[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
INCREASING THE COMPETITIVENESS OF U.S. MANUFACTURERS IN PENNSYLVANIA
=======================================================================
FIELD HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
ALTOONA, PA, DECEMBER 1, 2003
__________
Serial No. 108-47
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia CHARLES GONZALEZ, Texas
TODD AKIN, Missouri GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan
J. Matthew Szymanski, Chief of Staff and Chief Counsel
Phil Eskeland, Policy Director
Michael Day, Minority Staff Director
(ii)
C O N T E N T S
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Witnesses
Page
Sissler, Timothy, Altoona Blair County Development Corporation... 4
Silvetti, Ed, Southern Alleghenies Planning and Development
Corporation.................................................... 6
McLanahan, Michael W., McLanahan Corporation..................... 9
Stapelfeld, Ben, New Pig Corporation............................. 11
Showalter, John, Appleton Paper.................................. 13
Yankovich, William, General Cable................................ 16
Appendix
Opening statements:
Manzullo, Hon. Donald A...................................... 28
Shuster, Hon. Bill........................................... 29
Prepared statements:
Sissler, Timothy............................................. 33
Hoover, Dan.................................................. 39
Silvetti, Ed................................................. 43
McLanahan, Michael W......................................... 47
Stapelfeld, Ben.............................................. 50
Fantini, Rick................................................ 56
Yankovich, William........................................... 64
(iii)
HEARING ON INCREASING THE COMPETITIVENESS OF U.S. MANUFACTURERS IN
PENNSYLVANIA
----------
MONDAY, DECEMBER 1, 2003
House of Representatives,
Committee on Small Business
Altoona, PA
The Committee met, pursuant to call, at 10:20 a.m., in
Blair County Convention Center, Altoona, Pennsylvania, Hon.
Donald Manzullo [Chairman of the Committee] presiding.
Present: Representatives Manzullo and Shuster.
Chairman Manzullo. Well, good morning and welcome. I want
to start by saying how glad I am to be here with Congressman
Bill Shuster. The people of the 9th District of Pennsylvania
are blessed to have him representing them. He is a tremendous
advocate for small businesses, for manufacturers. He has always
been a great asset in the fight to bring to the importance of
the policy people in Washington how necessary manufacturing is.
You know why we are here. It is because despite our best
efforts, manufacturers in the U.S. are in rough shape. Unless
we do something about it, the effects of this will be
irreversible. You can ask any of the 2.8 million workers
involved in manufacturing that have lost their jobs in the past
three years, and they can share that with you. The problem goes
far deeper than the loss of jobs alone. It is crucial that this
Congress foster an environment that keeps Americans working,
and our continued prosperity depends upon not only keeping
Americans working but working with our colleagues in Washington
to make sure they understand how important it is to have
manufacturing. If you don't have manufacturing, agriculture,
and mining, you end up becoming a third rate country, and this
Country has a manufacturing base that continues to erode even
in light of the addition of several hundred thousand jobs. In
the past month, we lost 24,000 manufacturing jobs. That makes
the 39th month in a row where we have lost an average of about
75,000 manufacturing jobs each month.
And Bill, I want to thank you for making possible today's
hearing. This is the 52nd hearing that the Small Business
Committee has had in the past two-and-a-half years just in the
issue of manufacturing, to give you an idea of how intense we
study this issue. And Bill, thank you for inviting me to your--
this is windy hill here. Isn't it?
Mr. Shuster. Today it is.
Chairman Manzullo. Today it is, and I just appreciate what
a beautiful area you have. It is very much like the area I
represent. I have got nine counties, heavy agriculture and
heavy manufacturing, and that is you. Isn't it?
Mr. Shuster. Absolutely. Not as much manufacturing as we
have had in the past, but that is one of the reasons we are
here today is to try to----.
Chairman Manzullo. There you are. And here is the gavel,
and you can conduct the hearing.
[Chairman Manzullo's statement may be found in the
appendix.]
Mr. Shuster. Thank you. Mr. Chairman, first, let me begin
by thanking you for being here today. It is truly a privilege
to welcome you to the 9th Congressional District of
Pennsylvania. We are pleased you joined us here today, which I
believe will be a very informative hearing, and I want to thank
you for leading the fight to help our manufacturers restore a
strong manufacturing sector in this country and to lead the
fight against unfair trade practices around the world.
I would also like to extend a warm welcome to those of you
that are here today to testify. This is really the best way,
short of talking one on one with you, to really get a
perspective on your businesses, and what is affecting you, and
what you would like to see the Federal Government do to
strengthen your position in the world, manufacturing in the
world. We are fortunate here in Blair County to have strong
businesses and an active economic development community. I know
Betty Slayton is here this morning. Welcome to her, and Marty
and his team are here. And they are very strong and they do a
great job, as well as Ed and his folks at Southern Allegheny. I
thank you all for being here.
We know that a strong and viable manufacturing sector is a
critical aspect of our nation's economy. Manufacturing accounts
for a little less than 20 percent of GDP now and it contributes
one-third of the economy's productivity growth. In
Pennsylvania, the manufacturing sector contributed $68 billion
to the State's economy in 2001. Additionally, we know that
manufacturing was responsible for increasing business activity
and jobs in other sectors. It is not hard to see what an
important role manufacturing plays and why it is essential that
we work to keep our manufacturing base here in the United
States competitive in this global market.
Unfortunately, in recent years our manufacturing sector has
suffered. The National Association of Manufacturers estimates
that since July of 2000, we have lost 2.8 million manufacturing
jobs in this country. Here in Blair County and central
Pennsylvania there is a long list of companies that have closed
and moved to other places or just shut their doors and gone
away. This lost has been felt significantly. Here in
Pennsylvania, 143 manufacturing jobs were lost in that three-
year period. The economy of the State has clearly felt--
143,400--correct. That is why we must work together to end this
hemorrhaging of America's manufacturing jobs and create an
economic environment that is going to foster growth in that
sector of our economy.
The good news is that the foundations for an economic
recovery have been laid and are beginning to take hold. The
economic indicators from the last few months show a changing
tide. In October alone, we have seen 126,000 jobs have been
created. This is good news and a step in the right direction,
but there is more work to do. We must continue to reduce the
tax burden on our manufacturers so they have some--they know
what the long-term tax implications are going to be on their
companies, and ensure that our businesses are competing on a
level playing field by enforcing nation's trade agreements. And
today, I hear a lot of talk in Washington and around the
country about free trade. There is no free trade in the world
today. I think the best we could hope for is fair trade, and
that is what we have to continue to work for, those of us in
the United States Congress, to make sure that the playing field
is level and that there is fair trade in the world, because we
know there are nations out there that are intentionally
undervaluing their currency in an effort to obtain an
competitive advantage, among other things.
And we need to work to help reduce healthcare costs, and as
I said, the tax and regulatory burden on our businesses. The
small steps that we have taken in the House is to pass
Associated Health Plans, which is one way to help businesses be
able to band together to reduce those costs on healthcare. Tort
reform, its time has come. It doesn't matter what product you
are producing or what business you are in. I think many of us
in small business can tell a story. I, myself, can tell a story
about being sued, and going through the process, and at the
end, doing an out-of-court settlement. If someone came by
without the evidence to prove, or really, the ability to prove
that somebody has had something wrong, and we face this all the
time in our court system, time after time, trial lawyers taking
our businesses. And I think that the number that I have is, on
average, the average American citizen is paying about $700 a
year in increased costs just for insurance to cover businesses'
liability claims.
But I look forward to working with my colleagues in
Congress. Those--I know that State Representative Stern is here
today, focused at the State level and here at the local level,
to make sure that we can further this economic recovery not
only throughout the United States, but right here in the 9th
Congressional District of Central Pennsylvania. And with that,
I will start to go down through the list. Normally, we are very
formal at our Committee hearings. I have to call people Mister,
or Secretary, so if you hear me call you Mr. Sissler, that is
protocol, but I think I know everybody here at these tables. So
with that, Tim, if you would like to lead off?
[Mr. Shuster's statement may be found in the appendix.]
Chairman Manzullo. There is one housekeeping issue--try to
keep your testimony to five minutes. That is the purpose of the
gavel, and so if it gets near five minutes, you may hear--and
if it goes way over that, the gavel may end up out there.
Mr. Shuster. I think I read most of their testimony and I
think most of them are probably right around five minutes.
Chairman Manzullo. Very good, so we have plenty of time for
questions and interaction.
Mr. Shuster. And you told me I had the gavel, so I am not
going to gavel you down.
