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



                                                   S. Hrg. 102-000 deg.
 
     SMALL BUSINESS EXPORTING AND THE SOUTHERN CALIFORNIA ECONOMY

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

                             FIELD HEARING

                               before the

                SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                    LONG BEACH, CA, AUGUST 28, 2003

                               __________

                           Serial No. 108-33

                               __________

         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
Shatz, Howard J., Public Policy Institute of California..........     7
Haveman, Jon D., Public Policy Institute of California...........     9
Quijada, J. Adalberto, U.S. Small Business Administration........    18
Hennessy, Julie Anne, U.S. Department of Commerce................    20
Spinelli, Dr. Lawrence, Overseas Private Investment Corporation..    23
Davis, Greg, Governor's Office of Planning and Research..........    31
Josephson, David, Export-Import Bank of the United States........    33
Unangst, Patricia D., Carson/Lomita/Torrance Workforce Investment 
  Network Board..................................................    35
Wacker, Chris, Laserfiche Document Imaging.......................    37

                                Appendix

Opening statements:
    Toomey, Hon. Patrick J.......................................    44
Prepared statements:
    Shatz, Howard J..............................................    48
    Haveman, Jon D...............................................    61
    Quijada, J. Adalberto........................................    67
    Spinelli, Dr. Lawrence.......................................    73
    Josephson, David.............................................    76
    Unangst, Patricia D..........................................    80
    Wacker, Chris................................................    88

                                 (iii)


HEARING ON SMALL BUSINESS EXPORTING AND THE SOUTHERN CALIFORNIA ECONOMY

                              ----------                              


                       THURSDAY, AUGUST 28, 2003

                  House of Representatives,
          Subcommittee on Tax, Finance and Exports,
                               Committee on Small Business,
                                                     Long Beach, CA
    The Subcommittee met, pursuant to call, at 10:10 a.m., at 
the Long Beach City Council Chambers, 333 West Ocean Boulevard, 
Long Beach, California, Hon. Patrick J. Toomey [chairman of the 
Subcommittee] presiding.
    Present: Representatives Toomey and Millender-McDonald.
    Chairman Toomey. Good morning, everyone. The Subcommittee 
on Tax, Finance and Exports' Field Hearing on ``Small Business 
Exporting and the Southern California Economy'' will come to 
order.
    At this time, the first order of business, I would like to 
recognize the gentlelady from California for the purpose of an 
introduction.
    Ms. Millender-McDonald. Thank you so much, Mr. Chairman.
    Let me first welcome you to the City of Long Beach and 
welcome you to the 37th Congressional District. This is my 
chairman, who works with me in the Committee on Taxes, Finances 
and Exports, and he has been a jewel.
    He has traveled throughout the Midwest this whole week and 
he is coming in from Denver, one o'clock this morning, so we 
are so pleased that he joined us and really accommodated my 
request to have this hearing.
    Welcome, Mr. Chairman.
    I also want to recognize the great Mayor of this city who 
has come this morning--her tight schedule--to welcome you and 
to bring greetings to you.
    At this time, I would like to recognize the Mayor of our 
City of Long Beach, Mayor Beverly O'Neal.
    Ms. O'Neal. I don't know where to stand.
    Ms. Millender-McDonald. I know. That's right. Typically 
you're up here.
    Ms. O'Neal. I want to welcome you to Long Beach. I look 
around and I see familiar faces, so I know that maybe many of 
you live in this area. However, for those of you that are with 
us to be on the program--and this looks like a distinguished 
group right here. It looks like they are all profound and have 
good things to say to us, along with those in the audience.
    Welcome to the City of Long Beach. Our city is an 
outstanding city. We are changing every day. If you look out 
the front of our building, you see growth and new residents. 
Also you see things happening near the waterfront, so we are 
not static.
    However, we are having a very bad budget crisis, and I was 
delighted that the topic that you have had two items that were 
going to be discussed today, and that was small business 
exporting, which is something that we want more of in this 
particular area, because there is no place in the United States 
better than the Los Angeles/Long Beach area for small business 
exporting, and then, of course, the Southern California 
economy.
    So we are very proud to have the Congresswoman from the 
37th District represent our area. She's very concerned about 
what's happening in Southern California, especially the area 
that she's responsible for, which probably is the most 
important part of California.
    I'm sorry, Juanita, if you've got friends in here that 
think I'm bragging. I am.
    She's representing us very well. She is doing a good job 
making sure that people are aware of the needs, of the 
challenge of being in this area where we have so much happening 
with the ports, and finding--I think the nation is finding this 
out even more so since 9/11 and also since the port lockout, 
when people are finally realizing that this is the largest 
complex in the United States with the ports of Long Beach and 
Los Angeles.
    So what you're going to hear this morning if you are a 
small business person is very important to you because you are 
in the right place. They have directories--if you need to have 
10 million rubber gloves, where to find them in the world, or 
whatever it is, service or product that you have that you would 
like to make sure the world knows of.
    So we are here to help you in the city, but especially 
today, I want to thank Congresswoman Juanita Millender-McDonald 
for bringing an august group together.
    You would think that there would be millions of people that 
would want to know about this, and you are the smart ones out 
of those millions, because for one of you, there are probably 
10,000 people that would like to know a little bit more about 
this, so I congratulate you for being here and for being part 
of the day, and I congratulate the august panel that we have 
for the two panels today.
    And I especially want to thank you, Congresswoman, for 
being part of this very important aspect of Southern 
California, and especially in the City of Long Beach.
    Chairman Toomey. Thank you.
    Ms. Millender-McDonald. Thank you so much, Madame Mayor.
    Ms. O'Neal. Thank you.
    Ms. Millender-McDonald. Let's give her a round of applause.
    Protocol has it, I turn it back to the chairman.
    Chairman Toomey. Thank you very much.
    Well, good morning. Thank you, Mayor, and I would like to 
thank in addition the City Council people who made this 
facility available to us. We are very grateful to have this 
facility today.
    I'm looking forward to examining the issues of small 
business exporting, and particularly how that interrelates to 
the Southern California economy.
    First, I want to thank my ranking member for our 
Subcommittee, Congresswoman Juanita Millender-McDonald, for 
inviting me to Long Beach, California, to be here today.
    First of all, I have enjoyed working with you since we 
first started working together, and I have to say I admire your 
passion and dedication to this community and to your 
constituents.
    The gentlelady from California and I come from different 
parts of the country, we come from different political parties, 
we have different voting records, but there's one thing we 
definitely share in common, and I know that she feels a very 
passionate commitment to try to help foster an environment that 
will maximize opportunity for small business owners, for small 
business managers, for small business employers, and for people 
who have the dream of one day becoming successful in small 
business.
    I have seen her work consistently to try to advance that 
cause, especially for the people of Southern California, so I 
congratulate her for that, and I would just share with you my 
pleasure in working with her.
    I will also say that I think of all the Committees in the 
House, it's entirely possible that our Committee, the Small 
Business Committee, is the one most suitable for teaching a few 
lessons in bipartisan cooperation.
    There probably aren't any other Committees in Congress that 
work as well together as this Committee does, Democrats and 
Republicans, from absolutely opposite ends of the ideological 
spectrum, geographical spectrum, and any other way you choose 
to look at it. We have consistently, I think, been able to find 
common ground and work to achieve the same aims, which is to 
help foster the success of small businesses.
    My home state is over 2500 miles away from where we are 
today, yet there are a number of similarities between 
Pennsylvania and California. Both large states, although 
California is certainly the largest economy in our nation, 
Pennsylvania is not terribly far behind, in sixth place.
    We both have dynamic economies with vast natural resources, 
strong agricultural communities, and businesses that range the 
entire spectrum of everything that we do in this great country.
    Another critical part of each of our country's--each of our 
state's economies is the ability to export our products to 
other places. Both of our states, and the entire country now, 
relies heavily on the opportunity to export our goods and 
services.
    So I think it's important that we focus on exporting 
opportunities, and in that context, I think it's important that 
we consider ways to reduce the trade barriers that currently 
make it difficult and sometimes impossible for our small 
businesses to export their products.
    Last year, after a protracted discussion, Congress passed 
the Trade Promotion Authority Act. Now, I think reasonable 
people can disagree over whether that's the best way to open up 
other markets. I happen to think it's going to be an effective 
mechanism for opening up foreign markets to U.S. Producers and 
U.S. Service providers.
    When you think about it, the American market, generally 
speaking, is extremely open, arguably the most open market in 
the world to the importation of foreign-sourced products and 
services. And what I hope our goal is, and I think our goal is, 
under the Trade Promotion Authority and the agreements that 
should result therefrom, is to reduce the trade barriers 
overseas so that we can have the same reciprocal kind of 
relationship that foreign economies enjoy in terms of their 
access to the United States.
    I think the Chilean and Singaporean Free Trade Agreements 
that we passed earlier this year are examples of just such 
agreements. I think these agreements are good news for 
Pennsylvania. I hope they are good news for California, as 
well.
    I wanted to share with you one little anecdote or little 
example of why I think, for instance, the Chilean Free Trade 
Agreement will be very helpful in my home state of 
Pennsylvania, and it arises from a discussion that I had about 
this agreement in Philadelphia last year.
    It was an event hosted by the Chilean Ambassador to the 
United States, and the agreement had not yet been completed, 
but what we discussed was the fact that in Philadelphia, which 
of course has a substantial port, ships routinely arrive all 
winter long laden with Chilean fruits that are produced, of 
course, during our winter and their summer, and these are then 
transported throughout the northeast.
    These very same ships turn around and leave the port of 
Philadelphia largely empty. There are relatively few 
manufactured products that get on those ships. The main reason 
for that is because until now, Chile had very high tariffs on 
American manufactured goods, and the tariffs were so high, in 
fact, that it was prohibitively expensive to sell our products 
into Chile.
    It's my hope that with this agreement and the dramatic 
reduction in tariffs that's in this agreement, we'll be able to 
pack those ships full of products that are manufactured in my 
home state, Pennsylvania.
    That's just one example of how I hope this agreement is 
going to be helpful, certainly to my state, but I hope broader 
throughout the entire country.
    The other thing that's important for us to focus on, I 
think, is to examine just how challenging it is, especially for 
small businesses, to access foreign markets. I can tell you 
it's tough for big companies to figure out how to get into a 
foreign country and provide the products and services and make 
that a viable business model.
    It's really, really hard for a small business to figure out 
the complexities, the hurdles that are often imposed, and the 
programs and the manners and the customs, just to figure all 
that out when you're armed with a very small staff and maybe 
only a Web site to refer to. It's a huge challenge.
    I think it's important for us in the Small Business 
Committee in Washington to try to find ways that we can help 
facilitate that, so that our small businesses can enjoy the 
benefits of these trade agreements and have the opportunity to 
sell their products overseas.
    Having said that, I'm very much looking forward to the 
testimony of the distinguished witnesses, and again I want to 
really warmly thank Ms. Millender-McDonald for her kindness 
that she has shown to me, for inviting me here to her district 
to have the opportunity to get this input.
    At this point, I would recognize the gentlelady from 
California for her opening testimony.
    Ms. Millender-McDonald. Thank you so much, Mr. Chairman, 
and again, thank you for being here and for accommodating my 
request to have the second congressional hearing here in the 
37th Congressional District. Of course, last year, we had the 
same type of hearing in the City of Carson, so today we are 
here in the City of Long Beach.
    Before I give my statement, I just want to recognize some 
of the elected officials or persons who are representing 
elected officials in the audience.
    Of course, my dear friend and councilman for this great 
City of Signal Hill, of which I had the pleasure of being with 
for two hours yesterday, Councilman Larry Forrester. Thank you 
so much for being here. We have Sharon Wiseman representing 
Assemblywoman Genny Oripaza's office. Thank you so much for 
being here. And Pilar Pinell, who is representing Councilwoman 
Bonnie Lowenthal's office. Thank you so much for being here.
    It is great to have my colleagues represented with their 
staff and, of course, the councilman from Signal Hill being 
here.
    I'd like to acknowledge the staff on both sides, the 
Republican staff as well as the Democratic staff. Some of them 
flew in from Washington to be with us today. My two staff 
members and I'm sure the Chairman's staff members also flew in, 
because they are from Pennsylvania.
    It gives you an opportunity to see just how staff 
constantly is working with us, even in the month that we have 
had off, but they call it ``district work days,'' and, in fact, 
it has been district work days.
    The Chairman being here today, really his presence here 
underscores the interest that he has in international trade, 
not only in his state of Pennsylvania, but in the state of 
California and throughout this nation.
    We recognize how important small businesses are to the 
economy, and we are all really grappling with an economy that's 
kind of sluggish at this point. In order to build the economy, 
we have to look at small business, so I would like to thank him 
for being here this morning.
    I would like to also thank the distinguished panel for 
being here this morning, those who have traveled from afar and 
those who have just traveled a couple of miles here on these 
very busy freeways to get to us this morning. We thank you and 
we look forward to your testimony.
    We know that this is the 50th anniversary of the Small 
Business Administration, and this gives us a time to have a 
marker, a time to reflect on SBA's history and a time to look 
at the future role of the SBA.
    We commend our Administrator, Hector Barreto, who has 
really set into gear a very provocative type of seminar that's 
going to be in Washington in the latter part of September, to 
talk about the future of small businesses and where we go from 
here.
    We know that over the past decade the world has become a 
smaller place. Business transactions that once took weeks to 
complete are now finished in a matter of minutes or even 
seconds. The international marketplace has grown by leaps and 
bounds, and no sector has been more important to the growth 
than small businesses.
    Small and medium-sized manufacturers make up 93 percent of 
all exporters in the nation, provide 9.5 million jobs and 
account for 30 percent of total U.S. Growth since 1989.
    The purpose of today's hearing will be to examine the 
impact of tariffs levied on foreign nations, by foreign 
nations, on small and medium-sized exporters in the Southern 
California region.
    Here Southern California sits with the two largest ports 
that make up the port system in the country and the third 
largest in the world. We can ill afford not to look across the 
waters to see how small businesses can be impacted by foreign 
companies. But we must do that and look at--we must do that in 
the sense of looking at the impact of tariffs levied on small 
businesses here in this country.
    This hearing will also explore ways in which local, state 
and federal authorities can assist SMEs in their effort to 
compete on a level playing field in the global marketplace. 
Such assistance includes financial loan assistance, mentoring, 
technical assistance, and partnership agreements.
    Export activities is critical to the 37th Congressional 
District, especially since the ports of Los Angeles and Long 
Beach neighbors it.
    I'm a strong supporter of fair, balanced and open trade, 
and current tariff and tax regimes employed by some of our 
international partners hinder this from taking place.
    According to a recent study by the Public Policy Institute 
of California, the complete elimination of tariffs by 
California's foreign trade partners would increase the State's 
manufacturing exports by 24 percent, or $27 billion. That's a 
lot.
    In addition, the Public Policy Institute of California 
reports that by comparison to other U.S. Firms, California 
businesses rely heavily on exports, accounting for 10 percent 
of California's output, as compared with 7.6 percent of the 
rest of the nation.
    It is for these reasons that I am holding this hearing 
today, to investigate ways Congress can help Southern 
California-based small manufacturers and link them with 
government, private and other entities that can offer technical 
and financial assistance. I'm also here to help all of the 
exporting businesses of Southern California compete.
    The first item that needs to be addressed to ensure SMEs 
can continue to compete internationally is the current World 
Trade Organization decision. This ruling found several of our 
nation's tax provisions to be subsidies and in violation of 
International Fair Trade Rules.
    Failure to address this issue will trigger sanctions of 
over $4 billion in tariffs per year on American exported goods. 
This clearly would be detrimental, not just to this nation's 
economy, but especially to the economy of California.
    To correct this problem, I am working with Small Business 
Committee Chairman Manzullo, which I agree with the Chairman, 
he has been an outstanding chairman. We have worked so well 
with him, albeit he being a Republican, but that's what the 
people sent us to Congress to do, work in concert with both 
sides, and he has been just a yeoman in helping to try to bring 
the two sides together, along with my chairman.
    I'm also pleased to be working with the Subcommittee 
Chairman Crane and Ranking Member of the Ways and Means 
Committee Representative Rangel to pass H.R. 1769, legislation 
that will address the World Trade Organization concerns over 
the current foreign sales corporation extraterrestrial [sic] 
Income exclusion--what a mouthful--their tax structure, and 
replace it with an entirely new tax structure containing 
provisions to benefit U.S. Manufacturers through a permanent 
tax reduction.
    Small and medium manufacturers are the engines that drive 
our nation's economy, and I'll look forward to hearing the 
witnesses testify as to how we can help this sector create the 
new jobs that are sorely, sorely needed in America.
    Thank you, Mr. Chairman.
    Chairman Toomey. Thank you very much.
    At this time I would invite the witnesses from the first 
panel to take their seats at the witness table, and when they 
have done so, I will recognize the gentlelady from California 
to provide introductions for our first two witnesses.
    Ms. Millender-McDonald. Thank you so much, Mr. Chairman.
    We have with us today two experts. They are fellows, 
research fellows, from the Public Policy Institute of 
California. We have Howard Shatz and John D. Haveman, both of 
them research fellows from the Public Policy Institute of 
California. Welcome, both of you.
    I think you are going to have to come to the podium to 
speak.
    Chairman Toomey. What we will do is I'll recognize you 
each, one at a time, and then if you could just bear in mind we 
are allocating five minutes for oral presentation of your 
testimony. Any additional written testimony is welcome.
    After each of you have provided your testimony, then we 
will proceed with questions, and at the conclusion of that, we 
will invite the second panel to begin.
    I take it you are Mr. Haveman?
    Mr. Shatz. Mr. Shatz.
    Chairman Toomey. I am incorrect. I apologize.
    I would at this time welcome and recognize Mr. Shatz for 
his testimony.

