a barometer in the heartland.'' That was the headline of a 
three-page story in the Post, March 25, 2001 edition. The 
subheadline says: ``Rockford Holds Clues to Shifts in the U.S. 
Economic Climate.''
    Rockford was a national predictor in the early 1980s when 
its unemployment led the nation, at 24.9 percent. It remains a 
predictor today, still with one of the highest unemployment 
rates in the nation, at 10.9 percent. In February of this year, 
the national average is 5.8 percent. Overall, our district is 
experiencing the highest unemployment since the recession of 
1992 and 1993. Since February of 2000, Rockford area factories 
have shed 9,400 manufacturing jobs, nearly 19 percent of the 
manufacturing workforce.
    This is not just a problem facing Rockford-based 
manufacturers. The problems of Rockford, Illinois, are 
representative of the crisis in manufacturing across the 
nation, and it is something that we must fix.
    [Mr. Manzullo's statement may be found in the appendix.]
    Chairman Manzullo. I look forward to the opening statement 
of my colleague, Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman. Today, our nation 
continues to struggle. The economy is losing jobs faster than 
it can create them, which is bad news for the 8.4 million 
unemployed Americans, many of whom have been out of work for 
more than six months.
    The manufacturing sector has always been one of the most 
vibrant and innovative in the American economy, made up largely 
of small- and medium-sized firms. U.S. manufacturing accounts 
for about two-thirds of private research and development 
expenditures and almost 20 percent of our GDP. It is a major 
source of good jobs for three-fourths of American workers, and 
it is the largest sector in 13 states.
    It is unfortunate that the manufacturing sector, like the 
American economy as a whole, is suffering. As the economy 
slipped into recession in 2001, business investment on exports 
dropped significantly. This plunge directly affected the 
manufacturing industry. There have been 31 consecutive months 
of employment losses in manufacturing, for a total of about 2.4 
million jobs, bringing this critical sector to its lowest level 
in 40 years. But it is not just one issue plaguing this 
important sector; there are many.
    First, the business climate is wracked by uncertainty. The 
war in Iraq and its effect on world oil suppliers, combined 
with consumer apprehension and the inconsistent stock market, 
have caused uneasiness about the future. The manufacturing 
sector is certainly feeling this trepidation. Perhaps more 
importantly, though, the manufacturing sector is so weak 
because of a series of faulty policies put forth by the current 
administration, which has done nothing to ease this situation. 
In fact, these policies have only made things worse.
    Health care is a problem for many Americans, especially 
those who work for a small business. Rising health care costs 
have taken a special toll on manufacturers. Health care is a 
major factor in undermining the competitiveness of 
manufacturers in the global marketplace. The Bush 
administration's trade policies have done little to help 
manufacturers gain back their competitive edge. The 
liberalizing of trade agreements and policies such as Fast 
Track have caused domestic producers to lose market share to 
foreign competitors.
    In addition, the large, U.S. trade deficit in manufactured 
goods, driven in part by an overvalued dollar, has been 
responsible for massive job dislocation and plant closings 
across the country. The strong dollar is pricing small domestic 
producers out of international markets while creating windfalls 
for companies that can move overseas and produce goods for 
sales in the United States, and that is exactly what is 
happening. Many American firms are moving their factories and 
their jobs overseas because they reap the benefits under U.S. 
tax policy. The current tax code also gives billions in 
subsidies to companies that transplant their factories, 
outsource production, and then hide profits in offshore tax 
shelters.
    Once again, the administration's policy helped big business 
at the expense of small business. The Bush administration's 
energy policy, or lack of one, is another example of this. The 
constant energy price hikes are hitting manufacturers 
especially hard. It has been forecasted that until energy 
supplies increase and prices stabilize, economic growth will be 
elusive.
    Not only are we dealing with bad policies; we are also 
dealing with bad priorities. In the latest, FY 2004, President 
Bush slashed many small business programs, including those to 
help manufacturers. The manufacturing extension program, a $100 
million program, will be closed out next year. The Small 
Business Administration, which provides the only real source of 
trade assistance for small business, has seen its funding 
continue to shrink. The SBA's export working-capital program is 
facing cuts in the FY 2004 budget.
    Given the dismal economic outlook, how can we expect 
manufacturers to bounce back without giving them the right 
tools? That is why we are here today. Manufacturers are the 
cornerstone of the American economy. They have, in large part, 
made the U.S. a world leader and economic powerhouse, but the 
current climate, both at home and overseas, puts a damper on 
any kind of recovery for this sector. In addition, the trade, 
tax, budget, and energy policies of this administration have 
only compounded the problems of the manufacturing industry.
    What we need is change. Without change in these policies 
and the recognition that manufacturing can be a big player in 
our economic recovery, we will see this downturn go on, but if 
we design new policies and give manufacturers the assistance 
they need, this nation's economic recovery will no longer be so 
far out of reach. Thank you, Mr. Chairman.
    [Ms. Velazquez's statement may be found in the appendix.]
    Chairman Manzullo. Thank you. We are going to start with 
the Under Secretary for International Trade, Department of 
Commerce, Grant Aldonas, and as soon as he completes his 
opening statements, I am going to open it up for questions so 
that he can get back to the Department of Commerce and help 
create more jobs for us in the manufacturing sector. I want to 
do that so you do not become a victim of the tyranny of the 
bells; the rest of us will. Mr. Aldonas, we look forward to 
your testimony.
    Mr. Aldonas. I appreciate it.
    Ms. Velazquez. Mr. Chairman, may I ask a question, please?
    Chairman Manzullo. Yes.
    Ms. Velazquez. Did you get any testimony coming from the 
administration? Because we have not. Do we have it?
    Chairman Manzullo. It is on its way.
    Ms. Velazquez. It is on its way. That is appropriate?
    Chairman Manzullo. All right. Let us just move on. Okay? 
Every once in a while that happens.
    Ms. Velazquez. Well, Mr. Chairman, it is not fair. How 
could we be prepared if we do not receive the administration's 
position? That is unfair.
    Chairman Manzullo. I do not have it either, but I would 
like to proceed. Mr. Aldonas----.
    Ms. Velazquez. That is what we expect that the groups 
deserve because they all submitted their testimony, and I want 
to be on record on that.
    Chairman Manzullo. Your objection will be noted. Mr. 
Aldonas, we look forward to your testimony.

