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



                                                   S. Hrg. 102-000 deg.

 THE WTO'S CHALLENGE TO THE FSC/ETI RULES AND THE EFFECT ON AMERICA'S 
                           SMALL BUSINESSES

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                   WASHINGTON, DC, SEPTEMBER 10, 2003

                               __________

                           Serial No. 108-36

                               __________

         Printed for the use of the Committee on Small Business


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


                                 ______

92-799              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                      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
Crane, Hon. Phillip M., U.S. Representative, Illinois............     3
Levin, Hon. Sander M., U.S. Representative, Minnesota............     5
Kobe, Kathryn, Joel Popkin and Company...........................     7
Doolittle, Brian, Morton Metalcraft Company......................     9
Trammell, Leon, Tramco Inc.......................................    11
Herrnstadt, Owen E., International Association of Machinists and 
  Aerospace Workers..............................................    12
Falconer, Lloyd, Seward Screw Products, Inc......................    15

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    29
Prepared statements:
    Crane, Hon. Phillip M........................................    31
    Levin, Hon. Sander M.........................................    35
    Kobe, Kathryn................................................    38
    Doolittle, Brian.............................................    52
    Trammell, Leon...............................................    54
    Herrnstadt, Owen E...........................................    59
    Falconer, Lloyd..............................................    62

                                 (iii)

 
 THE WTO'S CHALLENGE TO THE FSC/ETI RULES AND THE EFFECT ON AMERICA'S 
                            SMALL BUSINESSES

                              ----------                              


                     WEDNESDAY, SEPTEMBER 10, 2003

                  House of Representatives,
                        Committee on Small Business
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 2:40 p.m. in Room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo 
[chairman of the Committee] presiding.
    Chairman Manzullo. During August of 2002, a World Trade 
Organization arbitration panel determined that the European 
Community is entitled to over $4 billion of annual 
countermeasures against the U.S. for failure to repeal it's 
FSC/ETI rules, rules that level the international trade playing 
field by providing modest tax incentives for U.S. exporters.
    Earlier this year, European Trade Commissioner Pascal Lamy 
announced that sanctions would begin on January 1st of next 
year if Congress fails to repeal the present FSC/ETI rules 
before the end of the year.
    Within the past month, OMB Director Josh Bolten emphasized 
the need to act swiftly in complying with the WTO decision and 
stated that any legislative solution needs to be revenue 
neutral. The same mantra has been repeated for months in the 
Senate. Compliance with the WTO decision needs to be revenue 
neutral in order to ensure passage in the Senate.
    Despite the fact that significant economic trade sanctions 
and possibly a trade war loom on the horizon to date the only 
revenue neutral solution to the WTO decision is H.R. 1769, Job 
Protection Act of 2003. This bill, otherwise known as the 
Crane-Rangel-Manzullo-Levin bill after the bill's original four 
co-sponsors, currently has over 140 sponsors in the House.
    In brief summary, Crane-Rangel-Manzullo-Levin replaced the 
FSC/ETI rules with an exclusion from taxation of up to 10 
percent of income for domestic manufacturers and producers. 
This straightforward solution is appropriate given the current 
crisis in domestic manufacturing, coupled with the fact that 
over 75 percent of the FSC/ETI benefits currently flow to 
domestic manufacturers.
    The only other legislation solution in the House to the WTO 
challenge is a bill recently introduced by the Chairman of Ways 
and Means Committee, Mr. Thomas. Unfortunately, that bill is 
not revenue neutral. It would cause an additional $128 billion 
over 10 years, therefore is a political nonstarter in the 
Senate.
    The Thomas bill also contains several controversial tax 
increases. For example, the Thomas bill would impose higher 
taxes on foreign-owned corporations that operate in the U.S. 
Foreign subsidiaries employ 13.5 percent of the domestic 
manufacturing workforce and account for 22 percent of all U.S. 
exports.
    The Thomas bill tax hike would discourage further 
investment and put existing U.S. jobs at risk.
    A great deal is at stake in the face of the WTO challenge. 
Our domestic manufacturing base has been hauled out right 
before our very eyes. Something must be done to ensure that a 
viable manufacturing base is preserved in the U.S., 
particularly for our small businesses.
    Our first panel we will hear from Congressman Phil Crane 
and Congressman Sander Levin. These two individuals are the 
original co-sponsors of Crane-Rangel-Manzullo-Levin, and are to 
be praised for their leadership in trying to resolve the 
current WTO challenge.
    In our second panel we will hear from several small 
business witnesses as well as experts who will discuss the 
current crisis in domestic manufacturing.
    Originally, Senator Breaux of Louisiana and Senator Smith 
of Oregon were scheduled to appear on the first panel. These 
two senators circulated a letter last month signed by 42 other 
senators that urge compliance with the WTO decision in a manner 
that would, first and foremost, benefit U.S. manufacturing, 
which our bill does.
    Unfortunately, Senator Breaux has been detained with the 
Medicare conference. In addition, the unexpected death of 
Senator Smith's oldest son earlier this week understandably 
changed his plans. Our sympathies are with Senator Smith and 
his family during this tragic time. I know I speak for all 
members of the Committee when I say that we grieve with the 
Smiths and pray for them.
    I look forward to the testimony of the witnesses. On behalf 
of the Committee, I wish to thank the witnesses for coming, 
especially those who have traveled far.
    [Mr. Manzullo's statement may be found in the appendix.]
    Chairman Manzullo. I now yield for an opening statement by 
the gentlelady from New York, Mrs. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    In the spring, this Committee held a hearing on export 
benefits for our domestic producers. One of these benefits is 
the FSC/ETI regime. This regime provide tax benefits to the 
exporters to help them effectively compete in the international 
economy. Unfortunately, the European Union lodged a complaint 
against this provision through the World Trade Organization.
    As a result, if the FSC/ETI provisions are not repealed, 
the European Union have threatened over $4 billion in 
countermeasures per year on U.S. goods starting in 2004.
    It is in our best interest to comply with international 
rules and avoid the billions in sanctions, but where will this 
leave our exporters?
    Right now our exporters, many of which are small and 
medium-sized businesses, need help. They face a struggling 
economy here at home and tough competition abroad. If the FSC/
ETI provisions are taken away, measures must be put in place to 
keep our export businesses strong and successful in the 
international trade arena.
    This, in turn, will help our country since exporting can be 
a powerful engine of economic expansion and job creation.
    In the first hearing, our Committee focused heavily on how 
the FSC/ETI repeal will hurt U.S. manufacturers. I thin it is 
important that in today's hearing we also look outside of the 
manufacturing sector and recognize how the service sector will 
also be affected. This is not only a manufacturing issue; it is 
an issue for farmers, financial service firms, and many small 
exporters as well.
    Whatever the answer may be it must be focused on providing 
the necessary assistance to all those U.S. exporters that 
benefit from the FSC/ETI and stand to lose the most when it 
disappears.
    As we know, right now there are two proposals to address 
the issue, but in this debate it is critical that we do not 
cast the net too wide. With our current budget and trade 
deficits, this nation simply cannot afford to provide tax 
benefits to companies that do not really need them or will not 
be impacted by this measure.
    An answer needs to be found and fast. Our nation's 
exporters will face $4 billion in annual retaliatory sanctions. 
This will put them at an even more pronounced competitive 
disadvantage than the one they already face.
    No one is questioning the need to act, but it is debatable 
what solution makes the most sense. We need a solution that 
will assist the largest number of our exporters with the most 
reasonable price tag.
    But once again, a sweeping approach instead of a targeted 
is being favored. Only in Washington would we attempt to solve 
a $50 billion trade problem with an almost $200 billion 
solution. It is ironic that while funds for the child tax 
credit are unavailable, these same lawmakers can come up with 
twice the amount needed to create additional corporate tax 
breaks.
    In order to solve this problem, we need a solution that 
will focus on all the affected sectors, helping them to recoup 
the costs they will lose as a result of the repeal. We cannot 
use this as an excuse to pass more tax cuts. That is the last 
thing our country and our exporters need right now.
    As the deadline looms for the end to this rule, we must 
find a solution that secures the safety and competitiveness of 
our nation's exporters in today's global market by benefiting 
those companies that will suffer with the most good for them 
and for our nation as a whole.
    Thank you, Mr. Chairman.
    Chairman Manzullo. And thank you.
    Congressman Crane.