Chairman Manzullo. Your complete statements are made part
of the record. If anybody wants to--in the audience wants to
add anything to the record, you can do so. Get it to
Congressman Shuster within the next three weeks. You must keep
it to two pages, typed. The print cannot be less than elite
type. Okay. That is so you can't turn in a book and have it
printed up.
Mr. Shuster. Mr. Sissler.
STATEMENT OF TIMOTHY SISSLER, ALTOONA BLAIR COUNTY DEVELOPMENT
CORPORATION AND RELIANCE SAVINGS BANK
Mr. Sissler. Good morning, everyone. Thank you. My name is
Tim Sissler. I am Vice Chairman of the Altoona Blair County
Development Corporation, affectionately known as ABCD Corp. We
are a private nonprofit certified industrial and economic
development corporation. For more than 55 years, we have served
as a catalyst for comprehensive economic development in Blair
County with an emphasis on a broader vision encompassing the
entire I-99 Innovative Corridor. Through our business
retention, attraction, and expansion efforts, our overall goals
remains the development of enhanced quality of life through
greater employment opportunities for Blair County and
throughout our region.
I will not use this time to list the many statistics that
prove the critical role the manufacturing industry plays in our
local, state, and national economy. We all know what those
economic contributions are, especially, when they are lost.
Blair County, like many parts of Pennsylvania and the
Nation, has a rich and valued history in manufacturing. The
manufacturing industry has served as the backbone for wealth
generation. However, this growth engine is losing steam and
America's manufacturers face more monumental challenges, both
domestic and international, than ever before. The
sustainability of our manufacturing process and our future
prosperity are threatened. Just a few short years ago, more
than half of Blair County's economy was represented by the
manufacturing sector. In 2002, only 18 percent of our economy
is attributed to manufacturing. Nationally, the number is even
less.
Our primary message this morning is a simple one. In order
for our regional and national economy to be competitive at a
global level, it is essential that the production of goods and
services remain a fundamental part of the overall economic
equation. While organizations like ABCD Corp play a role in
helping to facilitate economic expansion, the most important
organizations are those firms that produce, manufacture, and
directly add to the economy through family sustaining job
creation. Those firms represented here today know best the
challenges facing their operations. Their message and those of
other manufacturing sector industries must be heard to help
shape a modern policy environment reflective of a
technologically advanced and global marketplace.
U.S. manufacturing has been the heart of a significant
process that has generated economic growth and produced the
highest standards of living in history. Today, this complex
process faces substantial challenges, which if not overcome
will ultimately lead to a decline in the living standards for
future generations of Americans. We do not expect to hold onto
the past nor do we encourage others to do so. We recognize that
the nature of manufacturing is changing. It has transformed
from a heavy, labor intensive industrial base to an
increasingly automated, safe, and efficient environment.
We produce more with fewer employees and the skill sets of
a modern factory worker are much more different today than they
were just a few short years ago. The term ``jobless recovery''
may fuel the GNP and corporate stock prices, but the phrase
sounds viciously unsympathetic to those individuals displaced
by this fundamental change in operations.
As manufacturers planned for and invested in capital
equipment to increase efficiencies and output, low skilled
production jobs were the first to move overseas. Watching this
transformation take place, the experts said the new industrial
segments would develop to fill the void. Profits made from this
evolution would be put back into research and development. This
research would create new and better products and entire new
industries would likely develop.
While fewer employees would be needed in a particular
company, the modern manufacturing employee would earn much more
and require advanced degrees and certifications. A new class of
worker would be created. No longer defined as a blue collar or
white collar, the modern worker will wear a gold collar,
symbolizing their ability to manage and operate the production
operation.
In many cases, this has proven to be the case. Those
manufacturers that remain and those developing have firmly
adopted this new operational paradigm, and their employees now
wear a gold collar. But what we fear most is that the next
phase of offshore emphasis will quickly transplant the higher
skilled, more specialized employment sector that directly and
indirectly supports the manufacturing industry.
Evidence of this happening is already clear. Support
centers, research, and advanced material development are
increasingly finding a home in other countries. Our Nation and
region alike are training many people from all parts of the
globe, providing them with skills needed to ultimately help
contribute to their home country's overall competitive
advantage.
Our Nation must then compete in that global marketplace.
This cycle has been continuing now for a number of years, and
based on university enrollment statistics, the trend shows
signs of increasing in the years to come.
While we believe in free trade, we also believe in a level
and fair global playing field. Our country insists on the
highest standards for workplace safety, environmental
protection, human rights, and we demand wages that reflect an
employee's worth, skill, and ability to sustain a family. Along
with those standards go the costs associated with them,
including continuously escalating healthcare expense. The U.S.
manufacturing sector is increasingly required to compete
against countries that do not share those beliefs and
standards. So if you agree with our primary message that the
production of goods and services must remain a fundamental part
of our Nation's overall equation, we must then also look at
creating policies that help level this global playing field.
Such policies should not be punitive in nature but, rather,
provide incentives to raise the standards for all businesses in
all industry sectors in all countries. Those policies should
serve to protect the environment where there are abuses,
protect the worker where they are exploited. They should help
monitor global business practices and enforce the highest
standards of production possible that, in turn, will product
the best quality product possible. The consumer then can feel
confident that the price paid for the product reflects the
highest standards of production possible.
ABCD Corp will continue to work with our existing
businesses across all sectors in economic development as we
move forward. Ensuring that these businesses remain competitive
and can do business on a global basis is an operational
priority, but we need strong partners in the State and,
especially, at the Federal level. We need firm policies to
support and open but also fair global marketplace.
Again, thank you for the time this morning. Before
finishing, also, on behalf of Dan Hoover, President and CEO of
Roaring Spring Blank Book, I would like to have his written
testimony made part of this record, in addition.
Mr. Shuster. Sure.
Mr. Sissler. Thank you, Congressman.
[Mr. Sissler's statement may be found in the appendix.]
[Mr. Hoover's statement may be found in the appendix.]
Mr. Shuster. Thank you, Tim, and I didn't give you a proper
introduction as the First Vice Chair of the Altoona/Blair
County Development Corporation, and also, CEO of Reliance Bank,
and also, the guy that was responsible for putting me into
business 14 years ago. So I don't know if you----.
Mr. Sissler. Thank you for remembering that, Congressman.
And thank you for paying me back, Congressman.
Mr. Shuster. Thank you for your testimony and that will
be--Dan Hoover's testimony or written statement will be
submitted to the record. Next, Ed Silvetti, who is the
Director--is that the correct----.
Mr. Silvetti. Executive Director.
Mr. Shuster. Executive Director of the Southern Alleghenies
Planning and Development Commission. Ed, welcome, and go ahead
and proceed. Thank you for being here.
STATEMENT OF ED SILVETTI, SOUTHERN ALLEGHENIES PLANNING AND
DEVELOPMENT COMMISSION
Mr. Silvetti. Thank you. Chairman Manzullo, I appreciate
the opportunity to testify today before the Small Business
Committee and I do offer a special note of appreciation for the
invitation to do so by Congressman Shuster, who representing
the 9th Congressional District, which along with the 12th
Congressional District, encompasses the six-county region of
the Southern Alleghenies Planning and Development Commission.
I appreciate also the timeliness of this invitation,
because those of us involved in economic development have
become increasingly frustrated with the loss of jobs,
particularly, manufacturing jobs. And I know this loss of jobs
is not unique to our area, because even as I travel across the
Commonwealth in some of our neighboring states, I am almost
embarrassed to admit relief that other areas are also suffering
job losses because working in economic development, it becomes
very, very frustrating to see this continued erosion of jobs.
It seems that for every economic step forward in helping to
create jobs, we nevertheless suffer two steps backwards, and so
continue to lose jobs so important to the economic vitality of
our regional economy.
This may be best typified by a small article that appeared
over this past holiday weekend in the local newspaper, the
Altoona Mirror, making note that SKF, the world's largest
bearing manufacturer, recently opened yet another plant in
China; this one in Shanghai to produce deep groove ball
bearings. While this company is Swedish based, it has a local
connection with an SKF plant located in Altoona that is
scheduled to close in 2004. The result will be a layoff of 250
manufacturing jobs, and high paying manufacturing jobs at that.
The fact that this is SKF's fifth venture in China since 1995,
in my opinion, speaks directly to the issue before this
Committee today. Unfortunately, the impending SKF plant closing
in Altoona is only the most recent job loss in the regional
economy, unfortunately.