 STATEMENT OF THE HONORABLE GRANT ALDONAS, UNDER SECRETARY FOR 
          INTERNATIONAL TRADE, DEPARTMENT OF COMMERCE

    Mr. Aldonas. Thank you, Mr. Chairman. Just by way of 
explanation, yesterday I was in Jackson, Mississippi, and I was 
handing out an export achievement certificate to a small 
manufacturer called Duropatch, and as we think about some of 
the larger issues that affect American manufacturing, one of 
the things that I want to talk about are some of the very 
significant success stories we have. And as we go through this, 
you will find that every one of them is really based on the 
initiative from American manufacturers, their innovation, and 
policies that are designed to create the environment where they 
can succeed.
    In particular, this manufacturer has made great inroads 
into the Mexican market as a result of the North American Free 
Trade Agreement by virtue of being able to sell into markets 
where the Mexican government is trying to improve their 
infrastructure. What Duropatch produces is something that fixes 
roads, which means there is a huge market in Mexico for what 
this person manufactures, and through the Gold Key program at 
the Commerce Department, we were able to help him find a series 
of contracts throughout Mexico.
    It is that sort of success story really that reflects not 
only what we do at the Commerce Department but the commitment 
the Committee has and has voiced many times over for the 
efforts of our trade-promotion program and for our trade 
policies, and that is a good point of departure, Mr. Chairman. 
I want to thank you for holding the hearing.
    Number one, we share the concerns about the American 
manufacturing sector, and I have very much appreciated your 
leadership and your counsel and advice about the challenges 
facing the sector. I am familiar with the circumstances of 
Rockford. Rockford was much on our mind, I know, when I served 
in the government in the past because it has always been a 
leading indicator, and certainly the industries that are part 
of Rockford are the bedrock of American manufacturing. You 
cannot look at the machine tool industry and start to think 
about the rest of the economy.
    That is a point that I think is worth reinforcing. What we 
have, frankly, going on, you described as hollowing out, Mr. 
Chairman. I really want to underscore that as well as 
challenges. We have some real strengths. If you look at the 
World Economic Forum's most recent report on competitiveness, 
the United States economy was listed number one, and if you go 
through the factors that the World Economic Forum listed in 
terms of our competitiveness, what you will find are exactly 
those things that are at the heart of American manufacturing, 
those things that continue to lead us in shaping the world.
    I also wanted to point to an example, when we think about 
hollowing out, to make sure that we put it in the proper 
context. It is an example from my own experience. When I was in 
private practice, I had the opportunity to advise many of 
America's foremost high-tech manufacturers, and in the process 
what I found was, over a 15 to 20 year period, was a fairly 
interesting phenomenon.
    A good example would be folks in the semiconductor industry 
and firms that operate in the aerospace sector. For years, they 
had operated in house their own logistical services, their own 
transportation services. What they found was that they could 
outsource those services to leading service providers like UPS 
in the United States, lower their costs, take advantage of the 
scales that UPS could offer, and what that did was really 
create not only a more competitive manufacturing sector but 
also a more competitive service sector by virtue of the scale 
that UPS could introduce.
    Now, the reason I raise it here is what it also meant is 
that we do have to deal with some of the accounting realities. 
Jobs that used to be identified as manufacturing jobs often are 
taking place in what is now the service sector because of this 
reengineering and restructuring that is going on in our 
economy. So one of the things that I want to reinforce is how 
these two things work together, and rather than saying that 
this undercuts the critical nature of what is going on in 
manufacturing and the hollowing out we face, I like to think of 
it more as we should always remember who our service sector 
actually serves. We have got a manufacturing base in this 
country which, in fact, is instrumental as a consumer of a lot 
of what our service industry provides, and absent a strong 
manufacturing base, we will not have a strong service sector as 
well.
    Mr. Chairman, you noted the statistics, and I do not think 
it is any coincidence that when we saw the most recent 
statistics in terms of a downturn in manufacturing, we saw a 
sharp downturn in services as well, and it underscores the 
point that as goes manufacturing, so goes the U.S. economy, and 
I think that is the thing we always have to keep in focus so 
when there is a debate about us becoming a service economy, we 
should not lose sight of the fact that manufacturing is right 
at the heart of the American economy and always will be.
    Now, if I could, I wanted to talk a little bit about some 
of the challenges facing our manufacturing industry and just 
underscore that we are completely on the same page with you, 
Mr. Chairman, in terms of the challenges. First of all, 
manufacturing preceded the rest of the economy into recession 
by at least 18 months, and most economists would say longer. 
The Asian financial crisis in 1997 led to a sharp drop in 
demand for capital goods, the sorts of things that your tool-
and-die manufacturers produce components for and then are 
exported abroad. In addition, the financial crisis, as it 
spread, led to a 40 percent appreciation in the value of the 
dollar from 1997 to 2001, in large part because the United 
States economy remained the only appreciable engine of economic 
growth in the world economy.
    Furthermore, Europe and Japan trailed us into the recession 
and still have not recovered. While I think a lot of attention 
gets focused on the Japanese economy, it is interesting that if 
you take Great Britain out of the European economy, Europe's 
growth was 0.3 percent last year; in other words, they have not 
recovered. So the traditional sort of balance you would see in 
the world economy, with other economies growing and adjustment 
in the value of the dollar and us finding some export-led 
growth that would encourage the manufacturing sector, is not 
happening at this point.
    Finally, as you noted the statistics, I will not repeat 
them in terms of what has happened more recently, but it does 
underscore the point about the need for action. I think it is 
fair to say to the Ranking Member that I disagree strenuously 
with the comments about the administration's policies. I would 
have to say that if you dissect what is going on in our economy 
and look deeply into it, what you are going to find is two-
thirds of our economy is consumer spending, and one-third of it 
is business investment. Consumers have really maintained the 
economy throughout a recession that started in the last 
administration.
    What we have done, both with the tax cuts in 2001 and with 
the President's most recent program, is try and tailor it so 
what it actually does is encourage business investment by 
dropping the cost of capital. If you talk with manufacturing 
firms in this country, one of the first things that comes up is 
that, with respect to the cost of capital and corporate income, 
we tax it at a 70 percent rate essentially as a result of the 
double taxation of corporate income. And while I know it is 
popular for many people to talk about this as a tax cut, the 
largest tax cut ever solely directed at business, what it is is 
tax reform, and it is tax reform designed to lower the cost of 
capital that means everything to American manufacturers.
    As a practical matter, the only way we are going to compete 
going forward is by making sure that we add to our 
productivity. That means heavy investment in capital to try and 
make us competitive. What that means is the most fundamental 
things we can consistently do for American manufacturers is 
keep interest rates low and try and reduce their cost of 
capital by making sure that the income is taxed only once. The 
upshot of it is I think the President has got a strong program 
that he has put forward that really does address many of the 
needs of manufacturers.
    I also take issue with the idea that it is solely 
structured around manufacturing and is solely structured around 
business. As a practical matter, what we have got in front of 
us is a strong savings program that is directed exclusively at 
straightening out many of the things that Congress has 
introduced over time in terms of our savings programs. What the 
President has opted for is something that is a very clear-cut 
savings plan which was a part of the President's budget and, if 
enacted, would mean an awful lot to small manufacturers and, 
frankly, to consumers all across the country.
    Now, we are not content really to rest solely on the 
President's program. What Secretary Evans announced during 
Manufacturing Week in Chicago was that the administration and 
the Commerce Department, in particular, would lead an effort to 
look at the challenges that are facing American manufacturing, 
and we have partnered with many of the organizations 
represented at the table in terms of trying to launch that 
investigation. Secretary Evans has asked me to lead that. Our 
intent is to hold a series of field hearings across the country 
so that we encourage as many industries in the manufacturing 
sector to come forward and talk to us about the challenges they 
are facing to see what part of that is something that 
government can tackle, and here I really want to come full 
circle to where I started out.
    When I look at the many manufacturers like Duropatch in 
Jackson, Mississippi, that succeed in the marketplace, what you 
always find is governments can create the environment, but 
ultimately we are going to have to rely on the innovation and 
the energy that our own small business sector provides. 
Ultimately, that is where the answer lies. Our job is to create 
that environment. We are committed to doing it, Mr. Chairman. 
Thank you.
    [Mr. Aldonas' statement may be found in the appendix.]
    Chairman Manzullo. We have the tyranny of the bells 
starting in. Mr. Aldonas, can you stick around until we get 
back for questions?
    Mr. Aldonas. Sure.
    Chairman Manzullo. Are you sure?
    Mr. Aldonas. Yes.
    Chairman Manzullo. Okay. And then, Congressman Ryan, as 
soon as we get back from voting, then we can get your testimony 
also. Okay. We are adjourned until about 3 o'clock, unless the 
votes end earlier.
    [Whereupon, at 2:31 p.m., a recess was taken.]
    Chairman Manzullo. The Committee will be called back to 
order, and sorry for the inconvenience.
    I have just one or two questions to ask of Under Secretary 
Aldonas, and that would be really an embellishment of where you 
started on your main testimony, and that is the President 
tasked the Secretary of Commerce to come up with a 
comprehensive plan for restarting or resurrecting 
manufacturing, whatever it is called, and that would be my 
question to you, Mr. Aldonas, to give us more of the meat of 
what that proposal is and how you plan to bring it to fruition.
    Mr. Aldonas. I could not describe the meat right now 
because we need to spend some time talking with our 
manufacturers. What we need to do is shorten that time as much 
as possible, which is why, even during the break, we were 
talking amongst ourselves about what I have drafted as an 
outline that outlines the process so that we have a deliverable 
by mid-summer which has both recommendations for action as well 
as points that we need to look further into with specific 
industries.
    The next step in that process, after we have gotten that 
done inside the Commerce Department, which I expect to conclude 
tomorrow morning, is to get it to our friends with labor and 
with business so that they get a chance to take a look at it 
and make sure they feel comfortable with it and then help us 
identify the places where we ought to be going as a part of the 
outreach. We have already launched a literature study. There is 
a real rich body of literature out there about a number of 
things that are affecting manufacturing. We are going through 
that material now inside the Commerce Department, so we have 
got that base in place before we head out on the field 
hearings.
    But my expectation is we will do really three things. We 
will gather and analyze the material that is available as a 
part of the literature search. We will certainly rely on things 
like the national academy, which you may know has launched a 
recent investigation of its own with respect to high-
performance manufacturing. So we will try and piggy-back as 
much on those resources as we can where they are tapping into 
certain industries and move our focus elsewhere so that we try 
and do as good a job as we can coordinating within the 
Executive Branch about how to approach the issue.
    I hope that we will be through the field hearings by the 
end of May and that we will be developing a series of 
recommendations, as I said, both for action as well as what we 
ought to be doing in terms of further study on individual 
industrial sectors. So our goal is really to have something in 
an interim report to the Secretary really at the start of July, 
and that is a point where I would hope what we can do is come 
up, maybe in an executive session, and sit down with everybody 
and start to talk that through here with the Small Business 
Committee because it is going to be important for us to be 
hearing from members as well, so that as we start thinking 
about developing an agenda--I understand this is a bipartisan 
issue, and it is something where both sides have to come 
together because that is the thing that is really going to 
drive any sort of agenda to the extent that we need legislative 
action and, frankly, to the extent that we need support from 
the Congress for what we could do on the administrative side of 
the house as well.
    Chairman Manzullo. Ms. Velazquez?
    Ms. Velazquez. Thank you. Mr. Aldonas, you said that the 
Bush administration has reduced the cost of capital. Do you 
know where the bulk of capital to small businesses, including 
small manufacturing, comes from?
    Mr. Aldonas. Most of it comes from lending, and what you 
want to do is try and do two things. One is not only reduce the 
interest rate that gets charged, but you also want to try and 
make sure that you deepen and broaden the pool of capital that 
is available so that investors with a broader risk profile, 
venture company, essentially, can come and assist. And why that 
is important is you do not want to leave small business 
manufacturers solely at the behest of lending institutions. If 
they can find someone who is willing to invest in them, provide 
the private equity so there is not an interest payment attached 
to it, you oftentimes have somebody who is more committed to 
the growth of the enterprise.
    Ms. Velazquez. Okay. I agree with you, it is lending, but 
do you know what type of lending, from where?
    Mr. Aldonas. Well, sure. It is local banks, oftentimes with 
guarantees from small business----
    Ms. Velazquez. No. I am going to help you.
    Mr. Aldonas [continuing]. And with the Small Business 
Administration.
    Ms. Velazquez. Yes. Most of the lending to small businesses 
comes from the loan business programs within the Small Business 
Administration. In fact, 40 percent of long-term capital to 
small businesses comes through the 7(a) loan program, 504, all 
of those loan business programs. So when you said that the 
administration reduced the cost of capital, I want for you to 
explain to me how can you say that when the administration 
capped last year all of the SBA business loan, taking billions 
of dollars out of the economy; and, two, the administration has 
not ended yet taxing small businesses by overcharging by $1.5 
billion in excessive fees that small businesses have to pay 
when they access one of these loan programs. And then, on top 
of that, the FY 2004 budget for the Small Business 
Administration is $3 billion below last year's request, and 
this is just the $3 billion just for the 7(a) loan program.
    So I need for you to help me understand how the 
administration reduced the cost of capital for small 
businesses, including small manufacturers.
    Mr. Aldonas. Let me give you an example because I think we 
are talking about two different things. The fact that you 
reduced the amount of funds, the amount, the quantity, of 
funds, flowing through the SBA does not necessarily mean that 
you are raising the cost of capital. For example, in the 
President's proposal, which has passed the House and which I 
hope will certainly become law, there are things that allow 
small businesses to expense the cost of capital rather than 
having to amortize it over the useful life of the equipment. 
What that does is reduce the cost of capital from the 
perspective of them going to the markets. They can see a lower 
tax burden on small businesses, and it gives them more of a 
reason to invest, and ultimately what we want to do is 
encourage equity investment to the maximum extent possible.
    Ms. Velazquez. Okay. Mr. Aldonas, in the manufacturing 
industry, many businesses are currently managing extraordinary 
amounts of debt. The President's tax plan, if it passes, will 
drastically increase the budget deficit, driving up long-term 
interest rates and only exacerbates these manufacturers' 
problems by increasing borrowing costs. So, once again, how do 
these actions reduce the cost of capital? Would you please help 
me understand that?
    Mr. Aldonas. Sure. If what you are doing is you are trying 
to turn to the private equity market, and you are trying to 
encourage people to invest, what you want to do is show that 
