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



                                                   S. Hrg. 102-000 deg.

   THE CHILEAN FREE TRADE AGREEMENT: OPENING DOORS TO SOUTH AMERICAN 
                                MARKETS

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

                                HEARING

                               before the

                SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, JUNE 12, 2003

                               __________

                           Serial No. 108-19

                               __________

         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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                            WASHINGTON : 2003
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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
Padilla, Christopher A., Office of U.S. Trade Representative.....     3
Rosales, Manuel, U.S. Small Business Administration..............     6
Workman, Willard A., U.S. Chamber of Commerce....................    13
Morrison, James, Small Business Exporters Association............    15
Schantz, Arland, Evergreen Farm..................................    17
Wesson, Laurence N., National Association of Manufacturers.......    18

                                Appendix

Opening statements:
    Toomey, Hon. Patrick J.......................................    25
    Millender-McDonald, Hon. Juanita.............................    31
Prepared statements:
    Padilla, Christopher A.......................................    38
    Rosales, Manuel..............................................    46
    Workman, Willard A...........................................    51
    Morrison, James..............................................    56
    Schantz, Arland..............................................    60
    Wesson, Laurence N...........................................    63

                                 (iii)

 
  HEARING ON THE CHILEAN FREE TRADE AGREEMENT: OPENING DOORS TO SOUTH 
                            AMERICAN MARKETS

                              ----------                              


                        THURSDAY, JUNE 12, 2003

                  House of Representatives,
           Subcommittee on Tax, Finance and Exports
                                Committee on Small Business
                                           Washington, D.C.
    The subcommittee met, pursuant to call, at 10:06 a.m. in 
Room 2360, Rayburn House Office Building, Hon. Patrick J. 
Toomey [chairman of the subcommittee] presiding.
    Present: Representatives Toomey, Millender-McDonald, 
Chabot, Beauprez, Ballance
    Chairman Toomey. Good morning, everyone. This hearing will 
come to order. Welcome to the hearing on the Chilean Free Trade 
Agreement: Opening Doors to South American Markets by the Small 
Business Subcommittee on Tax, Finance and Exports.
    I am delighted to be able to discuss this important topic 
this morning and looking forward to the input from the 
witnesses on a trade agreement, that discussions of which began 
in December, 2000 in a serious way and just last Friday, on 
June 6, the United States Trade Representative, Robert 
Zoellick, and the Chilean Foreign Minister Soledad Alvear 
signed the agreement, clearing the way for what I hope will be 
a vote soon in this 108th Congress.
    I would be the first to clearly acknowledge I am a big 
believer in free markets and expanding trade and I think it is 
critical that we reduce trade barriers all around the world, 
create a level playing field and open up foreign markets to 
American goods and services. This trade agreement is a major 
step in that direction.
    I think it is worth nothing that last year after a tough 
fight, Congress passed the Trade Promotion Authority Act, which 
is essentially an agreement between the President and Congress 
on how market opening trade agreements will be conducted and 
how those agreements will be approved.
    Trade Promotion Authority will really energize the efforts 
to remove the existing trade barriers, expand U.S. trade and 
provide a real boost to our economy, entrepreneurs and the 
expansion of jobs. It was under the Trade Promotion Authority 
that we were really able to wrap up this trade agreement and I 
think that is a very important development.
    Again, this summer hopefully we will have a vote on this 
very important agreement. Trade between the United States and 
Chile is surprisingly large, despite Chile's relatively small 
population and its geographic distance. This agreement 
nevertheless is long overdue.
    Since 1997 the share of Chile's imports that have come from 
the United States has experienced a steady and dramatic 
decline. Back in 1997, U.S. goods made up about 24 percent of 
Chile's foreign purchases. By 2002, the American share of 
Chilean imports had fallen to less than 17 percent. So in other 
words, over the course of six years, the United States lost 
nearly one-third of its share of Chilean imports.
    It is not a coincidence that this plunge in trade occurred 
as other nations were implementing their own free trade 
agreements with Chile, gaining market share and taking it away 
from the United States.
    American companies currently operate at a significant 
competitive disadvantage with respect to competitors such as 
companies from Canada, Mexico and the European Union, all of 
whom have free trade agreements with Chile.
    As an example, a U.S. made Caterpillar 140 horsepower motor 
grader, a popular piece of equipment, that sold in Chile, when 
it is sold in Chile, there are $13,000 worth of tariffs added 
to that sale. The same exact tractor made in Canada pay zero in 
tariffs. It is very obvious that there is a huge economic 
incentive to ship the jobs and the manufacturing to Canada, not 
in the United States where the product will have a competitive 
advantage and that is the kind of policy that doesn't make any 
sense for America, it doesn't make any sense for American jobs.
    The National Association of Manufacturers estimates that 
the current lack of a free trade agreement with Chile costs 
U.S. exporters $800 million per year in sales and affects 
10,000 U.S. jobs. This trade agreement will remedy these 
competitive disadvantages and give American companies and 
American workers a level playing field on which to compete with 
our competitors.
    I think it is also worth nothing that this helps to promote 
a broader U.S. foreign policy goal that we have throughout the 
Americas. In addition to the merit it has in its own right in 
developing expanding trade between the United States and Chile, 
a U.S.-Chile free trade agreement is a critical first step 
toward the completion of a 34-nation free trade area of the 
Americas, which I think is a very, very important and 
worthwhile goal.
    I think it is also vital to send the message to our trading 
partners that when countries stay on a path of market opening, 
economic reforms and establishing viable democracies, as Chile 
clearly has, that the United States is then prepared and in 
fact eager to improve mutual trade and economic relations. In 
that respect, you can't find a better trading partner than 
Chile.
    That is why it has been nearly a decade, the last decade 
during which both democratic and republican administrations 
have made reaching this agreement a high priority. Chile's 
outstanding democratic and economic credentials largely explain 
the success of the Chilean economy and the reason that we seek 
to have even closer ties.
    Chile has one of the highest standards of living in Latin 
America and the Caribbean. The trade investment regime is among 
the most open in Latin America. Strong budget discipline has 
yielded one of the smallest budget deficits in the western 
hemisphere and Chile has had the second fastest growth in 
domestic product in Latin America over the last ten years. In 
short, Chile has an outstanding track record of accomplishment 
and it is an ideal candidate for expanding trade.
    [Mr. Toomey's statement may be found in the appendix.]
    Chairman Toomey. The first panel we have with us today I am 
very eager to hear from. Leading things off we have Mr. 
Christopher Padilla, Assistant U.S. Trade Representative for 
Intergovernmental Affairs and the Public Liaison for the Office 
of the United States Trade Representative. Mr. Padilla will 
provide us an overview of the Chilean free trade agreement and 
how it will help not only our nation's small businesses, but 
our economy as a whole.
    Also with us today is the Honorable Manuel Rosales, 
Assistant Administrator of the Office of International Trade at 
the Small Business Administration. Mr. Rosales and his staff 
over at the SBA have done an outstanding job in laying the 
groundwork in preparation for this agreement.
    In addition to his regular duties, Mr. Rosales has crafted 
working partnerships with his Chilean counterparts and has 
stayed ahead of the curve, thus being ready to assist American 
small businesses who either want to become involved or become 
more heavily involved in trade with Chile. I thank you both 
very much for joining us today and I welcome the comments of 
Mr. Padilla.

   STATEMENT OF CHRISTOPHER A. PADILLA, ASSISTANT U.S. TRADE 
    REPRESENTATIVE FOR INTERGOVERNMENTAL AFFAIRS AND PUBLIC 
  LIAISON, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, 
                        WASHINGTON, D.C.