Since 2000, as we are all aware, there has been a severe
net loss of manufacturing and related jobs in the Southern
Alleghenies Region. The Commonwealth of Pennsylvania economic
analysts project that job losses will continue in nearly all
manufacturing sectors. This is a frightening thought, given the
loss of thousands of jobs already.
Retraining of dislocated workers is preferred but, frankly,
many simply want to find another job that pays a family
sustaining wage. The continued loss of manufacturing jobs makes
this doubly difficult. Within the six-county Southern
Alleghenies workforce investment area, and we do administer the
Federal Work Force Investment Act fund at Southern Alleghenies
Commission, over 430 dislocated workers have received vouchers
to attend training programs in the last three years. That is
only the tip of the necessity for job retraining. Job training
is vitally important to economic competitiveness within this
country and around the world.
I also wanted to provide today a brief overview of some of
the business climate and entrepreneurial issues in our six-
county region. As Congressman Shuster points out, our region is
predominantly rural, but does include two small metropolitan
statistical areas, these being centered in Altoona and
Johnstown. The region has continued a modest recovery from a
long period of economic restructuring that began in the 1970's,
continued in the 1980's, and now has given way to some new
manufacturing and emerging service and technical industry jobs.
Just as a point of fact, coal and steel employment in this
region is a mere 10 percent of what it was in 1960. The same is
true of the railroad employment here in Blair County and the
surrounding area.
The region's economy is more diversified than ever before.
In fact, unemployment numbers are more aligned with
Commonwealth of Pennsylvania averages than in earlier decades
when declines were precipitous and recoveries slow. As with the
Commonwealth of Pennsylvania as a whole, the demographic pool
in this area is older than the average population of the
Country and is increasing in the concentration of older
citizens. This presents another special set of economic issues
to impact entrepreneurship levels and worker retraining.
Unfortunately, business formation rates in our six-county
region are very low. The entrepreneurial business formation
rate for the six-county region is only 55 percent of the
Nation's average. This highlights a general weakness of the
region in many of the Nation's fastest growing and most
actively entrepreneurial focused industries, including business
and professional services, computer related services, data
process, and such. Not only is the region lagging in what are
often considered new high tech industries, but there are also
gaps among the wide range of business and professional service
industries that require higher educational and technical, but
not always highly specialized, skill sets.
Because of the region's cyclical history of economic
decline and recovery, the reliance on manufacturing jobs has
been great. Our workforce is generally skilled to meet the
needs of the region's traditional industries. The result,
however, is that when a manufacturing job is lost, the effect
is more acute because the workforce is not skilled to meet the
needs of new industries. And further, due to the low business
startup rate, the new industry jobs are simply not available.
For the last two years, Southern Alleghenies Commission and
partnership with other economic development agencies, including
ABCD Corporation and the Bedford County Development
Association, has spoken directly with over 750 chief executive
officers of companies based in the region. This is what they
have told us. Over 50 percent of the executives said that
applying and financing new technology was of great concern to
them if they were to remain competitive in a global
marketplace. Half of the CEO's said that business taxes were
the single greatest liability affecting their business' ability
to operate competitively in Pennsylvania and the United States.
The greatest concern of CEO's relative to operating their
businesses last year, in 2002, were issues related to their
workforce. Healthcare costs were second. In 2003, during this
past year, the top issue became healthcare costs, followed by
workforce issues. There was a reversal. The issue of healthcare
is only getting worse. Each new labor contract each new year
requires employees--to require their employees--not to request,
but to require their employees to share a greater burden of
healthcare costs. This, in turn, erodes available disposable
income of our workers, who already earn less per household in
per capita than others in the Commonwealth.
The ability to pay competitive wages tops the reasons for
employers' inability to retain employees. Paradoxically, in
order for a manufacturer to compete with foreign competition,
no more than 45 percent of their product cost can be labor
cost, with the balance being raw materials and other inputs. On
the other hand, to keep a well-trained, valuable employee,
businesses must be able to pay competitive wages. I am at a
loss, frankly, to suggest a middle ground for these business
people.
I don't want to represent to the Committee that our area is
without resources. Rather, I want to convey that we have
similar issues impacting our economy that are not unlike those
affecting the country as a whole. Efforts by economic
development agencies that work to create an atmosphere
conducive to job growth have achieved a great deal of success
and my written testimony highlights some of those positive
results achieved by agencies working in the economic
development arena.
I did want to conclude my testimony by offering some
suggestions that again come from my agency's discussions with
the region's business leaders. First, provide training funds
for incumbent workers that do not have all the strings
attached, such as new job creation or the increase in wage
rates, but simply to help them remain competitive. The issue
with much of the Federal job training funds available, in our
opinion, is that they are so restrictive, and particularly,
with regards to incumbent workers. It is almost impossible to
use those funds to help workers attain new skill sets which, in
turn, help their employers remain competitive, because the
system works against us. I know that the Workforce Investment
Act is up for reauthorization. I think it is a really good
opportunity to address that in a very meaningful way.
Provide a basic level of healthcare coverage on a national
level that can then be enhanced by employers. Foreign trade
policies must be evaluated to determine the effects on domestic
small businesses, not just large corporations. Offer better
incentives for foreign business investment in the United
States. Offer tax incentives for products 100 percent made in
the United States.
Offer more technical and financial assistance to provide
businesses with market development help in order to remain
competitive. We provide a fairly wide range of business
consulting services, export technical assistance, and similar
activities. The fact is that we find our business clients are
faring better than many businesses that do not receive the
basic economic development services, again, such as assistance
in exporting their products.
Chairman Manzullo, Congressman Shuster, I thank you for the
opportunity to be here today. I will be more than happy when
the testimony is concluded to answer any questions that you
might have. Thank you.
[Mr. Silvetti's statement may be found in the appendix.]
Mr. Shuster. Thank you very much, Ed. Next, Michael
McLanahan, President and General Manager of McLanahan
Corporation. I won't give away the years, but you have been an
historic company here located in Blair County for a lot of
years, and one of the really rock solid companies in the area.
So with that, do you want to proceed, Mike?
STATEMENT OF MICHAEL W. MCLANAHAN, MCLANAHAN CORPORATION,
HOLLIDAYSBURG, PA
Mr. McLanahan. Thank you. Good morning. My name is Mike
McLanahan. I am President and CEO of McLanahan Corporation, a
168-year-old, family-owned small business, here today
representing 165 loyal, hardworking American employees.
Your invitation to present my opinions concerning issues
impacting manufacturer's competitiveness is very much
appreciated. The issue of competitiveness, as I see it, boils
down to creation of jobs for small businesses in Pennsylvania
and the rest of the Country. For too long, local, state, and
federal governments have created a landscape for manufacturing
filled with obstacles that have caused us to lose jobs
overseas. One of the main goals or objectives we have is to
make a profit. Without profit, there is no reason to exist, no
reason to face the financial risks we encounter in our journey
across that landscape. Jobs will only be created if profit is
made. Unfortunately, Congress has seen to it that businesses,
especially, small business, has a great deal of difficulty
making a profit; however, once made, high taxes take away that
incentive to succeed. There are many potholes and landmines
erected by government in that landscape that I described
earlier, but I can only deal with one or two at a time in the
allotted time.
McLanahan Corporation is a manufacturer of equipment used
in the mining industry. One of the main markets for our
business is the coal industry. The thrust of government
regulations in the mining industry, and in coal specifically,
seems to be aimed at destroying our ability to compete in the
world market. McLanahan Corporation itself needs low cost
energy to be competitive and it needs the coal mining industry
to succeed because we need it as a customer for our products
and services. It should be noted that we pay ten times the cost
of wages and fringe benefits as compared to our Chinese
competitors.
Currently, the coal industry provides over 50 percent of
the electric energy generated in this Country. However,
building a coal fired power plant takes more than a decade just
to get through the government regulations, with no guarantee
that final approval will be given even if all regulations are
met. Coal mining is considered by the media to be a dirty,
hazardous job, yet, in fact, is one of our safest industries.
Coal can be mined economically, transported efficiently, burned
cleanly, and delivered to customers at low cost. All of this
creates hundreds of thousands of jobs, billions of dollars for
the economy, and a broader tax base. Please note, one ton of
eastern coal costs about $20 on average and has the same energy
value as three barrels of imported oil costing $96.
Strategically, we have more than 300 years of reserves of coal
in the ground. This would ensure our energy independence if we
were allowed to use it to the fullest advantage.
In contrast, the coal industry in Australia and China is
booming because of significant government support. We, as a
company, must go where our market potentially is greatest,
therefore, we have opened an office in Australia and are
considering our options in China. At the same time, our
employment here has dropped nearly 10 percent mining, per se,
is declining due to governmental roadblocks.