there will be a higher cash flow coming through the company, 
and what you do with the President's tax plan is ensure that 
there is a higher cash flow coming through the company so it is 
more attractive to an investor, and, overall, we are better 
off, frankly, if small manufacturers have a deeper pool of 
equity capital to turn to, and the reason fundamentally is that 
they are not stuck with an interest rate charge that is driven 
by a lot of forces, not just the budget.
    Ms. Velazquez. Okay. Let us move to my next question.
    Mr. Aldonas. Sure.
    Ms. Velazquez. At a time when the manufacturing industry is 
facing a crisis, the administration has decided to terminate 
programs such as the Manufacturing Extension Partnership 
program, a program especially tailored to assist small and 
medium manufacturing firms. Can you please tell this Committee 
why the administration is cutting this program from its budget 
at a time when it is most needed?
    Mr. Aldonas. Absolutely. It is a very, very good program. 
We are facing budgetary constraints, and the question is where 
are you going to invest your limited amounts of resources, and 
under these circumstances, the decision that was made is that 
there are other tools that we can try to use to lower the cost 
of capital and improve the prospects for investment, including 
in the small business sector, and so the goal has to be to look 
at as many tools as you possibly have. But this is one which 
nobody thinks there is a problem with the program. Having said 
that, it is one of those things where, given the constraints, 
we decided this was one that we were going to have to cut.
    Ms. Velazquez. So this is the way you are going to help the 
manufacturing industry that has been in a crisis for so long, 
by eliminating a program that is tailored just to assist them, 
but the dividend tax cut that only is going to benefit three 
percent of small businesses, that is in place. Thank you.
    Mr. Aldonas. Well, you have to be very clear. The figure 
you cite about helping only three percent of the businesses in 
the United States, I have real trouble with because being 
enough a student of the tax laws, these are generally 
applicable provisions, and, indeed, there are additions on top 
of the elimination of the double taxation of corporate income 
that are generated specifically for small business, 
particularly with respect to their capital investments.
    So if what you are thinking is what you are trying to do is 
create a small business environment where they have an 
opportunity to invest in those things that will make them 
productive and lower their overall cost of production, it means 
things like expensing of their capital costs, and that is why 
that is built into the President's plan.
    Ms. Velazquez. Expensing; that is the only thing that small 
businesses are going to get.
    Mr. Aldonas. No, no, no. That is not true. It is on top of 
everything else in the proposal. Everything else that is built 
into that proposal is designed to help businesses across the 
board.
    Chairman Manzullo. This is good, but let us stick to 
manufacturing.
    Mr. Aldonas. Okay.
    Chairman Manzullo. Mr. Chocola?
    Mr. Chocola. Mr. Aldonas, I am sorry I was not here for 
your testimony. If this was covered, I apologize, but I come to 
Congress from a manufacturing background. I have spent my 
entire adult life in the manufacturing business. We had about 
1,300 employees. We made agricultural equipment. Just as a 
statement, if we had had the opportunity to not have double 
taxation on the dividends of operating companies, both in the 
private and the public sector, it would have been a great 
opportunity to create more jobs. So certainly, some, real-life 
experience, would love to have that opportunity to grow our 
economy and grow job opportunities.
    A quick question: About 45 percent of our business was 
outside the United States. We were basic manufacturing, metal 
bending, injection molding. We did not do anything high tech, 
but we were able to take advantage of the opportunities of the 
global economy. A lot of times you hear about direct-labor 
costs, and we move jobs to Mexico or China because of direct-
labor costs. We probably never would have moved our business 
because of that. What we were more concerned with was the 
excess taxation, regulation, litigation that I, as CEO, had to 
spend an inordinate amount of my time rather than serving our 
customers and building our business. Are you aware of any 
studies or research that really shows why companies move their 
business or why jobs are lost in manufacturing, especially 
small businesses?
    Mr. Aldonas. Actually, if I could provide a written 
response to that because we are going through that process 
right now with developing the literature search so that we are 
informing ourselves, and what I ought to do is make the 
bibliography available to you because there is a wealth of 
information out there. We have touched base with the folks that 
do the World Economic Forum's competitiveness study to sort of 
tease through all of their research materials. That is a great 
starting point because they look at economies all across the 
world, not just the U.S. economy. But we will make sure we 
provide that to you.
    Mr. Chocola. Thank you very much.
    Mr. Aldonas. Surely.
    Mr. Chocola. Mr. Chairman, I yield back my time.
    Chairman Manzullo. Okay. Ms. Napolitano?
    Ms. Napolitano. Thank you, Mr. Chair. Mr. Aldonas, there is 
a question here that begs a little bit of an answer. Under the 
President's dividend tax cut, only those companies with a 
profit will see any change with regard to their treatment of 
their dividends. The companies without a profit will have their 
dividends taxed at the individual level. The reason is the plan 
is designed to prevent double taxation of the dividends; thus, 
the companies without a profit have not been taxed at the 
corporate level, so it is not double taxation if you continue 
to tax individuals. Additionally, companies that cannot pay 
dividends may see a shift of investment away from their 
businesses towards companies that can.
    The question is, most manufacturers either do not have a 
profit or cannot afford to issue dividends to their 
shareholders because of the economy. The President's dividend 
tax cut only impacts those dividends which are paid by 
companies who have a profit. These companies with a profit will 
still have their dividends taxed at the individual level. Is 
there a concern that the dividend tax cut will shift further 
investment dollars away from manufacturing to businesses that 
can take advantage of the President's tax proposal?
    Mr. Aldonas. It is a very good question, and it requires 
really a chance to unpack some of this. When an investor is 
looking at a company, looking at their cash flow, they look at 
the potential tax burden. They are trying to look at the cash 
flow and what profits may eventually come from that as they try 
to decide to invest, and to the extent that what you are doing 
with the tax laws is lowering the potential burden in the 
future should they generate income, it makes it a more 
attractive investment for somebody who is looking at it from 
the outside.
    So even to the extent that what you find with American 
manufacturers who may not be generating a profit now, things 
that reduce their potential tax burden in the future are 
attractive to an investor if you are trying to pull that 
investment in, so that is number one. I am sorry.
    Ms. Napolitano. Yes, but let me just step in and say that 
manufacturers need the help now. They are in dire straits. They 
have been for a number of years, and they cannot afford to 
wait. A lot of them are in really the throes of bankruptcy.
    I would like to yield time to the Ranking Member.
    Mr. Aldonas. If I could, though, I wanted to finish my 
response, Congresswoman. The other thing that is, I think, 
important to realize about the changes here is that we right 
now in the tax code have a significant discrimination in favor 
of debt, and what that leads American companies to do is draw 
on lending rather than go into the equity markets, and the 
effect of that is to impose a very high cost on our companies. 
We make it more attractive for them to bring on a debt burden. 
And one of the real benefits of the President's proposal is 
that it eliminates as much as possible of that preference for 
debt in the system, and, as a consequence, what it does is make 
more money available through private equity for investment, 
small and large businesses. And the importance of expanding 
that pool is, overall, it lowers the potential cost of doing 
business in the United States.
    Ms. Velazquez. Mr. Aldonas, I guess that you are arguing 
against what you were just saying because you say that profits 
in the future for small manufacturing, but my question to you 
is, if an investor is going to invest, he is going to look at 
whether or not a small manufacturer is going to have profits. 
If they do not, they will not invest in that manufacturer. They 
will invest in someplace else where they then can benefit from 
the dividend tax cut.
    Mr. Aldonas. But then I think, I mean, with all due 
respect, the question is what other tools do you have under 
those circumstances to lower the cost of capital, and the 
question really is whether you are going to do something that 
creates the environment where individual companies can succeed 
or whether you have decided that we are going to get into the 
business of wholesale subsidies. And, frankly, from the 
perspective of an administration that believes in the market, I 
think our goal is to try and create the environment where 
companies can succeed, not getting into the business of 
favoring certain companies over others.
    In fact, to be honest with you, the more you encourage the 
Executive Branch to divide the economic grants that are 
available in any marketplace, that is not a power you want to 
give to the Executive Branch because that leads to preferences 
for individual companies, which, frankly, from our perspective, 
is something that ought to be sorted out in the marketplace, 
not based on the decision of anybody in the government.
    Ms. Napolitano. Mr. Chairman, I yield back the balance of 
my time.
    Chairman Manzullo. Thank you. Mr. Ballance?
    Mr. Ballance. Thank you, Mr. Chairman. Just a brief 
followup, Mr. Aldonas. In response to Ms. Velazquez, you 
mentioned short capital. I take it that when the administration 
was putting together this budget, it realized the dire strait 
that manufacturing was in and chose to make these cuts in any 
event.
    Mr. Aldonas. Absolutely. What we are trying to do is create 
an environment where you are lowering the cost of capital and 
trying to encourage investment. Ultimately, we want to make 
sure that the United States is the most attractive place to 
invest possible so that that drives our economic growth, and 
lowering taxes is a part of that. Certainly, lifting what 
happens to be the highest-rated taxation on corporate income in 
the world, 70 percent, is a smart thing to do under those 
circumstances if we are trying to encourage a broader pool of 
private equity capital that funds a lot of what our companies 
have to do.
    I think the other point is that there is nothing about 
maintaining existing taxes on corporate America, particularly 
on small- and medium-sized businesses, that any economist will 
tell me, at least, is a good idea, given the straits that our 
manufacturers are in. I cannot find that. I honestly cannot 
find somebody who says to me that leaving in place a 70 percent 
tax burden on corporate income is wise if what we are trying to 
do is encourage investing in manufacturing. I cannot find them.
    Mr. Ballance. Just one more follow-up. That is philosophy, 
and I guess we could debate that, but in my district, in Vance 
County and Halifax County, we have a lot of businesses going 
out of business and a lot of people without jobs, and, of 
course, the tax cut is not going to help them, but having a job 
would.
    Mr. Aldonas. Well, if I could respond to that, though, I 
mean, these two things are two halves of the same walnut. If 
you want small businesses to be able to produce jobs, which is 
the greatest gift anybody can extend--certainly, I know, 
growing up, whether it was me starting out or whether it is my 
daughter, who is graduating right now--she is coming into a 
tough economy--I understand that, but for our small businesses 
to provide those jobs, the things we have to do is create the 
environment where they can succeed, and, frankly, taxing their 
income at twice the rate, frankly, is not the ideal way to give 
them the power to create the jobs for your constituents and my 
daughter.
    Chairman Manzullo. Thank you, Mr. Aldonas. You have to run 
back to the Department of Commerce. We want to thank you for--
do you want to stick around, or what would you like to do?
    Mr. Aldonas. Actually, I still have some lumber 
negotiations going on that I have got to go back to,----.
    Chairman Manzullo. All right. Okay.
    Mr. Aldonas.--but what I would like to do at some point, 
Mr. Chairman, if I could, is, as we go through this process 
with our colleagues, and I know I was talking with both Rich 
and certainly Jerry about how we need to get together to sort 
through our outline and identify areas we need to be looking 
at, I want to come back to the Committee----
    Chairman Manzullo. Absolutely.
    Mr. Aldonas [continuing]. So that what I am doing is 
figuring out if Mr. Ballance has a constituency we need to be 
visiting to understand the dynamic of the problems they are 
facing, I want to be there.
    Chairman Manzullo. The door is open. Ms. Napolitano, a 
short question.
    Ms. Napolitano. A very quick question, Mr. Aldonas, and 
that has to do with the administration's effort to assist small 
businesses to establish a business presence in a host country. 
Can you tell me what is happening? And understand, I have been 
in international trade for a while.
    Mr. Aldonas. A long time, yes.
    Ms. Napolitano. You remember that. I find that the large 
companies have the ability to do their own. Small companies 
need the assistance. When I took a group of my business people 
over to the Department of Commerce and the California trade and 
commerce agencies, they have very limited personnel to be able 
to do the outreach. What are we doing to be able to assist 
penetration? It begs the question.
    Mr. Aldonas. No, no, and you could help me there, 
Congresswoman, because traditionally I think people have looked 
to the Commerce Department to promote our exports, and, of 
course, what you are finding is exactly what everybody else is 
finding: Oftentimes, to be able to export, you may have to 
create a representative office overseas. Well, that is 
investment, and I think there has been an argument for a very 
long time that the Commerce Department should not be in the 
business of encouraging foreign investment with the idea that 
jobs would go with that investment. And, of course, what I 
think we need to do is make sure that the Commerce Department 
is in a position so our foreign commercial service officers 
really are empowered to help that constituent.
    The other thing I think we have to do is look at the 
overseas private investment corporations, which I do not know 
that they are here or part of the discussions, but 
traditionally they have facilities that are not used by small 
businesses, and I think they are only now becoming alive to the 
fact that small businesses, to be able to export, are going to 
have to invest for precisely the reasons you cite.
    Ms. Napolitano. And a follow-up to that is that in speaking 
to the AMCHAMs in several of the foreign countries that I have 
been privileged to visit, I have consistently asked the 
question of the AMCHAMs if they have an arm of the chamber to 
assist American business penetration in those countries. Only 
two, Brazil and Hong Kong, have that ability. Is there any way 
that the administration will work with these AMCHAMs to be able 
to help them do that outreach? Hong Kong already does workshops 
in the U.S. Why are we not dovetailing efforts with them to be 
able to promote those companies that need help or that want to 
be able to assist penetration?
    Mr. Aldonas. It is a good point. I would like to hear more 
about it because I think we have got a wonderful network, as 
you know, in terms of both the Commerce offices in the United 
States as well as our offices abroad, and it is underutilized. 
It really could be a powerful tool to help in those instances.
    Ms. Napolitano. Not many people know where to go, what Web 
site to hit, where the information is concise enough for them 
to understand while they are tending to business, trying to 
stay alive and make a dollar.
    Mr. Aldonas. You are absolutely right.
    Chairman Manzullo. Okay. The Commerce Department, pursuant 
to a conversation we had with their working group on small- to 
medium-sized exports, has come up with a personal export 
officer program. Professor Czinkota had a hand in that also, 
and Gerry Jensen Moran is the head of the TPCC.
    Mr. Aldonas. Which she is unbelievably good, I have to say. 
She really is the best.
    Chairman Manzullo. She would be the person to answer the 
question. Congress is now cross-training 10 agencies from the 
same manual so the small business person could get in there and 
get the job done.
    Mr. Aldonas, thank you for being with us today.
    Mr. Aldonas. Thank you very much. I appreciate it.
    Chairman Manzullo. Our next witness is Congressman Tim 
Ryan, who probably has the reputation of being the shortest 
member in terms of longevity on the Small Business Committee. 
He was here and asked a burning question on an issue to which 
he is going to testify, and then he got appointed to the Armed 
Services Committee, and then he left us.
    Mr. Ryan. I miss you already, Mr. Chairman.
    Chairman Manzullo. There we are. We look forward to your 
testimony, Congressman Ryan.