    Mr. Padilla. Thank you, Mr. Chairman. Thank you very much 
for holding this hearing, for your interest in our trade policy 
and specifically for your interest in Chile.
    I was honored to appear in a program with you and 
Administrator Rosales in Philadelphia. I think it was a couple 
of months ago when we were still working on wrapping up the 
U.S.-Chile free trade agreement and I am very pleased to be 
here today to talk about an agreement that we expect to be 
submitting to Congress for its consideration very shortly.
    I would like to start this morning by talking briefly about 
a company from your home state, Mr. Chairman, of Pennsylvania. 
Gulden Ophthalmics, which is a small business, less than $1 
million in revenues, based in Elkins Park, Pennsylvania. The 
president of the company, Tom Cockley, recently visited 
Santiago and his story is told in a publication put forward by 
the U.S. Chamber of Commerce about benefits to small business 
of the U.S.-Chile free trade agreement.
    Mr. Cockley's company, which has been in existence since 
1938, wants to expand its sales in Chile, particularly sales of 
ophthalmic products to hospitals, clinic, universities and 
medical centers. Mr. Cockley says that the current Chilean 
import duty of six percent has effectively given his 
competitors from Europe a competitive advantage, because Europe 
has a free trade agreement with Chile and until recently the 
United States did not.
    He says, ``If the United States passes the U.S.-Chile free 
trade agreement, there would be no import duty and we would be 
able to sell our products competitively. A reduction of this 
trade barrier would improve our company's growth and employment 
prospects''. He also says, ``If we do not export to Chile, then 
we do not export to all of South America''.
    I think the example of Gulden Ophthalmics is an excellent 
example of why it makes sound economic sense for the United 
States to have a free trade agreement with Chile. Over the past 
15 years Chile has established a thriving democracy, a thriving 
economy, a free market society and an open economy built on 
trade.
    A U.S.-Chile free trade agreement will help Chile to 
continue its impressive record of reform, growth and 
development and as you said, Mr. Chairman, it will also help 
spur progress toward even bigger and better things, such as a 
hemispheric wide free trade area of the Americas.
    For small businesses in the United States, emerging markets 
like Chile provide excellent opportunities for fast growth in 
exports. In 1999, nearly 80 percent of all U.S. firms that 
exported to Chile were small or medium-sized businesses and 
they generated over $900 million on U.S. exports.
    We believe that small business succeeds under free trade 
regimes. As both tariff and non-tariff barriers are reduced, 
opportunities for small businesses to foreign markets improves 
substantially. Most small businesses are based in the United 
States and are export businesses. They tend not to be foreign 
invested businesses. So tariffs and non-tariff barriers are 
significant obstacles to their growth.
    Since the introduction of the NAFTA in 1994, small business 
exports to Canada and Mexico have increased at a substantially 
higher rate than small business exports to the rest of the 
world. In fact, Mexico is now the number two market for U.S. 
small business exports.
    Small and medium-sized businesses benefit from things like 
the elimination of tariffs, but also important aspects of our 
free trade agreement, such as increased transparency and laws 
and regulations in foreign countries, trade and customs 
facilitation to make it easier for small businesses to get 
their products across borders and through often rigorous or 
difficult customs procedures, and protection of intellectual 
property rights.
    Small businesses have important assets in their trademarks 
and their copyrights, in their intellectual property and they 
are often the first victims of piracy and theft in foreign 
countries, because pirates believe that small businesses have 
fewer assets or fewer resources to go after intellectual 
property piracy.
    For all those reasons, free trade agreements are 
particularly important to small business and the free trade 
agreement that the President will soon submit to Congress has 
four distinguishing features that I would like to talk about 
today and bring to your attention.
    First, this free trade agreement is comprehensive. Unlike 
free trade agreements that our competitors have negotiated with 
Chile, our free trade agreement covers all products and all 
services and covers a number of other cutting edge areas, like 
intellectual property protection and trade facilitation.
    Second, the free trade agreement with Chile promotes 
transparency and good governance, which is particularly 
important in Latin America and Chile has been a leader in this 
field.
    Third, the free trade agreement is modern. It is up-to-
date. It deals with things like piracy of digital products, 
such as movies or text or videos that might be transmitted over 
the Internet. These are new businesses that have come into 
existence since the last free trade agreement was submitted for 
Congressional consideration.
    Finally, the U.S.-Chile free trade agreement uses an 
innovative approach to support and promote respect for 
environmental protection and worker rights, which of course was 
a difficult area that the Congress grappled with and crafted a 
bipartisan compromise in the Trade Promotion Authority Act.
    Let me talk about each of these four areas briefly, if I 
might. First, the agreement is comprehensive. It covers all 
goods, all services and all government procurement. Second, the 
agreement promotes transparency. The U.S.-Chile FTA is the 
first agreement that will have specific, concrete obligations 
on things like publishing customs rules on the Internet, on 
allowing small U.S. businesses to request binding advance 
rulings from Chilean customs authorities or provisions which 
allow the rapid release of goods from customs.
    Third, the agreement is modern. It provides state-of-the-
art protection for digital products, like software, music, text 
and videos and as I said, small businesses whose critical asset 
is often their trademark or their copyright will benefit from 
stronger IPR protection.
    Finally, the agreement uses an innovative approach on labor 
and environment. The FTA's encourage a high level of protection 
for labor and environment and they oblige signatories, like 
Chile to enforce their own domestic labor and environmental 
laws. This effective enforcement provision is subject to 
dispute settlement and is backed by an effective remedy 
including the innovative use of monetary fines.
    To sum up, Mr. Chairman, as Ambassador Zoellick recently 
said in Miami last Friday when the agreement was signed, ``The 
U.S.-Chile free trade agreement is a partnership for growth, a 
partnership in creating economic opportunity for the people of 
both countries''.
    With Congressional guidance and support, the Bush 
administration is pursuing and ambitious and comprehensive 
trade policy. The U.S.-Chile free trade agreement will be one 
of the first of many free trade agreements that we hope to 
submit for your consideration. We will continue to move forward 
bilaterally, regionally and globally and together we can show 
the world the power of free trade to strength democracy and 
promote prosperity. Thank you.
    [Mr. Padilla's statement may be found in the appendix.]
    Chairman Toomey. Thank you very much, Mr. Padilla. Mr. 
Rosales.

STATEMENT OF MANUEL ROSALES, ASSISTANT ADMINISTRATOR, OFFICE OF 
INTERNATIONAL TRADE, SMALL BUSINESS ADMINISTRATION, WASHINGTON, 
                              D.C.