STATEMENT OF THE HONORABLE PHILIP M. CRANE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Crane. Thank you, Mr. Chairman, and Members of the 
Committee for inviting me to testify today. When I last 
appeared before this Committee, I submitted fairly lengthy 
testimony regarding my views on how best to address the FSC/ETI 
challenge that Congress must solve this year in order to avoid 
$4 billion in potential annual retaliatory sanctions against 
U.S. businesses by the EU and a $51 billion tax increase over 
the next 10 years on U.S. manufacturers. I will therefore keep 
my remarks brief, and I look forward to answering any questions 
you might have.
    Again, Mr. Chairman, I would like to say that it has been a 
privilege working with you to develop legislation that will 
both bring us into compliance with our WTO agreements and 
strengthen domestic manufacturing. I believe that our 
legislation, H.R. 1769, the Job Protection Act of 2003, also 
known as Crane-Rangel-Manzullo-Levin, is the best way to 
address the FSC/ETI challenge.
    When I last testified before this Committee on May 14th, 
broad bipartisan support for H.R. 1769 already existed. Since 
that time, an additional 80 representatives have added their 
names to this legislation. As it now stands, over 140 Members 
of Congress have cosponsored H.R. 1769, including seven 
Committee chairman and six ranking members, and the breakdown 
has been almost 50/50 Democrats/Republicans.
    The reason for this support is clear: our legislation makes 
sense. At a time in which our nation is hemorrhaging 
manufacturing jobs, it would be irresponsible to raise taxes on 
that sector of the economy. Yet, that is precisely what some 
proposals would do.
    H.R. 1769, in contrast, returns all of the $51 billion 
raised upon the repeal of FSC/ETI to the manufacturing sector 
from whence it came. The effective rate reduction in our bill 
is undoubtedly WTO-compliant, because it treats all 
manufacturers producing in the United States equally, 
irrespective whether they export. At the same time, it provide 
significant transition relief to current FSC/ETI beneficiaries. 
This transition relief is similar in scope to that which we 
have granted the EU in similar, long-running trade disputes.
    Unlike other proposals H.R. 1769 does not impose 
controversial tax increases on the domestic operations of 
foreign companies. Foreign subsidiaries employ 13.5 percent of 
the domestic manufacturing workforce and account for 22 percent 
of U.S. exports. And as you said, Mr. Chairman, tax hikes of 
the kind contained in H.R. 2896 would discourage further 
investment and put existing U.S. jobs at risk.
    This debate has become politically charged, but there is 
far too much on the line to allow this to denigrate in a mere 
political exercise. At stake are millions of manufacturing jobs 
here at home, as well as a potential annual $4 billion 
retaliatory tariffs by the EU against our businesses if we do 
not repeal ETI this year. We must act now to stop either of 
these two events from occurring.
    In closing, I look forward to continuing to work with my 
colleagues to address our WTO commitments while ensuring that 
we maintain a strong manufacturing base here at home. We must 
insist on no less.
    Thank you, Mr. Chairman.
    [Mr. Crane's statement may be found in the appendix.]
    Chairman Manzullo. Thank you, Congressman Crane.
    Congressman Levin.

STATEMENT OF THE HONORABLE SANDER M. LEVIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MINNESOTA

    Mr. Levin. Thank you, Mr. Chairman and Ranking Member 
Velazquez, and other colleagues, Sue Kelly, Congresswoman 
Kelly, and Congresswoman Sanchez.
    I am really glad to be here. I have been glad to be a 
member of the group of four. Three of us are here today. Mr. 
Rangel is very much here in spirit. He will be back next week 
in full form. Here is why I am so glad that we are doing this.
    Number one, the crisis is clear, and it is now being 
repeated so often maybe it is getting through. Thirty-seven 
straight months of job losses in manufacturing, a record since 
the Great Depression; 2.5 million jobs, manufacturing jobs lost 
since 2001. So the facts, the basic dynamic is clear.
    Secondly, FSC has been an important tool. There has been 
some discussion about it, about whether it was broad enough, 
but undeniably it was an important tool for our manufacturers.
    Three, our proposal addresses this need. It has a clear 
focus to it. Its focus is on manufacturing. Its benefits could 
be spread or would be spread somewhat broader than that, but it 
is almost a laser beam as much as my fourth point is WTO 
consistence. It is.
    And I would ask unanimous consent from the Subcommittee if 
I could enter a brief description of the WTO consistency.
    Chairman Manzullo. Without hesitation.
    Mr. Levin. You know, we have looked at this, and I think 
clearly it is. You know, the history of this is that the 
Europeans had an advantage because of their vast VAT system. 
And so the U.S. tried a number of approaches to try to be 
essentially on a level playing field with the Europeans and 
anybody else who had a VAT system.
    When we were about to adopt this, I think it is pretty 
clear the Europeans acknowledge the U.S. had to do something, 
and the assumption was it would not challenge the FSC, which 
was a replacement for a predecessor. But they went ahead and 
did so, they challenged it, in my judgment, to gain some 
advantage in bargaining on other trade issues.
    But we are where we are and this bill that now has 143 
sponsors, a wide variety of members, is responsible to the 
need, is WTO-consistent.
    The Chairman of our Committee has introduced a bill that, 
number one, is really a hodgepodge. It goes way beyond the 
problems in manufacturing. And when one reviews it, one sees 
indeed what a hodgepodge it is. I have worked on reform of 
international law system for a number of years. This goes way 
beyond any set of proposals that has had a broad base of 
support.
    And another point is they are expensive. The bill that we 
have introduced and now has so many sponsors is not only WTO-
consistent, it is fiscally sound, and I don't know where in the 
world our Chairman feels the money would come from for what 
would be somewhere between 128 and 200 billion, depending on 
its final shake.
    So I just urge all of us to pull together here. The crisis 
is so plain. This is one of the pieces of an appropriate 
response to that crisis. So I am hopeful in the next weeks that 
this matter will be taken up, and that there will be this 
strong bipartisan effort successful first in the Committee, and 
then on the floor.
    I think the manufacturers of this country are waiting for a 
response from the White House and the House and the Senate, and 
this bill here is the appropriate response.
    Thank you very much.
    [Mr. Levin's statement may be found in the appendix.]
    Chairman Manzullo. Do you gentlemen have time for a couple 
of questions?
    Mr. Levin. Sure.
    Chairman Manzullo. The Senate Finance Chairman Grassley 
announced earlier this week that it intends to introduce the 
markup of FSC/ETI bill before the end of the month, and I was 
wondering if you wanted to comment on Senator Grassley's 
thoughts of the bills vis-a-vis the Thomas Bill and Crane-
Rangel-Manzullo-Levin.
    Mr. Crane. I have not seen and read the Grassley bill yet, 
but what I have read about it sounds very similar to our 
proposal, and I think that we can anticipate that he is 
marching down the same path, and that we could get good support 
between our two chambers.
    Mr. Levin. My reading is the same. I think it is focused, 
from what I read, and fiscally responsible.
    Chairman Manzullo. I had one other question that I--
Congressman Levin, that I wanted to take from your written 
testimony, and see if you could embellish on it. It is on page 
2 in the--it is the last sentence in the second full paragraph 
where it starts, ``When you put the two together, the Thomas 
bill raises taxes on some domestic manufacturing activities 
while lowering taxes on the offshore manufacturing activities 
of U.S. firms. In other words, the Thomas bill effectively 
provides an incentive for U.S. companies to move production 
offshore.''
    Could you elucidate upon that?
    Mr. Levin. Yes. First of all, if there is a repeal of FSC, 
and by the way, I think we should have been raising this issue 
in the WTO negotiations now underway in Cancun, but we really 
did not effectively do that, but if we repeal FSC and do not 
replace it with a proposal that addresses manufacturing, by 
definition you are going to raise taxes on a good part of the 
manufacturing processes in this country. There is no escape 
from it.
    And the problem is deepened because of some of the reforms 
that he is proposing, at least within the original bill, and as 
I said, we need reform of the international tax laws, and we 
have done some of this, but this goes way beyond. And I think 
the way it is constructed would stimulate more offshore 
production and business rather than less because of the mix of 
proposals that he has on the international tax law structure.
    Chairman Manzullo. Thank you.
    Mrs. Velazquez?
    Well thank you for your testimony. Appreciate it very much.
    Mr. Levin. Thank you.
    Chairman Manzullo. Look forward to getting a lot more co-
sponsors.
    Mr. Levin. You bet. Keep this up.
    Chairman Manzullo. We will.
    Mr. Levin. Thank you.
    Chairman Manzullo. We will.
    It is good to have you all here, and the rules generally 
are limit your testimony to five minutes. There is a little box 
up there that when it is green, you are fine; when it is 
yellow, you are on one minute of thin ice; when it is red, it 
is time for the next witness. So the written statements offered 
by the witnesses will all be made part of the official record. 
Anybody else wanting to submit a statement for the official 
record can do so, provided that it is limited to two pages of 
single-spaced type, no appendices, and the type has to be at 
least 11 point. It is pretty specific, is it not?
    Okay, our first witness is Kathryn--is it Kobe?
    Ms. Kobe. Kobe, that is correct.
    Chairman Manzullo. Chief Economist for Joel Popkin and 
Company, and that firm recently authored a study on the 
condition of manufacturing the U.S.
    We look forward to your testimony.