   STATEMENT OF HOWARD J. SHATZ, PUBLIC POLICY INSTITUTE OF 
                           CALIFORNIA

    Mr. Shatz. Thank you very much for the opportunity to be 
here.
    My remarks are based on research conducted at the Public 
Policy Institute of California, which is an independent 
nonpartisan research institute. We don't take positions on 
legislation, rather we provide objective information to policy-
makers and the public as they consider policy issues.
    Today I will discuss three main topics. First, I'll give 
you a profile of California's globalization. Second, I'll 
connect this to small businesses. Third, I'll briefly talk 
about some issues of trade assistance that are relevant to 
California in particular.
    I measured California's globalization based on three 
modes--foreign direct investment, port activity, and trade. You 
can't say that California is the most globalized or the least 
globalized state, because there are many dimensions. What I 
conclude, however, is that California participates strongly in 
the global economy on those dimensions that are among the most, 
the newest, or emerging trends.
    Foreign direct investment is what I'll start with. That's 
cross-border investment to control a business, a supermarket 
like Gigante in Southern California or a chip manufacturing 
plant like the Intel plant in Costa Rica. Compared to the rest 
of the United States, California actually has less outward 
foreign direct investment.
    It is strong in some industries, such as wholesale trade, 
and importantly, technology and manufacturing industries that 
use production sharing, which is again a newer phenomenon in 
international trade where different components are made around 
the world and assembled in yet another location under the 
control of one business group.
    In terms of inward foreign direct investment, firms 
investing in California, again California is much like the rest 
of the nation, and on some dimensions has even less FDI 
relative to its size. That's trade.
    Ports, California plays a key roll in U.S. Trade. As the 
Congresswoman mentioned, we have the ports of L.A. And Long 
Beach, which are combined the third largest container port in 
the world, but we also have the air export gateways of LAX and 
SFO, which actually handle more trade, more exports by value 
than the two seaports, and were number seven and eight in the 
United States, so California's airports are very important in 
international trade.
    Finally, I come to trade. I'll concentrate on goods 
exports, even though services exports are quite important to 
the state.
    Manufactured exports are the stars of California's 
globalization. They are large, relative to California's size, 
and they are large relative to the size of its manufacturing 
sector.
    Although they are heavily tilted towards technology 
industries, nearly every California manufacturing industry 
relies more on exports than those same industries in the rest 
of the U.S., either through direct exports or by manufacturing 
the inputs that get put into those exports by other firms.
    In Southern California, that's relevant because this region 
broadly defined has about 63 percent of the state's 
manufacturing employment, and when we look state-wide, those 
manufactured exports from the whole state support about 10 
percent of California private employment, compared to about 7 
percent for the rest of the United States.
    So to sum up California's globalization profile, there are 
five points. One, we rely more on Asia than does the rest of 
the U.S. Two, services play an important role in our 
globalization, services exports. Three, we fit into global 
shipping, not just through our seaports and our land borders, 
but our airport. Four, we're part of a shift in worldwide trade 
patterns towards production sharing. Five, our manufacturers 
depend very heavily on exports.
    Now, how does this relate to small firms? Well, in the 
U.S., small businesses are involved with about 30 percent of 
all merchandise exports.
    What's interesting is that many of the small businesses 
that are involved in these exports are not the manufacturers, 
but wholesalers and other trade facilitators. This is quite 
important for the small manufacturers, which often don't have 
the staff or the time to investigate foreign markets.
    In California, more--small manufacturers make up a higher 
proportion of all exporting manufacturers than in most other 
states. When you look at all the small businesses involved in 
exporting, about 94 percent of all exporters located in 
California are small businesses.
    I'll conclude with some notes on trade assistance policy in 
California.
    Insofar as federal assistance can help exporters, the 
environment in California may be extremely inviting, and that's 
because under the current State budget, most of the State's 
export assistance programs are being scuttled, creating a gap.
    Research on trade assistance programs has shown that 
public/private partnerships or collaborations tend to work 
best, and there are, in fact, many groups remaining in the 
state, mostly at the local or regional level, so new forms of 
coordination might be most welcome at the time.
    To summarize, California's manufacturing companies rely on 
exports a great deal, and many of them are small businesses. At 
this point in California, because of the demise of the State's 
export programs, there may be a rare opportunity for federal 
agencies to rethink their links to other trade organizations in 
the state.
    Thank you.
    [Mr. Shatz's statement may be found in the appendix.]
    Ms. Millender-McDonald. Thank you.
    Chairman Toomey. Thank you very much.
    At this time I will recognize John Haveman from the Public 
Policy Institute of California also.