    Mr. Rosales. Thank you. I would like to thank Chairman 
Toomey for inviting us to participate in this most important 
hearing.
    SBA strongly supports the Bush and Lagos administrations' 
commitment to bilateral free trade agreement, which as you know 
was signed June 6. Chile already offers excellent market 
opportunities for U.S. small businesses. Seventy-nine percent 
of U.S. exporters to Chile are small businesses with close to 
950 million in annual merchandise export sales.
    U.S. small businesses export account for around 30 percent 
of all U.S. manufacturing exports. In Chile, this figure is 
just over 36 percent. Chile's preferential access to most 
markets in South America, low inflation, strong financial 
systems, low levels of corruption and open competitive economy 
also provides an excellent base for U.S. small business to 
expand into the Latin American marketplace.
    According to the National Association of Manufacturers new 
updated figures, the absence of U.S.-Chile FTA costs U.S. 
exporters more than one billion a year in sales and costs the 
U.S. economy approximately 20,000 jobs. Since we know that the 
U.S. small businesses account for 36 percent of U.S. exports to 
Chile, we can assume that more than 360 million of the one 
billion plus is lost in sales to U.S. small businesses.
    Reducing the cost of doing business overseas allows small 
businesses to overcome and become more global players and a 
growth at a much faster rate. Small businesses typically have 
limited access to investment capital and are disproportionately 
impacted by trade barriers.
    Small businesses do not have parents or affiliates that 
multinational enterprises have to help get protect into the new 
markets. They do not have lawyers on call to get around 
bureaucratic red tape or protect against pitfalls of doing 
business internationally.
    Last year, the SBA engaged in conversation with counterpart 
agencies in Chile to explore ways to cooperatively support and 
promote small business trade linkages between the United States 
and Chile. SBA believes this cooperation gives a head start for 
positioning U.S. and Chilean businesses to immediately and 
effectively take advantage of the opportunity that the FTA 
would provide.
    We know that to support U.S. small businesses international 
marketplace, we need to be proactive and stay ahead of the 
curve, as opposed to waiting for things to happen and then be 
reacting.
    With than in mind, on December 5, 2002 SBA signed an 
external cooperative memorandum with The Technical Cooperation 
Service of Chile, SERCOTEC and CORFO, the Chilean Economic 
Development Agency, to initiative institutional cooperation to 
promote and support the development of growth, stability and 
global competitiveness of small business and medium 
enterprises, SMEs, and promote trade opportunities for SMEs in 
each country.
    SBA is currently working on a process of developing an 
action plan in effectively advancing this initiative. The 
primary focus of initial activities include sharing strategy 
for promoting small business access to government contracting. 
SBA also plans to work the American Chamber of Commerce in 
Chile, the AMCHAM, to develop a tool kit for doing business 
between the United States and Chile and to coordinate the 
organization and coordination of small business trade, 
delegations to promote strategies, alliances between SMEs in 
Chile and the United States.
    On a broader scale, as part of the cooperative memorandum, 
SBA is committed to working closely with the Chileans in 
formation of a cooperation and the coordination of the SME 
Congress of the Americas. The mission of this Congress is to 
create an atmospheric network of public and private sector 
small business service providers to promote the growth of free 
enterprise in the Americas to the development of small business 
in international trade.
    S.B.A. will be hosting a steering committee during our 50th 
anniversary in September in Washington to launch its initiative 
and begin to develop a strategic plan to help ensure the 
effectiveness and sustainability of this process. SBA will be 
discussing plans for the first full Congress, tentatively 
scheduled to take place in Chile 2004 during the APIC's 
conferences.
    S.B.A. believes in successful cooperation with Chile can 
play an important role in generating hemispheric support for a 
free trade area of the Americas. If we can show a tangible 
result in how U.S.-Chile offers increased opportunities for 
small business' growth, then together SBA can help build 
grassroots support for free trade through the hemisphere.
    S.B.A. sees this cooperative agreement with Chile as the 
first step to strengthening the hemispheric united through 
small business. Chile has been the model of economic reform and 
liberalization for the developing markets. SBA views Chile as 
an ideal partner in helping ushering in a new era of regional 
prosperity to small business growth.
    We believe that the free trade agreement will help make 
this vision a reality. Thank you, Mr. Chairman, for your time 
and I am happy to answer any questions you may have.
    [Mr. Rosales's statement may be found in the appendix.]
    Chairman Toomey. Thank you very much, Mr. Rosales. I 
appreciate your input as well. A couple of questions come to 
mind. The first one, Mr. Padilla maybe you could shed some 
light on. Exactly what does it mean to end up with a free trade 
agreement? We use that term frequently and maybe you could 
share with us, as a very practical matter for instance: Does a 
free trade agreement with another country mean that a 
Pennsylvania manufacturer can sell with no more obstacles in 
Chile than he would have in Massachusetts? Is it a complete 
absence of all tariffs? Is it a complete absence of all quotas 
or is it just movement in that direction? Maybe you could shed 
some light on that.
    Mr. Padilla. Well, Mr. Chairman, a free trade agreement 
especially the type of 21st century free trade agreement that 
this administration is negotiating, come about as close as we 
possibly can to making it as easy to sell in Chile as it would 
be for a Pennsylvania company to sell in Massachusetts.
    There are a few things that are important in our free trade 
agreements that I want to emphasize. They are comprehensive. 
They cover every product. No product and no service is 
excluded. That is a lot different than the kind of free trade 
agreements that our European friends negotiate, where they tend 
to leave out agriculture, for example.
    The other thing about our free trade agreement, as I said 
they are quite state-of-the-art. They deal not only with 
tariffs and quotas, but they also deal with things like the 
protection of intellectual property, electronic commerce, 
protecting the right of investors in Chile, U.S. investors in 
Chile and that is why we are so proud of this agreement.
    If you look at the U.S.-Chile agreement, it is nearly 900 
pages long. I don't look forward to your job of reading through 
it when we submit it for your consideration, but it is designed 
to make it almost as easy to sell in Chile as in Massachusetts.
    Chairman Toomey. My follow-up question to that: My 
understanding is that historically and in certainly recent 
years, the tariffs that Chile has imposed on American goods and 
services being sold there is higher than any tariffs in the 
other direction.
    Mr. Padilla. Indeed.
    Chairman Toomey. So clearly I can see the appeal and how 
valuable and appealing and attractive this is to American 
businesses and job. What is in it for the Chileans? What do 
they perceive to be the advantage? They could have of course 
unilaterally lowered their tariffs. What is it that brings them 
to the table?
    Mr. Padilla. Well, the agreement is truly a win/win 
agreement. You are right in that Chile's average tariffs are 
higher than the United States, if you look at it across an 
average. But, there are some important areas where they would 
like increased access to our markets, particularly in the 
agriculture area.
    Chile is very competitive because they are in the southern 
hemisphere. A lot of our fruits and vegetables off season come 
from Chile. In fact, the port of Philadelphia is one of the 
largest ports in the country for the import of Chilean grapes 
and other fresh fruits during the winter months. They also are 
very competitive in the wine area.
    They will get access to our market under this agreement, 
although in some of our most sensitive agricultural products 
that access is phased in over a 12-year period so as to give 
our competitive producers time to adjust.
    Chairman Toomey. Thank you. Mr. Rosales, are there any 
particular industries in which small business manufacturers or 
service providers are likely to have any more immediate or more 
rapid prospects for expanding exports as a result of this 
agreement?
    Mr. Rosales. Yes, sir. I would say the services industry. 
If you look at the total exports of small business abroad, 
roughly 35 percent are in the service industry and the high 
tech industry. So I see that is a great opportunities for small 
businesses in Chile.
    Chairman Toomey. Do those industries face any particularly 
difficult hurdles now that are going to be diminished as a 
result of the free trade agreement?
    Mr. Rosales. Well, as Mr. Padilla indicated, the 
intellectual properties and piracy is one area that is a major 
concern. The other obviously is they don't have the 
multinational support that they would have from a major 
corporation, attorneys, consultants to help them get into those 
marketplaces. So obviously the lowering of the barriers is 
very, very helpful for the small businesses to grow and 
flourish in the Chilean market.
    Chairman Toomey. Terrific. Thank you very much. At this 
time I would be happy to recognize the gentleman from North 
Carolina, if he has any questions.
    Mr. Ballance. If I could yield just now, since I came in a 
little bit late. Thank you.
    Chairman Toomey. Certainly. Thank you. The gentleman from 
Colorado.
    Mr. Beauprez. Thank you, Mr. Chairman. I would like to 
pursue a little bit of this same line of thinking that you were 
doing. Let's get, if we can, even more specific since I have 
not visited Chile specifically. I have some appreciation for 
the kind of market there.
    Give me, one or the other or both of you, a quick overview 
and talk very specifically also about how American, especially 
small business, yesterday we had a hearing and we had some 
businesses that were completely owner-operated, one employee 
but they were still exporting some iron works, for example this 
one gentleman. Is this a market that is going to be attractive 
to Internet advertising contact? Is it more of a face-to-face 
market? Is it a market that is in its infancies in some 
industries or much more sophisticated or all of the above? How 
are especially American small businesses going to prepare and 
maybe compete better and position themselves better?
    Mr. Padilla. I will lead off by saying that the Chilean 
market is a very sophisticated market. In fact, the original 
idea was to add Chile along with Mexico to the NAFTA agreement, 
as far back as 1994. Since then, the market has become even 
more attractive.
    Chile is one of the most advanced and developed economies 
in South America. They have a very sophisticated Internet 
economy, for example, which is why our agreement includes e-
commerce provisions to allow small businesses to sell their 
goods and services via Internet, which is particularly 
important because small businesses probably don't have a 
presence in Santiago, Chile. They may not even have a 
distributor. That is why we emphasized the e-commerce 
provisions in this agreement.
    Mr. Rosales. Coming from California and having dealt 
extensively with organizations like Chambers of Commerce, 
particularly Hispanic side, we see the opportunities in Chile 
for small businesses as tremendous. As Mr. Padilla has said, it 
is a very sophisticated society. We have already been doing 
trade with Chile. Thirty-six percent of small business exports 
are going to Chile.
    We see the opportunities not only in reference to high tech 
