[Senate Hearing 108-398]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-398
 
 FAIR OR FOUL: THE CHALLENGE OF NEGOTIATING, MONITORING AND ENFORCING 
                            U.S. TRADE LAWS

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

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
    THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 9, 2003

                               __________

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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                      Amy B. Newhouse, Chief Clerk

                                 ------                                

   OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE 
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                  GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska                  RICHARD J. DURBIN, Illinois
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        FRANK LAUTENBERG, New Jersey
JOHN E. SUNUNU, New Hampshire        MARK PRYOR, Arkansas

                   Andrew Richardson, Staff Director
   Marianne Clifford Upton, Minority Staff Director and Chief Counsel
                      Cynthia Simmons, Chief Clerk





                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Voinovich............................................     1

                               WITNESSES
                       Tuesday, December 9, 2003

Loren Yager, Director, International Affairs and Trade, U.S. 
  General Accounting Office......................................     6
James J. Jochum, Assistant Secretary for Import Administration, 
  Department of Commerce.........................................     7
Charles W. Freeman, III, Deputy Assistant, U.S. Trade 
  Representative.................................................    11
Franklin J. Vargo, Vice President, International Economic 
  Affairs, National Association of Manufacturers.................    26
Thomas J. Duesterberg, President and Chief Executive Office, 
  Manufacturers Alliance/MAPI....................................    28
Tim Hawk, Vice President and General Manager, American Trim, 
  L.L.C..........................................................    31

                     Alphabetical List of Witnesses

Duesterberg, Thomas J.:
    Testimony....................................................    28
    Prepared statement...........................................   108
Freeman, Charles W., III:
    Testimony....................................................    11
    Prepared statement...........................................    84
Hawk, Tim:
    Testimony....................................................    31
    Prepared statement...........................................   130
Jochum, James J.:
    Testimony....................................................     7
    Prepared statement...........................................    69
Vargo, Franklin J.:
    Testimony....................................................    26
    Prepared statement with attachments..........................    92
Yager, Loren
    Testimony....................................................     6
    Prepared statement...........................................    39

                                Appendix

Questions and Response for the Record for Charles W. Freeman, 
  III, from Senator Lieberman....................................   134


 FAIR OR FOUL: THE CHALLENGE OF NEGOTIATING, MONITORING AND ENFORCING 
                            U.S. TRADE LAWS

                              ----------                              


                       TUESDAY, DECEMBER 9, 2003

                                       U.S. Senate,
                  Oversight of Government Management, the Federal  
             Workforce and the District of Columbia Subcommittee,  
                          of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. George V. 
Voinovich, Chairman of the Subcommittee, presiding.
    Present: Senator Voinovich.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. I apologize for the fact that there are 
not more Senators sitting in these chairs, but as you know, we 
are in session today. In fact, I am going to have to preside at 
12 o'clock today, and many of the Senators just frankly are not 
in town at this time.
    I felt it was important to have this hearing now because I 
am hoping that between now and when the Senate comes back on 
January 20 that some action can be taken on some of the 
concerns that I am going to raise at this hearing today, 
because there are a lot of people in this country that feel 
that we are running out of time on some of these issues, and it 
is having an enormous impact on the economy of my State and on 
the economy of Pennsylvania, Michigan, Indiana, and Illinois. I 
was just in Illinois yesterday, and they have the same concerns 
that we have in the State of Ohio.
    Today's hearing will focus on the ability of our trade 
agencies to effectively negotiate, monitor and enforce our 
complex trade laws in a rapidly-shifting global trade 
environment. As our country adapts to the changing trade 
dynamics, I am interested in learning if we have handicapped 
our economy, especially the manufacturing sector.
    On April 23, 2002, nearly 20 months ago, this Subcommittee 
held a hearing to examine the personnel challenges faced by the 
Securities and Exchange Commission and the Department of 
Commerce. The hearing was held, in part, in response to the 
General Accounting Office's 2001 High Risk Series, which stated 
that, ``A lack of sufficient numbers of experienced staff with 
the right expertise limits the ability of the Department of 
Commerce, U.S. Trade Representative and the Department of 
Agriculture to monitor and enforce trade agreements.''
    This remains a concern of mine today. The Department of 
Commerce maintains a database of nearly 300 international trade 
agreements to which the United States is a participant, and 
over the past several years the roles and responsibilities of 
our trade agencies have increased in scope and technical 
complexity. Unfortunately, as GAO pointed out during the April 
2000 hearing, the staffing levels at our trade agencies have 
not kept pace with this increased workload.
    This combination raises doubts about our ability to 
effectively monitor our trade relations, and I am interested in 
learning how the Department of Commerce and the USTR have 
refined their human capital strategies to respond to a complex 
set of trade-related policies and workload capacity problems.
    The importance of our hearing today is underscored by the 
fact that the United States has lost over 2.7 million 
manufacturing jobs since July 2000. In my State of Ohio we have 
felt these losses acutely, most recently seeing the loss of 
6,300 manufacturing jobs in just October of this year. In July 
2000 there were more than one million manufacturing jobs in my 
State. Today that number has fallen to 840,000. This is a loss 
of 17.6 percent of the State's manufacturing employment, a loss 
of more than one out of every six Ohio manufacturing jobs. 
These numbers represent a crisis for Ohio's economy, especially 
since the manufacturing sector in Ohio accounts for the second 
highest weekly earnings of any economic sector, and supports 
local community and schools with more than a billion in 
corporate franchise and personal property taxes.
    I can tell you, our local political subdivisions are 
getting hammered because of the loss of these jobs and the 
value of the property.
    In my opinion these numbers are the result of several 
factors, rising healthcare costs, high natural gas prices and 
other energy costs, out-of-control litigation, and our current 
trade policies, or rather, the mismanagement of our trade 
policies.
    Manufacturing companies are distressed by our current trade 
priorities especially with regard to China. As I meet with 
business leaders throughout the State, their number one concern 
is the inability to compete on a level playing field with their 
Chinese competitors. I take these statements very seriously.
    Throughout my years in public service, I have long 
advocated free trade provided it is fair trade. I was a strong 
supporter of permanent normal trade relations with China when 
the Senate passed the legislation in September 2000. In recent 
months, however, I have begun to question my vote on that 
issue. Although China's economic reforms and rapid economic 
growth have expanded U.S.-Chinese commercial relations in 
recent years, disputes have arisen over a wide variety of 
issues including China's currency pick and its failure to 
protect U.S. intellectual property rights.
    While many of these concerns over China's trade practices 
were addressed in negotiations with China over its accession to 
the World Trade Organization (WTO), China has failed to 
implement many of its WTO obligations.
    An issue I consistently hear about from manufacturers is 
the harm that China is doing to our economy by deliberately 
undervaluing its currency against the U.S. dollar. This makes 
Chinese exports less expensive and puts U.S. workers at a 
severe disadvantage. This is simply unfair. If the value of 
China's currency was allowed to float freely as the currencies 
of other major trading partners do, it would reflect China's 
enormous trade surplus and the value of China's currency would 
increase significantly.
    In addition, I hear that manufacturers continue to 
experience significant intellectual property rights problems in 
China, and others in addition to manufacturers, especially in 
terms of illegal reproduction of software, retail piracy and 
trademark counterfeiting. It is estimated that counterfeits 
account for 15 to 20 percent of all products made in China, 
which totals about 8 percent of China's gross domestic product. 
It is also estimate that IPR piracy in China costs U.S. firms 
$1.85 billion in lost sales in 2002.
    I am not surprised by these numbers though. I really am 
not. This has been an ongoing problem with China for some time 
now. The USTR cited China's failure to provide adequate 
protection of patents, copyrights and trade secrets back in 
1991 when it threatened to impose a $1.5 billion in trade 
sanctions.
    When I was in China on a trade mission in 1995--I brought 
about 18 Ohio businessmen to China, visited four cities--that 
again was an issue that we raised with the Chinese Government. 
At that time the International Intellectual Property Alliance, 
IIPA, an association of major U.S. copyright based industries 
was estimating that IPR piracy by China firms cost U.S. firms 
$2.3 billion in lost trade. The terms of China's WTO accession 
require that China immediately bring its intellectual property 
laws in compliance with the WTO Agreement on Trade-Related 
Aspects of Intellectual Property Rights, but I have not seen 
any evidence that China's behavior has changed a bit since 
then.
    We need to stop standing by and watching as year after year 
China continues to counterfeit U.S. products, costing many 
Americans their jobs. I have not been encouraged, frankly, by 
statements from the administration that are working on these 
problems, and that we in Congress, I have been told, have to be 
patient. We have to be patient. We have to be patient. 
Manufacturers in the midwest, including Ohio, have run out of 
patience as they see family businesses dwindle to shadows of 
what they once were and loyal employees out on the street 
without a job.
    As a member of the Senate Task Force on Manufacturing, I am 
working on a number of solutions to address these challenges. 
In June 2003 we introduced legislation to establish the 
position of Assistant Secretary of Commerce for Manufacturing 
within the Department of Commerce. This new post would be 
responsible for representing and advocating the interest of the 
manufacturing sector as well as developing policies to promote 
the expansion of manufacturing.
    On Labor Day I was pleased to appear with President Bush in 
Richfield, Ohio when he announced his support for the creation 
of this new position, and I recently added language to the 
Omnibus Appropriation bill to fund this new position. It is my 
hope that this position will allow the Department to focus on 
the impact the slow economic recovery has had on manufacturing 
and our Nation's overall competitive position in the global 
marketplace.
    I was an original cosponsor of a resolution strongly 
encouraging the Chinese Government to keep its commitment to 
move to a market-based valuation of its currency in accordance 
with its commitments to the trade rules and principles of the 
international community. The resolution passed the Senate on 
September 25, 2003.
    I introduced legislation on October 20, 2003, entitled the 
Currency Harmonization Initiative Through Neutralizing Action 
Act of 2003, what we call the China Act. It will level the 
playing field on Chinese products with new tariffs in the event 
that the country fails to heed calls to let its currency trade 
freely. Specifically, it would require the Secretary of 
Treasury to analyze and report to Congress whether China is 
manipulating its currency to achieve an advantage in trade. If 
manipulation is found, the Secretary would be required to levy 
tariffs equal to the percentage of manipulation found. This 
would be in addition to tariffs currently in place on Chinese 
imports. Full membership in the community of modern nations 
requires China to deal fairly with its trading partners, but 
that is not happening, and such behavior has to end.
    On November 25, Senator Snow and I introduced comprehensive 
legislation, the Small Manufacturers Assistance Recovery and 
Trade or SMART Act, to aid the Nation's troubled manufacturing 
sector and to help manufacturers hard hit by foreign 
competition and trade barriers to get back on their feet. With 
small business manufacturers constituting over 98 percent of 
our Nation's manufacturing enterprises and employing 12 million 
people, it is impossible to overstate the role of small 
manufacturers within the overall manufacturing industry and our 
Nation's economy.
    Most recently I have been working on a resolution that 
would urge the USTR to initiate a 301 investigation into 
Chinese currency manipulation. Unfortunately, the Treasury 
Department objected to it. This is very frustrating to me that 
there appears to be no coordination between agencies on this 
issue. On one hand I hear Congress talking about how concerned 
they are with the currency manipulation issue. Yet when I 
talked to Secretary Evans about the issue, he tells me that he 
cannot talk about it because it is Treasury's responsibility. 
If this issue was such a big deal, if it is such a big deal, 
Commerce and the USTR should be pushing Treasury to get the job 
done. They ought to be working together.
    I have to tell you if I was Governor of Ohio and I had a 
problem and I sent different people over to China to talk, I 
would make sure that if something was high on my priority list 
that they would be hearing comments from finance or anybody 
else, OMB, that you sent over there, so they get it. So you hit 
them with a big hammer so that they understand that something 
has got to be done.
    I want to say one other thing. I have concerns about State 
and trade. I have had for a long time, as a governor and mayor. 
I'm concerned, for example, about North Korea and Taiwan 
getting in the way of strategic trade issues that impact on our 
economy. I hope that the President has these issues on his 
plate today when he talks with Wen Jiabao. As a matter of fact, 
they are talking today. I am hoping that he talks about the 
issue of currency. I hope he is talking about intellectual 
property rights. I hope he is talking about their compliance 
with the WTO, that the American people are becoming very 
frustrated, and some of the greatest supporters in the U.S. 
Senate, including this Senator, has almost had it. I am going 
to be watching carefully any new trade initiatives that come 
out of the administration in terms of whether or not they are 
getting the job done.
    I am looking forward to learning what the U.S. Government 
is doing to help our ailing manufacturing sector and whether 
key trade agencies have the workforce needed to get the job 
done. For example, if we had more staff with the right skills 
at USTR and Commerce, would China continue to violate U.S. 
intellectual property rights? Is the Federal Government being 
proactive enough to protect American manufacturing jobs? These 
are important questions. They need answering. I am hopeful that 
today's hearing will provide some answers as well as some 
solutions to challenges facing manufacturers in order to help 
weather this crisis, and it is a crisis.
    We have an impressive lineup of witnesses, and I look 
forward to a very informative discussion.
    Our first witness today is Dr. Loren Yager, the Director of 
International Affairs and Trade at the U.S. General Accounting 
Office. Dr. Yager testified at our hearing in April 2002, and I 
am really looking forward on an update on what has happened.
    Representing the Bush Administration are Hon. James Jochum, 
Assistant Secretary for Import Administration of the Department 
of Commerce, and Hon. Charles Freeman, III, Deputy Assistant 
U.S. Trade Representative.
    Linda Cheatham, Chief Financial Officer and Director of 
Administration of the International Trade Administration and 
the Department of Commerce is also available. You are here to 
answer the tough questions. Is that it? [Laughter.]
    Our second panel, we will hear from Frank Vargo, Vice 
President of the National Association of Manufacturers. Joining 
him is Dr. James J. Duesterberg, President and CEO of the 
Manufacturers Alliance for Productivity and Innovation. And 
rounding out this panel is Tim Hawk, Vice President and General 
Manager of Superior Metal Products and American Trim, L.L.C., a 
Lima, Ohio based company. His father, Leo Hawk, is sitting here 
in the audience with us today, and I want to thank you both for 
making the trip today to Washington. Thank all of you for 
coming, and we look forward to your testimony.
    It is the custom of this Subcommittee to swear in all of 
our witnesses, and I would therefore ask all of our witnesses 
to stand and raise your right hand.
    Do you swear the testimony you are about to give before the 
Subcommittee is the truth, the whole truth, and nothing but the 
truth?
    Mr. Yager. I do.
    Mr. Jochum. I do.
    Mr. Freeman. I do.
    Mr. Vargo. I do, yes.
    Mr. Duesterberg. I do.
    Mr. Hawk. I do.
    Senator Voinovich. Let the record note that they answered 
in the affirmative.
    Please sit down. I would appreciate if you could please 
make your statements in 5 minutes or less, try to keep it at 
that if you can. All of the statements will be entered in the 
record in their entirety, and Dr. Yager, I would appreciate 
your starting the testimony today.