    STATEMENT OF JON D. HAVEMAN, PUBLIC POLICY INSTITUTE OF 
                           CALIFORNIA

    Mr. Haveman. Thank you very much, Representatives 
Millender-McDonald and Toomey, for having me here today at this 
important hearing. I'm very honored to be here.
    My remarks, as were Dr. Shatz's, are based on research 
published by the Public Policy Institute of California. This 
research that I produced several months ago describes the 
impact of federal trade policies on exports of manufacturers, 
primarily from California, but both from California and the 
rest of the United States.
    What I will do in my remarks is extend the results that 
were produced in that report to include results for small and 
medium-size enterprises, in particular in Southern California.
    What I'll do first is go through the various federal trade 
policy initiatives and describe what they mean for exporters in 
California and describe what they mean for small and medium-
size enterprises in the state, as well.
    The current administration is very active in pursuing the 
opening of markets abroad. It's arguably the most aggressive 
administration since that of Franklin Delano Roosevelt in the 
1930s in that pursuit.
    Its aggression has taken the form of three prongs, three 
different levels of negotiations. The first level is that of a 
multilateral liberalization under the World Trade Organization. 
The second level is regional liberalization. The Free Trade 
Area of the Americas is a prominent example of that. The third 
level is simple bilateral agreements, agreements between the 
United States and just a single other country.
    For just a moment, I want to step back and talk a little 
bit about the importance of small, medium-sized enterprises in 
Southern California, because that will help put some of the 
results that I'll discuss later in some perspective.
    As Dr. Shatz mentioned, roughly two-thirds of all 
establishments, all manufacturing establishments and 
manufacturing employment, is located in Southern California. 
And by ``Southern California,'' I mean that part of the state 
below the sixth standard parallel.
    Small and medium-size enterprises make up about 60 percent 
of Southern California's manufacturing employment and 90 
percent of the establishments in manufacturing in Southern 
California. So in terms of employees, they number approximately 
650,000 in small and medium-size enterprises in Southern 
California.
    Now, the administration's Foreign Trade Liberalization 
initiatives, as I mentioned, begin with the multilateral 
liberalization or negotiations under the Doha Round in the 
World Trade Organization.
    As the Representative mentioned earlier, success in these 
negotiations can hold great promise for California's exporters. 
The President, in fact, tabled a proposal that would eliminate 
all of the tariffs in the world within the next 10 to 15 years, 
and what I found in my work is that this could lead to an 
increase in California's exports of 24 percent, approximately 
$27 billion, in the year 2000 [sic].
    This contrasts relatively favorably with the results for 
the rest of the country. The rest of the country would 
experience an increase in exports to the tune of only 20 
percent, about 4 percentage points lower than for California. 
So these negotiations are, in fact, arguably more important for 
the state of California than for rest of the country.
    Where are these exports going to go? Well, obviously, the 
bulk of these exports are going to be made up of high 
technology products. That's what California tends to export 
most prominently. Also benefitting will be transportation and 
chemicals industries.
    As Dr. Shatz mentioned, Asia is very important for 
California, and liberalization of foreign markets will lead to 
a very substantial increase in California's exports to Asian 
markets.
    In Southern California, manufacturing enterprises can 
expect to receive a boost in the demand for their exports to 
the tune of between $11- and $14 billion. Small manufacturing 
enterprises, though not necessarily engaged in exporting, could 
expect to see an increase in demand for their products to the 
tune of $6- to $8 billion, as well. So these negotiations are 
very important for California, and Southern California in 
particular.
    At the regional level, there are three prominent 
initiatives. One is the Free Trade Area of the Americas, 
another the Central American Free Trade Agreement, and the 
third is a free trade agreement with the countries of the South 
African Customs Union.
    Now, the Free Trade Area of the Americas is the largest and 
most significant of these, leading to a potentially $4 billion 
increase in California's manufactured exports, or an increase 
of about $1 billion in the demand for goods produced by 
Southern California's small and medium-size enterprises.
    The CAFTA, Central American Free Trade Agreement, and for 
FTAA with the SACU countries, are both much less important, 
each leading to an increase in maybe $100 million in demand for 
the products of small and medium-size enterprises.
    Bilateral agreements, recent signings, as mentioned, are 
Singapore and Chile. Very important agreements. Although 
Singapore is the eleventh largest export market for California 
products, it's not likely to be terribly important for the 
exports of manufactured goods from the State; however, for 
exporters of services, which are very important to the State, 
this agreement holds great promise. And for those wishing to 
invest abroad, it should liberalize investment in the Singapore 
market significantly.
    Chile, not a major market for California's exports, but we 
will certainly see more California goods flowing to Chile.
    Ongoing negotiations are Morocco and Australia. Morocco has 
never and will not likely import very much from California in 
the event of a free trade agreement. Neither will new 
initiatives with Bahrain and the Dominican Republic lead to 
significant increases in California's exports.
    In every case, these regional and bilateral agreements are 
much more important for other states in the United States than 
for California. In fact, the benefits on a percentage basis for 
the rest of the country are double those what they are for 
California.
    It's the WTO that holds the most promise for California's 
exporters, given that it includes important markets for 
California's products, those being Korea, China, Taiwan, India, 
the European Union, and Japan.
    In summary, the prospects for significant liberalization in 
the next decade exist, but they likely represent only a 
fraction of the potential of liberalization that could benefit 
California's exporters. Much of the liberalization will be 
outside of the manufacturing sector. In particular, the 
European Union and the United States seem to be coming to terms 
on reducing agricultural subsidies and other domestic support 
programs, which should open foreign markets for both.
    Trade and services will also likely experience some 
liberalization, which is important for California's small and 
medium-size service establishments. Most of these benefits, 
however, are very hard to quantify at this time.
    Of the benefits that I have been able to quantify, they 
suggest that a more commercially based approach to the 
selection of liberalization initiatives would yield greater 
benefits for California's small and medium-sized enterprises 
than does the current agenda. In particular, Asia includes very 
important markets, and the current liberalization initiatives 
largely neglect them.
    If California is to benefit from liberalization abroad, the 
peculiarities of its trade flows need to be given voice or 
California will be left out of the liberalization bonanza that 
the rest of the country may experience.
    The current agenda, unfortunately, is not one drafted with 
California's interests in mind.
    Thank you very much.
    Chairman Toomey. Thank you.
    [Mr. Haveman's statement may be found in the appendix.]
    Chairman Toomey. I'll begin the questions. If I could, I'll 
start with Dr. Shatz.
    My first question is to follow up on a point you made that 
surprised me very much, and I was hoping you might shed some 
light on this. You indicated that California has--if I 
understood you correctly, and correct me, please, if I'm 
wrong--but that California has experienced less foreign-direct 
investment from overseas into California than, I take it, the 
nation has as a whole.
    I find that surprising, because I would think of California 
as having many advantages, and I wonder, are there policies in 
place that make California a less attractive place to invest on 
the part of foreign businesses and investors than other states, 
and if so, could you shed some light on those?
    Mr. Shatz. California has less relative to the size of its 
economy, and I measure that in two ways, the only two ways, 
really, that are available to look at the State level.
    One is in terms of the value of property, plant and 
equipment owned by foreign enterprises, and in that, California 
is much lower than the rest of the U.S., compared to the size 
of its economy.
    The other way to measure it is the number of employees, and 
in that respect, California is about the same as the rest of 
the United States; the number of employees relative to total 
employment.
    Chairman Toomey. Isn't the total dollar value of 
investment, whether it takes the form of plants and equipment 
or some other form of investment, isn't that the best total 
measure of foreign direct investment?
    Mr. Shatz. It depends, because it depends on the industry. 
For manufacturing, manufacturing will have more property, plant 
and equipment----
    Chairman Toomey. Sure.
    Mr. Shatz [continuing]. Because they will have much more 
machinery, so you would expect--I haven't looked at this 
explicitly, but you would expect that in those states that have 
received high levels of auto-related investment, there would be 
very high levels of property, plant and equipment.
    Now, California happens to receive as a share of its total 
foreign investment lower levels of manufacturing investment. We 
receive higher levels of investment, or there are higher levels 
of employment in wholesale trade, probably related to the 
ports, and probably related to California's large market.
    We receive higher levels of investment in information 
industries. Those include movies, software, again, related to 
California's specialization.
    And third, services--scientific, professional and technical 
services, again, probably related to the high level of 
education in some parts of the California population.
    So the question, then, is what's keeping out the 
manufacturing investment, or why are manufacturers going 
elsewhere? It's a big country and there's lots to choose from. 
If you're going to make an automobile, you can just as easily 
make it in Alabama or Pennsylvania and ship it to California as 
you can make it in California.
    The question is, are there policies in California that are 
discouraging manufacturing investment? That I haven't looked at 
explicitly. Certainly, California's manufacturers believe that 
the state's business climate is not as conducive to them as 
other states are for manufacturing. So there may be a 
connection there.
    Foreigners have much more choice, though, when they choose 
within America. Right? If you're in California, you are more 
likely to choose California.
    Chairman Toomey. Thank you.
    I have a question for Dr. Haveman, as well.
    You indicated that the--again, correct me if I'm 
paraphrasing you incorrectly--but my sense was that you believe 
that California will benefit from a general liberalization of 
the trade regimes, from the lowering of tariffs generally, but 
in your opinion, the order in which these agreements are likely 
to transpire may not benefit California as early as some 
others, and I'm sure you are aware that there are many factors 
that go into figuring out which agreements you're able to 
reach, and in which order, and there's a very complex political 
dynamic to what can be accomplished in this regard.
    I was interested to note your optimism on the prospects of 
a liberalization of the agricultural, really the horrendous 
lack of any kind of free trade in agricultural products all 
around the world, and the United States is almost as guilty as 
many other countries. I wish I shared your optimism that the 
European Union was truly intent on making substantial progress, 
but I hope you are right and I'm wrong about that.
    My real question for you, you talked about the specific, 
and you quantified the expected benefits in terms of the dollar 
value of increased exports should tariffs be reduced or 
eliminated in a variety of contexts.
    My question is, when you make that analysis, when you do 
your numbers, are you looking at the net effect of the trade 
agreement; in other words, are you taking into account the fact 
that when we reach these agreements and the foreign countries 
dramatically lower their tariffs--typically we have some modest 
reduction in the low level of tariffs that we still have, as 
well, and that reduction in domestic U.S. Tariffs could, of 
course, invite additional competition from overseas to the 
domestic producers.
    So are you looking at the net effect of trade flows when 
you look at these agreements?
    Mr. Haveman. I must confess that, no, I'm not. I fully 
admit that exports are but one piece of a very complicated 
policy mosaic that involves impacts on domestic labor markets, 
prices, the environment here and abroad. What I've tried to do 
with this report is simply bite off a small piece of the 
puzzle.
    Chairman Toomey. Sure.
    Mr. Haveman. In future work, I hope to address the domestic 
issues.
    Chairman Toomey. Would you believe--is it safe to 
generalize, is it fair to generalize that with respect to the 
countries that we have recently struck trade agreements and 
those that you listed as likely candidates, that as a general 
matter, the tariffs that they impose on American goods are much 
higher than the tariffs that we currently impose on their 
goods, and that the likely outcome of the reduction in tariffs 
is greater opportunities for American exports?
    Mr. Haveman. Absolutely. The United States is roughly on a 
par with the European Union in terms of its average level of 
tariffs. There are a handful of countries throughout the 
world--Singapore is one--that have virtually no tariff barriers 
to trade.
    The remaining countries, almost to a one, impose larger 
tariff barriers than does the United States, so any lowering of 
tariff barriers jointly between the United States and another 
country will involve a greater liberalization of foreign 
markets than it does of the U.S. Market.
    Chairman Toomey. Thank you very much. I'll be happy to 
yield to the gentlelady from California.
    Ms. Millender-McDonald. Thank you so much, and thank the 
two of you for being here this morning.
    It is interesting to know, and we do know that California 
relies heavily on Asia markets, and yet at this point we have 
seen a decline in Asia activities. It seems, and correct me if 
I'm wrong, but given the current economy in Asia, especially 
Japan, is that still a reliable market for us in terms of 
international trade?
    Mr. Haveman. Oh, I think absolutely it is. In the next 20 
years, Asia is going to experience dramatic growth. They are 
also going to experience dramatic decline. In the mid to late 
1990s, there were significant economic difficulties in the 
region--now they are undergoing another set of economic 
difficulties.
    The World Bank, and most of the people that I've spoken 
with believe that Asia will continue to be a major source of 
economic growth in the world, and also a significant market for 
U.S. And California exports.
    Ms. Millender-McDonald. And, of course, China has always 
been the big elephant that we tend to want to continue to 
engage in.
    If you say that California is prone to be--and let me 
digress for a second. This administration is very aggressive in 
terms of multilateral, bilateral agreements with different 
countries in terms of international trade, but it seems to me 
like California would fare better with a multilevel or lateral, 
I should say, agreement than that of bilateral.
    If that is, indeed, the case, in what countries can we look 
to outside of Asia to par with us on this multilateral, given I 
think Dr. Shatz said, I guess, African countries, and of course 
areas in the Americas, but what other countries can we look 
forward to in terms of aggressively investing, having more 
foreign investments come from overseas to especially 
California?
    Mr. Haveman. Maybe I'll leave the foreign investment 
question for Dr. Shatz.
    But in terms of multilateral versus regional agreements, 
it's not all regional agreements that will not be beneficial 
for California. It happens to be the set that's chosen now.
    In my remarks I removed, to save time, mention of APEC, the 
Asia Pacific Economic Cooperation Forum. This a very important 
forum for California, very important forum for liberalizing and 
maximizing the potential of California's exporters.
    In my report I estimated that the expansion of California 
exports with success simply within the APEC forum of their 
original liberalization agenda would have amounted to roughly 
$19 billion, which is a good chunk of the $27 billion potential 
out there, and this is with Asian countries.
    However, APEC has been derailed in recent years. It was 
derailed in the mid-1990s because of the economic crisis in 
Asian countries, and now it's being turned more into a security 
organization than an organization to promote economic 
development, per se, so I would still maintain an emphasis on 
Asian countries for California.
    Ms. Millender-McDonald. In the past, Mr. Haveman, the 
Chilean government employed capital controls to protect its 
economy from the destabilizing impact of speculative capital 
flows and financial crisis. Many governments, including the 
Chilean government, have used such capital controls quite 
effectively, and even the International Monetary Fund has 
conceded that these controls can be legitimate and beneficial.
    In your opinion, why do you believe the Administration 
pushed for the implementation of free capital flow, rejecting 
the idea of capital control?
    Mr. Haveman. A very important question.
    It's my view, really, that the beauty of capital controls 
is very much in the eye of the beholder, and generally the 
perspective of the country that's trying to protect itself from 
the damage that can come from overinvestments, speculative 
bubbles and what have you, they view capital control much more 
favorably than do countries outside who wish to invest within, 
because inevitably capital controls will reduce, to the extent 
that they have an effect, they will reduce the flow of capital 
inward.
    So one answer to the question is that it's in the best 
interests of the United States to allow capital to flow freely 
into these countries, as we are nontrivial investors in Chile.
    Another answer is that how you feel about capital controls 
depends on the outcome of some benefit cost analysis. There's 
no question there's a cost to the countries that impose capital 
controls, and I believe the Chilean government would readily 
admit that there is a cost.
    Capital inflows are instrumental in providing for economic 
development within a country. Limiting the inflow of that 
capital will reduce economic development to levels below that 
which you might otherwise expect it to be. Still you are 
protecting yourself from things that are not inevitable, but do 
seem to occur periodically.
    So the United States is both looking out for its own 
interests and has a different take on the benefit cost analysis 
of capital controls than does the Chilean government.
    Ms. Millender-McDonald. Thank you so much.
    Can either one of you provide for this Committee some 
export control reforms that you would like Congress to 
implement?
    Mr. Shatz. Unfortunately, I think neither of us has done 
serious research on this, and we like to speak from research.
    Ms. Millender-McDonald. Okay.
    Mr. Shatz. But I would speak from basic economic 
principles, which is that any export controls have to take 
account of the products that foreign companies make and can 
export as well, so I'm not familiar with the detail of the 
current programs, whether they really take account of what 
French, German, Japanese manufacturers are able to make and 
export, but that certainly has to be a part of any reforms, if 
that's not being taken account of fully right now.
    Ms. Millender-McDonald. Well, you know, the President has 
imposed some controls on steel coming from international, 
because of the steel market that we have and how it has really 
just slumped, and of course Bethlehem Steel closing, and yet 
you have a lot of car manufacturers who are saying that they 
really need to have that steel that's coming in from the 
foreign market, and we are trying to control that and the 
President has done very well in doing that.
    What is your take on that?
    Mr. Shatz. From California's perspective, California is a 
steel-using state more than it is a steel-making state.
    Ms. Millender-McDonald. Absolutely.
    Mr. Shatz. So any controls on steel imports would end up 
most likely hurting California more than helping it. I haven't 
thought about this in terms of the nation as a whole. So that's 
my view on steel, primarily because California is much more of 
a steel-using state.
    Ms. Millender-McDonald. Absolutely.
    Mr. Shatz. Compared to the rest of the U.S.
    Ms. Millender-McDonald. As compared to the Chairman's 
state.
    Mr. Shatz. Right. And actually the ITC, the U.S. 
International Trade Commission, will be coming out with two 
studies in a month or two looking at both sides of the issue, 
looking at the effect of the safeguards on steel-making 
companies and the effect of the safeguards on steel-using 
companies, so that should be quite interesting.
    Ms. Millender-McDonald. Interesting, absolutely.
    Mr. Chairman, thank you.
    Chairman Toomey. Thank you, and I'd like to thank both 
witnesses for your testimony. I really appreciate it. I enjoyed 
your comments.
    At this time I would invite the witnesses from Panel Two to 
take their seats at the witness table.
    Ms. Millender-McDonald. Mr. Chairman, while the others are 
coming up, I would like to thank Mr. Haveman and Dr. Shatz for 
their input into this hearing today, and I just want you to 
know that Mr. Haveman holds a B.A. In economics from the 
University of Wisconsin, Madison, and an M.S. And Ph.D. In 
economics from the University of Michigan, Ann Arbor.
    So, Doctor, thank you. And Mr. Shatz also holds a Ph.D. In 
public policy from Harvard University.
    So we just want to let you know the stellar panelists that 
we have here today with us.
    Chairman Toomey. At this time, then, I'll recognize the 
gentlelady from California to make the introductions of the 
witnesses on our second panel.
    Ms. Millender-McDonald. Thank you so much, Mr. Chairman.
    Again, the second panelists include Mr. Adalberto Quijada, 
who is the Deputy District Director for the United States Small 
Business Administration. We have Dr. Lawrence Spinelli, who is 
the Director of Communications for Overseas Private Investment 
Corporation. Ms. Julie Anne Hennessy, the Director of Export 
Assistance Center for the U.S. Department of Commerce, and 
there is a fourth panelist, which is--I do not have him--Mr. 
Greg Davis will come momentarily after the other three have 
spoken.
    Just a little bit of background. Mr. Quijada serves as the 
Deputy Director of the United States Small Business 
Administration, the Los Angeles office, which is the largest 
SBA district office in the country, covering Los Angeles 
County, San Bernardino--Santa Barbara, Ventura Counties, and it 
leads all 70 district offices nationwide in financing small 
businesses and the acquisition of government contracts.
    Ms. Hennessy is--she joins us from the U.S. And Foreign 
Commercial Services, joined that group in 1995 and became the 
director of the West Los Angeles U.S. Port Assistance Center in 
1999. In addition to her role as director, Ms. Hennessy assists 
small to medium-size companies with their international 
marketing efforts.
    She has been very active in promoting international trade 
in the Los Angeles area and is currently on the board of 
advisors for Women in International Trade, Los Angeles.
    Dr. Spinelli is the Director of Communications, as I said, 
of the Overseas Private Investment Corporation, OPIC. Dr. 
Spinelli is responsible for all public diplomacy activities, 
including Small Business Outreach, and OPIC's New Partners 
Program.
    Prior to joining OPIC, Dr. Spinelli was the Vice President 
of Corporate Communications at the National Alliance of 
Businesses. He received his undergrad degree from Drury 
University, a Master's Degree in Government from Georgetown 
University, and a Master's Degree and Doctorate in history from 
New York University.
    Thank you all so much for being here.
    Mr. Quijada will be the first one.
    Chairman Toomey. I would just remind our panelists that the 
testimony is for five minutes, and if you have extended 
remarks, we'd be delighted to include them in the record in a 
written form.
    At this time, I'll recognize Mr. Quijada.