       STATEMENT OF THE HONORABLE TIMOTHY J. RYAN, U.S. 
                      REPRESENTATIVE, OHIO

    Mr. Ryan. Mr. Chairman, that would make four committees for 
me, and as much as I do love you. Thank you very much for being 
here, and I appreciate all of the work that you have done, Mr. 
Chairman, on the Berry Amendment, which is the topic today. 
Madam Ranking Member as well, I want to thank you for allowing 
me to testify today.
    U.S. manufacturers and their skilled employees are at grave 
risk as American companies continue to lose market share. The 
problem is serious, and I commend the Committee for looking at 
this issue and working to help our nation's manufacturing 
industry. For the first two months of 2003, employers initiated 
3,597 mass-layoff actions, according to the U.S. Department of 
Labor, Bureau of Labor Statistics. In total, 340,000 workers 
were affected. Manufacturing industries accounted for 35 
percent of all mass-layoff events and 40 percent of all initial 
claims filed in January and February.
    These statistics show me one thing, Mr. Chairman: The 
United States is continuing to lose its domestic manufacturing 
base. Our colleague and friend, Ranking Member Ike Skelton, has 
often said that the U.S. armed services serve, in peacetime as 
well as war, as insurance for our great nation. Well, Mr. 
Chairman, I believe that the U.S. manufacturers are the 
insurance for our armed services. We cannot be relying on 
foreign supplies for the products that are vital to our 
national security. Today, there is only one U.S. company that 
makes track for the United States Army tank systems. Likewise, 
there are only three U.S. manufacturers of titanium, a 
specialty metal that is an essential component in military 
aircraft and engines. These domestic manufacturing operations 
and the skilled workforce that produced the products for our 
armed services are critical.
    Recently, I was informed by the Employment and Training 
Administration of the Department of Labor that workers in my 
district lost their jobs because of foreign imports. RMI 
Titanium, which is located in Niles, Ohio, was forced to lay 
off workers because Boeing Commercial Air Group decided that it 
was a better idea to import its titanium from Russia. RMI's 
employment declined, and American men and women lost their jobs 
because Boeing is increasing its titanium imports and not 
purchasing it domestically. Therefore, the unemployed workers 
qualified as adversely affected, secondary workers under 
Section 222 of the Trade Act of 1974.
    Mr. Chairman, how many other workers, how many small 
businesses will this have to happen to until we watch our 
industrial base continue to decline? Today, government and 
business need to come together to secure our nation's 
industrial base, and the foundation for doing so is already in 
place. Mr. Chairman, as you know, it is the Berry Amendment, 
and that is why I am here today, because the Berry Amendment 
protects U.S. textile companies, food producers, and 
manufacturers by requiring the U.S. military to purchase 
products that are 100 percent made in the United States.
    The Berry Amendment and the Buy American Act are critical 
to homeland and national security. They were enacted to ensure 
that the United States preserves its domestic capability to 
produce the full range of products that are essential to our 
armed forces and, in turn, our national security.
    Mr. Chairman, let me just wrap up, and I would be happy to 
take any questions, but the bottom line here is that we have a 
responsibility, as members of Congress, not to any one 
corporation, not to the business community. We have a general 
sense to provide a good atmosphere for the business community 
to thrive and to prosper, but when it comes to the national 
security of this country, we have an obligation to make sure 
that in a time of war, like we are in right now, we can procure 
everything that we need right here in this country, and, 
unfortunately, the waivers to the Berry Amendment over the past 
two years have weakened our ability to do that.
    I know, for example, in my district, as I mentioned, we are 
losing the titanium industry. There are three titanium 
manufacturers left in this country, and there is a massive 
supplier in Russia, which American companies are buying from. 
And as we understand the pressures and the economic downturn, 
we have to remember that our first obligation is to protect our 
own country and be able to do that from the products that we 
can buy from this country.
    And so I urge this Committee and you as well, Mr. Chairman, 
to keep the pursuit of the Berry Amendment and keep being such 
a vigorous advocate of closing the loopholes in the Berry 
Amendment and really just enforcing it the way it is right now. 
So with that, Mr. Chairman, I would be happy to continue this 
discussion or take any questions.
    Chairman Manzullo. Well, we have got a vote on the floor 
now.
    Mr. Ryan. This is more important, Mr. Chairman.
    Chairman Manzullo. It probably is. There is a food fight 
going on down there. How many votes are there? Does anybody 
know? Three votes? Wonderful. It is going to be at least a half 
an hour. We will be back in about a half an hour. That is all I 
can tell you at this point. Thank you.
    [Whereupon, at 3:32 p.m., a recess was taken.]
    Chairman Manzullo. The Small Business Committee will come 
to order. Those are not more votes. We are supposed to have 
three more votes at 5 o'clock, and I am sorry for the tyranny 
of the bells.
    I have been advised that Mr. Harbour has to catch a five-
thirty plane, so I am going to start with you. Is that correct?
    Mr. Harbour. Yes, sir.
    Chairman Manzullo. And we have the five-minute clock here, 
and we look forward to your testimony, please.
    Mr. Harbour. Okay. I apologize for any inconvenience.
    Chairman Manzullo. No inconvenience. Go ahead, please.

 STATEMENT OF RON HARBOUR, PRESIDENT, HARBOUR AND ASSOCIATES, 
                      INC., TROY, MICHIGAN

    Mr. Harbour. Thank you, Mr. Chairman, for the invitation to 
speak with you at this hearing. Today's subject matter is near 
and dear to my heart, as it relates directly to the environment 
in which I work and live in every day.
    I am an owner of a consulting firm called Harbour and 
Associates in Detroit. We work with many manufacturing 
companies in helping improve their costs, quality, and 
productivity, with particular emphasis on the manufacturing 
side. Being in Detroit, most of our work is with the automotive 
companies, both domestic and foreign owned, as well as many of 
their suppliers. Nonetheless, we have worked with many non-
automotive companies as well.
    In addition, our firm publishes an annual study called the 
Harbour Report, which I have here in my hand. It is a document 
that analyzes and ranks the performance of all of the North 
American automakers, including discussions on what drives their 
results. In support of our work, we have had the privilege to 
walk the floors of almost every automotive plant in North 
America, Japan, and Europe and many of their suppliers. I 
believe this experience gives me a unique insight into what has 
evolved in the recent history of U.S. manufacturing, certainly 
in one of its largest segments, the automotive industry. 
However, the lessons learned are analogous across many 
industries.
    Like many industries, the automotive industry was 
broadsided by an unanticipated foreign competition 20 years ago 
and has never fully recovered. Initial responses were 
protectionist, with import quotas and tariffs in response to 
cries of dumping and unfair competition. Our early research in 
1980 and 1981 for the Department of Commerce told a very 
different story from what everyone assumed was the problem. Our 
tours of Japanese plants revealed operations that attained much 
higher levels of quality and productivity than U.S.-based 
operations through very strong design, engineering, and 
training. Although differences did exist at that time in labor 
rates and currency exchange, the companies were simply better 
manufacturers.
    Protectionism only bred complacency in the 1980s, but once 
the foreign competitors began manufacturing directly in North 
America, Detroit was forced to compete. Competition has saved 
what is left of the domestic auto industry, as many domestic 
plants and their suppliers have reached world-class levels of 
performance. The American consumer is the one that has won 
because cars and trucks are far better quality and dramatically 
less cost, adjusted for inflation, than they were ever in 
history.
    A manufacturing base is vital to a strong and modern 
economy. This is well known in Japan, Germany, Korea, as well 
as emerging economies such as China. I wonder how we would be 
supplying our troops in Iraq with planes, ships, guns, and 
missiles if we could not produce them in the U.S. What would we 
do, import them?
    Those who claim a modern economy can be primarily service 
based and blind to the fact that those same service-based 
companies need a consumer for their services. Manufacturing-
based companies provide a large customer base for those 
companies. In other words, a balance between service and 
manufacturing is key to a vital economy.
    Recent studies have demonstrated the far-reaching effects 
well-compensated manufacturing jobs have on nearby businesses, 
both other manufacturers and service providers. These include 
the corner grocery store, the local Wal-Mart, banks, barber 
shops, electronics, recreational vehicles, furniture. Little 
wonder states throw hundreds of millions of dollars at foreign 
auto companies looking for a home for their new plant. 
Unfortunately, most domestic companies have not been able to 
secure the same kind of financial support.
    I am greatly concerned about the decline of our 
manufacturing base in this country, and I believe it will have 
long-term ramifications to our economy. Many factors have 
driven the shrinking of employment levels in manufacturing, 
some purely from healthy gains in productivity. Other jobs have 
left due to our lack of competitiveness. But many are gone due 
to the lack of any kind of business/government alliance to 
cultivate the growth of manufacturing in the U.S.
    I hope that our discussion this afternoon can 
constructively lead to solutions to this American dilemma, and 
I promise to do all I can to contribute. Thank you, Mr. 
Chairman.
    [Mr. Harbour's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much. I trust that you 
will have an extra copy of the Harbour Report for our 
convenience.
    Mr. Harbour. Yes. I can leave it.
    Chairman Manzullo. Thank you. Our next witness is Jerry 
Jasinowski, president of the National Association of 
Manufacturers.