 TESTIMONY OF LOREN YAGER,\1\ DIRECTOR, INTERNATIONAL AFFAIRS 
           AND TRADE, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Yager. Thank you, Mr. Chairman. I am pleased to be here 
today to discuss the human capital challenges faced by trade 
agencies in the current world environment. Trade has become an 
increasingly important component of the U.S. economy, and 
therefore, the institutions and arrangements that regulate this 
trade have also increased in importance.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Yager appears in the Appendix on 
page 39.
---------------------------------------------------------------------------
    At least 17 Federal agencies are involved in developing and 
implementing U.S. trade policy, with a relatively few agencies, 
including the U.S. Trade Representative (USTR) and the 
Department of Commerce having lead roles in negotiating new 
agreements and monitoring the compliance of other nations with 
existing agreements.
    The main point of my testimony today is that U.S. trade 
agencies need to more actively pursue human capital planning to 
successfully meet the challenges they face. In this statement I 
will briefly summarize some of those challenges, as well as 
focus on a few of the human capital practices that GAO has 
discussed before this Subcommittee on numerous occasions.
    My observations are based on a number of studies that we 
have conducted on important trade developments since the last 
hearing that you mentioned in your opening statement. We have 
also updated some of these studies with recent interviews with 
USTR and with Department of Commerce officials. In addition, we 
have incorporated insights from the human capital reports and 
testimonies, where this Subcommittee has taken a leadership 
role.
    Let me first talk about three key challenges that face 
trade agencies in the current environment, and I provide more 
detail on each of these challenges in my written statement.
    The first is a substantial increase in importance of 
security since September 11 for many of the personnel who have 
front line trade responsibilities in U.S. border points and in 
other locations. In addition to their existing functions of 
ensuring revenue collection and compliance with other 
requirements, these personnel are now required to guarantee the 
goods destined for the United States are free from weapons of 
mass destruction.
    The second challenge is the ambitious negotiating agenda 
involving active negotiations in the multilateral WTO, the 
regional FTAA, and numerous subregional bilateral agreements. 
Ambassador Zoellick has stated on numerous occasions that 
efforts on all three fronts are part of the competitive 
liberalization strategy of the United States. However, 
participation in these negotiations is quite demanding on the 
staff of USTR as well as the agencies such as the Department of 
Commerce, due to their key role and expertise in various 
aspects of the negotiations.
    The third challenge is the most wide ranging, and that is 
responding to the inevitable but unpredictable changes brought 
about by globalization. One aspect of this involves ensuring 
that existing agreements and structures are serving U.S. 
interests. I should note in this regard that USTR has just 
announced significant changes to update one of those 
structures, the 25-year-old Trade Advisory System. GAO reported 
last year that the system no longer reflected the current 
composition of the U.S. economy. It also means responding to 
major changes in the trade environment, such as the challenge 
brought on by China. Our prior reports and ongoing work stress 
the importance of actively monitoring China's commitments to 
the WTO, and we note in particular that Commerce's market 
access and compliance group has increased its staff to 
accomplish that goal while USTR has reorganized its Asian work 
to enable this function to be performed more effectively.
    Everything I have said up to this point refers to the human 
capital challenges facing U.S. trade agencies, but of course, 
that is only half the equation. On the other side of the 
equation are the insights on the ability of these agencies to 
respond to these challenges. Let me make two observations based 
on the numerous testimonies the GAO has provided before this 
Subcommittee and outlined in our High Risk Series and other 
reports.
    First, the approaches have to be tailored to meet the 
specific needs of the organizations. In the case of the trade 
agencies this means there must be close coordination between 
the agencies on the wide range of functions that require that 
coordination whether it is negotiations or monitoring and 
enforcement. USTR was designed and remains a small organization 
that relies heavily on the expertise supplied by other 
agencies.
    Second, human capital planning should be used to ensure 
that the agencies are capable of achieving the strategic goals 
identified in their planning cycle. In addition, planning can 
identify and address areas where human capital practices could 
be made more flexible to accomplish the goals more effectively 
as well as to respond to the international events that 
inevitably occur and require the agencies to adapt their 
policies during the course of the year.
    Mr. Chairman, I should also mention that we have just 
started work on two subjects that you mentioned in your opening 
statement. We have a request from Chairman Manzullo and 
Chairman Snow to look into the currency practices in China and 
other Asian countries, and we also have a request from Chairman 
Davis of the House of Representatives to look into the 
enforcement of U.S. intellectual property rights regulations 
around the world.
    This concludes my testimony, Mr. Chairman. I would be happy 
to answer any questions that you have.
    Senator Voinovich. Thank you very much, Dr. Yager. Mr. 
Jochum.

TESTIMONY OF JAMES J. JOCHUM,\1\ ASSISTANT SECRETARY FOR IMPORT 
             ADMINISTRATION, DEPARTMENT OF COMMERCE

    Mr. Jochum. Thank you, Mr. Chairman. I know those of us in 
the administration appreciate your dedication to this issue, 
and I appreciate the opportunity to further define the 
administration's efforts in this regard.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Jochum appears in the Appendix on 
page 69.
---------------------------------------------------------------------------
    For the President and Secretary Evans, the importance of 
trade extends well beyond the economic realm. As the President 
has stated, open trade is not just an economic opportunity, it 
is a moral imperative. When we negotiate for open markets, we 
are providing new hope and promoting political freedom. It is 
because of the economic and social imperative behind trade that 
the administration has moved aggressively in pursuing an 
ambitious free trade agenda. We will continue to move forward 
to expand trade and economic opportunities that it creates for 
all Americans and to eliminate barriers to the free flow of 
American goods, services, investment, and ideas.
    The administration understands, however, that an aggressive 
trade-liberalizing agenda must be accompanied by the strict 
enforcement of our trade laws. We understand the value of 
competition and that it leads to innovation, growth and a 
higher standard of living. But some of our trading partners 
have failed to fully embrace fair competition. While we 
continue to encourage the opening of new markets like China, we 
expect our trading partners to compete on a level playing field 
and reduce practices that distort normal and fair trade 
relations.
    Today's hearing offers me the chance to review some of our 
findings from the more than 20 roundtable discussions that the 
Commerce Department held with U.S. manufacturers, both large 
and small, across the country as part of our manufacturing 
initiative. In addition, I will briefly discuss the trade 
relationship with China in the context of other issues raised 
by U.S. manufacturers.
    The administration understands the importance of 
manufacturing to the success of our overall economy, our 
workforce and our Nation's future. The manufacturing sector 
represents 14 percent of our GDP and 13 percent of total 
private sector employment. Manufacturing innovations at home 
and abroad are also important contributors for success in other 
sectors such as agriculture and services. Advances in John 
Deere's cotton-picking equipment manufactured in Des Moines, 
Iowa, for example, made cotton producers throughout the South 
and West more efficient and productive, and advances in servers 
produced by Cisco and Sun Micro Systems enable hospitals across 
the country to offer both high quality and lower cost 
healthcare to millions of Americans.
    Having said that, there is a growing perception in the 
media that American manufacturers are weak, cannot compete, and 
are being hollowed out, and much of that stems from the 
significant pressure that U.S. manufacturers faced in the 
recent downturn of the economy and from stiff competition 
abroad.
    It is important to remember then that even in the face of 
significant challenges, American firms have built the 
strongest, most dynamic manufacturing sector in the world. The 
U.S. remains far and away the largest producer and exporter of 
manufacturing goods in the world, and standing alone, our 
manufacturing sector would rank as the world's fifth largest 
economy, larger than the entire economy of China. That is why 
manufacturing not only matters, but it is worth fighting for, 
and fortunately the stimulus of recent years has softened the 
blow from the recent downturn and set the stage for vigorous 
economic growth going forward.
    Just to repeat the numbers we have seen lately, the third 
quarter of this year experienced an 8.2 percent raise in 
growth, the best in about 20 years, and the manufacturing 
index, the Institute of Supply Management, showed the highest 
number in 20 years. Even on the employment front there are good 
signs that the economy is growing. The most recent figures from 
the Labor Department reveal that the unemployment rate at 5.9 
percent in November has trended down and the economy has 
created 328,000 new jobs in the past 4 months.
    This positive news, however, does not negate the fact that 
you mentioned, Mr. Chairman, that the manufacturing sector has 
lost more than 2 million jobs during the recent downturn. In 
short, our manufacturers continue to face a highly global 
competitive environment and we need to foster an environment in 
which our firms can compete and succeed in manufacturing.
    In March of this year, during Manufacturing Week, Secretary 
Evans announced the President's Manufacturing Initiative, and 
this announcement was followed up by roundtable discussions in 
more than 20 cities across the United States to gather input 
for a report on the state of manufacturing and recommendations 
for policy reforms.
    While international competition is what has garnered most 
of the attention in the press, by far the greater weight of the 
manufacturers' comments focused on domestic issues. We heard 
that while U.S. manufacturers have tightened their belts and 
raised their productivity, those productivity gains have been 
eroded by everything from higher energy costs to higher medical 
and pension costs, to higher insurance costs due to a runaway 
tort system. For example, we heard from manufacturers in New 
Jersey that 30 cents of every dollar of revenue went to pay 
health benefits for their employees, which was an increase of 
well over 100 percent in just a few years. We heard about 
asbestos litigation and other lawsuits that hang over the heads 
of virtually all U.S. manufacturers, raising their insurance 
costs and dampening their returns. The manufacturers also 
pointed to declining vocational school programs, declining 
enrollments in engineering and the funding of scientific 
research, all of which are essential to the productivity gains 
that keep our manufacturing sector competitive.
    In addition to keeping our own side of the street clean, 
manufacturers demanded a level playing field internationally, 
and what that means in practical terms is three things. The 
first is exchange rates that reflect economic fundamentals of 
the market and not government intervention. The second is an 
effort to eliminate tariff and non-tariff barriers to our 
exports through negotiations with our trading partners. And the 
third is the vigorous enforcement of both the existing 
international trade rules and U.S. trade law. The goal is 
simply to ensure that everyone on the field is subject to the 
same rules of the game.
    What we did not hear from the vast majority of 
manufacturers that we met with was an interest in outright 
trade protection. Rather, our manufacturers see international 
trade as a simple question of fairness. If we keep our markets 
open to our trading partners' goods, they should do the same 
for us.
    While we are still in the process of finalizing this report 
and its recommendations, Secretary Evans has taken steps in 
response to the concerns we heard, particularly the need for a 
stronger focus within the U.S. Government on manufacturing. The 
first initiative, announced by the President on Labor Day, is a 
new Assistant Secretary of Commerce to serve as the point 
person in the administration for manufacturing. The second is 
the establishment of an Unfair Trade Practices Team to track, 
detect and confront unfair competition before it injures an 
industry here at home. And the third calls for the creation of 
an Assistant Secretary for Trade Promotion, to boost our 
exports, particularly to those markets that our negotiators 
have recently opened to trade.
    During these roundtable discussions, there was no single 
topic that garnered more attention than our trading 
relationship with China. We all know the stakes are very high. 
Our bilateral merchandise trade with China reached the level of 
$147 billion last year, and within that year China overtook 
both Japan and Mexico to become our second largest source of 
imports. Many have noted that our imports from China are more 
than five times greater than our exports, and our bilateral 
trade deficit exceeded $100 billion in 2002. There is also an 
obvious upside to China's growth. The rising standard of living 
in China has created consumer demand for U.S. products that did 
not previously exist. What that means in trade terms is that 
China today represents the fastest-growing market for U.S. 
goods and services. Our exports to China surged by 19 percent 
in 2001, 15 percent last year, and about 18 percent in the 
first 8 months of this year.
    The Commerce Department, in close coordination with the 
USTR and other agencies, had adopted a multi-pronged approach 
to ensure that China honors its WTO commitments. We will 
continue to target unfair trade practices wherever they occur, 
but enforcing our trade laws is only part of the solution. We 
must continue to enhance the ability of U.S. businesses to 
compete in China. For example, we are launching ``Doing 
Business in China'' seminars in cities across the country to 
address concerns about the Chinese market from small- and 
medium-size businesses. At the Commerce Department, the 
International Trade Administration, or ITA, is charged with 
carrying out these activities. ITA's mission is to create 
economic opportunity for U.S. workers and firms by promoting 
international trade. It has been more than 20 years since ITA 
reorganized itself to ensure that we are fulfilling this 
mission.
    In 2002, while we were conducting our national export 
strategy, we went out to our customers and surveyed them on our 
work, and as a result we will focus and redeploy our resources 
where our clients tell us they need it most.
    Although the details of this ITA reorganization are still 
being finalized, plans include replacing the existing Trade 
Development Unit with the Assistant Secretary for 
Manufacturing, consolidating all trade promotion activities 
within the commercial service, and streamlining trade law 
administration and allocating additional resources to China.
    As I said earlier, the new Assistant Secretary for 
Manufacturing will focus on both domestic and international 
aspects of U.S. industrial competitiveness, and will work 
closely with a new interdepartmental committee that will be 
created to focus and coordinate all of our Department's 
expertise on the problems of the manufacturing sector.
    The second step in the reorganization will consolidate all 
trade promotion services within the commercial service. This 
initiative will allow us to link our advocacy efforts more 
directly to the domestic and overseas networks to enable early 
project support, as well as post-transaction assistance. And, 
as someone who has done trade advocacy, this is really what 
other countries have done for many years, and what we have 
failed to do.
    The third step in the reorganization is streamlining our 
trade law administration and allocating additional resources to 
investigate unfair trade activities within China, and this 
function falls within my agency, the Import Administration. We 
are creating a new office devoted exclusively to China, which 
is the object of a disproportionate number of trade complaints.
    And by way of background, during the last 3 years, we have 
initiated more anti-dumping investigations and placed more 
anti-dumping orders against China than against any other 
country, and more than twice as many as we have against the 
next leading country. In 2003 alone, more than 50 percent of 
all of our new anti-dumping orders put in place have been 
against China. Historically that number has been about 15 
percent.
    As I noted earlier, we are also creating an Unfair Trade 
Practice Team that will try to look at trade coming in before 
it causes a problem. Our goal here is to preempt things and 
allow us to follow up with all the tools we have at our 
disposal.
    In conclusion, I want to stress that the administration has 
heard the concerns of U.S. manufacturers and certainly the 
concerns of this Subcommittee, and we are committed to ensuring 
a level playing field when competing in today's global 
marketplace. The Commerce Department is developing a strategy 
to ensure that government is fostering an environment that 
promotes a dynamic manufacturing sector. Part of that plan is 
the reorganization of ITA that will allow us to better respond 
to unique problems of U.S. manufacturers.
    Thank you again for inviting me to testify today, and I 
look forward to your questions.
    Senator Voinovich. Thank you very much. I am impressed with 
some of the statistics that you have shared with us. Mr. 
Freeman.