In talking about strategic energy needs, let us just take a
minute or so to look at the strategic oil reserve. A few years
back in a political move, President Clinton drew from the
Strategic Oil Reserve. A little known fact is that because we
have not built a refinery in this Country in 25 years, and
because the few remaining refineries were running at 95 percent
of capacity, that strategic oil had to be shipped offshore to
be refined. Just how strategic is that? By the end of this
decade, we will be importing more than 65 percent of our oil
needs, much of it from politically unstable countries, many
controlled by governments having the avowed intention of
destroying us. Even a small hiccup would be a national
disaster.
For a time, it appeared that the natural gas industry would
supply the Nation's low cost energy needs. However, because
users were chasing a limited resource, the law of supply and
demand kicked in, more than doubling the price of natural gas
in just one year. With more gas fired power plants being built
or about to come on line, the cost of this energy source will
be driven higher and availability will be reduced. Increasing
natural gas supplies in this Country is severely restricted by
government regulation, affecting exploration, drilling, and
pipeline construction.
Gentlemen, in conclusion, let me urge you to pass a
national energy policy as soon as possible, to be followed by a
national mineral policy. Without both, this Country will
continue to export jobs. There are many other issues that I
would have liked to have addressed, such as taxation,
healthcare costs, legal reform, education; however, my time is
limited. Thank you for your consideration.
[Mr. McLanahan's statement may be found in the appendix.]
Mr. Shuster. Thank you for your testimony, and on the
Energy Bill, if you have been following the news, we passed it
out of the House, the Congress report, and it is stalled in the
Senate once again. That is the latest on that.
Chairman Manzullo. New clean coal technology.
Mr. McLanahan. New clean coal technology is being promoted
by Government, and that is certainly appreciated, but that is
ten, fifteen years down the line. We need to start now with a
national energy policy, make use of what we have.
Mr. Shuster. Absolutely. Thank you. Next, Mr. Ben
Stapelfeld. He is the Chairman of the Board of New Pig
Corporation and one of the great companies of Blair County,
just about 20 years old, something like that, an idea that they
had and have been very successful with it. So with that, Ben,
would you go ahead and proceed?
STATEMENT OF BEN STAPELFELD, NEW PIG CORPORATION, TIPTON, PA
Mr. Stapelfeld. Good morning. My name is Ben Stapelfeld and
I am the Chairman of the Board of New Pig Corporation. We
manufacture and distribute industrial maintenance and
environmental cleaning products. Our commitment to the
manufacturing base of the United States is multifaceted, and
its health is of a primary importance to us. We are
manufacturers, we buy from manufacturers, but most importantly,
the largest segment of our customer base is manufacturing.
In 2003, New Pig Corporation will sell to over 50,000
sites, domestically. In addition, we will sell in 70 foreign
countries to approximately 7,500 end user customers. Since our
inception in 1985, our domestic manufacturing base has been
shrinking and shifting. In our early years, this fact was
merely a statistic to read on the back pages of the Economist.
We were small, the size of the market was huge, our products
were new, and competition was nonexistent. Growth was not an
issue.
Eighteen years later, the market is mature, competition is
abundant, and the size of the market is smaller. To New Pig,
the shrinking manufacturing base is no long an insignificant
statistic in the back of a magazine. Over the last decade, we
have seen over 78,000 sites in the U.S. close, including 28,944
of our active buying customer sites, of which 7,945 of those
sites had over 100 employees. Growth now means fighting for a
larger piece of a smaller pie. Eventually, the pieces become
smaller, also.
These are statistics that indicate why manufacturing is
important to a little company in central Pennsylvania. We are
far less qualified to expound on the larger question of
importance to the overall U.S. economy. And really, we have no
answers as to how to stem the shifting tide, but we do have
some thoughts on the relationship of business and government in
general. Business needs government to do for them what they
cannot do and to stop doing for them what business is far
better qualified to do for themselves. An example of the latter
would be the Manufacturing Technology Competitiveness Act of
2003, recently introduced by Congressman Ehlers of Michigan.
This Act establishes programs to build partnerships among
higher education institutions, businesses, states, and other
partners to the tune of $184 million.
Frankly, Congressman Manzullo and Congressman Shuster, New
Pig wishes Congress would just save our money. We don't need
federal help partnering with universities or other businesses.
We don't need you to do our research. We don't need program
upon program that funds fellowships and technology partnership
centers. We don't need elaborate training programs. All of
these things are our job. That is what business does. All we
need is a profit motive and a level playing field.
I think I am the fourth person today to talk about a level
playing field, and maybe we need a definition of what that is,
and I am probably not qualified to do it. But I think a start
to getting there would be by having you guys help get
government off our backs. Do for us those things that only
government can do to achieve that end. To promote growth,
government needs to establish sound fiscal and monetary
policies that foster commerce instead of competing with
business for the same capital that would promote growth. We
need government to approach tax policy in a manner which allows
business to compete on a global level.
I will bore you with one more statistic. The United States
makes up approximately 5 percent of the world's population, it
transacts approximately 15 percent of the world's business, and
it has 70 percent of the world's lawyers. It is time for
Congress to stop running from tort reform, for if tort reform
is not addressed, it will be more than just manufacturing
leaving our shores.
Help do something about the over-regulated business climate
that exists in our Country. Nations that are burdened by
needless regulations and stymied by a growing bureaucracy are
always less competitive in a global market. Instead of another
federal program that cannot be measured, look to the local
level and help efforts that have already stood the test of
time. ABCD Corporation has half a century of helping
manufacturers and businesses like New Pig. Literally, dozens of
businesses in Blair County would not exist or would not be the
size they are today if it were not for their assistance. Knock
down the roadblocks that impede them from helping us. We need
our government to represent us on the world stage. We need you
to ensure what we cannot do, and that is make free trade, in
fact, mean fair trade.
I would like to thank you for this opportunity, and remain
confident that given this level playing field, American
business will do its part in creating wealth for our society.
[Mr. Stapelfeld's statement may be found in the appendix.]
Mr. Shuster. Thank you very much. I think that reminds me
from a Shakespeare play on your facts and figures about
attorneys was I think--I don't know what Shakespeare play it
was--there was a line in it that said the first thing we should
do is kill all the lawyers. So I am not going to take that
literally; my brother is a lawyer so--oh, that is right, the
Chairman was a lawyer, but he saw--he had a clear vision on
what a lawyer should be doing and shouldn't be doing. But thank
you for your testimony. Next is John Showalter, Vice President
of Operations?
Mr. Showalter. I will be speaking for the Vice President of
Operations.
Mr. Shuster. Okay. That is what I thought. You have entered
into that world of consultants and semi-retired, but I know you
well enough to know you really haven't retired; you just
started a new career. So you will be speaking on behalf of the
Vice President of Operations for Appleton Papers. So go ahead.
STATEMENT OF JOHN SHOWALTER, ON BEHALF OF RICK FANTINI,
APPLETON PAPERS, ROARING SPRING, PA
Mr. Showalter. Thank you. Mr. Chairman, Congressman
Shuster, my name is John Showalter, and from 1989 until July 1
of this year, I was the mill manager of the Spring Mill of
Appleton, which is in Roaring Spring. I will be speaking on
behalf of the Vice President of Operations for Appleton, Rick
Fantini.
I would echo a little bit of what Mike had mentioned
earlier, as far as longevity. We have been manufacturing paper
for 136 years in Roaring Spring, so it indeed has established a
history of manufacturing there. While I will be--while
Appleton, by definition, is not small business, in today's
world of corporate giants, we are indeed small. And indeed,
what I talk about, if it applies to us, it certainly has to
impact those businesses that are small business. Also, while we
will focus on the paper industry, because that is what we know
very well, the conditions and situations that affect and impact
us certainly impact all other businesses that manufacture goods
here. I also would like to add that we are an employee owned
company and have been so since November of 2001.
Appleton is a major producer of high value added paper
grades and Appleton's annual sales are $850 million. Appleton
has manufacturing operations in three states: Pennsylvania,
Ohio, and Wisconsin; distribution centers in seven states; and
sales offices across the Nation. We currently compete in four
major businesses: carbonless papers, performance packaging,
security papers, and thermal papers. We face competition from a
myriad of competitors, domestic as well as foreign. My remarks
will provide background on the paper industry to provide
context for recommendations, address the impact of foreign
competition on the paper industry, some personal observations
of why a strong manufacturing base is critical to our Country,
and recommend the policy changes that should be evaluated and
addressed by Congress.