 STATEMENT OF J. ADALBERTO QUIJADA, DEPUTY DISTRICT DIRECTOR, 
LOS ANGELES DISTRICT OFFICE, U.S. SMALL BUSINESS ADMINISTRATION

    Mr. Quijada. Good Morning, Chairman Toomey and 
Congresswoman Millender-McDonald. I'm honored to testify before 
the both of you this morning and to discuss how the SBA can 
help small and medium-size exporters effectively compete in the 
global marketplace.
    Allow me to first say that Administrator Hector Barreto 
asked that I convey his personal good wishes to both of you, 
and that I underscore his sincere commitment to continue the 
work, to work closely with your Committee on the many important 
challenges that today's small businesses face in this nation.
    Again, I'm Adalberto Quijada. I'm the Deputy District 
Director for the SBA's Los Angeles District Office, and our 
office covers the Los Angeles, Santa Barbara and Ventura 
counties.
    I'm proud to report that under the leadership of, I know, a 
good friend of yours, our District Director, Alberto Alvarado, 
who, by the way, sends his regrets that he cannot be here 
today.
    Los Angeles continues to be acknowledged as the outstanding 
capital axis division among the SBA's 100 field offices and 70 
district offices.
    I'd like to take a quick moment to present our local 
management team, who is here today at the disposal of your 
constituents. They will be available to answer any questions 
that the audience may have. I'd like briefly--if they could 
please stand so your constituents know who they are. We brought 
the whole team this morning.
    Ms. Millender-McDonald. Thank you all so much for being 
here. What a great team.
    Mr. Quijada. Absolutely.
    Now, I'd like to address the primary components where Los 
Angeles, as you said, Congresswoman, has led the nation 
successfully. In terms of access to capital, over the last four 
years, SBA Los Angeles has provided $3.2 billion to nearly 
10,000 businesses. It has helped to create or retain an 
estimate of over 97,000 jobs in our tri-county service 
territory. Over the last three-year period, we have provided 
$128 million in financing to 381 businesses in your 37th 
Congressional District.
    Insofar as technical assistance, this past year alone, SBA 
Los Angeles has reached over 18,000 individuals and has 
conducted over 120 training sessions, including minority and 
women business owners. SBA Los Angeles most definitely through 
our partnerships with the many community-based organizations is 
fully committed to continuing to provide these workshops and 
seminars and one-on-one consultations.
    In terms of procurement through our procurement program of 
year-round workshops, seminars and conferences, we are able to 
successfully inform our small minority and women-owned 
businesses on how to access federal procuring agencies and 
prime contractors. We are proud to report that in California's 
37th Congressional District, $8 million of government contracts 
were awarded this past year.
    Export assistance--and, by the way, we do have our 
international trade specialist, Mr. Martin Zeelander, who is 
available for any questions after the hearing.
    I'd like to now address how the SBA is prepared and 
committed to directly assist existing and prospective 
exporters. We have a diverse set of international trade 
programs that range from export finance to export promotion 
activities. In the interest of time, I'll go over them very 
briefly.
    Our three finance guarantee programs include the Export 
Working Capital Program, which provides a 90 percent guarantee 
up to $1 million, and the funds can even be used to purchase 
inventory, raw materials or labor that is directly related to 
the export sale.
    The next program is International Trade Program--
International Trade Loan Program, excuse me. And this program 
provides a $1.25 million guarantee on fixed assets and working 
capital financing.
    The third is Export Express, and it's by far the most 
flexible export financing program within SBA right now. The 
loan amounts up to $250,000 may be used for any purpose, which 
will enable the business to enter a new export market or even 
expand an existing export market.
    With respect to export promotion, the SBA has established 
the following programs. One is Trade Mission Online, and this 
is an Internet Web site program that enables firms to register 
their products and services online. It also provides access to 
a comprehensive database of U.S. Companies and foreign 
companies as well. It also, very importantly to these companies 
that are involved in exports, it facilitates participation in 
foreign trade missions.
    ETAP is one of our other export promotion programs, and 
that stands for Export Trade Assistance Partnership. This is a 
program that provides effective and measurable assistance in 
the form of training to small businesses that wish to enter the 
global marketplace.
    Our last is ELAN, which stands for Export Legal Assistance 
Network, and this program provides initial legal consultation 
to small business exporters, and the attorneys that provide the 
service are volunteers for the Bar Association.
    Insofar as export successes for the Los Angeles area, we 
are also very proud to say that we have led the country, Los 
Angeles that is, in export financing, approving 43 export loans 
for $24.1 million. That is twice the output of the second place 
office in the country. In fact, we have been the number one SBA 
office nationwide for four of the last five years, approving a 
total of 193 export loans, totaling $73.2 million. And I'm 
pleased to report that in your 37th Congressional District, 
since 1992, we have approved 22 export loans for $10.3 million.
    Ms. Millender-McDonald. I'm sorry. How much?
    Mr. Quijada. 10.3.
    I'd like to share briefly a success story in your 
congressional district, and this is BDS Natural Products. They 
are located in the City of Carson. They are an industry leader 
in supplying quality raw materials to the food and beverage 
industries. They employ 26 workers and they specialize in the 
manufacturing, exporting and importing of botanical powders, 
herbal teas and spices.
    Export markets include Canada, Australia, Thailand, 
Indonesia, Singapore and Vietnam. Our district office has 
financed three loans in excess of $1 million, two of which have 
involved export financing.
    In closing, I would like to reiterate that it's been an 
honor and a pleasure to be here today, Chairman Toomey and 
Congresswoman Millender-McDonald, and I affirm our commitment 
and that of Administrator Barreto to build a more efficient and 
effective SBA, one that helps businesses grow and prosper and 
ultimately contributes to stronger and healthier communities.
    We intend to continue to work closely with your local staff 
and to address the concerns not only of your office, but that 
of your business constituency. We intend to continue to 
maintain our record of achievement in your congressional 
district. At 37, we have had a great partnership and we look 
forward to a continued working relationship.
    Ms. Millender-McDonald. Well, I can say I really do miss 
Mr. Alvarado, but you have very ably stepped into his shoes 
today.
    Mr. Quijada. Thank you.
    Ms. Millender-McDonald. Thank you very much.
    Chairman Toomey. Thank you very much, Mr. Quijada.
    [Mr. Quijada's statement may be found in the appendix.]
    Chairman Toomey. At this time I'll recognize Ms. Julie Anne 
Hennessy for her testimony.
    Ms. Millender-McDonald. You're playing musical chairs like 
we do in Congress.
    Before you get started, Ms. Hennessy, let me just recognize 
another one of my colleagues who has sent his representative 
here, Adrian Garcia, representing Assemblyman Allen Lowenthal. 
Thank you so much for being here.
    Thank you, Ms. Hennessy.
    Ms. Hennessy. Yes. Good morning.
    Ms. Millender-McDonald. Good morning.

  STATEMENT OF JULIE ANNE HENNESSY, EXPORT ASSISTANCE CENTER, 
                  U.S. DEPARTMENT OF COMMERCE

    Ms. Hennessy. Good morning, Chairman Toomey and 
Congresswoman Millender-McDonald.
    I am honored to be here today to highlight the important 
work that the U.S. Commercial Service does on behalf of 
America's small businesses. Thank you for granting me this 
opportunity.
    I hope that my testimony today will show what the U.S. 
Government, namely the U.S. Commercial Service, can do to 
strengthen and protect our small businesses, and in turn the 
very jobs that our economy depends upon.
    The U.S. Commercial Service plays an important role by 
providing trade education programs to U.S. Entrepreneurs and 
assisting companies to prepare their products and services for 
sales in markets beyond our national borders. In the age of 
electronic commerce, all markets are potentially global 
markets.
    The U.S. Commercial Service is the Department of Commerce 
agency that focuses on helping small and medium-size businesses 
sell their products and services globally, and in partnership 
with our other commerce agencies protects the interests of 
American business abroad.
    We have special emphasis on minority-owned companies, 
women-owned firms and companies in rural communities. We have a 
worldwide network of offices and trade specialists that help 
small and medium-sized U.S. Firms realize their export 
potential.
    U.S. Commercial Service officers are posted in over 150 
locations abroad and 107 U.S. Export assistance centers 
throughout the United States to provide one-on-one assistance.
    Whether a company has never exported before and needs help 
with the basics of international business, or if a company is 
an experienced exporter looking for a new international market, 
we are there to help. We offer basic export consulting, market 
research, matchmaking services, advocacy towards foreign 
governments on behalf of U.S. Businesses, help on treaty 
compliance issues and numerous business creation opportunities 
and trade missions and trade events.
    Just a few of the important programs that we offer to small 
businesses to promote exports are the Gold Key Service, Buy 
USA, International Buyer Program, and Flexible Market Research, 
and I'll just summarize these briefly for you.
    The Gold Key is a customized service for finding and 
vetting potential agents, distributors, sales representatives, 
and business partners abroad for U.S. Businesses.
    This service assists in locating and vetting foreign 
partners, like distributors and sales representatives. More 
specifically the Gold Key provides, among others, customized 
market and industry briefings with U.S. Commercial Service 
staff in advance of business meetings. We offer prescreened 
appointments with potential sales representatives and business 
partners. We offer market research on the company's industry 
sector, and if needed, assistance with travel, accommodations 
and interpreting services.
    Our Buy USA program is an international electronic 
marketplace, a one-stop export assistance Web site that brings 
U.S. And international companies together to export U.S. 
Products and services. Buy USA integrates the one-on-one export 
counseling of U.S. Commercial Service with business-to-business 
online technology, critical for competing in today's global E-
economy. The site offers a small business the ability to find 
an international business partner, identify sales leads, and 
make a transaction.
    Our International Buyer Program recruits and brings more 
than 125,000 foreign buyers to the U.S. To visit more than 25 
major U.S. Trade shows each year. Our overseas trade 
specialists organize the foreign buyer trips, the buyers 
usually come in delegation groups and are ready and willing to 
purchase goods and services, American goods and services.
    They only need to be matched up with the right U.S. 
Company, and that's where we come in. We help organize meetings 
and provide matchmaking services and business counseling to 
help these small businesses generate sales to these ready and 
willing foreign buyers.
    Our flexible market research provides small businesses 
access to customized market research at a price they can 
afford. This service allows small businesses the opportunity to 
receive market research and data that is unique to their 
situation and needs. This service gives reliable answers to 
their questions about specific markets, prospects for their 
products and services.
    In addition to these programs, the Commercial Service 
counsels businesses on the entire range of export promotion and 
finance services available to U.S. Businesses from the 
government.
    Furthermore, we have strong partnership with the Small 
Business Administration and the Export-Import Bank. This allows 
the U.S. Commercial Service to assist small businesses in 
finding the working capital and finance programs they need to 
begin exporting for the first time or extend the number of 
foreign buyers to which they are selling.
    Whenever possible, we partner with the private sector to 
improve the overall benefits to U.S. Companies and local 
economic development. We rely on the 56 District Export 
Councils located throughout the country, the majority of whose 
members are from the private sector, and they help us set our 
priorities based on what they believe businesses need.
    Demand for our services from the private sector is very 
strong, and we expect it to continue as more and more companies 
engage in global commerce as a winning business strategy.
    In fiscal year 2002, the U.S. Commercial Service counseled 
110,777 clients, which produced over 11,000 successful export 
sales. This had a dollar value of $23 billion--of the 11,000 
successful export sales, 5,384 of these were successful sales 
for companies already exporting, but reaching a new market in a 
new country. 734 were successful export sales for companies 
that had never exported before. Small and medium-size companies 
produce 90 percent of all successful export sales.
    Let me tell you about two of the many Southern California 
companies that the U.S. Commercial Service helped to make new 
export sales, bringing revenue and jobs to our local economy. 
Value the Sun Labs, located in Congressman Millender-McDonald's 
district, has been a client of the U.S. Commercial Service for 
almost five years.
    Over the years they have used a variety of our programs and 
services, including market research and contact lists, and for 
about two years Value the Sun Labs has found it advantageous to 
advertise in the Commercial News USA, which is our marketing 
publication that is distributed worldwide to foreign buyers.
    Approximately 99 percent of the Value the Sun sales are due 
to exports. Seven years ago their sales amounted to under 
$10,000. Now, due to consistent marketing, follow-through and 
seeking valuable trade assistance, their sales have reached $3 
million.
    Custer Company, located in Long Beach, is the leading 
manufacturer and international supplier of downhole oil field 
instrumentation, including electronic pressure and temperature 
sensing tools, electronic logging tools, samplers, et cetera.
    The president of Custer Company met a delegation from the 
United Arab Emirates that was led by one of our commercial 
specialists to a trade show in Houston, Texas, in May 2001. 
This delegation included 40 of United Arab Emirates' top 
business executives and national oil company officials. Through 
the meetings arranged by our commercial specialists with their 
delegation, Custer Company has reported that they made about $2 
million of sales to a UAE company.
    In conclusion, we at the Commercial Service have helped 
thousands of small American businesses become major players in 
world markets. We are proud to have strengthened these 
companies and supported them as they add stable, high quality, 
well-paid jobs to their communities. We're proud of our 
commitment to entrepreneurship, and we look forward to 
strengthening that commitment by continuing to work closely 
with businesses throughout the country and to give them the 
tools they need to compete and win in the global economy.
    Thank you.
    Chairman Toomey. Thank you very much, Ms. Hennessy.
    Ms. Millender-McDonald. Thank you so much.
    [Ms. Hennessy's statement may be found in the appendix.]
    Chairman Toomey. At this time, I'll recognize Dr. Spinelli 
for his testimony.