TESTIMONY OF CHARLES W. FREEMAN, III,\1\ DEPUTY ASSISTANT U.S. 
                      TRADE REPRESENTATIVE

    Mr. Freeman. Thank you, Mr. Chairman. It is an honor and a 
privilege for me to testify here today on behalf of USTR. I am 
specifically here to testify a little bit about some of the 
human capital challenges that we face at USTR with respect to 
monitoring and enforcing China's WTO commitments in particular.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Freeman appears in the Appendix 
on page 84.
---------------------------------------------------------------------------
    As most of you know, Thursday, December 11, is the second 
anniversary of China's WTO accession, and in the process of 
leading up to that accession on December 11, 2001, there was 15 
years of negotiations which structured a very comprehensive, 
rather unique agreement with thousands of requirements for 
China to implement relatively immediately. And the good news is 
that they implemented quite a few of them on time. The bad news 
is that they have not implemented all of the things that we 
were hoping they would. But let me tell you a little bit about 
USTR and how we are focused on the China issue.
    Initially, USTR is deliberately a small organization. It is 
small, it is nimble, it is designed to be agile, it is the 
original networked organization in government if you will. We 
work very closely with Commerce and with other agencies in the 
U.S. Government. We draw extensively on expertise in other 
agencies, as well as internally.
    I have to say that the quality of the personnel at USTR is 
among the highest in government, in my view, although my 
colleagues may disagree somewhat, but really the level of skill 
there is first rate, the level of experience is first rate 
there. USTR is still considered a place that people in 
government want to go because the quality of the work and the 
quality of the personnel is so high.
    We are very small, even within the China shop, I think 
there are four of us that are dedicated full time to working on 
China, but within the USTR there are 200 employees totally. We 
work with probably 45 additional people, whether it is in the 
General Counsel's Office or with respect to the other sectoral 
offices, industry services, intellectual property rights and a 
variety of issues.
    I have to say that Ambassador Zoellick and his deputies 
spend a disproportionate amount of time on China, especially 
given the high demands places on their time by negotiating the 
FTAs, negotiating the Doha agenda and living up to a very 
ambitious trade agenda that the President has set. So China 
gets its fair share of our time.
    USTR is the chair of the WTO TPSC Subcommittee on China's 
WTO compliance. There are 14 different agencies that take part, 
14 different agencies and departments, about 40 professionals, 
and that's really the primary means that we use to coordinate 
policy with respect to China's WTO implementation. We meet 
perhaps once a month, but there's active discussions among the 
various members thereof, and they draw on their own agencies to 
bring them into the process.
    It has been an increasingly successful way to make sure 
that we are hearing the same things from industry, that we are 
saying the same things to the Chinese, and that our priorities, 
with respect to China's WTO compliance issues, are in order.
    Roughly speaking, we have five different areas on which we 
are focused with respect to China. The first is obviously WTO 
implementation. China has had, as I said, to make thousands of 
reforms as part of its WTO implementation so it has been our 
job to look and make sure that they are in compliance with the 
nuts and bolts of WTO implementation. I will say that nuts and 
bolts they may have been in compliance with, but there are a 
variety of things where we have been relatively disappointed 
with respect to their implementation.
    Closely related to the WTO implementation is ensuring that 
we have fair market access to China. Our primary means of 
looking at issues with respect to the deficits and with respect 
to making sure that the trade balance is fair is making sure 
that the Chinese understand that, unless we have fair access to 
their markets, we cannot maintain the support, as you know, for 
maintaining open markets to China.
    The other issues on which we are working are transparency 
standards and regulations. It is a key WTO implementation 
commitment, and China was supposed to make sure that not only 
were the processes by which they publish new regulations 
transparent, but also that a variety of public, that the 
public, in general, including our industry, was given 
appropriate means to comment on regulations as they came out.
    Other issues on which we are focused are better cooperation 
with China and the WTO, making sure that the Chinese are on the 
same page with us, in terms of overall liberalization efforts, 
and finally we are very focused, last, but not least, on 
ensuring China's compliance with our efforts to enforce U.S. 
trade remedies.
    I am happy to answer any questions with respect to any of 
these issues.
    Senator Voinovich. Thanks very much.
    Mr. Yager, in your agency, cooperation is necessary for 
developing U.S. positions to address trade compliance issues. 
Mr. Freeman, I think you said you are coordinating, how many, 
17?
    Mr. Freeman. Fourteen.
    Senator Voinovich. Fourteen different agencies in trying to 
deal with all of the various issues that come up with trade. 
What specifically do you think our trade agencies must do to 
improve cross-agency communication, coordination and 
cooperation? And the one I just mentioned was the whole issue 
of this issue of currency manipulation. It seems like there is 
only one agency that can talk about it, and the rest of them 
are prohibited from even mentioning the subject, and I would be 
interested in your observations regarding that policy.
    And the last, of course, is the thing that got me into this 
in the first place: Do you think that our trade agencies have 
the human capital capacity to move forward? In other words, we 
have heard some really wonderful things from Mr. Jochum, for 
example, about what the agency is about to do or is doing, but 
the real issue is do they have the right people, with the right 
skills and knowledge, at the right place, at the right time to 
get the job done? That is the real challenge.
    Dr. Yager, I would like to have your candid observation. In 
your testimony, you say ``Our work shows that these forces have 
stretched the human capital resources of the U.S. trade 
agencies. Although the government has taken steps to address 
some of these challenges, these, and other, changes in the 
global trade environment require that the trade agencies 
constantly monitor and update their human capital strategies to 
ensure that they are closely linked to the strategic goals of 
the agencies.'' That is easier said than done.
    ``The number of fully authorized full-time staff at USTR, 
Commerce Import Administration, the Commerce Market Access and 
Compliance Division has increased in recent years. However, 
actual staff levels are still in the process of catching up 
with authorized levels in Commerce and USTR offices, and USTR 
has requested additional staff resources for 2004.'' And I am 
really pleased that you are doing that, Mr. Freeman.
    And then you have gone on in your testimony, Mr. Yager, and 
you say, ``In recent years, the U.S. has been pursuing a broad 
trade policy agenda whose cumulative impact has tested the 
limits of the government's negotiating capacity.'' I mean, we 
are just really involved right now in a lot of stuff that 
perhaps we have not been involved with as aggressively in the 
past and perhaps in other administrations. I am not here saying 
that we should not be doing it, but the agenda includes 
undertaking negotiating efforts in multilateral regional and 
bilateral arenas. I am surprised Mr. Zoellick gets any sleep. 
[Laughter.]
    The administration has characterized this effort as the 
strategy of competitive liberalization. The United States was 
actively involved in the challenging WTO round of negotiations 
at Doha, Qatar, in 2001;
    Second, the United States is also co-chair in ongoing 
negotiations to create the Free Trade Area of the Americas, 
which was something that people in South America complained 
about when I visited them in 1998, that we were not moving 
forward with it;
    And, finally, with the passage of the Trade Promotion 
Authority in 2002, the United States has launched a series of 
bilateral and subregional Free Trade Agreement negotiations. 
The increase in the number of these negotiations at the same 
time that major global and regional trade initiatives are 
underway has strained available resources.
    In other words, the question is do we have too much on our 
plate to handle, to do a good job with the job that needs to 
get done?
    Mr. Yager. Well, that is a good question, Mr. Chairman. I 
think the one point that you made, which is certainly valid, is 
that since Trade Promotion Authority passed the Congress, there 
has been a very sharp increase in the amount of activity that 
is going on. Of course, we have long been involved in the 
multilateral negotiations as part of the WTO, and the FTAA 
process has also been ongoing for some time. But where there 
has been a rapid increase in activity is with the bilateral and 
subregional agreements that are currently being negotiated by 
USTR with the assistance of Commerce and other agencies.
    And so, at the current time, we are negotiating with the 
Central Americans. We are also negotiating with Australia and 
other countries. And as soon as those agreements are completed, 
there are other countries that are waiting to start 
negotiations. For example, we are due to start with the 
Dominican Republic, to add that to the CAFTA, and then there 
are a number of countries in the Andean region that are also 
waiting to begin negotiations.
    So there is no question that there is a lot of activity, 
particularly in these bilateral-type agreements, and that is 
something that has certainly increased in importance in the 
last couple of years.
    One of the things we thought that made it particularly 
important is that USTR, given the fact that it does rely so 
heavily on expertise from other agencies, such as Commerce, 
Agriculture and others, needs to look at these kinds of 
negotiations as part of its planning process and discuss more 
actively the kinds of personnel they will need, the kinds of 
assistance they will need, and frankly the kinds of budgets 
that those support agencies will also have to put in place to 
enable them to do the travel, to do the negotiations and to 
have the kind of people involved that are required in order to 
make sure that these agreements actually serve the U.S. 
interests.
    And so we think that, given again the small size of USTR, 
as Mr. Freeman noted, it really makes it imperative that they 
work this into their planning process and coordinate very 
closely with the other agencies because they do depend upon 
those other agencies in order to supply the kinds of expertise 
that they need.
    Senator Voinovich. Yes, but based on the expanded area of 
responsibility within our trade agencies, do you think they are 
organized properly? In other words, if they have to rely on 
several other agencies in order to get the job done, those 
agencies themselves, in terms of management, are having 
difficulty just trying to look at whether or not they have got 
the people that they need to get the job done.
    Then, you have to coordinate with another agency to make 
sure that you have the people so they can get their job done. 
Would it be better off if some of these areas were organized 
differently. For example, the USTR relies heavily on the use of 
detailees, do you think this is an effective human capital 
strategy?
    Mr. Yager. Let me answer two ways or provide two parts to 
an answer on that one.
    The first is that there is a process by which certain 
officials from Department of State, Agriculture and Commerce 
are actually loaned to USTR at various points in time in the 
form of detailees. When they do need that kind of expertise on 
a longer term basis, there are a number of detailees that are 
placed in USTR for a period of years.
    Senator Voinovich. The question is have you reached the 
stage where the detailees should be permanently located in the 
USTR and be responsible to their chain of command?
    Mr. Yager. That is a good question, Mr. Chairman. I think 
what is very important though is that it is clear to those 
people at the beginning of their employment at Commerce or 
other locations that they are in, and an important part of 
their duty is to serve with USTR as part of the negotiating 
team. And I think that is again one of the reasons why we think 
it has to be addressed early. It has to be made clear to those 
people, in their performance requirements, that part of this is 
to assist in negotiations.
    Obviously, these are smart people that are working at 
Commerce and the other agencies, and they are responding to the 
kind of performance incentives and the end-of-year feedback 
that they get. It needs to be clear that what they are there to 
do is to help serve with USTR and to move forward in those 
negotiations.
    Senator Voinovich. I hate to nitpick with you, but even in 
performance evaluation, if I am working in one agency and I am 
on loan to another agency, who does my performance evaluation? 
Is it my agency or is it in the other agency? When people are 
hired, do they know at the Department of Commerce that they are 
going to be on loan, for example, to the USTR?
    Mr. Yager. I think the other part of that answer that I 
wanted to mention was the fact that it is inevitable that USTR, 
whether it becomes larger, will still require the expertise 
from some of these other agencies. There is certainly no way 
that one agency will ever have the expertise on the wide range 
of topics that are currently contained in a trade agreement, 
whether these are safety or health or at certain times the 
business relationships or expertise that are required. So it is 
inevitable that they will rely on other agencies.
    Now, whether they could have more personnel within USTR to 
handle some of those functions, that is a question, but, 
inevitably, other agencies, as I mentioned in my statement, 
there are about 17 agencies that do participate in trade 
policy, and some of that has to do with the complexity of trade 
policies and the types of agreements that are currently an 
issue.
    Senator Voinovich. Do you think it would be wise if 
somebody examined that situation to make a determination as to 
whether or not perhaps they ought to have more people on board 
that have the expertise that they are now getting from other 
agencies? Do you think it might be worthwhile to look at that 
with----
    Mr. Yager. That certainly is a question that we could look 
into, Mr. Chairman, if you want to go forward with that.
    Senator Voinovich. I think I would. I think it is important 
that we look at that issue.
    First of all, I would like to say, Commissioner Jochum, I 
was impressed with some of the statistics that you shared with 
us this morning, and I agree with you. I have said in many 
instances, and you have had 20 hearings, and I have had at 
least four hearings in Ohio. In fact, I recently had a hearing 