 STATEMENT OF JERRY JASINOWSKI, CHAIRMAN, NATIONAL ASSOCIATION 
                        OF MANUFACTURERS

    Mr. Jasinowski. Thank you very much, Mr. Chairman, and let 
me congratulate you for your leadership on manufacturing on 
this Committee and generally. I wish to make five points and 
ask that my statement be included in the record.
    Chairman Manzullo. All of the statements will be included 
in their entirety without objection.
    Mr. Jasinowski. I represent the National Association of 
Manufacturers, with roughly 14,000 companies, almost 17 million 
workers, and they are both large and small, and although there 
are some differences between the two, for the most part what I 
am going to say reflects both large and small manufacturers.
    The five points I would make are these. We have had you 
say, myself say, and Rich Trumka say that manufacturing is in 
crisis. Many others have said the same. Grant Aldonas did not 
differ from that view. Most of the Democratic and Republican 
members of your Committee agree. I think we now are over the 
hump with respect to recognizing the serious crisis we are in, 
and we need to, therefore, move for bipartisan, executive, 
congressional, labor, and management cooperation to build a 
big, strong coalition to ensure that we have the policies to 
achieve over a number of years, not a quick fix, the renewal of 
manufacturing and its employment.
    Item Number 2: Why is there this agreement about a crisis? 
It is because there is a disconnect between the huge benefits 
of manufacturing, on the one hand, and the reality of where we 
are now. The benefits range from the fact that we are the 
engine of growth, we have the technology, the highest rates of 
productivity, we provide for the national defense and security, 
as you see in Iraq, we have the best jobs, we are the heart of 
trade, and all of these things are the things that drive the 
economy and the service sector.
    So if we are such a jewel, how is it that we could have the 
following set of negative situations? We have the slowest 
economic recovery in modern history. We have a two percent 
increase in output in the first year for manufacturing, 
compared to a usual 10 percent increase in output that we get 
in most recoveries, and currently, in March, manufacturing is 
dead in the water.
    We have lost over two million jobs. These are among the 
best jobs in the world, paying 20 percent more than the other 
jobs in this country, and that is the state of play today, and 
it is this gap, I suggest, between the extraordinary factors 
that show that manufacturing matters, on the one hand, and the 
fact that we are dead in the water currently with respect to 
output growth and employment.
    What do we do in these situations? The NAM passed a 
resolution, which is a part of my testimony and I would like 
included in the record. It is a very large board of large and 
small members of manufacturing firms, and they said that we 
needed to do a whole range of things on both the policy and on 
the infrastructure front.
    Let me talk about the three key policy areas. One, we have 
got to have growth. The economy is dead in the water. If you do 
not get growth, you do not improve manufacturing, demand, you 
do not provide employment, and you do not provide anything. 
There was a lot of debate about the President's tax package. I 
would point out that if people do not like the composition, 
then let us get some compromise and change. We support the 
composition as it is, but I understand there are different 
points of view.
    The fact is it is critical to get a package to stimulate 
growth now, not later, now. And the other thing I would say is 
although you can debate the dividend part of this as you wish, 
I would point out that the individual rate cuts are extremely 
important for small manufacturing and small enterprise because 
they are in many cases Schedule C. But my main point is let us 
get agreement that we should have a stimulus to occur there.
    The second area of crucial policy concern is trade and 
China. We have an uncompetitive playing field in many trade 
areas today, while the United States has been the most open 
trading country in the world. We should not move to 
protectionism. What we should do is, in fact, force that 
everybody play by the rules and, in particular, that China play 
by the rules. The Chinese government and the Chinese economy 
has exchange rates that are 40 percent undervalued. They have 
subsidies, unfair trade, and counterfeiting. They have a 
situation where they do not have protection of intellectual 
property rights, nor do they have proper allowance for exports. 
We have the largest trade deficit now of anyone with respect to 
the Chinese, and that must stop. If it does not stop, we will 
have protectionism.
    Chairman Manzullo. How are you doing on time? I want to 
make sure everybody gets in before the bells go off at five.
    Mr. Jasinowski. The only last point is that we have got a 
cost escalation in this country which is shifting manufacturing 
abroad, and that is the third policy we must address, Mr. 
Chairman. Thank you.
    [Mr. Jasinowski's statement may be found in the appendix.]
    Chairman Manzullo. Thank you. Mr. Trumka.

   STATEMENT OF RICHARD TRUMKA, SECRETARY/TREASURER, AFL-CIO

    Mr. Trumka. Thank you, Mr. Chairman and Representative 
Velazquez. I am pleased to have the opportunity to appear 
before the Committee on behalf of the unions of the Industrial 
Union Council and the 13 million working men and women of the 
AFL-CIO.
    The industrial unions of the AFL-CIO have banded together 
to respond to the deep crisis in manufacturing. We are 
dedicated to finding solutions to the serious challenges that 
face U.S. manufacturing and threaten the livelihood of millions 
of American working families. It is important to note that 
about two-thirds of all workers and manufacturers represented 
by unions are employed by small- to mid-sized businesses. That 
is 200 workers or less.
    For 32 straight months, manufacturing has lost jobs. That 
is the longest stretch, Mr. Chairman, since the Great 
Depression. Since April of '98, we have lost 2.5 million 
manufacturing jobs, nearly 13 percent of our total.
    Among the disturbing trends that many economists have 
noticed, capacity utilization in U.S. manufacturing, a measure 
of production activity, dropped to 74 percent late last year, 
its lowest level since 1983, and our trade deficit in goods is 
now growing by $1.3 billion each day. Nearly every state in the 
nation has suffered manufacturing job losses, as the chart 
enclosed in my testimony shows.
    Unless these trends are reversed, serious damage will be 
done to the livelihoods of American working families and to the 
nation's economy. Manufacturing historically has been a major 
generator of good, high-skilled, well-paid jobs, including in 
non-manufacturing sectors, and remains a mainstay of local and 
state economies throughout the nation. Manufacturing's decline 
not only undermines the quality of manufacturing jobs but also 
contributes to the stagnation of all workers' wages. Moreover, 
the massive scale of manufacturing plant closings and job 
layoffs is contributing directly to the serious financial 
crisis afflicting every state in the nation.
    America's manufacturing workers are the most productive in 
the world, but they operate under enormous competitive 
disadvantages resulting from several factors, such as unfair 
trade and tax policies, an overvalued dollar, inadequate 
investment incentives, health care costs not borne by overseas 
producers, and foreign government subsidies. Unless these 
problems are addressed soon, American manufacturing capacity 
and jobs may end up permanently lagging, and our economic 
strength may be permanently weakened. U.S. productivity and 
wage gains have been largely driven by the performance of the 
manufacturing sector. It is unlikely that another sector can 
step in to offer comparable wages, benefits, or productivity 
gains on as large a scale.
    Mr. Chairman, I will say that we will not have a stable, 
broad-based economic recovery without a strong manufacturing 
base.
    There are a few issues I would just like to mention today 
very briefly. They are enclosed and handled more adequately in 
my written testimony. When it comes to investing in 
manufacturing, we recommend restoring funding for the MEP. We 
encourage Congress to replace the FSC with a broad-based, 
manufacturing tax credit that rewards companies for keeping 
good jobs here and creating new ones.
    Trade; put simply, America's trade policy has failed. That 
is not a partisan criticism, as unfettered trade liberalization 
has been an imperative for all administrations recently. 
Congress can do two things: First, oppose new trade agreements, 
such as the Free Trade Agreement of the Americas, based on the 
failed NAFTA model, which has produced an $87 billion trade 
deficit, and FTA will be NAFTA times 10. Also, Congress should 
aggressively challenge non-tariff barriers to trade and ensure 
that our trade laws our enforced.
    Mr. Chairman, we ask Congress to take these steps 
immediately. First, Congress should pass the manufacturing tax 
credit to replace FSC. Second, Congress should pass a 
prescription drug benefit to help deal with the most expensive 
aspect of retiree health care and work on broader health care 
solutions. Third, Congress should not pass any more trade 
agreements like FTAA that would expand our trade deficit, based 
on the failed NAFTA model.
    Fourth, Congress should initiate trade cases to enforce 
U.S. trade laws and take aim at non-tariff barriers to trade in 
China, Japan, the EU, and elsewhere. Fifth, Congress should 
stop companies from reincorporating overseas to avoid paying 
their fair share of taxes. Sixth, Congress should strengthen 
the Buy American provisions for the Department of Defense. Our 
defense budget is extraordinarily large, but defense 
manufacturing jobs are disappearing. There has not been a 
national strategic inventory by the DoD since 1996. And, 
finally, Mr. Chairman, Congress should recognize this for what 
it really is: a crisis that imperils our economy. Thank you, 
Mr. Chairman.
    [Mr. Trumka's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much. The next witness is 
Paul Freedenberg, vice president of the Association for 
Manufacturing Technology. Mr. Freedenberg?

   STATEMENT OF PAUL FREEDENBERG, PH.D., VICE PRESIDENT FOR 
    GOVERNMENT RELATIONS, THE ASSOCIATION FOR MANUFACTURING 
                           TECHNOLOGY

    Mr. Freedenberg. Good afternoon. My name is Paul 
Freedenberg. I am vice president for government relations at 
AMT.
    A.M.T. is a hundred-year-old, trade association that 
represents approximately 360 machine tool builders and related 
product firms located throughout the United States. I am 
pleased to testify before you today on the importance of 
America's manufacturing sector to our economic strength and 
stability. I will also discuss the uphill battle my industry, 
America's machine tool industry, faces to survive in these 
tough times.
    Mr. Chairman, I would like to begin by thanking you for 
your strong leadership, along with Congressman Neal of 
Massachusetts, of the House Machine Tool Caucus, which has 
provided invaluable support and encouragement to our industry. 
Mr. Chairman, I would also like to thank you and members of 
your Committee who supported the economic-stimulus package 
enacted into law last year. The 30 percent expensing provision 
included in the package was AMT's top legislative priority for 
the 107th Congress. Improving and extending it, making it 
permanent, is AMT's top legislative priority for the 108th 
Congress.
    Manufacturing has contributed to the overall economic 
growth, disproportionately to its actual share of the GDP. Over 
the past 30 years, manufacturing's share of GDP has been 
falling, while at the same time finance, insurance, and real 
estate, and services' share of GDP have been rising. 
Manufacturing's share has fallen by almost 50 percent during 
that period. Nevertheless, during the last major economic 
growth period, which was 1992 to '98, manufacturing accounted 
for more than half the rate of growth of the GDP, far more than 
any other sector.
    The machine tool industry is a very small segment of our 
nation's manufacturing infrastructure relative to its critical 
importance. Significantly, machine tools should be understood 
as the basic building blocks for all other industries, whether 
those industries are automotive, defense, aerospace, 
electronics, or appliances. Everything made in a factory is 
either made on a machine tool or on a machine made by a machine 
tool. Approximately 30 percent of the machine tool industry's 
output is exported, and both at home and abroad our industry 
competes with machine tool companies from around the 
industrialized world.
    In my written testimony, I discuss our nation's remarkable 
productivity boom during the last decade. Well, that boom would 
not have been possible without a strong machine tool industry. 
That means that the key to reversing the economic downturn that 
we are currently experiencing and returning our nation to 
economic prosperity is also dependent on the maintenance of a 
strong and healthy machine tool industry, which is the key 
component of this nation's manufacturing infrastructure.
    Machine tools translate the dizzying advances in 
information technology into the design of new manufactured 
products and the factory floor automation that more efficiently 
produces those products. It ought to be, therefore, cause for 
grave concern that this critical industry is experiencing the 
worst conditions in its domestic market in a half a century. 
Orders are off by more than 55 percent since their peak in 
1997. Import penetration has increased more than 40 percent in 
the past four years, due, in large part, to an overvalued U.S. 
dollar combined with our trade competitors' anti-competitive 
subsidies and currency distortions.
    To add to our industry's problems, we have seen increased 
outsourcing by our largest U.S. customers. We have also seen 
lost sales as a result of unfair offset conditions that force 
companies to manufacture large portions of products, such as 
aircraft, in the purchasing country.
    Leading analysts for the machine tool industry are 
projecting a 7 to 18 percent rebound in orders this year, but 
even if this projection is accurate, 2003 orders, in real 
terms, will still be weaker than they have been for 50 years.
    Let me focus on one leading problem that all U.S. industry 
confronts. There is great concern across a wide variety of 
industries regarding the Chinese government's strategy of 
undervaluing their currency in order to garner exports and 
foreign investment. Last year, our bilateral trade deficit with 
China exceeded $103 billion. Indeed, China is accumulating 
foreign reserves at a rate of more than $6 billion per month. 
This is an uneven trade arrangement, and it is directly related 
to the distortion of the value of the two nations' currencies.
    I will move ahead. What we call for is discussions with the 
Chinese to get them to remove the peg, which is now at an 
artificial rate of 8.2 to 1.
    In spite of the hard times that we are facing, the United 
States is still the undisputed leader in developing new 
manufacturing technologies. Our products remain globally 
competitive in an increasingly hostile marketplace. However, as 
the struggle for survival continues, it is getting more and 
more difficult to maintain our lead. I call for a number of 
legislative improvements, such as enhancing and extending the 
30 percent expensing allowance, as part of the President's 
economic-growth and jobs package. We also need a sound export 
policy with a replacement for the FSC, as has been mentioned by 
a number of the other----.
    Chairman Manzullo. How are you doing on time, Paul?
    Mr. Freedenberg. I will be done in one more paragraph.
    We also need export-control reform, which I know you are 
very familiar with, and I have seen Chinese factories stocked 
with European and Japanese machine tools doing what American 
machine tools could do if export controls were not so archaic 
and counterproductive. We also need fixing of the visa process. 
With these sensible reforms, we think our industry can continue 
to be a critical building block of America's continued 
prosperity and security, and with that, I will stop.
    [Mr. Freedenberg's statement may be found in the appendix.]
    Chairman Manzullo. Thank you. Professor Czinkota? Okay. Go 
ahead.