  STATEMENT OF KATHRYN KOBE, CHIEF ECONOMIST, JOEL POPKIN AND 
                    COMPANY, WASHINGTON, DC

    Ms. Kobe. Thank you, Mr. Chairman, Members of the 
Committee, I am Kathryn Kobe. I am Chief Economist of Joel 
Popkin and Company. We are economic consultants here in 
Washington, D.C., and as was mentioned by the Chairman, we 
recently completed a white paper on the importance of 
manufacturing for the Council of Manufacturing Associations. I 
have been asked to just outline the current state of 
manufacturing in the U.S.
    One sign of a healthy economy is if employment is 
increasing, and by that standard manufacturing is not healthy 
right now. Since the beginning of the recession, the number of 
manufacturing jobs has declined by 2.4 million. That is between 
March of 2001 and August of 2003, and that is over 70 percent 
of the 3.3 million jobs lost during the time period in the 
private sector.
    However, manufacturing was already losing jobs prior to 
that. It has lost about a half a million jobs between 1998 and 
the beginning of 2001, and we are to a point now, and I think 
this a more worsened point, where we have lost more jobs in 
manufacturing since the end of the recession than we did during 
the recession.
    And I think that brings us to the question as to whether 
this is a different cycle than we have seen in the past, or 
whether this follows the pattern of the usual business cycle.
    Because of a lot of productivity growth in manufacturing, 
if you had relatively anemic job growth in manufacturing but 
still had growth in output, you might think that the sector was 
somewhat more healthy than it looks right now. But we are not 
seeing that. In the expansions during the sixties, seventies 
and eighties, after 20 months of expansion you were seeing 
growth in manufacturing output of close to 20 percent. In the 
1991 expansion, it took a little bit longer, actually several 
months longer, to reach that point, but even than after 20 
months manufacturing output was up 80 percent.
    In this expansion after 20 months, manufacturing output is 
up less than one percent. Manufacturing output has not grown 
since the end of the recession.
    If we really are looking at a decline in the manufacturing 
sector in the U.S. rather than simply as cyclical downturn that 
will turn up as the economy turns up, what are we losing? I 
think we are losing quite a bit.
    Demand for manufactured products produces more secondary 
growth than does any other sector in the U.S. economy. That 
means for each dollar of final demand in manufactured product, 
an additional 1.43 dollars worth of goods and services is 
needed to produce it.
    It is also a leader in productivity growth. For the past 15 
years, predicative growth in manufacturing has grown over three 
percent a year, and that really drives underlying productivity 
growth in the whole U.S. economy.
    Manufacturers link the U.S. and the rest of the world. 
United States is the world's largest exporter of manufactured 
good. In 2001, it exported almost $600 billion worth of goods, 
and through most of the past two decades it has held its share. 
Through a vastly growing manufacturing trade sector, its share 
has remained relatively constant, between 12 and 13.5 percent.
    However, in 2002, manufacturing trade increased but U.S. 
exports declined. Consequently, its share declined as well, and 
I think that is not a good sign for the manufacturing sector in 
the U.S.
    Manufacturing has provided very well paying jobs. In 2001, 
salaries and benefits averaged about $54,000 in the 
manufacturing sector. And it offers job opportunities to a wide 
range of workers across the educational spectrum. It is the 
second largest employer for the workforce with less than a high 
school diploma, but also is using a lot of employees with 
college training as well.
    But most importantly, manufacturers are a major force in 
inventing the future. They still conduct over 60 percent of all 
private sector R&D, but that is down from 80 percent just 10 
years ago. In real terms spending on R&D by all private 
industry barely changed in 2002, and we think this is one of 
the major dangerous parts if we begin to lose the manufacturing 
sector.
    The process through which R&D promotes economic prosperity 
is very multifaceted and very complex. I am not going to go 
through it today, but not only do you get direct benefits to 
the firms who are making investments in R&D, but you get 
secondary benefits through spill-over effects from R&D, and 
those spill-over effects are strongest in a situation where you 
have a pretty geographically centered manufacturing sector, so 
that everybody looks around and can see what the new 
improvements are, the new processes are. This generates new 
ideas in other sectors of the economy.
    Consequently, if you disperse your R&D across the globe, we 
think there is a danger that you will not get those same spill-
over effects that you are seeing now, and that will be a big 
loss to what U.S. manufacturing has been quite well known for, 
which is the new ideas, the technology innovations.
    Manufacturing provides a base for many important activities 
in the U.S. economy, and while it will never disappear 
entirely, we do think that we could get to a point where we 
lose the critical mass and lose that important innovation part 
of the manufacturing process.
    Thank you.
    [Ms. Kobe's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    Our next witness is Bryan Doolittle, Senior Vice President 
of Sales, Marketing and Engineering for Morton Metalcraft 
Company, a small business located in Morton, Illinois.
    Mr. Doolittle, we look forward to your testimony.

  STATEMENT OF BRIAN DOOLITTLE, SENIOR VICE PRESIDENT, MORTON 
                 METALCRAFT COMPANY, MORTON, IL

    Mr. Doolittle. Good afternoon, Mr. Chairman and 
Distinguished Members of the Committee.
    I am Brian Doolittle, Senior Vice President for Morton 
Metalcraft, and I thank you for this opportunity to present the 
views of Morton Metalcraft on the future of the 
extraterritorial income regime and its impact on the 
competitiveness of U.S. small- and mid-sized manufacturers.
    It was 40 years ago this month that Morton Metalcraft was 
founded in Morton, Illinois, a small town east of Peoria. Where 
the blood, sweat and tears of a lot of hard-working people, we 
have grown the business to include two facilities in the 
Midwest and three in the southeast.
    Our 2002 sales were $117 million, and we employ 
approximately 1100 people. We are a contract manufacturer, 
providing highly engineered sheet metal parts and subassemblies 
to support our customers' manufacturing operations. We serve 
large and demanding customers, like Caterpillar, John Deere, 
Federal Signal and the Carrier Corporation.
    As a contract manufacturer, our success is directly related 
to the success of these customers and the markets that they 
serve.
    Tax incentives have been maintained by the U.S. Congress 
over the past 32 years to partially offset the tax advantages 
of our competitors The European companies enjoy through their 
border adjustable territorial tax systems. And while Morton 
Metalcraft is not a significant user of FSC/ETI, our key U.S. 
customers who export are.
    One of the key elements of the ETI debate that appears to 
have been overlooked is the relationship between how the right 
policy choice for large U.S. companies who use ETI is directly 
linked to the health of U.S. small businesses who supply them. 
Let me explain.
    Morton Metalcraft's customers are sophisticated and shop 
the world for parts and components that will optimize costs, 
quality and delivery throughout their manufacturing value 
chains. As a result Morton Metalcraft must compete every day 
against foreign competitors who are working hard to supply the 
parts that we currently make for our U.S. customers.
    A significant change in the value chain variables, 
particularly cost, could mean a loss of business to foreign 
competitors and a loss of high dollar value U.S. manufacturing 
jobs. That is why the policy choices Congress makes in 
determining the replacement for ETI are so critically important 
to a long-term competitiveness of small- and medium-sized U.S. 
manufacturers.
    The current economic climate has been difficult for small 
and medium U.S. manufactures, and the domestic manufacturing 
customers that we serve. This is evidenced by U.S. Commerce 
Department statistics showing 2.6 million job losses in the 
manufacturing sector during the past three years. This trend 
has had a direct impact on Morton Metalcraft's business. Since 
December of 2000, our revenues have declined from 148 million 
to 117 million, a 21 percent decline.
    Our employment at the same time has been reduced from 1470 
to 1100 people, a 25 percent decline. And we have watched 
numerous U.S. competitors, as well as other suppliers, go out 
of business.
    As a small manufacturer, we are doing everything without 
our power to remain competitive against the onslaught of 
foreign competition during these challenging economic times. We 
have undertaken significant efforts to control costs and 
improve the efficiency of our manufacturing and business 
processes by embracing enabling methodologies like 6 Sigma and 
lane manufacturing. These rigorous processes of internal 
evaluation continues improvement have paid great dividends in 
our business, lowering break-even points by more than 30 
percent.
    But to stay competitive, we need to invest in new 
technology and have people working with that technology three 
shifts in order to gain the economies of scale and not the 
current 1.5 shifts.
    With a level playing field, I am confident that Morton 
Metalcraft and companies like our can win against foreign 
competitors, and as a commercial business remaining competitive 
is our responsibility. What we need from Congress are the right 
policy actions to ensure the playing field remains level versus 
our foreign competitors.
    That is why I strongly support your efforts, Mr. Chairman, 
on the Crane-Rangel-Manzullo-Levin bill. The tax rate cut of up 
to 10 percent that you propose for domestic manufacturers will 
provide a strong dose of the right medicine at the right time 
for small, medium and large manufacturers who have suffered 
under the weight of the U.S. economic slowdown.
    Congress and the administration must ensure ETI legislation 
does not impose a substantial tax increase on U.S. production. 
Increasing taxes on domestic production by 5 billion annually 
to pay for offshore tax breaks would significantly increase the 
cost of doing business in the U.S.
    Mr. Chairman, I applaud the efforts of you and your 
colleagues on the Committee to bring the voice of small 
manufacturers into this important debate. I look forward to 
continuing to work with you and your colleagues in support of 
the Crane-Rangel-Manzullo-Levin bill.
    Thank you.
    [Mr. Doolittle's statement may be found in the appendix.]
    Chairman Manzullo. Appreciate your testimony. Thank you.
    Our next witness is Leon Trammell; is that right, Trammell?
    Mr. Trammell. Yes.
    Chairman Manzullo. Founder and Chief Executive Officer for 
Tramco, Incorporated, a small business in Wichita, Kansas.
    Mr. Trammell, if you could pull that microphone closer to 
your mouth there.
    Mr. Trammell. All right.
    Chairman Manzullo. And we look forward to your testimony.