Before I begin my remarks, I would like to thank Chairman
Manzullo and Congressman Shuster for holding these hearings on
a very critical issue of U.S. manufacturing competitiveness in
a global economy. Other than our war against terrorism, I
cannot think of a more important issue that our Country needs
to address. Failure to deal with the erosion of our
manufacturing base will have dire implications for our future
way of life.
The North American market in the paper industry accounts
for one-third of the worldwide purchases of paper and
paperboard products. Per capita use of paper products far
exceeds that in other parts of the world. However, the North
American market is also a mature market. Overall demand for
paper products in North America has been described as stagnant.
Other major markets include Western Europe and Asia. Demand
increased in both areas, particularly, in Asia. In general,
demand can be expected to increase most rapidly in developing
countries and economies.
Pulp and paper manufacturing is a cyclical industry. New
capacity is very expensive to add, takes several years to bring
on line, and has tended to come on line in large blocks as
several competitors attempt to be the first to meet growing
demand. The result has been periods of good times, when demand
caught up to supply, and periods of bad times, when capacity
exceeded demand because of new mill or machine additions.
The two biggest issues facing the paper industry today is
technology substitution and the flood of cheap imports. The
combination of these two factors has resulted in prices well
below levels necessary to make an adequate return on invested
capital. Unfortunately, many paper companies have reported
significant losses over the last three years. Significant
fundamental economic changes have occurred in the past ten
years which have negatively impacted the paper industry. Ten
years ago, the U.S. paper industry had the following general
characteristics. The U.S. economy was healthy; demand for paper
products was increasing; capital spending was strong and
increasing; and production and market share was fragmented
among many companies; and more importantly, exports of paper
and paperboard exceeded imports.
The situation has changed. The U.S. and world economies
slumped, beginning in 2000. The global supply for demand
imbalance became apparent in the 1990's. Demand was waning and
competition from competing materials and media was increasing.
Electronic media began to affect demand. Over capacity was
being addressed through plant and machine shutdowns.
Consolidations, mergers and acquisitions, became a driving
factor as companies sought to gain market share and rationalize
assets. Capital spending was significantly reduced and foreign
competition, or globalization, became a major factor with
imports of paper and paperboard exceeding exports. Imports have
captured 90 percent of increased U.S. demand since 1997. The
U.S. trade deficit with respect to paper, paperboard, and
converted products has consistently expanded during recent
years, climbing from 5.7 million tons in 1999 to 6.9 million
tons in 2002, which is an increase of 20 percent.
The above factors have resulted in significant numbers of
mill closures and corresponding job losses which are in the
thousands. Since 1997, 72 mills have closed, and in the 2001-
2002 time period, a total of 40 mills and 104 paper or
paperboard machines were permanently closed. Unless fundamental
changes are made, this trend will continue.
As I stated, the paper industry is being negatively
impacted by two major factors, technological substitution and
the floor of cheap imports. Technological substitution must be
addressed by the industry through innovation. I personally
believe that government should not assist industry, which is
our job, and which fails to be innovative to compete with the
technological advances. However, the issue of cheap imports
requires a cooperative solution between industry and
government. I am not advocating a protectionist view of
severely limiting imports through high tariffs; however, some
fundamental changes need to be made if our industry is going to
be competitive in a global market.
And this is the fifth time you have heard this now. The
fact is free trade is not fair trade in the paper industry or
any other industry for a number of reasons. The lack of a level
playing field is demonstrated by one of our Asian competitors.
We spend tens of millions of dollars to meet federal and state
environmental regulations and the industry spends billions. Our
Asian competition does not have to spend the same type of
resources to meet environmental requirements. Obviously, this
increases our cost base. And we are not advocating that we
lower our environmental standards. This is not the answer.
We spend millions of dollars to ensure the health and
safety of our workers. Our Asian competitor is not required to
make such investments. Our Asian competitor enjoys lower fiber
costs for many reasons; some natural and some unnatural. The
seizure of land from private owners would not be tolerated in
this Country. Many of these seizures involved human rights
abuses. This company also receives hidden fiber subsidies
through the free use of land. This Asian competitor enjoys the
benefits of modern technology without having to pay for it.
This company has defaulted on loans amounting to billions of
dollars. This company would be operating today if it was
located in the United States. This Asian competitor pays its
works at rates that don't even come close to the minimum
standards that have been established in the United States.
I want to talk now about the necessity of a strong
manufacturing base. I do not think it is hyperbole to state
that the erosion of the United States manufacturing base has
important implications for the size and quality of middle class
America, which will eventually impact the quality of life for
all Americans. A significant and stable middle class has been
crucial to the political stability of our Country. A
significant middle class has also allowed for the enactment of
pro-growth economic policies. The erosion of our manufacturing
base will erode the size and quality of our middle class, which
will ultimately erode our political stability. If you think I
am overstating the issue, I would ask you to think about the
democracies in Mexico and South America. I believe that the
periods of political instability in those countries is a direct
result of economic policy which failed to develop a substantial
middle class. Many of these countries are now trying to correct
this situation by increasing the size and diversity of their
manufacturing base. We are now in a worldwide battle for
manufacturing jobs, which we must win if we are to preserve a
way of life we cherish and the rest of the World strives to
attain.
Recommendations. In order to address the above issues, I
recommend that Congress evaluate the Act and act upon the
following economic policies in order to enhance our
manufacturing base. These policies are intended to spur new
investment, provide incentives for retraining employees, and
address the most egregious inequities caused by free trade.
They are enact a lower tax rate for manufacturers; allow for
full and immediate depreciation of capital investments that are
made to meet environmental regulations; allow for accelerated
depreciation at 25 percent per year for manufacturing capital
investments; provide a tax credit for incremental hiring of
manufacturing employees; provide a tax credit, dollar for
dollar, for retraining manufacturing employees to operate new
and rebuilt equipment; institute an environmental tariff for
goods that are produced without meeting minimum environmental
standards; institute a health and safety tariff for goods that
are produced without meeting minimum health and safety
standards; institute a buy American policy for Federal
Government purchases through specifications which require
products be produced in a manner that is consistent with public
policy.
Thank you very much for giving me the time and opportunity
to speak at this hearing. I hope you will find these remarks
helpful in thinking through this very complex issue.
[Mr. Showalter's statement on behalf of Mr. Fantini may be
found in the appendix.]
Mr. Shuster. Thank you very much, John, and I think that
your observation of political instability is absolutely right
on the money, not only here if we don't maintain a strong
middle class, but in the South American countries and all
around the world, there is no middle class. It is tough to
bring about democracy, so I think that is right on the mark.
And finally, Bill Yankovich, who is the plant manager or
general manager of the General Cable Industries facility here
in Altoona. Go ahead and proceed.
STATEMENT OF WILLIAM YANKOVICH, GENERAL CABLE, ALTOONA, PA
Mr. Yankovich. Thank you. Good morning, Mr. Chairman and
Congressman Shuster. My name is Bill Yankovich and I serve as
General Cable's manager of our manufacturing facility in
Altoona, Pennsylvania. We are a Fortune 1000 company that is a
leading global developer and manufacturer in the wire and cable
industry. Our industry is estimated to have had $58 billion in
sales in 2002. We sell over 11,500 cooper, aluminum, and fiber
optic wire and cable products. We believe this represents the
most diversified product line of any U.S. manufacturer. We
manufacture our product lines in 28 facilities and sell our
products worldwide through operations in North America, Europe,
and Oceania. We employ some 6,000 employees worldwide, most of
whom are employed in the U.S., and approximately 75 percent of
our sales are in North America.
Our operations are divided into three main segments:
energy, industrial and specialty, and communications. Our
energy cable products include low, medium, and high voltage
power distribution and power transmission products for overhead
and buried applications. Our industrial and specialty wire and
cable products conduct electrical current for industrial,
commercial, and residential power and control applications. Our
communications wire and cable products transmit low voltage
signals for voice, data, video, and control applications.
I appreciate the opportunity to appear before you today to
discuss issues impacting the competitiveness of U.S.
manufacturers. I also appreciate, Mr. Chairman, your leadership
in highlighting the need for a strong manufacturing base in the
United States. We agree with you that we cannot have a
prosperous economy and rising standards of living for all
Americans without a vigorous manufacturing sector. U.S.
manufacturers have and will continue to lead the way in
innovation, productivity, and international trade. The current
early stage of economic recovery is encouraging, although, our
industry still has very substantial excess manufacturing
capacity and pressures which constrain our growth and
productivity. There is no question that we will still need
policies that help reduce business costs in today's
internationally competitive environment.