area, but also to light manufacturing. I have had the 
opportunity to visit Chile twice. It is a very modern society, 
very open. With the Internet, you will see that the increase of 
small business participation around the world will even be 
higher.
    Our experience through NAFTA, before NAFTA we had 60,000 
exports. Now there is 220,000, of which 97 percent are small 
businesses. Just to Mexico and Canada SMEs, 95,000 of them are 
exporting to the tune of $40 billion a year in all products. So 
we anticipate that the opening up of the Chilean marketplace 
will be a tremendous boom to small businesses.
    Mr. Beauprez. If you know, I formerly had a little 
background in livestock, specifically dairy cattle and did some 
exporting of that, it is my understanding this is an extremely 
climatically a very diverse country and a very rich 
agricultural country, but I am not familiar with the quality or 
the extent of their livestock industry. Now not specifically 
just dairy cattle, but dairy, beef, chicken, poultry, hogs, the 
whole gamut. Is there opportunity for our agricultural industry 
that is really suffering?
    Mr. Padilla. Absolutely. In fact, about three-quarters of 
U.S. farm goods will be duty free into Chile within the first 
four years of implementation of the agreement. The agriculture 
sectors in the U.S. that I think will benefit particularly are 
beef, poultry, pork, to some extent grains mainly wheat and in 
fact, the cattlemen and the National Pork Producers and others 
were some of the first industries out with supportive 
statements when we concluded the agreement last fall.
    One of the advantages is because Chile is in the southern 
hemisphere, the agriculture markets tend to be complimentary 
particularly in fresh fruits and vegetables. Most of the grapes 
that you eat in the wintertime probably already come from Chile 
and under this agreement they will come duty free and hopefully 
save money for U.S. consumers.
    Mr. Beauprez. Thank you, Mr. Chairman.
    Chairman Toomey. Thank you. At this time, the gentleman 
from North Carolina.
    Mr. Ballance. Mr. Chairman, I do want to follow up on the 
last question that was raised about farmers. My district is in 
North Carolina, and I was just looking and seeing that Governor 
Michael Easley is one of the supporters of the American Farm 
Bureau and then I note that there are some issues about labor. 
What is that problem?
    Mr. Padilla. We actually don't see any major problems on 
labor standards in Chile. As part of the negotiation of this 
agreement, in fact the Chilean government repealed a lot of the 
Panache era old labor laws, because they knew as a result of 
our Trade Promotion Authority bill that we were going to have 
to include provisions on effective enforcement of domestic 
labor laws, as well as environmental laws in this agreement.
    I think this is an example, Congressman, of how we can have 
a constructive approach on labor. When these countries know 
that we are going to pursue effective enforcement of domestic 
labor laws, we are seeing that they are making positive changes 
up front. Chile did it. We are already seeing Guatemala now, 
with whom we are negotiating as part of the Central America 
agreement, seeking to change some of their labor laws as well, 
because they know they are going to come under scrutiny.
    Mr. Ballance. Thank you. Thank you, Mr. Chairman.
    Chairman Toomey. At this time the Chair will recognize the 
ranking member, the gentlelady from California.
    Ms. Millender-McDonald. Thank you so much, Mr. Chairman. 
Let me apologize first for having a speaking engagement at the 
U.S. Chamber of Commerce and so I am running through the 
traffic to get here, because of our fine and outstanding 
presenters. I thank you both so much for being here and 
certainly would like to welcome the Honorable Manuel Rosales 
from California. He hails from our great state and we are just 
so proud of the work that you are doing.
    We recognize that in 2000, the United States and Chile 
announced that they would negotiate a free trade agreement and 
after more than two years of this negotiation, a bilateral 
agreement was reached and recently signed by President Bush. So 
it is now up to Congress to approve this implementation 
legislation.
    Mr. Rosales, in your testimony you mentioned that small 
businesses typically have limited access to investment capital 
and are disproportionately affected by trade barriers when they 
are trying to take part in the global market. That is 
absolutely the truth. In fact, my great Chairman is coming out 
to my district and we are going to talk about small businesses 
and international trade, because it is so important that we get 
into that market.
    Can you tell this Committee what trade facilitation 
activities in the SBA is working on to help small businesses 
take advantage of the U.S.-Chile free trade agreement?
    Mr. Rosales. Yes, we can. Thank you for that question. When 
I was chairman of the California Hispanic Chamber of Commerce 
almost 12 years ago and we began the negotiations with NAFTA, 
it became very clear to me as a statewide small business 
association that we needed to be in the proactive mode to be 
able to have advantages that the multinationals were going to 
get immediately from these trade agreements.
    So at the SBA we took that same philosophy. We looked at 
how can we begin to create the linkages between small business 
in the United States and small businesses in Chile and at the 
same time look at the multipliers in each country, the Chambers 
of Commerce, the trade associations, because we wanted to have 
our small businesses in line, ready to go when these agreements 
were signed.
    So with that, we signed an MOU of understanding with both 
our counterpart agencies in Chile, SERCOTEC and CORFO, to begin 
the linkages and begin developing those relationships. We 
visited Chile. We participated as part of one of the 
deliverables on government contracting, being able to transfer 
some of our technology, some of our knowledge here in the Small 
Business Administration to the Chilean counterparts.
    We see the opportunities as tremendous. Before NAFTA, as I 
indicated there was only 60,000 exporters in the United States. 
Now we have over 220,000. In California, we have seen the small 
businesses have done much more business with Mexico because of 
the trade barriers coming down. Small businesses are obviously 
more able to compete if there is transparency, lower tariffs, 
availability to be able to compete equally.
    In Rhode Island, your natural state, sir, is one of the top 
exporting states in the country in the export to Canada and 
that happened during the NAFTA years. So we see small business 
as taking an opportunity to look at how we can help. Small 
Business Administration has lending programs, export financing 
capital and we also have trade promotion programs to assist our 
small businesses to get involved in the international arena.
    We are participating as we speak on the CAFTA negotiations. 
We have one of our representatives who sit on the capacity 
building committee to be able to represent small businesses in 
such an important issue. We assist at USDR in the government 
contracting phase of the negotiations. It was a small step in 
the negotiation, but we think it was a very helpful step.
    So we are doing, at the Small Business Administration, in 
the international arena as much as possible to create those 
linkages way before these agreements will take place so we are 
prepared and ready to take advantage of the opportunities.
    Ms. Millender-McDonald. You know a lot of small businesses 
are still rather nervous about going into global markets. They 
still think that they are not quite ready for that. How are we 
getting the word out and how can we remove that fear, because 
now that the world is much smaller than we once thought it is 
clear that we bring those small businesses into this global 
market? Are you doing technical assistance or what are some of 
the other things outside of the funding that you spoke about 
that you are doing?
    Mr. Rosales. Yes, ma'am. One of our strongest programs is 
called export training assistance program. That is delivered 
through the USEAC network in combination with XM Bank and the 
commercial service.
    At the same time, we do have on our Web site FedMission 
online, which provides a self-certification by small businesses 
who are interested in doing business abroad in industry or 
country-related. In any activity that happens in those areas, 
we immediately notify them of the opportunities.
    We are also looking at the opportunities of doing it more 
online, because most small businesses don't have the 
opportunity to dedicate the time. So we are looking at putting 
the e-tap online so we can have more access to small businesses 
24 hours a day.
    On top of that, we have been coordinating with the Chamber 
of Commerce to trade roots where we go out promoting the 
opportunities for small businesses. The ability for them to get 
involved and presenting them with success stories so they can 
see they can actually do the same things themselves.
    But in the long run, I think small businesses understand 
that they are in the global marketplace and they are competing 
now. I will give you an example. Back in 1985 when I was an 
executive of a mutual fund company, we needed to present 
prospectuses and have them printed. So we went out looking for 
a local printer. They gave us a two-month turnaround. They told 
us, well you know our consultant Jay Walter Thompson said maybe 
we can do it faster. They recommended it to a company in Taiwan 
and they did it in 25 hours.
    So they were competing then and we are competing now. So I 
think small businesses understand that they are in a world 
competitive environment and they are looking to see how they 
can get more involved. Our commerce department did a survey of 
2,000 small businesses. Thirty percent said yes, we will be 
interested in exporting if somebody showed us how to do it and 
at the SBA we have those programs and we have the ability to 
show them how.
    Ms. Millender-McDonald. It is so great to see the name of 
Padilla and Rosales before us, because you represent the future 
in the global markets and small business. Thank you, Mr. 
Chairman.
    Chairman Toomey. Thank you very much and to the two 
witnesses, I would like to thank you for being here today and 
for your very illuminating testimony, but most of all I want to 
congratulate you for the great work you did in helping to reach 
this agreement. This is going to be great progress for both of 
our countries and mostly for the workers of America. So 
congratulations. At this time, I would invite the second panel 
to approach the witness table.
    Good morning, gentlemen. Starting our second panel this 
morning is Mr. Willard Workman, Senior Vice-President for 
International Affairs at the United States Chamber of Commerce. 
Mr. Workman is responsible for the Chamber's policy positions 
on international economic investment and trade issues 
confronting the U.S. business community and he will be 
examining, among other things the impact of the agreement on 
the Chamber's membership.
    Also with us today is Mr. James Morrison, President of the 
Small Business Exporters Association, which is the 
international arm of the National Small Business United, a 
bipartisan association of 65,000 companies in all 50 states.
    We also have with us two small business owners from my own 
home state of Pennsylvania. Mr. Arland Schantz. Welcome, 
Arland. Arland is a constituent and a friend and a seventh 
generation farmer in the Lehigh Valley. Mr. Schantz will 
examine the impact of this agreement on American farmers.
    In addition, we have Mr. Larry Wesson, president and CEO of 
Aurora Instruments in Ambler, Pennsylvania. Mr. Wesson will be 
testifying on behalf of the National Association of 
Manufacturers. Mr. Wesson's company manufactures equipment for 
the telecommunications, cable televisions, military, aerospace 
and research industries. Welcome to all of you. Thank you very 
much for being here. At this point I will recognize Mr. 
Workman.