    STATEMENT OF LEON TRAMMELL, FOUNDER AND CHIEF EXECUTIVE 
               OFFICER, TRAMCO INC., WICHITA, KS

    Mr. Trammell. Thank you. Thank you, Mr. Chairman, for 
inviting me to appear before this Committee today.
    I am Leon Trammell, Chief Executive Officer of Tramco, 
Incorporated, in Wichita, Kansas, sunny Wichita prefer to call 
it.
    Tramco manufactures and sells environmentally-friendly 
conveyors primarily for the cereal grain processors. In 
essence, we take the product from the truck, rail car or ship 
and convey it through processing or storage and back to the 
truck, rail car or ship.
    Tramco was founded in 1967 in a $15-a-month-building with 
one employee. Today, we have 120 employees worldwide, 
approximately 100 of which are in Wichita, Kansas, the other 20 
are in our satellite sales office and factory in Hull, England. 
We have machines at over 45 foreign countries and all 50 
states.
    I would like to share with you today the positive effect 
the Foreign Sales Corporation offers companies like Tramco.
    In 2001, 60 percent of our business was export, sales was 
17 million, and our tax savings was approximately $48,000. In 
2002, 50 percent of our business was export, sales were 15 
million, and our tax savings was about $45,000. In 2003, 63 
percent of our business will be exported, sales will be 22 
million, and a tax savings of approximately $75,000.
    We have been utilizing this form of tax relief since the 
day of DSC, which as you know, was deemed unfair. It was 
replaced with FSC. Now WTO has judge FSC as also being unfair. 
Obviously, the WTO does not want the term ``foreign'' in your 
tax relief policy.
    Consequently, your job is more than an uphill battle to 
exclude manufacturers who are not exporters in the new tax 
policy.
    Who wins and who loses in H.R. 1769? The winners will be 
all U.S. manufacturers that do not export. Tramco and other 
manufacturers that presently export will be the losers. As an 
example, Tramco this year should have an approximately $75,000 
in tax savings. According to my accountants, the savings under 
H.R. 1769 will be about 20,000.
    However, however, we support H.R. 1769. It gives much 
needed tax relief to the manufacturing sector though very 
small. Many would suggest the manufacturing sector in the 
United States is on life support. And if drastic measure are 
not taken to reform the tax relief, tort and regulatory reform, 
it will gradually wither and die on the vine.
    In my opinion, a free market enterprise and the 
entrepreneurial spirit is what make these United States great. 
However, it is a perception of many that all businesses are 
greedy and untrustworthy. A very small example of that was the 
famous three martini lunch. I would suggest to you that the 
author and supports of some such comments never traveled for 30 
hours, and stayed at a third-rate hotel, ate food that they 
could not identify or know the contents of, and only 20 percent 
of that could be used as a business expense. Now, do not dare 
have a beer to dry the dust from your throat. That is not a 
business expense.
    Selling internationally is very expensive. An average sale 
for my company in the United States is $200 a call, $200 a 
sales call. Internationally, it is $1600.
    F.S.C. helped offset some of these expenses providing a 
sale was made. We reluctantly accept the fact that FSC is gone 
and the time is of the essence to abandon this policy that the 
WTO has deemed unfair. We do not want a trade war nor do we 
want sanctions on any American products.
    I wholeheartedly support H.R. 1769 and hope that this 
Congress's first step in saving the U.S. manufacturing sector. 
I would be thrilled if you would embrace Exhibit A in my 
written testimony regarding tax relief for the manufacturing 
sector.
    We must jointly, both government and private sector, devise 
methods to allow our manufacturing sector to be competitive in 
the world marketplace where our competitors are not confronted 
with the same regulatory, tort and labor costs.
    Mr. Chairman, we appreciate your leadership in finding a 
solution to this most difficult and complex problem. We ask you 
to work swiftly to bring this to an agreement to Congress.
    Thank you.
    [Mr. Trammell's statement may be found in the appendix.]
    Chairman Manzullo. Well, we appreciate that testimony, 
definitely from the heart.
    Mr. Trammell. I have been there in all 45 foreign 
countries, I might add.
    Chairman Manzullo. Do we have Exhibit A, Berry? Okay, we 
will make the exhibit part of your testimony.
    Mr. Trammell. Yes, and that was--I conjured up that. Leon 
Trammell was the author of that. You know, Bob Dole and Kansans 
all refers to ourselves in the third person.
    Chairman Manzullo. Okay. All right. Who wants to follow 
this act? Thank you for your testimony.
    The next witness will be Owen Herrnstadt, Director of Trade 
and Globalization for The International Association of 
Machinists and Aerospace Workers.
    We are happy to have you with us today, and look forward to 
your testimony.

     STATEMENT OF OWEN E. HERRNSTADT, DIRECTOR, TRADE AND 
    GLOBALIZATION DEPARTMENT, INTERNATIONAL ASSOCIATION OF 
                MACHINISTS AND AEROSPACE WORKERS

    Mr. Herrnstadt. Thank you. Thank you, Mr. Chairman and 
Members of the Committee.
    The International Association of Machinists and Aerospace 
Workers represents several hundred thousand active and retired 
workers in aerospace, transportation, ship building and repair, 
defense, electronics, woodworking, just to name a few. Our 
members work for multinational corporations and for small 
businesses producing, assembling, and maintaining almost every 
imaginable product in the manufacturing industry. And given our 
strong presence in this vital industry, we are very much 
grateful for the opportunity to testify before you today.
    U.S. small business is highly dependent on the U.S. 
manufacturing industry. I think that has been well established 
already this afternoon. And the WTO's challenge to our tax 
system must not result in the further demise of the U.S. 
manufacturing base. Indeed, the main objectives of any 
replacement for FSC/ETI should focus on incentives to keep 
production at home, facilitating the creation and maintenance 
of U.S. manufacturing jobs.
    Proposals that contain or preserve loopholes, giving 
corporations incentives to move more work out of this country, 
must be quickly dismissed. Moreover, proposals which contain 
provisions that are geared towards other tax policies which 
would distract policymakers from the urgent goal of 
facilitating the creation and maintenance of U.S. manufacturing 
jobs should also be quickly dismissed.
    I think you have heard from a panelist already today that 
we are currently facing a U.S. manufacturing crisis not seen in 
this country in decades. The most recent data reported by the 
Bureau of Labor Statistics last Thursday indicate this tragic 
trend continues; 8.9 people unemployed. In August alone 
employment feel by 93,000, 44,000 of those job losses 
attributed to manufacturing, 431,000 manufacturing jobs lost 
just this year, 2.7 million manufacturing jobs lost just in the 
last several months. The massive numbers of unemployed, the 
massive numbers of people looking for work do not even begin to 
account for those who are discouraged from looking for work and 
who are otherwise part of the hidden unemployment figures.
    Sharp declines in employment are occurring in almost every 
industry across this country. Job losses in aerospace are 
fairly typical. Since 1989, we have suffered over 600,000 job 
losses in this vital industry, approximately 1 million job 
losses in aerospace and related industries. Like other major 
manufacturing industries, aerospace is, of course, instrumental 
to the success and health of U.S. small business. It is small 
business, after all, that frequently finds their work is 
usually first to get moved overseas.
    Clearly, this job loss is having an enormous toll on our 
economy. Not only our national economy is at stake, but our 
national security is also at stake as we see the de-skilling of 
the industrial sector of our country, as we see our 
manufacturing base become more and more dependent upon workers 
in other countries.
    Indeed, anyone who represents men and women who have helped 
to build some of the greatest companies this country has to 
offer only to be rewarded with layoffs know the dire 
circumstances that we are facing here at home.
    Just look at the faces of workers who have lost their jobs, 
feel their pain and anguish, watch them as they try to feed 
their families, clothes their children, and pay for 
skyrocketing health care insurance. Talk to them about their 
deep concerns for their future as they see their retirement 
funds rapidly shrinking.
    Of course, there are many reasons for these job losses. One 
of the most significant reasons is a lack of a comprehensive 
manufacturing policy that puts workers and their communities 
first. Unfair trade agreements, outsourcing of production and 
assembly to workers in other countries, unfair competition, the 
continued use of offsets, that is, the transfer of jobs and 
technology abroad in return for sales also contributes heavily 
to what we are now seeing as substantial losses in 
manufacturing, as is tax policies that have actually given 
incentives to manufacturers to shift work abroad.
    Given the severe decline in the number of U.S. 
manufacturing jobs during the past several months, it is 
imperative that a replacement for FSC/ETI be replaced with 
something that will create and maintain jobs at home.
    The general approach in the Crane-Rangel-Manzullo-Levin 
bill makes a great deal of sense. Indeed, providing a 
manufacturing tax benefit for production of goods in the United 
States, adjusted for the percentage of a company's worldwide 
production that takes place domestically, certainly seems to be 
on the right track.
    And adjusting, phasing out FSC/ETI benefits over a period 
of time, permitting workers and companies to adjust to the new 
system, also seems to make a great deal of sense and is a good 
approach.
    Alternatives that have been offered, however, are, quite 
frankly, frightening to many of us who represent manufacturing 
workers. Giving competitive incentives to send manufacturing 
jobs overseas is simply unacceptable, and rewarding companies 
who have made use of tax havens in other countries at a time of 
this employment crisis or at any time is also one that is 
simply unacceptable.
    Policymakers must not replace FSC/ETI with provisions that 
create opportunities for corporations to take advantage of the 
WTO challenge by sacrificing U.S. manufacturing workers.
    By the way, I believe my time has not been set.
    [Laughter.]
    So I will conclude. I had about two hours prepared.
    [Laughter.]
    No, I kid you, I kid you. I would not do that.
    We urge you to develop legislation that closes loopholes 
and removes tax incentives for corporations to move jobs 
abroad. Hundreds of thousands of U.S. manufacturing workers are 
losing their jobs only to see them reappear in other countries. 
Congress must heed the urgent call to pursue tax and other 
policies that will immediately reverse this shameful trend.
    Thank you very much.
    [Mr. Herrnstadt's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    Our next witness is my constituent, Lloyd Falconer, who is 
both a constituent and a personal friend. His shop is at the 
north end of the Seward Pecatonica slab, and I live on the 
south end of that street, and have spent a lot of time visiting 
the facilities. I think that we should have had a crew out 
there from the History Channel on moving marvels when you moved 
that giant piece of machinery on those--that was quite a day 
from Seward, that piece of machinery coming down the street. 
You get excited in small towns over things like that, but you 
know what I am talking about. It is great to see machinery 
moving. You know that there is production going on.
    As the name of the company implies, Seward Screw Products, 
his company makes screw products. They make many parts found in 
Harley-Davidson motorcycles, and very much interested in your 
testimony, and look forward to it.