in my office with four Ohio manufacturers, and Secretary Evans. 
He was kind enough to come and spend over an hour with us. I 
think it is important that we make clear today that even if we 
solve the issue of the manipulation of currency by the Chinese 
or their violating intellectual property rights or not 
complying with other requirements of the WTO that our 
manufacturers in this country continue to have some significant 
problems.
    For example, if we could do something about the cost of 
natural gas, it would have enormous impact on manufacturers. In 
my State, mutual gas costs have doubled. Unfortunately, we are 
not producing enough natural gas to keep up with the demand. 
Furthermore, some environmental concerns are exacerbating the 
demand for natural gas--which is another reason why we should 
pass the energy bill.
    The other issue is litigation. It is not on the table, and 
it is not being talked about, but litigation is a tornado that 
is ripping through the economy of America. And, again, we have 
legislation in Congress to deal with asbestos reform and 
malpractice lawsuit reform. Each impacts the cost of healthcare 
in this country, and costs associated with class action 
lawsuits. In fact, I asked the American Tort Reform Association 
to do a study to investigate the cost of class action lawsuits 
in Ohio.
    Litigation is costing every Ohioan $650 a year. So it is 
another fact we need to address, instead of just saying, well, 
if we just take care of China everything will be OK. The fact 
of the matter is we could take care of China, and we are still 
going to have some significant problems.
    And then of course you have to deal with the healthcare 
issue, and that is a tough one. Again, we may be hearing from 
some of the other witnesses, but in our State it costs about 
$10,000 for a business to take care of family healthcare 
protection for an individual. They are competing in the global 
marketplace, say, with China, where those healthcare costs are 
not reflected in the cost of their product. We are now in a 
global marketplace, and the real issue is are we organized in a 
way to compete in that global marketplace in terms of the costs 
that are incurred by our businesses.
    So I think it is important that we make that a point so 
that people understand that we must have a full-court press on 
lots of issues and not just concentrate on one and think that 
it is the silver bullet that is going to take care of dealing 
with all our problems.
    I would like to ask you, Mr. Jochum, what is the status of 
the reorganization that you talked about? Now, I was pleased 
the President announced that Secretary Evans went up to Detroit 
to the Economic Club and explained what he was going to do. I 
talked informally with the Secretary. I wondered whether or not 
you were going to get somebody in-house to do the job. At that 
time, I suggested maybe it would be good because it takes new 
people a while to learn the organizational structure. However, 
it seems like you moved away from hiring someone from the 
inside. I understand you are now having interviews for someone 
that would head up the new position.
    I just want to tell you that we have to get going. I do not 
know, is this new person going to require confirmations by the 
Senate, for example? I see somebody nodding their head.
    Mr. Jochum. I would assume so.
    Senator Voinovich. And you know what that is around here. 
It is not easy.
    It seems to me that by the time we come back in January, 
you guys ought to have whoever it is that you want in place and 
come in here and talk about it and let us get going because we 
are running out of time.
    How are you doing?
    Mr. Jochum. As someone who went through confirmations twice 
in the last 3 years in the Senate, I can tell you it is not 
only an enjoyable experience, but you stretch it out over many 
months so you can really enjoy it. [Laughter.]
    My understanding on the reorg, Mr. Chairman, is that the 
parts I believe that you have noted today are all within the 
omnibus appropriations bill, and that if that bill were to pass 
the Senate this week--and I know that is uncertain, although it 
did pass the House yesterday--we would be poised to move 
forward.
    My understanding is that the personnel decision regarding 
who that individual may be is working its way through White 
House personnel, but they are fairly close and ready to 
announce someone if we had the authority to do so. So that is 
my understanding of the elements that we mentioned today.
    There are other parts of the reorg that I mentioned that we 
can do now. For instance, the Unfair Trade Practices Team 
within my agency is part of the omnibus bill, but I think that 
is something we can do without additional funding, and so we 
are putting measures in place to get that up and running 
immediately, and have actually started carrying out some of the 
functions of that team. But passage of the omnibus bill would 
be a great help in moving our reorganization forward.
    Senator Voinovich. In the process of putting that whole 
organization together, is the U.S. Trade Representative aware 
of what you are doing and are they in tune with what you are 
doing and some of the other 14 agencies we discussed.
    Mr. Jochum. Yes.
    Senator Voinovich [continuing]. So that they have an idea 
of where you are going?
    But the thought that I had which is why I introduced the 
legislation--would be that you have to have an orchestra 
leader. You are dealing with lots of agencies, and you have got 
to have somebody that gets up early in the morning and goes to 
bed late at night trying to make sure that they are doing their 
job, but also making sure that they are dealing with other 
sections of the orchestra that may be in other departments.
    Mr. Jochum. No, that is exactly right. And I think the way 
it was structured, maybe in the bill and maybe in your bill, 
was that they would report to the President. So they would 
actually be, technically reporting to the President. So they 
would have the ability to orchestrate, if you will, or deal 
with other agencies at that level. Notwithstanding some of the 
comments on coordination with USTR that we have heard today, I 
think we have a tremendously high level of coordination with 
USTR, both on a formal basis, through interagency committees--
Mr. Freeman heads some of those up--but even all the way up to 
deputies and principals meetings, but also at an informal 
level, at my level and at the working level--a tremendous 
amount of coordination. So they absolutely do know all of the 
initiatives we are putting in place.
    I often bounce ideas off people at USTR to get their 
thoughs on new initiatives such as the Unfair Trade Practice 
Team. So I think it really is a coordinated government effort. 
It just happens to be housed in the Department of Commerce.
    Senator Voinovich. We made some government-wide human 
capital modifications in Title 5 U.S.C. with the Homeland 
Security legislation. Has that helped at all in terms of 
meeting your recruiting and retention challenges? In other 
words, do we need to do more in that area? According to the 
statistics, you are authorized for ``X'' number of people, and 
you do not have those people on board. Where are we with that? 
Are you having a hard time finding people? Is the salary level 
not competitive? Are you still using the rule in three or have 
you gone to the new flexibility of category ranking.
    Mr. Jochum. Ms. Cheatham may be able to go into greater 
detail, but my understanding is that there has always been a 
gap between authorized FTE levels and the funding needed to 
hire those people.
    To put it in context, I ran a different agency before I 
came over here, at the beginning of the administration, and 
hiring is one of the greatest challenges we face. One perverse 
effect of the downturn in the economy in 2001-2002 is that, 
frankly, we did get a lot of good people who came into the 
government, into the Federal service, and I was really pleased 
with some of the quality individuals that we had.
    In my agency particularly, we use a lot of lawyers, 
economists, and accountants--people who really could make more 
money in the private sector, for a number of reasons--but 
notwithstanding the recent growth in the economy, we had a 
tremendous influx of talent. That is not to say we always have 
the right mix of people.
    And the point you made about matching our priorities with 
the experience and expertise that we need is really illustrated 
in this China office that is about to be created. This 
proposal, which is in the omnibus bill, would require us to 
really develop further expertise on China as a market, 
specifically. Right now we do not do a good enough job within 
the Commerce Department of coordinating all of the activities 
on China in one place. And my hope is that with additional 
funding levels and FTE authorization, we can get people into 
the Department who have a background and expertise on China, in 
particular, people like Charles Freeman and others that we 
already have. We need them in one place to look at this issue 
from a holistic standpoint.
    We do our best to attract these individuals. We use 
recruitment bonuses. We sell the fact that you have flex time 
and compressed time in the Federal Government, all of those 
sort of lifestyle issues, to try to entice people from the 
private sector to us.
    I was surprised. I looked at my numbers today, and a third 
of my workforce has been at Commerce for more than 10 years, I 
think. That is encouraging. At the lower level of the spectrum, 
you do have a high level of turnover.
    As Charles said, I believe my agency is well staffed with, 
frankly, some of the best trade lawyers I have ever met. We 
could match up with a lot of mid-size law firms in Washington I 
would think. But there is always more we can do to entice 
people to come into the Federal bureaucracy because there are 
limits in terms of income and other factors.
    Senator Voinovich. Well, the administration has given high 
priority to human capital, and we tried to create an 
environment in Congress to help them. And I think that when you 
come in with the nominee for that new office, we would like to 
have more information about what is happening in terms of 
bringing people on board and do you have the folks that you 
need to get the job done, and if there are some things that we 
can do to help you get it done, we will try and help out. The 
human capital provisions in homeland security were the most 
significant Civil Service reforms since 1978, but there is 
always more we can do to help.
    And by the way, another issue is what role Congress should 
be playing in all of this? I am meddling in your business right 
now. I was a former governor, a former mayor, and I did not 
like the legislature to be mixing in sometimes on things that I 
thought were in my bailiwick, but as you can tell, I am very 
concerned about what is going on here. And the issue is what 
role should we be playing? How can we help you get the job 
done?
    And you also have to understand that there is an enormous 
amount of frustration right now among many of us about what is 
going on. It is like we want something done, and the reason is 
because, when we go back home, our people say we need help now, 
not next year or 2 years from now, we need it now, and what are 
you doing?
    What can we be doing more to help out?
    Mr. Jochum. I think on the workforce issues, Mr. Chairman, 
you are one person who is already doing more to help out. From 
a manager's standpoint, we need flexibility to respond to new 
issues, emerging issues, and to be able to get the right people 
with the right expertise and experience to respond to those 
issues quickly. I think the Federal workforce moves rather 
slowly at this point. We need tools to recruit people and to 
retain people.
    We talked a lot about recruiting, but retention is just as 
significant. We have grade levels that are capped out at mid 
levels and lower levels, so people do not see an opportunity to 
advance. I am no expert on the civil service, but I will take 
this as an offer to come and talk with you when we have these 
initiatives in place, with Ms. Cheatham at my side, and 
determine what you could best do to give us the flexibility to 
get the right people.
    Senator Voinovich. Well, we are trying to deal with the 
safety cap. We have increased the cap. I know, with the Senior 
Executive Service, that we have had 75 percent of them making 
the same amount of money, and it has not helped the agencies 
because it demoralizes those that are really producers.
    Mr. Jochum. That is right.
    Senator Voinovich. And we are trying to take care of that 
problem too.
    What I would really like to know, from somebody on the 
street, is what we have done is helpful, and if it is not, what 
else can we do to help you get the job done?
    Mr. Jochum. I appreciate it.
    Senator Voinovich. The other thing I would like to find out 
from you is, as a governor, I took 10 trade missions overseas. 
In some countries, the Foreign Commercial Service Office was 
outstanding. We dealt with it. Others, we concluded that it did 
not get the job done and went to the private sector. In some 
cases, we had ambassadors that really seemed to get it in terms 
of economic development and trade. Others did not seem to get 
it.
    When I was in Bratislava, I became impressed with 
Ambassador Weisser, a former resident of Michigan, because he 
was out hustling joint ventures and so forth.
    What is the status of our former commercial folks around 
the world?
    Mr. Jochum. Maybe Ms. Cheatham can discuss what we have 
been doing in that regard, but one thing the reorg will do is 
to match our trade promotion activities with our Foreign 
Commercial Service officers, because two different entities are 
doing those activities now, which I think really puts us behind 
where other countries are. In my latest job in the 
administration, I did a lot of advocacy on behalf of defense 
contractors around the world, and I just think you need to link 
those two functions up.
    I do know that we have more than 1,000 people in the 
Foreign Commercial Service, and I have used them when I have 
traveled, both in the private sector and in the administration, 
and I have found them to be extremely helpful. I have also 
noted, and I met with a lot of ambassadors--I was in Brataslava 
2 years ago--that I believe Secretary Powell has really 
instilled a culture in the Foreign Service that appreciates the 
economic aspect of the equation. So I think very positive 
changes have been made in that regard.
    If you want some current sort of details on where the 
Foreign Commercial Service will go in terms of the reorg, maybe 
Ms. Cheatham can speak to some of that.
    Ms. Cheatham. One of the things that we are trying to do, 
Mr. Chairman, is to consolidate all of the promotion activities 
in the Foreign Commercial Service so that when companies are 
doing business overseas, there is one point of contact that 
they have to deal with. The advocacy center will also help 
here.
    As Mr. Jochum said, there are approximately 1,100 people 
that we have stationed overseas in about 85 countries.
    Senator Voinovich. It is important to help our businesses 
do business in some of those countries. Your job is vital 
because without your help, it just doesn't happen. I had some 
wonderful experiences and I had some not-so-wonderful 
experiences.
    Secretary Evans was in Beijing on October 28, and he stated 