STATEMENT OF DR. LAWRENCE SPINELLI, DIRECTOR OF COMMUNICATIONS, 
            OVERSEAS PRIVATE INVESTMENT CORPORATION

    Dr. Spinelli. Thank you, Mr. Chairman, Congresswoman. Thank 
you for giving me the opportunity to appear here today to 
discuss what the Overseas Private Investment Corporation can do 
and in fact is doing to help America's small businesses 
participate in the global economy through overseas investment.
    I'm particularly pleased to have this opportunity, because 
I think OPIC is probably one of Washington's best-kept secrets. 
We're a small agency, only 200 people, and to the extent that 
people have heard of us, they usually confuse us with OPEC, the 
oil cartel, and considering the high cost of gasoline these 
days, that's not really a good thing. So thank you for this 
forum and this opportunity.
    The fact of the matter is, really, that for over three 
decades, OPIC has been the primary U.S. Government agency which 
is focused on supporting private sector investment in the 
developing world. By providing loans through our financing 
program and offering protection against political uncertainty, 
through our political risk insurance program, OPIC helps U.S. 
Businesses to invest in more than 150 countries in promoting 
economic development at the same time in those countries, while 
also serving important foreign policy objectives.
    Because OPIC charges market-based fees for the products we 
offer to businesses, we are actually able to do all of this at 
no net cost to the U.S. Taxpayers, which we are very proud of.
    Locally here in California, OPIC, over those three decades, 
has provided over $5 billion in financing and political risk 
insurance to California companies investing overseas. These 
projects are expected to generate $10.6 billion in total U.S. 
Exports and support over 40,000 U.S. Jobs. At the same time, 
California companies are supplying over $1 billion in goods and 
services to OPIC-supported projects.
    These are companies that might not even know that they are 
actually part of the global marketplace, because they are 
supplying an OPIC project and, in fact, half of the California 
suppliers to OPIC projects are small businesses.
    When Dr. Peter Watson became OPIC's eighth president, after 
being appointed by President Bush to that position and 
confirmed by the Senate in 2001, he initiated an effort at OPIC 
to sharpen OPIC's focus and better direct our resources towards 
fulfilling the agency's development mandate.
    The goal was to better foster economic development abroad 
while strengthening the U.S. Economy at home by focusing more 
closely on those companies and those countries that cannot 
access private financing or political risk insurance.
    A key element in this refocusing effort was to create new 
opportunities for small businesses. I am pleased to report to 
you that in a very short period of time, the agency has created 
an impressive record of accomplishment in meeting this 
objective. In 2002, through diligent effort, 67 percent of 
OPIC-approved projects were for small and medium-size 
enterprises.
    To expand on this commitment, two important programs were 
launched last year. First, OPIC has joined with the Small 
Business Administration in an initiative that will better 
coordinate the capabilities and offerings of our two agencies. 
Secondly, we also have joined in a memorandum of understanding 
with the U.S. Commercial Service to also use their forces 
throughout the United States and throughout the world to help 
spread information about OPIC.
    So I'm particularly pleased to be part of this panel with 
my two colleagues from those two important agencies, and I 
might add that we also work very closely with the Export-Import 
Bank.
    The second effort we launched was the creation of the OPIC 
Small Business Center. The Small Business Center, the SBC, was 
created to meet the needs of companies with revenues of less 
than $35 million. We felt it was very important that we do 
something to focus on the smaller businesses who are looking to 
invest overseas.
    While many of these companies recognize the growth 
opportunities overseas, they often find it particularly 
difficult to get financing for overseas investments from the 
private sector. Small businesses are also particularly 
vulnerable if a host country government takes a hostile 
political action that interrupts their business. Unlike a big 
company, they can't wait two or three or four weeks or a couple 
months for political problems to be resolved, and that's what 
this small business center can help to address.
    The SBC can provide up to $10 million in financing and $15 
million in political risk insurance, and I think most important 
of all, what the Small Business Center does, it has really 
improved our customer service to small businesses by offering a 
streamlined process with a 60-day turnaround time.
    We have made a commitment if we get a completed application 
from a small business, we will turn it around in 60 days, and I 
think that's important, because as you know, to a small 
business time is money. It's critical that the government, 
government agencies be responsive and recognize that. As a 
result, I think OPIC is making it easier for small businesses 
to access our programs.
    The response has been overwhelming. We launched this 
program in March, already we have over 30 projects that we have 
approved through the Small Business Center, and we have many, 
many more in the pipeline. These projects are in almost every 
region of the world. They range from helping a U.S. Small 
business group expand an airline in the Caucasus to helping a 
Miami-based small business expand its network and information 
security operations in Latin America.
    I'm pleased to report that we do have, actually, a 
California project in, in our Small Business Center. We are 
providing a $6 million loan to RiceX, a biotech company based 
in El Dorado Hills, California, for the establishment of a 
plant in Nicaragua which will provide a rice-based nutritional 
drink to children in the region.
    Building on these efforts, Dr. Watson announced on July 
28th that OPIC was creating a new department focusing on small 
and medium-size enterprises. The Small and Medium Enterprise 
Department ensures that the structure of our finance activities 
also reflects the new reality and the new commitment.
    If you came to OPIC five years ago, you would not--as a 
small business, I don't think you would have found this a 
particularly user-friendly place. We had a reputation as a 
place that helped the big guys, not necessarily the small guys.
    We have changed that sort of corporate culture. We have 
turned it around. Dr. Watson's commitment is already bearing 
fruit in terms of real projects, in terms of people's 
attitudes, and I guess there is no better proof of the pudding 
than the fact that just very recently, the Small Business 
Exporters Association presented Dr. Watson with its special 
achievement award for his----
    Chairman Toomey. Dr. Spinneli----
    Dr. Spinelli. Yes?
    Chairman Toomey [continuing]. I'm enjoying your testimony. 
I just want to point out that we are running over considerably, 
so could you just----.
    Dr. Spinelli. I'm sorry. I'm just about to finish.
    Chairman Toomey. Great. Thank you.
    Dr. Spinelli [continuing]. Gave him their small business--
their special achievement award for his path-breaking efforts 
on behalf of small and medium-size companies, so we continue to 
be committed to small businesses.
    To the small businesses who are in the audience here, there 
is a brochure in your packet about OPIC's Small Business Center 
with a telephone number and our Web site.
    Thank you.
    [Dr. Spinelli's statement may be found in the appendix.]
    Chairman Toomey. Thank you very much to each of the 
panelists for their testimony.
    I'll begin with--actually, I have two questions and I'll 
ask them both at the same time and just invite the panelists to 
respond.
    Mr. Quijada, one question I had for you, my first question 
was, if you could comment on, if you have the statistics, the 
rate of increase in small business exports in this region, in 
the region that you are responsible for, if you have any 
figures on whether it's by market share or by volume or, you 
know, is there--I guess my real question is, are we making 
measurable progress in terms of seeing more small business 
exports, and is that growing at a pace greater than the rate of 
growth of the economy, for instance?
    My second question is both for you and Mrs. Hennessy. It 
actually sounds as though your missions are extremely similar, 
one in the Department of Commerce and the other in the Small 
Business Administration, and I'm just curious, how do you 
distinguish between the missions that you have? What's 
different about the functions that you play with respect to 
facilitating exports for small businesses?
    Mr. Quijada. To answer your first question, I do not have 
those figures readily available, but I would be pleased to 
supply those to both of your offices.
    To your second question, I think that both our agencies at 
sometimes possibly we may be doing and reaching out to the same 
constituents, the same small business customers, if you will. 
SBA is very specific about the kinds of services that it can 
deliver to our constituents, rather our small business 
customers, and I outlined those in my testimony.
    Whereas in access to capital and technical assistance and 
in government contracting opportunities, I don't know if you 
would like to add to that?
    Ms. Hennessy. Yes.
    Chairman Toomey, just to reiterate, we--in my testimony as 
well, I reference the fact that we work very closely with SBA 
and Ex-Im not do anything with financing, so we are aware of 
their programs, we can advise our clients about several of 
their programs, but always with the intentions that we would 
bring SBA and Ex-Im to the table with us.
    We are solely dedicated to international marketing. In 
other words, we are out there from the commercial perspective. 
Marketing, helping companies market, identify buyers, identify 
distributors and advocating on their behalf, but we would 
always work with Ex-Im and SBA to bring in that financing 
component so that the exporter has a complete package.
    Chairman Toomey. Okay. Well, thank you very much for that 
clarification.
    I'll be happy to recognize the gentlelady from California.
    Ms. Millender-McDonald. Thank you, Mr. Chairman.
    Mr. Quijada, you mentioned that you have given--Los Angeles 
has 43 export loans that you've given to the Los Angeles area, 
and in fact 22 of those export loans have been in my district 
of the 37th. Am I correct in noting that?
    Mr. Quijada. Yes, that's what I said.
    Ms. Millender-McDonald. If that is the case, then tell me, 
of those 22 export loans, what small businesses are we talking 
about? Are we talking about mostly women-owned businesses? Are 
we talking about businesses that exceed 50 employees?
    You know, there are so many definitions to small 
businesses, really, so what small businesses are we talking 
about that you have given this $10.3 million to in my district, 
with a breakdown between services and manufacturing?
    Mr. Quijada. With your permission, if I can invite our 
International Trade Specialist, so that----.
    Ms. Millender-McDonald. Of course you can, yes. Right.
    Unidentified Speaker. Good morning. Thank you.
    Ms. Millender-McDonald. Good morning.
    Unidentified Speaker. I don't have all that statistical 
data here available. I certainly could provide that, but I did 
some research regarding some recent financing we did in your 
district, Congresswoman.
    Over the past five years, we have approved eleven export 
loans for $4.7 million, and of those eleven businesses, seven 
of them are owned by Asian-Americans, one by a Hispanic-
American. I don't have the specific breakdown of the nature of 
the business, but I would be----.
    Ms. Millender-McDonald. Could you provide that for me at a 
later time?
    Unidentified Speaker. Certainly, before the end the day.
    Ms. Millender-McDonald. I perhaps put you on the spot on 
that, but I do want to really engage fully in the small 
businesses in my district who are exporting, because we both 
know that, or I know that, small businesses tend to be a little 
reticent about exporting, and the more we can get them engaged 
in that, the better off we are, and especially those small 
businesses that for the first time are beginning to engage in 
international trade, and so we really do want to know who they 
are and from what backgrounds, and whether it's service or 
manufacturing that they are espousing to do.
    Mr. Quijada, you know, recently the U.S. Chile Free Trade 
Agreement was signed by the SBA with the Technical Corporation 
Service of Chile and the Chilean Economic Development Agency to 
promote programs that will help small businesses and medium-
size businesses in both countries.
    Now, it has been said by the previous panelists that Chile 
is not a large market here in California, so how would this 
benefit our local small businesses?
    Mr. Quijada. Again, that's a question that I would--that is 
very specific to our Office of International Trade 
headquartered in Washington, and I know that Mr. Manny Rosales, 
Deputy Administrator, has testified on that.
    I would gladly also provide you with the specifics of that, 
as again it is specific to the Office of International Trade, 
not at the local level, but I would like to provide you with 
that information, as well.
    Ms. Millender-McDonald. I would be happy for you to do 
that, because again, I want to really pinpoint just where we 
are in terms of these overtures that are being made by the 
Honorable Rosales, as well as others in the SBA.
    Mr. Quijada. Yes.
    Ms. Millender-McDonald. Your online Internet service, which 
has this vast database, how much outreach are you doing to the 
minority communities, and especially women-owned, black-owned, 
Asian-owned, Latino-owned businesses? And you say training is a 
part of this online service; is that the case?
    Mr. Quijada. In all of our programs within SBA, whether 
it's at the field offices or at headquarters, we have a strong 
commitment through the partnerships, whether it's our 
colleagues at other government agencies, as well as community-
based organizations and chambers of commerce and the like, to 
reach out to the new and emerging markets.
    So we have, again, a commitment from the very top to the 
field offices, whether it's Pro-Net or other firms that are 
contained there, or any of our other online databases. We have, 
again, a commitment to reach out to those specific markets, 
because we know the need to continue to work closely with them 
and, again, to work closely at the local level with those 
organizations that represent those businesses as well.
    Ms. Millender-McDonald. Well, I would be interested to know 
the emerging markets in those businesses that are aspiring to 
venture into that.
    Ms. Hennessy, in your testimony, you said that you recruit 
and bring in some 125 foreign buyers to the U.S. To visit more 
than 25 major U.S. Trade shows each year. How many businesses, 
small businesses, benefit from this particular program? I do 
love ``Buy U.S.'' and that slogan, but how many businesses are 
we really talking about in terms of benefiting from this 
program?
    Ms. Hennessy. Well, because these buyers, these 
international buyers, come into the domestic trade shows--as an 
example, I was just recently just in--I can illustrate this, I 
think, to the point that I--I was recently at a show back in 
Philadelphia at the AACC show, which is a very, very large 
clinical diagnostic show.
    Because that was mostly U.S. Businesses that were 
exhibiting there, we were also there with foreign buyers, with 
foreign buyer delegations, so as these foreign buyer 
delegations are out walking around the floor talking to 
exhibitors, in essence, there is a potential for any small 
business on that showroom floor to be able to meet with that 
foreign buyer.
    Ms. Millender-McDonald. Well, of course, the potentiality 
is there, but we need to talk about really hard numbers here.
    Ms. Hennessy. But then what we do is, then we have programs 
that are set up that actually we prearrange appointments with 
these foreign buyers and also with our commercial specialists 
that come over.
    And so I would say on any given show, perhaps they may have 
had appointments with 50 to 60 small businesses that were there 
at the show--and that's just a rough estimate, depending upon 
the size of the show, depending on that company's particular 
interest in that market, et cetera, but usually we are always 
at these shows, we are always taking around our commercial 
specialists and their businesses, so on any given day, as I 
mentioned, we could perhaps impact between 50 to 75 businesses, 
perhaps.
    Ms. Millender-McDonald. What I'm interested in, and it has 
to be very clear, that the women-owned businesses are the 
most--the highest growing businesses in the country. They are 
producing the jobs that are necessary, creating those jobs, and 
we need to know, I need to know specific facts on how they are 
impacting your ``Buy USA'' and your other projects that you've 
given to us so that I can be clear on are we really doing a 
good job in bringing small businesses into this whole notion of 
international trade and exporting.
    So I need to know that--to just read your different 
testimonies, they are very glowing, but I need to have some 
specifics as to where our companies, especially in this region 
are, in terms of your product, your sale, your services.
    Ms. Hennessy. And I would be happy to provide that. I can 
tell you, Congresswoman Millender-McDonald, that our focus at 
the Commercial Services, especially here in Los Angeles, 
because of the diverse nature of Los Angeles, the majority of 
companies that we work with are usually minority-owned, ethnic 
minority-owned, women-owned businesses, tremendous numbers, and 
I'd be happy to provide them for your district.
    Ms. Millender-McDonald. Please do that.
    Ms. Hennessy. Sure.
    Ms. Millender-McDonald. The last question I have, Mr. 
Chairman, is for Dr. Spinelli.
    Dr. Spinelli, globalization is making the international 
market a necessity for small businesses, as we all know; 
however, nearly two-thirds of smaller exporters sold their 
goods and services to only one foreign country.
    In your opinion, what are the problems that prevent smaller 
exporters from exporting to multiple countries?
    Dr. Spinelli. Well, I think because of the focus of OPIC on 
investments--if I can answer the question in just, in sort of 
in terms of investment--I think one of the great inhibitors 
often is the concerns that people have on the political risks 
that they are facing.
    We know if we, you know, if you get involved in the United 
States, you know what you're facing in terms of a political 
system and all of those complications. I think oftentimes it's 
very challenging as people look to different parts of the 
world, and, you know, they tend to follow where there's some 
good experiences----.
    Ms. Millender-McDonald. All of these countries are 
political systems, aren't they?
    Dr. Spinelli. Excuse me?
    Ms. Millender-McDonald. All countries are political 
systems, aren't they?
    Dr. Spinelli. Right, but there are different levels, you 
know, of whether or not your rights as an investor or if 
you're--you know, the rule of law is respected if there are 
things like transparency, if there's an arbitrary tax system. 
All of those things which you don't deal with when you're, you 
know, getting involved domestically in a business. You just 
worry about commercial--you have to then worry about political 
risks.
    I think that a lot of times that that's very offputting to 
people. It's a formidable barrier, so they will tend to go 
where other people go and, you know, it's difficult to strike 
out. You know, one of the things that we try to do, and the 
whole reason for us of offering political risk insurance is to 
help to mitigate some of those risks; that you create at least 
somewhat more of a level playing field.
    Ms. Millender-McDonald. Thank you.
    Thank you, Mr. Chairman.
    Chairman Toomey. Thank you very much.
    I'd like to thank the witnesses from the second panel very 
much for your testimony and for joining us this morning.
    At this time I would invite the witnesses from our third 
panel to approach the witness table and take their seats.
    Ms. Millender-McDonald. Let me recognize one of the great 
councilwomen who represent this great City of Long Beach, 
Councilwoman Laura Richardson is in the House. Thank you so 
much for being here, Councilwoman.
    Yes, give her a hand.
    I hear, Mr. Chairman, that Mr. Greg Davis is here, so now 
that we have a portable mike, maybe we can have all four folks 
come up and speak on this last panel.
    Chairman Toomey. Certainly.
    Ms. Millender-McDonald. Thank you all for being here.
    Chairman Toomey. Are we still waiting for our fourth 
panelist?
    Ms. Millender-McDonald. Is Mr. Greg Davis here?
    Chairman Toomey. Yes.
    Ms. Millender-McDonald. And we have Mr. David Josephson, 
Mr. Chris Wacker and, of course, I know Ms. Patricia Unangst. 
Okay.
    Chairman Toomey. All right.
    At this time then I will recognize the gentlelady from 
California for the introductions of our third panel.
    Ms. Millender-McDonald. Thank you so much.
    I have all of these very sterling backgrounds of all of 
these great people. Of course, a longstanding friend and 
outstanding woman is Patricia Unangst. She serves in dual 
capacity as Executive Director for the Carson/Lomita/Torrance 
Work Investment Network and the manager of the Workforce 
Development Division of the City of Torrance.
    She has been really absolutely out front in terms of small 
businesses. And the CLT WIN is a strategic alliance of 
business, community and governmental organizations that 
facilitate the training and placement of local work force.
    Mr. Chris Wacker is the Senior Vice President of Sales and 
Marketing at the LaserFiche Document Imaging here in Long 
Beach. He plays a key role in product development and 
developing the bar channel at this company, this imaging 
company. He has been instrumental in marketing LaserFiche as a 
seamlessly integrated imaging text processing and document 
databased system for Ralph Parsons.
    He established his own videographics and photography 
business, utilizing state-of-the-art computer graphics and 
video equipment. He has a Bachelor's degree from Hofstra 
University in New York.
    Mr. Josephson is the Western Regional Director for the 
Export-Import Bank of the United States, and he's responsible 
for marketing the insurance and guaranteed products of the 
Export-Import Bank to exporters and banks in the eleven western 
United States.
    I'm sorry, Mr. Davis, we did not get anything from you, but 
you are a man in your own rights, Director of Economics 
Development for the Office of Planning and Research, and you 
will start off.
    Thank you.
    Chairman Toomey. I would like to welcome all of the 
witnesses, and once again just remind everybody to please keep 
your comments to five minutes. Any extended testimony is 
welcome. We will include that in the record.
    At this time I'll recognize Mr. Davis.
    Mr. Davis. Thank you, Mr. Chairman.
    Briefly, yes, I am currently the Director of the Governor's 
Office of Planning and Research Economic Development Unit.
    Ms. Millender-McDonald. Great.
    Chairman Toomey. Good.
    Mr. Davis. And I am also the past Director of Export 
Development for the State of California.
    Ms. Millender-McDonald. Great.