STATEMENT OF LLOYD FALCONER, SECRETARY-TREASURER, SEWARD SCREW 
                   PRODUCTS, INC., SEWARD, IL

    Mr. Falconer. Well, thank you, Congressman, and I would 
like to greet also the members of the Committee, and appreciate 
this opportunity to talk a little bit briefly about our company 
which you obviously know a great deal more about than the rest 
of the Committee members.
    But I am Lloyd Falconer. I am the Secretary-Treasurer of 
Seward Screw Products, Incorporated. It is a family-owned 
corporation. We are in our fiftieth year. And we are somewhat 
the exception to the rule to the business manufacturing trend, 
but many of my friends have been very well described by prior 
testimony.
    As you all know, there is over 3 million square feet of 
empty manufacturing facilities in Rockford alone let alone the 
rest of your district.
    And we turn metal bars into parts and chips. The chips get 
recycled. The good parts get sold to our customers, which are 
nationwide. And those customers include original equipment 
manufacturers. Harley-Davidson was mentioned as one. And also 
we supply tier one suppliers who then in turn supply assemblies 
to the original equipment manufacturers.
    While none of our products are exported directly, many of 
our customers do export, and we hope that they continue to 
export, and we hope that they will export more.
    And as I have stated in the past many times and to anyone 
who will listen to me, I do not care if they are in business or 
in government or whatever, our public policy should be geared 
to exporting products, not jobs. And in this sense, we have 
been on an uneven playing field.
    As a manufacturing company, we are concerned about the 
burdens and hurtles that the government places on business to 
the detriment of American companies' ability to compete in a 
worldwide marketplace.
    But tax is just one of the impediments. I have got a long 
list but we will not go over them here. And it reduces our 
opportunities to invest in newer state-of-the-art equipment 
despite the fact we are doing that, but it still reduces our 
opportunities. Anything that can reduce those burdens will help 
keep us in business.
    H.R. 1769 affects a significantly larger group of companies 
than just the limited number of multinational companies 
currently benefiting from FSC/ETI. Ultimately we hope that tax 
relief will be for all U.S. companies, and we also believe that 
1769 is revenue-neutral, it is a step in the right direction 
because it tends to keep our manufacturing base here. It should 
also assist companies in the decision about relocating 
offshore. And also, foreign companies with manufacturing 
facilities located in the United States export their products 
around the world, and they would be eligible for the benefits 
of H.R. 1769.
    I think you and Ranking Member Velazquez, I was not able to 
acknowledge you because you were out of the room, but I would 
like to do so now, I think you ought to be commended for making 
this situation clear, and I know that each one of your in your 
districts are not only concerned about the manufacturing 
business, but you are concerned about the employees, and you 
cannot have one without the other. A good manufacturing concern 
is made up of good employees, and we have to have the ways to 
accommodate those things.
    And so we appreciate the fact that you have brought this to 
the forefront. We wish you well. And I hope that this can be 
resolved within the next month or two.
    And I thank you very much for your time and allowing me to 
testify.
    [Mr. Falconer's statement may be found in the appendix.]
    Chairman Manzullo. Well, thank you for your testimony. You 
know, we have been having a series of hearings every since I 
became the Chairman of the Small Business Committee dealing 
with manufacturing. Rockford, Illinois, which is the largest 
city in our congressional district, in 1981 led the nation in 
unemployment at 24.9 percent. It is a tool and dye center. And 
we know that when you look at orders for machine tools, these 
are the canary in the coal mine for manufacturing. But it is 
very difficult for people who are not involved in manufacturing 
to understand that.
    I mean, for example, Mr. Greenspan in an extraordinary 
hearing that we had about two months ago said, and this was in 
the Banking Committee on which Mrs. Velazquez and I also sit, 
he said, well, the jobs that you lose in manufacturing, he 
said, you more than gain in the high-end, white-collar jobs.
    I said, well, excuse me. I said, we are losing engineering 
jobs, accounting jobs, all types of traditional white-collar 
jobs to India, to Poland, to China, and Deloitte & Touche put 
out quite an exhaustive study that talked about that. In 
Business Week in its seminal article in February of this year 
talked about the destruction of the white-collar jobs.
    It has only been because of the white-collar jobs flee that 
the nation has suddenly awakened to the fact that they 
hemorrhaging were not in manufacturing sectors, and why is 
that? It is only maybe about 50 congressional districts out of 
435 that have an intense manufacturing sector. And until the 
pain is felt in other congressional districts people do not pay 
attention.
    And so when we formed the manufacturing caucus, we have 
people are from downtown New York City that have very little, 
if any, manufacturing, but they have engineers and accountants 
and people that are related to manufacturing, and so the drain 
is just continuous.
    I really have one question to ask Mr.--is it Herrnstadt? Is 
that how you pronounce that?
    Mr. Herrnstadt. Yes.
    Chairman Manzullo. That is, I want to refer to the last 
page of your testimony. It is not numbered but is it page 3? Do 
you want to take a look at it so I could reference it?
    Mr. Herrnstadt. Sure.
    Chairman Manzullo. It is a question based on that. It might 
be a little bit easier if you had it in front of you.
    Mr. Herrnstadt. Yes.
    Chairman Manzullo. Are you there?
    Mr. Herrnstadt. Yes.
    Chairman Manzullo. Okay. See where it starts, ``Even more 
disturbing, however, the Thomas approach could present more 
incentives under his bill for corporations to shift 
manufacturing jobs out of the country.''
    Could you please explain your analysis of the two bills?
    Mr. Herrnstadt. Sure, and, you know, my analysis would have 
been similar to what Congressman Levin had talked about when he 
was explaining some of the alternative approaches that have 
taken place. I am not an expert on the Thomas bill, but one of 
the points that has been noted by others it the provision 
allowing companies to escape U.S. taxes on billions of dollars 
they make in overseas profits, and the provisions in the Thomas 
bill that would account for that.
    One of the fears, obviously, is that it could provide for 
an actual incentive to move even more work offshore on that.
    You know, this is an incredibly complicated area, and one 
of the things that I am trying to impress, and I think others 
are too, and that I am sure that you are very well aware of, is 
the desperate situation manufacturing workers are in these days 
and many U.S. manufacturers are in these days, and it just 
seems to me that the simplest, cleanest approach is the one 
that we really need to be going with. We cannot really be 
making guess work out of how certain things may impact on 
helping manufacturers and manufacturing workers in this 
country, and that is one of the fears that I was trying to get 
at in expressing that in my written testimony.
    Chairman Manzullo. Appreciate that. Thank you.
    Mrs. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Herrnstadt, as Congress considers a number of proposals 
to replace the FSC/ETI framework, I am particularly interested 
in your views on an approach that will benefit manufacturers as 
well as other internationally active sectors of the economy 
without incurring substantial costs.
    What is your opinion on a proposal to use the $50 billion 
from the FSC/ETI repeal to pay for some tax cuts for 
manufacturers, but also incorporate a package of international 
tax reforms targeted at increasing the international 
competitiveness of all domestic industries?
    Mr. Herrnstadt. The bottom line is simply what will have 
the end result of helping to facilitate the creation and 
maintenance of good and decent manufacturing jobs in the U.S.
    The question that you ask is an intriguing one, and I think 
there are lots of things in there that could be worked with, 
but at the end of the day the real question is what will have 
the most dramatic, quickest response to the sector that is 
suffering so very deeply.
    Ms. Velazquez. Thank you.
    Mr. Trammell, in your written testimony you mention that 
Tramco, Inc. is a member of the National Federation of 
Independent Businesses. And NFIB, along with all the 183 
companies and associations, have endorsed Mr. Thomas's bill.
    Why do you believe this bill has received such wide support 
from the business community?
    Mr. Trammell. Well, I am not sure. I am also on the board 
of the U.S. Chamber and also vice-chair of the International 
Policy. But I speak here today for Leon Trammell and Tramco, no 
one else. And I am not sure how they came up with their 
position.
    But as an exporter, I can tell you this bill does not help 
Tramco, but also, I firmly believe that if we do not help the 
American manufacturer we are going to see more and more go 
over. We have got to have some tax relief, we have to have some 
reform not only in tort but in regulatory. You cannot have 
3,000 rules a year coming out that is good for manufacturing.
    Now, some of them are probably good, but not all 3,000 are 
going to help the manufacturing sector.
    And the people that I know, small businesses embrace this 
accelerated depreciation that we now enjoy for the next few 
years from 25,000 to 100,000 dollars. That is extremely 
beneficial to small companies.
    If you make $100,000 in profit, by the time you settle up 
with the government, you do not have anything else to invest.
    Ms. Velazquez. You are talking about the----.
    Mr. Trammell. Accelerated depreciation.
    Ms. Velazquez. Yes. Even though that, I guess, that most 
small businesses will have loved to see that it was made 
permanent, and it was not. It is sunset.
    Mr. Trammell. Well, and we would also like to see that 
increased a little bit from--$100,000 sounds like a lot of 
money, but I would challenge my friend with Screw Products, 
what did that machine cost you?
    Mr. Falconer. That machine delivered was about $1.6 million 
until we got done, and we spent other money on top of that, 
well over 2 million last year--in the past year.
    Mr. Trammell. So this is my point, we have to go in debt to 
make investments to stay competitive, and we have to. And today 
you see old businesses going broke. You go into those old 
businesses and I will assure you their machinery is old. And if 
they do not have the money to put back in that business, it is 
gone.
    Ms. Velazquez. Yes, I understand. That is why it does not 
make sense to me that the administration, especially the 
President, who had a $350 billion tax cut to chose from, he 
decided to roll with large corporations and not making those 
targeted tax cut permanent for small businesses.
    Mr. Doolittle, there are a number of sectors that will be 
affected by the repeal of the FSC/ETI. The Crane-Rangel bill 
provides assistance for the manufacturing sector. However, 
there are small business exporters and small family farms, 
among others, that will also be affected by this repeal. What 
do we tell them
    Mr. Doolittle. I guess I would ask you to restate the 
question, please.
    Ms. Velazquez. Well, basically what we are saying is that 
yes, the manufacturing sector is going to suffer, but also the 
family farms will suffer and small business exporters, and this 
will not cover, they will not be covered under this bill.
    Mr. Doolittle. Well, as you know, manufacturing touches 
really all sectors of economy, and the small retailer, the 
supplier down the street that supports us are all affected as 
we are affected. So if our customers prosper, we prosper, our 
suppliers prosper. You know, it is far-reaching.
    I do not think that this bill, from what I can see, is 
meant to be an overall umbrella. It is not going to fix our 
economy, but it addresses a very specific segment of the market 
this reeling, and it needs to be addressed and addressed 
quickly.
    Ms. Velazquez. It is real that family farms are also 
suffering in our country.
    Thank you, Mr. Chairman.
    Chairman Manzullo. Thank you.
    Mr. King.
    Mr. King. Thank you, Mr. Chairman.
    I would first state that as we have watched in this country 
manufacturing jobs go south, those manufacturing jobs that have 
gone south have then sometimes picked up and gone far to the 
west, and that relationship and that transition of some of 
those jobs is somewhat natural because we have--we led in 
technology, we continue to lead in technology, and as 
developing countries catch up in technology, they will be able 
to compete with us because they have got cheaper labor. When 
they catch up with our technology, they can sell those products 
cheaper. That has happened, I think, across our southern 
borders in a lot of areas, and then is happening again, the 
second transition, across the Pacific Ocean.
    But I would direct my first question to Ms. Kobe, and only 
because I was not able to hear your testimony, but it says 
Chief Economist here, so I want to ask you the question of what 
is the impact, though, of undervalued currency with maybe, for 
example, the Chinese currency? What does that do to our export 