that U.S. patience on China's WTO compliance was, ``wearing 
thin,'' and warned of, ``growing protectionist sentiments in 
the United States against China.'' This growing anger towards 
China's IPR policy coupled with China's rigid adherence to a 
pegged currency policy has created an environment that is 
conducive to Congressional intervention.
    It gets back to the same question I asked before, which is 
what role should Congress have in regard to fair trade with 
China and our international partners? I have introduced 
legislation and Congressman Phil English has introduced 
legislation in the House to establish an Assistant Secretary of 
Manufacturing at Commerce. Can you explain who is responsible 
for the enforcement? Do you work with the U.S. Trade 
Representative? Is that strictly their responsibility, Mr. 
Freeman?
    Mr. Freeman. The enforcement of trade?
    Senator Voinovich. Yes.
    Mr. Freeman. Generally, we work very closely with Commerce 
on all these issues. It really depends on what the issue is to 
see who has the lead.
    With respect to intellectual property rights issues in 
China, I know we have a very strong team that we have worked 
together with in China that deals with it, and also with 
respect to currency. One of the things that, as you mentioned, 
Secretary Evans when he was in China was very strong on the 
currency issue was focused on that. I know Ambassador Zoellick, 
when he was there earlier in the month, had also spoken on it, 
and Secretary Snow back in September. So there has been a very 
unified message that the Chinese have heard on the currency 
front.
    The sense of the administration is that they have the 
message and that they are moving forward. It may not be on the 
timetable that a lot of us would like to see, but certainly in 
terms of making progress, they are pushing in the right 
direction.
    Senator Voinovich. When I talked about the reorganization, 
I was talking about having somebody get up early in the morning 
and stay in late at night making sure that we enforced our 
trade laws. Fundamentally, the concern is this, is that if I am 
dealing with the United States and I am getting away with 
things and I can get on the field and run without a flag being 
thrown and I almost get to the goal line, I am going to run on 
you and run on you.
    Where are we in terms of that agency, and is it in your 
shop where you have people that get up early and stay late at 
night and get the word out there that as soon as you get on the 
field and you break the law, we are throwing the flag and we 
are on you?
    Mr. Jochum. Yes. I guess I would divide enforcement into 
two areas. One is the trade laws, in terms of imports and their 
effect on U.S. businesses. We enforce the dumping laws, and the 
countervailing duty laws. The dumping cases against China that 
I mentioned in my testimony, where we brought the textile 
safeguards that were announced a couple of weeks ago, all of 
that occurred with interagency knowledge and coordination.
    Responsibility for monitoring compliance with a trade 
agreement as opposed to U.S. trade law, however, is really 
split among the agencies. We have a Trade Compliance Center 
within the Department of Commerce made up of 18 individuals who 
look at trade agreements and whether they are being complied 
with. We have a China office now--a little different than the 
one that is going to be created--which looks just at China's 
commitments to the WTO and within other trade agreements. That 
office, again, is a dozen or 16 people working with U.S. 
industry to identify where the Chinese have failed to meet 
their commitments, and then working with Charles Freeman and 
USTR and other agencies to develop a coordinated strategy to 
address those situations.
    This calls to mind a similar line of questioning you had 
with Dr. Yager regarding who looks at these issues. When I was 
in the private sector doing international business for a 
consulting firm, we were always aware of trade barriers, 
probably before the government was, because we were there 
trying to have a transaction take place, or trying to enter a 
certain market. Certainly, we relied on the Foreign Commercial 
Service officers in those countries.
    But I think a large part of monitoring trade agreements is 
close coordination with the private sector and with the 
government, and a lot of that occurs at the Department of 
Commerce because we have those relationships built up over many 
years--not that USTR doesn't, but we do that on a day-by-day 
basis.
    So if you are talking about trade laws, we certainly 
enforce them. I get up every day worrying about this stuff. If 
you are talking about trade agreements, it is more split and I 
think USTR probably has the lead in going after IPR issues and 
things like that.
    Senator Voinovich. The problem is that it doesn't seem that 
we are making progress. I have a memorandum, and I am going to 
ask that it be submitted in the record, in terms of the IPR and 
how long we have been working on IPR. Every year, we talk to 
China. Every year, they say it is going to get better. And I 
have to tell you something. You need a sledgehammer to make 
things better.
    [The information of Senator Voinovich follows:]
    MISSING ? ? ? ?
    I will never forget my 97 trip to South Korea. I am asked 
by the big three auto companies to raise the issue of the 
export into South Korea of non-Korean vehicles, and I spent 3 
days talking to everybody and they said, oh, we have done 
wonderful. They have gone from one-tenth of one percent to two-
tenths of one percent. They gave me a response that if they had 
given that here in the United States, we would have laughed 
them out of the office. They wouldn't have ever tendered that 
kind of response to a question from me, and they did it with a 
straight face.
    And today, South Korea exported more vehicles into the 
United States in one day than all of the other countries export 
into South Korea in 1 year. Do you get it? In other words, one 
day in the United States is more than the entire export into 
South Korea, and I am not just talking about the United States, 
I am talking about everybody.
    When people hear things like that, they have to start to 
ask themselves, are we enforcing the trade laws? This is fair 
trade? And I think that some of these issues that are out 
there, you have got to break the logjam. You have to show you 
have made some progress. That is the frustration out there. It 
seems like we are talking a good game, but we are not making 
progress, and when you do score a touchdown, when you do get 
something done, you ought to let us know about it.
    Mr. Jochum. I agree, and the last part of what we were 
discussing--some of the numbers I gave you in my testimony 
about our dumping cases are probably not widely known, although 
we put them on our website and otherewise make the information 
available. But I think we need to do a better job of 
communicating with Congress on the activities that we do do on 
a day-to-day basis.
    And Mr. Chairman, getting back to your question about what 
Congress can do, I have negotiated with the Chinese for several 
years now, not on this issue but others, and they really do pay 
attention to what Congress is doing. It is a significant part 
of their calculation in terms of negotiating with us. So 
resolutions and bills that are introduced, I think, have a 
tremendous effect and allow us to have a stronger hand when we 
go talk to them about these issues.
    Senator Voinovich. I sure would have liked the Treasury 
Department to--I worked with Dick Lugar's staff to come up with 
what I thought to be a very fair objective, and then we get the 
word Treasury doesn't want it. Why, I am asked, and that is a 
question I am going to ask Secretary Snow.
    The last thing, Assistant Secretary, is that some U.S. 
companies question the Department of Commerce's ability to deal 
with fraudulent data, i.e., there is a problem that arises and 
you start dealing with people over there and they provide 
evidence to you and some of our people feel that it is fate. 
What is your capacity to pierce the veil and really find out 
whether or not they are giving you the right information?
    Mr. Jochum. This comes up in the context of our undertaking 
a dumping investigation, primarily against Chinese companies, 
although we face fraud in other parts of the world, as well. 
Our statutory authority allows us, when we find fraud, to go 
ahead and apply what we call ``adverse facts available,'' the 
result being that they would get a much higher dumping margin.
    To give you an example, we did a review within the last 
couple of weeks. We found fraud. We gave them the highest duty 
that we could give them within the case, and so it ended up 
that they had a 300 percent tariff coming into the United 
States. That is the recourse we have under the statute. We 
don't have enforcement authority beyond that.
    What we do is work with Customs, because those would be 
potential infractions of reporting laws to Customs, to give 
Customs the information we have seen, and have Customs 
undertake their enforcement authority to pursue those cases. 
And we have referred about 20 cases to Customs within the last 
couple of years. So when we find fraud, we work within the 
context of our case and assess a penalty, and then we refer it 
to Customs for them to follow up on the matter.
    But this is a situation that is arising more frequently, 
and there are a couple of other options that we are considering 
right now. I would be glad to come back when we are ready to be 
more public about what other avenues we may explore in that 
regard and discuss these matters further with you.
    Senator Voinovich. Thank you. Mr. Freeman, when is the 
International Trade going to go forward with a 301 on China in 
terms of their currency manipulation?
    Mr. Freeman. Well, there are no plans to self-initiate at 
this time. Obviously, if a 301 is brought, we would evaluate it 
based on the legal theory. We haven't seen a legal theory yet 
for Section 301 on the currency. So right now, we remain 
interested and will look for it when it comes.
    Senator Voinovich. Well, there are many of us that feel 
that you should move forward with it and that there is enough 
evidence that we should have a 301. I know that the President 
recently disbanded the 201 on steel and I was very much 
involved in encouraging him to go forward with that and he made 
a decision. But I have to tell you something. If that 201 had 
not gone forward, we would not have a steel industry today in 
this country, particularly when we are talking about slab steel 
and so forth.
    President Clinton could have undertaken that at any time 
and chose not to do it, and then as a result of that, Congress 
introduced several quota bills that really violated the WTO 
straight out. It seems to me that Mr. Zoelick ought to be 
looking at that issue because many of us are very concerned 
about it. It is one legitimate way that you can raise the 
issue. That is under the 201--wasn't something somebody pulled 
out of a bag. It was available under WTO. It was available 
under NAFTA. It was under GATT. It was the surge provisions. 
You could do it.
    So I strongly urge you to talk to your folks and look at 
this, because we are concerned about what is going on and we 
expect these people to cease and desist, and if they don't, 
then I think we have really got to go forward. And if you don't 
move forward with it, you are going to get some stuff coming 
out of this place that you may not like, that you may not like.
    Last but not least, I want to ask the question about the 
personnel. You heard the questions with Mr. Yager, the question 
about whether you are organized and do you have to rely too 
much on other agencies to get the expertise that you need. What 
do you think about that?
    Mr. Freeman. Well, we obviously feel that we could work 
within the President's budget that he submitted. We do note 
that there was some additional money set aside in the omnibus 
and we are certainly gratified for that.
    The core of our business really is personnel and travel. 
Our travel budgets do get crunched now and then, especially 
given certain additional costs that are associated with travel 
these days, and anything helps. I do think that the people that 
we have are first-rate----
    Senator Voinovich. But the question is this. Your plate is 
much fuller than it ever has been in this country's history and 
you have been operating with 200 people and you have been 
accessing personnel from other agencies. The question is 
whether or not your agency should be expanded and some of the 
expertise that you are relying upon in other agencies should be 
reorganized into your operation.
    Mr. Freeman. Again, we have taken a variety of steps at 
USTR to deal with the expanded agenda. We have reorganized our 
issues and regional offices to deal with the new demands. We 
have overhauled the financial system that allows us to track 
travel expenses and so forth. We put new accounting codes in. 
There is a variety of other systemic things that we have done.
    At the core of USTR is the notion that smaller is better, 
that the ability to be agile and nimble and to be responsive is 
really at the heart of some of our successes. That said, we do 
rely very heavily on both the detailee program that comes from 
other agencies and we also rely very extensively on our ability 
to work closely with other agencies.
    Again, the bottom line is that it is good to be small, but 
the job is certainly tough and----
    Senator Voinovich. Do you know if anybody is looking at it?
    Mr. Freeman. Looking at the----
    Senator Voinovich. The issue of whether or not the way you 
are organized makes the most sense.
    Mr. Freeman. I know. I am here with the Assistant USTR for 
Administration, who spends his waking and sleeping hours 
fretting about it, so I know he is looking very closely at it.
    Senator Voinovich. Well, it is a question that I am going 
to continue to ask and I am asking Mr. Yager to get involved in 
it.
    I want to thank you very much for being here. Your 
testimony has been encouraging and you certainly have a lot of 
challenges. What you are doing is really important for our 
country, for our national security, for our economic security, 
and I just want to say to you I appreciate your commitment and 
your service to the country, and let the folks that you work 
with know that we care about what they do. God bless them for 
what they are doing.
    Our next panel is Franklin Vargo, Vice President of the 
National Association of Manufacturers; Tom Duesterberg, 
President and CEO of Manufacturers Alliance for Productivity 
and Innovation; and Tim Hawk, who is Vice President and General 
Manager of American Trim L.L.C.
    I want to thank you for being here today with us. You all 
have had an opportunity to hear from our previous witnesses and 
I welcome your observations about some of the things that they 
have said in their testimony.
    We will start out with Mr. Vargo. Mr. Vargo, I understand 
that you have had a lot of contact back and forth with our 
office and I am looking forward to sitting down with you to 
talk to you about some ideas that the National Association of 
Manufacturers has and how we can improve the situation that I 
consider to be in crisis proportions in some parts of this 
country, particularly in terms of our manufacturers, so thank 
you for being here.