The areas I would like to focus on in my testimony today
include: (1) The importance of certainty and permanence in the
tax code; (2) The vital need for passage of the energy bill;
and (3) The impact of steel tariffs on our industry.
First, the tax code. In 2001, and again in 2003, Congress
recognized the importance of broad based tax relief to
stimulate economic growth and job creation. The tax cuts of
2001 and 2003 have provided more certainty in tax policy as
well as spurring an economic recovery that has the potential to
stimulate business investment and job creation. We particularly
appreciate the additional depreciation allowance in this years
bill that will provide powerful incentives for business
investment in all electrical products.
However, if tax cuts are temporary, as is the depreciation
allowance, that may weaken the positive effect that changes
could have on economic growth. It is just common sense. If
Congress makes tax relief permanent, individuals and businesses
are able to make long-term investments and spending plans that
grow the economy and jobs
as well as our industry.
Temporary tax breaks can result in erratic investment
cycles that are dependent upon government action rather than
sound business calculations. For example, temporary tax breaks
might cause firms to buy equipment sooner rather than later,
but then such investment might dry up when the tax break ended.
Companies, quite rationally, would delay buying equipment until
the next economic downturn when they might expect another tax
break. Instead of a reactive, constantly changing tax policy,
we support the Administration's efforts to provide a more
certain investment and job friendly tax environment. Locking in
the lower tax rates will ensure that the economic benefit of
the 2001 and 2003 tax changes is sustained.
Next, the energy bill. A national energy policy is
essential to ensuring sustainable economic growth in
manufacturing and our industry. After 39 months of job losses
in the manufacturing sector, the economy is finally starting to
recover, but we still see soft conditions in our industry. In
addition, high energy costs continue to be a drag on the
economy and particularly on our industry. The failure to pass
an energy bill prevents our company from contributing to a
better energy transmission and distribution system and limits
our ability to benefit from better energy policy.
The energy bill was perhaps the most important measure for
our industry this year. According to a survey by the National
Association of Manufacturers, 92 percent of small and medium
sized manufacturers support passage of this comprehensive
energy legislation.
One-third of our business is in energy cables that we sell
to utilities. After last summer's significant power outages in
the U.S., Canada, and Europe, we are all well aware of the need
to upgrade the power transmission infrastructure used by
electric utilities throughout the Country.
One of our largest customers serves the New York City area.
The energy bill had essential provisions regarding electrical
grid reliability designed to avoid the type of blackouts we
experienced last summer. The energy bill included much needed
mandatory and enforceable transmission reliability standards.
Currently, compliance with reliability standards is voluntary
and utilities may fail to make investments that are required to
assure a robust electric grid.
In addition, since America's manufacturing sector uses
about one-third of all energy consumed in the U.S., the
manufacturing sector itself is vitally depending upon
affordable and reliable energy. At a time when we are facing
relentless global competition, we need to find ways to reduce
domestic costs for business. Lower energy costs are essential
for global competitiveness in our industry as well as our
entire economy.
Every minute that Congress fails to pass this essential
legislation is costing us jobs and revenue in the manufacturing
sector, as well as costing your constituents. Mr. Chairman and
Congressman Shuster, we appreciate your support for the energy
bill. Any opportunity to pass this bill in your remaining days
in session next week or early next session would provide our
industry with the best tools to contribute to a continued
economic recovery. The energy bill will ensure the development
of a more reliable energy supply and, in turn, drive economic
growth and potentially create jobs.
Steel Tariffs. The imposition of tariffs on foreign steel
has had a detrimental effect on our industry and our
competitiveness. We use steel, among many ways, in making
aluminum wire and cable products that we sell to utilities.
Therefore, tariffs affect the cost of acquisition of raw
materials. In today's economy, we simply cannot pass these
higher prices along to consumers. As you know, a September 2003
report from the International Trade Commission found the steel
tariffs cost American steel-consuming businesses $680 million
in lost capital and jobs to date. As you have noted, Mr.
Chairman, for every job in the U.S. steel industry, 59 jobs
exist in American steel-consuming industries that are
threatened by the steel tariffs. Therefore, we appreciate and
support your position, Mr. Chairman, that the President should
rescind the steel tariffs by the end of the year. The National
Electrical Manufacturers Association has also supported this
position.
In conclusion, our industry, along with others in the
manufacturing sector, faces unprecedented challenges in order
to remain competitive in the international economy. However,
with good and consistent tax, energy, and trade policies that
allow us to make sound, long-term decisions, we will rise to
meet these challenges. Thank you, Mr. Chairman and Congressman
Shuster, for this opportunity to assist you in discussing
issues affecting competitiveness in manufacturing.
[Mr. Yankovich's statement may be found in the appendix.]
Mr. Shuster. Thank you for your testimony, and I believe
the Chairman and I both note that I think we have heard that
the President is going to rescind the steer tariffs. He is
going to be in Pittsburgh, I think this week, and I think they
have come down--don't hold me to that, but I think that is what
your belief is also, Mr. Chairman?
Chairman Manzullo. That is the story.
Mr. Shuster. That is what I thought, so that looks like
that is going to happen. As I mentioned, the energy bill is
stymied in the Senate and couldn't guess what they are going to
do over there. That is always the $64,000 question.
Chairman Manzullo. I will defer to you for questions, but I
have got one--New Pig--where did you get that name?
Mr. Shuster. Did you bring him a hat?
Mr. Stapelfeld. No, but I will see that he gets one. We are
New Pig because there is a farmer in Lancaster that is already
the Pig Corporation, and since he was before us, we had to
become New Pig. But actually, the name refers to the first
product that we ever made was called a pig absorbent sock, and
the sock kind of lays down in grease and oil just like a pig
does in mud. That is where it came from.
Chairman Manzullo. All right.
Mr. Shuster. An interesting company, a great success story.
The first question is a real broad question, and I think what I
hear is, what I typically hear as I travel around the District
or in Washington listening to business, it is basically to the
Federal Government, get out of our way, stop taking our money,
stop over-regulating us and let us do our job. And the second
point is where the Federal Government can be helpful in trade
and those things, that is where the Federal Government ought to
be. They ought to be doing those types of things, negotiating
those trade agreements.
And each of you had--some of you had a longer list of
recommendations, but if you can just go down through the list
here, two things that the Federal Government can do to help
your businesses, or in your view, help business in America,
what would be those two things that you would say, number one,
number two. If you just want to kind of take a shot--anybody?
Mr. McLanahan. Just picking up on some of the testimony by
others, not particularly mine, but the accelerated
depreciation. I think it could be targeted and focused in a way
that would help American business. It should not be something
that is available to foreign country manufacturers. It should
be available only for U.S. produced goods. And this would
foster a buy American program and also foreign investment in
businesses in this Country, developing their own businesses
here, which would create manufacturing jobs. I think it is a
shame that we are giving tax credits, basically, to foreign
companies producing products that are shipped into this
Country. That is one of the reasons why that when the Bush tax
reduction plan went into effect, it didn't have the immediate
boost to our economy that was anticipated. So it needs to be
targeted and focused in that way. Thank you.
Mr. Shuster. Thank you.
Chairman Manzullo. Let me address that. In an attempt to
cure the foreign sales corporation extra territorial income tax
problem that we had with the WTO, I introduced a bill that
would solve the problem. The problem was caused by you can't
have a policy whereby you have--it is cheaper on income tax to
export than it is for domestic consumption. So we introduced a
bill that was very simple, and that is if you manufacture in
the United States, you can receive up to a 10 percent decrease
in corporate income tax. That also would apply to pass-throughs
such as LLC's, partnerships, sub-S, and proprietorships. And we
ran into a big fight with people that wanted to make--wanted to
have an international tax cut which would actually encourage
American manufacturers to leave this Country, set up shop in
China, manufacture their cheap stuff there, and then ship it
back here, and thereby, that would lower the cost of their
production for those imports.
So that came to a fight, and I spearheaded the fight on
that, and we stopped that legislation at least for now. So we
will pick it up again in January, but it is precisely what you
are talking about, is rewarding American manufacturers for
staying here.
Mr. McLanahan. Absolutely.