  STATEMENT OF WILLARD A. WORKMAN, SENIOR VICE PRESIDENT FOR 
 INTERNATIONAL AFFAIRS, U.S. CHAMBER OF COMMERCE, WASHINGTON, 
                              D.C.

    Mr. Workman. Thank you, Mr. Chairman. You have my statement 
and I submit it for the record. I will just try to very quickly 
summarize the points there and a few other points that occurred 
as I listened to the previous panel.
    I represent the U.S. Chamber of Commerce. Most people think 
that we represent only large enterprises, but 96 percent of our 
membership are small business who employ 100 or fewer workers, 
60 percent of our membership employ ten or fewer workers. So 
although we do represent the large companies, the driving power 
and quite frankly the strength of our organization is small 
business.
    The issue of the Chile/U.S. free trade agreement is 
something that I personally have lived with for a long time, 
since I remember when it was initially proposed by President 
Bush, Sr., right after he signed the NAFTA agreement. Then 
after the NAFTA was passed by the Congress under President 
Clinton's tenure, President Clinton restated the desire to have 
Chile join the NAFTA arrangement. So this has been a long time, 
from my point of view, coming and I am glad to see that we are 
finally almost into the end zone on this.
    The agreement, we have reviewed it. We have read the 900 
pages that Mr. Padilla referred to. It is not scintillating 
reading I can assure you, but it is very, very important. It is 
a world-class agreement. We are pleased with it. We endorse it 
and we urge the Congress to pass it with all due speed.
    A couple things about why are we interested in free trade 
agreements and particularly as they affect small business. Let 
me give you a statistic that I have cobbled together. In 1992, 
according to the Census Bureau there were 118,000 small 
business exporters and they accounted for about 11 percent by 
dollar value of all U.S. merchandise exports in 1992.
    By 1997, that number had gone to 209,000 small business 
exporters and they accounted for about 30 percent by dollar 
value of all U.S. merchandise goods exports. I don't have 
statistics for the next 5-year tranche, which would be 2002. 
They are not available yet, but the indications are that we 
have probably seen yet another doubling. So we are looking at, 
at least, 400,000 small business exporters.
    Within the small business community, trade, not just 
exporting, but importing, some investment, what have you, the 
full range of engagement on trade is one of the fastest growing 
areas for small business in all sectors. So that is a 
particular interest of ours.
    I have a growing number of small business members that are 
calling me and asking me questions about things. So since we 
are a voluntary dues paying organization, I am trying to 
respond to my customers by this.
    The last point I would make is to talk a little bit about 
why trade agreements in general are so important for small 
business and particularly in light of 9-11. There is a trend, a 
slight trend but a trend of companies, of multinationals both 
American and European and Asian and Latin American, of pursuing 
and invest in lieu of export strategy on how they access 
markets.
    Now at that level, it washes out. A large company in order 
to access the German market, in the past they could export to 
it, but because there are necessarily delays now at ports of 
entry, because of increased security, to service the German 
market they will build a plant in Germany and service the 
market that way. The same thing with the German company who 
wants to sell into the U.S. market, instead of exporting into 
the market, they will build a plant in Alabama or North 
Carolina or wherever. So at that level there is a wash. To the 
consumer, it is almost an invisible transaction or change.
    To the small businessmen, they don't have the wherewithal. 
It is not in their business interest to go invest and build a 
plant in every foreign market that they want to access. So that 
is why lowering the tariff and the non-tariff barriers to their 
products and their service exports is so important. For them it 
is not a question of efficiency, as it is for the 
multinational. For them it is a question of survival.
    So I just wanted to give you some context about why at 
least our small business members have a particular interest in 
free trade agreements and why they work so hard and so long to 
urge the Congress to pass the old fast track Trade Promotion 
Authority that you did last year.
    So with that I conclude my remarks and I thank you.
    [Mr. Workman's statement may be found in the appendix.]
    Chairman Toomey. Thank you, Mr. Workman. Mr. Morrison.

    STATEMENT OF JAMES MORRISON, PRESIDENT, SMALL BUSINESS 
            EXPORTERS ASSOCIATION, WASHINGTON, D.C.