     STATEMENT OF MICHAEL R. CZINKOTA, PH.D., PROFESSOR OF 
INTERNATIONAL BUSINESS, GEORGETOWN UNIVERSITY, McDONOUGH SCHOOL 
                          OF BUSINESS

    Mr. Czinkota. Thank you, Mr. Chairman, Representative 
Velazquez. Let me introduce my research assistant, Ms. Allison 
Haggar, who will show the different exhibits I am referring to.
    Since 1975, the U.S. has been importing more than 
exporting, which led to a current account deficit. This exhibit 
shows you that there were always ups and downs, but since the 
early 1990s the growth of the deficit has been rapid and major.
    Exhibit 2 shows the current account components. Merchandise 
trade is the largest component and contributes the most to the 
deficit.
    Exhibit 3 shows that U.S. merchandise exports have been 
rising. However, since the mid-nineties these increases have 
been far below the growth in imports, and the gap has been 
widening rapidly.
    Exhibit 4 breaks our merchandise trade down into its key 
components, which are manufactured goods, mineral fuels, and 
agricultural goods, and you can see that 81 percent of our 
merchandise exports are manufactured goods, and 84 percent of 
our imports are manufactured goods.
    Exhibit 5 shows that since 1992 the growth of imports and 
manufactured goods has been much steeper than the growth in 
exports, leading to a widening manufactures trade deficit.
    In Exhibit 6, you can see the top surplus and deficit 
countries in U.S. manufactures trade. We have some surpluses 
with the Netherlands, Australia, and Belgium, but they are 
dwarfed by the deficits with Mexico, Germany, Japan, and China. 
The 2002 bilateral trade deficit with China alone was $103 
billion.
    On a commodity basis, Exhibit 7 shows that in 2002 there 
were large U.S. surpluses in airplanes and parts manufactures, 
wooden manufactures, and chemicals, but they were far 
outweighed by deficits in furniture, toys, television, apparel. 
The largest deficit was in motor vehicles, with an imbalance of 
$111 billion.
    Let me now provide a domestic and global historical 
context. In the mid-1800s, about 68 percent of U.S. employment 
was in the agricultural sector. Manufacturing accounted for 17 
percent. By 2001, agriculture had declined to 1.5 percent of 
employment, and manufacturing, after some strong growth, had 
declined to 14.8 percent, below the levels of when it was first 
measured in the 1800s.
    Exhibit 8 compares manufacturing employment in the United 
States, Germany, and Japan. German manufacturing declined by 
more than 13 percentage points during the past 30 years. In 
Japan, the decline was 6.5 percentage points. This sharply 
contrasts with U.S. employment changes. U.S. and Japanese 
manufacturing employment were almost equal in 1970 as a 
proportion of the economy. Since then, U.S. proportionate 
employment has been cut almost in half and is now more than 
five percentage points below Japan and almost 10 percentage 
points below Germany.
    Manufacturing has been transferred to emerging economies. 
Exhibit 9 shows the proportion of manufacturing has typically 
doubled in countries like Malaysia, South Korea, Thailand, and 
Indonesia. That is it for the charts. Thank you.
    Now, briefly, some key causes. The shifts have been greatly 
enhanced when manufacturers underexport. We only export 11 
percent of GDP, compared to 34 percent of the European Union 
and 26 percent for China. Many U.S. firms have subsidiaries 
abroad to benefit from low labor costs or to comply with offset 
requirements.
    In 2000, such import shipments from foreign affiliates were 
about 14 percent of our imports. Long-term supplier 
relationships lead to additional captive imports, and, of 
course, the subsidiaries of foreign firms in the U.S. account 
for another 20 percent of imports. What that all means is more 
than half of U.S. imports are done by U.S. corporations who 
prefer to source abroad rather than produce at home.
    What are some of the practical implications? Long-term 
adjustment does little for the unemployed, who are overwhelmed 
at this time. We need U.S. manufacturers to export more and 
compete better with imports.
    During trade negotiations, we always hear that other 
countries worry about any U.S. desire for more market share. 
However, I believe we have the right to argue for a special 
case. The United States continues to offer its consumptive 
power as an economic locomotive to the world. Our manufacturers 
have suffered the most drastic declines among all of the 
industrialized nations. When it comes to concessions, we 
already gave at the office.
    When a manufacturing concern disappears, effects go beyond 
jobs. Replacement parts are more difficult to get or more 
expensive. For industries especially critical to the national 
welfare, this can be devastating in an emergency. How many of 
us would like to rely today on old friends abroad for the rapid 
resupply of crucial manufactures? Manufacturing migration also 
affects innovation and market responsiveness. When companies 
stay close to their market, they gain experience and boost 
performance. When production is removed from its primary 
market, such rapid response to market demands may be dulled, 
which leads to a decline in manufacturing competitiveness.
    Chairman Manzullo. How are you doing on time?
    Mr. Czinkota. I will take less than a minute.
    Important is also the consideration of what it does to 
clusters. Few companies can get together and form successful 
clusters, but it also works in reverse. If a few companies 
leave the cluster, then the entire industry can fall behind.
    What can be done about all of this? Protectionism may sound 
like the easy answer, but it is not because it substitutes 
government judgment for market direction. Better to encourage 
existing market activities--trade promotion, for example, with 
a personal export officer--to make companies more successful.
    There also needs to be more fusion of products, services, 
and financing with global networks. Just consider one example 
from the automotive industry. Air bags, the global positioning 
system, and the telephone in a car are no longer anything 
special, yet by bringing all of these components together, car 
manufacturers have developed an entire new level of passenger 
assistance which can independently notify emergency services. 
Such fusion of available products and networks is crucial to 
our competitiveness.
    Finally, for too long there has been no linkage between 
governmental market-opening efforts and the benefits obtained 
by industry. Trade negotiations result in winners and losers, 
but there is no incentive for the winners to share their 
bounty. We need a program where private sector winners help pay 
for the cost of adjustment, a program that is an essential 
engine for further trade policy liberalization. After all, even 
free trade carries a price. Thank you, Mr. Chairman.
    [Mr. Czinkota's statement may be found in the appendix.]
    Chairman Manzullo. Thank you, Professor. I saved the last 
witnesses who are actually involved in manufacturing for the 
last because I wanted them to hear everything that came before 
because I know they want to do a lot of comment on that.
    David Sandy is vice president of MS Willett, Inc., in 
Cockeysville, Maryland. Is that Mr. Bartlett's district?
    Mr. Sandy. That is correct.
    Chairman Manzullo. Okay. I look forward to your testimony. 
You might want to pull the mike up a little bit closer.

  STATEMENT OF DAVID SANDY, VICE PRESIDENT, MS WILLETT, INC., 
                     COCKEYSVILLE, MARYLAND

    Mr. Sandy. A little closer. Thank you. Good afternoon, Mr. 
Chairman, Ranking Member, and members of the Committee. Thank 
you for the opportunity to testify on behalf of my coworkers 
and the 2,000 member companies of the National Tool and 
Machining Association regarding the state of the U.S. 
manufacturing and tooling and machining industry.
    First, I would like to thank you, Mr. Manzullo and Ms. 
Velazquez, for your enduring support of our industry. You have 
been strong proponents for NTMA, and you should be commended 
for it.
    I work for MS Willett. We are a metal-working company that 
offers a unique blend of development, engineering, tooling and 
automation, and production services. Willett is family owned 
and is a tool-and-die, metal-stamping production company. We 
have two main focuses of business: production metal stampings 
and automated metal-stamping systems. The company designs and 
builds quality tools, dies, metal stampings, and assemblies. We 
are located in Cockeysville, Maryland, where we employ 120, and 
we do business all over the world.
    Let me tell you a little bit about the National Tooling and 
Machining Association and the member companies. This will serve 
as a review for you, Mr. Chairman, but for the rest of us, 
nearly every manufacturing company in the country and in the 
world does business with our industry. The U.S. tooling and 
machining industry employs close to 450,000 people nationwide 
and has accounted for shipments in excess of $43 billion 
annually. The metal-working industry includes precision 
machinists, die makers, and mold makers, as well as tool-and-
die designers. Without them, the mass production of 
manufactured goods would not be possible.
    As we have heard today, the demise of U.S. manufacturing 
and, therefore, the tooling and machining industry is 
accelerating at an alarming rate. I will not expand on that; 
you can read about it in my written testimony.
    One of the factors that is contributing to the problems of 
our industry is the exodus of American companies to other 
countries. For example, Black & Decker was once a $4 million-
per-year account for Willett. Today, it is a fraction of that, 
due, in part, to their business movement to China, Eastern 
Europe, and Mexico. Black & Decker executives have recently 
told us that, in addition to closing their plant in Easton, 
Maryland, that their plant in Fayetteville, North Carolina, 
will also be closing its doors in the very near future. All of 
the production-stamping work which we did for Black & Decker 
will be gone within the next few months. We had a mutually 
successful relationship with Black & Decker for over 30 years. 
This is coming to an end because the work is going to be done 
in other countries, and, ironically, our plant is within five 
miles of their headquarters in Towson, Maryland.
    I will give you another story of an account we lost to 
overseas competition. This was Fedders Rotorex. They were a 
good account for us. They manufactured compressors for air 
conditioners. We did about a million dollars a year in business 
with them, and they moved it all overseas.
    A few of the things that are making it difficult for us to 
do business include the rising cost of health insurance. In 
1999, our premiums were about $200,000 per year, and now they 
are over $350,000 per year in just a few years. The cost of 
capital equipment is high. In the last year, we have been able 
to invest $2 million. Overall economic conditions do not help. 
I do not know if it has been mentioned, but we have suffered 
miserably due to the steel tariffs.
    Chairman Manzullo. Mr. Sandy, could you move to the 
national defense portion of your testimony?
    Mr. Sandy. Yes. As important as this industry is to the 
economic well being of the country, it is even more important 
to our national security. A healthy industry is an important 
component of defense-production capabilities. We are the 
companies that produce the plastic-injection molds that are 
used to build nuclear submarines, the ones that provide parts 
for our missile defense system, and the wheels and joints on 
airplanes, the parts used to make rifles for our infantry.
    Increasingly, defense prime contractors are subcontracting 
parts and tooling for defense systems to Asia. This practice is 
not being monitored by the Department of Defense, and as a 
result, the military is becoming increasingly dependent on 
foreign sources to supply critical parts and systems for 
weapons. I applaud the Chairman and Ranking Member for 
recognizing this as a problem. Your request for an 
investigation by the General Accounting Office into this would 
prove to be an invaluable tool in fixing this situation.
    We are aware of defense contractors subcontracting to 
foreign companies for precision machining jobs. Take, for 
example, the recent West Coast longshoremen's strike. Suppose a 
part was needed in a critical military weapon. The needed part 
would have been delayed somewhere off the coast of California. 
In this day and age, can we allow our country to be dependent 
on foreign nations to provide us with the parts we need to keep 
our weapons that protect our nation operational?
    Another point I want to make is that the average age of our 
workers in the tooling and machining industry is over 50 years. 
As the current workforce grows older and fewer people are 
trained, America stands to lose an industry that is the bedrock 
of economic stability and wealth creation.
    Chairman Manzullo. Let me stop you right there.
    Mr. Sandy. Yes.
    [Mr. Sandy's statement may be found in the appendix.]
    Chairman Manzullo. I want to get in Mr. Anderberg because I 
do not want to have those bells ring on his time, or he will 
ring my bells. Okay? We can come back to you on some questions.
    Our last witness is Eric Anderberg, who is my constituent 
from Rockford, Illinois. Eric, we look forward to your 
testimony.