 STATEMENT OF GREG DAVIS, DIRECTOR, ECONOMIC DEVELOPMENT UNIT, 
           GOVERNOR'S OFFICE OF PLANNING AND RESEARCH

    Mr. Davis. Chairman Toomey, Ranking Member Millender-
McDonald, and distinguished members, thank you for your 
invitation to share some brief comments with you about small 
business exporting and the Southern California economy.
    As this Subcommittee is well aware, the interests and 
challenges of small business are often distinct from their 
larger counterparts. I applaud the work of this Subcommittee to 
seek out particular needs and opportunities facing small 
business with regard to exporting to ensure proper 
consideration of this critical element of our State's economy.
    It is especially appropriate to conduct a hearing on this 
issue here in California, because we are home to approximately 
25 percent of all U.S. Exporting companies.
    It is increasingly important for small business to take 
advantage of the opportunities and markets available through 
international trade. With 96 percent of the world's population 
and 67 percent of global purchasing power outside the U.S. 
Borders, the small businesses that rely exclusively on business 
from domestic sources are missing out on a vast untapped market 
afforded by international trade.
    Moreover, since every $1 billion in trade supports 
approximately 11,000 jobs, small business participation in 
international trade provides impressive benefits to the 
California economy.
    I'm here today to discuss what the State Government's role 
has been in accelerating the successful entrance of small 
business into export activity.
    California's main entity for domestic and international 
economic development has been the Technology Trade and Commerce 
Agency. The agency was created in 1993 to serve as a central 
location for the State's domestic and international programs. 
With headquarters in Sacramento and regional offices around the 
state, the agency was designed to serve the needs of the 
State's small and medium-size businesses.
    Within the International Trade and Investment Division, 
later to be called the Global Economic Development Division, 
the agency managed various programs designed to assist 
companies looking to expand their business overseas and to 
promote California's location for foreign-direct investment.
    The objective of these programs was economic development 
within the state, leading to the ultimate goal of creating 
jobs. In addition, these programs ensured that California had 
an international presence fitting for one of the world's 
largest economies.
    Programs managed by the Technology, Trade and Commerce 
Agency included the Office of Export Development, over which I 
presided, the Office of Business Investment, the California 
Export Finance Office, twelve international offices of trade 
and investment overseas, the California Office of Mexico 
Affairs, and the California World Trade Commission. A brief 
description of each of these programs is provided in the 
written testimony that I submitted.
    The California Department of Food and Agriculture runs the 
agricultural export program. The California Energy Commission 
manages the Energy Technology Export Program and the California 
community colleges continue to provide trade services through 
fourteen centers for international trade development located 
throughout the state. These programs are funded and will 
continue to serve the California SME in the foreseeable future.
    Unfortunately, due to ongoing state revenue deficiencies, 
most of the Technology, Trade and Commerce Agency's 
international trade programs have undergone drastic budget 
cuts, and the agency itself only has funding available for the 
remainder of this calendar year. If the programs mentioned 
before are to continue, new sources of funding must be secured.
    It is important that an economy as significant as that of 
California maintain its involvement in international economic 
affairs. As the global economy continues to recover from the 
recent slowdown, California companies will see greater 
opportunities for sales of their products and services in the 
international marketplace.
    From the emerging markets of Latin America to the State's 
number one overall export market of Asia, we anticipate fertile 
ground for California exports and strong growth for California 
SMEs, which can be enhanced with proper assistance.
    All the export successes experienced by California SMEs 
have a direct correlation of bottom line impact at the federal 
level and on the U.S. Economy.
    With an economy that represents 13 percent of this 
country's GNP and approximately the same percentage of its 
exports, the U.S. Economy could directly benefit from an 
increase in trade support for the California business 
community.
    Alternative models of program funding are a concept that 
has proven successful. One model that is currently being 
utilized in both Florida and Michigan is the Public Private 
Partnership that I believe Dr. Shatz mentioned earlier. The 
partnership is organized as a corporation and run like a 
business, funded partly by state government and partly through 
private donations to manage the state's economic development 
programs.
    Chairman Toomey. I'm sorry. Time has expired. If you could 
just bring your comments to a conclusion, I would appreciate 
that.
    Mr. Davis. Absolutely.
    In closing, I'd like to mention that it is the diversity of 
California industries and export markets, over 222 in the year 
2000, that play a significant role in California's economic 
success. California is home to several leading industry 
clusters, and although we have seen a decline in total exports 
from the State's record of nearly 120 billion in 2000, 
California continues to be a top exporting state.
    A point worth mentioning is that these export values do not 
include trade and services. The services sector counts for 
approximately 80 percent of the U.S. Total GDP, and over one-
quarter of U.S. Exports. California is a leader in most of the 
top ten U.S. Service exports.
    Thank you very much.
    [Mr. Davis' statement may be found in the appendix.]
    Chairman Toomey. Thank you very much for your testimony.
    At this time I'd like to welcome and recognize Mr. David 
Josephson.