    Mr. Morrison. Chairman Toomey, Representative Millender-
McDonald and members of the Subcommittee, thank you for asking 
me to appear here today. I am James Morrison, the President of 
the Small Business Exporters Association.
    S.B.E.A. has a strong interest in international trade 
policy and trade negotiations. We work on behalf of American 
small and medium-sized enterprises with the World Trade 
Organization in Geneva. I also serve as a member of the 
Advisory Committee on Trade Policy and Negotiation, the federal 
government senior trade advisory panel.
    The trade agreement the Subcommittee is considering today 
comes at an important time. American SME exporters have 
increased dramatically in recent years, from 65,000 in 1987 to 
at least 225,000 today, perhaps 400,000 as we just heard.
    So the willingness to export is there, but most small 
business exporters ship to only one country, typically Canada 
or Mexico. SMEs still account for only about 30 percent of the 
dollar value of U.S. exports.
    So we need to extend the range of countries where smaller 
companies trade and to increase the value of their exports. 
Trade agreements are a vital part of this. Lowering the hassle 
factor of exporting to specific countries makes those countries 
more attractive export destinations and lowering exporting 
costs to those countries means that more American goods can 
sell there and more American companies can earn profits there 
and that can mean more American jobs.
    So it is good that the Subcommittee is reviewing the 
Chilean free trade agreement. We are very satisfied with this 
agreement and we urge Congress to approve it, but before I get 
into the specifics of the agreement let me suggest a way of 
thinking about it.
    S.M.E. exporters face both fixed and variable costs. An 
example of a fixed cost is a licensing fee. All businesses pay 
the same fee. An example of a variable cost is a tariff. The 
more you ship, the more you pay. If we want American SMEs to 
export more, it is obviously important to reduce variable costs 
like tariffs, but we also need to pay close attention to those 
fixed costs, because they can impose disproportionate burdens 
on SMEs.
    Paying $10,000 in legal fees to export is a nuisance for a 
large company. It is a potential show-stopper for a small 
company. This disproportionate burden concept incidentally is 
what underlies the Regulatory Flexibility Act, which tells 
federal regulators how to deal with small business. The Reg 
Flex Act basically says, try to avoid federal rules that are 
especially burdensome to small business.
    In exporting, these so-called non-tariff barriers generate 
such disproportionate costs for SMEs. Non-tariff barriers 
include foreign patent and trademark costs, physical presence 
requirements, paperwork requirements, performance bonds, 
licenses and other issues. Sometimes these disproportionate 
costs are subtle, such as when a country requires a foreign 
company to be structured in a certain way to do business there.
    Trade agreements can also help SMEs when they free up 
sectors of a country's economy where small businesses excel. 
Examples include e-commerce, professional services, some types 
of construction and various specific product lines, such as 
medical equipment and do-it-yourself supplies.
    Looked at in this way, I think it is fair to say that the 
Chile agreement is a remarkable step forward. First of all, it 
will immediately eliminate Chilean tariffs on 85 percent or 
more of all American consumer and industrial goods. That levels 
the playing field for us with other countries that have 
established free trade deals with Chile.
    Crucially for American SMEs, the Chile FTA also clears a 
way a range of non-tariff barriers, those disproportionate 
burdens that have impeded SMEs' access to Chile such as: 
Eliminating physical presence requirements that require 
companies to set up offices in Chile to trade there, making 
trading rules transparent so they are simple to understand, 
fair and stable. The Chile agreement sets very high standards 
in these areas. Simplifying customs procedures, a big plus for 
small exporters. The Chile agreement goes a long way down that 
road. Trade facilitation. As a general rule, American SMEs like 
to trade with foreign SMEs. So making more Chilean companies 
import ready helps our small exporters. The FTA goes in this 
direction.
    Liberalizing services trade. This is a boon to many small 
American companies that sell their services abroad, like 
consultants, engineers and accountants. The Chile FTA 
enormously helped businesses like theirs by eliminating service 
sector quotas, monopolies, exclusive domestic supply agreements 
and required corporate structures, basing technical standards 
and licensing on objective and transparent criteria and 
eliminating requirements that in effect restrict imports.
    Opening up e-commerce in Chile to American companies. 
Giving American companies a crack at Chilean government's own 
procurement by requiring open bidding on contracts worth 
$56,000 or more and prohibiting favoritism toward Chilean in 
such procurements.
    These are among the reasons why SBEA believes this 
agreement is a very good deal for smaller American companies. 
We commend USTR for its growing awareness of SME needs and 
trade agreements, as shown by this agreement. We again salute 
them for recently creating the first director of small business 
affairs in the history of the agency and we thank Greg Walters 
for his diligent work in that job.
    That concludes my remarks for today. I would be happy to 
accept questions.
    [Mr. Morrison's statement may be found in the appendix.]
    Chairman Toomey. Thank you very much, Mr. Morrison. At this 
time I am delighted to recognize Mr. Schantz.

 STATEMENT OF ARLAND SCHANTZ, OWNER/OPERATOR, EVERGREEN FARM, 
                         ZIONSVILLE, PA

    Mr. Schantz. Thank you. Mr. Chairman, I would like to 
briefly summarize the previous handed in written testimony.
    Chairman Toomey. If you could just bring the microphone a 
little bit closer to your mouth. Thank you.
    Mr. Schantz. Okay. Mr. Chairman, members of the Committee, 
I am Arland Schantz, owner of Evergreen Farm. I am a seventh 
generation farmer in Lehigh County, Pennsylvania where I 
operate a 150-acre Christmas tree, hay and grain farm.
    I appreciate the opportunity to testify today on the free 
trade agreement with Chile and the impact that it will have on 
small farmers like me. One in three acres of U.S. agricultural 
production is destined for a foreign market. Farmers earn on an 
average 25 percent of their net farm income from export sales. 
However, many foreign markets remain closed to our exports. At 
the same time farm import competition has increased 
dramatically.
    Today America's farmers are embarking on a new era, one in 
which the future will offer significantly more export 
opportunities to countries with whom the United States has 
signed free trade agreements. We must use these agreements to 
eliminate the many trade barriers on our exports.
    The agreement with Chile broke through many of these 
barriers and should become the standard for future free trade 
deals in that regard. In specific, two areas formerly used by 
Chile to block U.S. agricultural exports have been resolved.
    First, Chile operates a price band on imports of wheat, 
oilseeds, edible vegetable oils and sugar. Chile uses this 
price band to protect its producers from lower priced imports. 
This price band will be eliminated for U.S. agricultural 
imports when the agreement is fully implemented.
    Secondly, Chile maintains several SPS barriers on U.S. 
agricultural imports without a scientific basis. These barriers 
block the export of U.S. fruits, beef, lamb and pork and dairy 
products. We export meats, poultry and dairy products to all 
corners of the globe. However, Chile failed to recognize our 
federal inspection system and denied access to most U.S. meat, 
poultry and dairy plants. In addition, Chile failed to 
recognize U.S. beef grading standards.
    A parallel process was established to address these 
barriers. SPS measures that lack scientific merit should be 
fully eradicated before free trade deals are consummated. 
Failing to do this results in meaningless agreements. What good 
are zero tariffs when SPS measures block our exports?
    As a result of parallel process, Chile agreed to recognize 
our beef grading standards and federal inspection system for 
U.S. dairy, pork, beef and lamb. Both countries have agreed to 
undertake a two-year progress to study U.S. poultry standards. 
We urge Congress to monitor this two-year study closely to 
ensure its success.
    The agreement with Chile will open export doors for several 
U.S. commodities, including meats, dairy and wheat. I 
appreciate the opportunity to testify on the benefits of this 
agreement for U.S. farmers. Thank you.
    [Mr. Schantz's statement may be found in the appendix.]
    Chairman Toomey. Thank you, Mr. Schantz. Mr. Wesson.