 TESTIMONY OF FRANKLIN VARGO,\1\ VICE PRESIDENT, INTERNATIONAL 
 ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS (NAM)

    Mr. Vargo. Mr. Chairman, thank you for inviting me. I am 
really honored to be here because you are one of the NAM's 
great heroes. You take backseat to nobody in pressing for the 
health of American manufacturing and for restoring 2.8 million 
jobs to America's working men and women and we thank you for 
that.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Vargo with attachments appears in 
the Appendix on page 92.
---------------------------------------------------------------------------
    Mr. Chairman, the subject of your hearing is a very 
important one. Manufacturing is indeed in need of a lot of 
redressing of the ills that have happened over the years. I 
want to thank you for introducing, along with Senator Snowe, S. 
1977, the SMART Act, and we would like to work with you on 
that.
    As far as trade resources, the NAM pressed very hard for an 
increase in resources for both USTR and Commerce this year and 
I certainly hope the omnibus appropriations bill is going to 
pass this week because it provides an additional $7 million of 
resources to USTR that is very overdue for many years. For 
example, USTR is leading now in negotiating 16 different free 
trade agreements that are either being negotiated now or they 
are on the books.
    But the immediate problem is absorbing China into the WTO. 
China is now in the second year of being in the WTO and 
everybody was willing to cut China slack the first year, and we 
understand that China has a lot of transition still to do. But 
there are problems that just cannot be allowed to lie around 
anymore, and I want to illustrate some.
    Mr. Chairman, I am holding a pair of pliers in my hands. 
This is a pair of pliers made in China. The wholesale price in 
the United States is 49 cents. An NAM member makes a similar 
pair of pliers. The problem is that the steel in these pliers 
and the rubber is 61 cents, and steel and rubber is not cheaper 
in China than it is here. How do you take 61 cents of raw 
materials, manufacture it, package it, ship it across the 
Pacific Ocean, and sell it for 49 cents? Something is going on, 
and it is not just in pliers. It is in the area of fish 
cookers, plastic molds, and vibration mounting systems. We have 
members that are very concerned that these products are being 
either dumped or subsidized.
    Now, a lot of Chinese companies don't have to repay their 
loans. Up to half of the loans are non-performing. Well, if I 
didn't have to repay my loan, I could sell very cheaply at 
wholesale.
    Assistant Secretary Jochum said they are setting up an 
unfair trade practices team and I suggest they start with that 
pair of pliers right here.
    You mentioned counterfeit goods. My testimony contains some 
pictures of real and fake Toro sprinkler heads here. Toro is a 
very well-known company, makes garden equipment and others. 
When we talk about counterfeiting in China, we are not talking 
about knock-offs of designer bags and perfumes. We are talking 
about pharmaceuticals that are filled with talcum powder. We 
are talking about windshield safety glass that will shatter. We 
are talking about lawn sprinklers that are exported from China 
around the world, and it has got to stop. Getting China into 
the WTO gave us rights we didn't have before and it is time to 
exercise them.
    I will say, I really want to compliment the new Deputy U.S. 
Trade Representative, Ambassador Josette Shiner. She has been 
in her office only a couple of months and she has been to China 
three times on this single issue. She has adopted it as her 
highest priority. The Chinese, in response, have designated a 
deputy prime minister to get onto the subject.
    USTR has agreed that this will be discussed not just in 
theory, Mr. Chairman, but we are going to take specific cases 
like this, identify where the factories are. We want those 
factories, we want the equipment destroyed. We want the people 
who are manufacturing those counterfeit goods arrested. We want 
criminal prosecution brought and we want to see decisive action 
on this. And if we don't get that, then we are going to have to 
move quickly to the WTO. We can't sit around.
    One additional area that, Mr. Chairman, you did not mention 
in your initial remarks, and that is China is violating its WTO 
requirements very seriously in the semiconductor area, where 
imported semiconductors into China, including American-made, 
pay a 17 percent value-added tax, and that is fair. But if you 
design and make the chip in China, you get 14 percent rebated 
back to you, and that is not fair. That is totally in 
opposition to the national treatment under the WTO and to 
specific tax provisions in the WTO.
    If we let this continue, our semiconductor industry, the 
research and development, our entire global leadership in 
micro-electronics risks moving over to China. The Semiconductor 
Association produced a detailed report and I would like to 
leave that with you, Mr. Chairman. This is something that USTR 
needs to stop talking about and do something about.
    You mentioned the currency. The Treasury has acknowledged 
in testimony before Congress that the Chinese are intervening. 
They are intervening heavily for the purpose of preventing the 
exchange rate from rising, and by inference, they are saying 
that if China did not intervene, the exchange rate would rise.
    Well, it is time to do something about that. Secretary Snow 
has put this front and center. We are very grateful for that. 
But we need to see action from the Chinese. If they cannot move 
to a floating currency--they are a huge trading economy. They 
need to play by the rules. And in the meantime, they need to 
bring their currency up to something that resembles market 
rate. I will say one of the best estimates was done by Dr. 
Ernie Preeg, who works with Dr. Tom Duesterberg in the 
Manufacturers Alliance.
    One additional point. We need to ensure that the Commerce 
Department is indeed able to use correct methodologies for 
dumping and for countervailing duties in China. We do have 
companies that say the Commerce Department, in their view, is 
not going about the job as well as it ought to in selecting 
what are called surrogate companies in a market economy, 
because China is a non-market economy. We are very concerned 
about the cases of fraud. I was very pleased to hear what 
Assistant Secretary Jochum said, but we need to pursue that 
more.
    And we need to look at whether there needs to be some 
change in the law to make it plain that if there are subsidies 
in China--and Secretary Evans said that there are--that the 
countervailing duty statutes can be used even though China is a 
non-market economy. This may need legal clarification, Mr. 
Chairman.
    In concluding, Mr. Chairman, certainly China trade are not 
the only problems or even the primary problem that American 
manufacturing faces. You mentioned the cost increases. Dr. 
Duesterberg's organization, the Manufacturers Alliance, and the 
NAM, as a matter of fact, this very morning had a press 
conference releasing this report on how structural costs are 
harming manufacturing in the United States. This report 
quantifies for the first time the magnitude, and by our initial 
estimates, these costs of additional healthcare, of litigation, 
of energy costs, are adding 22 percent to the cost of producing 
in the United States. Until we deal with that, Mr. Chairman, 
that is just like hanging out a sign saying, ``Manufacturers 
are not welcome in the United States.'' Thank you, Mr. 
Chairman.
    Senator Voinovich. Thank you, Mr. Vargo. Mr. Duesterberg, 
thank you very much for being here.