Mr. Shuster. Thank you. Anybody else want to take a crack
at that, one or two things that you would like to see the
Federal Government--I know there was a number of suggestions
made, but does it boil down to one or two things that you would
like to see the Federal Government act on? Does anybody have a
comment on that? It seems to me the tax policy is an area there
was some--when you start talking about tariffs, I think it gets
to be very difficult to impose any kind of tariff on it because
then it just--well, just for the steel tariffs, a perfect
example. The European Union is going to come back at us and
target very specifically--I think, one of the things they were
going to do was Harley Davidson Motorcycles because it was
produced in Pennsylvania. They went to a couple of the states
and found industries that they could attack there. So when you
start talking about tariffs, I don't believe that is the
answer, but I think through tax policy, through trade policy--
we were sitting here talking about, I think somebody mentioned
about environmental regulation four or five years, or seven
years ago maybe it is now, the Kiota Treaty that was hailed by
so many not in this Country. Fortunately, we didn't--the Senate
didn't ratify that treaty, but what it did was punish the
industrialized nations and raised their standard of
environment, their environmental standards higher, and let
these countries that were competing----.
Chairman Manzullo. Except China and Mexico.
Mr. Shuster. Exactly, so that where we should be starting
with them first, raising their standards, they can't overnight
get to our standard, but we certainly can push them to over a
period of time get to where we are so that we do have a level
playing field. There were a couple of questions specific that I
had. Tim, if you would put your banker's hat on for a second,
as far as capital for new startups if a manufacturer, some
young entrepreneur wanted to start in manufacturing, how
difficult would it be for him to go to the bank and get a loan,
and also, maybe through the equity markets, how difficult is
that for----.
Mr. Sissler. I think it is much more difficult now than it
was--I think I see some contraction in the Small Business
Administration, as an example, some cutting back. The SBA has
always been a good way to help those startup companies get
going. And I know we are losing our regional office in
Pittsburgh, which was the closest, and some of those things, I
think are happening. I think there is still money available out
there, but I think the venture capitalist type piece of it, the
risk part of it with the market and everything being the way it
has been, it is tougher to get money now. It is tougher for
startups.
Mr. Shuster. Is that through debt financing or is it
through the equity markets?
Mr. Sissler. The equity right now, you know, the return on
your equity is so low, I think more people probably would take
a chance if there were ways you could get to a capital market
for a small businessman, but the SBA-504 is an example of that.
That is a way you can get out and raise some money that way. I
know ABCD has done a great job of acting as a conduit, doing
some of those type of things. So I think, yes, there are ways
of doing that, but I don't know if they are promoted as much.
Chairman Manzullo. We have done two things in the
Reauthorization of Small Business Act, and it has a new name.
It is called the Small Business Reauthorization and Manufacture
and Revitalization Act. We are trying to reverse what the SBA
is doing because they pride themselves on huge amounts of low
dollar loans, and many of those low dollar loans can actually
be achieved through home equity financing at much more
competitive rates. Plus we have doubled the amount of money
that is going to be available in the 504, say, for leverage up
to $4 million on it, and that should help out manufacturing.
Mr. Shuster. How do you also find dealing, in general, with
the SBA, which you have dealt with them for years?
Mr. Sissler. Well, historically, having the regional office
in Pittsburgh was very good. I don't know how it is going to be
now as that thing gets downsized. Anytime you get further away
from the source point, the more difficult it is.
Mr. Shuster. Right.
Mr. Sissler. And I don't know--I guess, probably, scaling
down, and economies of scale, was there a rationale for doing
it? But we have actually had a satellite operating through ABCD
here, you know, where the people from Pittsburgh actually came
into this market, and that helped us tremendously having that.
I am hoping that is something that can continue.
Mr. Shuster. And generally, your experience with them has
been pleasant?
Mr. Sissler. Oh, it has been pleasant, yes.
Mr. Shuster. And I know from the Committee, we get people
from other parts of the Country, hear horror stories on how
difficult they are to deal with in some places of the Country.
And it has always been my experience directly----.
Chairman Manzullo. It all depends upon how it is--it
depends on what the banks do in terms of how they leverage
those loans.
Mr. Sissler. And I think a lot of it has to do with the
personnel, too. If you have the right people that understand
the programs at both ends of the transaction, the SBA people,
and the local conduit, and the banks, it is--I think, locally,
we have been very fortunate. All of the financial institutions
here have a pretty good understanding of how those programs
work. And we have a great conduit through ABCD to work those
things.
Mr. Shuster. That is a great segue into my next question
about workforce. Ed, you mentioned about when you talked to
those 750 CEO's, you had said workforce issues. I mean, I can
think of several, but is it something specific or is that just
from a broad brush?
Mr. Silvetti. You know, generally, you know, training
incumbent workers, those that are already working, I think it
was Mr. Showalter who mentioned that he would support, and I
would too, a tax credit for training incumbent workers. He also
mentioned that is what industry does, that is what businesses
do, they train their workers, and I agree with that. I think a
program like the Federal Workforce Investment Act is good at
dealing with individuals who are not in the workforce. It is
very good dealing with individuals who have lost their jobs. I
think what it doesn't address very well is the training of
incumbent workers. And so in that regard, as Mr. Showalter
suggested, I think we would support--I know we would support
some sort of tax credit that would go to manufacturers, to
businesses, who would train their incumbent workers in new
skill sets so that they can remain competitive.
Mr. Shuster. And how is your--you administer the federal
funds for workforce training?
Mr. Silvetti. Yes, we do.
Mr. Shuster. And how has your interaction been with those
federal agencies that you have to deal with?
Mr. Silvetti. I think pretty positive--I mean,
understanding that the Federal Workforce Investment Act
administered through the Commonwealth's Department of Labor and
Industry is, by its nature, pretty bureaucratic. And it does
have a whole set of strict guidelines. That is why I mentioned
in my testimony the issue of incumbent worker training. There
are stipulations in that Act that require individuals who
access training funds as incumbent workers that their wages
must rise a significant amount within a short period of time,
within six months. That is impossible, I think, to require a
business person, to require a manufacturer, to pretty much
guarantee that they are going to raise the wages of those
employees who receive training funds. That is nonsense in our
opinion, which is why I say I think a tax credit for industry
to train their workers themselves is probably a better twist,
at least in terms of incumbent worker training.
Mr. Shuster. Didn't we pass the Workforce----.
Chairman Manzullo. Yes, that did pass.
Mr. Shuster. It was passed in the House. I don't know if it
is stalled in the Senate.
Chairman Manzullo. It is in the Senate, yes. Everything
stalls in the Senate.
Mr. Shuster. And I think we put in there--you had mentioned
about making it easier or taking some of the restrictions off.
I think we tried to do that in the Workforce Investment Act,
but once again, it is over in the Senate, this black hole.
Mr. Silvetti. Yes. That flexibility is so important. I know
that the original Act passed in '98 had some flexibility built
in, but all it really said, in essence, was that you can go
ahead and do certain things that are innovative, however, you
know, if in the analysis you don't meet certain benchmarks,
then you end up being penalized in terms of the amount of money
available to do these sorts of things.
Mr. Shuster. Another question I had on export, any
specifics--I know, Ben, you said you are exporting. Mike, you
export. Is there any specific cases that you run across in
difficulties with certain companies--I think it was Appleton,
you had an unnamed Asian company that you dealt with. I
wondered if you would let us know what country that is or
specific things that you come across in trying to export,
trying to sell your products in other countries?
Mr. Stapelfeld. I don't think our government makes it any
harder for us to export than I see other countries trying to do
the same here. Obviously, when the Foreign Sales Corp bit the
dust last year, that made things tougher. That was a benefit,
and with that gone, it sounds like we are beating the same
drum. It goes back to what are you going to do about taxes, the
tax policy. That was one that was very helpful from an
exporting standpoint. If you are able to address that--it seems
what is so difficult for you is that anytime you change
something, you run into the World Trade Organization and how
they view what you do.
Mr. Shuster. All right. Anybody else care to talk about any
specific----.
Mr. McLanahan. I don't find any particular problems with
exporting at this point. Our shipments to China are done very
simply. Surprisingly enough, the Chinese coal mining industry
has a preference for American made products. They are going to
use them to develop their own industry, certainly, and improve
their coal mines. So we have no impediments to shipping into
that country at this point. The only problems that we encounter
are metrification. We have to metrify our equipment, which
takes changes in drawings and fasteners and things of that
sort, and our Country lags that by a considerable amount. It
was supposed to be implemented back in the '90s and it never
happened for political reasons. So we are out of step with the
rest of the world from that standpoint.
Mr. Shuster. Do you have any concerns that the Chinese, for
instance, are going to steal your intellectual property rights
on those----.
Mr. McLanahan. Oh, certainly. That is a risk that we all
run whenever we do business in China. There is no intellectual
property laws that protect us, but we are willing to take that
risk to create jobs here in this Country.
Mr. Shuster. All right. Do you have any other questions,
Mr. Chairman?