  STATEMENT OF LAURENCE N. WESSON, PRESIDENT AND CEO, AURORA 
                 INSTRUMENTS, INC., AMBLER, PA

    Mr. Wesson. Thank you. Mr. Chairman and members of the 
Subcommittee, my name is Larry Wesson and I am president and 
CEO of Aurora Instruments, a small manufacturer of fiber optic 
test equipment located in Ambler in the great commonwealth of 
Pennsylvania.
    I am pleased to have this opportunity to address the 
Subcommittee and support the proposed free trade agreement with 
Chile. I am also pleased to speak on behalf of the National 
Association of Manufacturers or NAM and its 14,000 members, 
particularly the 10,000 small and medium manufacturers like 
Aurora Instruments.
    Aurora has been in business for 13 years and as you 
mentioned, we compete internationally in very exciting and 
challenging markets for telecommunications, cable television, 
military, aerospace and research. We manufacture fiber optic 
test equipment, primarily fusion splicers and related 
equipment.
    As an example, a fusion splicer I should mention is a 
device that welds two optical fibers together. If you can see 
this, that is a coded fiber. At the tip it is stripped, but a 
machine has to line up two of those and weld them together 
automatically. It is a very difficult thing to do.
    Aurora is also unique in being the only company which 
manufactures portable automatic fusion splicers in the United 
States. In fact, the only one in the western hemisphere, but we 
are a small company and we often feel like an American David 
against foreign Goliaths competing with us, particularly from 
Japan and Europe. Europe, as we know, now has a free trade 
agreement with Chile.
    Yet with striving, we can sometimes win big and Aurora has 
been very serious about export issues and very active in 
pursuing ways and means of expanding our exports. We have been 
very successful in many countries and we have exported to over 
30 countries worldwide and we have done very well, particularly 
in India, Australia, Mexico, Columbia and Chile.
    As an example of Chile, back in 1974 we had 74 percent of 
the Chilean market for portable fusion splicers, a small 
company like ours and our price at the time was 5.3 percent 
higher than our competitors. We still had 57 percent of the 
market in 1998, but since then things have gone downhill 
steadily. Factors that have hurt us have been not just tariffs, 
but also the telecom crisis, the Asian currency crisis, the 
overvalued U.S. dollar, but also our Japanese competitors are 
very aggressive on pricing.
    By the year 2000 and 2001, our effective prices were 20 
percent higher than those of our competitors and our market 
share had fallen to 34 percent. By the year 2002, we sold 
nothing at all in Chile.
    Over exactly the same period, our distributor in Chile has 
been importing ever increasing quantities from Europe. Their 
percentage of their own imports to Chile from Europe rose from 
1.9 percent in 1995 to 64.7 percent in 2002. Overall, U.S. 
suppliers including Aurora have seen their share of our 
distributors' imports to Chile fall from 87 percent to 31 
percent.
    I want to emphasize that the proposed free trade agreement 
is not a panacea. It is not going to solve everything for U.S. 
exporters. Many other factors as I mentioned, such as the 
overvalued dollar and the worldwide telecom market depression 
have a great deal to do with our business and our market, but 
it is very clear to us that a few percentage points saved in 
duty makes a big difference.
    As we see, when we are within a few points of our 
competitors, our technology and our service and our 
responsiveness can allow us to compete very strongly and win a 
major portion of the market.
    As part of our strong commitment to exports, my partner and 
I have participated in three international trade missions with 
Governor Tom Ridge and the most recent one was in Chile and we 
were in Santiago when the free trade agreement process started 
in December, 2000. We were privileged to be present when 
officials of the Chilean government presented to our group on 
the merits of this free trade agreement and in the strongest 
possible terms, it was the hottest topic of conversation at 
that time.
    I would like to close with one final reason, if you don't 
mind and perhaps ultimately the most important. In my mind free 
trade is a part of freedom and trade should be free because 
people should be free to keep and enjoy the fruits of their own 
labor and burdens like import duties takes some of that value 
from both sides of an honest relationship and voluntary 
transactions. Thank you. I look forward to your questions.
    [Mr. Wesson's statement may be found in the appendix.]
    Chairman Toomey. Thank you very much, Mr. Wesson and I 
appreciate the very principled statement you made at the end of 
your comments about one of the fundamental philosophical 
justifications for free trade. It is a manifestation of 
personal freedom.
    You told a compelling story about the decline in the market 
share that you have had in Chile. Do you anticipate that with 
the adoption of this free trade agreement, will that be enough 
in and of itself to regain some presence in the Chilean market 
in your judgment?
    Mr. Wesson. Yes. I think it would have an immediate effect. 
In fact, we are already hearing from our distributor that they 
see new opportunities. They want to revive the relationship and 
look at their pricing and be competitive with the Japanese 
imports. The value of the dollar is also very important and we 
have seen some progress in that. I think it is no coincidence 
that their revival of interest in importing our product comes 
at the same time as the enactment of the free trade agreement.
    Chairman Toomey. Right. So despite all the other factors, 
many of which you alluded to that have contributed to the 
decline in your market share, this agreement in and of itself 
is likely to allow you to regain a foothold in Chile and begin 
the growth of yourself. That is terrific.
    Mr. Wesson. Yes.
    Chairman Toomey. This is for either Mr. Workman or Mr. 
Morrison or both of you. Many people observe that we have had a 
significant decline in the number of manufacturing jobs in 
particular in the United States and that the manufacturing 
sector of our economy has declined as a percentage of our total 
GDP and that has been true for a number of years now.
    Many people attribute that decline to competition that 
comes from overseas, as a result of America's relatively free 
trading regime, the fact that we have a relatively open economy 
and some suggest that this is actually harmful to America 
because of this decline in manufacturing companies and 
manufacturing jobs. How do you respond to a charge such as 
that? Either or both of you.
    Mr. Workman. You are absolutely right. The manufacturing 
sector has been in stress and in a recession far longer than 
the rest of the economy. The notion that we are somehow 
exporting jobs, I take issue with. The investment will be made 
because there is a good return on the investment and so 
although you are putting money out in new plant and equipment 
someplace in country X, there is a return back to the United 
States to the parent company and that allows them to export to 
their subsidiaries.
    If you look at the fabric of U.S. exports, a significant, 
perhaps a majority of it is intracompany transfers where the 
parent company in Waukegan, Illinois is exporting to the 
assembly plant in Lyon, France. So this notion that we are 
exporting jobs, I take some issue with.
    The other point about that manufacturing is a percent of 
GDP has declined is also absolutely true, but someone once 
said, I forget who about statistics and damn statistics, if you 
look at the GDP and compare it with the end of World War II, 
when manufacturing accounted for something like 60 percent of 
U.S. GDP, our U.S. GDP is 11 or 12 times larger now than it was 
back in 1945, 1950.
    Just comparing those numbers in constant dollars with 1945, 
even though we have fewer people working, i.e. we are more 
productive, we are more efficient, even though as a percent of 
the larger economy it is lower, the output is about three or 
four times what it was in 1950. So this kind of angst about we 
are losing our manufacturing base is something that we need to 
pay attention to for sure, but I don't think it is time to ring 
the alarm bells quite yet.
    Chairman Toomey. Mr. Morrison, did you want to add anything 
to that?
    Mr. Morrison. I guess I would say two things. First of all, 
when we have agreements with other countries it is always 
important to police the agreements and make sure that it 
safeguards any agreements are implemented and observed by 
everybody and there are instances in which that doesn't happen 
and those have been pointed out from time-to-time and they do 
deserve attention.
    The other thing I would say is that you know the best 
defense is a good offense. A lot of times I hear people 
complaining about imports and business. I say well how are you 
exporting? What are you doing to export? There isn't much of an 
answer.
    Ninety-six percent of the world's consumers live outside of 
the United States. It seems to me that any entrepreneur that 
doesn't have a plan for dealing with most of the world's 
population can't really call themselves an entrepreneur. I 
think if companies focus more on export markets, on selling 
abroad, the issue of I being I will hustle a little bit here 
becomes less relevant.
    I had a member talk to me the other day about a printing 
press that he wanted to sell that got out bid by an Italian 
company and I said, well it can't be labor cost differential 
because there is not much in Italy. In fact, it may be more 
there. What it boiled down to was that they worked harder and 
they out hustled him for the contract.
    I think American companies have to realize that we are in a 
global trade situation and that most of the world's consumers 
are outside of this country and we have to focus on exporting.
    Chairman Toomey. Thank you very much. At this time I will 
recognize the gentlelady from California.
    Ms. Millender-McDonald. Thank you so much, Mr. Chairman. 
Mr. Workman I suppose you say you take issue at the sayings 
that jobs are being exported out of the country. Perhaps that 
may not be a good assessment, but we are losing jobs to foreign 
countries by virtue of those jobs going over to those countries 
and the workers over there are getting the jobs that we once 
had. This is why the Chairman of the Full Committee continues 
to have hearings on our assessment of our manufacturing base.
    You spoke of small business now we have exporting over 
400,000 as opposed to Mr. Morrison saying that it was once 
65,000. What sizes are these small businesses that we have that 
are 400,000 now that are part of this global market and what is 
the bottom line net profit for them? Do you have any----.
    Mr. Morrison. Well, the Census Bureau that did the survey 
in 1992 and 1997, they used as their measure as to what is a 
small business a 500 workers or less. So that is what the 