base? What does that do to our jobs? What does that do to the 
transition of jobs that because of NAFTA have gone south and 
now west over the Pacific Ocean? Could you talk about that a 
little bit?
    Ms. Kobe. Well, I do think that the undervalued Chinese 
currency is certainly not helping this situation any, and it 
probably damages certain manufacturers more than others. 
However, the Chinese, I do not think, have any incentive to 
float their currency right now. They are facing a lot of their 
own problems in that they really must grow their manufacturing 
base in order to have jobs for a big Chinese population.
    Consequently, I think the U.S. is going to have to 
negotiate very, very hard, and really keep in mind always that 
you are looking for a level playing field for U.S. 
manufacturers, and that is going to give U.S. trade negotiators 
a hard job to do, a harder than perhaps they have had in the 
past.
    So I think they will have to keep the pressure on because 
the Chinese are not going to float their currency without a lot 
of pressure from abroad to do that.
    Mr. King. Is there a point in the longer term that if they 
prolong this undervalued currency, that the piper must be paid?
    Ms. Kobe. Well, I think there is a point. I am not sure 
that we are there yet, and certainly the Chinese are buying 
goods from other countries in Asia, which perhaps helps 
strengthen the Asian situation.
    What we would like is a bit more fair trade between Chinese 
products for the U.S. products, and the other direction as well 
where the U.S. can export to China. And I think it is going to 
take awhile to get there. But eventually, you know, they will 
have to probably float their currency or at least allow it to 
move somewhat more freely than they do now.
    I do not see that that is going to happen in the immediate 
future, and that is not beneficial for American manufacturers, 
obviously.
    Mr. King. And do you know what our negative balance of 
trade is with China? It is maybe outside your field here but.
    Ms. Kobe. It is relatively large. I do not know what the 
number is right off the top of my head, but it is quite large. 
I think it was perhaps a fifth of the----.
    Chairman Manzullo. It is about 125 billion in the negative 
trade balance, and with the EU it is 87 billion.
    Ms. Kobe. It is very large, and a good part of the total 
trade balance is with China.
    Mr. King. Thank you very much.
    And then Mr. Trammell, you discussed about the tax 
structure, and how there is tax advantages that are not large 
enough in a lot of circumstances that you laid out here and you 
have illustrated one of them, and we have got this huge tax 
code of no one actually knows how many pages it is, it changes 
so fast. But I do not think that anybody is going to argue that 
we would recreate that kind of code that we have today.
    And so if we were going to start with a blank slate and 
rewrite this tax code, given your experience being a founder, a 
manufacturer, a marketer, an exporter, what kind of tax code 
would you write in the ideal world?
    Mr. Trammell. Thanks for that softball.
    [Laughter.]
    Mr. Trammell. Exhibit A in my written, I have had a 
graduated escalating clause up to about 600,000, and at that 
point at 600,000 you would get in the top level, whatever that 
top level would be.
    But I think for the small manufacturer you need a more 
graduated scale to a higher level. As an example on my--as I 
indicated, this is something I conjured up so I take full 
responsibility for it, I show this peaking at 600. This is only 
obviously what I would like to see, and I show the top rate at 
30 percent, which is about where you are at here at 31.5 
percent, I understand.
    But if there is not an incentive for the small companies 
and the incentive being tax relief, if there are not incentives 
for small companies to reinvest their money in new equipment, 
they cannot compete. It will just be a matter of withering on 
the vine.
    Most small, little manufacturer makes three or four percent 
profit. So I mean, the margin of profit is very, very, very 
small. And if at the end of the year you are settling up with 
the government, where is the money to buy new equipment?
    Mr. King. And I will say, Mr. Trammell, I have been there. 
I see also that Representative Crane testified ahead of this 
panel. I was not able to hear that testimony, but I am going to 
trust that he said corporations do not pay taxes.
    Now, what is your response to that remarks?
    Mr. Trammell. I would like to send him my tax bill.
    [Laughter.]
    Mr. Trammell. And I have a sister that also believes that, 
quote, ``Rich people don't pay taxes,'' which is also another 
fallacy. If you make money in this country, you pay taxes.
    Now, I have had people tell me otherwise and I say, will 
you go to jail for me? And the answer is, and I do not want to 
go to jail. I want to play by the rules. And in the United 
States if you make money, you are going to pay taxes. It is 
that simple.
    Mr. King. And Mr. Trammell, if we had the same tax 
structure for all corporations worldwide, if we had leveled 
this tax liability so that we had a world policy instead of a 
United States policy then that interferes with our 
relationships with the foreign trade so that you compete on a 
level playing field with everyone around the world with regard 
to tax, then would corporations pay taxes, or would they pass 
those along in their cost of their goods as a fixed cost?
    Mr. Trammell. Well, I am not sure. I am going to field that 
to my friend on the left.
    [Laughter.]
    Mr. Trammell. The tax code is very simple, and I am a 
mechanic, an engineer. I design machines and sell machines. And 
I am not an accountant. But I know enough about my business to 
manage it, and as far as the P&L. And the tax code, the way it 
is written today is very simple. If you make money, you are 
going to pay taxes. And if you do not, according to the CPA 
that works for us, and files my personal account as well, when 
you get to a point like $100,000, then with the government and 
the State of Kansas 40 cents on the dollar. And $100,000 is not 
very much before you start divvying it up with the state and 
the federal government.
    Mr. King. And Ms. Kobe, on that passed buck, would you care 
to respond to that?
    Ms. Kobe. Well, I do not think I can respond to it in any 
detail because I have not studied that issue specifically. I 
mean, I think it is a very complex answer to it in that a lot 
of factors determine whether taxes get passed forward or 
backwards, or whether the corporation pays them themselves. So 
I do not think there is an easy answer to that question.
    Mr. King. I want to thank you all for your testimony and 
thank the Chair for his time.
    Chairman Manzullo. Thank you.
    Congresswoman Majette.
    Ms. Majette. Thank you, Mr. Chairman, and I would like to 
thank all of the members of the panel for being here this 
afternoon.
    And my question is addressed to Mr. Doolittle. In your 
testimony you mention that as a small manufacturer you are 
doing everything within your power to remain competitive in the 
international market, and you mentioned that manufacturers need 
from Congress the right kinds of policies to ensure that the 
playing field remains level.
    So besides H.R. 1769, what other kinds of policies do you 
think Congress could enact that would help in that regard?
    Mr. Doolittle. Do you have anything easier to respond to?
    [Laughter.]
    Mr. Doolittle. My response or my testimony, what I was 
addressing is that this particular legislation is a piece that 
is needed in the manufacturing segment, and in other segments 
perhaps. We realize, however, that we have to look internally, 
we have to take costs out of our own operations, become more 
efficient. We need to fill up our assets, that our machines are 
running one shift or one and a half shifts, we need to have 
them running three shifts.
    So I am not--I am certainly not an expert in the area that 
you are addressing, but I can just state that this one is one 
that to us addresses manufacturing in a more general scope, and 
touches all of is, and it is very easy for us therefore to 
endorse it.
    Ms. Majette. Well, maybe I can frame it a little bit 
differently. In my district and in my state, we have lost a 
significant number of manufacturing jobs. And from your 
perspective what are some of the other things that can be done 
to keep those jobs from disappearing?
    Is it more than just the tax question? Are there other 
things that might be done in terms of looking at the big 
picture?
    Mr. Doolittle. Well, one has to look at the role of 
government, I guess, but we have heard the issue of education 
addressed. We need to provide tools, in my opinion, to 
particularly the small- and medium-sized manufacturing entities 
that allow them to improve their own lot, and there are lots of 
methodologies available that given funding I believe that 
companies would more aggressively pursue as an example.
    Do you have something in mind that you would like me to 
address?
    Ms. Majette. Well----.
    Mr. Doolittle. I am not getting it.
    Ms. Majette [continuing]. This is my first term in 
Congress, and I have had the experience of being a small 
business owner, not in the manufacturing context, but when I 
was a lawyer in private practice I had a small firm. And the 
issues, I guess, for me always seem to be more than just 
putting one piece in the puzzle. And it is the big picture that 
I am very concerned about, particularly as we are moving--you 
know, we have moved from the twentieth century to the twenty-
first century with all of the changes in terms of manufacturing 
and business development that we now have.
    And so I wanted to kind of get your perspective on maybe 
what are some of the other pieces of the puzzle that need to be 
put in place so that the picture that we see is a very strong 
and positive picture for the United States economy.
    Mr. Doolittle. Well, I will defer to my cohorts up here, 
but what we have referenced, the panel has referenced the 
playing field, and I would just say that the markets we serve 
are recovering, some of them are recovering. Ag, which we 
happen to serve through John Deere, has not rebounded, 
construction has, others have. And so we are going to see, I 
think, over the next period of time a general increase. I do 
not think it will come bounding back, it is my opinion, but the 
rules are changing.
    Our customers are expecting significant improvements in the 
way they buy product, and they are as we sit here, I believe, 
making decisions, putting plans in place to outsource the 
products that we today manufacture to low-cost countries 
overseas, and it is just going to take, as you know, I think, 
it is going to take a lot of effort to level the playing field, 
to make us more competitive, and we have got to--we have 
certainly got to look internally to a great deal.
    Ms. Majette. Okay, thank you. And I do not know if my time 
has expired, but--I did not know if there was another member of 
the panel that might be interested in responding.
    Mr. Falconer. Actually, I would like to respond.
    First of all, I want to address some of your concerns, but 
I want to talk a little bit to Ranking Member Velazquez. You 
asked about why should not farmers be in this group. And I have 
stated in the past--I actually stole this from my father--that 
farming, mining and manufacturing are the things that--the 
businesses that grow the pie. In other words, they have the 
most bank for the buck.
    And ultimately I hope that you can get farmers and others 
small businesses involved in this because they all need help.
    And addressing your question regarding what can the 
government do, my list is so long you would not believe it, but 
the first thing is to stop placing upon business the 
regulations, the mandates, the onerous paperwork. I want to 
tell you that it is really a sin to waste precious capital in 
terms of not only money, but in terms of people that we spend 
on doing what I consider frivolous paperwork, and I am working 
on a particular issue right now. I am not sure where I am going 
with it, but I have got a pretty good idea.
    We spend an inordinate amount of time filling out forms or 
complying with some regulation, or making sure that we are in 
compliance with some regulation, and I cannot tell you the 
stress and strain that is placed upon American businesspeople 
because half the time they are probably not in compliance with 
about 50 to 60 percent of the things that they are doing.
    We need some rules and regulations that do not send us to 
prison. I mean, there is literally that threat out there. Or 
huge fines for some of the things that Congress has enacted, 
and that is not just the federal, it includes the state as 
well. They are just as guilty.
    And having--you said you have been in a small business, a 
lawyer, I guarantee you you could not have learned all of the 
regulations that affected your business, I do not care if you 
are one person. It just is not possible. You cannot wear that 
many hats.
    Ms. Majette. Well, we had lawyers and CPAs who handled 
things for our firm.
    Mr. Falconer. Yes, exactly. And you were paying them to do 
that, right?
    Ms. Majette. Yes.
    Mr. Falconer. Now, that is not out defending people who 
need, or whatever you did as a lawyer. That is just complying 
with the regulations, and that is totally nonproductive. And in 
my mind that is one of the worst burdens that we have is 
unnecessary complicated paperwork that we have to do. To me, it 
is a sin to waste that kind of money, and when we should be 
trying to compete based on our intelligence, our capabilities, 