  STATEMENT OF ERIC ANDERBERG, GENERAL MANAGER, DIAL MACHINE, 
                    INC., ROCKFORD, ILLINOIS

    Mr. Anderberg. Thank you, Mr. Chairman, and thank you, Ms. 
Velazquez, for the opportunity to be here today. It is truly an 
honor.
    My name is Eric Anderberg. I am from Dial Machine, 
Rockford, Illinois. It is our family business. My father 
founded it 37 years ago. We are a contract machine shop. We 
make components for large, capital-equipment manufacturers in 
the United States. We rely on their success for our business. 
We supply construction and machine tool, aerospace, nuclear, 
and even, directly or indirectly, the military.
    Business for Dial Machine has been terrible for the last 
four and a half years, from the beginning of the recession at 
the end of '98, and I believe that is when the machine tool 
industry started to go down. Currently, we employ around 40 
people. That is 50 percent of what we used to employ back in 
1998. The drop in sales that we have had corresponds with that.
    As you know, the Department of Labor issued that there were 
36,000 jobs lost in March in manufacturing, 2.2 million in 
three years. This has been very hard on Rockford, since nearly 
30 percent of the employment in Rockford can be tied to 
manufacturing. In a community of 150,000 people, Rockford has 
lost over 5,000 manufacturing jobs in the last 18 months alone.
    It has hit the community hard, and I would like to give a 
micro example of how I think the American economy will not 
fully recover without a manufacturing base. It has to do with a 
former employee that we used to have that we had to lay off two 
years ago because of lack of work.
    Today, he works at a national, home-improvement box store 
in Rockford. He is in the service economy now. He makes $7 an 
hour versus the $15 an hour he used to make as a tool maker at 
Dial Machine. It is also part-time employment, so he has no 
benefits, and he works less than a 40-hour week. At Dial 
Machine, he had full benefits, health coverage, a 401(k), and 
full-time employment. I know that he and his wife purchased a 
house five years ago, and his wife is in the service industry 
as well. Both are struggling to make their ends meet and to 
make their payments.
    So what is really the effect to the economy of these two 
people? My question is, how many vacations will they take? How 
many airline tickets will they buy? What hotels will they stay 
in? What type of insurance premiums can they afford? What about 
their retirement? What type of automobiles can they afford at 
these wages? What type of restaurants will they stay in? And 
what taxes, federal or state, if any, will they pay at these 
wages?
    The trickle-down effect is clear, not only for the 
manufacturing industry but for the service economy as well, to 
the American economy. Take this one example and multiply it by 
the 2.2 million job losses we have had in manufacturing, and it 
is clear to see what the effect on our economy is, in 
aggregate, of the loss of our manufacturing base.
    How did our manufacturing base get to this point? In the 
views of most small manufacturers, there are many to argue, but 
the main reason is the burden of government. This institution 
legislated the rules, the taxes, the regulations, the agencies, 
tort law, and the many other burdens that we, as manufacturers, 
live with in America. Government created a huge, fixed cost, a 
burden, that has been placed upon us, the small manufacturers, 
and that puts us at a disadvantage to compete globally at the 
offset, to be a manufacturer in the United States with a cost 
so high.
    With that said, our government opened the door to 
unfettered, free international trade, but it has not been very 
free for small American manufacturers. Auction sheets come in 
weekly to our business of closed companies that just cannot 
make it anymore. Over the last five years, we have accumulated 
thousands of these fliers, and, talking to my father yesterday, 
three more came in the morning mail. If you walked in our 
office, you would see stacks of them in our storeroom from five 
years' accumulation.
    Free trade has also allowed the multinationals to pull up 
their manufacturing facilities and leave and go to other 
countries like China. They have abandoned their suppliers and 
employees in our country for cheap production costs in 
countries like China that have no standards or high costs 
imposed upon their manufacturing base. Then they ship those 
products back to the United States under the guise of free 
trade. But can you really blame the multinationals for doing 
this? They are escaping the high fixed costs that our 
government has put upon them.
    The multinationals, they have the resources to move their 
production overseas, but, unfortunately, small manufacturers do 
not, which brings me--I would like to talk about China. As you 
know, Mr. Chairman, I was on a trade mission to China, and I 
got back about a month ago. The purpose of the trade mission 
was to procure business for small manufacturers. I was very 
pessimistic. I still, after our visit, China being the largest 
threat to American manufacturing. But then I also see China as 
a huge opportunity.
    What we learned over there is that China is going to spend 
$270 billion, American dollars, this year on infrastructure and 
capital improvements. A lot of that money is going to be spent 
outside Chinese borders for products from other countries. They 
will spend one and a half trillion in the next five years on 
capital infrastructure improvements. American business needs to 
get a piece of that action.
    China is ready to buy. The Chinese government fully 
understands, better than our own government, the position that 
our economy is in. They are concerned mainly with two points, 
that either the door is going to close on the unfettered trade 
going from China to the United States or that their market is 
going to disappear for their products in the United States 
because nobody can afford their products anymore with our 
struggling economy. What we need to do is take advantage of 
this situation and have our government use its political 
leverage to force not only China but the other nations that 
have trade imbalances with us to trade with small manufacturers 
and the manufacturing base of this country.
    I have many other points to talk about, but I will take 
your questions right now.
    [Mr. Anderberg's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much for the testimony of 
everybody. There are two things that can be done immediately to 
help spur American manufacturing, and they are very easy. One 
is to have American manufacturers and the heads of the various 
service agencies and other agencies within the U.S. government 
follow the Berry Amendment and the Buy American Amendment.
    We are embroiled now in a deep controversy with the 
Secretary of the Air Force, who signed a Berry waiver to allow 
Russian titanium to be placed in the engines and the bodies of 
our fighting machines, of our airplanes. Russia is exporting so 
much titanium to this country that they requested, and they 
received, an exemption under the GSP rules so that they do not 
have to pay the 15 percent tariff, which means Russia is 
sending more than 50 percent of the imported titanium into this 
country.
    In addition, titanium, as you know, comes in what is called 
a ``sponge''. It is a chemical wash, and the sponge that comes 
into the United States, because there is not enough sponge 
manufactured domestically, is subject to a 15 percent tariff, 
which the three remaining titanium manufacturers have to pay. 
And then the Air Force tells us it is cheaper to buy from 
Russia. Of course, it is. They created it all. It is very cozy. 
The domestic guys have to pay a 15 percent tariff on the 
imported sponge for the basis of their titanium production, 
whereas the titanium ingots come completed from Russia, subject 
to no tariff whatsoever.
    This has got to stop. We did it with the berets, a very hot 
hearing that lasted 4\1/2\ hours. I had to subpoena three 
generals to come in for that.
    There is enough titanium in this country available at 
market prices to fulfill all of the needs. It has got to stop, 
and it has got to stop now. No more compromises. Just enforce 
the laws that are on the books. It is just that simple, and yet 
people do not want to do that. We have got to reform the Berry 
Amendment to give notice to affected parties, perhaps impose 
the Regulatory Flexibility Act, and to do away with these 
blanket waivers of the Berry Amendment. We can restart hundreds 
of jobs, thousands, by following existing law.
    The second thing we can do is this. We have been working on 
this very hard. It is called ``America's Jobs First.'' We have 
been trying to encourage American companies that set up 
manufacturing overseas to follow this very closely. Eric was 
over there. Don Metz was over there. All that the American 
companies have to do that are manufacturing overseas is simply 
buy their tools and dies and molds from American manufacturers. 
They can be almost competitive in price. The molds and tools 
and dies last a lot longer.
    It is so simple. This is so simple, and we have been 
begging American companies overseas, begging them, please do 
not forget the guys you left behind, the same companies that 
come to us and ask us for free trade votes, and we say, ``Just 
a second.'' This is so simple. But there are about five rings 
that separate the CEO of a company and the person in charge of 
purchasing. The latter is charged by the former to buy the best 
product at the cheapest possible price.
    It would be so simple for General Electric in Shanghai, for 
Boeing doing business in China, for Caterpillar doing business 
in Japan and Mexico. All they have to do is buy the tools and 
dies and molds from the guys back here in the United States. Do 
you have any idea what that would do to restart manufacturing? 
It would be phenomenal. You would not have to change one trade 
law. You would not have to have one more program. You would not 
have to have anymore congressional hearings on this. But it is 
just some common sense that is lacking in corporate America, 
and we have begged and begged and begged the American 
companies.
    So you know what we had to do with Eric? Tell them, Eric. 
On the trade mission, tell them who you had to go to.
    Mr. Anderberg. We had to go to an outside help to--we were 
in touch with an American developer, who helped us set up this 
trade mission.
    Chairman Manzullo. With Chinese companies.
    Mr. Anderberg. With Chinese companies.
    Chairman Manzullo. So what Eric has had to do is because 
the American manufacturers overseas would not give the guys any 
contracts for tools and dies and molds, the Chinese, as Eric 
said, recognize that, long-term, the manufacturing base in 
America being destroyed means they will not have a market for 
their products, and, as Eric said, the Chinese are thinking 
long term, and the Americans are not. So Eric has had to do it. 
He had to go the Chinese to get contracts from them because the 
American guys overseas said they are not interested in working 
with us.
    Mr. Anderberg. And they are eager to do it.
    Chairman Manzullo. And the Chinese are eager to do this. 
This is really, if you look in the handout on manufacturing 
called ``America's Jobs First,'' Mr. Aldonas is very much 
interested in this, and I just do not know how much more to get 
out the word. Jerry, you work with the manufacturers every day.
    You know, the bottom line is not saving money. The bottom 
line is producing a product at a reasonable cost and having 
somebody around to buy it.
    Anyway, those are two things that we can do right away. Ms. 
Velazquez.
    Ms. Velazquez. I just would like to ask each one of you to 
tell me, beyond the titanium issue that I do not know how many 
small manufacturers would be impacted by, if you can point out 
to us one or two issues where the federal government has a role 
to play immediately to help the small manufacturing base. Mr. 
Anderberg?
    Mr. Anderberg. Well, as I talked, the cost of government, 
the burdens; it is not going to be immediate. What we learned 
in China was that they fully understand the situation, and when 
we were in the city of Harbin, we met with provincial trading 
groups. Everything is government-owned in China.
    Ms. Velazquez. So do you think that the trade policies that 
we adopted benefit you?
    Mr. Anderberg. Well, there are export trade policies, and I 
am sure Mr. Freedenberg can attest to, that make it difficult 
for us to sell to China. For example, in Rockford, Ingersoll, 
we need to get visas for their engineers and their people to 
come to Rockford to okay millions of dollars worth of equipment 
sitting in their plant to ship to China, and our visas are not 
being issued. You know, what is the sense?
    As for small manufacturers and small business, when I go 
back to Harbin, we signed a letter of intent with their trading 
group for $40 million that they intend to purchase from small 
manufacturing over the next year.
    Ms. Velazquez. Thank you.
    Mr. Anderberg. We need help. We need political pressure to 
make that happen.
    Mr. Sandy. I think Congress needs to address the practices 
of the banking industry as it relates to withdrawing working-
capital loans when asset-backed loans' value declines. I have 
heard more and more instances where this is happening to member 
companies in the NTMA.
    In our own case, our lender has requested that we find 
another bank. They are in the process of upgrading their 
portfolio with less-risky loans. Banks are reluctant to extend 
working-capital loans to manufacturing companies such as ours. 