  TESTIMONY OF THOMAS J. DUESTERBERG,\1\ PRESIDENT AND CHIEF 
         EXECUTIVE OFFICER, MANUFACTURERS ALLIANCE/MAPI

    Mr. Duesterberg. It is a pleasure to be here. Mr. Chairman, 
I want to join Mr. Vargo in commending you for your leadership 
on this issue and thank you for having me before your 
Subcommittee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Duesterberg appears in the 
Appendix on page 108.
---------------------------------------------------------------------------
    I am going to try to give a little bit broader overview of 
the importance of manufacturing with a view to helping you to 
focus your efforts on some of the areas of trade enforcement 
that are of particular importance to manufacturing.
    I want to begin by giving you a few facts and figures about 
why manufacturing is important to the overall economy. It is 
not only that it produces high-paying jobs, but we think that 
manufacturing is indeed the engine of growth for the American 
economy and for the global economy, and that fact is too often 
forgotten.
    We recently published a book trying to explain why we think 
U.S. manufacturing is the engine of growth, and I will leave a 
copy with you, Mr. Chairman. Some of the things we looked at 
though, were that manufacturing is the center of productivity 
and innovation in the modern economy. Over 90 percent of new 
patent approvals in the United States come from the 
manufacturing sector. Two-thirds of all R&D now comes from the 
manufacturing sector.
    Furthermore, the high-tech investment that is pioneered by 
the manufacturing sector, as one of the other witnesses 
indicated, spills over into other sectors of the economy, such 
as agriculture and such as the services sector, and allows them 
to introduce productivity gains, which are the source of 
increases in our standard of living.
    Given this leadership position of manufacturing as a 
research oriented, innovation oriented sector, we think it is 
vitally important to the future of the American economy. Some 
of the indicators that we talk about are not only the excess 
productivity gain compared to the rest of the economy that 
comes from manufacturing and spills over into the services 
sector, but also the fact that high-technology goods, which on 
an average pay much higher wages and which add much more value 
than commodity-type consumer goods, are increasingly dominant 
in the American economy. I put some charts in my testimony 
regarding the increase in our high-tech exports in the last two 
decades.
    That being said, there is starting to be something of an 
erosion in the position of the United States's ability to do 
research and development and, in turn, remain competitive in 
the advanced technology area. Some 35 percent of our exports 
now are in advanced technology products. But whereas in the 
1990's we had a large trade surplus, peaking out at $38 billion 
a year in advanced technology products, we now estimate that 
this year we will have a trade deficit of about $25 billion in 
advanced technology goods.
    The second part of my testimony looks at some of the other 
pressures on manufacturing. Mr. Vargo mentioned the study that 
we put out which indicates that the cost pressures that are 
externally imposed on the manufacturing sector add up to at 
least 22.4 percent of total unit labor costs. Given that labor 
costs are only about 11 percent of total costs, overall costs 
in manufacturing, this shows you the magnitude of the problem 
we are facing with these costs, such as litigation, which you 
mentioned, healthcare costs, natural gas costs, and the like. 
This has wiped out much of the incredible productivity gains 
that we enjoyed in the manufacturing sector over the last two 
decades.
    Senator Voinovich. I just wanted to interrupt you on that 
one, just because you talk to a lot of people in this country 
and they say, well, we are not productive. We have had the 
greatest increase in productivity that we have ever seen in 
this Nation's history, and a lot of it is coming out of the 
manufacturing sector, a big part of it, as a matter of fact.
    Mr. Duesterberg. It is----
    Senator Voinovich. So we are not competitive because we 
aren't productive. Nothing could be further from the truth. Our 
guys are doing terrific jobs in terms of productivity. But it 
is all the other structural costs added onto the back of the 
manufactoring sector that is breaking it and hurting them in 
the global marketplace. And the real question is, how do we 
level the playing field?
    Mr. Duesterberg. Let me say a few other things about that. 
One of the sources of our strength over the course of time is 
our commitment to research and development, and the Federal 
Government has always played a role in that. I put a lot of 
charts and graphs in my testimony showing that there has been a 
slow erosion in relative terms of our commitment to basic 
research and to encouraging people, students, to enter into the 
professions, such as engineering, mathematics, and the physical 
sciences, which are important to manufacturing and which 
provide the intellectual capital, the human capital, for these 
incredible productivity gains that come out of the 
manufacturing sector.
    I noted that some of the notable Federal programs of the 
past, such as the Apollo program, which in the 1960's was 
supported with up to 0.75 percent of total GDP each year, paid 
immense dividends over the course of time in terms of our 
technology lead, which we still enjoy today.
    Unfortunately, there has been a fall-off in the number of 
students entering these professions and in the amount of 
support that is going into research and development, both at 
the Federal level and at the industrial level. And as a result, 
even though we are still the technology leader in most of the 
areas that are important to manufacturing, that lead is eroding 
a slight bit and we need to address that.
    Now, third, some of the things we need to be doing, we need 
to address these cost pressures through tax policy. Capital in 
America is taxed higher than anyplace else in the world except 
Japan. Healthcare policy, which you know, legal reform, 
regulatory reform, and in that context I would note that even 
our environmental costs are higher than most places in the 
world. We don't do it as efficiently as we should. Energy 
costs, which used to be a source of strength for industries 
like chemicals, where we had a trade surplus of substantial 
proportions 10 years ago and now we are in a trade deficit. So 
that needs to be addressed.
    Finally, I would note that there are things in addition to 
trade policy that we need to be looking at, and in terms of 
trade policy, the importance of intellectual property 
protection and enforcement of intellectual property protection, 
which Mr. Vargo went into great detail on, is vitally 
important.
    But we also need to do things like improve elementary and 
secondary education, support advanced training in engineering 
and the physical sciences. I think we need to establish clear 
and inspirational national goals for our space and national 
health research programs, both because they meet national needs 
and it would be a means to attract students to the academic 
disciplines needed to carry out these programs and which are 
the heart of modern manufacturing.
    We need to support basic research. We need to support 
programs that ensure the development of technologies that meet 
national security threats. Without a robust and technologically 
advanced manufacturing sector, our national security would be 
called into question.
    We need to streamline and accelerate the drug and medical 
device approval process with the Food and Drug Administration, 
which tends to retard the development of medical products 
which, after all, are manufactured goods.
    We need to make the R&D tax credit a permanent part of the 
IRS code, and the U.S. Patent and Trademark Office needs 
resources to speed up its activities.
    Mr. Chairman, I thank you for this opportunity to appear 
before you.
    Senator Voinovich. Thank you very much.
    Mr. Hawk, it is nice to have you with us today. I 
appreciate the fact that you and your team from Ohio were in 
Toledo when we had our listening session and then were willing 
to come to Washington and spend over an hour with Secretary Don 
Evans. I thought it would be important that you be here at this 
hearing so that the record will reflect your personal 
experiences and how small businesses are being effected by the 
global trade environment. I am glad you are here to speak on 
behalf of an Ohio based company to tell your story of how you 
have encountered some enormous burdens that you haven't 
experienced before in the life of your company. Thank you for 
being here.

 TESTIMONY OF TIM HAWK,\1\ VICE PRESIDENT AND GENERAL MANAGER, 
                      AMERICAN TRIM L.L.C.