our work ethic, and all the good things that America has going 
for it.
    We do not see people leaving America to live in other 
countries, but we see manufacturing and other businesses 
leaving this country, and that has to be stopped.
    Ms. Majette. Thank you. Yes?
    Mr. Herrnstadt. If I could respond briefly. I must point 
out, I think, we are talking about worker protections and under 
fundamental pieces of public policy that this country has been 
built on, particularly from the Industrial Revolution on up. I 
think many of us would say we need to look at strengthening 
some of those fundamental protections through legislative 
efforts, and through efforts of our own federal agencies on 
that, so I think we do need to be mindful of that.
    The question, I think, that you have asked really goes to 
the crux of the issue, and it is very profound, and it goes to 
the issue of whether or not what we are seeing is a decline in 
manufacturing in this country that is either cyclical or is it 
structural, and the fear that many of us have is that it is 
indeed structural, and that the way that we need to respond as 
a country is a comprehensive one. It is a comprehensive one 
that we have not seen such a response since the Great 
Depression.
    If you talk to my members, they will tell you that they 
fear for job security. They fear for rising health care 
insurance. They fear for being able to send their kids to good 
schools. They fear for state budgets that are on the decline. 
They fear for a awful lot of things that is out there.
    So that when you ask your question, there are a lot of 
answers, but one of the basic fundamental answers is that there 
are a lot of pieces, but the pieces have to be taken as a whole 
to figure out this whole puzzle, and it is something that we 
desperately, particularly in the manufacturing sector, in the 
agriculture sector, in many other sectors in this country that 
are so desperately hurting need answers and a response to, and 
now.
    Thanks.
    Ms. Majette. Thank you. Thank you, Mr. Chairman.
    Chairman Manzullo. Thank you. There is an article, an 
editorial that appeared on The Washington Times. It is called 
``The Job Loss Recovery,'' and it is not just the jobless, but 
as recovery, so-called recovery goes on we continue to shed 
manufacturing jobs, 61,000 in the past month alone in 
manufacturing. Also lost several thousand in the service 
sector. They say it was unexpected the loss of 67,000 jobs in 
the service-producing sector, and the trend that I see going 
on, and I probably spend 80 - 85 percent of my time dealing 
with manufacturing issues, and I can talk brake presses and 
cold-forming machines, and high-speed hard milling machines, 
and talk to you about oil, and tools and dyes, and fasteners 
and things of that nature, is this.
    The jobs that have been created have been created overseas. 
I mean, let us wake up. That is the bottom line. Every time you 
see the word ``outsourcing,'' that equals job loss in the 
United States.
    I was talking to a member of Congress, in fact, the members 
stopped by my office quite frequently with one story after the 
other, and I am not going to mention names because it is really 
not fair to the parties, but it just tears your heart out when 
a major corporation that is making all kinds of money, I mean, 
doing extremely well, responsible in the community, an anchor 
in the community, but the owners want to make more money.
    They are not satisfied with the fact that these people are 
employed. They are not satisfied with the fact that they add 
value. They are not satisfied with the fact that they are a 
stable force in the manufacturing. They could just make more 
money by going to China. They do not need tax breaks, this 
company. They do not need anything. They do not need any 
incentive. They could just make more money by going overseas.
    And what point, at what point are the companies going to 
wake up and say there is no longer going to be anybody left in 
the United States that can buy the stuff. It is being made 
overseas.
    And I went to buy some tools, and I needed a belt sander, 
and so I would like to mention the name of the company, Skill 
makes belt sanders made in the United States. I looked for that 
label. It is owned by Robert Bosch Company, which I think is a 
German company. And you can also get a skill saw made in the 
United States, competitively priced to the Chinese copycat.
    Now, that only indicates to me one thing: Skill is 
satisfied with the profit they are making and they are proud 
that even though they are a German corporation, which 
incidentally could be penalized under the Thomas bill because 
that is foreign direct investment in the United States, but 
they are proud to have the skill saw, and I do not know. What 
is another name for the skill saw? You know what I am talking 
about. The skill saw that is made in the United States.
    And I went to Sears, and I looked around. I could not find 
a drill, I was looking for the label made in the United States. 
I could find the hand tools, the Craftsman, those are all made 
in the United States.
    But I think it is time that members of Congress really tout 
the American companies that have made a commitment to keep 
manufacturing in the United States. And is it not ironic that 
skill saws which is owned by a German company realizes that it 
is important to have those tools made here. And I looked 
throughout--it probably took me about, oh, an hour, hour and a 
half, because if I do not see a label of origin on the tool, 
that could indicate one of two things: number one, that it is 
not made in the United States, or number two, it indicates that 
the surveys and focus groups in the United States of residents 
of the United States demonstrate that when they see a ``Made in 
the USA'' label they will not buy it because they think it cost 
more than something that is made overseas, and therefore--I 
mean, this is astounding. So we eventually have to take a look 
at the American consumer to really examine where these things 
are made.
    I went to buy some faucets, and that is interesting, at a 
big store here in town. If you have a place in Washington, you 
do your own plumbing because it is very expensive in this city, 
and I do not do electricity. I mean, I cannot drown myself but 
I can fry myself. And went to the store, and here there were 
several selections. One is made in the USA, another one is 
assembled in the USA with U.S. and foreign products, another 
one was made in China, made in Mexico, and there was one box of 
a brand name that you could not tell where it was made but I 
know in fact where it is made.
    And you know, if you really take a look at these things, 
the stuff made in the United States in most products where you 
have a selection is not that much more than the stuff that is 
made overseas.
    Now that indicates to me that we can still manufacture many 
items here and make a half-decent profit on them. But no, if 
everything is bottom line, and I mean, I am a capitalist from A 
through Z, but if everything is bottom line, then where are we 
going in America?
    There is a book called ``The Loss of Shareholder Value'' by 
Alan Kennedy, written in 1999, and we are going to have a 
hearing some time this fall and bring him in, that talks about 
corporate culture; that there is a sociological side of 
manufacturing that no one wants to talk about.
    He talks in there about the change in value of those 
corporations. This happened over a period of years in this 
country when profitability of a corporation meant taking enough 
money to keep your workforce employed and making a reasonable 
profit yourself. The new definition of profit is that you have 
to make more than the next guy involved in the same business.
    He is a capitalist, and he talks about the corruption of 
the corporate ethic that if everything is deemed in terms of 
profits, then what price do you place upon the viability of a 
workforce. How important are the people that work for you? Do 
you have an investment in them?
    I know I have gone on, and I did not mean to get into that 
area, but the bottom line is even under the best circumstances 
we have in this country, there are so many companies that think 
we are only successful if we end up making more than the next 
guy and take more market share.
    Anybody want to comment on that? Lloyd, your dad was a 
physician, and started your business 50 years ago with the 
patents that he made himself.
    Mr. Falconer. Yes, he was, and he believed that business 
was one of the things, or manufacturing was one of the things 
that created the wealth, and it also provided employment for 
local people, and he was concerned about the local people. That 
was his nature.
    Chairman Manzullo. Okay. Ms. Majette?
    Ms. Majette. Yes, and I guess if I understood what you were 
saying, Mr. Falconer, with respect to the fines and paperwork 
and the cost of all those things, you end up having to roll 
back into perhaps the cost of doing business.
    Mr. Falconer. Let me say we cannot do that. The only way 
that we can maintain our customers is to provide them, first of 
all, quality and delivery are a given, okay, and price, you 
better have a very, very, very compelling reason to try and 
increase your price because most of our customers are looking 
for anywhere from three to 10 percent reduction annually in 
their costs, and they do not really care how we get it.
    The only way we can do this is improve productivity. But 
with health care costs rising, if we have got high taxes, if we 
have got all of these unnecessary burdens that we are funding, 
that is very difficult to do.
    Ms. Majette. So if we could provide a way of reducing, if 
we took action, if Congress took action to reduce the overall 
health care costs, would that make a difference in terms of--
--.
    Mr. Falconer. I don't--the only thing I would say there is 
tort reform is going to help probably the most. We are 
partially self-insured and we totally self-insure dental. And 
over the years we have picked up a larger and larger percentage 
of our employees end of the bill. Frankly, I never believed in 
HMOs. I do believe in second opinions. And I do not believe in 
caps. Therefore, if it is not good enough for me, it is not 
good enough for my employees. And these are the restrictions 
that we put on.
    And I want to tell you that takes the major chunk of seven 
figures out of our budget or out of our pocket every year to 
maintain that lifestyle.
    Is it comfortable? No, it is painful. This year it is a 25 
percent increase, very painful. We will make some adjustments, 
but we will continue to do it. But that comes directly off the 
bottom line.
    So basically the government is the one who has put the 
problems in our way. Now, my father was a doctor for 40 some 
years. I do not think he was ever sued. He delivered lots and 
lots of babies. And he is literally rolling over in his grave, 
he passed away 17 years ago, if he were to know about what is 
going on today. He would be fit to be tied because he was on 
call 24/7, 365 days a year. That is the way he viewed his 
practice.
    Ms. Majette. Perhaps it is the adjustment in the mindset of 
the people of justice as the Chairman was talking about the 
difference, that somehow the difference, of somehow the shift 
in the mindset of the employer, that that has changed over 
time, the role that they view what their role is, and there 
needs to be a shift in terms of the way that citizens view the 
health--how they should access the health care system, or how 
they should respond to a doctor if something goes wrong.
    I mean, if the cost of that is an impediment to you, then 
we need to find ways of reducing that cost so that you can 
continue to do business and be competitive.
    Mr. Falconer. I want to tell you that the doctor today on 
my skinny little file is that thick. He does not have time to 
read it let alone to know what is in it. My father kept records 
of a card for whole families. It was not as big as this sheet 
of paper. But he knew every individual, he knew whether they 
took the green pill or they took the red pill or the blue pick, 
and we would be sitting down for Thanksgiving lunch and 
somebody would call up and say, hey, doc, I am out of pills, 
and he would go down to the office, put a package of pills 
between the front door and the screen door, and they would come 
and pick them up. Now, that is how he did business.
    If he had to do business today that way, or the way we do 
business today, he would not do it.
    Ms. Majette. Because of too many government regulations.
    Mr. Falconer. Absolutely. It is nonsense. We have got to 
get the lawyers out of--frankly, using this as a feeding 
frenzy. I mean, they are some of the most entrepreneurial 
people when it comes to suing people, and personal 
responsibility, I think, is very important here. I mean it is a 
risk to get out of bed in the morning, but I still do it. To 
me, entitlements just ruin things, frankly.
    Chairman Manzullo. We could go on all day. You know, I was 
putting up fence with my neighbor, Lloyd, and he sliced his 
thumb on the barbed wire. We went to see your dad, and he gave 
my neighbor a tetanus shot and sewed up his ripped thumb for 15 
bucks, and even 20 years ago that was hardly enough.
    Mr. Falconer. No.
    Chairman Manzullo. I just want to take this opportunity to 
thank you all for traveling to Washington, and participating in 
this hearing. Your testimony is extremely valuable. This is the 
heart of America speaking now of the changes that have to be 
made in the laws. And again, we thank you for coming, and this 
hearing is adjourned.
    [Whereupon, at 4:20 p.m., the Committee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T2799.001
    