Asset-backed loans are the norm and increasingly more difficult 
to obtain due to the devalued market for used equipment, which 
is our principal asset. Thank you.
    Ms. Velazquez. Thank you. Mister----.
    Mr. Freedenberg. We talked about export controls. We talked 
about the visa problem, which is a major problem and is a 
deterrent to the Chinese doing business with us.
    Chairman Manzullo. Pull the mike closer to you, Paul.
    Mr. Freedenberg. We also talked about what I discussed was 
the Chinese practice of undervaluing their currency. We are 
talking about the Chinese having wage advantages of 12-to-1 
against us, and then they have a currency that is undervalued 
by 40 percent by some estimates. The U.S. Treasury entered into 
those types of discussions with the Japanese in the 1980s. It 
was highly successful. They could do the same sort of thing 
with the Chinese. The Chinese are pegging their currency. They 
can peg it wherever they want, although right now they are 
pegging it at an unreasonable level.
    So those are the sorts of things, that plus expanding and 
extending the expensing provision, which is in the tax bill, 
would help.
    Ms. Velazquez. Sir?
    Mr. Harbour. Just briefly, my comment echoes the earlier 
comment about the availability of capital. There are a couple 
of companies that I am working with now--in fact, one that I 
have an equity interest in--and although they have solid 
balance sheets, they still are basically blacklisted by the 
banks in Detroit. This is a very common thing in the city of 
Detroit as certain manufacturing businesses have gone belly up, 
and the greater that list grows, the more they get blacklisted 
by the traditional lenders that the Department of Commerce 
spoke about earlier today.
    So it is this death spiral that continues. The more of them 
that go out of business, the less likely it is that they can 
get any available capital to either grow or to recover from the 
situation that they are in. That is a very dire circumstance, I 
know, in our town, and it sounds like it is shared in other 
places.
    Ms. Velazquez. Mr. Trumka?
    Mr. Trumka. Yes. I agree with much of what has been said. 
We also think that Congress should pass a manufacturing tax 
credit to replace FSC immediately. We need help with health 
care, particularly prescription drugs. We think that no more 
trade laws patterned after NAFTA should be passed. We think 
that Congress can become very, very much more aggressive. They 
can initiate trade cases to enforce U.S. trade laws and to take 
aim at non-tariff barriers in trade with China, Japan, the EU, 
and elsewhere, and we think that you should strengthen the Buy 
American provisions for the Department of Defense and move 
aggressively in that direction.
    Ms. Velazquez. Thank you.
    Mr. Jasinowski. Agreeing with much of what has been said, I 
have tried to make up the items I would suggest, Congresswoman, 
that do not require in many cases legislation, although a few 
do. In the trade area, I would agree with Richard that we ought 
to focus on non-tariff barriers. That can be done right away. 
We can focus on reducing exchange export controls. Exchange 
rates with respect to China can be done without any legislation 
by the administration bringing sufficient attention, and, 
finally, an export promotion. All of those things can be done 
without legislation and can be done immediately.
    On the growth front, I agree with the bank lending. We have 
been arguing with the Federal Reserve, you have got to reduce 
the regulatory pressure you are now putting on banks that keeps 
them from making loans to small companies. Expensing, extended, 
as Paul suggested. The current pension rate for calculating 
pensions can be done by executive fiat by the Department of 
Treasury. It now is much too high relative to what are the 
realistic rates, and that would cause a huge inflow of capital 
into business, and a tax credit or some kind of thing that 
would deal with FSC, as Richard suggested.
    On the cost side, a number of regulatory measures could be 
streamlined and not done. Asbestos legislation ought to be 
passed quickly, and I think that a prescription drug benefit on 
health care.
    And, finally, since you asked the question, Congresswoman, 
I would say that we would support organizing the budget 
priorities a bit differently than the administration to 
maintain some MEP and certainly to put additional expenditures 
into export promotion.
    Ms. Velazquez. Thank you.
    Mr. Czinkota. In addition to some of the items mentioned, I 
would have three watch words: communication, streamlining, and 
linkage. Communication of long-term issues, such as in a new 
world of uncertainty, how does that affect transnational border 
flows? Isn't it better if we have things at home? What is the 
effect of migration of manufacturing on innovation in 
processes, which is quite negative, in the long term? So 
communicating that.
    Secondly, streamlining processes, such as export promotion, 
export controls. There are lots of things which can be done 
there with limited funds.
    And, finally, link negotiation benefits with support for 
trade adjustment. They should not be separate. If somebody 
gains very much through such negotiations, then they should be 
able to help out with some of the adjustment costs.
    Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
    Chairman Manzullo. You might be interested, Mr. Trumka. 
There is a bill called the Crane-Rangel-Manzullo Bill that 
deals with FSC, that encourages manufacturing to stay at home 
in order to get that credit, and we would be delighted to work 
with you. Jerry mentioned about a half a dozen items. I 
mentioned a couple. There are probably 10 action items that we 
could put together just as a result of this hearing that could 
be implemented almost immediately through the folks that are 
here. Go ahead.
    Mr. Jasinowski. Mr. Chairman, I just wanted to respond to 
your initiatives and say, although we do not have an active 
program in support of the Berry Amendment, the way you 
described it with respect to the unfair trade practices that 
allowed the Russians to use the titanium is something we would 
like to look at and look at any situation where there is an 
unfair playing field with respect to American products that are 
associated with national security.
    Chairman Manzullo. I really appreciate that. Thank you. 
That is great. Mr. Trumka?
    Mr. Trumka. I would just like to say, Mr. Chairman, that we 
look forward to working with this Committee and all of the 
members of it to try to reinvigorate American manufacturing.
    If I could, could I just make one correction for the 
record? One of your witnesses said there was a longshore 
strike. It was not a strike; it was an employer lockout. I want 
to make sure that the record is accurate.
    Chairman Manzullo. Okay, okay. I appreciate that. Any other 
comments on that?
    Mr. Jasinowski. One other comment, Mr. Chairman, which I 
would just ask for the record. We have a breakdown that shows 
that there are 71,000 manufacturing plants associated with this 
Committee and how many plants are in each state, and we have 
broken out the unemployment loss by state of manufacturing 
jobs. In the case of your state, unfortunately, it is 80,000. I 
would like that for the record, and maybe your staff might 
consider sharing it with the Committee. I do think it brings it 
down to the district level in a very useful way.
    Chairman Manzullo. Let me reserve my ruling on placing the 
whole thing in the record because of the size of it.
    Mr. Jasinowski. I agree, Mr. Chairman. I am more interested 
in the Committee members seeing the specific----.
    Chairman Manzullo. I will make sure that every member 
personally gets a copy of it.
    Professor Czinkota, I have a question to ask you. Back to 
the charts, it would be chart number--I feel like this guy on 
``Johnny Carson.'' Do you remember with the charts, how to get 
to the used car lot? Exhibit 7. It does not make much 
difference which sector you have there. Can you see that?
    Mr. Czinkota. Yes, sir. I am unclear on the question, sir.
    Chairman Manzullo. I have not asked it yet.
    [Laughter.]
    Chairman Manzullo. You can always tell the professors. You 
know, they are always waiting on the students.
    Professor, do you know of any available economic tools in 
the private sector or in the public sector whereby you can 
evaluate how much of a particular export by the United States 
represents foreign products?
    Mr. Czinkota. In terms of content?
    Chairman Manzullo. In terms of content.
    Mr. Czinkota. Foreign content?
    Chairman Manzullo. Right.
    Mr. Czinkota. Well, the Bureau of Economic Analysis does 
some data collection but very, very limited.
    Chairman Manzullo. Okay. It is not there.
    Mr. Czinkota. There is really no tool that I am aware of, 
apart from the anecdotal evidence which is supplied by some 
individual manufacturers. For example, Boeing has done that in 
the past on occasion to talk about local content, foreign 
content. But we do not have an organized data-collection 
presence in that area that I am aware of.
    Chairman Manzullo. Okay. It would be interesting to see 
that because the trade deficit may even be greater than what it 
is because this is what I call the hollowing out of 
manufacturing. What I am seeing is there is more and more 
assembling going on with all of these foreign parts coming in, 
put together in America, placed on a product, and then the 
product is exported, and you have to ask yourself how much of 
that is in there.
    The other question I wanted to ask is, in terms of 
procurement, many people think, and I have a tendency to agree 
with it, that the 200 to 250 billion dollars in U.S. 
procurement that we have in the United States, what we pay for 
out of taxpayer funds for use by the government should serve as 
a hedge or a way to level the playing field with regard to 
cheap imports. Imports are cheap. I am not demeaning them; it 
is just that they are cheaper in price on it. Do you know of 
any tool, public or private, that can measure the amount of 
foreign procurement that is purchased by American companies and 
the amount of American procurement that is purchased by foreign 
companies?
    Mr. Czinkota. There are some data on that collected by the 
OECD in connection with the Government Procurement Code, 
especially by those who are unhappy about procurement levels, 
and they then collect certain data to point out shortcomings of 
the procurement code. To your first question, there are 
requirements, for example, if a firm seeks Ex-Im Bank funding, 
to have a certain degree of domestic content, and if the 
foreign content exceeds the limits, then there will be no such 
funding. So in that sense, companies have to self-declare what 
the proportion is. But, again, in terms of a data base where we 
could just seek recourse to and print out the numbers, no, we 
do not have that.
    Chairman Manzullo. I raised this issue with the USTR's 
office because there is a movement to open up U.S. procurement 
to other countries via the new, proposed free trade agreements. 
Lacking quantitative data as to who is actually winning under 
these circumstances, we have got to sit back and take a look, 
is that what we really want to do? Obviously, we can contract 
with China or Mexico to build 100 percent of our defense a lot 
cheaper than what we could do in America. Is that really what 
we want to do?
    So that is critical data, and the reason it is done in the 
free trade agreements--I voted for every free trade agreement. 
I really believe in that. The opposite of that is the ugly head 
of protectionism. But every free trade agreement should be 
based upon data that can be substantiated, and I am extremely 
concerned that any new free trade agreement open the doors of 
more procurement from the United States than what we have now.
    If you take a look, for example, at the Buy American Act, 
that only requires, with the exception of the application of 
the Berry Amendment regarding strategic metals, that only 
requires that the Defense Department can buy something, but it 
only has to have 50.1 percent American content. I think we 
should consider raising that to 75 percent. It is not 
protectionism. What it does, it ensures the domestic industrial 
base that we have in this country.
    The Berry Amendment itself, as you take a look at it and 
look at the purpose of it, we see, again, on those engines that 
have Russian titanium, they have Japanese nickel drive shafts. 
And then the more we continue this inquiry with regard to the 
waiver granted by the Department of Air Force, then we see this 
tremendous amount of hollowing out that is going on in 
manufacturing. So we need somehow to find out the data, and if 
that data were there on how much of foreign materials are going 
in, it might be even more shocking than what it is.
    We have a little bit of time here, and I know we have been 
pressed, but I would like to leave this open, if any of you 
have any questions you want to ask of each other or make any 
concluding statements.
    Okay. Thank you very much for your testimony. Jerry would 
like to talk to you--maybe we can come back in a couple of 
weeks--about that Barry Amendment, bring you up to date on what 
is going on there.
    Mr. Jasinowski. We would like to be informed. Thank you 
very much.
    Chairman Manzullo. And, again, thank you all for coming, 
especially those that traveled great distances to come here. I 
appreciate it very much. Thank you.
    [Whereupon, at 5:15 p.m., the Committee was adjourned.]

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