118,000 in 1992 and the 209,000 in 1997 and as I said, we don't 
have the figures yet for 2002, because they do these in five-
year segments, but the estimates are that it is going to be 
over 400,000. We have been seeing a trend where they double 
every five years in terms of numbers involved. That is the 
quote definition that Census used to define a small business.
    On the issue of exporting jobs, I want to reemphasize a 
point that my colleague made earlier when we talk about a level 
playing field. There is a way, a legal, internationally 
recognized way to level the playing field in the U.S. market 
and that is called the anti-dumping countervailing duty laws.
    The Chamber has long been an advocate for very strong, very 
rigorously enforced anti-dumping countervailing duty, where you 
impose a duty on a good that is being either subsidized for 
sale into the U.S. market or is being dumped so below market 
price in order to get market share in the U.S. market.
    In our mind you can't be an advocate for open free and fair 
trade and just focus on the export side, unless you look at 
having rigorous enforcement of the laws to protect American 
companies here in the U.S. market. So that is one of the 
chapters in the Chile agreement that at the chamber we pay very 
much attention to.
    Now I can't get into discussions about whether we should 
protect steel or----.
    Ms. Millender-McDonald. That was my next question. You must 
have been reading my mind and that is rather dangerous when you 
do that.
    Mr. Morrison. Because as you might imagine, all the steel 
companies or steel producers are members of the Chamber and all 
the users are members of the Chamber.
    Ms. Millender-McDonald. I understand.
    Mr. Morrison. So we are aggressively neutral on that 
particular sector.
    Ms. Millender-McDonald. Delicate balance there. That is 
true. In fact, a lot of the car manufacturers in my district 
are wondering if the President is going to repeal the Section 
201 to allow now for the importing of steel back into the 
country and we are hoping that kind of stays to some degree.
    Dr. Morrison and I know with a Ph.D. I will call you Dr. 
Morrison, with the devalued dollar, how can we see the effects 
of what we perceive as growing small businesses that are in 
this global market those numbers be perhaps decreased, because 
you have the devalued dollar?
    Also, with the European Union, I think Mr. Wesson talked 
about Europe has a free trade agreement with Chile, but you 
know there are a lot of subsidies that go along with the 
European anything. They have a lot of subsidies that the EU 
gives to them. With our devalued dollar, do we see a decrease 
in these small businesses going more global or are we going to 
continue to see the increase of these small businesses?
    Mr. Morrison. I think the dollar is sort of like steel, it 
cuts both ways. If you use imported products as an input into 
your process at some level, then even if you are an exporter 
your prices are probably going to go up. If you are a pure 
exporter, basing all of the production on domestic factors, the 
cost of your exports will go down. A lot of my members are 
pretty happy about the dollar right now. They are selling in 
markets where they couldn't get into for the last couple of 
years. There is differences of opinion on that, depending on 
how a particular business is structured.
    Ms. Millender-McDonald. And the commodity that you have I 
suppose, too.
    Mr. Morrison. Yes. I think that between the dollar and 
agreements like this, of which there are quite a few in the 
pipeline, the prospects are pretty bright for small business 
exporters.
    Ms. Millender-McDonald. That is encouraging. It seems like 
my time goes so quickly. I wanted to ask Mr. Schantz something.
    Chairman Toomey. I would be happy to yield additional time 
to the gentlelady from California.
    Ms. Millender-McDonald. Thank you so much. Mr. Schantz is 
it?
    Mr. Schantz. Schantz.
    Ms. Millender-McDonald. Yes. Thank you. How do you 
pronounce your name again?
    Mr. Schantz. Schantz.
    Ms. Millender-McDonald. Schantz. Thank you. You were saying 
that and in looking at your statement and it is good to know 
you have Christmas trees, I will know where to come to get a 
Christmas tree, you are saying foreign import competition has 
increased drastically. The United States has one of the most 
open agricultural markets in the world and we really do, but 
then as we go down to your statement you say, yet they 
experience limited opportunities to export abroad. Why is that 
and when will we get to this more balanced competition when it 
comes to agriculture? Agriculture is number one in the state of 
California. So we have had mucho problems with the ability to 
export.
    Mr. Schantz. Well, agriculture is the top in Pennsylvania 
also. One of those various problems do arise which the Chilean 
free trade agreement is solving is the non-tariff type barriers 
that have been a problem in exports.
    I being in production agriculture, do not know maybe some 
of the real specifics of it, but I know so often different 
things come up like the price bonding, like the licensing 
requirements, things like that, the sanitary type requirements 
that are thrown into an agreement that even though the tariffs 
have been reduced, these other items sort of limit the amount 
of product that can flow out of the country.
    Ms. Millender-McDonald. So the Chile agreement will help us 
in expanding opportunities now in the agriculture industry?
    Mr. Schantz. Yes, in the certain sectors that they are in 
need of. I mean it will be of benefit yes, to agriculture. But 
of course certain products it will be a benefit more than 
others.
    Ms. Millender-McDonald. I guess that is predicated on all 
commodities, as to whether one is better than the other. Mr. 
Wesson, with the European Union having free trade with Chile 
and now that we are entering into this, do you think with all 
of their subsidies it will hurt or hinder us as we move into 
the Chile agreement?
    Mr. Wesson. That is hard to say. I have seen evidence of 
European subsidies in some cases. I can't put my finger on it 
in Chile or South America. They are not a significant factor. 
Again, the value of the dollar and the tariffs and VAT seem to 
have more effect. I have heard that some countries in Europe 
are trying to adhere to international standards on subsidies 
with mixed success. The more the better. They have posed a 
problem for us in other countries, like India.
    Ms. Millender-McDonald. I know.
    Mr. Wesson. It has been a big deal in India. But as to an 
effect in Chile, I can't say.
    Ms. Millender-McDonald. Just one more question to all of 
you and I would like for each of you to answer if you can. It 
has been stated that the Chilean agreement will be used as a 
model for future trade agreements, especially those in Central 
and South America. Do you believe this is a wise idea, 
recognizing that certain areas especially those in Central 
America, have both weak and poorly enforced laws? That is a 
grab bag.
    Mr. Workman. I think that is a nice sound bite, but I used 
to be a trade negotiator and the reality is each one is unique. 
That is also why although some people say why don't we just do 
ten trade agreements and then send them all up to the Congress 
at the same time, that is why the Congress has always insisted 
in viewing them one agreement at a time. They have to rest on 
their individual merits.
    I think the larger issue here and individual bilateral free 
trade agreements are important, we should go ahead and do them. 
We haven't been doing them for eight years. But, the real bang 
for the buck in the regional agreements and the WTO, DOHA round 
of negotiations, if we get an agreement in DOHA that is with 
146 countries. So, it covers almost 80 percent of our trade.
    That is where I think in terms of priority that is where 
the administration should be focused and things are not going 
well at DOHA. They haven't met one of the deadlines that they 
set for themselves. They have this mid-term ministerial coming 
up in Cancun in September, a nice place to visit but I don't 
know what they are going to put in the communique.
    That is where the issue of agriculture. I also own the 
family farm in the great state of Delaware, which some claim is 
a suburb of Philadelphia but we take issue with that, and I 
will tell you that what happened in the Uruguay round was that 
we didn't reach a conclusion, particularly with the Europeans 
on agriculture. Those negotiations and this is not well known, 
have actually continued since 1994. We still haven't reached a 
conclusion with the Europeans.
    They are now extending it to the ten new members of the 
European Union. So this is a problem. That is a major problem. 
If you are going to continue to do as a concept trade 
negotiations as what they call a single undertaking, i.e. we 
deal with industrial goods and agriculture, then we are going 
to have to get the Europeans to come to grips with their 
agriculture policy.
    For friends like my colleague from Pennsylvania, it 
absolutely forces American farmers out of third country 
markets. The issue is not access to the European Union market, 
but they are subsidizing their exports to the rest of the 
world. So that is a big issue and it is a tough issue. I wish 
the administration well. We will do all we can to support them 
on that.
    Mr. Morrison. I just would add to that, that if I 
understand the administration's negotiating strategy and I am 
sure that Mr. Padilla or Mr. Workman would be better to speak 
to this than me, but it is competitive liberalization and the 
reason that they will start with a country like Singapore or a 
country like Chile is that they can establish the baseline that 
they are looking for in the other agreements.
    Now for the other countries to get to that baseline, like 
some of the Central American countries, is going to take a lot 
of heavy lifting and I think that is part of the idea is to 
encourage them to do a lot more than they have done.
    Mr. Padilla mentioned the Guatemalans taking another look 
at their labor laws. I think that is the idea is to try to 
force the other countries up to the level that has been set by 
the Chile deal.
    As far as the Europeans are concerned, just to go back to 
your other point, I mean where we encounter them most 
aggressively is in the export finance area, less in the 
subsidiary area, but they play a lot of games with their export 
financing and that is the back door way of subsidizing their 
exports.
    Ms. Millender-McDonald. Mr. Chairman, thank you so much. I 
do have a statement for the record.
    Chairman Toomey. Without objection it will be submitted to 
the record.
    [Ms. Millender-McDonald's statement may be found in the 
appendix.]
    Chairman Toomey. I would like to thank all the witnesses 
for their very helpful testimony. Thank you for being here and 
the hearing is adjourned.
    [Whereupon, at 1:26 p.m., the Subcommittee was adjourned.]

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