    [GRAPHIC] [TIFF OMITTED] T2799.002
    
    [GRAPHIC] [TIFF OMITTED] T2799.003
    
    [GRAPHIC] [TIFF OMITTED] T2799.004
    
    [GRAPHIC] [TIFF OMITTED] T2799.005
    
    [GRAPHIC] [TIFF OMITTED] T2799.006
    
    [GRAPHIC] [TIFF OMITTED] T2799.007
    
    [GRAPHIC] [TIFF OMITTED] T2799.008
    
    [GRAPHIC] [TIFF OMITTED] T2799.009
    
    [GRAPHIC] [TIFF OMITTED] T2799.010
    
    [GRAPHIC] [TIFF OMITTED] T2799.011
    
    [GRAPHIC] [TIFF OMITTED] T2799.012
    
    [GRAPHIC] [TIFF OMITTED] T2799.013
    
    [GRAPHIC] [TIFF OMITTED] T2799.014
    
    [GRAPHIC] [TIFF OMITTED] T2799.015
    
    [GRAPHIC] [TIFF OMITTED] T2799.016
    
    [GRAPHIC] [TIFF OMITTED] T2799.017
    
    [GRAPHIC] [TIFF OMITTED] T2799.018
    
    [GRAPHIC] [TIFF OMITTED] T2799.019
    
    [GRAPHIC] [TIFF OMITTED] T2799.020
    
    [GRAPHIC] [TIFF OMITTED] T2799.021
    
    [GRAPHIC] [TIFF OMITTED] T2799.022
    
    [GRAPHIC] [TIFF OMITTED] T2799.023
    
    [GRAPHIC] [TIFF OMITTED] T2799.024
    
    [GRAPHIC] [TIFF OMITTED] T2799.025
    
    [GRAPHIC] [TIFF OMITTED] T2799.026
    
    [GRAPHIC] [TIFF OMITTED] T2799.027
    
    [GRAPHIC] [TIFF OMITTED] T2799.028
    
    [GRAPHIC] [TIFF OMITTED] T2799.029
    
    [GRAPHIC] [TIFF OMITTED] T2799.030
    
    [GRAPHIC] [TIFF OMITTED] T2799.031
    
    [GRAPHIC] [TIFF OMITTED] T2799.032
    
    [GRAPHIC] [TIFF OMITTED] T2799.033
    
    [GRAPHIC] [TIFF OMITTED] T2799.034
    
    [GRAPHIC] [TIFF OMITTED] T2799.035
    