STATEMENT OF DAVID JOSEPHSON, DIRECTOR, WESTERN REGION, EXPORT-
                IMPORT BANK OF THE UNITED STATES

    Mr. Josephson. Mr. Chairman, Representative Millender-
McDonald, and members of the Committee, I'm happy to join you 
today here in Long Beach, only a few minutes from our main West 
Coast office, to represent the Export-Import Bank of the United 
States. Thank you for inviting me to testify about our efforts 
to support small business throughout the country, and in 
particular in California.
    Ex-Im Bank provides competitive financing solutions so that 
businesses large and small can export. Ex-Im Bank exists to 
assist in the financing of U.S. Exports, thereby helping to 
preserve and support jobs here in the United States.
    The bank does this by helping finance the export of U.S. 
Goods and services through direct loans, loan guarantees and 
insurance. These transactions do not compete with private 
sector financing, as the bank fills the void when commercial 
lending institutions are unwilling to support a transaction 
without Ex-Im Bank's involvement. In addition, any transaction 
we support must offer a reasonable assurance of repayment as we 
are not an aid agency.
    These are transactions that would not go forward without 
the bank, due to the competitive support provided to foreign 
companies by the export credit agencies of Europe, Canada and 
Japan, or because the private sector may not want to take the 
risk in a particular country.
    Consistent with the Organization for Economic Cooperation 
and Development--the OECD--arrangement, Ex-Im Bank is able to 
ensure that U.S. Exporters are able to compete on the basis of 
price, quality and delivery of goods and services without 
unfair advantages of subsidized financing from competing 
exporters in other industrialized countries.
    These U.S. Export transactions that Ex-Im Bank supports 
from every state in the nation take on particular importance 
during difficult economic times.
    During fiscal year 2002, Ex-Im Bank supported $12.9 billion 
of U.S. Exports to markets around the world. We approved 2,154 
small business transactions, which represented 85.6 percent of 
all of our transactions for that year. These transactions 
included one loan totaling $27 million; 71 guarantees totaling 
$313 million; 323 working capital guarantees totaling $532 
million; 1,759 export credit insurance policies totaling $910 
million.
    It should also be mentioned that Ex-Im Bank provides 
significant indirect support to small businesses. While this 
support is not part of the 20 percent small business set aside 
mandates, small businesses are benefiting greatly.
    We recognize that small business provides the greatest 
source of job growth in the U.S., and we continue to improve 
our small business programs and services. We are successful 
because we listen to our customers and to our partners.
    Today I want to speak of the two most commonly used 
products at Ex-Im Bank. It's the Working Capital Guarantee and 
the Export Credit and Insurance, then I'll also speak a bit 
about our outreach and marketing.
    Ex-Im Bank has a longstanding commitment to providing 
programs and services to small businesses. Over the past few 
years, we have seen solid growth in one of our programs, the 
Working Capital Guarantee.
    When we recognize that small businesses, particularly those 
owned by minorities and women, face a number of hurdles in 
obtaining commercial financing; when credit tightens, small 
businesses tend to be more adversely affected than larger 
companies. Small businesses typically lack capital, collateral, 
and the financial history to persuade banks to issue a loan. 
And often when a small business begins to compete in the export 
market, it lacks productive capacity and finances to produce 
the export.
    Loans made under Ex-Im Bank's Working Capital Guarantee 
Program can be used for the cost and expenses of manufacturing 
the export item or providing a service. In fiscal year 2002, we 
approved $684.8 million in such loans, 77.6 percent of these 
loans supported small businesses.
    These loans supported approximately $2.4 billion in export 
sales. Our working capital program has grown 76.6 percent since 
fiscal year 1998.
    By increasing the coverage of working capital loan 
guarantees for minority and women-owned firms from 90 percent 
to 100 percent, we have given them greater access to financing 
for pre-export costs.
    Our export credit insurance is almost exclusively used by 
small businesses. In fiscal year 2002, we issued 1,656 of these 
policies to small businesses, and this was 89 percent of the 
total number of such policies. These policies protected 
exporter sale to foreign buyers, primarily on a short-term 
basis.
    We have several types of policies, including one for very 
small businesses with limited export sales and experience, and 
this policy has extra benefits, such as no first-loss 
deductible, a simplified premium rate schedule, and special 
financing features.
    Outreach, three years ago we began to coordinate much more 
intensively with our sister agencies, the Department of 
Commerce, the SBA, OPIC, and the Trade and Development Agency.
    Ex-Im Bank and its programs are projected across this 
country through eight regional offices, and five of these 
offices are co-located through the United States Export 
Assistance Centers, the USEACs, and we have placed our Ex-Im 
Bank offices in strategic locations--Miami, the District of 
Columbia, New York, Chicago, Houston, and four in California.
    Chairman Toomey. Mr. Josephson, your time has expired. If 
you could just wrap up your comments, I'd appreciate it.
    Mr. Josephson. Yes. I'd like to conclude and say that we 
are proactively marketing our products to achieve small 
business goals, and we would also like to ask your support for 
our mission by sharing our message with your constituents.
    Ex-Im Bank and I are at your service, and whatever we can 
do through seminars in your district, Madame Congresswoman, to 
meet with groups or companies at your request. We are here to 
help make exports happen.
    Ms. Millender-McDonald. Thank you.
    Chairman Toomey. Thank you very much for your testimony.
    [Mr. Josephson's statement may be found in the appendix.]
    Chairman Toomey. At this time I would like to welcome and 
recognize Ms. Patricia Unangst.

 STATEMENT OF PATRICIA D. UNANGST, EXECUTIVE DIRECTOR, CARSON/
       LOMITA/TORRANCE WORKFORCE INVESTMENT NETWORK BOARD

    Ms. Unangst. Good afternoon, or morning.
    Thank you, Congresswoman, for your earlier kind remarks.
    Just to let our newly recognized guest, the Chairman here 
from Pennsylvania--my roots actually go back to Eastern 
Pennsylvania, my family, so it's part of your district.
    Chairman Toomey. Yes, it is.
    Ms. Unangst. My great grandfather was the canal master, so 
he had an extremely important position in your town back then.
    Chairman Toomey. And an important position in trade----
    Ms. Unangst. Exactly.
    Chairman Toomey [continuing]. Because that's how we used to 
get products to market.
    Ms. Unangst. That was the initial trade, so interesting 
connection that just happened to be.
    The Congresswoman told you a little bit about our agency. I 
won't go over all that's in the testimony, but we are a public/
private partnership, primarily funded by the Federal Work Force 
Investment Act. We operate the job training programs for the 
cities of Carson, Lomita, Torrance, and under a major contract 
with the City of Los Angeles, we operate for the Port of Los 
Angeles area.
    So we do touch upon a vast majority of the businesses 
affected in this area, and our focus is one of economic 
development business services, as well as job seeker services.
    The square miles, we cover approximately 84 square miles, a 
population of over half a million, so as you know, L.A. Is a 
very dense, a very populous area, so even though we are a small 
part of it, we cover a vast industry, of which there are 17,000 
companies located in our district, our service area, and 92.9 
percent of those employ 50 or less individuals, so it's 
primarily a small business market.
    The major industries include aerospace defense, medical 
services, transportation, refineries, business services, 
hospitality and, of course, the Port of Los Angeles.
    How can we help? Economic development services, we are a 
connecting agency to many of the agencies you've heard here 
today. We connect business with those services. We offer 
recruitment services and we offer work force development 
services, on-the-job training, placement, things like that.
    One interesting thing that I came across in preparing my 
remarks for the Committee today was the publication of Mr. 
Shatz from the Public Policy Institute, where his report on 
globalization discusses the impact to jobs, and that's a really 
critical factor.
    I'll just quote from his report, ``The effects of 
international trade and global integration cannot easily be 
separated from the effects of other economic trends. In 
particular, technical change that favors employment of highly 
skilled workers. However, the policy prescriptions for 
mitigating widening income gaps are the same for trade-induced 
and technology-induced change.''.
    That's an interesting correlation.
    ``These prescriptions are to improve the educational 
opportunities and the education of the population and to 
maintain a social safety net for workers displaced by economic 
change.''.
    One of the unfortunate aspects of my business is that we 
deal with the laid-off workers that are affected by these 
policies.
    Again, I won't go over in detail, but I will mention that 
the gentleman from the State talked about one of the fourteen 
centers dealing with international trade development that are 
located at community colleges. One of those, Congresswoman, 
serves your district, and that's the one based at El Camino 
College, and a very close partner of ours in many of our 
activities.
    In conclusion, I'll just mention some of the 
recommendations that we have for your Committee to consider as 
you look at trade policy.
    At the federal level, agencies and individuals need to 
communicate with one another and let the local level know what 
you're doing, to work together, and give us clear direction. 
Our biggest obstacle at the local level is conflicting federal 
agency policies.
    Decision-makers need to take into account the impact that 
shifts in trade or tariff policies have on jobs, the quote I 
gave you earlier.
    Mr. Hanover's [sic] Study, in fact, I believe you asked a 
question specifically on jobs impact and he indicated that that 
needed further study, and that's exactly what we are saying. 
It's often not considered, and the impacts are both positive 
and negative.
    Some of these policies impact jobs. While they might 
decline on, say, the production end, they increase on the 
service end, but there's got to be the balance, and then 
there's got to be the economic balance. Are those jobs being 
created, value-added, good-paying jobs, as opposed to the 
entry-level jobs?
    And then, finally, adequate funding needs to be available 
to agencies such as ours to help local areas cope with the 
impacts and the shift in industry labor needs. We can only help 
if we receive adequate funding.
    So with that, I'd just like to conclude and mention that 
attached to my testimony is a business guide for incentive 
programs in our region. It was actually prepared by one of the 
partner agencies that we work with, the South Bay Economic 
Development Partnership, and so that's attached and it's in 
everybody's packet.
    Thank you.
    Chairman Toomey. Without objection, that will be included 
in the record. Thank you for your testimony.
    [Ms. Unangst's statement may be found in the appendix.]
    Chairman Toomey. At this time I would recognize Mr. Chris 
Wacker.