    Mr. Hawk. Thank you. I would like to thank the Subcommittee 
for allowing American Trim the opportunity to present today. 
American Trim is a 50-year-old manufacturing business that 
supplies component parts and assemblies to the automotive and 
appliance industry. We stamp, decorate, and finish products 
that are seen and used in many households and vehicle systems. 
We employ over 1,500 families and operate facilities in four 
States. I am a third-generation owner-operator.
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    \1\ The prepared statement of Mr. Hawk appears in the Appendix on 
page 130.
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    Our company's tag line is, ``Forming the Future.'' I hope 
today our small company might have an influence on the 
formation and enforcement of future trade laws, policies, and 
practices.
    Today, I will provide an overview of why the U.S. 
manufacturing sector is losing jobs at an alarming rate. As you 
know, two million jobs have been lost and we have had 34 
straight months of manufacturing job loss.
    You have given me 5 minutes today and I will give you our 
company's ``2-cent'' perspective for why the loss and why the 
continued loss if action is not taken. Simply put, it is all 
about the other non-controllable costs that we are saddled with 
that makes us uncompetitive. This includes rising healthcare, 
environmental, OSHA, and basic utility costs.
    The part that I am holding up here has been made for more 
than 30 years. We have made over a billion of these. We have 
invested millions of dollars in high-tech automation to 
eliminate the labor cost to the manufacturing. My predecessors 
had the foresight to being and achieving the world's low-cost 
producer of this product. This product has two cents of labor 
content in it. Those costs include the labor to convert the 
metal from a flat piece of metal into a finished product and 
shipped to the customer.
    Competitiveness and the viability of this product in the 
lives of our people and employees is being challenged by the 
low-cost labor countries and their ability to buy and process 
commodities (steel) cheaper than us. We recognize that China, 
India, and Indonesia offer labor rates at 90 percent cheaper to 
the United States. We don't consider that a factor in competing 
with them due to the automation and the productivity levels 
that we currently achieve.
    I recently conducted a competitive bid process for that 
specific product. My goal was to understand the direct material 
and labor content associated with the product. Much to my 
surprise, material was 25 percent cheaper than what we could 
procure it for. The ability to start off with a 25 percent 
advantage to us is a bit alarming. I researched other materials 
and have found similar stories in different industries.
    The purchasing power parity (PPP) seems to be out of 
balance. I am by no means an expert on currency manipulation 
and its inter-relationship with PPP. All I can surmise is that 
the playing field is tilted away from fair trade.
    Now let us talk about the other costs besides material and 
labor. These costs are almost non-existent to low-cost labor 
countries. These include cost of healthcare, environmental and 
safety compliance,and utility costs.
    As a percent of revenue, our company operates at a 22 
percent cost disadvantage due to the unlevel playing field. As 
you can see, it is not necessarily about the two cents of labor 
in that part that is in front of me. It is all about all of the 
other cost drivers that we experience as part of it.
    There appears no end in sight for the ongoing cost 
escalation in healthcare and utility costs. Natural gas, which 
is used to heat our facilities and run our manufacturing 
processes, have increased 122 percent since 1998. Healthcare 
costs have risen 63 percent since 1999, and is approximately 5 
percent of total company revenue.
    The original equipment manufacturers (OEMs) have been 
developing strategies for sourcing products in China for some 
time. This includes the likes of General Motors, Ford, General 
Electric, Whirlpool, and Electrolux. They all have very lofty 
goals for China sourcing. Ford has a target of $10 billion 
within the next 5 years. How many businesses do you think will 
be lost to that?
    They have one simple message for us: Match the China price 
or else. The ``or else'' is being eliminated as a supplier and 
the continued creation of more job loss for Ohio. General 
Electric is in the midst of following through on the ``or 
else'' for our company, costing people their jobs and reducing 
the amount of taxes paid.
    The OEs are strategically organizing their China efforts. 
They are developing in-country beach heads and establishing 
very elaborate commodity filters for evaluating products. 
Products are screened or plotted on two dimensions. One 
dimension is of value added for labor and relative packaging 
density. Packaging density relates to the ability to ship many 
parts in a container. If they have a high labor content and are 
likely candidates for importing.
    I think we can all see why China is an attractive area and 
place to manufacture goods and why companies will continue to 
pursue sourcing goods in that region of the world. It is all 
about year-over-year cost reductions that are needed by large 
multinational companies. If there is nothing to do to level the 
playing field, small to mid-size manufacturing won't exist in 
Ohio.
    I was asked by a government official if we have plans to 
manufacture products in China. I responded, ``I thought it was 
about keeping and securing jobs in the United States and 
including the flow of taxes to the Government.''
    We are at a real crossroad and a heightened sense of 
urgency needs to take place. I stand here today wondering if 
anything will be done or if we will just watch another industry 
sector pass. I am a hopeful manufacturing romantic, but I 
realistically can't tell our employees that the future is 
prosperous and bright. Thank you.
    Senator Voinovich. Thank you for being here today.
    A couple of areas. You heard the testimony in response to 
my question about whether our trade agencies have the people to 
get the job done, and I think the National Association of 
Manufacturers, Mr. Duesterberg, and your organization, 
supported having an Assistant Secretary of Manufacturing.
    The issue is, in your opinion, are they moving fast enough 
in this regard. And from your observations, do they have the 
people that they need to get the job done? Also, do you think 
that the suggestion of evaluating the way our trade agencies 
are organized ought to be looked at? We can't even seem to 
agree on how many agencies are involved with trade negotiations 
and enforcement. And then having the Trade Representative 
reaching into the other departments for the expertise, from my 
observation, and I have been involved in this a long time as 
Governor of Ohio and very much involved in trade and export and 
so on, it just isn't working. I would like to have your opinion 
on that.
    Mr. Vargo. Mr. Chairman, before coming to the NAM, I had 
over 30 years at the Commerce Department in international 
trade. Several of those years, I worked for Assistant Secretary 
Duesterberg, who was a great boss.
    There is no question that certainly in USTR they haven't 
had the resources they have needed for years. We pushed very 
hard, and I want to give Representative Frank Wolf, who chairs 
the Commerce, Justice and State Appropriations Subcommittee, a 
lot of credit for his tenacity to get funding above and beyond 
what the administration asked for for USTR, and that is in the 
omnibus appropriations bill and I certainly hope that is 
approved by the Senate this week. That bill also, thanks to 
your efforts, contains the Assistant Secretary of Manufacturing 
position.
    So I think Commerce is moving in making plans. I know a lot 
of people in Commerce from my years, and they are certainly 
working on the plans to implement that, but they need the 
authorization and the money, which will be coming very shortly.
    So yes, I am satisfied with that. We are looking forward 
eagerly to Commerce's manufacturing report, which is coming out 
a little bit later than we had expected. What we want is a 
report with good hard-hitting recommendations, so we are 
looking for that.
    As far as the interagency process, my perspective is a 
little different because I came from the Commerce Department. I 
just don't think it is possible to have all the expertise in 
USTR. For example, what you really need in intellectual 
property, when you have the patent lawyers, the trademark 
lawyers, they are in PTO, the Patent and Trademark Office. I 
have not seen over the years a reluctance for those people and 
other experts in Customs and all the different agencies to work 
with the USTR.
    Sometimes the USTR complains that, oh, we are not getting 
enough support. Other times you hear complaints that, well, 
USTR is just not turning to us. Those are the minority of 
cases. By and large, I think the organization is there. It is 
the determination to move, the determination to act, both in 
terms of----
    Senator Voinovich. Do you think that the Assistant 
Secretary of Manufacturing is going to make--as I mentioned, 
the orchestra leader, do you think that is going to give them 
the zip they need to--I mean, you are talking about turnaround 
on the pliers and turnaround on this and turnaround on that. It 
just seems like it takes forever and a day to get anything done 
around here.
    If you look at some of the things that have been around--
intellectual property rights, for years China has violated them 
and, frankly, it seems they aren't doing anything differently. 
You just go one after another and it just doesn't seem like it 
is getting done.
    Mr. Vargo. It is not getting done, but the tools are there. 
It is just a determination to use them. Americans are nice 
people. We want to work on a cooperative basis with others. But 
now that we have rights, we got China into the WTO, we need to 
enforce those rights.
    The Assistant Secretary for Manufacturing, I think is a 
great idea. We support it. But there also needs to be high-
level interagency coordination and there needs to be attention 
of the White House to manufacturing.
    Senator Voinovich. So your attitude is that even though 
they are up to their ears in rattlesnakes in terms of new trade 
agreements, that some of the expertise that they are drawing 
from other departments, it is better they just leave them in 
those agencies and not bring them into international trade?
    Mr. Vargo. No, sir. USTR does need to be augmented, but not 
by all these specialists. For full disclosure, I should state 
that my wife is the Assistant U.S. Trade Representative for the 
Americas and she has 11 out of the 16 trade agreements that are 
going to be negotiated, so I never see her. I know they are 
understaffed. But the detailed support in the tariff analysis, 
in trademarks, etc., we would just be creating two people 
instead of one.
    Senator Voinovich. Are they getting the quality of people 
they need right now?
    Mr. Vargo. They are.
    Senator Voinovich. They are? Are they holding the people 
they have?
    Mr. Vargo. They are, remarkably so, so many dedicated 
people in the career service, in Commerce, in USTR and other 
agencies. I was really proud to have been a part of that. But 
that is not to say they don't need more resources. They have 
needed them for years. The omnibus bill just kind of makes up 
for the deficiency of the last few years, and that will do for 
right now, but NAM is going to keep pressing for more in the 
next budget cycle.
    Senator Voinovich. We are really trying now with these new 
human capital flexibilities. As you know, I have been working 
for 5 years to give these departments more flexibilities in 
keeping the people that they have and dealing with some of the 
systemic problems that they have and then trying to attract 
more people into them, and I am hoping that is going to help 
them do a better job with shaping their workforce so----
    Mr. Vargo. Mr. Chairman, it will.
    Senator Voinovich [continuing]. They can get their job 
done.
    Mr. Vargo. It will, but the main thing is, we have to be 
willing to use the new rights that we have under the WTO and 
these individual trade agreements.
    Senator Voinovich. How long do we give them to find out?
    Mr. Vargo. I think we are there.
    Senator Voinovich. What does that mean? A month from now? 
Two months from now? Three months from now?
    Mr. Vargo. I think we are talking----
    Senator Voinovich. How about the 301?
    Mr. Vargo. Well, the NAM is in with quite a few other 
associations and the AFL-CIO. We don't see eye to eye with the 
AFL-CIO on everything, but we do on the currency and it has got 
to move forward. So we are developing a 301 case. I heard 
Charles Freeman, who is a good friend of mine, say, well, we 
haven't seen the legal basis, and that is true, but we are 
developing the legal basis.
    Senator Voinovich. I want to help you with that.
    Mr. Vargo. Thank you, sir.
    Senator Voinovich. They should move forward and do it, and 
I know that with some of your members, the 201 was a little 
controversial, but the fact of the matter is that a lot did 
occur positively as a result of that. Now they have terminated 
it, but I think we were entitled to do that.
    Mr. Vargo. We were.
    Senator Voinovich. And if we don't use what we have, then 
you are going to see a lot of stuff coming out of Congress.
    Mr. Vargo. Well, we owe it to a lot of our members, 
including Mr. Hawk, who is a fine member of the NAM, to get the 
job done.
    Senator Voinovich. Yes.
    Mr. Duesterberg. Mr. Chairman, could I comment just 
briefly? I want to reiterate the importance of something Frank 
Vargo said about interagency coordination, especially with 
regard to the new position of Assistant Secretary for 
Manufacturing.
    That position simply isn't going to work unless it has the 
ability to command the resources of other agencies through an 
interagency process. That is why I am interested in your 
suggestion that the position report to the President. At a 
minimum, some interagency process which gives the Assistant 
Secretary for Manufacturing clear authority to command the 
resources of other agencies, perhaps in a fashion similar to 
USTR now is able to coordinate trade policy, is, I think, a 
necessity for that position to work.
    Senator Voinovich. Let me tell you something. I think it 
has that priority. It deals with our economic security and it 
deals with our national security. The $64,000 question, Mr. 
Hawk, is how do we deal with this? It is not a level playing 
field.
    The Chamber of Commerce and Tom Donahue and John Sweeney 
about a year or so ago had a press conference and said the 
healthcare system is broken. I mean, we have got people 
competing in the global marketplace with competitors that don't 
have healthcare costs. We have it right here in this country. 
Honda in Ohio competes with the Ford Taurus on their Accord. 
They have $1,750 less cost because they don't have the legacy 
costs that Ford Motor Company has.
    And then the next issue is the subsidy in terms of steel 
and the behind the scenes, the loans that are never--in Korea, 
the banks, the auto companies, and the steel companies are all 
in bed together. It is just we are dealing with it, and somehow 
we have to figure out how we can level that playing field.
    The environmental costs. As you may know, I have been 
fighting very hard to try and make sure that we don't go crazy 
in terms of some of the things that we want to do, eliminate 
coal, for example, and force us into natural gas. I keep 
telling my colleagues, if we put manufacturing out of business, 
and we will do that if we force all utilities to go to natural 
gas, which will exacerbate their heating costs, their electric 
costs--these jobs are going to another country, and the 
countries they are going to don't have the environmental laws 
that we have.
    It just seems like there is a disconnect in this country 
about what is going on out there. We are still back 50 years 
ago when we were king of the mountain and we didn't have the 
competition.
    You can't answer that question today, but I would like to 
have another hearing on the issue of how do we level the 
playing field. What things do we need to really direct our 
attention to to see how we can compensate for the fact that we 
are in a different environment than we were many years ago?
    And also we need to look at the other issue of how much 
capacity do we need to have for our national security. I keep 
going into plant after plant. I ask them, where has this 
equipment been made? Italy, here, there, somewhere else. How 
come it is not being manufactured in the United States? It was 
that way when I was governor and today it is even worse. How 
far do you go? Do you just lose your machine tool business? I 
don't think we can do that. And somehow within the framework of 
all of this we have to figure it out. This is a challenge that 
we need to deal with.
    Mr. Hawk. Mr. Chairman, when 80 percent of our selling 
price to our customers is wrapped up in material, if the 
Chinese and the other countries have an advantage to either 
manipulating their currency and an ability to purchase 
material, we are never going to be able to compete. The small, 
the medium-sized manufacturers, which we are, will all be gone. 
It is just a matter of time. And that is why the issue of 
urgency and being able to do something about currency and about 
any subsidies that may be happening and enforcing it. It is 
similar to having speeding laws and having no police officers 
out on the road to control and to monitor what is going on.
    Senator Voinovich. And you can see this is a member who----
    Mr. Vargo. Absolutely.
    Senator Voinovich [continuing]. They want action and I want 
action.
    Mr. Vargo. And they deserve it.
    Senator Voinovich. They deserve action.
    Mr. Vargo. We do, too.
    Senator Voinovich. There is just too much talk, and they 
are concerned, and----
    Mr. Vargo. If I could observe, though, Mr. Chairman, the 
first step in solving a problem is to know you have got a 
problem, and I do want to give Secretary Evans great credit 
under Secretary Aldonas at Commerce. The bus tours they took 
around Ohio, Michigan, Indiana, other States, they came back 
and they really understood to a degree they had not before that 
this is a serious problem for the United States.
    So the first steps are being taken, but we can't let it go 
at that. Everything in this book, healthcare, energy costs, 
none of these are simple problems. That is why they haven't 
been dealt with. But I hope what we are seeing now is the 
urgency of understanding, difficult as they are, we have to 
solve them or, I will go back to what I ended my statement 
with, you can just hang out a sign saying, ``Manufacturers not 
wanted.''
    Senator Voinovich. I want to thank you for being here. I 
think you played the case out. I think that you ought to know 
that this Senator is going to monitor this issue on a day-by-
day basis. I am looking forward to your coming in to see me. I 
am interested in thoughts of how we can deal with this problem.
    And last but not least, Mr. Vargo, I would like to talk to 
you and Jerry about the issue of some of your members, with 
their declarations to people like the folks from Lima, Ohio, 
about you are going to outsource this overseas. They are doing 
it to compete in the international marketplace, but they are 
destroying American jobs and to the extent that they may do 
well for a period of time. But if we lose our infrastructure, 
then who is going to provide the competition and are they going 
to end up in a situation that they don't want to be?
    I think that in the manufacturing community, you ought to 
get the manufacturers, you have to get the Chamber, you ought 
to get the Business Roundtable, you ought to get in a room and 
start batting this back and forth about what are we doing. Do 
we not care anymore about the future of the country? Are we so 
interested in our bonuses in the next 4 years so I can make a 
big salary and retire and let somebody else worry about it?
    I am really concerned about it. I am concerned about the 
environment in this country today. I am worried about my kids 
and grandkids. Are they going to have the same standard of 
living that I have been able to have? Is this young man going 
to go out of business? How many years have you been in 
business?
    Mr. Hawk. Fifty years.
    Senator Voinovich. Fifty years. Are they going out of 
business? That is the problem today. And these other guys with 
the big multinationals ought to be thinking about some of these 
people.
    Mr. Vargo. Mr. Chairman, if I could comment, multinationals 
get a bum rap with too many people feeling--I am not saying 
that includes you, Senator--that they don't care about America, 
they don't care about producing here. It is not so. They are 
under enormous international pressures because of things like 
the overvalued dollar, the unlevel playing field. We have to 
address all of those. Believe me, American companies want to 
stay in America.
    Senator Voinovich. OK, but the fact of the matter is that 
the answer to it is to get down and fight here----
    Mr. Vargo. It is.
    Senator Voinovich [continuing]. Not say, oh, we can't do 
anything about it.
    Mr. Vargo. Right.
    Senator Voinovich. Let us fly the coop. Let us take care of 
my next 5 years and let somebody else worry about this. Let us 
get them in a room now and say, look, we have got to do 
something about litigation. We have got to do something about 
healthcare. We have got to do something about environmental 
regulation. We want a good environment, but it has got to be 
balanced. We have to do something about the fact that some of 
these countries are competing with us and they subsidize the 
dickens out of their products so, in effect, we can't compete 
with them. Those are the things.
    Mr. Vargo. Mr. Chairman----
    Senator Voinovich. Get them on a piece of paper and deal 
with them and don't say, well, I am going to run away and let 
these poor other guys worry about it. I am OK.
    Mr. Vargo. That is exactly right, Mr. Chairman. We look 
forward to working with you on that.
    Senator Voinovich. Well, thanks very much for being here.
    I want to make one point, that the record will stay open 
because some of my colleagues may have questions that they want 
answered, so I am going to leave it open and you may be getting 
some requests from them to submit answers to their questions.
    Thank you. The meeting is adjourned.
    [Whereupon, at 12:03 p.m., the Subcommittee was adjourned.]

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