Chairman Manzullo. I have just got a couple of questions
here. I guess I am intrigued by Mr. Stapelfeld's testimony is
that he really wants to be left alone, doesn't want any
government help and research. And I agree with that basic
philosophy, because you would just rather have a tax cut as
opposed to a bunch of bureaucrats in there trying to tell you
how to retrain your people. In exchange for it, you keep
bureaus and departments and everything going. But the question
I wanted to ask you has to deal with this--was it your
testimony that talked about this unnamed Asian?
Mr. Stapelfeld. No.
Chairman Manzullo. Was this yours, Appleton's? You know,
there are some remedies out there that are available. In the
years chairing the WTO accord, there is Section 421 safeguards,
which means as a result of China coming into the WTO in
December 2001, there has been a huge surge in a particular
commodity. Then you would have standing to file a complaint
with the International Trade Commission. At least your company
alone, or you join in with different organizations. There was
just a ruling by the textile industry. There was a 421 action
in the WTO that resulted in huge imports on Chinese braziers,
and that is what it is. They found out there was dumping going
on in this Country in just unusual amounts. And we can get
relief under there. And because it is adjudicated by the
International Trade Commission, it has a better opportunity to
withstand the strictures of the WTO.
There is also Section 301 of the Trade Act. We got
involved--Congressman Phil Anderson and I got involved with 13
Chinese companies that were dumping rotors and brake parts. He
has a facility for brake parts, I think, in his Congressional
District, and I do in McHenry, Illinois. We were able to get an
ATC ruling interposing extreme restrictive tariffs
retroactively because the Chinese companies were dumping in one
of those areas. But it is like the mole game. We hit one
company and then somebody else comes over there and they start
selling the thing under them.
But there has been within the last two weeks retaliatory
tariffs imposed on Chinese television sets. Believe it or not,
we still manufacture some here. There is a place, I believe, in
Mississippi, that has 1,200 employees, plus several Japanese
firms, I think three, do some assembly in the United States. So
we have to--when we are talking about fair trade, there are
those tools, but its expense, we have to join in with like
industries, or as with the tool and die folks--the molders,
rather, they brought an action, an inquiry action, simply by
asking the Ways and Means Committee to start an inquiry and the
International Trade Commission got involved in that.
So there are all kinds of things that are going on. What I
would be intrigued--what I am intrigued with is this Asian
company. If you have a way to verify that they are, in fact,
sequestering land without compensation, and taking trees from
that, if you would put a statement like that on your
letterhead, get that to Congressman Shuster, we can get the
International Trade Commission to start investigating that.
Because what we have found is that when you deal with the
Chinese, you have to be very vocal, very loud, and very visible
on it. I am the Chairman of the American Chinese Parliamentary
Exchange. I have been there three times, worked very closely
with the Chinese Embassy almost on a weekly basis, dealing with
sensitive issues like this, and I can tell you when something
like this comes up, they are extremely sensitive, and sometimes
you get a change in policy.
Mr. Showalter. This is in Indonesia.
Chairman Manzullo. It is in Indonesia? We had Blade
Products that was in my district. They had sold three of those
giant paper making machines to Indonesia on an XM loan. You
know what happened there. When the government went down the
tubes on it, they didn't take out risk insurance, and the
company went bankrupt because of that. But we would be wiling
to work with you on that. Get the letter to Congressman
Shuster. The letter should be self--don't send a book, you
know. Just a couple of pages that outlines the issue and that
is enough to get the inquiry started.
Mr. Showalter. Okay. I appreciate that. Thank you.
Mr. Sissler. Congressman Shuster?
Mr. Shuster. Yes.
Mr. Sissler. Just a follow-up to the question you asked,
what could Federal Government do to help, I think one simple
thing is just at your level ensure that we are buying American
made products at the Federal Government level.
Chairman Manzullo. Well, that is the Buy American Act. It
does apply to--it applies across the board. Unfortunately, it
has been interpreted to be only 50.1 percent, and we succeeded
in getting that increased from 50 to 65 percent for materials
that are bought by the State Department and also with the Coast
Guard. We found out that the Coast Guard in reconstructing some
bridges, if one cent of state or local money was incorporated
into federal money, they took the view that the Buy American
Act did not apply and they were bringing in Japanese and Korean
steel. And so I introduced an amendment on that, Congressman
Shuster supported that, which now mandates that whenever you
build a bridge in the United States, it has to be with U.S.
steel, period, or you don't build it.
Those are the types of things that we can do. That does not
impact the competitiveness such as with the steel tariff, but
it says when the U.S. Government uses U.S. taxpayer dollars to
build a U.S. product, at that point it should be with U.S.
materials, because that makes it possible for the workers there
to pay taxes in order to have the procurement going in the
first place on it.
Mr. Shuster. I was involved in a heck of a fight last year
with the New York City Metro Authority.
Chairman Manzullo. Buses?
Mr. Shuster. No, the trains. In Lewistown, Pennsylvania,
Standard Steel--they changed their name now--they are the only
manufacturer in the United States that makes wheels for transit
subway cars in the United States, and there is a French or a
German, and then a Brazilian company, and we just had the
battle. They wanted to buy a Brazilian wheel, which they were
clearly dumping. They were $500 below cost. They did it one
year, and then the next year they got some business that year
and raised it. But we had a heck of a fight trying to--and they
eventually bought the wheels, U.S. made wheels. But you have
that kind of stuff going on, dumping, and the New York City
Transit Authority gets millions, probably billions of federal
dollars, to help run that system.
Does anybody have anything else they would like to add
before I have just one closing? Mr. Chairman? I appreciate
everybody coming here today. This is extremely helpful. I
believe that tax policy is the main vehicle where we can help
business in this Country. I should say less tax policy,
allowing businesses and individuals keeping more of their
money, deciding how to spend it. They do that much better than
the government.
But I also believe, as I said earlier, I don't think there
is such a thing as free trade anymore in the world, except if
you decide you are going to buy from a Wal-Mart in Blair County
versus the Wal-Mart in Bedford County. That is the only place
you don't have to come up against a tariff or some kind of
regulation. But we need to make sure that the Federal
Government, that our trade representative is out there fighting
hard to make sure that it is fair trade, and we will address
that quickly. I think we have let it lag for far, far too long.
But I believe here, locally, in the central Pennsylvania, I
think there are great opportunities for us in the future
working with the corridor that we have here, working with Penn
State and some of the things that they are trying to develop,
and what you gentlemen and your companies provided. So that is
taking all of us working together, making sure that we are
doing all the right things, not only from the federal level
but, of course, state and local, make sure we are all pulling
that wagon in the same direction. And I think because of our
location in the United States, we have a great opportunity here
in the future. I think was it ABC that had--one time your
slogan, ``Close enough to, but far enough way''. I mean, we see
Washington, D.C. and Baltimore growing this way, Philadelphia
and Pittsburgh--we are in a great location to take advantage of
a lot of the opportunities that are going to come our way.
Once again, I want to thank you for being here today, and
if there is anything else you want to add to the record, feel
free to do that. And one other point that I learned this
morning at a breakfast. There is a company in Bedford that
produces something that possibly, probably, can be used in
Iraq, for the reconstruction of Iraq. So if there is any--if
you have a product that you want to try to get into that mix in
Iraq, the rebuilding of Iraq, or anywhere else that the Federal
Government buys your product, feel free to contact our office.
That is part of what we try to do is hook you up with the right
government agency, or in this case, the right government agency
in Iraq, to try to promote and sell your product over there.
So with that, I will go back to the Chairman.
Chairman Manzullo. Well, I just want to thank you all for
coming. I want to thank you for sending a superb Congressman to
Washington. Congressman Shuster has been a tremendous source of
knowledge on the Small Business Committee, a faithful attendee,
and he really has the intentions of the Small Business
Community at heart. I can tell you that personally. I have had
the pleasure to serve with two Congressman Shuster's. I was
elected in November of 1992, and this is my first trip to
Altoona, and your dad told me, because I love trains so much,
is it the train museum that is here?
Mr. Shuster. Yes. The famous horseshoe car.
Chairman Manzullo. But I don't have an opportunity to see
it, so I am going to come back again to see that train museum.
Mr. Shuster. Well, we will welcome you back anytime and I
appreciate you coming. I appreciate your leadership and your
energy, running the Committee the way you do.
Chairman Manzullo. Well, I appreciate it here. Why don't
you go ahead and adjourn the Committee.
Mr. Shuster. And the hearing is adjourned.
[Whereupon, at 11:46 a.m., the Committee was adjourned.]
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