 STATEMENT OF CHRIS WACKER, SENIOR VICE PRESIDENT, LASERFICHE 
            DOCUMENT IMAGING, LONG BEACH, CALIFORNIA

    Mr. Wacker. Good morning. My name is Chris Wacker. I'm a 
Senior Vice President for LaserFiche Document Imaging located 
here in Long Beach.
    We are a software development company. We help businesses 
and governments around the world manage their paper, electronic 
records--and electronic records through a suite of innovative 
products.
    Our company, which is the major division of CompuLink 
Management Center, was established in 1987 in Torrance and 
bought its world headquarters building here in late 2001.
    Our employment base has grown by nearly 40 percent in the 
past 20 months to 140. Our initial focus was to serve the 
Municipal Government market, where we now have a 60 percent 
market share. In later years, we broadened our outreach to the 
federal, commercial and international markets, where our 
products are widely used and accepted.
    LaserFiche is used in the Army, Navy, Air Force, Marine 
Corps, the CIA, FBI, Secret Service, State and Homeland 
Security Departments, as well as other agencies. In the 
commercial arena, financial services, health care, real estate, 
insurance, accounting, and law firms in the U.S. And 
internationally use LaserFiche.
    Your interest today is in studying how the Federal 
Government can assist small businesses wishing to export their 
products. About 20 percent of our LaserFiche business is done 
outside of the United States. This figure could potentially be 
much higher, but until the past several years, for reasons of 
sales and distribution, we elected to devote most of our 
resources to the domestic market.
    Today the world is ready for LaserFiche Document Imaging, 
and we have scores of resellers around the world and four 
corporate employees stationed abroad in the UK, Australia, 
Brazil and Peru. Because our software is recognized as 
improving business processes and productivity abroad, it is 
widely accepted by end-users around the world.
    Computer resellers also see the opportunity LaserFiche 
offers in their countries and are joining us at a record pace.
    Among our concerns abroad are protection of our 
intellectual property, currency fluctuations and occasional 
visa difficulties restricting travel by our resellers, 
customers and employees.
    Regarding intellectual property protection, we have 
developed a large number of internal safeguards. These include 
staying out of countries where software piracy is tolerated. 
Nonetheless, the problem of software theft remains a critical 
problem for LaserFiche.
    Put simply, illegal copies of software is a larger risk to 
companies like ours than burglars breaking into our offices, 
since unlimited copies of LaserFiche intellectual property can 
be stolen without our knowledge. The potential loss from 
unrealized sales is enormous.
    The United States is increasingly becoming dependent upon 
technology exports as a key part of American trade. Our 
government must work with the world community to rigidly 
protect American companies' intellectual property from theft in 
foreign countries. This is our highest priority.
    Many nations where we do business experience daily currency 
swings, making it difficult for exporters to price their 
products to be competitive. This is an historic problem, but we 
encourage the Treasury and State Departments to encourage our 
world trading partners to take necessary steps to stabilize 
their economies and currencies.
    Our international business depends also on the easy passage 
of our overseas resellers, customers and employees to the U.S. 
For training, consultations and to consummate sales.
    New security programs have made travel more difficult. We 
request help to enable our international business partners, 
customers, employees to come to California quickly for timely 
training and meetings.
    I appreciate the opportunity to present this testimony on 
behalf of LaserFiche, and would be happy to answer any 
questions you have.
    Chairman Toomey. Thank you very much for your testimony.
    [Mr. Wacker's statement may be found in the appendix.]
    Chairman Toomey. I'll begin with just a few questions that 
I have. My first question is actually for Mr. Josephson.
    As you are no doubt aware, I think it was last year, 
Congress passed and the President signed a new Ex-Im Bank 
reauthorization legislation, and as it happens, I sit on the 
Financial Services Committee and on the Subcommittee that has 
jurisdiction over that, and had some hand in drafting some of 
the provisions, actually one of which is not terribly popular 
with the folks over at Ex-Im Bank, but that's besides the 
point.
    My question is, overall and on balance, do you have any 
worries or concerns about implementing the new provisions and 
the new reauthorization legislation, or are you confident that 
it's going to be pretty much business as usual?
    Mr. Josephson. Can you hear me okay?
    Chairman Toomey. I can hear you.
    Mr. Josephson. Good.
    Let me just give you a little sort of a background answer 
to it.
    Of course, we are a sunset agency and our charter is 
reviewed about every four or five years by Congress for 
renewal, and we have been successively renewed every year since 
1932.
    You know, with each renewal, there are changes to the 
charter and things that have been added; for example, economic 
impact issues must be more closely examined now, and 
environmental issues also.
    I would say that, you know, the question is a little bit 
above my pay grade, to tell you the truth, but I would say 
business is going on as usual. I mean, I have our up-to-date 
numbers that we have done this year to date, and we are on 
track for a similar year as we did last year.
    Chairman Toomey. Okay. Maybe I should just be a little more 
specific.
    Do you have any reason to believe that anything in the new 
legislation will curtail your ability to execute the 
transactions that you'd like to be engaging in?
    Mr. Josephson. Well, legislation by nature curtails our 
ability to transact and so, for example, you know, economic 
impact issues do curtail the speed with which we can transact, 
and things in our charter are such that we may not compete with 
the private sector. This limits what we can do. It makes us 
slower to respond to a financial need and a requirement.
    So I guess what I'm trying to say is that the simpler--in 
international trade and finance, or even in domestic finance, 
the simpler that one can make the process, the quicker it goes, 
and of course time is money in business. And so, you know--
well, I think that's my answer.
    Chairman Toomey. Thank you very much.
    I have a question for Mr. Wacker as well.
    First, I'm just impressed. I always enjoy learning about a 
business model that would never have occurred to me in a 
million years. I congratulate you on the success in discovering 
and developing this niche that you have.
    You pointed out some very important concerns that we in 
Congress, I think, need to be very concerned about--
intellectual property rights protection, currency fluctuation 
is obviously something much more difficult for us to control, 
but we can indirectly influence, and I think we should very 
strongly encourage stable currency policies on the part of our 
trading partners.
    My question for you is--it strikes me that your product 
could be described as either a product or a service. It's 
probably both. But are there any of the trade agreements that 
we are currently contemplating, any countries with which you 
would like to be able to pursue business, but in which there 
are tariffs or other nontariff barriers to your product?
    Are there any specific areas where it would be helpful to 
your business for us to focus on reaching a either bilateral or 
multilateral trade agreement? Any country you have in mind? Any 
mechanisms that are used to keep your products out? You know, 
what should we be doing on the trade front to help you sell 
more products overseas?
    Mr. Wacker. Well, to my knowledge, in the countries in 
which we do business, we don't encounter tariffs. What we do 
encounter is--well, we have offices in these four countries, 
and in those countries, it's often difficult to take cash out 
of the country. That's where we run into governmental 
restrictions and taxation.
    Chairman Toomey. When you say it's difficult to take cash 
out, do you mean to repatriate profits for an American 
subsidiary that's overseas, or are you referring----.
    Mr. Wacker. Yes, that's correct.
    Chairman Toomey. Do you actually have subsidiaries in these 
countries?
    Mr. Wacker. Yes.
    Chairman Toomey. So you have got investments there, you 
have profits there, and you face capital flow constraints in 
terms of moving that capital where you need it to be. Is that a 
fair----.
    Mr. Wacker. That's correct, yes.
    Chairman Toomey. Well, this is one of the disincentives to 
foreign investments that countries impose upon themselves, and 
of course, as you know, that continues to be a priority in our 
trade negotiations, but I appreciate that.
    I'm happy to yield and recognize the gentlelady from 
California for her questions.
    Ms. Millender-McDonald. Well, I tell you, this has been 
quite an interesting panel, and, in fact all panels have, but 
Mr. Wacker, your intellectual property comments really struck, 
I think, the cord of both the Chairman and this Ranking Member, 
because oftentimes when we do legislation, we protect the 
larger companies, but we do not look at the smaller companies 
in protecting you against intellectual property.
    This is something that I think Congress has to look at with 
reference to that, and then your capital flow and capital 
control is what I spoke with Dr. Haveman about. That is, 
indeed, another issue that we need to look at with reference to 
small businesses and the flow of capital or the control 
therein, in terms of your working with different countries.
    I think, Mr. Chairman, that is something that we need to 
perhaps revisit as we return back to Congress next week, so 
that we can ensure that businesses such as your company, which 
is a niche company and certainly one that is very innovative, 
will not come up against some of the problems and some of the 
issues that--perhaps through legislation we can perhaps clear 
the way for you.
    I would like to impose upon my Chairman to have us engage 
in that conversation with the Committee when we return back.
    Mr. Wacker. Well, thank you, Congresswoman.
    If I might add, also, as a small company, we don't have the 
muscle or the clout that larger companies like Microsoft does.
    Ms. Millender-McDonald. Of course not, right.
    Mr. Wacker. So any help you could give us would be----.
    Ms. Millender-McDonald. Absolutely. This is what my 
consultants and I were just--you saw me talking back and forth, 
and as we listen to you, we are talking back and forth, because 
we are noting some of the things you are saying so we can 
return back to Washington and engage in conversation and dialog 
on it. Absolutely, we have taken that under advisement.
    Mr. Wacker. Thank you.
    Ms. Millender-McDonald. Mr. Davis, thank you so much for 
representing the Governor's office here today.
    My question to you, if manufacturing jobs have left and are 
leaving, as they are at a rapid pace, and going to other 
countries, and high tech has reached an all-time low here in 
California, what countries and markets can California look to 
for international trade in creating the jobs that we need here 
in this region?
    Mr. Davis. Always an interesting question to attempt to 
answer. I can really give you what my opinions on this are and 
from what I have seen, as opposed to trying to give an 
administration view on it.
    Obviously, I think it was stated many times here today that 
right now our greatest trading block is with Asia and the 
opportunities that we foresee in Asia are numerable and very, 
very fruitful, we believe.
    The industries in this state continue to blossom. The 
technologies that continue to emerge are in the IT and Telecom 
sector, but really looking towards more emerging and industries 
that are sort of in those nascent stages at this point, like 
the life sciences.
    For example, the Governor mandated in his inaugural speech 
the Life Science Initiative. It has been going on throughout 
the state to help not only promote and stabilize, but build on 
the leadership that this state currently has in the 
biosciences. Summits have been held in San Francisco, San 
Diego, Los Angeles, and currently there's going to be one 
September 30th in the Sacramento/Davis area.
    The idea behind these are to build ten-year strategic plans 
regionally and then to take that and develop a state-wide 
strategic plan, so as far as trying to directly affect positive 
growth in exports for specific industries, and two specific 
markets, those types of programs are in place and are being 
worked on as we speak.
    Ms. Millender-McDonald. In speaking with the two, the 
initial two panelists from the institute, Public Policy 
Institute, they recognize that Asia is our largest market, and 
you are saying there are trading blocks.
    What are those trading blocks that will circumvent us from 
going full----
    Mr. Davis. I'm sorry. When I said ``trading blocks,'' I 
meant that region. I didn't mean there were blocks to trade.
    Ms. Millender-McDonald[continuing]. Oh, okay.
    Mr. Davis. I wasn't referring to tariff or nontariff 
barriers. I was just initially sort of outlining that area of 
the world.
    Ms. Millender-McDonald. All right. I have it.
    I'm trying to look to see if I--I wrote all over the place 
here in my notes.
    Mr. Josephson, you mentioned that you approved over 2,000 
small business transactions which represent 85 percent of all 
of your transactions.
    What type of businesses are we referring to there?
    Mr. Josephson. Well, if I may just--I have a report here 
from your district, Madam Congresswoman, and I can just read 
off some of the--I won't mention the names of the companies, 
but I'll be happy to share this with your staff later, but from 
Congressional District 37, we have--in the last five years, we 
have supported with the programs I mentioned exports of the 
following kinds of things: Engineering services, industrial--.
    Ms. Millender-McDonald. So that's a report you're going to 
give to me?
    Mr. Josephson. Yes, ma'am.
    Ms. Millender-McDonald. I have it or will have it?
    Mr. Josephson. Yes, ma'am.
    Ms. Millender-McDonald. Okay. Then I will look at it very 
carefully and respond back to you.
    Also, my other question is what provisions should have been 
included in the Chile Free Trade Agreement to help small local 
businesses access the international market?
    Mr. Josephson. Well, I'm personally not that familiar with 
the Chilean Agreement, but I am familiar in general with free 
trade agreements, and of course what they do is they start with 
whatever the tariff levels are between the countries, and they 
scale them down over a period of time to where you reach zero 
duties.
    And it sort of goes back to my earlier comment, that the 
simpler you make trade, in my belief, the more it's going to 
happen, and so I feel that, you know, that the Chilean Free 
Trade Association or Free Trade Agreement, I should say, with 
Chile, that's an excellent choice of countries, because, you 
know, it's a country that has an investment grade debt rating 
on its public debt. It's a diverse economy in the sense of the 
products--copper and fruit and maritime products and things--so 
I think the trade will increase with Chile as a result of that 
agreement.
    Ms. Millender-McDonald. And to my dear friend, Pat Unangst, 
thank you so much for being here.
    This was the second Congressional hearing that we spoke 
about when we did the first one in Carson, but what are some of 
the issues that you believe small businesses need to 
concentrate on in order to increase competitiveness in the 
international market?
    Ms. Unangst. Well, I think mainly, Congresswoman, to take 
advantage of the many things that are out there. I mean, you 
have heard from many speakers today, and many small businesses 
don't even know about what the functions of the Export-Import 
Bank are.
    Ms. Millender-McDonald. Absolutely not.
    Ms. Unangst. And I think the biggest thing we can do as an 
agency and Congress can continue to do is assist in the 
marketing efforts to make businesses aware.
    When you talk about nearly 93 percent of our businesses 
being under 50 employees, they don't have time to go out and go 
look for this stuff, so electronic availability, connections to 
Web sites, key Web sites, making sure that information is out 
there. We do workshop seminars with SBDC, the Small Business 
Development Center, which is an SBA arm, but it's just 
constantly getting the information out there, because resources 
are there, if we can connect the dots.
    Ms. Millender-McDonald. We sent a letter to the Governor 
with reference to SBDC networks and providing matching funds. I 
will send a copy of that letter to you for that.
    Ms. Unangst. Thanks.
    Ms. Millender-McDonald. I would like to thank all of you 
for being here today. It seems that time is never enough, that 
we have enough time to really go over these, but SBA, I would 
really like to engage you in further outreach to small 
businesses, so that they can know all of the great things that 
these folks who represent the agencies are doing and perhaps 
give us, shed some light on what we can continue to do in 
Congress to make small businesses be a force in terms of 
international trade.
    We know now that that is the thing that must happen in 
order to create the jobs that have been lost to manufacturing.
    Let me just please, Mr. Chairman, recognize Ramula Rivera, 
who is a representative of Congresswoman Linda Sanchez' office, 
and we want to thank you so much for being here, along with all 
of the others.
    Mr. Chairman, again, thank you so much for traveling to 
California. You now know what we undergo, traveling twice a 
week from Washington to California, but we thank you so much 
for your sensitivity, your friendship, and your involvement in 
helping to create the climate for small businesses to flourish. 
Thank you again for being here.
    Chairman Toomey. Thank you very much for inviting me.
    I want to thank all of the witnesses for their very helpful 
testimony. At this time the hearing is adjourned.
    [Whereupon, at 12:40 p.m., the Subcommittee was adjourned.]

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